2 Firms Urge State to Cancel Lottery Pact : Finances: Both cite auditor’s finding that the agency stifled competition for the $600-million computer contract. Officials say they will not breach the agreement.

One week after an auditor’s report found that the lottery stifled competition for a $600-million computer contract, two Georgia companies formally demanded Monday that the state cancel its contract with the winning bidder.

Automated Wagering International argued that the lottery’s contract with GTECH Corp. of Rhode Island to install and run a central computer system to take bets was invalid, contending that the transaction last year violated California law by squeezing out competing bidders.

“Based on the state auditor’s finding . . . the existing (computer) contract is void and payments made under it illegal,” Automated Wagering attorney Richard Martland wrote acting lottery Director Del Pierce.

Anthony Stefanis, chairman and chief executive officer of High Integrity Systems made a similar demand in a statement, saying that the lack of competition had “prevented the state of California from assuring that it received the best system at the best price.”

Contending that the two companies were using faulty logic, the lottery’s chief counsel, Catherine Van Aken, said the audit report had no legal standing and the appropriate way for competitors to have challenged the contract would have been through a lawsuit filed at the time the contract was awarded to GTECH.

“They’re asking for the lottery to rebid and basically breach the contract with GTECH, which is now in its second year, and we’re not going to do that,” she said. “If they are so concerned about this, why didn’t they go to court back in April, 1993, (when the contract was awarded)?”

Martland said he believed that the auditor’s findings were such that the lottery had an obligation to “rectify the situation.”

“When the state auditor determines that there are fatal flaws in the bidding process, it’s certainly incumbent upon the agency to address the issue,” he said.

State Auditor Kurt Sjoberg found that the lottery had effectively eliminated competition for one of the biggest contracts in state history by writing bid specifications that were so restrictive that only one company could meet them.

He said then-lottery Director Sharon Sharp had discouraged prospective bidders from competing for the contract by setting an extremely short deadline for delivering a highly complex new computer system. He said the incumbent contractor, GTECH, was the only company that could realistically be expected to meet the schedule.

Officials for Automated Wagering and High Integrity Systems said they had intended to bid for the contract to operate the state’s computerized games--Super Lotto, Decco, Daily 3, Fantasy Five and Keno--but decided to drop out of the competition when Sharp refused to change a 175-day deadline for delivering the system. As a result, GTECH was the only company that submitted a bid.

The auditor did not recommend that the lottery take any specific action on the contract as a result of his findings and neither Automated Wagering nor High Integrity Systems is expected to take legal action.

GTECH spokesman Robert J. Rendine called the demands by his company’s two competitors “a by-the-numbers publicity stunt . . . (that) really doesn’t merit any kind of response.”

“This is the expected response for a bidder who had a chance to bid and chose not to,” he said.

He insisted that there were no legal grounds for canceling the contract and charged that the two companies were simply trying to take advantage of an election year to put pressure on the Wilson Administration.

Gov. Pete Wilson had asked for the audit last year, after Sharp resigned amid criticism from lawmakers and GTECH’s competitors that she had favored GTECH in the bidding process.