he Public Transport Ticketing Corporation's former chairman, Kim...

he Public Transport Ticketing Corporation's former chairman, Kim McGrath, and then CEO John Stott debated reinvesting in the project the $10 million in liquidated damages. McGrath wanted ERG to divert resources from other operations into this effort. But with similar problems with its projects in San Francisco, Seattle and elsewhere, ERG did not have that luxury.

Suddenly in March, presumably after receiving the O'Keefe report, Watkins intervened. In an unusual move, he issued written directions to the PTTC board ordering it to cease negotiations with ERG, citing apprehension the talks would affect the Government's rights. Then, he took to the PTTC with an axe.

Stott had only signed on for a year. So, part-way through 2007, he, McGrath and the head of the ministry and PTTC board member Jim Glasson selected their next CEO.

Derrick Thompson, a technology executive at Siemens, became Tcard's chief operating officer in April, on the understanding he would replace Stott on July 1.

In June, Watkins overruled the appointment. Instead, he anointed Elizabeth Zealand, a Department of Commerce bureaucrat. He also quietly appointed Elizabeth Crouch, a senior Housing Industry Association executive and Labor favourite, to the board.

McGrath was not told. He was in London on assignment. There, he sampled London's smart card - the Oyster - and met Saville to update him on Sydney's progress. On his return, Watkins removed him.

Two days later, ERG chief executive Allan Sullivan pulled the pin.

The PTTC's second-in-command, Graham Dawkins, departed a few weeks later, citing health problems.

The team was also rocked by the untimely death of the Transport Ministry's key ticketing expert. In March 2006, Michael Wheals was killed in a motorcycle accident.

All the signs pointed to Watkins moving to terminate the contract. But with the technology problems apparently close to resolution, project team members were perplexed.

A year ago, ERG was so confident it said it was ready for testing at RailCorp. The PTTC disputed this, triggering an approach to a mediator, as specified in the contract. The mediator agreed with the PTTC, cruelling ERG's opportunity for its first payment.

Dumping ERG would have some risks for the Government. Apart from being sued by ERG, the Government could also lose some crucial intellectual property rights.

And axing the contract could cost the state far more than the $64 million it has spent on its own contribution to the project so far. The Government would have to rewrite its 1998 tender and find an operator to take on a damaged project. It could add at least five years to Tcard's already-protracted timetable.

But there are potential political benefits. The existing magnetic stripe tickets still get people to work. So far, no transport operator - including RailCorp, the State Transport Authority and the private bus industry - has signed a binding agreement to use the new technology.

Handing over to a new contractor could enable Sydney to catch up with improvements in technology.

Termination would make the project's failures appear to be ERG's fault. And, considering it has paid the company just $5 million, ending the contract before a commuter trial would limit criticism of its economic management.

Perhaps the biggest boon would be dodging the issue of making Sydney's convoluted system of commuter fares more consistent, efficient and equitable.

Yesterday, Watkins told the Herald that the Government "will do whatever we can to protect commuters from disruption and tax payers from risk".

"There have clearly been glitches with the product, that's why we are taking a cautious approach. The Government has a contract with ERG and we will work within its parameters, but protecting commuters and taxpayers is my number one concern."