D.C. officials grapple with unraveling lottery contract

With online gambling off the table for now, D.C. officials are grappling with how to rectify the questionable local business certification of a firm that controls a 51 percent share of the $38 million D.C. Lottery contract.

Two members of the D.C. Council are calling for further review, and the Department of Small and Local Business Development is formulating a response to a recently released inspector general’s report.

Meanwhile, Mayor Vincent C. Gray, a central figure in the lottery saga, is attempting to distance himself from the outcome, which now has involved city attorneys and oversight bodies at almost every level.

As reported in The Washington Times, the inspector general found that Veterans Services Corp., a firm founded by Maryland businessman Emmanuel S. Bailey, had no record of performance related to lottery or any other business, was “not qualified” for the procurement codes it was claiming, and “did not satisfy the requirements” for certification as a local business enterprise.

“In light of this and perhaps other instances, the [local business] certification process as well as ongoing management of the program needs to be seriously reviewed,” council member Jim Graham, Ward 1 Democrat, said in an email last week.

In a Sunday op-ed piece in The Washington Post, Mr. Graham added, “Why did the city’s chief financial officer approve Bailey as the replacement for the majority-ownership role for the lottery contract? Why was [he] given 51 percent of the lottery? Why wasn’t this selection resubmitted to the D.C. Council, since Bailey was not in the lottery contract as approved? How did his company become a Certified Business Enterprise, thus earning it preferential treatment, after city inspectors had rejected his application on the merits?”

Another member, Tommy Wells, the Ward 6 Democrat who introduced legislation that repealed the District’s online gambling bid, went further: “I am very concerned about the lottery contract and would support rebidding it if it can be done without substantial cost to the District,” he said in an email.

The business development department for the first time reacted to the inspector general’s report, which stated the decision to certify Mr. Bailey’s firm “contravenes” the findings of compliance specialists.

“The DSLBD takes [the inspector general’s] report seriously,” said spokesman Brandon Miller. “We are reviewing the recommendations put forth in the report and will respond timely to the [inspector general].”

In spite of glaring red flags, Mr. Gray and other key figures have balked at questions about the lottery contract.

On Friday, council member Jack Evans, Ward 2 Democrat, refused to field a reporter’s questions, saying he did not want to “talk to you about what I’m thinking or doing.” As chairman of the Committee on Finance and Revenue, which oversees the lottery, he recently held oversight hearings that led to the demise of online gambling.

Contract nullification

Also Friday, Mr. Gray wrote a letter to the editor of The Post protesting a recent op-ed piece that recounted court allegations of contract interference by Mr. Gray and others. The alleged interference resulted in the nullification of a previous contract award to a different local vendor and a rebid of the contract that later involved Mr. Bailey.

“I recused myself from voting on the second lottery contract after I came to believe that the procurement process had been irreparably tainted,” the mayor wrote, referring to the business development department’s refusal to certify a local joint venture that included his close personal friend, Lorraine Green. The inspector general later found that the department erred in its determination.

Mr. Gray’s letter omits aspects of the lottery history that resulted from his actions. It also ignores that he did not recuse himself from the second lottery vote, which would have acknowledged the potential for a conflict of interest. Rather, he abstained, he said at the time, because of what he described as a “flawed process,” and explicitly denied it had anything to do with his relationship with Ms. Green.

Mr. Gray has been at the center of the lottery saga from the beginning. When he was chairman of the D.C. Council and he didn’t approve of a local vendor who along with international gaming firm Intralot won the lottery contract, Mr. Gray delayed a vote for months and then led the council in striking the deal.

When Intralot won the second lottery award and appended Mr. Bailey to the deal after the procurement, Mr. Gray, having brought the matter to the council for a vote and declared himself “mightily impressed” with Veterans Services Corp., tried to distance himself by abstaining and criticizing the procurement process as “reprehensible.”

Pedro Ribeiro, a spokesman for Mr. Gray, recently provided The Times with a written statement that similarly misstates Mr. Gray as recusing himself from the second lottery vote. Although he cited Mr. Gray’s concerns about the procurement process, Mr. Ribeiro also contradicted his boss by telling The Times that Mr. Gray “recused” himself because of a personal relationship with Ms. Green and another close personal friend who played a “minor role” in the second lottery procurement.

Now, city officials are left to consider whether and how to unravel the convoluted lottery deal, which has turned out to be less rosy than when politicians, lobbyists and business interests once fought fiercely to gain control of it. Without online gambling, sources close to the lottery say the contract is an albatross. They cite a $22 million capital investment by Intralot, competition from neighboring states and flagging revenue as reasons why the arrangement is fragile.

Looming also is a wrongful termination lawsuit by a disgruntled former procurement officer who accused Mr. Gray and others of improperly meddling in the first contract award. If proved, those accusations could expose the city to liability from other directions related to the contract itself and the District’s handling of it.

Former Attorney General Peter J. Nickles, who called for the inspector general’s report, does not like the city’s chances in court if the lottery as a contract matter is exposed to judicial scrutiny.

“They did an exhaustive background check on the first lottery award and it sustained legal challenge, leaving no outstanding issues but political ones,” said Mr. Nickles, now a senior counsel at the Washington law firm of Covington & Burling. “Then they bypassed the legitimate contract [approval] process in the second round.

“If the process is tainted, you vote against it,” he said, referring to Mr. Gray’s most recent attempt to distance himself from the outcome. “Why have competitive bidding if you can subvert the process?”