Questions on keno prompt scrutiny of 1991 contract GTECH agreement led to no-bid award

December 14, 1992|By C. Fraser Smith | C. Fraser Smith,Staff Writer

The ease with which GTECH Corp. secured a no-bid, $49 million contract to bring keno to Maryland shows why major firms fought so fiercely three years ago to supply computers and marketing expertise to the State Lottery Agency.

The winner of the first contract, they knew, would be in a strong position to claim profitable, add-on lottery games on the grounds of familiarity with the state's system.

Now, that contract is the focus of a federal probe. On Saturday, the U.S. attorney for Maryland, Richard D. Bennett, announced he would refer the matter immediately to a federal grand jury for investigation.

Lottery officials defend their recent decision not to seek competitive bids for keno by arguing that any competitor of GTECH "would have to invest a significant amount of time and money to duplicate part or all of the [GTECH] system." The costs, they say, would be passed on to the state.

Therefore, lottery officials argue, Maryland's interests were best dTC served by negotiating a deal for keno with its current vendor, GTECH of West Greenwich, R.I.

Keno is a bingo-like lottery game that will be played beginning Jan. 4 in outlets such as bars and restaurants. It will be available from 6 a.m. to midnight every day of the week.

Gov. William Donald Schaefer defended the lottery's reasons not to rebid the original contract in interviews last week and in an op-ed column in the Perspective section of yesterday's Sun.

The governor contended last week that Maryland could have been sued for breach of contract if it had not given the keno business to GTECH.

In a request for bids in 1990, the state said a vendor "must have the capability to support three or more Lotto/Keno type games simultaneously." Having put keno in the specifications, the state would risk being sued if it awarded a keno contract to a different company, the state attorney general has said.

Mr. Schaefer said the state bypassed the usual procurement procedures so it could start keno immediately. The game, he said, will yield $50 million that he must have to help balance the budget for the fiscal year that ends June 30.

"Rebidding the contract, taking as much as another year . . . would have prevented us from starting the new game in time to balance the budget," he wrote in yesterday's Sun.

Atty. Gen. J. Joseph Curran Jr. has ruled that the need for speed was sufficient justification -- even without the breach of contract concerns -- for skipping the bid process.

Nevertheless, persistent questions have been raised about the state's hasty venture into keno and about how GTECH won the basic lottery contract awarded in 1991.

How did the state and its Lottery Agency get to this point? 'Outmanned and outgunned'

In the fall of 1989, a drop in lottery revenues brought agency officials to Annapolis. Testifying about the falloff -- the first in the agency's 16-year history -- they told a committee they were searching for ways to improve lottery performance.

They had gone to Sunday drawings. They were offering a few new games. They complained about competition from neighboring states.

And they blamed the computers, then supplied by Control Data Corp. of Minneapolis.

Their machines were 12 years old and too small to handle the most sophisticated new games. Maryland was "outmanned and outgunned at every corner," a lottery official said.

Lobbyist Bruce C. Bereano spoke up at the hearing. His client, GTECH, was eager to give Maryland a competitive system, he said. He urged an accelerated bid process.

About the same time, Mr. Schaefer weighed in, delivering one of his famous pep talks to the lottery officials.

"I don't like what you're doing," he told them. "I don't like your marketing. You haven't changed it. Your game is secondary to other games around the area. Unless I see some improvement, we're going to shake up the agency."

Panic over money and concerns about the Lottery Agency's computer capability gave Mr. Bereano important leverage in his effort to unseat GTECH's competitor, Control Data, which had ++ held the contract when lottery revenues tumbled. By the following summer, lottery income would be up again without changes in management or new computers.

But Mr. Bereano was off and running. His first move was to hire former Gov. Marvin Mandel, a close friend and political mentor of Mr. Schaefer. Mr. Bereano said he needed Mr. Mandel's knowledge of the lottery and of the governmental process.

Over the next six months, Lottery Agency representatives were called before a succession of legislative panels whose members were, in turn, lobbied by representatives of four computer companies. In time, the committee members asked Mr. Schaefer to name an outside consultant to prepare a bid proposal.

When the Lottery Agency finally published its request for bids in September 1990, Mr. Bereano complained vociferously. The specifications were slanted in favor of the incumbent, Control Data, he said.

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