1 Wednesday, 27 September 2017 2 MR LAKE: My Lord, the next witness is John Ramsay. 3 MR JOHN RAMSAY (affirmed) 4 Examination by MR LAKE 5 CHAIR OF THE INQUIRY: Could I ask you, Mr Ramsay, to listen 6 to the question and to answer it as directly as 7 succinctly as possible. And to speak clearly into the 8 microphone and slowly so that the shorthand writer can 9 keep up speed. 10 A. I shall try. 11 MR LAKE: Thank you, my Lord. 12 Mr Ramsay, could you state your full name, please? 13 A. John Ramsay. 14 Q. I think your address is known to the Inquiry. What's 15 your present occupation? 16 A. I'm retired. 17 Q. When did you retire? 18 A. It says here 2012, but I probably think it's more 19 accurately 2013. 20 Q. Could I ask you to look at a document with me, please. 21 It will be shown on screen. There's also a paper copy 22 in front of you. The reference is TRI00000065_C. 23 Now, do you recognise this as a statement you have 24 given to this Inquiry? 25 A. Yes. 173 1 Q. I think in the paper copy you have, the last page of it 2 should have been signed by you. 3 A. That's it, yes. 4 Q. Can we take it that you're content to adopt this as your 5 evidence to the Inquiry? 6 A. Yes. I think there may have been a couple of points 7 that I haven't recalled correctly, but I'm sure I can 8 take that up as we go along, perhaps. 9 Q. I wasn't going to take you through the whole of it. 10 A. Understandable. 11 Q. So it may be if I refer to certain parts, there will be 12 points -- 13 A. That's really what I meant. 14 Q. If there's anything that occurs to you now, if you want 15 to point it out, I am happy to hear it. 16 A. No, not immediately. 17 Q. Could I ask you to look at page 10 of this, please. If 18 you could open -- enlarge the heading, "Scottish 19 Transport Approval Guidance", and the first bullet point 20 underneath it. You can see you start by giving 21 a quotation from a Cabinet Memorandum to the effect that 22 tie has undertaken a full appraisal in line with the 23 letter of the STAG guidance, but in doing so, has made 24 a number of assumptions that are open to question. Your 25 statement following that is: 174 1 "TIE seemed to be making a number of assumptions of 2 dubious merit. We were sceptical of TIE's methodology, 3 given that we knew about their design weaknesses and 4 were not in complete agreement with their treatment of 5 risk and optimism bias. However, the mechanism for 6 dealing with these was the Tram Project Board, in the 7 knowledge that the City of Edinburgh Council was 8 carrying the risk." 9 Now, first of all, the assumptions of dubious merit, 10 can you recall what they are? 11 A. Not in particular. It was a general assumption I would 12 have had at the time based on discussions with our 13 colleague in Transport Scotland. 14 Q. You say you were sceptical of tie's methodology, or "we 15 were sceptical of tie's methodology", given what you 16 knew about -- and you enumerate various matters there. 17 Standing the fact that you had that scepticism, were 18 you essentially in doubt about the conclusions that they 19 were reaching in their appraisal? 20 A. I think there was a collective doubt from my 21 recollections of discussions we had with our colleagues 22 at the time. I can't recall in full what they were, but 23 the generality, as I have said there, is that we were 24 continually sceptical about some points of tie's 25 adoption of the methodology that we would have 175 1 preferred. 2 Q. You say you -- the mechanism for dealing with these was 3 in the Tram Project Board, in the knowledge that CEC was 4 carrying the risk. 5 What's the relevance of the fact that CEC was 6 carrying the risk? 7 A. In reality I'm struggling to remember exactly what that 8 comment was. I obviously remembered sufficient at the 9 time to make that comment, but the line for completing 10 such scepticism would have been through the Tram Project 11 Board, and we were always aware that the risk was CEC's 12 fully, not the Government's. 13 Q. Is the idea that CEC would bear the bankrupt if it ran 14 over budget, so the matter was simply of less concern to 15 Transport Scotland than might otherwise be the case? 16 A. I think that's an over-simplification, but you could say 17 that. 18 Q. Yes. 19 Now, while it's undoubtedly true if 20 Transport Scotland are not going to give any money in 21 addition to the 500 million that the Council would have 22 to pay the overrun, but if the costs escalated such that 23 the Council couldn't afford to complete the project, 24 that could result in less being delivered than was 25 hoped? 176 1 A. Yes. 2 Q. In that situation, the Scottish Ministers, the Scottish 3 Government would be advancing grant monies and getting 4 much less for it than they thought? 5 A. Yes. 6 Q. So ought it not to have been something that was of 7 concern to Transport Scotland? 8 A. It was. 9 Q. But you said the mechanism for dealing with these was 10 the Tram Project Board? 11 A. I think that was a reflection, if I remember correctly, 12 and again it's all I can say, is that the Tram Project 13 Board may not have always been as fully capable of 14 delivering satisfaction on aspects of our scepticism as 15 it might have been. 16 Q. When was it that you came to that view that it might not 17 be as capable as it might have been? 18 A. Sorry for the hesitation, but I think part of the 19 problem in my answer is the fact that I was dealing at 20 some remove from the Tram Project Board itself. I only 21 attended it once, and my assumptions and my feelings 22 were largely gained from discussions subsequent to Tram 23 Project Board, and the minutes and papers that emanated 24 from them. 25 My assumption or my feeling was generated 177 1 consistently, I think, throughout the years by the fact 2 that there was a tendency to overlook some of the more 3 valid points that I think we could have and should have 4 and would have been making. 5 Q. When you say could have -- you could have and should 6 have and would have been making, presumably that would 7 have been the case if Transport Scotland had still had 8 a seat on the Tram Project Board, they could have done 9 that? 10 A. Yes, but I think the correlation in that last comment is 11 not quite accurate in my recollection of the way and the 12 proceedings in which the Tram Project Board and 13 Transport Scotland dealt with each other. 14 Q. Could you explain that, please? 15 A. Let me try and explain this. The comments we're 16 referring to here, I think, were in reference to a point 17 before our departure from the Board. So although there 18 were concerns, I had concerns and others had concerns, 19 about the validity of the Tram Project Board about 20 dealing with our concerns and our scepticisms about the 21 Business Case, the STAG guidance, et cetera, those never 22 actually appeared to come to the point at which senior 23 officers felt it was necessary to put their foot down 24 and say: this has to be done or else. 25 If it was done, it was done without my knowledge. 178 1 Does that make more sense? 2 Q. I think so. 3 I should have said, the reference -- the two 4 documents -- the document from which you make the 5 quotation was from January 2007. 6 A. Mm-hm. 7 Q. So it was at a time when Transport Scotland still had 8 a seat on the Tram Project Board. 9 A. Yes. 10 Q. But even at that time, did you have concerns about the 11 capability of the Tram Project Board to deal with this 12 sort of concern? 13 A. I think more specifically, I had concerns about the way 14 in which the Tram Project Board was able to deal with 15 the information being supplied by tie. 16 Q. What in particular did those concerns relate to? 17 A. I had a continuing problem with tie. Going back over 18 many years. I felt that -- and others agreed with me, 19 that the information they were supplying on a monthly or 20 four-weekly basis, I should say, was sometimes open to 21 easy misinterpretation, and other times we felt was 22 wrong and inaccurate. 23 And we had a continual struggle on our hands to get 24 from tie the reality of the picture that was developing 25 year by year, month by month. 179 1 Q. During what period did you have those concerns? 2 A. I think I have said I had it almost from day one, 3 and I recall having umpteen meetings, not just personal, 4 but also with other colleagues from Transport Scotland 5 and Cyril Sweett, and senior managers in 6 Transport Scotland agreed with my point of view. And 7 they tried to intervene and improve things, all to no 8 avail really. 9 Q. Information was poor and stayed poor? 10 A. Yes. I think that sums it up nicely. 11 Q. When you say from day one, I just want to be clear what 12 was day 1 for you in relation to this? 13 A. Day 1 for me was 2005. So we are at the very early 14 planning stages. But it took me a while to appreciate 15 that there was a subtlety about the information that was 16 being supplied. 17 Q. What was the subtlety? 18 A. That's what took me so long to understand. I think it 19 was more the case, as my experience and interpretation 20 skills grew in the job at hand, I was more able to make 21 sense of where the subtleties were being applied and 22 where they weren't. 23 But it was also the case that when we employed -- 24 when Transport Scotland employed KPMG as our financial 25 consultants, in the run-up to the development of the 180 1 Business Case, we began to hear from them similar 2 concerns about what they felt were subtle points of 3 differences being applied at various times in various 4 documents. And we weren't sure, even from 2006/2007, 5 that we were actually seeing the full picture being 6 presented by tie. 7 Q. Were those concerns recorded by you? 8 A. They were certainly recorded by me and they were 9 certainly recorded by at one point our Director of 10 Finance in Transport Scotland. We were recorded at 11 various meetings. 12 I remember one with Nadia Savage, with tie and CEC, 13 where we made it quite clear that we were running into 14 a period where it became more and more important that we 15 saw the actuality, rather than their presentation of the 16 actuality. 17 Q. Can you remember roughly what time that was? 18 A. I'm sure there's a reference to it in my statement. 19 Q. I want to carry on looking at a different piece of 20 information that was supplied to you. 21 We can see on the screen at the bottom of the page 22 there, reference to the Draft Final Business Case. 23 I just want to ask you a few questions about the 24 Transport Scotland response to that. 25 Were you involved in considering the Draft Final 181 1 Business Case when it came in? 2 A. I was, but it would have been in conjunction with 3 others. 4 Q. Yes. In terms of external advice from others, did you 5 have economists examining the Draft Final Business Case? 6 A. Our economist was Andy Park. 7 Q. He's internal to Transport Scotland? 8 A. Yes. 9 Q. And did you use the services of Cyril Sweett? 10 A. We certainly got advice from them, yes. 11 Q. Which aspects did they look at? 12 A. I can't recall offhand. It was done in general. 13 I wouldn't recall any specific -- 14 Q. Perhaps not trying to make it purely a test of memory, 15 could I ask you to look at a production for me. It's 16 reference TRS00003141. 17 We can see this is a memorandum. It's dated 18 27 November to Lorna Davis. Was she within 19 Transport Scotland? 20 A. Lorna Davis and I worked together, yes. 21 Q. It's copied to you, it's from Nadia Savage. 22 Do you see that? Do you see these matters? 23 A. Yes. 24 Q. If we look at the text of it, it says: 25 "Lorna, please find enclosed our initial comments on 182 1 the DFBC information received over the last few days in 2 the following three areas and in the form requested." 3 Three areas of cost, risk and time. So do you 4 recall these being matters -- does that assist your 5 recollection that these were matters that were 6 considered by Cyril Sweett? 7 A. Yes. Lorna and I worked together, but she headed up 8 this particular line of responsibility. But I do recall 9 the generality of this. 10 Q. We don't need to go through them, but it goes up to 11 seven pages here of various comments on the Draft Final 12 Business Case? 13 A. That would have been the nature of Cyril Sweett's advice 14 to us, yes. 15 Q. What was the nature of the advice being given by 16 Andy Park within Transport Scotland? 17 A. He was our head economist. 18 Q. And why would an economist look at the Draft Final 19 Business Case? 20 A. They were responsible for the input on the STAG guidance 21 aspects of Draft Final Business Case development. They 22 would advise us in particular on aspects of some of the 23 methodology we adopted within the Business Case and how 24 relevant that was in its adoption to Scottish Office 25 guidance. 183 1 Q. Why was the Draft Final Business Case subject to all 2 this work and scrutiny by Transport Scotland? 3 A. Ministers had always been keen to ensure that the 4 Business Case stood. It would not result in a minus, 5 and therefore would have to be supplemented by some -- 6 continuing subsidy thereafter. It had to be in excess 7 of 1 at the very minimum. 8 Q. When you talk about in excess of 1, is that the 9 benefit-cost ratio? 10 A. Yes. 11 Q. So you would need to have an economic assessment of the 12 benefit, and the quantity surveyors' sort of estimate of 13 what the likely cost would be, so you could compare the 14 two? 15 A. Yes, but it was complicated throughout by the adoption 16 of certain applications of modelling, particularly in 17 the do nothing, the do something aspects of the Business 18 Case, and particularly with respect to other road users, 19 the impact on buses, the impact on traffic modelling, 20 et cetera, et cetera. And costs would be derived and 21 applied to the Business Case using these types of 22 methodologies. 23 Q. In terms of being so careful that the benefit-cost ratio 24 would exceed 1, why not just leave that up to the 25 City Council to determine? 184 1 A. Because ministers had made it quite clear to us that 2 they wanted to see a Business Case development of the 3 Business Case that existed and could be developed in 4 excess of just 1. 5 Q. Why did they want that? Did they make it plain? 6 A. I took it as a generality. It was a matter of course 7 that where we were investing that size of public 8 funding, that we would wish to see for ourselves and 9 prove for ourselves that the -- we could test the 10 Business Case and it would succeed. 11 Q. What was your own view of that? 12 A. That was my view. I understood it as a reality. And if 13 I hadn't done it, I would have asked to have it done 14 independently of tie and of the Council. 15 Q. Could we look at another production, please. It's 16 reference TRS00004145. Do you recognise this? 17 A. Not immediately, but give me some time. I'm sure I'll 18 recall it in general. 19 Q. We can see the heading -- 20 A. Yes. 21 Q. -- "Edinburgh Tram Network Draft Final Business Case, 22 comments by Transport Scotland". Did you have any role 23 in assembling comments to be made by Transport Scotland 24 on this? 25 A. I don't recognise the formatting, but it would have been 185 1 derived from comments we had made, yes. It could only 2 have been identified from comments we had made to tie 3 and to the Council. 4 Q. If you look at just some of the things that are 5 contained in here, you can see at the end of the first 6 paragraph, it does note: 7 "This document represents the comments of 8 Transport Scotland on behalf of the Scottish Ministers 9 with respect to the ..." 10 A. Draft Final Business Case. 11 Q. Draft Final Business Case. If we look down at the 12 paragraph below that, some seven or so lines up from the 13 end, halfway along the line: 14 "As would be expected for a document of this nature, 15 the review process produced a relatively intense level 16 of comment, feedback and debate." 17 A. Yes. 18 Q. Would you agree with that? 19 A. Yes. 20 Q. If we could look at the second page of this, and the 21 second paragraph on the page, it says: 22 "The comments that are within the document must 23 therefore be considered in the light of the above." 24 I'm sorry, I have asked to enlarge the wrong 25 paragraph. My apologies. Could we enlarge the first 186 1 paragraph. It says: 2 "Following the announcement from Scottish Ministers 3 on 16 March 2007 an associated grant offer letter was 4 issued on 19 March 2007 by Transport Scotland to the 5 City of Edinburgh Council. As one would expect that 6 letter lays out a number of conditions associated with 7 the grant offer. Included in those conditions is 8 a requirement for the Final Business Case to be 9 completed by 1 October 2007." 10 Were you aware why it was that the Final Business 11 Case was to be completed by that date? 12 A. No, I can't recall. 13 Q. If you can jump forward then to page 4. Let's see if we 14 can identify a number of respects in which 15 Transport Scotland prescribe what they would like to see 16 in the Final Business Case. Perhaps we start right at 17 the top of this page. I think we can see there 18 an indication that Transport Scotland expect the Final 19 Business Case to contain specific proposals for 20 mitigating construction impact, together with a full 21 description of the process to keep mitigation measures 22 under review and manage them effectively. 23 Do you see that? 24 A. Mm-hm. 25 Q. If we look down two paragraphs from that, under the 187 1 heading "Bus Alternatives", it's by reference to 2 improvements in bus services, but the conclusion of the 3 paragraph is that: 4 "The Final Business Case could usefully strengthen 5 the narrative that explains this." 6 That's the capacity of key thoroughfares. 7 Look to the bottom of the page, Project Scope, the 8 opening is: 9 "This is one of the areas where greater clarity is 10 required." 11 Then the second paragraph there, the second 12 sentence: 13 "The status of section five of the Draft Final Business 14 Case needs to be clarified with the various comments to 15 date addressed." 16 These are all indications where Transport Scotland 17 is saying what they expect to see in the Draft Final 18 Business Case; is that correct? 19 A. I would extend or widen our interpretation to suggest 20 that it would be what we would wish to see on the basis 21 of our criticisms. 22 Q. That's essentially the remedial action you would like to 23 see in the Business Case? 24 A. Yes. 25 Q. So if it wasn't done, one presumes that 188 1 Transport Scotland would not look kindly upon the Final 2 Business Case? 3 A. I think that's overstating the probability, but I would 4 accept that in general terms, yes. 5 Q. It would cause problems with the approval of the Final 6 Business Case -- rather than me state it, how would you 7 state it, if there wasn't compliance with these 8 requirements? 9 A. I would say that there would be a temptation to continue 10 the process until such time as agreement could be 11 reached. 12 Q. Does that mean essentially not give approval to the 13 project, not approve the grant until it's in 14 a satisfactory form? 15 A. Yes. 16 Q. Can we look at the following page, page 5. The heading, 17 "Governance", and the paragraphs underneath it. 18 I think we can see what's said there: 19 "This section needs to be strengthened 20 significantly." 21 There are a number of requirements stated there as 22 to what Transport Scotland would expect to see. The 23 second paragraph where it's noted: 24 "This section needs to reflect the up-to-date 25 governance arrangements for the project as they are 189 1 being applied in practice." 2 Again, that would be a pre-condition to getting 3 monies from Transport Scotland? 4 A. Yes, I think that's a fair comment. 5 Q. If we enlarge the next heading, "Procurement & 6 Implementation", and the four paragraphs following it, 7 you see the first paragraph expresses the concern that 8 this section doesn't fully cover the implementation of 9 the project. Would you agree? 10 A. Mm-hm. 11 Q. And the third paragraph there, in the final sentence, 12 it's noted that these are areas where Transport Scotland 13 is looking for clarification of the approach to be taken 14 in the period to financial close. Again, it's 15 prescriptive as to what is to be provided? 16 A. Mm-hm. Yes, I think it speaks for itself. 17 Q. If we go to the following page, there's an initial 18 paragraph, "Many of these risks relate to progress of 19 design", so it notes: 20 "... It will be interesting to understand how ... 21 contract bidders are being able to input to design 22 development over the coming period." 23 Once again, it is more than it would be interesting 24 to understand. It would be necessary to provide details 25 of that to move forward; would that be fair? 190 1 A. Yes, I think I recall that clearly as being one of the 2 lines from Cyril Sweett. 3 Q. If we just zoom out and look at the page as a whole, 4 I think we can see in each of the paragraphs under that, 5 there's indication of something that should be included, 6 detail required, clarification required, minor 7 clarification would be desirable. Each of them are 8 saying information must be provided in the Final 9 Business Case. 10 A. Sorry, are you asking me a question? 11 Q. It's all prescriptive of things that must be provided in 12 the Final Business Case? 13 A. Yes, that's why I recall it as part of the input from 14 Cyril Sweett. 15 Q. Again, if we go over to the next page and look at 16 section 10, the lower half of the page is risk, and 17 again, there's a number of prescriptive requirements as 18 to what Transport Scotland required? 19 A. Yes. 20 Q. Now, in setting out these things, these requirements, do 21 you consider that they created any confusion as to who 22 had responsibility for delivering the project? 23 A. No. 24 Q. Did it create any confusion as to accountability for the 25 success of the project? 191 1 A. Not for Transport Scotland, no. 2 Q. Who was accountable for delivery of the project? 3 A. The Council. 4 Q. Did it create any confusion or ambiguity about who had 5 responsibility for the project management of the 6 project? 7 A. Not for Transport Scotland, no. 8 Q. Because who did this responsibility? 9 A. The Council again. 10 Q. My Lord, that would be an appropriate moment, I think, 11 to take a break this afternoon. 12 CHAIR OF THE INQUIRY: We will have a break of about 13 15 minutes to give the suppliers a break. But we will 14 resume again at 3.30. 15 (3.15 pm) 16 (A short break) 17 (3.30 pm) 18 CHAIR OF THE INQUIRY: You're still under oath, Mr Ramsay. 19 Yes, Mr Lake. 20 MR LAKE: That you, my Lord. Mr Ramsay, I was asking you 21 a few questions about the Draft Final Business Case. 22 Could I ask you now about the Final Business Case and 23 page 14 of your statement. 24 The top part of that first bullet point. I will 25 read the whole of it: 192 1 "By 17 October 2007, the Final Business Case Version 2 1 was received by Transport Scotland. Martin McKinlay, 3 Head of Rail Projects in Transport Scotland, was asked 4 to provide a first pass and he saw nothing fundamentally 5 wrong with it. Martin did say, noting the revised role 6 Transport Scotland were to take within the project, that 7 the comments previously supplied were not all included 8 and this was in the gift of those now responsible for 9 delivery." 10 You say that the comments were not all included; was 11 that a reference back to the comments on the draft case 12 that we looked at just before the break? 13 A. I cannot recall with any clarity being the case. That 14 could be a fair assumption, but I'm just not sure. 15 Q. "In effect we were in a situation where we had to take, 16 at face value, regular reports on progress 17 difficulties, delays and costs. We did whatever we 18 could to achieve a better understanding of what was 19 actually taking place but this remained a key weakness." 20 Is the key weakness trying to get an understanding 21 of what was actually taking place? 22 A. Yes. 23 Q. Had that got worse now that there was no longer someone 24 from Transport Scotland sitting on the Tram Project 25 Board? 193 1 A. In short, yes. 2 Q. Had you previously been able to get information from 3 Mr Reeve, from his position on that Board if it was 4 required? 5 A. Yes. 6 Having said that -- sorry to add, but I will remind 7 you that we were having continual difficulty making 8 sense, actual sense of what we were being advised of 9 reported by tie. I think it was Bill himself who said 10 at one point to Willie Gallagher, then Chief Exec of 11 tie, that you really have to improve the reporting on 12 a regular basis, and to make real improvements at this 13 stage, we have to guess or we have to do in-depth 14 analysis, that we don't really and shouldn't really have 15 to do. 16 And we were arriving at different conclusions from 17 that which you're reporting to us. 18 That preceded Transport Scotland's departure from 19 the Board. So in effect there was no great problem 20 there. The problem I had thereafter was in getting any 21 kind of engagement from senior officers in tie. It had 22 to be done through the Council. 23 Q. If you spoke to the Council, what was the result of 24 that? What happened? 25 A. From time to time, I was of the opinion that they were 194 1 in the similar situation to myself. 2 Q. Inability to secure information? 3 A. Or they weren't fully trusting the information they got. 4 Q. Can I ask you then to look at page 18 of your statement. 5 If you look at the final bullet point on that page, this 6 is just to provide the context. You say that you are 7 aware of notes for a meeting between the 8 Scottish Executive and KPMG on 6 March 2006. 9 "In that meeting KPMG highlighted the 10 ’agent-principal‘ dilemma for the Scottish Executive, 11 where they believed that TIE had an incentive not to 12 give full information on costs and contingencies." 13 I would just like to look at those documents, 14 please, and in particular the second one. Could we look 15 at TRS00002205. 16 We can see a heading, top of the page here: 17 "KPMG notes from meeting with Transport Scotland, 18 Monday - 06 March 2006". 19 And that you were one of the three people who 20 attended from Transport Scotland; do you see that? 21 A. Mm-hm. 22 Q. If we look down at the foot of the page, if you could 23 highlight the second last paragraph, and that really is, 24 I think, the basis for the comment you have just made: 25 "KPMG highlighted the "agent-principal" dilemma for 195 1 Transport Scotland. Under enhanced conventional 2 procurement, tie had an incentive not to give full 3 information on costs and contingencies. Typically, 4 overruns only emerged in the last stages of 5 construction." 6 Could you explain what is the agent-principal 7 dilemma here, what it means? 8 A. It's a well-known situation whereby in a partnership 9 situation such as existed here, where you had 10 particularly an arm's length agent operating on behalf 11 of, in this case, the owner or the client of the 12 project, the Council, tie would regularly inevitably 13 find themselves in a situation where they would choose, 14 for whatever reason, not to give a clear and as full 15 a picture as they should have done. 16 Q. Is that -- 17 A. KPMG highlighted that, but we asked them to do that 18 because we felt it was important all over, all 19 throughout Transport Scotland, that they had both 20 advised us of this, and we had noted that advice. We 21 were already aware of that possibility. 22 Q. What can be done to try and counteract that? 23 A. I think I'm in danger of repeating what I said earlier, 24 but with the Council being the client, the owner, and 25 the ultimate -- and having the ultimate responsibility, 196 1 it is really their responsibility to ensure that that 2 does not happen. And they know full well that we'd been 3 advised of that possibility as far as back as 2005/2006, 4 and it was clear that they knew that we knew, and we 5 felt that's what was happening. 6 Quite how that developed, I just don't know. 7 Q. Who did you tell in the Council? Who did you inform of 8 this possibility? 9 A. It would have been done not just by myself, but my 10 senior managers as well would have had that discussion 11 with their respective counterparts in the Council. 12 Q. Do you know anyone in the Council who might have been -- 13 anyone in particular might have been advised of it? 14 A. Well, I know that Alan Coyle and I often discussed that. 15 Q. Could I ask you to look at the second page of this 16 document, please. If we just highlight the heading at 17 the foot of the page, and the text underneath it, we can 18 see the heading is "Gain/Pain". Are you familiar with 19 gain sharing and pain sharing terms of contracts? 20 A. Mm-hm. 21 Q. What in essence does that involve? 22 A. I think it's quite clear in this context. What the 23 situation was as far as we were concerned. We had 24 a maximum of funding available. Ministers had made 25 quite clear, particularly from June 2007 on, what that 197 1 maximum would be. There may have been some kind of 2 dubiety either intended or otherwise by previous 3 administrations. I think I know there was. I think it 4 was intentional. But from June 2007 Ministers made it 5 quite clear what the total funding would be. 6 Q. This was a meeting that took place in 2006 -- 7 A. Mm-hm. 8 Q. -- that you were in attendance at, and it's put in quite 9 blunt terms: 10 "There will be no "Pain" mechanism. All costs over 11 and above the Scottish Executive's budget … will have to 12 be funded by CEC." 13 A. Always the case. 14 Q. Always the case? 15 A. That was always the case as far as Transport Scotland 16 were concerned. As I have said, there was an element of 17 ambiguity about discussions at high level with 18 Ministers, about subsequent probable -- the probability 19 of subsequent top-up funding but that was never the case 20 from 2007 on. 21 Q. Was it the case in 2006? You seem here to be putting it 22 fairly bluntly. 23 A. Perhaps I'm overstating it, from memory, but I was aware 24 that there had been discussions at very high level. 25 Q. Were you aware of any commitment having been given to go 198 1 above -- 2 A. No, that's what I meant about the ambiguity. 3 Q. We heard earlier that there was some desire on the part 4 of the company to get an index linking of the grant of 5 375 million, and that took some time to achieve. 6 A. Yes, I'm aware of that. I don't fully understand the 7 reason it took so long. There was a decision made in 8 almost all of the other projects that we were involved 9 in over that length of time, where index linking had 10 been applied. 11 Q. But not -- 12 A. Sorry. 13 Q. But it wasn't immediately offered here? 14 A. No. That's my recollection. 15 Q. Does that have any bearing on whether it was likely or 16 not that additional funding would be made available as 17 and when required? 18 A. I can't answer that question. I don't know. I wasn't 19 aware of any discussions on that particular issue. 20 CHAIR OF THE INQUIRY: You said that index linking was 21 applied to all the other projects in which you were 22 involved. 23 A. That I'm aware of, yes. 24 CHAIR OF THE INQUIRY: What were these? Did they involve 25 local authorities or were they rail projects or what? 199 1 A. Rail projects, yes. 2 CHAIR OF THE INQUIRY: Heavy rail. 3 A. Yes, and they involved -- in some cases local 4 authorities. For instance, the Stirling-Alloa line. 5 MR LAKE: Were you aware that tie were involved in the 6 delivery of the Stirling-Alloa-Kincardine line? 7 A. Yes. 8 Q. Did you work on that? 9 A. No. 10 Q. But were you aware that ultimately Transport Scotland 11 took the project back from tie and dealt with it 12 themselves? 13 A. Yes. 14 Q. Did that lead to any loss of confidence or concerns as 15 to the suitability of tie to deliver the tram? 16 A. I wasn't aware of that conjunction between the two 17 projects and that kind of discussion, and I can't recall 18 there being any inference made by any of the teams to 19 myself about their feelings on the matter. 20 And I think it's fair to say that some of the people 21 working on that particular project were subsequently 22 drafted in to Transport Scotland to help on particular 23 issues. 24 So I don't think it was as substantial in that 25 sense. Some individuals may have thought that, but 200 1 I can't recall any of the discussions about it. 2 Q. I understand. I'm finished with that document we have 3 on screen at the moment. 4 I just want to ask you a few questions about project 5 governance, and what was the role of TEL, Transport 6 Edinburgh Limited, in delivery of the tram? 7 A. I'm hesitating to answer. My recollection of TEL was it 8 was formed as a conjunction of the proposed bus and tram 9 integration. And was a company, I believe, set up with 10 that -- that proposal in mind from the outset. 11 I was aware it was included within the general 12 governance, but I really had no dealings with anybody 13 under the heading of TEL. Not directly. 14 Q. What about the Tram Project Board? What was its role to 15 be? 16 A. I'm not clear at all on that. I can't answer that. 17 Q. Is that because you never had information or the 18 information that you were given was not clear? 19 A. Yes. 20 Q. Not clear. Because it was a matter discussed, I think, 21 within the Final Business Case. Do you recall that? 22 A. Not immediately, no. 23 Q. If we take a look at the Draft Business Case, if we 24 could look at production CEC01821403. 25 We can start with page 1. I think that's probably 201 1 the last page we looked at, which is why it defaulted to 2 that. 3 You can see the heading there, "DRAFT FINAL BUSINESS 4 CASE", and if we look at the second page of it. Just 5 seeing the contents there, does that stir your 6 recollection at all of the Final Business Case, having 7 seen it? 8 A. I do recognise it, yes. 9 Q. Could we look, please, at page 73. We can see the 10 heading here, "Governance", and "Background"? 11 A. Mm-hm. 12 Q. We can see paragraph 6.3: 13 "The structure below highlights the following four 14 key bodies." 15 The four key bodies in question are the TEL Board, 16 the Tram Project Board, and then two committees of the 17 Tram Project Board. 18 You see that tie wasn't regarded as one of the key 19 bodies at this time. Did that surprise you? 20 A. No. These governance structures varied from time to 21 time, and I saw that as being the current emanation of 22 people's thinking in terms of the overall governance 23 structure. I had no input into it. I had no dealings 24 with TEL directly. 25 Q. If we then look at the following page, page 74 of the 202 1 scanned version, and we look at paragraph 6.6 and the 2 heading above it, we can see, if I read from the second 3 line that: 4 "In summary, the Tram Project Board has full 5 delegated authority to take the actions needed to 6 deliver the project to the agreed standards of cost, 7 programme and quality." 8 That seems to be putting the Tram Project Board at 9 the forefront of actually delivering the project. Would 10 you agree? 11 A. Mm-hm. 12 Q. If you look at the diagram, if you enlarge the diagram 13 at the upper half of the page, we can see the Tram 14 Project Board, Tram Project Director and the TEL team, 15 but nowhere there do we see any reference to tie; is 16 that fair comment? 17 A. Mm-hm. 18 Q. Do you find that a curious omission? 19 A. Well, as I said, from time to time these structures 20 changed as the situations developed. I never paid any 21 close attention to them, with the intention of making 22 sure that our position was always maintained. I felt 23 that was -- that was a given. 24 Q. The transport -- 25 A. Yes. 203 1 Q. The Transport Scotland position was a given? 2 A. Yes. And again, just to repeat what I said before, with 3 the Council being the owner and client of the project, 4 and carrying the full risk, there would be a sense where 5 we would not really want to step into -- or step on to 6 their toes in terms of input into structures that 7 appeared reasonable and capable of delivering at that 8 particular time. 9 Q. This Draft Business Case dates from, I think, 10 November 2006? 11 A. Mm-hm. 12 Q. So even at that time you regarded the Council as 13 carrying the financial risk in relation to -- 14 A. They always did. 15 Q. That's the point you made on the KPMG minute. There was 16 no pain share? 17 A. No. 18 Q. So is what it comes to, really, you weren't that 19 interested in the governance structures, provided 20 Transport Scotland maintained their position? 21 A. Speaking personally, I wasn't. I'm sure that senior 22 managers were. 23 Q. You made a reference to the changes to the governance 24 structures from time to time. Were there more changes 25 than you would have expected? 204 1 A. I always felt that up until financial close, they were 2 a reflection of the various changes in development as 3 the project proceeded through its key phases. 4 I was also aware that they, to a large extent, would 5 reflect the changes in which -- in the way in which the 6 management of tie, for instance, was structured and 7 changed. 8 But as far as the relationship with 9 Transport Scotland and the Council was concerned, these 10 did not appear, as I recall, to have created any concern 11 within Transport Scotland. 12 Q. I understand. Could I ask you, please, to look at 13 page 20 of your statement. If we could look at the 14 bullet point at the lower half of the page, you note 15 there: 16 "That Transport Scotland were unhappy with the 17 quality or reality of progress reports and project 18 information being provided by TIE was as already stated 19 a constant for Transport Scotland." 20 That's what you've already explained to us this 21 afternoon? 22 A. Mm-hm. 23 Q. If we continue: 24 "Approaches had been made both by myself and 25 Cyril Sweett to both City of Edinburgh Council and TIE 205 1 that effort was really needed by TIE to improve on these 2 issues. I am aware that in an email from Nadia Savage 3 on 31 October 2007 she said "In light of the Willie 4 email to Bill Reeve, I think Bill needs to be aware of 5 just how poor the substantiation is for what is nearly 6 GBP80 million of public funding potentially in advance 7 of need. The results of the spending review are 8 imminent but all indications are that GBP120 million 9 cannot be breached next year - so no rollover". 10 This was concerns arising within Transport Scotland 11 about the information that was being provided? 12 A. I think there were a couple of strands woven together in 13 all of that. 14 Q. What are the strands? 15 A. This is a continual example, a continuing example of how 16 Nadia Savage and her Cyril Sweett colleagues would react 17 to the information they were getting as we obtained it 18 from tie. And to a certain extent from CEC. 19 It was also an example of the kind of financial 20 constraint that we were under internally within TS, and 21 within Scottish Government on how we were able to take 22 the money given to us for general grant funding of 23 Transport Scotland projects and how that would be 24 proceeded with and managed through that financial year. 25 But underlying all that is the key point that we 206 1 have been discussing for some time now, that we were 2 never at any time comfortable with the quality of the 3 information given from tie. We had to a certain degree 4 a quantity of information, never the quality that we 5 felt we really deserved as major funder. 6 Q. If we read five lines from the foot of the page, you say 7 there: 8 "We were mindful of what John Swinney had said about 9 what we needed to do in terms of withdrawing from the 10 Tram Project Board. We would have no executive 11 authority from that point on, but we needed to be seen 12 to be doing all that we could to support our obligations 13 in terms of the Scottish Public Finance Manual." 14 A. Yes. 15 Q. "Bill Reeve approached Willie Gallagher and said that, 16 post-contract close ..." 17 It goes on to say: 18 "Transport Scotland continued to need good robust 19 information about what was going on." 20 Now, what do you mean by when you say: 21 "We were mindful of what John Swinney had said about 22 what we needed to do in terms of withdrawing from the 23 Tram Project Board." 24 A. I was reiterating, I think, if I recall correctly, the 25 context that Ministers made quite clear to us that they 207 1 wanted us, Transport Scotland, to give up our seat on 2 the Tram Project Board, and withdraw, if I can use that 3 word, from any general involvement with it. 4 Specifically, we were to make sure that we continued to 5 fund the project, and we were aware that we had to do so 6 in -- within the general terms of the public finance 7 manual, if that was the situation that developed from 8 that point on. 9 Q. The way you phrase it is: 10 "... we needed to be seen to be doing all that we 11 could to support our obligations in terms of the 12 Scottish Public Finance Manual." 13 A. Yes. 14 Q. Did you have any doubts as to whether or not it would be 15 possible actually to achieve the obligations in terms of 16 the manual? 17 A. I never felt that we were in danger of exceeding the 18 limitations imposed on us. I felt sometimes we might be 19 getting near it and in which case we would have to have 20 that discussion with Ministers. I don't think it ever 21 took place. It may well have done with some senior 22 managers, but it was never reported back to me that that 23 was the case. 24 Q. In what respects did you think you were getting near -- 25 I stress only near -- to non-compliance with the manual? 208 1 A. It's not a case of non-compliance. It's the flexibility 2 that the manual allows for the continual funding of 3 a project that was in such difficulties. There is no 4 guidance as such on that very point. 5 Q. So what are the issues arising then with the Manual? 6 A. That was a general feeling of being uncomfortable with 7 the situation that was developing in front of us, and we 8 had the inability to do anything about it. 9 Q. Why did you have an inability to do anything about it? 10 A. Because we weren't on the Tram Project Board. We had no 11 direct influence through that particular vehicle. 12 Q. You refer in that section I just read to "we would have 13 no executive authority". Is that the sort of thing you 14 were talking about? 15 A. We had no executive authority, that's correct. 16 Q. That's something that could have been provided for when 17 making the arrangements for giving the grant. 18 A. I'm sure that discussion was had with Ministers. 19 Q. Could I ask you, please, to look at page 24 of your 20 statement now. This was another reporting issue. If we 21 could highlight the second bullet point on the page. 22 Referring there to a quarterly review, I think each 23 quarter, there was a review attended by 24 Transport Scotland personnel and tie personnel, or 25 Council personnel with sometimes tie personnel there. 209 1 A. From the point of view -- sorry, from the point at which 2 we withdrew from the Tram Project Board, these quarterly 3 meetings would have been attended by tie only at the 4 invitation of CEC. 5 Q. CEC -- 6 A. It was not a given. It was a given up to that point 7 because it was very much at the centre, we all were. 8 But it would have been a necessity anyway to get the 9 face-to-face -- I'm struggling not to use the word 10 confrontation, but I'm sure you know what I mean -- 11 between the three major principals and to get a handle 12 on -- that was the object of the quarterly review, for 13 the senior managers to have that face-to-face arena in 14 which they could engage with their counterparts and 15 assess for themselves; not just my reporting on 16 a four-weekly basis, and ad hoc as necessary by the 17 various meetings I had, but also allows them to have 18 their targeted interrogation, if you like, of the 19 situation as it was developing at that time. 20 Q. With that background, understanding -- we can see what 21 you say in the paragraph, it says: 22 "At the November 2009 Quarterly Review, TIE advised 23 that a final cost of GBP545 million would be very 24 difficult, with GBP600 million to GBP620 million most 25 realistic. It was noted that "GBP545 million has 210 1 continuing relevance for politicians just now but for 2 how much longer?"" 3 A. That was a CEC quote. 4 Q. "City of Edinburgh Council had a difficult job on its 5 hands with the ongoing political pressure, from 6 councillors, and probably beyond, in managing the 7 content of their reports. Essentially, politicians were 8 being told GBP545 million, until a more accurate 9 anticipated final cost was available, but how much 10 longer that could be adhered to as realistic was 11 a problem they were grappling with. We well understood 12 the problems because we had anticipated that the 13 GBP545 million budget was unrealistic and would be far 14 exceeded." 15 When had it been anticipated by Transport Scotland 16 that that budget was unrealistic and would be far 17 exceeded? 18 A. I was about to say that, had you asked me that question 19 at this particular time, again, I would have said for 20 some time. We'd held that view for some time, not just 21 at that point in time. I'm not going back four, five, 22 six months or so. 23 Q. Which should put it into mid-2009? 24 A. Yes. 25 Q. What was the basis for that view? What information was 211 1 available? 2 A. Coming back to the -- what appears to me to be the 3 central issue here, that we had to analyse information 4 twice over that we were getting from tie, and we were of 5 the view then that the way the spend was proceeding, and 6 this was at a time when we would have expected more 7 construction to be being achieved on the ground than was 8 being achieved. In other words, hard costs were getting 9 hard results and the money wasn't being eaten up by soft 10 costs. 11 So we anticipated then that with the generality of 12 information we were getting, being looked at in a more 13 critical light, that the 545 million was not likely to 14 be substantiated for much longer. 15 Q. Why is it said here that the politicians were being told 16 545 until a more accurate anticipated final cost was 17 available? 18 A. That was the information we were given by the Council. 19 Q. They were putting forward that figure until such time as 20 a more accurate figure was available? 21 A. Yes. We were being very clear with our Ministers. They 22 knew that our interpretation going forward was a good 23 deal harsher than that which the Council were giving. 24 Q. So to be clear, when you're talking about politicians 25 here, you're talking about local politicians here, 212 1 rather than national? 2 A. Yes. 3 CHAIR OF THE INQUIRY: Do you remember which officials from 4 Edinburgh were involved in this quarterly review meeting 5 in 2009? 6 A. Donald McGougan certainly was there. I'm struggling to 7 recall the names of others, but I'm quite clear that 8 it's available in the general documentation. 9 CHAIR OF THE INQUIRY: Thank you. 10 A. There will be a list of those who attended at all these 11 meetings as one of the headings on the -- my actual 12 report of the quarterly reviews. 13 MR LAKE: I want to move now to the next page of your 14 statement. We're moving into events in 2010. 15 The first bullet point, you begin the paragraph: 16 "I prepared a briefing for a meeting between the 17 Minister of Transport and Richard Jeffrey on 18 25 January 2010 which considered shortening the route." 19 If you could just look at that briefing, please, 20 it's document reference TRS00010627. We can see this is 21 a paper from you dated 21 January addressed to the 22 Minister for Transport, Infrastructure and Climate 23 Change; is that correct? 24 A. Mm-hm. 25 Q. If we look at the third paragraph for the background to 213 1 it, we can see: 2 "The Minister will recall that he last met 3 Richard Jeffrey together with Jenny Dawe, Leader of 4 Edinburgh City Council on 2 December 2009. 5 Richard Jeffrey had cautioned that while there had been 6 some signs of improvement, the difficulties remaining 7 should not be underestimated. Richard Jeffrey followed 8 up this up with further briefing to Transport Scotland, 9 the key points of which were set out in our briefing to 10 ministers on 22 December 2009." 11 That is simply to remind the Minister what's gone on 12 to date, the difficulties. 13 We will look at the next paragraph under the 14 heading, "Issue": 15 It begins by noting: 16 "Against a position where recent adjudication 17 decisions have been made (mostly against tie) and 18 disappointing physical progress by the contractor since 19 beginning of January, Richard Jeffrey has advised 20 Transport Scotland that he has held separate discussions 21 with both Siemens and Bilfinger Berger in early January 22 to discuss the deteriorating situation." 23 Now, the information about the adjudications being 24 made mostly against tie, how had that information been 25 provided to you? 214 1 A. Initially in as many words as appears in that first 2 statement. That first sentence. 3 We were obviously unhappy with that and I can't 4 remember exactly who -- it was probably Bill. 5 Bill Reeve who had a word with his counterpart and tie 6 and said: Ministers deserve more than this. 7 If you were asking for Ministers to be supportive, 8 you really have to give us almost chapter and verse on 9 the adjudication process and the decisions being made. 10 So as part of the four-weekly report, we had 11 a separate section dealing with the adjudication 12 proceedings. 13 Q. I will come to look with you at those reports before the 14 end of your evidence. 15 A. I never felt that they actually achieved the level of 16 detail that we wanted. And I was aware that tie were 17 sensitive to revealing such legal and commercial 18 information to ourselves. 19 Q. Why were they sensitive about revealing it to 20 Transport Scotland? Did they say? 21 A. Partly the sensitivity might have been that we had the 22 in-house expertise of Cyril Sweett. That was my only 23 conclusion. I could see no other reason why. 24 Q. Why would that create a sensitivity? 25 A. Because they were all in the same industry. Because 215 1 they had no control over what members of Cyril Sweett 2 may have rightly or wrongly subsequently revealed to 3 anybody else. 4 Q. Concern about leaking, essentially? 5 A. Yes. 6 Q. Was there a known problem with leaking of that sort? 7 A. Not to my knowledge. 8 Q. Can we look at the next page, paragraph 6. The 9 reference there is: 10 "Given the status of the current negotiations, 11 adjudications and the outstanding commercial costs yet 12 to be agreed for both the recovery programme and any 13 On-Street Agreement, Transport Scotland is now of the 14 view that it is highly unlikely that Phase 1a (Newhaven 15 to Airport) will be able to be completed within 16 available funding and that it is reasonable to expect 17 that the final costs will be significantly in excess of 18 GBP600 million. The Council to date have confirmed that 19 they are able to fund any excess over current 20 GBP545 million affordability up to GBP600 million 21 through prudential borrowing supported by Prudential 22 Borrowing funded through TEL Profits and inclusion of 23 borrowing costs funded through the Council's long-term 24 financial plan." 25 Why did you include the bit about the ability of the 216 1 Council to borrow to meet these increased costs? 2 A. I can't recall with any absolute clarity, but I suspect 3 it was to emphasise that, yet again, we need to be 4 clear, Ministers need to be clear, the risks are being 5 borne by the Council beyond the agreed funding from 6 central government. 7 Q. Okay. Can we go back to looking at your statement, 8 please, at page 26. If you could highlight the first 9 full bullet point on the page, beginning "the TIE 10 response", this is dealing with the suggestion that you 11 weren't provided with full cost information: 12 "The TIE response to any suggestion that they did 13 not keep Transport Scotland fully informed was likely to 14 be that there was an agreement that they would not 15 speculate on costs until they had certainty. This is 16 referred to in an email exchange on 26 May 2010. TIE 17 felt they were obliged to report the position to the 18 City Council as if the outlook had not changed. TIE may 19 well have had views on how realistic that was. Hence, 20 over this period lasting about one and a half years, the 21 information we were getting was that the AFC 22 (Anticipated Final Cost) was under continual pressure 23 and was being revised upwards. However, at the same 24 time TIE was under pressure to report that nothing had 25 changed and CEC was under pressure to report this 217 1 politically." 2 Now, taking that short, does it come to be that 3 there was an unwillingness or reluctance to disclose 4 matters to the politicians, the local politicians, and 5 that was feeding back and holding up the reporting all 6 along the chain? 7 A. Although they were quite open about their intention as 8 far as reporting to the politicians, I was never 9 actually clear how in effect the Council were proposing 10 to do that. I know there was some sensitivity about the 11 papers that were being produced for the regular Council 12 meetings, and the impact that might have if they made 13 clear that at certain points the funding expectations 14 which they were being asked to realise at particular 15 times was under pressure, would cause further pressure 16 further down the line from the political knock-back. 17 I think they tended to agree with tie that until 18 such times as they had an absolute handle on the way 19 things were developing in terms of a realistic AFC, they 20 would not unduly reveal that to councillors. 21 That was my feeling at the time. Other than that, 22 I have no actual evidence that that is what they were 23 actually doing. 24 Q. Can we look at the final bullet point on that page. You 25 record: 218 1 "Transport Scotland was aware of the scope for 2 criticism of Transport Scotland. In his email of 3 5 October 2010, David Middleton said "But if we, like 4 other sane onlookers, knew that the project itself was 5 not progressing, what is our defence for continuing to 6 pay out money?" Ainslie McLaughlin said that “It may 7 well come out in the wash that having the major funding 8 party remote from the decision making and management of 9 the contract is not a sensible way to manage projects 10 like this in the future”". 11 What was your view on that opinion? 12 A. I couldn't have put it better myself. 13 Q. Could we jump forward to page 38 and 39 within your 14 statement. I'll start reading the final bullet there 15 and it reads over to the following page: 16 "In the May 2008 report to Transport Scotland, the 17 following passage appears - "Progress - Infraco 18 negotiations (as at 1 May 2008) - Negotiations with the 19 Infraco have proven to be protracted and complex with 20 the main difficulties surrounding the effective transfer 21 of risk in relation to design and systems integration to 22 the private sector in a manner which is consistent with 23 the Business Case and which represents value for money 24 to the public sector'. This did not come as a surprise 25 to me. When these issues are looked at in isolation 219 1 from the overall context, it would certainly look as 2 though it was a shift. But I do not agree that it was." 3 I just want to look at your comments at the end 4 there. Firstly, "This did not come as a surprise to 5 me". What was it that didn't come as a surprise to you? 6 A. I'm sorry, I have lost the thread on the first part of 7 that -- 8 Q. Sorry -- 9 A. -- paragraph. 10 Q. -- is it possible to show both the bottom of page 38 and 11 the top of page 39? We have managed to get both pages 12 on the screen, Mr Ramsay, if that assists you. 13 CHAIR OF THE INQUIRY: Do you want them highlighted? 14 A. I was just finding them here in case there was any 15 problem reading them. 16 It's actually clearer for me to read from -- in this 17 case. 18 I'm sorry, can you repeat the question? 19 MR LAKE: At the top of page 39, the first thing you say, 20 the non-italicised text is: 21 "This did not come as a surprise to me." 22 What was it that wasn't a surprise to you? 23 A. Essentially, as I have said, in the highlighted text, 24 which was a cut and paste from a report by the Council 25 to Transport Scotland. If I recall correctly. 220 1 Q. That was just -- 2 A. We were picking up from time to time from these reports 3 from the Council which weren't very regular, and were 4 often quite guarded about the actual commerciality of 5 the -- or success of the negotiations. We were getting 6 a clearer picture of a situation where it was becoming 7 more and more difficult for tie to get close to, if not 8 actually succeed in financial close of this contract. 9 We were aware at that time that their intention was 10 to transfer to their contractors those parts of the 11 uncomplete or incomplete design, which would have added 12 an additional complexity, one would guess. 13 But in that general context, what was beginning to 14 develop came as no surprise to us. 15 Q. Were you able to carry out any assessment of whether, as 16 a result of those negotiations, the risk had actually 17 been transferred? 18 A. No. We were never given that level of information. 19 Q. Were you aware that the transfer of risk was regarded as 20 one of the key elements of the procurement strategy? 21 A. From the very early days of the procurement process, 22 yes. 23 Q. Would you consider that it would have been useful to 24 you, that's Transport Scotland, to have been able to 25 check or verify that that risk had been transferred? 221 1 A. Yes. 2 Q. Can we go forward, please, and look then at page 41 of 3 your statement. We're looking here at activities taking 4 place within 2009. Could we highlight the first 5 paragraph there. As of March 2009, you actually 6 requested sight of the Infraco contract: 7 "Transport Scotland had not been party to the 8 preparation of this or any other of the procurement 9 contracts and had not even seen a copy prior to that 10 request. Transport Scotland needed to be assured about 11 the possible exposure of Ministers by this contract and 12 had appointed Dundas & Wilson, an established Scottish 13 law firm, to conduct this review. By email on 14 9 March 2009, Stewart McGarrity stated that I was about 15 to request a copy of the Infraco contract. The 16 subsequent report from Dundas & Wilson advised us that, 17 while their view was that the Infraco contract that had 18 been let was not fit for purpose, there was no apparent 19 exposure for Scottish Ministers." 20 Now, I think there's been some further investigation 21 into that statement with you since it was made; is that 22 correct? 23 A. Yes. 24 Q. It's now thought it was a letter from Dundas & Wilson, 25 rather than a formal report? 222 1 A. It was not a formal -- as I recall, I wrote to Dundas & 2 Wilson and asked them if they would look at the contract 3 to ensure on our behalf, on the Ministers' behalf, any 4 exposure, because we hadn't seen it. We were not 5 involved in the development of it. 6 At the same time I did not ask Dundas & Wilson of 7 their view of whether it was fit for purpose, but they 8 took the opportunity to do that on our behalf. 9 Q. Once you were told the contract was not fit for purpose, 10 what was your reaction to that? 11 A. I think we took their view as face value, as I recall. 12 At that stage I think there was not a lot that we could 13 have done anyway. 14 Q. Once you had this advice from Dundas & Wilson? 15 A. Yes. 16 Q. Do you think you could have done more, had you had 17 advice on the contract before it was signed? 18 A. Certainly. 19 Q. Do you think would you have done more if you had that 20 advice before it was signed? 21 A. I'm not sure. That would be a decision made by senior 22 managers and probably Ministers. 23 Q. Do you think the Transport Scotland grant would have 24 been made available if that was the view of the 25 contract? 223 1 A. I can't answer that. 2 CHAIR OF THE INQUIRY: If you had had the information before 3 the contract was signed, what would you have done about 4 it? Would you have kept it to yourself or would you 5 have passed it up the line? 6 A. Oh, no, that -- that discussion was had within 7 Transport Scotland. I don't know if Ministers -- 8 I didn't advise Ministers. I don't know if anybody else 9 within Transport Scotland advised Ministers that there 10 was this negative view of the contract. 11 CHAIR OF THE INQUIRY: So you are saying that actually when 12 you got the information, actually when you received this 13 information, you had a discussion with other people to 14 draw their attention to it. 15 A. Yes. 16 CHAIR OF THE INQUIRY: Can you remember who that was? 17 A. It would have been -- it would have been both Bill Reeve 18 and Ainslie. Ainslie McLaughlin. 19 CHAIR OF THE INQUIRY: Thank you. 20 MR LAKE: Could I ask you to look at the letter of advice 21 that came from Dundas & Wilson. It's production 22 reference TRS00031282. We can see this is a letter 23 dated 15 June 2009, addressed to you. 24 A. Mm-hm. 25 Q. Now, I don't know, were you involved in discussions in 224 1 recent weeks to try and find a copy of this letter of 2 advice? 3 A. Yes. 4 Q. I think, is it correct that it couldn't be found within 5 Transport Scotland? 6 A. It was certainly on file in Transport Scotland. 7 Q. Was it? Was that a paper file or within the electronic 8 document recovery? 9 A. It was in the electronic. 10 Q. Would there be any reason that it couldn't be recovered 11 from that? 12 A. I can't say. 13 Q. Just looking at the terms of it, if you look at the 14 background, clause 1.2 to the end of that page, it says: 15 "There have been literally hundreds of claims made 16 by Infraco against tie. Nearly all, if not all, of 17 these arise from the civil engineering works undertaken 18 by Bilfinger Berger UK Ltd and few of them have been 19 resolved. There has been a very public dispute about 20 Princes Street which was finally settled by an Agreement 21 Supplemental to the Infraco Contract. I comment on this 22 Supplemental Agreement below. 23 "A brief review of the Infraco Contract suggests 24 that the form of contract, although it contains 25 extensive Dispute Resolution Procedures, may tend to 225 1 encourage disputes. In particular, the Change 2 Mechanisms seem to be derived from, and may be more 3 present to a PFI/PPP structure rather than 4 a traditionally funded major infrastructure project. 5 The provisions relating to change and the strict time 6 limit encourage notification of changes which if not 7 accepted may create a hostile atmosphere and divert 8 management from the important task of delivery." 9 Presumably that would be of some concern to you? 10 A. Yes. 11 Q. If you had known you had a contract which tended to 12 generate disputes, is that something that you might well 13 have commented on and might well have taken action in 14 respect of, had you known before that was signed? 15 A. I would certainly have reported that up the line, yes. 16 Q. Could we look at the following page. If we just look at 17 the upper paragraph there, we can see it says: 18 "As will be seen from our commentary on the 19 Supplemental Agreement, the accommodation reached in 20 March ..." 21 Firstly, I should say, the Supplemental Agreement, 22 was that the one in relation to Princes Street in order 23 to get the works done? 24 A. As I recall, yes. 25 Q. "As will be seen from our commentary on the Supplemental 226 1 Agreement the accommodation reached in March does not 2 finally resolve any of the underlying issues and may 3 have opened the way to further disputes not necessarily 4 limited to the matters originally in dispute. It is not 5 evident that this agreement offers a sound basis upon 6 which the parties can develop a commercially agreed 7 recovery programme. It would certainly not be a good 8 precedent for the final documentation." 9 If you had heard that view before the Supplemental 10 Agreement was signed, again, is that something in 11 respect of which you might have taken action? 12 A. I suspect that would be the case, yes, but I couldn't 13 say with certainty. 14 Q. Might you have taken that action, notwithstanding the 15 fact that Transport Scotland had withdrawn from the Tram 16 Project Board by then? 17 A. Yes. 18 Q. Can we look, please, at the third page of this. We can 19 see the heading, "Supplemental Agreement among tie, BB 20 UK, Siemens and CAF dated 20 March 2009". 3.1 notes: 21 "The Supplemental Agreement effects a significant 22 amendment to the Infraco Contract. In Clause 2 it 23 provides that Infraco's sole entitlement to payment, 24 extension of time or other relief in respect of the 25 Princes Street Works and the impact of the 227 1 Princes Street Works on the Infraco works are as set out 2 in the Supplemental Agreement." 3 That's just a simple narrative of the position; do 4 you see that? 5 A. Mm-hm. 6 Q. Then if we look to the foot of the page, under 7 clause 3.4, we see it's noted: 8 "There are three separate but related risk transfers 9 for Infraco to tie in the Supplemental Agreement." 10 The first is: 11 "Infraco are to be paid for the Princes Street works 12 not under the Infraco Contract but under the 13 Supplemental Agreement. Infraco is to be paid 14 Demonstrable Costs. In addition, Infraco is to be paid 15 head office overhead, profit and preliminaries ... as if 16 the Princes Street Works were a tie Change. There is no 17 fixed price element at all." 18 Do you see that's what it says? 19 Now, the change from having what was supposed to be 20 a fixed price contract to one in which the view is that 21 there is no fixed price element at all, was that of any 22 concern to you? 23 A. I think it's a specific example of the general concerns 24 that it wasn't fit for purpose, and yes. 25 Q. We note -- if you go to the next page and enlarge the 228 1 upper half of the page, we can see (b) is that: 2 "Infraco is entitled to the additional costs and 3 time caused to the remaining Infraco Works as 4 a consequence of events affecting and circumstances in 5 which Princes Street Works are being undertaken ..." 6 If I jump forward to (c), it's: 7 "Infraco is entitled to an extension of time in 8 relation to the Princes Street Works." 9 Jump forward again to 3.5: 10 "It follows that tie's ability to manage these 11 additional risks within the financial resources 12 available to CEC is a matter of vital significance." 13 Again, this was something in which 14 Transport Scotland had no ability to assist with or 15 participate in the management of these additional risks? 16 A. Yes. 17 Q. Was that a concern? 18 A. Yes. 19 MR LAKE: My Lord, I'm planning to move on with that letter, 20 so that might be an appropriate place to break. 21 CHAIR OF THE INQUIRY: Very well. We will adjourn for the 22 evening, Mr Ramsay. If you could be back again tomorrow 23 to start your evidence at 9.30. Ms Fraser will speak to 24 you again about the details. 25 A. Thank you. 229 1 CHAIR OF THE INQUIRY: Tomorrow at 9.30. 2 (4.30 pm) 3 (The hearing adjourned until Thursday, 28 September 2017 at 4 9.30 am) 5 230 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