Court Opinion

ID: 2681855
Source: CourtListenerOpinion
Date Created: 2014-07-03 14:03:02.591535+00
Date Added: 2024-06-11T12:14:19.575676
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                  APPROVAL OF THE APPELLATE DIVISION

                                     SUPERIOR COURT OF NEW JERSEY
                                     APPELLATE DIVISION
                                     DOCKET NO. A-4629-12T4

                                        APPROVED FOR PUBLICATION
IN RE CHALLENGE OF CONTRACT
AWARD SOLICITATION #13-X-22694                July 3, 2014
LOTTERY GROWTH MANAGEMENT                 APPELLATE DIVISION
SERVICES.
__________________________________

         Argued March 24, 2014 – Decided July 3, 2014

         Before Judges Yannotti, Ashrafi, and Leone.

         On appeal from the New Jersey Department of
         the Treasury, Division of Purchase and
         Property.

         Justin Schwam argued the cause for
         appellants Communications Workers of
         America, AFL-CIO, and CWA Locals 1033 and
         1037 (Weissman & Mintz, L.L.C., attorneys;
         Mr. Schwam, on the brief).

         Beth Leigh Mitchell, Assistant Attorney
         General, argued the cause for respondent New
         Jersey Department of Treasury, Division of
         Purchase and Property (John J. Hoffman,
         Acting Attorney General, and Gibbons, P.C.,
         attorneys; Ms. Mitchell, on the brief; Peter
         J. Torcicollo, Damian V. Santomauro, and
         Kevin W. Weber, on the brief).

         Gage Andretta argued the cause for
         respondent Northstar New Jersey Lottery
         Group, LLC (Wolff & Samson, P.C., attorneys;
         Mr. Andretta and David M. Dugan, on the
         brief).

    The opinion of the court was delivered by

ASHRAFI, J.A.D.
    In this appeal, a union and its locals that represent State

employees challenge the constitutionality of the State's award

of a long-term contract to a private company to provide sales

and marketing services and to manage other functions of the New

Jersey State Lottery.   The Communications Workers of America,

AFL-CIO, and CWA Locals 1033 and 1037 (collectively "the CWA")

represent employees of the New Jersey Department of the

Treasury's Division of the State Lottery ("Lottery Division").

On behalf of their members, they filed a protest of the contract

award to Northstar New Jersey Lottery Group, LLC.   The Director

of the Treasury Department's Division of Purchase and Property

("DPP") rejected the protest in a detailed written decision.

    On appeal to this court, the CWA contends that the contract

violates the amendment of the New Jersey Constitution that

authorized the State Lottery as well as a statutory provision of

the State Lottery Law, N.J.S.A. 5:9-1 to -25.   It also argues

that Northstar's bid proposal did not conform to the bid

specifications because it included an unauthorized management

fee in addition to other compensation to be paid to Northstar.

We reject these arguments and affirm the Director's decision.

                                I.

    Looking for ways to increase revenues from the Lottery

Division, the State Treasurer issued a Request for Information

                                2                          A-4629-12T4
("RFI") on December 7, 2011, soliciting "recommendations to

improve any or all aspects of the Lottery's operation including:

sales and marketing strategies and functions; product offerings;

back office operations; information technology; and financial

management."   The RFI provided some background information about

the New Jersey State Lottery:

         The Lottery has a staff of approximately 150
         employees organized around seven work
         functions, including: Administration;
         Operations; Management Information Systems;
         Marketing; Sales; Security, Audit,
         Licensing; and Finance.

         . . . .

         Sales revenues for [its current games]
         totaled over $2.6 billion for the fiscal
         year ending June 30, 2011. For the same
         period, administrative expenses totaled
         $22.3 million; sales commissions totaled
         $147 million, vendor fees totaled $33
         million, and prize expenses totaled $1.544
         billion. As a result, the Lottery was able
         to contribute $930 million to education and
         institutions on a net revenue basis.

The RFI also explained that the lottery had three existing

contracts with third-party vendors, covering products and

services for advertising, instant games, and online games, and

it stated that "[a]ny proposed services or solutions may include

the use of third party providers."

    The Treasury Department's Review Committee received several

substantive responses to the RFI that included the possible

                                3                           A-4629-12T4
privatization of lottery functions.   From these responses, the

Lottery Division and DPP developed and issued on August 10,

2012, an advertised Request for Proposal ("RFP") soliciting bids

for a contract for "Lottery Growth Management Services."    The

fifteen-year "Services Agreement" would be for management

services, goods, and equipment for the sales and marketing

operations of the New Jersey State Lottery.   Thirteen addenda

were later added to the RFP in response to questions from

potential bidders and as additional information.

    As "Manager" for the State lottery, the successful bidder

would "run the Lottery's sales and marketing operations, oversee

its product development and sales channels and maintain and

update its information technology systems, website and social

media presence."   At the time of the solicitation, the Lottery

Division or one of its subcontractors was performing these

duties.

    According to the RFP's Section 1.2.1 (OVERVIEW), "the

State's primary objective" was for the Manager to "strengthen

and maximize the future funding for State institutions and State

aid for education by maximizing a growing revenue stream in a

responsible manner."   The overview further described the

Manager's duties to include "the provision and maintenance of

                                4                           A-4629-12T4
the Central Gaming System, game development, supply of goods and

services, marketing and advertising."

    Together with its Appendix A, the RFP's Section 3.0,

entitled "SCOPE OF WORK AND OPERATIONAL RESPONSIBILITIES OF THE

MANAGER," provided a more detailed "Description of Services" to

be performed by the Manager: (1) maintaining and modifying

lottery software and websites; (2) providing data and reports to

the Division; (3) assuming control over the installation of

retail hardware, instant ticket vending machines, and

establishing an on-line portal for internet gaming; (4) game

design and development; (5) distribution and warehousing

services; (6) recruitment, training and supervision of lottery

retailers, including recommended commissions for these

retailers; (7) most aspects of lottery marketing; (8)

maintaining customer service centers; (9) developing, operating

and maintaining a responsible gambling program; (10) engaging

subcontractors, and preparing, negotiating and monitoring their

contracts; and (11) maintaining compliance with state

regulations, and preparing game rules.

    The RFP required each bid proposal to include a technical

proposal, a transition plan, a detailed account of the

qualifications and experience of the bidder, a business plan,

and net income targets.

                               5                           A-4629-12T4
    The RFP's financial model had three elements: an

accelerated guarantee payment by the successful bidder to the

State, net income targets, and shortfall payments.    The winning

vendor was required to make a one-time $120 million payment to

the State upon executing the Services Agreement.     The vendor was

also required to propose net income targets for each contract

year, and the contract would require shortfall payments to the

State, within capped limits, for any year in which the vendor

failed to meet the base income targets.

    The vendor would receive compensation from the State

calculated as a rising percentage of the year's net income in

excess of the listed contract year's base level income set forth

in the RFP.   The vendor's compensation would be capped at 5% of

the contract year's total lottery net income.

    At least 30% of the total lottery revenues would have to be

contributed to the general fund for State institutions and State

aid for education.   If necessary, the vendor's compensation

would be reduced to guarantee the 30% contribution.

    With respect to decision-making authority, the RFP

expressly declared in Section 1.2.3, entitled OVERSIGHT BY THE

DIVISION OF LOTTERY:

         At all times, the Lottery will continue to
         be conducted under the control and oversight
         and regulatory and step-in powers of the
         Division of Lottery . . . . The Division of

                                6                           A-4629-12T4
         Lottery will exercise actual control and
         oversight over all significant business
         decisions, and will retain the authority to
         direct and countermand the operating
         decisions of the Manager as described in the
         Services Agreement.

    Only one vendor, Northstar, submitted a bid proposal.

Northstar is a joint venture comprised of: (1) GTECH

Corporation, an operator and provider of gaming technology and

services based in Rhode Island, which had an existing contract

with New Jersey's Lottery Division; (2) Scientific Games

International, a provider of lottery end-to-end gaming solutions

based in Georgia; and (3) OSI LTT NJ Holdings Inc., a pension

fund of the Ontario Municipal Employees Retirement Systems.

    DPP reviewed Northstar's bid for compliance with the RFP's

mandatory elements, and then sent the bid to DPP's Evaluation

Committee for close review.   On January 28, 2013, the Evaluation

Committee requested clarification from Northstar regarding: (1)

Northstar's Technology Plan; (2) the variance between

Northstar's projected net income targets and what Northstar had

termed its Pro Forma Net Income Calculations; and (3) a proposed

"Management Fee" included in Northstar's bid submission.    On

January 31, 2013, Northstar submitted its responses with

attachments, and a few days later gave an oral presentation to

the Evaluation Committee.

                                7                          A-4629-12T4
    By letter dated February 4, 2013, the Evaluation Committee

requested that Northstar submit a best and final offer ("BAFO"),

increasing its net income targets and withdrawing the proposed

management fee.   On February 7, 2013, Northstar submitted

increased net income targets by a cumulative value of $48.5

million and reduced its management fee to $4.75 million.

    On March 8, 2013, DPP met with Northstar to clarify the

BAFO response and requested a second BAFO.   After Northstar

declined to modify its BAFO, the technical advisor to the

Evaluation Committee requested additional information about the

management fee.   Northstar's responses included confirmation

that invoices for the management fee would be prepared and

presented in accordance with the terms of the Services

Agreement.   On March 27, 2013, DPP requested a final BAFO, and

Northstar responded with increases to its net income targets by

an aggregate of $3.4 million.

    On April 2, 2013, the Evaluation Committee submitted its

report and recommended that the contract be awarded to

Northstar.   It found "Northstar's proposal meets the objectives

of the RFP," and "that award of a contract to Northstar would

provide the State with proven and diversified lottery management

capabilities, comprehensive U.S. and international lottery

experience, expertise within the lottery industry, and a

                                8                            A-4629-12T4
management team with extensive New Jersey and global lottery-

industry experience."   Regarding the management fee, the

Evaluation Committee concluded it "is a justifiable expense,

necessary and reasonable for Northstar to achieve its business

plan."

    After DPP issued a notice of intent to award the contract

to Northstar, the CWA filed its protest on April 17, 2013.

Northstar submitted a reply, and the parties to the protest made

an oral presentation before DPP's Director on May 3, 2013, and

final written replies a few days later.    On May 20, 2013, the

DPP Director issued a forty-page written decision rejecting

CWA's protest, refusing to grant a stay, and authorizing DPP to

proceed with the contract.

    On May 30, 2013, CWA filed a notice of appeal and then

promptly moved before this court for an emergent stay of the

awarding of the contract.     On June 11, 2013, we denied a stay

but accelerated the appeal.    On June 20, 2013, the Services

Agreement was executed, and sometime in 2013, Northstar paid

$120 million to the State Lottery Fund and began implementing

the contract.

                                 II.

    As a preliminary matter, DPP argues that the CWA lacked

standing to protest the awarding of the contract on

                                  9                         A-4629-12T4
constitutional and statutory grounds after Northstar submitted

its bid and the DPP accepted it.      DPP argues those grounds could

only be raised as a protest to the RFP before a bid was

submitted.   In response, the CWA cites In re Protest of Award of

New Jersey State Contract A71188 for Light Duty Automotive

Parts, 422 N.J. Super. 275, 289 (App. Div. 2011), and contends

that DPP cannot fault the CWA for failing to file a protest

before the contract was awarded because, pursuant to N.J.A.C.

17:12-3.2, only vendors and potential bidders could protest the

bid specifications.   It cites the same case and O'Shea v. New

Jersey Schools Construction Corporation, 388 N.J. Super. 312,

318 (App. Div. 2006), in support of its argument that New Jersey

taxpayers, and organizations whose members include New Jersey

taxpayers, have standing to make a post-bid challenge to the

awarding of a public contract.     See also Loigman v. Twp. Comm.

of Middletown, 297 N.J. Super. 287, 295-96 (App. Div. 1997)

("Generally, taxpayer intervention is appropriate where there

are claims of fraud or corruption, or other instances of

illegalities and ultra vires acts . . . [and] claims of illegal

bidding procedures." (citations omitted)).

    Because DPP has not argued that a post-bid protest may only

be brought by an individual taxpayer, we will not address

whether an organization comprised of New Jersey taxpayers has

                                 10                          A-4629-12T4
standing to protest the contract award and pursue an appeal.

Given New Jersey's traditionally liberal view of standing to

seek judicial remedies, see, e.g., Jen Elec., Inc. v. Cnty. of

Essex, 197 N.J. 627, 645 (2009) (citing N.J. Builders Ass'n v.

Mayor of Bernards Twp., 219 N.J. Super. 539 (App. Div. 1986),

aff'd, 108 N.J. 223 (1987)); Crescent Park Tenants Ass'n v.

Realty Equities Corp. of N.Y., 58 N.J. 98, 107-12 (1971), we

reject DPP's contention that the CWA acted too late in

protesting the contract on constitutional and statutory grounds.

                                III.

    We begin with a brief history of the New Jersey State

Lottery, its constitutional authorization, and the statutory

provisions that control its administration and operations.

                                 A.

    Constitutional Authorization and Creation of the Lottery

    Lotteries existed in New Jersey in the early history of

this State.   New Jersey's Constitution of 1844 banned them,

stating that "no lottery shall be authorized by this state; and

no ticket in any lottery not authorized by a law of this state

shall be bought or sold within the state."   N.J. Const. of 1844

art. IV, § 7, ¶ 2.   In 1897, an amendment of that constitution

prohibited gambling entirely.   With the exception of parimutuel

betting at horse racing tracks, which was authorized in 1939,

                                 11                       A-4629-12T4
the prohibition on gambling was carried into New Jersey's

current Constitution adopted in 1947.    See In re Petition of

Casino Licenses for Approval of New Game, Rulemaking & Auth. of

a Test, 268 N.J. Super. 469, 472 (App. Div.), aff'd o.b., 138

N.J. 1 (1993).    The 1947 gambling ban required a majority vote

of the people to authorize by constitutional amendment any

exception.1   Such exceptions were made in 1953 for bingo games

and raffles held by charitable, religious, and other non-profit

organizations.    N.J. Const. art. IV, § 7, ¶¶ 2(A) and 2(B).

       In February 1969, the Legislature resolved in a concurrent

resolution to put the question of establishing a State lottery

to the voters.    Assemb. Con. Res. 32, 193rd Legis. Sess. (1969).

In the general election of November 1969, a majority of voters

approved the constitutional amendment to permit a State lottery

by a vote of 81.4% to 18.6%.    The amendment stated:

1
    The 1947 Constitution states:

            No gambling of any kind shall be authorized
            by the Legislature unless the specific kind,
            restrictions and control thereof have been
            heretofore submitted to, and authorized by a
            majority of the votes cast by, the people at
            a special election or shall hereafter be
            submitted to, and authorized by a majority
            of the votes cast thereon by, the legally
            qualified voters of the State voting at a
            general election . . . .

            [N.J. Const. art. IV, § 7, ¶ 2.]

                                    12                      A-4629-12T4
           It shall be lawful for the Legislature to
           authorize the conduct of State lotteries
           restricted to the selling of rights to
           participate therein and the awarding of
           prizes by drawings when the entire net
           proceeds of any such lottery shall be for
           State institutions and State aid for
           education . . . .

           [N.J. Const. art. IV, § 7, ¶ 2(C) (emphasis
           added).]

    The Legislature then created a New Jersey State Lottery

Planning Commission ("Planning Commission") and directed it "to

formulate a report, including legislation and an administrative

program for the conduct of a State Lottery, for submission to

the Governor and the Legislature."    Joint Res. No. 11, 193rd

Legis. Sess. (1969).   The Planning Commission was to study

lotteries operated in other states "with the ends in view of

devising a lottery system of broad appeal with frequent

drawings, effective controls and such other features which will

achieve, to the maximum practicable extent, the objectives of

the constitutional amendment."   Ibid.

    Although the Planning Commission's research benefitted from

the experience of other states, its report to the Legislature

stated that the information it had gathered was "not adequate

. . . to define clearly the optimal lottery structure for New

Jersey."   It added that "actual operating experience in this

State" was necessary to devise the best system, and "[t]he

                                 13                        A-4629-12T4
structure of this lottery, and the legislation which is to

govern its operation, must be adaptable to such new information

as may become available in the years ahead."   Report of the

State Lottery Planning Commission at iv (Feb. 9, 1970).2

     The Planning Commission divided the general "issues" to be

addressed by the Legislature into two categories: the

administrative structure and the operating structure of the

lottery.   With respect to the administrative structure, the

Planning Commission stated:

           There are two major criteria which must be
           met by the administrative organization of
           the lottery. First . . . to . . . attract
           the confidence of the public. . . . Second
           . . . to achieve the goals of the lottery
           operation, as set by collective public
           opinion . . . .

           [Id. at 4.]

     In pursuit of these objectives, the Planning Commission

proposed that the Legislature should:

           Establish a lottery division in the
           Department of the Treasury, to be
           administered by a five-man commission and a
           full-time operating director. These
           officials will be appointed by, and
           accountable to, the Governor of this State,
           who shall have veto power over the decisions
           of said commission. This administrative
           structure is designed to ensure the complete

2
  Available at http://dspace.njstatelib.org:8080/xmlui/
bitstream/handle/10929/32330/g1911970.pdf?sequence=1.

                                14                         A-4629-12T4
         integrity of, and full public confidence in,
         the operation of the State lottery.

         [Id. at v.]

Also, "to ensure the integrity of the lottery," the Planning

Commission recommended "that the State Auditor be required to

conduct an annual post-audit of the transactions and accounts of

the lottery division."   Id. at 7.

    Addressing the future financial success of the lottery, the

Planning Commission stated that the lottery "must be operated as

a public business enterprise" if it is to attain its full

potential as a source of revenue.    Ibid.   It recognized that

"promotion and advertising will be required."    Ibid.

    The Planning Commission placed the task of making policy in

the hands of the five-person commission it proposed, but a

Lottery Director would exercise executive authority and operate

the lottery:

         A full-time operating director will likewise
         be appointed by the Governor, with the
         advice and consent of the Senate. To a
         large extent, the task of implementing a
         successful lottery system in the State will
         be his. The director must, of course, be an
         able administrator. However, he must be an
         able businessman in other respects as well,
         particularly to the extent that a successful
         lottery will require successful marketing.

         [Ibid. (emphasis added).]

                                15                          A-4629-12T4
    With respect to the lottery's operating structure, the

Planning Commission discussed a number of specific issues:

         A number of decisions must be made before a
         lottery can be put into operation . . .
         includ[ing] the frequency with which
         drawings should take place, the manner of
         determining winners, the prices of lottery
         tickets, the structure of prizes, the form
         of ticket distribution, the types and
         amounts of promotion and advertising, and
         how winners shall be notified and paid.

         [Id. at 4-5.]

    To the Planning Commission, flexibility was a vital feature

in addressing the operating structure of the lottery.   Id. at 5.

Its report stated that "the authority to specify and modify as

required the operating structure and characteristics of the

lottery should be delegated to the lottery commission rather

than specified in detail by the legislation."   Id. at 8.   Thus,

the Planning Commission proposed that any legislation should

"[p]rovide sufficient flexibility to the lottery division so

that it may make and implement those decisions which appear

necessary to best ensure that the lottery will succeed in

achieving its goals."    Id. at vi.

    The Planning Commission explained its reasoning further:

         Only experience and experimentation in this
         State can provide the information which is
         required, and it is for this reason that
         this [Planning] Commission recommends most
         strongly that the permanent commission and
         director which it proposes be allowed the

                                 16                         A-4629-12T4
           maximum possible flexibility commensurate
           with preserving the full trust and
           confidence of the citizens of this State.
           In particular, it is important to avoid
           unnecessary rigidities in the legislation
           which will inhibit the lottery commission's
           ability to modify the lottery so as to
           increase public interest and participation.

           [Id. at 5 (emphasis added).]

    Again with an eye to the future, the Planning Commission

mentioned one example of likely participation by private

entities in operating the lottery: "increasing mechanization of

the lottery . . . might be performed more efficiently by a

private contractor than by the State."    Id. at 28.

    The Planning Commission's proposed legislation implementing

these recommendations was passed by the Legislature with few

changes, and the State Lottery had its first drawing on January

7, 1971.

                                     B.

             State Lottery Law, N.J.S.A. 5:9-1 to -25

    The Legislature's purpose in enacting the State Lottery Law

is stated in N.J.S.A. 5:9-2:

                This act is enacted to implement the
           amendment of Article IV, Section VII,
           paragraph 2, of the Constitution of New
           Jersey, approved by the people in the
           general election of November, 1969, and to
           carry out the mandate thereof by establish-
           ing a lottery to be operated by the State,
           the entire net proceeds of which are to be

                                17                         A-4629-12T4
         used for State institutions and State aid
         for education.

         [(emphasis added).]

The language of N.J.S.A. 5:9-2 has not changed since it was

proposed by the Planning Commission and enacted by the

Legislature in February 1970.   L. 1970, c. 13, § 2.

    The State Lottery Law "established in the Department of the

Treasury a Division of the State Lottery, which shall include a

State Lottery Commission and a director."   N.J.S.A. 5:9-4.   The

powers and duties of the Lottery Commission were set forth in

N.J.S.A. 5:9-7.   Among them was the promulgating of rules and

regulations to implement the constitutional "mandate of the

people" and to "produce the maximum amount of net revenues for

State institutions and State aid for education."   In addition to

a myriad of other subjects, the statute authorizes the Lottery

Commission to establish rules and regulations for:

         the payment of costs incurred in the
         operation and administration of the lottery,
         including the expenses of the division and
         the costs resulting from any contract or
         contracts entered into for promotional,
         advertising or operational services or for
         the purchase or lease of lottery equipment
         and materials . . . .

         [N.J.S.A. 5:9-7(a)(11)(b) (emphasis added).]

    The Lottery Director's powers and duties are set forth in

N.J.S.A. 5:9-8.   They include supervising and administering the

                                18                        A-4629-12T4
operation of the lottery, appointing or hiring employees of the

Lottery Division, advising the Lottery Commission, and

certifying each month to the State Treasurer and the Lottery

Commission the revenues, expenses, and prize disbursements of

the lottery.    Ibid.   In addition, subsection (h) of the statute

specifically authorized the Lottery Director to enter into

contracts for the operation and promotion of the lottery.     L.

1970, c. 13, § 8 (codified at N.J.S.A. 5:9-8(h)).

    In 1983, the Legislature amended N.J.S.A. 5:9-8(h), which

now reads:

            Subject to the approval of the commission
            and the applicable laws relating to public
            contracts, to act on behalf of the
            commission as using agency with respect to
            purchases made by the Division of Purchase
            and Property of goods and services required
            in the operation of the lottery.

            [L. 1983, c. 60, § 2 (codified at N.J.S.A.
            5:9-8(h)) (emphasis added).]

    The question on this appeal is whether a contract as broad-

ranging as that awarded to Northstar for fifteen years is within

the authorized powers of the Lottery Director and the Lottery

Division.

                                 IV.

    The CWA alleges the State's contract with Northstar

unlawfully privatizes many of the Lottery Division's duties

currently being performed by State employees.    It contends the

                                  19                        A-4629-12T4
contract violates the State Constitution because the 1969

amendment authorizes only "the conduct of State lotteries,"

which the CWA argues means a lottery "conducted by the State."

Similarly, it contends the contract violates the State Lottery

Law because N.J.S.A. 5:9-2 authorizes only "a lottery to be

operated by the State," not by a private entity.

    The CWA does not argue that the Lottery Division has no

power whatsoever to contract with outside vendors.   It

acknowledges that for decades the Lottery Division has

contracted with privately-owned vendors for services such as

advertising, ticket printing, and instant and online game

management.   See In re Protest of Award of On-Line Games Prod. &

Operation Servs. Contract, Bid No. 95-X-20175, 279 N.J. Super.

566 (App. Div. 1995) (five-year contract to implement and

operate on-line gaming system).    Instead, the CWA argues that

the sales and marketing operations of the Lottery Division are

non-delegable functions of the State and may not legally be

conducted by a private entity.    It contends the line has been

crossed with this contract, and that the Lottery Division and

the Lottery Director have relinquished "operation" of the

lottery to a private, profit-making interest.

    DPP and Northstar respond that the Lottery Division and

Director continue to operate the lottery because they retain

                                  20                        A-4629-12T4
tight control over Northstar and any other subcontractor

involved in the implementation of the disputed contract.

Respondents rely on the history of the State Lottery Law and the

experience and decisions of other jurisdictions that have

addressed similar issues in awarding contracts to private

entities.   They contend that neither the State Constitution nor

the State Lottery Law requires that all functions of the lottery

be performed by State employees, and that there is no logic to

the CWA's argument that the sales and marketing functions cross

a line when the Lottery Division has contracted lawfully in the

past with respect to other functions.

    As to management functions that the contract delegates to

Northstar, respondents emphasize that a number of these

functions are already being performed by private vendors and

that the policy-making and overall administrative functions of

the lottery remain with the Lottery Commission and the Lottery

Director.   They add that oversight, supervision, and veto power

over Northstar's business decisions are prominently retained by

the Lottery Division through the Services Agreement, thus making

the Lottery Division, not Northstar, the operator of the

lottery.

    Focusing on the word "operated" in N.J.S.A. 5:9-2, both

sides argue that its meaning is plain, but each side claims the

                                21                          A-4629-12T4
plain meaning leads to its own understanding of the word in the

context of this dispute.    The CWA asserts that the only possible

interpretation of N.J.S.A. 5:9-2 is: "The creation of a State

Lottery, operated solely by the State, by State workers, with

proceeds flowing entirely to the State."    It argues that the

phrase "operated by the State" is distinguishable from

"regulation and control by" the State, and that it is not enough

that the Division retains oversight over Northstar's actions and

decisions.

    The CWA cites Atlantic City Racing Association v. Attorney

General, 98 N.J. 535, 546 (1985), to support its claim that all

provisions affecting an exception to the constitutional ban on

gambling must be narrowly interpreted and must follow the intent

of the original drafters.     It objects to any reliance on

judicial decisions from other jurisdictions on the ground that

the laws of other states are distinguishable from New Jersey's

unique constitutional and statutory provisions applicable to the

lottery.     Instead, the CWA asserts that we should compare our

lottery laws to our own Casino Control Act, N.J.S.A. 5:12-1 to

-233, where the State exercises only regulatory control over the

operations of privately-owned casinos.     By that comparison, the

CWA contends the Legislature intended to require more than just

regulatory control and oversight of privately-owned entities

                                  22                          A-4629-12T4
when it enacted the State Lottery Law and required the State to

"operate" the lottery.

    DPP responds that the CWA has inserted "solely" into the

wording of N.J.S.A. 5:9-2 as a limitation on how the Lottery

Division may "operate" the lottery, but the statute does not

contain that word and is not so restricted.    DPP and Northstar

emphasize many specific provisions of the Services Agreement to

demonstrate the level of decision-making control that the

Lottery Division retains and the close oversight and supervision

of the Manager's activities that will remain in the hands of the

Lottery Director and the Lottery Commission.   They also point

out that the Lottery Commission will continue to make all policy

decisions and the Lottery Division will retain many functions of

the lottery.   Among the retained functions, the drawing of

winning tickets, identifying winners, and awarding prizes remain

functions of the Lottery Division and are not within the scope

of duties of the Manager under the Services Agreement.

    Although we ordinarily give substantial deference to an

agency's decision to award or reject a bid proposal, Keyes

Martin & Co. v. Dir., Div. of Purchase & Prop., 99 N.J. 244, 252

(1985); On-Line Games, supra, 279 N.J. Super. at 591-92, the

issue before us is one of constitutional and statutory

interpretation, to which we apply a plenary standard of review.

                                23                          A-4629-12T4
See Murray v. Plainfield Rescue Squad, 210 N.J. 581, 584 (2012);

Zabilowicz v. Kelsey, 200 N.J. 507, 512-13 (2009).

    The court's "task . . . is to determine and effectuate the

Legislature's intent."    Bosland v. Warnock Dodge, Inc., 197 N.J.

543, 553 (2009).    Our analysis begins with the words of the

enactment, which are to be given their generally accepted

meaning, and are to be read in context of the legislation as a

whole.    Ibid.; DiProspero v. Penn, 183 N.J. 477, 492 (2005).

    When the Legislature's language is clear and unambiguous,

and subject to only one interpretation, we apply the statute's

plain meaning.     Bosland, supra, 197 N.J. at 553-54; DiProspero,

supra, 183 N.J. at 492-93; O'Connell v. State, 171 N.J. 484, 488

(2002).   But when the statutory language is ambiguous and

subject to more than one reasonable interpretation, we must look

to extrinsic evidence, such as legislative history, judicial

interpretation, and rules of statutory construction.    Bosland,

supra, 197 N.J. at 553-54; DiProspero, supra, 183 N.J. at 493-

94; State v. Fortin, 178 N.J. 540, 607 (2004).

    In our view, the phrases "the conduct of State lotteries"

in the constitutional amendment and "operated by the State" in

N.J.S.A. 5:9-2 are too ambiguous to resolve the dispute in this

appeal without resort to extrinsic sources.    We agree with DPP's

assertion that the CWA's plain meaning argument adds an extra,

                                  24                         A-4629-12T4
modifying term to these phrases, that is, a requirement that all

State Lottery functions be performed solely or exclusively by

State employees.    On the other hand, the constitutional and

statutory phrases are not meaningless, and ultimately the

lottery must be conducted and operated by the State, and not by

a private entity.

    Looking at extrinsic evidence of the Legislature's intent,

it is clear from the Planning Commission's report that

flexibility was intended in developing optimal means of

operating the lottery through experiment and experience.

Viewing administration of the lottery from a broad perspective,

the Planning Commission envisioned a structure that included

policy-making and overall responsibility for the integrity of

the State Lottery and for accomplishment of the constitutional

objectives.   As to the lottery's operating structure, the

Planning Commission considered the more immediate business

decisions pertinent to developing and managing a successful

lottery and urged flexibility and room for modification.     It

recognized that certain functions would be contracted out to

private enterprise.   The State Lottery Law enacted by the

Legislature in 1970 essentially mirrored the proposed

legislation recommended by the Planning Commission, and

                                 25                          A-4629-12T4
therefore, the Legislature adopted the Planning Commission's

views and objectives.

    Because the State Lottery must retain the confidence of the

public, the State Lottery Law must be read to maintain in the

Lottery Commission and the Lottery Director the power to

determine policy and to make major business decisions.     Those

State officials are answerable to the Governor and to the

Legislature.   However, we do not read the State Lottery Law as

requiring that day-to-day functions of the lottery, including

management functions, must be performed only by State employees.

Nor do we find a viable distinction in the sales and marketing

functions of the Lottery Division with other functions that have

historically been conducted through contracting with privately-

owned, profit-making vendors.   Indeed, N.J.S.A. 5:9-7(a)(11)(b)

specifically anticipates that the State can issue contracts "for

promotional, advertising or operational services."

    Other jurisdictions have reached the same conclusion when

considering similar issues regarding the authority of a state

agency to delegate operational functions of the state lottery to

private entities, or multi-state entities that operate games

such as Mega Millions.   See State ex rel. Six v. Kansas Lottery,

186 P.3d 183, 189-94 (Kan. 2008); Dalton v. Pataki, 835 N.E.2d

                                26                          A-4629-12T4
1180, 1197-98 (N.Y.), cert. denied, 546 U.S. 1032, 126 S. Ct.

739, 163 L. Ed. 2d 571 (2005).3

     As DPP and Northstar point out, the Services Agreement

contains many provisions retaining control of the lottery's

operation with the Lottery Division and the Lottery Director.

Section 1.1 confirms as a purpose of the Services Agreement that

the State and the Lottery Division will "continu[e] to conduct

and maintain oversight and control over the Lottery."    Section

2.2 describes the general responsibilities of the Lottery

Division to:

          continue to have actual control and
          oversight over the conduct of all Lottery
          operations by retaining the authority to
          direct or countermand Manager's operating
          decisions, maintaining ready access to
          information regarding all aspects of Lottery
          operations, and retaining ownership of all
          Lottery assets including all State
          Intellectual Property.

     Section 5.1, entitled "Governance," requires Northstar to

obtain approval of the Lottery Division before making "any

3
  See also U.S. Department of Justice, Office of Legal Counsel,
"Scope of Exemption Under Federal Lottery Statutes for Lotteries
Conducted by a State Acting Under the Authority of State Law"
(Oct. 16, 2008) (concluding that a state could retain a vendor
to perform lottery management services without violating federal
law, which prohibits interstate advertisement or promotion of
lotteries except when conducted by a state under its laws, 18
U.S.C. §§ 1307(a)(1), 1307(b)(1), 1953(b)(4)) available at
http://www.justice.gov/olc/opiniondocs/state-conducted-
lotteries101608.pdf.

                                  27                        A-4629-12T4
material change from those business practices and decisions

already Approved by the Division of Lottery and/or the State."

The related Schedule 5.1 of the Services Agreement, entitled

"Governance Protocols," states that "[t]he Division of Lottery

must exercise actual control over all significant business

decisions made by Manager at all times." (emphasis added).     It

specifically provides "Unconditional Veto Power" to the Lottery

Director over any decision of Northstar as the Manager.

Describing "actual control" by the Lottery Division as

"fundamentally imperative to a fully-compliant governance

structure," the Services Agreement states: "[T]he Parties

expressly agree that the Division of Lottery . . . shall have

the sole, absolute, and unconditional right to veto or

countermand, with or without conditions, any action taken by

Manager whatsoever . . . ."

    Also, Section 13.2 permits the Lottery Division to

terminate the agreement "for convenience" upon ninety days'

notice to Northstar and payment of existing obligations under

the agreement and a termination fee.   In the event of such

termination, the State is not liable to Northstar for loss of

future profits.

    These provisions demonstrate that the lottery remains a

State operation, with certain functions and duties delegated to

                               28                           A-4629-12T4
a private entity.   In sum, we conclude that the Northstar

contract is not a violation of the constitutional amendment that

authorized our State lottery or the State Lottery Law.

                                  V.

    The CWA contends the contract must be rebid because

Northstar's annual management fee represents an unlawful

material deviation from the RFP's bid specifications.     It claims

that the management fee of $4.75 million per year is for

services beyond the RFP's scope of work of the Manager, and that

its inclusion in Northstar's bid proposal and acceptance by DPP

is a deviation contrary to the salutary purposes of the

competitive bidding process.

    As we previously stated, we defer to DPP's determination to

award or reject a bid proposal.    Keyes Martin & Co., supra, 99

N.J. at 252; On-Line Games, supra, 279 N.J. Super. at 591-92.

Where, as in this case, the question is whether a bid deviated

from material requirements of the RFD, the Director's decision

is tested by the "ordinary standards governing administrative

action."   On-Line Games, supra, 279 N.J. Super. at 593.    More

specifically, these standards include:

           whether the record contains substantial
           evidence to support the findings on which
           the agency based its action; and . . .
           whether in applying the legislative policies
           to the facts, the agency clearly erred in
           reaching a conclusion that could not

                                  29                         A-4629-12T4
            reasonably have been made on a showing of
            the relevant factors.

            [Ibid. (quoting George Harms Constr. Co. v.
            N.J. Tpk. Auth., 137 N.J. 8, 27 (1994).]

    Initially, the DPP Director was required to decide whether

Northstar's bid deviated from the RFP.     See id. at 594.     "If

there is no deviation, the bid must be deemed conforming.        If

there is a deviation, a decision must be made as to whether it

is material and can be waived."    Ibid.   If a deviation is

material and non-waivable, the inquiry is:

            "whether the effect of a waiver would be to
            deprive [the agency] of its assurance that
            the contract will be entered into, performed
            and guaranteed according to its specified
            requirements, and second, whether it is of
            such a nature that its waiver would
            adversely affect competitive bidding by
            placing a bidder in a position of advantage
            over other bidders or by otherwise under-
            mining the necessary common standard of
            competition."

            [Id. at 594-95 (quoting Twp. of River Vale
            v. R.J. Longo Constr. Co., 127 N.J. Super.
            207, 216 (Law Div. 1974)).]

    In its original bid proposal, Northstar included under the

category of its management expenses a $5 million "Management

Fee" that would increase by two percent annually.       The

Evaluation Committee requested clarification and subsequently

asked Northstar to withdraw the management fee from its

proposal.    In response, Northstar reduced the fee to $4.75

                                  30                           A-4629-12T4
million per year, and it increased its net income targets for

the lottery by an aggregate of more than $50 million.

    Northstar described the purpose of the management fee as

follows:

           The annual Management Fee compensates
           Northstar for management services provided
           by its stakeholders to Northstar for the
           benefit of the Lottery. These management
           services are not separately accounted for in
           the supply contracts between Northstar and
           its stakeholders (GTECH and Scientific
           Games). . . .

           [T]hese management services include, but are
           not limited to:

                Support from corporate personnel of
                 Northstar's stakeholders related to:

                   o Application of international best
                     practices.
                   o National retail chain business
                     development and execution.
                   o Marketing activities and retail
                     best practices (including data
                     analytics, retailer design, and
                     merchandising).
                   o Player loyalty management.
                   o Finance and tax support.
                   o Legal and compliance.
                   o Responsible gaming program
                     support.

                Governance duties performed by the
                 Board of Directors.

    Northstar reported that the management fee does not include

any compensation for bonuses paid to the employees or personnel

of the corporate stakeholders, and is not otherwise included in

                                 31                       A-4629-12T4
its overhead or subcontractor expenses.    It assured the

Evaluation Committee that it would submit monthly invoices for

the management fee in accordance with the requirements of the

Services Agreement, and subject to restrictions on expenses in

excess of budgeted amounts.   It stated in retrospect that the

management fee might have been better categorized as a

subcontractor expense, although the subcontractor would be

Northstar's own stakeholders.   After further inquiry and

investigation, the Evaluation Committee acceded to Northstar's

inclusion of the management fee, finding the fee and its

included services "a justifiable expense, necessary and

reasonable for Northstar to achieve its business plan."

    In her written decision, the DPP Director reviewed the

facts and "conclude[d] that Northstar NJ's inclusion of a

management fee is not an exception to the RFP, material or

otherwise."   She specifically found "that the management fee as

clarified during the negotiations is an 'Operating expense' as

that term was defined in the RFP," and that "the services to be

performed in exchange for the management fee are within the

scope of services outlined in Appendix A of the RFP."

    The CWA claims the Director erred because the services

covered by the management fee are outside the RFP's Scope of

Work of the Manager.   We disagree.   The RFP's Section 3.0 (SCOPE

                                32                          A-4629-12T4
OF WORK AND OPERATIONAL RESPONSIBILITIES OF THE MANAGER)

includes the following provision:

         Except for those functions or services
         specifically defined in Schedule 2.2 of the
         Services Agreement (which are reserved by
         the Division of Lottery), Manager's
         functions and responsibilities shall
         include, but not be limited to, those
         functions and responsibilities set forth in
         Appendix A to the RFP and such other
         functions which are an inherent, necessary
         or customary part of the functions and
         responsibilities associated with the Lottery
         . . . .

         [(emphasis added).]

    Northstar's description of the work associated with its

management fee, to the extent not specifically described in the

Services Agreement, can be categorized within Section's 3.0

catchall language.   Northstar explained to the satisfaction of

the Evaluation Committee and the DPP Director the reasons it

needed to charge a separate fee for the management services of

its stakeholders' corporate personnel in implementing its

business plan for managing the lottery.   Whether described as a

management expense or a subcontractor expense, the DPP Director

viewed the management fee as an operational expense of Northstar

that was within the specifications of the RFP and would be

accounted for in accordance with the terms of the Services

Agreement.   Furthermore, we note that DPP allowed the management

fee only after it was reduced and Northstar increased its net

                                33                          A-4629-12T4
income targets.   See State Contract A71188, supra, 422 N.J.

Super. at 296 ("Courts have approved post-bid modifications to

an awarded public contract when the public entity negotiates

more favorable terms.").

    The DPP Director properly exercised her discretion in

determining that Northstar's bid proposal conformed to the bid

specifications.

    Affirmed.

                                34                        A-4629-12T4