Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses(Questions 80-99)



  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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