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Contract For Lottery Operations

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Sectors: Computer Software and Services
Governing Law: Texas, View Texas State Laws
Effective Date: October 10, 2001
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TEXAS LOTTERY COMMISSION


CONTRACT FOR LOTTERY OPERATOR


OCTOBER 10, 2001


CONTRACT FOR LOTTERY OPERATION AND SERVICES [TEXAS LOTTERY LOGO] PAGE 1


TABLE OF CONTENTS


GLOSSARY OF TERMS................................................................................................ V


PART I GENERAL INFORMATION....................................................................................... 1


1.1 ENGAGEMENT........................................................................................ 1
1.2 INTRODUCTION ..................................................................................... 2
1.3 LOTTERY OPERATOR (GTECH).......................................................................... 2
1.4 GTECH/LOTTERY RELATIONSHIP........................................................................ 3
1.5 GTECH'S OBLIGATIONS............................................................................... 4
1.6 ERROR OR AMBIGUITY WAIVED BY GTECH................................................................ 4
1.7 MODIFICATION OF INFORMATION SUPPORTING A PROPOSAL................................................. 4
1.8 CAPTIONS ...................................................................................... 5
1.9 SURVIVAL ...................................................................................... 5
1.10 CONTRACT EXECUTED IN FIVE ORIGINALS............................................................... 5


PART II NOTICES ...................................................................................... 6


2.1 CONTACT PERSON.................................................................................... 6
2.2 NOTICES ...................................................................................... 6


PART III GENERAL CONTRACTUAL TERMS AND CONDITIONS................................................................ 8


3.1 GOVERNING LAW..................................................................................... 8
3.2 CONTRACT ELEMENTS................................................................................. 8
3.3 AMENDMENTS........................................................................................ 8
3.4 WAIVER ...................................................................................... 9
3.5 CLARIFICATION OF LOTTERY'S INTENT................................................................. 9
3.6 LOTTERY'S FINANCIAL OBLIGATIONS................................................................... 9
3.7 RELATIONSHIP OF THE PARTIES....................................................................... 10
3.8 PAYMENT........................................................................................... 10
3.9 ASSIGNMENTS....................................................................................... 11
3.10 SUBCONTRACTING.................................................................................... 12
3.11 LOTTERY APPROVAL OF STAFFING...................................................................... 12
3.12 COMPLIANCE........................................................................................ 13
3.13 TERM OF CONTRACT.................................................................................. 13
3.14 TERMINATION AT WILL............................................................................... 14
3.15 TERMINATION FOR CAUSE............................................................................. 14
3.16 TERMINATION FOR IMPOSSIBILITY OF PERFORMANCE...................................................... 16
3.17 TERMINATION WITHOUT PENALTY....................................................................... 17
3.18 EFFECT OF TERMINATION............................................................................. 17
3.19 EFFECTIVE DATES OF CONTRACT OBLIGATIONS........................................................... 18
3.20 WARRANTIES........................................................................................ 18
3.21 GTECH SITE VISITS................................................................................. 23
3.22 INTELLECTUAL PROPERTY RIGHTS...................................................................... 23
3.23 PRE-EXISTING AND THIRD PARTY RIGHTS............................................................... 25
3.24 REMEDIATION....................................................................................... 26
3.25 INTELLECTUAL PROPERTY SEARCH...................................................................... 26
3.26 ACCOUNTING RECORDS................................................................................ 27
3.27 AUDIT REQUIREMENTS................................................................................ 27
3.28 RIGHT TO ADDITIONALLY AUDIT GTECH'S TEXAS OPERATIONS.............................................. 28
3.29 QUARTERLY CONTRACT COMPLIANCE STATEMENT........................................................... 29 CONTRACT FOR LOTTERY OPERATION AND SERVICES TABLE OF CONTENTS [TEXAS LOTTERY LOGO] PAGE II


3.30 ANNUAL CONTRACT COMPLIANCE REVIEW................................................................. 29
3.31 QUARTERLY COST REVIEW............................................................................. 29
3.32 INDEMNIFICATION................................................................................... 31
3.33 BONDS AND INSURANCE............................................................................... 32
3.34 SELF INSURANCE.................................................................................... 33
3.35 PERFORMANCE BOND.................................................................................. 33
3.36 FIDELITY BOND..................................................................................... 33
3.37 GENERAL LIABILITY INSURANCE....................................................................... 34
3.38 PROPERTY INSURANCE................................................................................ 34
3.39 ERRORS AND OMISSIONS INSURANCE.................................................................... 35
3.40 AUTOMOBILE LIABILITY INSURANCE.................................................................... 35
3.41 CRIME INSURANCE................................................................................... 36
3.42 DISCLOSURE OF LITIGATION.......................................................................... 36
3.43 FORCE MAJEURE / DELAY OF PERFORMANCE.............................................................. 37
3.44 SECURITY PROGRAM.................................................................................. 38
3.45 TAXES, FEES AND ASSESSMENTS....................................................................... 38
3.46 NEWS RELEASES..................................................................................... 39
3.47 ADVERTISING....................................................................................... 39
3.48 HIRING OF TEXAS LOTTERY PERSONNEL................................................................. 40
3.49 HIRING OF LOBBYIST; SUPPLEMENTAL INFORMATION...................................................... 40
3.50 REAL ESTATE LEASE COSTS........................................................................... 40
3.51 END OF CONTRACT CONVERSION........................................................................ 40
3.52 NON-DISCLOSURE AGREEMENT.......................................................................... 42
3.53 USUFRUCT ...................................................................................... 42
3.54 TICKET PURCHASE................................................................................... 42
3.55 EQUIPMENT ...................................................................................... 43
3.56 PROGRAMS ...................................................................................... 43
3.57 LOTTERY PURCHASE OPTION........................................................................... 46
3.58 SANCTIONS AND REMEDIES SCHEDULE................................................................... 46
3.59 LIQUIDATED DAMAGES................................................................................ 54
3.60 DISPUTE RESOLUTION................................................................................ 55
3.61 CERTIFICATIONS.................................................................................... 55
3.62 CODE OF CONDUCT................................................................................... 56
3.63 CONTACT WITH TEXAS LOTTERY EMPLOYEES.............................................................. 57
3.64 INCIDENTS AND ANOMALIES........................................................................... 57
3.65 TRADEMARK AND SERVICE MARK SEARCH................................................................. 57
3.66 ATTACHMENT OF THIRD PARTY SYSTEMS, TERMINALS OR PRODUCTS.......................................... 58


PART IV REQUIRED INFORMATION..................................................................................... 59


4.1 STATEMENT OF UNDERSTANDING........................................................................ 59
4.2 BACKGROUND INFORMATION AND EXPERIENCE............................................................. 60
4.3 FINANCIAL SOUNDNESS............................................................................... 60
4.4 BACKGROUND INVESTIGATIONS......................................................................... 60
4.5 STAFFING PLAN..................................................................................... 61
4.6 RESUMES........................................................................................... 61


PART V HISTORICALLY UNDERUTILIZED BUSINESS / MINORITY BUSINESS PARTICIPATION..................................... 62


5.1 INTRODUCTION...................................................................................... 62
5.2 BUSINESS SUBCONTRACTING PLAN (BSP) PROCEDURES..................................................... 63
5.3 BUSINESS SUBCONTRACTING PLAN (BSP) INCORPORATED INTO CONTRACT..................................... 64
5.4 CHANGES TO THE BSP AFTER A CONTRACT HAS COMMENCED................................................. 64
5.5 REPORTING AND COMPLIANCE WITH THE BSP............................................................. 64


CONTRACT FOR LOTTERY OPERATION AND SERVICES TABLE OF CONTENTS [TEXAS LOTTERY LOGO] PAGE III


PART VI LOTTERY GAMING SYSTEM.................................................................................... 67


6.1 PROVISIONS OF CONTRACT............................................................................ 67
6.2 RFP GOVERNS....................................................................................... 67
6.3 EXCEPTIONS AND MODIFICATIONS...................................................................... 68


PART VII SALES AND MARKETING..................................................................................... 71


7.1 PROVISIONS OF CONTRACT............................................................................ 71
7.2 CONTRACT GOVERNS OVER RFP; RFP GOVERNS OVER PROPOSAL.............................................. 71
7.3 EXCEPTIONS ...................................................................................... 72


PART VIII FACILITIES ...................................................................................... 73


8.1 FACILITIES ...................................................................................... 73
8.2 PRIMARY DATA CENTER REQUIREMENTS.................................................................. 73
8.3 BACK-UP DATA CENTER............................................................................... 74
8.4 INSTANT TICKET WAREHOUSE.......................................................................... 75
8.5 FIELD OFFICES (SALES AND SERVICE FACILITIES)...................................................... 76
8.6 ACCESS SECURITY AT COMPUTER SITE AND OTHER FACILITIES............................................. 76
8.7 ADDITIONAL NECESSARY ITEMS FOR GTECH'S FACILITIES................................................. 77


PART IX CONVERSION PLAN ...................................................................................... 78


9.1 CONVERSION PLAN................................................................................... 78
9.2 INSTALLATION AND ACCEPTANCE TESTING............................................................... 79
9.3 PROJECT REPORTING AND MONITORING.................................................................. 79
9.4 VALIDATION AFTER CONVERSION....................................................................... 79


PART X COST ...................................................................................... 81


10.1 INTRODUCTION...................................................................................... 81
10.2 GENERAL ...................................................................................... 81
10.3 BASE SYSTEM AND SERVICES PRICING.................................................................. 81
10.4 TEXAS LOTTERY-SPECIFIED OPTIONS................................................................... 82
10.5 TEXAS LOTTERY-INVITED OPTIONS..................................................................... 83
10.6 OFFERED OPTIONS................................................................................... 85
10.7 SUBCONTRACTING.................................................................................... 85


CONTRACT FOR LOTTERY OPERATION AND SERVICES TABLE OF CONTENTS [TEXAS LOTTERY LOGO] PAGE IV


ATTACHMENT A POLICY ON THE UTILIZATION OF HISTORICALLY UNDERUTILIZED BUSINESSES (HUBS)/MINORITY BUSINESSES...... 96


ATTACHMENT B-1 BUSINESS SUBCONTRACTING PLAN LETTER OF TRANSMITTAL............................................... 99


ATTACHMENT B-2 HUB/MINORITY BUSINESS SOLICITATION (HUB-S) DETERMINATION OF GOOD FAITH EFFORT (DGFE)........... 100


ATTACHMENT C-1 PROGRESS ASSESSMENT REPORT (HUB-PAR) DOCUMENTATION OF WORK SUBCONTRACTED....................... 102


ATTACHMENT C-2 HUB/MINORITY BUSINESS NON-SUBCONTRACTORS AFFIDAVIT (NON-SUB-AFF)................................ 103


ATTACHMENT D V.T.C.A., GOVERNMENT CODE Section 466.155........................................................ 104


ATTACHMENT E MODEL PERFORMANCE BOND........................................................................... 106


ATTACHMENT F SECURITY BACKGROUND INFORMATION.................................................................. 107


CONTRACT FOR LOTTERY OPERATION AND SERVICES TABLE OF CONTENTS [TEXAS LOTTERY LOGO] PAGE V


GLOSSARY OF TERMS


This Glossary assigns definitions to the listed terms. The definition given to a term applies whenever the term appears in GTECH's Proposal and in this Contract.


ACCEPTANCE - Written approval from the Executive Director transmitting notice to GTECH that the Texas Lottery Commission has evaluated the performance of an action by GTECH as meeting the acceptance criteria and the Texas Lottery's requirements. In the absence of defined acceptance criteria, acceptance testing shall be in the Executive Director's sole discretion.


ACCEPTANCE CRITERIA - Standards defined or established by the Texas Lottery to measure the performance or quality of goods or services offered under this Contract. The decision whether to establish acceptance criteria is in the sole discretion of the Texas Lottery, and, if established, the form and content of the criteria will be determined by the Texas Lottery.


ACCEPTANCE TESTING - System-level testing conducted by the Texas Lottery to ensure that offered goods or services meet the Texas Lottery's requirements prior to accepting goods or services from GTECH.


APPLICATION LOTTERY SOFTWARE - The games and other applications that are provided, or designed and implemented pursuant to the requirements in the RFP and this Contract and are intended to be executed in conjunction with GTECH's Base Lottery Software.


BSP - The Business Subcontracting Plan required by Chapter 2161 of the Texas Government Code and by Texas Lottery Commission Rule 16 Texas Administrative Code Section 403.301.


BACK-UP DATA CENTER - The back-up computer facility located within the State of Texas, which is maintained and operated by GTECH, such maintenance and operation to be exclusively for the Texas Lottery unless the Texas Lottery otherwise agrees in writing.


BASE LOTTERY SOFTWARE - The software to be provided by GTECH, including all necessary functionality to meet the Texas Lottery's requirements in a base system and the ability to add new applications for new games.


CONTRACT FOR LOTTERY OPERATIONS AND SERVICES GLOSSARY OF TERMS [TEXAS LOTTERY LOGO] PAGE VI


CHAIN ACCOUNTS - Retailers operating with more than one selling location and utilizing a single bank account for the Electronic Funds Transfer process.


CONTRACT - This document, which is an agreement entered into by the Texas Lottery and GTECH, which incorporates by reference specific contents of the RFP and GTECH's Proposal, and any amendments to this Contract.


CONTRACT AWARD - The signing of a Contract between the Texas Lottery and GTECH Corporation.


CORPORATE ACCOUNTS - Retailers operating with more than one selling location; achieving a $50,000 minimum weekly sales average; and utilizing a single bank account for the Electronic Funds Transfer process.


DAY - A calendar day.


DRAWING DAY - A day on which a drawing is held for any Texas Lottery On-Line game.


EXECUTIVE DIRECTOR - The Executive Director of the Texas Lottery Commission or an employee of the Texas Lottery Commission authorized to act on behalf of the Executive Director.


FACILITIES MANAGEMENT - GTECH's responsibilities to develop, manage, and operate the computer facilities, computer hardware, software, terminals, telecommunications networks, services and personnel which are necessary to provide and support Texas Lottery games.


GSC - General Services Commission, now the Texas Building and Procurement Board.


HUB - Historically Underutilized Business.


ICS - The Texas Lottery Internal Control System.


INDEPENDENT ACCOUNTS - Retailers operating with one or more selling locations and utilizing separate bank accounts in each location for the Electronic Funds Transfer process.


CONTRACT FOR LOTTERY OPERATIONS AND SERVICES GLOSSARY OF TERMS [TEXAS LOTTERY LOGO] PAGE VII


INSTANT TICKET - The ticket purchased for participation in an instant game.


INSTANT TICKET TELEMARKETING STAFF - GTECH employees and subcontractors who review Retailer inventory, determine Retailer needs and place orders for instant ticket games.


INTELLECTUAL PROPERTY RIGHTS - The worldwide legal rights or interests evidenced by or embodied in: (i) any idea, design, concept, method, process, technique, apparatus, invention, discovery, or improvement, including any patents, trade secrets, and know-how; (ii) any work of authorship, including any copyrights, moral rights or neighboring rights; (iii) any trademark, service mark, trade dress, trade name, or other indicia of source or origin; (iv) domain name registrations; and (v) any other similar rights. The Intellectual Property Rights of a party include all worldwide legal rights or interests that the party may have acquired by assignment or license with the right to grant sublicenses.


INVITED OPTION - An Invited Option is an option of specific interest to the Texas Lottery; however, the Texas Lottery makes no commitment to acquire an invited option or to any quantity or timing for acquisition of an invited option.


KEY ACCOUNT - Retailers operating with more than one selling location; achieving a $100,000 minimum weekly sales average; and utilizing a single bank account for the Electronic Funds Transfer process.


LATA - Local Access Transfer Area. A geographical area within which a divested Bell telephone company is permitted to offer local telecommunications and exchange services.


LOTTERY EQUIPMENT - The hardware and other equipment to be provided by GTECH to meet the Texas Lottery's requirements for the operation of the lottery games and related services as required by this Contract.


LOTTERY GAMING SYSTEM, GAMING SYSTEM OR SYSTEM - The system to be provided by GTECH that includes the set of Lottery Software, Lottery Network, Lottery Equipment and any other components that perform all Lottery functions, including, but not limited to, sales, validations,


CONTRACT FOR LOTTERY OPERATIONS AND SERVICES GLOSSARY OF TERMS [TEXAS LOTTERY LOGO] PAGE VIII


inventory and Retailer management, claims processing, marketing support, Instant Ticket warehousing and distribution, and reporting. These systems will provide the ability to control, monitor and report all lottery activity.


LOTTERY IN-HOUSE LOCAL AREA NETWORK - The network which enables communications between devices of the Texas Lottery facilities and personnel.


LOTTERY MANAGEMENT SYSTEM - A subset of the Lottery Gaming System used to perform Texas Lottery management functions.


LOTTERY NETWORK - A communications system provided by GTECH which provides interface and compatibility between terminals, modems, data sets, lines or other communication media and the Lottery Gaming System, the back up data center and the ICS.


LOTTERY OPERATOR - The Successful Proposer, GTECH Corporation, bound by this Contract with the Texas Lottery to perform functions, activities, and/or services in connection with the operation of the Texas Lottery.


LOTTERY SALES REPRESENTATIVE (LSR) - Any GTECH employee responsible for dealing with the Retailer sales and field services in regard to instant and On-Line games.


LOTTERY SOFTWARE - Includes both the Base Lottery Software and the Application Lottery Software, which together comprise all software in the Lottery System.


MAJOR CONTRACT - The following contracts in which the Texas Lottery has entered into or may enter into in the future are considered major contracts: lottery operations and services, advertising services, drawings auditor, financial auditor, security auditor, Instant Ticket manufacturer, and drawings television studio. The Texas Lottery may, at its sole option, add or delete contracts that are considered major contracts.


MID-RANGE TERMINAL - The GVT Extra terminal described in GTECH's Proposal, or any other terminal approved for use by the Texas Lottery, that combines, at an attractive cost, the features and benefits of instant validation terminals and On-Line terminals, allowing for On-Line sales in


CONTRACT FOR LOTTERY OPERATIONS AND SERVICES GLOSSARY OF TERMS [TEXAS LOTTERY LOGO] PAGE IX


a site typically served by an instant-only terminal, or marginally performing On-Line retailers, using dial-up, leased, or alternative communication connection.


MODIFIED BIG BANG CONVERSION - A conversion in which the existing online terminal population is gradually swapped out and replaced with the new terminal population procured by this Contract. Each new terminal will immediately communicate with the central system. This Contract will implement a Modified Big Bang Conversion.


OFFERED OPTION - An option not identified in the RFP but offered and included in the Proposal. The Texas Lottery makes no commitment to quantity or timing for acquisition of Offered Options except as specifically provided for in this Contract.


ON-LINE TERMINAL - The Isys terminal described in GTECH's Proposal and the Altura terminal described in GTECH's Proposal, available on the terms specified in this Contract and the Proposal, or any other terminal approved by the Texas Lottery, that is installed at a Retailer location for the purpose of printing and validating On-Line Tickets, validating Instant Tickets and performing pack management and accounting functions and other functions as identified in this Contract.


ON-LINE TICKET - A computer-generated ticket issued to a player, by an On-Line retailer, as a receipt for the combination of numbers a player has selected, and generated on an On-Line terminal on official Texas Lottery paper stock, by either selecting his or her own numbers or selecting Quick Pick, which is a random number generator operated by the computer. That ticket shall be the only acceptable evidence of the combination of digits, numbers, or symbols selected. On-Line Tickets may be purchased only from On-Line retailers.


OPERATING HOURS - The period of time during a Day that the Lottery designates, in its sole discretion, that instant and On-Line game sales, validations, reporting, and management functions are available. The Texas Lottery's current Operating Hours are from 6:00 a.m. to 12:00 a.m. Central Time.


PC - A Personal Computer.


CONTRACT FOR LOTTERY OPERATIONS AND SERVICES GLOSSARY OF TERMS [TEXAS LOTTERY LOGO] PAGE X


PACK - A shrink wrapped package of Instant Tickets.


PLAY SLIP - A preprinted form used for marking a player's choices that is readable by Optical Mark Readers (OMR) that are provided by GTECH or that are incorporated into devices provided by GTECH.


PLAYER ACTIVATED TERMINAL - The EZExpress terminal described in GTECH's Proposal. The EZE
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