Texas lottery officials examine possible conflict

February 12, 2010 4:33:32 AM PST
Texas lottery officials said Thursday that they found no evidence of improper bid information sharing between a consultant company and the lottery's main vendor, GTECH Corp., but they said say they cannot rule it out. Lottery deputy executive director Gary Grief said as the state agency continues to examine the matter, and a legislative committee possibly holds a hearing to investigate, companies wishing to submit bids to operate Texas' lottery will get a 30-day extension on the deadline to submit proposals.

Meanwhile, the president and CEO of GTECH Corp., Jaymin Patel, apologized to lottery commissioners for the trouble caused by his company having a contract with the consultant Gartner Inc. while Gartner was helping the Texas lottery write its major bid proposal. But Patel insisted there was no information sharing between the two companies about the Texas lottery and no conflict of interest.

"On this point I am certain," said Patel, whose company plans to bid for the upcoming Texas contract.

The dual contracts by Gartner raise questions about whether GTECH has a competitive advantage over other companies. The stakes are high: Winning the Texas Lottery contract can bring a company more than $100 million annually. The lottery hopes to announce the winning bid by August.

"I am extremely disappointed in the actions of both Gartner and GTECH," Grief said. "They've created a terrible perception problem for this agency that we're now left to address." He said the Texas lottery has "the very highest standards of integrity and security."

GTECH has held the main Texas lottery contract for years, but other large companies like Scientific Games, Intralot and Camelot are interested in bidding for the Texas business. Representatives of some of those companies watched as lottery commissioners grilled executives from GTECH and Gartner and asked for more information about contact between lower-level employees of the two firms.

"Unfortunately, I think we're talking to generals and we have privates who have been pulling triggers," lottery commissioner David J. Schenck said.

Afterward, Wendell Moore, a consultant for Intralot, said Thursday's testimony made it clear that Gartner and GTECH have had a long-standing business relationship.

"I continue to believe there should be a third-party investigation and possibly and a federal probe," Moore said.

Moore said that in its request for bids, the lottery placed an unusually low priority on the price it would pay for the winning contract, and that this would favor GTECH because it tends to seek a higher price than its competitors.

Intralot recently won a major Arkansas lottery contract. In that competition, Rhode Island-based GTECH decided not to bid and said Arkansas was basing too much of its decision on the cost -- that it should also look heavily at "greatest overall value" and the best lottery services and products.

Gartner had a $2.1 million contract with the Texas Lottery Commission starting in July 2008 to help state lottery officials write bid parameters. That contract banned the company from working with GTECH. But in mid-November 2009, Gartner signed with GTECH for a six-week $150,000 consulting contract, according to company officials and state records.

The Gartner contracts with the state and GTECH have since been canceled.

Texas Lottery Commission attorney Bob Bierd said an internal review found three contracts between Gartner and GTECH, one involving a more minor subscription service and another involving overseas operations. He said there is no evidence of information sharing about the Texas lottery, based on responses both companies provided lottery officials.

But, he added, "we cannot conclude with certainty that there was no sharing of information between Gartner and GTECH."

Several Gartner executives told lottery commissioners they stand by the work their company did for Texas and said there was no impropriety.

"We deeply regret this internal administrative oversight on our part," said William Kumagai, group vice president for Gartner.

An aide to Rep. Edmund Kuempel, a Seguin Republican who chairs the Texas House licensing committee that oversees the lottery, attended the lottery meeting as did a legislator on that committee, Democratic Rep. Chente Quintanilla of El Paso. Kuempel hasn't indicated if he would call a legislative hearing, his office said.

Quintanilla asked several questions of the Gartner executives. He has written a letter to Kuempel saying the current bidding process should be scrapped.

A battery of lobbyists crowded the lottery commission's meeting room Thursday, several of them representing GTECH. Since the start of the year -- once questions began swirling about Gartner's dual role -- GTECH has added more Texas lobbyists to its roster.

At least four were registered by this week with the Texas Ethics Commission as representing GTECH, at combined estimated payments ranging from $100,000 to $449,997. Two of those lobbyists began representing GTECH as recently as late January, state records show.