Traverse City Record-Eagle

Michigan

October 11, 2013

Contract for cigarette stamps questioned

LANSING (AP) — Michigan wants to award a $9.6 million contract to Xerox to help make sure taxes are paid on cigarettes, despite allegations of bias in the selection process and an offer from a competitor to do the work for at least $1.7 million less.

The State Administrative Board is poised to approve the Treasury Department’s recommendation for a five-year contract with Xerox State & Local Solutions Inc. as early as next week. Xerox would provide 450 million counterfeit-resistant stamps, which are applied to cigarette packs to show taxes have been paid, for about $1.9 million a year.

The vote is expected after two other finalists unsuccessfully lodged protests, according to documents reviewed by The Associated Press.

Virginia-based De La Rue North America, whose parent is headquartered in Britain, said its bid would provide the best value to the state because it was significantly cheaper. The company also said the bid was incorrectly evaluated. Virginia-based SIPCA Product Security, whose bid scored highest but would cost the state more money than Xerox’s, also protested the decision.

Michigan’s $2-per-pack cigarette tax, 11th-highest in the country, has made the state a target for smuggling that hurts tax revenues. Switching from old, heat-applied stamps to higher-tech stamps with scanner-friendly barcodes is designed to help.

But the 14-month process of choosing a company to provide the new technology has led to complaints.

De La Rue accused state officials of favoring Arizona-based Xerox — which already provides Michigan a stamp-ordering system for tobacco distributors — by giving Xerox an equal grade on experience, even though it said the company has far less direct experience printing the stamps. De La Rue said it has contracts with countries such as Ireland, Thailand and Cameroon.

The state also was accused of not asking De La Rue or the other finalist, SICPA, about the cost of a new ordering system and instead arbitrarily raising their bids by $626,000 when Xerox said it would continue providing its system at no additional cost but would charge to integrate with a new stamp maker.

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