Maine
Maine got only one bid on its latest 10-year liquor contract
Pine State Trading Co. has a large fleet of trucks that it uses to deliver spirits to the more than 640 agency liquor stores throughout the state. Joe Phelan/Kennebec Journal, 2014 file photo
When bidding closed on Maine’s new 10-year liquor contract, Pine State Trading Co.’s victory was all but inevitable.
Pine State, a Gardiner-based business that’s been family-owned since it launched in the 1940s, was the sole bidder on both the administration contract for the distribution of distilled spirits in Maine and a smaller trade marketing contract. It is anticipated to rake in nearly $200 million over the next decade.
With no competition, the state awarded Pine State a tentative contract and then spent months negotiating final terms in closed-door meetings.
It’s not clear how those negotiations went because the state agency that handles the contract would not discuss details. But experts in government contracting say that having just one bidder on any given proposal can disadvantage state agencies and increases the need for transparency.
Pine State CEO Nicholas Alberding had no way to know whether any other bidders would step up, but said he was unconcerned about being skipped over for the lucrative contract. After all, his company had handled the work for roughly a decade under the previous contract.
“I didn’t spend a lot of time worried about it. I mean, I’m not a worrier that way,” he said on a phone call Wednesday morning.
Alberding said he told his team to act as if there were several other competitive bids when formulating theirs, and argued that the fees Pine State will earn under the new contract “only came in a kick higher than the previous amount.”
The company is now entitled to 7.55% of the state’s spirits sales and what’s known as bailment revenue, which includes handling, storage and other fees – up from 7.2% for nine of the last 10 years. That’s just under a 5% increase in its share, which is itself dependent on liquor sales and other revenue.
Nicholas Alberding of Pine State Trading. Photo by Ronald C. Simons
Maine law requires the Bureau of Alcoholic Beverages and Lottery Operations, or BABLO, to contract out the operations of the state’s entire spirits business, meaning it can’t simply back away from a bad deal if there’s not another option on the table.
“It stops being very competitive, because now there’s nowhere to go,” said Jessica Tillipman, associate dean for government procurement law at George Washington University’s law school. “When you put all of your eggs in one basket, if they fail you fail.”
In such cases, some said, transparency in the contract procurement and negotiation process becomes even more important.
“Dealing with only a single bidder, contract negotiations are very important and must be transparent,” said Khi Thai, professor emeritus at Florida Atlantic University’s school of public administration.
Pine State’s previous contract was initially scheduled to expire at the end of June, but it was extended through November to give the company and state time to negotiate specific terms, BABLO spokesperson Sharon Huntley said in September. The contract was ultimately signed Nov. 26.
Huntley would not provide details about the contract negotiations while they were taking place or after they had concluded, including whether there were any sticking points. But she said negotiations spanned a typical amount of time for a contract of this size and complexity.
Huntley also repeatedly denied requests to interview BABLO Director Louis Luchini, who is the administrator of the new contract, and Kirsten Figueroa, commissioner of the Department of Administrative and Financial Services, which oversees the bureau.
“The current model has proven a consistent, dependable revenue source for the state, which was able to pay down the debt service on the revenue bond issued to pay Maine’s hospital debt ahead of schedule early under the last contract period, and now dedicates spirits revenues to the Highway Fund,” Huntley said in a statement. She said the state earned more than $500 million in spirits and related revenue during the last 10 years.
Pine State made more than $120 million from the last decade-long contract, according to a review of the bureau’s annual reports.
The new contract is estimated to generate nearly $19 million for Pine State each year. But that figure, based on fiscal year 2024, could prove higher if revenue continues to grow.
NO OTHER BIDDERS?
Alberding said he could not speak to why other companies did not bid on the contract, but he noted the complexity of the contract and the high benchmarks for fulfillment, including being available for twice-weekly deliveries across the entire state and having a warehouse within 30 miles of BABLO’s headquarters in Augusta.
“I would suspect that others looked at it … and chose that it wasn’t a good strategy for them,” Alberding said. “It’s an overwhelming task. You’ve got to be able to do this economically, and it’s got to work.”
Alberding said his company has more than 50 trucks on the road on a given day, setting a difficult standard for any newcomer to match. They use that fleet to deliver bottles to Maine’s more than 640 agency liquor stores – retailers approved by the state to sell distilled spirits, which include liquor stores, gas stations and grocers. The contract does not cover beer and wine.
David Canarie, adjunct professor of business law at the University of Southern Maine and a member of the University of Maine School of Law’s compliance program faculty, said that depending on the industry, having just one provider who can fulfill a contract’s requirements “may just be a fact of life.”
“It’s not inherently a problem,” Canarie said. “So long as we end up through the (request for proposal) process, and the contracting process and oversight process with a contract that works. … But a lot of that involves constant oversight of that contract.”
Under the new contract, Pine State is required to maintain regular communication with BABLO that includes sending monthly tax collection reports and providing the bureau access to its inventory control system. The contract also provides minimum benchmarks for revenue growth that Pine State must achieve, which are reset annually and can trigger amendments to the agreement if missed two years in a row.
“You want to make sure that the person who’s overseeing it from the state has the experience, and the time, and the authority within the state to oversee the relationship in a meaningful way,” Canarie said.
In this case, that person is BABLO director Luchini, who joined the bureau this year – after bidding on the latest contract closed but before negotiations concluded – following a stint as the Small Business Administration’s New England regional advocate and more than a decade in the Maine Legislature.
Pine State Trading Co. has a large fleet of trucks it uses to deliver spirits to the more than 640 agency liquor stores throughout the state. Joe Phelan/Kennebec Journal, file
Luchini was not available for an interview, Huntley said.
Alberding said BABLO is run by “smart people,” and his company has always had a strong relationship with the bureau’s leadership.
Sen. Craig Hickman, D-Winthrop, chaired the Veterans and Legal Affairs Committee, which oversees the bureau, and has previously criticized BABLO for a lack of transparency in its pricing structures. Hickman declined to speak about its procurement process or its transparency when contacted last week.
Hickman said Pine State is among the state’s strongest contracted partners. He said the company, which is based in his district, employees many of his constituents and seems to treat its workers well while fulfilling its obligations to Maine.
“They go above and beyond. They just have a good reputation. I’ve never heard a bad thing about them,” Hickman said. “I think they have helped the state make money.”
Indeed, the state’s previous contract with Pine State proved much more lucrative than its predecessor.
From 2004-14, when the Maine Beverage Company oversaw spirits distribution, the state made $189 million in revenue, Huntley said.
“By comparison, the 2014-2024 contract exceeded that amount after just the first four years, and through Year 9 of the contract had generated $502 million for the state of Maine,” Huntley said in an email.
WANING COMPETITION
More than a decade ago, when the 2014-24 request for proposals was released, two companies put down bids for the administrative contract: Pine State and a now-defunct entity called All Maine Spirits LLC.
David E. Warren, an attorney listed as All Maine Spirits’ registered agent, said the company dissolved after it was passed over for the contract. Warren said he could not recall the full details of the business plan, as “we never got to that stage.”
Warren said he worked with two principal investors to craft the bid, but both died since then.
On the second 2014 contract, which included trade marketing rights, Pine State was up against two competing bids: one from the since-renamed Dirigo Spirit Company and another from marketing group CD+M Communications.
Ford Reiche, the registered agent of Dirigo Spirit, now known as Reiche Company, LLC, declined to speak on the record for this story.
Duncan Stout, president of CD+M, said that after his company lost its bid for the trade marketing side of the 2014 contract, they partnered with Pine State to help produce marketing materials for the first few years of that contract.
Stout believes Pine State’s sweeping network of trucks, warehouses and laborers won them the 2014 contract.
“I don’t know if there’s anybody else in the state of Maine who has that kind of infrastructure,” Stout said.
But Stout said the two companies parted ways on mutual terms a few years ago.
“We were unhappy to lose our relationship with Pine State. It had to do more with personalities, it had to do more with expectations,” Stout said, though he declined to say what precise issues came up.
Alberding did not not return a phone call asking for details on his company’s relationship with CD+M.
When the state initially put out its requests for proposals late last year, it offered two contracts: one for administration, which includes warehousing and distribution, and another for trade marketing. But since Pine State was the only company to bid on either project, the two contracts were consolidated into one for 2024-34.
Tillipman, the GW Law associate dean, said that consolidation can improve the efficiency of certain government contracts, but she cautioned that over-consolidation can stifle competition by discouraging companies that may be able to perform only some of the work from applying.
Consolidated contracts are relatively rarely split apart later, she said.
“It’s easier for people to do what they’ve always done. There’s kind of this inertia that comes with the procurement process,” Tillipman said. “Once it goes a certain way it tends to be that way.”
Still, it’s far too early to tell how the next decade will play out or how the state will approach procuring the 2034 liquor contract.
When asked how the state aims to keep the procurement process competitive, and whether the state has any plans to try and attract new bidders, Huntley said the “spirits landscape is likely to change significantly over the course of the next 10 years.”
“Prior to the expiration of this contract, BABLO will aim to keep the process competitive by adjusting to industry shifts, consumer expectations, and the state’s interests,” she said.