March 9, 2012

STEP BACK FROM the minutiae of stories about the District’s lottery contract, and here is what you see: a D.C. Council that first rejected the top-ranked bidder because it included a local partner disliked by some council members and then — after a rebidding — made clear that the top-ranked bidder would get the business only if it took on a local partner whom council members did like.

Is this any way to run a government?

The story, which unfolded from 2007 through 2010, raises questions about some District politicians and about an unusual D.C. law that invites politics into the procurement process.

The D.C. lottery is big business, with $231.5 million in sales last year. The city received $62.2 million of the proceeds, which went to the general fund that supports education, public safety and other government functions. The private operator got a 2.6 percent cut of sales.

In May 2007, the city decided that the longtime operator wasn’t doing a good job and put the contract out for bid. The decision wasn’t popular with some council members, who liked the longtime local partner. But the lottery is overseen by the city’s chief financial officer (CFO), who is independent of the council and the mayor. That’s a legacy of the city’s financial control board, which wanted to ensure that the lottery would not be tainted by politics.

There are essentially three multinational corporations capable of managing state lotteries; two submitted bids. The CFO said Intralot, a Greek-based firm, submitted the better offer, with a superior technical proposal and price savings of nearly $5 million a year over its competitor. But Intralot’s partner included a local businessman whom some council members disliked, in part because he was seen as too close to then-Mayor Adrian M. Fenty (D), a figure whom many council members were starting to distrust. So four times in 2008 the council refused to bring the contract to a vote. The fifth time, in December, it rejected the contract.

The CFO dutifully reopened the process. Once again, Intralot was judged the best qualified bidder, this time without a local partner. Once again, council members balked. They told Intra­lot, according to a recent report by the D.C. inspector general, that “it would need to secure a local partner if it wanted Council’s approval.” Intralot officials were incredulous, but they got the message, settling on a local businessman, Emmanuel Bailey, who had no lottery experience but who was being promoted by Kevin Chavous, a former council member retained as a lobbyist by Intralot.

Mr. Bailey had a curious cameo role in the first, failed effort to award the contract; he and Intra­lot’s local partner had discussions about whether he could join the venture, thus making the deal acceptable to the council. Nothing came of it, but a year later, Intralot promised council members that it would form a joint venture with Mr. Bailey’s firm and give that firm 51 percent ownership of it. At that, the council approved the contract.

We’ve reported previously on pieces of this story:

● How council member Michael A. Brown (I-At Large), working for a law firm that represented gaming operators, worked behind the scenes to include Internet gambling in the contract, without telling his council colleagues of his law firm’s interest. Mr. Brown says he did nothing wrong or covert.

● How council member Jim Graham (D-Ward 1) lodged what was found to be a false ethics complaint against the civil servant overseeing the lottery contract, which, in the judgment of the investigator who looked into the allegation, may have been “part of his political agenda.” Mr. Graham says the investigator misunderstood his complaint and denies that he was pursuing a political agenda.

● How Mr. Bailey was certified as a qualified local partner despite an initial inspection of his “business” that found two computers and a printer in his mother’s living room and evidence that he was living in Maryland.

The CFO today reports total satisfaction with the performance of the lottery operator, including the local partner. But questions remain. Who are the council members cited in the inspector general’s report who instructed Intralot to obtain a local partner? Did they have Mr. Bailey in mind? Vincent C. Gray (D), then council chair and now mayor, says he recused himself from the vote awarding the contract because of concerns about the process. Why did he not take more vigorous action to address those worries?

As the full story emerges, District residents might want to ask whether the city’s laws aimed at encouraging local and minority businesses are fulfilling the goals as intended. They also might want to reexamine the District law that gives the council power to approve or disapprove all contracts worth $1 million or more. The law originates from the mayoralty of Marion Barry and the understandable desire not to leave financial decisions in his hands. Now Mr. Barry is on the council (D-Ward 8), where he and many of his colleagues have learned to exploit the law to full advantage.