Verified Voting Blog: Monopoly, ES&S, and Nassau County

There was lots of reporting last week about the decision to award New York City’s huge voting machine contract to the ES&S, but the really interesting story slipped by nearly unnoticed – Nassau County, home to nearly 1 million registered voters, announced they were abandoning their recently purchased Dominion ImageCast machines for ES&S systems. This announcement came as quite a surprise because Nassau County has been using the Dominion machines for accessible voting in all polling places since 2008, as well as spent time and money training poll workers in the use of the new systems. So how is it that ES&S managed to snatch away Nassau County, in terms of voting system sales the second largest prize in New York State, from the much smaller Dominion? The answer is a cautionary tale about the power of a near monopoly to force smaller competitors out of the market.

ES&S has long been one of a handful of voting machine companies dominating the United States market. But recently, with Sequoia Voting Systems struggling financially, and the absorption of Diebold into ES&S (a move opposed by many), the company already has a near-stranglehold on providing voting systems and services to election officials. In New York State however, ES&S faces a small competitor from just across Lake Ontario in Canada, Dominion Voting. Dominion designed and built the ImageCast, a new scanner and accessible ballot marker combination system that many County Boards of Elections around the state, including Nassau, liked enough to order and use in 2008 and 2009 [Note – initially Dominion partnered with Sequoia to bring the ImageCast to New York, but Sequoia later pulled out and turned the contract over to Dominion]. Indeed, even if New York City chose the ES&S DS200 scanner, a decision finally made this week, little upstart Dominion would still have provided over half of the Empire State’s huge number of voting machines! But big companies like Wal-Mart and ES&S don’t stand around idly letting small competitors take what they see as their market share. And the way they do it is by being big enough to offer customers deals that are simply too good to pass up. And that’s exactly what ES&S did in Nassau County.

I spoke with Nassau Election Commissioner Bill Biamonte, who told me the details of the county’s arrangement with ES&S. An arrangement so good, it convinced them to decide to abandon the 450 Dominion ImageCasts they already own. It’s a darn sweet deal, and shows the kind of to-the-bone cost cutting that a large company can and will do in order to drive out the competition. According to Commissioner Biamonte, here’s what ES&S agreed to in order to get Nassau to ditch the ImageCast and buy their systems:

1) Nassau’s current ImageCast machines will be purchased by ES&S from the county. ES&S will provide Nassau a $3.5 million dollar credit against Nassau’s new ES&S systems, including a $500,000 guaranteed upfront payment. ES&S intends to sell Nassau’s ImageCasts to other counties that use the Dominion system, with proceeds from sales being split 50/50 between ES&S and Nassau.

2) ES&S will waive a $150,000 Election Management System licensing fee.

3) ES&S will provide Nassau County with a dedicated project manager, and 400 days of free support service.

4) Nassau will purchase 1300 DS200 scanners at a cost of $7100 per scanner (list price is $8347) and 450 AutoMARK ballot marking devices (I don’t have a price on these).

You gotta love ES&S’ thinking on this. Buy up a big county’s Dominion machines, sell them at cut rate prices to smaller counties (further cutting Dominion sales), offer the big county half of the proceeds along with plenty of cash and perks. A big company like ES&S has deep, deep pockets, and they can dig down into those pockets to offer deals like this in order to further drive out the competition. ES&S used their muscle to convince Nassau to abandon their investment in Dominion machines, a very large sale which not incidentally, now makes ES&S the dominant voting system vendor in New York State.

Are they working right now to cut similar deals with other large New York counties like Suffolk and Westchester, encouraging them to abandon their current systems and making them offers they can’t refuse? It’s just like the famous game where you acquire the most expensive lots, force your competitors to cede more and more of theirs until their money is all gone, and finally you own the whole board. The game is called Monopoly.

Update 7PM – After my post, I received a copy of the ES&S purchase proposal from several independent sources. According to that document some of what I reported above is incorrect. ES&S is offering Nassau a $4.7 million dollar credit for their ImageCasts, not $3.5 million; they are offering 100 project management days, not 400; the waived $150,000 license fee is not for the Election Management System but for a ES&S voter registration system; finally, the cost of the DS200 scanners is quoted at the full list price of $8347 each, not the $7100 per scanner that I reported. I find this last difference most interesting, because multiple sources had quoted the lower price independent of each other, and seemed quite certain of the lower number. Hard to account for the big difference in cost between the document and what Nassau officials originally stated.

The document shows a few other perks I didn’t report on initially. ES&S is agreeing to provide Nassau with ballot printing for three years at a guaranteed price of 55 cents per ballot; they will provide 400 hours of custom development for the voter registration system valued at $250/hour; finally ES&S is promising to sell their DS850 central count scanner to Nassau for $125,000, if the system “is certified for use in the State of New York.”

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