Lottery bids replay controversy 1991 loser re-contests GTECH with offer to halve operating costs

$50 million difference

State authorities surprised at wide gap, need time for study

October 11, 1995|By MARINA SARRIS | MARINA SARRIS,SUN STAFF Sun staff writers Peter Jensen and John W. Frece contributed to this article.

In a stunning replay of a politically controversial bidding war, a Georgia company yesterday offered to run the Maryland lottery for less than half of what the state is paying now.

The company, Automated Wagering International (AWI), said it could supply and maintain the lottery's computers for about $40 million over five years -- almost $50 million less than the only other bidder, incumbent GTECH Corp. of Rhode Island.

In 1991, GTECH won the Maryland contract by significantly underbidding Control Data Corp, the company that later became AWI. That award was so controversial it led to a federal investigation and ultimately, the conviction of GTECH's former lobbyist, Bruce C. Bereano, on unrelated mail fraud charges.

If state officials conclude that AWI can deliver what it is promising, the firm will oust GTECH -- the worldwide industry leader in lottery computers -- and provide a substantial savings to Maryland taxpayers.

The state has been paying GTECH about $95 million over five years to run the lottery games, the third largest source of state government revenue.

The vast difference in the two bids startled state officials. House Speaker Casper R. Taylor Jr., a Democrat from Allegany County, said he needed to know more "before I can make any sense out of it. But, certainly, it raises the fundamental question of how the only two bidders can be that far apart. It is sort of astounding."

GTECH officials were visibly surprised yesterday when the two bids for the five-year contract were opened at lottery headquarters in Reisterstown Road Plaza.

A GTECH spokesman had harsh words for the low bid. "It is

clearly an incomprehensible number by a company that has been in nothing short of dire financial straits," said Robert J. Rendine.

He predicted that AWI could not turn a profit with its bid, which he said was offered in a "desperate" attempt to secure a contract. The two companies have gone head to head in competition for lottery contracts in other states recently, with each winning one from the other.

But an industry analyst said that AWI -- which runs lotteries in seven states -- is in sound shape. "This is not a company on the trail of bankruptcy," said Frederic Dickson, research director for D. A. Davidson & Co.

AWI President Mark L. Cushing laughed at the notion that his company was in financial trouble and chalked up his rival's comments to sour grapes.

"We are in good shape financially, and we are very excited to be the low bidder. I'm not going to comment on GTECH's attempts to spin the fact they lost the competition," he said.

Senate Finance Committee Chairman Thomas L. Bromwell, a Baltimore County Democrat, said the difference between the bids left him wondering. "Either GTECH is a very profitable company with high margins, or the other company has made a mistake," Mr. Bromwell said.

Lottery Director Lloyd W. Jones said he expected the state to benefit from a price war in the lottery computer industry, but he, too, was surprised by the low bid.

"I don't know what to think. I'm new at this business. It's a very low price by a very capable company," said Mr. Jones, who has been lottery director for two years.

His agency now will begin evaluating AWI's voluminous proposal, which is contained in four thick binders weighing an estimated six pounds. State officials also plan to visit AWI lottery operations in other states.

Mr. Jones said he probably will know whether AWI meets all required standards in about three weeks. If it does, the contract could be sent to the State Board of Public Works for approval in December, he said.

In an effort to prevent allegations of political manipulation, Maryland took the unusual step of deciding to award this contract based almost completely on price. Typically, price makes up only a portion of the bid, with companies also receiving points for their technical abilities.

Mr. Cushing of AWI said his company could afford to offer such a low price because of its superior technology. "We're in the computer systems business, and if you look at the business inside and outside government, it's very cost competitive and prices are going down," he said.

He said AWI also expects to increase lottery business here. If it does, it stands to make more money since the contract calls for the vendor to keep a percentage of sales.

Maryland lottery patrons spent more than $1 billion on games last year, generating $385 million for state government coffers.

The firm that wins the new contract will supply more than 4,000 terminals at outlets across Maryland, as well as the computers and software that run them.

In bids in other states recently, GTECH and AWI have not been as far apart in price. In competitions for computer contracts in Washington state and Arizona, their bids were less than $10 million apart. In Washington last June, GTECH beat incumbent AWI. Three months earlier, AWI bested incumbent GTECH in Arizona.

In both instances, the companies proposed contracts that would earn them between 1.9 and 3.2 percent of each state's total lottery revenues.

In Maryland, AWI bid .789 percent while GTECH proposed 1.748 percent.

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