- The Washington Times - Tuesday, July 20, 2010

A week before the D.C. Council overwhelmingly approved a $38 million lottery contract to Greek gaming giant Intralot, veteran D.C. lawyer Roderic L. Woodson testified before a council committee about a problematic aspect of the deal.

“Subsequent to contract award, it is our understanding Intralot has committed to subcontract with Veterans Services Corporation in carrying out its responsibilities under the lottery contract,” said Mr. Woodson, who represented a local company that was among those that vied for a piece of the D.C. Lottery contract.

“It goes without saying that VSC could not have been considered by the evaluation committee,” he said at the Nov. 24 hearing, pointing to the fact that VSC President Emmanuel S. Bailey presented his firm at the hearing as a “partner” of Intralot, despite having sat out the formal procurement process.

“How can that be part of the award justification if in fact that subcontract arrangement did not occur until after the contract award?” Mr. Woodson asked.

Legal critics share Mr. Woodson’s concerns, which raised another troubling aspect of the deal: The District of Columbia, despite embarrassing lottery glitches in recent years and a drawn-out procurement process fraught with politics and charges of cronyism, adopted a minimal vetting standard out of step with most states that operate a lottery.

“It’s laughable,” said one former D.C. lawyer with extensive contracting experience who spoke on the condition of anonymity because he was not authorized by his firm to discuss the matter. “To have an award to a prime contractor, and then to engage in some sort of arrangement to include another entity — the government can’t feel comfortable that the entity is capable of doing what it says it is capable of doing.

“You have to know their status with the IRS and the results of their record-keeping audits. You have to ensure their books and records are clean, and that they have a functioning board of directors. You’re looking to see if they are a responsible entity.”

VSC and Intralot inked a partnership deal on Nov. 23 that grants VSC a 51 percent equity share in the lottery contract. The council approved Intralot as the lottery operator on Dec. 1. In February, after conducting a criminal background check, D.C. Chief Financial Officer Natwar M. Gandhi’s office approved a subcontract between Intralot and DC09 LLC, the joint venture between Intralot and VSC. Mr. Gandhi wrote to D.C. Attorney General Peter J. Nickles on June 30 that “further vetting of VSC or DC09 LLC is not necessary.”

Mr. Bailey is CEO of DC09 LLC.

In defending the arrangement, Mr. Gandhi’s office said Intralot is fully responsible for the functioning of the lottery and that the city’s lottery board can demand removal of a subcontractor if it fails to operate properly.

But another veteran government contracts lawyer, who also declined to be named because he has provided legal advice to the District, said the arrangement is “soft,” because the city has contracted with a different entity from the one that, according to the subcontract, “shall provide and furnish all labor, tools, supplies, equipment, services, facilities, supervision and administration necessary for the performance of the lottery contract.”

Even if the District attempts to remove a subcontractor, the veteran lawyer said, it creates an atmosphere for “claims and counterclaims and litigation that can be avoided by contracting with the entity that will do the actual work.”

Lottery officials in other states said a higher standard of review is required in their jurisdictions.

Jackie Barreiros, director of public affairs for the Florida Lottery, said that if a lottery contract exceeds $25,000, a subcontractor by law goes through “the exact same background check as the general contractor.”

Maryland Lottery officials say the state allows for lottery joint ventures or partnerships, “but only during the [procurement] process if the offerer is a joint venture,” according to procurement director Robert Howells.

Virginia is in line with those states that carefully vet its lottery providers.

“Anyone involved with any of our lottery products must go through security background check,” said John Hagerty, a spokesman for the Virginia Lottery. “We can and do also ask for financial records, conduct on-site surveys and check business references. We do a lot of research.”

• Jeffrey Anderson can be reached at jmanderson@washingtontimes.com.

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