1 Tuesday, 26 September 2017 9 MR LAKE: My Lord, the next witness is Ainslie McLaughlin. 10 MR AINSLIE MCLAUGHLIN (affirmed) 11 Examination by MR LAKE 12 CHAIR OF THE INQUIRY: Could I ask you, when you're 13 answering your questions, to speak clearly, but also 14 slowly, so that the shorthand writers can keep up with 15 you. 16 A. I will. 17 MR LAKE: Thank you, my Lord. 18 Mr McLaughlin, could you state your full name, 19 please? 20 A. Ainslie Craig McLaughlin. 21 Q. We have your address; it's been communicated to the 22 Inquiry. What is your occupation? 23 A. I'm currently a civil servant with the Scottish 24 Government. 25 Q. Is that over in procurement generally? 142 1 A. It is. I'm Director of Procurement and Commercial with 2 the Scottish Government. 3 Q. I think you were formerly employed within 4 Transport Scotland within the Scottish Government? 5 A. That is correct. 6 Q. If you could have before you a document, it will also be 7 shown on the screen, reference TRI00000061_C. 8 A. Yes. 9 Q. Do you recognise this as the statement you have given to 10 this Inquiry? 11 A. I do, yes. 12 Q. I think on the last page of the paper version, it should 13 be signed by you? 14 A. That's correct. 15 Q. Can we take it that you're happy to adopt that as your 16 evidence to this Inquiry? 17 A. I am content, but on re-reading it recently, I did 18 notice in paragraph 49 in the first sentence, there was 19 an error at the end of the sentence. Where it said 20 "anything", it should have read "nothing". 21 Q. Let's see if we can find that and correct it in context. 22 So paragraph 49? 23 A. Yes. It says: 24 "Transport Scotland was not doing anything." 25 It should read, I think: 143 1 "Transport Scotland was not doing nothing." 2 Q. Could you go to page 20 of 50 on the screen. 3 A. Yes. 4 Q. It's the opening sentence there, that sentence should 5 be: 6 "Transport Scotland was not doing nothing." 7 A. Yes. 8 Q. Thank you for that. 9 Could we now go to page 46 of this statement, 10 please. 11 Paragraph 130. 12 A. Yes. 13 Q. This is talking about under the heading, "Governance", 14 if I read from the fourth line: 15 "The Council understood that it was a big project 16 they had to deliver, that they did not have the 17 capability in-house and that they needed a significant 18 amount of intelligent client expertise." 19 A. Yes. 20 Q. "They adopted an arm's length model and created TIE 21 (which was similar to what Transport Scotland for London 22 did with Crossrail), so it did not have the same pay 23 restrictions that councils and public sector bodies have 24 to attract people with expertise and experience in 25 delivering these big projects." 144 1 A. Yes. 2 Q. Would Transport Scotland have any say as to whether or 3 not there should be an arm's length company set up? 4 A. Not to my knowledge, no. 5 Q. Okay. And apart from tie, I think you make the 6 reference in your statement also to TEL. Do you recall 7 that company? 8 A. Yes. Transport Edinburgh Limited, I believe was what 9 the acronym stood for, yes. 10 Q. You also, I think, were aware of the Tram Project Board, 11 because indeed you sat on the Tram Project Board? 12 A. No, I didn't sit on the Tram Project Board within the 13 tie/TEL set-up. I sat on a subsequent Board which was 14 Chaired by the Chief Executive of the City of Edinburgh 15 Council. 16 Q. Post 2011? 17 A. Post 2011, after tie was disbanded. 18 Q. I think I should have said it was Bill Reeve who sat on 19 the Tram Project Board or Damian Sharp prior to 2008? 20 A. That's correct, yes. 21 Q. What did you understand the various responsibilities of 22 each of these bodies to be, that's tie, TEL and the Tram 23 Project Board, pre 2008? 24 A. I'm not sure I had much of a view on the governance and 25 arrangements and the various responsibilities between 145 1 the various parties. I understood tie to be effectively 2 the project delivery arm of the project director. They 3 reported to a Project Board which was made up of 4 non-executive directors and to which the Chief Executive 5 of tie reported to and the project team reported to. 6 TEL, I understood, to be an umbrella board that took 7 into -- took -- or covered both the tram, the delivery 8 of the tram and ultimately the operation of the tram, 9 and also Lothian Buses. 10 Q. Mm-hm. If there's documentation dating from around the 11 time that says that the Tram Project Board is in fact 12 a sub-committee of the TEL Board, is that a surprise to 13 you? 14 A. I'm not sure I have a view on whether that's a surprise 15 to me or not. I understood that the -- there would have 16 to be some investment decision-making structure within 17 the project delivery, and that would normally be 18 delivered by a Project Board. 19 So how that -- where that Project Board sat in 20 relation to TEL or indeed CEC, I had no sight of. 21 Q. I think in your earlier answer, you said it was your 22 impression that tie would report to the Tram Project 23 Board? 24 A. Indeed. 25 Q. So which was the body ultimately responsible for 146 1 delivery of the tram in Edinburgh? 2 A. Ultimately I would have said the City of Edinburgh 3 Council were the body ultimately responsible for 4 delivering the tram, and that they put in place 5 a structure of project management through tie to deliver 6 that project on their behalf as agents. 7 Q. I suppose what I'm trying to get at is, as you say, the 8 Council, it was ultimately their project, they had set 9 up tie to deliver. Where does the Tram Project Board 10 fit in within the Council and tie? 11 A. I don't know, I think is the honest answer. 12 Q. Would it be fair to say it was really quite unclear? 13 A. I don't think I ever looked at -- understand the precise 14 governance arrangements that were in place. 15 Q. Could we look at page 47 of your statement, please. 16 Could you enlarge paragraph 132. You said there: 17 "I did not have any concerns in relation to the 18 governance arrangements at that time, in fact it looked 19 textbook. There was plenty of governance. It was not 20 as if there was not a project manager or a project 21 board." 22 How was it that you were able to form a view that 23 these were textbook governance arrangements if you were 24 not really clear who was in charge? 25 A. I suppose I came to that view on the basis that the 147 1 Audit Scotland Report from 2007 had said that there were 2 sound governance processes in place, and on the face of 3 it, there was a delivery body, tie, and there was 4 a Project Board to which tie was accountable for in 5 terms of delivering this particular project. 6 Q. The opening sentence of that paragraph, when you say: 7 "I did not have concerns ..." 8 That suggests it was something to which you had 9 directed your mind at the time; is that correct? 10 A. Inasmuch as I had looked at the 2007 audit report, and 11 that I had been asked again in 2011 by Audit Scotland 12 whether I had any concerns from the information I had. 13 I didn't have any concerns. 14 Q. So you were asked in 2007 by Audit Scotland? 15 A. No, I wasn't. I read the Audit Scotland Report in 2007. 16 Q. So in 2011? 17 A. In 2011 there was a further Audit Scotland Report into 18 how the tram was performing because of the difficulties 19 that came. 20 Q. Was it at that time that Audit Scotland asked you if you 21 had had any concerns about the tram governance? 22 A. I -- I didn't have any concerns about the tram 23 governance because I hadn't looked at the tram 24 governance at that point. In between times, I was aware 25 that there were governance arrangements in place, and on 148 1 the base of it, and on the basis of what Audit Scotland 2 had reported in 2007, I saw no difficulty with it. 3 Q. I just want to be clear about this. When was it that 4 you formed the view that you didn't have concerns about 5 the arrangements in, say, 2007/2008? 6 A. I didn't have any concerns, but I wasn't particularly 7 asked whether I had concerns. This was just a question 8 that I was asked as part of my witness statement, and my 9 view was that on the face of it, there was nothing to 10 concern me about the governance arrangements on the 11 basis of the review that had been carried out with -- by 12 Audit Scotland in 2007. And subsequent arrangements 13 that I saw. 14 Q. In the period prior to the Audit Scotland Report in 15 2007, had you ever addressed your mind to the governance 16 issue? 17 A. Prior to 2007? 18 Q. Yes? 19 A. No, I wasn't involved at all in the tram project. 20 Q. In 2011, were you asked your view about the governance 21 arrangements? 22 A. I don't recall if I was. I was asked what my role was 23 at that point. 24 Q. Do you recall concerns -- this is going back again to 25 2006, 2007, 2008 sort of time -- about the complexity of 149 1 the corporate structure, the governance structure that 2 had been established? 3 A. I don't, no. 4 Q. Could I ask you, please, to look at a production. It's 5 TRS00002657. 6 This is an email from James Papps of 7 Partnerships UK, to Matthew Spence and Damian Sharp who 8 were colleagues of yours at Transport Scotland? 9 A. Yes. 10 Q. And also copied to Bill Reeve, another colleague of 11 yours at Transport Scotland? 12 A. That's correct, yes. 13 Q. The date is 21 July 2006; do you see that also? Do you 14 see the date, Mr McLaughlin? 15 A. 2006, yes, July. 16 Q. Perhaps if we could enlarge the text of the email, where 17 it begins "Matthew", and then ... this is Mr Papps: 18 "Matthew, many thanks for this. I think this is 19 a sensible and helpful summary of basic principles to be 20 followed in constructing a governance document. 21 The trouble with the TIE approach is that it has 22 always been founded on attempts to fit arrangements 23 within the complicated and overlapping corporate 24 structure formed by TIE, TEL and CEC, rather than 25 starting with optimal structure and working out 150 1 relationships to other existing bodies as the second 2 stage." 3 That's describing the problem. Was that discussed 4 with you at all at the time? 5 A. It wasn't, no. 6 Q. So you wouldn't have been aware of anything that was 7 going on in relation to this exchange. 8 A. I wasn't aware of any of these discussions at this time, 9 no. 10 Q. I shan't ask you further about that. 11 Did you view the arrangements even with hindsight, 12 the arrangements in place at that time as ones that were 13 complex? 14 A. No, I didn't review those arrangements, no. 15 Q. What is in an SRO in relation to a project? 16 A. It's the senior responsible owner of the project, 17 ultimately accountable for its delivery. 18 Q. How important is the SRO in relation to the delivery of 19 a project? 20 A. In project governance and delivery terms, it's 21 a critical role in the delivery of the project. The 22 owner is responsible for ensuring that that the 23 resources are available for the delivery, the successful 24 delivery of the project, and that the project objectives 25 are achieved. 151 1 Q. Are you aware as to who was the SRO at this time, 2007? 2 A. I wasn't aware of who was SRO at that point. 3 Q. Now, Transport Scotland were providing a grant for this 4 project? 5 A. Well, Scottish Ministers were providing a grant for the 6 project, yes. 7 Q. And that's handled through the Executive Agency -- 8 A. And that was handled and managed through the Executive 9 Agency, Transport Scotland, that's correct. 10 Q. But the project, I think you said in your statement, 11 there was no doubt that it was always the City of 12 Edinburgh Council project? 13 A. Indeed. 14 Q. So although Audit Scotland or the Scottish Ministers 15 were funders, were you aware that their role went 16 further than that in terms of the extent to which they 17 provided assistance and support of the project in its 18 early stages? 19 A. Sorry? 20 Q. Rather than merely being the provision of money, Audit 21 Scotland also provided advice and assistance in relation 22 to the project? 23 A. Transport Scotland, do you mean? 24 Q. Yes. 25 A. I was aware that Transport Scotland were involved in the 152 1 early stages of the project, yes, and that -- had 2 managed the grant arrangements, the previous grant 3 arrangements that were in place to fund the transport -- 4 the tram project. 5 Q. I think the reason I referred to Audit Scotland in error 6 is I was about to take you to a document of theirs. 7 I can do that. It's reference CEC00785541. 8 You can see this is a copy of the Audit Scotland 9 report, Edinburgh Transport Scotland's review, in 10 June 2007? 11 A. Indeed, yes. 12 Q. I take it you've read this before? 13 A. I have read it before, yes. 14 Q. If we could go, please, to page 8 within that, and look 15 at the lower half of the page. Under the heading, 16 "There are three key players for both projects", it 17 says: 18 "There are a number of partners in the 19 Edinburgh trams and EARL projects but three key players 20 are common to both projects." 21 The first of those is Transport Scotland. Do you 22 think that was understood within Transport Scotland, 23 that they were a key player in terms of this project? 24 A. In terms of principal funder, yes. 25 Q. And it notes under -- in that bullet point in relation 153 1 to Transport Scotland that it takes a close interest in 2 the progress of both projects and their projected costs? 3 A. At that point, yes. 4 Q. If we look a little bit further to paragraph 27, which 5 can be seen on the following page, page 7, in the lower 6 half of the page, under the heading 7 "Transport Scotland", could we see all three paragraphs 8 under that heading? We can see, just looking at it 9 broadly, some consideration of the management and 10 governance procedures that take place within 11 Transport Scotland. Do you see that? 12 A. Yes. 13 Q. If we go then to page 14 of this, and look at 14 paragraph 56, go on a further two pages, it must be 16 15 in this one. You can see that it is there noted that: 16 "The Tram Project Board exercises overall governance 17 of the project. It includes senior representatives from 18 tie, Transport Scotland, CEC and Transport Edinburgh 19 Limited and has full delegated authority from CEC 20 (through TEL) and Transport Scotland to take the actions 21 needed to deliver the project to agreed cost, timescale 22 and quality standards. The Tram Project Board has 23 a clear written remit, meets every four weeks to 24 consider reports from tie's Tram Project Director and is 25 supported by two sub-committees with responsibility for 154 1 assessing progress within the programme." 2 A. Yes. 3 Q. That's a positive finding in relation to the Tram 4 Project Board. Do you see that? 5 A. Yes. 6 Q. If you go back and look at the whole page, we can see 7 that the bold heading above paragraph 56 is, 8 "Arrangements in place to manage the project appear 9 sound". 10 A. Yes. 11 Q. So Audit Scotland in 2007 took account of 12 Transport Scotland and their role in the project, in 13 concluding that it was sound? 14 A. Indeed. 15 Q. In terms of this report being prepared by Audit 16 Scotland, are you aware of the circumstances in which it 17 was obtained? 18 A. I understand that it was at the request of the Cabinet 19 Secretary to the Auditor General, to review the 20 arrangements in place with delivery of the tram and EARL 21 projects at the time. 22 Q. In that Transport Scotland were the executive agency 23 with responsibility for transport projects, did you find 24 it surprising that the Cabinet Secretary didn't make 25 a request of the established government department, 155 1 Transport Scotland, to review these matters? 2 A. No, I didn't find that surprising. 3 Q. Can you think of any other instance where Audit Scotland 4 have been asked to review projects like this? 5 A. No, I think -- I can think of no other occasion where 6 Audit Scotland have been asked to look at the project at 7 this particular stage. Audit Scotland certainly took an 8 interest in the delivery of Scottish Government 9 projects, but normally either mid-delivery or after the 10 projects have been delivered. 11 Q. So normally if there's concerns about whether or not 12 a project should be delivered at this sort of stage, 13 before contracts have even been signed, is that a matter 14 where questions -- a minister might normally make 15 enquiries through Transport Scotland? 16 A. They might normally have been, but Transport Scotland 17 was only -- had only been established the year earlier 18 and these were new ministers coming in, in a new 19 administration. 20 Q. Transport Scotland had been established a year earlier 21 but the role that was being discharged by 22 Transport Scotland had been undertaken for many years, 23 hadn't it? 24 A. In various parts of government and other parts, yes. 25 Q. Even pre-devolution days, the Scottish Development 156 1 Department would have undertaken this sort of role, 2 wouldn't it? 3 A. Well, the Scottish Development Department would have 4 been responsible for roads and transport and may well 5 have been involved in this project, yes. 6 Q. So there were people there who had a lot of experience 7 and were long established in delivering government 8 projects? 9 A. There were people within government who had been long 10 established in delivering roads projects, but not to my 11 knowledge light rapid transit projects and tram projects 12 of this nature, no. 13 Q. Once the project actually got up and running, I think 14 reports were provided periodically every four weeks by 15 tie or the Council to Transport Scotland. Were you 16 involved in the consideration of those reports, or would 17 one of your colleagues better -- 18 A. No, these were principally submitted to colleagues 19 within Rail Directorate, who were monitoring progress of 20 the project and paying out the grant on the basis of the 21 certificates that Edinburgh Council were submitting. 22 Q. I'll direct my questions to them. 23 CHAIR OF THE INQUIRY: Did the expertise within the 24 government extend to rail projects? 25 A. It did. 157 1 CHAIR OF THE INQUIRY: How many light rapid transport 2 systems before Edinburgh Tram Project had there been in 3 Scotland? 4 A. None, to my knowledge. 5 CHAIR OF THE INQUIRY: So that if you were looking for 6 expertise within the government, or government 7 department, where would you look to get advice about the 8 first light rapid transport system? 9 A. Well, I think the -- that was the purpose of setting up 10 tie at the time was to provide a vehicle for -- 11 CHAIR OF THE INQUIRY: Mr McLaughlin, do you understand the 12 question? I'm saying, if you were looking for expertise 13 within the government, you've got people who can deal 14 with heavy rail. 15 A. Yes. 16 CHAIR OF THE INQUIRY: Where would you look within the 17 government departments for expertise that might assist 18 with light rail? 19 A. You would look to colleagues who had heavy rail 20 experience in the first instance, yes. 21 CHAIR OF THE INQUIRY: Thank you. 22 MR LAKE: If I could ask you to look, please, at page 20 of 23 your statement. If you could look in particular at 24 paragraph 49. 25 A. Yes. 158 1 Q. It's perhaps easiest if I look at the whole paragraph 2 for context: 3 "Transport Scotland was not doing nothing. We were 4 asking TIE what it was doing about the situation. When 5 things got to a head at the end of 2009, Ministers asked 6 officials to have a high level meeting with David Mackay 7 and Richard Jeffrey from TIE. The meeting was in the 8 early part of 2010. I then became involved in informal 9 meetings over 2010 with Richard Jeffrey to track TIE's 10 approach to resolving the contract difficulties." 11 Now, I think at this stage a decision -- 12 a ministerial decision had been taken that 13 Transport Scotland would not be involved in the -- other 14 than providing funds? 15 A. Yes. 16 Q. In the tram project? 17 A. Yes. 18 Q. Nonetheless, you have the Minister here advising you to 19 hold meetings with people throughout 2010 to monitor 20 what was going on? 21 A. Yes. 22 Q. What were you -- what was the purpose in this, as far as 23 you were aware? 24 A. The purpose was really to get a better understanding. 25 By the end of 2009/the early part of 2010, it was quite 159 1 evident that the contract was in difficulty, that there 2 was significant contention between the tie and the 3 contractor, that there was a number of adjudications 4 either taking place or having taken place, and that 5 there was concern on ministers' part as to whether or 6 not the project was actually going to deliver on time 7 and to budget, and ministers were looking for some 8 assurances from tie that they had control over the 9 project and could deliver within time and budget. 10 My role was really just to have informal meetings 11 with Richard Jeffrey who was at that point 12 Chief Executive, just to understand a little more detail 13 about the strategies that were taking -- they were 14 taking forward in order to try and get the resolution to 15 those contract difficulties; to be able to better brief 16 ministers on it, from time to time, when they were 17 meeting David Mackay and Richard Jeffrey for updates 18 during that period. 19 Q. So if you were seeking information about the strategies 20 that were being employed, presumably you were also 21 seeking information about the outcome of those 22 strategies being employed? 23 A. Yes. At that point the outcome didn't become apparent 24 until the end of 2010, because Richard Jeffrey and tie 25 were embarking on the strategy. There was always 160 1 a parallel strategy of looking to get a resolution to 2 restructure the contract, to take the tram into the 3 centre of Edinburgh, and conclude the contract at that 4 point, rather than take it down to Leith, and also at 5 the same time they were looking at the possibility of 6 terminating the contract. So they were running two 7 parallel strategies through 2010, to try and get to 8 a point where they could resolve the project 9 difficulties and get the tram running from the airport 10 into the centre of Edinburgh. 11 Q. And this was information that you were going to use in 12 turn to brief the Minister? 13 A. Indeed, yes. 14 Q. What was the Minister's interest in this? 15 A. The Minister's interest was in having a viable tram up 16 and running in Edinburgh, preferably within the 17 timescale and original budget. 18 Q. What was he going to do? What did he think he might 19 want to do with the information that you provided? 20 A. I don't think he wanted to do anything. I think he just 21 wanted to be assured and understand how the project was 22 actually being managed. 23 Q. What I'm trying to get is to what end? It's one thing 24 to know information, to want to have information, 25 I should say, but it doesn't actually take you any 161 1 further in providing you with control or input. It may 2 not provide the assurance. It may create anxiety? 3 A. Indeed. In the early parts of 2010, I think ministers 4 were assured that tie and the new management structure 5 within tie seemed to have, appeared to have a grip on 6 the project and a strategy for resolving the issue. It 7 only became apparent towards the end of 2010, when those 8 strategies were not successful, that in fact the project 9 was effectively grinding to a halt at that point and 10 wasn't going to be delivered. 11 Q. The Minister might have had -- no doubt did have -- 12 information from you about these things. What did the 13 Minister intend to do with that information? 14 A. I think the Minister was considering at various points 15 whether or not there was -- whether or not there would 16 be any benefit in intervening at that point or whether 17 leaving it with the Council to resolve would be the best 18 way forward. 19 Q. Intervening in what way? 20 A. In a way that -- in terms of how -- getting a better and 21 more effective management of the project and in some way 22 helping resolve the contract difficulties. 23 Q. What would be involved in getting a better management of 24 the project at that stage? 25 A. Well, at that point we did not know, and we were 162 1 considering options as to whether or not there were 2 credible options for the ministers to intervene. 3 Q. What were the options for intervention? 4 A. Well, ultimately we felt there weren't any options at 5 that point, mid-contract, in the -- particularly in 6 light of the significant contractual disputes that were 7 ongoing. That any intervention from government would 8 probably, if nothing else, exacerbate the position. 9 Q. So the Scottish Ministers were at that time in 10 a position where they were committed to making a grant 11 of GBP500 million? 12 A. Indeed. 13 Q. And had no ability to -- practical ability to intervene 14 to secure the project objectives? 15 A. They had -- they were not a party to the contract with 16 the Infraco, no. 17 Q. Let me ask my question. They had no practical ability 18 to intervene to secure the project objectives? 19 A. They didn't at that point, no. 20 Q. It would have been desirable to have some ability to 21 intervene, wouldn't it? 22 A. I think ministers were concerned that there had been put 23 in place a credible operation through tie and the City 24 of Edinburgh Council to deliver this project, to time 25 and to budget, in line with the original Business Case, 163 1 and that it was becoming clear that that structure was 2 not delivering that objective, and ministers were 3 looking at what possible routes there were to resolving 4 this position. 5 Q. They were looking at what options, as you explained to 6 us, they were looking at what options there might be for 7 intervention? 8 A. Yes. 9 Q. And concluded there were none. Now, does it not -- 10 A. Concluded there were none that were practicable at that 11 point, yes. 12 Q. Would it not have been preferable to have a practical 13 route for intervention with so much money at stake? 14 A. Well, the mechanisms they had at hand were through the 15 grant agreements and arrangements that were in place 16 between ministers and City of Edinburgh Council. 17 Q. What mechanisms were they? 18 A. The mechanisms were there that the government would make 19 payments to the Council up to the limit of the 20 GBP500 million cap in support of the delivery of the 21 tram project. 22 Q. But it's correct to say, isn't it, that the government 23 had stood back from having any ability to control or 24 manage the governance of the project? 25 A. That's correct, yes. 164 1 CHAIR OF THE INQUIRY: I think you were asked in two or 2 three different ways whether it would have been 3 desirable to have some ability to intervene, and you 4 haven't really answered that question. 5 A. In retrospect it would be desirable to have some second 6 rights, but there wasn't a mechanism for doing that 7 credibly at that point. 8 MR LAKE: There could have been one specified at the outset, 9 couldn't there, when the grant was provided? 10 A. There may have been, but I couldn't say how that might 11 have been constructed. 12 Q. So if you were doing this project again, you don't think 13 you would be able to think of some means of putting in 14 some practical intervention mechanism? 15 A. Off the top of my head, I can't think of how you would 16 do that and not affect the contractual relationship 17 between the two parties to the contract. 18 Q. Can we go to page 47 within your statement. I would 19 like to look at paragraph 131. I am doing that to 20 identify the start of paragraph 131; the passage 21 I mentioned is on the following page. 22 You're talking about -- as you read from the first 23 full sentence on the page: 24 "There was a bit of low tech engineering which 25 involved, at its most basic, digging a hole in the 165 1 ground, putting in a concrete foundation, sticking some 2 rail lines on and filling it back in, but that proved to 3 be really difficult in terms of logistics and planning. 4 On top of that there were the contractual arrangements. 5 I cannot understand why TIE were still talking about 6 a fixed price lump sum project when it was quite 7 evident, even before the disputes resolution, that the 8 contract was not a fixed price contract." 9 When was it evident to you that this was not a fixed 10 price contract? 11 A. I think in the discussions with tie earlier in 2010, 12 when -- when I was first asked to discuss the 13 arrangements that were in place with tie. 14 Q. Was this a view that you formed? On seeing the 15 contract? 16 A. I never saw the contract. It was just how they 17 explained the contract to me at that point. 18 I think ministers were concerned that it was being 19 characterised to them as a fixed price lump sum and yet 20 it was becoming evident that the costs were overrunning. 21 Q. Who were you having discussions with that led you to the 22 conclusion it wasn't fixed price lump sum? 23 A. I can't remember everybody who was at the meeting, but 24 David Mackay, Richard Jeffrey. I think Andrew Fitchie 25 and a number of other senior officials from tie were at 166 1 the meeting, along with colleagues of mine from 2 Transport Scotland, and we were basically asking them 3 how the contract was operating and working. 4 Q. Can you remember who else was there from 5 Transport Scotland? 6 A. I think Bill Reeve was there, possibly David Middleton, 7 but other than that, I'm not -- I can't remember 8 entirely. 9 Q. Bill Reeve we will hear from later, but David Middleton 10 was the Chief Executive at that time? 11 A. He was, yes. 12 Q. So this was quite a high level and formal meeting? 13 A. Indeed. 14 Q. In terms of forming the view that it wasn't fixed price 15 lump sum, was that something that was said to you or was 16 it an opinion you formed as a result of what was said to 17 you? 18 A. I think it would -- my recollection was that this 19 project was always characterised as a fixed price lump 20 sum contract in the discussions we'd had previously with 21 tie and ministers. 22 Q. So how did you come to the conclusion that it wasn't? 23 A. Because they basically told me it wasn't, that there was 24 a mechanism within the contract that allowed for design 25 development, that was based on the fact that the design 167 1 hadn't been completed by tie at the point it was 2 novated, and that although complete control of that 3 design was handed over to the contractor at that point, 4 responsibility and risk of any design changes still 5 rested with tie. 6 Q. When in 2010 did that meeting take place? 7 A. My recollection is around March. 8 Q. Did you have discussions within Transport Scotland about 9 what you had been told about the fixed price nature of 10 the contract? 11 A. No, no, I didn't, no. I don't recall discussing that. 12 Q. Did you, Bill Reeve and David Middleton discuss it? 13 A. No. Not to my -- not in any detail. 14 Q. Was that not quite a fundamental thing that the contract 15 you thought was fixed price turned out not to be? 16 A. Well, in as much as that is how it had been 17 characterised by tie and we then had to tell ministers 18 that in fact it wasn't a fixed price contract, and quite 19 self-evidently it wasn't, because the costs were 20 starting to overrun quite significantly at that point. 21 Q. Did the ministers not require a briefing to you as to 22 what the consequences of that might be? 23 A. The consequences of that -- I did provide a briefing to 24 ministers on that. The consequences of the 25 contractual -- the structure of the contract were played 168 1 out in the various disputes resolutions between the 2 contractor and tie at that point. 3 Q. That was going on between tie on the one hand and the 4 contractors on the other. I'm really interested to know 5 what was going on within Transport Scotland, if the 6 three of you had been told this, and you were going to 7 brief ministers, are you saying there was no discussion 8 between officers within Transport Scotland as to what 9 the potential ramifications of this -- 10 A. Well, what I'm saying is I don't recall any detailed 11 discussions of that nature. What I do recall is that we 12 did tell ministers that this was not a fixed price 13 contract. And that in fact the -- there was significant 14 exposure in the contract because of the potential for 15 the contractor to seek design development and additional 16 costs on the back of that. 17 Q. Now, it's established that the Transport Scotland have 18 made plain that the grant was to be up to GBP500 million 19 and no more. 20 A. Indeed. 21 Q. So there wasn't going to be a financial implication for 22 Transport Scotland? 23 A. That's correct. Or for Scottish Ministers. 24 Q. Or Scottish Ministers. 25 But was there a concern that if the Scottish 169 1 Ministers provided this money and costs continued to 2 escalate, it might not be possible to provide the entire 3 line? 4 A. Indeed, and that is becoming apparent during the 5 discussions with the City of Edinburgh Council and tie 6 at that point. In order to get an affordable viable 7 tram project, discussions were then taking place about 8 truncating the line and delivering it only from the 9 airport to the city centre. 10 Q. That would mean that the Scottish Ministers were getting 11 a lot less than they had anticipated for their money? 12 A. Indeed. 13 Q. So that presumably would have been a matter of some 14 considerable concern to the Scottish Ministers? 15 A. It was, yes. 16 Q. At that time, was there no consideration of what could 17 have been done to try and have given the Scottish 18 Ministers more practical control or practical ability to 19 intervene in the situation as it had developed? 20 A. We did discuss with Scottish Ministers what could be -- 21 what practical steps we could take to intervene or take 22 over the project and there was none that were practical 23 or credible in our opinion at that point. 24 Q. I just want to go back for a minute to 2009. We may 25 hear evidence from one of your colleagues that he 170 1 obtained advice from a firm of solicitors, Dundas & 2 Wilson, to the effect that the infrastructure contract, 3 the Infraco contract was not fit for purpose. Were you 4 made aware of that? 5 A. I'm not aware of that, no. 6 Q. Would that have been something material for you to know 7 about? 8 A. In 2000 -- 9 Q. 2009. 10 A. 2009? No, I wasn't involved in the project in 2009. 11 So ... 12 CHAIR OF THE INQUIRY: I think the question was: would it 13 have been material to know that in 2009? 14 A. It would have been material to know that, but I didn't 15 know that, no. 16 CHAIR OF THE INQUIRY: Could I ask when you say that "we" 17 briefed ministers about it not being a fixed price 18 contract or wherever, could you just tell us who is 19 "we", and I appreciate that one speaks about ministers 20 in the plural, but which minister or ministers did you 21 tell. 22 A. At that time it would have been Mr Swinney and 23 Mr Stevenson, who were the Cabinet Secretary and 24 respective minister responsible for infrastructure, and 25 for Transport Scotland at that time. 171 1 CHAIR OF THE INQUIRY: And who was involved in that briefing 2 on the Civil Service side? 3 A. From the Civil Service side, it would be 4 Transport Scotland, the briefing would have come from 5 Bill Reeve and from myself at times, yes. 6 CHAIR OF THE INQUIRY: Thank you. 7 MR LAKE: If I could ask you, please, to look back at your 8 statement at page 8. 9 A. Page 8? 10 Q. Page 8, paragraph 20. 11 Now, reading this some seven lines down, I think, 12 towards the right-hand margin, six lines down, there's 13 a sentence that begins: 14 "There was a meeting between Bilfinger Berger and 15 John Swinney which I attended to try to break the 16 impasse." 17 This is towards the end of 2010? 18 A. Yes. 19 Q. Who was at that meeting? 20 A. There was Mr Swinney. I supported Mr Swinney. It was 21 attended by Jochen Keysberg, who was Managing Director, 22 I think, of Bilfinger Berger. And the senior manager 23 from Siemens UK, whose name escapes me at the moment. 24 There were four at the meeting. 25 Q. So Siemens were represented at the meeting? 172 1 A. Yes, they were. 2 Q. What was the nature of discussions? What was discussed 3 at that meeting? 4 A. Basically, I think, Bilfinger Berger and Siemens were 5 concerned that ministers weren't properly getting the 6 contractors' side of the story, that they wanted to 7 explain to ministers that they felt that tie were not 8 managing the project properly, that there was -- in 9 their words, I think, almost a deliberate 10 misunderstanding of how the contract should be applied. 11 They had lost confidence in tie's ability to manage or 12 resolve the contract, the contractual disputes. 13 They were clear that they felt that in terms of the 14 contract, they were correct in their interpretation and 15 that tie were trying to apply effectively a fixed price 16 lump sum approach to a contract that was never 17 constructed in that way, and that if this went on, that 18 the contract would break down and the contract would be 19 terminated. 20 They were looking at -- for ministers in some way to 21 take over the project or support some form of mediation 22 to resolve the impasse at that point. 23 Q. Did they raise the issue with the Scottish Ministers to 24 take over the project? 25 A. They certainly expressed a view that in their opinion, 173 1 it would be better if Transport Scotland was managing 2 this project as they had experience of working with 3 Transport Scotland at that point on other contracts, and 4 felt that there would be a more credible approach taken 5 to the management of the contract if that was done. 6 Q. Was it they or the Minister that suggested mediation? 7 A. I think -- I honestly can't recall. I think there was 8 some discussion around that point, and mediation was 9 starting to be discussed by various parties, including 10 the Council. But I think it was becoming clear that 11 some sort of mediation was going to be required to get 12 some resolution one way or the other to this project. 13 Q. What was the outcome of the meeting? How were things 14 left? 15 A. There was no -- there was no commitment for ministers to 16 come back to the contractor and the ministers took it 17 away under consideration. 18 I think following on that, there was a feeling that 19 mediation was really the next credible step in trying to 20 get to the bottom of the contractual issues and resolve 21 a way forward. 22 Q. Were you involved or other Transport Scotland colleagues 23 involved in advising the ministers on what to do next? 24 A. Yes, I was involved in that. 25 Q. And what advice was given? 174 1 A. I can't remember exact advice at that point. I think 2 I supported the proposal that mediation be sought, to 3 try and resolve this matter. 4 Q. How was that taken forward by Transport Scotland? 5 A. I think it was taken forward by the Council and -- that 6 they made the -- the proposal -- the formal proposal 7 came forward from the Council to -- to hold the 8 mediation exercise, to try and get a resolution to this, 9 and ministers at that point supported that. 10 Q. Right. So we understand it wasn't a question that 11 either Transport Scotland or the ministers contacted the 12 Council, saying: we think this would be a good idea. 13 You think -- 14 A. No, I think there was general discussions going on 15 between all parties. Clearly the contract had virtually 16 ground to a halt. There was no credible strategy for 17 taking things forward from tie at that point. The 18 Council were looking at how they could break this 19 deadlock and mediation was being mentioned. Who had 20 mentioned mediation first, I cannot recall. But it 21 started to emerge as a credible way forward around the 22 turn of 2010/beginning of 2011. 23 Q. Were you aware of any consideration of whether or not 24 that would be the best time from the Council standpoint 25 for mediation to take place or whether it would be 175 1 better to wait a bit? 2 A. I wasn't aware of any consideration on the Council's 3 part to that, no. 4 Q. Or on the part of Transport Scotland, whether it would 5 be better to wait before going to mediation? 6 A. No. 7 Q. I think you attended the mediation which took place in 8 Mar Hall in 2011? 9 A. That's correct, yes. 10 Q. I think Sue Bruce represented the Council there? 11 A. Mm-hm. 12 Q. And Vic Emery represented the -- was the Chairman of 13 both tie and TEL at that time? 14 A. Indeed, yes. 15 Q. You represented Transport Scotland? 16 A. I represented the Scottish Ministers and 17 Transport Scotland, yes. 18 Q. The three of you made up really the three principal 19 negotiators on the client side? 20 A. Mm-hm. 21 Q. Do you recall what discussions took place -- sorry, I'll 22 start that again. 23 I think we've heard that there was a scenario put 24 forward to the mediation called Project Phoenix? 25 A. I recall a number of project names, yes. I don't 176 1 immediately recall which -- what Project Phoenix -- yes. 2 Q. Project Phoenix was a proposal to take the line from the 3 airport to either Haymarket or 4 St Andrew Square/York Place? 5 A. Yes. 6 Q. Do you recall that? 7 A. I recall that the Council and Sue Bruce in particular 8 were keen to take the project into St Andrew Square, 9 yes. 10 Q. There was another proposal on the table which was to 11 terminate the contract in whole or part and to 12 reprocure? 13 A. Indeed. 14 Q. Now, were you involved in discussions that took place on 15 the first day of that regarding the costs that would be 16 involved in each of those scenarios? 17 A. I was at the mediation and I recall discussions taking 18 place about the various potential cost outcomes of both 19 of those, yes. The estimates that were being made at 20 that time by the tie officials. 21 Q. What information did you have -- what were the sources 22 of information about what the costs of those two options 23 would be? 24 A. The sources of the information were coming from tie 25 officials who were running numbers on the basis, 177 1 I assume, of the contract costs, the various outcomes 2 that had arisen from the claims in adjudication 3 outcomes, and projected scenarios that they were looking 4 at. 5 Q. Do you recall as a result of those discussions, when you 6 started looking at the costs of terminating and 7 reprocuring, the estimate of that went up GBP150 million 8 in the first day of discussions, purely on your side, 9 the client side? 10 A. I don't recall that, no. 11 Q. That's quite a material increase, isn't it? 12 A. In terms of the costs of -- 13 Q. Yes? 14 A. It is a material increase, yes. 15 Q. That increase, if we hear about that in evidence, was 16 bound to have an effect on which was seen as the most 17 advantageous option? 18 A. Yes. 19 Q. Do you recall the people from tie being there at the 20 mediation to assist you with figures, numbers, financial 21 input? 22 A. I do, yes. 23 Q. And that they were unhappy with that increase in costs 24 of estimate of termination and reprocurement? 25 A. I wasn't aware that they were unhappy, no. 178 1 Q. You were not aware that they were providing different 2 figures and a view had to be taken to override that? 3 A. I wasn't aware of any decision taken to override any 4 figures that tie were providing. I certainly saw no 5 evidence of that, no. 6 Q. Was there any discussion of whether or not there had 7 been sufficient time properly to consider the option of 8 terminating and reprocuring? 9 A. I think in many ways tie's -- one of tie's strategies 10 during 2007 was actually to get to a point of 11 terminating the contract at the end of 2010 on the basis 12 of breach by the contractor of the conditions of the 13 contract, but that ultimately turned out not to be 14 achievable. 15 So in some ways there was a preference on tie's part 16 during 2010 to actually take the project to -- and 17 terminate it and rebid the contract. 18 CHAIR OF THE INQUIRY: I think the question related to the 19 Mar Hall mediation. I think it was: was there any 20 discussion of whether or not there had been sufficient 21 time properly to consider the option of terminating and 22 reprocuring? 23 A. I don't recall a discussion of that at that point, no. 24 But certainly those were the options that they were 25 being faced with at that point. 179 1 MR LAKE: Did you explore, internally, with the client's 2 side, what other options there might be. 3 A. The other option was really just to go back to the 4 contract and work it through with Bilfinger and hold 5 them to completing the line down to Newhaven. But in 6 practical terms, that was unlikely to be achievable 7 because it was just not going to be affordable for the 8 Council. 9 Q. Was there discussion in the context of the mediation 10 between yourself, Sue Bruce and Vic Emery as to the 11 possibility of attempting to terminate on the basis of 12 a breach of contract on the part of the consortium? 13 A. No, because I think that had been discounted at the end 14 of 2010, in terms of the strategy that tie had tried to 15 take forward in parallel with my recollection was called 16 project Carlisle, which was similarly to end the -- or 17 truncate the line at either Haymarket or the city 18 centre. 19 Q. Do you recall there being discussions, again on the 20 client side, immediately before the mediation there was 21 in effect a ceiling of GBP740 million as the upper limit 22 for the costs that could be paid to get the tram built? 23 A. I have no recollection of an upper limit being 24 discussed, no. 25 Q. When you got to the agreement of the price that was to 180 1 be paid, the agreement of -- for all the Infraco works 2 excluding the on-street works would be GBP362.5 million, 3 do you recall reaching that figure? 4 A. Yes. Yes, I recall there being an agreement between the 5 Council and the contractor to provide a fixed price to 6 build the -- to complete the line between the airport 7 and Haymarket, and the 362 figure rings a bell, yes. 8 Q. On what basis did you satisfy yourself that that was an 9 appropriate figure to pay for those works? 10 A. I didn't. This was for the Council and the tie to 11 satisfy themselves that that was an appropriate figure 12 on the basis of the information that they were getting 13 from tie as to an appropriate cost for this. Taking 14 into account the ongoing contractual disputes and claims 15 that were still outstanding at that point. 16 So this was an estimate of what they thought was 17 a good deal. 18 Q. Do you know how they arrived at that figure and thought 19 it was a good deal? 20 A. On the basis of the information that they were getting 21 from the -- from the tie officials on the likely 22 scenario outcomes of -- I mean, these were not precise 23 figures. They were ranges that they were looking at of 24 potential outcomes of continuing to progress under the 25 existing contract. 181 1 Q. And that figure, GBP362.5 million, that was to cover 2 completing the building and a settlement of all the 3 existing claims; is that correct? 4 A. Yes, indeed, it was a lump sum price, if you like, for 5 completion of the works between the airport and 6 Haymarket. 7 Q. What portion of it related to settlement of existing 8 claims and what portion related to actually completing 9 the build? 10 A. I can't recall. 11 Q. Would you have known at the time? 12 A. Probably not, no. 13 Q. So you had no idea how that 362 was made up? 14 A. I didn't. I didn't have sight of those figures, no. 15 Q. So at what stage were you made aware that it was 16 proposed to do a deal for the off-street works at 17 GBP362.5 million? 18 A. This came about through the discussions as to an 19 agreeable settlement figure between the two parties. 20 Q. Was there an explanation or a justification for that 21 figure? 22 A. That would be for City of Edinburgh Council to justify 23 that figure. 24 Q. But were you not made aware or was the justification not 25 discussed with you? 182 1 A. The justification was -- was discussed to the extent 2 that there were figures supporting an outcome within 3 that range that were being -- in terms of the figures 4 that were being provided by tie, estimators at that 5 point. 6 Q. So those figures were -- you were involved in discussion 7 of those figures? 8 A. I was aware of discussions taking place around those 9 figures. I wasn't interrogating the figures and 10 I wasn't questioning the figures. 11 Q. Were you there when other people interrogated and 12 discussed the figures? 13 A. I believe I was, and I don't believe there was any 14 arguments over the -- over the reliability of the 15 figures being delivered by tie officials. 16 Q. Are you talking about arguments within the client side? 17 A. Yes, indeed, yes. 18 Q. What I'm curious to know is how it came to be that you 19 finally were going to do a deal at that level. Did you 20 have discussions with Sue Bruce and Vic Emery as to 21 whether or not a deal should be done at that level? 22 A. Well, that was for Sue Bruce and Vic Emery to decide 23 that the quantum was justifiable, given the contract sum 24 and the claims outstanding, and the claims -- and the 25 adjudication settlements that had already taken place. 183 1 Q. What was your role in relation -- 2 A. My role was essentially as an observer and to assist in 3 any way in the process. 4 Q. Did you observe any discussion of how that figure of 5 GBP362.5 million was to be made up or justified? 6 A. I did observe discussions on the various cost estimates 7 that were taking place during the two or three days of 8 the mediation exercise, yes. And there was a team 9 looking at figures -- 10 Q. So at the time, were you made aware of how -- what the 11 basis was for that figure? 12 A. My understanding of the basis of that figure was the 13 sums that had already been paid out for that portion of 14 the line, including any adjudication settlement, and on 15 the basis of outstanding claims, and the likely cost of 16 completing that line based on the previous experience of 17 the contract. 18 Q. At the time, would you have been aware of how much of it 19 was settlement of claims and how much of it was building 20 costs? 21 A. No. 22 Q. Was that not something you had any interest in? 23 A. No. I was interested in being there to support them in 24 getting and observing the mediation exercise. 25 Q. How were you supporting them? 184 1 A. I think in terms of being there as a representative of 2 Scottish Ministers, to give confidence to the contractor 3 that Scottish Ministers were taking an interest in the 4 outcome, successful outcome of the mediation exercise. 5 Q. It doesn't sound as if you were taking that much of an 6 interest in the mediation if you weren't the slightest 7 bit interested in how a figure of GBP362.5 million was 8 made up? 9 A. I was satisfied that tie and the Council were -- fully 10 understood the financial implications of the contract 11 and were better equipped then me to make a judgment on 12 the claims that were outstanding and the likelihood of 13 getting a credible settlement figure to complete the 14 project between the airport and Haymarket. 15 Q. The Inquiry has heard evidence that during the course of 16 the mediation, you left to make a phone call to the 17 cabinet secretary. Was that to get approval for the 18 deal to be done? 19 A. No, it was just to give him an update on how the -- on 20 how the mediation exercise was progressing, and also to 21 give him some idea of the likely sum that was likely to 22 be involved in -- 23 Q. Why did you want to know that? 24 A. I think he was interested to know, one, that there was 25 likely to be a settlement, and also he was interested in 185 1 what the value of that settlement would be, because it 2 was quite clear that it was going to be, and quite 3 self-evident, before we went into this mediation 4 exercise, that it was going to be considerably more than 5 545 million. 500 million had already been committed by 6 Scottish Ministers. There was something like probably, 7 I think, about 120 million or so left in the pot at that 8 stage in terms of the grant. 9 So clearly he was interested if the figure was -- 10 the final settlement was to go above 545 million, it was 11 clear that that was going to be the responsibility of 12 the Council, and that the Scottish Government was not 13 going to increase its grant contribution. 14 Q. If you wanted to know what the settlement figure was, 15 and there was going to be one, did he not ask any 16 questions as to how that figure was arrived at, what the 17 basis of settlement was? 18 A. No, he didn't. 19 Q. Does that not seem odd? 20 A. No, I think he left it to the professionals to agree an 21 appropriate figure at the mediation exercise, and to 22 justify that figure to their client body, which in this 23 case was City of Edinburgh Council, justifying it to 24 their -- to the councillors. 25 Q. So he wanted an update in the middle of the mediation 186 1 about how it was going and what the likely figure would 2 be? 3 A. Yes. 4 Q. But had no interest at all in how it was made up? 5 A. He was -- he was naturally interested to know that the 6 mediation was looking like it was going to resolve the 7 contractual issues to the extent that the project could 8 proceed and be completed satisfactorily. 9 He was interested in what the likely figure was 10 going to be, but he wasn't questioning what that figure 11 was, no. 12 Q. Why was he interested in the figure? 13 A. Because the government was committing 500 million, and 14 he was wanting to make it absolutely clear that anything 15 more than 500 million would be the responsibility of the 16 Council to fund. 17 Q. But you don't need to know the figure to make that 18 plain. That had been made plain at the time of the vote 19 to go ahead with the tram project, hadn't it? 20 A. Indeed. 21 Q. So this had been clear for the previous almost four 22 years, hadn't it? 23 A. Yes. 24 Q. So he didn't need to know the figure to make that plain? 25 A. No, but there was a natural interest in what the final 187 1 cost of this project was going to be and what the 2 implications of that would be for the Council. 3 MR LAKE: My Lord, looking at the time, I think that might 4 be an appropriate time for a break. 5 CHAIR OF THE INQUIRY: We will resume again at 3.35. 6 (3.18 pm) 7 (A short break) 8 (3.33 pm) 9 CHAIR OF THE INQUIRY: You're still under oath, 10 Mr McLaughlin. 11 MR LAKE: Thank you, my Lord. 12 Mr McLaughlin, the Inquiry has some evidence to it 13 that senior employees at tie, people like 14 Richard Jeffrey and Steven Bell, considered that the 15 price agreed at Mar Hall was too generous. Are you 16 aware of those concerns? 17 A. I wasn't, no. 18 Q. In that most of the information on which the settlement 19 was based was said to come from tie, is it not anomalous 20 that on the one hand information comes from tie, and yet 21 people from tie consider the sums paid were too 22 generous? 23 A. On the face of it, yes. 24 Q. Does it call for concern, perhaps? 25 A. Yes. 188 1 Q. Was there any consideration given as to why the views of 2 the people from tie were being overridden that you were 3 aware of? 4 A. I wasn't aware that the view of the people from tie were 5 being overridden. I was aware only that at that point 6 Richard Jeffrey still had a preference to terminate the 7 contract with the -- with Bilfinger Berger and 8 re-tender. 9 Q. Were you aware of the views of the people within tie as 10 to the appropriateness of the settlement sum? 11 A. No. 12 Q. What was agreed at Mar Hall included, amongst other 13 things, that the Council would get all the Siemens 14 material and equipment necessary to complete the rail 15 line to -- the tramline to Newhaven, even though it was 16 in fact going to be stopping at York Place, were you 17 aware of that? 18 A. Yes. 19 Q. Why was it thought appropriate to pay for materials and 20 design down to Newhaven if the line was only going to go 21 to St Andrew Square? 22 A. I think the view was that it would be appropriate to 23 have that equipment, the materials available as part of 24 the overall price to be available for the extension, 25 which the Council were still of a mind to take forward 189 1 at some point in the future. 2 Q. There would have to be paid for at the time? 3 A. Yes. 4 Q. And that would increase the costs of the settlement? 5 A. It would increase the cost of the settlement -- it would 6 be included in the cost of the settlement, yes. 7 Q. And at that time, I appreciate things have changed in 8 the last week, but at that time it was not certain that 9 there would be any extension of the line down to 10 Newhaven? 11 A. No, but it was still the Council's aspiration to 12 complete the tram to Newhaven. 13 Q. So -- 14 A. Even at that point. 15 Q. So even without any firm decision that it would take 16 place, it was decided appropriate to pay whatever it 17 took to get rails that might or might not be used one 18 day? 19 A. Indeed. 20 Q. And you were content with that? 21 A. As part of the overall settlement, that was the -- the 22 Council were content with that, yes. 23 Q. The question was: were you content with that? 24 A. I didn't have a view at that point. The mediation was 25 between the Council and the contractor. 190 1 CHAIR OF THE INQUIRY: Were you not part of the negotiating 2 team? 3 A. Not to the extent that I was involved in the commercial 4 negotiation, no. 5 CHAIR OF THE INQUIRY: I think you went as an observer but 6 then you were asked to be part of the negotiation. 7 A. Only inasmuch as the -- my involvement was really in 8 terms of how they broke the deadlock in terms of the 9 design development, because the contractor was concerned 10 that it was going to offer a fixed price, particularly 11 for the section between the airport and Haymarket. 12 The process within the tram contract that their 13 design had to be approved by tie involved risk for them 14 if the design wasn't approved. 15 So I was looking to try and break that deadlock by 16 introducing a process we have in design and build 17 contracts and PPP contracts elsewhere, where the 18 contractor takes responsibility for the design, the 19 contractor also has to self-certify that that design 20 complies with the requirements of the contract and 21 therefore warrants that it's fit for purpose. 22 That was basically my involvement in the commercial 23 aspect of that deal. 24 In terms of the -- in trying to get a resolution. 25 In terms of the appropriate of the price, all the 191 1 information resided with tie and the Council, and tie -- 2 my observations at the time was that there was no 3 conflict with the tie officials that were present at the 4 mediation in feeding the pricing information to the lead 5 negotiators, who at that time were Sue Bruce and 6 Vic Emery, and I was really there in a supporting role. 7 CHAIR OF THE INQUIRY: The Inquiry has heard from someone 8 who was present at the Mar Hall negotiation that the 9 negotiating team were Sue Bruce, Vic Emery and you, and 10 that that team were the ones taking the decisions, would 11 that be right or not? 12 A. I think Sue Bruce and Vic Emery were taking the 13 decisions -- 14 CHAIR OF THE INQUIRY: No, but the team, I said, the three 15 of you, according to this evidence, were the ones taking 16 the decisions; is that right or wrong? 17 A. I was -- I was not taking decisions on behalf of the 18 Council. I was supporting Sue Bruce and Vic Emery in 19 the -- as part of the negotiations, part of the team, 20 yes. But I was not party and was not bound by the final 21 outcome of the agreement, and that was the basis of my 22 involvement. 23 CHAIR OF THE INQUIRY: I just want to clarify what the 24 difference is. You're a part of the team, but did you 25 or did you not, as part of that team, form part of the 192 1 group taking the decisions? 2 A. No. I did not. It was clear and the basis was that -- 3 the basis I went there and the agreement with ministers 4 was that I would go in and observe -- an observational 5 capacity. A few days before Sue Bruce asked that I take 6 a more active role, but that I would not be bound by any 7 of the decisions of the mediation. 8 MR LAKE: Move to the period now post mediation. I would 9 like to look at another document, please. If you look 10 at document reference ADS00046. Can you see, this is 11 a report titled "Edinburgh trams Interim report", by 12 Audit Scotland, dated February 2011. 13 A. Yes. 14 Q. And that's obviously -- this was published before the 15 mediation had taken place? 16 A. Indeed. 17 Q. If we look, please, I think it will be page 9 of the 18 electronic version. If you could enlarge the last 19 bullet point. This is page 7 of the document, page 9 of 20 the electronic version: 21 "Although Transport Scotland already monitors 22 project spend, the Scottish Government has a significant 23 financial commitment to the project and it needs to 24 consider Transport Scotland's future involvement in 25 providing advice and monitoring the project's progress. 193 1 In particular, if the Council decides that an 2 incremental approach should be taken to the delivery of 3 Phase 1a, there may be implications for the conditions 4 of the grant which would require to be considered. The 5 Scottish Government should also consider whether 6 Transport Scotland should use its expertise in managing 7 major transport projects to be more actively involved 8 and assist the project in avoiding possible further 9 delays and cost overruns." 10 Now, presumably you were aware of this by the time 11 you went to the mediation? 12 A. Yes. 13 Q. This is a fairly heavy hint, isn't it, from Audit 14 Scotland that Transport Scotland should be involved in 15 the project and should use their expertise for the 16 project? 17 A. Yes. 18 Q. That, in essence, was accepted by Scottish Ministers at 19 a later stage? 20 A. At a later stage Scottish Ministers decided to involve 21 Transport Scotland in the project, yes. 22 Q. I think the stage at which the decision was taken to 23 involve them was after the Council had taken a decision 24 to end the tram at Haymarket and then had later extended 25 it to St Andrew Square/York Place. The view was that 194 1 the ministers required Transport Scotland involvement 2 from that moment on? 3 A. It was a decision taken around August, yes, that the 4 reinstatement of the grant after the Council deciding to 5 overturn its initial decision to end the -- stop the 6 line at Haymarket and take it further into 7 St Andrew Square, ministers agreed to reinstate the 8 grant. One of the conditions of that was to involve 9 Transport Scotland in the project from that point. 10 Q. It took until that point, until there had been an 11 abortive Council vote and then the second vote to extend 12 it to St Andrew Square, and the ministers reinstating 13 the grant, it was only at that stage that ministers said 14 that Transport Scotland should be involved? 15 A. Yes. 16 Q. I think we can see that, for completeness, if you look 17 at another document, it's TRS00031263. 18 Just enlarge the upper half of the page. Is this an 19 information paper to be provided for the Cabinet, is 20 that correct? 21 A. That's right. 22 Q. And if we scroll up a little, I don't know if that's 23 possible -- that's it. 24 It notes: 25 "Following City of Edinburgh Council's decision on 195 1 25 August to take the tram only to Haymarket, Ministers 2 announced that the remaining grant funding of 3 GBP72 million would be withheld on the grounds that the 4 decision represented a significant departure from the 5 original concept that the Government agreed to support 6 to a maximum of 500 million. However, Ministers made it 7 clear that they would be open to the Council coming 8 forward with further proposals which were consistent 9 with the basis on which the original grant was agreed. 10 At a special meeting of the Council on 2 September, the 11 decision to stop the route at Haymarket was overturned 12 in favour of the recommended option to continue the tram 13 to St Andrew Square at an estimated cost of 14 GBP776 million. The Council expects the planned 15 settlement with the contractor to be concluded within 16 the next week or so. The Council will also seek early 17 assurance that the decision to go to St Andrew Square 18 will be sufficient to satisfy the Scottish Government 19 that it is appropriate to reinstate grant support to the 20 project. As part of any agreement to release further 21 grant payments, the government will require the Council 22 to agree that Transport Scotland should assume a greater 23 role in the management of the project." 24 So you've essentially come 180 degrees from 25 a decision to withdraw Transport Scotland from the 196 1 project. It's now mandatory that they be reinstated if 2 more grant is to be made available? 3 A. Yes. 4 Q. And you were the individual, or one of the individuals, 5 you say, from Transport Scotland who participated in the 6 governance of the project in this later stage? 7 A. That's correct, yes. 8 Q. Could you look at another document for me, please. It's 9 CEC01891498. 10 You can see that this is a Council paper, titled 11 "Edinburgh Tram Project Update". It's for the audit 12 committee on 26 January 2012; do you see that? 13 A. Yes. 14 Q. And we can see, if we look to 3.2, at the bottom of the 15 page, in the paragraph that's underneath it, that we're 16 dealing with new governance arrangements, and it notes 17 that: 18 "The revised governance arrangements as reported to 19 the Council on 25 August 2011 are now in place." 20 If you look over the page at the upper half of the 21 page, we can see paragraph 3.2.3: 22 "The key features of the revised arrangements 23 include:" 24 We jump to the last bullet point: 25 "A representation by Transport Scotland at all 197 1 levels of the project." 2 Do you see that? 3 A. Yes. 4 Q. Now, if we can go to page 12 of this, Appendix 1(g) - 5 Project governance structure. We have got a meeting 6 title, "Joint Project Forum & Principals Forum", and 7 we can see on the standard attendee list towards the 8 right-hand side of that table, your name fourth from the 9 bottom. 10 A. Yes. 11 Q. And this was one of the meetings that you attended? 12 A. Yes. 13 Q. We can see on the left-hand side that the frequency is 14 given as monthly or quarterly? 15 A. Mm-hm. 16 Q. Is that that the joint project forum was monthly and the 17 principals forum was quarterly? 18 A. Yes, that is my recollection. 19 Q. Did you attend both halves of it, both the joint project 20 forum and the principals forum? 21 A. My recollection was that I attended the weekly meeting, 22 which was chaired by Sue Bruce, and the principals 23 forum. I don't recall attending the monthly project 24 forum. But I may have done. 25 Q. If we could also look, then, for completeness at page 18 198 1 within this. This time the meeting title is "Tram 2 Briefing Meeting". 3 A. Yes. I attended the Tuesday meetings on a weekly basis, 4 and I believe my colleague Graham Porteous attended the 5 Thursday meetings. 6 Q. So you attended every Tuesday? 7 A. Mostly, yes. 8 Q. It's noted there that Graham Porteous was a colleague of 9 yours that was also participating? 10 A. He was part of the project team assisting the tram 11 project, yes. 12 Q. In fact if we go back to page 13, we see another meeting 13 title is "Project Delivery Group", which is a meeting 14 that takes place fortnightly, we see noted on the 15 left-hand side of the page, once again, your colleague 16 Graham Porteous from Transport Scotland is on the 17 attendance list for that. 18 A. Yes. 19 Q. You go on another two pages to page 15. The meeting 20 title this time was "Tram Commissioning, Integration & 21 Preparation for Operation Meeting". This is to take 22 place also fortnightly. 23 If we look towards the right-hand side of the page, 24 in the centre column, one of the attendees is to be 25 Transport Scotland rep, to be confirmed? 199 1 A. Yes. 2 Q. Can you recall now who was that ultimately attended? 3 A. I don't, no. It certainly wasn't me. I think probably 4 it would more likely be Graham Porteous or perhaps one 5 of his colleagues, Scott Noble. 6 Q. We can see that the description that we saw in the 7 Council paper itself of Transport Scotland, 8 participation at all levels, seems to be accurate? 9 A. Indeed. 10 Q. Within your statement, you refer to a group you attended 11 called the group project forum. I wasn't sure whether 12 you were referring to the tram briefing meeting that you 13 attended or the -- what was also termed the joint 14 project forum, which was the one on page 12. 15 A. Yes. Yes. My memory fails me a little bit since then, 16 but I certainly attended every weekly meeting, which was 17 the meeting chaired by Sue Bruce on a weekly basis, to 18 manage the day-to-day delivery of the tram, and 19 certainly I attended the principals forum meeting on 20 a regular basis. 21 I may have attended some of the project forums, but 22 I didn't -- I wasn't involved in the more detailed 23 project delivery meetings that my colleagues were 24 involved in. 25 Q. If we just go back to page 12 on the screen. This was 200 1 a joint project forum and the principals forum where 2 you're named as an attendee. If the Inquiry hears 3 evidence that this was in a sense a Project Board, would 4 you disagree with that? 5 A. It was a collaborative board in order to work in 6 a collaborative way with the contractor and to try and 7 resolve any issues at a senior level that were emerging 8 so that the project could -- really to escalate any 9 issues that were coming from the contract and get them 10 nipped in the bud, and get agreement from all parties to 11 move forward. 12 Q. We can see, if you look at the right-hand side of the 13 screen here, with the attendees, the principals were 14 invited quarterly were Dr Keysberg, Dr Scheppendahl and 15 Antonio Campos? 16 A. Yes. 17 Q. They were presumably representatives of each of the 18 members of the consortium. 19 A. Indeed, yes. 20 Q. And that would be the principals forum? 21 A. Yes. 22 Q. And if those persons were in attendance, it might be 23 possible to consider issues that were arising, 24 differences of opinion between the parties? 25 A. Indeed. 201 1 Q. If we look at the standard attendee list, not in 2 italics, perhaps relating to the joint project forum, 3 there are no representatives of the consortium there. 4 A. No, there are. Martin Foerder, Alfred Brandenburger, 5 certainly, I think, represented the consortium. 6 Q. Look at the left-hand side of the screen, the meeting 7 purpose. The meeting purpose is to provide clear 8 strategic leadership and direction to the project, but 9 under that, also the decisions expected are to be 10 confirmation of progress and the resolution of escalated 11 issues? 12 A. Yes. 13 Q. Now, do you understand that would be functioning very 14 much in the way that the Project Project Board might 15 have been expected to function otherwise? 16 A. Which Project Board? 17 Q. Well, a Project Board, project boards in general? 18 A. Project boards in general? Yes, I would expect the 19 Project Board to function in that way. 20 Q. So we have once again come in a sense full circle in 21 that we now have Transport Scotland representation on 22 what is in effect now the Project Board? 23 A. Indeed. After the decision for ministers to require 24 Transport Scotland involvement, but that was at a point 25 where tie were no longer the project managers and 202 1 deliverers of the project. So tie were no longer 2 involved. 3 Q. tie were no longer involved as of Mar Hall; is that 4 correct? 5 A. I'm not sure. I think tie were running down over a 6 period from Mar Hall until the project started again in 7 the -- in September. I may be wrong. I may be wrong. 8 Q. If you think back, might it have been the case that one 9 of the things said right at the outset of Mar Hall was 10 that the consortium wished to have tie taken out of the 11 picture? 12 A. Indeed, indeed. 13 Q. And there was agreement that that is what was going to 14 happen? 15 A. Yes, but that didn't happen overnight, and there was 16 also an interim agreement post Mar Hall, prior to the 17 final agreement following the Mar Hall mediation, and 18 the interim agreement, which was done under risk, was 19 for the contractor to go in and fix various bits around 20 Princes Street, for which we released 40 million in 21 grant monies to facilitate that interim arrangement 22 until the final arrangements and agreements were put in 23 place, which were, I think, originally planned to be in 24 August, but because of the issues with the Council 25 originally -- the original Council decision to stop the 203 1 tram at Haymarket and then going back on that decision, 2 where it was supposed to take place in the 3 August/September. 4 Q. We have seen that the decision from the document we 5 looked at, the Cabinet -- advice to Cabinet, that the 6 decision to put the Council -- to put Transport Scotland 7 back in was precipitated by the Council's decision 8 firstly to stop at Haymarket and then to re-extend back 9 to St Andrew Square? 10 A. Indeed. 11 Q. It doesn't appear any way in there to have been linked 12 to the winding up of tie or the removal of tie? 13 A. But that was the fact, that tie were no longer there. 14 Q. It's a fact, but it wasn't a reason that Transport 15 Scotland were brought back in? 16 A. It wasn't a reason, indeed. 17 Q. Now, if the Transport Scotland involvement is described 18 by other witnesses as having been very positive, I take 19 it you wouldn't disagree with that? 20 A. No. 21 Q. If the witnesses say that the reasons for it being 22 positive were that they were a key part of the client 23 side, a majority funder, I take it you wouldn't disagree 24 with that? 25 A. No. 204 1 Q. But that had been true all the way since 2007, hadn't 2 it? 3 A. Insofar as the tie was the principal contract delivery 4 arm of the Council, and they were the project managers, 5 Transport Scotland were a party to this as funder, yes. 6 Q. The question I said to you was: were they a key part of 7 the client side, a majority funder; and I think you 8 agreed. Would that have been the case since 2007? 9 A. We were a key part -- Transport Scotland were a key part 10 up until 2007 until the decision was taken to give the 11 project the green light, and then the decision was then 12 it would be more appropriate for governance terms that 13 Transport Scotland stepped back from active 14 involvement -- 15 Q. Let's be clear. The decision was taken to withdraw 16 Transport Scotland in summer of 2007? 17 A. Yes. 18 Q. And the green light to the project was given in 19 December 2007. 20 A. Yes, but -- the green light in terms of funding because 21 you could not proceed with the project -- Council 22 couldn't proceed with the project until it had 23 a commitment and guarantee of the funding. 24 Q. That was given in December 2007? 25 A. What, the agreement in principle? 205 1 Q. Can we be clear. That was given in December 2007? 2 A. Yes. 3 Q. The decision to withdraw was in fact taken many months 4 earlier? 5 A. Yes. 6 Q. So they are not related, are they? 7 A. To what? 8 Q. The decision to withdraw was not based on the fact that 9 the project had been given the go-ahead, because 10 Transport Scotland were withdrawn before the project had 11 been given the go-ahead? 12 A. The project effectively had been given the go-ahead in 13 that the Parliament had voted and ministers agreed that 14 the project could go ahead. Subject to the finalisation 15 of the Business Case, you're quite correct; but in 16 reality, the project was moving to the next stage, and 17 it would have been quite normal to review the governance 18 arrangements as the project moves from one part -- from 19 one stage to another. 20 Q. We will come back to look at the reasons for withdrawal 21 in a little bit more detail. 22 There is a second reason for the witness saying it 23 was positive was that Transport Scotland brought 24 interests, knowledge and expertise to the table. Do you 25 disagree with that? 206 1 A. We brought expertise to the table. I wouldn't disagree 2 with that. 3 Q. Knowledge? 4 A. We brought knowledge. 5 Q. Interests? 6 A. Interests, yes. 7 Q. And that was also true since 2007. That wasn't new in 8 2011? 9 A. It wasn't, but we had no expertise in the delivery of 10 light rapid transit, and again, I would say City of 11 Edinburgh Council had set up an expert team in the shape 12 of tie to deliver that expertise and knowledge. 13 Q. I think in response to a question from Lord Hardie 14 earlier, when he asked you who would you go to if you 15 were considering light rail, in the absence of any other 16 project in Scotland, you said you would look at the 17 people who have heavy rail experience? 18 A. Indeed. 19 Q. There was abundance of that in Transport Scotland? 20 A. There was some expertise on heavy rail in Scotland, but 21 most of the heavy rail in Scotland was delivered by 22 Network Rail. 23 Q. So when you said that in 2011 there were interests, 24 knowledge and expertise brought to the table, they could 25 have been at the table all the way since 2007, had that 207 1 been the decision? 2 A. Had that been the decision, but that was not the 3 decision. 4 Q. Now, we have heard that the policy decision was made to 5 withdraw Transport Scotland in 2007. The former 6 Chief Executive of Transport Scotland explained to the 7 Scottish Parliament Committee he couldn't recall that 8 happening at any other situation. Can you recall that 9 happening in any other situation? 10 A. No. 11 Q. If I can just ask you something in your statement, if we 12 look back to your statement at page 12, if you look 13 there at paragraph 28, and look at the second half, 14 after the quotation, you say: 15 "The Auditor General of Scotland said that the 16 estimates in the project had been subjected to robust 17 testing." 18 This is the contents of the 2007 Audit Scotland 19 report? 20 A. Indeed. 21 Q. "If Audit Scotland had crawled all over the project and 22 they said thought it was robust and had a good chance of 23 delivering a successful project, why would 24 Transport Scotland have thought differently at the time? 25 Audit Scotland felt sufficiently comfortable to give an 208 1 opinion about a project that was not yet delivered." 2 When you say Audit Scotland had crawled all over the 3 project, how long had Audit Scotland been involved with 4 the project when they wrote their report? 5 A. I don't know. 6 Q. It was a matter of weeks, hadn't it? 7 A. Yes. 8 Q. How long had Transport Scotland been involved in the 9 project by 2007? 10 A. At least a year. 11 Q. They had been involved -- the project had been there 12 since Transport Scotland was established at the start of 13 2006? 14 A. Indeed. 15 Q. But in fact Scottish Government personnel had been 16 involved in it prior to that, back to Scottish Executive 17 days? 18 A. Indeed. 19 Q. So that body of people, if not the name of the entity, 20 had long involvement with it, much longer than Audit 21 Scotland? 22 A. Indeed. 23 Q. So was it really appropriate to do, as you seemed to 24 indicate here, to defer to Audit Scotland's three-week 25 examination, rather than concentrate on the long-term 209 1 goals of Transport Scotland? 2 A. I think all I was doing here was expressing a view that 3 we were -- we were being interviewed by Audit Scotland. 4 Audit Scotland went in and looked at the governance and 5 management structures and the project delivery 6 structures in place, which they have experience of doing 7 on other projects, and effectively said that they 8 thought there were robust structures and processes in 9 place. 10 That's all I was reflecting in that. 11 Q. The quotation in the first half of this paragraph -- 12 I'll read to you the whole paragraph: 13 "In an email exchange between David Middleton and me 14 dated 1 December 2010 I said "you might find this useful 15 to know. The last bullet point in particular will make 16 it harder for Audit Scotland to suggest 17 Transport Scotland should have seen the disaster 18 coming". In response, David Middleton said, "Thanks, 19 I didn't want to debate in front of Audit Scotland last 20 week, and I know you weren't directly involved, but why 21 did we pull back in 2007? It must have been political 22 to a degree"". 23 You've looked into the circumstances in which 24 Transport Scotland were pulled out of the project, and 25 it was political, wasn't it? 210 1 A. Ultimately, ministers made the decision, and ultimately 2 ministers are political. But it was taken in discussion 3 between officials and ministers, and there was 4 a rational reason for doing it. 5 Q. Let's just look at some documents in relation to what 6 you have just said. Look, please, at TRS0000456. 7 Sorry, 00004536. 8 Now, we see that this is an email dated 9 11 July 2007, the one at the top, which is from 10 Jerry Morrissey to John Ramsay. What he says is we need 11 to define what is meant by scale-back of the project. 12 If we look at the foot of the screen, we can see why 13 he is saying that. It's a message sent on behalf of the 14 Cabinet Secretary to various persons and copied to even 15 more persons, including yourself? 16 A. Indeed. 17 Q. In relation to the tram project under the heading there, 18 you see: 19 "Mr Swinney agrees with the approach outlined in 20 Option 3 as the cap on Trams and he also agrees that 21 Transport Scotland should scale back its direct 22 involvement with the project." 23 Do you see that? 24 A. Yes. 25 Q. You are advised that the minister wants to "scale back 211 1 ... direct involvement" and then we can see the response 2 to that is to try and consider what's meant by "scale 3 back"? 4 A. Yes. 5 Q. So we can conclude from that the decision was taken to 6 scale back before there was any real idea what that 7 meant. 8 A. I think in terms of the detail of the scaling back, yes. 9 Q. Is it common to take a decision to do something without 10 really knowing what it means? 11 A. I can't see what the Option 3 is in the Annex C of the 12 minute. 13 Q. Perhaps in fairness, we will go and look at what that 14 option is, please. If we could look at document 15 reference TRS00004523. We see this is a paper from 16 Malcolm Reed, dated 6 July 2007, and addressed to the 17 Cabinet Secretary. 18 A. Yes. 19 Q. It's headed "EARL AND EDINBURGH TRAM: NEXT STEPS". 20 This is a paper provided, giving advice after the 21 Parliament's vote to scrap EARL, but nonetheless to 22 proceed with the tram. 23 What I would like to do, if you could go forward in 24 this, please, to look at page 5. 25 We can see there's an annex to the paper setting out 212 1 the next steps. If we go and look at the next page -- 2 sorry, we're on the previous page, I've got a slightly 3 different paginated version than this. 4 So if we could go to the next page again. 5 Sorry, I've got a completely different document with 6 the same reference. 7 Could we go to document TRS00004522. We can see 8 here an email dated at the foot of the page 9 July 2007. 9 This is from -- we just know the person's name is 10 Marion. It's referring to a minute that is attached 11 from Malcolm Reed and it's addressed to the Cabinet 12 Secretary, dated 9 July. Do you see that? 13 A. Yes. 14 Q. In terms of identifying the document, could we go back, 15 please, to TRS00004523. If you go to the fourth page, 16 and then the fifth page -- I'm sorry about this, 17 my Lord, and the next page beyond that. 18 We will leave that document. I'll come back to it 19 another time. 20 CHAIR OF THE INQUIRY: Get back to the email of 9 July. 21 There was a briefing minute to the Minister. Is that 22 what you were looking for? 23 MR LAKE: No, my Lord, it's a curious thing that everything 24 up to page 5 is corresponding exactly with the version 25 I have, and that the final page does not correspond with 213 1 the version that I have. So I'll need to find out why 2 pages 6 and 7 are different in my version from the 3 version that's been loaded on to TrialDirector and see 4 which is the correct one. I have a feeling that what is 5 there is incorrect and we will need to get the correct 6 versions added. 7 But if I could ask, in the meantime, you to look, 8 please, at the other document. It's TRS00011413. 9 Now, I think this is the email exchange you referred 10 to in your statement. If we look at the lower half of 11 the page, we see the comment in the email from you to 12 David Middleton that begins: 13 "You might find this useful to know." 14 His response on 1 December 2010, asking: 15 "Why did we pull back in 2007?" 16 Could we go to the upper half of the page. In 17 response to that, you emailed David Middleton on 18 1 December, saying: 19 "My recollection at the time was that Ministers 20 wanted to take what was described as a light touch. 21 Malcolm put a note up recommending an approach to take 22 to meet that expectation. I can dig that note out and 23 let you see." 24 What we have here is you telling David Middleton 25 that essentially the ministers told you what they wanted 214 1 and Malcolm, presumably Malcolm Reed, provided a minute 2 recommending the approach that the ministers had said 3 they already wanted. 4 Now, you presumably said that because you had 5 information to suggest that's exactly what happened. 6 A. No, it's what I say in my recollection at the time was 7 that there was discussions, and I wasn't party to those 8 discussions, but my recollection was there were 9 discussions between Malcolm, Bill Reeve and ministers as 10 to the next steps following the -- the outcome of the 11 parliamentary debate in June in terms of what would be 12 an appropriate role for Transport Scotland going 13 forward. 14 Q. If you could look, then -- 15 CHAIR OF THE INQUIRY: Before leaving that, if you scroll 16 down to the bottom, in the email from you to 17 Mr Middleton, you say you are putting forward the 18 finishing touches for the -- to brief the Cabinet 19 Secretary: 20 "A reference to this will do no harm as he's 21 concerned he is vulnerable that Scottish 22 Government/Transport Scotland pulled back in 2007." 23 Can you elaborate upon that? 24 A. I think there's a lot of criticism of the government's 25 decision that Transport Scotland shouldn't be involved 215 1 post the 2007 parliamentary debate, and I think we were 2 providing briefing for the Cabinet Secretary as to why 3 the decision was rational, and based on -- at that 4 point, our recollection of the discussions that took 5 place in 2007 between Malcolm, who was then gone, and 6 the documentary evidence that was there. 7 I wasn't party to the discussions with the minister 8 on the tram in 2007, but we were aware that the 9 ministers were being criticised because of the -- what 10 appeared to be a decision to pull out Transport Scotland 11 from participation in the project. 12 MR LAKE: And you will be aware of the scope of possible 13 criticism. 14 A. Yes. 15 Q. It would be a sensitive matter? 16 A. Indeed. 17 Q. And you had the Chief Executive of Transport Scotland 18 asking you for information? 19 A. Mm-hm. 20 Q. This is in 2010, which is only three years or so after 21 the events, rather than ten years we are now after the 22 event. 23 A. Yes. 24 Q. So your recollection would probably be better at the 25 time then than it is now? 216 1 A. Yes. 2 Q. What you said in your email of 1 December is that 3 ministers decided they wanted a light touch and Malcolm 4 put up a note recommending that approach to meet the 5 expectation. Is that what happened? 6 A. That's what I said in that minute. Whether that -- 7 Q. Is that -- 8 A. I'm not saying that's what happened. Because I wasn't 9 there. So -- but I accept that's what I said in the 10 minute. 11 Q. If you said that in a minute to the Chief Executive 12 Transport Scotland, is it likely to reflect what you 13 believed to be the truth at the time? 14 A. What I believed at the time was that ministers and 15 officials were discussing the appropriate arrangements 16 for Transport Scotland's involvement in the project 17 going forward as funders, and that there was 18 a discussion between officials and ministers, and 19 ultimately ministers will always decide on the basis of 20 those discussions or recommendations. 21 Do I believe ministers directed Transport Scotland? 22 I don't believe I have any evidence that there was any 23 direction by ministers. 24 Q. Why, in 2010, did you not tell the Chief Executive of 25 Transport Scotland what you're telling us now? It's 217 1 quite a different version you're giving, isn't it? 2 A. No, I don't believe so. Because I think Mr Middleton 3 gave that evidence to the public audit committee in 4 2011, that there wasn't any evidence of a determination 5 by ministers or a direction by ministers. But 6 a discussion between officials. 7 Q. Is it not the case that what you said there was true, 8 that this was the ministers decided, having lost the 9 vote in Holyrood -- 10 A. What I am saying is true, ministers decided, and the 11 fact -- 12 Q. Could you let me finish, they decided they wanted a 13 light touch -- 14 CHAIR OF THE INQUIRY: Don't speak across each other. 15 A. I beg your pardon, my Lord. 16 CHAIR OF THE INQUIRY: Mr Lake? 17 MR LAKE: That the Minister decided that what they wanted 18 was a light touch, and that a paper was written to 19 justify what the ministers said they wanted. 20 A. I don't know that that's the case. I don't believe that 21 ministers directed us. I believe there was a discussion 22 between officials and a decision was made, and that 23 decision was made by ministers, and ministers make 24 decisions. 25 Q. If we try going back to the document I looked at 218 1 previously, which was TRS00004523. We got as far as 2 looking at page 6 of this. If we go back to page 6. 3 Could we look -- is there a following page to this? 4 We see a discussion here as to Edinburgh Trams 5 particularly in relation to Edinburgh Trams, and the 6 first sub-heading is "Overall Funding". Halfway down 7 the page, there's a paragraph which begins: 8 "The latest statements present the following 9 possible interpretations." 10 Could we highlight that, and the three underneath 11 it. 12 We can see, just look at the third option: 13 "GBP375 million recalculated on the new baseline 14 programme for 1a to be delivered at the July Tram 15 Project Board. This programme is anticipated to present 16 a degree of delay and therefore the current estimate of 17 GBP492 million will rise to circa GBP500 million with an 18 option to cap at that point or not." 19 I think we saw in the earlier note the minister's 20 preference for the third of the options; is that 21 correct? 22 A. Yes, which was to cap at 500 million. 23 Q. These are all to be fair, refer to -- or at least 24 numbers 2, 3 and 5 refer to capping. 25 A. Yes. 219 1 Q. If we go to the next page, we can see there's 2 a reference was to go with Option 3. If we then look at 3 the heading underneath that, and the two paragraphs 4 which follow, we have the future governance and role of 5 Transport Scotland, and if we go to the second 6 paragraph: 7 "To achieve this clarity of roles, and ensure that 8 situations could not arise subsequently in the 9 governance of the project which might generate further 10 calls on central funding, I propose that 11 Transport Scotland's future engagement with the 12 Edinburgh Tram Project should be on the basis of revised 13 grant conditions and once these conditions are in place, 14 Transport Scotland staff should withdraw from active 15 participation in the governance of this project." 16 Now, seeing that is what it said in this minute 17 that's put forward, if we go back to the email of 18 11 July, which was reference TRS004536. And we looked 19 at the bottom of the page, there was a reference to: 20 "Thank you for the minute of 9 July regarding the 21 above." 22 I think we have seen that the minute was actually 23 dated 6 July, but the covering email was 9 July? 24 A. Yes. 25 Q. Is that essentially the approval of the Option 3 and the 220 1 scale-back in that particular context? 2 A. Yes. It's agreeing to the cap and agrees that 3 scale-back in relation to the -- the options laid out in 4 annex C. 5 Q. If we could then go to another document. It's reference 6 TRS00011064. 7 We can see in the lower half of the page, an email 8 from you to David Middleton and Bill Reeve. Do you see 9 that? 10 A. Yes. 11 Q. If we look over to the second page of this, we can just 12 focus on the last paragraph of your email, the 13 conclusion you expressed at the time, 5 October 2010, 14 is: 15 "It may well come out in the wash that having the 16 major funding party remote from the decision making and 17 management of the contract is not a sensible way to 18 manage projects like this in the future. However, that 19 doesn't take away from the fact that the responsibility 20 for the current predicament rests with CEC to resolve." 21 Now, you are clearly expressing a view there that 22 having the major funding party remote from 23 the decision-making is not a sensible way to manage the 24 project? 25 A. That's what I'm saying. 221 1 Q. Do you still maintain that view? 2 A. I think that's still to be decided, yes. 3 Q. Your view is it's not sensible. Is that still your 4 view? 5 A. I said it may well be a decision that having a funder 6 remote -- 7 Q. You say it may well come out in the wash? 8 A. Yes. 9 Q. That -- you're not saying it may well come out that this 10 is not a sensible way to manage projects, this under the 11 basis that there's going to be some scrutiny of what had 12 been going on? 13 A. Indeed, I would expect there to be lessons learned from 14 any major project. 15 Q. Are you aware of Bill Reeve also expressing concerns 16 about the withdrawal and whether or not it would be 17 possible properly to meet the requirements of the public 18 finance manual in that situation? 19 A. I remember that comment being made by Bill. I think 20 it's in my statement. 21 Q. Were there other people, apart from you and Bill Reeve, 22 within Transport Scotland who had concerns? 23 A. I don't think I had concerns at the time that the 24 decision was made, because I wasn't party to the 25 decision. I think this minute, if I'm -- correct me if 222 1 I am wrong, was written after 2007. I don't think I was 2 making a comment on, you know, whether a decision was 3 right. I was making a comment on where the project had 4 got to at that particular point. 5 Q. Let's turn to the question of the reasons for this. If 6 we could look at your statement, please, at 7 paragraph 12, which is on pages 5 and 6. 8 Is it the case that what you're doing is seeking to 9 set out here a number of reasons to justify the decision 10 to withdraw Transport Scotland from the project? 11 A. I think I was asked for a view as to why 12 Transport Scotland came off the Board, and I think I was 13 giving the view that in good governance and project 14 management terms, it wouldn't be sensible to have two 15 delivery organisations trying to deliver this project. 16 Q. Were Transport Scotland ever the delivery organisation 17 trying to deliver the project? 18 A. No. 19 Q. There was never any question of that, was there? 20 A. No. 21 Q. So there was no need to withdraw them on that basis, was 22 there? 23 A. No. 24 Q. So that's a spurious reason, isn't it? 25 A. Well, we were moving to a delivery phase. So I don't 223 1 know how Transport Scotland would have been involved if 2 not being party to the delivery decision. 3 Q. So it was always hoped that the project would move to 4 a delivery phase some time in about 2007, end of, wasn't 5 it? 6 A. Yes. 7 Q. And there had never been discussion prior to summer of 8 2007 that Transport Scotland was intending to withdraw 9 as the phase moved on, was there? 10 A. I wasn't involved in any such discussions, but I can't 11 say that there weren't. 12 Q. Were you aware of any consideration prior to summer 2007 13 that Transport Scotland had intended to withdraw when it 14 got to the delivery phase? 15 A. I wasn't aware of any discussions prior to 2007 on this 16 project. 17 Q. So if we do not discover that there was any indication 18 given beforehand, it was suggested the only thing that 19 in fact changed in the summer of 2007 was the 20 parliamentary vote. 21 A. Well, I would argue that when you move from 22 a development phase into a procurement and construction 23 phase, that it is always a natural time to look at the 24 governance arrangements and see if they're fit for 25 purpose and provide clarity. 224 1 Q. Has Transport Scotland ever withdrawn from any other 2 project at that sort of phase on that basis? 3 A. Not to my knowledge. 4 Q. And Transport Scotland was able to participate in the 5 delivery phase post 2011? 6 A. Indeed. 7 Q. Positively? 8 A. Indeed. 9 Q. So really the suggestion that the different stage or 10 phase requires Transport Scotland to step back is, once 11 again, a spurious reason, isn't it? 12 A. I don't believe so. I believe the discussions were 13 around proper clarity around the delivery and who was 14 responsible for the delivery, and that was clearly the 15 Council as project owner and tie as a Project Director. 16 Q. Do you understand that the role of Transport Scotland 17 within the project up to 2007 was quite clear? 18 A. I couldn't comment on that. I wasn't party to 19 Transport Scotland's involvement prior to 2007. 20 Q. Insofar as you suggest there might have been some 21 confusion of roles, surely you're suggesting that that 22 might have arisen if Transport Scotland had carried on? 23 A. I think what I'm saying is that we were moving into the 24 delivery and construction phase, which needs clarity in 25 terms of decision-making in the contractual -- in the 225 1 contractual structure. 2 Q. I think you referred within your statement to the 3 problem -- that it was no longer necessary to have 4 Transport Scotland there because of the experience 5 available to tie. 6 Perhaps, out of fairness, I should refer you to 7 that. If you look at page 6 of your statement, 8 paragraph 14, you say: 9 "There was a series of discussions between 10 officials, Malcolm Reed and John Swinney. My 11 recollection from the various meetings at director level 12 was that there were discussions about the extent to 13 which it was reasonable for us to remove ourselves from 14 the governance process. But, I reiterate, we were 15 moving into a different phase of the project. The 16 tie Board had significant non-executive representations, 17 with senior people with experience of rapid transport 18 systems across the world, as well as a well resourced 19 and highly experienced delivery team. My view at the 20 time was that this was a perfectly reasonable decision 21 to come to in terms of ensuring clear and effective 22 project delivery structures." 23 Turning to 2011 for a moment, I think the Council 24 had available to it people with experience and expertise 25 who then did implement the project and project managed 226 1 it without any particular difficulty? 2 A. Not quite. They employed Turner & Townsend, who were 3 consultants, and consultants have that experience and 4 it's quite natural that they would employ that. What 5 they didn't have, when tie were no longer available to 6 them, was much depth in client expertise. 7 Q. Client expertise? 8 A. Indeed. Intelligent client expertise, where the actual 9 client body who is delivering the project employs its 10 own people, its own expertise, whether it be lawyers or 11 accountants or engineers, with experience in delivering 12 projects, to manage those who are providing -- the 13 consultants who are providing assistance to the project. 14 Q. So are you suggesting that post 2011 Transport Scotland 15 provided that expertise? 16 A. We provided some of that expertise, yes. 17 Q. And if we've heard discussions about a need for having 18 a client role properly to be performed in the project, 19 and that was the function of the Tram Project Board -- 20 A. Which Tram Project Board? 21 Q. The Tram Project Board pre-2007? 22 A. Pre-2007 there was a Tram Project Board and there was 23 a clear intelligent client in the shape of tie, which is 24 why, in my view, CEC put them in place. 25 Q. And if tie wanted to develop the client expertise at 227 1 that time, that is expertise that could at that time 2 have been provided by Transport Scotland? 3 A. It could have, but they had sufficient expertise, it 4 would appear, in place, and that's why they had been 5 put -- 6 Q. Was there any written evaluation carried out of 7 expertise in place and whether or not it was thought 8 suitable? 9 A. No, not to my knowledge. 10 Q. Nothing in writing? 11 A. Nothing, not to my knowledge. 12 Q. Is that not a bit strange, if you're using that as 13 a basis to take a decision to withdraw Transport 14 Scotland, that you don't have a single documented record 15 of the consideration of this matter? 16 A. We had, to my knowledge, the audit report in 2007 and 17 the fact that CEC had put in place an expert body to 18 deliver this and other transport projects. 19 Q. That's tie? 20 A. tie. 21 Q. That had been in place for, by 2007, five years? 22 A. Five years. 23 Q. But suddenly it was necessary to withdraw that because 24 tie were there? 25 A. Because we had moved to a different phase of the 228 1 project, and Transport Scotland were only in -- because 2 we talk about Transport Scotland expertise, which was 3 delivery expertise, and that was put together in 2006. 4 Q. So tie had been there for five years? 5 A. Mm-hm. 6 Q. The decision in the Scottish Parliament had taken place 7 a few weeks earlier, and you're asking us to accept that 8 it was the existence of tie that was the problem, not 9 the parliamentary vote? 10 A. No, I'm saying that tie were there as an expert body, an 11 arm's length body of the Council, to deliver the 12 client -- intelligent client expertise to manage the 13 delivery of this and other transport projects. 14 MR LAKE: My Lord, that would be a suitable time to break. 15 CHAIR OF THE INQUIRY: We will adjourn until tomorrow at 16 9.30. Please come back then. 17 A. Okay. 18 (4.32 pm) 19 (The hearing adjourned until Wednesday, 27 September 2017 at 20 9.30 am) 21 22 23 24 25 229 1 INDEX 2 PAGE 3 MR MICHAEL HOWELL (affirmed) .........................1 4 5 Examination by MR LAKE ........................1 6 7 MR STEVE CARDOWNIE (sworn) ..........................53 8 9 Examination by MR LAKE .......................53 10 11 Questions by CHAIR OF THE INQUIRY ...........138 12 13 MR AINSLIE MCLAUGHLIN (affirmed) ...................142 14 15 Examination by MR LAKE ......................142 16 17 230 1 Wednesday, 27 September 2017 2 (9.30 am) 3 MR AINSLIE MCLAUGHLIN (continued) 4 Examination by MR LAKE (continued) 5 CHAIR OF THE INQUIRY: Good morning. You're still under 6 oath, Mr McLaughlin. 7 MR LAKE: Good morning, Mr McLaughlin. I just want to try 8 and draw together some of the issues we were discussing 9 yesterday concerning the withdrawal of 10 Transport Scotland from the project in 2007. 11 Perhaps just to be clear as to where we were, 12 I think my understanding is you accepted that prior to 13 July 2007, there had been no written indication that 14 Transport Scotland were considering withdrawing simply 15 because the project was going to reach the delivery 16 phase as opposed to the planning phase? 17 A. That is correct, to my knowledge, yes. 18 Q. Why is it that you consider that the resource provided 19 by Transport Scotland would be less valuable in the 20 planning phase -- in the construction phase, rather than 21 the planning phase? 22 A. I think I have given my opinion. My opinion was that 23 the project was moving into the construction and 24 procurement phase. The funding was in place. And there 25 was already a project governance structure in place 1 1 through CEC and tie to deliver that. 2 Q. Apart from the fact there was funding and there was 3 a governance structure, in terms of the expertise and 4 experience that Transport Scotland could bring, was that 5 about to lose its utility when they started 6 construction? 7 A. I don't believe so. I mean, I think prior to 2007 we 8 had one representative on the Board from 9 Transport Scotland. I don't think it's credible that 10 a continuing representation on the Board from 11 Transport Scotland would have substantively improved the 12 delivery of the project in terms of the capability and 13 capacity that was already in existence with tie. 14 Q. I think you have accepted that the view of the Auditor 15 General in the Audit Scotland Report in 2011 was that 16 the Scottish Ministers should reconsider their position 17 to withdraw, and in fact they did so? 18 A. Indeed, ultimately, the Scottish Ministers did 19 reconsider, but the Auditor General, to my knowledge, 20 didn't say that the project had got into difficulty 21 because of Transport Scotland not being on the Board. 22 Q. But he said it was preferable that they be there? 23 A. My recollection is the Auditor General said it may be 24 useful that Transport Scotland expertise might become 25 more directly involved in the project. 2 1 Q. In terms of provision of information to 2 Transport Scotland, rather than looking at what's done 3 by Transport Scotland, having someone on the Tram 4 Project Board provides a conduit for passage of 5 information to Transport Scotland? 6 A. Indeed, but there was a mechanism put in place once the 7 grant was agreed, the Grant Agreement was concluded with 8 City of Edinburgh Council for reporting progress through 9 the Council and to Transport Scotland. 10 Q. Was that requirement for reporting already there before 11 Transport Scotland withdrew in the earlier grant 12 arrangements? 13 A. I couldn't answer that. My colleague, Mr Reeve, is 14 probably better placed to do that. 15 Q. Looking prior to July 2007, I think it was the case -- 16 it is the case that there was no written document 17 raising concern then as to the confusion of roles 18 between Transport Scotland on the one hand and tie and 19 the Council on the other? 20 A. I'm not aware of any. There may have been, but I'm not 21 aware of it. 22 Q. Are you aware of there having been any confusion as to 23 the roles being performed by these two bodies or these 24 various bodies, sorry? 25 A. Prior to July -- 3 1 Q. Prior to July 2007? 2 A. I'm not aware of any concerns that were raised. 3 Q. Prior to 2007, had there been any concerns with 4 accountability for the project? 5 A. I don't -- again, looking at the bigger picture, I think 6 it was always clear that this was a City of Edinburgh 7 Council project. I don't think there was any confusion 8 as to whether this was a local project and this was City 9 of Edinburgh Council's project; and that the delivery 10 arm for taking this forward was tie and was always going 11 to be tie. 12 Q. That was quite clear before 2007? 13 A. To my mind, it was, yes. 14 Q. Again, prior to July 2007, there doesn't seem to be any 15 correspondence or meetings saying that 16 Transport Scotland's involvement was unnecessary because 17 of the resources and experience that existed within tie. 18 A. I couldn't comment on that. I'm not aware of any. 19 Q. The level of resources and experience within tie was 20 presumably well known to Transport Scotland prior to 21 July 2007? 22 A. As far as I'm aware, tie was a large organisation, yes. 23 Q. Transport Scotland were aware of the skills and 24 resources within tie? 25 A. That would be my understanding, yes. 4 1 Q. You also refer to the fact that, again, looking at the 2 period up to July 2007, the Audit Scotland Report from 3 that year appeared to place some reliance on the role of 4 Transport Scotland within the Government structures. 5 A. My interpretation was that the -- they noted 6 Transport Scotland's involvement in the project in terms 7 of its funding role. 8 Q. You didn't think they paid any attention to its 9 governance role? 10 A. Other than that at that point, there was 11 a Transport Scotland representative on the Board. 12 Q. That was something that was referred to in 13 the Audit Scotland Report? 14 A. It was, yes. 15 Q. That was something that was narrated by 16 the Audit Scotland Report in reaching the conclusion 17 that there were sound governance structures in place? 18 A. Indeed. 19 MR LAKE: Thank you, Mr McLaughlin. I have no further 20 questions. 21 CHAIR OF THE INQUIRY: I don't think anyone has given any 22 indication of any questions. So thank you very much, 23 Mr McLaughlin. 24 A. Thank you. 25 CHAIR OF THE INQUIRY: You're free to go. You're still 5 1 under a citation. It may be that you will be recalled. 2 Hopefully that will not be necessary. 3 A. Okay. Thank you, my Lord. 4 (The witness withdrew) 6 1 INDEX 2 PAGE 3 MR AINSLIE MCLAUGHLIN (continued) ....................1 4 5 Examination by MR LAKE (continued) ............1 6 7 Discussion re procedural matters .....................6 8 9 MR WILLIAM REEVE (sworn) ............................11 10 11 Examination by MR LAKE .......................11 12 13 MR JOHN RAMSAY (affirmed) ..........................173 14 15 Examination by MR LAKE ......................173 16 231