New York

The $390 Million MetroCard


In January, Richard Trenery, the transit official who oversaw MetroCard and automated fare collection in New York for eight years, got a new job: he is now vice president of business development for Cubic Transportation Systems, the company picked to deliver MetroCard to New York during his tenure. Since 1991, New York City Transit has paid Cubic more than $390 million for Metrocard.

Trenery’s career move violates no laws. New York State Ethics Commission regulations stipulate only that he can’t represent Cubic to New York in MetroCard matters he worked on. But his new gig is the latest tangle in a web of complications that have arisen since Transit officials decided to vend out their dreams of automation to a for-profit company with minimal public oversight.

When Cubic won the MetroCard contract, the company effectively put New York City in its pocket. No part of this project has been competitively bid on for a decade.

When Cubic beat out one other finalist in 1991 for the MetroCard contract, the company effectively put New York City in its pocket. No part of this project has been competitively bid on for a decade.

Because Transit merely licenses the MetroCard software from Cubic, when the program breaks, the agency depends on Cubic engineers to fix it—which is often a lengthy, expensive, and convoluted process. Afraid that if the city brings in someone else Cubic will dissolve its warranty on the newly developed equipment, Transit won’t bid out any of the work. And though Cubic has outfitted a dozen cities over the past 10 years, its strict nondisclosure agreements have left the firm’s own specialists the only ones with the technical know-how to speedily mend the system.

“Every time they need a software change, they’ve got to petition Cubic and extend their contract,” says Gary Hansjergen, director of stations for Local 100 of the Transport Workers Union. “Since the start, we’ve had 300 badass software problems that we’ve had to create walk-arounds for. . . . As time goes on, we find new things we never thought we’d find, then we address them, then we have to ask for new things.

“We have the talent in-house to do it ourselves, to write the program, but we don’t write the program,” Hansjergen adds. “We send a draft to Cubic. They putz around for a while, and then send us a coded disk.”

Already committed to Cubic well into the next decade, Transit turned the volume even higher last year with a $17.8 million contract for the company to design 1000 new credit- and debit-card-only machines. The machines are supposed to be in place now, but they’re still in the planning phase.

Two months ago, Transit asked for a new feature, and had to reduce its request by nearly 400 machines just to avoid a cost overrun. This means the city will either have to hand Cubic another mammoth contract to complete the order, or scale back its agenda.

Meanwhile, though the city has purchased some 1589 regular vending machines—the $50,000 metal behemoths with the speak-and-spell display screens—only about 1000 have been installed in stations. They’re all equipped for what Cubic calls the “smart card,” which customers merely wave in front of a turnstile to slide into a station. This capability suggests that New York might one day make the move from MetroCards; an agency spokesman says it has been discussed. Changing technology would, of course, mean yet more millions for Cubic, unless Transit actually bids the job out, which seems unlikely from past experience.

We didn’t vote for this firm. Yet its principals vote in New York with their wallets. Cubic Corporation chairman Walter Zable gave Mayor Giuliani $1000 in February. Zable sent $2000 to Senate candidate Rick Lazio in June. Ron Kane, Cubic Transportation’s local spokesman, gave $2000 to Lazio the same week as his boss. The Cubic Employees Political Action Committee also gave money to Lazio, and to Al D’Amato before him. Not to mention the $65,599 in soft money the company has funneled into Republican organizations since last October.

Now that we find ourselves stranded amid this archipelago of private interests, it seems reasonable to ask, who is Cubic? For an answer, it’s helpful to return to the year Cubic won the New York contract, under what can fairly be called an odd set of circumstances.

The Closed-Loop Problem

When Cubic’s not automating tollbooth clerks out of existence, its business is war.

Cubic Defense Systems sells high-tech war games, jam-proof data links, live-fire battle simulators, a “battlefield management system,” and bull’s-eye surveillance gadgetry to the U.S. Department of Defense. Its latest triumphs—the Multiple Integrated Laser Engagement System for the U.S. Army and the Area Weapons Effects Simulator for the British Ministry of Defense—deal in the fantasy of total control, replicating bureaucratically managed battlefield situations, noted by the company for their “fidelity and realism.” The systems come complete with fake bullets derived from laser pulses, detection programs that register hits or kills without obliterating their targets, and gear that monitors individual soldiers and combat vehicles so superiors can pore over their every move after the firefight.

All well and good. But a decade ago, scandal riddled Cubic Defense.

In 1988, the company reached a $7.25 million no-guilt settlement with the U.S. Army over claims it had falsified tests on a contract to manufacture and refurbish handheld mine detectors. Three years later, the government of Iran sued Cubic Defense for almost $28 million over a 1977 contract for an air combat maneuvering range. Two courts have ruled in favor of Iran, granting the country $2.8 million, plus interest, a verdict Cubic is contesting.

Cubic’s transportation division won the first New York contract the year Cubic Defense, caught up in the federal “Ill Wind” scandal, pleaded guilty in a federal court to three felony counts of conspiracy, theft of government property, and filing false statements. Cubic admitted to taking part in a conspiracy to bribe an air force official with a Swiss bank account, gifts, travel, meals, and promises of future employment with the company to win government contracts—an offense for which the firm paid $4.65 million in fines. Colvin Clay “Sam” Wellborn, former president of Cubic Defense, was sentenced to 18 months in prison and fined $15,000.

The same month the Cubic exec was sentenced, the company’s negotiations with New York sparked their own investigation.

New York City Transit depends on Cubic engineers to fix the MetroCard software—which is often a lengthy, expensive, and convoluted process.

The office of Transit Inspector General John S. Pritchard III had received reports that members of the negotiating and selection committees had engaged in insider trading on Cubic stock. The office also examined an incident in November 1990 where a Cubic officer passed five $20 bills to transit personnel in a stack of technical documents. An engineer, Richard Rowlands, said that he had taken $200 out of a cash machine and accidentally hid $100 of it inside the documents in his briefcase for security. “I felt absolutely sick and angry with myself,” Rowlands explained to the press. “I felt that I’d done something incredibly stupid.”

Based on this information and the other results of the investigation, the inspector general cleared Cubic of wrongdoing.

Despite this oozing river of doubt, Cubic won New York when it undercut the price of the only other finalist—a consortium of NYNEX and a major French company’s Fairfield, Connecticut-based subsidiary, Alta Technology—by $20 million. Before awarding the bid, Transit’s selection committee courted reassurance from the air force that the military had not banned Cubic from receiving federal money, then ushered the company in.

By February 1992, not even a year after Cubic won the New York contract, transit overtook defense as the company’s top business, and stayed there. Through it all, Richard Trenery managed New York’s newly created automated fare program, though he did not sit on the committee that selected Cubic. He did not return calls for comment for this story. “He determined what the agency needed, what type of technology we might want to employ, things of that nature,” says Transit spokesman Al O’Leary.

Before joining Cubic, Trenery worked for Transit for 11 years. He came on in 1988 as program manager for automated fare collection, at $95,000 a year. In 1996, he became manager of MetroCard Services and then chief officer of MetroCard Sales, where he ran retail sales on MetroCards, set up deals with outside vendors, and oversaw MetroCard bus and van programs.

Trenery appears to have been involved in many phases of launching the MetroCard program in New York, but Transit spokesman O’Leary says Trenery never strayed into having a conflict of interest. “The rules are clear, and Cubic and Mr. Trenery have complied with the rules,” O’Leary says.

“One says that if an offer comes to an employee while working for the city, you are allowed to pursue it but must recuse yourself from further dealings on behalf of the city. If you look at his career, from ’96 to ’99 he was in a job with no connection to automated fare collection management. He was out of a line of work dealing with Cubic. . . . Once you leave you’re not permitted to work on any contract related to the government contract for two years. Mr. Trenery is not only not working with New York Transit, I’ve been told that he’s not even in the U.S. at this point.”

Cubic officials, for their part, say they’re not seeking to gain from Trenery’s previous experience in New York. “We got letters from the Transit Authority stating that he was free and clear and ready to hire,” says Cubic spokesman Ron Kane. “We have no interest in him working on anything having to do with the Transit Authority. We were interested in him because of what he knows and can use in other places.”

Kane says Trenery left the agency amid massive departmental reshuffling in late 1999. A Cubic competitor was also interviewing Trenery for a job, Kane says. For Cubic, Trenery may work on projects in Washington, D.C., and Sydney, particularly focusing on smart-card programs, and on Cubic’s privatization of the entire automated fare collection system in London, a contract from which Cubic expects a possible $700 million over the next 17 years.

Transit employees and former officials were not surprised when Trenery, who left the $125,000-a-year position as chief officer of MetroCard sales in December 1999, reappeared at Cubic the next month. Shifts to the private sector by public employees are taken as a matter of course. “Nobody makes the money at Transit that they can make in the private sector,” says union leader Hansjergen. “That’s what private companies do. They go to business with quasi-governmental organizations and pull out the senior management to allow them a hook into the organization.”

Looking back, inspector Pritchard says he wishes the rules governing the switch from the public sector to a private company were stricter. “I always felt the law needed to be tighter in that area,” says Pritchard, now retired and living upstate. “Whether it makes a case for malfeasance is doubtful. But to me, [those moves] just raised all sorts of ethical questions as to whether it should be allowed, or whether a person should do it. I have a pretty strong conviction that in public service you’re not supposed to profit from it.

“I feel uncomfortable with it,” he says. “I think a lot of people do. It’s a reality. I always felt that the more exposure things like this received, the better.”

But perhaps Trenery himself had the best response in 1989 when, faced with tales of Cubic Defense Systems’ bribery of public officials, he said simply, “It would be far better if there were no insinuation of scandal.”

The Open-Source Solution

These are the kinds of vexed relationships being studied by consumer advocates, who want technology to be employed responsibly, and by the burgeoning open-source movement, which wants computer code to be free.

Particularly now, when advanced proprietary technology can keep public agencies in thrall to a single corporation—with add-ons locking up a public bidding process for decades—the structure of public deals like that between Cubic and New York should be an oversized, frantically waving red flag for public watchdogs.

United in the belief that the best software is created only when the programs are available to everyone for testing and tweaking, open sourcers have fought for access to operating systems like Windows and encryption tools like the one that protects DVDs from piracy. They say public agencies would benefit from the same sort of process.

“We are pointedly aware that the situation has limited alternatives for us. We spend a great deal of time trying to get other companies to come into these markets for us. No one wants to be beholden to a single organization. It’s not good business.”

“You need to be able to get reliable, maintainable, affordable software,” says Lawrence Rosen, executive director and general counsel for the Open Source Initiative, a licensing and activist group. “When the source of the software is published, you can look at it; you have the ability to see what it does, make your own improvements. The peer review process of open-source software gives a look at what’s in the box.”

In an open-source utopia, designing software would be a free, communal project, so businesses could shift to manufacturing hardware and maintaining, installing, and servicing systems. Where to drum up money for such a project in transit? Just take a look at Cubic’s business over the years. Collectively New York, Washington, D.C., Chicago, San Francisco, London, Singapore, Kuala Lumpur, Hong Kong, Seoul, Sydney, and Guangzhou, China, have paid Cubic more than $1.3 billion for automated fare collection. The waste and inefficiency of this constellation of individual private deals, often financed with a blend of federal and state subsidies, city taxes, and fare revenues, should be obvious. What if those cities banded together and subsidized the development of an open-architecture program that all cities could use?

“That’s an interesting idea,” says Jamie Love, director of the Consumer Project on Technology, based in D.C. “Local governments only have a small amount of bargaining power. As a group, they would have a common interest. From a procurement point of view and a strategic point of view, it’s a good idea to acquire more intellectual property rights, to create more sharing, pooling their interests, or to go open source all together.”

A consortium of smart buyers could develop open products that would be easily serviceable because the code is public and learnable. Anyone could compete for vending jobs, a change that would extend the ostensible promises of capitalism—competition, the exchange of ideas, innovation—to all comers. This kind of network could exist among major U.S. cities alone, or on a global scale. Cubic is a self-consciously global operation. Why shouldn’t its buyers be the same?

Transit says the varying sizes of different cities prohibit a universal design, but the charm of open architecture is that different companies, or transit agencies themselves, could tweak the software to solve their own specific problems. A more credible argument is Transit’s fear that an open-source MetroCard would further compromise the security of a system already prone to fraud, by handing geeks the virtual key to coding cash onto cards themselves. But a consortium of public buyers could decide how open the automated fare collection could be, and how much of its code should be locked down.

Anyone who laments the publicly funded sound of such a project need only ask where Cubic makes most of its money now: delivering massive contracts to U.S. and worldwide governments. We’re already subsidizing automated fare collection software up to our necks—via Cubic profits.

“We are pointedly aware that the situation has limited alternatives for us,” says O’Leary. “We spend a great deal of time trying to get other companies to come into these markets for us. No one wants to be beholden to a single organization. It’s not good business. But because of the specialized functions and the fact that we require huge quantities, we have to go that way. There’s no alternative.”

But there might be. And especially now that the next billion-dollar private tech deal, in the form of the sleek Kawasaki and Bombardier trains, courses through the veins of the city, any alternative should be a matter of vigorous debate.

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