Two years ago, the retailers who sell California Lottery tickets knew what to expect from their ticket deliveries.

A UPS driver in a brown uniform would arrive in a company truck — on time, usually — and obtain a signature before dropping off packages of Scratchers, the popular games sold at 23,000 stores around the state.

That changed after the lottery switched vendors a year ago, awarding a five-year contract worth up to $48 million to Unity Courier Service, a lesser-known, Los Angeles-based delivery company that emerged from a bankruptcy in 2018.

Now, nonuniformed drivers arrive in personal cars — often days and sometimes weeks late — drop off packages and rush off, according to three retailers and six lottery sales representatives from the Bay Area, Central Valley and Los Angeles.

Aman “Donald” Pannu, owner of Modesto corner store Coldwell Market, said nearly every delivery has been late, typically by three to four days, since the switch to Unity.

As a result, diehard players have migrated to gas stations, which tend to get deliveries on time more often, Pannu said. He said he has lost revenue from ticket sales and from the drinks and snacks players sometimes buy.

His complaints to the lottery and the delivery company haven’t helped, he said.

“They say all the time, ‘we’re short-handed,’” he said. “It’s a multi-million dollar contract. If the company doesn’t have the capability to deliver the product, why did the state of California give that company the contract?”

The handoff from UPS came during a pandemic-driven boom in ticket sales for the lottery, which was established nearly four decades ago to help fund California schools. The lottery reported record revenues of $8.4 billion for the 2021 fiscal year, with about $1.86 billion going to schools.

In an interview, lottery spokeswoman Carolyn Becker acknowledged the lottery’s new partner was “not perfect,” but said a variety of factors, including the pandemic and the inherent difficulties of shifting from one major vendor to another, contributed to the delays, particularly early in the contract.

Unity delivered just 20% of ticket packages within the 48-hour window specified in its contract when it took over last August, Becker said. But the company has improved: In June, it delivered nearly 80% of 87,000 shipments on time, she said.

“We completely acknowledge and understand that the challenges that linger are concerning to some of or our people,” she said. “They’re concerning to us too.”

Bankruptcy and a $48 million contract

Ali Sharifi founded Unity Courier Service in Los Angeles in 1984 to deliver checks and deposits from banks to processing centers, and the company now does business in 10 western states, according to its website.

Neither Sharifi nor Larry Lum, a former co-owner, returned voicemails or emails.

The company filed for bankruptcy in 2017 and completed it in 2018, according to filings in United States Bankruptcy Court for the Central District of California, Los Angeles Division.

The bankruptcy stemmed primarily from liabilities the company inherited when it acquired assets in 2008 from another courier service, Trans-Box Systems, according to an August 2017 filing from a lawyer seeking attorneys’ fees in the bankruptcy court.

Trans-Box employees filed class-action lawsuits alleging unpaid overtime, no pay at separation and insufficient meal and break times, according to class-action filings in San Francisco County Superior Court. Unity faced three major class-action suits with wage claims totaling $94 million, according to the bankruptcy plan filed with the court. Sharifi and Lum ultimately were ordered to deposit $400,000 into an account for the plaintiffs.

Becker, the lottery spokeswoman, said the lottery was aware of the bankruptcy but that it was “deemed by our team not to be a non-qualifying risk.”

The company won the lottery contract after submitting a lower bid than two major international carriers — UPS and the United States arm of General Logistics Systems, based in Amsterdam.

Statements of financial affairs filed in the bankruptcy case show Unity’s income was $25.4 million in 2015 and $28.7 million in 2016 — much less than the multi-billion annual revenues reported by its competitors for the bid.

UPS bid for lottery deliveries

Lottery sales representatives who spoke with The Sacramento Bee raised questions about how a major state department selected a company they described as too small to manage the volume of deliveries called for in the contract.

Bid documents the lottery released in response to a Public Records Act request show the department’s first solicitation for the delivery contract, issued in October 2020, drew only one response, from UPS.

The bid didn’t include all of the information the state requested. The department canceled the bid invitation and issued a new one Dec. 14, this time with a shorter term of five years.

Unity’s bid came in about $10 million lower than the bid from General Logistics Systems, according to a bid evaluation worksheet. UPS submitted another bid, but it was disqualified.

Unity’s bid was dated Jan. 11, 2021. The lottery notified the company four days later that it had won the $48 million contract, which specified payments would only be made after deliveries.

The lottery worked with UPS to secure emergency contract extensions despite the company’s “initial reluctance to do so,” and phased in Unity from June to August, Becker said.

In April, less than a year after starting work on the state lottery contract, Sharifi and Lum sold Unity.

TFI International, a Canadian company with reported revenues of $7.2 billion last year, bought the company and is now responsible for the lottery deliveries. A TFI spokeswoman declined comment.

In job postings on LinkedIn, Unity was offering $15 per hour — California’s minimum wage — to deliver packages, along with mileage rates of $.44 to $.58. Becker said TFI is offering better pay and benefits, and that some of the improvements in delivery times are probably related to the change in ownership.

Lost money for California schools?

Despite record revenues last fiscal year, lottery sales representatives wonder how much might have been lost due to the delays, particularly in the early period when 80% of packages arrived late. They also wonder how much they might have lost in sales-related bonuses.

“While sales goals are reported to be doing well, and there has been an increase in contributions to public education, imagine how much higher those contributions would have been without the constant fumbles of our third-rate delivery service,” Paulina Vasquez, a sales representative and SEIU Local 1000 union steward, said at a Lottery Commission meeting last November, according to a meeting transcript.

In an interview, Vasquez said empty ticket boxes on shelves, particularly when the newest games are missing, mean lost sales.

Becker, the spokeswoman, said the lottery refuted the assertion that late deliveries had affected revenues, but she said the department hasn’t tried to quantify the financial effects of late deliveries.

She said the lottery didn’t notice a dip in sales when deliveries were most delayed. For one thing, she said, dedicated ticket buyers often find another retailer if they don’t find what they want at their first stop.

“Given our complete commitment and 100% dedication to our mission to raise supplemental funding for public education in California, we devoted the appropriate resources to finalizing our partnership with Unity and ensuring the success of lottery’s operations,” she said in an email.

Becker said the pandemic complicated deliveries even before the handoff to Unity.

Hiring got harder, and the lottery had to reconfigure its warehouses to incorporate social distancing, a change that caused its own delays, she said.

Becker said the lottery tracks delivery delays and has “real tough conversations when we have to, and we feel we are making progress.”

“If the improvements can’t continue and they’re ultimately not performing at the level we need them to, we’d have to go out to bid and do a new solicitation,” she said.

She said the lottery is hoping to avoid that, because it “doesn’t necessarily guarantee a better outcome.”

This story was originally published September 7, 2022 at 5:25 AM.