Veikkaus in Breach of Procurement Rules

The Competition and Consumer Authority (KKV) in Finland has announced its findings that the gambling monopoly in the country, Veikkaus, breached procurement rules. The operator was found to be in violation of the Procurement Act in the country. The breaches are in relation to the supply contract that is in place between Veikkaus and International Game Technology (IGT).

A panorama of the waterfront in Helsinki, Finland.

Ultimately, although the KKV found evidence that Veikkaus had breached the Procurement Act, it was unable to act as it found the discrepancies too late. ©bearinthenorth/Pixabay

The KKV has reached its decision on the matter after an investigation was performed in the early stages of the year. In January, the Authority started its investigation into the operator that holds the exclusive rights to offer gambling services in Finland. The investigation started into a contract that was initially held between Veikkaus and the operator that was then called GTech but has since merged with IGT in 2004.

The deal that was made saw the supplier offer Veikkaus a gaming system that was somewhat the backbone of its operation. The contract was only supposed to run until 2009 initially, and further options were included that provisioned for two 24-month extensions to the deal, and an additional 12-month renewal could be triggered if these two extensions were used.

After the contract was initially signed, multiple changes were subsequently made to the agreement between the two operators over the ensuing years. The changes included measures that detailed new key performance targets as well as amendments that were made to the financial side of the contract. Additionally, there were changes made to see the deal expand to cover online bingo supply for Veikkaus and to add new forms of marketing and a general expansion of the range of solutions offered by IGT.

After this deal expired, the two companies then agreed on a new deal for IGT to supply the gambling monopoly with its services in September of 2018. This agreement then came into effect six months after it was signed.

The issue that KKV has found with these proceedings is that at no point did Veikkaus mention the changes to the Authority. Additionally, the gambling monopoly in Finland failed to offer the contract for the supply of such solutions to public tender and also failed to offer the changes that were previously made to the contract for tender.

Veikkaus’ Response

The operator has responded to the ruling that the KKV has made recently. Veikkaus has said that it was not a contracting company before the merger of Veikkaus’ legacy lottery company, the sportsbook business Fintoto, and the slot operator Raha-automaattiyhdstys (RAY) occurred back in January of 2017. In addition to this, the changes to the terms of the deal that were previously made did not exceed 50% of the initial value that was tendered in the contract signed in 2004.

The holder of the gambling monopoly in Finland went on to explain that the additional services that were attached to the contract, later on, were put in place in an effort to reduce the company’s dependence on one supplier only. According to the operator, these changes had to be implemented quickly to have their full effect, so a tender process was not feasible in this case.

Veikkaus stated that if these parts of the agreement had been put up for public tender, as is generally the procedure with state bodies, it would have taken more than six years for the desired changes to be made. By using IGT to offer these services, it would put the operator in a better position to prepare a tender for its lottery system instead, Veikkaus has said.

The tender process for this is due to start within the next few years. Bidding from bodies that are hopeful to be awarded this contract will begin in the year 2024. Veikkaus has argued that this process is only possible because it did not have to spend a significant amount of time and money on organizing tender processes for non-core aspects of its business.

The agreement that was made in 2018 between Veikkaus and IGT was indeed carried out after the operator became a contracting entity. Veikkaus does not deny this. It has said, however, that the contract was an amendment to a prior deal, rather than being a new deal in and of itself. According to the operator, this, therefore, makes the agreement exempt from the regulations set out in the Procurement Act.

The KKV’s Take

The KKV takes an opposing position to this, however. The changes that were made in the 2018 iteration of the agreement constitute substantial alterations to the initial deal that was signed between the operator and IGT. These changes were fundamental, according to the KKV, meaning that they did not signify additional work or offerings from IGT that were carried out in some form under the original contract.

On top of this, the KKV continued by saying that the operator had not provided significant proof that these changes would only have been possible through its partnership with IGT. Under the laws that are upheld in Finland, this would, therefore, render the contract illegal.

Whilst the Authority did not condemn the attempts that Veikkaus has been making to reduce the company’s dependence on a small number of providers or its attempts to reduce the bidding on non-core operations, it did not support the methods that the gambling monopoly was using to achieve these goals. This hinges mainly on the operator’s failure to comply with the regulations that are set out in the country’s Procurement act.

The KKV went on to say that it could not pursue legal sanction against the operator, despite its transgressions. This is because the investigation that was performed by the Authority took place more than six months after the contracts were signed. According to the Procurement Act, the relevant bodies may only punish contravention of these laws should the offense be discovered within six months after a contract has been signed.

Instead, the KKV was only able to provide Veikkaus with guidance relating to its administration to help it to better understand and comply with the rules set out in the Procurement Act. Some high-ranking members of the KKV have admitted that the quirks of these regulations can make it difficult for the relevant bodies in Finland to actually motivate those in the industry to comply with the Act.

According to such individuals, it is exceptionally hard for the KKV to uncover direct procurements or changes to contracts within this timeframe in many cases. For example, in situations where contract changes are made that are in violation of the Act, the body will wait six months before the actual implementation of the procurement has started.

In response to the findings of the KKV, Veikkaus has stated that it is committed to taking the criticism from the Authority seriously and is working hard to take the instructed changes on board. The operator has committed to learning lessons from its mistakes and will work hard to ensure that the KKV does not identify similar issues with its business in the future.

An interesting take that can be made from these developments is that, ultimately, the Procurement Act is open to interpretation for operators. For example, in this case, Veikkaus had received a substantial amount of legal advice stating that it had done nothing wrong. Such advice came from legal experts and firms that concluded the operator had not been in contravention of any laws.

Veikkaus will no doubt be pleased that it has managed to avoid sanctions for these alleged transgressions, as it has had one of the worst years on record following the outbreak of COVID-19 in Finland. As a result, the absence of restrictions on the company will be a welcome relief amidst the uncertainty that is rife in the industry at present.

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