Testing, Testing...

Why private test labs are independent to the industry and accountable to the regulator

Since the advent of modern gaming regulation, the testing of gaming equipment has been a key component of regulatory efforts to ensure the integrity of gaming.

When Nevada and New Jersey emerged as the first two U.S. states to regulate large-scale commercial gambling, they established government technology laboratories to undertake the task of developing technical standards for gaming equipment and procedures to test gaming devices and systems to measure compliance. As gambling began to spread across the U.S., it became clear that establishing a proprietary technology laboratory for each state and tribe could create unaffordable inefficiency, higher compliance costs and longer time-to-market for new games and technology.

In 1989, the concept of a U.S.-based private, independent testing laboratory (ITL) was pioneered by Gaming Laboratories International (GLI) just as numerous tribal casinos were opening, and concurrently states such as South Dakota, Iowa, Illinois, Mississippi and Colorado voted to legalize various forms of casino gambling.

Recognizing that regulators must develop policies and risk control criteria for technology used in gaming facilities and to ensure that all games offered for play are fair to players, secure, accountable and reliable, the ITL offered an efficient alternative to leverage resources from many gaming jurisdictions to accomplish this objective.

Today, most jurisdictions have opted to outsource the testing and certification of gaming equipment to ITLs. However, the involvement of regulatory technical staff still remains a critical element to the proper oversight of gaming technology. Regulatory agencies should establish robust processes for the testing procedures and managing the ITL while still employing technical professionals trained to understand gaming technology, set policy governing the use of gaming technology and oversee ITL testing processes.

One such process is the use of a competitive request for proposal (RFP). For a regulatory agency which believes that the ITL should be accountable solely to the regulator, rather than the manufacturers or operators, a direct, contractual relationship between the parties can assure that control remains with the agency. By allowing multiple respondents to an RFP for ITL services to competitively bid their best service offering and pricing, regulators can focus on obtaining the highest level of service quality to ensure the integrity of gaming while also allowing for competitive pricing to control costs.

This process has also been a motivating factor for some of the most innovative technical solutions in the ITL sector. Technology that makes it easier for manufacturers to submit, transfer and remotely test their equipment was all born out of a desire to improve scoring in the competitive RFP processes. Similarly, regulatory tools for software verification, game inventory management and testing process transparency have been developed to demonstrate additional value to regulators considering ITL bids.

The RFP process for an ITL is not unlike that utilized by a government for its banking or internet service providers. An open, transparent, competitive RFP process provides the broadest opportunity for third-party oversight and the best protection against fraudulent practices. Some critics have suggested that this process creates a “monopoly.” The winning bidder, selected for a specified period of time set forth in the contract, is not a monopoly, but rather the ITL providing the best quality, service and cost efficiency after thorough consideration by the regulator.

ITL oversight is also strengthened by a lab certification process. Here, the regulator establishes a detailed set of qualifications to ensure quality, service and staffing levels can meet the regulator’s expectations for the testing process. In order to ensure quality and fairness, the certification process can require that the ITL provide:

• Precise methods to be used in the testing process to ensure that manufacturers will undergo equal levels of scrutiny during the certification process and that the regulator is able to audit the ITL to determine if it is fulfilling its obligations as a certified ITL.

• Properly trained staff such as specialists in math, communication protocols, network security and software engineers that can read a wide variety of computer software source code languages.

• Segregated quality control staff to provide additional assurance that all regulatory requirements have been tested and documented prior to certification.

• A dedicated customer support team to ensure that inquiries from regulators have a rapid response from qualified personnel.

• Minimum service-level requirements that include a fixed number of hours of free training and consulting as well as making the availability of certain basic ITL technology tools mandatory.

While the gaming industry is motivated to further standardize technical requirements for gaming equipment and reduce the cost of regulatory oversight, gaming regulators remain focused on ensuring the integrity of the games. The ITL plays an important role in preserving and protecting this balance. Thoughtful policies by the regulator, including an open and competitive bidding process, are required to ensure the ITL is adequately staffed, trained, and focused on providing the regulator and the industry with the best possible levels of quality, service delivery and accountability.

Laura McAllister Cox is a shareholder in Greenberg Traurig’s Philadelphia office and a member of the Global Gaming Group and the Corporate & Securities practice. She may be reached at 215-988-7885 or via email at coxl@gtlaw.com. Mark F. Glaser is a shareholder in Greenberg Traurig’s Albany, New York office and a member of the Government Law & Policy practice and Global Gaming Group. He may be reached at 518-689-1413 or via email at glaserm@gtlaw.com. Jamey L. Tesler is an of counsel in Greenberg Traurig’s Boston office and a member of the Government Law & Policy practice and Global Gaming Group. He may be reached at 617-310-6026 or via email at teslerj@gtlaw.com.

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