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AMERICAN TOTALISATOR COMPANY v. CHARLES S. SELIGMAN (03/15/78)

decided: March 15, 1978.

AMERICAN TOTALISATOR COMPANY, INC., PETITIONER
v.
CHARLES S. SELIGMAN, ACTING SECRETARY OF REVENUE, COMMONWEALTH OF PENNSYLVANIA ET AL., RESPONDENTS. CONTROL DATA CORPORATION, PARTY RESPONDENT



Original jurisdiction in case of American Totalisator Company, Inc. v. Charles S. Seligman, Acting Secretary of Revenue, Commonwealth of Pennsylvania; Milt Lopus, Secretary of Revenue, Commonwealth of Pennsylvania; Lynn R. Nelson, Executive Director, Bureau of State Lotteries, Commonwealth of Pennsylvania; Department of Revenue, Commonwealth of Pennsylvania; Bureau of State Lotteries, Commonwealth of Pennsylvania, Respondents, and Control Data Corporation, Intervening Respondent.

COUNSEL

Patrick W. Kittredge, with him David Gutin, and Cohen, Shapiro, Polisher, Shiekman and Cohen, for petitioner.

Frank A. Sinon, with him R. Stephen Shibla, Rhoads, Sinon & Hendershot, and, of counsel, W. Hubert Plummer and Rogers, Hoge & Hills, for party respondent.

Judge Rogers. President Judge Bowman and Judges Crumlish, Jr., Wilkinson, Jr., Rogers, Blatt and DiSalle.

[ 34 Pa. Commw. Page 393]

Adjudication

American Totalisator Company, Inc. (AmTote), a Delaware corporation registered to do business in Pennsylvania, has filed a Petition for Review in this Court naming as respondents Milton Lopus, the Commonwealth's Secretary of Revenue; Charles S. Seligman, the Commonwealth's sometime Acting Secretary of Revenue; Lynn P. Nelson, the Executive Director of the Commonwealth's Bureau of State Lotteries; the Commonwealth's Department of Revenue; and its Bureau of State Lotteries, a State activity within the Department of Revenue. For reasons which will be apparent, Control Data Corporation (CDC), also a Delaware corporation, was permitted to intervene as

[ 34 Pa. Commw. Page 394]

    a party respondent. AmTote's amended petition describes events with respect to the invitation by the Bureau of State Lotteries for competitive bids for the development and implementation of a State daily numbers game which, being the subject of our findings of fact, will not here be described further than to disclose that only AmTote and CDC bid and that Acting Secretary of Revenue Seligman decided that the State should contract with CDC. AmTote's suit contests the Secretary's action as a violation of State policy and law governing the award of contracts by competitive bidding and as an abuse of the Acting Secretary's discretion in the circumstances. AmTote seeks an order setting aside the Secretary's action, restraining the original respondents from contracting with CDC, and directing the State to enter into negotiations for a contract with AmTote. Although the Secretary's decision to enter into negotiations with CDC was made June 23, 1976, the contract entered into by the State and CDC was effective October 1, 1976 and the daily numbers game began on March 1, 1977, we note that AmTote began this lawsuit on July 6, 1976 and promptly moved for a preliminary relief which we refused. AmTote is clearly innocent of laches.

The State and CDC filed preliminary objections to AmTote's Petition for Review which we dismissed by order and opinion filed December 22, 1976, and reported at American Totalisator Company, Inc. v. Seligman, 27 Pa. Commonwealth Ct. 639, 367 A.2d 756 (1976). The respondents sought review of this order by the Supreme Court of Pennsylvania but the prayer of their petition for allocatur was denied in April 1977. Beginning June 15, 1977, we conducted a trial on the merits which produced a substantial record. We heard arguments on August 6, 1977 and the matter is now ready for adjudication.

[ 34 Pa. Commw. Page 395]

Statement of the Issues

Both the petitioner and the respondents present issues for our consideration. The respondents still press the issues raised in the objections which we disposed of in December 1976 in American Totalisator Company, Inc. v. Seligman, supra ; to wit: that AmTote does not have capacity to sue because it is a mere disappointed bidder; and that AmTote's amended Petition for Review does not state a cause of action because the invitation was to bid for professional services not required to be let on competitive bids. No significant new light on these subjects having been cast by the respondents since our earlier decision we need not comment further on those matters at this place. We stand on our earlier opinion.

AmTote says that we should grant it the relief requested in its amended Petition for Review because (1) the original respondents violated the law of competitive bidding by permitting CDC, after CDC learned the amount of AmTote's price proposal at a public opening, to submit a new price proposal much lower than CDC's original proposal and slightly lower than AmTote's original best price proposal; and (2) that the respondents violated a provision of the invitation by designating CDC as the successful bidder without giving AmTote an opportunity to include in its proposals an innovative suggestion made by CDC, which innovative suggestion was a principal reason for the designation of CDC as the successful bidder.

Findings of Fact

In addition to the facts hereinbefore recited in this adjudication, we find as follows:

(1) In December 1975, the only state conducting a daily numbers game was New Jersey, whose game had been devised and was being successfully operated

[ 34 Pa. Commw. Page 396]

    by AmTote. Respondent Lynn R. Nelson, the Executive Director of the Bureau of State Lotteries, at the direction of the Acting Secretary of Revenue, instructed Conrad W. Stauffer, a Bureau deputy, to investigate and make recommendations with respect to a numbers game in Pennsylvania.

(2) In early January, 1976, Stauffer submitted his report recommending that Pennsylvania institute a daily numbers game and use outside management to operate the system. During the same month an Evaluation Committee composed of Department of Revenue and Bureau of Lotteries employes was formed to prepare a Request for Proposal and to receive and evaluate bids received in response to that proposal. During January and February 1976, the Evaluation Committee studied the matter and prepared a Request for Proposal, large parts of which were lifted from a Request for Proposal for such a game lately prepared by the State of Maryland.

(3) The Request for Proposal prepared by the Evaluation Committee and sent to prospective bidders on February 19, 1976 provided that the contract would be awarded pursuant to "laws, rules and regulations relating to award of public contracts in this State" and that "the contract [would be] awarded in conformity with the concept of the lowest responsible bidder." The covering letter sent with the Request for Proposal stated "The Pennsylvania Bureau of State Lottery invites your company to participate in a competitive bidding proposal." The Request for Proposal also provided that, although the Bureau of State Lotteries reserved the right to reject any or all proposals, bidders would be held to the terms submitted by their proposals.

(4) The Request for Proposal as originally prepared and sent contained a requirement that the

[ 34 Pa. Commw. Page 397]

"agent keyboard operated terminals . . . have the capability of totaling and displaying an amount due from multiple purchase transactions." By an addendum, the Bureau told bidders that it was not mandatory that the keyboard terminal be equipped with a display for purposes of showing totals and subtotals from multiple purchase transactions, but that it was "highly desirable".

(5) Both AmTote and CDC in fact proposed a display capable of showing totals and subtotals from multiple purchase transactions. AmTote seems to have proposed a keyboard operated terminal capable of making a printed display such as might be provided by a cash register tape. CDC offered to supply an element additional to the "keyboard operated" terminal. This element was a cathode ray tube on which the totals and subtotals as punched on the keyboard would be displayed.

(6) Both AmTote's and CDC's proposal met all of the requirements of the technical part of the State's Request for Proposal; and with respect to the "highly desirable" display both proposals did what the State asked.

(7) The Request for Proposal in its final form provided that the bidders' technical proposals -- that is, the proposals for the supply of equipment and management services -- would be reviewed before the cost proposals (or price to be charged by the bidders) were opened and considered.

(8) As a means of judging the merits of the technical proposals, the Evaluation Committee decided upon eight categories for judgment, as follows: Internal Control System, Management Reports Capabilities, Terminal, Central Computer Facility, Maintenance Capabilities, Security, Training, and General Ability of Company to Perform. Each member of

[ 34 Pa. Commw. Page 398]

    the Evaluation Committee was asked to and did grade each of the proposals with respect to each of the categories. In all the categories, except those of Terminal and Training, the members of the Committee found no significant disparity in merit between the two proposals. CDC's proposal received substantially higher grades in the category of Terminal and somewhat higher grades in Training, and these advantages resulted in CDC's having a higher total grade. CDC's terminal was preferred chiefly because it offered the cathode ray tube.

(9) A cathode ray tube was not used at agents' terminals in the New Jersey game, nor was it used in the daily numbers game as finally proposed and placed in operation in Maryland under AmTote management. Cathode ray tubes have been in use for many years and are available in the market place. Indeed, the Request for Proposal required that a cathode ray tube be supplied at the lottery's headquarters for use with other equipment, and AmTote proposed to supply such. It is clear that AmTote could have provided a cathode ray tube at the terminals if the Request for Proposal had called for such.

(10) The Evaluation Committee was impressed with CDC's terminal with the cathode ray tube because the cathode ray tube could be used in training agents operating the keyboard terminals. The Evaluation Committee was also impressed with CDC's cathode ray tube because it could display the winning number for that day. These two considerations contributed heavily to CDC's higher marks for its proposed terminal, which in turn resulted in higher marks for its overall technical proposal.

(11) A section of the Request for Proposal provided as follows:

[ 34 Pa. Commw. Page 399]

(14) As the result of a bidder's conference, the Bureau prepared and provided a matrix which might be used by the bidders in the following form:

[ 34 Pa. Commw. Page 401]

(15) Accompanying the addendum which provided the matrix was the following instruction to bidders:

Submitted under Appendix A is a Matrix that has been evaluated by the Committee to fully accommodate both the contractor, in his effort to arrive at a reasonable cost fixation, and to accommodate the Commonwealth in its evaluation of those costs offered. Cost is not the sole consideration nor will it be the prime determining factor in the awarding of a contract. The cost portion is to be completely separated from the technical aspects, sealed in a separated envelope and either mailed within the main proposal, or sent under separate cover. The Evaluation Committee will completely review all technical matter and cost will not enter into the picture until a later designated date. Cost, however, must accompany proposal on due date. Note : This Matrix offered does not preclude submitting a separate bid based upon percentage of gross handle.

(16) The technical evaluation having been completed, the cost proposals were opened by the Acting Secretary of Revenue on June 2, 1976. Contrary to the wishes of the Acting Secretary of Revenue but in accordance with the advice of lawyers for the Department of Revenue, this opening was public.

(17) Each of the bidders used the matrix and each, as was understood to be necessary, placed one percentage figure in each of the twenty-eight blocks of the matrix.

(18) AmTote's cost proposal, which had been submitted with its technical proposal on March 26, 1976, was as follows:

[ 34 Pa. Commw. Page 402]

PAYMENT PERCENTAGE SCHEDULE

GROSS WEEKLY DOLLARS WAGERED

$1,000,000 $1,500,000 $2,000,000 $2,500,000

Terminals to to to to

Active $1,499,999 $1,999,999 $2,499,999 $2,999,999

500 to 1000 9.40 7.91 6.85 5.85

1001 to 1200 9.53 8.20 7.07 6.03

1201 to 1400 9.66 8.50 7.30 6.22

1401 to 1650 9.79 8.77 7.50 6.37

PAYMENT PERCENTAGE SCHEDULE

GROSS WEEKLY DOLLARS WAGERED

$3,000,000 $3,500,000 $4,000,000

Terminals to to And

Active $3,499,999 $3,999,999 Up

500 to 1000 5.07 4.60 4.11

1001 to 1200 5.25 4.76 4.30

1201 to 1400 5.43 4.92 4.48

1401 to 1650 5.61 5.07 4.67

Notes

A. Please see paragraph 4.1.2 regarding the above Fee Bid rates.

B. All Fee rates in the above schedule are expressed as a percentage of the gross weekly dollars wagered through the AmTote System.

[ 34 Pa. Commw. Page 403]

(19) CDC's cost proposal, also submitted March 26, 1976, was:

PAYMENT PERCENTAGE SCHEDULE

GROSS WEEKLY DOLLARS WAGERED

$1,000,000 $1,500,000 $2,000,000 $2,500,000

TERMINALS to to to to

ACTIVE $1,499,999 $1,999,999 $2,499,999 $2,999,999

500

     to 10.375 6.85 4.45 2.0

1000

1001

     to 11.5 7.25 4.95 2.5

1200

1201

     to 12.5 7.75 5.45 3.0

1400

1401

     to 13.375 8.25 5.85 3.5

1650

PAYMENT PERCENTAGE SCHEDULE

GROSS WEEKLY DOLLARS WAGERED

$3,000,000 $3,500,000 $4,000,000

TERMINALS to to AND

ACTIVE $3,499,999 $3,999,999 UP

500

     to 1.5 1.0 .5

1000

1001

     to 2.0 1.5 1.0

1200

1201

     to 2.5 2.0 1.15

1400

1401

     to 3.0 2.45 1.25

1650

[ 34 Pa. Commw. Page 404]

(20) The numbers appearing on each bidder's matrix set forth in findings 18 and 19 were read aloud by Acting Secretary Seligman on June 2, 1976 and each of the bidders thereby learned of the other's bid.

(21) After hearing the percentages contained in both matrices, it was obvious that CDC and AmTote had not calculated their bids on the same basis.

(22) AmTote's cost proposal was submitted on an effective rate basis.

(23) In order to determine the cost to the Commonwealth using AmTote's bid as submitted on March 26, 1976, all that need be done is to multiply the amount of gross weekly dollars wagered by the percentage figure in the particular frame of the matrix which would be applicable to that dollar amount.

(24) CDC's cost proposal was submitted on an accumulative rate basis.

(25) In order to determine the cost to the Commonwealth using CDC's bid as submitted on March 26, 1976, it is necessary to first make an assumption that the percentage figures in the first column of CDC's matrix are applicable for wagers from zero to $1,499,999. Without making such an assumption, there is no way that any one can calculate the cost to the Commonwealth using CDC's bid as first submitted because there is no way of knowing the percentage fee being charged by CDC for wagers from zero to $1,000,000.

(26) On June 2 or June 3, 1976, at Seligman's request, two employes of the Bureau at the Secretary's direction took the cost proposals submitted by CDC and AmTote and used them to prepare a chart comparing the cost to the Commonwealth if both bids were submitted on an effective rate and if both bids were submitted on an accumulative rate. This is a copy of that chart:

[ 34 Pa. Commw. Page 405]

PAYMENT PERCENTAGE SCHEDULE

COMPARISON OF EFFECTIVE VS. ACCUMULATIVE RATES

AMERICAN TOTALISATOR COMPANY, INC. *

CONTROL DATA CORPORATION

HIGHEST DOLLAR AMOUNT IN EACH

COLUMN USED TO DETERMINE TOTAL

DOLLAR COST TO COMMONWEALTH

1,000,000 1,500,000 2,000,000 2,500,000

TERMINALS TO TO TO TO

ACTIVE 1,499,999 1,999,999 2,499,999 2,999,999

500 TO 1000

* 9.4 * 7.91 * 6.85 * 5.85

EFFECTIVE * $141,000 * $158,200 * $171,250 * $175,500

ACCUMULATIVE * 141,000 * 180,550 * 214,800 * 244,050

10.375 6.85 4.45 2.0

EFFECTIVE 155,625 137,000 111,250 60,000

ACCUMULATIVE 155,625 189,875 212,125 222,125

1001 TO 1200

* 9.53 * 8.20 * 7.07 * 6.03

EFFECTIVE * $142,950 * $164,000 * $176,750 * $180,900

ACCUMULATIVE * 142,950 * 183,950 * 219,300 * 249,450

11.5 7.25 4.95 2.5

EFFECTIVE 172,500 145,000 123,750 75,000

ACCUMULATIVE 172,500 208,750 233,500 246,000

1201 TO 1400

* 9.66 * 8.50 * 7.30 * 6.22

EFFECTIVE * $144,900 * $170,000 * $182,500 * $186,600

ACCUMULATIVE * 144,900 * 187,400 * 223,900 * 255,000

12.5 7.75 5.45 3.0

EFFECTIVE 187,500 155,000 136,250 90,000

ACCUMULATIVE 187,500 226,250 253,500 268,500

1401 TO 1650

* 9.79 * 8.77 * 7.50 * 6.37

EFFECTIVE * $146,850 * $175,400 * $187,500 * $191,100

ACCUMULATIVE * 146,850 * 190,700 * 228,200 * 260,050

13.375 8.25 5.85 3.5

EFFECTIVE 200,625 165,000 146,250 105,000

ACCUMULATIVE 200,625 241,875 271,125 288,625

PAYMENT PERCENTAGE SCHEDULE

COMPARISON OF EFFECTIVE VS. ACCUMULATIVE RATES

AMERICAN TOTALISATOR COMPANY, INC. *

CONTROL DATA CORPORATION

HIGHEST DOLLAR AMOUNT IN EACH

COLUMN USED TO DETERMINE TOTAL

DOLLAR COST TO COMMONWEALTH

3,000,000 3,500,000 4,000,000

TERMINALS TO TO AND

ACTIVE 3,499,999 3,999,999 UP

500 TO 1000

* 5.07 * 4.60 * 4.11

EFFECTIVE * $177,450 * $184,000 * $164,400

ACCUMULATIVE * 269,400 * 292,400 * 292,400

1.5 1.0 .5

EFFECTIVE 52,500 40,000 20,000

ACCUMULATIVE 229,625 234,625 ...


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