EDS Granted Restraining Order Blocking Transport for London from Signing Separate Agreement with Cubic Corp.
LONDON, 14 August 2008 -- EDS has been granted a temporary restraining order prohibiting its client, a Transport for London (TfL) subsidiary, from signing a separate agreement with Cubic Corp. for services related to the Oyster smartcard system.
The system is now operated by a consortium of firms called TranSys under a $187 million (100 million pounds) annual contract. The TranSys shareholders are Cubic, EDS, Fujitsu Services, and WS Atkins Consultants, with Cubic and EDS each holding a 37.5 percent ownership share. The contract was put in place in 1998 for a term of 17 years. TfL terminated the agreement on 8 August with an effective termination date of 16 August 2010, by exercising a contract termination option.
TfL says it is convinced that a new agreement will deliver enhanced services for less money. According to Shashi Verma, TfL's Director of Fares and Ticketing, "Transport for London is committed to delivering value for money across all of its services. As part of this we are looking at more cost effective ways to manage and develop the Oyster card system that we expect will save millions over the next few years. The savings will be reinvested to deliver further improvements in London's transport system."
The system was created and is maintained by a Public Finance Initiative (PFI) agreement between TfL and the TranSys. The consortium is responsible for developing, installing, managing, and maintaining London's automated fare collection system, including the Oyster card system, on behalf of TfL. EDS currently provides IT services under the agreement, and Cubic provides design, manufacturing, installation, and maintenance services.
According to Cubic in an SEC filing, TfL's Transport Trading Limited subsidiary (TTL), who signed the contract with TranSys, had been attempting to renegotiate the agreement under more favorable terms. Negotiations with EDS and Cubic continued through February of this year. At that time TTL notified TranSys that it had made satisfactory progress with Cubic, but not EDS. TTL then terminated negotiations with TranSys, and continued separate negotiations with both EDS and Cubic.
After negotiations with EDS again failed, TTL successfully negotiated a new agreement with Cubic for the entire project from 2010 to 2013, including asset maintenance and operational services. But EDS obtained a temporary restraining order preventing TTL from doing this. Cubic expects TTL will have the restraining order lifted by the end of the year. If successful, Cubic says it will sign an exclusive agreement with TTL at that time. Until then, Cubic has to deduct $298 million from its transit-related backlog that was reported in its most recent quarterly SEC filing.
According to a TfL spokesperson in a ZDNet UK statement, "EDS, one of the partners of the TranSys consortium, has sought to challenge the procurement arrangements for the new contract. Transport for London are vigorously defending this challenge and have appealed against the interim court order.
The Oyster smartcard is accepted across London's Tube, bus, Docklands Light Railway, London Overground, and parts of the Greater London rail network, and gives passengers the ability to store credit, and transfer funds to cards on line automatically or over the counter at thousands of local retail establishments. The system has been extremely successful since its 2003 launch. TranSys reports that 74 percent of journey's made on London's bus and Tube network are now transacted via Oyster.
Cubic Corp. SEC filing:
On August 8, 2008 the Company was notified that Transport Trading Limited (TTL), a wholly owned subsidiary of Transport for London, had given formal notice of its optional termination, as of August 16, 2010, of TTL's contract with Transaction Systems Limited (TranSys). TranSys was formed by a subsidiary of the Company and a subsidiary of Electronic Data Systems (EDS) (each of whom own a 37.5% interest) and two other partners in 1998 for the purpose of providing and managing an outsourced fare collection system for TTL through a project entitled PRESTIGE (Procurement of Revenue Services, Ticketing, Information, Gates and Electronics). Under this contract Cubic provided all services with regard to assets; e.g. design, manufacture, installation and maintenance, while EDS provided information technology operational services. The 17 year contract permitted TTL to end the arrangement in 2010 by giving at least 24 months notice. In early 2007 TTL expressed its desire to restructure its contract with TranSys to obtain better terms. Negotiations with EDS and Cubic commenced under the TranSys umbrella and continued through February 2008. At the end of February 2008 TTL notified TranSys that while satisfactory progress had been reached with Cubic, negotiations with EDS had failed. TTL terminated negotiations with TranSys but continued separate negotiations with EDS and Cubic outside the TranSys umbrella. Negotiations with EDS failed again. TTL then negotiated with Cubic to perform the entire project, both maintaining assets and providing operation services. These negotiations were successful and a new contract called the Future Ticketing Agreement (FTA) has been prepared under which Cubic would provide TTL with all services from 2010 to 2013. It was TTL's intention to sign this contract simultaneously with terminating the existing TranSys contract. EDS has obtained a temporary restraining order (TRO) preventing TTL from doing this. Cubic believes that TTL will have this TRO lifted by the end of this year. When this occurs Cubic and TTL now intend to then sign the FTA. Because of the end of the TranSys PRESTIGE contract in 2010, Cubic must deduct $298 million from its transit-related backlog reported as at June 30, 2008. We believe that when the FTA is executed this backlog will be substantially restored. This situation will be fluid. Material developments will be periodically released. Annual sales recognized by the Company from the PRESTIGE project as subcontractor to TranSys over the past three fiscal years have ranged from $50 million to $71 million per year.