erg competitor has contract terminated

This is good news for ERG.

METRO Files Countersuit Against Smart Card Contractor
April 13, 2005
The Metropolitan Transit Authority of Harris County (METRO) filed a countersuit today against Cubic Transportation Systems, Inc. of San Diego, charging the California contractor with breach of contract for failing to deliver to METRO a working "smart card"* system.

The countersuit, filed in the 80th Judicial District Court of Harris County, asks for real and liquidated damages.

"We've tried and tried to work with this vendor but they simply haven't delivered" said METRO President & CEO Frank J. Wilson. "We had to draw the line and take this action today to protect the interests of Houston's transit authority and the tax dollars entrusted to us."

METRO contracted with Cubic effective September 2002 for the delivery of a smart card system that was to be fully operable by November 2003, in advance of the start of METRORail operations. Cubic failed to deliver the system by that date. Thereafter, Cubic continued to delay performance while assuring METRO that a fully functional system would be delivered. In August 2004 Cubic committed, in writing to deliver a fully functional system that complied with the contract specifications by December 1, 2004.

In December 2004 and early January of this year, METRO performed a series of tests on the hardware and software Cubic had delivered as of December 1, 2004. Finding that many system components and capabilities either had not been delivered or did not meet the requirements of the contract, on January 18, 2005, METRO issued a Notice of Default to Cubic, identifying 18 significant default conditions. As required under the contract, this Notice gave Cubic 30 days to cure all identified deficiencies. In subsequent correspondence and communication with METRO, Cubic acknowledged the default conditions, and it did take some corrective actions. However, there remained serious unresolved flaws with the Cubic system.

Some specific areas of continued failure include:

Inability of fareboxes to read smart cards in 5 percent of transactions, a level that would affect more than 3,000 METRO transactions daily;
Continued absence of an automated wireless data communication system, as a result of which METRO would be forced to expend over $500,000 annually to provide required operating support for the system;
The absence of an encryption system to protect data related to the issuance of smart cards;
Processing speed of farebox smart card transactions that is slower than required under the contract; and
Reliability levels of farebox smart card processors were substantially less than the acceptable levels specified in the contract.
As a result, METRO terminated the contract with Cubic on March 18. METRO is now actively seeking a new contractor to provide a proven fully integrated smart card issuance and fare collection management system.

* A Smart Card is a credit card-sized plastic card with an embedded computer chip. The chip contains information such as fare price, transaction and discount information. Under a METRO Smart Card system, riders could use a card to pay for bus or rail trips by touching the card to the farebox or ticket machine in place of cash, tokens or passes. Riders would be able to add value or time to their Smart Cards via the Internet, telephone or a visit to a METRO RideStore or sales outlet. Transit users tend to favor Smart Cards because the cards offer quick processing time, high security, long life and versatility.