Overview
A demand bond in the amount of $38.9 million is in place and was written in June 2020. In this bond, Boston OpCo and the MBTA are listed as the obligee and co-obligee, respectively, while Cubic is listed as the principal. The bond was provided through three sureties: Federal Insurance Company, United States Fire Insurance Company, and Everest Reinsurance Company. Under this demand bond, either Boston OpCo or the MBTA can make demand for payment in case of an implementation default by completing a form signed by an authorized signatory and submitting it to the surety. The surety shall pay the bond within five business days of receiving the demand. Since Cubic is included in the partnership of Boston OpCo LLC, there are potential conflicting interests. Cubic is listed as the principal of the bond. Boston OpCo LLC, of which Cubic is a partner, is listed as the obligee. Essentially, Cubic would be both paying for the bond and receiving the benefits of the bond if the contract is unfulfilled.
These potential conflicting interests could incentivize Cubic to claim an implementation default and therefore enact the terms of the bond. This could allow Cubic to cease its obligation to fulfill the terms of the contract. Additionally, Cubic would be compensated financially as the minority partner in the Boston OpCo LLC partnership. We spoke with a law professor well versed in insurance law who was unfamiliar with a demand bond that had such a relationship as this one has. We acknowledge that such a relationship may exist in other demand bonds, but the relationship between Cubic and the partnership gives the appearance of impropriety. Potential conflicting interests, such as this, further illustrate the necessity for the MBTA to examine its contracting processes and require a surety bond to protect itself and the taxpayers.
| Date published: | January 16, 2025 |
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