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Scientific Games International, Inc v. Commonwealth of Pennsylvania

November 30, 2011


The opinion of the court was delivered by: Dan Pellegrini, Judge

Submitted: October 28, 2011




Before this Court are preliminary objections filed by the Commonwealth of Pennsylvania, Department of General Services and Department of Revenue (collectively, DGS), and GTECH Corporation (GTECH)*fn1 in response to a two-count complaint in equity and action for declaratory relief filed by Scientific Games International, Inc. (Scientific Games).*fn2 Its complaint seeks specific performance of what it contends is a fully executed contract for the design, development, implementation and maintenance of a Central Computer Control System (Control System). If there is not a contract, it seeks injunctive relief to stop the rebidding of the contract until it is informed as to why it was in the "best interest" of the Commonwealth to reject all bids.
According to the complaint filed by Scientific Games,*fn3 the facts of this case are as follows. On July 8, 2010, DGS posted a public notice of Request for Proposal (RFP) for the design, development, implementation and maintenance of a Control System which would allow the Department of Revenue to monitor slot machines at casinos and other venues in the Commonwealth. The Department of Revenue was seeking a Control System to replace the existing system presently provided by GTECH. At a pre-proposal conference, which Scientific Games and GTECH attended, DGS explained that it would evaluate the proposals on the bases of technical merit, cost and use of disadvantaged businesses.

Scientific Games and GTECH were the only companies to submit RFPs. The proposals were evaluated on a numeric score in three categories: 50% was based on the technical proposal; 30% was based on cost; and 20% was based on disadvantaged businesses. The maximum score was 1,000 points (500 for technical, 300 for cost and 200 for use of disadvantaged businesses.) Scientific Games' RFP scored over 100 points higher than GTECH's proposal, and DGS recommended that it be selected for contract negotiations. In addition to the RFPs, and among many other necessary applications, the successful offeror was required to obtain a manufacturer's license from the Pennsylvania Gaming Control Board (PGCB). Scientific Games submitted an application for its license with the PGCB on October 19, 2010. On November 23, 2010, Scientific Games received notice that it had been selected for contract negotiations. On May 2, 2011, a contract was executed by Scientific Games with written signatures by its representatives but no handwritten signatures by the Department of Revenue. Instead, on the line where a signature would ordinarily be, there was a notation "[Signature Electronically Affixed]" on each line.*fn4

As the disappointed offeror, GTECH requested a debriefing and requested a complete copy of the contract with Scientific Games. GTECH then submitted a protest to the award of the contract to Scientific Games. (GTECH's contract to provide the existing Control System was scheduled to expire on June 28, 2010. Because the contract with Scientific Games was not executed until May 2, 2010, and it still did not have its manufacturer's license, Scientific Games could not implement a Control System by the expiration of GTECH's contract. The time frame within which Scientific Games could implement a system was further extended by GTECH's protest and the pending application for a manufacturer's license.) DGS sought an extension of its existing contract with GTECH, but according to Scientific Games, GTECH would only agree to an extension if DGS agreed to a substantial price increase. DGS agreed to extend the contract for another year. GTECH was also permitted to amend its protest based upon information it claimed to have received in response to an open records request.

On May 26, 2011, DGS' Deputy Secretary for Administration, James Henning (Henning), responded to GTECH's amended protest concluding that GTECH's protest should be denied as "being without merit." Henning sought additional information from Scientific Games and GTECH regarding the status of their manufacturer's licenses. Henning issued a final determination denying GTECH's protest except with respect to a small mathematical error in scoring its cost proposal, which only affected its score by 14 points. The denial of GTECH's protest was with prejudice with the exception of two issues.*fn5 Henning stressed that the rescoring was highly unlikely to change the outcome of the bidding process because Scientific Games' margin of victory was so great. As to all of GTECH's other grounds for protest, Henning found that GTECH had shown bad faith.

Rather than comply with Henning's express direction to rescore the RFPs, DGS decided to cancel Scientific Games' "RFP." By letter dated August 4, 2010, DGS informed Scientific Games of this decision. The explanation for the decision to cancel the "RFP" was that it was in the "best interests" of the Commonwealth without further explanation. (See attachment to Complaint in Equity.) The letter also noted that the "contract" was not executed by the Commonwealth and that the "RFP was not canceled due to any actions or inactions by Scientific Games."

As a result, Scientific Games filed a two-count complaint in equity and an action for declaratory relief. In those counts, it contends that:

 It has a valid contract with DGS. Under Section 521 of the Procurement Code,*fn6 a Commonwealth agency may cancel an RFP in the best interests of the Commonwealth only prior to the execution of a contract with the offeror, and here the contract was already executed when the RFP was cancelled;

 DGS gave no reasons for its cancellation. Section 521 of the Procurement Code expressly limits the right to cancel an RFP to circumstances where it is in the best interests of the Commonwealth, and requires that the reasons for the cancellation or rejection shall be made part of the contract file;

 Even if the contract had not been executed, DGS lacked authority to cancel the RFP based upon GTECH's protest;

 Contracting with Scientific Games will save the Commonwealth and its taxpayers millions of dollars over the life of the contract and they would pay substantially more to continue under the current contract with GTECH;

 If they are allowed to cancel the RFP, DGS will be unfairly giving GTECH an opportunity to rebid for the Control Systems' contract even though the person statutorily delegated with responsibility for resolving its protest determined it was afforded a fair opportunity to participate in the procurement; and

 If DGS' violation of the Procurement Code is not enjoined, Scientific Games will suffer harm for which it cannot adequately be compensated in damages. DGS' violation of law and Scientific Games' rights constitutes irreparable injury. GTECH, as part of its debriefing process, was provided with information about Scientific Games' bid and contract with DGS. Going into the rebid process, GTECH would have an ...

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