AT&T e-mail warned about delay in games

January 27, 2002

S.C. lottery officials overlooked or dismissed a warning from AT&T last fall that it might be unable to install the equipment necessary to start the lottery's numbers games in time for their March 6 launch.

Some now fear the games won't be launched until May. That could cost the state $26 million in lottery revenues to help fund educational programs, such as college scholarships.

The games might start later because of delays in connecting ticket sellers to the lottery's main computer, according to court documents, correspondence and Lottery Commission Chairman John C.B. Smith Jr.

AT&T warned on Oct. 9 that it had serious reservations about installing the communications equipment by March.

But lottery director Ernie Passailaigue contends the numbers games, such as Pick 3 and Lotto, will start on time. Either that, or the lottery will recoup most of its losses through fines or legal action.

AT&T's Oct. 9 warning was included in the formal proposal submitted by Scientific Games of Georgia to operate the S.C. lottery. The proposal called for connecting the 3,000 ticket sellers with the lottery's main computer by running a separate telephone line to each ticket outlet. Scientific Games planned to have AT&T create the network.

Here's how the process of awarding the $71 million state lottery contract turned into a $26 million problem.

The bid

Scientific Games, which sets up and runs lottery games, promised to have the lottery's numbers games running by March 6.

That promise was largely based on what Scientific Games said was an agreement with AT&T.

Scientific Games made the promise based on the Oct. 9 e-mail letter from an AT&T account executive that outlines the work AT&T could do and how much it would cost.

That e-mail also includes this sentence: "AT&T has substantial reservations as to the ability to be awarded a contract prior to Thanksgiving 2001 and complete installation of 3,100 sites by March 1, 2002."

Scientific Games included the letter in its bid. The three-page letter constituted an agreement with AT&T to create the massive network, Scientific Games said.

Now, AT&T says it can't meet the March 6 deadline.

Passailaigue believes AT&T's letter is a binding agreement to install the lines on time. Regardless, the lottery commission has a binding contract with Scientific Games to start the games by March 6, he said.

Scientific Games sued AT&T on Dec. 6, saying the e-mail was a contract to meet the March 6 deadline.

The panel

At least six state employees and officials involved with Scientific Games selection knew about, or had access to, AT&T's letter before the contract with Scientific Games was signed.

First, a panel established to compare bids received the AT&T letter as part of Scientific Games' bid, according to Michael Sponhour, a spokesman for the state Budget and Control Board.

The Oct. 9 letter from AT&T was part of the proposal that all six panelists judged, Sponhour said. Of the four lottery employees on the panel, three said last week that they remember seeing AT&T's letter; the fourth did not.

Lottery officials would not allow the four to comment further.

The negotiations

Once the panel scored Scientific Games' bid the best, negotiations began between the company and Passailaigue, other lottery officials, and representatives of the state Budget and Control Board. All had access to the Oct. 9 AT&T letter, Sponhour said.

The contract was signed by Passailaigue, Scientific Games executive Bill Huntley, and Michael Spicer, executive manager of the state Office of the Chief Information Officer.

Passailaigue said AT&T promised in the letter to do the work on time.

With regard to AT&Ts reservations stated in the e-mail letter, Passailaigue points to the second part of the paragraph. It says AT&T will not be responsible nor held liable for delays caused by Scientific Games, BellSouth or other companies.

But the letter still holds AT&T liable for its own work, he said. "I don't see any reasonable assumption other than that."

The fallout

A month into the contract, the problem became apparent.

In a letter to Scientific Games, Passailaigue complained he and his staff learned of the problem around Nov. 26 even though Scientific Games knew about a week earlier. A month later, after threatening letters between the lottery and the two companies, Scientific Games sued AT&T, claiming the telecommunications firm was reneging on its agreement. In the suit, Scientific Games refers to AT&T's agreement in the Oct. 9 letter.

In a motion to dismiss, AT&T calls that ludicrous.

"Scientific Games has not established and cannot establish the existence of any contract between it and AT&T," the motion says.

The letter "is nothing more than a pricing letter," AT&T says, and "South Carolina law recognizes that the mere quotation of a price is not an offer."