1 Friday, 22 September 2017 2 (9.30 am) 3 MR ALAN COYLE (resumed) 4 CHAIR OF THE INQUIRY: Good morning. Mr Coyle, you're still 5 under oath. I understand that you are going to ask 6 a few questions first, Mr Mackenzie. 7 Examination by MR MACKENZIE 8 MR MACKENZIE: Yes, please, my Lord. 9 Good morning, Mr Coyle. 10 A. Good morning. 11 Q. I would like to ask you, if I may, about two matters 12 around about the time of Infraco financial close in 13 2008, before I'll then pass over the questions for the 14 remainder of the day to my learned friend, 15 Mr McClelland. 16 If I can ask you firstly, please, about a document 17 that will come up on the screen. It is CEC01249269. 18 I think actually I should start with an earlier 19 document, which is CEC01245223, and we can see the 20 bottom half of the page, an email from Stewart McGarrity 21 of tie, sent to yourself, Mr Coyle, copied into 22 Andy Conway and Rebecca Andrew. In short we can see 23 Mr McGarrity attached two files. Firstly, a cost 24 analysis spreadsheet and secondly, part 4 of the 25 Schedule of the Infraco contract re pricing, and 1 1 Mr McGarrity explained: 2 "Since this where the numbers go, it is where all 3 the last minute tweaking happens. So there are still 4 a couple of things to be incorporated which are being 5 discussed and agreed today." 6 Then if we can go to the email above that, please, 7 it's an email from yourself forwarding these attachments 8 to Colin MacKenzie, Gill Lindsay, Steve Sladdin and 9 Nick Smith. 10 Do you remember receiving this email from 11 Mr McGarrity? 12 A. I can't remember at this point receiving it, but clearly 13 I did receive it. So yes. 14 Q. Do you remember whether you looked at the draft 15 Schedule 4 around this time? 16 A. I can't remember if I looked at it at that point in time 17 with regards to Schedule 4. I would have looked at the 18 financial analysis spreadsheet for sure. 19 Q. I understand. I want to ask -- 20 CHAIR OF THE INQUIRY: Why wouldn't you look at Schedule 4? 21 Did it not relate to pricing or contents of the email? 22 A. Could we have a look at Schedule 4? 23 MR MACKENZIE: Indeed. It is reference number CEC01245224. 24 If we just go to the next page, please, to let you 25 cast an eye over it, and over the page again. I'll give 2 1 you a minute just to read that, Mr Coyle? 2 A. Yes, I would have looked at this document. 3 Q. You would have read it? 4 A. Yes, but I would have passed it on to legal colleagues 5 who would have been in a better position to interpret 6 the document. 7 Q. When you read the document, do you remember forming any 8 views on it? 9 A. I can't recall. 10 Q. In short, is this a matter, given it's part of 11 a contract you forwarded on to legal colleagues for them 12 to deal with? 13 A. That's correct. 14 Q. I understand. I'll leave that. And go on, please, to 15 the second matter I would like to ask you about. 16 This is in relation to the question of deliverables 17 for contract award. Now, we heard earlier from, 18 I think, Mr Fraser and Rebecca Andrew that the Council 19 produced a list of deliverables for tie to produce to 20 the Council in order that the Chief Executive could 21 authorise tie to enter into Infraco contract. 22 Do you remember that? 23 A. Yes. 24 Q. The Infraco contract was entered into on 14 and 25 15 May 2008. 3 1 I would like now to go to another document, 2 CEC01249269. This is an email from yourself, Mr Coyle, 3 dated 21 May 2008 to Colin MacKenzie and other 4 colleagues within CEC. You say: 5 "Please find attached ..." 6 Sorry, the attachments. We see the subject of 7 attachments are both contract approvals, provision 17, 8 Excel spreadsheet. The text says: 9 "Please find attached the latest matrix. We have 10 highlighted issues requiring documentary evidence in 11 yellow under the heading "CEC deliverables -- supporting 12 documentation required". Where there is reference to 13 CEC legal, Colin, can you endeavour to get the relevant 14 signed documents to me/Andy." 15 To pause there -- sorry? 16 CHAIR OF THE INQUIRY: I didn't say -- someone coughed. 17 MR MACKENZIE: Yes. So to pause there, Mr Coyle, do you 18 remember whether all of the required deliverables were 19 obtained by the Council before contract close? 20 A. I can't remember. 21 Q. If we could then go to the spreadsheet attached to this 22 email, please, and the reference number is CEC01249270. 23 It's a little hard to display the spreadsheets to see 24 the whole page, but I think if we go to the top 25 left-hand corner, we can see this spreadsheet is headed, 4 1 "Critical Contractual Decisions to enable 2 Chief Executive to use delegated powers to approve tie 3 to sign the contract with BBS". 4 So this appears to be the spreadsheet setting out 5 the deliverables the Council required from tie to enable 6 the Chief Executive to approve tie signing the contract; 7 was that correct? 8 A. Yes, that's correct. 9 Q. We see there are various items. For example, item 1 is 10 said to be the contract, and we can see in the red in 11 the top two boxes, 1.1, novation agreement ready to be 12 signed off, CAF, and then if we -- under the green 13 column, we can see "status", and various things are set 14 out there. 15 Then if we could scroll further to the right, 16 please, we can see under the column Q in yellow: 17 "Obtain copy of Novation agreement." 18 In your accompanying email, you will remember you 19 said you'd highlighted issues requiring documentary 20 evidence in yellow. Do you remember that? 21 A. Yes. 22 Q. So on the face of it, from this spreadsheet, it would 23 appear that that was one deliverable that was still 24 outstanding; is that correct? 25 A. On the face of it, yes. 5 1 Q. Then in the row below that, in red, we see: 2 "Novation agreement ready to be signed off SDS." 3 We see in the far right in yellow: 4 "Obtain copy of novation agreement." 5 So on the face of it, that was another outstanding 6 deliverable contract award; is that correct? 7 A. That was correct, yes. 8 Q. Then we also see, under item 1.5, a few rows down: 9 "DLA supportive letter with risk matrices." 10 Then scroll to the right again. It states: 11 "Obtain final copy of matrix." 12 Now, to pause there, the Inquiry is aware that DLA, 13 by letter, I think, dated 12 May 2008, did produce an 14 updated risk allocation matrix dated 12 May 2008. I'll 15 give the reference just for the record. It's 16 CEC01222439. 17 So in respect of this deliverable, I wonder whether 18 it really was outstanding, or whether it had been 19 delivered by the risk allocation matrix dated 20 12 May 2008. 21 Do you have any recollection of that matter? 22 A. Can you remind me the date on which the contract was 23 signed? 24 Q. Yes, on 14 and 15 May 2008? 25 A. So for me there's still a possibility that that would 6 1 not have been the final version. 2 Q. Were you dealing with this matter, or were your legal 3 team dealing with this matter? 4 A. The legal team were dealing with this matter. 5 Q. So I can explore that with them? 6 A. Yes. 7 CHAIR OF THE INQUIRY: Did you have anything to do with 8 this? 9 A. It was a legal matrix. It set out -- from recollection, 10 it set out a schedule of what was private sector risk 11 versus what was public sector risk, and a number of 12 clauses within the document. And whilst I did look at 13 that, that's not clearly my area of expertise. So that 14 would have been one that the legal team would have 15 provided more work on. 16 MR MACKENZIE: If we could scroll down the screen, please, 17 and pause, now, under item 2.3: 18 "MUDFA -- risks related to Infraco". 19 Then in yellow, at the right of the screen, we see: 20 "Obtain update to QRA". 21 That must be the quantified risk assessment; is that 22 correct? 23 A. Yes, that's correct. 24 Q. Do you remember whether the Council had an updated QRA 25 just before contract close? 7 1 A. I can't remember if there was a subsequent copy that 2 came through between, you know, the copy that we have 3 there and which was dated, what, 10 April, versus the 4 final version. I can't remember if there was 5 a subsequent copy or not. I'm just looking at the file 6 reference under column A. It would suggest that that 7 version was dated 10 April 2008. 8 Q. I understand. Might that be a reference back to 9 Mr McGarrity's email we started with, and the costs 10 analysis spreadsheet attached there? You're nodding 11 your head? 12 A. No, no, what I'm saying is under 2.3, there's a schedule 13 with a link under column P. So P17, QRA Transparency 14 and Challenges\Financial Analysis Spreadsheet. Yes, 15 100408, yes. 16 Q. So does that suggest that the copy of the QRA at the 17 time of this spreadsheet is the one dated 10 April 2008? 18 A. Yes -- yes, that would suggest that. 19 Q. I understand. Then if we scroll down a little more, 20 please, and pause perhaps there, and in item 5.1 in the 21 red column, we see: 22 "Full transparency of QRA." 23 Then in the green column, we see in red text: 24 "Further QRA required following changes to Risk 25 Profile at financial close." 8 1 Then we see again the yellow column: 2 "Obtain update to QRA". 3 Is that perhaps back to the same issue we've just 4 talked about? 5 A. Yes. 6 Q. That the Council appeared to have the QRA as at 7 10 April 2008? 8 A. It appears to be the case, yes. 9 Q. Then, please, we see again, still in the yellow -- the 10 red columns, under 5.2, the reference to black flag 11 risks, and then below that, under subparagraph (c), in 12 the red column: 13 "Detailed analysis of programme risk. Confirmation 14 of the risk allowance for programme delay. Detail of 15 items on critical path and what is being done to ensure 16 they do not cause (further) delay." 17 In short, we go to the right -- far right, we see 18 again yellow: 19 "Obtain update to QRA." 20 Similarly in relation to items 5.3 and 5.4 in the 21 red column, and under 5.4 it states: 22 "Risk Register needs to be updated to include the 23 potential risks and knock on effects of prior and 24 technical approvals not having been obtained prior to 25 Financial Close. This is linked to 5.2." 9 1 In the -- we then see, towards the right, yellow. 2 What is slightly unfortunate is that the print-out 3 I've got has got an extra column. It must be, I think, 4 between N and P. I'm not sure it's possible to open up 5 the missing column O. 6 If we can't do that, we will ensure that's 7 rectified. 8 So this is the only version we have for today, but 9 we'll ensure the missing column version is put in later. 10 But in short, there is a column in between, I think, N 11 and O, where it refers to status and for a number of 12 these items it refers to Close Report, which we do know 13 is a Close Report tie produced to the Council which 14 included discussion on a lot of these issues, but 15 despite that column, we then to the right, we still have 16 these yellow items, saying that certain things appear to 17 be outstanding. 18 Go down again, please. Pause there. We see under 19 item 6.1: 20 "Value engineering summary included in the final 21 deal and highlighting other potential savings with 22 a probability value." 23 Then to the right we see in yellow: 24 "Has value engineering changed ... result in 25 movement of the final price." 10 1 So again, on the face of it, that appears to be an 2 outstanding query; is that correct? 3 A. On the face of it, yes. 4 Q. Then under item 7.4, in the red column, it states: 5 "What design version was the BBS contract priced 6 against and what changes have subsequently taken place." 7 Again, we see in yellow: 8 "Obtain appendix F from tie." 9 I'm not sure what Appendix F is a reference to. Do 10 you know, Mr Coyle? 11 A. I can't remember. 12 Q. I understand. Over the page, please, keep on scrolling 13 down, please, and pause there. Can we scroll to the 14 left of the screen? Is that possible? Thank you. 15 We see the far left-hand column, 8, Network Rail. 16 So there are a number of outstanding matters here in 17 relation to Network Rail which obtain from legal, 18 I think that's a reference to CEC legal; is that 19 correct? 20 A. Yes. 21 Q. So these are various outstanding matters within the 22 Council. 23 Under item 9, "SDS assurances", do we see item 9.2: 24 "Full details are required from tie on status and 25 degree of completion of SDS design work." 11 1 Then we see the column M states: 2 "Statement required by tie to say programme agreed." 3 It looks like in 42 the missing column -- we can't 4 see on the screen, but my print-out states "Close Report 5 and consents papers". 6 So it's quite clear that the Close Report was, 7 I think, intended to address a lot of these matters, but 8 nonetheless we still see in yellow: 9 "Obtain from tie". 10 Which suggests that some outstanding information on 11 these matters was still outstanding. 12 Then just further down, please, to finish it off, 13 scroll down and pause there. 14 We see under item 11: 15 "Third Party Agreements". 16 I won't read it out, but we can see certain items in 17 yellow there. 18 So I would like to leave that document, please. And 19 go to then an email chain, if I may. It is CEC01345312. 20 Second page, please. Do we see in the bottom half of 21 the page an email from yourself, Mr Coyle, dated 22 12 June 2008 to Mr McGarrity. That is now on to the 23 subject Contract Approvals, Revision 18. It's an 24 updated version of the spreadsheet. We don't have it, 25 but I have looked at it and a number of these items are 12 1 still outstanding in yellow. 2 It then says: 3 "Please find attached spreadsheet as discussed. As 4 I said, Andy and Susan have been working on the 5 documents to close out this piece of work. 6 The updated QRA was also required for this which 7 I received from Mark yesterday." 8 So does that suggest that the Council received the 9 updated QRA on 11 June 2008? 10 A. It would suggest that, yes. 11 Q. Then it says: 12 "Columns P to S will have any actions required 13 highlighted in yellow. Not all the actions are on tie, 14 some of the actions are on CEC ..." 15 Scrolling up the page, please, we see an email, an 16 internal email from Stewart McGarrity in tie dated 17 16 June 2008, forwarding this to Susan Clark and 18 Steven Bell, copying in Graeme Bissett, saying: 19 "Attached is the spreadsheet ... as far as I can 20 see, it's a mixed bag of information or documents. They 21 have already some outstanding TPAs which ... we all know 22 about and some internal stuff at CEC. 23 Should we have a quick half an hour to cross this 24 off and stop it being a pain?" 25 So Mr McGarrity is suggesting there that some of 13 1 these are documents that the Council have already. 2 Could that be correct? 3 A. Yes, it would be correct, but the versions may not have 4 been the most up to date and I think that's the point 5 here, was that we wanted the most up-to-date versions 6 and didn't always have them. 7 Q. I understand. We can scroll up to complete this chain. 8 Perhaps on to page 1. We see an email in the bottom 9 half of the page from Susan Clark dated 16 June 2008 to 10 Stewart McGarrity, Steven Bell, copied to 11 Graeme Bissett, saying: 12 "I'm probably best able to manage this and have all 13 the documentation in a grey folder here." 14 Just up the page again, Mr Bissett states in his 15 email of 16 June: 16 "Sounds like a plan but could we have a word 17 tomorrow on what it is that is outstanding so we can 18 agree on a sensible minimalist approach." 19 The next document, please, to look at is 20 CEC01236707. This is a Highlight Report to the Meeting 21 of the Internal Planning Group, 9 July 2008. Can we go, 22 please, to page 3. In item 4 it's headed, "tie's 23 deliverables for Contract Award", and the text states: 24 "Although good efforts have been made to include the 25 major contracts, information is still awaited from 14 1 tie ltd regarding their deliverables for contract award. 2 To ensure good administration and to protect the 3 Council's interest, it is recommended that the Director 4 of Finance formally writes to tie ltd to resolve this." 5 The second-last document which we looked at then is 6 CEC01354778. I think what has happened, we can see the 7 email, the second email here from Stewart McGarrity 8 dated 9 July 2008 to yourself, Mr Coyle. The subject is 9 tram IPG, 9 July 2008. I think what has happened, 10 a copy of the report we've just looked at to the IPG was 11 sent to Mr McGarrity in advance of the meeting or around 12 the time of the meeting, and Mr McGarrity is replying to 13 you: 14 "Thanks for giving me sight of this. Couple of 15 comments ... 16 "Item 4 ..." 17 I think that's a reference to the paragraph in the 18 report we just looked at, and Mr McGarrity states: 19 "Is Donald really going to write to us about missing 20 information?? I thought we had concluded it was next to 21 nothing -- I have seen emails between you and Susan on 22 this." 23 If we scroll to the top of the page, we can see an 24 email from you, Mr Coyle, dated 10 July to Mr McGarrity 25 saying: 15 1 "Thanks for the feedback - see my comments below." 2 If the screen stays there, we can see that you have 3 replied to the point I just read from Mr McGarrity by 4 saying: 5 "This issue has now been closed out following 6 discussion between myself and Susan, no letter will 7 therefore be required." 8 Can you remember any of this, Mr Coyle? 9 A. I can vaguely remember the email traffic, but I can't 10 remember the discussion. 11 Q. Does it seem as though you liaised with Susan Clark at 12 tie and she did something or produced something which 13 satisfies you that these matters could be closed out? 14 A. I would assume that the contents of the conversation 15 would be on the lines of: these are outstanding 16 requirements, can you provide them. And I would assume 17 that on that basis, that's why a letter was no longer 18 required. 19 CHAIR OF THE INQUIRY: Were these not deliverables that were 20 to be satisfied before the contract was signed? 21 A. Yes. I mean, if you go back to the original matrix, it 22 was in advance of that. We were still chasing these 23 deliverables after that. 24 CHAIR OF THE INQUIRY: Why was that? Whose function within 25 the city of Edinburgh was it to chase this matter up? 16 1 A. So in my view, these are the legal requirements or these 2 were requirements that would have resulted in 3 satisfaction or in being able to sign the contract. And 4 I think that that would have been a matter for the Head 5 of Legal at the time to make sure that they were happy 6 with where things were at prior to signing the contract. 7 It may be that they got themselves comfortable with 8 the position at that point in time, without these 9 matters being -- with these matters being outstanding, 10 but we continued to press for the document -- the 11 documents and the evidence that supported the close-out 12 document that we were producing. 13 CHAIR OF THE INQUIRY: Insofar as they impacted on your 14 function, do you not think that legal would be dependent 15 on you for advice as to the Schedule 4 pricing and these 16 deliverables? These were deliverables that you were 17 wanting. 18 A. Well, these were deliverables that the Council were 19 wanting. Andy Conway and myself were asked to provide 20 the administration to get that document in place, and do 21 the chasing to make sure that those documents were in 22 place. 23 These were not per se things that I was wanting. 24 These were things that senior people in the organisation 25 were wanting, and we were charged with the job of going 17 1 and getting these documents. 2 CHAIR OF THE INQUIRY: Yes. 3 A. With regard to Schedule Part -- Schedule 4, pricing, 4 I very much see that as a commercial legal matter, 5 rather than an accounting matter. 6 CHAIR OF THE INQUIRY: So that you just saw your function as 7 fulfilling the instructions on behalf of more senior 8 colleagues about chasing these matters up. 9 A. With regard to this document, yes. 10 CHAIR OF THE INQUIRY: Did you do it? 11 A. Did I chase matters? I think that the email here 12 provides evidence that I did chase matters and continued 13 to chase matters. 14 CHAIR OF THE INQUIRY: Did you tell your superior -- who 15 would it be? Would it be the Director of Finance? 16 A. At this time my line manager, I think, would have still 17 been Rebecca Andrew, and then Rebecca Andrew reported in 18 to Donald McGougan on tram-related matters. So yes, 19 that was the chain. 20 So yes, Director of Finance ultimately with regard 21 to things that I was doing. 22 CHAIR OF THE INQUIRY: Did you tell them at any stage before 23 contract signing that you were still waiting for 24 material in your schedule? 25 A. Yes. 18 1 CHAIR OF THE INQUIRY: You did? 2 A. Yes. 3 CHAIR OF THE INQUIRY: Who did you tell? 4 A. We would have -- the Internal Planning Group, which was 5 the Chief Executive, the Corporate Services Director, 6 and Finance Director, that was the panel that the more 7 junior members were reporting into matters. So we would 8 have taken it to that meeting, but also on a daily 9 basis, updates in terms of where we were with this 10 documentation. 11 So, you know, there was open communications between 12 the more junior officers and the more senior officers 13 around the status of where we were with these things. 14 CHAIR OF THE INQUIRY: Are you saying before the contract 15 was signed, you advised senior officials in the Council 16 that you had not received material? 17 A. Yes. 18 CHAIR OF THE INQUIRY: And nevertheless they went ahead and 19 authorised signature? 20 A. Yes. 21 CHAIR OF THE INQUIRY: Thank you. 22 MR MACKENZIE: On that basis, I have no further questions, 23 thank you. 24 CHAIR OF THE INQUIRY: Thank you. 25 Examination by MR MCCLELLAND 19 1 MR MCCLELLAND: Mr Coyle, you may remember last week when 2 you were giving evidence we finished up with me asking 3 you about the deckchair spreadsheet. I think you'd 4 explained that it was used to capture the output of work 5 on cost estimates done by tie in the run-up to the 6 mediation. 7 A. Yes. 8 Q. Could you please have document TIE00355077. Do we see 9 here that this is an email chain and at the top of it is 10 an email from you dated 5 March 2011? 11 A. Yes. 12 Q. If we just briefly go to -- to put it into its context, 13 the email below, which is from Steven Bell, the Tram 14 Project Director at tie, to Nigel Robson, and do we see 15 you're copied into that email? 16 A. Yes. 17 Q. Just briefly, who was Nigel Robson? 18 A. I can't remember the organisation that Nigel Robson 19 worked for, but in the lead-up to mediation, he was part 20 of the advisory team for the Council. 21 Q. Steven Bell's email to him reads: 22 "Nigel, please find attached an updated Risk 23 Register following our discussion yesterday. I spoke 24 yesterday of a range of GBP30 million to GBP60 million. 25 By trying to price what could be priced, I have amended 20 1 that to GBP40 million to GBP107 million. There is 2 inevitable judgment calls which are exactly that, but it 3 feels sensible where we can range a cost. 4 "Please remember there are some items I do not think 5 are capable of sensible pricing." 6 Then the final line: 7 "Alan has kindly offered to update the "deckchair" 8 analysis to reflect this assessment and circulate 9 accordingly." 10 Can you explain what the matters are that 11 Steven Bell was attempting to price? 12 A. I would assume -- I would assume that these were matters 13 relating to things like exclusions, perhaps, ground 14 conditions, utility risks. 15 Q. When you say exclusions, could you just clarify what you 16 mean by that? 17 A. Exclusions from the Infraco contract. So items in the 18 Infraco contract that weren't included in the price, 19 therefore would have to be covered off with any risk 20 allowance, should those matters potentially become real. 21 Q. Do you remember when we looked at the consortium's 22 Project Phoenix price proposal? 23 A. Yes. 24 Q. That contained a list of price exclusions? 25 A. Yes. 21 1 Q. Would that have any relevance to what Mr Bell was 2 attempting to price? 3 A. Yes, perhaps. 4 Q. Is it possible that what Mr Bell was attempting to price 5 were the risks associated with the exclusions from the 6 Project Phoenix price? 7 A. It's possible. 8 CHAIR OF THE INQUIRY: Mr Coyle, lots of things are 9 possible. Can you just think carefully and tell us 10 whether your recollection is yes or no. 11 A. At this point in time, I don't know. This was a long 12 time ago and from what I see on the screen, there could 13 be a whole range of items that could make up that risk 14 allowance. There could be things like ground condition 15 risk, there could be things like exclusions. There 16 could be things like potential delay, design risk, 17 a number of items that could cover that particular 18 range. 19 MR MCCLELLAND: It may help to look briefly at your email, 20 which is the one at the top of the chain. You say: 21 "Nigel et al, I have updated the deckchair 22 spreadsheet to take account of Steven and the team's 23 view of exclusion risk under the highly sensitive area 24 on the spreadsheet." 25 Does that help you? 22 1 A. Yes. 2 Q. Can you -- 3 A. It clarifies that there's a number of exclusions that 4 Mr Bell has then looked at within the context of that 5 risk allowance. 6 Q. Given the timing of this, which is three days before the 7 mediation began, is it likely that the exclusions were 8 those from the Project Phoenix price proposal? 9 A. Yes. 10 Q. You go on to say: 11 "In a nutshell the tie view of Phoenix to 12 St Andrew Square is GBP682 million (low) GBP749 million 13 (high) once these risk items are built in." 14 Can you just explain that sentence, please? 15 A. Tie had their own assessment of the Project Phoenix 16 Proposal from BBS, and so their QSs would have looked at 17 this and provided a range of potential outturns, as they 18 saw it, and also, on the face of this, a view on risk 19 that would have brought the number to -- the final 20 outturn to either 682 or 749, depending on what end of 21 the range came to pass. 22 Q. So the figures that we see there from GBP682 million to 23 GBP749 million, that was tie's view of what it would 24 cost to do a deal on Phoenix with the consortium? 25 A. Yes. 23 1 Q. That estimate took account of the risk items which 2 Mr Bell had been attempting to price? 3 A. Yes. 4 Q. Those were the matters which were excluded from the 5 Phoenix Proposal? 6 A. Yes. 7 Q. Could we now please have TIE00355078 which is 8 a spreadsheet. If we could open it in Excel viewer 9 format and then click on page layout view. If we could 10 zoom out, if we can, so we can see all of the 11 spreadsheet on the screen. We need to scroll a bit to 12 the left. 13 Zoom out once more. Okay. 14 Can you just confirm what this is? 15 A. That's the deckchair spreadsheet. 16 Q. For the benefit of the record, this is the version that 17 was attached to the email that we've just been looking 18 at. 19 Now, there's a lot of detail in here, and I won't go 20 through all of it, but could you just explain briefly 21 what the different coloured columns are for? 22 A. Sure. These -- these columns give a view of different 23 contractual outcomes. So continue on within the current 24 Infraco contract. Obviously there was Project Carlisle 25 that Mr Rush had been working on in the lead-up to -- in 24 1 the lead-up to mediation, but prior to Project Phoenix, 2 I guess. 3 Q. Sorry to interrupt, Mr Coyle, but just to be clear, when 4 you said continue as is, that's the first column, the 5 beigey-coloured one? 6 A. Correct. 7 Q. Then when you talked about Carlisle, that's the light 8 blue column? 9 A. That's the light blue column. 10 Then an assessment of tie's view of both those 11 prices within Carlisle, and then cost of work done, 12 that's just basically the cost of work done to date, as 13 at period 11 of that financial year. 14 Q. Is that the green column? 15 A. That's the green column. Then in the grey column -- is 16 that "Terminate and reprocure", that column? 17 CHAIR OF THE INQUIRY: Look at Carlisle again. You said 18 that there was an assessment of tie's calculation of 19 Carlisle, but do the columns seem to suggest that on the 20 left-hand column, it's the tie price, and on the 21 right-hand column, it's the consortium's price? 22 A. Yes, you have the consortium's price as per their 23 submission, and then tie's view of where they think the 24 price would arrive under that Agreement. 25 Sorry -- 25 1 MR MCCLELLAND: I think you were talking about the grey 2 column, or the sort of pale purple one. 3 A. Yes, it's that heading in row 2. Is that "Terminate and 4 reprocure"? 5 Q. Yes, this is the second example of a different 6 appearance on screen from what happens if you print it 7 out. You can take it from me that if you print it out, 8 the heading for that is "Terminate and reprocure". 9 A. Thank you. So yes, this is tie's view of termination of 10 the contract, with a low, medium, high view, and then 11 a reprocurement of the contract with a separate 12 provider, and then in the final column, in the bright 13 pink column, this is the -- are the headings, "Infraco 14 build to St Andrew Square"? 15 Q. It's actually, "Infraco build to HYM". 16 A. Haymarket. 17 Q. Just to pause there, Haymarket was the destination 18 proposed in the Project Phoenix Proposal? 19 A. Okay, yes. So there would have been a separate price 20 that would have been required for the on-street section 21 to St Andrew Square. So this is tie's assessment again. 22 A low/high view of the -- I guess of what they think is 23 a decent price against the deal that was set out by BSC. 24 Q. In short, Mr Coyle, if I can just try and summarise 25 that, each of the different colours, with the exception 26 1 of the green one, represents a potential different 2 outcome scenario for the Infraco contract? 3 A. That's correct. 4 Q. If I could ask, please, for line 79 to be highlighted. 5 Now, you see, Mr Coyle, there's a range of figures 6 along that line. Can you just explain what is shown in 7 that line? 8 A. Total phase 1a. So -- yes, total phase 1a. So that 9 would show from Airport to Newhaven. The outturn cost 10 as modelled for each of these scenarios. 11 Q. If we look just in columns B and C, the first 12 beigey-coloured one, 639 and 821. Is that 13 GBP639 million and GBP821 million? 14 A. That's correct. 15 Q. Okay. As you say, that's the whole of phase 1a? 16 A. That is correct. 17 Q. If we could just highlight column C, please, and if we 18 could scroll up to the top. 19 Now, this was the column that I think you described 20 as modelling continuing under the Infraco contract in 21 its original form? 22 A. Yes, that's correct. 23 Q. It's headed up there, "BSC Obstinacy"; what does that 24 mean? 25 A. I believe that's Mr McGarrity's descriptor, not mine, 27 1 but for me, that would imply that BSC would continue to 2 behave in the way that tie had perceived them to behave 3 to that point in time. 4 Q. Yes. So if we might put it this way, a sort of 5 status quo scenario? 6 A. Correct. 7 Q. If we go right down to the bottom of that column, in row 8 79, do we see there the estimated cost under that 9 scenario is GBP821 million? 10 A. That's correct. 11 Q. Could we scroll up, please, to the section between lines 12 13 and 20, and if we could highlight lines 13 to 20, 13 please. That's fine, thank you. 14 Now, this section here, Mr Coyle, can you just take 15 a moment to look at that and explain what is shown for 16 those with particular reference to column C. 17 A. Okay. So you've got construction works price, which is 18 presumably construction works price as per the contract. 19 Value engineering that was included within that 6.1. 20 I guess change that was already known, I guess 21 acknowledged, of -- in relation to Princes Street of 22 9 million. So presumably under the Princes Street 23 supplemental agreement. 24 Q. Just pause there, Mr Coyle. You used the word "guess". 25 Are you telling us what you know these figures are or 28 1 are you speculating? 2 A. It's -- based on the passage of time, it's my 3 understanding of what these figures are. 4 Q. To the best of your recollection? 5 A. The best of my recollection. 6 With regard to "existing change other", there's 7 a GBP10 million delta between the two positions here. 8 To the best of my recollection, for me, that would be 9 tie's view of where they think a settlement would be on 10 that particular change, versus where BSC may have 11 pitched a view on that. 12 Q. When you refer to a delta, by that do you mean 13 a difference between the figures? 14 A. A difference of GBP10 million between the two figures. 15 Q. That's the difference between -- 16 A. The 35 and 45. 17 Q. -- the figure in column B and column C? 18 A. That's correct. 19 Q. I would like to focus on column C, but since you 20 mentioned column B, that's headed up, "Silver Bullet". 21 What does that refer to? 22 A. Again, probably one for Mr McGarrity. But my 23 understanding of that is that should all of a sudden tie 24 find that a silver bullet, a particular, you know, 25 something that made the problems go away, that have been 29 1 experienced to date, that this was tie's view of what 2 the potential outturn costs would be in that scenario. 3 But given at that stage, where was this, March 2011, 4 you know, nearly three years after the contract was 5 originally signed, I would suggest that if there was 6 a silver bullet, it would have been found before then. 7 Q. Silver bullets are rare, are they not? 8 A. Yes. 9 Q. So can we regard this column as being tie's view of the 10 very best that could be hoped for? 11 A. I agree. 12 Q. Carrying on down column C, this is the column assuming 13 matters carry on as they have to date. 14 You see the lines there referring to "Existing 15 Change - Princes Street", "Existing Change - Other", and 16 "Existing Prolongation". 17 You've to some extent already explained it, but 18 could you just explain again what those figures are for? 19 A. Changes that had occurred since, I guess, the original 20 contract was signed. So changes over and above the 21 original contract works price. 22 Q. And prolongation? 23 A. An assessment of prolongation since that -- since the 24 contract was signed. At that time. 25 Q. And by prolongation, what do you understand? 30 1 A. Extension of time. So additional preliminaries and so 2 on, taking account of delay. 3 Q. So extra costs associated with the delay in the project? 4 A. Yes. 5 Q. Then below that, there are lines which read "Further 6 on-street change", for which the figure is GBP21 million 7 and "Further allowance for risks", and you can take it 8 from me that in the printed version it carries on to 9 say: 10 "... for risks and delay". 11 For which the figure is GBP150 million. What did 12 you understand by those figures? 13 A. It would be tie's assessment of additional delay, 14 I guess because of the way that the contract had run out 15 until that point in time, because of the way that the 16 project was performing, tie's assessment of what the 17 potential additional costs could be, for further delay 18 beyond that point in time. 19 Q. We see that the figure of GBP150 million is in red. If 20 you could just hover the mouse over that, please. 21 I don't know if anybody else can read that. Thank you 22 very much. 23 We see there a comment by S McGarrity: 24 "Not capable of being estimated with any certainty." 25 Do you see that? 31 1 A. Yes. 2 Q. Can you comment on that comment; what was your 3 understanding? 4 A. There was obviously -- at this point, at the point in 5 time under the existing contract, there was a view of -- 6 a differential view between tie and the contractor, BSC, 7 around the extent of delay to that point. 8 So -- and that was based on experience that had 9 already happened, as opposed to experience that hadn't 10 yet happened. 11 So I guess Mr McGarrity means by that point, it's 12 a very rough assessment of what he thinks a potential 13 cost could be of additional change, additional delay and 14 risk, should tie have continued under the BSC contract. 15 Q. Thank you. Just to compare it to the estimate of that 16 particular cost under the silver bullet option, where 17 the figure in column B is GBP20.4 million, does that 18 tell us that between the most optimistic and the most 19 pessimistic outcome, there was a difference of 20 GBP130 million? 21 A. That's correct. 22 Q. Are you able to say which of these columns reflected 23 tie's expectation of -- tie's assessment of their 24 position at the time of the mediation? Was it the 25 silver bullet or was it the obstinacy option that was 32 1 regarded as the more realistic? 2 A. I think by the time we got to mediation that neither of 3 those were realistic. 4 Q. Can you just expand on that, please? 5 A. Silver bullet, by the time -- mediation came about 6 because of where the project had gotten to. The project 7 had been -- there was very little done within, I think, 8 about a year before mediation. 9 So around silver bullet, I just think that that's an 10 unrealistic scenario. 11 With regard to BSC obstinacy, continuing under the 12 contract, what would have changed to make what wasn't 13 a successful contract and a successful project 14 a successful contract and project under those 15 arrangements? I don't think that was possible either. 16 So for me, the continue as is wasn't an option. So 17 I don't think that tie were considering that to be an 18 option. I think that the options to the left are more 19 unrealistic than the options that are portrayed to the 20 right. 21 Q. If one had gone to mediation and not secured any 22 Settlement Agreement with the consortium, is one or 23 other of these two options more realistic? 24 A. I don't think the silver bullet option is realistic. 25 But the as is -- I guess the term "BSC obstinacy" 33 1 would -- would say that current -- that previous 2 behaviours, as tie seen it, would continue under the 3 continue -- under the existing contract, and existing 4 contract was in place. So that would be a much more 5 realistic option than the silver bullet option for me. 6 Q. Yes. So if I could just put it this way, in the absence 7 of a deal at mediation, tie were facing an outcome 8 closer to the "BSC Obstinacy" column than to the other 9 one? 10 A. Correct. 11 Q. Could I ask you, please, if you could scroll along to 12 the right, please, and if we can look at the grey 13 columns which are Q, R and S, and the pink columns, U, V 14 and W. 15 Q to S are headed up, "Terminate and reprocure now", 16 and the pink ones are headed up, "Infraco Build to 17 Haymarket", and then below that there's a reference to 18 Phoenix. 19 Can you just briefly explain again what these two 20 columns are? 21 A. "Terminate and reprocure" column in grey gives three 22 views, low, medium high, of tie's assessment of what it 23 would take to terminate the Infraco contract and then 24 reprocure under a separate contractor; and then the 25 bright pink column shows the tie assessment and the BB 34 1 view of the proposal that Bilfinger had made under 2 Phoenix. 3 Q. BB, is that Bilfinger Berger? 4 A. Bilfinger Berger, yes, but BSC were the consortium at 5 that time. 6 Q. By the time of the mediation, were these two options, 7 terminate and reprocure on the one hand, and a Phoenix 8 deal on the other hand, the two main options that were 9 under consideration? 10 A. Yes, but I would suggest that the reprocure was a bit of 11 a -- you know, there's a decision point after 12 termination. Do you continue with the project and 13 reprocure or do you not? So the terminate and reprocure 14 could be one option. You could also terminate and stop 15 the contract. That would be another option. 16 But I think that's for further assessment, I guess, 17 further down the track. 18 Q. Yes. I understand. 19 So if one is looking at the option in the grey 20 column, terminate and reprocure, I think what you're 21 saying is it's a two-stage process? 22 A. Correct. 23 Q. The first decision is do you terminate the Infraco 24 contract, and then the second stage is do you reprocure 25 the work from another contractor? 35 1 A. That's correct, yes. 2 Q. If we scroll down to line 79 for those two columns, 3 please. If you just highlight line 79, please. Do we 4 see there that in the grey column, which is for 5 terminating and reprocuring, there is a range of 6 716 million to 790 million? 7 A. That's correct. 8 Q. For the pink columns, which are the Phoenix option, 9 there's a range from 763 million to 830 million? 10 A. That's correct. 11 Q. In broad terms, does that show that the range of cost 12 estimates for terminating and reprocuring was lower than 13 the range of cost estimates for a deal under Project 14 Phoenix? 15 A. Based on tie's assessment of that option at that time, 16 yes. 17 Q. Yes. So to put it simply, tie thought it would be 18 cheaper to reprocure -- to terminate and reprocure the 19 document than to do the Project Phoenix deal with the 20 existing consortium? 21 A. That's correct. 22 Q. If we could just look at line 84, please, in those 23 columns. Can you just explain briefly what this section 24 of the spreadsheet shows? 25 A. This section of the spreadsheet shows four terminal 36 1 points. So you've got Newhaven, which was the original 2 terminal point for phase 1a. You have the Foot of the 3 Walk, which was the exchange at the bottom of Leith 4 Walk, which was seen as a potential terminal point. 5 St Andrew Square as a potential terminal point and then 6 Haymarket also. 7 Q. So is this another example of the different scenarios 8 that were being estimated? 9 A. That's correct. 10 Q. And the costs. 11 If we just focus there on the St Andrew Square 12 option, do we see that in the grey columns for 13 terminating and reprocuring, the cost estimate range 14 from GBP645 million to GBP698 million? 15 A. That's correct. 16 Q. In the pink columns for a deal based on Project Phoenix, 17 the range was GBP681 million to GBP748 million? 18 A. That's correct. 19 Q. So once again in very brief terms, on tie's estimate, 20 the cost of terminating and reprocuring the project was 21 cheaper than a deal based on Project Phoenix? 22 A. Based on those assumptions, yes. 23 Q. So we've seen that this spreadsheet was circulated three 24 days before the mediation. So does that accurately 25 reflect tie's position on the cost estimates at the time 37 1 of the mediation? 2 A. Yes, I believe so. 3 Q. If we could just highlight row 66, please. 4 Do you recall the email that we looked at before 5 this? 6 A. Yes. 7 Q. And Steven Bell was talking about the figures ranging 8 from GBP40 million to GBP107 million? 9 A. Yes. 10 Q. Do we see those figures anywhere in this spreadsheet? 11 A. Under columns -- it looks like under columns U and V, 12 against row 66. 13 Q. Yes. Row 66, column U, there's the figure of GBP39.6 14 million, and column V in row 56, GBP106.6 million? 15 A. That's correct. 16 Q. Were those the figures that you added following 17 Mr Bell's request? 18 A. Yes. 19 Q. So the cost estimates that we see at the bottom of the 20 pink columns of GBP681 million to GBP748 million, those 21 take account of the costs associated with the 22 exclusions -- 23 A. That's correct. 24 Q. -- that Mr Bell was talking about? 25 A. Yes. 38 1 Q. Thank you. I'm going to go to a different document, but 2 it would be helpful if that spreadsheet could be kept 3 available if possible. 4 The second document I would like to look at is 5 WED00000134. 6 Is this a document you're familiar with, Mr Coyle? 7 A. It is. 8 Q. Can you just explain what it is, please? 9 A. This document was prepared, I think, for the Transport 10 Infrastructure and Environment Convener in the City of 11 Edinburgh Council. This document basically provided 12 a record of the project from January 2011 through to 13 June 2012, and all parts and points of the project. 14 Q. You referred to the convener. Can you remember who that 15 was by name? 16 A. I believe that would be Councillor Hinds. 17 Q. Lesley Hinds? 18 A. Yes. 19 Q. We see the heading on that front page is "EDINBURGH TRAM 20 PROJECT Review of Progress and Management of the Project 21 January 2011 to June 2012". Can you recall when this 22 paper was put together? 23 A. I think it was around June 2012. 24 Q. We see at the bottom it was prepared by Colin Smith and 25 Alan Coyle? 39 1 A. Yes, that's correct. 2 Q. So do we understand that this was a joint piece of work 3 between you and Mr Smith? 4 A. Yes. 5 Q. Could we go, please, to page 233. Is that part of the 6 report that you recognise? 7 A. Yes. 8 Q. The heading, "FINANCIAL BRIEFING REPORT". Can you 9 clarify whether this part of the report was your work or 10 Mr Smith's work? 11 A. It was primarily my work, joint effort between myself 12 and Mr Smith, but references to the financials in it was 13 my work. 14 Q. Could we go, please, to the next page, which is 15 page 234. If we just look first of all at 16 paragraph 7.3, headed "Mediation", just reading that 17 out: 18 "Work continued on the financial forecasts in 19 preparation for mediation. The "Deckchair" 20 spreadsheet ..." 21 There's a reference there to the appendix. Just for 22 the record, that appendix is the same as the spreadsheet 23 we've just been looking at: 24 "... remained the repository of tie's financial 25 forecasting. These forecasts were then presented to the 40 1 full CEC/tie mediation team. The range of scenarios 2 included in these forecasts were as follows." 3 Then there's a list of figures. Again, Mr Coyle, 4 you can just take it from me, these are the figures from 5 the grey and pink columns that we were just looking at? 6 A. Yes. 7 Q. You agree with that? 8 A. Yes, I would agree with that. 9 Q. If we move on to paragraph 7.4, please, this is headed 10 up, "Settlement with the Current Contractor and 11 Re-procure". 12 "This scenario seemed to be tie's preferred strategy 13 with mediation in mind." 14 That confirms, I think, what you said -- 15 A. Correct. 16 Q. -- last week: 17 "There are a number of fatal flaws in the 18 assumptions that tie made in this scenario." 19 The phrase there, "fatal flaws", whose phrase was 20 that? 21 A. Mr Smith's. 22 Q. Is Mr Smith describing this fatal flaw? 23 A. Yes. 24 Q. Reading on: 25 "For example, the cost of settlement with Infraco 41 1 was forecast by tie at GBP33 million, which was 2 essentially the balance of entitlement for work done set 3 against work certified to date." 4 Can you just explain briefly that sentence? 5 A. So it's basically -- you know, obviously there had been 6 work done. So tie was -- tie had certified a certain 7 number to date and then they had an assessment of what 8 work was then certifiable beyond that number, which was 9 forecast at 33 million. So an additional exposure 10 within that spreadsheet assessment. 11 But I think that that -- when you look at the 12 comparator of the terminate and re-procure and the 13 Phoenix Proposal, you can actually see that there are 14 significant differences with regard to where tie thought 15 they were in terms of potential delay cost, and also 16 things like exclusion risk, terminate and re-procure; the 17 same risks would have been apparent to a new contractor 18 coming in as well as the old contractor, potentially 19 worse. 20 Q. If we perhaps try and take this step by step. The 21 reference to the cost of settlement, what did you 22 understand by the phrase "cost of settlement"? 23 A. The cost of settling with the existing contractor. 24 Q. In other words, to negotiate termination of the Infraco 25 contract? 42 1 A. Yes. 2 Q. You are saying there that tie had assumed that would 3 cost GBP33 million? 4 A. Yes. 5 Q. Okay. Then you go on to say that that was essentially 6 the balance of entitlement for work done set against 7 work certified to date. 8 A. Yes. 9 Q. Just in summary, then, that was the difference between 10 the work that tie had already certified and the value of 11 what the Infraco consortium had done? 12 A. Correct. 13 Q. If we read on to the next sentence: 14 "This number was not cognisant of any contractual 15 entitlement Infraco would have had for delay 16 (MUDFA delay being the dominant cause) or disputed 17 design changes for work that had already been 18 undertaken." 19 Is that the point that you were just explaining 20 a moment ago? 21 A. That's correct. 22 Q. That to assume that the contract could be terminated for 23 GBP33 million was not correct, because of liabilities 24 for delay and design change? 25 A. That's correct. 43 1 Q. Is that one of the fatal flaws that -- 2 A. Yes. 3 Q. -- Mr Smith saw in the cost estimates for terminating 4 and reprocuring? 5 A. Yes. 6 Q. "In addition, this forecast assumed a new contractor 7 would be able to take up where Infraco left off without 8 any risk allowance being included and without any bad 9 project premium being allowed for in the price. In 10 addition, there was no indexation built in for materials 11 that would be required where the price would have 12 changed in relation to the original contract sum." 13 The point being made, is this your point or is this 14 Mr Smith's point? 15 A. Mr Smith's point. 16 Q. What was your understanding of it? 17 A. My understanding there was that the project at that 18 point in time did not -- wasn't in a good place, did not 19 have a good name. I think bringing in any new 20 contractor could have come at a premium in terms of 21 cost, because of the experience that had been had to 22 date. 23 So I think there would have been an additional 24 allowance required to account for that going forward, 25 which is the bad project premium that Mr Smith has 44 1 alluded to there; and also any materials that were yet 2 to be required would have changed from the original 3 price as well. 4 Q. Okay. So reading short, tie's estimates, on the view 5 being expressed here, for terminating and reprocuring, 6 had not taken account of what Mr Smith had thought would 7 be additional costs associated with that option? 8 A. That's correct. 9 Q. Reading on: 10 "It is also important to note that tie had priced 11 the on-street section from Haymarket to St Andrew Square 12 at GBP19 million and did not allow for any significant 13 risks for the on-street section at this time, nor did 14 they allow for any extension to the programme as 15 a result of having to re-procure." 16 Could you just briefly explain that point, please? 17 A. Yes. There was significant risks that still remained in 18 the on-street section. Utilities were known to 19 a degree, but there was a lot of unknown. Indeed, one 20 of the things that Bilfinger produced at mediation, in 21 the mediation statement, was a video around a number of 22 utility conflicts that could still come to pass. There 23 was a significant risk related to that. Ground 24 conditions as well. 25 There was reinstatement works required in terms of 45 1 Princes Street, and also we didn't allow for -- you 2 know, it was terminate and re-procure now. 3 A re-procurement exercise for a contract of that size 4 takes a significant amount of time, so there would have 5 been a lot of time delay that would have been required 6 to have been built in for that to -- 7 Q. Would there be costs associated with that time delay? 8 A. Yes, of course. 9 Q. Again, were these matters which tie's estimates for 10 terminating and reprocuring had not taken into account? 11 A. That's correct. 12 Q. And again, were these examples of fatal flaws? 13 A. Yes. 14 Q. If we could briefly keep it at that page, and briefly 15 look at the Deckchair spreadsheet again, for which the 16 number was TIE -- there it is. 17 Now, the terminate and re-procure option is the grey 18 columns Q to S. Is that correct? 19 A. Yes. 20 Q. The costs that we've just been discussing as having been 21 omitted from tie's estimates, if one was to take those 22 into account, what would be the effect on the grey 23 columns? 24 A. They would be significant, if I look at, for example, 25 the general and specific scope risk and exclusions. 46 1 Q. Could you just -- if you can help us, Mr Coyle, by 2 giving either a line reference or a column reference or 3 both. 4 A. Under column Q and R, line 66, general and specific risk 5 and exclusions, there had been allowance built in for 6 those exclusions and risks in relation to the Phoenix 7 Proposal. Yet those allowances and risks weren't 8 allowed for within our re-procurement proposal. 9 The number of the risks that were included, the 10 number of the risks that were included in things like 11 ground conditions and so on and so forth, would still 12 have been prevalent within a re-procurement. 13 Could you go up the spreadsheet a little bit? 14 If we have a look at the "terminate and re-procure", 15 I don't see any allowance built in for the costs of 16 re-procurement, so professional fees, legal fees and the 17 like with regard to any potential re-procurement. It's 18 just a very simple view of life around what the -- tie's 19 assessment was around, you know, what it would cost to 20 do the existing outstanding things. 21 I also -- can you come down the spreadsheet? I'm 22 just looking for any figure with regard to a settlement. 23 There's a GBP10 million figure included for a 24 settlement premium with BSC. 25 Q. Which line are you referring to there? 47 1 A. On line Q and R, 69. 2 Q. We see BSC settlement premium, GBP10 million? 3 A. So, you know, very, very small number, compared to what 4 the eventual costs would be. 5 Q. Okay. So you've helpfully talked around some of the 6 detail about that, but at the very highest level, the 7 passage we've just been reading in your report 8 identifying costs which had been missed out, would the 9 effect of taking account of those points be to increase 10 the cost estimates for the terminate and re-procure 11 option? 12 A. Yes. 13 Q. I think from what you're saying, that would be by 14 a significant margin? 15 A. Yes. 16 Q. If we could go back to the report, please. Over the 17 next page to paragraph 7.6, please. We see that this is 18 headed "Separation": 19 "As highlighted above ..." 20 I think that's a reference back to paragraph 7.4? 21 A. Yes. 22 Q. "... tie would have preferred to terminate with Infraco 23 and re-procure. This went against all the advice that 24 was given by independent advisers at this time." 25 When you're referring there to independent advisers, 48 1 who did you have in mind? 2 A. So in the period -- in the lead-up to mediation, 3 Nigel Robson was part of the team. Tony Rush was 4 advising tie at the point in time as well, Gordon Harris 5 Partnership, and also McGrigors, legal firm as well, 6 were also advising in the lead-up to mediation as well. 7 All of which pointed to additional costs over and 8 above -- the potential for additional costs over and 9 above that that tie had included within their estimates. 10 Q. So you mean all three of these advisers were saying that 11 there would be additional costs over and above what tie 12 had estimated for the cost of this option? 13 A. Yes. And of course Mr Smith. 14 Q. Were tie, as you understand it, acting in disregard of 15 that advice? 16 A. Yes. 17 Q. Reading on: 18 "During the initial stages of mediation ..." 19 CHAIR OF THE INQUIRY: Sorry, what does that mean? 20 MR MCCLELLAND: Perhaps you could expand on the question of 21 tie acting in disregard of the advice. 22 A. Well, it felt to me that in the lead-up to mediation, 23 and after mediation, that the advice that we were being 24 provided by professional people, who know their 25 business, that it felt to me that tie were pursuing an 49 1 option regardless of what that advice was giving us, and 2 I think that, you know, it's advice that should be 3 listened to. 4 I didn't feel that tie particularly wanted to listen 5 to that advice. 6 Q. You said in your evidence previously that tie's 7 preferred option was termination and re-procurement? 8 A. Yes. 9 Q. Do you mean -- I don't want to put words in your mouth, 10 tell me if I'm not correct, but do you mean that tie 11 were persisting in the view that that was the better 12 option, despite what the advisers were telling them? 13 A. I believe so. 14 Q. Now, returning to paragraph 7.6: 15 "During the initial stages of mediation, there was 16 a significant amount of discussion between tie and CEC 17 (including CEC advisers) on the assumptions tie had made 18 in the forecasts for separation. It soon became clear 19 that tie had not considered a number of cost headings at 20 this time which would have had a significant impact on 21 the final cost. In very broad terms, these items were 22 in the order of GBP150 million for settlement, 23 professional cost, bad project premium risk, systems 24 re-procurement risk, and inflation, which would have 25 potentially resulted in a final outturn cost of at least 50 1 GBP800 million." 2 Now, there's a reference there to discussions at the 3 initial stages of the mediation. Can you just describe 4 that discussion and how a decision was made? 5 A. There had been -- there was various discussions at the 6 start of mediation, but there had been discussions 7 between tie and the Council and representatives of the 8 Council in mediation, you know, within -- not with -- 9 not in discussion with the contractor, but the internal 10 tie and CEC team, there had been discussions between 11 those teams with regard to the potential outturn costs, 12 and the cross challenge from one party to the other in 13 terms of these items and the like, that would have 14 resulted in outturn cost being of different views 15 between CEC and tie, I guess. 16 Q. So the mediation of course was set up for a negotiation 17 between tie and CEC on the one hand, and the Infraco 18 consortium on the other? 19 A. Correct. 20 Q. But do we understand from what you are saying that much 21 of the time was taken up actually in a negotiation 22 between tie and CEC? 23 A. I wouldn't say much of the time, but there was 24 definitely discussions in the early part of mediation on 25 day 1 where these things were discussed. 51 1 Q. Were these not matters that ought to have been resolved 2 in advance of the mediation? 3 A. There was discussion in the lead-up to mediation around 4 these matters, but still differing views of the 5 potential outturn going into mediation. 6 Q. The report here discusses an adjustment to the cost 7 estimate for terminating and reprocuring of 8 GBP150 million? 9 A. Yes. 10 Q. That's a large adjustment? 11 A. Yes. 12 Q. It amounts to something like approximately a quarter of 13 the total costs? 14 A. Yes. 15 Q. It might be thought surprising that such a large 16 adjustment would fall to be made at such a late stage. 17 Can you comment on that? 18 A. I don't think that that is an adjustment at such a late 19 stage. The Deckchair spreadsheet evolved over time, and 20 when you look at the version that we looked at earlier, 21 looking at the BSC view within that spreadsheet, and 22 even tie's high end view of the BSC within its proposal, 23 does show a cost that is significantly more than what 24 tie had in terms of separation. 25 So these items were, you know, contentious going 52 1 into mediation and had been. You know, you could see 2 from those different views within the spreadsheet that 3 there was a very wide spread of costs, potential costs 4 between each of the potential scenarios. 5 Q. How long had these cost estimates been under preparation 6 by the time of the mediation? 7 A. I can't remember for certain, but certainly in quarter 1 8 of 2011, so from January through to March in 2011, and 9 just prior to Christmas of the previous year. 10 Q. I think your evidence was that you'd been seconded to 11 tie to observe the cost estimate work back in 12 November -- 13 A. Yes, that would fit, yes. 14 Q. So by the time of the mediation, is it fair to say there 15 had been four months' work on the cost estimate? 16 A. Yes. 17 Q. I will just say that in relation to the cost of 18 separating and reprocuring, is it not surprising that 19 after four months of work, an adjustment of 20 GBP150 million comes to be made on day 1 of the 21 mediation? 22 A. I think that -- I can't recall whether or not these 23 discussions had happened, and a huge amount of detail in 24 the lead-up to mediation between tie and, say, Mr Smith 25 and the CEC advisory team. But it was very much a case 53 1 that tie were continuing to ignore these potential costs 2 within that option, and, you know, there was discussions 3 in the early part of mediation around, you know, that's 4 just unrealistic. 5 Q. Did tie employ quantity surveyors? 6 A. tie did employ quantity surveyors, yes. 7 Q. People who were skilled in the assessment of 8 construction costs? 9 A. Yes. 10 Q. Had these people been working on the cost estimates over 11 that four-month period? 12 A. Yes. 13 Q. Had they been devoting much of their time to that 14 exercise? 15 A. I would say pretty much all of their time, yes. 16 Q. And nobody at tie had thought about costs amounting to 17 GBP150 million worth over that four months of work? 18 A. I think that -- I think they chose to ignore these 19 particular items. I think they maybe had a very firm 20 view, a very firm view of what that terminate and 21 re-procure option would look like, and based on that firm 22 view, that was the outturn costs that were being 23 suggested. I didn't feel that they were willing to 24 explore the potential for these additional costs. 25 CHAIR OF THE INQUIRY: Were the quantity surveyors 54 1 professionally qualified and employed within tie or were 2 they part of professional firms? 3 A. Both. So tie did have their own people within their own 4 commercial team, and they were also seeking advice from 5 external parties as well. Cyril Sweett had done an 6 assessment of liability. Gordon Harris Partnership had 7 been working as well. But it seemed to me that the tie 8 commercial team and certainly Tony Rush and his team 9 were working almost independently. It didn't feel like 10 they were working together. It was almost like a -- and 11 that may have been okay, because it may have just been 12 that tie wanted to have a very independent view outwith 13 their own team of what the potential costs could be, but 14 it seemed that they were very much separate. 15 CHAIR OF THE INQUIRY: Are you saying that professional 16 quantity surveyors, both employed internally by tie and 17 externally in a professional firm or firms, failed to 18 identify GBP150 million of costs? 19 A. They had a very different view. I think that if you 20 look at tie's view of Phoenix versus Tony Rush's view of 21 Phoenix, it was very different. It was a very different 22 view that was being provided through external advisers 23 compared to the internal team. I don't know why that 24 was, and I don't know why tie arrived at those decisions 25 internally, but there was a -- there was very much 55 1 a divergence of view between external advisers being -- 2 advising tie at that time and their internal team. 3 MR MCCLELLAND: Did you have the impression that the view 4 held by the tie quantity surveyors was a sincerely held 5 one? 6 A. I think they believed in their commercial strategy. 7 I don't doubt their sincerity around it, but I just 8 think it was wrong. 9 Q. Did the difference of view between the tie QSs on the 10 one hand and the other advisers on the other hand, did 11 that difference of view persist? 12 A. Yes. 13 Q. Through the mediation? 14 A. Yes. 15 Q. Was somebody called upon to decide which of the two 16 views was the better one? 17 A. I think that through the process of the mediation, the 18 additional views were highlighted. They were brought to 19 bear. There was questions and discussions around one 20 view versus the other, and there was some numbers 21 allocated against the kind of broad headings that, you 22 know, would, I guess, come back to something in the area 23 of 150 million, that tie -- and the Council were -- had 24 a difference of opinion. 25 So yes, that continued to exist. 56 1 Q. Looking back at your report in paragraph 7.6, that would 2 suggest that the view that held sway was the one that 3 GBP150 million of extra costs had to be taken into 4 account in assessing the cost of terminating and 5 reprocuring? 6 A. Correct. 7 Q. What I would like to know is whose decision was that? 8 A. The decision -- so there was no decision taken -- the 9 paragraph that's highlighted there, that provides a view 10 of the divergence between tie and the Council had, in 11 terms of the terminate and re-procure option. That was 12 used as information that could then be used within the 13 mediation, in terms of what could be a sensible outturn 14 for the project and a sensible price on which to agree. 15 Q. When those negotiating on behalf of the Council at the 16 mediation went forward to negotiate with the consortium, 17 had they in their own minds resolved whether or not the 18 estimate of the cost of terminating and reprocuring 19 should include this extra GBP150 million? 20 A. Yes, I think so. 21 Q. Did they come to the view that it was appropriate to 22 take account of those costs? 23 A. Yes. 24 Q. So whose decision was that? 25 A. So the principals that were at mediation were the 57 1 Council Chief Executive, Sue Bruce, 2 Ainslie McLaughlin of Transport Scotland and the 3 contractors. So ultimately it would have been the 4 Chief Executive and Mr McLaughlin that would have come 5 to that decision. 6 Q. Okay. So in resolving this disagreement between the tie 7 quantity surveyors and the external quantity surveyors 8 about whether or not GBP150 million had to be added to 9 the cost of terminating and reprocuring, the 10 decision-makers about that would have been Sue Bruce, 11 the Chief Executive of the Council, and 12 Ainslie McLaughlin, Transport Scotland? 13 A. That's correct. 14 Q. Do you recall them making the decision? 15 A. I can't recall, you know, when that happened, no. 16 CHAIR OF THE INQUIRY: I think a few minutes ago you said it 17 was a difference of strategy between tie and the 18 Council. 19 A. Yes. 20 CHAIR OF THE INQUIRY: But was it really a difference of 21 strategy? Because if the -- if one were evaluating the 22 option of termination and reprocuring, then that is 23 certainly a strategy that was being evaluated? 24 A. Yes. 25 CHAIR OF THE INQUIRY: Is it not the evaluation of the cost 58 1 of termination and re-procurement that was the issue 2 between the two? 3 A. That is correct, but one informs the other option, 4 because if the termination and re-procurement strategy 5 option was significantly cheaper than a mediated 6 settlement, for an example, then I think that would have 7 then potentially taken the Council down a different path 8 in terms of the preferred route, if it was significantly 9 cheaper. But tie had failed to include within that 10 evaluation of that particular scenario a significant 11 number of costs, that would definitely be something that 12 you would take into account in terms of your preferred 13 strategy. 14 CHAIR OF THE INQUIRY: I can understand that, but really 15 what you have is a dispute between different 16 professional people as to how this should be costed. 17 A. Yes. 18 CHAIR OF THE INQUIRY: I think Mr McClelland was asking who 19 ultimately adjudicated upon that dispute, and are you 20 saying it was Sue Bruce and Mr McLaughlin? 21 A. They were the decision-makers who were there for 22 representing the Council and Transport Scotland, 23 ultimately funding the project. So ultimately it would 24 have been those individuals that would have decided on 25 the best strategy and the best way forward; taking into 59 1 account all the information that was provided to them by 2 internal team, external advisers and so on and so forth. 3 CHAIR OF THE INQUIRY: It's not a case of deciding which was 4 the best strategy. The first thing they would have to 5 decide is whether they preferred the tie surveyors or 6 Mr Smith and -- did you say Tony Rush? 7 A. Yes, there were several external -- the Council were 8 receiving external advice from Mr Rush. He had a view. 9 Mr Smith had a view. There was legal representation 10 there that would have been able to advise on the extent 11 of heads of claim potentially, and what the value could 12 be there. 13 So there were several individuals and several 14 advisers that the Council were listening to as part of 15 the -- in the lead-up to mediation and at mediation that 16 it seemed to me that tie were not listening to. 17 MR MCCLELLAND: Now, we saw from the Deckchair spreadsheet, 18 Mr Coyle, that on tie's figures, terminating and 19 reprocuring was less expensive than a deal based on 20 Phoenix. 21 A. Yes. 22 Q. Is it correct that the effect of the adjustment of 23 GBP150 million would be to reverse that? 24 A. Yes. 25 Q. So that as a consequence of the GBP150 million 60 1 adjustment, terminating and reprocuring was no longer 2 the cheaper option, but that a deal based on Project 3 Phoenix would be the cheaper option? 4 A. That's correct. 5 Q. So the effect of the adjustment was to make the 6 Council's favoured outcome less expensive than tie's 7 favoured outcome? 8 A. That's correct. 9 Q. Returning to paragraph 7.6 of your report, the final 10 sentence there refers to Appendix 3 showing the working 11 papers from mediation for this eventuality, which 12 I think must be a reference to the costs of procurement. 13 Could we please have a look at page 249. Is that 14 the appendix being referred to? 15 A. That's correct. 16 Q. Can you just explain in broad terms what this shows? 17 A. This shows the tracking of a discussion that was held 18 between Mr Bell, Mr Jeffrey and Mr Smith with regard to 19 the potential outturn costs and the divergence of 20 opinion that those gentlemen held with regard to these 21 particular scenarios. 22 So this would help inform the -- it helps inform the 23 paragraph that we just read out. So this was at 24 a meeting that was held early on in the mediation, 25 potentially the first day of mediation, between those 61 1 individuals. 2 Q. Who prepared the document we're looking at now? 3 A. I witnessed the conversation and I recorded the 4 scenarios on which both teams -- both individuals, 5 Mr Jeffrey, Mr Bell and Mr Smith, I recorded the 6 difference of views between the two. 7 Q. Do we see that there's -- in the left-hand column, the 8 word "Separation"? 9 A. Yes. 10 Q. Do the figures in that section cast any light on the 11 GBP150 million figure that we've just been discussing? 12 A. Yes, yes. 13 Q. Can you just explain how that is, please? 14 A. So the view on the left was basically -- was basically 15 tie's view. The view on the right was Mr Smith's view. 16 What you see here is agreement or disagreement or 17 the variability of disagreement with regard to these 18 figures. And I think that what it shows is that for the 19 figures in orange, that basically -- rough agreement in 20 terms of there's a risk, there was something to look at, 21 but don't agree on the figures. And then complete 22 disagreement on the items in red between tie's view and 23 Mr Smith's view. 24 Q. So we see the key at the bottom in coloured stripes. So 25 anything that's highlighted in green is something that 62 1 was agreed in principle between Mr Jeffrey, Mr Bell and 2 Mr Smith; is that correct? 3 A. Correct. 4 Q. And anything in orange, the key for that is: 5 "Agree to agree, the numbers are highly variable." 6 A. Yes. So in principle there are items that need to be 7 considered, but we don't agree on what the quantum of 8 those are. 9 Q. And red: 10 "Area of disagreement between CEC advisers and tie." 11 A. Yes, just complete disagreement in relation to the 12 heading and the number. 13 Q. Now, the figure of 150 million doesn't appear here. Can 14 you explain how, if at all, we get to 150 million from 15 these figures? 16 A. I can't recall on how we get from 150 million from these 17 figures. As I said, these items were very high level 18 numbers that were -- that were being discussed very 19 early in mediation. Obviously a significant amount of 20 time had then passed between that and then the -- you 21 know, the eventual number that justified the 150 over 22 a period probably of about three months between the 23 mediation, and then reporting to Council on the range of 24 options in June 2011. But I think it shows the delta 25 between the view of those various individuals at an 63 1 early stage. 2 Q. Okay. I'll leave that there for now. 3 If we could go, please, to paragraph 7.5 of the 4 report. Sorry, I haven't given you a page number. It's 5 page 234, please. No, it's the next page, 235. 6 This is moving away from the terminate and re-procure 7 option back to the Phoenix option. Your report says: 8 "As highlighted above, the Phoenix proposal 9 represented Infraco's opening position at mediation. 10 tie's negotiating standpoint on this proposal was that 11 a deal could be achieved which would have resulted in an 12 anticipated final cost of GBP682 million compared with 13 the Infraco proposal, which would have resulted in an 14 anticipated final cost of GBP747 million. 15 "On closer examination of the Infraco Phoenix 16 proposal it became clear that there was almost 17 GBP80 million of exclusions in this proposal which may 18 have resulted in a similar addition to the final cost of 19 the project, had CEC signed up to the Phoenix proposal 20 as it was." 21 Could you just briefly explain the second paragraph 22 there? 23 A. Sure. There was an assessment done during the mediation 24 of each of the exclusions within the Infraco proposal, 25 as it stood at mediation, and a value attributed to each 64 1 of those exclusions which totalled 80 million or 2 thereby. 3 Q. I think when you looked at the deckchair spreadsheet, 4 you had added in figures? 5 A. Yes. 6 Q. That -- suggested by Mr Bell? 7 A. Yes. 8 Q. The range, as I recall it, was from -- I think it was 9 about GBP40 million to GBP107 million? 10 A. Yes. 11 Q. Were they dealing with the same thing as this 12 80 million? 13 A. Yes, I think so. Yes. 14 Q. So do we understand from what you're saying that the 15 range was refined to a figure of GBP80 million? 16 A. Yes. Yes. 17 Q. Since those figures appeared in the calculations in the 18 spreadsheet, do we understand that what's being 19 discussed in your report at paragraph 7.5 did not 20 require an additional GBP80 million to be added to the 21 estimated costs of the Phoenix deal? 22 A. It would appear that the 80 million would have been 23 included within the 747, based on that statement. Could 24 I have a look at the spreadsheet, the Deckchair 25 spreadsheet again, please? 65 1 Q. Of course. That's TIE00355078. I think that's probably 2 the part, the area you want to be looking at? 3 A. Could you scroll slightly further down, please, so I can 4 have a look at the final totals? Thank you. 5 Yes, so that would -- that would suggest that the 6 748.9 is comparable with the 747 that is in the report. 7 Q. So the 748 you are referring to, that's in column V, row 8 84; is that correct? 9 A. That's correct, yes. 10 Q. The high level point is that when your report discusses 11 an GBP80 million figure, no adjustment is required to 12 the figures in the pink columns in your spreadsheet, 13 because that matter is already taken account of. 14 A. Yes. It's already taken account of. 15 CHAIR OF THE INQUIRY: If it had been agreed at 80 million, 16 would there not be an adjustment in the sense that that 17 would then become an agreed figure? 18 A. Yes, that figure would have changed. 19 CHAIR OF THE INQUIRY: It would take 26.6 million off the 20 748.9. 21 A. Yes. All other things being equal, yes. 22 MR MCCLELLAND: I'm obliged, my Lord. 23 CHAIR OF THE INQUIRY: Is this a convenient point? 24 MR MCCLELLAND: Yes, it is. 25 CHAIR OF THE INQUIRY: We will adjourn for about 15 minutes. 66 1 (11.04 am) 2 (A short break) 3 (11.19 am) 4 CHAIR OF THE INQUIRY: You're still under oath, Mr Coyle. 5 Yes, Mr McClelland. 6 MR MCCLELLAND: Mr Coyle, we've been discussing a late and 7 a large adjustment to the cost estimate at mediation. 8 In your view, did tie and CEC have enough time to 9 prepare for the mediation? 10 A. Yes, I think so. Obviously we started looking at -- 11 a lot of these matters had been prevalent for 12 significant amount of time. tie had been looking at 13 options throughout 2010. So there was several, you 14 know, contractual matters that were outstanding at that 15 point. 16 And then, you know, the Council through late 2010 17 into early 2011 were looking at these options. There 18 was obviously two or three proposals that were submitted 19 from BSC. So therefore, you know, there had been views 20 taken on them. So I think so, yes. 21 Q. You were not concerned by the fact that an adjustment of 22 that magnitude turned out to be needed on the first day 23 of the mediation? 24 A. I think that the options that are on the Deckchair 25 spreadsheet, actually, in the grey columns and in the 67 1 pink columns, shows quite a divergence in terms of 2 potential outturn cost. So therefore not hugely 3 surprised that there would be an adjustment between, you 4 know, one particular scenario and another. The sums of 5 money that were being discussed here were very large. 6 I think it became obvious that tie had missed some 7 pretty large cost headings from their terminate and 8 re-procure option. 9 Q. Could we have document, please, CEC02083835. 10 Is that a document you've seen before? 11 A. I can't recall for certain if I've seen this document 12 before. 13 Q. We see on page 1 that it's headed up, "Project SB File, 14 Report Number One, First Observations and Emerging 15 Thoughts, 31st January 2011". 16 Down at the bottom it says: 17 "Prepared by: Colin Smith". 18 He was the adviser for the Council at that 19 mediation? 20 A. That's correct, yes. 21 Q. Could I ask you please to look at page 2. We see here 22 under the heading of "THUMBNAIL PROFILES", a number of 23 the main individuals from tie; is that correct? 24 A. Yes. 25 Q. tie and its advisers? 68 1 A. Yes. 2 Q. Down at the bottom there's reference there to Tony Rush. 3 Could you just briefly explain who Tony Rush was and 4 what his role was? 5 A. My understanding of Mr Rush's role was that he was 6 advising tie, principally Mr Jeffrey, in commercial 7 assessment of -- had been asked to do some work with the 8 consortium to reach a deal. I think Mr Rush was 9 involved in Project Carlisle and also on Project 10 Phoenix. So Mr Rush, in the lead-up to mediation, was 11 advising tie on commercial matters. 12 Q. Just to be clear, Project Carlisle, that was the name 13 given to the attempts in 2010 to negotiate a resolution 14 with the consortium? 15 A. Yes. 16 Q. Which had not been successful? 17 A. That's correct. 18 Q. Now, if we just read what Mr Smith has said under the 19 heading of Tony Rush, we can ignore the first 20 sentence -- sorry, no: 21 "Good grasp of people and technical issues, noted 22 comments on time to prepare for Phoenix and Separation. 23 Not enough time to do both, concentrate on Phoenix. 24 I would agree with this, although separation should be 25 developed to some degree as a negotiating lever." 69 1 To what extent does that reflect your understanding 2 of matters? 3 A. So that suggests to me that Mr Smith thinks that we have 4 had -- that tie have had enough time to be able to get 5 a good grasp on Project Phoenix, given the level of 6 commercial detail that would have been submitted by BSC 7 on that, but that there hadn't been enough time to 8 develop the separation option and that that would -- and 9 development of that option would then give CEC a view of 10 what potential outturn costs could be as an alternative 11 to a mediated settlement. 12 So this seems to me that from that, there's not 13 enough detail behind the Separation option at that point 14 in time, which again would tie up with the previous 15 report that suggested that very large cost headings had 16 been missed from that option. 17 Q. That was why I asked you if tie and CEC had enough time 18 to prepare properly for the mediation. Do you want to 19 review your answer to that? 20 A. I think from -- I think from this it would suggest that 21 the Separation option was not as mature as the others. 22 So therefore could have -- could have -- would have 23 benefited from more time to get that option in a more 24 mature state. 25 Q. Yes. If we read what Mr Smith has said, he's talking 70 1 about Tony Rush and he says: 2 "Good grasp of people ..." 3 And so on: 4 "Not enough time to do both, concentrate on Phoenix. 5 I would agree with this ..." 6 He appears to be attributing to Mr Rush the view 7 that there wasn't enough time to prepare both options? 8 A. Yes -- 9 Q. Does that accord with your understanding of Mr Rush's 10 view? 11 A. It does, because Mr Rush, I believe, was brought in to 12 negotiate a deal with the contractor on Project Phoenix. 13 So it stands to reason that he would be well prepared 14 and know that particular option very well. 15 Whereas it seemed to me that the separation option 16 was developed by the in-house tie team, as opposed to 17 Mr Rush, who obviously, you know, I can't remember if 18 Mr Rush had a view on that, gave a view on that. I do 19 recall a spreadsheet that had a comparator against 20 deckchair against Mr Rush's view, but it would seem to 21 me -- his focus was Project Phoenix. 22 Q. I think in one of your answers, you had suggested that 23 by this time, which was January 2011, Phoenix was well 24 prepared. I think that was what you said? 25 A. Yes. 71 1 Q. Can I suggest that that's not what it says, and what it 2 says there is: 3 "Not enough time to do both, concentrate on 4 Phoenix." 5 That would tend to suggest there was still work to 6 be done on the Phoenix option? 7 A. Yes. 8 Q. In fact there was so much work to be done on that, there 9 was not enough time left to work on the Separation 10 option? 11 A. Yes, albeit that there was separate teams. Mr Rush was 12 concentrating on Phoenix and the tie in-house team were 13 looking at separation numbers. 14 So there was two different teams of people looking 15 at both options. 16 Q. Was it the case that the Separation option was left 17 undeveloped by the time of the mediation? 18 A. Yes. 19 Q. What do you understand by Mr Smith's reference to 20 Separation being developed to some degree as 21 a negotiating lever? 22 A. It suggests that that -- what Mr Smith is meaning there 23 is that the -- they would give a comparator to the 24 Phoenix deal and the potential outturn cost of that. 25 Q. Yes. Is it the case that the Separation option was the 72 1 only realistic alternative to Phoenix by the time of the 2 mediation? 3 A. Yes. 4 Other than a mediated settlement, obviously. 5 Q. Well, mediated settlement, the options for a mediated 6 settlement were two, were they not? One based on the 7 Phoenix deal and one based on separation followed by 8 re-procurement? 9 A. Yes. 10 Q. In assessing the option of a Phoenix deal, would you 11 regard it as important to have a clear understanding of 12 what the Separation option would cost? 13 A. Yes. 14 Q. If the Separation option was left undeveloped because of 15 a lack of time, did that have an impact on the Council's 16 ability to assess whether or not the Phoenix Proposal 17 was a good deal? 18 A. Yes. 19 Q. In what way did it affect it? 20 A. I think because there was such a large difference 21 between the Phoenix deal and Separation, which was 22 obviously then reduced in terms of the potential outturn 23 costs, given the discussions that were held at 24 mediation, obviously that change would have -- had the 25 separation option been developed to the extent that 73 1 Phoenix was, then that would have given a much closer 2 comparator, I guess, in terms of the various options. 3 But I guess through the early part of mediation and 4 those initial meetings, it very much exposed the fact 5 that there was additional cost to go on top of the 6 Separation option. 7 So yes, it was less developed. 8 Q. Why was -- you see there that Mr Smith and Mr Rush have 9 taken the view that because there wasn't enough time, 10 they should focus on the Phoenix option and not the 11 Separation option. Why was that decided? 12 A. I don't know. You would need to ask Mr Smith, but my 13 view of life would be that it was because the Phoenix 14 Proposal was more well developed, and would have given 15 a -- it would have given the Council a baseline to be 16 able to work from. 17 Q. Was it because the Council's favoured option was the 18 Phoenix deal? 19 A. Council's favoured option was to get a settlement. 20 Obviously the terms of the Phoenix deal were not the 21 eventual terms that were settled. So there was 22 obviously going to be a negotiated position on the back 23 of that. But again, you would need to ask Mr Smith 24 specifically what he meant by that. 25 Q. I think you have given evidence that the Council's 74 1 favoured option between terminating and reprocuring on 2 the one hand, and a deal based on Project Phoenix on the 3 other, was for a deal based on Project Phoenix? 4 A. Yes, but not on the terms of Project Phoenix as they 5 were laid out there. 6 Q. No. But all I'm asking you is: was the decision to 7 focus efforts on the Phoenix option taken because the 8 Council had decided that was its preference? 9 A. Yes. 10 CHAIR OF THE INQUIRY: Are you going to most of on to 11 another document, Mr McClelland? Are you still going to 12 ask -- 13 MR MCCLELLAND: No, I'm finished with that document. 14 CHAIR OF THE INQUIRY: You were asked about the last phrase 15 of the first paragraph: 16 "... although Separation should be developed to some 17 degree as a negotiating lever." 18 Does that suggest to you that Mr Smith in 19 January 2011 was effectively rejecting the Separation 20 option? 21 A. Yes. 22 CHAIR OF THE INQUIRY: Without the full details of the 23 calculation? 24 A. Without -- Separation wasn't obviously developed to that 25 point. So yes. 75 1 MR MCCLELLAND: I'm finished with that document, thank you. 2 If I could move away from that matter, Mr Coyle, and 3 ask you about the project costs and the funding that was 4 available to pay them. 5 At the time of the mediation, what was the approved 6 level of funding for the project? 7 A. I think it was 545 million. 8 Q. How close to that funding limit had the project cost got 9 by the time of the mediation? I don't need an exact 10 figure, unless you can remember. 11 A. I can't recall the exact cost of work done to that date. 12 I would guess it would be somewhere in the region of 13 350 million perhaps, but certainly taking into account 14 outstanding -- potential outstanding liabilities, 545 15 would have been breached. 16 Q. Yes. If I can put it this way. Taking account of 17 accrued liabilities, how close to the funding limit was 18 the project by the time of the mediation? 19 A. I would say it would be over it. 20 Q. Over it? 21 A. Yes. 22 Q. If I could ask you, please, to look at CEC01715625. 23 This is a highlight report to the Chief Executive's 24 Internal Planning Group from January 2011. If we just 25 go to page 4, please. Under the heading of 76 1 "Governance", there's a paragraph which begins: 2 "The current estimated tram budget ..." 3 If we read that passage: 4 "The current estimated tram budget at the end of 5 period 10 ... is GBP541 million, with the funding 6 available totalling GBP545 million. The remaining 7 headroom, GBP3.8 million, will not allow all the 8 sufficient project changes to be made without requiring 9 a commitment to increase the budget above 10 GBP545 million." 11 Was that the position as you understood it at that 12 time? 13 A. Yes. 14 Q. Had it become worse than that by the time of the 15 mediation? 16 A. Yes. 17 Q. So if a deal had not been agreed at the mediation, what 18 would have been likely to happen to the costs relative 19 to that funding limit? 20 A. I think the costs would have continued to have 21 increased. 22 Q. And relative to the funding limit? 23 A. Well, I think it was open-ended because we would have 24 been in a -- the Council would have been in a -- tie 25 with Council as the ultimate provider in terms of 77 1 funding would have been locked into a contract that 2 could have ended up at a cost way in excess of 545. 3 Q. So without a deal at the mediation, the costs were 4 likely to exceed the authorised funding level? 5 A. Yes. 6 Q. In that scenario, would the Council have required extra 7 funding for the project? 8 A. Yes. 9 Q. How easy or difficult would it have been for the Council 10 to secure extra funding if the mediation had concluded 11 without a deal? 12 A. I think it would have been difficult, but obviously we 13 would have had liabilities that we would have had to 14 have settled. The size of those liabilities, who knows, 15 it also depends on what would have happened following 16 any separation. 17 If indeed that happened, but, you know, under the 18 contract, there was a contract to build a tram to 19 Newhaven. So the Council's liabilities would have been 20 very significant beyond the 545. 21 Q. If extra funding had been required, would that have to 22 be approved by the councillors? 23 A. Yes. 24 Q. Do you have a view on how likely approval for extra 25 funding would have been if the mediation had concluded 78 1 without a deal? 2 A. I think that it would really have depended -- if we were 3 locked into the existing contract, it would -- from my 4 view, it would have been a case of damage limitation. 5 It would have been a case of getting -- getting out of 6 that deal without the -- or continuing the project 7 with -- I just don't think it was a viable option. 8 I think that continuing under that contract would have 9 left the Council to an open-ended liability that would 10 have required a significant amount of additional 11 borrowing over and above the 545 million. 12 And I guess whether or not approval for that would 13 have come, the contractual liability would have been 14 there in any case. So it would have been, I guess, 15 a necessity for the Council to have found the money 16 somehow. 17 Q. Is it fair to take your answer as being that the Council 18 really had no alternative but to come away from the 19 mediation with a deal? 20 A. Yes. 21 Q. I would like to move on now, Mr Coyle, to the deal that 22 was actually agreed at the mediation. If we could have 23 document CEC02084685. 24 This is a document that the Inquiry has already 25 seen, Mr Coyle, but is it one that you're familiar with? 79 1 A. Yes. 2 Q. As we understand it, it's the list of agreed points of 3 principle agreed at the mediation on 10 March. 4 The terms to a large extent speak for themselves, 5 but if we just look at paragraphs 1 and 2, please. At 6 paragraph 1: 7 "Price GBP362.5 million for the Edinburgh Tram 8 Network from Airport to Haymarket (excluding CAF but 9 including integrated Design to Newhaven)." 10 Just pause there. Why pay for a design to Newhaven 11 if the line was only going to be built at most to 12 St Andrew Square? 13 A. I guess with future extension in mind, and also the fact 14 that any future extension, in the event of partial 15 design, would have required an additional cost to have 16 been -- an additional cost for that future design, but 17 also may have introduced design risk for any 18 subsequent -- for any subsequent development of the 19 tramline. 20 Q. So was the decision at mediation to include within the 21 price a design to Newhaven? 22 A. Yes. 23 Q. Taken on the basis that at some future point, the line 24 might be extended to Newhaven? 25 A. Yes. 80 1 Q. Whose decision was that? 2 A. It would have been ultimately the principals that were 3 representing CEC and Transport Scotland. 4 Q. So on the part of the Council, that would be -- 5 A. Sue Bruce. 6 CHAIR OF THE INQUIRY: Mr McLaughlin on behalf of 7 Transport Scotland. 8 A. Yes. 9 CHAIR OF THE INQUIRY: Did he actually have an input into 10 the discussion and agreement? 11 A. The principals were all working together. They were all 12 there together. Mr McLaughlin was there for all the 13 time that Ms Bruce was there. 14 MR MCCLELLAND: We see there the price for the line to 15 Haymarket of GBP362.5 million. I think we saw when you 16 were here, the first day you were here to give evidence, 17 that the Project Phoenix Proposal price, excluding CAF, 18 was GBP384 million. 19 A. Yes. 20 Q. Does that seem right? 21 A. That seems right. 22 Q. So the difference therefore is a reduction of about 23 GBP21.5 million between what the consortium wanted and 24 what they got? 25 A. Yes, but also the 362 only included for minor variation 81 1 for minor utilities. It didn't include any exclusions. 2 So the actual -- if you look at that, there's actually 3 a risk exposure that's been mitigated through this as 4 well. 5 Q. Was that the matter we discussed earlier this morning -- 6 A. That's correct. 7 Q. -- on which a value of GBP80 million had been placed? 8 A. That's correct. Albeit the 80 million, I can't recall 9 whether or not that -- well, yes, that would have only 10 been up to Haymarket as well. So yes, that would be 11 applicable, yes. 12 Q. So let me try and summarise what you are saying. As 13 well as the discount of GBP21.5 million on price, the 14 Council's perception was that they saved GBP80 million 15 because they had negotiated away the pricing exclusions? 16 A. That is correct. 17 Q. Paragraph 2: 18 "Consider proposed Infraco price for the Edinburgh 19 tram network from Haymarket to St Andrew Square 20 (excluding utilities) of GBP39 million, to be adjusted 21 by reference to target price mechanism to be agreed." 22 Just briefly, can you explain why the price for this 23 section of the line was being treated in that way? 24 A. It would have been treated in that way because of the 25 risk. That was still perceived to be apparent in the 82 1 on-street section. So the off-street section, much more 2 risk-free. So could be treated within the 362.5 million 3 lump sum, but within the on-street section, it was still 4 seen to be significantly risky. Therefore a separate 5 agreement would be required to execute those works. 6 Q. If we just briefly look at paragraph 4, please: 7 "Absolute price certainty with the Design meeting 8 the Employer's Requirements." 9 Was that the point you were making about the removal 10 of the exclusions from the price? 11 A. Yes. 12 Q. Did this matter also relate to the on-street works, or 13 was it just the off-street works? 14 A. I can't remember. I would suggest it would just be the 15 off-street works, but I can't remember. 16 Q. Just the off-street? 17 A. I can't remember. 18 Q. If you could look at paragraph 5, please: 19 "Price includes all Siemens materials and equipment 20 to Newhaven." 21 A. Yes. 22 Q. You have discussed the subject of paying for a design to 23 Newhaven. Is the explanation for buying the materials 24 and equipment to Newhaven, is it the same explanation? 25 A. Yes. 83 1 Q. Just to be clear, this is before the Council had taken 2 any decision about whether it wanted to approve the 3 Settlement or -- 4 A. Yes. 5 Q. -- how far the line was to extend? 6 A. Yes. 7 Q. If we could look at paragraph 12, please. We see there: 8 "Non-binding, indicative Heads of Terms to be 9 entered into between the parties ..." 10 Was the fact that this Agreement was not binding of 11 significance to the Council? 12 A. Yes, because it would then, you know, the Council -- the 13 Council would have required approval for this deal to 14 get funding for it, to get -- the Council members 15 comfortable with any commercial risk that we were 16 exposing -- that the Council were going to be exposed 17 to. 18 So it would give us comfort because we still had 19 a number of approvals to get in place to make this work. 20 Q. Yes. So if I can put it this way, if this was the deal 21 negotiated ultimately by Sue Bruce as an officer of the 22 Council, it still had to be approved by the councillors? 23 A. That's correct. 24 Q. What was your role, Mr Coyle, in the discussions leading 25 to the Agreement we've just looked at, and in particular 84 1 the Agreement on price? 2 A. My role was really to record and to track the 3 discussions as they were going. So as the numbers 4 were -- you know, we had a range of scenarios in mind, 5 as you can see from the Deckchair spreadsheet, but 6 during the course of mediation, my role was to assist my 7 Director, Donald McGougan, tracking the potential 8 outturn costs of the project. 9 Q. Excuse me just a minute, Mr Coyle. 10 If we were able to look at document TRI00000060. 11 CHAIR OF THE INQUIRY: Before that's put up, could I just 12 ask about this document. 13 You were asked about the Settlement, including the 14 integrated Design to Newhaven. Can you recall what that 15 meant? The integrated Design to Newhaven? For 16 instance, does it extend to issue for construction 17 drawings? 18 A. The price would have included for -- the design as it 19 stood at that time to Newhaven. So there would still -- 20 there would still be a number of approval -- approval of 21 those drawings that would have been outstanding at the 22 time of mediation. 23 CHAIR OF THE INQUIRY: Then development -- if the extension 24 did go down to Newhaven, it was required to be issued 25 for -- 85 1 A. Yes. 2 CHAIR OF THE INQUIRY: Do you know where the copyright lies 3 with these designs? 4 A. I don't. 5 CHAIR OF THE INQUIRY: Because if the copyright lies with 6 the designer, then it -- does that mean that the city is 7 tied in to the same designer, should the line be 8 extended to Newhaven? 9 A. So I think that -- my view is that the deal that was 10 done with the contractor meant that the Council took 11 ownership of that design all the way to Newhaven. 12 CHAIR OF THE INQUIRY: So they can choose any designer they 13 want for the issue -- 14 A. Yes. 15 CHAIR OF THE INQUIRY: And also, as far as the equipment to 16 Newhaven is concerned, do you know what that included? 17 I think you mentioned -- I think somebody mentioned 18 rails. But does it include other equipment? 19 A. I can't remember 100 per cent whether it included rail, 20 overhead lines, et cetera, et cetera. 21 CHAIR OF THE INQUIRY: So that would be Siemens' equipment 22 in relation to overhead line. 23 A. Yes. 24 CHAIR OF THE INQUIRY: Does that mean that the Council is 25 tied into Siemens for any extension, because there may 86 1 be issues about using their equipment? 2 A. I can't say for sure. It's not my area of expertise. 3 CHAIR OF THE INQUIRY: Thank you. 4 MR MCCLELLAND: You described yourself as having a role in 5 tracking developments as the price was discussed. 6 Can you please just describe in overview how the 7 price of GBP362.5 million was agreed? 8 A. I think it's pretty clear in paragraph 7.7 of the report 9 that was developed by Mr Smith and myself. 10 Q. Okay. Well, we will come to that in just a moment. But 11 before we go there, who -- we know from the fact that 12 they signed the Key Points of Principle document that 13 Vic Emery and Sue Bruce agreed to the price of 14 GBP362.5 million. Who else at the mediation agreed that 15 that was an appropriate price? 16 A. I think in terms of -- do you mean the parties to the -- 17 the signatures to the Agreement or people that agreed -- 18 Q. Sorry, you're quite right to ask me to clarify that. 19 I mean within the CEC and tie team. 20 A. So within the CEC team, it would have been Mr McGougan 21 as the Finance Director, and Sue Bruce as the 22 Chief Executive. But ultimately we would have to be 23 comfortable with that price, and also Mr Emery from tie 24 as being the chairman, I think he was, of tie at the 25 time. And that would have been the people that would 87 1 have had to have agreed that that was a sensible price. 2 Q. What about people from tie? 3 A. I don't think the people from tie thought it was an 4 sensible price. I think the people from tie thought 5 they could have got an Agreement or Separation that 6 would have been more financially advantageous. 7 Q. Just to specify people from tie, what about Mr Jeffrey, 8 the Chief Executive? 9 A. I don't think Mr Jeffrey was happy with the deal. 10 Q. What about Steven Bell, the Tram Project Director? 11 A. Likewise. 12 Q. And Dennis Murray, the Commercial Director of tie? 13 A. I think Mr Murray would have -- I'm not sure what 14 Mr Murray's view was, but he would have been led by 15 Mr Jeffrey and Mr Bell. 16 Q. He would have been led by Mr Bell and Mr Jeffrey? 17 A. They were ultimately his -- they were his managers, his 18 superiors, so I'm not sure what his individual view was. 19 Q. Mr Murray, as I understood it, was the Head of the 20 Commercial Department at tie? 21 A. That's correct, yes. 22 Q. Which was responsible for producing the figures? 23 A. That's correct, yes. 24 Q. Can we please have document WED00000582. Sorry, just 25 before we look at that, I should also have asked you 88 1 about some of the advisers who were at the mediation. 2 Did Tony Rush agree the price of GBP362.5 million -- 3 A. Yes. 4 Q. -- was an appropriate one? 5 A. Yes. 6 Q. Did Colin Smith agree? 7 A. Yes. 8 Q. How did they express their agreement? 9 A. I can't remember. I just -- you know, Mr Smith and 10 Mr Rush both supported the price. 11 Q. The reason I asked is you seemed quite confident in your 12 answer that they had agreed the price. I just wanted to 13 know what -- whether you were confident about your 14 recollection and if so, what it was based on? 15 A. I think that the Council team, from Sue Bruce, 16 Mr McGougan and advisers, were in agreement of that 17 number. 18 Q. Okay. 19 If we look at the document that's now on screen, 20 WED00000582, I think this is a document that may have 21 been sent to you by the Inquiry. Have you seen that 22 document before? 23 A. Yes. 24 Q. We see there that it's an email from Tony Rush to 25 Brandon Nolan and Nigel Robson. The subject heading is 89 1 "File Note". Just reading through it: 2 "Nigel/Brandon, not a fully detailed file Note, but 3 I think it records the relevant details." 4 I should say the date that is on it is 5 14 March 2011. So that's just a matter of days after 6 the mediation. Do you see that? 7 A. Yes. 8 Q. Then it carries on: 9 "File Note - ETN Mediation". 10 Transport for Scotland was represented by 11 Ainslie McLaughlin. CEC were represented by Sue Bruce, 12 Donald McGougan, Alastair Maclean, Dave Anderson, 13 Bob McCafferty and Alan Coyle. 14 Is that all correct so far? 15 A. Yes. 16 Q. For tie, Vic Emery, Richard Jeffrey, Steven Bell and 17 Dennis Murray? 18 A. Yes. 19 Q. Are there any names missed off that list? 20 A. There is, yes. 21 Q. Who has been missed off? 22 A. There was various points in time when additional people 23 came to mediation. So there were certain people called 24 in later in the week to help with work streams. I can't 25 remember -- I don't have an exhaustive list just to tell 90 1 you today, but there was certainly Susan -- Susan Clark 2 was also in attendance at mediation. 3 A gentleman called Ritchie Somerville was also in 4 attendance at mediation from CEC. That's two -- that's 5 two notable exceptions, I would say, in terms of -- 6 Q. We will carry on to go through the advisers. 7 In relation to the agreement on price, was there 8 anybody else of significance to the decision who doesn't 9 appear on that list? 10 A. I don't think so, no. 11 Q. Then the adviser team: Colin Smith, Brandon Nolan, 12 Drysdale Graham, Nigel Robson and Tony Rush: 13 "At all times Sue Bruce and Vic Emery took the lead 14 with the Mediator and the Infraco. In most cases, 15 Ainslie McLaughlin also attended meeting between 16 Principals." 17 Does that accord with your recollection? 18 A. Yes. 19 Q. "In general there was a "top-Team" of Sue Bruce, 20 Ainslie McLaughlin, Vic Emery and CEC Directors with the 21 Advisor Team." 22 A. Yes. 23 Q. The CEC Directors, is that a reference to 24 Donald McGougan? 25 A. And Dave Anderson. 91 1 Q. The next bullet: 2 "Richard Jeffrey was in the main "frozen out" of the 3 decision-making process by the Principals but at all 4 times was given a chance to comment and object (which he 5 did)." 6 Is that correct? 7 A. Yes. 8 Q. What would you understand to be meant by "frozen out of 9 the decision-making process"? 10 A. I would say omitted from the lead discussions with 11 Sue Bruce and Vic Emery. 12 Q. So the Chief Executive of tie formed no part of the 13 decision-making process? 14 A. I wouldn't say didn't form any part of the 15 decision-making process. I think, as I say, he was 16 given every opportunity to contribute, but I think very 17 much the discussions were led by Sue Bruce and Vic Emery 18 who was the Chairman, I think, of tie at the time. 19 Q. The next bullet: 20 "Steven Bell and Dennis Murray were directly 21 involved in all matters." 22 That's quite a broad statement. What's your view of 23 their involvement at mediation? 24 A. They were actively engaged. Actively engaged in all the 25 meetings. Actively engaged in internal meetings. So 92 1 yes, I would say they were fully involved. 2 Q. Were they involved in decision-making, or were they 3 providing information or was it both? 4 A. They were given -- ultimately decisions were made by the 5 principals. But they were given every opportunity to 6 input to those particular decisions. 7 Q. If we just move on to the next page, please. At the top 8 there's a section, "Monday, 7 March 2011": 9 "A meeting of the CEC and tie teams along with 10 advisers took place at Mar Hall. Most of the day was 11 taken up with discussions on the comparison of potential 12 costs of agreed termination or Project Phoenix." 13 Is that the meeting at which the adjustment was made 14 of GBP150 million to the estimated cost of separation? 15 A. There was a number of meetings during the course of that 16 day. But there was one meeting in particular that 17 did -- that did trigger that discussion, yes. 18 Q. The way that Tony Rush puts it is that most of the day 19 was taken up with discussion of that issue? 20 A. Yes, I think that's probably right, in terms of the 21 potential outturn costs, yes, I would say that's 22 correct. 23 Q. Does that reflect how contentious an issue it was? 24 A. Yes. It was certainly a very important matter for 25 people to get understanding of and clear about. So yes, 93 1 I would say it was very important. 2 Q. At the end of that meeting, had those arguing the tie 3 position, if I can put it like that, for the lower 4 estimate of cost, had they become reconciled to the idea 5 that GBP150 million should be added to the estimate, or 6 did they stick to their original view? 7 A. I don't think that they -- they were happy with the view 8 that there was an additional 150 million. I think that 9 they were much more towards the original view. 10 Q. The passage reads on: 11 "The discussions were inconclusive, other than there 12 was an understanding that the "trigger point" for 13 rejecting a Project Phoenix Offer was in the region of 14 GBP740 million for all costs." 15 What do you understand by that? 16 A. I understand by that that there was, I guess, an upper 17 threshold that -- that the -- that the Council, 18 Transport Scotland, had in mind with regard to -- with 19 regard to the potential outcome, with regard to a deal. 20 Q. You referred to it as an upper threshold. Do you mean 21 that GBP740 million was the highest price that the 22 Council was willing to pay for a deal based on Project 23 Phoenix? 24 A. I think that at the end of that day, I think 740 million 25 was seen as the -- was seen as the tipping point in 94 1 terms of agreeing a deal based on information that was 2 discussed and held that day. 3 Q. By tipping point, do you mean that if the cost of a deal 4 based on Phoenix was going to go over GBP740 million, 5 the Council would look to another option? 6 A. Yes, based on this, and the information that was 7 available on that day, I think that it was understood 8 that a number in the region of 740 million would be 9 the -- I guess the threshold or limit that the Council 10 would wish to sign up to. 11 Q. Where had the GBP740 million figure come from? 12 A. I can't remember exactly, but I think during the course 13 of the day, you know, there was various discussions. So 14 there would have been, I guess, a range that would have 15 come out of those various discussions. And I can't 16 exactly remember where the 740 million came from, but it 17 would have been a range. 18 Q. Was GBP740 million the estimated cost of an alternative 19 option? 20 A. Not that I can recall. 21 Q. What was the significance of it? 22 A. I can't remember. There was various discussions that 23 happened during the course of that day that resulted in 24 discussions around the potential range of cost, and 25 where exactly the 740 came from, I can't exactly 95 1 remember. 2 Q. You described it, I think, as a tipping point? 3 A. Yes. 4 Q. Does that not suggest that once the price of a Phoenix 5 deal went up over GBP740 million, there was another 6 option available which would be less expensive than 7 that? 8 A. I don't think there was, no. I think that -- I think 9 that the 740 million was seen as an outturn cost that 10 the Council thought was reasonably sensible. I still 11 don't believe -- I don't believe that it was another 12 option in terms of the outcome because the remaining 13 contract would have held -- would have held true. So 14 therefore, you know, the Council would still have been 15 liable for open-ended expenditure under that existing 16 contract. 17 Q. Well, this passage in this email would suggest that the 18 figure of GBP740 million was of some considerable 19 importance for the Council? 20 A. Yes. 21 Q. In deciding what it should pay? 22 A. Yes. 23 Q. You were the Council officer for finance matters who had 24 been working on cost estimates for the past few months? 25 A. Yes. 96 1 Q. Is it your evidence today that you can't remember where 2 that GBP740 million figure had come from? 3 A. I can't remember exactly where the 740 million came 4 from. There was various -- you know, Deckchair 5 spreadsheet and various discussions that were held 6 during the course of that day that provided a range of 7 potential outcomes. I can't remember specifically where 8 that GBP740 million came from. 9 Q. Well, is it possible that that was the estimated cost of 10 terminating and reprocuring as the alternative option? 11 A. That could be possible. 12 Q. Is there any other possibility of what the 13 GBP740 million represented? 14 A. It may just be that the Council -- the Council and 15 advisers felt that that was a sensible number and 16 anything beyond that wasn't, and so -- yes. I don't 17 know where the 740 million came from. 18 Q. You don't know? 19 A. No, not for sure. 20 Q. Who -- 21 CHAIR OF THE INQUIRY: You say not for sure, but what is 22 your recollection? 23 A. There was a range of numbers and it may be that the 24 740 million was a midpoint between a range of numbers. 25 I can't be sure where the 740 million came from. 97 1 I don't know. 2 CHAIR OF THE INQUIRY: So did you get the impression that 3 the Council would walk away if it went beyond 740-odd? 4 A. It would suggest to me that from that statement that 5 based on the information that was available on that day, 6 that anything beyond 740 million would mean that the 7 Council would reject -- would reject the Phoenix 8 Proposal. They could not do a deal on those terms. 9 MR MCCLELLAND: So we can take it from this that GBP740 10 million was the upper limit for the Council on what they 11 were prepared to pay. 12 A. Yes. 13 Q. If we can just read on down through that email to the 14 Wednesday, 9 March section: 15 "The day was taken up with us interrogating the 16 Infraco on the Exclusions and Clarifications and later 17 by explaining our counter-offer." 18 Just pause there. The reference to "Exclusions and 19 Clarifications", what do you understand by that? 20 A. That would have been in relation to the circa 21 GBP80 million that were highlighted as potential 22 additional costs over and above the agreed sum. 23 Q. The exclusions from the -- 24 A. From the Infraco contract. 25 Q. -- Project Phoenix Proposal? 98 1 A. Yes, from the pProject Phoenix Proposal, yes. 2 Q. "... and later by explaining our counter-offer. This 3 was based on a spreadsheet prepared by AJR ..." 4 AJR, do you understand that to be Tony Rush? 5 A. Yes. 6 Q. "... a spreadsheet prepared by [Tony Rush] having 7 considered the explanations given by the Infraco and 8 SB's pricing of the risk of exclusions ..." 9 The SB there would be Steven Bell; is that correct? 10 A. Yes. 11 Q. "... clarifications and delay and additional extension 12 of time." 13 That would suggest that the Council made 14 a counter-offer at the mediation and that it was based 15 on a spreadsheet prepared by Tony Rush? 16 A. Yes. 17 Q. What's your recollection of that counter-offer? 18 A. I can't remember for sure what the counter-offer was. 19 I know it is -- it's recorded, and it's recorded within 20 paragraph 7.7 of the document that we looked at earlier 21 that was prepared by Mr Smith and myself. I can't 22 remember what that exact number was right here, right 23 now. 24 Q. We will come to that document shortly. Is it your 25 recollection that the counter-offer was based on 99 1 something prepared by Tony Rush? 2 A. Yes. 3 Q. Was it him who suggested what the counter-offer figure 4 should be? 5 A. If it -- yes. If it came out of those spreadsheets, it 6 would have been Mr Rush that would have put forward that 7 advice as part of his role. 8 Q. Was that accepted, I assume, then by the principals, 9 Sue Bruce and -- 10 A. Yes, and Ainslie McLaughlin, yes. 11 Q. Then the next paragraph: 12 "In the evening the Infraco reverted with a revised 13 offer which was in effect a small reduction on the PPP." 14 Which I think stands for Project Phoenix Proposal? 15 A. Yes. 16 Q. "There had also been discussions between Principals on 17 funding ..." 18 In the next paragraph: 19 "It emerged that CEC were in need of making progress 20 which avoided political damage at this time. A response 21 was discussed which gave CEC absolute price certainty 22 and being subject to funding did not commit them to a 23 deal." 24 What do you understand by the reference to avoiding 25 political damage? 100 1 A. I don't know. 2 Q. Do you recall any concern being raised at the mediation 3 about political damage? 4 A. No. 5 Q. Do you recall that being a consideration in the mind of 6 the Council officers who were present at the mediation? 7 A. No. 8 Q. In the next passage: 9 "AMcL [which I think must stand for 10 Ainslie McLaughlin] was satisfied with this arrangement 11 and had spoken earlier to the Cabinet Secretary. He 12 wished any new agreement to be consistent with normal 13 D&B principles." 14 Is that a matter that you were aware of at the 15 mediation? 16 A. I was aware that Mr Loch had had discussions with the 17 Cabinet Secretary, yes. I wasn't -- I wasn't party to 18 the details of the discussions. I just know that he did 19 have those discussions. 20 Q. Did you understand the Cabinet Secretary to have 21 approved any settlement that was agreed? 22 A. I believe so. I don't think Mr McLaughlin would have 23 proceeded without that approval. 24 Q. Then the next passage: 25 "The revised price was confirmed by AC as producing 101 1 an all out cost within the trigger point discussed on 2 Monday." 3 Is the "AC" a reference to you? 4 A. Yes. 5 Q. Can you just explain what this refers to? 6 A. So, as I said earlier, I was responsible for tracking 7 the potential outturn cost through the various 8 discussions that were happening during mediation. So 9 I would have taken the offer that was there on the table 10 at that point in time and produced -- put that into the 11 spreadsheet that I was working on to come up with 12 a potential outturn cost. 13 Q. So you were the person who was assessing whether the 14 payment fell within the GBP740 million trigger point? 15 A. Yes, there would have been various cost headings that 16 were within the spreadsheet that I was working on, and 17 then it would have been a question of inputting that new 18 number, the new figure that was part of that then, this 19 particular deal on that day into that spreadsheet which 20 would have totalled a particular number. And according 21 to this, it would have been within that 740 million. 22 Q. According to this, was your recollection that that was 23 the position? 24 A. Yes. 25 Q. The fact that you were the person that was doing that 102 1 assessment, does that help you remember where the GBP740 2 million came from? 3 A. No, it doesn't. 4 Q. Could we please move on to document WED00000134, 5 page 235, please. If we could have paragraph 7.7, 6 please. 7 Was this the passage that you were referring to as 8 the one which explained what happened at the mediation? 9 A. Yes. 10 Q. If we just read that: 11 "Settlement on Heads of Terms. 12 "During the course of negotiations over two or three 13 days at mediation, there were a number of offers and 14 counter offers exchanged between the parties. 15 "CEC's first offer to BSC was for GBP304 million for 16 the off-street section." 17 If we just pause there, we saw in the last document 18 a reference to a spreadsheet produced by Tony Rush which 19 formed the basis for the counter-offer. Is this 20 sentence referring to the same thing? 21 A. I can't recall if this statement relates to an earlier 22 discussion or if it relates to the discussion that was 23 produced through the work that Mr Rush had done. So 24 I can't recall whether or not this was -- you know, 25 whether it was first offer and then a subsequent offer 103 1 from Bilfinger and then Mr Rush produced the assessment, 2 or if indeed Mr Rush's assessment formed 304. 3 Q. Then: 4 "At this point there were still a significant number 5 of exclusions that sat outside the off-street price 6 which were estimated at GBP80 million." 7 That's the exclusions we have discussed? 8 A. Yes. 9 Q. "This price did not include for the remainder of the 10 on-street works, which were thought to have been in the 11 region of GBP20 million." 12 That is a section from Haymarket to 13 St Andrew Square? 14 A. That's correct. 15 Q. "When the shape of this deal was added to rest of the 16 project costs, the estimated anticipated final cost was 17 thought to be in the order of GBP731 million." 18 A. Yes. 19 Q. If we just pause there, that counter-offer would have 20 come within what we saw was the trigger number of 21 GBP740 million? 22 A. Yes. 23 Q. But that one was rejected by the consortium. Reading 24 on: 25 "Infraco did not accept this offer and returned with 104 1 essentially an updated Phoenix proposal of 2 GBP404 million, which was only for the off-street 3 section. When risk, exclusions and the remaining 4 project costs were added to this number, the final cost 5 would have been GBP814 million." 6 Is that your recollection -- 7 A. Yes. 8 Q. -- of what happened? 9 A. Yes. 10 Q. That figure is obviously above the trigger figure of 11 GBP740 million? 12 A. Yes. 13 Q. So it was rejected by the Council; correct? 14 A. Yes. 15 Q. "CEC then replied with a final offer of GBP362.5 million 16 for the off-street section, with no exclusions and 17 Infraco taking all the risk with the exception of minor 18 utilities. By adding the rest of the project costs, 19 GBP30 million for risk and GBP22.5 million for the 20 on-street section (which was an estimated figure and 21 hadn't yet been negotiated) the anticipated final cost 22 was GBP743.5 million." 23 Is that your recollection of how the price was 24 agreed? 25 A. That's correct. 105 1 Q. Just pausing there, that figure is actually higher than 2 the trigger price we were discussing of GBP740 million? 3 A. Yes. 4 Q. Can you just explain how that was regarded as an 5 acceptable figure to agree? 6 A. Principals -- the principals that were agreeing the deal 7 may have thought that that was an acceptable tolerance 8 over and above the 740 million. Based on the -- I guess 9 the uncertainties that lay with regard to what the 10 alternative positions could be, but also this -- from 11 memory, the GBP362.5 million was arrived at on the 12 Wednesday evening, whereas the GBP740 million tipping 13 point was discussed on the Monday evening. So it may 14 well have been that there was issues and matters over 15 that two-day period that changed the thinking on what 16 that trigger point could be. 17 Q. I see. Would it be fair to describe this, Mr Coyle, as 18 essentially a high-level horse trade over the price? 19 A. Yes. 20 Q. Now, that passage talks about a figure of 21 GBP222.5 million for the on-street section. But the key 22 points of principle that we looked at a moment ago had 23 a different figure, which I think is GBP39 million; is 24 that correct? 25 A. Yes. 106 1 Q. So if one uses -- first of all, can you explain why it's 2 the figure of GBP22.5 million which is being used in 3 this passage, if the Heads of Terms had a higher figure? 4 A. I can't remember exactly how the GBP22.5 million was 5 arrived at. It would have arrived at -- with 6 discussions with various commercial advisers during the 7 course of the -- during the course of the mediation. 8 And so, yes -- but I can't recall for sure the science 9 behind the 22.5. 10 Q. But if one used the 39 million price as an extra GBP16.5 11 million -- 12 A. Yes. 13 Q. -- would that push the anticipated final cost up from 14 GBP743.5 million to GBP759.5 million? 15 A. With all other things being equal, yes. 16 Q. So that's about GBP20 million over what was described as 17 the threshold. 18 A. Yes. 19 Q. Again, would you just attribute that to the 20 decision-making of the principles? 21 A. Yes. 22 Q. Did they explain their thinking to you about that? 23 A. No. 24 Q. We have looked at your report here and Tony Rush's email 25 in the aftermath of the mediation. 107 1 Apart from those two documents, were any other 2 records kept, as far as you are aware, which explain the 3 basis on which the price of GBP362.5 million was agreed? 4 A. No, I don't think so. 5 Q. Of the two, your report was written something like 6 a year or so after the event? 7 A. Yes. 8 Q. Given the amount of public money concerned, is that not 9 a matter on which a more detailed contemporary record 10 ought to have been kept? 11 A. Well, I think that the -- there was obviously a lot of 12 detail that underpinned the Phoenix Proposal. So there 13 was a significant amount of detail that showed how that 14 price was made up. And then, as you say, there was then 15 a -- a horse trade in terms of what the high level 16 position would be on that, and there was a significant 17 amount of work that then followed during the course of 18 the period between March and June, and then onwards into 19 August of that year on the financials. 20 So, you know, in preparation for the approval 21 required for the funding, there was a significant amount 22 of additional work that was -- that went beyond that in 23 terms of firming up what the budget was. 24 Q. Yes. But given the figure of -- do you accept that the 25 figure of GBP362.5 million agreed on 10 March 2011 108 1 didn't substantially change at all? 2 A. No, it didn't. You're right. 3 Q. Would it not have been helpful to have recorded at the 4 time a full explanation of the reasoning that lay behind 5 it? 6 A. Yes. 7 Q. Did anybody at the mediation think about doing that? 8 A. No, because I think that -- I think that what -- what 9 happened, as you -- as you outlined, there was 10 a proposal, very detailed proposal, that the consortium 11 put forward for mediation. There was then a significant 12 amount of work that looked at what that meant in the 13 context of additional cost around the exclusions, and 14 then that helped to form the view that the principals 15 had in terms of what was the right thing to do in terms 16 of a number, and -- you know, and then, as you say, it 17 was a commercial horse trade on the back of that. 18 So, you know, the exact detail of the difference 19 between Project Phoenix and the terms that were within 20 that document, and the final agreement of 362.5 million, 21 the exact detail of that change, you know, it's just -- 22 wasn't there. It was high level discussion and 23 agreement. 24 Q. So if the Inquiry wants to understand the basis on which 25 the figure of GBP362.5 million was agreed, is it 109 1 dependent on the recollections of Sue Bruce and 2 Vic Emery and Ainslie McLaughlin? 3 A. And any advisers that were involved in that, yes. 4 Q. And the advisers. -- 5 A. Mr Rush, Mr Smith. 6 Q. Mr Rush and Mr Smith? 7 A. Yes. 8 Q. What if the Inquiry is to receive evidence that neither 9 of them regards themselves as in a position to explain 10 the basis on which that figure was agreed? 11 A. I don't know. I don't know. I think that, you know, as 12 I said, there was a very detailed proposal with a number 13 of exclusions that would have taken the Council to 14 a particular -- you know, that would have added up to 15 a particular figure. And then there was a number of 16 discussions as is recorded in that document in terms of 17 offer and counter-offer. One of those things, one of 18 those counter-offers were to remove a significant amount 19 of costs with regard to the exclusions which was 20 obviously to the Council's benefit. 21 So, you know, this is very clear that there's 22 a change in the principle of those agreements from being 23 a price plus exclusions to a firm price, and that can't 24 be attributed to a particularly scientific breakdown. 25 You can see that there's a removal of a significant 110 1 exposure there. 2 Q. I understand. 3 Was it your understanding, Mr Coyle, that the 4 Council set out to -- at the mediation achieve a full 5 and final settlement in respect of all claims which had 6 accrued under the Infraco contract? 7 A. Yes. 8 Q. So in agreeing at the mediation to pay GBP362.5 million, 9 did the Council officers have in mind a value at which 10 those claims were being settled? 11 A. I can't recall for certain the discussions in the 12 lead-up to mediation, but advisers would have given 13 a view on what the potential quantum of those 14 settlements could be, or the potential exposure under 15 the previous contract could be. 16 Q. That's not quite what I asked. What I would like to 17 know is whether the officers of the Council responsible 18 for agreeing the figure of GBP362.5 million had in their 19 minds when they agreed to that sum a value at which they 20 were settling the claims? 21 A. I don't know. 22 Q. You don't know? 23 A. No. 24 Q. Who would know? 25 A. You would have to ask the principals that made that. 111 1 Sue Bruce, Vic Emery, Ainslie McLaughlin. You would 2 have to ask them what was in their minds when they 3 settled on that number. 4 Q. Was it a matter which was discussed at the mediation? 5 A. I'm sure it was, yes. 6 Q. That sounds like -- 7 A. Yes, it was. 8 Q. Do you recall discussions? 9 A. Yes. It was -- you can even look at the spreadsheet 10 that we looked at earlier where Mr Smith, Mr Bell and 11 Mr Jeffrey had discussions, and things like that were 12 being discussed around potential exposure and 13 settlement. 14 CHAIR OF THE INQUIRY: I think, Mr Coyle, it would help if 15 you are asked the question, not to simply leap in and 16 say "I'm sure it was". If the position is that you do 17 recollect it being discussed, you should say that. 18 You're under oath. 19 A. Okay, my Lord. 20 MR MCCLELLAND: I understand the point that there may have 21 been discussions around it at the mediation, but sorry 22 to return to it, but in agreeing the figure of 23 GBP362.5 million, was a figure put upon the claims that 24 were being settled? 25 A. I can't recall if there was. I can't recall if there 112 1 was. 2 Q. I think we have seen the two records, two written 3 accounts of the mediation don't specify any figure for 4 that? 5 A. Yes. 6 Q. But on any view, Mr Coyle, the new price following the 7 mediation was greatly in excess of the original Infraco 8 contract price? 9 A. Yes. 10 Q. Would you accept that for the work of Bilfinger, Siemens 11 and Parsons Brinckerhoff, as their subcontractor, 12 leaving CAF to one side for the moment, the increase in 13 the price was more than GBP150 million? 14 A. Yes. 15 Q. Do you accept that? 16 A. Yes. 17 Q. It's actually a bit more than that, because the Council 18 were also giving up the stretch of the line from 19 York Place to Newhaven which had been included within 20 the original price? 21 A. Yes. 22 Q. So had the Council officers at the mediation come to the 23 view that even that hefty price increase was a better 24 deal than continuing under the Infraco contract in its 25 original form? 113 1 A. Yes. 2 Q. So does it follow from that that the Council officers 3 had come to accept that the claims the Infraco 4 consortium had made under the Infraco contract were 5 well-founded? 6 A. Yes. 7 Q. And that the Infraco consortium were justified in 8 claiming large sums of money from tie in respect of the 9 change, design change? 10 A. Yes. 11 Q. And in respect of delay? 12 A. Yes. 13 Q. If we could -- the document that we've got up on screen, 14 could we please have a look at paragraph 7.2. 15 In particular, the passage that begins: 16 "It became apparent from the pre-mediation work 17 outputs." 18 Just that paragraph, please. This is a passage we 19 looked at earlier. In the final sentence there: 20 "It has become clear that the dominant cause of 21 delay to the works was the delayed MUDFA utility 22 diversions." 23 Do you see that? 24 A. Yes. 25 Q. Was it an important assumption underlying level of 114 1 settlement agreed at Mar Hall that the dominant cause of 2 delay was MUDFA works? 3 A. Yes. 4 Q. What was that view based upon? 5 A. That would have been based upon the advice of advisers 6 that were working with the Council. 7 Q. So which advisers? 8 A. From memory, I think it was McGrigors. 9 Q. McGrigors? 10 A. Yes. 11 Q. McGrigors are a firm of solicitors? 12 A. That's correct, yes. 13 Q. What professional expertise would they have had to 14 advise on what the dominant cause of delay was? 15 A. They were -- they had been working on the contract for 16 a significant amount of time. They'd been working on 17 disputes that were -- that had come out of the original 18 contract for a significant amount of time. So I think 19 were in a good position to be able to determine where -- 20 what the largest -- the largest -- what attributed to 21 the significant amount of delay. 22 Q. Did the Council have its own expert report analysing the 23 cause of delay in the project? 24 A. I don't think so. No. 25 Q. Were you aware of tie having obtained reports analysing 115 1 the cause of delay in the project? 2 A. Well, tie had taken advice from Cyril Sweett, a firm of 3 QSs, an assessment of a number of commercial matters. 4 So I think they had given a view on what -- what delay 5 there could be attributed to the various -- various 6 disputes that were on the contract. 7 Q. And you referred there to Cyril Sweett. What view did 8 you understand them to have expressed about the cause of 9 delay? 10 A. I can't remember for sure. 11 Q. In your report you said that the dominant cause of delay 12 was MUDFA? 13 A. Yes, that's correct. 14 Q. So -- 15 A. That was based on -- that was based on discussions 16 that -- and advice that the Council had taken from 17 McGrigors. 18 Q. From McGrigors? 19 A. Yes. 20 Q. Were you aware of tie having obtained advice from 21 a company called Acutus? 22 A. Yes. I believe so. They were asked to bring in -- they 23 were asked to comment on programme and delay to the 24 programme. 25 Q. Yes. Looking at the programme, do you understand them 116 1 to have analysed the causes of delay on the project? 2 A. Yes. 3 Q. Could we have a look, please, at WED00000587. 4 Is this a document that you've seen before, 5 Mr Coyle? 6 A. I can't remember seeing this report. 7 Q. Okay. Well, it's headed up: 8 "In relation to the Adjudication between Bilfinger 9 Berger Siemens CAF Consortium and tie Limited". 10 It's an Expert Report regarding an estimate in 11 respect of INTC 536, access dates provided by tie up to 12 and including 31 July 2010, Delay Resulting from 13 Incomplete Utilities Works in relation to The Edinburgh 14 Tram Project. 15 If we can just scroll down that page a little bit, 16 we see it's marked at the bottom: 17 "Draft 4 March 2011". 18 So that's shortly before the mediation; is that 19 correct? 20 A. Yes. 21 Q. Could we have a look, please, at page 7. 22 Paragraph 1.1.1. Just to put this in a proper context: 23 "I have been instructed by tie to provide an 24 [independent] expert report in respect of the Estimate 25 submitted by the Infraco entitled "Estimate in Respect 117 1 of Notice of tie Change Number 536 access dates ...' 2 I understand that my report is to be submitted as part 3 of tie's response to the Infraco's referral of the 4 Estimate for decision by adjudication." 5 We see there that this is an expert report prepared 6 on behalf of tie for the purposes of an adjudication 7 under the Infraco contract. 8 A. Yes. 9 Q. Go, please, to paragraph 1.8.3 which is on page 10: 10 "My overall finding was that at the INTC 536 estimate 11 base date of 31 July 2010, the Infraco work had 12 experienced a significant amount of delay and the 13 programme was projecting considerable overruns on the 14 four Sectional Completion Dates. However, these delays 15 and overruns were not actually caused by late completion 16 of MUDFA works and utilities diversions. The critical 17 delays were the result of, amongst other things, late 18 delivery of design. While the MUDFA work were, in many 19 locations, being completed later than planned, they were 20 in virtually every location not actually causing delay. 21 They were certainly not the dominant cause of delay and 22 therefore, in my opinion, did not give rise for 23 requirements for extensions of time." 24 Do you see that? 25 A. Yes. 118 1 Q. This of course on the face of it is a draft report 2 prepared for a particular purpose, and it's setting out 3 tie's position. Perhaps, and perhaps no doubt, the 4 consortium may have a different view. But were you 5 aware of tie having had advice to the effect that the 6 MUDFA works were not the dominant cause of delay? 7 A. No. 8 Q. That was not a matter that had been brought to your 9 attention? 10 A. Not at this time. No, I can't remember that. 11 Q. So at the mediation, was it your understanding that 12 MUDFA works were indeed the dominant cause of delay? 13 A. Yes, I believe so, yes. 14 Q. Was that the understanding that informed the decision by 15 the Council to settle at the price they did? 16 A. Yes. 17 Q. Do you have any view on whether the knowledge of what 18 was said in this report would have made any difference 19 to the settlement? 20 A. I don't know. 21 Q. You don't have a view on it? 22 A. I don't have a view on it. I think there's a few 23 factors with regard to the report in terms of the date 24 of it, for example. It is based at 31 July 2010, when 25 mediation was nearly a year later. So that delay would 119 1 have continued to have built up over that time period. 2 I'm also aware of the fact that there were certain 3 parts of the tram route that the Infraco needed -- had 4 the right to have exclusive right to, that particular 5 part of the route. You know, whether or not -- and if 6 utilities were causing a delay on any part of that 7 exclusive space, then they had the right not to go in 8 there. 9 Q. At the very highest level, Mr Coyle, was there any 10 discussion or disagreement at the mediation within the 11 tie and CEC team about who was responsible for delay on 12 the project? 13 A. I can't remember. 14 Q. You don't recall? 15 A. No. 16 Q. Can we please have a look at document CEC02084575. 17 CHAIR OF THE INQUIRY: Did you say 4545? 18 MR MCCLELLAND: 4575. Have you seen this document before, 19 Mr Coyle. 20 A. Yes. 21 Q. This is headed up, the Sue Bruce Opening Statement from 22 the mediation on 8 March 2011. 23 If we go, please, to page 13, just at the bottom 24 there, there's a passage which reads: 25 "In this Proposal ..." 120 1 I think you can take it from me, that's reference to 2 the Phoenix price proposal: 3 "... the price for Siemens has gone up from 4 GBP68 million to GBP136.5 million." 5 There's a reference there also to the exclusions: 6 "... a 100 per cent increase despite virtually no 7 change. Why a doubling - and no justification and 8 breakdown? We have received back up sheets from 9 Bilfinger Berger - and information concerning CAF and SDS - 10 but why only one summary sheet announcing a doubling of 11 the price from Siemens?" 12 Were you aware of concerns at the mediation about 13 the level of the Siemens price? 14 A. Not that I can recall. 15 Q. You can't recall? 16 A. No. 17 Q. Okay. Thank you. 18 I would like to move on now, Mr Coyle, to the period 19 after mediation. 20 Following the mediation, tie and the Infraco 21 consortium entered into an agreement known as Minute of 22 Variation 4; are you aware of that? 23 A. Yes. 24 Q. That was a variation to the arrangements under the 25 Infraco contract? 121 1 A. Yes. 2 Q. I think we've heard from earlier evidence that it 3 concerned or provided for certain prioritised works to 4 be carried out quickly after the mediation? 5 A. Yes. 6 Q. It also provided for payment by tie to Bilfinger and 7 Siemens of sums totalling GBP49 million? 8 A. Yes. 9 Q. Do you recall that? 10 A. Yes. 11 Q. What was that payment for? 12 A. From memory, it would be in relation to vesting of 13 materials, a large element of that. Design, design that 14 we talked of previously. And for restarting prioritised 15 works. 16 CHAIR OF THE INQUIRY: Could you keep your voice up, please. 17 A. Sure. 18 MR MCCLELLAND: If we could look -- excuse me just a second. 19 No, that's fine for now, thank you, Mr Coyle. 20 Do you recall when the payments -- how the sum of 21 GBP49 million was to be paid? 22 A. The payment would have gone through tie. tie was the 23 contracting party, so tie would have triggered the 24 payment. 25 Mr Smith at the time, as the independent certifier, 122 1 would have certified the -- would have signed the 2 certificate to make the payment and that would have been 3 backed up by the schedules that would have been provided 4 by BSC. 5 Q. If we would bring up the Minute of Variation 4, please, 6 that's CEC01731817. Are you familiar with the Minute of 7 Variation 4 itself? 8 A. Yes. 9 Q. If we could go to page 10, please, and clause 6.1. It 10 says there: 11 "On 15 April 2011, the Certifier issued 12 a certificate … to Infraco and tie, certifying payment of 13 the agreed sum of GBP27 million ... Such payments shall 14 be made by tie on 22 April 2011 ..." 15 Then if we look at clause 7, please, it says: 16 "By 3 May 2011, tie, Bilfinger and Siemens shall 17 request that the Certifier shall issue a certificate in 18 accordance with the Certifier Agreement ... to Infraco 19 and tie, certifying payment of the agreed sum of 20 GBP9 million ... and payment shall be made ... on 21 17 May 2011." 22 Are you aware that Minute of Variation 4 was signed 23 on 20 May? 24 A. No. 25 Q. If you can take it from me, it's on page 15. It was 123 1 20 May that the document was signed? 2 A. Okay. 3 Q. So on the face of it, these payments of some 4 GBP36 million were made before the Agreement was signed. 5 Were you aware of that? 6 A. I may have been aware of it. 7 Q. Well, can you explain it? 8 A. No. 9 Q. Does it not involve a significant degree of risk to part 10 with GBP36 million before the Agreement forming the 11 basis for the payments had been signed? 12 A. Yes. 13 Q. Who authorised the payments to be made? 14 A. The independent certifier signed off the payments as 15 being appropriate within the terms -- within the clauses 16 within that agreement. Signing off the payment likely 17 would have been the Director of Finance. 18 Q. By the Certifier, are you referring -- who are you 19 referring to? 20 A. Mr Smith. 21 Q. Colin Smith? 22 A. Yes. 23 Q. If you look at clause 7, which is up on the screen 24 there, it says that by 3 May tie, Bilfinger and Siemens 25 shall request that the certifier shall issue 124 1 a certificate. So it looks as though those bodies had 2 instructed the certifier to issue his certificate. Is 3 that correct? 4 A. Yes. 5 Q. Did anybody in the Council authorise a payment of these 6 sums? 7 A. The Council would have had to have -- the Director of 8 Finance would have had to have approved these sums 9 because, you know, tie were a contracting party. So 10 obviously that's why they were requesting that the 11 Certifier issue the Certificate. But the Council 12 Director of Finance would have had to have been 13 satisfied to make these payments. 14 Q. So if we want an explanation for why these sums were 15 paid before the contract was signed, is it 16 Donald McGougan we should ask? 17 A. Yes. 18 Q. Did you have any involvement in the process of 19 authorising them for payment? 20 A. I didn't have any authorisation rights at all with 21 regards to these payments. What I did need to know was 22 to make sure that with regard to the budget and any 23 expenditure against that budget, that these payments 24 were recorded and that there was the -- the required 25 back-up in terms of what the payments were for. 125 1 Q. Were you aware of any concern about money being paid 2 before the agreement was signed? 3 A. Not that I can recall, no. 4 The only thing that I would say about that is that 5 looking at the dates on this document, what it's saying 6 is that the Certifier shall issue the Certificate, but 7 that the then payment won't then be made until 17 May, 8 which is after the signature of the document. 9 Q. I think if we can -- 10 A. Is that right? 11 Q. If we can look at page 15, do we see there three 12 signatures all dated 20 May? 13 A. Okay. 14 Q. So -- 15 A. Yes. 16 Q. The payments were on the face of it -- 17 A. Made before that, yes. 18 Q. Were made before that? 19 A. Yes. 20 CHAIR OF THE INQUIRY: That was the second payment you were 21 looking at. There was a first payment before that. 22 A. Yes. 23 MR MCCLELLAND: But you're not yourself able to explain how 24 it was that payments were made before the Agreement was 25 signed. 126 1 A. No. No. 2 Q. Could we look, please, at document CEC01914650 at 3 page 5. We see here that this is a report to the 4 Council on 16 May 2011. Can you just bear with me, 5 Mr Coyle. We see at paragraph 1.1: 6 "This report updates the Council on the key outcomes 7 arising from the mediation of the tram dispute in 8 relation to the Infraco contract ... Council is asked to 9 note these outcomes, pending the detailed design and 10 costing work that will be needed to provide a more 11 complete picture of the full costs and revised programme 12 for the Edinburgh Tram Project." 13 Was this the first report given to the Council on 14 the mediation? 15 A. I think so. 16 Q. The reference there to design and costing work needed to 17 provide a more complete picture, is that work that you 18 were involved in? 19 A. Yes. 20 Q. If we look at paragraph 2.1, please, this simply says: 21 "Mediation talks were held ... good progress was 22 made in resolving the issues at the heart of the 23 dispute. Short-term actions are under way with work 24 recommencing in priority locations along the route of 25 tram line 1a ..." 127 1 That's the priority work for which Minute of 2 Variation 4 provided? 3 A. Yes. 4 Q. If you go to 3.6, please, which is on page 6: 5 "In the meantime, Council is asked to note a number 6 of short-term actions that are required to restore 7 momentum to the construction of tram infrastructure in 8 priority sections of line 1a. These will be managed 9 through a Minute of Variation to the contract 'Priority 10 Works Minute of Variation' reference hereafter as MoV4 11 ... which deals with the immediate priority issues that 12 were resolved through mediation. The main provisions of 13 MoV4 are summarised in appendix 1." 14 So we see there, the Council is merely asked to note 15 the Minute of Variation 4; is that correct? 16 A. Yes. 17 Q. Were the Council not asked to approve Minute of 18 Variation 4, as far as you can recall? 19 A. Not from that -- that paragraph, no. 20 Q. Do you recall anything different? 21 A. No. 22 Q. So is it the case that the body of councillors were not 23 asked whether or not to approve payment of the 24 GBP49 million that Minute of Variation 4 provided for? 25 A. Not formally. 128 1 Q. Not formally? 2 A. There was a number of discussions that were held between 3 the Chief Executive and councillors over that period in 4 terms of briefings. So it may well have been that those 5 discussions were held within those briefings in terms of 6 given the Council's knowledge of where the project was 7 and what was required to restore momentum to the 8 project, but not formally within that document. 9 CHAIR OF THE INQUIRY: Do you know of any procedure whereby 10 a Council, a statutory body, can informally authorise 11 a payment of GBP49 million? 12 A. No. 13 CHAIR OF THE INQUIRY: So whatever was discussed informally, 14 the position is that there was no authority to pay 15 GBP49 million in the absence of a resolution? 16 A. In the absence -- in the absence of -- I can't -- in 17 terms of the authority to pay, there was already 18 authority that had been existing from the previous 19 approvals from Council. I don't know if the payments 20 under those Minute of Variations would have fallen 21 within the -- within that funding or if it would have 22 taken it beyond that funding. 23 CHAIR OF THE INQUIRY: So officials may have taken the view 24 that they didn't need authority. 25 A. Potentially. 129 1 MR MCCLELLAND: I think what you are saying, Mr Coyle, is 2 that there may have been some pre-existing authority 3 which was sufficient to cover officials authorising this 4 payment. 5 A. Yes. 6 Q. Can you say any more about it than that? 7 A. No. 8 Q. Is it fair to say from your understanding that insofar 9 as we're looking at the Council having authorised this 10 payment, if they authorised it, it was done by officers? 11 A. Yes. 12 Q. Did you have any involvement, Mr Coyle, in agreeing the 13 sum of GBP49 million? 14 A. No. 15 Q. Can we please have TRI00000143. 16 This is a statement to the Inquiry by Colin Smith. 17 If we go to page 42, please, if we could maybe just go 18 back to the preceding page, please. We see here at the 19 bottom the heading, "Mobilisation payment of 20 GBP49 million". Clauses 6, 7 and 8 of Minute of 21 Variation 4 provide for the payment by tie to BSC in 22 instalments of a sum totalling GBP49 million. So that's 23 the payment we've just been discussing? 24 A. Yes. 25 Q. If you could move to page 42, please. 130 1 Question 168: 2 "What was its purpose? 3 "Cash flow required various headings to be 4 addressed. I remember having a meeting with TIE and BSC 5 on site and marking up the differences of values on 6 a white board. Gregor Roberts and Alan Coyle sat in on 7 the meeting with me. I asked them to review and come to 8 an agreement on the actual values." 9 And so on. Do you have any recollection of what 10 Mr Smith describes? 11 A. Yes. 12 Q. What's your recollection of that meeting? 13 A. I remember only that I remember at the meeting with 14 Mr Smith discussing the potential size of those payments 15 and the cash flow requirements, and I remember Mr Smith 16 writing on the white board what that would look like in 17 terms of timing and value and so on. 18 I believe that there were some photographs taken of 19 the white boards as well. That's the recollection that 20 I have from that meeting. 21 Q. Now, it appears from what Mr Smith is saying that he was 22 relying on you and Mr Roberts to have come to agreement 23 on the values. 24 A. I think Mr Smith was working with myself and Mr Roberts 25 to make sure that we were satisfied with the values that 131 1 were in those payments that were being suggested in 2 terms of the make-up of those payments. 3 Q. So does it follow from that, from what you're saying, 4 that you did agree the GBP49 million sum? 5 A. I agreed to the values that underpinned the 49 million, 6 yes. 7 Q. Yes. 8 If Mr Smith was asking you and Mr Roberts -- 9 I should say, Mr Roberts, he was the Finance Director of 10 tie by that time? 11 A. I think he would have been, yes. 12 Q. If Mr Smith was relying on you and Mr Roberts to agree 13 on the GBP49 million figure, what was the purpose of his 14 certificates? 15 A. I think Mr Smith would have asked us to give a view on 16 what was in that certificate, what was in those values, 17 and sought our agreement on whether or not it made 18 sense. Ultimately Mr Smith was responsible for 19 certifying those values and signing it off. So yes, 20 just he would have consulted with us around what those 21 values were. 22 Q. If I can put it at a high level, were you presented at 23 that meeting with the figure of GBP49 million? 24 A. I can't remember. 25 Q. No. But -- 132 1 A. Whether it derived from that meeting, I can't remember. 2 Q. But you agreed to it; is that right? 3 A. Yes. 4 Q. It was following securing your agreement that Mr Smith 5 then certified it? 6 A. Yes. 7 Q. Could we please have document CEC01914650. 8 If we could go to page 12, please. Mr Coyle, this 9 is an appendix to the May report to Council that we 10 looked at a moment ago. If we just look at the heading, 11 "PRIORITY WORKS MINUTE OF VARIATION": 12 "This appendix summarises the key provisions of the 13 Priority Works Minute of Variation." 14 Then the heading at section 1: 15 "The Siemens materials and equipment and certain 16 other works." 17 Just highlight that, please. Sorry, the whole 18 section under that heading. 19 You see there: 20 "The Council will take ownership of certain Siemens 21 materials and equipment needed to complete line 1a. In 22 addition, payments are to be made in for costs in 23 respect of: (a) progress of the design; (b) procurement 24 of sub-contractors and suppliers and instruction of site 25 clearance works; (c) works carried out at the depot; and 133 1 (d) works carried out to execute changes. 2 Payments will be issued in the amounts certified by 3 an independent certifier who will have a duty of care to 4 the Council, tie and the Infraco." 5 Is that what you understood the payment of 6 GBP49 million to be for? 7 A. Yes. 8 Q. We see there a reference to certification by the 9 independent certifier. There's no reference there to an 10 officer of the Council having agreed any -- 11 A. No. 12 Q. Could we please have document TRI00000095. 13 Paragraph 272. I'm afraid to say I don't have a page 14 reference. 15 I think it's actually page 90. 16 This is a witness statement given to the Inquiry by 17 Martin Foerder from Bilfinger. Bilfinger Project 18 Director. This is how he puts the -- he explains the 19 payment of GBP49 million: 20 "There appears to have been a misunderstanding as to 21 what the payment of GBP49 million related to. This was 22 not really a remobilisation payment, even if it was 23 quoted as such. This was actually a payment of the 24 settlement sum which was agreed at Mediation to bring us 25 back to a so-called cash neutral position. We had not 134 1 received any monies from tie for a considerable time. 2 This meant that we were completely cash negative as 3 a result of having to send the payments to SDS and to 4 the contractors. The GBP49 million was a fixed amount 5 to bring us back to a point where we were not cash 6 negative. The payment also covered the agreed amount 7 the off-street and prioritised works. These had to 8 commence from early May 2011. In addition, the payment 9 covered the first certificate of the settlement sum as 10 described in Clause 6 of the Prioritised Works Agreement 11 (known as MoV4). It included the payment of some sums 12 agreed at Mediation in relation to all extensions of 13 time, other claims and in respect of Siemens materials. 14 This was why the payment to them was so much more than 15 the payment to Bilfinger. Siemens had incurred 16 considerable costs." 17 To what extent do you agree with that description by 18 Martin Foerder of Bilfinger? 19 A. That doesn't accord with my understanding of what that 20 payment was for. There were schedules that underpinned 21 the 49 million. I do agree with the element around the 22 Siemens costs because a large element of that payment, 23 as I understood it, was for materials that Siemens had 24 provided, and the Council would take vesting of those 25 materials as part of these payments. 135 1 Q. What about the point about bringing the consortium back 2 from a cash negative position? 3 A. That doesn't accord with my understanding of what these 4 payments were for. 5 Q. I think in an earlier answer, you referred to cash flow 6 in some context relating to this. What did you mean by 7 that? 8 A. What I meant by that was that that was through the 9 discussion that Mr Roberts and myself had with Mr Smith 10 to understand what the cash -- in making these payments, 11 what the cash flow forecast would be for the project. 12 Q. So when you were referring to cash flow, were you 13 referring to cash flow on the side of tie and the 14 Council? 15 A. Correct. 16 Q. Did you understand that the payment was seen by the 17 consortium as assisting their cash flow? 18 A. No. 19 Q. Mr Foerder there discusses the payment as reflecting to 20 some extent sums agreed at mediation in relation to all 21 extensions of time. Do you agree with that? 22 A. No. My recollection of this payment goes back to what 23 is in the Council report that you referred to earlier 24 that highlights what the -- what the elements of that 25 payment were. Not this. 136 1 Q. Not this. 2 I think we discussed earlier the question of 3 understanding about claims at the mediation. I think 4 your recollection was that you didn't know to what 5 extent the settlement sum included settlement of claims? 6 A. Yes, correct. 7 Q. That would include any claims for extension of time? 8 A. Yes. 9 Q. So if you were to be asked how much of the GBP49 million 10 relates to extension of time -- 11 A. I couldn't tell you that. I thought the 49 million 12 related to other things. 13 MR MCCLELLAND: That may be a convenient place to stop, 14 my Lord. 15 CHAIR OF THE INQUIRY: We will adjourn for lunch and resume 16 again at 2 o'clock. 17 (1.00 pm) 18 (The short adjournment) 19 (2.00 pm) 20 CHAIR OF THE INQUIRY: You're still under oath, Mr Coyle. 21 MR MCCLELLAND: Now, Mr Coyle, before lunch we had moved on 22 in time from the mediation, but I would like to, if 23 I may, move briefly back to the mediation for a moment. 24 We saw the price of GBP362.5 million that had been 25 agreed at the mediation. Did the CEC officers present 137 1 at the mediation satisfy themselves in some way that 2 that was an appropriate price to pay? 3 A. I can't recall any specific -- any specific thing that 4 the officers did to satisfy them that that was the 5 correct price, other than clearly existed within their 6 tolerance threshold around what was a kind of upper 7 marker. 8 Q. So did you understand from that that the sole or the 9 most important consideration for the officers was that, 10 taking that price and adding it into the cost estimates, 11 one was within the GBP740 million total, and that was 12 the basis on which the price was agreed? 13 A. I don't know if that was the basis on which price was 14 agreed because I think that the 740 was -- the total 15 that had been agreed had gone a little over the 740. So 16 I just think that within the bound of affordability, 17 I think that people got themselves comfortable with the 18 362.5 within the overall context. 19 Q. So do I understand from that that the officers from CEC 20 were satisfied that a price of GBP362.5 million would 21 lead to the project being affordable? 22 A. Yes. 23 Q. As far as you know, was there any other basis on which 24 the officers satisfied themselves that that was an 25 appropriate price to pay? 138 1 A. No. 2 Q. What was the attitude of those from tie to the 3 settlement price of GBP362.5 million? 4 A. I thought that they -- I think they thought that the 5 362.5 was too high. 6 Q. If we take Richard Jeffrey, the Chief Executive of tie, 7 what was his view? 8 A. I can't recall what his -- in terms of a financial, 9 a number that was his view of the 362.5, I am not sure. 10 I just know that Mr Jeffrey was pretty dissatisfied with 11 where we ended up. 12 Q. By that, do you mean that he thought the price of 13 GBP362.5 million was too high? 14 A. Yes. 15 Q. What about Steven Bell, the Tram Project Director? 16 A. I think he would be of the same opinion. 17 Q. What about Dennis Murray, the commercial director of 18 tie? 19 A. I think Dennis would likely have been of the same 20 opinion, but Dennis was not -- he wasn't as involved and 21 wasn't as -- wasn't as visible as Richard Jeffrey or 22 Steven Bell was. 23 Q. Did anyone else, as far as you know, who was present at 24 the mediation, disagree with the level of settlement? 25 A. No. 139 1 Q. So the only ones to disagree were Steven Bell and 2 Richard Jeffrey, as you understand it? 3 A. Yes. 4 Q. Did Mr Jeffrey or Mr Bell give any reasons for thinking 5 the price was too high? 6 A. Not from my recollection. 7 Q. Did they make their dissatisfaction known at the 8 mediation? 9 A. Yes. Yes. I can't recall exact conversations but their 10 outlook and their attitude around that would suggest 11 that they were -- that they thought it was too much to 12 pay. 13 Q. The information available to those at the mediation on 14 cost had largely come from tie; is that not correct? 15 A. That's correct. 16 Q. So on what basis did the CEC officers at the mediation 17 satisfy themselves that it was appropriate to take 18 a different view from the senior officers of tie about 19 what was an appropriate price to pay? 20 A. Because CEC were taking into account the advice of 21 external advisers, and also looking at the price on 22 which -- the cost of the Phoenix Proposal, and also the 23 fact that we had managed to get some certainty on the 24 exclusions as well. 25 So I think that CEC got themselves comfortable with 140 1 that as an overall deal. 2 Q. Would I be correct to infer from what you are saying 3 that Richard Jeffrey and Steven Bell would also have 4 been aware of those considerations? 5 A. That's correct. 6 Q. Nonetheless, they disagreed with the price? 7 A. That's correct. 8 Q. So the question is: in light of that disagreement, on 9 what basis did the CEC officers satisfy themselves that 10 it was appropriate to override the view of the -- of 11 Mr Jeffrey and Mr Bell? 12 A. I think, taking into account the advice of advisers, and 13 taking into account the potential alternatives, CEC 14 officers got themselves of the view that it was the best 15 possible deal that we could make at that time. 16 Q. Thank you. If we could have, please, document 17 CEC02083232. Sorry, that's the wrong one. CEC02044271. 18 Do we see here, Mr Coyle, that this is a report to 19 Council dated 30 June 2011? 20 A. Yes. 21 Q. At paragraph 1.1 it says: 22 "This report sets out options for the future of the 23 Edinburgh Tram Project." 24 Then four lines from the bottom: 25 "The costs of completing the project to 141 1 St Andrew Square/York Place are compared with the other 2 options available to the Council within the constraints 3 of the contract between tie Ltd and the infrastructure 4 contractor." 5 Then paragraph 2.1: 6 "The costs of terminating the project, or continuing 7 under the terms of the existing contract, have also been 8 examined in detail. Neither option is likely to be 9 materially less expensive than completing the first 10 phase of Line 1a. Accordingly, it is recommended that 11 the Council should pursue the completion of the first 12 phase of Line 1a to St Andrew Square/York Place." 13 Were you involved in the assessment of costs leading 14 to that recommendation? 15 A. Yes. 16 Q. If we move to paragraph 2.2: 17 "It has been the intention throughout this process 18 to be open and transparent, but in light of the 19 continuing negotiations and the commercial sensitivity 20 of the financial information, all the figures cannot be 21 made public at this stage. Arrangements have been made 22 to brief all members and share this information on 23 a confidential basis until final legal settlement is 24 reached." 25 What was the nature of the confidential briefing to 142 1 members? 2 A. There was a data room that was provided for members to 3 access in the lead-up to the Council meeting. And also 4 individual briefings given to political groups, and 5 within the data room there was a number of documents 6 that were -- that were presented to Council members that 7 they could access, read, and so on and so forth. 8 From recollection, the process by which we undertook 9 the briefings in the data room were -- a presentation 10 would be given to the members from Council officers, of 11 which I was one, and then members were free to look at 12 documents and, you know, scrutinise those documents 13 within their own time over a period of two or three 14 hours, from memory, and then they would ask questions at 15 the end of that session. The officers would then 16 provide answers to and responses to, and that was the 17 form that the briefings would take. 18 Q. Can you remember what reports were available in the data 19 room? 20 A. From my recollection there would have been -- at that 21 time there would have been the McGrigors' report that 22 helped underpin the financial assessments, the overall 23 spreadsheet that gathered those financial assessments. 24 There would have been the Minutes of Variation that 25 happened since mediation. I would guess, but I can't be 143 1 certain, that there would have been the Settlement 2 Agreement Heads of Terms from Mediation, and also 3 documentation relating to Faithful+Gould's assessment of 4 the project also. Reports from Mr Smith in terms of 5 risk exposure and potential outturn. 6 I can't recall for certain whether or not that 7 report contained information on the Tram Business Case. 8 Certainly the 25 August report did. So there may have 9 been information from -- that related to the Business 10 Case and also an external review of the Business Case 11 undertaken by Atkins also. 12 Q. Okay. Thank you. 13 A. As well as -- I can't recall if there was legal 14 documentation in the room as well, but from 15 recollections, it would be those things. 16 Q. Okay. That's a pretty thorough list. 17 Would you be confident that that's an accurate 18 description of everything that was there, or may there 19 have been other things in it? 20 A. There may have been other things in it. 21 Q. To what extent did councillors take advantage of the 22 data room to consult the reports in it? 23 A. I don't think that councillors took full advantage of 24 that. There was a register that was completed by 25 councillors as they came in. They would typically come 144 1 within the political groups. 2 54 councillors or thereby, I think, at the time. 3 Maybe a third of the councillors would have taken 4 advantage of the data room. 5 Q. Now, this report between paragraphs 3.31 and 3.47 sets 6 out the appraisal of the different options in some 7 detail. I don't want to go through all of that, but if 8 we could just go to paragraph 3.33, please, on page 7. 9 We see that is under the heading of "Status Quo". Do 10 you see the heading there, Mr Coyle? 11 A. I do. 12 Q. Is that describing continuing on under the Infraco 13 contract in its existing form? 14 A. That's correct. 15 Q. 3.33 says: 16 "The costs of this type of attrition are difficult 17 to estimate. Experience suggests that there would be 18 a high likelihood of continuing contractual disputes and 19 extension of time claims, if this route were to be 20 taken. The Council has worked with McGrigors to assess 21 the key costs likely to be incurred and information on 22 this is included in the confidential appendix." 23 Was that the McGrigors' report that you referred to 24 a moment ago? 25 A. That's correct. 145 1 Q. Paragraph 3.36. This is under the heading of 2 "Separation": 3 "Whilst this option could provide certainty in the 4 short term and would offer future flexibility, the costs 5 of settlement would produce no value for the city and in 6 the event that the project were cancelled, there could 7 be no certainty that a fresh procurement exercise would 8 proceed. Separation by unilateral termination of the 9 contract by tie Ltd could lead to a protracted legal 10 dispute that could be very costly and with no clear 11 outcome, creating uncertainty for Council finances and 12 unquantifiable contingent liabilities." 13 Just reading on to the next page: 14 "In the case of project termination, liabilities 15 will have a direct impact on the Council's revenue 16 budget and could not be supported by borrowing or 17 alternative methods of private finance." 18 Could you just explain the point about the impact on 19 the revenue budget? 20 A. Yes. The termination of the project would mean there 21 was no asset. So the ability to borrow funds under the 22 capital budget would not have been allowable. 23 Therefore, any costs that would have been derived from 24 terminating the project would have fallen on the 25 Council's revenue budget in that year to contain. 146 1 Q. Okay. So just taking that in two parts, the -- are 2 there rules of accounting which require expenditure 3 which doesn't produce an asset be treated as revenue 4 expenditure? 5 A. That's correct. It would have to have been written off 6 in that year. 7 Q. Is there also a rule that borrowing -- the borrowing 8 rules are different for revenue expenditure and for 9 capital expenditure? 10 A. That's correct. 11 Q. 3.37: 12 "tie Ltd asked McGrigors, legal advisers, during the 13 mediation, to assess the costs of separation, taking 14 account of advice prepared for tie Ltd by Cyril Sweett. 15 This assessment has been externally checked and 16 validated by construction, project and cost management 17 consultants, Faithful+Gould. Information on these costs 18 are included in the confidential appendix." 19 Again, those are the -- I think you mentioned 20 Faithful+Gould and McGrigors as having reports in the 21 data room. What was the scope of work done by 22 Cyril Sweett? 23 A. Cyril Sweett -- that work had been undertaken on behalf 24 of tie, and as we were in the lead-up to production of 25 this report and that Council meeting, myself and 147 1 McGrigors held several meetings with tie, with 2 Steven Bell, Dennis Murray, and the Cyril Sweett report 3 was used as a reference document by tie as part of those 4 meetings, and there was much discussion and debate 5 around the particular liabilities that fell on tie/CEC 6 from those -- from those reports and then McGrigors' 7 assessment of that also. 8 Q. Okay. Do we understand from that that McGrigors took 9 into account the work done by Cyril Sweett in their own 10 work? 11 A. Yes. 12 Q. Paragraph 3.38. This is under the heading, "Progress to 13 St Andrew Square (York Place)". So this is the option 14 being recommended by officers; is that correct? 15 A. That's correct. 16 Q. 3.38 says: 17 "The completion of the first phase of line 1a from 18 the Airport to St Andrew Square/York Place is the only 19 option that will, with a strong degree of certainty, 20 produce a tram line for Edinburgh ..." 21 Just pause there. How important a consideration was 22 that as opposed to the considerations of cost for 23 officers in making the recommendation in favour of that 24 option? 25 A. Certainly from my perspective, being of a financial 148 1 mind, the most important thing for me was one of cost, 2 rather than one of producing the tram line for Edinburgh. 3 Clearly, you know, other colleagues within City 4 Development and so on and such may have a different 5 view, but my primary concern would have been one of 6 cost. 7 Q. If we just move to paragraph 3.40: 8 "Whilst negotiations (both between the Council and 9 Infraco and also within Infraco itself) are not yet 10 complete, the intended commercial position has been 11 set." 12 What did you understand that to mean? 13 A. There was still a number of contractual legal items that 14 required to be agreed between the Council and Infraco. 15 So whilst there was broad parameters of what we were 16 looking to achieve, the finer details that are in the 17 legal documentation of that still needed to be executed. 18 Q. If I can put it this way, in terms of the options 19 available to the councillors who were considering this 20 report, does this mean that there was no scope for them 21 to change the terms of the deal? 22 A. No, that's not the case. We were looking for broad 23 approval in this report for -- on a particular strategy. 24 So the strategy being: can you approve going to 25 St Andrew Square under the Settlement Agreement? And 149 1 there would then be a further meeting of Council to go 2 through the finer detail of the actual agreed 3 contractual position, what that would mean in terms of 4 timescales, final budget, funding and so on and so 5 forth. 6 Q. But the high level points of agreement that we saw, for 7 example, in the list of key points after Mar Hall, those 8 were fixed and not subject to review or change -- 9 A. That's correct. 10 Q. -- by the councillors? 11 A. That's correct. 12 Q. Go to page 9, please, paragraph 3.46. 13 This is option 3, the sub-option of progress to 14 Haymarket only: 15 "In addition, a sub-option to complete Line 1a only 16 as far as Haymarket has been examined. This service, 17 whilst costing less in capital terms to complete, 18 (estimated costs of GBP700 million) would be loss-making 19 and would require a substantial subsidy year on year 20 going forward." 21 Just briefly, how was it known that this option 22 would be loss-making? 23 A. That was through the work that we had done on the 24 Business Case while looking at the various terminal 25 points under consideration. 150 1 Q. Was that based on advice from someone in particular? 2 A. Yes. The Business Case was derived from work of various 3 professional advisers. Steer Davies Gleave did a lot of 4 the revenue modelling around that. Also had the input 5 from Lothian Buses. It also had the input of Atkins in 6 terms of doing an independent assessment of the 7 outcomes. So there was a significant amount of 8 professional diligence that was done on this. 9 Q. Thank you. 10 I don't need to go to them, but simply to note for 11 the benefit of the transcript that the minutes record 12 that the Council approved the Settlement Agreement 13 option of a line to York Place, but subject to being 14 satisfied about matters of funding and risk. 15 The reference to the minutes is CEC02083232. As 16 I say, we don't need to go to those just now. 17 Could we please have document CEC02085613. 18 If we could go to the other tab, please, and if we 19 could -- there are some rows which are -- some columns 20 which are hidden. If you just zoom out a little bit, to 21 see all the spreadsheet on one page. 22 Can you just explain briefly, Mr Coyle, what this 23 is? 24 A. So this is a spreadsheet that was used to assess the 25 potential financial outturn position under each of the 151 1 scenarios that you see at the top. 2 So on one hand, there was Settlement Agreement, 3 which was basically the outturn -- the forecast outturn 4 position, taking into account the 362.5 that was agreed 5 through mediation. 6 Q. Just pause there. That's column B? 7 A. That's column B. Within columns D to J, there are then 8 a number of headings and potential scenarios around 9 separation from the Infraco contractor, and then 10 subsequent decisions on the back of that around 11 cancelling the project, reprocuring the project, 12 mothballing the project, et cetera. 13 Then in the final three columns, L, O and Q, that 14 shows an assessment of unsuccessful termination, 15 continuation with Infraco to York Place, under the 16 existing contract, and then -- and two, a high and a low 17 assessment of that scenario. 18 Q. Okay. We will look at some of those details in more 19 detail. 20 Was this one of the documents made available in the 21 data room for councillors to consult? 22 A. Yes, it was. 23 Q. Who produced it? 24 A. This work was produced at a high level from myself, 25 taking into account of a number of months' work that had 152 1 been undertaken by colleagues and by advisers. 2 Q. Okay. Do I understand from that this spreadsheet was 3 assembled by you -- 4 A. Yes. 5 Q. -- based on advice and information from other sources? 6 A. That's correct. 7 Q. Can you explain how it relates to the statements that we 8 saw in the June Council report that the costs of the 9 various options had been considered in detail? 10 A. Yes. Could you -- if you go to the bottom of the 11 spreadsheet, where we can see the totals. So -- and if 12 we go back to the report, the report should capture each 13 of the main headings within this -- within this 14 document. So what you will see is the recommended 15 option in the report which was to proceed with the 16 Settlement Agreement. That would bring us back to an 17 outturn cost of GBP773.4 million. 18 Q. Again, that's -- 19 A. Column B. 20 Q. Column B? 21 A. Yes. Then it also gave a view on the other options that 22 were available at that time. And each of these values, 23 you know, could you just expand the columns a little so 24 I can see all the columns, column D, column F, column H? 25 So there was a range that was given in terms of 153 1 cancellation of the project and high and low value, and 2 a re-procurement view on a high and low value, and then 3 obviously the continuation of Infraco on a high and low 4 value, and then successful termination. So taking all 5 of these into account from a financial perspective, that 6 was then -- helped to form the recommended option that 7 was detailed in the report on 30 June. 8 Q. If we just zoom out a little bit, so we can see all of 9 the columns. If we look along that bottom row, do we 10 see there the estimated cost of the Settlement Agreement 11 option in column B, GBP773 million, and then looking 12 along that row, do we see the prices for the mothball 13 option being figured below the 773? 14 A. Yes. 15 Q. But all the others above it? 16 A. Yes. 17 Q. If we could focus for the moment on column B, headed up 18 "Settlement Agreement option", and if we could scroll up 19 to the top, please. If we just highlight column B, 20 please. 21 We've seen the figure, the total figure for this 22 column of GBP773 million, I think it was. 23 How much certainty was there about that figure? 24 A. Of the overall value? 25 Q. Yes. 154 1 A. There was still a degree of uncertainty around that 2 figure. This was June. There was still a number of 3 commercial and legal things that needed to be closed out 4 before final signature of the MoV5 and the overall 5 package. 6 So there was still a degree of uncertainty around 7 that from a commercial perspective, but also the risks 8 that were still prevalent within the project, there was 9 still a significant amount of work to be done on the 10 off-street section, but the whole on-street section 11 needed to be done as well. 12 Utilities needed to be tackled. So there was still 13 a degree of variability within those numbers. 14 Q. I think -- is it possible for us to see the line 15 numbers, please, on the spreadsheet? 16 If we just look in that column at lines 24 down to 17 29. We see these figures of 362.5 million and 18 62.9 million, the latter being for CAF. Those were 19 numbers that had been agreed at the mediation; is that 20 correct? 21 A. That's correct, yes. 22 Q. So in terms of certainty or uncertainty, those figures 23 were known? 24 A. Yes. 25 Q. The figure below that for the on-street of 155 1 GBP22.5 million, that was just an estimate at that 2 point? 3 A. At that point in time, that was just an estimate, yes. 4 Q. If we scroll on down that column, please, looking first 5 of all at lines 81 and 83, figure of GBP239 million for 6 costs, non-BSC costs to date, and project management 7 costs of GBP9 million, can you give us an indication of 8 how much certainty there was over those figures? 9 A. I think in those figures, there would have been -- there 10 was still design related costs within line 81. So 11 within the 239 million. So there would have still been 12 potential variability around that. Project management 13 costs, a little bit easier to predict. This resource is 14 basically. 15 So I think, you know, a higher degree of certainty 16 amongst those costs, yes. 17 Q. If we look at the row that has the GBP239 million figure 18 in it, do we see that if we read across through all of 19 the different options, it's the same figure that's used? 20 A. That's correct. 21 Q. So insofar as we are comparing different options, that's 22 not a figure which makes any difference between them? 23 A. No, that is not a factor, no. 24 Q. Then above that in the column, in line 67, there's 25 a figure of GBP77.5 million for risk. How much 156 1 certainty was there about that figure? 2 A. I think we were of the view that there was still 3 a significant element of risk that was in -- included 4 within the project. And it was prudent at this stage to 5 make sure that we allowed for that. 6 Q. So by that, do you mean that the figure was relatively 7 high to take account of the risk? 8 A. No, I don't think it is. It's around 10 per cent of the 9 overall value. So I don't think that's extremely high. 10 But I think it was a prudent assessment at that time, in 11 terms of the risks that were still prevalent from the 12 project. 13 Q. Okay. Thank you. 14 If you look briefly at columns D and F, the ones 15 that are headed up "Mothball/Cancel Project", do we 16 understand from the word "Mothball" that this is for 17 stopping the project but with no line being constructed 18 by anyone? 19 A. That's correct. 20 Q. The totals there in those columns, GBP687 million and 21 GBP645 million in columns D and F respectively, do we 22 see there that those options were estimated as being 23 less expensive than the Settlement Agreement option by 24 up to GBP130 million? 25 A. That's correct, but it wouldn't deliver any asset and 157 1 there would be a significant revenue write-off on the 2 back of that. 3 Q. I think we saw in the June report that this was reported 4 as being not materially less expensive? 5 A. Yes. 6 Q. How much certainty was there about the estimates in 7 these columns? 8 A. Could I just go to the top, please? So in terms of the 9 rows, column D, rows 10 to 21, there would have been 10 a high degree of certainty around those costs, because 11 essentially those were costs that were burned. So that 12 was costs that had gone, been certified, acknowledged. 13 So costs were gone. 14 Q. Sorry to interrupt you, Mr Coyle. If we just look 15 across, the figures in all of the different scenarios 16 for these elements of the costs are broadly similar? 17 A. That's correct. 18 Q. So there's not much difference? 19 A. There's not much difference under each of those 20 eventualities. 21 Q. Thank you. Please carry on. 22 A. Just going down then to section 3, this was the section 23 that dealt with change or potential change. So -- 24 Q. Sorry, that's from line 37 down? 25 A. Correct, down to 62. So within those lines, there was 158 1 a number of allowances or assessments that had been made 2 for change. So Infraco, notice of tie change, agreed in 3 full work done. So -- 4 Q. That's line 39? 5 A. That's line 39. 5.3 million, and that was a number that 6 was agreed, acknowledged, no real debate over: 7 Then with relation to line 41, there was changes 8 that were in flight but with a high degree of potential 9 certainty around what those numbers could be across 10 those. 11 So essentially, from my understanding, and my 12 recollection, these were changes that were -- they were 13 pretty much agreed, and it was just working through the 14 potential quantum of what that could be. 15 So that 5.1 million compared to a lower value of 4.1 16 there. Then there was a number of items that were 17 a little bit less certain, with -- in relation to things 18 that were determined through adjudication, things that 19 were agreed in principle, but the values weren't agreed, 20 and then just where things weren't agreed. So there was 21 a number of -- I guess going from certain -- certain 22 values on change to less certain values on change. So 23 there was a wide range of costs that needed to be 24 attributed to that, which would have been payable to the 25 Infraco on cancellation of the contract. 159 1 Q. I understand. So between lines 36 and 62, we have 2 figures for liabilities which had accrued to tie under 3 the Infraco contract? 4 A. That's correct, yes. 5 Q. Some of these were certain and some of them were less 6 certain? 7 A. That's correct. 8 CHAIR OF THE INQUIRY: Are all the green ones certain? 9 Where you've got a green 6 beside it. 10 A. No, I think the labelling is just to determine -- just 11 to show against the key what document the figures were 12 derived from. I think if you go to the bottom of the 13 spreadsheet, my Lord, you can see that there's a number 14 of notes there that shows the source of the figure. 15 So the colour is just to determine what the source 16 of the number was, rather than any rank status around 17 the number. 18 CHAIR OF THE INQUIRY: These are McGrigors' figures? 19 A. Yes. 20 MR MCCLELLAND: If we just look at that key, actually, we 21 see that items 5, 6 and 7, so the yellow, the bright 22 green and then the pale blue, those all derive from 23 McGrigors' work. 24 A. That's correct. 25 Q. If we scroll back up, do we see there that in this 160 1 section, the discussions, section 3 between lines 36 and 2 62, a significant number of the elements come from the 3 work by McGrigors? 4 A. Yes. 5 Q. And the other main source for figures in this section is 6 2, which is a sort of brown colour. Do we see from the 7 key that that's the -- the source for that is 8 HG Consulting? 9 A. Yes. 10 Q. That's -- is that Colin Smith? 11 A. It is. 12 Q. The Independent Certifier? 13 A. Yes. 14 Q. Just carrying on looking at the figures in columns D and 15 F, if you go to line 49, just highlight line 49, please. 16 There's an entry for EOT, which I presume stands for 17 extension of time? 18 A. Yes. 19 Q. And prelims. 20 Can you just explain the figures that appear in that 21 row? 22 A. Yes. So time -- prolongation was a key liability that 23 the Council had through the project as it was at this 24 stage. There was an assessment done as part of the work 25 with McGrigors to see what the potential liability would 161 1 be to the Council in the eventuality of cancellation. 2 So there was an assessment that threw out a range of 3 between 54.4 million and 82.2, in relation to extension 4 of time and prelims, and from my recollection, the by 5 far the largest element of that related to delay in 6 relation to the MUDFA contract. 7 Q. That's what I was going to ask, whether the figures in 8 this -- whether you're aware -- start again. 9 Whether the figures in that row included both 10 prelims which would have been due under the contract in 11 its original form, and payments for extension of time 12 arising from the delay in the project? 13 A. That's correct, yes. 14 Q. The figures in that will include both? 15 A. Sorry, can you rephrase the question? Or can you just 16 repeat the question? 17 Q. The figures in row 49, does that include both prelims 18 which would have been due, even if there had been no 19 delay, and additional costs arising from delay? 20 A. No, that's not correct. If you go back up to the higher 21 part of the spreadsheet, there's a number of milestones 22 that have already been paid in here. It's construction 23 milestones. 24 So my view would be that there would have been an 25 element of preliminaries that would already have been 162 1 paid within section 1. So this would have been extra 2 over in relation to the delay. 3 Q. So your understanding as the person who put this 4 spreadsheet together is that the entries in line 49 -- 5 A. Are additional. 6 Q. Are additional and reflect the costs of delay? 7 A. Yes. 8 Q. Okay. The source for these figures would be the 9 McGrigors' report? 10 A. That's correct. 11 Q. Can you look, please, at line 59 in -- sorry, I should 12 say before we move off that line, we see the same 13 figures appear in the other columns as we read across 14 from left to right. So the same delay figures appear in 15 those estimates? 16 A. Yes, because those -- those are -- the total on line 22 17 is applicable to all the scenarios. 18 Q. If we go to highlight line 59, please. This is 19 described as BSC Settlement Premium + Risk 20 (Demobilisation, et cetera). Potential further claim 21 items. 22 We see there that the GBP80 million figure is -- 23 appears in a number of the scenarios. 24 What was that for? 25 A. That's -- could I have some more water, please? Thank 163 1 you. 2 That would be for -- it's basically a settlement 3 number for BSC, so that there would be a number -- 4 a walk-away number -- thank you very much. There would 5 be a walk-away number that would have to be agreed by 6 the Council and tie as a contracting party, and BSC to 7 walk away. So a settlement. 8 And then there would have been some demobilisation 9 costs and potential further claims that might have been 10 prevalent at that time. 11 There is a report that sits behind that that can 12 actually give a little bit more of a deeper assessment 13 of what it is. 14 Q. So we see the number 2 there. So that would be a report 15 by HG Consulting? 16 A. That's correct. 17 Q. Just to clarify your explanation of that, you understand 18 that this is an estimate of the cost associated with 19 terminating the Infraco contract? 20 A. Yes. 21 Q. Is it for a sum over and above the claims which had 22 accrued -- 23 A. Yes. 24 Q. -- already? 25 A. Over and above. 164 1 Q. So what items was that to compensate the consortium for? 2 A. Basically, a deal to go away. So a -- just a final 3 settlement to walk away from the contract. As 4 I understood it,, you know, the Council or tie could not 5 cancel this contract. It needed BSC's agreement to 6 cancel the contract. 7 Therefore, that would come at a potential premium 8 cost to the Council, and there was also further costs 9 relating to demobilisation, putting the -- putting 10 effectively the -- Edinburgh back to where it should 11 have been. So costs in terms of that, and also any 12 further claims that may have been put forward by the 13 contractor at that time. 14 Q. How much certainty was there about that figure being the 15 correct figure? 16 A. I think that figure -- it was variable. It could have 17 been -- it could have changed. But I think that the -- 18 obviously it's applied to a number of the headings 19 there. So I guess each of those -- against each of 20 those headings, it's comparative across a number of 21 those headings. 22 Q. Okay. If we can look briefly at columns H and J, which 23 are the option of separating from the existing 24 consortium and reprocuring the work; is that correct? 25 A. Yes. 165 1 Q. If you just scroll up, please. If we go to section 2, 2 which is between lines 31 and 35, we see a figure there 3 in line 34, new contractor to replace Infraco, 4 199.5 million. Would that be the estimated cost of, as 5 it says, having a new contractor do the work -- 6 A. That's correct. 7 Q. -- to complete a line to St Andrew Square -- 8 A. That's correct. 9 Q. -- or York Place? 10 A. That's correct. 11 Q. How much certainty was there about that cost? 12 A. Again, variable because we would have to go through 13 a procurement. You would have to execute a contract. 14 So it was a variable number. 15 Q. Okay. I suppose no tenders will have been sought or 16 anything about that? 17 A. No. 18 CHAIR OF THE INQUIRY: That was a McGrigors' figure again. 19 A. Yes. 20 MR MCCLELLAND: It may seem strange if an estimate of the 21 cost for reprocuring the work had come from McGrigors as 22 a firm of solicitors. 23 A. But that would have been taken into account. I think 24 that's what the note says. If I've got that wrong, then 25 it will be in the report. You will be able to look at 166 1 the McGrigors' report if it's held elsewhere, but that's 2 the -- that's the note that's there. 3 Q. Did you understand any quantity surveyors to have come 4 up with the figure for that cost? 5 A. We had -- we obviously had the views of, you know, tie. 6 We had the views of HG Consulting. We had the views of 7 Faithful+Gould as well, all to substantiate these 8 numbers. 9 Q. Okay. If we could scroll on down through columns H and 10 J, please, to the section beginning at line 64. This is 11 headed up -- the elements in here broadly around the 12 subject of risk. 13 If we see the totals for risk in line 74, 14 GBP262 million in column H and GBP192 million in column 15 J. 16 These seem to be fairly substantial figures for the 17 estimate of risk? 18 A. Yes. 19 Q. Can you just explain that section, please? 20 A. Yes. So these numbers were obviously risk elements that 21 we needed to build on top of the other assessments for 22 these headings. 23 The primary risk figure is the exclusions that were 24 in the Project Phoenix Proposal, the assessment being 25 that in a re-procurement that these risks that had been 167 1 swept away by the Settlement Agreement would still be 2 applicable to another contractor coming in to take the 3 project forward. 4 So that is the basis for that. 5 Item 2, system risk. This is in relation to a new 6 contractor coming in to -- sorry, I have missed a 7 line -- bad project risk. So basically, a premium that 8 the Council would have to pay in the event that a new 9 contractor would come in and look at the history of the 10 project, look at the difficulties that the project had 11 experienced and price accordingly. 12 The -- 13 Q. Sorry, just to interrupt you there, the estimate for 14 that is GBP40 million? 15 A. That's correct, yes. Then in relation to the system 16 risk, this is in relation to obviously a new contractor 17 coming in, picking up existing design, picking up 18 existing systems, using existing materials, and then -- 19 and integration of the whole system as well. So a value 20 applicable to that, and then inflation risk. Inflation 21 risk 25 million. 22 And then further specified and exclusion risk. 23 That's basically a contingency item of 77.5, which is 24 applied there. Litigation and professional fees. So 25 taking into account lawyers' fees, QSs' fees, various 168 1 other professional fees in the event of a re-procurement. 2 Q. Just briefly, you mentioned there systems risk, in line 3 69. Do you understand that that's the risk associated 4 with a new contractor having to make their system work 5 with what had already been built and designed? 6 A. That's correct, yes. 7 Q. And inflation risk. Is that the risk associated with 8 the potential for prices to increase -- 9 A. Correct. 10 Q. -- before the contract was let; is that -- 11 A. Over and above the prices that had been agreed within 12 the Settlement Agreement, and as you can see, that 13 hasn't been applied to the continuation with Infraco, 14 because that obviously had a -- prices locked in for 15 that contract. So with passage of time and inflation 16 since then. 17 Q. At very high level, Mr Coyle, do we see from the entries 18 in that risk section for this column and the level of 19 totals, that this was regarded as being a much more 20 risky option than the Settlement Agreement option? 21 A. That's correct. 22 Q. If we just look at the totals in that column, so column 23 H, the high estimate of reprocuring comes in at GBP1.144 24 billion. 25 A. Yes. 169 1 Q. And then the estimate for -- the low estimate for 2 reprocuring is GBP1.032 billion? 3 A. That's correct. 4 Q. Do you recall that when we looked at the deckchair 5 spreadsheet, there were estimates for the cost of 6 separation? 7 A. I do. 8 Q. You can take it from me that the range of estimates for 9 that option were GBP645 million to GBP698 million? 10 A. Yes. 11 Q. That seems about right? 12 A. Yes. 13 Q. We discussed at the mediation, there was an agreement to 14 add GBP150 million on to those estimates? 15 A. Yes. 16 Q. It appears from the figures in these columns that 17 between tie's estimates on 5 March and the estimates 18 here, that the cost estimate for this option had gone up 19 by something like half a billion pounds in three months. 20 A. Yes. 21 Q. Do you accept that? 22 A. Yes. 23 Q. Can you explain it? 24 A. I think that there was certainly things that tie had 25 excluded from the separation figures before, I have no 170 1 doubt, and then there's further risks that are 2 highlighted that hadn't been thought of at that time 3 within this -- within this paper. 4 For example, integration risk. That wasn't flagged 5 as part of the tie figures. There had been no premium 6 attached in terms of the bad project and what that might 7 mean in terms of market appetite to actually do this 8 project. So I think there had been a significant amount 9 of omissions from that original assessment. 10 Q. It would suggest that even the revised estimate that 11 there was disagreement about at the mediation, adding 12 GBP150 million on, was itself GBP350 million out? 13 A. Certainly in terms of risk, potential risk that was 14 there. Or that had been assessed as being there. 15 Q. Would you accept that the effect of the increase shown 16 on this spreadsheet, whatever the reason for it, would 17 be to make the Settlement Agreement look by far the 18 better option? 19 A. No, I don't accept that. 20 Q. You don't accept that? 21 A. I think that financially, based on these figures, the 22 Settlement Agreement is the most attractive option, but 23 I think that even taking into account -- if you look at 24 the re-procurement option, the primary risk around the 25 exclusions, for example, that was swept away as part of 171 1 the Settlement Agreement, that would still prevail. 2 That will would still be there. You would still have to 3 allow for re-procurement, professional fees. So there 4 would still be additional costs, albeit that these 5 numbers are variable. There's no doubt about it. 6 CHAIR OF THE INQUIRY: I think the question -- I understood 7 the question to mean that -- to be that if you look at 8 the risk factors that have been calculated in this 9 schedule, and you look at the totals of the options, 10 then the settlement figure is by far the most 11 attractive. 12 A. That's correct. 13 CHAIR OF THE INQUIRY: Do we see that when we look at the 14 re-procurement, most of the risk calculations relied upon 15 are done by the independent certifier; that's 16 Colin Smith. 17 A. That's correct. 18 CHAIR OF THE INQUIRY: Do you know at what stage it was 19 decided that if the project continued, Mr Smith would 20 have a role to play? 21 A. I can't recall fully, my Lord, but I do remember it 22 would have been before this. 23 CHAIR OF THE INQUIRY: It would have been? 24 A. Yes, because I'm pretty sure that by this point, 25 Mr Smith had been -- he'd been appointed as Independent 172 1 Certifier to the satisfaction of BSC, tie and CEC. So 2 his role had already been, you know, formalised within 3 that arrangement, albeit that I don't think there was 4 any duration put on that particular arrangement at the 5 time. 6 CHAIR OF THE INQUIRY: Thank you. 7 MR MCCLELLAND: If we could look, briefly, Mr Coyle, at rows 8 O and Q, which are the option of continuing with 9 Infraco. If you just scroll up, please. Sorry, scroll 10 down a little bit so we can see the section from line 37 11 down. 12 You see the figures that have the pale blue 7 beside 13 them? I think that's one of McGrigors' figures? 14 A. Yes. 15 Q. If you look along to the -- what that line is for, 16 basically, these are all in respect of INTCs; is that 17 correct? 18 A. Yes. 19 Q. Do we see that in this section, the costs associated 20 with INTCs are considerably higher than they are in the 21 columns to the left? 22 A. Yes. 23 Q. Does that reflect the assumption underlying these 24 columns which is that the Infraco contract carries on in 25 its original form? 173 1 A. That's correct. 2 Q. So is the assumption underlying these figures that if 3 the Infraco contract carried on as it was, tie would 4 incur substantial additional liability for the cost of 5 change? 6 A. That's correct. 7 Q. If we scroll down, we see a column with a -- we see an 8 entry with a darker blue. I think it's line 73. 9 Line 73 is for further delay and we see in these columns 10 a figure of GBP60 million? 11 A. Yes. 12 Q. If we just scroll down to the key at the bottom left for 13 that colour, the entry says: 14 "Additional Delay of one year as a result of using 15 current contract mechanism." 16 Do you see that? 17 A. Yes. 18 Q. Does that reflect an assumption that if the Infraco 19 contract ran on in its unamended form, there would be 20 further delay in the contract change mechanism? 21 A. That's correct. 22 Q. And that tie would carry the responsibility for that 23 delay? 24 A. That's correct. 25 Q. Thank you. If we could briefly go to document 174 1 CEC02085602. 2 Are you familiar with this document, Mr Coyle? 3 A. Yes. 4 Q. Do you see it's headed up "EDINBURGH TRAMS SETTLEMENT 5 FIGURE ANALYSIS", and in the top right-hand corner, 6 there's an "Hg"? 7 A. Yes. 8 Q. Is this the source of the figure that we saw in your 9 spreadsheet of GBP80 million for -- 10 A. Yes. 11 Q. -- the premium for terminating the Infraco contract? 12 A. Yes. 13 Q. If we just highlight the first paragraph on page 1, 14 please: 15 "Hg Consulting has been asked to offer an opinion on 16 the contractor's approach and possible values that will 17 be sought to gain a settlement under the option of 18 Separation and Attrition." 19 Then if we look at the third paragraph, please: 20 "While we do not offer a view on the validity of the 21 heads of claims, entitlements and value of the work, we 22 understand the magnitude of the sums of money involved." 23 What did you understand that to mean? 24 A. I understand that to mean that there's not an individual 25 breakdown of the various heads of entitlements for those 175 1 particular items that were contained within the 2 spreadsheet, but that from a global perspective, an 3 assessment and understanding of what that could mean in 4 terms of cost to the Council. 5 Q. If we go to page 2, please. Could you just highlight 6 the top two paragraphs, please: 7 "On the basis of separation, our view of 8 a negotiating figure would be around GBP50 million, with 9 GBP20 million being set aside for subcontractors and 10 suppliers. 11 Taking a more aggressive line with attrition, it 12 would be feasible to consider an opening negotiating 13 stance of GBP100 million. This sum would be more 14 susceptible to a "quick win" settlement discount, with 15 the prospect of having a lower range point in the order 16 of GBP80 million." 17 Can you explain what -- if you took the sum of 18 GBP80 million from these paragraphs, please? 19 A. Sorry? 20 Q. Did you take the figure of GBP80 million for your 21 spreadsheet from these paragraphs? 22 A. Yes. 23 Q. Do you understand Mr Smith to be suggesting here that 24 there are actually two different figures, one for 25 separation and one for attrition? 176 1 A. Yes. 2 Q. What do you understand the figure to be for separation? 3 A. 50, 50 million. 4 Q. And what -- how does one deal with the reference to 5 GBP20 million for subcontractors? 6 A. That would be in addition to the 50 million. 7 Q. Would it be in addition to the 50 or would it be 8 included within it? 9 A. Yes, I would read it to be in addition to the 50. 10 Q. In addition? 11 A. Yes. 12 Q. Okay. So that would suggest a figure of GBP70 million? 13 A. That's correct, yes. 14 Q. Did you understand this report before you put the 15 figures into your spreadsheet? 16 A. Yes. 17 Q. Why then is the figure of GBP80 million in all of the 18 columns in the spreadsheet? 19 A. I can't recall why -- why that would have changed. 20 Q. But this report was the source of those figures in the 21 spreadsheet? 22 A. It was part of it, yes. 23 Q. Could you go, please, to a different document, 24 CEC02086431. 25 You referred to a McGrigors' report earlier, 177 1 Mr Coyle, as one that had been in the data room. Was 2 this the report you've been referring to? 3 A. Yes. 4 Q. We see on the front, there's a date of 24 June 2011. 5 I think the Inquiry understands that there is a later 6 version of this report dated 29 June 2011, but the 7 Inquiry's understanding from enquires it's made is that 8 it was this version which was in the data room. Does 9 that accord with your understanding? 10 A. That seems reasonable, yes. 11 Q. Who instructed this report? 12 A. I can't recall. 13 Q. Somebody within the Council? 14 A. Yes. 15 Q. Were you involved in instructing it? 16 A. I was involved in the process, yes. I can't recall who 17 actually issued the instruction. It could have been 18 Mr Maclean. I can't be sure. 19 Q. Alastair Maclean? 20 A. Yes. 21 Q. Why was it instructed? 22 A. To give the Council a view of what our liabilities could 23 be under various scenarios. 24 Q. When your spreadsheet that we looked at a moment ago 25 referred to the McGrigors' report, is this the report 178 1 that it was referring to? 2 A. Yes. 3 Q. The Council report from June, when it referred to the 4 McGrigors' report, was it this report it was referring 5 to? 6 A. Yes. 7 Q. Now, it's a long report. I'm not going to go through it 8 all, but there are certain passages I would like to look 9 at. 10 If we could go, please, to page 5, paragraph 1.1: 11 "This report addresses the principal options 12 available to tie/CEC in connection with the future of 13 the Edinburgh tram network, and the entitlement which 14 Infraco might have for payment in connection with those 15 options." 16 1.2: 17 "One of the options available to tie/CEC is to enter 18 into the Settlement Agreement in relation to which 19 certain principles were agreed at the mediation which 20 took place at Mar Hall in March 2011 and in relation to 21 which negotiations remain ongoing." 22 1.3: 23 "The other options are dependent on the reasons for 24 which the Settlement Agreement is not entered into." 25 And so on. 179 1 Then if we go on to 1.5: 2 "The approach taken to the assessment of the options 3 in this report is to arrive at the prudent assessment 4 that should be made in relation to tie/CEC's exposure 5 for the purposes of carrying out a comparison of the 6 consequences of adopting the various options 7 identified." 8 That refers there to a prudent assessment, Mr Coyle. 9 What did you understand that to mean? 10 A. That -- prudent assessment, it's not aggressive. 11 It's -- it's prudent, and it created a range of values 12 from, you know, one point to another that we could -- we 13 could compare the various options. 14 Q. Was it important to the Council that any figures 15 emerging from this report erred on the side of caution? 16 A. No, I think that the Council wanted to know what the 17 potential range could be under each of these headings. 18 I don't think the Council ever wanted to have an 19 aggressive stance or anything like that in terms of what 20 the numbers could mean, but what was a sensible 21 assessment. 22 Q. Well, this report, as I understand it, was part of the 23 preparations by the Council to help decide whether to go 24 for the Settlement Agreement option or for one of the 25 alternatives? 180 1 A. Yes. 2 Q. Now, this was a project, the costs of which had been 3 underestimated once more. So you must have been keen to 4 avoid that happening again? 5 A. Yes, definitely. 6 Q. So that's why I suggest that it would -- the Council 7 would have wanted to ensure that if this report erred in 8 its figures, it would err on the side of caution? 9 A. Certainly prudency, yes. 10 Q. So to err on the high side, rather than the low side? 11 A. I don't think prudency is necessarily high, but it's not 12 aggressive. So I think that it's giving us a sensible 13 range in which we could compare the various outcomes. 14 I think the important thing is that it's comparable 15 across each of those outcomes. 16 Q. If we read on to paragraph 1.6: 17 "This does not involve arriving at a definitive view 18 of the value and merits of each head of Infraco claim; 19 that could only be achieved following a detailed 20 factual, legal and expert analysis. Instead, the 21 approach that has been taken is to build up the 22 commercial components of the various options in order to 23 arrive at a working comparison between them." 24 That refers there to a definitive view not being 25 possible; is that your understanding? 181 1 A. Yes, that's correct. 2 Q. That's because a detailed factual legal and expert 3 analysis would be required. Was it your understanding 4 that no such analysis had taken place? 5 A. That's correct. In order to get a definitive view, all 6 of these outstanding matters would have to go through 7 the adjudication processes and been settled that way. 8 CHAIR OF THE INQUIRY: Couldn't they be achieved some other 9 way, rather than go through adjudication? "a detailed 10 factual, legal and expert analysis". It doesn't 11 necessarily involve adjudication, does it? 12 A. I think it could have gone through a detailed factual, 13 legal and expert analysis. So each of the particular 14 heads of claim that were outstanding could have gone 15 through that process. I think that what the Council 16 needed to see was, based on -- based on each of those 17 particular scenarios and being consistent across each of 18 those scenarios, what was the likely range. And that 19 was -- that was what we -- that was what we asked 20 McGrigors to do. 21 MR MCCLELLAND: So the necessary factual, legal and expert 22 analysis had not been done? 23 A. Not to my knowledge, no. 24 Q. Was it ever done? 25 A. On each of the heads of claim? I don't believe so, no. 182 1 Q. Put it this way. Is this report by McGrigors the last 2 word in estimating the cost of alternatives to the 3 Mar Hall deal? 4 A. At that point in time, yes. 5 Q. Did it remain the last word or was any more -- 6 A. No, I mean, there was no further work. Was there any 7 further work? There was still refinement of the budget 8 in the lead-up to the Council meeting on 25 August. So 9 there was still further refinement to the budget, but in 10 terms of the options available to the Council, this was 11 the last comparator, I think, that was done between each 12 of those options. 13 Q. Reading on to paragraph 1.7: 14 "The outcome of this exercise does not represent the 15 starting point that would be adopted in the context of 16 any negotiations with Infraco, nor does it necessarily 17 reflect the approach that would be taken in the context 18 of any formal dispute resolution proceedings. It 19 provides a context in which to examine a number of 20 potential options in order to provide a basis of 21 comparison between them." 22 What did you understand by that? 23 A. That it wasn't a document to re-open negotiations with 24 Infraco. That had already been settled through the 25 Settlement Agreement. 183 1 You know, there wasn't any suggestion that this 2 report would form the back of any particular formal 3 disputes that the Council would have with Infraco. Just 4 basically that it gave the Council a way to compare each 5 of those potential outturn costs and what that could 6 mean. 7 Q. If we could look, please, at 2.7. Sorry, it's page 10. 8 "In order to identify the potential commercial 9 implications of the building blocks referred to above, 10 tie has been asked to produce a series of figures using 11 the building blocks as a structure for doing so, and 12 those figures have been referred to in this report. tie 13 has also been given the opportunity to comment on the 14 incorporation of its figures into this report. Where 15 appropriate, commentary has been made in this report on 16 the approach taken by tie; however, the figures have 17 been assumed to be correct for the purposes of this 18 report." 19 Was that a safe assumption in your view? 20 A. Yes. 21 Q. Despite the apparent concerns with the cost estimates 22 tie had produced, for example, in the cost of 23 separation? 24 A. Because the report took account of certain building 25 blocks. It didn't take account of everything that tie 184 1 had produced. So there were certain values and figures 2 that tie would have been asked to have produced to 3 arrive in -- as part of this particular report. 4 Again, we're looking at comparison. So it's 5 comparison between each of those options and as long as 6 those comparisons are consistent, then it still allows 7 you to get a comparison between those scenarios. 8 Q. I understand, thank you. 9 Paragraph 2.8, please: 10 "In relation to the evaluation of change, in the 11 absence of any independent third party verification of 12 tie's figures, a midpoint has been taken between the tie 13 figure and the Infraco figure in order to take a prudent 14 account of the risk to tie/CEC. It is likely that the 15 figures advanced by Infraco are high, based on Infraco's 16 most optimistic approach to what its entitlement might 17 be. This approach is not based on any scientific or 18 definitive prediction of the sums which Infraco might 19 recover. That could only be achieved by the detailed 20 factual, expert and legal analysis referred to above. 21 Instead, it represents a notional reduction. However, 22 it is understood from tie that in the cases where the 23 value of tie changes has been agreed with Infraco, it 24 has been on an average of 50 to 55 per cent of the sums 25 initially set out by Infraco ..." 185 1 Do we see there, there was some basis for that, but 2 it's a far from certain basis for the calculations? 3 A. That's correct. 4 Q. Then paragraph 2.9: 5 "In relation to a number of the key issues which 6 have been examined, the position which Infraco will take 7 is not known. In the absence of any insight into the 8 position which Infraco will take, nor the figures which 9 they are likely to adopt, it is difficult to forecast 10 the commercial outcome between the parties." 11 Again, would you accept that there was, perhaps by 12 necessity, an element of guesswork in the assessments in 13 this report? 14 A. Yes. 15 Q. Having regard to all of those caveats and qualifications 16 that we've seen, what assistance did this report give 17 you? 18 A. It gave us -- it gave us a really good basis on which to 19 compare each of those options. As I said before, 20 whilst -- let's not forget the amount of uncertainty 21 that this project still had to go. So there was nothing 22 certain. Far from certain, in fact. 23 But what this report allowed us to do was to give 24 a consistent comparison between each of those particular 25 options. Was it giving you a definitive outturn figure 186 1 that you could be certain about for each of them? No, 2 it couldn't, but it gave you that range. 3 CHAIR OF THE INQUIRY: Mr McClelland, do do you have much to 4 go? Should we have a ten-minute break? 5 MR MCCLELLAND: Just a couple more questions on this report, 6 my Lord, and then we can move on. 7 Do you accept that the conclusions of that report 8 are subject to a significant degree of uncertainty? 9 A. Yes. 10 Q. And that to the extent your spreadsheet depends on that 11 report, it too was subject to a significant degree of 12 uncertainty? 13 A. Yes. Which is why there is such a wide range in terms 14 of those numbers. 15 Q. Was it your understanding that this report was concerned 16 with assessing the costs of alternatives to the 17 Settlement Agreement? 18 A. Yes. 19 Q. It wasn't any part of its scope to analyse or advise 20 upon the price that had been agreed at Mar Hall? 21 A. No. 22 Q. Now, just briefly, Mr Coyle, there was an appendix to 23 this report, which is reference CEC02086429. I don't 24 intend to go through this in any detail, but is that 25 document you're familiar with? 187 1 A. Yes. 2 Q. Did you use it for any purpose? 3 A. Yes. It provided some of the back-up to the McGrigors' 4 report, yes. 5 Q. Okay. If we were to look carefully at it, do we see 6 some of the figures from that spreadsheet appearing in 7 your spreadsheet? 8 A. Yes. 9 Q. That's all I want to ask on that report, thank you, 10 Mr Coyle. 11 CHAIR OF THE INQUIRY: I think we will have a short break of 12 ten minutes. We will resume again at 3.25. 13 (3.15 pm) 14 (A short break) 15 (3.26 pm) 16 CHAIR OF THE INQUIRY: You're still under oath, Mr Coyle. 17 MR MCCLELLAND: Mr Coyle, it's late on a Friday afternoon. 18 So I'm going to make some effort to try and pick up the 19 pace a bit. 20 Could you please have document CEC02085600. We see 21 that this is a report by Atkins dated June 2011. Is 22 this a report you're familiar with? 23 A. Yes. 24 Q. If we just move on briefly to page 4, please, and just 25 for the purposes of clarification, if we could look at 188 1 the second paragraph that begins: 2 "This has been a very high level review ..." 3 We see there a reference to Faithful+Gould, although 4 the cover of the report refers to Atkins. 5 Do you understand them to be essentially the same 6 people? 7 A. Yes. It's part of the same group, yes. 8 Q. Thank you. 9 Now, the June report to Council which we looked at 10 earlier, when discussing the separation option at 11 paragraph 3.37, had said that McGrigors' assessment had 12 been externally checked and validated by Faithful+Gould. 13 Was that a reference to this report? 14 A. Yes. 15 Q. Again, I don't want to get too much into the detail of 16 this report. There are some passages I would like to 17 look at. 18 On this page, if we could just highlight the first 19 two paragraphs, please. 20 "This report seeks to validate the processes and 21 procedures carried out in the McGrigors' reports ... and 22 to give a sense check on the figures taken forward to 23 the budget analysis spreadsheet produced by the City of 24 Edinburgh Council." 25 So do we understand from that that Faithful+Gould 189 1 were essentially covering the same ground as McGrigors 2 were in their report? 3 A. Yes. 4 Q. The second paragraph: 5 "This has been a very high level review of those 6 processes and the procedures with information taken at 7 face value. Faithful+Gould has not had access to the 8 contract documents nor had the time to scrutinise at 9 a molecular level the build-up of costs/prices 10 supplied." 11 Then reading on, if you just highlight the passage 12 "we would conclude that": 13 "We would conclude that the approach taken by 14 McGrigors and CEC demonstrates an appropriate method of 15 identifying the likely heads of liability and there is 16 no indication of any internal conflicts within the 17 drafting. We also consider the methods used to 18 establish the quantum of those liabilities suitable and 19 appropriate." 20 Then just further on down that page, the paragraph 21 beginning "the report considers": 22 "The report considers the various heads of 23 claim/recovery open to Infraco in the event of 24 separation. Whilst we cannot comment on the accuracy or 25 validity of the conclusions reached, we consider that 190 1 the arguments are logically presented and do not 2 indicate any internal conflicts within the drafting." 3 Then the final sentence on that page: 4 "We consider the approach adopted in this regard to 5 be acceptable, although we cannot comment on the 6 validity of the conclusions reached." 7 In light of those remarks, Mr Coyle, what assistance 8 did you derive from this report? 9 A. It gave us comfort that the approach that we had taken 10 with McGrigors was a good one, and that it was sensible 11 and wasn't open to error. 12 Q. Do you accept that, based on what we have read there, 13 this report didn't remove any of the uncertainties that 14 McGrigors faced in their report? 15 A. Yes, I accept that, yes. 16 Q. Do you agree too that, like the McGrigors' report, this 17 report is focused on alternatives to the Settlement 18 Agreement option? 19 A. That's correct. 20 Q. So it didn't -- Faithful+Gould didn't analyse or advise 21 upon the off-street works price of GBP362.5 million? 22 A. No, they didn't advise on that, no. 23 Q. Is it correct that by the time of the June Council 24 meeting, no reports had been obtained which analysed or 25 scrutinised the off-street works price of 191 1 GBP362.5 million agreed at Mar Hall? 2 A. Yes, that's correct. 3 Q. And rather the approach taken by the Council officers 4 was to obtain reports such as the McGrigors' report 5 which estimated the cost of alternatives to the Mar Hall 6 deal? 7 A. That's correct. 8 Q. Can we go, please, to document TRI00000108. This is 9 a statement to the Inquiry by Dave Anderson who was the 10 Director of City Development at the Council between 2008 11 and 2012. If we could go, please, to page 108. 12 You see a question at 144. If you just go from 13 there and down to the bottom. 14 He's asked there about the McGrigors' report and the 15 Atkins' report, the Faithful+Gould report that we just 16 looked at. The question: 17 "Why were these reports instructed? 18 "The reports were instructed by the Chief Executive 19 and overseen in the Council by Alastair Maclean, 20 Nick Smith and Alan Coyle." 21 Is that your understanding? 22 A. Yes. 23 Q. "My understanding is that the McGrigors' report was 24 commissioned to ensure that there was an independent 25 legal review concerning the options available to the 192 1 Council and the costs and potential consequences of its 2 preferred option." 3 If we just pause there, I think you've agreed that 4 these reports were not considering the costs and 5 potential consequences of the preferred option, which is 6 the Settlement Agreement option? 7 A. That's correct. 8 Q. We read on: 9 "The updated report by Atkins was a sense check that 10 from a transport engineering construction perspective, 11 the assumptions made by McGrigors in drafting their 12 report were reasonable." 13 Do you agree with that? 14 A. Yes. 15 Q. Then the following answer: 16 "To what extent did these reports inform CEC's 17 decision making as to which option to follow? 18 "My view is that there was strong political pressure 19 to complete the project and that the Council's 20 Chief Executive Mrs Bruce and the Chairman of tie/TEL 21 were seen to deliver the tram to St Andrew Square. 22 I think these reports were commissioned primarily to 23 check that this option was reasonable, relative to the 24 costs and risks associated with other options." 25 Do you see that's a fair assessment? 193 1 A. Yes. 2 Q. If we just go over the page, please. Sorry, before we 3 do, the question at the bottom there: 4 "What were your views, in general, on the reports?" 5 If we just go over the page, please. What 6 Mr Anderson says is: 7 "They were never shared with me. Having read them 8 now, my sense is that they are rather high level and 9 don't add a lot of value." 10 Is it correct that these reports were not shared 11 with Mr Anderson, who was the Council's Director of City 12 Development? 13 A. No. 14 Q. That's not correct? 15 A. No, it's not correct. 16 Q. What is your recollection of Mr Anderson's involvement 17 with them? 18 A. These reports were available to all the senior Council 19 team at that time. They were all scrutinised, looked at 20 by the senior Council team to make sure that they made 21 sense. So there was many eyes on these reports before 22 they went anywhere. 23 So I don't agree with that at all. 24 Q. I think from what you said, that this report would have 25 been available to Mr Anderson if he wanted to see it. 194 1 Do you know for sure if he reviewed the report at that 2 time? 3 A. I can't say for sure that he reviewed it, but it was 4 definitely available for him to review. 5 Q. So it wasn't case of the reports being concealed from 6 him? 7 A. Not at all, far from it. 8 Q. What about Mr Anderson's comment that, having read them, 9 they are at rather a high level and don't add a lot of 10 value? 11 A. I don't agree with that at all. I don't think that the 12 McGrigors' report in particular could be seen as high 13 level. I actually think it's -- there's a level of 14 granularity there to it. I don't agree with that at 15 all. 16 Q. The question of not adding a lot of value? 17 A. Again, I don't agree with that at all. 18 Q. Just if you could explain why? 19 A. Because these assessments allowed us to get comfortable 20 in terms of the comparators between each of these 21 various options. And provided a good level of 22 discussion around that and a good level of detail around 23 that, and a view from an external party that were very 24 professional in their approach. I just -- I just can't 25 see the value in that statement at all. I don't agree 195 1 with it. 2 Q. Thank you. 3 If we could look, please, at document TRS00011725. 4 This is a report, Mr Coyle, to the Council, 5 25 August 2011. We don't need to go there, but at 6 page 18 we see that it's presented in the name of 7 Dave Anderson, but he's indicated that you were its 8 principal author; is that correct? 9 A. The report was -- I certainly had a large part to play 10 in the drafting of this report, but it was significant 11 contributions from all parts of the project. So from 12 myself in terms of financial matters, from Mr Maclean in 13 terms of legal matters, commercial matters. From 14 Mr Smith in terms of the role that he was taking on in 15 terms of the project there, and indeed from the 16 Chief Executive. 17 So it's a significant team effort. 18 Q. Okay. Thank you. 19 CHAIR OF THE INQUIRY: Would it be normal for someone who 20 wasn't an employee of the Council to contribute to 21 a Council report? 22 A. I can't -- I can't remember if Mr Smith had been 23 seconded to Edinburgh Council by this point or not. It 24 may not have been the case. 25 Would it be normal? There's certainly some advisers 196 1 in the past that have helped to draft Council reports 2 that have not been full-time employees of the Council. 3 I wouldn't say it's normal, no. 4 CHAIR OF THE INQUIRY: Thank you. 5 MR MCCLELLAND: Now, in overview, Mr Coyle, this report 6 reports to councillors on the revised project budget and 7 the options available for funding it. 8 If we could go, please, to page 2, paragraphs 3.5 9 and 3.6. We see there that: 10 "A further review has been carried out of the key 11 project risks against the proposed budget. This review 12 has been validated by Faithful and Gould." 13 At 3.6: 14 "Faithful and Gould have both tested and validated the 15 figures and the underpinning assumptions. A revised 16 budget has subsequently been produced and is summarised 17 later in this report." 18 If we go to page 3, please, paragraphs 3.12 and 19 3.13: 20 "In the period since the Council meeting on 30 June, 21 Council officers have been seeking to validate the 22 programme budget and provide further assurance on the 23 project costs and required risk allowance. 24 The review of the budget has validated the base 25 budget allowance for the project to York Place at 197 1 GBP742 million. The quantified risk allowance for the 2 project has been validated at GBP34 million, giving 3 a total budget requirement of GBP776 million." 4 If we could just pause there, is that what became 5 the approved budget for the project after the Mar Hall 6 settlement? 7 A. That's correct. 8 Q. Reading on: 9 "The review has also confirmed that the funding 10 required for completion of the project to York Place is 11 GBP231 million in addition to the previous budget 12 sum..." 13 We've seen there a number of -- sorry. Over the 14 page, please, page 4. 3.16 and 3.17: 15 "In order to achieve the most robust possible cost 16 estimates, Faithful and Gould have worked with Council 17 Officers to validate the base budget for the works from 18 Airport to York Place and have also completed thorough 19 testing and validation of the proposed risk allowance. 20 A confidential schedule summarising the findings of the 21 Faithful and Gould review has been prepared and will be 22 shared on a confidential basis with elected members. 23 The validation exercise has involved 24 a comprehensive review of the most up-to-date and 25 relevant financial, legal and commercial information, to 198 1 enable a detailed budget for the project to be 2 produced." 3 Were you involved in the instruction of the work by 4 Faithful+Gould? 5 A. Yes. 6 Q. Could you just clarify the scope of the work that they 7 did? 8 A. So building on the work that they had done back for the 9 June report, they -- we did a significant amount of work 10 with them around looking at the budget, each line in the 11 budget, and also they held detailed risk workshops as 12 well with all the key people. In fact there were about 13 30 people probably, in the room that contributed to 14 those particular workshops, to help us build up the sum 15 for the risk allowance and get comfortable with overall 16 budget. 17 Q. From the passages that we've just read, it appears that 18 they worked in particular on two things. First of all, 19 the risk allowance? 20 A. Yes. 21 Q. Secondly, the base budget for the project? 22 A. Yes. 23 Q. If we focus on the base budget, would that include the 24 cost of the Infraco contract works? 25 A. Yes. 199 1 Q. What the report says is that Faithful+Gould had 2 validated the base budget, for example at 3.16. What 3 does that mean? 4 A. They had -- they had assessed the -- they'd assessed the 5 quantum of the budget. Did it make sense? Was there 6 anything wrong with it? Anything that we'd forgot? 7 Anything that needed to be added in? They gave a view 8 on their interpretation of that. Was it the right 9 value? Not? And they also, as I say, provided 10 significant input to the work that we did around the 11 risk allowance. 12 Q. Okay. Now, just briefly, paragraph 3.16 referred to 13 a confidential schedule summarising the findings of the 14 Faithful+Gould review. Is that something different from 15 the report itself? 16 A. I don't know if there was -- the report itself was 17 provided in the data room, summarising -- not quite sure 18 where that language came from, but there was a document 19 that was produced, I think, some time around 19 August, 20 that provided the back-up and their full report in terms 21 of the work they'd done on assessment of the budget. 22 Q. Okay. So from your answer, do we take it that not only 23 was the report itself available to members in the data 24 room, but there was a separate document summarising it? 25 A. Yes. 200 1 Q. Okay. 2 Just to put this in its context -- sorry. 3 Just carry on and look at the Faithful+Gould report 4 itself, please, which is CEC02083979. 5 Now, again, Mr Coyle, is this a report you're 6 familiar with? 7 A. Yes. 8 Q. Is this the work of Faithful+Gould that was referred to 9 in the Council report we've been looking at? 10 A. Yes. 11 Q. Who was it instructed this report? 12 A. That was instructed by -- it would be instructed by the 13 Chief Executive or -- you know, the Chief Executive and 14 the team. 15 Q. Were you involved in instructing it? 16 A. Yes. 17 Q. We don't need to go to the statement, but the way 18 Dave Anderson puts it is it was commissioned by you and 19 that you were taking instructions from Colin Smith; is 20 that -- 21 A. Okay. 22 Q. Is that correct? 23 A. Yes. That could be correct, yes. 24 Q. But also under direction from the Chief Executive? 25 A. Yes, absolutely. 201 1 Q. Yes. If we look briefly at page 4, the first three 2 paragraphs there: 3 "Faithful+Gould was asked to carry out a review of 4 the Budget for the delivery of the Edinburgh Tram 5 project following the Settlement Agreement." 6 So if we just pause there, was this report focused 7 on the Settlement Agreement option? 8 A. Yes. 9 Q. And therefore not considering either of the 10 alternatives? 11 A. No, at this point in time the alternatives had been 12 dropped. So it was very much a case of proceeding with 13 the Settlement Agreement and trying to get agreement on 14 all parts required to take that forward. 15 Q. Would that have been following on the decision of the 16 Council at the June meeting? 17 A. That's correct. 18 Q. To approve the settlement option? 19 A. That's correct. 20 Q. Paragraph 1.2: 21 "The review would consider the robustness of the 22 financial assessment as presented to the City of 23 Edinburgh Council on 30th June 2011. It would challenge 24 the figures as presented and the assumptions made at 25 arriving at those figures. Based on the findings, 202 1 a revised budget would be presented to the City of 2 Edinburgh Council for its consideration." 3 1.3: 4 "Due to the time constraints (effectively 3 5 weeks) the review relied on previously quantified items 6 and project data. This was then challenged, to assess 7 its reliability and relevance." 8 Do we understand from that that Faithful+Gould were 9 not quantifying any of these costs themselves? 10 A. That's correct. 11 Q. They were relying on quantifications supplied to them by 12 the Council and tie? 13 A. That's correct. 14 Q. Why was that? 15 A. Because that -- that was what they were asked to do. 16 They were asked to assess, critically assess the 17 assessments for each of those forecasts and so on. So 18 that's what they were there to do. It was a critical 19 challenge against that, and then provide a view in terms 20 of how valid they thought they were. 21 Q. So the cost figures essentially were ones that 22 Faithful+Gould had to take as given, but they -- 23 A. Challenging. 24 Q. Challenged them from a critical viewpoint? 25 A. Yes. The only thing I would say about that is with 203 1 regard to the risk allowance, where they were very much 2 at the heart of working with the team to help us get to 3 what we thought was a sensible risk allowance. 4 Q. Yes. If you go, please, to page 5, paragraph 2.1: 5 "Based on the analysis of base costs, review of 6 associated risks and discrete risks, Faithful+Gould 7 would recommend the following budget level. This figure 8 is made up of various budgets from various sources and 9 Faithful+Gould are relying on these budgets being 10 correct as time does not permit the final checking of 11 these budgets." 12 Do you see that? 13 A. Yes. 14 Q. So that's the same point, that Faithful+Gould were not 15 quantifying the figures themselves. They were having to 16 take them as read? 17 A. That's correct. There was -- there would have been no 18 time for Faithful+Gould to, you know, do Bills of 19 Quantities for each of the various sections that were 20 still to be built, and assess those. They were there to 21 provide scrutiny and challenge against the numbers that 22 were already there. 23 Q. That figure there of GBP742 million, was that the basis 24 for the budget going forward? 25 A. That was -- yes. There's obviously 766 million and 742 204 1 was the base figure. 2 Q. So the 742 was the estimate of the base costs, with 3 another 34 million or whatever for -- 4 A. Correct, correct. 5 Q. The way that it's put by Faithful+Gould in that passage 6 would suggest that they were not scrutinising the 7 figures at all. 8 A. I don't believe that at all. I think that they had 9 access to all the available information that I had 10 access to. So -- and they had every opportunity to do 11 that within that time period, and they worked 12 constructively with the team during that period. 13 So I think they did have -- they did have a good 14 view of challenge around those figures. I think they 15 were actually given -- in terms of certain estimates, 16 they were -- for the on-street works, for example, they 17 were given information on that. Absolutely at the heart 18 of doing the risk workshop and driving that. 19 So yes, they had quite a role to play at that time 20 period. 21 Q. If you just look to paragraphs 2.6 and 2.7, please: 22 "The current costs presented for the on-street 23 works..." 24 Focusing on the on-street works: 25 "... for Siemens are extremely high and not value 205 1 for money, as it is well in excess of the original costs 2 for the works. Unfortunately all the materials are on 3 site and paid for by the client." 4 Just pausing there, is that a reference to the 5 materials for -- for the line all the way to Newhaven 6 that was agreed by -- after Mar Hall? 7 A. Yes, the tracks and so on. 8 Q. "Unfortunately, all the the materials are on site and 9 paid for by the client. To complete the works, any 10 change of contractor on this element of works probably 11 creates a very high risk due to any fault with the 12 existing materials and any warranty for the works." 13 Then reading on, 2.7: 14 "We are of the opinion that the on-street work costs 15 are grossly inflated by INFRACO, both for the civil work 16 and the Siemens works. The Siemens position is 17 explained in paragraph 2.6 above. Siemens hold a "golden 18 key" due to the materials being on site and already paid 19 in full. With regards to the civil works, the cost is 20 also grossly inflated and the contractor has allowed for 21 the very worst-case scenario for all works. If this was 22 a competitive tender, then we would expect some of the 23 risk to be taken by the contractor to secure the works." 24 Then they highlight some areas that they think are 25 overpriced. 206 1 Now, these are concerns about the on-street price 2 which we saw earlier was only the subject of a target 3 price agreed at Mar Hall. So it was still under 4 negotiation at this time; is that correct? 5 A. Yes. 6 Q. What was your understanding of the reasons for the high 7 level of the Siemens price? 8 A. I can't recall. I can't recall exactly. 9 Q. You can't recall exactly, but you have some idea? 10 A. Well, the golden key element that they talked of, 11 Siemens held -- they were the systems experts. And so 12 therefore, I guess, could -- you could say that Siemens 13 were even more important to completion of the project 14 than Bilfinger were, because of the more technical 15 aspects of the project. 16 Q. Could that risk have been avoided, for example, by not 17 agreeing at Mar Hall to buy the materials? 18 A. I don't think so, no. 19 Q. Can you just explain that, please? 20 A. Because we were still -- the Settlement Agreement was 21 still with Siemens. Siemens were still part of the 22 consortium. So, you know, there would still have been 23 a requirement to work with Siemens under those 24 conditions using those materials. 25 So I think that what -- they're taking the materials 207 1 just meant that the Council actually took ownership of 2 what was theirs. I don't think that taking the 3 materials would have had an impact on that. 4 Q. But if the option had been taken of reprocuring the work 5 from another contractor, for example, and the decision 6 not taken not to buy the Siemens materials, might that 7 have helped on the price front? 8 A. Not necessarily, because then you would have -- there 9 was already part of the project built by that time. So 10 you would then have to have integrated new materials 11 with those materials and a design, very complicated. 12 Q. Thank you. 13 CHAIR OF THE INQUIRY: But would the use of the materials in 14 any extension to Newhaven cause the same problems 15 that -- or the same risks that Faithful+Gould are 16 anticipating here? That there would be a high risk due 17 to any fault with the materials, that you've bought? 18 A. Potentially. 19 CHAIR OF THE INQUIRY: And also a risk associated with any 20 warranty for the works, because you have supply 21 materials that may not belong to the contractor or have 22 been -- 23 A. Yes, potentially that could be a risk, yes. 24 MR MCCLELLAND: Could you just go on to 2.8, please. Sorry, 25 just before we go to 2.8, paragraph 2.7 suggests that 208 1 not only was Siemens' price too high, but Bilfinger's 2 was too. 3 What was your understanding of the reasons for that? 4 A. So I think, without being -- having all the detail in 5 front of me, things like traffic management works, as an 6 example, there was a significant amount that at the time 7 of embargo, that the Council were putting on the 8 contractor. So certain periods, festival time, 9 Christmas festival, the way that the works were being 10 assembled on street, that meant that the traffic 11 management costs, for example, were probably greater 12 than they could have been, had the Council taken a more 13 pragmatic view in relation to the sections that were 14 freed up at various points of the year when the 15 Council -- when the contractor couldn't gain access, and 16 all the various changes that were made. Indeed, that 17 was something that once the project had restarted, there 18 was significant amount of rework around those 19 assumptions, in terms of how traffic management layouts 20 were going to be used. 21 So I think that the high traffic management costs 22 might well have reflected what the Council were actually 23 imparting on Infraco with relation on to those 24 embargoed. 25 Q. So do we understand from that that in response to the 209 1 comments of Faithful+Gould in this report, the Council 2 took steps to try to address the high price? 3 A. Yes. 4 Q. If we just look at 2.8: 5 "Due to the circumstances and contractual agreement 6 presently in place for this project, it is almost 7 impossible to change contractors. The grossly inflated 8 price from INFRACO for the on street works indicate that 9 it would almost be more cost effective to carry out this 10 section of works on a cost plus basis. If this was an 11 option, it would require more management from the 12 client's side to closely monitor all of the works being 13 undertaken ..." 14 What did you understand by the works being done on 15 a cost plus basis? 16 A. That the -- well, basically that the price that was -- 17 a different mechanism of paying the contractor than had 18 been included within the budget. 19 Q. To what extent were the recommendations made here taken 20 on board by the Council in relation to the on-street 21 works? 22 A. There were changes that were made to the way that the 23 on-street works were managed during it, in terms of 24 elements that were then -- that would have formed the 25 original scope of Bilfinger, that they were then 210 1 de-scoped and actually run directly by the Council. 2 There were elements of that that happened. 3 Q. Okay. 4 If we can go, please, to paragraph 3.3, which is on 5 page 7. We were looking a moment ago at the on-street 6 works, but this paragraph is dealing with the off-street 7 works: 8 "The Off-Street Works (Lump Sum) relate to all costs 9 and works prior to the MOV5 date of 1 September 2011 and 10 a lump sum agreement to complete the works, from 11 Edinburgh Airport to Haymarket Station." 12 So that's the GBP362.5 million price; is that 13 correct? 14 A. Yes. 15 Q. "These have been the focus of extensive mediation 16 between the parties, and as such it was felt that in the 17 available time, Faithful+Gould should concentrate on the 18 risks associated with the agreed lump sum, insofar as 19 future expenditure and specified risks that could affect 20 this element of work." 21 Then if we just look at page 9, please, 22 paragraph 4.1. This is headed up, "Off Street Works": 23 "The value of the Base Costs for the On-Street Works 24 have been agreed at GBP362.5 million." 25 That says on-street works, but that must be 211 1 a mistake. 2 A. Off-street. 3 Q. "This has been achieved through extensive mediation (not 4 part of the Faithful+Gould scope)." 5 Do we understand from these two paragraphs that it 6 was no part of Faithful+Gould's scope for this report to 7 scrutinise the off-street works price? 8 A. Not in terms of the 362.5, no. You're right. Just only 9 to focus on the risks that could be around that number. 10 Q. So they weren't going into the detail of how the 11 GBP362.5 million was made up? 12 A. No. 13 Q. Now, that is by far the largest element of the cost of 14 the Infraco works? 15 A. Yes. 16 Q. Was that price scrutinised by anyone? 17 A. No. 18 Q. If Bilfinger Berger and Siemens had grossly inflated the 19 on-street price as Faithful+Gould thought they had, is 20 it possible that Bilfinger Berger and Siemens had done 21 the same with the off-street price? 22 A. It's possible. 23 Q. On what basis, if any, did officers of the Council 24 satisfy themselves that the off-street price had not 25 been inflated in that way? 212 1 A. I think through the various assessments that were done 2 in and around mediation in terms of the -- risks that 3 were -- that were open to the Council, the exclusions 4 that were part of the original Phoenix submission that 5 were then -- that then went away as part of the overall 6 deal. 7 So -- and also, if you look at the various positions 8 around, you know, the various scenarios through the 9 Deckchair spreadsheet in terms of the Project Phoenix 10 Proposal, I think that when you look at, you know, the 11 range of that, and the fact that the exclusions were 12 swept away, I think that that's how people got 13 comfortable with it. 14 Q. Just give me a moment, Mr Coyle. 15 You referred there in your answer to the exclusions 16 that were negotiated away from the original Project 17 Phoenix price. But the exclusions were something in 18 addition to the 362.5 million? 19 A. That's correct. 20 Q. So consideration about the exclusions wouldn't help one 21 come to a view on whether the 362.5 million was good 22 value, would it? 23 A. I think that if you look at the starting position 24 that -- for the Project Phoenix Proposal, and you add on 25 the exclusions that were still out there within that 213 1 proposal, and then you compare that to 362.5 million, 2 with no exclusions, I think that would take you to 3 a place that suggested that that was an acceptable deal. 4 Q. If I could put it this way. In return for the 5 GBP362.5 million price the Council was getting, first of 6 all, completion of the work in the off-street section? 7 A. Yes. 8 Q. In addition to that, it was getting settlement of claims 9 which had accrued under the Infraco contract? 10 A. Yes, which could have been significant. 11 Q. Yes. I'm just wondering whether CEC obtained any report 12 which assessed whether those things were worth 13 GBP362.5 million? 14 A. No. 15 Q. Just briefly, the price that was agreed in the 16 Settlement Agreement which came in September for the 17 on-street works was GBP47.3 million. We don't need to 18 go to it, but for the transcript's benefit, the 19 reference for that is CEC02085642 at clause 2.1. 20 Did the Council have any advice on whether or not 21 that remained an excessively high price? 22 A. No, the negotiations of that price, Mr Smith was leading 23 with the contractor on negotiations of that price. So 24 it would have been Mr Smith's opinion and view that 25 would have been passed back to the Chief Executive in 214 1 terms of the -- that number. 2 Q. Okay. What did you understand Mr Smith's view to have 3 been about the price agreed for the on-street works? 4 A. Mr Smith would have thought that was acceptable. 5 Q. Do you recall him saying that? 6 A. I don't think Mr Smith would have recommended it 7 otherwise. 8 Q. Yes. 9 As opposed to the price agreed in the Settlement 10 Agreement, the outturn costs for the on-street works was 11 GBP51.6 million. Again, just for the transcript, the 12 reference for that is WED00000101. 13 Did the Council have any advice on whether or not 14 that was an excessively high price? 15 A. Did you say the out -- final outturn cost was 16 51 million? 17 Q. GBP51.6 million? 18 A. Okay. Can I see the breakdown or make-up of that 19 number? 20 Q. Well, if we go to the document WED00000101. I think 21 it's -- if you just scroll through the pages, I think 22 it's page 3. No, it's not. Try page 4. Do we see 23 there, at the top, under the heading of "Contract Sum", 24 and there's a line there for on-street, and in the total 25 column, the figure is GBP47.3 million; do you see that? 215 1 A. Yes. 2 Q. Below that, section 2, "Adjustments to Contract Sum". 3 There's not one there for the on-street. Yes, it's 4 Section 4, Schedule 45 change. Schedule 45 is the 5 Infraco schedule dealing with the on-street works price? 6 A. Yes. 7 Q. Do we see there the total for change under that schedule 8 is GBP4.2 million? 9 A. Okay. 10 Q. So where I get the GBP51.6 million from is by adding the 11 4.2 to the 47.3? 12 A. Yes. 13 Q. All I want to know is whether or not the Council had 14 advice on whether or not that outturn cost was an 15 excessively high one. 16 A. I don't think that the Council ever sought advice on 17 whether or not it was a high number. We had the advice 18 of Turner & Townsend, who were administering commercial 19 on behalf of -- on or behalf, and also Mr Smith in his 20 role as well. So I wasn't aware of any -- you know, any 21 report that the Council sought in terms of finding out 22 whether or not that was value or not. 23 Q. Okay, thank you. 24 There was just a couple of points I would like to 25 put to you, Mr Coyle, that have been raised in another 216 1 person's witness statement. 2 If we could please go to TRI00000102. 3 This is the witness statement of Andrew Fitchie. 4 Are you aware of who Mr Andrew Fitchie is? 5 A. Yes. 6 Q. He's a partner of DLA who were advising tie? 7 A. Yes. 8 Q. The particular passage is at page 149, please. 9 Just to put this in context for you, Mr Coyle, in 10 this section of his statement Mr Fitchie is referring to 11 events prior to the Infraco contract close in May 2008. 12 In particular, he's discussing the impact of delay in 13 the design contract and in the MUDFA works. 14 In the bit I'm about to read to you, he refers to 15 a meeting that he says you attended in August 2007. So 16 that's context to what I'm about to read. I'll read it 17 out to you, but what I want you to know -- what I want 18 you to think about is whether what Mr Fitchie says about 19 that meeting is accurate. Do you understand? 20 A. Yes. 21 Q. So if you just have paragraph 7.118, please: 22 "In discussions with CEC Legal following DLA Piper 23 being re-appointed to lead the Infraco Contract 24 negotiations in September 2007, I told Gill Lindsay in 25 CEC Legal that I could not advise at that point if the 217 1 Infraco contract, in particular, would be fit for 2 signature by the end of that year -- which appeared to 3 be her focus. This was because both the bidders were 4 already pushing out the boundaries set by the ITN 5 [invitation to negotiate, I think] which TIE had not 6 enforced systematically. I stressed again, as I had 7 done at a workshop meeting in late August 2007 attended 8 also by CEC Finance (Alan Coyle and possibly also 9 Rebecca Andrew, I believe) that (i) SDS was chronically 10 late and that MUDFA was also late/in difficulty and (ii) 11 these factors would almost certainly result in qualified 12 bids and negotiations around amendments - at that point 13 not quantifiable - to the Infraco Contract 14 public-private risk allocation, as set out in the draft 15 contract issued to bidders at ITN. TIE's approach on 16 the draft contract negotiations during April to 17 September had already affected this." 18 Now, Mr Fitchie there says that you were at 19 a workshop meeting in late August 2007. Do you recall 20 whether that's accurate or not? 21 A. I can't recall. What I do know is that my involvement 22 in the project was very, very close to the date 23 August/early September 2007. So if I was there, it was 24 very, very early in my involvement in the project. So 25 I can't recall this meeting. 218 1 Q. You can't recall the meeting? 2 A. No. 3 Q. Can you recall Mr Fitchie having said anything to you 4 along the lines of what he says there? 5 A. No. 6 Q. You can't? 7 A. No. Do we have a record of this meeting? 8 Q. Well, all I have to go on is that paragraph in 9 Mr Fitchie's statement. Your evidence is you don't 10 recollect Mr Fitchie saying that to you? 11 A. No. 12 Q. If you don't recollect it, would you have have any basis 13 for thinking it wasn't accurate, what Mr Fitchie said? 14 A. No, I think it probably was accurate. I think that 15 that -- if you look at a lot of the issues that the 16 Council were concerned about, in the back end of that 17 year and into the following year, an awful lot of those 18 issues related to where the design was and the state of 19 the utility works. 20 Q. Okay. Thank you. 21 If we could also, please, go to page 233. It is 22 paragraphs 7.538 to 7.540. Again, to put it in context, 23 Mr Fitchie is discussing here events in early 24 February 2008. I'm going to read it to you, and what 25 I would like to know is whether or not you agree that 219 1 what Mr Fitchie says about the meeting is accurate: 2 "The only card you have as a client once you have 3 selected a preferred bidder and down-selected the other 4 bidder is that you could threaten to return to the other 5 bidder. TIE right to do so was absolute under the ITN 6 rules. 7 I was not asked to advise TIE in depth on the 8 option of TIE dropping BBS from preferred bidder status 9 and going back to Tramlines, the reserve bidder. 10 When BBS had asked for more money in the 11 Rutland Square Agreement, the option of going back to 12 Tramlines had been briefly considered by TIE management, 13 but without any enthusiasm. I advised that TIE had 14 grounds for dropping BBS. This advice was given 15 verbally, but forcefully, at a meeting attended by CEC 16 officers Alan Coyle and also, I believe, Donald McGougan 17 and Gill Lindsay (the meeting had in fact been called as 18 a result of Siemens' suddenly announced position on 19 project insurance and third party economic loss 20 claims)." 21 And so on. 22 Sorry, I had better read on: 23 "However, TIE was persuaded by arguments from BBS 24 that it was getting a fair trade. The explanations 25 provided by BBS were in any event technical, commercial, 220 1 financial or programme related, not legal points. 2 I gave TIE high level advice at that meeting that if it 3 sought to switch from BBS, there would be a process of 4 delay because Tramlines were unlikely just to come back 5 on board, but rather would have wanted a period for due 6 diligence, and that I considered the legal component of 7 Tramlines' BAFO (own best and final offer) had been very 8 heavily qualified, with the Infraco contract mark-up 9 very incomplete on major points." 10 Now, do you recall a meeting having taken place and 11 advice from Mr Fitchie on those lines? 12 A. I don't recall the meeting. 13 Q. You don't recall the meeting? 14 A. No. 15 Q. If that's Mr Fitchie's evidence, are you prepared to 16 accept it as correct, or would you say it's incorrect or 17 do you not know? 18 A. Prepared to accept it as correct. 19 Q. Prepared to accept it as correct? 20 A. Yes. 21 Q. I'm conscious, my Lord, that I think one of the core 22 participants has some questions that they would like to 23 ask Mr Coyle. So I can finish there. 24 CHAIR OF THE INQUIRY: Mr Fairley, you've given some notice 25 that you wish to raise something. 221 1 MR FAIRLEY: My Lord, this witness was originally scheduled 2 for week 2. The questions I had for him, I think, have 3 been adequately dealt with in the evidence given by 4 other witnesses since then. So I don't need to ask him 5 any questions. 6 CHAIR OF THE INQUIRY: Thank you. In that case, we'll 7 adjourn until Tuesday at 9.30. 8 Mr Coyle, you are free to go now, but you're still 9 under your citation, and you may be recalled, but 10 hopefully that won't be necessary. 11 A. Okay. 12 CHAIR OF THE INQUIRY: Thank you very much. 13 A. Thank you, my Lord. 14 (The witness withdrew) 15 CHAIR OF THE INQUIRY: So Tuesday at 9.30. 16 (4.16 pm) 17 (The hearing adjourned until Tuesday, 26 September 2017 at 18 9.30 am) 19 20 21 22 23 24 25 222 1 INDEX 2 PAGE 3 MR ALAN COYLE (resumed) ..............................1 4 5 Examination by MR MACKENZIE ...................1 6 7 Examination by MR MCCLELLAND .................19 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 223