State of New York Franchise Oversight Board State Capitol Albany, New York 12224

MEMORANDUM

TO: FROM: DATE:

David Skorton/Robert Megna Robert Williams 7 June 2013

SUBJECT: NYRA/GBE Concerns

Summary. Review of the documents and materials provided by The New York Racing Association, Inc. (NYRA), in support of the single source award to Global Betting Exchange (GBE) to develop an Advanced Wagering Services and Technology Platform (Platform), finds that the award to GBE was unjustified. In making a determination for this award, NYRA failed to follow its Purchasing Policy and Procedures Manual (Purchasing Policy), which was approved by the Franchise Oversight Board in 2009. Purchasing Policy Section III.F outlines the process for conducting a competitive procurement using a Request for Quotations (RFQ), which includes development of specifications; preparation of the solicitation document; review of the bids for responsiveness; evaluation of bid responses; as well as other factors. It is clear that in developing the RFQ and the Evaluation Instrument, NYRA failed to adhere to its own processes:

a.

The RFQ failed to set forth the minimum qualifications relative to the company or staffing; however, the Evaluation Instrument addressed such factors. The RFQ indicated that any final agreement resulting from the award may contain terms and conditions other than those defined in the RFQ. The RFQ failed to define the method of the award, such as the criteria to be considered, the weights to be applied to the technical criteria, or the relative weight of technical to cost. The method of scoring, however, as defined in the Evaluation Instrument and accompanying scoring chart, applied three factors against the criteria. The Award Summary provided by NYRA (New Technology Overview, dated April 2013) provided a summary of the review of each bidders proposal and the reasons why they were disqualified from consideration after evaluation. Since there were no minimum qualifying thresholds set forth in the RFQ, no bidder should have been disqualified. Had NYRA followed its Purchasing Policy in developing an RFQ document and making an award, bidders would have been ranked, based on their final scores, and NYRA, in accordance with its Purchasing Policy, could have decided not to make an award if it was not in its best interest to do so. NYRA did not sufficiently define the method for bidders to quote a cost for the service. The RFQ provided three options for bidding cost, one of which was an open ended option, which if chosen by any of the bidders, would likely not have been subject to comparison to other cost proposals, thereby making it impossible to score this factor. In relation to GBEs cost, NYRA stated in its Award Summary that, based on its Purchasing Policy, it had limited flexibility to negotiate pricing with a bidder. There does not appear to be such a limiting provision in the Purchasing Policy. Once NYRA began looking at other strategies for an advanced technology platform, which included conversations with other track operators about the possibility of forming an industry cooperative approach, it had an obligation to undertake another competitive bidding process and to set out new requirements in a newly developed RFQ.
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b.

c.

d.

e.

f.

g.

In conclusion, since the bidder pool may now have changed completely due to the new approach, it is not feasible to rationally state that GBE is the best (single source) company for this platform development. Therefore, NYRA has not sufficiently demonstrated that no other company in the industry is capable of providing this service.

Review of NYRA Award to Global Betting Exchange of Advanced Wagering Services and Technology Platform I. RFQ Process. The NYRA Purchasing Policy and Procedures Manual (the Purchasing Policy) outlines the process for conducting a competitive procurement (RFQ) (Section III-F). The process includes, but is not limited to: Development of specifications for services needed; Preparation of the solicitation document; Advertisement of the procurement opportunity; Distribution of the RFQ to potential bidders; Review of bids for responsiveness; Evaluation of bid responses; and Responsibility/integrity review of apparent winning bidder. Development of specifications and preparation of solicitation document. According to the Purchasing Policy (Section III.F.a), specifications must ensure that bidders know exactly what is required. The specifications should be as clear, inclusive and informative as possible and establish the minimum level of acceptable requirements. The level of detail required in the specifications depends on the complexity of the service required. The solicitation should not be written so specifically as to target a particular bidder, but may contain information obtained from an Request for Information (RFI) or other means of gathering information prior to a bid solicitation (i.e. Request for Comment, release of a draft RFQ). The specifications must define the Scope of Service and the minimum qualifications of the bidder, including years of experience and experience performing similar services; required license or certifications; and financial viability. According to the Purchasing Policy (Section III.F.b), the document should inform the potential bidders of the nature of the procurement, any statutory requirements, deadline for submission of bids, basis for award and method of award, among other factors.
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II.

III.

NYRA did not follow its Purchasing Policy in developing specifications. Review of the RFQ finds numerous concerns. A. RFQ General Terms and Conditions. Provision. Proposers should be engaged in the business of providing the services contemplated herein (Section V.1). Concern. The RFQ should have set forth minimum qualifications, required years of experience, etc. based on the nature of this service. It did not. Provision. The final agreement, if any, awarded hereunder will contain the terms, covenants and conditions to be negotiated by the parties which may contain terms that differ from those in the RFQ (Section V.4). Concern. Any agreement resulting from the award of a formal solicitation should reflect the terms set forth in that solicitation. If vendors are not aware of the terms of the resulting agreement, they cannot adequately provide a responsive proposal or financial quote. Allowing for negotiation of terms subsequent to the award does not meet the requirement of a Best Value award. A vendor cannot be deemed responsive or non-responsive if terms are not defined. Provision. Most Favored In the event that any other vendor develops, acquires, or has the ability to acquire relevant technology or services more favorable than those provided to NYRA under any contract that may arise hereunder, Contractor or NYRA (as applicable) shall promptly advise the other party hereto of such development, and NYRA shall, at its option, have the right to terminate this Agreement upon 30 days written notice or promptly receive from Contractor such improved technology or services upon terms and conditions comparable to those set forth in any contract that may arise hereunder. Concern. It is impossible for a vendor to price its Proposal and be held to this standard.

B.

RFQ Scope of Service. Provision. A formal Service Level Agreement will be drafted as part of the contractual process with the winning bidder. Concern. As noted above, to receive a responsive proposal and to make an award that is the Best Value, the bidder must be aware of all terms and conditions that they will be bound to upon award.

C.

Miscellaneous. Relative to preparation of the solicitation document, NYRA did not inform the vendors of the basis for the award. Since the RFQ outlined requirements for a technical Proposal and Cost Proposal and Evaluation criteria was developed and applied, the RFQ should have clearly noted that the award would be based on Best Value, and in addition, should have addressed that criteria would be defined and applied by a team of evaluators.

IV.

Evaluation of Bid Responses (Development & Application of the Evaluation Instrument). According to the Purchasing Policy, Evaluation of Bid Responses (Section III.F.i), where price will not be the determining factor a combination of technical criteria may be made by using an evaluation instrument. The evaluation instrument will be the tool used by evaluators to apply scoring criteria as defined and agreed to by the evaluation team and include the breakdown of relative weights into detailed categories (i.e. experience 20%, staffing 15%, etc.). This tool would consist of a series of documents used in the evaluation process and include: instruction to evaluators; pre-defined rating sheet defining the allocation of points consistent with the RFQ; Evaluator worksheets and summary forms; and scripted interview questions. The NYRA New Technology Overview, dated April 2013 (the Award Summary) Comparative Summaries of RFQ Respondents includes three tables: Table 1 - Net pricing of Respondents; Table II Evaluation Criteria and Definition; Table III Key Vendor Strengths and Weaknesses. There are numerous issues:

A.

Technical Criteria. NYRA did not follow its Purchasing Policy in determining relative weights for the technical evaluation criteria. Table III Key Vendor Strengths and Weaknesses merely assigns a symbol (strength, weakness, or neutral assessment) for each vendor in relation to each of the criteria defined in Table II. Using this means of scoring does not adequately score evaluation criteria and cannot result in a Best Value award in which the award optimizes quality, cost, and efficiency (Purchasing Policy Section II). Further, the criteria defined in Table II for evaluation purposes includes definitions such as whether a bidders organization is sufficiently staffed to support the program; whether the vendor has extensive history interacting with various regulatory agencies, etc.; however, the RFQ does not set forth any specific requirements of company size, staffing requirements, or years or type of experience.

B.

Evaluation of Proposals. Following the evaluation of Proposals, NYRA disqualified all seven bids for reasons that are not clearly defended based on vague or non-existent specifications. Disqualifications should only apply when a minimum standard, as set forth in the RFQ, is not met (i.e. minimum score to shortlist) and does not apply in a situation where technical (scored criteria) and cost are being considered. 1. RFQ requirements. The RFQ states, Vendor will be expected to provide an integrated CRM/ADW Platform Database with the capability of customizing the user experience based on predefined criteria (segmentation). Ultimately it is NYRAs objective to collect and analyze the largest possible scope of customer data. This would include standard ADW metrics (majority of which are current totalizer based) such as wagering and funding activity; integration throughout on-track POS systems; and a full understanding of how the customers are interacting with both websites and mobile applications. It is understood that each vendor may have a different approach to the collection of data, CRM capabilities (in-house or third party arrangement) and ability to customize the user experience. The section below is meant to provide guidelines for the bidders to list and define their capabilities in these areas. Any additional
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information and in-depth explanation of potential capacities is encouraged as it is NYRAs view that the aforementioned integration is an evolving process. The RFQ specifications were vague and fairly permissive in submissions; therefore, calling into question any disqualifications following evaluation. a. Totalizator reliance. AmTote and Sportech were disqualified mainly due to their reliance on the core totalizator platform to support their CRM Systems and due to one companys platform still being in initial stages of development. The RFQ did not set forth restrictions on such an approach. b. Lack of customization. TVG, TwinSpires, and eBet were disqualified because they offered to white-label their current generation platforms with the NYRA brand and any level of customization offered was cosmetic rather than functional. The RFQ did not set forth restrictions on such an approach. c. Competition. NYRA also noted that three bidders were direct competitors to the NYRA Rewards Program making it undesirable to award the contract to these bidders. The RFQ did not set forth restrictions on such an approach. Additionally, if this concern was of paramount importance, why were the companies specifically included as part of the solicitation list and/or why didnt the RFQ detail not being a competitor as a condition of submitting a Proposal? d. Size. One bidder, BAM Software, was disqualified due to the small size of the company.
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The RFQ did not set forth restrictions on such a condition. e. Cost. GBE was disqualified due to its high price. The RFQ did not set forth specific criteria on acceptable pricing; nor did the Evaluation Criteria define such. In addition, in a Best Value (technical and cost evaluation) the vendors cost is not a deciding factor. 2. Inability to negotiate. NYRA indicates in its Evaluation Summary that it could not accept GBEs Proposal due to the high quote because NYRAs Purchasing Policy affords limited price negotiation flexibility. The Purchasing Policy does not specify any threshold for negotiation or inability to negotiate. Further, as noted above, disqualification is not appropriate under the method of award of evaluating technical and cost. C. Cost Evaluation. The RFQ (Section IV Pricing) provides for three pricing options as follows: Option one implementation fee and % of handle based on various tiers; Option two - % of handle based on various tiers; [and] Option three open pricing scenario Bidders are encouraged to think outside of the box to develop a pricing/business scenario that provides a win/win for both bidder and NYRA. It is unclear how NYRA determined a final cost for each bidder based on this cost quote structure. In order to determine a total cost for each bidder, the RFQ must define how cost is to be provided by each bidder. Option three does not meet this requirement.

V.

Abandonment of the RFQ process and award GBE. According to NYRAs Award Summary, since all respondents to the RFQ were seemingly disqualified it abandoned the award process and began looking at other strategies for a Platform, which included conversations with other track operators about the possibility of forming an industry cooperative approach to an Platform. Since NYRA believed that GBE had the capacity to meet this approach, the GBE platform was chosen.

Since the cooperative approach was a new concept, NYRA had an obligation to undertake another competitive bidding process and to set out the new requirements in a freshly developed RFQ. Since the bidder pool may now have changed completely due to the new approach, it is not feasible to award the contract to GBE. NYRA has failed to demonstrate that no other company in the industry is capable of providing this service. .