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Pa. Lottery contract dropout called process unfair

Marc Levy, Associated Press

HARRISBURG, Pa. (AP) -- A company that dropped its pursuit of a contract to manage the Pennsylvania Lottery said it could not get some of its questions answered by Gov. Tom Corbett's administration and a requirement that applicants submit a business plan before seeing a final copy of the agreement was unfair.

The company, Rhode Island-based GTECH Corp., made the complaints in a Nov. 6 letter to the financial consultant advising the Corbett administration in its move to hire a private lottery manager. GTECH's letter was released by state officials, who insisted Wednesday that that the process was conducted fairly for all bidders and in full compliance with procurement rules.

On Friday, the administration awarded the contract to the sole remaining bidder, London-based Camelot Global Services. Before that, GTECH's identity as a bidder had been kept a secret by the Corbett administration, although Corbett administration officials had said another bidder — GTECH, apparently — dropped out because the proposed agreement so heavily favored the state.

But some critics of the move to hire a private lottery manager question whether the Corbett administration rushed the process or favored Camelot.

The Pennsylvania Lottery is one of the nation's largest, with $3.5 billion in sales and $1 billion in profits last year, and Pennsylvania is in line to become the third state behind Illinois and Indiana to hire a private manager. Corbett administration officials have said they planned this week to execute the lottery management contract with Camelot, although various legal challenges to it are waiting in the wings.

Tatts Group Ltd., which operates several lotteries in Australia, also withdrew from the bidding process.

In its five-page letter, GTECH lists a number of reasons why it decided to drop out.

Among them were complaints that it would be held accountable for certain events out of its control that might hurt lottery profits, such as if Congress banned state lotteries from conducting Internet games. It objected to accounting methods and what it said was the "recent introduction" of a requirement that the winning bidder would pay $30 million in transaction expenses to the state's consultants.

The proposed contract, it said, remained a "remarkably unbalanced agreement."

But it also complained that the Corbett administration on Nov. 3 issued a sixth draft of the proposed agreement and permitted no bidder questions after that, giving the two bidders five days to submit a final business plan. GTECH wrote that it had requested 14 days to submit a business plan after a final private management agreement, or PMA, was issued.

"Instead, the sixth draft of the PMA was issued five days before the final business plan is due and it is still not in its final form," GTECH wrote. "We believe it is unfair to require submission of a final business plan without knowing the contents of the final PMA."

An administration official said Monday that the transaction expenses would be substantially less than $30 million, but had yet to be negotiated.

A spokeswoman for the Department of Revenue, which oversees the lottery, said GTECH's questions were raised after the close of the due diligence period.

"In essence, they asked too late," spokeswoman Elizabeth Brassell said. "Regardless, GTECH admits in its letter that the answers to the questions wouldn't change their opinion that the contract was unbalanced in the commonwealth's favor."

Brassell also said that no bidder received the final copy of the agreement before submitting a business plan. The contract shared with all bidders was sufficiently complete and five days was enough time for bidders to submit final business plans considering that they had received feedback on draft business plans and had helped develop the contract, she said.

Tatts Group dropped out in August. In its withdrawal letter, it said the management agreement did not "provide an adequate commercial environment for Tatts to pursue."