1 1 *************************************************** 2 BEFORE THE 3 4 TEXAS LOTTERY COMMISSION 5 6 AUSTIN, TEXAS 7 8 December 8, 1999 9 *************************************************** 10 11 BE IT REMEMBERED that the above-entitled 12 matter came on for hearing on the 8TH day of 13 DECEMBER, 1999, beginning at 8:30 a.m., and ending 14 at 2:54 p.m., at the TEXAS LOTTERY COMMISSION, 611 15 East Sixth Street, Austin, Texas, and the following 16 proceedings were stenographically reported by 17 Suzanne T. Lane, RPR, CSR for the State of Texas. 18 APPEARANCES 19 CHAIR HARRIET E. MIERS 20 COMMISSIONER C. TOM CLOWE, JR. 21 COMMISSIONER ANTHONY J. SADBERRY 22 MS. KIMBERLY L. KIPLIN, GENERAL COUNSEL 23 MS. LINDA CLOUD, EXECUTIVE DIRECTOR 24 MR. BILLY ATKINS, CHARITABLE BINGO OPERATIONS DIRECTOR 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 2 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 CHAIR MIERS: It's my pleasure to 2 call the December 8, 1999 Commission meeting to 08:25 3 order at 8:30 a.m. And we have a number of items 08:25 4 today of significant importance. And we will 08:25 5 begin, however, with a request that we take the 08:25 6 Bingo Advisory Committee Report out of order. 08:25 7 Bill Neinast is here, and we'll take 08:26 8 that report. 08:26 9 Bill, it's great to see you. We 08:26 10 appreciate all of your efforts on behalf of the 08:26 11 Bingo Advisory Commission, the State of Texas, and 08:26 12 look forward to your report. 08:26 13 MR. NEINAST: Thank you, Madam 08:26 14 Chair. You have in your notebook a report of our 08:26 15 meeting on the 30th of November. There is one item 08:26 16 reported there that does require some action by the 08:26 17 Commission, and that is the unanimous 08:26 18 recommendation of the Bingo Advisory Committee that 08:26 19 the Lottery Commission recommend an amendment to 08:26 20 the Bingo Enabling Act that would permit the use of 08:26 21 workers of age 16 and above. The Act now limits 08:26 22 workers to age 18. Several of the members of the 08:26 23 Advisory Committee did an informal survey of 08:26 24 various charity operators, and there was a general 08:26 25 consensus that this is a very desirable act 08:27 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 3 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 because, among other things, it is hard sometimes 08:27 2 to get an adequate number of workers. There is a 08:27 3 little selfish feeling on their part, also. They 08:27 4 think that by getting the younger people in to 08:27 5 work, that it would create a supply of Bingo 08:27 6 players later in their life. 08:27 7 The Committee did recommend that 08:27 8 there be limits on what these young people could 08:27 9 do. If it is the desire of the Commission that 08:27 10 this legislation be sought, the Committee members 08:27 11 would be more than happy to work with Kim, or 08:27 12 whoever in the organization would be drafting and 08:27 13 proposing such legislation. 08:27 14 The other item noted will require 08:27 15 some action, possibly in the future. That was the 08:27 16 appointment of a subcommittee to study the 08:27 17 procedure used to review applications for 08:28 18 commercial and charitable operators. There is some 08:28 19 indication that the procedure now in effect may not 08:28 20 be adequate to determine who, the party and 08:28 21 interest, is actually making the application. So 08:28 22 the Committee will meet in January to go over this 08:28 23 and see if the procedures are adequate, and if not, 08:28 24 recommend possible changes to the existing rules 08:28 25 that would close that gap. 08:28 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 4 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 Finally, an item not mentioned in 08:28 2 the report -- it was an oversight on my part, and I 08:28 3 apologize -- but there is one member of the 08:28 4 Committee, a charitable representative, who has 08:28 5 missed three Committee meetings in a row. Under 08:28 6 the rules of the Committee, anyone who misses two 08:28 7 meetings in a row is subject to removal by the 08:28 8 Commission. 08:28 9 You may want to consider that there 08:28 10 is an existing vacancy on the Committee at this 08:28 11 time. That is the agenda item on today's meeting. 08:29 12 If you take the action to remove this person who 08:29 13 has missed three in a row, that will create another 08:29 14 vacancy. And I think the procedure in the past has 08:29 15 been, particularly since there is a charitable 08:29 16 representative, to have the Bingo Division, in its 08:29 17 Bingo bulletin, ask for nominees. 08:29 18 That is my report. I'll be glad to 08:29 19 answer any questions that the Commissioners may 08:29 20 have. 08:29 21 MR. SADBERRY: Bill, I want to join 08:29 22 the Chair in welcoming you here, and appreciate 08:29 23 your presence and going through some challenges 08:29 24 this year. And yet you have stayed attentive to 08:29 25 the work of the Advisory Committee, and you've done 08:29 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 5 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 excellent work in the Committee. And I commend you 08:29 2 as chairing the Committee on that. 08:29 3 On the two present action items, in 08:30 4 terms of recommending legislation, what do you have 08:30 5 in mind that we, as a body, can do in our purview? 08:30 6 Would it be just a resolution, or what is it you 08:30 7 are asking, that you are proposing that we do? 08:30 8 MR. NEINAST: I am not sure. 08:30 9 Possibly, Kim could answer the question of what 08:30 10 authority, if any, there is on the part of the 08:30 11 Commission to propose such an amendment to the 08:30 12 Enabling Act, or recommend such an action. But if 08:30 13 there is anything the Commission could do, that 08:30 14 would be the desire of the Committee, that this 08:30 15 have the official sanction of the Commission to 08:30 16 effect that amendment to the Enabling Act. 08:30 17 CHAIR MIERS: Well, I guess I should 08:30 18 comment upon that, because I find myself at least 08:30 19 in conflict with two policy issues here. One, we 08:31 20 appreciate very much the advice of the Bingo 08:31 21 Advisory Committee. They have been helpful 08:31 22 previously and consistently, and we certainly want 08:31 23 to do what is in the best interest of the Bingo 08:31 24 industry; however, I have severe reservations about 08:31 25 authorizing what the State, as a matter of law, 08:31 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 6 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 considers to be minors, to work in Bingo halls. 08:31 2 So that may take more discussion 08:31 3 than we are prepared to handle right this minute. 08:31 4 But I think I, at least, would want to hear a lot 08:31 5 more discussion about that before I could support 08:31 6 it. 08:31 7 MR. NEINAST: If I may add to that, 08:32 8 there was considerable discussion before this 08:32 9 resolution was passed on the fact of what ages are 08:32 10 allowed in the Bingo halls, and there is no limit 08:32 11 on the ages of people who may be in the hall and 08:32 12 how and when they can play. And that was discussed 08:32 13 in depth as to whether there should be a rule made 08:32 14 on that. 08:32 15 The consensus of the Committee was 08:32 16 leave it up to the individual halls in that regard. 08:32 17 But the 16-year-olds are already there in many 08:32 18 halls, and this would be just -- if they are there, 08:32 19 can they be allowed to work in a non-fiduciary 08:32 20 capacity or as ushers. 08:32 21 MR. SADBERRY: Well, sir, I 08:32 22 understand. And I kind of had a visceral reaction 08:32 23 myself. Anything that would be done, certainly, 08:32 24 would come to the Legislature, and I'm sure they 08:32 25 would look at these issues. I have another concern 08:32 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 7 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 that I was raising as to the position that we 08:32 2 should take, the position we should give, if any, 08:33 3 on proposing legislation. 08:33 4 Nelda -- oh, there she is. She's in 08:33 5 the back. At some point in time, we certainly will 08:33 6 have views, and Nelda makes reports to us and gives 08:33 7 us views on things we'd like to see. I'm not sure 08:33 8 I agree -- I'm not sure how I feel about the 08:33 9 16-year-old issue, but it certainly is a 08:33 10 legislative matter. At some point in time, at the 08:33 11 appropriate time -- I guess, Bill, bottom line, we 08:33 12 don't have to rush on this, do we? 08:33 13 MR. NEINAST: No. No. 08:33 14 MR. SADBERRY: We can look at it a 08:33 15 while. I think I'd prefer to take a while. 08:33 16 CHAIR MIERS: Why don't we ask our 08:33 17 legislative office folks to take this 08:33 18 recommendation and consider any relevant or other 08:33 19 legislation or whatever else they might find would 08:33 20 be appropriate for the Commission to have before 08:34 21 us. And then we can take that up at our next 08:34 22 meeting. 08:34 23 We appreciate it very much. I know 08:34 24 we do want to consider the additional members of 08:34 25 the Advisory Committee, which we'll do later in the 08:34 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 8 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 meeting. And I think that's a pretty 08:34 2 straightforward issue. 08:34 3 Is there anything else, Bill? I 08:34 4 know you were hoping you wouldn't have to wade 08:34 5 through the rest of the meeting. Is there anything 08:34 6 else -- 08:34 7 MR. NEINAST: No, ma'am, other than 08:34 8 just the items for information included in the 08:34 9 report. 08:34 10 CHAIR MIERS: Okay. 08:34 11 Mr. Clowe? 08:34 12 MR. CLOWE: No. 08:34 13 CHAIR MIERS: Mr. Sadberry? 08:34 14 MR. SADBERRY: Bill, before you 08:34 15 leave, on the charity member person who was missing 08:34 16 the meetings, if we had an option of either having 08:34 17 recommendations from our Bingo Director of 08:34 18 someone -- if we were to take action on a 08:35 19 replacement, if we had the option of a 08:35 20 recommendation from the Bingo Director as being one 08:35 21 option to having an immediate replacement, or as 08:35 22 you kind of commented on, having a nominations 08:35 23 process for a replacement, if we were to take 08:35 24 action for a replacement -- and that process, as I 08:35 25 understand it, could start as early as late 08:35 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 9 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 January, and maybe in the March to April time frame 08:35 2 be completed -- do you have a recommendation of 08:35 3 which way you propose we go on that? 08:35 4 MR. NEINAST: I have not discussed 08:35 5 it with Billy. 08:35 6 Do you have a list of 08:35 7 recommendations or nominations from previous -- 08:35 8 MR. ATKINS: We have the nominations 08:35 9 that were made when the current BAC was appointed. 08:35 10 MR. SADBERRY: Now, on the matter 08:35 11 that is on the agenda for the nominations process 08:35 12 for today, we did go through a renomination 08:35 13 process. That's why I asked if you just had a 08:35 14 recommendation, so we could at least -- we'll have 08:36 15 to decide -- 08:36 16 MR. ATKINS: Yes, sir. 08:36 17 MR. SADBERRY: -- the Commissioners, 08:36 18 but we wanted to get your input on that to see if 08:36 19 you had a preference. 08:36 20 MR. NEINAST: My recommendation 08:36 21 would be -- since you already have an item on your 08:36 22 agenda that relates to appointing one, I would 08:36 23 recommend -- I think you'd have to take an 08:36 24 additional step, first, of a vote to remove the 08:36 25 person who has missed three meetings. And then, 08:36 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 10 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 since Billy has the list of recommendations from 08:36 2 the previous publicity, I'd recommend that you fill 08:36 3 both vacancies, assuming that there will be a 08:36 4 second vacancy at today's meeting. 08:36 5 MR. SADBERRY: Well, I wanted your 08:36 6 input since you might not be here when we reach 08:36 7 that item. 08:36 8 MR. NEINAST: Yes, sir. 08:36 9 MR. SADBERRY: So thank you. 08:36 10 MS. KIPLIN: If I could follow up on 08:36 11 that, my concern would be that if -- to go a step 08:36 12 beyond that on that particular item would not be 08:36 13 adequate notice to the public. Here, I guess, is 08:37 14 what I would recommend. Even though we do have an 08:37 15 action on the report by the Advisory Committee 08:37 16 Chair, possibly a discussion and reaction regarding 08:37 17 the Committee's activity, my recommendation would 08:37 18 be that this be taken up at a subsequent meeting so 08:37 19 that there is adequate notice both on the removal 08:37 20 and then on the nomination. 08:37 21 MR. NEINAST: I have no objection. 08:37 22 CHAIR MIERS: Thank you so much. 08:37 23 MR. NEINAST: Thank you. 08:37 24 CHAIR MIERS: We now can move to 08:37 25 Item No. 11, "Consideration of and possible action 08:37 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 11 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 on an appeal of a determination by the Executive 08:37 2 Director of a protest of contract awards, such 08:37 3 contracts relating to the procurement of instant 08:37 4 tickets and services." 08:37 5 Item No. 11 is one on which this 08:37 6 Commissioner, at least, is disqualified, so -- or I 08:37 7 have chosen to not participate in light of a 08:37 8 potential conflict of interest due to a 08:37 9 representation relationship with my firm. 08:37 10 Therefore, I have asked Anthony Sadberry to chair 08:38 11 this portion of the meeting, and I will not 08:38 12 participate. 08:38 13 I will make the comment, I think it 08:38 14 quite appropriate that Commissioner Sadberry chair, 08:38 15 at least in part, the last session of the Lottery 08:38 16 Commission before the end of this century, in light 08:38 17 of the fact that he is a Commissioner that has 08:38 18 served since its very beginning. So, Commissioner 08:38 19 Sadberry, I appreciate yours and Commissioner 08:38 20 Clowe's handling this item. Thank you. 08:38 21 MR. SADBERRY: Thank you, Madam 08:38 22 Chair, and thanks for the reminder. I'm a survivor 08:38 23 of sorts. 08:38 24 (Chair Miers left the room.) 25 MR. SADBERRY: We appreciate very 08:38 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 12 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 much the obvious interest, work, and attention that 08:38 2 has been given to this very important item. Most 08:39 3 of the people who are involved know the history. 08:39 4 We obviously have a lot of people interested, a lot 08:39 5 of time being devoted to it. We'll be expeditious 08:39 6 but also careful to thoroughly evaluate and take 08:39 7 action, if any, on this matter. 08:39 8 I have asked Kim to put us in 08:39 9 context procedurally and, I guess, historically, of 08:39 10 where we are today and what brought us to this 08:39 11 point, what issues, what matters, if any, are on 08:39 12 the table for action, if any; and what rules of 08:39 13 law -- administrative law, evidence, procedure, and 08:39 14 otherwise -- govern these proceedings, after which 08:39 15 we will proceed. 08:39 16 Kim? 08:39 17 MS. KIPLIN: I guess, by way of back 08:39 18 room, what I want to do is put on the record the 08:40 19 steps or the events that have occurred that have 08:40 20 led the matter to be before the Commission for 08:40 21 consideration today. So I'll go through that. 08:40 22 As you will recall, on April 10, 08:40 23 1999, the Commission considered the appeals and 08:40 24 cross-motions arising from the March 30, 1999 08:40 25 Executive Director's determination on BABN's 08:40 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 13 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 protest of the contract awards for the instant 08:40 2 tickets and services by BABN Scientific Games, 08:40 3 International; and Pollard Banknote, Limited. All 08:40 4 three parties in that particular proceeding did 08:40 5 file appeals. 08:40 6 The Commission, at their April 10, 08:40 7 1999 Commission meeting, did reverse the Executive 08:40 8 Director's determination to the extent that it 08:40 9 required a revised pricing to be submitted. The 08:40 10 Commission further reversed the Executive 08:40 11 Director's determination and remanded the matter 08:40 12 back to the Executive Director for the Evaluation 08:40 13 Committee to reevaluate the original proposal 08:40 14 submitted by the proposers, and specifically, to 08:40 15 consider three items. 08:41 16 The first was participation, 08:41 17 including the issues of whether or to what extent 08:41 18 a pass-through entity is to be counted as a HUB or 08:41 19 a Historically Underutilized Business or minority 08:41 20 participation, and whether a proposer who meets or 08:41 21 exceeds the minority participation goal, as 08:41 22 contemplated in the State Lottery Act, should be 08:41 23 evaluated differently than a proposer who expresses 08:41 24 a good-faith effort to meet or exceed the same 08:41 25 minority participation goal. 08:41 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 14 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 The second item for consideration on 08:41 2 remand was the interpretation of the requirement 08:41 3 that prices must decrease by at least 5/100 as 08:41 4 quantities increase for column or a given size, 08:41 5 that particular phrase; and whether that particular 08:41 6 phrase should be interpreted to mean 5/100 of a 08:41 7 dollar or 5/100 of a percent. 08:41 8 The third issue for consideration by 08:41 9 the Executive Director and the Evaluation Committee 08:41 10 was the interpretation of the term "cost," as 08:42 11 stated in Section 466.106 of the State Lottery Act; 08:42 12 whether the term "cost" is broader than the term 08:42 13 "price" and whether cost should include 08:42 14 consideration of the economic impact on the Texas 08:42 15 resident proposer. That's what occurred on the 08:42 16 April 10, 1999 Commission meeting, what was 08:42 17 contained in the order. 08:42 18 Subsequent to that particular 08:42 19 meeting, the Executive Director did direct the 08:42 20 Evaluation Committee to reconvene and reevaluate 08:42 21 the original proposal submitted, consistent with 08:42 22 the provisions of the order you entered in April. 08:42 23 As General Counsel, I invited 08:42 24 briefing by the parties, and also gave the parties 08:42 25 the opportunity to respond to each other's brief. 08:42 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 15 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 Briefs and response briefs were filed. The 08:42 2 Evaluation Committee met to review the original 08:42 3 proposals and to consider the issues raised by the 08:42 4 order entered in April. The Evaluation Committee, 08:42 5 by way of a June 24, 1999 memorandum to the 08:42 6 Executive Director, informed the Executive Director 08:42 7 that the Committee, based on its analysis, 08:43 8 consistent with the remand order, stood by its 08:43 9 recommendation date of February 24, 1999. 08:43 10 The Executive Director issued her 08:43 11 decision on August 10, 1999. And the Executive 08:43 12 Director's decision indicated that she reviewed the 08:43 13 original proposals' brief, the briefs, and the 08:43 14 responses that you were presented by the proposals, 08:43 15 and the recommendation from the Evaluation 08:43 16 Committee. The Executive Director's decision was 08:43 17 to award the primary contract to Scientific Games 08:43 18 and the back-up contract to Pollard. 08:43 19 On August 23, 1999, the parties were 08:43 20 notified that the three-year contract with 08:43 21 Scientific Games as the primary vendor, and the 08:43 22 three-year contract with Pollard as the back-up 08:43 23 vendor, had been executed. Oberthur Gaming 08:43 24 Technologies Corporation timely filed its protest 08:43 25 with the Executive Director. Responses were filed 08:43 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 16 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 by both Scientific Games and Pollard. 08:43 2 On October 15, 1999, the Executive 08:43 3 Director issued her determination of Oberthur's 08:43 4 protest, which was to deny Oberthur's protest in 08:44 5 its entirety. Oberthur timely filed its appeal of 08:44 6 the Executive Director's determination, and 08:44 7 Scientific Games and Pollard filed responses to 08:44 8 Oberthur's appeal. Oberthur's appeal is ready for 08:44 9 the Commission's consideration today. That gives 08:44 10 you the background. 08:44 11 Now, what I'd like to do is outline 08:44 12 the protest procedure that's contained both in our 08:44 13 statute and our rule. Texas Government Code 08:44 14 Chapter 466 is the State Lottery Act. And Section 08:44 15 466.101 governs the procurement procedures that are 08:44 16 to be followed with regard to procurement of goods 08:44 17 and services related to the operation of the 08:44 18 Lottery. 08:44 19 Specifically, Section 466.101 (C) 08:44 20 provides in the procurement procedures adopted by 08:44 21 the Executive Director must, as determined feasible 08:44 22 and appropriate by the Executive Director, afford 08:44 23 any party who has agreed by the terms of the 08:44 24 solicitation or award of a contract, which is the 08:44 25 case here, an opportunity to protest the Executive 08:44 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 17 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 Director's actions to the Commission. 08:44 2 The Lottery rule relating to 08:45 3 procurements is Title 16, Texas Administrative Code 08:45 4 Section 401.101. Subsection F of that rule, 08:45 5 Section 401.101, relates to protests. In 08:45 6 particular, paragraph 5 of Subsection F provides 08:45 7 that the Executive Director will review the 08:45 8 protest, any responses that are filed, and the 08:45 9 solicitation file, and will make a written 08:45 10 determination to protest. The rule further 08:45 11 provides that the protester may appeal the 08:45 12 Executive Director's decisions to the Commission. 08:45 13 Any appeal to the Commission will be 08:45 14 based solely on the written protest and responses 08:45 15 filed with the Executive Director and the Executive 08:45 16 Director's written determination. The Commission's 08:45 17 determination of any appeal by rule shall be 08:45 18 administratively final when issued. And that's 08:45 19 part of the rule. 08:45 20 Therefore, you, as Commissioners, 08:45 21 may only consider that information which is 08:45 22 contained in the appeal, and the appeal will be 08:45 23 based solely on the written protest, any responses 08:45 24 filed with the Executive Director, and the 08:46 25 Executive Director's written determination. You 08:46 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 18 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 may not consider any information that falls outside 08:46 2 the scope. 08:46 3 And in making your determination, 08:46 4 you should affirmatively state, if you can, that 08:46 5 your decision is based solely on the appeal, which 08:46 6 is, in turn, based solely on the written protest; 08:46 7 any responses filed with the Executive Director; 08:46 8 and the Executive Director's written determination. 08:46 9 You must not consider, in making your 08:46 10 determination, any information that is outside the 08:46 11 scope of what I've just outlined. 08:46 12 With that, I'll be happy to answer 08:46 13 any questions that you have regarding the 08:46 14 background procedure and so forth. 08:46 15 MR. SADBERRY: I have a question, 08:46 16 Kim. You may want to stand on this, but if I 08:46 17 recall, one of the actions to be considered was the 08:46 18 Executive Director's remand to the Evaluation 08:46 19 Committee of the pricing issues and the request for 08:46 20 additional pricing information given the Executive 08:47 21 Director in determination at that time. That may 08:47 22 have been a failure to follow the corporate rules. 08:47 23 We, as a body, did not reverse that, if I recall. 08:47 24 So there have been no new pricing 08:47 25 issues, other than what's discussed in the 08:47 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 19 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 Director's determination, and that has been noted, 08:47 2 pricing or costs, or for that matter, economic 08:47 3 impact-type information retained. Am I correct? 08:47 4 MS. KIPLIN: Yes, that is correct. 08:47 5 MR. SADBERRY: Now, in regard to the 08:47 6 advice, legal advice, as to what we may consider, 08:47 7 and I understand what you've outlined, basically, 08:47 8 is in these notebooks and what we've read -- does 08:47 9 that mean that we cannot entertain comments, if 08:47 10 any, from the public, from members of the 08:47 11 Legislature, or otherwise in this meeting? 08:47 12 MS. KIPLIN: No, sir. I think the 08:47 13 practice of the Commission -- well, let me back up. 08:47 14 You're convening your meeting under 08:48 15 the Open Meetings Act. The Open Meetings Act 08:48 16 affords the public an opportunity to be present at 08:48 17 a meeting and to hear what is going on. It does 08:48 18 not afford the public an opportunity to 08:48 19 participate. Since the inception of the 08:48 20 Commission, the Commission, as a matter of 08:48 21 practice, has afforded the public the opportunity 08:48 22 to participate and to address the Commission. 08:48 23 So your allowing people to speak on 08:48 24 any item on the agenda would be consistent with 08:48 25 your past practice. And I would not say that you 08:48 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 20 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 could not hear from anybody who wishes to speak on 08:48 2 any item on the agenda that's properly noticed, 08:48 3 because this is governed -- this is a protest and 08:48 4 it's an appeal to you. It's governed by the 08:48 5 procedures that are outlined in the rule. 08:48 6 And with that in mind, what is 08:48 7 limited for your consideration are the items that 08:48 8 are previously mentioned. It certainly does not 08:48 9 preclude you from listening to anybody who wishes 08:49 10 to speak with you, because I think that that's very 08:49 11 consistent with your past practice. 08:49 12 MR. SADBERRY: Good. Thank you. 08:49 13 That having been said, and 08:49 14 Commissioner Clowe is in agreement, I would like 08:49 15 to, as a matter of courtesy, recognize and invite 08:49 16 to come to speak to us, members of our Legislature, 08:49 17 Commissioner Clowe, who are here who have indicated 08:49 18 a desire to speak. Representative Solis is here. 08:49 19 He has been here before. 08:49 20 We appreciate your coming back to be 08:49 21 with us and share your views again with us this 08:49 22 morning, sir. 08:49 23 MR. SOLIS: Thank you, and good 08:49 24 morning. I think this is my third time here with 08:49 25 y'all. It's good to feel I'm almost at home with 08:49 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 21 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 y'all, not quite as long as you have been, sir, but 08:49 2 I do appreciate the courtesies that you-all have 08:49 3 afforded me and my staff in getting this issue to 08:49 4 the forefront to discuss. 08:49 5 I want to read to you a letter that 08:49 6 I submitted to you-all, and put it in the record. 08:49 7 I know that you-all are conscientious stewards of 08:49 8 the Texas Lottery and that you are as concerned as 08:50 9 I am with the issues that have been raised in the 08:50 10 course of this protest brought by Oberthur Gaming 08:50 11 Technologies Corporation. 08:50 12 I have followed this matter since 08:50 13 March of 1999, and I'm grateful to all that have 08:50 14 contributed to the spirited discussion that we have 08:50 15 had on the relevant statutes. Unfortunately, I 08:50 16 have been, and continue to be, disappointed by the 08:50 17 decisions of the Executive Director in light of 08:50 18 these discussions. 08:50 19 First, I believe the Executive 08:50 20 Director's determination will directly and 08:50 21 indirectly impact Texas minority-owned businesses. 08:50 22 The de-emphasizing of actual -- of Texas-owned -- 08:50 23 excuse me, the de-emphasizing of actual Texas 08:50 24 minority-owned business. Participation in this 08:50 25 request for proposals is enough to demonstrate, at 08:50 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 22 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 least to me, a reduced incentive for vendors to 08:50 2 reach the Commission's minority participation goal. 08:50 3 Equating promises with performance in this area 08:50 4 seals the issues for me. 08:50 5 I'm confident that other states have 08:50 6 goals similar to those of Texas, and see no 08:51 7 indication that they have been successful in 08:51 8 keeping their promises. I do not believe that 08:51 9 Texas minority businesses are encouraged by the 08:51 10 actions of the Executive Director and are 08:51 11 encouraged -- and really, when you start to look at 08:51 12 it, I find it ironic that we have these decisions 08:51 13 and these decisions being made at the same time 08:51 14 that the Legislature was considering Senate Bill 08:51 15 178. 08:51 16 Senate Bill 178 affirms Texas' 08:51 17 commitment to the Texas Historically Underutilized 08:51 18 Businesses, and I think this Texas Lottery 08:51 19 Commission should reflect the spirit of the Act in 08:51 20 this decision. 08:51 21 Furthermore, if the determination of 08:51 22 the Executive Director stands, I believe that the 08:51 23 Texas Lottery Commission will reduce, if not 08:51 24 eliminate entirely, its ability to consider true 08:51 25 cost to the state by awarding contracts to 08:51 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 23 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 out-of-state vendors. With approximately $214 08:51 2 million in expenditures annually, Texas ought to 08:51 3 get full benefit of that economic force. After 08:52 4 all, it is many Texans that buy all the tickets. 08:52 5 The Texas State Lottery's August 08:52 6 report of 1999 suggested the Texas Legislature 08:52 7 consider an act in legislation that provides 08:52 8 greater oversight and involvement by the Texas 08:52 9 Lottery Commissioners in the procurement process. 08:52 10 I hope that we do consider such legislation in the 08:52 11 next session, but if we do, this particular 08:52 12 contract will not be affected. 08:52 13 I urge the Commission to consider 08:52 14 the various options it has available to explore 08:52 15 these important policy issues fully. Having 08:52 16 perused just a few of the measures that you have as 08:52 17 rules you are considering, I think, again, it's 08:52 18 ironic that some of the changes that we asked for, 08:52 19 I hope, have been the result of discussions that we 08:52 20 have had. 08:52 21 It's unfortunate that we cannot 08:52 22 consider the spirit of what you -- changes that you 08:52 23 want today, in terms of determination of this 08:52 24 contract. It is most unfortunate that -- when it 08:52 25 took an auditor's report to make the changes that I 08:53 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 24 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 think are definitely needed for the betterment of 08:53 2 the State of Texas. It's inclusive when you start 08:53 3 to look -- it's important to me that -- when you 08:53 4 start to look at some of these changes. 08:53 5 My office will also be submitting, 08:53 6 Mr. Chairman, some of these -- our comments, 08:53 7 written comments, to you on these rule changes, 08:53 8 because they have a 30-day period coming up. We 08:53 9 will participate with you also in that endeavor. 08:53 10 We do want to make sure you understand that these 08:53 11 changes are exactly what is needed to take place 08:53 12 today. Unfortunately, it may take place tomorrow, 08:53 13 and that's a little too late when you look at the 08:53 14 jobs that are being lost, the impact it will have. 08:53 15 I've also brought to you, gentlemen, 08:53 16 letters of support from across the State of Texas 08:53 17 from representatives that have taken the issue and 08:53 18 understood the issue and also express their 08:53 19 concerns. So I want to thank you-all again for the 08:53 20 courtesy of coming before you, and I will submit to 08:53 21 you these letters that have come from my colleagues 08:53 22 in the House and Senate. 08:53 23 MR. SADBERRY: Thank you very much. 08:53 24 We certainly appreciate that. And even though, as 08:54 25 you have heard, we are constrained from a legal 08:54 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 25 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 administrative standpoint in what we may officially 08:54 2 take into consideration, you and other members -- 08:54 3 your colleagues, members of the Legislature, should 08:54 4 certainly be aware that through the combination of 08:54 5 your appearances before us, as well as the 08:54 6 correspondence we have received, we are well aware 08:54 7 of the concerns and the interests that have been 08:54 8 expressed and the importance of this issue that we 08:54 9 must, by virtue of the concerns here that you 08:54 10 mentioned, decide. And we will do that, I assure 08:54 11 you, to the best of our abilities. 08:54 12 MR. SOLIS: Thank you, sir. Thank 08:54 13 you-all. 08:54 14 MR. SADBERRY: I would like to 08:54 15 state, also, we'll receive these documents. 08:54 16 Thank you very much. 08:54 17 MR. SOLIS: Sure. Happy holidays. 08:54 18 MR. SADBERRY: Thank you. 08:55 19 In addition to what we've been 08:55 20 tendered this morning, we also have a letter from 08:55 21 Representative Shields. I understand 08:55 22 Representative Reyna is present but does not wish 08:55 23 to speak, but has met with members of our staff and 08:55 24 continues to give us the type of support and 08:55 25 interest that we appreciate. 08:55 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 26 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 Certainly from the Commissioners' 08:55 2 standpoint, it goes without saying, and a number of 08:55 3 you who have followed us through our tenure know 08:55 4 that we repeatedly have stated that we, as a 08:55 5 three-member Commission, are constrained by the 08:55 6 Texas Open Meetings laws. 08:55 7 And you know, and we will reiterate 08:55 8 it for the record, Commissioner Clowe and I, who 08:55 9 will be called upon to decide this issue, have not 08:55 10 had any opportunity to discuss these matters. As 08:55 11 you are aware, we have chosen not to meet in 08:55 12 Executive Session during any of these proceedings. 08:56 13 Everything that has been discussed on these -- on 08:56 14 this matter has occurred in Open Session. So you 08:56 15 know what we know in that regard. That is what 08:56 16 will govern in the proceedings now. 08:56 17 From the standpoint of the 08:56 18 presentations now, Kim, what is outlined? 08:56 19 MS. KIPLIN: I've sent notice to 08:56 20 each of the parties involved in this matter that 08:56 21 they would be allowed to make a 20-minute oral 08:56 22 presentation to the Commissioners. It was my 08:56 23 sense, since it was Oberthur's appeal, that they 08:56 24 should have the opportunity to go first and to 08:56 25 address the Commission first. And then I think 08:56 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 27 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 Scientific Games and Pollard have reached an 08:56 2 agreement between the two that Scientific Games 08:56 3 would go next, and then Pollard. 08:56 4 The Assistant General Counsel that 08:56 5 have been involved with the procurement are 08:56 6 prepared to make a presentation on behalf of the 08:56 7 Executive Director. And, of course, the Counsel 08:56 8 for the Executive Director, as well as the 08:57 9 Executive Director, are available for any questions 08:57 10 that you may have. I'm here to provide whatever 08:57 11 legal advice you would like. 08:57 12 MR. SADBERRY: Okay. Why don't we 08:57 13 go, then, with the first order of the appeal. 08:57 14 We are pleased to have you with us 08:57 15 again. 08:57 16 MS. KIPLIN: Mr. Riley, I'll let you 08:57 17 know when -- 08:57 18 MR. RILEY: I was wondering if we 08:58 19 could get this set up so that I don't -- 08:58 20 MS. KIPLIN: Sure. Not on your 08:58 21 time. 08:58 22 MR. SADBERRY: On my time, not his. 08:59 23 MS. KIPLIN: Right. On your time. 08:59 24 MR. SADBERRY: We are going to 08:59 25 acknowledge other speakers who are representing the 08:59 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 28 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 various entities who are not attorneys. Is that 08:59 2 going to be part of the allocation of time? 08:59 3 MS. KIPLIN: I think you're simply 08:59 4 recognizing who has filled out an affirmation 08:59 5 statement and that they're either in opposition or 08:59 6 in favor. I don't think that should be on their 08:59 7 time, because their time is an oral presentation, 08:59 8 and that's what the letter said. 08:59 9 MR. SADBERRY: Fair enough. 08:59 10 MR. RILEY: What is -- 08:59 11 MS. KIPLIN: I'm sorry. 08:59 12 Let me make sure, Mr. Sadberry, I'm 09:00 13 in tune. I think Mr. Riley and Ms. Duncan are 09:00 14 sharing their time in making an oral presentation. 09:00 15 And if you were simply going to recite into the 09:00 16 record those affirmation statements which you have 09:00 17 in front of you, then I don't think that should be 09:00 18 on their time. But they have chosen to divide 09:00 19 their time on the oral presentation. 09:00 20 MR. SADBERRY: I understood that. 09:00 21 I'm talking about for the non-attorneys who are 09:00 22 representing them. I agree with you. 09:00 23 MS. KIPLIN: Ms. Duncan is a 09:00 24 non-attorney, and she is -- 09:00 25 MR. SADBERRY: Okay. 09:00 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 29 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 MS. KIPLIN: -- within the 09:00 2 organization. And consistent with the appeals that 09:00 3 were heard in April, Mr. Gordon Pollard and 09:00 4 Mr. Tony Corbit did divide their time. So I think 09:00 5 that would be consistent with -- 09:00 6 MR. SADBERRY: All right. 09:00 7 Good morning. 09:00 8 MS. DUNCAN: Good morning, 09:00 9 Commissioners, ladies and gentlemen. For the 09:00 10 record, my name is Phyllis Duncan. I'm a vice 09:00 11 president of sales and marketing of Oberthur Gaming 09:00 12 Technologies Corporation, OGT, formally BABN 09:00 13 Technologies Corporation. I'm representing my 09:00 14 company today and speaking on behalf of our more 09:00 15 than 400 employees in San Antonio and our 09:01 16 Texas-based minority- and non-minority-owned 09:01 17 suppliers. 09:01 18 Since March, many documents that are 09:01 19 structured as legal briefs and phrased in legal 09:01 20 terms have been submitted by all of the parties. 09:01 21 The legal points that we have raised in this 09:01 22 process, in our opinion, form a solid legal ground 09:01 23 to support a decision to rescind the contract of 09:01 24 awards, and award the contract to Oberthur. 09:01 25 However, we are aware such a remedy 09:01 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 30 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 might not, in this matter -- and even if the 09:01 2 Commissioners were to change the decision of the 09:01 3 Executive Director to that extent, it is likely 09:01 4 that our competitors would challenge that action in 09:01 5 a similar protest. Nonetheless, it seems there 09:01 6 have been a sufficient number of questions raised 09:01 7 about the mechanism of this RFP, for this 09:01 8 Commission to carefully consider fashioning a 09:01 9 remedy that allows the Commission to address the 09:01 10 larger policy questions outside of the context of 09:01 11 this protest. 09:01 12 Our counsel will address the legal 09:01 13 basis of our position. But I've chosen to use some 09:02 14 of our precious allotted time to talk more about 09:02 15 the business aspects of the Commission's decision. 09:02 16 I'd like to leave the legal debate aside and 09:02 17 explain to you, in business terms, why we have 09:02 18 entered such a long, costly, and painful appeal 09:02 19 process and why the contract award decision is 09:02 20 against the interests of Texas. 09:02 21 I don't presume to instruct the 09:02 22 Commission about the public policy aspects of 09:02 23 administering the State Lottery, but as a corporate 09:02 24 citizen of the State of Texas, I think it's fair to 09:02 25 make some observations about what I believe are 09:02 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 31 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 some of our common interests. 09:02 2 We are interested in truly and 09:02 3 fairly seeing a procurement process that reflects 09:02 4 the express goals of the Texas Legislature in three 09:02 5 areas: maximizing the revenue, return to Texas the 09:02 6 operation of the Lottery, making certain that Texas 09:02 7 businesses are given a level playing field when 09:02 8 competing against out-of-state vendors, and also 09:03 9 the Texas minority participation issue. 09:03 10 Because I expect our competitors 09:03 11 will question our sincerity in pursuing these 09:03 12 legislative objectives, I want to make it clear 09:03 13 that Oberthur is in a business that is committed to 09:03 14 making a profit. However, it is a natural 09:03 15 consequence of our Texas presence that the state 09:03 16 does benefit from Oberthur's profit objective. We 09:03 17 are located in Texas, and it is indisputable that 09:03 18 we add value to the Texas economy just by our 09:03 19 presence. 09:03 20 I'll briefly explain the investment 09:03 21 that Oberthur has made in Texas. In locating our 09:03 22 facility in Texas, we committed to building the 09:03 23 world's most advanced instant ticket manufacturing 09:03 24 plant in the world. In this process, we invested 09:03 25 $40 million in our state-of-the-art facility and 09:03 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 32 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 created more than 400 direct jobs in Texas. 09:03 2 We are in business to make money, 09:03 3 but we have contributed and will continue to 09:04 4 contribute to the state's economy into the 09:04 5 foreseeable future. But losing the Texas Lottery 09:04 6 business will factor into our long-term strategy on 09:04 7 location in future investments. An investment of 09:04 8 this size needs a strong domestic market. The size 09:04 9 of the Texas Lottery and the historical support of 09:04 10 Texas-based businesses were factors in the choice 09:04 11 of our location. 09:04 12 Losing the Texas Lottery business in 09:04 13 1999 was, and of course, is, a disappointment. But 09:04 14 it is also a serious challenge to our company's 09:04 15 long-term viability and presence in Texas. 09:04 16 I find it ironic that during this 09:04 17 appeal, and while it's been pending, that we were 09:04 18 being told that our economic commitment and 09:04 19 contribution to Texas was not and could not be a 09:04 20 factor in this decision. A high profile, pro-Texas 09:04 21 campaign was initiated by Agriculture Commissioner 09:04 22 Susan Combs, featuring baseball Hall of Famer Nolan 09:04 23 Ryan pitching Texas produce to encourage Texans to 09:04 24 buy Texas goods. 09:05 25 I don't think that we overestimated, 09:05 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 33 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 nor should the Commission underestimate, the 09:05 2 average Texan's interest in promoting Texas 09:05 3 businesses. We have entered into such a long, 09:05 4 costly, and painful appeal process in order to get 09:05 5 the Commission's direct answer to these crucial 09:05 6 questions. We have adhered to the legal framework 09:05 7 of the appeal process; however, our intention has 09:05 8 never been to litigate. And today, it will be our 09:05 9 last attempt to prevail on the questions and issues 09:05 10 we have raised. 09:05 11 If your answer is not favorable, we 09:05 12 will not appeal your decision, nor will we sue the 09:05 13 Lottery. We will simply make future business 09:05 14 decisions in light of your answer. In fact, if 09:05 15 this appeal were just about the contract, perhaps 09:05 16 we would have abandoned this effort quite some time 09:05 17 ago. But we believe that this appeal is about 09:05 18 issues of common concern. It's about true cost to 09:05 19 the State of Texas, a very real economic return to 09:05 20 the state from contracting with Texas vendors. 09:05 21 It's about minority business 09:06 22 participation. It's been a priority for Oberthur, 09:06 23 and an afterthought of our competition. It's about 09:06 24 a level playing field for competition, a true 09:06 25 analysis of what occurs, the reality of what occurs 09:06 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 34 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 in our competitors' home jurisdictions, and not 09:06 2 turning a blind eye to what really happens to OGT 09:06 3 in our competitors' home jurisdictions. 09:06 4 Frankly, my comments could have been 09:06 5 limited to a plea that this Commission follow the 09:06 6 legislative phrase that the Executive Director's 09:06 7 determination seeks to limit. I ask you to make 09:06 8 the phrase a reality and act in the best interests 09:06 9 of the State of Texas. I believe that you have the 09:06 10 authority and the responsibility to overturn the 09:06 11 decision to award the contracts. 09:06 12 The state comptroller, state 09:06 13 representatives, and state senators of both parties 09:06 14 and from all over Texas, including Bexar County, 09:06 15 but all over Texas, have given you their comments 09:06 16 and their concerns. Although we have heard this 09:06 17 input dismissed previously as just a result of our 09:07 18 lobbying efforts, we have observed, and I've 09:07 19 observed, that lobbying and unjust cause does not 09:07 20 garner the type of support we've received in this 09:07 21 matter. Today, Commissioners, you are the voice of 09:07 22 Texas. 09:07 23 I have one graphic example which 09:07 24 demonstrates what this appeal is all about. You 09:07 25 will see on the poster -- can you see? 09:07 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 35 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 These are two tickets, very similar. 09:07 2 Both of them are "Break the Bank," a $2 ticket that 09:07 3 has been a very good seller for the Texas Lottery. 09:07 4 If we look at paper cost for OGT, both of these 09:07 5 tickets, one -- the OGT cost for this ticket was 09:07 6 $12.38. The one for Scientific Games $12.30. The 09:07 7 paper cost, $2.30. This is all 100 percent Texas. 09:07 8 $2.30 of this is through our HUB distributor. 09:07 9 These are actually from the Texas trees grown and 09:08 10 from a Texas mill. 09:08 11 The inks, $1.89 in ink cost, and 09:08 12 100 percent Texas, 99 of it is from the HUBS. The 09:08 13 balance is from ink produced in our manufacturing 09:08 14 location in San Antonio. Other costs and supplies, 09:08 15 $2.90, $2.69 of that cost were pallets, packaging 09:08 16 material, and so forth, are HUB related. 09:08 17 Transportation, 5 cents per 09:08 18 thousand. This is talking about tickets in per 09:08 19 thousand. Five cents in transportation costs, and 09:08 20 100 percent of that is HUB. Manufacturing and 09:08 21 labor are variable costs, $2.42, 100 percent of 09:08 22 that Texas cost to our labor force. In overheads, 09:08 23 SGNA $2.00, 100 percent of that being Texas cost. 09:08 24 The total being of the $12.38, $11.56. 09:08 25 And non-Texas -- for the thousand -- 09:08 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 36 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 tickets is only 82 cents. Look at Scientific 09:08 2 Games, and this would be similar for Pollard -- 09:09 3 although we do not have any information on any 09:09 4 invoices from Pollard, it would be very much the 09:09 5 same with about 5 cents to our best estimate for 09:09 6 point-of-sale blowups, and that being HUB related 09:09 7 and Texas HUB related. 09:09 8 And on transportation, we could not 09:09 9 determine from some of the information that we 09:09 10 received from the Open Records Act if that's 09:09 11 actually Texas-based HUB, but it is a HUB 09:09 12 participation, for a total impact in HUB of 15 09:09 13 cents, total impact on Texas, between 5 and 15 09:09 14 cents. And of course, the non-Texas revenue, or 09:09 15 the impact, is $12.15. 09:09 16 I will now turn this over to John 09:09 17 Riley. 09:09 18 MR. RILEY: Good morning, 09:09 19 Commissioners. For the record, my name is John 09:09 20 Riley, and I'm with the law firm of Jackson Walker. 09:09 21 I'm here to represent OGT in this appeal. 09:09 22 I'm going to move rather rapidly 09:09 23 because we don't have a lot of time to talk. I'd 09:09 24 like to begin my remarks by saying that when the 09:10 25 contracts were reissued, we renewed. We initiated 09:10 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 37 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 a new protest, and we raised the grounds that we 09:10 2 raised in our original protest, as well as some 09:10 3 further explanation of those grounds and some legal 09:10 4 materials on that. 09:10 5 Specifically, though, I don't have 09:10 6 the time to go through each of the grounds that we 09:10 7 raised. And so I have focused my remarks on three 09:10 8 central areas, though I wanted to remind the 09:10 9 Commissioners that each of the grounds we consider 09:10 10 equally important. But we just have limited time 09:10 11 to focus. 09:10 12 To begin my remarks, then, I would 09:10 13 like to talk about what Ms. Duncan referred to as a 09:10 14 "level playing field." I don't know if this will 09:10 15 assist you, so I will attempt to read this to you. 09:10 16 It's a little difficult to see, I expect, from your 09:10 17 position. 09:10 18 This is taken from the Commission's 09:10 19 rules on procurement. It's a sentence taken out of 09:11 20 the rule, which relates to a level field, what we 09:11 21 referred to in our briefing materials, and has been 09:11 22 referred to as the "level playing field rule." The 09:11 23 words are, if the evaluation and criteria include 09:11 24 prices, one of the criteria, an amount will be 09:11 25 added to a non-resident proposer's price proposal 09:11 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 38 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 equal to the amount that Texas resident proposer 09:11 2 would be required to underbid a nonresident 09:11 3 proposer to obtain a contract in the state in which 09:11 4 the nonresident proposer has its principal place of 09:11 5 business. 09:11 6 The Executive Director's 09:11 7 determination has essentially, in our view, limited 09:11 8 the applicability of this rule to statutory 09:11 9 preferences. In other words, the Executive 09:11 10 Director says that this rule relates only to when 09:11 11 it is express statutory preference for a vendor in 09:11 12 their home state that this rule can take into 09:11 13 account. As you can see from the words -- I don't 09:11 14 know if you can see it or not -- but the words do 09:11 15 not reflect that -- they do not state that it is 09:11 16 limited to a statutory preference. 09:12 17 The real life experiences of OGT in 09:12 18 the home state of Scientific Games in Georgia, and 09:12 19 in the home state of Pollard in Michigan, and in 09:12 20 the home state of Pollard in Canada, have been less 09:12 21 than -- they embrace this rule, and this rule 09:12 22 embraces those situations. 09:12 23 This is a practical matter. In 09:12 24 Georgia, OGT has been precluded from participating 09:12 25 or competing. It made a direct offer, a lower 09:12 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 39 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 offer -- and I won't go into the details, it's in 09:12 2 the briefing material -- made an offer to the 09:12 3 Georgia Lottery Commission at a lower rate than 09:12 4 what they are currently paying Scientific Games. 09:12 5 And the Georgia Lottery Commission renewed its 09:12 6 contract with Scientific Games. In Michigan, in -- 09:12 7 I believe it was in 1995 or so -- a Michigan 09:12 8 statute prior had precluded out-of-state printers 09:12 9 from participating in state procurement. 09:12 10 The law changed as it pertained to 09:12 11 lottery commission business, but the Michigan 09:12 12 Lottery -- the law changed to allow for 09:13 13 out-of-state bidders to compete for business in 09:13 14 Michigan. But the Lottery Commission in Michigan 09:13 15 shut all competitors out, in favor of the 09:13 16 home-state competitor, Pollard. And it did this by 09:13 17 simply renewing its contract with Pollard and, in 09:13 18 fact, awarding its back-up vendor contract to 09:13 19 Pollard. In other words, Pollard was the primary 09:13 20 vendor and received the backup, which is illogical 09:13 21 at best. 09:13 22 In Canada, it's been a similar 09:13 23 situation. The Manitoba Lottery has awarded -- or 09:13 24 excuse me, has taken into account -- sorry, it's 09:13 25 British Columbia I'm speaking of. British Columbia 09:13 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 40 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 took this economic impact argument to a fine art, 09:13 2 and it conducted an economic impact study in favor 09:13 3 of Pollard. So the practical, real life results, 09:13 4 in terms of competition by OGT in the home state of 09:13 5 these other vendors, has been no competition. This 09:14 6 rule seems to take that into account, and it should 09:14 7 take that into account. 09:14 8 And again, just kind of a somewhat 09:14 9 silly example of what I'm talking of, this is an 09:14 10 article taken from a newspaper in Michigan which 09:14 11 reflects the opening of Pollard's new plant. A 09:14 12 Lottery Commissioner attended the opening, 09:14 13 expressing support of the Michigan Lottery for its 09:14 14 in-state vendor. Again, it's just an example of 09:14 15 how the home-state advantage has really come into 09:14 16 play in terms of competition in those states. 09:14 17 Switching gears somewhat, but also 09:14 18 related, are the issues of economic impact and 09:14 19 whether that's a legitimate consideration for the 09:14 20 Lottery Commission on -- in this procurement. The 09:14 21 statute regarding procurement procedures suggests, 09:14 22 or actually requires, that the procurement 09:15 23 decisions focus on producing revenue for this 09:15 24 state. 09:15 25 Again, it is, I think, significant 09:15 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 41 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 that it does not say producing revenue for the 09:15 2 Texas State Lottery or for the Lottery Commission. 09:15 3 It talks about revenues to the state. And the 09:15 4 words are, in all procurement decisions, the 09:15 5 Executive Director shall take into account the 09:15 6 particularly sensitive nature of the Lottery and 09:15 7 shall act to promote and ensure integrity, 09:15 8 security, honesty, and fairness in the operation 09:15 9 and administration of the Lottery in the objective 09:15 10 of producing revenues for the State Treasury. 09:15 11 Again, those words suggest a broader 09:15 12 consideration. And the ones I've focused on are 09:15 13 fairness. That invites, again, the consideration 09:15 14 of home-state advantage that OGT experiences when 09:15 15 it goes to compete in other states, but also the 09:15 16 issues regarding a bigger, broader picture of 09:15 17 revenues to the State Treasury, which I think, if 09:15 18 you look a little further in the code -- well, let 09:15 19 me digress for a second. 09:16 20 As you have probably been aware, in 09:16 21 March of '99, Comptroller Rylander wrote a letter 09:16 22 to Senator Wentworth, indicating what kind of 09:16 23 economic impact there is to the State of Texas by 09:16 24 awarding this contract out of state. Again, 09:16 25 there's a time -- I won't go into detail of it, but 09:16 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 42 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 it's been in the record before, and I just wanted 09:16 2 to emphasize it. 09:16 3 Again, turning to the portion of the 09:16 4 statute that refers to a preference for Texas 09:16 5 business, these words have been the subject of much 09:16 6 discussion and much debate. The focus has really 09:16 7 been on what the word "cost" means, whether cost 09:16 8 means price. Simply, whether it's the dollar 09:16 9 amount the Lottery Commission pays to a vendor, or 09:16 10 whether cost embraces a broader context. But in 09:17 11 the legislative history -- and obviously, it's been 09:17 12 argued each way. But the legislative history, I 09:17 13 would think, is significant and demonstrates that 09:17 14 the Legislature was particularly interested in how 09:17 15 Texas businesses were going to benefit from having 09:17 16 a state lottery. 09:17 17 And again, there are various 09:17 18 interpretations. At one point, the House version 09:17 19 of the bill that did not pass expressed -- or had a 09:17 20 set 5 percent advantage for Texas businesses. The 09:17 21 Senate version, which eventually became law, did 09:17 22 not set a percentage, but embraced this notion of 09:17 23 cost to the state. 09:17 24 And I believe that legislative 09:17 25 history is fairly interpreted to conclude -- to 09:17 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 43 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 fairly conclude, or conclude, that the Legislature 09:17 2 was concerned that whatever benefit the Texas 09:17 3 Lottery brought to state revenue, that that benefit 09:17 4 be enhanced and maximized to every extent possible. 09:18 5 And that includes awarding contracts to in-state 09:18 6 vendors. So I believe the legislative history does 09:18 7 support the notion that cost is a broader concept 09:18 8 than just the simple price that's paid for a 09:18 9 service or a product. 09:18 10 Some of those concepts, I guess, are 09:18 11 a little bit vague, but I don't think they're 09:18 12 difficult to calculate. As I said, at least one 09:18 13 example we've cited, where a lottery did its own 09:18 14 economic impact study, turned out to benefit, not 09:18 15 surprisingly, its own home-state bidder. But those 09:18 16 economic impact analyses, that kind of economic 09:18 17 impact analysis could be done by the Lottery 09:18 18 Commission. In fact, we included an economic 09:18 19 impact study in our original proposal, so it's been 09:18 20 an issue that we brought up from the outset. 09:18 21 But there are some other costs that 09:18 22 I think are more direct to the Commission that are 09:18 23 less vague, in terms of how tax dollars are 09:18 24 returned and what state coffer they go into, about 09:19 25 how these contracts are serviced. And not to cast 09:19 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 44 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 any particular pall over this, or accuse, or 09:19 2 anything like that, but we have gained, through 09:19 3 Open Records requests, information regarding the 09:19 4 servicing of those contracts, particularly travel 09:19 5 servicing. 09:19 6 This is going to be really hard to 09:19 7 see. But this graphic would demonstrate the trips 09:19 8 that have been taken -- I apologize for the 09:19 9 focus -- trips that have been taken by Lottery 09:19 10 Commission employees to service these contracts. 09:19 11 And I want to emphasize the actual cost of travel. 09:19 12 Hotel stays, meals, and other costs associated with 09:19 13 the travel, air fare, are reimbursed by the vendor. 09:19 14 So on that level, there's no difference. 09:19 15 But on the time it takes to go from 09:19 16 Austin, Texas to Alpharetta, Georgia or to San 09:19 17 Jose, California or to Michigan or to Canada, those 09:20 18 are costs to the Lottery that are not recouped 09:20 19 through reimbursement. 09:20 20 Specifically, if we calculate 09:20 21 correctly, we estimate that there are 09:20 22 approximately -- I believe it was several hundred 09:20 23 hours of compensatory time accumulated on these 09:20 24 trips. Travel has to occur because these are -- as 09:20 25 we expect, press checks occur on Saturdays and 09:20 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 45 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 Sundays, and there's a good amount of compensatory 09:20 2 time being accumulated by Lottery Commission 09:20 3 employees that is not a reimbursed expense by the 09:20 4 vendor. 09:20 5 I know, from being a manager in a 09:20 6 state agency in a prior life, that those comp time 09:20 7 issues are very real. Those translate into very 09:20 8 real costs for a state agency that is trying to 09:20 9 deal with a lot of work and most state agencies 09:20 10 that are not -- their appropriation does not always 09:20 11 cover their responsibility. There is a lot to be 09:21 12 concerned about on a personnel level, with people 09:21 13 traveling all over the country and servicing these 09:21 14 contracts and very real costs to the state by 09:21 15 having these people out of office, including 09:21 16 compensatory time, as well as the administrative 09:21 17 tasks that are included with making reservations, 09:21 18 making arrangements to make this travel. 09:21 19 On an efficiency level, with a 09:21 20 vendor in state, press checks could be kept to a 09:21 21 minimum in terms of time out of the office for each 09:21 22 employee. In fact, it's my understanding that 09:21 23 during the time that OGT had the contract, it 09:21 24 was -- the efficiency was increased because the 09:21 25 Lottery Commission insisted that we be ready to go 09:21 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 46 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 to print and have our test sheet run when they 09:21 2 dispatched a Lottery Commission employee to the 09:21 3 facility for its press check. 09:21 4 In this situation, that's 09:21 5 impossible. You could not have a state of 09:21 6 readiness the same for an out-of-state vendor when 09:21 7 someone has to make plane arrangements, depending 09:21 8 on availability and so on, to travel to these 09:21 9 places. These, again, I think, are costs that are 09:21 10 legitimately considered but have not been 09:22 11 considered in evaluating these proposals. 09:22 12 I only have a few minutes. We have 09:22 13 talked at some length about the minority 09:22 14 participation issues, and the fact that it comes up 09:22 15 last in my presentation is no indication of its 09:22 16 significance in three issues I chose to speak 09:22 17 about. As we have talked about it a great deal, I 09:22 18 won't spend a lot of time on it. 09:22 19 But we would like to emphasize that 09:22 20 we think that Oberthur's -- or OGT's record is 09:22 21 exemplary in this area. Much has gone back and 09:22 22 forth about whether pass-through vendors -- and 09:22 23 whether -- what that means in terms of minority 09:22 24 participation. But I think it's fair to say that 09:22 25 we more than meet, and we in fact exceed the 09:22 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 47 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 Lottery Commission's goal. 09:22 2 At the same time, our competitors 09:22 3 have not, and have not even really come close. So 09:22 4 we believe that the de-emphasis of the minority 09:22 5 participation, in terms of the evaluation process, 09:22 6 is a bad signal to send to minority businesses of 09:23 7 Texas. We've already heard one representative 09:23 8 speak specifically on that topic. 09:23 9 MS. KIPLIN: That's time. 09:23 10 MR. SADBERRY: Go head and finish. 09:23 11 MR. RILEY: My closing remarks are 09:23 12 basically in the nature of what relief we are 09:23 13 requesting. As you've heard -- I'll be very brief. 09:23 14 As you heard from Ms. Duncan, it is 09:23 15 OGT's position that this is the process. The 09:23 16 process ends today. We do not seek to pursue 09:23 17 litigation. We do not anticipate -- or we're not 09:23 18 going to sue the Lottery Commission following its 09:23 19 decision. We think that the State Auditor's 09:23 20 office, coincidentally, has supported a lot of what 09:23 21 we have said, and in its conclusion suggested that 09:23 22 this Commission take a greater role in the 09:23 23 oversight of Lottery Commission procurements. 09:23 24 We also do not imagine -- because we 09:23 25 recognize that there are other people participating 09:23 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 48 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 in this process, and our competitors -- that you 09:23 2 are going to remove the contract from Scientific 09:23 3 Games and hand it to us. We believe that to be a 09:24 4 remote possibility, although we think it is within 09:24 5 your authority; nor do we think that it's in the 09:24 6 Lottery's interest to start all over again. So 09:24 7 much has gone on that we don't think that is a very 09:24 8 likely possibility for you to consider. But again, 09:24 9 we believe it is available to you. 09:24 10 We do think that it is a 09:24 11 fashionable -- or that you can fashion a remedy 09:24 12 that requires modification of the contracts that 09:24 13 exist and shortening them to a year time frame so 09:24 14 that all these issues that we have discussed can be 09:24 15 discussed outside of an appeal process or a 09:24 16 litigious process that allows you to consider these 09:24 17 issues fully, such as rule making that you have 09:24 18 already started. 09:24 19 In that regard, one of the things 09:24 20 that we have -- we would like to suggest is that -- 09:24 21 in shorthand, a seat at the table, that it is 09:24 22 appropriate in our mind that OGT receive some of 09:24 23 the business of the Lottery while this decision or 09:24 24 policy-making process is taking place. And in that 09:25 25 regard, I believe that it's appropriate for the 09:25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 49 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 Commission to fashion a remedy where we might also 09:25 2 serve as a back-up vendor to the primary vendor and 09:25 3 do some business with the Lottery Commission so 09:25 4 that all of the three major vendors in this area 09:25 5 have some participation in the Lottery business 09:25 6 while these important policy issues are being 09:25 7 fleshed out and perhaps rules are being decided. 09:25 8 Thank you for your time. 09:25 9 MR. SADBERRY: Thank you. 09:25 10 Kim, how much was overrun? 09:25 11 MS. KIPLIN: Three minutes. 09:25 12 MR. SADBERRY: We wanted to be 09:25 13 practical. We knew you had some suggestions. 09:25 14 Add three minutes to the others. We 09:25 15 don't want to encourage you to lengthen your 09:25 16 presentations, but I think fairness indicates that 09:25 17 we let him finish. But we've got opposing at the 09:25 18 same time. We need to be fair and equitable and 09:25 19 certainly expeditious. 09:25 20 Now, I have a speaker -- that 09:25 21 concludes their formal presentation -- but I have a 09:25 22 speaker who is not affiliated with the company that 09:25 23 I want to call on outside that contract. 09:26 24 MR CLOWE: Do you want to entertain 09:26 25 questions regarding these presentations now or 09:26 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 50 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 later? 09:26 2 MR. SADBERRY: Well, I was thinking 09:26 3 about that because I had a few myself. Why don't 09:26 4 we do it now, when it's fresh on our minds and we 09:26 5 can perhaps put it in context. Do you need them to 09:26 6 come up for that? 09:26 7 MR. CLOWE: I'd like to direct my 09:26 8 question to the General Counsel. What is your 09:26 9 reaction to the proposed relief that Mr. Riley 09:26 10 suggests? 09:26 11 MS. KIPLIN: Well, I heard Mr. Riley 09:26 12 discuss in terms of modification of a contract. 09:26 13 And I think it takes two parties to modify a 09:26 14 contract. I think that the Commission does have as 09:26 15 a remedy the reversal, again, of the Executive 09:26 16 Director's decision in voiding the contracts and 09:26 17 directing the Executive Director to attempt to 09:26 18 negotiate contracts as you-all would direct. 09:26 19 But, of course, the parties don't 09:26 20 have to enter into those contracts. They could 09:27 21 walk away from the process if they chose. That's 09:27 22 my immediate reaction. There may be other folks 09:27 23 that have other thoughts on that issue. 09:27 24 MR CLOWE: Thank you. 09:27 25 MS. DUNCAN: Would it be appropriate 09:27 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 51 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 to point out at this point in time that the Lottery 09:27 2 Commission has never issued a three-year contract 09:27 3 up until this point in time? And for it to be an 09:27 4 unprecedented three-year contract, in light of all 09:27 5 of the issues that are on the table, does not seem 09:27 6 appropriate. If fact, it's been a policy of the 09:27 7 Commission to limit the length of contracts, and 09:27 8 even the Executive Director had the opportunity to 09:27 9 issue a one-year contract with the opportunity for 09:27 10 one-year extensions that would still have given the 09:27 11 opportunity for a three-year contract if it was 09:27 12 deemed in the best interest of the State of Texas. 09:27 13 MR. SADBERRY: What does the RFP say 09:27 14 on that? 09:27 15 MS. KIPLIN: Well, my response to 09:27 16 that would be that the RFP did put the parties on 09:27 17 notice that there would be either a one-year -- I 09:27 18 think it was a one-year or two-year or three-year 09:28 19 contract. And so when they submit a proposal, 09:28 20 nobody protested the terms of the solicitation. 09:28 21 MR. SADBERRY: But one year was an 09:28 22 option. 09:28 23 MS. DUNCAN: We're just saying that 09:28 24 something should have been -- could have been -- 09:28 25 should have been considered. 09:28 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 52 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 MS. KIPLIN: In answer to your 09:28 2 question, Commissioner Sadberry, it was an option, 09:28 3 either one-year or two-year or three-year. That 09:28 4 was the Executive Director's decision to go with a 09:28 5 three-year contract. 09:28 6 MR. SADBERRY: I have a question. 09:28 7 On your travel compensatory time cost analysis, was 09:28 8 that submitted as part of the proposal made by your 09:28 9 client in the initial cost analysis process? 09:28 10 MR. RILEY: No, sir. It was not 09:28 11 available, since the contracts were not in place. 09:28 12 In fact, we received the information last week to 09:28 13 compile the statistics I repeated here. But we did 09:28 14 talk in broad terms about -- and specific terms 09:28 15 about the costs to the Lottery that were not being 09:28 16 considered in our proposal. 09:29 17 MR. SADBERRY: Yeah, your latter 09:29 18 comment -- I didn't ask a good question. I really 09:29 19 meant to ask, was the concept raised. 09:29 20 MR. RILEY: Yes, sir. 09:29 21 MR. SADBERRY: And you did raise the 09:29 22 concept? 09:29 23 MR. RILEY: Yes, sir. 09:29 24 MR. CLOWE: That's all I have. 09:29 25 MR. SADBERRY: Okay. Thank you. 09:29 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 53 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 Okay, the speaker who wishes to 09:29 2 speak, Mr. Michael Harris. 09:29 3 Mr. Harris, we are happy to have 09:29 4 you. You represent the San Antonio Manufacturers 09:29 5 Association. I want to ask you -- you obviously 09:29 6 see we have a lot to do today, and we don't to want 09:29 7 to shortchange anybody, you included. But please 09:29 8 limit your comments to those things you think are 09:29 9 central to -- 09:29 10 MR. HARRIS: I'll be very brief, 09:29 11 sir. 09:29 12 Mr. Chairman, members of the 09:30 13 Commission, I'm Mike Harris, President of the San 09:30 14 Antonio Manufacturers Association. I'm here to ask 09:30 15 for your support for the Texas manufacturing 09:30 16 community. Competitive competition is what this 09:30 17 country was built on and is the only way to conduct 09:30 18 business. However, we do not view this particular 09:30 19 contract as fair to Oberthur Gaming Technology or 09:30 20 the citizens of our state. 09:30 21 In our letter to you on March the 09:30 22 15th, we pointed out other states recognize the 09:30 23 financial and workforce benefits and impacts of 09:30 24 having a local supplier. Local companies in other 09:30 25 states not only have an inside track on such 09:30 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 54 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 contracts, they can use this advantage to submit 09:30 2 low bids to states such as Texas. San 09:30 3 Antonio-based OGT is the largest instant ticket 09:30 4 vendor in the world, and they officially opened 09:30 5 their plant in October '97, as you know. 09:30 6 They invested $32 million, with an 09:30 7 additional $8 million in 1998 and 1999. The 09:30 8 company purchases more than $12 million annually in 09:30 9 goods and services from Texas businesses, and spent 09:30 10 over $8 million in Historically Underutilized 09:30 11 Business in 1998. As a result of this investment, 09:30 12 Oberthur is responsible for 400 direct and 355 09:31 13 indirect jobs in the State of Texas. 09:31 14 Manufacturing jobs are important to 09:31 15 Texas. We feel strongly that people should buy 09:31 16 Texas products and services whenever possible. 09:31 17 This is especially true of a government agency that 09:31 18 is using hard-earned money of Texas citizens to 09:31 19 purchase out-of-state products, when they are 09:31 20 available within our state. With that in mind, we 09:31 21 ask the Texas Lottery Commission to rescind the 09:31 22 Executive Director's contract award and act in the 09:31 23 best interests of the State of Texas by supporting 09:31 24 a Texas firm that will produce jobs, direct and 09:31 25 indirect, for Texas. 09:31 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 55 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 On behalf of the Texas 09:31 2 manufacturers, I want to thank you for allowing me 09:31 3 to comment on this critical situation you have 09:31 4 before you today. I appreciate your time. 09:31 5 MR. SADBERRY: Thank you, 09:31 6 Mr. Harris. 09:31 7 Scientific Games is -- 09:31 8 MS. KIPLIN: I believe Mr. Al Axe 09:31 9 with Jenkens & Gilchrist is here on behalf of 09:31 10 Scientific Games. We'll ask him -- if he has not 09:31 11 completed a form, we'll ask him to do so. 09:32 12 MR. SADBERRY: You can go ahead. 09:32 13 Just make sure we get that. 09:32 14 MS. KIPLIN: Mr. Axe, you're taking 09:32 15 all of your time? 09:32 16 MR. AXE: Yes, ma'am. 09:32 17 MR. SADBERRY: Good morning, sir. 09:32 18 MR. AXE: Good morning. For the 09:32 19 record, my name is Al Axe. I'm here on behalf of 09:32 20 Scientific Games. I appreciate the opportunity 09:32 21 that has been extended to us to make this 09:32 22 presentation. Also with me today is Mr. Ron 09:32 23 Williams with Scientific Games, who is their local 09:32 24 representative here in Austin. 09:32 25 This meeting marks the sixth time 09:32 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 56 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 that this issue has been considered in evaluating, 09:32 2 either by the Commissioners or by the Commission's 09:32 3 Executive Director, in the Evaluation Committee. 09:32 4 As Ms. Kiplin went through earlier with the 09:32 5 Commissioners, this RFP was first evaluated by the 09:32 6 Commission's Evaluation Committee and by the 09:33 7 Executive Director. 09:33 8 And a contract was -- and the 09:33 9 contract awards were originally given to Scientific 09:33 10 Games and to Pollard earlier this year on March 1, 09:33 11 1999. A protest was filed by Oberthur, followed by 09:33 12 the Executive Director's determination, which was 09:33 13 the second time the issues had been addressed. An 09:33 14 appeal was raised, that decision brought to the 09:33 15 Commission. The Commission considered the issues 09:33 16 for a third time. 09:33 17 A second evaluation was conducted by 09:33 18 the Commission's Evaluation Committee and by the 09:33 19 Executive Director again. Contracts were 09:33 20 determined to be awarded to Scientific Games as the 09:33 21 primary contractor and to Pollard as the back-up 09:33 22 contractor for a three-year term. 09:33 23 A second protest was filed by 09:33 24 Oberthur, at which point a second Executive 09:34 25 Director's determination was issued in October of 09:34 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 57 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 this year, again confirming the prior 09:34 2 determinations that the contracts should be awarded 09:34 3 to Scientific Games and to Pollard. And now this 09:34 4 second appeal has been filed, and we're before the 09:34 5 Commission for the second time. 09:34 6 At each step along the way, 09:34 7 Scientific Games has been determined by the 09:34 8 Evaluation Committee and by the Executive Director 09:34 9 to have presented the lowest cost proposal to the 09:34 10 state; in fact, to the tune of over $4 million 09:34 11 lower than Oberthur's proposal, over $4 million for 09:34 12 the life of this contract. And also, every time 09:34 13 Scientific Games has been determined to have 09:34 14 presented the highest quality proposal, Scientific 09:34 15 Games has scored higher than Oberthur in terms of 09:35 16 quality and in terms of the cost proposal, at every 09:35 17 step along the way. 09:35 18 Also consistently along the way, 09:35 19 Oberthur has been found to have presented the 09:35 20 highest cost proposal. That seems very interesting 09:35 21 to me that we hear all of this about the advantages 09:35 22 of having an in-state facility, yet the in-state 09:35 23 facility would present a cost proposal that is over 09:35 24 $4 million higher than the proposal submitted by 09:35 25 Scientific Games. You would think that an in-state 09:35 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 58 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 company, because of its closeness to the Lottery 09:35 2 Commission and to -- other advantages, would be 09:35 3 able to present a cost proposal that would be less 09:35 4 than an out-of-state vendor. 09:36 5 This issue about preference for a 09:36 6 Texas company over an out-of-state company has been 09:36 7 explicitly considered and determined by the 09:36 8 Legislature. And there's an express provision in 09:36 9 the Lottery Act that says -- in fact, the provision 09:36 10 is entitled Preference for Texas Businesses. And 09:36 11 the Legislature has established a preference for 09:36 12 Texas business if, and only if -- and it's clearly 09:36 13 there in the Lottery Act -- if the quality and cost 09:36 14 is equal. In this case, neither quality or cost is 09:36 15 equal. Scientific Games has presented the best 09:36 16 quality proposal, as determined by your Evaluation 09:36 17 Committee and by your Executive Director, and a 09:36 18 significantly lower cost proposal. 09:36 19 The word "cost" means price, and 09:37 20 that's clear. If you look -- especially in terms 09:37 21 of a procurement. And this provision about 09:37 22 preference for Texas business is within the 09:37 23 subchapter of the Lottery Act that explicitly 09:37 24 relates to procurement. If you look at the 09:37 25 Government Contracts Reference Book, second 09:37 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 59 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 edition, they adopt the definition for cost which 09:37 2 is the same definition that you'll see in Black's 09:37 3 Law Dictionary, which is the sum or equivalent 09:37 4 expended, paid, or charged for something. It's the 09:37 5 amount that you pay for something. It's the price. 09:37 6 That is the cost. 09:37 7 And although we heard in an earlier 09:37 8 presentation that there may be some ambiguity about 09:38 9 this in the legislative history, I fail to find it. 09:38 10 And it's been fairly brief. And the only bit of 09:38 11 legislative history on this subject was a floor 09:38 12 statement on the Senate floor, in which the 09:38 13 amendment providing for the preference for Texas 09:38 14 business was adopted by the Texas Legislature. 09:38 15 And in that floor discussion of this 09:38 16 provision, the senator interchanges the words 09:38 17 "cost" and "price." Those words were used 09:38 18 interchangeably. And there's absolutely no, 09:38 19 absolutely none, zero, nil indication of any sort 09:38 20 that there's supposed to be some broad look at 09:38 21 economic value to the state. 09:38 22 In fact, it goes totally counter to 09:38 23 having this provision in the Lottery Act to think 09:38 24 that the Lottery Commission is required to do an 09:38 25 economic analysis, because if you did an economic 09:39 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 60 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 analysis and looked at every possible benefit to 09:39 2 the state of having an in-state company, then why 09:39 3 would you ever bother with looking at whether cost 09:39 4 and quality are equal or not? Because obviously, 09:39 5 the in-state facility is going to have a huge 09:39 6 advantage, and you're not going to have 09:39 7 competition. 09:39 8 The Lottery Act also provides 09:39 9 exclusively that the Lottery Commission is to 09:39 10 promote competition to the maximum extent possible. 09:39 11 If the Lottery Commission starts bowing to an 09:39 12 in-state facility because it raises a protest and a 09:39 13 second protest, and argues about the horrible 09:39 14 economic consequences -- although there's no 09:39 15 evidence in the record that I'm aware of where 09:39 16 Oberthur has come forth and said this is the actual 09:39 17 economic detriment occurring to us as a result of 09:39 18 issuing this contract to Scientific Games -- then 09:39 19 that's going to be a terrible precedent for this 09:40 20 Commission to set. 09:40 21 And I wonder how many out-of-state 09:40 22 companies are going participate in so-called 09:40 23 competitive bidding in the future if they know that 09:40 24 the in-state company is going to win. I mean, 09:40 25 that's one of the reasons I think that you might 09:40 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 61 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 have a cost proposal from the in-state company for 09:40 2 over $4 million higher. The attitude is, we're an 09:40 3 in-state facility, and we should get the contract. 09:40 4 That's going to put this Commission 09:40 5 down a very bad, I think, ill-conceived path, if a 09:40 6 strong protest by an in-state facility results in 09:40 7 this contract being voided and us being sent back, 09:40 8 and looking at some other type of contract or 09:40 9 possible awarding of a contract to the in-state 09:40 10 facility. 09:41 11 With respect to this minority 09:41 12 participation issue, much has been said. But the 09:41 13 RFP itself expressly provided for the proposers to 09:41 14 present to the Evaluation Committee and this 09:41 15 Commission a good-faith effort to meet the 09:41 16 Lottery's minority participation goal of 09:41 17 35 percent. All the proposers did that. 09:41 18 And Oberthur was given the highest 09:41 19 scorer of any of the proposers on this particular 09:41 20 issue. Their complaint is that Scientific Games 09:41 21 and Pollard should be given lower scores, not that 09:41 22 they should necessarily be given a higher score, 09:41 23 because they were given almost a 50-point total on 09:41 24 this issue. However, as this protest has 09:41 25 proceeded, I think a lot of issues have come to 09:41 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 62 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 light with respect to the actual minority 09:41 2 participation by Oberthur. 09:42 3 You may recall, the last time we 09:42 4 were here, we heard time and time and time again 09:42 5 about Oberthur's 75 percent minority participation 09:42 6 rate. Well, in fact, that 75 percent was not the 09:42 7 number that had been requested in the RFP, and this 09:42 8 was pointed out by the Executive Director in her 09:42 9 determination. That was -- 75 percent is not the 09:42 10 accurate number with respect to what was asked for 09:42 11 in the RFP. 09:42 12 Oberthur actually fessed up in its 09:42 13 last submittal that the correct number should be 09:42 14 more like 40 percent if you're looking at the 09:42 15 relationship of the -- or percentage of the total 09:42 16 contract price represented by minority 09:42 17 participation. Of that 40 percent, over 60 percent 09:42 18 of that 40 percent is this pass-through arrangement 09:42 19 with Reyes Industries, where paper is being 09:43 20 purchased by Inland Eastex. If you were to take 09:43 21 out that pass-through, by my calculations -- and I 09:43 22 could be wrong, but I was a math major -- I come to 09:43 23 about 15 percent or 14.5 percent on minority 09:43 24 participation by Oberthur. 09:43 25 Now, that's not necessarily a 09:43 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 63 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 criticism of Oberthur, other than to the extent 09:43 2 that they may have been a little bit overselling 09:43 3 their minority participation rate. But Scientific 09:43 4 Games could clearly go to a company like Reyes 09:43 5 Industries and run all of its subcontracts through 09:43 6 Reyes Industries or some other minority contractor 09:43 7 and claim 100 percent minority participation, if 09:43 8 they wanted to do that type of thing. And I'm not 09:43 9 sure that the Commission necessarily wants to 09:43 10 encourage that. 09:43 11 The fact is that this contract is 09:43 12 very much dependent upon paper and ink. Those are 09:43 13 the two main components of the price of this 09:44 14 contract. There are no minority paper suppliers 09:44 15 that we are aware of in Texas. Currently, 09:44 16 Scientific Games is buying their paper from the 09:44 17 same paper supplier that Oberthur bought their 09:44 18 paper from, Inland Eastex. 09:44 19 The only difference between 09:44 20 Scientific Games' numbers and Oberthur's numbers 09:44 21 is, is that they're not buying that paper through a 09:44 22 middleman and claiming that as HUB participation. 09:44 23 Otherwise, Scientific Games' numbers at the present 09:44 24 time would be basically the same, basically, as 09:44 25 Oberthur's. Scientific Games has presently 09:44 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 64 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 contracted, in the short amount of time that -- 09:44 2 they have only had the final contract since August, 09:44 3 and that's been under protest and appeal ever 09:44 4 since. 09:44 5 But in this brief period of time, 09:44 6 Scientific Games has entered into contracts with 09:45 7 five different minority companies here in Texas and 09:45 8 has met with Mr. Sal Valdez at the General Services 09:45 9 Commission and spent several times with Ms. Loretta 09:45 10 Hawkins here on the Commission staff, about coming 09:45 11 up with ways to include minority businesses in this 09:45 12 contract. They are planning to run ads in 09:45 13 cooperation with the Lottery to search out 09:45 14 Texas-based ink suppliers. That is underway. 09:45 15 Although in the same way, I'm sure 09:45 16 Oberthur would say the inks for this particular 09:45 17 contract are very special types of inks, and so 09:45 18 whether they will be able to find a Texas-based HUB 09:45 19 that can provide the type of inks that are 09:45 20 necessary is in question right now, but they are 09:45 21 making that effort. 09:45 22 I want to address just briefly a 09:46 23 couple of things that were stated in the prior 09:46 24 presentation. There was a discussion about the 09:46 25 provision in the Lottery Commission's rules about 09:46 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 65 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 adding an amount necessary to a nonresident bid to 09:46 2 make up for any overbid that must be made by a 09:46 3 Texas resident bidder in that other state. And a 09:46 4 brief mention was made to Georgia and the situation 09:46 5 there. That issue has been misrepresented by 09:46 6 Oberthur, and we pointed this out in our response 09:46 7 to the second appeal. 09:46 8 What actually happened in Georgia, 09:46 9 and the reason that Oberthur has not had an 09:46 10 opportunity to bid there, is Oberthur did not 09:46 11 participate in the RFP that occurred in 1993. The 09:46 12 award was granted to Scientific Games. In fact, I 09:47 13 believe Scientific Games may have been the only 09:47 14 bidder at the time. 09:47 15 And that contract is unique, in that 09:47 16 it not only provides for printing of instant 09:47 17 tickets, but also for warehousing and distribution 09:47 18 of tickets directly to the Lottery's retailers, 09:47 19 which is something that Oberthur had no prior 09:47 20 experience doing at the time. They made an 09:47 21 unsolicited -- sent in an unsolicited letter to the 09:47 22 Georgia Lottery, suggesting that it perform the 09:47 23 contracts and services at a lower price several 09:47 24 years into the contract, during the fourth year of 09:47 25 the contract. 09:47 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 66 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 However, again, because Oberthur had 09:47 2 absolutely no experience in warehousing and 09:47 3 distribution of instant tickets, the Lottery 09:47 4 decided to renew the existing contract with 09:48 5 Scientific Games. This idea that somehow or other, 09:48 6 Georgia required Oberthur to bid an amount less 09:48 7 than Scientific Games in Georgia is totally 09:48 8 inaccurate. 09:48 9 Also, let me just point out that 09:48 10 Scientific Games has a facility in California, and 09:48 11 Oberthur has been awarded the contract in 09:48 12 California. So this isn't just happening in Texas. 09:48 13 It happens around the country. And obviously, the 09:48 14 fact that Scientific Games had a facility there in 09:48 15 California did not automatically result in its 09:48 16 prevailing on that contract there. Scientific 09:48 17 Games did not protest that. 09:48 18 They do plan to participate the next 09:48 19 time the contract comes up, and they will compete 09:49 20 as all other competitors. But the mere fact that 09:49 21 they have a facility there did not buy them the 09:49 22 contract. 09:49 23 Again, I would urge this Commission 09:49 24 to reject the arguments being raised by Oberthur, 09:49 25 and to award the contract to Scientific Games as 09:49 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 67 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 the primary contractor and to Pollard as the 09:49 2 back-up contractor. I think a very bad precedent 09:49 3 will be set if the Commission determines that the 09:49 4 award should go to Oberthur simply because it has 09:49 5 an in-state facility. 09:49 6 A lot of time and money has been 09:49 7 spent. This process is now -- at this time, has 09:49 8 been going on for about a year since the RFP 09:49 9 originally went out in December of '98. And so 09:49 10 Scientific Games and Pollard and Oberthur spent a 09:49 11 lot of time and money on this RFP. And therefore, 09:49 12 to consider issuing a contract for one year, when 09:50 13 the process itself has taken a year, we would ask 09:50 14 that this Commission affirm the decision of the 09:50 15 Executive Director in granting a three-year 09:50 16 contract. 09:50 17 Thank you very much. 09:50 18 MR. SADBERRY: Thank you. Why don't 09:50 19 you stay a second. 09:50 20 Did you have any questions? 09:50 21 MR CLOWE: No, sir. 09:50 22 MR. SADBERRY: I did have a couple 09:50 23 of questions actually, about the one-year issue. 09:50 24 Am I correct that your client has enjoyed an 09:50 25 emergency procurement contract during that one-year 09:50 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 68 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 period? 09:50 2 MR. AXE: Yes, sir. 09:50 3 MR. SADBERRY: You have the contract 09:50 4 while the process has -- 09:50 5 MR. AXE: Yes, sir. 09:50 6 MR. SADBERRY: The other question 09:50 7 is, in the California situation, from a factual 09:50 8 data standpoint, was there any addition or process 09:50 9 where the level playing field clause, if they have 09:50 10 one out there, came into play, if you know? 09:51 11 MR. AXE: Not to my knowledge. We 09:51 12 don't have information on that. I do know that the 09:51 13 contract was awarded to Oberthur and that 09:51 14 Scientific Games did not protest the awarding of 09:51 15 the contract. 09:51 16 MR CLOWE: Now, you brought a 09:51 17 question up with your question. This is for the 09:51 18 Executive Director. 09:51 19 In regard to the emergency contract, 09:51 20 that was for a year? 09:51 21 MS. CLOUD: The emergency contract, 09:51 22 I figured six months, with an extension of six 09:51 23 months. 09:51 24 MR. BENNETT: I believe that's 09:51 25 correct. 09:51 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 69 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 MS. KIPLIN: For the record, that 09:51 2 was Ridgely Bennett, Deputy General Counsel. 09:51 3 MS. SCHULTZ: For the record, I am 09:51 4 Kaye Schultz, Assistant General Counsel. 09:51 5 And the initial term was a term of 09:51 6 sixth months. There was a provision for renewal. 09:51 7 It was bid as an emergency solicitation, so price 09:51 8 was the only consideration. There were some other 09:52 9 criteria, but it was evaluated based on price only. 09:52 10 And of the three proposers, Scientific Games had 09:52 11 the lowest price. And then, of course, that 09:52 12 contract was voided when the new contract was 09:52 13 executed with Scientific Games, which took effect 09:52 14 September 1. 09:52 15 MR. SADBERRY: All right. We are in 09:52 16 the initial sixth-month period? 09:52 17 MS. SCHULTZ: We are under a 09:52 18 three-year contract, which term began September 1, 09:52 19 1999. The emergency solicitation is no longer -- 09:52 20 MR CLOWE: We went in for a 09:52 21 sixth-month period? It was not renewed for another 09:52 22 sixth months, and then the three-year terms began 09:52 23 in September? 09:52 24 MS. SCHULTZ: In fact, the six 09:52 25 months was not completed at the time. It was 09:52 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 70 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 voided because the contracts had been -- 09:52 2 MR. CLOWE: So we are out of the 09:52 3 emergency contracting, and we're into the 09:52 4 three-year term right now? 09:52 5 MS. SCHULTZ: Yes, sir. 09:52 6 MR. CLOWE: Beginning September of 09:52 7 this year? 09:52 8 MS. SCHULTZ: Yes, sir. 09:52 9 MR. SADBERRY: Stay there a minute, 09:52 10 Kaye. 09:53 11 That brought up a question in my 09:53 12 mind. If I understand it from the last time we did 09:53 13 this, that contract contemplates the possibility 09:53 14 that this process might result in changes or 09:53 15 modification or, in fact, it being rescinded. Am I 09:53 16 correct in my understanding? The three-year 09:53 17 contract we are under now? 09:53 18 MS. SCHULTZ: I'm sorry. I don't 09:53 19 think I understood your question. 09:53 20 MR. SADBERRY: Does it anticipate 09:53 21 providing for the possibility that this Commission 09:53 22 might take action that could cause that contract to 09:53 23 be modified, rescinded, or voided? 09:53 24 MS. SCHULTZ: All our procurement -- 09:53 25 RFP's procurement documents contain language that 09:53 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 71 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 allows the Lottery Commission to cancel on a 30-day 09:53 2 notice. 09:53 3 MR. SADBERRY: I'm asking about -- 09:53 4 the contract is subject to this protest process, I 09:53 5 guess is what I'm asking. 09:53 6 MS. KIPLIN: That's right. What's 09:53 7 in front of you today is a party you saw on appeal 09:53 8 because they feel aggrieved by the contract award. 09:54 9 The protest was the first step in that process, and 09:54 10 the second step in the process, should they 09:54 11 continue to feel aggrieved by the Executive 09:54 12 Director's determination, is to address the 09:54 13 Commission. 09:54 14 MR. SADBERRY: Well, but my question 09:54 15 is, the three-year contract, does it provide that 09:54 16 the parties understand that this protest might 09:54 17 result in that contract being modified or 09:54 18 rescinded? 09:54 19 MS. KIPLIN: No. I think the 09:54 20 contract contemplates a termination. There is a -- 09:54 21 the termination contract -- if you're looking just 09:54 22 at the contract, I think what's before the 09:54 23 Commission is the ability to void the contract. I 09:54 24 think that is part of the process that's set out in 09:54 25 the rules. 09:54 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 72 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 MR. SADBERRY: Right. 09:54 2 MS. KIPLIN: Right. And also, the 09:54 3 procurement protest process, in terms of the 09:54 4 modification, I think once the -- if the Commission 09:54 5 were to choose today to reverse the Executive 09:54 6 Director's decision and void the contracts, then 09:54 7 there would be, I guess, an opportunity for a 09:54 8 different process. One would be if you-all were to 09:54 9 choose to direct the Executive Director to attempt 09:55 10 to negotiate, then the Executive Director would 09:55 11 make that attempt. But it takes two parties, as 09:55 12 you know, to enter into a contract. 09:55 13 MR. SADBERRY: Well, I was just 09:55 14 getting into what the parties knew -- 09:55 15 MS. KIPLIN: Sure. 09:55 16 MR. SADBERRY: -- what provisions 09:55 17 were adopted. 09:55 18 MR. BENNETT: Once again, I'm 09:55 19 Ridgely Bennett, the Deputy General Counsel. I'd 09:55 20 like to clarify one thing that Ms. Kiplin said. 09:55 21 The contract encompasses the RFP, 09:55 22 which encompassed the procure fee protest procedure 09:55 23 that talks about voiding a contract. So the 09:55 24 parties did know, upon entering into the contract, 09:55 25 that voiding the contract was a possibility. 09:55 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 73 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 MR. CLOWE: In that regard, Ridgely, 09:55 2 are there any provisions regarding the cause that 09:55 3 the Commission is required to have, to void the 09:55 4 contract? 09:55 5 MR. BENNETT: The rule talks about 09:55 6 the protest procedure and of an aggrieved party 09:55 7 being able to file a protest and to appeal the 09:56 8 Executive Director's determination to the 09:56 9 Commission. And if you find that the Executive 09:56 10 Director's determination should be overturned, then 09:56 11 you have the ability to void the contract. 09:56 12 MR CLOWE: That constitutes cause? 09:56 13 MR. BENNETT: That constitutes 09:56 14 cause. 09:56 15 MR. SADBERRY: Any other -- 09:56 16 MR CLOWE: No. Thank you. 09:56 17 MR. SADBERRY: Thank you very much. 09:56 18 MR. BENNETT: Thank you. 09:56 19 MR. SADBERRY: Let's see. Pollard? 09:56 20 MS. KIPLIN: Yes. I believe 09:56 21 Mr. Tony Corbit. 09:56 22 MR. SADBERRY: I have your form. 09:56 23 Please proceed. 09:56 24 MR. CORBIT: Good morning, 09:56 25 Commissioners. For the record, my name is Tony 09:56 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 74 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 Corbit. I represent Pollard Banknote, Limited. 09:56 2 I'm with the law firm of Winstead, Sechrest & 09:56 3 Minick. With me today is Sienna Ayello (phonetic), 09:57 4 a representative of Pollard Banknote, Limited. 09:57 5 I appreciate the chance to come 09:57 6 before you this morning. As you know, and as 09:57 7 you've heard, this is OGT's second protest in 09:57 8 connection with this procurement matter. Its first 09:57 9 protest was dated March 7th of this year. In that 09:57 10 process, OGT raised allegations regarding minority 09:57 11 participation, instant ticket testing, security, 09:57 12 overall qualifications, pricing, and 09:57 13 responsiveness. 09:57 14 In her determination dated 09:57 15 March 30th, the Executive Director decided that 09:57 16 every point raised by OGT was without merit. But 09:57 17 she did identify a perceived ambiguity with respect 09:57 18 to the pricing provision, and requested that the 09:57 19 proposers resubmit their pricing. 09:57 20 By an order dated April 10th, this 09:57 21 Commission reversed the determination of the 09:57 22 Executive Director with respect to the pricing 09:57 23 resubmittals and remanded three issues back to the 09:57 24 Executive Director for consideration by the 09:58 25 Evaluation Committee. Those were the minority 09:58 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 75 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 participation, the pricing, and the cost issues 09:58 2 that have been described to you this morning. 09:58 3 The Executive Director did so, and 09:58 4 on August 10th, rendered her decision, in which she 09:58 5 again decided to award the contract to Pollard and 09:58 6 to SGI. OGT filed its second protest, which is the 09:58 7 subject of this morning's proceeding, on 09:58 8 August 26th. OGT did not respond to the reasoning 09:58 9 or the justification of the Executive Director in 09:58 10 her decision. Instead, almost verbatim, they set 09:58 11 forth the exact same six points that I just 09:58 12 mentioned and which were set forth in the first 09:58 13 protest. I believe the Commission, to a large 09:58 14 extent, by action and by remand, has addressed many 09:58 15 of those points. 09:58 16 For that reason, my presentation is 09:58 17 going to be limited to three issues this morning. 09:58 18 The first issue is minority participation, the 09:58 19 first component of which is pass-through spending. 09:59 20 OGT asserts that pass-through spending should be 09:59 21 given the same weight, in terms of evaluating 09:59 22 minority participation, as true minority spending. 09:59 23 Pollard disagrees. The only component of the 09:59 24 pass-through spending that benefits the minority 09:59 25 vendor and which is retained by the minority vendor 09:59 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 76 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 is the commission. It's a very small percentage of 09:59 2 the total expenditure. 09:59 3 The RFP requests each party to 09:59 4 identify the degree of minority business 09:59 5 involvement. I believe that by representing 09:59 6 pass-through expenditures as full minority 09:59 7 expenditures, that's misleading at best. And 09:59 8 again, I don't believe that's in the best interest 09:59 9 of the minority population, the minority vendors, 09:59 10 and I don't believe it's in the best interest of 09:59 11 the State of Texas or achieves the state's goals. 09:59 12 Since Pollard has been awarded the 10:00 13 games, it has contacted over 120 true minority 10:00 14 vendors. To the extent that any vendor did not 10:00 15 respond to Pollard's solicitation, it responded to 10:00 16 that vendor or that HUB in person. It worked 10:00 17 closely with the Lottery Commission staff, Loretta 10:00 18 Hawkins in particular, in order to identify 10:00 19 additional minority vendors. 10:00 20 Pollard has already entered into 10:00 21 contracts with true minority vendors for trucking 10:00 22 services, design services, and printing services. 10:00 23 It's now in the process of preparing ads, which 10:00 24 will be published to identify additional minority 10:00 25 vendors. I suggest to you that those are the 10:00 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 77 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 efforts that this Commission wants and that the 10:00 2 State of Texas wants, and that represent the true 10:00 3 efforts that are to be achieved and reflect the 10:00 4 intent of the goal. 10:00 5 It would have been much easier for 10:00 6 Pollard simply to retain -- and much less costly -- 10:00 7 to retain a broker. And as Mr. Axe indicated, we 10:00 8 could achieve 100 percent minority participation if 10:01 9 that is the interpretation adopted by the 10:01 10 Commission. 10:01 11 Pollard is willing to satisfy the 10:01 12 desires of its clients. If you indicate that 10:01 13 that's something you'd like your vendors to do, 10:01 14 we're happy to do so. We would recommend, however, 10:01 15 that you don't equate that type of spending with 10:01 16 true minority spending. I think that's misleading. 10:01 17 The second component to minority 10:01 18 participation relates to whether a party that 10:01 19 allegedly meets or exceeds the goal should be given 10:01 20 as much weight in the evaluation process as a 10:01 21 vendor that uses its good-faith efforts to achieve 10:01 22 the goal. My first comment is the RFP explicitly 10:01 23 states that each proposer should make a good-faith 10:01 24 effort to voluntarily meet or exceed the goal. 10:01 25 That is the standard that was set forth in the RFP, 10:01 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 78 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 which defines this evaluation process. To change 10:01 2 that standard is contrary to the RFP. It's 10:01 3 contrary to the intent of the bidding process. 10:02 4 OGT's interpretation would change a goal to a near 10:02 5 quota. I'd encourage you not to do so. 10:02 6 I would also point out that this 10:02 7 issue is directly linked to the pass-through issue. 10:02 8 To the extent you recognize pass-through spending 10:02 9 as true minority spending, whether or not any 10:02 10 proposer can meet the so-called goal, it is 10:02 11 impacted tremendously for obvious reasons. I 10:02 12 submit to you that the interpretation proposed by 10:02 13 OGT favors the incumbent bidder too greatly. The 10:02 14 evaluation report prepared by the Evaluation 10:02 15 Committee clearly states that emphasis is placed on 10:02 16 Texas minority business participation. 10:02 17 By definition, the incumbent bidder 10:02 18 has had, during the evaluation process, the 10:02 19 opportunity to enter into those contracts with 10:02 20 Texas vendors. By definition, none of the other 10:03 21 vendors who did not have a contract at that time 10:03 22 had that opportunity. 10:03 23 I would also point out that OGT has 10:03 24 never objected to the goal or interpretation of 10:03 25 this Commission in the past. It's only in 10:03 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 79 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 connection with the present procurement that they 10:03 2 question that goal. OGT argues that its minority 10:03 3 participation scores should be elevated even higher 10:03 4 and that the other proposers' should be lowered. I 10:03 5 disagree and think the opposite is true. 10:03 6 We've already found out during this 10:03 7 protest process that OGT misrepresented by over 10:03 8 30 percent its minority participation, as defined 10:03 9 by the RFP. And that's not taking into account the 10:03 10 pass-through spending issue. To the extent you 10:03 11 take that into account, as Mr. Axe spoke to, it's 10:03 12 very clear that OGT's minority participation is 10:04 13 approximately identical to the other proposers. 10:04 14 And contrary to a point that was 10:04 15 made by OGT in connection with its pleadings, the 10:04 16 minority population HUB facility -- the population 10:04 17 surrounding the facility is very relevant to the 10:04 18 minority participation of any proposer. I think a 10:04 19 perfect example is to look to OGT's Montreal 10:04 20 facility. The level of minority participation is 10:04 21 no greater than Pollard's Canadian facilities. 10:04 22 The second issue I would like to 10:04 23 discuss this morning relates to the pricing 10:04 24 provision -- excuse me, on the interpretation of 10:04 25 the phrase, prices must decrease by at least 5/100. 10:04 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 80 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 OGT, in its protests, asserts that SGI should be 10:04 2 disqualified because it improperly interpreted that 10:04 3 phrase. 10:04 4 It has now come to light OGT failed 10:04 5 to comply with the pricing requirement because its 10:04 6 prices did not increase from left to right. There 10:05 7 is no ambiguity with respect to the prices having 10:05 8 increased from left to right. Arguably, from OGT's 10:05 9 perspective, there was ambiguity with respect to 10:05 10 the 5/100. 10:05 11 I don't think that's relevant for 10:05 12 two reasons. First, it wasn't material to the 10:05 13 outcome of the evaluation process. And secondly, 10:05 14 and more importantly, the RFP specifically directed 10:05 15 any of the proposers to ask questions, if they had 10:05 16 any questions whatsoever regarding the terms of the 10:05 17 RFP, and provides that no proposer has a right to 10:05 18 cancellation or relief because of any 10:05 19 misunderstanding. 10:05 20 That's exactly what OGT is asking 10:05 21 for. They are asking for either cancellation of 10:05 22 the existing contracts or other relief, which is 10:05 23 this amendment to the contract terms. That's 10:05 24 directly contrary to the terms of the RFP. The RFP 10:05 25 does not require disqualification. If this 10:05 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 81 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 Commission took any action with respect to the 10:05 2 pricing issue, I believe the appropriate action 10:05 3 would be simply to lower the responsiveness scores 10:06 4 of those two proposers. That wouldn't have any 10:06 5 impact on the outcome of this procurement process. 10:06 6 To uphold OGT's protest based on 10:06 7 this issue simply encourages proposers in the 10:06 8 future to not raise questions during the evaluation 10:06 9 process and to simply file protests and to argue 10:06 10 ambiguities after the fact. That's in nobody's 10:06 11 best interest. 10:06 12 The final issue I'd like to address 10:06 13 relates to interpretation of costs, and 10:06 14 specifically, whether the economic impact of a 10:06 15 contract on the incumbent in-state vendor should be 10:06 16 considered in the evaluation process. OGT asserts 10:06 17 that the statute that they identified requires this 10:06 18 Commission to consider cost. By its very terms, 10:06 19 the statute is a tiebreaker. It provides that a 10:06 20 preference should be given the in-state bidders 10:06 21 only if the costs to the state and the quality are 10:06 22 equal. It's undisputed that the costs and quality 10:07 23 components, regardless of the interpretation of any 10:07 24 of the three bidders, are not equal. That's 10:07 25 undisputed. 10:07 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 82 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 I submit to you that OGT is 10:07 2 requesting that this Commission add a new criterion 10:07 3 to the evaluation process. It's asking this 10:07 4 Commission to consider the economic impact of a 10:07 5 procurement decision on an incumbent in-state 10:07 6 vendor. Again, that's not part of the RFP. The 10:07 7 RFP explicitly defined what the proposals would be 10:07 8 evaluated on, and a specifically identified price. 10:07 9 For the reasons I've just described, 10:07 10 it's also not a requirement of the statute. The 10:07 11 statute is a tiebreaker only. It's undisputed that 10:07 12 there is no tie in this procurement. I also submit 10:07 13 to you that it's unfair for this Commission to 10:07 14 consider a criterion that was not -- that is 10:07 15 outside the evaluation process as defined by the 10:08 16 RFP. Only one vendor submitted information 10:08 17 regarding that criterion. 10:08 18 This Commission could have made that 10:08 19 criterion part of the evaluation process. It did 10:08 20 not do so, but at least if they had done so, the 10:08 21 other vendors could have considered that when 10:08 22 submitting their bids. They weren't given that 10:08 23 opportunity. Instead, they are being presented 10:08 24 with this issue after the fact. 10:08 25 In response to OGT's assertions 10:08 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 83 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 regarding in-state preference exercised by Michigan 10:08 2 or Canada, Mr. Riley did not go into details. I 10:08 3 think it's very enlightening to do so. Michigan 10:08 4 extended a contract term with Pollard. That 10:08 5 doesn't reflect any type of in-state preference. 10:08 6 This Commission has exercised 10:08 7 extension privileges in the past. I don't believe 10:08 8 that reflected some type of in-state preference. 10:08 9 Instead, I think it reflects a state lottery's 10:08 10 satisfaction with the services of an existing 10:09 11 client. 10:09 12 To the extent that this agency chose 10:09 13 not to exercise its second extension with OGT, I 10:09 14 believe -- and I wasn't familiar with the decision, 10:09 15 but to me, that suggests that perhaps this agency 10:09 16 wasn't satisfied with the services being rendered 10:09 17 by OGT. 10:09 18 Contrary to OGT's allegations, a 10:09 19 back-up contract was not awarded by Michigan to 10:09 20 OGT. A portion of their games were put out to 10:09 21 contract. That's different than a back-up 10:09 22 contract. And OGT failed to point out to you that 10:09 23 Pollard's prices were lower than both OGT's and 10:09 24 SGI's. A fourth bidder, Creative Gains, had a 10:09 25 lower price than Pollard, but its quality scores 10:09 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 84 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 were much worse than Pollard's. 10:09 2 With respect to Canada, the country 10:09 3 doesn't release any of the pricing. So neither 10:09 4 Pollard nor any of the other proposers have any 10:09 5 idea what each of their respective pricing bids 10:10 6 were. So making any allegations about preferences 10:10 7 is very misleading on that fact. 10:10 8 Also, I point out that OGT has a 10:10 9 facility in Ontario. Pollard was recently awarded 10:10 10 the games in Ontario. So there is not a local 10:10 11 economic impact study being undertaken or a 10:10 12 preference for a local facility in Canada, the 10:10 13 proof that that was not the case. 10:10 14 If this agency were going to adopt 10:10 15 this additional criterion as proposed by OGT, I 10:10 16 submit to you that that's very much against the 10:10 17 level playing field concept that OGT asserts and, I 10:10 18 think, is the desire of this Commission to adopt. 10:10 19 By definition, that practice would allow the 10:10 20 in-state bidder to submit much higher prices than 10:10 21 the competitors. That's not in the best interests 10:10 22 of the state. It's hard to imagine any practice 10:10 23 which would discourage competition more than giving 10:11 24 that type of advantage to one of the proposers. 10:11 25 This is an extremely competitive 10:11 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 85 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 industry. Pollard, and I suspect the same is true 10:11 2 of SGI, submitted the lowest price to the Texas 10:11 3 Lottery Commission that it could and still make a 10:11 4 return on its investment. To the extent that OGT 10:11 5 was given a 10, 20, or even greater percent 10:11 6 advantage, which is what it's asking for in every 10:11 7 procurement matter, gives it such an advantage that 10:11 8 I submit to you Pollard could not lower its prices 10:11 9 by that amount. 10:11 10 In all likelihood, we would no 10:11 11 longer choose to participate in future 10:11 12 procurements. Having no competition provides an 10:11 13 incentive for OGT to increase its prices even more, 10:11 14 and there's no incentive for it to increase its 10:11 15 quality. I submit to you that having no 10:11 16 competition, higher prices, and lower quality in 10:11 17 the long term would cost the State of Texas much 10:12 18 more than the alleged costs identified by OGT in 10:12 19 its protest. 10:12 20 The concept makes no sense, either. 10:12 21 It encourages inefficient and large workforces by 10:12 22 the incumbent vendor. The larger the workforce 10:12 23 that OGT has, the greater the economic impact if it 10:12 24 lost any contracts, and therefore the greater price 10:12 25 advantage it gets in any procurement process. 10:12 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 86 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 That's not a practice that I think this Commission 10:12 2 wants to support or promote. Again, it only costs 10:12 3 the State of Texas and this agency more in the long 10:12 4 run. 10:12 5 The economic impact concept takes a 10:12 6 snapshot. This is a very fluid and dynamic 10:12 7 industry. To the extent that any vendor or 10:12 8 proposer loses a contract, the economic impact 10:12 9 study analysis doesn't account for the fact that 10:12 10 other lottery jurisdictions' contracts are coming 10:12 11 up continuously. We have already found out that to 10:13 12 the extent OGT may have lost the Texas contract, 10:13 13 and you'll decide that today, it has already gained 10:13 14 the California contract. So it assumed that it's 10:13 15 going to lose all business, and that snapshot 10:13 16 existed -- it's not only speculative, but it's just 10:13 17 not accurate. It doesn't reflect the nature of 10:13 18 this industry. 10:13 19 With respect to Ms. Rylander's 10:13 20 letter of -- it doesn't go into any of the 10:13 21 assumptions that were made. It certainly suggests, 10:13 22 though, that it assumes all of the subcontractors 10:13 23 that were used by the incumbent vendor would no 10:13 24 longer continue to have any Lottery business. 10:13 25 That's not accurate. 10:13 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 87 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 For instance, Inland Eastex, which 10:13 2 provides paper to OGT, is already providing paper 10:13 3 to SGI. It also provides paper to Pollard. To a 10:13 4 large extent, to the extent any in-state 10:13 5 subcontractor or vendor loses business with one 10:13 6 proposer, it's likely to gain that business, and 10:14 7 perhaps even more, as a result of awarding the 10:14 8 contract to other vendors, because as we know, OGT 10:14 9 also provides services in the San Antonio facility 10:14 10 for other states' lotteries. 10:14 11 The State Auditor's office report 10:14 12 concluded this agency does a good job of selecting 10:14 13 contractors and uses purchasing practices designed 10:14 14 to fairly and objectively select the best 10:14 15 contractor. I submit to you that if this agency 10:14 16 wasn't considering a factor that's mandated by 10:14 17 statute, which is what OGT alleges, that the 10:14 18 auditor's office would have identified such a 10:14 19 failure. It did not do so, and in fact, it 10:14 20 complimented the practices of this Commission, this 10:14 21 agency. 10:14 22 A few final observations. OGT 10:14 23 alleges bias by the Executive Director and/or the 10:14 24 Evaluation Committee staff. There is absolutely no 10:14 25 support for such bias. OGT was the incumbent 10:14 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 88 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 vendor. I submit to you that if there was any bias 10:14 2 in the quality of its services or its goods it 10:15 3 represents, the buyer should have been in favor of 10:15 4 OGT. Its allegations just don't make sense. 10:15 5 OGT questions the subjectivity of 10:15 6 the evaluation process. The process, by 10:15 7 definition, is subject that the RFP provided an 10:15 8 independent evaluation by each of the members of 10:15 9 the Evaluation Committee. OGT questioned the 10:15 10 capabilities of Michigan's facility because it 10:15 11 wasn't completed. It has now been completed and 10:15 12 it's up and running. 10:15 13 It has been certified for security 10:15 14 purposes. It can produce every product that has 10:15 15 been requested and that may be requested by the 10:15 16 state. The Lottery Commission staff have inspected 10:15 17 the first ticket run. They expressed overwhelming 10:15 18 satisfaction with it. 10:15 19 In conclusion, I'd like to make a 10:15 20 few observations in response to particularly some 10:15 21 of the relief that's been asserted. It appears 10:15 22 that OGT is requesting a second bite of the apple. 10:15 23 Just because a proposer has a presence in the state 10:16 24 should not be cause to either give it a second bite 10:16 25 of the apple or to modify or void an existing 10:16 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 89 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 contractor with the two proposers, who, on the 10:16 2 basis of the evaluation process, prevailed and 10:16 3 should be awarded the contract. Just because of 10:16 4 the presence of the facility in the state does not 10:16 5 mandate and should not cause a contract to be 10:16 6 voided. 10:16 7 In essence, I'm not sure what the 10:16 8 point of the procurement was if the in-state vendor 10:16 9 is guaranteed a portion of the games, which is what 10:16 10 they're asking for. I urge you to deny OGT's 10:16 11 appeal and to reaffirm the award of the contracts 10:16 12 to SGI and Pollard. 10:16 13 I'm happy to entertain any 10:16 14 questions. 10:16 15 MR. SADBERRY: Thank you, sir. 10:16 16 Any other speakers? I do not have 10:16 17 any other speaker forms. 10:17 18 MS. KIPLIN: We have the Executive 10:17 19 Director's Counsel if you want to listen to a 10:17 20 presentation, and she can then respond to any 10:17 21 questions that you-all may have. 10:17 22 MR. SADBERRY: Okay. 10:17 23 MS. SCHULTZ: Commissioners, what 10:17 24 I'm prepared to do is address the Executive 10:17 25 Director's -- 10:17 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 90 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 MR CLOWE: I just wonder, before we 10:17 2 begin this presentation, if we might have a short 10:17 3 break. 10:17 4 MR. SADBERRY: Okay. Yes. We stand 10:17 5 in recess for five minutes. 10:17 6 MS. SCHULTZ: And with your 10:17 7 permission, I've got some visuals. So if I can 10:17 8 address you from the podium -- 10:17 9 MR. SADBERRY: Certainly. 10:17 10 MS. SCHULTZ: -- when we come back. 10:17 11 (RECESS.) 12 MR. SADBERRY: We'll come back to 10:26 13 order, please. We have a presentation by, and on 10:26 14 behalf of, the Executive Director -- Kaye, you are 10:26 15 going to the podium, I understand. 10:26 16 MS. SCHULTZ: Yes, Commissioners. 10:26 17 Can you hear me all right? 10:26 18 MR. SADBERRY: Yes. 10:27 19 MS. SCHULTZ: All right. I'm going 10:27 20 to present to you the Executive Director's position 10:27 21 on the three issues that you remanded back after 10:27 22 the -- hearing the first appeal in April. And the 10:27 23 first of those issues was the HUB participation. 10:27 24 Now, all these issues were sent back 10:27 25 to the Evaluation Committee, which considered them, 10:27 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 91 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 made recommendations to the Executive Director, and 10:27 2 then she made her decision based on that, that 10:27 3 resulted in the contracts again being awarded to 10:27 4 Scientific Games and Pollard Banknote and those 10:27 5 other contracts that took effect September 1st, 10:27 6 that I mentioned earlier. 10:27 7 On the first issue, the HUB 10:27 8 participation issue, the Texas Lottery Commission 10:27 9 has no statute or rule governing what had been 10:27 10 referred to as a pass-through entity or a broker. 10:27 11 The Texas Lottery is not governed by the General 10:28 12 Services Commission's purchasing rules, but 10:28 13 certainly we can look to those for guidance. And 10:28 14 the General Services Commission also certifies 10:28 15 HUBs, or Historically Underutilized Businesses. 10:28 16 The General Services Commission does 10:28 17 not in itself directly address this issue, either, 10:28 18 although in the definition of a HUB, which you see 10:28 19 here, it does include a supplier contract, under 10:28 20 which the Historically Underutilized Business is 10:28 21 directly involved in the manufacture or 10:28 22 distribution of the goods, or otherwise warehouses 10:28 23 and ships the goods. 10:28 24 The General Services Commission also 10:28 25 has a rule that requires a HUB who is a prime 10:28 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 92 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 contractor to do at least 25 percent of the actual 10:28 2 work under that prime contract; however, there is 10:28 3 no rule that specifically addresses a subcontractor 10:28 4 in the requirement of a percentage business 10:29 5 conducted by a subcontractor. 10:29 6 So examining this, and in the 10:29 7 absence of any such requirements in the Lottery Act 10:29 8 rules or in the General Services Commission statute 10:29 9 or rules requiring differential treatment for this 10:29 10 type of broker or pass-through arrangement, the 10:29 11 Executive Director determined that these entities 10:29 12 should not be treated differently. 10:29 13 As a result, the Executive Director 10:29 14 declined to lower the score of Oberthur on the 10:29 15 minority participation section of the RFP, which 10:29 16 Oberthur, then BABN, did have the highest score, 10:29 17 lacking a perfect score by, I believe, 6/10 of a 10:29 18 point. But she declined to lower their score on 10:29 19 that basis. 10:29 20 With regard to the minority 10:29 21 participation goal of 35 percent of the Texas 10:29 22 Lottery, and whether a commitment to meet or exceed 10:29 23 that goal has expressed by good-faith effort the 10:30 24 requirement in the RFP should be treated 10:30 25 differently than a proposer who meets or exceeds 10:30 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 93 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 that goal, the Executive Director concluded that 10:30 2 only the current vendor can represent that it met 10:30 3 or exceeded a minority subcontracting goal with 10:30 4 respect to the Texas Lottery Commission contract. 10:30 5 You cannot compare the record of 10:30 6 proposers, since only an incumbent proposer can 10:30 7 have a record of minority participation with regard 10:30 8 to the Texas Lottery contract. The RFP called for 10:30 9 each proposer to make a good-faith effort to meet 10:30 10 or exceed the 35 percent goal set by the Texas 10:30 11 Lottery. 10:30 12 And the Executive Director 10:30 13 determined that all three proposers met this 10:30 14 good-faith-effort requirement, which includes 10:30 15 notification to at least five minority businesses 10:30 16 of a procurement and of the proposer's intent to 10:31 17 subcontract. All three of the proposers who 10:31 18 submitted proposals on this RFP provided evidence 10:31 19 of such notification and made a commitment to meet 10:31 20 or exceed the goal. 10:31 21 The Executive Director also 10:31 22 determined that whether a vendor has worked in good 10:31 23 faith to meet or exceed the goal is an issue of 10:31 24 contract compliance, that the Texas Lottery 10:31 25 Commission has a compliance coordinator officer and 10:31 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 94 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 a minority development coordinator who monitor and 10:31 2 assist our vendors' efforts in this minority 10:31 3 subcontracting. 10:31 4 The second issue had to do with the 10:31 5 interpretation of the requirement that the prices 10:31 6 must decrease by at least 5/100 as quantities 10:31 7 increase within a given column, and whether that 10:31 8 phrase should be interpreted to mean 5/100 of a 10:32 9 dollar or 5/100 of a percent. 10:32 10 The section of the RFP 10:32 11 displayed here at Section 1.3.2 states that if 10:32 12 a proposer discovers any ambiguity or conflict 10:32 13 or discrepancy, it is on the proposer, it 10:32 14 their onus to notify them. And if they fail 10:32 15 to do so, they are submitting a response at 10:32 16 their own risk. 10:32 17 The Evaluation Committee again 10:32 18 looked at this issue, looked at the proposals, and 10:32 19 concluded that this is an ambiguous provision. It 10:32 20 could be subject to be interpreted either as 5/100 10:32 21 of a dollar or 5/100 of a percent. And since no 10:32 22 proposer either asked a question about this section 10:32 23 in the opportunity for them to submit written 10:33 24 questions, nor pointed out its ambiguity until 10:33 25 after the contracts were awarded, the Committee 10:33 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 95 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 felt that that was at their risk. 10:33 2 The Evaluation Committee discovered, 10:33 3 also, in reevaluating the proposals, that BABN, now 10:33 4 Oberthur, did not comply with a different section 10:33 5 of the pricing requirement that required prices 10:33 6 increase from left to right across the columns -- 10:33 7 it was a sort of pricing grid -- as the ticket 10:33 8 sizes increased. 10:33 9 And that violation involved only one 10:33 10 cell of the pricing grid, but it was against the 10:33 11 clear instructions of the pricing. And again, this 10:33 12 was not a section of the grid that was sampled by 10:33 13 the Committee, which only sampled certain ticket 10:33 14 sizes and prices in calculating its price 10:33 15 evaluation. 10:34 16 At this particular time, the 10:34 17 Evaluation Committee have within its discretion to 10:34 18 recommend that Oberthur be again -- be eliminated 10:34 19 for this price violation. And had they reached the 10:34 20 conclusion that Scientific Games was not in 10:34 21 compliance with this 5/100 requirement, they could 10:34 22 have recommended, in fact, that both be. 10:34 23 But as with the BABN Oberthur 10:34 24 noncompliance in the one pricing grid, the 10:34 25 Committee determined that if there was, in this 10:34 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 96 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 ambiguous provision, room for an interpretation 10:34 2 that Scientific Games was also not in compliance, 10:34 3 none of these were cells that were sampled as part 10:34 4 of the pricing. So in other words, these were not 10:34 5 material nonconformities in the contract. 10:34 6 And as a result, they did not make a 10:35 7 recommendation that there be any change or any 10:35 8 elimination of any of the proposers based on that, 10:35 9 and the Executive Director agreed with that 10:35 10 interpretation. Neither of these noncomplying 10:35 11 pricing cells made any difference to the outcome of 10:35 12 the award of this contract. Scientific Games would 10:35 13 still have been the successful proposer, and 10:35 14 Pollard Banknote would still have been the backup. 10:35 15 The Executive Director also concluded that 10:35 16 eliminating both of these vendors for non-material 10:35 17 violations would have left the Texas Lottery 10:35 18 Commission with no back-up vendor. 10:35 19 Then the third issue -- 10:35 20 MR. SADBERRY: Kaye, if I may -- I 10:35 21 didn't want to interrupt your train of thought on 10:35 22 that issue, but if you could, back up by that 10:35 23 machine -- 10:35 24 MS. SCHULTZ: Sure. 10:35 25 MR. SADBERRY: -- could you back up? 10:35 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 97 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 I wanted to ask you a question. I'm 10:35 2 not sure it's addressed in the Executive Director's 10:35 3 determination, or only on the appeal. If you read 10:35 4 that provision, it seems to suggest that upon the 10:36 5 discovery or discrepancy or ambiguity, the proposer 10:36 6 submits the proposals and is at risk and is bound 10:36 7 and shall not get any relief if they are the 10:36 8 successful proposer. 10:36 9 It doesn't specifically address 10:36 10 protesting or being affected in a protest process 10:36 11 if it's determined that different proposers gave it 10:36 12 a different interpretation. Do you -- is it the 10:36 13 Executive Director's position that that provision 10:36 14 falls over to the protest process? 10:36 15 Is that -- just looking at it, it 10:36 16 seems to suggest -- it implies where the person 10:36 17 acting on the ambiguity actually gets the contract, 10:36 18 is the successful proposer. And that's how I'm 10:37 19 reading it, just looking at it. Do you have any 10:37 20 views on that? Because I don't think that 10:37 21 particular aspect of this provision is discussed in 10:37 22 anything I've seen. 10:37 23 MS. SCHULTZ: Well, I think if you 10:37 24 look to the end of that provision, they say, "if 10:37 25 awarded the contract." That would not apply to the 10:37 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 98 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 person protesting. That would only apply to the 10:37 2 person awarding. 10:37 3 But in terms of when you can 10:37 4 protest, there's also an opportunity to protest an 10:37 5 issuance of an RFP. So any proposer who felt that 10:37 6 there was some problem with this provision or its 10:37 7 interpretation could certainly protest either then 10:37 8 or at the time that the contracts were executed. 10:37 9 MR. SADBERRY: And I understand 10:37 10 that. And that's what I'm talking about. It seems 10:37 11 like that provision goes to when the proposer, 10:37 12 acting upon an ambiguity which is not pointed out, 10:37 13 is actually awarded the contract. I'm saying, do 10:37 14 you have any other comments on that. 10:37 15 MS. SCHULTZ: Right. I think, you 10:37 16 know, the last phrase that comes after the 10:37 17 semicolon would only apply to the successful 10:38 18 proposer, but I don't think that eliminates the 10:38 19 rest of that provision from applying to all of the 10:38 20 proposers. Did that answer your question? 10:38 21 MR. SADBERRY: Well, I just wanted 10:38 22 to see if you had any -- obviously, I'm concerned 10:38 23 about it, but... 10:38 24 MS. SCHULTZ: Then, moving on to the 10:38 25 third issue, which was interpretation of the phrase 10:38 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 99 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 "cost" as stated in the State Lottery Act, and 10:38 2 whether that term is broader than "price" and 10:38 3 should consider economic impact of a Texas resident 10:38 4 proposer, we have heard several definitions of cost 10:38 5 today. The one I have is the dictionary, Merriam 10:38 6 Webster's Dictionary, "the amount or equivalent 10:38 7 paid for something," and then the semicolon, and in 10:38 8 capital letters, "price." You look in the 10:38 9 explanatory notes of the dictionary, and that just 10:38 10 indicates that that's a key to show you that those 10:38 11 terms are synonymous. In other words, they can be 10:38 12 used in substitution for each other and used 10:39 13 interchangeably. 10:39 14 In her analysis, based on the 10:39 15 Committee's recommendations on the remand, the 10:39 16 Executive Director determined that cost is not 10:39 17 specifically defined in the State Lottery Act. Nor 10:39 18 is it defined in the Code Construction Act, nor has 10:39 19 the Commission issued any type of formal opinion 10:39 20 spelling out its interpretation of the term. 10:39 21 Of course, as a state agency, the 10:39 22 Texas Lottery Commission does have the discretion 10:39 23 to interpret this term broadly or narrowly, as long 10:39 24 as it does not go against the clear and express 10:39 25 provisions of the statute. And looking to the 10:39 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 100 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 legislative history, as has already been mentioned 10:39 2 here today, in the only floor debate on the term 10:39 3 "preference," the language contained comments that 10:39 4 used the words "cost" and "price" also 10:39 5 interchangeably. 10:39 6 The Executive Director made the 10:39 7 determination that cost and price are one and the 10:39 8 same, and also determined that economic impact has 10:40 9 no bearing on an RFP unless the intent to consider 10:40 10 economic impact is spelled out in the guidelines 10:40 11 when the RFP is issued, so that all prospective 10:40 12 bidders know the ground rules and can act 10:40 13 accordingly. In this request for proposals, the 10:40 14 Texas Lottery Commission did not request economic 10:40 15 impact studies or information, nor has this type of 10:40 16 information historically been requested in Texas 10:40 17 Lottery Commission procurements. 10:40 18 The Executive Director takes the 10:40 19 position that producing revenues for the State 10:40 20 Treasury means keeping the Texas Lottery 10:40 21 Commission's costs in line with, or below, 10:40 22 lotteries in the industry through a competitive 10:40 23 bidding process that's open to all and that's made 10:40 24 clear by the requirement of the B section of Texas 10:40 25 Government Code 466.101, that the Commission's 10:40 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 101 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 procurement procedures must, as determined feasible 10:41 2 and appropriate by Executive Director, promote 10:41 3 competition to the maximum extent possible. I 10:41 4 think probably most of the rest of the comments 10:41 5 have already been addressed by others. 10:41 6 I did have one slide indicating a 10:41 7 clip from the State Auditor's office report that 10:41 8 did come up today. The State Auditor's office 10:41 9 criticized the procurement that was pulled down by 10:41 10 the current Executive Director, and that was the 10:41 11 Lottery operator. 10:41 12 And the basis of that criticism was 10:41 13 that cost alone was going to be used as a 10:41 14 criteron. Other than that -- and that's what 10:41 15 they're referring to here, when they say an 10:42 16 all-except-one request for proposal, which was 10:42 17 eventually cancelled -- the Commission used 10:42 18 purchasing practices designed to fairly and 10:42 19 objectively select the best contractor. Those are 10:42 20 the purchasing practices and the RFP that we've had 10:42 21 in place for some time and that was used in this 10:42 22 procurement. 10:42 23 And there was also reference made to 10:42 24 the level playing field. It's really addressed in 10:42 25 two sections. The Administrative Code Title 16, 10:42 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 102 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 Section 401.101 talks about prices. In one of the 10:42 2 evaluation criteria, we add an amount to a 10:42 3 nonresident proposer's price equal to the amount a 10:42 4 Texas resident proposer would be required to 10:42 5 underbid. It's referred to as a tiebreaker 10:42 6 provision. And "will," I take to mean a mandatory 10:42 7 thing. 10:43 8 Then also, the parallel provision in 10:43 9 the statute, Section 466.106 (A), makes reference 10:43 10 to "shall" give preference to equipment or supplies 10:43 11 produced in this state, the cost to the state and 10:43 12 quality being equal. So obviously, when it's a 10:43 13 tiebreaker when the cost and quality are equal, 10:43 14 those provisions would take effect. 10:43 15 But I don't think it can be 10:43 16 interpreted as something that would, when it's 10:43 17 required to be done, it is done when it's something 10:43 18 that's discretionary with the state. And some of 10:43 19 the examples that were given about states awarding 10:43 20 contracts outside of this example, I don't think 10:43 21 would apply, since it's not something that's 10:43 22 required under the statute and would also be very 10:43 23 difficult to measure. 10:43 24 I'd just like to close in stating 10:44 25 that I think that when they made their proposal 10:44 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 103 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 under the original issuance of the RFP when the 10:44 2 proposals were due in early February, Oberthur then 10:44 3 indicated that it had 300-plus employees in the 10:44 4 State of Texas. And in today's presentation, the 10:44 5 comment was made that there are now more than 400. 10:44 6 So clearly, Oberthur is thriving, doing well in the 10:44 7 state despite not having the Texas contract. 10:44 8 We understand that this is a 10:44 9 competitive industry, and it's also an 10:44 10 international industry. And there's going to be a 10:44 11 lot of competition among the companies for 10:44 12 contracts, not only in this country, but around the 10:44 13 rest of the world. 10:44 14 And as was mentioned, lotteries win 10:44 15 and lose contracts regardless of having their 10:44 16 facilities located in a state or not, with the 10:45 17 example of California. With an increase of that 10:45 18 many employees, OGT is obviously still doing well 10:45 19 in Texas, with other contracts from other countries 10:45 20 and other states. 10:45 21 If you have questions, I'll be happy 10:45 22 to try to address them. 10:45 23 MR. SADBERRY: I don't know, Kaye, 10:45 24 if you will field this question, or Linda or Kim. 10:45 25 On the issue of the RFP having the option of a 10:45 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 104 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 one-, two-, or three-year contract, is there any 10:45 2 particular basis that the three-year option was? 10:45 3 In the selecting, is that a matter of negotiation, 10:45 4 or what would be the case there? 10:45 5 MS. CLOUD: In these major 10:45 6 contracts, like the Lottery operator in the 10:45 7 procurement, it is a very time-consuming process to 10:46 8 go through, as we well know, as long as we've been 10:46 9 through this. And what I think we did on this, and 10:46 10 Kaye, you can correct me, we made it -- like Kim 10:46 11 said, in the RFP process, it was a one -- could 10:46 12 have been a one-, could have been a two-, or it 10:46 13 could have been a three-year contract. 10:46 14 And I think it's more beneficial, if 10:46 15 you have a price that is a good price and a good 10:46 16 company to deal with, to go for the three-year, at 10:46 17 least three-year. I'm not in favor of longer than 10:46 18 three years, so that you have the option at any 10:46 19 time to cancel that contract with a 30-day notice 10:46 20 if they're not forming the way they should be. 10:46 21 So I just personally felt it was in 10:46 22 the best interest to go with the bids that came in 10:46 23 for the three-year to lock in prices as well as 10:47 24 performance. 10:47 25 MR CLOWE: And what was your sense 10:47 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 105 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 of the reaction of the bidders in that regard? 10:47 2 MS. CLOUD: I had no negative 10:47 3 response from anybody until we heard what we did 10:47 4 here today. 10:47 5 MR CLOWE: By that, do you mean that 10:47 6 the bids all came in for three years, and that was 10:47 7 the response you got, period? 10:47 8 MS. SCHULTZ: What actually happened 10:47 9 was, they were asked to bid on a one-year, 10:47 10 two-year -- 10:47 11 MS. CLOUD: And three-year. 10:47 12 MS. SCHULTZ: -- and three-year 10:47 13 contract. 10:47 14 MR CLOWE: And I should have said, 10:47 15 and the lowest prices came in on the three-year 10:47 16 term? 10:47 17 MS. SCHULTZ: Actually, identical 10:47 18 prices came in from all three vendors on all three 10:47 19 terms. 10:47 20 MS. KIPLIN: Commissioner, if I 10:47 21 could follow up, the rules also provide that once 10:47 22 there is an estimate of an apparent successful 10:47 23 proposer, the Executive Director will attempt to 10:47 24 negotiate a contract with that apparent successful 10:47 25 proposer, and if the negotiations fail, go to the 10:47 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 106 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 next, and then -- and so forth. Negotiations did 10:48 2 not fail, so that's telling in terms of reaction by 10:48 3 the participants. 10:48 4 MR CLOWE: Okay. Will that do it? 10:48 5 MS. SCHULTZ: Unless there are other 10:48 6 questions. 10:48 7 MR. SADBERRY: Thank you. 10:48 8 MS. SCHULTZ: I appreciate your 10:48 9 time. 10:48 10 MR. SADBERRY: Anything else from 10:48 11 the Executive Director? 10:48 12 MS. CLOUD: No, sir. I think 10:48 13 that -- unless you have questions for me. 10:48 14 MR. SADBERRY: Commissioner? 10:48 15 MR CLOWE: None for the Executive 10:48 16 Director. 10:48 17 MR. SADBERRY: Okay. Does that 10:48 18 conclude the presentations? 10:48 19 I don't have any other speaker 10:48 20 forms, and I think we've gone through the process 10:48 21 as outlined by the General Counsel. We're now at 10:48 22 the point of discussion and/or possible action by 10:48 23 the Commissioners, in this instance, the two of us, 10:48 24 Commissioner Clowe and I, acting in this matter. 10:48 25 Commissioner Clowe? 10:49 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 107 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 MR. CLOWE: I have a question. 10:49 2 I first want to say how much I think 10:49 3 that the Commission appreciates, and I know I 10:49 4 personally do, the presentations that have been 10:49 5 made here this morning. They are thoughtful and 10:49 6 meaningful, and have been a real contribution to 10:49 7 the information needed for this Commission to make 10:49 8 its deliberations. The written presentations were 10:49 9 equally thoughtful and meaningful. And I want to 10:49 10 thank everyone for the work and the effort that's 10:49 11 gone into that. 10:49 12 There has been a comment made about 10:49 13 the time this process has taken. But I would say 10:49 14 that it is a very serious issue that needed 10:49 15 consideration from all angles, and I don't think 10:49 16 any time has been wasted. Having said that, I have 10:49 17 a question for the General Counsel. 10:49 18 Would you give me your legal opinion 10:50 19 on how the statute directs this Commission in 10:50 20 regard to the issue of prior price and cost? 10:50 21 MS. KIPLIN: Well, I think the 10:50 22 statute that's been at play or put into play is 10:50 23 466.106, and as the, you know, the parties have 10:50 24 indicated in their briefing, as indicated in their 10:50 25 appeals, there was a legislative history that was 10:50 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 108 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 reviewed on that particular provision. 10:50 2 I will start off by saying that cost 10:50 3 is not -- the word "cost" is not defined in the 10:50 4 State Lottery Act. It's equally not defined in the 10:50 5 Code Construction Act, which would be the next 10:50 6 place that we would look to in terms of that. 10:50 7 Under the Code Construction Act, 10:50 8 there are factors that you can take a look at in 10:50 9 terms of trying to construe a word. One is the 10:50 10 common usage, one is legislative history, one is 10:50 11 the result desired to be obtained. The common 10:50 12 usage, I think you've had a presentation that a 10:51 13 synonymous word is price. The legislative 10:51 14 history -- I've looked at the briefings that have 10:51 15 been filed by parties, and I had the opportunity to 10:51 16 review both positions that were submitted in the 10:51 17 brief. And it seems to me that the more reasonable 10:51 18 position on that, is that when the sponsoring 10:51 19 senator testified or laid out that amendment, the 10:51 20 words "cost" and "price" were used interchangeably. 10:51 21 I think it's within the discretion 10:51 22 of an agency to interpret its statutes the way it 10:51 23 wants. I don't think that interpretation can be 10:51 24 unreasonable. I think great deference -- and I 10:51 25 think that there are court cases that do reflect 10:51 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 109 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 that great deference -- is given to an agency 10:51 2 that's charged with administering a statute, how 10:51 3 that agency interprets a statute or words within a 10:51 4 statute. 10:52 5 Based on the common usage and the 10:52 6 legislative history, as I've seen it, and 10:52 7 recognizing that there were differing arguments on 10:52 8 that, I think the more reasonable interpretation is 10:52 9 that cost means price. I think the less reasonable 10:52 10 interpretation is that cost meant something greater 10:52 11 than price. I think that it was cost that the 10:52 12 state or Lottery would pay to obtain goods and 10:52 13 services received. 10:52 14 You know, should this matter be 10:52 15 litigated, then I guess we would see what a court 10:52 16 would say about that. But that's my opinion, that 10:52 17 in this case, under these circumstances, with 10:52 18 regard to this particular statute, the more 10:52 19 reasonable interpretation is cost means price. 10:52 20 Like I said, great deference is 10:52 21 given to an agency, but as to the interpretation, 10:52 22 the interpretation cannot go against the plain 10:52 23 language of the statute. I don't think it does. 10:53 24 And it can't be unreasonable, and I don't think it 10:53 25 is. 10:53 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 110 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 MR CLOWE: With that, Mr. Chairman, 10:53 2 I have no further questions. 10:53 3 MR. SADBERRY: I have a question 10:53 4 about the 5/100 issue, given the history, and the 10:53 5 Executive Director had some concern about that. 10:53 6 And incidentally, before I go any 10:53 7 further, let me join in saying the quality of the 10:53 8 presentations and the attention to this matter and 10:53 9 the seriousness and earnestness with which all 10:53 10 parties have presented it to us is quite 10:53 11 complimentary. I wouldn't short the time and 10:53 12 effort, from this Commissioner's standpoint, 10:53 13 devoted to it one bit, because it's of that much 10:53 14 importance to us. And I think there are some 10:53 15 difficult issues in here, and I think airing them 10:53 16 in this manner has been very helpful. 10:53 17 I have a question about the 10:54 18 ambiguity, if you will. As I have read the 10:54 19 Executive Director's comments on this, I seem to 10:54 20 come out with a statement -- these are my words, 10:54 21 but this is what I get from the totality of it -- 10:54 22 that it doesn't matter which way you interpret it. 10:54 23 Because looking at the date it's submitted -- and 10:54 24 I'm not talking about the grids, I'm just talking 10:54 25 about the 5/100 -- there wouldn't be any change, 10:54 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 111 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 because I take it there's enough differential, a $4 10:54 2 million spread, that however you worked it, it 10:54 3 would not come out differently. 10:54 4 Am I generally understanding that to 10:54 5 mean -- that's what you mean by that? 10:54 6 MS. CLOUD: That's correct. It 10:54 7 would not have changed the outcome either way. 10:54 8 MR. SADBERRY: All right. 10:55 9 MS. CLOUD: In difference in the 10:55 10 price, but not enough to make the award go 10:55 11 differently than it was made. 10:55 12 MR. SADBERRY: Kaye, you have taken 10:55 13 the -- 10:55 14 MS. SCHULTZ: I picked up on 10:55 15 something you said that you may be thinking. These 10:55 16 came in, and they were asked to submit pricing from 10:55 17 10 million tickets up to, I think, about 90 10:55 18 million, and on a number of sized tickets. So it 10:55 19 ended up being a huge grid, with maybe 60 or 70 10:55 20 pricing cells, size of ticket, and quantity of 10:55 21 print manufacture run. And those were sampled by 10:55 22 the Committee because it was felt it wouldn't be 10:55 23 meaningful to take the entire grid. 10:55 24 And what the term is, or what the 10:55 25 conclusion is, that it doesn't make any difference, 10:55 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 112 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 is based on none of those cells that were sampled, 10:55 2 neither the ones that were subject to this 5/100 of 10:55 3 a dollar, 5/100 of a cent ambiguity, nor the BABN 10:56 4 Oberthur cell that didn't increase as it went from 10:56 5 left to right as ticket size increased. None of 10:56 6 those were ones that were sampled by the Committee. 10:56 7 In preselecting, they had decided what ticket 10:56 8 quantity and what ticket size they were going to 10:56 9 sample for each vendor in determining this price, 10:56 10 the bid. 10:56 11 Does that make sense? 10:56 12 MR. SADBERRY: Well, I understand 10:56 13 that. And I was just trying to see if I understand 10:56 14 the bottom line, so to speak. If we were to take 10:56 15 it in the manner most advantageous to the 10:56 16 appellant, that there is an ambiguity that they are 10:56 17 not somehow stopped, to protest based on that; that 10:56 18 even if that were true, the result would not come 10:56 19 out differently. I just wanted to see if I was 10:56 20 reading that correctly. That's what it seemed to 10:56 21 say. 10:57 22 MS. CLOUD: Correct. 10:57 23 MR. SADBERRY: If there are no other 10:57 24 questions, I guess we need to have discussion among 10:57 25 the Commissioners as to what action should be 10:57 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 113 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 taken, if any, today with respect to the appeal. 10:57 2 And I think that we might benefit from either a 10:57 3 motion, Commissioner, or a discussion on the issues 10:57 4 that were remanded that are before us with regard 10:57 5 to this matter, if you would care to do so, or if 10:57 6 you would like me to do so. I'm open to what you 10:57 7 suggest. 10:57 8 MR CLOWE: I'm ready to vote on the 10:57 9 issue, and I defer to you as to whether you'd like 10:57 10 to make the motion or you'd care for me to. 10:57 11 MR. SADBERRY: I would entertain a 10:57 12 motion, Commissioner, a motion if you would like to 10:57 13 make one. 10:57 14 MR CLOWE: I would move that the 10:57 15 Commission affirm the decision of the Executive 10:57 16 Director in the awarding of the contract. 10:57 17 MR. SADBERRY: I would second that 10:58 18 motion, and call for the vote. Those in favor? 10:58 19 MR CLOWE: Aye. 10:58 20 MR. SADBERRY: Aye. 10:58 21 And the motion passes two to zero, 10:58 22 with the Chair abstaining, affirming the Executive 10:58 23 Director's decision. 10:58 24 MS. KIPLIN: And so what I heard was 10:58 25 a motion to affirm the Executive Director's 10:58 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 114 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 decision awarding contracts. The Executive 10:58 2 Director's determination on the protest was to deny 10:58 3 Oberthur's protest in its entirety. 10:58 4 I didn't know if you wanted to 10:58 5 expand on your motion and affirm the Executive 10:58 6 Director's determination on the protest, or leave 10:58 7 it where it is. It probably has the same effect 10:58 8 procedurally, but that's what's before you, is an 10:58 9 appeal of her determination on -- 10:58 10 MR CLOWE: My understanding is it 10:58 11 denied protest and affirmed the award contract. 10:58 12 MR. SADBERRY: That was my 10:58 13 understanding, and I think it's clear. 10:58 14 MR. CLOWE: Sounds clear. 10:59 15 MS. KIPLIN: Okay. We'll draft an 10:59 16 order consistent with your motion and the 10:59 17 discussion, and we'll get that to you before the 10:59 18 adjourning of this meeting today. And then you can 10:59 19 take a look at it and see if that's consistent. 10:59 20 Do you want to take about a 10:59 21 two-minute break? 10:59 22 MR. SADBERRY: Okay. 10:59 23 (RECESS.) 24 MR. SADBERRY: Let me call Item 12 11:02 25 on the agenda, consideration of and possible 11:02 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 115 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 action, including proposal of amendments, on 16 TAC 11:02 2 Section 401.101, relating to lottery procurement 11:02 3 procedures. Ridgely Bennett, of the staff, will 11:02 4 lay it out now. 11:02 5 Let me state for the record, our 11:02 6 Chair is particip ating in this item but is not 11:02 7 present, but will join these proceedings. I think 11:02 8 it can be laid out, Ridgely, while we're waiting on 11:02 9 the Chair. 11:02 10 MR. BENNETT: And Commissioner, if I 11:02 11 may ask your indulgence, to also call Item No. 13, 11:02 12 "Consideration of and possible action, including 11:02 13 proposal, on new agency procurement rule(s)." The 11:02 14 two items are interrelated. 11:02 15 MR. SADBERRY: Okay. We'll call 11:02 16 both items, then. 11:02 17 MR. BENNETT: Thank you. For the 11:02 18 record, once again, my name is a Ridgely Bennett. 11:02 19 I'm the Deputy General Counsel of the Texas Lottery 11:02 20 Commission. Staff recommends that the Commission 11:02 21 vote to propose amendments to 16 TAC Section 11:02 22 401.101, relating to Lottery procurement 11:02 23 procedures. Additionally, staff recommends that 11:03 24 the Commission vote to propose new 16 TAC 401.102, 11:03 25 relating to protest of the terms of the formal 11:03 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 116 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 competitive solicitation; and new 16 TAC 401.103, 11:03 2 relating to protest of a contract award. 11:03 3 The proposals are designed to 11:03 4 accomplish three goals. First, the proposals are 11:03 5 designed to address the recommendation made by the 11:03 6 State Auditor's office in its report on procurement 11:03 7 practices at the Texas Lottery Commission. In that 11:03 8 regard, the proposals have been reviewed by the 11:03 9 State Auditor's office, and they have indicated 11:03 10 that, subject to their ability to provide 11:03 11 additional comments, that the proposals adequately 11:03 12 address their recommendation in the report. 11:03 13 The second goal of the proposals are 11:03 14 designed to address the legislative mandates set 11:03 15 forth in Senate Bill 177, to be codified as Chapter 11:04 16 2259 of the Texas Government Code. And the third 11:04 17 objective was to generally clarify the existing 11:04 18 rule. 11:04 19 Staff is recommending that the 11:04 20 current procurement rule, as it currently exists, 11:04 21 be broken into three rules by separating out the 11:04 22 protest procedures as they relate to protest of the 11:04 23 terms of the formal competitive solicitation, and 11:04 24 as they relate to protest of the contract award. 11:04 25 Commissioners, for your information, 11:04 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 117 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 the most recent draft of the proposals that you 11:04 2 have been provided today differ from the proposals 11:04 3 that were faxed to you late last week, in that they 11:04 4 make a few typographical changes to a few 11:04 5 typographical errors in the earlier draft. But 11:04 6 there is one substantive change that I'd like to 11:04 7 point out to you. And that's in Section 11:04 8 401.101 (A) (13). And that comes under the 11:04 9 definition of services. Staff is recommending 11:05 10 that -- 11:05 11 MR CLOWE: What page is that? 11:05 12 (Chair Miers reentered the room.) 13 MR. BENNETT: On the newest version 11:05 14 of that, page 5. 11:05 15 CHAIR MIERS: And Ridgely, are these 11:05 16 different than the December 6th fax or -- 11:05 17 MR. BENNETT: They cleaned up a few 11:05 18 typos, commas, and apostrophes, things of that 11:05 19 nature. 11:05 20 CHAIR MIERS: Then these are the 11:05 21 same as the 6th, from a substantive standpoint? 11:05 22 MR. BENNETT: Except for this one 11:05 23 change that I'm pointing out to you currently. 11:05 24 CHAIR MIERS: Okay. So it is 11:05 25 changed, okay. 11:05 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 118 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 MR. BENNETT: Right. And on page 5 11:05 2 of 17, the definition of the word "services," 11:05 3 that's Item 13, currently includes public relations 11:05 4 as a type of service that may be procured by the 11:05 5 Texas Lottery Commission. 11:05 6 Pursuant to Section 2113.001 of the 11:05 7 Government Code, state agencies are prohibited from 11:05 8 using appropriated money to pay a public relations 11:05 9 agent or business; therefore, staff will recommend 11:06 10 that public relations be deleted from the rule. 11:06 11 And with that, I'll be happy to 11:06 12 entertain any questions you have about the 11:06 13 proposals. 11:06 14 CHAIR MIERS: Okay. Are there, 11:06 15 before we take speakers, any questions? 11:06 16 MR CLOWE: No. 11:06 17 MR. SADBERRY: No. 11:06 18 CHAIR MIERS: Okay. Thank you, 11:06 19 Ridgely. 11:06 20 And we're very pleased to have 11:06 21 Representative Reyna here. And we'll call the 11:06 22 representative at this time. 11:06 23 MR. REYNA: Thank you, Madam Chair, 11:06 24 members. 11:06 25 The acting Chair in the last item on 11:06 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 119 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 the agenda correctly noted that I was interested in 11:06 2 that item. And although this Senate bill came from 11:06 3 Senate members who have nothing to do with San 11:06 4 Antonio, nothing to do with the issues in 11:06 5 controversy, I think it's kind of poignant that the 11:06 6 timing is just really appropriate, in terms of the 11:07 7 issues we discussed concerning the awarding of 11:07 8 contracts and how we go about that process. 11:07 9 And so I walked in this morning, 11:07 10 really intending only to listen, and by way of 11:07 11 participation in the last item on the agenda, and I 11:07 12 was given this item. And in looking at it, it 11:07 13 occurs to me that "the best value to the state" and 11:07 14 "best interests of the state" are phrases that are 11:07 15 used in this new proposal. And some of that 11:07 16 language is the language that's being added -- 11:07 17 well, being added -- it wasn't there before. 11:07 18 And I've heard a lot of the 11:07 19 presentation from the prior item on the agenda and 11:07 20 a lot of discussion about cost versus price, which 11:07 21 sounds like a case I would have studied in law 11:07 22 school, I guess. And in listening to the 11:07 23 definitions, the plain, everyday definitions -- and 11:08 24 the lawyers, of course, appreciate the humor in 11:08 25 that -- in listening to the everyday definitions of 11:08 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 120 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 cost versus price, or what cost means, what price 11:08 2 means, it occurred to me that we pay a price, we 11:08 3 pay a cost. 11:08 4 And whether it is interpreted by our 11:08 5 comptroller as lost tax revenues because we didn't 11:08 6 use the local company, or whether it's interpreted 11:08 7 in some other way because it cost us a half a cent 11:08 8 for each of those little scratch tickets over 11:08 9 there, or it cost us three quarters of a cent, 11:08 10 either way, the definition actually helped us to do 11:08 11 nothing but understand that we just do an 11:08 12 incredibly good job of writing ambiguous laws to 11:08 13 torture state agencies and state employees. 11:08 14 And the one thing that I was left 11:08 15 with, I'm extremely confident and thankful that 11:08 16 this Commission and all employees with whom I have 11:08 17 dealt, Kim and Executive Director Cloud and 11:08 18 especially your government liaison people, are 11:09 19 absolutely incredibly impressive in terms of 11:09 20 sharing information and allowing a free flow of 11:09 21 information, because Nelda's been actually 11:09 22 outstanding in terms of providing information and 11:09 23 listening and bringing information to you. 11:09 24 And let me give one legal point. On 11:09 25 page 8, starting with paragraph 2, is where we have 11:09 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 121 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 the phrase "best value to the state," "best 11:09 2 interest of the state." And that's the underlying 11:09 3 portion, or it's in that underlying portion. 11:09 4 On page 11, in paragraph 5, there is 11:09 5 a little extra twist to it. And there is actually 11:09 6 some language that deals with determining what the 11:09 7 lowest price is. And it talks about adding 11:09 8 something to a Texas resident proposer -- or 11:09 9 rather, adding something, actually, to a 11:09 10 nonresident proposer. 11:09 11 And my concern is that, as I 11:09 12 remember it as a lawyer, is that the language that 11:10 13 follows controls the language that precedes, in 11:10 14 terms of construction and interpretation. And can 11:10 15 I get a nod from Kim if that's correct, if that's 11:10 16 still the law? 11:10 17 MS. KIPLIN: You know, I don't know. 11:10 18 I don't know. Is that the law, or is that just 11:10 19 plain grammar? 11:10 20 MR. REYNA: Actually, I think it's 11:10 21 in the Code Construction Act -- 11:10 22 MS. KIPLIN: Okay. 11:10 23 MR. REYNA: -- itself, but I don't 11:10 24 practice in the area. I just get to legislate in 11:10 25 that area, which is pretty scary, I guess, in a 11:10 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 122 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 way. And -- 11:10 2 MS. KIPLIN: I'm not disagreeing 11:10 3 with you, but I'm not agreeing with you, either. 11:10 4 You know, I'd want to go back and take a look at it 11:10 5 before I confirmed or disagreed or agreed with you. 11:10 6 MR. REYNA: Okay. And knowing that 11:10 7 y'all have been extremely diligent in how you've 11:10 8 approached this, both -- again, the prior item on 11:10 9 the agenda and now how you're going to deal with 11:10 10 this, then my concern would be -- and before we put 11:10 11 something out, could we have something a little bit 11:11 12 more specific that deals with what "best interest 11:11 13 of the state" or "best value to the state" is? 11:11 14 If we save -- and I went through 11:11 15 some just horrible mathematical examples -- and 11:11 16 because I was an English major, and I'm like one of 11:11 17 the prior speakers who also, sadly, is a lawyer -- 11:11 18 and you're hearing nothing but lawyers today. I 11:11 19 apologize for that, for my share. 11:11 20 And I read through a bunch of 11:11 21 mathematical examples that showed me that there is 11:11 22 a point at which we can pay too big of a price to 11:11 23 get a cheaper priced product, or a less expensive 11:11 24 priced product -- I don't want to have commentary, 11:11 25 really, on the word "cheap" -- so how do we factor 11:11 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 123 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 that in? When do we determine that we, the State, 11:11 2 are willing to pay just because a particular item 11:11 3 is less expensive than another item? And the 11:11 4 answer to that is, you get to decide that, at least 11:11 5 for this Commission. 11:11 6 And my way of thinking is, if you do 11:11 7 a good job with that, then you've decided it for 11:12 8 the rest of the state, because this agency operates 11:12 9 very differently from every other agency in this 11:12 10 state. Some of that may be absolutely incredible, 11:12 11 in terms of the growth and the prosperity that the 11:12 12 state can continue to enjoy, but some of that could 11:12 13 be just the worst thing that could possibly happen 11:12 14 to us. 11:12 15 And if this question about what is 11:12 16 in the best interest of the state or this value to 11:12 17 the state had already been done, I'd venture to say 11:12 18 this appeal that we just heard would never have 11:12 19 taken place. That's just a guess. 11:12 20 And it's well worth spending the 11:12 21 time that it takes to do it. I mean, again, as a 11:12 22 lawyer, if we do anything quickly, then I'm always 11:12 23 afraid of what we just did. In the Legislature, we 11:12 24 have no choice. We have 140 days to provide you 11:12 25 with the maximum amount of punishment that we can 11:12 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 124 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 possibly dole out, and fortunately, that's maybe 11:12 2 why we're only 140 days, because if we had a whole 11:12 3 year to do it, think of -- well, just think of 11:12 4 Congress. 11:12 5 And I'd be ready and happy to answer 11:13 6 any questions you have about what I'm trying to get 11:13 7 across to you, in terms of including something more 11:13 8 specific that would have, really, left our 11:13 9 Executive Director without having to get in the 11:13 10 middle of this little kind of a turmoil. Because 11:13 11 it appears to me that when I come here and deal 11:13 12 with anybody, that they spend an awful lot of time 11:13 13 transmitting and communicating information, 11:13 14 probably over and over and over. 11:13 15 And that's a much more important 11:13 16 function in terms of satisfying the people I 11:13 17 represent today, which is House District 125, Bexar 11:13 18 County, because they want to know that y'all have 11:13 19 done everything you can do, and done it pretty 11:13 20 efficiently. They don't ever expect us just to 11:13 21 take any less tax money from them. They do expect 11:13 22 us to take what we take and then spend it wisely. 11:13 23 And in doing that, I offer myself to 11:13 24 answer any questions. It's your chance, because 11:13 25 remember, when you come to the Capitol, I get to 11:13 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 125 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 ask questions. 11:13 2 CHAIR MIERS: We do remember that. 11:14 3 And we appreciate your comments about our staff. 11:14 4 We really do, Representative. I think -- they make 11:14 5 a great deal of effort to be responsive, I know. 11:14 6 So we appreciate your very kind comments. 11:14 7 And I'm a bit at a disadvantage, 11:14 8 because I don't want to compare our rule with the 11:14 9 item that preceded this, for which I was 11:14 10 disqualified. 11:14 11 MR. CLOWE: Would you like for me to 11:14 12 make a comment -- 11:14 13 CHAIR MIERS: I would. 11:14 14 MR. CLOWE: -- that would give you a 11:14 15 little support? 11:14 16 MR CLOWE: I think your comments are 11:14 17 excellent, and I thank you for saying what you've 11:14 18 said. And I think you've properly used the example 11:14 19 of the prior item, which the Chair didn't 11:14 20 participate in and really doesn't want to comment 11:14 21 on, rightfully so. 11:14 22 And I appreciate your concern about 11:14 23 this verbiage. I'm little bit at a loss as to what 11:15 24 action we might take, relative to the definition 11:15 25 here. And I get some comfort from what you said 11:15 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 126 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 about it's really this Commission's job, these 11:15 2 Commissioners, to determine what this means, issue 11:15 3 by issue. And I think therein lies the value of 11:15 4 individuals who are sincere and apply themselves 11:15 5 and serve in these type positions. Legislators are 11:15 6 at the top of the list. 11:15 7 So I want to thank you and say I 11:15 8 think your comments are very much on target. But 11:15 9 I'm at a loss as to what action the Commission 11:15 10 could take to be responsive to the Representative's 11:15 11 remarks. 11:15 12 And maybe, Kim, you can give us some 11:15 13 help on that. And I want something that's 11:15 14 meaningful. I don't want an answer, quite frankly, 11:15 15 like, well, we'll take that and look at it. 11:16 16 MR. REYNA: Well, let me offer this 11:16 17 before she answers, because Kim was very good to us 11:16 18 during sessions. So I want to rescue you, Kim. 11:16 19 And that is that I don't necessarily 11:16 20 expect -- and I probably wouldn't be surprised if 11:16 21 there was an answer -- I know staff knows and 11:16 22 understands this proposal very well. This is a 11:16 23 progress -- a process, rather, not -- we used to 11:16 24 make progress. This is a process. An answer 11:16 25 probably shouldn't be forthcoming necessarily 11:16 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 127 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 today. Maybe it can. Most probably, it cannot. 11:16 2 And I look forward -- and I've 11:16 3 already told Nelda and I've already told Kim that I 11:16 4 look forward to working with them even more so. 11:16 5 Whether there is an interim charge that relates to 11:16 6 anything like this or not, this deserves an 11:16 7 appropriate amount of attention. In fact, it 11:16 8 deserves a lot of attention, because we stand 11:16 9 today, hearing, in essence, complaints from people 11:16 10 outside our state. 11:16 11 Those of us who were born and raised 11:16 12 in Texas have a certain respect and pride in our 11:16 13 state. And those of us who are not from Texas will 11:17 14 never understand it. And in fact, I went to Canada 11:17 15 this weekend and tried to explain to them that we 11:17 16 in Texas are everything that we think we are, but 11:17 17 that we try not to show it. 11:17 18 Remember that old commercial, you 11:17 19 know, we're only the phone company in town, but we 11:17 20 try not to act like it? Well, we are the best 11:17 21 state in the country, and unfortunately, we do act 11:17 22 like it. But with that comes the responsibility of 11:17 23 being a little bit inclusive. And that means that 11:17 24 that's why these companies from outside the state 11:17 25 were able to do what they did. 11:17 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 128 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 So we look forward to working with 11:17 2 everyone involved in the process, subject to, of 11:17 3 course, appropriate counsel's advice on open 11:17 4 meetings violations; and we don't want to do 11:17 5 anything, nor would I invite or request that. 11:17 6 So, Kim, if that helps you -- I 11:17 7 don't necessarily expect an answer today, 11:17 8 Commissioner, that says this is what we are going 11:17 9 to do. I expect it to be a work in progress. 11:18 10 MS. KIPLIN: I'll be glad to 11:18 11 respond. The question was posed to me, and I don't 11:18 12 know if this will be meaningful or not. But what's 11:18 13 before you today is a request by the staff to vote 11:18 14 on proposals for public comment. There will be a 11:18 15 minimum 30-day public comment period. I previously 11:18 16 spoke with Representative Reyna about whatever 11:18 17 comments you put on the record today, I would 11:18 18 obviously incorporate in the rule-making record, as 11:18 19 well as any comments that are made during the 11:18 20 public comment period. 11:18 21 The rule-making process is a 11:18 22 wonderful process for an administrative agency 11:18 23 because it allows, to a huge extent, public 11:18 24 participation and public comment. And it gives 11:18 25 meaningful information to a governing body about 11:18 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 129 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 the policies that they are setting. 11:18 2 With regard to the particular 11:18 3 phrases that -- in the proposed tax that 11:18 4 Representative Reyna referred to, clearly we will 11:18 5 be taking a look at that, not only on our own 11:18 6 accord based on the comments today, but by virtue 11:18 7 of any other comments that are provided. Should 11:19 8 the Commission request, or should this rule invite 11:19 9 that much attention, then there is always an 11:19 10 opportunity for a public comment hearing on the 11:19 11 proposed language of the rule. 11:19 12 You know, if the Commission would 11:19 13 like, we'll just go ahead and notice up a public 11:19 14 hearing and try to get the word out to the public 11:19 15 so that they can -- if they choose, they can come 11:19 16 before the staff and put on the record oral 11:19 17 comment, rather than writing, if that's something 11:19 18 that would be more comfortable for them. The 11:19 19 comment will be reviewed, and then staff will -- 11:19 20 based on the Executive Director, will either 11:19 21 recommend against incorporating these particular 11:19 22 changes or recommend and incorporate any particular 11:19 23 changes. 11:19 24 With regard to the issue of 11:19 25 republication, because I do want to touch on that 11:19 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 130 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 because I know that this rule -- it's been 11:19 2 requested, not only by the Commission, but also the 11:20 3 State Auditor's office, to move forward on at least 11:20 4 that particular aspect. I don't believe that 11:20 5 should you vote today to publish as the rule is 11:20 6 now, and we get comment about fleshing out, so to 11:20 7 speak, particular phrases, I don't believe that 11:20 8 that would trigger -- and I'm speaking generally 11:20 9 because I don't know the specific comments yet -- 11:20 10 but I don't believe that would trigger a 11:20 11 requirement to republish the proposed rules and 11:20 12 therefore delay the process before it would come 11:20 13 back to you for final action. 11:20 14 Like I said, I started by saying I 11:20 15 don't know if that was meaningful or not, but -- 11:20 16 MR. CLOWE: Well, it is, but it's 11:20 17 pretty broad. And I'd like to focus you and the 11:20 18 staff on the point the Representative made about 11:20 19 the best value. And I can -- this ghost rises up 11:20 20 of this thing that we've just finished, and I'd 11:20 21 like to direct the staff's attention to coming up 11:20 22 with something that is the best result that could 11:21 23 help decision makers, the Commissioners, the 11:21 24 Executive Director, in this regard. I think the 11:21 25 point is well made. 11:21 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 131 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 MS. KIPLIN: I don't want to take 11:21 2 anything away from what Mr. Bennett might have 11:21 3 said. I do know that this language was actually 11:21 4 something that we wanted to put in it because it 11:21 5 came from Senate Bill -- I believe it was Senate 11:21 6 Bill 178. 11:21 7 MR. BENNETT: 177. 11:21 8 MS. KIPLIN: I'm sorry, Senate Bill 11:21 9 177. I can't keep my numbers straight. And in 11:21 10 that particular statute, there are elements that 11:21 11 are laid out, that these are the statewide 11:21 12 procurement statutes that are exempt from -- 11:21 13 MR. BENNETT: Kim, may I make a 11:21 14 correction? This is part of a separate chapter 11:21 15 that we are subject to. And specifically, 11:21 16 Section 2259.052 gives a laundry list of what a 11:21 17 state agency has to look at in determining the 11:21 18 lowest and best bid or proposal. And since it is a 11:21 19 laundry list, generally speaking, it's not all 11:21 20 inclusive. 11:21 21 What we would have to do is take a 11:21 22 look at the Representative's recommendation and see 11:21 23 if it's in conflict with the laundry list. For 11:22 24 instance, one is the vendor's price to provide the 11:22 25 goods or services. 11:22 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 132 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 CHAIR MIERS: I guess I would make 11:22 2 the comment and want to refocus on this. Our rule 11:22 3 making, in my view, always has been and always will 11:22 4 be an effort to implement the legislative intent to 11:22 5 the extent that we can understand that and 11:22 6 implement it, because we feel that that is our 11:22 7 charge. And so to some extent, you do get into 11:22 8 almost a round-robin, in terms of, well, what's the 11:22 9 intent of one versus what's the intent of the 11:22 10 other. 11:22 11 But given that principal charge, the 11:22 12 discernment of the intent that we were given by the 11:22 13 Legislature, our rules need to be as helpful as 11:22 14 they can be in all of the respects that I think the 11:23 15 Representative pointed out, not the least of which 11:23 16 is to -- as was indicated, to give the Executive 11:23 17 Director as much assistance as possible in the work 11:23 18 that she is asked to do. 11:23 19 So I would move that we approve the 11:23 20 proposal for publication, and as part of that 11:23 21 motion, include that there be a public hearing. I 11:23 22 think this is a very important issue that requires 11:23 23 that attention. 11:23 24 MR CLOWE: Second. 11:23 25 CHAIR MIERS: Okay. There is a 11:23 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 133 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 motion and a second, although -- any further 11:23 2 discussion, Commissioner? 11:23 3 MR CLOWE: No. 11:23 4 CHAIR MIERS: Commissioner? 11:23 5 MR. SADBERRY: No. 11:23 6 CHAIR MIERS: If not, we'll take a 11:23 7 vote. All those in favor of the motion, say aye. 11:23 8 MR. SADBERRY: Aye. 11:23 9 MR CLOWE: Aye. 11:24 10 CHAIR MIERS: Aye. 11:24 11 All those opposed? 11:24 12 The vote will be three to zero. The 11:24 13 rule will be published for comment, and a hearing 11:24 14 set. 11:24 15 MS. KIPLIN: It's actually three. 11:24 16 One is an amendment to an existing rule, proposed 11:24 17 amendments to the existing rule. The other two are 11:24 18 new. Frankly, the language seems to indicate it's 11:24 19 new, but a good bit of it is really the existing 11:24 20 language. We're just trying to clean up the 11:24 21 format, the structure, and so we're putting it into 11:24 22 the new rules just to break it out a bit so it's 11:24 23 less confusing to the public. 11:24 24 CHAIR MIERS: That is my 11:24 25 understanding and, I assume, the understanding of 11:24 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 134 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 Commissioners Clowe and Commissioner Sadberry. 11:24 2 MR. CLOWE: Yes. 11:24 3 MR. SADBERRY: Yes. 11:24 4 CHAIR MIERS: All right. 11:24 5 Thank you very much. 11:24 6 MR. BENNETT: Thank you. 11:24 7 CHAIR MIERS: All right. We would 11:24 8 like to now proceed. I know that we have people 11:24 9 here to participate in one of our contested 11:25 10 hearings. And I would like, if the Commissioners 11:25 11 would be in agreement, that I go ahead and call, at 11:25 12 this time, out of -- in order to allow the 11:25 13 individuals who are here to speak, the Point Dallas 11:25 14 contested case. 11:25 15 MS. KIPLIN: Commissioners, at the 11:25 16 last Commission meeting, when this matter was 11:25 17 before you for consideration on the proposal for a 11:25 18 decision and a proposed order by the State Office 11:25 19 of Administrative Hearings, you did have a speaker. 11:25 20 It was Mr. Shorty Powers, if I'm not mistaken. 11:25 21 Based on comments that were made by 11:25 22 Mr. Powers at that particular Commission meeting, 11:25 23 the request of the Commission was to ask that the 11:25 24 investigator who handled the investigation come to 11:25 25 the next Commission meeting in which this matter 11:25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 135 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 was to be taken up. It is my understanding that 11:26 2 Mr. Robbins is here today. I think they have gone 11:26 3 to get him. So he's in the office and is coming 11:26 4 immediately. Mr. Powers is also here today in the 11:26 5 matters before you. 11:26 6 I would caution you, I guess like I 11:26 7 would on any case, that your decision has to be 11:26 8 based on the administrative record that's before 11:26 9 you. I listened to a good bit of Mr. Powers' 11:26 10 comments, and I think I would have to say probably 11:26 11 99 percent of those comments were based on the 11:26 12 record that was at the State Office of 11:26 13 Administrative Hearings. And I'll try to do the 11:26 14 best I can. If you want me to let you know if I 11:26 15 think something is falling out of the record or 11:26 16 not -- 11:26 17 CHAIR MIERS: Okay. Is it 11:26 18 Mr. Dickey that we are in search of? Who are we in 11:26 19 search of? 11:26 20 MS. CLOUD: Rusty Robbins, the 11:26 21 Security Investigator. 11:27 22 CHAIR MIERS: The Security 11:27 23 Investigator? Okay. 11:27 24 Why don't we, while we are waiting 11:27 25 for all the parties to that matter to be present, 11:27 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 136 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 including the investigator that we requested be 11:27 2 present, we could take up the items the LULAC 11:27 3 Council No. 4516, the Rocking H Grocery, Westbury 11:27 4 Shell, C&S Drive Thru, NBP, Inc., Independent 11:27 5 Grocery and Market, D-D Bexar County, Inc., E&R 11:27 6 Grocery, and Quick Stop No. 2. 11:27 7 I left out the Improved Order of the 11:27 8 Red Men and Medina for the time being. As to those 11:27 9 items, they appear to be well presented, routine 11:27 10 Lottery cases, and I would move the approval of the 11:28 11 recommendations for the disposition of those cases. 11:28 12 MR. SADBERRY: Second. 11:28 13 CHAIR MIERS: Okay. All those in 11:28 14 favor, say aye. 11:28 15 MR. SADBERRY: Aye. 11:28 16 MR. CLOWE: Aye. 11:28 17 CHAIR MIERS: Aye. 11:28 18 The vote on those cases would be 11:28 19 three to zero. 11:28 20 MS. KIPLIN: Okay. I didn't hear 11:28 21 you say -- and I'm sorry, it could have just been 11:28 22 that I missed it -- C&S Drive Thru? 11:28 23 CHAIR MIERS: Yes, I did. 11:28 24 MS. KIPLIN: You did? Okay. So 11:28 25 what I've got is Rocking H Grocery, Westbury Shell, 11:28 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 137 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 NBP, Inc., Independent Grocery and Market, E&R 11:28 2 Grocery, D-D Bexar County, Quick Stop No. 2, and 11:28 3 C&S Drive Thru. 11:28 4 CHAIR MIERS: That's correct. 11:28 5 MS. KIPLIN: Okay. 11:28 6 CHAIR MIERS: Now, what I'd like to 11:28 7 do is have any further comment on the order that 11:28 8 was proposed with respect to Improved Order of the 11:29 9 Red Men. That was a case that became moot, as I 11:29 10 recall. And I would move approval of the 11:29 11 recommendation in that matter or as presented to 11:29 12 us. 11:29 13 MS. KIPLIN: It's a motion to 11:29 14 dismiss, based on the withdrawal of the request for 11:29 15 the hearing. So it's become moot. If you'll 11:29 16 recall, at the last Commission meeting, I said that 11:29 17 it had been moot, and there was no action required. 11:29 18 The State Office of Administrative Hearings has 11:29 19 taken the position that if they've issued a 11:29 20 proposal for a decision, they no longer have 11:29 21 jurisdiction over dismissal motions and they need 11:29 22 to be presented to the Commission. So it's frankly 11:29 23 a housekeeping matter just to get an order signed. 11:29 24 CHAIR MIERS: Okay. I'll move 11:29 25 approval of the order on Improved Order of the Red 11:29 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 138 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 Men as presented. 11:29 2 MR. CLOWE: Second. 11:29 3 CHAIR MIERS: Okay. All those in 11:29 4 favor, say aye. 11:29 5 MR. SADBERRY: Aye. 11:30 6 MR. CLOWE: Aye. 11:30 7 CHAIR MIERS: Aye. 11:30 8 The vote will be three to zero. 11:30 9 And can someone address for us -- I 11:30 10 have a question. This is a -- this appears to be 11:30 11 an issue of whether there was an error by the bank 11:30 12 as opposed to the retailer, and I'm assuming that 11:30 13 there are no questions about this. I wanted it 11:30 14 separately considered just in case there was 11:30 15 anything that we needed to know about. 11:30 16 In light of no comment, I will move 11:30 17 approval of the recommendation there, also. 11:30 18 MR CLOWE: Okay. And I missed the 11:30 19 case. I'm sorry. 11:30 20 CHAIR MIERS: It's the Medina Lake 11:30 21 Hill Top Market. 11:30 22 MR CLOWE: I second the motion. 11:30 23 CHAIR MIERS: Okay. All those in 11:30 24 favor, say aye. 11:30 25 MR. CLOWE: Aye. 11:31 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 139 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 MR. SADBERRY: Aye. 11:31 2 CHAIR MIERS: Aye. 11:31 3 The vote again will be three to 11:31 4 zero. 11:31 5 Okay. Have we found our witness? 11:31 6 MS. CLOUD: He stepped out of the 11:31 7 building, but he's close by. And they sent him a 11:31 8 page, so we're waiting. 11:31 9 CHAIR MIERS: All right. 11:31 10 MS. KIPLIN: We have the LULAC 11:31 11 Council No. 4516. And if you could take that up, I 11:31 12 think at the last Commission meeting, there was 11:31 13 some issue about the language. This has been 11:31 14 before you, the LULAC Council's 4516. This is the 11:31 15 third time it has been before you. 11:31 16 The first time it was before you, 11:31 17 you decided to reject the recommendation by the 11:31 18 Administrative Law Judge and directed me to draft 11:31 19 an order that was consistent with your discussion 11:31 20 that day. I endeavored to do that. 11:31 21 I think you-all felt as though the 11:32 22 order was not necessarily consistent with the 11:32 23 deliberation or the mental processes by the 11:32 24 Commission at that time, and then directed that 11:32 25 there be different language included and that that 11:32 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 140 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 language was included. The only reason it didn't 11:32 2 get signed at the last Commission meeting, I think, 11:32 3 was just that we frankly ran out of time. 11:32 4 So it's before you just for 11:32 5 signature. Certainly, you obviously can take a 11:32 6 look at it. It is in your Commission notebook to 11:32 7 make sure it is consistent with the changes, but if 11:32 8 you will recall, there was specific language you 11:32 9 recited to me that you wanted to be included. 11:32 10 CHAIR MIERS: And I actually thought 11:32 11 we already approved that, Kim, in maybe -- in our 11:32 12 earlier motion -- 11:32 13 MS. KIPLIN: I'm sorry, that's -- 11:32 14 CHAIR MIERS: -- as one of those 11:32 15 that was approved. But let's be sure we did. 11:32 16 So I would move approval of the 11:32 17 order of the Commission as presented in the revised 11:32 18 order. 11:32 19 MR CLOWE: Second. 11:32 20 CHAIR MIERS: All those in favor, 11:32 21 say aye. 11:32 22 MR. SADBERRY: Aye. 11:33 23 MR. CLOWE: Aye. 11:33 24 CHAIR MIERS: Aye. 11:33 25 Okay. Let's go back to our agenda, 11:33 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 141 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 then. You'll -- somebody will let us know as -- 11:33 2 and I will take up, briefly, the Lottery sales and 11:33 3 advertisings and promotions while Toni is coming 11:33 4 forward. I think the recent information is 11:33 5 certainly encouraging. We are -- 11:33 6 MS. SMITH: Yes, ma'am. 11:33 7 CHAIR MIERS: We are glad to see 11:33 8 what appears to be a sustained turnaround. So why 11:33 9 don't we take a moment to hear, Toni, what you want 11:33 10 to comment about these facts. 11:33 11 MS. SMITH: For the record, I'm Toni 11:33 12 Smith, Marketing Director of the Lottery. For a 11:33 13 brief summary of total sales for the week ending 11:34 14 12-4-99, total sales for FY 2000 to date were 11:34 15 650,765,541. This is down 11.73 percent from the 11:34 16 FY '99 total sales to date, 737,269,739.5. For 11:34 17 FY 2000, weekly sales average is 46,483,252.93. 11:34 18 This also reflects that 11.73 percent decline from 11:34 19 FY '99 weekly average of 52,662,124.25. 11:34 20 But it's important to note that 11:34 21 these differences are directly related to the 11:34 22 differences in jackpot levels across those two 11:34 23 fiscal years. In October of 1999, we had a 11:35 24 nine-drawing roll that led to a $65 million 11:35 25 jackpot. So this definitely had an impact on the 11:35 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 142 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 sales during that time frame because of that 11:35 2 jackpot. 11:35 3 But then also, on a positive note, 11:35 4 to look at just where we are now with our weekly 11:35 5 sales, and that's the second memo that I passed on 11:35 6 to the Commissioners, the total sales for this past 11:35 7 week were 53,420,853.5. This is up 11.72 percent 11:35 8 from the previous week ending 11-27-99, with total 11:35 9 sales 47,815,207. And again, the primary factor 11:35 10 for it, but this is increase, is a result of the 11:35 11 Lotto Texas sales. So that jackpot does have an 11:35 12 impact on the increases or decreases in sales. 11:35 13 CHAIR MIERS: Correct. And instant 11:35 14 tickets appear to be up. Correct? 11:35 15 MS. SMITH: Yes, ma'am. And Linda 11:35 16 may have some comments there. 11:36 17 MS. CLOUD: Yes. Commissioners, the 11:36 18 first and foremost of the planning and hard work 11:36 19 and the teamwork on the instant tickets is finally 11:36 20 showing our results. This teamwork has involved 11:36 21 the coordination of just about every Lottery 11:36 22 department, from security, games compliance, 11:36 23 marketing, infotech, communication marketing, as 11:36 24 well as all of our vendor cooperation between our 11:36 25 operator and our instant product manufacturer. 11:36 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 143 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 Last week, our instant ticket sales 11:36 2 was $32 and a half million. We haven't sold that 11:36 3 many tickets since June 13, 1998. All indications 11:36 4 are that this sales trend will continue. This $32 11:36 5 million in sales was without a new game. We've 11:36 6 introduced 24 games in 25 weeks since June 16th. 11:36 7 While some of these games were reissues of 11:36 8 successful games that we already had on the 11:37 9 streets, they were -- which are a very important 11:37 10 element in our strategy. 11:37 11 In cooperation with our retailers 11:37 12 and at their suggestion, we harvested our older 11:37 13 games, slower selling games, to make room for the 11:37 14 new games. After listening to our retailers at 11:37 15 town hall meetings, I worked with our advertising 11:37 16 agency to stress the slogan "more prizes, more 11:37 17 winners, more fun." I think the advertising 11:37 18 campaign has had an impact on our increased instant 11:37 19 ticket sales as well. And we are not where we want 11:37 20 to be yet, but we certainly are feeling very good 11:37 21 about where we are today. 11:37 22 CHAIR MIERS: Great. And 11:37 23 congratulations. I know lots of people have worked 11:37 24 hard to make that a reality here. 11:37 25 What I would like to say, also, is 11:37 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 144 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 that, you know, Commissioners get lots of different 11:37 2 comments as we are around the state. And I have 11:38 3 been the recipient of a number of very 11:38 4 complimentary comments about the current 11:38 5 advertising campaign. 11:38 6 MS. CLOUD: Thank you. 11:38 7 CHAIR MIERS: I don't know if the 11:38 8 other Commissioners are hearing similar comments, 11:38 9 but we are -- it sounds like they have been a hit. 11:38 10 MR CLOWE: Which one? 11:38 11 CHAIR MIERS: The current 11:38 12 advertising. 11:38 13 MS. CLOUD: The scratch coin 11:38 14 campaign. You didn't see that? 11:38 15 MR CLOWE: I guess big old TV 11:38 16 stations don't run it. I'm oblivious to that one. 11:38 17 Maybe you'll give me a copy of it. 11:38 18 MS. CLOUD: Well, you should have a 11:38 19 copy of it. And we have a copy of the second 11:38 20 series that -- right? 11:38 21 Isn't that what you put in their 11:38 22 box? 11:38 23 MS. SMITH: Yes. 11:38 24 MS. CLOUD: Okay. The second series 11:38 25 of that campaign -- 11:38 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 145 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 MR CLOWE: I'd like to see it if 11:38 2 it's good. 11:38 3 MS. CLOUD: -- will be hitting the 11:38 4 air pretty soon as well. 11:38 5 MS. SMITH: It's actually on the air 11:38 6 now. 11:38 7 MS. CLOUD: Is it on the air? Okay. 11:38 8 And the advertising agency has made 11:38 9 an effort to try to come up with things kind of 11:38 10 like "Scratch Man" that will emphasize the Lottery, 11:39 11 and the scratch coins, I think, are going to be a 11:39 12 really good thing. 11:39 13 MR CLOWE: Okay. That's the one 11:39 14 where the -- 11:39 15 CHAIR MIERS: The coins are going 11:39 16 into the tollbooth. 11:39 17 MR CLOWE: Okay. I've seen that. 11:39 18 It's been quite some time. 11:39 19 MS. CLOUD: And the quarter is 11:39 20 screaming because he wanted a scratch lottery 11:39 21 ticket. 11:39 22 MR. CLOWE: Yeah. 11:39 23 MS. CLOUD: Okay. 11:39 24 CHAIR MIERS: In any event, they 11:39 25 seem to be having good benefit. We appreciate the 11:39 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 146 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 effort that has gone into all of the sales effort, 11:39 2 the advertising effort. 11:39 3 MS. SMITH: Thank you. 11:39 4 CHAIR MIERS: So I know you're 11:39 5 smiling, and we're smiling, too. That's good. 11:39 6 MR CLOWE: Let me tag onto that 11:39 7 comment, if I may, and admonish you to be mindful 11:39 8 of what your financial performance is relative to 11:39 9 the projected revenue and the cost, and therefore 11:39 10 the budget. I spoke with Bart Sanchez this morning 11:39 11 and suggested that he keep his black hat on. 11:39 12 MS. SMITH: He does. 11:39 13 MR. CLOWE: The agency really must 11:39 14 operate within what revenues are, and not 11:40 15 necessarily what revenues projected to be are. 11:40 16 MS. CLOUD: Well, the Legislature 11:40 17 didn't give us that authority this year, so you 11:40 18 don't have any -- we don't have any other 11:40 19 alternative. 11:40 20 MR CLOWE: So we're early on into 11:40 21 the fiscal year, and now is the time to demonstrate 11:40 22 fiscal responsibility and be mindful of what 11:40 23 reality is. And it's hard to do it in the last 11:40 24 three months. Let's do it in the remaining time. 11:40 25 MS. CLOUD: Well, we did it. 11:40 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 147 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 MR CLOWE: And it wasn't any fun, 11:40 2 either, was it? 11:40 3 MS. CLOUD: No, it was not fun, but 11:40 4 we did it. 11:40 5 CHAIR MIERS: Okay. I appreciate 11:40 6 those comments. And tell me anything else that you 11:40 7 want to -- 11:40 8 MS. SMITH: No, ma'am. Nothing else 11:40 9 at this time. 11:40 10 CHAIR MIERS: All right. Well, 11:40 11 thank you very much. And we will move to 11:40 12 Mr. Bennett. 11:40 13 We still don't have our witness. 11:40 14 Correct? 11:40 15 MS. KIPLIN: Correct. 11:40 16 CHAIR MIERS: You'll let me know if 11:40 17 we do. All right? 11:40 18 MR. BENNETT: Once again, for the 11:40 19 record, my name is Ridgely Bennett. I'm the Deputy 11:40 20 General Counsel. Commissioner, I assume that you 11:41 21 called me up here for Item No. 4, the "Status 11:41 22 report, possible discussion and/or action on the 11:41 23 lottery operator audit procurement." Is that 11:41 24 correct? 11:41 25 CHAIR MIERS: Actually, Ridgely, you 11:41 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 148 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 have the next two items, 4, as you read it; and 5, 11:41 2 the "Status report, possible discussion and/or 11:41 3 action on minority market advertising services 11:41 4 procurement." 11:41 5 MR. BENNETT: Certainly. Regarding 11:41 6 the Lottery operator audit procurement, the draft, 11:41 7 the previous RFP that we issued is still being 11:41 8 reviewed by the State Auditor's office. They 11:41 9 haven't provided us with comments yet. I've talked 11:41 10 to them at the State Auditor's office. 11:41 11 They're still endeavoring to work on 11:41 12 it. They're a little shorthanded right now. But 11:41 13 she promised me that they would make it a high 11:41 14 priority and get me comments as quickly as 11:41 15 possible. If you have any questions, I'd be happy 11:41 16 to answer them. 11:41 17 Regarding Item No. 5, the "Status 11:41 18 report, possible discussion and/or action on 11:42 19 minority market advertising services procurement," 11:42 20 the Evaluation Committee has met. They have taken 11:42 21 their final vote and have drafted a memorandum 11:42 22 making a recommendation to the Executive Director. 11:42 23 The recommendation encompasses a 11:42 24 number of documents that have to be bound together, 11:42 25 and staff is currently in the process of binding it 11:42 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 149 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 all together, making photocopies, and it should be 11:42 2 in the hands of the Executive Director within the 11:42 3 next day. 11:42 4 And I'd be happy to answer questions 11:42 5 regarding that. 11:42 6 CHAIR MIERS: Questions? 11:42 7 MR. SADBERRY: No, ma'am. 11:42 8 CHAIR MIERS: Okay. Thank you very 11:42 9 much. 11:42 10 MR. BENNETT: Thank you. 11:42 11 CHAIR MIERS: All right. I 11:42 12 understand we can call Point Dallas at this time. 11:42 13 And I am assuming I have speaker forms from 11:42 14 Mr. Powers and Mr. Dickey. And I don't know, 11:43 15 gentlemen, if you have anything to add to what you 11:43 16 previously had testified. 11:43 17 MR. POWERS: Not really. We just 11:43 18 wanted to (inaudible). 11:43 19 MS. CLOUD: Commissioners, they are 11:43 20 in the car on the way on Interstate 35 -- oh, there 11:43 21 you are. 11:43 22 MS. KIPLIN: And if we could have 11:43 23 you -- you're going to have to -- obviously, if we 11:43 24 are going to have people talking, if they would 11:43 25 come to the microphone, that would be helpful for 11:43 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 150 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 the court reporter to be able to make a record. 11:43 2 Thank you, sir. 11:43 3 CHAIR MIERS: Mr. Powers and 11:43 4 Mr. Dickey, you might want to just make a brief 11:43 5 statement about the concerns that you expressed. 11:43 6 Our investigator, of course, was not here and 11:43 7 present for your last presentation. 11:43 8 MR. POWERS: I believe that we're 11:44 9 both here, basically, just to defend -- 11:44 10 CHAIR MIERS: Would you state your 11:44 11 name, sir? 11:44 12 MR. POWERS: My name is Shorty 11:44 13 Powers. I'm with Point Dallas. 11:44 14 Try to defend what the courts have 11:44 15 already decided, and hopefully that y'all will 11:44 16 stand up to what the judge has already decided 11:44 17 through a case that we all came down to Austin 11:44 18 with. And I think I told you what my displeasures 11:44 19 were last time as far as the accusations and the 11:44 20 threats of legal action against us for going ahead 11:44 21 with what we thought was right. 11:44 22 And so basically, we're just -- we 11:44 23 would like the crime to fit the punishment. And I 11:44 24 don't -- you may have to ask Mr. Dickey. I don't 11:44 25 know if he's got a whole lot to say. 11:44 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 151 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 Have you got anything to say? 11:44 2 MR. DICKEY: No. I'm willing to 11:45 3 answer any questions, but I... 11:45 4 CHAIR MIERS: Okay. Thank you very 11:45 5 much. 11:45 6 If we could have the investigator 11:45 7 come forward, I would appreciate it. 11:45 8 MR. ROBBINS: I'm Sergeant 11:45 9 Investigator W.E. Rusty Robbins, in the Dallas 11:45 10 Regional Office. 11:45 11 CHAIR MIERS: Mr. Robbins, we do 11:45 12 have before us the Point Dallas issue, and I know 11:45 13 one of the concerns that was expressed in our last 11:45 14 opportunity to consider this matter related to the 11:45 15 circumstance in which this particular licensee was 11:45 16 placed, given the demands that were placed upon 11:46 17 them and the prevalency of this kind of 11:46 18 circumstance. 11:46 19 And would you comment for us on the 11:46 20 conduct that you observed? And I think the 11:46 21 Commission's concern is that obviously, our actions 11:46 22 be grounded in the law but also fair. 11:46 23 MR. ROBBINS: And what, 11:46 24 specifically, were you wanting me to respond to? 11:46 25 What I observed on that particular evening that 11:46 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 152 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 started this entire investigation? 11:46 2 CHAIR MIERS: Correct. 11:46 3 MR. ROBBINS: I was at the Longhorn 11:46 4 Bingo. And I apologize, I didn't bring my file. I 11:46 5 didn't know I was going to be asked dates as to the 11:46 6 date of this occurrence. 11:46 7 CHAIR MIERS: Sure. 11:47 8 MR. ROBBINS: I was there for some 11:47 9 unrelated matter, and while there, I realized that 11:47 10 one of the charities, which was going to be playing 11:47 11 second that evening, was about to begin playing too 11:47 12 early. And I commented to three or four of the 11:47 13 people who are delegated as responsible persons for 11:47 14 that charity. And they all agreed, yeah, they 11:47 15 understood and they would attempt to delay the 11:47 16 processes. 11:47 17 Well, they did, some. They still 11:47 18 started just a little bit early. But I had a 11:47 19 tendency to ignore that even though my instructions 11:47 20 were ignored. Then there was a temporary license 11:47 21 issued to Point Dallas for that same evening, and 11:47 22 it was to be the third session of that evening. 11:47 23 I again went to these same people, 11:47 24 and -- in some cases, same, and in some cases it 11:47 25 was different people -- but I went to at least the 11:47 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 153 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 primary operator, who was Richard Dickey, here with 11:48 2 us, and to at least two other people in his 11:48 3 organization that are listed as operators. And I 11:48 4 pointed out that it's an hour until your time, 11:48 5 legally, to play. 11:48 6 In every case, I got a 11:48 7 beat-around-the-bush answer about what they 11:48 8 intended to do, as opposed to, yes, we understand, 11:48 9 and we're not going to play, we will not play. I 11:48 10 didn't get those answers. At approximately 30 11:48 11 minutes later, it was now even more obvious that 11:48 12 they were about to start the session. The balls 11:48 13 were being stirred around. He had just not yet 11:48 14 called the first ball. 11:48 15 And again, I went to the same 11:48 16 people, and I said you're still starting a half 11:48 17 hour too early, and if you do that, I'm going to 11:48 18 have to report it. 11:48 19 Okay. Well, again, I got 11:48 20 noncommittal answers, and they did start. And I 11:48 21 believe it was -- by this time, it was about 26 11:49 22 minutes early. And I stayed there for some time 11:49 23 after that, making notes as to which persons I had 11:49 24 talked to and what time and so forth. And then I 11:49 25 left. And I did subsequently file that report with 11:49 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 154 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 the Lottery Commission, and that ended up in a -- 11:49 2 before a Hearing Officer. 11:49 3 I believe you also want to know 11:49 4 about a conversation I had with Mr. Powers and 11:49 5 Richard Dickey prior to that hearing. 11:49 6 CHAIR MIERS: (Nods head.) 11:49 7 MR. ROBBINS: Okay. I had not filed 11:49 8 any criminal charges, which would have been a 11:49 9 felony, third degree, on Mr. Dickey, for allowing 11:49 10 this to occur while he was there, present, 11:49 11 condoning it, apparently. But I had discussed this 11:49 12 with the attorney who at that time was employed by 11:50 13 the Lottery Commission, Missy Cary. 11:50 14 And she said, well, I think -- 11:50 15 speaking of herself, she said I think I need to 11:50 16 call Mr. Dickey and point out to him that if he is 11:50 17 to testify during this hearing, the one before the 11:50 18 Hearing Officer, that he is subject to be filed on 11:50 19 by testifying truthfully, which he would probably 11:50 20 do, and that he is creating more evidence against 11:50 21 himself in a felony case. 11:50 22 And she said do you know him well 11:50 23 enough call him, and I said sure, I know him. I 11:50 24 know them all. 11:50 25 Will they talk to you? And I said 11:50 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 155 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 yeah, they're all nice people. We talk 11:50 2 occasionally. She said, well, how about if you 11:50 3 called him and talked to him. I said okay. 11:50 4 So I did. I called Mr. Dickey, and 11:50 5 I pointed out to him these things that had been 11:50 6 pointed out to me, that he had not been filed on, 11:50 7 although he could have. But if he was to come to 11:51 8 Austin and participate in that hearing and testify 11:51 9 truthfully, which I expected that he would do, that 11:51 10 he would be testifying against himself, and I would 11:51 11 probably be advised to file a criminal case against 11:51 12 him. 11:51 13 He said he would think about it. I 11:51 14 reminded him that he had been taking bad advice 11:51 15 from some other people, and he needed to make his 11:51 16 own decision on this. He said he would think about 11:51 17 it. 11:51 18 And then at the time of the hearing, 11:51 19 he was there, and he did, in fact, testify. And I 11:51 20 took the pages of the transcript and used that as 11:51 21 partial evidence, and subsequently filed on him for 11:51 22 the commission of a felony, third degree felony, 11:51 23 for playing Bingo without a license. And prior to 11:51 24 leaving that meeting, I was instructed by Missy 11:51 25 Cary to file those charges against him. 11:51 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 156 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 CHAIR MIERS: Is this issue of 11:51 2 having the lessors' direct licensees to play at 11:52 3 particular times despite what their license 11:52 4 provides, is that a prevalent issue, or not? I 11:52 5 mean, does that happen in your region with some 11:52 6 frequency? 11:52 7 MR. ROBBINS: The way you've worded 11:52 8 the question, no. I don't know of that happening 11:52 9 specifically like that. I know of no other 11:52 10 occasion when, as you worded the question, that it 11:52 11 happened. I will say, though, that lessors do, in 11:52 12 fact, control all activities at each Bingo hall. 11:52 13 CHAIR MIERS: Okay. So out of -- 11:52 14 how should I have worded my question to understand 11:52 15 whether the lessors are operating the halls in a 11:52 16 way that results in licensees conducting games when 11:52 17 it's not their time? 11:53 18 MR. ROBBINS: Well, as I say, I 11:53 19 don't know that that particular violation ever 11:53 20 occurs. I simply just don't know of it. But I do 11:53 21 know that the lessors do run every aspect of each 11:53 22 Bingo hall. Now, to say that that's 100 hundred 11:53 23 percent, I don't know, because I don't know 11:53 24 100 percent of all what goes on in all Bingo halls. 11:53 25 I do know that it's very prevalent. The majority 11:53 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 157 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 of the Bingo halls are run -- the decisions are 11:53 2 made by one individual. 11:53 3 CHAIR MIERS: Did you have any 11:53 4 difficulties with or run into the Point Dallas 11:53 5 folks in some sort of other violation of any sort? 11:53 6 MR. ROBBINS: If I have, I don't 11:53 7 recall. I think the best answer I could give is, I 11:53 8 don't know of Point Dallas ever being a problem of 11:53 9 any sort, certainly not a consistent problem. 11:53 10 CHAIR MIERS: Okay. 11:54 11 Other questions? 11:54 12 MR CLOWE: I'm not sure I understood 11:54 13 the situation that you've described to us. What I 11:54 14 think I heard is that you were advising them not to 11:54 15 start, or you were saying you're starting too 11:54 16 early, making them aware that they were going to be 11:54 17 subject to some action if they started early. 11:54 18 MR. ROBBINS: Yes, sir. That's 11:54 19 correct. 11:54 20 MR. CLOWE: And yet you also said 11:54 21 that they are controlled by the lessor. 11:54 22 MR. ROBBINS: That's correct. 11:54 23 MR. CLOWE: And therefore, it begs 11:54 24 the question, what's the solution to that? 11:54 25 MR. ROBBINS: I don't know. There 11:54 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 158 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 was a time, oh, two or three years ago, when lessor 11:54 2 involvement was supposed to be taking care of that. 11:54 3 And we, in the Bingo investigation field, were 11:54 4 highly concerned, because that no longer existed as 11:55 5 a rule. We thought it would really go downhill 11:55 6 from there. 11:55 7 But the fact is, it hasn't changed 11:55 8 that much. It hasn't been a detriment because even 11:55 9 when there was a lessor, then the brother-in-law of 11:55 10 the lessor handled everything for the lessor, or a 11:55 11 cousin or a hired employee. But the lessor still 11:55 12 ran things, and I don't see that that's changed 11:55 13 any. It's just more out in the open now. 11:55 14 MR CLOWE: And Billy, I think you 11:55 15 told us when we last considered this issue, the 11:55 16 Commission has no authority over the lessor, and 11:55 17 they are, in fact, beyond our scope of regulation. 11:55 18 Is that -- am I remembering that correctly? 11:55 19 MR. ATKINS: It's not that they're 11:55 20 beyond our scope of regulation. It's that the Act 11:55 21 specifies any penalties that occur in conjunction 11:55 22 with the organization's operation, against the 11:56 23 organization. 11:56 24 MR CLOWE: So we have no opportunity 11:56 25 to control that lessor. 11:56 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 159 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 CHAIR MIERS: Is there a way, Kim, 11:56 2 legally, we could modify our procedures to provide 11:56 3 a remedy? 11:56 4 MS. KIPLIN: With regard to the 11:56 5 Bingo Enabling Act, I do think the Commission has 11:56 6 the authority to adopt rules to administer and 11:56 7 enforce the Act. I guess the argument would be, 11:56 8 there was a rule that's popularly known as the 11:56 9 "lessor involvement rule." That rule expired 11:56 10 because it was not readopted by the agency back in 11:56 11 '94. 11:56 12 There was a year -- this is a 11:56 13 history deal that -- at the time that Bingo 11:56 14 transitioned from the Alcoholic Beverage Commission 11:56 15 to the Lottery, as part of the transition language, 11:56 16 the Lottery was required to readopt all rules that 11:56 17 it wanted to keep. And those that were not 11:56 18 readopted expired within a year from the date of 11:57 19 the transfer, which was April of '93. This was one 11:57 20 of the rules that was not readopted and therefore 11:57 21 expired. 11:57 22 So my thinking is that the 11:57 23 Commission could vote to propose a rule attempting 11:57 24 to prohibit commercial lessor involvement. 11:57 25 Further, there would be a public comment period. 11:57 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 160 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 And then if the Commission chose to adopt it, then 11:57 2 the Commission would adopt it. And I guess if 11:57 3 somebody wanted to challenge the agency's authority 11:57 4 to adopt that kind of rule by saying that it 11:57 5 exceeded statutory authority, then they could do 11:57 6 so. What I would want to do, based on the comments 11:57 7 I've heard today from Mr. Robbins, is make sure 11:57 8 that any draft language is tight enough to prevent 11:57 9 some sham, should the Commission want to see, as a 11:57 10 matter of policy, lessors not involved in direct 11:57 11 operation of Bingo on a conducting Bingo level. 11:57 12 CHAIR MIERS: Well, why don't we 11:57 13 continue a consideration of the case before us, 11:57 14 which is the Point Dallas case, dispose of that 11:58 15 item on our agenda. And then I do have at least a 11:58 16 request that I'd like to pose. 11:58 17 Is there anything else, sir, that 11:58 18 you believe would be helpful for the Commission to 11:58 19 know about this particular case, other than what 11:58 20 you have told us? 11:58 21 MR. ROBBINS: Yes. One other point. 11:58 22 It may have been alleged that the conversation I 11:58 23 had with Mr. Dickey was in the form of a threat, 11:58 24 and I totally disagree with that. In fact, I 11:58 25 recorded the conversation and would welcome any 11:58 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 161 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 member of the Commission to hear it. It was not a 11:58 2 threat. It was simply calling the man and telling 11:58 3 him what the circumstances were and what the 11:58 4 outcome might be. 11:58 5 CHAIR MIERS: I think I understood 11:58 6 your explanation of why you made the call. 11:58 7 Are there other questions, and -- or 11:59 8 did you have a comment, sir? 11:59 9 MR. POWERS: Yeah. I have. 11:59 10 CHAIR MIERS: You need to state your 11:59 11 name again for the record, and speak into the 11:59 12 microphone. 11:59 13 MR. POWERS: Okay. My name, again, 11:59 14 is Shorty Powers. And I've known Rusty a long 11:59 15 time. And in fact, probably the reason that Rusty 11:59 16 showed up at the -- maybe not that Bingo hall, but 11:59 17 the Bingo hall before, is because I requested him 11:59 18 to come, because again, by the hall that we were 11:59 19 at, we were asked to do some illegal things. It 11:59 20 was illegal "Hot Ball," and I was asking him a 11:59 21 question. We got thrown out of that Bingo hall. 11:59 22 And the whole question was, the 11:59 23 whole situation here -- and Rusty knows this, 11:59 24 too -- is that why would we risk our license, 11:59 25 knowing Rusty is there? Why did we do what we did? 11:59 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 162 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 And I'm sure Rusty can tell you, too. 12:00 2 And another question is, is that are 12:00 3 we -- of the percentage of primary operators, how 12:00 4 many organizations that have primary operators are 12:00 5 people that belong pretty much to the Bingo hall 12:00 6 that slipped through the whatever loopholes that 12:00 7 there may be, as far as who is to be a primary 12:00 8 operator? And how many people -- how many 12:00 9 organizations such as ours has a true member as a 12:00 10 primary operator? 12:00 11 There's a whole lot of loopholes 12:00 12 that can get through, and Rusty knows it and I know 12:00 13 it. And all we're trying to do is to clear up the 12:00 14 situation here. 12:00 15 And why would we risk our license if 12:00 16 we were not absolutely sure that we were going to 12:00 17 be thrown out of that Bingo hall that night by 12:00 18 Melondye Green if we did not comply with what she 12:00 19 said? There's no way that we would go against what 12:00 20 Rusty said. We have a lot of respect in Rusty. 12:01 21 And he'll tell you how many times 12:01 22 I've called him to try to keep within the law. We 12:01 23 get pressured against going against the law all the 12:01 24 time. And so that's -- I just wanted to clear up 12:01 25 that we're not just out there to stick it to Rusty 12:01 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 163 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 or to say you don't have any control over us. 12:01 2 There's no way that we want to do that. 12:01 3 But we have to figure out, you know, 12:01 4 are we going to have a place to play. What good is 12:01 5 having a license if you're not going to be 12:01 6 anywhere? And it's very tough to get into a hall 12:01 7 that makes money. 12:01 8 CHAIR MIERS: Okay. Are there other 12:01 9 questions or comments about the contested matter, 12:01 10 or do I hear a motion? 12:01 11 I would move approval of the 12:01 12 proposal for a decision which has been presented to 12:01 13 the Commission. 12:01 14 MS. KIPLIN: In the Administrative 12:01 15 Law Judge's recommended order. 12:01 16 CHAIR MIERS: Correct. 12:02 17 MR CLOWE: And that involves a 12:02 18 one-day suspension of a license? 12:02 19 CHAIR MIERS: Correct. 12:02 20 MR. SADBERRY: I second. 12:02 21 CHAIR MIERS: Okay. 12:02 22 Further discussion? 12:02 23 All those in favor, say aye. 12:02 24 MR. CLOWE: Aye. 12:02 25 MR. SADBERRY: Aye. 12:02 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 164 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 CHAIR MIERS: Aye. 12:02 2 The vote will be three to zero. And 12:02 3 that will be the decision of the Commission. 12:02 4 That matter having been concluded, I 12:02 5 do think it is problematic if we leave licensees in 12:02 6 the position of having to choose between compliance 12:02 7 with the demand of the person who has control of 12:02 8 the facility, versus complying with what they know 12:02 9 to be the law. I think we would have preferred 12:02 10 compliance with the law, which I think is always 12:02 11 the course people should take. 12:03 12 But this is a troublesome situation, 12:03 13 and I would like to see us develop a solution for 12:03 14 it. It's not a circumstance that our rules should 12:03 15 allow to exist. 12:03 16 So I would request, Billy, that you 12:03 17 and Kim work with Mike and his folks and 12:03 18 representatives of the Bingo Advisory Committee and 12:03 19 representatives of the Bingo community to propose 12:03 20 to us how we should regulate in a manner that would 12:03 21 not allow a repeat of this particular situation so 12:03 22 our licensees are not put through these choices. 12:03 23 I also think we ought to have some 12:03 24 regulatory enforcement against a licensor -- or 12:03 25 pardon me, a licensee lessor who behaves in this 12:03 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 165 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 fashion. I don't find it acceptable. So I look 12:04 2 forward to an early response to that request. 12:04 3 MR. POWERS: I offer my help to 12:04 4 anything he would like. 12:04 5 CHAIR MIERS: Okay. 12:04 6 MR. POWERS: What was the ruling, 12:04 7 anyway? 12:04 8 CHAIR MIERS: The ruling, 12:04 9 Mr. Powers, was to approve the recommendation of 12:04 10 the Administrative Law Judge for a one-day 12:04 11 suspension. 12:04 12 MR. POWERS: Thank you. 12:04 13 CHAIR MIERS: Okay. 12:04 14 I believe it would be appropriate 12:04 15 now for us to go into Executive Session, and I 12:04 16 would move that we do so pursuant to Item 17 on our 12:04 17 agenda: 12:04 18 To meet to deliberate the duties and 12:04 19 evaluation of the Executive Director pursuant to 12:04 20 Section 551.074 of the Texas Government Code; to 12:04 21 deliberate the duties and evaluation of the 12:04 22 Internal Auditor pursuant to Section 551.074; to 12:04 23 deliberate the duties and evaluation of the 12:05 24 Charitable Bingo Operations Director pursuant to 12:05 25 the same section; the duties of General Counsel 12:05 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 166 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 pursuant to the same section; the duties of the 12:05 2 Security Director pursuant to the same section; and 12:05 3 to receive legal advice regarding pending or 12:05 4 contemplated litigation and/or to receive legal 12:05 5 advice pursuant to Section 551.071 (A) or (B) of 12:05 6 the Texas Government Code and/or to receive legal 12:05 7 advice pursuant to 55.071 (2) of the Texas 12:05 8 Government Code, including but not limited to the 12:05 9 items set out in paragraph F, Roman numeral 17. 12:05 10 And we'll return from Executive 12:05 11 Session thereafter. I will say that knowing what 12:05 12 is on the agenda for the Executive Session, I think 12:05 13 it will take a minimum, a minimum, of two hours, 12:05 14 and probably significantly longer. So for those of 12:06 15 you who want to plan accordingly -- 12:06 16 That's my motion. Do I hear a 12:06 17 second? 12:06 18 MR. SADBERRY: Second. 12:06 19 CHAIR MIERS: All those in favor, 12:06 20 say aye. 12:06 21 MR. SADBERRY: Aye. 12:06 22 MR. CLOWE: Aye. 12:06 23 CHAIR MIERS: Aye. 12:06 24 MS. KIPLIN: The time is 12:10. 12:06 25 This is December 8, 1999. 12:06 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 167 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 The last reference, Commissioner 12:06 2 Miers, was Section 551.071 (2). 12:06 3 CHAIR MIERS: 551.0 -- okay. If I 12:06 4 misstated, I apologize. 12:06 5 MS. KIPLIN: That's all right. 12:06 6 MR. CLOWE: We'll go off the record. 12:06 7 (Executive Session) 8 CHAIR MIERS: We are coming out of 02:44 9 Executive Session, and the time is 2:49. 02:44 10 So this has been a rewarding day in 02:44 11 many respects for the Commission. We have three 02:44 12 direct reports to the Commission at this agency. 02:44 13 Our Executive Director, Linda Cloud; our Charitable 02:44 14 Bingo Operations Director, Billy Atkins; and our 02:45 15 Internal Auditor, Debra McCleod. 02:45 16 And part of our responsibility today 02:45 17 has been to end this year with the opportunity to 02:45 18 evaluate those three direct reports. And I don't 02:45 19 think I have to tell anyone in this room or anyone 02:45 20 who has observed this agency how great the 02:45 21 challenges have been, some expected and some not 02:45 22 expected, over the last several years. 02:45 23 And it is my great pleasure to say 02:45 24 that we, as a Commission, have the opportunity 02:45 25 today to command each of those three as outstanding 02:45 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 168 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 professionals performing for this agency in ways 02:45 2 that allow us to move into 2000 with confidence 02:46 3 that we have three individuals who are dedicated to 02:46 4 performing their jobs and fulfilling their trust to 02:46 5 the people of the State of Texas. 02:46 6 So on behalf of the Commission, I 02:46 7 want to say to Linda, to Billy, and to Debra how 02:46 8 much we appreciate each of your dedication to the 02:46 9 agency and the contributions that you have made 02:46 10 under fire through all that we have been. We stand 02:46 11 tall as we go into next year. 02:46 12 And I want to assure the rest of the 02:46 13 staff that we don't compliment these individuals 02:46 14 without their reminding us, not that we need 02:47 15 reminding, that they don't do this by themselves, 02:47 16 that they have a whole group of people here who 02:47 17 contribute to making them look good. And it is a 02:47 18 very, very good note on which to end this year. 02:47 19 I will say we, as Commissioners, 02:47 20 although those are our direct reports, obviously, 02:47 21 and I'm not going to start naming names or I'll get 02:47 22 in trouble, but we interface quite frequently with 02:47 23 others along the way, with the directors in this 02:47 24 agency and other employees. And it is certainly my 02:47 25 experience -- and I believe the experience of the 02:47 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 169 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 other Commissioners, although they, I'm sure, will 02:48 2 speak for themselves -- we have a great number of 02:48 3 remarkable folks here who contribute in meaningful 02:48 4 ways to this agency. So thank you, each and every 02:48 5 one. 02:48 6 Our General Counsel, former acting 02:48 7 Executive Director, Kim, you also are owed a great 02:48 8 deal of thanks by your Commissioners, who lean on 02:48 9 you daily and nightly and weekends, all the time. 02:48 10 So we appreciate everything that you have done 02:48 11 also. 02:48 12 I would move approval of salary 02:48 13 actions. We went through a lengthy process to 02:48 14 compare what compensation is appropriate for our 02:48 15 direct reports, and after that review, concluded 02:49 16 that we needed to make two recommendations today, 02:49 17 one to increase to $8,750 a month, Linda Cloud's 02:49 18 compensation; and to increase to $6,041 the 02:49 19 compensation of our acting -- or our Bingo 02:49 20 Operations Director. So -- 02:49 21 MR CLOWE: Monthly. 02:49 22 CHAIR MIERS: Monthly, pardon me. 02:49 23 $6,041 -- 02:49 24 MR. CLOWE: Sorry about that, Billy. 02:49 25 CHAIR MIERS: -- monthly. 02:49 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 170 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 So I would make those two 02:49 2 adjustments in the form of a motion. Do I hear a 02:49 3 second? 02:50 4 MR. SADBERRY: Second. 02:50 5 CHAIR MIERS: All those in favor, 02:50 6 say aye. 02:50 7 MR. SADBERRY: Aye. 02:50 8 MR. CLOWE: Aye. 02:50 9 CHAIR MIERS: Aye. 02:50 10 Just finally, I want to say I have 02:50 11 the privilege, really -- we're coming to the end of 02:50 12 this year of serving with our newest Commissioner, 02:50 13 Tom Clowe, who has helped us through these 02:50 14 employment evaluations. He's done a remarkable job 02:50 15 in guiding us through efforts that, really, we had 02:50 16 needed to complete for some period of time. 02:50 17 We greatly appreciate the expertise 02:50 18 and guidance that he brought to that process. And 02:50 19 in every other respect, Tom Clowe has brought a 02:50 20 mentality and a commitment of time and energy to 02:50 21 the agency that I, certainly, as Chair, have been 02:50 22 very grateful for. 02:50 23 And about Commissioner Sadberry, I 02:50 24 just really can't say enough. He -- having been 02:51 25 here from the beginning of time -- he's not really 02:51 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 171 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 that old -- he has been a great pleasure to serve 02:51 2 with. 02:51 3 And thank you both. 02:51 4 MR. SADBERRY: Thank you. 02:51 5 CHAIR MIERS: And that's all I have 02:51 6 to say. 02:51 7 MR CLOWE: Well said. 02:51 8 CHAIR MIERS: And are there other 02:51 9 items that we need to address on our agenda that we 02:51 10 need to take up, Kim? 02:51 11 MS. KIPLIN: Well, there is the 02:51 12 Bingo rule review. You don't necessarily need to 02:51 13 take it up in this Commission meeting. In the 02:51 14 interest of time, if you'd like to pass it, you can 02:51 15 take it up in January. 02:51 16 CHAIR MIERS: We would like to do 02:51 17 that. 02:51 18 MS. KIPLIN: All right. And I'm 02:51 19 trying to think about what else we've got. 02:51 20 MS. CLOUD: The only other thing 02:51 21 that I know of was the Y2K report. We're okay. 02:51 22 It's a done deal. It's going to happen. We have 02:51 23 the people here to talk about it. 02:52 24 MR CLOWE: I think we just want to 02:52 25 hear Gary and Robert say everything is okay. 02:52 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 172 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 MS. CLOUD: Well, we've got Ted 02:52 2 here, too, from GTECH, so that's all three of them. 02:52 3 MR CLOWE: Does anyone have any 02:52 4 confession they want to make? 02:52 5 CHAIR MIERS: Okay. If not, then I 02:52 6 will -- 02:52 7 MR CLOWE: May I just add one thing? 02:52 8 CHAIR MIERS: Sure. 02:52 9 MR CLOWE: We really haven't had the 02:52 10 time this month to spend with you-all. It's been a 02:52 11 very busy time. It gets busy this time of year. I 02:52 12 think, on behalf of the Commissioners, we'd like to 02:52 13 wish all of you a very happy holiday season and a 02:52 14 healthy 2000. We'll all come through Y2K without 02:52 15 any problem. 02:52 16 Coming from the background that I 02:52 17 do, I'd like to just say a word about safety during 02:52 18 this holiday period. This is a time when people 02:52 19 get out and enjoy each other's company and party. 02:52 20 And as you go through the holiday period, think 02:53 21 about you and your family, and drive defensively 02:53 22 and be aware of some of the things that -- when 02:53 23 people get to having a good time, they can do 02:53 24 things that may be harmful in the way of driving or 02:53 25 other activities. 02:53 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 173 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 We want to see everybody back here 02:53 2 in January of 2000. So do give a little thought as 02:53 3 we go through this happy time about safety, and 02:53 4 take care of yourselves. 02:53 5 MS. CLOUD: Thank you. 02:53 6 CHAIR MIERS: Okay. We have one 02:53 7 piece of unfinished business. I think -- 02:53 8 MS. KIPLIN: Commissioner Sadberry 02:53 9 already handled -- 02:53 10 CHAIR MIERS: Okay. 02:53 11 MS. KIPLIN: -- because you were not 02:53 12 participating. 02:53 13 MR. SADBERRY: The order, 02:53 14 Commissioner Clowe, is in front of you. 02:53 15 MS. KIPLIN: Okay. Just for the 02:53 16 record, what Commissioner Clowe just signed was the 02:53 17 order that was the outcome of the consideration of 02:53 18 the appeal, the Executive Director's determination 02:54 19 of Oberthur's protest. I believe that the language 02:54 20 in the order is consistent with the vote that you 02:54 21 made earlier in the day. And then once it is 02:54 22 signed and processed, we'll send it out. And by 02:54 23 way of sending it out to the parties, they will be 02:54 24 notified. 02:54 25 Thank you very much. 02:54 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 174 TEXAS LOTTERY COMMISSION MEETING, 12-8-99 1 CHAIR MIERS: Okay. I believe that 02:54 2 concludes our business. 02:54 3 Thank you once again for everyone's 02:54 4 effort, and I certainly join in the best wishes for 02:54 5 a wonderful holiday. And we will see everyone back 02:54 6 in January. And in the interim, come see us in 02:54 7 Dallas. 02:54 8 I move that we adjourn. 02:54 9 MR CLOWE: Second. 02:54 10 MR. SADBERRY: Second. 02:54 11 (Proceedings concluded.) 12 13 14 15 16 17 18 19 20 21 22 23 24 25 WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363 175 1 REPORTER'S CERTIFICATION 2 3 STATE OF TEXAS ) 4 COUNTY OF TRAVIS ) 5 6 I, SUZANNE T. LANE, Certified Court 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 10 set 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 _______ 17 day of December, 1999. 18 19 20 SUZANNE T. LANE Texas CSR No. 6992 21 Expiration Date: 12/31/01 1609 Shoal Creek Boulevard 22 Suite 202 Austin, Texas 78701 23 (512) 474-4363 24 25 JOB NO. 991208STL WRIGHT WATSON STEN-TEL (800) 375-4363 (512) 474-4363