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What really happened with Snapper/HOP – Part 2

Following on from my post yesterday on the Snapper/HOP mess, I felt that a lot of further questions remained unanswered. Phil Twyford attempted to get some answers out of the Minister of Transport in parliament:

While questions around why Auckland Transport decided to allow Snapper to become involved in the HOP scheme remain frustratingly unanswered (perhaps until I read a bit further into the mountain of information I have), a question that I want to look at in this post relates a bit more closely to the title of this post – why did things go wrong?

A useful starting point for looking at the answer to that question is the presentation to NZTA’s board I linked to yesterday. This covers the vexed issue of what’s called “treatment of third-party systems, kits or cards”. Before we get into the details it’s useful to remind everyone that an integrated smartcard ticketing system has three components:

  1. The back-office “system” which handles all the transactions and keeps track of everyone’s balance plus the trips they take.
  2. The ticket machines on the bus, including the card readers
  3. The cards themselves

There’s also a further layer sitting between the machines and the system but my understanding is that’s a relatively simple part of the system which just collects information from the vehicles/stations and then passes it onto the ‘proper’ system. It was clearly ARTA/AT’s preference for all elements of the system to be controlled by one party and this has been in the request for tender for the system. The presentation deals with this below:

As noted, there are different extents to which third party elements can be introduced, but each step leads to increased risk, complexity and therefore potentially cost. The first option is obviously to have everything provided by the one party – ironically what ARTA originally wanted and what we’re going to end up getting:

The most basic way of introducing 3rd party elements is the “device” or card reader. In early 2009, when the Regional Fuel Tax was cancelled and funding for the integrated ticketing system was put in jeopardy and then reduced, there was an acceptance that third-party devices may be required for buses – although Thales equipment would still be used on trains and ferries as part of the funded system. So the second option looks something like this: 

Essentially the bus operators being able to decide what devices to use left the door open for NZ Bus to “choose” its sister company Snapper. But Snapper wasn’t interested in just providing the card reading devices, they wanted (at the very least) to also be able to use their card – so we shift along to option 3, with increased risk, complexity and therefore potentially cost:

I never liked the idea of this system because it would effectively undermine the whole concept of an integrated ticketing system where operators become irrelevant in terms of paying your fare. Instead you might end up with the an equivalent debacle to our mobile phone industry where you can pay different rates depending on the network of the person you’re calling or texting. I can imagine NZ Bus and Snapper also doing deals so that there were cheaper fares available on the exclusive Snapper Card rather than the Thales card, further undermining integrated ticketing.

Finally, the fourth option creates something like our current EFTPOS system with a whole pile of different ‘clearing houses’ and cards and devices. While this option is probably great for retail purchases and other uses for contactless “e-money”, the complexity and messiness would not be well suited to public transport:

The different options, as well as more detail on the system (such as which bits of it are centrally controlled and which bits are controlled by Auckland) is outlined in the NZTA board paper that sought funding approval for integrated ticketing (nearly $100 million of funding including operating costs).

It seems like NZTA preferred option 1 due to its lower cost, but was mindful that some operators (presumably this means NZ Bus and their close connections with Snapper) would not like this option. It’s a pity that some of this slide is blanked out – wonder what it says? Some reference of the Minister?

Interestingly, there’s then some discussion about a pre-emptive Snapper rollout – exactly what did end up happening. The presentation notes that while it’s not possible to show that the Thales system is better value for money than Snapper without “starting again”, it was possible to show that Thales was “better” and “internationally competitive” and that Snapper would not be free – rather around $75 million over 10 years (compared to around $135m for the Thales system).

To summarise what is quite a lot of detail it seems to me as though NZTA warned against making the system overly complex through Snapper’s involvement – because that would add risk and add cost. Yet because Snapper went ahead and launched and somehow talked ARTA/Auckland Transport into involving them, we ended up with the messy mixed system that NZTA had always feared. Of course then things started to unravel, rather like NZTA had predicted:

  • The Snapper/HOP (SNOP) Cards struggled to connect with the Thales “system”, meaning that they would need to be “swapped out” for normal AT HOP cards once the Thales system was up and running.
  •  Even using a Thales card and the Thales system, the Snapper readers weren’t up to scratch, leading Auckland Transport to eventually bite the bullet and go back to the original plan of having Thales supply all the equipment: cards, readers and the system itself.

Perhaps what all this really highlights is the mystery of why ARTA allowed Snapper to join the HOP scheme. This is where the issue of political interference from Steven Joyce sounds like it comes in – as referenced in yesterday’s post.  ARTA and NZTA had both wanted to keep the system as simple as possible because they were worried adding in third-party elements would add cost and delay. Ironically they were both absolutely proven right in the long run with Snapper – as a third-party – struggling with exactly the issues that had been foreseen.

It seems simply staggering for ARTA to go against the very thing they had been fighting for – a single system, or “Option 1″ as described above – unless they were under considerable pressure to do so. Furthermore, it seems like ARTA went against their previous position even though they had both NZTA and the Ministry of Transport (I’ll get into their documents in future posts) supporting “Option 1″ as the most cost-effective and low-risk approach. If ARTA’s change in position wasn’t due to political pressure from the Minister, I’d love to know what it actually was caused by.

27 comments to What really happened with Snapper/HOP – Part 2

  • Hamish

    Fantastic work Peter, look forward to reading more.

    • Adam W

      I agree, this is fascinating stuff. How Mr Joyce is getting away with this – is just unbelievable. To be honest I just don’t understand how he is still a Minister.

      • To be fair we cant assume he is at fault, even though the evidence is stacking up against him. But everyone is entitled to innocent until proven guilty rights, even if your a politician.

      • Chris Randal

        He is a minister because National Party politicians believe that whatever they do is always right!

        • No offense, but I surely hope that’s what any politician thinks!!! It’s important that they think they are doing right for the country, we would be in trouble if they were pushing through things they thought was wrong. However we don’t need to agree that it’s right and can can vote accordingly. Unfortunately National have so much going for them, but there transport priorities suck!

  • Good post. ARTA and Auckland Transport have a few questions to answer. Like why did was the Participation agreement signed with Snapper so ambiguous that it now results in the lawyers being called in. Surely there should have been clauses in there specifying compliance deadlines and ageed consequences of non-compliance.

    • Stu Donovan

      Yes that’s another interesting angle to this: Once the ill-fated decision to add Snapper was made (with or without undue ministerial influence) why was the agreement not nailed down really tight? I’m not a lawyer so perhaps it’s easier said than done, but I would have thought some deadlines and escape clauses would have been reasonable.

  • Simon C

    Yeah, you’d think if you were being made to do something against your will, you’d at least have the terms & conditions very clearly stated.

  • SteveC

    the cynic in me popped up at 2:50 in the Minister’s answer, essentially “the benefits of holding the pre-paid fares Ii.e. interest) accrue to the users through NZTA”, I trust that these benefits are hypothecated to the PT user and are not going to prop up the RONs!

    • Hamish O

      I always thought the interest was going to AT. Obviously I am incorrect, but in that case why wasn’t Thales HOP launched with any Auckland specific branding so it could progressively be introduced in different regions.

      • I had assumed that the interest on the float would be used to pay for the running of the system. Perhaps that’s what they mean by ‘accrue to the users through NZTA’, i.e cheaper fares with little or no service fees because the float interest covers that.

        • Hamish O

          Then in that case why would the system need to be restricted to Auckland through it’s branding? Why not just call it the HOP Card v2, as opposed to the AT HOP card.

  • Interest to NZTA sounds dodgy to me, but in saying that, the government looses one of the excuses for not funding the CRL. There cant be that many left now…

    • Interest goes to running the scheme, technically the account name may be in the name of NZTA (or may not be) , but it is definitely controlled by AT

      from the very useful IRD product ruling
      http://www.ird.govt.nz/resources/7/5/751f06804b863d20910c951c69874dd9/pd12002.pdf

      “25. All amounts collected from the sale of HOP Cards and AIFS Products will be paid into the Stakeholder Account controlled by Auckland Transport (see para 20). Auckland Transport will not derive any benefit from holding the money while it remains in the central Stakeholder Account apart from retaining any interest earned, which it will apply towards the costs of operating the Stakeholder Account.”

      • Greg N

        Greenwelly,
        The IRD ruling you quote states that the interest is allowed to be used cover the costs of operating the stakeholder **account**. It doesn’t say cover the costs to operate the **system**.
        So, the IRD is pretty clear what the interest is to be used for.
        Where the balance of the interest goes once its covered the operating costs of the stakeholder account is perhaps a different discussion for another day.
        In any case, I am sure the IRD would require tax be paid on that “surplus” of interest earned over the costs of the running the account.
        Leaving the balance after tax for NZTA or whomever it deemed worthy of the money.

  • I agree this is really something that needs to be made public. While it all happened in the past, we need to make sure that people who were at fault are held to account.

  • Bob

    Good work Peter, fascinating reading. Two questions from me, and hopefully you might be able to give some insight:
    1. Looking at Option 1 – surely this would just lead to a monopoly situation where bus/train/ferry companies had no choice over equipment, and had to pay the price that was set by the supplier (Thales). Bus equipment is one of an operators biggest capital and operating expense (as it has to be maintained). If you take choice away then what incentive is there for operators to innovate, improve efficiency etc? Seem like one step closer to nationalising the bus companies……which is maybe the outcome that AT wanted, but not NZTA/Government?
    2. While the reasons behind the decision to let Snapper in to Auckland may never be known, it seems like the Participation Agreement should have been watertight in protecting AT’s interests and setting out responsibilities and timeframes etc. So I’m less interested in how Snapper came to be in Auckland, but rather why it all went so wrong? It should simply(!) have been a matter of integrating Snapper’s equipment to a central system provided by Thales. Snapper was incapable of doing so either because (1) they are useless and couldn’t integrate – which seems unlikely given they have seem to have successfully integrated with EFTPOS terminals, mobile phones etc, or they weren’t provided the right information by NZTA (NITIS standards), Thales (how to plug in to their central system) or AT (system integration). Any thoughts on this?

    • Interesting Questions:

      1) I think the bus equipment is now being rolled out by AT, since AT is getting all the bus equipment they should actually be getting a better price due to the quantity ordered from one supplier. It is also better in terms of quality, AT now determine the quality of the readers across the whole system providing consistency, which is vital when rolling out a ticketing system that will be fully integrated. I don’t think that it will lead to nationalising bus bus companies, then again I also wouldn’t see any harm in doing so.

      2) I do agree the agreement should of been watertight, however I’m not sure exactly how much say or leverage AT had in the whole agreement. It seems that snapper was able to force their way into the system against AT’s wishes, therefore it would be reasonable to think that Snapper would of had greater bargaining power come contract negotiation time as well. Hopefully this will come out of the wash with what actually happened, but I’m sure we will never know. When it comes to Snappers equipment connecting to the central system I’m not sure it’s as easy as you suggest. EFTPOS worked by them providing the readers which connected to the snapper system. It didn’t connect to any other parties, and mobile phones are working by a snapper/2degrees sim card, connecting to the snapper system. Again no other parties involved.

      Anyway those are my thoughts.

    • Yes having only one player is a concern and I have seen more recent NZTA docs show that as such http://transportblog.co.nz/2012/05/29/nztas-updates-on-integrated-ticketing/
      However interesting to see that in one of the documents the NZTA notes that ARTA’s preference was to buy the readers and gift them to the bus companies which would have taken that risk (or at least some of it) away from the operators.

  • Bob

    What happened to Parkeon by the way? Does anyone know? I though that the other operators outside of NZ Bus were going with them. Could they not integrate with Thales either?

  • JG

    Quote: “If ARTA’s change in position wasn’t due to political pressure from the Minister, I’d love to know what it actually was caused by”

    The Rugby World Cup… which probably led to political pressure from a Minister and a dispute over whether Thales/Snapper could actually deliver workability before RWC. Could Thales equipment have been rolled out in time for the integrated ticket offered to visitors? The Minister had a pathway to sway opinion by seeding confidence in Snapper and uncertainty with Thales.

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