One bid for lottery contract -- UPDATE | Arkansas Blog

Thursday, July 23, 2009

One bid for lottery contract -- UPDATE

Posted By on Thu, Jul 23, 2009 at 2:59 PM

Bids were opened today for the "on-line" or computer operating end of the Arkansas Lottery. Make that bid, singular.

The only bid came from Intralot, the Greek company that has the current contract to do the same work for the South Carolina Lottery. Ernie Passailaigue, director of the Arkansas Lottery, previously headed the South Carolina lottery and several of his top employees have been hired away from there.

GTECH, a major lottery player based in Providence, R.I., says the process was unfair. The company tok the unprecedented step, for it, of not bidding on the contract. Scientific Games, another major international lottery company, also declined to bid after initially expressing interest.

GTECH said too much emphasis was placed on price and the one-week evaluation period was far too short for the thick notebooks full of information necessary to make an "on-line" lottery proposal.

A lottery spokesman said Scientific Games sent a letter stating the following, “Based on an assessment of our scheduled or planned online business initiatives over the next ninety days, Scientific Games has made the business decision to allocate its resources to these initiatives and not submit a proposal in response to the online system RFP.”

The specifics of the single bid that was submitted won't be revealed until after an evaluation to see if it met specifications. Passailaigue said he'd then tell the public what the proposed price will be. He said he wasn't concerned that only one bid was received and said he was focused on getting a fair deal for Arkansas taxpayers.

I'd heard  prior to the bid opening that major international lottery players, including GTECH, wouldn't bid. The issue that irked GTECH could be a factor in another coming major contract for advertising. Apparently four agencies are going to compete for that business -- based on questions that have been submitted about the RFP. Advertising could be a $4 million a year piece of work.


Here's  the story on the controversy in bidding for on-line operations -- ">a letter from GTECH, which has handled recent startup lotteries in other states, including North Carolina, on why it did not bid. It asked that this RFP be junked and the process begun anew, which isn't likely to happen. Its objections are detailed, but they include that the commission set a 100-point scale for evaluating proposals while other lotteires have had point scales up to 2,000, and that too much emphasis -- 50 points -- was put on price. GTECH said more emphasis should be placed on the  criteria necessary to achieve the early startup lottery officials want. GTECH also objected, among others, to the short review period.

Bob Vincent, a spokesman for GTECH, said in a phone interview that there was a fundamental inconsistency in the request for proposals. There was emphasis on a quick startup, which would require more people, more time, more costs, but an undue emphasis on price, he said

“It was extremely disappointing and unprecedented,” Vincent said. “It’s the first time we have not bid on a new lottery jurisdiction. It was not something we looked at lightly. … But we just came to a conclusion this was a fundamentally flawed evaluation process.”

I asked Passailaigue in a phone interview if he was disappointed to get only one bid. “We had three people who could have bid,” he said. “They did what they thought was in the best interests of their private businesses. We did what was in the best interest of the people of Arkansas.”

To GTECH’s complaint that too much emphasis was placed on a low price, he said, “I knew from GTECH’s original questions that they disagreed. But the one thing I’ve found out in Arkansas is that cost matters. Maybe GTECH ought to get some of our press clippings.”

He added: “What if I had weighted the cost lower and the highest cost proposal was awarded? What do you think would happen out here when the people of Arkansas found that out?”

In South Carolina, the original on-line contract went to Scientific Games. It was put up for bids again in 2008 and Intralot won the competition. Passailaigue said the bid there was awarded on cost – not percentage of sales as it will be in Arkansas and most states – and Intralot bid about $67 million for a seven-year contract. In the fairly new North Carolina lottery, GTECH bid 1.5999 percent of combined lottery sales. A percentage in that range could be worth $6.5 million a year if Arkansas hits Passalaigue's hoped-for $400 million or more in sales.

The fact that the sole bidder here was South Carolina’s provider shouldn’t be a cause for concern, Passailaigue said. “This was submitted according to the procurement laws of the state of Arkansas and I don’t think this will be protested.”

He said he’d been satisfied with Intralot’s work in South Carolina, but added, “I like GTECH and I like Scientific American. They’re wonderful people. They may bid on the instant ticket contract and I hope they do. But great people sometimes have goals that are not congruent with each other.”

Passailaigue repeated his mantra, that the proof of the operation will be in money for scholarships and an early startup puts more money into that process. He said there remained a possibility that the lottery could start even earlier than the projected Oct. 29 start date. "It could mean tens of millions of new scholarship dollars and we could not do it if we had not negotiated these contracts and did it the way we did it.”

A similar dynamic could emerge on another high-dollar lottery contract -- for advertising. Questions have so far been received from four agencies -- the Ramey Agency, GWL Advertising, The Communications Group and Craig Douglass.

The advertising proposal again allots 50 percent of the basis for awarding the contract to cost.

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