While District agencies in charge of overseeing the controversial $215 million lottery contract point fingers at each other, Loose Lips wonders how many more times the D.C. Council is going to let Maryland resident Emmanuel Bailey make a mockery of the Certified Business Enterprise program that gives local companies an advantage in contracting.
In 2019, the Council approved a sole-source contract with the Greek gaming company Intralot to run the District’s lottery and sports gambling programs. District law requires the company to subcontract with local firms for at least 35 percent of the contract. Intralot listed Bailey’s Veterans Services Corporation among the seven local companies that would get a piece.
But a report released yesterday by the D.C. Auditor found that Bailey’s company, which stands to receive nearly $110 million over the five year contract, has only two employees and “it is clear VSC did not and cannot perform the work outlined in the subcontract agreement with only two employees.”
Asked to identify those employees, Auditor Kathy Patterson says her team confirmed that VSC is made up entirely of Bailey and his mother, raising questions about whether VSC is simply a shell company set up to fulfill the subcontracting requirement on paper. Similar concerns came up the last time the lottery contract was up for debate more than a decade ago.
The auditor also found:
• Intralot and VSC partnered to form the company DC09, and used the firm to pay CBE subcontractors. The auditor believes this arrangement is illegal, but the Department of Small and Local Business Development, which supports local small businesses and monitors the CBE program, disagrees. But, the report notes that the agency did not require Intralot to provide its agreement with DC09, which would show how the money moves.
“Because [Bailey’s] VSC is the majority owner of DC09, this makes it hard to track what VSC is responsible for on the contract as a CBE, that is separate from DC09’s responsibilities as a non-CBE,” the report says.
• One year after the contract was finalized, Intralot has spent less than 1 percent of the money it’s required to spend with local businesses—a total of $964,197 through the third quarter of 2020, out of $119.5 million for the whole plan.
• Two CBEs with political connections received credit and payment for work they didn’t do. Yet DSLBD counted the payments toward the money that Intralot is supposed to allocate to small businesses. Bailey’s Veterans Services Corporation received $280,000; and the public relations firm Octane, owned by Bowser buddy Everett Hamilton, received $179,090 for work it didn’t do, the auditor found. Hamilton managed communications for Mayor Bowser’s first campaign.
• DSLBD could not provide the auditor with evidence that it followed the law in its certification of six of the seven CBEs listed on the lottery contract.
“Without a process for verifying information claimed by an applicant, businesses could be certified or recertified that are not in compliance with the law and potentially take business away from companies who are in compliance with the law,” the auditor’s report says.
• The Office of Lottery and Gaming did not ensure CBEs are actually doing at least 35 percent of the work required under the contract.
• DSLBD and OLG could not agree on whose responsibility it is to monitor whether subcontractors are actually performing the work spelled out in the agreement, the auditor found. Each pointed the finger at the other.
At-Large Councilmember Elissa Silverman, who requested the audit, says the findings validate the concerns she and others raised during the debate two years ago.
“It just stinks,” Silverman says. “This is a totally wired up contract in which friends of the Wilson Building benefit but no one else does.”
The Council approved the contract in July 2019 after former Ward 2 Councilmember Jack Evans championed the sole-source deal from his committee. Councilmembers Silverman, David Grosso (formerly At-Large), Charles Allen (Ward 6), Mary Cheh (Ward 3), and Brianne Nadeau (Ward 1) voted against the contract.
At-Large Councilmember Robert White flipped his vote after initially telling the Post he was leaning against the contract. He told LL at the time that he changed his mind after speaking with Bailey about the benefits for small local businesses.
“I don’t still like the idea of sole source contracts,” White said in 2019 before the vote. “The problem is, if I vote against the sole source contract and we have a worse deal for the city and less meaningful opportunities for CBEs, I’m going to feel bad about that.”
The Council is in a marathon budget session today, and White says he hasn’t had a chance to review the auditor’s report and could not respond to LL’s questions.
Ward 5 Councilmember Kenyan McDuffie, a champion of local business and frequent critic of DSLBD’s handling of the CBE program, also voted in favor of the sole source contract at the full Council vote (though he voted against an underlying measure authorizing a sole source contract to begin with). In an emailed statement, he says the auditor’s report “reveals yet another example of agency finger-pointing when what residents and small businesses need is accountability and transparency.”
“When executive agencies neglect CBE requirements, District residents, workers and small businesses bear the costs,” his statement says. Yet, as the chairman of the Committee on Business and Economic Development with oversight of DSLBD and the lottery, LL wonders if McDuffie shares in some of the blame here. McDuffie defends his oversight of DSLBD. He points to legislation to strengthen the CBE program and has pushed for stricter enforcement for rule breakers.
McDuffie gained oversight of the lottery just as the contract was approved. “So I was well aware the audit was underway and was awaiting the outcome,” he says, adding that he’s also “awaiting the outcome of another audit of the sports wagering program and whether the suspicions many have are true, that the program has woefully underperformed, notwithstanding the pandemic.”
Ward 7 Councilmember Vince Gray, who voted in favor of the deal, benefited from a fundraiser that Bailey helped organize, the Post reported.
The auditor’s report makes several recommendations, including changes to the law that clarify which agency is responsible for contract oversight and to clearly define requirements for CBE certification.
“We have a situation here where no one looks good, and all of the players can point elsewhere for where the faults lie,” Patterson says in a news release.
Read the full report here.
—Mitch Ryals (tips? email@example.com)
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