The state has canceled its $2 million-a-year liquor marketing contract with Pine State Trading Co. because the company provided “inaccurate information” during the vendor selection process.
The Gardiner-based distribution company was awarded the 10-year contract on Feb. 21 to market Maine’s state-run liquor business, which is projected to bring $450 million in revenue to the state over the 10 years.
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Pine State Trading was notified of the cancellation in a letter from the Department of Administrative and Financial Services, dated Monday. The company concedes that a clerical error misstated its activity in New Hampshire’s liquor market.
“Obviously, we’re disappointed with the state’s decision to withdraw the award, but we’re completely respectful of their decision and understand it,” Nick Alberding, Pine State Trading’s CEO, said Wednesday.
The marketing contract covers the pricing, display, inventory and availability of liquor sold in Maine. It was to take effect July 1.
The state’s letter, signed by Gregory Mineo, director of the Bureau of Alcoholic Beverages and Lottery Operations, said a new request for proposals for the contract will be issued “in the near future.” Pine State Trading will bid on the contract again, Alberding said.
The company will retain a separate, more valuable contract for liquor distribution and warehousing, which it received from the state in early January.
Alberding said the “inaccurate information” cited in Mineo’s letter involved Pine State Trading’s share of the liquor market in New Hampshire. Pine State Trading sold 8,000 cases of liquor in New Hampshire last year, which was 0.4 percent of the 2 million cases sold wholesale, Alberding said. But in its bid for the Maine contract, the company said its market share in New Hampshire was 0.004 percent.
The difference is relevant because in 2012, lawmakers rewrote the law governing the state-run liquor business to try to regain sales lost to New Hampshire. The state’s request for contract proposals didn’t automatically disqualify companies that do business in New Hampshire, but bidders had to disclose the extent of that business.
“The minute we realized we made an error, we disclosed it,” Alberding said. “It’s a decimal-point error. The error itself didn’t materially change what our market share is in New Hampshire. It’s minuscule, but we made an error on the page. We take full responsibility for it.”
Dirigo Spirit, a Cumberland-based company that bid on the liquor marketing contract, used the error as a central argument when it appealed the award to Pine State Trading in late February.
“Our view is that this is a big deal and there were serious questions about whether (Pine State Trading) should be disqualified as a result of the conflict,” said Gavin McCarthy, a lawyer who represented Dirigo Spirit in its appeal hearing three weeks ago.
A company that sells liquor in both states has an inherent conflict of interest, McCarthy argued.
“The state was looking for an equity partner to help it maximize revenue in a responsible way as a result of this contract,” McCarthy said. “Anybody with a substantial conflict of interest (would raise) questions about whether they could do that in a way that would be the best for the state.”
Ford Reiche, president of Dirigo Spirit, said he was pleased with the state’s decision.
“The cancellation confirms the concerns included in our appeal,” he said in a prepared statement. “We look forward to participating in a new (request for proposals) process for the marketing of spirits in Maine, and particularly to addressing the issue of maximizing the state’s revenue by recapturing sales lost to New Hampshire.”
The liquor marketing contract is worth 1.5 percent of the annual net sales of spirits in Maine, which totaled $142 million in 2013, said Jennifer Smith, director of legislative affairs for the Department of Administrative and Financial Services. That means the contract is worth about $2 million a year.
The contract for distribution and warehousing is worth 4.7 percent of annual net sales, nearly $6.7 million a year, Smith said.
Pine State Trading has handled liquor distribution and warehousing as a subcontractor for Maine Beverage Co., which received a lucrative 10-year liquor administration contract from the state in 2004. That contract expires June 30.
Maine Beverage did not bid on either of the new contracts.
In the selection process for the liquor marketing contract, the state rated each company’s bid with a point system. With 1,100 points possible on the evaluation form, Pine State Trading received 1,063. Dirigo Spirit got 1,010 points, and Portland-based CD&M Communications received 536.
The $450 million in wholesale revenue that the state is projected to receive over the life of the new contract is more than double the amount under its agreement with Maine Beverage.
In September, the state sold a $220 million bond that will be repaid with revenue from the new liquor contracts. The proceeds of the bond offering were used to repay $183.5 million that the state owed to Maine hospitals.
Whit Richardson can be contacted at 791-6463 or at:
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