22 January 2023

There is something not quite right about the National Ticketing Solution.

New Zealanders are not great users of public transport. Most either prefer to travel by private car or find that is the only practical option for them. I am one of the small proportion who travel by bus, train and ferry, and an even smaller proportion who use public transport in more than one urban centre. To be specific, I use public transport in Rotorua, Hamilton, Tauranga and Auckland for which I need two pieces of plastic (AT Hop for Auckland and Bee Card for the other centres) along with the dozen or so other cards in my wallet. I also have to maintain balances on two transit accounts.

When the government tells me that it is setting in place a "National Ticketing Solution" that will reduce the number of cards I hold by one, and which will mean that I will only have to maintain one account, I can see a small advantage for myself and everyone else in my situation.

But when I am told that the cost to the nation will be $1.3 billion I am left wondering what is going on here. That sum of money could build a lot of houses, staff many hospital wards, provide essential dental care to those who cannot afford it, hire enough bus drivers to maintain schedules, or for that matter make public transport free in the provincial centres which, as well as allowing me to dispense with one piece of plastic and its associated account, would be enthusiastically welcomed by the mass of commuters.

A Wikipedia entry states that the aim of the NTS is to "achieve a nationally consistent payment system, with a choice of payment by cash, phone, credit card, debit card, or a transit card valid for the whole country". Presently users of public transport buy a ticket for cash or use a transit card (Snapper Card in Wellington, AT Hop card in Auckland, Metrocard in Christchurch and Bee Card in the provincial centres) which they must periodically top up by a cash, credit card or bank transaction. In the industry jargon this transit-card-only system is known as a "closed loop". A payment system which allows the use of a bank issued credit or debit card or a phone based financial system (Visa, Paywave, EFTPOS cards, Google Pay, Apple Pay etc) is known as "open loop". (An open loop system could also allow for cash tickets or a conventional transit card, but will not necessarily do so).

New Zealand has ended up with four different transit cards for two reasons. First, because the local government organisations known as Public Transport Authorities or PTAs and comprising Auckland Transport, Greater Wellington Regional Council, Waikato Regional Authority etc which fund and manage public transport have not been good at working collaboratively.

Second, because central government which has had its Waka Kotahi (New Zealand Transport Agency NZTA) finger in the pie from the outset has not felt driven to have a "nationally consistent system" - until now.

A "nationally consistent open loop system" is "clearly a good idea" but at what cost? Since the present systems are working effectively and affordably it is hard to make a strong case for the change which is being driven by central government whose interests in the matter are not entirely clear. On the one hand government says it is all about public transport user benefits. $1300m is being spent to make bus, train and ferry passengers so happy through being able to use Paywave to buy a ticket that thousands of private car drivers will join them thus reducing road congestion, pollution, global warming and vehicle running costs. On the other hand this optimistic scenario is of very recent creation and Wikipedia declares that Waka Kotahi "opted to lead the (NTS) project, provided co-funding, wanted to be in control of the central clearing house system, and stated that it was most interested in getting information out of the system". Before all the talk about user benefits, information was central government's main, or indeed only, interest in the NTS.

As recently as September 2020 central government apparently had no interest in funding the NTS. In the 59 pages of the "Government Policy Statement On Land Transport: 2021/22 - 2030/31" published in September 2020 there is no provision made for funding the NTS and only one reference to the NTS which reads "The Minister expects Waka Kotahi will: ... more actively influence the way local government designs and delivers public transport services. This includes ... prioritising the delivery of modern integrated ticketing systems in New Zealand's main centres...". This clearly implies that even two years ago the government had no intention of funding a national ticketing system anytime in the next decade but would merely "more actively influence the way local government designs and delivers ... modern integrated ticketing systems in New Zealand's main centres". It also implies that local government Public Transport Authorities would be left to carry the cost of the NTS, as they carried the cost of regional systems.

The process was kicked off in mid-2018 when on behalf of the PTAs Greater Wellington Regional Council invited registration of interest in providing the "New Zealand National Ticketing Programme" with eight consortia responding. The invitation closed on 10 August 2018. In 2020 Waka Kotahi took the lead from GWRC "Evaluations to shortlist a prime contractor for the building and implementation of the ticketing solution began 31 August 2020". Five parties were invited to submit proposals. Four of the five did so. Minister Wood (Written Question 42247) says that Waka Kotahi took over from GWRC because "it was the substantive funder" yet that is hard to reconcile with the Government Policy Statement of September 2020 which still implies that the PTAs should fund the NTS themselves. While Wood claims that a "competitive tender process" was followed it is clear that the process was tightly managed. Cubic must have been one of the four to submit proposals and it would be surprising if the other already established suppliers of ticketing systems to New Zealand - Snapper, Thales and Init - were not among the remaining three.

From August 2020 things moved more swiftly. In July 2021 Tom Phillips on the "Transit Ticketing Today" website reported "Public transport users in the New Zealand city of Canterbury will be the first to be able to make contactless fare payments with a new national public transport smartcard or their own credit or debit card using an account-based open loop payments system being introduced by the Waka Kotahi NZ Transport Agency..in "late 2022" ". That suggests a decision on the Cubic proposal had already been made by July 2021, along with detailed plans for the roll out, just nine months after the shortlisting of prospective suppliers, but not until fifteen months later in October 2022 did government sign a "participation agreement" with the PTAs and then a few days later publicly announce that it had concluded a $1300m deal with Cubic Corporation of the US to provide a "National Ticketing Solution" for New Zealand, with $1200m to be paid by central government and only $100m in total by local government (the PTAs).

What is Cubic Corporation? Cubic Transportation supplies mass transit ticketing systems primarily to states belonging to the Five Eyes intelligence network and military alliance (The United States, United Kingdom, Canada, Australia and New Zealand). Another of its divisions, Cubic Mission and Performance Solutions, provides surveillance and reconnaissance capabilities for defense, intelligence, security and commercial missions, as well as combat training systems for the U.S. and allied nations. Cubic Defence New Zealand Ltd, based in Auckland, is a manufacturer of training and simulations systems for military forces around the world. Cubic Surveillance and Reconnaissance, develops intelligence systems for US Special Operations killer drones.

The $1300m cost to New Zealand is "an extraordinarily large amount of money" to quote the National Party Assistant Spokesperson for Transport Scott Simpson.

To put this in perspective, in November 2019 Phil Pennington of RNZ had reported "Auckland's HOP, Wellington's Snapper, and Canterbury's metrocards are all meant to be superseded by 2026 by the streamlined ticket system (NTS) ... In New Zealand, it will come at an estimated cost of $250m ...."

Again, for comparison the currently functioning AT HOP ticketing system in Auckland City cost $135m and the New Zealand built Snapper system used in the Wellington region cost only $75m over ten years.

Then, in November 2021 the Queensland government announced that it was "investing $371 million in Translink’s new Smart Ticketing system that is providing customers with more ways to plan and pay for public transport across Queensland". That system is also being provided by Cubic. Brisbane has patronage of 188.5 million trips per annum across bus, rail, light rail, and ferries. By comparison New Zealand hit a high of 168 million trips in 2018/19 yet is paying nearly a billion dollars more for its ticketing solution than the same supplier is charging for "one of the most advanced ticketing systems in the world" for a similar scale transport network across the ditch. Is the State of Queensland misleading its public as to the extent of its financial commitment to Cubic or is it the New Zealand government which is not telling us the full story?

Finally, the cost of the Cubic NTS to New Zealand will be more than the cost of the Cubic NTS to New York City (US$540m)which has a normal level of more than 2400 million journeys per year on subway and bus combined (but excluding ferries) compared to less than 200 million public transport journeys made each year across all modes and regions of New Zealand. In other words New York pays significantly less than New Zealand for a twelve fold greater level of service.

The cost of the Cubic NTS will be ten times that of the AT HOP system and eighteen times that of the Snapper system. It is more than five times the 2019 estimated cost of an NTS. Inflation would not explain the huge difference in price, and the stated minor additional features and wider spread could hardly justify the vast increase over the cost of Snapper, AT HOP, and Bee Card.

While the details may differ between contracts, the overwhelming body of evidence suggests that an open loop nationally consistent NTS should cost New Zealand not much more than $300m to $400m - one billion dollars less than what is being paid to Cubic Corporation.

One could argue that the real cost and value of the NTS is only $100m: the amount that the Public Transport Authorities will contribute towards funding the system. However it is more reasonable to assume that knowing how badly government wanted the Cubic NTS in particular, the PTAs drove a hard bargain. Central government is paying Cubic three or four times what it should for an NTS, but the PTAs are getting a system for less than a third of what they might have had to pay in the market. In the form of the Cubic NTS, central government made them an offer which they could not refuse.

What is behind this massively excessive public expenditure? One commenter on the Greater Auckland website suggested "corruption", which is a natural first thought, but there are other equally plausible explanations.

One is the Labour government's ideological commitment to the principle of centralization regardless of affordability, efficiency or necessity. A second is enthusiasm for any new technological fix or added feature regardless of how the actual real-world benefits relate to the cost. A third is the perceived need to "keep up with the Jones" on a global level. "If New York or Brisbane have a new ticketing system, then New Zealand must as well" and a fourth is a desire to shift New Zealand's reliance for ticketing systems away from domestic or European suppliers (Snapper is the product of a Wellington based IT company, AT HOP is from Thales of France, and Bee Card and Metrocard from INIT of Germany) and to US based companies in line with the Ardern government's pivot towards a closer political and military relationship with the United States.

These are all plausible explanations (even if they fall short of a rational justification), and may indeed all be relevant to the decision to award the NTS contract to Cubic, but they do not in themselves account for the failure of the New Zealand media and opposition politicians to seriously question what they confess is the "extraordinarily large" amount of money involved.

Part 2.

Is the Cubic NTS a Surveillance System?

A more convincing explanation of the Cubic deal is that the supplier - Cubic Corporation - enjoys a special relationship with the New Zealand government and in particular its security services, which makes the question of cost virtually irrelevant. Military and security spending is wrapped in secrecy and unconstrained by the need for a business case or cost/benefit analysis. Notoriously, the Pentagon will pay $1000 for a stock-standard common-garden-variety builder's hammer. The logical inference is that Cubic Corporation is being paid many times the going rate for a ticketing system because the Cubic NTS is more than a ticketing system.

RNZ journalist Phil Pennington has written "A US media report says privacy advocates have questioned Cubic's mass ticketing projects and how much data they gather off travellers..."New Yorkers will have no choice but to cede all the rider data ... with no certainty over how it will be exploited," one tech commentator wrote last month....Cubic did not respond to RNZ's question about what range of data it will collect off travellers here".

Although heavily redacted in key areas the NTS "Business Case" goes a little way to answering Pennington's question to Cubic, stating "The COVID-19 pandemic has identified the need for ... contract (sic) tracing for users of public transport, and to eliminate cash" and specifies some of the information required including for individual passengers "Where passengers get on and off a service.. What services passengers connect with .. What type of passengers use a service - school student, tertiary student, on-peak commuter, off-peak commuter, elderly, disabled, etc., .. When these passengers travel .. the nature and precise location of (public transport) users.". Cash conveys little if any information and as Wikipedia noted, Waka Kotahi's main interest is in information. Therefore aside from any issues of efficiency or convenience, Waka Kotahi has a vested interest in phasing out cash ticketing.

When I sought further information on the NTS from Pennington he replied "I agree it warrants further reporting. Whether it gets it is not sure. We lack enough reporters or the ones we have are too junior. NZTA refuse to release the contract. Perhaps more citizens should ask them for it under the OIA" (Official Information Act).

Pennington is admitting that the NTS is a complex issue, that the government is withholding critical information from the media and the public, mainstream media organisations cannot be relied upon to investigate and that political action will be necessary to get to the bottom of the affair.

Now let's take a look at the Minister of Transport, Michael Wood, who it turns out is New Zealand's representative on the "Five Country Ministerial" a grouping of Ministers from the Five Eyes nations who are responsible for security and intelligence functions within their jurisdictions. Previously New Zealand has been represented by Ministers with close links to the SIS and GCSB: Chris Finlayson (National) and Andrew Little (Labour). Minister of Transport Wood is clearly tasked and trusted to deal with Five Eyes intelligence and security matters. He attended the Five Country Ministerial (FCM) in Washington in September of this year and shortly after his return Waka Kotahi announced the deal with Cubic - which may actually have been concluded at the FCM. Wood could also be the actual Minister in Charge of the SIS. There is nothing in New Zealand law to prevent the Governor-General from appointing two individuals to one Ministerial role, and keeping one or both appointments secret, as was done for Scott Morrison in Australia.

Michael Wood is also Minister of Immigration and in that portfolio, as reported by Pennington, has shown himself willing to host a supposedly stand-alone spy system within MBIE which is "run by Israeli ex-spies and military commanders to scour social media platforms ... including Facebook, Instagram, WhatsApp and Twitter to ... covertly collect people's personal data, which can include "political information", "religious preference", banking, health and family relationships data" and which is subject to no legislative controls. The legislative oversight of Waka Kotahi surveillance activities is also minimal.

Yet Waka Kotahi is already a major player in mass public surveillance. The agency is currently in the process of taking over and upgrading vehicle tracking cameras from the New Zealand Police so that the cameras can be used to identify the occupants of a vehicle as well as the registration number. NTS will presumably fill a gap by extending the surveillance system into the public transport space, and perhaps beyond, arguably leaving Waka Kotahi as the major instrument of mass public surveillance in New Zealand. It is important to note that the New Zealand Police will not be giving up their number plate identification activity, which is conducted jointly with local government and large scale private camera and CCTV networks but merely delegating it to Waka Kotahi which will become the centre point of the system which will continue to be fully and instantly accessible to the New Zealand Police and presumably to other government security agencies such as the SIS. Under this new system, the social surveillance side of Waka Kotahi, covering road vehicles, public transport and public spaces, will become as important as its role in transportation safety, if not more so. The Cubic NTS will round out the mass surveillance system by allowing Waka Kotahi to identify and track individuals independently of their vehicles, and that may be enough to explain the "missing" billion dollars of value in the NTS.

Fugitive US intelligence analyst and whistle-blower Edward Snowden warned in 2020 of the dangers of civil surveillance systems being rolled out in response to the Covid pandemic arguing "No matter how it's being used, what is being built is the architecture of oppression"

The Associated Press has since found that authorities in Australia, China, India and Israel have used Covid inspired technologies and data to halt travel for activists, harass marginalized communities and link people's health information to other surveillance and law enforcement tools.

For example data broker Cuebiq (which has a similar logo to the NTS Cubic and may or may not be related) has been involved in the collection and re-use of Covid tracking data for intelligence purposes. The "Business Case for the Cubic NTS is not specific, but notes that the "Digitally-enabled (Cubic) system... can be integrated with existing systems (i.e. outside of the ticketing system) ... and potentially integrated with third parties to provide wider services". In other words, the Cubic NTS is being promoted to government on the strength of its potential to be the cornerstone of a much wider surveillance system.

John Scott-Railton, a senior researcher at the Toronto-based internet watchdog Citizen Lab warns "Any intervention that increases state power to monitor individuals has a long tail and is a ratcheting system...Once you get it, is very unlikely it will ever go away....What COVID did was accelerate state use of these tools and that data and normalize it, so it fit a narrative about there being a public benefit"

Specifically New Zealand has a history of measures which undermine national sovereignty and domestic freedoms being first introduced by left wing governments (examples being Rogernomics, military allliance with the Five Eyes and now the Cubic NTS) which will then become "accelerated and normalized" under subsequent centre-right governments. The "architecture of oppression", once erected, will be fully occupied by those who fit most comfortably into such structures. These attacks on our sovereignty should be even more strongly opposed when they are brought about covertly, by stealth or by deceit, as in the case of the Cubic NTS. The anti-democratic manner of their introduction can be as much the concern as their actual social and national consequences.

Although the recent history of Waka Kotahi has been marred by serious financial fraud at the senior executive level, we can be reasonably confident that the Cubic NTS is not the result of an individual corrupt act. It more likely an instance of the institutional corruption which afflicts the New Zealand government at all levels and throughout all its agencies. The inevitable consequence has been a breakdown of trust between government and people.

Political reaction

If there is one thing an opposition party likes it is to expose a scandalous waste of public money by the government of the day. Occasion may be provided by an extravagant end of year office party, trips to conferences overseas and so forth which typically cost under $100,000. $1.3 billion is something beyond the opposition's wildest dreams. Yet the opposition have been strangely reluctant to call the government to account over the NTS. ACT in particular frequently draws attention to alleged extravagance and waste in government spending, promotes the "user pays" philosophy and is opposed in principle to state involvement in the economy (including urban passenger transport) but the party has been unable to bring itself to publicly question the $1.3 billion of government funds allocated to the NTS.

Compare this with the situation back in June 2021 when Transport Minister Michael Wood announced a new bridge for walkers and cyclists over the Waitemata Harbour costing $685 million. There followed a media furore and intense political criticism, and Wood publicly scrapped the plan four months later. However, despite its dubious rationale (National's David Bennett argued that the cycle bridge "was always a dumb idea") the bridge was a project in steel and concrete that might have brought tangible benefits. The NTS, at twice the price, does not, yet it has been greeted with deathly silence or even tepid support by the government funded media and leaders of the political "opposition".

With the Cubic NTS following hot on the heels of the Auckland harbour cycle bridge fiasco, some may be tempted to ask whether Michael Wood is merely incompetent. But was the cycle bridge project always intended to fail ("always a dumb idea" in the words of David Bennett)? Out of that cancelled project came a $685m slush fund in the hands of Michael Wood who as well as being Minister of Transport is the New Zealand representative on the Five Country Ministerial. In itself, the $685m from the cancelled cycle bridge is not enough to fund the Cubic NTS, but it may be enough to get the ball rolling.

Scott Simpson, the local National MP for Coromandel and National's Associate Spokesperson on Transport, has written of the bill for the Cubic NTS "it is an extraordinarily large amount of money and in my view seems hardly to be something that should be being prioritised at a time when government spending is out of control and our economy is in such awful shape".

The National Party Transport Spokesperson Simeon Brown wrote "National is supportive of the concept of having one ticketing system for NZ, however there are questions around the costs and how this will be shared". Brown has put a number of written questions to Minister Wood with mixed results but has managed to obtain from Wood a redacted version of the "National Ticketing Solution Detailed Business Case Iteration 6" of August 2022

However despite the persistent probing by Simeon Brown, the National Party has failed to come out either for or against the NTS agreement with Cubic Corporation, and the same can be said for ACT, the Greens and Te Pati Maori.

The Green Party Transport Spokesperson Julie Anne Genter wrote "While I am not in a position to comment on the cost of implementation, I do think at least at the surface level this (sic) a good policy that will make intercity (sic) and interregional (sic) transport, potentially over different modes, a bit more straight forward to access." While the Green Party Transport Spokesperson may have no concerns about the excessive cost of the NTS, the simple fact remains that a billion dollars of unnecessary spending on the NTS will ultimately take food from the mouths of children living in poverty.

While no one in politics is actively opposing the NTS, and no one in the media actively questioning it, it is also true that the political parties are shy about being publicly identified with New Zealand's final solution to the ticketing problem. At the political level the NTS is no one's child. If that was not the case, the NTS would have been called something like "KiwiTicket" or "KiwiRider". The government has been careful to distance its favored "Kiwi" branding from the NTS which is being presented as an apolitical bureaucratic initiative (which it may well be, but coming from a group of bureaucrats who may be no part of Waka Kotahi). By the time the implications of the National Ticketing Solution become fully apparent to the public, it is quite likely that the National Party will be in government and Labour is no doubt hoping that its connection to the NTS - like its Rogernome connections to the reign of global capitalism - will have become somewhat obscured. It is no surprise that National's Simeon Brown prefers to name it as the "Integrated Ticketing Project" rather than the "National Ticketing Solution".

Yet despite the persistent written questions from Simeon Brown and at least one from Simon Court of ACT the government is still able to claim almost universal acceptance of the NTS at the political level. When Labour MP Arena Williams put to Michael Wood in the House the patsy question "What responses has he seen to the announcement of the national ticketing solution?" Wood was able to reply "The responses have been almost universally positive. Save Our Trains New Zealand said, "This is an excellent initiative that will make life easier for many". Samantha Gain, General Manager for Metlink, said, "This is great news for our passengers who tell us that they want more and easier ways to pay across all modes of public transport". Auckland Transport's interim CEO Mark Lambert said, "This is a brilliant day for public transport users." I'm not sure what Mr Luxon would say. He doesn't think public transport should be subsidised."

It is obvious why the PTA executives Gain and Lambert would approve the NTS. It gives them a ticketing system at one third of the current cost of ticketing to the PTAs. But whatever Mr Luxon might make of it, that 2 for 1 subsidy from central government to the PTAs is not the real issue. The real issue is the extra $1000m that central government is paying Cubic over and above the true cost of an open loop nationally consistent ticketing system.

There has also been little if any critical reporting in the media. The item on Newshub of 21 Oct 2022 by Jamie Ensor and Ashleigh Yates is typical, starting "Tag on with your phone? The massive change coming for how Kiwis pay for public transport..". In similar vein on 1 November RNZ carried a story from reporter Sharon Brettkelly enthusing "Public transport's $1.3 billion ticketing facelift...Inter-regional bickering and technology constraints have held it back, but commuters are in line to receive a public transport ticketing system that makes sense...". Other news outlets simply published the government press release more or less verbatim. The TV1 News item of 21 October "New system to let Kiwis pay for train, bus via phone, credit card.." actually omitted any mention of the cost.

While the New Zealand media describes the change from flashing a card to waving a phone as "huge", "massive" and "transformative" the elephant in the room which they choose to ignore is the truly massive $1300m cost of the system.

A picture is emerging of a very, very, very expensive "ticketing system", shrouded in secrecy, initiated by a minister responsible for security and intelligence matters who has shown himself willing to collaborate with dubious actors in order to conduct wide-ranging surveillance over people's private lives and constructed by a company that specializes in mass surveillance. To all of which the compliant media and opposition politicians are turning a blind eye even while acknowledging that something does not ring true with the NTS. The most obvious explanation for this (although not by any means the only one) is that a mass surveillance system is being piggy backed on the public transport ticketing system. Unfortunately domestic surveillance and security, like support for the NATO war in Ukraine, confrontation with the Peoples Republic China or criticism of the domestic policies of the Islamic Republic of Iran, is built on a multi-party consensus covering the entire parliament and the Fourth Estate.

Notwithstanding the political consensus on the Cubic NTS, if there is a valid argument for mass public surveillance then the institutions of government, including the Parliament, should make that case openly and transparently. They should not resort to subterfuge. They should not attempt to introduce a system covertly through the vehicle of the Cubic NTS.

Michael Wood (and by extension the entire New Zealand parliament) is wrong if he thinks that mass surveillance of the public by state agencies can be an effective response to the problems of New Zealand society, he is wrong if he thinks that such systems can be introduced covertly, and he is wrong if he thinks that hugely expensive covert mass surveillance systems should take priority over real needs in health, education, housing and family well-being and Phil Pennington is right. If nothing else, the public need to see the full text of the New Zealand government's contract with Cubic Corporation. It is indeed ironic that the governments and multi-national corporations which join forces to monitor every transaction and movement of the ordinary citizen can so vigorously uphold their own right to privacy on the specious grounds of commercial sensitivity or state security.

Part 3.

The "Business Case" for the NTS

The "National Ticketing Solution Detailed Business Case, Iteration 6. Based on BAFO prices from Preferred Ticketing Supplier, updated counterfactual and transition costs, recommendations from the external Peer Review, and feedback from economic and stakeholder review" is dated August 2022, a couple of months prior to the signing of the PTA NTS Participation Agreement and the formal signing of the contract with Cubic, but over a year after the decision had been made to commission Cubic to supply the NTS. It was released in a heavily redacted form to Simeon Brown MP under the provisions of the Official Information Act in late 2022.

Because Iteration 6 is based on Cubic's "Best And Final Offer" (BAFO) to the New Zealand government, which by definition would not be up for negotiation the document is clearly intended to justify the decision to award the $1300m contract to Cubic rather than to act as a guide to decision making. However the page headers read Draft Iteration 5 – Contract Negotiation & Peer Review so it is difficult to know what is going on. It is unthinkable that the document released to the public could have been essentially the same as that used in any stage of contract negotiations, but if it was indeed peer reviewed then it is surprising that so many errors have been allowed to remain uncorrected. For example "typos" such as "contract tracing" for "contact tracing", "trop up" for "top up" and so on. "Money Value of Time" appears as "Time Value of Money" and table data are left unlabelled or incorrectly labelled. More tellingly, in one part the document says that free public transport option "does meet the financial expectations test" and in another part that it "does not meet the financial expectations test". So in many ways the "Business Case" is an unsatisfactory document even before we start scrutinizing the methodology employed. I found myself struggling to understand the whys and wherefores of the "Business Case" and took a few wrong turns before finally getting on track with how it has been put together.

So what purpose was served by the "Business Case"? Normally a business case is put together as an aid to investment decision making, but Waka Kotahi had already made the big decisions around the NTS before the business case was prepared. The PTAs had not yet formally signed up to the Cubic NTS, but their decision was a foregone conclusion because they could not go past the fact that a $100m total cost to the PTAs amounted to one third the cost of any other option, and thus it is doubtful whether anyone in the PTAs would have even bothered to read the business case.

Despite being heavily redacted the Business Case must have been written with a political purpose in mind. That purpose was not so much to persuade the politicians that the Cubic NTS was a "good idea" but to provide them with a lengthy and dense document containing a good measure of data (albeit heavily redacted) and financial analysis (albeit using a questionable methodology). The Business Case Iteration 6 was written when it was realized that on learning of the Cubic contract, members of the public would demand to see a business case. If the Business Case document had been considered really important in its own right, more care would have been taken in its preparation. It was probably thought that the mere existence of a 228 page business plan would be sufficient to set minds at rest. First among the politicians, then within the media, and finally among the general public.

The "Business Case" document is actually a compendium of the "Strategic Case", "Economic Case", "Financial Case", "Commercial Case" and "Management Case". Strictly speaking a business case is applicable to a business which wants to get a monetary return on its investment. Since late last century there has been an assumption that government should be run like a business and hence should make a "business case" for any investment. But despite its title, the Business Case does not attempt that impossible task in the case of the Cubic NTS. Instead it focuses on claimed benefits to public transport users, motorists and the environment which are the basis of the "Economic Case" and the "Strategic Case".

The Economic Case.

Waka Kotahi has an economic criterion that must be met for investment which is that the benefits in dollars must exceed the cost in dollars for the project as a whole. In financial parlance that means a Benefit to Cost Ratio or BCR greater than 1. Therefore Waka Kotahi has a problem with the Cubic NTS, which will cost over $1300m but generates no cash income for Waka Kotahi or the Crown.

However Waka Kotahi is used to dealing with this sort of investment problem, and it even has a manual for the process to be followed. Take for example the question of whether it is economic to build a deviation or a tunnel to bypass a winding and difficult to maintain stretch of road. Waka Kotahi call the option of continuing to use and maintain the current section of road the "Do nothing counterfactual". It is not strictly speaking "Do nothing" because the road still has to be maintained but never mind the jargon. The sense is clear enough. So the project analyst sets up two cost and benefit streams going 5, 15 or even 50 years into the future. One covers the annual costs of maintaining the existing road (the "counterfactual") and the other covers the cost of building and maintaining the tunnel. The costs of building and maintaining the tunnel will be normally be very large compared to the ongoing costs of maintaining the current road. On the other hand motorists using the tunnel will save on fuel, tyres, and time, which means that they will be saving money as well. This saving to the individual motorist is known as a "user benefit". If you are from the ACT side of the political divide you might suggest that therefore the extra cost should be met by tolling those who benefit, that is the tunnel users, and that is often done, but Waka Kotahi takes other valid considerations into account when making the decision on whether to build a tunnel. These other factors are "public benefits" which include benefits to the state itself. For example if the old road was a crash hazard area, then there may be fewer crashes once the tunnel is operating. Vehicle crashes are a major cost on the state and the public, through road closures, emergency service attendance, hospitalisations, deaths and longterm disability. Then there are the environmental effects such as reduced air pollution, lower green house gas emissions and sometimes lower noise levels. The assumption is that the state should pay for these benefits, and it may do so by funding the tunnel construction and maintenance. All this is relevant to the Cubic NTS project because Waka Kotahi has deemed that the Cubic NTS will indeed reduce vehicle crashes on the road, air pollution and green house gas emissions and will also provide user benefits in the form of reduced transport costs. The argument is not entirely fanciful, although it is a tenuous case and it does have one serious point of weakness which I will deal with later.

The next problem is that while a tunnel costs a certain amount of money that is plain for all to see, the user and public benefits are not so easy to assess. User benefits are relatively easy to value in money terms ("monetise") but do depend on what sort of car you drive, how you drive it and to more generally how you live your life, so Waka Kotahi has to come up with with an "average" user benefit figure. (In principle user benefits, ultimately paid for by the state, are greater for the more affluent or more extravagant than they are for the poorer or more thrifty members of society. On the case made by Waka Kotahi, the dentist who normally drives a Mercedes Benz car will gain more from government financing of the Cubic NTS than the office cleaner who drives a Toyota Starlet because of the difference in the "money value of time" for each and the difference in their vehicle running costs).

"Monetising" public benefits is more tricky than monetising user benefits and monetised values of environmental benefits in particular can vary widely. Another problem is that these are indirect benefits and the link between a motorist's decision to use a tunnel and the freeing up of a hospital intensive care bed can be quite a tenuous one. Finally there are all sorts of other factors at play in problems like green house gas emissions, and there may be unintended consequences. For example the presence of a short cut tunnel may encourage more people to drive to the beach on a whim. All this makes the job of a Waka Kotahi investment analyst tricky, but it also gives greater scope for bias in any analysis.

So we end up with two options, the counterfactual with costs that can be confidently estimated from historical experience or existing commercial arrangements, and the tunnel project with less certainty particularly in relation to projected public benefits. If the estimated monetized benefits, both user and public combined, are twice the monetary cost of building and maintaining the tunnel then Waka Kotahi may go ahead and build it.

The problem with the Cubic NTS is that the economic case for the project rests upon the "customer experience", that is the experience of the public transport user, purely in relation to ticketing. The argument goes that being able to use a bank credit or debit card, or a mobile phone contactless payment, to board a bus train or ferry will encourage many motorists to give up their cars in favour of public transport. That will leave petrol money in the pocket of the new public transport user, lead to fewer cars on the road, less congestion, therefore faster travel times for essential vehicles (delivery trucks, emergency services etc), fewer crashes, fewer hospitalizations and deaths, less pollution, lowered greenhouse gas emissions all virtuous consequences of the fact that some people love to use PayWave. Waka Kotahi has even added in the value of time saved by bank card users who will no longer have to top up their transit cards once a month. We are told that this comes to $131m over the 15 year life of the project. The numbers generated by these estimated public and user benefits are huge, but surprisingly are still insufficient to get the Cubic NTS over the line where monetised public and user benefits exceed costs.

If those user benefits are so large, one might ask why we don't have an information campaign, maybe with the aid of an app, to tell motorists just how much money they could save by taking a bus. The answer would be "Because motorists have already done those calculations. They have weighed up the advantages and disadvantages of their car versus public transport and it would take a material change in one or the other to alter their decision". Then why not charge public transport users for the great customer experience of an open loop ticketing system, sufficient to cover its cost? "Because the trains, buses and ferries would empty of users if they were expected to fork out the $1300m of the Cubic NTS, or even that part of the cost above the current cost of ticketing". If those public benefits are so large why not have a campaign to urge people to adopt public transport to save the planet? Why not make public transport free to all users, and avoid the necessity of a ticketing system altogether?

These alternatives are dismissed by Waka Kotahi because the agency is firmly committed to the Cubic NTS regardless of whether there may be cheaper or better alternatives, and also for ideological reasons. The idea that anything should be free to the public runs counter to the capitalist ethic. Never mind that they have also sensibly ruled out charging users for the customer experience of the Cubic NTS which would be the essence of capitalist logic. Free public transport would come out as an exceptionally good economic investment if evaluated in the same way as the Cubic NTS economic case. So alternative ideas, even those which meet the financial and economic test and those of the sort that are currently in use by Waka Kotahi itself (such as informational campaigns) are removed from contention.

This is where Waka Kotahi becomes more creative. If the "old road" (the AT HOP/Snapper/Bee Card system) can be decommissioned then the cost saving could be added to the benefits of the Cubic NTS. The Cubic NTS will have benefits over and above the current system. Those benefits are real, although how significant they may be is debatable. Therefore Waka Kotahi argues that the Cubic NTS should be evaluated as a marginal investment. The extra benefits (marginal benefits) brought by the Cubic NTS should be measured against the additional, or marginal, cost of the Cubic system.

If the costs of maintaining the "old road" can be suitably enhanced, and the benefits of the Cubic NTS project treated with generosity of spirit, then it is not hard to come up with a marginal BCR greater than 1. The on-going costs associated with the "Regional Upgrade" scenario in the Business Case seem remarkably high in relation to what current providers have been charging. One wonders what Snapper, Thales and Init would have to say about them. (It is unlikely that any of these companies will make a public comment, because companies that do business with governments are expected to maintain silence, particularly when they also work closely with the military as do Cubic and Thales). While the costs of the Cubic NTS are real contractural costs, these Regional Upgrade scenario costs are just what someone in Waka Kotahi thinks they might have been. Therefore they need to be treated with caution.

Let's look at the claimed monetised benefits of the Cubic NTS. It is important to note that these are not specific to the Cubic NTS project. They are based on models used in Waka Kotahi's other project evaluations. Specifically, Waka Kotahi estimates that over the 14 year period of Cubic NTS project, 57 million public transport trips will be taken by users who were drawn to public transport on the strength of the availability of bank card payment for travel. Waka Kotahi tells us that each of those trips will, on average, save the country $9 in congestion costs making a total saving to the nation of $521m in road decongestion benefits. Remember that is only 2% of public transport trips. The other 98% of trips presumably are also contributing $9 worth of traffic decongestion. If this model is valid, should we bother with ticketing? Or should we make public transport free for all in a serious effort to increase patronage? The calculated public transport user benefits are even higher. $571m over 14 years or an average $13 per trip. Then the Economic Case claims that the time saved by public transport users not having to top up their transit cards will be worth $131m to those commuters (even though common sense suggests that virtually no one will be able to cash in on that $131m worth of "saved time"). So add in $131m of time saved from not having to top up transit cards to the traffic decongestion benefits and the public transport user benefits and we have a total of $1413m in benefits thanks to those former motorists who decided to become PayWaving public transport users. That takes us over the line of a positive return on the $1300m investment in the Cubic NTS, does it not? There is a catch though. In fact a couple of catches. One is that in order to stick to the manual, Waka Kotahi need to discount future benefits by 4% for each year that we have to wait for them to arrive at what is called their "present value". Another is that Waka Kotahi specify a BCR range of between 1.0 and 3.0 for a certain category of investment, so it would be really good if we could have a BCR of 2.0, that is smack dead in the middle of the desired range.

The stratagem used to get around this difficulty is a technique known as marginal analysis. For example when comparing two projects, let us say that Project 1 has benefits of $1m and costs of $2m. The BCR of Project 1 is $1m/$2m which equals 0.5. A non-starter. If Project 2 has benefits of $1.2m and costs of $2.1m then the BCR of Project 2 is 0.57, also a non-starter, but the marginal BCR of Project 2 against Project 1 is the difference in benefits divided by the difference in costs, that is 0.2/0.1 giving a marginal BCR of 2.0. Neither project is economically viable but if we were to accept the principle of marginal BCR then Project 2 when measured against Project 1 would meet the Waka Kotahi criterion for investment which is a BCR between 1.0 and 3.0. Indeed, by using this unorthodox methodology virtually any bad investment can be shown to meet the criterion for acceptance.

Thus the Economic Case rests not on the merits of the Cubic NTS in its own right, but on an assessment of the marginal BCR of the Cubic NTS against another two options ("Regional Upgrade" and "Do Nothing"). When Waka Kotahi do the sums this way, they come out with a BCR of exactly 2.0 against the "Do Nothing" option, which fortuitously or otherwise is exactly the BCR that they needed to make the case. But even if the other two options were accurately and fairly represented (which they are not) this approach bends the rules of financial analysis. It is fair enough to say that we must have a ticketing system and therefore must do one or the other - either stick with the current system or go for the Cubic NTS. But is it reasonable to use ploys such as marginal analysis to give the false impression that the Cubic NTS will return $2 in value for every $1 invested?

The Strategic Case.

The "Strategic Case" section argues that the NTS will provide "the convenience customers expect from modern banking and retail payment systems ... using bank-issued cards .. (such as Visa payWave)" and that "Without such capability, it remains difficult to provide a high-quality user experience that can attract people away from use of private vehicles". The implication that the absence of payWave has been a significant factor deterring New Zealanders from giving up private vehicles in favor of public transport is astonishing particularly when coming from a transport agency. New Zealanders will use a private vehicle when it is faster, cheaper, more comfortable or perceived to be safer than public transport. They are unlikely to take up public transport when schedules are inadequate to their needs or schedules are disrupted due to lack of drivers, mechanical failures and so on. Payment options are not a serious consideration for most and they will not materially change New Zealanders attitudes to the use of public transport.

The "Strategic Case" then offers the much more plausible argument that the "COVID-19 pandemic has identified the need for ... a level of contract (sic) tracing for users of public transport". The one clear, consistent and credible message in the Business Case is that the NTS aims at gaining data on the movements of individual users of public transport.

Lastly the Strategic Case offers the confused circular argument that "Multiple investors .. are barriers to ... delivery of a ... single, integrated ticketing solution". "Multiple investors" needs to be read as "Multiple investments" if this claim is to make any sense at all. The current ticketing situation in New Zealand consists of multiple investments (Snapper, AT HOP, Bee Card and Metrocard) from multiple investors, being the PTAs. The Cubic NTS is a single investment with multiple investors (the PTAs in a small way and Waka Kotahi in a large way). Multiple investments are by definition "barriers to a single solution" but that fact does nothing to advance the case for the NTS. If "multiple investors" and multiple investments are currently providing effective services at a lower cost than the NTS then there is nothing to be gained from the "delivery of a single integrated ticketing solution". In fact those "multiple investors", the PTAs, were only dissuaded from continuing with their current cost-effective systems when government offered them equivalent services at a heavily discounted cost of $100m with central government picking up the balance of the $1300m cost of the Cubic NTS.

From the user's side, there are strategic issues of concern about the Cubic NTS "open loop system account based hybrid system", aside from the privacy/surveillance concerns that inevitably will arise when a firm like Cubic is managing the system. One is the fact that open loop gives bank cards and the banks a key role in the system. Banks impose fees and charges. They can also invalidate bank cards, thus blocking travel. Waka Kotahi makes quite an issue about the fact that the current transit cards incur an initial cost, tie up users funds and take time to "top up" and while the total amounts involved (which is all that seems to concern Waka Kotahi) may be large, the effects for the individual are minimal. People also use their transit cards as an aid to budgeting and people who don't have a bank card, for whatever reason, may be obliged to obtain one specifically to commute, which will expose them to much higher fees than the one off cost of a transit card.

Bias

The Business Case for the Cubic NTS is biased against the alternatives. That is hardly surprising, given that the purpose of the Business Case is not to objectively choose between the possible alternatives, but to make a case for the option already chosen, the Cubic NTS. As Waka Kotahi themselves admit "A more standard approach would be to analyse the offers of various providers, or the market as a whole" but this was not done. Instead Waka Kotahi contrived to produce two "alternative options" to the Cubic NTS ("Regional Upgrade" and "Do Nothing") which had some relation to authentic options but were deliberately designed to appear inferior to the Cubic NTS. For example "Figure 3 Comparison of the NTS, Do Minimum counterfactual alternative reveals the key advantages of the NTS" with the Cubic NTS getting a tick for seven points of difference and the alternative "Regional upgrade" getting no ticks. Yet on all seven points the claims against the "Regional Upgrade" are false or misleading. The first four (Payment by contactless debit/credit card or token, Payment from mobile device, Pay after travel, Correct journeys before being charged) would in fact be available to Auckland and Wellington users under upgrades already planned and in principle could be available to users in the smaller regions. The other three supposed points of difference "Offer national concessions, Consistent national data, Ability to quickly deploy new products and fare changes" are nonsense. Each of the three regional systems (assuming Christchurch comes under the BeeCard umbrella) is able to make fare changes and deploy new products and respond to national directives as they effortlessly did when fares were reduced to half during the Covid pandemic. The argument that instead of "Consistent national data" there would be "At least three separate sources of travel data" is also a nonsense. Whether under the Cubic NTS or Regional Upgrade scenario there will be up to 200 million separate sources of travel data each year (that is, passenger journeys), which will be channeled through either one or three computer systems to produce a set of national statistics.

The Business Case is particularly biased against the option of free public transport arguing that "Free public transport for all across New Zealand would be unaffordable, costing in the order of $385 million per annum... This option does meet the financial expectations test and was not shortlisted" (In the Appendix "does meet the financial expectations test " has been changed to "does not meet the financial expectations test" (italics added) but the original wording remains in the main body of the document). By what standard could $1300m for a ticketing system be deemed "affordable" while $385m per annum for free public transport would not be affordable? Only if an essential element of the decision was that Cubic must be a player in the New Zealand public transport system. A free public transport system would have no need for Cubic. Therefore in the eyes of Waka Kotahi free public transport would be unacceptable, even if affordable, because for whatever reason Waka Kotahi is committed to Cubic.

The Cubic/Waka Kotahi relationship

The Business Case contains some items which take us deeper into the dynamics of the relationship between Cubic and Waka Kotahi. For example on Page 26 we read "The procurement will source a 'solution' not a system". On the face of it this statement may appear facile or meaningless. What is the technical difference between a "system" and a "solution"?

To answer that question we need to quickly chart the progress of the information technology industry over the past half century. In the early days businesses and government departments asked IT workers to replicate their manual systems of record keeping and processing (chiefly accounting) on electronic computers. IT people (the "system analysts") needed to understand the current method of working of particular government departments or private businesses but that was all. It was not their place to influence changes to the functions, strategies or organisational structure of their clients. A later breed of IT people ("system designers") would offer suggestions to their clients about how they might improve data collection and processing to make more or better information available but fundamentally client management remained responsible for defining the information needs of the client organisation, as well as its vision for the future, procedural innovations and so on.

We have now moved beyond that to a new era in which IT companies offer clients something more than increased efficiency of data processing, something markedly different from the client's old style working, and something which may go well beyond what the clients ever thought they wanted. The "solution" oriented IT company does not just understand the client's existing system, it offers to completely transform the goals and functions and workings of the client company or government agency. From formerly being mere agents of client management policies, the solution oriented IT provider has become the driver of client policy.

In the end, the Business Case confirms what many sources, including Waka Kotahi themselves, have told us: that the main interest of the agency which is providing the lion's share of the funding for the Cubic NTS is data on personal movements and contacts. All the rest is smoke and mirrors. Access to this "rich source of data" will come at a cost of over a billion dollars and with it will come a larger place for the banks in the lives of urban workers, and a pivotal role for Cubic Corporation in the direction of Waka Kotahi.

Sources:

https://en.wikipedia.org/wiki/National_Ticketing_Solution

https://www.nzta.govt.nz/assets/About-us/docs/oia-2022/oia-11277-attachment-1.pdf

https://www.railjournal.com/passenger/metros/new-york-to-install-contactless-ticketing/

https://www.airtrain.com.au/blog/smart-ticketing-in-queensland/

https://www.rnz.co.nz/news/national/404378/nationwide-transport-ticketing-project-behind-schedule-by-two-years

https://www.rnz.co.nz/news/national/477115/new-1-point-3b-single-payment-system-for-public-transport-announced

https://www.rnz.co.nz/news/national/481255/congestion-charging-possible-under-proposed-new-nz-wide-transport-ticketing-system

https://www.greaterauckland.org.nz/2022/10/26/a-new-national-ticketing-system/

https://apnews.com/article/technology-police-government-surveillance-covid-19-3f3f348d176bc7152a8cb2dbab2e4cc4

https://www.transport.govt.nz//assets/Uploads/Paper/GPS2021.pdf

https://www.rnz.co.nz/news/national/476659/government-s-use-of-surveillance-firm-cobwebs-technologies-embroiled-in-controversy