Lexmark sues state, Xerox over printing contract

Lexington-based Lexmark International filed a lawsuit Tuesday over the state's decision to twice award a printing contract to rival Xerox, despite Xerox's bid being significantly higher.

In its suit against the state Finance and Administration Cabinet and Xerox, Lexmark said Xerox's bid was nearly 50 percent, or $7.5 million, higher than its own over the course of the five-year managed print services contract.

Through managed print services, Lexmark and Xerox manage organizations' printing by choosing the most efficient printer setups and shipping more ink and toner as needed. It's long been a growing part of the industry and has led to fierce competition between Lexmark, Xerox and HP, among others, to sign up large accounts.

Both Lexmark and Xerox are major employers in Kentucky. Lexmark's headquarters and about 2,300 employees are located off New Circle Road at Newtown Pike. Xerox has about 5,000 employees in the state. Its operations here are primarily those of the former outsourcing firm ACS, which Xerox acquired in 2010.

The suit, filed in Franklin Circuit Court, revolves around bids placed in 2011 and then in 2012, after Lexmark successfully appealed the first time Xerox was granted the contract.

In its suit, Lexmark notes its proposed monthly cost for the service was $262,890.61, while Xerox proposed $387,793.47.

"We understand very well that it is always an uphill battle to overturn an award at this point due to deference to the contracting agency's discretion, but we believe when an agency uses its discretion to award a contract that would result in waste of this magnitude, it should not go uncontested," Lexmark spokesman Jerry Grasso said in an email.

The cost of the proposal is just one aspect of the procedure. Also factoring into the eventual selection is a technical proposal and oral presentation, with the technical proposal weighted most heavily.

"Lexmark identified errors in the technical and oral presentation scoring that, when coupled with the substantial cost difference, make the award to Xerox irrational and inappropriate," Grasso said. "Our protest maintains that the evaluators made numerous errors, any one of which, if corrected, would have swung the award to Lexmark."

The company made the same argument after the 2011 bidding, and the state agreed the project should be rebid. This time, though, Lexmark's appeal was denied by the state.

Lexmark also raised concerns in its suit that the state appears to have destroyed a number of relevant documents, including emails and notes by members of the review committee overseeing the bid.

Finance and Administration Cabinet spokeswoman Pamela Trautner declined to discuss the lawsuit and its allegations.

Chris Gilligan, a spokesman for Xerox in Kentucky, also declined to address the suit but noted the company's "proven track record" of providing managed print services worldwide.

Analyst Shannon Cross of Cross Research said both of the companies "have good managed services programs."

"Xerox probably has a broader product portfolio if you want to get up into the ... high-volume kind of printing," she said, noting the company has a larger market share along with industry giant HP than Lexmark in managed print services.

"But Lexmark is certainly a player and has done well," she said.