Keno licences: Report of Independent Review Panel

The Panel is required to satisfy itself that all interested parties and applicants for an authorisation or a licence have been treated equally and impartially and have been given the same opportunity to access information and advice about the regulatory review and authorisation and licensing processes.

As has been noted, prior to the commencement of the regulatory review, the department commissioned its commercial advisors to undertake a preliminary market sounding with potential Keno licence applicants.

The incumbent licensee was not consulted during the market sounding. The Panel, on advice from its probity auditor, sought clarification from the department as to whether the incumbent was provided an opportunity to respond to the relevant questions posed to respondents in the market sounding.

The department advised that it did not include the incumbent in the original market sounding as the purpose of the sounding was to assess the level of potential competition in the market. In separate discussions the incumbent had already advised the department of its interest in bidding for the licence, at which time it had the opportunity to express its views on the offerings and other relevant questions included in the market sounding.

Whilst the incumbent was not included in the market sounding, the Panel considers that any potential disadvantage to the incumbent which may have arisen was rectified through participation in business-as-usual discussions with the department and its subsequent involvement in the EOI.

A key objective of the EOI was to elicit information on the premium potential bidders would be prepared to pay under different licence options. The tender documents made it clear that, in preparing their response and assigning premia to each of the options, respondents should make their own inquiries in relation to any existing Intellectual Property rights required for the future operation of their proposed Keno Games. This would include any intellectual property rights subsisting in the Keno Linked Jackpot Arrangement (KLJA) established under commercial arrangements between Victoria’s incumbent Keno licensee and licensees in other states and territories to pool certain Keno games. The EOI request noted that, after the conclusion of the EOI process, copies of the current KLJA may be made available to selected respondents (if any) when invited by the Minister to apply for a new Keno licence, subject to the execution of a confidentiality agreement.

As the incumbent was expected to be one of the respondents to the EOI process, a question that arose for the Panel was whether the incumbent’s privileged knowledge of the value of the KLJA could put it at a competitive advantage relative to other respondents when determining the price premium each would be prepared to pay under the various licence options.

The Panel notes that the indicative premia information sought through the EOI process was to inform policy options regarding the licence term and exclusivity arrangements, and that this information was not to be used in determining which if any applicants would be invited to apply for the licence.

Nevertheless, the Panel considered the possibility that, based on indicative bids submitted through the EOI process, the department might conclude there was insufficient interest in the licence to justify proceeding to a competitive process for the allocation of the licence. Therefore, the Panel sought clarification from the department as to whether there were any circumstances in which potential applicants for the licence could be excluded from the next stage of the licensing process due to lack of intelligence regarding the value of the KLJA.

In response, the department advised its earlier market soundings had shown the primary factors likely to affect licence value were licence term and exclusivity provisions. Accordingly, it did not consider the value of the KLJA was a sufficiently significant factor in the overall licence premium to have any effect on the outcome of the EOI process one way or another. Based on these responses, the Panel was satisfied that ignorance of the value of the KLJA would not result in any respondent being eliminated from further consideration at the EOI stage. The department further advised that, as foreshadowed, it had made the information available to all participants on a confidential basis during the ITA stage of the process.

Based on these responses, the Panel was satisfied that ignorance of the value of the KLJA would not result in any respondent being eliminated from further consideration at the EOI stage.

In November 2020, the Minister received correspondence from a participant alleging it had become aware that unfavourable statements had been made about it in an industry forum that was unrelated to the Keno licensing process.

The complaint was appropriately investigated by relevant organisations and it was determined that it was unsubstantiated and that the matter had no impact on the Keno EOI Process. The Panel was also satisfied that the department took appropriate steps to mitigate any risks of bias that might have arisen had the complaint been substantiated.

The participant was advised that the complaint had been investigated and concluded.

Due to both the lapse of time between the opening and conclusion of the EOI process and changed circumstances brought about by the COVID-19 pandemic, the department assessed that the financial situation of all respondents might have changed. On this basis, the department advised the Minister to invite all respondents who participated in the EOI to apply for a Keno licence and give them the opportunity to resubmit updated financial information.

The Panel concluded that this was an appropriate response that treated all respondents equally under the circumstances.

On 14 April 2021 an applicant that was in the process of responding to the ITA wrote to the department to seek a three-month extension to the Keno licence application lodgement date, in order to secure a local technical delivery partner.

Recognising the key role of a technical provider in delivering a keno business, the department sought advice from its probity advisor and formed the view that the request would support competition for the Keno Licence. However, the department considered a full three-month extension unnecessary given the amount of time respondents had already had to secure relevant partners.

It was agreed that a one-month extension to the lodgement date, for all applicants, would provide adequate time to prepare necessary commercial arrangements and the Minister granted this extension on 18 May 2021, making the new lodgement date 24 June 2021.

The Panel reviewed material relating to the request and agreed that the extension of the lodgement date for all parties worked to diminish the risk of incumbency advantage and thus to ensure equity of treatment of participants.

The ITA documentation presented 13 criteria against which applicants for the post 2022 Keno licence would be evaluated. One of these criteria was readiness to transition to the new licence by a specified date.

There were delays in the licensing process which the department considered had the potential to impact applicants’ ability to meet the transition timelines. In particular, it was noted that this could disadvantage any new entrants.

In light of this, and given its assessment that a short delay in full commencement of operations would have a low impact, the department determined that a short delay in achieving full readiness alone should not preclude the awarding of a licence to an applicant.

The panel considers this approach was appropriate in the circumstances.

The Panel considered whether the use of an EOI to undertake an initial evaluation of bidder suitability for the Keno licence whilst concurrently seeking indicative bids on alternative policy options was consistent with a robust, fair and transparent licensing process.

The stated purpose of the EOI was, firstly, to evaluate whether respondents satisfied the pre-determined criteria and, secondly, to test their preferences in relation to licence term and exclusivity provisions and the premium each would be prepared to pay under different options.

The Panel was informed that the response of the parties to options in relation to licence term and exclusivity would not be used to eliminate potential applicants. This was because the information submitted in response to the options, including indicative financial bids, was to carry no weight in the evaluation process. Rather, this information was to inform departmental recommendations to the Minister on a preferred licensing model and any legislative amendments required to implement the model.

The Panel notes that release of an EOI prior to the completion of the regulatory review departs from the sequencing of previous licensing processes. Nevertheless, the Panel considered it was consistent with the stated objective of maximising value to the State. The Panel was satisfied that the EOI documentation was transparent and made it clear to potential respondents how the additional information was to be used.

The Panel is required to satisfy itself that information received from parties involved in the Keno Licensing Project has been managed to ensure the security and confidentiality of intellectual property and proprietary information.

The Panel’s consideration of incidents which arose during the Keno licensing process that may have given rise to a breach of confidentiality requirements are discussed below.

On 28 January 2020, the Victorian Government Purchasing Board (VGPB) distributed a survey of suppliers to government to a sample of respondents who had completed tender processes via the Tender Vic website. The survey was intended to include completed tender processes where contracts had been awarded for goods and services procurements subject to VGPB policies. These contracts were published on the Contracts Publishing System. The survey was not intended to include grants or licensing processes such as the Keno Licensing Project.

It was later discovered that the survey had erroneously captured respondent data in relation to the Keno EOI process and the survey had been sent to six email addresses that had downloaded Keno Licensing Project EOI documents from the Tender Vic website. As a consequence, a number of people employed by government departments involved in conducting the VGPB survey were also given access to this information.

The department sought advice from its probity advisor who proposed that each affected staff member be required to delete the confidential information they had received and sign a declaration confirming that they would maintain the confidentiality of this information. The department also notified the Keno Licensing Project’s oversight bodies including the GLP Steering Committee and the Panel.

The Panel has reviewed the nature of the information inadvertently conveyed to unintended recipients, noting that it included supplier company names and email addresses of potential respondents but did not include any other confidential information. The Panel also reviewed actions taken to mitigate the risks associated with release of this data. Based on its consideration of these matters the Panel considers the department’s response appropriate.

The Panel concluded this did not amount to a significant breach, was inadvertent and was managed appropriately.

On 24 July 2019 and 1 April 2020, information relevant to the Keno Licensing Project was sent via email to the wrong employees.

In relation to the 2019 incident, a probity review noted that while there could have been some probity risk as a consequence of the incident, there was no evidence that this had occurred and the risks bad been mitigated very promptly. The review found that the relevant emails contained neither highly sensitive information nor attachments and the content could not easily be interpreted by someone without prior knowledge. It concluded that the incident presented a very low probity risk. Having taken advice from its probity advisor, the department took remediation actions to bring the incident to the attention of both the Steering Committee and the Panel, and established a specific email group for use in subsequent emails.

In relation to the 2020 incident, the probity review confirmed that the relevant individuals were already ‘trusted’ participants in the processes and aware of the probity framework in place. Both confirmed that they deleted the relevant emails without reading them and the probity review considered this action was appropriate. The matter was noted on the probity incident register and strict adherence to internal document sharing systems was reinforced.

The Panel notes there appeared to be no security breach in these cases and considers the department’s response appropriate.

In September 2021, the Panel was advised of the inadvertent release of protected information concerning one of the respondents during the VCGLR’s due diligence review of respondents to the ITA for the Keno licence.

The Panel was satisfied that the VCGLR had taken appropriate steps in response to the incident in line with the recommendations of its probity advisor. The Panel further noted there were no consequences to the licensing process for the affected applicant because it had withdrawn from the process prior to disclosure of its information.

However, having been briefed on the facts of the disclosure and having reviewed the relevant documents and taken further advice from its probity auditor, the Panel sought additional assurances from the VCGLR regarding other actions it might prudently take in respect of the breach.

In response, the VCGLR advised it had written to the applicant to advise of the breach and the actions it had taken, including ensuring all copies of the email had been deleted by the recipient, conducting a review of its processes, conducting refresher training for staff, and reviewing all other correspondence to ensure the incident was an isolated event.

The Panel must satisfy itself that every relevant entity involved in the award of a licence has been required to declare any actual or perceived conflict of interest before participating in the process and any such conflict of interest has been appropriately addressed.

At the conclusion of the EOI process, the department received a number of submissions from interested parties, which it then referred for evaluation of respondents’ high-level capability, corporate probity and financial background. This evaluation was performed with the assistance of the department’s specialist financial advisor engaged to assess the submissions against the financial background criteria articulated in the EOI. Specifically, this firm was engaged to assess whether a participant in the EOI process was likely to be of sound and stable financial background.

In accordance with the department’s probity protocols, the firm was asked at the start of its engagement to declare any actual conflict of interest or potential conflict of interest. The firm declared that it had previously provided advisory services to the incumbent and that one of its employees involved in the financial evaluation had been a previous employee of the incumbent but that they had left the organisation in 2017, well before the EOI process commenced.

The Panel sought to determine whether the conflict of interest that existed was material in nature and whether there was a risk of bias towards the incumbent. Accordingly, through its probity auditor, it sought the department’s advice on its decision to engage the firm as well as how it planned to address the conflict-of-interest issues that had been raised.

The department advised it had engaged the firm because it was unable to find another service provider with suitable skills in this specialist area. In addressing the conflict of interest issues, the department received and implemented advice from its probity advisors, which included requiring the firm to prepare a probity plan and compliance report, and limiting the disclosure of evaluation information.

The Panel was also advised that the engagement of the firm was considered low risk as the task it was given was largely factual in nature and the firm’s report would be subject to review by the department’s evaluation panel to ensure that the recommendations were sound.

The Panel was satisfied that the potential for conflict of interest in this instance was managed appropriately.

A subsequent incident arose in which a potential conflict of interest was identified in respect of an advisor considered for appointment to assist the department with ITA financial evaluations. The department identified the conflict prior to making any appointments and removed the candidate from consideration.

The Panel was satisfied that the department had been proactive in identifying the issue and took appropriate action to deal with the matter.

At both the EOI and ITA stages of the process, participants’ responses were assessed against identified criteria to ensure compliance with defined requirements. At both stages, conformance issues were identified in the responses.

At the EOI stage, incidents of non-conformance were identified in all responses. In the interest of managing project timelines the department recommended that the evaluation proceed whilst the non-conformance issues were being addressed in a parallel process. The Panel agreed that this was an appropriate course of action.

Similarly, during the ITA stage, incidents of non-conformance were identified in all responses. It was again determined that these could be dealt with in parallel with the evaluation, noting that they could be more efficiently addressed through the further information request processes established in the ITA documentation and the Act. Again, the Panel considered this approach was appropriate.

Based on advice from its Probity Auditor, the Panel concluded that all applications were evaluated in a fair and systematic manner.

In September 2021, the Panel was advised that during the Invitation to Apply stage, one applicant withdrew from the process after submitting its application. The applicant cited various reasons for its withdrawal, including what it characterised as an unreasonable scrutiny of associates through the due diligence process.

While noting that the same due diligence requirements applied equally to all applicants, the Panel considers that applicant feedback on the process could be considered in any further commercial sensing. However, the Panel notes that the Victorian framework is set out in the Act and any changes would require legislative amendment.

The Panel has come to the following conclusions in relation to its obligations under section 10.2A.3(1)(a) of the Act, which require it to consider whether, in the preparation of recommendations or reports to the Minister by a relevant entity with respect to the regulatory review—

i. all parties interested in a relevant activity have been treated impartially and have been given the same opportunity to access information and advice in relation to the review process

The Panel’s review of the documents, along with that of its probity auditor, found no evidence of unequal treatment or lack of impartiality within the constraints of the regulatory framework. The evidence suggested that parties had been given the same opportunities to access information and advice about the regulatory review.

ii. information received from parties referred to in subparagraph (i) has been managed to ensure the security and confidentiality of intellectual property and proprietary information

Although there were some minor incidents involving misdirection of information, the Panel was satisfied that the department responded to these incidents appropriately and in accordance with its probity advisor’s instructions. Overall, the Panel is satisfied that information received from parties has been managed to ensure the security and confidentiality of intellectual property and proprietary information.

iii. every relevant entity involved in the regulatory review has been required to declare any actual or perceived conflict of interest before participating in the regulatory review and

iv. any conflict of interest referred to in subparagraph (iii) has been appropriately addressed

Based on its review of risk mitigation actions taken by the department and on the advice of its probity advisors, and also on its review of the advice of its own probity auditor, the Panel is satisfied that potential conflict of interest matters have been dealt with appropriately.

v. there has been any improper interference with the making of a recommendation or report

The Panel is not aware of any incidents of improper interference with the making of a recommendation or report relevant to the Keno Licensing Project.

vi. the preparation of a recommendation or report discloses bias or anything that could lead to a reasonable apprehension of bias

The Panel has considered all relevant reports to the Minister and does not consider that any of these discloses bias or anything that could lead to a reasonable apprehension of bias.

The Panel has come to the following conclusions in relation to its obligations under section 10.2A.3(1)(b) of the Act, which require it to consider whether, in the preparation of recommendations or reports to the Minister by a relevant entity with respect to the authorisation and licensing process—

i. all registrants (if applicable) and applicants for an authorisation or a licence have been treated equally and impartially and have been given the same opportunity to access information and advice about the authorisation and licensing process

The Panel and its probity auditor reviewed the relevant documents and saw no evidence suggesting participants had received any unequal treatment or that there was any lack of impartiality within the constraints of the regulatory framework. The evidence suggested that parties had been given the same opportunities to access information and advice throughout the process.

ii. all protected information has been managed to ensure its security and confidentiality

The Panel noted there were a number of minor incidents, and one more significant incident, of inadvertent disclosure of protected information, but noted that these arose in error, that appropriate actions were taken to manage the impact and ensure the errors were not repeated, and that they had no impact on the outcome. The Panel was satisfied that the department responded appropriately and in line with its probity advisor’s advice. Overall, the Panel was satisfied that the project managed all information received in a manner that ensured that security and confidentiality was maintained.

iii. all registrants and applicants referred to in subparagraph (i) have been evaluated in a systematic manner against explicit predetermined evaluation criteria

The Panel and its probity auditor reviewed the Evaluation Panel’s report and found that the evaluation was conducted in accordance with the ITA evaluation plan. The Panel also reviewed the evaluation advisor reports and found them to be detailed and thorough, prepared by sufficiently qualified authors and delivering objective, consistent and balanced analysis. Each report described its methodology and process and followed the criteria listed in the ITA. The Panel was satisfied that the evaluation process and outcomes met probity requirements for accountability, transparency, fairness and impartiality.

iv. every relevant entity involved in the authorisation and licensing process has been required to declare any actual or perceived conflict of interest before participating in the process and

v. any conflict of interest referred to in subparagraph (iv) has been appropriately addressed

The Panel reviewed both the department’s risk mitigation actions and the advice of its probity advisors, and also reviewed the advice of the Panel’s own probity auditor. On this basis, the Panel is satisfied that potential conflict of interest matters were dealt with appropriately.

vi. there has been any improper interference with the making of a recommendation or report

Based on its review of the available material, the Panel is not aware of any incidents of improper interference with the making of a recommendation or report relevant to the Keno Licensing Project.

vii. the preparation of a recommendation or report discloses bias or anything that could lead to a reasonable apprehension of bias

Having reviewed all relevant reports to the Minister, the Panel does not consider that any of these discloses bias or anything that could lead to a reasonable apprehension of bias.