1 Tuesday, 26 September 2017 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) 142 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