Examination of Witnesses(Questions 80-99)
MS SUE
STREET AND
MR MARK
HARRIS
WEDNESDAY 22 MAY 2002
80. With all due propriety?
(Mr Harris) Yes. With all due propriety.
81. You could not be satisfied that the Lottery
with Camelot and GTech involved could be run with all due propriety?
(Mr Harris) That it would be run with all due propriety
over a seven year period.
82. When did you take that decision? What date?
(Mr Harris) That decision was taken in August.
83. So that is why you could not accept Camelot?
(Mr Harris) Yes.
84. And why could you not accept the other one?
(Mr Harris) We could not accept The People's Lottery
bid because the arrangements that The People's Lottery had put
in place or offered for the protection of funds due to players
were not satisfactorily clear or well determined for the Commission
to be able to rely on them actually being in place. It is a critical
part, in the Commission's view, of the structure of the Lottery
that any funds that are due to players, either prize funds or
funds in draws that have yet to take place where if a draw does
not take place should be returned to players, are securely contained
within some separately controlled arrangement that will ensure
that those funds will pass back should anything happen to the
operator.
85. So to summarise, the second one you could
not accept on grounds of mechanical/management/payment system
type reasons and the first one on grounds of propriety, is that
right?
(Mr Harris) The second one was more than just management
payment reasons; it was the whole legal structure that would ensure
that those funds were held within separately controlled trusts,
and that either the creditors of The People's Lottery or The People's
Lottery themselves would not have access to those funds should
they go into administration or cease to be in business.
86. And in the case of the first one it was
basically grounds of propriety?
(Mr Harris) Yes.
87. In paragraph 3.16 it says that you were
advised by counsel that, ". . . while negotiating exclusively
with The People's Lottery would carry a significant risk of legal
challenge by Camelot, there were grounds for defending such a
challenge on the basis that the Commission had no alternative
but to choose between a remediable bid and a bid that was not
remediable on propriety grounds within a realistic timetable for
awarding the next licence." On that basis, you nonetheless
rejected both, did you not?
(Mr Harris) No. Counsel's advice was how one would
continue after rejecting both bids.
88. So that was basically counsel's ground for
saying that you would have grounds to say that it was okay to
negotiate with one alone?
(Mr Harris) Yes. The Commission had decided that it
was unable to accept either of the bids because of defects within
those bids. The Commission was then considering how it could move
forward to negotiate either with one or both bidders, and that
was counsel's advice regarding how the Commission should move
forward.
89. Ms Street, you did say earlier that you
have absolutely no compromise with respect to propriety. To go
back to what Mr Gardiner was saying, if there were concerns earlier
in the year about Camelot's propriety, on what basis was the decision
taken that it was suitable for the Camelot organisation with GTech
involved, about whom one had concerns about propriety and given
that you make absolutely no compromise with regard to propriety,
to carry on running the Lottery under its first licence?
(Ms Street) The position was that the Commission was
acting properly applying two different tests under the legislation.
I do think it is very difficult—I am struck by it—but
one test was obviously whether there was enough evidence to find
it not fit and proper at the time—
90. I am sorry to interrupt but can you remind
me on what date did you come to the conclusion that you were minded
to find they were not fit and proper?
(Mr Harris) That was a decision of the Commission
on 23 June 2000.
91. And I am right in thinking from what you
said earlier that you were minded on the basis of the evidence
you had available that that was the case, that they were not fit
and proper?
(Mr Harris) Yes.
92. Then there were these undertakings that
they gave. Am I right in thinking that what you are basically
saying is that these undertakings meant that you no longer had
the evidence to find that they were not fit and proper? That is
what you were saying, was it not?
(Mr Harris) Yes.
93. In other words, they had not done anything;
they had given you some undertakings that their actions would
not change unless and until they fulfilled those undertakings?
(Mr Harris) That is broadly right. I should say—
94. So in other words they had said some things,
issued some words, given you some undertakings: why does that
alter the position as it were pro tem, then, that they are not
fit and proper at that time because all they have done is given
some undertakings? They have not actually done anything at that
moment to give anyone any confidence that they were any more fit
and proper than they were when you reached the decision that they
were not?
(Mr Harris) Because what they had done is they had
severed all ties with the individuals—the Chief Executive
and Chairman of the company, the Chief Operating Officer, the
Europe Vice President—and those people who had known, and
it was a very small group of people who were directly aware and
had made that decision, had left and the company had taken certain
steps in terms of passing control to an individual who was on
the board and who had a completely different background; so it
had taken certain steps. But the Commission considered it very
carefully: we took advice: the advice was that if we were challenged
and if we found them not fit and proper and we went through the
challenge process, it would be very difficult for us to establish
that we had grounds for that finding.
95. I must move on. I am still not particularly
satisfied and I share Mr Gardiner's puzzlement as to how you could
have reached the decision that they were not fit and proper, but
I want to ask you about the earlier process. Paragraph 2.25 refers
to this statutory provision that basically you had to secure Camelot's
agreement (paragraph 2.24) for the names of the independent retailers
to be made available and then you had to write to them all individually
and again, as Mr Gardiner quoted, "The People's Lottery considered
the retail data to be of little use to its bid since it was incomplete,
was unrepresentative of the retail network, and was presented
in two different forms." What I would like to ask is why
was the Commission in a position where it could not promote fair
competition at this point? Why was the original agreement with
Camelot drawn up in such a way that you could not, next time the
thing came up for review, inform other bidders of where all the
existing retail outlets were? Why was it drawn up in that way
in the first place so that would be possible? As it was you only
got a 64% response, so the other bidders were in basically an
unfair position?
(Mr Harris) My understanding is that, when the first
competition was run in 1993/94 and the licence was drawn up as
a result of that competition, some consideration was given to
handover arrangements but because there was a high degree of uncertainty
as to what form in seven years' time the next competition might
take, and also as to which particular issues would be of most
benefit and there was a desire to get on and set up the Lottery,
these things were not considered—
96. Hang on. You have basically said "which
issues would be relevant". Surely it is always going to be
relevant for any bidder to know, "Hey, where are the existing
retail premises, the existing operators?". It is blindingly
obvious that that would be something that you would want to be
able to pass on as information—where is the network now—to
any potential future bidder if you were going to ensure a level
playing field?
(Mr Harris) I think it is very important that such
information should be available to be passed on and we have made
arrangements in the second licence to make absolutely sure it
can be. What we did make clear to bidders, though, is that we
were not looking for an absolute replication of retail outlets:
we were looking for a strategy and an understanding of how they
would base the retail outlets and we would then judge on that
basis, rather than saying, "You absolutely have to replicate
what is here". But I agree that making that information available
is important.
97. I must move on. I want to ask you about
page 8, Ms Street. I was interested to see in your CV that you
worked on efficiency scrutinies. In 1994 the Cabinet Office Efficiency
Unit did a study on the purchase of professional services and
the use of external consultants. When one reads on page 8 the
way in which the process was managed, it certainly looks like
nobody who was involved in it had ever read that report, and the
whole description looks rather amateur. "The competition
process should make much greater provision for negotiation with
bidders as the evaluation proceeds. For example, the selection
team could challenge points in bids at the time they arise, require
bidders to defend their bids, and allow them to make changes.
To help demonstrate fair treatment of all bidders, special consultants
could sit in on dialogues with bidders." These are all sorts
of points that have been bandied around for years as to how Government
procures complex professional services which involve intellectual
property and technology. It is not new, is it? Was your procurement
process not really rather amateur?
(Ms Street) I do not think it was an amateur process
but I certainly think that there are a lot of lessons to learn
from the way that the first licence was framed, and I think those
lessons were learned very quickly by the Commission in the award
of the second licence.
98. What about the box on the right hand side
where it says, "Although the bidders made significant improvements
to the bids, both Camelot and The People's Lottery felt that they
could have rectified their bids much earlier if the Commission
had made its requirements more explicit during the initial period"?
(Mr Harris) I understand that they felt that. The
process the Commission adopted was one that allowed for improvements
to be made, and we did allow for a period within the process where
we identified significant improvements in both bids that could
be made. What the Commission was very concerned in doing in setting
up the competition was not to get in a position where, with a
limited timescale available to it to carry out the competition,
it could be challenged for unfairness in terms of negotiating
unevenly with the bidders.
99. But surely the answer to that is to be as
transparent and open as possible with both parties, is it not,
rather than hold back and not negotiate. It says here, "Both
bidders told us that they did not feel involved in the evaluation
process"?
(Mr Harris) Both bidders were involved in the sense
that we asked them a whole range of questions: we had a number
of meetings with them: they were given a day and a half to make
presentations to the Commission at different times: we did a range
of site visits, so there was opportunity for dialogue—
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