Texas lottery officials move ahead with bidding

By Kelley Shannon
Associated Press Writer / March 9, 2010

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AUSTIN, Texas—Bidding on a new lucrative Texas lottery contract should move forward because there's no evidence that state consultant Gartner Inc. and the lottery's current operator GTECH Corp. improperly shared information about the process, a lottery official said Tuesday.

A review of the two companies' relationship found "no evidence of any actual conflict of interest," executive director Gary Grief told lottery commissioners. He said bidding would proceed on the timeline he laid out last month. Companies will have until May 27 to submit proposals.

Whichever company wins the new contract could reap as much as $100 million per year in payments from the state.

Meanwhile, state legislators are deciding whether to conduct hearings to investigate the Gartner-GTECH relationship. Grief has provided answers to written questions from Rep. Delwin Jones, a Lubbock Republican assigned to lead a House subcommittee on the matter.

Gartner was helping Texas write lottery bid specifications for an upcoming multiyear contract. At the same time, it was doing contractual work for GTECH, which is expected to compete again for Texas' contract. Other companies also are interested in Texas' big lottery contract. One of those, Intralot Inc., which won a major contract in Arkansas last year, has called for a third-party investigation of the Gartner-GTECH dealings.

"Given the actions at today's hearing and what I've seen and read from previous testimony and internal e-mails ... I will recommend to my client not to bid on this contract," said Wendell Moore, a consultant who represents Intralot. But he said the company hasn't made its decision yet.

Scientific Games and Camelot Group have also expressed interest in Texas' contract. Scientific Games, the current instant ticket provider for the Texas lottery, is "seriously considering a bid," spokesman Tom Hodgkins said. He said it was inappropriate to comment further.

GTECH has the current 10-year lottery operator contract for Texas, where the games generate some $3.7 billion in sales per year. The company keeps a percentage of sales, and in the last fiscal year it was paid $101 million by the state.

For two months questions have swirled about whether GTECH has an unfair advantage in the new bidding because of its connection to Gartner. Both companies insist there was no wrongdoing. GTECH's chief executive testified at last month's lottery meeting and apologized for the trouble caused by his company's contract with Gartner, but said the two did not share any information about the Texas lottery.

The Texas Lottery Commission abruptly ended its contract with Gartner in January, having already paid $1.33 million of the $2.4 million total fee. Grief said the lottery is trying to get Gartner to repay that money to take responsibility for the "damage and inconvenience" caused during the bidding process. A letter from Grief to Gartner said the lottery has suffered "extreme public embarrassment" because of the company's actions. So far there is no repayment agreement.

Gartner representatives attended Tuesday's commission meeting and previously submitted records requested by the commission. The company stated that its employee affidavits "confirmed that there was no communication whatsoever" between Gartner employees who were working with GTECH and those who were working with the Texas lottery on its request for bids.

Gartner officials left Tuesday's meeting without further comment.

Lottery Commissioner David J. Schenck said he doesn't believe there was malfeasance by Gartner, but that there was a costly mistake.

"No one has a right to a perfect process," he said.

Moore, the consultant for Intralot, took issue with that.

"Do we at least have a right to a fair and untainted process?" Moore said.

He noted that New Jersey decided in 2006 to rebid its lottery contract because of concerns that lobbying firm MWW Group was doing public relations work for the lottery while working for GTECH as a lobbyist. The state said it wanted to avoid an impression of a conflict of interest.

In Texas, Moore said that in its request for bids the lottery placed an unusually low priority on the price it would pay for the winning contract. He said other companies can be more competitive with GTECH on cost, and that would leave more money for state coffers.

(This version CORRECTS that $1.33 million paid to Gartner so far based on newly released documents).)