1 Thursday, 7 September 2017 6 (The short adjournment) 7 (1.40 pm) 8 MR LAKE: My Lord, the next witness is Jeremy Balfour and he 9 is here. 10 MR JEREMY BALFOUR (sworn) 11 Examination by MR LAKE 12 CHAIR OF THE INQUIRY: As I have been saying to other 13 witnesses, Mr Balfour, if you just listen to the 14 question and answer it as concisely as possible. 15 MR LAKE: Could you state your full name, please. 16 A. Jeremy Ross Balfour. 17 Q. The Inquiry has details of your address. I think you 18 are currently a member for the Scottish Parliament? 19 A. That's correct. 20 Q. And have been since? 21 A. May last year. 22 Q. I think you were a councillor from 2005 and then you 23 were Conservative Group Leader between May 2010 and 24 May 2012? 25 A. That's correct. 104 1 Q. Then after that, you went on to be Convener of the 2 Governance, Risk and Best Value Committee? 3 A. That's correct. 4 Q. I would like you to have a look at a document, please. 5 You've got a hard copy in front of you. It will also be 6 shown on the screen. It's reference TRI00000016. 7 A. Yes. I've got it, yes. 8 Q. Is that a statement that you gave to this Inquiry? 9 A. That is correct. 10 Q. I think it should have your signature on the final page 11 of it? 12 A. Yes, I think so, yes. 13 Q. Are you content to adopt that as your evidence to this 14 Inquiry? 15 A. I am. 16 Q. I just want to ask you a few questions now about things 17 in that statement for clarification purposes. 18 I wondered if we could have up on screen the second page 19 of the statement. I would just like to look at a 20 reference which appears in a number of paragraphs. 21 Firstly, in paragraph 4. 22 We can see the final sentence of that is: 23 "I think if the information in respect of the tram 24 project had been accurate, then everything would have 25 been fine." 105 1 Do you see that? 2 A. I do, yes. 3 Q. Then so we can ask questions about them together, could 4 we also have the next page, please. If we could enlarge 5 6, 7 and 8. We can see the last sentence of paragraph 6 6 is: 7 "I think that it is fair to say we would have voted 8 differently if we had received more accurate information 9 about the project." 10 In paragraph 7, the third sentence beginning on the 11 third line is: 12 "In relation to the tram project, I do not think 13 that we were provided with accurate information from 14 City of Edinburgh Council and TIE officials." 15 In paragraph 8: 16 "Later on when I was the Party Leader, I think I was 17 deliberately mislead by certain individuals during tram 18 project meetings." 19 Now, there's clearly a theme running through those 20 of dissatisfaction with the information that was being 21 given. Were there particular aspects of the information 22 that you felt were inaccurate that led you to say that 23 had it been accurate, then everything would have been 24 fine? 25 A. I think what I meant by that is I think we would have 106 1 come to a very different conclusion and a different 2 place if that information had been provided to us. 3 I suppose if I can give two examples of that, to 4 perhaps explain what I mean. 5 I came in, in 2005 in a by-election. So the tram 6 project had already started. But in 2006 we had to 7 make, as a Full Council, the initial decision as to 8 whether we should go forward with the project, and there 9 was a briefing held for each political -- to group, and 10 obviously to ensure the group had that, where there were 11 senior officers from the City Council, members of TIE, 12 and we were given an opportunity at that point to ask 13 direct questions which were in the report and it was 14 a confidential briefing. 15 Looking back with hindsight, it's clear to me that 16 the information -- some of the information we were given 17 at that meeting was inaccurate and whether that was done 18 deliberately or whether that was done simply because we 19 just did not have the experience to be able to give that 20 advice, what will be an issue, I suspect, for this 21 Inquiry. 22 But I voted individually, and I think members of my 23 group, and I'm sure other councillors from other 24 parties, voted at that point on inaccurate information 25 that was given to us. 107 1 Q. What was the inaccurate information? What was the 2 inaccuracy? 3 A. Well, for example, one of the issues was obviously 4 contract v price, and one of the questions that one of 5 my colleagues asked, and it is one of the things you do 6 remember because of what happened later on, was: was it 7 a fixed price contract? So eg are we setting up -- this 8 is what we get, this is what we pay, and what came back 9 from a number of officers on that afternoon was: it's 10 80 per cent fixed. 11 So 80 per cent of what you get delivered was the 12 price you were going to pay. 13 Now, having the hindsight to look back at the 14 documentation and having a look at actually what then 15 occurred, clearly that wasn't the case, and so what we 16 were told about how the contract was set up, even before 17 we signed the contract, at that fairly early stage, from 18 my perspective, gave us an area where we would view that 19 we made decisions on that. 20 I suppose the other issue around that whole issue 21 was utilities, which was clearly going to be a massive 22 issue for the tram track. There was going to be 23 utilities, and again, we were given very clear steer by 24 those within the room who were giving the advice, was 25 that was all covered and the contingency fee was so high 108 1 that even if they found something like a World War II 2 bomb under Princes Street, that that would still be 3 within the contingency fee. 4 So I went away from that meeting and I think my 5 colleagues went away from that meeting of the view that 6 we had something that was going to be delivered 7 financially within the amount of money that we had been 8 given to us by Scottish Government. 9 Q. Now, when was that meeting, can you remember? 10 A. I cannot remember the exact date, but -- 11 Q. Can you remember when it was in relation to the contract 12 being signed, for example? 13 A. It was some time in 2006, when we were asked to make an 14 initial decision as to whether we should go forward. It 15 wasn't the signing -- the signing of the contract 16 happened a year later than that, but it was a fairly 17 major decision of this is the way that we are going 18 forward, as collectively as a Council. 19 I suppose -- 20 Q. Carry on. 21 A. I suppose the second example for me was when I became 22 Group Leader -- became Group Leader. The Council and 23 TIE set up what we called the Group Leader's Meeting, 24 which was held about every two to three weeks, which was 25 a confidential meeting where information was shared with 109 1 us which wasn't shared with the wider councillors 2 because we were group leaders. And I think two things 3 on reflection of that, is I'm not sure that is 4 a particularly helpful way to go forward, because you 5 are then one of four or five people that know something 6 that the others don't know, and I think it puts both you 7 and your colleagues in quite a difficult situation, how 8 much can you share with them. 9 But I think perhaps even more worrying for me was 10 that we were given handouts at each of these meetings 11 with this is where we are, this is the figures, all that 12 information. And from myself and from asking present 13 Council officers up to last year whether any of that 14 documentation was available, it's all disappeared, and 15 I think, well, I know now that there was inaccurate 16 information given to us at those Group Leaders' 17 meetings. 18 Again, I think if we had been given what I would say 19 were the true statements, then we as Group Leaders and 20 then subsequently perhaps our groups, and as a Council, 21 would have made different decisions. 22 Q. Who was giving you this information? 23 A. It was senior Council officers and senior members from 24 TIE. 25 Q. Can you recall who? 110 1 A. Well, I think probably the one that gave us the most 2 information from TIE perspective was Richard Jeffrey, 3 and then it was the Chief Executive and the Head of 4 Director of Finance within Edinburgh City Council. 5 Q. Can you recall what the inaccurate information was or 6 what the information concerned that you thought was 7 inaccurate? 8 A. At that point we were into dispute resolution on bits of 9 the contract, and we were being told that by and large 10 we were being successful in regard to those dispute 11 resolutions, that the majority of us -- the majority of 12 them were going our way, and the ones that weren't going 13 our way were so minimal that we were insignificant 14 towards the overall project. 15 Now, clearly as things panned out and when we got to 16 the situation where the contract -- the work stopped, 17 that clearly wasn't the case, and actually looking at 18 documentation previous to that, even at the time, that 19 wasn't accurate information. 20 I think the whole question around how much money had 21 been spent, how much of the utilities had been done, all 22 those areas -- and particularly round risk, were 23 minimised and not given us as Group Leaders, and I think 24 also probably spokesmen on transport inaccurate 25 information. 111 1 Q. In terms of the Council officers, were you aware what 2 information they were being given by TIE? In other 3 words, were they simply repeating what they had been 4 told or were they in a position to form their own view? 5 A. I mean, I'm not absolutely certain in regard to that 6 because I don't know what Council, senior Council 7 officers know. 8 I do know that one senior Council officer said to me 9 subsequent to this, he was at that point not a senior, 10 but he was in the meetings, and he said to me he knew 11 the information that we were being given at that time 12 was inaccurate. 13 Q. Who said that? 14 A. It was Mr Maclean, Alastair Maclean, who at that point 15 was Head of Legal. He did not tell me that at the time. 16 He told me that subsequently, and clearly you can 17 explore that with him at the appropriate time. 18 But from his perspective, he was head of legal, so 19 he was not there as a senior officer. He was there to 20 give legal advice to the Council, but he was of the view 21 that information was given to us that was inaccurate and 22 he felt unable to counter that because he was not 23 a senior officer at that time. 24 So he must have known something more than we as 25 councillors knew. 112 1 Q. In terms of the subject matter -- before I go to that, 2 in terms of things were being said by representatives 3 from TIE, were you aware whether they were voicing their 4 opinion or relaying legal advice that they had had? 5 A. The impression they gave to me was that this was their 6 opinion and that this was their view on the project. So 7 it wasn't -- they were clearly aware of what was going 8 on and where the different dispute resolutions were 9 going on. And they -- it was not them saying this is 10 what our lawyers are saying. It was very much the 11 senior members of the TIE group, including 12 Richard Jeffrey, who were saying: this is my opinion, 13 this is my view. 14 Q. When I asked you about the subject matters of the 15 information, you've referred to the dispute resolution 16 procedures that were going on, utilities, the completion 17 of utilities, and risk. 18 Were there other matters? 19 A. I think obviously the cost, I think, was the other one, 20 how much of the money had we spent, and were we in 21 danger of going over budget. 22 Again, at that stage, when I was Group Leader, we 23 were still being told that this project was going to be 24 delivered within the framework, because of the 25 contingency fees that had been written in or allegedly 113 1 written into this. 2 Q. That's going to the time when you said that you were the 3 Conservative Group Leader. 4 Going back to the earlier stages, talking about the 5 year before the decision to go ahead, did you consider 6 that there was inaccuracy in the information then? If 7 so, to what did it relate? 8 A. I think in regard to how the contract was set up, 9 I think the whole area in regard to liability, ongoing 10 liability around that contract, again, and I won't name 11 individuals because they were junior members of the 12 legal team, who came in subsequent to all of this, their 13 view was that the original contract we had was mince, to 14 use their words -- 15 Q. I think that's referred to in your statement. In your 16 statement you do name the person? 17 A. In that case I'm -- try not to always name the people. 18 But again, in my view, if that was a person who had 19 expert in contract law, saying that about a contract, 20 then clearly it was not what we had been sold to as 21 elected members. 22 Q. It may seem a fairly obvious matter, but had you been 23 given different information, what difference would it 24 have made in practice? 25 A. Well, we would have voted a different way. I see 114 1 Council as a wee bit like non-executive directors of 2 a company. We are not there to do day-to-day 3 management. In fact, we don't have that responsibility. 4 We are there to make strategic key decisions on 5 information provided to us in regard to what City of 6 Edinburgh Council should do, and we come to a view, with 7 political consideration around that, to what is the best 8 for the city. 9 I think if we had had the information, accurate 10 information, back in 2006, back in 2007, I can't talk 11 for the rest of my colleagues, but I would have made 12 a very different decision and I'm convinced that the 13 majority of my group, if not all of my group, would have 14 made a different decision. 15 Q. I want to ask you some questions briefly about the 16 governance aspects. You do record in your statement 17 that you don't believe that the roles and 18 responsibilities of each of the main stakeholders were 19 sufficiently clear. 20 Bearing that in mind -- the page reference for that, 21 if you want it, is page 22, paragraph 65. 22 A. Yes. 23 Q. Now, I'm really -- notwithstanding that concern on your 24 part, nonetheless, I wonder, did you have a view of what 25 the respective roles were of TIE on the one hand and the 115 1 Tram Project Board on the other? 2 A. I mean, I think my own view was that TIE was there to 3 deliver the tram project as an arm's length company on 4 behalf of the Council. 5 I think where the other parties all fit in never 6 became particularly clear to me. So I think the Tram 7 Board -- I never quite understood what its absolute role 8 was, and I think that, as I say, I think in one of my 9 opening sentences of that paragraph, is that the model 10 became very complicated. It wasn't a clear -- I suppose 11 there was two ways we could have done this. We could 12 have said to a completely arm's length company -- arm's 13 length company: here is the money, you deliver the tram 14 for us, and get on and do it. Or we could have had 15 councillors on that, or not councillors on that. Or we 16 could have delivered it in-house. 17 I think what we ended up with was a hybrid of both 18 of those things. So we had councillors, Council 19 officers, we had TIE, we had other people all having 20 a role in it, and thus there was not a clear 21 understanding of where the ultimate decisions were going 22 to be made. 23 The ultimate decision ultimately was obviously the 24 58 councillors. But the day-to-day decisions and the 25 information sharing, I think, got lost in that 116 1 structure. 2 Q. That's what I was going to ask. 3 Again, by reference to that paragraph, you actually 4 say there: 5 "Ultimately it was the 58 councillors who made the 6 decisions and who were responsible for them." 7 That's the decisions. 8 But which decisions did you expect would be made by 9 the Council and which would be the role of TIE? 10 A. Well, I think that's where I go back to my kind of 11 non-executive directorship model; that the key 12 decisions, signing off of the contract, the big 13 decisions in regard to making that, are made by the 14 councillors. 15 The decisions in regard to how it is working out day 16 by day, how it is managed day by day, that, it was the 17 responsibility for TIE. 18 Q. If we look then at the following paragraph, it's 19 paragraph 66, on page 23, reading a little bit above 20 halfway down that paragraph, there's a sentence that 21 begins at the right-hand margin: 22 "On reflection, I think the Council should have let 23 these companies deal with the construction of the trams 24 and report back when it was completed." 25 That gives the impression of a very hands-off 117 1 approach. But if I could also ask you to look at 2 paragraph 68, you feel that the Council members and 3 officers should have been more involved in the tram 4 project. 5 I'm trying to square this circle. On the one hand 6 it should have been left to the company, on the other 7 hand the officers and members should have been more 8 involved? 9 A. I think in regard to paragraph 66, that is in hindsight, 10 this is what should have happened. So if I went back 11 and we were starting all over again, and maybe this is 12 a lesson if we are going to build a tram further down 13 into Leith, is that that is a model that may be the 14 best, that councillors are not involved. They say: we 15 want a tram built from X to Y, this is your budget, you 16 go away and deliver it. 17 And then the Council is simply -- step back from 18 that process. A wee bit like, on a smaller scale, 19 building a new school. We say: we want a new school in 20 this area, this is your budget. We put it out to 21 procurement. Someone takes it on and builds that 22 school. 23 We are not involved in the analysis or scrutiny of 24 that unless it dramatically goes wrong. So that I think 25 for me is a better model. 118 1 Whether you have councillors on that arm's length 2 company or not is, I think, a debatable issue. 3 Where we were though, and in regard to paragraph 68, 4 was that we didn't have that. We clearly had political 5 oversight of this project. Clearly the Council Leader, 6 the Convener of Transport, was -- were getting more 7 information than even group leaders and even certainly 8 the average backbench councillor. 9 I think it was then their responsibility, with that 10 information that they had, now, whether that information 11 was accurate or not, only they can speak to. But with 12 that information, they should have then been much more 13 into the project. 14 So if I can give an example, when Princes Street 15 closed down, I think it would be fair to say my view 16 would have been was that the Council Leader, along with 17 the Chief Executive of the Council, should have been on 18 a plane across to Germany, to have a head-to-head 19 meeting with them within 24 hours to say: let's get this 20 resolved. 21 Q. It might be thought that is slightly in tension with the 22 idea that a company has been set up to deliver the 23 project. It's entered into contracts. There was 24 a contractual dispute -- emerges. And you are saying 25 that at that stage the Council should immediately 119 1 intervene. That seems to be the exact opposite of 2 letting the company get on with it? 3 A. The company wasn't delivering and the company wasn't 4 doing that, and at that point, not only was the 5 contractual issue being faced, but we were facing the 6 closing down of the main thoroughfare within Edinburgh, 7 with all the difficulties that involved for the bus 8 company, all the difficulties that involved for small 9 businesses, big businesses, the city centre, and the 10 surrounding areas, and so that is where I think 11 a political leadership does need to take place, because 12 at that point we are not just looking at the building of 13 a tram. We're looking at a knock-on effect for many of 14 our local residents. 15 And as it was set up, there was room for political 16 involvement in that, and that is where I think the model 17 that we had set ourselves up with meant that the Council 18 Leader and the Chief Executive should have been much 19 more actively involved, rather than just saying: we are 20 going to leave that to TIE. I think that was missing 21 the responsibility of what they were going to do. 22 Q. If we pick up the suggestion from your paragraph 66 that 23 the Council should let companies deal with the 24 construction of the trams and report back when 25 completed, what you say should have been done, the 120 1 opposite extreme, that would put the Council in 2 a position where it wasn't really in a position to 3 intervene, when there's a dispute about a major road, 4 blocks a major road? 5 A. I do accept, and that is a risk. If you go down that 6 particular model. 7 I think for me, the advantage of that model is that 8 you then don't have the party politics, the day-to-day 9 politics, the pressure that is put on local councillors, 10 to do that, and hopefully you've then got a professional 11 set-up which can deliver. 12 But I accept that does not come without risk, and 13 I think whenever you're setting up a project like this, 14 there are going to be swings and roundabouts, there are 15 going to be benefits and disadvantages. 16 From my perspective, the advantages outweigh the 17 disadvantages of handing it over completely. 18 I think what we didn't do, we handed it over, but 19 kept half a hand on it. 20 Q. Can I ask you about the opposite end of the spectrum 21 then, where the Council retain it in-house. Essentially 22 the way the tram project was finished off after 2010. 23 Do you have any comments on that as a model for 24 implementing this sort of project? 25 A. I think it is absolutely possible and clearly we did 121 1 that. But we did that only because we were very 2 fortunate that we had, probably more by accident than by 3 great planning, to be honest, the right people in place 4 at that time. 5 We had a new Chief Executive who spent hours and 6 hours having that hands-on involvement. You know, she 7 built the relationships with, if you like, the other 8 side. She did that trip, as I was saying, to Germany. 9 She did all that, and I think we were very fortunate to 10 have that individual. We were very fortunate, I think, 11 to have Alastair Maclean with his experience on 12 contractual law and his legal background there to give 13 us advice. 14 I think one of the things which I think was quite 15 reassuring for me was that we had somebody who also 16 recognised their own limitations. And so when we 17 realised there was something that we needed, say, legal 18 advice on, rather than trying to come up with it 19 themselves, although it cost extra money, they went to 20 either a senior QC or they went to a firm in London or 21 wherever, to get that advice, which I think was far more 22 robust. 23 So I think it is possible to do it in-house, but it 24 will only work if you have the appropriate talent and 25 expertise and in my view, within 32 local authorities, 122 1 you're never going to be able to find that. 2 Q. Not something that even if it wasn't full-time officers 3 of the Council would be available as you discussed 4 taking external legal advice, it could be external 5 engineers or whatever. It's advice that could be 6 bought? 7 A. It is, and it's obviously what we did forward. Unwind 8 and then rewind it back up again, that is the way we 9 went forward. 10 It is a possible model and I think it is one that 11 can work, but I still think you need two or three key 12 drivers at the leadership level for that, and we were 13 very fortunate to have Sue Bruce and to have 14 Alastair Maclean and their respective senior officers 15 around that, who I think did that. 16 Whether other officers could have done that, 17 I simply don't know. 18 Q. Going back to the idea of using an external company, to 19 what extent do you still need those key people with the 20 insight and the drive to make it work, even if you're 21 using an external company? 22 A. Clearly you do. I just don't think you need the same 23 level of drive or same level of expertise. 24 I think the other issue is around the other 25 organisations involved, is people are -- it was 123 1 interesting, I was sitting on a bus still even recently 2 when two people behind me were saying to me: how could 3 the councillors ever have reached that decision? 4 And I nearly turned round and gave them a half an hour 5 lecture, but resisted that. 6 It wasn't just TIE. It wasn't just Council officers 7 that were giving us the positive signs. Transport 8 Scotland on one or two occasions, Audit Scotland, gave 9 us reports to say: this is a project that you can 10 support. And I suppose I go back to my non-executive. 11 Non-executives cannot be experts on every area within 12 a company that they serve. All they can do is take the 13 best advice that they are given and weigh that advice 14 and come to a decision. 15 If the advice that we are given is inaccurate or 16 wrong, then that is clearly going to make it difficult. 17 But I think for us, the backstop was always 18 Transport Scotland and Audit Scotland not saying: hang 19 on, don't go ahead with this. And if they had done 20 that, clearly we would have had to come to a very 21 different view on it. 22 Q. We know there was an Audit Scotland report carried out 23 at the request of the Scottish Government in mid-2007. 24 Is that the one you're referring to? 25 A. Yes. 124 1 Q. What did you take from that? What reliance did you 2 place on that? 3 A. Heavy reliance. There was an independent third party 4 expert who had been set up by Scottish Government, 5 because after all -- money was, who did not say, even 6 back in 2007: do not go ahead with this project. 7 So if you like, that was -- because I think it was 8 clear that within each political group, there was quite 9 a lot of questions and concern even back in 2005/2006, 10 and certainly by 2007. 11 But the issue was we were being told by constituents 12 or maybe being told by other people, you know, things 13 could go wrong here. Things are going wrong here. This 14 is not set up. But I think we did rely on Audit 15 Scotland's report because that was seen to be 16 independent and neutral in that they had no political 17 slant one way or the other. 18 Q. What about Transport Scotland? What was it that they 19 did or didn't do that is relevant to your consideration? 20 A. Again, I can't remember the exact date, but they also 21 produced a report on the tram project, and again, 22 I think they came out and said the same thing, that they 23 were content for the project to go ahead. 24 Q. They were significant funders of the project? 25 A. Well, yes. They are the agency the Scottish Government 125 1 use to spend their money on these type of issues, yes. 2 Q. Did you attach significance to the fact that 3 Transport Scotland was willing to invest the 4 GBP500 million that they were? 5 A. Yes. I mean, again, you would have -- again, this was 6 a -- it's independent to some degree from the Scottish 7 Government. It's certainly independent from the 8 Council. If they had put red flags up at that point, 9 again, I think different decisions would have been made. 10 Q. Were you aware of reports on the project produced by the 11 Office of Government Commerce? 12 A. I wasn't, no. 13 Q. You mentioned a little while ago, when you were talking 14 about the remote companies, irrespective of whether or 15 not they had councillors sitting on the boards, and 16 I think in your statement you expressed some doubt about 17 the advantages of that, putting councillors on the 18 boards of these companies. 19 A. Yes. I mean, I have sat on a number of -- when I was 20 a councillor, I have sat on a number of arm's length 21 companies set up by the Council, and again, I think it's 22 a judgment call company by company for me. I think in 23 some cases it can have benefit. In some cases it can't. 24 Clearly when you're an individual sitting on 25 a board, you sit there to represent the best interests 126 1 of that company at that time, and that is made very 2 clear to you as a councillor. But you come as 3 a councillor with constituents, with political views, 4 with all of that, and that -- however clever you want to 5 be at trying to separate those two, inevitably it must 6 influence your thinking in some way when you're making 7 those decisions. 8 Certainly from my experience, you are never neutral 9 on an issue of importance within an arm's length 10 company. 11 I think there's often quite a lot of consensus among 12 councillors on it, and often their views may be 13 different, forgetting the political parties, to that of 14 the other people who make up the board who maybe don't 15 come from a local government background. 16 Q. Does that not present conflict? On the one hand you are 17 there to represent the interests of the company. On the 18 other hand you have all these other interests, political 19 or constituent, pressing in on you for your attention. 20 Is it possible to serve both? 21 A. I think it is possible. I would like to think on 22 a number of occasions I have been able to do that. 23 I think as long as you recognise that, but I think 24 whoever you are, if you're going on to be 25 a non-executive director of any company, you come with 127 1 some form of other interest, other baggage and it's no 2 different from being a councillor. 3 I think it has to be acknowledged, and you yourself 4 have to be aware, whenever you're making a decision, 5 that you're not being influenced, over-influenced, by 6 one or other interest. 7 Q. What do you think are the advantages of putting 8 councillors on boards? 9 A. I think they come with a wide knowledge of a city, and 10 where the city is going and what the city wants. 11 I think they come as people who are very used to 12 having to make difficult decisions. I think they are 13 used to having to read lots of reports and being able to 14 then ask appropriate questions. And so I think there is 15 an expertise you build up. 16 I was a councillor for just on 11 years, but a skill 17 set that you build up which I think I didn't have when 18 I went in, in 2005, but I do have now, because of how 19 you work as a councillor within the City Chambers. 20 Q. What about passing information or relaying information 21 about the company's activities back to the Council? Do 22 you think they have a proper role in that regard? 23 A. Well, I think there's a very clear understanding that, 24 as I said earlier, when you are a director of whichever 25 company you are sitting on at the time, that is your 128 1 responsibility, and with that comes confidentiality. 2 So if something is discussed within that 3 confidentially, there was a clear understanding, both 4 legally and given to you by officers, that that was then 5 not to be shared with your group or with other Council 6 officers. 7 Q. Does that not create a difficult situation in the 8 Council Chamber, that one or two councillors are sitting 9 there with the knowledge that's not shared by the rest 10 of their colleagues when they come to take difficult 11 decisions? 12 A. Yes, it can do, and that is one of the realities of 13 being a local councillor. I think that's why, you know, 14 I think that is always going to be -- unless everybody 15 has everything, there are going to be people who have 16 more information. 17 Sometimes you will say to your group: I'm going to 18 vote differently than you; or I'm going to say to the 19 company: I agree with exactly what you are doing, but 20 because of my political party, I'm going to vote 21 a different way. 22 Again, it's not a clean, easy simple thing to 23 explain and put down on one page of A4. It comes with 24 experience. But ultimately, you have to understand when 25 you're in a particular meeting at a particular time, who 129 1 are you responsible to, and for. 2 Q. So I think you said earlier that you might get briefings 3 as a Council leader that you -- you were told were 4 confidential and therefore you wouldn't be able to pass 5 them on to your group members? 6 A. Yes. 7 Q. So you could have a situation where someone has 8 information because they are the leader that the others 9 don't. Someone else might have information because 10 they're sitting on a board that others don't, and we 11 have a kaleidoscope of different knowledge levels, all 12 trying to take one decision? 13 A. Yes, and that's why I think -- 14 Q. Is that satisfactory? 15 A. That's why I think, as I said previously, it probably 16 isn't satisfactory. And that's why I'm not -- I think 17 there are not just in regard to the tram project, but in 18 regard to often issues that come up within the Council, 19 where there is either confidentiality, or there's 20 a public issue that a small number of councillors will 21 be briefed more than others. So, for example, the 22 Council leader or the convener of a certain area will be 23 briefed far more by officers than a backbencher who is 24 not involved in that particular area. 25 That is how councils work. That's why I think for 130 1 me, remodelling this and giving it over to an arm's 2 length company where there isn't that political 3 involvement on balance is probably the best way forward, 4 rather than bringing it in-house, even if you've got 5 very capable people of delivering that. 6 Q. Returning to the question of the directors on the 7 companies, I would like you to look at a document with 8 me. It will be shown on the screen. It's reference 9 CEC02086791. You can see that this is a report for 10 a Council meeting on 13 December 2012. It's titled 11 "Council companies", and that the author of the report 12 or the signatory is Alastair Maclean, then the Director 13 of Corporate Governance? 14 A. Yes. 15 Q. Could we look to the third page of this, please. Sorry, 16 one further page on. 17 If we look, there's a background statement in 18 paragraph 1.3: 19 "It is also important that the Council is clear 20 about the anticipated benefits from using an arm's 21 length company to deliver services, rather than 22 retaining service delivery in-house or contracting or 23 partnering directly with a third party provider in the 24 public, private or voluntary sector. In some cases, an 25 arm's length company can offer financial benefits, for 131 1 example charitable companies currently qualify for 2 Business Rates Relief. In other cases the rationale for 3 a separate corporate vehicle may be less clear. In 4 order to ensure optimal and efficient delivery of 5 services and Council objectives, it is important that 6 the overall company structure is rationalised." 7 Now, that question, whether or not there should be 8 an extra company, is that something which in your 9 experience gets the attention it needs? 10 A. I think it gets the attention it needs within perhaps 11 the more anoraks of us in regard to these type of 12 issues. So I think when I was on the governance risk 13 and best value committee, when I was on the old audit 14 committee, when I chaired the Governance Risk and Audit 15 Committee, those type of issues did start to become more 16 important to us. 17 I think there was an ongoing debate within political 18 groups and within the Council itself in regard to what 19 is the best way forward. 20 But I think 1.3 is a good summary of where we were 21 and to some extent where we still are, or where the 22 Council still is. 23 Q. Could we then enlarge paragraph 1.5 and its 24 subparagraph. 25 We can see here that what we are looking at is 132 1 recommendations that have been made by the Director of 2 Corporate Governance, and the first one is that: 3 "Elected members should not be directly involved in 4 operational decision-making of Council companies. Given 5 the potential for conflict of interest between their 6 roles as councillors and as directors (where there is 7 a statutory duty to act in the best interests of the 8 company and not the shareholder), it is recommended that 9 the elected members do not act as directors on company 10 boards, but carry out a strategic direction setting, 11 oversight and challenge role as members of the relevant 12 Council committees." 13 Now, I take it from what you said, that is something 14 you would disagree with? 15 A. Yes. I think in some cases that's right. But I think 16 that the reality is that there does need to be and 17 actually there's a benefit of having elected members on 18 some of the Council arm's length companies. 19 Q. Is that just for the reasons you have already outlined 20 for me this afternoon? 21 A. Yes. And I think also there are again when I was 22 a councillor, I was either Trustee or Director, 23 depending on the make-up of the third sector charity, of 24 third sector organisations within Edinburgh. So, again, 25 I went into a voluntary organisation as a local 133 1 councillor. That's why I was invited on. But I then 2 have to put the best interests of that local charity 3 when I was sitting as a trustee. 4 So I would be quite concerned if we were going to 5 say councillors, because they are councillors, cannot be 6 involved in either local community groups, local 7 charities, even bigger charities, because I think they 8 bring an expertise that others within the city don't 9 have. 10 Q. I think you are talking there about companies that are 11 either owned as charities or are owned by third parties, 12 not companies owned by the Council? 13 A. No, but I think the principle for both of them actually 14 are -- I think if you took that 1.5.1, literally, for 15 me, logically, you would then have to say local 16 councillors shouldn't be involved in local third sector 17 charities, either because the same operational 18 decision-making issues could come into conflict with -- 19 with the role of a councillor and I think Edinburgh and 20 any other local authority would suffer from that. 21 So I think it's too broad a statement, 1.5.1 for me 22 to agree to. 23 CHAIR OF THE INQUIRY: In that last example of the 24 councillor being on a charity or a company that was 25 a charity, there wouldn't be the same risk of conflict 134 1 because presumably at any meeting discussing an issue 2 relating to that charity, the elected member would 3 declare an interest. 4 A. Yes, but if you declare a non-financial interest, you 5 are still able to make a decision at a Council meeting. 6 So, for example, when we set the budget in February, 7 the first 15 minutes of the Council meeting is when 8 every councillor stands up and declares a non-financial 9 interest in all the third sector organisations that they 10 are involved in. They still vote on whether we put the 11 budget through or not. 12 So if I'm a director of a small charity that gets 13 GBP20,000 from the Council, that GBP20,000 in 14 a 1 billion budget is nothing, but for that charity is 15 very important. 16 So there is arguably still a conflict of interest if 17 you then try to -- I don't think my colleagues do this, 18 but try to manipulate it so they get their 20,000 when 19 they maybe don't deserve it. 20 So I think even there there is still a possible 21 conflict in regard to that. 22 I think it's only if you have a financial interest 23 that you are then not able to vote on an issue. 24 CHAIR OF THE INQUIRY: Thank you. 25 MR LAKE: Mr Balfour, I was going to move on to a slightly 135 1 different issue now. I'm finished with that document on 2 screen. 3 If it's possible to return to your statement and 4 look at paragraph 40 of that. That's on page 13? 5 A. I've got it. 6 Q. You set out there your understanding in May 2008 that 7 the consortium, Bilfinger Berger Siemens, bore the risk 8 of incomplete design and utility work diversions: 9 "I believed at that time the infrastructure was at 10 least an 89 per cent fixed price contract." 11 Where did your understanding of these matters come 12 from? 13 A. From questions that we asked to senior Council officers 14 and to members of TIE. 15 Q. Were these in briefing sessions? 16 A. For the whole group, yes. 17 Q. For the whole group. 18 Are any written records ever kept of what is said 19 during these briefing sessions? 20 A. No. There is normally a PowerPoint presentation or 21 a piece of -- a bunch of paper that is put round. On 22 occasions each group is -- has staff, Council staff that 23 help them and a senior member of them may take notes so 24 that they can refer back to when we're discussing it 25 later on as a group. But there's no formal minute taken 136 1 of private briefings. 2 Q. In terms of obtaining information in briefings or 3 otherwise, were there occasions when you were told you 4 simply wouldn't be given it because of reasons of 5 confidentiality? 6 A. Yes. I think that word that you learned more often than 7 not in these briefings was commercial confidentiality. 8 I have to say, I used to challenge that, because, you 9 know, we are ultimately responsible. To say that that 10 information can't be shared with councillors because of 11 confidentiality, I think shows disrespect to 12 councillors. 13 Now, I appreciate the decision senior officers have, 14 that some politicians do leak information. And 15 I understand that. But ultimately we are the person 16 that's got to make that decision, and if we are not 17 being given absolutely everything, how can we make 18 a proper decision? 19 For my position, officers, when they either didn't 20 want to answer a question or didn't want the answer to 21 come out, the stock phrase was "confidentiality, 22 commercial confidentiality". I think for me that was 23 a let-out that we perhaps in retrospect should have 24 challenged more often. 25 But ultimately the officers either give you the 137 1 information or they don't. 2 Q. What happened when you challenged it? 3 A. We were told -- I was told that: of course we trust you 4 never to leak any information, but there are leaks; the 5 Evening News has its sources; it is getting its 6 information from somewhere; it's clearly coming from one 7 of the 58. 8 I actually think that's an over-simplification. 9 I think there were officers at different levels of the 10 project that were also briefing the Evening News and 11 other papers at the same time. 12 So I think to think all leaks that came about the 13 tram was one of the 58, was officers trying to make them 14 feel better when actually it wasn't the reality. 15 I'm not denying that some councillors did leak 16 information at some point. Clearly that must have 17 occurred, but so were others, and I think to use that as 18 an excuse is not acceptable, and there has to be some 19 way of punishing a councillor if he's found to be doing 20 that, rather than making the rest of -- the overwhelming 21 majority of councillors who are keeping that information 22 confidential in the dark. 23 Q. That assumes you could find who the councillor was that 24 made the leak? 25 A. That's true. And that is a challenge. But that is also 138 1 true where officers leak. 2 Q. Do you accept -- from what you're saying, it sounds like 3 you don't accept that there should be any claims of 4 confidentiality, commercial confidentiality for passing 5 information to councillors? 6 A. No, I feel that had been overused by Council officers, 7 and I think -- I suppose the compromise they got to 8 later on, not just with this project, but with other 9 projects subsequently, was when we set up a data room 10 where all the data was there, but -- and you could go in 11 and examine it, but you couldn't take away your notes or 12 anything like that. 13 That may well be an acceptable compromise where, if 14 you do want to delve and dig down to get very detailed 15 information, you have that opportunity and then you also 16 have the appropriate officer there to answer your 17 questions, because, again, you know, as far as I'm 18 aware, out of the 58 councillors that, for example, 19 signed off the contract, I don't think any of us would 20 claim to be contractual law experts. 21 There were lawyers within the Council as 22 councillors, but I don't think anyone would claim to 23 have been a contract expert. So you have to have 24 someone there to guide you and to answer your questions, 25 however layman they are. 139 1 Q. In terms of use of the data rooms, tell me if this is 2 something you can't say. Are you aware, has it been 3 successful? Have they been successful in preventing 4 leaks? 5 A. I think they have. As far as I'm aware, and again 6 I can't absolutely say, but my understanding is that 7 certainly the number of leaks that have occurred on 8 other projects when databases have been used has been 9 very little, if at all. 10 Q. Presumably the difficulty with the tram project was that 11 it was of such sensitivity, politically and otherwise? 12 A. Yes, and also there was such amount of information. To 13 put it in one room at one time and expect someone to 14 have the energy to go able to read every document and 15 then never -- is just unrealistic. 16 Clearly, you could go back on in, but sometimes, you 17 know, you do ... 18 So I think with the amount of information that was 19 being given, there needed to be a different way of doing 20 it and explanation, because, you know, you can read 21 a document, but you do need someone who's got the 22 expertise to be able to talk you through some of the 23 more technical stuff, particularly in regard to 24 engineering stuff. 25 Q. I want to turn then right to the very end of the 140 1 contract when matters went to mediation in 2011. 2 Now, I think it's something that you say in your 3 statement, that you were concerned that you were not 4 asked for any input as to the objectives of the 5 mediation. Do I understand that correctly? 6 A. That's correct. 7 Q. Were you asked for any views or any input, any 8 parameters at all? 9 A. To my recollection, no. 10 Q. What sort of things do you think it would have been 11 useful for you individually or councillors generally to 12 have had an input on at that stage? 13 A. This is where I'm going to slightly contradict myself 14 because we are where we are at that point. 15 Q. Yes. 16 A. So I don't want to take this as a kind of this is what 17 I would necessarily do in the future, but where we were 18 at that point, I think group leaders and the transport 19 spokesman should have been put into a room with the 20 Chief Executive and the other appropriate officers who 21 were going away to negotiate, and given some kind of 22 parameters as to say: this is what would be acceptable 23 to us in regard to time, cost, other areas. Because 24 what came back was a document that we either had to say 25 yes to or no to, and if we had said no to it, what would 141 1 have happened at that point? 2 So it was almost -- actually I think what we did 3 ultimately negotiate was a reasonably good package, and 4 it did work and it got us to where we want to get to. 5 But, again, as a councillor, you were put into 6 a situation where you were said: either accept this or 7 reject it, and I'm not sure that, from a kind of 8 non-executive role, policy decision role, was 9 acceptable. 10 If the Chief Executive had come back and said, 11 "I have negotiated a great deal and the tram will be 12 ready in 2021, you have to accept that", what would we 13 have done? That's an extreme example and we would have 14 voted no, but if it had been on the margins, it would 15 have left us in a very difficult position. 16 That is where I think you do need some kind of -- 17 when it got to the stage where it was a political 18 decision where it was being brought back in-house, where 19 TIE were being substituted out of the game 20 predominantly, at that point we needed to have some kind 21 of scrutiny to say: this is what is acceptable within 22 these parameters we can live with this, but if you go 23 beyond the parameters, come back to us. 24 So, for example, they were there for, whatever it 25 was, 72 hours. Now, I don't know whether the Council 142 1 Leader was briefed in those 72 hours, but as far as I'm 2 aware, no one within other groups or within other 3 spokesmanships was given any briefing of how it was 4 going. 5 Again, it's almost as if officers are thinking: we 6 are making the decision. Well, they are not. They 7 bring a proposal. Councillors vote for something or 8 against something. 9 Q. It was always clear that the Council officers, the 10 Chief Executive of the Council, wasn't going to be 11 signing anything during the course of the mediation. 12 I think that was understood, wasn't it? 13 A. It was understood, but it was either take it or leave 14 it. She came back and said, "I have negotiated this 15 package. You can either accept it or in theory you can 16 reject it". 17 Q. Is it fair to say you were given in essence four options 18 back to the Council, which is: carry on regardless, 19 terminate the contract, run the line to Haymarket for 20 one price or run the line to St Andrew Square/York 21 Square for another price? 22 A. Yes, but we weren't given any options within those four 23 options. We were given -- I think what I would have 24 wanted was some form of political input in regard to 25 those four options. 143 1 Q. What sort of input? 2 A. Well, I think parameters to say: okay, if we are going 3 to go to St Andrew Square or if we are going to go and 4 terminate the contract or whatever, here are some of the 5 areas that we would be looking for you to negotiate on. 6 Here are some of the timescales we would be looking to 7 negotiate on, et cetera. 8 So we were given options, but I don't think there 9 was any input in regard to how it was going. Again, 10 from my recollection, we were given no indication how it 11 was going on. So 58 councillors knew as much as anybody 12 else within Edinburgh during that period. 13 Q. Was there not a danger with 58 councillors you would get 14 58 slightly different views as to what should be 15 achieved in the meditation? 16 A. Well, that's why I think -- and again I appreciate it 17 goes slightly against what I said previously -- you 18 probably at that point did need to use political party 19 leaders to say, "Here is the steer", and for them to 20 have gone to their groups and said, "What are the key 21 issues for us as a political group?" and to feed them. 22 Now, they may or may not have come back with 23 anything different. I'm not saying that. I'm saying we 24 came back with what we came back. But I think it's more 25 in regard to the perception of who is ultimately in 144 1 charge at that point. Is it senior officers who are 2 ultimately in charge or is it local councillors as 3 a Council who make a decision? 4 I think there was too much of a movement to give too 5 much to senior officers and away from we, as 6 councillors, have been elected to make these decisions, 7 it is our ultimate responsibility. 8 Q. I appreciate it's difficult and we don't know quite what 9 guidance would have been given to the Chief Executive, 10 but with political guidance, even if it could be 11 distilled into some general cohesive guidelines, how 12 practicable do you think it would have been for a Chief 13 Executive to go in and try and mediate with that in the 14 background? 15 A. Well, ultimately she would have had to come up with the 16 best deal that she could have come up with, and she did 17 that. 18 What I'm saying is I think the perception was there 19 was no role for the elected body to have any input into 20 that. I think, for me, that moves power too much away 21 from our responsibility to that of senior officers. 22 Q. In terms of the role that the councillors did have then, 23 which is determining which one of the options should be 24 pursued, to what extent were you given an explanation of 25 how the figures for going to either Haymarket or 145 1 St Andrew Square were arrived at? 2 A. We were briefed by the Chief Executive, 3 Alastair Maclean, and other senior members of their team 4 before that Council meeting made the decision. 5 Q. And did they tell you how they got to the particular 6 figure and what it represented, or were you just told 7 that's the figure? 8 A. In absolute honesty, I can't remember that to give you 9 a direct answer. 10 Q. Were you ultimately satisfied that these figures were 11 appropriate and that the Council should agree to them in 12 order to complete the line? 13 A. Yes. I mean, I think I had confidence in both the 14 Chief Executive and her team that they were not trying 15 to pull the wool over our eyes in regard to anything 16 that we were producing. I was satisfied at that point 17 that this was -- that the figures did, by and large, 18 come out as they were going to come out. 19 MR LAKE: Thank you, Mr Balfour. Those are my only 20 questions. 21 Thank you, my Lord. 22 Questions by CHAIR OF THE INQUIRY 23 CHAIR OF THE INQUIRY: Just one point, Mr Balfour. 24 You said that Mr Maclean told you that he knew that 25 the information that was being given to you was 146 1 inaccurate, but not at the time, but some time later. 2 When was that? 3 A. Again, my Lord, I can't give you the exact time, but he 4 at that point had moved from being just Head of Legal to 5 being a Director in Edinburgh City Council. So it was 6 probably -- again, I wouldn't want to put a specific 7 date on it, and it was in a conversation -- I mean, 8 clearly, within the City Chambers there were lots of 9 conversations that go on at lots of times, and there was 10 lots of analysis of what went wrong, what went right, 11 et cetera, and it was in one of those conversations, at 12 the time confidential, and I've kept it confidential 13 until this Inquiry, that he gave me that information. 14 CHAIR OF THE INQUIRY: You're a solicitor yourself; is that 15 correct? 16 A. Well, I was for a very short period of time. 17 CHAIR OF THE INQUIRY: Were you surprised that the Council 18 Solicitor felt unable to step in and say to even the 19 Chief Executive that's not accurate information? 20 A. My understanding is -- and I'm sure you can ask 21 Mr Maclean, he's a very able man, to explain for 22 himself. My recollection was that he had challenged 23 senior officers in regard to the information that we 24 were being given at that time and was told to shut up 25 and that wasn't his role. 147 1 So I think he fulfilled his role as Head of Legal to 2 pass that information on to his superiors, but he was 3 told not to share that directly with other elected 4 members. 5 CHAIR OF THE INQUIRY: Thank you very much. You are free to 6 go, Mr Balfour. 7 You're still under your citation. It may be we will 8 have to recall you, but I'm hoping not. If that 9 happens, Ms Fraser will be in touch with you. 10 Thank you very much for your time. 11 A. Thank you, my Lord. 12 (The witness withdrew) 13 MR LAKE: My Lord, I have no further witnesses available for 14 the Inquiry today. It is intended that we'll be moving 15 on next week to what could be seen as a different 16 chapter of evidence within the Inquiry with witnesses 17 from the Council, I think starting with Duncan Fraser 18 and my colleague Euan Mackenzie QC will be leading the 19 evidence with those witnesses. 20 CHAIR OF THE INQUIRY: Thank you very much. We will adjourn 21 until next Tuesday. 22 (2.43 pm) 23 (The hearing adjourned until Tuesday, 12 September 2017 at 24 9.30 am) 25 148 1 INDEX 2 PAGE 3 MR DONALD ANDERSON (continued) .......................1 4 5 Examination by MR LAKE ........................1 6 7 Examination by MR FAIRLEY. ...................18 8 9 MR IAIN WHYTE (sworn) ...............................44 10 11 Examination by MR LAKE .......................44 12 13 Questions by CHAIR OF THE INQUIRY ............99 14 15 MR JEREMY BALFOUR (sworn) ..........................104 16 17 Examination by MR LAKE ......................104 18 19 Questions by CHAIR OF THE INQUIRY ...........146 20 21 22 23 24 25 149