ALBANY – A City of Tonawanda company has sued the taxpayer-owned Western Regional Off-Track Betting Corp., alleging its lower bid for a security surveillance contract lost out to a Monroe County firm because of “favoritism, contrivance and extravagance.’’

U&S Services Inc. alleges in a lawsuit filed last week in State Supreme Court in Genesee County that the OTB organization wrote the bid documents in a way to favor IK Systems, which last month won the $1.8 million contract even though its bid came in more than $400,000 above the Tonawanda firm’s offer.

The lawsuit could be over before the legal fight begins, though, as OTB President Michael Kane said Monday the betting outfit – owned by Buffalo, Rochester and 15 counties throughout Western New York – is rebidding it for a considerably smaller surveillance project.

Kane said the new contract is being done as a result of regulators at the state Gaming Commission reducing some of the redundant surveillance requirements at its facilities, which includes a harness racetrack in Batavia and OTB parlors scattered throughout the region. He said the new contract will be about 25 percent smaller than the one subject to the lawsuit and will end up being a savings for taxpayers.

Kane defended the denial of the U&S Services bid, saying outside consultants felt the company’s bid did not meet contract specifications.

“It wasn’t written for anyone,’’ he said of the contract bidding process. “We think unquestionably that we vetted the bids professionally and appropriately,’’ he said.

IK Systems is based in Victor; its president is Andrew Chapman, a former Lockport Republican alderman.

In its legal filing, U&S Services said the OTB required a certain brand name product for one piece of the project that only IK Systems used as part of its offer. But U&S Services said it subsequently had been assured that use of alternative security products would not prevent a company from winning the bid. U&S Services said its confidential requests for information were shared by the OTB with its bid competitor. They were the only two companies bidding on the contract.

In its legal papers, it accused the OTB of letting IK Systems play “a significant role in formulating the flat bid specifications’’ used in the process. The “flat bid” component required a specific brand name product be used by bidding parties for the surveillance contract, which included cameras and recording devices.

U&S Services, which has had a heating and air conditioning contract with OTB for the past decade, noted that IK Systems has since stopped using the brand name surveillance product in question.

IK Systems and a lawyer for U&S Services did not return calls for comment on Monday.