1 Wednesday, 13 September 2017 2 (9.30 am) 3 CHAIR OF THE INQUIRY: Good morning. 4 MR MACKENZIE: My Lord, the next witness is Rebecca Andrew. 5 MS REBECCA ANDREW (affirmed) 6 CHAIR OF THE INQUIRY: If you just listen to the questions, 7 and answer as clearly as possible. 8 A. Thank you. 9 Examination by MR MACKENZIE 10 MR MACKENZIE: Good morning. 11 A. Good morning. 12 Q. Would you state your full name, please? 13 A. Rebecca Jane Andrew. 14 Q. And your current occupation? 15 A. I'm an accountant. 16 Q. And your current employer? 17 A. City of Edinburgh Council. 18 Q. Could we please look at the CV you have provided; it is 19 CVS00000044. 20 That will appear on the screen any second. 21 A. Got it, yes. 22 Q. Go to page 2, please. At the top of page 2, we can see 23 that between 1998 and 2002, you were a trainee 24 accountant at the City of Edinburgh Council. So you 25 trained as an accountant with the Council? 1 1 A. Yes. 2 Q. Back to page 1, please. We can then see from the bottom 3 of the page upwards, we can see between 2004 and 2006, 4 you were a part-time lecturer at the CIPFA Education and 5 Training Centre. Can you explain what CIPFA stands for, 6 please? 7 A. It is the Chartered Institute of Public Finance and 8 Accountancy. 9 Q. Also, I think, during that period, the line up on your 10 CV. 11 I think we can probably carry on going through your 12 CV while this is sorted out. 13 In short, we can see that between 2002 and 2006, you 14 were the Finance Manager with the Council in the City 15 Development Department. Is that correct? 16 A. That's correct, yes. 17 Q. You provided financial and management account support 18 for the City Development capital programme 19 and significant programmes within it, including 20 providing financial support for the Edinburgh tram 21 project? 22 A. Yes, that is correct. 23 Q. After that, between 2006 and 2012, you were the 24 Principal Finance Manager again in the City Development 25 Department? 2 1 A. Yes. 2 Q. Again, providing financial and management accounts for 3 that department's capital programme and significant 4 projects within it, including, again, the Edinburgh tram 5 project? 6 A. Yes, that's correct. 7 Q. I think you are currently from 2006 to present, the 8 Principal Accountant responsible for capital and major 9 projects for the Council, is that correct? 10 A. I am at present, yes. 11 Q. You also explain in your CV that the financial support 12 for the various major capital projects includes the St 13 James Quarter redevelopment, the replacement high school 14 for South Queensferry, Meadowbank Stadium redevelopment, 15 the Council's House Building Programme, Edinburgh and 16 South-East Scotland City Deal, and the proposed extension 17 to the tram line? 18 A. Yes. 19 Q. So you're still involved in trams? 20 A. I had a gap. But it has come back to me. 21 CHAIR OF THE INQUIRY: I'm sorry, I think is there 22 a problem? 23 I think we will just adjourn to get this sorted out. 24 We will resume as soon as possible. 25 Sorry about that. It seems we are now back to 3 1 working order. 2 MR MACKENZIE: Thank you, my Lord. 3 If we can now go to your statement you provided to 4 the Inquiry, the reference number is TRI00000023. Can 5 we look, please, at the very last page which is page 79. 6 We see your signature there. Can I just confirm, is 7 this the statement you provided to the Inquiry? 8 A. Yes, it is. 9 Q. Thank you. This written statement, together with 10 evidence you give today, will form your evidence to the 11 Inquiry. Sticking with your statement for a little 12 while, could we start at page 2, please? 13 Page 2, question 2, we asked various questions about 14 your involvement in the tram project and we asked 15 firstly, between what dates did you have 16 responsibilities in relation to the tram project; you 17 replied between 2002 and 2008. Then in question 2, 18 subparagraph 2, we asked what were your main duties and 19 responsibilities in relation to the tram project. You 20 set out your answer there, including the monitoring of 21 expenditure and income for the project, and also the 22 provision of financial advice to Council colleagues and 23 briefing the Director of Finance, who I think at that 24 time was Donald McGougan, is that correct? 25 A. Yes, that is correct. 4 1 Q. Then in subparagraph 3 we asked: 2 "To whom did you report and who reported to you?" 3 I think if we go to page 3, please, if we can blow 4 up the diagram, you have helpfully set out the reporting 5 structure. We can see that Alan Coyle is a name we have 6 heard of. He reported to you, and we see the reporting 7 structure up above you, up to Donald McGougan, Director 8 of Finance at the head, is that correct? 9 A. That is correct, yes. 10 Q. Before carrying on, Ms Andrew, can I ask you this 11 general question to set the scene: what were your main 12 concerns in relation to the tram project during 2007 up 13 until financial close in May 2008? 14 A. I think obviously I have a finance background, so my 15 main -- my main concerns were -- were those of cost. 16 I think once -- in early 2007 the Scottish Government 17 were partners in the funding and effectively were 18 providing 90 per cent of the funding. So that cost 19 overruns, while concerning to the Council, were perhaps 20 less concerning because we would have to pick up 21 10 per cent of any overspend. Following that, then the 22 Council would have to pay for everything above the -- 23 above the 500 million that was set out. 24 I think my main concerns were that it was a very 25 large contract. We were trying to assess the risk that 5 1 we could contain these costs within the budget and just 2 as the project progressed, more and more things seemed 3 to be going wrong. I was perhaps concerned that the 4 actions that were done to rectify these things didn't 5 really seem to be having the desired effect and that, 6 I suppose kept coming -- as we went on. 7 The main -- big areas -- were of design slippage and 8 utility slippage, but there were other smaller issues 9 that seemed to be going in the wrong direction as well. 10 Q. Thank you. If we could turn to your statement, please, 11 I want to take you to certain questions and answers. If 12 we go to page 9, please, to begin with. 13 Question 10 starts at the very bottom of the page. 14 We asked: 15 "By email dated 9 November 2006, Stewart McGarrity, 16 Finance Director of tie, provided sections of the Draft 17 Final Business Case. By email dated 13 November 2006, 18 you asked if it would be possible to meet to go through 19 the capital cost assumptions, as Mr McGougan was 20 uncomfortable signing off the plan as a TEL Director, 21 without anyone in the Council having seen the detail 22 behind tie's cost estimates. A later email (in the same 23 thread) notes that a meeting had been arranged at which 24 Geoff Gilbert, the Tram Commercial Director of tie, 25 would walk CEC through the cost estimates." 6 1 We asked: 2 "What were your views, in general, on the capital 3 costs estimates around that time?" 4 Could you read out your answer, please? 5 A. "The Council was reliant on tie to produce robust 6 capital cost estimates. As an accountant I was not 7 qualified to assess whether or not the costs reflected 8 the proposed engineering solution so was reliant on 9 technical expertise elsewhere in the Council and tie. 10 By meeting with tie, I hoped to be able to get 11 an understanding of the processes they used to 12 calculate, verify and benchmark the costs, as I did not 13 have the technical knowledge to challenge the costs on 14 a line by line basis. I vaguely remember meeting with 15 Geoff Gilbert and don't remember that my colleagues and 16 I were satisfied by the level of detail provided. 17 I did, however, take comfort from the fact that 18 Transport Scotland had commissioned Cyril Sweett to 19 independently review these costs." 20 Q. Why did you take comfort from the fact that 21 Transport Scotland had commissioned Cyril Sweett to 22 independently review these costs? 23 A. Because I understood that Cyril Sweett were 24 a professional firm of engineers, quantity surveyors, 25 that kind of thing, who would have that rigour that 7 1 I didn't have to look through the costs. 2 Q. Thank you. Move on, please, to question 1. I will not 3 read it out, but in short this concerns a member of the 4 public, Mrs Alison Polson in December 2006, having 5 written in to the Council with certain concerns about 6 the Draft Final Business Case which was being put to 7 Council around this time. 8 If we go, please, to page 11, and you drafted 9 a response for Mr McGougan to send to Mrs Polson. 10 If we could move to answer 3, please, on this page, 11 you were asked: 12 "Did you understand how the capital cost estimates 13 and the allowance for risk/optimism bias had been 14 arrived at?" 15 Could you read out your answer, please. 16 A. "I understood that the capital cost estimates had been 17 produced by experienced engineers and had been reviewed 18 by experts at Transport Scotland. I did not, however, 19 have a detailed technical understanding of the cost 20 breakdown. I also understood the theory behind the QRA 21 process which was used to quantify the risk allowance, 22 but was guided by people more experienced in 23 tie/Transport Scotland as to the appropriateness of the 24 level of contingency set for the project." 25 Q. Thank you. I will come back to that with some questions 8 1 QRA later. 2 I'm also interested in your answer 4. Halfway 3 through answer 4, you say: 4 "With hindsight the level of risk/optimism bias 5 should undoubtedly have been higher. I do not think, 6 however, that a more conservative view of risk produced 7 at the time would have reflected the extent of the 8 project's eventual cost overrun." 9 What do you mean by that last sentence in that 10 answer? 11 A. I think at the time, I suppose there was a desire to 12 increase -- or there could be -- to increase the level 13 of risk that we had in. However, what we've gone from 14 is both the eventual cost of the project is probably 15 close to 800 million, and I just don't think that 16 that -- that would have been the figure that anyone 17 would have put in. I can't -- I can't say with 18 certainty, but there was pressure to put it up, but 19 I couldn't see anyone putting that level of figure on, 20 because of all the other things that happened. 21 Q. Yes. Is it essentially what you are saying is even if 22 one at that time had added a higher allowance for risk, 23 it is unlikely that a sufficiently high allowance would 24 have been arrived at to reflect the, as you said, almost 25 800 million? 9 1 A. Yes, I could see if you put another 100, 150 million on, 2 it still would not have been enough. 3 Q. Yes. Just as a matter of arithmetic, I think at this 4 time the base capital cost estimates, excluding any 5 allowance for risk or optimism bias, were very roughly 6 450 million. If the outturn figure was about 7 776 million, then the difference between the 450 and 8 776, I think, is roughly 326 million, which I think for 9 that amount of risk contingency, I think would amount to 10 roughly 72 per cent of the 450 million? 11 A. Yes. 12 Q. So as I understand it, your position is that it is 13 unlikely that a risk allowance of 72 per cent or that 14 sort of territory would have been chosen at this stage? 15 A. Yes. 16 CHAIR OF THE INQUIRY: I think Councillor Anderson in his 17 written evidence said something to the effect that 18 optimism and problems about optimism bias was not really 19 the real issue here. That other issues such as failure 20 to manage the contract properly might be more -- might 21 explain more realistically the increase from 450 to 776. 22 A. I think they both have to be there. You have to put 23 a significant element of risk into the budget and 24 looking back, compared to other projects I have worked 25 on, and I'm still working on, the level of risk that was 10 1 put into the tram project is low. All I'm saying is 2 that if we had put a higher figure, it probably would 3 not have been as high as the eventual cost of the 4 project was. 5 MR MACKENZIE: Thank you. 6 Sticking on page 11, if we look at question 12, 7 please, again I will not read it, but in short this 8 relates to the report to Council of 21 December 2006 9 seeking approval of the Draft Final Business Case. Over 10 the page, please, at page 12, in question 3, we asked 11 about: 12 "What was your understanding at this time of the 13 extent to which detailed design would be complete (i) 14 when bids were received for the Infraco contract, and 15 (ii), when the Infraco contract was signed?" 16 You answered that you thought that they would be 17 complete or near complete when bids were called for, and 18 that any minor changes between the tender stage and 19 contract signature would be reflected in the final 20 price. So that was your understanding at that stage? 21 A. Yes, it was. 22 Q. Then question 4 on that page, we had asked: 23 "Are you aware who in tie had determined, in 24 consultation with Transport Scotland, that no allowance 25 for optimism bias was required in addition to the 11 1 12 per cent risk allowance?" 2 Again, you say you were not aware of who in tie or 3 Transport Scotland was involved in that decision or 4 whether CEC was involved. At the time you felt that the 5 allowance seemed low but you were guided by experts with 6 experience of procurement of other light rail schemes. 7 So that was your position at the time? 8 A. Yes. 9 Q. Thank you. 10 If you then, please, go on to page 13 of your 11 statement, in question 14, it refers to an email dated 12 8 February 2007 to Mr McGougan, in which you wrote that 13 you had spoken -- we are at page 13, question 14, if we 14 blow up that, thank you -- so this is an email dated 15 8 February 2007 to Mr McGougan who noted that you had 16 spoken to Transport Scotland but received a report from 17 tie and a report from Scott Wilson of revised costs 18 following receipt of Infraco bids. The costs were 19 broadly in line with the Draft Final Business Case. 20 However, Transport Scotland had some reservations due to 21 insufficient evidence and had met tie to ask further 22 questions. And you had requested that tie sent CEC 23 copies of everything they had to Transport Scotland. 24 Then in question 1, we asked: 25 "Around this time, to what extent were, 12 1 respectively, Transport Scotland and the Council 2 scrutinising the capital cost estimates and the bids for 3 the Infraco works?" 4 Can you read out your answer, please. 5 A. "At around this time, Transport Scotland took the lead 6 role in scrutinising the capital costs and bids as they 7 were the major funder of the project." 8 Q. I think that position changed in the summer of 2007. We 9 will come back to that shortly. 10 Can you now, please, put your statement to one side 11 and go to a document. This is document reference number 12 CEC01730251. 13 We can see from the top of this document, this is an 14 email you sent on 16 March 2007 to Mr McGougan. The 15 subject matter is "Tram Project Board Briefing". 16 Then, towards the top of the document, you state: 17 "My main concerns are as follows." 18 And then we see, under "Project Manager's Report", 19 under 7, "Financial and Change Control", you say -- 20 I think, here, perhaps, Ms Andrew, are you commenting on 21 the Tram Project Board papers? 22 A. Yes, I am. 23 Q. And in particular, I think, the Project Manager's Report 24 to the Tram Project Board? 25 A. Yes. 13 1 Q. With a view to briefing Mr McGougan for his attendance 2 at the board? 3 A. Yes, that's correct. 4 Q. We see item 7: 5 "Financial and Change Control". 6 You stated: 7 "This section doesn't really tell us very much. 8 Overall project cost is showing as no change despite (i) 9 small extra modelling costs (later in report) and (ii) 10 significant changes to the MUDFA programme due to TS 11 delays and requirement to re-programme 1b. We really 12 need to see where costs are going up and how they are 13 being managed. It is not sufficient just to assume they 14 are being contained within the overall risk contingency. 15 The Tram Project Board should insist that tie show 16 evidence of proper financial control." 17 Now, can you explain your concern expressed there, 18 please? 19 A. I think what we are doing, as I was reading through the 20 papers, I could see things that were happening which 21 looked like they were increasing costs, and what 22 normally you would expect in a well-managed project is 23 as things increase costs, you would like to see the 24 forecast increase. 25 If the overall budget is to remain -- the overall 14 1 cost remains the same, then you need to see something 2 else reducing for a different reason, like through 3 mitigation or something else has happened. What we are 4 seeing here is things that are increasing the costs but 5 the reporting of those costs is not reflected. 6 Q. Did your concerns in that regard ever resolve? 7 A. No, not really. Even -- it was probably when I came 8 back from maternity leave and just before I kind of got 9 moved off the project completely, I noticed that there 10 were claims -- this is after the contract had been 11 let -- there were claims from the contractor coming in, 12 and still the project was reported as being on budget 13 without recognition that you might lose some of these 14 claims. 15 Q. So that's a reference to the period after financial 16 close -- 17 A. Yes. 18 Q. -- in May 2008? 19 CHAIR OF THE INQUIRY: In that email, you refer to the MUDFA 20 programme. You say "due to TS delays"; do you remember 21 what that was? 22 A. No, I'm sorry, I can't. 23 CHAIR OF THE INQUIRY: Is TS Transport Scotland? 24 A. It usually would be, yes. 25 MR MACKENZIE: Thank you. 15 1 If we then go down, please, to the section under 2 "Risk Register", we see under items 139 and 164, 3 "Utilities Diversions": 4 "This is behind schedule and risks associated with 5 finding unexpected utilities remain. In addition, there 6 are costs associated with getting MUDFA to re-programme 7 their works, due to TS decision on 1b. The Tram Project 8 Board should really have insisted that tie/MUDFA planned 9 diversions for 1a first, with 1b at the end of the 10 process. We all expected this would be the likely 11 outcome of Transport Scotland sitting on the Tram 12 Project Board. How do we improve Tram Project Board 13 governance?" 14 Can you remember what your concerns were as 15 expressed there? 16 A. I suppose what was happening is that they were -- 17 I could have understood that tie had started doing the 18 work on the 1b phase of the tram. This is the phase 19 from Roseburn to Granton, the phase that has not been 20 built and has no plans of being built at the moment. 21 But at the time, there was an aspiration to build 22 not only the line down to Newhaven but the extra spur. 23 However, the funding from Transport Scotland was saying 24 that, well, you needed to show evidence that you 25 could -- you could build the section 1a, which is the 16 1 section to Newhaven within the cost envelope before you 2 could put any costs towards the section to Roseburn. 3 So I couldn't understand why -- why tie had been 4 designing and working to divert utilities along this 5 route which had a less -- which was less certain of 6 being built, and particularly as it was 7 Transport Scotland who had insisted that 1a be 8 prioritised, that if they were sitting on the board, you 9 would have felt that they would have had an influence, 10 so that there wasn't any -- so that tie didn't do that 11 work first. 12 Q. I think we heard from Mr Fraser yesterday that it was as 13 far back as January 2006 that the Council had taken 14 a decision to prioritise phase 1a. So is your point in 15 short that come March 2007, you would have expected 16 somebody on the Tram Project Board to have questioned 17 why works on 1b -- sorry, phase 1b, were ongoing? 18 A. Yes, and from a financial point of view, it was more 19 than just the decision to prioritise one rather than the 20 other. There wasn't any funding to do section 1b, so 21 that would be potentially a Council cost rather than 22 a project cost. 23 Q. Thank you. Again, in the paragraph below that: 24 "Various SDS ..." 25 It states: 17 1 "The designers still seem to be behind. This will 2 have an impact on infrastructure tenders (increased 3 costs if they don't have (or have confidence in SDS 4 designs,) planning and TRO approvals (delayed designs 5 mean delayed approvals), wide area modelling." 6 So that is simply setting out your concerns at that 7 stage about the design delays and how that could affect 8 matters? 9 A. Yes. 10 Q. Thank you. If we then, please, go back to your 11 statement, page 15. To put this in context, we should 12 go back to the bottom of page 14, please. 13 At the bottom of the page, we asked: 14 "What were your concerns in relation to the Tram 15 Project Board governance around that time?" 16 Et cetera. 17 At the top of page 15, you stated: 18 "I was concerned that the Tram Project Board did not 19 properly scrutinise the management of the tram project, 20 as it lacked independent and suitably qualified 21 individuals to carry out an assurance role." 22 Can you explain what you meant by that, please? 23 A. In projects, what can happen is you have a lot of 24 experts who are so focused on the project in hand, they 25 don't necessarily see the wood for the trees and 18 1 mistakes can creep in. That's why it is good practice 2 to get an independent or an assurance role, to carry out 3 that. 4 Now, on a simple project, you could find that the 5 individuals who are sitting on the board could have that 6 themselves. With something as complicated as the tram, 7 I don't think the board members had that expertise to be 8 able to independently be able to check what tie was 9 presenting. 10 It is not to say that tie was doing anything wrong; 11 it is just good practice to have somebody to have some 12 oversight on a significant project. 13 Q. When you say good practice, is that simply your view or 14 is that set out anywhere? 15 A. No, that is set out in a lot of project management 16 guidance from Treasury and other different project 17 management bodies. 18 Q. You mentioned that members of the Tram Project Board may 19 not necessarily have the expertise to provide that 20 assurance role. And then also, perhaps there were 21 questions of time, whether they had the time to 22 scrutinise the reports and documents that had been 23 required? 24 A. Certainly. The Tram Project Board papers tended to be 25 very large documents, and it is not just reading the 19 1 papers, it is doing the background reading behind that. 2 Certainly the Council members and the Tram Project 3 Board, I can't say anything about the other members, but 4 they were doing that as part of very busy -- busy jobs. 5 There were two Council Directors with all the 6 responsibility that that entails. 7 Q. I don't think any members of the Tram Project Board were 8 working exclusively on the tram project. As you say, 9 they had other roles to play as well. 10 Thank you. 11 I would like to move on, please, to the issue of 12 Transport Scotland's involvement in reviewing the Draft 13 Final Business Case. Could we first, please, go to 14 document TRS00004145. 15 You see this is headed, "Edinburgh Tram Network 16 Draft Final Business Case comments by 17 Transport Scotland, 30 March 2007". 18 Now, I'm only going to take you to one paragraph 19 here. It is under paragraph ii, "Background". This 20 explains what happened when the Draft Business Case was 21 sent to Transport Scotland. This paragraph states: 22 "Upon receipt, the contents of the DFBC were 23 circulated to a number of officials within 24 Transport Scotland across the various directorates that 25 make up the organisation along with officials in the 20 1 wider Transport Group of the Scottish executive. This 2 circulation included a number of advisers retained by 3 Transport Scotland. The depth of circulation involved 4 certain officials and advisers receiving the full 5 document whilst others were requested to review certain 6 sections relating to their specific professional 7 knowledge and background. As would be expected for 8 a document of this nature, the review process produced 9 a relatively intense level of comment, feedback and 10 debate. This document does not set out to reproduce all 11 the comments verbatim, but is an attempt to distil the 12 feedback into a constructive, coherent and 13 non-repetitive format that can represent real value as 14 the development and implementation of the ETN moves 15 forward." 16 Does that generally accord with your understanding 17 of the sort of review that Transport Scotland carried 18 out on the Draft Final Business Case? 19 A. Yes, it is. 20 Q. It seems on the face of it to be a fairly wide-ranging 21 review, is that correct? 22 A. Yes, that is correct. 23 Q. Put that document to one side, please, and move on next, 24 please, to CEC01559060. 25 Go to the top, please, and you can see this is an 21 1 email from you on 13 April 2007 to Andrew Holmes, and 2 others are copied in, including Mr McGougan. The 3 subject matter is "Response to Transport Scotland's 4 comments on the Draft Final Business Case". 5 I looked at this yesterday with Mr Fraser so we 6 won't spend too long on it. I think in short what 7 happened is that you and Mr Fraser jointly had produced 8 Council comments on Transport Scotland's comments on the 9 Draft Business Case. Is that correct? 10 A. Yes, it is correct. 11 Q. I think at one point your Council comments were sent to 12 tie for their involvement and for an action plan to be 13 drawn up, is that correct? 14 A. Yes. 15 Q. Thank you. If we then, please, look at the table of 16 comments, which is CEC01559061? If we go to the very 17 top of the spreadsheet, we can see a heading in column 18 A, "Actions to Address Transport Scotland Comments on 19 DFBC". 20 Dated April 2007 and we see left-hand column, "TS 21 comment", and then the column B next to that, 22 "Additional CEC comments". 23 If we then, please, go down to row 31 of the 24 spreadsheet, under the heading, "Project Scope", the 25 spreadsheet states: 22 1 "Amend section so that it defines the projects 2 functional specification, with suitable presentation and 3 version control allowing revision and refinement at 4 appropriate times." 5 Then the Council comment is, in the next column -- 6 next row, rather: 7 "Scope section of DFBC needs to be rewritten to 8 incorporate detailed design." 9 Can you remember if that Council comment was 10 yourself, Mr Fraser or a joint comment? 11 A. I suspect as its design, it's quite technical, 12 I suspect it came from Mr Fraser. 13 Q. Yes. There seems to be some anticipation and 14 expectation at that stage that the scope of the 15 project -- at least as set out in the Draft Final 16 Business Case -- would be written with reference to 17 detailed design. 18 Do you have an understanding of what was meant by 19 the expression, "project scope"? 20 A. It's difficult to explain. It's -- I suppose it's what 21 the project is, where it goes, how -- I suppose it is 22 the physical scope in terms of where the lines are. It 23 can be the design, how it's -- what's included within 24 it. Is it just the -- is it just the tram line, is it 25 the wider impact on the city. It depends from project 23 1 to project. 2 Q. Thank you. If we then, please, go to row 35, we see 3 "Governance", and the Transport Scotland comment: 4 "Strengthen section to show how broad governance 5 arrangements have been developed in detail to manage and 6 control project." 7 Under the CEC comments: 8 "CEC have some concerns over how project is being 9 managed. Need to build in independent ”project 10 assurance” reporting to TPB to give comfort on 11 tie-produced reports." 12 Is that really a reference back to what you have 13 explained to us, that your views at the time were the 14 need for independent project assurance? 15 A. Yes, particularly I think at the -- if you looked at the 16 list of attendees at the Tram Project Board meetings. 17 While there would be the formal board members that would 18 come from different organisations, you tended to have 19 a lot of tie staff presenting their reports, so there 20 was a real -- almost too many people from one 21 organisation, which could kind of weight the 22 decision-making in the way that the papers -- without 23 having that chance to step back and think about what was 24 being considered. 25 Q. I think the key word is perhaps "independence"? 24 1 A. Yes. 2 Q. Thank you. If we then pause, please, to go back to your 3 statement at this point at page 20. Page 20, answer 5, 4 we had asked in the context of this table, commenting on 5 the Draft Final Business Case, we had asked in question 6 5: 7 "Did you have any concerns around that time in 8 relation to how the project was being managed?" 9 Et cetera. 10 Can you read out your answer, please. 11 A. "I did have concerns about how the project was being 12 managed. Slippage on design and utilities contracts 13 indicated deficiencies in tie's ability to manage 14 contractors and to bring projects in on time and on 15 budget. I was also concerned that tie were 16 over-optimistic and too quick to dismiss valid concerns 17 raised by CEC and Transport Scotland. 18 At that point, I do not think CEC considered taking 19 independent advice, as limited funding was available to 20 cover direct Council costs in relation to the project. 21 The grant conditions from Transport Scotland stipulated 22 that only tie costs could be claimed against the ... 23 grant. Moreover at that time Transport Scotland was 24 taking on the role of lead funder and was [also] using 25 independent advisers to give this comfort." 25 1 Q. Thank you. The question of you having concerns about 2 how the project was being managed, did that add to your 3 concern that there was a need for independent assurance? 4 A. Yes, it did. 5 Q. Presumably, if one is sitting on the Tram Project Board 6 and everything seems fine, you may think there is less 7 need for independent assurance. But if people have 8 concerns about how the project is being managed, then 9 does that perhaps increase the need for independent 10 assurance? 11 A. Yes, it does. 12 Q. The other point you made in your answer is that the 13 question of funding for any independent assurance, and 14 the question that the grant conditions from 15 Transport Scotland stipulated that only tie costs could 16 be claimed against available grant, just stepping back 17 a little, if the Council took the view that it was 18 important to protect their interests that they obtained 19 independent expertise, I assume that money -- money 20 would be found for that in some sort of Council budget 21 presumably? 22 A. Yes, it could. But it would -- it would depend on the 23 degree to which you get your advice. If you -- this was 24 a very large, complicated project, and if you were to 25 fully do this diligent -- the cost of advisers could 26 1 raise to hundreds of thousands of pounds. Now the 2 Council does have a budget for that. It also has to 3 provide schools, social work services, everything else 4 that the Council needs to provide, and these decisions 5 have to be made in that context. 6 Particularly if you have funding coming through 7 other -- Transport Scotland doing that work on the side. 8 So yes, it could, but that would probably have to go -- 9 be raised as a political decision, because you can't 10 just spend money in one place without cutting it 11 somewhere else. 12 Q. So in short, if either members of the Council or senior 13 officers were of the view that the Council required to 14 construct independent experts, the money could be found 15 somewhere? 16 A. Yes. It would -- senior officers would probably have to 17 identify it first, put proposals to members. Because if 18 the money was significant, it would involve cutting 19 other services and at that point members would have to 20 approve it. 21 Q. Thank you. 22 Could we then, please, return back to the comments 23 table, which was CEC01559061. 24 Could we go down, please, to row 76. 25 You see the word "Programme" appearing. Then under 27 1 that, general comments by Transport Scotland: 2 "There is general concern that the programme is 3 tight, with little float, and that the programme only 4 considers a best case scenario." 5 In the next column, we see “Additional CEC Comments”. 6 I will not read them out, we went through them 7 yesterday. I will give you a second just to read them 8 yourself. 9 It is what is set out there under "Additional CEC 10 comments", did that represent your views at the time? 11 A. Yes, it does. 12 Q. To what extent did the various concerns -- notably about 13 programme and design and MUDFA delays causing problems 14 with the Infraco works, to what extent did any concerns 15 you had in that regard at that time resolve before 16 financial close in May 2008? 17 A. It is difficult to say. Certainly there was still the 18 delays and the design was -- and the utilities were 19 late. What was perhaps unclear at the time was how the 20 contracts mitigated or didn't mitigate some of those 21 concerns. 22 Q. Thank you. Now put that document to one side. I think 23 then what happened was that tie were then involved in 24 responding to Transport Scotland's comments as well. 25 If we next, please, go to a document, CEC01625190. 28 1 We can see this is at the top an email by 2 Miriam Thorne, who I think was the individual in tie 3 responsible for producing the Final Business Case. Is 4 that correct? 5 A. Yes. 6 Q. Was Ms Thorne in the tie's Finance Department, do you 7 remember? 8 A. Yes, she was. She reported to Mr McGarrity. 9 Q. You see the subject matter is "TS comments response" 10 and: 11 "Please find attached - just some minor changes 12 from the previous version." 13 If we then go to that attachment, please, the 14 document reference number is CEC01625191. 15 We see the narrative at the top of the document 16 states: 17 "A detailed review of the comments from 18 Transport Scotland on the Draft Final Business Case has 19 now been performed by CEC, tie and TEL. The following 20 represents the combined response and proposed action 21 plan for the production of the Final Business Case in 22 line with the conditions set out in the grant award for 23 2007/2008. 24 "An outline action plan and timetable is provided as 25 appendix 1. It is important to note that the timetable 29 1 for addressing the actions and the production of the 2 Final Business Case must be fully aligned to the 3 programme for the tram project, particularly the 4 procurement element." 5 If we look then at the table, we see the headings on 6 the left-hand column at the top, "General Comments", and 7 then on the right, "Response/proposed action". 8 I think what appears to have happened, Ms Andrew, is 9 that the CEC's comments we looked at in the previously 10 table have now become combined CEC/tie and TEL comments, 11 is that correct? 12 A. Not exactly. Because I think the CEC comments we had 13 were the things that the Council wished tie to address. 14 These answers are how the project will address the 15 comments raised by Transport Scotland. 16 Q. So to an extent the Council comments stood alone as 17 representing Council comments? 18 A. Yes. 19 Q. This is really a different document which has moved on 20 and developed into a combined response? 21 A. Yes. 22 Q. But you would say one still should have regard to the 23 concerns set out in the Council's comments? 24 A. Definitely, yes. 25 Q. If we then, please, go to page 2 of this document? 30 1 Towards the bottom of the page, item 4, "Project 2 Scope", and in the right-hand column which represents 3 the response/proposed action, it is stated: 4 "Formal update reports to the Tram Project Board 5 will ensure appropriate control over any changes and 6 revisions. The approved document will form part of the 7 Final Business Case." 8 That seems a little different to the CEC comment 9 that the section and project scope in the Final Business 10 Case should be drafted with reference to the detailed 11 design. Is that correct? 12 A. Yes, it is correct. 13 Q. So what did you understand the response in this document 14 to mean, that formal update reports, et cetera, will 15 ensure appropriate control? 16 A. I think this is just -- it's a change control document. 17 So what is in the scope, what's out of scope. So are we 18 going to change the look of a particular bridge, or are 19 we moving a line in a particular way? That's a change 20 control but it's not -- it's not making -- it's not 21 bringing the scope -- providing more detail or clarity 22 of the scope, which a detailed design would do. 23 Q. So is this perhaps written from a standpoint of 24 financial control, that formal update reports to the 25 Tram Project Board will ensure appropriate control over 31 1 any changes and revisions? 2 A. Yes, I think that is the standpoint it seems to be 3 looking at. 4 Q. If we move on to page 3 of this document, under 5 section 5, "Governance", if we look at the right-hand 6 column, please, which states: 7 "Detailed Project Management Plans and control 8 procedures, including financial reporting procedures, 9 are now in place. Additionally, a formal operating 10 agreement is in preparation. Details of all the above 11 can be included in the FBC - clarification is required 12 from Transport Scotland regarding the level of detail 13 desired." 14 Now, the reference to the need for independent 15 assurance which we saw in the CEC comments doesn't 16 appear there. Do you know why not? 17 A. No, I don't. 18 Q. Do you remember discussing with Mr McGougan, or any of 19 the other senior directors around this time, your view 20 on the need for independent assurance? 21 A. I don't remember specific meetings, although I have 22 provided briefings to Donald on -- Mr McGougan -- on 23 these issues, and normally, following receipt of 24 a briefing note, we would sit and go through it. So 25 yes, I will have provided him with advice on this. 32 1 Why that's not in there, I -- I don't know quite -- 2 it could be that the -- some of the procedures or the 3 operating agreement might -- it might have been 4 envisaged that that was covered within that, but I can't 5 remember enough. 6 Q. Do you remember any views expressed by Mr McGougan 7 around this time, of whether he regarded there was 8 a need for independent assurance. 9 A. No, I can't. 10 Q. Then, please, go to page 7 in the document. 11 Very bottom of the page, we see under, "10, 12 programme". 13 The right-hand column states: 14 "A review of programme is currently being undertaken 15 and will be presented to the Tram Project Board in 16 May 2007." 17 Do you remember the outcome of that review of 18 programme? 19 A. No, I don't. The programme changed quite a lot of times 20 during the -- during the project. 21 Q. I think in terms of the Infraco procurement programme, 22 I think originally the parties were working towards 23 financial close in October 2007. I think a decision was 24 taken perhaps in the summer of 2007 to change that to 25 January 2008, a three-month extension to that 33 1 procurement programme. Does that accord with your 2 recollection? 3 A. Yes, it does. 4 Q. Even with that programme review, can I take it that the 5 points made by CEC in the previous document in terms of 6 concerns about utility slippage, MUDFA slippage, and any 7 impact that may have on the Infraco programme, 8 presumably those concerns remained on the table, as it 9 were? 10 A. Yes, they did. 11 Q. So they were not resolved simply by moving the Infraco 12 procurement programme by three months? 13 A. No. 14 Q. Thank you. If we then, please, go to the appendix which 15 was referred to in the opening narrative -- 16 CHAIR OF THE INQUIRY: Before we do that, could you go back 17 to page 1 of this document, please? 18 MR MACKENZIE: Yes. 19 You see item 1.3, there is reference to 1a and 1b. 20 What do you understand by these entries in relation to 21 it? 22 A. It was felt that the project were always keen to keep 23 the door open for 1b, whereas that was less of 24 a priority for Transport Scotland, because 25 Transport Scotland were looking at the strategic line 34 1 from the airport to Ocean Terminal and beyond. Whereas 2 the spur down to Granton would seem more of a local 3 priority. So I think Transport Scotland were always 4 keen that that was the effort, so there was perhaps some 5 concern that Transport Scotland -- the Business Case -- 6 included a lot on 1b. So it was how the Business Case 7 could be written in such a way that 1b was -- can only 8 happen when there was certainty over the rest of the 9 line. 10 CHAIR OF THE INQUIRY: Did the City of Edinburgh, as well as 11 tie, did both of them want 1b done at the same time as 12 1a? 13 A. I don't know whether the timing -- but certainly the 14 City of Edinburgh, 1b was -- and in certain areas still 15 is a priority for the city, because it unlocks an area 16 of very -- of high deprivation. So you need to, 17 I suppose, look at the difference between the strategic 18 importance of it and the financial consequences of it. 19 Certainly from Transport Scotland's point, they didn't 20 see any strategic importance -- I didn't feel they saw 21 any strategic importance in that, that section. 22 So it is not fair to say that the city was pushing 23 for 1b if it couldn't afford it. Certainly that was not 24 what the city was wanting. But if there had been money 25 available for it, then the city would have been very 35 1 keen to pursue that -- that spur. 2 CHAIR OF THE INQUIRY: I understood from what you said 3 earlier that -- if I'm wrong, please tell me -- that 4 Transport Scotland did not include the -- the grant did 5 not include 1b and the city did not have the money for 6 1b. 7 A. No, so it is almost how you write about it in the 8 Business Case, and I think that was perhaps where it is. 9 The city didn't have the money for 1b at that point, so 10 we wouldn't have been wanting to pursue it. But I think 11 it is how there was discussion -- there was still 12 a discussion how it could be funded if there was money 13 available, and the city was still pressing for that 14 funding at some stage. 15 CHAIR OF THE INQUIRY: Why would you include it in the 16 Business Case, if you knew that Transport Scotland, who 17 were the main funder, would not fund it? 18 A. I think at the time it wasn't that they wouldn't fund 19 it. They wouldn't fund more than the 500 million. 20 Which is what it became. And at that point it wasn't 21 enough to fund it within the overall cost envelope. Tie 22 were always optimistic, or seemed to be optimistic that 23 you could bring costs down, so that you could fund them 24 both within the available funding, and if tie had been 25 able to do that, then the Council would have been -- 36 1 would have been keen to do so. I think that's perhaps 2 how you look at that. Does that make sense? 3 CHAIR OF THE INQUIRY: Yes. 4 When it came to letting the contract, obviously you 5 are not -- hopefully able to answer this question, but 6 from an accountant's point of view, given the background 7 in relation to available funding and the doubt about 1b, 8 would it be prudent from a financial point of view to 9 include 1b in the contract? 10 A. No, it wouldn't have been, and that certainly was not 11 something I was pressing for. 12 MR MACKENZIE: Thank you. If we then, please, go to the 13 appendix of the comments table that we previously looked 14 at; in the appendix there is document reference 15 CEC01625192. 16 This is another spreadsheet. If we go to the top of 17 the page, we see, "Appendix 1 Tram - Final Business Case". 18 And then Outline Action plan. A list of actions. 19 Can we see the first action in row 7 is: 20 "Establish working group and governance." 21 Reading across, the start and finish date of May, 22 and the comment under "See note 1". 23 Then go down to row 25. Note 1:- 24 "Suggested membership for Final Business Case 25 working group." 37 1 We see it is proposed that will include Mr Fraser, 2 yourself, a number of officials from Transport Scotland, 3 tie officials and also a representative from TEL. 4 So at this time, it appears to have been anticipated 5 that a working group, including representatives from 6 Transport Scotland, would have been set up to consider 7 the various issues and concerns to do with the Final 8 Business Case. Is that right? 9 A. Yes, that is right. 10 Q. Do you remember that this working group ever sat? 11 A. To be honest, I don't remember that working group 12 sitting. 13 Q. If this working group had sat, presumably this would 14 have been an opportunity for all of the various concerns 15 to have been discussed and perhaps addressed and 16 resolved? 17 A. It could have been an opportunity. It would depend on 18 what information was provided to it. I think as the -- 19 as the Business Case was eventually done, a lot of the 20 drafting was done quite late and was almost presented 21 without sufficient time to comment and allow 22 re-drafting. So it just depended how that working group 23 had been serviced. It could have been an opportunity, 24 but it would have to have been working correctly. 25 Q. At least at this time in May 2007, there would have been 38 1 an opportunity for all of these concerns to have been 2 properly discussed and addressed, with the benefit of 3 the assistance of Transport Scotland involvement as 4 well? 5 A. Yes. 6 Q. Just stepping back a little, what were your views on 7 whether Transport Scotland officials were of a benefit 8 to the project? 9 A. I think a lot of them -- it would depend on the specific 10 officials, but some of the officials who had -- they 11 were very knowledgeable. They also had this big 12 network, so even if an official might attend a meeting 13 and might not know exactly all the detail, have all the 14 specialised knowledge, what they would do is they would 15 take stuff away, have other people comment on it. 16 I remember meeting -- it was much, much earlier, but 17 they were even able to bring in experts from UK Treasury 18 to look at aspects of an earlier Business Case, which is 19 the sort of resource that the Council didn't have. 20 Q. It is quite high level expertise? 21 A. Yes. 22 Q. Finally in this document, can we see, please, in row 22, 23 one of the actions was to submit the Final Business Case 24 for approval to Transport Scotland/CEC. So was that the 25 intention at that time, that the Final Business Case 39 1 would go to Transport Scotland for their approval? 2 A. Yes, it would need to, to be able to get a grant for the 3 whole project. 4 Q. Do you remember whether that requirement changed in any 5 way? 6 A. I don't remember, certainly by the time the Final 7 Business Case was there, that Transport Scotland had an 8 approval role. There was a lot of work on the grant 9 letter, but I can't remember whether they specifically 10 had to approve the Business Case. 11 Q. Jumping ahead a little, could we look, please, at 12 document CEC01566705. 13 We can see this is a letter dated 2 August 2007 to 14 the Chief Executive of the City of Edinburgh Council. 15 If we go over to page 2, please, you will see it was 16 sent by Malcolm Reed, who I think was the Head of 17 Transport Scotland at this time. The paragraph 18 beginning: 19 "It is also useful to confirm the criteria we will 20 employ to assess whether the 'financial close' milestone 21 has been reached as follows." 22 I should perhaps pause to say that this letter was 23 sent after the vote in the Scottish Parliament in June 24 2007, as a result of which after that, 25 Transport Scotland withdrew from the formal governance 40 1 of the project. 2 We see the first bullet point: 3 "Having received a copy of the Final Business Case 4 as endorsed by the Council ..." 5 Now we can ask Transport Scotland officials more 6 questions about this, but in short it would appear that 7 the intention changed from April 2007 with 8 Transport Scotland approving the Business Case, to at 9 this stage simply wishing to receive a copy of the 10 Business Case as endorsed by the Council. 11 Does that accord with your recollection? 12 A. Yes. 13 Q. As I say, we can explore that issue more with the 14 Transport Scotland officials. 15 If we then, please, go back to another document from 16 April 2007. This is CEC01559075. 17 If you go to the first page of this document, 18 please, you can see at the top of the document, this is 19 another briefing, I think from you to Mr McGougan, this 20 time for the Council's Internal Planning Group on 21 17 April 2007. We can see: 22 "Update on Major Contracts". 23 Under 2.1, "MUDFA", the paragraph there states: 24 "The most concerning issue here is the delay in 25 programme (now expected to be 5 months beyond original 41 1 duration, (11 months if 1b is to be undertaken)). This 2 must have cost implications - but tie is yet to report 3 on this." 4 I think that simply reflects your understanding of 5 the MUDFA works at that time, is that correct? 6 A. Yes, that's correct. 7 Q. Then if we go, please, to page 3, a bit more is said 8 about programme. Page 3, under "Update on Other 9 Issues". 10 We see "Programme". It is set out as follows: 11 "As you know key parts of the programme are 12 slipping (notably detailed design and MUDFA) and I, 13 along with colleagues in City Development, am becoming 14 increasingly concerned on the impact on costs. 15 "The procurement strategy was founded on the basis 16 that the design was done in advance to 'derisk' the 17 project and therefore reduce the risk premium built into 18 the Infraco and Tramco and MUDFA contract prices. 19 Similarly utilities diversions were to be done in 20 advance to 'derisk' Infraco. This process meant that 21 risks were being retained by tie to manage and 22 potentially abortive design and diversion costs have 23 been incurred as this was required to reduce costs and 24 risks in the overall project. 25 However, what has happened is that the MUDFA 42 1 contract has been let and will shortly commence in 2 earnest with detailed designs only 50% complete, 3 due to SDS slippage. This means that MUDFA is likely to 4 take longer than planned and could require numerous 5 variations. This will undoubtedly lead to claims from 6 the contractor. The contract price for MUDFA is 7 GBP45 million with a risk element taking the total cost 8 to GBP61 million (it should be noted that the risk 9 element is for unforeseen diversions, not contract 10 mismanagement!). City Development (unofficially) would 11 not be surprised if the final cost of MUDFA was as high 12 as GBP100 million. 13 Infraco is scheduled to be let by 30 September. If 14 this is also let without detailed designs in place, tie 15 could be leaving us open to much larger claims. There 16 is also the risk that as MUDFA has started late with 17 inadequate designs that it could delay Infraco, leading 18 to further claims. Given that the Infraco contract is 19 about GBP300 million, a 10 per cent [cost] overrun could 20 cause costs to rise by GBP30 million. 21 The Tram Project Board need to be considering these 22 issues urgently." 23 Pause there, Ms Andrew. A reference to City 24 Development unofficially not being surprised if the 25 final cost of MUDFA were as high as GBP100 million, can 43 1 you remember who at City Development said that? 2 A. It would have been either Duncan Fraser or somebody from 3 his team. 4 Q. Do you remember, did you get any feedback from 5 Mr McGougan in light of the matters set out in this 6 report? 7 A. I can't remember the precise feedback, other than 8 I think he was trying to raise it with colleagues at tie 9 or the Tram Project Board. 10 Q. You finished by stating: 11 "The Tram Project Board need to be considering these 12 issues urgently." 13 Are you aware whether that happened? 14 A. Not from papers that I read. I'm not aware that it 15 happened. 16 Q. In general, throughout 2007, did you feel that concerns 17 you had in relation to the project were being properly 18 addressed by the Tram Project Board? 19 A. No, I didn't. 20 Q. Why do you say that? 21 A. Because I would raise issues one month, and then you 22 would receive the next month's papers and nothing seemed 23 to have changed. The story was very similar. 24 Q. Thank you. Then if we move on to another document, it 25 is another briefing, CEC01552369. 44 1 You can see again from the top, it is from yourself 2 to Hugh Dunn, David Robertson, Karen Kelly, cc 3 Donald McGougan: 4 "Tram Briefing - 2 May 2007". 5 If I can then please go to page 5 of this document, 6 under: 7 "Project Governance Issues". 8 Just after halfway down the first paragraph there, 9 we see the sentence starting: 10 "A weakness in its operation is that there is no 11 independent review function (as recommended by Prince 2)), 12 to independently assess the project and challenge tie's 13 recommendation. I am also concerned by the quality of 14 CEC representation as Andrew Holmes does not always read 15 the papers to enable him to raise matters of concern 16 (although he is thoroughly briefed by his staff). 17 It is possible that Tramco or Infraco contractors 18 may require CEC to guarantee or be party to the 19 contracts negotiated by tie. Colleagues in legal are 20 concerned about this as they have had no involvement in 21 the process to date. However, in reality, the Council 22 would be exposed whether it guaranteed contracts or not, 23 as tie has no resources of its own. 24 Legal services are drafting an operating agreement 25 to put in place between CEC to cover the governance of 45 1 the tram project. There is concern that there is no 2 real mechanism to incentivise tie to perform or to 3 penalise it for poor performance." 4 Going back to the question you mention of an 5 independent review function as recommended by Prince 2. 6 What is Prince 2? 7 A. Prince 2 is a best practice project management 8 methodology, as kind of adopted by what was the Cabinet 9 Office. It is not the only best practice methodology, 10 but it is one that the Council seeks to use in all of 11 its major projects. 12 Q. Going back to the days when you were teaching at CIPFA, 13 did the likes of Prince 2 form any part of the teaching 14 to students? 15 A. Yes, yes, Prince 2 was one of the project management -- 16 project management is a subject that CIPFA cover and 17 Prince 2 is covered within that. 18 Q. Again, do you remember around this time, around 19 May 2007, getting any feedback from Mr McGougan or any 20 other directors on their views on the need for 21 independent assurance? 22 A. No, I can't remember what their views were. 23 Q. Now, you also mentioned here, you were concerned by the 24 quality of CEC representation as Mr Holmes did not 25 always read the papers to enable him to raise matters of 46 1 concern. 2 What was the basis of that statement that Mr Holmes 3 did not always read the papers? 4 A. This is not any -- this is something that I would have 5 picked up from colleagues in City Development. So 6 I would not have observed this myself. 7 I would probably also say that the volume of papers 8 was very high, and for a director of the Council with 9 all their other work, they would not necessarily have 10 the capacity to read them with the depth that they 11 needed to, but as I say, I can't remember the background 12 towards that comment. 13 Q. You stated you were concerned by the quality of CEC 14 representation on the Tram Project Board. Did you 15 continue to have that concern or did that concern 16 resolve? 17 A. I think I always had that concern because I think as 18 I said before, I felt that so much information being 19 produced by tie, and the board had a lot of tie advisers 20 at the board. So it was very difficult even if -- and 21 I didn't feel that the Council maybe had the support or 22 the independent knowledge with which to challenge what 23 tie were saying. 24 Q. I think there were also representatives from 25 TEL attending the Tram Project Board. Did that provide 47 1 any reassurance to you that there was some independent 2 review? 3 A. Not really. I kind of felt, it is perhaps -- it is 4 a personal feeling rather than a -- than a kind of 5 professional feeling, but I kind of felt that TEL and 6 tie were almost synonymous at times, because they kind 7 of worked closely, and certainly, I think the likes of 8 Willie Gallagher was originally a TEL Director, and 9 became involved with tie. 10 Q. I should not perhaps put words in your mouth, but in 11 short, was your feeling that the Tram Project Board was 12 quite tie-centric, can I put it that way? 13 A. Yes, that was my feeling. 14 Q. I have no further questions on that document. 15 If we then, please, go back to your statement if 16 I may, at page 24? In question 22, we raised the 17 question of the Scottish Parliament election on 3 May 18 2007, and then the debate in Parliament on 27 June, and 19 then the Scottish Government's decision is to continue 20 to fund the project, subject to an absolute cap of 21 GBP500 million and that Transport Scotland would no 22 longer be represented on the Tram Project Board. 23 Just in general, Ms Andrew, did those decisions by 24 Transport -- by the Government cause any concerns, both 25 the capping of the Transport Scotland contribution, and 48 1 the decision that Transport Scotland would no longer 2 play a part in the formal governance arrangements; what 3 were your views around that time? 4 A. Both of those issues caused concern. The capping 5 essentially meant that the Council was liable for 6 100 per cent of any overspend on the project, whereas 7 previously we had been hoping to negotiate 8 a proportional responsibility. So if the Council was 9 funding 10 per cent of the project, it would fund 10 10 per cent of the overspend. Once it took the full 11 brunt, that was a significant financial risk for the 12 Council. 13 On top of that, I think as I said before, 14 Transport Scotland had quite a wide pool of specialists 15 and access and experience that the Council could tap 16 into. Their removal from the Tram Project Board and the 17 wider project scrutiny process made it -- put greater 18 challenges on the Council, because we didn't have that 19 same level of expertise or resources with which to 20 scrutinise the project. 21 Q. Thank you. I would like now to move on to another issue 22 and come back to the steps taken by the Council in 23 August/September 2007, to obtain independent advice on 24 the risks arising from the project. 25 We covered this a little with Mr Fraser yesterday, 49 1 but if I can perhaps take you to some other documents, 2 firstly, please, CEC01566895. 3 We can see the email towards the bottom of the page, 4 on page 2, please. You see the email in the second half 5 of this page is from yourself, an email from you dated 6 31 August 2007 to Ron Hardwick. Who was Mr Hardwick? 7 A. Mr Hardwick worked in the Council's procurement team. 8 Q. We see the subject matter: 9 "Fast procurement of consultants for work on tram 10 business case". 11 We see in the email: 12 "We would like to procure consultants to analyse and 13 quantify the risks in the tram business case, to give 14 some comfort on the work carried out by tie Ltd and 15 its advisers. 16 As Council needs to approve the Final Business Case 17 and select the preferred bidder on 25 October, the 18 procurement process needs to be quick. It is unlikely 19 that the cost will be in excess of GBP25,000, but 20 I thought I'd contact you in case you saw any issues in 21 terms of the Council policy or procurement law." 22 Is that an indication of the cost you thought this 23 would be around this time? 24 A. Yes, for that one piece of work. 25 Q. I think if we go then to page 1, we can see at the top 50 1 of page 1 -- if we zoom back out again, please, at the 2 top of page 1, an email from Duncan Fraser, 2 September 3 2007, to yourself, and I think Mr Fraser is simply 4 setting out a very outline skeletal brief for the 5 review. He says in the final paragraph: 6 "The timescale for reporting would require to be set 7 to meet the agreed programme with Miriam and her 8 provision of information leading up to the 25 October 9 report and provision for a final review for 20 December 10 2007." 11 It seems to be envisaged at that time that as well 12 as this initial review to assist and inform the report 13 to Council in October, there was provision for a final 14 review later. Does that accord with your understanding 15 at the time? 16 A. Yes. 17 Q. Thank you. 18 The next document, please, in the chain, is 19 CEC01561154. 20 We can see at the top of this page, the first half 21 of this page is an email from yourself dated 22 10 September to Ron Hardwick. In the first paragraph 23 you say: 24 "Thanks for your advice. Further to your email and 25 subsequent telephone conversation, I can confirm that 51 1 the Director of Finance is prepared to sign a single 2 source justification form to appoint Cyril Sweett. The 3 justification is the tight timeframe for providing the 4 advice and the fact that this firm has previous 5 knowledge of the project based on work commissioned by 6 Transport Scotland. The rationale is that previously 7 Transport Scotland were exposed to the majority of 8 financial risk and employed Cyril Sweett as consultants. 9 Now this risk has passed to CEC, it is in our interests 10 to ensure this work is continued." 11 So at this stage, certainly, Mr McGougan agreed with 12 the suggestion to appoint external consultants such as 13 Cyril Sweett. Is that correct? 14 A. Yes, that's correct. 15 Q. The next document in the chain, please, is CEC01630955. 16 If we look at the email in the second half of the 17 page, please, this is an email from yourself dated 18 12 September 2007 to Susan Clark and tie, subject, 19 "External Adviser Brief". You say: 20 "Susan, thanks for your phone call outlining your 21 concerns." 22 To pause there, can you remember that phone call? 23 A. Vaguely. I think Susan had concerns that if we were to 24 get independent advisers into tie, they would -- they 25 would have to spend a lot of time providing information 52 1 to these advisers and they were quite busy at the time. 2 So they felt it could distract them from the work that 3 they needed to do to meet the Business Case deadlines. 4 Q. So how was the suggestion received at tie? 5 A. I don't think they were -- I don't think they were very 6 happy that we were wanting to appoint external advisers. 7 Or at least, separately from the ones that they would 8 have recommended that we went with. 9 Q. Reverting to your email you say: 10 "In Donald and Andrew's absence, I have spoken to 11 Hugh Dunn (Corporate Finance Manager) and Jim Grieve 12 (Head of Transport) who have advised me to continue with 13 the procurement exercise. This is on the basis that 14 both directors have instructed that the work be carried 15 out and to delay the procurement at this stage may 16 adversely impact upon the quality of the work." 17 So it seems from that that Mr Holmes was also in 18 agreement with this proposal? 19 A. Yes. 20 Q. You go on to say at the end of this page: 21 "I would also like to emphasise that the appointment 22 of external advisers (if it goes ahead) is in no way 23 a criticism of the expertise or work carried out within 24 tie. It is simply a recognition that CEC officials do 25 not have appropriate experience to perform their 53 1 monitoring/assurance role, particularly given the extent 2 of the risks involved. I am also very grateful for the 3 work you are carrying out to help us understand the 4 levels of risks in the project." 5 Now the next link in the chain, I think, if we go, 6 please, to document TIE00678245. 7 You can see about halfway across the upper half of 8 this page, an email from Steven Bell dated 19 September 9 2007. It states -- this is an internal tie email: 10 "All. This was published yesterday. Did we expect 11 it and are there any issues to manage from 12 a communications perspective with the bidders or other 13 stakeholders? It seems an extremely sensitive brief to 14 put out into the public domain at this time." 15 Below that email, you can see the brief. I think in 16 short, Ms Andrew, it appears as though a notice was 17 actually published inviting tenders for this work. Is 18 that correct? 19 A. Yes, that is correct. 20 Q. If you go to page 3, please, of this document, you can 21 see the notice details heading at the top. Then if we 22 go towards the bottom, we can see "Assignment 23 objectives". 24 I'm not going to read this out, but in short, it 25 accords very closely with the brief we explored with 54 1 Mr Fraser in evidence yesterday. In short, seeking 2 advice on the risks arising from the contracts. 3 If we go back, please, to finish on page 1, the top 4 email is from Matthew Crosse at tie dated 19 September 5 2007. It is to Steven Bell. It is a short and pithy 6 one. It states: 7 "Agree. But this will be their insurance policy 8 (butt cover) for the future if the project overspends." 9 Do you have any comment on that discussion? 10 A. I just think it is a very inappropriate email for 11 somebody in that position to be sending. 12 MR MACKENZIE: My Lord, I can carry on -- 13 CHAIR OF THE INQUIRY: No, if this is a convenient point. 14 We will carry on at 25 past. 15 (11.03 am) 16 (A short break) 17 (11.25 am) 18 CHAIR OF THE INQUIRY: You are still under oath, Ms Andrew. 19 MR MACKENZIE: Ms Andrew, before the break, we were 20 following this chain of emails in relation to the 21 Council obtaining independent expert advice. If we just 22 continue that, please, and now go to document 23 CEC01567757. 24 It started back at page 3, and then works towards 25 the front, please. So it is starting at page 3. 55 1 We looked at this email yesterday, I think, with 2 Duncan Fraser. You see it is an email from Mr Fraser 3 dated 24 September 2007 to Susan Clark in relation to 4 the instruction of Turner and Townsend. If we go to 5 page 2, please, we can see an email in the middle of 6 the page from Susan Clark dated 27 September 2007 to 7 Malcolm Hutchinson, who I think was leading the OGC 8 review team at this time; does that accord with your 9 recollection. 10 A. Yes, it does. 11 Q. Susan Clark states: 12 "Malcolm, CEC had been looking for a separate review 13 of risk as part of their governance process for tram and 14 prepared the attached brief. 15 Is this something that you would be able to cover 16 in your review next week?" 17 To pause, I think that around this time, the OGC 18 team were carrying out a Gateway 3 Review, does that 19 accord with your recollection? 20 A. Yes, it does. 21 Q. So in short, what seems to be happening here is that 22 Susan Clark is asking if that team could also separately 23 carry out a review of risk. Is that your understanding? 24 A. Yes, it is. 25 Q. Then if we can go to page 1, please. 56 1 At the bottom of the page is an email from 2 Matthew Crosse dated 28 September 2007 to Duncan Fraser, 3 stating: 4 "Duncan, just spoken to Malcolm Hutchinson. OGC 5 have now agreed to add a separate assignment to their 6 remit, subject to the detail could being agreed early 7 next week. The timing and reporting of the additional 8 review will need to follow the [over to page 2] main 9 Gateway review planned for next week - most likely the 10 following week. They also indicated that they may bring 11 in one of their specialists. I presume this now wraps 12 this up. As soon as we have sorted the deal out, I will 13 stand T&T down." 14 Just to complete the chain on page 1, please. 15 You can see halfway down an email from you dated 16 2 October 2007 to Jim Grieve. Who was Jim Grieve? 17 A. Jim Grieve was the Head of Transport at the time. 18 Q. You state: 19 "Further to our conversation earlier today, I have 20 discovered that tie have now engaged OGC to look at risk 21 next week and not Turner and Townsend, as previously 22 understood. 23 I have concerns that the OGC review may be at too 24 high a level, and that our need to have comfort over the 25 detail of the risks will not be met. I hope to get the 57 1 OGC remit from tie and will forward it on to you." 2 Had the suggestion of instructing OGC to carry out 3 a risk review been discussed with you at this time? 4 A. I think -- well, I don't think it was discussed with me. 5 I think it had been decided before I found out about it. 6 Q. Yes. Do you know why it was decided to instruct the OGC 7 team to review risk rather than Turner & Townsend? 8 A. I don't know. I think probably the chronology of what 9 happened is initially we had been trying to procure 10 somebody ourselves on the Council. Then tie stepped in 11 and said: we will do it for you, we will appoint Turner 12 & Townsend; then the review decided that Turner & 13 Townsend was not appropriate; the OGC could do that 14 because they were coming in anyway to do their Gateway 15 review. I don't know the reasoning why they felt they 16 could not use Turner & Townsend and the OGC were 17 preferable. 18 Q. Who in the Council agreed to the OGC carrying out the 19 risk review? 20 A. I imagine it would have been Mr Holmes or Mr McGougan, 21 but I can't remember that at this time. 22 Q. Did either Mr Holmes or Mr McGougan discuss the option 23 of instructing the OGC with you before the decision was 24 taken to do that? 25 A. I can't remember. 58 1 Q. You also set out in this email that you had concerns 2 that the OGC review may be at "too high a level", 3 et cetera. Can you explain those concerns, please? 4 A. Well, what an OGC team do as part of their Gateway 5 Review is they have interviews with the different people 6 involved in the project to kind of understand where they 7 are. It doesn't -- there is a bit of analysis of 8 documents, but a lot of the review is from 9 conversations, and it is not the same as having somebody 10 who is going really forensic into the detail of the 11 contract or the specification, which is what we would 12 expect from a team of project managers, quantity 13 surveyors. 14 Q. There are perhaps two things there. One is the type of 15 review carried out in the sense that you suggested that 16 the OGC may be more based on meetings and discussions 17 and conversations with people, whereas the likes of 18 Turner & Townsend may look as well or more so at the 19 documents as well. Is that correct? 20 A. Yes, that's correct, yes. 21 Q. And in terms of level of detail, I think you indicated 22 that the OGC review perhaps is at a higher level ie less 23 detailed than the sort of review that you had 24 anticipated the likes of Turner & Townsend carrying out, 25 is that correct? 59 1 A. Yes, that is correct. 2 Q. Did you then see the OGC report on risks when it was 3 available? 4 A. Yes, I did. And I took some comfort from some of the 5 things they said. It kind of chimed with what we were 6 thinking. It was -- it was a good piece of work. It 7 was perhaps not the piece of work that we had been 8 looking for. 9 Q. Do you have any views on the length of time the OGC 10 would spend on their review, compared to the length of 11 time the likes of Turner & Townsend would spend on their 12 review? 13 A. I think it would depend on the length of the commission, 14 anyway. I suppose the original commission had been 15 a piece of work prior to the Final Business Case 16 submission, and then a continuing piece of work right up 17 until contract close, whereas what the OGC was doing is 18 it is a short, sharp one-off review, and even the timing 19 of this, it seems to be they will do the Gateway review 20 first, and then we will do the Council's piece of work 21 as a bit of an add-on, rather than a separate piece of 22 work to dedicate a lot of time to. 23 Q. Thank you. If we please then go to your statement at 24 page 27, at the top of the page, in the context of 25 asking you about the similar change of emails we have 60 1 looked at this morning and then ending with the OGC 2 review. We had asked firstly if you had any comment on 3 these matters and you stated: 4 "During this period, I was concerned that the level 5 of contingency in the project budget was insufficient. 6 I was therefore seeking to gain a greater understanding 7 of the risks, to determine whether the level of 8 contingency proposed by tie was sufficient." 9 You then go on: 10 "The process of seeking this information was 11 frustrating as tie were resistant to the independent 12 review I was seeking and appeared to put pressure on 13 senior management within CEC so that it did not take 14 place. In the end, a short piece of work was 15 commissioned as part of the Gateway review process, 16 which I did not think would provide the level of comfort 17 I was seeking." 18 When you say there that tie appeared to put pressure 19 on senior management within CEC, that it did not take 20 place, what is the basis for that statement? 21 A. I suppose it is following on from that Susan Clark would 22 have called me and said: why are you doing this; what 23 are you doing. You saw the email I sent back to say: we 24 are going on with the procurement and it is up to 25 Mr Holmes and Mr McGougan to make the decision; and the 61 1 decision was then to stop the procurement. And I can 2 only imagine that somebody within tie will have spoken 3 to -- to either or both of these people but I -- it 4 appeared I have no evidence to say what did or didn't 5 take place. 6 Q. So that is an assumption on your case? 7 A. Yes. 8 Q. Thank you. Move on to another matter, please, in 9 document CEC01399632. 10 At the bottom of the page, we can see an email from 11 you dated 19 October 2007 to Mr McGougan, Mr Holmes, and 12 Gill Lindsay. This is following on from the OGC 13 presentation of the review of risks: 14 "The team brought two specific risks to [your] 15 attention." 16 We read this out yesterday to Mr Fraser so I won't 17 do it again in the interests of time. But can you 18 remember at that stage what your view on the matters set 19 out in this email were? 20 A. I think its -- its fairly self-explanatory. This is 21 a very big project, and I was aware that you can have 22 a contract and that contract can be as good or as -- as 23 perfect as the contract could be, but unless you have 24 staff who are appropriately experienced and 25 appropriately skilled in managing that contract, then 62 1 things can go awry and projects can go wrong. 2 So I think this thing on contract management was 3 really an important risk that the OGC brought out. 4 I don't think we'd had -- I didn't have confidence that 5 tie had these people on board. Certainly at that time, 6 they had certainly recruited a lot of people experienced 7 on the procurement side, and perhaps the project 8 management side, just because of the phase of the 9 project they were in, but they didn't necessarily have 10 the people there for the kind of contract -- the 11 operational, the construction phase of the project. And 12 certainly experience from other bits of the construction 13 that they had done, I was a bit wary that they were 14 lacking these skills. There had been issues with other 15 projects that they had managed, so it was something that 16 needed to be tightened up. 17 Q. It may be helpful at this stage to expand upon that. Go 18 to your statement, please, at page 29. Question 26 19 refers to the email we just looked at. 20 Then we asked you, question 1: 21 "What was your understanding of, and views on these 22 matters?" 23 You stated: 24 "I had been concerned for some time over tie's 25 ability to manage major construction contracts, as they 63 1 did not have a good track record. There was the issue 2 of slippage in the design and utilities contracts. In 3 addition the management of other capital projects 4 (eg Ingliston park and ride and Fastlink) did not 5 compare favourably with similar projects managed 6 directly by the Council." 7 Pause there, what were the issues as you understood 8 them in relation to tie's management of Ingliston park 9 and ride? 10 A. I can't remember the precise details. I can just 11 remember delays and overspends. That was quite a key 12 one, because at the same time the Council was building 13 the park and ride at Hermiston and that went really 14 quite smoothly. So it was just the compare and 15 contrast, and I can remember seeing the difference 16 between the two projects. 17 Q. Just to complete this, is Fastlink a separate project or 18 part of the Ingliston park and ride project? 19 A. No, Fastlink is -- well, it is part of the tramway now, 20 but I don't know if you remember, before they built the 21 tram, there was a guided bus way that went out towards 22 Edinburgh Park station, so that project was done first 23 as a kind of a project in itself, which then became the 24 tram. 25 Q. Were tie responsible for the Fastlink or guided bus 64 1 project? 2 A. Yes, they were. 3 Q. What were the problems or issues there as you understood 4 them? 5 A. I can't remember, I just remember there being issues. 6 I would have to kind of go back through my records to 7 find out. 8 Q. You then go on in your answer to state: 9 "I thought that the recommendations in the OGC 10 report and the fact that the Council was negotiating 11 operating agreements with both tie and TEL gave the 12 Council an opportunity to insist that tie strengthen its 13 contract management capacity. However, I fully expected 14 tie to resist this level of Council control over their 15 activities." 16 Why did you say you fully expected tie to resist 17 this level of Council control over their activities? 18 A. I suppose the way tie was set up as an arm's length 19 company from the Council, it had its own -- own board of 20 directors that were legally required to act in the 21 interests of tie rather than in the interests of the 22 Council. And that's just -- that's the issue when you 23 set up an arm's length company. So there may be some 24 requirements that the Council would wish to impose upon 25 tie which weren't in the interests of tie as a company, 65 1 so there were probably structural reasons why they might 2 resist some of the -- the controls the Council may wish 3 to put on it. 4 On top of that, the email that you showed me before 5 the break kind of illustrates that there was an element 6 of distrust between tie and the Council and that kind 7 of -- the tone doesn't suggest that there is kind of, 8 I think, evidence of perhaps not the best working 9 relationship between the two organisations. 10 Q. Just to pause a little. Look at the question of arm's 11 length companies owned by the Council. Did you have 12 experience of working with other Council-owned arm's 13 length companies around this time? 14 A. Yes. 15 Q. Can you give any examples? 16 A. I worked with the company at the Waterfront Edinburgh 17 Limited. I kind of had a role at one point monitoring 18 that company. I had -- I had had some involvement with 19 Lothian Buses, although to a much lesser extent, because 20 of the involvement the Council had, because of the 21 Transport Act, we have to keep Lothian Buses very much 22 at arm's length. 23 What I would say, the difference between tie and 24 TEL and the other arm's length companies, the other 25 arm's length companies generated or could at least 66 1 generate income, so they were self-sufficient companies 2 and they could make decisions in the interest of the 3 company. Whereas tie was very funny in that it was an 4 arm's length company that had no money other than money 5 that came from the Council, so it was quite a strange 6 entity in that respect. 7 Q. I think at the time it was set up, it was envisaged, 8 I think, that tie would be responsible for a number of 9 transport initiatives, including the road charging 10 proposals, so at least when it was set up, I think there 11 was an intention that there would be some money coming 12 into tie that way? 13 A. Yes. 14 Q. But you mentioned the Forth Ports Development Company. 15 I think you said you -- it was your role to monitor that 16 company. Did you say that? 17 A. Yes, I kind of went to -- well, we had Council -- 18 Council officers went to the board meeting, so I went 19 and met with the management prior to the board meetings. 20 It was not the best company because I tend to find that 21 the Council companies tend to -- the Council hasn't had 22 a great track record of -- with its arm's length 23 companies. 24 But, no, I went -- it was Waterfront Edinburgh 25 Limited, it was at Granton. 67 1 Q. I just wondered if you had any views on the kind of 2 steps a Council could take to monitor its arm's length 3 companies? 4 A. I suppose the key is really as the shareholder, to check 5 what the company is doing is in your interests. The 6 shareholder has the capacity to, at worst, sack the 7 board if it is really finding that that company isn't -- 8 isn't doing what it is supposed to do. It is sort of 9 the nuclear option. It is not what you would do the 10 first thing, but there are options the Council can do to 11 control it. Short of that, it is by setting up 12 operating agreements to require the company to do 13 different things, which is what we were trying to do 14 with tie. 15 Q. An obvious thing would perhaps be regular reporting from 16 the company -- 17 A. Yes. 18 Q. -- to the Council? 19 A. Yes. Those sort of regular reporting, and I think 20 annually the Council -- officers report to Council on 21 performance of these companies, and that is sort of 22 reported to members so that they can then take a view as 23 to how well those companies are operating. 24 Q. One of the features perhaps of this governance set-up is 25 that tie is reporting on a regular basis on the project 68 1 to the Tram Project Board, not to the Council, I think, 2 is that correct? 3 A. Yes. 4 Q. Albeit the Tram Project Board includes two senior 5 directors. But it still seems on one view is one step 6 removed from tie regularly reporting to the Council on 7 the tram project? 8 A. Yes. 9 Q. And a point we can try to address a little, going back, 10 please, to your statement at page 31. This part of the 11 statement deals with the report to Council in October 12 2007. It is seeking approval of version 1 of the Final 13 Business Case. 14 We can take this, I think, reasonably shortly. 15 Page 31 in question 2, we asked: 16 "Do you have any comments on the report?" 17 You replied: 18 "On re-reading the report with the benefit of 19 hindsight, while the main risks were discussed, the 20 level of concern held by Council officers is not 21 reflected in the report." 22 Do you have anything to add to that, or does that 23 set out your views? 24 A. That sets out my views. 25 Q. Then in question 3, we asked: 69 1 "Do you consider that the report to Council fully 2 and accurately reported on the delays in relation to 3 design, approvals and consents and utility works and the 4 risks arising from these delays?" 5 You replied: 6 "No. While paragraphs 4.3 and 4.4 state that costs 7 were likely to change due to further design work, there 8 was no reference to the fact that the requirement for 9 further work was due to delays." 10 Again, do you have anything to add to those 11 comments? 12 A. No, I don't. 13 Q. If we then, please, go to page 35 of your statement, in 14 question 33 we spent some time yesterday with Mr Fraser 15 looking at a briefing note prepared by the B team, if 16 I can use that terminology, provided to the directors 17 for a meeting of the IPG on 11 December 2007. 18 Do you remember that briefing note? 19 A. Yes, I do. 20 Q. As I say, I'm not going to go to the details of it 21 today. But in the statement we asked you at question 1: 22 "Did you have any input into the briefing note?" 23 And you said, yes, you had input into it and 24 commented on drafts: 25 "It was a joint piece of work compiled by Council 70 1 officers working on the tram project prepared in order 2 to escalate our concerns to senior management." 3 Then we asked, secondly: 4 "What were your views on the matters in the briefing 5 note?" 6 You stated you were: 7 "... concerned that some of these matters would or 8 could result in a significant increase in project cost 9 and that tie were rushing to achieve contract close 10 without resolving them." 11 Are you able to explain which of the matters in 12 particular you were concerned could result in 13 a significant increase in project costs? 14 A. I think the key one was probably around the design, 15 where it wasn't clear how the delay in design was going 16 to impact upon the contract, because initially we -- at 17 that stage, we assumed the design would be complete. 18 There were issues that what was going to happen -- it 19 was accepted the design wasn't complete. It was going 20 to be novated over to the Infraco contractor. 21 But it wasn't sure what was the status of finishing 22 the design, where the risks would lie, and if those 23 risks were then a change in a fixed price contract, then 24 that would then allow the contractor to claim against 25 the Council, or against tie which would then become the 71 1 Council -- which would then become the Council. 2 So that the costs could go up quite a lot, because 3 it is not just the costs of putting in place that 4 change, which could cost more; it also means the 5 programme changes, there is more delay in the programme 6 and those costs become quite high. So that was probably 7 my key concern from my point of view. 8 Q. Did you ever achieve clarity in that matter before 9 financial close in May 2008? 10 A. I don't think I did, no. There was some assurances and 11 some -- I think I was perhaps made to believe the design 12 was more complete than it actually was, or that more 13 risk had in fact been transferred to the contractor in 14 terms of completing the design than actually was. But 15 those concerns were never -- never completely went away. 16 Q. Going back to your statement, please, and question 3. 17 We asked: 18 "What was done in response to the concerns raised in 19 the briefing note?" 20 You replied: 21 "Senior management raised the issues with tie senior 22 management. A set of deliverables was agreed that 23 needed to be completed before Council officers agreed to 24 sign off the contract." 25 I will come back to that in a second. But fairly 72 1 simply, over the page, to complete your answer to this 2 set of questions, at the top of page 36, you state: 3 "I was pleased that these concerns were being taken 4 seriously by senior management, and I felt that if we 5 could get satisfactory responses to each of these, then 6 this response would have been adequate. In retrospect, 7 I think that any comfort that we might have taken from 8 these deliverables, was undermined by the fact that 9 Council officers ... did not have a full understanding 10 of the contract scope, and therefore the risks the 11 Council was accepting." 12 Can you elaborate on that, please? 13 A. Um, yes. I think what we were trying to do is to get 14 information or comfort on a number of different streams 15 which we addressed the matters in the briefing note. 16 But I suppose even if all these had been ticked off, 17 because we only ever saw partial things, we didn't have 18 that assurance or that due diligence, we didn't have 19 that capacity then -- we might have had comfort for them 20 but we wouldn't -- but the issues -- the underlying 21 issues might not have been addressed. 22 Q. Are there also issues of expertise? Do you feel that 23 Council officers had the expertise to fully understand 24 these risks? 25 A. No, I don't think we did. 73 1 Q. Then lastly question 5, we moved on to the question of 2 what were your views on the extent to which, if at all, 3 Council members should be advised on the concerns in the 4 briefing note, and whether it was appropriate for there 5 to be a report to Council on 20 December 2007 at all?" 6 You replied: 7 "I think I was concerned that members were not 8 getting the full picture and knew there were gaps in 9 officer knowledge of the risks involved. However, I did 10 not have regular contact with members, and would have 11 been guided by senior management as to what should be 12 reported and when." 13 Is there anything you wish to add to that? 14 A. No, that is correct. 15 Q. Thank you. 16 Moving on now to the question of the deliverables 17 for the contract award. If we could go, please, firstly 18 to a document CEC01501051. 19 We can see at the top of the page -- we looked at 20 this yesterday with Mr Fraser -- this is a minute of the 21 CEC/tie Legal Affairs Group Meeting on 17 December 2007. 22 Is this a group you attended on a regular basis? 23 A. I did latterly. I think it had been set up potentially 24 to look at legal matters, but as the agenda from that 25 group became more and more, I suppose, commercial 74 1 matters span legal, finance and have a technical input. 2 I managed to -- I started attending to -- 3 Q. At this time, 17 December 2007, the minutes describe the 4 group as the "CEC/tie Legal Affairs Group". 5 Did you have any understanding at this time that 6 this group was a sub-committee of the Tram Project 7 Board? 8 A. I can't remember. 9 Q. Would it have been a surprise to you at the time if 10 someone had suggested this group was in fact 11 a sub-committee of the Tram Project Board? 12 A. I really couldn't say. 13 Q. I understand. Could we then please look -- we went over 14 yesterday with Mr Fraser in box 2, item 2, the question 15 of Willie Gallagher reporting the contract is now 16 97 per cent fixed price, with BBS taking on design risk: 17 "Further negotiations to be undertaken between now 18 and financial close." 19 If we can go over to page 2, please, we can see 20 a third paragraph down: 21 "Aiming to sign Infraco contract on 28 January 2008, 22 but there are several deliverables required to be in 23 place to allow CEC Chief Executive to delegate authority 24 to award the tram contracts ... 10 January 2008 is the 25 key date for BBS to conclude negotiations ..." 75 1 Then: 2 "SC [reference to Susan Clark] presented a paper 3 outlining these." 4 If we can go, please, to that paper, which is 5 CEC01501053. 6 We can see this is headed: 7 "Paper to: Legal Affairs Committee." 8 Subject: 9 "CEC Chief Executive approval to tie for contract 10 award. Author Susan Clark". 11 I'm not going to dwell on this paper, because there 12 is a final version we will come to in a second, but 13 I think in short if we can see under the heading, 14 "Background", in the third paragraph it states: 15 "This paper outlines proposals in respect of the 16 mandate to be given to tie and identifies the 'aspects 17 of due diligence' that should be completed to allow tie 18 to be given authority to enter into the contracts along 19 with the process for achieving this." 20 There are then a number of deliverables for contract 21 award set out. We see on page 1, for example, the 22 headings, 1) Contract, 2) Programme". 23 Then at page 2, other headings: Employer's 24 Requirements; Due Diligence; Risk; Value Engineering; 25 pricing; Network Rail Assurances; a statement showing 76 1 final costs including risk funding; SDS assurances et 2 cetera. 3 I'm not going to dwell on that document, because 4 matters did move on, I think, and were set out in 5 a definitive fashion in the next document. 6 If we go, please, to CEC01485884. 7 I think we can see from the top of this document, it 8 is an email from Colin MacKenzie dated 10 January 2008. 9 It is sent to Susan Clark and Alasdair Sim. Copied into 10 yourself and others within CEC. Subject: 11 "Edinburgh Tram: Contract Deliverables". 12 In the text of the email Mr MacKenzie states: 13 "I have met with colleagues from Finance and City 14 Development to discuss the deliverables paper which you 15 drafted. Following that meeting, I'm now in a position 16 to forward the Council's requirements." 17 Is this familiar to you, Ms Andrew, that essentially 18 the Council, I think, officers collaborated in deciding 19 on a list of deliverables the Council would require from 20 tie to enable the Chief Executive of the Council to 21 authorise the contract award. Is that correct? 22 A. Yes, that is correct. 23 Q. Just looking at some of the matters in this email, some 24 of the deliverables. Under "1. Contract", it states: 25 "All contract terms finalised and ready to be 77 1 signed. This will require to be supported by a letter 2 from DLA to the Council Solicitor, together with updated 3 risk allocation matrices. An explanation of the risk 4 profile will be required, so as to give comfort to the 5 Chief Executive before the Council executes the 6 guarantee in respect of tie's financial obligations. 7 tie to provide a list of what is not included 8 within the BBS contract (ie the items which BBS have 9 specifically excluded) with a financial value against 10 each item." 11 Then: 12 "Novation agreements completed and ready to be 13 signed off." 14 We see a little further down: 15 "tie to advise on current status of MUDFA contract 16 and whether it has potential to hold up BBS contract and 17 result in increase in costs." 18 Simply pausing there on that matter, Ms Andrew, this 19 suggests that the Council were reliant on tie to advise 20 on the current status of the MUDFA contract and whether 21 it had potential to hold up the BBS contract. To what 22 extent were you personally aware of the progress of the 23 MUDFA works and any difficulties or delays in those 24 works? 25 A. I had probably only got the knowledge second-hand from 78 1 colleagues on the transport side, including Mr Fraser. 2 Q. I see. So there was no regular reporting, for example, 3 from tie to the Council specifically on the question of 4 the MUDFA contract? 5 A. No. I suppose all that we saw was part of the Tram 6 Project Board papers which came from tie. 7 Q. I think Mr Fraser did explain yesterday that he did 8 see -- he was on the distribution list for meetings of 9 the tie MUDFA Sub-Committee, and then he or a colleague 10 attended those meetings. Were you aware of that at the 11 time? 12 A. I can't remember. 13 Q. Reverting to this email, the second deliverable 14 programme, it states: 15 "Confirmed dates for 1a and 1b and understanding of 16 programme risk." 17 Another item is 4: 18 "Due Diligence. Statement from the preferred bidder 19 that they accept the performance run-time model and 'law 20 of physics' results and confirmation of acceptance of 21 the emerging quality of design." 22 5, "Risk", at the bottom of the page. It goes over 23 the page: 24 "There is a need for full transparency within the 25 QRA, therefore tie to produce a summary statement on 79 1 QRA, with details as follows." 2 And certain matters set out there. 3 Under 7, "Pricing": 4 "The Council requires a detailed analysis of prices, 5 costs and risks allowance. tie required to explain how 6 prices for maintenance ... impact on operating cost 7 assumptions. Cross refer to paragraph 1 above re 8 exclusions from contract by BBS. Otherwise statement on 9 percentage of costs fixed and percentage outstanding as 10 provisional sums with programme for moving these to 11 fixed costs." 12 Under 10: 13 "SDS Assurances. Full written explanation of SDS 14 novation to be provided by tie, including risks of 15 failing to deliver design: will this lead to an 16 extension of time claim and additional costs payable to 17 BBS? 18 Full details are required from tie on status and 19 degree of completion of SDS design work as at 14 January 20 2008, including prior and technical approvals. If 21 approvals risk is not being transferred to BBS, the 22 Council needs to know the impact and likelihood of the 23 risks and a strategy for managing the risks." 24 Then finally, top of page 3: 25 "tie to confirm that public sector (tie and CEC) do 80 1 not pick up cost of any delays in planning authority or 2 roads authority processing prior and technical 3 approvals." 4 Pausing here, Ms Andrew, what appears to have 5 happened, as I understand it, is that the briefing paper 6 to the IPG on 11 December, which set out a number of 7 concerns; those concerns in some way flowed through to 8 this list of required deliverables from tie to CEC. Is 9 that correct? 10 A. Yes. That's correct. 11 Q. What then happened in the subsequent days, weeks or 12 months, for those deliverables to be delivered? In 13 outline, what happened? 14 A. It is a number of things. It was mostly sort of 15 information that has been requested from tie, so we were 16 chasing tie for different bits of paper or bits of 17 explanation to allow us to have that information, which 18 we can then, I suppose, consider and advise senior 19 management on the issues that were outstanding. 20 Q. It may be helpful to go back to your statement at this 21 stage. Page 38, please. In question 2 on that page, we 22 have referred to these various deliverables documents 23 and we had asked: do you have any comments on these 24 documents? You replied: 25 "These documents represented Council officers' 81 1 understanding of the main risks and issues which needed 2 to be resolved and a plan to address them, which at the 3 time seemed to be sufficient. However, with the benefit 4 of hindsight, it is likely that this list of measures 5 would have been insufficient, even if we had had 6 satisfactory answers from [tie] on each point. There 7 was no independent review of the contract and its 8 related schedules in this list. I do not think that it 9 adequately covers the project's scope and the extent to 10 which design elements fell outside that scope." 11 When you say "with the benefit of hindsight, it is 12 likely that this list of measures would have been 13 insufficient, even if we had had satisfactory answers 14 ... on each point", the first question is do you 15 remember, did you receive satisfactory answers on each 16 point? 17 A. Um, I can't remember but I do not think we did. But 18 I couldn't be 100 per cent sure. 19 Q. You also say that even if you had received satisfactory 20 answers on each point, with the benefit of hindsight it 21 is likely that this list of measures would have been 22 insufficient. Why do you say that? 23 A. I think that a lot of the measures were assurances from 24 tie, or an explanation of things rather than the detail 25 itself. So that you are relying on somebody else who -- 82 1 and their reading of something that may or may not have 2 been correct to make the decision. 3 Q. So we are back, really, are we, to the point you made 4 earlier in the year -- 5 A. Yes. 6 Q. -- earlier this morning, about the need for independent 7 assurance? 8 A. Yes. 9 Q. Just also in the last sentence you say: 10 "I do not think that it adequately covers the 11 project's scope and the extent to which design elements 12 fell outside that scope." 13 What do you mean by that sentence? 14 A. I think we looked to the extent that things were fixed 15 and things weren't fixed, and I think at that time it 16 was thought that quite a large percentage of costs were 17 fixed, and by my understanding as fixed, it meant that 18 the scope was fixed, so that things weren't going to 19 change now because the design wasn't complete, and 20 things -- and things changed, that changed the project 21 scope on a really quite a granular level, and you could 22 say -- I don't know, if you went for a fixed price 23 contract to say build a tram from here to here, say that 24 is the scope, and that was -- they were priced on that 25 basis and take all the risks, that is fine; but then if 83 1 they say, actually, no, you have asked us to move, to 2 change the design of a pole and that potentially being 3 pushed back -- back to the -- back to tie -- I'm not 4 saying that that example is a correct example, but there 5 are -- it wasn't -- it wasn't clear how granular the 6 scope of the contract was, and how minor changes would 7 actually affect the price. 8 Q. I think we have covered earlier this morning the extent 9 to which you remained unclear about liability and risks 10 for design and design change? 11 A. Yes. 12 Q. Can we then please move on -- 13 CHAIR OF THE INQUIRY: Before you do that, you also 14 mentioned that there was no independent review of the 15 contract and the schedules. That has been a subsequent 16 thought that you had. 17 A. Yes. 18 CHAIR OF THE INQUIRY: How did you expect the chief 19 Executive to be able to authorise the signature of 20 a contract if there had been no separate review on 21 behalf of the Council to make sure that the contract 22 complied with the Council's wishes? 23 A. I think these issues had been raised by my legal 24 colleagues with the Council Solicitor and the Council 25 Solicitor had taken a decision at that point. 84 1 CHAIR OF THE INQUIRY: So that is a matter for the legal -- 2 A. Yes. 3 MR MACKENZIE: Thank you, my Lord. 4 If I could now, please, move on to the question of 5 the report to Council on 20 December 2007. I think we 6 can take this relatively shortly by going to your 7 statement at page 40, please. 8 This in particular concerns the various drafts of 9 this report. We had explored that with Mr Fraser 10 yesterday. At the top of the page, answer 1, we had 11 asked you to explain the drafting process of this report 12 in December 2007 and you answered: 13 "From recollection, Duncan Fraser pulled together 14 the first draft of this report. This was then 15 circulated to colleagues in CEC and tie for comment. 16 Following particularly critical comments from tie, which 17 were fed back to senior management within the Council, 18 Alan Coyle and I worked with Duncan to produce further 19 iterations, in response to comments from tie staff, 20 including Graeme Bissett and Stewart McGarrity and 21 instructions from Andrew Holmes and Donald McGougan." 22 Pause there. What is the reference to particularly 23 critical comments from tie? 24 A. I think that -- this refers to the kind of the track 25 changes version of the report where they were saying: 85 1 why is this in, this is a nightmare; and kind of 2 comments like that, which had been fed through. 3 Q. Just standing back a little, did you have any concerns 4 with the involvement of tie employees in drafting 5 reports to Council? 6 A. I had some concerns because the objectives of tie were 7 to deliver a tram project, rather than look at the wider 8 Council interests and risks of proceeding with that. So 9 there were some concerns. 10 However, because a lot of the information in that 11 report was taken from the Tram Business Case which tie 12 had prepared, then getting them to sense check and make 13 sure there were not any errors that had inadvertently 14 crept in was probably a good thing. 15 Q. It may be said that the interests of tie and the Council 16 were the same. They both wanted to build this tram 17 project. So why do you say that the Council may have 18 had wider interests? 19 A. Well, take it if the Council had decided on the back of 20 this report to cancel the tram project, then tie would 21 not have had any reason to exist. So you could argue 22 that the objective is tie -- solely the tram project. 23 The objectives of the Council are the wider benefits of 24 the city, which may or may not be to build a tram. 25 Q. Thank you. Reverting to your statement, bottom half of 86 1 answer 1, you say: 2 "While some of this work was required to make the 3 report more understandable, we were also required to 4 take out sections which were considered ”commercially 5 sensitive"." 6 Required by who or whom to take out sections? 7 A. The requirement would come from senior management, based 8 on comments that had come from tie. 9 Q. Which sections in particular were considered 10 commercially sensitive? 11 A. They tended to be ones about risks and costs. 12 Particularly if you started to break down costs or 13 provided too much detail of these -- these costs. 14 Q. Thank you. I would like to move on to the actual report 15 to Council itself now, please, on 20 December 2007, at 16 page 42 if I may of your statement. 17 The very top of the page, this is in answer to the 18 question: 19 "Do you have any comments on the report to Council?" 20 You replied: 21 "On re-reading the report, I do not consider that it 22 provided the Council with adequate information to 23 approve the award of contract. At this stage, the 24 contract had not been finalised and Council officers 25 were not able to recommend award, and instead 87 1 recommended the delegation of this decision to the Chief 2 Executive. Given the complexity and magnitude of this 3 contract, I do not feel this was appropriate." 4 Can you explain a little what you mean by that? 5 A. It is kind of because the report set out a number of 6 issues and risks. It doesn't go into that much detail 7 there. Which could -- there may be commercial reasons 8 for doing that. However, perhaps it is more important 9 that the contract wasn't even complete or finalised. As 10 officers, we didn't know what it said, or what it was 11 going to say, so to ask permission or to expect members 12 with even less knowledge to approve something that the 13 officers did not fully understand seems -- it just 14 doesn't feel right. Particularly, yes, there were cases 15 of urgency where delegated authority is given to 16 officers to do things. A contract of this magnitude -- 17 it is the biggest contract the Council had entered 18 into -- it just seems it is too much authority to be 19 delegated to officials. 20 Q. So you consider essentially it was premature for the 21 Council's approval to be sought on the Final Business 22 Case? 23 A. Particularly with hindsight, it was not finalised until 24 May. There were obviously a lot of gaps which had to be 25 filled between December and May. 88 1 Q. Is that a view you held at the time, or is that a view 2 you hold now with the benefit of hindsight? 3 A. Well, the question is asking what my views are now. It 4 is the view I hold now. I can't remember what my view 5 is -- I held at the time. 6 Q. I understand. 7 Can we also then, please, look at answer 3. We 8 asked what was your understanding at that time of the 9 extent to which the Infraco contract was for a fixed 10 price, and the extent to which and in what circumstances 11 the price was liable to change? You replied: 12 "I understood that the price was largely fixed, save 13 for a few re-measurable sections. I understood that the 14 price might change slightly as part of the approvals 15 process, but understood that designers had been working 16 with CEC requirements as Planning and Roads Authority, 17 and that the changes required to obtain the necessary 18 approvals would be manageable within the overall budget, 19 if not the GBP498 million." 20 By the overall budget, do you mean the 21 GBP545 million budget? 22 A. Yes. 23 Q. Yes. What was the basis of your understanding of the 24 matters set out in answer 3? 25 A. It was information I had received from tie, essentially. 89 1 And what they were telling me the contract was saying. 2 Q. Lastly, in relation to this point, in answer 5, you were 3 asked: 4 "Do you consider that the report to Council 5 adequately set out the delays in relation to design, 6 approvals and consents and utility works." 7 Your answer is: 8 "No. While the report does highlight some risk 9 associated with approvals, it does not cover the extent 10 of the delays and the additional risks this had added to 11 the project." 12 Again, is that a view you held at the time, or is 13 that a view you hold now with the benefit of hindsight? 14 A. It is probably a view I held at the time, yes. 15 Q. If you then, please, leave that document and move on 16 to -- 17 CHAIR OF THE INQUIRY: I'm sorry, could I just clarify: this 18 question of delegation to the Chief Executive, 19 can I just be quite clear what it is you are saying. 20 Are you saying that you were concerned -- or you are 21 concerned -- that the delegation took place at a time 22 when the contract negotiations were not completed? Or 23 are you saying that delegation took -- your concern is 24 that delegation took place at all? 25 A. It is probably a bit of both. Normally you go to 90 1 Council to authorise them to sign the contract. 2 I suppose it is the delegation took place before we knew 3 what the contract signed -- because councillors don't 4 sign the contract. Officers sign contracts. It is the 5 fact that we didn't know what we were signing up to when 6 delegation was sought. 7 CHAIR OF THE INQUIRY: So are you then saying that they 8 ought to have waited until the contract terms were 9 completed -- 10 A. Yes. 11 CHAIR OF THE INQUIRY: -- the negotiations were over? 12 A. Yes. 13 CHAIR OF THE INQUIRY: Then what would happen? There would 14 be a report by the appropriate officers for the Council 15 recommending that the contract would be -- should be 16 signed. 17 A. Yes. Yes. 18 CHAIR OF THE INQUIRY: Thank you. 19 MR MACKENZIE: Thank you, my Lord. 20 We move on to other matters at page 47 of your 21 statement, please. Question 49, this refers to an email 22 dated 19 February 2008 from Colin MacKenzie to 23 Gill Lindsay. We don't have to go to that, but in that 24 email, Mr MacKenzie recorded his concerns about tie's 25 lack of transparency and cooperation with Council 91 1 officers, which prompted our question: 2 "Did you have any concerns, at any stage, in 3 relation to tie's lack of transparency and cooperation 4 with Council officers?" 5 Could you read out your answer, please. 6 A. "I had concerns about tie's lack of transparency and 7 cooperation with Council officers throughout my dealings 8 with the company. This dated back to work on the 9 congestion charging project and continued throughout my 10 involvement with the tram project. 11 There was not a systematic or proactive way for 12 sharing important information with Council officers. 13 Officers would pick up partial information from board 14 papers or conversations with tie staff and then ask 15 follow-up questions. If difficult or awkward questions 16 were being asked, senior tie/TEL staff would complain to 17 Council senior management. I experienced this 18 personally when after attending a meeting of the Tram 19 Project Board, Donald McGougan was approached and I was 20 requested not to attend future meetings. As experienced 21 and highly paid experts, it felt as if tie did not 22 understand that Council officers had a duty to question 23 them and to ensure that the Council's interests were 24 being protected. There were some helpful individuals 25 within the company, but they tended to be at a more 92 1 junior level (for example Miriam Thorne always seemed to 2 answer my questions or point me in the direction of 3 somebody who could)." 4 Q. Thank you. The issue of this meeting where you attended 5 the Tram Project Board, do you remember approximately 6 when that was? 7 A. It was quite early. Probably about 2006. 8 Q. 2006? 9 A. Yes. 10 Q. Was that a meeting where you were there representing the 11 Council? 12 A. Yes. 13 Q. Did anything in particular happen at that meeting? 14 A. No, I think it was just -- it was a very full meeting, 15 and there were a lot of -- a lot of tie staff and 16 I think there was myself and an officer from legal. And 17 I think both of us were asked -- asked not to attend in 18 future. 19 Q. Was there perhaps a concern that more senior members of 20 the Council should be represented on the -- sorry, more 21 senior officers of the Council should be represented on 22 the Tram Project Board, was that perhaps partly 23 explained -- 24 A. That could be -- that could be part of it. I think it 25 was just -- the way which they went about it, it just 93 1 felt -- it just felt as if I was not being taken 2 seriously. 3 Q. That was the impression you had at the time? 4 A. Yes. 5 Q. I understand. Just to finish off this point, can we 6 also please look at your statement, page 16. The 7 question 3, we asked: 8 "Did you have regular meetings with tie concerning 9 the financial issues of the tram project?" 10 Et cetera. You responded: 11 "I met regularly with Stewart McGarrity and/or 12 Miriam Thorne to discuss financial issues. I cannot 13 remember the exact agendas..." 14 Et cetera. 15 You say: 16 "I felt that information (especially relating to 17 capital costs and risks) was not provided, as this 18 seemed to be held by the commercial team, rather than 19 the finance team, and was considered too 'commercially 20 sensitive' to share." 21 Is there anything you wish to say to expand upon 22 that. 23 A. Yes, I think this was during the -- this was the -- the 24 tendering process where they had two bidders and it 25 would have just been quite useful to understand how 94 1 costs were developing as -- as the procurement went on. 2 But I just had no sight of that. 3 Q. Thank you. 4 I would like to move on now to a separate matter 5 with some trepidation. It is the question of the 6 quantified risk allowance, so if we start perhaps at 7 quite a high level with document CEC01401847. 8 We see this is an email from Alan Coyle dated 9 9 April 2008 to John Ramsay at Transport Scotland copied 10 into yourself. It is feedback from a meeting. We see 11 the text is: 12 "Following your queries raised at our meeting today 13 on the costs of delay and high level breakdown of the 14 QRA, let me take each issue in turn." 15 1: 16 "Unmitigated delay costs are in the region of 17 GBP3 million per month. The QRA holds an allowance of 18 circa GBP3 million for SDS delay and a further 19 GBP6 million for general programme delay." 20 Paragraph 2: 21 "The QRA has reduced from GBP49 million at Financial 22 Business Case to GBP32 million. The material change in 23 the QRA relates to procurement risks for Tramco and 24 Infraco closed out at the signing of the contracts. The 25 significant changes from FBC are as follows: 95 1 "Reduction of GBP24 million reflecting the removal 2 of major elements of the procurement stage risks in the 3 negotiated base costs. 4 "Reduction of GBP3 million reflecting the removal of 5 other risk items into the negotiated base costs. 6 "Increase of GBP10 million to provide for risks and 7 uncertainties to be managed by tie ltd during 8 construction." 9 Simply to pause there, can you remember what these 10 risks and uncertainties to be managed by tie during 11 construction were? 12 A. No, I can't, sorry. 13 Q. So we can put this document to one side. 14 If we then, please, go to document CEC01245223, we 15 can see at the top of the page -- we should actually 16 start with the email in the second half of the page. It 17 is an email from Stewart McGarrity of tie dated 15 April 18 2008 to Alan Coyle, copied into yourself and Mr Conway. 19 Mr McGarrity states: 20 "Attached are two files ... the cost analysis 21 spreadsheet which you know and love ..." 22 Et cetera. And also part 4 of the Schedule to the 23 Infraco contract re pricing. 24 Sticking with the cost analysis spreadsheet first, 25 if we can go to that attachment, please, which is 96 1 CEC01245225. 2 I think this may be an Excel spreadsheet. It might 3 not be the easiest thing to view. 4 That is not bad. Okay. So what this appears to do, 5 if we look at the bottom left-hand corner, it shows the 6 different tabs. I think we are in the PCB P13 tab. Do 7 you see that? 8 A. Yes. 9 Q. This sets out the budget at financial close. It is 10 a rather formidable looking number of figures. We are 11 not going to look at that. If you scroll down to 12 bottom, please, not looking at the budget, if we go to 13 the bottom, we will see under the light blue shading, 14 top of the left-hand column there, row 313: 15 "Risk Allowance Analysis". 16 We can see in the bottom right, and part of the blue 17 shading, a figure of 32,347,616. Do you see that? 18 A. Yes, I do. 19 Q. So I think in short, this provides some breakdown of the 20 risk allowance at financial close. Does that accord 21 with your recollection? 22 A. Yes. 23 Q. We can see under "Risk Allowance Analysis", the various 24 items which are given a risk figure. Now, for reasons 25 I will come on to, I think there is one error in this 97 1 table. Do we see in the right-hand column, the number 2 0? Do we see that? 0? 3 A. Yes. 4 Q. And "0" is opposite "other". I think the error -- other 5 witnesses may be able to confirm this -- I think the "0" 6 should be at the very top of the right-hand column, and 7 I think all the numbers on the right-hand column should 8 move down one, so that I think on a correct reading at 9 financial close, the risk allowance for Infraco/Tramco 10 procurement, I think drops to zero, because these 11 contracts have been procured. 12 A. Um-hm. 13 Q. That would then mean that Infraco/Tramco delivery for 14 this risk allowance is about 6.8 million. Design and 15 consents, the risk allowance is about 3.3 million, and 16 that would be consistent with the email you looked at -- 17 A. Yes. 18 Q. -- before from Alan Coyle? 19 A. That makes sense, yes. 20 Q. Does that sound right? Again, it would also mean under 21 General Programme Delay, the risk allowance is about 6.6 22 million, consistent with Mr Coyle's email. Is that 23 right? 24 A. That feels right, yes. 25 Q. So that was the QRA allowance at financial close. It 98 1 might also be helpful to compare in tab summary P12. If 2 we can open that up, please. 3 It is, I think, a slightly harder one to read. 4 Again we can see at row 964, if we stop there -- if we 5 can zoom back out one more, and again -- if we can zoom 6 back out as opposed to in? 7 If we can stop here for a second, I think we can see 8 again in the far left-hand column the same list of items 9 for which the risk allowance had been set. Do you see 10 that? Then if we look at the numbers on the right-hand 11 side, if you go to the very top of that column, we see 12 the words "FBC", Final Business Case. So I think in 13 short, the numbers we can see on the screen on the 14 right-hand side which add up to the 48,974,000, I think 15 that represents the risk allowance at the Final Business 16 Case stage in December 2007. Does that accord with your 17 recollection? 18 A. Yes, it does. 19 Q. If we are able to zoom out just one step more -- no. If 20 we perhaps scroll to the right would be the alternative 21 way. And we stop there, thank you. 22 I think we can see then now appearing on the screen 23 under column EE, top of that column, you see it is 24 "financial close". I think there we can see a slightly 25 different figure to the one we looked at before. It 99 1 totals GBP33,280,943. Do we see that? 2 A. Yes. 3 Q. I think that is supposed to represent a breakdown of the 4 risk allowance at financial close. Does that appear 5 correct? 6 A. Yes, it does. 7 Q. Can we also see there that the zero, I think, is now in 8 the correct place in the right-hand column? If we see 9 the zero in the right-hand column and trace it back to 10 the left, we see it is in the same row as 11 "Infraco/Tramco procurement"? 12 A. Yes. 13 Q. I think again I suggest, I was correct when I said 14 earlier that the tab PCB P13, the zero was in the wrong 15 place, is that correct? 16 A. Yes. 17 Q. Thank you. That is all by way of precursor. 18 To move to the next tab, if I may, which is tab P80, 19 risk allocation 1a and 1b. If we could scroll down this 20 tab a little, please -- scroll up, I think, thank you -- 21 I'm not going to go into this in detail, but it is to 22 try and get an overview. 23 This, I think, is if we look at the top heading, top 24 left-hand corner, it states: 25 "P80 Risk Allocation Report, current period end 100 1 1 March 2008. 2 What is your understanding of what this tab shows? 3 A. This is how risk allowance was calculated by tie. So 4 what happens is that they have a risk register and every 5 risk is provided with a cost. So how much it would cost 6 if it happens. And likelihood in terms of a percentage. 7 Then this is all run through a statistical model which 8 then runs a lot of different iterations. So what if 9 risk A happened but risk B didn't but risk F did, so 10 they run all these different iterations. 11 Then how it works out that the figure that churns 12 out to the 32 million or the 49 million is the figure 13 that would happen if 80 per cent of the time the cost of 14 the risk would be less than that amount. At P80. At 15 P90 it would be 90 per cent of the time. At P50, it 16 would be 50 per cent of the time. 17 But what is crucial in these things is not so 18 much -- is have all the risks been included in that 19 calculation, and is the assessment of the risk correct 20 both in terms of value and in terms of probability? 21 Then even if you have that, are we properly 22 mitigating these risks? Because if you are not managing 23 them, they could happen, or more of them could happen. 24 So it is a statistical element technique to come up with 25 a risk -- a risk amount to put in your budget. While we 101 1 then, in all these things, you have broken down these 2 risks into different categories which is helpful, 3 I didn't think it was that -- it is not essential 4 because what could happen -- it's the total risk pot. 5 So it might be that all your risks happen in one area, 6 but that pot is enough to cover it if risks -- if no 7 risks happened on land or what have you. 8 So it is just giving you an amount of money to set 9 aside in the event that risks happen. 10 Q. A number of questions. To what extent if at all were 11 you able to look at this QRA output and satisfy yourself 12 that it was correct? 13 A. I wasn't. Because I didn't -- I didn't know the values 14 of the risks. I am not an engineer. And I was not 15 close enough to the project to understand either the 16 values or the probabilities. So I could see it there, 17 and I was reliant on colleagues in tie essentially to 18 ensure that the figures that they put in were correct. 19 Q. Just to explore that a little, an illustration to the 20 spreadsheet we are looking at. We can see, I think, the 21 risks are grouped into different colours. 22 For example, light brown, beige, "design and 23 consents risk". I think if we were to total up the 24 figures in the right-hand column under "Design and 25 Consents", I think that would correspond with the 102 1 headline figures we looked at in earlier tabs of the 2 spreadsheet. 3 We see yellow, "General Programme Delay", could we 4 perhaps scroll down to rows 17 and 18, thank you. I'm 5 not sure if it is possible to expand the rows between 6 rows B and H? I think some are hidden. Thank you. 7 Now let's stick with, say, "Programme", the yellow 8 one. Let's look at row 18, "Miscellaneous". You can 9 see "Risk event, delay to completion of project". 10 We can see two columns over, the probability is 11 40 per cent. To pause there, while we can see that 12 probability figure of 40 per cent, we are not told how 13 that has been arrived at? 14 A. No. It would be -- an individual within tie will have 15 provided their risk manager with that assessment. 16 Q. Their judgment on that matter. 17 If we then just continue looking at the next row -- 18 sorry, column -- it is headed "Current impact 19 assessment", there are three figures, minimum, most 20 likely, to maximum. So for example for this risk of 21 general programme delay, the figures range from a 22 minimum of, I think, 6 million, most likely to 23 15 million, maximum 23 million. 24 Again, anyone reading this would not know how those 25 figures had been arrived at? 103 1 A. No. 2 Q. Again, the exposure period is between 31 December 2010, 3 31 December 2011. Again, anyone reading it wouldn't 4 know how those had been arrived at. 5 Scrolling further along to the right, please, we see 6 P80 Risk Allocation for this risk of about 7 GBP6.4 million. 8 Is it fair to say that while one sees there the 9 output or outcome, one doesn't really see the detailed 10 workings of how that has been arrived at? 11 A. No, you don't see the -- certainly the workings are in 12 the statistics -- but you don't see the workings for the 13 inputs, so the 40 per cent or the minimum, most likely 14 and maximum risk, which generate the figure. 15 Q. I think either you or another witness had mentioned, in 16 fact -- 17 A. Yes. 18 Q. -- I think a computer is involved in producing 19 algorithms and a computer produces the calculations, is 20 that right? 21 A. Yes. Certainly from my understanding and speaking to 22 advisers on other projects, this technique is quite 23 robust, or the algorithm is robust. What is key is are 24 the inputs correct? If they are not correct, then the 25 risk isn't -- the allowance isn't worth the paper it is 104 1 written on. 2 Q. Thank you. You can put this document to one side, thank 3 you. 4 I think you also mentioned the importance as well, 5 in risk, of risk management. Can you explain that 6 a little, please? 7 A. Yes, what you do -- in normal risk management, you look 8 at your risks, you quantify them in terms of their 9 impact and their likelihood, and the ones which have 10 high impact and are very likely, then it is imperative 11 that the project manages these risks. So in the -- so 12 you can either choose to put measures to stop the risks 13 happening -- in some cases you might be able to pass 14 that risk to the private sector, in others you might 15 take insurance out to protect yourself against them. 16 Then there will be a number of risks that you can't do 17 anything about, for example, say, a big period of bad 18 winter with a huge dump of snow which stops the project 19 happening. Then you couldn't do anything about that as 20 an organisation. So that is really what you should do 21 with risks, and certainly it is the Project Board's 22 responsibility to continually review the risks and how 23 the project is managing them, and whether they need to 24 put extra measures in place to stop them from occurring, 25 or to reduce their impact if they do occur. 105 1 Q. What were your views at the time as to whether the Tram 2 Project Board were effectively reviewing the risks? 3 A. Well, what you would see is you would see iterations of 4 the risk register where there weren't -- they hadn't put 5 it written down, the mitigations for particular risks, 6 or there were some risks where they had -- that I maybe 7 knew about that were to do with the Council, which had 8 been closed out but they were still appearing on the 9 risk register. Which just made you feel that there 10 wasn't this robust sort of frequent review of the risks; 11 the whole analysis seemed to be focused on the black box 12 of the QRA, rather than a proactive risk management 13 arrangement. 14 Q. I think in certain parts of your statement, you do 15 express concerns you held at the time in relation to 16 tie's approach to quantifying and managing risks. Are 17 you able to summarise what those concerns were? 18 A. Yes, it was that they were -- they were asking 19 individual project managers to kind of put these -- 20 quantify in. But I suppose it goes back to the 21 assurance and the things that we didn't know whether 22 these were accurate, whether they had been subjected to 23 robust challenge and review. We were just reliant on 24 what they put in. 25 Then when you saw the register, it kind of made you 106 1 doubt that they were updating and constantly reviewing 2 these risks. 3 Q. I think in a number of passages in your statement, to 4 summarise, essentially, I think you expressed concern 5 that tie were focusing on quantifying the risks, outputs 6 and the statistical analysis, rather than a focus on 7 measures to manage and mitigate risks, and assessing and 8 monitoring the effectiveness of those measures. Is that 9 a fair summary of your concerns? 10 A. Yes. Yes, it is. 11 Q. We can put QRA to one side for now. 12 Going back, please, to the email from Mr McGarrity 13 we looked at, which is CEC01245223. 14 We can see in paragraph 2 of Mr McGarrity's email, 15 he refers to attaching part 4 of the Schedule to Infraco 16 contract re pricing. 17 Had you seen that Schedule 4 before this? 18 A. No. 19 Q. This appears to be the first time that a draft of 20 Schedule 4 is sent to the Council. Does that accord 21 with your recollection? 22 A. Yes, it does. 23 Q. Thank you. 24 I think the best way perhaps to deal with this is to 25 go to page 54 of your statement, if I may. We asked you 107 1 various questions in relation to Schedule 4. Question 2 2, at the top of the page, we asked: 3 "Is this the first time you had seen Schedule 4..." 4 You confirmed this was the first time you had seen 5 it. Understandably you find it difficult to distinguish 6 between views you held at the time and views you now 7 hold with the benefit of hindsight, and you make the 8 point: 9 "Without seeing the detail of works in Appendix A 10 (there is a blank page in the copy we received), the 11 Council was not in a position to assess the level of 12 risk that these designs would need to change." 13 If we then go down to the fourth bullet point down, 14 we had asked what was your understanding of the purpose 15 and effect of the various pricing assumptions in 16 Schedule 4, and you replied: 17 "I understood the assumptions were made to transfer 18 the risk of design changes in respect of approvals and 19 third party agreements to the public sector. This is 20 the position I understood tie to have reached with 21 Infraco. However, I understood that changes to designs 22 to complete them would be a risk for Infraco." 23 To pause there, we know from other witnesses that 24 the design was incomplete at this stage. There is 25 a suggestion in your statement as of November 2007, the 108 1 detailed design was approximately 60 per cent complete. 2 So what was your understanding, if you had one at 3 this time, of who would be responsible and liable for 4 the completion of the remaining 40 per cent? 5 A. I thought that was going to be passed on to the 6 consortium, through the novation of the design contract 7 from tie to the consortium. There may have been certain 8 carve-outs where the consortium didn't have any 9 controls, such as third party agreements or Council 10 approvals where that risk was pushed back to the public 11 sector, but I thought for just completing the design to 12 a standard to which it could be built, was to be pushed 13 to the private sector. 14 Q. What was the basis of your understanding of these 15 matters? 16 A. It was probably from discussions with tie, and this was 17 my understanding. 18 Q. Also, at the bottom of this page, we had asked about: 19 "Paragraph 3.2 of Schedule 4 stated that certain 20 pricing assumptions represented factual statements that 21 the parties acknowledged were not consistent with the 22 actual facts and circumstances that applied, and would 23 result in a notified departure." 24 I will come back to this point with other witnesses, 25 but you replied in answer here: 109 1 "I do not know the extent to which the Council was 2 aware of pricing assumptions that were inconsistent with 3 actual factual circumstances. In particular I did not 4 think the Council had a full enough understanding of the 5 design to be able to estimate this. I am unaware of any 6 Council attempt to clarify this potential liability, 7 although more general questions were asked regarding the 8 potential cost of changes." 9 Then finally on this point at the top of page 55, if 10 I may, your answer goes on: 11 "I do not think the Council had any basis for 12 knowing the likely number and value of notified 13 departures." 14 Is there anything you wish to add to these answers? 15 A. No. That covers it. 16 Q. Thank you. I would like to move on now, please, to the 17 report to Council on 1 May 2008. Before we do that, can 18 we look first, please, at a document TIE00159052. 19 I think we can see from the middle of the page that 20 this is, I think, an internal tie email from 21 Graeme Bissett sent on 18 April 2008 to various 22 colleagues. Mr Bissett states: 23 "Colleagues, this is Alan's draft of the Council 24 Report for the meeting of 1 May. The changes shown on 25 the document are mine, as yet not discussed with Alan." 110 1 So I think this is another example of tie employees 2 having an input into the drafting of the report to 3 Council. 4 If we can, please, then go to this report, it is 5 a separate document, TIE00159053. 6 You can see from the top of this document, it is 7 a draft report to Council on 1 May 2008. If we then 8 please go over the page to page 2, in paragraph 3.6, we 9 can see inserted text which is underlined halfway 10 through this paragraph, which states: 11 "tie ltd continues, through its appointed 12 contractor, to execute the work under the contract for 13 utility diversion along the tram route on behalf of the 14 Council and reports that this work, which is part of the 15 authorised works under the statutory authority granted 16 to Council under the Edinburgh Tram Acts, is progressing 17 to programme and budget." 18 If we look at the comments, please, on the 19 right-hand side, this, I think, is a comment by 20 Mr Bissett stating: 21 "I suggest we refer to MUDFA as it is an integral 22 part of the construction, explains what is currently 23 happening and is going well." 24 Now, I think this statement about the utility works 25 progressing to programme and budget found its way into 111 1 the final report to Council on 1 May 2008. Was that 2 consistent with your understanding of the MUDFA works at 3 the time? 4 A. Um, I can't remember. I think I had some -- some, um, 5 email communications to the effect that it had kind of 6 it was -- not exactly back on programme but it was 7 working. But then shortly after that report, I then got 8 reports from tie that it was slipping again. So I don't 9 know at what stage it changed from being it's on 10 programme to its slipping. 11 Q. To be fair, you mentioned earlier you were at least one 12 step removed from really knowing what the state of play 13 in MUDFA works were? 14 A. Yes. 15 Q. So essentially, you were perhaps reliant on tie on this 16 aspect? 17 A. Yes, tie and perhaps colleagues on the Council. 18 CHAIR OF THE INQUIRY: Mr MacKenzie, is this a convenient 19 point? 20 MR MACKENZIE: My Lord, there is just one final point on 21 this report if I may, thank you. 22 Turning to page 3, in paragraph 3.8, we see under 23 "Quantified Risk Allowance" in paragraph 3.9, towards 24 the end of that paragraph stated, in struck-through 25 text: 112 1 "The significant changes from Financial Business 2 Case are as follows." 3 There is reference then to reduction of 24 million, 4 reduction of 3 million and increase of GBP10 million to 5 provide for risks and uncertainties to be managed by 6 tie ltd during construction. 7 Just to pause there, that wording, I think, is 8 consistent with the email from Alan Coyle we looked at 9 after the break, is that correct? 10 A. Yes, it is. 11 Q. Do you know why the suggested inclusion of this text has 12 been deleted? 13 A. No. You would have to ask the people who deleted it to 14 do that. I can surmise it was -- the reason was given, 15 because if you break down your risk, it gives the 16 contractor more -- they know how much the Council has 17 got so to claim for, but I couldn't give you any... 18 Q. Just finally, I think the final report to Council on 1 19 May 2008 doesn't include this text and doesn't include 20 in the statement that there had been an increase of 21 GBP10 million to provide for risks and uncertainties to 22 be managed by tie ltd during construction. 23 Do you consider that's the sort of information 24 members would require to know about, in order to come to 25 an informed decision on whether to give the Chief 113 1 Executive the refreshed powers he sought? 2 A. Yes, I think it is. 3 MR MACKENZIE: Thank you, my Lord. 4 CHAIR OF THE INQUIRY: We will resume again at 2.05. 5 (1.02 pm) 6 (A short break) 7 (2.05 pm) 8 CHAIR OF THE INQUIRY: Good afternoon. I'm sorry I'm a few 9 minutes late. Something arose with another witness. 10 You are still under oath. 11 MR MACKENZIE: Thank you, my Lord. 12 Ms Andrew, could I take you to another document, 13 please, CEC01222041. 14 Now, if we see in the document in the second part of 15 this page, the second half, an email from Nick Smith 16 dated 6 May 2008 to Duncan Fraser and others, including 17 yourself. This in short contains -- if we move on to 18 the next page, please, as well -- you can see, top of 19 this table: 20 "Report on Terms of Financial Close ('Closed 21 Report') Draft". 22 Version 28 April 2008. Below that, "Comments by CEC 23 30 April 2008". 24 Do you recall this table? 25 A. Yes. 114 1 Q. What seems to have happened, in short, is tie sent CEC 2 a draft of their closed report and members of the CEC B 3 team produced a table with their comments, which I think 4 then went back to tie for their comments, which we can 5 see in the far right-hand column of this table. Then we 6 can see Mr Smith has marked up his response to tie's 7 comments in blue text. 8 Can we please -- I won't go through this table in 9 detail -- we can certainly essentially see there are 10 a number of issues and concerns listed. Do you see 11 that? 12 A. Yes, I can see that. 13 Q. If we go back to page 1, please, of this document, the 14 top of this document, we can see this is an email by 15 yourself, dated 6 May 2008, back to Nick Smith and 16 various members of the Council's B team. You say: 17 "Not much to add to Nick's comments. My concerns 18 are: 1, latest developments could increase risk of 19 procurement challenge; and 2, QRA provides insufficient 20 cover for design risks (we are reliant on tie's project 21 and risk management expertise to set an allowance at an 22 appropriate level). We can take comfort from the fact 23 that the OGC said the GBP50 million at Final Business 24 Case stage was 'about right' and would have expected 25 this number to come down at final deal. We also have 115 1 additional headroom between the project cost and 2 available funding. Use of headroom, however, would make 3 1b even less affordable." 4 So when you say: 5 "We can take comfort from the fact that the OGC said 6 the GBP50 million at Final Business Case stage was 7 'about right' and would have expected this number to 8 come down at final deal." 9 We know from looking at the QRA spreadsheet this 10 morning that at Final Business Case, I think the risk 11 allowance was about GBP49 million, and we saw how that 12 had changed to about GBP32 million at financial close. 13 So it had come down, which is what perhaps one would 14 certainly hope for and the OGC had commented that that 15 was to be expected. 16 Is that what you meant by that? 17 A. Yes. 18 Q. Then you referenced the additional headroom between the 19 project cost and available funding. Is that a reference 20 to the project cost, including risk allowance being 21 something like GBP512 million and the available funding 22 was GBP545 million; is that maybe a reference to their 23 being headroom? 24 A. Yes, that is -- yes, it was. 25 Q. I understand. 116 1 I haven't taken you through the various concerns and 2 issues raised in this table, but can you remember 3 whether at the time you were satisfied that tie's 4 response to these various issues had satisfied you? 5 A. No, I think my writing, "Not much to add to Nick's 6 comments" was that I agreed with Nick's comments that it 7 was insufficient, I added a couple of extra ones on top 8 of that. 9 Q. We explored this morning the various concerns I think 10 you said you had throughout this period? 11 A. Yes. 12 Q. Can we then, please, put that document to one side, and 13 go back to your statement if we may at page 60. Again, 14 we simply ask various questions in relation to the 15 document we have just looked at. I'm not going to read 16 out your various replies on page 60. I think we have 17 covered each of these matters in your evidence this 18 morning. But just take a minute to read through your 19 replies and if there is anything additional you wish to 20 say, please say so? 21 A. No, I think the replies cover what I want to say. 22 Q. Thank you. We move on, then, please, to another matter. 23 This concerns a meeting of the Policy and Strategy 24 Committee of the Council on 13 May 2008. I think we can 25 deal with this by simply looking at the statement you 117 1 produced. 2 If we go, please, to page 62. In question 67, we 3 refer to the report to Council. Sorry, Policy and 4 Strategy Committee. Then at the bottom of page, 5 question 2, we ask: 6 "When was the report made available to members of 7 the Committee? Do you consider that members of the 8 Committee had sufficient time to consider the terms of 9 the report?" 10 Then you have replied: 11 "The report would have been made available to 12 elected members either late on 12 May or on the morning 13 of the meeting itself. Given this timescale, I do not 14 think members had sufficient time to consider the 15 report." 16 Is there anything you wish to add to that? 17 A. No. 18 Q. We had also asked, over the page at 63, question 5: 19 "What were your views on the statements in the 20 report to the committee ... in relation to 'better 21 contractual positions'?" 22 You replied: 23 "I did not fully understand the previous contractual 24 positions so am unable to comment on whether the new 25 positions were 'improvements'." 118 1 You make reference to various items in Mr Bissett's 2 paper in the closed report which sets out five items 3 which appeared to be improvements, and you then say 4 that: 5 "In hindsight it is clear that these changes did not 6 materially reduce the risk of programme delay or 7 minimise costs." 8 But then in question 6 we asked: 9 "Do you know why Schedule 4 and the risk of notified 10 departures [et cetera] was not mentioned in the report." 11 You replied: 12 "As stated above, it is not usual for contractual 13 documents to be referenced in Council reports, and I do 14 not think that mentioning it would have improved the 15 decision-making process. However, I think that the 16 risks arising from it should have been set out clearly 17 in previous report to Council and restated (or at least 18 referred to) in this one. 19 "I cannot remember why these risks are not mentioned 20 in this report. Like the previous report, it was 21 a short update designed to renew the delegated authority 22 and I do not think it gave members the opportunity to 23 fully understand the risks they were agreeing to." 24 Pausing there, Ms Andrew, I think we looked before 25 at the very detailed and lengthy reports to Council in 119 1 October 2007 and then in December 2007 seeking approval 2 of the Final Business Case. I think -- I may be 3 corrected -- there were no further reports to Council in 4 relation to the tram project until the report of 1 May 5 2008, and then this final report to the Policy and 6 Strategy Committee on 13 May 2008. 7 Just comparing the length of the October and 8 December 2007 reports and then the two reports in May 9 2008, the reports in May seem to run to just a few 10 pages. On the face of it, it may seem hard to see how 11 one can convey the full complexities of these contracts 12 in a few pages. 13 Do you have any views or comments on that 14 suggestion? 15 A. Yes. I agree that I think longer reports would have 16 given them -- would have had the opportunity to give 17 more information to members. As I say, I was involved 18 in drafting these reports but I was drafting it on the 19 instruction from senior Council staff to make a short 20 report. And it was the directors who ultimately would 21 have signed off these reports. 22 Q. Just for the avoidance of doubt, why did the directors 23 wish you to produce short reports? 24 A. I can't remember. 25 Q. We can ask them in due course perhaps. 120 1 Moving on, we know that contract close took place on 2 14 and 15 May 2008. Can I go, please -- we are there, 3 page 64 and 65 of your statement. 4 I'm not going to take you through this. I think we 5 will just take these pages as read, but essentially you 6 set out in these pages the understanding of certain 7 matters at that time. We can understand what you say 8 there. 9 Is there anything you wish to add? 10 A. No. 11 Q. Thank you. Can we then, please, go to page 66 and come 12 back to an issue we had raised this morning? Under 13 question 71, we had discussed this morning the 14 deliverables that tie required to produce to the Council 15 for the Chief Executive's authorised contract award. 16 Question 71 is reference to an email by Alan Coyle 17 with a spreadsheet setting out the deliverables and 18 their status. Now, I intend to ask Mr Coyle about this 19 email and spreadsheet, but just as a sort of high level 20 question, do you remember whether all the deliverables 21 had been delivered by contract close or whether any were 22 outstanding? 23 A. I can't remember. I'm sorry. 24 Q. We can explore that with Mr Coyle perhaps. 25 I think you also said earlier in your statement that 121 1 you weren't involved in the dispute which arose post 2 financial close -- 3 A. No. 4 Q. -- is that right? I think you left on maternity leave 5 from December 2008 to August 2009? 6 A. Yes, that's correct. 7 Q. To what extent, if at all, were you involved in the tram 8 project on your return? 9 A. Very -- really not at all. Almost as soon as I arrived 10 back, Mr Coyle took on the role I had previously been 11 doing. 12 My main job at that time was to provide financial 13 advice to the City Development Department. I think it 14 was felt that the tram was such a large project that it 15 really required a dedicated finance officer rather than 16 somebody who was managing a team providing wider advice. 17 I think it was a decision to split that job. 18 Q. I understand. Then, please, just a few more questions, 19 just sticking with your statement. Page 71, please. 20 Question 79, we asked various questions in relation to 21 CEC, including the reporting to members. Question 4 we 22 asked: 23 "To what extent did the need for commercial 24 confidentiality conflict with the need to keep members 25 informed of matters relating to the tram project?" 122 1 Et cetera. You replied: 2 "During the procurement process and contractual 3 negotiations, there was a conflict between keeping 4 members fully informed and ensuring commercial 5 information was not inadvertently shared with BBS. I do 6 not think sufficient steps were taken to resolve this 7 conflict." 8 We saw at the beginning from your CV, you had been 9 involved in a number of other and ongoing capital 10 projects. Were steps taken in any of these other 11 capital projects to, on the one hand preserve necessary 12 commercial confidentiality, while on the other hand 13 giving members sufficient information and figures that 14 they may need to come to informed decisions? 15 A. Yes. Certainly I have been involved in large 16 procurements of Council housing where we have had to 17 let -- been to a competitive dialogue process and to 18 keep members informed -- or at least prior to letting 19 any contract -- we have had detailed briefings with the 20 members sort of outside Council meetings, explaining the 21 nature of the contract, the nature of the procurement, 22 the nature of the selection criteria; why we are going 23 with one bidder as opposed to the others. 24 So you can have these conversations. You may need 25 to call them bidder A and bidder B rather than 123 1 specifically naming companies, but there is -- 2 an informal basis you can keep members informed. As 3 well as that, there is also the option of -- making an 4 agenda report, a report which is considered in private 5 rather than in public if it is a decision that is 6 required. 7 Q. How can you give commercially confidential information 8 to members to inform their decision-making but ensure 9 that that confidential information does not get back to 10 third parties who may have an interest in knowing 11 about it? 12 A. I suppose there is a degree of some information might 13 still need to be withheld, but you can limit that. You 14 can -- you limit the amount that can be -- that is 15 withheld. 16 I think part of the issue with this project is that 17 not only did members not have all the information, 18 Council officers didn't have large parts of it as well. 19 So it's almost a double hoop to get through to get that 20 information to members. 21 Q. Thank you. 22 Returning to your statement, please, and question 5, 23 we asked: 24 "Did you have any concerns, at any stage, in 25 relation to whether matters relating to the tram project 124 1 (including, in particular, in relation to price and 2 risk) had been properly and fully reported to members?" 3 You replied: 4 "I was concerned that the information provided to 5 members supporting the Final Business Case did not fully 6 explain the capital costs and risks and that information 7 was removed from that report in the drafting process." 8 Just for the avoidance of doubt, are those concerns 9 you had at the time or only now with the benefit of 10 hindsight? 11 A. They were concerns I had at the time. 12 Q. Did you express those concerns to anyone at the time? 13 A. I can't remember. I would have expressed them to 14 certain people, but I can't remember whether I expressed 15 them to senior management, or just did as I was told. 16 Q. Over the page, please, at page 72, the last question 17 here I would like to ask you about, please, question 7 18 states: 19 "Did you have any concerns at any stage in relation 20 to the performance of senior CEC officials or members?" 21 You replied: 22 "I felt that CEC senior management was sometimes 23 influenced by members of tie's senior management. While 24 it seemed like they agreed with positions taken by the 25 'B team', their opinions would sometimes change 125 1 following a phone call or email from somebody at tie or 2 TEL. I appreciate, however, that these changes of 3 opinion may have been based on additional information, 4 of which I was not aware." 5 Are you able to give any examples of that? Or is 6 that simply something that occurred from time to time 7 throughout? 8 A. I think probably an example we have already gone over 9 this morning on the appointment of OGC to provide 10 assurance on the state of the contract at that point, 11 whereas I had been trying to get a procurement for -- an 12 independent adviser, and you can see that something had 13 happened, that tie had spoken to senior management and 14 the decision had been to go with the OGC review. 15 Q. Is that a one-off occurrence or did that happen more 16 than once? 17 A. It will have happened on other things. I think -- 18 another area where it happened was on the operating 19 agreement that we had with tie and TEL. Whereas initial 20 drafts were quite -- say we wanted to have an oversight 21 over the bonus process for tie officers, and that 22 appeared to be supported in this endeavour from senior 23 management, but through sort of -- different -- but then 24 that was rejected by tie, and the position from the 25 Council became weaker and the operating agreement became 126 1 weaker. 2 Q. I think we may explore that issue with some other 3 witnesses, thank you. 4 In turning to page 75 of your statement, please and 5 the issue of governance arrangements, question 86, we 6 asked a number of questions in relation to the 7 governance arrangements. Question 1, we asked for your 8 views in general on the governance arrangements and you 9 replied: 10 "The governance arrangements for the project were 11 unclear. There were too many boards, working groups 12 making decisions regarding the project (Tram Project 13 Board, TIE Board, TEL Board, Internal Planning Group) 14 and the elected members who should have ultimately made 15 these decisions were effectively excluded from the 16 process. 17 Furthermore, decisions were made without 18 appropriate external scrutiny or assurance." 19 We discussed that this morning. Then question 2, we 20 asked: did you share concerns in relation to the 21 governance arrangements that Colin MacKenzie had set out 22 in that email? You said you did share these concerns. 23 You also say: 24 "It was also concerning that governance arrangements 25 were developed by Graeme Bissett in tie without 127 1 reference to the Council's own governance requirements." 2 Can you explain that comment, please? 3 A. I think as the project evolved, the governance seemed to 4 change quite a lot, and Graeme Bissett produced an awful 5 lot of diagrams and theories that seemed to then become 6 part of how the project was governed, and they did kind 7 of look quite nice on paper, and they would use the same 8 sort of terminology that you would expect in project 9 management, but they didn't look at how the Council was 10 working and certainly members didn't feel to be part of 11 that governance picture. 12 Q. Which board or organisation do you consider ought to 13 have taken the lead in setting out the required 14 governance arrangements for the tram project? 15 A. I think it depends which period you are looking for. 16 Q. For 2007? 17 A. After Transport Scotland left the project, I think it 18 should certainly have been the Council that developed 19 the governance arrangements for the project. 20 Q. In 2007, which body or organisation did you have the 21 impression were actually taking the lead in the 22 governance arrangements? 23 A. I felt it was tie. 24 Q. Then in question 3, we asked for your views about 25 whether there were too many bodies and organisations 128 1 involved in strategy and decision-making, and you 2 replied that you: 3 "... did not think that the problem was necessarily 4 involving a lot of different bodies, as I think good 5 decision-making requires extensive stakeholder 6 engagement. However, ultimately decisions should have 7 been made by the Council, as this is where the financial 8 risk lay." 9 If I may pick up question 4: 10 "Which body or organisation do you consider was 11 ultimately responsible for ensuring the tram project was 12 delivered on time and within budget?" 13 You replied: 14 "I consider the Council was ultimately responsible 15 for ensuring that the tram project was delivered on time 16 and within budget. However, by attempting to delegate 17 that responsibility to tie, it lost control of the 18 project, so that it was unable to ensure these 19 objectives were met." 20 Is there anything you wish to add to that answer? 21 A. No. 22 Q. Thank you. Finally, Ms Andrew, over the page, please, 23 to page 76. We asked you a number of questions by way 24 of "final thoughts". At page 77, we asked you the same 25 question we have asked a number of witnesses: 129 1 "What do you consider were the main reasons for the 2 [project's] failure to ... 3 Come in on time and within budget”. I'm not going to 4 read each one, we take them as read, but there are three 5 matters I wished to clarify if I may. Under 1, "Arm's 6 length project management", in the second paragraph in 7 your answer, you say: 8 "Creating a company whose sole purpose was to 9 deliver the tram project meant that tie's objectives 10 differed with the wider objectives of Transport Scotland 11 and the Council." 12 We may have touched upon that this morning but in 13 what way could tie's objectives have differed from the 14 wider objectives of Transport Scotland and the Council? 15 A. Well, both Transport Scotland and the Council are public 16 bodies and their duty is to secure value for money and 17 only to progress projects that they feel do that. By 18 creating a company that by the time the tram project was 19 at its final stage was only delivering tram, the 20 objective of tie was to deliver tram and if it didn't -- 21 couldn't deliver a tram, that company would cease to 22 exist and there are big personalities in it -- there's 23 a lot of incentive for them to keep pursuing -- keep 24 delivering this project even if it might be more 25 sensible to stop it, because they have got jobs and 130 1 everything else linked in with that delivering the tram. 2 CHAIR OF THE INQUIRY: Do you have any idea how many people 3 were employed by tie, roughly? 4 A. It is difficult. I can say it was probably between 50 5 and 100 at some stage. But it is difficult to know 6 which were tie in the offices there and which were 7 members of different subcontractors that were working in 8 tie's offices at the time. 9 MR MACKENZIE: Thank you. 10 The second point I wish to clarify in your third 11 reasons for failure is "failure to recognise when things 12 were going wrong and ploughing on accordingly". 13 You mentioned at the end of that answer, the second 14 paragraph: 15 "This failure to recognise when things were going 16 wrong could also be seen in the early stages of the main 17 contract, where initial disputes with the Infraco 18 contractor were not reflected in project forecasts." 19 Is that a reference to, I think you touched upon 20 this morning, that once disputes were coming in or were 21 obvious, or perhaps change requests were coming in, that 22 the QRA was not updated? 23 A. It is not just the QRA, the project budget -- so if you 24 assume that you have had a claim against you and there 25 was a -- however many claims, say you had ten claims and 131 1 you assume you are going to win all the ten claims 2 when -- you are not saying: actually we might lose some 3 of them; so you say it is going to cost more than you 4 think it is. 5 Q. So in short it is a question of revisiting the budget 6 once claims are obvious to check it is still sufficient? 7 A. It is revisiting the budget, but it is also recognising 8 that there is a problem, and flagging that problem up 9 and seeing what you can do to stop further problems 10 happening rather than saying: we are going to win all 11 these claims so we don't need to worry about it. 12 Q. Yes. I think you do say "not reflected in project 13 forecasts". Perhaps what one ought to do is to revisit 14 the project forecasts at least initially -- 15 A. Yes. 16 Q. -- rather than straightaway going for change of budget. 17 A. Yes. 18 Q. Revisit the forecasts. I understand, thank you. 19 The last question on this point is the next point, 20 (iv): 21 "Capping the project budget at GBP548 million." 22 You say part way through this answer: 23 "I think this budget cap may have inhibited tie from 24 recognising the true cost of the project and building in 25 appropriate risk allowances." 132 1 What do you mean by that? 2 A. I suppose that the objective when the budget was set at 3 545 million, if, for the sake of argument, it would have 4 been sensible to say: well, actually, no, the cost of 5 the tram is going to come in at 600 million; because 6 there was a 545 budget, there would have been a lot of 7 problems. You might have issues, publicity problems, so 8 it is easier to say: no, we can contain it within that 9 budget; rather than recognising the true cost, building 10 in the delay, or whatever else you need to do to make 11 sure you can deliver a project within a more realistic 12 total, rather than sort of burying your head in the sand 13 and just keep trying to do something that you can't 14 achieve. 15 Q. In the other capital projects you were involved in where 16 the Council are the sole funder, I assume -- what 17 happens in these other projects? Does the Council say, 18 per project, there is a cap in what we will fund? Is 19 that what happens? Or does the Council say: what's it 20 going to cost; and then takes a view of what ... 21 A. Well, you create a budget based upon what you think the 22 project is going to cost. Then if, as things develop, 23 it looks like it is going to cost more, the Council has 24 to re-prioritise its capital programme and find monies 25 from elsewhere to increase that budget to a more 133 1 realistic level. 2 Q. In the tram project, is it actually correct to say that 3 the budget was capped, certainly Transport Scotland's 4 contribution was capped, and in many ways the problem 5 for the Council is that the budget was not capped? 6 A. Yes. 7 Q. The budget went up to what it went up to, and so did the 8 Council's contribution accordingly? 9 A. I suppose the Council wasn't capped, although they kind 10 of said that it -- there was a big sort of political 11 cap, as I say -- that it wasn't going to cost more than 12 that. 13 Maybe there was -- maybe there would have been scope 14 if someone had been a bit more honest to say: well, 15 actually, no, it's not -- we can't deliver it for that, 16 we can deliver it for this, what can we do about it; we 17 could have had that discussion within the Council, yes, 18 but I think there was a feeling that it was capped. 19 Q. Thank you. I think in the rest of your statement, we 20 asked for any comments with the benefit of hindsight for 21 how these failures might have been avoided. I think we 22 can take your answers as read, unless there is anything 23 you wish to add in the light of today's discussion? 24 A. No. 25 MR MACKENZIE: I have no further questions, thank you. 134 1 CHAIR OF THE INQUIRY: Mr Fairley has given notice of 2 questions. But I think they have been covered 3 adequately? 4 MR FAIRLEY: I believe so, my Lord. 5 CHAIR OF THE INQUIRY: I take it no one else has any points. 6 Thank you very much, you are free to go. You are 7 still under citation, and we may call you back. 8 Hopefully we won't. 9 MR MACKENZIE: My Lord, the next witness is Nick Smith. 10 MR NICK SMITH (affirmed) 11 CHAIR OF THE INQUIRY: Just have a seat, Mr Smith. You will 12 be asked some questions. Just answer those as 13 straightforwardly as possible. 14 Examination by MR MACKENZIE 15 MR MACKENZIE: Good afternoon, Mr Smith. 16 A. Good afternoon. 17 Q. Can you state your full name, please? 18 A. Nicholas Scott Smith. 19 Q. Your current occupation? 20 A. I'm a solicitor. I am the Head of Legal for City of 21 Edinburgh Council. 22 Q. Can we now please go to your CV, which you provided to 23 the Inquiry. It will come up on the screen in a second. 24 It is CVS00000066. If we go to page 2, please? 25 We can see that from the top of this page, I think 135 1 you qualified as a solicitor in 1999. Is that correct? 2 A. That's correct. 3 Q. Then if we read up towards the top of that page and over 4 on to the bottom of page 1, at the bottom of page 1, we 5 can see, I think, in total you spent about five years 6 working in the private sector in commercial work in both 7 Scotland and England between 1999 and 2004, is that 8 correct? 9 A. That's correct. 10 Q. Then we can see that in October 2004 you joined the City 11 of Edinburgh Council. Is that correct? 12 A. Yes. 13 Q. We can see you were employed there as a senior solicitor 14 between 2004 and 2010. And then as a principal 15 solicitor between 2010 and 2011. And we will come back 16 to look at your work with the Council then. 17 If we go to the top of the page, we can see from 18 February 2016 to date you have been Head of Legal and 19 Risk and Monitoring Officer with the City of Edinburgh 20 Council. We can see those responsibilities have 21 included responsible for leading and setting strategic 22 direction for the Council's legal and risk functions, 23 et cetera. And also, second bullet point, primary legal 24 adviser to the Council et cetera. 25 Bullet point 4, develops and sets the risk 136 1 architecture for the entire Council et cetera. 2 What is risk architecture? 3 A. It is effectively set out the sort of risk methodology 4 right across the Council. 5 Q. We also see that as well as being Head of Legal, the 6 correct term is "Head of Legal and Risk and Monitoring 7 Officer". What is the role of the Monitoring Officer 8 for the Council? 9 A. So the statutory role of Monitoring Officer is to look 10 at matters of maladministration, illegality and 11 injustice. If any of those come to my attention, I have 12 a duty to report under statute to the Council. 13 Q. Thank you. Can we now please look at your statement you 14 provided to the Inquiry? The number should be 15 TRI00000071_C. 16 I think, Mr Smith, do you also have a hard copy of 17 it on your desk? 18 A. Yes, I do. 19 Q. Thank you. If we can go towards the end, I think it is 20 page 118 if we bring that up on the screen, I think we 21 can see that is your signature, is that correct? 22 A. That's correct. 23 Q. So this statement forms part of your evidence to the 24 Inquiry together with the evidence you give at the 25 hearings. 137 1 I would like to, please, go to page 6 of your 2 statement which sets out your duties and 3 responsibilities in relation to the tram project at the 4 time. 5 So if we have page 6, under letter b), we asked: 6 "What were your duties and responsibilities, in 7 respect of the tram project?" 8 Et cetera. 9 You explained: 10 "I first joined the tram project team in 11 approximately February 2007. I reported to 12 Colin MacKenzie and worked with both him and Alan Squair 13 (both principal solicitors) on the tram project. 14 Colin MacKenzie and Alan Squair reported to Gill Lindsay 15 and John McMurdo, the Council's Head of Legal and her 16 depute." 17 You go on to explain: 18 "As the most junior legal team member working on the 19 tram project between February 2007 and February 2010, my 20 role was to work on task specific legal activities as 21 required and under the direction of Colin MacKenzie or 22 Alan Squair. This included working on numerous discrete 23 matters, including FOI requests, property matters, 24 governance issues, operating agreements and traffic 25 management orders et cetera. In addition to the tram 138 1 project, I was also engaged in many other non-tram legal 2 advice matters." 3 To pause there, in each of the years 2007, 2008, 4 2009, approximately what percentage of your time was 5 spent on the tram project, and approximately what 6 percentage on non-tram matters? 7 A. It varied by, if I had to guess, probably about 8 70 per cent tram, 30 per cent non-tram. 9 Q. Okay. Did that change in any way in 2010/2011? 10 A. 2010, I probably spent slightly more time on it. But at 11 that time, I was principal solicitor, managing a team of 12 20 lawyers, and we were also going through the 13 alternative business models project, which I was heavily 14 involved with. So we took on an additional solicitor in 15 2010 to deal with that. In 2011, basically post 16 mediation, I wasn't hugely involved in the project. 17 CHAIR OF THE INQUIRY: I wonder, Mr Smith, if you could just 18 slow down. It is for the shorthand writers. 19 A. Sorry. 20 MR MACKENZIE: Thank you. Returning to page 6 of statement, 21 you go on to say: 22 "Between 2007 and 2009 the vast majority of my input 23 into the tram project related to the drafting and 24 negotiating of the tie and TEL operating agreements and 25 related governance matters." 139 1 I will come back to them. You also go on to say 2 that from spring 2010 until September 2011: 3 "I reported directly to Alastair Maclean, the Head 4 of Legal and Administrative Services." 5 Can we also please go on to page 7. 6 Under letter C, we asked the question: 7 "Had you any prior experience in relation to the 8 delivery of major infrastructure projects?" 9 We also asked: what experience, generally, did CEC 10 have in that regard? You answered: 11 "Whilst I had general corporate and public law 12 experience, I had no experience in dealing with large 13 infrastructure or construction projects prior to 2007. 14 "I cannot comment more widely, but from a legal 15 perspective my perception was, and remains, that the 16 Council did not have anyone in the internal legal team 17 at the time with appropriate legal experience to be able 18 to properly advise on the construction/infrastructure 19 aspects of the tram project." 20 Just for the avoidance of doubt, let me ask this 21 question: do you consider there was anyone in the 22 Council's legal department in a position to understand 23 and advise on the risks and liabilities for the Council 24 arising from the various tram contracts, including in 25 particular the Infraco contract? 140 1 A. No. 2 Q. Why not? 3 A. The Council would not necessarily need to have someone 4 who is an expert in those type of construction projects 5 on their books. It would be in my experience usual to 6 go outside to get that experience. 7 Q. Then, please, go to page 8 of your statement. Under 8 letter F, we asked about the B team, which I understand 9 was not a formal designation, but comprised various 10 Council officers who were below the directors and would 11 brief and inform the directors. 12 In your answer, at the end of the first paragraph, 13 you state: 14 "... we were generally operating on the sidelines 15 and had only a partial picture of what was going on with 16 the project at any given point." 17 Can you explain that comment, please? 18 A. So as a relatively junior officer in the Council at the 19 time, I was only getting the picture that I was given by 20 more senior officers and from those at tie. My feeling 21 was that those that were in the B team were only getting 22 a partial picture. Whether that was true or not, it was 23 certainly true from my perspective. 24 Q. In terms of how you and other members of the B team 25 received information in relation to the project, how did 141 1 that occur? 2 A. Through various meetings that we attended or by 3 discussions with colleagues. But there was no formal 4 reporting back to the B team in any way, and from my 5 perspective, I didn't receive much information back from 6 upwards -- sorry, from above me. 7 Q. How about the provision of information from tie to the 8 Council in relation to the project? How did that 9 happen? 10 A. I think it was a combination of things like the Tram 11 Project Board and reporting but unfortunately I was not 12 involved in that so I can't confirm. 13 Q. I would like to move on now to the question of the 14 Council seeking external legal advice in relation to the 15 tram project. I would like to go through a number of 16 documents and emails to follow that thread, please? 17 A. Sure. 18 Q. The first document is CEC01660253. 19 We can see from the top of this email -- top of the 20 page -- it is an email from Susan Clark sent on 31 July 21 2007 to Gill Lindsay. The subject was DLA and trams. 22 Susan Clark says: 23 "Further to our discussion today, please find 24 attached two letters as follows ..." 25 Firstly, a DLA letter to Alex Macaulay of 23 June 142 1 2005. And, secondly, a DLA letter to tie of the same 2 date. 3 Under "Background", Susan Clark explains: 4 "Alongside tie's other consultants, DLA were asked 5 by tie in 2005 to provide a copy of a letter it was 6 thought [in italics] DLA had provided to CEC in 2003 7 (shortly after the consultancy appointments by tie). 8 Unfortunately, DLA had never been given or asked by tie 9 to sign such a letter for CEC. Since over two years' 10 worth of work under the tie mandate had been completed 11 by DLA with relatively little interaction with CEC, it 12 was agreed that DLA provide the letter as in 2 above. 13 DLA recall that Alex discussed this with CEC at the 14 time, but this was a matter for tie." 15 We should then look, please, at the two attachments 16 to this email. Firstly CEC01660255. 17 We can see this is a letter, if we go to page 2, 18 please, sent by Andrew Fitchie, a partner of DLA Piper, 19 Rudnick Gray Cary Scotland LLP as they were at the time. 20 Go back to page 1, please. You see a letter sent to 21 Alex Macaulay who at that stage was the Projects 22 Director for tie. In a sense this a covering letter, 23 I think. It is dated 23 June 2005. After the first 24 paragraph, Mr Fitchie states: 25 "Please find attached a draft letter which we are 143 1 ready to provide to tie. An explanation in brief: 2 paragraph 1, we are happy to extend to CEC the same duty 3 of care we owe to tie. Since we have contracted on the 4 basis of tie Limited as client and the party who 5 instructs us, we believe it would not be reasonable to 6 place us in a position where we have to make assumptions 7 about CEC's interests or instructions." 8 Then the explanation in relation to paragraph 2 of 9 the letter is: 10 "We need to continue to advise tie (as a sole source 11 of instructions), whose interests (and therefore the 12 fiduciary duty of its board) may not fully coincide with 13 CEC's objectives and interests; this is a judgment only 14 tie can make." 15 Then lastly, the commentary in paragraph 3 is: 16 "Absent a separate appointment providing for direct 17 engagement with CEC, the additional duty of care should 18 not give rise to the possibility that CEC applies 19 a different interpretation of the duty of care we owe, 20 or seeks different recourse or remedy for any breach by 21 us." 22 If we put that document to one side, we should also 23 then look at the draft letter it was commenting on, 24 which is CEC01660254. 25 If we go to the second page of this letter, we can 144 1 see this is a draft letter to be sent by DLA Piper 2 et cetera. I think underneath that we can see space for 3 both tie and the City of Edinburgh Council to agree and 4 acknowledge the terms of the letter. Do you see that, 5 Mr Smith? 6 A. Yes. 7 Q. If we then go back, please, to the first page of the 8 letter, you can see this letter is sent by DLA to tie, 9 marked for the attention of Mr Macaulay. In the 10 introductory narrative it states: 11 "We refer to our appointment as legal adviser by tie 12 ... as confirmed by your letters of 25 November 2002 and 13 7 March 2003 in connection with the project. 14 You requested on 21 June 2005 that in respect of 15 our work on the project pursuant to the appointment, we 16 acknowledge a duty of care owed to the City of Edinburgh 17 Council, your corporate parent entity, such duty of care 18 to be the same as the contractual duty of care we owe to 19 you. 20 This letter confirms that as from December 5, 2003 21 onwards, DLA Piper ... has owed and owes the same 22 contractual duty of care to CEC as owed to tie Limited 23 pursuant to clause G.3.1(a) of the General Conditions 24 governing the appointment on condition that: 25 "1. DLA Piper's primary responsibility has been and 145 1 is to advise tie Limited and DLA Piper may at all times 2 and for all purposes rely upon tie's instructions given 3 to us under the appointment as being identical to CEC's 4 instructions as if emanating from CEC itself, and as 5 taking into account CEC's objectives and best interests; 6 2. DLA Piper remains expressly authorised to 7 receive and seek all instructions (and any 8 clarifications) under the appointment solely from tie as 9 Project manager and agent for CEC, and in the absence of 10 specific written instruction from tie, DLA Piper has not 11 been and is not under obligation to advise CEC staff or 12 members directly; 13 3. DLA Piper is entitled for all purposes to rely 14 upon (i), the satisfaction and approval of tie Limited 15 with and of our performance of services, delivery of 16 work product for the project and discharge of the duties 17 of care in accordance with the appointment and, (ii), 18 the presumption as to such satisfaction and approval to 19 date. Under no circumstances shall the existence of the 20 contractual duty of care acknowledged in this letter 21 give rise to CEC having any separate or different 22 recourse, remedies or claims to those available to 23 tie Limited by reason of any default by DLA Piper under 24 the terms of the appointment." 25 Over the page, conditions 4 and 5, I'm not going to 146 1 read out. 2 The first question, Mr Smith, is that it appears 3 that in 2005, it had been intended that DLA would issue 4 a letter to tie, and it would be signed by the Council, 5 really setting out the basis on which DLA accepted they 6 owed a duty of care to the Council, going back to 2003. 7 Because for whatever reason, a similar letter had not 8 been given at that time. Is that correct? 9 A. Yes, I believe so. 10 Q. Are you aware of whether in 2005, a final letter was 11 given and sent by DLA to the Council, and signed and 12 accepted acknowledged by the Council? 13 A. I am afraid that predates my time so, no, I can't 14 confirm it. 15 Q. You then, though, became involved in the tram project 16 and this whole issue of duty of care owed by DLA to the 17 Council. In fact you are now the Council Solicitor. 18 At any time subsequent did you have cause to look 19 into this and come to a view of whether in 2005, DLA had 20 in fact sent a letter along these lines that had been 21 accepted by the Council? 22 A. I don't believe we ever found anything that was in fact 23 signed. 24 Q. Thank you. I can, of course, ask the Council Solicitor 25 at the time as well. 147 1 I think you were given sight of these letters at 2 some time in 2007. Is that right? 3 A. That's correct. 4 Q. What were your views on whether a duty of care on these 5 terms with these conditions attached were adequate to 6 protect the Council's interests? 7 A. In my view they were wholly inadequate to protect the 8 Council's interests. 9 Q. Why? 10 A. Because they were predicated on all instructions coming 11 from tie being exactly the same as the instructions that 12 would have come from the Council. And given, I think as 13 we saw on the previous document, there may be 14 a divergence in instructions or potential for divergence 15 in instructions, then it was not appropriate to solely 16 rely on that duty of care. The duty of care itself 17 could be given to the Council so the Council could rely 18 on it, but it was not, in my view, wholly appropriate to 19 rely solely on that. 20 Q. Can you think of examples where the Council's interests 21 and tie's interests may diverge? 22 A. A very simple example is that tie was a single project 23 company delivering, as I said, a single project. 24 Whereas the Council was looking at a much wider strategy 25 for the city. So if those two things did not match up, 148 1 then in very simple terms there could be a conflict. 2 Q. Thank you. The next document in this chain, please, is 3 CEC01564769. 4 We can see this is an email from yourself dated 5 1 August 2007 to Mr Squair and Colin MacKenzie. This 6 seems, I think, if we look further down the page -- we 7 can see an email from Alan Squair dated 1 August to 8 Colin MacKenzie and yourself: 9 "Please see attachments ..." 10 I think that is a reference to essentially these 11 draft letters we have looked at having been forwarded on 12 to you to see, is that correct? 13 A. That's correct. 14 Q. In this email -- if we go back, please, to your email in 15 the first half of the page, and in the first paragraph, 16 I think -- you set out similar concerns to those you 17 have just explained to us now. 18 A. Yes. 19 Q. Then in the second paragraph, you say: 20 "To the extent that the Council is unable to 21 consider/accept that tie has fully considered and acted 22 in CEC's interests throughout the negotiations to date, 23 a full external review would in my opinion be required 24 to protect CEC's interests fully, especially as the 25 contraction arrangements now appear to involve CEC as 149 1 signatory/guarantor as opposed to tie being the 2 contracting entity. Otherwise, the risk is that CEC is 3 accepting risks which have been agreed by a third party 4 on its behalf. You will note paragraph 2 of the DLA 5 letter which highlights the concern admirably where it 6 notes that tie's interests may differ from CECs. Ie the 7 project advisers themselves appear to have concerns that 8 CEC and tie's interests may not always coincide." 9 So that is an email you sent at that time. 10 A. Yes. 11 Q. I would like then, please, to look at another document, 12 CEC01564770. We can see that this is an email from 13 yourself dated 2 August 2007, to Duncan Fraser, copying 14 in Colin MacKenzie and Alan Squair. It is headed: 15 "Infraco Options ..." 16 You say: 17 "I took the liberty of knocking up an informal 18 options paper for discussion this afternoon." 19 If we then please go to the options paper which is 20 CEC01564771, do you remember, Mr Smith, what was the 21 purpose of this options paper? 22 A. Really, what I was trying to do was sort of coalesce all 23 the potential options into a single document, so that 24 the relevant officers could consider how to take it 25 forward. I tried to do that on a sort of open-minded 150 1 basis. Clearly I had a view myself, but I tried to put 2 down what the various options might be to consider. 3 Q. Just for the avoidance of doubt, the various options in 4 relation to what? 5 A. Obtaining advice that the contract was sound in all 6 respects. In essence, obtaining an independent legal 7 review in relation to -- well, sorry, being able to 8 advise the Council that it was okay to sign off on the 9 Infraco contract. 10 Q. Thank you. Looking at the options paper, I think it 11 sets out four options. We should go through each of 12 them. Option 1 was for CEC Legal to carry out a review 13 of all relevant documentation. 14 Under "Con", we see: 15 "CEC Legal has neither the experience nor the 16 resources to carry out such a review, especially within 17 the timescale available." 18 The conclusion: 19 "Unlikely to be practicable given timescales." 20 When you say "given timescales", I assume you also 21 mean back to the question of experience and expertise? 22 A. Yes. But that was also looking specifically at the fact 23 that I think at that time, they were trying to get 24 contract close some time around December or January. So 25 there was obviously a very short period, but, yes, they 151 1 are both -- the con and the conclusion are looking at 2 slightly different things. 3 Q. I'm just checking, Mr Smith, you said you started 4 working on the tram project in February 2007. Was there 5 any change or increased rush in terms of the Council 6 officers' work activity at any stage between 7 February 2007 and August 2007? 8 A. I can't honestly recall. I seem to remember only 9 becoming aware -- I had a best guess we would be asked 10 to give a guarantee, given tie had no assets. I think 11 I might have flagged that previously. But as soon as it 12 became clear that we were going to have to sign off the 13 contract pretty quickly, one of the first things 14 I wanted to do was to advise my superiors that in my 15 view, it needed an independent legal review. 16 Q. Thank you. Turning to the options paper, please, option 17 2 was that DLA were asked to provide CEC with an issues 18 paper, setting out what they would have advised, had CEC 19 been the client rather than tie: 20 "This could be done via a Chinese wall arrangement 21 or otherwise." 22 You set out pros and cons. Your conclusion is: 23 "Theoretically possible and desirable, but unlikely 24 to succeed and would always come back to the fact that 25 the advice was based on tie's, not CEC's instructions to 152 1 DLA." 2 Option 3 was: 3 "An independent law firm is asked to review the 4 documentation afresh." 5 Again, pros and cons, but conclusion: 6 "Likely to be impracticable in the circumstances." 7 Option 4: 8 "CEC simply rely on what tie have done to date, and 9 approve that CEC's position has been considered and 10 covered-off as best as tie could achieve on CEC's 11 behalf." 12 Again, you set out pros and cons and over the page 13 on page 2, please, the conclusion is, on this option: 14 "Likely to be the most practicable solution given 15 timescales but clearly open to criticism on a number of 16 fronts. Increases CEC's risk profile as CEC signing up 17 to arrangements it did not negotiate." 18 On the face of it, in this paper, you are suggesting 19 option 3, an independent law firm is asked to review 20 documentation afresh, was likely to be impracticable in 21 the circumstances due to the time constraints, I think. 22 And yet option 4, you conclude: 23 "Likely to be the most practicable solution given 24 timescales ..." 25 With its drawbacks? 153 1 A. Yes, that's correct. As I said, what we were trying to 2 do is put -- have an open mind on some of the options 3 that were available. Subsequent to this, I think this 4 was early August, subsequent to this following further 5 conversations, a recommendation was firmly that it 6 should be independently reviewed, because I think we 7 changed our minds that probably there was time to be 8 able to do it. 9 Q. Yes. I think we can see -- we looked at your email of 10 1 August, where you set out a full external review would 11 be necessary, to protect the Council's interests. And 12 this paper, I think, was presented the next day. So 13 presumably you are mulling over the various options and 14 you set out your conclusions there. That is not to say 15 that these are fixed in stone? 16 A. What I can't even remember is whether I drafted this 17 paper prior to sending the email on 1 August. I would 18 need to check back. But, yes, certainly they are very 19 close. 20 Q. Could we -- sticking with this matter, I think at this 21 stage, financial close was fixed or was hoped for to be 22 achieved in January 2008. 23 This was the very beginning of August 2008 [sic]. 24 Why was there thought not to be enough time to bring in 25 external lawyers for a review, it must still have been 154 1 August, September, October, November, December, five or 2 six months? 3 A. I agree. It was perhaps considered that there might be 4 procurement issues to go through, and I can't actually 5 remember whether I was being told that, for example, 6 perhaps we had to have it all signed off before going to 7 the Council in October. I can't remember the time 8 constraint. Certainly, in my view, in my experience, it 9 would be plenty of time to get that independent legal 10 review between 1 August and the end of the year. 11 Q. We have heard from other witnesses that the context at 12 this time was I think preferred bidder was probably 13 coming up about September or October review, I think an 14 intention to report to Council, I think for October 15 2007, so I think that is part of the context as well. 16 The other point, it may be suggested that if an 17 independent review was necessary, then that should take 18 place even if that results in the contract -- a delay in 19 signing the contracts? 20 A. That was firmly my view all the way through. Yes. 21 Q. The next document, please, is CEC01711054. 22 You can see from the top this is an email from 23 Andrew Fitchie dated 16 August 2007 to Gill Lindsay. 24 I'm not sure, Mr Smith, did you see this email at the 25 time, can you remember? 155 1 A. I can't actually remember. I do -- that phrase in the 2 middle, "commonality of interests", that paragraph that 3 starts "I do not envisage" is very familiar. I think 4 I may have seen it at the time. Because I believe in 5 some of the emails that I wrote, I refer back to that 6 commonality. 7 Q. So just to read it, what Mr Fitchie states in his email, 8 second paragraph: 9 "As discussed I attach a draft of the letter I would 10 propose to send to the Council to affirm our duty of 11 care and the joint client status. It is based on the 12 letter I mentioned we had provided to tie (and intended 13 to have been provided to the Council) in June 2005. 14 Please let me know if there is anything you would wish 15 to add or alter. 16 I do not envisage any conflict of interest here; to 17 the contrary -- in closing the required supply contracts 18 as part of the procurement process, there needs to be 19 complete commonality of interests and objectives among 20 the Council, tie and TEL. That is not to say that there 21 will be and will have been detailed discussions (in 22 which we would have our role as advisers for the 23 project) on key issues in order to reach that 24 commonality." 25 Do you understand the last sentence I just read out? 156 1 A. Yes. What I believe Andrew Fitchie was saying was there 2 should be a community of interest between the Council 3 and tie, because their objectives are the same, to get 4 a tram built and operate an integrated transport system. 5 What he then goes on to say is that in order to achieve 6 that commonality, there will have been detailed 7 discussions on key issues to reach that commonality; and 8 from discussions certainly within legal and with 9 colleagues in Finance and City Development, it appeared 10 to us, as the B team, that there had not been any or 11 very few discussions that we were aware of. So it was 12 difficult to see how such commonality could be achieved 13 without having had those discussions. 14 CHAIR OF THE INQUIRY: If there had been such discussions, 15 whose interest should take precedence. 16 A. It should always be the Council's, because tie is an 17 arm's length company, delivering on behalf of the 18 Council, and the Council is the authorised undertaker 19 under the Acts. 20 MR MACKENZIE: Thank you, my Lord. 21 We can see in this email Mr Fitchie stated that 22 there needs to be complete commonality of interests and 23 objectives among the Council, tie and TEL. 24 Did you consider that was consistent with what 25 Mr Fitchie had said in the letter we looked at earlier 157 1 to Mr Macaulay of 23 June 2005, where he stated: we need 2 to continue to advise tie whose interests may not fully 3 coincide with CEC's objectives and interests. 4 A. That's what really rang alarm bells for me. I think in 5 the email I said one of the bits of correspondence 6 pointed out the point admirably. Because they were 7 their own advisers, saying that there might not be 8 commonality of interest. So that is what rang alarm 9 bells for me at the time. 10 Q. Thank you. I should also, for completeness, look at the 11 attachment to Mr Fitchie's email. That is CEC01711055. 12 In the second paragraph on this letter, in the 13 introductory narrative in the second paragraph, it 14 starts: 15 "tie Limited requested on 21 June 2005 that in 16 respect of our work on the project pursuant to the 17 appointment, we acknowledge a direct duty of care owed 18 to the City of Edinburgh Council as corporate parent 19 entity, such duty of care to be the same as the 20 contractual duty of care we owe to tie Limited. We 21 affirmed that duty of care in our letter of 23 June 2005 22 to tie Limited, copied to yourselves. We heard no 23 further at that time." 24 So pause there, that perhaps answers my earlier 25 question as to whether DLA did ever in 2005 send 158 1 a letter to the Council setting out the duty of care 2 owed which was accepted by the Council. It appears as 3 though, despite the letter having been sent and accepted 4 in 2003, it looks as though the same thing happened 5 again in 2005. Is that correct? 6 A. I can't confirm. But that would appear to be correct, 7 yes. 8 Q. Carrying on with this letter which states: 9 "This letter reconfirms that as from 5 December 2003 10 onwards, DLA Piper Scotland LLP has owed and owes the 11 same contractual duty of care to CEC as owed to 12 tie Limited ..." 13 And I think we can see it is nearly the same or very 14 five conditions as I read out in the draft 2005 letter. 15 Is that correct? 16 A. Yes. 17 Q. Thank you. 18 So, this is Mr Fitchie's draft letter in 19 August 2007, which I say is perhaps an attempt to cure 20 what on one view should have been sent and accepted by 21 the Council in 2003, and then again in 2005. Do you 22 know if this letter in August 2007 was this sent by DLA 23 and accepted by the Council? 24 A. That was a matter that Gill Lindsay was dealing with. 25 I'm unable to confirm whether that letter was ever 159 1 signed. 2 Q. Are you aware now as Council Solicitor whether such 3 a letter was ever sent by DLA and accepted by the 4 Council? 5 A. I don't believe we have ever found it. 6 MR MACKENZIE: My Lord, I'm going to turn to further 7 documents. 8 CHAIR OF THE INQUIRY: We will have a break for about ten 9 minutes. We will resume again at 3.35. 10 (3.25 pm) 11 (A short break) 12 (3.37 pm) 13 CHAIR OF THE INQUIRY: You are still under oath, Mr Smith. 14 MR MACKENZIE: Thank you my Lord. 15 Mr Smith, there is one matter I should correct 16 before we move on. If we could go back, please, to 17 document CEC01711055. 18 We can see again this is the draft letter of 19 August 2007 from DLA to the Council. I think I had 20 stated that this letter was in the same or similar terms 21 to the 2005 draft we looked at. There are two matters 22 I should identify. 23 Can we see in bold in the middle of this letter 24 stated: 25 "We acknowledge CEC as joint client with tie Limited 160 1 on the basis that ..." 2 So I think that is an addition to the 2005 draft. 3 Does that seem correct? 4 A. That's correct. 5 Q. The other matter I should point out, in condition or 6 paragraph 2 of this letter, do we see at the very end it 7 is stated under "Exception" that: 8 "DLA Piper will brief CEC officers at regular 9 intervals as instructed by tie Limited, or as required 10 by CEC." 11 I think is another addition to the 2005 draft we 12 looked at. Does that seem correct? 13 A. That seems correct, although it doesn't change my views 14 on the letter. 15 Q. Thank you. 16 If we could then please move on to the next 17 document, CEC01567527? 18 CHAIR OF THE INQUIRY: While looking for that, you say that 19 this went to Gill Lindsay, this letter, and you have not 20 been able to find any acceptance of it by Council. Do 21 you know whether Gill Lindsay had any views about 22 revising the letter? 23 A. No, my Lord, I don't, I am afraid. 24 MR MACKENZIE: Thank you. 25 So, yes, the next document we can see from top of 161 1 the screen is from Colin MacKenzie dated 27 August 2007 2 to yourself, Mr Smith. We see the text is: 3 "I have been directed by the Council solicitor to 4 instruct you to read through the attached documents 5 received from tie. This is top priority, and I would 6 like to hear from you by Wednesday afternoon, with your 7 views on the implications for the Council on risks, 8 liabilities, step-in rights et cetera. This report is 9 for internal consumption only." 10 If we scroll down the page, we will see what has 11 happened is that an email from Jonathan More of tie on 12 23 August 2007 to Mr MacKenzie states in the second 13 paragraph: 14 "Please find attached to this email the draft 15 Infraco contract which is currently in the process of 16 fairly intensive negotiations ..." 17 So it would appear that tie have sent on the draft 18 Infraco contract to Mr MacKenzie who has then sent you 19 the email we have just looked at. 20 What did you understand Mr MacKenzie to mean when he 21 said: 22 "I have been directed by the Council Solicitor to 23 instruct you to read through the attached documents..." 24 A. You would have to ask Mr MacKenzie what he meant by 25 that. What I took from it -- because I knew and worked 162 1 well with Colin MacKenzie, was that he was being 2 instructed by Gill to ask me to do that, because he 3 himself would not ask me to do that, given the 4 conversations that he and I had had over the previous -- 5 whatever day that was, certainly the previous few weeks, 6 where we had agreed that the Council did not have within 7 legal the people with the requisite skills and 8 experience to be able to review that contract. 9 I think among the other comments, and it is 10 obviously in the response I sent to Colin which 11 I discussed with him, was I think 27 August -- I can't 12 see it on the screen at the moment -- top of that page, 13 27 August was a Monday, and I was being instructed to 14 read through about 1,000 pages of documents. 15 CHAIR OF THE INQUIRY: Mr Smith, slow down, sorry. 16 A. I was being instructed to read about 1,000 pages of 17 documents within 36 hours and highlight all risks for 18 Council therein. 19 MR MACKENZIE: If we on that note, please, go to the next 20 document, which is CEC01564795. 21 This is an email by you dated 28 August 2007. It is 22 sent to Mr MacKenzie and you state: 23 "Given the nature of our recent discussions and the 24 content of your recent emails to Gill, I was somewhat 25 surprised to receive your email this morning." 163 1 You then go on to make reference to the nearly 2 1,000 pages of agreements to comment on in less than 3 36 hours and that that would be an impossible task. 4 You then go on to say that: 5 "I refer you to your email to Gill dated 15 August 6 which you copied me into and in which you highlighted 7 a number of issues surrounding such a review. You noted 8 that 'legal services has neither the experience nor 9 manpower to undertake such a comprehensive task, even if 10 time were available'. I agree with this and am 11 therefore surprised at the email received today. As 12 discussed with you at length, anything less than 13 a comprehensive review of risks and obligations would 14 not in my view be in the Council's best interests and 15 I would be failing in my professional obligations if 16 I did not raise this issue with you. Unfortunately, 17 given the circumstances, it will not be possible for me 18 to respond as requested. 19 As discussed, I look forward to being able to 20 assist yourself and Alan with other, more appropriate 21 matters in relation to the tram project." 22 What was Mr MacKenzie's response to this email? 23 A. I don't believe I got one, but certainly from our 24 discussions, he fully understood my position and we had 25 made that position very clear to Gill Lindsay; that 164 1 I did not believe it would have been professionally 2 responsible of me to undertake a review of that contract 3 without sufficient skill and experience in that type of 4 contract. 5 Q. Was Gill Lindsay aware of your response, ie that you 6 were not prepared to do this? 7 A. Um, I can't honestly say. Given Colin MacKenzie had 8 instructed me on behalf of Gill Lindsay, I can only 9 assume that he fed that back. Certainly my role in the 10 project changed after that, and I was involved in more 11 discrete aspects of the project and was not asked again 12 to do that review. 13 Q. Just for the avoidance of any doubt, did you actually 14 review the documentation and report on risks and 15 liabilities? 16 A. No. 17 Q. Could we at this stage please go back to your statement 18 at page 4? 19 A. Yes. 20 Q. We can see the very top of page 4, you state: 21 "I was very clear throughout the period of the 22 project that I would not be reviewing the contractual 23 terms or associated documents (including the risk 24 registers, close reports et cetera) which tie had 25 prepared, negotiated and agreed. This was well 165 1 understood and accepted at the time." 2 To pause there, was Colin MacKenzie aware at the 3 time that this was your position? 4 A. Absolutely. 5 Q. Did he agree with it? 6 A. Um, he certainly didn't disagree with that. I think he 7 accepted it on the basis that, as I say, we had had 8 lengthy discussions about the need for an independent 9 review which is documented in other emails of which 10 hopefully the Inquiry is aware. So, yes, I believe he 11 agreed with that. 12 Q. Was Gill Lindsay aware at the time that this was your 13 position? 14 A. I -- as I said, I can't confirm that. But given the 15 instruction appeared to have come from her through 16 Colin, I would assume he had fed that back. As I say, 17 my role on the project changed slightly thereafter and 18 I was never again asked to review the contract. 19 Q. Did you have any discussions with Gill Lindsay over your 20 position as set out there in your statement? 21 A. No. 22 Q. Could we then, please, put the statement to one side and 23 go on to the next document, CEC01561179. We can see 24 from the heading of these minutes, these are the minutes 25 of a property and legal meeting on 4 September 2007. 166 1 I think you were present at this meeting, along with 2 others, Mr Smith. 3 Can we then please go to page 2 of these minutes? 4 We can see about halfway down the paragraph: 5 "Council Solicitor declined that opportunity to 6 appoint independent solicitors, instead choosing to rely 7 upon DLA letter of comfort to act in the Council's 8 interest, subject to agreeing the appointment of DLA." 9 So my Lord, I think, asked certain questions just 10 after the break about that draft letter. I think we can 11 see here on 4 September 2007, it is noted "subject to 12 agreeing the appointment of DLA". 13 So it appears at this time that that was a matter 14 still to be agreed. 15 A. Yes, that is my understanding. 16 Q. If we go about a bit further down in the minutes on the 17 page, we can see: 18 "Group seeking confirmation through Council 19 Solicitor that the advice on contract from DLA (Infraco) 20 can be relied upon in full. 21 "It is the belief of the group that it is still 22 prudent to seek legal advice before enabling the 23 contractual approval." 24 Just reading these minutes, on the face of it, from 25 the part of the minutes up the page, one gets the 167 1 impression the Council Solicitor has declined the 2 opportunity to appoint independent solicitors, but then 3 further down: 4 "... belief of the group it is still prudent to seek 5 legal advice before enabling contractual approval." 6 The reference to "belief of the group it is still 7 prudent to seek legal advice", is that reference to 8 independent legal advice or could that include advice 9 from DLA? 10 A. No, it was independent legal advice. Effectively, Gill 11 appeared to have taken a decision not to appoint 12 independent legal advice on behalf of the Council. The 13 two principal solicitors and myself at the time believed 14 that we should be appointing, and we also had support 15 from elsewhere within the B team. I also believe that a 16 director had agreed that that should be sought as well. 17 But for whatever reason, that advice was never sought. 18 CHAIR OF THE INQUIRY: Which director? 19 A. I can't honestly recall but it is documented. I think 20 it might have been Andrew Holmes. 21 MR MACKENZIE: Can we then please go back to your statement 22 at page 28? 23 You say here: 24 "As an aside, I do recall having a conversation with 25 Colin MacKenzie some time in autumn 2007 about whether 168 1 we should inform the Council's Monitoring Officer of our 2 views on the project." 3 Who was the Monitoring Officer at that time? 4 A. It would have been Jim Inch. 5 Q. "I recall that this was particularly around the decision 6 not to obtain an independent legal review and the risks 7 associated with this. I further recall that the 8 conclusion we reached at the time was that there did not 9 appear to us to be anything illegal or maladministrative 10 to report. They appeared to us to be essentially 11 risk-based decisions with which we may not have 12 necessarily agreed but were left to assume that those 13 who presumably had the full picture were taking these 14 risk-based decisions, having fully considered all 15 relevant issues. These type of issues were persistent 16 concerns for us ..." 17 Presumably if you had a conversation with 18 Mr MacKenzie at that time, about whether you should 19 inform the Council's Monitoring Officer, is that an 20 indication of how strongly you both felt about this 21 matter? 22 A. Absolutely. It was fundamental to me that that contract 23 should have been independently reviewed on behalf of the 24 Council. And I -- I'm at a loss to understand how the 25 Council allowed that contract to be signed without such 169 1 a independent legal review. 2 Q. Let's fast forward to today, Mr Smith. You are now the 3 Council Monitoring Officer. If the same set of 4 circumstances arose and a solicitor approached you as 5 Monitoring Officer with the same concerns, what would 6 you have -- what would your view be as Monitoring 7 Officer? 8 A. As Monitoring Officer, I would hope he would come to me 9 through the legal chain or to me direct and I would hope 10 to be approachable enough for them to able to do that. 11 What I would make sure I did was take into account their 12 concerns and either explain to them why I was not doing 13 something, or actually accept that they were right and 14 move on on that basis. What frustrated me about what 15 happened on this project was nobody ever came back to 16 say: we are not doing this because we believe that X, Y 17 and Z is covered by this other review. 18 Q. Presumably part of the role of Monitoring Officer for 19 the Council is that any officer, at any level, can go 20 straight to the monitoring officer, bypassing any 21 chains, if they are concerned enough about an issue, is 22 that correct? 23 A. Absolutely. 24 Q. So again just hypothetically speaking, if today or 25 tomorrow, a more junior solicitor in the legal team came 170 1 straight to you with this very point that: I'm very 2 concerned, the Council needs independent legal advice, 3 because there is a potential of significant exposure but 4 those above me don't agree; what would you do, as 5 Monitoring Officer? 6 A. Again, it would probably be within my role as Head of 7 Legal, but I would sit down with all the relevant 8 parties and work through exactly what was required and 9 why. There is no doubt going to be lots of different 10 aspects to it. There may be reasons that that solicitor 11 doesn't have the full picture or the full information. 12 And there may be reasons why that isn't required. 13 However, I would sit down with them and explain to 14 them exactly why I was taking that decision, and I would 15 take responsibility for taking that decision. 16 Q. Your view at the time, in autumn 2007, ultimately was 17 that this was a matter of judgment, not illegality or 18 maladministration. 19 A. Colin and I wrestled with this for quite some time. 20 I think ultimately we got to the position that, yes, 21 there was nothing illegal here, there was nothing 22 maladministrative and there was nothing -- arguably -- 23 nothing unjust going on. We were also aware that people 24 at the Monitoring Officer's level and Directorate level 25 were aware of all our concerns, through various briefing 171 1 papers, and a decision had been taken not to take that 2 independent legal advice. As I say, I can't explain it, 3 and no one ever explained it to me. I fundamentally 4 disagreed with it. 5 Q. Even today, given you are now the Council's Monitoring 6 Officer, and with all the further knowledge and 7 experience you have in that role, does it remain your 8 view that looking back, this was truly a matter of 9 judgment rather than a matter of illegality or 10 maladministration? 11 A. I think that, yes, that is certainly the case. If 12 a solicitor came to me with the same thing, then 13 I probably, as I said, would not look at it with my 14 Monitoring Officer hat on; I would probably look at it 15 as my Head of Legal hat. 16 CHAIR OF THE INQUIRY: What are the limits of the concept of 17 maladministration as far as Monitoring Officer? 18 A. It is a very wide definition. A lot of it comes down to 19 personal judgment as to whether something goes over the 20 line into maladministration. But it has to be of 21 a serious nature. 22 MR MACKENZIE: Thank you. 23 Could we then, please, move on to another point. We 24 should perhaps bring up document CEC01398245. This 25 concerns the issue of the briefing note prepared by 172 1 members of the B team for the directors to consider at 2 the meeting of the Internal Planning Group on 3 11 December 2007. 4 If we please, then, go to page 91 in this document, 5 this "Appendix 3" is the highlight report, is the 6 briefing paper drafted by the B team. I'm not going to 7 go through the detail. I suspect you would be familiar 8 with it, is that correct? 9 A. Yes, I am. 10 Q. Did you contribute to the drafting of this paper? 11 A. I have certainly drafted large chunks of it, yes. 12 Q. I take it you agree with what is set out -- the 13 question -- at the time you agreed with what was set out 14 in the paper? 15 A. Yes. 16 Q. If we could then please go back to your statement, at 17 page 28, under the letter D you were asked: 18 "Were the main concerns set out in the briefing note 19 ever resolved to your satisfaction?" 20 You answered "no". 21 Can you expand upon that answer, please? 22 A. I can't remember all the constituent parts of the 23 briefing note, but I guess the key point is that it was 24 not me that had to be satisfied, so I would -- if 25 required, chase down anything I was being asked to chase 173 1 down, but in reality, we were escalating concerns to the 2 directors for them to determine what would give them 3 satisfaction as to being able to sign off the contract. 4 Put very simply, even if tie had been able -- tie and 5 the Council had been able to resolve all those issues as 6 I said before, absent a full legal review by contract 7 experts familiar with this type of contract, I could 8 never have been satisfied. 9 Q. Thank you. Then, please, stick with your statement at 10 page 32. 11 It is the report to Council on 20 December 2007 for 12 approval of the Final Business Case. 13 The question (e) at the top of the page, in relation 14 to the report to Council on 20 December 2007, we asked: 15 "Do you consider that report adequately outlined the 16 risks set out in the Director's Briefing Note ... did 17 you have any concerns in relation to the report to the 18 Council?" 19 You replied: 20 "In my view, the report does not contain sufficient 21 visibility of the risks identified in that note. 22 However, as noted elsewhere, it would have been up to 23 the owner of the report to decide on and approve which 24 risks to include. As such, I would have assumed at the 25 time that these matters had been fully considered and 174 1 deliberately left out." 2 Is there anything you wish to add to that answer? 3 A. No. 4 Q. We also -- the question at the bottom of the page, under 5 the letter (i), we asked: 6 "Which risks associated with design work did you 7 understand to be transferred to the private sector and 8 which had been retained by the Council?" 9 Et cetera. Over the page, top of page 33, you 10 stated: 11 "I cannot comment, as I was not advising on the 12 contractual terms or risk transfer provisions in this 13 regard. I understood that Gill Lindsay was dealing with 14 DLA on such matters." 15 Can you explain that passage, please? 16 A. So effectively, because I was not undertaking a review 17 of the contractual terms as we saw from the previous 18 email, I was not looking at the risk transfer 19 provisions. Gill had obviously taken the decision to 20 work with tie and DLA on these matters, so my 21 understanding was she was dealing with those. Where 22 I did highlight some concerns with consents and risk 23 transfer later on, it was done from quite a high level 24 conceptual perspective, and again, the working 25 assumption for myself and, I believe, Colin MacKenzie 175 1 was that Gill and DLA and tie were working together to 2 resolve these. 3 CHAIR OF THE INQUIRY: The working assumption was what? 4 A. That Gill Lindsay and DLA and tie were working together 5 to, um, resolve whatever contractual terms needed to be 6 put into place to effect whatever risk transfer had been 7 agreed. 8 MR MACKENZIE: Why would there have been a division within 9 CEC Legal team between Gill Lindsay, on your evidence, 10 independently dealing with DLA and tie on the 11 contractual terms and risk transfer on the one hand, 12 whereas separately members of the same team, namely 13 Colin MacKenzie, Alan Squair, and perhaps to a lesser 14 extent, yourself, were also working on the tram project. 15 Why would there be that separation? 16 A. I think simply because there was this fundamentally 17 different view on whether there should have been an 18 independent legal review or not. And because Colin and 19 I felt that it would not be professionally responsible 20 to review contracts and comment on terms that we were 21 not familiar with and didn't know whether they were the 22 market norm. I particularly had a concern that it might 23 have given people in the Council a false impression that 24 this had been appropriately reviewed, and I suspect -- 25 well, I know that Colin sent Gill a number of emails 176 1 over that nine-month period where he indicated that if 2 Gill was happy getting on with the DLA letters, then 3 that's for her to deal with. 4 Q. I described that as a separation of responsibility. Is 5 that an accurate description? 6 A. Um, I can't argue with that description. There was 7 different people dealing with different aspects of the 8 project is the way I would put it. 9 Q. It does seem unusual to have one legal team, but when 10 something as fundamental as advising on the contractual 11 terms and risk transfer, one member of the legal team is 12 exclusively dealing with that, and other members are 13 not. 14 A. I'm not sure I agree with that statement. On the basis 15 that, for example, I was pretty much exclusively dealing 16 with the operating agreement. So each individual within 17 the team had, you know, different roles and 18 responsibilities and different grades within the 19 structure. I would also say it is probably not that 20 usual for there to be such disparate views on key issues 21 within a specific legal working team. Normally, we come 22 out with an outcome that will work for everyone. In 23 this particular instance, I don't think that was 24 possible. 25 Q. So in short, however, your position -- your evidence -- 177 1 is that Gill Lindsay was advising on the contractual 2 terms and risk transfer, and you didn't at any time 3 advise on the contractual terms or the risk transfer? 4 A. I think that is accurate. My assumption -- I mean, Gill 5 never told me what she was not or was doing, but my 6 assumption was that she was working with DLA and tie. 7 In reality, I suspect that the Council was probably 8 heavily reliant on the letters provided by DLA and the 9 risk matrices provided by DLA. 10 Q. Again, just for the avoidance of doubt, I'm sorry, I am 11 repeating yourself, but was Gill Lindsay aware of your 12 position that you were not advising on the contractual 13 terms or the risk transfer provisions? 14 A. I cannot confirm that, because I never discussed it with 15 Gill Lindsay. We operated quite a hierarchical 16 structure and that instruction had come directly from 17 Colin. If it had come directly from Gill, I would have 18 taken it back to her. I took it back to Colin who I can 19 only assume took it back to Gill. As I say, I was never 20 asked to do that again. 21 Q. To step back a little, around this time in late 2007, 22 did the legal team within the Council have regular 23 meetings, or how was information shared? 24 A. Teams would have regular meetings. I met regularly with 25 Colin MacKenzie and Alan Squair and discussed various 178 1 aspects. People who were working on specific projects 2 would meet. Teams, the commercial team might meet or 3 the litigation team might meet. It was very seldom that 4 we interacted with Gill Lindsay or her depute at that 5 time. 6 Q. Please could I return to your statement at page 33? 7 Over the page, please, to page 34. 8 We asked the question at letter M: 9 "Did there come a time when you were satisfied that 10 the conditions in relation to giving approval to tie to 11 award the contracts had been met and if so, when, and on 12 what basis were you so satisfied?" 13 You answered "no". Can you expand upon that answer, 14 please? 15 A. It is probably simply that it was not me that had to be 16 satisfied that the conditions had to be met. That would 17 have been for Andrew Holmes, Donald McGougan and 18 Gill Lindsay to then take a view on how to recommend 19 that to the Chief Executive at the time. 20 Q. So your answer is really "not applicable"? 21 A. Probably, yes. 22 Q. Could we then, please, look at another document. Moving 23 on to January 2008, the CEC01476409. 24 We can see from the heading that these are the 25 minutes of the CEC/tie Legal Affairs Group Meeting. Is 179 1 this a group you attended on a regular basis, Mr Smith? 2 A. I can't honestly recall, but, yes, I think I did attend 3 a number of these. 4 Q. We can see you are in attendance at this particular 5 meeting. Just to pause, to ask you this question: the 6 minute states -- this is a minute of the CEC/tie Legal 7 Affairs Group -- did you understand at the time that 8 this was the sub-committee of the Tram Project Board? 9 A. No, I did not. 10 Q. Could we move on to page 3, please, of this minute? 11 Under the item 8, "Consents and Approvals", I think 12 Damian Sharp of tie has perhaps given a presentation. 13 At least it says something about that matter. And we 14 can see then your initials, NS asked who would be 15 liable -- halfway down the page: 16 "NS asked who would be liable if SDS does not work 17 to the programme -- MC [I think that is Matthew Crosse] 18 noted that the SDS Novation Agreement will take care of 19 this. At NS's request MC will confirm that the 20 agreement contains details of who will take the risk of 21 knock-on effects of delays." 22 Why did you raise this matter at this meeting? 23 A. I think I was probably at the meeting -- well, I can't 24 remember exactly what was discussed, but if I attended 25 these meetings, then obviously if I spotted an issue 180 1 that could be an issue, then notwithstanding I was not 2 reviewing the terms, I was not going to sit there and 3 not say something. So it was obvious to me that if they 4 didn't work to programme from a common sense 5 perspective, if you don't have design completed, you 6 can't get it approved, and more importantly you can't 7 build it. So it was really obvious to me that there 8 could be risk to the Council for this, so I asked the 9 daft laddie question. And was told: yes, this is all 10 taken care of, don't worry about it. And I think -- 11 forgive me, what is the date of this? 12 Q. This is dated 21 January 2008. 13 A. So I'm pretty sure if -- and if I get my month right, 14 I think it was 22 and 23 January that I send an email 15 which says a significant issue has arisen with consent. 16 Q. I see. Presumably the very fact you asked the question, 17 who would be liable if SDS does not work to the 18 programme, suggests that at least you were not aware of 19 the answer to that at this time? 20 A. No. 21 Q. Do you know whether other members of the B team you had 22 spoken to were aware of the answer to this question at 23 this time? 24 A. I don't believe we ever got a full answer on who would 25 be liable for these delays. My understanding by the 181 1 time we got to signing, and again I was not involved 2 with reviewing the exact contract terms, but my general 3 understanding was that this risk had been passed to the 4 private sector. 5 Q. Once we get to contract signing? 6 A. Correct. 7 Q. But at this point in January 2008, I assume you were 8 aware at this time that there had been difficulties and 9 delays with design? 10 A. Broadly, yes. 11 Q. So it does seem a fairly important point that against 12 a background of known difficulties and delays in design, 13 that the Council don't seem to know who would be liable 14 if SDS did not work to the programme, and yet in 15 December, the previous month, the Council members had 16 been asked to approve the Business Case and give 17 delegated authority to the Chief Executive to approve 18 the authorisation of the contracts, if he was satisfied 19 that outstanding matters had been resolved to his 20 satisfaction. 21 Do you have any observation on that comment, that 22 this seems quite a fundamental matter in January to be 23 still unclear about, when Council had been asked to 24 approve the Final Business Case the previous month? 25 A. What I would say is I think it was not just 182 1 a fundamental issue in January. I think it was also 2 a fundamental issue at the tail end of November and it 3 also went into the Directorate's Briefing Note, which 4 although I don't believe I saw the IPG note when it 5 actually went out, I think you said it was 11 December, 6 but I'm pretty sure those concerns were also flagged in 7 that IPG report. 8 Q. So it is an issue that has been rumbling along since at 9 least that time and continues to rumble into January, 10 and yet, as I say, the Council has been asked to approve 11 the Final Business Case. Do you have any observations 12 on whether that is appropriate? 13 A. With hindsight, my view is clearly that these risks 14 should have been flagged to the elected members, but it 15 was not my decision as to what to put in these reports, 16 I am afraid. 17 Q. Just for completeness, I should ask this: minutes note 18 that at your request, Matthew Crosse was to confirm that 19 the agreement contains details, the novation agreement, 20 of who will take the risk of knock-on effects of delays. 21 Do you recall whether you ever received such 22 confirmation from Mr Crosse? 23 A. No, I don't, I am afraid. 24 Q. The next document, please, is an email of 22 January 25 2008. The doc ID is CEC00481318. 183 1 If we go, please, to page 4 of this document, we can 2 see halfway down an email from yourself dated 22 January 3 2008, subject "Consents", which begins: 4 "As discussed this morning, there appears to be 5 a significant issue with regard to design approvals and 6 consents." 7 I think that is the email you referred to just a few 8 minutes ago in your evidence, is that correct? 9 A. That's correct. 10 Q. I'm not going to read this in detail, but we can see, 11 for example, in the next paragraph of your email, you 12 set out the original intention that before financial 13 close, most if not all of the approvals required would 14 have been obtained, et cetera. Also in the paragraph 15 after that, you say: 16 "Unfortunately, the design process is now over 12 17 months late in delivery, and I understand that SDS were 18 put under no definitive timetable by tie (ie no 19 penalties for non-timeous delivery). This is the 20 unfortunate present position." 21 You also then go on to say: 22 "The problem which I understand that CEC now has is 23 that tie have been leading the technical negotiations 24 and CEC has little or no visibility of the actual 25 proposed output in terms of design or quality. Indeed, 184 1 CEC is not aware of the basis on which BBS priced the 2 deal." 3 In the interests of time, I will take the rest as 4 read. 5 If we can go to page 6, please, and the second last 6 substantive paragraph, you set out: 7 "You will recall that these issues were highlighted 8 in brief in the Director's Briefing Note in late 9 November. However, the full extent of the risk is 10 becoming clearer as contract close gets closer with no 11 appreciable advance in approvals being obtained." 12 You then go on to say: 13 "It is obviously a matter to be discussed at a much 14 more senior level, quantified by tie, and added to the 15 risk register, but I hope that the above explains the 16 issues." 17 In the previous paragraph when you said that "full 18 extent of the risk is becoming clearer as contract close 19 gets closer", can you explain that? 20 A. I think what I probably meant was the risk is getting 21 greater as contract close gets closer. 22 Q. I suppose there is less time available to obtain all the 23 outstanding approvals and consents. 24 A. Yes. 25 Q. If we then go to another document, please, again on the 185 1 same matter, CEC01395113. 2 At the top of the page we see this is an email from 3 yourself dated 24 January 2008 to Gill Lindsay and 4 Colin MacKenzie, again on the subject of consents and 5 you state -- I think you asked Mr Fraser for certain 6 information on the state of play of the approved prior 7 approvals and technical consents. In your email you 8 say: 9 "A little better than I thought, but by my 10 calculations, prior and technical approvals are only 11 27 per cent complete. As far as I am aware, this was 12 intended to be 100% by December 2007 and is 13 running at least 12 months late. This has a significant 14 impact on CEC's ability to know the quality of finished 15 product being delivered and a consequential significant 16 elevation of risk." 17 Do you remember any discussion with Gill Lindsay at 18 this time or any reply? 19 A. No. But I do remember sending Gill at some time around 20 here another email with an email trying to help the 21 situation. And her, in particular for her to send on to 22 the directors to flag this specific issue, to say: can 23 you please confirm that you are happy taking on this 24 unquantified risk? 25 Q. Before we come to that email, can you first look, 186 1 please, at another document in this chain: CEC01395085. 2 This is an email from yourself, it is 22 January 3 2008, to Gill Lindsay and copied to your colleagues. 4 You state: 5 "As discussed last night, my preliminary view is 6 that the neatest way to protect the Council's interests 7 re the consents issue is to seek confirmation from DLA 8 that the Infraco suite of contracts will only allow CEC 9 to pay compensation for any delay in relation to 10 consents/approvals in a limited set of circumstances." 11 Which you then set out. In the next paragraph, you 12 say: 13 "To my mind, trying to get involved in detailed 14 drafting could be difficult at this late stage." 15 Et cetera. And simply seeking confirmation of the 16 position from DLA to cover all your concerns. 17 Now you have mentioned before that your position was 18 you were not going to give advice on the contract or 19 risks. Do you consider what is set out in this email is 20 consistent with that position? 21 A. So, this was the one issue that I picked up that 22 I thought we need to deal with this as a Council. And 23 given that Gill had decided to rely on DLA, this was 24 simply a suggestion to try to help, to say: okay, there 25 may be an unquantifiable risk here, can we at least ask 187 1 the legal advisers of tie to confirm that that risk is 2 limited to a specific set of circumstances. 3 I think in the Director's draft Briefing Note, I was 4 effectively saying we shouldn't be taking on any 5 additional risk. This was saying we shouldn't be taking 6 on any additional risk and the way to do that is to 7 identify -- recognising where we are, we need to 8 identify the specific risks that could come forward. 9 But in terms of how that was then reflected in the 10 contract documentation, no, I was not dealing with that. 11 Q. Is your position that you were advising or getting 12 involved on the question of risks to some extent? 13 A. Yes, I was -- I was getting involved on that specific 14 issue, because I think as I said, I had flagged it, 15 having attended the LAG, the Legal Affairs Group, and 16 given it didn't appear to me to be picked up somewhere 17 else, then, yes, I was trying to help to make sure the 18 Council didn't suffer that risk. 19 Q. The issue of responsibility for design, design delay, 20 approvals and consents, in one view, that was the 21 biggest risk issue at the time? 22 A. Yes. 23 Q. I don't criticise you, of course, for getting involved 24 in this way, but I'm simply trying to reconcile, is that 25 consistent with what you said earlier, that your stated 188 1 position was you were not going to get involved with 2 advising on the contract risks? 3 A. Just to clarify that, I was not going to get involved in 4 advising on the specifics in the contract, you know, 5 specific contract clauses and drafting, and how that was 6 being reflected. I think that is a different thing from 7 saying you will not get involved with or identify high 8 level risks. So on a conceptual level, I can see that 9 this could be a risk to the Council. What I was doing 10 was escalating that risk to say those that are then 11 dealing with how that is reflected in the contract, be 12 it tie, be it Gill, be it Colin, need to take this into 13 account in order to protect the Council's interests. 14 Q. If we then, please, go to another document CEC01395151, 15 one can see from the top it is an email from yourself sent 16 on 29 January 2008 to Gill Lindsay and copied to 17 Colin MacKenzie again on the consents issue. You state: 18 "Further to last night's meeting with 19 Andrew Fitchie, below is proposed text from you to the 20 directors to progress the approvals matter..." 21 To pause there, the reference to "a meeting last 22 night with Mr Fitchie", do you recall if you had 23 attended that meeting? 24 A. I am afraid I can't. 25 Q. Did you attend any meetings around this time with 189 1 Mr Fitchie? 2 A. Um, it is entirely possible that I did. I may have -- 3 I may have met him to discuss this specific issue, to 4 try to help out. 5 Q. And you then, in the email, set out proposed text. 6 I think it is directed to Andrew Holmes and Donald 7 McGougan; is that correct? 8 A. That's correct. 9 Q. So what was the purpose of the suggestion in this email? 10 A. I was trying to make sure that this particular issue 11 which I saw as pretty key was being escalated to Andrew 12 and Donald specifically, and I guess I thought that Gill 13 was going to be asked whether this was okay, and 14 I wanted to make sure that we had put -- put it in 15 writing what the risk was and sought their instructions 16 as how to how this should be taken forward. 17 CHAIR OF THE INQUIRY: Is this the draft email you mentioned 18 a few minutes ago? 19 A. Yes, it is. 20 MR MACKENZIE: You say "sought instructions": would that be 21 Gill Lindsay seeking instructions from the other two 22 other directors? 23 A. Yes, fundamentally what I had done was draft an email 24 from Gill to the directors to say "Here are the issues, 25 how would you like these dealt with?" 190 1 Q. If the fundamental issue is one of legal risk and 2 liability, is that not primarily a matter for the 3 Council Solicitor to satisfy themselves rather than ask 4 other directors? 5 A. Indeed. That was a matter for Gill Lindsay to take 6 a decision on. If she did not want to send that and 7 take a view herself that this was going to be dealt with 8 in a different way, but I felt it was important to make 9 sure that the directors were again aware of this 10 particular issue. It had been flagged in the briefing 11 note to the IPG in December and I thought it needed 12 flagged to them again. 13 Q. I see. We can also see in this email, after the list of 14 bullet points, in the paragraph after that towards the 15 end of that paragraph: 16 "However, as CEC has no real visibility on what is 17 being delivered in relation to the currently unapproved 18 drawings, this opens up the possibility of significant 19 risk of increased cost to the project." 20 On that point, where the CEC had no real visibility 21 on the question of currently unapproved drawings, 22 presumably the legal team had even less visibility than 23 those in perhaps city development might have -- 24 A. Yes. 25 Q. -- to do with drawings and approvals and consents? 191 1 A. That's correct. 2 Q. Then in the paragraph after that you state: 3 "I should be grateful if you would confirm whether 4 or not you are of the view that CEC should accept the 5 unquantified risk of claims for compensation as a result 6 of this situation. Unfortunately, the only way to 7 exclude this risk entirely would be to require all 8 drawings to be approved before financial close, which 9 will be impossible on the current timescales. Can you 10 also please confirm whether you think tie should also be 11 asked to confirm that they anticipate no mismatch 12 between CEC's expectations and what tie has negotiated 13 on CEC's behalf." 14 On one view, Mr Smith, in an ideal world the 15 solution to this problem of design delay may have been 16 to put the Infraco procurement on pause to allow the 17 design consents and approvals to catch up and to be 18 complete or at least substantially complete. 19 Do you recall any discussion of that option around 20 this time within the Council? 21 A. No. I don't recall that. I'm not sure I would have 22 been involved in such discussions. That would have been 23 a pretty fundamental thing because I understand that 24 there may have been issues to do with how it was 25 procured et cetera, timetables that had to be stuck to, 192 1 prices that may have then increased, and I don't know 2 what other pressures were being brought to bear. 3 I do recall seeing an email, I think from tie, 4 saying there should be no suggestion that this 5 completion should be moved forward, but unfortunately 6 I can't remember whether I saw that at the time or 7 whether I saw it as part of my evidence to give my 8 statement. 9 Q. Thank you. 10 Do you remember whether Gill Lindsay did send an 11 email or paper to the directors in the terms you had 12 proposed? 13 A. I'm not sure I would have been copied into it, but 14 I don't recall -- in fact, what I would say is I don't 15 recall anyone coming back to me on this issue saying 16 "Yes, you are right, it is a big issue and we are going 17 to deal with it". 18 Q. Thank you. 19 Moving on in terms of what was happening during this 20 period -- 21 CHAIR OF THE INQUIRY: Mr MacKenzie, is this a convenient 22 point? 23 MR MACKENZIE: Sorry, my Lord? 24 CHAIR OF THE INQUIRY: Is this a convenient point? 25 MR MACKENZIE: It is, my Lord, yes. 193 1 CHAIR OF THE INQUIRY: Very well. We will adjourn until 2 tomorrow morning at 9.30, if you could be here in time 3 to start. 4 A. Thank you, my Lord. 5 (4.30 pm) 6 (The hearing adjourned until Thursday, 14 September 2017 at 7 9.30 am) 8 MS REBECCA ANDREW (affirmed) .........................1 9 Examination by MR MACKENZIE ...................1 10 MR NICK SMITH (affirmed) ..........................135 11 Examination by MR MACKENZIE .................135 12 13 14 15 16 17 18 19 20 21 22 23 24 25 194