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The award of the lottery contract was borne of a period of turmoil during which Vincent C. Gray, then chairman of the D.C. Council, and others objected to the award to Intralot and a local partner with ties to Adrian M. Fenty, who was mayor at the time. Peter J. Nickles, who was serving as attorney general, warned Mr. Gray, now the mayor, that nullifying a contract award would be destructive. But the contract was rebid, with Chief Financial Officer Natwar M. Gandhi choosing Intralot alone.

In November 2009, after the contract was awarded, a new company controlled by Mr. Bailey and located in his mother’s house in Southeast, was presented to the council. Mr. Bailey and his company, Veterans Services Corp. (VSC), signed an agreement with Intralot the previous day giving him a 51 percent controlling interest in the lottery.

Mr. Gandhi’s office insisted that nothing was wrong with the arrangement and that the office could direct Intralot to fire VSC if its was not satisfied with its work.

Pedro Ribeiro, a spokesman for Mr. Gray, deferred questions to the council and Mr. Gandhi’s office to decide whether D.C. officials were satisfied with the arrangement.

Mr. Gray, still chairman of the council when Mr. Bailey was presented as a partner in the lottery deal, said at a hearing that he was “mightily impressed” with VSC, which had hired a former lottery executive from Florida. The mayor, who was never interviewed for the inspector general’s report, has never said what he found impressive about the Bailey portion of the Intralot team.

He later abstained from the lottery vote, his spokesman said, because he objected to the way in which a personal friend had been disqualified from the bidding and because another personal friend had played a “minor role” in the failed bid.

Like Mr. Evans, Mr. Gray said Tuesday that he was willing to rebid the lottery deal if iGaming reared its head. Days later, he declined to comment when asked about the part of the deal he tacitly endorsed. Instead, Mr. Gray, through his spokesman, reiterated his efforts to distance himself from the outcome.

“There’s nothing new to say,” Mr. Ribeiro said.

Inspector general report

The recently released inspector general’s report sheds new light on VSC and the CFO’s “responsibility assessment” of the firm.

In July 2010, Mr. Nickles and then-Chief Procurement Officer David P. Gragan called for Inspector General Charles J. Willoughby to investigate, saying, “VSC was unknown to the contracting officer when the lottery proposals were being evaluated, unknown to the mayor when he submitted the contract package to the council, and the details of its agreement with Intralot were unknown to the council when it considered and then approved the contract.”

The inspector general found that when Intralot won the procurement, council member Marion Barry, Ward 8 Democrat, and a representative of the CFO’s office informed an Intralot representative that they would need a local partner to gain council approval, according to the report.

The report shows that after an August 2009 site visit, city officials concluded that VSC was “not qualified” for the standardized procurement codes it was claiming, and “did not satisfy the requirements” for certification as a local business enterprise. Officials noted that they found “no evidence of bookkeeping and other record keeping, payroll maintenance, business telephones, payment of telephone services by VSC, or VSC stationery bearing the District address.”

Yet officials approved VSC’s certification as a local business enterprise, based on the fact that Mr. Bailey’s father, a building maintenance specialist, and his mother, a human-resources professional, were majority owners who lived in the District.

The report also said the CFO’s office, even though not required, “vetted” VSC in early 2010 after it became aware that Intralot “had partnered” with it to form a company called DC09 “with the intention of subcontracting the lottery work to DC09.”

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