Council passes buck on lottery

Of all the questions generated by the unprecedented path to the D.C. Council’s approval of a $38 million lottery contract, the biggest remains unanswered: How did an unexamined local firm with questionable credentials end up with a majority equity share of the lottery after the contract had been awarded to an international gambling giant?

D.C. lawmakers in recent weeks have refused to acknowledge blessing that aspect of the deal, with some saying they don’t even know the specifics of the business arrangement between local firm Veterans Services Corp. (VSC) and Greek-based Intralot.

Most officials have distanced themselves from the lottery contract, despite their involvement in a contentious initial procurement that met with disapproval by various council members over the credentials of Intralot’s first partner. Others insisted they were simply ratifying the recommendation of Chief Financial Officer Natwar M. Gandhi, who oversees the lottery.

Mr. Gandhi’s office, however, said that VSC’s 51 percent equity interest in the lottery - negotiated after Intralot won the contract on its own but before the council voted to approve the pact - transpired after the CFO made his recommendation.

The Oct. 5 recommendation, which required the approval of Mayor Adrian M. Fenty before it was sent to D.C. Council Chairman Vincent C. Gray to schedule a council vote, said nothing about VSC.

Mr. Gandhi’s office said Intralot officials told the CFO that some council members, whose approval is required for the contract, insisted upon a local partner to secure their vote.

“You’d have to ask the council,” Gandhi spokesman David Umansky said when asked to identify those members.

Council member Phil Mendelson, at-large Democrat who was the lone dissenting vote, said VSC made Intralot “more attractive” to one or more council members. He declined to elaborate on how or to whom.

Council member Yvette M. Alexander, Ward 7 Democrat who recently co-sponsored legislation with Mr. Gray that requires local partners to own at least 50 percent on future lottery contracts, said she knew nothing about VSC’s background as a company when she voted to approve the Intralot contract.

She dismissed Intralot’s claim that council members insisted on a local partner in the lottery contract as “a load of crap.” She also said she had never seen the agreement between Intralot and VSC, which was signed the day before representatives of both companies appeared before the council and discussed their “partnership.”

Intralot officials declined to respond to calls and e-mails seeking comment.

Council member Michael A. Brown, at-large independent who co-sponsored the future lottery contracts bill with Ms. Alexander, said he had no idea how Intralot decided they needed a local partner to gain council support for their award.

“I’ve said to the world that I think we need local partners, but I didn’t say that to Intralot,” said Mr. Brown.

He said he voted for the Intralot contract on the recommendation of Mr. Gandhi’s office.

“I trust the CFO’s judgment,” Mr. Brown said. “I’m comfortable with the vendor team.”

When council member Mary M. Cheh was asked why Intralot needed a local partner, she deferred to Mr. Gray. “That question is best left to the chairman,” the Ward 3 Democrat said.

Mr. Gray sets the council agenda and brings matters to a vote, a powerful position that allowed him to block Intralot’s first contract award for close to a year in 2008 because he and others objected to the company’s original lottery partner, a local firm whose principal had ties to Mr. Fenty.

When Mr. Gray finally brought a lottery contract to a council vote, after a second procurement process in which Intralot won the CFO’s recommendation without a local partner, the gambling company had nevertheless taken on a different partner who was familiar to Mr. Gray: Emmanuel S. Bailey, president of VSC.

The council approved the Intralot award on Dec. 1 by a vote of 9-1, a week after a Nov. 24 hearing in which Intralot Vice President Lynn Becker appeared with Mr. Bailey.

The day before the hearing, on Nov. 23, Intralot and VSC inked a “Business Relationship Formation Agreement” making Mr. Bailey CEO of a joint venture called DC09 LLC “for the term of the lottery contract,” with VSC owning 51 percent of the venture.

Neither the council nor Mr. Gandhi’s office vetted VSC prior to the Dec. 1 council vote, according to D.C. Attorney General Peter J. Nickles.

At the Nov. 24 hearing, Mr. Bailey introduced himself as “a native Washingtonian, and more importantly, proud son of Barbara Bailey, who dedicated 25 years of her professional career to the residents and employees of the District of Columbia.”

Invoking his mother’s service to the District may have touched some council members. Mr. Gray worked with Ms. Bailey while the two were employed at the D.C. Department of Human Services (DHS) in the 1990s and the two routinely socialized, according to multiple sources.

Mr. Bailey recently told The Washington Times that he’s “not unknown” to the council chairman, and confirmed the professional relationship his mother had with Mr. Gray.

In October 2008, Mr. Gray met with Mr. Bailey and Intralot’s lobbyist Kevin P. Chavous, a former D.C. Council member. The group “discussed Bailey’s professional experience,” said Gray spokeswoman Doxie McCoy.

Mr. Bailey recalled that he and Mr. Chavous talked with Mr. Gray about the lottery at the meeting, which occurred as the approval legislation for Intralot and its first business partner was still pending before the council.

“He said he had concerns,” Mr. Bailey told The Times in a May 16 interview. “I told him I had expertise on my side.”

According to documents obtained by The Times, Mr. Bailey told people after the meeting that he could count on Mr. Gray’s support, and he told The Times he called Intralot’s first local partner to say he was “happy to help if he could.”

Mr. Gray has denied influencing the lottery contract and points to his abstention at the Dec. 1 vote as evidence of his distance from the matter.

In explaining his abstention, Mr. Gray told reporters at the time that he had issues with the process, though the appearance by Mr. Bailey and Intralot representatives before the council on Nov. 24 “raised his confidence in the contract award.”

Mr. Gray declined to elaborate on that statement or answer questions for this report.

But questions linger.

Mr. Nickles said he is not aware of another contract in the history of home rule in which the council chairman refused to schedule a vote on a contract awarded by the city’s independent CFO’s office.

And it remains unclear why Intralot then partnered with a different local firm after going through a second formal procurement process, since the presence of such a firm during the process would have entitled it to an advantage.

Mr. Nickles agreed that the addition of a 51 percent equity partner that was not vetted through the procurement process was highly unusual.

On June 25, the attorney general wrote to Mr. Gandhi: “Given that the business agreement signed on Nov. 23 between Intralot and VSC gives full functioning of this contract to that joint venture, and that Intralot is not the majority owner, I believe that we should more formally vet all parties involved.”

Mr. Gandhi replied in a letter dated June 30 that his office had “concluded that further vetting of [VSC] is not necessary.” He added that his office approved a January “subcontracting arrangement” based on a criminal background check of Mr. Bailey and the fact that his firm “is not suspended, debarred or otherwise ineligible for award.”

Mr. Gandhi assured Mr. Nickles that the District can demand removal of VSC if it does not meet lottery board requirements.

But on Wednesday, Mr. Nickles said he remained troubled that Intralot’s first lottery partner was heavily scrutinized, as was a local firm that was disqualified in the second procurement, while VSC was not.

“I found it unusual that the subcontracting agreement would come in January but not include the terms of the Nov. 23 agreement,” he said. “Instead, the CFO was given a plain vanilla subcontracting agreement. The Nov. 23 agreement is much more telling, as it gives Mr. Bailey and his VSC crowd 51 percent of the joint venture.

“I’m not done with this,” he said.