c o m p u t e r l a w & s e c u r i t y r e v i e w 2 6 ( 2 0 1 0 ) 1 7 0 – 1 7 7

ava i lab le a t www.sc iencedi rec t .com

www.compsecon l ine .com/publ i ca t i ons /prodc law.h tm

Smart and integrated ticketing in the UK: Piecing togetherthe jigsaw

Mark Turner, Ruth Wilson

Herbert Smith LLP, London

Keywords:

Department for transport

Integrated ticketing

Smart card ticketing

Transport

ITSO

EMV

Oyster

Near field communications

Electronic money

Procurement

1 http://www.dft.gov.uk/pgr/regional/smar2 DfT, Consultation Paper: ‘Developing a

consultations/closed/smartticketing).3 ibid. Executive Summary, para. 1.

0267-3649/$ – see front matter ª 2010 Herbedoi:10.1016/j.clsr.2010.01.015

a b s t r a c t

In its recently published ‘‘Smart and Integrated Ticketing Strategy’’, the Department for

Transport (DfT) set out its vision for a seamless transport ticketing infrastructure across

England by 2020, built on smart card ticketing technologies. This article discusses the core

aspects of the DfT’s strategy, the existing jigsaw of discrete ticketing schemes in the UK,

and the challenges of integration. The authors review both legal and commercial risks

associated with the procurement of new ticketing infrastructures and outline the key

contractual issues to be addressed by operators in smart card ticketing projects.

ª 2010 Herbert Smith LLP. Published by Elsevier Ltd. All rights reserved.

1. Introduction 2. The department for transport’s ‘smart and

Smart card ticketing technology has a great deal of potential.

However, with the notable exception of London, adoption by

local authorities and other transport operators has been

fragmented and slow. The success of smart card ticketing in

London demonstrates what can be achieved: since its launch

in 2003, London’s Oyster card has become an outstanding

success, with more than seven million Oyster cards regularly

used in London. The Oyster card scheme has delivered

significant benefits for passengers and Transport for London,

including faster passenger throughput, improved conve-

nience, reduced queuing, better understanding of travel

patterns, and reduced fare evasion. Outside London these

benefits have not, for the most part, been realised and the

Department for Transport (DfT)’s recent strategy document is

a conscious attempt to kick start the implementation of smart

and integrated ticketing across the country.

t-integrated-ticketing.strategy for smart and

rt Smith LLP. Published b

integrated ticketing strategy’

The DfT published its ‘‘Smart and Integrated Ticketing

Strategy’’1 document in December 2009, following a public

consultation.2 The strategy sets out the DfT’s vision for

universal coverage of smart ticketing infrastructure, sup-

ported by integrated and innovative ticket products, leading to

significantly improved travelling experiences for passengers.

The DfT considers the prize here to be significant: ‘‘the oppor-

tunity to revolutionise ticketing arrangements for the public and

allow seamless travel around the country’’.3

Integrated ticketing is expected to deliver greater flexibility

and simplicity for passengers, prompting greater use of public

transport, combined with smart ticketing to offer increased

speed, convenience and security against loss and theft.

Delivering these benefits will require partnership between the

local authorities, transport operators and suppliers of

integrated ticketing’, 20 August 2009 (http://www.dft.gov.uk/

y Elsevier Ltd. All rights reserved.

c o m p u t e r l a w & s e c u r i t y r e v i e w 2 6 ( 2 0 1 0 ) 1 7 0 – 1 7 7 171

ticketing infrastructure. The process will also take time: The

DfT’s immediate goal is for the roll out of integrated, multi-

modal, smart ticketing schemes in the major urban areas of

England by 2015.4 The DfT anticipates that these schemes

would then form the basis for further expansion, with

schemes rolled out to the majority of the UK by 2020.

3. Smart and integrated ticketing?

The DfT’s strategy differentiates5 ‘‘smart’’ ticketing, where the

passenger’s entitlement to travel is stored electronically on

a chip that is usually embedded in a plastic card and validated

when the card is presented to a smart reader, and ‘‘inte-

grated’’ ticketing, where tickets, whether paper or smart

tickets, are valid for travel with more than one operator and/or

mode of transport.

The DfT’s strategy aims to increase the coverage of smart

ticketing infrastructure and ticketing integration on public

transport and, taken in combination, canencouragea modal shift

away from private vehicles and towards public transport. The

DfT’s research suggests net annual benefits of over £1 billion per

year to passengers, operators and local authorities can result

fromtherollout ofsmartandintegratedticketingacrossEngland.

4. The UK’s smart ticketing jigsaw

Smart card ticketing technology is already in use across the

UK. A range of (mostly incompatible) schemes are in operation

at an operator and regional level, of which by far the most

successful is London’s Oyster card scheme.

4.1. Transport for London’s Oyster card scheme

More than 38 million journeys are made each week on

Transport for London (TfL)’s Oyster system on buses, tubes,

trams, Docklands Light Railway, London overground, and

some National Rail services that terminate in London. Oyster

cards store pre-purchased tickets (including weekly and

monthly travel cards) and ‘‘pay as you go’’ credit, with a daily

price cap which ensures that passengers never pay more than

the best combination of single and return tickets and travel

cards. The DfT recognises the Oyster system as an extremely

successful integrated scheme, delivering significant benefits

to passengers and to TfL, including reduction in costs as

a result of fewer paper tickets being sold, reduced queuing

time, faster throughput of passengers at ticket gates, reduced

boarding time for buses and reduced loss of revenue through

fraud.6

4 ibid. para 1.12. The DfT’s strategy is stated to extend to allmodes of public transport in England, other than aviation. Thedevolved Scottish, Welsh and Northern Ireland administrationshave responsibility for setting and delivering their own transportpolicies.

5 ibid. paras 1.3 and 1.4.6 Following the introduction of Oyster, the percentage of irreg-

ular journeys has fallen by 2.5%–1.5% of total journeys made,resulting in cost savings of up to £40 million per year. Source: DfT,‘Smart and Integrated Ticketing Strategy’, para. 2.10.

The DfT describes its strategy as seeking ‘‘to unlock the route

to similar benefits for other parts of the country’’7 and notes that

a key target is to see schemes similar to Oyster but using the

ITSO specification in England’s major conurbations by 2010.

The DfT is now sponsoring the £60 million project to enable to

Oyster system to interoperate with ITSO smart tickets from

2011, and the £5 million project to reissue London Freedom

Passes8 as dual Oyster and ITSO passes from April 2010.

4.2. Outside London

Existing regional smart and integrated ticketing schemes

outside London were not discussed as part of the DfT’s

strategy document, but there are nevertheless a small number

of schemes in operation, including:

- ‘‘Tap and Go’’, a partnership between Stagecoach, Master-

Card and RBS, which enables passengers to use MasterCard

PayPass and Maestro PayPass enabled bankcards to make

on-board payments for travel on around 200 Stagecoach

buses in Liverpool. The scheme was launched in October

2009 and is the first use of contactless bankcard payment

technology on public transport in the UK9;

- The National Entitlement card, an ITSO enabled smart card

scheme for concessionary bus travel in Scotland10;

- sQuid’s ITSO enabled GMPTE card for payment on Arriva

buses in the Bolton area, which can also be used for retail

payments in Bolton11; and

- NoWcard, the concessionary travel pass for Cumbria,

Lancashire and Blackburn with Darwen and Blackpool.12

Implementing the DfT’s vision of enabling seamless travel

across the country will mean that the existing jigsaw of

schemes will need to be pieced together through systems

upgrades and new infrastructure. Some of the challenges

associated with procuring and integrating ticketing infra-

structures are discussed later in this article.

5. Smart and integrated ticketing on theworld stage

Smart card ticketing has been successfully introduced to

major urban conurbations across the globe: Chicago’s Chicago

Card Plus/I-Go card, Lyon’s Tecely card, Melbourne’s myki card,

Nigeria’s GoCard, Tokyo’s PASMO and Suica cards and Hong

Kong’s Octopus card are a few examples.

Hong Kong’s Octopus card offers a good example of the

potential for smart card technologies to promote wider inte-

gration. Launched in 1997 as a joint venture between five

major public transport operators spanning metro, railway and

7 DfT, ‘Smart and Integrated Ticketing Strategy’, ExecutiveSummary, para 4.

8 Concessionary travel passes.9 Stagecoach Press Release, 26 October 2009 (http://www.

stagecoachgroup.com/scg/media/press/pr2009/2009-10-26/).10 http://www.transportscotland.gov.uk/concessionary-travel/

electronic-ticketing-machines/smart card- further-info.11 http://www.squidcard.com/bolton.html.12 http://www.nowcard.org.

c o m p u t e r l a w & s e c u r i t y r e v i e w 2 6 ( 2 0 1 0 ) 1 7 0 – 1 7 7172

bus operations in Hong Kong,13 the FeliCa technology based

electronic payment system was financed by a combination of

operator investment and loan capital. The scheme benefited

from significant government support from the outset as, at the

time of launch, the controlling shareholder of the operator

consortium, the Mass Transit Railway Corporation, was

government owned. Authorisation of the consortium as

a deposit-taking company by the Monetary Authority of Hong

Kong in 2000 then enabled the Octopus card to be used as

a means of payment for services beyond transportation.14

The Octopus card is accepted by more than 2000 service

providers and can be used as a means of payment on most

railway services, including the metro, ferries, trams, taxis and

car parking. Beyond transportation, the Octopus card is also

accepted by stores, vending machines, cinemas and payphones

across Hong Kong. The Octopus card has proved very popular,

with 19 million cards in circulation in a city with a population of

7 million, and more than 95% of the economically active pop-

ulation of Hong Kong owning at least one card.15

6. Can ITSO deliver integrated ticketing?

The DfT considers that an open, interoperable smartcard

ticketing standard is central to its ticketing strategy and has

committed to provide increased resources and strategic input

to support the development of ITSO as the single national

specification for smart ticketing. ITSO is the collective term for

the set of technical specifications and standards developed by

operator and industry body ITSO Limited.16 Originally a UK

initiative supported by the DfT, ITSO has been adopted as an

international standard for specifications at both the card and

application level, to enable the use of interoperable smart

cards in transport.

ITSO is not a product or system in its own right, but a set of

open standards and specifications for interoperable, contact-

less smartcards covering the entire smart card ticketing

system, including dimensions of smartcards, how data is

written to the smartcards, the communication protocols for

cards and readers, specifications for hardware and software,

back office systems handling accounts, processes for alloca-

tion of revenue and end-to-end security architecture.17 Key

elements of the ITSO specifications include:

- Customer media, generally a smart card, although other

media such as mobile communications devices could be

used;

- Point of service terminals, the equipment used to commu-

nicate with customer media, usually a smart card reader;

- Host operator or processing systems (or HOPS), the back

office systems that process ticketing information and

exchange data with other operators;

13 cf. http://www.octopus.com.hk/company/en/operators.jsp.14 Hong Kong Monetary Authority press release, 25 April 2000.

(http://www.info.gov.hk/hkma/eng/press/2000/20000425e4.htm).15 DfT, ‘Smart and Integrated Ticketing Strategy’, para. 2.17.16 http://www.itso.org.uk.17 cf. http://www.itso.org.uk/content/Presentations/About%20ITSO.

pdf.

- Data record definitions and message data, ensuring

a common structure is used for storing data on customer

media and that data can be read and written by any ITSO

compliant point of service terminal and process by any ITSO

compliant HOPS; and

- Security and management systems, to preserve the security

of data through the ticketing infrastructure and in transit

between operators.

ITSO specifications are open specifications that can be used

by any manufacturer or supplier of ticketing equipment. ITSO-

compliant systems can therefore be developed independently

by suppliers, but still be interoperable through compliance

with the open specifications.

The DfT describes the ITSO specification as ‘‘key’’ to its

vision,18 with the ability to promote interoperability between

transport systems and facilitate the allocation and transfer of

revenue between operators. However, concerns have been

raised that the DfT’s faith in ITSO as the solution to interop-

erability is misplaced. The Commons Transport Committee

concluded that, whilst ITSO is a step in the right direction for

smart ticketing, it is not enough to produce results in prac-

tice.19 Responses to the DfT’s consultation also indicated that

opinion was divided over whether current ITSO specifications

could deliver the DfT’s objectives, with 34% of respondents

concluding that current ITSO specifications could not deliver,

on the grounds that the specifications were complex and

expensive to adopt, and required amendment to better suit

the rail industry.20

That said, a ticketing standard of some description will be

an essential factor to achieving an integrated ticketing system

across the country, and the DfT has taken the decisive step of

backing ITSO as the national standard in the absence of any

other prevalent standard in the market and will enable local

authorities and other transport operators to progress their

own strategies for implementing smart ticketing. This will

reduce the risk that the infrastructure in which they invest

will prove to be a ‘‘losing’’ standard, incompatible with the

ticketing systems of neighboring regions that have procured

ticketing infrastructure that contains a different standard.

7. Ticketing technologies

The DfT envisages that new technologies, including contact-

less bank card technology and near field communications will

play a key part in enhancing smart ticketing infrastructure,

with passengers ultimately having a choice of ticketing media,

including smart cards, bank cards and mobile phones.21 In

considering new ticketing technologies in the market, it is

important to differentiate transport ticketing standards (for

which ITSO is the predominant UK standard, backed by the

DfT) from the ticketing media on which passengers’

18 DfT, ‘Smart and Integrated Ticketing Strategy’, ExecutiveSummary, para. 11.

19 Commons Transport Committee report on ticketing andconcessionary travel, 26 March 2008.

20 DfT, supra n19, para. 13.45.21 DfT, supra n19, para. 3.5.

c o m p u t e r l a w & s e c u r i t y r e v i e w 2 6 ( 2 0 1 0 ) 1 7 0 – 1 7 7 173

entitlement to travel is stored, and the technologies used to

deliver payment functionality.

7.1. Ticketing media

Implementing new forms of ticketing media will enable local

authorities and other transport operators to benefit from cost

savings associated with a reduction in paper ticket sales. As an

alternative to plastic smart cards, mobile ticketing technologies

currently available in the market offer a range of options for

validating ticket-to-mobile sales, including text messages with

identity codes, and the display of bar codes which can be read by

scanners on ticket gates and have been implemented by several

UK rail operators including Virgin and Heathrow Express.22

However, the speed at which mobile technology is devel-

oping presents even more attractive solutions. The DfT

commissioned Consult Hyperion to conduct a research pro-

gramme into the use of Near Field Communication (NFC)

technology on mobile phones for public transport ticketing,23

and in January 2009 the DfT completed the first ever live NFC

trials using the ITSO ticketing standard.24

This programme involved the development of additional

functionality for the standard ITSO specifications including

the use of an NFC device as certified ITSO customer media and

NFC devices performing the ITSO product retailer, service

operator and application issuer functions. This additional

functionality is currently beyond the scope of the standard

ITSO specifications and would require further developmental

work to before suitably certified NFC devices could be

produced to enable the sale of public transport ticketing

products via mobile networks. The DfT has emphasised the

need for NFC devices to be capable of integration into the ITSO

environment and an amendment to the ITSO specifications is

currently in progress to pave the way for NFC devices to be

used as ITSO compliant customer media.25

In a parallel development, O2 announced the success of its

trial of Nokia handsets featuring an Oyster application for

travel around London.26 The NFC-enabled handset allowed

users to pay for their journey by swiping their phone over

a reader in the same way as an Oyster card, and to pay for

small purchases in shops. O2 found that 9 out of 10 trialists

were happy using NFC technology on a mobile phone, with

78% of trialists interested in using contactless services if

available and 22% of trialists reporting increased use of public

transport as a result.

22 Heathrow Express’ mobile ticketing solution implements AtosOrigin’s Avantixmetro system, allowing passengers to buy ticketsonline and either have the ticket sent directly to their mobile bytext message, or have e-tickets which can be accessed and prin-ted via an internet link sent by text message to their mobile.23 cf. http://www.dft.gov.uk/rmd/project.asp?intProjectID¼12577.24 In partnership with Consult Hyperion, transport consultancy

MVA, technologists ESP Systex, mobile operator O2 and theNowCard scheme in the North West of England, with 36 trialistsused mobile. phones to pay for bus tickets with two different busoperators in Blackpool.25 DfT, ‘Smart and Integrated Ticketing Strategy’, para. 5.8.26 O2 partnered with AEG, Barclaycard, Nokia, Transport for

London, Transaction Systems and Visa Europe to conduct the 6month trial, which concluded in September 2008.

7.2. Payment functionality

Whilst ITSO provides a framework for smart card ticketing

interoperability, it does not include an integrated payment

solution. This means that local authorities and other transport

providers must consider implementing an e-money scheme

or EMV technology in order to provide payment functionality

to passengers.

7.3. Electronic money

Local authorities and other transport operators could

consider combining an e-money scheme with their smart

ticketing schemes as a means of providing for payment

functionality. The integration of smart tickets and payment

functionality appears to have been key in encouraging

passenger uptake of the Octopus card in Hong Kong,

although to date the take up of e-money in the UK transport

sector has been limited.

The DfT commissioned a report on the potential for adding

an e-money facility to the ITSO environment,27 which

concluded that the main reasons for the low take up of e-

money to date were that there is no ‘‘champion’’ of e-money

concepts in the fragmented and highly competitive transport

industry, competition between bus operators is not amenable

to an interoperable e-money purse and, as yet, there is no

emerging market leader for e-money provision in other

markets which could have a catalytic effect of overcoming

these barriers by providing the transport market with low cost

e-money scheme infrastructure.28 As a result of this lack of an

emerging market leader, the E-money review recognises

transport operators’ fear of investing in one scheme to find

that it is the long-term market loser (the ‘‘VHS versus Betamax

video format syndrome’’).29

It is anticipated that the revised E-Money Directive30 may

help to create a more positive environment for e-money

schemes in the transport industry. The revised directive

introduces several key changes to the existing regulatory

regime, including:

- Lower initial capital requirements for issuing e-money;

- Removal of the restriction on mixed business, allowing

e-money issuers to conduct business other than just issuing

e-money and related activities; and

- Ability for competent authorities31 to exempt e-money

issuers from authorisation criteria if certain conditions are

met, including where outstanding e-money falls below a V5

million threshold.32

27 E-money Review, final report for the DfT delivered by MVAConsultancy in association with Alco and Osborne Clark, April2008 (http://www.dft.gov.uk/pgr/scienceresearch/orresearch/emoney.pdf).28 ibid. para. 8.1.6.29 ibid. para. 8.1.7.30 http://register.consilium.europa.eu/pdf/en/09/st03/st03666.

en09.pdf, July 2009.31 The Financial Services Authority in the UK.32 cf. Developments in electronic money regulation – the

Electronic Money Directive: A better deal for e-money issuers?R. Halpin, R. Moore, Computer Law and Security Review 25(2009) 563–568.

c o m p u t e r l a w & s e c u r i t y r e v i e w 2 6 ( 2 0 1 0 ) 1 7 0 – 1 7 7174

It is anticipated that the revised directive will make it easier

for transport operators to issue e-money, and the directive

allows member states some discretion as to how to implement

the directive into national law. The Financial Services Authority

(FSA) will run a consultation on implementation of the revised

directive this year prior to the revised directive becoming law on

1 May 2011. The DfT has confirmed that it will engage with the

FSA on impact of implementation of the revised directive on the

roll out of smart card ticketing schemes.33

7.4. EMV technology

EMV is the global standard for credit and debit payment cards

based on chip card technology. EMV standards are a series of

specifications and testing procedures for EMV chip payment

cards and card accepting devices, such as point of sale (POS)

terminals and ATMs. The EMV specifications are based on the

ISO 7816 standard and define the physical, electrical, data and

application levels between chip cards and chip card-

processing devices for financial payment transactions,

including contactless payment and mobile payment.34 Visa

estimates there are more than 730 million EMV compliant

chip-based payment cards and 10 million terminals in exis-

tence globally.

Although EMV cards cannot currently be used in the same way

as ITSO compliant smart cards to store entitlements to travel

and EMV standards do not cover back office infrastructure

necessary for smart card ticketing schemes, EMV can be used

as a means of electronic payment, a feature not offered by the

ITSO specifications. The ‘‘Tap & Go’’ initiative described above

is the first use of contactless EMV payment technology on

public transport in the UK and TfL has indicated that it is

considering implementing contactless EMV ticketing systems

as an alternative to the Oyster card for London travel.35

However, responses to the DfT’s consultation on smart and

integrated ticketing identified a number of barriers to the

introduction of contactless payments for transport, including

the £10 limit on transactions36 and the fact that EMV infra-

structure is not yet well adapted to ticketing.37

8. Ticketing framework agreements

The DfT describes its primary role to be providing strategic

leadership to deliver integrated, smart ticketing schemes,

liaising with key stakeholders, looking to unblock barriers to

delivery, providing ongoing support to new and existing

schemes and facilitating the sharing of best practice.38

33 DfT’s ’Smart and Integrated Ticketing Strategy’, para 7.9.34 cf. http://www.emvco.com. Members now include Visa, Mas-

terCard, Japan-based JCB and American Express.35 Report by Transport for London to the London Assembly’s

Budget and Performance Committee, 21 October 2008.36 DfT, ‘Smart and Integrated Ticketing Strategy’, para 5.6. This

limit may be raised by the Association for Payment ClearingServices to £15.37 The International Standards Organisation has proposed

a work item to set standards for providing space for transitapplications on EMV bank cards.38 DfT, supra n37, Executive Summary, paras 9 and 10.

As part of this role, the DfT plans to put in place framework

agreements for local authorities to use to procure smart tick-

eting infrastructure and services. The DfT anticipates that the

framework agreements could include back office provision,

card issuing equipment and ticketing equipment, but the DfT

plans to liaise with local authorities to assess the scope of the

agreements. It is not clear whether these framework agree-

ments would also include frameworks for procuring bespoke

ticketing solutions, or infrastructure combined with managed

ticketing services.

Establishing a series of framework agreements may assist

local authorities in identifying and managing the complexities

of procuring smart card ticketing systems, and the risks

inherent in outsourcing existing ticketing functions to a third

party supplier of smart ticketing technologies. As the DfT

describes it, with admirable understatement, procuring smart

ticketing systems ‘‘can be a challenge’’.39 A brief outline of the

issues to be addressed in a smart card ticketing project follows

below.

8.1. Assessing and managing procurement risks

Both local authorities and private transport operators (oper-

ators) will need to assess the financial and reputational risks

associated with the procurement of new ticketing infrastruc-

ture, such as:

- Delayed implementation,

- Service disruption/failure,

- Fraud and revenue loss,

- Information security and data loss, and

- Supplier insolvency.

Essential aspects of managing these risks will be selection

of an appropriate supplier with whom the operator can

maintain a positive and collaborative working relationship,

coupled with robust contractual terms. Whilst local authori-

ties will, for the most part be obliged to hold competitive

tenders compliant with procurement regulations when

procuring ticketing infrastructure, private transport operators

will also be well advised to properly test and evaluate poten-

tial suppliers, including conducting financial, legal and oper-

ational due diligence.

8.2. Contractual terms for managing risk

Key issues to be addressed by operators when procuring

ticketing systems, and which it is expected the DfT will tackle

within the terms of its framework agreements will include the

following:

8.3. Delays in project implementation and late deliveryof ticketing infrastructure

Operators procuring smart ticketing solutions will face chal-

lenge of a major overhaul of their current ticketing infra-

structure, coupled with the need to keep passengers moving

across the transport network and to preserve revenues whilst

39 DfT, supra n37, para. 6.14.

c o m p u t e r l a w & s e c u r i t y r e v i e w 2 6 ( 2 0 1 0 ) 1 7 0 – 1 7 7 175

ticketing infrastructure is upgraded or replaced. Implement-

ing new ticketing infrastructures with a minimum of disrup-

tion will require carefully managed roll out of infrastructure

across the operator’s estate in accordance with a project plan,

usually agreed as part of the procurement process.

As the operator’s business case for the substantial invest-

ment required to implement new ticketing infrastructure will

be predicated on the cost savings and projected revenue

increases post-implementation, and given that the operator is

likely to have embarked on publicity campaigns to raise

passenger awareness of the benefits of the new infrastructure,

for financial and reputational reasons it will be essential to the

transport operator that the new ticketing infrastructure is

installed and operational on time.

A comprehensive project plan with objective delivery criteria

and milestones, coupled with the ability to recover liquidated

damages for failures to meet key milestones within agreed time

frames canbe an effectivetool to mitigate therisks of late project

delivery. However, operators should be aware that if the

contract provides for the recovery of liquidated damages in the

event of late delivery, agreed liquidated damages will need to

represent a genuine pre-estimate of loss to be enforceable and

their suppliers will adopt the position that liquidated damages

should be the operator’s sole remedy for late delivery. This

would preclude recover of further damages or other sanctions

such as termination if the project is delayed.

8.4. Managing supplier performance

Operators will want to include a set of quantifiable and tar-

geted key performance indicators and service levels to

measure their suppliers’ performance, potentially combined

with the ability to recover service credits where performance

does not comply with the agreed level of service. Whether

recovery of service credits will be an appropriate remedy for

a particular service failure should be carefully considered.

Whilst service credits can serve to focus the supplier’s mind

on achieving particular levels of service, care needs to be

taken to ensure this approach is not detrimental to other

aspects of the service.

Service credits will not usually represent a material sum to

an operator in the context of the operator’s overall ticketing

revenues. Accordingly, the operator’s focus will be maintain-

ing service continuity and the ability to require the supplier to

implement service improvement plans or conduct root cause

analysis may be considered a more effective remedy in some

circumstances than the ability to recover service credits,

particularly as suppliers will routinely price in the risk of

incurring service credits over the term of the contract.

8.5. Control over ticketing infrastructure intellectualproperty

The DfT anticipates that suppliers will respond to the indi-

vidual needs of different operators with innovative offerings,

including managed services for smaller operators or stand-

ardised reader and back office packages for operators looking

to implement infrastructure at a lower cost.40

40 DfT, ‘Smart and Integrated Ticketing Strategy’, para 5.11.

Operators will need to give careful consideration to

ownership of intellectual property in the ticketing system to

be procured and associated interface specifications to avoid

finding themselves ‘‘locked in’’ to procuring all future aspects

of the system from a single supplier, for example, should an

operator want to bolt on a new technology to its existing

ticketing infrastructure. The resulting lack of competition

may mean that the supplier is not incentivised to deliver value

for money.

To avoid the issues associated with proprietary lock-in,

operators may want to take an assignment of key intellec-

tual property in its ticketing system where the operator has

paid for development of a bespoke ticketing system. However,

where operators choose to procure a pre-packaged managed

service solution at a lower cost, the supplier will be unable or

unwilling to assign ownership of intellectual property rights

in those types of solutions as the supplier’s business model

will depend on reselling its proprietary solution to other

operators.

Adopting an open standard such as ITSO across the UK will

form a key part of making a country-wide integrated ticketing

system a reality, but operators will need to take care that

implementation of highly bespoke solutions layered on top of

an open specification does not hinder the interoperability of

the system in practice.

8.6. Robust change control procedures

Technology in the smart card ticketing field is likely to

continue to evolve at a fast pace; neither will services offered

by operators remain static. Contracts will then need to include

a robust mechanism for managing contractual and opera-

tional change, to adapt to the changing environment. Trans-

port operators and suppliers will need to agree how different

types of changes will be priced, implemented, and paid for.

Change will need to be particularly well managed to ensure

that changes to an operator’s ticketing system do not impair

the interoperability of the system and change management is

likely to require liaison and co-operation with other operators

if the DfT’s objectives for integrated ticketing are to be ach-

ieved and maintained.

8.7. Maintaining value for money

Given the initial investment to be made in implementing any

smartcard ticketing system, both operators and suppliers will

want to agree a longer term contract leading to the challenge

for operators as to how to ensure that the solution remains

competitively priced over the term of the contract. The ability

to initiate a benchmarking exercise to measure the supplier’s

performance and price against similar solutions operated by

competitors can assist the operator in maintaining value for

money over the term, particularly where aspects of the tick-

eting system are relatively commoditised, such as data

connectivity and personnel day rates.

However, whilst smart card ticketing systems remain

highly bespoke with few comparative solutions are in opera-

tion, a benchmarking exercise is likely to be time consuming,

expensive to commission and, if forced to compare ‘‘apples

with oranges’’ may fail to achieve the operator’s aims of the

41 DfT, ‘Smart and Integrated Ticketing Strategy’, ExecutiveSummary, para 25.

42 ibid. para. 9.8.43 ibid. para. 6.11. This could be worth around £800 per year for

each bus.

c o m p u t e r l a w & s e c u r i t y r e v i e w 2 6 ( 2 0 1 0 ) 1 7 0 – 1 7 7176

benchmarking. In these circumstances, a combination of

limited benchmarking for commoditised items with the

option for market testing may be an effective alternative.

8.8. Step in rights

Providing for rights of step-in will allow an operator to

manage its contract in place of the supplier, in circumstances

where the supplier’s performance has continued at an unac-

ceptable level and the customer wants to prevent further

service disruption.

Step-in rights are more likely to be appropriate for

contracts where an operator has outsourced its ticketing

functions to its supplier, than contracts for the design and

build of ticketing infrastructure to be operated directly by the

operator. That said, step-in rights will generally be included in

a contract as a remedy of last resort and, in practice, operators

would rarely exercise such rights as they may not have the

skills necessary to perform the contract directly. Step-in rights

that allow an operator to appoint a third party to step in and

perform the services in place of the supplier may in practice be

more useful as the operator is able to select an appropriately

skilled and resourced third party to step-in. Agreeing broader

step-in rights with any supplier is likely to be contentious, as

a supplier will legitimately want to prevent any third party

competitor from gaining access to its financial information

and proprietary systems. Operators may therefore need to

agree a more restricted category of third parties that can step-

in to the contract, coupled with suitable confidentiality

restraints, to address suppliers’ concerns.

8.9. Exit planning

To preserve service continuity and to minimise any disruption

on termination or expiry of contracts, it will be essential for

operators to agree proper mechanics for exit with their

suppliers, including a comprehensive exit or handover plan.

Careful consideration should be given to exit planning as part

of the procurement process to give the parties the best chance

of agreeing an effective set of exit provisions, which can often

be overlooked once the contract is operational.

Whilst exit provisions cannot remove the risk of service

disruption on termination of the contract, particularly in the

event of a supplier’s insolvency, in circumstances where

a contract has been terminated for the supplier’s default, or

otherwise where the relationship has degenerated, the oper-

ator will be reliant on the exit provisions of the contract to

require the supplier to handover the services, and connected

assets, intellectual property and documentation, in a manner

that will not prejudice the continuity of services.

8.10. Data management and data protection

Where operators choose to outsource their ticketing function

instead of procuring ticketing infrastructure, the supplier will

be routinely handling large volumes of passenger data, so the

supplier’s rights and obligations in relation to that data will

need to be clearly defined.

The DfT has recognised that smart ticketing can provide

significantly improved data which can deliver better

passenger information when combined with real time infor-

mation equipment.41 Accordingly, enhanced quality of data

relating to passenger volumes and destinations generated by

smart ticketing systems will be of considerable value to

operators for the purposes of transport planning and the

operator should ensure that it retains control of how that data

can be used, notwithstanding that the data will be generated

by the supplier’s ticketing systems.

For schemes where passengers can register their smart

card to protect them from loss of pre-paid funds and to reduce

the risk of fraud, the supplier will also process personal data

relating to passengers. Although the operator will in most

cases be regarded as the data controller, legally responsible for

compliance with the Data Protection Act 1998, it will be the

supplier who has day to day management of personal data,

shifting the risk of data protection compliance to the supplier

and operators will then need to impose contractual restric-

tions on the ways in which suppliers can process personal

data. The DfT intends to commission a privacy impact

assessment and guidance to assist current and future smart

card ticketing schemes,42 which operators should also take

into account once available.

Although the DfT’s proposal for framework agreements for

procuring smart ticketing infrastructure should serve as

a useful introduction to operators of the complex series of

risks to be addressed as part of the procurement process, it

should be emphasised that it is unlikely that the framework

documentation will deal with all the requirements of each

operator. It is anticipated that the framework documentation

will require careful tailoring to address the risks specific to

a particular project.

9. Next steps for the DfT’s smart andintegrated ticketing strategy

To work towards its immediate goal of integrated, multi-

modal, smart ticketing schemes in the major urban areas of

England by 2015, the DfT will provide funding of £20 million to

the nine largest urban areas in England outside of London,

including Bristol, Greater Manchester, Merseyside and Not-

tingham. From April 2010, there will also be an increased bus

service operator grant of 8% per bus equipped with ITSO smart

ticketing infrastructure,43 to incentivise operators to invest,

and smart ticketing requirements will also continue to be

included in all newly let National Rail franchise agreements.

The DfT then expects local authorities and transport

operators to collaborate in delivering smart and integrated

ticketing infrastructure at their own cost, and for local

authorities to lead integration between transport operators

using their powers to compel operators to join ticketing

schemes under the Transport Act 2000. The DfT does not

currently anticipate any need for further intervention,

although it has indicated that it will consider further action,

c o m p u t e r l a w & s e c u r i t y r e v i e w 2 6 ( 2 0 1 0 ) 1 7 0 – 1 7 7 177

including legislation if there is no significant progress on

ticketing integration, although no timeframes for potential

further action are given.44

Whilst 92% of consultation responses agreed with the DfT’s

strategy for smart and integrated ticketing, 77% considered

that more needed to be done to achieve the objectives of the

DfT’s strategy.45 With up front operator investment of as

much as £1.1 billion required to implement smart and inte-

grated ticketing systems and complex procurement risks to be

managed, it is yet to be seen whether local authorities and

transport operators will buy in to the DfT’s objectives in the

absence of further government action.

44 ibid. Executive Summary, para. 22.45 ibid. para. 12.1.

Mark Turner, (Mark.Turner@herbertsmith.com) CLSR Professional

Board, Partner, Herbert Smith LLP, London and Ruth Wilson (Ruth.

Wilson@herbertsmith.com) Associate, Herbert Smith LLP, London.

Acknowledgements

The authors gratefully acknowledge the research contributed

by Roksana Moore, Academic Consultant to Herbert Smith

LLP, in the preparation of this article.