Lobbyists' duel over lottery contract tests state procurement

THE BALTIMORE SUN

"I seen my opportunities and I took 'em."

--Tammany Hall Boss George Washington Plunkitt, explaining what he called "honest graft."

Annapolis

Boss Plunkitt might have us believe he waited for opportunities to arise. The possibility exists, of course, that he created them and then took advantage. What's the point of being a boss otherwise?

Given the propensity of politics to assert itself in alarming ways, advocates of good government have passed laws and set policies over the years to give everyone the same opportunities and the same ability to take advantage of them -- to eliminate contradictions in terms such as "honest graft."

The idea was all-American: Rely on laws, not on men; establish good processes and apply them with good judgment.

Maryland's procurement law, passed in 1981 after ten years of embarrassing disclosures about how business was done in this state, is a good example of such a process. Spiro T. Agnew had resigned his vice presidency in disgrace amid charges of favoritism and kickbacks in the award of contracts in Maryland. Then-Transportation Secretary Harry R. Hughes alleged in 1977 that then-Gov. Marvin Mandel succumbed to political favoritism in the awarding of huge subway contracts.

A new process seemed imperative. And since the new procurement law was passed, hundreds of millions of dollars' worth of goods and services have been purchased quietly and efficiently by the state without a hint of scandal.

Recently, however, with a clutch of lobbyists seeking to create or retain opportunities for their clients, the state's attempt to buy $75 million worth of computers for the State Lottery Agency has been leveraged out of the procurement process and may now be caught in the toils of politics.

Gov. William Donald Schaefer, responding to complaints from lobbyists and legislators, appointed two blue-ribbon panels to review the bids, changed some of the bid specifications and made the Board of Public Works responsible for the final decision.

Some of the participants believe Mr. Schaefer over-reacted, changing the process materially by making himself and other members of the board responsible for substantive procurement decisions -- as opposed to approving the decisions of others or returning that decision for further consideration by the procuring agency. The distinction may seem abstract, but the reasons for the process are practical and pragmatic.

In a sense, the governor is always the final authority in such matters. Mr. Schaefer's spokesman, Paul E. Schurick, says the changes represent merely an extension of the current system. Mr. Schaefer says he wanted to de-politicize the process and insulate it from charges that favors were being done.

That, of course, was the objective of the 1981 law which sought to:

* Provide an orderly process for procurements, setting forth responsibilities of the state and the vendors.

* Establish appeal procedures;

* Keep substantive decisions in the procuring agencies;

* Set up a Board of Contract Appeals to settle disputes.

Intrinsically political entities such as the Board of Public Works -- run by the governor -- were deliberately kept out to prevent even the appearance of interference.

The objectives were clear: If vendors have confidence in the system they will compete for the state's business. And competitive bidding is relied upon to produce the lowest cost for the state and its taxpayers.

So what happened with the Lottery computer deal? Why was it removed from the comforting embrace of the law?

Bruce C. Bereano and Alan M. Rifkin happened.

Mr. Bereano, the highest paid lobbyist in Annapolis and its most active political fundraiser, represented a computer company called GTECH of Providence, R.I. GTECH wanted the lottery business -- owned then and now by Control Data Corp. represented by Mr. Rifkin.

Control Data has held the computer contract for nine years. Its position, Mr. Bereano said, gave it an unfair position as a competitor for a new generation of computers.

"It is absolutely naive to think that a user agency like the Lottery would act in an impartial way. If for nine years you're going to the same coffee machine and the same water fountain with a company's representative, you have a pretty close relationship. You risk an outcome that is not in the best interests of the state unless you take the procurement out of that agency's hands," he said.

Lobbyist Bereano set out to do precisely that. His efforts illustrate the degree to which lobbyists create opportunities for their clients. In this case -- since he had to dislodge a competitor -- he called it "cracking the egg."

"He should remember what happened to Humpty Dumpty," said Gerard Evans, Mr. Rifkin's law and lobbying partner.

Mr. Rifkin and Mr. Bereano were closely connected politically to the Schaefer administration. Mr. Rifkin, the governor's former legislative officer, had connections with the lottery agency through a law partner, former judge Edgar Silver: the Lottery Agency's director, William Rochford, is a close friend of Mr. Silver's. Mr. Bereano attempted to trump this play by hiring former Governor Mandel as a co-lobbyist for GTECH.

For the next year, Mr. Bereano kept at his task. He suggested to legislative committees that the lottery's computers were outdated -- and that the lottery's management was responding lethargically. When he began his campaign, lottery revenues were down -- an opportunity which Tammany's Plunkitt might not have recognized but which Mr. Bereano saw as real leverage: New computers could pump lottery revenues to their rightful levels, he argued. (Lottery revenues have since exceeded earlier levels -- without new computers.)

A procurement controversy of this sort has been infrequent if not unheard-of in other state agencies. But it worked with the Lottery for a number of reasons: the amount of money involved, $75 million; the difficulty in evaluating computer equipment; the amount of money the lottery earns for the state; and questions about the competence of the Lottery Agency, itself -- which made some legislators believe intervention was essential to safeguard the state's interest.

When the pressure generated by Mr. Bereano peaked, Governor Schaefer took his first action. He ordered the agency to hire a consultant to analyze the computer needs and recommend a vendor.

Ultimately, however, Mr. Bereano and legislative leaders such as Delegate Timothy F. Maloney, D-Prince George's, concluded that the Lottery had not used the firm it hired. When the official request for bids was issued, Mr. Bereano howled again: The specifications were stacked for Control Data, he said. Mr. Schafer intervened a second time and, on his own, changed the specifications. The egg had been cracked. So the Humpty Dumpty fall was being taken by Control Data.

Matters reached such a pass recently that the company filed an official protest of Mr. Schaefer's revisions of the procurement process. Since Mr. Schaefer has a decided lack of fondness for being sued or challenged in any other way, the company took a calculated risk.

"The state's interests . . . are best served by a uniform process which encourages vendors and prospective vendors to rely on lawfully stated procedures, not one which signals, perhaps inadvertently, the return of unknown standards and changing directives," Control Data said in its protest.

Mr. Bereano argued again that this procurement could not be left to the law. The law, he says, does not account for situations in which there is a resident vendor.

This month, GTECH and Control Data submitted their bids. The governor's panels will evaluate them. Further protests could follow, depending on the outcome. Given the state's current $242.6 million deficit and lagging tax revenues, Mr. Schaefer may choose to delay this purchase until the economy rebounds. That would leave the computer contract with the current vendor, Control Data.

For Mr. Bereano, the poor economy is just another opportunity, He may be expected to argue now that an expanded lottery system -- made possible by new computers -- will produce more of the revenue needed to balance the state's books.

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