Return to First Principles

No-bid contracts are usually no good for taxpayers

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Currently, Rhode Island pays International Game Technology (IGT) over $50 million a year for products and services to the Rhode Island Lottery.

Recently, Gov. Gina Raimondo agreed to extend IGT’s contract with the Lottery for an additional 20 years, to 2043, without going through a competitive bid process. Raimondo justified her billion-dollar deal by stating it will keep over 1,000 IGT jobs, which pay on average $100,000 a year, located in Rhode Island.

Twin River, Rhode Island’s casino operator, claimed IGT’s slot machines perform worse than its competitors and that taxpayers would benefit if the services IGT provides were subject to competitive bid. Others have pointed out that while the Raimondo administration was in secret negotiations with IGT, Raimondo was fundraising with IGT lobbyist Donald Sweitzer for the Democratic Governors Association (DGA).

When it comes to the Lottery, the best way to ensure taxpayers get the best deal is for vendors to go through a competitive bid process.

From its beginning, the Lottery has generated revenue and controversy. In the summer of 1974, as the Watergate scandal reached its climax, a furor arose over revelations of questionable deals and no-bid contracts to politically connected individuals by the Lottery Commission. For its headquarters, the Lottery Commission rented a building from an owner who had just recently purchased the building with a mortgage from a bank controlled by Biaggo Maggiacomo, an advisor to the Lottery Commission and aide to House Speaker Joseph Bevilacqua.

The annual rent charged to the Lottery Commission was twice the amount the previous owner of the building had sought. The heating oil for the Lottery headquarters was bought from a company owned by Sen. Rocco Quattrocchi. The insurance for the Lottery was purchased through a business operated by House Corporations Chairman Samuel Kagan. The renovation work at the headquarters was performed by a court administrator and former Democratic State Party chairman, John J. Hogan. The carpeting at the headquarters was installed by a company owned by William Dugan Jr., the state’s public buildings chief. A contract to distribute lottery tickets was given to a company whose vice president, Richard Casey, was a Senate clerk, and for whom Senate Majority Leader John Hawkins had previously performed legal work.

Hawkins justified these no-bid contracts as being the result of emergency situations and dismissed the uproar as a “Providence Journal-Republican Party conspiracy.”

Nonetheless, the furor helped spur the creation of a Conflict of Interest Commission, the predecessor to the Ethics Commission, and the enactment of a code of conduct for public officials in 1976. This legislation included a provision which, in general, prohibited government contracts from being awarded to any business partly owned by a public official, his or her family member, or his or her business associate except through a public competitive bid process.

For a time, the Lottery followed a strict policy of putting out to bid all significant contracts and many minor contracts. But soon thereafter, the Lottery began to approve contracts for a certain vendor that had local connections but was not the lowest cost. In 1983, without going out to bid, the Lottery renewed its contract for computer services with GTECH, IGT’s predecessor, which cost twice as much as the Delaware Lottery was paying to its vendor.

Peter J. O’Connell, the executive director of the Lottery, who deemed himself the “best negotiator in the country,” justified the contract with GTECH by saying that he had “made” GTECH move to Rhode Island, where it employed 260 people. However, no economic analysis was ever presented which showed that 260 GTECH jobs in Rhode Island justified the Lottery paying GTECH a $1 million more every year for its services.

Eventually, in 1986, the Lottery put its computer services contract out to bid. GTECH was the highest bidder. However, O’Connell stated that price was “just a small factor,” and after some negotiation, GTECH was again awarded the contract.

This sent a message. In 1996, the Lottery went out to bid for computer services and for lottery machines, but only GTECH submitted a bid for either contract. One vendor did not bid because it did not believe it would have a “a meaningful chance to compete” due to “GTECH’s relationships in the state of Rhode Island,” while another vendor noted that the RFP contained items that were “favorable” to GTECH and “not favorable to the general bidding community.”

The Lottery’s partiality towards GTECH manifested itself in other ways. In 1995, the Lottery awarded GTECH a no-bid contract to provide instant ticket services in violation of state law, which required competitive bidding. Although Rhode Island Auditor General Ernest Almonte believed that “going out to competitive bid” was “something sacred,” he decided that the contract should be honored because of the “economic benefits” from the contract.

The special relationship between Rhode Island public officials and GTECH reached its logical conclusion in 2003 when Gov. Donald Carcieri and the General Assembly agreed, without going out to bid, to a 20-year contract between GTECH and the Lottery as part of an economic development deal to keep GTECH located in Rhode Island.

Some worry Rhode Island could lose 1,000 jobs unless IGT’s new 20-year contract is approved. However, no analysis has ever been presented proving that the amount of tax revenues generated by IGT in Rhode Island is greater than the amount of revenue the Lottery has lost by not selecting the lowest cost vendor. IGT’s no-bid contract is not worth a few thousand dollars; it’s worth a billion dollars.

Competitive bidding rewards businesses with the lowest cost and allows the taxpayers to benefit from free market competition. No-bid contracts rewards businesses with the most political pull and allow politicians to decide who will benefit from government contracts. No-bid contracts are usually no good for taxpayers. Only a competitive bid process will ensure that taxpayers receive services from a business with the best price rather than services from a business with the best political connections. It is time to put IGT through an RFP.

Steven Frias is Rhode Island’s Republican National Committeeman, a historian and recipient of The Coolidge Prize for Journalism.

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justanidiot

yeah, its way betters to let it go to some Byzantine process where a buncha state workers get jobs fer der useless brudder in laws. keeps it da same so we can have lots more and more graft to go around. road islands biggest industry

Thursday, July 25
wwkvoter

This is a professional piece. Interesting, and a little disheartening at the same time. We seem to create our own problems in RI and then some of those same problem creators then peel off to "fix" something, once it becomes a public issue. Rinse, repeat. While Massachusetts, whom we could easily emulate, surges ahead for decades in every category by getting most things right the first time.

Saturday, July 27