Fla. dispute swells over a $4.5m fine

Fla. dispute swells over a $4.5m fine

About 9,000 Florida lottery vendors use Integra terminals like this one.

Because of delays in installing computers and ticket terminals, the Florida Lottery Department has collected a fine of $4.5 million from systems vendor Automated Wagering International Inc.

A state Senate committee has scheduled hearings on the disputed $30 million contract, amid charges by Florida's attorney general and a state senator that lottery officials should have imposed a penalty closer to the $96 million maximum specified in the pact.

Lottery officials rejected criticism of their decision. AWI did not protest the fine, but the Duluth, Ga., company said the project delay had minimal effect on lottery operations.

AWI has held a contract to supply equipment to the lottery since March 1998. The original contract required AWI to finish work in 180 days or pay fines of $1 million daily. AWI renegotiated the contract in March 1999 to allow a two-year completion period and reduce the potential fine to $10,000 daily.

AWI finished installing the lottery's hardware and software May 14. Lottery secretary David Griffin then hired accountants Sharpton, Brunson & Co. P.A. of Miami to estimate the state's losses caused by the delay.

About this much

The accounting firm met repeatedly with AWI and lottery officials to develop a loss evaluation method. On June 28, the firm issued a loss estimate of $3.9 million.

The next day, the attorney general's office provided the lottery with a legal analysis recommending that any penalty be 'calibrated to actual damages' and noting that the contract gave the lottery discretion to assess damages 'within a wide range.'

Also on June 29, Griffin wrote to AWI assessing damages of $4.5 million. That figure was based on the accounting firm's estimate of the state's actual losses and an additional amount of $500,000 that Griffin added 'to ensure the state's interests were fully protected,' according to lottery correspondence.

State Sen. Walter 'Skip' Campbell, chairman of the Regulated Industries Committee, condemned the lottery's markdown of the penalty.

'When you enter a contract, you should live up to its terms,' Campbell said. 'This company did not. Like a lot of companies, it bid a contract knowing full well it could not fulfill the schedule. If they bid, they should fulfill the schedule.'

Campbell plans to hold hearings on AWI's lottery equipment contract this month.

In a letter to Campbell, Attorney General Bob Butterworth also questioned lottery chief Griffin's decision to reduce the damages.

Butterworth wrote that his office's analysis of the matter was not the official opinion of the attorney general but constituted informal comments provided confidentially to the lottery 'in anticipation of possible litigation.' The letter was not intended to support particular damage assessment, he said.

The attorney general added, 'I am concerned that the department has not recovered amounts sufficient to cover all possible damages the state may have suffered.' The lottery had not properly evaluated the harm that AWI's delay caused to the business relationships among the state, ticket sellers and the public, Butterworth said.

Lottery spokesman Leo DiBenigno rejected the attorney general's criticism, saying his agency had calculated the damages with the full participation of Butterworth's office. He said the lottery racked up record sales in 1999 and 2000 despite the system delays.

Play another game

The newly installed system, however, lets the lottery offer more flexibility, additional promotions and more types of games than the system it replaced, DiBenigno said. The lottery suffered damages because it 'did not have the benefit of all the additional features,' he said.

The deployment delays did not materially damage the lottery's business, said Bob Evers, AWI's chief financial officer, who was the company's chief operating officer during the project.

Software development problems lay at the root of the project's postponement, he said. The delays began during preparations for the year 2000 date rollover, he added.

'We didn't want to implement at that time due to' risks associated with the rollover, Evers said. 'Because we had an up-and-running lottery system, there wasn't an urgency to replace it.'

The urgency also was limited because 'there was really no major functionality that affected sales' in the new system, and the old system was working well, Evers said.

DiBenigno, however, pointed to AWI's payment of the fine without protest as showing that the vendor in effect agreed with his agency's evaluation of the damages.

Evers said additional delays resulted from problems with developing the customized lottery software.

AWI provided its proprietary Online Gaming Module software to operate the lottery; it developed the app using a combination of C, C++ and Cobol. In Florida's system, OGM runs on IBM RS/6000 enterprise servers under AIX.

To assure system availability at levels exceeding 99.9 percent, AWI furnished a main RS/6000 server running the lottery software at its data center in Tallahassee and an identical backup server at the center.

In addition, AWI provided a third RS/6000 server in Orlando in case both Tallahassee systems fail. The system updates all three servers with lottery data continually.

AWI provided about 9,000 full-service lottery terminals, called Integras, and 3,000 limited-service terminals, called Omnipoints, to retailers throughout Florida.

The Omnipoint units provide the limited function of validating instant lottery tickets through a dial-up network.

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