Brazil: Caixa contract of Lotex tickets without competition is suspended by the court

The starting point for this report was the publication in the Federal Official Gazette (DOU) of the authorisation from the president of Caixa Econômica Federal, Carlos Vieira, for the CEO, Lucíola Aor Vasconcelos and the Executive Director of CAIXA Loterias S/A, Maria Thereza da Silva Moreira Assunção, as well as Caixa Econômica Federal's National Lottery Superintendent, to take part in a technical visit to the consortium's factories for supplying tickets for the Exclusive Instant Lottery - LOTEX, in the cities of Beijing and Shenzhen, China, from 23 May to 1 June.

The consortium referred to in the DOU publication is made up of Chinese operators Genlot Game Technology and BZP- Beijing Zhongcai Printing Co. (a Chinese-French joint venture between China Welfare Lottery, France Des Jeux of France and Berjaya of Malaysia).

Normally, technical visits to a supplier's premises take place after the outcome of a tender or competition and in this case, the Chinese company has almost been contracted by Caixa. Almost, because the judge of the 14th Federal Civil Court of the Federal District, Waldemar Claudio de Carvalho, granted an injunction in a writ of mandamus filed by an aggrieved consortium and suspended the contracting process without competition.

The contracting process

Instead of complying with current legislation by publishing a public notice with a competitive procedure, Caixa sent a restricted group of instant lottery ticket and service suppliers a ‘term of reference’ inviting them to formally express their interest in taking part in a future competitive process by signing a confidentiality agreement with the bank.

The ‘terms of reference’ had inconsistencies that left room for interpretation regarding the qualification requirements for bidders, especially those aimed at foreign participants, consortia and special purpose companies.

Object with subcontracting

One of the distortions is that MF Ordinance No. 1,646/2023 authorised the transitional operation of Lotex directly by Caixa, but the ‘terms of reference’ stated that the contracted company would carry out practically all the services that should be carried out by the bank, which contradicts the direct provision of services.

The object envisages subcontracting the provision of services for the commercialisation of physical tickets (specifications, production, storage, distribution and collection); digital tickets (specifications, production and commercialisation of digital tickets on an online/real-time portal/application); the bettor's electronic wallet (registration and commercialisation of virtual tickets); solution for payment of prizes with respective tax payments, in physical and digital form; technological solution for running Lotex, including online and real-time information and generation of reports; data interface for integration of sales information and payment of prizes; service to lottery points of sale to order tickets virtually or by telephone; and rendering of accounts.

Quality criteria different from most lotteries

Another problem identified in the ‘terms of reference’ is the requirement for higher quality criteria than market practice. Caixa demands that the variable data must be printed randomly and legibly by a computerised system, with a minimum definition of 300 x 300 dpi (dots per inch). This criterion is considered strange since the three main manufacturers of instant tickets certified by the World Lottery Association - WLA offer a resolution of 240×240 dpi and more than 95 per cent of the world's largest lotteries require variable data printed with the same resolution.

Prize plan

The biggest inconsistency in the ‘terms of reference’ is in the definition of the prize plan, which uses the concept established for the Federal Lottery for application in the instant lottery modality.

Although MF Ordinance No. 1,646/2023 states that the plans for issuing and distributing Lotex in physical form should follow a system similar to that used to operate the Federal Lottery in terms of defining, in each series, the price of the ticket plan and the maximum amount per ticket to be charged to the player, Caixa's proposal excludes from Lotex's revenue the commission expenses of Caixa's own lottery network, which should be included in its 18.3% remuneration percentage.

In addition, it could lead to a lower allocation to all the other entities that receive percentages as provided for in law 13.756/18: such as social security; the National Public Security Fund (FNSP); the Ministry of Sport; the National Culture Fund (FNC); football sports organisations; and, obviously, the bettors due to the destination of the prize.

In other words, Caixa suggests modifying the provisions of law 13.756/18 through a ‘term of reference’ and jeopardising the transfers to the legal beneficiaries.

The details cannot be disclosed because the ‘integrated contracting’ process is under judicial secrecy, but the suspension of the contracting of a private partner for the execution of the Exclusive Instant Lottery - Lotex is suspended in order to preserve the public interest and the constitutional principles of legality, morality and publicity.