Article re CUBIC's foul play

Fight for ticketing contract a bloody affair
ABACUS by Elizabeth Knight
August 1 2002


Just how grubby/competitive can the scramble for a Government tender get? Several inches of court documents that became available this week provide a pretty good guide.

The stakes were high. The contract to provide a smartcard to replace the bus, train and ferry ticketing in NSW was worth $100 million or more.

Contestant one was the Australian-listed ERG and its wholly-owned Integrated Transit Solutions.

ERG already has the contract for ticketing buses and ferries in NSW.

Contestant two was US-based Cubic Transportation Systems, the State Rail ticketing incumbent.


When it became known that ERG was the preferred tenderer, Cubic began legal action in which it claimed that the process of determining the preferred tenderer was unfair.

While this action by Cubic might seem fairly normal commercial behaviour, the string of documents submitted in evidence unveils a strategy which involved winning the tender as a first option but, as a second option, was aimed at making sure ERG didn't get it and the whole tender was "killed".

Documents reveal a letter from one Cubic senior executive to another: "My view is that it is better to kill this job now than to find a way for us to be selected preferred proponent or to let ERG have it. If we are selected as preferred proponent (which I don't see as 50 per cent probable at this time) I am convinced ERG will sue the government over it. So we won't be awarded a contract anyway because it will be tied up indefinitely in litigation.

"On the other hand the Sydney contract announcement is crucial for ERG in building up its share price ... so I'm not inclined to hand it to them. It would make them stronger and more capable of taking us on elsewhere around the world. My recommendation is that we send the hard hitting letters we have drafted to [NSW Transport Minister Carl] Scully and [director-general of transport Michael] Deegan before [tender evaluation team member John] Armstrong has the chance to sneak a recommendation through government cabinet. These will make the politicians nervous and give treasury more ammunition to try to kill the project ..."

The Cubic consortium, which included the Commonwealth Bank, appeared to have a focus on ERG's financial situation, mentioning in one internal note that its share price had fallen by 75 per cent.

Oddly enough, Cubic attributed that fall in market value to competition from it in Sydney and Brisbane.

At the time in late 2001, uncertainty surrounding the Sydney contract, and the possibility it might be abandoned by the Government altogether, probably was the biggest weight on the ERG share price. This, combined with the general technology sector fallout, put additional pressure on the stock.

Only a few months later yet another pressure emerged on ERG's share price. It announced the shock departure of its finance director and an 83 per cent slump in profit after auditors refused to approve a $31 million contribution from software sales licence fees. Cubic was covering its political bases at the same time.

In another internal document, Cubic executives said that in keeping with its objective of blocking the awarding of the Sydney ITS contract to ERG it had "through a third person not traceable to Cubic, the State Opposition Party Transport Minister and Chief of Staff of Opposition Party Leader have been appropriately briefed on the procurement debacle. Additionally a left wing Labour [sic] Party MP has been briefed (who is not particularly friendly to the governing right wing power base of the State Labour Party) ..."

Cubic correspondence suggests the State Rail Authority didn't consider the project a priority and wasn't paying it much attention. "They need $4 billion in capital improvements to keep the trains running on the track and this issue is occupying the time", according to this correspondence. "Through the efforts of our lobbyists I am trying to have the project killed/deferred on the basis that funds could be better spent elsewhere at the present time (as well as for reason of evaluation team 'bias' against our consortium)."

But all this careful planning appears to have backfired this week when the judgement was finally handed down - in favour of the defendant, the NSW Government.

The judge concluded that the point of the proceedings was, broadly speaking, to prevent the defendant from entering into a contract with ERG for the smartcards.

He said there had been gross breaches of the plaintiff's obligations of honesty.

ERG boss Peter Fogarty has financial issues. But right now he is talking about his legal avenues in the wake of what he describes as a two-year campaign by Cubic and the Commonwealth Bank aimed at damaging his company's reputation.

This story was found at: http://www.smh.com.au/articles/2002/07/31/1027926915441.html