The race to run the UK's national lottery has taken a surprising twist. Rather than announcing who will run the game from late next year, the National Lottery Commission has simply ruled Camelot out of the bidding for a new seven-year licence.
But the only other bidder - The People's Lottery consortium led by Sir Richard Branson and including Microsoft and Cisco - has not won yet. It has to come up with a watertight alternative bid by next month.
A furious Camelot has gone to the High Court to apply for a judicial review, but its chances for a second go look slim. Fat cat salaries and allegations of excessive profit have dogged the company for years, but in the end it was a decision to cover up a software fault that cost the consortium the deal.
The UK lottery was launched in November 1994 with terminals in 10,000 retail outlets, 34,000 retailer staff and Europe's largest private two-way satellite network. Around 65 per cent of the UK population have played so far, spending £29bn in the process.
Total profit since 1994 has been £256m, with funds raised for good causes reaching £8.8bn. This is a good business to be in, and one which US software firm and Camelot partner GTech has effectively just lost for its client.
Camelot is a consortium of four companies: ICL, Cadbury Schweppes, De La Rue and Racal Electronics. GTech was originally a shareholder, but its stake was bought out by the other partners in April 1998. ICL produced the lottery terminals, and helped to establish terminal installation and retailer training programmes, but it was Gtech's software that was key to the project.
Last May, while evaluating the bids from both contending groups, the Lottery Commission received a tip-off that GTech had discovered a bug in its system. It corrected the fault, but failed to tell its client - a "clear breach of established software change control procedures", as has been politely pointed out.
Worse still, the Commission found that the software fault had been in place since the lottery's launch, but had only been fixed in July 1998.
Ghost in the machine
In some cases, where the lottery terminal was opened during a transaction, it caused two sales to be recorded on the system with only a single ticket being produced. If the ticket was a prize winner, it reduced the size of the win. At the same time, retailers were charged by Camelot for phantom tickets that were never sold. Around £85,000 was underpaid - and £95,000 overpaid - to winners, as a result.
GTech's fatal decision to keep the problem secret was taken by its chairman and chief executive William O'Conner during a meeting at which president Steven Nowick was present. Following the revelation last month, both executives resigned.
The Commission said the consequence of the cover-up was that no action could be taken to check the effect on prize winners and retailers, or pay them compensation. "Hence, the integrity of the lottery was compromised," it said.
GTech has a colourful history. It was engulfed in scandal in 1995 when the then chairman Guy Snowden lost a libel case against Branson. The Virgin entrepreneur alleged that Snowden had attempted to bribe him to pull out of the initial lottery bid - an allegation which Snowden denied. In the early 1990s, its head of sales was convicted and imprisoned in New Jersey for paying kickbacks from lobbyists involved with lottery procurements. Another system glitch caused retailers to be overcharged in the Texas lottery in 1994.
Camelot's problems underscore the danger of failing to exercise control over suppliers who provide crucial services. "It was of significant concern to the Commission that Camelot could not demonstrate the ability to manage its gaming software supplier, GTech, effectively. The arrangements for managing GTech did not appear to have changed sufficiently on its move from shareholder to supplier to allow Camelot to exercise adequate control," said the Commission.
GTech has scrambled to put its house in order. The company will now have independent reviews of its software development and documentation, and it will certify its software against international industry standards.
Too little, too late
Camelot will appoint a quality assurance and IT specialist to work full-time alongside GTech's quality assurance department, and says it will improve its arrangements for managing suppliers and its control over the software development life cycle. But, it's all too late.
GTech has admitted that the loss of the contract will cost it around $40m in sales. It could also lose $30m in services, according to The Wall Street Journal.
William Bruce Turner, the company's new chairman, said: "We are extremely disappointed by [these] developments, and will continue to co-operate fully with Camelot and the Commissioners."
This doesn't go far enough for the Commission, however, which says it still has unresolved concerns about the future long-term propriety of the arrangements made both within GTech and between GTech and Camelot. These concerns have led it to conclude that it cannot presently be certain that the outstanding measures offered will be implemented in full and will have the necessary impact on GTech's culture and conduct.
"Generally, the Commission remains extremely concerned about the behaviour of GTech, which would again, if Camelot's application were accepted, be a key supplier on [which] Camelot places considerable reliance," it added.
The verdict? Honesty is still the best policy, and it seems that GTech's numbers won't be coming up for the foreseeable future.
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