1 Wednesday, 6 September 2017 14 MR LAKE: My Lord, the next witness I propose calling is 15 Ewan Aitken. 16 MR EWAN AITKEN (affirmed) 17 Examination by MR LAKE 18 MR LAKE: Mr Aitken, could you state your full name, please. 19 A. Ewan Ritchie Aitken. 20 Q. The Inquiry has the details of your address. Would you 21 state your occupation, please? 22 A. I'm the Chief Executive of Cyrenians. 23 Q. I think that's a charitable group? 24 A. It's a charity that engages in issues of homelessness. 25 Q. I think you were involved as a councillor with the City 113 1 of Edinburgh Council from 1999 to 2012? 2 A. That's correct. 3 Q. You have been asked certain questions regarding the tram 4 project in that context? 5 A. That's correct. 6 Q. Do you have in front of you a statement -- we can put 7 this up on screen. It's reference TRI00000015. 8 A. Yes. 9 Q. Now, is this the statement that you gave to the Inquiry? 10 A. It is. 11 Q. I think you will see you signed it on the last page? 12 A. Yes. 13 Q. Are you happy to adopt that as your evidence for the 14 purposes of the Inquiry? 15 A. Yes. 16 Q. I have a few additional questions that I would like to 17 ask you. I wonder if you could start by looking at 18 page 10 of your statement? 19 A. Yes. 20 Q. At paragraph 30. 21 A. Yes. 22 Q. Perhaps easiest if you read the whole paragraph for 23 context: 24 "This returns to my point about the key moments of 25 decision-making. People need to be confident that those 114 1 making leadership decisions were able to make them 2 clearly and effectively and get them agreed at the 3 Council meetings. The new administration were going to 4 be making political choices and have to be working in 5 collaboration with other parties when they could not 6 depend on their coalition party. They chose not to do 7 that which meant that on several occasions, we went into 8 Council meetings for key decisions without certainty, 9 and sometimes finding the outcome was the complete 10 opposite of what we wanted. If you create that 11 circumstance by the choices that you make, you 12 fundamentally change the relationship between the client 13 and the contractors." 14 It's that bit at the end really, the relationship 15 between the client and the contractors. 16 What do you consider was the practical effect of the 17 coalition arrangements between the Council on the 18 relationship with the consortium in this project? 19 A. So you are referring to the coalition between 2007 and 20 2012? 21 Q. Yes. 22 A. So all contracts are in the end a form of relationship, 23 and if there is uncertainty in that relationship, in 24 clarity about how decisions are going to be made, which 25 have a big impact on the activities that are the content 115 1 of that contract, then there will be -- there will be 2 difficulties, because those contracts are about managing 3 a whole number of things, including risk. And it adds 4 to the risk. 5 If you have a programme of work, and you're not 6 certain that the decisions you require to be taken at 7 given points to meet the milestones will be taken, then 8 it adds to the difficulties in a very complex 9 contractual arrangement. 10 Q. Did you have any information or direct knowledge of 11 concern on the part of the contractors at the situation 12 within the Council? 13 A. I think the fact that the contractors came back almost 14 immediately after the Final Business Case was signed in 15 2008 and said that it was going to cost more is one 16 indicator of their concern about that relationship. 17 Q. Could you explain how the concern about the relationship 18 would lead to them coming back with the concern as to 19 costs? 20 A. They wished to manage risk, and risk has cost, and so 21 they wish to -- it would be -- it was my reflection on 22 it that that was an indication that they were trying to 23 mitigate the cost of the increased risk by increasing 24 the money they were asking for. 25 Q. Correct me if I'm wrong. I want to make sure I'm 116 1 understanding what you're saying. 2 The demands for additional money were partly to 3 reflect what they perceived as the increased risk 4 arising from the Council's position? Correct me if I've 5 got that wrong? 6 A. That's what I interpreted from those circumstances. 7 Q. There's a similar passage on page 8. Paragraph 8 on 8 page 3. Again, you are referring to the same time, post 9 2007. You say this is where the difficulty arose: 10 "There was the creation of a coalition, where one 11 half was against the trams and one half was for them. 12 Things became more complicated because it required 13 a level of collaboration from the part of the coalition 14 who were in favour of the trams, along with groups other 15 than their coalition partners. That did not happen and 16 it became a significant issue because of the difficulty 17 the contractors then had with their confidence in the 18 key decision-making body. If the partnerships are not 19 solid with clear direction and leadership, the 20 contractors are going to be nervous. The difference of 21 opinion amongst political parties was not necessarily 22 a problem, but I saw the weakness of leadership from the 23 coalition administration becoming a problem." 24 I just want to try and clarify this. On the one 25 hand we've got the idea that the fact there is 117 1 a coalition might itself make the contractors nervous, 2 and that's what you were referring to when we looked at 3 paragraph 30. Here it seems -- you seem to be saying 4 that the fact there is that -- isn't necessarily a cause 5 for concern? 6 A. Sorry, if you read paragraph 7, you will note that the 7 previous paragraph, you will note that I make reference 8 to the fact that political disagreements are simply part 9 of where we are at. In any organisation, there will be 10 differences of opinion. They themselves are not 11 inherently a problem. It's how you manage them. 12 Now, the reference I make to paragraph 8, the 13 coalition agreement clearly said that the one thing that 14 they would not agree with -- on was trams. 15 One would then assume that there would be a strategy 16 from the partner in that agreement who was pro trams to 17 get the decisions they needed through the Council by 18 working with other parties on the Council, because at 19 29/29, it was possible to manage that by reaching on 20 a case by case agreements with opposition partners. 21 That quickly became clear that that was not the 22 case. Regularly we saw the case where one partner would 23 bring up -- the partners in the coalition would bring 24 separate motions to the Council, but nobody had talked 25 to the opposition parties about how they were going to 118 1 manage that process, and that means you would enter key 2 decision-making moments without clarity as to what was 3 going to happen and the leadership was required to help 4 make those things happen. 5 Leadership is not simply about what happens in the 6 chamber, but about the preparation before you get to the 7 chamber. 8 Q. So when you talk about leadership in that paragraph 8, 9 you're talking about leadership in terms of managing the 10 politics within the Council Chamber? 11 A. Yes, absolutely. There is an inherent tension with 12 public sector contracts where the politicians have to 13 provide the leadership, although the implementation is 14 done by others, but without that leadership, that 15 implementation does not have the direction it requires. 16 And that requires clear and strong decision-making. 17 Q. But as you say yourself, the idea of political 18 differences and divisions is a feature of local 19 government. 20 A. Absolutely. It's a feature of all kind of political 21 contexts. But the point is what you do about that. You 22 go into that context knowing that you are going to have 23 to manage it, and you have to have a strategy for 24 managing it. And at no point did it appear that the 25 coalition, having identified that they had a key 119 1 disagreement on, frankly, the one thing they really 2 needed to deliver, had a way of dealing with the fact 3 that they had a disagreement. 4 And that led to the kind of uncertainty that I'm 5 referring to later on. 6 Q. Now, a project such as the tram project is implemented 7 over a long period. We know this started way back in 8 2002 or thereabouts, and didn't complete until much later, 9 until eventually the Mar Hall mediation had to rewrite 10 it in 2011. 11 In that sort of length of time, you are always going 12 to get changes within local government. You're likely 13 to get some changes within local government. 14 A. We had political unanimity when the trams were voted for 15 prior to 2007. We had cross-party unanimity bar one. 16 I think the Draft Business Case in 2006 had one vote 17 against. 18 So we had a way of working to achieve that. And 19 post 2012, when -- after Mar Hall had started, the 20 leadership then, even though it was in a coalition, did 21 two things. 22 First of all, got the SNP, who were the ones who had 23 previously disagreed, to agree to implement things on 24 the basis that we had reached the point where we need to 25 implement them, and secondly, operated in an all party 120 1 context by drawing everybody into the discussions. 2 My suggestion is that if you don't have that in the 3 middle, it doesn't matter what the elections are. You 4 have to have a strategy for dealing with what you have 5 found. 6 The problem is not the advent of disagreement. The 7 problem is the managing of disagreement. 8 That simply didn't happen in the way it should have 9 done during that period. 10 Q. If one looks back at the example of the position in 11 2003/2004, it would have been impossible to put in place 12 measures to deal with it then because it simply couldn't 13 be foreseen what was going to happen in three or four 14 years' time? 15 A. No, so it's the task of the politicians, once the 16 elections were done, to make that work. That's their 17 job. And you make political choices as a consequence. 18 Q. In terms of the decisions that were taken by the Council 19 to determine the strategy, you have noted that there was 20 in the early stages unanimity in relation to the tram 21 project. 22 A. Yes. 23 Q. That changed as you approached -- to 2007 when the 24 emergence of the SNP councillor within the Council and 25 the dissent that arose from that. 121 1 A. Yes. 2 Q. It was more sharply divided beyond 2007? 3 A. Yes. 4 Q. To what extent was it possible for the Council to give 5 scrutiny to the major decisions of strategy that it had 6 to make? 7 A. By that do you mean did we receive the information we 8 required to make those? 9 Q. Let's start with the information. Do you consider you 10 received the information necessary to make decisions? 11 A. I think we received a lot of the information required, 12 but it would appear that we didn't receive all the 13 information that we needed. So the decisions we made 14 were based on the information we had at that point. 15 Q. At the time did it appear that the information was 16 adequate? 17 A. I think at times it got quite frustrating because we 18 would say: can we learn more about this; and we were 19 told: no, you can't about that, there's commercial 20 confidentiality; and so on. 21 But we were able to probe pretty deeply, and I think 22 most of us felt that, given what we knew, and we weren't 23 getting any indications from officers that the decisions 24 we were suggesting were wrong, that they were -- that we 25 had enough to make the decisions we wanted to make. 122 1 Q. How were you getting that information? 2 A. So there would be a combination of briefings, and 3 reports, and prior to a Council meeting there would be 4 a -- usually a -- members of TIE and Council officers 5 come to the group meeting, and we would also follow that 6 up with information -- requesting information, further 7 information on specific issues if we couldn't get the 8 answers in the face-to-face meeting. 9 Q. When you requested that additional information, specific 10 information, what was your experience in having it 11 responded to? 12 A. Generally speaking, it was adequate. 13 Q. Generally speaking -- 14 A. It was adequate. 15 Q. Were there occasions when you didn't get the information 16 you wanted? 17 A. I couldn't give you a specific, but I know that there 18 were times when we had conversations when we said: we 19 need more information or it would be good if we had 20 further information; but if this is what we're allowed 21 to have, we will have to make a decision based on that. 22 Q. What information did you say you wanted that you weren't 23 getting, type of information? 24 A. Often it was about timelines or about why costs had 25 risen specifically, or about what was happening, 123 1 particularly in the court disputes. 2 So we -- TIE took the view that the way to deal with 3 conflict was to go to court. I have indicated I don't 4 think that was wise. And to begin with, we were being 5 told, yes, we won, and even sometimes when they lost on 6 a technicality, they would say it's still a win and they 7 would try to explain about that. But after a while they 8 stopped giving us that information, and that became 9 quite frustrating because it became difficult to 10 understand the frame with which those decisions were 11 being -- making and the overall impact they were having 12 on things like the timeline and the cost. 13 Q. Was there anything -- you have focused there on the 14 disputes. Just trying to understand what other 15 information you weren't being given. Were you being 16 given any information as to the strategies and 17 approaches that were to be taken to the contractor? 18 A. So -- sorry. To the contractor, in what sense do you 19 mean that? 20 Q. You referred to them going to court? 21 A. Yes. 22 Q. You've made your views on that plain in your statement. 23 But were you given other information as to what strategy 24 TIE or the Council had for managing the disagreements 25 with the contractors? 124 1 A. No, in fact to be honest, that was the primary method. 2 Once things started to go wrong, it would appear that 3 court was the only tool that they were willing to use. 4 Q. Were you told why you weren't being given information 5 you were seeking? 6 A. Usually blanket terms like legally confidential. 7 Q. Who was saying that? 8 A. The officers who were briefing us. 9 Q. Was that officers of the Council or of the companies? 10 A. Both. 11 Q. Can you remember who they were? 12 A. So Dave Mackay, Richard Jeffrey, Dave Anderson. 13 Q. The first two of the companies and Mr Anderson of the 14 Council? 15 A. Yes. 16 Q. Was that simply accepted by you and your colleagues or 17 was there any attempt to challenge that and go behind 18 it? 19 A. My experience of challenging blanket things becomes 20 quite difficult. So you would push back a bit, but if 21 they push back and used a legal frame to resist, then 22 you would go: well, that seems to be it. 23 Q. Did you feel you were, with that restriction, adequately 24 informed for the decisions you were required to take? 25 A. I think it might have helped us better understand why 125 1 the relationship was with the situation it was in, and 2 perhaps some of the -- I can't say for certain because 3 I still don't know the answer to many so of those 4 questions -- why some of the operational issues, 5 particularly, for example, around Princes Street or 6 delays -- of cost rises, occurred. 7 They may have influenced further decisions further 8 down the line. The ones I was particularly responsible 9 for prior to 2007, rather than the ones I was responding 10 to when we were in opposition, I felt we had the 11 information we required to take the decisions we needed 12 to take. 13 Q. So after 2007 you felt you did have the -- 14 A. Yes. 15 Q. At that stage was any information being withheld from 16 you on the basis of confidentiality or further blanket 17 reasons? 18 A. You had some interesting things like -- I remember 19 when -- one of the contracts, I'm now not going to be 20 remember which. I think it was the MUDFA contracts. 21 They had to put code names in it because the two 22 companies were still being debated. So we knew the four 23 companies but not the two, which was kind of slightly 24 odd. 25 On occasion we would be told that some of the detail 126 1 would be commercially confidential, but our task was to 2 create the frame and get the outcome, rather than know 3 the operational details. So I think it's unlikely 4 that -- I think it's -- I don't think I ever felt in 5 that period of time I wasn't getting what I required. 6 Q. Actually what I was coming to, the decisions that the 7 Council take in this regard are by and large higher 8 level decisions, matters of strategy? 9 A. Yes, yes, and necessarily so. 10 Q. To what extent you needed the information you were 11 seeking from the Council officers or the company to take 12 those high level decisions, or was it merely a case that 13 you would like to have had it? 14 A. If you look at the Draft Business Case for which I had 15 responsibility, there were, I think, ten documents, ten 16 separate documents that came for us to do. 17 That took a long time to get through and you would 18 ask a lot of questions and some of it you would need to 19 check out, because it would be technical stuff. 20 The summary, however, captured that and would allow 21 us to make -- capture the key issues and allow us to 22 make, I believe, the right decisions at that time. 23 The problems that came afterwards, when particularly 24 we were in opposition, when things were clearly going 25 wrong, and you wanted to understand what was going 127 1 wrong, became more complex because there were things we 2 weren't allowed to be told or were simply not being 3 told, and it only became -- we only became aware even 4 after that we were not being told. 5 So I would separate the information that we were 6 attempting to glean to make strategic decisions for 7 which we had responsibility, and the information 8 required to understand a set of circumstances that were 9 coming about when we were playing a different role in 10 the Council. 11 Q. Do you accept there is a need to protect some 12 information to keep it confidential or not? 13 A. It would appear that that's the case, yes. I can 14 understand that. Sometimes it does feel a little bit 15 like a lack of trust, but perhaps that's the tools you 16 have to put in place for those circumstances. 17 The difficulty is knowing when that that is actually 18 the case and when that's being used as a blanket way of 19 keeping information away. And those sort of things only 20 come out much later on. 21 Q. I think we've heard there was use of a data room 22 sometimes which makes information available to 23 councillors on a restricted basis? 24 A. That was used on occasion, and so was one way of getting 25 round commercial confidentiality and may have been 128 1 a tool that could have been used more often. 2 Q. Were you aware that there had been problems with 3 information leaking from councillors back to the 4 consortium parties and TIE felt it was to their 5 detriment? 6 A. I was aware that they felt that, yes. 7 Q. The trouble is if there's information leaking in that 8 way, it makes it very difficult to release anything to 9 councillors, whether in the data room or otherwise; 10 would you agree? 11 A. I think you create yourself a difficulty when you choose 12 to define your methodology entirely on the alleged 13 behaviour of one or two folk. There are 58 councillors 14 at the time, and it may be that one or two were not 15 acting as they should have done, and perhaps they should 16 have been pushed harder to find that. But if the 17 consequence of that is the others are not able to do -- 18 get all the information they require or there's 19 a feeling that there's a lack of trust across the board, 20 then that's going to create difficulties. 21 Q. Is there a problem when the decision-making body is so 22 large, 60 people, that you have to give the information 23 to 60 people, that increases the chances of leaks and 24 problems? 25 A. You touched there really on the challenge we have about 129 1 democratic accountability. There is a necessary 2 requirement for projects such as this to be held to the 3 standard of democratic accountability, and that requires 4 the elected members to be part of the decisions. 5 Therefore, the task is to find a way of doing that 6 that meets that test, as well as the requirements to do 7 things in a commercially effective way. And I think 8 those were one of the biggest struggles that we had this 9 and many other, I have to say, public sector 10 infrastructure projects. 11 Q. At the moment, or when you were a councillor, who makes 12 the decision as to what is confidential and what is not? 13 A. Generally speaking, it is -- it would be the most senior 14 officer in charge of a given project, although I'm aware 15 that that may have been on the advice of, in this case 16 anyway, the Chief Executive of the arm's length company 17 as well. 18 Q. Are you content or do you have a comment on the fact 19 that it is the Chief Executive and/or the person in the 20 company that makes a decision as to what is 21 confidential? 22 A. It's difficult to know quite how else you could have 23 done it. Perhaps it could have been -- the political 24 leadership could have been drawn into that as well. You 25 are again in that situation where people are tasked with 130 1 a job and they have to sit in a commercially -- 2 commercial context, but required to be called to account 3 by politicians whose role is not commercial but has 4 a commercial consequence. 5 Perhaps they could have found a way of including 6 politicians in that, although that would require you to 7 tell the politician what it was you wished to keep 8 confidential, and that does put yourself in a difficult 9 position. 10 Q. Indeed. 11 In terms of briefings given to councillors, you 12 indicated, I think, the briefings to your group, 13 political group? 14 A. Yes. 15 Q. Was it necessary, in your view, to have briefings done 16 group by group, rather than have briefings given to all 17 councillors to ensure they all got the same information? 18 A. Is there any indication that different groups got 19 different information? I assumed that we got the same 20 information, except for those things for which each 21 individual group asked for further information on. 22 Q. In your experience of the Council, is there a difference 23 in the availability of information by way of briefings 24 between the administration on the one hand and the 25 opposition on the other? 131 1 A. Yes. 2 Q. What's the difference? 3 A. There will be probably more detail, and usually the 4 politicians who are responsible for that particular area 5 of work will have a greater knowledge because they will 6 have been involved with it for longer. 7 Q. Have you come across situations where briefings have 8 been given to the leaders of each of the groups? 9 A. Yes, I was regularly given briefings when I was leader 10 of the group. 11 Q. What was it expected you would do with the information 12 you were given by way of briefing? 13 A. I would be passing it on to colleagues. So our group 14 met every week, well, the executive anyway, and I would 15 make sure that they were brought up to speed and 16 a decision would be taken as to whether that needed to 17 be passed -- that particular briefing, whether it needed 18 to be passed on to the whole group at that point or we 19 could wait until the monthly group meeting. 20 Q. Were you ever given information you were asked to keep 21 in confidence from your group? 22 A. Not that I recall. 23 Q. In terms of these briefings that were given, was there 24 ever any written record of what you had been told in 25 such briefings? 132 1 A. Sometimes I would ask them to give me a written version 2 of what they had told me to make sure that -- 3 particularly if I had kind of technical or operational 4 issues, because that seemed to me a useful thing to do. 5 We would -- so that was for the individual briefings. 6 For group briefings there were regularly papers 7 produced specifically for them, and if we wanted to know 8 more about a particular subject that wasn't included in 9 that briefing as such, we would often then get a further 10 briefing written for that purpose to be circulated 11 around the group. 12 Q. At the same time or alongside the briefings you were 13 being given, you were also getting reports from Council 14 officers for meetings, sub-committees and so on? 15 A. Yes. 16 Q. Did the briefings and the reports work alongside one 17 another, supplement one another? 18 A. One should be indicative of progress towards the other. 19 So the Council reports are a report progress. So the 20 briefings should be where you've got to in between those 21 reports. 22 Q. When a report was being produced for a meeting on 23 a complex matter such as the trams, would that generally 24 require supplement by briefings? 25 A. Absolutely. 133 1 Q. And how much of the information that was really 2 important to the councillors was actually likely to be 3 contained in the briefings, rather than the written 4 report? 5 A. I would have expected it to be in both. There should be 6 some version of what you're getting in the briefings in 7 the report, whether it's in an appendix or reference. 8 Q. Was that always the case? 9 A. I couldn't tell you whether it was all the case. 10 I worked on the assumption that it was, and I certainly 11 don't recall ever being in a situation when I've gone, 12 "I've heard this but it's not in the report". 13 Q. Now, that all arose out of questions I was asking about 14 matters being considered in the Council by way of vote, 15 either in committee or in the whole Council. Was there 16 much discussion within the Council meetings itself for 17 discussion or debate or asking of questions? 18 A. Yes, regularly. 19 Q. And who would the questions be asked of in that context? 20 A. So you could ask the Council officers. I think I recall 21 the Chief Executive of TIE being brought in to answer 22 questions as well. That would be a specific 23 requirement. That wouldn't be an assumption. So you 24 would have had to prepare that in advance. 25 But generally it would be the Chief Executive or the 134 1 head of -- the member of the senior management team who 2 was in charge of that particular area who would answer 3 questions. 4 That would happen prior to the debate happening. So 5 the report would be presented and then you could 6 question it before you got to the point of having the 7 debate. 8 Q. So was that questioning taking place essentially in 9 a pre-meeting briefing? 10 A. No, it would be in the Council meeting. 11 Q. It would be in the Council meeting? 12 A. In the Council meeting. 13 CHAIR OF THE INQUIRY: Mr Lake, is this a convenient point? 14 MR LAKE: Yes, my Lord. 15 CHAIR OF THE INQUIRY: We will adjourn for lunch now, 16 Mr Aitken, and resume again at 2.00. 17 (1.00 pm) 18 (The short adjournment) 19 (2.00 pm) 20 CHAIR OF THE INQUIRY: Good afternoon, Mr Aitken. You are 21 still under oath. 22 MR LAKE: Good afternoon, Mr Aitken. We have just been 23 discussing the role of the Council in its 24 decision-taking of the project, and the information to 25 the Council available to the Council, and we talked 135 1 about the chances for discussion and debate and asking 2 questions of people. 3 When it came to taking a vote on the strategy 4 issues, did it generally divide along party lines? 5 A. Yes. 6 Q. So for all the discussion and all the information, it 7 essentially came down to the certain parties in favour 8 of the trams and one party against it, and that's how it 9 divided? 10 A. Yes, but that -- there are really two tasks for the 11 actual process of decision-making. The first is the 12 preparation. So you go in, having prepared. So you are 13 not making a decision based only in the information you 14 receive on the day. That would be unhelpful, unwise in 15 something as complex as this. So you've already reached 16 to some extent a conclusion of where you think you are 17 going to go. 18 The second is the business of public transparency. 19 So the debate is not only for the decision, the people 20 in the room, but it is to ensure that those who are 21 watching who have put you there, the public, either 22 directly or through the media reporting of it, 23 understand what it is that has taken you to the point at 24 which you are going to vote. 25 So therefore that conversation is a conversation for 136 1 beyond the chamber as well as in the chamber as well, 2 and therefore has a role to play in public transparency. 3 Q. I want to ask about one of the other ways that not so 4 much taking decisions of strategy, but oversight. 5 I think there was a tram sub-committee? 6 A. There was, yes. 7 Q. If you could look at your statement, please. Again, if 8 you could look at page 30 of that. I'm interested in 9 paragraph 104 on page 30. 10 It's the final sentence of that. This is talking 11 about governance changes in August 2007? 12 A. Yes. 13 Q. The change that was made to the governance structure, 14 pardon me, in December 2007, was the introduction of the 15 tram sub-committee. It was created but it did not 16 operate as it should have done? 17 A. Yes. 18 Q. You don't elaborate on that in your statement. In what 19 respect did it not do what it was supposed to do? 20 A. It rarely, if ever met and therefore couldn't do what it 21 should have done. 22 Q. Why did it not meet? 23 A. I don't know. I wasn't on it. 24 Q. Would other councillors not raise the issue of why it 25 wasn't doing what they had charged it with doing? 137 1 A. I think you will find in 2008 and further on, we made 2 reference, the Labour Group of which I was a member, 3 made reference to the fact it hadn't met in our motions 4 to the Council. 5 Q. Okay. We talked before lunch about provision of 6 information and you expressed some of the frustrations 7 you had on the Labour Group. Would it have been open to 8 you to force the issue of provision of further 9 information by withdrawing your support for the tram had 10 votes came up, or even voting against it? 11 A. That would assume that it was the political 12 administration who were withholding the information. 13 I don't actually think, generally speaking, that was the 14 case. 15 I don't think there would have been a productive 16 strategy to do that. Particularly as we were in favour 17 of the tram, and I think it would have been very 18 difficult to explain why we voted -- we were then 19 appearing to vote against it. 20 Q. It would have been inconsistent with your earlier 21 position? 22 A. Yes. It would have been perceived as such and most of 23 politics is about perception. 24 Q. We have heard that the tram was delivered through what's 25 termed an arm's length company? 138 1 A. Yes. 2 Q. That was a reference to TIE? 3 A. Yes. 4 Q. It's not the only arm's length company that the Council 5 have; is that correct? 6 A. Are you talking about arm's length companies with 7 relation to the trams or with -- 8 Q. On, generally? 9 A. Generally speaking, that's correct, yes. 10 Q. What is your understanding of an arm's length company? 11 A. So it can mean a number of things, but generally 12 speaking, it is a legal entity that is, as I understand 13 it, wholly owned by the Council, but has a governance 14 structure that allows you to bring in people from other 15 sectors into key decision-making. 16 So you can bring in people from the private sector, 17 for example, who understand the particular issue. So 18 you have got different types of entities. You had the 19 entity that did the work in Craigmillar, the name of 20 which -- 21 Q. Park? 22 A. Park, yes. You have Edinburgh Leisure and then you have 23 TIE and others as well. 24 It also allows the Council, through that entity, to 25 enter partnerships with other organisations as well, to 139 1 create consortia too. So it's a method of delivery and 2 allows to bring in expertise that's not within the 3 Council. 4 Q. In terms of bringing in the expertise, why can the 5 Council not just bring in expertise to the Council 6 itself? 7 A. It can do so, but with regard to TIE, as I understand 8 it, in 2002 we were told by the then Scottish executive 9 that they would like us to -- like to see us create an 10 entity to deliver this and other infrastructure 11 projects. 12 There were a number of projects that were coming 13 into the fore. The Stirling-Alloa railway, the 14 potential of ERL, Edinburgh railway link, and talk even 15 of the Borders link, and there was an opportunity to 16 create something that could deliver those. 17 It would be true to say that in operational terms it 18 is sometimes, as we've referred to earlier, cumbersome 19 to take all these things directly -- for operational 20 decisions, not for strategic decisions but for 21 operational decisions, through the political 22 decision-making process and therefore it can allow some 23 of the fleet of foot decisions that you require to make 24 when you're delivering these kinds of projects. 25 Q. But if you had either engaged consultants or even 140 1 employed people with a particular expertise in 2 transportation areas, would they not have been able to 3 get on with delivering these projects on an operational 4 day-to-day basis, subject to routine oversight or 5 strategic decisions by the Council? 6 A. That may be the case, but each of these things are 7 a choice given the information you have at the time and 8 the information we had was that the Scottish executive 9 wanted us to set this up. They saw this as a good 10 thing. 11 They also, it had to be said, were going to bring 12 their own expertise through Transport Scotland into 13 this, although not at that point, because I don't think 14 that wasn't created until a bit later on. 15 You will notice in the Audit Scotland report of 16 2007, it makes direct reference to the contribution that 17 Transport Scotland would have made. Frankly, if they 18 had continued to be involved, I think the kind of 19 expertise which would have been in-house to the public 20 sector, if not specifically to the Council, may well 21 have been -- I don't think we have been in the same 22 situation as we are today. 23 Q. We may come back to that a little bit later. 24 You have talked about the -- you mentioned a couple 25 of times the view of the Scottish executive as it then 141 1 was. There should be an arm's length company used. 2 Did the Council prefer that for their own reasons as 3 well or was it the executive view that was followed? 4 A. I think we saw it as an opportunity to really invest in 5 the infrastructure of Edinburgh. We knew at that 6 Edinburgh was a growing city, and a successful city, and 7 required significant infrastructure in a variety of 8 places, and that the model of arm's length companies was 9 seen, generally speaking, as good practice within public 10 sector generally and local government in particular, and 11 therefore that was the kind of narrative that led us to 12 that conclusion. 13 So I think it was a wider narrative than just: is 14 this the right thing for the trams? It was in the 15 context of there being others of a similar nature. 16 Q. Was one of the considerations that it was only by having 17 an arm's length company that it would be possible to pay 18 the people with the expertise enough to come in, who 19 were employed by the Council, would be on the Council 20 pay structures? 21 A. I think that's probably one of the issues that is raised 22 in that context, that when you buy particular expertise, 23 balancing that against the pay structures for the 24 Councils can be a challenge. 25 So that may well have been one of the things. 142 1 I don't actually remember it specifically, but one can 2 see how that would have contributed to the conversation. 3 Q. Do you consider there are disadvantages to using arm's 4 length companies? 5 A. I think they always create tensions about governance. 6 You need to have real clarity about which decisions are 7 the decisions devolved and which decisions are held by 8 the Council. 9 And I think it also creates challenges publicly 10 because when things don't go well, quite rightly, it is 11 the politicians who are held to account and so they, 12 and I suppose we, as I was then, should be, but it 13 becomes a more complex conversation when the decisions 14 which you are in a position of defending or explaining 15 are not decisions you've always been directly involved 16 in. 17 So I think there is a tension there. 18 Like I was referring to earlier, however, it's 19 always possible to think through how you are going to 20 manage that. One would suggest that perhaps that didn't 21 happen in this case, so it's not an inherently bad 22 thing. It's just how you manage those tensions. 23 Q. That's what I was going to say. In terms of the issue 24 about which decisions are taken, which side of the line, 25 Council or company, that is a matter that perhaps can be 143 1 thought out in advance and be clearly demarcated? 2 A. Yes. 3 Q. Do you think it was clearly demarcated here? 4 A. I think it became clear that it was regularly getting 5 muddied. 6 Q. For a long time it seemed that the Council stood back, 7 and then perhaps just before Mar Hall, there was a quick 8 flip over to almost total control by the Council? 9 A. I think that would be an accurate description. I think 10 that was a manifestation of the political administration 11 at the time. You know, I think that there was a reason 12 for them to be significantly more involved than they 13 were. I think frankly, if -- if the contract had been 14 signed in and a week later, or whenever it was, a month 15 later the contractor comes back and says: I want another 16 100 million; which is a rough resumé of what happened at 17 that point, the politicians should have got involved. 18 If I had still been leader at the time, I would have 19 been on the plane to Germany, because that's what you've 20 got to do. 21 Q. Following that through, and leaving aside the question 22 of the 100 million which I'll refer to, what you will be 23 saying there is that the Council leader, a week after 24 an arm's length company had signed a contract, you would 25 be have been on the plane to Germany. That seems to 144 1 just completely ignore the intention of having an arm's 2 length company and immediately take control back into 3 the Council? 4 A. That arm's length company is still wholly owned by the 5 Council, and if you think that it is not acting in the 6 way you want it to act, you need to act. 7 I'm hoping that, frankly, we wouldn't have been in 8 that situation at all if we'd been in charge, but that's 9 just whatever it is. Hypothetical. 10 The point I'm making is that you still have 11 a responsibility as a Council leadership, even though 12 you have delegated that responsibility in implementation 13 to others. 14 Q. Would the thing to do not be for either the Council, 15 either through its executive or through the Council body 16 itself, to give some directions or instructions or even 17 a policy direction to the company and say: we would like 18 you to do this, we would like you to approach the matter 19 in this way. 20 A. They could have done that, yes. 21 Q. That would respect the fact that the company is in fact 22 arm's length? 23 A. It would have done, yes. But they didn't. 24 Q. The way you described it, it sounds almost as if there's 25 a distrust of the arm's length company and a desire to 145 1 take control as soon as something looks not the way the 2 Council like it? 3 A. I think my reference earlier was there was clearly 4 a problem to be dealt with, and that the Council need to 5 be as responsible as the arm's length company to deal 6 with that issue, and that was, frankly, the particular 7 circumstance I referred to was a -- by that point 8 a crisis, in my view. 9 So you need to act on that. 10 But it's perfectly legitimate for the Council to 11 offer direction, to make direction to the company that 12 it owns, so that it doesn't end up in that situation in 13 the first place. 14 Q. Presumably, as the sole shareholder, if it wishes to 15 remove the board of directors and put in new ones, it 16 can do it at the drop of a hat? 17 A. It could choose to do so. 18 Q. In your experience, has the Council ever done that? 19 A. I don't think it's got rid of -- no, I can't recall 20 occasion when it's done that completely, no. Although 21 individuals have been removed, as happened with TIE. 22 Q. Yes. I'll ask you about that in a little while. 23 At the moment, does the fact that you have a company 24 involved, arm's length company, affect reporting to the 25 Council or briefing to the Council? 146 1 A. Well, it adds another layer. That is clearly the case 2 and I have indicated previously where that can -- where 3 it happens and where that can be challenging. 4 So yes. 5 You would expect, however, a company to be fully 6 transparent with its parent body. 7 Q. I think you came to the view in this situation that the 8 arm's length company wasn't beneficial. If I could ask 9 you to look in that regard at page 27 of your statement. 10 Paragraph 95. 11 You see, reading from about halfway through that 12 paragraph: 13 "The truth was that it was not wise to create an 14 arm's length company to deliver something that created 15 such an unclear decision-making process." 16 In what way do you think there was an unclear 17 decision-making process? 18 A. Well, that is a reference with hindsight. So in other 19 words, at the time it was created, it seemed the wise 20 thing to do. It became clear that the implementation of 21 arm's length company model, as this was, was not 22 working. And one of the key issues was the clarity over 23 who decides what and when. 24 Q. What was the lack of clarity? Who were the people 25 unclear as to who was doing what decision? 147 1 A. So the board of TIE and then also the officers of TIE at 2 times would be either making decisions or not informing 3 us of the decisions -- enough, as it became clear 4 afterwards, about the -- giving us the information to 5 make the decisions that we needed to make on their 6 behalf. 7 Q. So that is going back to a flow of information issue 8 more than anything else? 9 A. Yes. I do think, as I refer to here, also, that it 10 was -- there was a real issue of the relationship 11 between TIE and Lothian Buses because the success of one 12 would have an impact on the other and we should have 13 dealt with that earlier. There was clearly tensions 14 there that needed to be dealt with. 15 Q. I wanted to ask you some questions about councillors 16 sitting as directors on an arm's length company. Have 17 you ever been in that position? 18 A. Yes. 19 Q. Do you think it's a good idea? 20 A. I think it's an another example of where you are trying 21 to marry the requirement for democratic accountability 22 with the need to create a delivery model or a delivery 23 vehicle for a particular piece of work that sits in 24 all -- at least slightly, if not wholly, outside that 25 democratic process. 148 1 So the key element is clarity of the role of 2 councils. We regularly had conversations about both 3 councils and actually Council officers, and the conflict 4 that they might find themselves in between what was 5 regarded as necessary decision-making and what was -- 6 for that particular activity and the political process. 7 The most important thing is transparency in these 8 matters. So, for example, where a decision was being 9 made about an arm's length company's plan or strategy or 10 funding or whatever, there was a declaration of interest 11 by those councillors who were on that organisation as 12 directors. And that would be a regular happening. You 13 can see it in the minutes. So people would understand 14 that at that point, and they would then not take part in 15 the discussion as part of that, or at least that would 16 be my expectation. I don't really recall anybody doing 17 that. 18 Q. So that was decisions being taken by the Council which 19 might have an effect on the company? 20 A. Yes. 21 Q. The directors had an interest, perhaps the company's 22 interests, so they made it plain to the Council and 23 didn't participate in the Council decision? 24 A. Yes. 25 Q. What about the other way round though, where the company 149 1 are taking decisions which might have impacts on the 2 Council, but you've got a director of the company who is 3 in fact a councillor? 4 A. So that's the job of that Council, because they are part 5 of that communication link, and that relationship. So 6 their job is then to express -- to live in that tension 7 between understanding the task of the company and 8 recognising the role of the Council in being the point 9 of democratic accountability. 10 It's a difficult place, but it's a necessary place 11 and it requires transparency and declaration. 12 Q. In a board meeting of an arm's length company, the 13 councillor who is sitting as the director, whose 14 interests are they there to advance or protect? 15 A. So if the company is set up in the way that it is, in 16 other words to advance something that is in the 17 interests of the Council, and the Council's overall 18 strategy, then although there's one might say a legal 19 conflict, there shouldn't be. So they should be able to 20 act in the interests of the company and in doing so, act 21 in the interests of the Council. The problem comes when 22 there's a separation of those things and the councillor 23 therefore needs to make a decision at that point whether 24 they are willing to remain a director and say: I'm going 25 to go with this because I think it's the right thing to 150 1 do; or remove themselves. 2 Q. When you say go with this, go with what? 3 A. Go with the decision the company is going to make, 4 because clearly, legally, as the director of a company, 5 they have to act in the best decisions of the company. 6 My comment is that if the company has been directed 7 by its owner correctly, and the relationship and the 8 objectives are set up clearly, those interests between 9 the owner, in this case the Council, and the company, 10 will be at one and therefore there won't be a conflict. 11 Where there is a conflict, there is clearly a case for 12 the councillor to make a decision between those two 13 things. 14 Q. What about passing information from the company back up 15 to the Council? Is that a role that the 16 councillor/director has? 17 A. No, actually. That would be inappropriate. 18 Q. What about passing information from the Council down to 19 the company? 20 A. I think that's a different thing in the sense that most 21 of the things they would be talking about were in the 22 public domain anyway. So if you're talking about 23 Council decisions, Council strategy, Council objectives, 24 where they say, you know, there might be a conflict 25 here, or there might -- you need to pay attention to 151 1 that issue, that seems to be a legitimate thing to do. 2 Part of the expertise they bring to the board. 3 Q. So to what extent, bearing in mind these things we have 4 just discussed, does putting a councillor on the board 5 provide democratic accountability for the activities of 6 that company? 7 A. It means that the ultimate decision-making body of the 8 Council has a direct relationship, I suppose to protect 9 that relationship with an arm's length company that it 10 has set up. 11 Q. Can I just be clear about that. You said the fact 12 a director is -- start again. 13 The fact that a councillor is sitting as a director 14 on the board gives it a direct relationship? 15 A. Yes. There's -- it comes back to that business of -- 16 the question is not what does the Council think, but 17 what would the citizens who put the Council in place 18 think; and they see the Council saying: what we are 19 going to do is deliver this project and we are going to 20 do so through this vehicle. 21 And they would go: well, how are you going to make 22 sure that that vehicle, that legal entity, that company, 23 is doing what you want it to do? And you say: well, 24 your elected representatives are also going to be on it. 25 It does put people into a place of tension, as 152 1 I have described earlier, but tensions can always be 2 managed if you think about them. But it also means that 3 there is the perception, and I mean perception in 4 a positive way, of democratic accountability. So that 5 is a necessary part of the process. 6 Q. Notwithstanding the fact that the director has to vote 7 in the interests of the company and as you recognise, 8 can't pass company information back to the Council, 9 would it be fair to say that it is a matter of 10 perception, rather than reality? 11 A. What is a matter of perception and reality? 12 Q. That there is any democratic accountability? The 13 director will always have to vote in the company's 14 interests, and they won't be able to provide information 15 back to the Council? 16 A. Well, sorry, I want to come back to your question 17 earlier about passing information. 18 They themselves should not be passing information 19 back unless it's clear that they have been asked to do 20 so, but they can ensure, as directors, that information 21 can be passed back. And they can ensure that the right 22 information be passed back because they will understand 23 what the Council require. 24 So there is a difference between them being -- 25 themselves being the conduit of information and them 153 1 ensuring that the right information, or requesting, or 2 suggesting that the right information is passed back but 3 through appropriate channels. 4 Q. They can only ensure that the company does that if they 5 manage to sway the board with their opinion, or if they 6 resigned if they were unhappy with the decision? 7 A. Yes, that is true, but -- we are talking about the 8 question in principle here, rather than the specific 9 circumstances. 10 Q. Are all these things we are discussing, flow of 11 information and control of the company, not something 12 that would more efficiently be achieved by an agreement 13 between the Council and the company, and perhaps some 14 setting of standards for reporting and achievement and 15 monitoring? 16 A. Well, there are up sides and down sides to any scenario. 17 The up side might be that there would be apparently less 18 of a conflict of interest. But I think that the down 19 side might be a sense in which there is even more 20 distance than you are suggesting there already is. 21 Q. I want to move on now to the question of the procurement 22 strategy in relation to the tram. I'm going to ask you 23 again to look at your statement, this time at page 8, 24 paragraph 25. 25 Just the first sentence of that, you make the point: 154 1 "We had a lot of input into the procurement strategy 2 in the sense that we were indicating what we would want 3 to have happen." 4 Did that level of input as to what you want to 5 happen extend to things such as whether the contract was 6 to be fixed price or variable? 7 A. Yes, in the sense that we said we know we had this much 8 money, so we need to deal with that in -- we know what 9 we can spend. 10 That, of course, is also one of the challenges that 11 you have, because when you are trying to procure 12 something, you want to get the best possible price, and 13 if you are absolutely transparent about what that figure 14 is, then people are going to get up to the top end of 15 that, that is one of the challenges of public sector 16 procurement and the transparency involved. However, we 17 wanted it to be as fixed as possible. However, we did 18 understand that there was a difference between fixed 19 price and fixed cost. Fixed cost being the total that 20 we believed we were able to afford to spend and the 21 price that we -- that -- the prices that were fixed and 22 that element of variable which is the difference between 23 the two, because we always knew -- we always understood 24 that there needed to be different forms of contingency, 25 contingency for different circumstances. 155 1 That was why, for example, that we wanted to make 2 sure we had as much of the design as possible in place 3 before you got to the point, because that minimised the 4 risk. You know, you've got to manage an optimism bias, 5 you've got to manage a risk and what are your risks, and 6 what risks have you got more control over and less, and 7 so on. 8 So being part of all that frame was certainly part 9 of our conversation. 10 Q. That's one of the things I wanted to go to. The 11 councillors were involved to the extent of the level of 12 detail wanting the design to be done to a significant 13 extent? 14 A. Yes. 15 Q. Did the councillors give an indication of how much the 16 design they would expect to have completed? 17 A. I think we would have loved to have had it as close to 18 100 per cent. My recollection -- because that was never 19 going to happen, but you want to get as close to that as 20 possible. 21 My recollection is, and it is my recollection over 22 a number of years, was that the indication was that it 23 was somewhere over 90 per cent, which is why we thought 24 that sounds -- given, you know, the reduction in risk 25 over much less being designed, that's probably 156 1 acceptable in terms of risk. 2 It transpired that that was not the case, and had we 3 known that was not the case, we would have reached 4 a different conclusion, almost certainly. Of course by 5 then we were in opposition, so we were expressing 6 concerns as opposed to supporting it, if we had known, 7 for example, that change was in place. 8 Q. What about the position in relation to carrying out 9 works on the utilities? Was that something the Council 10 had an input in strategy there? 11 A. Yes. What we said was we knew it was going to cause 12 a great deal of difficulty. We knew we needed to 13 maximise that, before you moved into the laying of 14 tracks and we needed to turn it into an opportunity. 15 So we were clear that we should get as much of the 16 utilities all in one place, so that if we needed to go 17 back in again, we knew where they were and they were all 18 in one place. 19 We knew that it was going to be a huge challenge for 20 the businesses, and therefore there needed to be 21 a communication and support strategy in place for that, 22 and that was clearly part of the contribution that we 23 made to that process. How you were going to manage the 24 level of disruption that was involved. 25 Q. So what was it you expected -- how was it you expected 157 1 the utilities to be managed? 2 A. I expected the utilities to be in the end -- what 3 I expected was that all the utilities would be moved 4 into, I suppose, a single place, if at all possible, and 5 where that wasn't, there would be reasons for that, and 6 we -- the proper mapping to deal with that, and then any 7 place where it wasn't the case, it wouldn't hinder the 8 laying of the tracks and the delivery of the tram, so 9 that there was a connection between where that was all 10 the utilities were moved to and where the tracks were 11 going to come. 12 Q. When did you expect utilities work to be done in 13 relation to the carrying out of the -- what you term the 14 track work? 15 A. I would have expected it to be completed before track 16 came near that same section. The MUDFA contract didn't, 17 in my recollection, need to be completed before we 18 started the track works if everything had been in line. 19 I would need to look at the paper to get those 20 milestones, but you wouldn't be expected to (a) have 21 track works and utilities in the same place or (b) when 22 the track guys turned up, that the utilities were going 23 to get in the way. 24 Q. You said that was your expectation. As far as you were 25 aware, was that the expectation within the remainder of 158 1 your group? 2 A. Yes, absolutely. 3 Q. Could I ask you to look at page -- still on page 8 of 4 your statement, this time at paragraph 23. You said 5 there: 6 "I was not aware that poor performance by Parsons 7 Brinckerhoff was an issue." 8 They were the designers? 9 A. Yes. 10 Q. "What was portrayed to me was that there were challenges 11 with the design because we had to manage a huge number 12 of different demands. That meant TIE and the Council 13 were not getting things as quickly or in the way they 14 would have wanted. It is perhaps better to say that 15 Parsons Brinckerhoff were struggling to meet the many 16 views people had on what the design should look like." 17 Now, what you're talking about there seems to be 18 whether or not there were difficulties with Parsons 19 Brinckerhoff on the one hand, or difficulty with getting 20 things done on the part of TIE and the Council on the 21 other. 22 A. So I'm not sure that that paragraph now that I read it 23 is exactly worded as accurately as I would have -- 24 Q. Perhaps I could ask you to explain what it is you want 25 to say? 159 1 A. Yes. It's not far off. 2 What I'm indicating in the first instance is that 3 I understood by the time we got to the point of 2008 and 4 the Final Business Case being -- the Tramco contract 5 being given was that design had progressed much more 6 than it actually had. So my reference in the first 7 sentence is the fact that I only became aware later that 8 the design hadn't progressed as much as it had. 9 What I did know was that there were huge challenges, 10 because it wasn't simply an engineering project in the 11 sense that it was in a vacuum. It was an engineering 12 project in the middle of an historic city, with a huge 13 number of demands from a whole different number of 14 people as to what things should and could look like. 15 And also future-proofing it as well. So how you 16 managed it so that if and when you got to extensions, 17 you were not going to do something that required to be, 18 or as little as possible, dug up again or changed 19 dramatically. 20 So I'm being sympathetic to Parsons Brinckerhoff in 21 the sense that I think they were under a lot of demands. 22 What was portrayed to me was that things were not -- 23 that they were struggling to get to achieve everything 24 they could because of the nature of the demands 25 possible, which meant that TIE and the Council were not 160 1 getting -- reaching the milestones they wanted to. 2 However, as I indicated earlier, I had understood 3 that they'd made significant progress eventually with 4 the design when we came to sign off. 5 Q. So when you get to the sign-off, you thought it was back 6 at -- 7 A. 90, 95 per cent. 8 Q. Just ask you a little bit about the governance of the 9 implementation of the project. 10 We've had various references already made to TIE, 11 and you have said yourself they were set up in 2002, not 12 just for this project but for others. 13 Were you aware of how those other projects had gone? 14 A. The Stirling and Alloa one, I think it was completed and 15 delivered. ERL obviously fell foul of what happened in 16 2007. Borders railway eventually was delivered by the 17 Scottish Government. 18 So by the time we got to the point of delivery, it 19 became clear that one of the concepts of TIE which was 20 that you increased capacity by having a wide variety of 21 projects under one roof, was not being achieved, and 22 I think that was one of the weaknesses. 23 CHAIR OF THE INQUIRY: Can I just clarify something. You 24 said that you understood the Stirling-Alloa-Kincardine 25 rail line was delivered by TIE. 161 1 A. Yes. 2 CHAIR OF THE INQUIRY: Did you not appreciate that in fact 3 TIE were taken off that project by Transport Scotland? 4 A. If I knew that at the time, I have forgotten it now, 5 my Lord. 6 CHAIR OF THE INQUIRY: If you had known that, would that 7 have been something of significance? 8 A. It would have been, and my point was that it was 9 becoming clear that when they were reduced to only 10 having the trams, the capacity that would have been 11 created by having multiple operations -- projects wasn't 12 there, and that was one of the weaknesses that we were 13 facing. That was clear at that time. Which is why, you 14 know, for example, the ERL, the loss of ERL was 15 significant. 16 CHAIR OF THE INQUIRY: And also a project you didn't mention 17 was the Ingliston park and ride. Were you aware that 18 there had been issues about that as well? 19 A. I was aware that there were issues about the park and 20 ride and several parts of that strategy. 21 CHAIR OF THE INQUIRY: And that TIE prepared a document 22 of lessons learned from that project; were you aware of 23 that? 24 A. What I'm saying, I don't recollect it, but I may well 25 have been aware of it at the time. Again, I refer to 162 1 what I do recollect was the concern that this was the 2 only project that TIE had, and that we needed to 3 continue, but be aware of the challenges that would 4 bring because of the capacity issues. 5 CHAIR OF THE INQUIRY: And if there had been -- if you had 6 been aware of difficulties with these other two 7 projects, if there were such difficulties, would that 8 have just added to your concern? 9 A. Yes. Actually, I think, to be honest, the issue that 10 we -- I wonder whether we will refer to this in due 11 course -- that probably should have been a bigger 12 concern was the removal of Transport Scotland from the 13 project, because I think had they been in place, that 14 would have mitigated the issues that you just raised. 15 CHAIR OF THE INQUIRY: Thank you. 16 MR LAKE: We will come to look at Transport Scotland -- 17 A. Thank you. 18 Q. -- in a little while. 19 What I would like -- look at some of the other 20 companies that were involved. Transport Edinburgh 21 Limited. Are you familiar with that company? 22 A. Yes. 23 Q. What was its role in relation to the tram? 24 A. As I understood, it was going to oversee the operational 25 work, the operation of the trams once the trams were -- 163 1 once the infrastructure was in place. 2 Q. Once it was in place they would take over, right. 3 You also mentioned you know about the Council and 4 the tram sub-committee that wasn't really functioning; 5 the Tram Project Board, was that an entity you were 6 familiar with? 7 A. I was aware of it, yes. 8 Q. What was its role? 9 A. I'm not sure I could actually give you an accurate 10 answer to my recollection right now. I apologise for 11 that. 12 Q. I appreciate that. Perhaps we can go and look at 13 documents which spell it out a little more later in 14 a little while. 15 It seems to me a number of bodies involved. Was 16 that an advantage or a disadvantage? 17 A. Clearly a disadvantage. 18 Q. Why? 19 A. Well, as I have referred to earlier, key to this -- all 20 these processes is clarity of decision-making, who 21 decides what, when, why are they deciding and what 22 information are they using to decide it. 23 The difficulty appears -- regularly appears and this 24 was not unique, it has to be said, to this project, but 25 is a regular occurrence within the business of public 164 1 sector infrastructure and other areas; is that a number 2 of people require to be involved in different ways, and 3 you often get decisions -- the same decision having to 4 be taken by different bodies. So you're kind of lining 5 the ducks up, as it were, or one group take a decision 6 and then it gets changed or added to, and that can be 7 unhelpful. Well, it is unhelpful, frankly. 8 Q. I would like to look now at the stage of moving to give 9 the project approval and October 2007, where the first 10 version of the Final Business Case was made available. 11 I would like you to look at a production which is 12 a presentation to the Council. It's at CEC02083536. 13 You can see the front page here that it records it's 14 for a meeting of 25 October 2007 of the Council. It's 15 related to Edinburgh Tram. It was a presentation by 16 TIE, TEL and the City of Edinburgh Council. 17 Do you recall this presentation, by any chance? 18 A. Not specifically because it was ten years ago, but 19 I have no doubt that when you show it to me, I'll 20 remember. 21 Q. Can you remember who gave the presentations? 22 A. No. 23 Q. If you look at the second page of this, we will see it's 24 just a front page. An introduction to the presentation. 25 But if we go on to the page after that, you can see the 165 1 reference there to June 2007 to a review of the tram 2 project by Audit Scotland? 3 A. Mm-hm. 4 Q. There's quotations there in relation to sound financial 5 management and reporting and clear procurement strategy. 6 You have already indicated you placed some weight on 7 that report by Audit Scotland? 8 A. Yes. 9 Q. We also see at the foot of the page reference to an 10 external audit, OGC. Do you know who OGC are? 11 A. I can't remember what the acronym stands for, but I'm 12 aware of what they do. 13 Q. They are the Office of Government Commerce. 14 Did you -- it's noted here it confirms the project 15 status green. Was any weight attached to that, the 16 decision to proceed? 17 A. It would have done, because previously in the run-up to 18 the Draft Business Case, there was a status red. So 19 there was actions needed to be taken to mitigate those, 20 and the fact that we had got to a stage where we'd moved 21 by their analysis from red to green suggested that 22 progress had been made in the right direction. 23 Q. If I could ask you to look at the Final Business Case 24 itself. The document reference for that is CEC01395434. 25 Could I ask you to go firstly to section 6. I have just 166 1 misplaced the page number. 2 Go to page 84. You see this is section 6 of the 3 report relating to governance, and there's a heading 4 halfway down that page, Governance structure to the 5 Period mid-2007. 6 If you look at paragraph 6.4, there's a description 7 there: 8 "The structure ... in the period to mid-2007 is 9 described in the following sections and highlights the 10 following four key bodies, the roles of which are 11 represented in figures 6.1 and 6.2." 12 Then they have got the TEL Board, Tram Project 13 Board, and then two sub-committees of the Tram Project 14 Board. 15 Were you surprised at the time of the Final Business 16 Case that there was no mention of TIE as one of the key 17 bodies? 18 A. I don't recall being surprised, to be honest. 19 I certainly don't -- 20 Q. Did you understand that TIE was one of the key bodies? 21 A. I always understood that TIE was one of the key bodies. 22 Q. If we go through this rather than looking at the period 23 up to mid-2007, actually, firstly, staying with that 24 section, if we go on to page 88, we see the heading 25 "Transport Scotland", and underneath, paragraph 6.23 and 167 1 6.24. The second of those notes that Transport Scotland 2 withdrew from the governance process, the Tram Project 3 Board and its sub-committees, in favour of a monitoring 4 regime based on regular reporting and meetings with the 5 Council, supported by audit processes and issue of 6 regular compliance certificates in relation to grant 7 award letter terms. 8 Now, you have already indicated you think that was 9 a bad thing, that Transport Scotland withdrew. Bad for 10 the project? 11 A. Yes, but it wasn't a decision that we had any control 12 over. And there was -- it was one of the -- the 13 government's decision to give the money was predicated 14 on the withdrawal of Transport Scotland. There was an 15 attempt to mitigate that risk, as has been identified in 16 that paragraph, and I think the view was taken, whilst 17 we would have preferred that wasn't the case, there 18 wasn't anything we could do about it, and that we needed 19 to do what we could to mitigate it while continuing with 20 the project. 21 Q. You have noted earlier that the Audit Scotland report, 22 which we referred to, did refer to the fact that 23 Transport Scotland were involved in the government's 24 processes when approving it? 25 A. Yes. 168 1 Q. Was the involvement of Transport Scotland and the 2 government something that was material even at 2006, at 3 the time of approving the Draft Final Business Case? 4 A. Yes. 5 Q. What weight, if any, was attached to the fact that the 6 government were putting up GBP500 million for this 7 project? 8 A. In what sense? 9 Q. Well, as to whether or not it was wise to proceed, 10 whether or not it was a sound project? 11 A. The way that this and many other processes work was that 12 you convince a principal funder that the project has 13 rigour and is deliverable and has a proper benefit in 14 the long run to the public need and development -- the 15 city in this case, and good financial return. 16 If you've persuaded them, you work on the principle 17 that your argument is sound because somebody else has 18 said: your argument is sound, I'm going to give you the 19 money. 20 So in that sense it's like an external affirmation 21 rather than: they're giving the money, it must be okay. 22 Q. So you've already referred to the Audit Scotland and 23 Office of Government Commerce -- of affirmation. In 24 a sense we have got a third strand here, in that GBP500 25 million of government money is coming into it? 169 1 A. Well, I would say that that is the outcome of there 2 being the right kinds of conversation and the right 3 people being persuaded, rather than the money itself 4 being the thing that says it's good. You don't get the 5 money unless you've proven that what you've got is 6 robust and rigorous. 7 Q. Would you then look within this document -- if you go 8 forward to page 91. If we look -- we have got the 9 general heading there, "Governance structure - 10 Construction period" and then another sub-heading, 11 "Roles of TEL and TIE Boards". And in 6.32, the role of 12 TEL is described as: 13 "The TEL Board is focused on its overall 14 responsibility to deliver an integrated tram and bus 15 network for Edinburgh on behalf of the City of Edinburgh 16 Council. It will make formal recommendations to the 17 City of Edinburgh Council on key aspects of the 18 project." 19 That's perhaps what you referred to earlier. It's 20 looking to integrate the tram and bus as it's specified 21 there. 22 If we come down to paragraph 6.38, noted: 23 "It is also envisaged that certain of the elected 24 members of the TIE Board and its independent 25 non-executive directors will join (if not already 170 1 members) the TEL Board or the Tram Project Board 2 (including specific sub-committees) to ensure consistency 3 of approach and to utilise relevant experience 4 productively. The redeployment of elected members and 5 the independent non-executive directors will reflect the 6 emphasis of the TEL Board on oversight (on behalf of the 7 Council) of matters of significance to the elected 8 members in relation to the project delivery and 9 preparation for integrated operations ..." 10 Just pausing there, the preparation for integrated 11 operations seems to refer back to paragraph 6.32 and 12 looking at how matters were managed once the tram was 13 built? 14 A. Yes. 15 Q. But it also is referring to the oversight in relation to 16 project delivery, as if TEL has been given the oversight 17 role for that. Is that your understanding? 18 A. No. I think, looking back, what would I have read 19 there? I would have understood that of course. Part of 20 the operation is based on what is delivered, and 21 therefore they need to ensure that what is delivered 22 means that they can meet the business case based -- of 23 the operation. 24 And therefore that's the element that's being 25 referred to there, rather than suggesting that they have 171 1 oversight of the whole thing, would be my understanding 2 of that paragraph. 3 Q. If we look at the next indented paragraph in 6.38, it 4 notes: 5 "The emphasis of the Tram Project Board on delivery 6 of the tram system to programme and budget and the 7 preparation for integrated operations." 8 That seems to be giving the Tram Project Board -- 9 the emphasis is on them for the delivery of the tram 10 system to programme and budget? 11 A. I'm recalling, if I remember rightly, the Tram Project 12 Board was made of officers, if I remember rightly. It 13 would be helpful for me to -- 14 Q. If I ask you to look over the page, rather than making 15 it a memory test? 16 A. That would be very helpful. 17 Q. If we look at paragraph 6.47, it notes that the 18 suggested membership of the Tram Project Board is seven 19 people, Office of Government Commerce, constituency 20 definitions highlighted. We have essentially got David 21 Mackay, who I think was the Cchairman of TEL? 22 A. TEL, that's correct, yes. 23 Q. Donald McGougan and Andrew Holmes were both officers of 24 the Council? 25 A. I'm now recalling the role that this group played. 172 1 So one of the -- there were a number of reasons why 2 we believed that trams were a good plan. One of them 3 was that we would be able to deliver the only integrated 4 tram and bus system because we would be the whole owners 5 of both the trams and the buses. And one of Edinburgh's 6 great strengths is that even though it is another arm's 7 length company, it owns one of the most successful bus 8 companies in Britain. 9 Now, if you could integrate that with a tram system, 10 that means your interconnectivity within the city, and 11 beyond, frankly, is far, far greater, so that this 12 wasn't just about the delivery of a tram. It was about 13 delivery of an integrated tram system. 14 Now, the Tram Project Board was to ensure that that 15 was the ultimate focus of the activity and you can see 16 there the people who were involved represented the 17 constituent parts that would take us to that outcome. 18 So that would be the rationale for having a Tram 19 Project Board to hold things together, and perhaps to 20 deal with some of the tensions I referred to earlier. 21 Q. But if we look further up that same page at 22 paragraph 6.45, you see that it notes: 23 "The Tram Project Board maintains its role as the 24 pivotal oversight body in the governance structure. The 25 Tram Project Board is established as 173 1 a formal sub-committee of TEL with full delegated 2 authority through its operating agreement to execute the 3 project in line with the proposed remit set out in 4 paragraph 6.32. In summary, the Tram Project Board has 5 full delegated authority to take the actions needed to 6 deliver the project to the agreed standards of cost, 7 programme and quality." 8 That seems to be putting the Tram Project Board with 9 the responsibility for execution or delivery of the 10 project. 11 A. So it's clear that, when you have a number of legal 12 entities, all of whom who are tasked, but you have an 13 overall objective which is to draw those things 14 together, both the delivery of the thing and the tram 15 itself in this case, and the operation of it, you need 16 to make sure you co-ordinate that. 17 Now, in the long run, the operation of the tram and 18 buses, and the integration of that, is the ultimate 19 objective and therefore the organisation that is dealing 20 with that, will be dealing with that in the future, 21 needs to be -- it needs to influence the implementation 22 of the project that will get them to the point where 23 they can operate that. 24 However, as I think you are indicating, it is yet 25 another body to whom we need to hold to account, and for 174 1 which decisions can be taken, and I think it's an 2 example of what I referred to earlier in hindsight, that 3 we could have had fewer bodies in place to allow us to 4 make clearer decisions with the clarity that was -- and 5 authority that was required. 6 Q. Thank you very much. 7 Within this same document, if I could ask you to 8 look forward to, first of all, page 97, this is just to 9 provide context. We see we're now moving on to 10 section 7 and we are looking under the heading, 11 "Procurement". What I would like to do in that regard 12 is firstly look forward to page 105. 13 A. You don't want me to refer to 97 then? 14 Q. It's just to indicate that we are now referring to 15 a section entitled "Procurement", and within that, we go 16 to page 105 and look at paragraph 7.53, and the heading 17 above it. 18 The heading is just to indicate that we are now 19 talking about activities under the SDS contract, but 20 what was reported here was that: 21 "The original assumption was that the overall design 22 work to detailed design would be 100 per cent complete 23 when the Infraco contract is signed. Due to a number of 24 delays, largely outwith TIE's control, this is now not 25 achievable. However, by identifying key risk areas and 175 1 prioritising SDS activities, TIE is completing several 2 key elements of the detailed design in time to inform 3 the Infraco bids on price critical items. This has 4 enabled the Infraco bidders to firm up their bids, based 5 on the emerging detailed design, and thereby reduce the 6 provisional scope allowances and design risk allowances 7 that they would otherwise have included." 8 It's clear from that that design isn't 100 per cent? 9 A. Yes. 10 Q. What else did you take from that? 11 A. That we understood the risk, and that it had been -- 12 there were things in place to mitigate it, and that the 13 Infraco bidding process would be predicated on the 14 original assumption, which was identified in the Audit 15 Scotland Report and in previous reports, that the 16 maximum amount of design would be in place and agreed 17 and fixed, which would allow us to significantly reduce 18 the risk overall and achieve as fixed -- as much fixed 19 price as possible, because that would in some ways at 20 least transfer some of the risk to the contractor, 21 because if you'd fixed a price based on a design that 22 was agreed, it was up to them to deliver it for that 23 price. 24 One of the key elements in this, and it was repeated 25 again further down the line, was how much risk had to be 176 1 held by TIE and ultimately the Council, and how much 2 risk could be by the work that was done prior to the 3 contract transferred to the contractor. 4 A lot of the discussion at that time was around 5 that, and that this element was key to that because if 6 you get the design in place and agreed, then you're 7 going to reduce the -- the number of unexpected things 8 that are going to come along as a result. 9 Q. In this connection, if you could also look at -- perhaps 10 easier to start with page 180. 11 We see a heading here, just “Allocation during the 12 Construction Period”. If you can take it from me this is 13 in a section entitled "Risk". 14 We can then look at the next page, and under the 15 table we see a sort of indent heading, "Design", and it 16 notes that: 17 "Changes in design which are required by the public 18 sector after the signing of the Infraco contract will be 19 at the risk of the public sector. The progress of 20 detailed design has somewhat mitigated this risk." 21 Now, taking what was said in 7.53 together with 22 suggestion that the risk had been, as its put, somewhat 23 mitigated, what did you understand the position to be? 24 How much risk were the Council carrying? 25 A. Well, as I have indicated earlier, if you haven't agreed 177 1 the designs before you agree the contract, then -- so 2 you've got provisional designs and the price is based on 3 a provisional design, and then you say we're going to do 4 something else instead, or we want this here or that 5 there. If there's a change in price, you will have to 6 pay for that. But I go back to my previous comment. My 7 understanding was, my belief was, that we would have 8 maximised the amount that was actually agreed and the 9 price would be predicated on those designs being as they 10 needed to be, and that therefore they would not need to 11 be changed and therefore the fixed price element of this 12 was -- a risk to that was that the public sector was 13 minimised because the design was agreed. 14 There is a flagging up here, significant failure in 15 the agreed design will effectively be transferred -- 16 would pass risk to the public sector, is true. But what 17 we believe was that that had been and would be dealt 18 with, because the design would be as complete as was 19 ever possible in a contract such as this. At the point 20 of signing. 21 Q. Did you take -- 22 A. Can I just take, this is October 2007? 23 Q. This is December 2007. This is Version 2 of the Final 24 Business Case. 25 A. Yes. So in other words, we're at the point of being 178 1 told that we need to make sure we have got the designs 2 in place as much as possible before we sign, which 3 I think happened in May 2008. 4 Q. You've already explained that completion of the design 5 was one of the parts of the procurement strategy the 6 councillors had had input for? 7 A. Yes. Yes. 8 Q. So I take it this was important to you? 9 A. Yes. 10 Q. Could you also look, please, at page 109 of this 11 document, and paragraph 7.78. This is again under the 12 heading of "Procurement" that we looked at before, but 13 it's concerned with the activities under the 14 MUDFA contract. 15 Perhaps it's easier if you just look at the last 16 sentence of this: 17 "To date work has commenced on some of the most 18 congested sections such as Leith Walk and is expected to 19 be complete on cost and programme." 20 A. Yes. 21 Q. Again, what did councillors reading this report take 22 from that by way of comfort or otherwise? Did you 23 believe that the procurement strategy was being 24 achieved? 25 A. It suggested that we were pretty close to it, yes. That 179 1 seems to me what that says. 2 Q. In relation to the design risks, could I ask you please 3 to look back to your statement and page 15 of that. 4 Paragraph 49 towards the top of the page. 5 Perhaps it would be clearer if I go to the previous 6 page to provide the context for that. So if you go to 7 page 14. You are referring to a report, you see in 8 paragraph 46 at the top, Tom Aitchison had submitted to 9 the Policy and Strategy Committee and you had already 10 identified that as being something taking place on 11 13 May 2008, just before the contract was signed. 12 You note in 46 that he advised that the estimated 13 capital cost of phrase 1(a) had increased to 14 GBP512 million, and in return TIE had secured a range of 15 improvements to the contract terms and risk profiles. 16 This is an example of the difficulties you have when 17 doing commercial negotiations with an elected member of 18 the decision body. But you say over the page on 49: 19 "I cannot recall the details of the improvements 20 that were made to the contract but what seemed to be 21 a significant achievement by TIE was that the additional 22 payments bought them (TIE) transfer of risk. Therefore, 23 Bilfinger Berger would meet the consequences of further 24 design change or moving utilities. To me, that seemed 25 a helpful approach and we were getting more for our 180 1 money. Risk is fundamental to all these things and this 2 was a direct response to the management of risk." 3 What I'm interested in is where did your 4 understanding that Bilfinger would meet the consequences 5 of design change and moving utilities? 6 A. So I'm recalling the conversation I had in a briefing 7 with Willie Gallagher. 8 Q. Willie Gallagher? 9 A. So my memory is -- because that was quite significant, 10 although I don't remember the dot and comma changes, 11 I remember in broad terms -- that we transferred risk 12 and that's what the money, the additional money was, as 13 it were, purchasing. 14 Q. When and in what context did that discussion with 15 Willie Gallagher taking place? 16 A. That would be a briefing I had one to one with him, but 17 I'm as certain as I can be that it was not -- that 18 wasn't the only time it was referred to. So it was 19 referred in other briefings. 20 Q. If you could look at page 12 of your statement, please. 21 This is a paragraph which spans from that page to the 22 next, paragraph 41. It starts: 23 "The plan with the utility diversion works was to 24 get everything into one place on the side of the roads 25 so we always knew where it was. I cannot be sure 181 1 exactly when, but I did discover that had not happened. 2 However, I continued to be reassured by TIE, 3 particularly through Willie Gallagher, that the cost and 4 risk could be met with the money we had." 5 Is that another example of briefings direct by -- 6 A. That is -- that is correct. It may be that I have 7 conflated two things there. 8 So we knew that the utility diversions was 9 a challenge. But what Willie was saying was we will be 10 able to manage this over the piece. 11 It wasn't until actually significantly after then 12 that I discovered that we had not achieved -- I think 13 I'm referring there to the -- yes, the utilities all 14 being in -- what I'm referring to wasn't until after 15 I had discovered that we hadn't achieved having all the 16 utilities in one place. 17 Q. Was this something that Willie Gallagher said just to 18 you, or was it a -- 19 A. No, again, it was referred to in other places as well, 20 but I do recall the conversations I had with Willie. 21 Q. When you said in other places -- 22 A. Well, it would be in the Labour Group briefing, would be 23 at least one place where it would be, it would have been 24 in the briefings we had with officers and I don't know 25 whether it was actually referred to directly in the 182 1 Council meetings themselves, but certainly it was not -- 2 it was repeated in other contexts when we were being 3 briefed on the progress. 4 Q. Can you recall roughly when those briefings were taking 5 place in relation to conclusion of the contract? Was it 6 December, May? 7 A. I couldn't tell you when, no, but I could tell you it's 8 prior to the contract. Sorry, I can't tell you when. 9 Q. Prior to the contract. 10 Once the contracts started to run, what was your 11 degree of understanding of the cost overruns that were 12 starting to build up? How quickly were you aware that 13 costs were escalating? 14 A. We knew almost immediately that they'd come back asking 15 for more money. 16 Q. Who told you that? 17 A. I believe that was -- I think I heard it from several 18 places quite quickly, to be honest, both informally and 19 formally. 20 Q. Can you remember how you heard it formally? 21 A. Council officers. 22 Q. Did you hear anything from officers of the company? 23 A. We probably did, but I couldn't be certain exactly where 24 and when. 25 Q. If you were told that the contractors were asking for 183 1 more money, were you told what the response to that was 2 to be? 3 A. That they were going to say no. 4 Q. Did they say the basis on which they were going to say 5 no and the basis on which it was sought? 6 A. Initially, as I recall, they said it was because the 7 contract signed, but it became clear fairly soon 8 afterwards that there needed to be some negotiation. 9 Q. When did that become clear? 10 A. Within a few months. 11 Q. You're aware a dispute broke out in relation to the 12 works on Princes Street? 13 A. Yes. 14 Q. Was it before that or after that that you say you became 15 aware? 16 A. I think before that. 17 Q. Even before that? 18 A. Yes. 19 Q. What was -- when you say it became clear, was that to 20 you or to your group or to the Council as a whole, can 21 you say? 22 A. I think to the Council as a whole, but we would hear 23 about it in a different way, but it wasn't something 24 unique to my knowledge. 25 Q. What was the Council reaction to that as a whole? 184 1 A. I'm sorry, I can't recall what we formally said at the 2 time. There would have been some formal response 3 through the Council meeting. But you would have to 4 indicate it to me, a response to that. I apologise. 5 Q. You made reference in your statement in paragraph 58, 6 which on page 17 -- it's beyond halfway. The sentence 7 begins: 8 "Once Willie Gallagher was removed following 9 political pressure from one half of the coalition 10 administration, there was a complete lack of trust 11 between TIE and the contractor, and as much as 12 Richard Jeffrey tried to repair things, trust never 13 seemed to be rebuilt." 14 Can you recall what were the circumstances of 15 Willie Gallagher's removal? 16 A. Traffic management when they first started working on 17 Princes Street was a disaster. There was backlog all 18 the way up to the Royal Mile and all over the place. 19 I first became aware of it because I was on a bus that 20 got stuck in the jam, and there was then some public 21 attacking of Willie by some councillors in the media, 22 and it rapidly became apparent that he felt his position 23 was untenable. So he departed. But he clearly departed 24 on his own terms in the sense that he decided that he 25 was being pushed very hard. 185 1 Q. So when you say he was removed, this wasn't formal vote 2 by the Council or something? 3 A. No, he left on his own -- he left by resignation, as it 4 were, but it was clear from public comments and what we 5 were hearing privately that there was a view that he 6 needed to be removed, particularly, somewhat ironically, 7 from the leader of the -- the deputy leader of the 8 Council at the time. 9 Q. If you look then on page 18 of your statement, 10 paragraph 62, you refer in 62 to an email that 11 Councillor Whyte sent to Councillor Dawe, 12 Councillor Wheeler, Jackson and the officers 13 Tom Aitchison and Donald McGougan on 10 December 2008, 14 noting concerns on comments made by David Mackay in 15 relation to TIE never starting with a fixed budget: 16 "We knew that David Mackay often said things when 17 speaking about the project publicly that were open to 18 interpretation, which in part was one of the reasons for 19 a continued negative relationship between the Council, 20 TIE, and the BSC consortium." 21 Was it your understanding that it was fixed at that 22 time? 23 A. As I indicated elsewhere, there was a -- there was 24 a fixed price and a fixed cost. The cost was what we 25 could afford. The price was the price of the things we 186 1 knew about. We understood it to be close to -- 2 I understood it to be about 95 per cent fixed, and that 3 the rest was what would be managed by the fact there 4 would always be challenges. 5 So there is, as I indicate in the next paragraph, 6 sometimes a conflation between fixed price and fixed 7 cost because you have to manage the overall budget. 8 Q. I want to turn to the question of the mediation that 9 took place in 2011. 10 CHAIR OF THE INQUIRY: Mr Lake -- 11 MR LAKE: That would be a suitable point to break, my Lord. 12 CHAIR OF THE INQUIRY: We will have a break for the 13 shorthand writers for 15 minutes. 14 (3.13 pm) 15 (A short break) 16 (3.28 pm) 17 CHAIR OF THE INQUIRY: You are still under oath, Mr Aitken. 18 MR LAKE: Thank you, my Lord. 19 Just before we resume, I would like to take a step 20 back, if I may, to consider something arising out of the 21 Final Business Case. If you could have again on screen 22 the document CEC01395434. 23 If you go to page 181. You may recall this, 24 and I looked with you at paragraph 11.59 under the 25 design and I referred to the first two sentences of 187 1 that. But it purely arises in relation to what follows. 2 It's paragraph 11.59. 3 Now, I had read up to the second sentence: 4 "The progress of detailed design has somewhat 5 mitigated this risk." 6 It continues: 7 "However a significant failure in the agreed design 8 will effectively be transferred to the Infraco 9 contractor following novation. Provisions of consents 10 for prior approvals and temporary and permanent traffic 11 regulation orders by the statutory authorities remains 12 a public sector risk, but provision of the necessary 13 information in the required format and timescales will 14 be at the risk of SDS and/or Infraco." 15 Now, it's the bit, the first bit of the additional 16 part I read that is significant failure in the agreed 17 design will effectively be transferred to the Infraco 18 contractor following novation. 19 What did you understand that to mean? 20 A. That there would be additional risk in the contract 21 should we not get the designs in place. 22 Q. Why would there be a risk from that? 23 A. Well, there's a cost to designing as you go along. 24 I have to say, re-reading that now, my understanding was 25 if we didn't get the designs in place, it would cost 188 1 more because you would be designing as you go along, and 2 an iterative contract is always more expensive than one 3 you've got an agreed design on. 4 That appears to suggest, reading it just now, and 5 I want to emphasise I'm reading it now, not recalling 6 what I thought, if that's okay. 7 Q. Yes. 8 A. It suggests that somehow the risk would be transferred 9 to the contractor which I can't say would be accurate in 10 my understanding. So I'm slightly struggling here 11 because it doesn't appear to say what I assumed would be 12 the case, that if we didn't get our ducks in a row, it 13 would cost us when we signed the contract. 14 Q. When there was talk about design risk, is that talking 15 about the cost that would be involved in carrying out 16 further design work as in the cost of designers? Or the 17 cost that would be carried out in building to a new 18 design? 19 A. So the price would be predicated on what they knew. 20 Now, we knew where we wanted the tram to go to and we 21 pretty well what the design would be like and then you 22 need to get agreed design for all of parts of that. 23 So if you -- so the cost would be both. If you 24 signed it off without a fixed agreement on the whole 25 design, then those elements that you were continuing to 189 1 design would be costed against what they knew at that 2 point. So they would say, it looks like this much 3 because these are what you've got in place at the 4 moment. 5 However, if it changes at all, there will be 6 additional cost, and of course there is the cost of 7 paying the designers to do that part as well. 8 So there are two parts to it. There's the cost of 9 continuing to have it designed and the cost of the 10 difference between the price given when they knew the 11 design -- they priced the design at the point of 12 pricing, and the final design, because there will be 13 a difference between those two things. 14 Q. Okay. Thank you very much. 15 A. Sorry, I have to say, I'm confused by that. 16 Q. Thank you. 17 A. That sentence. 18 Q. I was turning to the question of now the mediation which 19 took place in 2011. 20 I think we understand that the mediation itself was 21 carried out by Council officers with the assistance of 22 people from TIE. Is that your understanding? 23 A. I'd understood that we'd had other facilitators involved 24 as well. 25 Q. To actually act as mediator? 190 1 A. Yes. 2 Q. And perhaps other consultants assisting you? 3 A. Yes. 4 Q. But no councillors were involved in the mediation? 5 A. Absolutely. 6 Q. Did the councillors provide any direction or suggestions 7 as to what they would expect to see achieved at that 8 mediation? 9 A. No, as I think I indicate in my statement, I don't think 10 we ever took a formal decision that that's what we -- 11 that that is what should happen. I understand that the 12 Chief Executive Sue Bruce believed that was the right 13 thing to do, and she got on and made it happen. 14 She may well have had conversations with group 15 leaders at that time, but by that time I was not a group 16 leader and therefore wasn't party to those discussions. 17 But certainly I don't recall there being a formal 18 decision of Council to move into mediation. 19 Q. When you say Sue Bruce believed it was the right thing 20 to do, you're talking about mediation? 21 A. Yes. 22 Q. But in terms of what was to be achieved at the 23 mediation, did the councillors set any parameters as to 24 what they wanted achieved, as in maximum price or 25 certain tram length? 191 1 A. No. As I said, because the councillors didn't take 2 a decision to go into mediation in the first place, they 3 didn't set objectives. Once we knew it was happening, 4 what we wanted was for the contract as signed to be 5 delivered at the minimum cost, and we knew that the best 6 way of that happening was for trust to be rebuilt, and 7 therefore that seemed like a good thing to do. 8 Q. What did you expect the Council officers and Sue Bruce 9 to bring back from the mediation to the Council? 10 A. I don't think we expected them to bring anything from 11 the mediation. Mediation is something that happens 12 between individuals in a manner that means that they 13 know that the content of that itself will remain 14 confidential, and rightly so. What we expected was 15 a better relationship between the contracting parties 16 and the Council, so that we could get the job done. 17 Q. Did you expect any agreement to come out of it, as in 18 legal agreement? 19 A. No, because I understood it to be about how they work 20 together, rather than -- because there already was 21 a legal agreement, and it was to make that agreement 22 work properly and professionally. 23 Q. So when you got to the fruits of the mediation, and 24 there were a number of options for new agreements, 25 whether the tram would run to Haymarket or York Place, 192 1 St Andrew Square or the possibility of termination, was 2 that a surprise to you? 3 A. I didn't perceive that as coming directly out of the 4 mediation itself. 5 Q. Right. 6 A. I perceived that to be -- mediation has happened. They 7 have therefore begun to have conversations in the way 8 they should, and one of the challenges was to manage 9 cost, and they were giving us options about how that 10 could be managed. 11 MR LAKE: Thank you very much, Mr Aitken. I have no further 12 questions. 13 CHAIR OF THE INQUIRY: Does anyone else have any questions? 14 Thank you very much, Mr Aitken. You're free to go. 15 A. Thank you. 16 CHAIR OF THE INQUIRY: You're still subject to citation. It 17 is hoped you won't need to be recalled, but if 18 necessary, Ms Fraser will get in touch with you. Thank 19 you very much for your help. 20 (The witness withdrew) 1 INDEX 2 PAGE 3 MS LESLEY HINDS (continued) ..........................1 4 5 Examination by MR LAKE (continued) ............1 6 7 MR EWAN AITKEN (affirmed) ..........................113 8 9 Examination by MR LAKE ......................113 10 11 MR DONALD ANDERSON (affirmed) ......................193 12 13 Examination by MR LAKE ......................193 14 15 16 17 18 19 20 21 22 23 24 25 236