What they are asking is for NY to bid this, fight the bid appeals, contract this, manage this, supervise this, etc. Govt does not do well with new stuff, and everything goes through the big bureaucracy.
And vendor side, all the requirements (the forced source hiring so you can't use your own staff, but have to wait forever for someone to send you some folks for the "entry level" positions you are required to fill from the pool they have, plus a billion political football things that you need to jump through that have no real impact on the actual project etc) means the bids are high.
As someone who has worked both sides of this - the lack of knowledge here is shocking.
I'm not in NY, but looked up just the fringe overhead rate - 62%. That's probably double the private sector as a point of reference.
So to digitize 100 years of irreplacable records, be on-site, probably have to offer to leave the machine and equipment, work around a potentially unionized workforce (trust me - no fun). That get's costly.
If Ancestry shows up with insurance, money, references and experience doing this, they definitely would have moved to front of line.
People also don't realize that most of the gadflys involved in bothers government wear everyone out there. There are tons of overblown drama from folks with no budget who are totally convinced the state is out to get them. That makes for some very jaded govt workers.
What exactly does the work entail? You appear to be speaking from a place of knowledge, even though you got the basic facts of the case incorrect as posted above.
They have this data which is not digitized. Someone requests the data in a digitized form.
So, they go down their normal process for digitizing. They have certain standards for digitizing, and it hits the minimum threshold for going to tender (Maybe $10k).
It's a government organisation so they have to create a tender which organisations would bid for, and everything has to be certified to correct standards, insured, etc.
Reclaim The Records might be able to do it cost for $3k, but it still has to go to tender, and Reclaim the Records would have to prove they can meet all the requirements and such, which would probably quickly increase the cost.
Once it goes to tender, all the costs are waaaay higher, because you have to cover the costs of bidding and such.
So, sure, their "normal process" would say, "If this is to get digitized, we need to make sure that it will go into our existing system of digitized records, and it has to meet these standards of quality, and it has to have three people review it to make sure the OCR got done properly" etc etc.
But that's what it would take to get it into their system. Not what it would take to provide the records to the requestor.
If the requirements of the law can be satisfied and the requestor is happy to accept a simple scan costing a few thousand, the state doesn't get to say "we'll only do it by our full six-month six-figure process."