Part 2 of a 3-part look at the New Jersey Lottery
A month after a new contract to operate the New Jersey's lottery was supposed to begin, officials still have not determined whether to go with a new company that bid about $75 million for the five-year pact, or the existing operator which bid nearly $32 million more.
Last fall, the state awarded a new five-year contract to GTech Corp., which bid $106.7 million. With a bid $31.7 million lower, Scientific Games filed a protest saying the state skewed bid proposals to keep GTech.
The matter will now be decided by former state Supreme Court Justice Daniel J. O'Hern Jr., who was appointed hearing officer by the state. O'Hern will be paid up to $60,000 to adjudicate the matter.
It's not known how long it will be before the matter is resolved, but GTech received an 18-month extension of the contract that was supposed to end June 20. In the interim period, GTech will receive $38 million.
In a fiscally troubled state, this matter with tens of millions of taxpayer dollars at stake has proceeded largely behind closed doors with little attention.
"This is still in essence a closed procurement," Department of the Treasury spokesman Tom Vincz said. "This is a procurement process that's still running its course. It was awarded, but there was a challenge and protest and a review process that ensued. And that review process, which is an internal procurement process, is still continuing."
A spokesman for Scientific Games declined to comment on the ensuing hearing; a spokesman for GTech did not return phone calls after O'Hern was named.
Scientific Games contends the state illegally asked for a best and final offer after GTech originally came in $67 million higher, made inaccurate statements about Scientific Games and the potential risks of switching companies and did not consider the effects of GTech's pending merger with Lottomatica, an Italian lottery company.
In Texas, another state contracted with GTech to run its lottery, an investigation is ongoing in light of the Lottomatica merger.
The Texas Department of Law and Public Safety released a report last week full of questionable dealings by GTech to get lottery contracts in other countries.
The report's findings include a loan to finance a sports stadium in the Czech Republic, large consulting contracts to the politically connected in Poland and a suspicious money transfer in Brazil.
Texas officials found no criminal wrongdoing but expressed concern at a recent commission meeting.
"There are concerns that this report does raise with respect to the methodology that GTech has apparently employed in the past," said David Mattax, chief of the financial litigation division in the Office of the Attorney General in Texas, according to meeting transcripts. "This Lottery Commission should watch and should basically caution the new owners, frankly, of GTech ... that we will be watching this."
New Jersey Lottery spokesman Dominick DeMarco did not respond when asked whether New Jersey's commission is conducting a similar review.
Spokesman Mark Perkiss of the state Department of the Treasury, which includes the New Jersey Lottery, said the Texas report is being reviewed.
"New Jersey is participating with 27 other states in a joint due diligence process," Perkiss said. "We are reviewing the report to the Texas Lottery Commission, and it is our intention to ensure the report is transmitted immediately to the hearing officer conducting a review of the lottery contract award.
"We have a longstanding commitment to ensuring the integrity and efficiency of the New Jersey Lottery, and will take all necessary steps to preserve the Lottery's reputation," Perkiss said.
In November, New Jersey justified going with the higher bidder in a report by a evaluation committee that said GTech's system was more reliable and secure. The committee -- comprised of representatives of the lottery, the Treasury Department, the Office of the Attorney General and an independent expert -- scored the companies on several factors including software control, staffing, and games and marketing.
Out of 6,000 possible points, GTech outscored Scientific Games 5,079.5 to 3,885.
Scientific Games also complained of a conflict of interest between GTech and the New Jersey Lottery because each has retained the MWW Group, a politically connected public relations and lobbying firm.
MWW, which collected more than $84,000 as a lobbyist for GTech last year, was in the midst of a three-year, $990,000 advertising and public relations contract with the lottery. But with two months left in the contract, the lottery severed ties with the firm on April 19.
"The lottery determined that it was better able to utilize existing staff to meet the promotional needs of the agency and opted to perform the same functions in-house," said Vincz, adding the state was not penalized for ending the contract early.
The move was part of Gov. Jon S. Corzine's attempt to cut spending by using in-house staff instead of outside firms. MWW's role was to promote the lottery, and the company had a full-time worker in the lottery office to handle press releases on winners and special events.
The firm also had a contract with the Department of Human Services that netted it $4.1 million in less than two years. That contract lapsed for budgetary reasons on May 25.
The disputed contract to run the lottery covers operating and maintaining the state's network of 6,200 lottery machines. Though it had the higher bid, GTech would receive less money under its proposal than it had in recent years; the old deal gave GTech about $29 million per year, while its proposal was for about $21.3 million annually.