1 Tuesday, 12 September 2017 2 (9.30 am) 3 CHAIR OF THE INQUIRY: Good morning. 4 MR MACKENZIE: My Lord, the next witness is Duncan Fraser. 5 CHAIR OF THE INQUIRY: Mr Fraser, I understand you wish to 6 affirm. 7 MR DUNCAN FRASER (affirmed) 8 CHAIR OF THE INQUIRY: Have a seat. 9 A. Thank you very much. 10 CHAIR OF THE INQUIRY: I understand that you have not been 11 too well today and you may wish a break other than the 12 break for the shorthand writers. If you feel you wish 13 a break, let us know and I will accommodate that. 14 A. Thank you very much. 15 CHAIR OF THE INQUIRY: Mr Mackenzie? 16 Examination by MR MACKENZIE 17 MR MACKENZIE: Good morning. Can you state your full name, 18 please. 19 A. Duncan Murray Fraser. 20 Q. Your current occupation? 21 A. I am retired. 22 Q. I think you were formerly employed by the City of 23 Edinburgh Council? 24 A. That is correct. 25 Q. If you look, please, at your CV which will appear in 1 1 front of you, the number is CVS00000041. 2 If we go to page 2 of that document, I think we can 3 have an overview of your professional qualifications. 4 And career, if we look at page 2. 5 You will see towards the bottom, under "Education 6 and development", that in short you have a degree in 7 civil engineering and you are a member of the 8 Institution of Civil Engineers, is that correct? 9 A. That's correct. 10 Q. Then we can see in terms of your work experience, we can 11 see the private sector. You have approximately 12 14 years' experience in the private sector in roads and 13 bridges projects, is that correct? 14 A. That is correct. 15 Q. Then we can see above that you then had approximately 16 24 years' experience in the public sector between 1987 17 and 2011, in a variety of posts, to do with roads, 18 highways and transportation, is that correct? 19 A. Including public realm schemes. 20 Q. Yes? 21 A. Yes. 22 Q. Could you explain perhaps just briefly what public realm 23 schemes are? 24 A. Yes, the public realm is regarded as the streetscape in 25 which the road sits. So a good example of that would be 2 1 St Andrew Square, where it encompasses the road 2 structure, and by "road", I define that as a footway or 3 pavement. Some people call it the carriageway and 4 paths, for example through St Andrew Square, and how 5 that integrates together and that was certainly a very 6 important part of -- the tram works had to fit. 7 Q. Thank you, Mr Fraser. Can we now please go to the 8 statement you provided to the Inquiry. The number for 9 that is TRI00000096_C. That will appear on the screen. 10 I think you may also have a hard copy in front of you as 11 well, is that correct? 12 A. I do. 13 Q. We can see on page 1 your name has been written, 14 Duncan Fraser. Can you also please go to the last page 15 just to check your signature? 16 A. That is correct. 17 Q. Page 78 -- 18 A. 78, yes. 19 Q. Yes. It will come up on the screen in a second just so 20 everybody else can see. 21 I think you confirm that's your signature on the 22 last page. So, Mr Fraser, this statement forms part of 23 your evidence to the Inquiry together with the evidence 24 you give today as well. 25 Could you look, please, at page 3 of your statement. 3 1 Can you see in subparagraph 3, you were asked for your 2 job title between what dates while employed by City of 3 Edinburgh Council. You set out that you were the tram 4 coordinator between June 2007 to September 2009, and 5 then you were seconded by the Council to Tie as roads 6 and TRO manager from September 2009 until your 7 retirement in November 2011. 8 What does TRO stand for? 9 A. Traffic regulation orders. 10 Q. Thank you. In subparagraph 4 you were asked what were 11 your main duties and responsibilities in relation to the 12 Edinburgh tram project. Could you just read out, 13 please, your answer there? 14 A. "As tram coordinator my role was to coordinate with the 15 relevant Council departments and Tie, to process the 16 consent and approvals and liaise with the Council 17 directorate. I carried out this role from June 2007 18 until September 2009. I served on various groups, which 19 I refer to there 1/6, with respect to my Council 20 coordination role. I reported directly to the Director 21 of City Development, as this coordination role had no 22 delegated authority. I drafted committee reports, when 23 instructed, for consideration and approval by the 24 Council Directorate (Finance, City Development and 25 Legal)." 4 1 Q. Thank you, Mr Fraser. We have also seen various reports 2 to a meeting called the Internal Planning Group of the 3 Council, chaired by the Chief Executive of the Council. 4 Is that an example of a group you attended regularly? 5 A. Yes, that would be a good example. 6 Q. We have also seen various highlight reports which were 7 drafted for meetings of this group. Did you play any 8 role in drafting these reports? 9 A. Yes, I was involved in the co-ordinating and 10 the drafting of those reports. 11 Q. You mention in your answer their particular 12 responsibility in relation to consents and approvals. 13 Can you just perhaps explain, with reference to some 14 examples, the sort of consents and approvals that were 15 required for the tram project? So if one was to build 16 a tram line from the airport through the city, what 17 sorts of statutory consents and approvals does one 18 require? Just by way of overview? 19 A. To construct the tram, it was necessary to have a design 20 which could be incorporated into the contract. The 21 Council's role in this was to approve that design, and 22 there was a number of facets to that. 23 There is what is called the technical approvals, and 24 the technical approvals primarily related to roads, 25 bridges, and drainage systems. And that was typically 5 1 done by an engineering team. 2 Additionally there was also a requirement to comply 3 with the planning guidelines and objectives, and there 4 was a separate team looked at that and considered the 5 environmental impact and consistency with Council 6 policies and objectives, and specific documents which 7 required to be complied with. This was particularly 8 relevant, because much of the on-road section was within 9 the World Heritage sites, so there were specific 10 requirements to comply with that. 11 There was also a requirement to purchase land, and 12 as such, there was a requirement to use the Council's 13 compulsory purchase orders so the estate's section were 14 also involved in that capacity. So I think that gives 15 you an outline of the type of issues involved with 16 consents. 17 Q. That is helpful, thank you. 18 Mr Fraser, before turning to some particular 19 documents, I would like to just ask a few general 20 questions. 21 CHAIR OF THE INQUIRY: Before you do, Mr Mackenzie, I think 22 the shorthand writers are not picking up the odd words. 23 I think when you referred to the World Heritage site 24 that was not picked up. I wonder if the microphones 25 could be adjusted -- 6 1 A. Shall I take it closer. Is that more helpful. 2 CHAIR OF THE INQUIRY: Is that better, yes, thank you. 3 MR MACKENZIE: Thank you, my Lord. 4 Mr Fraser, before turning to some particular 5 documents, I would like to ask some general questions if 6 I may. The first question is that we see in the 7 documents, a number of concerns were raised on your part 8 and others in the Council team, before financial close 9 of the Infraco contract in May 2008. By way of 10 overview, can you tell us your main concerns in relation 11 to the tram project leading up to financial close? 12 A. I have explained the context of my role as co-ordinating 13 the legal, financial, and particularly the technical 14 aspects of the tram. And to that end, I thought it was 15 important that in my liaison with my directorate and 16 decision-making group that I had a role to raise issues 17 which I thought were for them to consider so they can 18 make informed decisions. 19 One particular concern -- and I think we all shared 20 this -- was the importance of getting the funding right 21 and the budget right, and looking at matters that may 22 affect that. So there were some concerns because the 23 original intention of the fixed price contract was to 24 have all the utility works completed and all the design 25 work approved. This turned out not to be the case, and 7 1 while there was substantial completion of MUDFA, there 2 was still some critical issues where there was potential 3 for delaying the Infraco contract. 4 With regard to the technical approvals, I would 5 argue they were substantially incomplete -- we can go 6 into that in more detail, but perhaps less than 7 10 per cent. In the context of the fixed price 8 contract, that has high significance in terms of risk 9 and risk transfer. 10 And the fixed price contract, the concept is for the 11 risk to be transferred to the contractor. Now, that is 12 true in as far as the scope that is set out for the 13 subcontractor is clear and concise, and on which the 14 contractor then prices the fixed price element of that 15 contract. And that is used in many infrastructure 16 projects. But just as an aside, the MUDFA contract, the 17 work was less clear, and therefore that was 18 a remeasurement contract. This is not a remeasurement 19 contract. 20 However, what this also means is that from the 21 employer's point of view, the person letting the 22 contract, the risk transfers to them if you have 23 preliminary sums, provisional sums, and you vary the 24 contract. And this is important because you will pay 25 much more for instructing work later than the scope of 8 1 work that was assumed when the contract was entered 2 into. And the primary concern there is delay and 3 disruption. 4 Now, we were conscious that at the time of the 5 letting of the contract, that the contractor had to rely 6 upon the preliminary design -- outline design -- and 7 a very small element, less than 10 per cent, of the 8 detailed design. So it seemed as if to me the scope 9 change could be argued. 10 Secondly, we were using a form of fixed price 11 contract that hadn't been used before and therefore 12 terminology within the contract had never really been 13 tested in terms of contract law. We know that there was 14 a general agreement -- there is no dispute that there 15 was a delay in the technical approvals. But we also 16 know there were substantial changes being made through 17 the approvals process, so the designs were changing 18 significantly to get to a point of approval. 19 Disruption, on the on-road section, if I could 20 explain, and maybe it seems obvious but it is worth 21 stating, is that when we are in a live city centre, it 22 was very, very important that we kept the traffic 23 running as freely as possible while accepting there is 24 going to be some disruption. The relevance of that is 25 that should there be a programme of works that was 9 1 disrupted by designs not being available to be 2 constructed, this could have a very significant 3 influence on the contractor's programme and it could be 4 severely disrupted. 5 Now, sometimes we can accelerate the work, but that 6 wasn't an easy option here, because you couldn't have 7 more than a couple of sections on-road going, to allow 8 the other sections of the road to facilitate the traffic 9 movements in the city. So it was seen as a very 10 sensitive matter if there was any delay or disruption. 11 So my intention was just to highlight to the directorate 12 and Tie, the importance and significance of any changes 13 that would occur during the contract period. 14 Q. Thank you, Mr Fraser. 15 Now you touched there, I think, upon the procurement 16 intention there of having upfront or in advance design 17 and utility works. Could we go please to your statement 18 again to page 4? Under the heading "Procurement", you 19 were asked in question 2 about the procurement strategy, 20 and in answer 1, you say that you were not directly 21 involved in the procurement of the tram project. 22 Then in subparagraph 2, you were asked, do you 23 consider that the aims of the procurement strategy were 24 met, and you reply: 25 "The aims of procurement strategy were not fully 10 1 met, because the Infraco tender was put out prior to 2 completion of MUDFA and design consents and approvals. 3 The reason or reasons for this I did not know." 4 Just sticking with the question of procurement, 5 could we go, please, to document CEC00380894. 6 Now, Mr Fraser, I don't think you have seen this 7 document before. In short this is a report by Tie to 8 the Scottish Parliamentary Committee considering the 9 tram bills in September 2005. If we go to the next 10 page, please, and next page again, and at paragraph 1.1, 11 it is stated: 12 "This paper provides an update as requested by the 13 Parliamentary committee in their consideration of the 14 Bills for line 1 and line 2 in respect of the overall 15 estimate of expenses and funding required and the 16 funding gap." 17 If you go to paragraph 1.3, please, we can see 18 paragraph 1.3 states: 19 "It is anticipated that the contracts for the 20 infrastructure and the tram vehicles, representing the 21 majority of capital expenditure on lines 1 and 2, will 22 be structured as a number of phased options." 23 You see there it is stated that the infrastructure 24 and tram vehicles would represent the majority of 25 capital expenditure in the project. Was that consistent 11 1 with your understanding? 2 A. Yes. 3 Q. Paragraph 1.4, please, I think this sets out the 4 procurement strategy. It is stated: 5 "In advance of the award of the main contracts, Tie 6 will concentrate on other activities which are focused 7 on de-risking the project and thereby achieving the best 8 prices possible for the tram infrastructure and 9 vehicles. These de-risking activities are principally 10 system design, utility diversions and the related 11 progression of planning and other approvals along the 12 higher risk sections of lines 1 and 2 which will be 13 difficult to construct. The design of the network has 14 recently commenced and work on utilities diversions is 15 programmed to commence following royal assent." 16 Is that consistent with your understanding of the 17 procurement strategy for the tram project? 18 A. I wish to emphasise, this is the first time I have seen 19 this document, but in terms of an overview, yes. 20 Q. For completeness, I think the reference to the design, 21 the SDS contract was entered into in September 2005, and 22 the MUDFA contract in October 2006. 23 Could you put that document to one side, please? 24 I now would like to move forward to April 2007. Can 25 we go, please, to document CEC01559060? We see from the 12 1 head, top of this document -- if we blow up the top -- 2 you see it is an email from Rebecca Andrew sent on 3 13 April 2007 to Andrew Holmes, who I think was the 4 director of city development, is that correct. 5 A. That is correct, at that time, yes. 6 Q. At that time. I think Rebecca Andrew was in the 7 Council's finance team, is that right? 8 A. That's correct. 9 Q. We see you are copied in on this email, and the subject 10 matter is: 11 "Response to Transport Scotland's comments on the 12 [draft Final Business Case]." 13 You see in the text, there is reference to Sheena 14 having requested yourself and Ms Andrew to get back with 15 comments on Transport Scotland's comments on the Final 16 Business Case. 17 I think this was a little before you started in your 18 tram co-ordinating role in June 2007. Is that right? 19 A. That is right. To explain, that I was involved in one 20 or two aspects of the tram while doing other work for 21 the Council, so it wasn't a full-time post at that time. 22 Q. I see. So it was in June 2007 you then worked on the 23 tram project full-time? 24 A. That's correct. 25 Q. I see. I think what appears to have happened is that 13 1 the draft Final Business Case went to Council in 2 December 2006 for approval and then Transport Scotland 3 made various comments on it in the following months. 4 The Council, I think, then made comments on Transport 5 Scotland's comments with a view, I think, to then Tie 6 and the Council drawing up an action plan to respond to 7 Transport Scotland. Does that generally accord with 8 your recollection? 9 A. I must say I find it difficult to recall that far back. 10 I would suggest that at this stage that most of the 11 issues related to financial matters, rather than design 12 technical matters. So I would have thought 13 Rebecca Andrew would have taken the leading role, 14 perhaps why she's sending the email. 15 My input would have related to the technical aspects 16 of the design for the works and the relationship it had 17 with the Final Business Case. 18 Q. Yes. In this email, we can see in paragraph commencing 19 "action plan is required", Ms Andrew states: 20 "Duncan and I met today and have added some 21 additional comments/requirements from a CEC perspective. 22 You might like to review these." 23 Do you remember sitting down with Ms Andrew and 24 considering Transport Scotland's comments on the draft 25 Final Business Case? 14 1 A. I am sorry, I don't recall that. I neither deny that, 2 I am sure we did, but I can't recall what the details 3 were. 4 Q. I understand. If we then can go to the comments 5 document which is CEC01559061, this type of document 6 doesn't display terribly well, but if we can go to the 7 top of the document, please, we see top left-hand 8 column: 9 "Actions to address Transport Scotland's comments on 10 DFBC." 11 We see it is dated April 2007 and the heading of 12 different columns, we see on the left "TS 13 [Transport Scotland] comment." 14 The next box, "Additional CEC comments". 15 If you can see that? 16 A. I can, yes, thank you. 17 Q. If we can then please go to page 3 of this document, if 18 it helps, I think it is in row 35. 19 We can see the word "governance", and the 20 Transport Scotland comment: 21 "Strengthen the section to show how broad governance 22 arrangements have been developed in detail to manage and 23 control project." 24 Under the next column, "Additional CEC comments", it 25 is said: 15 1 "CEC have some concerns over how project is being 2 managed. Need to build in independent 'project 3 assurance' reporting to TPB, to give comfort on 4 Tie-produced reports. In addition a formal operating 5 agreement is required for the project." 6 Mr Fraser, you may not remember, but do you remember 7 if those comments were your comments or Ms Andrew's or 8 joint views? 9 A. I cannot be sure, but my feeling is that it was a joint 10 response by both of us. 11 Q. Are you able to help us with what the Council's concerns 12 were at that time over how the project was being 13 managed? 14 A. You mentioned earlier that the SDS contract, systems 15 design services, had been let in late -- November, I 16 think -- 2005. 17 There seemed to be a very slow build-up to work 18 emanating from that, and by the time we were writing 19 this document, there was a substantial delay in terms of 20 the work starting on the detail of the design. 21 Therefore there was concerns as to how project assurance 22 could be guaranteed if it was running late. Because 23 inevitably that puts pressure on engineering staff. And 24 there was concern also about some of the financial 25 matters I recall, but that was a matter for 16 1 Rebecca Andrew. 2 And therefore we just felt we were trying to draw to 3 the attention of our directorate just issues which 4 needed another look at, so that they could make informed 5 decisions. We were just putting a little flag up and 6 saying, "I think this is an important matter", and there 7 was also some confusion, perhaps maybe just in my mind, 8 about roles and responsibilities. I mentioned in the 9 beginning of my witness statement that while I have 10 a lot of experience of working in contract, I had not 11 got experience of working with an arm's length company, 12 subcontractors, consultants, yes, but not an arm's 13 length company. 14 So this was a new experience for me and, I suspect, 15 Rebecca Andrew as well. We were not quite clear what 16 the relationships were, who made the decisions, and 17 I think we were just trying to seek clarity in terms 18 of -- that we had a better understanding of how the 19 governance worked. 20 Q. Thank you, Mr Fraser. I'm jumping ahead a little, but 21 you mentioned the question of working with arm's length 22 companies, what difficulties or issues arose from that 23 as time went on? 24 A. In my role with the Council, you tended to be the client 25 or the employer, and the relationship was directly with 17 1 you in contract, and you developed a direct relationship 2 with the other party. 3 In this case, all the contracts were being let by 4 Tie, so the direct relationship was between Tie and 5 whoever the contractor was, or the consultant was. 6 So in a sense we were at arm's length to that 7 relationship. And that meant lines of communication 8 were longer and less direct. And this sometimes gave 9 a slightly confusing picture or contradictory picture of 10 issues that arose. And also trying to resolve these 11 matters. 12 Q. Thank you. Let me come back to governance issues 13 then -- I didn't mean to cut you off, was there anything 14 you want to add? 15 A. No, thank you. 16 Q. We will come back to governance at the end. There is 17 also a comment here: needing to build in independent 18 project assurance, reporting to the Tram Project Board 19 to give comfort on TIE-produced reports. 20 Do you remember what that was a reference to? 21 A. Management of risks are very important in a contract of 22 this type, and as part of that, understanding what the 23 risks are and how they are being dealt with, the 24 assurance process facilitates that. And my experience 25 was that it was important at times to get an independent 18 1 view, so that we could be assured of the assurance, if I 2 can put it that way. 3 Because a lot hinged on that, and one of the 4 ultimate roles was to write committee reports and seek 5 decisions by members, councillors, and therefore it was 6 very important that we understood and had absolute 7 clarity that the assurances were correct, if I can put 8 it that way. 9 So an independent view on that, I think, had merit. 10 And supported the good work that -- (Pause) 11 CHAIR OF THE INQUIRY: I should have told you that Tuesday 12 at this time, there is a fire alarm. 13 A. Thank you, where was I? 14 It was very important both from Tie's point of view 15 and the Council's point of view that we could say with 16 confidence the assurance process was robust. 17 MR MACKENZIE: Thank you. There was one other comment 18 I would like to take you to in this document in 19 a second. It concerns the issue of the programme for 20 the tram project. Do you remember having any 21 concerns, either around this time or later, about the 22 programme of the project? 23 A. I did have concerns about the programme in terms of the 24 sensitivity. We were being asked to do a major 25 project -- the Council, that is, when I say "we" -- 19 1 facilitated through Tie in one of the busiest city 2 centres in the UK. So to carry out the works on-road in 3 particular, and even at some other off-road locations, 4 could have a big impact on traffic management. 5 Therefore it was important that the scale and the 6 scope of the work was fully understood by the Council, 7 because it was for the Council to determine what 8 temporary traffic management was permissible within the 9 city while trying to keep commerce within the city 10 going. 11 It wasn't clear to me how the programme that had 12 been submitted -- draft programme -- by the consortium 13 was clear how they took that fully into account, because 14 at this stage, there had not been a full engagement in 15 that process. So I thought it was a highly sensitive 16 matter. I was also -- had been involved with other 17 public realm schemes where works had to be terminated 18 during the festival period and the Christmas period. So 19 I was conscious that that could have a significant 20 impact on programme of works. 21 I couldn't see any reference to that kind of break 22 in the contract and so therefore I was trying to 23 highlight that there were a number of matters which 24 required greater scrutiny. 25 Q. Thank you. We talked earlier about the procurement 20 1 strategy and the intention to complete design and 2 utilities before the construction works started. Did 3 you have any concerns in relation to the programming of 4 this set of activities -- the design, utilities 5 construction? 6 A. I should emphasise, my involvement with MUDFA -- you may 7 come back to this -- was to do with the reinstatements 8 and temporary traffic management rather than the MUDFA 9 works itself. However, I was aware of the overall 10 programme and I was conscious that the programme kept 11 slipping. 12 My attendance at MUDFA meetings, it was normal to 13 see the month's programme having slipped. 14 Q. We will come back to MUDFA. 15 A. Okay. So therefore, I thought that was relevant, 16 because there was certain critical locations, to give 17 two examples, Stanhope Place and the Foot of the Mound, 18 where that could have a significant impact on the 19 proposed works, when they would start, if that was not 20 finished. 21 The design was fundamental because the drawings had 22 to be issued to the contractor -- they were known as 23 IFCs, information for construction -- which allowed the 24 programme to be developed and the detail of the 25 programme for what had to be built had to be clear. 21 1 The issue of these critical drawings were 2 significantly delayed and therefore I felt that that was 3 important to understand the significance of that, and 4 the knock-on effect that might have to the contract. 5 Q. Thank you. 6 Returning to this document, could we go down to row 7 76, please? We can see 76, "Programme", and then one 8 down, "General comments", and the Transport Scotland 9 comment on the left-hand side that states: 10 "There is general concern that the programme is 11 tight, with little float, and that the programme only 12 considers a best case scenario." 13 We can see the additional CEC comment states: 14 "This concern is shared by CEC. We are also 15 concerned by the drive to achieve milestones prior to 16 completion of critical activities. For example, failure 17 to complete detailed design before commencing MUDFA is 18 likely to cause contract variations and substantial 19 additional costs. This will be compounded if Infraco is 20 also let before design is complete. There is also 21 a risk that Infraco could be delayed by MUDFA delays due 22 to incomplete designs. All delays and changes increase 23 costs and threaten quality. It is also worth noting 24 that the procurement strategy required advanced design 25 and diversions to 'derisk' the project -- commencing 22 1 MUDFA and potentially Infraco prior to design completion 2 is potentially building that risk back into the project. 3 TIE should consider whether it is necessary to review 4 the programme, build in more slack and if necessary 5 delay project completion." 6 Again, do you recall whether that comment was from 7 you, Ms Andrew or a joint comment? 8 A. I think that would be substantially my comments. 9 Q. I see. You are expressing these concerns in this 10 document in April 2007. We know the Infraco contract 11 was let in May 2008, just over a year later. During 12 that period, were your concerns as set out here ever 13 resolved to your satisfaction? 14 A. I think the answer to that is "to some extent". 15 Q. Can you explain that a little? 16 A. There was a huge effort on the MUDFA contract and maybe 17 just worth putting into context, there was -- 18 substantially more work had to be carried out by the 19 MUDFA contractors than had originally been anticipated. 20 And this is because the amount of utility infrastructure 21 is not well known and mapped. And therefore 22 I appreciated the amount of effort that was going in to 23 try to accelerate that work and get it completed prior 24 to the start of the Infraco contract. 25 So to that extent, I felt that great efforts were 23 1 being made, but ultimately it was not completed. So 2 that's where the concern lay. With regard to the design 3 completion, this was a much more serious matter. At the 4 time when the contracts were being let, on the basis of 5 the information on which the contract would be based, 6 was less than 10 per cent of approved packages. So 7 that's significant. 8 But secondly, during the period of the 2008 year, 9 the submitted programme from SDS kept slipping. The 10 initial submission, the trial submission proved to be 11 very disappointing, if I can put it that way, in terms 12 of the quality of the submission, and there was 13 extensive amount of work had to be done to develop that. 14 And to be honest this took a long time to resolve. 15 It may be enough at this time to restrict my comments to 16 that, but there was major concerns that the design 17 programme was slipping significantly. And this could 18 all have an impact on the programme. 19 Q. I think you said, Mr Fraser, that during the period of 20 the 2008 year, the submitted programme from SDS kept 21 slipping. Can I just check, do you mean 2008 or do you 22 mean earlier as well? 23 A. Oh, earlier as well, I'm just making the point during 24 this period that you asked me about, there was slippage 25 of programme. The programme continued to slip 24 1 continuously until -- I can't remember the exact date, 2 but there is a reference by David Crawley, which I am 3 sure you can pick up, where it was claimed that the 4 slippage had stopped, but the programme couldn't be 5 recovered. 6 So I think that was a very important moment. In my 7 view the programme continued to slip, but the important 8 thing was there was no capacity to recover the 9 programme. So we have departed some substantial way 10 from the aspiration that -- and using a fixed price 11 contract, that the design would be complete. 12 Q. Thank you. We can put the April 2007 document to one 13 side now. We know that there was an election on 3 May 14 2007. Following a vote in the Scottish Parliament in 15 June 2007, the Scottish Government decided to cap 16 Transport Scotland's contribution to the project and 17 Transport Scotland withdrew from the formal governance 18 arrangements for the project. 19 Were you aware of these matters at the time? 20 A. Yes, I was. 21 Q. Did you have any views at the time on these matters? 22 A. I was not asked for any views. But are you asking me if 23 I had any views? 24 Q. Yes. In particular, the question of Transport Scotland 25 withdrawing from the governance arrangements for the 25 1 project? 2 A. If I could maybe explain that I have had quite a lot of 3 involvement working with the Scottish Executive staff in 4 terms of major infrastructure projects, and I have got 5 to say, I value their knowledge and experience, 6 especially on major projects. So I must admit, I was 7 very disappointed that their contribution to such an 8 important project as the tram was being withdrawn. 9 So, yes, I was -- I did feel that we were losing 10 a very helpful knowledge and experience base that would 11 have helped us along our journey towards completion of 12 the tram. 13 Q. We mentioned earlier the question of the independent 14 review. Could we now, please, look at that subject in 15 a little more detail, starting with document 16 CEC01567522? 17 We can see from the top of the document that this 18 is -- I'm sorry, if we go to page 4 of this document, 19 and we go to the top of this page, we see this is an 20 email, Mr Fraser, from yourself dated 23 August 2007 21 to Andrew Holmes, copied into other colleagues including 22 Donald McGougan, who I think was the Director of Finance 23 at that time, is that correct? 24 A. That's correct. 25 Q. The subject is "Recommendation to the Council to accept 26 1 [Final Business Case] and the Infraco contract." 2 To put this matter into context, Mr Fraser, I think 3 at this stage, the intention was to put the Final 4 Business Case to the Council for approval on 25 October 5 2007, with a view to financial close of the Infraco 6 contract taking place in January 2008. 7 If I can simply read what is set out here, the email 8 states: 9 "The business case. Currently Tie is preparing the 10 Final Business Case. The outcome of the government 11 decision to make the Council 'funder of last resort' 12 significantly changes the risk profile of the Council. 13 Consequently it will be incumbent upon the Council 14 working with Tie to determine the risks inherent in the 15 bespoke Infraco contract (including novation of the 16 Tramco and SDS contracts) and assess what headroom is to 17 be recommended for budgeting purposes. The time 18 available to do this is very short, because the FBC 19 requires to be reported to the Full Council on 25 20 October 2007.” 21 "It can be anticipated that there will be scrutiny 22 from members of all parties as to the affordability and 23 liability of entering into this contract. The Council 24 currently does not have this information, as it was not 25 party to the development of the Infraco contract nor 27 1 negotiations. Guidance is sought as to the procurement 2 of resources necessary to provide a risk assessment and 3 analysis of the Infraco contract for the Council within 4 the set timescales available for the Council.” 5 "It is my understanding that the DLA letter of 6 comfort does [not] comprehensively cover all the 7 Council's interests or liabilities. We are unfamiliar 8 with the bespoke contract and have very limited time to 9 gain the information that will be required to assure the 10 Council's interests under these new 'risk transferred' 11 circumstances. There is a recognition in my role as 12 co-ordinator that the legal and financial representatives 13 agree that external resources are required as a matter 14 of extreme urgency to enable the risks to be understood 15 and translated into a financial statement that informs 16 the budget setting exercise, on which the Directors of 17 Corporate, Finance and [City Development] will no doubt 18 be questioned. It is my role to draw this critical 19 issue to your attention so as to facilitate a means to 20 move the agenda forward to a satisfactory conclusion.” 21 "Recommendation: a team familiar with contract law 22 and related financial risks to this form of contract be 23 appointed to work with CEC and Tie to inform the Council 24 as to what risk it is exposed to and how best to cover 25 these risks both legally and financially." 28 1 Mr Fraser, do you remember sending this email? 2 A. Vaguely, I remember it. But I am sure I did, yes. 3 Q. Perhaps the better question is: do you remember raising 4 these issues? 5 A. I most certainly do, yes. 6 Q. We see the email is copied into Rebecca Andrew, 7 Colin MacKenzie. I should have asked you earlier, we 8 see reference to the Council B team. Can you explain 9 what the B team was, please? 10 A. I said earlier that my role was as co-ordinator of the 11 tram from the Council's perspective. And I have got to 12 say, I was very ably assisted by others within what we 13 call the B team. And the B team represented members of 14 staff who didn't have a decision-making role but were 15 there to support the directorate in facilitating the way 16 that the tram project was being moved forward. So when 17 it came to looking at financial issues or legal issues, 18 I was very ably supported by solicitors and accountants 19 to help us all form a view and put forward information 20 to the directorate to help them. 21 You have got to remember that these directors are 22 incredibly busy and have many other duties and roles to 23 perform, so we felt we had an important role in creating 24 emails like this one, just to draw to their attention 25 that there were concerns which we felt required further 29 1 scrutiny. And further here, we felt that we didn't have 2 the resources to do that ourselves, but understood some 3 of what the issues were, and we were seeking some 4 additional support so that when we were reporting to the 5 directorate, that we could fall back upon expert opinion 6 on these legal and financial matters. 7 Q. Thank you, Mr Fraser. You mentioned you felt you didn't 8 have the resources to do that yourselves. Can you 9 explain why not? 10 A. The scale and complexity of the tram project was bigger 11 than any of us had been involved with. Equally, none of 12 us in the so-called B team had been involved from the 13 start. And secondly, we weren't privileged to have 14 access to confidential documents. So we didn't -- we 15 hadn't seen the documentation. We had to rely upon 16 advice from Tie. 17 I have to say, I found that slightly uncomfortable 18 because of the weight and the importance of these 19 matters, in terms of such a large multi-million pound 20 contract. So therefore we felt it was important that we 21 understood the risks with regard to legal issues, 22 contract matters, and financial issues, so we could 23 better inform our directorate on what we thought were 24 salient matters. 25 Q. Thank you. The recommendation was a team familiar with 30 1 contract law and related financial risks to this form of 2 contract be appointed. What sort of expert or experts 3 did you envisage would be required? 4 A. Well, contract law is a very big area. But there are 5 companies who have very specialist knowledge on contract 6 law, and we were -- we did actually, we may come to this 7 later, we did actually suggest that there was -- 8 a particular company had some initial involvement in the 9 project in 2005, Turner & Townsend is an example, who 10 could facilitate access to both contractual matters and 11 further contractual legal matters, and also in relation 12 to that, financial matters. So we felt a consultant of 13 that type could be very useful to help us and assist us 14 as we worked our way through the various stages of the 15 contract. 16 Q. You mentioned Turner & Townsend. What are they? 17 A. Turner & Townsend are a project management organisation, 18 but they have many facets to them. And there are other 19 companies of a similar nature, but they have particular 20 expertise and were familiar to me and therefore they 21 could help us with these issues of contract law and 22 financial and risk management, and even validating risk 23 assessment. 24 Q. And perhaps had an engineering background or certainly 25 access to engineers and cost experts and that sort of 31 1 thing -- 2 A. That's right, not exclusively but yes, indeed. And 3 that's what we felt we required. The other thing 4 I should maybe explain is that we were having to work at 5 a great pace. There didn't seem to be a lot of time to 6 do things, so that's why we felt we needed to identify 7 issues, get a team working on them and feed back the 8 information on them, so this is part of our thinking 9 that maybe does not come across from that email, just 10 how fast things were moving. 11 CHAIR OF THE INQUIRY: Did you know why you had to work at 12 such a fast pace? 13 A. There were several reasons for that, my Lord. Firstly, 14 there was a programme and an expectation of meeting 15 a programme, in terms of the procurement process. 16 Quite late in the day, we found out that there was 17 an imperative to conclude the contract, or there may be 18 penalties, or additional costs or inflation costs could 19 kick in. So we only knew part of that story, but we 20 were under very clear instruction that there were key 21 deadlines to be met and not least reporting to the 22 Council. So we were under a lot of pressure during this 23 particular period to meet set goals and objectives which 24 we had not set ourselves. 25 CHAIR OF THE INQUIRY: Thank you. 32 1 MR MACKENZIE: Thank you, Mr Fraser. 2 Just finally on this email, just what is set out in 3 the email, had that been discussed beforehand with the B 4 team? 5 A. To inform what is in there, I discussed with my legal 6 colleagues and my financial colleagues and even the 7 engineering and planning colleagues what their concerns 8 were. And from that we pulled the knowledge that we had 9 to give the best picture to our directorate of what our 10 concerns might be. And they are described very clearly 11 here, the bespoke contract -- this is meaning it is 12 a relatively new form of this type of contract, and this 13 was unfamiliar to us but also to others; the limited 14 time to gain information, which we have discussed. So 15 I felt that the B team were very, very helpful in 16 helping me assimilate and draw on their good experience 17 to help the process of information flow up to the 18 directorate. 19 Q. Did any members of the B team disagree with the views 20 you expressed in this email? 21 A. I don't recall that. I believe that there was a great 22 sense of unanimity within the team. We could agree to 23 disagree on certain matters, but on these fundamental 24 matters, I think there was a great common support for 25 our concerns, within the B team. 33 1 Q. Thank you, Mr Fraser. 2 Could we then, please, go to document CEC01561179? 3 This is on the question of independent legal advice. We 4 can see this appeared to be the minutes at the top of 5 the page of a property and legal meeting on 4 September 6 2007. 7 We can perhaps blow up the top of the page a little. 8 I think you are noted as having been present along with 9 Colin MacKenzie, Alan Squair and Nick Smith, who I think 10 are three gentlemen in the Council's legal department, 11 is that right? 12 A. That's correct, all three. That is to be clear, 13 Colin MacKenzie, Alan Squair and Nick Smith were all in 14 the legal department. 15 Q. I take it, the "property and legal meeting", was that 16 simply an internal Council meeting? 17 A. That's correct. 18 Q. If we could go, please, to page 2 of this document, and 19 about halfway down, we can see the paragraph commencing 20 "Council solicitor". 21 "... declined that opportunity to appoint 22 independent solicitors, instead choosing to rely upon 23 DLA letter of comfort to act in the Council's interest, 24 subject to agreeing the appointment of DLA." 25 Then a few paragraphs down, again, the minutes 34 1 state: 2 "Group seeking confirmation through Council 3 solicitor that the advice on contract from DLA (Infraco) 4 can be relied upon in full. 5 "It is the belief of the group that it is still 6 prudent to seek legal advice before enabling the 7 contractual approval. (SD to copy -- minutes to A 8 Holmes)." 9 Mr Fraser, I will ask the members of the CEC legal 10 team more about the question of independent legal 11 advice. Did you have any view on that aspect, or did 12 you regard that as a matter for the solicitor team? 13 A. I would comment as follows, that the legal framework of 14 the bespoke contract was written by DLA. Subsequently, 15 when looking for advice, it was appropriate at times to 16 ask DLA about that contract. 17 However, in my experience as a civil engineer, it is 18 often helpful to get an independent view, so that any 19 suggestion -- and I'm not suggesting there was any bias 20 in the opinion they gave us -- any suggestion that there 21 could have been bias could be set aside because you took 22 an independent view of it, a fresh view of it. And 23 I felt that it was appropriate for us to do that in this 24 particular case because of the scale and complexity of 25 such an important infrastructure project. 35 1 Q. Thank you. 2 There is also an intention to copy the minutes 3 to Andrew Holmes, and this is besides the part of the 4 minutes which states that: 5 "It is the belief of the group that it is still 6 prudent to seek legal advice before enabling the 7 contractual approval." 8 Why were the minutes to be sent to Mr Holmes? 9 A. We felt that it was such an important matter for the 10 future of this project that Mr Holmes in particular, as 11 Director of City Development, that this should be drawn 12 to his attention. 13 Q. Do you remember having any discussions with Mr Holmes 14 about this matter? 15 A. I have got to say it is a recollection, but I believe in 16 discussion with Mr Holmes, he was sympathetic to the 17 view that we should seek independent opinion. 18 Q. Is that a matter you would ultimately defer to the 19 Council's solicitor on, perhaps? 20 A. I am sure he would wish to discuss that matter with the 21 Council solicitor. 22 Q. We can ask Mr Holmes and the Council solicitor about 23 these matters in due course. 24 So that is the question of the independent legal 25 review. You also mentioned Turner & Townsend. Could we 36 1 next, please, go to document CEC01652668? If we look at 2 the email at the bottom of the page, please, we can see 3 this is an email from yourself, Mr Fraser, dated 4 24 September 2007 to Susan Clark of Tie, and the subject 5 is Turner & Townsend, and you state in that email: 6 "The Directors of Finance and CDD are in agreement 7 with the appointment of TT [Turner & Townsend] to enable 8 the attached brief to be provided to the Council. This 9 will require a duty of care letter from TT to CEC. Can 10 you provide me with the contact details so that I can 11 set up an inception meeting to agree the attached brief 12 and progress this commission." 13 Can you remember how things had got to this stage? 14 It appears from the email here that the Directors of 15 Finance and City Development had agreed to the 16 appointment of Turner & Townsend, isn't that correct? 17 A. That is correct. I was very pleased that they came to 18 that viewpoint. And this was just about facilitating 19 that process. Perhaps I should explain that the budget 20 was held by Tie, therefore we needed to facilitate the 21 process through Tie. So that's why we couldn't let the 22 contract independently, but the advice would be 23 independent. 24 Q. So the funding for this report would come from Tie -- 25 A. Possibly, possibly. There may be other mechanisms, but 37 1 our understanding at that time, the budget was with Tie, 2 and therefore we had to draw from that budget. That was 3 my understanding when I wrote that. So I was seeking 4 Susan Clark, who is one of the directors of Tie, to 5 facilitate setting that process up. 6 Q. Just standing back a little, Mr Fraser -- this is not 7 necessarily a tram-specific question -- but if Council 8 officers took a view that it was necessary in order to 9 protect the Council's interests to instruct an 10 independent expert report, how could the funding for 11 that be found? Are there routes within the Council to 12 find funding for that, or could funding be a problem in 13 instructing such a report? 14 A. There were sources of funding within the Council which 15 perhaps could be drawn on to fund such an issue, but the 16 general instruction we got -- there is one important 17 notable example which I may call on -- that funds came 18 from the Tie budget, and they had all the staff to 19 facilitate engaging in contracts with other parties, so 20 it seemed sensible to -- as a wholly owned company of 21 the Council -- to use that facility. So that would be 22 the first port of call, to seek funding. 23 To set that in context, Tie were engaging quite 24 a number of consultants and advisers, so it wouldn't 25 have been difficult for them to do this process on 38 1 behalf of the Council. 2 Q. Thank you. It is perhaps a question we should put to 3 the CEC finance witnesses, perhaps. It is more within 4 their area. 5 I think it is helpful to look at the proposed brief 6 to Turner & Townsend. If we could please look at 7 document CEC01652669. 8 So this is the proposed brief which was attached to 9 your email to Susan Clark, and under "Assignment 10 objectives", towards the bottom of the page, we see 11 a number of bullet points which state as follows. 12 Firstly: 13 "To review the contract, risk allocation matrix for 14 the infrastructure and tram vehicle contracts and 15 identify those risks that remain within the public 16 sector. DLA, the projects and CEC's legal 17 representatives have validated that the risk allocation 18 matrix reflects the risk allocation in these contracts." 19 Second bullet point: 20 "To assess and quantify the level of public sector 21 risk in proposed contractual arrangement, by reference 22 to the risk allocation matrix, taking into account the 23 owner-controlled insurance programme." 24 Thirdly: 25 "To provide a reasoned explanation of the adequacy 39 1 or otherwise of the available financial headroom, in 2 view of the identified risks retained to the public 3 sector, their probability of occurrence, impact on cost 4 and time to the extent that these are not already 5 provided for within the project risk allowances, the 6 circumstances which would bring about the realisation of 7 these risks and the mitigations that should be applied 8 to reduce or avoid the risk impact." 9 If we then, please, go over to page 2, you will see 10 under "Access to information/personnel": 11 "The following documents will be available for 12 review." 13 Including in the third bullet point, the proposed 14 infrastructure contract. Then under "Reporting 15 timetable", it states: 16 "A formal report must be submitted to the Council on 17 or before Friday, 14 October 2007. This will be before 18 the presentation of key findings and recommendations to 19 Council officers and Tie employees, in the week 20 commencing Monday, 17 October." 21 Finally we see "Resources": 22 "It is anticipated" -- 23 CHAIR OF THE INQUIRY: Mr Mackenzie, that is not appearing 24 on the screen. 25 MR MACKENZIE: I am so sorry, my Lord, yes. 40 1 So we looked at the "Access to 2 information/personnel". 3 The next subheading was "Reporting timetable". We 4 see there it states: 5 "A formal report must be submitted to the Council on 6 or before Friday, 14th October 2007." 7 Before the presentation the week after. 8 Then the last subheading under "Resources", it is 9 stated: 10 "It is anticipated that work will be carried out by 11 qualified professionals with experience of similar 12 large-scale infrastructure projects in the 13 transportation sector." 14 Mr Fraser, the question of the reporting timetable, 15 it seemed relatively short. I think your covering email 16 was 24 September, and what was required was a report 17 back by 14 October. So perhaps three weeks at the most. 18 Did you consider that was doable? 19 A. My recollection of the need for haste to meet those 20 deadlines relating to the reporting timetable to the 21 Council committees, I can't remember which one now, 22 but -- and therefore we were in a tight spot, as it 23 were, and what we were seeking is people with the 24 appropriate experience to come along and quickly assess 25 this and give us some indication. 41 1 That doesn't mean to say that that work would have 2 been terminated at that stage, but it would at least 3 have been able to allow us to say in the report that an 4 independent view had been sought, and it could even have 5 said further work needs to be done. So at least in that 6 three-week period, we would have got some indication of 7 where there was agreement with the Tie position and 8 where there might be some departures. 9 Q. So you could have obtained an initial view in that 10 period, and presumably if the external experts thought 11 that was too short, they could have said that and said 12 the sort of period they would require. 13 Another question I have is that we know at this 14 stage, it was anticipated that the contracts for Infraco 15 and the tram would be signed in January 2008. Was it 16 anticipated there would be a need for a further review 17 or final review once these contracts were finalised? 18 A. My belief is that we would have required further review 19 as the contracts became more final. It was an evolving 20 process. Not that the Council were directly involved 21 with that. And this is part of the reason why we felt 22 it was important to have that independent review to 23 facilitate our understanding of what the salient issues 24 were. 25 Because ultimately -- and this is the context -- we 42 1 were being asked to, as a Council, to report to the 2 members and advise them, so it seemed to me -- and 3 I must admit it is a very personal issue -- that it was 4 important to give the best information and best 5 qualified information to our councillors because they 6 had the ultimate role to make decisions on these 7 contracts -- 8 CHAIR OF THE INQUIRY: Could I just go back to something you 9 said: you explained why you thought it might be 10 important to have independent legal advice without any 11 discussions about the advice that was available to Tie. 12 But you said from the Council's point of view, you 13 thought you should have that reassurance. 14 What I don't understand is when you are speaking 15 about the experts, Turner & Townsend, did you consider 16 that they should be providing a view independently of 17 Tie? 18 A. Yes, is the answer. 19 CHAIR OF THE INQUIRY: In that case, do you not think it 20 strange that Tie would be asked to set this up? And to 21 pay for it? Through their budget? 22 A. No. That was just a mechanism. It doesn't fetter what 23 the report would say. 24 CHAIR OF THE INQUIRY: So who would commission -- with Tie, 25 who would commission the report -- 43 1 A. No, it was the Council who was going to commission the 2 report. It would just be done through their budget 3 arrangements. 4 CHAIR OF THE INQUIRY: Good. 5 MR MACKENZIE: I should perhaps have checked, Mr Fraser, the 6 brief we looked at, was that drafted by you? 7 A. Not exclusively. It was a combined effort from the 8 legal team, finance team and myself. 9 Q. It was drafted by the Council? 10 A. Yes, Council, yes. 11 Q. So the Council were setting out the matters they wished 12 briefed on? 13 A. Yes, and the directorate were familiar with this brief, 14 they had seen it before they were supposed to issue it. 15 Q. Presumably, if this report had been provided, Council 16 officers would have had access to Turner & Townsend to 17 discuss the report? 18 A. That's correct. 19 Q. I think you had also said that a further review would be 20 required as the contracts were finalised. It may seem 21 an obvious question, but why would a further review be 22 required as the contracts were finalised? 23 A. There were terms and conditions which were not concluded 24 at this stage in the process. We may come back to that 25 later, but the time pressures were enormous and 44 1 decisions were being made and there was sometimes 2 a little bit of confusion about statements being made 3 and what they meant. 4 So it was important to realise that you need time to 5 analyse and question and ultimately understand what 6 these conditions were, and how they had influenced the 7 contract, and ergo the success of the project, and not 8 least the outturn cost. 9 Q. Yes, and presumably the parties' legal rights, 10 liabilities, duties and general allocation of risk is 11 not fixed until the contract is concluded? 12 A. That is right. In fact you see this -- the discussions 13 on these matters associated with risk went up to the 14 last hours before concluding the contracts. 15 Q. So just to carry that through to its logical conclusion, 16 would there require to be a period after the contracts 17 had been agreed, but before they were finally entered 18 into for a final review? 19 A. In an ideal world, that would be very helpful. But we 20 were even prepared to take it as it progressed, so even 21 sections which were nearly completed within the contract 22 could be analysed and a view taken on it. But an 23 overview at the end, if time had permitted, would have 24 been very useful. 25 Q. Presumably, if an independent expert had been instructed 45 1 at such a stage, then if they were asked to do a final 2 review, having been involved earlier, they could 3 presumably do any final review within a shorter time 4 period, because they were familiar with the contracts 5 and the risks and the issues? 6 A. That is a very good point, yes, I agree with that. 7 Q. Now, did this Turner & Townsend review take place? 8 A. No, it did not. 9 Q. Why not? 10 A. The decision was made to go to the OGC instead, the 11 Office of Government Commerce, and that was not 12 a decision that I was involved in. 13 Q. Do you know who took that decision? 14 A. I can't recall. But I would -- and I must emphasise -- 15 assume that that was agreed with the directorate and the 16 Tie directors to do that. 17 Q. When you say the Council directorate, who do you mean by 18 the directorate? 19 A. I would include in that Director of Finance, Director of 20 City Development and the Council solicitor and possibly 21 the Chief Executive of the Council, yes. 22 Q. What were your views on instructing the OGC team to 23 carry out a review of risks for the Council rather than 24 instructing the likes of Turner & Townsend? 25 A. I was unfamiliar with OGC. They were unfamiliar with 46 1 the tram project. The timeline was very short, for this 2 particular part of the report, and therefore I was 3 slightly uncomfortable that we were going in this other 4 direction. 5 I am sure they are an excellent organisation; 6 however, I felt it was a big ask of them to complete 7 a report in this time, and I don't know if it is 8 relevant to raise this at this time, but the OGC report, 9 when referring to the risk assessment, only say that has 10 been validated by the DLA, which did not give me the 11 comfort of it being independently reviewed. 12 Q. Is that the reference in the OGC report you are 13 referring to -- 14 A. That's correct. 15 Q. -- we can perhaps look at that later, thank you. 16 Did you read the OGC report once it was available? 17 A. I did, yes. 18 Q. What were your views on it? 19 A. I thought it was a good report but it fell short, as 20 I just said, on the risk assessment. It -- I felt -- 21 slightly underplayed the potential risk associated with 22 the design and consents, prior approvals being delayed. 23 But it did highlight the importance of it and that it 24 needed to be managed and in their conclusions -- if 25 I recall them -- they did suggest that these needed very 47 1 carefully -- controlled and managed. 2 So they did touch on these things. My view is they 3 were more than just a concern, they were something that 4 really needed to be addressed at the highest level. 5 Q. Did the OGC review and report go into a similar level of 6 detail as you would have anticipated a report and review 7 by the likes of Turner & Townsend would have gone into? 8 A. My belief is that on the risk assessment side, they 9 would have gone into that in much greater detail and 10 done their own independent review of it. 11 And I think that would have been invaluable for the 12 Council. 13 Q. Thank you. Could we then please next look at another 14 document, which is CEC01399632. If we can go to page 2 15 of this document, please, and at the bottom of the page 16 we see an email from yourself dated 19 October 2007 to 17 Rebecca Andrew, subject: 18 "Critical issues emerging from OGC." 19 You say: 20 "For me in the current environment there are three: 21 "1. MUDFA works are behind programme which has 22 a direct impact both on the cost of these works and the 23 potential time thus cost impact on Infraco -- action for 24 there to be enough drawing to enable planned works to be 25 carried out with sufficient lead time." 48 1 Pausing there, Mr Fraser, the reference to 2 "drawing", what was that a reference to? 3 A. Sorry, that should be plural. 4 Q. What is it a reference to? 5 A. It is with regard to the design drawings. If I should 6 maybe explain, that it was important that the utility 7 apparatus that MUDFA were moving out of the way of the 8 tram was clear of the tram works. So therefore you 9 needed to have sufficient knowledge and understanding of 10 the extent of the tram works so that you could place the 11 old apparatus in the new location that was clear of the 12 works, and this was no mean task because there was other 13 apparatus there so you had to find a location for it. 14 So that is my point about sufficient lead time to 15 make sure that MUDFA had to do what they needed to do so 16 that the Infraco were not burdened by utility apparatus. 17 Q. Yes. So the reference to drawings, is that a reference 18 to infrastructure drawings rather than utility 19 drawings -- 20 A. It is design drawings. 21 Q. Design drawings? 22 A. So these were the drawings that were being produced by 23 SDS and were being approved by the Council and 24 eventually in packages and ultimately going to what are 25 called IFC drawings, so the IFC drawings for the utility 49 1 contractor. 2 Q. So they would no where to -- 3 A. Sorry, information for construction drawings so they 4 knew what they had to do. 5 Q. Would drawings also be produced for the utility 6 contractors so the utility contractor knew where to put 7 the new -- 8 A. Yes, they had IFC drawings as well as the future 9 Bilfinger contractor. 10 Q. So essentially two main sets of drawings: the design 11 drawings for the tram and then separately there are the 12 utility drawings? 13 A. Yes. Showing sufficient information about where the 14 tram would go so that they could locate the services 15 clear of it. 16 Sorry, just to take that one more stage just to 17 emphasise this, even though it was shown in the drawing 18 where the new apparatus should go, often there were 19 other services there. So it was really important they 20 knew the scope of the area where they must avoid and 21 therefore the ultimate limits of where they could place 22 the old apparatus within the road infrastructure. 23 Q. There is also reference to "MUDFA works are behind 24 programme." I would like to explore that just a little. 25 Could we start, please, by going back to your 50 1 statement at page 14? In question 11, you can see that 2 the "Highlight report to the IPG on 17 April 2007" noted 3 various things. And then it was further noted: 4 "The systems designers (SDS) are having difficulty 5 obtaining the necessary consents from the various 6 utility companies with regard to the planned utility 7 designs ... Alfred McAlpine Infrastructure Services 8 (AMIS) have provided a revised programme to Tie that has 9 the utility diversion works lasting until October 2008, 10 which is 5 months beyond the original planned duration." 11 If we could put that to one side, please, and go 12 back to your email, which again is CEC01399632, so when 13 you state in paragraph 1 of this email "MUDFA works are 14 behind programme", what I wondered is what you meant by 15 that. Whether that was a reference to, as we have just 16 seen, them having to be reprogrammed, so five months 17 beyond the original planned duration; or whether the 18 reference in this email was to even with the 19 reprogramming MUDFA works are behind programme. Do you 20 remember? 21 A. My recollection is it is both. 22 So just to explain that slightly, when the planned 23 utility works ran into difficulties, you had to get 24 a new approval from, say, SACB if it was an 25 electrical -- about the relocation of their apparatus, 51 1 so that had a delay on it. But the cumulative effect of 2 that and the slippage with the actual physical works on 3 the ground accumulated to the point that it was 4 affecting the end date of MUDFA, and it was that which 5 was my major concern. It is the end date of MUDFA which 6 we have discussed was supposed to be prior to the 7 Infraco works, so that there were little concerns 8 that -- there were indications that notwithstanding the 9 assurances that MUDFA would be completed on time, 10 because that's what the programme at this time 11 suggested, that the records so far had been that the 12 programme kept slipping. 13 So there was concerns that this would have an impact 14 on Infraco, so therefore I was flagging up there was 15 a risk which in my coordination role I felt was 16 important to highlight because it wasn't necessarily 17 coming through from the MUDFA reports. 18 Q. Who was producing the MUDFA reports? 19 A. It was the Director for Utilities and he produced 20 reports which were handed on to his directorate. 21 Q. Now -- 22 A. And then -- sorry. 23 Q. I'm sorry? 24 A. And then were summarised for his directorate to take 25 account of. 52 1 Q. So were these Council utility reports or -- 2 A. No, sorry, these are Tie. 3 Q. Tie? 4 A. Sorry, if I can repeat, Tie had a commercial manager 5 that was responsible for MUDFA. He was responsible for 6 writing the reports. They then got subsumed into the 7 summary reports which were considered by the Tie 8 directorate. 9 Q. Thank you. Reverting to your email, please, in 10 paragraph 2, under the general heading of "Critical 11 Issues Emerging from OGC", in paragraph 2 you say: 12 "The risk of change after financial close is very 13 high as the approval programme up to financial close is 14 essentially only for 1b, hence the critical design of 1a 15 is only considered post financial close. This requires 16 to better align with the Infraco programme and also 17 assure that 1a detailed design is fit for purpose before 18 financial close." 19 Now 1a, I think, was the section of the tram line 20 from the airport down to Newhaven; is that correct? 21 A. That is correct. 22 Q. And 1b was sometimes referred to as the Roseburn spur. 23 A. To Granton Square. 24 Q. Thank you. So just can you explain what was your 25 concern you are setting out in that paragraph? 53 1 A. The packages that we had received from SDS were mainly 2 from 1b, but we knew at this stage that it was 1a which 3 was going to go first, with the option of doing 1b. 4 But what this highlighted was that the 1a designs 5 were only in draft and had not been approved as 6 a package. Consequently, the potential impact on 7 a fixed contract is so fundamental, as we discussed 8 earlier, that it could affect Infraco's programme. 9 Now if that was the case, that could have 10 significant financial implications. So notwithstanding 11 there being a fixed price agreed through negotiation, 12 there was still this concern that any change of scope 13 could have a direct influence on the outturn costs of 14 the project. So that's what we are trying to flag up 15 here, that the detailed design in 1a was substantially 16 incomplete. 17 CHAIR OF THE INQUIRY: If the plan was to do 1a first of 18 all, does it not seem strange that the SDS seem to have 19 concentrated on 1b and got that design further forward? 20 A. My Lord, that's a very astute observation. But it 21 demonstrates that this arm's length problem that we had, 22 we could not direct SDS on how they should do their 23 work. 24 We could comment on their programme, but we had no 25 direct influence. We did work very closely, we tried to 54 1 get that changed, and as -- maybe as we will see 2 later -- as things progressed we did get to a better 3 alignment with what the priorities should be, but it was 4 very concerning to us that we couldn't control this, 5 therefore it was important that decision-makers were 6 made aware of this discrepancy. 7 CHAIR OF THE INQUIRY: You could not control, but could Tie 8 have directed SDS on this matter, or was that a matter 9 that there was complete autonomy on the part of SDS? 10 A. I'm limited what I can comment because I have never seen 11 the contract between Tie and SDS to know what powers 12 they had within the contract with SDS, and Parsons 13 Brinkerhoff in particular, to direct them to specific 14 pieces of work that may have incurred additional costs 15 had they done that. I just generally don't know. 16 But had it been me, I would have thought it would 17 have been prudent to do that so that we got the most 18 critical work designed first. That seemed logical. 19 CHAIR OF THE INQUIRY: Thank you. 20 MR MACKENZIE: Thank you, my Lord. 21 Mr Fraser, just to finish with this email, if we 22 just go up to halfway, we can see the tail-end of an 23 email by Rebecca Andrew. You can see it finishes 24 "Rebecca", and then just above "Regards", it stated: 25 "I have spoken to Duncan Fraser on this and he 55 1 shares my concerns." 2 We will come back to that in a second: 3 "His comments are more technical and I have included 4 his response below." 5 For the purpose of me drawing your attention to 6 that, we now go to page 1 of this document and we can 7 see that essentially your email was forwarded by 8 Rebecca Andrew on 19 October 2007 to the directorate you 9 have mentioned before, other members of the B team. 10 This last point I will take from this, Mr Fraser, 11 Ms Andrew states that following: 12 "Wednesday's OGC presentation on their review of 13 risks, the team brought two specific risks to our 14 attention. Firstly they stressed the concerns already 15 expressed in the report that they did not feel that Tie 16 have either the team or strategy in place to adequately 17 manage the contract. This needs to be raised with Tie 18 as a matter of urgency as it is important that the team 19 who will be managing the contract know it inside out. 20 This is best done by involving them at the negotiation 21 stage. The OGC team have given Tie names of people 22 appropriately skilled and experienced, although there 23 may be others." 24 Did you have any views on that matter? 25 A. Yes, I did. I support that view and I was involved with 56 1 the discussion that led to the drafting of that comment. 2 If I could try and illustrate that point, this was 3 a very difficult and complex contract. We were trying 4 to build a railway under Railways Act through a city on 5 road. It is very difficult. It is a World Heritage 6 site. So you need a vast amount of expertise to be able 7 to do that. 8 We felt that -- or I felt -- specifically that Tie 9 had some excellent experience of how to build the 10 railway infrastructure which formed the tram on 11 a greenfield site, but what I was less convinced about 12 was all the necessary skills to do with all the 13 complexity of claims and counterclaims and these kind of 14 commercial issues, as well as how to integrate that into 15 an existing road work. And I felt that they needed some 16 more expertise to facilitate that process because of the 17 gaps that we were seeing with the submissions on the 18 design, for example. 19 So all we were trying to do is pick up not only on 20 our concerns but obviously on the OGC team's comments 21 that there may be other people that could help us with 22 this major project. 23 Q. Thank you. 24 Finally, if I may, over the page, the second point 25 Ms Andrew makes in this email is that the OGC team. 57 1 "... raised concerns about the contract itself that 2 have not previously been highlighted in either Tie's 3 risk register or the risk matrices provided by DLA. The 4 concerns about the contract are two-fold. 5 "1. It places obligations on Tie to manage the 6 Infraco -- if Tie fails to do this, they could be open 7 to legitimate claims from Infraco." 8 Then secondly: 9 "The contract is a fairly standard contract, with 10 all the detailed specification being in the employer's 11 requirements. The team have experience of judges making 12 rulings based on what is said in a main contract, 13 ignoring accompanying schedules. One of the panel 14 quoted losing GBP40 million in a similar situation." 15 Do you have any views on those comments? 16 A. I share the concern expressed there. Remember we are 17 using this bespoke contract. If there were issues with 18 Tie as far as Infraco were concerned, what we were 19 trying to explore is that ultimately as we were now -- 20 we, the Council -- were now funders of last resort, that 21 the buck would stop with us. Therefore we felt it was 22 important to get assurance that the contract was robust 23 and that we had the people in place to implement it. 24 The OGC report, if I am correct in recalling it, 25 emphasised the importance of the quality of the staff 58 1 and necessary skills to facilitate that, recognising how 2 difficult this contract was. So this was just a way of 3 highlighting the importance of that situation, and that 4 last comment just saying, you know, if you don't get it 5 right, you know, there can be major financial penalties. 6 So it is important we do get it right was really the 7 context in which that was written. 8 CHAIR OF THE INQUIRY: I think we will have a break now, 9 Mr Fraser and resume again at 20 past 11. 10 A. Thank you, my Lord. 11 (11.04 am) 12 (A short break). 13 (11.20 am) 14 CHAIR OF THE INQUIRY: You are still under oath, Mr Fraser. 15 A. Thank you, my Lord. 16 CHAIR OF THE INQUIRY: Yes, Mr Mackenzie. 17 MR MACKENZIE: Thank you, my Lord. 18 I would like to turn now, please, to the report to 19 Council on 25 October 2007, seeking approval of the 20 Final Business Case. You find that at CEC02083538. You 21 see from this document, which is a report by the 22 Directors of City Development and Finance in 23 paragraph 1.1, we can see the purpose of the report is 24 to: 25 "Seek approval for the Final Business Case Version 1 59 1 for the Edinburgh tram network." 2 If we can go, please, to page 16 of the report, we 3 will see the recommendations by the directors. 4 Paragraph 6.1, the recommendation: 5 "To approve the Final Business Case Version 1." 6 6.2: 7 "To note that the Auditor General for Scotland 8 reported that procedures were in place to actively 9 manage risks associated with the tram project; and that 10 Tie had implemented a clear procurement strategy aimed 11 at minimising risk and delivering successful project 12 outcomes. As previously stated this has been endorsed 13 by the OGC reviews." 14 Paragraph 6.3: 15 "To note that final Council approval for the award 16 of the Infraco and Tramco contracts will be sought in 17 December 2007 with the formal award of these contracts 18 in January 2008." 19 I would like next, please, to go to page 22 of this 20 report. You can see this is headed "Appendix 2, 21 executive summary", of the Final Business Case Version 22 1. 23 Now which organisation drafted the executive 24 summary, Mr Fraser, do you remember? 25 A. I believe it was the Council. 60 1 Q. So the full Final Business Case, who drafted that? 2 A. The Council. The Council directorate. 3 Q. The actual Final Business Case for the tram project -- 4 A. The business case itself, sorry, as distinct from the 5 report. 6 Q. Sorry, let me step back a little. We know that 7 a lengthy Final Business Case was produced for the tram 8 project, and in this report that Final Business Case has 9 been put before the Council for their approval. So who 10 drafted the full Final Business Case, which body or 11 organisation drafted the Final Business Case? 12 A. Tie produced the business case. 13 Q. Yes. 14 A. And the report was produced by the Council. 15 Q. Thank you. So what I'm looking at, at page 22, is an 16 Executive Summary of the Final Business Case. What I am 17 just wondering is whether the Executive Summary of the 18 Final Business Case was produced by Tie or by the 19 Council, if you can remember? 20 A. With respect, I'm sorry, I can't recall. But clearly 21 the information contained therein would have been based 22 on information from Tie. 23 Q. Yes. 24 A. But the drafting I can't recall. 25 Q. It may be that I can explore that with other witnesses, 61 1 Mr Fraser. 2 A. Okay. 3 Q. But the point -- if we go to page 36 next, please, we 4 can see this is still a part of the Executive Summary of 5 the Final Business Case. At the top of the page it 6 states: 7 "Risks retained by the public sector". 8 Do you see that? 9 A. Yes, sir, I can. 10 Q. Thank you. A little down, we see the subheading under 11 the bullet point, "Utility diversions". 12 If we can highlight that, please. This states: 13 "Utility diversions -- Tie will manage the interface 14 between utility diversions and the follow-on works by 15 Infraco. A significant delay in the handover of work 16 sites to the Infraco could result in significant 17 financial penalties to the extent these are not met by 18 the MUDFA contractor's liability limits. For this 19 reason, a prompt start to these works was made in 2007, 20 including advance works at the Gogar depot site. This 21 allowed some of the delay, caused by the review of the 22 project following the May election, to be absorbed. The 23 current programme is fully aligned with the preferred 24 Infraco bidder's programme of works and progress to date 25 has been excellent with no major issues encountered so 62 1 far." 2 Pausing there, Mr Fraser, this is October 2007. Is 3 what is set out in that passage, was that consistent 4 with your understanding of the utility works at that 5 time? 6 A. I think it is fair to say that I didn't share everything 7 that was stated in there, I think I have consistently 8 suggested that my understanding is that the programme is 9 slipping, but while I agree that efforts were made to 10 pull back the programme -- and I think that is 11 commendable -- I still didn't have confidence, based on 12 my limited experience, that we were in a position to be 13 absolutely comfortable that it wasn't going to interfere 14 with the Infraco programme. But that is a personal 15 view. 16 What was featured in this report would be what the 17 directorate were happy with, and I am sure in arriving 18 at that, they would have been involved in consulting 19 with Tie. 20 Q. Just before the break, we were looking at your email to 21 Rebecca Andrew of October 2007 where you said that the 22 MUDFA works are behind programme. I just find it 23 difficult to reconcile what you said in that email with 24 what is set out in this part of the Executive Summary of 25 the draft business case. 63 1 A. Well, my understanding of -- "the current programme is 2 fully aligned with the preferred Infraco bidder's 3 programme", if you look at that phrase, it was difficult 4 to understand how you could make that statement in the 5 knowledge that it was slipping, but others with 6 different judgment may have projected forward and felt 7 you could make that statement. 8 It is certainly not one that I would have stated. 9 Q. Thank you. Then the paragraph below that, which is 10 headed "Changes to scope or specification", this 11 paragraph states: 12 "A great deal of care has been taken in defining the 13 scope and specification of the tram project throughout 14 the parliamentary process and during design development, 15 with input from TEL and Transdev and extensive 16 consultation with CEC and TS. 17 "However, significant unforeseen changes to scope 18 and specification could have a very significant impact 19 on the deliverability of the project. Similarly, any 20 changes introduced by stakeholders that are over and 21 above the approved scope will increase the project 22 estimate. Effective management of the consideration of 23 changes through the governance processes implemented for 24 the project will be vital to mitigate this risk." 25 Is what is said in that paragraph consistent with 64 1 your views at the time? 2 A. It is better aligned with my viewpoint. If you 3 interpret it that what we are trying to say is that they 4 recognise that the defined scope is significant, 5 I suppose my underlying concern was if the design 6 approval process required changes to the submissions 7 from SDS to the point that we could get approval, and 8 that this happened after financial close, is that 9 a change in scope? 10 The second point that's made there, where the 11 Council elected to enhance, say, the street work, for 12 example, at a place like St Andrew Square, that the 13 Council recognise that that is an additional cost and 14 certainly not contained within the contract. And as 15 long as that was being thought through, that would have 16 been understood. 17 So does that explain what you require? 18 Q. It is not what I require, Mr Fraser, obviously your 19 views are important? 20 A. Yes. 21 Q. This paragraph states: 22 "Significant unforeseen changes to scope and 23 specification could have a very significant impact on 24 the deliverability of the project." 25 Again, I find it hard to reconcile that with what 65 1 you said in your email to Rebecca Andrew of 19 October 2 we looked at before the break, that the risk of change 3 after financial close is very high. So on the one hand, 4 your email, you seem to be stating very plainly the risk 5 of change after financial close is very high, whereas in 6 this paragraph of the Executive Summary of the potential 7 Final Business Case, it talks about unforeseen changes 8 to scope. 9 A. First of all, I want to say I did not draft that. That 10 is the first point. Secondly, it depends how you define 11 "unforeseen". And it depends what is defined as change 12 to scope. 13 So, for example, one way of looking at it is that 14 the design changes that were made to ultimately finish 15 up with the IFC drawings which would then be 16 constructed, was regarded as being within the scope. 17 Conversely, there could be a view that it was unforeseen 18 from the consortium's point of view, BBS. 19 From my perspective, of working in the civil 20 engineering industry, typically on add measure contracts 21 where you re-measure the works, but where you have 22 a fixed price where all the risks are carried by the 23 contractor for the scope of works known to the 24 contractor, my thinking was that any change to that 25 could be argued as being -- as a change in scope. But 66 1 I accept and acknowledge that others didn't view it that 2 way, particularly in Tie. But that is my personal view, 3 which is not fully reflected in that statement. 4 Q. Thank you. Can we then, please, go on to page 42 of 5 this report to Council? 6 This is headed "Appendix 3: risks". 7 I will just give you a second to have an 8 initial look at that, Mr Fraser, before I ask you the 9 question: do you remember whether this appendix was 10 drafted by the Council or by Tie? 11 A. I don't know the answer to that question, but what I can 12 tell you is that Tie must have been involved, because 13 all of the negotiations about the contract were 14 exclusively done with the Tie experts upon the contract. 15 So to inform this risk analysis, that information would 16 have had to be forthcoming from Tie, because the Council 17 would have been -- wouldn't have direct access to that 18 information otherwise. 19 Q. Thank you. Looking at some of the risks there, they are 20 divided into project risks and later operational risks. 21 Dealing with project risks in paragraph 2, we can see it 22 states: 23 "The most significant risks affecting the timeous 24 completion of the project within budget are identified 25 in the [Final Business Case] as those arising from the 67 1 advance utility diversion works (MUDFA); changes to 2 project scope or specification; and obtaining consents 3 and approvals." 4 Would you have agreed with that statement at the 5 time? 6 A. I would, yes. 7 Q. Then, in paragraph 5, it states: 8 "It is recognised that designs are not yet complete 9 and some design assumptions may be different to the 10 aspirations of CEC and/or other third parties (eg 11 Forth Ports). If the designs are built into the 12 contract at contract close and the decision is made to 13 change them at a later date, this will lead to 14 additional costs and potential delay. In order to 15 reduce this risk, further work will be done on the tram 16 designs prior to contract close in the context of 17 available funding." 18 Again, would you have agreed with that statement at 19 the time? 20 A. Yes, I would, but could -- maybe it would be helpful for 21 the Inquiry if I could just explain what was meant by 22 third parties. So that once, for example, if we were 23 going through the Forth Ports area and we had come out 24 with a design and we worked closely to get that through 25 to an approval stage, it was necessary to gain agreement 68 1 with the owners of the land adjacent -- in this case 2 Forth Ports -- that they were satisfied that the 3 functionality met their requirements. 4 So if you didn't have that in place prior to the 5 decision to complete contracts, it would seem reasonable 6 to suggest that, you know, that there are risks, 7 inherent risks. So that was, I think just to illustrate 8 it, but, yes, I'm happy with that statement. 9 Q. Thank you. Paragraph 6, it is stated: 10 "Linked to this risk is that the visual aspects of 11 designs do not represent preferences of the prior 12 approvers so that planning approval is not given and 13 designs have to be reworked. Such variation order to 14 the contract would again lead to additional cost and 15 delay. The planning prior approvals programme is 16 expected to be complete by March 2008, which is post 17 contract close. To minimise the risk of planning 18 approval being withheld post contract close, SDS and Tie 19 are involving planning staff in the design process so 20 that concerns can be addressed at an early stage." 21 Again, would you have agreed with that statement at 22 that time? 23 A. If I could give a qualified acceptance to that, the 24 preference of the prior approvers, I suppose, is 25 correct, but it is just to explain that in this context 69 1 it was necessary to gain approval. If the planning 2 approval -- the prior approval process -- required to 3 rework the designs, that is what was required. It 4 wasn't an extra; it was part of a process that had it 5 been completed before, it wouldn't have -- it would have 6 been within the absolute scope of the works that the 7 consortium had agreed to carry out at their own risk. 8 So I suppose -- and it is correct to say that we are 9 seeking -- I'm not quite sure about minimise the risk of 10 it being withheld, it would not have been withheld, it 11 would have just been until agreement had been sought 12 that it was compliant with the benchmark standards that 13 were known. These are written documents, and guidance 14 and specifications, that the planning team had. 15 So it wasn't as if there was a purely personal fear, 16 it was something that had to comply with the planning 17 requirements, so -- but it was right to say that 18 anything post contract could have a knock-on effect. 19 Q. Thank you, Mr Fraser, I should perhaps say that I do 20 intend to come back towards the end of your evidence to 21 look at the question of design more generally and some 22 of the issues that arose there. 23 Finally in this document, if we could look, please, 24 at the next page, page 43, and in paragraph 12 we see it 25 states: 70 1 "It should also be noted that since Tie has no 2 assets, the Council will be called upon to give some 3 form of formal guarantee of Tie's contractual 4 obligations." 5 So presumably by this stage at the very latest, it 6 was known that the Council would be required to 7 guarantee Tie's contractual obligations? 8 A. It's not a matter I was particularly involved with, but 9 my understanding is -- is that we had to do that for 10 contractual reasons, because Tie was just a -- an arm's 11 length company of the Council. So it was the Council 12 that was ultimately the employer and therefore 13 assurances had to be given to consortium that we were 14 the funders of last resort, if I can put it that way. 15 Q. Thank you. Put that report to Council to one side, 16 please, and move on to the next document which is 17 CEC01383667. 18 We can see, a third of the way down this page, this 19 is an email from you dated 20 November 2007, 20 to Andrew Holmes, and copied into others. Subject 21 matter is "fixed price contract". If we then look at 22 what you stated in this email, you state: 23 "Tie have agreed to a fixed price contract for 24 Infraco on the original basis that: 25 "1. The detailed design would be completed by SDS. 71 1 "2. All the designs are technically approved by the 2 road authority. 3 "3. All design have prior approvals granted by 4 planning. 5 "The current situation is that only some of the 6 designs have been completed in detail and none of the 7 designs are technically approved and only 4 out of the 8 61 packages for prior approvals have been agreed. 9 Consequently there is a reasonable case for arguing that 10 there should be a 'risk premium' established to enable 11 changes to be made post financial close with BBS. 12 Importantly, this must be presented in a manner that 13 minimises the risk of members believing that this is an 14 increase in the cost. Rather that it is the normal 15 process for completion of the design process. The 16 design process can be broken down into three elements: 17 roads, drainage and structures. In the absence of 18 information from Tie, I suggest that we should make an 19 allowance of GBP25 million for this, in the expectation 20 that the cost falls below this, thus avoiding any 21 suggestion that the costs are not in control, 'Holyrood 22 on wheels'. 23 "At the last IPG I raised this topic. However, 24 there was a concern about such a statement being 25 [I think that should be 'minuted']. I suggest that this 72 1 demonstrated a lack of understanding of how technical 2 issues can translate into increase on costs through 3 changes to time as well as money, especially for a fixed 4 price contract. 5 "To move from where we are, we need an understanding 6 of what SDS can deliver in terms of the technical 7 approvals, cross-reference this to MUDFA and Infraco 8 programmes, then arrive at what is a deliverable 9 programme. This should be done before financial close, 10 so that CEC are assured of value for money/cost and also 11 can advise members of this in the report on 20 December 12 2007." 13 Dealing firstly, Mr Fraser, with the question of 14 your suggestion there should be a risk premium in 15 respect of changes post financial close, and you suggest 16 an allowance of GBP25 million for that, how have you 17 arrived at that figure? 18 A. Can I first of all let me just give a context to that. 19 There was a quality risk assessment procedure, and 20 within that there was a risk allowance for late 21 completion of the designs. And the quantum for that 22 was, from memory, 3.3 million. 23 What I was trying to illustrate with the 25 million 24 was -- is -- and that was based, to answer your 25 question, on a figure that was given to us by Tie for 73 1 a typical delay and disruption, so it was in the order 2 of 3 million. And so I just thought we know that the 3 design programme is by this time, I think, about 12 4 months behind programme, but just say eight months just 5 as an indicative, because it would not take long for 6 delay and disruption to accumulate to that, in my 7 present view -- but this was just to illustrate a point, 8 and that because we had these unquantified risks, I felt 9 it was important to highlight and maybe just illustrate 10 the point very clearly by just producing a number like 11 this, that it was important we took this seriously and 12 addressed it because it was not where we had intended to 13 be. 14 And I felt very strongly about this, and really what 15 I was trying to do is illustrate to Mr Holmes that some 16 people had misunderstood that. 17 In the paragraph beginning: 18 "At the last IPG ..." 19 It is not an expression I used, minted -- I think 20 actually I should put that in inverted commas, somebody 21 was suggesting that by putting 25 million in, that this 22 was a ridiculously high figure. My concern was, and the 23 reason for writing this email, was to make absolutely 24 sure that Mr Holmes understood the significance of this 25 type of contract and the potential consequence of 74 1 changes in scope associated with the design. And I was 2 just trying to make sure that post the IPG, when 3 I thought maybe I had not maybe been clear enough, and 4 I certainly felt I had been misunderstood, that we could 5 demonstrate that with a fixed price contract -- which 6 some people thought meant fixed -- prices were fixed 7 absolutely, and I think I have explained earlier that 8 that only related to the scope of the work that the 9 contractor had agreed to do, I was just trying to 10 explain my concerns to make sure that there was another 11 opportunity for Mr Holmes and his fellow directors to 12 review this important concern. 13 Q. So how did you arrive at the figure of 25 million? 14 A. That is roughly the 3 million figure that I got from Tie 15 for a month's delay and eight months, which was again 16 indicative, I must emphasise, no one knew exactly, but 17 it did seem to me because the design process was so 18 late -- and as I said earlier, because it was such 19 a linear relationship with the works on the ground, that 20 you couldn't just chop and change easily what bit of 21 design was available, that it -- that the potential 22 consequences for that, such a tight programme -- and 23 I think somewhere else we were told that the 24 contractors' programme was compressed. Now, that 25 suggests that there is even less scope to vary the 75 1 programme to take account of potential delays in the 2 design process and production of the IFC drawings. 3 So my purpose was really to indicate that the 4 quantum and the QRA which I had produced did not seem to 5 align with my intuition, if I can call it that, and the 6 25 million is to illustrate that point. 7 Q. In your email you state that you had raised this at the 8 last IPG, that there was concern about such a statement 9 being minuted, and can you remember why there was 10 concern about that? 11 A. I think some people thought that a figure of 25 million 12 was -- was very high, compared to the single figure of 13 3.3, so they felt I was maybe overstating the case, at 14 least I got that impression. So what I was trying to do 15 was very clearly explain with this form of contract that 16 the potential for any change had a significant potential 17 on the outturn costs. 18 Q. But if that was your view, what was the problem having 19 that reflected in the minutes? 20 A. I was only responding to the minutes that had been 21 written. I did not personally write them. When I saw 22 them, I felt that it understated the case that I was 23 trying to make, and I thought that I illustrated that it 24 had not been understood and therefore I was using this 25 as an opportunity just to emphasise and explain that 76 1 a little bit further to assist my director to appreciate 2 the significance of the statement. 3 Q. I do understand that. What I don't understand is that 4 in your email, you state that: 5 "At the last IPG I raised this topic. However, 6 there was a concern about such a statement being 7 [minuted]." 8 Reading that afresh, it seems to suggest that you 9 had raised the topic at IPG, but somebody had said: I am 10 concerned about this being minuted. 11 A. Forgive me, I think I am correct in believing it says 12 "minted". I don't think that is a typographical error 13 on my behalf. Meaning -- sorry, I -- it is 14 an expression which suggests that the sum overstates the 15 quantification of -- sorry, my apologies. 16 Q. My mistake, Mr Fraser. I read that as "minuted", but it 17 is correctly set out as "minted"? 18 A. That is my recollection. 19 Q. By "minted", you simply mean, as you have explained, it 20 was too much, it was excessive. Thank you. 21 What was Mr Holmes' response to this suggestion of 22 making an allowance for risk premium of GBP25 million? 23 A. My recollection was that he would consider it. 24 Q. The matter does arise again. If we could, please, then 25 look at a draft report to the Council of 20 December 77 1 2007, and we can find this at document CEC01383999. 2 We can see about a third of the way down, this is an 3 email from Stewart McGarrity who was a finance director 4 at Tie, dated 29 November 2007 to yourself and 5 Ms Andrew. We can see from the text of the email, this 6 is in relation to a draft of the report to Council on 7 20 December 2007. In the text of the email, it says: 8 "Attached is a draft report copied from the Tie 9 extranet yesterday and with Miriam and my own comments 10 added to Lex's. 11 "It seems to me that we might want to have a step 12 back and have an open discussion re what we're trying to 13 say with this report." 14 And a suggestion of a meeting the next day. Do you 15 remember this email or such a meeting? 16 A. Yes, I do. 17 Q. What do you remember about what was discussed at the 18 meeting? 19 A. The context to this is that we were drafting a report 20 for a committee, and Rebecca Andrew and myself had been 21 instructed by our respective directors to do the first 22 draft, and to do that, we drew on information from Tie 23 and our own information. 24 So we produced this first draft, and then we were 25 asked to then circulate that within the extranet to some 78 1 of the Tie staff that had been informing the content of 2 this report, and that resulted in some track change 3 comments. But specifically Mr McGarrity felt that it 4 was important that we had a better understanding of 5 where Tie was coming from. 6 Bear in mind the context of this is that we had not 7 been involved in any of the negotiations, so we always 8 felt that we were one step behind, but -- so therefore 9 there was interest to know what was -- what they were 10 getting at, so they set up this early morning meeting to 11 try and assist us in the process of informing the 12 members -- or certainly drafting the report for our 13 directorate. 14 Q. I will ask you about the meeting in a second. Just 15 stepping back a little, was this a regular occurrence 16 for Tie to have an input or commenting on draft reports 17 to Council? 18 A. I think the answer is yes, in the context that they 19 would check the accuracy of the information that they 20 provided to make sure it was replicated correctly within 21 the report. 22 Q. Was their role restricted to checking the factual 23 accuracy of information or did they provide any 24 opinions? 25 A. They may have expressed opinions, but ultimately the 79 1 report was written by the directors, in this case 2 I assume finance and city development. 3 And ultimately it is what they thought that mattered 4 and not so much Tie. But to inform even their own 5 opinions -- that is the directorate's -- presumably, 6 they had discussions with Tie on particularly important, 7 sensitive matters. 8 Q. To what extent were Council officers able to come to 9 their own views on the information provided from Tie, 10 and to what extent were officers reliant on Tie? 11 A. Undoubtedly, the information and opinions that were 12 expressed was informed by information from Tie. But 13 there were a number of occasions when there was 14 a difference of opinion on certain matters, for example 15 risks. 16 Q. Thank you. We will come back to the meeting in 17 a second. We should have looked first at the draft 18 report, which is referred to in Mr McGarrity's email. 19 The reference number for that document is CEC01384000. 20 You can see just from looking at it in the 21 right-hand side, there are various comments. If we go, 22 please, to page 2, and paragraph 3.3, it states, under 23 "Recent developments": 24 "Negotiations have also encompassed design scope and 25 details. However, the final negotiated contract price 80 1 is based on the preliminary designs made available to 2 the bidders during the tender negotiation period. As 3 a result of the negotiations and submission of designs 4 for technical and prior (planning) approval, final 5 designs may be changed from the preliminary designs with 6 consequent cost changes. An additional contingency sum 7 is therefore included in the cost estimates which are 8 set out below in section 4.2." 9 If we could then, please, go to that section on 10 page 3, and section 4.2 is headed "Capital costs", and 11 the first sentence states: 12 "The revised and final cost estimates are shown in 13 the table below and ..." 14 The words which are hard to see, I think, say: 15 "... compared to the October figures." 16 We then see the table with the cost estimates and 17 paragraph 4.3 states: 18 "These estimates include an allowance for risk 19 contingency of XX per cent, or GBP49 million that was 20 estimated -- to be expressed as a percentage of an 21 agreed sum, say 250 million from a detailed statistical 22 analysis of project risks. The estimates, however, 23 exclude additional costs arising from final detailed 24 design or from scope changes required by the client (Tie 25 or CEC). A further contingency of £25 million is 81 1 recommended to cater for required any such design 2 changes as described in 3.3 above." 3 Presumably, Mr Fraser, that was your drafting to 4 include the further contingency of GBP25 million. Was 5 that correct? 6 A. It is correct. If I could explain, this is the first 7 draft of that report. I have not had a response back 8 from my director on our earlier discussions about the 9 25 million, so maybe this is a very good example of 10 where this is not something that Tie agreed with, but 11 I felt as I drafted it, that we should at least be 12 putting that in for consideration because I thought it 13 was a material consideration. 14 And so therefore I took the opportunity to include 15 it. 16 Q. Thank you. If we can then, please, look at the comment 17 box in relation to that paragraph. This is a comment by 18 Mr McGarrity SMcG18, his comment in upper case: 19 "ALARM BELLS ALL OVER THE PLACE -- WHAT ADDITIONAL 20 GBP25 MILLION???" 21 I think we then come back to -- actually, I pause 22 there, just to complete this document, if we go, please, 23 to page 10, and we see Appendix 3, "Risks", and if we go 24 on to page 11, we can see at the top of the page, the 25 statement: 82 1 "The risks fall into the following broad 2 categories." 3 Mr Fraser, I'm not going to take you through this in 4 detail but in short, take it from me, that this 5 essentially, this Appendix 3 setting out risks, is 6 essentially the same Appendix 3 that appeared in the 7 report to Council in October 2007 we looked at earlier. 8 So at this stage I presume it was your intention 9 that the risks should be set out in a similar manner as 10 set out in the previous report to Council. Is that 11 correct? 12 A. That's correct. 13 Q. So turning then, please, to a meeting which we mentioned 14 a short time ago with Mr McGarrity, can you remember 15 what was discussed and what happened at that meeting? 16 A. My recollection of the meeting was that there was 17 a further discussion on risks and scope. It emerged 18 that there was a difference of opinion between Tie's 19 analysis and understanding, that whether or not the 20 risk -- they believed the risk was incorporated within 21 a novation contract between BBS and SDS, is that okay? 22 And whereas I couldn't understand that, and I wasn't 23 getting information that demonstrated within my 24 understanding how that risk had been transferred. So we 25 both agreed it was a risk, it was just how that risk was 83 1 being dealt with. And I know that -- and you can see 2 from Mr McGarrity's viewpoint there, that there was 3 great concern about the suggestion that there should be 4 further risk allowance or risk premium. And from his 5 point of view you can understand that, because he was 6 the Financial Director and he was trying to keep 7 everything in a line, but I felt that from my 8 perspectives and advising my directorate, that it was 9 important that we still had not established how this 10 risk was being managed to our satisfaction, so there was 11 a gap in understanding there, which I was finding 12 difficulty in closing. 13 Q. You have mentioned Tie's quantified risk assessment. 14 I intend to put that to other finance witnesses to look 15 at that, but were you able -- did you ever see Tie's 16 QRA, quantified risk assessment? 17 A. I had seen extracts from it. But I -- sorry, if I can 18 follow it up, while I agree as a concept, it is 19 an excellent thing to have and it is a must have, I just 20 didn't have the knowledge or understanding of how these 21 risks were being quantified. And I think I said 22 earlier, I just felt instinctively that the quantum of 23 the risk assessment to do with the late arrival of the 24 IFC drawings didn't seem to me truly reflective, and 25 there was nothing that Steven Bell or Susan Clark stated 84 1 at that early morning meeting that convinced me 2 otherwise. 3 So I still felt it was fair and reasonable in my 4 position as a coordinator to keep informing my 5 directorate that this was still an issue for informed 6 decision-making. That's all I want to say. 7 Q. From the extracts of the QRA that you were provided 8 with, were you able to understand how the figures in the 9 QRA for the risks had been arrived at? 10 A. No, I couldn't. It was based on an algorithm that I was 11 not given access to how that was evaluated. You were 12 just given the outturn of the process. 13 Q. Thank you. 14 Can we then look at another document -- I'm sorry, 15 so what was the outcome of this meeting with 16 Mr McGarrity? 17 A. I think it was with Steven Bell and I can't remember if 18 Mr McGarrity was there or not. It was with Steven Bell 19 and Susan Clark. 20 Q. I'm sorry. 21 A. I think the feeling was that they were very unhappy with 22 that GBP25 million figure, and they made one or two 23 other suggestions regarding the report, which I am sure 24 I had an evening -- I think it was that evening, I had 25 an evening meeting with Mr Holmes to discuss the report 85 1 and amendments to the report, and this first draft. 2 Q. Sorry, what did Mr Holmes say to you at this meeting? 3 A. The conclusion of the meeting was I should compress the 4 report. 5 Q. Could we then, please, look at document CEC -- 6 CHAIR OF THE INQUIRY: Can I just clarify that. What do you 7 mean by compress the report? 8 A. The impression I got from Mr Holmes was that my report 9 was too expansive, and I have to admit, my Lord, that 10 Mr Holmes is a very experienced director in writing 11 reports. 12 My viewpoint was for transparency to help the 13 members understand the complexity of the situation and 14 be aware of what the risks were, that we needed to have 15 enough content to allow them to do that. And 16 I suppose -- I mean, I had to follow his instructions 17 but I didn't agree with him on this particular point, 18 but I mean at the end of the day, it's not my report, it 19 was his report, with the director of finance. 20 CHAIR OF THE INQUIRY: Did compressing the report affect the 21 inclusion of the GBP25 million figure? 22 A. Yes, it did. 23 CHAIR OF THE INQUIRY: How did it affect that? 24 A. It was removed. 25 CHAIR OF THE INQUIRY: Thank you. 86 1 MR MACKENZIE: On that matter, Mr Fraser, could we look, 2 please, at document CEC01384035? 3 Halfway down the page, we can see this is an email 4 from yourself dated 30 November 2007 to Rebecca Andrew 5 and copying in Colin MacKenzie, and in the text you say: 6 "I have compressed the report as requested by Andrew 7 to show what can be done. However, I still have 8 concerns about the completeness of information that 9 informs the members' decisions. I will discuss this 10 with Andrew tonight and would appreciate your comments 11 and Colin's when he gets back." 12 Now why were you concerned about the completeness of 13 information that informs the members' decisions? 14 A. I believe the more expansive report more easily 15 facilitated the members' understanding the nature of the 16 contract they were potentially entering into. And that 17 it better illustrated the matters that were -- that 18 should be important in arriving at a decision that the 19 members would have to take. 20 Clearly Mr Holmes took a different view and that's 21 something I had to respect. 22 Q. If we look at the compressed report attached to your 23 email, that is CEC01384036. Again, we just see from the 24 heading, this is a further draft of the same report to 25 Council on 20 December 2007. 87 1 If we go to page 3, please, and paragraph 4.2, 2 again, under "Capital costs", that paragraph, we can see 3 again a reference to cost estimates shown in the table, 4 but can we then, please, go back to the whole page 5 layout and can we see paragraph 4.3 for example. All 6 the words there are scored out, including the last 7 sentence of that paragraph, your reference to a "further 8 contingency of GBP25 million". 9 That has gone. 10 And can we also please look at page 5, in 11 paragraph 4.11, we should just have a heading above that 12 as well, heading, "Risks". One can see risks at stage 13 4.11, Tie to provide text. Then the wording underneath 14 that is deleted. 15 Why were Tie to provide the text on risks, rather 16 than Council officers? 17 A. My recollection was that they were doing that, the risk 18 management process, so they had an input to that in 19 terms of the process that they were going through to 20 arrive at whatever outcome that came to. So it would 21 seem appropriate in that case that that informed that, 22 because we had less -- we weren't as closely involved in 23 that process -- than they were. So it was just useful 24 to get that information from Tie. 25 Q. Would Council officers ultimately have to come to their 88 1 own view on risks arising from the project and satisfy 2 themselves as to what these risks were? 3 A. If I can put it a slightly different way: at the end of 4 the day, the report is written by the two directors and 5 it is their report to Council. So whatever is contained 6 therein is something that they are comfortable with and 7 satisfied is appropriate to say and explain to members. 8 Q. So whoever signs the report and puts it to Council takes 9 responsibility for it? 10 A. If I could just qualify that, I think this is quite 11 important to understand this: both directors were 12 directly involved with writing this report; it mustn't 13 be misunderstood that drafting the report, and there was 14 some sort of just normal signatory of it at the end, 15 both -- to my knowledge, both directors took these 16 reports away and modified them significantly, and you 17 will probably see that the final report bears very 18 little in common with the report I wrote. Then the 19 final -- I think there was at least six versions of 20 this, if not more, and the latter ones, I was not 21 involved with. But you can be assured that they would 22 be satisfied as best they could that what they were 23 advising the members was our best understanding of the 24 issues. 25 But clearly, that must be informed with information 89 1 derived from Tie. 2 Q. Thank you, we will come back to the final version of the 3 report in due course. But simply to deal with things in 4 chronological order, can we then, please, look at 5 document CEC01398245? You can see this is: 6 "Highlight report to the Chief Executive's Internal 7 Planning Group 11 December 2007." 8 If we can go to page 91, please, of this report, we 9 can see in the red box at the top right-hand corner, 10 this is an Appendix 3 to this report to the IPG. 11 In short, Mr Fraser, this is what has been referred 12 as to the "director's briefing note" which was 13 a briefing paper produced by the B team highlighting 14 certain concerns and issues to put to the directors. Do 15 you remember being involved in producing this director's 16 briefing note? 17 A. Yes, I do. 18 Q. Can you explain this a little? How that came about? 19 A. We were approaching a very important stage of the -- for 20 decision-making and advising members. So my colleagues 21 in the B team and myself thought it was important to 22 just summarise to the directorate where we were because 23 issues were coming at them willy nilly, so this was 24 a structured and brief paper that could focus their 25 attention to facilitate their informed decision-making. 90 1 And that was the purpose of it, just to highlight to 2 them what we understood as matters for the consideration 3 in finalising the report. 4 Q. Thank you. So is this essentially a collective view of 5 the B team? 6 A. Yes, it was, because there were financial, legal and 7 technical issues all wrapped up in this process and 8 report. 9 Q. Thank you. I would like to go through the paper and 10 just draw attention to some of the matters set out. 11 Under paragraph 3, we see the heading, "Potential 12 additional project costs". 13 It is stated: 14 "The following issues may have an impact on the 15 content of the report to Council on 20th December." 16 If we go, please, to paragraph 3.2, which states: 17 "It is currently unclear to CEC as to the scope of 18 the works, the timescale of the project, and the 19 allowance for incomplete detailed design and implication 20 for gaining approved designs (technical and prior 21 approvals). All the above can have potential impacts of 22 time and costs, and under this form of contract, 23 potential major cost implications because of delay and 24 disruption to the position at financial close." 25 In paragraph 3.3, it states: 91 1 "This form of contract was adopted 'fixed price' on 2 the basis of complete approved designs. However, as 3 this is not where we are, this current position requires 4 to be reflected in the QRA and contingency allowance." 5 Paragraph 3.4: 6 "The underlying concern is that while it may be 7 achievable to reach a financial close of £498 million, 8 this will result in a major challenge in managing this 9 during the contract. It has been confirmed by Tie that 10 the extension of time from the current target would have 11 a significant impact on overhead costs on this form of 12 contract." 13 Presumably, what is set out in those paragraphs 14 I have read out reflected your views at the time? 15 A. Yes, they do. 16 Q. Is there anything further you wish to add by way of 17 explanation or do these paragraphs essentially set out 18 your views? 19 A. I think the context behind this is the directorate, as 20 far as I was aware, hadn't made a decision on this issue 21 that we have been discussing this morning. Therefore it 22 was important to reiterate that and do it succinctly. 23 Because I think what we tried to do there is we have 24 said the scope of the works are important, this is not 25 defined, this -- on a fixed price contract, this could 92 1 have a significant impact, and although the OGC's report 2 has suggested that if you manage it well, you might be 3 able to contain it, what we are trying to suggest is 4 that Tie acknowledged, and that this was really helpful, 5 that any extension of time could have a significant 6 impact on overheads, and that was not being debated. 7 And I suppose it was just really to illustrate to 8 the directorate that there was an important issue for 9 them to consider, prior to reporting to the management. 10 Q. Thank you. Over the page at page 92, paragraph 4 is 11 headed, "Quantified risk allowance". 12 Again, I just read out, paragraph 4.1 states: 13 "The current risk allowance stands at GBP49 million. 14 This figure drops to GBP34 million following financial 15 close due to a number of risks being closed out at that 16 point. This reduction is subject to a number of 17 caveats, not least a 100 per cent fixed price and 18 100 per cent fixed time for the contract being in place 19 at contract close. CEC have now been supplied with the 20 latest QRA for investigation." 21 Now, again, I assume that reflects your views at the 22 time? 23 A. Yes, it does. 24 Q. Is there anything further you wish to add by way of 25 explanation, or does that set things out adequately? 93 1 A. Well, just to underline what we are trying to say there 2 is that if you fix the time, you fix the price. And 3 I think we are trying to illustrate there that there was 4 an acknowledgement that if you vary anything, then you 5 are going to change the financial outcome of the 6 contract. 7 So I think we are just trying to highlight that the 8 QRA was supposed to do that. Now, we did understand 9 that in negotiations, some of the risks had been traded, 10 if that is an expression I can use, as part of the 11 negotiation. Again, not a process that was transparent 12 to myself, nor, I think, the directorate. So that's 13 possibly why I had fallen from 49 to 34, but we were 14 still trying to emphasise that there seemed to be an 15 underlying assumption that we were unhappy with, which 16 was that you could fix the time at 100 per cent. We 17 were just explaining, if you accept the QRA, it is 18 making those assumptions. 19 Q. You say if you fix the time, you fix the price; when you 20 say if you fix the time, do you mean by that simply if 21 you agree to a programme, if that programme changes then 22 you change the price, is that what you mean? 23 A. That's what we mean. There is an argument in fixed 24 price contract you should not order any change to it so 25 you are assured that the price remains the same, I think 94 1 is what I'm trying to say. 2 Q. So including no change to the programme? 3 A. No change to the programme. Any consequential change to 4 the programme would incur delay and disruption, as we 5 discussed earlier. 6 Q. At the bottom of this page, at the very bottom, we see 7 under 6, utilities. If we then go over to page 93. 8 I will read out paragraph 6.1 through to 6.4. You 9 set out a number of issues with utilities. 6.1 states: 10 "Scottish Power and Telewest agreements, despite 11 being urgent five months ago, have still to be signed. 12 This issue could disrupt MUDFA and Infraco. 13 "6.2. There have been problems with utilities 14 adhering to the MUDFA programme and misadvising of where 15 utility pipes/cables are active. 16 "6.3. The MUDFA works programme has a direct impact 17 on Infraco's ability to start works on the street. The 18 MUDFA works have been delayed by design drawing delays. 19 The Infraco works are also delayed by the timescale of 20 availability of structures especially at Carrick Knowe 21 (design for this has been questioned due to problems 22 with ground conditions) and Lindsay Road." 23 Paragraph 6.4: 24 "There is growing concern that lack of agreement 25 with utilities may become critical in terms of 95 1 connection works." 2 Again, Mr Fraser, do you have any comments on what 3 was set out in those paragraphs? 4 A. I'm comfortable with those. Maybe just to help you 5 understand it, these are what is called third party 6 agreements, where the design has to be approved with the 7 particular utility company, and it was important that 8 you got that right, because they could ask for some 9 changes. And again, we are back to this, if that is 10 a change, what's the knock-on effect on the contract? 11 Then, secondly, by the term "structures", we 12 typically mean bridges or underpasses or that. Usually 13 it is very difficult to compress those programmes, 14 because access to them can be limited, so that it has to 15 fit into the critical path on the programme. So 16 therefore it was very important that these are not 17 delayed, or conversely if they are delayed, the delay 18 and disruption effect of that could be highly 19 significant. 20 So I think what those paragraphs 6.1 to 6.4 21 illustrate is that these are other matters which had a 22 potential risk, and were maturing into a viable risk, 23 and we are just drawing attention to that. 24 Q. Thank you. Then the next section, headed 7, deals with 25 "Consents/prior approvals/incomplete design". 96 1 Again, before simply reading some paragraphs, 7.3 2 and 7.4, 7.3 states: 3 "The Council has always sought Tie to procure 4 a fixed price contract. Inevitably, the absolute fixing 5 of the price by BBS would require finalised approved 6 drawings. For whatever reason, Tie and SDS have failed 7 to obtain approvals for the drawings to date. 8 "7.4. Accordingly, the present price must be based 9 on unapproved drawings. If the Council accepts the risk 10 re the approvals rather than BBS, this will likely lead 11 to (i) inappropriate pressure being put on to planning 12 colleagues to approve drawings simply to stop any delay 13 and added expense to the project; and (ii) the Council 14 being left to foot the bill for any subsequent delays." 15 Do you have any further comments on those paragraphs 16 or are you content -- 17 A. I think from recollection, I can identify that I believe 18 is one of my legal colleague's comments, Mr Nick Smith. 19 And I think -- we discussed that and I think that does 20 reflect our views at that time, and we were just again 21 trying to highlight that there were these risks, and we 22 needed to understand where the risks lay. 23 Further, whether it was in the public sector or the 24 private sector. 25 Q. Did you ever, before contract close, come to a clear 97 1 understanding of where those risks lay? 2 A. Well, there was a bit of a moving ball on this one, 3 because during the negotiations as part of the novation 4 process, there was an attempt to transfer the risks. 5 But I've got to say, there was contradictory information 6 flowing from Tie on this. To illustrate that point, we 7 were being persuaded -- I think it was a statement from 8 Willie Gallagher at one point, who was the Chief 9 Executive of Tie, to say that 97 per cent of the risk 10 had been tied down, so that would give you comfort. But 11 I remember this was at a legal meeting. There was 12 a representative there from DLA who immediately followed 13 that by saying that the novation agreement had no time 14 bar limit on it. In other words, that SDS, who were 15 novated, were not tied to meet a programme. 16 So you can see how there was this contradiction 17 going on that at one point, 97 per cent of the risks 18 were fixed, but at another point, from my perspective as 19 an engineer, and a technical matter which could affect 20 the programme, we were being told by DLA, the lawyers 21 who were advising on the contract, and who had written 22 the contract, were saying that this was still a risk 23 that is not under control. 24 I think what we are trying to say is we need to 25 understand where the ball is at this time and report at 98 1 that point, but we were having difficulty with this, if 2 I'm being honest, but that's the best information 3 I think we could do, and what it highlights is it could 4 still be resting with the public sector. 5 Q. Just to follow up on the question -- I will come back to 6 the meeting eventually -- Mr Fraser, I think the 7 question was really looking ahead, I asked: did you 8 ever, before contract close, come to a clear 9 understanding of where those risks lay; and by those 10 risks, I mean the risks arising from outstanding 11 consents, prior approvals and incomplete design? 12 A. I personally did not. But my recollection was we seemed 13 to be being assured by Tie that these risks were covered 14 within the final negotiations. But I didn't see any 15 information that I could understand that explained to me 16 how that had occurred with this type of contract. 17 Q. Thank you. Reverting then to this document we are 18 looking at, and reverting, please, to paragraph 7.6, 19 which states: 20 "One option, should BBS remain concerned, would be 21 to ask them to increase their costs by adding a 'risk 22 premium'. Whilst making the project delivery perhaps 23 more expensive, it would at least assure the members 24 that the risk had been passed to BBS as originally 25 intended. This is a sensitive commercial issue and is 99 1 constrained in terms of CEC's ability to be explicit 2 with members, as this information could fetter final 3 negotiations. It seems reasonable to have some 4 contingency for the tram sub-board to approve additional 5 expenditure up to some limit." 6 Then perhaps two issues arise there, Mr Fraser. The 7 question of adding a risk premium, does that link back 8 at all to the issue we discussed earlier, about you 9 suggesting a risk premium of GBP25 million to allow for 10 the proposed contract changes? 11 A. I believe it does. 12 Q. The other matter of this being a sensitive commercial 13 issue, and constrained in terms of CEC's ability to be 14 explicit with members, what was the issue there? 15 A. If I recall correctly, this is to do with commercial 16 confidentiality. If a consortium, contractor, becomes 17 aware that there is a fund of money, this may attract 18 a certain behaviour to try to recover that money. So 19 what we are trying to do there is suggest that perhaps 20 there was an opportunity to have a fund of money which 21 the contractor was unaware of, but we could call upon to 22 assist with the funding of the project, should that be 23 necessary. 24 So, I mean, there are sensitive commercial matters 25 that need to take account of. 100 1 Q. Are there any steps that can be taken to both, on the 2 one hand, ensure that members are fully aware of these 3 matters, but on the other hand, making sure that the 4 contractor isn't aware of these matters? 5 A. Well, the normal mechanism for this is to call what is 6 called an agenda B item. To explain, when you have 7 a Council meeting, it is open to the public. But when 8 it is an agenda B item, what happens is that the gallery 9 is cleared and it is only members of the Council that 10 are there, and the purpose of that is to facilitate the 11 discussion of confidential matters. 12 And the understanding would be that that is a matter 13 that would stay within the room. I -- having said that, 14 there was some concern that some information was 15 leaking, so there was some sensitivity even with that B 16 agenda item, whether that would remain confidential or 17 not. 18 Q. That is an issue, I think, we will explore with a number 19 of other witnesses as well. 20 Please refer to this document, paragraph 7.10, 21 which states: 22 "The fact that the design is incomplete will 23 increase the risk of variation orders, delay to MUDFA 24 and subsequent delay to Infraco and have a knock-on 25 effect to the TRO process." 101 1 Again, is there anything you wish to add by way of 2 explanation, or are you content that that reflected your 3 views at the time? 4 A. It does reflect my views at the time. But could I just 5 qualify something here? So just remind you, any change 6 would result in variation orders, but that the reference 7 to the Traffic Regulation Order (TRO), you needed to have 8 a substantially complete design to enable you -- we will 9 maybe touch on this later -- to start the TRO process. 10 So that's why a reference was being made there to the -- 11 because the programme of TROs should have started 12 earlier than it did. 13 Q. Thank you. Just dealing with the TRO process, I think 14 in your written statement, in short, you explain that 15 while there may have been delays in being able to start 16 the TRO process, because of design delays, once the TRO 17 process started, there were no delays in the actual TRO 18 process, is that right? 19 A. I wonder if you could say that again, please. 20 Q. Yes. In the question of the TRO process, am I right in 21 thinking you can't start that until you have 22 a substantially complete design? 23 A. That's correct. 24 Q. So if there is a delay in designing, that may delay the 25 start of the TRO process? 102 1 A. That is correct. 2 Q. But in this case in the tram project, once you are at 3 the stage of being able to start the TRO process, once 4 you have sufficient design to do that, the actual TRO 5 process itself was not substantially delayed, and 6 essentially took place -- occurred -- within the 7 proposed timescale for the TRO process? 8 A. That is correct. If I could maybe just explain 9 something that might be helpful to the Inquiry, you only 10 require a Traffic Regulation Order to operate the tram. 11 And the operation of the tram didn't start until 2013. 12 But we actually had what is called the made orders, 13 that's the legal process by which you can enforce 14 regulations, by November 2011. And the only other 15 change that was required, that the made orders have 16 a date on them, when they come into force, and that had 17 to be modified as the programme for operation slipped. 18 The reason I'm emphasising that, that is completely 19 different from Temporary Traffic Regulation Orders, just 20 to make it absolutely clear. They are two discrete and 21 different processes, if you require any further 22 explanation, please advise me. 23 Q. Mr Fraser, I was not actually proposing in your oral 24 evidence to look at TRO or TTRO process, as in simply we 25 have taken your written evidence as read as part of the 103 1 evidence, because as I understand your evidence in your 2 statement, stepping back, the Inquiry of course is 3 looking at causes of delay to the tram project and 4 causes of the cost overrun. 5 Correct me if I'm wrong, but in your statement, as 6 I understand it, your position is that the TRO process 7 itself was not the cause of delay or increased costs to 8 the project. Is that correct? 9 A. Yes, that is correct in substance and content, yes. 10 Q. We can revert to your written statement for a fuller 11 explanation of your position there, thank you. 12 A. Yes, please do. 13 Q. So reverting, please, to page 94 of this document, under 14 section 9, "Governance", paragraph 9.1. At that stage 15 there still appears to be missing parts of the delegated 16 authority chain giving Tram Project Board its mandate 17 from CEC: 18 "Unless documentation can be located which shows TPB 19 have the relevant powers from CEC, TPB may not presently 20 have valid decision-making powers. Duncan Fraser is to 21 respond to this issue." 22 What was your understanding of this matter at the 23 time, Mr Fraser? 24 A. The statement that is written there is from one of my 25 legal colleagues. I believe it was Colin MacKenzie but 104 1 I would need to check on that. But what he was trying 2 to demonstrate that he had concerns about how the 3 governance process worked, in the context of roles and 4 responsibility and decision-making. 5 From memory, I think what I was hoping to do there 6 in responding to that was discuss that with -- I assume 7 Mr Holmes, the then Director of City Development, to try 8 to get a better understanding of where he was coming 9 from, because he was a member of the Tram Project Board. 10 Q. I can obviously explore this in more detail with the 11 legal witnesses, but did you have a conversation with 12 Mr Holmes, and if so, what was his response, do you 13 remember? 14 A. I'm sorry, I can't recall. I would suggest that I did 15 have that conversation, and I am sure that Mr Holmes 16 would have taken on board the concerns expressed there, 17 and given it due consideration. 18 Q. Presumably the question of any delegation of powers by 19 CEC to other bodies is a matter of the legal department 20 of CEC. Is that correct? 21 A. Well, it is certainly a matter for the legal department, 22 but it may also be a matter for the Council to consider 23 granting those powers. 24 Q. Of course. 25 CHAIR OF THE INQUIRY: You would expect some minutes, would 105 1 you, from the Council delegating powers to the Tram 2 Project Board? 3 A. I would have expected that, my Lord. 4 MR MACKENZIE: Thank you, my Lord. 5 Then, Mr Fraser, paragraph 10, we see under the 6 heading: 7 "PI cover/guarantee". 8 Paragraph 10.1: 9 "It appears that no PI cover is available to Tie to 10 allow CEC to be indemnified. In short, this means that 11 CEC will effectively have no recourse to Tie, even if 12 there is an operating agreement in place." 13 Does that reflect your understanding of matters at 14 the time? 15 A. Yes, it does. 16 Q. Thank you. Two more pages, if we may, please. Page 96 17 of this document. 18 Paragraph 13.4, under the heading, "Contract risk", 19 states: 20 "There is also the issue that Council officials do 21 not understand the contract nor have had any independent 22 review of the contract document." 23 Is that something that was inserted or raised by the 24 CEC legal members of the B team? 25 A. The answer would certainly be yes, but it also accorded 106 1 with my own view, and it reflects on our earlier 2 discussions when we were seeking to get an independent 3 review. And the fact that the contract was not 4 something we had sight of, and therefore we were just 5 trying to highlight this in the context of this 6 important report. 7 Q. Thank you. Under paragraph 14, subheading "Tie", can we 8 see paragraph 14.2, please? This states: 9 "The Council members are committing to the biggest 10 project it has ever undertaken, and as Council officers, 11 we must ensure we are presenting them with enough 12 information to allow them to make a competent decision." 13 Do you have any comments on that paragraph? 14 A. Other than -- other than that I agree with that comment, 15 I felt there was a duty to keep the members 16 well-informed to facilitate their decision-making. But 17 ultimately these are matters for the director to 18 determine. 19 Q. Did you have any concerns around that time as to whether 20 Council officers were presenting members with enough 21 information to allow them to make a competent decision? 22 A. I'm not sure I had a broader picture with which to 23 understand the context in which all these decisions were 24 being made. You must understand that I had a very clear 25 picture, but very small part of that picture. So that 107 1 while I may have my views on something, I did recognise 2 that the directorate had access to other people, other 3 confidential information, which I didn't have. 4 So I had always to respect where they were coming 5 from. On this particular issue, I did feel it was very 6 important, and as I say in such a big project, which the 7 Council members didn't normally get involved in that 8 scale of financial commitment, we just felt it was 9 important that they were fully aware of what they were 10 agreeing to, and I'm just trying to facilitate that 11 process. 12 Q. I can quite understand, Mr Fraser, it was not your 13 decision or role as to what information was provided to 14 members; I'm simply wondering whether around this time, 15 you had any concerns as to whether officers were 16 presenting members with enough information for them to 17 make a competent decision? 18 A. I just take it back to my comment about compressing the 19 report, and where I felt that the transparency of what 20 we were trying to say in my view was being lost 21 slightly, and therefore I was just trying to -- that was 22 the point I was making at that time. 23 Q. Does that mean you had some concerns around this time? 24 A. I did have some concerns, yes. 25 Q. Could we then, please, finally look over the page at 108 1 page 97? Paragraph 15.3 states -- this under the 2 subheading "DLA letter on tram draft contract suite". 3 15.3: 4 "The question has been raised before as to whether 5 Andrew Holmes can be said to be satisfied that Tie's 6 instructions to DLA would always reflect CEC's best 7 interests. Experience would tend to suggest that the 8 presumed commonality between Tie and the Council cannot 9 be taken for granted. It is now too late to do anything 10 about this matter in terms of independent advice." 11 Do you know what is being referred to in this 12 statement: 13 "Experience would tend to suggest that the presumed 14 commonality between Tie and the Council cannot be taken 15 for granted." 16 A. First of all, I would just like to explain that I did 17 not write that statement and I suggest that that was 18 written by one of my legal colleagues. So I suggest 19 that they might be better placed to explain that 20 terminology. 21 Q. Did you have any views around that time of whether there 22 was a commonality between Tie and Council? 23 A. My only reflection on that is that Tie were -- had the 24 role and responsibility to administer, procure and 25 promote the project, manage the project, and were keen 109 1 to progress with matters -- and I understand the 2 pressures that might have put them under. But it was 3 still important from the Council's perspective -- which 4 was a different role altogether -- that somebody from 5 a client's perspective, with an arm's length company -- 6 sometimes there was a slight difference between our 7 understanding of matters, and I think that's what is 8 being referred to there. It is back to roles and 9 responsibilities, under the governance. 10 Q. Is it a difference of understanding in matters between 11 Tie and Council, or is there a question of any different 12 interests? You referred, I think, before to Tie wanting 13 to go ahead and procure the project, whereas the Council 14 perhaps had another interest. Can you explain that 15 a little? 16 A. Well, the fundamental difference of interest was that 17 the Council was ultimately liable for the outturn costs 18 beyond the 500 million that the Scottish Government had 19 granted. So in that sense the interest was different. 20 So just trying to think -- emphasise that it was 21 important that while Tie was a wholly owned company of 22 the Council and it had a job to do, the Council also had 23 a job to do as well as the client, and I think it was 24 touching on that difference. 25 Q. Thank you. 110 1 Finally on this document, under 16, "Conclusion", we 2 can see in paragraph 16.1, it states: 3 "Guidance is being sought from Council officers from 4 the Directors of Finance and City Development on how the 5 issues detailed above should be reported in the Council 6 report of 20th December 2007." 7 Mr Fraser, putting this document to one side, were 8 you present at the meeting of the IPG on 11 December 9 2007 when this briefing paper was considered? 10 A. I cannot be certain, but I believe I was. And I am sure 11 that there is a record of the IPG and who attended. But 12 the content of what you have been describing seems 13 familiar to me. 14 Q. I will come to the action note in the meeting, the note 15 of the meeting? 16 A. But I didn't -- I can't remember precisely if I was 17 there or not. 18 Q. Do you have any recollection -- 19 A. I do have recollection of the content of this report, 20 yes. 21 Q. Do you have any recollection of the discussion at the 22 meeting of the IPG on the report? 23 A. No, I'm sorry, I can't. 24 Q. We saw the briefing paper finished -- concluded -- that 25 guidance was being sought from the directors, on how the 111 1 issues in the briefing note should be reported to the 2 Council. 3 Can you remember what guidance was given, if any? 4 A. As a general statement, when writing any committee 5 report, there will be a whole series of drafts, as there 6 was in this particular case. 7 CHAIR OF THE INQUIRY: I think you highlighted 16.1, but is 8 it 16.2 you are looking for? 9 MR MACKENZIE: Sorry, my Lord, yes. I should perhaps also 10 read paragraph 16.2. 11 A. I think there might be a typographical error there. 12 Q. It is stated as 15.2 but it is clearly, I think, 16.2: 13 "Guidance is being sought from Council officers 14 providing input to the Council report on 20th December 15 2007 on the issues detailed above, whether the Council 16 is well-informed enough at this stage in proceedings ... 17 whether a report on the 20th December 2007 is 18 appropriate given the outstanding issues." 19 What were your views on that matter, Mr Fraser? 20 A. My understanding of that particular clause is that it 21 related to legal matters. And I think it also related 22 to risks and the changing picture of the risks and how 23 we could just best report that. This is just 24 a recollection that there was a feeling that while there 25 seemed to be an impression that the risks were sitting 112 1 with the private sector, there was a growing realisation 2 that might not be the case and the suggestion was until 3 that position was clarified, should we be reporting to 4 the Council? I think that's what that was flagging up. 5 Q. What was your view? 6 A. As a general point, I would -- I would have sought 7 clarification on these points before reporting to 8 Council. But ultimately I accept that I was not 9 necessarily in the best position to have the judgment to 10 make that decision. That's just a personal viewpoint. 11 Q. Just for the avoidance of doubt, did you, I think, deal 12 with this at page 1 of your statement? Why do you say 13 you weren't in a best position to make that judgment? 14 A. Because I didn't have access to confidential information 15 and confidential meetings that were held with the 16 directorate and Tie and with the chief executives, which 17 might have helped explain some of these issues. 18 So I was aware that my understanding of the big 19 picture was limited and therefore I wasn't best placed 20 to make these decisions. 21 Q. On that point -- a point which comes out from your 22 statement, I think, is that while there seemed to be 23 information flow upwards from the B team up to the 24 directors, there wasn't always information flow down 25 from the directors back to the B team. Is that a fair 113 1 reading of your statement? 2 A. It depended, I think. I think that is too general 3 a statement. I think there were occasions where it 4 would have been valuable to have got more feedback, but 5 ultimately there was maybe reasons for that not getting 6 feedback, maybe because of confidentiality, I don't 7 know, that is a matter for the directorate, and maybe 8 they were very busy, but for whatever reason, my role 9 was to make sure they were informed. It was perhaps 10 a less important role that they fed it back. 11 With the benefit of hindsight, I wish we had had 12 a bit more feedback. 13 Q. Why do you say that? 14 A. Because it would have helped us understand the 15 decisions, and then that might have facilitated drafting 16 of reports. And it might have reduced the number of, 17 you know, drafts that were produced. 18 Q. Thank you. I would like to move on now to the action 19 note of this meeting of the IPG. It is document 20 CEC01391159. 21 We can see at the top, this is headed "Action note: 22 11 December 2007". 23 Then, if we look in the left-hand column: 24 "Preparation of Council report for 20 December." 25 If we can see in the next column, this was taken as 114 1 first item on the agenda: 2 "Colin MacKenzie identified the key current issues 3 of concern with respect to the readiness of Council 4 officers to report to Council on 20 December." 5 The second bullet point states: 6 "Transfer of risk/readiness of design process and 7 consequent risks for MUDFA and Infraco." 8 If we go over one column again to the agreed 9 outcome, I should perhaps pause to say, Mr Fraser, you 10 are noted as having been present at this meeting, do you 11 see that? It is not one of these occasions where the 12 person not present is given the task of dealing with all 13 the points outstanding; I think you were actually 14 present. Under the agreed outcome column you see: 15 "Duncan Fraser to draft clear timeline to identify 16 how those issues can be resolved by Monday to allow 17 report to go to Council." 18 Then: 19 "If issues cannot be resolved, consider submitting 20 two reports -- basic report plus a subsequent 21 supplementary one." 22 Next bullet point: 23 "Aim is to meet all these deadlines and to press Tie 24 to achieve a resolution of the issues of concern (which 25 are listed on page 7 of the highlight report). 115 1 "Meeting needed at a high level with Willie 2 Gallagher. If late report is needed TNA [who I think is 3 Tom Aitchison, the Chief Executive] would have to defend 4 to the political groups on the basis of delivering 5 a better deal." 6 Going back to the top of that column, you were to 7 draft a clear timeline to identify how these issues can 8 be resolved by Monday, on the face of it, that seems 9 a little ambitious. This meeting was on Tuesday, 10 11 December. We have seen all the long list of issues 11 and briefing papers to the directors. What were your 12 views on how realistic it was that they could be 13 resolved by Monday? 14 A. I must admit, I find difficulty in recollection -- 15 recollecting these issues. But I think I would have 16 just done my best endeavours to produce the best 17 timeline that was available, but I cannot recall 18 precisely what the outcome of that was. 19 I don't think there was two reports, but correct me 20 if I'm wrong there, but it certainly would -- highlights 21 the discussion we had this morning about risks and 22 readiness of the design process and the potential 23 additional costs. So I think the purpose of this, 24 Colin MacKenzie raising this with the senior members of 25 the IPG is just to alert them again to these important 116 1 issues, and still here we are on 11 December, heading 2 towards a report on 20 December to Council, still 3 feeling that these matters had not been fully resolved. 4 Q. Thank you. We can see the intention here, that: 5 "If the issues cannot be resolved, consider 6 submitting two reports, a basic one plus a subsequent 7 supplementary one." 8 The intention there seemed to be that a basic report 9 would be submitted, perhaps in accordance with the usual 10 reporting timescales, and perhaps at the meeting or 11 shortly before the meeting, you made the supplementary 12 report; does that appear to be the intention? 13 A. It could be, or it could be going up as a holding report 14 and saying we would be reporting back on the next cycle. 15 It could have been either. But you are correct, it is 16 possible to table something on the day. 17 Q. Again, this is the run-up to the report to the Council 18 on 20 December 2007. Could we please next look at 19 document CEC01397774? 20 We can see if we go to the email at the bottom, 21 please, we see this is an email from you dated 22 14 December 2007 to Geoff Gilbert of Tie. And it is 23 copied into the Council directors and others. This 24 subject matter is: 25 "Financial presentation on 13 December 2007". 117 1 You state in your email: 2 "I have reviewed your excellent presentation of 3 yesterday. Three issues emerged from this namely: 4 "1. The QRA does not provide adequate funds for 5 extensions of time. Specifically the programme assumes 6 Princes Street closed for six months and this has not 7 been agreed by CEC. Are you allowing for the 18-month 8 option?" 9 Then: 10 "The scope of the works is not clear to CEC and 11 specifically the quality and quantity and status of 12 designs on which BBS have based their price. Also, none 13 of the designs are approved [none technically and only 4 14 out of 61 prior approval packages] hence the scope is 15 likely to change, hence provision for this should be 16 made." 17 Just to pause there, Mr Fraser, is that getting back 18 to the point you discussed earlier about the risk of 19 change after financial close is high, and therefore 20 requiring some risk premium for that? Is that the gist 21 of what you are saying there? 22 A. It does, essentially, yes. We will maybe come back to 23 that when we see the response from Mr Gilbert. 24 Q. Yes. To finish your email, you say: 25 "Can you advise the counsel if Tie propose to amend 118 1 the QRA to take account of the above comments?" 2 As you say, we can see the response at the top of 3 the page from Mr Gilbert. 4 Same date, 14 December 2007, and Mr Gilbert states, 5 opening two lines: 6 "Thank you for your comments. Regarding the QRA, we 7 believe that the allowances are adequate if the 8 mitigations referred to in my presentation and QRA are 9 applied." 10 Then, in the last paragraph, Mr Gilbert states: 11 "I have previously explained the interrelationship 12 between emerging detail design, employer's requirements 13 and Infraco proposals works and how price certainty is 14 obtained out of this process, and are in the process of 15 delivering such certainty. Therefore, please advise 16 what scope changes you anticipate arising out of the 17 prior approvals and technical approvals. The overall 18 scope of the scheme is surely now fixed, is it not?" 19 Do you have any comments on that email exchange? 20 A. Yes, I think if we just go to the last sentence: 21 "The overall scope of the scheme is surely now 22 fixed, is it not?" 23 I think that is just a fundamental difference in 24 understanding of what we mean by scope. We have to take 25 account of the fact that Mr Gilbert was the Project 119 1 Commercial Director and very familiar with contract, and 2 I believe was involved with the negotiations. But 3 I still felt that we weren't getting information that 4 explained how that interrelationship that is referred 5 to, through the employer's requirement and the Infraco 6 proposed works, tied up this risk. 7 But what worries me is there was almost 8 an implication: we are not going to change the scope; 9 and I just couldn't see how that was possible. So that 10 was a divergence of opinion there and therefore I felt 11 that was still important to maintain our viewpoint on 12 that until that matter was resolved. And specifically, 13 just another example that comes out there, 14 Princes Street, just to explain, Princes Street was the 15 first section we were going to build on the street. 16 Now this is difficult to do. I mean, there is all 17 the temporary traffic management, there is all the 18 complexity of dealing with all the infrastructure that 19 is in place and had to be put in place, so, being the 20 first one, we are likely to go through various loops of 21 learning and delays and disruptions, and it seemed to me 22 that the six-month programme was too compressed, and the 23 Council had not agreed to a six-month programme, but it 24 became apparent from that statement there that Tie had 25 already decided upon that. So that is just an example 120 1 of the divergence of opinion and state of knowledge 2 between Tie and CEC. 3 CHAIR OF THE INQUIRY: I think the other option that you 4 raised was the possibility of an 18-month period for the 5 Princes Street works. Why did you suggest that? It is 6 three times what Tie were effectively suggesting. 7 A. Well, my Lord, if I could explain that: one of the 8 critical issues in allowing the contractor in is what 9 impact that has on the traffic. So by having it over 10 a longer period, we could have more constrained sections 11 of work which had less impact on traffic. 12 To do it in six months, you had to give over most of 13 Princes Street except for the junctions at each end, but 14 even they were restricted during the works. So I felt 15 in terms of learning point, contingency planning and 16 ensuring that the work was productive, it would be 17 better to have it over a longer period so that -- so 18 that there was more controls over it. 19 If I can comment slightly further, if I may, is that 20 when the work was tried to be compressed into a very 21 short period of time, there were significant issues of 22 quality, and quality control. And that required 23 substantive corrective action. 24 So my feeling was it was just too compressed 25 a programme to do it right and right first time. And 121 1 remember, we were on show here to the public, and it was 2 very important that the first section went well. And 3 I think time and time to plan things and do it 4 effectively was compromised by compressing it to 5 a shorter period. 6 CHAIR OF THE INQUIRY: Thank you. 7 MR MACKENZIE: My Lord, may I perhaps deal with one final 8 document before lunch, and then we can perhaps come back 9 and look at the report to Council in December 2007. 10 If there is time, one last document to the witness, 11 could we please, Mr Fraser, look at CEC01501051. We see 12 from the top of this document, it is headed: 13 "Minute of the CEC/Tie legal affairs group meeting". 14 On 17 December 2007. 15 To pause there, Mr Fraser, what was this group? 16 A. The legal affairs group? 17 Q. Yes. 18 A. Essentially, it was a group that was considering -- the 19 clue is in the name, legal matters relating to the 20 contract. Therefore it was populated, but with people 21 who could inform and advise on that. But obviously the 22 key person there was Gill Lindsay who is -- or was 23 rather -- the Council solicitor but also the other 24 members of her team. Then of course, the people 25 attending did vary but on this particular occasion, 122 1 there was members of Tie there, the Chief Executive of 2 Tie, Graeme Bissett, who wrote some very useful and 3 helpful reports, and therefore informed what was 4 regarded as critical decisions in the context of the 5 lead-up. Here we are, 17 December, three days before 6 going to committee. 7 Q. Thank you, were you a regular attender at that group? 8 A. I was, yes. 9 Q. When you attended meetings of this group, did you 10 understand that the legal affairs group was 11 a sub-committee of the Tram Project Board? 12 A. I'm not sure I did have that understanding. My 13 understanding was that it was a group to facilitate the 14 process of the transactions working with Tie. 15 Q. If it were to be suggested that the legal affairs group 16 was a sub-committee of the Tram Project Board, would 17 that suggestion surprise you? 18 A. I think that is more a reflection of my ignorance. But 19 I would suggest that if that is the case, it is the 20 case. 21 Q. You are saying you were not aware of that at the time 22 when you sat on it? 23 A. We are talking about my recall now rather than then. 24 Q. Can we see the name Andrew Fitchie in attendance, and we 25 can see he is described as both Tie-DLA Piper. Do you 123 1 know why that is? 2 A. If my recollection is correct, it was some point along 3 the procedure that Andrew Fitchie, who had exclusively 4 worked as a member of staff for DLA, became seconded to 5 Tie, I believe. So I don't know if that is just 6 a drafting issue or if that actually had happened by 7 that time, I can't recall now. But he certainly did 8 become a member of the Tie team. 9 Q. Did that give rise to any concerns on your part about 10 CEC relying on advice from DLA? 11 A. My concerns were to have good advice. Mr Fitchie is, 12 I am sure, a very, very good lawyer, and I am sure 13 always gave very good advice, but it just makes it more 14 difficult to demonstrate how independent advice is. 15 So it is not to impugn anyone, it is just that to 16 demonstrate to the general public that these matters can 17 be determined clearly and independently becomes more 18 difficult. 19 Q. Mr Fraser, finally in respect to this document, if we 20 can see in paragraph 2, the review of critical items 21 under "Infraco update". I think this touches upon what 22 you mentioned earlier. The minute states: 23 "WG [Willie Gallagher] reported that the Infraco 24 contract is now at 97 per cent fixed price with BBS 25 taking on design risk. Further negotiations to be 124 1 undertaken between now and financial close. 2 "AF [Andrew Fitchie] noted that CEC/Tie will need to 3 be clear on what elements of SDS ongoing design activity 4 will be included (or excluded) from a novation agreement 5 between BBS and SDS. 6 "Approval of design remains an item of concern for 7 BBS as SDS are not tied to a time-frame from obtaining 8 the required approvals, whereas BBS are." 9 I think you already referred to that passage in the 10 minute in your earlier evidence. I'm not sure if there 11 is anything you wish to add to what you said earlier 12 about that? 13 A. No, thank you. 14 MR MACKENZIE: Thank you. My Lord, this may be an 15 appropriate time to stop. 16 CHAIR OF THE INQUIRY: We will resume again at about 2.10. 17 A. Thank you. 18 (1.05 pm) 19 (The short adjournment) 20 (2.10 pm) 21 CHAIR OF THE INQUIRY: Yes, Mr Mackenzie. 22 MR MACKENZIE: Thank you, my Lord. 23 Mr Fraser before lunch we were at the period up 24 until the report to Council on 20 December 2007. Could 25 I now please take you to that report, which is document 125 1 CEC02083448. 2 This is a report by the Directors of Finance and 3 City Development, and if you look at paragraph 1 you see 4 the purpose of the report set out in paragraphs 1.1, 1.2 5 and 1.3. 6 Paragraph 1.1 recommending the approval of the Final 7 Business Case Version 2 prepared by Tie for the 8 Edinburgh tram network. 9 Of course there, Mr Fraser, I think there was some 10 discussion before lunch about who prepared the business 11 case, but certainly Tie produced the business case. 12 Paragraph 1.2: 13 "Recommending staged approval for the award by Tie 14 of the contracts for the supply and maintenance of the 15 infrastructure works (Infraco) and tram vehicles 16 (Tramco) subject to price and terms being consistent 17 with the Final Business Case, and subject to the Chief 18 Executive being satisfied that all remaining due 19 diligence is resolved to his satisfaction." 20 1.3: 21 "Recommending approval of the governance 22 arrangements ..." 23 Et cetera. 24 Paragraph 1.2, the question of recommending staged 25 approval for the award of these contracts subject to the 126 1 Chief Executive being satisfied that all remaining due 2 diligence was resolved to his satisfaction, from the 3 action note of the IPG meeting we looked at before lunch 4 on 11 December, I don't think the question of staged 5 approval had been mentioned, but certainly the question 6 of subject to the Chief Executive being satisfied that 7 all remaining due diligence was resolved to his 8 satisfaction, was that something that may have arisen 9 perhaps between 11 December, that meeting, and this 10 report? Do you remember when that first arose? 11 A. If I am correct, by "staged", I think that related to 1a 12 and 1b, because I think the original concept was that it 13 would be all-encompassing in terms of the funding of 14 both parts of the tram track sections. But I think this 15 was the first time that there was a question mark coming 16 up about the affordability, and therefore this was the 17 first introduction that I can recall of where there may 18 have to be a staged process, in other words I think it 19 was to start with 1a because that was believed to be 20 fundable and look to see if further funds could be 21 procured for 1b, and I think that's the context in which 22 that statement is made. 23 Q. I wonder if that is factually correct, Mr Fraser? 24 I think it may have been back in January 2006 when the 25 Council decided to phase the project. I think we can 127 1 find the report to Council in January 2006, which may 2 just confirm that, if you look, please, at document 3 CEC02083547. 4 I wonder if you can go to the last page of this 5 document. It might tell us the recommendations. Maybe 6 the page before that? And the page before that? 7 Yes, under paragraph 6, "Recommendations", it is 8 recommended, 6.1(i): 9 "The Council approves the development of the airport 10 to Leith waterfront sections of lines 1 and 2 as the 11 first phase of the Edinburgh tram network, with the 12 optional extension of line 1 from Haymarket to 13 Granton Square provided that funding and works costs 14 permit..." 15 So I think it was back in January 2006 that the 16 question of phasing was decided, and I think the 17 references after that to phase 1a, I think are to the 18 airport to Leith waterfront, and 1b, to the Haymarket to 19 Granton Square. Is that perhaps correct? 20 A. I am sure that clarifies the situation, thank you. 21 Q. If we could return, please, to the report to Council of 22 20 December 2007, which is CEC02083448. 23 If we go, please, back to page 1, and we can see 24 under the heading, "Recent developments", in 25 paragraph 3.1, we can see: 128 1 "Detailed negotiations between Tie and the preferred 2 Infraco contractor, Bilfinger Berger and Siemens (BBS) 3 and the preferred Tramco contractor CAF have progressed 4 satisfactorily with a programmed financial close on 28 5 January 2008. Negotiations have focused on the 6 following issues: 7 "Novation of Tramco and SDS contracts to Infraco, 8 design matters, price and risk allocation and 9 construction programme." 10 Paragraph 3.2: 11 "The cost estimates for the project reflect 12 provision for evolution as the detailed design will be 13 completed in the coming months. The design is completed 14 under the Infraco contract from the point of award of 15 that contract through novation of the systems design 16 services contract with Parsons Brinkerhoff to Infraco." 17 If we go back, please, to page 1, what was your 18 understanding of paragraph 3.2 in particular the 19 sentence: 20 "The cost estimates for the project reflect 21 provision for evolution as the detailed design will be 22 completed in the coming months." 23 A. I must say that that expression, "the coming months", 24 surprises me, because it is very aspirational. 25 Here we are in December 2007. Progress with the 129 1 designs to my recollection were still very slow, and -- 2 and there was -- it was indeterminate in my own mind 3 because the programme kept slipping how long this was 4 going to take. I suppose you could say it did happen in 5 the coming months, in the sense that it took to 2010 to 6 finally resolve, but it is -- to my mind reading it now, 7 it is slightly misleading. 8 Q. Misleading in what respect? 9 A. In terms of it is the "coming months". Not that it is 10 my drafting, but I think if I was drafting that, I would 11 be -- a slightly clearer indication that the timeline is 12 significant. 13 Q. What you have indicated is misleading is the statement 14 that the detailed design will be completed in the coming 15 months? 16 A. Coming months, that is correct. 17 Q. The first part of the sentence states: 18 "The cost estimates for the project reflect 19 provision for evolution as the detailed design will be 20 completed ..." 21 What do you understand by that first bit of the 22 sentence? 23 A. Well, I believe it is a beautifully written and crafted 24 sentence but what it means is open to interpretation. 25 I think it was time to explain the term "evolution" -- 130 1 the costs still had not been fixed and things were 2 changing, so evolution, in terms of the detailed 3 design -- so I suppose it was trying to give comfort 4 that things were being done to try to fix the costs, but 5 it certainly, with the benefit of hindsight, is 6 difficult to comprehend that it was the most sensible 7 statement to make. 8 CHAIR OF THE INQUIRY: Could it be that an allowance has 9 been made for the risk there associated with the 10 contract work -- 11 MR MACKENZIE: Sorry, could you say that again? 12 CHAIR OF THE INQUIRY: Could it be that some allowance had 13 been made for risk associated with the contract 14 evolving? 15 A. It is the risk and the uncertainty of the risk and that 16 message doesn't seem to be coming over in that 17 statement. It is just my personal reflections on that, 18 the drafting of that sentence. 19 CHAIR OF THE INQUIRY: Thank you. 20 MR MACKENZIE: Thank you. Mr Fraser, could you then please 21 go to page 5. 22 Paragraph 8.2, under "Capital costs", it is stated: 23 "The Final Business Case aggregate estimate of 24 498 million for phase 1a inclusive of a risk allowance 25 as reported in October 2007 remains valid. The 131 1 estimated costs for phase 1b are GBP87 million. The 2 current price estimate is based on a compressed 3 construction programme designed to reduce the time spent 4 on the on-street works and minimise disruption to 5 stakeholders. The cost estimate and risk allowance have 6 been reviewed to take account of the latest negotiated 7 position and the estimates provided in October 2007 8 remain valid." 9 Do you have any comments on that paragraph? 10 A. Well, the first statement I would make is that didn't 11 appear in my draft. 12 The second point I would make is that there had been 13 some evolution -- again, with respect towards the risk 14 and understanding of the risk, and there was even some 15 commonality across all parties that there was a risk 16 element. And it is surprising, reading that now, to see 17 that the estimates provided in October 2007 "still 18 remain valid". But that may just mean they felt there 19 was sufficient contingency in the overall budget to 20 accommodate the programme of works, but I don't think 21 I have much more to say. 22 Q. I think you had mentioned before lunch the question of 23 the compressed construction programme. There is 24 a reference here to the current price estimate was based 25 on a compressed construction programme, et cetera. 132 1 What did you mean? What did you understand, rather, 2 by the phrase, "compressed construction programme"? 3 A. My recollection is that there was discussion with the 4 contractor to compress one of his original programmes so 5 that the work could get done more quickly, and this is 6 no doubt reflected on the price because it is contingent 7 on the programme. 8 As I stated to you earlier, the compression of the 9 construction programme, especially on street -- and 10 I accept that had the works gone as planned, that would 11 have been half, and in reality it was only approximately 12 one third on the street, I still do think that it was, 13 shall I say, optimistic to feel that there was an 14 opportunity to compress the construction programme, 15 certainly on-street with regard to traffic management. 16 So it is difficult to know exactly what that meant, 17 but that would be my comment. 18 Q. I think another difference we can see between this 19 paragraph 8.2 and your initial draft of the report is 20 that, of course, the reference to a risk premium of 21 GBP25 million no longer appears, does it? 22 A. That's correct. 23 Q. Did you have any views at the time, any concerns as to 24 the deletion of that risk premium from your report? 25 A. I can recall freely expressing the view to the 133 1 directorate that I thought that was still necessary, on 2 the basis that notwithstanding the excellent work of Tie 3 to try to negotiate these things, there was nothing 4 transparent to me to demonstrate that that scoping risk 5 had been changed, and I still felt it was valid to take 6 account of that. 7 Q. And can you explain what you mean by "scoping risk"? 8 A. Sorry, yes. In a fixed price contract, if you change 9 the scope of the works post-contract, that has a premium 10 in terms of cost. So any change in the scope 11 post-contract could be highly significant. 12 Q. Because there may be a difference of language, perhaps? 13 Some witnesses may, by scope, mean running the tram 14 along George Street rather than Princes Street. That 15 would be a clear change of scope, but as long as the 16 tram is running down Princes Street, then there is no 17 change of scope even if the design is incomplete. Do 18 you have any comments on that suggestion? 19 A. First of all, I agree that there are two different 20 issues, but my understanding is that any change to the 21 scope that had been agreed at the tender stage for 22 whatever reason had the potential to increase the cost. 23 So while I agree that the Council would have to 24 change if they chose to enhance the design, that funding 25 would have to be found within the Council, but as 134 1 distinct from the Tie budget for the tram. But my point 2 is this: there was -- that had been explored, and we may 3 come to that, and there was very little change to it. 4 No, the concern was in completing the designs -- and 5 these designs became the detailed designs which became 6 the IFC drawings, when the contractor got hold of that, 7 that could be interpreted as a change in scope and 8 that's why I preferred the term "risk premium" to 9 remain. But I respect that others decided that was not 10 the right decision. 11 Q. So your use of the word "scope", does the design help 12 inform the scope, or the scope can be described with 13 reference to design? Are you in some way linking the 14 design into the scope? 15 A. Let me try and clarify that. The scope I'm referring to 16 is the scope for provisional sums and variations in the 17 contract. They could come about, because the 18 assumptions made at the time when the tender was signed 19 off changed from when the actual works were being done. 20 And there can be various reasons for that, but that's my 21 use of the word "scope". 22 It is very much consistent with fixed contracts. 23 Fixed contracts, you change the scope, you change the 24 price. 25 Q. Okay? 135 1 A. Is that clear enough? 2 Q. I think it is for just now, yes. 3 A. Okay, thank you. 4 Q. If we can go, please, to page 6, under paragraph 8.10, 5 the first few sentences state: 6 "The fundamental approach to the tram contracts has 7 been to transfer risk to the private sector. This has 8 largely been achieved." 9 What was your understanding of these matters at the 10 time? 11 A. My recollection is that subject to the final stages of 12 negotiation, there had apparently been a transfer of 13 risk -- which I've got to say was generally welcomed, 14 I am sure there is a statement from the director of 15 finance to that effect -- from the public sector to the 16 private sector. 17 To the term "this has largely been achieved", 18 I personally don't have an understanding of that, but 19 I think there were folks within Tie who satisfied 20 themselves that that appeared to be the case, and I am 21 sure that was the general advice we were getting. Maybe 22 I'm just a sceptic, but I still couldn't quite see it. 23 I couldn't understand it. And I understood it was being 24 said, but I've got to say, that is difficult to believe. 25 Q. A little further down the page, under the subheading 136 1 "Risks", another subheading, "Public sector risks", and 2 if we also, please, go on to page 7, Mr Fraser, just 3 take a couple of minutes to read page 7. The question 4 is whether this text was provided by Tie? 5 You remember before lunch we saw, I think, a track 6 changes version of your draft, where under risk it said 7 "text to be provided by Tie". I'm wondering if in fact 8 this text was provided by Tie, or whether it was 9 provided by Council officers? 10 A. Sadly, I can't advise you on that. Maybe just to 11 explain that statement: after my two initial drafts, 12 they kind of left my hands, and it was others that were 13 involved in going through the next series of variations 14 on that. I didn't see this until the very end. From 15 memory, I think Mr Coyle was more involved in the final 16 drafting of this. 17 Q. Thank you. 18 CHAIR OF THE INQUIRY: Before we leave that, if you look at 19 paragraph 8.12, on page 7, this is dealing with the 20 delegation to the Chief Executive of the Authority to -- 21 authorise Tie to sign the contract. 22 What is envisaged there is that he will be supported 23 in the final part of the approval process by the 24 Directors of City Development and Finance respectively, 25 together with the Council solicitor. 137 1 So the impression seems to be that these senior 2 officials in the Council would have some obligation to 3 do some check on value to satisfy the Chief Executive 4 that it was all right to commit to signature. Is that 5 right? 6 A. My recollection, my Lord, is that the Chief Executive 7 was granted delegated powers. 8 CHAIR OF THE INQUIRY: Yes. 9 A. But those delegated powers came with caveats. My belief 10 is that it was for the directorate to check that it was 11 still within the competency of -- or those delegated 12 powers still apply, or had we in fact departed from 13 those delegated powers, and had to advise the Chief 14 Executive if it was still possible for him to use those 15 delegated powers. That is my recall. 16 CHAIR OF THE INQUIRY: Thank you. 17 MR MACKENZIE: Paragraph 8.13, you see it states: 18 "Risks retained by the public sector and which 19 therefore bear upon the Council are explained in the 20 Final Business Case section 11. These risks include, 21 firstly, agreements with third parties including delays 22 ... to utility diversions. Secondly, finalisation of 23 technical and prior approvals. Thirdly, the market 24 cannot provide professional indemnity insurance to Tie 25 vis-a-vis a claim by the Council against Tie, because 138 1 Tie is wholly owned by the Council." 2 Would you have agreed with that statement at the 3 time? 4 A. Yes, I would have. 5 Q. As a generality? 6 A. Sorry? 7 Q. As a generality? 8 A. As a generality, I would, yes. 9 Q. Then paragraph 8.16 states: 10 "The risk contingency does not cover major changes 11 to scope. It should be noted that the current 12 construction programme is compressed to reduce the 13 length of disruption and provide best value. Changes to 14 the programme could involve significant costs, not 15 currently allowed for in the risk contingency." 16 We have already dealt with the question of scope, 17 and that may depend upon what one understands by 18 "scope". The question of changes to the programme, what 19 was your view at this time as to whether changes to the 20 programme were likely? 21 A. My belief, it was possible, because of the incomplete 22 nature of the design process, which would inform how 23 that work was programmed, so there was the potential 24 that the construction programme could change. So 25 I think that would be my best understanding of that 139 1 statement. 2 Q. So in short, perhaps, there would be a risk of changes 3 to the programme, and one would have to then look 4 perhaps at Tie's QRA to see if sufficient account had 5 been taken of that risk? 6 A. If I can turn back to the email from Mr Gilbert, he was 7 suggesting that there was to be no scope change, if you 8 remember that last sentence? 9 Q. Yes? 10 A. So -- so reading that again, it suggests that the 11 assumption is there is going to be no scope change and 12 therefore the construction programme would be okay. 13 Now if you accept that, that is fine. But if you 14 have concerns about scope change and the impact on the 15 construction programme, especially as it is compressed 16 because that makes it more sensitive to change in terms 17 of delay and disruption, then there is a question there, 18 I think. Although I do respect that by trying to do 19 more work in less time, there would be potential 20 benefits, because there would be less overhead costs, 21 and there would be a shorter time for the works to take 22 place. So there are two things going on here. There is 23 the underlying risk that may not be recognised by that 24 statement, and, quite rightly, what it says there. 25 Q. Would a change to the construction programme, because of 140 1 incomplete utility works, would that be a change to the 2 scope, or would that be a change to the programme? 3 A. I think it would be a change to the scope which would 4 affect the programme. 5 Q. I see. Then finally, in relation to this report, in 6 short what seems to have happened is you remember the 7 report to Council in October 2007 contained a separate 8 appendix on risks. That doesn't seem to have been 9 included in this report to Council. 10 I can just quickly check that, I think, if we go to 11 page 10 of this report. 12 This is Appendix 1, tram organisational structure. 13 We don't have to look at that just now. Page 11, next 14 page, this is Appendix 2, "Draft Tie operating 15 agreement". 16 Again, we don't have to go to that just now. 17 Lastly, page 26, please: 18 "Appendix 3 resolutions". 19 Again, we don't have to go to that. 20 In short, Mr Fraser, the separate appendix on risks 21 which had been in the report to Council in October 2007 22 and had been included in your initial draft of this 23 report in December 2007, doesn't appear. Do you know 24 why that is the case? 25 A. No, I can't advise you on that. 141 1 Q. Are we back to what you said before about the drafting, 2 essentially, if not taken out of your hands, you had no 3 further involvement in the drafting after, I think you 4 had said the second draft or something? 5 A. That's correct. 6 Q. Okay. Is there a risk that a councillor who had seen 7 the report to Council in October 2007 with the separate 8 appendix on risks and then read this report in December 9 2007 with no separate appendix on risks, may have 10 assumed that the risks set out in the October 2007 11 appendix had disappeared, had been adequately resolved 12 insofar as they didn't appear in the main body of the 13 December 2007 report? 14 A. Sorry, I find that a really difficult question. Because 15 that has asked me to think what would a member have 16 thought. I don't really think I'm in a position to 17 comment on that. 18 Do you want to phrase it in a slightly different 19 way? 20 Q. Did you understand the question? 21 A. I believe I did. 22 Q. Well, your answer is noted. 23 A. Okay, thank you. 24 Q. Do you consider that the report to Council in December 25 2007 adequately reflected the concerns and risks as set 142 1 out in the briefing note to directors we looked at 2 before lunch? 3 A. From my technical appreciation of that paper, I would 4 have found it more helpful had I been a member of 5 Council to have that paper, and it is that form -- in 6 its revised form to inform me about the risks inherent 7 within the contract. 8 Q. Mr Fraser, now to move on to events in 2008. While 9 there had been initially an intention to close the 10 contracts in January 2008, that date slipped. 11 Are you aware of the reasons why that date slipped? 12 A. My recall is that it was on-going negotiations, and 13 changes and various tactics being employed by the 14 consortium to arrive at a final price. And that that 15 was taking time and therefore the deadline to report 16 back to Council moved. 17 Q. Thank you. 18 Can we then please go to document CEC01544518? 19 In the second half of this page, we can see an email 20 from yourself dated 11 March 2008 to Susan Clark, 21 Graeme Bissett and Stewart McGarrity of Tie. And you 22 state: 23 "Further to the recent email from Alan Coyle 24 regarding contract close, I can advise that the Council 25 requires a statement that confirms the elements of the 143 1 SDS designs that are being re-designed by BBS, if any. 2 The working assumption to date has been that all of the 3 SDS designs are to be adopted by BBS." 4 Then you can see above that, at the top of the page, 5 a response by Mr Graeme Bissett, dated 11 March 2008, 6 which states: 7 "Duncan, the information you want is embedded in the 8 Infraco proposal. Steven will take you through this at 9 7.30 am tomorrow at Citypoint if you can do it. As 10 I think we discussed today, the liability would sit with 11 BBS/SDS in relation to any redesign." 12 Do you remember receiving this email? 13 A. Yes, I do. 14 Q. And what was your understanding of the response? 15 A. The response to the terms of that meeting you mean or -- 16 Q. I'm sorry, the response in the email, the liability 17 would sit with BBS/SDS in relation to any redesign? 18 A. Well, on one note it was comforting to note that the 19 issue about redesign had been considered and that there 20 was a party going to take responsibility for it. At 21 another level, it wasn't clear as to what any financial 22 implications might arise because of that. So that was 23 still my outstanding concern. 24 Q. Did a meeting follow this email? 25 A. I believe it did. I'm drawing back on memory here, 144 1 I believe it did. 2 Q. Do you remember what was discussed at the meeting? 3 A. There were -- there was an attempt from my recollection 4 to give me assurances that the negotiation process, 5 which of course we were blind to, had arrived at a point 6 where some of the concerns that I was expressing had 7 been dealt with and there had been a transfer of 8 liability to the private sector. And at one level, of 9 course, I was pleased that that had been achieved, 10 because that was a useful way of dealing with a risk. 11 But I still couldn't put my hand on heart and say 12 that I understood how that process had been arrived at. 13 So I suppose it is just years of being an engineer and 14 appreciating the way people interpret contracts in 15 a different way. So there was still that concern that 16 we still hadn't seen transparencies as to how that 17 liability had been taken on by the private sector. 18 Q. I would like to move back to the question of MUDFA and 19 utility works now, please. I would like, please, to go 20 to your statement at page 45. In question 56, in your 21 statement it sets out excerpts from the construction 22 director's report for the meeting of Tie's utility 23 sub-committee on 12 March 2008. 24 I'm not going to read this out in the interests of 25 time, but in short it is noted, some slippage in terms 145 1 of what was planned to be achieved and what had been 2 achieved. I would like also to please actually go to 3 this report to try to clarify one aspect. The document 4 reference number is CEC01453676. 5 We can see from the front page, this is: 6 "MUDFA Sub-Committee report, papers for meeting, 12 7 March 2008." 8 I think I am right in saying this is a Tie 9 sub-committee, is that correct? 10 A. That is correct. 11 Q. We can see you are named on the distribution list, 12 I think, along with some other Council officers. Is 13 that correct? 14 A. That is correct. 15 Q. Now can we then, please, go to page 4? Can we see then 16 in attendance, and also those who have sent their 17 apologies? Your name doesn't appear as having been in 18 attendance or as having sent apologies. 19 The point I would like to ask you about is this, 20 Mr Fraser: in your statement, you refer a number of 21 times to having attended these meetings and yet for the 22 reports mentioned in your statement, we see that while 23 you are on the distribution list, if you then look at 24 the minutes for the different meetings, you don't seem 25 to have actually been noted as having attended these 146 1 meetings. I'm just trying to reconcile between what you 2 say in your statement that you did tend to attend these 3 meetings, from the minutes where your name doesn't seem 4 to appear in the attendance list. 5 A. Well, perhaps it would help if I explained my role a bit 6 more fully? As the tram coordinator, I had a number of 7 teams working for me. And included as a member of staff 8 is Tom Clark, TCL, and he would have been attending on 9 my behalf, because I could not attend all meetings. 10 So that meant I could still keep close to it but 11 I just delegated the role. And the reason for that is 12 Mr Clark, formerly of the Council, was the Chief Manager 13 responsible for road maintenance. And the purpose of my 14 attendance at this meeting was to review the problems we 15 were having with the reinstatement works, the tracks 16 that were being reinstated, by the MUDFA contractor 17 which was causing us some concern. So I felt that he 18 had the more appropriate skills and the time to attend 19 to work through some fairly technical issues and trying 20 to resolve the problems associated with reinstatements 21 and trying to avoid them failing. 22 Q. So in short, Mr Fraser, you were on the distribution 23 list, you were aware of these reports being sent, but 24 you didn't actually always attend the meetings 25 personally, albeit you would have been aware of what was 147 1 discussed at them? 2 A. Yes, I agree with that summary, thank you. 3 Q. But your interest in this was primarily from a roads 4 reinstatement works point of view? 5 A. Yes, sorry, I didn't attend these meetings until much 6 later on in the process. And then I delegated to 7 Mr Clark. But that is because there had been concerns 8 expressed by the roads inspectors, that there was 9 problems with the track reinstatement. So that was my 10 interest. My interest was not driven by the progress on 11 the MUDFA contract per se. 12 Q. On that point, the progress on the MUDFA contract 13 per se, we can see there is certainly reporting within 14 Tie of this matter, and this was a Tie sub-committee and 15 it is a Tie director's report. 16 I'm just wondering, was there any regular reporting 17 from Tie to the Council on the progress of the MUDFA 18 works? 19 A. Yes, there was. Because the IPG meetings which reported 20 to the Chief Executive included a summary statement of 21 where we were with the MUDFA contracts. 22 Q. And where did that information come from? 23 A. It was often extracted from these minutes. 24 Q. Thank you. 25 Going back, please, to your statement at page 45, 148 1 and on to page 46, please, you were asked in question 1, 2 what was your awareness of and views on these matters, 3 and you replied: 4 "I attended a number of MUDFA meetings to represent 5 the Council's interests with regard to the poor quality 6 of road reinstatements at utility works. I was aware of 7 the optimism to recover the programme, but the 8 subsequent failure to do so. I did suggest on one 9 occasion to Graeme Barclay, the (Tie MUDFA manager) that 10 a MUDFA programme be provided based on achieved 11 production rates rather than aspirational production 12 rates. However, this was never produced." 13 Then in question subparagraph 3, you were asked how 14 confident were you around this time that the MUDFA works 15 would be completed by the end of 2008: 16 "Did your views on in that regard change at any time 17 (and if so when and why?)" 18 You reply: 19 "I was not confident that MUDFA works would be 20 completed on programme, because previous programmes had 21 not been met." 22 I would like to contrast, please, what you say there 23 with another document which I think you may not have 24 seen when preparing this statement. Document 25 CEC01401535. 149 1 You see this is an email from you dated 5 March 2008 2 to Rebecca Andrew on MUDFA progress. This states, in 3 the second paragraph: 4 "Works are on programme and the current financial 5 projections show that the contract is within budget." 6 So on the face of it, I couldn't reconcile what you 7 said in your written statement here with this document 8 sent on 5 March 2008. Take a minute just to read that 9 email. 10 Do you have any comment? 11 A. My comment would be as follows: that there were some 12 parts of the work, such as at Shandwick Place, which 13 were progressing to the planned works. But that's not 14 the same as saying the overall programme is working to 15 the programme. But there were periods when, you know, 16 they did improve, so perhaps optimism might have 17 increased. 18 But the overall feeling was they were not working to 19 programme consistently and that delays were common. So 20 I'm not sure the two depart terribly. Forgive me, you 21 may have a different view, but all the time we were 22 trying to facilitate -- if I can give one example, I was 23 also responsible for traffic management and we would be 24 prepared to extend the scope of the works -- sorry, 25 I will use a different word. The extent of the work so 150 1 that more work could get done by -- and arranging some 2 sort of traffic diversion to facilitate the work being 3 done more quickly, because we were conscious that time 4 was slipping. 5 I think the other thing that changed the dynamics of 6 the MUDFA works was that they were meeting more utility 7 apparatus that they had not foreseen and that added to 8 the work. So the position -- some bits worked better 9 than others, so, for example, down Leith Walk, which 10 I know was never built during this contract, there was 11 major problems trying to find a space to put the new 12 utility works in, and some bits went very well, and some 13 bits very slowly, so it was a bit of a curate's egg. 14 Q. Thank you. Another point I should perhaps mention is 15 your written answer in relation to these matters was in 16 relation to the Construction Director's report of the 17 Utility Sub-Committee on 12 March 2008. This email was 18 5 March 2008, so to be fair to you, in question of 19 timing -- 20 A. It could be an issue, yes. 21 Q. -- it may well be this email was written and sent before 22 you had received the Construction Director's report for 23 the meeting on 12 March 2008. 24 A. Just to maybe finalise that, my comment with regard to 25 Mr Barclay who had a huge project to do and keep control 151 1 of, all I was suggesting in my earlier comment was if he 2 did do the programme based on actual achieved rates that 3 you have already done, what would that look like; how it 4 compared to his aspiration that they could recover the 5 lost time and increase the rate of reduction. It is 6 just so you could have a comparison between the two 7 programmes and see what the differences were. So I was 8 really trying to encourage him to look at all the 9 options rather than just always look at the optimistic 10 option. 11 Q. I think you say in your written statement that that sort 12 of programme based on rates actually achieved was never 13 produced, so far as you were aware? 14 A. That's my understanding. Certainly it was never 15 presented to me. 16 Q. Thank you. Leaving MUDFA to one side and back to 17 design, can we next, please, look at a letter at 18 document reference CEC01493318? 19 The document reference again is CEC01493318. 20 We can see this is a letter to Willie Gallagher, the 21 Chief Executive of Tie, dated 3 April. This seems to be 22 a different letter. 23 I think the doc ID reference number, I think it is 24 CEC01493 -- I think I have confused myself. Yes. 25 So we can see this is a letter dated 28 March 2008. 152 1 If we go over the page, please, if we go to page 2, we 2 see this is by -- page 3, rather -- David Leslie, the 3 Development Management Manager in the Council's Planning 4 and Strategy City Development Department. Is that 5 right? 6 A. Yes. But it is planning, okay? 7 Q. It is planning? 8 A. Yes, and it is to do with the prior approvals which is 9 a planning issue. 10 Q. Yes. So go back to page 1, please. 11 You see in the first paragraph, Mr Leslie is setting 12 out certain concerns and at halfway through he states: 13 "I feel obliged to bring two issues to your 14 attention. The first relates to the programme of 15 submissions of prior approvals to us and the second 16 relates to the quality of the submissions. Both require 17 action by yourself." 18 Under "Programme for prior approvals", Mr Leslie 19 states: 20 "It is extremely disappointing that Tie, as the 21 Council's agent, have been unable to ensure that SDS 22 have completed all the prior approvals prior to the 23 bidding process, and that there still seems to be no 24 effective control over the constantly-slipping timetable 25 for PA submissions. This could create difficulties in 153 1 the coming months where BBS have been forced to make 2 assumptions in their bid which do not correlate with our 3 own expectations." 4 Over the page, please, under the heading, "Quality 5 of prior approval submissions": 6 I won't read these three paragraphs out, but in 7 short they set out certain concerns relating to the 8 quality of the submissions. 9 We will come back to this letter separately, but, 10 Mr Fraser, you wrote a similar letter at this time as 11 well. If we can look at that at the same time, please, 12 your letter is CEC01493639. 13 If we go to the second page of this letter, please, 14 we can see this is a letter sent by yourself as Tram 15 Coordination Manager. Again, going back to the first 16 page, please, we can see it is dated 3 April 2008 and it 17 also is sent to Willie Gallagher. The first paragraph 18 of this letter states: 19 "Further to the letter of 28 March 2008 to you from 20 David Leslie in CEC planning, raising concerns about the 21 prior approval process, I am writing to raise similar 22 concerns about the technical approval process. I won't 23 reiterate everything said in that letter, as the 24 concerns are fundamentally the same, but I would like to 25 highlight some specific issues." 154 1 So, Mr Fraser, what in summary were the concerns and 2 issues that you were seeking to bring to Mr Gallagher's 3 attention at this time? 4 A. The intention had been for packages -- complete 5 packages -- to come from SDS so that we could assimilate 6 all the issues associated with the technical and the 7 prior approvals, because there is interrelated issues 8 there. And the experience at this point in time was 9 that the quality of the submissions were both incomplete 10 and of a quality that made it very difficult to give 11 a comprehensive response to. 12 So what we were seeking to do is alert at the 13 highest possible level within Tie that we were having 14 problems with SDS because he had entered into the 15 contract with them. And so we were trying to seek a way 16 of resolving these unresolved difficulties which had 17 been going on for a number of months. We were seeking 18 to find a way forward. And -- 19 Q. Sorry, you can finish your answer. 20 A. And therefore it was trying to open a door. We were 21 desperate to move this agenda forward. We all 22 recognised the importance of this work, and we had been 23 discussing it since 2007. And here we were in March 24 2008, finding grave difficulty resolving the issue of 25 progressing the design process and particularly the 155 1 approvals process. So we just felt it was getting so 2 critical, and Mr Leslie who represented the planning 3 department was best placed to write the detail that he 4 required, and because I'm an engineer and more 5 technically minded, I thought I was better placed to 6 write this one. 7 So it was done in a coordinated way, but it was 8 really a big red flag to say: please help us, something 9 needs to be done. 10 Q. These letters were sent approximately six weeks before 11 the contracts were signed for the Infraco and Tramco 12 contracts. Mr Leslie in his letter refers to: 13 "There still seems to be no effective control over 14 the constantly slipping timetable for prior approvals 15 submissions." 16 If that slippage continued, how would that affect 17 the construction programme works? 18 A. A slightly qualified answer to that, it would depend. 19 It depended whether or not it was on the critical path 20 that affected the construction programme, but clearly at 21 this stage, there was still a substantial amount of 22 design to be approved, and we had grave concerns at that 23 stage that our process was very complicated because of 24 the partial information, and the fact that we had to get 25 resources -- staff resources -- to go through this; and 156 1 what would happen is that we increased the staff 2 resources, the work didn't come in, and then it was 3 getting compressed. So we were trying to find a way 4 forward so we could rationalise this process and get the 5 approval process turned around as quickly as possible. 6 Q. In the event, during 2008, let's say from these letters 7 being written end of March, beginning of April 2008, 8 right the way through 2008, did things improve? 9 A. They did. I'm happy to say. Let me illustrate that if 10 I may. We improved what we did. Because although we 11 had expected to get full packages, we recognised we were 12 not getting full packages, so the first thing we did is 13 institute a check that when a partial package came in, 14 we checked there was sufficient information in that 15 package, and if there wasn't we quickly -- you know, in 16 that week, would go back and seek the additional 17 information. 18 Because we had a sort of what is called an 19 eight-week turn-around, so rather than wait until the 20 end of the eight weeks and say: there is information 21 missing; we say: can we catch that early. 22 Another change took place which I think was also 23 useful: instead of just going through the packages as 24 they came in, we looked at how critical that package was 25 in terms of the construction programme. So if it seemed 157 1 as if that piece of information was going to be needed 2 for the construction earlier than a piece that had come 3 in before, we would change the prioritisation of which 4 package we worked on, so they were closer aligned to the 5 programme that was going to be constructed. 6 Q. When approximately were these changes brought? 7 A. Following this. 8 Q. Another matter, going back to MUDFA and getting an 9 update on what was happening there, if we can go back to 10 your statement, please, to page 50, and in question 64, 11 again, I'm not going to read it out in the interests of 12 time, but question 64, if we can highlight that, we can 13 see again, Construction Director's report for the 14 meeting of the Utility Sub-Committee on 9 April 2008. 15 Again, we can notice progress again not having hit the 16 intended target and there had been no recovery of the 17 previously reported slippage. The root causes are then 18 set out. 19 Again we asked you for your views on these issues. 20 Under sub-question 1: 21 "What was your understanding of, and views on, these 22 matters?" You say that your understanding of the 23 programme delays was: 24 "... that they were usually reasonable, as working 25 in such complex sub-surface conditions were very 158 1 difficult. The issues are (i) lack of realistic 2 programming ..." 3 Which you touched upon before: 4 "(ii) unknown or incorrectly located existing 5 services and (iii) lack of control over third 6 parties..." 7 Then you were asked secondly: 8 "What were your views around that time of the 9 prospect of the MUDFA works being completed by the end 10 of 2008?" 11 You responded: 12 "I had, as an observer, reservations about the 13 completion by the end of 2008, based upon my experience 14 of previous failures to meet programmed timescales." 15 Thirdly, you were asked: 16 "Was any consideration given to delaying signing the 17 Infraco contract until the design and utilities works 18 were completed or substantially complete? What were 19 your views?" 20 You replied: 21 "I would have preferred that the MUDFA works were 22 substantially complete prior to letting the Infraco 23 contract. If my recollection is correct, this was 24 discussed, but I recall that Tie advised that the 25 letting of the Infraco contract could not be delayed? 159 1 The reasons for this were not transparent to me." 2 So does that accurately set out your understanding 3 of the MUDFA works at that time, so as at early April 4 2008? 5 A. Yes, I think that is a reasonable general summary. 6 Q. Thank you. 7 Going back to design, if you look, please, at 8 document CEC01245274, if we can go on to the second page 9 of this document, please, and the bottom half of the 10 page, we can see an email from Andy Conway dated 16 11 April 2008, to Susan Clark. We can see you are copied 12 into it. The subject is Infraco exclusions. 13 Mr Conway states: 14 "I've got a couple of specific questions, which 15 I hope you'll be able to provide further info. As 16 a general comment, though, have Tie identified costs for 17 all items that will require BBS changes?" 18 The first bullet point states: 19 "The scope of the works related issues refer to the 20 status of the design as of 25th November. Our concern 21 is that if the design has changed, or at least 22 developed, since then (and say a prior approval has been 23 granted) then a change will need to be issued. Have Tie 24 undertaken an exercise to determine the extent and cost 25 of changes that will be required since the design freeze 160 1 in November?" 2 Pausing there, did that reflect a query or concern 3 that you had also shared at that time, Mr Fraser? 4 A. Yes, indeed. 5 Q. And then if we then go back to page 1, please, the 6 second half of the page, we can see a reply by 7 Susan Clark dated 16 April. It is a little difficult to 8 follow in black and white. The original, I think, is 9 coloured text and reply. But we can see, carrying on 10 from the first bullet point we had seen before Mr Conway 11 had asked: 12 "Have Tie undertaken an exercise to determine the 13 extent and cost of changes that will be required since 14 the design freeze in November?" 15 Susan Clark's response then follows, as I say the 16 original is in blue text and we will try to correct that 17 for later version, but in short Ms Clark states: 18 "BBS are contractually obliged to construct to the 19 designs that SDS produce and get consented. We have 20 been identifying significant changes as design has 21 progressed to ensure that we have made financial 22 provision -- eg Burnside Road. Normal design 23 development is a BBS risk as described in schedule 4 of 24 the Infraco contract." 25 If we can then, please, scroll to further up the 161 1 page, in the middle email we can see that Mr Conway, on 2 16 April forwarded this reply to you at the time, 3 Mr Fraser. What was your understanding of Ms Clark's 4 reply? 5 A. Can I say confused, because she was stating or implying 6 by that general response -- if we could just go back to 7 that if you don't mind -- 8 Q. Yes? 9 A. Yes, thank you. So if we look: 10 "BBS are contractually obliged to construct the 11 designs that SDS produce and get consented." 12 There was still no clarification of how that was 13 possible under this form of contract. But there you see 14 at one level an assurance that say: well, that's sorted, 15 you don't need to worry about that. But we still felt 16 that these were changes that were necessary to get 17 approvals. But we still didn't -- we still didn't have 18 comfort, if I could use that term, that this was 19 encompassed within the contract. It wasn't transparent 20 to us. 21 But it was -- so therefore we were at a slight 22 dilemma, because for example it makes reference there to 23 schedule 4 of the Infraco contract. Well, we were blind 24 to that because we had not seen schedule 4, because that 25 was again part of the negotiated settlement for the 162 1 contract. So hopefully Susan Clark was correct, but we 2 were left in limbo, not really understanding why that 3 could be -- she was so comforted by the fact that any 4 change in the design during the approvals process would 5 be incorporated at no additional cost, being the 6 implication within that contract. 7 Q. I should perhaps say, Mr Fraser, I think the draft 8 schedule 4 was sent by Tie to certain Council officers. 9 I think Mr Alan Coyle forwarded it to some other Council 10 officers. It may be you didn't see it. I can't 11 remember. Do you remember having seen Schedule 4 at 12 this time personally? 13 A. I don't recall that. 14 Q. Can we then, please, put that to one side? 15 CHAIR OF THE INQUIRY: Would this be a suitable point for 16 a short break? 17 MR MACKENZIE: Yes, my Lord. 18 CHAIR OF THE INQUIRY: I think we will have a short break 19 and resume again just before half past. 20 ( 3.12 pm) 21 (A short break) 22 (3.28 pm) 23 CHAIR OF THE INQUIRY: You are still under oath, Mr Fraser. 24 MR MACKENZIE: Thank you, my Lord. 25 Mr Fraser, the next document I would like to look 163 1 at, please, is a report to Council on 1 May 2008 by the 2 Chief Executive. The document reference is CEC00906940. 3 Now Mr Fraser, I think you say in your statement you 4 were not involved in drafting this report, and you did 5 not attend the meeting, is that correct? 6 A. That is my recollection, yes. 7 Q. Nonetheless, I would like to ask you about one or two 8 things in the report. You see in page 1, paragraph 1.1, 9 the purpose of the report: 10 "To notify the Council on the progress on the suite 11 of contracts for the Edinburgh tram network and to 12 provide an update on financial close and the capital 13 costs." 14 If we then, please, go to page 2, and paragraph 3.6, 15 about halfway through you see the sentence: 16 "Tie Limited continues, through its appointed 17 contractor, to execute the work under the contract for 18 utility diversion along the tram route on behalf of the 19 Council and reports that this work, which is part of the 20 authorised works under the statutory authority granted 21 to Council under the Edinburgh Tram Acts, is progressing 22 to programme and budget." 23 Does did that accord with your understanding at the 24 time? 25 A. That's not my recollection. Because as we have 164 1 discussed earlier, the programme kept slipping and there 2 was more works so the budget had to be increased, so 3 I have difficulty in understanding that. 4 Q. If we then, please, go to page 3 of the report, under 5 the heading "Quantified risk allowance", in 6 paragraph 3.10, it states: 7 "A number of the adjustments to risk allocation 8 are positive, reflected in the reduced QRA. As a result 9 of the overlapping period of design and construction, 10 a new risk area has emerged which has been the subject 11 of extensive and difficult negotiation. Tie Limited 12 advise that the outcome is the best deal that is 13 currently available to themselves and the Council. Both 14 Tie Limited and the Council have worked and will 15 continue to work diligently to examine and reduce this 16 risk in practical terms." 17 What is your understanding of what is said in that 18 paragraph? 19 A. The work that the Council could do to reduce the risk in 20 practical terms is just the way that they were 21 processing the approvals. And anything they could do to 22 more efficiently produce those responses back to the 23 designer is the scope at which we could influence that 24 decision. And that process. 25 The term, "best deal that is currently available to 165 1 themselves and the Council", is difficult to understand. 2 It may well be true, but it doesn't explain what that 3 deal was, because by that time, time was running out, 4 both in terms of seeking conclusion and the process of 5 design approval is still dragging on. 6 Then there is this substantive -- or subject to 7 extensive and difficult negotiations, I think there 8 might be a clue there that the earlier confidence, if 9 I put it that way, of Tie that we would get a resolution 10 to this was not going as well as maybe was anticipated. 11 Again we were not -- or I personally was not involved in 12 that process of negotiation so -- and then we finally 13 come back to the top, reflected in the reduction in the 14 QRA; that may be, because there was a whole range of 15 topics covered in the QRA, but with specific regard to 16 the design and the approvals process to get that over 17 the line, I don't think there can be any suggestion in 18 my mind that there was any reduction from that aspect of 19 QRA, but there may well have been other aspects that 20 were being reduced or being covered by the private 21 sector. 22 Q. We can remember from your earlier evidence that really 23 from an instinctive or intuitive point of view, you had 24 suggested a risk premium around GBP25 million for post 25 financial close changes. Had your instinct changed in 166 1 any way by this point? 2 A. No, I regret to advise that that instinct had not 3 changed. Further, the optimism about having the design 4 completed -- I think they said in October 2008 -- was 5 becoming less so as time moved on, and I was not 6 satisfied in my own mind that we should still not be 7 allowing for a risk premium, because I felt the issues 8 were still apparent. 9 Q. In paragraph 3.11 in the report, it is stated: 10 "A written statement from Tie Limited has been 11 provided, stating that they are satisfied that 12 GBP32 million is an adequate level of risk allowance." 13 What protection or comfort do you consider that gave 14 the Council? 15 A. I am sure that was a genuine belief of Tie at that time. 16 But it is also interesting that it is written that way. 17 It is very clearly saying: Tie are saying this, and the 18 Council is reporting it to you, the members. So it is 19 difficult to make more comment than that, I think. 20 Q. Thank you. Let's move on to another document, please, 21 which is CEC01222466. 22 This, we can see from the top, is an email from 23 Colin MacKenzie dated 2 May 2008 to Gill Lindsay, in 24 which Mr MacKenzie states: 25 "Please find attached report prepared by the B team 167 1 prior to the hiccup on price. This paper may fall to be 2 reviewed once further details of BBS's changed position 3 becomes known." 4 I think, Mr Fraser, the reference to the hiccup on 5 price had been BBS requesting further sums. I think if 6 we then, please, look at the attachment prepared with 7 the B team, this document reference CEC01222467. 8 You can see at the top, this document is headed: 9 "The report on terms of financial close ... draft 10 version 28 April 2008." 11 You see also at the top: 12 "Comments by CEC 30 April 2008." 13 So I think in short what has happened, Mr Fraser, is 14 that Tie sent a draft document called their closed 15 report, a version of 28 April 2008. I think then 16 members of the B team read that document and drew their 17 comments together in this table. 18 The version I would like to go to, please, is in 19 a different document again. If I can then, please, go 20 to CEC01222441. I'm sorry, I think the correct 21 reference is CEC01222041. 22 If we can go to page 2 of this document, please. 23 The very top you can see, I think, the sender has been 24 cut out of that version. Maybe in page 1, perhaps -- if 25 we go back to page 1 of this document, please -- we can 168 1 see at the very bottom you sent this, Mr Fraser, on 2 2 May 2008. 3 If we could then, please, go back to page 2, you see 4 at the very top of the document: 5 "Please give me your comments on this, based on our 6 discussions, and advise me by Tuesday PM please." 7 Do you recall this document? 8 A. Yes, I do. 9 Q. If we could then please -- sorry for jumping about, but 10 if we jump back to page 1, please -- in middle of this 11 page we can see that this is an email by Nick Smith 12 dated 6 May 2008, to yourself, Mr Fraser and others. 13 Mr Smith states: 14 "Please see comments in blue below." 15 Et cetera. 16 If we could then please just go back to the table 17 and go through some of the comments which the B team 18 were raising at this time. I think again the original 19 version has Mr Smith's comments in blue in the 20 right-hand column. We don't have that in the black and 21 white version, but in short the text which we see in the 22 right-hand column, which is either of a heavier, bolder 23 typeset or in capital letters, those are Mr Smith's 24 comments in blue. 25 We can see looking along the top of the table, the 169 1 different headings. Firstly "Item", that is a reference 2 to Tie's draft closed report, which is part of the 3 report. Then "Comment", I think is the comment by the 4 CEC B team. There is then a column headed "Proposal" 5 and "Action", and the last comment I think has happened, 6 "Tie's comments", my impression -- correct me if I'm 7 wrong -- the version Mr MacKenzie sent to Gill Lindsay 8 on 2 May, I think that table may have been sent to Tie, 9 come back with Tie's comments, the version we are 10 looking at now; and Mr Smith has marked up in blue his 11 comments on Tie's comments. Does that understanding 12 does that seem right? 13 A. That seems reasonable. 14 Q. If we could then, please, go to the document we were 15 looking at, please, back to the table. 16 The second item down, under "Comment": 17 "Risk of delay to Infraco and MUDFA, is this 18 adequately taken account of". 19 Can we see that highlighted, I wonder? That is the 20 second row down. Thank you. 21 We can see the proposal is to: 22 "Review the risk allocation/mitigation. 23 "Action report on outcome of risk and cost/time". 24 Under Tie's comments it is stated: 25 "BBS programme based on the version 6 of MUDFA. 170 1 Continual reviews of MUDFA programme to avoid conflicts 2 with Infraco undertaken by Tie. This evaluation has 3 been consistently evaluated and updated in the QRA. CD 4 to confirm happy." 5 I think the "CD to confirm happy" are the comments 6 by Nick Smith in blue. I think CD must be a reference 7 to city development. 8 A. That seems reasonable. 9 Q. Do you recall having seen this document at the time, 10 Mr Fraser, copied into you? Do you recall having read 11 it? 12 A. Yes, I do recall that. I recall being involved in the 13 partial drafting of it and the response from Tie. 14 It might also help the Inquiry to appreciate that 15 this closed report to which it refers was the first 16 insight that I had of the nature of the negotiations 17 that were going on. That's what -- why I respond so 18 quickly to that to raise issues that we thought were 19 pertinent to the decision that the Council would have to 20 make, and alerting the directorate to issues that we 21 thought should be carefully considered. 22 Q. I think the question in short of this matter, in 23 relation to this row, "Risk of delay to Infraco and 24 MUDFA, is this adequately taken account of", and we saw 25 Tie's response; the question is: were you happy with 171 1 Tie's response? 2 A. That is difficult to recall at this time. But my 3 general recall was we accepted that Tie were doing 4 all they could to prioritise the work of MUDFA and 5 trying to minimise the potential for delay with Infraco 6 works. So we did understand there was a lot of work 7 going into that, but my recollection was that we felt 8 there was an element of over-optimism and that there was 9 still potential for that delay. But again they were 10 saying they are making allowance for that in the quality 11 risk appraisal. 12 It was difficult to know if the provision within 13 that was still going to be adequate. To some extent you 14 had to trust what you were being told, because they were 15 the masters of that QRA process. But there is still 16 this nagging doubt that were we going to get MUDFA over 17 the line before Infraco, and if we didn't, was due 18 allowance being made for that in the QRA? 19 Q. Thank you, Mr Fraser, I should perhaps explain I don't 20 wish to go back over old ground you have given evidence 21 on before. I will try to avoid that if I can. I was 22 simply trying to see if there were unresolved concerns 23 of the B team around this time, just before financial 24 close, and if these concerns were ever resolved to your 25 satisfaction. 172 1 With that in mind, if we go to the three further 2 rows in this document, please. Page 4 in my copy. The 3 third row down, with the number 8.4 in the left-hand 4 column, we can see the comment is: 5 "Review risk associated with consents and approvals 6 on the basis of SDS delivery of programme to date and in 7 relation to programme 31." 8 Then, the proposal column states: 9 "Tie reassess risk. 3.3 million risk, is this 10 adequate? (It is noted that there is a 6.6 million 11 general risk cover)." 12 Then in the "Action" column, it is stated: 13 "Does SDS design and consents risk cover require to 14 be increased?" 15 Then in the Tie comments column, it is stated: 16 "Tie's view is that risk allowance is sufficient." 17 Mr Smith has noted: 18 "Do CEC agree with this assessment? Given delay to 19 date, it is foreseeable that further delay could have 20 major cost impact." 21 Again, I don't wish you to go back over answers you 22 have given, but is this a matter in short that there 23 remained a concern to you, or is this something that is 24 closed out and you were satisfied on? 25 A. My recollection, it was not closed out and we still had 173 1 concerns. 2 Q. Thank you. And the row underneath that, we see the 3 letters 5.2/7.1. The next column states: 4 "Risk costs of delay seem to vary, perhaps because 5 of mitigation factors. 6.6 million equals 2/3 months. 6 3.3 million equals 3 months." 7 The next column states: 8 "Clarify evaluation of risk cost". 9 The next column is "Review", and the Tie response 10 column states: 11 "There are two different costs. The 6.6 million 12 deals with the entire programme moving out by 2-3 13 months. The 3.3 million deals with BBS costs for 14 standing time and other prolongation costs." 15 Mr Smith has written: 16 "Not sure I understand the distinction -- the issue 17 is what the cost of delay is and whether it is 18 appropriately catered for in terms of risk." 19 Again, was that a matter you were satisfied on at 20 this time and closed out, or did you continue to have 21 concerns? 22 A. I continued to have concerns. 23 Q. Really for the same reasons we discussed earlier in your 24 evidence? 25 A. Yes. Indeed. 174 1 Q. Thank you. I think the last matter on this table, if we 2 can go on to page 5, please, at the very bottom row, 3 which in the left-hand column states: 4 "DLA letter 28 March." 5 The next column, the word "consents". The next 6 column: 7 "7.1. Beyond the cumulative caps, there is adequate 8 cover in the 508 million and taking account of 9 prolongation costs." 10 The next column, "Please advise". Then the Tie 11 comments column states: 12 "Above the cap of GBP1 million in respect of delay 13 caused by SDS failure during the design permitting 14 process, CEC will be exposed to prolongation claims, 15 except where there is deficient design where BBS is 16 exposed to the first 10 million on each and every event. 17 There is adequate cover in QRA for this." 18 Mr Smith has written: 19 "Needs further explanation on exactly what CEC/BBS 20 liable for?" 21 So again, Mr Fraser, is that an issue which you were 22 satisfied and regarded as closed out or did you continue 23 to have concerns at this time? 24 A. I continued to have concerns. 25 Q. For the reasons you discussed earlier -- 175 1 A. Yes. 2 Q. Thank you. 3 If we then please go to another document, again in 4 respect of what happened next. CEC01247809. In the 5 second email down on this thread, we can see an email 6 from Nick Smith -- sorry, the one above that. An email 7 from Nick Smith dated 8 May 2008 to yourself and others, 8 stating: 9 "I don't know what the outcome was from Germany 10 yesterday, but I know that Gill wanted to ensure that 11 Tie closed out all the remaining issues noted by the B 12 team below." 13 That is a reference to the table we just looked at: 14 "Any idea how these are progressing?" 15 Above that, we see an email response from you to 16 Mr Smith, dated 8 May 2008, stating -- 17 A. I think it is "negotiations". 18 Q. It must be "negotiations": 19 "... ongoing and we expect a figure to be agreed 20 today/tomorrow with a sign off next week." 21 Hence for completeness, are you aware of whether the 22 issues we have just looked at in the table were closed 23 off before financial close? 24 A. I believe what I meant by that was Tie were doing the 25 negotiations and Tie were telling us they would have all 176 1 that sorted out. I still think we had outstanding 2 concerns that we never fully addressed. And that was 3 just the position as it was. 4 Q. Was the position of the B team perhaps that those 5 concerns were being put up towards to the A team, if we 6 can call them that, the directorate, and it was perhaps 7 then a matter for them to satisfy themselves, perhaps 8 vis-a-vis the discussions with Tie? 9 A. Yes, that was always our intention, to alert those in 10 the decision-making position of what the issues were to 11 allow them to make informed decisions. They could maybe 12 get further information that we could not access. But 13 anyway it was to flag up these important issues, because 14 we thought they were significant. 15 Q. We are getting close to financial close which took place 16 on 14 and 15 May 2008. If we can simply read the 17 question of utilities and MUDFA and how things stood 18 then, at page 55, please, of your statement, the 19 question 73 towards the bottom, again, I'm not going to 20 read this out, but question 73 gives an extract from the 21 Construction Director's report for the meeting of the 22 Utility Sub-Committee on 7 May 2008. 23 Again, reporting on the slippage in the MUDFA works. 24 Does that accord with your recollection at the time? 25 A. Yes, I can recall reading this document, yes, it does. 177 1 Q. If we could perhaps go to page 56 of your statement. 2 Question 2, you were asked, did you have any -- we 3 should start with question 1. You were asked: 4 "What were your views on these matters?" 5 You explained you did not attend this meeting: 6 "However, Mr Clark attended ..." 7 You say: 8 "The outcome of the predicted against actual not 9 being achieved was the norm for this programme, albeit 10 there were reasons provided for the failure to meet the 11 predicted programme." 12 In question 2 you were asked: 13 "Did you have any concerns in relation to whether 14 the risk allowance adequately allowed for the risk of 15 the MUDFA works delaying the Infraco works?" 16 You replied: 17 "I was concerned because of the MUDFA programme 18 slippage had now a greater potential to impact upon the 19 Infraco works." 20 It may be obvious, but why did the MUDFA programme 21 slippage now have a greater potential to impact upon the 22 Infraco works? 23 A. Because of the timeline. The further back we are, the 24 more scope there was for catching up slippage. But as 25 we were now heading into commitment, and also presumably 178 1 what the contract was then going to be based on, there 2 was a greater risk that this would have a genuine 3 knock-on effect on the assumed construction programme. 4 CHAIR OF THE INQUIRY: You see there is a reference there to 5 an unforeseen underground structure on Princes Street 6 and the Mound causing delay. Is that an example of 7 something you said before when you were dealing with 8 utilities in a city, particularly an old city, you might 9 come across all sorts of things that were not on the 10 record? 11 A. Indeed, and I believe in this case it was alleged to be 12 a tunnel that was built hundreds of years ago, and so 13 these are the sorts of unforeseen matters that you can 14 expect to find in an old city like Edinburgh. So, yes, 15 that's a very good example. And I think they had some 16 consequential delays as well, significant reconstruction 17 required to resolve that particular issue. 18 CHAIR OF THE INQUIRY: How do you make provision for that? 19 If you are the contractor and have to undertake work in 20 an old city, how do you make provision for these 21 potentially unforeseen structures or whatever? 22 A. Well, there are various ways you can do it. But the 23 most obvious way of doing it is by scanning, ground 24 penetrating radar, so you can see the images coming up. 25 So that's one way of doing it. But at another level, 179 1 there is an element where you can't expect these 2 unforeseen, but you should allow for some slippage in 3 the programme. 4 What I was suggesting earlier was every time we got 5 a programme from MUDFA, it kept being very optimistic 6 and saying: we have never achieved this level of 7 production before, but we are going to next time around. 8 So if you hit something that was unexpected, you had no 9 slippage scope within the programme, so it was likely to 10 cause a delay. That's really the point I'm making, so 11 the unforeseen should be accommodated without 12 necessarily being specific. 13 MR MACKENZIE: Thank you, my Lord. 14 If we then go to the next page in your statement, 15 Mr Fraser, page 57, and question 76. You come to the 16 final report to members before financial close. We see 17 on 13 May 2008: 18 "The Council's Policy and Strategy Committee 19 considered a report by the Council's Chief Executive." 20 And in sub-question 1, we asked you: 21 "To what extent were you involved in drafting the 22 report to committee? To what extent were Tie 23 involved..." 24 In your answer you say: 25 "The directorate asked both myself and Ms Andrew to 180 1 reconfigure and compress the Tie report as a draft 2 Policy and Strategy Committee report. The content of 3 the committee report was based upon input taken directly 4 from Mr G Bissett (Tie) and his report, Edinburgh tram 5 project, financial close process." 6 So in short, is what you are saying, Mr Fraser, that 7 the report to the Policy and Strategy Committee was 8 essentially a shortened version of the Tie report? 9 A. Well, the content of the report was informed by the 10 close report. But let's be clear, it was still a report 11 produced by the Council for the Council members to 12 consider. 13 Q. You also go on to say after the quote, which I think you 14 mentioned before, you say: 15 "This is the first time that access had been given 16 to the negotiation process by Tie to Ms Andrew and 17 myself." 18 Is that a reference to what we have mentioned 19 before, when you were shown the closed report by Tie? 20 Yes. 21 Then, at the end of this answer you say: 22 "It should be noted that tabling of papers at 23 committee was not normal practice ..." 24 I think it was the case that this report was tabled 25 at the committee, I think, is that correct? 181 1 A. It was, and I think that refers to Mr Stan Cunningham 2 and his concerns about doing that is not normal 3 procedure. 4 CHAIR OF THE INQUIRY: He was the committee clerk, was he? 5 A. He was indeed, my Lord, yes. 6 MR MACKENZIE: What is normal practice? 7 A. There is a timetable set out where I think most papers 8 need to be ready a week in advance, from recollection. 9 But late submissions were permitted. But usually there 10 was an opportunity to circulate that to key members of 11 the Council, so they would have time to read it, rather 12 than get it put on the desk when they arrived at the 13 meeting, so it was unusual. 14 Q. Thank you. If you then leave your statement for just 15 now and go to the report to the Policy and Strategy 16 Committee, 13 May 2008, and we should find this at 17 document USB00000357. 18 We see it is a report by the Chief Executive. At 19 paragraph 1.1, we can see: 20 "Purpose of report. This report advises the Policy 21 and Strategy Committee of a changed commercial position 22 in procurement negotiations for the Edinburgh tram 23 network and seeks approval for me to instruct Tie 24 Limited to enter into contracts with the Infraco and 25 Tramco bidders, subject to the satisfactory final 182 1 conclusion of negotiations." 2 If you then look at page 2, and paragraph 2.7, under 3 the heading "Recent developments", it states -- this is 4 since the report to Council on 1 May: 5 "Since then Tie Limited has continued to work to 6 ensure the competitiveness of the developing contract 7 terms so that these continue to represent best value and 8 are fully aligned with relevant regulations. Offsetting 9 the increase in cost is a range of negotiated 10 improvements in favour of Tie Limited and the Council in 11 order to reduce the risk of programme delays and 12 minimise exposure to additional cost pressures, as well 13 as better contractual positions." 14 What was your understanding of that paragraph, 15 Mr Fraser? 16 A. I don't have an understanding of that paragraph. That 17 reflected statements that were being made by Tie, and 18 possibly had there been discussions with the directorate 19 at this confidential level, how that was being achieved. 20 But I had no knowledge of how that process had worked 21 and what the outcomes were, other than what is stated 22 there. 23 Q. I think as you have said, essentially this report was 24 based pretty heavily on Tie's closed report, is that 25 correct? 183 1 A. That's right. But the exact detail of what is in there, 2 what process are we talking about? How it was handed 3 over and delegated and carried as a risk? Because until 4 you understand that, it is difficult to see the 5 context -- I keep going back to this type of contract, 6 the fixed price -- to understand how that was carried 7 and if it was good and well, but it would have been 8 great if there had been some transparency of how that 9 had been achieved. The close report didn't provide 10 that, so far as I recall. 11 Q. In paragraph 2.11 in this report, under "Benefits of the 12 final deal", it is stated: 13 "In return for the financial amendments, Tie Limited 14 has secured a range of improvements to the contract 15 terms and risk profile. Currently, these areas are 16 regarded as highly confidential, but, subsequent to 17 contractual close, a more detailed report will be 18 submitted to the Tram Sub-Committee." 19 Did you understand -- sorry, were you aware of the 20 range of improvements to the contract terms and risk 21 profile that had been secured? 22 A. No, I didn't have any detail at all, other than what is 23 stated there, and clearly that was confidential, 24 whatever they were discussing, and I understood when it 25 was appropriate, it would be reported to the Tram 184 1 Sub-Committee. 2 Q. You would also of course, you, personally, would have 3 had access to Tie's close report, so you at least could 4 look to the close report to help perhaps expand upon 5 your understanding of these matters? 6 A. Yes, that informed that statement, but as I say, it 7 didn't provide the confidential information to which it 8 refers, the close report, I mean. 9 Q. In this report to the Policy and Strategy Committee, 10 I don't think there is any reference whatsoever to any 11 of the delays in design nor the delays with the MUDFA 12 works. Is that correct? 13 A. I believe that's correct. Forgive me, I may be speaking 14 out of turn here, but my recollection was because the 15 quantum had changed to a sum greater than I think 16 10 million, that the Chief Executive couldn't use his 17 delegated powers and he had to go back to committee to 18 inform them of this fundamental change so that he could 19 subsequently use his delegated powers. I think that was 20 the context of this report. 21 Q. When you say the quantum has changed by 10 million, do 22 you mean the price for the project had increased by 23 10 million? 24 A. More than 10 million, yes. I think -- forgive me, this 25 is -- I think there was a figure of 498 million which 185 1 had originally been approved in principle or something 2 of that order, and then this was coming in at about 5.2, 3 so that was greater than 10. So therefore the Chief 4 Executive had to report back to committee and I think it 5 was a very short, sharp report, and it is just trying to 6 seek their agreement to note that change and still give 7 him the delegated powers to proceed. 8 Q. Yes, I think the Chief Executive is essentially seeking 9 fresh authorisation -- 10 A. Yes. 11 Q. -- to enter into the contract, or rather to authorise 12 Tie to enter into the contracts. 13 But I think my question had been: I don't think 14 there is any reference in this report whatsoever to the 15 delays in the design nor the utilities works, is that 16 correct? 17 A. That's my recollection. 18 Q. Do you know why that is? 19 A. No I could not comment on that. 20 Q. Do you consider there ought to have been reference to 21 these matters in the report? 22 A. I would have preferred to see that included, yes. 23 Q. Why? 24 A. Because I think it was a material issue. 25 Q. Were members in a position to come to an informed view 186 1 if they were not advised in this report of the delays to 2 the design and utility works? 3 A. That's a very difficult question for me to answer. 4 Q. Well, if you had been a member at this time -- put to 5 one side your actual knowledge of the design utility 6 delays -- if you had either no knowledge of these 7 matters or limited knowledge, do you consider you would 8 have required to have been told about the design and 9 utility delays in order to come to an informed decision 10 on whether to give the Chief Executive the fresh 11 approval he sought? 12 A. Yes, I would have welcomed that information had I been 13 a member. That would have helped me interpret the 14 report and understand the risk aspect of what I was 15 being asked to approve. 16 Q. Thank you. 17 Then could you please go back to your statement at 18 page 59? Page 59, we try to draw these things together, 19 I think. If you can see under the question 1, we asked: 20 "By way of overview, what was your understanding of 21 the following matters at contract close." 22 1: 23 "The extent to which detailed design was 24 complete..." 25 You replied that: 187 1 "I believe that the detailed design was only 2 partially complete (80 per cent of the design drawings 3 were 80 per cent complete and reported as 60 per cent 4 complete by SDS). The response of the consents and 5 approvals team to design submissions was all qualified, 6 because the packages were not complete. The completion 7 of the design to IFC was projected on various 8 programmes, but the end date kept slipping, hence the 9 end date for completion of the overall design was 10 uncertain." 11 The second question was asked: 12 "The extent to which utilities diversions were 13 complete, the extent to which these works were 14 outstanding and when these works would be completed?" 15 Towards the end of your answer again you say: 16 "The end date for the completion of MUDFA was 17 uncertain." 18 With the benefit of hindsight, would you consider 19 that these sorts of views on design and MUDFA ought to 20 have been in the report to the Policy and Strategy 21 Committee, so members had awareness of these matters? 22 A. I would like to answer that in a slightly different way 23 if I may be allowed to. 24 I believe these were pertinent, competent issues 25 that should have been drawn to the attention of members. 188 1 I once again emphasise that what goes into the reports 2 were written by the directorate, so they may have had 3 more information and scope and understanding than 4 I didn't have, but my from perspective, on the technical 5 side, I would have welcomed their inclusion. 6 Q. Moving on, please, Mr Fraser to after the financial 7 close which we see took place on 14 and 15 May 2008. 8 I think Marshall Poulton was appointed as Tram 9 Monitoring Officer for CEC around the time of financial 10 close. Is that correct? 11 A. I believe that to be the case, yes. 12 Q. Who was Mr Poulton? 13 A. He was the Head of Transport. To the Director of -- in 14 City Development and therefore was the most senior 15 transport officer in the Council. 16 Q. What did you understand his role to be as Tram 17 Monitoring Officer? 18 A. I can't remember the exact details, but the fundamental 19 role that he was to fulfil was to highlight costs 20 variations above certain limits, I think partially in 21 recognition that we were funders of last resort and 22 there was a growing awareness that costs were starting 23 to accumulate; so the idea was there should be an 24 officer within the Council, a very senior one, that 25 should be able to be advised by Tie of how claims were 189 1 being settled and what the cumulative impact was on the 2 budget. So on those lines. 3 Q. Did your role as tram coordinator change in any way 4 after financial close? 5 A. No, it wasn't affected by that specific decision. 6 My role continued to be, to coordinate the services 7 between the Council and Tie and specifically keep 8 pushing forward with these approvals. 9 Q. Yes. I don't think, Mr Fraser, you were involved with 10 the disputes phase between Tie and the contractor, is 11 that correct? 12 A. That is correct. I think by that time my role 13 had changed. 14 Q. I think you were seconded to Tie in September 2009, is 15 that correct? 16 A. Yes. 17 Q. I think the disputes phase probably started quite soon 18 after financial close. But am I right in thinking that 19 you were not particularly involved in that side of 20 things? 21 A. I was not involved at all. 22 Q. Could we then, please, go to page 66 of your statement? 23 I would like to move on to ask you some questions about 24 design, some of the underlying causes of the design 25 delays. 190 1 Page 66 of your statement, can we see in question 2 87, please, at the top, there is a reference to a period 3 report by BSC, that is the contractor, for the period to 4 13 September 2008. I'm not going to go to that 5 document, but an excerpt is set out here. 6 Under "Prior approvals", this document said: 7 "BSC is continuing to inform Tie of the delays or 8 potential delays regarding prior and technical approvals 9 due to numerous design changes from CEC during the 10 formal consultation stage. It is of great concern that 11 after the extended period of informal consultation, new 12 comments are saved at this stage which will, in many 13 cases, impact on the IFC dates and will require change 14 instructions to be issued for the design to be amended. 15 The informal consultation process, intended to avoid 16 this problem, cannot be considered successful." 17 Then: 18 "Under technical approvals (roads), the report noted 19 ... as noted above, the number of comments from CEC in 20 their formal responses is a real problem, eg IC1 and IC3 21 minus IC2 had 1,200 plus comments (70 pages of comments) 22 after an extended opportunity to jointly participate in 23 design development." 24 What is your response to the point being made here, 25 Mr Fraser, that in short, despite prior informal 191 1 consultation, CEC are making too many comments, at least 2 in relation to the roads design? 3 A. The Council's technical approvals team had a duty to 4 perform their role in compliance with the standards that 5 were being known to all parties. The Tram Design 6 Manual, the Design of Bridges, all the Street Works 7 guide and so on. So there was a known standard. There 8 was an attempt to have a pre-consultation to try to 9 resolve some of these matters, but the quality of the 10 submissions -- as I recall -- were so disappointing, if 11 I can put it that way, that it did require extensive 12 comments. 13 My view still stands that a lot of work went into 14 looking at these comments and the intention was to 15 provide the designers with the information to allow them 16 to modify the design to get compliance. So it was an 17 effort in helping the designer. 18 Now there is an implication here from the way this 19 is written that they were surprised at the number of 20 comments, but this was only because of the issues that 21 were -- hadn't been addressed within the submission. So 22 our intention was to help them. The response seems to 23 have been that we were over the top. But I assure you 24 that the staff involved with this process worked very, 25 very hard doing this, and the other frustration which 192 1 maybe is not coming out of this, is you get a partial 2 submission, you have a look at it. There are things 3 that are wrong, things that are unclear, things that 4 need clarification. You feed that back. You get 5 another submission, you have to start again at the 6 beginning of that process and go back through it all, 7 and there were still things omitted. So there was an 8 iteration. So the argument was we should just do 9 a complete review each time and feed the information 10 back to assist the designers to conclude. But it was 11 proving hard going, as they say. 12 Q. Standing back and looking at things from a distance, 13 what do you consider were the main causes of delay in 14 progressing design? 15 A. Maybe it would be helpful if I could illustrate that 16 slightly. It was a lack of integration. Maybe just to 17 explain the context of that, if I may, the drawings were 18 coming from a range of offices. So, for example, there 19 would be a specialist in street lighting, and another 20 office doing signal design. So what you finish up with 21 is you get these individual drawings, but what SDS 22 didn't provide us with, is what is called a general 23 arrangement. That is the combination of all these 24 things together and seeing how they all fitted together. 25 So when my team were looking at this, they would try 193 1 and cross-reference the drawings and see how things 2 work. For example -- if I am now getting too technical, 3 forgive me -- if you go to a deflection island, that is 4 where you put a traffic signal pole in it, and the head, 5 in the middle of the road. I think we are familiar with 6 that. Then maybe there is a crossing at the same place 7 and it has associated street furniture and duct runs, 8 you would find that one obstructed the other, so you 9 would draw that to their attention and then sometimes 10 that was resolved in the next one, but it conflicted 11 with something else. So a new piece of information that 12 came along. So we were attempting to try to assist and 13 resolve some of these potential conflicts so when the 14 work came to be constructed, it was satisfactory. 15 Now the other important thing about this is that the 16 sooner you identify the problem, there were more 17 solutions available to it. Once you have gone on to the 18 ground and started constructing the works and found the 19 problem, there were fewer options. 20 I remember specifically there was a problem with the 21 drainage of the massive retaining wall at Haymarket 22 which had been identified three months previously, and 23 that was picked up very late during the construction 24 process, so the solutions were very limited. So that is 25 just to try to illustrate to you why we were trying to 194 1 be so zealous in our comment to help and inform the 2 designers so that they could take account of our 3 concerns. But there was also dialogue going on. There 4 was meetings happening weekly, so it was not as if it 5 was all done by paperwork. People were exchanging ideas 6 and thoughts well. 7 Q. Thank you, Mr Fraser. Also I should say that at pages 8 8 and 9 of your statement, you do give your views there as 9 well about the reasons for the delays in design. I will 10 take that as read. That forms part of your evidence as 11 well. 12 Because you are here, Mr Fraser representing CEC 13 from a design perspective, I should perhaps put to you 14 some comments which have come from some of the other 15 witnesses on the question of design delay for your 16 response. 17 One point which has come out from a number of 18 statements is that there was either a lack of clear 19 instruction by CEC and/or third parties on what design 20 was actually required, or there were changes made or 21 requested once design had been produced, in particular 22 in relation to a number of, if I can call them problem 23 locations, where the design perhaps was either not 24 progressed or was changed. In particular Forth Ports, 25 Picardy Place, St Andrew Square, Haymarket, SRU 195 1 Murrayfield, the Gogar depot and rail interchange, the 2 RBS tramstop at Gogarburn, the airport tramstop and some 3 structures. 4 What is your response to that comment? 5 A. Well, there are two aspects to that. One is the 6 approvals process. We were not actually doing design. 7 We were approving the design. 8 The second element to it is having got the outline 9 of the design, and gone through some iterations of that, 10 it was necessary to consult and get the approval of 11 a third party, which you have suggested -- SRU and 12 so on. 13 So that was just part of the process. We were all 14 familiar with that. And that may well have resulted in 15 some design changes, but my understanding of that is 16 that that is the normal process, not just to do with the 17 town project but any similar form of infrastructure that 18 the developer might be doing. So we had to get those 19 third party agreements as well. So -- sorry, so we had 20 to go through that due process to complete the activity 21 of the approvals process, and then we turned the outcome 22 of that to the design team. 23 Q. I think the design witnesses -- one of comments they 24 have made is that it was not possible to complete the 25 design for a section -- to complete a package for 196 1 a section -- because there were always outstanding 2 matters within that section, they just couldn't sign off 3 were complete, in particular the locations I just 4 listed. Do you have any comment on that suggestion? 5 A. There may well have been outstanding matters that need 6 resolved. It is a measure of the complexity of this 7 process we had to work our way through. And I am sure 8 it may have caused some frustration on behalf of the 9 design team who had, let's be clear, a very difficult 10 and complex task to perform. But equally there wasn't 11 a short cut to this process, we had to go through the 12 process. We couldn't ignore the third party. We tried 13 to get the design approved where we could. This was 14 just a messy part of the iterative nature of this -- an 15 interdependent nature of this process. 16 Q. Yes. One of the other points I was going to put to you 17 was that the design is interlinked and iterative, so 18 delays or changes in one item of design will have 19 knock-on effect on other items of design. I take it you 20 would agree with that statement? 21 A. I agree with that statement, yes. 22 Q. Another point which has emerged from the statements is 23 that particularly in relation to the planning approvals 24 for matters of aesthetics involved, how something looks 25 and fits in or doesn't fit in, there is perhaps an 197 1 element of chicken and egg. Ie the Council's position 2 was: we will let you know what is required once we see 3 the detailed design; and the designer is saying: well, 4 we can't produce a detailed design until you tell us 5 what is required. 6 Do you have any comment on that suggestion? 7 A. Yes, there are schisms there. But the process is you 8 submit the design. There were pre-consultations, there 9 were discussions that went on, to assist that process. 10 But ultimately the submission had to be made for the 11 planners to have a look at that as a whole. 12 Because the alternative is you made all your 13 decisions before you see the design, if that is what is 14 being implied, I'm not sure it is, but you have to see 15 how it looks in the whole, so that the final decision of 16 the planners is based on this submission. 17 Q. One point which may emerge from this discussion, 18 Mr Fraser, perhaps one should perhaps allow more time 19 for design to be completed -- completely -- for the 20 approvals and consents to be completed. At least one 21 should have a realistic programme for that process. Any 22 comments on that suggestion? 23 A. I believe this is a highly complex process with these 24 iterations and cross-related matters, and, yes, it does 25 take time and it would have been useful if we had had 198 1 more time to do this. As it was, it was a compressed 2 programme for the approvals, let's be clear about that, 3 even though it stretched over a number of years. 4 I would say there was great intent by all parties to 5 try and complete the process, but it just shows you how 6 complex it is, fitting tram infrastructure into a city 7 road and accommodate all the complexity that that 8 involves, whether it was the technical side or it was 9 the planning side. 10 Having said that, to perhaps illustrate a point if 11 I may -- and very briefly -- there was a very nice 12 modification, I think, through Edinburgh Park where 13 instead of having square parapets, it was slightly 14 curved. Now, that did not add significantly to the cost 15 but I think visually it made a big difference, and this 16 infrastructure is going to be around for a long time. 17 Another very important one is the poles; they were 18 just circular poles and they were tapered. And I think 19 that the benefit that has arisen from these refinements 20 that did take time are going to last a long time, and 21 I think they were excellent, some of these modifications 22 and approvals. 23 Q. Thank you. The final point I would like to put to you 24 and the question of design. Some witnesses have 25 suggested that it would have been helpful if the Council 199 1 had had an earlier involvement in the design process, 2 perhaps at the requirements definition phase to set out 3 more clearly what the Council were requiring or looking 4 for to help inform the design at an earlier stage. Do 5 you have any comments on that suggestion? 6 A. Yes, I would have welcomed earlier involvement. One of 7 our concerns was that it seemed to come too late in the 8 day, when we were being involved in the process earlier, 9 the suggestion that was being made to have earlier 10 involvement would have been welcomed. 11 Q. To finish off, Mr Fraser, could we look at the question 12 of governance, please? And in particular could we 13 please go to page 75 of your statement? 14 The question 105, and question 1. We asked: 15 "How were important matters relating to the tram 16 project reported between the different bodies and how 17 and by whom were decisions taken ..." 18 You replied: 19 "The governance for the tram project was very 20 complex. Communication with different parties depended 21 upon their roles and responsibilities ..." 22 Also: 23 "The requirement for confidentiality resulted in my 24 having a very limited engagement with some 25 organisations." 200 1 In a similar vein, the second question we asked: 2 "What were your views ... on the governance 3 arrangements?" 4 And you replied: 5 "Roles and responsibilities and accountability were 6 at times difficult to comprehend under the complex 7 governance arrangements." 8 Et cetera. 9 "This made communication and determination of 10 authority and responsibilities very difficult to fully 11 understand and at time challenging." 12 You also make the point in the answer to question 3: 13 "This was a complex process and combined with 14 changes to the tram organisational structure, this made 15 matters at times confusing and challenging to fully 16 understand." 17 I think lastly on this point, if I may, please, 18 page 77 of your statement, the question, 108(3), you 19 were asked if you had any comments: 20 "... with the benefit of hindsight, on how these 21 failures might have been avoided?" 22 It is a question ultimately for Lord Hardie in his 23 report but you do say that: 24 "... a simpler governance structure with shorter 25 lines of communication and clearer lines of 201 1 accountability aligned with the appropriate authority." 2 Mr Fraser, there were a number of bodies involved in 3 the tram project: Transport Scotland, the Council, Tie, 4 TEL or the Tram Project Board. 5 If you had been asked at the time, late 2007, early 6 2008, who is in charge of the tram project, what would 7 your response have been? 8 A. I don't think there is any simple answer to that 9 question. It depends which aspect. Because people have 10 different roles and responsibilities, and some 11 overlapping responsibilities. But ultimately, there is 12 an argument to say that it was the Council. 13 Q. Why do you say "ultimately" the Council? 14 A. Because it was the Council that had promoted the bills. 15 It was the Council that had appointed an arm's length 16 company to procure and deliver and project manage the 17 project, but ultimately they were accountable to the 18 Council, both in terms of the director and the 19 executive, as well as to the members. 20 MR MACKENZIE: Thank you, Mr Fraser, I have no further 21 questions. 22 CHAIR OF THE INQUIRY: I will just ask about utilities. 23 I think what you said is the records of utilities, 24 particularly in Edinburgh, or cities like Edinburgh are 25 not perfect. 202 1 What could be done -- first of all, who has 2 responsibility for ensuring that the records are 3 accurate? 4 A. There is a slight flaw in the Utilities Act 1984, in 5 that it says that the responsibility is that of the 6 utility companies, but it comes with no penalty if they 7 do not do a robust job in advising the location. 8 What happens is when you go into a street, there are 9 indicative information of where the services are, but 10 when you open up the street, you will find they are not 11 necessarily -- there is no exact location and there is 12 disclaimers on the drawings anyway. So there is 13 a technique for scanning. Sometimes you can put an 14 electric pulse down and get a better mapping of where 15 the apparatus is, but it would greatly help if the 16 utility companies would have accurate records of where 17 they put their apparatus. 18 CHAIR OF THE INQUIRY: It is just a digital recording of 19 records? 20 A. Yes, of course, and today, as well, we can do this in a 21 three-dimensional way. That would be really helpful, 22 because then you could create a three-dimensional image, 23 and then you could thread the new service through the 24 known structure of services that exist within the broad 25 infrastructure. So I think the technology is coming, 203 1 but what it needs is a vast amount of data to allow us 2 to populate that in the base drawing, so that any future 3 works could be worked around that. 4 CHAIR OF THE INQUIRY: If there was such a system, would it 5 be for the local authority to keep it? Because you have 6 different utility companies giving records of their 7 utility location -- the location of their utility, but 8 is there any way you could have a composite record 9 lodged with the local authority? 10 A. I suppose that is one possibility. I suppose the 11 advantage of the local authority is they are a permanent 12 organisation and have a vested interest as well. Then 13 parties who wish to carry out works could come to the 14 local authority. There must be a question of resources 15 and funding that would be needed to be addressed, but it 16 certainly would have some merit. 17 CHAIR OF THE INQUIRY: Thank you. 18 I don't think anyone is going to let -- 19 MR DUNLOP QC: My Lord, I apologise, especially given the 20 time of day, I have one very short point of 21 clarification. Rather than asking Mr Fraser to come 22 back tomorrow, would your Lordship allow me a couple of 23 questions just to clarify one point. 24 CHAIR OF THE INQUIRY: What are you wanting to clarify? 25 MR DUNLOP QC: It is the question of "minted" versus 204 1 "minuted", my Lord. 2 CHAIR OF THE INQUIRY: Yes. 3 Examination by MR DUNLOP QC 4 MR DUNLOP QC: Mr Fraser, could you have, please, on the 5 screen, document CEC01383667? 6 That is CEC01383667. 7 Do you remember being asked about this email, 8 Mr Fraser? In particular if we highlight, thank you, 9 the penultimate paragraph when you were asked about the 10 first sentence there: 11 "At the last IPG I raised this topic. However, 12 there was a concern about such a statement being 13 minted..." 14 A. I do. We discussed that earlier. 15 Q. Yes, I think my learned friend had thought that the word 16 "minted" should be "minuted", and you thought actually 17 it was correctly recorded as "minted". 18 I just want to be clear, if you look back to what is 19 said in the first paragraph there, what you are saying 20 is the current situation is that some of the designs 21 have been completed in detail and none of the designs 22 are technically approved. You go on to say: 23 "Consequently there is a reasonable case for arguing 24 there should be a 'risk premium'." 25 At the end of that you make the 25 million comment. 205 1 One might think that when you go on to say, "At the last 2 IPG I raised this topic", the topic is the current 3 situation is that some of the designs have been 4 completed in detail, none of them are technically 5 approved. 6 A. Yes, I'm sorry, I'm not following your question. 7 Q. I'm just wondering, when you indicated that you thought 8 you had said there was concern about such a statement 9 being "minted", are you sure that you weren't saying 10 there was a concern about such a statement being 11 "minuted"? 12 A. I would not wish to mislead anybody on this. I'm only 13 surmising now, so many years later. It is possible it 14 may have meant "minuted", but when I said that it might 15 have meant "minted", I thought in the context of the 16 understanding of the 25 million. 17 I could be wrong there. I certainly have no 18 absolute recollection of that. 19 Q. Yes. Just for clarification, could I ask, please, that 20 you have your statement back on screen. That is 21 TRI00000096. 22 In particular, page 28, please. If we see at 23 paragraph 33, do we see that you are being asked about 24 that email that we have just looked at: 25 "By email dated 20 November ..." 206 1 Do you see that? 2 A. Yes, I see that now, it has come up. 3 Q. Then at the foot of that question, in the fifth to last 4 line, the questioner says: 5 "You further noted that you raised it at the last 6 IPG but there was a concern about such a statement being 7 minuted." 8 Do you see that? 9 A. I do see that. 10 Q. If we come out of that, please, and then we see question 11 1 is: 12 "It would be helpful if you could explain the main 13 points you were making in that email." 14 Then if we blow that up and look at the last six 15 lines of your response, you say: 16 "IPC ..." 17 I think that should be IPG? 18 A. That's correct. 19 Q. "... were reluctant to accept my comments. I suggest 20 that this demonstrates a lack of understanding of how 21 technical issues can translate into increased costs 22 through changes to time as well as money ... therefore 23 I considered it appropriate to remind the Director for 24 City Development of these concerns as they were not 25 fully minuted in the IPG." 207 1 Does that assist you in your recollection? 2 A. It does. I think you have a valid point, sir. Maybe we 3 should correct the record, if that is permitted, that 4 I have made a mistake and it should be "minuted". 5 MR DUNLOP QC: Thank you, Mr Fraser, I'm obliged to you. 6 CHAIR OF THE INQUIRY: Thank you very much, Mr Fraser. You 7 are free to go. You are still subject to your citation 8 in case we have to recall you, but hopefully that will 9 not be necessary. 10 A. Thank you, my Lord. 11 (4.39 pm) 12 (The hearing adjourned until Wednesday, 13 September 2017 at 13 9.30 am) 14 MR DUNCAN FRASER (affirmed) ..........................1 15 Examination by MR MACKENZIE ...................1 16 Examination by MR DUNLOP QC .................205 17 18 19 20 21 22 23 24 25 208