1 1 2 3 4 * * * * * * * * * * * * * * * * * 5 6 TEXAS LOTTERY COMMISSION 7 MEETING 8 9 AUGUST 8, 2001 10 11 * * * * * * * * * * * * * * * * * 12 13 14 15 16 17 18 19 BE IT REMEMBERED that the TEXAS LOTTERY 20 COMMISSION meeting was held on the 8TH of AUGUST, 21 2001, from 8:30 a.m. to 6:35 p.m., before Brenda J. 22 Wright, RPR, CSR in and for the State of Texas, 23 reported by machine shorthand, at the Offices of the 24 Texas Lottery Commission, West Sixth Street, Austin, 25 Texas, whereupon the following proceedings were had: WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 2 1 APPEARANCES 2 3 Chairman: Mr. C. Tom Clowe, Jr. 4 Commissioners: 5 Ms. Elizabeth D. Whitaker Mr. Walter H. Criner, Sr. 6 General Counsel: 7 Ms. Kimberly L. Kiplin 8 Executive Director: Ms. Linda Cloud 9 Charitable Bingo Operations Director: 10 Mr. Billy Atkins 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 3 1 INDEX 2 3 Appearances...................................... 2 4 AGENDA ITEMS 5 Item Number 1.................................... 4 6 Item Number 2.................................... 206 Item Number 3.................................... 209 7 Item Number 4.................................... 210 Item Number 5.................................... 215 8 Item Number 6.................................... 217 Item Number 7.................................... 4 9 Item Number 8.................................... 221 Item Number 9.................................... 225 10 Item Number 10................................... 226 Item Number 11................................... 233 11 Item Number 12................................... 212 Item Number 13................................... 269 12 Executive Session................................ 272 Item Number 15................................... 274 13 Item Number 16................................... 277 Item Number 17................................... 275 14 Item Number 18................................... 272 Item Number 19................................... 278 15 16 Reporter's Certificate........................... 279 17 18 19 20 21 22 23 24 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 4 1 August 8, 2001 2 CHAIR CLOWE: Good morning. It is 8:35 3 a.m., August 8th, 2001. I would like to call this 4 meeting of the Texas Lottery Commission to order. I 5 am Tom Clowe, Junior. Commissioner Whitaker and 6 Commissioner Criner are here. All Commissioners are 7 present. We're ready to go forward with this agenda. 8 We have a number of people here who are 9 appearing in regard to an issue before the Commission. 10 I would like to deal with that item on the agenda out 11 of order. It is number seven, consideration of and 12 possible discussion and/or action on an appeal of a 13 determination by the Executive Director of a protest 14 of contract award, such contract relating to the 15 procurement of drawing studio and production services. 16 I do not have any appearance forms at 17 this time, and I'm unaware of exactly who is making an 18 appearance. 19 MS. KIPLIN: Commissioners, my name is 20 Kimberly Kiplin, for the record, General Counsel. 21 We'll give you appearance slips, and I will tell you 22 that it's my understanding that there is one party who 23 is planning on making an oral presentation, and that 24 is TPFV Group, Incorporated. Their lawyer is Mr. Jack 25 O'Donnell, and with him is Mr. Richard Kooris. The WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 5 1 Executive Director is also here and is prepared to 2 make a presentation to the extent the Commission would 3 wish to hear that. 4 CHAIR CLOWE: And there are no other 5 parties that have made an appearance that wish to 6 participate in this oral argument? I see in here 7 none. 8 Good morning, gentlemen. We're happy 9 to have you, and madam, we're happy to have you here. 10 MS. SCHULTZ: Good morning. 11 CHAIR CLOWE: I'm going to ask the 12 General Counsel to make remarks that may help us 13 understand how we're going through this procedure, 14 shortly. But before I do that, my understanding is 15 that you have asked for 35 minutes in which to make 16 your oral presentation. 17 MR. O'DONNELL: Yes, sir. 18 CHAIR CLOWE: And I would like to ask 19 you how you would like to use that time. Do you have 20 a preference in that regard? 21 MR. O'DONNELL: I had planned to 22 take -- Mr. Chairman, I'm Jack O'Donnell. I'm the 23 attorney representing TPFV. I had planned to take 24 about 30 minutes and then let my client speak for 25 about five. And that's the way I would like to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 6 1 proceed. Now, I'm told that I might have a chance for 2 some rebuttal after the Commission staff attorney 3 speaks. I would like a brief chance to respond. 4 CHAIR CLOWE: Very good. And I think 5 it's very possible that the Commissioners will want to 6 ask questions, and that will certainly not go against 7 the time that we're asking you to stay within if it's 8 at all possible. And how do you feel about being 9 interrupted in your presentation for questions if the 10 Commissioners have them? 11 MR. O'DONNELL: I welcome it. 12 CHAIR CLOWE: Ms. Schultz, what is your 13 preference in this regard? 14 MS. SCHULTZ: Commissioner, I will 15 respond to Mr. O'Donnell's presentation. And I would 16 take the position that if he would like to reserve 17 some part of his 35 minutes for rebuttal, he is 18 entitled to do that. 19 CHAIR CLOWE: Good. It's the 20 Commission's intent this morning to completely air the 21 issues that you have in regard to this protest. And 22 we would appreciate, because we have an agenda that we 23 want to follow today, this not going on for a lengthy 24 time, but we want you to understand that we want to 25 hear what you have to say. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 7 1 MR. O'DONNELL: Thank you. 2 CHAIR CLOWE: And now, Ms. Kiplin, 3 would you begin this item by giving us your remarks, 4 please. 5 MS. KIPLIN: Yes, I'm glad to. 6 Commissioners, what you have before you today is the 7 consideration of the appeal of the Executive 8 Director's determination of the protest that was filed 9 by TPFV Group, Incorporated regarding the award of the 10 drawing studio and production services contract to M&S 11 Works, Incorporated. The appeal and the respective 12 documents regarding that appeal are in a separate 13 notebook that have been provided to you previously. I 14 would like to outline the appeal procedures so you 15 know why you're here today and what is being asked of 16 you. Texas Government Code Section 466.101 is the 17 statute that addresses lottery procurement procedures. 18 Specifically in that statute, subsection C provides 19 that procurement procedures that are adopted by the 20 Executive Director must, as determined feasible and 21 appropriate by the Executive Director, afford any 22 party who is aggrieved by the terms of a solicitation 23 or the award of a contract an opportunity to protest 24 the Executive Director's action to the Commission. 25 The lottery administrative rules set out the process WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 8 1 by which a party may file a protest to the Executive 2 Director, and also an appeal to the Commission. 3 Specifically, Lottery rule 401.101 -- 103, pardon me, 4 A, subsection A, provides that any proposer that is 5 aggrieved by a contract award made pursuant to a 6 formal competitive solicitation may protest the 7 Executive Director's action. 8 The protest must be filed, be in 9 writing and filed with the Commission's General 10 Counsel within 72 hours after receipt of notice of the 11 execution of the contract. Subsection C of that rule 12 provides that the successful proposer may file a 13 written response to the protest within 72 hours after 14 the Commission's receipt of the protest itself. 15 Subsection D indicates that the Executive Director 16 will review the protest, any response, and the 17 solicitation file, and will make any written 18 determination of the protest. 19 In this case, TPFV filed timely a 20 protest with my office. M&S Works did not file a 21 response to the protest, and the Executive Director 22 did make a written determination. Section 401.103(e) 23 provides that any aggrieved proposer may appeal the 24 determination of the Executive Director to the 25 Commission by filing an appeal with my office not WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 9 1 later than 72 hours after receipt of notice of the 2 Executive Director's determination. The successful 3 proposer may then file a written response to the 4 appeal within 72 hours after the Commission's receipt 5 of the appeal. Responses that are not filed timely 6 will not be considered and the respondent will be so 7 notified in writing by the General Counsel. 8 In this case, the appeal by TPFV was 9 timely filed. It was filed on July 30th, 2001 at 2:32 10 p.m. by facsimile. With regard to response by M&S, my 11 office received a three-page document consisting of a 12 cover memo to me, dated August 3rd, 2001, and a 13 two-page memo addressed to Keith Elkins, who is the 14 communications director with the agency, and that memo 15 was dated August 1st, 2001. The document was sent by 16 facsimile to my office on August 3rd, 2001, at 11:09 17 a.m. 18 This morning, I sent a written notice 19 to Mr. Miesner of M&S Works, Incorporated, and 20 provided a copy to Mr. O'Donnell, notifying -- by fax, 21 notifying Mr. Miesner that the document, if it was 22 intended to be a response to TPFV's appeal, was not 23 timely filed and will not be considered. 24 With regard to the appeal before you, 25 pursuant to Lottery rule 401.101(h), any appeal to the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 10 1 Commission will be based solely on the written 2 protest, any timely-filed responses to the written 3 protest, the Executive Director's determination, the 4 written appeal and any timely-filed responses to that 5 written appeal. In this appeal, the documents before 6 you are the appeal by TPFV, the Executive Director's 7 determination, and the protest. TPFV filed a document 8 which constitutes a supplement to the protest, but 9 withdrew -- that withdrew portions of its protest 10 complaining of the Commission's failure to produce 11 records of telephone calls from M&S Works to the 12 Commission. I have provided copies of this document 13 to you this morning. 14 Under Section 401.101(i), the 15 Commission, at its discretion, may allow oral argument 16 by the aggrieved proposer and the successful proposer, 17 and each oral argument may be limited in time at the 18 discretion of the Commission. In this case, as you 19 know, 35 minutes has been allotted for each party. 20 Additionally, each oral argument will be based solely 21 on the written protest, any timely-filed responses to 22 the written protest, the Executive Director's 23 determination, the written appeal, and any 24 timely-filed responses to the written appeal. 25 Further, the Executive Director may be present, and WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 11 1 she is, have the opportunity to make a presentation to 2 the Commission regarding the determination, and may be 3 available to respond to questions by the Commission. 4 It is my understanding that the Executive Director 5 would like to make a presentation and is available to 6 respond to questions by the Commission. 7 The Commission's determination of any 8 appeal shall be administratively final when issued. 9 In considering the appeal, you as Commissioners may 10 only consider that information which is contained in 11 the appeal, the Executive Director's determination, 12 and the protest in this particular case, because those 13 were the documents that were filed. You may not 14 consider information that falls outside this scope. 15 In making any determination, you should affirmatively 16 state, if you can, that your determination is based 17 solely on the appeal, which is based solely on the 18 written protest and the Executive Director's 19 determination. If you choose to listen to persons 20 other than those persons who filed an appeal and who 21 are here to present oral argument, under the rule, and 22 also the Executive Director's presentation, you must 23 not consider in making your determination any 24 information that is outside the scope of what I have 25 previously stated. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 12 1 Do any of y'all have any questions over 2 the comments that I have made on the record at this 3 point? Any questions? 4 CHAIR CLOWE: I hear none. Anything 5 further? 6 MS. KIPLIN: No. 7 CHAIR CLOWE: Mr. O'Donnell, again, 8 welcome. We're happy that you're here. Do you have 9 any comment about the comments that Ms. Kiplin made in 10 regards to the perspective of the Commission in regard 11 to this appeal? 12 MR. O'DONNELL: No, sir, I do not. 13 CHAIR CLOWE: Very good. We're in your 14 hands. 15 MR. O'DONNELL: Thank you, sir. Good 16 morning, Commissioners. My name is Jack O'Donnell. 17 I'm an attorney. I represent the company that has 18 filed a protest, TPFV Group, and seated next to me is 19 the president of TPFV Group, Richard Kooris. And I 20 know we only have 35 minutes, so I'm going to try to 21 move through this fairly quickly. 22 First of all, I want to, instead of 23 saying TPFV Group every time I talk about my client, I 24 would just refer to them as the Group, if that's okay 25 with the Commissioners, so we can move forward. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 13 1 CHAIR CLOWE: Yes, sir. 2 MR. O'DONNELL: Thank you for allowing 3 us to actually come before you and present our 4 arguments to you personally. We appreciate the 5 opportunity to have this day in court with you. We 6 have two main points that we want to make, and then 7 I'll go over them in detail. The first point is that 8 the statute governing your procurement process 9 requires that, to the fullest extent possible, the 10 Commission shall promote competition to the maximum 11 extent possible. I'm talking about Section 466 of the 12 Government Code, of the local Government Code. That 13 statute also requires that the process be -- have 14 integrity, honesty, and fairness, and that the 15 procedures must ensure fairness and integrity. 16 Now, that's the law. And we are here 17 today to present evidence that we believe will show 18 that the process, the bidding process for this 19 particular contact -- contract is not consistent with 20 that law. It was not fair. That will be point one. 21 And point two is, as a result of the 22 unfair process, in effect, there has been no bidding 23 process because of the way this was conducted. And as 24 a result, the Commission is getting ready to make a 25 very bad decision about the contract that it has WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 14 1 entered into, a bad financial decision. 2 So these requirements are set forth in 3 your statute, fairness, honesty, integrity in the 4 bidding process. And I know those standards were 5 echoed by you, Mr. Chairman, in a meeting in April of 6 this year when you welcomed your two new Commissioners 7 who are seated with you today. The transcript of that 8 shows that you emphasized the fairness, the integrity, 9 of how this Commission operates. We commend you for 10 that. And you talk about the people of Texas have to 11 have the trust in how the Commission conducts its 12 affairs. We commend you for that. And you also state 13 that it's the responsibility of each and every 14 employee to carry out that mission. And so you have 15 certainly echoed what the statute requires and we 16 commend you for that. And this public hearing giving 17 us a chance to articulate our reasons why we think the 18 process is not fair, or was not fair, is just part of 19 that policy allowing the sunshine of the public, so to 20 speak, to shine down and see exactly what occurred 21 here. 22 Now, we are not asking that the 23 contract be awarded to the Group. We are asking that 24 the contract with M&S be canceled and that the RFP be 25 re-issued in proper form so that it can be relet for WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 15 1 bids. 2 Now, let me start with Exhibit 12 of my 3 protest, which is a letter that Mr. Kooris wrote to 4 the Commission back in August of 2000. And we must 5 remember that the Group, again, I'm referring to my 6 client as the Group, the Group has been the only 7 entity that has broadcast the lottery productions 8 of -- the TV broadcasts since 1992. And the purpose 9 of that letter was to inform the Executive Director 10 that the Group had heard of the possibility that the 11 Commission was considering taking the studio in-house, 12 because that was discussed in public in July, in the 13 July meeting of 2000. And the letter says, we see 14 where you have discussed the in-house -- possible 15 in-house RFP. We, as your current vendor, have a 16 tremendous amount of knowledge since we've been 17 running this since 1992. We are certainly aware of 18 the tremendous technological changes that are 19 occurring right now in this industry. And if you're 20 thinking about taking this in-house, we would be more 21 than happy to meet with you and discuss this with you 22 to give us -- give you our expertise so that you can 23 make a good decision on behalf of the Commission and 24 the people of Texas. 25 Now, the response that we got back is WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 16 1 Exhibit Number 13. That was a letter. With the 2 Commission's permission, I would like to show it with 3 the chart. The response that my client got back from 4 Linda Cloud to that letter offering to be of any 5 assistance to help the Lottery Commission in such an 6 important decision involving technology and cutting 7 edge technology, is a letter dated August 24. And 8 this is the second page of that letter, and this is in 9 the protest as Exhibit Number 13. And in this 10 response, the Executive Director states that, I know 11 you are aware that the Texas Lottery as a State agency 12 cannot consult exclusively with one prospective 13 vendor. To do so may jeopardize the fairness of the 14 procurement process. And that goes to the heart, the 15 very heart of our complaint here today. To consult 16 with only one prospective bidder may jeopardize the 17 fairness of the procurement process. And we couldn't 18 agree with her more. And so she goes on to say, if 19 you're not going to bid or have any intention of 20 bidding, we would be happy to talk to you. But if 21 you're going to bid, we can't talk to you. 22 Now, let's contrast this with -- the 23 staff's commission -- the Lottery staff's commission 24 contacts with M&S Works, who ultimately got this 25 contract. As the Commissioners recall from my WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 17 1 protest, in March of 2000, several employees of the 2 Lottery Commission went to Kentucky to review the 3 studio there in Kentucky to see what they had, 4 possibly, you know, doing their due diligence to find 5 out what kind of studio they might want to bring 6 in-house. Now, at the time they did that, on March 6 7 and March 7, the Lottery employees made a videotape of 8 that facility. And in the process of this -- our 9 appeal, my client's appeal, we requested a copy of 10 that videotape because it was never disclosed to 11 anyone, to this day. And there was an Open Records 12 request and M&S responded to that Open Records 13 request. And let's see what they said about that 14 video. And this is an exhibit in our protest. What 15 they said is, we can't show this videotape to anybody, 16 especially my client, because that videotape was done 17 pursuant to an agreement of confidentiality in the 18 capacity of a potential vendor or a potential 19 contract, in advance of the RFP that we're talking 20 about here today. So back in March 6 or 7 when this 21 video was made, M&S Works was already had in its mind 22 and it's put it in writing, we wanted this contract 23 that we knew was going to happen, this RFP, we were a 24 prospective bidder for that contract, and we had an 25 agreement of confidentiality. Well, who could that be WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 18 1 with other than the Lottery, that we were doing this 2 video as a potential contractor, bidder on this 3 contract. So this is March 6 or 7, 2000. So here we 4 have M&S on the record as someone who is a potential 5 bidder for this contract, very interested in getting 6 this contract. 7 CHAIR CLOWE: Can you give us the 8 number of that exhibit, Mr. O'Donnell? Do you have 9 that offhand? 10 MR. O'DONNELL: Yes, sir. Exhibit 6. 11 CHAIR CLOWE: Thank you. 12 MR. O'DONNELL: All right. So now what 13 we have is we have the current vendor, the Group, 14 asking to consult with the Lottery or give advice 15 about this potential in-house studio, and we're told, 16 we can't talk to you. We've got M&S Works saying, we 17 have an agreement with the Lottery that back in March, 18 we are a potential vendor for this very same contract. 19 Now, let's contrast the contacts made between the 20 Lottery and my client and the Lottery and M&S. Well, 21 the contacts between the Lottery and my client are 22 easy to contrast; zero about this RFP. 23 COMMISSIONER WHITAKER: Is there 24 evidence in the record to that, sir? To that effect, 25 sir? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 19 1 MR. O'DONNELL: Our protest is sworn 2 and I'm sure in there somewhere we say, we were not 3 contacted. 4 COMMISSIONER WHITAKER: So you don't 5 have a log of your telephone records or anything like 6 that? It's a statement in your proposal, in your 7 submission? 8 MR. O'DONNELL: It's a statement in the 9 protest that we were not -- zero contacts with us. 10 Now, look at the contacts between the Texas Lottery 11 and M&S Works. This -- this is page six of my 12 protest, where I have listed all of the telephone 13 contacts between M&S Works and the Lottery, both 14 before the RFP was issued, here in December it's in 15 bold print, so you can see contacts before and 16 contacts after. So as opposed to no contacts with my 17 client, we have these series of telephone calls both 18 before and after. Now, obviously, there is strong -- 19 and remember, as of March 6 or 7, M&S has already 20 admitted, from the previous exhibit we looked at, that 21 they're a potential vendor, they want this contract. 22 That's why they gave the videotape. 23 So starting in early March, all the way 24 through February 22nd of 2001, the Texas Lottery is in 25 contact by phone with a potential bidder for this WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 20 1 contract. And we will -- we will go into these in 2 more detail later. 3 COMMISSIONER CRINER: Do we know -- 4 excuse me, sir. Excuse me. 5 MR. O'DONNELL: Yes. 6 COMMISSIONER CRINER: Do we know who 7 these phone calls were made from or to, or was this 8 the point of contact for the RFP? 9 MR. O'DONNELL: I can talk about that 10 now. The RFP says that the sole source of contact for 11 the RFP is Ridgely Bennett, the Deputy General 12 Counsel. And any contact after the RFP is issued 13 should be in writing. That's what the RFP says. 14 That's in evidence. So we don't know who made these 15 phone calls and we don't know what was said, and I'm 16 going to get into that in a minute. Because I had 17 hoped, when we presented these, that the Lottery would 18 come forth in a public hearing and tell us each call, 19 who made the call and what was discussed, especially 20 the ones after the RFP is issued, because that's in 21 direct violation of Section 2.1.1 of the RFP that 22 says, once the RFP goes out, you should have no 23 contacts whatsoever with the Lottery about the RFP. 24 And if you do, at least you should have them with 25 Ridgely Bennett in writing. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 21 1 So -- but this is just one part of it, 2 and I'm going to go into detail here a little bit 3 more. But there are other contacts. These are the 4 direct contacts. There are indirect contacts. 5 CHAIR CLOWE: May I ask a question for 6 clarification? 7 MR. O'DONNELL: Yes, sir. 8 CHAIR CLOWE: I see the exhibit and I 9 have a copy of a letter from you dated June the 11th, 10 and the calls listed differ to some extent. Can you 11 help me with that? 12 MR. O'DONNELL: Yes. First of all, let 13 me explain. This is out of -- page six out of my 14 protest. And this last call that's on the bottom, I 15 added it. It's actually on page seven of my protest, 16 but I put it here so it would all be on one sheet. 17 That's for starters. Then what I did, the supplement 18 you're talking about, if you look at the phone 19 records, Exhibit 11, that were given to me, it says, 20 all of these are -- are calls from the Lottery to M&S 21 Works. Then I got additional records from the Lottery 22 where they said, not all of these calls are from the 23 Lottery, some of these calls are to the Lottery from 24 M&S Works. And so in that supplement, I listed the 25 phone calls that are included here that the Lottery is WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 22 1 contending came from M&S Works to them. Do you see 2 what I'm saying? 3 CHAIR CLOWE: So those are the calls 4 listed in your letter? 5 MR. O'DONNELL: Well, I've listed -- in 6 the initial protest, I list all of these calls. 7 CHAIR CLOWE: Right. 8 MR. O'DONNELL: In the supplement, I 9 say, some of these calls, the Lottery contends were 10 made from M&S Works. 11 CHAIR CLOWE: Right. 12 MR. O'DONNELL: So I'm just trying to 13 clarify that. But I do want to point out that the 14 actual records provided me show that all of these 15 phone calls are from the Lottery. Now, there is some 16 confusion there -- that's what the records say on 17 their face, but I'm told that that supplement, those 18 are actually calls from M&S Works, but you can't 19 really tell that. A lay person cannot tell that from 20 looking at it. Your technician, who understands that, 21 has told us that's what those mean. So all of those 22 calls in that supplement are included in this list. 23 COMMISSIONER CRINER: Is there a list 24 that shows how much interaction or how many calls were 25 made from the Group to the Lottery? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 23 1 MR. O'DONNELL: There is none because 2 we had no contacts. We've already seen -- there are 3 none -- there is no contacts between my client and the 4 Lottery about the RFP. 5 COMMISSIONER CRINER: You are a 6 provider. 7 MR. O'DONNELL: Correct. 8 COMMISSIONER CRINER: And you had no 9 communications at all at any time? 10 MR. O'DONNELL: About the RFP. But 11 because, as we've seen from the previous letter, we 12 were told we could not talk about the RFP. 13 MR. KOORIS: Excuse me. Are you asking 14 if we had any contact relevant to the current 15 contract? 16 COMMISSIONER CRINER: Just contact. 17 I'm looking for, did you communicate with the Lottery 18 at all. 19 MR. O'DONNELL: I have to assume, as 20 the current provider, that there were numerous, I 21 assume, contacts between them and the Lottery 22 concerning their current contract. My only point is, 23 there is no contact between my clients and the Lottery 24 about the in-house studio and the RFP because 25 Ms. Cloud's letter said that she couldn't talk to us, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 24 1 and we didn't talk to them. But it's not just the 2 phone calls -- go ahead, sir. 3 CHAIR CLOWE: I think Commissioner 4 Criner is still wanting an answer to his question, and 5 I think Mr. Kooris was on the verge of trying to 6 answer that. If you might go forward, if you're able 7 to answer his -- you understand his question, I think. 8 MR. KOORIS: I believe I do. 9 CHAIR CLOWE: Could you help him with 10 that, please. 11 MR. KOORIS: Commissioner Criner, we 12 have the current contract. And in the course of 13 servicing that contract, we have numerous contacts 14 with the operations staff and the security staff of 15 the Lottery. I mean, they're in our facility every 16 evening six nights a week. We have contacts with 17 regards to maintenance and security issues and moving 18 equipment in and personnel, and so on. So there -- 19 I'm sure that if you went back and did a similar 20 search of the phone records, you would see quite a 21 number of calls between our offices and the offices of 22 the Lottery. But Mr. O'Donnell's point is that we 23 requested back in August of 2000 the permission to 24 discuss this in-house studio with the Lottery, and we 25 were denied that permission. So there have been WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 25 1 absolutely no discussions subsequent to the receipt of 2 the letter from Linda Cloud about the in-house studio, 3 nor were there any discussions after the issuance of 4 the RFP, because we've been through that before and we 5 know that we are not permitted to contact the Lottery, 6 except in writing, to the point of contact. Does that 7 answer your question? 8 COMMISSIONER CRINER: That's fine. 9 Yes. I just wanted to make sure, if you were the 10 existing vendor, that you were talking to them. 11 MR. KOORIS: We do talk to them, yes. 12 COMMISSIONER CRINER: The next 13 question, Ms. Cloud, do you -- are you aware of what 14 the nature of these calls were all about? 15 MS. CLOUD: Yes, sir. We'll go into 16 that in our brief. 17 MR. O'DONNELL: May I continue? 18 CHAIR CLOWE: Thank you, Mr. O'Donnell. 19 MR. O'DONNELL: Obviously, we don't 20 know, because we haven't been furnished information 21 and the Lottery has not provided information in their 22 determination of what these calls were about. But 23 obviously there is strong circumstantial evidence that 24 it's about the in-house studio and/or the RFP unless 25 they're just talking about the weather in Kentucky. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 26 1 So -- but I'm going to go into that in more detail. 2 But it's not -- it's not just these phone calls. We, 3 in our protest, mentioned a vendor called Commercial 4 Video Systems, which is an equipment seller here in 5 Austin that supplies broadcast -- or sells broadcast 6 equipment. And as I understand it, it's also a vendor 7 with the Lottery. Commercial Video services some of 8 the equipment that the Lottery has. But what we have 9 learned, and we have it in our protest, is that 10 Commercial Video Systems is one of the few people here 11 in Austin that could supply the type of equipment that 12 was needed to comply with this RFP. And what we have 13 learned is that Commercial Video Systems, prior to the 14 RFP being issued, was in contact with the Lottery, the 15 Lottery was consulting with them about the specific 16 types of equipment needed to comply with this RFP. 17 And you say, well, so what? What difference does that 18 make? Well, the importance is, Commercial Video 19 Systems, we've also learned, had an agreement at the 20 same time or the approximate same time with M&S Works 21 to provide the equipment to M&S Works if M&S Works got 22 this contract. So you have the Lottery conferring 23 with Commercial Video Systems about the specific type 24 of equipment that is needed, and in that particular 25 entity, Commercial Video, at the same time is in WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 27 1 contact with M&S Works about complying with this RFP. 2 Now, so we have not only the direct 3 phone contacts, but we have the indirect contacts, the 4 back door contacts, as I would call them, through 5 Commercial Video. Now, there is not -- the Executive 6 Director does not respond at all in her determination 7 to this allegation. And our allegation is based upon, 8 we cite where we got that information, we talked to an 9 individual at Commercial Video. The Executive 10 Director does not admit it or deny it. Her 11 determination is totally silent about that assertion, 12 which is I think pretty important and I think the 13 public has a right to know what occurred there. So 14 you not only have the phone contacts, you have the 15 contacts through CVS, Commercial Video Systems. 16 Now, one of our key points is that the 17 staff from the very beginning, the Lottery staff, knew 18 what they wanted. They wanted what Kentucky had. 19 They wanted what Kentucky had. That's what they 20 wanted. And we don't have any problems with that. 21 The problem we have is, they didn't tell anybody. 22 They didn't tell us, they didn't tell any of the other 23 prospective bidders that this is what they wanted. 24 And the examples, I have numerous examples of that in 25 my protest, and let me just run through a few of them WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 28 1 very briefly. 2 When Mr. Elkins went to Kentucky to 3 videotape that facility, he came back and wrote a memo 4 where he says that we should consider utilizing the 5 Kentucky lottery studio vendors, M&S Works, as their 6 consultant. And that was at a time when it was being 7 discussed that the landlord here would build the 8 studio and M&S was just going to be a consultant. But 9 he was so impressed with what they had, he said, let's 10 hire these people as a consultant. And then in a 11 further memo, and this on page five of my protest, he 12 states, M&S company officials are willing to provide 13 our landlord and their architect with a turnkey 14 proposal. I mean, this is exactly what they want. 15 Now, subsequently, it was decided that 16 instead of using them as a consultant, an RFP would be 17 issued, in April. And then there was a -- a meeting 18 before this Commission in July of 2000, and we have 19 the minutes, and in discussing this possible RFP for 20 the in-house studio, Ms. Cloud states, and this is on 21 page eight of our protest, Kentucky has very similar 22 to what we're looking for. And then Mr. Bennett 23 almost immediately in that same meeting says, we have 24 had staff talk with other lotteries and do due 25 diligence before coming together to draft an RFP. So WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 29 1 we have a good understanding of what needs to go into 2 the contract documents. And then, Mr. Elkins has 3 stated, when he was so impressed with the Kentucky 4 operation and the video, he has stated in an affidavit 5 that has been attached to the Executive Director's 6 determination that he wanted to show the video. In 7 fact, he want to give that video, a copy of that video 8 to each prospective bidder for this RFP at the prebid 9 conference to show them what they wanted. But that 10 was never done. And to this day, nobody has ever seen 11 the video, no prospective bidder. So it was clear, 12 the staff knew what they wanted. They wanted what 13 Kentucky had. They liked it. We don't have any 14 problem with that. They just should have told 15 somebody. They should have told all of the other 16 bidders, they should have let us see the video, and 17 then we would have had a true bidding process. This 18 is what you want? Well, this is what we're going to 19 try to give you. Instead, we had a very vague RFP 20 issued, very vague, very difficult to understand what 21 was needed, and the only person who really knew what 22 was needed was M&S Works. 23 MS. KIPLIN: You've got five minutes. 24 CHAIR CLOWE: Well, we've interrupted 25 you with questions. I want you to understand we're WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 30 1 comfortable with your presentation. 2 MR. O'DONNELL: Thank you. 3 CHAIR CLOWE: Time-wise. 4 MR. O'DONNELL: I don't have too much 5 more. 6 Now, let me just talk about these phone 7 calls very briefly, because at first blush, when you 8 look at the Executive Director's responses and 9 affidavits, and you think, well, this has all been 10 explained. But in truth and in fact, nothing has been 11 explained. I challenge the Commissioners, based upon 12 the Executive Director's response, and her -- and the 13 affidavits, to tell me who made these phone calls 14 before and after the RFP was issued. Which employees 15 did that, and what was the subject of those telephone 16 calls. You can't do it. It's not there. I would 17 have hoped that the -- that the Executive Director, in 18 responding to what is an apparent breach of the 19 fairness requirements, especially after the RFP is 20 issued, to have detailed affidavits saying exactly who 21 made these phone calls and exactly what was said, but 22 that's not what we have here. We've got a couple of 23 affidavits by Mr. Elkins and Mr. Hill, very narrowly 24 drafted. If you look at them very carefully, they 25 never state that they are one of the persons who made WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 31 1 a phone call, or had a telephone conversation after 2 the RFP is issued. We don't know who made those. 3 Neither one of them state which calls they were 4 involved in, if any, before the RFP was issued. They 5 do state that in the -- in some of the phone calls 6 they had, that they did not seek or receive 7 information about the RFP. Did they give any 8 information? You see how narrowly worded that is? We 9 did not seek or receive information. Did they give 10 any information about the RFP? The bottom line is, I 11 challenge anybody here that has read these affidavits 12 to tell me who made these phone calls and what was 13 said. You cannot do it. It's not in the record. 14 Now, the Executive Director says, well, 15 you can't prove what these were about. She is right. 16 We have asked for discovery. We've asked to take 17 depositions of the people who made these phone calls, 18 but we can't do that. She's not allowed us to do 19 that. So we have strong circumstantial evidence of 20 what these calls were about, but we can't swear under 21 oath, you know, that these calls were about the RFP, 22 but what are they about? And you know, it's easy to 23 draft an affidavit. If you didn't talk about the RFP 24 in any of these phone calls, it's easy to draft an 25 affidavit that says, my name is Jack O'Donnell. I am WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 32 1 a Lottery employee. I have looked at Mr. -- I have 2 looked at the list of telephone calls that have been 3 provided in this protest. I did not speak to anyone 4 about the RFP, or I did not speak to M&S Works about 5 the RFP in any shape, form or fashion, before the RFP 6 was issued or after. It's that simple. A couple of 7 sentences. We don't have that. So the public really 8 deserves better than that. When you put up a list of 9 contacts like this, and there is no response of who 10 made those and what was said, I don't think that's 11 appropriate for -- the public needs to know that. 12 There are other people that need to know that. I 13 notice on the agenda that the Council for Competitive 14 Government is here today. And I think they would be 15 interested in that. 16 Now, all of these unanswered questions, 17 if the Commissioners should deny our appeal and we 18 appeal to District Court, all of these unanswered 19 questions are going to get answered because they're -- 20 we have full discovery of everybody involved and we 21 can get to the bottom of this. And it seems to me 22 that's the last place that my client wants to be in, 23 district court, and I think that's the last place the 24 Lottery wants to be, in district court. We need to 25 find out before y'all make your decision, answer these WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 33 1 questions. Who were the employees that made these 2 calls. What were these calls about. Were they about 3 the RFP, especially the ones after the RFP was issued. 4 That's in direct violation of Section 2.1.1. And for 5 the Executive Director to say, well, you can't prove 6 it, that's true. She hadn't given us any ability to 7 do that. But she as a public official, with this type 8 of an appearance of some unfairness, should have come 9 forward with very specific affidavits setting forth 10 exactly what these calls were about. 11 The statute that I talked about 12 earlier, the statute that governs our bidding process, 13 the Government Code statute that I mentioned, speaking 14 of honesty, integrity, that's the law, the 15 Commissioner Clowe's statements in April when he 16 introduced the new Commissioners, that's the high 17 standards that he has set for this public agency, it's 18 a good standard. We would respectfully request that 19 the Commission give serious attention to these matters 20 that we have raised here and do its own investigation 21 and answer these questions. 22 Now, lastly, I would say, as a result 23 of this unfair bidding process, in effect, there has 24 been no bidding process. And what happens when you 25 don't have a bidding process is, you have a bad -- you WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 34 1 have a bad bid. We're going to -- I think we're going 2 to see from Mr. Kooris, who is much more knowledgeable 3 than I am, that the equipment is obsolete from the 4 very beginning, the equipment that you're purchasing, 5 it does not meet the specifications, and it's going to 6 have to be replaced in the near future at substantial 7 expense to the taxpayers and to the Commission. And 8 as I understand it, and I wasn't there, but as I 9 understand it, this whole idea of the in-house studio 10 was in large part presented to the legislature and to 11 the executive branch as a cost-saving measure. And 12 it -- maybe it is, but you've got to have a fair bid 13 to do that. So -- a bidding process. So thank you 14 very much for your time, and Mr. Kooris just has like 15 three minutes of remarks if the Commission would allow 16 that. 17 CHAIR CLOWE: Certainly. 18 MR. KOORIS: Thank you. Good morning, 19 Commissioners. My name is Richard Kooris. I'm the 20 president of TPFV Group. We've been in the film and 21 video production business since 1975, which is longer 22 than any company in the state of Texas at the present 23 time. We're also the company that has produced and 24 broadcast the Texas Lottery drawings beginning with 25 day one in 1992. During that time, we have produced WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 35 1 more than 2500 live broadcasts without a single 2 failure. We're proud of that record, not only because 3 of what it says about our professionalism and 4 expertise, but also because we feel that it's the best 5 evidence that we've kept our word and delivered 6 excellent value to the Texas Lottery and to the 7 taxpayers of the State of Texas. 8 Unfortunately, our reward for nine 9 years of faithful zero defect service has been 10 hostility and suspicion. Our efforts to meet with the 11 Lottery and address their needs and to make 12 constructive suggestions for improvement, based on our 13 years of experience in the video field, have all been 14 ignored. In fact, as you have heard, during the same 15 period that the Lottery was consulting with M&S Works, 16 we were informed that it was Lottery policy not to 17 consult with any prospective bidder and that they 18 would therefore decline to meet with us. I know it 19 would be simple to dismiss our protest as a matter of 20 sour grapes by a disgruntled vendor, and there is no 21 doubt that we value the Lottery's business. But 22 that's not the main reason that we're here. We're 23 here because we feel that the Texas Lottery and the 24 Texas taxpayers, like ourselves, deserve a fair and 25 objective procurement process. The process that has WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 36 1 taken place here over the past year, as you have heard 2 Mr. O'Donnell discuss, has been fatally flawed and 3 biased from its inception. If it is allowed to 4 proceed on its current course, the true victims will 5 be the Texas Lottery and the taxpaying citizens of 6 Texas. 7 As you are undoubtedly aware, the 8 United States is in the midst of a massive change from 9 an analog to a digital television standard. The RFP 10 properly anticipated this change and required digital 11 broadcast equipment and provision for future editions, 12 such as high definition television. The system 13 proposed by M&S Works is an outdated analog system, 14 which will have to be totally replaced in a matter of 15 years, and which has no capability to be upgraded to 16 high definition. This system not only does not meet 17 the minimum requirements of the Texas Lottery's own 18 RFP, but it will also be obsolete on the day that it 19 is delivered. The net result of this poor planning 20 will be considerably increased future costs. In 21 addition, any conversion to high definition television 22 from the proposed M&S studio will require total 23 rewiring and equipment replacement, putting the studio 24 out of commission for at least a number of weeks. We 25 hardly think that this is the result that the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 37 1 legislature contemplated when they authorized this 2 expenditure as a cost-saving initiative. 3 A proper plan such as the one that we 4 propose will permit a conversion to high definition 5 television within 48 hours, at no additional cost to 6 the Lottery. Shortly after we received this RFP, we 7 knew that we were at a tremendous disadvantage. We 8 had discovered that the Lottery had been in close 9 contact with M&S Works, that they wanted a studio just 10 like the one that M&S Works had, but that we could not 11 obtain information about those specifications. 12 Nonetheless, we took the purposely vague RFP that was 13 written and responded to it, as we always have, in a 14 thorough and professional manner. To our surprise, 15 M&S Works ignored significant requirements of the RFP. 16 They declined to provide digital equipment, they 17 declined to provide the required virtual sets or live 18 web-streaming capabilities, and they presented their 19 cost information in a prohibited manner. In spite of 20 these manipulations, which appeared to decrease the 21 cost of their proposal relative to ours in a totally 22 unfair way, they were still ranked higher than we and 23 were awarded the contract. 24 We are not asking for any favors or 25 special treatment. All we want is a chance to compete WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 38 1 on a level playing field, responding to fair 2 specifications known by all the bidders, and evaluated 3 by a panel with some knowledge of the television 4 profession. We think the taxpayers of Texas are owed 5 at least that much and we think that if the Lottery 6 conducted this process in a fair and open way, many 7 bidders would respond. This is would be the best 8 situation for all of the taxpayers. We realize that 9 time is of the essence, and in order that the 10 Commission not feel that this rebid process must be 11 completed by August 31st, we are prepared to continue 12 to provide broadcast services from our facility on a 13 month-to-month basis, as we have for the past nine 14 years, until the matter is properly resolved. Thank 15 you for your time and I'll be happy to respond to 16 questions. 17 CHAIR CLOWE: Thank you both. 18 Commissioners, do you have any questions of 19 Mr. O'Donnell and Mr. Kooris at this time? 20 COMMISSIONER WHITAKER: I was just 21 wondering if it makes more sense to hear the response, 22 because I have a number of questions. 23 CHAIR CLOWE: Very good. I do too, and 24 we'll go forward, then, Ms. Schultz, with your 25 response. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 39 1 MS. SCHULTZ: Good morning, 2 Mr. O'Donnell, Mr. Kooris, Commissioners. My name is 3 Kay Schultz. I'm the Assistant General Counsel for 4 the Texas Lottery. And I'm here today representing 5 the Executive Director of the Lottery, Ms. Linda 6 Cloud, with her response to the appeal of her 7 determination. 8 I do have some handouts that I think 9 will help you. So if I may, I'll go ahead and 10 distribute those. But I do want to state first, in an 11 overall response to the TPFV oral argument, there has 12 been no improper contact between M&S Works or any 13 other potential vendor or proposer on this 14 procurement, and there have been no consulting 15 arrangement between M&S, between CVS, Commercial Video 16 Systems, or between any potential vendor or proposer 17 or bidder on this contract. In contrast with the 18 contentions of Mr. O'Donnell, I believe that the 19 affidavits of the main individuals involved in 20 drafting the technical portion of this proposal are 21 very clear and very succinct. It doesn't take a lot 22 of words to say that there was no involvement. The 23 affidavits of these individuals state clearly that 24 they did not have any arrangements with any potential 25 vendor. And I'll quote from the affidavit of Mr. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 40 1 Keith Elkins, the communications director. 2 At no time did I discuss details of or 3 share information regarding the request for proposals 4 for drawing studio and production services with M&S 5 Works or with any other prospective proposer or 6 proposer prior to the award of the contract. That 7 would cover the entire period that is referred to in 8 terms of these telephone calls, both before and after 9 issuance of the RFP. 10 But I agree. I agree with 11 Mr. O'Donnell that the crux of the issue here is these 12 telephone calls, so let's look at the telephone calls. 13 Let's look at each and every one if you want to go 14 through them individually. Exhibit 2 is page six of 15 the TPFV protest, with the information of which 16 extensions these were two and from. What this is 17 taken from is Exhibit 11 to TPFV's protest, which is 18 the telephone records that detail page by page and 19 give the extension numbers for every single individual 20 who these calls went to and from. 21 Apparently, when TPFV made Open Records 22 requests and received some 650 pages of records in 23 response to their request, they did not request as one 24 of the documents a list of people's phone extensions. 25 But the phone extensions are included in Exhibit 11, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 41 1 and we'll detail who these calls were to and from. 2 They detail 34 total calls to and from M&S Works 3 between March 2000 and February 2001. The key calls, 4 in Mr. O'Donnell's view, are those that came after 5 issuance of the RFP. The RFP was issued on December 6 1st, 2000. After that time and up until the time the 7 apparent successful proposer was announced, there were 8 seven telephone contacts between M&S Works and the 9 Texas Lottery, and five of those seven contacts were 10 either faxes or phone calls to the legal division, 11 which was the contact division on this RFP. 12 COMMISSIONER WHITAKER: Ms. Schultz, 13 excuse me. From when to when you are you saying? 14 MS. SCHULTZ: From the time the RFP was 15 issued, December 1st, until the time the apparent 16 successful proposer was announced. Commissioner 17 Whitaker, if you look on Exhibit 2, Mr. O'Donnell 18 has -- 19 COMMISSIONER WHITAKER: I understand. 20 MS. SCHULTZ: -- has highlighted 21 December 1st there. It's in bold, and that's when the 22 RFP went out. The December 8th contacts, which are 23 the first three, 30 seconds, 42 seconds and 52 24 seconds, are two faxes and one phone call that are 25 represented in Exhibit 3. What happened on that date WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 42 1 was, M&S Works faxed in its letter of intent to 2 propose on the RFP. That's a requirement of the RFP. 3 There is a deadline to fax in your letter of intent. 4 M&S then followed up with a phone call and they 5 requested of the legal division, can we have proof 6 that we filed our letter of intent. The staff of the 7 legal division followed up by faxing back the letter 8 of intent with the file stamped copy indicating that 9 it was received by the legal division and it was a 10 timely letter of intent. Those were the calls on 11 December 8th. 12 The February 8th call, the RFP was 13 due -- I'm sorry, the proposal and response to the RFP 14 was due on February 9th. Mostly likely, that call had 15 to do with the delivery of the RFP, arrangements for 16 the delivery of the RFP. 17 One of the things we don't know, and 18 this is true of Mr. O'Donnell's comments. We will 19 never know, because most of these were not recorded. 20 I would submit to you that a great number of these 21 less-than-a-minute calls were probably voice mails, 22 but most people don't save their voice mails. The 23 other calls were not recorded, so we will never 24 precisely know word for word what was said in any of 25 these conversations. But I submit that it's more WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 43 1 important and what's crucial in this case is what was 2 not said, and the affidavits of the individuals 3 involved in drafting the technical portions of this 4 proposal are clear in that they did not discuss the 5 contents of this RFP, they did not consult with these 6 people, they did not receive any information from 7 anyone outside the Texas Lottery that went into that 8 RFP, and they did not consult with anyone on 9 evaluation of that RFP. That's the important part. 10 The affidavit of Mr. Glenn Hill states 11 that there was a time in the evaluation of the 12 proposals by the evaluation committee that the 13 committee needed to clarify a point in the M&S Works 14 proposal. Mr. Hill was on the evaluation committee. 15 At some point prior to announcement of the apparent 16 successful proposer, a call was made to M&S Works, and 17 because the committee was in a conference room that 18 could not make a long-distance call, Mr. Hill made the 19 call from his office. It was not returned the same 20 day, but the call was returned. This is not an 21 improper contact between the Texas Lottery and M&S 22 Works. The evaluation committee is entitled, as a 23 committee, to clarify any aspects of the proposer -- 24 of the proposal. It would not, for example, be a 25 thorough and fair process if the committee went to the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 44 1 Executive Director and stated, we're sorry, we can't 2 talk to these people. We can't even ask them a 3 question. We think we would recommend them, but we 4 don't really understand this present proposal. They 5 are entitled to and do contact. 6 Exhibit 4 is the portion of the request 7 for proposal, that Section 1.2.2., indicating that the 8 prospective proposers or their representatives must 9 not contact the Lottery to discuss the contents of the 10 RFP. And I would submit to you that the committee 11 calling a proposer to ask a question, where a 12 discussion does not take place, the committee asks the 13 question, the proposer answers the question, is not 14 discussion of this RFP, and is also vital to the 15 process of a complete and thorough evaluation of all 16 the proposals. 17 COMMISSIONER WHITAKER: Which section 18 of the RFP are you referencing? 19 MS. SCHULTZ: It is Section 1.2.2 of 20 the RFP, and it is also duplicated as Exhibit 4 in the 21 packet that I gave you. 22 The final call or the final telephone 23 log that came after issuance of the RFP was that 24 February 23rd, 2001. That was a fax from legal 25 announcing the apparent successful proposer. At the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 45 1 time the apparent successful proposer is announced, a 2 letter goes to all proposers by fax, announcing that 3 this is the apparent successful proposer. So those 4 were the calls that came after the RFP was issued. 5 None of them were any kind of improper contact. 6 Prior to issuance of the RFP, if you 7 look at the first exhibit, and I know that many of you 8 appreciate, but not all of you have been here for the 9 entire period of time, the narrow view, the narrow 10 lens view of this is really not the correct way to 11 look at it. A wider view is that the Texas Lottery 12 has been doing research on a different type of 13 broadcast facility, an in-house facility, if you will, 14 for more than two years, going back to September 1998, 15 when Lottery employees visited in-house facilities in 16 New York and California, in-house being a facility 17 that is on or near the Lottery property. Both of 18 these states, New York and California, actually 19 contract with other parties to provide the services. 20 But it's in-house. 21 The purpose of a lot of this research 22 was twofold. A cost savings over the 1.5 million 23 annual average spent at the vendor's studio at that 24 time, which in subsequent years, has been between 1.7 25 and 1.8 million, and the use of a single-use facility WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 46 1 that will provide for the unique security issues that 2 relate to the Lottery, involve Lottery drawings, and 3 avoid the sharing of facilities with other users and 4 having to move or work around equipment of other 5 users. After that 1998 visit to New York and 6 California, there were -- there was a due diligence 7 report, as reflected on your time line done, that 8 provided for costs and a tentative time frame. RFP's 9 were put out. There was one put out in May of 1999 10 that requested either a studio at another facility or 11 a studio at our built facility. That was withdrawn 12 because of partly the cost, partly the limited 13 competition, the limited number of bids - I believe 14 there was only one - and because of the short time 15 frame in getting that studio actually constructed by 16 the time the contract expired. The contract was put 17 out again for bid, the RFP in June '99, and that's the 18 current contract we're operating under. 19 Meanwhile, research continued on the 20 drawings broadcast facilities. There were discussions 21 with other state agencies about creating a shared 22 facility. There were discussions with the UT College 23 of Communications, which was the first place where we 24 got information about the new technology or robotics 25 that would allow us to have, what isn't really a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 47 1 television studio per se, but a drawings broadcast 2 facility, because it's being used for such a limited 3 purpose. And that was what led to the visit to the 4 Kentucky lottery facility. The Lottery intended to 5 get a robotic drawing facility. That's why the RFP 6 stated that we wanted a robotic drawing facility. The 7 Lottery did not put out specific information about the 8 list of equipment that it wanted because, as stated in 9 the clarification and answers to questions in Exhibit 10 6, it was leaving that to the professional broadcast 11 expertise and judgment of these companies. But it did 12 state that it wanted something with the latest robotic 13 broadcast quality camera equipment, capable of 14 providing similar product, and it stated that it 15 wanted a lower cost and requiring less staff and less 16 manpower to operate. 17 I think I'm going to move on. If you 18 have specific questions about the phone calls prior to 19 the issuance of the RFP, I can go through those and 20 come back, but -- 21 CHAIR CLOWE: Let's come back to them 22 after your presentation with questions, please. 23 MS. SCHULTZ: All right. This 24 procurement process did promote competition to the 25 maximum extent possible. There were 127 copies of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 48 1 this RFP that were sent out. A number of individuals 2 showed up at the prebid conference. And the 3 allegation that there was some type of contact or 4 consulting arrangement between CVS, Commercial Video 5 Systems, and Texas Lottery, in the protest by TPFV, is 6 based on sheer gossip and hearsay. Mr. Kooris states 7 that he had a conversation with Mr. Zeiner of CVS, and 8 that in that conversation, Mr. Zeiner claimed that 9 there was some consulting arrangement. The truth is, 10 there was never any consulting arrangement between CVS 11 and the Texas Lottery regarding this RFP. There were 12 never any discussions with CVS and the Texas Lottery 13 regarding this RFP. That's covered in the affidavits 14 of the individuals who stated, any vendor, any 15 potential vendor, CVS was a potential vendor, and 16 there is really nothing sinister about the way that 17 CVS and M&S Works hooked up. If you look at Exhibit 18 5, the Lottery held a prebid conference on January 19 8th, 2001, where everyone was invited to come, go over 20 the RFP, and particularly, the requirements for the 21 HUB minority subcontracting, which have changed and 22 are complex. 23 At that meeting, Mr. Zeiner, of 24 Commercial Video Systems, signed in at 1:30. He 25 looked at the list, most likely, and saw, gee, there WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 49 1 were people from M&S Works, Mr. Miesner and Mr. Jeff 2 Sexton from M&S Works were there. It's completely 3 feasible that CVS, Commercial Video Systems, contacted 4 each and every one of the potential bidders, 5 prospective bidders who were at this preproposal 6 conference. It's not unusual at all for 7 subcontractors to show up at these preproposal 8 conferences solely for the purpose of hooking up with 9 the main level bidder and doing a subcontracting 10 proposal. 11 There was never any type of consulting 12 arrangement. CVS does have contracts with the Texas 13 Lottery. It contracts with the Texas Lottery to 14 maintain video equipment owned by our communications 15 department, and it has sold equipment to the Texas 16 Lottery, wide screen televisions, that type of thing. 17 None of this equipment and none of these contracts had 18 anything to do with the drawings broadcast studio or 19 with the RFP for the drawings broadcast studio. There 20 was simply no contact. It did not take place. It's 21 fiction. 22 There were eight months between the 23 time, in April 2000, when the Texas Lottery decided 24 that it was not going to have its landlord construct a 25 facility and the time the actual RFP went out. In WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 50 1 April of 2000, according to Mr. Elkins' affidavit, he 2 did have a fairly lengthy conversation with M&S Works, 3 and that related to the fact that he had been 4 recommending they come and consult with the landlord. 5 That consulting arrangement never took place. He 6 returned a phone call, or they returned a phone call 7 to him approximately April 4th, and he informed them 8 at that time, the Lottery's Executive Director has 9 decided that she is going to competitively bid this. 10 She is going to put this out in an RFP. There will be 11 no consulting arrangement. At that time, he indicated 12 that there would be a prebid, a preproposal 13 conference, and that the video that the Texas Lottery 14 took, made at the tour of the Kentucky lottery 15 facility, which by the way, was made for Ms. Cloud 16 because she was unable to make the trip, so that she 17 could view the facility, would be distributed to 18 potential proposers. It was only at that time that 19 M&S Works made the assertion that this was 20 proprietary. It did go to the Attorney General's 21 Office after an Open Records request was made and the 22 Attorney General's Office sided with M&S Works and 23 said that that was proprietary information. The video 24 was not a part of the M&S Works proposal. They did 25 not submit it as part of their bid or proposal. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 51 1 I'll submit also that with regard to 2 the phone calls, there is no evidence indicating 3 whether or not TPFV called to check on the status of 4 an RFP or not. There certainly were numerous calls 5 going back and forth between TPFV and the Texas 6 Lottery because they are our vendor, but there are no 7 affidavits or statements that definitively state, we 8 never called to ask the status of the RFP. And there 9 is nothing wrong with a vendor calling to ask the 10 status of an RFP, when is it going to come out. Of 11 course, TPFV held the contract, so they knew when the 12 contract would end, and having been through the 13 bidding process before with the Texas Lottery, they 14 knew approximately what time frame we would have to 15 put out our RFP. They would have less necessity to 16 call. But I would submit that most of those calls 17 prior to issuance of the RFP are for very short time 18 periods and dealt with people calling from M&S to say, 19 when is the RFP coming out. And, again, as the 20 affidavits indicate, they could have been told, it'll 21 come out and you'll get a copy, but there was no 22 discussion of the RFP. 23 In its protest, TPFV does make issue 24 with two of those phone calls, specifically, April 5th 25 and April 24th, I believe. And they state that, well, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 52 1 those were longer phone calls. Those were 2 approximately five-minute phone calls. I'm sorry. 3 It's April 12th and April 24th. Those phone calls, as 4 the phone records in Exhibit 2 indicate, were back and 5 forth from the Texas Lottery Open Records coordinator, 6 Lucy Cantu, and M&S Works, because M&S Works made two 7 Open Records requests during that period of time, 8 which they are perfectly entitled to do. One was for 9 the current contract, which is with TPFV, and the RFP 10 was based on, and another was for the cost figures in 11 association with that contract. 12 With regard to the vagueness of the 13 RFP, the Texas Lottery did specifically issue and 14 deliberately issue a vague RFP, but it did make the 15 clarifications requested in Exhibit 6, in response to 16 questions, that we want a limited use production 17 facility, we want a lower cost, and we want something 18 that requires less staff to operate. I think that 19 made it clear that the Lottery did not simply want the 20 same arrangement it had right now, and they were 21 leaving it to the professional judgment of the people 22 that are bidding. TPFV states that the vagueness of 23 the RFP led to them -- led to the Lottery having to 24 compare items that were not comparable, but it doesn't 25 really explain which items were not comparable. And WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 53 1 the evaluation committee concluded that the items were 2 comparable. One of the allegations is that M&S Works 3 proposed equipment that did not comply with the 4 requirement that it be state of the art digital 5 broadcast equipment. However, the Lottery did not 6 require that each component be digital. In the 7 clarification, Exhibit 6, bold A stated that each 8 proposal will stand on its own merits and consider 9 future issues that may impact the proposed facility, 10 including availability of HDTV, which is high 11 definition TV, transitions from analog to digital. In 12 fact, the signal from this broadcast will go up as 13 digital and as analog, because not all television 14 stations are capable of pulling down a digital signal. 15 Those that can and choose to, may, and those that 16 still use analog will be using analog. 17 As you look at Exhibit 7, it's clear 18 that TPFV also bid some analog equipment in its 19 proposal. The equipment list included analog and 20 conversion from analog to digital. 21 COMMISSIONER WHITAKER: Where are you 22 looking? 23 MS. SCHULTZ: That's Exhibit 7 -- I'm 24 sorry. Exhibit 8 and 9. No. I was right the first 25 time. Exhibit 7 and 8. Exhibit 7 is the TPFV list of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 54 1 equipment that was bid in the proposal. And Exhibit 8 2 is the M&S Works equipment. 3 In fact, as far as the committee was 4 concerned, the M&S proposal, at Exhibit 8, bid cameras 5 that have lenses that are called wide screen lenses, 6 and that would be the Hitachi lenses, on page 142, the 7 first page of Exhibit 8. The TPFV proposal includes 8 cameras that don't indicate wide screen lenses. Now, 9 the cost to convert to wide screen lens, and you need 10 a wide screen lens to enable high definition TV, was 11 estimated by our broadcast director at approximately 12 15,000 dollars per lens, or about 60,000 dollars. 13 With regard to the virtual set, and the claim by TPFV 14 that M&S did not properly bid a virtual set, M&S 15 included it as an option and recommended against use 16 because of it being a very complicated system. The 17 evaluation committee included the cost of the M&S 18 proposal with and without the virtual set, and even 19 adding in the cost of the virtual set, the company 20 that scored the highest number of points on the 21 proposal evaluation was M&S Works. 22 COMMISSIONER WHITAKER: What was the 23 total cost, if you included it? 24 MS. SCHULTZ: If you included the 25 virtual set, the cost for M&S Works was 1.8 million, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 55 1 approximately, and the cost for TPFV was approximately 2 2.1 million. However, what the evaluation committee 3 did conclude was that the TPFV proposal was not 4 responsive on the issue of a virtual set. Although 5 there is some mention in the executive summary, which 6 is intended to and required to be a summary of the 7 proposal of a virtual set, the TPFV proposal itself 8 did not include any information on the virtual set. 9 And even more significantly, none of the equipment 10 included on the TPFV equipment list, at Exhibit 7, 11 included hardware or software for creation of a 12 virtual set. So it was judged by the committee to not 13 be a virtual set. The term Chroma Key, a Chroma Key 14 drop, 18 feet by 100 feet, which wouldn't even fit in 15 the studio, a Chroma Key is not the same as a virtual 16 set. And the committee and the broadcast manager made 17 the decision, looking at this, that there was no 18 virtual set bid by TPFV. 19 Contrary to the allegation by TPFV that 20 the M&S Works proposal does not include streaming and 21 live streaming to the Web, in other words, the ability 22 for individuals to get on the Internet and watch the 23 Lottery draw as it's taking place, the proposal does 24 include it. Exhibit 9 is the page from the proposal 25 at issue, page 147 of the M&S Works proposal. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 56 1 COMMISSIONER WHITAKER: Ms. Schultz, is 2 live streaming the same thing as live streaming for 3 the Web? In other words, if they refer in their 4 letter to live streaming, is that a reference to Web 5 streaming? 6 MS. SCHULTZ: Yes, I believe it is. 7 Yes. It's the ability to put it up on the Internet in 8 two ways. We asked for -- actually, we asked for 9 either/or. We asked for either tape, you know, a 10 stored system so people could go and see it later, or 11 we asked for live. There was never a requirement in 12 the RFP that the proposer bid both. It said and/or. 13 They both bid both. What the M&S Works proposal says 14 is you will receive one megabyte of bandwidth in your 15 monthly fee. That would be equal to 2,000 concurrent 16 users. Mr. Glenn Hill worked at the House, the Texas 17 House before he came here as a broadcast manager. And 18 his experience was that their maximum load for viewers 19 of the Texas legislature was 200 live viewers to watch 20 the sessions of the Senate and the House. They only 21 on a few occasions, he said, exceeded that, and their 22 average on-line viewership was 150. Now, we would 23 like to think that there is at least as much interest 24 in the Texas legislature as there is in the Lottery 25 draws. Perhaps there is more. But the M&S Works WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 57 1 proposal provides ten times that number, more than ten 2 times that number of users. There was nothing in the 3 RFP that required a minimum number of users. They're 4 providing this. What they're saying further on is 5 that if it goes higher than that, they're not going to 6 include it. We're going to pay. This is what is 7 included in their proposal. 8 In contrast, the TPFV proposal doesn't 9 really state it, but in the section, the HUB minority 10 section where they're going out for subcontractors, 11 and they're proposing Yahoo as the subcontractor, they 12 bid for 100,000 people to simultaneously view. And I 13 think that M&S addresses that in their proposal. They 14 say, you have the option to going to Yahoo, but they 15 call it extremely expensive, because they take the 16 largest possible bandwidth. They give you a huge 17 superhighway when maybe all you need is a city street. 18 But there was no requirement that there be a minimum 19 or maximum number of simultaneous viewers, so in the 20 opinion of the committee, M&S Works' proposal was 21 responsive as to the Web streaming. 22 MS. KIPLIN: Ms. Schultz, you have five 23 minutes. 24 MS. SCHULTZ: Really, the clear message 25 from the Texas Lottery in this RFP was that we wanted WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 58 1 a limited use production facility using the latest 2 robotic, broadcast quality camera equipment, capable 3 of providing a similar product to the drawings 4 currently being provided, yet at a lower cost, and 5 requiring less staff and manpower to operate. That's 6 in Exhibit 6, the clarification and answers to 7 questions. 8 Despite this, TPFV bid goods and 9 services for this limited use facility at a cost that 10 is substantially higher than the amount being spent 11 under the current contract for the drawings broadcast 12 being conducted at their own studio. That's a 2.1 13 million cost, was what they bid per year, compared to 14 the approximately 1.88 million paid to TPFV for those 15 services in fiscal '99, and approximately 1.71 million 16 paid in fiscal year 2000. 17 Just briefly to respond to a couple of 18 the points made on Mr. O'Donnell's presentation. He 19 stated that we decided what we wanted and it was 20 robotic cameras, and that is absolutely true, and 21 that's absolutely what we said in the RFP. We said we 22 wanted robotic cameras. We did not want a full blown 23 TV studio, production studio. We're not going to do 24 film and video production out of this. We certainly 25 appreciate the long relationship that we have had with WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 59 1 TPFV as our vendor over this time. We don't mean in 2 any way to denigrate their past performance as our 3 vendor; however, this entire process is a competitive 4 bid process. It's not a marriage. There are 5 potentials for it to end. We frequently go to other 6 vendors from long-time vendors. We've done it in our 7 advertising services contract, we've done it in our 8 instant ticket manufacturing contract. It is never 9 guaranteed to be a permanent relationship. If, as 10 TPFV argues, they do have the longest track record of 11 anyone in putting up Texas Lottery broadcasts, but if 12 that was the sole criteria, there would be no 13 competitive bid because no one could bid against this. 14 This was done fairly, it was done thoroughly, it was 15 not done with any kind of back door contacts, or any 16 improper contacts. There was no consulting. There 17 was no input or advice given or taken on what went 18 into that RFP except by people from the Texas Lottery. 19 I don't think, if TPFV took this to court, they would 20 learn anything other than that. You can depose 21 somebody for six hours and ask all sorts of questions, 22 but the bottom line is still in the affidavits of 23 these gentlemen who were involved in drafting, that 24 they had no discussion of details, no sharing of 25 information, no seeking of information, no receiving WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 60 1 of information, from anyone who potentially could bid 2 on this contract. And as far as discovery of 3 documents is concerned, TPFV received 650 pages of 4 documents and it had access to far more than that. 5 All of the relevant documents involved in this 6 procurement were open to them and available to them. 7 We have nothing to hide here. We're laying it out. 8 Thank you. 9 CHAIR CLOWE: Thank you, Ms. Schultz. 10 Did you get everything in that you wanted? Did you 11 have adequate time? 12 MS. SCHULTZ: I believe I did. Like I 13 said, if you wanted to go into more discussion, the 14 accusation was made, each and every one of these phone 15 calls, I didn't go into a whole lot of detail about 16 the ones prior to the issuance of the RFP, but I can. 17 CHAIR CLOWE: I think we would like to 18 deal with that in questions perhaps from the 19 Commissioners. And if you're satisfied, I think you 20 stayed within the limits and we appreciate that. 21 MS. SCHULTZ: I am, sir. Thank you. 22 CHAIR CLOWE: I think we have come to 23 the time now where I'm going to ask the Commission if 24 they have questions, and we will give you each an 25 opportunity, I think it would be appropriate, at the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 61 1 end of those questions, to make some kind of a summary 2 statement if you care to do that. So Commissioners, I 3 think this is the proper time to ask them your 4 questions. 5 COMMISSIONER WHITAKER: I'm going to 6 defer to Mr. Criner if he wants to start with 7 technical questions or any other question, but 8 particularly technical questions. 9 COMMISSIONER CRINER: Okay, Counselor. 10 COMMISSIONER WHITAKER: If you don't 11 mind. 12 COMMISSIONER CRINER: No problem. I 13 have but a few questions. Number one, how does the 14 Lottery go about gaining knowledge and information 15 about what you would like to buy? 16 MS. CLOUD: Commissioners, we use our 17 network of lottery -- lotteries across the United 18 States, the national lotteries, to try to not reinvent 19 the wheel. So many of these other lotteries are so 20 much older than we are that they have been through 21 what we're going through and can aid us in making -- 22 you know, putting us in a direction that will help us. 23 But in this case, we were seeking information from 24 legitimate sources such as UT School of 25 Communications. We went to them, we told them exactly WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 62 1 what we had, that we had to produce these draws, we 2 sell the tickets, the drawing is the decision of the 3 winner from the tickets that have been sold. They 4 have to be conducted. We wanted to air the draws, but 5 we found that we needed to look at trying to reduce 6 the cost. And they -- we even talked to them about an 7 interagency contract using their students as cameramen 8 or whatever, but we also learned from the legislature 9 that they did not want to give us any additional FTEs 10 to do this, so we took a different direction, and 11 wanted to find a vendor that would do this, but we 12 wanted to cut down on the cost by not having bodies, 13 you might say, to run the cameras. And they 14 recommended that all we needed was the robotic 15 cameras. We actually went out to look at that based 16 on their recommendation. 17 COMMISSIONER CRINER: In responding to 18 a bid, the winning bid would be evaluated based on the 19 technical capabilities. And I'm concerned about one 20 thing that came out that -- 21 MS. SCHULTZ: Commissioner Criner, if I 22 can clarify that for you. The bid is evaluated in two 23 steps. 24 COMMISSIONER CRINER: I understand. 25 The capabilities and technology and price, so we've WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 63 1 got a lot of things in here we're looking at. But 2 right now, I really want to focus on the winning bid 3 or the bids. And I don't want to specifically say, a 4 winning bid. But the bids, are they evaluated on -- I 5 guess the only way I can say it is, the yes category. 6 In other words, we ask you to provide robotics, did 7 you say yes or no. We ask you to provide us with the 8 latest and greatest technology, do you say yes or no. 9 And if you say no to any of these, are you still 10 considered a potential bidder, a vendor, because 11 something that's coming out is that there may be a 12 requirement for us to change technology, and as we 13 change that technology, we may have suffered some down 14 time, but which we all know, that can't happen. So 15 have those things -- how have we considered those? 16 MS. SCHULTZ: If I may, Commissioner 17 Criner. If you look to the protest, one of the 18 exhibits to the protest includes evaluation committee 19 forms that they used, the score sheets. 20 COMMISSIONER CRINER: I saw that. 21 MS. SCHULTZ: It's Exhibit 17, I 22 believe. And it details the categories required by 23 the statute that we consider. And they're put into 24 point categories by the committee meeting, and it's 25 called a scoring matrix. It's something that's WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 64 1 submitted to the Executive Director and approved 2 before the proposals are even received. So if they 3 felt something was more or less responsive in a 4 certain area, it would be reflected in the way that 5 it's scored by each individual committee member, and 6 those scores are averaged. 7 COMMISSIONER CRINER: During the 8 bidders' conference, during the bidders conference or 9 after, were there any questions or challenges made by 10 any group about our evaluation process in the RFP? 11 MS. SCHULTZ: No. There were questions 12 asked about the proposal, about the request for 13 proposals. There is a period to submit written 14 questions, and those questions -- the first page is 15 included in your Exhibit 6, but there were a number of 16 questions and they were answered. And also, the 17 committee for the Lottery clarified and modified the 18 proposal somewhat in response to those questions, and 19 that's contained in the answers to the questions. 20 That's provided to all the prospective proposers. 21 MS. CLOUD: Aside from that, 22 Commissioner, we do have -- Glenn Hill does have the 23 expertise to review and evaluate equipment for the 24 technology itself. So we do have people on staff that 25 are qualified to do that. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 65 1 COMMISSIONER CRINER: So we wouldn't be 2 selecting anybody that basically told us, no, we can't 3 do this? And from what you said earlier, you let -- 4 ask -- it was a very general RFP allowing the vendors 5 to take liberties. 6 MS. CLOUD: Yes. 7 COMMISSIONER CRINER: The other 8 question I have is, really, from the statement of the 9 president of the Group, that there may have been 10 hostility relationship between the Lottery and the 11 Group in the previous nine-year history. Is that true 12 or false or -- 13 MS. CLOUD: I don't know of any 14 hostility. They have to explain that further. 15 COMMISSIONER CRINER: Would you like to 16 explain that? 17 MR. KOORIS: Well, I think the most 18 obvious example is the letter that Mr. O'Donnell 19 showed in which we offered -- and that was not the 20 only offer that was made. That was the only offer 21 that was made in writing, to consult with the Lottery, 22 I mean, as the contract holder, to improve things. We 23 were consistently given the cold shoulder. Our offers 24 of help were consistently refused. And the most 25 blatant example is that, in that same time period when WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 66 1 they told us that they couldn't talk to us because -- 2 unless we would recuse ourselves as a vendor, they 3 were in the process of talking to another supplier who 4 turned out to be a bidder, who turned out to be -- 5 COMMISSIONER CRINER: So the hostility 6 that you spoke about in your statement was only 7 related to the RFP process, not to the day to day 8 operations? 9 MR. KOORIS: Day to day operations, 10 there was no hostility. Our operating people and the 11 Lottery's operating people get along extremely well. 12 It's a very professional operation. There is no 13 hostility there whatsoever. 14 MS. SCHULTZ: Commissioners, if I may 15 respond briefly. The Government Code prohibits us 16 from having someone propose or bid on a contract when 17 they have consulted with or provided information 18 that's used in issuing an RFP. We were, in responding 19 to that letter, attempting to preserve TPFV's right to 20 bid on any future contracts. We cannot both have a 21 consulting arrangement with someone and make them a 22 bidder. 23 COMMISSIONER WHITAKER: What source are 24 you quoting? 25 MS. SCHULTZ: It's the Government Code. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 67 1 I don't have the exact cite. 2001 point -- I don't 2 want to cite you the exact section, but I do have 3 that. 4 COMMISSIONER WHITAKER: I would like to 5 see that, please. 6 COMMISSIONER CRINER: My point of that 7 question was that, if you are already a vendor, then 8 you have knowledge and understanding of what's going 9 on, and if it's a hostile relationship, I just want to 10 be aware of that. If it's not a hostile relationship, 11 then there was sufficient information in my mind going 12 back and forth. 13 My question to the Group is, just plain 14 and simple, have you been outsold? 15 MR. KOORIS: No, sir. We've -- 16 COMMISSIONER CRINER: Did M&S do a 17 better job of selling us, the Lottery, than your sales 18 folks did? 19 MR. KOORIS: They did not. We 20 submitted a superior proposal -- 21 COMMISSIONER CRINER: I'm not talking 22 about a proposal. I'm talking about pure American 23 selling. Why you have a salesman that knocks on the 24 door and says, I want to sell you my product. And my 25 question is, have you just been basically outsold, not WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 68 1 outbid, but outsold. 2 MR. KOORIS: Well, I don't see an area 3 in the RFP that regards marketing and salesmanship. 4 We have provided impeccable service to the Lottery for 5 nine years. We have far and away the best engineering 6 and technical staff in this whole part of the state. 7 They know that. You ask anyone in this business about 8 how difficult it is to provide nine years of zero 9 defect live broadcast, they'll tell you that's a 10 pretty tough thing to do. Your television goes blank 11 every so often when you're watching the news, but 12 these drawings have never gone dark in nine years. We 13 didn't feel that we -- we tried to maintain the human 14 portion of the relationship as well. And on the 15 operational level, as I've said, I think we did that 16 extremely well. All our efforts to suggest to the 17 Lottery ways that the broadcast could be improved, 18 both technically and from an entertainment standpoint, 19 were not met with any receptivity over the entire 20 duration of the relationship. All we can do is try. 21 We can set up meetings and we can have meetings and we 22 can say, let's have another meeting, and you get back 23 to us, and here is the things we want to talk about, 24 and give them ideas, but if they don't respond, then 25 there is -- there is not much else that we can do. I WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 69 1 mean, we're -- it's not that we're that hard to get a 2 hold of. We're two blocks that way. They know where 3 to find us. They're in our studio six nights a week. 4 So we tried to have a -- a cooperative and 5 collaborative relationship, and to be honest, the 6 Lottery Commission purchases a very valuable commodity 7 every evening, and that's statewide broadcast time, 8 six nights a week. It's not used very effectively. 9 One of the reasons that many stations don't carry the 10 broadcast is because it has not changed in nine years. 11 Many of our suggestions were to enhance the 12 entertainment and marketing value of those broadcasts, 13 but it fell on deaf ears. We had no receptivity to 14 that. 15 Now, what we did not have that M&S 16 Works had, we didn't have a robotic studio to show 17 them. Which, by the way, is not a state-owned 18 facility in Kentucky either. It's a private facility. 19 We didn't have a facility like that to show them. But 20 we have the engineering expertise and the technical 21 expertise to build any kind of a studio. We have 22 built numerous facilities over the years. If the 23 Lottery would have come to us and said, this is what 24 we're interested in, we want a lower cost, we -- you 25 don't want to use as many staff people, we want a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 70 1 robotic studio, you're our vendor, we love you guys, 2 you've been doing great work for us for nine years, 3 give us some ideas on that, we would have been all 4 over that. We never got that chance. 5 COMMISSIONER CRINER: That's all I 6 have, Mr. Chair. 7 CHAIR CLOWE: Commissioner Whitaker, 8 before we go to your questions, I would like to state 9 that at the time I took this matter up at 8:35 a.m. 10 this morning, on behalf of the Commission, I asked if 11 there were any other parties who wished to be a part 12 of this process. There were no indications at that 13 time that anyone was wanting to do that. I have now 14 been handed two appearance forms from representatives 15 of M&S Works. Ms. Kiplin, would you advise the 16 Commission what position we should take to be proper 17 in this regard? 18 MS. KIPLIN: Well, I must say, this is 19 a case of first impression for me, and I've had an 20 opportunity just very briefly to take a look at the 21 rule. M&S Works is the successful proposer, and under 22 the rule they do have the opportunity to make an oral 23 argument to the Commission and make a presentation. I 24 will caution the Commission, and I will also caution 25 M&S Works, that their remarks must be within the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 71 1 record. And to the extent that their remarks fall 2 outside the record, you cannot consider it as part of 3 this process. Likewise, I would say that I think some 4 of the information that has been provided to you all 5 has been outside the record, and I would caution you 6 not to -- without objection by either party. 7 COMMISSIONER WHITAKER: Is it relevant 8 if there is no objection made? 9 MS. KIPLIN: I think it's telling that 10 there was no objection. But the record is the record, 11 and so to the extent that there is that information 12 that is a part of the information that was provided to 13 you today, I would caution you not to consider that. 14 CHAIR CLOWE: Based on your legal 15 advice, I'm then inclined to allow the representatives 16 of M&S Works to come forward and make their comments. 17 And Commissioner Whitaker, if it's agreeable with you, 18 so that it might allow you additional questions, we'll 19 do that at this point. Will then Mr. Creed and Mr. -- 20 MS. KIPLIN: We'll set them up right 21 here. 22 CHAIR CLOWE: Is it Mesher? I'm sorry. 23 I can't read your writing. 24 MR. MIESNER: Miesner. 25 CHAIR CLOWE: Would you gentlemen come WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 72 1 forward and we'll make room for you there. 2 MR. MIESNER: My name is Charles 3 Miesner with M&S Works. We're going to be brief. 4 Extremely brief. 5 CHAIR CLOWE: You still need a 6 microphone so we can have you on the tape. 7 Gentlemen, you're welcome and would you 8 identify yourselves for the record, please. 9 MR. MIESNER: My name is Charles 10 Miesner. I'm president of M&S Works. We did not plan 11 to make a presentation today. We only wanted to be 12 here to watch the proceedings and also to be available 13 for any questions, particularly technical questions, 14 that you might all might have. We wanted to respond 15 to one of the accusations that was specifically made 16 about our equipment. And for that, I wanted to turn 17 this over to Tim Creed, who is our subcontractor. He 18 is the chief engineer of CED. 19 MR. CREED: My name is Tim Creed, and 20 actually we were just -- we wanted to make ourselves 21 available for technical questions that might arise. A 22 lot of the allegations that we have heard about our 23 equipment being outdated and not capable for digital 24 broadcast, we believe are incorrect, and we would like 25 to respond to that, if you have any questions about WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 73 1 it. 2 CHAIR CLOWE: I did not get your 3 company affiliation. 4 MR. CREED: I'm a subcontractor to M&S 5 Works. The name of my company is Communications 6 Electronics Design. 7 CHAIR CLOWE: CED. I got the initials. 8 I didn't hear the name. 9 MR. CREED: Which I'm president of. 10 CHAIR CLOWE: Are you based here in 11 Austin? 12 MR. CREED: No. We are based in 13 Louisville, Kentucky. We're also responsible for the 14 facility that had been mentioned, the Kentucky 15 broadcast facility. 16 MS. KIPLIN: Can you hold that mike 17 closer. 18 CHAIR CLOWE: Is that the limit of what 19 you want to make in the way of a comment? 20 MR. CREED: Actually, what I would like 21 to say is that the -- we have taken the task of doing 22 a single purpose facility for -- specifically for 23 Lottery draws. The system that we designed is using 24 the latest technology, upgradeable. Actually, there 25 is digital output on it, on the system as it is now. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 74 1 It can be broadcast digital. It's not antiquated 2 equipment, and it is very simply changed over to high 3 definition TV. There is -- it is not an outmoded, 4 outdated system. It's totally up to the -- what's 5 called the ATSC, the American Television Standards 6 Committee, it's up to all the ATC broadcast specs for 7 digital as it will be -- as the conversion happens 8 between now and the year 2006. 9 COMMISSIONER WHITAKER: Will it require 10 complete rewiring to switch to HDTV? 11 MR. CREED: Absolutely not. 12 COMMISSIONER WHITAKER: Will it be 13 obsolete in a few years? 14 MR. CREED: No, it will not. 15 CHAIR CLOWE: I think that's the extent 16 of questions the Commission has of you on the comments 17 that you made. We're going to ask Commissioner 18 Whitaker if she has additional questions, and she 19 might want to come back to you if you gentlemen will 20 remain. 21 Commissioner Whitaker. 22 COMMISSIONER WHITAKER: Mr. O'Donnell, 23 you did not provide the Group's response to the RFP as 24 part of the record. Is that correct? 25 MR. O'DONNELL: I'm not sure. I would WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 75 1 have to check. But if you looked, I'll take your word 2 for it. 3 COMMISSIONER WHITAKER: Ms. Schultz, is 4 it in the record? 5 MS. SCHULTZ: It's not in the 6 attachments to the protest. It is -- it was in all 7 the material that was provided to TPFV as a part of 8 their Open Records request and they had a chance -- 9 COMMISSIONER WHITAKER: My question is, 10 is it part of the record before us today? 11 MS. SCHULTZ: It depends on how you 12 would define the record, but it is not an attachment 13 to either the protest, the determination, or the 14 appeal. 15 COMMISSIONER WHITAKER: Mr. O'Donnell, 16 then, if it's not part of the record, you're asking -- 17 when you say that the Group's bid was comparable or 18 better or competitive, you're asking us to take that 19 on faith. Is that correct? 20 MR. O'DONNELL: No. I would say it is 21 in the record. I mean, it's the object of the protest 22 and it's part of the official files of the Texas 23 Lottery Commission. It's the whole purpose we're 24 here, and if we didn't attach it, I'm sorry. But it's 25 part of the official records of the Lottery WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 76 1 Commission. 2 COMMISSIONER WHITAKER: If it's not 3 part of the record, you would agree that -- if it's 4 not part of the record, you would agree that you're 5 asking us to take many of your statements as to the 6 comparability of your bid on faith? 7 MR. O'DONNELL: Well, of course, if we 8 hadn't filed it with the Lottery Commission, we 9 wouldn't be here in the first place. So if it's not 10 part of any -- if we hadn't filed it with the Lottery 11 Commission, we have no reason to be here. So I guess 12 that -- my answer would be, it is part of the record. 13 COMMISSIONER WHITAKER: Okay. Let me 14 ask you about some of your questions about contacts 15 with the Commission. First of all, you talk about the 16 letter, you talk about hostility by the Commission 17 towards the Group, and then you state, that is only 18 related to the RFP process. Is that correct? 19 MR. O'DONNELL: That's what Mr. Kooris 20 talked about. 21 COMMISSIONER WHITAKER: And the 22 document being referenced is Exhibit 13. Is that 23 correct? 24 MR. O'DONNELL: I think what he said is 25 the -- what he was pointing to is the response. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 77 1 Correct. The response that we -- that the Lottery 2 would not discuss anything with us about the in-house 3 studio. 4 COMMISSIONER WHITAKER: But Mr. Kooris, 5 what you were referencing when you said that there was 6 hostility was the letter, which is Exhibit 13, and the 7 specific content of that third to last paragraph in 8 the letter. Is that correct? 9 MR. KOORIS: That's one example. I 10 think I would characterize that as being a pattern of 11 lack of desire for communication. 12 COMMISSIONER WHITAKER: But none of 13 that is in the record as I can see it. In other 14 words, that's a statement on your part, but I'm not 15 seeing statements that support that in the record. In 16 other words, the only specific thing that I can look 17 at is Exhibit 13. Is that right? 18 MR. KOORIS: Right. 19 COMMISSIONER WHITAKER: Okay. Looking 20 at Exhibit 13, if I heard you correctly, you were 21 characterizing that third to last paragraph as a 22 statement that the Lottery would not talk with the 23 Group at all. Is that correct? 24 MR. KOORIS: Unless we agreed to recuse 25 ourselves in the future from bidding. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 78 1 COMMISSIONER WHITAKER: Would you agree 2 that that paragraph doesn't, in fact, say they won't 3 talk to you? 4 MR. KOORIS: It puts a condition on 5 whether they will talk to us. 6 COMMISSIONER WHITAKER: As I read it, 7 and tell me if you disagree with my reading, it says 8 that the Lottery Commission cannot consult exclusively 9 with one prospective vendor. That sounds different to 10 me than saying they won't consult at all or they won't 11 talk with you at all. Would you agree that those are 12 different statements? 13 MR. KOORIS: I would, but I would also 14 go on to read the next line, which says, if it is your 15 intention not to bid on the procurement for an 16 in-house drawing broadcast facility, I would very much 17 appreciate your offer to share your knowledge and 18 expertise. In other words, it's sort of a Hobson's 19 choice. If you guys are going to take yourselves out 20 of the running, then we'll be happy to talk to you. 21 But if you're going to be in the running, we won't. 22 COMMISSIONER WHITAKER: But by talking, 23 what you mean is not literally not talking to the 24 Group. You're talking about a consulting arrangement 25 on an exclusive basis. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 79 1 MR. KOORIS: I'm talking about the -- a 2 similar process to what they were going through with 3 M&S Works, yes. 4 COMMISSIONER WHITAKER: The basis, 5 then, of your statement that the Commission said it 6 would not talk with you is your interpretation of this 7 paragraph. Is that correct? 8 MR. KOORIS: I think it's -- yes. 9 COMMISSIONER WHITAKER: Okay. So we 10 could read the same language that you're reading and 11 interpret it. 12 MR. KOORIS: Many people read this 13 paragraph and came to the same conclusion I do. 14 COMMISSIONER WHITAKER: None of whom 15 are here today to testify, or on the record. 16 MR. KOORIS: There are many of them who 17 are here. They're not signed up to testify. 18 COMMISSIONER WHITAKER: Would you 19 agree, Mr. O'Donnell, that there -- well, let me ask 20 you this. In looking at 1.2.1 of the RFP, is there a 21 difference in your mind between discussing the 22 contents of the RFP and calling to ask about the 23 status of it or calling for ministerial reasons? 24 MR. O'DONNELL: 1.2.2? 25 COMMISSIONER WHITAKER: Excuse me. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 80 1 Yes. 2 MR. O'DONNELL: No. Because if you 3 look at 1.2.1, it says, any and all communications 4 concerning this procurement must be in -- addressed in 5 writing to Mr. Bennett. 6 COMMISSIONER WHITAKER: Would you agree 7 that 1.2.2, basically says that no content must be 8 made about discussing the contents of the RFP? 9 MR. O'DONNELL: Correct. 10 COMMISSIONER WHITAKER: And content, 11 I'm just talking now about that paragraph right now. 12 Okay? Contents is different from ministerial things, 13 or status of the RFP. Correct? 14 MR. O'DONNELL: I would say that's 15 correct. But if you look at -- but you have to go 16 back to 1.2.1, that any communications, administrative 17 or otherwise, have to be in writing to Mr. Bennett. 18 COMMISSIONER WHITAKER: So 1.2.1 says 19 that if a vendor is -- a prospective vendor seeks to 20 talk to the Commission, that they should talk -- that 21 they should make that request in writing to 22 Mr. Bennett. Correct? 23 MR. O'DONNELL: That's what it says to 24 me. 25 COMMISSIONER WHITAKER: Mr. Bennett, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 81 1 though, is not required by that paragraph to respond 2 in writing. It doesn't address Mr. Bennett's 3 contacts, does it? 4 MR. O'DONNELL: It does not appear to. 5 COMMISSIONER WHITAKER: Nor do you read 6 it that way. Correct? As requiring Mr. Bennett to 7 address all questions to prospective vendors by 8 writing himself, that wouldn't be a logical reading of 9 that, would it? 10 MR. O'DONNELL: I -- I don't know. I 11 think historically what -- the way it's been handled 12 is, it would be addressed in writing. But it just 13 talks about communications to him. 14 COMMISSIONER WHITAKER: Okay. When it 15 says the issuing office is the sole point of contact, 16 do you interpret that as saying that the only person 17 to whom Mr. Bennett -- that Mr. Bennett can be the 18 only one who speaks back to a prospective vendor as 19 opposed to his being able to direct other people? In 20 other words, does have a gatekeeper function or the 21 sole person who can talk function? 22 MR. O'DONNELL: Well, I guess, reading 23 them together, is you're not supposed to be talking to 24 the Lottery about the contents in any event. So... 25 COMMISSIONER WHITAKER: Mr. O'Donnell, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 82 1 did your office call or fax next anything to 2 Mr. Bennett's office at any time during the RFP 3 process? 4 MR. O'DONNELL: My office did not. 5 COMMISSIONER WHITAKER: No faxes of any 6 kind? 7 MR. O'DONNELL: Only after the -- only 8 after we were hired to do the protest. 9 COMMISSIONER WHITAKER: Did anybody at 10 the Group make any contacts with Mr. Bennett after the 11 RFP was issued, up until the contract was awarded, on 12 any logistical points, such as submitting the letter 13 of intent by mail or faxing anything, or asking about 14 status? 15 MR. KOORIS: Sure. 16 COMMISSIONER WHITAKER: They did so? 17 MR. KOORIS: Yeah. We faxed 18 communications that were permitted, but they were 19 always done to Ridgely. 20 COMMISSIONER WHITAKER: Were any 21 telephone calls made from Mr. Bennett or received from 22 Mr. Bennett relating to logistic matters, such as 23 status of the RFP or when to submit a letter, or was 24 the letter of intent received? 25 MR. KOORIS: I did not make or receive WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 83 1 any, but if I can be permitted to give you a little 2 anecdote. When we first -- when we bid on the very 3 first contract, there was another attorney in 4 Mr. Bennett's slot, a fellow named Trace Lorton 5 (phonetic), and we were a little bit unfamiliar with 6 the procedures, especially of the Lottery. 7 MS. SCHULTZ: I think at this point I'm 8 going to enter an objection that this is outside the 9 record. 10 COMMISSIONER WHITAKER: If you think 11 that's in the record, then you can talk about it. 12 Otherwise, I won't pursue that point. 13 MR. O'DONNELL: Well, she just made an 14 objection. I -- 15 COMMISSIONER WHITAKER: Do you agree 16 that it's not in the record? 17 MR. KOORIS: I'm simply trying to 18 respond to -- 19 MR. O'DONNELL: No. We have a couple 20 of letters, I think, in the protest that talk a little 21 bit about the background. I think that's what he was 22 trying to talk about. 23 COMMISSIONER WHITAKER: So could you 24 reference me to the record, please. 25 MR. O'DONNELL: Yes, ma'am. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 84 1 CHAIR CLOWE: Mr. Kooris, in this 2 proceeding, we're limited to the record, so anything 3 that you want to bring in that's beyond that is not 4 something that we can consider. 5 MR. KOORIS: Yes, sir. There is -- 6 Exhibit 1 is a very -- it's a nice historical time 7 line that's also not in the record. 8 CHAIR CLOWE: What would you say to 9 that, Ms. Schultz? 10 MS. SCHULTZ: I thought we were 11 addressing my objection. 12 MR. O'DONNELL: I'm trying to find -- 13 CHAIR CLOWE: We are, and I think this 14 goes to that objection, which is, that it's not on the 15 record. 16 MS. SCHULTZ: Well, to the extent -- 17 CHAIR CLOWE: I think we must be 18 careful in this area, and base our decision in this 19 matter on the record. 20 MS. SCHULTZ: It is not -- 21 CHAIR CLOWE: We can go in 22 chronological order if you'd like. 23 MS. SCHULTZ: It is not among the 24 documents that was made available to TPFV because it 25 was not part of the procurement file. It's a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 85 1 chronology that I prepared. But to the extent that 2 it's included in the Executive Director's response to 3 this appeal, it is part of the record. 4 CHAIR CLOWE: All right. 5 MR. O'DONNELL: We were trying to 6 respond to your question and -- 7 COMMISSIONER WHITAKER: I understand. 8 And all I want is just a reference to the record, and 9 I'll read it because I don't want to go outside the 10 record. 11 MR. O'DONNELL: And I don't think what 12 he was trying to answer is in the protest. As I 13 understood your question. 14 COMMISSIONER WHITAKER: Let me 15 address -- let me ask you some questions about the 16 information that the Group claimed it did not have 17 that would have been critical to its decision. And 18 again, I want to only go to things that are in the 19 record. Okay? What is -- I take it that the Group is 20 knowledgeable about robotic cameras. 21 MR. KOORIS: Uh-huh. 22 COMMISSIONER WHITAKER: About all 23 aspects of broadcasting and TV. 24 MR. KOORIS: Uh-huh. 25 COMMISSIONER WHITAKER: And there is WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 86 1 nothing in the equipment list, for example, that M&S 2 submitted that would not be known or familiar to the 3 Group. 4 MR. KOORIS: That's correct. 5 COMMISSIONER WHITAKER: So it's not the 6 idea or even the implementation of a robotic system or 7 a digital broadcast system that would have been 8 something outside of the knowledge of the Group. 9 Correct? 10 MR. KOORIS: That's correct. 11 COMMISSIONER WHITAKER: What is it, 12 then, precisely that you are claiming in the record 13 was information that you did not have that had you 14 had, would have made your bid be the winning bid? 15 MR. KOORIS: The form of the RFP is -- 16 was not written as a performance specification. In 17 other words, without specifying what type or 18 manufacturer of camera, what the -- what the bid 19 should have done is it should have been written as a 20 performance specification. 21 COMMISSIONER WHITAKER: Give me an 22 example of that. 23 MR. KOORIS: When you're building a 24 highway, you give performance specifications of the 25 thickness of the layers of base and concrete. You -- WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 87 1 you know, specifying a television studio, for example, 2 you would specify the lines of resolution in the 3 cameras, you would specify whether they were digital 4 or analog, for example, you would specify the 5 particular type of wiring, whether there was certain 6 routing and terminal and test equipment involved. I 7 mean, it's a long -- and there is -- this is not 8 something I've invented. This is commonly the way 9 that things are done in the industry. You write a 10 performance specification and then people respond to 11 that performance specification with different sorts of 12 technical solutions and different equipment. 13 COMMISSIONER WHITAKER: So what you're 14 talking about is something very detailed versus 15 something general. 16 MR. KOORIS: A performance 17 specification speaks to what you want the system to 18 do. 19 COMMISSIONER WHITAKER: But in 20 specifics, in detail. 21 MR. KOORIS: In detail. That's 22 correct. 23 COMMISSIONER WHITAKER: For example, 24 not just a camera, but this type of camera. 25 MR. KOORIS: No. A camera that will WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 88 1 produce this result. Not this type of camera, a 2 camera that will produce this result. And even when 3 there were specifications in this RFP, as a sort of a 4 two-part answer, we responded to those specifications 5 and M&S Works did not. 6 COMMISSIONER WHITAKER: So it's not 7 anything that is unknown in the industry or unknown to 8 your group, it's, rather, the level of detail that 9 would have allowed you to be exact in your response. 10 Is that what you're saying? 11 MR. KOORIS: Not only exact, but it 12 would have enabled us to respond precisely to what the 13 requirements of the Lottery were, because there is 14 such a great range of costs and capabilities in the 15 available equipment. We were guessing. The Lottery 16 and M&S Works both knew exactly what they wanted. We 17 were guessing. 18 COMMISSIONER WHITAKER: You say you 19 were guessing, but you were -- your group was in 20 literally daily contact with the Commission. Is that 21 correct? 22 MR. KOORIS: That's correct. 23 COMMISSIONER WHITAKER: About technical 24 issues relating to broadcasts of Lottery? 25 MR. KOORIS: That's correct. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 89 1 COMMISSIONER WHITAKER: Regarding, in 2 detail, the needs of the Lottery for its broadcast 3 drawings. Correct? 4 MR. KOORIS: Yes. But they've said 5 that they had new needs and new specifications for 6 this new studio. 7 COMMISSIONER WHITAKER: But it would be 8 fair to say that the Group was in very close contact 9 with the Commission about the full range of technical 10 issues necessary to the Lottery for its broadcasting? 11 MR. KOORIS: Right. And we -- and, for 12 example, they said they wanted digital television 13 broadcast equipment, and that's what we provided, and 14 the equipment that was specified in the M&S bid is not 15 what is generally considered broadcast quality 16 equipment. 17 COMMISSIONER WHITAKER: Would you agree 18 that your list of equipment included some analog 19 equipment? 20 MR. KOORIS: That it included analog 21 video equipment or -- 22 COMMISSIONER WHITAKER: Just analog 23 equipment. Or analog capabilities. 24 MR. KOORIS: I'm sorry. I'm going to 25 have to find that. Which one are you referring to? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 90 1 COMMISSIONER WHITAKER: I'm not 2 referring to anything specific, I'm just saying across 3 the board. Would you agree that your bid included 4 analog equipment and analog capability? 5 MR. KOORIS: Well, that may be 6 additional to the digital capability, but the whole 7 point of our design was that it was a digital design 8 from beginning to end. From cameras, to switchers, 9 through all the other components, through the routing 10 and to the ultimate broadcast, it was a digital 11 solution. The M&S solution is an analog solution that 12 is later converted to digital. And that's a 13 significant difference. 14 COMMISSIONER WHITAKER: May I ask the 15 M&S folks if they agree with that? Or Ms. Schultz, 16 let me ask you, do you agree with that statement? Is 17 that true? 18 MS. SCHULTZ: I do not have the 19 expertise. I know that in Exhibit 7 of the TPFV 20 proposal, they're talking about things like analog to 21 digital converter on their equipment list. What we -- 22 what the committee took as the intent of the RFP was 23 that it be capable -- the equipment be capable of 24 producing digital signal. 25 MR. KOORIS: But that's not what it WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 91 1 says. 2 MS. SCHULTZ: As well as an analog 3 signal. And the committee judged that both the 4 equipment of M&S and the equipment of TPFV were 5 responsive in that respect. 6 COMMISSIONER WHITAKER: Mr. Kooris -- 7 MR. KOORIS: Can I respond to that? 8 COMMISSIONER WHITAKER: -- can you 9 answer my original question, which is, did your list 10 of equipment include analog equipment? 11 MR. KOORIS: Yes, it did, because we 12 were also required to provide analog signal to the 13 satellite. 14 COMMISSIONER WHITAKER: Did your 15 equipment list include analog capabilities? 16 MR. KOORIS: As well as digital? Yes. 17 COMMISSIONER WHITAKER: What you're 18 saying is the difference is that yours was digital end 19 to end -- 20 MR. KOORIS: That's correct. 21 COMMISSIONER WHITAKER: -- with some 22 overlay of analog. 23 MR. KOORIS: With some addition of 24 analog. 25 COMMISSIONER WHITAKER: Some addition WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 92 1 of analog. Whereas, M&S had from end to end some 2 digital linked with some analog linked with some 3 digital. 4 MR. KOORIS: Mostly analog, some 5 digital. That's correct. 6 And can I respond to one thing that 7 Ms. Schultz said? 8 COMMISSIONER WHITAKER: Hold that 9 thought just a second. Okay? Because I'm going to 10 lose mine, if you don't mind. 11 MR. KOORIS: Okay. 12 COMMISSIONER WHITAKER: And when you 13 stated that the equipment of M&S was going to be 14 obsolete in the very near future, that was what you 15 said. Right? 16 MR. KOORIS: Uh-huh. 17 COMMISSIONER WHITAKER: Is that what 18 you're referencing, that everything is going to be 19 upgraded to digital end to end? 20 MR. KOORIS: At some point -- 21 COMMISSIONER WHITAKER: Is that what 22 you meant when you said, it's going to be obsolete 23 very soon? 24 MR. KOORIS: Yes. 25 COMMISSIONER WHITAKER: Hold on, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 93 1 because I'm going to finish this line in just one 2 moment. 3 So when you said it was outdated 4 equipment, what you meant is it had analog components, 5 and in your opinion that, by definition, makes it 6 outdated. Is that correct? 7 MR. KOORIS: Yeah. Can I give you a 8 little bit of an expanded answer? 9 COMMISSIONER WHITAKER: Sure. 10 MR. KOORIS: What I meant was, number 11 one, yes, it's analog and what the RFP required was 12 state of the art digital television broadcast 13 equipment. So it does not meet that specification. 14 And analog equipment is not, by definition, state of 15 the art today. 16 COMMISSIONER WHITAKER: So when you say 17 outdated, what you mean is that it is in use, but it 18 is not considered state of the art? 19 MR. KOORIS: And also, that no one who 20 is building a broadcast studio today would build an 21 analog television broadcast studio. 22 COMMISSIONER WHITAKER: Your view is 23 that no one building a studio today would build one 24 like M&S submitted. Is that your statement? 25 MR. KOORIS: I'm saying, no one would WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 94 1 build an analog television studio. 2 COMMISSIONER WHITAKER: But that's 3 different from saying that no one would build the kind 4 of studio that M&S proposed to build. 5 MR. KOORIS: No. I think it's pretty 6 similar. 7 COMMISSIONER WHITAKER: Is it the same? 8 MR. KOORIS: Sure. 9 COMMISSIONER WHITAKER: So in other 10 words, what your statement is, is that no one today 11 would build the kind of studio that M&S proposes to 12 build? 13 MR. KOORIS: In my opinion. 14 COMMISSIONER WHITAKER: And others 15 would differ, I take it? 16 MR. KOORIS: I'm sure we could find 17 differences of opinion on just about everything. 18 COMMISSIONER WHITAKER: What I was 19 trying to get to is just understanding your testimony 20 when you said it was outdated analog equipment, and if 21 I'm hearing you correctly, what you're saying is that 22 because it's analog, it's by definition outdated. 23 MR. KOORIS: Yes. And because the RFP 24 also required that it be digital. 25 COMMISSIONER WHITAKER: Which is a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 95 1 different issue, isn't it? I mean, whether or not it 2 complies with the RFP is a different issue from 3 whether it is -- 4 MR. KOORIS: Well, the RFP was defining 5 state of the art by saying, state of the art digital 6 television broadcast equipment. 7 COMMISSIONER WHITAKER: As you 8 interpret it. 9 MR. KOORIS: Is there another way to 10 read that statement? 11 COMMISSIONER WHITAKER: Then you said, 12 no capability to be updated to HDTV without complete 13 rewiring. You heard what M&S said. Do you agree or 14 disagree? 15 MR. KOORIS: I disagree. 16 COMMISSIONER WHITAKER: And how would 17 you disagree? 18 MR. KOORIS: My engineering people tell 19 me that the wiring that they proposed in the terminal 20 and routing equipment is not capable of passing a full 21 bandwidth HDTV signal, and it would have to be taken 22 out and replaced. I myself am not an engineer, but 23 that's what my engineering people tell me. 24 COMMISSIONER WHITAKER: So you yourself 25 don't have that expertise. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 96 1 MR. KOORIS: I rely on the expertise of 2 the people that work for me. 3 COMMISSIONER WHITAKER: But you're not 4 here to offer your expert opinion on that. Is that 5 correct? 6 MR. KOORIS: I'm here to offer the 7 opinion of my company. 8 COMMISSIONER WHITAKER: Would it be 9 fairly simple to do the rewiring? 10 MR. KOORIS: It would be time 11 consuming, and I don't think that you can call 12 rewiring an entire facility fairly simple. 13 COMMISSIONER WHITAKER: How time 14 consuming? 15 MR. KOORIS: The estimate that I was 16 given was a matter of weeks, and I was not given a 17 cost estimate. That's not broken out in their bid. 18 COMMISSIONER WHITAKER: And when you 19 say it will be obsolete in the near future, were you 20 referencing, again, the use of analog equipment? 21 MR. KOORIS: I was referencing both the 22 use of analog equipment, and also the fact that it was 23 not -- did not have an easy upgrade path to higher 24 resolution digital formats, including HDTV. 25 COMMISSIONER WHITAKER: Do you agree WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 97 1 with the statement of Ms. Schultz that your RFP did 2 not include a virtual set? That what it included was 3 not -- 4 MR. KOORIS: Are you addressing me 5 or -- 6 COMMISSIONER WHITAKER: Mr. Kooris, 7 excuse me. Yes. 8 MR. KOORIS: Could you repeat your 9 question. 10 COMMISSIONER WHITAKER: Do you agree 11 with Ms. Schultz's statement that your response to the 12 RFP did not include a virtual set? What is a virtual 13 set? Let's start with that. 14 MR. KOORIS: Can I explain that and 15 give you a little bit of an -- 16 COMMISSIONER WHITAKER: Very simply. 17 MR. KOORIS: Simple as I can do it. 18 Okay? A virtual set is a set that's not really there. 19 That -- where the -- there are foreground objects 20 against a blue background. I'm sure you've seen these 21 in the behind the scenes films that you've seen. And 22 then that blue background is replaced by another 23 image. You see it every night on the weather. The 24 weather man stands up there and he is really standing 25 in front of a blue or green screen and the weather map WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 98 1 is behind him. When we were at the prebid conference, 2 we wanted to ask a great many technical questions. We 3 were prohibited from asking any questions whatsoever. 4 The entire prebid conference was devoted to a long 5 explication of the HUB requirements in the contract. 6 We were told that all technical questions should be 7 asked in the written Q and A. However, we were taken 8 on a tour of one of the possible potential studio 9 sites, and in conversation with one of the Lottery 10 representatives on that tour, we asked again about 11 exactly what was meant by virtual set, in their 12 opinion, because there is a vast range of cost and 13 capability in virtual set. You can have a virtual set 14 that only requires a fixed camera position, you can 15 have a virtual set where multiple cameras are able to 16 move on that virtual set in relation to the 17 backgrounds and the objects, and there is a huge cost 18 difference. The answer that we got from the Lottery 19 representative -- 20 MS. SCHULTZ: Excuse me. I'm going to 21 object that this is outside the record. 22 COMMISSIONER WHITAKER: I don't see 23 that in the record, so unless you can point out where 24 it is in the record, Mr. O'Donnell, I won't be able to 25 consider it. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 99 1 MR. O'DONNELL: I don't know if it's in 2 the record. 3 MR. KOORIS: I was trying to respond to 4 your question about what virtual set we specified in 5 our bid, and I was going to explain -- 6 COMMISSIONER WHITAKER: Mr. Kooris, I'm 7 happy to have you answer all of my questions. I 8 appreciate that. I cannot entertain your statements 9 about conversations with people unless it's in the 10 record because of the objection. 11 MR. KOORIS: Okay. Our bid included a 12 virtual set of the type that we believed the Lottery 13 required for this proposal. 14 COMMISSIONER WHITAKER: Is your group 15 familiar with virtual sets? 16 MR. KOORIS: Yes. 17 COMMISSIONER WHITAKER: Is it common in 18 the industry? 19 MR. KOORIS: Are virtual sets -- 20 COMMISSIONER WHITAKER: Virtual sets 21 common? 22 MR. KOORIS: I would say, yes. 23 COMMISSIONER WHITAKER: Okay. And 24 therefore, it's not a matter of not having knowledge 25 about virtual sets, but your particular judgment, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 100 1 based on years of experience with the Lottery, as to 2 the type of virtual set they might need? 3 MR. KOORIS: Yes. 4 COMMISSIONER WHITAKER: By the way, 5 did -- would you have -- would you object to somebody 6 videotaping the details of your operations? 7 MR. KOORIS: Absolutely not. It's open 8 to the public, the control rooms and the studio. 9 COMMISSIONER WHITAKER: So there is no 10 detail of any of your operations or your technical 11 areas that you would mind having -- 12 MR. KOORIS: None whatsoever. They're 13 open, and have been, from day one. 14 COMMISSIONER WHITAKER: On page six of 15 the initial letter of July 30th, which is, I guess, 16 your appeal document, Mr. O'Donnell. 17 MR. KOORIS: Which page? 18 COMMISSIONER WHITAKER: Page six. 19 If -- Ms. Schultz, if you could look at the same one. 20 MR. O'DONNELL: Yes, ma'am. 21 COMMISSIONER WHITAKER: All right. The 22 first question is to Ms. Schultz. 23 I take it, from what you said, 24 Ms. Schultz, that you would have agreed that if M&S 25 Works' option of a virtual set were included into WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 101 1 their bid price, that it would come to approximately 2 1.8 million? 3 MS. SCHULTZ: Yes. 4 COMMISSIONER WHITAKER: As compared to 5 TPFV's 2.1? 6 MS. SCHULTZ: As compared to TPFV's 7 2.1, yes. 8 COMMISSIONER WHITAKER: Which would 9 bring the difference between the bids to 15 percent. 10 Is that correct? 11 MS. SCHULTZ: Yes. 12 COMMISSIONER WHITAKER: Would you agree 13 with the next calculation on that page, which is, that 14 if you put the live streaming on an equal basis that 15 you would have a further closing of the difference. 16 MS. SCHULTZ: No. It's the Executive 17 Director's decision, and it was the committee's 18 position that live streaming was included in the M&S 19 Works proposal. 20 COMMISSIONER WHITAKER: Is the 21 difference between the 2.1 and the 1.899, the 22 difference between bandwidth for 2,000 people versus 23 bandwidth for a hundred thousand? 24 MS. SCHULTZ: I have no idea. 25 COMMISSIONER WHITAKER: Mr. O'Donnell? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 102 1 MR. O'DONNELL: Mr. Kooris is going to 2 have to answer that. 3 COMMISSIONER WHITAKER: Mr. Kooris? 4 There are some folks behind you that I know know the 5 answer. 6 MR. KOORIS: If you'll give me a 7 minute. 8 MS. KIPLIN: And Commissioner, you also 9 have M&S available. 10 COMMISSIONER WHITAKER: Well, but let 11 me ask you the question. May I ask M&S these 12 questions? 13 MS. KIPLIN: Yes, I think so. They're 14 the successful proposer. They're now part of the -- 15 COMMISSIONER WHITAKER: Okay. While 16 Mr. Kooris is getting his response, M&S, would you 17 answer that question, please. 18 MR. CREED: Could you repeat it? 19 COMMISSIONER WHITAKER: Yes. If there 20 is a difference between the bid amounts of 2.12 for 21 the Group and 1.899 for M&S, in the appeal by the 22 Group, based on the assumption about adding in 23 comparable bandwidth, my question is, is the bandwidth 24 that they're adding the difference between your 2,000, 25 bandwidth enough for 2,000 current users versus their WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 103 1 bandwidth for a hundred thousand? Is that the 2 difference in cost? 3 MR. CREED: As far as costs go for 4 that -- the technology, I can answer. As far as costs 5 for that, it's out of my field of expertise. 6 COMMISSIONER WHITAKER: Mr. Miesner? 7 MR. MIESNER: I'm not aware of -- we 8 haven't seen anything -- the proposal from TPFV 9 specifically, so I'm not aware of what theirs 10 detailed, so I can't answer how ours would -- where we 11 compare. 12 COMMISSIONER WHITAKER: Mr. Kooris? 13 MR. KOORIS: Let me see if I can shed a 14 little light on that. We tried to guess how many 15 concurrent users would be required. And we settled on 16 the number rising over a period of time to a hundred 17 thousand. We didn't think there would be a hundred 18 thousand concurrent users on day one. But we 19 attempted to guess how long it would take to rise to a 20 maximum number, because we were responsible for 21 fulfilling that within the parameters of the fixed 22 bid. And the number that we supplied for supplying 23 Web streaming, which was incorporated in our bid, was 24 our approximation of that curve from a few thousand 25 users in the first week to tens of thousands of users WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 104 1 in some of the out weeks. 2 COMMISSIONER WHITAKER: I guess this is 3 what I'm trying to get some insight into, and that is, 4 on your page six, there are three sets of numbers, and 5 the last one talks about what happens if you add in 6 certain assumptions about live streaming. 7 MR. KOORIS: Right. That's that 93,000 8 dollar difference. 9 COMMISSIONER WHITAKER: And I don't 10 understand that. What's the 93,000 for? 11 MR. KOORIS: The 93,000 is for the cost 12 of the bandwidth and the distributed servers to 13 support a hundred thousand -- up to a hundred thousand 14 concurrent live streaming users. 15 COMMISSIONER WHITAKER: So the 93,000 16 is, in fact, the cost difference between providing for 17 a hundred thousand concurrent users versus 2,000. 18 MR. KOORIS: Yes. But over a period of 19 time. It's not a fixed snapshot, because we didn't 20 assume there would be a hundred thousand from day one. 21 COMMISSIONER WHITAKER: But that's the 22 explanation for the cost difference. 23 MR. KOORIS: Yes, that's right. 24 COMMISSIONER WHITAKER: Got it. All 25 right. Then the last paragraph of that section on WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 105 1 cost then says, there would be no difference between 2 the bid amounts if you took into account differences 3 in equipment. 4 MR. KOORIS: Correct. 5 COMMISSIONER WHITAKER: Specifically, 6 digital analog. 7 MR. KOORIS: Correct. 8 COMMISSIONER WHITAKER: There is 9 nothing in your submission to us that details that. 10 Is that correct? There is no specifics. Right now, 11 that's just a conclusory statement, and I can't do 12 anything with it. Is there anything specific that 13 details those differences that is in the record? 14 MR. KOORIS: We did not have the cost 15 information broken out for M&S's equipment, so there 16 was no way for us to provide you with that comparison. 17 COMMISSIONER WHITAKER: So in other 18 words, you have not submitted anything specific that 19 would substantiate that conclusion. 20 MR. KOORIS: We have not submitted 21 anything specific. We made that allegation based on 22 calculations that we made, guessing what they would 23 have to pay for the equipment that they specified, but 24 they did not provide that broken-out cost. 25 COMMISSIONER WHITAKER: Did you submit WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 106 1 to us your estimation or your -- 2 MR. KOORIS: No. I'm afraid we did 3 not. 4 COMMISSIONER WHITAKER: -- opinions 5 about that? All right. Almost finished here. 6 Just to make the record clear, 7 Mr. Kooris. If we were to have a list of telephone 8 calls between the Group and the Commission, either 9 way, from March of 2000 through February of 2001, the 10 list would, in fact, be much longer than the list 11 between M&S and the Commission. Is that correct? 12 MR. KOORIS: Yes, it would. And it 13 would probably, in fairness, also have to include 14 telephone calls between some of our vendors and the 15 Commission. 16 COMMISSIONER WHITAKER: How long would 17 you guess that list would be? If you -- we're looking 18 at the exhibit -- what exhibit is that? 19 MR. O'DONNELL: We didn't mark it. 20 It's from page six of the protest. 21 COMMISSIONER WHITAKER: If we're 22 looking at page six, which has been blown up, and we 23 were to compare that with a comparable list of 24 telephone calls between the Group and the Commission, 25 the Group's list would be how many pages? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 107 1 MR. KOORIS: Well, they're not 2 comparable, because we have a contract with the 3 Lottery and those calls would be -- in total, would be 4 concerned with the current contract. 5 COMMISSIONER WHITAKER: This is my 6 question. If we were to take a list of -- just a log 7 of the telephone calls between the Group and the 8 Commission and the Commission and the Group. Okay? 9 That's all that is on the paper. 10 MR. KOORIS: Right. 11 COMMISSIONER WHITAKER: And we were to 12 then put it on pieces of paper, how many pages would 13 we have between those dates, would you guess? 14 MR. KOORIS: I really -- I really have 15 no idea. I've never pulled that log. It might be 16 ten, 15, 20 pages. I really don't know. I'm sorry. 17 COMMISSIONER WHITAKER: But it would be 18 a substantial number of pages because, in fact, there 19 are a substantial number of telephone calls? 20 MR. KOORIS: Because we have an 21 existing contract, that's correct. 22 COMMISSIONER WHITAKER: And you're 23 stating that that's the reason for the calls. 24 MR. KOORIS: That's correct. 25 COMMISSIONER WHITAKER: And the nature WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 108 1 of the contract would, in fact, involve a number of 2 questions or -- a number of questions about technical 3 information, or about the logistical operations of the 4 broadcast. Is that correct? 5 MR. KOORIS: Well, there is a number of 6 communications that have to take place on a regular 7 basis to make the broadcast come off, yes. 8 COMMISSIONER WHITAKER: That would 9 relate, in fact, to the technical aspects of the 10 broadcast, the logistics of the broadcasting, or 11 anything else that's relevant to the broadcasting. 12 Correct? 13 MR. KOORIS: Relevant to the contract, 14 yes. 15 COMMISSIONER WHITAKER: And the 16 contract relating to broadcasting? 17 MR. KOORIS: Yes. 18 COMMISSIONER WHITAKER: Okay. And 19 what -- Mr. O'Donnell, what exactly are you alleging 20 regarding CVS? Can you be very precise with me about 21 the exact nature of the complaint about them? 22 MR. O'DONNELL: Yes. It's in our 23 protest. Let me find the page, because it's -- 24 it's -- it would be on page seven of our protest, June 25 1 protest letter. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 109 1 COMMISSIONER WHITAKER: Okay. I read 2 that and -- 3 MR. O'DONNELL: It just relates a 4 conversation between Mr. Kooris and Mr. Zeiner, who is 5 the manager of CVS. And I think what it says is 6 clear. I hope it is. That's what we were told. 7 COMMISSIONER WHITAKER: Has the Group 8 ever had any dealings with CVS? 9 MR. KOORIS: Yes. 10 COMMISSIONER WHITAKER: Have you had 11 any business dealings with them? 12 MR. KOORIS: Yes, we have. 13 COMMISSIONER WHITAKER: What kind of 14 business dealings? 15 MR. KOORIS: We've purchased equipment 16 from them. 17 COMMISSIONER WHITAKER: Have you 18 purchased equipment from them in connection with the 19 Commission? 20 MR. KOORIS: You mean in -- in 21 connection -- 22 COMMISSIONER WHITAKER: Has any of the 23 equipment or services or anything else that you have 24 received at any time from CVS had any relevance or 25 touched upon any of the business between the Group and WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 110 1 the Commission? 2 MR. KOORIS: Well, we have a facility 3 where everything is wired together, so I think -- 4 COMMISSIONER WHITAKER: So it's all 5 mixed in. 6 MR. KOORIS: Technically, it's all 7 mixed in. 8 COMMISSIONER WHITAKER: Okay. And you 9 basically have a general studio that then the Lottery 10 would utilize, and others would utilize as well. 11 MR. KOORIS: Correct. 12 COMMISSIONER WHITAKER: And part of 13 that equipment was provided by CVS? 14 MR. KOORIS: There is equipment in the 15 studio that was provided by CVS and that is wired to 16 all the other equipment in the studio. 17 COMMISSIONER WHITAKER: And part of the 18 expertise that the Group has utilized in therefore 19 providing services to the Commission has been 20 expertise or equipment that it has received from CVS. 21 Is that correct? 22 MR. KOORIS: That's correct. 23 COMMISSIONER WHITAKER: And 24 Mr. O'Donnell, when you were referencing the 25 Government Code, Section 466.101(b) -- WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 111 1 MR. O'DONNELL: Yes, ma'am. 2 COMMISSIONER WHITAKER: And you 3 reference acting to promote and ensure honesty and 4 fairness. 5 MR. O'DONNELL: Yes. 6 COMMISSIONER WHITAKER: The language of 7 the statute is, shall act to promote and ensure 8 integrity, security, honesty and fairness in the 9 operation and administration of the Lottery. 10 Is it your interpretation that by 11 reference to honesty and fairness in the operation of 12 the Lottery, that the statute means to say fairness to 13 a prospective vendor? 14 MR. O'DONNELL: Yes. Because -- yes. 15 Because the whole title is titled procurement 16 procedures. And it also states, in subsection E, the 17 procedures must be for the purpose of ensuring 18 fairness and integrity. 19 COMMISSIONER WHITAKER: In the 20 operation of the Lottery. 21 MR. O'DONNELL: In connection with the 22 Lottery's procurement procedures. 23 COMMISSIONER WHITAKER: Are you relying 24 on any case law interpretation of that statute, and 25 are you referencing any particular standards of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 112 1 fairness, other than the generic sense of fairness? 2 In other words, are you referencing us to any external 3 standards? 4 MR. O'DONNELL: I think I'm referencing 5 you to this statute. I'm referencing you to 6 Mr. Chairman's statements that he made, Chairman 7 Clowe, in his April introduction of the new 8 Commissioners. And the only -- I'm referencing you to 9 the requirements of the RFP itself that says that 10 Mr. Bennett is the sole source of contact and it must 11 be in writing. I'm referencing you to the RFP where 12 it says there will be no communications with the 13 Lottery about the contents. 14 COMMISSIONER WHITAKER: No. I 15 understand what your statements are about honest -- 16 fairness. I just want to know if you are defining 17 fairness based on some case law or some articulated 18 standards in a statute. 19 MR. O'DONNELL: Other than the things 20 that I mentioned, the only case law that I'm familiar 21 with that the deals with this -- obviously, we 22 couldn't find anything directly on point, but 23 basically, the case law does say that if the statute 24 requires a bidding process, it's got to be fair. And 25 other than that, I have nothing specific. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 113 1 COMMISSIONER WHITAKER: Ms. Schultz, 2 based on your statement that the bid or -- bids 3 submitted by M&S -- excuse me. 4 Do you have any evidence in the record 5 that if TPFV had submitted the type of virtual set 6 that was contemplated by the RFP, what the final cost 7 of the TPFV bid would have been? 8 MS. SCHULTZ: TPFV bid, the 2.1 million 9 figure was what was used. Nothing was broken down in 10 that. And that's all the committee had to use. The 11 committee did make the conclusion that they had not 12 bid -- or correctly bid a virtual set, because this 13 blue screen you talk about, it's a Chroma Key. And 14 the committee, and their expertise within the 15 committee, does not feel that Chroma Key and virtual 16 set are the same thing. But it was not possible to 17 see -- to break anything out based on that. That was 18 still their bid. The committee did that both ways. 19 They added in M&S with and without their virtual set 20 option. 21 The Lottery has decided not to pursue a 22 virtual set. But to attempt to answer your question, 23 it was done both ways by the committee, and either 24 way, adding in the M&S virtual set and taking it out, 25 they were still -- TPFV's bid was still the higher WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 114 1 bid. 2 COMMISSIONER WHITAKER: And then a 3 final question to M&S. The statement about end to end 4 digital versus end to end including digital and 5 analog, could you comment on that? 6 MR. CREED: I would love to. 7 MS. KIPLIN: Could you put that 8 microphone on. I need to pick this up on the 9 recorder. 10 MR. CREED: I'm sorry. The statement 11 that end to end digital is the only new facility that 12 would be built today is incorrect. And you'll find 13 that throughout the country there is unique -- this is 14 kind of an analog-digital hybrid. About 30 percent of 15 the equipment is digital, probably another 30 to 40 16 percent of -- probably almost 50 percent of the 17 equipment is -- is component analog, which is much 18 higher quality than what is -- what is being used 19 today in standard NTSC broadcast, what you get on your 20 TV. Then we have a couple of pieces of equipment that 21 are the regular NTSC analog. It's called a still 22 storage, the graphics -- 23 COMMISSIONER WHITAKER: You're going to 24 have to get simpler. 25 MR. CREED: Okay. It's the graphics WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 115 1 that you see that come up. Those are a slate as it 2 were. Actually, a lot of it's not even broadcast. 3 It's prior to the broadcast so that the satellite 4 provider can see that the broadcast is on its way. So 5 mostly it's component analog, very high quality, and 6 SDI digital. We are utilizing the switcher that is 7 made for the analog to digital transition. That's the 8 reason it was designed. You can put cards in that 9 say, this input is now no longer analog, it's digital. 10 Slip a card in, put the digital equipment up. It's 11 very high quality. It's absolutely what is needed for 12 this facility. As far as cost effectiveness and 13 single use, this is a single-use facility. And I hate 14 to keep coming back this, but when you design a TV 15 studio, you can save tens of thousands of dollars when 16 you don't have to shoot a commercial -- a television 17 commercial on it one day, and then the next day, shoot 18 a broadcast of a Lottery draw. It's only for one 19 purpose. And that way we're able to set the lighting, 20 there is a great cost savings. And in doing so, this 21 system is -- is as high quality as any -- I would 22 venture to guess -- I can only speak for where I'm 23 from, Louisville, Kentucky, which is the number 42 24 broadcasting -- largest broadcast market in the U.S., 25 and there is no television station broadcasting that WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 116 1 has a digital studio. Zero. There are six, seven, 2 eight broadcast facilities in town. The standard mode 3 of changing over to digital for all television 4 stations, in Austin, Dallas, wherever it is, is to go 5 with a switcher and an ability to component -- one 6 component at a time, switch to digital. 7 COMMISSIONER WHITAKER: Am I correct in 8 understanding you to say, then, that your system is 9 not end to end digital? 10 MR. CREED: No, it is not end to end 11 digital. We gave that option. 12 COMMISSIONER WHITAKER: Okay. There 13 are end to end digital systems. 14 MR. CREED: There are end to end 15 digital systems. 16 COMMISSIONER WHITAKER: But you chose 17 to put that in as an option, and instead what you 18 proposed as the basic bid was partly digital, partly 19 analog. 20 MR. CREED: It's very high quality 21 component analog. I hate to keep going on with that. 22 There is a huge difference. 23 COMMISSIONER WHITAKER: Did you provide 24 a bid that discussed -- excuse me. Did your bid for a 25 state of the art digital TV broadcasting equipment -- WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 117 1 let me restate that. 2 MR. SEXTON: That goes -- 3 COMMISSIONER WHITAKER: Did your bid 4 consist of state of the art digital TV broadcast 5 equipment? 6 MR. SEXTON: That would go back to the 7 virtual -- 8 CHAIR CLOWE: Would you identify 9 yourself -- 10 MR. SEXTON: Oh, I'm Jeff Sexton. I'm 11 with M&S Works. If they would have selected the 12 virtual set option, which I don't think you could 13 possibility compare. I haven't seen a list, so it 14 looks like they're just doing a Chroma Key, which is 15 not a virtual set. A virtual set means everything 16 moves 3-D, which is very complex. So that if a 17 back -- if I'm moving a camera, the background 18 actually moves with the camera, computer controlled. 19 That's virtual set or virtual movement. And operating 20 two or three cameras on that is really complicated and 21 really expensive. So that was part of our option. So 22 that would certainly be state of the art if they 23 select that option. It's state -- it's probably -- 24 state of the art is a vague term anyway. But as far 25 as the transition from -- from digital to the -- or WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 118 1 from analog to the digital world, it's certainly a 2 state of the art switcher that you can actually just 3 pull a card out, insert the digital card, and it's a 4 digital output. So the whole switcher is digital 5 output. So they come in analog, and then as you make 6 the transition, you switch that card out and it is now 7 digital input and output. 8 COMMISSIONER WHITAKER: So what you're 9 saying is that your system was digital analog digital, 10 had both components with the capability to switch 11 readily to digital at the time that that upgrade would 12 be -- 13 MR. SEXTON: Was needed. Right now, 14 all they -- 15 MS. KIPLIN: Wait. I can only get one 16 voice at a time. 17 COMMISSIONER WHITAKER: Let me restate 18 my question. Is it correct to say, then, that your 19 bid was digital and analog components with the 20 capability for those analog components to be readily 21 switched out to digital when that was needed? 22 MR. SEXTON: Correct. And right now 23 it's -- you don't have to send a digital signal. As a 24 matter of fact, the signal has to be converted to 25 analog to go up on the satellite. So it has to be WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 119 1 analog. 2 COMMISSIONER WHITAKER: Do you know 3 anything about their bid? 4 MR. SEXTON: No. 5 COMMISSIONER WHITAKER: Would you agree 6 that the system that you proposed -- could your system 7 be updated to HDTV without complete rewiring? 8 MR. CREED: I am not sure. All I've 9 been able to go through is their exhibit here. I 10 believe that they are not into HDTV. 11 COMMISSIONER WHITAKER: No. M&S. I'm 12 asking about your bid. 13 MR. CREED: Ours is not HDTV -- 14 COMMISSIONER WHITAKER: But is it 15 capable of being updated to HDTV without complete 16 rewiring? 17 MR. CREED: Under the standards that 18 local TV stations -- the networks -- before 2010, the 19 networks will be broadcasting in high definition TV. 20 Local stations are suggested by the networks, their 21 affiliates, are suggesting to do what is called an up 22 resolution of a standard signal to HDTV. They're to 23 change their -- what's called an aspect ratio and up 24 res that to -- up resolution, and that's what all 25 local TV stations will be doing for HDTV conversion, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 120 1 and I believe that is what we have. Now, there is a 2 cost, there is an inherent cost to that. 3 COMMISSIONER WHITAKER: My question is, 4 the statement was made in the record that the bid 5 proposal by M&S could not be updated to HDTV without 6 complete rewiring that would be also time consuming, 7 and I'm just asking for your response to that. 8 MR. CREED: No. And the reason I 9 elaborated on that is because there are standards set 10 by the National Academy of Broadcasters on how to do 11 that conversion. Our system is capable of that 12 conversion. 13 COMMISSIONER WHITAKER: Would that be 14 considered a complete rewiring? 15 MR. CREED: No, it would not. 16 COMMISSIONER WHITAKER: Would it be 17 time consuming? 18 MR. SEXTON: It -- 19 MR. CREED: No. It could be done over 20 the dark day between broadcasts. 21 MR. KOORIS: Could I reference you to 22 an exhibit that has been entered into? 23 COMMISSIONER WHITAKER: Sure. 24 MR. KOORIS: Exhibit Number 21 is a 25 letter from Mark Carvett (phonetic) at MCSI commenting WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 121 1 that the -- request to review the M&S Works proposal 2 with reference to the question that you just asked. 3 COMMISSIONER WHITAKER: Thank you. I 4 have no other questions. 5 CHAIR CLOWE: I'm going to suggest that 6 we take a ten-minute break now. I have some questions 7 and I think we have some other ground we need to cover 8 in this matter. Because these deliberations are 9 ongoing, we're going to ask that none of the 10 participants in this speak to the Commissioners during 11 this time. And, of course, the Commissioners will not 12 be speaking to each other and will not be deliberating 13 during this break. I think the court reporter, if no 14 one else, along with me, would like a ten-minute 15 break. 16 Anything else you want to add to that? 17 MS. KIPLIN: No, I think that's 18 sufficient. 19 CHAIR CLOWE: We'll come back -- it is 20 11:08 now. We'll come back in ten minutes. 21 (RECESS.) 22 CHAIR CLOWE: All participants are now 23 back in the room. It is 11:21 a.m., and the 24 Commission will continue. We are back on the record. 25 Ms. Kiplin, I understand that our WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 122 1 questions and our deliberations must be limited to the 2 record. And I want to keep that continually before 3 everyone's mind. However, in our questions, we are 4 not limited to those points covered in the oral 5 argument here this morning, if I understand correctly. 6 Anything in the record is fair game. Is that correct? 7 MS. KIPLIN: You know, that's an 8 interesting question. It does say that oral argument 9 will be based solely on the written protest, 10 timely-filed responses to the protest, the Executive 11 Director's written determination, written appeal, 12 timely-filed responses to the written appeal. It does 13 say, any appeal to the Texas Lottery Commission, which 14 is what is before you, will be based solely on the 15 written protest, any timely-filed responses to the 16 written protest, and the Executive Director's written 17 determination, the written appeal, and any 18 timely-filed responses to the written appeal. 19 Further, the Executive Director may be present, have 20 the opportunity to make a presentation to the Lottery 21 Commission regarding the determination, and be 22 available to respond to questions by the Commission. 23 It strikes me that the purpose of the 24 two -- the first two statements that I read were to 25 limit the scope to an orderly fashion in terms of what WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 123 1 is an appeal. Your question had to go to, are you 2 limited to that same scope in terms of asking 3 questions, and it seems to me that you are. And I've 4 got Terry Smith here, who is the Assistant Attorney 5 General, who is here to provide legal advice, and 6 there is capable counsel, and I would welcome their 7 input -- he is looking at me as though I'm crazy, 8 so -- I'm happy to have other attorneys weigh in. It 9 seems to me that that's the purpose of the rule is to 10 have some orderly forum and format that's occurring 11 and proceeding and occurring before you today. 12 CHAIR CLOWE: Was that a yes, that 13 we're limited to oral argument? 14 MS. KIPLIN: Yes. No. Wait. To the 15 record -- I'm sorry. 16 CHAIR CLOWE: Not to the oral argument, 17 but to the record, which gives us a broader scope. 18 MS. KIPLIN: Yes. 19 CHAIR CLOWE: Very good. Then my first 20 question is for you. 21 MS. KIPLIN: Okay. 22 CHAIR CLOWE: How do you reconcile, in 23 the RFP, 1.2.1 and 1.2.2, with the third to last 24 paragraph in Linda Cloud's letter to Mr. Kooris of 25 August 24th, 2000? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 124 1 MS. KIPLIN: This is the contact issue? 2 CHAIR CLOWE: Yes. 3 MS. KIPLIN: I'm really not here to 4 reconcile that. I think that, to me, is more of an 5 appropriate question to the parties on what their -- 6 that seems to me to be more of an advocacy point, and 7 so I would defer to the two parties on how they 8 reconcile it. I'm happy to give you legal advice on 9 the procedure and what your potential actions can be. 10 CHAIR CLOWE: All right. 11 MS. KIPLIN: But it seems to me that's 12 more for the parties. 13 CHAIR CLOWE: All right. And I think, 14 Mr. O'Donnell, you've already spoken to that. Do you 15 have any amplifying remarks if I want to particularly 16 zero in on that area? Would you -- would you give me 17 any further comments? 18 MR. O'DONNELL: Your Honor -- excuse 19 me. Mr. Chairman, other than that goes to the heart 20 of our claim that that is what she said, and an agency 21 should apply or be bound by its own rules and 22 regulations, she said that is the rule, and I think 23 the basis of that is the statute. That's the only 24 thing I would tell the chairman. 25 CHAIR CLOWE: And while you're WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 125 1 answering me. In that area, what is your feeling 2 about the fact that you were not provided with the 3 video taken at M&S Works? And I think additionally, 4 as part of the record, there was a schematic of the 5 control room which was part of that which you did not 6 receive. What is your reaction to the fact that that 7 material was not supplied to you? 8 MR. O'DONNELL: I can't speak from the 9 technical point, but I believe that Mr. Elkins had the 10 right idea when he stated in his affidavit that it was 11 his plan to offer that and provide that to all 12 prospective bidders so that they would have a clear 13 idea of what the Commission wanted. I think that 14 should have done. That would have gone a long way to 15 clarify exactly what the Commission wanted. So -- and 16 I don't know why it wasn't done, but it wasn't done 17 and it should have been done. That would be my 18 attorney layman's viewpoint. Mr. Kooris might could 19 speak more specifically to it. 20 CHAIR CLOWE: Okay. I want to pursue 21 this with you, because I believe I heard Ms. Schultz 22 say that there was an Attorney General's opinion that 23 determined that was proprietary in nature, and we'll 24 get to that in a minute, but let's ask Mr. Kooris to 25 answer the question that I posed to you originally. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 126 1 MR. KOORIS: The videotape and any 2 other specifications would have been very useful to us 3 in preparing our bid and making our bid the most cost 4 effective bid for the Lottery. In the absence of that 5 information, we were forced to rely on the very vague 6 specification that was written in the RFP. Had we had 7 more specific information, not about how M&S Works had 8 solved the problem in their own studio, but that is 9 coextensive with what the Lottery had said on a number 10 of occasions in public hearings that this was what 11 they wanted. So to the extent that the Lottery had 12 already voiced the fact that this was what they 13 wanted, having access to that information would have 14 made our bidding process far more competitive, and I 15 would imagine that it would have made it possible for 16 other people to bid on the contract as well. 17 CHAIR CLOWE: Was there anything else, 18 while we're on the subject of the video and the 19 schematic, that you didn't receive that you think 20 would have helped you? 21 MR. KOORIS: Well, as I said earlier, I 22 think a performance specification is the normal way to 23 request cost and technical submissions for the 24 construction of a television production studio. The 25 performance spec is the way that it's normally done. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 127 1 It's not normally done this way and, in fact, in 2 earlier RFP's, there has been much more of a 3 performance specification than in this one. This one 4 appears to us to be purposefully vague, and we were 5 forced to do the best we could with it. 6 CHAIR CLOWE: I think we heard 7 Ms. Schultz say earlier this morning that it was 8 purposefully vague, and we'll ask her to speak to that 9 again in a minute. But you're saying that left you 10 disadvantaged in preparing your bid, number one, and 11 it especially left you disadvantaged, number two, in 12 regard to M&S Works, since you are contending that 13 they had more information and more contact with the 14 Commission as to the needs. 15 MR. KOORIS: Yes, sir. 16 CHAIR CLOWE: I've understood what you 17 have said correctly there. 18 MR. KOORIS: Yes, sir. 19 CHAIR CLOWE: So Ms. Schultz, let me 20 come to you, then, to the question of the video and 21 the control room schematic. Did I hear you correctly 22 say that that issue was dealt with in an Attorney 23 General's opinion? 24 MS. SCHULTZ: Yes, it was, Commissioner 25 Clowe. And it was resolved prior to the time that WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 128 1 this protest was due, on May 22nd. And it was based 2 on a request for information concerning the M&S Works 3 video. It was found to constitute a trade secret by 4 the Attorney General's Office. They said they 5 concluded that M&S showed the portion of the video 6 that depicts its facility as a trade secret, and there 7 was no argument to rebut that as a matter of law. 8 That was resolved prior to the time for this protest 9 to be due. That video, the disputed video, was also 10 not a part of the proposal that was submitted by M&S. 11 It was -- as I think I stated previously, it was made 12 by the Texas Lottery staff in doing their research on 13 facilities to show to the Executive Director, since 14 she wasn't able to attend that trip and viewing of the 15 Kentucky lottery facility. 16 And I will state again that, yes, we 17 did ask for robotic cameras. There is nothing brand 18 specific about the term robotic cameras. We did not 19 ask for Hitachi robotic cameras. As our response to 20 questions and clarifications stated, we were leaving 21 it up to the expertise of people who work in the 22 field. And as Mr. Kooris states, he's been in this 23 field for 25 years. 24 With respect to the schematics that you 25 referred to a moment ago, TPFV did withdraw its Open WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 129 1 Records request for those schematic diagrams when the 2 issue was still pending before the Attorney General's 3 Office. So that is not at issue. And I don't know if 4 you wanted me to go back and address the initial 5 question you had, which I believe was about 1.2.2. 6 CHAIR CLOWE: Yes, I wish you would. 7 MS. SCHULTZ: Section 1.2.2 applies 8 when the RFP has been issued. It's a page from the 9 request for proposals, and it prohibits prospective 10 proposers or their representatives to contact the 11 Lottery to discuss the contents of the RFP. As the 12 evidence showed, there were only seven telephone 13 contacts of any type between M&S and the Lottery after 14 the RFP was issued. Five of those seven had to do 15 with either faxes from -- going back and forth from 16 legal, the filing of the letter of intent, the request 17 for a copy of the letter of intent, the faxing of the 18 letter of intent, the requesting information about 19 delivery of a proposal. The other two dealt with, 20 according to Mr. Hill's affidavit, a question from the 21 evaluation committee to M&S to clarify part of its 22 proposal, and our contention is that that is 23 acceptable and necessary at times in the evaluation 24 process in order to thoroughly evaluate a proposal. 25 It is not a discussion. It is a contact by the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 130 1 committee saying, answer this question. We have a 2 question to clarify your proposal. And then the 3 answer is provided. Those were the only contacts 4 where section 1.2.2 would ever have been applicable. 5 And they -- there was no improper contact and nothing 6 that violated 1.2.2. 7 In reference to Exhibit 13 to the 8 protest, the August 24th letter to Mr. Kooris, we're 9 operating under an entirely different standard here. 10 I earlier cited a statute, and the statute is Section 11 2155.004 of the Government Code. It prohibits an 12 agency from accepting a bid or awarding a contract 13 that includes participation by a person who received 14 compensation from an agency to participate in 15 preparing the specifications or request for proposals 16 on which the bid or contract is based. Now, I will 17 state that this is part of the General Services 18 Commission and State Purchasing statute. The Texas 19 Lottery is not subject to the State purchasing 20 statute. We have our own purchasing statute. It's 21 contained in our statute, 466.101. However, we look 22 to this as a guideline, and I certainly think that 23 within the broad requirements of our statute, for 24 something to have fairness and integrity in the 25 procurement process, it would not be fair, it would WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 131 1 not look fair, it would not have the subject of 2 fairness and perception of fairness and integrity if 3 we sat down with someone and said, we'll tell you 4 exactly what you want, and then that person end up or 5 that entity end up being a prospective proposer. So 6 that was the intent of the writing of that letter. 7 Certainly, during the term of a 8 contract, someone we sit down with them and talk about 9 innovations or changes, but if someone is coming 10 forward and saying, well, I'm going to give you 11 advice, or I want your advice, let's talk about it, 12 and there is an anticipation that a new RFP is going 13 out, which was the case at this time. Now, for 14 Mr. Kooris and TPFV to imply that we had that type of 15 relationship with M&S is simply incorrect. It did not 16 happen. We did not consult with M&S on the contents 17 of this RFP. As part of the due diligence, as part of 18 the research for a Texas Lottery facility, and after 19 speaking with the University of Texas and hearing 20 about what robotic cameras could do and how they could 21 create a limited use facility, the Lottery looked for 22 a place where they could view that and the Kentucky 23 lottery had that. It happens to be operated by M&S, 24 but we looked at and spoke with lots of other 25 lotteries in considering this. There was no WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 132 1 consulting relationship with M&S Works, and the intent 2 of this letter was to say, we can't have a consulting 3 relationship with you, TPFV, if you intend to bid on 4 our next procurement. 5 CHAIR CLOWE: I understand your 6 response. You have brought up another point that I 7 wanted to ask about, and you actually verbalized it, 8 where you indicated that it wouldn't be fair for 9 someone to be a consultant and then become a bidder. 10 Did I understand that comment correctly? 11 MS. SCHULTZ: That's correct. 12 CHAIR CLOWE: I think the contention of 13 the Group is that, through our visits and our 14 relationships with M&S Works, when we were gathering 15 information, they became aware of our needs in a much 16 more specific way than the RFP, when it was issued, 17 and it was purposely vague, in your terms, and that 18 advantaged M&S Works over the Group. How would you 19 respond to that concern? 20 MS. SCHULTZ: I think I would respond 21 by saying, there is no evidence to support it. There 22 was a point in time at which the Lottery contemplated 23 having a landlord be -- have a consultant and 24 construct a facility, but that relationship never took 25 place because, before M&S could even come and act as a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 133 1 consultant, there was a decision by the Executive 2 Director to put it out on a competitive bid. And that 3 was in very early April, the first week of April 2000. 4 So if you look at that Exhibit 2 and the board up 5 there, the list of phone calls, prior to that time, 6 there were ten phone calls between M&S and the Texas 7 Lottery. And most of them, I submit, would be a 8 follow up to that visit by the Texas Lottery employees 9 on March 3rd and 4th, I believe it was. Most of them 10 were less than a minute in length, calls back and 11 forth, 42 seconds, a minute and a half, two minutes 24 12 seconds, that were following up on -- so in a total of 13 eight minutes of conversation, TPFV is contending that 14 the entire framework of an RFP, everything that we 15 wanted, everything that we needed, was somehow 16 communicated between the two parties. And I submit 17 that that just isn't possible and it didn't happen. 18 The people involved in -- most closely involved in 19 drafting these specifications, the technical 20 specifications, and evaluating them for this RFP have 21 sworn out affidavits that they didn't have any such 22 contact with anyone from M&S or any other prospective 23 proposer. It just didn't happen. 24 CHAIR CLOWE: Help me understand, then, 25 the role of M&S Works prior to the time of the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 134 1 issuance of the RFP and them becoming a bidder. Why 2 did our staff go to Kentucky in March and visit M&S 3 Works? 4 MS. SCHULTZ: It's my understanding 5 that they went as part of their research for a type of 6 broadcast facility, that the Lottery was trying to 7 have a more limited use facility and had consulted 8 with the University College of Communications and had 9 received information from them -- first, we were 10 saying, maybe we can get a studio set up and we can go 11 to the university and we can have university students 12 come and, as part of their training, staff some of 13 these cameras. I'm sure that some of the people who 14 work for TPFV on our current contract are probably 15 students. That idea was explored, but the university 16 basically said, you know, we've got our facilities. 17 We don't need it. And what -- you know what? You 18 don't really need a television studio for your 19 drawings broadcast. You do the same shot every night, 20 the same place, the lighting is the same. Have you 21 explored this new technology, robotic cameras that 22 would allow you to do it in a much smaller space, and 23 for much lower cost. 24 With that in mind, the Lottery looked 25 for some lottery that had that facility. The Kentucky WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 135 1 lottery did that have that facility. M&S developed it 2 for the Kentucky lottery, and the M&S package, I would 3 submit, rather than some sort of consultation, it fits 4 because it was a package that was designed 5 specifically for lottery broadcasts. That's what M&S 6 Works does. 7 CHAIR CLOWE: So in fact, they might be 8 portrayed as a resource rather than a consultant, in 9 that we made a visit to them, and I think it's been 10 said on the record that Keith Elkins came back and 11 said, this is what we like. This is exactly what we 12 want. Their visit, our visit to them, played a role 13 in the decisions that were made about robotic cameras 14 and the technical aspects of a special purpose 15 broadcast studio. Do I understand that correctly? 16 MS. SCHULTZ: They were looking for an 17 example of what had been described to them as, you can 18 use robotic cameras, and they found the Kentucky 19 lottery had such a facility and asked, as a common 20 courtesy -- I mean, as Ms. Cloud stated, lotteries 21 frequently share information and compare notes so they 22 don't have to reinvent the wheel about each new 23 procedure. It was only among a number of lotteries 24 that we had consulted. Mr. Hill, in his affidavit, 25 stated he made calls to numerous lotteries to discuss WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 136 1 what do you have in the way of virtual set and what 2 are you doing. This was all part of the research. 3 And at some point, an RFP went out and M&S Works, that 4 has developed a package that is specific to lotteries, 5 decided, this would be something we could bid on 6 because that's what we do. 7 CHAIR CLOWE: So there were other 8 resources that we contacted. 9 MS. SCHULTZ: Yes. 10 CHAIR CLOWE: I think you've named 11 those already. 12 MS. SCHULTZ: Yes. 13 CHAIR CLOWE: And how many of those did 14 we visit? 15 MS. SCHULTZ: We visited New York and 16 we visited California personally that I'm aware of. 17 MS. CLOUD: And Kansas. 18 MS. SCHULTZ: We had telephone contact 19 with numerous others. 20 MS. CLOUD: I'm pretty sure we visited 21 the Kansas lottery as well. 22 CHAIR CLOWE: New York, California, and 23 Kansas. 24 MS. CLOUD: Which were existing studios 25 at lottery headquarters. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 137 1 CHAIR CLOWE: And did we take videos of 2 any of their operations? 3 MS. CLOUD: No. We had the California 4 lottery come here as a consultant back in '98, and 5 they worked with us for a couple of weeks on helping 6 us with the due diligence study that we first started 7 out with. 8 CHAIR CLOWE: But I think the comment 9 was made, if I remember correctly, that the reason for 10 the video was that Linda Cloud could not be there. Is 11 that -- did I understand that correctly? 12 MS. CLOUD: That was the purpose of 13 them taking the video, so they could bring it back to 14 me, because this was new. This is new technology. 15 And when it was recommended to us, I would not have 16 been the first kid on the block to go out and do it. 17 So when we found out that Kentucky had the robotic 18 cameras filming their draws, they brought back the 19 film in order for me to see how -- just exactly how it 20 worked. 21 CHAIR CLOWE: Did you go to New York 22 and California? 23 MS. CLOUD: No, I did not. 24 CHAIR CLOWE: Kansas? 25 MS. CLOUD: No. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 138 1 CHAIR CLOWE: So you didn't go to any 2 of them, but they only videotaped Kentucky? 3 MS. CLOUD: Commissioners, I'm pretty 4 sure that we possibly had a video from -- of the 5 drawing in California as it was being conducted over 6 the TV. It was a drawing that they were putting up on 7 air. We had something from the California lottery. I 8 just don't remember specifics. That's been back in 9 '98. 10 CHAIR CLOWE: Did Keith Elkins write a 11 memo about his visits to any other of the lotteries 12 like he did praising the Kentucky lottery and their 13 setup? 14 MS. CLOUD: I'm sorry, Commissioner. 15 Keith did not go to California. He did go to New 16 York. He was not here at the time we were reviewing 17 this back in '98, so he was not part of that part of 18 the research. 19 MS. SCHULTZ: I may further, 20 Commissioner Clowe. There was a preliminary due 21 diligence report certainly prepared in November of 22 1998, and that contained quite a bit of detail about 23 the visits to the New York and California facilities. 24 MS. CLOUD: Commissioners, one of the 25 things I would like to go back to to try to clarify WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 139 1 for you is, what we do with our RFP process, and not 2 bidding specific equipment for these venders to 3 propose. We have had vendors tell us more than one 4 time, tell me what you want and let us bid what we 5 think will be the least cost or the least expense and 6 do the job for the Lottery. And even Mr. Kooris, in a 7 meeting after the last RFP -- 8 CHAIR CLOWE: I don't think that's on 9 the record. 10 MS. CLOUD: But that's why we don't 11 specify the exact brand name or title or equipment 12 anymore. We try to let these vendors bid what they 13 think will do the job that we're asking them to do. 14 CHAIR CLOWE: Well, in that regard, do 15 you think this RFP was intentionally vague, as 16 Ms. Schultz has said? 17 MS. CLOUD: It wasn't intentionally 18 vague. It was vague in order for them to be able to 19 bid the best equipment that they knew. It wasn't -- 20 we didn't intend to make it vague. We just didn't 21 intend to specify exactly what equipment they had to 22 bid. 23 CHAIR CLOWE: I understand that. Do 24 you think it was not performance oriented, as 25 Mr. Kooris has contended? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 140 1 MS. CLOUD: No. I think we put as much 2 as we could put in there to make them as knowledgeable 3 about what we were asking for. 4 CHAIR CLOWE: I would like to ask you 5 now about the phone calls. Ms. Schultz, you commented 6 a minute ago about the phone calls between M&S Works 7 and the Commission after the December issuance of the 8 PFD. What would your answer be to the same question 9 Commissioner Whitaker asked Mr. Kooris about the 10 telephone calls with the Group? 11 MS. SCHULTZ: Between TPFV Group and -- 12 CHAIR CLOWE: And the Lottery 13 Commission after the issuance of the PFD. 14 MS. SCHULTZ: After issuance of the 15 RFP? 16 CHAIR CLOWE: RFP. 17 MS. SCHULTZ: I have really no 18 knowledge of how many there would have been, but I did 19 point out that there is nothing in the protest that 20 specifically states there were none that related or 21 didn't relate, either before or after. I think it 22 would be perfectly natural and not an abuse for 23 someone to call and say, when do you think an RFP is 24 going out. And I think I pointed out that it would be 25 less likely that the current vendor would do that, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 141 1 because they know when the contract is expiring, and 2 as TPFV has numerous times responded to RFPs for the 3 Texas Lottery, it has a pretty good idea of the 4 schedule on which we put them out. So it would be 5 less likely that someone who hasn't been on a proposal 6 before to make calls, but I have no knowledge of how 7 many. I just stated, I don't think there is anything 8 in their protest that definitively says they did not 9 have. 10 CHAIR CLOWE: We were earlier this 11 morning speaking about these phone calls listed over 12 here, and I think we would like to give you an 13 opportunity to make a comment on those if you would 14 like to. I think at one point you asked if we weren't 15 going to ask about those, and I would like to ask 16 about them now. 17 MS. SCHULTZ: Well, I think briefly, 18 the visit from staff members to the Kentucky lottery, 19 I believe -- I'll have to check my notes here -- was 20 the 3rd and the 4th of March. I submit that the calls 21 following up on that in March of 2000, all of which 22 were to -- from M&S to Keith Elkins, were the first 23 four. And by the way, the first three, there is no 24 indication that there was any return call, and these 25 are all 24 to 48-second calls, so to me, that would WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 142 1 indicate it was likely a voice mail, that the call was 2 not returned. And that's consistent with Mr. Elkins' 3 affidavit in that he stated he did not always return 4 phone calls. Following some calls to Philip Bates and 5 a return call from Philip Bates, Philip Bates was one 6 of the Lottery employees that went on that, and 7 indicated in his affidavit it was some type of follow 8 up to that visit. Mr. Bates did not participate in 9 the evaluation. He was not on the evaluation 10 committee. Then a few more back and forth from Keith 11 Elkins to M&S, all for two minutes or less, leading up 12 to the call April 5th, which was the one where 13 Mr. Elkins indicated the Executive Director had made a 14 decision to issue an RFP, there was not going to be 15 any consulting arrangement with the landlord. And 16 then there was then the lengthy conversation about the 17 videotape. 18 The remaining -- from April 5th until 19 December 1st when the RFP was issued, the fax coming 20 into the legal division on April 5th was an Open 21 Records request. Stephanie Yell, who apparently 22 returned a phone call to Keith Elkins on April 10th, 23 is an administrative assistant in the communications 24 division. And as Mr. Elkins indicated in his 25 affidavit, he sometimes did not return the call WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 143 1 himself, but directed a staff to return it and simply 2 state that the RFP was pending. The calls to and from 3 Lucy Cantu. Ms. Cantu is the Texas Lottery Open 4 Records coordinator and has stated there were two 5 separate Open Records requests made during this time 6 period. The fax to the legal division April 25th is 7 the second of those two Open Records requests, 8 requesting the financial information on the current 9 contract and a copy of the current contract. Another 10 call back and forth made to Keith Elkins, returned by 11 Stephanie Yell. One to customer service, a few -- of 12 a few minutes from Glenn Hill. Mr. Hill indicates in 13 his affidavit that he was making calls to numerous 14 lotteries, including the Kentucky lottery facility, to 15 do research about things like virtual sets and 16 other -- what other lotteries had, basically. And 17 those are all the calls leading up to that time. And 18 I just want to reiterate, what is important here is 19 what wasn't said. There is no way we can reconstruct 20 word for word every one of these conversations. 21 What's important is what was not said, and each one of 22 these individuals involved in drafting the 23 specifications for the RFP stated that they had no 24 consultation, they accepted no advice, they received 25 no advice, they did not give any advice, or share any WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 144 1 information about the contents of that RFP. Or, in 2 the case of those who were involved in the evaluation 3 of the RFP, about the evaluation of the RFP prior to 4 award of the contract. I don't know if that addresses 5 all of -- 6 CHAIR CLOWE: Yes, it does. It helps 7 me. I just want to go back to the contention that the 8 Group, I think, is setting forth that because of the 9 fact that, I recall, M&S Works had been used as a 10 resource by the Commission in its surveying and 11 gaining knowledge about what kind of a studio it would 12 like to have, M&S Works went into the RFP, after it 13 was issued, with a body of knowledge that advantaged 14 them in responding to it, and the Group, therefore, 15 was disadvantaged. They had attempted, through a 16 letter, to have that communication and they were 17 correctly told they could not be a resource at that 18 time, the RFP had been issued. I would just like to 19 hear any other words you might give me about that 20 situation -- that contention on their part. I feel 21 that's a principal point that they are attempting to 22 make to the Commission. 23 MS. SCHULTZ: I think I understand. 24 And I guess, under that theory, the more diligent we 25 would have been in looking to other lotteries to do WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 145 1 research and to look at what was out there, the more 2 we would have excluded ourselves from who could bid. 3 If we had visited every state that has a lottery, and 4 that does a broadcast facility, then, under the TPFV 5 argument, every single vendor that provides service to 6 any of those lotteries would have had -- been 7 prohibited from bidding on that type of proposal, 8 because we looked at it, because we saw what they 9 wanted. What happened in this case was, we had 10 consultations with people at a university, a world 11 class university that are in the business of knowing 12 what the latest technology is. And they said to us -- 13 and there is technology that allows you to do this in 14 a lot smaller space, a limited use, they opened our 15 eyes to that. We looked around to see if there were 16 any lotteries doing that. We found that the Kentucky 17 lottery was doing that, and we looked at that 18 facility. The fact that we looked at it and then 19 said, we want robotic cameras, would not preclude 20 anyone else from bidding any type of robotic cameras. 21 There is not just one brand of robotic cameras in the 22 world, and it happens to be manufactured by M&S Works. 23 There are many brands. When you put out a 24 procurement, general guidelines for good procurement, 25 you make it less specific because you do not want to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 146 1 exclude. You don't say, I want the green and yellow 2 tractor, and I will only accept a green and yellow 3 tractor. You say, I want -- we decided we wanted 4 robotic cameras, and there is a wide range within that 5 of what somebody could bid or propose. 6 Then, in clarifying, in Exhibit 6, in 7 response to questions, you know, questions saying, 8 well, you're not saying specifically. We say, we are 9 being silent on some issues. We would like you to 10 demonstrate your professional experience. 11 I really don't know that I can speak to 12 the fact that M&S apparently has professional 13 experience that is exclusive to the Lottery. They 14 deal in a narrower world than television production 15 overall. And in the sense that they were able to come 16 up with something unique to a lottery, that apparently 17 is the existence of their business, the reason that 18 their business exists. Just like some manufacturers 19 print numerous types of newspapers, handbills, flyers, 20 some manufacturers print only instant lottery tickets. 21 CHAIR CLOWE: Go with me, then, to the 22 details in this RFP. What's the balance that you 23 strike in giving potential bidders enough information, 24 but not making it so narrow that perhaps you tailor it 25 to one bidder? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 147 1 MS. SCHULTZ: I don't have the 2 expertise for drawings, for drawings broadcast, but in 3 the clarifications, we stated we wanted a limit use 4 facility, we wanted robotic broadcast quality camera 5 equipment. We wanted to the proposers to look forward 6 to the next five years, including the availability of 7 high definition TV and transitions from analog to 8 digital. But we wanted them to use their professional 9 expertise and judgment. We're looking to bid in an 10 area where people have experience and expertise in the 11 area of broadcast -- television broadcast, but then, 12 more specifically, for a lottery. Both the proposers 13 of this RFP had that experience, one specific to us, 14 and one in other lotteries. I think the combination 15 of the RFP and the opportunity for questions and 16 answers provides a way to clarify any 17 misunderstanding. For example, TPFV would not have 18 needed to necessarily guess on how much bandwidth we 19 wanted if we didn't state it. It was possible for 20 them or any other proposer to ask. I don't think 21 there was a question on that area. The balance, I 22 don't know. But the feedback, as Ms. Cloud said, 23 previous times in 1999, when we did put out this RFP, 24 in May '99, asking for very specific equipment, we had 25 our own list. And then we said -- we always say in WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 148 1 our RFPs, if you have any deviation from our 2 specifications, you need to lay them out and state 3 why. We got huge lists of why this equipment would be 4 better than what we were asking for. And we were 5 forced to sit down side by side and actually had to 6 hire someone with technical knowledge to look at these 7 and say, is this comparable to this. It becomes a 8 nightmare. The feedback we got from proposers was, 9 don't do that. Don't tell us exactly what equipment 10 you want. Leave it to us. We have the knowledge and 11 we have the expertise and this is our area. This is 12 our field. 13 CHAIR CLOWE: Well, I understand that. 14 I understand we have the expertise in-house, in this 15 agency, to do that, to make those determinations, and 16 I understand that the RFP was correctly balanced in 17 the eyes of the Executive Director. The main 18 contention in this area of fairness, as I see it, on 19 the part of the Group is that there was a body of 20 knowledge that resided in one of their competitors 21 that they didn't have. And I think I understand the 22 response on behalf of you and the Executive Director, 23 that you don't agree with that. As part of that, what 24 about this relationship with the subcontractor to M&S, 25 CVS, I think it is. What is your view about them WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 149 1 being an advantage to M&S Works? 2 MS. SCHULTZ: There was no 3 relationship, Commissioner, between CVS and the Texas 4 Lottery or any staff, no consulting relationship. Nor 5 did anyone -- 6 CHAIR CLOWE: And I understand there 7 was no -- there is a working relationship, if I 8 understand it, where this Commission does business 9 with that entity. 10 MS. SCHULTZ: Yes, sir. 11 CHAIR CLOWE: And as I understand it, 12 there was a communicative relationship with M&S and 13 this group. 14 MS. SCHULTZ: CVS apparently contacted 15 M&S in regard to responding to the request for 16 proposals, yes. And I'm sorry if I am not clear on 17 what your question is, based on that. 18 CHAIR CLOWE: I'm just trying to 19 determine how that communication came about. Maybe I 20 should ask the M&S folks. 21 Could you clarify that question for me? 22 MR. SEXTON: At the initial meeting you 23 had to attend for all bidders, they contacted us and 24 wanted to participate in our bid if we could. They 25 wanted to supply the equipment for it. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 150 1 CHAIR CLOWE: So they came to you and 2 solicited a role as a subcontractor? 3 MR. SEXTON: Correct. 4 CHAIR CLOWE: Had you ever worked with 5 them before or had you had a relationship with them? 6 MR. SEXTON: No. 7 CHAIR CLOWE: And do you now? 8 MR. SEXTON: No. 9 CHAIR CLOWE: So you refused any 10 working relationship? 11 MR. SEXTON: We got quotes from them, 12 the prices were higher on the equipment that we wanted 13 and we didn't use them. 14 CHAIR CLOWE: Very good. 15 So it's the contention of the agency 16 that there were no discussions between Texas Lottery 17 Commission employees and M&S at any time after the RFP 18 was issued in regard to it? 19 MS. SCHULTZ: Yes, Your Honor. There 20 were questions from the evaluation committee, but I do 21 not consider them -- did not consider them 22 discussions. They were questions one way, answer, 23 please. Nor were there any before regarding the RFP. 24 I'm not drawing a line before and after regarding 25 contacts about the contents or discussion of the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 151 1 contents of the RFP. There were none before the RFP 2 was issued, either. 3 CHAIR CLOWE: Is there any material 4 difference between this RFP and similar other RFPs in 5 the past? 6 MS. SCHULTZ: I don't believe we have 7 ever issued an RFP regarding a broadcast that 8 requested use of robotic equipment. 9 CHAIR CLOWE: Well, I am sure you're 10 correct about that, but that really wasn't my 11 question. I'm talking about an issue of style. 12 MS. SCHULTZ: We use a similar format. 13 And, of course, it evolves as the legislature passes 14 additional statutes. For example, we have to require 15 dispute resolution language, but we use a similar 16 format for all RFPs that are issued. Depending on the 17 side of the contract, it may have different insurance 18 requirements. There are always different liquidated 19 damages provisions that apply specifically to that 20 type of good or service. 21 CHAIR CLOWE: I really am not looking 22 for that kind of detail. I'm looking for the level of 23 detail and the clarity. Is this RFP typical of that 24 for this type of contract, that this Commission 25 issues? Was it tailored in any way differently, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 152 1 setting aside the issue of robotic cameras and virtual 2 sites and that sort of thing? 3 MS. SCHULTZ: No. I don't believe it 4 was, if I am answering the question the way I think 5 you're asking it. I did not draft the RFP, but it's 6 got the shell outline that we have for all RFPs. It's 7 evaluated, the committee sets up its evaluation and 8 has its evaluation system approved in a similar 9 fashion. The committee meets -- met and evaluated 10 proposals in a similar fashion to all RFPs, made its 11 recommendations to the Executive Director. That's all 12 standard procedure for our procurements under an RFP. 13 MS. KIPLIN: Commissioner, is your 14 question going more to the level of specificity in 15 this RFP as opposed to past RFPs for broadcast 16 services or -- 17 CHAIR CLOWE: All RFPs. I think it's 18 an issue that I want to see developed on this record, 19 because I think it's a part of the contention of the 20 Group that M&S was advantaged, and I think that's an 21 important issue that needs to be laid out. I 22 appreciate the discussion that Commissioner Whitaker 23 led with both the Group and M&S on digital and analog 24 equipment. I had a number of questions and I think 25 that they have been answered in regard to the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 153 1 equipment aspect. I'm not clear how that takes us to 2 the different contentions on price. And I would like 3 an answer from each of you at this time as to how you, 4 do you, the issue of how the equipment selected boiled 5 down to the price of the Group and M&S Works. I think 6 we need to have that clearly stated on the record. 7 And so I'll ask the Group first to tell 8 us what your response to that would be. 9 MR. KOORIS: This is Richard Kooris. 10 The -- because the specifications were so vague and so 11 open-ended, we were forced to try to literally 12 interpret what little there was. And we felt that in 13 some of the language here, the RFP and the other 14 supplementary responses had stated that they wanted 15 state of the art equipment, that they wanted a level 16 of quality that was equal to what was currently being 17 provided in our studio. So that set a certain level 18 of equipment that we would provide. They also stated 19 that they wanted digital television broadcast 20 equipment, so we made an end to end digital solution. 21 And in doing so, it was considerably more costly to do 22 that. There were many less expensive ways to engineer 23 a solution, one of which was the route that was taken 24 by M&S Works. But we chose a route that turned out to 25 be more expensive, and we did that because we were WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 154 1 trying to respond to our interpretation, literal 2 interpretation of state of the art digital television 3 broadcast equipment, which was what is stated in the 4 RFP. 5 Also, in the question and answers, we 6 had talked about virtual sets before. There is an 7 answer, and the decision to not use virtual sets was 8 not made until after the award was made, but during 9 the bidding process, the Lottery responded, saying 10 virtual sets would include the use of a coated wall 11 pattern, blue with 3-D digital files for design. 12 Well, that's not a very precise answer either, but 13 it's a little better than what was in the RFP. Our 14 response provided for being able to respond to that 15 specification. And so that, again, added cost to what 16 we responded to. We also included more expensive 17 wiring, upgraded -- routing equipment and connective 18 equipment and test equipment and monitoring equipment 19 that was -- would make the transition to HDTV and 20 digital television very seamlessly. We guarantee that 21 we could do it in 48 hours without any additional cost 22 to the Lottery. And we did that because that was one 23 of the specifications in the RFP. That added a 24 substantial amount of cost to our bid. 25 Now, the real problem here is that the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 155 1 cost matrix is so simplified that there is no -- there 2 was no way for us to indicate any of that. The cost 3 matrix simply says, what is your cost going to be per 4 draw or per year, and then what is the buyout cost of 5 the equipment at the end of the first, second and 6 third years. 7 M&S Works went outside of the 8 boundaries of that cost matrix and provided more cost 9 information in the form of options and, you know, yes, 10 you could do it this way, that way. We recommend you 11 don't do this and we don't do that. We included 12 everything, because our experience in dealing with 13 RFPs of this type from this agency was that we did 14 not -- we're not allowed the flexibility to pick and 15 choose which criteria we wish to respond to. So we 16 responded comprehensively to every criteria that we 17 could interpret in the RFP. We got very little 18 clarification from the Q and A, and so our solution 19 was per force more -- a more expensive solution. Had 20 we had specifications, what you were alluding to in 21 your conversation, which didn't have to be 22 manufacturer specific specifications, they could have 23 been performance specifications, they could have been 24 equal or similar to specifications. Very common 25 procurement language. Had we had specifications like WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 156 1 that, using information that was readily available to 2 the Lottery, we could have responded very accurately 3 and very cost effectively to this RFP. We did not 4 have that information. 5 CHAIR CLOWE: And so you're saying that 6 your cost as it's reflected on -- I think Commissioner 7 Whitaker took you to page six. 8 MR. KOORIS: Yes, sir. 9 CHAIR CLOWE: Of your protest is not 10 the cost that you would have proposed. Is that what 11 you're saying? 12 MR. KOORIS: That's exactly what I am 13 saying. I can't quantify for you precisely here today 14 what it would have been, but I can tell you for 15 certain that it would be lower. Knowing now what we 16 know about the -- what the requirements are, it would 17 be substantially lower. 18 CHAIR CLOWE: All right. And then I 19 would like to have the same comment in regard to the 20 M&S Works price. Ms. Schultz, and you may want to 21 give that or you may want to defer to the M&S folks, 22 since they're here. 23 MS. SCHULTZ: Well, I think I can -- we 24 can sit and argue all day about quality of one versus 25 another. We can't sit in the place of the evaluation WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 157 1 committee that made that judgment and made its scores 2 based on that. And we can also speculate all day 3 about the wiseness of a decision to bid higher than 4 the current contract when the RFP specifically 5 requests that we want these services at a lower cost 6 than under the current contract. However, if you put 7 all the equipment arguments aside, the cost proposals 8 ask to bid production and distribution. And there was 9 a vast difference in the price between these two 10 proposers on the distribution. Distribution is the 11 satellite time of what it costs to get it up on the 12 satellite so the TV stations can put it down. TPFV 13 Group bid 547,524 dollars for annual distribution 14 costs. M&S Works bid 191,400 dollars for annual 15 distribution costs, so that is a significant 16 difference. 17 I think, when they're protesting their 18 appeal, they're trying to save it. They're trying to 19 say, if you look at this differently, if you look at 20 this differently, if you look at this differently, it 21 gets our cost closer and closer together. But what 22 they don't say is, it never gets them equal. If you 23 add the virtual set, it gets a little closer. If you 24 buy their argument that there was no live streaming 25 provided by M&S, then it gets it closer, but we didn't WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 158 1 buy that argument. The committee believed that they 2 were responsive in that regard. The statute and our 3 rule, 401.101(5)(e) with regard to preferences, talks 4 about preference for an in-state bidder over a 5 nonresident bidder proposals, the cost to the State 6 and the quality being equal, and they weren't equal. 7 The cost was not equal. And even if the cost had 8 ended up being equal, which from the distribution 9 costs you can see that it was not, the noncost portion 10 of the proposal, TPFV did not score higher than M&S 11 Works on the noncost portion either. 12 CHAIR CLOWE: I understand what you 13 said. And I just want to say to you that I think the 14 comments you're making are sensible and valid. I 15 think one of the issues that the Commission has -- is 16 having to deal with in this protest to the Executive 17 Director's determination is the issue of fairness, 18 communication that was equal, and the effect of those 19 levels of fairness and communication as they either 20 advantaged or disadvantaged the parties or left them 21 sitting on an equal bottom. And that's the reason for 22 my questions. I don't want to confuse you. I'm 23 trying to get at that by asking some specifics, but 24 that's an issue that I think is clearly before this 25 Commission. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 159 1 Commissioner Whitaker has a question. 2 COMMISSIONER WHITAKER: Ms. Schultz, 3 about the cost. In their last paragraph on page six 4 of that cost paragraph, they state that if you did 5 take into account their choosing digital across the 6 board instead of digital and analog that that would 7 have wiped out the price difference. How would you 8 respond to that? 9 MS. SCHULTZ: I think I would just say 10 that the evaluation committee believed that both -- 11 the equipment bid by both vendors, both potential 12 proposers, was responsive, with the exception of the 13 virtual set, and was considered in compliance with the 14 RFP. Beyond that, I don't think the committee agreed, 15 and the Executive Director does not agree, that the 16 equipment bid by M&S Works did not -- was somehow 17 inferior. And that aside, there is no way to have a 18 proposer -- to get inside a proposer's mind to 19 determine why they chose to bid one set of equipment 20 over another. That's the proposer's choice within the 21 guidelines of the RFP, to provide a Mercedes or to 22 provide a Chevrolet. The committee took the position 23 that the equipment that was bid by both vendors was 24 comparable, I think was the word used in the 25 determination, and was responsive. I don't know if WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 160 1 that answers your question. 2 COMMISSIONER WHITAKER: Yes. I have 3 follow up, but -- okay. 4 CHAIR CLOWE: Well, I got the question 5 answered from the group that I think they can't come 6 up with their specific answer to, is this really their 7 bid that is reflected in their protest. I would like 8 to ask you again, or again if you would like to defer 9 to M&S, I would like to ask the question, did they bid 10 what they wanted to, and are they happy with their 11 bid. Are they satisfied that they had the correct 12 information, and are they, similar to the Group, are 13 they dissatisfied or are they satisfied with their 14 submission? 15 MS. SCHULTZ: Are you asking me if I -- 16 CHAIR CLOWE: I'm asking you if you 17 want to defer to M&S to answer that question. 18 MS. SCHULTZ: I think I would. I can't 19 put words in their mouth -- 20 CHAIR CLOWE: Are you comfortable 21 answering that question? 22 MR. MIESNER: Yes. Yes. We're very 23 satisfied with our response. And while any type of 24 any response to any bid is very difficult to ascertain 25 what's needed, we just felt like that we provided what WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 161 1 we felt the Lottery needed and would be cost 2 effective. 3 CHAIR CLOWE: And you thought you 4 understood what the Lottery was asking for in the RFP? 5 Was there any concern about vagueness in your minds -- 6 MR. SEXTON: It was a very difficult 7 bid. But what clarified it the most, I think, is when 8 they sent the amendment to the bid and the 9 clarification to the questions and answers, and it 10 said, we want the best studio we can get, but we 11 certainly want to do it for less money and with less 12 people. And that kind of defined -- we were looking 13 at a total digital route, but where it said digital or 14 digital ready, and so we were looking at a total 15 digital route and ended up not using a total digital 16 route because it was better and more cost effective 17 not to. 18 CHAIR CLOWE: So you were very 19 comfortable with the clarification and felt -- 20 MR. SEXTON: As comfortable as you can 21 be. We felt we put our best foot forward. 22 CHAIR CLOWE: Okay. I think this round 23 of questions may have spawned additional questions 24 from you, Commissioner Criner, and Commissioner 25 Whitaker, and I think it's your turn. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 162 1 COMMISSIONER CRINER: I only have one 2 short question. Director Cloud, how did the 3 evaluation committee create their evaluation form? 4 Was it individually, or in a group? 5 MS. CLOUD: Individually. 6 COMMISSIONER CRINER: I see the 7 individual packages here, but did they eventually come 8 together to discuss that? 9 MS. CLOUD: They had to score the 10 evaluations totally independent of each other. And 11 the evaluations were compiled -- I believe, I was not 12 part of that process, but it was compiled by Ridgely 13 Bennett, I think, from each one of the evaluators. 14 COMMISSIONER CRINER: The other part of 15 this is, did we -- are any of these people technically 16 competent to talk about a studio? 17 MS. CLOUD: Yes. Glenn Hill, and I 18 believe Keith Elkins is very competent. 19 COMMISSIONER CRINER: So we had two out 20 of the six? 21 MS. CLOUD: Yes. And Jim Ziegler 22 (phonetic), I think, was on that evaluation committee 23 and he has been in charge of the studio at TPFV since 24 we've had the studio. So he was very much informed as 25 to what was needed and how it was needed. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 163 1 COMMISSIONER CRINER: So this 2 evaluation was made with some level of knowledge and 3 understanding? 4 MS. CLOUD: Absolutely. 5 MS. SCHULTZ: And Commissioner Criner, 6 if I may, to further expand on how the proposal is 7 evaluated by the committee. The answer to your 8 question is really both ways. Each committee member 9 looks at and evaluates the proposal on their own, and 10 then the committee meets as a whole to discuss and 11 question and answer. So if there are members of the 12 committee that have more expertise than others, they 13 are fully available to share that with other members 14 of the committee. Then the committee members each do 15 individually score their proposals based on their own 16 information and analysis, and the notes are compiled. 17 COMMISSIONER CRINER: Were -- for the 18 M&S Works people, were you compensated for any of the 19 initial work or any of the discussions you had or the 20 visits or the videotape? 21 MR. SEXTON: We never did any work. 22 They just were thinking about hiring a consultant, and 23 most of the discussions were whether we would want to 24 do it if they had had a consultant. There was no 25 specific work that I know -- WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 164 1 COMMISSIONER CRINER: So basically, we 2 came into your department store, walked around and 3 looked at what you had and walked out? 4 MR. SEXTON: Yes. 5 COMMISSIONER CRINER: We didn't talk to 6 you about buying and selling or anything else -- 7 MR. SEXTON: The only thing, we talked 8 about possibly could we do that -- if they were to 9 build their own studio, could we consult with them, if 10 that's what they decided to do. And then later they 11 said they were going to issue an RFP and there would 12 be no consulting. 13 COMMISSIONER WHITAKER: Mr. Kooris, in 14 earlier RFPs to which your group has responded, has 15 there been a similar cost matrix? 16 MR. KOORIS: Similar -- similar cost 17 matrix, yes. Slightly different. 18 COMMISSIONER WHITAKER: And has the 19 Group, in response to that cost matrix, provided 20 options that would be strictly outside the strict 21 confines of that cost matrix? 22 MR. KOORIS: Not on the cost sheet, we 23 have not. 24 COMMISSIONER WHITAKER: And do you 25 agree with that? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 165 1 MS. SCHULTZ: I disagree. 2 COMMISSIONER WHITAKER: In what -- 3 MS. SCHULTZ: Specifically, in the 1999 4 RFPs, they were put out twice in 1999, and the TPFV 5 proposal included options that were not specifically 6 requested in there. 7 COMMISSIONER WHITAKER: Is it correct 8 that the Group has provided options outside of their 9 main bid amount? 10 MR. KOORIS: In the 1999 bid, we asked 11 the question in the Q and A of whether we could 12 provide options, and the question was yes. 13 COMMISSIONER WHITAKER: And you did so. 14 MR. KOORIS: And we did so. In this 15 RFP, we asked the question in the Q and A, and they 16 referred us back to the RFP. The RFP says you cannot. 17 COMMISSIONER WHITAKER: Is it correct, 18 Mr. Kooris, that you interpreted the language in the 19 RFP for a, quote, state of the art digital TV 20 broadcast equipment, close quote, as requiring an end 21 to end digital system? 22 MR. KOORIS: Yes, we did. 23 COMMISSIONER WHITAKER: Were you 24 given -- the Group sent in a number of questions for 25 clarification. Is that right? WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 166 1 MR. KOORIS: Yes, we did. 2 COMMISSIONER WHITAKER: And did any of 3 those questions seek clarification of that language? 4 And if it did, could you point out which particular 5 question? 6 MR. KOORIS: It may take a minute, but 7 I'll see. 8 Our question 13. 9 COMMISSIONER WHITAKER: We're looking 10 at Exhibit 18. Is that correct? 11 MR. KOORIS: Let me make sure that it 12 is. I'm looking at the written response to proposer's 13 questions. That's correct. 14 MR. O'DONNELL: That's correct. 15 COMMISSIONER WHITAKER: Pardon? 16 MR. O'DONNELL: That is correct. 17 MR. KOORIS: For example, our question 18 13 is multi part. 19 COMMISSIONER WHITAKER: I don't see a 20 question 13. I'm sorry. 21 CHAIR CLOWE: What exhibit is it? 22 COMMISSIONER WHITAKER: 18. 23 MS. SCHULTZ: I'm sorry. I believe 24 it's Exhibit 19 in the protest. 25 COMMISSIONER WHITAKER: No. I want to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 167 1 talk about what TPFV asked the Commission for 2 clarification on. And that's contained in Exhibit 18. 3 MR. KOORIS: Okay. Then I need to look 4 at this instead of that. 5 In 6.3.1, the second paragraph. 6 Please -- I'm sorry on page ten of 17. Are you there? 7 COMMISSIONER WHITAKER: Okay. 8 MR. KOORIS: Please supply a detailed 9 technical and engineering specification which defines, 10 quote, state of the art digital television broadcast 11 equipment, close quote. Please state which digital 12 standards the equipment should conform to or be 13 capable of outputting. And then there are a number of 14 other sort of corollary technical questions, but is 15 that in response to your question? 16 COMMISSIONER WHITAKER: Okay. Then, in 17 Exhibit 19, on page six. 18 MR. KOORIS: Okay. 19 COMMISSIONER WHITAKER: Is the response 20 by the Commission. Is that correct? 21 MR. KOORIS: This is the -- 22 COMMISSIONER WHITAKER: No, that's not 23 correct. 6.3.1 is answered where? 24 MR. KOORIS: I'm trying to get to that. 25 COMMISSIONER WHITAKER: Ms. Schultz, do WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 168 1 you see where they answered that? 2 MS. SCHULTZ: I'm looking through. 3 And, Commissioner, what happens is all of the 4 questions are combined from all of the proposers, in 5 this case, both of the -- actually, no. There were 6 more than two people who submitted letters of intent, 7 so all of the questions are combined. We would have 8 to scan through until we find that specific one. 9 COMMISSIONER WHITAKER: Well, why don't 10 you be looking for that and I'll continue with my 11 questions for Mr. Kooris. 12 One thing that is referenced is A, 13 which is on page one of Exhibit 19. 14 MR. KOORIS: Page one -- 15 COMMISSIONER WHITAKER: Actually, it's 16 the second page, but it's listed as the first page of 17 the notes -- the second page of Exhibit 19. 18 MR. KOORIS: Yes, I'm there. 19 COMMISSIONER WHITAKER: Okay. So the 20 reference on page six to digital formats, et cetera, 21 the answer to that is a reference back to A. Is that 22 correct? 23 MR. KOORIS: It appears to be. 24 COMMISSIONER WHITAKER: And A is the 25 goal. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 169 1 MR. KOORIS: Yeah. 2 COMMISSIONER WHITAKER: Where in that 3 does it state that it is to be end to end digital? 4 MR. KOORIS: It's just as vague as the 5 RFP, I agree with you. 6 COMMISSIONER WHITAKER: How did you 7 read the last paragraph of that page where it talks 8 about future issues over the next five years, 9 including transitions from analog to digital 10 broadcasting? 11 MR. KOORIS: The way that we 12 interpreted that was the analog to digital 13 broadcasting was a reference to the fact that the 14 national standards for broadcast, which are currently 15 analog, were going to be undergoing a transition to 16 digital broadcasting. We did not interpret that to 17 refer to the facility was being proposed. It is a 18 vaguely written paragraph, but that was our 19 interpretation. 20 COMMISSIONER WHITAKER: Ms. Cloud, 21 there has been some mention in the comments today of 22 the Lottery wanting something similar to the Kentucky 23 lottery. Do you remember that statement of the 24 testimony today or the statements -- 25 MS. CLOUD: I think the reference was WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 170 1 to minutes from a Commission meeting. 2 COMMISSIONER WHITAKER: In which you 3 stated that you wanted something similar to -- 4 MS. CLOUD: Similar to what Kentucky 5 had. 6 COMMISSIONER WHITAKER: By similar, 7 were you referencing -- 8 MS. CLOUD: The robotic cameras that 9 actually did the draws. 10 COMMISSIONER WHITAKER: Okay. So you 11 were referencing the robotic cameras in the context of 12 the special purpose for a limited purpose production 13 facility? 14 MS. CLOUD: Right. 15 COMMISSIONER WHITAKER: And that 16 language is, in fact, in Exhibit 19? 17 MS. CLOUD: Yes. 18 COMMISSIONER WHITAKER: Mr. Kooris, one 19 of the things in Exhibit 19 that strikes me is the 20 request by the Commission to have the bid be at lower 21 cost and require less staff and manpower. Do you see 22 that? 23 MR. O'DONNELL: What page is that? 24 COMMISSIONER WHITAKER: That's on the 25 second page of the exhibit. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 171 1 MR. KOORIS: Oh, yes. It's in this. 2 COMMISSIONER WHITAKER: Do you see that 3 reference? 4 MR. KOORIS: Lower cost -- yeah. 5 COMMISSIONER WHITAKER: The -- there is 6 other mention in the record that the current contract 7 between the Group and the Commission was in the range 8 of 1.5 million. 9 MR. KOORIS: Uh-huh. 10 COMMISSIONER WHITAKER: And the bid 11 submitted by the Group was 1.5 million. How do you 12 explain that as being satisfactory, or satisfying the 13 needs of page two of Exhibit 19? 14 MR. KOORIS: They wrote a specification 15 for more apples than they were currently buying. They 16 asked for live Web streaming, they asked for virtual 17 sets, none of which they're currently purchasing at 18 the current time. They put no specification on the 19 number of concurrent live streams that they wanted to 20 support. We were forced to accommodate a vague 21 specification, knowing that there was no option to go 22 back for additional funds. 23 COMMISSIONER WHITAKER: Did you provide 24 a bid that was at lower cost to the Commission? 25 MR. KOORIS: We tried to, but we could WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 172 1 not. 2 COMMISSIONER WHITAKER: Did you? Okay. 3 You did not. 4 MR. KOORIS: We could not. 5 MS. SCHULTZ: Commissioner Whitaker, 6 for the record, I think the statement I made earlier 7 was that the current contract is in the range of 1.7 8 to 1.8 million, versus the bid. 9 MR. KOORIS: This year is 1.57. 10 MS. SCHULTZ: The information I have is 11 from fiscal year 1999 and fiscal year 2000. Fiscal 12 year 1999 was 1.88 million; fiscal year 2000 was 1.71 13 million. 14 MR. KOORIS: And the contract is lower 15 this year. 16 COMMISSIONER WHITAKER: One then one 17 final question to Ms. Cloud. The relationship between 18 CVS and the TLC, could you describe that just in a 19 little bit more detail for me? 20 MS. CLOUD: Communication uses the 21 services provided for by CVS for -- they've used them 22 to repair cameras, our video cameras that we used in 23 our -- in -- V and R's. Repair the controller unit 24 that they use to edit these videotapes. We've had 25 them do several things for us in the way of parts and WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 173 1 pieces that we needed for our own video for 2 communications. 3 COMMISSIONER WHITAKER: But nothing 4 related to this RFP? 5 MS. CLOUD: No. 6 COMMISSIONER WHITAKER: No more 7 questions. 8 CHAIR CLOWE: I want to come back, 9 Mr. Kooris, to a couple of things that you said. 10 First of all, when you referred to the long 11 relationship that you had as a vendor with this 12 Commission in producing the nightly drawing six nights 13 a week. 14 MR. KOORIS: Yes, sir. 15 CHAIR CLOWE: The Commission is very 16 proud of the record of no failed broadcasts, and I 17 referred to that in testimony that I gave before a 18 committee of the legislators. And I think it would be 19 remiss if I didn't express the fact that we are proud 20 of that and that we are appreciative of the job that 21 your company has done. In addition, the job that our 22 staff has done, that there is a great effort there on 23 behalf of a number of people, and that television 24 screen has never gone blank at the time the drawings 25 were teed up. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 174 1 MR. KOORIS: I appreciate that. Thank 2 you. 3 CHAIR CLOWE: I want that to be on the 4 record. I am concerned about another part of your 5 remark that you were met with some unfavorable type of 6 relationship, in your opinion, after the RFP was 7 issued. And I am concerned about that. I do not 8 want, on behalf of myself as a Commissioner, and I 9 don't think any of the Commissioners want anything 10 other than a positive, productive relationship with 11 our vendors and potential vendors through the bidding 12 process. And that concerns me. Would -- I want to 13 express that concern to you and to all vendors and 14 potential vendors, and would you have any further 15 comment for this Commission about that, in addition to 16 what you have already said? 17 MR. KOORIS: Well, I would clarify that 18 I was not commenting about any contacts that took 19 place after the RFP was issued, because we had no 20 contact with the Lottery concerning the RFP after it 21 was issued. That was prohibited and we didn't do it. 22 But the -- the tenor of the relationship that I was 23 referring to was on the management to management 24 level. As I said before, on an operational level, 25 everything has been excellent. Your operations people WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 175 1 and our operations people have worked like a smoothly 2 oiled machine, and it's been a very cooperative and 3 very productive relationship. On a management level, 4 we felt that all of our offers to contribute knowledge 5 and experience to make the broadcasts better, to 6 improve them, and take advantage of that wonderful 7 minute of prime broadcast time that was purchased 8 every night, were rebuffed. And this goes back many, 9 many years. I don't want to speak off the record 10 here, but this -- I'm trying to respond to your 11 question. And it's not just a one-time event. 12 We've -- we have many, many clients, and we have great 13 relationships with all of those clients. And those 14 are always two-way relationships, as you know. We 15 tried very hard to have a two-way relationship here 16 and it just did not ever happen. 17 CHAIR CLOWE: Well, thank you for 18 clarifying that. I was under the impression that you 19 were speaking about something that occurred after the 20 RFP was issued and that's not the case. 21 MR. KOORIS: No, sir. 22 CHAIR CLOWE: Prior to that, it was a 23 higher level, if I'm hearing you correctly, one more 24 to do with style than with substance insofar as 25 changes that you might suggest and that sort of thing. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 176 1 MR. KOORIS: It did not affect the 2 performance of the contract. It affected the added 3 value that we might have been able to bring to the 4 contract and to the relationship and we weren't 5 permitted to. 6 CHAIR CLOWE: Well, I would like to 7 recommend to you that any time you feel like there is 8 an issue there that needs to be dealt with, we 9 certainly recommend your attention to visiting with 10 the Executive Director, and then at any time beyond 11 that point, this Commission is open to being 12 approached with any problems that anyone has with this 13 Commission. Are you aware of that? 14 MR. KOORIS: I am aware of that. And 15 because there have been so many RFPs issued through 16 the past years, we have -- the amount of time that we 17 could contact anyone has been pretty severely limited. 18 Even when RFPs were not actually issued, we were, on a 19 number of occasions, told that we -- it was not an 20 appropriate time for a meeting because there was an 21 RFP under discussion. And so we were not permitted to 22 meet with the executive staff, nor were we permitted 23 to meet with the Commissioners at the time. 24 CHAIR CLOWE: Well, we certainly intend 25 to follow those rules and abide by them, but where WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 177 1 there is a window of opportunity, I want to express, I 2 think, for this Commission, interest in relationships. 3 And our view is, I believe, that wherever we have the 4 best relationship possible with every vendor or with a 5 potential bidder, we want that positiveness to accrue 6 to the benefit of the people of the state. 7 MR. KOORIS: I totally agree. 8 CHAIR CLOWE: Okay. If there are no 9 more questions from the Commissioners, at this point 10 in time -- yes, Ms. Schultz. 11 MS. SCHULTZ: I wanted to go back to 12 the question by Commissioner Whitaker of where in 13 Exhibit 19, and we were scanning Exhibit 19 and 14 Ms. Cloud did find the answer indicated. It's 15 beginning on the bottom of page 18, question 49, going 16 to page 19 of Exhibit 19. 17 CHAIR CLOWE: Could you speak up just a 18 little bit. I couldn't get those page references. 19 MS. SCHULTZ: It's the beginning of the 20 bottom of page 18 and going to page 19 on Exhibit 19, 21 are the questions that respond to the particular 22 question addressed from Exhibit 18. Or the series of 23 questions, actually. 24 COMMISSIONER WHITAKER: Thank you. 25 CHAIR CLOWE: I believe we have come WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 178 1 now to the time when we're going to ask you, 2 Mr. O'Donnell, to give us a short summation, and 3 Ms. Schultz, if you'll follow with any comments that 4 you may have. 5 MR. O'DONNELL: Thank you, Mr. 6 Chairman. I'll try to be brief. The evidence we have 7 presented, it simply doesn't pass the smell test. 8 We've got -- we've got all of these contacts between 9 M&S and the Lottery. And I wanted to point out to 10 you, the Chairman, I think he said that he thought 11 this letter where Ms. Cloud laid out this policy that 12 we can't talk to the Group was after the RFP. I 13 thought I heard you say that. But, obviously, it's 14 before the RFP is actually issued. It doesn't pass 15 the smell test. We can't talk to you, but we can talk 16 to M&S, even though M&S admits in writing that they 17 were a potential bidder, contractor for the very 18 contract that is in issue here back in March. And so 19 even though M&S didn't file a -- they had the 20 opportunity to file a response to our protest, written 21 response, they didn't. They had an opportunity to 22 file a written response to our appeal. They didn't. 23 And yet they show up here, which I really think is 24 outside the record, because they haven't presented 25 anything for the record, but while they're here, I WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 179 1 think a good question would be, what are all these 2 telephone calls between M&S Works and -- and the 3 Lottery. Nobody is asking that. I can't ask them 4 that. 5 We've also had handed to us, Exhibit 2, 6 which is really outside the record. That's where the 7 Lottery Commission attempts to sort of specify who had 8 the conversations, but even after we had the 9 affidavits today and their testimony, I will challenge 10 the Commission, for example, forget March. We've 11 already decided in April not to use them as a 12 consultant. We're going to -- we're now going to have 13 an RFP. Let's just take, based upon everything we've 14 heard, I would challenge anybody, the Commissioners to 15 tell me what this phone call was about. I challenge 16 anybody in the room that's heard the testimony and the 17 affidavits to tell me what this May 25 phone call was 18 about. It's with Keith Elkins. And I can go over 19 every one of these. We don't know what they're about. 20 COMMISSIONER WHITAKER: Which one? 21 MR. O'DONNELL: I picked out a few, but 22 we don't know -- other -- I'm forgetting the faxes. 23 We don't know what these calls are about. Nobody has 24 told us what these calls are about. The affidavit 25 says, the details of the RFP were not discussed. Was WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 180 1 the RFP discussed? They don't tell us that. So this 2 would be a good time to ask these guys what all these 3 conversations were about, and specifically, the ones 4 after the RFP is issued. We've got three faxes, which 5 we're not complaining of. The first fax is this 6 December 8 at 12:43. The second fax is this call at 7 1:19. And then the last fax is February the 23rd. 8 That leaves four telephone calls after the RFP is 9 issued, and I challenge any of the Commissioners to 10 tell me, based upon the affidavits presented to them, 11 what was this telephone conversation about at 12:47 on 12 December 8, between M&S and the legal division, 13 according to Exhibit 2 provided by the Lottery. Who 14 in the legal division had that telephone conversation? 15 And tell me what it was about. We know it wasn't 16 about the details, but did they talk about the request 17 for proposal. 18 I challenge anybody to tell me what 19 this telephone call is about, the one at February 8 at 20 11:09 a.m. That was, again, to the legal division. 21 What was said? Who had that conversation? They don't 22 identify that. 23 The next one, February the 19th, here 24 is from Glenn Hill to M&S. What was that conversation 25 about? Was it about the request for proposal? We WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 181 1 don't know because they haven't told us. We know they 2 didn't talk about the details of the request, but did 3 they talk about the request. You know, details is 4 sort of a subjective thing. What may be a detail to 5 him may be very important to us. What kind of robotic 6 camera do you think we ought to use? Is that a 7 detail? 8 I challenge anybody to tell me what 9 this conversation was about, February 22 at 9:20. 10 That was M&S to Glenn Hill. What was it about? We 11 don't know. We still don't know. It doesn't pass the 12 smell test. These guys could have filed affidavits, 13 they could have filed a written response telling us 14 what all of this is about so we would have had plenty 15 of time to be prepared, put on notice to come to this 16 hearing and talk about it. Yet they show up and just 17 ask a few questions. They ought to be asked these 18 questions and be -- and tell us what this was all 19 about. 20 This is not fairness. On the face of 21 it, it's not fairness. Look at -- let me direct your 22 attention to page seven of my protest where I set 23 forth -- I set forth a memo that Mr. Elkins wrote 24 right in the middle of the page, on April 7, where he 25 says, Ridgely Bennett talked to M&S Works. Currently WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 182 1 working on the RFP. Now, to me that means Ridgely is 2 currently working on it. I'm not positive. I don't 3 know. That's after, obviously, the RFP is going to be 4 issued. Why is he talking to M&S Works about the RFP 5 while he is working on the RFP? And where is his 6 affidavit to tell us -- where is Mr. Bennett here 7 today to tell us? There is no affidavit from 8 Mr. Bennett, he is not here to tell us what any of 9 these phone calls were about, when it's clear he was 10 talking to them while he was working on the RFP. 11 Now, all of these phone calls, again, 12 according to the RFP, have -- contacts have to be in 13 writing to Mr. -- Mr. Bennett, and we're not 14 complaining about the faxes. We even say that. There 15 is a footnote down there. The one fax that we knew 16 when I wrote this protest, the one fax that I was 17 aware of, now they're come and told us some other 18 faxes, but I put a footnote here on this fax that 19 we're not complaining about that. They faxed this -- 20 the Lottery faxed M&S Works a letter of intent. We're 21 not complaining about that. But there is four oral 22 conversations there that nobody has explained yet. 23 It's easy to say the details weren't discussed. Why 24 don't they just tell us that the RFP wasn't discussed. 25 That will resolve everything. If they just come in WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 183 1 here and say, the RFP was never discussed on any of 2 these phone calls, and if those people will say that, 3 we're out of here as far as that being an improper 4 contact. 5 Now, counsel for the Lottery said that 6 we were relying upon gossip, was her word, about CVS. 7 We stated in our protest specifically where we got 8 that information, from the manager of CVS. We -- 9 that's all we could do. We said, here is what he told 10 us. It's not somebody off the street. It's the 11 manager of CVS, that CVS consulted with the Texas 12 Lottery on this RFP. There is a conflict there. I 13 mean, they're saying it didn't occur. But we don't 14 have any affidavits from anybody that directly 15 addresses that issue. Nothing about, I did or did not 16 talk to CVS about anything. 17 Now, while the M&S guys are here, they 18 can answer what information, if any, did they get from 19 CVS. I'm not sure -- in their bid, they have 20 equipment that they bid in their response. Did that 21 come -- did any of that come from CVS? That would be 22 a good question to ask them right now. Did they rely 23 upon any information from CVS when they submitted 24 their bid for the equipment in this case? That's -- I 25 would ask them that if I were a commissioner. I can't WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 184 1 ask them that. 2 MR. MIESNER: May I respond to that? 3 CHAIR CLOWE: Let's wait for him to 4 complete his summation, please. 5 MR. O'DONNELL: We requested 6 clarification, it's part of the record, and you saw 7 the response. M&S asked -- we put in there, they had 8 very few questions. We put that in the record, too, 9 and that's because they knew what the Lottery wanted. 10 Let me just clarify one thing that 11 Commissioner Whitaker asked me about my contacts with 12 the Lottery. Clearly, once we were hired to work on 13 this protest, we -- I had telephone conversations with 14 Lottery personnel about Open Records, to try to get 15 records to look into this situation. I also had 16 telephone conversations with their lawyers about 17 procedures for filing the protest, and when -- how it 18 all worked. So I did want to clarify that. Because, 19 for one thing, we were interested in the 20 determination -- or the contract not being let on a 21 Friday afternoon where our response is due, you know, 22 72 hours later over the weekend. We were concerned 23 about some timing. So clearly, I wanted to make sure 24 you understand that. 25 Now, Commissioner Whitaker also asked WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 185 1 me if she just has to rely upon what we say or our 2 good faith about what our bid says. And she's 3 correct. We did not submit the RFP as part of our 4 protest. It's extensively referred to in our protest 5 under oath. It's extensively referred to and 6 discussed and compared in our appeal. It's 7 extensively referred to and it's discussed by the 8 Lottery in its determination. So it's there. And you 9 don't have to just rely upon what we say as part of 10 the record. But out of an abundance of caution, I 11 would like to go ahead and let us supplement and 12 actually put in our RFP as part of the record. I 13 thought what I gave you was thick enough already, but 14 if we -- if that's going to be a technical problem, 15 then please let us supplement and add that to the 16 record. 17 And I appreciate your time. I think 18 Mr. Kooris has a few points that he wanted -- if that 19 would be permissible. 20 CHAIR CLOWE: Go ahead. 21 MR. KOORIS: Very quickly. 22 Commissioner Clowe, you asked a question of 23 Ms. Schultz about the level of detail in RFPs in 24 general. And while I don't have knowledge of the 25 total scope of all of the RFPs that the Lottery WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 186 1 issues, I do have quite a bit of knowledge of the RFPs 2 that have been issued to us over the past nine years. 3 And the answer to your question is that the level of 4 technical specificity in all of those previous RFPs 5 was considerably greater than the level of detail in 6 the last RFP. 7 Commissioner Criner, you had asked a 8 very good question about the qualifications of the 9 evaluators, and I wanted to expand just a little bit 10 upon that. Mr. Ziegler is a -- a security expert who 11 is present at the drawings every evening as a drawings 12 supervisor. He -- Mr. Elkins is a -- has experience 13 in the broadcast business in front of the camera, 14 primarily, and on the management side, but has no 15 engineering qualifications. And Mr. Hill has a 16 experience as a technician, but not as an engineer. 17 The normal process of evaluation of a -- of a bid to 18 build a full production studio like this would include 19 qualified engineering personnel, people who work every 20 day as engineers, who have training as engineers, who 21 are licensed as such. There were no such people on 22 the evaluation committee. 23 That's everything I have. 24 MR. O'DONNELL: Mr. Chairman, can I 25 have just 30 seconds? I have one other point. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 187 1 CHAIR CLOWE: Okay. 2 MR. O'DONNELL: When you asked M&S 3 about the trip up there, they said it was sort of like 4 they came in and looked at the department store and 5 left. But when they tried to defeat our Open Records 6 request to get their videotape, they had a much 7 different -- instead of just, hey, they came up and 8 looked around left and that's about all we understood 9 and we let them do it. Well, they say -- that trip 10 was made on March 6 or 7. The very first -- that 11 video made when they first went there, and so they say 12 that video was made, they were a potential contractor 13 at that time on this contract. They were -- they 14 wanted that bid and that's the reason they let the 15 Lottery have that video from day one. So I just 16 wanted to clarify that. 17 CHAIR CLOWE: Thank you. Can the 18 request be made properly for that to be part of this 19 record? 20 MS. KIPLIN: I think if the Commission 21 thinks that that's something that they would like to 22 incorporate, I don't see a problem with it. And the 23 reason I say that is because it is part of the 24 solicitation file which was before the Executive 25 Director when she made her determination. So if you WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 188 1 would like to have it incorporated, it's a public 2 document, it's mentioned, I think that's within your 3 discretion if you would like to have it brought in. 4 CHAIR CLOWE: What's your pleasure? 5 COMMISSIONER WHITAKER: Well, I was 6 under the instructions to consider what was in the 7 record and only what was in the record. Therefore, if 8 we add it, I would like to have an opportunity to read 9 it. 10 CHAIR CLOWE: How long a time period, 11 Commissioner Whitaker, do you think you would need to 12 do that? 13 COMMISSIONER WHITAKER: Not long. 14 CHAIR CLOWE: Well, let's take a 15 recess. We'll admit that to the record and let it be 16 produced and delivered to the Commissioners as 17 promptly as possible. And we will try to reconvene at 18 1:30. Will that give you time? 19 COMMISSIONER WHITAKER: And do we have 20 an answer from M&S or are you going to -- 21 CHAIR CLOWE: Yes. If you would like 22 to go forward. I think we need to give Ms. Schultz 23 her time in order of presentations, and then we'll -- 24 would you like to go forward on that basis? 25 COMMISSIONER WHITAKER: Yes. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 189 1 MS. KIPLIN: Mr. Chairman, if I might. 2 I think if we're going to incorporate it, and I think 3 it's very appropriate for Commissioners to read that 4 document, I understand the time frame, but I would 5 want to make sure that any Commissioner would have 6 that opportunity and not be constrained by a half hour 7 time frame. I don't know how many pages it is. 8 COMMISSIONER WHITAKER: If I need more 9 time, I'll ask for it. 10 CHAIR CLOWE: All right. I think we'll 11 go forward with Ms. Schultz for responses, and then 12 we'll hear from the M&S group, and we'll see where we 13 are on time. And in the meantime, Kim, if you would 14 ask that that document be reproduced. 15 Ms. Schultz, please. 16 MS. SCHULTZ: Thank you, Commissioner. 17 I don't feel it necessary to again go over our 18 explanation of the faxes and phone calls after the 19 December 1st issuance of the RFP. I will if the 20 Commission still has questions about it, but I feel 21 that our responses are clear on what were the intent 22 of these calls and faxes. And can you glean from our 23 Exhibit 3 that it would be impossible for someone to 24 have gotten the knowledge that M&S Works wanted a copy 25 of its file stamped letter of intent had M&S not WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 190 1 called and requested that. And that's what that was 2 about. 3 I think it also stretches the bounds of 4 semantics to say that these affidavits did not say, at 5 no time did I discuss the request for proposals for 6 drawing studio and production services with M&S Works 7 or with any other prospective proposers or proposer. 8 It did say that, but it has some additional words in 9 between discuss and request for proposals. Those 10 words were, details of, or share information 11 regarding. I can completely envision a scenario, if 12 those words were left out, where Mr. O'Donnell would 13 be here saying, oh, well, they're saying in their 14 affidavits that they didn't discuss the RFP. Well, 15 maybe they just called them and told them the 16 information and there was no discussion. They just 17 shared it. They just told them. That affidavit was 18 intended to cover every possible relationship that 19 could have caused an exchange of information about the 20 RFP, the contents of the RFP, and the evaluation of 21 the RFP. It is ridiculous to say that there are too 22 many unanswered questions based on that. There were 23 no contacts and there is no evidence of any contact. 24 If we're asking for affidavits, where 25 is the affidavit from CVS, from the representative WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 191 1 from CVS who gave his hearsay information to 2 Mr. Kooris about their extensive consulting 3 relationship with the Texas Lottery. There is no 4 affidavit and there is no evidence because it didn't 5 exist. It didn't happen. 6 The calls at issue were the calls 7 included in the protest by TPFV. It's the blowup 8 there, it's the Exhibit 2. It's page six of TPFV's -- 9 TPFV protest. Not a single one of those calls prior 10 to issuance of the RFP was to or from Ridgely Bennett. 11 Why would Ridgely Bennett have to defend a phone call? 12 There wasn't a single phone call there that was to or 13 from Ridgely Bennett. The calls to the legal and fax 14 to the legal division were to our Open Records 15 coordination and discussing Open Records requests. 16 There was nothing brought into issue in this protest 17 that related to Ridgely Bennett or conversations with 18 Ridgely Bennett. 19 There was also a comment made about the 20 specificity, of a difference in specificity between 21 earlier RFPs and this RFP. And I think our response 22 to that would be, in earlier RFPs we were very 23 specific about the storage area for the Lottery 24 drawing equipment, the drawing machine, the security 25 area. We were very specific about the viewing area WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 192 1 for the public. We were very specific about the fact 2 that we felt some of the details of the current 3 facility did not meet disabled accessibility standards 4 of the state and federal government. We were very 5 specific about all of those because we were going to 6 someone else's facility. In this situation, in this 7 RFP, we are building our own facility. I don't think, 8 other than that one time I detailed to you earlier, we 9 tried to put out a list of what we wanted in our 10 studio, and specific equipment with pretty much 11 disastrous results, that we had so many comparable 12 types of equipment we couldn't compare. We never told 13 people who were providing the services at their 14 facilities what type of equipment we wanted, what type 15 of cameras we wanted, what type of up link we wanted. 16 That was all left to the vendor. We were specific 17 about our details because it was in someone else's 18 facility. In this case, it's our facility. I 19 really -- unless you have specific questions about 20 those calls, or anything else, I don't have anything 21 else. 22 CHAIR CLOWE: Thank you, Ms. Schultz. 23 I don't hear any. Help me again pronounce your last 24 name. Mr. Miesner? 25 MR. MIESNER: Yes. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 193 1 CHAIR CLOWE: You indicated that you 2 wanted to give a response to a comment made by 3 Mr. O'Donnell, I think it is. Would you like to do 4 that now and comment in any other way to us that you 5 would like to, and your comments need to be those 6 issues that are on the record so that the 7 Commissioners can take them into consideration. 8 MR. MIESNER: I have only one response, 9 and that is, on CVS, we knew nothing about them before 10 we came to our prebid, they approached us. They never 11 provided us any information that they might have 12 gained from the Lottery, and they were not included in 13 our bid as far as the equipment was concerned and 14 we're not doing business with them. 15 CHAIR CLOWE: And do you have a 16 question? 17 COMMISSIONER WHITAKER: I take it, from 18 those, that what you're also saying is that you did 19 not rely on any information you got from them in 20 preparing the RFP response. Is that true? 21 MR. MIESNER: That's true. I have been 22 in the Lottery business since 1985. I oversaw the 23 drawings for the West Virginia lottery and I oversaw 24 drawings for the Kentucky lottery. And along with my 25 partner, Jeff Sexton, we're very knowledgeable about WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 194 1 lotteries in general and the services they need to 2 provide and quality broadcasting, and that's what we 3 relied on to answer our bid to the Texas Lottery. 4 COMMISSIONER WHITAKER: Did M&S Works 5 ever discuss the contents of the RFP with the 6 Commission after the RFP was issued? 7 MR. MIESNER: Never. 8 COMMISSIONER WHITAKER: Before? 9 MR. MIESNER: Never. 10 CHAIR CLOWE: Any questions for anyone? 11 COMMISSIONER WHITAKER: No. 12 CHAIR CLOWE: Any questions, 13 Commissioner? 14 COMMISSIONER CRINER: No. 15 CHAIR CLOWE: We're going to recess now 16 for about 30 minutes so the Commissioners may read 17 this document which being made part of the record. 18 Commissioner Whitaker, where would you like to be 19 located? 20 I think you need to be in Billy's 21 office or in Kim's office or in the conference room 22 upstairs up on the fourth floor. What is your choice? 23 Upstairs in the conference room? 24 Commissioner Criner, will you go to 25 Kim's office? And I will go to your office, Billy. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 195 1 And again, on the record, I want to admonish everyone 2 who is a party to these proceedings, not to please 3 talk to the Commissioners. The Commissioners will not 4 be speaking to each other and no deliberations will be 5 made during this time. We'll come back at 1:35 to see 6 if the Commissioners are ready to go forward on the 7 record. 8 (RECESS.) 9 CHAIR CLOWE: The Texas Lottery 10 Commission is now back in session. The time is 2:51 11 p.m. [sic]. During our brief recess, the 12 Commissioners were supplied with a copy of the TPFV 13 Group's proposal, in response to the RFP from the 14 Commission on a production studio. The Commissioners, 15 during this break, have had an opportunity to read 16 that document and it is made part of the record. Now 17 I'll ask if there are any questions from the 18 Commissioners. Commissioner Whitaker. 19 COMMISSIONER WHITAKER: Questions 20 for -- based on our -- no. Actually, pieces of it, 21 the equipment list and the actual bid were already 22 included in the record, and the only thing that was in 23 addition that I saw was the upfront statement of 24 summary that you were providing all digital equipment. 25 MR. KOORIS: Yes. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 196 1 COMMISSIONER WHITAKER: Is there 2 anything else that I should have noted? The rest 3 seemed to be related to issues not at issue today. Is 4 that correct? 5 MR. KOORIS: That's correct. 6 CHAIR CLOWE: Commissioner Criner. 7 COMMISSIONER CRINER: None. 8 CHAIR CLOWE: Then I think we're ready, 9 Counselor, for you to describe to the Commission what 10 our options are as you see them and answer any 11 questions the Commissioners may have as a result of 12 your comments. 13 MS. KIPLIN: Sure. I'll be glad to. 14 Let me just go -- I guess, briefly go through and 15 summarize what I think is the request for relief that 16 was contained in the protest incorporated by reference 17 into the appeal, and then the appeal -- request for 18 relief. The first point on the protest, which I think 19 is moot now, was the -- being provided documents that 20 were previously requested, and I think that's been 21 made moot by the supplement to the protest. The other 22 request was that TPFV be provided an opportunity to 23 conduct discovery, that the M&S contract be canceled, 24 and that the RFP be resubmitted. The request and 25 appeal did say after hearing that the contract be WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 197 1 canceled. So those are the issues that are before 2 you. 3 As I see the options, and I have got 4 capable counsel sitting to my left, Terry Smith with 5 the Attorney General's Office, and clearly you have 6 counsel here before you that I'm sure will hop on 7 anything that they think I'm saying that's incorrect. 8 But the options as I see it are, you can affirm the 9 Executive Director's determination and deny the appeal 10 by TPFV, you can void the contract, and you can direct 11 the Executive Director to reissue the RFP, you can 12 remand to the Executive Director for further review by 13 the evaluation committee. If the evaluation is such 14 that the TPFV proposal is determined then by the 15 evaluation committee to be the best value, I think 16 that there is the ability to cancel the contract. You 17 can also abate the proceedings until the -- this 18 additional evaluation has occurred and just remand it 19 back and say you want further evaluation by the 20 evaluation committee. If you cannot make a decision 21 today, if you think that you need to take it under 22 advisement and consider it further, there is nothing 23 that requires you to make that decision today. 24 To go to their points in terms of 25 discovery and the hearing, as I understand it, really WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 198 1 had to do with a due process or due course of law 2 issue, and there is nothing in the statute, our 3 statute or our rules, that provides for discovery 4 under an evidentiary hearing. There -- to my 5 knowledge, the case law underlying the case, I handed 6 you just a second ago, yeah, the Best and Company 7 versus Texas State Board of Plumbing Examiners case, 8 doesn't require that level to be able to sustain due 9 process or to say that a party has been afforded due 10 process on that level, meaning an evidentiary 11 contested case proceeding. So I don't think that's 12 required under the due process provision. I think 13 the -- what is required that there be a hearing and 14 there be review and that there be a process to provide 15 for that, and I think that what has occurred since 16 8:30, and now it's five till 2:00, we did take about a 17 45-minute recess, but I think you all have been going 18 pretty strong with the parties before you since 8:30 19 this morning, and I think the record is pretty clear 20 on that. So I think that there has been sufficient 21 review and sufficient process to satisfy any sort of 22 due process issue. 23 I think, to entertain the notion of 24 allowing there to be a hearing, and I'm thinking 25 fashioning it in terms of an administrative hearing WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 199 1 over at the State Office of Administrative Hearings, 2 because that's where our hearings go, is not something 3 that is -- that is acknowledged in the law. To do 4 that, I think, gives rise to issues from the other 5 party, who may feel aggrieved by you making a decision 6 that falls outside the scope of the statute. And so I 7 would say that that is not something that -- that 8 process that is available to the parties. Certainly, 9 there is, in our law, under chapter 466.101, the right 10 of judicial review, and that review will be what a 11 district court judge thinks that review would be based 12 on whatever your decision is today and whoever may end 13 up feeling aggrieved by that decision. 14 Those are my comments. Mr. Smith is 15 here and he is free to chime in if he believes that 16 there is something that needs to be chimed in on, and 17 I'll be happy to answer any questions that you all 18 might have. 19 CHAIR CLOWE: No chiming in. 20 MR. SMITH: No chiming in. 21 CHAIR CLOWE: The Commissioners may 22 have questions of you in regard to their thinking. 23 I have a question. And I think these 24 are proper comments in the open meeting for the public 25 to hear and have made part of this record. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 200 1 The contract with the Group expires at 2 the end of this month. 3 MS. KIPLIN: Yes. 4 CHAIR CLOWE: There is construction 5 underway and installation underway of equipment, as we 6 speak, for the beginning of the production of the 7 drawings on-site in this new studio by M&S Works the 8 first of September. Am I correct? 9 MS. KIPLIN: Yes. I think I would 10 probably like to split it up just a bit in terms of 11 your statement. And that is, that the contract with 12 TPFV expires August 31, 2001. The construction for 13 the production studio occurs and is ongoing regardless 14 of what the decision is in terms of who ought to be 15 the successful proposer. 16 CHAIR CLOWE: I appreciate that 17 clarification. The physical construction of the 18 production studio is actually going to be completed by 19 the end of this month. 20 MS. KIPLIN: Yes, as I understand it. 21 CHAIR CLOWE: But coincidentally to 22 that, as we speak, M&S Works is on premises and is 23 doing installation work of equipment so that the 24 production studio can begin to function here September 25 1st. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 201 1 MS. KIPLIN: Yes, there is a contract. 2 CHAIR CLOWE: There is a contract upon 3 which they have relied and are relying and I assume 4 have spent monies and have made obligations on behalf 5 of this agency so that they could be ready to produce 6 September 1, 2001. 7 MS. KIPLIN: Yes, that's correct. But 8 that fact, in my view, is irrelevant to the appeal. 9 The decision -- 10 CHAIR CLOWE: I thank you for 11 clarifying that, and what I'm reciting is my 12 understanding of where the agency is in this process 13 insofar as conducting its business. I want that as 14 background that I'm aware of, and maybe the 15 Commissioners and others are aware of, and I just 16 wanted to say that to make sure I was correct. 17 MS. KIPLIN: Yes. But, I guess, let me 18 continue my remark just a bit. And that is, you all 19 need to make your decision, the Commission's decision, 20 based on what you have heard today, what you have read 21 in the record, and you should not make your decision 22 as to what the ramifications of your decision will be. 23 CHAIR CLOWE: I understand that. 24 MS. KIPLIN: Okay. 25 CHAIR CLOWE: But at the same time, I WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 202 1 want to be aware of where we are with the business of 2 the Commission. And M&S is here on site. They're 3 working. They're fulfilling what is a signed contract 4 right now. 5 MS. KIPLIN: Yes. 6 CHAIR CLOWE: What is the term of that 7 contract? 8 MS. KIPLIN: You know, I'm not sure 9 about the term. I am speculating that it's a year 10 primary with two one-year extensions, but I would 11 defer that to counsel for the Executive Director. 12 MS. SCHULTZ: And I believe that's 13 correct. Let me just quickly look up the section if I 14 can take -- 15 MS. KIPLIN: And I guess while she's 16 doing that, I will say that the statute is quite 17 clear. There are two times to protest an action by 18 the Executive Director with regard to procurement. 19 One is after the issuance of a solicitation and one is 20 after a contract award. And that's why the protest is 21 after the contract award, in this situation. And this 22 is not the first protest that we have had as a -- as 23 an agency with regard to a contract award. We have 24 had one protest, as I recall, on the issuance of the 25 solicitation of the procurement document, but that WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 203 1 is -- that is a by-product of the statute. Because it 2 is a timing issue that's in our statute in terms of 3 contract award. 4 MS. SCHULTZ: And General Counsel is 5 correct, Commissioners. It commences on the date that 6 the contract was signed and continues until August 7 31st, 2002, and can be extended at the sole discretion 8 of the Lottery for two additional one-year periods. 9 And then there is also the option to purchase the 10 equipment at the end of each of the contract terms. 11 The bid will reflect that. 12 CHAIR CLOWE: Any other questions? 13 COMMISSIONER WHITAKER: Yes. What is 14 the standard of our review? 15 MS. KIPLIN: You think you sit as an 16 appellate body. I don't believe that the standard of 17 review is clear in the statute or the rules. I think 18 your standard of review is to determine the points on 19 the appeal based on the record that's before you. I 20 don't think it's -- for example, for your standard of 21 review, whether the Executive Director abused her 22 discretion. I think it's new to you, based on the 23 record that's before you. I think that's a different 24 standard of review if it were on judicial review to 25 district court. But your standard of review, I think, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 204 1 is -- I would put it in a civil setting in terms of 2 preponderance of the information that you've heard 3 today. What you think about the points of the appeal 4 and whether you think that those points of appeal have 5 been persuasive to you. 6 COMMISSIONER WHITAKER: Next question 7 is, there has been some reference to the general 8 Government Code, Section 2155.004. 9 MS. KIPLIN: Yes. 10 COMMISSIONER WHITAKER: As I read that, 11 it only relates to persons who are receiving 12 compensation to prepare or help prepare the RFP. Is 13 that in fact the standard? 14 MS. KIPLIN: I will tell you, I have 15 not looked at that statute because it's not germane to 16 what is before you today. To my knowledge, that 17 particular statute has been referenced by Mr. Schultz 18 as in subtitle D of Title Ten of the Government Code, 19 and we have a specific statute in the State Lottery 20 Act that says, in connection with the procurement of 21 Lottery goods and services, there is an exemption from 22 Subtitle D of Title Ten. 23 COMMISSIONER WHITAKER: Assuming that 24 it did apply. 25 MS. KIPLIN: Assuming it did apply. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 205 1 COMMISSIONER WHITAKER: Is it limited 2 only to those persons who receive compensation from us 3 to participate in preparing the RFP itself? 4 MS. KIPLIN: May I look at the statute? 5 In particular, Subsection A of Section 6 2155.004 appears to be very clear to me that the state 7 agency that's subject to the statute may not accept a 8 bid or award a contract that includes proposed 9 financial participation by a person who received 10 compensation from the agency to participate in 11 preparing the specs or requests for proposals on which 12 the bid or contract is based. So it is a prohibition 13 on some -- on a person participating in a procurement 14 process if they were to receive compensation. 15 COMMISSIONER WHITAKER: For the purpose 16 of preparing the bid. 17 MS. KIPLIN: For the purpose that's set 18 out in this subsection. Correct. 19 CHAIR CLOWE: Is there a motion? 20 COMMISSIONER CRINER: Yes, I do. 21 Mr. Chairman, I would like to propose the following: 22 That we uphold the findings of the Executive Director 23 in the evaluation of the bid in question. 24 CHAIR CLOWE: Is there a second? 25 COMMISSIONER WHITAKER: Second. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 206 1 CHAIR CLOWE: All in favor or say aye. 2 COMMISSIONER CRINER: Aye. 3 COMMISSIONER WHITAKER: Aye. 4 CHAIR CLOWE: Opposed no. 5 No. 6 The vote is two-one. The motion 7 carries. The decision of the Executive Director is 8 upheld. 9 I believe we're ready to go on now to 10 the agenda, which is item number -- 11 MS. KIPLIN: Commissioners, we will get 12 an order prepared that's consistent with the vote 13 today and get it to you all. 14 CHAIR CLOWE: Item number two a report, 15 possible discussion and/or action on lottery sales and 16 trends. Linda and Toni Smith, please. 17 MS. SMITH: Good afternoon, 18 Commissioners. For the record, I'm Toni Smith, 19 marketing director of the Texas Lottery Commission. I 20 would like to take a very brief look at sales. Our 21 total sales to date for fiscal year '01 are 22 2,640,354,422. This is up 6.56 percent from fiscal 23 year 2000 total sales to date of 2,477,898,980. Our 24 current weekly average sale to date for fiscal year 25 '01 is 53,884,784, compared to 50,569,366. To look at WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 207 1 year to date by a couple of the products that we 2 usually report are the instant products, year to date 3 for fiscal year 2001 is 1,597,469,478. It currently 4 represents 60.5 percent of sales, compared to fiscal 5 year 2000 year to date sales of 1,553,172,499. At 6 that time, instant tickets represented 62.68 percent 7 of sales, so this is a 2.85 percent increase from this 8 fiscal year to last fiscal year instant. 9 And then just to look at Lotto Texas, 10 fiscal year to date we are at 660,302,274, and it 11 currently represents 25.01 percent of sales, versus 12 542,58,768 of last year's sales and it represented 13 21.88 percent of total sales. So this is a 21.81 14 percent increase over last year's year to date sales 15 for Lotto Texas. 16 And to look at Cash 5, you can see the 17 numbers this year, we're at 134,888,010, and it 18 currently represents 5.11 percent of sales, versus 19 last year's year to date of 152,333,610, and it 20 represented a slightly higher portion of sales at 6.15 21 percent. So we have experienced a decrease of 11 and 22 a half percent on Cash 5. 23 Pick 3 has continue to remain strong 24 for us at 192,336,923 to date, representing 7.28 25 percent of sales, over last year's year to date of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 208 1 181,627,319. At that time, it represented 7.33 2 percent of sales, but we have seen an increase of 5.9 3 percent over last year with Pick 3. So it has 4 continued to be a steady and loyal player base. 5 Texas Two-Step to date, which was just 6 introduced this year, on May 13, so far sales are 7 25,003,867. 8 And then to take a quick look at last 9 week, total sales for the week ending August 4th were 10 47,693,271, and this was down 4.75 percent from the 11 previous week total sales of 60,073,152. But the 12 primary factor for the decrease was the decrease in 13 Lotto Texas because of the jackpot changes. Jackpots 14 for the week of August 4th were four and six 15 respectively, and for the week ending July 28th, they 16 were 16 and 20 million. So we got hit. And that's 17 all I have to report. 18 CHAIR CLOWE: And does Texas Two Step 19 continue to be a strong game, growing in popularity? 20 MS. SMITH: Yes, sir, it has. It has, 21 and we continue to hear that kind of feedback from 22 both our players and our retailers and our sales reps. 23 We just met with the district managers last week over 24 at Gtech, and even they were still very excited about 25 the kind of feedback that they're getting from the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 209 1 players and the retailers on Texas Two Step. 2 CHAIR CLOWE: Very good. Any questions 3 for Toni? 4 And Toni, do you want to cover item 5 number three, which is advertising and promotions, 6 print media criteria, as well? 7 MS. SMITH: Just very briefly. We are 8 working with The King Group on two TV commercials, 9 that one will depict the fun and excitement of winning 10 on Scratch Off tickets, and the other, sort of 11 people's secret ways to pick their numbers for on-line 12 games. And at the same time, The King Group is 13 working on our campaign for next fiscal year, for 14 fiscal year 2002, that our main objective is to show 15 real winners in a campaign that will take us through 16 the whole year. But each TV commercial that's 17 produced will portray real lottery winners. So that's 18 a challenge for us to do, but a popular theme. We had 19 done some in past years on Lotto Texas, and through 20 our research and what we hear from people, those are 21 the most believable, and I think people want to see 22 real winners and that they really won. So that's our 23 strategy for this next year in our general market 24 advertising. 25 CHAIR CLOWE: Very good. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 210 1 MS. SMITH: That's all I have. 2 CHAIR CLOWE: Thank you, Toni. 3 The next item is number four, status 4 report, possible discussion and/or action on the 5 lottery operator procurement and/or lottery operator 6 consultant. 7 MR. BENNETT: Good afternoon, 8 Commissioners. My name is Ridgely Bennett. I'm the 9 Deputy General Counsel for the Texas Lottery 10 Commission. On August 7th, 2001, the Texas Lottery 11 Commission named Gtech Corporation the apparent 12 successful proposer for the Lottery Operations and 13 Services RFP. We will now begin the process of 14 attempting to negotiate a final written contract with 15 Gtech. And I would be happy to answer any questions 16 that you have. 17 COMMISSIONER WHITAKER: What is your 18 timetable? 19 MR. BENNETT: The timetable is -- as 20 set out in the RFP, I believe, talks as having a final 21 contract in the early part of September, or as soon as 22 possible thereafter. 23 COMMISSIONER WHITAKER: Okay. 24 CHAIR CLOWE: Referring to what would 25 be considered under item 12, Linda, where are we now WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 211 1 in this process where it's possible that you might 2 bring some issues regarding the negotiation of this 3 contract to the Commissioners? 4 MS. CLOUD: I'm prepared to do that 5 today, Commissioners. 6 CHAIR CLOWE: Do you want to deal with 7 that agenda item now? 8 MS. CLOUD: In executive session. 9 CHAIR CLOWE: Oh, all right. So we 10 need to deal with the public item, and you do want to 11 brief us in the executive session. 12 MS. CLOUD: Right. 13 MR. BENNETT: And Commissioner, I think 14 it would be helpful to have the General Counsel here 15 when we debate that item. 16 CHAIR CLOWE: I do, too. Here she 17 comes. 18 Ridgely has made his report and Linda 19 is telling us that she does want to cover the 20 negotiations with Gtech as the apparent winner. Is 21 that the correct term? 22 MR. BENNETT: Successful proposer. 23 CHAIR CLOWE: Successful proposer. And 24 so we're going to deal with item 12 in session, so 25 that we can talk about it in the executive session as WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 212 1 Linda makes her report. And that is item number 12, 2 we'll deal with it right now. Consideration of and 3 possible discussion and/or action on whether the 4 negotiation of the lottery operator's contract in an 5 open meeting would have a detrimental effect on the 6 Commission's position in the negotiations. 7 MS. CLOUD: Commissioners, I think it 8 would have a negative impact on the negotiations if we 9 discuss it in the open at this time. 10 CHAIR CLOWE: Very well. Is a motion 11 required on that? 12 MS. KIPLIN: Yes, I think so. And if I 13 could, I would just like to incorporate, for purposes 14 of the record, the remarks that were made at the last 15 Commission meeting, which I believe was the July 20 -- 16 I want to say July 26th -- pardon me. The 24th? July 17 24th Commission meeting. And I think that that laid 18 out the history regarding Senate Bill 390 by Senator 19 Wentworth that was enacted into law. 20 What you have before you is a document 21 that is entitled Commission Determination, and tracks 22 the statutory language. And I'll give you just a 23 second, if you would like, to read this, or we can go 24 ahead and read it into the record. It goes beyond 25 making a conclusory statement that negotiations in the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 213 1 public would have a detrimental effect. In 2 particular, the deliberation in the open would impair 3 the Commission's ability to negotiate from a position 4 of strength, because the other party to the contract, 5 of course, would have an opportunity to be present and 6 know the negotiating strategy of the Commission, which 7 I think is where Ms. Cloud was going in terms of the 8 negative impact on the negotiation. 9 CHAIR CLOWE: Would you read that into 10 the record at this time? 11 MS. KIPLIN: Sure. I'll be glad to. 12 The Commission determination which is before you reads 13 as follows. The Texas Lottery Commission makes the 14 following determination: The Texas Lottery 15 Commission's deliberations in an open meeting will 16 have a detrimental effect on the Texas Lottery 17 Commission's position relating to the negotiation of a 18 lottery operator's contract in connection with the 19 March 16th, 2001 request for proposals for lottery 20 operations and services (RFP). The lottery operator 21 contract resulting from the RFP is one of the largest 22 contracts in the state. It is a complex contract that 23 requires many goods and services to be provided by a 24 contractor in a continuing relationship with the 25 lottery. It should be procured in a manner that WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 214 1 ensures oversight. Given the scope and magnitude of 2 the contract with the lottery operator, the Commission 3 believes it is prudent for the Commission to 4 participate in the strategy of negotiation, rather 5 than to delegate it entirely to staff. To deliberate 6 in the open in the presence of the person with whom 7 the Commission is negotiating a lottery operator's 8 contract deprives the Commission of an opportunity to 9 discuss strategy or to discuss the aspects of the 10 contract. To deliberate in the open will impair the 11 Commission's ability to negotiate from a position of 12 strength because the other party to the contract will 13 have the opportunity to be present and know the 14 negotiating strategy of the Commission. 15 And if you wanted to exercise your 16 ability to go into a closed meeting, I would suggest 17 that there be a motion made that would adopt what I 18 just read as the Commission's determination with 19 regard to this matter. 20 CHAIR CLOWE: And in such a motion, 21 would it be applicable to the executive session today 22 only? 23 MS. KIPLIN: No, I don't think so. 24 Because the -- and I don't have the bill in front of 25 me, but as I recall, the language actually exempts us WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 215 1 from the requirements in an open meeting. And so 2 there is no need to notice an open meeting for the 3 purposes of going into a closed session. And it is -- 4 it could be ongoing if that's what the Commission 5 wished, or you could, at each Commission meeting, 6 bring this issue up if you would like to do that. 7 CHAIR CLOWE: I for one would like to 8 bring it up. I would like for the public to be aware 9 that we are going to discuss this, and we are 10 empowered by the statute to do that. But rather than 11 just make one motion and have it go on for a long time 12 or forever, I would like to have this come up every 13 time we're going to discuss it in executive session. 14 COMMISSIONER WHITAKER: That would be 15 my preference as well. 16 MS. KIPLIN: Okay. 17 CHAIR CLOWE: Very well. Is there a 18 motion? 19 COMMISSIONER WHITAKER: So moved. 20 COMMISSIONER CRINER: Second. 21 CHAIR CLOWE: All in favor say aye. 22 Opposed, no. The vote is three-zero in favor. I see 23 Commissioner Criner has a signed copy, so... 24 Next we'll go to item number five, 25 consideration of and possible discussion and/or action WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 216 1 on external and internal audit reports relating to the 2 Texas Lottery Commission and/or on the Internal Audit 3 Department's activities. 4 Debra McLeod. 5 MS. McLEOD: Good afternoon, 6 Commissioners. As far as external audits go, we 7 expect to receive a report later this month from Ernst 8 & Young, who is a vendor of the lottery operator. 9 They performed an audit, what we call in the audit 10 industry a SAS-70 audit. This is a review of computer 11 controls that's performed annually. Another external 12 audit that's going on is the State Auditor's Office 13 has given us informal communication that they're doing 14 a statewide agency audit that will cover 100 agencies 15 approximately. We are one of them. What they're 16 looking at is primarily statute compliance. 17 Specifically, they're looking at the agency's quality 18 assurance process and procedures on software 19 development. 20 Internally, we have six audits that are 21 in open status. Since the last Commission meeting, 22 we've held three exit conferences. These were audits 23 on accounts receivable, DPS file, and debit card 24 control. Internal audit's benchmark is to provide a 25 timely draft report to management within two weeks of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 217 1 the exit conferences, so we're busily working on those 2 three report drafts. In addition, we have two audits 3 that are in the field work stage, a bingo compliance 4 audit, and we plan to schedule an exit conference this 5 month. And the advertising performance measure audit, 6 and that one is approximately 20 percent complete. 7 The last audit I have to report on is the game plan 8 verification, and we are waiting for management's 9 response to that draft report. 10 And that's the status of where we are. 11 CHAIR CLOWE: Very good. Any 12 questions? 13 COMMISSIONER WHITAKER: No. 14 CHAIR CLOWE: Thank you, Debra. 15 Next, item six, report, possible 16 discussion and/or action on the drawing studio. 17 Linda. 18 MS. CLOUD: Commissioners, Vince, if 19 you'll come up and I'll let Vince give you an update 20 on where we are on the construction. 21 MR. DEVINE: Good afternoon, 22 Commissioners. For the record, my name is Vincent 23 Devine. I'm the support services manager for the 24 Texas Lottery Commission. Regarding the status on the 25 current build out on the claim center security WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 218 1 building. The studio has been completed from the 2 construction phase. And that's the phase whereby we 3 build out the interior and exterior of the building. 4 There are a couple of minor -- a couple of minor 5 details on the exterior glass that are still pending, 6 to be completed in the second week of August, the 7 third week in August. We've moved on to phase two, 8 which is now the claim center, and the second floor 9 security draw team's staffing area. And we're on 10 schedule. We're sticking to it. We believe everyone 11 will be in and working in the facility about September 12 6th or 7th. M&S is here, as you know. They are 13 installing their equipment. They've been here for -- 14 since Monday, and thus far everything is going on 15 time. 16 CHAIR CLOWE: And are we on budget 17 still, Vince? 18 MR. DEVINE: Yes, sir. All of our 19 expectations regarding budget are being met and we 20 have not exceeded anything or have any surprises that 21 we cannot contend with. 22 CHAIR CLOWE: Good. And M&S Works has 23 how many days to install their equipment? 24 MR. DEVINE: Well, the understanding I 25 have is, contractually, we have to turn it over to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 219 1 them 35 days out, which we did. They came in Monday 2 and their intent is to have it installed and operating 3 within the next two weeks, and then will do testing 4 for the final two weeks of this month. 5 CHAIR CLOWE: And then how do you 6 handle the logistics of moving the ball machines from 7 the old location to this location? 8 MR. DEVINE: Yeah. Really, security 9 should probably speak to that, Mike Pitcock or 10 someone. We are assisting them. Support services 11 will provide specialized moving, movers and equipment. 12 We've already moved some safes, which required 13 specialized equipment. But that's being done in about 14 three phases and I'm helping them coordinate with 15 TPFV, and TPFV has been very good with all the 16 planning, by the way. 17 CHAIR CLOWE: Mike, would you bring us 18 up to date on the logistics part of it? 19 MR. PITCOCK: Mike Pitcock, Commander 20 of Security. Basically, the way I understand, we're 21 going to do our draw on August 31st at the TPFV 22 studio, and after the draw that night, we're going to 23 load the remaining equipment that we have left over 24 there, to take care of that draw and bring it over 25 here. Some of the processes are going to be WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 220 1 interactive, what I call it. We're going to actually 2 have, in the last week, live draws at our new studio 3 versus the actual draws. And the test draws at the 4 new studio will be just to duplicate the effort and 5 make sure our timing is correct, and we'll have 6 machines here and we'll have the remaining machines at 7 the other studio. But after the draw on August 31st, 8 we plan to load the remaining machines and they'll be 9 transported after the draw that night to the new 10 studio. 11 MS. CLOUD: The independent auditors 12 will be a part of that process. 13 CHAIR CLOWE: So you're going to finish 14 at the Group on Friday night, and the first drawing 15 will be here Saturday night? 16 MR. PITCOCK: Yes, sir. Barring any 17 complications that we don't foresee right now, that's 18 our plan. 19 CHAIR CLOWE: And the plan you've got 20 is such that you don't see any problems? 21 MR. PITCOCK: We don't see any 22 problems. We've actually communicated with TPFV. We 23 have a time line on the transitional phaseout of 24 equipment, and they've agreed with our time line, so I 25 think everything is on target still, barring any WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 221 1 unforeseen circumstances. 2 CHAIR CLOWE: Do you plan, Linda, any 3 extra activities around the first drawing there 4 Saturday night? 5 MS. CLOUD: Keith wants to do that. 6 He's really twisting my arm. But the claim center 7 area will not be completed, the construction will not 8 be quite completed, and I think it would be best to 9 have a grand opening, or whatever, at a later date 10 when there is no construction in the way. So 11 basically, that's what we're -- right? That's what 12 we're planning on. 13 CHAIR CLOWE: Any questions? 14 COMMISSIONER CRINER: Good decision. 15 CHAIR CLOWE: Very good. Thank you, 16 Vince, Mike. 17 The next item is number eight, report, 18 possible discussion and/or action on the Council on 19 Competitive Government's activities relating to the 20 evaluation and recommendations on the Texas Lottery 21 Commission's policies, practices, and procedures 22 regarding public information, media, and lottery 23 advertising. 24 Nelda Trevino. 25 MS. TREVINO: Good afternoon, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 222 1 Commissioners. For the record, I am Nelda Trevino, 2 the Director of the Governmental Affairs Department. 3 In your notebooks, there is a copy of the rider that 4 was added to our agency's bill pattern in the 5 appropriations bill for the upcoming biennium that 6 directs the Council on Competitive Government to 7 evaluate the Commission's policies, practices, and 8 procedures regarding public information, media, and 9 lottery advising, and also to make recommendations for 10 cost savings practices, increased efficiencies, and 11 effectiveness. The study is to be submitted to the 12 Governor and the Legislative Budget Board not later 13 than January the 15th of 2002. The rider also 14 stipulates that the Commission is responsible for 15 reimbursing the -- reimbursing the Council for 16 expenses and that there be agreed upon interagency 17 contracts. What Collin just distributed to you is a 18 copy of the agenda from yesterday's Council on 19 Competitive Government meeting. The Council took 20 action to designate the Commission's public 21 information, media, and advertising functions as an 22 identified State service. The Council's staff 23 reported that they have identified the project team, 24 and that they anticipate providing the project plan to 25 the Council and also to our agency. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 223 1 In addition, over the last several 2 weeks, we have been working with the Council staff to 3 provide them some background information in 4 preparation for their study. At this point, I'll be 5 happy to answer any questions, and also Dan Contreras, 6 who is the director for the Council on Competitive 7 Government is also present, and I believe he would be 8 happy to answer any questions that the Commissioners 9 may also have. 10 CHAIR CLOWE: I have a question for you 11 first, Nelda. Are we doing everything we can to 12 cooperate with these folks and support them in their 13 task? 14 MS. TREVINO: Mr. Chairman, I believe 15 that we have. Again, since the project plan has not 16 been identified and provided to us, as far as just our 17 communication with the Council staff, I think we've 18 been responsive to the requests that they have made of 19 the agency. 20 CHAIR CLOWE: Is Dan -- Dan, can you 21 come up and let us speak with you for a minute? We're 22 happy to have you here today. Do you have any 23 comments you would like to give us? 24 MR. CONTRERAS: Thank you. My name is 25 Dan Contreras. I'm the director of the Council on WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 224 1 Competitive Government. Nelda has been very 2 responsive. Linda and her staff have all been very 3 responsive when we requested some miscellaneous items 4 as far as background into the agency's marketing and 5 advertising functions, yes. I would say the answer is 6 yes. 7 COMMISSIONER WHITAKER: And you will 8 let us know if you disagree with that viewpoint at any 9 time. Right? 10 MR. CONTRERAS: Yes. 11 CHAIR CLOWE: Dan, I think we're 12 curious as to your priorities and your focus. Can you 13 give us at this time comments that would help us 14 understand what your agenda is and where you're 15 headed? 16 MR. CONTRERAS: Is the direction is 17 very closely -- the motion that was taken up by the 18 Council is very close to the rider. The chair of the 19 Council did direct us to be aware that their intention 20 was for us to review the broadcast studio, in-sourcing 21 versus out-sourcing, and to have recommendations as to 22 was that the best decision for the Lottery Commission 23 to make. And simply to then follow what the rider 24 stated, which would be to review the advertising, 25 public information, and media functions. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 225 1 CHAIR CLOWE: And what is your time 2 frame? 3 MR. CONTRERAS: We plan to have a 4 project plan distributed to the Council members and 5 the Lottery Commission within the next two weeks. The 6 project team has been assembled and will begin 7 immediate on-site interviews with the Lottery 8 Commission staff as far as the field work would go, 9 and then have the report published and to the Governor 10 and the Legislative Budget Board by January 15th, and 11 then having that approved by the Council and in open 12 meeting some several weeks before that. 13 CHAIR CLOWE: Very good. Any further 14 questions? Dan, thank you for being here today. 15 Appreciate it very much. We're eager to work with 16 you, and as Commissioner Whitaker said, if there is 17 anything we can do to help you, let us hear from you. 18 MR. CONTRERAS: Thank you. 19 CHAIR CLOWE: Thank you, Nelda. You 20 have the next item, which is, report, possible 21 discussion and/or action on the 77 Legislature, 22 including the agency's implementation of legislation 23 affecting the agency. 24 MS. TREVINO: Commissioners, I have 25 nothing new to report since our last Commission WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 226 1 meeting, other than to state that the implementation 2 task force continues to meet. And we will provide you 3 any sort of updates as necessary. 4 CHAIR CLOWE: Thank you, Nelda. 5 Mr. Grief. The next item is number 6 ten, report, possible discussion and/or action, 7 including adoption of the agency's self evaluation 8 report, on the Sunset process involving the agency. 9 Gary Grief. 10 COMMISSIONER WHITAKER: May I just make 11 a statement before then? 12 CHAIR CLOWE: Yes. 13 COMMISSIONER WHITAKER: Can we put more 14 things on the agenda next time? 15 CHAIR CLOWE: I don't think there was 16 any way we could escape these. 17 Gary has been working very hard, as 18 have other members of the staff, and we have some big 19 items today. 20 MR. GRIEF: Good afternoon, 21 Commissioners. And for the record, my name is Gary 22 Grief, and I'm the Lottery Operations Director for the 23 Texas Lottery Commission, and I'm also serving as the 24 project manager for the agency's Sunset review 25 process. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 227 1 Last Friday, August the 3rd, I mailed 2 to each Commissioner a completed draft of the Sunset 3 self evaluation report, for your review. As a 4 reminder, this report is due to the Sunset Commission 5 by August the 17th. My understanding from our General 6 Counsel today is that we are seeking comments and 7 approval on this draft document from you. And if the 8 Commission were to approve the document today, I would 9 also request permission from the Commission to make 10 nonsubstantive changes, such as improving the format 11 or making spelling corrections, if needed, between 12 today and the day when the final product is due to the 13 Sunset Commission. I'll now defer to the General 14 Counsel to open up the discussion. 15 MS. KIPLIN: Commissioners, I have -- 16 you have the document before you. It's been a 17 painstakingly long process to get the draft together 18 for your review and, hopefully, your approval. With 19 regard to the nonsubstantive changes, it's such a big 20 document that we would like to just be able to have -- 21 reserve the right to go through it again and see if 22 we've got any typographical error, you know, things of 23 that nature. We would put together a group of people 24 to make sure that it wouldn't fall into the category 25 of substantive. And I think we're collectively WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 228 1 thinking that that group would Mr. Grief, Mr. Atkins, 2 Ms. Cloud and myself, to make sure that we are fitting 3 within that scope and we're not going past 4 nonsubstantive into substantive changes after your 5 approval, of course, if that occurs today. 6 Commissioner Whitaker, you look 7 puzzled. 8 CHAIR CLOWE: Gary, did you give the 9 Commissioners a copy of these two documents that you 10 gave me yesterday? 11 MR. GRIEF: Not yet. I'll be providing 12 those to the other two Commissioners today. 13 CHAIR CLOWE: If you would, please, and 14 with the explanation that you gave me that would 15 broaden their understanding of the Sunset process. It 16 has nothing to do with the document itself. It's some 17 background information that would be helpful to the 18 Commissioners. 19 Is there a motion? 20 COMMISSIONER CRINER: So moved. 21 CHAIR CLOWE: Second? 22 COMMISSIONER WHITAKER: Second. 23 CHAIR CLOWE: All in favor say aye. 24 Opposed no. The vote is three-zero in favor. 25 Excellent job. Very complete and thorough. Thanks to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 229 1 you, Gary, and all of those who have been on the 2 committee, the expanded committee, and the smaller 3 committee for the many, many hours, I know, that went 4 into this. Tell us what the schedule is now from here 5 on. 6 MR. GRIEF: I'll spend the next couple 7 of days with the small group that Kim mentioned 8 looking for any nonsubstantive changes that we might 9 want to make. Next week, I'll be sending this 10 document to our copy center, having enough copies made 11 for the Sunset Commission, for the Commissioners, 12 executive management here at the agency, and for our 13 governmental affairs division to have available upon 14 request. At that point, we will wait for the Sunset 15 Commission to actually firm up its members, hopefully 16 to occur in early to mid September. As soon as those 17 names have been delivered to me, I'll forward those on 18 to the Commissioners. And then hopefully soon after 19 that, we'll find out when the actual review process 20 will take place. 21 MS. KIPLIN: Commissioners, if I could, 22 I would like to draw -- Mr. Grief gave me five pieces 23 of paper earlier today with a few changes. I didn't 24 know whether those had been -- I guess I may be 25 confused whether those have been presented to the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 230 1 Commission or not. I'm thinking no. That's why 2 Mr. Grief is looking at me. And I would like to go 3 back, if I could, on those changes. One in particular 4 I don't think is substantive. The others, I think 5 they may fall within that category. So, you know, I'm 6 sorry that we didn't catch you before you made your 7 vote. But in particular, on page 85. Actually, let 8 me go to page 28 first. We'll do this in numerical 9 order. My apologies for this. Page 28. 10 Commissioners, on the second to last 11 paragraph of page 28, this had to do with how you all 12 obtain input from the public regarding issues under 13 the agency's jurisdiction. We would like to add a 14 sentence that would read, and this is the one -- the 15 paragraph that begins, Commissioners, on an individual 16 basis as well as various agency staff, meet with 17 members of the public, vendors, or licensees to 18 discuss agency rules, general policies, and agency 19 practices as needed. 20 The sentence that we would like to add, 21 would read: In addition, Commissioners may receive 22 input from the public through members of the 23 legislature or other state officials. 24 I believe that to be a true statement 25 and I don't think it's -- it really is incorporated WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 231 1 within paragraph I on page 28. We would like to make 2 that change. 3 If I can proceed. On page 85 of your 4 document, this is the one I think is nonsubstantive, 5 but just to be on the safe side, while I've got you 6 here. It would be the second paragraph from the top, 7 and it would be the third sentence -- I believe it's 8 the third sentence from the bottom. The one that 9 reads, additionally, because of the correlation 10 between the prize payout percentage and the 11 advertising budget, we would like to insert the 12 language, as set out in House Bill 844, 76th 13 Legislature, regular session. That's the bill that, 14 if you'll recall, that restored the Commission's 15 ability to establish the prize payout percentage, but 16 made it clear that at a particular threshold, for 17 every percentage point above that threshold, there 18 would be a million dollar deduction from the 19 advertising budget. So that's just a reference to 20 that. 21 There are three other pages that are -- 22 these are part of the policy issues, and these pages 23 are 126, 127 and 128. And those policy issues have to 24 do with the agency's contemplation or look to the 25 future in terms of future revenue-enhancing WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 232 1 opportunities. In particular, these three pages have 2 to do with the multi-jurisdictional lottery game, the 3 video lottery game, and licensed race tracks concept, 4 and then the lottery game known as keno. And there 5 was some interest in perhaps adding some language to 6 flesh out these issues a little bit more, to indicate 7 that one possible -- one reason that the agency might 8 be looking to expand its number of games, or somebody 9 else for that matter, not just the agency, would be 10 because of player fatigue, what's known as player 11 fatigue, and of course, decline in sales, and other 12 factors that may be contributing to a decline in 13 sales. So we would like to include that kind of a 14 reference, which right now is absent from these three 15 statements, that would highlight to some extent an 16 opportunity for expansion on lottery activity to 17 address a -- a decline in sales that could be caused 18 by player apathy, player fatigue, or other factors, 19 for that matter. 20 Those are the five changes I think that 21 we had mentioned, and I apologize for not catching 22 that before you voted. I don't know whether you would 23 be willing to entertain a motion to approve the 24 document with the comments that I've just made. 25 CHAIR CLOWE: I think that's called WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 233 1 for. Is there a motion? 2 COMMISSIONER WHITAKER: Yes. So moved. 3 COMMISSIONER CRINER: Second. 4 CHAIR CLOWE: Moved and seconded. All 5 in favor say aye. Opposed no. The vote is three-zero 6 in favor. 7 We don't need to rescind the other 8 motion, do we? 9 MS. KIPLIN: No. I think this motion 10 will supersede it. Thank you very much. 11 CHAIR CLOWE: Next is item 11, report 12 by the Bingo Advisory Committee Chair and possible 13 discussion on -- and/or action on the Bingo Advisory 14 Committee's activities. Bill, we didn't mean to keep 15 you waiting so long. I apologize to you. 16 MR. NEINAST: That's all right. That's 17 what I'm paid for. 18 Good afternoon, Commissioners. I am 19 Bill Neinast, Chairman of the Bingo Advisory Committee 20 of the Texas Lottery Commission. You have in your 21 notebook a very brief summary of the meeting we had on 22 July 25th. And by way of prologue, I would like to 23 announce that that was very unique in three ways, at 24 least unique for me. First of all, it was the longest 25 meeting of the advisory committee over which I have WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 234 1 presided. Secondly, there -- and this is relevant to 2 a further discussion. There was almost a total 3 absence of anyone out in the audience to give us 4 information or make comments on what we were 5 considering. And third, as noted in my memo, because 6 of the length of the meeting, we lost a quorum and 7 were unable to finish business and, unfortunately, 8 there were several very important matters that we were 9 not able to get to. And as a consequence, we have 10 scheduled another meeting for August the 29th. And as 11 you recall, we adopted a procedure earlier that we 12 would have regularly-scheduled meetings so that the 13 public would know about them in advance. I think once 14 a quarter. But we're going to have another meeting 15 this month to take up unfinished business. So 16 Commissioner Whitaker, long agendas, it must be in -- 17 COMMISSIONER WHITAKER: We're still 18 here, though. 19 MR. NEINAST: It must be in the air. 20 The first item I would like to discuss with you, and 21 by the way, I want to thank Kim Kiplin again for 22 making available to the committee a court reporter, so 23 we now have verbatim accounts of the record. I don't 24 think they are ready for you yet, but I hope that you 25 will take a look at several sections of that when it's WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 235 1 available, particularly this first one I'm going to 2 discuss, and another item. 3 The first item that we discussed was, 4 it's called a self evaluation. It was not nearly as 5 formal as the one you have just looked at or reviewed 6 for the Lottery Commission. We just wanted to look at 7 how are we doing our job, where are we, what are we 8 doing, can we do it better. It was started with a 9 blockbuster by one of the committee members saying 10 that he had received several complaints or comments 11 that the Bingo Advisory Committee was merely a rubber 12 stamp for the Bingo Division. Anything they wanted, 13 we approved and recommended it to you, the Lottery 14 Commission, and you approved it. I took objection to 15 that and pointed out two things. First of all, that 16 just recently, and you may recall these, Chairman 17 Clowe, we brought to you two items specifically which 18 we disagreed with the division and so noted. One had 19 to do with granting the division director summary 20 suspension authority. The other was to charge for the 21 operator training, where we recommended that that not 22 be approved. And the Commission said, well, we won't 23 approval it right now. We'll look for further 24 statistics. I also expressed concern that comments 25 like that concerned me because they were being made to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 236 1 an individual member, and if anyone received those 2 comments or complaints, I think it would be the 3 chairman -- and I had heard no such complaints. 4 Subsequently, another committee member said that she 5 had also had complaints, and then the underground 6 service being what it is, and since I had not heard 7 any, a few days later I got a call with a similar 8 complaint, and I asked, what is the evidence that we 9 are a rubber stamp. And the complaint that I 10 received -- or the comment, I should say, went right 11 back to the one that I mentioned where we had heard 12 extensive testimony at one of our committee hearings 13 on the proposal to grant the director summary 14 suspension authority. The vote of the committee, I am 15 not sure. I think it may have been unanimous, was 16 unanimous. But in any event, the vote of the 17 committee was to recommend granting summary suspension 18 authority, but to grant the requested subpoena 19 authority that was part of the same request. And that 20 was the recommendation of the committee to the 21 Commissioner. Frankly, I was not aware of the follow 22 up that is -- it was so reported to me that a bill to 23 grant summary suspension power was introduced in the 24 legislature. I don't think they had any hearings on 25 it and it didn't pass. But that was -- look, we come WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 237 1 and tell you it won't work, we don't want it, and you 2 say you don't have it, and it gets to the legislature 3 anyway. And so that's what they're talking about, the 4 appearance of what we recommend, and we certainly 5 don't expect you to approve all of our 6 recommendations, as we do not approve all of the 7 recommendations of the Director. But apparently there 8 is a perception out there, I don't know how widespread 9 it is, but when I got home or on the way home and I 10 was thinking about it, and the fact that there was 11 absolutely no one out in this audience on that meeting 12 to talk about anything we had, gave me some concern. 13 Because we've always had a number of individuals, 14 interested individuals to talk on one or more or 15 various aspects of our agenda. We did have two only. 16 One of those was here because he had requested an item 17 or items be place on the agenda, and they were here on 18 the agenda and he was here to address them. That was 19 all. 20 Now, I do not know whether that was 21 because we may not have had any hot button issues on 22 the agenda or whether it is a reflection of this 23 belief that, what good does it do to go there, we're 24 not going to be heard anyway. It is just an odd 25 circumstance that it happened that way and it may mean WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 238 1 nothing more than we had no hot button issues for 2 them. But it is a matter, I think, of concern. It 3 certainly is to me and it may be to you. 4 We further discussed what the committee 5 was doing, our self evaluation. You have to remember 6 that at least four of the members are relatively new. 7 There are only three of us on the Commission right now 8 that have been on for three years or longer, so it is 9 a relatively new commission. We -- I guess you could 10 say, if I had to put a letter grade on it, that we 11 kind of graded ourselves as C or C-minus at best. We 12 feel like we're not answering the needs of or the 13 concerns of the bingo industry. In one way, in 14 particular, there is a -- is a definite slide downward 15 on bingo participation and income for the charitable 16 operators. And we feel that there ought to be 17 something that we can be coming up with and that we 18 can be doing to help that, and we're not sure that we 19 have done a good job in that regard. 20 And in the same regard, Chairman Clowe, 21 we referred back to your meeting with us -- or your 22 being present at the preceding meeting where you 23 suggested that we needed to get more types of input 24 and to give you, the Commissioners, more information 25 to back up our recommendations. And we took that to WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 239 1 heart and we appreciate your comments, and that was 2 discussed as to how we could do it and how we might do 3 a better job of satisfying your needs and your 4 responsibilities over the Bingo Division -- I mean, 5 over the advisory committee. And we might ask that -- 6 this was a self evaluation. In my opinion, self 7 evaluations are hard, whether they're on yourself or 8 whether it's a committee like we did, you either give 9 yourself too high of marks or too low of marks, and so 10 input from you, the Commissioners, I think, would be 11 very helpful to us in how we're doing our business. 12 The other one we took up that is of 13 interest to you is whether the Bingo Division should 14 be a separate agency. And let me clarify something, 15 because I used a term there that got Billy's hackles 16 up. I referred to the bingo operation as being a 17 stepchild, and by that I did not mean that you the 18 Lottery Commission was regarding it or treating it as 19 a stepchild. I meant the history of the bingo is, you 20 call it an orphan, you call it a stepchild, or you 21 call it a foster child, but look at it. It was 22 started, put under the Comptroller, a little while 23 later it was put under the Alcoholic Beverage Control 24 Board, and then it was put under the Lottery 25 Commission, so it looks like, hey, what do we do with WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 240 1 this? We don't want it. Let's let someone else have 2 it. So, again, I want to emphasize, my use of the 3 term stepchild, I did not by any means intend to infer 4 that you, this division, was treating us as a 5 stepchild. 6 But the bingo industry certainly is 7 large enough today and the amount of funds that are 8 generated, it's old enough, it's 20 years old, that 9 possibly it should be an agency. There is certainly 10 more money generated in the bingo industry in Texas 11 than in a lot of other agencies that have their own 12 separate agency. So I appointed a subcommittee to 13 look into that subject to consider the pros and the 14 cons and definitely the budgetary ramifications. And 15 there will definitely be some, and we recognize that, 16 with budgetary constraints, that the chances today of 17 getting it are probably not too good, but it still is 18 a subject that might require some examination and for 19 future references, of being a 20 year-old -- coming up 20 on the 20th anniversary might be an appropriate time 21 to look at it. 22 We considered, also, some items that we 23 did not take action on. But, again, it goes back to 24 the idea of, what could we do to help the bingo 25 industry increase its participation or its income. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 241 1 Some of the things that are in the bill, one that's 2 been -- we've been working on for sometime is to -- 3 pardon me -- increase or expand the definition of pull 4 tab bingo. That's a major money maker in a lot of 5 other states. We think that the definition can be 6 expanded to allow more types of pull tab bingo games 7 that will generate more interest. And what we need to 8 work on is a redefinition of the pull tabs as it's 9 written in the current rules. I had asked one of the 10 members to come in with a proposed rule on that, and 11 through a misunderstanding between him and me, he came 12 in with a new proposal on something that I still don't 13 quite understand, called bingo event tickets. And 14 again, because of the length of it, it was something 15 new, we were quickly losing our quorum about that time 16 and we did not get to take action on it. 17 Another item that was considered, and 18 Billy's division had done quite a bit of work on it, 19 was a rule change dealing with allowing the use of -- 20 the purchase and use of gift certificates in bingo 21 halls. And this has been an item that, when we got to 22 it, frankly, the committee was nonplused because the 23 proposed rule is more than three and a half pages 24 in -- double spaced, but through -- I'll take 25 responsibility for it. The committee had not WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 242 1 gotten -- the committee members had not gotten their 2 notebooks until either the day before or possibly on 3 Monday, the meeting was on a Wednesday, and we just 4 hadn't had time to review it. But it makes me 5 think -- and this is Bill Neinast talking now, not the 6 committee, because we didn't get to that, but if you 7 have what seems to be a simple idea, or a simple 8 subject like letting me go down and buy ten dollars 9 worth of gift certificates for grandma and giving them 10 to her, that we have to have three and a half pages of 11 regulations. Are we overregulated is my question, and 12 by that I include both the statutes, the law, and the 13 regulations. And maybe that's something that's 14 going -- should be looked at long term by a committee 15 that is not part of the Lottery Commission or Bingo 16 Advisory Committee, is have we gone too far. But I 17 think it's something that you can think about and we 18 can think about. I think it's gone a lot further than 19 the smaller charities were thinking about when they 20 voted to legalize bingo in Texas. 21 There were a number of other items that 22 Billy wanted to get to, and I wish we could have 23 gotten to, dealing with rule changes and we just lost 24 the quorum. The one item that we did take action on 25 that would require approval by the committee was, if WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 243 1 you look at my report, number five in my report, which 2 is, a motion was adopted to recommend a rule change to 3 make the quarterly report due date the 30th of the 4 month following the quarter, and that is on our 5 operators. A number of the other individuals and 6 organizations that need to make reports all have the 7 30th of the month, or some of them, they state until 8 the end of the month of the month following the 9 quarter. So this was requested by a number in the 10 industry of saying, we just can't get our material 11 together in time to meet that 15th of the month 12 deadline. There was a subcommittee appointed to 13 determine or decide what they thought would be the 14 appropriate time, and this was the recommendation of 15 the subcommittee, to make it a -- a 30 day -- I mean, 16 filing deadlines the 30th day of the month following 17 the quarter for which the report is due. So that's 18 one item that requires action by the Commission. 19 And another one I did not mention in my 20 memo, except in passing, and that's, Chairman Clowe, 21 this brings up an old dog and we're kicking it. But 22 we voted again to seek permission to hold some of the 23 committee meetings outside of Austin. And I remember 24 very well our discussion at the first time that was 25 made, and you related your feelings on it a lot to the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 244 1 actions of this committee, your committee, being a 2 state agency, should meet in the state capitol, as a 3 lot of the -- most other agencies do. But we think 4 our clientele is much, much different from your 5 clientele, if I could use that term. Most of the 6 people interested in what you're doing have a personal 7 financial interest in it. The industry for which the 8 Charitable Bingo Enabling Act was created are 9 charities. The people who represent them and who work 10 in them don't get a penny in their pocket, and for 11 that reason, it's not important enough for them to 12 take money out of their pocket to travel here from 13 Lubbock or Amarillo or what have you to attend one of 14 these meetings. It is, and we do see this, worth the 15 money for the commercial lessors and the providers of 16 bingo equipment, and that type of individual, to be 17 here because it is money out of their pocket. The 18 people that I think we want and that you would want to 19 hear from are the charitable bingo operators. And we 20 are not to a large extent hearing from them. Most of 21 the people that the committee hears from in its 22 meeting here in Austin are the ones I mentioned, and 23 generally, they will have their lawyer or their 24 lobbyist here. And we generally hear from people in 25 Austin, Houston, and San Antonio. And some of the -- WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 245 1 those are the three that are most heavily represented. 2 But we're really not getting any input from the 3 charitable bingo operators to the extent that I think 4 would be helpful to us. 5 Several years ago, the late 6 Representative Kubiak held his legislative committee 7 meeting on bingo, in Brenham, Texas, and I think he 8 held it in two other places in Texas there, and I 9 attended. There was a big turnout there to talk to 10 the representative. So I think that we could gain 11 some input, valuable input, if we would hold several 12 meetings a year somewhere outside of Austin in some of 13 the distant locations. I think it ought to be worth a 14 try. We may not draw any more there than we draw 15 here, but we're certainly not getting them in Austin. 16 So it would be the recommendation of the committee, 17 again, that we be allowed to -- it would require a 18 rule change to have some meetings outside of Austin. 19 And that's my report. I would be glad 20 to answer any questions. 21 COMMISSIONER WHITAKER: Is there any 22 issue with meeting outside of Austin, Billy? 23 MR. ATKINS: As Mr. Neinast referred 24 to, Charitable Bingo Administrative Rule 402.567 -- 25 COMMISSIONER WHITAKER: Oh, that one. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 246 1 MR. ATKINS: -- B does require that the 2 meetings of the advisory committee be held at the 3 Lottery Commission headquarters in Austin, Texas. 4 Apart from that, there is nothing in statute that I am 5 aware of that requires them to meet here. But there 6 would be budgetary considerations. 7 COMMISSIONER WHITAKER: Are you going 8 to consider that and come up with a reaction or 9 response to this request? 10 MR. ATKINS: We -- yeah, we can. We 11 have already reviewed those budgetary requirements, 12 and depending on the number of staff that had to go, 13 which would be based primarily on what the agenda for 14 any specific meeting would be, it would be, I think -- 15 do you recall? I think it was 600 to a thousand 16 dollars. 17 MR. NEINAST: I thought it might have 18 been a little bit more than that, but I'm not sure. 19 But we came up with those figures when we last 20 presented it to the Commission. 21 MR. ATKINS: And I'm sorry, I don't 22 recall the figures specifically, but there is 23 authorized in the appropriations act, through a rider 24 that's adopted by the legislature, I want to say a 25 total of some 5400 dollars that is appropriated for WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 247 1 travel for the advisory committee. 2 COMMISSIONER CRINER: That's the grand 3 total? 4 MR. ATKINS: Yes, sir. 5 MS. KIPLIN: I'll just say that if the 6 staff proposes a rule or the Commission directs the 7 staff to propose a rule, part of the rule making 8 process is a required preamble on the proposed rule 9 making that has a fiscal noted. So whatever fiscal 10 implications there are would be part of that rule 11 making note. 12 COMMISSIONER WHITAKER: Do you think -- 13 go ahead. 14 MR. NEINAST: The biggest change in the 15 cost of holding them outside of Austin would be the 16 travel of any members of Billy or out of his staff, 17 because all of the Commission members -- committee 18 members, I'm sorry, are already drawing a travel 19 allowance to and from the meetings. So there would be 20 some that would have to travel a little bit further, 21 but the real additional cost would be whatever travel 22 costs and maybe associated costs with getting Billy 23 and whatever members of his staff that are required. 24 COMMISSIONER WHITAKER: So we could be 25 spare in the number of staff that go if that were the WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 248 1 issue. It sounds to me like it's a very valuable 2 thing to think through, if the head of our committee 3 is telling us that folks have not been coming, but 4 when we do reach out to them, there is in fact a lot 5 of interest in talking to us and giving us feedback, 6 then I think that's something we should very seriously 7 consider. 8 MR. ATKINS: And I don't disagree. I 9 would disagree to an extent with Bill's perception on 10 the attendance that the advisory committee has been 11 getting. It's -- it's never received a high 12 attendance, so I don't know that I necessarily agree 13 that something new has occurred that's caused the 14 attendance to go down. And, again, I'm not at this 15 point either speaking for or against changing the rule 16 to take the show on the road, if you will. I would 17 just point out that we would still have, I think to a 18 degree, the same problem with getting attendance in 19 that the individuals that I think Bill is concerned 20 about getting to the meetings, they often have jobs. 21 And so it's not just that they can't travel to Austin 22 to go to the meeting, but they may not be able to 23 leave their job to go to a meeting even if it's closer 24 to their hometown. And I would -- you know, for 25 purposes of that, I would refer to the attendance that WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 249 1 we have gotten at some of our operator training 2 programs when we've offered it in different locations 3 during the day. Again, we could address that by 4 either trying to hold the meeting at night or on a 5 Saturday. 6 COMMISSIONER WHITAKER: Well, we're not 7 talking about something that we do every time. I 8 mean, it would just be -- even on a pilot project 9 basis, we could reach out and seek to find a better 10 way of tapping into the opinions of folks that we know 11 are out there and try to creatively think through, 12 well, what are the obstacles that we need to overcome. 13 Because I think you're saying, Mr. Neinast, that you 14 would like to receive that feedback, and certainly I 15 would. So... 16 MR. ATKINS: The only thing, and we did 17 discuss this at the advisory committee meeting, the 18 staff doesn't want to be in any way, shape, at all 19 involved in the decision of where the meeting is going 20 to be held, because wherever we hold it, everybody 21 else is going to be upset it's not there. 22 COMMISSIONER CRINER: You've got a map 23 back there on the board that tells you where you ought 24 to have it. Just go where the red dots are, is where 25 your most participation is. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 250 1 MR. ATKINS: Okay. If that's your 2 recommendation, because those other dots, they're 3 going to -- 4 COMMISSIONER CRINER: They're going to 5 make a lot of noise, too. 6 MR. ATKINS: Yeah. 7 COMMISSIONER WHITAKER: I'm finished. 8 COMMISSIONER CRINER: I'm all in 9 support of advisory groups getting paid attention to 10 and not feeling like they're stepchilds as well. And 11 I think, Mr. Neinast, if you can get with Billy and 12 give us some recommendation what you want to do, or 13 some type of a proposal, I don't think you would have 14 a whole lot of negative responses coming back at you. 15 MR. NEINAST: And what -- the stepchild 16 analogy, I was just relating to the study as to 17 whether there should be a separate -- not a 18 separate -- 19 COMMISSIONER CRINER: I understand. 20 MR. NEINAST: -- but having the Bingo 21 Division, rather than being a division of the Lottery 22 Commission, would be the Texas Charitable Bingo 23 Agency. 24 COMMISSIONER CRINER: Yeah, I 25 understand. But I'm just saying, in lieu of all of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 251 1 that, to pay attention to your advisory committee is 2 what I'm really interested in and what I'm really 3 focusing on. And if you could create a proposal that 4 says, this is what you ought to do, I don't think you 5 would run into a lot of negative walls. Rather than 6 us -- than me saying, okay. Well, all right. Let's 7 go this over here, let's go do that over there, your 8 advisory group make a recommendation to us that you 9 should meet somewhere else other than Austin, and when 10 and how and what that is going to entail, allows us to 11 make a strong and supportive decision. 12 MR. NEINAST: Well, basically, what 13 that would one would require would be a rule change, 14 as Kim mentioned, as to -- the rule now says they must 15 be in Austin, and as I recall the language that we 16 suggested when this was first brought up is that, 17 simply stated, that at least one meeting must be in 18 Austin, it be kind of open-ended as to what -- how 19 many would be held outside of Austin. 20 COMMISSIONER CRINER: I guess what I'm 21 saying is -- 22 MR. NEINAST: We addressed that. 23 COMMISSIONER CRINER: I guess what I'm 24 saying is that, you understand where the mud is on the 25 floor. If you just come back with a map that tells me WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 252 1 how to get around it, I'll help you. 2 MR. NEINAST: Okay. And I think that 3 is the job of the committee, as I have stated before, 4 the way I see the job of the Bingo Advisory Committee 5 is, we're your eyes and ears into the bingo industry 6 and to be the first ones to bring problems or the mud 7 to you. And Chairman Clowe's suggestion of doing a 8 better job of supporting our recommendations was very 9 true. 10 CHAIR CLOWE: Bill, my comments would 11 be that you cover a lot of ground in your report, 12 and -- and I think it got a little deeply into where 13 the industry is insofar as getting a handle on where 14 the participation is coming from, the bingo advisory 15 committee, and what the problems are in that regard, 16 to attendance and being proactive. My view is, the 17 Lottery Commission is very happy to have the 18 Charitable Bingo Division here, and the Commissioners 19 have today expressed their desire to be supportive. 20 And I think, by virtue of the Bingo Division being 21 here, there are economies that come to the operations 22 which are beneficial to the state, such as 23 enforcement, security, legal, many other areas that 24 make it a logical fit. If on the other hand, the 25 legislature decided otherwise, I think that would be a WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 253 1 decision that they might make. 2 From my viewpoint, as a businessman and 3 a Commissioner, the problems in the bingo industry 4 today are a lot broader and deeper than whether it's a 5 separate agency or part of the Lottery Commission. 6 And it's a lot deeper than whether the meetings are in 7 Austin or out in the state. You have, as I see it, 8 various entities that have interests, manufacturers 9 and distributors, the operators, the charities 10 themselves, and my personal view is, it's the Lottery 11 Commission's job to support and help the charitable 12 bingo, but it's got to be a mutual effort. And it's 13 something that the members of the industry must do 14 themselves, as well as the Bingo Division, as we look 15 at what the impact is of Internet gambling, Indian 16 gambling, gambling in surrounding states, all of those 17 have been negative in their impact on the charitable 18 bingo operation in this state. And I think the Bingo 19 Advisory Committee is a valuable source of input and a 20 conduit to the Commission, to the division staff and 21 to the Commissioners themselves, so I'm very eager to 22 see that committee come around to a more positive bent 23 than that which you are airing most recently. I made 24 a comment, I think in your meeting before last, that 25 the Bingo Advisory Committee was very active in my WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 254 1 eyes and was coming forward with actions and 2 information, and I'm a little surprised, in this last 3 meeting, you kind of got the response and the feedback 4 that you have. But I'm very concerned about that. 5 And as you know, you and Billy and I have agreed to 6 meet one day next week to talk about a number of items 7 and that will certainly be one of them. 8 I'm concerned about lack of attendance 9 and some apathy, I guess if you could call it that, on 10 the part of some of the members of the industry of 11 being involved in the bingo operation. Personally, 12 you know, I had my say about meetings in Austin. And 13 it's not a big deal with me. If that is what the 14 Bingo Advisory Committee thinks would be a positive 15 move to enhance participation, and the Commissioners 16 want to do it and it can be done, I would be happy to 17 try it. I don't think many people want to go to 18 Amarillo or Lubbock. 19 MR. NEINAST: Except those that live 20 there, and those are the ones -- 21 CHAIR CLOWE: And, you know, it's 22 further to go there for a person in Houston or the 23 Valley than it is to Austin. The geographic center of 24 the state is sort of right where we are. But as I 25 say, that's just one view, and I would be happy, if WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 255 1 you get the kind of attendance and participation that 2 we all to want see you having in that group, if they 3 met in Matamoros, in Texarkana, and El Paso and it 4 happened, that would be fine with me. But I've 5 traveled all over this state attending meetings, and 6 my experience is, you get more people in Austin and 7 San Antonio because they are very attractive cities 8 and people like to come to those two places for a 9 number of reasons than you do anyplace else. And 10 Dallas and Houston are next. Now, there are smaller 11 towns like Waco that are -- attract meetings, but 12 there are other cities that you just have trouble 13 getting to because of the geographic distance. But 14 that's not really, I don't think, what we ought to be 15 focused on. It ought to be, what can the Commission 16 do to support a positive, healthy posture for the 17 bingo operation in this state. And I think, if you're 18 looking to the Commissioners for that answer, I don't 19 think any one of the three of us have it. I think we 20 would look to you and the members of your committee 21 and the members of your industry. And, you know, we 22 took some bills to the legislature, and they were not 23 treated positively, that would have enhanced bingo. 24 There is an issue there that probably we need to look 25 at. So, you know, you have had a long and kind of WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 256 1 tough report, and what I'm doing is holding up a 2 mirror to you, and I'm saying, I'm not sure positive 3 answers are right here on this side. I think they're 4 back in the industry. But I want to meet with you and 5 Billy, and I encourage you to talk with the other two 6 Commissioners as you would like to, and get their 7 ideas and their participation on an individual basis. 8 You know, bingo in this state is bigger, I guess, than 9 it is in many other states. It's bigger than a lot of 10 lotteries in other states. And we want to see it 11 continue in a healthy, positive way. 12 Billy, what would you have to say about 13 Bill's report? 14 MR. ATKINS: Well, I wanted to, if I 15 could, Mr. Chairman, just I think maybe clarify 16 something that Bill was talking about. I don't think 17 that -- that he believes that by holding an advisory 18 committee in Dallas that you'll necessarily get a lot 19 of people from Houston, west Texas, whatever, but that 20 it would be convenient for a lot of those people in 21 Dallas to attend, so that you would get -- 22 CHAIR CLOWE: That are nonmembers? 23 MR. ATKINS: That are nonmembers of the 24 advisory committee, but that are bingo conductors in 25 that immediate area. And so unless I'm -- WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 257 1 MR. NEINAST: No. That -- 2 CHAIR CLOWE: And you think you'll get 3 a quorum when you move around like that? 4 MR. NEINAST: Well, we'll have a quorum 5 of the committee members because they're all in favor 6 of it, and I think they recognize that that's what we 7 want to do. And I appreciate everything you've said, 8 Chairman Clowe, and I agree with everything you've 9 said, but we're just -- in my opinion, we're not 10 getting the input, the feedback from the operators, 11 the charities, for whom the whole industry was set up. 12 And it may not work. And you might be -- if we go to 13 Lubbock, there might not be a single soul show up, but 14 we would like to try it. 15 COMMISSIONER CRINER: What's that thing 16 you have, Linda? Town hall -- how come you can't have 17 town hall meetings, Billy, around the state, if what 18 we're talking about is -- would involve more of our 19 operators, in helping give us information that they 20 need that would make bingo a little better? 21 MR. ATKINS: And I've done something 22 very similar. I traveled throughout the state and met 23 with operators. And the only region I haven't been to 24 is our San Antonio region, but that's separate from 25 the advisory committee. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 258 1 COMMISSIONER CRINER: It's in 2 conjunction -- 3 CHAIR CLOWE: It's very similar. For 4 example, Billy and his staff came to the Order of 5 Redman statewide meeting, I guess. They had a 6 tremendous turnout of operators. There must have been 7 60 or 75 people in that room. That were all smoking 8 cigarettes. But does Bill and members of his 9 committee, do they go to those kinds of meetings where 10 the operators are there? That's, I think, what 11 Commissioner Criner is thinking about. 12 MR. ATKINS: I -- well, in a situation 13 like that, I mean, I guess, they could. Of course, if 14 they got a quorum, it would have to be noticed as a 15 public hearing. But oftentimes, like with the Redmen 16 in Waco or the VFW that we just attended recently 17 here, they usually like to keep that to their members. 18 I mean, we could ask them. 19 COMMISSIONER WHITAKER: How did you get 20 in? 21 MR. ATKINS: They invited us. They 22 invited us. But I'm saying, we could ask them. But 23 those are their conferences for their members. 24 CHAIR CLOWE: I understand the point 25 you're making, and I think it's two-tiered. You know, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 259 1 one, you've got to get active members in the BAC that 2 will come to the meetings wherever they are and give 3 up that one day for a month and be involved, and then 4 to get the operators more involved is the other part 5 of it. I think you're right. 6 MR. NEINAST: And you just reminded me 7 of a little anecdote. Billy may not remember it, but 8 a number of years ago, he and Mike Pitcock and one or 9 two others came to my little hometown of Burton, 320 10 people, for a Lions Club meeting, but the word was out 11 that he was going to be there and we had operators 12 from three or -- three other organizations that held 13 bingo, come to our Lions Club meeting just to hear 14 him. So again, I think if we were to get out and 15 publicize it that the advisory committee is going to 16 meet in wherever, I think we would have some operators 17 there that were not here. But I agree with you on the 18 other matters, that we need to look at the -- if you 19 want to look at it as more positive, proactive items. 20 The one item that was passed by the legislature that 21 the industry had been working on for several years, 22 the progressive bingo, passed the legislature, vetoed 23 by the governor. 24 CHAIR CLOWE: Well, you know, the bingo 25 industry has a different makeup than the Lottery WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 260 1 industry has. You've got a large -- as I see it, 2 you've got a large population of individual players 3 and you have almost 17,000 locations, and you have one 4 operator. And in the bingo industry, you have not 5 many -- near as many players, and you have 6 manufacturers, distributors, operators, and charitable 7 institutions, and that's a -- that's a very different 8 industry makeup than you have on the Lottery side. 9 And I think you have done a great job and the Bingo 10 Advisory Committee has done a great job of 11 representation. I also think Billy and his staff have 12 done a great job in helping that industry operate 13 under the rules and regulations. 14 I think Billy is supportive and his 15 staff is supportive to the extent they can be by 16 offering good government, good regulation, and trying 17 to make it easy to do the right thing. There was a 18 person here in Austin who contacted me and wanted to 19 become a bingo operator. And the Bingo Division 20 worked with that person and educated them and got them 21 in a position to begin operation. But I don't think 22 that the Bingo Division can go out and say to 23 manufacturers or distributors, you know, what can we 24 do to help you make more money. 25 Am I off base on that? Doesn't that WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 261 1 have to come from the manufacturers, the distributors, 2 and the operators? Don't they have to deal with their 3 economic issues? 4 MR. NEINAST: Well, I think they do, 5 but I think also that Billy has mentioned to me 6 several times that his division, the purpose of his 7 division, what he wants to do, is help the charities 8 make more money. Now, whether he can go out and ask 9 that, and I don't know why he couldn't. As a matter 10 of fact, I think he does. I think he does a good job 11 of it. But I think -- 12 CHAIR CLOWE: But his scope is limited. 13 He has certain boundaries that he has to stay in. He 14 doesn't work for those commercial entities. 15 There is -- there is an industry 16 representative in the audience. Can we call on him 17 and ask him to help us in this discussion? 18 MS. KIPLIN: Sure. I think it relates 19 to the Bingo Advisory Committee's activities. 20 CHAIR CLOWE: Come on up. You come on 21 up. 22 MS. KIPLIN: I think that's well 23 within -- it's relating to the Bingo Advisory 24 Committee's activities, and that's broad enough. 25 CHAIR CLOWE: You've heard this WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 262 1 discussion and you represent a client. 2 MR. GARCIA: Right. 3 CHAIR CLOWE: Who is in this industry, 4 and I think the Commissioners would like to have your 5 comments, Joe, on what you see. 6 MS. KIPLIN: If you can go ahead and 7 identify yourself. 8 MR. GARCIA: My name is Joe Garcia. 9 And I am registered and I represent GameTech 10 International, which is a manufacturer of electronic 11 bingo equipment. And I also represent a distributor, 12 Trend Gaming, which distributes GameTech equipment. 13 I have been -- I've been dealing with 14 bingo since 1986 when I was a staff member at the 15 legislature. And my boss back then, Senator Lucio, 16 was appointed by then Lieutenant Governor Bullock to 17 look at the bingo industry and kind of do a 18 comprehensive review of some of these same issues that 19 we're discussing now, about how we can increase bingo. 20 And as -- I was the staff, the committee director of 21 that committee, and we traveled throughout the state, 22 and going to various parts of the state, El Paso, 23 south Texas, Houston, Dallas. I'm trying to think of 24 some of the smaller cities we went to. Rockdale. I 25 think, Dan Kubiak at the time. So some of the same WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 263 1 issues that y'all are addressing now were some of the 2 issues that we addressed in '96, is how we can do 3 that. And, of course, one of the big things was the 4 implementation of the Lottery. And, obviously, you 5 saw the numbers in bingo fall due to the -- the 6 beginning of the Lottery and the newness and the new 7 game, and people just gravitated towards that. And 8 then we saw that people gravitated back to bingo. And 9 one of the things that my clients -- that I think 10 they're trying to do is, in the area of product 11 development, and the things that we want to bring to 12 Texas that we are currently doing in other states are 13 things that we want to look at. However, I think 14 you're right, Commissioner. Billy is bound, has 15 certain restrictions that are put on him by the 16 legislature in terms of the ability to say, a link 17 game, where you would have numerous bingo halls 18 that -- it is not complicated. It would be tied by a 19 telephone line or video feed, but where we could have 20 one bingo game that the entire state could play, and 21 conceivably -- Washington state is doing that. And 22 one of the things that -- we look at the numbers here 23 and we think that it's conceivable to have a nightly 24 prize of 50,000 dollars. And I think that kind of 25 excitement needs to be generated. But, again, that WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 264 1 kind of excitement has to be approved by the 2 legislature. And we have found some difficulty in 3 the -- in the expansion of gaming, so to speak, is the 4 quote we always hear at the legislature, about whether 5 we want to proceed in that route. 6 And the only other item I can shed 7 light on is from a regulatory perspective. I think we 8 as an industry, we want to be good corporate citizens, 9 we want to be within the statutes and operate, but a 10 lot of times, I think the industry is -- is governed 11 by complaints. And you will notice that there are so 12 many complaints filed here at the Lottery Commission 13 from, you know, manufacturer to manufacturer, 14 distributor to distributor, you know, operator to 15 operator, and sometimes you wonder, you know, how we 16 can simplify and take out those, what I call, 17 competitive complaints that are placed and how we can 18 move that out of the environment and kind of just go 19 toward something more of a streamlined process. One 20 of the concerns that we've had is that, in the past, 21 we felt that maybe Billy didn't have all the tools 22 that he needed to kind of do that. And some of the 23 things that were discussed during this legislature was 24 giving Billy the -- giving Mr. Atkins the ability to 25 have his own enforcement division, because we know WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 265 1 that the allocation, in past discussions we've had, 2 there is some question of whether how the allocations 3 are done and whether we have several officers 4 committed to the Bingo Division and several to the 5 Lottery and cross-training and whether there -- 6 because there is two very different industries, and 7 what you're looking for in lottery certainly is 8 different than what you're going to be finding in 9 bingo. 10 So from that perspective, Commissioner, 11 I can only offer that as Joe Garcia's opinion, being 12 in bingo since 1996. 13 CHAIR CLOWE: That's helpful, Joe, and 14 we thank you for that. 15 What do you think about the Bingo 16 Advisory Committee and the problems we discussed about 17 that? Do you have an opinion about that? 18 MR. GARCIA: No, sir, I do not have an 19 opinion on that. 20 CHAIR CLOWE: You're a wise man. Thank 21 you, Joe. 22 I hope you understand, Bill, I just 23 thought it would be good to hear what Joe had to say. 24 Well, you know, I think you have heard a statement of 25 strong support from the Commissioners. We'll do WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 266 1 everything we can to support and help. 2 MR. NEINAST: I appreciate that. Then, 3 in summary, in closing, just two items for your 4 action. One is to authorize a rule change to change 5 the reporting date for operators from the 15th of the 6 month to the 30th of the month, and the other would be 7 to authorize a rule change to -- or in whatever way, 8 authorize some of the Bingo Advisory Committee 9 meetings to be held outside of the city of Austin. 10 CHAIR CLOWE: That would go to Billy. 11 MR. ATKINS: Can I comment on one 12 thing? The change in the reporting due date is 13 statutory. It's not in the rule. There is nothing 14 that we can do through a rule to change that. 15 CHAIR CLOWE: Does that require 16 legislation? 17 MR. ATKINS: Yes, sir. 18 CHAIR CLOWE: And you can deal with the 19 issue of meetings outside of Austin? 20 MR. ATKINS: Yes, sir. 21 CHAIR CLOWE: And that could be put on 22 the agenda and you could bring that to the Commission 23 at the next meeting? 24 MS. KIPLIN: Commissioners, I don't 25 think it requires a formal vote on your part. Simply WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 267 1 direction to the staff. Your formal vote will come 2 when you vote to propose the rule making for public 3 comment. 4 CHAIR CLOWE: I think the sense of the 5 Commissioners is, they are supportive of you going 6 ahead on that issue. 7 MR. ATKINS: Okay. Could I, 8 Commissioners, just get clarification. This rule is 9 one of those rules that's set to go through our 10 regularly scheduled rule revision. So just so you 11 know, we'll take all of that to the advisory committee 12 and then bring it to you, include that provision as 13 well as other recommended changes. 14 CHAIR CLOWE: What would the timing be 15 on that? 16 MR. ATKINS: I think we're going to be 17 ready to bring that forward to the advisory committee 18 at their next scheduled meeting later this month. 19 MR. NEINAST: It would be the 29th. 20 CHAIR CLOWE: The 29th is the next 21 meeting? Let's move ahead on that. Thank you, Bill. 22 I'm sorry it's been such a long day for you. 23 MS. KIPLIN: Commissioners, I have the 24 draft order in the appeal matter that you heard 25 earlier today and voted. And when it's ripe for you WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 268 1 to take up, I'll be glad to pass copies to you so you 2 can review it. 3 CHAIR CLOWE: Okay. I know you want to 4 get that signed. Let's do it right now. 5 MS. KIPLIN: Commissioners, I believe 6 that this order is consistent with the vote today. 7 Commissioner Clowe, we show you as opposed and this 8 order will not require your signature. It's an order 9 that does affirm the Executive Director's 10 determination. 11 CHAIR CLOWE: Very good. 12 COMMISSIONER WHITAKER: My question is, 13 to the extent that certain portions of their appeal 14 became moot or were withdrawn, we then didn't rule on 15 those. So the question is, is the statement -- is the 16 wording of this order adequate to deal with that? 17 MS. KIPLIN: I think it is. I think it 18 denies it in its entirety, and as I sit here, I am 19 uncertain as to the specificity with Mr. O'Donnell's 20 remarks as to what was moot and what was not moot. So 21 I'm thinking that, in an abundance of caution, the 22 best approach is that the vote was to deny the 23 appeal -- 24 COMMISSIONER WHITAKER: As presented to 25 us today. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 269 1 MS. KIPLIN: Yes. I presented you 2 copies so that each one of you will have them. 3 CHAIR CLOWE: Very well. At this time 4 we are ready to move to go into executive session. At 5 this time, I move that the Texas Lottery Commission go 6 into executive session to deliberate the duties and 7 evaluation of the Executive Director, Internal 8 Auditor, and Charitable Bingo Operations Director, 9 pursuant to Section 551.074 of the Texas Government 10 Code; to deliberate the duties of the General Counsel 11 and Security Director, pursuant to Section 551.074 of 12 the Texas Government Code; to receive legal advice 13 regarding pending or contemplated litigation and/or to 14 receive legal advice pursuant to Section 551.071(1)(A) 15 or (B) of the Texas Government Code, and/or to receive 16 legal advice pursuant to Section 551.071(2) of the 17 Texas Government Code, including, but not limited to, 18 the State of Texas versus Ysleta Del Sur Pueblo Matter 19 involving the Department of Justice pursuit of a 20 complaint regarding the Americans with Disabilities 21 Act; Matter involving Request for Open Records 22 Decision in Attorney General Open Records file number 23 119718-98 relating to request for information in 24 connection with the lottery operator audit; Contract 25 regarding the Charitable Bingo system; Employment law, WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 270 1 personnel law, and procurement and contract law, and 2 general government law; The Lottery operator contract; 3 Matter involving the appeal of a determination by the 4 Executive Director -- 5 MS. KIPLIN: Yes, that's correct. A 6 matter of -- a matter involving the appeal of a 7 determination by the Executive Director of a protest 8 of contract award, such contract relating to the 9 procurement of the drawing studio and production 10 services. That's correct. Do you want to confer? 11 CHAIR CLOWE: I think so. 12 MS. KIPLIN: Okay. 13 CHAIR CLOWE: Because I don't 14 understand it. Can you explain that to me? 15 MS. KIPLIN: Well, can you and I step 16 aside? Can I visit with you just a second? 17 CHAIR CLOWE: Is that within good 18 practice? 19 MS. KIPLIN: Because I'm concerned 20 about my comments -- 21 CHAIR CLOWE: Sure. If it's good 22 practice, I need some help. 23 MS. KIPLIN: Okay. 24 (OFF THE RECORD.) 25 CHAIR CLOWE: The General Counsel has WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 271 1 explained to me what the reason is for this item 2 agenda, and I think it is correct. So it will be 3 included; Matter involving the appeal of a 4 determination by the Executive Director of a protest 5 of contract award, such contract relating to the 6 procurement of drawing studio and production services; 7 Matter involving the drawing studio and production 8 sales contract. 9 MS. KIPLIN: Services. And I -- does 10 that say sales? I'm sorry. Production services. 11 CHAIR CLOWE: Product services 12 contract. To deliberate the negotiation of the 13 lottery operator's contract pursuant to Section 14 467.030 of the Texas Government Code. In connection 15 with the deliberation of the negotiation of the 16 lottery operator's contract, based on consultation 17 with the Commission's General Counsel, it is my 18 understanding that the amendment to Section 467.030 of 19 the Government Code allows the Commission to have a 20 closed meeting if it determines in writing that an 21 open meeting would have a detrimental effect on the 22 Commission's position in the negotiation. The 23 Commission has made such a determination today. Is 24 there a second? 25 COMMISSIONER CRINER: Second. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 272 1 CHAIR CLOWE: All in favor say aye. 2 Opposed no. The vote is three-zero in favor. The 3 Texas Lottery Commission will go into executive 4 session. The time is 3:36 p.m., the date is August 5 8th, 2001. 6 (EXECUTIVE SESSION.) 7 CHAIR CLOWE: The Texas Lottery 8 Commission is out of executive session. The time is 9 6:12 p.m. Is there any action to be taken as a result 10 of executive session? If not -- 11 MS. KIPLIN: Wait. I believe there is. 12 There is a job description that you all would want to 13 take up and consider voting to approve. 14 CHAIR CLOWE: Very well. That issue is 15 the job description for the Charitable Bingo Division 16 director, and we need to have a copy of that. Yes. 17 Do you have three copies, Jim? 18 I understand that, but I want the 19 Commissioners to see it. This is a corrected copy 20 incorporating all of the -- yeah. I would like them 21 each to have a copy of that. 22 While Jim is doing that, let's move on 23 to the report of the Executive Director. Well, she's 24 not here. We'll take Billy. Charitable Bingo 25 Operations Director. Billy, would you make your WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 273 1 report to us, please. 2 MR. ATKINS: The only thing I have, I 3 handed -- that wasn't included in your notebook, 4 Commissioners, was the -- I handed out a memo earlier 5 on the second quarter 2001 quarterly report filing 6 period. The nonfiler report has run and those have 7 just gone out to the auditors for collection. 8 Additionally, I think that we're going to be able to 9 allocate very early this quarter, way before the end 10 of August. And other than that, I don't have anything 11 else to report. 12 CHAIR CLOWE: Do you have a -- any kind 13 of a progress report for us on the data processing 14 project you have underway? 15 MR. ATKINS: The King staff, to the 16 best of my knowledge, is still on-site working on the 17 project. And Phil Sanderson is managing that project 18 as well as staying in contact with the legal division. 19 CHAIR CLOWE: You don't have any news 20 to report to us that's positive or negative of that 21 nature? 22 MR. ATKINS: No, sir, not at this time. 23 CHAIR CLOWE: And under the Charitable 24 Bingo Advisory Committee's report, you're going to 25 look into the question of having those meetings WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 274 1 outside of Austin and come back to us on that, and 2 the -- you reported, I think, the change in the 3 reporting date is a statutory issue. 4 MR. ATKINS: That's correct. And one 5 of the things that we did in conjunction with that, 6 Commissioners, is we surveyed a variety of other 7 states, and there were a number that had filing 8 deadlines similar to what is being proposed by the 9 advisory committee, so it would not be inconsistent 10 with what other jurisdictions require. And we concur 11 with the statements that the advisory committee made. 12 We've heard from numerous organizations that, because 13 of the time it takes them to get their bank 14 statements, their financial records in order, it does 15 sometimes cause a burden for them to have them ready 16 by the 15th. 17 CHAIR CLOWE: Very good. Thank you, 18 Billy. And now, Jim, if you have those copies, if you 19 would pass them out to the Commissioners. 20 Commissioners, this is the correct copy 21 of the job description for the director of -- Director 22 for Charitable Bingo Operations Director. Is there a 23 motion to approve this? 24 COMMISSIONER WHITAKER: So moved. 25 COMMISSIONER CRINER: Second. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 275 1 CHAIR CLOWE: All in favor say aye. 2 Opposed no. The vote is three-zero in approval. 3 Thank you, Jim. 4 MR. RICHARDSON: If you like, I will 5 get a copy of the signed version for each of you. 6 CHAIR CLOWE: If you would, please. 7 MR. RICHARDSON: For the record, it's 8 Jim Richardson, Human Resources Director. 9 CHAIR CLOWE: Linda, we're to your item 10 on the agenda, number 14. Would you give us your 11 report, please. 12 MS. CLOUD: Okay. Commissioners. 13 On -- 14 CHAIR CLOWE: I'm sorry. I misspoke. 15 It's item 17. 16 CHAIR CLOWE: On July 13th, we 17 transferred to the Foundation School Fund 56,085,652 18 dollars, giving us a total transfer from inception to 19 date, 8 billion 446 million 743 dollars. 20 The HUB report did not change from the 21 last meeting and Robert is on vacation, so we won't be 22 having a change in that report today. 23 The FTE totals, we have a total of 309 24 active FTEs. We have 23 vacant positions, eight of 25 which are in the selection, acceptance pending. Ten WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 276 1 are in the recruiting, screening, and interviewing. 2 No positions are presently posted. And there are five 3 vacant positions with no activity to -- today. We 4 have filled three newly -- we have three newly-filled 5 positions as well. The Lottery conference information 6 we just passed to the Commissioners for your 7 information, and that's my report for today. 8 CHAIR CLOWE: Is that the meeting in 9 Albuquerque? 10 MS. CLOUD: Yes, it is. 11 CHAIR CLOWE: I don't see my copy of 12 that. 13 MS. KIPLIN: I'm sorry. 14 CHAIR CLOWE: And Commissioner Criner, 15 do you have a copy of this? 16 COMMISSIONER CRINER: Yes, I just got 17 one. 18 MS. CLOUD: And if the Commissioners 19 desire to attend that conference, we need to let Mary 20 Beth know so she can make the registration for you, 21 and as soon as possible, because she's trying to get 22 those done right now so that the hotels can be -- we 23 won't be -- 24 COMMISSIONER CRINER: I've been 25 thoroughly chastised. WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 277 1 MS. CLOUD: -- at the worst hotel. 2 MS. KIPLIN: Commissioners, we do have 3 a contested case -- 4 CHAIR CLOWE: Yes. I won't miss that. 5 I wanted to deal with the -- these folks. We'll go to 6 item 16 now, which is consideration of the status and 7 possible entry of orders. Kim. 8 MS. KIPLIN: Commissioners, this is the 9 Commission versus O'Connell Booster Club. This matter 10 is moot. It's no longer before you for consideration. 11 After the PFD was issued in which the proposal 12 recommended denying the renewal license, the 13 organization withdrew its application. And so 14 therefore, there is no -- there is no matter before 15 you for your action. 16 CHAIR CLOWE: Very good. 17 MS. KIPLIN: I would like to highlight 18 that action, though, that they withdrew their 19 application. And I see that as a strategic point on 20 their part. And I think that we have had this occur 21 with other organizations, where they'll -- they'll 22 wait until they see what happens with the PFD and 23 then, rather than get a final order against them, 24 they'll withdraw their application. 25 Sure, we can talk about what the PFD WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 AUGUST 8, 2001 278 1 was for. Mr. Atkins would like to talk about what the 2 PFD was for. The basis for the denial of the renewal 3 application was their failure to present proof that 4 they were, in fact, an authorized organization under 5 501(c) of the Internal Revenue Code. I think that was 6 it. There may be something else that I'm just not -- 7 MR. ATKINS: No. I just wanted to get 8 on the record that the administrative law judge did 9 find on behalf of the staff, that the proof of the 10 501(c) had not been offered by the organization. 11 CHAIR CLOWE: Thank you, sir. 12 Is there anyone here wishing to make 13 comment from the public? Seeing none, we will 14 adjourn. The time is 6:21 p.m. Thank you all very 15 much. 16 17 18 19 20 21 22 23 24 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 279 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, BRENDA J. WRIGHT, Certified Shorthand 7 Reporter for the State of Texas, do hereby certify 8 that the above-captioned matter came on for hearing 9 before the TEXAS LOTTERY COMMISSION as hereinafter set 10 out, that I did, in shorthand, report said 11 proceedings, and that the above and foregoing 12 typewritten pages contain a full, true, and correct 13 computer-aided transcription of my shorthand notes 14 taken on said occasion. 15 16 Witness my hand on this the 10TH day of 17 AUGUST, 2001. 18 19 20 21 BRENDA J. WRIGHT, RPR, 22 Texas CSR No. 1780 Expiration Date: 12-31-02 23 1609 Shoal Creek Boulevard, Suite 202 Austin, Texas 78701 24 (512) 474-4363 25 JOB NO. 010808BJW WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363