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Posted at 02:43 PM ET, 01/23/2012

Inspector General report on D.C. lottery contract: a reader’s guide


Investigators say Natwar M. Gandhi, seen in a video deposition about the lottery contract deal, erred in quietly adding Internet gambling to the deal. (U.S. District Court for the District of Columbia)
UPDATED 5:30 P.M.

The D.C. Inspector General’s investigation into the long-running lottery procurement saga ended Friday with the submission of a 19-page report — some 18 months after the probe was first requested by then-Attorney General Peter J. Nickles.

How Inspector General Charles J. Willoughby managed to condense his examination of more than three years of high-stakes politicking, behind-the-scenes wrangling and shadowy dealings into a mere 19 pages reflects either a probe more cursory than most observers contemplated or a Shakespearean sense of wit.

That said, the report, while brief, contains some notable findings. As reported by Tim Craig and myself in Saturday’s Post, it found little evidence to support the notion that D.C. Council members improperly sought to steer the contract for their own benefit or the benefit of their favored parties.

But that’s not to say everyone comes out looking A-okay. For starters, the report questions the role of Chief Financial Officer Natwar M. Gandhi in putting the District on a path to allowing Internet gambling.

After it awarded the contract in December 2009, Gandhi’s office added language to its contract with winning bidder Intralot that allowed for Internet games. According to the report, not only was this done without public notice generally, but it was done also in violation of regulations prohibiting material changes to a contract without an additional round of bids (Section III-B-3, p. 14). The bottom line: “[I]t appears that OCFO executed the contract without adhering to procurement regulations and, as a result, may not have received the best price for the District.”

Gandhi, in a Monday statement, strongly objected to the report’s findings, saying that every bid his office received included some form of
“gaming over the Internet” as an option. “The OCFO’s procurement process was completely transparent and adhered to all District procurement laws and regulations,” the statement said.

The upshot of this finding is that D.C. Council members skeptical about the Internet gambling program and its circuitous route to legality now have concrete grounds to have Gandhi start from scratch. Expect that ground to be covered thoroughly in Thursday’s council hearing on the program.

That’s not the only critique leveled by the report.

The report is also critical of Mayor Adrian M. Fenty’s administration, particularly the decision of its Department of Small and Local Business Development during the procurement process not to certify a joint venture between Rhode Island-based lottery company GTECH and local document-management business Digidoc. Had the joint venture been certified as being entitled to Digidoc’s preference points as a local small business, the GTECH/Digidoc team would have had enough points to win the contract (Section III-B-1-a, p. 8).

The report highlights the rather screwy process by which that decision was made. The director of Small and Local Business Development made the initial decision to deny the certification; Digidoc appealed to the Small and Local Business Opportunity Commission, which overturned the ruling and granted the certification. But then the Office of the Attorney General — Nickles’s office — got involved, asking the commission to reconsider its decision, which it did without giving Digidoc a chance to object.

Nickles said in a Monday e-mail that he was traveling and unable to read a copy of the report sent for his comment; he said he stood by his July 2010 letter criticizing the process.

The decision not to certify Digidoc, incidentally, happened months before the same department chose to certify another business that would come to have a role in the lottery contract, Veterans Service Corp., even though a site visit to its offices raised questions about whether it was a bona fide local business, according to the report.

VSC would come to play a key role in the process later in 2009, when winning bidder Intralot partnered with the company in order to ease council concerns that it have a local business partner. It was this partnership that raised Nickles’s hackles and his allegations of misdealings by D.C. Council members.

But, by and large, the report concludes that Intralot was within its rights to partner with VSC after the contract was awarded and that Gandhi’s office did a proper vetting of the new company and was not obligated to reconsider the contract due to its participation. By that point, the contract had already been awarded and VSC’s preference points were immaterial.

The report also found that allegations that VSC misrepresented its qualifications on its Web site — first reported in a series of Washington Times articles — were also immaterial, because VSC didn’t include the claims in documentation it submitted to the city.

That brings us back to the D.C. Council.

While the report doesn’t identify any smoking-gun wrongdoing by council members, a few things should be noted. For one, investigators didn’t interview every council member, some of whom declined to testify citing legislative immunity from executive branch investigations. For another, while they found no direct evidence that Michael A. Brown (I-At Large) acted to benefit his former law firm in his behind-the-scenes promotion of Internet gambling, the report concludes the “better course of action” for Brown (who did speak with investigators) would have been to be more forthright about his gambling ties.

Finally, the report also airs allegations, from businessman Warren Williams Jr., that D.C. Council Jim Graham (D-Ward 1) interceded in the lottery contract award because Williams’ then-firm, Banneker Ventures, was involved in a real-estate deal with Metro, whose board Graham chaired at the time.

[Graham] indicated that he could not or was not inclined to go along with voting for or awarding the lottery contract to [W2I, Williams’s company] because W2I’s participating local partner had been awarded a contract with [Metro]. The councilmember told W2I executives that he would support W2I’s bid for the lottery contract if its local partner withdrew from the [Metro] contract because he could not give the local partner everything.

Williams’s former partner, Omar Karim, has previously intimated a connection between the lottery contract and the Metro land deal in a March 2010 radio interview. Graham declined to address the allegations in an interview Friday, citing ongoing litigation in federal court over whether council members can be compelled to testify about their role in the lottery procurement.

But even without Graham’s response, the OIG investigators “did not find sufficient evidence to support or conclude that the councilmember had acted improperly. ... [T]he statement attributed to the councilmember, without more, such as some sort of quid pro quo, does not reflect misconduct rising to the level of a violation of a standard of conduct.”

So what’s the upshot of all this? It confirms, as has long been known, that the lottery deal was full of high-stakes politicking, behind-the-scenes wrangling and shadowy dealings — that’s practically guaranteed as long as big city contracts require council approvals and involve local- and small-business certification. But while in the process was long, messy and expensive, the facts visible to the public show the various players maneuvered largely inside the law. Without a finding of outright illegality, the consequences are likely to end with whatever the D.C. Council decides to do with Internet gambling — whether to let the improperly awarded contract go forward or start from scratch.

There’s one last opportunity for a deus ex machina, however: A federal civil lawsuit alleging illicit acts by Gandhi and council members continues. It likely represents the last chance for further clarity on what exactly happened with the lottery contract.

UPDATE, 5:30 P.M.: The post has been updated to include comment from Gandhi’s office and to reflect that Brown did in fact speak to investigators.

Here’s the full report:

By  |  02:43 PM ET, 01/23/2012

 
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