Losing bidders protest $262 million lottery contract

A losing bidder for an 8-year contract to runs the state lottery's network is protesting.

Two losing contenders for a contract worth as much as $263 million for the computer network that runs the Maryland lottery are protesting a decision to award the business to a rival, charging that a state agency chose the highest bidder after a tainted process.

Lanham-based Gaming Innovations LLC and London-based IGT Global Solutions filed the protests with the Maryland State Lottery & Gaming Control Agency after the agency awarded the eight-year contract to Scientific Games International of Las Vegas.

Both losing bidders charge that the agency made "arbitrary and capricious" choices in evaluating the bids in a way that favored the incumbent vendor.

Contracts between the lottery agency and its prime computer contractors are lucrative and have faced questions of improper activity in the past, including an award in the 1990s that prompted a federal investigation.

This week, losing bidder Gaming Innovations, a joint venture with African-American top management, said the lottery agency showed "undeniable bias" against awarding the contract to a minority business enterprise. It said the agency refused to give the joint venture credit for the experience of its two members, which together run the D.C. Lottery.

And IGT has accused the agency of improperly trying to run up the contract's long-term value in an attempt to minimize future oversight by the state Board of Public Works. The company said the agency did so by requiring bidders to include in their proposals the cost of providing services that aren't currently legal in Maryland, including internet sales of lottery tickets.

A spokeswoman for the lottery agency defended the awards process, saying it "was conducted with the highest standards of independence, integrity and adherence to the law."

Doug Mayer, a spokesman for Gov. Larry Hogan, declined to comment. He said the governor's office will take a look at the contract if it comes before the public works board.

The lottery agency decided last month to award the contract to Scientific Games, which entered a "not to exceed" bid of $263 million. That is roughly $50 million more than Gaming Innovations bid and $25 million more than IGT.

A not-to-exceed contract sets a ceiling for spending under the pact. The total amount spent could prove to be less.

The agency ranked Scientific Games highest in its technical score, which reflects its judgment of a bidder's ability to do the job. IGT ranked second and Gaming Innovations third.

Bid protests to the agency that awards a contract are almost always denied, but they are a necessary first step before a challenger can bring a case before the Maryland State Board of Contract Appeals, an independent agency with the authority to overturn procurement decisions. The protests could delay the planned June 2017 transition to a new contract for months if they go to appeal, but they are not expected to affect lottery operations.

The winning vendor will supply the machines retailers use to sell lottery tickets and the networks that connects sales outlets to the agency.

IGT alleges that lottery officials told them the bid request included internet lottery sales because the agency wanted to avoid further "burdensome" review by the public works board if lawmakers were to approve an expansion of gambling in Maryland to include lottery ticket sales over the internet.

According to the company, agency officials said seeking board approval of a contract modification to include such capacity could bring lottery operations to a "screeching halt."

The notion of allowing gambling on the internet via lottery ticket sales has won few friends in the General Assembly.

"I'd say we're strongly opposed," said Sen. Edward J. Kasemeyer, who chairs the Senate Budget & Taxation Committee. The Howard County Democrat questioned whether they agency should be taking steps in that direction without lawmakers' approval.

Ellen Valentino, a lobbyist who represents service station and convenience store owners, said her clients are concerned about a possible "cannibalization" of their lottery sales at a time when the state's casinos are already taking a toll.

Lottery director Gordon Medenica played down the agency's interest in internet lottery sales, saying that based on results from other state the revenue potential is "modest."

"More importantly, we recognize that our retailers are highly skeptical of internet sales," Medenica said in a statement. "And since we value our partnership with our retailers so highly, we would never initiate an internet sales program without their full acceptance and cooperation."



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