1 Tuesday, 26 September 2017 2 (9.30 am) 3 CHAIR OF THE INQUIRY: Good morning. Yes, Mr Lake. 4 MR LAKE: Yes, my Lord. The first witness today is 5 Michael Howell. 6 MR MICHAEL HOWELL (affirmed) 7 Examination by MR LAKE 8 CHAIR OF THE INQUIRY: You will be asked some questions. If 9 you just speak clearly and not too quickly because the 10 shorthand writers have to record what you're saying. 11 A. Fair enough. 12 CHAIR OF THE INQUIRY: Yes, Mr Lake. 13 MR LAKE: Thank you, my Lord. 14 Mr Howell, could you state your full name, please? 15 A. Michael William Davies Howell. 16 Q. The Inquiry has a note of your current address. I think 17 you are retired; is that correct? 18 A. Correct. 19 Q. I would like to start by looking at a document, please. 20 The reference is TRI00000129. 21 Could you have a copy of your paper statement in 22 front of you? 23 A. Yes. 24 Q. I think we can see this is a copy of a statement sent to 25 you, to which you made some revisions and then signed; 1 1 is that correct? 2 A. Correct, yes. 3 Q. Are you content to adopt that as your evidence for the 4 purposes of this Inquiry? 5 A. I am. 6 Q. Now, I think within that statement, if you go on to the 7 second page of it, you can see there paragraph 1 which 8 runs on to the other page? I don't propose to read 9 through it, but it gives a summary of your relevant 10 experience in terms of engineering and your career to 11 date. 12 A. Yes. 13 Q. You were the Chief Executive of tie from its inception 14 in 2002 until about 2006; is that correct? 15 A. Correct. 16 Q. I want to start then by asking you a few questions about 17 tie and in particular your statement. 18 If you can go forward, please, to page 10 of your 19 statement. Pardon me, page 9. 20 We look at paragraph 26. 21 A. Mm-hm. 22 Q. You note there that: 23 "TIE was created at the behest of SE [that was the 24 Scottish Executive as it then was] who made the creation 25 of an arms-length company the condition of its 2 1 commitment of GBP375 million to the Edinburgh Tram 2 Project in 2002." 3 I just wanted to ask you about it being made 4 a condition by the Scottish Executive. 5 Do you recall any -- how you came to your 6 understanding that it was a condition of the grant that 7 there be this arm's length company? 8 A. My recollection is hazy, but I believe that my belief in 9 this came from conversations with Ewan Brown about his 10 conversations with the then Transport Minister, who 11 I think was Wendy Alexander at that time. 12 Q. I would like -- if I could ask you quickly to look at 13 another document there. It is reference USB00000232. 14 A. Mm-hm. 15 Q. You will see this is a report to Council, but what I'm 16 interested in is a letter which is included at page 10 17 of this. 18 You can see there it's a letter that's addressed to 19 Councillor Burns and if we go to the second page of 20 that, the following page. We can see that is a letter 21 from Wendy Alexander. If we go back to the previous 22 page, we can see the date was 28 February 2002. 23 If you could enlarge the second whole paragraph of 24 the letter, we can see that Ms Alexander says there: 25 "As you know I firmly believe that the private 3 1 sector has much to contribute to this process, 2 and I strongly support the principle of an off balance 3 sheet company (ENTICO) to progress the Council's plans." 4 I think ENTICO was the name by which tie was 5 initially known, was that your understanding? 6 A. Yes. 7 Q. You can see there it's been phrased as strong support 8 for it rather than making it a requirement; do you know 9 any more about that? Does that shed any light? 10 A. No, I accept that this is the situation as it was. 11 Q. You refer to it as an arm's length company. We see it 12 being referred to here as an off-balance sheet company. 13 Was there any difference in that? 14 A. Well, obviously off-balance sheet is a financial 15 description. Arm's length is more a question of how the 16 company is run. In my own context, I believe it was 17 both. 18 Q. I want to ask you then about how it was run. Do you 19 consider that it was arm's length in relation to the 20 Council? 21 A. Well, it really could not have been because after all 22 the Council was the owner of the company and the company 23 therefore was set up by Council and the people who were 24 running it either in -- on the Board or in the 25 management were therefore selected directly by the 4 1 Council's original initiative. 2 Q. But apart from choosing the people who are to manage the 3 company, was the management of the company thereafter 4 left to those people or did the Council continue to take 5 an active role? 6 A. Of course it was actively involved. I mean, there's no 7 way in which a tram system can be built in a city like 8 Edinburgh without very, very detailed connections with 9 particularly the Transport Department of the Council, 10 but many other aspects of the Council's work as well. 11 So collaboration and consultation was constant. 12 Q. Did the Council give directions or indications as to 13 what they wished tie to do in certain respects, how they 14 wished tie to respond? 15 A. In matters small, no. But I'm sure in matters big, that 16 happened. There were obviously consultations frequently 17 between myself and Andrew Holmes who was the City 18 Development Director at the time, and between Ewan Brown 19 and primarily, I think, Tom Aitchison, but also 20 Donald Anderson who was the leader at the time. 21 So we were always discussing, but those high level 22 conversations usually only took place when there were 23 matters of sort of significant import which had to be 24 addressed. 25 Q. Policy matters? 5 1 A. Indeed. 2 Q. Or strategy? 3 A. Both. 4 Q. But not the day-to-day implementation of the policy? 5 A. No. And that was, I suppose, the purpose of tie was to 6 try and give us a free hand in getting on with things, 7 because I'm sure we all know that big organisations have 8 a tendency to spend a lot of time generating material 9 which keeps people busy but not necessarily productive. 10 Q. In terms of tie implementing Council's policies, you 11 referred in your statement to Integrated Transport 12 Initiative. 13 A. Yes. 14 Q. What was tie's role to be in implementing that? How was 15 it to go about implementing that? 16 A. Well, the Integrated Transport Initiative obviously 17 embraced trams, but more important in the early days, 18 very much more important, was the congestion charging, 19 because the game plan clearly was to find a way to 20 ensure that we set up a congestion charging system which 21 would do two things: reduce traffic congestion in the 22 city centre and generate some revenues which could be 23 put into improving public transport, and the tram in 24 particular. 25 So my belief was -- and of course I was new to city 6 1 administration. My belief was that previously there had 2 been certain activities, projects which had not been 3 particularly successful, had not taken flight, and tie 4 was really there to try and ensure that a focused group 5 of professionals would change the pattern and make 6 things happen. 7 Q. I think you stated when you started work with tie, it 8 had quite a few staff? 9 A. It had very few staff. It had, as far as I remember, 10 the people I still remember are, I think, of course 11 Alec Macaulay, a gentleman called John Saunders, 12 someone -- another Burns, but I can't remember his first 13 name. These were all people who had been working within 14 the city's Transport Department on the ITI and they 15 transferred to tie when tie was established. 16 Q. With a small number of staff like that, was it 17 anticipated that tie would deliver its objectives by 18 buying in services from consultants? 19 A. No. Well, yes or no. Obviously you can't buy -- you 20 can't manage a consultant effectively unless you have 21 good knowledge of what the consultant is about. 22 And there was a limited number of what I would call 23 high-powered people who are used to handling 24 multi-billion -- multi-million pound projects. 25 So the objective and my approach to tie was to keep 7 1 tie itself very small, but to ensure that the resources 2 within tie and the people whom we hired to work for tie 3 had the background which would allow -- and experience 4 which would allow them to be effective in taking forward 5 the various activity strands which tie adopted. 6 Q. In addition to the congestion charging that you have 7 referred to, there was also the tram project, the 8 Stirling-Alloa-Kincardine Railway, and Ingliston Park 9 and Ride, just to name three of them. 10 A. And a very big one which of course -- later which was 11 the Edinburgh Airport Rail Link, and a small one which 12 was the one-ticket programme for multi -- so there were 13 quite a lot of things. 14 Q. In terms of delivering, say, the larger transport 15 projects, looking at EARL, the airport rail link and the 16 trams in particular, did you envisage that the expertise 17 to deliver those would be by engaging consultants, or 18 did you see actually employing people to provide that 19 expertise from within tie? 20 A. The legwork was -- had to be done by consultants. There 21 was no way that tie was going to hire all those people. 22 We just had to hire what I called the clients, people 23 who actually facilitate and manage the -- and integrate 24 the work of the consultants. 25 Q. If I could ask you to look back to your statement, 8 1 please. It's actually back to page 9 where we were 2 previously. 3 Paragraph 26. 4 A. Mm-hm. 5 Q. The second half of that paragraph, we read that: 6 "TIE became an independent company, and was the 7 Council's interface with the project management and 8 engineering sectors." 9 Perhaps at the same time if I could go to page 11. 10 Paragraph 33. The second half of that paragraph: 11 "TIE was indeed the entity that undertook the 12 procurement, and so we had to know what we were 13 procuring, why, when and what skill sets were required 14 to deliver. But at that stage, we did not need the full 15 skill set to be a major project management 16 organisation." 17 Both of those paragraphs give the suggestion that 18 tie were not going to project manage themselves but were 19 going to procure project management services from 20 others, and that is how the various matters have been 21 brought forward; is that a fair reading? 22 A. It's a fair reading. 23 Q. While you were there, did that intention change? 24 A. As I've covered in my statement, my background is not 25 that of a Project Director, Project Manager. I'm 9 1 a business manager in a variety of technical businesses 2 during my career. 3 I think that during early period, tie migrated 4 during the period of my employment because I knew very 5 well from the beginning that I was probably not going to 6 be the person who would be taking forward the tram, for 7 one thing, but anything in terms of the various 8 activities. 9 So we were looking at that early stage about the 10 creation of an organisation which would be able to offer 11 project management support to -- not just to Edinburgh 12 City Council but, as it turned out, a variety of other 13 clients, and I saw tie as essentially, I suppose, 14 a stable of able horses who were essentially -- each of 15 whom would have the knowledge and capability to be the 16 clients, to essentially ensure that the consultants that 17 we hired fulfilled the tasks that they were assigned. 18 Q. Looking at that, looking at the experience within tie, 19 you say in particular there, in paragraph 25, you had to 20 be able to recruit professional expertise that lay 21 beyond the limits of the salary structure of the 22 Council. 23 I'll take you to it. It's page 9, paragraph 25. 24 A. Yes. 25 Q. I was reading from the centre part of the paragraph? 10 1 A. Yes. 2 Q. This was the idea. It was partly to be in a position to 3 recruit people with the expertise in question? 4 A. Yes. 5 Q. But if you go back to page 4 this statement, and look at 6 paragraph 7, you note that the role you had in 7 recruiting people there, competent people. You say 8 that: 9 "In doing so I relied upon colleagues for 10 recommendations or used my own network of contacts." 11 Why make a decision when you had a company to stick 12 with your known contacts rather than start 13 a wider-reaching recruitment process, perhaps through 14 consultants? 15 A. Well, if you look at the people that I hired, I think 16 the only one that I had known previously was 17 Paul Prescott, who had worked with me at Railtrack in 18 the 1990s, who was based at Scotland, which is always 19 helpful, and he was familiar with the ways of the rail 20 industry. 21 Other than that, everybody was recruited through 22 a formal and essentially objective process. 23 Q. You say here that you started -- you relied upon 24 colleagues for recommendation but used your own network 25 of contacts as your starting point; is that correct? 11 1 A. I would think that statement rather -- that sentence 2 rather overstates the emphasis I placed on that. The 3 facts make it clear that these were not people who 4 I was -- who were my chums. 5 Q. I put it this way: how did you go about recruiting 6 people? 7 A. Well, it depends on which activities we are talking 8 about. In the relation to the congestion charging 9 programme, I was very comfortable and happy with 10 Alec Macaulay and I think John Saunders who worked with 11 him. They did an outstanding job in developing that, 12 with the help of a number of consultants whose names 13 I no longer recall. 14 Q. And they were essentially in position -- 15 A. They were already there, exactly. The other areas of 16 expertise that I needed in particular was finance. 17 And -- yes, I had met Graeme Bissett who -- I'm not sure 18 if he's likely to be a witness, but he was closely 19 involved in the project all the way through, and his 20 background was strategic level of finance, and he was 21 a very bright guy. 22 So yes, I had never worked with him, but I knew of 23 him and he was available because of the collapse of 24 Arthur Andersen, and so he joined. 25 Then there was, for the tram, I think I have written 12 1 later that Mr Kendall became involved in the tram at the 2 behest of Mr Macaulay, because early on, Alec was doing 3 everything, and that was one of the problems in a way. 4 He was so busy doing everything, I don't think he had 5 time to really lift his head and communicate with the 6 world outside. He wasn't -- that was one of the things 7 that I thought my job was, was to essentially raise the 8 profile of tie, raise its ability to communicate with 9 government at all the different levels and also learn 10 from what happened in similar projects in other places. 11 So that was really my role while others were getting 12 on with the nuts and bolts of the job. So back to your 13 question, how did I recruit people? It varied. And in 14 relation to the actual recruitment of consultants, of 15 course, that was done through a procurement basis on 16 a very objective basis. 17 Q. As external consultants, that would be done through 18 a public procurement process? 19 A. Exactly. 20 Q. You mentioned there the question of raising profile. 21 Within your statement in paragraph 28, you refer to 22 engaging the public relations consultants 23 Weber Shandwick? 24 A. Mm-hm. 25 Q. It's on page 10, if you want to look at it. What was 13 1 their purpose? Why did you recruit them? 2 A. Well, I think it was very clear that what we were up to 3 was going to be under the public microscope. I honestly 4 feel that professionals are always of value. 5 We felt there was quite a lot of challenge to what 6 we needed to achieve if we were going to see the 7 congestion charge happen. And I felt that it would be 8 of value and that was agreed by the Board to have 9 a professional PR firm to advise us on how to manage the 10 way we presented ourselves to the outside world. 11 Q. You've mentioned there specifically the congestion 12 charge. Were Weber Shandwick engaged to raise the 13 profile of tie in general, or the congestion charge or 14 all tie projects? 15 A. No, raising the profile of tie is the wrong expression. 16 tie itself was not anxious to be admired and applauded 17 and a household name. 18 No, the idea was to make sure that we were 19 presenting a coherent story which allowed us to support 20 the efforts that we were making to make our project 21 happen. 22 Q. Was that essentially a role that tie was performing in 23 advocating for the various projects? 24 A. Indeed. I mean, there was a certain amount of 25 dissension within the ranks of the political officers, 14 1 as always, in the Council. And that was one of the 2 reasons why things sometimes took a long time for the 3 Council to do, and the fact that tie was relatively 4 independent and set up specifically to do certain things 5 was intended to be the way that that problem of delay 6 would be overcome. 7 Q. I understand the dissension that you talk about. What 8 I'm trying to get to is what was Weber Shandwick's role 9 in relation to that? Was it promoting a project to the 10 councillors? 11 A. No, it was essentially helping us with press releases, 12 and with -- partly with relationships with journalists, 13 although I did that myself quite a lot as well. 14 To be honest with you, I found the Weber Shandwick 15 activity less than wholly satisfactory. So it was 16 useful always to have them around to give us their 17 perspectives, but in retrospect, I feel it was something 18 that perhaps we could have done on our own, perhaps we 19 could have done with having our own public relations person 20 internally. 21 Q. Again, just to be clear, is what you have found 22 unsatisfactory the whole idea of that work stream or 23 just the way it was performed by the consultants? 24 A. The latter. 25 Q. The latter. 15 1 In relation to the funding, I think it seems to be 2 clear from a number of witness statements that it was 3 always understood this was Edinburgh's project; and 4 Transport Scotland's role was simply in providing the 5 funding? 6 A. Yes. 7 Q. You refer in your statement to the GBP375 million that 8 was to come from the Scottish Executive, as it then was, 9 that initially there was reluctance even to index that 10 figure. 11 A. Mm-hm. 12 Q. But they moved while you were still with the company, 13 started to indicate that there would be indexation to 14 some degree? 15 A. The issue of indexation was incredibly obfuscated. 16 I think I made a comment. It seemed to me as though 17 they always felt that Edinburgh City Council should be 18 making bigger efforts and more effective efforts to 19 raise funds, and their share of the cost of the project, 20 and in a sense, it seemed to me that this indexation 21 business related really to trying to persuade indirectly 22 Edinburgh to focus on how to increase their commitment. 23 Q. If the Scottish Executive weren't willing even to give 24 commitment towards indexing, did you ever get any 25 indication from the Executive that they would be willing 16 1 simply to increase the amount of the grant if the 2 project costs rose? 3 A. Well, the answer was that that -- I do not recall that 4 happening. Obviously later there was a larger amount of 5 money and I don't know how that came about and when it 6 came about, but at three years or so, it was one of the 7 bugbears that we spent all our time messing with, 8 because we knew we couldn't build what we were about to 9 build on the money that had been committed three years 10 before, as opposed to the indexed demand. 11 Q. Looking at other projects for tie, then, we have already 12 made some reference to the Stirling-Alloa-Kincardine 13 Railway, and I think you note in your statement that the 14 line was built and it is in use now. You are aware of 15 that? 16 A. Yes. 17 Q. But in particular on that railway, there were certain 18 difficulties in that the costs increased quite 19 dramatically and ultimately it was delivered late. Were 20 you aware of that? 21 A. I am, although it happened after I had left. 22 Q. It happened after you left. 23 Are you aware that again after you left, it 24 became -- it was thought necessary for Scotland to take 25 back or resume control of the project? 17 1 A. Mm-hm. 2 Q. Do you have any view on why that happened? 3 A. I don't because I'm afraid it happened after I'd left. 4 I do recall that towards the end of my time there, some 5 of the issues that presumably caused that were starting 6 to emerge, but again, I'm afraid I don't remember what 7 they were. 8 Q. During the time that you were there, in relation to that 9 project in particular, were you aware of any 10 difficulties in governance of the project? 11 A. The project, if I recall, was -- the client of the 12 project was Clackmannanshire. You will know that better 13 than I. And the Project Manager's name was 14 Richard Hudson, who was a former railway person. 15 I and Paul Prescott, whom I have already mentioned, 16 and Richard, met quite frequently with certain 17 individuals at Clackmannanshire whose names I don't 18 recall. 19 And that's about the limit of my memory of that 20 particular -- I do -- I do recall Mr Prescott expressing 21 in the early stages satisfaction with progress and then 22 it was clear that there was issues that had emerged 23 and I again can't remember what they were. 24 Q. Transport Scotland were involved in that project also, 25 I believe? 18 1 A. Mm-hm. 2 Q. Were there any difficulties with Transport Scotland's 3 involvement while you were still there? 4 A. I had a good relationship with in particular 5 Damian Sharp who stayed close to all the projects during 6 the time that I was Chief Executive. I can't recall 7 whether he personally was involved. Probably some of 8 his team would have been. But I don't recall any 9 serious differences of opinion about how things were 10 proceeding. 11 Q. Do you consider -- again, I'm talking about the period 12 obviously while you were there -- that the governance of 13 the project was compromised by Transport Scotland's 14 involvement? 15 A. Again, I cannot comment. 16 Q. Looking at the governance then of the tram project, if 17 I could ask you, please, to look at page 13 of your 18 statement. Paragraph 37. I'm particularly interested 19 in the passage right at the end of this: 20 "TIE and I could no longer be a knowledgeable 21 client, which is why the setting up of the Tram Project 22 Board was envisaged, recommended and approved." 23 How was the Tram Project Board intended to work 24 then? 25 A. Well, the issue that bothered me, I suppose, about where 19 1 we were with the tram is that -- and this goes to 2 another point I made somewhere else, I think -- tie was 3 set up, as we know, by the City Council. Ewan Brown was 4 asked to be the chair. He's a very capable financier, 5 very capable man in every way. 6 I suppose I was surprised and remain surprised about 7 the people who were chosen to be members of tie because 8 tie was, after all, there to manage an array of very 9 important civil engineering projects. And we didn't 10 have anyone who was a civil engineer, I don't think, 11 with the possible exception of Jim Brown who was with 12 the water business. 13 So I honestly felt that we had to have people who 14 were closely connected and understood and had seen 15 projects like the tram brought into being closely. 16 CHAIR OF THE INQUIRY: Sorry, that's a test for the alarm. 17 I should have advised you. 18 A. It's on time. 19 Closely connected and working with Ian Kendall. 20 Ideally I would have liked independent people, which 21 is what the Board members of tie could have been. But 22 in the context of where we were, the people who were 23 obviously available were those who were working on the 24 project at senior levels, and the TPB was therefore, if 25 I recall, composed of people who were -- had an interest 20 1 in some aspect of the project and that -- and therefore 2 they could spend more time -- if you think about it, the 3 tie Board meetings did deal with an awful lot of 4 different issues, and we could only have two hours or 5 so, and that meant the tram, even though it was the 6 biggest and most important project towards the end, 7 probably only had 20 minutes, maybe half an hour 8 attached to it, and that's once a month. 9 So that is not a particularly long period of time 10 for detailed discussion and tough decisions to be made. 11 We needed to have a much more knowledgeable group 12 able to spend more time with the Tram Project Director 13 on all the many, many issues that were facing us at that 14 time at that point. 15 Q. I want to tease out a few aspects of that. One of them, 16 you said you were surprised about the people who were 17 chosen to be members of tie. 18 A. Mm-hm. On the tie Board. 19 Q. The tie Board? 20 A. Yes. 21 Q. Were they chosen by the Council? 22 A. I think they were probably chosen to a large extent by 23 Ewan. 24 Q. That's Ewan Brown, the first Chairman? 25 A. Yes. 21 1 Q. Was it at that time councillors also sat on the 2 tie Board? 3 A. Yes. Well, the one who was most evident was 4 Andrew Burns who was the member for transport. There 5 was later a Lib Dem councillor. 6 Q. What if anything do you consider that councillors 7 sitting as board members brought to the company? 8 A. Well, I was very delighted. I have a high, high regard 9 for Andrew Burns. He was an enthusiastic, honest, plain 10 speaking, a man who wanted the best for Edinburgh, 11 probably still does. I think he had later some further 12 senior appointments in the Council which I'm sure he 13 well deserved. 14 So just by virtue of who he was, he was a good, 15 sensible and able and helpful person, but the fact that 16 he was also an elected member meant that we had access 17 to the political members of the Council, and that was 18 obviously critically important in a democratic context. 19 Q. In what sense did you feel you had access to the elected 20 members? 21 A. Well, this is maybe off-track, I'm not sure. But 22 I suppose we're talking about here how helpful or 23 non-helpful or what the relationship was like between 24 the political part of the Council, particularly the 25 leader, and tie, because I never really saw 22 1 Donald Anderson. He was very remote indeed. And 2 therefore -- and yet we he wielded a lot of influence 3 and he was very opinionated and quite noisy, as 4 politicians have to be. 5 So the only way I could influence him was by working 6 closely with Andrew Burns, who was obviously his 7 colleague. 8 Q. So you hoped that if you had someone sitting on the 9 Board, a councillor, they might be able to better to get 10 the ear of the Council Leader or -- 11 A. And explain, you know, the issues we were facing and the 12 challenges we wanted to undertake, and what was going 13 on, on the basis of some evident facts. 14 Q. So that councillor sitting on the board of the company 15 might in turn be able to act as an advocate for the 16 company and the projects within the Council? 17 A. That was true. 18 Q. You also pointed out that there were a number of 19 different projects going on, being handled by tie at the 20 time, and there was limited time to consider each. Do 21 I understand that correctly? 22 A. Yes. 23 Q. So setting up a Tram Project Board, as the name 24 suggests, meant that you had a group there that would 25 give particular focus to the tram? 23 1 A. Yes. 2 Q. Now, that was really something that was in issue while 3 the company had all those projects, as it did while you 4 were there? 5 A. Yes. 6 Q. In terms of the expertise on the Tram Project Board, who 7 was to sit on it? How did you identify what that was to 8 be? What expertise did you want to be on the Board? 9 A. That was something that Ian Kendall, Graeme Bissett, 10 Finance Director and I, sat down to discuss. 11 I can't recall precisely the identity of all the 12 individuals involved, but I know you know that obviously 13 the Scottish Executive were represented. There were 14 members of the -- senior members of the consultants that 15 we had employed to undertake certain tasks related to 16 the tram project. I'm sure there was someone from the 17 Council as well, probably Andrew Holmes or Keith Rimmer. 18 I think Keith Rimmer, being his transport person. 19 So there was some obvious ones. But at the end of 20 the day, we wanted it to be a broad spectrum of those 21 who really did understand the issues and were going to 22 help us with making -- charting our way through a fairly 23 difficult landscape. 24 Q. If you could look, please, at another document. It's 25 TRS00008528. 24 1 You will see these are papers for a tie Board 2 meeting that was to take place in August 2005. If we 3 could go to page 5 of this, we can see there is 4 a reference there to the proposal to establish -- the 5 governance structure for the Tram Project Board was 6 discussed and agreed in principle -- 7 A. I'm looking at page 2 at the moment. 8 Q. It's page 5 of the electronic pages but it will be 9 page 2 of -- 10 A. Yes. 11 Q. In the centre part of that page, under the heading, 12 "Governance Matters", there's reference to a proposal 13 for a new governance structure for the tram project and 14 EARL, and the creation of a Tram Project Board, both 15 powers are delegated powers and a reporting line to the 16 tie Board. 17 Was that the time you recall setting up the Tram 18 Project Board in 2005? 19 A. Yes. 20 Q. Could we go to page 50 of this same document, please. 21 I think we see here that with the draft remit for the 22 Tram Project Board. If you enlarge the upper half of 23 the page to make it a little bit more readable, we see 24 there's a reference that it will have the key 25 stakeholders which will be tie themselves, the Council, 25 1 the Scottish Executive, TEL, Lothian Buses and Transdev. 2 Why were these the parties that were thought best to 3 bring on to a Tram Project Board? 4 A. It is because they essentially were the ones who were 5 represented already at the tie Board, and it was 6 an opportunity for them to be carved out into, if you 7 like, a sub-committee of the tie Board to focus on the 8 trams. 9 Q. The impression given here is that it's going to be 10 representative, these various bodies, rather than 11 something intended to procure particular expertise? 12 A. Well, all of those people were strongly involved in the 13 tram, and obviously we would have representatives of the 14 actual organisations that were working for tie, 15 delivering the tram, present at TPB Tram Project Board 16 meetings. 17 So this -- there's a suggestion that this was the 18 wrong list? 19 Q. I'm simply asking you -- you referred to perhaps the 20 need to get particular expertise. What was seen there 21 is not immediately obvious that these people are going 22 to bring the sort of expertise that you were referring 23 to? 24 A. No, you make a fair point. Although if you look at the 25 people who are on that list, who are up to their ears in 26 1 tram day to day, obviously it's the Tram Project 2 Director, the -- I guess PTMT is probably Damian Sharp, 3 and James Papps who was from Partnerships UK who is 4 working with us very closely on the procurement 5 strategy. 6 Then you've got Transdev too who actually know about 7 trams, they operate them around France. So that was 8 a capable person as well. 9 So there are quite a lot of effective people there. 10 And of course don't forget that this is -- and these are 11 all, if you like, much closer to the tram than either 12 the non-Executive Directors of tie, or indeed the 13 non-Executive Directors of TEL, which are mentioned 14 there: 15 So this is a better -- a more substantive group 16 which of course could call other people to the meetings 17 as required. 18 Q. We see on the second full paragraph there, the intention 19 that the tie Board would delegate substantial 20 decision-making to the Tram Project Board. We could 21 understand that the intention was that it would in 22 effect be the Tram Project Board would be the -- 23 A. The tie Board -- 24 Q. The tie Board to all intents and purposes? 25 A. Yes. 27 1 Q. Look at the lower half of the page then. You see a note 2 there that: 3 "In due course, the chairperson would either be the 4 Chair of TEL or a non-Executive Director of TEL, 5 probably to be crystallised when TEL takes on formal 6 project responsibility from tie." 7 What was your understanding as to why TEL was to 8 take over from tie? 9 A. To me, the creation of TEL and the role of TEL at this 10 point seemed to me to be -- it should have been 11 a sideshow, but it became a very important element. 12 Because actually what we were trying to do was deliver 13 infrastructure. We were trying to deliver very 14 challenging and expensive and time-constrained 15 construction projects. 16 TEL, it was obviously essential, and this is one of 17 my beefs, I suppose, as the Chief Executive of tie, that 18 we had a strong and collaborative relationship with 19 Lothian Buses, which after all is the -- operates, 20 I don't know, 80 plus per cent, 90 per cent maybe of the 21 buses in the city. And of course too I had the 22 opportunity of visiting other cities where things had 23 gone well and where things had gone badly vis-a-vis 24 tram/bus integration. We can talk about that later if 25 we wish. 28 1 So I couldn't imagine anything more important than 2 having a close and friendly and personal and trusting 3 relationship with the Chief Executive of Lothian Buses. 4 Q. Which was Neil Renilson at the time? 5 A. Who was Neil Renilson at the time, and that proved, I'm 6 sad to say, impossible. It was -- it was clear very 7 early on that, for whatever reason, Neil wanted to be in 8 charge of everything to do with the tram, even though of 9 course he wasn't a civil engineer, he didn't really know 10 anything about building a tram system. And it was 11 something that created a lot of energy and time and 12 attention on the part of the tie Board and me and my 13 colleagues, because of various filibusters from the 14 Director of Lothian Buses. 15 So TEL was a necessary thing. TEL was the single 16 economic entity which was going to run both trams and 17 buses effectively, but it only came really into play, in 18 a serious way, when the trams were close to entering 19 operation, because clearly the trams had to be 20 integrated with the bus operations network; once the 21 trams run down Princes Street, the buses presumably 22 there will be fewer of them, et cetera. 23 So I was very surprised when TEL suddenly was put 24 forward as the lead organisation in this context. This 25 was shortly after David Mackay had been appointed to be 29 1 the Chairman of TEL, and he in turn recruited 2 Neil Renilson to be the CEO of TEL, even though at that 3 time there was nothing other than Lothian Buses to 4 actually manage, because the trams were not yet built. 5 Q. So TEL was a company that had as its Chief Executive, 6 the Chief Executive of Lothian Buses? 7 A. Yes, and he appointed someone else, I think, whose name 8 I don't recall, to be the nominal Chief Executive of 9 Lothian Buses. So there was a double layer of -- above 10 Lothian Buses suddenly created. So in some ways I felt 11 that there was therefore we had Mackay and Renilson 12 looking for something to do, and what better than to 13 take over and possibly chair the Tram Project Board, and 14 that's what happened. 15 Q. This is considering -- this is contemplated in 2005 that 16 TEL would take on the formal project responsibility from 17 tie, take it away from tie? 18 A. Well, that was never formally documented, to my 19 recollection. There was, after all, a very detailed 20 Operating Agreement that existed between the Council and 21 tie, which determined what it was doing. And so I never 22 saw that formally being renegotiated in favour of TEL. 23 But that's another matter. 24 Q. In that regard, could I ask you to look with me at 25 page 55 in this document. It's further on in this 30 1 section about the Tram Project Board remit. 2 If we could enlarge the number 9 in the heading and 3 all the text underneath it, the heading is: 4 "tie Limited handover to TEL". 5 It notes: 6 "This needs to be closely controlled to ensure 7 continuity of experience and of processes and also to 8 ensure that there is no duplication of reporting lines. 9 In the period until tie hands over to TEL, TEL requires 10 to be populated at board and senior management level and 11 the Tram Project Board should take an active role in 12 ensuring that this process is handled effectively. 13 It makes sense to select a date when there is 14 a substantive change in the project's progress. The 15 main options are: 16 Handover at the point of outline Business Case 17 approval in Spring - Early Summer 2006." 18 So this is less than a year from this report and the 19 other one is: 20 "Handover at the point of Final Business Case 21 approval and financial close on vehicle and systems 22 contracts (late 2006 - early 2007)." 23 Even if we take the later of those, that seems to be 24 contemplating that tie would take over the actual 25 construction work? 31 1 A. TEL. 2 Q. Sorry, TEL would take over the construction work? 3 A. Well, take over construction work is the wrong thing. 4 Of course it is -- the issue of the single economic 5 entity is also a point in question, because of course 6 one of the issues that preoccupied Neil Renilson was 7 that a very large, substantial portion of his fare box 8 revenue would be moving across to the tram, and it was 9 necessary, as a business, to consider the two entities 10 at the same moment. 11 But yes, to concur with what you're saying here, 12 it's clear that it was decided or agreed that TEL should 13 take this role early on, and when it did take this role, 14 tie then changed to being a deliverer to TEL. 15 Q. You've already explained to us this morning that there 16 was a difficult relationship -- I'm paraphrasing -- with 17 Mr Renilson over the implementation of the tram project? 18 A. Yes. 19 Q. This would see the implementation of the contracts for 20 the tram project handed over to a company which 21 Mr Renilson was the Chief Executive? 22 A. Yes. 23 Q. How did you feel about that? What was your view of 24 that? 25 A. Well, I didn't think it was particularly helpful. You 32 1 know, I suppose, if I had to rewrite history, I would 2 have preferred to see tie strengthened with a different 3 array of skill sets within the tie Board and continuing 4 to focus on getting the tram built, rather than being 5 snarled up in a new and potentially hostile entity. 6 Q. Was TEL a potentially hostile entity? 7 A. Well, let's say the people -- the individual in question 8 had displayed a very serious measure of hostility during 9 the period when he was not in charge of it. When he 10 then became in charge of it, lo and behold, I think it 11 became perhaps a little more -- something which he 12 viewed favourably, perhaps not surprisingly. 13 But on the other hand, he didn't have the background 14 or the experience that building a tram would evidently 15 require. 16 Q. How had that hostility shown itself? 17 A. I think we get into vignettes of subjective 18 remembrances. All I can remember is that there were 19 very frequently conversations between me and Ewan Brown 20 about the latest escapade of -- which has caused us 21 difficulties. I mean, both political -- he made a very, 22 very strong use of the Edinburgh Evening News, where he 23 did have a good relationship, and therefore it was -- 24 there was always something which appeared in the paper 25 which would generally be disruptive and create a lot of 33 1 stress to a lot of people. That was the typical path. 2 Q. Could we go back to page 51 within the same document. 3 If we could just enlarge heading 5 and all the text 4 underneath it. This is looking at the responsibilities 5 and delegated authorities, and the first one is the 6 tie Board, where it's noted that the Board will take 7 over most of the authority vested in tie ltd through 8 approved delegated authorities, whilst retaining 9 ultimate overall control of the project and retaining 10 the ability to restructure or disband the Tram Project 11 Board. 12 Just pausing there, was the Tram Project Board to be 13 a sub-committee of the tie Board or if not, what was it? 14 A. Well, I just used the word "sub-committee" earlier, 15 didn't I? I think -- I viewed it as de facto 16 a sub-committee of the tie Board, yes. 17 Q. In terms then of the layers of management 18 responsibility, did that effectively create another tier 19 where there might be some duplications between the Tram 20 Project Board on the one hand and tie at the other? 21 A. Well, your answer was if it's an effective 22 sub-committee, and if it's -- and there is an effective 23 chair, who is reporting to the board itself, then 24 there's no reason for second-guessing and I don't recall 25 that happening. 34 1 Q. Do you consider that it was effective? 2 A. Was the Tram Project Board effective? 3 Q. Yes. 4 A. Well, it was only in active operation for a period of 5 about a year during my -- the latter period of my time 6 with the company. 7 I think it helped. It certainly brought to the fore 8 the issues that emerged during -- late 2005/2006, which 9 led to Ian Kendall's departure. 10 Q. I want to come back and ask you about his departure in 11 a little while. If I could just firstly look at another 12 document. It's CEC01793454. 13 This is, you see, the tie Project Readiness Review 14 which was issued on 25 May 2006. 15 This is part of what's known as a OGC Readiness 16 Review. We can see the date there, May 2006. 17 Could we look at page 7 of this. 18 If we look just below where the cursor is, there's 19 a paragraph beginning: 20 "The terms of reference ..." 21 Actually, if I could take -- pardon me, that and the 22 paragraph above it. Pardon me. 23 It's: 24 "In order for the governance of the 25 tram project to most closely reflect best practice and to be 35 1 fully effective, we recommend that a project board is 2 set up as a matter of urgency and that there is clarity 3 as to the identity of the SRO for the project. Good 4 practice suggests that this board is a small group 5 comprising the decision-makers in respect of the scope 6 and funding of delivery. 7 The terms of reference of the project board should 8 be developed as soon as possible and we recommend that 9 the project Board is the only forum through which key 10 decisions in respect of the scope of the project are 11 determined." 12 Were you surprised in May 2006 to see 13 a recommendation that you establish a Project Board? 14 A. It -- I don't -- I mean, this is 11 years ago. So I was 15 surprised when I read this document in the process of 16 preparing my statement because, as you know, a Project 17 Board existed. Notionally it existed. 18 Obviously from the point of view of those who wrote 19 this document, they felt that it didn't fulfil their 20 expectations or hopes for what it was supposed to be 21 doing. 22 I mean, curiously though, there are -- what is 23 different between what was happening versus what they're 24 suggesting should happen here, the implication is that 25 other decisions were being taken by others around the 36 1 Project Board. Is that what -- that's what I read. I'm 2 not sure that that's true. 3 Q. Do you consider that the Project Board you had was 4 fulfilling this role of having a group of 5 decision-makers in respect of scope, funding and 6 delivery? 7 A. Well, yes, I do. I mean, I think we've just talked that 8 through. 9 I don't necessarily think that all the decisions 10 that were taken were good ones, and of course ultimately 11 it depends upon the SRO, Senior Responsible Officer. 12 And that was Mr Kendall. 13 Q. Could you explain what the role or responsibility of the 14 SRO is? 15 A. I'm sure there must be an official definition somewhere, 16 but in essence it is the person who is ensuring that the 17 project meets all its objectives, obviously primarily 18 time, cost and functionality. 19 Q. Jump forward to page 13 of this. These are a summary of 20 recommendations. You can see there's a number of red 21 and a number of ambers? 22 A. Yes. 23 Q. I think you acknowledge in your report that this was not 24 a good outcome in terms of the number of things that 25 needed to be rectified? 37 1 A. No. 2 Q. Were you surprised to get this verdict? 3 A. I wasn't unduly surprised because I had just relieved 4 Ian Kendall of his responsibilities. 5 Q. What happened in relation to Mr Kendall? 6 A. In what aspect? 7 Q. Well, you say you relieved him of his responsibilities. 8 Did disagreements arise with him as to what he was 9 doing? 10 A. No, I think I have covered in my report, there are 11 certain activities that conspicuously fell behind. The 12 most obvious was the SDS project, the development of the 13 design. 14 I felt that we'd given him more than enough chance 15 to potentially deploy the resources or find the 16 resources to overcome the clear deficiencies in terms of 17 performance, not just of SDS, which is 18 Parsons Brinckerhoff, but also of other activities at 19 that time, and so I can't recall the precise trigger for 20 his departure, but it took place in May. 21 Q. What in general were your concerns about the SDS 22 contract, the design, while you were there? 23 A. Well, I think the issue obviously was slow progress. 24 I can't recall all the various stages, but there was 25 a preliminary design, and then there's a final design. 38 1 They just missed all the targets time-wise, and -- what 2 I don't recall is was this just a question of manpower, 3 or were there external reasons which meant that they 4 were unable to get on with their work? That's something 5 that I just, I'm afraid, don't recall. But it was the 6 fundamental reason why the project was falling behind, 7 and I read from other documents that, you know, this 8 essentially is one of the early evident reasons why the 9 tram project became delayed and of course added 10 significantly to cost. 11 Q. The reason being the design, you are talking about? 12 A. Mm-hm, one of the fundamental critical path items at 13 this stage, yes. 14 Q. Turning to the things we see on the screen in page 13 of 15 the last document that you were referring to, the red 16 and amber issues from the OGC report, did you discuss 17 those with anyone from the Council? 18 A. Oh, yes, I'm sure we did, yes. We will have done. 19 Q. Would you be able to remember who you discussed it with? 20 A. Well, if it was anyone, it would have certainly been, 21 for a start, been Andrew Holmes who was de facto my 22 functional report. But thereafter it would have been -- 23 presumably it could have been Tom Aitchison. I don't 24 recall. 25 Q. Can you remember whether Andrew Holmes or Tom Aitchison 39 1 expressed any view about these findings? 2 A. Well, needless to say, when you look at the amount of 3 red ink there, versus anything else and the absence of 4 green, I'm sure that they were concerned, as indeed was 5 I. 6 I suppose the one thing I felt good about was that 7 I had recruited, albeit on a temporary basis, 8 Andie Harper, and he was at the review and he received 9 good marks. 10 I mean -- and I realise immediately, what had been 11 missing. Andie was inclusive. He got the best out of 12 people. He listened, and these were all attributes that 13 some -- were somewhat lacking with Mr Kendall. 14 So I must say, I had to place my bets very firmly on 15 what Andie Harper would be able to do for the project, 16 and I guess subsequent events proved to some extent to 17 justify that feeling. 18 Q. Jumping back a little bit in time, if I could ask you to 19 look at your statement again. It's page 46, 20 paragraph 150. This is to do with the links between the 21 Tram Project Board and the TEL Board. What you note 22 there, this is with reference to a date of 23 November 2005, that TEL didn't wait and the merger of 24 the Tram Project Board and TEL moved ahead within weeks 25 and well before the financial close of the contracts. 40 1 You've already described how the Tram Project Board 2 was in effect, or perhaps indeed was, a sub-committee of 3 tie. And here we see it merging with the board of a 4 different company entirely. What was your view of that? 5 A. Well, it seemed to me confusing. And I use the word 6 "merger" with the quotes here, because of course this 7 was a quote from Mr Mackay at the meeting which took 8 place, I think, probably in January or February the 9 following year, when he said: from now on the TEL Board 10 and the Tram Project Board are one and the same; which 11 is not true. I mean, the two are different entities 12 with different responsibilities. 13 But I suppose because he was chair of both, perhaps 14 the distinction between the two was not evident to him. 15 Q. You described it in your early answer there as 16 confusing. In practice, did the Tram Project Board 17 continue to work? 18 A. It continued to meet under the chairmanship of 19 David Mackay, since Gavin Gemmell, who had been briefly 20 the Chair of that Board, stepped down. 21 But I honestly think that in mitigation for 22 Ian Kendall, that he was facing quite a difficult 23 governance structure. He was reporting to me. He 24 was -- and yet he had this Board -- and he had 25 a responsible reporting relationship clearly to both 41 1 specifically, I think, to David Mackay, but also to some 2 extent to Neil Renilson who was there, and it did never 3 surprise me that Neil, who was always a difficult 4 person, did not get on well with Kendall. They were 5 somewhat similar. 6 Q. It's partly looking at the role of the Project Director 7 that I'm trying to understand. On the one hand I've got 8 the Tram Project Board, and then they have got the 9 tie Board and now they have got the TEL Project Board. 10 Who was in charge of the project? 11 A. That's a very good question and I at the time would have 12 liked to have asked particularly Tom Aitchison, because 13 I think he should have helped us to figure it out. 14 Q. To put it mildly, even in the role that you held within 15 tie, it's not clear to you who was in charge of the 16 project? 17 A. At that moment it wasn't, because Ewan Brown who had 18 been my boss, who was an exceptionally capable and 19 effective and useful chairman, who knew the role and 20 performed it extremely well, and he'd gone. And nature 21 abhors a vacuum, and in theory it was going to be 22 Willie Gallagher who took on the chairmanship, but as 23 you have heard, and as you will hear later, that didn't 24 quite happen. 25 So it became David Mackay who suddenly sort of 42 1 marched in and occupied the vacuum. 2 Q. I think he was ultimately -- David Mackay was replaced 3 in turn by Willie Gallagher as Chairman of tie. Was 4 that your understanding? 5 A. David Mackay, yes, he did eventually. 6 Q. And Willie Gallagher became -- 7 A. Yes, I understand that. I was not following things 8 closely, but I understand that. 9 Q. So while you were Chief Executive, you did have 10 Willie Gallagher as the Chairman? 11 A. Yes, briefly. 12 Q. How did you feel you were able to work with 13 Willie Gallagher? 14 A. That's a new subject. 15 Q. Yes. 16 A. I think -- well, I think I have -- there are documents 17 which make it fairly clear how I felt about that, 18 because it was written into my letter of resignation. 19 Q. If we could have a look at that. It's document 20 WED00000030. 21 It is easiest if we first of all just enlarge the 22 upper half of the page. 23 You say: 24 "I am writing to you to note that you have made it 25 clear since your appointment, by your actions and words, 43 1 that you do not subscribe to the customary role of the 2 non-executive Chairman, ie that the Chairman should run 3 the Board, whilst the Chief Executive should run the 4 company. 5 You say that you had made it clear to the 6 City Council that you will operate in a role akin to 7 that of Chief Executive and that you have their support 8 for your approach. You also said yesterday that, were 9 I to depart, there would be no obvious need for a new 10 Chief Executive. 11 Consistent with this, since your appointment on 12 1 June, you have, amongst other actions, spent four of 13 the past five days in the tie office meeting every one 14 of my direct reports and asking pointed questions, often 15 about my performance, with an implied inference of 16 discontent; Chaired a procurement committee for the tram 17 project, thereby removing the ownership of both of 18 Andie Harper, Tram Director, and myself; Written 19 unilaterally to the Chamber of Commerce to respond to 20 a letter that was addressed to me, before you had spoken 21 to me; Continued to communicate directly with my reports 22 and given them assignments despite my request that you 23 act through me." 24 I'll read past the next paragraph, you go on to say: 25 "After having run the company successfully for the 44 1 past 4 years, these circumstances are not acceptable 2 to me." 3 Was that that sort of conduct that led to your 4 decision to resign from the company? 5 A. Yes. I should make it clear that I was, I feel, the 6 right person to lead tie during that four-year period, 7 and I had never set myself out to be the person who was 8 going to take the tram through to final construction, 9 and when Ewan Brown left the Board, he and I discussed 10 the fact that I would be happy to stay on for the next 11 six months or so, to bed in the new chairman and bed in 12 my successor. 13 So that was my thinking and my game plan, and I had 14 an assignment in London which I went to -- chairing City 15 and Guilds Institute, which was of -- perfect for me in 16 terms of what I wanted to do at that point in time. 17 So this was not the wrong time. It was just the 18 wrong manner of my departure. 19 Q. Did anyone discuss with you the role that Mr Gallagher 20 was to play and the fact that he would in a sense be 21 taking over from what you had been doing as 22 Chief Executive? 23 A. No. No. 24 Q. I want to turn back a little bit then from the time when 25 you left, when you were still there. 45 1 If you could look at page 24 of your statement, 2 please. 3 If we could look at paragraph 72. You refer to 4 "This meeting" and the text above makes it plain that 5 that was referring to a meeting, a quarterly meeting of 6 Transport Scotland in May 2006. It was immediately 7 after Ian Kendall's departure: 8 "At that point, it was quite clear that the project 9 was in difficulty." 10 Now, what was the difficulty at that time? 11 A. At this point? Well, I mean, obviously the red ink 12 which obviously came from a meeting a few months later 13 highlights what the difficulties were, but these were 14 already emerging at this stage. 15 Q. Those are difficulties internal to tie? 16 A. They were difficulties -- I mean, I say here we had no 17 tram director in place. And the focus of my time then 18 was on finding someone to take that role. I myself was 19 not the right person to take on the tram director job, 20 obviously, and I had found Andie Harper, and we had to 21 recover the position, that means we were well behind. 22 We were behind. And money, time is money, as we all 23 know. 24 Q. I referred there to a meeting that took place on 25 8 May 2006. I would like to refer to the minutes of 46 1 that, please. 2 It's document reference TRS00004679. 3 We will see, just looking at the whole page, this 4 was a meeting for the Review of Major Projects, that is 5 a Transport Scotland meeting, and you were in attendance 6 from tie. 7 A. Mm-hm. 8 Q. Look at page 4 of that. If we enlarge the text. Look 9 at the second and third paragraphs: 10 "Slippage on procurement programme was evident. 11 Whilst it was accepted that Tramco [that's the contract 12 for the vehicles] may be ready following the readiness 13 review, Infraco [infrastructure contract] is unlikely to 14 be ready until the end of June. 15 The draft Final Business Case has also slipped to 16 end of November (previously October). Endorsement by 17 ministers not now anticipated before end of ... 2007." 18 This doesn't describe the reasons for that slippage. 19 What were your understandings as the causes of these 20 slippages in the Infraco contract and the Draft Final 21 Business Case? 22 A. Well, finger pointing is never particularly helpful, but 23 I honestly felt that the calibre of the management 24 assigned by Parsons Brinckerhoff to the SDS contract was 25 poor. In fact, there were two meetings, one where we 47 1 invited senior management of Parsons Brinckerhoff to 2 visit Edinburgh, and one later, after Andie Harper's 3 appointment, when we went down to London together to 4 visit them, and actually I think we met somebody who was 5 visiting from the United States at that time. 6 And we pointed out the financial implications to 7 them of -- and to the project at this very serious delay 8 which had emerged. 9 I was very disappointed that they didn't take a more 10 speedy action to address the issues. 11 Q. You referred there to the management. The calibre of 12 the management assigned by Parsons. What were the 13 concrete problems that were happening? 14 A. Well, there was -- here I think I probably should demur, 15 simply because it's too long ago and my -- the closeness 16 that I had to the issues faced by the design team means 17 that I can't speak authoritatively to that. 18 Q. Can I ask then to return to your statement. If we go to 19 page 27, paragraph 80. It's back to the issues 20 surrounding Ian Kendall, where you note that: 21 "Ian Kendall's comments were pertinent. However, 22 the issues were both external, in that we had not 23 received enough bidders, and internal, in that the 24 statutory consents and the approvals were all overdue." 25 Just pausing there, those were design issues; is 48 1 that correct? 2 A. Yes. 3 Q. "This poor performance, which emerged late in the day in 4 relation to these matters, was almost certainly the 5 reason why it was finally decided that TIE should seek 6 Ian Kendall's resignation from his position as Tram 7 Director." 8 We see there you have qualified what you say by the 9 inclusion of the words "almost certainly". Did that 10 indicate that's a matter you're not quite sure? 11 A. I mentioned my memory. 12 Q. Yes. 13 A. And that's what I would ... 14 I said there was some specific issue which was the 15 cause for our meeting on whatever date it was, when he 16 agreed to leave, and that I cannot remember. 17 Q. Were you aware of any suggestion that the problems that 18 arose in relation to design and consents were ones that 19 actually had their seat within the Council or tie 20 itself? 21 A. I was, and I have seen the evidence of prior witnesses 22 to -- which have highlighted that. 23 Q. Was that your understanding at the time? Could you 24 comment on that? 25 A. I'm afraid, again, this is one issue where my memory is 49 1 not good enough to give you a clear answer. 2 Q. You have talked within your statement about the 3 introduction of bonuses for the tie staff. Can I ask 4 you why you felt it was appropriate and necessary to 5 introduce bonuses? 6 A. I think I've mentioned in my statement, my rationale for 7 that. As you know, I've worked for the private sector 8 exclusively with the exception of this particular 9 assignment, and I honestly felt that some of the people 10 that we had transferred across from the Council were not 11 particularly impressive, and I just really felt that we 12 needed to have better measurement, and measurement often 13 goes hand-in-hand in the private sector with some 14 measure of reward, and I put that to the Board, 15 and I indicated that we would be measuring people's 16 performance very carefully, that the level of bonus 17 payment would be probably on average somewhere around 18 10 per cent, although the maximum available was 15, and 19 that was broadly felt to be an indication of our desire 20 to fulfil our commitments to our owner, the Council. 21 Q. What did you envisage that bonuses would be based upon? 22 What would decide, what would determine how much to pay? 23 A. I do not recall the precise templates that we utilised 24 for determining bonus payments, but we very clearly at 25 the beginning of every year had obligations or 50 1 objectives for each individual, which were hard, in 2 other words if they happened, they got a sum of money. 3 If they didn't, they didn't. 4 So I think this was largely objective, an objective 5 bonus, rather than a -- the halo effect, giving the good 6 guys their bonus and the others not. 7 Q. But in terms, you say, about particular matters, the 8 hard thing, as you refer to them, what sort of thing did 9 you have in mind? 10 A. Well, for example, we were talking about consents. You 11 know, progress on achieving a design. There were 12 obviously, in the case of every project, very defined 13 dates by which things had to happen, and those were 14 their commitments, and they had to make those happen. 15 If they didn't, then they didn't get their bonus. 16 Q. Would that take in something such that a particular 17 contract was concluded by such and such a date? 18 A. Of course. 19 Q. Do you consider that might cause a situation where there 20 is a desire to conclude the contract at all costs in 21 order to get the bonus? 22 A. The scale of this bonus, these bonuses were not 23 significant in my judgment to generate that sort of 24 result. I mean, at the end of the day, every contract, 25 as you know, involves a large number of different 51 1 people. Obviously counterparty, on the one hand, 2 lawyers on our side, on the other. So you get the thing 3 done because you manage the process well and you get the 4 right people on the job at the right time, not because 5 you decide to sign it on Tuesday, because that's when 6 you get your two and sixpence. 7 MR LAKE: Thank you, Mr Howell. Those are the only 8 questions. 9 CHAIR OF THE INQUIRY: I don't think anyone else has 10 indicated any questions. So thank you very much, 11 Mr Howell. You're free to go. You're not excused from 12 your citation, just in case you need to be recalled, but 13 I hope that won't be necessary. 14 A. Okay. 15 CHAIR OF THE INQUIRY: Thank you very much. 16 A. So is that the end? 17 CHAIR OF THE INQUIRY: That's the end. 18 A. Thank you. 19 MR LAKE: My Lord, the next witness is Steve Cardownie. 20 CHAIR OF THE INQUIRY: The witness hasn't arrived yet. So 21 we'll adjourn earlier than usual and resume again at 22 11.10, assuming Mr Cardownie is here. 23 MR LAKE: My Lord. 24 (10.51 am) 25 (A short break) 52 1 (11.10 am) 2 CHAIR OF THE INQUIRY: Mr Lake. 3 MR LAKE: My Lord, Mr Cardownie is here in the sense of 4 being in the building, but -- 5 CHAIR OF THE INQUIRY: I understand he didn't check in with 6 the office. He chose to sit in the public benches, then 7 disappeared. 8 MR LAKE: I think that's been the problem. 9 MR STEVE CARDOWNIE (sworn) 10 CHAIR OF THE INQUIRY: Before you start, is that a camera 11 that you're using? You're not allowed to photograph. 12 Is it now switched off completely? 13 Examination by MR LAKE 14 MR LAKE: Mr Cardownie, would you give us your full name, 15 please. 16 A. Full name is Archibald Stephen Cardownie. 17 Q. And your address is known to the Inquiry. I think you 18 have been a councillor since 1988? 19 A. Yes, until May of this year. 20 Q. I think you were a Deputy Lord Provost up until May of 21 this year? 22 A. Yes. 23 Q. And now? 24 A. And now I'm unemployed. 25 Q. You are a member of the Labour Group, I think, until 53 1 2005, and then changed to be a member of the SNP Group 2 thereafter? 3 A. Yes. 4 Q. I want you to look at this document, please. It will be 5 shown on screen and you have a copy in front of you. 6 It's TRI00000104_C. 7 Both in the electronic and the paper version, do you 8 recognise that as a statement given by you? 9 A. Yes. 10 Q. In the paper version, have you signed the last page of 11 that? 12 A. Yes. 13 Q. Are you content to accept that and adopt that as your 14 evidence to this Inquiry? 15 A. Yes. As I recall, there was a couple of typos, but 16 nothing of any significance. So I was quite happy to 17 submit that as my statement, yes. 18 Q. Did you happen to correct the typos on the -- 19 A. I didn't, I had no ability to do so because I have no 20 office facilities, anything like that. But I think they 21 were only very minor grammatical -- or typos. There was 22 nothing of any substance at all that I could take issue 23 with. 24 Q. I want to ask you first about arm's length companies. 25 What do you understand that means? 54 1 A. The arm's length company is usually wholly owned by the 2 Council. But the Council has an influence in terms of 3 appointing directors, or indeed sometimes being the 4 chair of that arm's length company. But the company 5 acts -- 6 CHAIR OF THE INQUIRY: The shorthand writer has to record 7 it. So if you can slow down a wee bit. 8 A. Okay. The company would act as a normal company would. 9 It would report to the Council. The Council would 10 appoint directors, and one or two instances that I can 11 recall, the Council actually held the Chairmanship of 12 the Board of Directors. 13 Q. What are the advantages of the Council delivering 14 anything by means of an arm's length company? 15 A. Basically, that the company is not hidebound by Council 16 procedures. It's free to act in the area for which it 17 was formed. 18 It may be a development company such as EDI and it 19 could act in that sphere with reporting back to the 20 Council, but operating as a private company, but as 21 I said, wholly owned by the Council. 22 Q. Is there any advantage given by an arm's length company 23 that was simply the Council engaging consultants or even 24 employing people with necessary skills to carry out 25 things? 55 1 A. Well, of course, the arm's length company can do that, 2 but the Council can do that themselves, I mean, the 3 Council does employ consultants in a whole raft of 4 different areas in the city. 5 Q. So how do you decide which way to go? Sometimes 6 employing consultants and sometimes using an arm's 7 length company? 8 A. I think if you take, for instance, a company like tie, 9 for that, for the work that tie was doing to be done by 10 the Council, would have the Council bogged down in all 11 the aspects of tie that it would not be able to -- it 12 wouldn't be able to do. The Council wouldn't have the 13 time. It wouldn't have the expertise, whereas setting 14 up the company such as tie of an arm's length company, 15 they have their own employees. They have their other 16 Board of Directors. Their own chair, their own Chief 17 Executive. They're free to act and act swiftly, without 18 having to come to committees, without seeking approval 19 from Full Council, although of course they did report to 20 Full Council. 21 Q. I want to ask you a couple of things there. When you 22 talked about if things were to be done by the Council, 23 the Council would be bogged down, are you talking about 24 Council as being the elected members there or including 25 all the Council officers and employees? 56 1 A. I think an element of both. Depending on the size of 2 the company, and the raison d'etra, why the account 3 company was set up, it may be that the Council does not 4 have the expertise almost anywhere in the Council to 5 conduct the affairs of the company. We don't have the 6 officials with the knowledge and expertise. 7 As far as elected members are concerned, of course, 8 elected members -- I think the majority of the elected 9 members since I've been on the Council are not full-time 10 councillors. They have work elsewhere. Bus drivers, 11 solicitors, school -- not school teachers, but they have 12 employment elsewhere. 13 So if a company -- if the councillors through the 14 Council was expected to cross all the Ts and dot all the 15 Is, then it would take forever to get anything done, 16 whereas an arm's length company has the freedom and the 17 flexibility to conduct itself in a manner it sees fit in 18 the area for which it was formed. 19 Q. And it can take the decisions that need to be taken to 20 get any project moving? 21 A. Not all decisions. Once more, I'm thinking more of -- 22 some of the major strategic decisions, they would come 23 back to the Council for approval because it's wholly 24 owned by the Council. But in terms of day-to-day 25 running and decisions, for instance, and developing 57 1 property or buying property such as EDI, and EDI did on 2 a regular basis, they were free to do that and to 3 determine that. But they worked under a kind of an 4 ethos that was created by the Council as to why EDI was 5 set up. 6 But they had the flexibility to make business 7 decisions on behalf of the company and also acting on 8 behalf of the Council in doing that. 9 Q. Just looking at EDI purely as an example, that was 10 a company that was wholly owned by the Council that 11 carried out property development? 12 A. Why. 13 Q. To the extent it was profitable, those profits would be 14 passed back for Council purposes? 15 A. Yes, or ploughed into another scheme, another 16 investment. 17 Q. The Council wouldn't -- correct me if I am wrong, but 18 the Council wouldn't get involved in individual property 19 development decisions? 20 A. I was a Director of tie for some time, and the 21 Council -- 22 CHAIR OF THE INQUIRY: EDI? 23 A. EDI, I beg your pardon. I was a Director of EDI, and 24 EDI would be charged with the responsibility of making 25 business decisions. However, if it was of a strategic 58 1 nature, then they would seek approval from the Council, 2 whether it be through the Chief Executive or the leader, 3 or by virtue of a report to the appropriate committee, 4 or indeed to the Full Council itself. 5 Q. What do you mean by strategic? It's a word you have 6 used in a couple of answers. 7 A. If EDI was thinking of entering the market and buying 8 a whole plot of land to develop it for a particular 9 purpose, they would have to make sure that that purpose 10 was in keeping with the Council's policy for that 11 particular area. For instance, if EDI was going to buy 12 a huge tract of property for developing a shopping 13 centre, where the Council wanted to develop a school, 14 then the Council may have something to say to EDI about 15 why they are buying that property and what are the 16 purposes of buying that property. 17 So they would check with the Council that it fitted 18 in with the Council's long-term planning for particular 19 areas. But EDI did on several occasions make decisions 20 even outwith Edinburgh to get involved in investments, 21 and they were free to do so. 22 But they were politically sensitive enough to 23 understand that they should really check with the 24 elected members if it was appropriate to do what they 25 intended to do, if it was of the magnitude or scale that 59 1 was likely to attract public attention. 2 Q. Applying that sort of analogy just then to tie and 3 transport, with EDI you might get the company and the 4 Council together taking a decision that there should be 5 development of a large shopping centre such as the Gyle. 6 Once that decision was made, the company is left to get 7 on with it and deliver it; is that fair? 8 A. Yes. 9 Q. Applying that to the trams then, or to transport, once 10 the Council takes the decision to go ahead with the 11 delivery of trams, it's passed to the company and the 12 company would just be left to get on with it? 13 A. If it was a finite price, set, for instance, if there 14 was a finite price set to purchase the land at the Gyle, 15 and the land was purchased and the Council paid that 16 money for the purchase or through EDI paid for the 17 purchase, then the EDI would be allowed to develop the 18 component parts of that particular shopping centre. But 19 the likes of tie and the money that was set aside for 20 the building of the tram, tie gave regular reports to 21 the Council and to the leader and you have heard 22 obviously before to various people within the Council. 23 But there was -- tie had to report perhaps more often 24 than would have been expected because of the delays, the 25 disputes, and the budget. There were difficulties 60 1 surrounding these areas and in fact the design of the 2 tram. 3 On that basis, tie and Council officials were 4 reporting back to the Full Council, as we call it, when 5 all the councillors met. They were reporting back on 6 a regular basis because this was very much in the public 7 interest. It was never out of the newspapers, the 8 delays, the traffic disruption. People could see with 9 their own eyes in Edinburgh that workers were idle, that 10 nothing was happening, and councillors, being 11 politicians, were very aware that this was not something 12 that they wished to see continue, and that they were 13 asking for reports on a regular basis either from our 14 Chief Executive and/or from tie themselves, 15 and I attended several meetings where the Chair or 16 Chief Executive of tie would be in attendance with 17 senior politicians and senior Council officials. 18 Q. Were those meetings, once the project had started, are 19 you talking about? 20 A. Yes. 21 Q. We will come back to those in a while. 22 But in terms of -- just going back to the start of 23 your answer, when you said there were budget 24 difficulties, is the difference between perhaps tie and 25 something like EDI is that tie wasn't going to be 61 1 generating money in the tram project for the Council, it 2 was going to be using Council funds; whereas a company 3 like EDI, which is engaged in business ventures, might 4 generate money for the Council? 5 A. It might. It required start-up funds, of course, to buy 6 and develop property. But the intention was that EDI 7 should get involved in the property market with a view 8 to making profit because the Council owned a great deal 9 of land that needed to be developed as well. 10 Q. But that does mean that the arm's length vehicle is 11 perhaps less appropriate where what we are talking about 12 is something that is going to have to be in receipt of 13 Council funds? The Council is going to hold the purse 14 strings? 15 A. Indeed, that's the differentiation between tie and EDI. 16 If EDI could justify a project on the basis that it tied 17 in, forgive the pun, with the Council's plans and also 18 it was going to generate a profit, certainly it was not 19 going to generate a loss. It could be something that 20 the community wanted, it could be something where the 21 infrastructure was going to be improved. Then they were 22 free to do that. 23 But when it came to tie, because it was public 24 money, and because originally it was supposed to be 25 a finite number in terms of the money that we devoted to 62 1 that project, and we could see the timeline slipping and 2 there was talk about the budget not being sufficient, 3 then, as I said, I think tie had to report back far more 4 often than any other arm's length company I am aware of 5 in the Council. 6 Q. That's because it was in receipt of funds that the 7 Council held the purse strings. 8 A. Indeed. 9 Q. So where the Council holds the purse strings, the 10 Council is at least one of the funders of the project, 11 it's always going to be more difficult to truly get an 12 arm's length company? 13 A. Yes. That could be the -- certainly the Scottish 14 Government or the Scottish Parliament was the main 15 funder of the tram project. But the Council was charged 16 with the responsibility of running the project for the 17 city, and did so through the setting up of tie. But 18 you're correct, there was a mood within the Council that 19 we should try to restrict the spending of the public 20 purse as much as we possibly could. 21 So that's why I think the senior officials were 22 reluctant sometimes to move ahead without getting the 23 approval of the political leadership, because more money 24 was going to be required to be spent if the line was 25 going to be finished. 63 1 Q. You also referred to the fact that when there were 2 delays or disputes, that meant that matters were 3 reported back. Is that because of the money issues we 4 have been discussing? 5 A. I don't think it was -- at that time it was because of 6 the money issues, because I don't think councillors were 7 aware of exactly what these disputes meant in terms of 8 money. 9 I mean, we saw that no work was being done. We knew 10 there was a dispute between the likes of Bilfinger 11 Berger and tie, but we didn't know at that time, we 12 couldn't quantify how much that dispute was going to 13 cost the Council if at all. 14 However, councillors, elected members, were aware 15 that a head of steam was building up in the press 16 because of the roadworks that were taking place 17 throughout the city, people's journeys being delayed, 18 diversions, and there was a fair bit of antipathy 19 towards the tram scheme then; and councillors were aware 20 that constituents of theirs were expressing grave doubts 21 about the merits of the scheme, and that's why the 22 councillors themselves at that time were more 23 interested. It was because of the political damage it 24 was doing, because I don't think, to be fair to elected 25 members, that they were aware at that time of what the 64 1 ramifications were financially. 2 Q. So what ramifications are you talking about? 3 A. Disputes. The Council didn't know -- we could see that 4 nobody was working at the foot of the Mound and we could 5 see that nobody was working for months at the foot of 6 the Mound. We knew there was a dispute. But we didn't 7 know what the outcome of that dispute, because it was on 8 running, we didn't know what it was likely to be, and in 9 fact, it was a whole number of disputes which you may be 10 asking me about, I don't know, a whole number of 11 disputes, where we were told that we were winning, but 12 there was a kind of spin put on how do you determine 13 winning. 14 So councillors didn't know at that time -- I think 15 councillors were more interested at that time in the 16 political fallout with the public then they were about 17 the money, because we had not breached the budget by 18 that time, and we were still told when a contingency 19 fund -- we were told that any matters could be dealt 20 with through the contingency fund. That's why it was 21 there. To deal with unforeseen matters. 22 So at that time I think initially, originally when 23 the tram scheme started, Councillors were a bit more 24 sanguine in terms of its development because the alarm 25 bells had not started to ring until we were in danger of 65 1 breaching the budget. 2 Q. Going back to the early stages, this is clearly 3 a project which got a lot of coverage in the press in 4 Edinburgh. When you talk about political concerns, was 5 that the elected members had their constituents 6 expressing disquiet? 7 A. There were elected members, I think, in every group, in 8 every group, in the Council who had doubts about this 9 project. 10 Q. But that being the case, nonetheless it wasn't just 11 political. It was party political in terms of the 12 divides within the Council? 13 A. Well, there was only one -- I was the only person that 14 voted against the tram project. All the other Council 15 groups voted in favour and each group has party 16 discipline. 17 So although there may have been voices raised within 18 the group, and criticism and doubt, if it goes to a vote 19 in the group, and the vote is, for instance, 10/6 in 20 favour, then that's 16 vote in favour. That's the 21 nature of the politics. 22 So it doesn't mean to say that six go away, but it 23 means they vote along with their group, because they 24 were outvoted at the group stage. 25 Q. Initially you said you were a dissenter. That is while 66 1 you were in the Labour Group? 2 A. In the Labour Group, if memory serves me, we were kind 3 of persuaded from expressing any dissent because we were 4 told it would be premature. The message that kept on 5 coming over was that the time to make your mind up is 6 when the Business Case finally goes to the Full Council. 7 So there was rumblings of disquiet and discontent 8 within some of the groups. However, they were 9 saying: we're still at the exploratory stage yet; 10 there's no need to come out and say if you're for or 11 against the tram project until we have got all the Ts 12 crossed and the Is dotted. 13 So although there was that discussion taking place 14 within the groups, the groups didn't reach a conclusion 15 on the basis that they would reach the conclusion when 16 the Business Case finally came to the Council, which 17 I think was in October 2006. 18 Q. Yes. That was -- the Draft Final Business Case was in 19 2006. 20 A. Yes. 21 Q. But you had by then moved from being within the Labour 22 Group to being the SNP? 23 A. Yes. 24 Q. I think as a councillor in the SNP, you voted against 25 the trams, am I correct? 67 1 A. As a councillor in the SNP, I moved a motion that the 2 Business Case had not been met, and I put down a number 3 of reasons why I felt it had not been met. 4 The Council Standing Orders meant that had I not 5 received a seconder, then that motion would never have 6 been entered into the minutes. And a Labour councillor, 7 Councillor Lorna Shiels , seconded my motion, saying 8 that she wasn't going to vote for it, but she wanted to 9 second it so that it could at least be recorded in the 10 minute. 11 Subsequently, to my surprise, and delight, a roll 12 call was called for, and the only councillor's name 13 that's down as being against the tram project is mine, 14 because a roll call, they call out the councillor's name 15 and you say if you are for the motion or the amendment. 16 That wouldn't have happened, had I not have got 17 a seconder. 18 So I did not just oppose it. I actually put down my 19 opposition in writing and gave reasons why I felt we 20 shouldn't proceed. 21 Q. That was your position when you were the sole SNP 22 councillor? 23 A. Yes. 24 Q. That changed following the local Council elections the 25 following year? 68 1 A. Yes. It changed in the respect it was no longer me. 2 There was 12 of us, but it didn't change in respect of 3 we still maintained our opposition. 4 Q. The SNP Group maintained its opposition? 5 A. Yes. 6 Q. That was despite the fact it was in coalition at the 7 time? 8 A. Yes. I made it clear to the Liberal Democrats, and it 9 is in the Coalition Agreement, that given that the 10 opposition to the trams featured fairly largely in our 11 local manifesto, we were not going to abandon that for 12 the sake of entering into a coalition. 13 But I said that why would the Liberal Democrats be 14 concerned, because although the SNP were against the 15 project, Labour and the Conservatives and the Greens 16 were. So it was highly unlikely that if a vote ever 17 came to the Full Council, that they would be outvoted by 18 dint of the fact that the SNP were against it, because 19 we were only 12 out of 58. 20 So that put them at ease a bit in that regard, but 21 that's actually written into the Coalition Agreement, 22 that the SNP is allowed to plough its own furrow in 23 terms of its opposition to the trams, but of course all 24 the other aspects of Council work and Council policy, we 25 worked hand in glove with the Liberal Democrats. 69 1 Q. Where you have an arm's length company such as tie, is 2 the role of the councillors in relation to the project 3 different from that that it would be if the project was 4 being delivered in-house by the Council? 5 A. It's different in that -- well, if my memory serves me, 6 we had four directors on tie, elected members. All 7 parties were represented, apart from the SNP. 8 We refused to put a director on tie because 9 basically we felt that it was incorrect. We were 10 against the project in principle. Why would we seek to 11 have a directorship on the company that was set up to 12 run the project? 13 So the four councillors, elected members that were 14 on tie as directors were there to protect the interests 15 of the Council and could have and should have been 16 reporting back to the Council on a regular basis if they 17 had any cause for concern. 18 Q. I want to come back to you about the role of councillors 19 sitting as directors. What I am really interested to 20 hear is the role of councillors as councillors sitting 21 in the Full Council meetings or sub-committees. 22 Do they have a different role where an arm's length 23 company is used than they would have if it was in-house? 24 A. I think other than taking a vote or being involved in 25 a decision at the Full Council, they would have less 70 1 influence in the matter. 2 If a project was run by Council, then councillors 3 could pick up the telephone and contact the Chief Exec, 4 asking what was happening to various aspects of the 5 project and the Chief Executive would be obliged to give 6 that information to the elected member. 7 But because tie was an arm's length company, 8 councillors were one step removed from that, apart from 9 the four directors. 10 So basically, the other councillors, the other 54 of 11 us, if you like, we had a role to play at the Full 12 Council meeting and to say yes or no to recommendations 13 that were being made by the Chief Executive or by other 14 members who were making the reports. But we didn't have 15 any day-to-day influence on how the project was going. 16 Q. Do you think councillors generally understood that they 17 would have less influence when they were using an arm's 18 length company? 19 A. Yes. 20 Q. And they accepted that as a trade-off for the advantages 21 that a company might give them? 22 A. Yes, and I think that it was known that there was almost 23 no other way you can embark upon a project of this scale 24 and this nature without setting up an arm's length 25 company for the reasons I outlined earlier. 71 1 Q. Can we look at your statement, please. It's still on 2 screen. An extract on page 82, please. Could we 3 enlarge paragraph 167. 4 You say: 5 "The Tram Project Board was just like a sounding 6 board. The real authority lay with the full Council and 7 with the Policy and Resources Committee ..." 8 That's a sub-committee of the Full Council, isn't 9 it? 10 A. Yes. 11 Q. "... and later it became the Policy and Strategy 12 Committee." 13 A. Yes. 14 Q. Now, that seems to be saying that the Tram Project Board 15 part of one of the companies was less important and 16 everything, the real decision-making power still lay 17 with the Council. That seems to be at odds with what 18 you have just told us? 19 A. No. The Policy and Resources Committee is almost like 20 a mini-Council that deals with issues in between Council 21 meetings. The Council meets once a month. 22 The Policy and Resources Committee, then the Policy 23 and Strategy Committee, changed its name, comprises of 24 all the senior councillors. Usually the leaders of the 25 groups and conveners. So it acts as a mini-Council to 72 1 deal with issues that are arising from month to month. 2 But if a group felt so minded, they could refer the 3 matter to Full Council as well, if they were unhappy 4 with the decision made by policy and resources. 5 So far as the Tram Project Board is concerned, I had 6 no influence on the Tram Project Board. Nor did I have 7 any influence with tie. My influence lay with the 8 Policy and Strategy Committee because I was on there as 9 vice-convener. So I had the ability to ask questions of 10 other officials directly on there. I couldn't ask the 11 Directors of tie because there were no members of my 12 group on tie. We didn't put anybody on the tie Board. 13 So in terms of the sounding board, it was like 14 a sounding board for me. I think we had a councillor on 15 the sounding board, but they were not to attend any 16 meetings. It was so we could get the minutes of the 17 sounding board. If my memory serves me, it was the late 18 Councillor Tom Buchanan, I think, that was on there. 19 But it was so we could get the minutes and get some 20 information back as to what the tram sounding board was 21 discussing. 22 Q. I can understand what you say about influence that you 23 might have in the Policy and Strategy Committee. What 24 you seem to say here is that the authority lay with the 25 Full Council rather than the company. Now, that gives 73 1 the impression that the Council was still in charge 2 here. Is that what you're saying? 3 A. In charge in terms of the budget, sorry, that's what 4 I meant. The Council was in charge of the purse strings 5 because the Scottish Parliament had given us that 6 authority. And we had made our contribution as well. 7 The Tram Project Board was just that. It was to 8 determine specific aspects of the project. I would 9 imagine, I don't know if it was the tram shelters, or 10 where exactly the tram stops were going to be, and things 11 like that. About the MUDFA works, for instance. The 12 Tram Project Board would be getting information about 13 the works that were required, about some of the problems 14 they were experienced and going down Leith Walk, and 15 I think they found chambers underneath the street that 16 hadn't been earmarked on the plans. 17 That would go to the Tram Project Board, but what 18 I was meaning by this, and I'm sorry if I wasn't clear, 19 was that when it came to determining and making points 20 about the nature of the project, and the way the project 21 was going, then my conduit was through the Policy and 22 Strategy Committee; or indeed the Full Council. 23 Q. If we could still, looking at your statement, look at 24 page 76 of this. If we could look at paragraph 156. 25 Just take two extracts of this. The first sentence 74 1 is that in your view: 2 "... the Council did not have a lot of means by 3 which they exercised oversight and control over TIE." 4 Just pausing there, you just made it plain that the 5 Council essentially had purse strings? 6 A. Yes. 7 Q. It was the shareholder in the company? 8 A. Yes. 9 Q. It was able to appoint people to the company, not just 10 councillor directors, but other directors of the 11 company? 12 A. The -- they would be seeking our approval for 13 nominations that they made, yes. 14 Q. So what other oversight do you consider should have been 15 there, or what control should have been there? 16 A. I said on several occasions at Full Council meetings, 17 because I moved several motions on this matter, that we 18 were hearing now that things were getting out of 19 control, that the budget was beginning to spiral out of 20 control and there was delays, and I kept on asking the 21 question: what are our elected members doing about this? 22 We had four elected members on that Board, and yet 23 I have not seen any reports coming back from them where 24 they expressed any disquiet over how tie was run, and -- 25 so for me, as part of the SNP Group being on the 75 1 Council, I had no channel to talk to the tie directors 2 who were councillors because they were silent; and my 3 thought was that the reason that they were appointed in 4 the first place was to protect the Council's interests 5 and report back to the Council, perhaps with an elected 6 member's mindset, rather than an employee of tie's 7 mindset, or an official's mindset, but no such reports 8 were forthcoming. 9 Certainly not to me anyway. Whether they reported 10 back to their own groups, I wouldn't know, but they 11 certainly did not report to me or say anything to me, 12 nor did they speak at any Full Council meeting about the 13 question of tie. 14 Q. I'll come back to those councillor directors in 15 a moment, but just in terms of getting information from 16 tie, was it open to you as a councillor to approach a 17 Council officer to get the information, or even to 18 approach a company officer to get the information? 19 A. No. 20 Q. Did you try? 21 A. Well, we got information because we were entitled to 22 have reports, and I know that, for instance, 23 Willie Gallagher attended our group meetings on several 24 occasions. Whether we got the same information from 25 Willie that he was giving to other groups, I don't know. 76 1 But nevertheless he did come along and he did answer 2 questions, he said to the best of his ability, that we 3 would put to him. 4 But in terms of me picking up a telephone and asking 5 to speak to a tie official, that was never, ever -- it 6 just wouldn't happen that I could do that. 7 Q. Could you request that someone come from the company, as 8 Mr Gallagher did, and speak to you and answer your 9 questions, you or your group? 10 A. We did, but that was either -- it had to be Willie, or 11 whoever -- I can't recall if any of the other senior 12 people in tie came to us. But no, our channel of 13 communication was very much through the chair of tie who 14 would come and speak to us. 15 Q. But you had that channel? 16 A. Yes. 17 Q. Was it open to you to approach Council officers and ask 18 them to obtain information from the wholly owned 19 companies? 20 A. Council officers did come along. We had -- I had 21 a regular meeting every Monday morning, 10.00 am, with 22 Jenny Dawe, and with Andrew Burns latterly, and that was 23 to go through impending issues, perhaps issues that 24 might hit the press, issues that were of a serious 25 nature, and we would discuss what our response should be 77 1 or how we should take matters forward. 2 So Tom Aitchison and Jim Inch, Andrew Holmes, would 3 regularly be at these meetings and would give us 4 information regarding tie. 5 On some occasions, if it merited it, we would have 6 other people from tie there as well. The chair or the 7 Chief Executive would come along because it was a major 8 issue. 9 So I was getting information. Whether I was getting 10 the same information that others were getting, I don't 11 know. 12 Q. Do you have any reason to suppose you didn't get the 13 same information as others got? 14 A. There was a lot of talk. Obviously, there's 58 15 Councillors in that building and we all have our 16 different groups apart from -- and we have our 12. And 17 we heard things that were going on, and officials were 18 saying things to us about things that were going on, 19 I suppose, you know, the Americans would call it water 20 cooler talk. But we knew that -- in fact I knew that 21 even journalists had more information than me, because 22 they were phoning me up, telling me about the 23 information that they had, looking for a response from 24 me, knowing that we were against the project. 25 So they were getting more information than I was on 78 1 a whole number of issues. 2 So it's very hard -- how can we prove a negative? 3 It was very difficult. But we asked for more 4 information, and some of the motions that our group 5 tabled to the Full Council were saying we should proceed 6 no further until that information is forthcoming. These 7 motions were voted down by the other groups. So ... 8 Q. What information did you seek? 9 A. Well -- 10 Q. That you didn't get? 11 A. It was very difficult. It's a long time ago. And it's 12 difficult for me to think, without having any paperwork 13 in front of me, about what that would be. But we wanted 14 to know what was happening regarding the MUDFA works. 15 We had been told, I think, that the MUDFA works had -- 16 all the utilities had been moved in Leith Walk. 17 Apparently that's not the case. We'd been told that 18 the -- tie were winning the disputes with Bilfinger 19 Berger. That was not the case. We were talking about 20 whether or not -- we wanted to know whether or not the 21 tram stops were in the right place to best serve the 22 public. So we were asking all the questions about that. 23 We were asking: where are we in the contingency fund; 24 how much had we spent from the contingency fund; and how 25 much had we spent out of the general fund. 79 1 Because originally, of course, this was not 2 a tramline. This was a tram network. And the tram 3 network looked fine. But it became perfectly evident 4 very early on that GBP500 million was not going to cover 5 the tram network. 6 So very hastily, the track network became 7 a tramline, and it became the line that we currently 8 have today, but originally it was to go Leith up to the 9 south side, et cetera. 10 Q. Just looking at this information that you wanted, and 11 let's look firstly at the decisions on the disputes that 12 were taken. 13 A. Yes. 14 Q. Did you get information about that? 15 A. We were implored by our partners in the administration 16 to put up a united front when it came to the disputes, 17 that the consortium would attempt to use any weakness or 18 division that they thought was in the Council. 19 So we were -- and also we wanted to defend the 20 public purse. 21 So we took the side of -- in every dispute, we voted 22 on the information that we had along the way that tie 23 and the officials recommended that we should vote. 24 Q. I'm not concerned with the vote, just in case there is 25 any misunderstanding about my question. It is not so 80 1 much the vote; it is: was it information you asked for 2 about these disputes that you didn't get? 3 A. Well, I was told -- yes. 4 Q. What was it? What did you ask for that you didn't get? 5 A. I was told that we were winning the disputes, that tie 6 was winning all the disputes. I wasn't told that they 7 thought that winning was that if Bilfinger Berger came 8 in for 100 and settled for 60, that tie were saying that 9 was a win. 10 We were told -- the way it was presented to us, it 11 was as though tie were winning outright. 12 Q. So you were unhappy with the quality of the information 13 you were provided there. Were there times that you 14 asked for information and you were simply told: no, 15 you're not getting it. 16 A. I can't recall. 17 Q. In relation to things like -- 18 A. If I had asked for information, and I thought that 19 I warranted it, as an elected member, I would have taken 20 it further. So if I didn't take it further, it may be 21 that I wasn't actually blocked. 22 But I have been in the Council for 28 years, or -- 23 I wasn't 29 years at that time, but I knew what the 24 procedures were. And a member who opposed the tram 25 going direct to somebody in tie to get information, 81 1 there would be a reluctance of tie to impart the 2 information to me because we were the only group that 3 was in opposition; and as I said, whether or not 4 information was being fed into the, for want of a better 5 term, the pro-tram groups, I wouldn't know, because I am 6 not party to the discussions that they had, but 7 certainly our members felt that there was things going 8 on that other people knew that we didn't know about. 9 Q. That was a question in relation to the outcome of 10 dispute resolution procedures. You also mentioned that 11 MUDFA works, tram stops, and the use of the contingency 12 funds. Can you recall asking for information that was 13 refused to you in relation to any of those three 14 matters? 15 A. I can't recall. 16 CHAIR OF THE INQUIRY: Can I just ask you, Mr Cardownie. 17 I think you said a short while ago that you were 18 implored by your partners in the administration to put 19 up a united front when it came to the question of the 20 disputes. Can I just clarify, which partners are you 21 talking about? Because you were in coalition with the 22 Lib Dems and then you went into coalition with Labour. 23 A. Well, both actually, but originally the 24 Liberal Democrats. We had a motion up. The last motion 25 that we put up was to terminate the contract for the 82 1 trams. We lost that motion. And the next motion that 2 came up to the Council was the one asking for permission 3 to sign the contracts. 4 Now, our natural inclination would have been not to 5 sign the contracts. But we'd lost the argument about 6 the Business Case. So we were implored that, having 7 lost that argument, having taken that argument to its 8 logical conclusion in that the Council had accepted the 9 Business Case, that we should now get behind the Council 10 and put on a united front when confronted with the 11 consortium. 12 So we were implored by -- I remember 13 Gordon Mackenzie in particular, Councillor Mackenzie, 14 speaking to me on several occasions, saying: we have got 15 this information, but please don't take it any further; 16 we have got to show that we are united; if Bilfinger 17 Berger think that we are weak in any place, they might 18 not concede their case, they might continue with their 19 case to get more money out of these disputes. 20 So our view was that in order to try to save money 21 as much as we possibly could, that we should set our 22 faces against Bilfinger Berger, not knowing even the 23 nature of a lot of the disputes, but that we -- our 24 natural inclination was to defend the Council, and -- 25 because the Council was spending and tie was spending 83 1 public money. 2 CHAIR OF THE INQUIRY: I think when you're speaking about 3 signing the contract, that was at a time when you were 4 in coalition with the first coalition. 5 A. Yes. 6 CHAIR OF THE INQUIRY: Thank you. 7 MR LAKE: I want to turn now to the question of the 8 councillors who sat as Directors on the Board. You have 9 mentioned this. 10 You've referred a couple of times to the fact they 11 didn't report back to you that something was wrong. So 12 you obviously regard one of their functions as being to 13 provide early feedback for problems. 14 What other functions do you consider those directors 15 had? 16 A. These councillors would be or should be mindful of 17 Council policy, perhaps the way the Council -- because 18 it was representatives from each group, what the groups 19 thought about what was happening in tie, if there had 20 been a discussion in tie about further delays, if there 21 had been a discussion in tie about bonuses being paid to 22 tie members of staff, then we would expect the four 23 City Council councillors to express a view to tie that 24 this might not go down too well politically, any further 25 delay or payment of bonuses when the public perception 84 1 was that tie was not doing its job; that it may be seen 2 as being a reward for failure. 3 So they would be expected, just as the directors on 4 EDI, they would be expected to be knowledgeable about 5 the Council's policy in these matters, what the Council 6 is likely to think, say or do, and express that view to 7 other board members who are not on the Council. 8 Q. In addition to communicating that view, if it came to 9 taking a vote on a matter at the company, would you 10 expect them to vote in the Council's interests? 11 A. No, in the company's interest. That's an interesting 12 question, because it's a very difficult point. I have 13 been a director of many companies by virtue of being 14 a councillor. And some of these companies come to the 15 Council for funds, theatre companies, and we have to cut 16 back on the amount of funds or grant that we're giving 17 them; and we had this big discussion: as a director of 18 that company, am I breaking company law by not giving, 19 or arguing against what the company is asking for in 20 terms of reducing its grant? And I know this has 21 exercised the minds of senior officials, and I think 22 that the Director of Finance, Donald McGougan, at one 23 time looked at this, because there is this -- this 24 difficult question to answer: when is a company director 25 not a company director if they are appointed by the 85 1 Council. 2 So I would have expected them to act in the 3 interests of the company, but if they felt that they 4 wanted it, to perhaps make their position clear at the 5 Board and report back to the respective groups, but 6 I didn't hear from Jenny Dawe at any time or 7 Andrew Burns at any time that the Director that they had 8 on the Board from their party had said anything to them, 9 not even on a throwaway line, that: oh, Councillor Perry 10 told me this; and I'm only using his name as an example. 11 It was never ever -- nothing was ever even said over 12 a cup of tea: oh, yes, this councillor is particularly 13 concerned about something on the Board. 14 So I could only deduce from that, that these 15 councillors were not reporting back to the groups. It's 16 deduction. I don't know for certain. 17 Q. I'll come back to the question of reporting that 18 information in a moment, but just looking at this 19 question about which way councillors vote, and taking 20 your example of a bonus, they might tell the company 21 board that this is not going to play well with the 22 Council, but nonetheless if it comes to a vote on it, 23 and it was in the interests of the company to have 24 bonuses, would you expect the directors to vote in 25 favour of the -- the councillor directors to vote in 86 1 favour of the bonuses? 2 A. I would expect the Council directors to resign on an 3 issue like that. This was a major issue. We're talking 4 about bonuses being paid elsewhere in the private sector 5 was featuring in the press. Bonuses, packages being 6 paid to senior officials that were leaving Council 7 employ or senior civil servants, and it was very much in 8 the press about how much -- about how public money was 9 being spent. 10 So if a councillor -- if I had been on that Board, 11 and I had felt that this was a matter of principle, 12 I would have expressed my view at the Board meeting. If 13 it had gone to a vote, I would have voted against the 14 members of staff getting the bonus, and if that had gone 15 through, I would have tendered my resignation. 16 Q. So in voting against -- we are talking about 17 a hypothetical example here, but voting against the 18 bonuses, that is putting the Council's interests 19 paramount rather than necessarily the company's? 20 A. It's a subjective decision. Is it in the interests of 21 tie to award these bonuses, knowing how it's likely to 22 be reported in the press? Am I arguing, say, that 23 although the Chief Executive is arguing for these people 24 to be paid a bonus, I might say: look, you are in a bad 25 position at the moment. You're not flavour of the month 87 1 with the Edinburgh public. This could do tie's 2 reputation irreparable damage if you're being seen to 3 pay your employees a bonus. So who is acting in the 4 best interests of the company? It is a moot point. 5 Q. If someone were to resign, as you have suggested they 6 should, that would just create a vacuum that would have 7 to be filled presumably with another councillor 8 director -- 9 A. Yes. 10 Q. -- who would be in the same dilemma? 11 A. Well, they might not. I am saying I would. Other 12 councillors might not have that dilemma. It would be up 13 to them as an individual. But at no time was I aware 14 that any councillor on that Board had expressed any 15 disquiet about anything that was happening on the Board. 16 Q. That's a point you make, I think, in three different 17 places in your statement, that you considered that the 18 directors in question failed. You said they were 19 negligent or oblivious. The directors never alerted the 20 Council. They were there to represent the Council's 21 interests. 22 So you expected them to essentially act as 23 whistle-blowers if necessary to the Council at large? 24 A. Yes. 25 Q. Those directors, would you accept they owed a duty of 88 1 confidentiality to the company, in the conduct of its 2 affairs? 3 A. If it was a confidential matter, yes. 4 Q. What do you mean, a confidential matter? 5 A. Every time that we or councillors seem to be asking 6 difficult questions, we were told it was confidential. 7 Or it was commercially in confidence. 8 That the disputes with Bilfinger Berger should not 9 be made public because it was commercial information. 10 And that's why we were told that with Bilfinger Berger, 11 for instance, tie were winning the disputes without 12 getting the detail, because that was commercial 13 information. 14 And it seemed to me at the time that any time an 15 awkward question was asked, the stock answer could be or 16 would be on a lot of occasions: sorry, we can't tell 17 you, that's commercially in confidence; or it's just 18 confidential. 19 I understand that the -- when it comes to commercial 20 confidentiality, that the board members are bound, but 21 other issues that were happening with tie, that were not 22 commercially in confidence, they could have reported 23 back to either the Chief Executive or their particular 24 group leader. 25 Q. If they, for example, were concerned about the direction 89 1 the company was going in, if they were concerned about 2 the delays or budget, your suggestion would be, I take 3 it, that they, despite against the wishes of the 4 company, they would nonetheless report back to the 5 Council, rather than waiting for a formal report through 6 the official channels? 7 A. If it wasn't breaking the rules of directorship, and how 8 a company director should operate, then what was the 9 point of us putting four directors on, other than 10 seeking to influence the Board? If the Board were 11 making decisions that should have rang alarm bells with 12 our four elected members, I would have thought that the 13 four elected members would let us know in some way, 14 shape or form, that things were not going according to 15 plan. I'm not implying that we were dependent on the 16 four elected members for information. Because we were 17 getting information. All I'm saying is that the four 18 elected members did not, as far as I could see, given 19 the nature of the project, and what has happened, I'm 20 surprised that the -- one of the four directors who were 21 elected members flagged up that there may be an issue. 22 Q. Just a point you have raised there, the objective is to 23 ensure that the Council as a whole is given sufficient 24 information to inform decisions. Is that not better 25 done by formal agreements with the company that it will 90 1 provide certain information on certain dates, or even 2 using their powers as the 100 per cent shareholder to 3 ensure that information is provided, rather than just 4 leaving it up to four individual councillors sitting on 5 a board? 6 A. Sorry, I didn't say they were leaving it up to the four 7 Directors on the Board. To use your term, I thought 8 that the four directors might have acted in some 9 instances as a bit of a whistle-blower in terms of 10 telling us what was happening. We were getting 11 information. It wasn't their role to come back and 12 provide us with reports and take us through reports and 13 answer questions. No, no. All I'm saying is that given 14 that it was becoming knowledge and public knowledge, 15 that things were not going according to plan, why did 16 none of the elected members say anything? 17 Certainly we were getting information coming in 18 terms of my weekly reports, in terms of reports to group 19 meetings, Policy and Strategy Committee, Full Council, 20 we were getting minutes from the Tram Project Board. We 21 got lots of information. Whether it was all the 22 information, I don't know because I can't prove a 23 negative, I don't know, but I know that we got lots of 24 information. 25 So forgive me if I'm implying that the four 91 1 directors were responsible for the debacle that it 2 turned out to be. That's not what I'm trying to imply. 3 All I'm saying is that I would have thought that these 4 four directors, my memory serves me were senior 5 councillors, that at some time, given what was going on, 6 that they may have flagged up that something was 7 untoward and may have encouraged some questions to be 8 asked. 9 Q. You have indicated the various sorts of reporting that 10 was taking place from the company to the Council. What 11 is it that you expect or feel that the councillors 12 should have said that wasn't already coming in the 13 information to the Council? 14 A. Well, that is also a good point. If I go back to the 15 disputes procedure, why were we being drip-fed this 16 notion that Bilfinger Berger were -- it was like the big 17 bad wolf, that we should not speak to anybody in 18 Bilfinger Berger. That we could not be seen to be 19 asking questions of Bilfinger Berger because this -- all 20 I'm saying is that in terms of the disputes, our elected 21 members would know if the disputes -- they didn't have 22 to go into detail, if it was commercially in confidence. 23 But they could say, you know: Richard Jeffrey is saying 24 this is a win, but actually we had to pay 60 per cent of 25 what Bilfinger Berger were looking for. And that would 92 1 have given us an indication. But we were being told 2 that we were winning the disputes, and that 3 Bilfinger Berger was unreasonable, that Bilfinger Berger 4 won the contract, and this was a modus operandi, this 5 was information we were being given, that Bilfinger 6 Berger won the contract on a low price, knowing that 7 they could boost the price of the contract by getting 8 involved in internal disputes and winning more money 9 that way. 10 That was the picture that was painted. 11 Q. You also told us that you were told you weren't to get 12 more information about the dispute resolution procedures 13 because it was confidential. Is that -- 14 have I understood that correctly? 15 A. No, no, I think they could have got information 16 regarding the procedure. If the Board deemed that the 17 exact settlement was commercially in confidence, and 18 that was a decision by the Board, then I couldn't 19 challenge that, but I could challenge what was regarded 20 as a win, a draw or a defeat when it came to these 21 dispute resolutions. 22 Q. Were you not in a position simply to ask Council 23 officers or company officers: what do you mean, it was 24 a win for tie; what was the detail of it; what happened? 25 A. Commercially in confidence -- 93 1 Q. If I can just interrupt you there, what you are saying 2 there is you nonetheless expect that the councillors or 3 directors would go behind that and give you the 4 information, despite the fact you had been told you were 5 not to get it. 6 A. Sorry, maybe I'm not making myself clear. I'm not 7 asking for the information in terms of the pounds, 8 shillings and pence that tie had to concede to Bilfinger 9 Berger. All I'm saying is that we were told, and I was 10 told this by Richard Jeffrey himself, that tie was 11 winning the disputes, and that Bilfinger Berger were 12 being unreasonable. They were trying to boost the price 13 of the contract, so whenever the dispute, they downed 14 tools, which is why we had all this trouble, and: put 15 your faith in us, trust us, we are winning these 16 disputes. 17 It only came out latterly that I found out, and 18 other councillors found out, that that was not exactly 19 the case, for the reasons I have outlined. Bilfinger 20 Berger were getting more money through the contract, 21 maybe not as much as they asked for initially, but they 22 were still winning more money, and it beggars belief 23 that that can be portrayed as a win for tie when they 24 are having to spend more money than they wanted to, by 25 virtue of Bilfinger Berger's dispute. 94 1 Q. I would like to ask you to look at another document now. 2 The reference is CEC02086791. 3 You will see this on the screen. It's a report to 4 the Council of 13 December 2012. The heading is 5 "Council companies", and it's prepared by 6 Alastair Maclean, who was then the Director of Corporate 7 Governance. I don't know whether you recall seeing this 8 report? 9 A. I can't recall. I must have seen it. 10 Q. If you look at page 4 of this, and if you could enlarge 11 paragraphs 1.2 and 1.3, we can see in 1.2: 12 "The Council is responsible for ensuring that any 13 company it sets up or funds can demonstrate best value 14 in its use of public money. It is therefore critical 15 that sound governance arrangements are in place for 16 these organisations. Recent experience has shown how 17 poor governance of Council companies can contribute to 18 significant financial and reputational cost to the 19 Council and an adverse effect on delivery." 20 Perhaps if I just pause there, did you understand 21 that the difficulties of the Council companies might 22 contribute to these matters of financial and 23 reputational cost to the company? 24 CHAIR OF THE INQUIRY: To the Council. 25 A. To the Council? 95 1 MR LAKE: Council, pardon me. 2 A. Indeed. If you spoke to members of the public regarding 3 the tram project, I hardly ever heard them saying that 4 the tram project was a responsibility of tie. It was 5 always the Council project. 6 So whatever tie's decisions they were making or 7 these disputes, it was having an impact on the 8 reputation of the Council because the public saw it as 9 a Council project, and if councillors were to speak to 10 members of the public and say: hold on a minute, that 11 wasn't us, that was tie; then the public's response is, 12 as you would expect: well, you would say that, you're 13 trying to get off the hook. 14 So they saw it as a Council project, and this is one 15 of the things that perhaps I was mentioning before. 16 I don't recall this report. In that you would expect 17 the Council to have an influence because the Council was 18 a stakeholder, not just in terms of finance, but in 19 terms of reputation. 20 So this was all the Council's fault. The roadworks 21 were the Council's fault. The delay was the Council's 22 fault. I never heard them say it was tie's fault. 23 Then, if members of the public were aware of tie, 24 then the response was invariably: why have they allowed 25 it to happen? Which is what this paragraph kind of 96 1 refers to in more reporting terminology. But we have 2 got a duty to try to ensure that our reputation is held 3 in the highest regard, and we've got a duty to get best 4 value for public money. 5 Q. If you could look at the lower half of the page, please, 6 if you could enlarge paragraph 1.5 and the ones that 7 follow. 8 We can see what's noted here in the report is: 9 "As part of the consultation process, the Director 10 of Corporate Governance made a number of key 11 recommendations. They include: Elected members should 12 not be directly involved in operational decision-making 13 of Council companies. Given the potential for conflict 14 of interest between their roles as councillors and as 15 directors (where there is a statutory duty to act in the 16 best interests of the company and not the shareholder), 17 it is recommended that elected members do not act as 18 directors on company boards, but carry out a strategic 19 direction setting, oversight and challenge role as 20 members of the relevant Council committees." 21 Now, that's recommending the exact opposite of what 22 you have said, taking councillors right off the boards 23 of these companies? 24 A. Yes, elected members didn't agree with this. If my 25 memory serves me, elected members cherished the fact 97 1 they could be directors of boards and make decisions on 2 boards. This was a recommendation from officials. 3 I think this is an attempt to clarify what I spoke about 4 earlier, about when does a councillor's responsibility 5 stop and when does a company director's start, and that 6 still happens now. We have got members on boards now, 7 elected members who are on boards of directors who are 8 still having to wrestle with that question. 9 So I'm not sure how far that was taken. 10 I understand the recommendation for it, and I have 11 sympathy for it, but if that report was in 2012, and the 12 practice is still continuing, I can only assume that it 13 was either amended or it wasn't taken on board. 14 Q. If we look over to the following page, we can see the 15 view that was taken on it. If you enlarge the whole of 16 the lower half of the page. 17 We can see that the capital coalition working group 18 of elected members has considered the officer 19 recommendations. 20 Were you on that capital coalition working group? 21 A. No. 22 Q. If you look at paragraph 2.1.1, it does note that 23 elected members have indicated their wish to participate 24 directly in decision-making as directors of Council 25 companies. That's what you are recording? 98 1 A. That's what, sorry? 2 Q. That's what you are recording. That's what you are 3 recalling now? 4 A. Yes. It seems to -- 5 Q. Did councillors, are you aware, yourself individually, 6 have any idea how you were going to deal with the 7 conflict that was identified by the Director of 8 Corporate Governance? 9 A. No. I remember -- 10 Q. Sorry, your answer there was no? 11 A. No. This had been raised before. I used to be 12 secretary of the Labour Group. And we had councillors 13 on a plethora of committees, normally, or more often 14 than not, in the cultural field, the artistic field. 15 And our officials said: look, there is no real need for 16 councillors to be on these boards, our officials can do 17 the work, and it will save councillors time in terms of 18 attending all these meetings they didn't have to go to. 19 So the theory was sound. When I tried to put it 20 into practice, we had councillors saying: I enjoy being 21 on that Board, I like going along there to that theatre 22 company and going to -- and so the recommendation from 23 the officials that they should take the place of 24 councillors on these boards did not materialise because 25 members jealously felt that they wanted to be on the 99 1 boards. 2 Now, whether it's because they are in more of 3 a position of authority, I don't know. I think 4 genuinely some people had an interest in the particular 5 artistic company from which they were on the Board. We 6 had people on the Board of the Royal Lyceum, the 7 Scottish Chamber Orchestra. I know that one member on 8 the Board of the Scottish Chamber Orchestra was very 9 much into classical music and he enjoyed going to the 10 Board, so if I suggested to him that he should come off 11 the Board and tell an official to go on, I know what 12 would happen. 13 So I think the officials for some time, and it can't 14 just be a problem for Edinburgh, have wrestled with this 15 issue about Council directors. But every time they have 16 tried to come up with a solution, it has not found 17 favour with the elected members, because invariably the 18 recommendation is that elected members should take 19 a backward step, and there have been -- in the nature of 20 elected politicians, they're reluctant to do that. 21 Q. We have finished with that document now. Turning back 22 to decision-making in the Council, you have already 23 indicated that potentially decisions were taken -- or 24 divisions on party lines? 25 A. Yes. 100 1 Q. Does that make for effective decision-making, and 2 effective scrutiny of decisions? 3 A. I'm sorry, that's the nature of the beast. That doesn't 4 just happen in the Council. That happens in Scottish 5 Parliament. That happens in Westminster -- 6 Q. Can I ask my question again -- 7 A. Sorry. 8 Q. -- does that provide for effective scrutiny of what's 9 happening in a project? 10 A. I think although there are political groups, there are 11 not always political differences between the groups. 12 They may be as one on a particular issue. And you would 13 expect them to do that, and they do that regularly. 14 There are motions that go through the Council without 15 opposition, because all the groups are in favour. But 16 the groups meet separately. The groups don't meet 17 together. Usually the groups would meet separately and 18 determine their view on a particular issue prior to the 19 Council meeting. 20 So, for instance, I knew that last Thursday, at the 21 Full Council meeting, that the Council would give the 22 go-ahead to taking the next step, stage 2, in terms of 23 extending the tram from York Place to Newhaven. I knew 24 because I knew that the Labour Group and the SNP Group 25 had already made that decision. 101 1 A simple matter of arithmetic meant then that they 2 had the numbers at the Full Council and that that would 3 go through, and in fact the Greens also supported it, as 4 indeed, I think, the Liberal Democrats. So there are 5 some instances where you know before the Full Council 6 meeting what the decision is going to be by virtue of 7 the groups having met separately, and made that 8 decision, and that happens elsewhere. 9 But there are instances where -- and I think this 10 has been demonstrated by the fact that over the last ten 11 years in Edinburgh, there's been coalition 12 administrations. So there has to be some compromise. 13 CHAIR OF THE INQUIRY: Mr Cardownie, I think if you could 14 just listen to the question. I think this was whether 15 the system that you spoke of, where there's discussion 16 within the group, and there may be division within the 17 group, there may be a vote within the group, but the 18 majority in the group prevail. So the question is, does 19 that system provide effective scrutiny in the sense that 20 the minority, say the Labour Group or the SNP, are then 21 not seen to be testing the issue in the whole Council? 22 A. The short answer is yes. 23 MR LAKE: How is scrutiny provided? Using your example of 24 the vote last Thursday, just as a hypothetical one, if 25 it is predetermined by the political alliances, where 102 1 does the scrutiny come from? 2 A. If I was still there, and I was the leader of the 3 SNP Group, which I was, in the two administrations, 4 I would have a copy of the report that was going to the 5 Council meeting on Thursday. I would have a group 6 meeting, which is normally the case, two days 7 beforehand. That's the Tuesday. I would have ensured 8 that the relevant officials were at the group meeting to 9 answer questions from our members. 10 So that is an element of scrutiny. They ask the 11 officials within the confines of the SNP Group meeting. 12 The SNP Group then makes a decision on what it's 13 going to do in that report. That would happen in other 14 groups as well and they would make those decisions. 15 It may be that one group wants to amend it slightly. 16 And they would come to me or to Andrew Burns or 17 Jenny Dawe and say: we could support this if you agreed 18 to include this particular clause. And if by including 19 that clause, it didn't detract from the main thrust of 20 the policy -- and that would happen. So there would be 21 compromise. 22 But in terms of going to the Full Council, and the 23 Full Council is public arena, where members of the press 24 are there, and others, then the disquiet or criticism or 25 questions may not come to the attention of the public 103 1 because it's all taking place within the confines of 2 a group meeting. 3 And it may be that some members feel that although 4 they are in a minority, they are elected as Labour 5 councillors. I was elected because I had the SNP logo 6 behind my name, not because I was Steve Cardownie. 7 Therefore I'm representing the SNP. So my discussions 8 would take place within the SNP as party members. 9 Yes, I might feel, if I was in a minority, I would 10 have welcomed the opportunity to go to a Full Council 11 meeting and to ask questions of directors, and maybe to 12 try to find out if there was opposition in other groups 13 and who they were, and why they were opposing it. So 14 I could talk to them. But there's a whip system in 15 operation. The Liberal Democrats say they don't operate 16 a whip. Well, I have never seen them not vote as one on 17 any issue. 18 There is a whip system. Now, sorry for the 19 long-winded answer, does that mitigate against real 20 effective scrutiny at Full Council meetings, and the 21 answer is yes, it probably does. 22 Q. It mitigates against public scrutiny. 23 A. Public scrutiny and also not allowing councillors to 24 exercise their voice at the Full Council; they are 25 allowed to exercise their voice at their group meeting, 104 1 but not the Full Council. If they do do that, then they 2 are open to disciplinary action by their particular 3 group, and that's happened before. 4 Q. Large public projects such as the tram, do you think 5 that is the sort of thing where it might be useful to 6 have some public scrutiny? 7 A. Absolutely. 8 Q. But it doesn't happen when decisions are managed by the 9 Council? 10 A. It happens. Yes, it happens. Whether or not it's as 11 effective as it should be, given the nature of the 12 political system, is a different question. Yes, there 13 was public scrutiny, I mean, of the -- we had 14 deputations at the -- at Full Council meetings and 15 policy and strategy. We allowed deputations to come to 16 both committees. In fact, if they went to the Transport 17 Committee, sometimes you could have a deputation coming 18 to three different bodies of the Council. 19 Q. Let's be clear, a deputation is providing information or 20 making representations to the Council? 21 A. Yes. 22 Q. It doesn't consist of a sort of detailed analysis or 23 examination of Business Cases, plans, documents. It is 24 just providing more information? 25 A. Yes. 105 1 Q. So in terms of scrutiny of what is happening, and 2 openness of decision-making, what you're saying is 3 really in fact that takes place within the party groups 4 at closed meetings? 5 A. Yes. And even if you wanted to really delve into the 6 minutiae of a project, we had what's called the data 7 room, where you were free to go to the data room, sign 8 that you were in the room, a member of staff would sit 9 there, and you weren't allowed to remove any papers. 10 You had to commit to memory or take notes. 11 Q. That's councillors -- 12 A. That's councillors, yes. So once more, that's not 13 public, yes. 14 Q. The data room is a good thing to introduce something 15 else I wanted to talk about. Going back to this 16 question of provision of information, and you referred 17 to the fact when you were initially the sole SNP 18 councillor and perhaps in the SNP Group thereafter, you 19 didn't feel that there was a great desire to give you 20 information. I'm paraphrasing there. But is that 21 reasonable? Am I getting that broadly accurate? 22 A. We were -- we were the butt of jokes that -- there's no 23 point in telling you, but it will be on the front page 24 of the Evening News type of thing, because we were 25 against it, and that's repeated often enough. You can 106 1 see there's a strand of this, that people were reluctant 2 to engage us or to provide us with information that they 3 felt might be used against their own interests. 4 So once more, it's very difficult for me to prove 5 the negative. I certainly know there was meetings held 6 in the Council with officials and elected members where 7 I was excluded from, because I was not a supporter of 8 the tram project. I saw them. 9 Q. There were meetings held -- sorry, you were excluded 10 from meetings. I'm trying to understand which meetings 11 were you excluded from? 12 A. Informal meetings. I wasn't informed of them. But 13 I could see members of tie, Chief Executive, transport 14 spokesperson, coming out of the meeting in the 15 City Chambers that I knew nothing about. 16 Q. What time was that? What time period are we looking at? 17 A. It was mostly the time when the project was in most 18 difficulty. And that would be during the time of the 19 first coalition administration. So from 2007 to 2012. 20 Q. That's really what I was trying to get to. Do you feel 21 you were better provided with information when you were 22 part of the coalition forming the administration? 23 A. No. 24 Q. What steps did you do then to get further information, 25 standing you were part of the coalition group. 107 1 A. We were getting -- we were getting information. I mean, 2 there was, you know, reports coming all the time. 3 Whether or not there was information behind these 4 reports or information -- I could only see what was 5 written on paper. Whether or not there was some things 6 held back, whether or not we were on a restricted basis 7 in terms of need to know is very difficult. 8 I saw it as being -- it was almost like the -- 9 I expected it. In politics, I expected that these other 10 groups might be suspicious of another group who were not 11 of the same mind as them. And therefore didn't want to 12 give them the information that they had for fear it 13 could be used against them. 14 I regarded that as part of the political 15 machinations that go on. 16 If it was officials not giving me information as an 17 elected member, I would be more aggrieved at not getting 18 that information. 19 Q. But if information to enable you to take decisions -- 20 that would generally come from Council officers or from 21 the officers of the company in question? 22 A. Yes. 23 Q. And if you, as a senior figure within one of the 24 political groups making up the coalition, want 25 information, surely you would have been able to get it? 108 1 A. You would have thought so, yes. But -- 2 Q. So if you were aggrieved, or if you were concerned, if 3 you weren't getting information, did you take steps to 4 ask what was being imparted at meetings that you weren't 5 invited to? 6 A. Yes. 7 Q. And did you get the information? 8 A. Yes. We were -- the information would be it wasn't -- 9 it didn't merit your attendance, that we were discussing 10 specific items. 11 Now, anybody can meet any time they want. I can't 12 tell the Liberal Democrats, you will not meet with the 13 Labour Party without me being there. So if they went 14 ahead and had their meetings, I could say: this is out 15 of order, why have I not been told about this? If they 16 said: Stevie, you have not been told because your group 17 is against it; I kind of can understand that way of 18 thinking, that -- because they're all politicians, local 19 politicians, but nevertheless politicians, and they 20 might feel that perhaps the information that they wanted 21 might not have been as forthcoming from officials if 22 I had been in the room, than it would be had I been out 23 of the room. 24 CHAIR OF THE INQUIRY: I think, Mr Cardownie, the question 25 was really directed to the information from officials or 109 1 from people in tie. The question, as I understood it, 2 was: did that ever arise and did you ever ask officials 3 and if you did ask officials, did you get the 4 information? 5 A. It's a difficult question because I didn't -- because 6 I wasn't there, I didn't know what the officials were 7 saying. So I didn't know what questions to ask. 8 I just knew that meetings had been taking place of 9 which I was not party. 10 So what happened at the meeting, I don't know, 11 and I could ask: why did you have the meeting; or what 12 was being said; and they could tell me almost anything 13 because I had no means to challenge it. 14 So I couldn't go away then and write a letter to the 15 Chief Executive or someone saying: I want to know (a), 16 (b), (c) and (d) because you reported this at a meeting; 17 because nobody told me what was happening. 18 I'm not saying it was prevalent. The information 19 that we were getting was damaging enough and the 20 information that was in the public domain was damaging 21 enough. So I'm not saying it was prevalent, but for me, 22 it was a normal occurrence of how to run an authority 23 that the -- and it happened on a whole number of 24 occasions on different issues, that the leader of the 25 administration, because I was only the deputy leader, 110 1 the leader of the administration would meet with the 2 Chief Executive or with senior officials to discuss 3 schools, to discuss social work, to discuss transport 4 issues, and that would be -- to conform to the leader's 5 diary, and if I was told or not told as deputy leader, 6 I didn't know. So it did not surprise me that officials 7 were in talking to some senior councillors about issues 8 affecting the tram without me being there. I would 9 rather have been there. 10 CHAIR OF THE INQUIRY: Mr Cardownie, I wonder if, from now 11 on, if you could just listen to the question and try to 12 give an answer directed to the question and as concisely 13 as possible. 14 A. Okay. 15 MR LAKE: I want to ask you questions about passages in your 16 statement, please. Could we go to your statement, 17 page 6. 18 If you could enlarge paragraph 10. I want to ask 19 you about the passage at the beginning of this: 20 "The public was alerted on significant developments 21 relating to the tram project as and when the information 22 became a public document or when I had been given some 23 prior notice." 24 Can you explain what you mean there? I don't quite 25 understand it. I can see that the public would learn of 111 1 something once information became a public document, but 2 why is the alternative to that you being given prior 3 notice? 4 A. I think I was referring to the fact that something was 5 going to hit the newspapers. And I was told what the 6 Council's response would be to perhaps a journalist 7 enquiry. So I would be given prior notice to expect 8 something in the paper relating to a particular issue on 9 the tram. 10 Q. But that doesn't itself make something public? 11 A. No, that's true. That's true. 12 Q. You said you do not know if problems that arose with the 13 estimates of the cost of completing the project "had 14 been known for some time before I was alerted to them". 15 Known by whom? 16 A. Officials. Our officials. 17 I'm taking advice and I'm being concise. That 18 refers to when did our officials know that information, 19 and did we get the information at the same time or just 20 after, or was it held back. 21 Q. If you go to page 20, please, and paragraph 39. The 22 opening section there: 23 "My understanding at the time ..." 24 Which is when things were starting to go a bit 25 wrong: 112 1 "... was that TIE, in conjunction with the Council's 2 Finance Department Director and the Chief Executive, 3 would have taken the necessary steps that would have 4 maintained control over the capital costs of the tram 5 project." 6 Just pausing there, just to be clear, your 7 understanding is not that -- it would be in conjunction 8 with two senior Council officers, who would be 9 responsible for taking the steps to maintain control 10 over the costs? 11 A. Yes. 12 Q. Is that not rather at odds with the idea of having an 13 arm's length company, that Council officers would be 14 essentially fire-fighting? 15 A. No. Given that we were funding the company, and given 16 that we were the sole owner of the company, that the 17 Chief Exec and Director of Finance would have more 18 information than perhaps even our four elected members 19 would have. So I would have expected these officials to 20 be almost in daily contact with tie to ensure that 21 everything was being done to keep the costs down. 22 Q. Now, did you have a view on what the necessary steps 23 would be or just they should have done whatever was 24 necessary? 25 A. For me the necessary steps would be to advise tie of the 113 1 views being expressed to the officials by Council 2 members. Not just the leadership, but Council members. 3 It would have been to have an overview, given that 4 they have the expertise in finance, and as a director -- 5 as a Chief Executive, would have more expertise than 6 perhaps the four elected members, who I mentioned before 7 may have had jobs elsewhere and don't have the knowledge 8 to go in and to advise properly or to do the details 9 properly. 10 So this was in relation to how was this allowed to 11 happen. Why did the senior officials allow the budget 12 to get so out of sync and the delays? 13 Q. I'm just trying to understand what you thought they 14 should be doing? 15 A. Well, my view is they should have been in daily contact 16 with tie, with the Director of tie. They should be 17 having further reports in terms of anything that was 18 happening regarding the overspending of the budget with 19 senior officials, with senior councillors, and I didn't 20 think -- for me it was difficult to work out how this 21 was allowed to happen. How we were so much over budget, 22 how we had -- 23 Q. It's less how things were allowed to happen. I'm just 24 trying to understand what you think should have been 25 happening at this time, whether if they were to be in 114 1 daily contact, as you say, you really expect the Council 2 officers, Finance Department Director and 3 Chief Executive, to take emergency control of tie? 4 A. Yes. Perhaps they didn't. 5 Q. What did you expect to happen? 6 A. My view would be that they should have been getting 7 financial reports from tie on a regular basis and 8 advising tie that what was acceptable, what was not 9 acceptable. 10 I don't know, when you look at the number of members 11 of staff that tie employed, information I had, that they 12 were overstaffed. 13 Now, I don't know if that was the case. And money 14 was being spent on salaries. Would not the 15 Chief Executive and Director of Finance say: look, this 16 has to be cut back in terms of the number of people who 17 were being employed. So if they weren't doing that, 18 they either were not doing it, or they agreed with what 19 tie was doing, was the point I was trying to make. They 20 were not bystanders. 21 Q. Can we look at page 28 of your statement, and we look at 22 paragraph 54 on page 28. I am interested in the second 23 sentence here. You say: 24 "All of the issues that were occurring did not 25 surprise us and it was rapidly turning into a mess. We 115 1 knew that there was disquiet amongst officials in TIE, 2 there were personality clashes and it was starting to 3 unravel." 4 Why did things not surprise you, that it was going 5 so wrong? 6 A. Some of the individuals who were appointed to tie, 7 senior positions, I felt, were not equipped for the job. 8 And that I was concerned, and that's why I wasn't 9 surprised, that they did not have the background that 10 you would expect them to have to administer a major 11 engineering project such as this. 12 Q. What were you basing those views as to the competency of 13 the people? 14 A. I don't see a timeline on that, but, for instance, 15 Willie Gallagher when -- I was called -- one of the 16 occasions when I was called to a meeting, with leaders 17 of the Council, and it was put to us that 18 Willie Gallagher, who I think was chair of tie at the 19 time, would take over the role of Chief Executive of 20 tie. I objected to this because I was told it was not 21 good governance practice. And said that this was wrong. 22 I was told at that time, and I remember explicitly 23 being told it was only for a six-month period because 24 they could not allow this position to go unfilled. 25 I didn't feel that that was the best way to recruit 116 1 somebody to be Chief Executive of tie. Same when it 2 came to Richard Jeffrey; the recommendation was that 3 when a vacancy existed again, I think, at 4 a Chief Executive level, and the recommendation from our 5 Chief Executive was that Richard Jeffrey had recently 6 left his position at Edinburgh airport, and that he 7 could slot in quite easily to the Chief Executive of 8 tie. 9 Once more, I felt that was wrong because there was 10 no competition. There was no testing of the market. 11 So having saw how they were appointed did not fill 12 me with confidence that they were up to the task that 13 they should have been undertaking. 14 Q. Perhaps out of fairness I could refer you to the 15 previous page, page 27. If we could enlarge 16 paragraph 53 on that to identify the issues that you 17 were talking about. You say there: 18 "I am aware that on 20 December 2007, 19 Donald McGougan and Andrew Holmes presented a joint 20 report to the Council seeking members' approval of the 21 Final Business Case Version 2. The SNP Group submitted 22 a motion not supporting the Final Business Case, which 23 was defeated. We were concerned about the delays 24 resulting from the unforeseen ground conditions, or 25 issues with the utilities. There were issues occurring 117 1 all the time now that were giving us cause for concern." 2 Now, that seems to be the reference to issues which 3 is picked up in the following paragraph, paragraph 54, 4 when you said that you weren't surprised about the 5 issues that were arising. 6 Once again, why were you not surprised that these 7 sorts of issues were arising? 8 A. At the very outset I and my group were not convinced 9 that the work had been done in terms of the ground 10 conditions for the project that could allow the project 11 to go ahead with the price that was set aside it. That 12 we were aware that unforeseen difficulties were arising 13 on the tramline. In particular, part of the tramline 14 that wasn't utilised. It was reported in the press, 15 coming across old graveyards, coming across underground 16 chambers. We were aware that Bilfinger Berger were 17 complaining that they did not appear on the plans. 18 Q. Did you know about these things before the contracts 19 were led, before this time at the end of 2007? 20 A. No. 21 Q. You were saying you weren't surprised when they arose? 22 A. Well, we were aware of the fact that the plans may not 23 have been as detailed as they should have been. But 24 I didn't know there was underground chambers in Leith 25 Walk. 118 1 Q. What plans weren't -- 2 A. The plans for the line, and how the line was going to be 3 engineered and what was going to happen regarding -- at 4 one time we were told it was impossible to take the tram 5 to York Place, because the decline was too much for the 6 tram to go and turn into York Place from 7 St Andrew Square. 8 Q. When were you told that? 9 A. I can't recall. But we were told that. As it turns 10 out -- 11 Q. Was it later than December 2007? 12 A. Yes, it would be, and an engineering solution was found. 13 But we were finding reports in the newspapers about 14 things being found underground that were a complete 15 surprise to the contractors. 16 Q. Coming back to your lack of surprise, had you studied 17 the engineering drawings and the details of that? 18 A. I can't recall if I studied them, but we had to take 19 things on face value. But it wasn't the only time. It 20 was -- there was -- it wasn't the only time that we were 21 being told there were ground conditions that existed 22 that the contractor was coming across that had no 23 knowledge of because they weren't contained in the 24 plans. 25 Q. Back to the following page, paragraph 54. The second 119 1 sentence that I read out earlier, it was the third 2 sentence in the paragraph: 3 "We knew that there was disquiet amongst officials 4 in TIE, there were personality clashes and it was 5 starting to unravel." 6 What disquiet did you know about? 7 A. I'm not sure if disquiet was -- well, it would be -- we 8 certainly knew there was personality clashes in tie. We 9 were informed that some people didn't get on with each 10 other and felt the work could have been done a different 11 way. And that was coming from the Chief Executive to 12 us. It was that Willie Gallagher was not getting on 13 with people in tie. 14 Q. You said it was coming from the Chief Executive. Is 15 that the Council's Chief Executive? 16 A. Yes. I had no contact, other than, as I said before, 17 when the Chief Executive would come from tie, would come 18 and report to our group, but we had known that there was 19 personality clashes within tie and that we didn't feel 20 at that time that they were working as well as perhaps 21 they could be because of that. 22 Q. Were these personality clashes being reported to you by 23 the then Chief Executive of the Council, I think it 24 would be Andrew Holmes at the time? 25 CHAIR OF THE INQUIRY: Tom Aitchison. 120 1 MR LAKE: I'm obliged. 2 A. They didn't feature in a report. It was more statements 3 that, well, so and so, as we know, so and so doesn't get 4 on with this person or that person, and it's difficult 5 to get things done in some instances. 6 Q. Was that in a briefing to your group or was it informal? 7 A. It was informal. It would be to the likes of myself and 8 Jenny Dawe. It certainly would not be something that 9 was given to the group, unless I imparted it to the 10 group after that. Because I would report back to the 11 group. 12 Q. If we go to page 27 of this, the previous page. 13 Paragraph 51, if you could enlarge that. 14 You said there: 15 "Councillors were being told that incomplete 16 detailed design approvals and consent had been built 17 into the overall price and that they were confident that 18 it would come within the given price and that there was 19 no need for concern." 20 Now, were you aware to what extent design was 21 supposed to be complete as part of the procurement 22 strategy? 23 A. I think I was aware that the design was sufficient for 24 the project to go ahead, and there was a contingency 25 fund set aside to deal with any unforeseen matters. 121 1 Q. In terms of risks being retained by the public sector, 2 what risks did you understand would be retained in this 3 regard, would be retained by the public sector? 4 A. Financial. 5 Q. Which financial risks? 6 A. Well, the project -- Bilfinger Berger, there was no work 7 happening. We could see that. There was a delay. And 8 my concern was that there was more money being spent 9 than was first envisaged should have been spent and 10 I was being told that the contingency fund may have to 11 be replenished, that there was insufficient money in the 12 contingency fund. 13 So my concern was that although I was against the 14 project, I wanted to ensure as much as possible, as 15 I have said before, that the public purse was protected, 16 and I was concerned that more money was being spent on 17 the project than should have been, and that it was 18 becoming obvious that the thing was -- the whole project 19 was beginning to unravel. 20 Q. Who did you understand was in charge of delivering the 21 tram project? 22 A. tie. 23 Q. What did you understand the role of TEL to be? 24 A. The role of TEL -- looking to the future, it was, and 25 I can understand why, the view was that the trams and 122 1 the bus company should be run, overseen by the same 2 organisation. That they should not work in competition 3 with each over. They should work with each other. 4 So if my memory serves me, TEL was a structure that 5 was -- although you still had your Board for 6 Lothian Buses, TEL was a new Board that was to encompass 7 the tram and the bus so there was a synergy and that it 8 would be as successful as it possibly could because 9 competition was not wanted. 10 Q. Going back to this period, say from 2008 to 2011, while 11 the building was taking place, how were responsibilities 12 divided up between TEL and tie, to your knowledge? 13 A. I don't know. I think -- no, I don't know. I would be 14 guessing. 15 Q. Now, I think you said you were involved in some 16 consideration of the Final Business Case? 17 A. Yes. 18 Q. I'd ask you if we could look at that just now. It's 19 document reference CEC01395434. 20 Now, if you could look with me, please, within this 21 firstly at pages 97 and 98. We can see under the 22 heading "Procurement" here -- just to explain, we're 23 generally looking at procurement. If you could go 24 forward to page 102. Sorry, could we go forward another 25 two pages, please. Sorry, one more. 123 1 This is under the heading "SDS", we can look at. 2 It's paragraph 7.53, activities under the SDS contract, 3 where it's noted: 4 "The original assumption was that overall design 5 work to detailed design would be 100 per cent complete 6 when the Infraco contract is signed. Due to a number of 7 delays, largely outwith tie's control, this is now not 8 achievable. However, by identifying key risk areas and 9 prioritising SDS activities, tie is completing several 10 key limits of the detailed design in time to inform the 11 Infraco bid on price critical items. This has enabled 12 the Infraco bidders to firm up their bids based on the 13 emerging detailed design and thereby reduce the 14 professional scope allowances and design risk allowances 15 that they would otherwise have included." 16 Firstly, what was your reaction to the fact that 17 there would no longer be design 100 per cent completed? 18 A. Well, that would be a concern. Our concern was that if 19 the detailed design was not 100 per cent complete, then 20 we didn't have the confidence we should have had that 21 the price was fixed. 22 Q. Yet, despite this, at this time you were being told that 23 it was going to go ahead and it was not going to be 24 100 per cent fixed? 25 A. Yes. We were against this Business Case. 124 1 Q. Was it specifically in relation to that issue? Was that 2 voiced at the time? 3 A. It was -- I can't recall. I don't think I moved that 4 particular motion. I think it was our finance 5 spokesperson or vice convener. I think it was 6 Councillor Nick Elliott-Cannon, I think, that spoke to 7 that particular motion. I may have come in in the 8 debate. But that would be one of the aspects that we 9 didn't think this was a fixed price contract and we 10 didn't have confidence that the budget would not be 11 breached. 12 Q. What was the position in relation to the MUDFA contract 13 at that time? 14 A. I think we were getting conflicting views expressed to 15 us about how much of the utility works had actually been 16 done. We, I think, had been told that the utility works 17 had all been done to tie's satisfaction and the next 18 phase could then go ahead. 19 Then we were hearing that other works required to be 20 done that hadn't been done. Some of them on the route 21 that wasn't utilised, the route down Leith Walk. But, 22 if my memory serves me, I don't think that we were 23 convinced that all the MUDFA works had been done and 24 there were outstanding issues that had to be resolved. 25 I think as many as maybe 200 outstanding issues that had 125 1 to be resolved, or maybe more, and that gave us cause 2 for concern because how do you quantify that in terms of 3 how much it would cost to do that? 4 Q. So if the intention was that MUDFA works had been got 5 out of the way before infrastructure work started, what 6 was your understanding of the extent to which that had 7 actually been achieved? 8 A. I think at the time my understanding was that all the 9 MUDFA works had been completed. 10 Q. Now, we're aware that after the vote was taken on the 11 Draft Final Business Case in December 2007, there was 12 a further increase in prices. Do you recall those 13 occurring? Do you recall the increases in prices and 14 what they were in respect of? 15 A. No. I recall -- I recall increases in prices because it 16 was a recurring theme, so I don't recall specifically 17 what these ones related to. 18 Q. Could I ask you please to look at another production. 19 It's CEC00906940. 20 We can see that this is a report to the Council for 21 a meeting on 1 May 2008. It relates to the Edinburgh 22 Tram Financial Close and Notification of Contract Award. 23 I wonder if you would look at paragraph 3.10 with me. 24 It's on page 3. 25 This is talking about risk allocation. It says: 126 1 "A number of the adjustments to risk allocation are 2 positive, reflected in the reduced QRA [quantified risk 3 amounts]. As a result of the overlapping period of 4 design and construction a new risk area has emerged 5 which has been the subject of extensive and difficult 6 negotiation. tie Ltd advise that the outcome is the 7 best deal that is currently available to themselves and 8 the Council. Both tie Ltd and the Council have worked 9 and will continue to work diligently to examine and 10 reduce this risk in practical terms." 11 Were you aware of what that risk was? 12 A. I may have been. I can't recall just now, but I may 13 have been. 14 Q. So you can't recall whether you asked for any 15 information about it and whether or not that was 16 provided? 17 A. No. I'd be surprised if it wasn't provided, unless it 18 was commercially in confidence. Once more, we may not 19 have been advised of the detailed discussion, but we may 20 have been advised about what the issue was. 21 Q. Then if we look at another minute, it's document 22 reference USB00000357. 23 You can see this is just 12 days later. This is 24 titled "Edinburgh Tram - Financial Close and Notification 25 of Contract Award", but this time it's to the Policy and 127 1 Strategy Committee of 13 May 2008. I think you said you 2 were the deputy convener of that committee? 3 A. Yes. 4 Q. Do you recall this matter coming before the Policy and 5 Strategy Committee? 6 A. No. 7 Q. If you look at paragraph 2.4 on that first page, we can 8 see that it refers to the fact that had been some 9 further change in the commercial position of the 10 consortium following the previous reports to the 11 Council: 12 "For this reason, details of the revised final 13 position will not be released until financial closure is 14 achieved." 15 Did you understand that to be a concern about how 16 the contractors had benefited from leakage of 17 information from the Council and had been able to adjust 18 their position? 19 A. No. 20 Q. What do you understand that paragraph to concern? 21 A. I think -- I think we -- it may have been around the 22 time where there was only one component part of the 23 consortium, that is Bilfinger Berger, that were, if you 24 like, still in the game. My understanding is that 25 Siemens and CAF, I think, had said that they had -- CAF 128 1 had supplied the vehicle, the trams themselves. I'm 2 trying to remember what Siemens' view was. But I think 3 they were informed that the consortium was rapidly 4 reducing to Bilfinger Berger, reducing to the one, and 5 so I think that may have been the further changes to the 6 commercial position. 7 Certainly I didn't think that any information that 8 was leaked would have that kind of impact because the 9 information would be known to the consortium. So 10 I don't think they would be getting any information that 11 they were not aware of. So ... 12 Q. Just look at the next page then, page 2, and go to 13 paragraph 2.9. You say: 14 "Following the introduction by Bilfinger Berger 15 Siemens of additional cost pressures late in the due 16 diligence process, tie Ltd held negotiations with BBS to 17 substantiate its requests for contract price increases 18 and to seek to limit the increase. To help reduce the 19 risk of programme delays, the price increase agreed will 20 be paid as a series of incentivisation bonuses over the 21 life of the contract, on achievement of specified 22 milestones. This approach should minimise the risk to 23 businesses and residents of Edinburgh of delays to the 24 agreed programme of works. These changes increase costs 25 by GBP4 million to GBP512 million, but have 129 1 corresponding advantages by further transferring risks 2 to the private sector." 3 It's that last bit that I'm concerned about. Did 4 you understand what risks were being transferred to the 5 private sector in return for this additional 6 GBP4 million? 7 A. What was happening was that when there was a dispute, 8 there was a downing of tools until that dispute was 9 resolved, and if it was taking weeks to resolve, then no 10 work was being done. 11 I believe that this impasse that tie had agreed with 12 Bilfinger Berger, that okay, there's a dispute, but 13 let's not stop the whole part of that work, let's 14 continue on an incremental basis and we'll pay you for 15 the work you have done on that incremental basis if you 16 can prove it was necessary. In terms of what risk 17 Bilfinger Berger would have is difficult for me to 18 understand that because they were only being paid for 19 work that they undertook. 20 Q. The downing tools aspect was something that happened 21 when the contract came to be implemented. 22 A. Yes. 23 Q. Here we're looking at something in May 2008, immediately 24 before the contract was signed, and we're being told 25 that, in return for some more money, some "corresponding 130 1 advantages by further transferring risks to the private 2 sector". 3 I'm just wondering what you, as someone who sat on 4 the Policy and Strategy Committee, thought were the 5 risks that had been transferred? 6 A. It's difficult, once more, for me to recall exactly what 7 was being said. I think this refers to the fact that 8 Bilfinger Berger were finding things that were not in 9 the plans, and this was the additional cost pressures 10 late in the due diligence process, I think after they 11 were doing due diligence. 12 I don't see how that would -- unless it was just, 13 when they meant transferring risk to the private sector, 14 that basically the work would be completed and then you 15 would resolve the dispute. So there's a risk that 16 Bilfinger Berger could spend GBP1 million going to 17 a dispute and only recoup half a million pounds or 18 something like that. 19 So I think that's maybe what they were meaning in 20 terms of that, that because the work -- they wanted the 21 work to go on and to continue, but that didn't always 22 materialise because I know that there was a downing of 23 tools when they had these disputes. 24 CHAIR OF THE INQUIRY: Mr Cardownie, I think, as Mr Lake has 25 explained, that what we're talking about here is before 131 1 the contract is signed. There's nothing about downing 2 tools or anything. Can you help us at all with this 3 matter that you're being asked about at that stage? 4 A. Yes. I can only assume that they meant that Bilfinger 5 Berger had identified these pressures, but had agreed to 6 deal with them on the basis that they would seek 7 recompense at a later stage. Therefore there was an 8 element of risk to Bilfinger Berger. 9 MR LAKE: I was going to move on to the question of 10 Mar Hall, my Lord. It's not going to take very long. 11 CHAIR OF THE INQUIRY: It might be a good time to break, 12 I think. 13 We'll adjourn for lunch and resume again at 14 2 o'clock. 15 (12.59 pm) 16 (The short adjournment) 17 (1.59 pm) 18 CHAIR OF THE INQUIRY: You're still under oath, 19 Mr Cardownie. 20 MR LAKE: Thank you, my Lord. Mr Cardownie, as I indicated 21 just before lunch, I would like now to turn to questions 22 arising out of the mediation that took place in 2011. 23 I think the Council were informed that there was to 24 be a mediation first of all in 2010; do you recall that? 25 A. No. 132 1 Q. Were you involved or are you aware if any other 2 councillor had been involved in giving guidance or 3 indication of objectives to the people who were involved 4 in the mediation? 5 A. No. 6 Q. Was there any oversight or control over the people who 7 were conducting the negotiations for the mediation? 8 A. The pressure was on to get this completed as it always 9 had been to qualify for the GBP500 million from the 10 government. So the measure was on politicians to get 11 this completed. 12 There was an impasse. We were aware of that. We 13 were aware that the relationship between Bilfinger 14 Berger and tie was irrevocably broken and that mediation 15 was required. 16 I think the new Chief Executive, Sue Bruce, had not 17 been in the job that long, but recognised that the 18 impasse had to be broken. Something had to be done. 19 And my understanding was that she, Alastair Maclean, and 20 Dave Anderson, went through to Mar Hall to negotiate 21 directly with Bilfinger Berger, but my understanding was 22 also that Richard Jeffrey, as Chief Executive of tie, 23 and his opposite number in Bilfinger Berger were not 24 going to be part of the process because they were 25 perceived as being part of the problem. 133 1 Q. Were the councillors able to say what they would like to 2 see come out of that mediation process? 3 A. An end to the tram, to complete the line. They were 4 desperate. Yes, they are in too deep. They were 5 desperate. Money had been spent. It's not the kind of 6 project you can just stop and leave the streets 7 cluttered with all the work that had been done. They 8 were desperate to get to the end, and our 9 Chief Executive would be well aware of that. There was 10 a political will to get this finished, come what may. 11 Q. When the deal was brought back from Mar Hall to the 12 Council for approval, the elected body, what did you 13 understand the options were that were available to you? 14 A. Take it or leave it. 15 Q. Take what or leave it? 16 A. A deal had been struck. An agreement had been reached. 17 I think there was going to be a fixed price to do the 18 rest of the line, and I believe at that time that the 19 Council heaved a collective sigh of relief that there 20 was going to be an end in sight. 21 Q. Now, out of the options you had available to you, how 22 did you decide which was the preferable one? 23 A. I don't think I had any option. We were at the stage 24 where I think I was informed it was going to cost as 25 much, if not more, to cancel the contract than it would 134 1 be to complete it. Therefore having spent the money 2 that had been spent to now curtail the contract or, as 3 the Conservatives wanted, to dispense with Bilfinger 4 Berger and reprocure the line from Haymarket to 5 York Place, that decision itself, we were told, would 6 cost 161 million, just to get Bilfinger Berger to walk 7 away. 8 Then you go through the whole reprocurement, try to 9 get some other company to come on to complete the line 10 from Haymarket to, at that time it was St Andrew Square, 11 and then York Place, the councillors were just desperate 12 to get an end to this, to get this finished. 13 We were told that the Mar Hall conciliation process 14 had been successful. 15 Q. So from what you're saying, if you thought it would cost 16 more to cancel the contract than to complete, what you 17 went with was essentially the cheaper of the two option? 18 A. No choice, yes. It would have been nonsensical at that 19 stage to terminate the project. We in the SNP 20 recognised we could only pursue terminating the project 21 until a certain time, when it became untenable because 22 it was not financially sound. 23 On reaching that point, we decided not to submit any 24 more motions calling for termination, but to step back 25 a bit. But we were as relieved as anybody else that 135 1 there appeared to be a decision reached at Mar Hall that 2 was going to secure the line going to, I think, I'm not 3 sure if it was St Andrew Square at that time, or at that 4 time we had agreed it was going to go round the corner 5 to York Place. 6 Q. Were you able to satisfy yourself that the payments that 7 were going to be made to complete the line were 8 appropriate or reasonable? 9 A. I had no idea. I was told that this was the outcome of 10 the negotiation with Bilfinger Berger and that it was 11 a good deal. Nobody, none of the councillors would 12 know, not being party to the negotiation with Bilfinger 13 Berger, did they hold out for -- did they want more 14 money, did we beat them down to a particular sum, is it 15 something we should be happy with; as far as I can 16 recall, we were told that the line was going to be 17 complete, and there was a fixed sum to be paid, and the 18 line would be complete by Bilfinger Berger. 19 And as I say, I think councillors were delighted 20 because it had been going it for too long and we felt at 21 that time that Sue Bruce and the other two that 22 I mentioned, Alastair Maclean and Dave Anderson, had 23 gone to Mar Hall, had met the top people from Bilfinger 24 Berger, and they came back with a piece of paper, peace 25 in our time, that we could now move forward with the 136 1 tram. 2 As I said, we were happy to -- I believe, I can't 3 speak for other councillors, but I think the view was 4 that we were so relieved that an end was in sight, and 5 we were told that this was a good deal, that the deal 6 was accepted. 7 Q. What about the option of just ignoring anything that had 8 come out of mediation, neither termination nor the 9 agreement to York Place, and just proceeding with the 10 contract as it was, and trying to do your best with it; 11 was that considered? 12 A. I don't -- well, I didn't consider that. I didn't think 13 it was considered. I think the intention was to go to 14 Mar Hall to strike a deal directly with Bilfinger 15 Berger, to finish what they started, and that that deals 16 with the cheapest option, and it was the best one 17 because Bilfinger Berger would not have to then be paid 18 compensation for us terminating the contract when the 19 line had only gone to Haymarket, when they thought they 20 were going to complete the line to St Andrew Square, so 21 there would have been a bill paid for by the Council to 22 Bilfinger Berger for us varying the contract and asking 23 them to leave. 24 Then all the additional time and effort spent to get 25 another company to come and reprocure, to finish it. 137 1 So at that time I think that we were told 2 economically this was also the best deal for the city. 3 Q. And by whom were you told that? 4 A. Well, I would imagine it would be Sue Bruce. I don't 5 think she'd come back and tell us it was a bad deal. 6 I think Sue Bruce came back and told us that they had 7 reached a conclusion, as I say, and there was 8 a collective sigh of relief because this was almost -- 9 this project blighted two administrations on the 10 Council. It was constant pressure on, this project. 11 Something was happening all the time. 12 Councillors were relieved that they could finally 13 put it behind them because a deal had been done and they 14 were led to believe that economically it was the best 15 deal for the city. 16 Q. Do you know how the settlement figures were arrived at? 17 A. No. 18 MR LAKE: Okay. Thank you, Mr Cardownie. No further 19 questions, my Lord. 20 Questions by CHAIR OF THE INQUIRY 21 CHAIR OF THE INQUIRY: Just one thing I would like to ask, 22 Mr Cardownie. Could we have a look at your statement 23 again, please? 24 First of all, on page 1, the last three lines, and 25 going on to the next page, this is at the stage where 138 1 you're talking about the coalition with the 2 Liberal Democrats, and I think you said earlier that 3 part of the coalition agreement was that you, the SNP, 4 were permitted to go against the tram project, 5 notwithstanding the fact that they were part of the 6 administration; is that right? 7 A. Yes. 8 CHAIR OF THE INQUIRY: Then I think if you look at the fifth 9 or sixth line where it starts "at the following 10 elections" for which you were currently serving, that is 11 when where you are statement was currently taken: 12 "... I negotiated a similar deal with the Labour 13 Group and the SNP were then in coalition with the Labour 14 Group." 15 Can I just clarify, does that mean that there was 16 also a coalition agreement with the Labour Group which 17 permitted the SNP to take a different view on the trams? 18 A. Yes, I think at that time it was less of an issue. But 19 nevertheless, I think we made it clear that should 20 something arise, then we would maintain our position. 21 I can't recall how much of the project was to be 22 finished unless I'm prompted, but in 2015, I don't 23 really see there would be a real need for it, other than 24 we didn't want to suffer any repercussions for 25 opposition in the past, and I'm not 100 per cent certain 139 1 why it was so necessary with the Labour Group, but 2 I know that there was discussions between me and 3 Andrew Burns, and I had made the point that although 4 that we were in agreement with the tram going to 5 York Place, and agreement with the Mar Hall deal that 6 was done, that nevertheless, it should not be taken for 7 granted that we would support anything else that was 8 happening with the trams. 9 CHAIR OF THE INQUIRY: What I was really trying to get 10 to: was that written into the coalition agreement? 11 A. I can't recall. I know it was written in the Liberal 12 Democrat one. I can't recall, unless I see it, if it 13 was written into the Labour Group one. But it certainly 14 wasn't as much of an issue with the Labour Group, 15 because by that time the deal had been struck. 16 CHAIR OF THE INQUIRY: There was some evidence from some 17 former councillors that they were surprised that 18 a member of an administration could be permitted to take 19 such a view in the context of a project that was so 20 important to the city, and the impression I got was that 21 that probably hadn't been in the agreement with the 22 Labour Group, but is that wrong? 23 A. Certainly we would not have -- diverted our position on 24 trams to have this coalition with the Labour Group. 25 There were different dynamics taking place at the time 140 1 as to who was going to go in coalition with who. I knew 2 that there were many Liberal Democrats who did not want 3 to go into a coalition with Labour, but the stumbling 4 block was our position on trams. 5 Having got rid of that stumbling block, it then 6 meant that we could then do a deal with the Liberal 7 Democrats. It was less of a stumbling block with 8 Labour. We were the first, I think, and the only 9 coalition between SNP and Labour in Scottish local 10 government, and I can't recall if there was tidying up 11 to do or something to be done, and I can't recall if 12 it's written into the agreement, but it may be that it 13 wasn't written into an agreement, but it was an 14 understanding that we were not happy with what happened 15 in the trams. Maybe it had something to do with this 16 Inquiry and what our view would be, had the Inquiry been 17 held when we were still part of the administration, if 18 it had been a year earlier when we were called for 19 evidence or something like that. 20 It was a residual type of thing. It wasn't 21 important to either us or to the Labour Group at the 22 time. 23 So I think it may not have been written in, to be 24 fair. I can't recall. But certainly there was an 25 understanding that should something arise, we would 141 1 continue to state our position on the tram. 2 CHAIR OF THE INQUIRY: Thank you very much. I don't think 3 anyone has any questions of you. 4 You're free to go now, Mr Cardownie. Technically, 5 you're still under citation. So you could be recalled. 6 But I think it's unlikely. 7 A. Thank you. 8 (The witness withdrew) 9 MR LAKE: My Lord, the next witness is Ainslie McLaughlin. 10 MR AINSLIE MCLAUGHLIN (affirmed) 11 Examination by MR LAKE 12 CHAIR OF THE INQUIRY: Could I ask you, when you're 13 answering your questions, to speak clearly, but also 14 slowly, so that the shorthand writers can keep up with 15 you. 16 A. I will. 17 MR LAKE: Thank you, my Lord. 18 Mr McLaughlin, could you state your full name, 19 please? 20 A. Ainslie Craig McLaughlin. 21 Q. We have your address; it's been communicated to the 22 Inquiry. What is your occupation? 23 A. I'm currently a civil servant with the Scottish 24 Government. 25 Q. Is that over in procurement generally? 142 1 A. It is. I'm Director of Procurement and Commercial with 2 the Scottish Government. 3 Q. I think you were formerly employed within 4 Transport Scotland within the Scottish Government? 5 A. That is correct. 6 Q. If you could have before you a document, it will also be 7 shown on the screen, reference TRI00000061_C. 8 A. Yes. 9 Q. Do you recognise this as the statement you have given to 10 this Inquiry? 11 A. I do, yes. 12 Q. I think on the last page of the paper version, it should 13 be signed by you? 14 A. That's correct. 15 Q. Can we take it that you're happy to adopt that as your 16 evidence to this Inquiry? 17 A. I am content, but on re-reading it recently, I did 18 notice in paragraph 49 in the first sentence, there was 19 an error at the end of the sentence. Where it said 20 "anything", it should have read "nothing". 21 Q. Let's see if we can find that and correct it in context. 22 So paragraph 49? 23 A. Yes. It says: 24 "Transport Scotland was not doing anything." 25 It should read, I think: 143 1 "Transport Scotland was not doing nothing." 2 Q. Could you go to page 20 of 50 on the screen. 3 A. Yes. 4 Q. It's the opening sentence there, that sentence should 5 be: 6 "Transport Scotland was not doing nothing." 7 A. Yes. 8 Q. Thank you for that. 9 Could we now go to page 46 of this statement, 10 please. 11 Paragraph 130. 12 A. Yes. 13 Q. This is talking about under the heading, "Governance", 14 if I read from the fourth line: 15 "The Council understood that it was a big project 16 they had to deliver, that they did not have the 17 capability in-house and that they needed a significant 18 amount of intelligent client expertise." 19 A. Yes. 20 Q. "They adopted an arm's length model and created TIE 21 (which was similar to what Transport Scotland for London 22 did with Crossrail), so it did not have the same pay 23 restrictions that councils and public sector bodies have 24 to attract people with expertise and experience in 25 delivering these big projects." 144 1 A. Yes. 2 Q. Would Transport Scotland have any say as to whether or 3 not there should be an arm's length company set up? 4 A. Not to my knowledge, no. 5 Q. Okay. And apart from tie, I think you make the 6 reference in your statement also to TEL. Do you recall 7 that company? 8 A. Yes. Transport Edinburgh Limited, I believe was what 9 the acronym stood for, yes. 10 Q. You also, I think, were aware of the Tram Project Board, 11 because indeed you sat on the Tram Project Board? 12 A. No, I didn't sit on the Tram Project Board within the 13 tie/TEL set-up. I sat on a subsequent Board which was 14 Chaired by the Chief Executive of the City of Edinburgh 15 Council. 16 Q. Post 2011? 17 A. Post 2011, after tie was disbanded. 18 Q. I think I should have said it was Bill Reeve who sat on 19 the Tram Project Board or Damian Sharp prior to 2008? 20 A. That's correct, yes. 21 Q. What did you understand the various responsibilities of 22 each of these bodies to be, that's tie, TEL and the Tram 23 Project Board, pre 2008? 24 A. I'm not sure I had much of a view on the governance and 25 arrangements and the various responsibilities between 145 1 the various parties. I understood tie to be effectively 2 the project delivery arm of the project director. They 3 reported to a Project Board which was made up of 4 non-executive directors and to which the Chief Executive 5 of tie reported to and the project team reported to. 6 TEL, I understood, to be an umbrella board that took 7 into -- took -- or covered both the tram, the delivery 8 of the tram and ultimately the operation of the tram, 9 and also Lothian Buses. 10 Q. Mm-hm. If there's documentation dating from around the 11 time that says that the Tram Project Board is in fact 12 a sub-committee of the TEL Board, is that a surprise to 13 you? 14 A. I'm not sure I have a view on whether that's a surprise 15 to me or not. I understood that the -- there would have 16 to be some investment decision-making structure within 17 the project delivery, and that would normally be 18 delivered by a Project Board. 19 So how that -- where that Project Board sat in 20 relation to TEL or indeed CEC, I had no sight of. 21 Q. I think in your earlier answer, you said it was your 22 impression that tie would report to the Tram Project 23 Board? 24 A. Indeed. 25 Q. So which was the body ultimately responsible for 146 1 delivery of the tram in Edinburgh? 2 A. Ultimately I would have said the City of Edinburgh 3 Council were the body ultimately responsible for 4 delivering the tram, and that they put in place 5 a structure of project management through tie to deliver 6 that project on their behalf as agents. 7 Q. I suppose what I'm trying to get at is, as you say, the 8 Council, it was ultimately their project, they had set 9 up tie to deliver. Where does the Tram Project Board 10 fit in within the Council and tie? 11 A. I don't know, I think is the honest answer. 12 Q. Would it be fair to say it was really quite unclear? 13 A. I don't think I ever looked at -- understand the precise 14 governance arrangements that were in place. 15 Q. Could we look at page 47 of your statement, please. 16 Could you enlarge paragraph 132. You said there: 17 "I did not have any concerns in relation to the 18 governance arrangements at that time, in fact it looked 19 textbook. There was plenty of governance. It was not 20 as if there was not a project manager or a project 21 board." 22 How was it that you were able to form a view that 23 these were textbook governance arrangements if you were 24 not really clear who was in charge? 25 A. I suppose I came to that view on the basis that the 147 1 Audit Scotland Report from 2007 had said that there were 2 sound governance processes in place, and on the face of 3 it, there was a delivery body, tie, and there was 4 a Project Board to which tie was accountable for in 5 terms of delivering this particular project. 6 Q. The opening sentence of that paragraph, when you say: 7 "I did not have concerns ..." 8 That suggests it was something to which you had 9 directed your mind at the time; is that correct? 10 A. Inasmuch as I had looked at the 2007 audit report, and 11 that I had been asked again in 2011 by Audit Scotland 12 whether I had any concerns from the information I had. 13 I didn't have any concerns. 14 Q. So you were asked in 2007 by Audit Scotland? 15 A. No, I wasn't. I read the Audit Scotland Report in 2007. 16 Q. So in 2011? 17 A. In 2011 there was a further Audit Scotland Report into 18 how the tram was performing because of the difficulties 19 that came. 20 Q. Was it at that time that Audit Scotland asked you if you 21 had had any concerns about the tram governance? 22 A. I -- I didn't have any concerns about the tram 23 governance because I hadn't looked at the tram 24 governance at that point. In between times, I was aware 25 that there were governance arrangements in place, and on 148 1 the base of it, and on the basis of what Audit Scotland 2 had reported in 2007, I saw no difficulty with it. 3 Q. I just want to be clear about this. When was it that 4 you formed the view that you didn't have concerns about 5 the arrangements in, say, 2007/2008? 6 A. I didn't have any concerns, but I wasn't particularly 7 asked whether I had concerns. This was just a question 8 that I was asked as part of my witness statement, and my 9 view was that on the face of it, there was nothing to 10 concern me about the governance arrangements on the 11 basis of the review that had been carried out with -- by 12 Audit Scotland in 2007. And subsequent arrangements 13 that I saw. 14 Q. In the period prior to the Audit Scotland Report in 15 2007, had you ever addressed your mind to the governance 16 issue? 17 A. Prior to 2007? 18 Q. Yes? 19 A. No, I wasn't involved at all in the tram project. 20 Q. In 2011, were you asked your view about the governance 21 arrangements? 22 A. I don't recall if I was. I was asked what my role was 23 at that point. 24 Q. Do you recall concerns -- this is going back again to 25 2006, 2007, 2008 sort of time -- about the complexity of 149 1 the corporate structure, the governance structure that 2 had been established? 3 A. I don't, no. 4 Q. Could I ask you, please, to look at a production. It's 5 TRS00002657. 6 This is an email from James Papps of 7 Partnerships UK, to Matthew Spence and Damian Sharp who 8 were colleagues of yours at Transport Scotland? 9 A. Yes. 10 Q. And also copied to Bill Reeve, another colleague of 11 yours at Transport Scotland? 12 A. That's correct, yes. 13 Q. The date is 21 July 2006; do you see that also? Do you 14 see the date, Mr McLaughlin? 15 A. 2006, yes, July. 16 Q. Perhaps if we could enlarge the text of the email, where 17 it begins "Matthew", and then ... this is Mr Papps: 18 "Matthew, many thanks for this. I think this is 19 a sensible and helpful summary of basic principles to be 20 followed in constructing a governance document. 21 The trouble with the TIE approach is that it has 22 always been founded on attempts to fit arrangements 23 within the complicated and overlapping corporate 24 structure formed by TIE, TEL and CEC, rather than 25 starting with optimal structure and working out 150 1 relationships to other existing bodies as the second 2 stage." 3 That's describing the problem. Was that discussed 4 with you at all at the time? 5 A. It wasn't, no. 6 Q. So you wouldn't have been aware of anything that was 7 going on in relation to this exchange. 8 A. I wasn't aware of any of these discussions at this time, 9 no. 10 Q. I shan't ask you further about that. 11 Did you view the arrangements even with hindsight, 12 the arrangements in place at that time as ones that were 13 complex? 14 A. No, I didn't review those arrangements, no. 15 Q. What is in an SRO in relation to a project? 16 A. It's the senior responsible owner of the project, 17 ultimately accountable for its delivery. 18 Q. How important is the SRO in relation to the delivery of 19 a project? 20 A. In project governance and delivery terms, it's 21 a critical role in the delivery of the project. The 22 owner is responsible for ensuring that that the 23 resources are available for the delivery, the successful 24 delivery of the project, and that the project objectives 25 are achieved. 151 1 Q. Are you aware as to who was the SRO at this time, 2007? 2 A. I wasn't aware of who was SRO at that point. 3 Q. Now, Transport Scotland were providing a grant for this 4 project? 5 A. Well, Scottish Ministers were providing a grant for the 6 project, yes. 7 Q. And that's handled through the Executive Agency -- 8 A. And that was handled and managed through the Executive 9 Agency, Transport Scotland, that's correct. 10 Q. But the project, I think you said in your statement, 11 there was no doubt that it was always the City of 12 Edinburgh Council project? 13 A. Indeed. 14 Q. So although Audit Scotland or the Scottish Ministers 15 were funders, were you aware that their role went 16 further than that in terms of the extent to which they 17 provided assistance and support of the project in its 18 early stages? 19 A. Sorry? 20 Q. Rather than merely being the provision of money, Audit 21 Scotland also provided advice and assistance in relation 22 to the project? 23 A. Transport Scotland, do you mean? 24 Q. Yes. 25 A. I was aware that Transport Scotland were involved in the 152 1 early stages of the project, yes, and that -- had 2 managed the grant arrangements, the previous grant 3 arrangements that were in place to fund the transport -- 4 the tram project. 5 Q. I think the reason I referred to Audit Scotland in error 6 is I was about to take you to a document of theirs. 7 I can do that. It's reference CEC00785541. 8 You can see this is a copy of the Audit Scotland 9 report, Edinburgh Transport Scotland's review, in 10 June 2007? 11 A. Indeed, yes. 12 Q. I take it you've read this before? 13 A. I have read it before, yes. 14 Q. If we could go, please, to page 8 within that, and look 15 at the lower half of the page. Under the heading, 16 "There are three key players for both projects", it 17 says: 18 "There are a number of partners in the 19 Edinburgh trams and EARL projects but three key players 20 are common to both projects." 21 The first of those is Transport Scotland. Do you 22 think that was understood within Transport Scotland, 23 that they were a key player in terms of this project? 24 A. In terms of principal funder, yes. 25 Q. And it notes under -- in that bullet point in relation 153 1 to Transport Scotland that it takes a close interest in 2 the progress of both projects and their projected costs? 3 A. At that point, yes. 4 Q. If we look a little bit further to paragraph 27, which 5 can be seen on the following page, page 7, in the lower 6 half of the page, under the heading 7 "Transport Scotland", could we see all three paragraphs 8 under that heading? We can see, just looking at it 9 broadly, some consideration of the management and 10 governance procedures that take place within 11 Transport Scotland. Do you see that? 12 A. Yes. 13 Q. If we go then to page 14 of this, and look at 14 paragraph 56, go on a further two pages, it must be 16 15 in this one. You can see that it is there noted that: 16 "The Tram Project Board exercises overall governance 17 of the project. It includes senior representatives from 18 tie, Transport Scotland, CEC and Transport Edinburgh 19 Limited and has full delegated authority from CEC 20 (through TEL) and Transport Scotland to take the actions 21 needed to deliver the project to agreed cost, timescale 22 and quality standards. The Tram Project Board has 23 a clear written remit, meets every four weeks to 24 consider reports from tie's Tram Project Director and is 25 supported by two sub-committees with responsibility for 154 1 assessing progress within the programme." 2 A. Yes. 3 Q. That's a positive finding in relation to the Tram 4 Project Board. Do you see that? 5 A. Yes. 6 Q. If you go back and look at the whole page, we can see 7 that the bold heading above paragraph 56 is, 8 "Arrangements in place to manage the project appear 9 sound". 10 A. Yes. 11 Q. So Audit Scotland in 2007 took account of 12 Transport Scotland and their role in the project, in 13 concluding that it was sound? 14 A. Indeed. 15 Q. In terms of this report being prepared by Audit 16 Scotland, are you aware of the circumstances in which it 17 was obtained? 18 A. I understand that it was at the request of the Cabinet 19 Secretary to the Auditor General, to review the 20 arrangements in place with delivery of the tram and EARL 21 projects at the time. 22 Q. In that Transport Scotland were the executive agency 23 with responsibility for transport projects, did you find 24 it surprising that the Cabinet Secretary didn't make 25 a request of the established government department, 155 1 Transport Scotland, to review these matters? 2 A. No, I didn't find that surprising. 3 Q. Can you think of any other instance where Audit Scotland 4 have been asked to review projects like this? 5 A. No, I think -- I can think of no other occasion where 6 Audit Scotland have been asked to look at the project at 7 this particular stage. Audit Scotland certainly took an 8 interest in the delivery of Scottish Government 9 projects, but normally either mid-delivery or after the 10 projects have been delivered. 11 Q. So normally if there's concerns about whether or not 12 a project should be delivered at this sort of stage, 13 before contracts have even been signed, is that a matter 14 where questions -- a minister might normally make 15 enquiries through Transport Scotland? 16 A. They might normally have been, but Transport Scotland 17 was only -- had only been established the year earlier 18 and these were new ministers coming in, in a new 19 administration. 20 Q. Transport Scotland had been established a year earlier 21 but the role that was being discharged by 22 Transport Scotland had been undertaken for many years, 23 hadn't it? 24 A. In various parts of government and other parts, yes. 25 Q. Even pre-devolution days, the Scottish Development 156 1 Department would have undertaken this sort of role, 2 wouldn't it? 3 A. Well, the Scottish Development Department would have 4 been responsible for roads and transport and may well 5 have been involved in this project, yes. 6 Q. So there were people there who had a lot of experience 7 and were long established in delivering government 8 projects? 9 A. There were people within government who had been long 10 established in delivering roads projects, but not to my 11 knowledge light rapid transit projects and tram projects 12 of this nature, no. 13 Q. Once the project actually got up and running, I think 14 reports were provided periodically every four weeks by 15 tie or the Council to Transport Scotland. Were you 16 involved in the consideration of those reports, or would 17 one of your colleagues better -- 18 A. No, these were principally submitted to colleagues 19 within Rail Directorate, who were monitoring progress of 20 the project and paying out the grant on the basis of the 21 certificates that Edinburgh Council were submitting. 22 Q. I'll direct my questions to them. 23 CHAIR OF THE INQUIRY: Did the expertise within the 24 government extend to rail projects? 25 A. It did. 157 1 CHAIR OF THE INQUIRY: How many light rapid transport 2 systems before Edinburgh Tram Project had there been in 3 Scotland? 4 A. None, to my knowledge. 5 CHAIR OF THE INQUIRY: So that if you were looking for 6 expertise within the government, or government 7 department, where would you look to get advice about the 8 first light rapid transport system? 9 A. Well, I think the -- that was the purpose of setting up 10 tie at the time was to provide a vehicle for -- 11 CHAIR OF THE INQUIRY: Mr McLaughlin, do you understand the 12 question? I'm saying, if you were looking for expertise 13 within the government, you've got people who can deal 14 with heavy rail. 15 A. Yes. 16 CHAIR OF THE INQUIRY: Where would you look within the 17 government departments for expertise that might assist 18 with light rail? 19 A. You would look to colleagues who had heavy rail 20 experience in the first instance, yes. 21 CHAIR OF THE INQUIRY: Thank you. 22 MR LAKE: If I could ask you to look, please, at page 20 of 23 your statement. If you could look in particular at 24 paragraph 49. 25 A. Yes. 158 1 Q. It's perhaps easiest if I look at the whole paragraph 2 for context: 3 "Transport Scotland was not doing nothing. We were 4 asking TIE what it was doing about the situation. When 5 things got to a head at the end of 2009, Ministers asked 6 officials to have a high level meeting with David Mackay 7 and Richard Jeffrey from TIE. The meeting was in the 8 early part of 2010. I then became involved in informal 9 meetings over 2010 with Richard Jeffrey to track TIE's 10 approach to resolving the contract difficulties." 11 Now, I think at this stage a decision -- 12 a ministerial decision had been taken that 13 Transport Scotland would not be involved in the -- other 14 than providing funds? 15 A. Yes. 16 Q. In the tram project? 17 A. Yes. 18 Q. Nonetheless, you have the Minister here advising you to 19 hold meetings with people throughout 2010 to monitor 20 what was going on? 21 A. Yes. 22 Q. What were you -- what was the purpose in this, as far as 23 you were aware? 24 A. The purpose was really to get a better understanding. 25 By the end of 2009/the early part of 2010, it was quite 159 1 evident that the contract was in difficulty, that there 2 was significant contention between the tie and the 3 contractor, that there was a number of adjudications 4 either taking place or having taken place, and that 5 there was concern on ministers' part as to whether or 6 not the project was actually going to deliver on time 7 and to budget, and ministers were looking for some 8 assurances from tie that they had control over the 9 project and could deliver within time and budget. 10 My role was really just to have informal meetings 11 with Richard Jeffrey who was at that point 12 Chief Executive, just to understand a little more detail 13 about the strategies that were taking -- they were 14 taking forward in order to try and get the resolution to 15 those contract difficulties; to be able to better brief 16 ministers on it, from time to time, when they were 17 meeting David Mackay and Richard Jeffrey for updates 18 during that period. 19 Q. So if you were seeking information about the strategies 20 that were being employed, presumably you were also 21 seeking information about the outcome of those 22 strategies being employed? 23 A. Yes. At that point the outcome didn't become apparent 24 until the end of 2010, because Richard Jeffrey and tie 25 were embarking on the strategy. There was always 160 1 a parallel strategy of looking to get a resolution to 2 restructure the contract, to take the tram into the 3 centre of Edinburgh, and conclude the contract at that 4 point, rather than take it down to Leith, and also at 5 the same time they were looking at the possibility of 6 terminating the contract. So they were running two 7 parallel strategies through 2010, to try and get to 8 a point where they could resolve the project 9 difficulties and get the tram running from the airport 10 into the centre of Edinburgh. 11 Q. And this was information that you were going to use in 12 turn to brief the Minister? 13 A. Indeed, yes. 14 Q. What was the Minister's interest in this? 15 A. The Minister's interest was in having a viable tram up 16 and running in Edinburgh, preferably within the 17 timescale and original budget. 18 Q. What was he going to do? What did he think he might 19 want to do with the information that you provided? 20 A. I don't think he wanted to do anything. I think he just 21 wanted to be assured and understand how the project was 22 actually being managed. 23 Q. What I'm trying to get is to what end? It's one thing 24 to know information, to want to have information, 25 I should say, but it doesn't actually take you any 161 1 further in providing you with control or input. It may 2 not provide the assurance. It may create anxiety? 3 A. Indeed. In the early parts of 2010, I think ministers 4 were assured that tie and the new management structure 5 within tie seemed to have, appeared to have a grip on 6 the project and a strategy for resolving the issue. It 7 only became apparent towards the end of 2010, when those 8 strategies were not successful, that in fact the project 9 was effectively grinding to a halt at that point and 10 wasn't going to be delivered. 11 Q. The Minister might have had -- no doubt did have -- 12 information from you about these things. What did the 13 Minister intend to do with that information? 14 A. I think the Minister was considering at various points 15 whether or not there was -- whether or not there would 16 be any benefit in intervening at that point or whether 17 leaving it with the Council to resolve would be the best 18 way forward. 19 Q. Intervening in what way? 20 A. In a way that -- in terms of how -- getting a better and 21 more effective management of the project and in some way 22 helping resolve the contract difficulties. 23 Q. What would be involved in getting a better management of 24 the project at that stage? 25 A. Well, at that point we did not know, and we were 162 1 considering options as to whether or not there were 2 credible options for the ministers to intervene. 3 Q. What were the options for intervention? 4 A. Well, ultimately we felt there weren't any options at 5 that point, mid-contract, in the -- particularly in 6 light of the significant contractual disputes that were 7 ongoing. That any intervention from government would 8 probably, if nothing else, exacerbate the position. 9 Q. So the Scottish Ministers were at that time in 10 a position where they were committed to making a grant 11 of GBP500 million? 12 A. Indeed. 13 Q. And had no ability to -- practical ability to intervene 14 to secure the project objectives? 15 A. They had -- they were not a party to the contract with 16 the Infraco, no. 17 Q. Let me ask my question. They had no practical ability 18 to intervene to secure the project objectives? 19 A. They didn't at that point, no. 20 Q. It would have been desirable to have some ability to 21 intervene, wouldn't it? 22 A. I think ministers were concerned that there had been put 23 in place a credible operation through tie and the City 24 of Edinburgh Council to deliver this project, to time 25 and to budget, in line with the original Business Case, 163 1 and that it was becoming clear that that structure was 2 not delivering that objective, and ministers were 3 looking at what possible routes there were to resolving 4 this position. 5 Q. They were looking at what options, as you explained to 6 us, they were looking at what options there might be for 7 intervention? 8 A. Yes. 9 Q. And concluded there were none. Now, does it not -- 10 A. Concluded there were none that were practicable at that 11 point, yes. 12 Q. Would it not have been preferable to have a practical 13 route for intervention with so much money at stake? 14 A. Well, the mechanisms they had at hand were through the 15 grant agreements and arrangements that were in place 16 between ministers and City of Edinburgh Council. 17 Q. What mechanisms were they? 18 A. The mechanisms were there that the government would make 19 payments to the Council up to the limit of the 20 GBP500 million cap in support of the delivery of the 21 tram project. 22 Q. But it's correct to say, isn't it, that the government 23 had stood back from having any ability to control or 24 manage the governance of the project? 25 A. That's correct, yes. 164 1 CHAIR OF THE INQUIRY: I think you were asked in two or 2 three different ways whether it would have been 3 desirable to have some ability to intervene, and you 4 haven't really answered that question. 5 A. In retrospect it would be desirable to have some second 6 rights, but there wasn't a mechanism for doing that 7 credibly at that point. 8 MR LAKE: There could have been one specified at the outset, 9 couldn't there, when the grant was provided? 10 A. There may have been, but I couldn't say how that might 11 have been constructed. 12 Q. So if you were doing this project again, you don't think 13 you would be able to think of some means of putting in 14 some practical intervention mechanism? 15 A. Off the top of my head, I can't think of how you would 16 do that and not affect the contractual relationship 17 between the two parties to the contract. 18 Q. Can we go to page 47 within your statement. I would 19 like to look at paragraph 131. I am doing that to 20 identify the start of paragraph 131; the passage 21 I mentioned is on the following page. 22 You're talking about -- as you read from the first 23 full sentence on the page: 24 "There was a bit of low tech engineering which 25 involved, at its most basic, digging a hole in the 165 1 ground, putting in a concrete foundation, sticking some 2 rail lines on and filling it back in, but that proved to 3 be really difficult in terms of logistics and planning. 4 On top of that there were the contractual arrangements. 5 I cannot understand why TIE were still talking about 6 a fixed price lump sum project when it was quite 7 evident, even before the disputes resolution, that the 8 contract was not a fixed price contract." 9 When was it evident to you that this was not a fixed 10 price contract? 11 A. I think in the discussions with tie earlier in 2010, 12 when -- when I was first asked to discuss the 13 arrangements that were in place with tie. 14 Q. Was this a view that you formed? On seeing the 15 contract? 16 A. I never saw the contract. It was just how they 17 explained the contract to me at that point. 18 I think ministers were concerned that it was being 19 characterised to them as a fixed price lump sum and yet 20 it was becoming evident that the costs were overrunning. 21 Q. Who were you having discussions with that led you to the 22 conclusion it wasn't fixed price lump sum? 23 A. I can't remember everybody who was at the meeting, but 24 David Mackay, Richard Jeffrey. I think Andrew Fitchie 25 and a number of other senior officials from tie were at 166 1 the meeting, along with colleagues of mine from 2 Transport Scotland, and we were basically asking them 3 how the contract was operating and working. 4 Q. Can you remember who else was there from 5 Transport Scotland? 6 A. I think Bill Reeve was there, possibly David Middleton, 7 but other than that, I'm not -- I can't remember 8 entirely. 9 Q. Bill Reeve we will hear from later, but David Middleton 10 was the Chief Executive at that time? 11 A. He was, yes. 12 Q. So this was quite a high level and formal meeting? 13 A. Indeed. 14 Q. In terms of forming the view that it wasn't fixed price 15 lump sum, was that something that was said to you or was 16 it an opinion you formed as a result of what was said to 17 you? 18 A. I think it would -- my recollection was that this 19 project was always characterised as a fixed price lump 20 sum contract in the discussions we'd had previously with 21 tie and ministers. 22 Q. So how did you come to the conclusion that it wasn't? 23 A. Because they basically told me it wasn't, that there was 24 a mechanism within the contract that allowed for design 25 development, that was based on the fact that the design 167 1 hadn't been completed by tie at the point it was 2 novated, and that although complete control of that 3 design was handed over to the contractor at that point, 4 responsibility and risk of any design changes still 5 rested with tie. 6 Q. When in 2010 did that meeting take place? 7 A. My recollection is around March. 8 Q. Did you have discussions within Transport Scotland about 9 what you had been told about the fixed price nature of 10 the contract? 11 A. No, no, I didn't, no. I don't recall discussing that. 12 Q. Did you, Bill Reeve and David Middleton discuss it? 13 A. No. Not to my -- not in any detail. 14 Q. Was that not quite a fundamental thing that the contract 15 you thought was fixed price turned out not to be? 16 A. Well, in as much as that is how it had been 17 characterised by tie and we then had to tell ministers 18 that in fact it wasn't a fixed price contract, and quite 19 self-evidently it wasn't, because the costs were 20 starting to overrun quite significantly at that point. 21 Q. Did the ministers not require a briefing to you as to 22 what the consequences of that might be? 23 A. The consequences of that -- I did provide a briefing to 24 ministers on that. The consequences of the 25 contractual -- the structure of the contract were played 168 1 out in the various disputes resolutions between the 2 contractor and tie at that point. 3 Q. That was going on between tie on the one hand and the 4 contractors on the other. I'm really interested to know 5 what was going on within Transport Scotland, if the 6 three of you had been told this, and you were going to 7 brief ministers, are you saying there was no discussion 8 between officers within Transport Scotland as to what 9 the potential ramifications of this -- 10 A. Well, what I'm saying is I don't recall any detailed 11 discussions of that nature. What I do recall is that we 12 did tell ministers that this was not a fixed price 13 contract. And that in fact the -- there was significant 14 exposure in the contract because of the potential for 15 the contractor to seek design development and additional 16 costs on the back of that. 17 Q. Now, it's established that the Transport Scotland have 18 made plain that the grant was to be up to GBP500 million 19 and no more. 20 A. Indeed. 21 Q. So there wasn't going to be a financial implication for 22 Transport Scotland? 23 A. That's correct. Or for Scottish Ministers. 24 Q. Or Scottish Ministers. 25 But was there a concern that if the Scottish 169 1 Ministers provided this money and costs continued to 2 escalate, it might not be possible to provide the entire 3 line? 4 A. Indeed, and that is becoming apparent during the 5 discussions with the City of Edinburgh Council and tie 6 at that point. In order to get an affordable viable 7 tram project, discussions were then taking place about 8 truncating the line and delivering it only from the 9 airport to the city centre. 10 Q. That would mean that the Scottish Ministers were getting 11 a lot less than they had anticipated for their money? 12 A. Indeed. 13 Q. So that presumably would have been a matter of some 14 considerable concern to the Scottish Ministers? 15 A. It was, yes. 16 Q. At that time, was there no consideration of what could 17 have been done to try and have given the Scottish 18 Ministers more practical control or practical ability to 19 intervene in the situation as it had developed? 20 A. We did discuss with Scottish Ministers what could be -- 21 what practical steps we could take to intervene or take 22 over the project and there was none that were practical 23 or credible in our opinion at that point. 24 Q. I just want to go back for a minute to 2009. We may 25 hear evidence from one of your colleagues that he 170 1 obtained advice from a firm of solicitors, Dundas & 2 Wilson, to the effect that the infrastructure contract, 3 the Infraco contract was not fit for purpose. Were you 4 made aware of that? 5 A. I'm not aware of that, no. 6 Q. Would that have been something material for you to know 7 about? 8 A. In 2000 -- 9 Q. 2009. 10 A. 2009? No, I wasn't involved in the project in 2009. 11 So ... 12 CHAIR OF THE INQUIRY: I think the question was: would it 13 have been material to know that in 2009? 14 A. It would have been material to know that, but I didn't 15 know that, no. 16 CHAIR OF THE INQUIRY: Could I ask when you say that "we" 17 briefed ministers about it not being a fixed price 18 contract or wherever, could you just tell us who is 19 "we", and I appreciate that one speaks about ministers 20 in the plural, but which minister or ministers did you 21 tell. 22 A. At that time it would have been Mr Swinney and 23 Mr Stevenson, who were the Cabinet Secretary and 24 respective minister responsible for infrastructure, and 25 for Transport Scotland at that time. 171 1 CHAIR OF THE INQUIRY: And who was involved in that briefing 2 on the Civil Service side? 3 A. From the Civil Service side, it would be 4 Transport Scotland, the briefing would have come from 5 Bill Reeve and from myself at times, yes. 6 CHAIR OF THE INQUIRY: Thank you. 7 MR LAKE: If I could ask you, please, to look back at your 8 statement at page 8. 9 A. Page 8? 10 Q. Page 8, paragraph 20. 11 Now, reading this some seven lines down, I think, 12 towards the right-hand margin, six lines down, there's 13 a sentence that begins: 14 "There was a meeting between Bilfinger Berger and 15 John Swinney which I attended to try to break the 16 impasse." 17 This is towards the end of 2010? 18 A. Yes. 19 Q. Who was at that meeting? 20 A. There was Mr Swinney. I supported Mr Swinney. It was 21 attended by Jochen Keysberg, who was Managing Director, 22 I think, of Bilfinger Berger. And the senior manager 23 from Siemens UK, whose name escapes me at the moment. 24 There were four at the meeting. 25 Q. So Siemens were represented at the meeting? 172 1 A. Yes, they were. 2 Q. What was the nature of discussions? What was discussed 3 at that meeting? 4 A. Basically, I think, Bilfinger Berger and Siemens were 5 concerned that ministers weren't properly getting the 6 contractors' side of the story, that they wanted to 7 explain to ministers that they felt that tie were not 8 managing the project properly, that there was -- in 9 their words, I think, almost a deliberate 10 misunderstanding of how the contract should be applied. 11 They had lost confidence in tie's ability to manage or 12 resolve the contract, the contractual disputes. 13 They were clear that they felt that in terms of the 14 contract, they were correct in their interpretation and 15 that tie were trying to apply effectively a fixed price 16 lump sum approach to a contract that was never 17 constructed in that way, and that if this went on, that 18 the contract would break down and the contract would be 19 terminated. 20 They were looking at -- for ministers in some way to 21 take over the project or support some form of mediation 22 to resolve the impasse at that point. 23 Q. Did they raise the issue with the Scottish Ministers to 24 take over the project? 25 A. They certainly expressed a view that in their opinion, 173 1 it would be better if Transport Scotland was managing 2 this project as they had experience of working with 3 Transport Scotland at that point on other contracts, and 4 felt that there would be a more credible approach taken 5 to the management of the contract if that was done. 6 Q. Was it they or the Minister that suggested mediation? 7 A. I think -- I honestly can't recall. I think there was 8 some discussion around that point, and mediation was 9 starting to be discussed by various parties, including 10 the Council. But I think it was becoming clear that 11 some sort of mediation was going to be required to get 12 some resolution one way or the other to this project. 13 Q. What was the outcome of the meeting? How were things 14 left? 15 A. There was no -- there was no commitment for ministers to 16 come back to the contractor and the ministers took it 17 away under consideration. 18 I think following on that, there was a feeling that 19 mediation was really the next credible step in trying to 20 get to the bottom of the contractual issues and resolve 21 a way forward. 22 Q. Were you involved or other Transport Scotland colleagues 23 involved in advising the ministers on what to do next? 24 A. Yes, I was involved in that. 25 Q. And what advice was given? 174 1 A. I can't remember exact advice at that point. I think 2 I supported the proposal that mediation be sought, to 3 try and resolve this matter. 4 Q. How was that taken forward by Transport Scotland? 5 A. I think it was taken forward by the Council and -- that 6 they made the -- the proposal -- the formal proposal 7 came forward from the Council to -- to hold the 8 mediation exercise, to try and get a resolution to this, 9 and ministers at that point supported that. 10 Q. Right. So we understand it wasn't a question that 11 either Transport Scotland or the ministers contacted the 12 Council, saying: we think this would be a good idea. 13 You think -- 14 A. No, I think there was general discussions going on 15 between all parties. Clearly the contract had virtually 16 ground to a halt. There was no credible strategy for 17 taking things forward from tie at that point. The 18 Council were looking at how they could break this 19 deadlock and mediation was being mentioned. Who had 20 mentioned mediation first, I cannot recall. But it 21 started to emerge as a credible way forward around the 22 turn of 2010/beginning of 2011. 23 Q. Were you aware of any consideration of whether or not 24 that would be the best time from the Council standpoint 25 for mediation to take place or whether it would be 175 1 better to wait a bit? 2 A. I wasn't aware of any consideration on the Council's 3 part to that, no. 4 Q. Or on the part of Transport Scotland, whether it would 5 be better to wait before going to mediation? 6 A. No. 7 Q. I think you attended the mediation which took place in 8 Mar Hall in 2011? 9 A. That's correct, yes. 10 Q. I think Sue Bruce represented the Council there? 11 A. Mm-hm. 12 Q. And Vic Emery represented the -- was the Chairman of 13 both tie and TEL at that time? 14 A. Indeed, yes. 15 Q. You represented Transport Scotland? 16 A. I represented the Scottish Ministers and 17 Transport Scotland, yes. 18 Q. The three of you made up really the three principal 19 negotiators on the client side? 20 A. Mm-hm. 21 Q. Do you recall what discussions took place -- sorry, I'll 22 start that again. 23 I think we've heard that there was a scenario put 24 forward to the mediation called Project Phoenix? 25 A. I recall a number of project names, yes. I don't 176 1 immediately recall which -- what Project Phoenix -- yes. 2 Q. Project Phoenix was a proposal to take the line from the 3 airport to either Haymarket or 4 St Andrew Square/York Place? 5 A. Yes. 6 Q. Do you recall that? 7 A. I recall that the Council and Sue Bruce in particular 8 were keen to take the project into St Andrew Square, 9 yes. 10 Q. There was another proposal on the table which was to 11 terminate the contract in whole or part and to 12 reprocure? 13 A. Indeed. 14 Q. Now, were you involved in discussions that took place on 15 the first day of that regarding the costs that would be 16 involved in each of those scenarios? 17 A. I was at the mediation and I recall discussions taking 18 place about the various potential cost outcomes of both 19 of those, yes. The estimates that were being made at 20 that time by the tie officials. 21 Q. What information did you have -- what were the sources 22 of information about what the costs of those two options 23 would be? 24 A. The sources of the information were coming from tie 25 officials who were running numbers on the basis, 177 1 I assume, of the contract costs, the various outcomes 2 that had arisen from the claims in adjudication 3 outcomes, and projected scenarios that they were looking 4 at. 5 Q. Do you recall as a result of those discussions, when you 6 started looking at the costs of terminating and 7 reprocuring, the estimate of that went up GBP150 million 8 in the first day of discussions, purely on your side, 9 the client side? 10 A. I don't recall that, no. 11 Q. That's quite a material increase, isn't it? 12 A. In terms of the costs of -- 13 Q. Yes? 14 A. It is a material increase, yes. 15 Q. That increase, if we hear about that in evidence, was 16 bound to have an effect on which was seen as the most 17 advantageous option? 18 A. Yes. 19 Q. Do you recall the people from tie being there at the 20 mediation to assist you with figures, numbers, financial 21 input? 22 A. I do, yes. 23 Q. And that they were unhappy with that increase in costs 24 of estimate of termination and reprocurement? 25 A. I wasn't aware that they were unhappy, no. 178 1 Q. You were not aware that they were providing different 2 figures and a view had to be taken to override that? 3 A. I wasn't aware of any decision taken to override any 4 figures that tie were providing. I certainly saw no 5 evidence of that, no. 6 Q. Was there any discussion of whether or not there had 7 been sufficient time properly to consider the option of 8 terminating and reprocuring? 9 A. I think in many ways tie's -- one of tie's strategies 10 during 2007 was actually to get to a point of 11 terminating the contract at the end of 2010 on the basis 12 of breach by the contractor of the conditions of the 13 contract, but that ultimately turned out not to be 14 achievable. 15 So in some ways there was a preference on tie's part 16 during 2010 to actually take the project to -- and 17 terminate it and rebid the contract. 18 CHAIR OF THE INQUIRY: I think the question related to the 19 Mar Hall mediation. I think it was: was there any 20 discussion of whether or not there had been sufficient 21 time properly to consider the option of terminating and 22 reprocuring? 23 A. I don't recall a discussion of that at that point, no. 24 But certainly those were the options that they were 25 being faced with at that point. 179 1 MR LAKE: Did you explore, internally, with the client's 2 side, what other options there might be. 3 A. The other option was really just to go back to the 4 contract and work it through with Bilfinger and hold 5 them to completing the line down to Newhaven. But in 6 practical terms, that was unlikely to be achievable 7 because it was just not going to be affordable for the 8 Council. 9 Q. Was there discussion in the context of the mediation 10 between yourself, Sue Bruce and Vic Emery as to the 11 possibility of attempting to terminate on the basis of 12 a breach of contract on the part of the consortium? 13 A. No, because I think that had been discounted at the end 14 of 2010, in terms of the strategy that tie had tried to 15 take forward in parallel with my recollection was called 16 project Carlisle, which was similarly to end the -- or 17 truncate the line at either Haymarket or the city 18 centre. 19 Q. Do you recall there being discussions, again on the 20 client side, immediately before the mediation there was 21 in effect a ceiling of GBP740 million as the upper limit 22 for the costs that could be paid to get the tram built? 23 A. I have no recollection of an upper limit being 24 discussed, no. 25 Q. When you got to the agreement of the price that was to 180 1 be paid, the agreement of -- for all the Infraco works 2 excluding the on-street works would be GBP362.5 million, 3 do you recall reaching that figure? 4 A. Yes. Yes, I recall there being an agreement between the 5 Council and the contractor to provide a fixed price to 6 build the -- to complete the line between the airport 7 and Haymarket, and the 362 figure rings a bell, yes. 8 Q. On what basis did you satisfy yourself that that was an 9 appropriate figure to pay for those works? 10 A. I didn't. This was for the Council and the tie to 11 satisfy themselves that that was an appropriate figure 12 on the basis of the information that they were getting 13 from tie as to an appropriate cost for this. Taking 14 into account the ongoing contractual disputes and claims 15 that were still outstanding at that point. 16 So this was an estimate of what they thought was 17 a good deal. 18 Q. Do you know how they arrived at that figure and thought 19 it was a good deal? 20 A. On the basis of the information that they were getting 21 from the -- from the tie officials on the likely 22 scenario outcomes of -- I mean, these were not precise 23 figures. They were ranges that they were looking at of 24 potential outcomes of continuing to progress under the 25 existing contract. 181 1 Q. And that figure, GBP362.5 million, that was to cover 2 completing the building and a settlement of all the 3 existing claims; is that correct? 4 A. Yes, indeed, it was a lump sum price, if you like, for 5 completion of the works between the airport and 6 Haymarket. 7 Q. What portion of it related to settlement of existing 8 claims and what portion related to actually completing 9 the build? 10 A. I can't recall. 11 Q. Would you have known at the time? 12 A. Probably not, no. 13 Q. So you had no idea how that 362 was made up? 14 A. I didn't. I didn't have sight of those figures, no. 15 Q. So at what stage were you made aware that it was 16 proposed to do a deal for the off-street works at 17 GBP362.5 million? 18 A. This came about through the discussions as to an 19 agreeable settlement figure between the two parties. 20 Q. Was there an explanation or a justification for that 21 figure? 22 A. That would be for City of Edinburgh Council to justify 23 that figure. 24 Q. But were you not made aware or was the justification not 25 discussed with you? 182 1 A. The justification was -- was discussed to the extent 2 that there were figures supporting an outcome within 3 that range that were being -- in terms of the figures 4 that were being provided by tie, estimators at that 5 point. 6 Q. So those figures were -- you were involved in discussion 7 of those figures? 8 A. I was aware of discussions taking place around those 9 figures. I wasn't interrogating the figures and 10 I wasn't questioning the figures. 11 Q. Were you there when other people interrogated and 12 discussed the figures? 13 A. I believe I was, and I don't believe there was any 14 arguments over the -- over the reliability of the 15 figures being delivered by tie officials. 16 Q. Are you talking about arguments within the client side? 17 A. Yes, indeed, yes. 18 Q. What I'm curious to know is how it came to be that you 19 finally were going to do a deal at that level. Did you 20 have discussions with Sue Bruce and Vic Emery as to 21 whether or not a deal should be done at that level? 22 A. Well, that was for Sue Bruce and Vic Emery to decide 23 that the quantum was justifiable, given the contract sum 24 and the claims outstanding, and the claims -- and the 25 adjudication settlements that had already taken place. 183 1 Q. What was your role in relation -- 2 A. My role was essentially as an observer and to assist in 3 any way in the process. 4 Q. Did you observe any discussion of how that figure of 5 GBP362.5 million was to be made up or justified? 6 A. I did observe discussions on the various cost estimates 7 that were taking place during the two or three days of 8 the mediation exercise, yes. And there was a team 9 looking at figures -- 10 Q. So at the time, were you made aware of how -- what the 11 basis was for that figure? 12 A. My understanding of the basis of that figure was the 13 sums that had already been paid out for that portion of 14 the line, including any adjudication settlement, and on 15 the basis of outstanding claims, and the likely cost of 16 completing that line based on the previous experience of 17 the contract. 18 Q. At the time, would you have been aware of how much of it 19 was settlement of claims and how much of it was building 20 costs? 21 A. No. 22 Q. Was that not something you had any interest in? 23 A. No. I was interested in being there to support them in 24 getting and observing the mediation exercise. 25 Q. How were you supporting them? 184 1 A. I think in terms of being there as a representative of 2 Scottish Ministers, to give confidence to the contractor 3 that Scottish Ministers were taking an interest in the 4 outcome, successful outcome of the mediation exercise. 5 Q. It doesn't sound as if you were taking that much of an 6 interest in the mediation if you weren't the slightest 7 bit interested in how a figure of GBP362.5 million was 8 made up? 9 A. I was satisfied that tie and the Council were -- fully 10 understood the financial implications of the contract 11 and were better equipped then me to make a judgment on 12 the claims that were outstanding and the likelihood of 13 getting a credible settlement figure to complete the 14 project between the airport and Haymarket. 15 Q. The Inquiry has heard evidence that during the course of 16 the mediation, you left to make a phone call to the 17 cabinet secretary. Was that to get approval for the 18 deal to be done? 19 A. No, it was just to give him an update on how the -- on 20 how the mediation exercise was progressing, and also to 21 give him some idea of the likely sum that was likely to 22 be involved in -- 23 Q. Why did you want to know that? 24 A. I think he was interested to know, one, that there was 25 likely to be a settlement, and also he was interested in 185 1 what the value of that settlement would be, because it 2 was quite clear that it was going to be, and quite 3 self-evident, before we went into this mediation 4 exercise, that it was going to be considerably more than 5 545 million. 500 million had already been committed by 6 Scottish Ministers. There was something like probably, 7 I think, about 120 million or so left in the pot at that 8 stage in terms of the grant. 9 So clearly he was interested if the figure was -- 10 the final settlement was to go above 545 million, it was 11 clear that that was going to be the responsibility of 12 the Council, and that the Scottish Government was not 13 going to increase its grant contribution. 14 Q. If you wanted to know what the settlement figure was, 15 and there was going to be one, did he not ask any 16 questions as to how that figure was arrived at, what the 17 basis of settlement was? 18 A. No, he didn't. 19 Q. Does that not seem odd? 20 A. No, I think he left it to the professionals to agree an 21 appropriate figure at the mediation exercise, and to 22 justify that figure to their client body, which in this 23 case was City of Edinburgh Council, justifying it to 24 their -- to the councillors. 25 Q. So he wanted an update in the middle of the mediation 186 1 about how it was going and what the likely figure would 2 be? 3 A. Yes. 4 Q. But had no interest at all in how it was made up? 5 A. He was -- he was naturally interested to know that the 6 mediation was looking like it was going to resolve the 7 contractual issues to the extent that the project could 8 proceed and be completed satisfactorily. 9 He was interested in what the likely figure was 10 going to be, but he wasn't questioning what that figure 11 was, no. 12 Q. Why was he interested in the figure? 13 A. Because the government was committing 500 million, and 14 he was wanting to make it absolutely clear that anything 15 more than 500 million would be the responsibility of the 16 Council to fund. 17 Q. But you don't need to know the figure to make that 18 plain. That had been made plain at the time of the vote 19 to go ahead with the tram project, hadn't it? 20 A. Indeed. 21 Q. So this had been clear for the previous almost four 22 years, hadn't it? 23 A. Yes. 24 Q. So he didn't need to know the figure to make that plain? 25 A. No, but there was a natural interest in what the final 187 1 cost of this project was going to be and what the 2 implications of that would be for the Council. 3 MR LAKE: My Lord, looking at the time, I think that might 4 be an appropriate time for a break. 5 CHAIR OF THE INQUIRY: We will resume again at 3.35. 6 (3.18 pm) 7 (A short break) 8 (3.33 pm) 9 CHAIR OF THE INQUIRY: You're still under oath, 10 Mr McLaughlin. 11 MR LAKE: Thank you, my Lord. 12 Mr McLaughlin, the Inquiry has some evidence to it 13 that senior employees at tie, people like 14 Richard Jeffrey and Steven Bell, considered that the 15 price agreed at Mar Hall was too generous. Are you 16 aware of those concerns? 17 A. I wasn't, no. 18 Q. In that most of the information on which the settlement 19 was based was said to come from tie, is it not anomalous 20 that on the one hand information comes from tie, and yet 21 people from tie consider the sums paid were too 22 generous? 23 A. On the face of it, yes. 24 Q. Does it call for concern, perhaps? 25 A. Yes. 188 1 Q. Was there any consideration given as to why the views of 2 the people from tie were being overridden that you were 3 aware of? 4 A. I wasn't aware that the view of the people from tie were 5 being overridden. I was aware only that at that point 6 Richard Jeffrey still had a preference to terminate the 7 contract with the -- with Bilfinger Berger and 8 re-tender. 9 Q. Were you aware of the views of the people within tie as 10 to the appropriateness of the settlement sum? 11 A. No. 12 Q. What was agreed at Mar Hall included, amongst other 13 things, that the Council would get all the Siemens 14 material and equipment necessary to complete the rail 15 line to -- the tramline to Newhaven, even though it was 16 in fact going to be stopping at York Place, were you 17 aware of that? 18 A. Yes. 19 Q. Why was it thought appropriate to pay for materials and 20 design down to Newhaven if the line was only going to go 21 to St Andrew Square? 22 A. I think the view was that it would be appropriate to 23 have that equipment, the materials available as part of 24 the overall price to be available for the extension, 25 which the Council were still of a mind to take forward 189 1 at some point in the future. 2 Q. There would have to be paid for at the time? 3 A. Yes. 4 Q. And that would increase the costs of the settlement? 5 A. It would increase the cost of the settlement -- it would 6 be included in the cost of the settlement, yes. 7 Q. And at that time, I appreciate things have changed in 8 the last week, but at that time it was not certain that 9 there would be any extension of the line down to 10 Newhaven? 11 A. No, but it was still the Council's aspiration to 12 complete the tram to Newhaven. 13 Q. So -- 14 A. Even at that point. 15 Q. So even without any firm decision that it would take 16 place, it was decided appropriate to pay whatever it 17 took to get rails that might or might not be used one 18 day? 19 A. Indeed. 20 Q. And you were content with that? 21 A. As part of the overall settlement, that was the -- the 22 Council were content with that, yes. 23 Q. The question was: were you content with that? 24 A. I didn't have a view at that point. The mediation was 25 between the Council and the contractor. 190 1 CHAIR OF THE INQUIRY: Were you not part of the negotiating 2 team? 3 A. Not to the extent that I was involved in the commercial 4 negotiation, no. 5 CHAIR OF THE INQUIRY: I think you went as an observer but 6 then you were asked to be part of the negotiation. 7 A. Only inasmuch as the -- my involvement was really in 8 terms of how they broke the deadlock in terms of the 9 design development, because the contractor was concerned 10 that it was going to offer a fixed price, particularly 11 for the section between the airport and Haymarket. 12 The process within the tram contract that their 13 design had to be approved by tie involved risk for them 14 if the design wasn't approved. 15 So I was looking to try and break that deadlock by 16 introducing a process we have in design and build 17 contracts and PPP contracts elsewhere, where the 18 contractor takes responsibility for the design, the 19 contractor also has to self-certify that that design 20 complies with the requirements of the contract and 21 therefore warrants that it's fit for purpose. 22 That was basically my involvement in the commercial 23 aspect of that deal. 24 In terms of the -- in trying to get a resolution. 25 In terms of the appropriate of the price, all the 191 1 information resided with tie and the Council, and tie -- 2 my observations at the time was that there was no 3 conflict with the tie officials that were present at the 4 mediation in feeding the pricing information to the lead 5 negotiators, who at that time were Sue Bruce and 6 Vic Emery, and I was really there in a supporting role. 7 CHAIR OF THE INQUIRY: The Inquiry has heard from someone 8 who was present at the Mar Hall negotiation that the 9 negotiating team were Sue Bruce, Vic Emery and you, and 10 that that team were the ones taking the decisions, would 11 that be right or not? 12 A. I think Sue Bruce and Vic Emery were taking the 13 decisions -- 14 CHAIR OF THE INQUIRY: No, but the team, I said, the three 15 of you, according to this evidence, were the ones taking 16 the decisions; is that right or wrong? 17 A. I was -- I was not taking decisions on behalf of the 18 Council. I was supporting Sue Bruce and Vic Emery in 19 the -- as part of the negotiations, part of the team, 20 yes. But I was not party and was not bound by the final 21 outcome of the agreement, and that was the basis of my 22 involvement. 23 CHAIR OF THE INQUIRY: I just want to clarify what the 24 difference is. You're a part of the team, but did you 25 or did you not, as part of that team, form part of the 192 1 group taking the decisions? 2 A. No. I did not. It was clear and the basis was that -- 3 the basis I went there and the agreement with ministers 4 was that I would go in and observe -- an observational 5 capacity. A few days before Sue Bruce asked that I take 6 a more active role, but that I would not be bound by any 7 of the decisions of the mediation. 8 MR LAKE: Move to the period now post mediation. I would 9 like to look at another document, please. If you look 10 at document reference ADS00046. Can you see, this is 11 a report titled "Edinburgh trams Interim report", by 12 Audit Scotland, dated February 2011. 13 A. Yes. 14 Q. And that's obviously -- this was published before the 15 mediation had taken place? 16 A. Indeed. 17 Q. If we look, please, I think it will be page 9 of the 18 electronic version. If you could enlarge the last 19 bullet point. This is page 7 of the document, page 9 of 20 the electronic version: 21 "Although Transport Scotland already monitors 22 project spend, the Scottish Government has a significant 23 financial commitment to the project and it needs to 24 consider Transport Scotland's future involvement in 25 providing advice and monitoring the project's progress. 193 1 In particular, if the Council decides that an 2 incremental approach should be taken to the delivery of 3 Phase 1a, there may be implications for the conditions 4 of the grant which would require to be considered. The 5 Scottish Government should also consider whether 6 Transport Scotland should use its expertise in managing 7 major transport projects to be more actively involved 8 and assist the project in avoiding possible further 9 delays and cost overruns." 10 Now, presumably you were aware of this by the time 11 you went to the mediation? 12 A. Yes. 13 Q. This is a fairly heavy hint, isn't it, from Audit 14 Scotland that Transport Scotland should be involved in 15 the project and should use their expertise for the 16 project? 17 A. Yes. 18 Q. That, in essence, was accepted by Scottish Ministers at 19 a later stage? 20 A. At a later stage Scottish Ministers decided to involve 21 Transport Scotland in the project, yes. 22 Q. I think the stage at which the decision was taken to 23 involve them was after the Council had taken a decision 24 to end the tram at Haymarket and then had later extended 25 it to St Andrew Square/York Place. The view was that 194 1 the ministers required Transport Scotland involvement 2 from that moment on? 3 A. It was a decision taken around August, yes, that the 4 reinstatement of the grant after the Council deciding to 5 overturn its initial decision to end the -- stop the 6 line at Haymarket and take it further into 7 St Andrew Square, ministers agreed to reinstate the 8 grant. One of the conditions of that was to involve 9 Transport Scotland in the project from that point. 10 Q. It took until that point, until there had been an 11 abortive Council vote and then the second vote to extend 12 it to St Andrew Square, and the ministers reinstating 13 the grant, it was only at that stage that ministers said 14 that Transport Scotland should be involved? 15 A. Yes. 16 Q. I think we can see that, for completeness, if you look 17 at another document, it's TRS00031263. 18 Just enlarge the upper half of the page. Is this an 19 information paper to be provided for the Cabinet, is 20 that correct? 21 A. That's right. 22 Q. And if we scroll up a little, I don't know if that's 23 possible -- that's it. 24 It notes: 25 "Following City of Edinburgh Council's decision on 195 1 25 August to take the tram only to Haymarket, Ministers 2 announced that the remaining grant funding of 3 GBP72 million would be withheld on the grounds that the 4 decision represented a significant departure from the 5 original concept that the Government agreed to support 6 to a maximum of 500 million. However, Ministers made it 7 clear that they would be open to the Council coming 8 forward with further proposals which were consistent 9 with the basis on which the original grant was agreed. 10 At a special meeting of the Council on 2 September, the 11 decision to stop the route at Haymarket was overturned 12 in favour of the recommended option to continue the tram 13 to St Andrew Square at an estimated cost of 14 GBP776 million. The Council expects the planned 15 settlement with the contractor to be concluded within 16 the next week or so. The Council will also seek early 17 assurance that the decision to go to St Andrew Square 18 will be sufficient to satisfy the Scottish Government 19 that it is appropriate to reinstate grant support to the 20 project. As part of any agreement to release further 21 grant payments, the government will require the Council 22 to agree that Transport Scotland should assume a greater 23 role in the management of the project." 24 So you've essentially come 180 degrees from 25 a decision to withdraw Transport Scotland from the 196 1 project. It's now mandatory that they be reinstated if 2 more grant is to be made available? 3 A. Yes. 4 Q. And you were the individual, or one of the individuals, 5 you say, from Transport Scotland who participated in the 6 governance of the project in this later stage? 7 A. That's correct, yes. 8 Q. Could you look at another document for me, please. It's 9 CEC01891498. 10 You can see that this is a Council paper, titled 11 "Edinburgh Tram Project Update". It's for the audit 12 committee on 26 January 2012; do you see that? 13 A. Yes. 14 Q. And we can see, if we look to 3.2, at the bottom of the 15 page, in the paragraph that's underneath it, that we're 16 dealing with new governance arrangements, and it notes 17 that: 18 "The revised governance arrangements as reported to 19 the Council on 25 August 2011 are now in place." 20 If you look over the page at the upper half of the 21 page, we can see paragraph 3.2.3: 22 "The key features of the revised arrangements 23 include:" 24 We jump to the last bullet point: 25 "A representation by Transport Scotland at all 197 1 levels of the project." 2 Do you see that? 3 A. Yes. 4 Q. Now, if we can go to page 12 of this, Appendix 1(g) - 5 Project governance structure. We have got a meeting 6 title, "Joint Project Forum & Principals Forum", and 7 we can see on the standard attendee list towards the 8 right-hand side of that table, your name fourth from the 9 bottom. 10 A. Yes. 11 Q. And this was one of the meetings that you attended? 12 A. Yes. 13 Q. We can see on the left-hand side that the frequency is 14 given as monthly or quarterly? 15 A. Mm-hm. 16 Q. Is that that the joint project forum was monthly and the 17 principals forum was quarterly? 18 A. Yes, that is my recollection. 19 Q. Did you attend both halves of it, both the joint project 20 forum and the principals forum? 21 A. My recollection was that I attended the weekly meeting, 22 which was chaired by Sue Bruce, and the principals 23 forum. I don't recall attending the monthly project 24 forum. But I may have done. 25 Q. If we could also look, then, for completeness at page 18 198 1 within this. This time the meeting title is "Tram 2 Briefing Meeting". 3 A. Yes. I attended the Tuesday meetings on a weekly basis, 4 and I believe my colleague Graham Porteous attended the 5 Thursday meetings. 6 Q. So you attended every Tuesday? 7 A. Mostly, yes. 8 Q. It's noted there that Graham Porteous was a colleague of 9 yours that was also participating? 10 A. He was part of the project team assisting the tram 11 project, yes. 12 Q. In fact if we go back to page 13, we see another meeting 13 title is "Project Delivery Group", which is a meeting 14 that takes place fortnightly, we see noted on the 15 left-hand side of the page, once again, your colleague 16 Graham Porteous from Transport Scotland is on the 17 attendance list for that. 18 A. Yes. 19 Q. You go on another two pages to page 15. The meeting 20 title this time was "Tram Commissioning, Integration & 21 Preparation for Operation Meeting". This is to take 22 place also fortnightly. 23 If we look towards the right-hand side of the page, 24 in the centre column, one of the attendees is to be 25 Transport Scotland rep, to be confirmed? 199 1 A. Yes. 2 Q. Can you recall now who was that ultimately attended? 3 A. I don't, no. It certainly wasn't me. I think probably 4 it would more likely be Graham Porteous or perhaps one 5 of his colleagues, Scott Noble. 6 Q. We can see that the description that we saw in the 7 Council paper itself of Transport Scotland, 8 participation at all levels, seems to be accurate? 9 A. Indeed. 10 Q. Within your statement, you refer to a group you attended 11 called the group project forum. I wasn't sure whether 12 you were referring to the tram briefing meeting that you 13 attended or the -- what was also termed the joint 14 project forum, which was the one on page 12. 15 A. Yes. Yes. My memory fails me a little bit since then, 16 but I certainly attended every weekly meeting, which was 17 the meeting chaired by Sue Bruce on a weekly basis, to 18 manage the day-to-day delivery of the tram, and 19 certainly I attended the principals forum meeting on 20 a regular basis. 21 I may have attended some of the project forums, but 22 I didn't -- I wasn't involved in the more detailed 23 project delivery meetings that my colleagues were 24 involved in. 25 Q. If we just go back to page 12 on the screen. This was 200 1 a joint project forum and the principals forum where 2 you're named as an attendee. If the Inquiry hears 3 evidence that this was in a sense a Project Board, would 4 you disagree with that? 5 A. It was a collaborative board in order to work in 6 a collaborative way with the contractor and to try and 7 resolve any issues at a senior level that were emerging 8 so that the project could -- really to escalate any 9 issues that were coming from the contract and get them 10 nipped in the bud, and get agreement from all parties to 11 move forward. 12 Q. We can see, if you look at the right-hand side of the 13 screen here, with the attendees, the principals were 14 invited quarterly were Dr Keysberg, Dr Scheppendahl and 15 Antonio Campos? 16 A. Yes. 17 Q. They were presumably representatives of each of the 18 members of the consortium. 19 A. Indeed, yes. 20 Q. And that would be the principals forum? 21 A. Yes. 22 Q. And if those persons were in attendance, it might be 23 possible to consider issues that were arising, 24 differences of opinion between the parties? 25 A. Indeed. 201 1 Q. If we look at the standard attendee list, not in 2 italics, perhaps relating to the joint project forum, 3 there are no representatives of the consortium there. 4 A. No, there are. Martin Foerder, Alfred Brandenburger, 5 certainly, I think, represented the consortium. 6 Q. Look at the left-hand side of the screen, the meeting 7 purpose. The meeting purpose is to provide clear 8 strategic leadership and direction to the project, but 9 under that, also the decisions expected are to be 10 confirmation of progress and the resolution of escalated 11 issues? 12 A. Yes. 13 Q. Now, do you understand that would be functioning very 14 much in the way that the Project Project Board might 15 have been expected to function otherwise? 16 A. Which Project Board? 17 Q. Well, a Project Board, project boards in general? 18 A. Project boards in general? Yes, I would expect the 19 Project Board to function in that way. 20 Q. So we have once again come in a sense full circle in 21 that we now have Transport Scotland representation on 22 what is in effect now the Project Board? 23 A. Indeed. After the decision for ministers to require 24 Transport Scotland involvement, but that was at a point 25 where tie were no longer the project managers and 202 1 deliverers of the project. So tie were no longer 2 involved. 3 Q. tie were no longer involved as of Mar Hall; is that 4 correct? 5 A. I'm not sure. I think tie were running down over a 6 period from Mar Hall until the project started again in 7 the -- in September. I may be wrong. I may be wrong. 8 Q. If you think back, might it have been the case that one 9 of the things said right at the outset of Mar Hall was 10 that the consortium wished to have tie taken out of the 11 picture? 12 A. Indeed, indeed. 13 Q. And there was agreement that that is what was going to 14 happen? 15 A. Yes, but that didn't happen overnight, and there was 16 also an interim agreement post Mar Hall, prior to the 17 final agreement following the Mar Hall mediation, and 18 the interim agreement, which was done under risk, was 19 for the contractor to go in and fix various bits around 20 Princes Street, for which we released 40 million in 21 grant monies to facilitate that interim arrangement 22 until the final arrangements and agreements were put in 23 place, which were, I think, originally planned to be in 24 August, but because of the issues with the Council 25 originally -- the original Council decision to stop the 203 1 tram at Haymarket and then going back on that decision, 2 where it was supposed to take place in the 3 August/September. 4 Q. We have seen that the decision from the document we 5 looked at, the Cabinet -- advice to Cabinet, that the 6 decision to put the Council -- to put Transport Scotland 7 back in was precipitated by the Council's decision 8 firstly to stop at Haymarket and then to re-extend back 9 to St Andrew Square? 10 A. Indeed. 11 Q. It doesn't appear any way in there to have been linked 12 to the winding up of tie or the removal of tie? 13 A. But that was the fact, that tie were no longer there. 14 Q. It's a fact, but it wasn't a reason that Transport 15 Scotland were brought back in? 16 A. It wasn't a reason, indeed. 17 Q. Now, if the Transport Scotland involvement is described 18 by other witnesses as having been very positive, I take 19 it you wouldn't disagree with that? 20 A. No. 21 Q. If the witnesses say that the reasons for it being 22 positive were that they were a key part of the client 23 side, a majority funder, I take it you wouldn't disagree 24 with that? 25 A. No. 204 1 Q. But that had been true all the way since 2007, hadn't 2 it? 3 A. Insofar as the tie was the principal contract delivery 4 arm of the Council, and they were the project managers, 5 Transport Scotland were a party to this as funder, yes. 6 Q. The question I said to you was: were they a key part of 7 the client side, a majority funder; and I think you 8 agreed. Would that have been the case since 2007? 9 A. We were a key part -- Transport Scotland were a key part 10 up until 2007 until the decision was taken to give the 11 project the green light, and then the decision was then 12 it would be more appropriate for governance terms that 13 Transport Scotland stepped back from active 14 involvement -- 15 Q. Let's be clear. The decision was taken to withdraw 16 Transport Scotland in summer of 2007? 17 A. Yes. 18 Q. And the green light to the project was given in 19 December 2007. 20 A. Yes, but -- the green light in terms of funding because 21 you could not proceed with the project -- Council 22 couldn't proceed with the project until it had 23 a commitment and guarantee of the funding. 24 Q. That was given in December 2007? 25 A. What, the agreement in principle? 205 1 Q. Can we be clear. That was given in December 2007? 2 A. Yes. 3 Q. The decision to withdraw was in fact taken many months 4 earlier? 5 A. Yes. 6 Q. So they are not related, are they? 7 A. To what? 8 Q. The decision to withdraw was not based on the fact that 9 the project had been given the go-ahead, because 10 Transport Scotland were withdrawn before the project had 11 been given the go-ahead? 12 A. The project effectively had been given the go-ahead in 13 that the Parliament had voted and ministers agreed that 14 the project could go ahead. Subject to the finalisation 15 of the Business Case, you're quite correct; but in 16 reality, the project was moving to the next stage, and 17 it would have been quite normal to review the governance 18 arrangements as the project moves from one part -- from 19 one stage to another. 20 Q. We will come back to look at the reasons for withdrawal 21 in a little bit more detail. 22 There is a second reason for the witness saying it 23 was positive was that Transport Scotland brought 24 interests, knowledge and expertise to the table. Do you 25 disagree with that? 206 1 A. We brought expertise to the table. I wouldn't disagree 2 with that. 3 Q. Knowledge? 4 A. We brought knowledge. 5 Q. Interests? 6 A. Interests, yes. 7 Q. And that was also true since 2007. That wasn't new in 8 2011? 9 A. It wasn't, but we had no expertise in the delivery of 10 light rapid transit, and again, I would say City of 11 Edinburgh Council had set up an expert team in the shape 12 of tie to deliver that expertise and knowledge. 13 Q. I think in response to a question from Lord Hardie 14 earlier, when he asked you who would you go to if you 15 were considering light rail, in the absence of any other 16 project in Scotland, you said you would look at the 17 people who have heavy rail experience? 18 A. Indeed. 19 Q. There was abundance of that in Transport Scotland? 20 A. There was some expertise on heavy rail in Scotland, but 21 most of the heavy rail in Scotland was delivered by 22 Network Rail. 23 Q. So when you said that in 2011 there were interests, 24 knowledge and expertise brought to the table, they could 25 have been at the table all the way since 2007, had that 207 1 been the decision? 2 A. Had that been the decision, but that was not the 3 decision. 4 Q. Now, we have heard that the policy decision was made to 5 withdraw Transport Scotland in 2007. The former 6 Chief Executive of Transport Scotland explained to the 7 Scottish Parliament Committee he couldn't recall that 8 happening at any other situation. Can you recall that 9 happening in any other situation? 10 A. No. 11 Q. If I can just ask you something in your statement, if we 12 look back to your statement at page 12, if you look 13 there at paragraph 28, and look at the second half, 14 after the quotation, you say: 15 "The Auditor General of Scotland said that the 16 estimates in the project had been subjected to robust 17 testing." 18 This is the contents of the 2007 Audit Scotland 19 report? 20 A. Indeed. 21 Q. "If Audit Scotland had crawled all over the project and 22 they said thought it was robust and had a good chance of 23 delivering a successful project, why would 24 Transport Scotland have thought differently at the time? 25 Audit Scotland felt sufficiently comfortable to give an 208 1 opinion about a project that was not yet delivered." 2 When you say Audit Scotland had crawled all over the 3 project, how long had Audit Scotland been involved with 4 the project when they wrote their report? 5 A. I don't know. 6 Q. It was a matter of weeks, hadn't it? 7 A. Yes. 8 Q. How long had Transport Scotland been involved in the 9 project by 2007? 10 A. At least a year. 11 Q. They had been involved -- the project had been there 12 since Transport Scotland was established at the start of 13 2006? 14 A. Indeed. 15 Q. But in fact Scottish Government personnel had been 16 involved in it prior to that, back to Scottish Executive 17 days? 18 A. Indeed. 19 Q. So that body of people, if not the name of the entity, 20 had long involvement with it, much longer than Audit 21 Scotland? 22 A. Indeed. 23 Q. So was it really appropriate to do, as you seemed to 24 indicate here, to defer to Audit Scotland's three-week 25 examination, rather than concentrate on the long-term 209 1 goals of Transport Scotland? 2 A. I think all I was doing here was expressing a view that 3 we were -- we were being interviewed by Audit Scotland. 4 Audit Scotland went in and looked at the governance and 5 management structures and the project delivery 6 structures in place, which they have experience of doing 7 on other projects, and effectively said that they 8 thought there were robust structures and processes in 9 place. 10 That's all I was reflecting in that. 11 Q. The quotation in the first half of this paragraph -- 12 I'll read to you the whole paragraph: 13 "In an email exchange between David Middleton and me 14 dated 1 December 2010 I said "you might find this useful 15 to know. The last bullet point in particular will make 16 it harder for Audit Scotland to suggest 17 Transport Scotland should have seen the disaster 18 coming". In response, David Middleton said, "Thanks, 19 I didn't want to debate in front of Audit Scotland last 20 week, and I know you weren't directly involved, but why 21 did we pull back in 2007? It must have been political 22 to a degree"". 23 You've looked into the circumstances in which 24 Transport Scotland were pulled out of the project, and 25 it was political, wasn't it? 210 1 A. Ultimately, ministers made the decision, and ultimately 2 ministers are political. But it was taken in discussion 3 between officials and ministers, and there was 4 a rational reason for doing it. 5 Q. Let's just look at some documents in relation to what 6 you have just said. Look, please, at TRS0000456. 7 Sorry, 00004536. 8 Now, we see that this is an email dated 9 11 July 2007, the one at the top, which is from 10 Jerry Morrissey to John Ramsay. What he says is we need 11 to define what is meant by scale-back of the project. 12 If we look at the foot of the screen, we can see why 13 he is saying that. It's a message sent on behalf of the 14 Cabinet Secretary to various persons and copied to even 15 more persons, including yourself? 16 A. Indeed. 17 Q. In relation to the tram project under the heading there, 18 you see: 19 "Mr Swinney agrees with the approach outlined in 20 Option 3 as the cap on Trams and he also agrees that 21 Transport Scotland should scale back its direct 22 involvement with the project." 23 Do you see that? 24 A. Yes. 25 Q. You are advised that the minister wants to "scale back 211 1 ... direct involvement" and then we can see the response 2 to that is to try and consider what's meant by "scale 3 back"? 4 A. Yes. 5 Q. So we can conclude from that the decision was taken to 6 scale back before there was any real idea what that 7 meant. 8 A. I think in terms of the detail of the scaling back, yes. 9 Q. Is it common to take a decision to do something without 10 really knowing what it means? 11 A. I can't see what the Option 3 is in the Annex C of the 12 minute. 13 Q. Perhaps in fairness, we will go and look at what that 14 option is, please. If we could look at document 15 reference TRS00004523. We see this is a paper from 16 Malcolm Reed, dated 6 July 2007, and addressed to the 17 Cabinet Secretary. 18 A. Yes. 19 Q. It's headed "EARL AND EDINBURGH TRAM: NEXT STEPS". 20 This is a paper provided, giving advice after the 21 Parliament's vote to scrap EARL, but nonetheless to 22 proceed with the tram. 23 What I would like to do, if you could go forward in 24 this, please, to look at page 5. 25 We can see there's an annex to the paper setting out 212 1 the next steps. If we go and look at the next page -- 2 sorry, we're on the previous page, I've got a slightly 3 different paginated version than this. 4 So if we could go to the next page again. 5 Sorry, I've got a completely different document with 6 the same reference. 7 Could we go to document TRS00004522. We can see 8 here an email dated at the foot of the page 9 July 2007. 9 This is from -- we just know the person's name is 10 Marion. It's referring to a minute that is attached 11 from Malcolm Reed and it's addressed to the Cabinet 12 Secretary, dated 9 July. Do you see that? 13 A. Yes. 14 Q. In terms of identifying the document, could we go back, 15 please, to TRS00004523. If you go to the fourth page, 16 and then the fifth page -- I'm sorry about this, 17 my Lord, and the next page beyond that. 18 We will leave that document. I'll come back to it 19 another time. 20 CHAIR OF THE INQUIRY: Get back to the email of 9 July. 21 There was a briefing minute to the Minister. Is that 22 what you were looking for? 23 MR LAKE: No, my Lord, it's a curious thing that everything 24 up to page 5 is corresponding exactly with the version 25 I have, and that the final page does not correspond with 213 1 the version that I have. So I'll need to find out why 2 pages 6 and 7 are different in my version from the 3 version that's been loaded on to TrialDirector and see 4 which is the correct one. I have a feeling that what is 5 there is incorrect and we will need to get the correct 6 versions added. 7 But if I could ask, in the meantime, you to look, 8 please, at the other document. It's TRS00011413. 9 Now, I think this is the email exchange you referred 10 to in your statement. If we look at the lower half of 11 the page, we see the comment in the email from you to 12 David Middleton that begins: 13 "You might find this useful to know." 14 His response on 1 December 2010, asking: 15 "Why did we pull back in 2007?" 16 Could we go to the upper half of the page. In 17 response to that, you emailed David Middleton on 18 1 December, saying: 19 "My recollection at the time was that Ministers 20 wanted to take what was described as a light touch. 21 Malcolm put a note up recommending an approach to take 22 to meet that expectation. I can dig that note out and 23 let you see." 24 What we have here is you telling David Middleton 25 that essentially the ministers told you what they wanted 214 1 and Malcolm, presumably Malcolm Reed, provided a minute 2 recommending the approach that the ministers had said 3 they already wanted. 4 Now, you presumably said that because you had 5 information to suggest that's exactly what happened. 6 A. No, it's what I say in my recollection at the time was 7 that there was discussions, and I wasn't party to those 8 discussions, but my recollection was there were 9 discussions between Malcolm, Bill Reeve and ministers as 10 to the next steps following the -- the outcome of the 11 parliamentary debate in June in terms of what would be 12 an appropriate role for Transport Scotland going 13 forward. 14 Q. If you could look, then -- 15 CHAIR OF THE INQUIRY: Before leaving that, if you scroll 16 down to the bottom, in the email from you to 17 Mr Middleton, you say you are putting forward the 18 finishing touches for the -- to brief the Cabinet 19 Secretary: 20 "A reference to this will do no harm as he's 21 concerned he is vulnerable that Scottish 22 Government/Transport Scotland pulled back in 2007." 23 Can you elaborate upon that? 24 A. I think there's a lot of criticism of the government's 25 decision that Transport Scotland shouldn't be involved 215 1 post the 2007 parliamentary debate, and I think we were 2 providing briefing for the Cabinet Secretary as to why 3 the decision was rational, and based on -- at that 4 point, our recollection of the discussions that took 5 place in 2007 between Malcolm, who was then gone, and 6 the documentary evidence that was there. 7 I wasn't party to the discussions with the minister 8 on the tram in 2007, but we were aware that the 9 ministers were being criticised because of the -- what 10 appeared to be a decision to pull out Transport Scotland 11 from participation in the project. 12 MR LAKE: And you will be aware of the scope of possible 13 criticism. 14 A. Yes. 15 Q. It would be a sensitive matter? 16 A. Indeed. 17 Q. And you had the Chief Executive of Transport Scotland 18 asking you for information? 19 A. Mm-hm. 20 Q. This is in 2010, which is only three years or so after 21 the events, rather than ten years we are now after the 22 event. 23 A. Yes. 24 Q. So your recollection would probably be better at the 25 time then than it is now? 216 1 A. Yes. 2 Q. What you said in your email of 1 December is that 3 ministers decided they wanted a light touch and Malcolm 4 put up a note recommending that approach to meet the 5 expectation. Is that what happened? 6 A. That's what I said in that minute. Whether that -- 7 Q. Is that -- 8 A. I'm not saying that's what happened. Because I wasn't 9 there. So -- but I accept that's what I said in the 10 minute. 11 Q. If you said that in a minute to the Chief Executive 12 Transport Scotland, is it likely to reflect what you 13 believed to be the truth at the time? 14 A. What I believed at the time was that ministers and 15 officials were discussing the appropriate arrangements 16 for Transport Scotland's involvement in the project 17 going forward as funders, and that there was 18 a discussion between officials and ministers, and 19 ultimately ministers will always decide on the basis of 20 those discussions or recommendations. 21 Do I believe ministers directed Transport Scotland? 22 I don't believe I have any evidence that there was any 23 direction by ministers. 24 Q. Why, in 2010, did you not tell the Chief Executive of 25 Transport Scotland what you're telling us now? It's 217 1 quite a different version you're giving, isn't it? 2 A. No, I don't believe so. Because I think Mr Middleton 3 gave that evidence to the public audit committee in 4 2011, that there wasn't any evidence of a determination 5 by ministers or a direction by ministers. But 6 a discussion between officials. 7 Q. Is it not the case that what you said there was true, 8 that this was the ministers decided, having lost the 9 vote in Holyrood -- 10 A. What I am saying is true, ministers decided, and the 11 fact -- 12 Q. Could you let me finish, they decided they wanted a 13 light touch -- 14 CHAIR OF THE INQUIRY: Don't speak across each other. 15 A. I beg your pardon, my Lord. 16 CHAIR OF THE INQUIRY: Mr Lake? 17 MR LAKE: That the Minister decided that what they wanted 18 was a light touch, and that a paper was written to 19 justify what the ministers said they wanted. 20 A. I don't know that that's the case. I don't believe that 21 ministers directed us. I believe there was a discussion 22 between officials and a decision was made, and that 23 decision was made by ministers, and ministers make 24 decisions. 25 Q. If we try going back to the document I looked at 218 1 previously, which was TRS00004523. We got as far as 2 looking at page 6 of this. If we go back to page 6. 3 Could we look -- is there a following page to this? 4 We see a discussion here as to Edinburgh Trams 5 particularly in relation to Edinburgh Trams, and the 6 first sub-heading is "Overall Funding". Halfway down 7 the page, there's a paragraph which begins: 8 "The latest statements present the following 9 possible interpretations." 10 Could we highlight that, and the three underneath 11 it. 12 We can see, just look at the third option: 13 "GBP375 million recalculated on the new baseline 14 programme for 1a to be delivered at the July Tram 15 Project Board. This programme is anticipated to present 16 a degree of delay and therefore the current estimate of 17 GBP492 million will rise to circa GBP500 million with an 18 option to cap at that point or not." 19 I think we saw in the earlier note the minister's 20 preference for the third of the options; is that 21 correct? 22 A. Yes, which was to cap at 500 million. 23 Q. These are all to be fair, refer to -- or at least 24 numbers 2, 3 and 5 refer to capping. 25 A. Yes. 219 1 Q. If we go to the next page, we can see there's 2 a reference was to go with Option 3. If we then look at 3 the heading underneath that, and the two paragraphs 4 which follow, we have the future governance and role of 5 Transport Scotland, and if we go to the second 6 paragraph: 7 "To achieve this clarity of roles, and ensure that 8 situations could not arise subsequently in the 9 governance of the project which might generate further 10 calls on central funding, I propose that 11 Transport Scotland's future engagement with the 12 Edinburgh Tram Project should be on the basis of revised 13 grant conditions and once these conditions are in place, 14 Transport Scotland staff should withdraw from active 15 participation in the governance of this project." 16 Now, seeing that is what it said in this minute 17 that's put forward, if we go back to the email of 18 11 July, which was reference TRS004536. And we looked 19 at the bottom of the page, there was a reference to: 20 "Thank you for the minute of 9 July regarding the 21 above." 22 I think we have seen that the minute was actually 23 dated 6 July, but the covering email was 9 July? 24 A. Yes. 25 Q. Is that essentially the approval of the Option 3 and the 220 1 scale-back in that particular context? 2 A. Yes. It's agreeing to the cap and agrees that 3 scale-back in relation to the -- the options laid out in 4 annex C. 5 Q. If we could then go to another document. It's reference 6 TRS00011064. 7 We can see in the lower half of the page, an email 8 from you to David Middleton and Bill Reeve. Do you see 9 that? 10 A. Yes. 11 Q. If we look over to the second page of this, we can just 12 focus on the last paragraph of your email, the 13 conclusion you expressed at the time, 5 October 2010, 14 is: 15 "It may well come out in the wash that having the 16 major funding party remote from the decision making and 17 management of the contract is not a sensible way to 18 manage projects like this in the future. However, that 19 doesn't take away from the fact that the responsibility 20 for the current predicament rests with CEC to resolve." 21 Now, you are clearly expressing a view there that 22 having the major funding party remote from 23 the decision-making is not a sensible way to manage the 24 project? 25 A. That's what I'm saying. 221 1 Q. Do you still maintain that view? 2 A. I think that's still to be decided, yes. 3 Q. Your view is it's not sensible. Is that still your 4 view? 5 A. I said it may well be a decision that having a funder 6 remote -- 7 Q. You say it may well come out in the wash? 8 A. Yes. 9 Q. That -- you're not saying it may well come out that this 10 is not a sensible way to manage projects, this under the 11 basis that there's going to be some scrutiny of what had 12 been going on? 13 A. Indeed, I would expect there to be lessons learned from 14 any major project. 15 Q. Are you aware of Bill Reeve also expressing concerns 16 about the withdrawal and whether or not it would be 17 possible properly to meet the requirements of the public 18 finance manual in that situation? 19 A. I remember that comment being made by Bill. I think 20 it's in my statement. 21 Q. Were there other people, apart from you and Bill Reeve, 22 within Transport Scotland who had concerns? 23 A. I don't think I had concerns at the time that the 24 decision was made, because I wasn't party to the 25 decision. I think this minute, if I'm -- correct me if 222 1 I am wrong, was written after 2007. I don't think I was 2 making a comment on, you know, whether a decision was 3 right. I was making a comment on where the project had 4 got to at that particular point. 5 Q. Let's turn to the question of the reasons for this. If 6 we could look at your statement, please, at 7 paragraph 12, which is on pages 5 and 6. 8 Is it the case that what you're doing is seeking to 9 set out here a number of reasons to justify the decision 10 to withdraw Transport Scotland from the project? 11 A. I think I was asked for a view as to why 12 Transport Scotland came off the Board, and I think I was 13 giving the view that in good governance and project 14 management terms, it wouldn't be sensible to have two 15 delivery organisations trying to deliver this project. 16 Q. Were Transport Scotland ever the delivery organisation 17 trying to deliver the project? 18 A. No. 19 Q. There was never any question of that, was there? 20 A. No. 21 Q. So there was no need to withdraw them on that basis, was 22 there? 23 A. No. 24 Q. So that's a spurious reason, isn't it? 25 A. Well, we were moving to a delivery phase. So I don't 223 1 know how Transport Scotland would have been involved if 2 not being party to the delivery decision. 3 Q. So it was always hoped that the project would move to 4 a delivery phase some time in about 2007, end of, wasn't 5 it? 6 A. Yes. 7 Q. And there had never been discussion prior to summer of 8 2007 that Transport Scotland was intending to withdraw 9 as the phase moved on, was there? 10 A. I wasn't involved in any such discussions, but I can't 11 say that there weren't. 12 Q. Were you aware of any consideration prior to summer 2007 13 that Transport Scotland had intended to withdraw when it 14 got to the delivery phase? 15 A. I wasn't aware of any discussions prior to 2007 on this 16 project. 17 Q. So if we do not discover that there was any indication 18 given beforehand, it was suggested the only thing that 19 in fact changed in the summer of 2007 was the 20 parliamentary vote. 21 A. Well, I would argue that when you move from 22 a development phase into a procurement and construction 23 phase, that it is always a natural time to look at the 24 governance arrangements and see if they're fit for 25 purpose and provide clarity. 224 1 Q. Has Transport Scotland ever withdrawn from any other 2 project at that sort of phase on that basis? 3 A. Not to my knowledge. 4 Q. And Transport Scotland was able to participate in the 5 delivery phase post 2011? 6 A. Indeed. 7 Q. Positively? 8 A. Indeed. 9 Q. So really the suggestion that the different stage or 10 phase requires Transport Scotland to step back is, once 11 again, a spurious reason, isn't it? 12 A. I don't believe so. I believe the discussions were 13 around proper clarity around the delivery and who was 14 responsible for the delivery, and that was clearly the 15 Council as project owner and tie as a Project Director. 16 Q. Do you understand that the role of Transport Scotland 17 within the project up to 2007 was quite clear? 18 A. I couldn't comment on that. I wasn't party to 19 Transport Scotland's involvement prior to 2007. 20 Q. Insofar as you suggest there might have been some 21 confusion of roles, surely you're suggesting that that 22 might have arisen if Transport Scotland had carried on? 23 A. I think what I'm saying is that we were moving into the 24 delivery and construction phase, which needs clarity in 25 terms of decision-making in the contractual -- in the 225 1 contractual structure. 2 Q. I think you referred within your statement to the 3 problem -- that it was no longer necessary to have 4 Transport Scotland there because of the experience 5 available to tie. 6 Perhaps, out of fairness, I should refer you to 7 that. If you look at page 6 of your statement, 8 paragraph 14, you say: 9 "There was a series of discussions between 10 officials, Malcolm Reed and John Swinney. My 11 recollection from the various meetings at director level 12 was that there were discussions about the extent to 13 which it was reasonable for us to remove ourselves from 14 the governance process. But, I reiterate, we were 15 moving into a different phase of the project. The 16 tie Board had significant non-executive representations, 17 with senior people with experience of rapid transport 18 systems across the world, as well as a well resourced 19 and highly experienced delivery team. My view at the 20 time was that this was a perfectly reasonable decision 21 to come to in terms of ensuring clear and effective 22 project delivery structures." 23 Turning to 2011 for a moment, I think the Council 24 had available to it people with experience and expertise 25 who then did implement the project and project managed 226 1 it without any particular difficulty? 2 A. Not quite. They employed Turner & Townsend, who were 3 consultants, and consultants have that experience and 4 it's quite natural that they would employ that. What 5 they didn't have, when tie were no longer available to 6 them, was much depth in client expertise. 7 Q. Client expertise? 8 A. Indeed. Intelligent client expertise, where the actual 9 client body who is delivering the project employs its 10 own people, its own expertise, whether it be lawyers or 11 accountants or engineers, with experience in delivering 12 projects, to manage those who are providing -- the 13 consultants who are providing assistance to the project. 14 Q. So are you suggesting that post 2011 Transport Scotland 15 provided that expertise? 16 A. We provided some of that expertise, yes. 17 Q. And if we've heard discussions about a need for having 18 a client role properly to be performed in the project, 19 and that was the function of the Tram Project Board -- 20 A. Which Tram Project Board? 21 Q. The Tram Project Board pre-2007? 22 A. Pre-2007 there was a Tram Project Board and there was 23 a clear intelligent client in the shape of tie, which is 24 why, in my view, CEC put them in place. 25 Q. And if tie wanted to develop the client expertise at 227 1 that time, that is expertise that could at that time 2 have been provided by Transport Scotland? 3 A. It could have, but they had sufficient expertise, it 4 would appear, in place, and that's why they had been 5 put -- 6 Q. Was there any written evaluation carried out of 7 expertise in place and whether or not it was thought 8 suitable? 9 A. No, not to my knowledge. 10 Q. Nothing in writing? 11 A. Nothing, not to my knowledge. 12 Q. Is that not a bit strange, if you're using that as 13 a basis to take a decision to withdraw Transport 14 Scotland, that you don't have a single documented record 15 of the consideration of this matter? 16 A. We had, to my knowledge, the audit report in 2007 and 17 the fact that CEC had put in place an expert body to 18 deliver this and other transport projects. 19 Q. That's tie? 20 A. tie. 21 Q. That had been in place for, by 2007, five years? 22 A. Five years. 23 Q. But suddenly it was necessary to withdraw that because 24 tie were there? 25 A. Because we had moved to a different phase of the 228 1 project, and Transport Scotland were only in -- because 2 we talk about Transport Scotland expertise, which was 3 delivery expertise, and that was put together in 2006. 4 Q. So tie had been there for five years? 5 A. Mm-hm. 6 Q. The decision in the Scottish Parliament had taken place 7 a few weeks earlier, and you're asking us to accept that 8 it was the existence of tie that was the problem, not 9 the parliamentary vote? 10 A. No, I'm saying that tie were there as an expert body, an 11 arm's length body of the Council, to deliver the 12 client -- intelligent client expertise to manage the 13 delivery of this and other transport projects. 14 MR LAKE: My Lord, that would be a suitable time to break. 15 CHAIR OF THE INQUIRY: We will adjourn until tomorrow at 16 9.30. Please come back then. 17 A. Okay. 18 (4.32 pm) 19 (The hearing adjourned until Wednesday, 27 September 2017 at 20 9.30 am) 21 22 23 24 25 229 1 INDEX 2 PAGE 3 MR MICHAEL HOWELL (affirmed) .........................1 4 5 Examination by MR LAKE ........................1 6 7 MR STEVE CARDOWNIE (sworn) ..........................53 8 9 Examination by MR LAKE .......................53 10 11 Questions by CHAIR OF THE INQUIRY ...........138 12 13 MR AINSLIE MCLAUGHLIN (affirmed) ...................142 14 15 Examination by MR LAKE ......................142 16 17 18 19 20 21 22 23 24 25 230