Contract May Be Stalled as Cubic Is Scrutinized for Its Role in Scandal

New York City transit officials are investigating Cubic Corp.’s Jan. 15 guilty plea in the “Ill Wind” defense procurement fraud scandal to determine if the plea should influence Cubic’s position as front-runner for a hotly contested $102-million contract to automate New York City’s aging subway fare-collection system.

Officials also are seeking more information about five $20 bills that a Cubic employee left in a report that was turned over to transit authorities in November.

The investigation began just days after the New York Transit Authority recommended that the the New York Metropolitan Transit Board award Cubic a $102-million contract to modernize a subway fare-collection system that dates back to the 1930s.

The contract competition, which has pitted Cubic against a consortium that includes Nynex, a New York-based communications and technology company, is one of the largest fare-collection contracts ever offered for bid. The winner is expected to receive additional contracts as New York modernizes other fare-collection systems.

The investigation, which is being conducted by the transit authority’s inspector general, is focusing on “several issues” generated by the hard-fought fare-collection contract competition, said Arda Nazarian, a spokeswoman for the transit authority’s inspector general.

Cubic is “not aware of” an investigation by the transit authority’s inspector general, according to a written statement released Monday by Cubic spokesman Jerry Ringer. “If an investigation is conducted, Cubic will fully cooperate in any respect,” according to the statement.

The broad-ranging investigation was prompted by the fact that “there’s such a huge amount of capital money involved” in the upcoming fare-collection contract, Nazarian said, adding, “We want to ensure that everything is being looked at, that things are not overlooked.”

Nazarian declined to comment on the investigation’s focus. But she said “you can safely assume that the things that (transit board officials) are looking into are the things we’re looking into.”

Cubic’s role in the Ill Wind investigation is on the list of subjects that board members want to review before awarding a contract, transit board spokesman Tito Davila said Monday. “The whole thing is on hold” while the transit board is briefed, Davila said.

Despite questions raised by the board and authority, Cubic executives remain “fully confident” that the company is the front-runner for the $102-million contract, according to Ringer’s statement.

Cubic won the transit authority recommendation based on merit aftear an extensive, six-year pilot project in which Cubic’s fare-collection devices were tested at 80 subway stations, Ringer said. That test “concluded that the (Cubic) system is the best for New York,” according to the written statement.

But transit board members now want added information about “specific contractors” involved in the bidding contest as well as the controversial plan to modernize the subway fare-collection system in the nation’s largest subway system, Davila said.

Cubic officials Monday described the incident of the $100 as a “non-issue” involving an employee who accidently left the bills in a report that wound up in the hands of transit authorities. Transit Authority Deputy General Counsel Jerome Page recently told New York Newsday that the company’s explanation was “plausible” and that further investigation was unnecessary.

According to a copy of a letter that Cubic Western Data Chairman Raymond L. deKozan mailed to Page on Dec. 7, 1990, Richard Rowlands, a Cubic employee, accidently stuffed the money into a report instead of placing it in a magazine in his briefcase.

Cubic and transit authority officials subsequently determined that the matter was an accident--that Rowlands mistakingly left the five $20 bills in the report--and that the “lost” money was returned to Rowlands, according to deKozan’s letter.

Besides the money, the transit officials have asked for more information about the Jan. 15 guilty pleas that Cubic’s Defense Systems subsidiary and its former president, C.C. (Sam) Wellborn, entered in connection with the Ill Wind investigation. The company and Wellborn pleaded guilty to attempting to bribe a Pentagon official in an attempt to win lucrative Defense Department contracts.

The transit board began asking questions about the guilty pleas when a New York newspaper recently reported that Cubic was involved in the Ill Wind investigation. That article evidently surprised some transit board members. The board received “no formal briefing” about Cubic’s guilty plea, Davila said.

In a written statement released Monday, Cubic spokesman Ringer said the guilty plea entered by Cubic Defense Systems did not involve executives at Cubic’s Western Data operation, a sister subsidiary that is pursuing the New York subway contract.

Cubic, Ringer wrote, often advised transit officials daily about the Ill Wind investigation and the guilty pleas. And San Diego-based Cubic recently signed “a very stringent ethical practices agreement” with transit authorities that would govern Cubic’s conduct should it win the $102-million award, he wrote.

In a related development, some New York area legislators have attacked the long-debated plan to modernize subway fare collection by installing a system that uses magnetically coded fare cards.

Some legislators question the wisdom of issuing cards that must be passed through special scanners in subway turnstiles in order to determine their value. Although the magnetically coded cards will track their value, subway riders won’t be able to tell how much their cards are worth without using the scanners.

Subway authorities believe the coded cards would discourage muggers from stealing them because they wouldn’t know which cards are most valuable. But some legislators believe riders would be better served by a system that uses fare cards with the value printed on them.

The earliest that the transit board could review the contract award would be during a board meeting April 26, Davila said.