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N.J. Lottery throws out GTECH contact

Oct 21, 2006, 11:53 pm

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New Jersey Lottery

State to rebid lottery deal as lobbyist concerns arise

Seeking to erase concerns the state's long-time lottery vendor might have enjoyed an inside edge in winning its latest contract, New Jersey state treasurer Bradley Abelow announced yesterday the state will rebid the job for the third time in 15 months.

Abelow ended special hearings that have been going on before former state Supreme Court Justice Daniel O'Hern Jr. and said the department will move "quickly" to solicit new bids.

During those hearings, GTECH Corp., the previous winner and operator of the state's lottery since 1984, was trying to prove the original bid was legitimate. Scientific Games, the loser and GTECH's main industry competitor nationally, challenged it on ethical and technical grounds. Abelow had ordered the hearing in August to get an independent review of the bidding process.

After several days of hearings, Abelow said he concluded it would be impossible to convince the public MWW Group didn't influence the Lottery Commission in GTECH's favor.

Until April, MWW worked for both the Lottery Commission, doing lobbying and public relations, and GTECH, as the company's lobbyist.

Abelow said the hearings made clear MWW officials may have discussed with GTECH officials strategies to put GTECH in a better position to win the lottery contract. GTECH and MWW officials previously have said they were careful to avoid doing anything that compromised the process.

"In the context of the award of a multiyear, multimillion-dollar contract to operate a two-billion-dollar-a-year operation, the integrity of the lottery cannot be placed into question," Abelow said.

The treasurer not only ordered a new round of bids, but also put in place procedures that will create a more open and fair bidding process "free from outside influence and any apparent or real conflict of interest."

The news predictably distressed GTECH officials.

"We were surprised and disappointed," said Robert Vincent, spokesman for GTECH. "This is unfair and really makes a mockery of this entire process."

However, Hersh Kozlov, attorney for Scientific Games, GTECH's main industry competitor and the losing bidder up until now, applauded the treasurer's action.

"We are pleased with the outcome," Kozlov said. "A full and fair and open competitive bidding is all we asked for. And we look forward to participating in that process."

In July 2005, GTECH bid $142.5 million for a five-year contract; Scientific Games bid $75 million. Treasury department officials later declared GTECH's proposal technically superior but asked each bidder to submit a new "best and final offer."

GTECH bid $106.7 million, Scientific again submitted a $75 million bid. GTECH won the second bid in November 2005.

Because the five-year lottery contracts may be renewed for an additional five years if there are no problems, the difference between the high and low bids, over a decade, would amount to $63 million. Despite a chronic state budget crisis that made the low bid tempting, GTECH convinced state officials it uses more reliable, state-of-the-art technology that is worth the higher price.

After a protest by Scientific Games, the state ordered the hearing before O'Hern while temporarily extending GTECH's contract until Dec. 2007. During the hearings, Scientific Games contended GTECH's advantage is exaggerated while contending GTECH received preferential treatment because of its connection to MWW.

Testifying as a paid expert for the challenger, former state Attorney General John Farmer, Jr., said he was convinced MWW had at least an appearance of a conflict of interest, even though he found no evidence of an actual crime.

In canceling the hearings, Joel Sterns, GTECH's attorney, said he felt the state "called the game before we got a chance to bat." He was preparing to submit testimony from two national ethics experts rebutting Farmer's testimony.

But O'Hern, in a letter to Abelow, said he agreed with the decision to rebid the contract and stop the hearing. Further testimony would not have dispelled doubts over the potential MWW conflict, he said.

O'Hern said he found no evidence of "actual wrongdoing" by anyone and "I believe that all acted with good intentions." He added, however, that it may have been an "error of judgment" to believe MWW could work for both GTECH and the Lottery Commission without tainting the contract.

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