Committee Reports > List of Committees > Joint > 1990 > Committee on Commercial State-Sponsored Bodies (6th Committee) > Report No. 03 - An Post National Lottery Company

APPENDIX A

Summary of the Criteria, Procedure and Conclusions in relation to the award in 1989 of the contract for the supply of Instant Games.

Mr. Dick Roche T.D.

Chairman

Joint Committee on Commercial

State-Sponsored Bodies

Leinster House

Dublin 2.

14th June, 1990.

Dear Mr. Roche,

Further to the meeting of the Joint Oireachtas Committee on the 12th of June 1990, I am setting out hereunder some points in relation to the company’s approach to the award of contracts for instant game tickets. Additionally, as requested, I am enclosing a summary of the criteria, procedure and conclusions in relation to the award in 1989 of the contract for the supply of instant games.

The company is happy that both the contents of this letter and the accompanying appendix be used as a matter of public record.

The company would like to reassure members of the Committee that the award of any contract by An Post National Lottery Company is a matter taken very seriously by the management and board of the company. This is especially so in the case of the instant game contract because of its possible implications for Irish content.

The preparation, the issue of tender documents and the subsequent detailed evaluation of proposals in relation to the current instant game contract involved senior management of the National Lottery, together with external consultants, over a period of approximately twelve months in 1988 and 1989. The ability to service the account, ticket quality, ticket security and game security, cost and Irish content were considerations all of which were dealt with in great depth by the evaluation team and by the board.

No decisions are made lightly by the company and all decisions relating to contracts of this nature are made within a framework of identifying what satisfies the National Lottery’s stringent requirements whilst recognising the importance of Irish content.

We trust that the following points will be of help to members of the Committee in their deliberations:

1.The company would like to reassure members of the Committee that it is the policy of An Post National Lottery Company to source all of its requirements, where possible, from Irish suppliers. In the printing area this policy has resulted in, amongst others, a £500,000 per annum Irish contract for the supply of Lotto playslips and ticket stock. In the computer area the central computer hardware which supports the Lotto game is manufactured in Cork. Indeed, the Cork computer company supplies all of our contractor’s overseas requirements, that is non North American, for central sites of a similar scale.

We are conscious of the importance of maximising wherever possible the benefits to the Irish economy through local sourcing. We have always been open to approaches from any potential Irish suppliers for any of our requirements and are happy to meet with potential suppliers and discuss the nature of our requirements at any time. We regularly meet with potential suppliers and again, I emphasise to the Committee the fact that the company fully appreciates the importance of job creation potential, and the fact that it is willing to consider and award contracts to Irish suppliers who have the ability to meet the company’s requirements.

2.There is currently no facility in Ireland producing instant tickets to the standards required by a state lottery.

Playprint Limited, a wholly owned Irish company, is the sole Irish company specialising in lotteries. Playprint does produce instant tickets in Ireland for both the home market and export but recognising its inadequacy to meet the essential specifications of a state lottery locally, entered into a “joint and several” contract with Webcraft Games, a U.S. company, to service the National Lottery. Webcraft are one of a handful of companies world-wide with the specialised ability and experience in this field.

3.NLC’s current instant ticket contract already includes Irish content through Playprint’s involvement. Playprint is fully responsible for every aspect of the contract apart from the physical printing of the tickets. Playprint confirm that the NLC contract has enabled them to win the confidence of international customers thereby winning new home and export business and creating additional jobs.

As a consequence of Playprint’s contractual involvement in supplying the National Lottery’s requirements the company has experienced considerable growth in its non National Lottery business over the last few years. Exports now account for 50% of its total turnover and the company employs more than eighty people, an increase of approximately 15%. Additionally, as a consequence of these developments, Playprint has embarked on a £2m development programme which was endorsed by the Industrial Development Authority and CTT in January 1988 and which is now at an advanced stage.

4.Instant ticket production is highly specialised. Any printing/production error can have very serious consequences for the credibility of the Lottery. There have been a variety of instances in recent years where lotteries have had to suffer serious consequences of errors and omissions in the production process.

5.At our meeting with members of the Committee on the 10th of April 1990 we emphasised the role of ticket security and I would like to take this opportunity of clarifying the nature of considerations in this regard. The Committee has recognised that the question of plant security is but one element and that a state lottery’s requirements in the production of instant tickets goes significantly beyond plant security. We are especially concerned with the security of the ticket and the prevention of winning ticket “pick-out” - essentially, the prevention of fraud.

In this regard, when we consider security we must be assured that neither winning nor losing game tickets shall be recognisable from any characteristics of game tickets other than by the game symbols which, as you are aware, must be concealed by the rub-off material. We must consider physical features, invasive techniques, randomisation and potential knowledge of location of high value prizes. These issues are dealt with in somewhat greater depth in the accompanying appendix.

6.In conclusion, the company recognises and respects the interest of the members of the Committee in ensuring that all possible steps are taken to maximise the benefits to job creation and the Irish economy in the servicing of the National Lottery’s requirements. We assure the Committee that we will continue to strive to maximise the level of Irish content and that we are only too pleased to meet, at any time, with potential suppliers to discuss our requirements.

Thank you for your interest in this matter and for the courtesy which the members of the Committee showed to representatives from the company. We trust that this letter and the accompanying appendix will be helpful in providing a greater understanding of our approach to this matter.

Yours sincerely,

Jim Treacy

Company Secretary.

SECTION I : OBJECTIVES AND PRINCIPAL EVALUATION CRITERIA

In 1988 the NLC conducted a number of studies to establish its objectives and criteria in relation to awarding a new contract for the supply of instant games. The objective of the NLC was to enter into a contract with a bidder in order to optimise net sales revenue from instant games within the NLC’s overall game and sales development strategy which included the optimisation of on-line games revenue.

Following the successful launch of the Lottery in 1987 and the further progress made in 1988, in particular with the launch of on-line games, the NLC was at a critical stage of its development as it entered its third year of operation. The NLC may be said to have been entering Phase II of its development which would see the launch of new products including in the instant game market the introduction of overlay games and multiple games. Whilst considerable growth is expected from on-line games it is intended at the same time to continue the development of instant games with a view to optimising revenue. The instant game will require close attention as the product mix develops particularly bearing in mind the presence of a competitor in the marketplace.

The selection of the right instant game supplier was therefore of particular importance for the NLC. The contract award criteria included in the Request for Proposal is set out in Appendix I. The matters that were considered of particular significance when evaluating bids can be summarised as follows:-

TICKET QUALITY, TICKET SECURITY AND GAME SECURITY

It is a pre-requisite that, to qualify, a bidder must have a proven track record in producing tickets of an acceptable graphics quality and that the ticket and game (i.e. randomisation, prize structure etc.) is secure and correct. It is apparent from international experience and indeed from Irish media reaction (i.e. to fraudulent prize claims) that any loss of credibility in a lottery’s instant game can have a major impact on the credibility of the lottery and consequently on sales in both the short and long term.

Therefore in considering the proposals particular attention was paid to the reports on ticket security from the independent, industry recognised laboratory A.D. Little and on bidders’ systems, controls and security in relation to computer programming and ticket production.

IRISH CONTENT

In 1988, prior to the issue of a Request for Proposal, the Board considered the feasibility of the production of instant lottery games in Ireland. The Board concluded that no company in Ireland had experience in producing instant games to the State Lottery standards required by the NLC and identified the potentially greater risk of relying on a newly established plant, compared with an established overseas plant, to produce instant games. However, the Board decided that careful consideration should be given to any Irish plant proposed, provided it was a joint and several proposal by an Irish company with a qualified overseas bidder.

A number of the bids received included various levels of Irish content from local operational representation through to a full Irish instant ticket manufacturing plant. The establishment of a plant in Ireland has certain risks and additional costs and control requirements attached to it, as well as a lack of flexibility due to the length of the contract. These matters were ignored in the evaluation of proposals. The NLC approach was to assume that a bidder would be capable of establishing in Ireland a plant to standards similar to that of the qualified bidders’ overseas plant. Having assessed the proposals on this basis allowance was made in the pricing for Irish content.

ACCOUNT SERVICING

The optimisation of revenue from instant games requires that very careful attention be paid to game strategy, design and marketing. This requires an understanding of and empathy with the Irish market and the ability to make a constructive contribution to NLC’s game development strategy. Innovation, flexibility and responsiveness to market requirements are key attributes of any successful supplier. It is important that the instant game supplier works closely with the NLC in order to properly integrate the process of developing game strategy and game design.

It is therefore of particular importance that the instant game supplier is in a position to provide an account servicing package which will include:

-The relevant experience in game strategy development and game design

-Ideally, a knowledge of the Irish market

-A proposed input to game strategy and concepts that demonstrate an understanding of the NLC’s requirements in its strategic market development

-The ability to respond immediately and with flexibility to the NLC’s requirements

-An efficient and responsive service on all operational matters in order to ensure security, ease of delivery and efficient operations. This to include immediate contact on a regular basis together with a timely and qualified response to ticket and/or validation problems.

-Ability to produce within short delivery times and deal with re-runs in a responsive and flexible manner.

COST

Increased competition has led to a reduction in price levels for the supply of instant games in recent years. Ticket costs can vary from as low as 1.4% to up to say 2.0% of gross sales value. However, the cost must be compared with the quality of instant games and service provided by the supplier as this can have such a significant affect on sales. In certain circumstances the quality of instant games and service could vary the net contribution by at least as much as the total cost of the contract, i.e. a variation of approximately 5% in sales would result in a change of approximately 2% in net contribution.

SECTION 2 : EVALUATION AND SELECTION PROCEDURE

The following is a summary of the evaluation procedure adopted by the NLC in 1988 and 1989 to ensure the selection process was carried out fairly and that the contract was awarded to a bidder who would best meet the NLC’s requirements for the supply of instant games.

1. ISSUE OF REQUEST FOR PROPOSAL

On 19th September 1988 a Request for Proposals (RFP) for instant games was issued to companies including all known qualified North American suppliers of instant games and any Irish and European companies which had expressed interest in participating in a bid.

The RFP was a detailed, comprehensive document of 52 pages plus appendices, setting out clearly the requirements of the NLC which were in line with international standards of modern state lotteries. The contract award criteria included in the RPF are set out in Appendix I.

The RFP was drawn up to facilitate as far as possible proposals that would include a new Irish plant, providing it was a joint and several proposal by an Irish company with a qualified overseas bidder (see Irish Content, Section 1). In particular the RFP included the following:

Contract Award Criteria

This is listed in Appendix I and states that one of the criteria to be taken into account includes:- “the impact of the proposed contract on employment and the economy in the Republic of Ireland providing the bid is fully competitive in all other respects”.

New Plant

“Bidders may propose producing instant tickets in an existing plant with a proven capability or in a new plant. To facilitate the bids from bidders proposing to supply instant games from a new plant this RFP allows for :

(a)10 weeks from the official date of issue of this RPF to date for the submission of proposals

(b)15 months from the award of contract to commence supply from a new plant

(c)Contracts for periods of up to five years

(d)The NLC to grant the successful bidder exclusive rights for all lottery instant games during the period of the contract.”

2. BIDDERS’ CONFERENCE

On 29th September 1988 a Bidders’ Conference was held to permit NLC to explain and clarify the specifications and requirements of the RFP and provide bidders with an opportunity to ask questions or make recommendations regarding the requirements of the RFP.

3. RECEIPT OF PROPOSALS

On 28th November 1988 eight proposals were received in response to the RFP. Bidders included three Irish companies in joint bids with overseas companies, two Canadian companies, three U.S.A. companies and one company from Holland.

4. EVALUATION TEAM

An evaluation team was formed to carry out the evaluation of the eight proposals received in accordance with criteria laid down by the Board. The evaluation team consisted of the National Lottery Director and senior management and was advised by Touche Ross Management Consultants.

The evaluation process involved the evaluation team over a period of approximately 12 months during 1988 and 1989.

5. PRELIMINARY REVIEW

A preliminary review and evaluation of the proposals submitted by the bidders took place.

6. TICKET TESTING

Arrangements were made for independent laboratory security testing of the tickets by A.D. Little.

7. SITE VISITS - IRELAND

Visits were made to the plants of the three Irish bidders.

8. SITE VISITS - OVERSEAS

Visits were made to the plants of the overseas bidders in particular to review security, control and computer security standards.

9. FINAL EVALUATION

Proposals, together with additional information obtained during the visits, were then further evaluated.

10. REPORT TO THE BOARD

The evaluation team, together with its adviser, reported to the Board of the National Lottery.

11. SELECTION BY BOARD

The Board of the National Lottery, following careful consideration over a number of meetings, approved that the contract be awarded to Playprint Limited Ireland and Webcraft Games Inc. U.S.A.. It was considered that this proposal best met the requirements of the NLC as set out in Appendix I.

APPENDIX I : CONTRACT AWARD CRITERIA

(EXTRACT RFP 19 September 1988)

The Contract will be awarded to the technically competent Bidder whose proposal satisfies all specifications contained herein and/or is determined by NLC to be the most advantageous to the NLC taking into account all technical, security, delivery, cost and other considerations. The Contractor shall be chosen using both objective and subjective criteria and cost will not be the sole or prime determining factor. In awarding Contract (s) under this RFP, NLC shall consider all factors and in particular will take account of the following matters, which are not necessarily listed in order of importance, in evaluating proposals submitted.

(a)The experience, performance, financial condition, and reputation of the Bidder in the field of Instant Game lotteries.

(b)The total cost of the game tickets including game design.

(c)The impact of the proposed Contract on employment and the economy in the Republic of Ireland providing the bid is fully competitive in all other respects.

(d)The production of proposed game tickets in an attractive manner with the consistently high degree of quality required of a consumer product being marketed by NLC.

(e)The extent to which game design and rationale proposed are creative, that they conform to good design criteria, that they appear to be marketable, and that they have good sales and revenue potential and take account of the strategy for on-line games.

(f)That the game ticket is secure from pick-out (see para 4.30) and other problems.

(g)That winner validation can be accomplished with total certainty, security, and accountability; that tickets can be reconstructed when desired by NLC; and that a prize structure can be computed at the end of production that properly reflects the contents of the game.

(h)That the game tickets can be produced on an acceptable delivery schedule, in lots that consistently have the correct count of game tickets, and that the tickets can pass the quality control inspection standards of NLC.

(i)That the Bidder’s and/or subcontractor’s plant offers adequate security for the production of lottery tickets.

(j)That adequate computer programming support can be provided by the Bidder.

(k)That the accounting procedures (e.g. manufacture, shipment, omits, validations) are consistent with the strict accountability and security requirements of a government lottery.

(l)That the production facility can be adequately audited by Person(s) appointed under Section 6 of the National Lottery Act 1986 and NLC’s independent accountants, and NLC personnel during production.

(m)That ticket alteration and counterfeiting can be prevented or be identifiable.

(n)That the individuals to be assigned to the NLC Contract are sufficiently qualified and experienced in instant ticket production.

(o)The extent to which the Bidder can provide, at no extra cost, additional advice, assistance and information in relation to all aspects of Instant Game lottery operations.

Para 4.30:

Pick-Out

Neither winning nor losing game tickets shall be recognizable from any characteristics of game tickets other than by the game symbols which must be concealed by the rub-off material.

(a)Physical Features: The odds of winning any prize of any level on a given ticket must not vary from the odds of winning that prize as stated in the final approved prize structure by virtue of any characteristic of the tickets including (but not limited to) any variation or irregularity in the front or back display printing, stock, perforation, cuts exposed book numbers, exposed ticket numbers, staples, folds, packaging, colour coating, printing registration or misregistration. If the game is produced in more than one production batch, high-tier and mid-tier winners (IR£25.00 or more) shall be recreated for each such batch and shall not bear any identifying characteristics.

(b)Invasive Techniques: It must not be possible to ascertain whether a ticket is a winning or losing ticket, using a practical or economical technique, unless the application of the technique renders the ticket unsaleable to the public or easily recognizable as having been tampered with. In particular, it shall not be possible to “see through” the rub-off material with any practically available device or technique including, without limitation, high intensity light, x-rays, infra-red, lasers, chemical means, photographic means, copying machine intrusion techniques, thermal techniques, microsurgery, microscopes, optical figures, cystoscopes, solvents, computer image enhancement techniques etc.

(c)Randomization: The odds of winning any prize of any level on a given ticket must not vary from the odds of wining that prize as stated in the final approved prize structure by reason of deficiencies in randomization including, without limitation, by virtue of the ticket’s location in its strip (page), book, shipping box, or pool; or by virtue of the contents (whether exposed or covered with rub-off) of any other ticket in the same or neighbouring strip (page), book, shipping box or pool (except insofar as NLC may in the final approved prize structure, specify the total number of low-end winners of a given level in a given single book/pack).

(d)Knowledge of Location of High-tier Winners: The Contractor shall keep NLC fully informed of any manufacturing process whereby tickets are produced in such a manner that there is a record of any kind (e.g. computer tape, computer programme, listing, chart, algorithm etc.) that connects the location of winning tickets in the game with the exposed book or ticket number on the ticket. The Contractor shall ensure that manufacturing and security arrangements prevent the misuse of such a record.