RALEIGH – The NC Alcohol Control Committee voted unanimously last week to recommend the state to award a 10-year contract for warehouse services to LB&B Associates, the goal of an audit in 2018 that in previous years had cost the approximately US $ 13.5 million.
To finance the new contract, the bail – which pays for deposit operations – will increase on August 1 to $ 2.75 per box of drink, from $ 1.50 per box.
“There is no change in the markup or surcharge for bail, and the resulting impact on the price per bottle for consumers of a typical beverage bottle should be 20 cents,” ABC said in a statement.
The bail charge is separate from the bail surcharge, now at $ 1.15.
State ABC, according to its 2019 annual report, raised about $ 1.2 billion in revenue, distributing about $ 85 million to city and district governments. He raised another $ 27 million in licensing fees, sending a total of about $ 350 million to the state’s general fund.
In addition, with the closure of bars and restaurants during the pandemic, sales at ABC state stores soared. From July 1, 2019 to June 30, 2020, sales at Wake County ABC stores increased by about 11% and nearly 21% in Johnston County, for example. Sales across the state have increased by almost 12%, and restrictions on bars and restaurants have remained, somewhat, since the end of that fiscal year.
North Carolina has dozens of distilleries with products at ABC state stores.
Those extra 20 cents, if producers do nothing, will automatically be added to the retail price, said an NC distiller. This distiller has just sent a price increase, so it will look like they are raising prices twice in a short time. Prices will look strange, ranging, for example, from $ 23.95 to $ 24.15.
“Why did they decide this year to increase that specific rate to more than 83%,” said the distiller.
NC ABC is responsible for controlling the production, storage, marketing and distribution of state alcohol. North Carolina is one of only 17 control states, which means that the government oversees the wholesale and / or retail operations of alcoholic beverages. It is the only state that uses a system of 171 local councils to regulate hard alcohol.
The state published its request for proposals for warehouse services in 2020, after the commission undertook, after the audit, to redo the contract. A five-member review committee – industry leaders and experts who are not members of the ABC Commission – reviewed the proposals, the ABC said in a press release.
In December, the commission recommended that the state negotiate the contract with LB&B. The contract goes into effect on July 1.
“Our process has been complete and transparent throughout [request for proposal] process, which has been going on for almost three years so far, ”said ABC spokesman Jeff Strickland. “We are confident that the bidding process for warehouse services was fair and open to everyone. The evaluation and recommendation of the incumbent supplier’s proposal was made by an external evaluation committee and then forwarded to the commission’s team for negotiation. The LB&B bid response has been completely revised and considered to be well qualified. At its regular monthly meeting on March 10, the commission approved the state to proceed with granting the negotiated contract. “
The agreement includes the requirement for almost error-free and on-time deliveries, as well as an increased frequency of delivery to the 171 local ABC boards, according to ABC.
“The increase in costs reflected in the new contract is reasonable, based on the substantial requirements of this new contract, including the enhanced delivery services and robust computer capabilities that it will provide to the ABC system,” said ABC.
The bail is paid on a case-by-case basis, paid by ABC’s boards, but also taking into account the retail price, said Strickland.
“Suppliers can choose to absorb bail costs or pass the increase on to the consumer,” he said. “For boxes of 12 bottles of 0.750 liter bottles, increasing the reserve could add 20 cents to the price on the shelf. Cases with higher bottle counts would have smaller increases per bottle (5 cents). Whereas boxes with six bottles, for example, would have an increase per bottle of 40 cents ”.
The ABC audit, released on August 9, 2018, in short, found that mismanagement of contracts has cost NC taxpayers at least $ 11.3 million in 13 years. Unused deposit space potentially cost the state $ 2.1 million in seven years, and the lack of monitoring left the state underpaid by at least $ 297,537 in two years.
ABC erred in its responsibility to follow state policies and practices, State Auditor Beth Wood’s office said in a press release at the time. ABC, the audit concluded, failed to administer the warehouse contract in the state’s best interest.
The General Assembly, at the time, asked her to audit the six largest state agencies, including the Department of Public Security, where ABC resides, Wood said.
“My team said, ‘When we looked at the ABC commission, there was something that wasn’t right,'” said Wood then. “They have a contract that has not been bidding since 2004, they cannot answer questions about how the contract is being managed, this is not linked to an audit of financial statements, but it is information they have collected about this DPS division. “
In fiscal year 2017, the contract cost for storing and distributing alcoholic beverages was $ 8.3 million. The total contract cost from July 2004 to June 2017 was $ 77.7 million.
The auditors found that the commission failed to “acquire, manage and monitor the LB&B contract for the storage and distribution of alcoholic beverages in accordance with state policies and best practices”.
The lack of responsibility for contractors is highly worrying, Wood said at the time.
LB&B received pay increases on demand, without documentation or proof, Wood said.
In some cases, LB&B deceived the state about rising fuel costs by asking ABC for money it didn’t really need, she said.
“Whatever they asked for, they got it. Without any doubt, without any verification, without any consultation or proof or justification.
“And in some cases what they said was their reasoning was not true. In 2008, they asked for an increase the following year and said it was due to the increase in the price of fuel, ”said Wood. “When we looked at the cost of fuel, it actually decreased. The same thing in 2016. When we examined it, it had fallen.
“The power of this supplier and this contractor was just incredible to me that they had so much power and the commission didn’t validate or verify anything.”
A 200,000-square-foot warehouse added in 2011 is largely unused, the auditors found.
ABC “failed to ensure the prudent use of public funds when it authorized the rental of a deposit in Clayton. A large amount of storage space was left unused and potentially resulted in $ 300,000 a year of unnecessary cost over seven years. The Commission did not verify its need for a warehouse of this size, although state policy and best practices required the Commission to discharge its responsibilities prudently and economically ”, said the audit.
“Adding this deposit to the Alcohol Beverage Control Commission deposit contract doubled the amount of space available in the deposit and increased the cost of the contract by approximately $ 2.54 million per year, on average.
“The audit process started more than a year ago, so the discussion and tighter controls have been underway for some time,” said Wood after the 2018 audit.
In his response to the audit report, ABC President AD Zander Guy said he had been appointed only the previous year and “most, if not all of his review period, occurred before my term as president”.
Guy then said that he took the audit seriously and would implement the changes accordingly.
Strickland said the commission accepted the auditor’s conclusions and implemented immediate corrective measures to address the points raised in the report, which focused on contract administration issues.
“None of the state auditor’s findings are related to the performance of the supplier’s warehouse or delivery service or would have disqualified LB&B from responding to the RFP,” said Strickland. “We believe that the newly negotiated contract with this supplier is appropriate and in the interest of the state and the ABC system.”