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 13 194 1 Thursday, 14 September 2017 2 (9.30 am) 3 CHAIR OF THE INQUIRY: Good morning. Mr Smith, you are 4 still on oath. 5 MR NICK SMITH (continued) 6 Examination by MR MACKENZIE 7 MR MACKENZIE: Good morning, Mr Smith. 8 A. Good morning. 9 Q. One matter I would like to clarify from yesterday. Do 10 you remember the options paper dated 2 August 2007, you 11 set out options 1 to 4 in relation to obtaining legal 12 advice. 13 A. Yes, I think so. 14 Q. Among which officers in the Council was that paper 15 discussed? 16 A. I can't remember off the top of my head; certainly 17 Duncan Fraser, Colin MacKenzie, myself, probably 18 Alan Squair. But it may also have gone wider, and 19 I can't remember whether it was shared with 20 Gill Lindsay. 21 Q. You don't remember discussing that with Gill Lindsay? 22 A. I just can't remember. I may have or I may not have, or 23 Colin may have, I simply can't remember, I am afraid. 24 Q. Thank you. I would like to move on, now, please. We 25 finished off yesterday with various emails from January 1 1 2008. Did you have any significant involvement in the 2 tram project in February 2008? 3 A. I was still involved in it. Certainly still involved in 4 the project. At the tail end of February, I went off on 5 medical leave for a number of weeks. So probably in the 6 lead up to that and thereafter, less involvement, but 7 yes, in February I was still there. 8 Q. I think you said in your statement, you were absent on 9 medical leave between 28 February and 8 April 2008. Is 10 that correct? 11 A. Sometime around that period, but yes, at least that 12 period. 13 Q. I would now please like to take you to a document dated 14 15 April 2008. If we go, please, to document 15 CEC01245223. 16 You can see at the bottom half of the page, this is 17 an email from Stewart McGarrity of tie dated 15 April 18 2008, sent to Alan Coyle and copied in Andy Conway and 19 Rebecca Andrew, and in short it attached two things, 20 a cost analysis spreadsheet which we looked at yesterday 21 with Ms Andrew, and also Part 4 of the Schedule to the 22 Infraco contract re pricing. 23 If we go to the top half of this document, please, 24 we see that on 15 April 2008, the same day, Alan Coyle 25 forwarded this email and the attachments to 2 1 Colin MacKenzie, Gill Lindsay, Steve Sladdin, 2 Nick Smith -- yourself -- and copied Andy Conway; 3 I don't think we have heard the name Steve Sladdin, who 4 is he? 5 A. Steve, I think, was one of the property managers. He 6 dealt a lot with the compulsory purchase orders 7 et cetera. 8 Q. Thank you. In his email Alan Coyle said: 9 "Dear all. Please see attached for info and my 10 response to Stewart. Please note his request on 11 confidentiality." 12 Mr Smith, this draft of Schedule 4 of the Infraco 13 contract, did you read that document at the time? 14 A. No, I didn't. 15 Q. Are you absolutely sure about that? 16 A. Yes. 17 Q. Why didn't you read it at the time? 18 A. Because it was -- well, for two reasons. One, it was 19 part of the contractual terms which, as I said 20 yesterday, I was not advising on, so when this came in, 21 I'm pretty sure I just thought that is part of the 22 contract terms that others are dealing with. 23 The second reason was that -- I can't remember the 24 exact date, but I came back to work from medical leave 25 very shortly before this email was sent, and I was not 3 1 fully up to speed with what had gone on. This was a 2 very fast-moving project as people were pushing towards 3 getting financial close, in what turned out to be 4 mid-May, so I was way behind the curve on what had 5 happened to date. 6 Q. Did you read Schedule 4 at any time before financial 7 close? 8 A. Not that I recall, no. 9 Q. Are you aware of any discussion within CEC legal of 10 Schedule 4 before financial close? 11 A. Not that involved me, no. 12 Q. Are you aware of any discussion within CEC legal that 13 didn't involve you? 14 A. No. 15 Q. When did you first read Schedule 4? 16 A. I can't honestly recall, but probably sometime in 17 2009/2010, sometime around then. Probably when the 18 adjudication started happening. 19 Q. What were your views on Schedule 4 when you first read 20 it? 21 A. Schedule 4, from memory, is a very long and complex 22 document that needs to be read in the context with all 23 the other parts of the contract documentation. I'm not 24 sure I formed a view. I'm still of the opinion that 25 I was not qualified to take a view on what these matters 4 1 said. 2 Q. If we now, please, go to the draft Schedule 4 that was 3 attached to this email of 15 April, document reference 4 CEC01245224. 5 This is the first time, Mr Smith, the Inquiry has 6 looked at this document, so I will go through some of 7 the provisions and read them out. You can see this is 8 the first page, Schedule 4, Pricing. 9 Please then go to page 3. Paragraph 1.1 states: 10 "The Infraco Construction Works Price is detailed in 11 Appendix A to this Schedule Part 4." 12 If we can go then, please, to Appendix A, on 13 page 16, we see Appendix A states: 14 "CONSTRUCTION WORKS PRICE ANALYSIS" 15 Then in brackets: 16 "[Analysis being updated to reflect final 17 position - completed by 15 April]" 18 So essentially, I think Appendix A is blank, because 19 it was in the process of being updated. 20 If we then go back, please, to page 3, under 21 paragraph 2.2, it states that: 22 "The 'Base Case Assumptions' means the base date 23 design information, the base tram information, the 24 pricing assumptions and the specified exclusions." 25 Paragraph 2.3 states: 5 1 "The 'Base Date Design Information' means the design 2 information drawings issued to Infraco up to and 3 including 25 November 2007 listed in Appendix H to this 4 Schedule, Part 4." 5 Pause there, Mr Smith, when did you first become 6 aware that the pricing schedule of the Infraco contract 7 was based on design available up to and including 25 8 November 2007? 9 A. I can't recall, I am afraid. 10 Q. Is that likely to have been when you first read Schedule 11 4? 12 A. Probably yes. Likely to be. 13 Q. As I say, paragraph 2.3 defines the base date design 14 information with reference to the design drawings, 15 listed in Appendix H to this Schedule Part 4. 16 If we please go to page 30 of this draft, we can see 17 Appendix H, "BASE DATE DESIGN INFORMATION". In brackets 18 it states: 19 "[drawings which forms part of the Infraco 20 Proposals (ie those issued to Infraco up to 25th 21 November) to be listed here]" 22 So certainly at this stage this was the intention 23 that design drawings would be listed in Appendix H, do 24 you see that? 25 A. Yes. 6 1 Q. If we then go to the final version, please, of the 2 Schedule 4 -- so a different document reference number 3 USB00000032 -- so this is the final version of Schedule 4 Part 4 of the Infraco contract. 5 If we please go to page 53, we see this is headed 6 Appendix H, "BASE DATE DESIGN INFORMATION". 7 It simply states: 8 "All of the drawings available to Infraco up to and 9 including 25th November 2007." 10 That is it. Did you pick up on this point when you 11 first read Schedule 4? 12 A. I can't remember whether I did or not, but it is 13 surprising. 14 Q. Why do you say it is surprising? 15 A. Because that simple sentence leaves so much unsaid. 16 Available to Infraco could mean any number of things: by 17 email, you know, physical documents, whatever. So 18 there's a huge amount that could be argued about as to 19 what was provided up to 25 November 2007. So I don't 20 think that is adequate as a description. 21 Q. Essentially it begs the questions what were the 22 drawings? 23 A. Indeed. 24 CHAIR OF THE INQUIRY: Do you know if that featured in any 25 of the adjudications? 7 1 A. I can't honestly recall, my Lord. 2 MR MACKENZIE: Are you aware whether the absence of the list 3 of drawings caused any difficulties later? 4 A. I can't honestly confirm because I can't recall, I am 5 afraid. 6 Q. We will perhaps explore that with other witnesses. 7 Put that document to one side, please, and go back 8 to the draft Schedule 4, from 15 April 2008, so we are 9 back to document CEC01245224. 10 If we go to page 5, please. In paragraph 3.1, it 11 states: 12 "The construction works price is a lump sum, fixed 13 and firm price for all elements of work required as 14 specified in the Employer's Requirements as Schedule 15 Part 2 and the Infraco proposals as Schedule Part 31, 16 and is not subject to variation except in accordance 17 with the provisions of this agreement." 18 Then clause 3.2 states: 19 "It is accepted by tie that certain pricing 20 assumptions have been necessary and these are listed and 21 defined in section 3.4 below. The parties acknowledge 22 that certain of these pricing assumptions may result in 23 the notification of a notified departure immediately 24 following the execution of this agreement. This arises 25 as a consequence of the need to fix the contract price 8 1 against a developing factual background. In order to 2 fix the contract price at the date of this agreement, 3 certain pricing assumptions represent factual statements 4 that the parties acknowledge represent facts and 5 circumstances that are not consistent with the actual 6 facts and circumstances that apply. For the avoidance 7 of doubt, the commercial intention of the parties is 8 that in such circumstances, the notified departure 9 mechanism will apply." 10 When you first read that clause, Mr Smith, what were 11 your views? 12 A. I can't fully recall, but I remember being slightly 13 surprised at the imprecise nature of what was being 14 agreed here. Effectively they were saying pricing 15 assumptions will apply. It certainly was not until long 16 after signing it that I became aware that effectively 17 immediately after signing, that notified departures 18 would exist. 19 And there are various bits of that, you know, 20 factual statements that the parties acknowledge 21 represent facts that are not consistent with the actual 22 facts, seems odd to me. 23 Q. If you had read that clause at the time, would it have 24 given rise to any concern? 25 A. Yes. 9 1 Q. Why? 2 A. As a lawyer one tries to be as precise as one can. To 3 describe exactly what you are trying to describe, so 4 that there is no room for doubt and argument. Certainly 5 with regard to that, I think there is a lot of room for 6 doubt and argument. 7 Q. If you had read that at the time, what might you have 8 done? 9 A. I guess I would have queried this. Yes. I guess 10 I would have queried that. I need to be slightly 11 careful, because I need to consider that there are 12 ongoing litigations in relation to this. 13 Q. Is the fundamental problem essentially -- 14 CHAIR OF THE INQUIRY: I'm sorry, I didn't understand that 15 last comment. 16 A. The contract and advice given in relation to the 17 contract is subject to ongoing legal matters in the 18 Court of Session. So I just wanted to make sure that 19 I don't stray into areas which may impinge on that. 20 CHAIR OF THE INQUIRY: I think this Inquiry is trying to 21 find out what your evidence is about this matter, 22 Mr Smith. So if you just apply to your mind to it for 23 this purpose. 24 A. Of course. 25 MR MACKENZIE: You did say that if you had read it at the 10 1 time, it would have raised concerns. You said you would 2 have queried that. With whom? 3 A. With the lawyers that were dealing with that matter, 4 whoever that happened to be. So, you know, if we had 5 instructed our own lawyers, I would query it with them 6 and ask them to raise it with the other side. Given 7 where we were, if for example I had read that in April 8 2007 -- sorry, 2008, and identified that there was 9 an issue, then I probably -- well, I would have raised 10 it with my own internal team, with Colin and Gill, and 11 then I would have raised it with DLA. 12 Q. Presumably the matter is of such potential importance, 13 you would have raised it with at the very least 14 Colin MacKenzie? 15 A. Absolutely. 16 Q. And quite possibly and probably perhaps Gill Lindsay as 17 well? 18 A. Yes. 19 Q. Why was the matter deemed to be of such importance? 20 A. Again, it is a matter of hindsight and I'm reading one 21 clause. There may be other clauses which sufficiently 22 define what is actually set out there, but for me that 23 particular clause, reading it now, does not seem to be 24 precise enough. 25 Q. What this clause states is that in order to fix the 11 1 contract price at the date of this agreement, certain 2 pricing assumptions represent factual statements that 3 the parties acknowledge represent facts and 4 circumstances that are not consistent with the actual 5 facts and circumstances that apply. 6 Presumably, reading this, one thing you would want 7 to do is clarify which pricing assumptions represent the 8 factual statements -- are actually correct. Is that 9 correct? 10 A. Yes, I would agree with that. I would have thought it 11 would be more appropriate to represent the actual facts 12 as they were known and draft around that, rather than 13 saying that different facts apply without necessarily 14 specifying them. As I say, it is difficult to see just 15 from this clause -- and I think it does have to be read 16 in the context of all the other clauses. 17 Q. What is the likely -- if you had read this at the time, 18 what view would you have come to on the likely or 19 possible effect of this clause on the price? 20 A. I'm not sure I can answer that without considering the 21 whole contractual suite. As I say, anything that is not 22 sufficiently precise always in my mind gives opportunity 23 for argument which I think should be avoided. So 24 I would always try to make sure that these things are 25 locked down as much as possible. 12 1 Q. Does it not go a bit beyond simply being imprecise? 2 Is it not saying that it is likely the price will 3 change, because the pricing assumptions are based on 4 certain facts which the parties acknowledge are 5 incorrect? 6 A. I agree that that is what that particular clause says. 7 As I say, having not reviewed the contract suite as 8 a whole, it is difficult to say whether there is 9 anything else in the document which may make that more 10 precise, which would override that. But I agree, 11 I think that wording is too imprecise and should not be 12 that imprecise. 13 Q. You made reference reading -- needing to require to read 14 the contract as a whole in order to understand that 15 clause properly, but I think the main text of Schedule 4 16 is only about 15 pages. I think if one were to read 17 those 15 pages, one would be none the wiser as to which 18 of these pricing assumptions represented factual 19 statements which were acknowledged by the parties not to 20 be true. So even just reading 15 pages, I think one 21 would still be left uncertain as to which pricing 22 assumptions were acknowledged not to be correct; and 23 therefore one would be uncertain as to how the pricing 24 may change. Do you agree with that? 25 A. Yes, broadly I agree. 13 1 Q. In short, simply when reading clause 3.2 and the rest of 2 Schedule 4, does that -- would that not have given rise 3 to a real concern that this was not really a fixed price 4 contract and the price was going to change? 5 A. That's possible. It is a very difficult question for me 6 to answer. I guess in theory, yes. Certainly if I had 7 read Schedule Part 4, it would have raised a number of 8 alarm bells, I would have wanted to have locked down, 9 and that is precisely why I wanted an independent 10 review, to make sure that what we were agreeing was fit 11 for purpose. 12 Q. Is this perhaps a similar position to that you spoke to 13 yesterday in relation to design risk. You recognised 14 there was a risk in relation to outstanding design 15 consents. Your position was you were not advising on 16 the contract or the risks arising, but you could at 17 least identify potential risks and flag them up for the 18 attention of others. Is this perhaps essentially in 19 that same category? 20 A. Yes, I put that in the same category that you identify a 21 potential problem, you flag it and you make sure that 22 those that are dealing with that problem resolve it to 23 your satisfaction, would be the normal ... 24 Q. Before I leave clause 3.2, it is an obvious problem this 25 gives rise to, isn't it? 14 1 A. Yes. 2 Q. Go on then, please, to clause 3.3. We see certain 3 specified exclusions from the construction works price 4 including (a) utilities diversions -- I won't read out 5 all of it -- and (b) work in connection with the 6 St Andrew public realm project. (c) ground conditions 7 et cetera, for the Bernard Street public realm. 8 Clause 3.3.1: 9 "In the event that Infraco is required to carry out 10 any of the specified exclusions, this shall be 11 a notified departure." 12 Section 3.4 sets out certain pricing assumptions. 13 I think there are 40 in total. I simply read out one. 14 The first pricing assumption states: 15 "The design prepared by the SDS provider will not 16 (other than amendments arising from the normal 17 development and completion of designs)." 18 1.1: 19 "in terms of design principle, shape, form and/or 20 specification be amended from the drawings forming the 21 base date design information (except in respect of the 22 value engineering identified in appendices C or D);" 23 1.2: 24 "be amended from the scope shown on the base date 25 design information and Infraco proposals as 15 1 a consequence of any third party agreement (except in 2 connection with changes in respect of provisional sums 3 identified in appendix B);" 4 1.3: 5 "be amended from the drawings forming the base date 6 design information and Infraco proposals as 7 a consequence of the requirements of any Approval Body. 8 For the avoidance of doubt, normal development and 9 completion of designs means the evolution of design 10 through the stages of preliminary to construction stage 11 and excludes changes of design principle, shape and form 12 and outline specification." 13 To pause there, Mr Smith, when you did come to read 14 Schedule 4 -- and I assume you also read that first 15 pricing assumption? 16 A. Yes. 17 Q. What were your views on it? 18 A. That it seemed quite complex. I was heavily reliant at 19 the time on the advice that was being given to us by -- 20 when I read this, it would be around the time that 21 adjudications were taking place, and certainly on some 22 of the adjudications, the issue of normal design 23 development, and the definition as set out there of what 24 is included or excluded was significantly up for debate. 25 So I suspect my views were influenced to a degree by 16 1 that. But certainly it seems slightly tautologous in 2 that the infrastructure designer was responsible for 3 normal development and completion of designs, but that 4 that development and completion of designs excludes any 5 change in design principle, shape, form and/or outline 6 specification. I guess, reading it, it is difficult to 7 see what development could take place that would not 8 fall within one of those categories. Or could at least 9 be argued to fall within one of those categories. 10 Q. So when you first read pricing assumption 1, did you 11 understand it? 12 A. Not immediately, no. 13 Q. Do you understand it now? 14 A. I can't say it is immensely clear to me now, no. 15 Q. Thank you. Mr Smith, there are a number of other 16 pricing assumptions I have no doubt we will come back to 17 with other witnesses in other parts of the Schedule, so 18 I don't propose saying anything more about that just 19 now, other than it may be suggested that this draft, 20 which was sent on 15 April 2008, this was an opportunity 21 for members of the CEC legal team to have read Schedule 22 4 and identified problems arising from it before 23 financial close. What are your comments on that 24 suggestion? 25 A. I can't disagree with that. I think, you know, the 17 1 opportunity to read the contract documents was always 2 available to the Council. I would go back to the point 3 that we were not qualified to do that. 4 Q. It is just that this seems to have been a particularly 5 important part of the Infraco contract. In particular 6 in terms of section 3.2, I'm not sure anyone needs 7 particular expertise to spot that that is likely to 8 cause problems. I'm not sure anyone needs to be 9 a lawyer to spot that that is likely to cause problems. 10 What do you think of that suggestion? 11 A. I agree with that now. I guess in the context of a very 12 large document that was being dealt with between tie and 13 the lawyers at speed, with the other side, I would say 14 there is a degree of hindsight coming into pinpointing 15 a specific 15-page document that was sent through. But 16 yes, I agree, costs is a very important part of any 17 contract and should have been picked up at the time. 18 CHAIR OF THE INQUIRY: I don't think that was the question, 19 Mr Smith. I think the question was when you received 20 this document, and had an opportunity to read it -- 21 A. Yes. 22 CHAIR OF THE INQUIRY: -- it wasn't the entire contract you 23 were given, is that right? 24 A. No, I don't think so. It was just this specific part of 25 it. 18 1 CHAIR OF THE INQUIRY: If you had read that particular part 2 of the document, would it not have been apparent to you 3 that there were problems. 4 A. Yes, it could have been. 5 CHAIR OF THE INQUIRY: Did you do anything about that? 6 A. No. Because I wasn't reviewing the contract and the 7 associated terms when I received them. 8 CHAIR OF THE INQUIRY: It seemed to relate to price. On one 9 view, it might suggest that the fixed contract price was 10 based on a fiction, and that the day after the contract 11 was signed, there would be an automatic increase in the 12 price. 13 Is that a fair interpretation? 14 A. I can't disagree with that, my Lord. I didn't review it 15 at the time because my position was I was not reviewing 16 the contract, and this was part of the contract. But 17 I can't disagree with you. 18 CHAIR OF THE INQUIRY: But surely the question of price was 19 fundamental as far as the Council is concerned, because 20 it was the Council that was bearing the risk of 21 increased prices? 22 A. Price is fundamental, as is the specification of 23 documents. What is getting built is as important as how 24 much it is going to cost. There are lots of different 25 parts to this, but, yes, price is a very important part, 19 1 and it was very important for the Council that we 2 achieved the fixed price for what was set out to be 3 delivered. 4 MR MACKENZIE: Mr Smith, with the benefit of hindsight, do 5 you consider you ought to have read Schedule 4 and 6 raised concerns? 7 A. No, I don't. Because my position now as was then, that 8 I was not qualified to give a view on the totality of 9 that contract. I wish I had read that part of the 10 contract and flagged the risk, as I did with design or 11 consent risk. The reality was, just having returned 12 from leave, I was not up to speed with the project. 13 This was probably one of many emails in my inbox that 14 I was trying to go through. I sincerely wish I had read 15 it, but my position did not change, that even if I had 16 seen that, there is a good chance I may well have said: 17 that is part of the contract suite others are dealing 18 with, I'm dealing with other matters on the project; 19 I would not have read it. 20 Q. Your position is that with the benefit of hindsight, you 21 wish you had read Schedule 4 at the time, but you don't 22 consider you ought to have, for the reasons you have 23 explained? 24 A. Agreed, yes. 25 Q. Could you move on now please to another document, 20 1 CEC01246045. 2 We can see this is an email from Colin MacKenzie 3 dated 30 April 2008. 4 It is to Andy Conway and Alan Coyle and it is copied 5 into yourself and Duncan Fraser and the subject matter 6 is: 7 "EDINBURGH TRAM FINANCIAL CLOSE" 8 It states: 9 "Andy and Alan, further to the meeting this morning, 10 Nick and I have considered the DLA letters dated 12 11 March, 18 March and 28 April. You sought our views on 12 this correspondence." 13 Before I go on to read the text, you see this email 14 is from both yourself -- a joint email from 15 Colin MacKenzie and Nick Smith -- do you remember this 16 email? 17 A. Vaguely. 18 Q. Can you explain why it was sent as a joint email? 19 I haven't seen that before. 20 A. I think it was to stress that both Colin and I were of 21 the same view. The four Council solicitors are fairly 22 common -- it certainly was at the time, all solicitors 23 would send stuff out in their names. So whilst this 24 email was from Colin, I guess what Colin was saying was 25 that we both agree with this. 21 1 Q. Can you remember what this email was about, why 2 Mr Conway and Mr Coyle had asked for your views on the 3 DLA letters? 4 A. I can't remember. I suspect it was known for a long 5 time that Colin and me and Alan Squair's view was that 6 the DLA letters were not sufficient. Not necessarily in 7 those terms, but not sufficient to protect the Council's 8 interests because of the lack of independent legal 9 review, and we had been consistent with our views over 10 the previous eight or nine months to say: we don't think 11 this gives the Council sufficient protection; we would 12 rather there was an independent legal review to provide 13 that protection. 14 And I guess we were raising that with other members 15 of the B team, Duncan Fraser, the tram coordinator on 16 who reported directly to Andrew Holmes, Alan Coyle, 17 would have reported in either through Rebecca Andrew -- 18 I can't remember if she was still around at that 19 point -- or directly to Donald McGougan. 20 I think one of the positions we were setting out was 21 presumably these two directors are going to be looking 22 for Gill Lindsay to sign off that she is happy with the 23 legal aspects of this project. And we wanted to make 24 sure that -- that they understood that we didn't think 25 that these letters provided the Council with sufficient 22 1 comfort. 2 Q. You mentioned yesterday, you explained yesterday, that 3 Gill Lindsay, the Council solicitor, was dealing with 4 the question of the DLA letters. Why didn't you simply 5 respond to Messrs Conway and Coyle and to the Council 6 solicitor: we are not dealing with this. 7 A. It is quite a difficult internal political thing to do. 8 But, yes, effectively that is what we were saying, and 9 actually I think there is an email around this, I think 10 it was shown a couple of days ago, an email around 6 11 May, the one that has the blue comments in it. 12 Q. We will come to that. 13 A. Okay. 14 Q. Yes. So the text of this email, yourself and 15 Colin MacKenzie essentially reiterate: 16 "As you are aware, we have from the outset expressed 17 reservations about the ability of DLA to effectively 18 review their own work. In this regard, it is difficult 19 to see how any letter from DLA could give full comfort 20 to the Council. Our preferred route was always that the 21 Council seek independent legal advice. In particular, 22 all of the DLA letters are heavily caveated, and refer 23 to instructions from tie or positions achieved by tie. 24 The reality of the contract structure is that the 25 Council has to give a guarantee in respect of all 23 1 financial obligations being undertaken by tie. 2 Instructions have been given throughout by tie to DLA, 3 with little input from Council officers and accordingly 4 no certainty that Council instructions flowed through to 5 DLA. The most recent letter dated 28 April does little 6 to remove doubts and uncertainties. Specifically, that 7 letter appears to give no comfort on the risk profile 8 and acceptability in relation to the market norm. The 9 lengthy letter also narrates matters which appear to us 10 to be risky for the Council and are not fully covered by 11 the QRA. No doubt the Directors of Finance and City 12 Development, respectively, will be seeking confirmation 13 from the Council solicitor as to the acceptability to 14 her of the DLA letter." 15 One perhaps detects from this email a certain 16 unease; is that fair to say? 17 A. I think is probably understating it somewhat. Yes, 18 there is a lot of unease. 19 Q. Sorry, I don't think we picked up the last words. 20 A. Sorry, there is a lot of unease. 21 Q. Yes. For the avoidance of doubt, why, why is there 22 a lot of unease on your part at least? 23 A. It comes back to what I said yesterday. I could never 24 be satisfied with approving this contract until I had 25 had some comfort from someone independent with a legal 24 1 background in looking at this type of contract to advise 2 that it was fit for purpose, and Colin refers to market 3 norm and what we wanted to understand -- this was, as we 4 understood it at the time, a highly bespoke contract. 5 It was not using the standard model like ICE or NEC, so 6 we wanted to make sure that it was in fact going to 7 work, and we were concerned about that aspect. 8 Q. This perhaps requires to be read against -- in the 9 factual context, and we heard yesterday in January 2008, 10 you had raised concerns about design risk. Had those 11 concerns gone away by this stage? 12 A. I can't honestly recall. I think we were being -- 13 certainly my recollection is we were being told by tie 14 at that point, the design risk had been transferred to 15 the private sector; and my understanding at the time was 16 effectively BSC, or the infrastructure provider, had 17 priced for the employer's requirements; and I think it 18 said to the City Development team, or in conversation 19 with Duncan Fraser, that that was effectively the whole 20 line, from airport to Newhaven, so my understanding was 21 that effectively it was priced for all of that and they 22 had taken on design risk as well. But again, a very 23 high level concept. 24 Q. I understand. Let's move on to now there was a meeting 25 with the Council on 1 May 2008. Please go to document 25 1 CEC01241689. This is an email chain around the time of 2 the Council meeting. At the bottom of the page, we see 3 an email from Colin MacKenzie dated 30 April 2008, sent 4 to Gill Lindsay. Subject matter is: 5 "EDINBURGH TRAM: BBS PRICE". 6 But over to page 2, please. Top of the page, it 7 stated: 8 "Gill, you may know this already, but BBS have 9 increased the price by a significant amount. Urgent 10 discussions underway at tie this afternoon. Wonder how 11 this leaves the report to Council tomorrow!!" 12 Back to page 1, please. The middle email, which is 13 from Colin MacKenzie, sent on 1 May 2008 at 9.49 in the 14 morning. Sent to Gill Lindsay, copied in to yourself. 15 Same subject matter. Mr MacKenzie states: 16 "Gill, I have just received a briefing from the 17 client on this matter. I am advised that the suggested 18 price increase is confidential, that it is not 19 a done deal with BBS, and that there will be further 20 negotiations over the weekend between tie and BBS. Most 21 significantly, I am led to believe that the members will 22 not be advised of these recent developments when Council 23 considers the report today. I recall at the last IPG, 24 something being said to the effect that there was 25 a ”duty to respect Council as a corporate body”. 26 1 I would have thought that duty would best be served by 2 either pulling the report, assembling the true picture 3 and reporting again to members, or by being open with 4 them today about the changed situation. 5 "Are members being properly served by officers? Are 6 there implications for us as professional legal 7 advisers?" 8 If we go to the top of page, you replied to 9 Mr MacKenzie at 9.52 that day, saying: 10 "Colin, excellent email and fully agree with your 11 sentiments." 12 Can you explain the position here? 13 A. I can't recall being involved with the specifics, but 14 Colin had obviously -- I think discussed with me and 15 sent that email on. And Colin is obviously calling into 16 question what members were being told. And without 17 putting too fine a point on it, that was probably 18 something way above -- a decision that would normally be 19 taken way above Colin and I. So he's calling that into 20 question quite rightly in my view. I wanted to indicate 21 to Colin that he had my full support on that. 22 Q. Can we now look at the report to Council on 1 May 2008 23 to see what is said in the report. The document 24 reference is CEC00906940. This is the report by the 25 Chief Executive, Mr Aitchison. Paragraph 1.1, we see: 27 1 "The purpose of the report states: 2 "To notify the Council of the progress of the suite 3 of contracts for the Edinburgh tram network and to 4 provide an update on financial close and the capital 5 costs." 6 If you then please go to page 3, under 7 "Recommendations", paragraph 6.1: 8 "It is recommended that the Council: 9 Note the imminent award of the two contracts with 10 a final price for the Edinburgh tram network of 11 508 million which is within the funding envelope of 12 545 million." 13 Over the page, please. The next recommendation is 14 to “refresh the delegated powers already given, 15 to authorise me to instruct tie Ltd to 16 enter the contracts with Infraco bidder and Tramco 17 bidder, in light of recent changes noted in this 18 report." 19 The next bullet point: 20 "Note that the Final Business Case Version 2 which 21 was approved by Council on 20 December 2007 is modified 22 to reflect the above position." 23 Now, Mr Smith, are you aware whether members were 24 told either prior to this meeting or at this meeting of 25 the recent price increase sought by the consortium? 28 1 A. I am afraid I can't confirm whether that was done. 2 Q. Do you consider that members ought to have been told of 3 that recent price increase, either before or at that 4 meeting? 5 A. Yes, I do. 6 Q. On the hypothesis that members were not told, either 7 before or at the meeting, of the recent price increase, 8 what would be your views on putting a report to members 9 in these terms and seeking their authorisation in the 10 terms sought. 11 A. They would be seeking authorisation based on incorrect 12 facts unless there was a true belief by the directors 13 that somehow that price increase was not going to 14 happen. But you would at least highlight that there was 15 a debate ongoing, and that the price may change. Our 16 obligation as Council officers is to present the correct 17 facts to members to allow them to take decisions. 18 Otherwise the basis of those decisions is flawed. 19 Q. So again, sticking to that hypothesis, if we proceed on 20 the assumption of the hypothesis that members were not 21 told of the recent price increases either before or at 22 the meeting, would you go as far as to say that the 23 report presented in those terms would be misleading? 24 A. I would say it was incorrect. 25 Q. With your Council's Monitoring Officer hat on, on that 29 1 hypothesis, would that give rise to any concerns? 2 A. Yes, it would. Because again, you are just -- from 3 a practical position, you are not presenting elected 4 members with the facts that you as officers have. 5 Sometimes that is a judgment call. Operational 6 decisions -- and it is a judgment call for directors to 7 make as to what -- or the Chief Executive, as to what to 8 report to members at any given time. But if you are 9 asking for a specific decision which could be 10 fundamentally affected by something which you know to be 11 ongoing, which is likely to happen, then yes, 12 absolutely, you should be reporting that, or indeed 13 pulling the report as sometimes happens. It is not 14 great to pull a report from a Council committee but it 15 has been done before. You say: I'm sorry, the position 16 has changed, we will come back to you with a further 17 report. 18 Q. Again with your Council's Monitoring Officer hat on, and 19 sticking with that hypothesis, would that give rise to 20 concerns that this may amount to a maladministration? 21 A. That is a difficult question to answer. It is possible 22 if there was deliberate concealment of that information. 23 So if the directors had specific information that they 24 had deliberately concealed from elected members, then, 25 yes, that could constitute maladministration. But 30 1 I would not like to take a view on that. That is 2 a hypothesis based on the question you just asked me 3 rather than being in the seat taking that decision at 4 the time. 5 Q. I understand. I had put it as a hypothesis. I will 6 explore this matter with the directors in due course as 7 well, so we can pin down the factual position. 8 Thank you. I would like to move on now to document 9 CEC01222041. 10 I think you will recognise the second part of this 11 document, second half, this is an email from yourself 12 dated 6 May 2008, with your comments in blue on the 13 table which the B team have prepared commenting on tie's 14 draft close report. 15 I would like to start with another document, please, 16 an earlier version. It is a different document number. 17 CEC01222466. 18 We can see this was an earlier email from 19 Colin MacKenzie dated 2 May 2008 to Gill Lindsay and 20 copied into yourself. And Mr MacKenzie has stated: 21 "Gill, please find attached report prepared by the B 22 Team prior to the hiccup on price. This paper may fall 23 to be reviewed once further details of the BBS's changed 24 position becomes known." 25 If we then please go to the attachment to this 31 1 email, which is CEC01222467. So this is the first 2 version of the B team's table which was sent to 3 Ms Lindsay. We can see the different column headings 4 there. So that's essentially, I think, the work of the 5 B team. 6 If we please compare that with the version that you 7 commented on in blue. So please go back to the other 8 document, CEC01222041. 9 Go to page 2, please. We can see there is a new 10 column on the right-hand side, headed "tie Comments", 11 and I think the blue text represents your comments on 12 the tie comments. Is that correct? 13 A. Yes. 14 Q. I'm not going to go into detail on your comments. We 15 have covered this before. But we can see you have 16 various queries and concerns, is that correct? 17 A. Yes, what I say is I believe I was reviewing this 18 document because Colin MacKenzie who had sent me that on 19 the 2nd had gone on annual leave that week, so I think 20 I was picking up on his absence, so a lot of my comments 21 were made again from quite a high level perspective to 22 say: okay, are you happy with this? 23 Q. Back to page 1, please. We can see your email, the 24 middle half of the page, we can see it is sent to 25 various members of the B team but not, on the face of 32 1 it, to the Council Solicitor. Is that correct? 2 A. That is right, yes. 3 Q. Are you aware whether you did send the version of the 4 table with your comments in blue to the 5 Council Solicitor? 6 A. I honestly can't remember. I think she did get it at 7 some point, but -- I can't honestly recall. 8 Q. When you say "you think" the Council Solicitor received 9 it at some point, how sure are you of that? 10 A. I can't honestly recall. I would need to check back the 11 records. 12 Q. Do you have any recollection of discussing these matters 13 with Ms Lindsay around this time? 14 A. I don't, no. 15 Q. Are you aware whether the various matters raised by the 16 B team in this table, including your own comments, were 17 closed out and resolved before financial close on 14 and 18 15 May 2008? 19 A. No. I think -- I raised the issues and then the trail 20 seemed to go cold. Or nobody came back to me to say: 21 yes, we have taken this into account and these have now 22 been dealt with. I think there is an email saying that 23 the issues were being discussed and taken forward, or 24 something of that ilk. 25 Q. You think there was an email from who, sorry? 33 1 A. I think there was an email from Duncan Fraser at some 2 point, later on -- apologies, I don't know what day that 3 is. But sometime around the 8th or 9th. Where I had 4 followed up, saying, any idea what is happening, I am 5 paraphrasing here, any idea what is happening with 6 these; and I think I got an email back saying: they are 7 being taken care of; or something to that effect. 8 Q. I think we put to Mr Fraser an email with reference to 9 events in Germany? 10 A. That could be it. 11 Q. As you say, I think as far as you recall, things went 12 cold after that? 13 A. Yes. 14 Q. Moving on, as I say financial close took place on 14 and 15 15 May 2008. I think from your statement you say you 16 weren't initially involved in the dispute that arose 17 between tie and the consortium. I think you also say 18 you weren't involved in the resolution of the 19 Princes Street dispute in February/March 2009. Is that 20 correct? 21 A. That's correct. 22 Q. So when did you first become aware that there was 23 a fundamental dispute or disputes between tie and 24 consortium? 25 A. I think we were aware that there were some disputes from 34 1 not long after the contract was closed. Sometime 2 around August/September, I think we were told that there 3 was notified departures and arguments about it. But in 4 terms of adjudications et cetera, I think that was 5 probably the tail end of 2009 that it really started to 6 come to our attention that there were disputes taking 7 place. Ultimately after financial close, I think tie 8 were getting on with managing the project. Quite 9 rightly, they were the body that were set up to do that 10 and were taking it forward. So they would come to the 11 Council when they required things, but otherwise, no. 12 Q. I think there did come a point in 2009 where you did 13 become more involved in the disputes, is that correct? 14 A. Certainly the Council's position was that tie were 15 running that, but we were keeping a watching brief on 16 what was going on and tie would keep us informed. Yes, 17 I think that is probably accurate. 18 Q. Please look at document CEC00900404. 19 Go to page 2 of this document, please. We can see 20 this is an email from Colin MacKenzie dated 7 April 21 2009, copying in various people including yourself. 22 Subject matter is "EDINBURGH TRAM: STRATEGIC OPTIONS AND 23 DRP". 24 It is sent to Marshall Poulton, who I think was the 25 Tram Monitoring Officer at that time, is that correct? 35 1 A. That's correct. 2 Q. Mr MacKenzie states: 3 "As you know, Nick and I were scheduled to meeting 4 with Andrew Fitchie and Stewart McGarrity on Friday 5 afternoon to seek further information on the dispute 6 resolution procedure in the overall context of your 7 forthcoming report on the strategic options for the 8 Chief Executive. The meeting went ahead and we were 9 also joined by Dennis Murray from tie." 10 Can you remember, what was the purpose of this 11 meeting? 12 A. I think we had -- you know, become aware that there were 13 issues under the contract, and the Council needed to 14 understand a bit more about that. So we had gone to 15 meet with various people at tie, including the lawyers, 16 to just get an understanding of what was going on and 17 what tie were doing about it. 18 Q. Without spending too long on this document, we can see 19 that it does set out certain broad categories of 20 agreement with BB/BSC. The first broad category states: 21 "Responsibility for design management and evolution. 22 tie contend that BSC took on responsibility at financial 23 close for 'normal design development'. BSC maintain 24 that any difference between design at December 2007 and 25 issue for construction drawings is to the account of 36 1 tie." 2 That is the first broad category. The second broad 3 category we can see states: 4 "Who is liable for the delay to date? tie contend 5 it is for BSC or at worst pay and share. BSC say that 6 until they are given unfettered access to the works 7 sites, they will not lift a spade." 8 Broad category 3 was to do with preliminaries, and 9 broad category 4 is over the page. Top of the page: 10 "4. Unforeseen ground conditions. tie/CEC have 11 responsibility, especially on-street. This is a fairly 12 common dispute in a civil engineering contract." 13 Then 5: 14 "Failure to agree estimates (”Does Clause 80 15 apply?”). This relates to the notified departures, 35 16 of which are tie's. Most of the 300 plus departures are 17 unpriced." 18 Was it around this time, Mr Smith, that you first 19 understood these different broad categories of 20 disagreement between the parties? 21 A. Yes, I believe so. 22 Q. Was it as a result of this meeting? 23 A. I believe so, yes. 24 Q. More likely, was it around this time that CEC legal 25 generally first became aware of these matters, or had 37 1 they been aware of these matters earlier? 2 A. Colin MacKenzie may have been aware earlier, but 3 I believe this is the first time that I had had a full 4 understanding -- or a fuller understanding of what the 5 categories of dispute were between the parties. 6 Q. If we then, please, go back to the first page of the 7 document. Sorry, go back to page 3. 8 Can we see under "ACTION FROM IPG MEETING", 9 Mr MacKenzie states: 10 "I have considered the action note from the tram IPG 11 meeting of 25 March. Item 3 deals with the dispute. It 12 is significant to note that 'trust must be built'. 13 Having met with tie and their solicitor, as well as 14 receiving feedback from colleagues in City Development, 15 it is clear to me that trust does indeed need to be 16 built within two distinct relationships. Firstly, 17 between the Council and tie; secondly, between tie and 18 BSC." 19 What were your views on that statement? 20 A. I think it is factually accurate that there was two 21 relationships. And clearly neither was working as well 22 as one would hope that it would. I mean, if tie and BSC 23 were having disputes about matters, then clearly they 24 were not going to be getting on as well as you would 25 hope, but we didn't have the full detail of that and, 38 1 you know, tie and the Council had a contract -- or 2 rather the Council was guarantor on a contract that tie 3 had, and our interests post signing were broadly 4 aligned. We needed to get the tram built. 5 Q. This was suggesting that there is a deficiency or lack 6 of trust between the Council and tie, is it not? 7 A. I think that was probably fair to say in relation to 8 certain officers, yes. 9 Q. When you say "certain officers", do you mean certain 10 officers within the Council? 11 A. Yes. 12 Q. Is that a view you shared? 13 A. Yes. 14 Q. Why? 15 A. I can't put it as more than a hunch or a feeling, but my 16 feeling was that tie did not often share full 17 information with the Council, and throughout my 18 experience on the project from certainly between 2007 19 and 2008, we would ask difficult questions and it would 20 often take some time to get the information out. 21 You were just left with a feeling that you didn't 22 know whether you had the full picture or not. As I say, 23 it is difficult to put specific -- give specific 24 examples of where I was not given information, but 25 certainly it took a while for -- after signing for legal 39 1 opinions to be provided to us. Sometimes we had to 2 chase for them. So, yes, that -- there was a lack of 3 trust between some officers and tie. Particularly those 4 in the B team. 5 Q. Mr Mackenzie went on to state: 6 "It is very clear that the Council (particularly the 7 TMO) was not in receipt of full disclosure from tie in 8 the latter part of 2008 and early 2009. The Chief 9 Executive should not have had to write formally to his 10 counterpart in tie requiring the provision of crucial 11 information post declaration of the Princes Street 12 dispute. Whilst much of that is now history, 13 nevertheless it does highlight that tie need to be much 14 more transparent with the TMO, complying with the terms 15 of the Operating Agreement." 16 Do you agree with what is set out there? 17 A. Yes. 18 Q. What do you understand the reference to be that the 19 Council -- TMO was not in receipt of full disclosure 20 from tie in the latter part of 2008 and early 2009. 21 Full disclosure in relation to what? 22 A. Under the Operating Agreement, tie would have to provide 23 relevant information, from memory, I guess, what the 24 Council would expect through the TMO was full disclosure 25 of what was going on on the project at any given time on 40 1 a monthly basis. And it was obviously Colin's view at 2 that time, I can't honestly say whether I shared that 3 view at the time, but it was clear to him that the 4 Council was not getting full disclosure from tie. 5 Q. If we then look at the second last paragraph on the 6 page, towards the end of that paragraph, it is stated: 7 "As I have recently pointed out to the Chief 8 Executive, Council officers do not know if the Infraco 9 contract is sound and in all respects in the Council's 10 best interests as client and funder. This contract may 11 not be robust enough to deal with a claims oriented 12 approach by BSC, which could then impact upon 13 affordability for the Council." 14 Just to pause there, did the Council seek 15 independent legal advice on the contract at this stage? 16 A. Not that I recall, no. 17 Q. Do you recall any discussion around this time of whether 18 the Council ought to seek independent legal advice? 19 A. Um, I can't honestly recall. 20 Q. Did you have any views yourself around this time as to 21 whether the Council ought to seek independent legal 22 advice? 23 A. I actually can't recall at that time. Clearly all the 24 way through, I thought the Council should have been 25 independently advised. I guess at that stage, 41 1 I probably accepted that that boat had sailed and we had 2 not got any advice, and the concentration was on how to 3 resolve the issues that were coming up. We were only 4 just getting to grips with them. And, you know, trying 5 to move forward. I was aware -- I think -- that the 6 Council had started -- not the Council but tie had 7 started to take QC opinion et cetera on some of the 8 issues, and that progressively happened through late 9 2009 and into 2010. 10 I can't remember exactly when McGrigors, now Pinsent 11 Masons, started on the project. I have a funny feeling 12 that was around 2009. So that certainly gave me some 13 comfort that whilst it was not directed to the Council, 14 I think there was a duty of care in favour of the 15 Council that there was an independent eye coming on to 16 this. As I say, after the contract signing, the die in 17 my view was cast, and there was more commonality of 18 interest between what the Council and tie needed to 19 achieve than there had been necessarily before, before 20 the signing. 21 Q. It may be suggested that things were at the latest 22 beginning to look pretty ominous at this stage. You had 23 the Princes Street dispute, which had required 24 a separate agreement to resolve. At this meeting, 25 Mr MacKenzie sets out the broad areas of dispute, and 42 1 also in the statement we just read, that the Council 2 officers don't know if the contract is sound or not, 3 maybe suggested that this was an obvious point at which 4 the Council ought to have instructed its own independent 5 legal advice on the contract and risks and -- 6 A. I can't remember whether it was suggested or not, but 7 certainly at the time the Council and tie were both 8 putting forward this what you call the one-family 9 approach, and I can't remember whether I thought at the 10 time but I certainly think so now that a suggestion -- 11 you know, I had suggested that the contract should be 12 independently reviewed before we signed it; suggesting 13 it should be independently reviewed after we signed was 14 likely in my view to fall on deaf ears at that point 15 because the one-family approach was being pushed so that 16 we were to work closely with tie to resolve the issues. 17 Q. What did the one-family approach mean? 18 A. It meant different things to different people, 19 I suspect. I think the overarching approach was to say 20 whilst this is an arm's length organisation, it is 21 within the family of Edinburgh companies -- Edinburgh 22 Council companies -- and is delivering a project on 23 behalf of the Council and that was its sole aim, and 24 therefore should be looked after -- part of the fold so 25 to speak. 43 1 Q. It was a question of supporting tie at this stage? 2 A. Yes, I think the Council was to support appropriately, 3 but it was about -- I think they were trying to 4 promulgate an environment where information could be 5 shared and everyone would pull together in the same 6 direction. 7 Q. If we look, please to your statement to pages 89 and 90, 8 please. It is question 111. This relates to events 9 later on in 2010, in particular it is an email by 10 Alastair Maclean of 25 September 2010, et cetera. You 11 were asked (a) what were your views on the performance 12 of DLA and Mr Fitchie. 13 You respond: it would not be appropriate for you to 14 comment. 15 The next page I would like to go to please. You 16 state at the top of the page: 17 "It was, however, apparent to me at the time that 18 Mr Fitchie could only see his interpretation of what he 19 had been involved in drafting and/or negotiating. There 20 was also the question of conflict to consider. If there 21 was a fault with the drafting or advice, it would not be 22 sensible for the same legal firm to be reviewing it. It 23 was possible that Mr Fitchie was concerned that any such 24 independent review may potentially cause him and DLA 25 issues, and this may have potentially influenced any 44 1 advice given by him in relation to tie's legal 2 opinions." 3 So you seem to be recognising there the need for 4 independent legal advice. I just wondered whether that 5 same need actually was present around April 2009, when 6 the Council first became aware of the different broad 7 and fairly fundamental categories of disagreement? 8 A. Yes, is probably the answer. It was -- there is 9 a difference if you have a single one or two disputes, 10 you would not necessarily want to get independent legal 11 advice, you may get a QC opinion or Counsel opinion on 12 a particular matter. 13 As things become more conflicted, or the conflict 14 escalates and then yes, it probably is sensible to take 15 independent advice. As I say, we did take independent 16 legal advice in early 2010 from Dundas & Wilson, and 17 then we engaged Shepherd & Wedderburn at some time in 18 2010 to give the Council independent legal advice as 19 well, because we were concerned about exactly those 20 things. 21 Prior to that, the Council definitely -- I certainly 22 took some comfort from the fact that McGrigors and 23 Richard Keen QC were looking at these matters, so from 24 my perspective, that was giving a kind of independent 25 review that the Council could -- could also look at to 45 1 see whether there was something wrong. 2 Q. I don't want to labour this point, Mr Smith, but just to 3 complete the facts, I think tie first instructed Senior 4 Counsel -- not Mr Keen, another Senior Counsel, around 5 June 2009. And then from time to time onwards, Mr Keen 6 may have become involved in either late 2009 or early 7 2010, I think. I think McGrigors were instructed by tie 8 from, I think, around November 2009 onwards, and then 9 you made mention, I think, of Dundas & Wilson, I think 10 they were instructed by the Council independently, 11 I think, around January/February 2010 on what I think 12 was referred to as the contract -- (inaudible) out of 13 contract rather than the questions of the DRP's 14 interpretation of the contract which were considered by 15 McGrigors and DLA, I think. Does that generally accord 16 with your understanding? 17 A. Yes. I'm trying to recall. I do think there is some 18 question in that whole sort of one-family approach, 19 I think there was a view -- I can't remember how 20 I recall this, but I think there was a view that having 21 lots of lawyers crawling over this from different 22 parties would not necessarily help matters. Everyone 23 looking -- so particularly around the Dundas & Wilson 24 review at the time, I seem to remember tie being very 25 anxious that that was not going to be looking at exactly 46 1 the same things that McGrigors and DLA were also looking 2 at, because we would just end up with lots of lawyers 3 with slightly different views potentially fighting with 4 each other, when actually we needed to get the contract 5 sorted. 6 Q. Thank you. I would like to move on to a different 7 matter, please, the question of adjudication decisions. 8 I think your first decision came in November 2009. 9 Go to page 71 of your statement, please. Question 10 83, we see: 11 "On 16 November 2009 Mr Hunter, Adjudicator, issued 12 his decisions in respect of the Gogarburn Bridge and the 13 Carrick Knowe Bridge adjudications." 14 You were asked what were your views on the decision 15 and you replied: 16 "I do not recall reviewing these adjudications in 17 any detail. They contained findings in relation to the 18 detailed contractual terms which I was not familiar 19 with. Administration of the contract was a matter which 20 tie and DLA were dealing with and the Council was 21 reliant on being kept informed by tie and DLA on 22 relevant matters and progress in this regard." 23 Then we asked: 24 "(b) to what extent did you consider the decision 25 favoured tie or BSC (both in relation to whether there 47 1 had been a change and in relation to quantum)?" 2 You stated: 3 "I cannot recall but tie was managing the 4 adjudication matters and I do not believe that I would 5 have been suitably knowledgeable from a construction law 6 perspective to form an opinion in this regard." 7 I think we see, Mr Smith, you had that same response 8 to each of our questions about the adjudications. Is it 9 really your position that you are not able to reach 10 a decision and come to a view as to which party it 11 favoured? 12 A. I should clarify that, that, yes, I can read a document 13 and decide which party I think it favoured. I guess it 14 depends on the sort of win/loss argument that we got 15 into, during 2010 in particular. 16 It relates to whether it is a financial win because 17 tie were seeking reductions in some of the awards, so 18 they might lose a legal argument, for example, but BSC 19 might be awarded an amount of money which was far less 20 than they were claiming. So tie were claiming that that 21 was a win. Whereas BSC were saying that it was a win 22 for them, because obviously they had won the legal 23 argument. 24 Single adjudications, so looking at adjudications as 25 a whole, there were lots of decisions getting taken, but 48 1 in the background there was a lot of work going on on 2 some of the aspects, or the legal arguments that were 3 being looked at, as to whether, for example, there was 4 an absurdity in the contract. So I think we had 5 taken -- tie had taken QC opinion to look at whether 6 there was specific aspects of the contract which should 7 be challenged from that perspective. 8 So with regard to your original question, in terms 9 of the adjudications, yes, I do -- I was trying to 10 answer the questions, now, trying to put my recollection 11 back then, I don't recall reading all the decisions but 12 I did read all the decisions. I will have come to an 13 opinion, at the time, of what I thought. But I come 14 back to the point that whether or not I agreed with 15 those decisions would be a different matter. So I know, 16 for example, when a couple of the decisions came back, 17 DLA were considering appealing them. So it was 18 difficult to know whether that was a specific decision 19 that actually we should be saying: that's definitely 20 a win for them, we are going to stick with that; or 21 whether we should challenge that. I was reliant on the 22 professional advice that was being provided at the time. 23 Q. As you were reading the decisions, as they were issued 24 from time to time, in general was your view they were 25 favouring DLA -- I'm sorry, tie or the consortium? 49 1 A. I think I became increasingly concerned that the 2 adjudications were going increasingly in BSC's favour. 3 I think early on, tie had won -- I can't remember off 4 the top of my head, it might have been Hilton. tie had 5 won one of the first adjudications and then BSC are 6 this one won -- it may be these two that I believe tie 7 were considering challenging, and that is pretty common 8 practice, you would consider doing that. But as time 9 progressed through 2010 it became more and more apparent 10 that tie were losing more. 11 I remember one particular day when I think there was 12 ten arguments that tie put forward at a particular 13 adjudication -- apologies, I can't remember which one -- 14 and I think they lost every single one, and there were a 15 lot of glum faces around the office. It took me quite 16 a lot of effort to get the answer that people had lost, 17 or that tie had lost, out of them. 18 Q. Thank you. We know that in December 2009, Alastair 19 Maclean joined the Council as Head of Legal, Risk and 20 Compliance. We also know that Ms Lindsay continued to 21 be employed by the Council until August 2010. 22 What was Ms Lindsay's job title and role during the 23 period between December 2009 and her leaving in August 24 2010? 25 A. I am afraid I don't know that. 50 1 Q. How did that fit in with Ms Lindsay being there, and yet 2 Mr Maclean having joined as Head of Legal, Risk and 3 Compliance. How did the two roles fit in? 4 A. Oddly. 5 CHAIR OF THE INQUIRY: Sorry, Mr Mackenzie, there is 6 a member of the public, are you taking photographs or -- 7 A. I think it must have been quite difficult, frankly, for 8 both of them. My understanding was that Ms Lindsay was 9 working on the alternative business models project and 10 also on the tram project, prior to her departure. But 11 clearly Mr Maclean had come in with a slightly different 12 brief that included a number of different services. 13 But he was effectively taking over her role from 14 a legal perspective. So, yes, it was quite strange. 15 Q. Did Mr Maclean have any responsibility for the tram 16 project during this overlap period, if I can call it 17 that? 18 A. It is difficult to say. He was certainly involved 19 during that period on, you know, aspects that the 20 directors and the Chief Exec wanted him to help out 21 with. And I certainly referred a number of matters to 22 him, because I perceived that he could help, and 23 I needed help on a number of issues that were coming up. 24 Q. Who, ultimately, during this period was responsible for 25 providing legal advice to the Council in relation to the 51 1 tram project? 2 A. In my view, it would have been the Head of Legal at the 3 time, so that must have been Alastair Maclean. 4 Q. You describe this as being an odd situation. Did having 5 both Mr Maclean and Ms Lindsay in post during this 6 period cause you any difficulties? 7 A. Yes, it did. Because effectively -- particularly as we 8 got closer to the summer. I was in essence briefing two 9 masters. Trying to get information or instructions was 10 quite difficult and my perception was that Gill -- you 11 know, Gill had obviously taken a decision to leave the 12 organisation, and it was clear to me that these problems 13 were going to exist beyond her departure, and so I 14 wanted to make sure that we were joined up in what we 15 were trying to do. 16 Q. Did having both Mr Maclean and Ms Lindsay in their 17 respective positions during this period in any way 18 affect the Council's response to the dispute? 19 A. I don't believe so, no. 20 Q. Just for completeness, did that situation inhibit in any 21 way the Council taking a more proactive approach to 22 resolving any dispute earlier? 23 A. I don't think having both of those individuals in place 24 would have had that effect, no. 25 Q. Thank you. I would like to move on to another document, 52 1 please, CEC00473789. We see from the top, this is an 2 email from yourself dated 8 January 2010 to Mr Maclean. 3 Subject was "Tram Briefing". I will read out what you 4 say. You said: 5 "Alastair, please treat the attached as highly 6 confidential. Only Alan Coyle has commented and agrees 7 that it is a fair summary. However, dissemination of 8 the actual history here could cause serious problems and 9 we definitely don't want to set hares running. Some of 10 it is down to internal politics, but it gives you 11 a flavour of where we are and why. You'll get 12 a different slant, depending on who you speak to, and 13 many of the players have moved on/retired since the 14 original deal was done. I am sure you will be anyway 15 but be very careful what info you impart to the 16 politicians as the directors and tie have kept them on 17 a restricted info flow. Given current sensitivities, it 18 is critical that this remains in place. 19 I would suggest we have a further discussion at 20 your convenience pre your meeting Richard at tie." 21 I'm going to ask a number of questions about this, 22 but just starting with what was the purpose of this 23 email? 24 A. So Mr Maclean was being asked to go and see a senior 25 politician from the SNP party. I didn't have any 53 1 information on what information on the project had 2 actually been passed to elected members or individual 3 elected members, and I wanted to make sure he was fully 4 briefed. 5 The restricted information flow that is referred to 6 there was the route of the information. So my 7 understanding was that the elected members were 8 receiving information through group leader briefings at 9 that point, to make sure everyone got information at the 10 same time. I was not involved with them, those 11 briefings, so I didn't actually know what information 12 had been passed on. So I wanted to make sure Alastair 13 was fully informed going into this meeting, but that 14 there was sensitivities with releasing information to 15 individual elected members. 16 Q. In this email you state: 17 "Dissemination of the actual history here could 18 cause serious problems." 19 That seems to suggest that there was an actual 20 history which had not been disseminated. Is that 21 correct? 22 A. No, I have mulled over the last while what I actually 23 meant there. I think "actual history" here, I think 24 "actual" is probably just verbosity, I am afraid. There 25 was no actual or pretend history; there was just actual 54 1 history of what had happened. I think by "history" 2 here, I was referring to the attached documents. So it 3 probably should have said "dissemination of the attached 4 history could cause serious problems". 5 Q. And what were the serious problems it could cause? 6 A. That if elected members or if an elected member was 7 given information from that note which they were not 8 aware of, and the group leaders or other relevant people 9 were not aware of, then if that information were put 10 into the public domain then that could cause serious 11 issues. 12 The note that was attached to it was my -- and 13 Alan Coyle had checked it -- but it was my take on 14 history and I think, as I say in the email, you will get 15 a different slant depending on who you speak to. So 16 I was concerned that Mr Maclean, who was brand new to 17 the Council, may go off and in trying to be open with 18 the elected members say something that was in that note 19 that either just my perception was wrong or something 20 that they didn't know without following the correct 21 route for providing that information. 22 What I would not want anyone to think reading this 23 is that there was somehow some orchestrated campaign to 24 keep information away from members by both tie or the 25 directors. If there was, then I was not aware of it, 55 1 and that is certainly not what this email refers to. 2 Q. What were the hares you didn't want to be set free for 3 running? 4 A. Well, to give an example -- and I know you don't have 5 the note on the screen -- but I was giving Alastair 6 a fairly full and frank explanation of how the Council 7 had got to this stage. So I think in that document 8 I had referred to, you know, current pricing of 9 630/640 million, or something of that ilk, which I was 10 being told by finance colleagues was the figure they had 11 got to, but -- and I think I say it in the note -- that 12 that was an unmitigated figure. 13 So what I would not want is Mr Maclean going off and 14 saying to an elected member, again without going through 15 the correct route, that these are the figures, for 16 example, these are the figures we are currently talking 17 about, because if that information found its way into 18 the public domain it may not be correct and also could 19 definitely -- without mixing my metaphors -- put the cat 20 amongst the pigeons. 21 What we were aware of was that the matters related 22 in the project were pretty regularly finding their way 23 into the press. That could have come from many 24 different sources, but in my view matters were going 25 into the press were only to the detriment of tie and the 56 1 Council. 2 Q. What did you mean by "some of it is down to internal 3 politics"? 4 A. I can't honestly remember. Yes, I -- I am afraid I just 5 can't remember what I meant by that. 6 I think what I was probably saying was that there 7 are differing views within the organisation of why we 8 have got to where we have, and there was also probably 9 differing views from tie as to why we had got to where 10 we were. This was my view of it. 11 As I say -- or as I said in the email -- Alan Coyle 12 had commented and he said it was a fair summary of where 13 we had got to. Reading that email back and the 14 attachment back now, I still think it was a relatively 15 fair assessment of where we were at that point in the 16 project. 17 Q. You said that many of the players had moved on or 18 retired since the original deal was done. Did you mean 19 within the Council or tie or both? 20 A. I think I was probably referring to a number of 21 different people actually. Andrew Holmes -- but in 22 particular people at tie like Willie Gallagher and 23 Matthew Crosse and various others within that 24 organisation. 25 Q. What did you mean by "be very careful what information 57 1 you impart to the politicians as the directors and tie 2 have kept them on a restricted info flow"? 3 A. As I said, the restricted information flow I was 4 referring to there was the route of the information. It 5 didn't have any causative or quantitative aspects to it 6 because I just simply was not involved in those 7 briefings so I wouldn't have known. 8 And I also didn't know what information the 9 politicians had in fact been given in the past. So what 10 I was trying to say was look, there's a warning, there 11 is a route for the provision of the information and if 12 you are going to do that, please do it through that 13 route. It was probably inelegantly wording but that is 14 what I meant. 15 Q. On an ordinary reading of this email, it suggests that 16 you were aware that the directors and tie had kept 17 politicians on a restricted information flow? 18 A. I accept that that is how it is -- that is how it can be 19 read. That is not what I intended. 20 I simply had no idea at the time of what members had 21 or had not been passed by way of information. And to be 22 fair to both tie and the directors, I should make the 23 point that because I had no information of what they had 24 been given, it would be incorrect to take an assumption 25 from that that I had some awareness of that having been 58 1 formally restricted, which I didn't. 2 Q. You also mention that given "the current sensitivities 3 it is critical that this remains in place." 4 For the avoidance of doubt, what were the current 5 sensitivities? 6 A. Sensitivities around the contractual dispute. You know, 7 there were a number of different issues which were 8 obviously coming out of that -- not least of which 9 increase in price, the fact that work was not taking 10 place -- and it was really important to me to make sure 11 that Alastair understood that that restricted 12 information flow, as in the route of the information to 13 elected members, remained in place so that everyone was 14 getting information at the same time. 15 My perception was that elected members were finding 16 out about things in the press and I think in my 17 statement I attach a number of documents. So within 18 a few days, certainly of my note going to 19 Alastair Maclean, the number that was in that note -- 20 which was probably known through other routes, I'm not 21 making any assertions with regard to Mr Maclean -- but 22 the number appeared in the press. So the Council was 23 leaking from whatever source that that was, and those 24 were the current sensitivities. So I wanted to make 25 sure that, as far as I could, that members were not 59 1 finding out about these things in the press unexpectedly 2 because the project had become a bit of a political 3 football. 4 Q. I would like to next turn to the attachment to the 5 email -- 6 CHAIR OF THE INQUIRY: Is this a convenient point? 7 MR MACKENZIE: Yes. 8 CHAIR OF THE INQUIRY: We will resume again at 11.20. 9 (11.01 am) 10 (A short break) 11 (11.22 am) 12 CHAIR OF THE INQUIRY: You are still under oath, Mr Smith. 13 A. Thank you. 14 CHAIR OF THE INQUIRY: Could I ask you to lean into the 15 microphones or bring them a bit closer. I think at 16 times the shorthand writer is finding difficulty in 17 picking up what you say. 18 A. I will try my best. 19 MR MACKENZIE: Mr Smith, could I then take you to the 20 attachment to your email we were looking at before the 21 break. The reference number is CEC00473790. 22 It is headed "Tram - A Potted History". 23 If we go to page 2, please, the very bottom of the 24 page, it states, last sentence: 25 "Please also note that Members only have a small 60 1 knowledge of the above so the info should be treated 2 with caution." 3 Then go back to page 1, please. Now, going through 4 the bullet points, could you indicate the bullet points, 5 please, in respect of which members only had a small 6 knowledge or no knowledge. 7 A. I can't, I am afraid. That is because I actually did 8 not have any knowledge of what members were or were not 9 aware of at that particular time, except if such 10 information was in the public reports, but because I was 11 not involved in any elected member briefings, I am 12 afraid I can't confirm what they were or were not aware 13 of. I guess it was my working assumption that they may 14 not be aware -- at least some of them may not be aware 15 of some of the information in this note. That comment 16 I put at the end, I can't honestly remember why I put it 17 in, but I suspect again it was probably just to make 18 sure that Mr Maclean understood the sensitivity. He was 19 new to the Council. I didn't know him or how he 20 operated. But that statement was not necessarily 21 factually correct. It was my working assumption that 22 there was information they may not be aware of. 23 Q. Based on your working assumption, I quite understand 24 that only the senior officers briefed members, for 25 example, so you would not necessarily know what the 61 1 senior officers had briefed members, would you? 2 A. No. 3 Q. So you would have to have had a working assumption of 4 what members had or had not been told. Based on that 5 working assumption, can you go through the bullet points 6 and indicate the points you assumed or suspected members 7 were not aware of? 8 A. So, bullet point 1, no timescale for delivery of design 9 specified. I'm not sure that that would have been 10 passed on to elected members. 11 There is a lot in this note, and I can go through it 12 line by line if you wish, but there is a lot in this 13 note that summarises where we were, which is not 14 particularly pleasant reading, particularly for some 15 members of the Council. And I imagine that some of this 16 information had not been passed on to them and may not 17 be passed on to them at the time. I personally would 18 have had no issue with any of the information in this 19 note being passed on to elected members for their 20 information. But clearly that was not my decision. 21 But would you like me to go through it -- 22 Q. Perhaps you would identify, as you say there are a lot 23 of bullet points. Perhaps you would identify the main, 24 the important bullet points where you suspected members 25 may not have been informed. 62 1 A. So bullet point 4, a contract of this magnitude and 2 specialty, we should obtain an independent legal review. 3 CEC did not have the experience of light rail contracts 4 and what would be usual or not. 5 Then particularly bullet point 5: 6 "It was decided that the time, against our advice, 7 that DLA should in fact just spend their duty of care to 8 CEC. They did so, despite the fact that they had 9 previously formally noted that CEC and tie's interests 10 may be divergent. Accordingly, the duty of care only 11 extends so long as CEC accepts that DLA have acted on 12 tie's instructions and such instructions are deemed to 13 align with CEC's interests. It is accordingly worthless 14 in my view." 15 I don't believe elected members were informed about 16 whether an independent review would have been sensible 17 at the time. Now, I will defer to directors and the 18 Chief Executive at the time as to why they took that 19 decision. It may be that they decided that was an 20 operational matter, rather than a political -- or 21 a matter that required consent from elected members, but 22 I don't believe they were aware of that. They may have 23 been, but I don't believe they were. 24 Q. Any other bullet points? 25 A. The next bullet point: 63 1 "At that time the contract was very much being 2 presented by tie as being 'fixed price'. However, the 3 design was less than 40 per cent complete, and a warning 4 was flagged at the time that it was very risky to sign 5 up to a fixed price contract when the design was not 6 complete, due to the significant possibility of cost 7 overruns." 8 What you have to bear in mind is that this note was 9 accurate at the time I wrote it. So it was bringing 10 Alastair up to speed with where we actually were, rather 11 than where we were at contract signing. But, yes, I'm 12 not sure that members were aware that design was only 13 40 per cent complete, and that a warning had been 14 flagged prior to that. We can infer from evidence that 15 members were not aware. 16 Q. For the avoidance of doubt, by whom had the warning been 17 given to whom? 18 A. Sorry, can you repeat the question. 19 Q. Yes. Who had given the warning to whom? 20 A. Well, I had certainly warned that there was 21 a significant possibility of cost overrun with regard to 22 consents as an issue. And I think the B team had 23 flagged a number of times about the design and consent 24 issue. And in fact, I think around April 2008, I had 25 also flagged it to Mr MacKenzie that it should perhaps 64 1 be included within the Council report. 2 Q. Yes. So it is a reference to a warning you flagged at 3 the time. Is that a reference to a specific warning or 4 event, or is that a reference to the B team's general 5 concerns which had been ongoing for some time? 6 A. The B team's general concerns. 7 Q. Any other bullet points? 8 A. "Although CEC were not advised at the time, even at the 9 date of signing, there were already disputed issues 10 between the parties." 11 I mean, I certainly was not aware of that. I doubt 12 elected members would have been aware of that. 13 Q. What were the main disputed issues? 14 A. I think -- I can't quite recall. I think it was 15 probably a reference to notified departures that I think 16 we had been told had been -- occurred and we read some 17 of the drafting earlier. 18 Q. Any other bullet points? 19 A. So I guess that last bullet point, certainly part of it: 20 "On the ground tie remained very defensive. The 21 cost associated with the completion of Princes Street 22 was effectively 7 million greater than the contract 23 works price. This mainly arose from design changes 24 relating to full depth reconstruction of the 25 carriageway. It is fair to say that tie had little 65 1 control over value engineering opportunities related to 2 this issue and why full depth reconstruction was 3 required across this section." 4 I can't actually remember, but for some reason 5 I think that may be Alan Coyle's drafting. But I can't 6 recall, I am afraid, but certainly issues to do with 7 Princes Street and the fact that the Princes Street 8 Agreement was being signed or had been signed, and that 9 the cost did not appear to have been controlled was 10 certainly a concern. 11 Q. Any other bullet points? 12 A. Yes. 13 "Highly sensitive and confidential (and not in 14 the political/public domain) ..." 15 Certainly that I was aware of: 16 "... current estimated maximum costs are around 17 640 million, which is approximately 40 million over what 18 is even possibly affordable. This forecast is 19 unmitigated and is based on the worst case of all known 20 risks at this time. It includes risks associated with 21 commitments that are yet to be signed up to. We are 22 therefore looking at potential re-phasing of construction 23 but options are limited." 24 Q. And the reference to the current estimated maximum cost 25 at around GBP640 million, where did that figure come 66 1 from? 2 A. I can't honestly remember. It probably would have come 3 from my finance colleagues who probably got it from tie. 4 Q. The bullet point above that, you stated: 5 "tie have taken a few matters into formal dispute. 6 tie have won one, lost two and sort of won the last." 7 Did you think at the time members were aware of 8 that? 9 A. No, I suspect they weren't aware of that. Some of them 10 might have been through the Tram Project Board. Again, 11 it is worth commenting, I wasn't entirely clear what the 12 role of the councillors on the Tram Project Board was. 13 Were they there just to sit on it -- at the time just to 14 sit on the board or were they somehow reporting back to 15 group leaders or the Council as a whole. So I would not 16 necessarily have assumed that they did not know that, 17 because I would have assumed that those sitting on the 18 Tram Project Board and TEL and tie, if there were any 19 directors on tie from the Council, might have been aware 20 of that. 21 Q. At this time, you appear to have been able to have read 22 the adjudication decisions and come to a view on who had 23 won or lost? 24 A. I can't remember whether that was my take on it, or 25 whether that was information that was coming from tie as 67 1 to who had won or lost. 2 Q. I see. Just for completeness, the bottom of this page, 3 in the second last paragraph, you do state: 4 "Please note that this is at an unbelievably high 5 level and the history is far more complex. However, 6 this should give you a flavour of where we are and why." 7 So we have to, I think, read the note with that 8 caveat in mind? 9 A. Yes, absolutely. I would also wish everyone to read 10 this note with the caveat that it was prepared at the 11 time and was my take on the history of the project. 12 That may or may not be borne out by the facts. 13 Q. I would like to move on from this document -- 14 CHAIR OF THE INQUIRY: Can we go back to the one about the 15 adjudications, please. That's the point -- the third 16 point on the second page. 17 Apart from mentioning the results, or summarising 18 the results, you say that it may be costing more to 19 dispute than to agree a commercial settlement. So at 20 that point, were you canvassing the possibility of some 21 sort of mediation or -- 22 A. I don't think I was, my Lord. I think I was making 23 an observation at the time for Alastair Maclean to say: 24 look, this is getting disputed, there are a number of 25 issues that are getting fought either through 68 1 adjudication -- work is not happening and it might be it 2 is costing more to fight about it than to actually come 3 to some form of commercial settlement; and in my 4 experience, when parties fall out, commercial settlement 5 is certainly one of the avenues that should be explored 6 in order to get things moving. 7 CHAIR OF THE INQUIRY: You speak about the additional cash 8 which might have been spent on schools and the 9 reputational damage. 10 A. Yes, indeed, and you can see from this note, whilst the 11 640 million seems like an exorbitant sum at that point, 12 clearly that was for the whole line, and as we later 13 found out, we ended up spending a lot more than that for 14 a curtailed line. 15 CHAIR OF THE INQUIRY: Yes. 16 A. So, you know, things were evolving from here on in. 17 CHAIR OF THE INQUIRY: Finally, if you go back to page 1 and 18 look at bullet point 7, what are you saying here? 19 A. Um, so I think it was becoming clear that the risk 20 transfer that tie thought they had achieved had perhaps 21 not actually been achieved. And that certain risks have 22 either been transferred or had in fact remained with the 23 Council. So I go on to say that the contract was worth 24 512 million, the funding was 545 million. Again, from 25 memory, sometime between April and May 2008, the price 69 1 had jumped from 498 million up to 512 -- I think it was 2 about another three on top of that for line 1b and we 3 were advised -- I think the email that was talked about 4 earlier with Colin MacKenzie talking about significant 5 increase in cost around 1 May, we were being advised 6 that that increase from -- forgive me, I think it was 7 about 508 to 512, was to take into account the fact that 8 that additional design risk was being taken on by the 9 contractors. 10 And, you know, as it says there, it was reported to 11 Council at this time that the contract was 95 per cent 12 fixed -- it should say fixed price. 13 CHAIR OF THE INQUIRY: That seems to be touching on other 14 assumptions. Are these a reference to the schedule that 15 we looked at? 16 A. I think it is a reference to a number of matters that 17 were obviously going through dispute at the time and 18 that I was probably aware of at the time. But what 19 I was fundamentally saying in that paragraph was risks 20 which the Council thought had been transferred to the 21 contractor may not have actually been transferred to the 22 contractor. We were not absolutely certain of that at 23 that point, but the report to the Council at the time 24 said that the contract was 95 fixed -- 95 per cent fixed 25 price as reported to us by tie. And I guess the 70 1 implication then is that that pricing may not hold. 2 CHAIR OF THE INQUIRY: Thank you. 3 MR MACKENZIE: Thank you. 4 I would now like to move on to another matter in 5 another document. That is CEC00336394. 6 If we go to the email at the bottom of the page, 7 please, we can see this is an email from 8 Richard Jeffrey, the Chief Executive of tie by this 9 time, dated 11 June 2010, sent to various tie-related 10 people, Anthony Rush, Stewart McGarrity, Andrew Fitchie, 11 tie-related, including the advisers. The subject matter 12 is Carlisle, I think, Mr Smith. There is a reference to 13 what was termed project Carlisle, essentially an attempt 14 to achieve a negotiated settlement, a resolution of the 15 dispute, is that correct? 16 A. There were a lot of project names, Pitchfork, Carlisle 17 and various others, but I think Carlisle, was, yes to 18 come to some sort of agreed settlement. 19 Q. "Nick Smith called. He has discussed the situation with 20 Alastair Maclean. Amongst other things, he wants a CEC 21 legal person embedded in the Carlisle negotiating team 22 when we get to the detailed legal negotiations. His 23 argument is: 24 "If CEC legal had been more heavily involved first 25 time round, we wouldn't be in the mess we are in now 71 1 (Stewart/Andrew, you may wish to comment on this as this 2 is a line Nick is increasingly repeating. When 3 I challenged him he said 'Some parts of the Council were 4 heavily involved but not legal and this is well 5 documented')." 6 Do you recall having this telephone conversation 7 with Mr Jeffrey? 8 A. I don't actually recall that conversation. But, you 9 know, it is there. I am sure it took place. 10 Q. Do you have any understanding of the matter he is 11 referring to? 12 A. Yes, I mean, I think I was -- following a discussion 13 with Alastair Maclean I think I did want -- excuse me, 14 someone from CEC legal to be more involved directly with 15 the negotiations. And that was partly to ensure that 16 the Council was getting full information first-hand by 17 actually sitting there at the negotiating table. 18 I think I can't -- I cannot challenge or confirm 19 whether -- how Mr Jeffrey has reflected this as fully 20 accurate; but I guess the message that he's giving rings 21 true for me, which was yes, I believe if the Council's 22 legal department -- and I should say, ably assisted by 23 an independent firm of solicitors experienced in this 24 kind of contract, were involved first time round, then, 25 yes, I do believe that we would not have been in the 72 1 mess we were in at that particular point. 2 The reference to "some parts of the Council were 3 heavily involved", I would say that finance and the 4 technical people were far more involved but that 5 legal -- from my perspective, my perception was that we 6 were heavily reliant on tie and their legal advisers to 7 give the Council comfort that the contract was okay. 8 Q. Thank you. If we then please go to the email above 9 that, we can see this is an email from Andrew Fitchie 10 dated 11 June 2010, again to the same individuals as 11 before. Mr Fitchie states in the second point and the 12 second paragraph: 13 "CEC Legal had direct access to me and any DLA Piper 14 team members for 18 months and were provided with key 15 draft documentation, position papers, negotiating plans 16 et cetera (having expressed a desire not to be flooded 17 with every day workings) to comment on. I do not recall 18 receiving a great deal of input on detail or CEC's 19 specific requirements. I made every legal 20 recommendation available to CEC and I'm really not 21 certain how Nick's comments should be read." 22 Pausing there, do you have any comment on what 23 Mr Fitchie has set out? 24 A. Again, I can't dispute it. The paragraph above refers 25 to communications between Mr Fitchie and Gill Lindsay. 73 1 I was not party to those. I was never fed back any 2 information in relation to those. As far as I was 3 concerned, Ms Lindsay was dealing with the contract and 4 DLA as we heard before. 5 Q. Finally, Mr Fitchie stated: 6 "There were a number of tense occasions when CEC's 7 desire to have DLA Piper report on how tie were 8 performing placed us in an impossible position." 9 Were you aware at the time of there being any such 10 tense occasions? 11 A. No. I don't recognise that at all. Rather -- I mean 12 I do recognise a few tense occasions but I don't 13 recognise the Council asking DLA Piper to report on how 14 tie were performing. It may well have happened. 15 I don't recall it. 16 Q. Thank you. 17 Can we also, please, look at another document, 18 CEC00098050. 19 If we can look at the email at the bottom of the 20 page, please, we can see this is an email from yourself 21 dated 27 August 2010 to Richard Jeffrey of tie, copying 22 in others. You say: 23 "Richard. 24 "Further to the meeting yesterday, I thought I would 25 set out my views on what CEC currently requires to 74 1 inform the ongoing decision-making process. Please note 2 that it is sent subject to Dave and Donald's comments as 3 neither have had a chance to review these points as 4 yet." 5 Then you go on to make certain points and views. 6 I think the reference to "Dave" is a reference to the 7 Director of City Development at that time, Dave or David 8 Anderson, is that correct? 9 A. That's correct. 10 Q. Go back, please, to page 1 of the document. We see this 11 is again an internal tie email from Richard Jeffrey, 12 sent on 30 August 2010 to various individuals. 13 Mr Jeffrey states in the email: 14 "I have explained to Dave Anderson that I consider 15 this email unhelpful and symptomatic of the CEC input 16 lacking focus. I am seeing Dave to discuss this on 17 Wednesday." 18 Do you have any views or comments on that? 19 A. My view is that I was asking what I perceived to be -- 20 and I had copied it into the directors -- perfectly 21 reasonable questions. I appreciate it was putting 22 workload on to tie. Around this time, and I suspect 23 having re-read this, it was probably around that, it is 24 not in my statement, but I was taken aside by 25 Alastair Maclean and told that effectively a complaint 75 1 had been made to me by senior tie management, to -- it 2 was either Tom Aitchison or more likely Dave Anderson, 3 to say that I was asking some difficult questions, and 4 perhaps someone could have a word with me. 5 Mr Maclean had taken me to one side because he had 6 been asked to do so to say that had been reported. What 7 he said was: I'm required to speak to you but I would 8 like you to continue to ask difficult questions, please; 9 but he wanted to make me aware that there was obviously 10 a sensitivity at tie about me asking difficult 11 questions. 12 Q. What were your views on being told that tie had 13 complained about you asking difficult questions? 14 A. I was not surprised. 15 Q. Why were you not surprised? 16 A. Because any time that any member of the B team asked 17 difficult or searching questions of tie, my perception 18 was that a phone call would be made to someone more 19 senior in the organisation, and the issue would either 20 disappear, or pressure would be brought to bear, or 21 a position would be taken that was not necessarily in my 22 view recommended. 23 Q. In this instance do you know which individual in tie 24 made the complaint? 25 A. I don't know. But -- no, I would not like to speculate 76 1 who it was. 2 Q. Do you know to whom in the Council this complaint was 3 made to? 4 A. I can't remember exactly when it was. It may have been 5 a difficult set of questions that I had asked; however, 6 it was around that period. Certainly autumn 2010. I am 7 afraid I can't tell you at what date. It may have been 8 in direct response to that email. Or it may have been 9 some other questions that I was asking. 10 CHAIR OF THE INQUIRY: I think Counsel was wondering if you 11 knew the person in the Council to whom the complaint had 12 been made? 13 A. Sorry. Sorry, I should have followed that up. No, 14 I don't. It may well have been Dave Anderson on that 15 point or it may have been Tom Aitchison. 16 Q. Certainly it was Alastair Maclean who drew your 17 attention to the fact that there had been a complaint, 18 so we can follow that up with Mr Maclean and perhaps the 19 other two individuals too? 20 A. Yes. 21 Q. I would like to -- Mr Maclean's position was he was 22 telling you a complaint had been made, but essentially 23 it was his line to carry on doing what you are doing? 24 A. Yes, that is absolutely his position. He fully 25 understood that I was asking perfectly reasonable 77 1 questions, and as I say, he wanted to make sure that 2 I understood there was a sensitivity. He gave me an 3 express instruction that I was to continue doing exactly 4 what I was doing, which was ask the difficult questions. 5 Q. What was the sensitivity? 6 A. The sensitivity was obviously that tie were feeling 7 sensitive about being asked about things that perhaps 8 they did not want to answer. Now, it may be, to be fair 9 to tie, they may have thought that this was going to 10 take up a lot of time. I can't remember what 11 discussions I had had, but I would not have sent an 12 email like this as a relatively junior employee, copying 13 in all the directors, without ensuring that I had at 14 least thought I was going to get back-up for the things 15 that I was asking for. 16 Q. Thank you. I would like to come back now to the 17 question of the various adjudication decisions by going 18 to a number of documents. Can we start, please, with 19 CEC00242585? 20 Now we can see at the top it is an email from 21 yourself, Mr Smith, sent on 17 June 2010 to 22 Dave Anderson, Alan Coyle, Donald McGougan, 23 Marshall Poulton and Alastair Maclean. The subject 24 matter is “DRP Dispute Resolution Procedure 25 Summary: Strictly Private and Confidential: Not for 78 1 onward circulation. 2 You say: 3 "I had a long discussion with Councillor Mackenzie 4 re this morning during which I gave away very little. 5 However, he wanted my take on tie's DRP summary which 6 I will also forward for your info. My view is set out 7 below. He is clearly concerned that the public want to 8 see the full picture re the DRPs on a won/lost basis. 9 I advised that we should resist this, even though it may 10 be politically difficult." 11 What was this issue about? 12 A. I think Mr Mackenzie was ringing up to discuss, because 13 he, I believe, sat on one of the boards, so he was 14 getting information that -- I think he was getting 15 information that tie were winning some of the 16 adjudications, and BSC were saying that they were 17 losing. What he wanted to do -- because I believe BSC 18 wanted to put them into the public domain -- was to put 19 that position into the public domain. What I would say 20 with regard to this email, I can't be certain but after 21 "little" in line two, I think there should be the word 22 "ground". Because it wasn't -- I don't believe I didn't 23 give away very little information. I think I gave away 24 very little ground in terms of my view on whether the 25 DRPs should be put into the public domain. And I was 79 1 very clear that I didn't think that that was going to be 2 beneficial to the Council. 3 Whatever the results, my perception was that BSC had 4 the view -- as later turned out to be correct -- that 5 they had a 13/2 win loss ratio, and if the Council then 6 agreed to put that out into the public domain, my 7 perception was that that would put significant pressure 8 on to the Council as opposed to BSC. 9 There was also a concern around this time about 10 confidentiality and also with regard to legal privilege. 11 There was a case at the office of the Scottish 12 Information Commissioner, that Edinburgh Council had 13 lost which was about cherry-picking of legal advice and 14 one of my significant concerns around this time was that 15 if the Council put legal advice or outcomes into the 16 public domain, then it may be that we had waived legal 17 privilege, and as a result of Freedom of Information 18 legislation, it could have been that the contractor 19 could obtain an advantage by putting that. 20 Q. When you say in the first sentence of your email, the 21 word "ground" should be inserted after "little", 22 I didn't understand your explanation why there should be 23 that insertion? 24 A. Because I think I was discussing -- my position at the 25 time was that these -- this information should not be 80 1 put into the public domain. You know, later on in that 2 sentence, it says: 3 "My view is set out below ..." 4 And I can't remember exactly what I said there, but 5 he's clearly concerned the public want to see the full 6 picture on DRPs, and I think my reference to "gave away 7 very little ground" probably refers to conversations 8 I had had with, certainly Mr Maclean and probably others 9 with regard to putting the DRP position into the public 10 domain. 11 So my perception -- and I can't be absolutely 12 certain that that is the word that is missing -- but it 13 is not like I would have held back information from the 14 Council. That is certainly my belief, I would not have 15 held back information, particularly because 16 Councillor Mackenzie would have had all that information 17 having sat on the board, so he was aware of all the 18 adjudication outcomes. 19 Q. Yes. Councillor Mackenzie sat on the Tram Project 20 Board, so he would certainly have received reports from 21 the Tram Project Director, which would have covered, one 22 assumes, the adjudication decisions? 23 A. Yes. 24 Q. Do you know whether Councillor Mackenzie had seen or had 25 access to the actual decisions themselves? 81 1 A. I can't remember whether he did at that point. 2 Certainly I have got a very strong recollection of 3 preparing a folder of documentation for him, but that 4 may be sometime way after this. 5 Q. I think it is correct to say that members of the Council 6 weren't given decisions, were they? 7 A. I'm not aware of whether they were or not, I am afraid. 8 I don't recall ever being asked whether they should or 9 should not be given these documents. 10 Q. Then if we go to the other email on this page, please, 11 on the second half of the page, we can see an email from 12 yourself dated 17 June 2010 to Councillor Gordon 13 Mackenzie on the same subject matter. You state: 14 "Councillor Mackenzie, I have reviewed the short 15 summary and, with regard to the actual adjudication 16 decisions, which I have reviewed in detail (ie the ones 17 which had major contractual interpretation impact, 18 Hilton, Gogarburn, Carrick Knowe and Russell Road), the 19 summary is broadly accurate. However, you should note 20 that it is a very high level summary of what are 21 extremely complex issues. It is almost impossible to 22 distil 80 pages of adjudication interpretation into to 23 a few sentences and ..." 24 You also then go on to say: 25 "As discussed in my view, release of any DRP detail 82 1 (other than eg the generalities in the CEC report) into 2 the public domain could prejudice CEC and tie's ability 3 to defend itself against an FOI claim for release of 4 legal advice and may also be a breach of the Infraco 5 contract terms. Accordingly, in my view it would be 6 entirely inappropriate to do so." 7 If you scroll down the page to see the other emails, 8 we see the one before this is Gordon Mackenzie sending 9 an email to you on 17 June 2010, same subject matter, 10 the text "comments please"; and down one again, please, 11 we see an email from Steven Bell of tie dated 7 June 12 2010 to Gordon Mackenzie. Same subject matter: 13 "Gordon, as requested at today's meeting. Please do 14 not circulate or distribute further." 15 Et cetera. 16 One can also look at the attachment which appears to 17 have been sent with that email from Mr Bell. It is 18 a different document, CEC00242593. 19 We can see this is headed "Strictly Private & 20 Confidential ..." 21 Et cetera. Then it is stated: 22 "Please find below a short updated summary of the 23 items which have been formally addressed through the 24 dispute resolution process with BSC." 25 Et cetera. I'm not going into this in detail, 83 1 Mr Smith, but is this a note you received at the time? 2 A. I believe it would have been, yes. But -- I can't 3 actually confirm but if that was a document that was 4 received by me, then, yes. 5 Q. If this is the correct attachment to this chain of 6 emails? 7 A. Yes. 8 Q. What was your understanding as to whether this note or 9 summary had been prepared, who had prepared it, which 10 organisation -- 11 A. It would have been a tie summary. 12 Q. Yes. I'm not going through the detail in the interests 13 of time because we have now looked at it and know where 14 it is. 15 I would also, please, then like to look at what was 16 being reported to Council at the time. If we can go, 17 please, to the report to Council on 24 June 2010 by the 18 Directors of City Development and Finance, document 19 CEC02083184. 20 We can see again, paragraph 1: 21 "The purpose of this report is to update the Council 22 on the progress of the Edinburgh tram project and 23 related issues ..." 24 Et cetera. 25 If we then, please, go to page 2, and paragraph 2.6, 84 1 it is stated: 2 "Although the formal adjudications under the DRP 3 have produced mixed results, the advice received has 4 reinforced tie's interpretation of the contractual 5 position on the key matters under dispute, and has also 6 saved circa GBP11 million from the initial claims 7 submitted by BSC." 8 To pause there, as at this time, were you of the 9 view that the adjudications had reinforced tie's 10 interpretation of the contractual position on the key 11 matters under dispute. 12 A. I can't actually recall, but at that point, there was 13 lots of legal dialogue going on. I also don't know 14 where this drafting came from -- or I can't recall where 15 this drafting came from -- but with hindsight that 16 doesn't appear to me to be correct. 17 Q. One then, please, also goes on to page 5, in 18 paragraph 3.12. The first sentence states: 19 "... the 15 DRP issues to date [so there have been 20 quite a few]." 21 The final sentence states: 22 "The outcome of the DRPs in terms of legal 23 principles remains finely balanced and subject to debate 24 between the parties." 25 Again, at this time, would you have described the 85 1 outcome of the DRPs as remaining finely balanced? 2 A. I don't believe so. Just re-reading that, I'm trying to 3 work out how many had been actually concluded through 4 adjudication at that point. 5 Q. Certainly they came out at various times from late 2009 6 throughout 2010, even, I think, into early 2011. 7 A. I have got a funny feeling that "finely balanced" was 8 a phrase that Richard Jeffrey had used. I don't know 9 whether that phrase in this report had come from him. 10 Again, with hindsight, that doesn't appear accurate to 11 me now. 12 There was this issue, I think as I mentioned 13 previously, of it depends on what your interpretation of 14 won and lost is. I think it said in the last paragraph 15 that we looked at that tie had saved the Council or 16 saved the contract over GBP11 million by taking matters 17 through DRP. I think as we later discovered, that did 18 not necessarily recognise the knock-on impact of losing 19 the legal arguments. 20 CHAIR OF THE INQUIRY: That saving was simply a saving -- 21 a reduction in the award. 22 A. Agreed, on the basis that a pursuer is always going to 23 look for a larger amount than they are probably entitled 24 to, it is probably a bit of a phantom of a saving, yes, 25 I agree. 86 1 CHAIR OF THE INQUIRY: In the context of litigation, if 2 someone raises an action for GBP500,000 and the court 3 awarded GBP300,000, I mean the normal impression would 4 be that the pursuer had won. 5 A. I would entirely agree with that. But that is not 6 necessarily the view that tie was taking at the time. 7 CHAIR OF THE INQUIRY: Can you just remind me, whose report 8 is this; who would sign it off? Do you know who signed 9 it off? 10 MR MACKENZIE: My Lord it is the directors of City 11 Development and Finance, page 14. 12 A. I also don't know whether it was this report, but 13 certainly during that year, there was a report to 14 Council where there was a lot of discussion over -- or 15 there was various emails flying about over what should 16 be reported with regard to the dispute resolution 17 procedures. It may have been this one or it may have 18 been a later one. 19 CHAIR OF THE INQUIRY: Thank you. 20 MR MACKENZIE: Let's look at one of those emails, please. 21 It is document CEC00017848. This is in relation to the 22 report -- the next report to Council in October 2010. 23 It is probably best to start at the bottom. The 24 bottom email is from a Lynn McMath of tie. The subject 25 matter is "Tram report PR". 87 1 "Dear all, please see attached first pass at the 2 press release for the tram report going to Full 3 Council." 4 Seeking feedback. The next email up is an email 5 from you, Mr Smith, dated 6 October 2010 to Lynn McMath 6 and others, subject "Tram report PR". 7 You state: 8 "We need to remove the DRP parts et cetera. I will 9 send a re-draft tomorrow. Worried" -- 10 CHAIR OF THE INQUIRY: I'm not sure if we are on the right 11 page. 12 MR MACKENZIE: I am so sorry, yes. It is the email in the 13 middle. We can see, I think, the top of it. 14 If we scroll down a little, there we go. I can see 15 the text there. As I say: 16 "We need to remove the DRP parts et cetera. I will 17 send a re-draft tomorrow. Worried we breach the 18 agreement." 19 Back up, please, to the email at the top to finish 20 this line off. There is then an email from yourself, 21 Mr Smith, dated 6 October 2010, sent in the evening, 22 stating: 23 "There is a new version as yet uncirculated at 24 Donald's request." 25 I think that must be a reference to a new version of 88 1 the report to Council. Is that correct? 2 A. I believe so, yes. 3 Q. You then go on: 4 "Alan has the comments. They restrict the present 5 situation section to the bare minimum, as there is 6 a risk that tie could be in breach of the agreement by 7 making the details public." 8 That chimes in with what you said earlier about your 9 concern about the information being released to the 10 public. Is that correct? 11 A. Yes, that's correct. There was -- there was certainly 12 concerns being expressed by tie and probably DLA at the 13 time that releasing that information to the public could 14 both potentially breach the contract, and I had 15 particular concerns about freedom of information 16 requests. 17 Q. We should, however, also look at the next document which 18 is CEC00012776. We can see just down from the top an 19 email from yourself, Mr Smith, dated 13 October 2010 to 20 Alastair Maclean, subject matter is "RE: Advance Copy of 21 BSC Letter". I think this is a reference to a letter 22 the consortium had sent either to Council members or to 23 Council officers, I can't remember which off the top of 24 my head. But it is a direct letter from the consortium 25 to the Council, does that ring a bell? 89 1 A. Yes, vaguely. 2 Q. In the text you state: 3 "It is difficult to argue against their logic on 4 some of the issues ..." 5 Et cetera. But then it goes on to say: 6 "They are happy to release the adjudication 7 decisions if tie are similarly happy. I would recommend 8 against this. These are highly complex issues and 9 without the factual context or the full contract terms, 10 it is possible that the issues could be misinterpreted 11 and spin added. It is fair to say that a few decisions 12 have gone against tie, whether on bad advice or just 13 a roll of the dice, it is difficult to say. However, 14 the release would mean we get every Edinburgh resident 15 as an adjudicator and may also require release of legal 16 advice under FOI if we are not careful. That is not to 17 say that we do not want to release as it is not in our 18 favour. I just don't think it advances our position. 19 There is also the possibility that BSC has breached 20 the terms of the agreement by making this info available 21 to councillors." 22 Et cetera. 23 You then have a note "for discussion": 24 "Councillors ..." 25 So the rest of your email, what is it, what is the 90 1 purpose of the rest of your email? 2 A. So I would imagine that this was a letter that BSC had 3 written to all councillors to, in my view at the time 4 and it was my legal advice at the time, that tactically 5 they were ratcheting up the pressure. If you could get, 6 you know, 58 councillors agitating at the Council to 7 ensure this got sorted out with an open letter, 8 effectively, and somehow managed to get the Council to 9 release that -- I don't know what the ratio would have 10 been at that time, but let's go to the end and say that 11 the win/loss ratio from BSC's point of view was 13/2, in 12 my view that would only have significantly increased the 13 pressure on the Council, and fundamentally weaken our 14 negotiating stance. 15 So if we were ever to achieve either a termination, 16 which was still being considered at this point, I think 17 by tie, or some sort of Carlisle agreed settlement, you 18 don't show your hand. And my worry was that by putting 19 these into the public domain, which clearly BSC wanted 20 to do, you could be -- you could end up boxing with both 21 hands tied behind your back, and I don't think that is 22 a sensible tactical position to be in. 23 Q. One could perhaps understand why the Council would not 24 wish that information to go into the public domain, for 25 the reasons you discussed. But there is also the 91 1 separate question, is there not, of giving the members 2 of the Council sufficient information, so that they were 3 in a position to come to informed decisions? 4 A. I absolutely agree with that. 5 Q. In the second part of this email, in short, have you 6 drafted a suggested response by Alastair Maclean to the 7 BSC letter; at least a suggested position Mr Maclean may 8 wish to adopt with members? It is headed "Councillors". 9 Does that seem correct? 10 A. Yes, sorry, I was just reading it. 11 So I imagine that that letter has been sent to all 12 councillors in advance of the Council meeting the next 13 day. Looking to ratchet pressure, effectively, you 14 know, protection mechanisms being employed. And to 15 reassure elected members that we were seeking extensive 16 legal advice. We had sought independent legal advice at 17 that point, and in discussions with Alastair, or 18 Alastair obviously had not seen this at that point, but, 19 yes, we were recommending that they not be released into 20 the public domain because the information -- because the 21 decisions were highly complex and needed to be read 22 against the full factual background, and we were looking 23 to resolve the dispute. 24 So it comes back to my original point, we wanted to 25 reassure members that we were not just ignoring this, 92 1 that we were actually dealing with it, but that 2 tactically, my impression would be that it was the wrong 3 thing to put into the public domain. 4 Q. What was your view on whether the members should be 5 given access to the adjudication decisions? 6 A. I'm not sure I was ever asked that at the time. It is 7 difficult to put myself back seven years. What I can 8 tell you, what I think I would have said at the time was 9 that members, if they wished to see them, would be 10 entitled to see those decisions. We were trying to 11 ensure that they were kept confidential, either using 12 a data room or otherwise, but I don't see any reason why 13 elected members could not be informed about it, were we 14 to be asked about it. 15 As I say, it is difficult to put myself in that 16 position. 17 Q. Mr Smith, it may be helpful to actually see the BSC 18 letter to remind ourselves of what it was BSC -- what 19 sort of release BSC were proposing. 20 Can we go, please, to CEC00012755. 21 We can see, I think, this is a letter dated 22 13 October 2010 by the consortium to members. I think 23 if you see the very final paragraph of this letter, you 24 can see a reference to the adjudication process. If we 25 could go over the page, please -- sorry, the paragraph 93 1 above that, the consortium letter states: 2 "In the interests of accuracy and transparency, if 3 tie will agree, we have no objection whatsoever to the 4 disclosure of all adjudication award texts to elected 5 members in order that you can make" -- 6 CHAIR OF THE INQUIRY: Are we on the second page? 7 MR MACKENZIE: Sorry, my Lord, no. The second last 8 paragraph on the page in the final sentence where it 9 starts: 10 "In the interests of accuracy and transparency..." 11 I will just read it again. Maybe we can blow that 12 sentence up: 13 "In the interests of accuracy and transparency, if 14 tie will agree, we have no objection whatsoever to the 15 disclosure of all adjudication award texts to elected 16 members in order that you can make your own judgment." 17 So in short, Mr Smith, the consortium don't appear 18 to have suggested that the adjudication award texts be 19 put into the public domain. Rather they are saying: we 20 will agree, if tie will agree to members being given the 21 adjudication decisions. 22 Is that correct? 23 A. Reading that now, yes. That may well be me making an 24 error at the time. But I don't recall anyone coming 25 back and saying: no, you have the wrong end of the 94 1 stick; these of course can be released to elected 2 members and BSC are not considering ... 3 So my advice was predicated on the fact that these 4 were being asked to be taken into the public domain. 5 That may be my error that I have taken that on board 6 incorrectly, but that was the basis of my advice that 7 I was giving. 8 Q. I just wonder if that is correct. Because we see the 9 consortium's letter. If we go back, please, to your 10 email, which is CEC00012776, and your draft suggested 11 response to councillors commences: 12 "You will all have received today correspondence 13 from the tram consortium in advance of tomorrow's 14 Council meeting. In light of the current dispute and 15 the potential mechanisms for resolving the dispute, the 16 consortium is attempting to protect its position as much 17 as it can. This letter is part of the protection 18 mechanisms being employed. 19 Extensive legal advice has been sought by tie in 20 relation to all disputed matters. Council officers have 21 also sought independent legal advice to fully protect 22 the Council's position as project guarantor. Having 23 discussed the matter with the Head of Legal and 24 Administrative Services, it is not recommended that tie 25 agree to the formal adjudication decisions be released 95 1 at this time. To be clear, this is not because they 2 reflect badly upon tie. This [is] simply because these 3 decisions are highly complex and need to be read against 4 the full factual background and the full terms of the 5 contract, all of which should not be released at this 6 time in order to protect both tie's and Council's 7 respective positions. 8 It is imperative that the dispute is resolved by 9 both parties, following the appropriate contractual 10 mechanisms. Accordingly, I recommend that no response 11 be made to this letter or other contact be made by 12 councillors. Instead, an appropriate response will be 13 sent by tie as counterparty to the tram contract." 14 So on the face of it, Mr Smith, your proposed 15 response to councillors is in response to the offer made 16 by the consortium to share adjudication decisions with 17 members, if tie are happy with that. 18 A. I accept that on the face of it, that does look like 19 what it is. But I would also contend that it might 20 be -- if we could go back to page 1, please -- the 21 section at the bottom where it says: 22 "Not recommended that tie agree to the formal 23 adjudication decisions be released ..." 24 I may still have been under the impression that that 25 was in the public domain. But I may be entirely wrong, 96 1 I may have had a discussion with the Head of Legal and 2 Administrative Services where it was decided that they 3 shouldn't be released to elected members. I am afraid 4 I can't recall, but I don't believe I would have given 5 that advice at the time. But there was perhaps 6 a concern about stuff disappearing into the public 7 domain. 8 Q. What your proposed response to councillors doesn't say 9 is that: our advice is that it shouldn't go into the 10 wider public domain, but members may have access to 11 these decisions if they wish. 12 A. Yes, I mean, in practical terms, if elected members want 13 to see something -- I am going on more recent 14 experience -- they would usually come and say: I would 15 like to access this document. And only -- we have 16 a presumption for release of information to elected 17 members because they are the decision-making people and 18 they have an obligation to the public. 19 So we do try to release as much as we can. Clearly, 20 there are sometimes sensitivities to do with 21 confidentiality or legal advice et cetera where we do 22 need to take these things into account but as part of 23 our member/officer protocol which I think probably 24 post-dates this, there are clear routes for information 25 to be provided. If it is highly sensitive it might only 97 1 go to group leaders, et cetera. 2 Q. Further on this point: what steps can Council take 3 either at the time or now to deal with the sensitivities 4 involved in providing confidential information to 5 members? 6 A. So, there are a number of different routes that we have 7 employed and still employ. Making sure that the group 8 Leaders and Leader, Depute Leader, are aware of certain 9 information that they can either keep confidential and 10 assure their group they have been told about it, or pass 11 on to the groups themselves. 12 We have in the past used data rooms to make sure 13 that information can be accessed and read, but copies 14 were not taken away, because again, we have had issues 15 with information being copied into the public domain. 16 But it is very difficult when you have large number 17 of people accessing very large bits of information -- or 18 large amounts of information -- which can potentially be 19 misused. Yes, it may well be that through discussions 20 at the time, the information was not going to be shared, 21 and obviously that was a discussion draft. I don't 22 remember being asked this specific question. 23 Q. In terms of you mentioned information being misused, do 24 you mean in short by that, councillors may be given 25 access to confidential information and told it is 98 1 confidential, but may leak it to the press or whoever? 2 A. That is certainly a risk. 3 Q. Are there any steps -- effective steps -- the Council 4 can do to prevent that from happening? 5 A. Very few. In fact I can't think of many at all. It is 6 obviously up to councillors to be responsible with the 7 information. There is the councillors' Code of Conduct 8 which they are required to comply with, but we have seen 9 information disappear into the public domain. I should 10 say, I'm not sure there is any proof it has come from 11 councillors; clearly a lot of Council officers have some 12 of that information as well, so it is not necessarily to 13 say who has done it, it is just about appreciating the 14 confidentiality of the information. 15 In fact it had got so bad on this project later on 16 that individual employees -- and I believe there was 17 a plan to actually get councillors to sign up to 18 confidentiality agreements, to make sure they fully 19 understood the risks. 20 Q. I was going to ask about that. In other walks of life 21 when parties are given confidential information, they 22 are sometimes asked to sign a confidentiality 23 undertaking or agreement. 24 Is that something that councillors or officers are 25 asked to do? 99 1 A. That is the only project where I have actually had that 2 at the Council, had that happen. We like to be able to 3 trust each other and have a good working relationship 4 with our elected members, and be able to share 5 information freely and frankly, so that they are fully 6 informed and can take appropriate decisions. 7 I would like to think everyone takes their 8 professional responsibilities seriously and uses the 9 information appropriately. 10 Q. Thank you. Moving on, please, to the next report to 11 Council on 14 October 2010. Again, this is by the 12 Directors of City Development and Finance. The 13 reference is CEC02083124. 14 Just sticking with the question of adjudication 15 decisions. If we can go to page 7, please and 16 paragraph 2.50, a reference to the dispute resolution 17 process. In the last sentence we see, I think, the same 18 sentence as appeared in the previous report: 19 "The overall outcome of the DRPs in terms of legal 20 principles remains finely balanced and subject to debate 21 between the parties." 22 Again, would you have agreed with that statement at 23 the time? 24 A. Looking back, no, I don't think that statement is 25 accurate. 100 1 Q. I suppose the difficulty from members' point of view is 2 that they are reading that sort of statement in the 3 reports. They were not given access to the adjudication 4 decisions themselves, so are they in a position to come 5 to an informed view on how the adjudications are going? 6 A. I think it is difficult for them to do that if they are 7 given that information. I can't honestly recall how 8 that wording or where that wording came from. I know 9 there were discussions of what could be put in the 10 various Council reports, and I know tie had some strong 11 views on what could or should not -- could or could not 12 be reported, yes. 13 Q. I would like just to continue the line of documents on 14 the question of adjudications. Could we next, please, 15 then go to CEC00006489? 16 A. Yes. 17 Q. If we could start at the back page, please, which 18 I think is page 5. Or perhaps page 4? We can see the 19 top of page this is an email from John Miezitis of 20 DLA Piper dated 3 November 2010, to Susan Clark at tie. 21 Subject, "DRP Summary". It states: 22 "I attach DLA's summary of the DRPs that have been 23 referred to adjudication." 24 If we then look at the preceding page, please, 25 page 3, we see an email from Susan Clark dated 101 1 4 November 2010 back to Mr Miezitis, I think with 2 certain comments, asking: 3 "Can you update and return by tomorrow please?" 4 Again, if we can go back to following what happened 5 next, page 2, I think we are now on. 6 Then I think we see, yes, an email on the second 7 half of the page, again from Mr Miezitis, dated 5 8 November 2010 to Susan Clark saying: 9 "I attach a revised DRP summary ..." 10 Et cetera. 11 If we go to page 1, please, of this document, we can 12 see the top email. It is from Susan Clark dated 13 9 November 2010 to yourself, Mr Smith, and your 14 colleague, Carol Campbell: 15 "DRP Summary. Will put this on your site". 16 I think is the genesis of this document. If we then 17 could please look at the DRP summary. This is 18 CEC00006490. If we see this document, it is headed: 19 "COMMENTARY ON VARIOUS MATTERS REFERRED TO DISPUTE 20 RESOLUTION PROCEDURE UNDER THE INFRACO CONTRACT". 21 I'm not going to read it in detail other than to 22 just go through it and note that the headings -- you can 23 see there is an introduction, and if we then, about 24 halfway through, the paragraph commencing: 25 "This note provides an overview ..." 102 1 Just below halfway: 2 "This note provides an overview on the main issues 3 which have been referred to the dispute resolution 4 procedure under the Infraco contract. It is not legal 5 advice on the outcome of the completed adjudications or 6 on the continuing DRP strategy." 7 Then if we just scroll through the remaining pages 8 of the note, you see Hilton Hotel Car Park. Over the 9 page, please, we can see the other adjudications, 3. 10 Gogarburn Bridge and Carrick Knowe Bridge. 11 4. Russell Road Retaining Wall. 5. Section 7A Track 12 Drainage. 6. Tower Place Bridge. Over the page, 7. 13 Depot Access Bridge. 8. MUDFA, 8. Over the page, at 9. 14 80.13 Instructions. 10. Future matters. 11, 15 adjudication outcome. And that is it. 16 What were your views when you received this summary? 17 A. I can't remember. But I believe we were looking to get 18 that summary so that we could have it independently 19 checked by Shepherd & Wedderburn, because concerns had 20 been raised, I believe with the Chief Executive, by 21 Donald Anderson, that the summary by tie of the 22 adjudication outcomes was not necessarily full. 23 Q. When you say the summary by tie of the adjudication 24 outcomes, is that a reference to the, I think, June 2010 25 document we looked at earlier? 103 1 A. No. I think it is probably a wider reference that we 2 had been provided with information by tie over a number 3 of months -- whether it was verbal or written -- 4 confirming what the adjudication outcomes were. What 5 I believe I had asked for tie to do was write down what 6 they believed the outcomes of the adjudications were in 7 order that I could then get that independently verified 8 by, again, people with experience in construction law. 9 Q. So if we could then please look at that, it is document 10 CEC00013525. We will see from the top, this is 11 a document from Shepherd & Wedderburn. As I say, 12 I think this was instructed by the Council directly, is 13 that correct? 14 A. That's correct. 15 Q. And headed "Review of Adjudicator's Decisions". 16 I think as you had explained in short, 17 Shepherd & Wedderburn were asked to review DLA's summary 18 document we just looked at, is that right? 19 A. Yes. 20 Q. Which is called "DLA commentary", so I should perhaps 21 use that terminology. The summary by 22 Shepherd & Wedderburn in 2.1, they state in the last 23 sentence: 24 "Having reviewed the adjudication decisions, we are 25 of the view that, overall, the commentary identifies the 104 1 'main issues' raised in each adjudication." 2 They go on to make further more general remarks. 3 Over the page, please, in 2.2.1: 4 "The Commentary does not include reference to the 5 awards of expenses granted by the adjudicator in each 6 adjudication." 7 2.2.2: 8 "The Commentary does not clearly summarise the 9 arguments advanced by the parties, nor does it make 10 clear whether or not each decision was a 'success', 11 'mixed success' or 'defeat" for tie." 12 2.2.3: 13 "The Commentary assumes that the reader has 14 a detailed level of understanding of the issues involved 15 (we appreciate that this may be intentional depending on 16 the intended recipient) ..." 17 2.2.4: 18 "It is not always apparent which party has been 19 successful as the findings and awards granted by the 20 adjudicator are not clearly summarised in each 21 instance." 22 Do you have any views on 23 Shepherd & Wedderburn's document? 24 A. I think it summarised what I felt we had been 25 experiencing, which was that perhaps a gloss, a positive 105 1 gloss had been put on some of the adjudications that had 2 been fought. 3 As I say, in my view you can read these 4 adjudications and come to your own view, but a lot of 5 them are highly technical and case specific, so it was 6 good to have the independent review to confirm that the 7 summaries were perhaps overly positive. 8 Q. If we then, please, to conclude this line of 9 questioning, go to another document, please, 10 CEC02082694. It may be better, perhaps, to go to 11 CEC01927382. 12 Now we can see this is a letter dated 20 December 13 2010 to Richard Jeffrey of tie, sent by David Anderson, 14 Director of City Development. If we can go, please, to 15 the first page under the reference to page 28, that 16 paragraph. At the end of that paragraph, the last 17 sentence states: 18 "I have for your information attached the Council's 19 view on the DRP decisions as Appendix 1." 20 If we could then please go to Appendix 1, which is 21 at page 5 in this document, this is headed "Comments on 22 DRP summary prepared by tie Limited". 23 Which states: 24 "The purpose of this note is to summarise the 25 analysis carried out by CEC Legal, City Development and 106 1 Shepherd & Wedderburn of the DRP adjudication decisions 2 when compared to the briefing document provided by tie 3 Limited for CEC." 4 Two questions there, Mr Smith. Who drafted this 5 document, Appendix 1? 6 A. I believe I did. 7 Q. When it stated "when compared to the briefing document 8 provided by tie Limited for CEC", is that a reference to 9 the DLA commentary document we looked at earlier? 10 A. I believe so, yes. 11 Q. If we can just go to the end, please, of this 12 document -- next page. We can see the date at the 13 bottom, 3 December 2010. The conclusion in the second 14 last paragraph states: 15 "In conclusion, whilst tie's summary is not 16 inaccurate, it appears to present the DRP findings in 17 the best possible light, as opposed to giving a clear 18 and concise presentation of the facts. We would agree 19 that BSC are indeed entitled to claim a 13/2 win rate. 20 The overall increase in project costs has been reduced 21 by taking these matters to DRP." 22 As a point of clarification, stated "whilst tie's 23 summary is not inaccurate", is that again a reference to 24 the DLA commentary document we looked at? 25 A. Yes, there was the document that was provided by tie, 107 1 which was in fact the DLA summary. 2 Q. Do you have any comments to make or does that 3 essentially set out your views? 4 A. No, that sets out my views. 5 Q. It may be suggested that a similar conclusion was or 6 ought to have been obvious to Council legal officers at 7 the time of the October -- sorry, the August and October 8 reports to Council in 2010. Do you have any views on 9 that suggestion? 10 A. I think we were probably overly reliant on the advice we 11 were getting from tie and their advisers as to the 12 outcomes and what should be put into these reports. 13 Again, with hindsight, I think we probably could have or 14 should have highlighted these to elected members at the 15 time. 16 Q. Does that perhaps come back to the question of, as well, 17 independent legal advice? Is that a relevant 18 consideration, considering that issue? 19 A. Yes, I suspect the Council could again have taken 20 independent legal advice earlier in the process. It 21 comes back to the issue of operating, as I said before, 22 as this one family. I don't think the Council wished to 23 take, um, further independent advice at that time. It 24 was only as matters progressed and we realised getting 25 further into 2010 that things were becoming 108 1 significantly more difficult, that we turned up the heat 2 in terms of getting that independent advice. 3 Q. Thank you. I would like to go very shortly to another 4 separate document at CEC00013550. This is an email from 5 yourself dated 30 November 2010 to Alastair Maclean. 6 You state: 7 "For your information as requested ... this is 8 simply a quick and very subjective brain dump." 9 You set out various issues from your personal 10 perspective. I'm not going to spend time going through 11 them all but why was this requested by Mr Maclean? 12 A. I think I can't actually recall but I -- you can 13 probably see from reading it, it was borne out of 14 frustration that I was feeling that we weren't getting 15 full information, that we weren't being listened to, 16 that there were serious concerns that weren't being 17 dealt with. So I can't recall, but I suspect Alastair 18 said: okay, put them down for me and, you know, coalesce 19 your thoughts; so that's exactly what I did. 20 Q. Perhaps a related document we should look at is document 21 CEC00482550. 22 We see at the bottom of page, this starts with an 23 email from Andy Conway dated 17 March 2010 to yourself. 24 Subject "Tram - Issues of Concern", and then if we go 25 over the page, please, to see Mr Conway's concerns. We 109 1 see Mr Conway on 16 March 2010 had sent an email to 2 Marshall Poulton, the Tram Monitoring Officer, "Issues 3 of concern", which stated: 4 "Marshall, following our meeting with Dave yesterday 5 where he asked for us to pull together a list of issues 6 for him to raise with Dave/Richard, I've taken a stab at 7 those issues and drafted the email below." 8 Now, I'm not going to spend time going through each 9 of Mr Conway's points, but I can see for example he 10 states: 11 "Princes Street Supplemental Agreement -- misled 12 about the additional costs associated with PSSA. When 13 this was presented to the board, there was no indication 14 of the scale of the additional costs (circa 15 GBP9 million). If it was known that it would cost this 16 much, it is unlikely that the board would have agreed to 17 PSSA." 18 Do you understand the reference to "board" to be 19 a reference to Tram Project Board? 20 A. I think that's probably what the reference was, yes. 21 Q. There are a number of concerns set out there on behalf 22 of Mr Conway. The purpose of this was actually to 23 repeat your concerns, which were on page 1. We can see 24 this is an email from yourself dated 17 March 2010 to 25 Mr Conway. Again I don't want to have you repeat 110 1 yourself because you have addressed some of these 2 already, but does this essentially reflect some of your 3 concerns as at March 2010 in relation to the project and 4 in relation to tie? 5 A. Yes. It does. 6 Q. You had also made the point, in fairness to Richard -- 7 I think that is Richard Jeffrey -- "he has been much 8 more open with CEC than tie were previously". 9 A. Yes, I would agree with that statement. 10 Q. That was written in March 2010. By the end of 2010, had 11 that new openness continued? 12 A. No. Not in my view. 13 Q. We are back then to the email in November, which we 14 looked at, the subjective brain dump to 15 Alastair Maclean. Thank you. 16 We are now at the end of 2010. We know that the 17 Mar Hall mediation took place in March 2011. Did you 18 have any involvement in the Council's preparation for 19 that mediation? 20 A. Very, very little. I think I helped organise the 21 mediator and I think I read the mediation statement and 22 may be made a couple of comments on it. But no, in 23 simple terms. 24 Q. Why would you have very little involvement? 25 A. Very simply, we were run -- I was working very closely 111 1 with Alastair Maclean at the time. We were running 2 a very busy legal department and we had to effectively 3 divide and rule. Alastair was going to be expected to 4 take a much larger role in solving this issue, working 5 with the new Chief Executive. So essentially, I helped 6 manage the legal team during most of 2011, and Alastair 7 took the lead on dealing with this. I was still 8 involved in the project on a sort of piecemeal basis. 9 There was no reason for it other than that. We just had 10 to get on with the day job as well. 11 Q. Did you attend the mediation? 12 A. No, I didn't. 13 Q. So I won't ask any further questions about that. 14 We have covered the question of the provision of 15 information from tie to the Council. I think throughout 16 your evidence we looked at some emails. You also, in 17 your statement, make various comments in that regard, so 18 I will not take up time with that again, you repeat your 19 statement. 20 The question of governance, I do have a few 21 questions which I think we can just finish off with 22 before lunch. I wonder if it may be best to take this 23 with reference to two documents. 24 If we could start, please, with the document 25 CEC01821403. This, I think, is the Draft Final Business 112 1 Case which was presented to the Council in 2 December 2006. 3 If we can go, please, to page 73, this sets out the 4 governance structure. Now, Mr Smith, I appreciate of 5 course you only became involved in the tram project in 6 February 2007. However, I think when you did become 7 involved, governance was a matter you did look at, so 8 that's why I am going to ask you these questions. 9 In paragraph 6.2, it states: 10 "This section describes the project governance 11 structure through to Financial Close. It is anticipated 12 that a revised structure will be required to execute the 13 construction phase of the project." 14 If we then, please, go over the page to 15 paragraph 6.5, under "TEL Board", the sentence: 16 "The role of the TEL Board is focused on its 17 statutory stewardship role and on its overall 18 responsibility to deliver an integrated tram and bus 19 network for Edinburgh, on behalf of CEC." 20 What do you understand by TEL's "statutory 21 stewardship role"? 22 A. I am afraid I don't understand that phrase. 23 Q. Under paragraph 6.6, under "Tram Project Board," it is 24 stated: 25 "The Tram Project Board is established as an 113 1 independent body with full delegated authority from CEC 2 (through TEL) and TS to execute the project. In 3 summary, the Tram Project Board has full delegated 4 authority to take the actions needed to deliver the 5 project to the agreed standards of cost, programme and 6 quality." 7 Would you say that statement is true? 8 A. It wasn't, no. 9 Q. Why wasn't it true? 10 A. When I came to look at the authority given to the TPB -- 11 I can't remember exactly why I was looking at it, but 12 some time in late 2007, I identified that I think there 13 was two different Council reports. One said that the 14 TPB was an independent body with full delegated 15 authority and the other one said that it was -- 16 CHAIR OF THE INQUIRY: Can I ask you to slow down. 17 A. Apologies. And the other one said it was a committee of 18 TEL. And I don't think the Council had delegated any 19 authority to TEL and consequently could not have 20 delegated authority to TPB. So when I was reviewing 21 this in August -- sorry, sometime in October/November 22 2007, I identified that unless someone could provide me 23 with the delegation chain, the TPB had absolutely no 24 power whatsoever. 25 MR MACKENZIE: By what means would the Council delegate 114 1 power to a body such as TEL? 2 A. Through a Council decision by Full Council. 3 Q. And also perhaps an operating agreement? 4 A. Yes, but it can just delegate authority to do X, Y or Z. 5 It would be usual to have an agreement to regulate how 6 that authority is going to be exercised. 7 Q. There is also the question, I think, the Tram Project 8 Board was not a legal entity, is that right? 9 A. That's correct. 10 CHAIR OF THE INQUIRY: Did you resolve that then in 2007 11 when you discovered it? 12 A. A report was taken to Council, I believe, in December 13 2007. I think I advised that nothing could be done 14 before that Council report because the authority had to 15 come from Council. At that stage I think they were 16 still planning on signing pretty quickly after, so 17 I believe delegated authority -- sorry, the authority 18 was delegated to -- and I can't remember who, it might 19 have been Gill Lindsay, to sign off on the relevant 20 Operating Agreements. We certainly drafted and 21 agreed -- pretty much fully finally agreed the tie 22 Operating Agreement. 23 The TEL Operating Agreement then was negotiated but 24 I don't believe either of those documents were actually 25 signed until probably around mid-May. 115 1 MR MACKENZIE: Yes, I think -- 2 CHAIR OF THE INQUIRY: Mid-May, which year. 3 A. Sorry, 2008. 4 MR MACKENZIE: Yes, I think in short what you said, 5 Mr Smith, is that as far as you understood it, no powers 6 had been delegated by the Council to the Tram Project 7 Board until I think it was the meeting of the Council on 8 20 December 2007 when I think one of the things the 9 Council was asked to do was to delegate powers to Tram 10 Project Board. Is that consistent with your 11 understanding? 12 A. That's correct. 13 Q. You also said that Operating Agreement was entered into 14 between the Council and TEL, I think you said in March 15 2008. Had there been any previous Operating Agreement 16 before then, between the Council and TEL -- 17 A. Not that I'm aware of. 18 Q. Before we put that document to one side, just remind 19 ourselves in paragraph 6.6 that -- the first sentence, 20 the Tram Project Board had full delegated authority to 21 execute the project. 22 If we then go on to the next document, please, which 23 is CEC01395434, this is the Final Business Case which 24 went to Council in December 2007. If, please -- the 25 reference is CEC01395434. 116 1 If, please, we can go to page 84, we can see this is 2 section 6, "Governance". In the middle of the page it 3 says: 4 "Governance structure -- period to mid-2007." 5 If we can then, please, go over the page, page 85. 6 We can see in paragraph 6.7, it states: 7 "The role of each body in the period to mid-2007 was 8 as follows." 9 In relation to TEL Board, it is again stated in 10 paragraph 6.8: 11 "The role of the TEL Board was focused on its 12 statutory stewardship role." 13 Et cetera. So that phrase appears again. But over 14 the page, please, in paragraph 6.9, it states: 15 "The Tram Project Board was established as an 16 independent body to monitor the execution of the 17 project." 18 So there seems to have been a change from the Draft 19 Final Business Case stating that the Tram Project Board 20 had delegated powers to execute the project to it is now 21 being said that it was established to monitor the 22 execution of the project. 23 Are these the same things? 24 A. No, I don't believe so. 25 Q. I think my question in short, Mr Smith, is whether this 117 1 may suggest that there was some confusion during this 2 period as to what exactly the role of the Tram Project 3 Board was. Do you have any comments on that suggestion? 4 A. I think that is entirely accurate. I'm not sure that 5 the governance had been properly defined up to that 6 point. 7 Q. I should just ask you more generally, what were your 8 views on the governance arrangements between, say, late 9 2006 and late 2007? 10 A. I think they were complex, is probably the best way of 11 describing them. I think when I came to look at them, 12 I was trying to work out a way forward rather than 13 working out what had happened prior to that. 14 Q. Could we then please look next at page 88? We can see 15 the top of the page states: 16 "Governance structure - mid-2007 to Financial 17 Close". 18 I think in short this will reflect 19 Transport Scotland withdrawing from the formal 20 governance arrangements. We can see in paragraph 6.22, 21 it states: 22 "Discussions subsequent to 27 June 2007 among the 23 principal stakeholders determined that the changes to 24 the governance structure set out in sections 6.23 to 25 6.68 below would be implemented to reflect the revised 118 1 funding arrangement." 2 If we go then, please, down to paragraph 6.25, it 3 states: 4 "In the light of the revised funding arrangements 5 and, in particular, the increased risk resting on CEC's 6 resources, CEC reassessed its internal arrangements, 7 including the relationship between the Council, TEL and 8 tie, together with the role of the Tram Project Board, 9 and the necessity for the appropriate involvement of 10 elected members in decisions associated with the 11 project." 12 I should pause, Mr Smith, to have asked before: do 13 you know who wrote this section 6 of the Final Business 14 Case? 15 A. I don't, I am afraid. 16 Q. Did Council officers write this section? 17 A. I don't believe so, no. 18 Q. In paragraph 6.26, it states: 19 "The principal revisions to the internal Council 20 processes included updating of the Operating Agreements 21 which govern the relationship between the Council and 22 its arm's length companies." 23 Now, you have already told us that the Operating 24 Agreement between the Council and TEL was not entered 25 into until May 2008. I think it is also correct to say 119 1 that while the Council had a general Operating Agreement 2 with tie in 2005, that was not changed to make it 3 tram-specific until May 2008, is that correct? 4 A. That's correct. 5 Q. So in short -- because these Operating Agreements were 6 only entered into around financial close -- any powers 7 of oversight or control they gave CEC over these 8 companies would have been of no use whatsoever during 9 the important period leading up to the financial close? 10 A. Certainly Operating Agreements would not have been in 11 place, no. 12 Q. So any additional powers or controls they gave the 13 Council over these companies would not have been there 14 to exercise? 15 A. Agreed. 16 Q. Going back to paragraph 6.26: 17 "The second revision mentioned is the creation of 18 a consultative group of senior officers within the 19 Council (the Tram Internal Planning Group) ..." 20 Do you know when the Internal Planning Group first 21 met? 22 A. I don't, I am afraid. 23 Q. We can see from the records in fact it was created at 24 the end of 2006 and met consistently from 2006 onwards, 25 which seems inconsistent with what is said here that the 120 1 group is being created as one of the revised processes. 2 Do you have any comments on that? 3 A. No, I don't. 4 Q. Then, in paragraph 6.27, it refers to the creation of 5 the Tram Sub-committee to increase the role of elected 6 members in project decision-making and, towards the 7 bottom of this paragraph, it states: 8 "The sub-Committee will be chaired by the Executive 9 Member for Transport and will meet on a 6-8 weekly 10 cycle. The purpose of the sub-Committee is to review 11 and oversee decisions with respect to the project." 12 Now, this Sub-committee, I think, first met on 12 13 May 2008. Now, on the assumption that that is correct, 14 this sub-Committee was not in a position to oversee 15 decisions in the important period leading up to 16 financial close? 17 A. I would agree. I'm not sure who drafted this, but it 18 doesn't seem to fit in with the facts. 19 CHAIR OF THE INQUIRY: It doesn't, sorry? 20 A. It doesn't fit in with the facts on the ground. 21 Q. Then after the financial close, the Tram sub-Committee 22 met on five occasions, twice in 2008, twice in 2009, 23 once in March 2010 and once in March 2011. I suggest 24 that they are meeting so infrequently, this Tram 25 sub-Committee was not in a position to review or oversee 121 1 decisions in the period after financial close? 2 A. I would agree with that. 3 CHAIR OF THE INQUIRY: Mr Mackenzie, is this a convenient 4 point? 5 MR MACKENZIE: I think I could finish this relatively 6 quickly. 7 CHAIR OF THE INQUIRY: I think it might be better just to 8 rise now and finish after lunch. We will resume again 9 at 2.10. 10 (1.04 pm) 11 (The short adjournment) 12 (2.10 pm) 13 CHAIR OF THE INQUIRY: You are still under oath, Mr Smith. 14 A. Thank you. 15 CHAIR OF THE INQUIRY: Yes. 16 MR MACKENZIE: Thank you, my Lord. Mr Smith, if I could 17 continue asking just a few more questions in relation to 18 the governance. 19 A. Of course. 20 Q. With reference to the Final Business Case of December 21 2007. We were looking before at document CEC01395434. 22 If we could go, please, to page 89. In paragraph 6.29, 23 it commences: 24 "At a practical level, the following changes were 25 executed to the Tram Project Board's committee 122 1 structure..." 2 In the last bullet point you see the reference to 3 a third sub-Committee, the Legal Affairs Committee, was 4 established, et cetera. 5 I think I had asked you earlier when we looked at 6 some minutes of this sub-Committee whether you were 7 aware it was a sub-Committee of the Tram Project Board, 8 and you had said no. Is that correct? 9 A. That's correct. 10 Q. So does it surprise you, perhaps, then to see 11 a reference in the Final Business Case to this committee 12 having been said to be a sub-Committee of the Tram 13 Project Board? 14 A. Yes, it does. 15 Q. Are you able to give any explanation for why this is 16 said to be the case in the Final Business Case? 17 A. No, I'm not, I am afraid. 18 Q. We would have to perhaps ask the author of this section. 19 A. Yes. 20 Q. Also in paragraph 6.30, do we see the final sentence 21 states: 22 "Figure 6.3 summarises the governance structure 23 currently in place and which will be the primary 24 structure through to Financial Close." 25 So if we please go over the page to look at the 123 1 structure, now I appreciate you are not the author of 2 this diagram, do you have any comments on it? 3 A. Yes, interestingly it doesn't seem to mention tie. 4 Q. Is that surprising? 5 A. Very. 6 Q. Why? 7 A. Because tie was the main delivery arm, and it was also 8 the body that the Council had delegated authority to. 9 I think there was an intention through some of the later 10 potential governance arrangements to bring tie and 11 Lothian Buses underneath TEL. And there was certainly 12 an intention when the new Operating Agreements were put 13 in place to have a sort of waterfall, with 14 TEL delegating stuff to the TPB, and then TPB, I think, 15 delegating matters to tie in terms of the physical 16 infrastructure delivery, so I'm just slightly surprised 17 it's not reflected there. 18 It may be that at the very bottom there, above 19 "Programme and Budget issue", it should say "tie", but 20 it doesn't actually say "infrastructure delivery". 21 Q. Is this diagram consistent with your understanding of 22 the governance arrangements at the time? 23 A. Can you clarify which time you are talking about? 24 Q. Yes. Between middle of 2007 up until financial close in 25 May 2008. 124 1 A. No. I don't think it is. Because the Council hadn't 2 fully delegated power and did not have an Operating 3 Agreement until May 2008. 4 Q. Now, sticking with this diagram, we see it shows the 5 Tram Project Board reporting to TEL, rather than 6 directly to the Council. Do you have any views on that? 7 A. Certainly the intention, if I recall correctly, was that 8 the Council would delegate certain matters to TEL who 9 would then in turn delegate those matters down to the 10 Tram Project Board, under reservation of, I think, 11 a couple of issues to do with the project which were 12 carved out which were reserved to Council. So having 13 a sort of waterfall, as I say, of delegation from 14 Council, down to TEL, down to TPB, I believe was what 15 was intended as part of the revised Operating 16 Agreements. 17 Q. As you say, the structure doesn't show tie, but I think 18 we know from the Tram Project Board papers that tie did 19 report to the Tram Project Board. Is that consistent 20 with your understanding? 21 A. Yes, I think so, yes. 22 Q. So if we proceed on that assumption, that tie are 23 reporting to the Tram Project Board, does it give rise 24 to any concerns that the Tram Project Board are in turn 25 reporting to the Council through an intermediary? 125 1 A. I guess in theory there could be a concern if there is 2 free and transparent provision of advice -- I mean, 3 adding that extra layer is always going to add 4 a complexity, but in theory it could work. 5 Q. Is it correct to say that during this period the 6 Chairman of the Tram Project Board was also the Chairman 7 of TEL? 8 A. I can't honestly confirm. 9 Q. If that was the case, would that give rise to any 10 concerns? 11 A. From a governance perspective, I would prefer to see 12 them as different individuals, and, you know, to provide 13 that independence and oversight. 14 Q. Because otherwise we essentially would have the chairman 15 of one board reporting to himself as chairman of another 16 organisation? 17 A. Yes. 18 Q. Just putting that document to one side, we have not 19 really heard very much about tie, TEL and the Tram 20 Project Board. So just a few simple questions if I may. 21 tie, the number of staff they employed very roughly 22 between the end of 2007 and up to financial close in 23 2008, and that period, are you aware very roughly how 24 many staff they employed? 25 A. I couldn't honestly -- I mean, I can hazard a guess. Do 126 1 you mean actual staff of tie or do you mean consultants 2 employed by -- 3 Q. I think I mean both, the number of bodies who were 4 either in the tie building or could be called upon to 5 assist? 6 A. If I had to guess, somewhere between 40 and 60. 7 Q. Yes, I think Rebecca Andrew thought off the top of her 8 head, perhaps between 50 and 100. I see in her 9 statement somewhere about 60. That seems generally 10 consistent. Did tie have headquarters, were they based 11 somewhere? 12 A. Yes, they were based somewhere down at Haymarket -- I 13 can't remember what it was called. 14 Q. It was called Citypoint? 15 A. Yes, that is correct, I think they had two floors at 16 Citypoint. 17 Q. You were never seconded to work at tie? 18 A. No, I was never seconded to work at tie. 19 Q. Some other officers were from time to time? 20 A. Yes. 21 Q. Now, TEL, approximately how many staff did TEL employ? 22 A. Sorry, I should clarify that, I was never seconded to 23 work for tie. I did spend some days a week for probably 24 about a few months in 2009 working down at tie, but 25 I was, you know, working on the matters that I was going 127 1 to be working on anyway in relation to tram. 2 Q. I understand. Moving on to TEL, again just briefly, 3 approximately how many staff did TEL employ? 4 A. I think TEL employed one member of staff. I think it 5 was Alistair Richards. 6 Q. So is it the case that an organisation employing one 7 member of staff, in terms of the diagram we have just 8 looked at, seems to be sitting below the Council as in 9 overall charge of the tram project? 10 A. Yes, I think that -- yes, that was the case. That was 11 the governance structure that tie and TEL were 12 recommending. I think there was an approach taken that 13 they were trying to set up tie and TEL as part of 14 a structure that would then encompass Lothian Buses 15 et cetera, that would move towards -- I think it was 16 called Phase 2 Governance, that would move towards an 17 integrated transport strategy for the City. 18 Q. But in respect of the important period leading up to 19 financial close in May 2008, TEL had one employee as far 20 as you understand? 21 A. Yes. It did have a board, though. 22 Q. Where were TEL's premises? 23 A. Off the top of my head, I think it might have been 24 Lothian Buses' headquarters. But they had, I think, one 25 member of staff. So it was probably virtual, but 128 1 I think their registered office was Annandale Street but 2 I may be wrong on that. 3 Q. Just to finish off on the Tram Project Board, did the 4 Tram Project Board have employed staff? 5 A. No, because I don't believe it was an entity. 6 Q. Did they have any premises, and if not, where did they 7 meet? 8 A. I can't confirm, I am afraid. 9 Q. Thank you. 10 Could we perhaps then go back to your statement, 11 please. This is at page 109. Just before we look at 12 that, I have been asking various questions about 13 governance. Can I also ask, please, who within the 14 Council was responsible for ensuring that effective 15 governance arrangements were in place both in relation 16 to tie and in relation to the tram project more 17 generally? 18 A. I would have thought it was the Director of City 19 Development, so Andrew Holmes followed by Dave Anderson. 20 Q. Were there any other senior directors in the Council who 21 would have had responsibilities in relation to good 22 governance? 23 A. Ultimately it would have been, I guess, all of the 24 directors. So the Director of Corporate Services, he 25 would have some role in oversight and governance, from 129 1 a corporate governance perspective. The Chief Executive 2 obviously has ultimate responsibility for corporate 3 governance. But I believe that the directors -- and the 4 Director of Finance obviously has a role in that part as 5 well, but I believe that the project was being managed 6 by Dave Anderson ultimately, and Andrew Holmes followed 7 by Dave Anderson, so the responsibility for ensuring 8 that all the governance was in place would rest probably 9 with that director. 10 Q. Which Council director had responsibility more generally 11 for ensuring that the Council's arm's length companies 12 were subject to good governance procedures? 13 A. I can't honestly say at that point. I would have 14 thought it was the Director of Corporate Services. It 15 is now run out of a governance division within our 16 resources directorate. 17 Q. Thank you. 18 Going to your statement, please, at page 109. In 19 relation to, again -- it says "various concerns" but 20 letter G, please. 21 We asked if you were aware of there having been any 22 tensions between tie and CEC et cetera. You replied: 23 "Yes, there were constant tensions. In my view tie 24 begrudged being called to account in any way, especially 25 by CEC legal. By way of example, the negotiations over 130 1 the Operating Agreements were an attritional battle 2 which saw the Council's protections eroded and the 3 requests made by CEC legal questioned at every stage." 4 Could you just explain a little that last sentence, 5 please? 6 A. So I was tasked with agreeing the Operating Agreements 7 for tie and TEL with people from tie and TEL. Mostly 8 Graeme Bissett. 9 And we would come up -- these documents are not 10 particularly lengthy, somewhere between 15 and 20 pages. 11 The way I would describe it is when I first drafted 12 them, they had some teeth, and by the time we ended, 13 they barely had gums, which I remained very concerned 14 about, because I think we promised elected members that 15 robust Operating Agreements would be in place. Every 16 time I suggested controls that might be put in place 17 with regard to bonus structures, or what obligations the 18 companies were under to do various parts of the project, 19 tie would come back with inevitably -- and I understand 20 this, it is in some ways a commercial battle, when you 21 are trying to agree these things, different parties want 22 different things, which probably typifies the 23 non-commonality of interest in some ways. But they 24 would come back with drafting which would ultimately 25 water it down and eventually I had to recommend to 131 1 Gill Lindsay and the directors that this is a line in 2 the sand we should not be crossing. 3 But in my view, the controls that -- well, the 4 controls that were originally suggested over -- I'm 5 going to do this off the top of my head, but I think 6 there were something like 28 versions of those 7 operating -- certainly the tie Operating Agreement, 8 those controls were significantly weakened down. 9 Q. Can you give me any examples of the main controls you 10 say were either watered down or removed? 11 A. I will give you one example. I think we put tie under 12 an absolute obligation to carry out various bits and 13 pieces, and Transport Scotland were unhappy, as 14 I recall, that they had watered that down to, I think, 15 a best endeavours or a reasonable endeavours. 16 Because there were certain things that, you know, 17 frankly tie should be guaranteeing that they would do. 18 Can you repeat the question, sorry? 19 Q. Yes. It is simply that you say that controls were 20 eroded? 21 A. Yes. 22 Q. And I simply -- I understand that at a general level, 23 but I was just wondering if there were any specific 24 examples you could give of controls which were perhaps 25 in the first initial drafts but don't appear in the 132 1 final versions? 2 A. A really good example is the bonus structure. Bonuses, 3 particularly with Council employees, are a very emotive 4 and difficult issue. Council employees don't have any 5 form of bonus structure. Given that in my view -- 6 I have no problem with bonuses per se, but they should 7 be paid on the basis of delivery of results, so I didn't 8 think it was unreasonable for the Council to request 9 re-approval of bonuses -- we are not talking about a 10 significant number of staff. The Council has 18,000 11 staff. If tie had somewhere, let's say, a maximum of 50 12 to 100 staff, it was not outwith the wherewithal of the 13 Council to be able to approve those bonuses and that 14 would have given good oversight. 15 I can't remember the exact drafting but what we 16 ended up with was that the Council could have control 17 over the broad bonus structure, but that the Board of 18 tie -- the Remuneration Committee -- would make the 19 awards of those bonuses. I'm not saying which version 20 is right and which version is wrong, but my recommended 21 approach was in my view watered down beyond the point 22 where I thought it was acceptable. 23 Q. Who in the Council agreed to the draft Operating 24 Agreement being watered down, as you put it? 25 A. In my view, that was a combination of Donald McGougan 133 1 and Andrew Holmes. To be fair to Gill Lindsay I did 2 escalate a number of concerns to her, and she did agree 3 with my positions, and that I should take them forward 4 to the directors. 5 Q. Finally, on this question, why did it take so long to 6 conclude a Tram-specific Operating Agreement between the 7 Council and tie? 8 A. I can't honestly say. I think it was probably part of 9 this 28 drafts, just take time to agree. And there were 10 some difficult issues to agree. I think there were some 11 issues around agency powers and tax matters which 12 required to be resolved. I also think that DLA wanted 13 to make sure that whatever was in those Operating 14 Agreements aligned with what the contractors would be 15 expecting to see, in terms of the, again, waterfall of 16 authority passing down to tie, so that they could fulfil 17 the contract. 18 Q. Thank you. 19 Also, then, I would like to look at page 110 of your 20 statement, please. In question (i), top of the page, we 21 asked you for your views upon the bonus scheme which you 22 just explained. It is simply in your answer the last 23 sentence where you stated: 24 "The 'light touch' controls which were eventually 25 agreed were in my view insufficient to protect the 134 1 Council's interests." 2 I just wondered why it was you considered that the 3 light touch controls which were agreed were insufficient 4 to protect the Council's interests? 5 A. In my view it gave tie too much latitude to agree the 6 payments of bonuses. As long as the Council approved -- 7 I don't know -- the broad milestones to be achieved. So 8 as long as you are -- I'm not saying this is what was in 9 place, but in theory as long as you were delivering the 10 tram project, then that was potentially a milestone, so 11 long as you continued to deliver it, then it was within 12 tie's gift to award that. Whereas I thought the Council 13 should be in a better place to control those bonuses, 14 and as I said before, I didn't think it was unreasonable 15 for tie to come forward to the Council and say: here is 16 our proposed bonuses, this is what has been achieved, 17 are you okay with approving those. That seemed to me to 18 be a basic corporate governance control. 19 Q. Thank you. On to page 111 of your statement, please. 20 In question (e) we asked: 21 "Did you have any concerns at any stage in relation 22 to the performance of senior CEC officials or members?" 23 You replied: 24 "I never had any concerns with regard to elected 25 members. I also generally had no concern with regard to 135 1 the performance of Council officers, although if I had 2 been in their positions at the time, then, based on the 3 information which I was aware of at the time, I would 4 have taken different decisions to those taken by them at 5 the time." 6 I should ask you just to explain what you mean by 7 that. What are the different decisions you would have 8 taken at the time? 9 A. They probably reference two specific things. The 10 watering down of those agreements. The terms -- I would 11 have taken a slightly more robust approach. And the 12 second one was I would have definitely had an 13 independent legal review carried out on that contract. 14 Those are two examples, but those fundamentally are what 15 I was referring to there. 16 Q. Thank you. Also a final question in relation to your 17 statement, by way of clarification, if we could go, 18 please, to page 118 -- it must be the page before that. 19 Perhaps page 117. 20 We can see in letter (b), we asked by way of final 21 comments: 22 "Do you have any comments, with the benefit of 23 hindsight, on how these failures might have been 24 avoided?" 25 You mention again the question of independent legal 136 1 review, but you also say that in addition stronger 2 controls and oversight in relation to tie would have 3 assisted. For completeness, can you give any examples? 4 A. That would have been in relation to the Operating 5 Agreement itself. So if those controls had been 6 stronger, then I believe it would have given those 7 operating those Operating Agreements a better basis on 8 which to call tie to account. 9 Q. Thank you, Mr Smith. I have one final short set of 10 questions. I apologise, I should have raised this under 11 the adjudication section but it was one point I didn't 12 cover. Could we go back, please, to the report to 13 Council of 24 June 2010? We find that document at 14 CEC02083184. 15 Can we go, please, to page 14? We can see towards 16 the bottom of the page, under the signatures of two 17 directors, contact details are for Alan Coyle and for 18 yourself. What is the purpose of listing the contact 19 details there? 20 A. Usually in that Council report, it would have whoever 21 has been assisting with collating the report. So 22 I guess in the tram project it was -- it is also 23 sometimes a reference to those that are going to be able 24 to help direct your query. So if an elected member 25 wants to ask something, they can phone you up. Most 137 1 times they go directly to the relevant director, but it 2 is to allow the public also to see that, you know, if 3 you have any query you can ask these individuals and 4 they will direct it appropriately. 5 Q. When we see the names of the contact details, put it 6 this way, is it the more junior officers than the 7 directors, is that a fair way of putting it? 8 A. Yes. 9 Q. Does that give us any clue as to who has assisted in the 10 drafting of the report? 11 A. Yes, usually it may be that in this particular case, 12 both Alan and I were collating comments on behalf of 13 a number of other people. 14 Q. Yes. 15 A. But, yes. It is a useful contact rather than having 16 directors overloaded with a whole load of emails. 17 Q. We saw earlier the reference to -- in relation to the 18 adjudication decisions, that in terms of legal 19 principles, they remained finely balanced and subject to 20 debate between the parties. 21 If a member had contacted you at the time of this 22 report and said: I have seen this in the report, 23 however, I have heard informally that the decisions are 24 more in favour of the consortium, which is correct; what 25 would you have said? 138 1 A. If I was aware of that detail at the time I may well 2 have advised -- I would probably have spoken to the 3 directors to make sure that we were passing the 4 information, as I said before, through the correct 5 channels. What I would not want to do is, you know, if 6 it was an elected member phoning up, and if I felt I was 7 going to be giving information that maybe was not 8 available to those that would normally get it -- so in 9 particular in relation to something like the disputes, 10 I would have made sure that it was okay to release that 11 information before releasing it. Then, you know, 12 a decision would be taken on whether to release that or 13 not. 14 Q. I suppose the question really is a pointed one: whether 15 you agreed with the statement about the legal principles 16 being finely balanced at that time? 17 A. As I say, I can't remember reviewing that statement or 18 coming up with that statement at the time. With 19 hindsight I don't think it is correct. But whether 20 I believed that, at the time based on the information 21 I was being provided by tie and their advisers, I can't 22 honestly remember. 23 Q. Finally, we don't have to go to it, but in a similar 24 fashion in the report of Council of 14 October 2010, 25 again the contact officers are yourself and Mr Coyle. 139 1 We see, as we saw earlier, the same phrase about in 2 terms of legal principles remaining finely balanced. So 3 again by mid-October for the avoidance of doubt, if 4 a member had contacted you at that stage and said: do 5 you agree with that; what would you have said? 6 A. I think that the same answer would apply. I would have 7 taken that away and come up with an answer for that 8 elected member. To make sure we were giving them the 9 right information through the right route. 10 Q. By the middle of October 2010, is it really your 11 position that you -- by that stage -- were not aware 12 that the decisions were more favourable to the 13 consortium. 14 A. No, I suspect that's right. I am afraid I can't confirm 15 how that draft made it into the report. I don't know 16 whether it came from tie or whether we drafted it. It 17 is not accurate, looking back. 18 Q. But at the time, middle of October 2010, did you regard 19 it as accurate? 20 A. I can't honestly recall. It was shortly after that that 21 we did the -- the review on the accuracy. So it may be 22 that I did at that time have a view. It depends on, 23 I guess, which end of the telescope you are looking at, 24 but in terms of legal principles, no, I don't think that 25 was accurate and I think I would have thought that at 140 1 the time. 2 MR MACKENZIE: Thank you, Mr Smith, I have no further 3 questions. 4 Questions by CHAIR OF THE INQUIRY 5 CHAIR OF THE INQUIRY: Could I just ask you, Mr Smith, you 6 were asked a few questions about report and junior 7 officers -- you and Mr Coyle -- in gathering data from 8 other people. What was the mechanism for producing 9 a report? Did junior officers draft sections of the 10 reports so ultimately there would be a draft report that 11 would go to the respective director? 12 A. Sometimes. It very much depends on the issue. But in 13 general terms the director will not sit down and draft 14 a report themselves. A more junior officer who is 15 usually -- who is more familiar with what is going on 16 will usually write a report based on a brief which has 17 been given to them by whichever relevant Head of Service 18 or Director or Chief Exec to come up with to say: this 19 is what I want the Council report to say. Quite often 20 they will put stuff in square brackets to say: do you 21 want this detail added, how long do you want it? You 22 try to provide a balance between overloading members 23 with information and making sure that they are 24 informed -- or relevant information in a pithy way, but 25 ultimately it is down to individual directors to sign 141 1 off on the reports. They are quite often aware of more 2 information, so in this particular instance, for 3 example, Dave and Donald may be aware of information 4 from the Tram Project Board that the rest of us did not 5 have, so they may be able to input from that 6 perspective. 7 So quite often, particularly with a project of this 8 complexity where it is crossing numerous departments, 9 a more junior officer will collate all the comments and 10 will then provide it back to the Head of Service to sign 11 off, who will then pass it on to the Director. So it 12 may be that, for example, in this regard the Tram 13 Monitoring Officer had a role in saying: yes, this is 14 where we are; and handing it to the directors for final 15 approval. 16 CHAIR OF THE INQUIRY: By putting contact names of yourself 17 and Mr Coyle for members, that might suggest that you 18 and he had a significant role in drafting the report. 19 I appreciate these are the reports of the director who 20 have to accept ultimate responsibility for them -- 21 A. Yes. 22 CHAIR OF THE INQUIRY: -- and no doubt could change them if 23 they wanted, but all I'm trying to establish is whether 24 there was a practice where the names appear on the 25 report that these would be the officers who were 142 1 involved in preparing the draft. 2 A. It may well have been in that case. There is no set 3 rule for which -- in this particular case, it may have 4 been that it was decided that both Alan and I were the 5 best people to be able to answer queries in relation to 6 the Board or it may have been that we drafted 7 significant chunks of it. I can't honestly recall. 8 I can look back, but -- yes. 9 CHAIR OF THE INQUIRY: Thank you. 10 I think, Mr Dunlop, you said you have a couple of 11 questions that you think you will be 10 or 15 minutes? 12 MR DUNLOP QC: Indeed, if your Lordship is minded, we will 13 welcome the opportunity. 14 MR MARTIN QC: My Lord, just before my learned friend asks 15 his questions, a matter has arisen following the lunch 16 adjournment, a pure matter of clarification that I would 17 like to have the opportunity to put to the witness. 18 I don't mind my learned friend going before me. I only 19 have two or three questions, but there is one matter of 20 clarification which I can explain if my Lord would wish 21 me to do so. 22 CHAIR OF THE INQUIRY: No, I'm quite happy. I think it 23 might be better to have the clarification in case it 24 answers your questions, Mr Dunlop. 25 MR MARTIN QC: Much obliged, my Lord. 143 1 Examination by MR MARTIN 2 MR MARTIN: Mr Smith, could we look again at the Final 3 Business Case CEC01395434? 4 Page 90, please. 5 You were asked about this diagram which comes within 6 section 6 under the heading of "Governance" and 7 "Governance structure". I think you expressed a view 8 about the absence of tie from the diagram. Do you 9 recall that? 10 A. Yes. 11 Q. In fairness, could you look back or could we be taken 12 back, please, to page 73? I'm sorry, I beg your pardon, 13 page 84. 14 You were asked a number of questions about 15 paragraphs beginning with paragraph 6.2 and thereafter. 16 But you were not asked about paragraph 6.1. I should 17 say, my Lord, this was a matter which arose last week 18 too. 19 Could you just look at paragraph 6.1? Does that 20 assist in any way in understanding where tie fits within 21 the structures that we're talking about? And indeed the 22 governance overall? 23 A. Yes, it does. 24 Q. How is that? 25 A. Because it sets out that tie is the delivery agent for 144 1 the tram, as specified by its client, the Council, 2 acting through TEL. So that was the proposal under the 3 Operating Agreement. 4 Q. Does that cause you to reconsider to any extent your 5 surprise that tie does not appear to the diagram on 6 page 90? 7 A. I think it would have been helpful if tie did appear on 8 the diagram on page 90, but, yes, it does assist. 9 MR MARTIN: Thank you. I should just say for my Lord's 10 note, the same position arises in relation to the Draft 11 Final Business Case. I don't need to take the Inquiry 12 to it. The number can be given, it is again 13 paragraph 6.1. Thank you very much, my Lord. 14 CHAIR OF THE INQUIRY: Thank you. Mr Dunlop? 15 Examination by MR DUNLOP QC 16 MR DUNLOP QC: I am obliged, my Lord. 17 Mr Smith, you indicated yesterday in the course of 18 your evidence that if you were faced now, as Head of 19 Legal, with the situation that pertained in 2007 and 20 2008, you as Head of Legal would have wanted independent 21 legal advice? 22 A. In this particular circumstance? Yes, I think. 23 Q. Do you accept that it is common commercial practice for 24 solicitors who are involved in negotiating the terms of 25 a contract to remain involved in the event of a dispute 145 1 as to what that contract means? 2 A. I think I referred to that earlier. Yes, I do. 3 Q. Ultimately, any contract is construed against its 4 factual matrix, and the solicitor who is involved in 5 negotiating the contract is probably familiar with it? 6 A. I would agree. I think there is a judgment call for the 7 instructing party to take at what point to seek an 8 independent legal review. But I would agree with the 9 premise of your question. 10 Q. Oftentimes, there will be very good reasons for 11 retaining a solicitor intimately familiar with the 12 background to the inception of the contract? 13 A. I don't disagree with that either. 14 Q. Just to be clear, in negotiating this contract, DLA were 15 representing and advising tie? 16 A. Yes. Although as I think it was pointed out to me 17 yesterday, the Council was a joint client. 18 Q. Yes. Which firm was representing and advising Bilfinger 19 Berger? 20 A. Pinsent Masons. 21 Q. Pinsent Masons continued to act in the subsequent 22 disputes with DLA throughout the adjudications, didn't 23 they? 24 A. It was originally McGrigors up until the merger. 25 Q. Are you sure about that? 146 1 A. Sorry, can you repeat the question. 2 Q. Pinsent Masons acted for Bilfinger Berger in negotiating 3 the contract? 4 A. Yes. 5 Q. And Pinsent Masons acted for Bilfinger Berger, or the 6 consortium, in the disputes, the adjudications, that 7 arose during the contract, yes? 8 A. I can't recall, but yes. 9 Q. And Pinsent Masons indeed remain instructed today to 10 look after the interests of Bilfinger Berger? 11 A. Yes, I believe so. 12 Q. Throughout all of that, there will have been dispute as 13 to what the contract meant, yes? 14 A. Yes. 15 Q. When tie sought advice from a different firm, other than 16 DLA, which firm did they go to? 17 A. McGrigors, I believe. 18 Q. Yes. McGrigors, following a merger, are now one and the 19 same as Pinsent Masons, is that right? 20 A. Agreed. 21 Q. And McGrigors were involved in acting for tie in the 22 adjudications or some of the adjudications? 23 A. Some of them, yes. 24 Q. Yes. Which particular solicitor at McGrigors? 25 A. I can't honestly recall. 147 1 Q. I suggest it was Brandon Nolan. Would that be right? 2 A. I wouldn't disagree with that. 3 Q. And he's now a partner at Pinsent Masons following the 4 merger? 5 A. That is correct. 6 Q. When you as Head of Legal came to decide which firm of 7 solicitors should represent the interest of the Council 8 at this Inquiry, which firm of solicitors did you 9 instruct? 10 A. Pinsent Masons. 11 Q. And which solicitor in particular? 12 A. Brandon Nolan. Actually, to be fair, that was not my 13 decision, I would say. This decision predates me. 14 Q. Mr Nolan, of course, has an intimate knowledge of the 15 background to all of this? 16 A. Yes, he does. 17 Q. I'm right in understanding, am I, that the Council has 18 raised legal proceedings against DLA? 19 A. That's correct. 20 Q. Which firm in particular, which solicitor, signed the 21 summons in that matter? 22 A. I couldn't honestly say. Again, that predates my 23 position as Head of Legal. 24 Q. I suggest it was Mr Nolan. Would you disagree? 25 A. I would not disagree with that. 148 1 Q. tie are now called CEC Recovery Limited, is that right? 2 A. That is correct. 3 Q. Still wholly owned by the council? 4 A. Yes. 5 Q. Presumably at the direction of the Council, tie, under 6 that new name, has raised itself legal proceedings 7 against DLA? 8 A. Yes, I believe so. 9 Q. With a summons signed and signeted by Brandon Nolan, of 10 Pinsent Masons? 11 A. That may well be the case. We also have additional 12 solicitors acting for tie. 13 Q. And the City of Edinburgh Council has itself raised 14 proceedings against the company formerly known as tie, 15 is that correct? 16 A. Yes. 17 Q. By way of an action -- a summons -- signed and signeted 18 by Brandon Nolan of Pinsent Masons, yes? 19 A. Yes, I cannot remember which of these three is still 20 extant. 21 Q. All involving a solicitor intimately familiar with the 22 background to this dispute and hence why he has been 23 retained by you in this dispute? 24 A. Yes. 25 Q. Thank you. 149 1 We move to a second point, please, Mr Smith. If we 2 go to your statement, please, at TRI00000071? I'm 3 looking, please, for page 54. 4 Mr Smith, do you agree with me that at various 5 stages in your statement, you seek to disavow any 6 knowledge prior to financial close of things like 7 notified departures? 8 A. I don't recall having knowledge that notified departures 9 were expected at the time of financial close. 10 Q. So if we look, please, to question 56, do we see that 11 there is a reference to an email of 20 April 2008 and 12 then the bullet point, the first bullet point, says 13 "Price": 14 "A number of core pricing and programming 15 assumptions have been agreed as the basis for the 16 Contract Price. If these do not hold, Infraco is 17 entitled to a price and programme variation known as 18 'Notified Departure'." 19 Yes? 20 A. Yes, I see that. 21 Q. Do we see then your response if we can highlight (a) and 22 (b). At (a) you say: 23 "I was not involved in reviewing this documentation 24 or advising on this aspect of the project so am unable 25 to provide any clarification." 150 1 At (b) you say: 2 "As I did not review this documentation, I do not 3 believe that I was aware that there would be notified 4 departures. I was not advising on this matter so am 5 unable to provide any clarification in this regard." 6 Does that remain your evidence to his Lordship? 7 A. Yes, it does. I'm trying to find it, but somewhere the 8 notes to the Inquiry, up from what I said, was that we 9 were receiving multiple emails and where emails came to 10 me that involved aspects that I was not advising on, 11 I may have read them or I may have not read them. So 12 I can't confirm whether I did or did not, but my 13 recollection is I was not aware of Notified Departures. 14 Q. That's not quite the same as what we are looking at 15 here, Mr Smith. Are you saying that you did not review 16 this documentation, or are you saying that you cannot 17 recall whether you reviewed this documentation? 18 A. I definitely did not review the documentation. I can't 19 recall whether I read the email that was attached to it 20 in any detail. 21 Q. Okay. If we can just explore that a little, please, if 22 we have on screen CEC01312358. If we look at the top 23 this is an email sent by Mr Bissett of tie to a number 24 of people. We see it was sent to Gill Lindsay and sent 25 to Colin MacKenzie and it was sent to you, yes? 151 1 A. Yes. 2 Q. We see a number of attachments there. Do we see that if 3 we look down to the body of the text: 4 "Colleagues, I attach an update to the suite of 5 internal reports ... these comprise ..." 6 At number 2: 7 "DLA letter effective today, which updates DLA views 8 on Infraco contract suite and related matters." 9 A. Yes. 10 Q. So that email was sent to you, yes? 11 A. Yes, I believe so. 12 Q. You will have considered the attachments to it? 13 A. I can't recall whether I did or not. Certainly I wasn't 14 reviewing the DLA letters. 15 Q. This is why I am confused, Mr Smith. Are you saying 16 that you did not review it, or are you saying that you 17 cannot recall whether you reviewed it? 18 A. Sorry, I did not review those documents. I -- yes. 19 Q. Are you sure about that, Mr Smith? 20 A. I don't -- so, can you please confirm exactly which 21 documents you are referring to? 22 Q. Well, the attachments and in particular the DLA letter 23 which is mentioned in point 2 in the body of the text, 24 the DLA letter effective today which updates DLA views. 25 A. I cannot recall -- sorry, I cannot recall reviewing 152 1 those letters. 2 Q. Again, can we have some clarity. You say in your 3 statement you didn't review. You say now you can't 4 recall. Which is it? 5 A. I don't recall reviewing. So my position was I was not 6 involved in reviewing the DLA letters generally, because 7 I didn't believe they gave the Council sufficient 8 comfort. I don't recall reviewing them in any detail. 9 Q. If you didn't review them, how could you be of the view 10 that they did not give sufficient comfort? 11 A. Because they were not independent enough. 12 Q. So you were able to say that there was insufficient 13 comfort in letters that you had not reviewed? 14 A. There was insufficient comfort for me. No matter what 15 those DLA letters said, there was insufficient comfort 16 for me. Because the view that I took was that 17 independence was required. 18 Q. So when you say there was insufficient comfort in these 19 letters, you are not talking about the content at all? 20 Merely about the fact that DLA had been involved in 21 negotiating the contract? 22 A. Largely, yes. There was insufficient, um, comfort for 23 me that these provided the Council with sufficient 24 comfort. 25 Q. I'm not clear as to what you mean by "largely", 153 1 Mr Smith. Are you saying that you didn't review these 2 letters at all, or are you not? 3 A. I can't recall whether I reviewed them. I may have 4 opened them and read one line, I can't honestly 5 remember. But my position is I wasn't reviewing those 6 letters as a principle. 7 Q. This was a big deal for the Council, Mr Smith. 8 A. Yes, it was, it was a huge deal for the Council. 9 Q. You are in a select group who are being sent some very 10 important documents just before financial close. Yes? 11 A. That's correct. 12 Q. Are you honestly telling this Inquiry you didn't read 13 any of the attachments? 14 A. I wasn't reading the attachments that I had said I was 15 not going to be involved with. So I was not reading the 16 contract terms, I was not reading the risk matrices, 17 I was not involved with the DLA letters or the tie 18 reports on the contract Infraco suite, no. 19 CHAIR OF THE INQUIRY: Can I just be quite clear what you 20 say, are you saying that different officials were 21 involved in different aspects of the matter? 22 A. These letters -- forgive me, I don't know who they are 23 copied into, the full suite -- 24 CHAIR OF THE INQUIRY: Before you go on to the letters, are 25 you saying that within the team of people in 154 1 Edinburgh -- 2 A. Yes. 3 CHAIR OF THE INQUIRY: -- some members have responsibility 4 for risk matrices? 5 A. So yes, I mean fundamentally the position would have 6 been that people may have reviewed these documents and 7 fed in from their perspective. 8 So for example if there was something to do with, 9 I don't know, consents, I might have expected someone in 10 City Development to pick that up. If there was 11 something on the DLA letters, I think it was followed up 12 in the emails where there was reports on the -- the 13 email we looked at earlier with information in blue on 14 it, I think bits had been highlighted in relation to 15 Infraco close and comments were being sought. 16 So different people would look at different aspects. 17 My position was -- and had been set out from the very 18 start -- that I was not going to be reviewing the 19 contract or the -- and the associated terms because 20 I didn't feel I was qualified to do so. And that 21 included this documentation. 22 CHAIR OF THE INQUIRY: This is back to the point that you 23 wanted an independent view about the contract? 24 A. Yes, absolutely. And rightly or wrongly, I took that 25 view, and I didn't want to give people a false 155 1 impression that these documents had been reviewed by 2 someone in legal, because I think people can take 3 assumptions that just because you are a solicitor, you 4 are a solicitor qualified to take views on some of the 5 issues set out in those documents. 6 CHAIR OF THE INQUIRY: Thank you. 7 MR DUNLOP QC: My Lord, still on the screen, the penultimate 8 paragraph, as we look at it, the sender is asking for 9 comment on all of these documents for completion, and 10 asking that of all of the recipients. Do we find 11 anywhere an email from you saying: I told you before, 12 I'm not doing this. 13 A. No. But I believe Colin MacKenzie was dealing with some 14 of the issues with regards to this, and I don't think it 15 would have been appropriate for me to email everyone. 16 I don't think I ever told tie or DLA that I was not 17 reviewing that contract documentation. That was 18 a Council internal matter. And if the Council solicitor 19 was not happy with that, she could have taken me off the 20 project or taken other action. 21 Q. Just to be absolutely clear, I'm sorry for pressing you 22 on this, Mr Smith. What is your evidence to this 23 Inquiry as to what you did with the attachments here, 24 including, for example, the DLA advice letter? Did you 25 open them and read them or did you not? 156 1 A. I can't recall. 2 Q. Thank you. 3 If you look, please, to document CEC01246045, we 4 looked at this earlier. You were taken to it by my 5 learned friend. This is an email from Mr MacKenzie but 6 signed off from both of you and copied to you, is that 7 right. 8 A. That's correct. 9 Q. Opening paragraph: 10 "Further to the meeting this morning, Nick and 11 I have considered the DLA letters dated 12 March, 18 12 March and 28 April. You sought our views on this 13 correspondence." 14 A. That's correct. 15 Q. Do you want to review what you have been saying in the 16 light of that? 17 A. No, I don't. Because Colin and I would have met. Our 18 views on the worth of the DLA letters had been well 19 trailed, so regardless of the information within those 20 letters, our position still remained that this did not 21 provide the relevant comfort. 22 Q. No, I'm asking you, Mr Smith -- as I am sure you must 23 understand -- whether or not you want to revise what you 24 have been saying about whether or not you reviewed the 25 letters that were sent to you in that email that we just 157 1 looked at of 28 April? 2 A. Can I just be very clear that what you are saying is 3 because that first line says that "Nick and I have 4 considered ...", your assumption is that I must have 5 therefore read them? 6 Q. I'm asking you, Mr Smith, what your evidence is in light 7 of that paragraph? 8 A. My evidence is what I said it was before: I was not 9 considering the DLA letters. I cannot remember whether 10 I opened that email and reviewed those letters, but it 11 is -- potentially I don't think that cuts across my 12 position which was I'm really not bothered what's in 13 those letters, they cannot give me sufficient comfort. 14 Q. Mr Smith, are you asking this Inquiry to read that 15 paragraph, which has been copied to you, sent by 16 Mr Mackenzie, signed off on behalf of both of you, and 17 understand that in fact you did not read the letter of 18 28 April? 19 A. My position remains the same: I cannot recall whether 20 I read that letter of 28 April, but fundamentally it 21 could never have given me sufficient comfort. 22 CHAIR OF THE INQUIRY: Mr Dunlop, perhaps you could leave it 23 to me to interpret the document in its entirety. The 24 second paragraph might support what the witness is 25 saying. 158 1 MR DUNLOP QC: I'm going on to that if I may, my Lord, to 2 the second paragraph. 3 CHAIR OF THE INQUIRY: I'm just wondering how much this is 4 assisting the Inquiry. 5 MR DUNLOP QC: Well, if your Lordship would bear with me for 6 five more minutes. 7 CHAIR OF THE INQUIRY: Very well. 8 MR DUNLOP QC: In particular, Mr Smith, I'm interested -- if 9 you go to the second paragraph of that letter, where we 10 see the last four lines: 11 "The most recent letter dated 28 April does little 12 to remove doubts and uncertainties. Specifically that 13 letter appears to give no comfort on the risk profile 14 and acceptability in relation to the market norm. The 15 lengthy letter also narrates matters which appear to us 16 to be risky for the Council and are not fully covered by 17 the QRA." 18 Now do you agree with me that suggests you must have 19 read the letter? 20 A. I agree with you, you can interpret it like that. But 21 it also was an email sent from Colin MacKenzie that 22 I may have just agreed that, yes, in broad terms I am 23 happy with that; if you have reviewed those letters, 24 Colin, and that's your view, that is absolutely fine, 25 I agree with that. 159 1 Q. When the letter talks about matters which are risky for 2 the Council, they are notified departures, aren't they? 3 A. I can't honestly recall. There would have been lots of 4 matters dealt with in those risk allocation matrices and 5 letters et cetera, so I don't think it would be limited 6 to notified departures. 7 Q. If you look, please, at the DLA advice letter 8 CEC01312368? 9 CHAIR OF THE INQUIRY: Mr Dunlop, are you leaving this 10 letter? 11 MR DUNLOP QC: I am, my Lord. 12 CHAIR OF THE INQUIRY: You didn't mention the start of the 13 paragraph which seemed to confirm what the witness had 14 been saying about the attitude towards the independence 15 of DLA. Do you not think that is significant? 16 MR DUNLOP QC: My Lord, I'm more wondering whether or not 17 witness read the letter. If your Lordship wants me to 18 take the witness back to the letter, I'm quite happy to 19 do so. 20 CHAIR OF THE INQUIRY: No, I'm just questioning how much 21 value this is. One has to look at the document in its 22 entirety and I will do that. 23 MR DUNLOP QC: Yes. In that regard, my Lord, if I can ask 24 that the witness direct his attention to the letter of 25 28 April, which is now on screen, and page 3 of that 160 1 letter -- obviously this needs to be looked at in its 2 entirety as well, Mr Smith -- but page 3, you see at 3 heading 5 "Risk"? 4 A. Yes. 5 Q. If we could highlight that paragraph please or those two 6 paragraphs: 7 "Following on from our letter of 12 March, we would 8 observe that delay caused by SDS design production and 9 ... consenting process has resulted in BBS requiring 10 contractual protection and a set of assumptions 11 surrounding programme and pricing. 12 tie are prepared for the BBS request for an 13 immediate contractual variation to accommodate a new 14 construction programme needed as a consequence of the 15 SDS consents programme which will eventuate, as well as 16 for the management of contractual notified departures 17 when (and if) any of the programme related pricing 18 assumptions fall." 19 Or fail. Do you see that? 20 A. Yes. 21 Q. So when the letter, the email we have just been looking 22 at, when it talks about matters that are risky for the 23 Council disclosed on the 28 April 2008 report from DLA, 24 this is what it is talking about, isn't it? 25 A. Well, that is under the title "Risk", but I can't 161 1 confirm what is in the rest of the letter. 2 Q. It is talking about notified departures? 3 A. It talks about the management of the contractual 4 notified departures. 5 Q. The reason I ask this, Mr Smith, is you have in your 6 statement disavowed any prior knowledge of notified 7 departures? 8 A. I don't recall any. 9 Q. Do you accept if you read this letter you knew about 10 notified departures? 11 A. No, I think what it says is as well as for the 12 management of contractual notified departures. It 13 doesn't say to my reading that a notified departure will 14 exist. 15 Q. "tie are prepared for BBS to request for an immediate 16 contractual variation ... which will eventuate..." 17 Yes? 18 A. "which will eventuate", as well as for the management of 19 contractual notified departures. 20 Q. Okay. Finally, Mr Smith, you have been at pains to 21 disassociate yourself from any attempts to withhold 22 information from elected members. 23 Are you aware of concerns voiced by councillors who 24 have already given evidence to the Inquiry that they 25 were not being given the full picture? 162 1 A. I'm aware now that councillors have said that they were 2 not given information. I genuinely cannot remember ever 3 meeting a councillor, in a professional capacity, prior 4 to 2010. I may be wrong in that. But I certainly 5 remember a conversation in 2009 with a colleague where 6 I didn't actually know how to address a councillor, 7 whether it was by first name or -- I had to call them 8 Councillor, so I wasn't involved with the councillor 9 briefings so I don't know what they were or were not 10 told, I am afraid. 11 Q. If we go back, please, to another document we looked at 12 in your evidence, CEC00242585. 13 This is the email from you to David Anderson and 14 others. Top of the page, we see you had a long 15 discussion with Councillor Mackenzie re this this 16 morning "during which I gave away very little". 17 A. Yes. 18 Q. And you suggest that in order to understand this 19 properly, we need to add in the word "ground, "gave away 20 very little ground"? 21 A. That is my original reading of it. But I may be wrong 22 in that. 23 Q. Why would you be giving ground to a councillor? 24 A. Because my belief at the time was this related to him 25 wanting to put -- can I see the bottom of that email, 163 1 please? So at the very bottom: 2 "As discussed in my view release of any DRP detail 3 [blah blah blah] into the public domain could prejudice 4 CEC ..." 5 So my clear view, I think, from discussions prior to 6 that, was we should not be releasing it into the public 7 domain. From memory the discussion with 8 Councillor MacKenzie was that he was suggesting that it 9 would be helpful if we did release this into the public 10 domain to show that the Council was winning. That's why 11 I think I gave away very little ground. 12 Q. If you go back up to the email at the top, you gave 13 away very little: 14 "However, he wanted my take on tie's DRP summary 15 which I will forward also for your info. My view is set 16 out below. He is clearly concerned the public will want 17 to see the full picture ... DRPs. I advised we should 18 resist this even though it may be politically 19 difficult." 20 When you see the words "However, he wanted my take 21 on tie's DRP summary which I will forward also for your 22 info", is that not suggesting that it is actually 23 correctly phrased when you say you gave away very 24 little? 25 A. I can't -- I would accept that. 164 1 MR DUNLOP QC: Thank you. 2 My Lord, I'm obliged. 3 CHAIR OF THE INQUIRY: Mr Fairley, I think. 4 MR FAIRLEY: My Lord, there is one matter I have which 5 arises from the comment "finely balanced". I will be no 6 longer than my learned friend Mr Martin was. 7 CHAIR OF THE INQUIRY: I think you did give notice. 8 MR FAIRLEY: Not perhaps on this specific point, but it is 9 around that general area, my Lord. 10 CHAIR OF THE INQUIRY: Very well. 11 Examination by MR FAIRLEY 12 MR FAIRLEY: Mr Smith, you were asked some questions by 13 Learned Counsel to the Inquiry towards the very end of 14 his questioning about the briefing to the Council of 15 24 June 2010. I wonder if we could just look at that 16 again very briefly. It is CEC02083184. 17 We see, I think, that is the City of Edinburgh 18 Council update report dated 24 June 2010. Do you see 19 that? 20 A. Yes. 21 Q. You were asked -- I think it must be on the second page 22 of that document -- about the passage at 2.6. In 23 particular, I think it was suggested to you that the 24 expression "finely balanced" had been used, although 25 I see it doesn't seem to have been used in that 165 1 particular passage. But do you remember being referred 2 to -- 3 A. Yes, I do. 4 Q. -- the expression "finely balanced"? 5 A. Yes. 6 Q. You were asked as at 24 June 2010 whether it was your 7 view that the adjudications were finely balanced? 8 A. Yes. 9 Q. I think if I understood your answer correctly, you said 10 that you didn't really remember whether that was your 11 view, but that any view you had would have been based on 12 information that you had been given by tie and its legal 13 advisers? 14 A. I -- yes, I think that's correct. That's my memory. 15 But ... 16 Q. Can I ask you just to look back at one other document in 17 that regard, please? Can you look at CEC00242585? This 18 is the email that you were referred to just a moment ago 19 by counsel for DLA. 20 A. Yes. 21 Q. We see there that at the foot of that page -- this is 22 an email from you to Councillor Mackenzie dated 17 23 June -- 24 A. Yes. 25 Q. -- 2010. So that is approximately -- well, it is 166 1 exactly a week before the report to Council that we just 2 looked at. 3 A. I think so -- 4 Q. Do you see that? 5 A. Yes. 6 Q. What you record there is that you have reviewed the 7 short summary adjudication outcomes "which I have 8 reviewed in detail", and you confirm that the summary is 9 broadly accurate; do you see that? 10 A. Yes. 11 Q. You confirm having reviewed the actual adjudication 12 decisions in detail in order to be able to reach the 13 conclusion that the summary was broadly accurate? 14 A. Yes, I accept I must have done that at the time, yes. 15 Q. So when you said earlier that any impression you may 16 have had about the accuracy of the expression "finely 17 balanced" would have come from tie and its legal 18 advisers, you had also yourself personally reviewed the 19 adjudication decisions in detail, is that right? 20 A. Reading that, I can't disagree with that. 21 MR FAIRLEY: Thank you. 22 CHAIR OF THE INQUIRY: Thank you very much. 23 Mr Smith, you are free to go. You are still under 24 citation so you may be recalled but I hope that is not 25 necessary. 167 1 A. Thank you. 2 CHAIR OF THE INQUIRY: We will adjourn now until 3.30 for 3 two reasons. One to give the shorthand writers a break, 4 but also to enable a change around here because 5 Mr McClelland will be taking the next witness. 6 I should indicate that the next witness will not 7 finish today so that -- because of his other 8 commitments, we will sit a week tomorrow. That is on 9 Friday. A week on Friday, to finish his evidence. So 10 that will not interfere with the programme which is 11 scheduled for next week. So that the witnesses shown in 12 the timetable will be taken and Mr Coyle will come back 13 a week on Friday. 14 (3.13 pm) 15 (A short break) 16 (3.30 pm) 21 MR NICK SMITH (continued) ............................1 22 Examination by MR MACKENZIE ..................1 23 Questions by CHAIR OF THE INQUIRY ...........141 24 Examination by MR MARTIN ....................144 25 Examination by MR DUNLOP QC .................145 205 1 Examination by MR FAIRLEY ...................165 2 MR ALAN COYLE (sworn) ..............................168 3 Examination by MR MCCLELLAND ................168 4 Questions by CHAIR OF THE INQUIRY ...........204 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 206