The Lottery: It's a rollover

Branson is given a month to improve his bid while GTech connection costs Camelot its franchise

Sir Richard Branson is poised to take control of the National Lottery after Camelot was told its bid to continue running the £5bn-a-year game had been rejected.

Sir Richard Branson is poised to take control of the National Lottery after Camelot was told its bid to continue running the £5bn-a-year game had been rejected.

In an announcement that stunned both companies, the National Lottery Commission announced yesterday that it had rejected their bids because of continuing weaknesses in their proposals.

In a further twist, the commission's chairwoman, Dame Helena Shovelton, added to the shock on both sides by stating that the commission had decided to give Sir Richard's not-for-profit company, The People's Lottery, an extra four weeks to improve its bid.

Sir Richard, who had been trapped on his Caribbean island home of Necker by Hurricane Debby, was given the news by telephone. Speaking as he prepared to fly back to London, he said he was "pleased" with the decision. "I am hopeful that we can finally deliver to the people of Britain the Lottery they want," he said.

The new Lottery is due to start on 1 October 2001, with a licence due to run for seven years. Both sides had pledged to raise £15bn for good causes, 50 per cent more than under the present licence. The commission, however, said it believed that estimate was too optimistic.

Dame Helena revealed that Camelot's bid had been rejected because of concerns about the honesty and reliability of its software supplier and partner, GTech. In June, Camelot was given an extra two months to respond to those concerns, but failed to satisfy the commission.

The American-owned firm admitted in May it had covered-up a software glitch, discovered in June 1998, which meant that 113,000 small prize winners had received the wrong amount over the first three and a half years of the lottery's operations.

The error, which affected all 27,000 ticket machines from the game's debut in November 1994, was only revealed after a GTech engineer blew the whistle in April this year.

Dame Helena said this issue raised significant questions about the "probity" of Camelot's bid. "The issue has been a significant one which has shaken the commission's confidence in the commitments from Camelot," she said.

"At this point in time, the commission doesn't feel that it is consistent with its statutory duties to appoint Camelot, with GTech as its supplier, for a further seven-year period."

Camelot, which faces making its 800 staff, mainly based at its Watford headquarters, redundant, hinted it may challenge the commission's decision in the courts. Tim Holley, Camelot's chief executive, said: "I and the 800 staff at Camelot are bitterly disappointed and stunned by today's news."

Mr Holley was surprised that after six months deliberations, The People's Lottery had been given another chance to improve its bid but Camelot had been excluded.

"The situation appears to us to be far from clear, which is very satisfactory for all our staff and retailers," he said.

Dianne Thompson, set to succeed Mr Holley in the £334,000-a-year post, said: "After six years of running the world's most successful lottery, with the utmost integrity and efficiency, we are saddened by the announcement."

To add to Camelot's confusion, Dame Helena added that Camelot could yet be allowed to re-apply for the licence if The People's Lottery failed to satisfy the commission's questions about a £50m fund set aside for ticket holders.

In addition to further minor legal points, The People's Lottery had four weeks to give a legally guaranteed fund to ensure ticket holders would be fully reimbursed if the lottery failed or the company went bust.

But Dame Helena hinted that Camelot may have to drop GTech to re-enter the race. "It's perfectly possible for Camelot to re-enter the fold at that stage."

In a statement issued in the United States, W Bruce Turner, GTech's chairman, said: "We are going to review today's decision closely."

Chris Smith, the Secretary of State for Culture, Media and Sport, said he supported the commission's decision "I welcome the robust way in which the National Lottery Commission has done the job of an independent regulator," Mr Smith said.

Peter Ainsworth, the Shadow culture secretary, said Mr Smith should have been "outraged by this waste of time, effort and money". Mr Ainsworth added: "The Lottery Commission should have clarified their concerns about the two bids two months ago when they delayed the decision originally."