KKV: Veikkaus breached procurement rules with IGT contract

The KKV reached its conclusion following an investigation that began in January this year, into a contract that was originally signed by Veikkaus and GTech – which has since merged with IGT – in 2004.

That deal, which saw the supplier provide Veikkaus with a central gaming system, was originally due to run until 2009, with options for two 24-month extensions and a final 12-month renewal.

Multiple changes to the agreement were then made to the contract over the years. These ranged from adding new performance targets and amending the financial terms, to expanding the deal to cover the supply of online bingo, and adding new marketing solutions to the range of services provided.

A new supply agreement was then struck in September 2018, coming into effect six months later.

At no point did Veikkaus notify these changes to the KKV, nor did it launch a public tender for any of the new elements added to the deal.

In response to the KKV’s investigation, the operator said that it was not a contracting entity prior to the merger of the legacy Veikkaus lottery business, sportsbook operator Fintoto and slot machine operator Raha-automaattiyhdistys (RAY) in January 2017.

The changes to terms of the contract did not exceed 50% of the value of the original, tendered, 2004 deal, it added.

It explained that the additional services were added as part of an effort to reduce its dependence on a single supplier, but changes had to be made quickly to prepare for this. To put these elements out to tender would have taken at least six years, it said, though by using IGT for these non-core elements, it would be able to prepare for a tender for its core lottery system.

This process is expected to begin in the coming years, with bidding for interested parties to begin in 2024. It argued that this was possible as a result of not having to spend significant sums on non-core tenders.

While the 2018 agreement was carried out after it became a contracting entity, Veikkaus said this was an amendment to the earlier deal rather than a new agreement, meaning it did not believe that Procurement Act regulations applied.

In the KKV’s view, however, the changes represented fundamental changes to the contract, rather than additional work or services being carried out under the original agreement. Furthermore, it added, Veikkaus has not proved that the changes were only possible through its partnership with IGT, meaning the contract was illegally awarded.

“Veikkaus’ goal of reducing supplier dependence and bidding for [non-core services] in itself should be supported, but the implementation method it chose has not complied with the Procurement Act,” KKV senior specialist Elisa Aalto commented.

However, the KKV added that it was unable to pursue sanctions against the operator, as its investigation was carried out more than six months after the contract was signed. Per the Procurement Act, any punishment for non-compliance may only be issued if the offence is discovered within six months of a contract being signed.

It therefore provided Veikkaus with administrative guidance on procurement rules, with KKV research manager for procurement control Max Jansson admitting that the regulations made it difficult to enforce compliance.

“There are problems with the six-month deadline for effective procurement control,” he said. “In practice, the deadline means that the [KKV] must find information about the suspected illegal direct procurement within six months of concluding the contract.

“Finding a direct procurement or contract change in time is not possible in practice, for example in situations where, after contract changes in violation of the Procurement Act, we wait six months before the actual implementation of the procurement begins,” Jansson added.

Veikkaus, meanwhile, said that it will take the KKV’s criticism on board, and make changes to procurement processes.

“Veikkaus has been informed of KKV’s recent conclusion and we take it seriously,” the operator’s director of law and social responsibility Hanna Kyrki said. “We will learn lessons and strive to act in such a way that KKV does not have to highlight issues with our operation.”

Kyrki added that the case showed the Procurement Act was “open to interpretation”, noting that Veikkaus has received multiple opinions suggesting that it had done nothing wrong. This included an assessment from law firm Bird & Bird, which concluded that it had acted within the rules.