1 Wednesday, 13 September 2017 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