1 Wednesday, 27 September 2017 5 CHAIR OF THE INQUIRY: Mr Lake, I understand the next 6 witness is Mr Reeve. 7 MR LAKE: Yes, my Lord, the next witness is Mr Reeve, and as 8 my Lord will be aware, there has been an application 9 made by Mr Borland in relation to Mr Reeve. 10 CHAIR OF THE INQUIRY: I think before we have Mr Reeve, 11 I would like to raise a matter with Mr Borland. 12 Mr Borland, I have been given a copy of the email 13 that you sent to counsel to the Inquiry at 9.07 14 yesterday morning to Chambers. As you will appreciate, 15 Counsel to the Inquiry was here, taking evidence from 16 witnesses, and the email indicates that there are four 17 points that you wish to raise with Mr Reeve. 18 First of all, I ask you to address me on the Inquiry 19 Procedure Direction Number 10. 20 Discussion re procedural matters 21 MR BORLAND: My Lord, I'm conscious that the application, if 22 one refers to the Inquiry Directions, strictly, 23 speaking, comes late, and I tender my apologies for 24 that. 25 Consideration of the witness statement of Mr Reeve 6 1 at the end of last week -- 2 CHAIR OF THE INQUIRY: Sorry? 3 MR BORLAND: Consideration of the witness statement of 4 Mr Reeve last week gave rise to certain issues of which 5 I was asked to opine, and the four issues that 6 I mentioned in the email are those that arose out of 7 that consideration, and I have drawn it to Mr Lake's 8 attention as soon as I could. 9 CHAIR OF THE INQUIRY: I find that difficult to -- 10 Mr Borland, this statement has been on Haymarket since 11 14 July. The Procedure Direction has been in existence 12 since 29 June. The draft running order indicating 13 Mr Reeve would provisionally be a witness this week has 14 been on Haymarket since 29 June. 15 Why could you not manage your preparation in such 16 a way that you could comply with Procedure Direction 17 Number 10? 18 Do you have any idea what the purpose of 19 paragraph 30 of the procedure direction is? 20 MR BORLAND: Well, my Lord, I would infer that the purpose 21 of the Direction is to allow the Inquiry to regulate the 22 procedure expeditiously and efficiently. I accept that 23 of course, as the reason for the Direction. 24 With regard to my Lord's question as to why the 25 application comes late, given that the witness statement 7 1 has been on the website or available for a period of 2 time, it is simply that given the volume of material 3 that we are faced with here, consideration of Mr Reeve's 4 statement has come later than one would perhaps ideally 5 have wished. 6 I can't say any more than that, that the detailed 7 consideration of Mr Reeve's statement took place at the 8 end of last week and over the weekend. There are four 9 focused issues on which I would like to ask Mr Reeve 10 questions. 11 It may be that Counsel for the Inquiry covers some 12 of these areas in any event, and obviates the need for 13 me to ask any questions, but I would hope that if 14 cross-examination were allowed, it would be very short 15 indeed and amount to only three or four documents being 16 put to Mr Reeve for his comment. 17 CHAIR OF THE INQUIRY: This just drives a coach and horses 18 through the procedural rules. It means that Counsel can 19 decide how the Inquiry is going to be run and choose 20 whether or not to comply, and also the whole idea of 21 giving seven days' notice, at least seven days' notice, 22 is enable me to consider, along with Counsel to the 23 Inquiry, how best to deal with this and whether it's 24 going to be covered in the witness's statement, or, 25 indeed, whether it's more appropriate for other 8 1 witnesses to deal with this. 2 When one looks at the points, the first one relates 3 to the contract Schedule Part 4. Well, as far as the 4 interpretation of that is concerned, I don't need 5 Mr Reeve or anyone else to tell me what the Schedule 6 means or what the effect of it is. 7 Secondly, the third point that you make is 8 cryptically described as the issue of design. 9 How does that give us any indication of the aspect 10 of design that you're thinking about? 11 MR BORLAND: Well, if I can take one of the points that 12 my Lord makes first, the application being made does not 13 result, in my respectful submission -- 14 CHAIR OF THE INQUIRY: Sorry? 15 MR BORLAND: It does not result, in my respectful 16 submission, in the position of Counsel dictating to the 17 Inquiry. The very fact that we are having this 18 discussion, and my Lord obviously will make the decision 19 at the end of the day, means that the Inquiry remains in 20 control of the procedure. 21 So I would not, respectfully, accept that. 22 In relation to the issues raised in the application, 23 the first main issue is that of the MUDFA works. That 24 is a theme which is, according to Mr Reeve, a huge issue 25 on a trams project and was an issue which was constantly 9 1 raised during the Tram Project Board meetings which he 2 attended. 3 CHAIR OF THE INQUIRY: He says that in his evidence. 4 MR BORLAND: Indeed. What I would like to explore with him 5 in short, my Lord, is the extent to which that was truly 6 canvassed and canvassed in detail with him, and with 7 other members of the Tram Project Board. 8 As regards design, he touches on design -- 9 CHAIR OF THE INQUIRY: No, Mr Borland, you're giving us 10 notice of questions that you want to ask. In relation 11 to design, I'm told what you want to deal with is the 12 issue of design. 13 MR BORLAND: I'm attempting, my Lord, to give my Lord 14 an indication of the short issue of design on which 15 I would like to ask Mr Reeve questions. 16 CHAIR OF THE INQUIRY: Why didn't you do that seven days 17 ago? 18 MR BORLAND: Well, my Lord, I don't think I can add to the 19 explanation that I have given already. 20 CHAIR OF THE INQUIRY: It's unacceptable. I'm not prepared 21 to allow it. 22 MR BORLAND: Very well. 23 CHAIR OF THE INQUIRY: Will we call Mr Reeve? 24 MR LAKE: Mr Reeve. 25 CHAIR OF THE INQUIRY: I should indicate to other parties 10 1 that if you do have questions, that you should comply 2 with the Procedure Direction, as has been done by 3 Mr Fairley on several occasions. 4 MR WILLIAM REEVE (sworn) 5 Examination by MR LAKE 6 CHAIR OF THE INQUIRY: Could I ask you to speak slowly so 7 the shorthand writers can keep up with you, and also to 8 speak clearly into the microphone so everyone can hear 9 you. 10 A. Certainly. 11 MR LAKE: Thank you, my Lord. 12 Mr Reeve, could you state your full name, please? 13 A. William Joseph Reeve. 14 Q. The Inquiry has your address. What is your current 15 occupation? 16 A. I'm currently employed as Director of Rail at 17 Transport Scotland, which is a slight change from the 18 title that you have in my witness statement. 19 Q. Is that a recent change? 20 A. It is, since September of last year. 21 Q. You were involved previously with rail projects within 22 Transport Scotland and in that guise had involvement 23 with the tram project in Edinburgh? 24 A. That's correct, between December 2005 and December 2010. 25 Q. I wonder if you could move the microphone slightly 11 1 closer to you. 2 I would like you to ask you to look at a document. 3 The document reference is TRI00000067_C? 4 A. And that will come up on the screen. 5 Q. It will come up on the screen in just a moment. 6 You should see on the screen an electronic copy of 7 what you also have in front of you, paper as well? 8 A. I see it, yes. 9 Q. That, I think, is a copy of your witness statement that 10 you provided to the Inquiry? 11 A. I believe so, yes. 12 Q. I think in the paper version it should have your 13 signature at the end? 14 A. It does indeed. 15 Q. Can I take it you are content that that be adopted as 16 your evidence to this Inquiry? 17 A. With that change of job title, yes. 18 Q. Thank you very much. 19 I do want to ask you a few additional questions in 20 relation to the matters arising out of the statement. 21 Could you look with me, please, at page 8 of that 22 statement. 23 A. Indeed. 24 Q. In particular, paragraph 25, if you could enlarge that. 25 Now, you give some consideration there to the 12 1 outturn costs of the various elements of the project and 2 make reference to figures in the Audit Scotland 2011 3 Report? 4 A. Yes. 5 Q. The second half of the paragraph is: 6 "The infrastructure contract, the largest single 7 contract, was the one which caused the difficulties. 8 One might therefore say that this methodology of 9 estimating costs has proved to be reasonably accurate 10 for most aspects of the project, but something has 11 clearly gone astray with respect to the main 12 infrastructure contract." 13 Now, do you have a view as to what went astray with 14 the infrastructure contract? 15 A. Well, clearly, and from my recollection, there didn't 16 appear to be an agreement between the parties as to -- 17 CHAIR OF THE INQUIRY: I wonder if the volume could be -- if 18 you could speak up a bit. 19 A. I'm sorry, my Lord, is that better? 20 On reflection, from recollection, it wasn't 21 a contract that both parties had a shared understanding 22 as to its import, and almost from the start of the 23 contract being signed, it seemed to lead to a process of 24 dispute as to its interpretation and application. 25 Q. Are you aware that there were any particular areas in 13 1 which there was a lack of common understanding? 2 A. I think, with respect to the extent to which there was 3 a fixed price, and the extent to which the contractor 4 was eligible for variations to that price, as works 5 progressed. 6 Q. Is that a view that you've been able to form after the 7 event? 8 A. Yes. 9 Q. Were you aware of that at the time that the disputes 10 were breaking out, or at the time even that the contract 11 was concluded? 12 A. I think it was -- at the time the contract was 13 concluded, no, because that's not how it was represented 14 to me. Thereafter it became apparent, I think quite 15 swiftly, as the contract moved into operation, that 16 there wasn't a shared understanding. 17 Q. When you say how matters were represented to you, in 18 what way were matters represented to you? 19 A. Well, going back to when I'd been more directly involved 20 in the tram project, the procurement strategy was one 21 that was explained to me as seeking to secure, as far as 22 was possible, a fixed price for the implementation of 23 the infrastructure works. 24 Q. Were there particular sub-strands of the strategy that 25 were going to be used to attempt to ensure a fixed 14 1 price, that you can recall? How were they going to get 2 a fixed price? 3 A. I think in principle the design should have been 4 completed prior to the signing of the contract and the 5 prices should have been agreed with respect to those 6 agreed designs. 7 Q. In addition to the other works that were to take place, 8 other than design and the infrastructure works, thinking 9 of the tram vehicles and the utilities works, was there 10 a strategy in respect of those? 11 A. They formed part of an overall procurement strategy. So 12 how those related to each other was a matter of the 13 overall procurement strategy. 14 Q. How did the utilities works relate to the infrastructure 15 works? 16 A. Well, the intention of the utilities contract was to 17 learn lessons from previous tram projects, where the 18 discovery of unanticipated utilities during construction 19 had led to significant variation and delay in the main 20 construction works, I remember that in particular being 21 a lesson from the Dublin contract, but also from 22 discussions with other tram projects at the time. 23 So the intention was to de-risk the final 24 construction project. 25 Q. How were they going to de-risk it? 15 1 A. By removing the utilities that needed to be diverted in 2 advance of the construction of the main tram 3 infrastructure works. 4 Q. So do we understand then by the time that the main 5 construction works were to be carried out, that all or 6 at least a significant part of the utilities works would 7 have been completed? 8 A. That, I believe, was the intention. 9 Q. I want to turn to ask you a few questions about 10 governance of the project now. You've said that you and 11 your department had some involvement in the governance 12 structures that were put in place with the project. 13 A. That is correct. Different degrees at different stages. 14 Q. What were then the different stages and the different 15 degrees of involvement you sought to have on this 16 matter? 17 A. Well, the principal difference was the arrangements that 18 were in place up to the election in 2007 and shortly 19 thereafter, and then the arrangements that were put in 20 place after the change of government and the 21 arrangements put in place thereafter. 22 So they changed in the course of 2007. 23 Q. I think they changed again in or about 2011 after the 24 mediation, that Transport Scotland came back in? 25 A. That's correct, although that was after my involvement 16 1 in the project. 2 Q. If we can look then at the early phase, pre 2007, 3 I think you had some input into what the governance 4 structures were to be within tie; is that correct? 5 A. Certainly we discussed the governance structures and 6 I was keen, from my beginning to be involved from the 7 end of 2005, that we had clear governance in place, and 8 that the governance was working effectively. 9 Q. Why was it that Transport Scotland sought to have an 10 involvement particularly in project governance? 11 A. It would be a normal thing for us to do, to ensure that 12 the governance for any project is clearly established. 13 Q. Why is it important? It may seem a naive question, but 14 why is it important to have the governance clearly 15 established? 16 A. It's good practice to establish role clarity and to 17 ensure that the normal checks and balances for major 18 project control are in place. 19 Q. Just deal with the question of role clarity, in that 20 governance pre 2007, you personally and 21 Transport Scotland as an organisation were involved? 22 A. That's correct. 23 Q. Do you consider that there was clarity of roles as 24 between Transport Scotland on the one hand and tie and 25 the Council on the other? 17 1 A. I think so. I think there was a -- there was, after the 2 formation of Transport Scotland, there was a little 3 period of evolution and refinement and for getting to 4 clarify, but yes, I think we got to a clear 5 understanding and I think that was reflected in 6 the Audit Scotland Report in 2007. 7 Q. Transport Scotland being formed on 1 January 2006? 8 A. That's correct. 9 Q. And the Audit Scotland Report, as you say, in mid-2007? 10 A. Yes, summer of 2007. 11 Q. So by that time you consider the dust had settled and 12 there were clear responsibilities? 13 A. I believe so, yes. 14 Q. In terms of tie taking forward the project, were you 15 within Transport Scotland happy that an arm's length 16 company such as tie were being used to deliver the 17 project? 18 A. Well, tie had been established before my involvement. 19 But I think it's a pretty normal arrangement for a local 20 authority looking to construct a tram project to have 21 a project body to oversee that work. It didn't strike 22 me as an unusual arrangement. 23 Q. Did you consider that there are advantages to having 24 a company do it, rather than having the Council do it 25 themselves? 18 1 A. I think one of the arguments advanced for such 2 arrangements is to allow a body responsible for 3 a project to recruit at suitable market rates the right 4 level of expertise, to discharge a complicated capital 5 project. So that's again not an uncommon arrangement 6 for similar projects elsewhere. 7 Q. Within Transport Scotland, was there a preference as to 8 whether or not it should be an arm's length company or 9 not that delivered the project? 10 A. I don't recall there being a preference. I recall it 11 being something we'd inherited at the start of 12 Transport Scotland, and it struck us as a reasonable 13 arrangement. 14 Q. You talked about inheriting things in 15 Transport Scotland. Although the Body or the Executive 16 Agency was formed on 1 January 2006, the people that 17 made up the Executive Agency were presumably in place 18 doing the job previously? 19 A. Some were, though the rail team was only formed from 20 2005 in the Scottish Executive and then as that morphed 21 into Transport Scotland, that reflected the devolution 22 of rail powers from the UK Parliament to the Scottish 23 Parliament in 2005. 24 Q. But with the exception of rail, which was further 25 devolved, as you say, in 2005, Transport Scotland had 19 1 been in position and -- the people who made up 2 Transport Scotland were in position and discharging 3 responsibilities for the Scottish Government before 4 that? 5 A. A significant percentage, yes, particularly in relation 6 to road projects, but the rail team was largely newly 7 established from 2005. 8 Q. Turning to the question of use of not just an arm's 9 length company in general, but tie in particular, did 10 you have concerns about using tie to deliver the tram 11 project? 12 A. I think we were -- I don't recall specifically concerns 13 about tie for the tram project. We were keen to see 14 that tie did its job effectively. But again, the 15 principle of having such a body as a subsidiary of City 16 of Edinburgh Council struck me as sensible for the tram 17 project, for an asset that was going to become City of 18 Edinburgh Council's asset. 19 Q. Another project in which both Transport Scotland and tie 20 had been involved was the Stirling-Alloa-Kincardine 21 railway; is that correct? 22 A. That's correct. 23 Q. That was being delivered by tie on behalf of 24 Clackmannanshire Council? 25 A. tie had a project management role on behalf of 20 1 Clackmannanshire, yes. 2 Q. That project ran into some difficulties with both its 3 timing and cost? 4 A. That's correct. 5 Q. Ultimately, as a result of that, Transport Scotland 6 decided to take the project back from tie and manage it 7 themselves? 8 A. We did. 9 Q. That was round about 2007; is that correct? 10 A. I haven't checked those dates in particular, but that 11 sounds about right. 12 Q. Did that not give you some concerns about the ability of 13 tie to deliver large infrastructure projects? 14 A. I think that the context of the 15 Stirling-Alloa-Kincardine railway project was different. 16 That was about the delivery of an infrastructure on an 17 asset owned by Network Rail, and it's perhaps worth 18 understanding -- this again pre-dates my involvement, 19 but my understanding is that at a time a couple of years 20 before that, when the previous company, Railtrack, had 21 failed, was failing and had failed, and then 22 Network Rail was created to address some of those 23 difficulties, Network Rail at that time was refusing to 24 participate in enhancement projects because it felt it 25 needed to sort out the day job. 21 1 So there was a period of a year or so when 2 Network Rail was not able to discharge that function, 3 and during that period, it was my understanding that the 4 Scottish Executive looked to an alternative body to take 5 forward a project it wished to deliver and that counts 6 for tie's role. By the time Transport Scotland came 7 along, Network Rail had evolved. We were a new body, 8 and arrangements for heavy rail projects, it struck us 9 at the time it was a good time to move on. 10 Q. It wasn't really just that Network Rail were otherwise 11 occupied and that Transport Scotland had been set up. 12 Those weren't the reasons that the project was taken 13 back. It was because there were quite substantial 14 difficulties with the delivery of that project? 15 A. There were difficulties, and also questions about who 16 was best placed to address those difficulties, and 17 Transport Scotland had been established with statutory 18 powers in relation to Network Rail, which tie didn't 19 have. (Pause) 20 Transport Scotland had just been established, with 21 newly devolved statutory powers in relation to the rail 22 industry, the heavy rail industry in Scotland, and 23 Network Rail included within that, and it seemed 24 appropriate in the light of the difficulties on the 25 Stirling-Alloa-Kincardine project to take account of our 22 1 new existence, the powers that we had, the working 2 relationship we were developing with Network Rail, and 3 to simplify those project arrangements. 4 Q. Could I ask you to look at a production, please. The 5 document reference is CEC01318113. 6 We can see this is a document entitled "Review of 7 major capital projects in Scotland, How government 8 works". It's from Audit Scotland? 9 A. I can't quite read the date. 10 Q. Sorry? 11 A. I was struggling to read the date. 12 Q. It's not very clear on this version. I think it's 13 June 2006. June 2008, sorry. 14 Have you seen this document before? 15 A. Some while ago, but yes, I do think I recall this. 16 Q. Could we look, please, at page 26 on the electronic 17 version. If you could enlarge the upper half of the 18 page. 19 I think it's clear enough to read. 20 We can see: 21 "Clackmannanshire Council promoted the private 22 parliamentary Bill required for the project (the 23 Stirling-Alloa-Kincardine Railway and Linked 24 Improvements Act 2004). The Scottish Executive and 25 later Transport Scotland were the principal funders of 23 1 the project." 2 So to that extent, there's a similarity there to the 3 position in relation to the trams, that the Council 4 promoted the Bill and Transport Scotland was the funder? 5 A. That's correct. 6 Q. It goes on there to note various other parties that were 7 involved. If we look under the heading, "Delivery as to 8 time and cost", we see the project's cost has more than 9 doubled and its completion has been delayed by two and 10 a half years. Do you see that? 11 A. Yes. 12 Q. Presumably that was of some concern to Transport 13 Scotland as the funder? 14 A. It was indeed. 15 Q. If we could look further down the page, "Project 16 management and governance", if we could see that heading 17 and what's under it. 18 A. Yes, okay. 19 Q. We can see what it says there is that: 20 "In June 2007, because of a range of concerns about 21 the project, Transport Scotland took a direct role in 22 the project management on behalf of the Council and 23 commissioned a technical audit. The resulting audit 24 report revealed project liabilities significantly 25 greater than previously reported." 24 1 Now, this is narrating that the reason that 2 Transport Scotland took control was because of a range 3 of concerns about the project. Would you disagree with 4 that? 5 A. No, that's fair. 6 Q. "Scottish ministers announced, in June 2007, that an 7 improved project governance structure would be put in 8 place to take the project through to completion in 9 March 2008 and to contain costs within GBP85 million. 10 The new arrangement removed tie Ltd from the project. 11 Transport Scotland took over day-to-day project 12 management in August 2007 and put in place a range of 13 measures to improve control." 14 Were you involved in putting in place those new 15 governance arrangements and project management 16 arrangements? 17 A. Yes. 18 Q. Were you involved in the audit report that investigated 19 and revealed project liabilities significantly greater 20 than previously thought? 21 A. Yes, I think that would have been commissioned by my 22 team. 23 Q. Underneath that, we can see, prior to the bullet points: 24 "Our review of the project confirmed significant 25 shortcomings before Transport Scotland took control of 25 1 the project." 2 The first is: 3 "Project requirement specifications were not 4 formalised and there was no clear baseline for planning. 5 Costs and programme timescales were based on 6 a preliminary design which was untested against 7 requirements." 8 Just pause there. Those are criticisms of the 9 project managers, tie; is that correct? 10 A. I think they're criticisms of the arrangements for the 11 project including tie. There were other parties 12 involved. 13 Q. But tie as project managers would presumably be able 14 to -- would be presumed to address project requirement 15 specifications? 16 A. Yes, in conjunction with their technical advisers on 17 that -- it was quite a complicated arrangement. 18 Q. Was anyone else, apart from tie, taken out of the 19 Stirling-Alloa-Kincardine railway project at that time, 20 in June 2007? 21 A. I don't recall so. 22 Q. So the one party chained to the project was tie? 23 A. Yes, there seemed to be some scope for simplification. 24 Q. The second bullet point is that: 25 "Control and challenge were weak in the project 26 1 governance. Reporting was ineffective and there was 2 a poor level of challenge and poor management of cost by 3 key stakeholders." 4 Who were the stakeholders managing cost? Was that 5 Transport Scotland? 6 A. It will, it would have been tie. It would have been 7 Clackmannanshire Council. It would have been the 8 project management organisation employed by 9 Clackmannanshire. So the engineering consultants. 10 And we were involved, yes. 11 Q. Again, the only party who felt necessary to change was 12 tie? 13 A. Well, tie's involvement, I think, had dated from a time 14 when there wasn't an alternative project management 15 organisation in place. Transport Scotland hadn't 16 existed with its rail functions. Network Rail had 17 refused to take on the role and at the time, I think, 18 tie was given that role. 19 By this point things had changed. So other options 20 were possible at that point, and unlike the tram 21 project, where tie is a subsidiary of City of Edinburgh 22 Council and it is ultimately the owner of the project -- 23 Q. Could I ask to you slow down, just to give a chance to 24 ensure it's properly noted. 25 CHAIR OF THE INQUIRY: I think that answer followed the 27 1 question: 2 "Again, the only party who felt necessary to change 3 was tie?" 4 A. That's correct, my Lord. 5 CHAIR OF THE INQUIRY: Was the answer to that yes? 6 A. That's correct. 7 MR LAKE: Looking at the bullet points, we can see that not 8 all of the right skills and experience were available. 9 The risk management was not embedded and not all 10 significant risks were identified. 11 Again, those are issues of project management, 12 aren't they? 13 A. They are, yes. 14 Q. The final bullet point: 15 "Project management and governance significantly 16 improved after Transport Scotland's direct involvement. 17 Construction was complete by 28 March 2008 and services 18 commenced in May 2008." 19 The comment about the final costs. 20 So this brought to your attention a number of 21 concerns in relation to tie round about June 2007 at the 22 time that Transport Scotland took over -- took back this 23 project? 24 A. Yes, concerns in relation to tie's role with a heavy 25 rail project. 28 1 Q. The concerns that we've seen existed here were ones of 2 project management? 3 A. They were, and they were different in nature to the 4 things we were seeing on the tram project at the time. 5 Q. I take it from your answer there that none of what -- 6 you would say that none of what you were finding out 7 about tie's role in the Stirling-Alloa-Kincardine 8 railway gave you any cause for concern in relation to 9 the Edinburgh Tram Project? 10 A. Well, in comparison, the Audit Scotland Report, I think, 11 found that there were satisfactory project management 12 arrangements, including things like risk management 13 processes, in place for the tram project within tie at 14 the time. 15 Q. We will come to the Audit Scotland Report, but for how 16 long -- start that again. 17 The Audit Scotland Report in relation to the tram 18 project was given in, I think, about July 2007; is that 19 correct? 20 A. I believe so, yes. 21 Q. For how long had Audit Scotland been involved in the 22 tram project at that time? 23 A. I couldn't say. I would imagine a matter of weeks. 24 Q. For how long had -- Transport Scotland had been involved 25 in it since Transport Scotland were established on 29 1 1 January 2006? 2 A. Yes. 3 Q. The people at Transport Scotland, some of the people at 4 Transport Scotland had been involved in the tram project 5 prior to that time? 6 A. Yes. 7 Q. I think they were involved from the time that rail was 8 devolved, and therefore Transport Scotland assumed the 9 rail delivery role; is that correct? 10 A. Some of them may have been involved prior to that, 11 because this was a light rail project, rather than the 12 heavy rail project. 13 Q. So would it be reasonable to assume that 14 Transport Scotland were in fact in a much better 15 position than Audit Scotland to form a view as to how 16 tie were managing that project? 17 A. I wouldn't want to criticise Audit Scotland's ability to 18 form a view in the light of its experience in reviewing 19 other projects, but as it happened, the conclusions it 20 came to were consistent with our views at the time. 21 Q. That was not, with respect, an answer to my question. 22 A. Indeed. 23 Q. My question was that Transport Scotland were in a better 24 position than Audit Scotland to form a view on tie's 25 project management of the projects? 30 1 A. Well, I'll try and explain that again. 2 Audit Scotland has a particular skill set in 3 investigation into appropriate management arrangements. 4 Transport Scotland has skill sets in relation to 5 projects. I think both skill sets are valuable. It's 6 normal to use both. 7 So I wouldn't like to say whether we were better 8 placed, but as it happened, both organisations had 9 a similar view at the time. 10 Q. I'm just concerned that you seem to defer somewhat 11 to Audit Scotland and the view that they reached in 12 relation to the project? 13 A. I'm not deferring so much as noting that they came to 14 a similar conclusion to our own view. 15 Q. If you could look, please, at the Audit Scotland Report 16 from the time. The reference for that is CEC00785541. 17 We can see the front page here of the report, 18 entitled "Edinburgh transport projects review", 19 Audit Scotland, and the date on it is June 2007; do you 20 see that? 21 A. Indeed. 22 Q. Turn to page 16 of the scanned version. 23 We can see, if we look at the lower half of the 24 page, a bold heading, "Arrangements in place to manage 25 the project appear sound". Beneath that: 31 1 "There is a clear corporate governance structure for 2 the project which includes all key stakeholders." 3 Do you see that conclusion? It's actually stated in 4 the heading? 5 A. Right, sorry. Yes, I see. 6 Q. Paragraph 56 beneath it notes: 7 "The Tram Project Board exercises overall governance 8 of the project. It includes senior representatives from 9 tie, Transport Scotland, CEC and Transport Edinburgh 10 Limited and has full delegated authority from CEC 11 (through TEL) and Transport Scotland to take the actions 12 needed to deliver the project to agreed cost, timescale 13 and quality standards." 14 Do you see that? 15 A. Indeed. 16 Q. A reference to Exhibit 2. If we go over the page, and 17 look at the upper half of the page, Exhibit 2, we can 18 see the heading, "Tram Project Board governance 19 structure", and there are four elements all feeding into 20 the Project Board, of which one is Transport Scotland 21 with the Director of Rail Delivery, which was your title 22 at the time? 23 A. That's correct. 24 Q. Then if we look further down the page, we see: 25 "Project management and organisation is clearly 32 1 defined." 2 What it says there is: 3 "Day-to-day responsibility for delivering the 4 project rests with the Tram Project Director who is 5 supported by five teams responsible for delivery and 6 programme, engineering matters, procurement, finance and 7 operations and maintenance. The Tram Project Director 8 exercises project control through four-weekly reviews of 9 progress with project managers." 10 Do you see that? 11 A. Yes. 12 Q. The next paragraph: 13 "There is a clear project programme that provides 14 start and finish dates for each stage of the work. 15 There are also clearly documented project change control 16 procedures in place. The Project Director and Tram 17 Project Board regularly review progress against the 18 programme and consider requests to change it." 19 Do you see that also? 20 A. Yes. 21 Q. Then in completion of this section as to project 22 management, it says in paragraph 59: 23 "In September 2006 a Scottish Executive Gateway 24 Review assessment of the project was undertaken to test 25 tie's overall organisation and control over the project. 33 1 The assessment found that there was a common 2 understanding within tie of the requirements of the 3 project and the challenges faced, and that the majority 4 of recommendations from an earlier readiness review had 5 been fully implemented. A further Gateway review is 6 planned before the submission of tie's Final Business 7 Case to City of Edinburgh Council and Cabinet 8 Secretaries." 9 A. Yes. 10 Q. Now, those three paragraphs is all that is said about 11 project management and organisation within tie. Is that 12 correct? 13 A. I don't know without checking, but if that's what you 14 say. 15 Q. If you go further on, and look at the headings, there's 16 a section on financial management and reporting. 17 There's one on the management of risk? 18 A. Yes. 19 Q. There's the fact that the procurement strategy has been 20 designed to minimise risk and lead to successful 21 delivery of the project? 22 A. Yes. 23 Q. Over the page, it's not so much something which 24 indicates sound governance, but does indicate that the 25 project is approaching a critical phase in 2007. 34 1 A. Indeed. Did it say anything about the management 2 capability in this report? 3 Q. Well, that is something that I am asking you. 4 A. I may be confusing it with another one. 5 Q. If we can go to the next page for completeness, we can 6 see we just get to the end of the section on the trams, 7 if you go to the page after it moves to the Edinburgh 8 Airport rail link? 9 A. Yes. 10 Q. If we go back to where we started, I started referring 11 to this document at page 12 of the scanned. Take it 12 from there. That's actually gone back to page 10 of the 13 document. I'm corrected, it's page 12 of the scanned. 14 What we see under the heading of "Edinburgh trams" 15 is first of all a consideration of the background to the 16 project. And if we go to the next page, a statement of 17 the objectives of the project. What it seeks to 18 achieve. Do you see that? 19 A. Yes. 20 Q. The page following, we have got a statement of the cost 21 and time targets, the final cost estimate, and the 22 funding that was promised to be available. The page 23 after that, we have got a statement as to the provision 24 of -- interim provision of grant monies by the Scottish 25 Government, as they by then were, and a reference to the 35 1 project cost estimates and the testing? 2 A. Indeed. 3 Q. And if we go to the next page, we are back to where we 4 started. So there's nothing there particularly about an 5 evaluation of the management capabilities. 6 A. Okay. 7 Q. Now, faced with all that's said -- 8 What did you take from that report, that Audit 9 Scotland Report, that gave you comfort in relation to 10 the shortcomings of tie noted in relation to the 11 Stirling-Alloa-Kincardine railway? 12 A. I think our observation was that the level of engagement 13 was different and the priority attached by tie to the 14 tram project was different than that of 15 Stirling-Alloa-Kincardine. So I think the tram project 16 was exactly the sort of project that tie had been set up 17 to deliver, whereas the Stirling-Alloa-Kincardine 18 project was an add-on; and I think actually we saw some 19 advantages in tie not being distracted by other heavy 20 rail projects to allow it to focus on the principal 21 project it was established for, which is the tram 22 project, which was the tram project. 23 Q. So Transport Scotland had been providing funding for the 24 Stirling-Alloa-Kincardine railway? 25 A. Yes. 36 1 Q. They were also providing the majority of funding, by far 2 the majority of funding, for the Edinburgh tram project? 3 A. That's correct. 4 Q. In view of the fact that the difficulties had arisen 5 with the railway project, did that suggest to you that 6 a degree of scrutiny and particular care might be 7 appropriate in relation to the tram project? 8 A. Well, I think our reflection was that the difficulties 9 that tie had experienced in engaging with the heavy rail 10 project related to the particular risks and difficulties 11 associated engaging with heavy rail infrastructure, with 12 Network Rail, and that it was a more complicated 13 structure with a separate local authority. 14 So I think we thought that the circumstances were 15 different. 16 Q. Looking at what Audit Scotland had told you about the 17 problems in the Stirling-Alloa-Kincardine project such 18 as not having all the right skills and experience 19 available, control and challenge being weak, and 20 specifications not being formalised, were they not 21 matters where you might reasonably have thought that 22 particular care should be taken that these were being 23 properly managed in the Edinburgh Tram Project? 24 A. Yes, but the same body came to the view that that wasn't 25 the case in 2007 on the tram project. 37 1 Q. So you take all your comfort from that report in 2 relation to the Edinburgh Tram Project we've just looked 3 at? 4 A. No. No, I think, as I have said before, we found that 5 the Audit Scotland Report in 2007 accorded with our own 6 judgments at the time. The positions were not 7 inconsistent. 8 Q. Was there any written record prepared of the examination 9 of -- the basis on which Transport Scotland formed its 10 judgment of tie in 2007? 11 A. The answer is I can't recall. There may very well have 12 been. 13 Q. If there was one, would it have been kept by 14 Transport Scotland with the other documents relating to 15 the tram project? 16 A. Not if it related specifically to 17 Stirling-Alloa-Kincardine, I suspect. 18 Q. No, I'm talking about was there any consideration about, 19 standing the problems with the railway, was special care 20 required in relation to the tram project? Would that be 21 relevant to the tram project, presumably? 22 A. I can see your point, yes, but as to whether there was 23 such a document, I can't recall. 24 Q. I'm saying if there was a document, would you expect it 25 to be kept with other tram documents? 38 1 A. I would expect so, yes. 2 Q. Would there be any reason why it wouldn't have been 3 provided to this Inquiry? 4 A. None that I'm aware of. 5 Q. I want to go and consider a different part of your 6 statement just now. 7 Could we look, please, at page 15. Paragraph 51, if 8 you can enlarge that. 9 You refer to an email from James Papps to you that 10 was dated 25 October 2006? 11 A. Yes. 12 Q. It refers to an issue of project governance, but what 13 I'm interested in is you note that at that time, that's 14 October 2006, City of Edinburgh Council, tie, TEL and 15 the Tram Project Board were all involved in this 16 project. 17 Now, what was the role of these bodies? Let's take 18 them in turn. First of all, City of Edinburgh Council? 19 A. City of Edinburgh Council was the authority on whose 20 streets the tram project would be constructed and who 21 ultimately would be the owner of the tram asset. 22 tie was a subsidiary body of City of Edinburgh 23 Council established for delivery of major projects. TEL 24 had been established -- again, this pre-dates my 25 involvement, but my understanding was that was with the 39 1 intention of bringing out a measure of integration 2 between the management of Lothian Buses and a future 3 tram operation, and the Tram Project Board was 4 established as a Project Governance Board to oversee 5 specifically the tram project, as distinct from a number 6 of other projects with which tie may have been involved. 7 Q. How did the Tram Project Board relate to tie on the one 8 hand and TEL on the other? 9 A. Well, the Tram Project Board, I think, reported to CEC 10 and Transport Scotland. tie and TEL -- the tie project 11 team reported to the Project Board, and TEL had a member 12 on the Project Board. That's my recollection, but 13 I probably want to look at a diagram of the arrangements 14 at the time to confirm that. 15 I recall that there was some evolution in the role 16 of TEL and its relationship to tie over the years. 17 Q. Who was actually responsible, which of those bodies, 18 perhaps not the Council, but the other three, 19 responsible for delivering the tram project? 20 A. Ttie was responsible for delivering the tram project. 21 Q. Was that always the case, to your understanding? 22 A. That's my understanding. 23 Q. What was the function of the Tram Project Board? What 24 was its role? 25 A. To oversee the progress with the project in accordance 40 1 with normal roles for a Project Board. 2 Q. What are the normal roles for a project board? 3 A. They are ensuring that adequate progress is being made, 4 that risks are being managed adequately, that 5 appropriate resources are in place to allow the project 6 to be delivered, that finances are being properly 7 managed. 8 Q. If you come to the stage where tie only had one project, 9 as was ultimately the case after cancellation of EARL, 10 what would the difference be between the Company Board 11 there and the Tram Project Board? 12 A. The bringing to bear of the perspectives of other 13 stakeholders in the project. And the expertise. 14 Q. Which other stakeholders? 15 A. City of Edinburgh Council and TEL and whilst we were on 16 the Board, ourselves. 17 Q. Is there any reason why that sort of input can't be 18 provided by the Company Board, by, for example, 19 co-opting people on to board committees or even sit at 20 the Board? 21 A. It could be done that way. I think we had 22 Partnerships UK as a member of the Board as well, if 23 memory serves. 24 Q. The Tram Project Board? 25 A. Yes, indeed. 41 1 Q. Could you look, please, at another production, please. 2 It's reference TRS00021657. I have given an incorrect 3 reference there. It's 00002657. 4 If we look at the upper half of the page to make it 5 more readable, we can see this is an email from 6 James Papps, who you just mentioned, of Partnerships UK. 7 Perhaps I could ask you to explain who were 8 Partnerships UK? 9 A. Partnerships UK was a body that had been set up, I think 10 with direct engagement of the UK Government Treasury. 11 As I understand, it was a partnership between private 12 sector infrastructure investors and the Treasury. And 13 it was set up with a view to providing expert advice on 14 major public infrastructure projects. 15 Q. And it provided that advice initially at least for the 16 tram project? 17 A. They did. 18 Q. We can see it's sent from Mr Papps. It's dated 19 21 July 2006. And it's sent to Matthew Spence and 20 Damian Sharp and copied to you. 21 A. Indeed. 22 Q. If we see what it says -- sorry, I should first of all 23 ask, Matthew Spence and Damian Sharp, I think were 24 colleagues of yours in Transport Scotland? 25 A. Yes. 42 1 Q. What it says is: 2 "Matthew, many thanks for this. I think this is 3 a sensible and helpful summary of the basic principles 4 to be followed in constructing a governance document. 5 The trouble with the TIE approach is that it has 6 always been founded on attempts to fit arrangements 7 within the complicated and overlapping corporate 8 structure formed by TIE, TEL and CEC, rather than 9 starting with the optimal structure and working out 10 relationships to other existing bodies as the second 11 stage. As Damian knows, this latest paper is also only 12 the most recent in a whole series, all attempting to 13 make sense of project board functions within complex 14 corporate structures (hence perhaps the particularly 15 disjointed contents when read in isolation). 16 The concept of a project board should not be 17 complicated." 18 Now, you were presumably aware of that at the time 19 because it was sent to you? 20 A. Indeed, I think I recall this as part of a discussion at 21 the time about how we could ensure that the Project 22 Board arrangements were satisfactory, clearly 23 understood, the roles of different parties were clear, 24 and I think the point made here, I think you have made 25 as well, about the advantages of simplicity and clarity 43 1 and project governance are good ones. 2 I think this is about a year before 2007. So 3 this -- following this, there was work between parties 4 to ensure that role clarity was established. 5 Q. It still remained the case that tie, TEL, the Council, 6 and Project Board were part of the project governance 7 structure? 8 A. Yes. 9 Q. What Mr Papps appears to be saying here is the 10 complexity arises out of trying to impose a Tram Project 11 Board on top of the complicated corporate structure that 12 was already there? 13 A. Yes. I think there the comment was more about the 14 complicated structure of TEL and CEC and tie, rather 15 than the principle of there being a project board. 16 Q. What was done to deal with that difficulties of the 17 complexity between TEL, tie and CEC? 18 A. I think there were a set of discussions including at the 19 Tram Project Board through which, I think -- I think as 20 I mentioned in one of the previous documents you pulled 21 up, my sense was that those issues were worked through 22 in the normal manner, and that role clarity was 23 established. 24 So the context of this is what, summer of 2006, some 25 six or seven months after we had started to get 44 1 involved, and it takes time to clarify these things. 2 But I think we made some good progress in doing so. 3 Q. Could I ask you then to look at another production, 4 please. The reference for it is TRS00002698. You can 5 see this is an email from Graeme Bissett. I think he 6 was one of the senior personnel within tie. Do you 7 recall that? 8 A. I don't recall precisely his role at the time, but that 9 sounds likely. 10 Q. It's addressed to you, Damian Sharp, both within 11 Transport Scotland, and also to Andrew Holmes and 12 Donald McGougan, who were at the Council. Do you see 13 that? 14 A. Mm-hm. 15 Q. Now, what we see here is from Graeme Bissett, saying: 16 "Colleagues, here is my summary of the key points 17 and actions agreed at yesterday's constructive meeting. 18 Let me have comments/omissions when convenient. 19 I have updated the most recent governance paper to 20 reflect the principles agreed yesterday. There is 21 a revised clean version and the version showing changes 22 from the previous version." 23 In relation to governance, if we look over the page, 24 under the heading "Governance", we see the first bullet 25 point is: 45 1 "Agreed to move to independent Project Board model. 2 The attached paper reflects proposed final position." 3 Do you recall changes being made to the independent 4 Project Board at the time? 5 A. This is in August 2006; is that right? 6 Q. Yes. 7 A. So I think that follows on from that debate you were 8 seeing earlier as highlighted by James Papps about the 9 advantages in clarifying roles. 10 So I don't recall this document specifically, but 11 I recognise it as part of that process. 12 Q. If you could look at the document that's the attachment 13 to this. It's got the reference TRS00002699. We can 14 see it's a document headed, "Edinburgh's integrated 15 transport system Project governance - agreed structure". 16 We can see this is a revised version because July 17 has been crossed out and August 2006 is now in place. 18 Can you see the revisal to the date? 19 A. Yes. This is a track changes version, but yes. This 20 was a paper -- can you remind me, this was a paper to 21 which body or board? 22 Q. This is the attachment to the previous email setting out 23 what was said to have been the agreed governance 24 structure. My first question to you is: do you recall 25 seeing this as the agreed governance structure? 46 1 A. I honestly can't recall this document specifically, but 2 it's consistent with my recollection of the discussions 3 we were having at the time. 4 Q. If you look under the -- if you scroll up a little bit, 5 and we can see the paragraph above the heading, "Agreed 6 structure", notes that: 7 "The fulcrum of the previous governance structure 8 was the TEL Board, acting as the Project Board." 9 Now, was that your understanding of the position, 10 that in fact it was the TEL Board performing the role of 11 or acting as the Project Board? 12 A. I don't recall that in particular. I remember the -- my 13 recollection of, gosh, what is that now, 11 years ago, 14 was of the tie Project Board as the main focus of our 15 discussions. 16 Q. You said the tie Project Board? 17 A. Sorry, the Tram Project Board. 18 Q. Tram Project Board. 19 A. Sorry, I apologise. 20 Q. If we then look at what's described as the agreed 21 structure, August 2006, it notes: 22 "The revised structure is summarised in the diagrams 23 in Appendix 1. These highlight the following four key 24 bodies." 25 The four key bodies, we're told are the TEL Board, 47 1 the Tram Project Board, an independent body with 2 authority delegated to it by City of Edinburgh Council 3 through TEL, and by Transport Scotland. 4 CHAIR OF THE INQUIRY: I think the other bodies must be on 5 the next page. 6 MR LAKE: Sorry. 7 Sorry, the second bullet point I was reading was: 8 "Tram Project Board ... an independent body with 9 authority delegated to it by City of Edinburgh Council 10 (through TEL) and by Transport Scotland ..." 11 Then: 12 TPB sub-committees: 1) Business Planning, 13 Integration and Commercials; and 2) Design, Procurement 14 and Delivery." 15 It goes on to note that there are remits for each of 16 the four primary bodies. What's conspicuous by absence 17 as a primary body is tie. 18 A. Because tie would have been the delivery agent. 19 Q. So tie are not one of the key bodies in the agreed 20 structure; is that correct? 21 A. I can't imagine that they weren't -- they weren't 22 involved in this somewhere. Was this -- this was 23 a draft paper. Do you know if this paper was approved 24 subsequently? 25 Q. It's something that will be considered with other 48 1 witnesses rather than being able to give you 2 a definitive answer. What I'm asking is what is your 3 recollection of how matters were evolving? 4 A. I recall that these discussions were under way. 5 I recall that there was a consensus about the value of 6 establishing role clarity. And I recall that over the 7 course of 2006, moved into 2007, we got to a position 8 where I think I was satisfied that folk did understand 9 that, and I understood how the Tram Project Board was 10 functioning. 11 Q. If we look further down this page, under the heading, 12 "Tram Project Board", it says there: 13 "The Tram Project Board is established as an 14 independent body with full delegated authority from CEC 15 (through TEL) and TS to execute the project ..." 16 The change that's been made here is that it's no 17 longer to be a sub-committee of the TEL Board, but 18 instead it's to be independent. 19 Firstly, do you know why it was ever considered that 20 the Tram Project Board would be part of -- 21 a sub-committee of the TEL Board, rather than the 22 tie Board? 23 A. No, I think that would have pre-dated my involvement. 24 Q. What was the advantage then of making it an independent 25 body? 49 1 A. I think that was consistent with some of the arguments 2 you saw being advanced earlier about simplicity and 3 clarity over its role. 4 Q. How did that make its role -- provide simplicity and 5 clarity in relation to its role? 6 A. Well, I think it made the Tram Project Board the key 7 focus for decision-taking with respect to making 8 progress with the project. As distinct from having 9 decisions taken perhaps in parallel or even, at worst, 10 inconsistently in a set of parallel boards. 11 Q. How does the independence of the Tram Project Board 12 serve that function? 13 A. I think it's just, again, clarity about its role as the 14 lead body with responsibility for governance and -- of 15 the tram project. 16 Q. Could we look at page 4 of this document, please? If we 17 could look at the heading, "The tie Board" and the 18 paragraph underneath it. We can see that it says there: 19 "In addition to the four primary bodies, the 20 tie Board retains a specific role, in line with its 21 previous responsibilities. These are 1) to apply 22 quality assurance to the execution by the Tram Project 23 Director and his team; 2) to make formal funding requests 24 to Transport Scotland and be accountable for 25 expenditure; and 3) to enter into contractual 50 1 arrangements necessary to execute project delivery. It 2 is accepted that the tie Board will place reliance on 3 the governance processes executed by the Tram Project 4 Board in assessing the work required to execute their 5 own responsibilities under 2 and 3." 6 Now, this appears to give the tie Board a very much 7 subsidiary role in terms of the delivery of the project. 8 Would you agree? 9 A. It's clarifying tie's role as a project-clienting body 10 to provide the resources to support the delivery of the 11 project. 12 Q. My question was: this appears to give the tie Board 13 a very much subsidiary role in terms of the delivery of 14 the project; do you agree with that? 15 A. I think it clarifies the tie role. I'd hardly call 16 those responsibilities subsidiary. 17 Q. But where are the decisions as to how the project will 18 be delivered to be taken? Is it in tie? 19 A. It's the Project Board. 20 Q. So essentially, tie are now simply there to do the 21 bidding of the Project Board? 22 A. As set out there, yes. 23 Q. Were you aware of that being considered at the time? 24 A. I refer you to my earlier answer which was: I recall 25 these discussions. I think it would be helpful to see 51 1 what the conclusion of the Board was to this proposed 2 paper. 3 Q. You sat on the Project Board? 4 A. Yes. 5 Q. When you sat on the Project Board, how was it 6 constituted? Was it independent or was it 7 a sub-committee of one board or the other? 8 A. My understanding was it evolved to be an independent 9 Project Board. 10 Q. It was like that throughout your time sitting on it? 11 A. No, I would have to -- I would have to check that, but 12 that's how it evolved. So this is the process of 13 clarification and we got to a status that I thought was 14 satisfactory. 15 Q. You said you got to something that was satisfactory. 16 I'm trying to understand what that status was when you 17 were sitting on the Tram Project Board? 18 A. My understanding was it was the Governance Board for the 19 tram project with representatives of the appropriate 20 bodies and empowered to take decisions to govern that 21 project. 22 Q. And that it was independent of both Company Boards? Or 23 was it part of one of them? 24 A. Well, it had representatives from different company 25 boards sat as board members. 52 1 Q. Was it the sub-committee of either Company Board? 2 A. I would have to check the records to see whether that 3 was the case. 4 Q. But you don't have any recollection of having sat on it 5 at the time? 6 A. I recall sitting on it. I recall that the arrangements 7 were clear at that time, but that specific question, 8 I would need to check. 9 Q. I want to look at what your personal role was on the 10 Tram Project Board. First of all, how would you 11 describe that in general terms? 12 A. My role was to represent Transport Scotland as the 13 Transport Agency of the Scottish Government in its 14 interests in the tram project. 15 Q. You said, I think, in your statement, you represented 16 the interests of Transport Scotland and you took 17 decisions on their behalf. 18 A. Yes. 19 Q. When you were taking decisions on their behalf, was that 20 that you were in effect able to bind Transport Scotland; 21 if issues arose at the Tram Project Board, you could say 22 Transport Scotland will do one thing or the other? 23 A. Subject to those delegated authorities which I had in my 24 role, yes. Others, I might need to take back and seek 25 appropriate authority. 53 1 Q. In terms of representing the interests of 2 Transport Scotland, in what respect were you 3 representing their interests? What were you doing to 4 represent their interests? 5 A. Maintaining an interest in the development of the 6 project. Managing a team which provided some scrutiny 7 of how the project was evolving. And relaying to 8 Ministers our assessment of how the project was 9 developing. 10 Q. So, interesting, you say at the end that part of it, you 11 were able to provide a conduit for the passage of 12 information on what was happening in the project back to 13 Ministers, back to Transport Scotland? 14 A. Indeed so. 15 Q. And presumably that was quite a valuable role? 16 A. It is -- yes, it's an ordinary role. 17 Q. It's ...? 18 A. It's an ordinary role. 19 Q. Ordinary role. What about information passing the other 20 way, passing information about Transport Scotland, its 21 objectives and desires, into tie, into the Tram Project 22 Board? 23 A. Yes, that's consistent with that position. 24 Q. What about seeking to influence decisions taken by the 25 Tram Project Board? 54 1 A. Well, as a member of the Board, I would ordinarily bring 2 to bear my perspective and experience in the interests 3 of pursuing best possible decisions. 4 Q. But do you consider at any stage, you were involved in 5 trying to influence decisions or produce a particular 6 outcome at the Tram Project Board? 7 A. I'm sure I would have expressed opinions on a number of 8 topics with a view to influencing the decision. 9 Q. Can you recall any instances of that, where you sought 10 to procure an outcome for Transport Scotland? 11 A. None spring specifically to mind, but I don't doubt 12 there were some. 13 Q. Could we look, please, at another document in relation 14 to the role of the Tram Project Board. It's reference 15 CEC01821403. We can see this is the Draft Final 16 Business Case for the tram project dated November 2006. 17 Could we look, please, at page 74. 18 I think we can look at this quite briefly. If you 19 look at paragraph 6.6, I think we can see a position 20 consistent with the document we last looked at. The 21 Tram Project Board is now an independent body and has 22 authority to execute the project. In short? 23 A. Yes. 24 Q. If we go over the page to paragraph 6.14, in relation to 25 the tie Board, we can see essentially what is 55 1 a repetition of the governance paper, the draft paper we 2 looked at a little while ago? 3 A. Mm-hm. 4 Q. So does that seem to be to you that at least so far as 5 2006 is concerned, where matters had reached in relation 6 to governance? 7 A. That would seem to be the case, yes. 8 Q. Now, as you have noted, that's something that Audit 9 Scotland said they were satisfied with. 10 A. In 2007, yes. 11 Q. Presumably, by that time, also Transport Scotland were 12 also satisfied of it? 13 A. Yes, we were satisfied with those arrangements at that 14 point. 15 Q. If Transport Scotland had remained involved in the 16 project, would they have wished to be involved in 17 consideration of changes to that structure? 18 A. That's a hypothetical question. 19 Q. Yes. 20 A. Had we been involved -- 21 Q. Would you have continued to take an interest in 22 governance? 23 A. So if we had continued to have an interest in 24 governance, would we have continued to take an interest 25 in governance? I don't mean to be silly, but just to 56 1 check the question. 2 CHAIR OF THE INQUIRY: I think the question was: had 3 Transport Scotland remained part of the Project Board, 4 would you or whoever was representing Transport Scotland 5 have been interested in any proposals to change 6 governance? 7 A. I would have expected that to be the case, as indeed any 8 Project Board member, I would expect to have such an 9 interest. 10 MR LAKE: So if there had been changes to the governance 11 with which you'd expressed satisfaction, that would have 12 at least been of some concern to Transport Scotland. 13 A. So we're talking about the period -- 14 Q. Post -- 15 A. From 2007 after the change in arrangements? Well, at 16 that point the arrangements had changed, and a decision 17 had been taken that Transport Scotland should withdraw 18 from close engagement, and that the clarity of City of 19 Edinburgh Council's role as the lead body responsible 20 for the project had been established. So by that point, 21 it was a matter for City of Edinburgh Council to satisfy 22 itself that the governance was satisfactory. 23 Q. Transport Scotland were still putting in GBP500 million 24 of public money? 25 A. That's correct. 57 1 Q. Did they have any interest in ensuring that governance 2 was adequate and proper? 3 A. We had interest in ensuring that CEC complied with the 4 conditions of the grant agreement. 5 Q. I'll ask the question again. Transport Scotland were 6 putting in GBP500 million of public money. Did they 7 have any interest in ensuring that the governance was 8 adequate and proper? 9 A. We were content under the arrangements that it was for 10 CEC to govern -- to ensure the governance was 11 satisfactory. 12 Q. Did Transport Scotland have an interest in the 13 governance of the project being adequate and proper? 14 A. Again, without seeking to be difficult, the arrangements 15 for our interest were set out in the grant letter, and 16 they specified the nature of our engagement with City of 17 Edinburgh Council. And we met to discuss the evolution 18 of the project on a regular basis. 19 Q. Is that the only answer -- I have given you three or 20 four opportunities to answer the question. Is that the 21 only answer you're going to give? 22 A. Well, of course we had an interest in how the project 23 was proceeding, but the nature of that interest and what 24 our role was at that point was set out in those new 25 arrangements which were put in place, which clearly 58 1 meant that responsibility for the governance rested with 2 CEC. 3 Q. Were you involved in putting those arrangements into 4 place? 5 A. I was. 6 Q. The grant arrangements? 7 A. Yes. 8 Q. If we could just take a look at some of the grant 9 letters that deal with these issues. 10 Could we look at reference TRS00004113; you can see 11 that this is a letter. It's dated 19 March 2007. It's 12 addressed to Andrew Holmes at the City of Edinburgh 13 Council. The letter is actually signed by Damian Sharp. 14 A. Mm-hm. 15 Q. Would you be involved in the finalisation of the terms 16 of this letter? 17 A. I would expect Damian to have done it. I expect I was 18 aware of it. 19 Q. We can look at the first paragraph of the letter. The 20 first and second paragraph: 21 "In exercise of the powers contained in Section 70 22 of the Transport (Scotland) Act 2001, the Scottish 23 Ministers hereby offer to pay a grant to the City of 24 Edinburgh Council for the Edinburgh Tram Network. The 25 grant assistance offered shall be up to a maximum of 59 1 GBP60 million and must be used for utilities diversions, 2 advance works, continuing development and procurement 3 for Phase 1A of the Edinburgh Tram Network. 4 The grant is offered on the terms and conditions 5 contained in the schedule attached to this letter." 6 A. Yes. 7 Q. If you want to see the schedule to the letter, if you go 8 to another document, it's reference TRS00004112. 9 We can see that under the heading, "APPLICATION FOR 10 FUNDING UNDER SECTION 70 OF THE 2001 ACT", and then the 11 final heading, "SCHEDULE OF TERMS AND CONDITIONS", and 12 then sub-heading, "CONDITIONS OF GRANT"; do you see 13 that? 14 A. Yes. 15 Q. We see in the definitions, the definition of grant is 16 once again that it's a grant offered to the Council by 17 the Scottish Ministers under Section 70 of the 2001 Act. 18 A. That's correct. 19 Q. If we just look at some of the conditions, I won't read 20 through them all. Look on page 2 of this at 21 paragraph 6. You can see there that it is a requirement 22 that the grantor, that's Scottish Ministers: 23 "... may refuse to make any or all payments if they 24 are not satisfied that the Council will use the grant 25 for the purpose determined in paragraph 3." 60 1 Essentially for the tram? 2 A. I recognise that as a fairly standard grant letter term. 3 Q. Then if we look at the sub-heading, "Audit Certificate" 4 and the two paragraphs underneath it? 5 A. Yes. 6 Q. Without reading through it in detail, we can see that 7 there's a requirement for the Council to provide an 8 audit certificate by the Council's Head of Internal 9 Audit or external auditors. Once again, that's 10 a standard term? 11 A. That's a normal term as specified by the Scottish public 12 procurement -- Scottish public finance management. So 13 yes. 14 Q. Scottish public finance management? 15 A. Scottish public finance management, yes. So again, 16 I would recognise that as a normal arrangement with 17 a local authority. 18 Q. If you look then at the next heading and the two 19 paragraphs underneath it, if I read it very short, it 20 is: if the Scottish Ministers consider it necessary to 21 gain access to and inspect the Council's accounts and 22 records to verify the proper use of the grant, in 23 essence, they can do it? 24 A. Yes. 25 Q. Once again, that will be a standard condition for this 61 1 sort of grant? 2 A. Indeed. 3 Q. If you look over the page, to page 3, first heading on 4 the page and the first paragraph beneath it, 10.1, we 5 see here, "Alteration of the contractual relationship 6 between tie ltd and the Council": 7 "Should an alteration of the contractual 8 relationship between the Council and tie ltd be 9 contemplated prior to 31 March 2008, the Council shall 10 immediately inform the grantor in writing of the 11 possibility of the alteration and describe the nature of 12 the possible alteration." 13 I take it that is a little bit more unusual and this 14 relates to the particular circumstances of how this 15 project was to be delivered? 16 A. I think that's correct, yes. 17 Q. If we go back to look at the whole page, we then see 18 there are terms regarding compliance with the law and 19 publicity? 20 A. Mm-hm. 21 Q. And over the page, something about notices to be given 22 by one party to the other. 23 First of all, default. And then if we go to the 24 page after that, provision about notices. 25 A. Mm-hm. 62 1 Q. Are these the sort of things that are standard terms in 2 grants? 3 A. I think they are, yes. They look familiar. 4 Q. If we can then highlight or enlarge the heading, 5 "Project Management and Controls" at the foot of the 6 page, we see paragraph 16 says: 7 "The project governance arrangements shall be those 8 agreed at the Tram Project Board on 25 September 2006 9 and shall only be amended with the agreement of the 10 Scottish Ministers." 11 A. That's correct. 12 Q. So essentially the Scottish Ministers seek to freeze or 13 take control of project governance? 14 A. Well, they seek to assure themselves that the governance 15 arrangements they consider are satisfactory are not 16 changed without their consent. 17 Q. Paragraph 17, the Scottish -- 18 A. Which, sorry, importantly is not quite the same as 19 taking control. 20 Q. They have the ability to prevent change? 21 A. Yes, they need to be satisfied with any changes. 22 Q. So they can prevent change and they need to be satisfied 23 with any changes put in place? 24 A. Yes, they need to be satisfied. 25 Q. And they don't consider that that gives them control? 63 1 A. It gives them a measure of control, but it doesn't mean 2 that -- that is not to preclude a grantee from coming 3 forward with such proposals. 4 Q. I see. 5 A. There's a principle in grant arrangements of not seeking 6 to impose operational control on sponsored bodies. 7 CHAIR OF THE INQUIRY: But you had a right of veto. 8 A. Yes, that would be a fair way of expressing it. 9 MR LAKE: Paragraph 17: 10 "The Council shall ensure that action plans for any 11 recommendations arising from project reviews (including 12 the Readiness Review and Gateway Review) are agreed and 13 implemented unless otherwise agreed by the Scottish 14 Ministers. The Council shall ensure that tie has and 15 implements an action plan to ensure lessons from other 16 projects tie is involved in are applied to this 17 project." 18 Is that a standard term or was this bespoke? 19 A. That clearly relates specifically to tie. 20 Q. The reference to learning the lessons -- 21 A. The Gateway Reviews would be, I think, not unusual. But 22 the specifically -- the specific reference to tie is 23 clearly a specific reference to tie. 24 Q. Is that a nod to the Stirling-Alloa-Kincardine 25 situation? 64 1 A. I don't recall that in particular. I think tie had been 2 involved with some other projects as well, including the 3 guided busway, which actually later was to be converted 4 as part of the tram project and there were some lessons 5 learned from that project as well. 6 CHAIR OF THE INQUIRY: Was that a success or were tie 7 criticised for that? 8 A. Gosh. I would have to think back. I seem to recall it 9 took a little longer and cost a little more than had 10 originally been anticipated, and so I think that this 11 observation will have be in that context, and it is good 12 practice for project management organisations to conduct 13 lessons learned reviews at the end of projects and to 14 apply those going forward. 15 MR LAKE: My Lord, paragraph 18: 16 "The Scottish Ministers have established the 17 following project hold points at which the Council and 18 the Scottish Ministers shall review whether the scheme 19 is continuing to meet its objectives and will determine 20 whether to continue to support scheme development and 21 implementation." 22 Just pause there. 23 A. Mm-hm. 24 Q. This essentially is giving Scottish Ministers a power, 25 to put it colloquially, to put the brakes on the project 65 1 at a number of agreed points? 2 A. Yes. Specifically at the Final Business Case in 3 particular. 4 Q. These points are based on key elements of the Final 5 Business Case, clearly linked to the likelihood of 6 successful implementation and viable operation of the 7 Edinburgh Tram Network. 8 A. Yes. 9 Q. The first one is: 10 "The Scottish Ministers shall by 31 March 2007 11 supply comments on the extent to which the Draft Final 12 Business Case requires to be updated before completion 13 of the Final Business Case. The Council shall agree 14 an action plan with the Scottish Ministers in relation 15 to these comments within 28 days on receipt of the 16 comments, having produced a draft action plan within 17 14 days." 18 Now, that is more of an obligation on the parties 19 than a project hold point, isn't it? 20 A. Yes, I recall those discussions, that process under way. 21 Q. But this is something again the Scottish Ministers wish 22 to include in the grant conditions to provide a degree 23 of monitoring and control? 24 A. At that time, yes. 25 Q. At that time. 66 1 Is this common for -- to have this sort of thing in 2 all grants? 3 A. I don't think it's uncommon. I couldn't tell you 4 whether it's standard in this case. I think it related 5 specifically to this project. 6 Q. The next point is: 7 "On receipt of best and final offers from the 8 infrastructure and tram vehicle suppliers, where the 9 review shall consider likely affordability of the scheme 10 in the light of the funds available for implementation." 11 Now, that is more clearly identifying a time, a hold 12 point, isn't it? 13 A. Yes. The Draft Final Business Case is completed before 14 such bids are received. That really is as part of the 15 consideration as to whether you wish to proceed with the 16 tendering, and the Final Business Case should be 17 informed by the bids that have been received. 18 Q. This letter, or the letter to which these conditions are 19 attached, comes after the Draft Final Business Case. 20 A. Can you remind me of the date of the letter, forgive me? 21 Q. I think it's March 2007. 19 March 2007. 22 A. So just pre-dates this deadline for us to supply some 23 comments. 24 Q. The point is you get the Draft Final Business Case in 25 November 2006, we saw. 67 1 A. Yes. 2 Q. And this is putting an additional hold point, on receipt 3 of best and final offers; is that correct? 4 A. Yes, that would link to the Final Business Case. 5 Q. Then there is -- 6 A. As in the previous bullet point. 7 Q. The previous bullet point was to agree an action plan 8 between the Draft Business Case and the Final Business 9 Case? 10 A. And how it is to be updated before completion of the 11 Final Business Case. The Final Business Case would need 12 to be informed by those bids. 13 Q. Then there's an additional hold point when the best and 14 final offers are made by the Infraco and Tramco 15 contractors. 16 A. Yes, in practice, I think, that would come before the 17 Final Business Case. 18 Q. Yes. Then there's another hold point: 19 "Before conclusion of negotiations with the 20 preferred bidders for the Infrastructure and Tram 21 Vehicle ... a signed agreement shall be in place 22 between the Scottish Ministers and the Council covering 23 all aspects of the project funding and risk allocation." 24 A. Yes. 25 Q. It's not a terribly clearly expressed sentence, but it's 68 1 clear that there is to be another hold point before the 2 conclusion of negotiations? 3 A. I think those are aspects of what's likely to be the 4 same thing, which is the conclusion of the negotiations, 5 the completion of the Final Business Case, the signing 6 of the contracts. 7 Q. We can see another hold point underneath that is in fact 8 the completion of the Final Business Case, which is at 9 that time noted by 1 October 2007? 10 A. Yes. Again, I think you would need to have done some of 11 those previous points before you could complete the 12 Final Business Case. 13 Q. On any view, Scottish Ministers have reserved to 14 themselves a number of points at which they could, if 15 necessary, put the brakes on the project or put the 16 brakes on their grant to the project? 17 A. Yes. 18 Q. Looking over the page to page 6, paragraph 19, we've got 19 that the paragraph 19 is: 20 "The Council shall ensure that robust, transparent, 21 externally verifiable project controls are in place for 22 the project." 23 Is that bespoke or was that particular to this 24 project? 25 A. It clearly is -- the clause specifically relates to tie 69 1 and Transport Edinburgh Limited. I think it is bespoke, 2 but the nature of the requirement is not unusual. 3 Q. We can see the second sentence -- I didn't go on to read 4 it -- is: 5 "These controls shall apply to all those involved in 6 project delivery including but not limited to tie ltd 7 and Transport Edinburgh Ltd as well as the Council. 8 The Council shall work towards compliance with ISO 9000 9 (or equivalent standard to be agreed with the Scottish 10 Ministers) in relation to this project and shall agree 11 an action plan to achieve compliance." 12 Now, clearly references to tie and TEL and possibly 13 the Council in particular for this project, but are the 14 requirements for project controls and ISO 9000 15 compliance standard or bespoke? 16 A. I think ISO 9000 might have reflected a preference in 17 project practice at the time, and this looks like 18 a clause drafted for this particular project, but the 19 general requirements are not inconsistent with other 20 grant letters. 21 Q. So why was it that there was thought to be -- it was 22 thought to be necessary to draft a clause specifically 23 to require project controls to be put in place for this 24 project? 25 A. I just think that's good -- good discipline for any 70 1 project. I can't imagine that we would not want project 2 controls to be in place. 3 Q. That in a sense is my point. If it's good practice for 4 any project, why was this clause bespoke for this 5 project? 6 A. I think there's a number of clauses in a grant agreement 7 which are of this character, covering all sorts of 8 things. 9 Q. So would you not have included that requirement in other 10 projects? 11 A. Well, not specifically as drafted there for this 12 project, no. But the general principles reflected 13 there, yes. 14 Q. Would you have expected to see a clause in other grant 15 conditions -- substantially in the same terms as this, 16 obviously without the references to tie and Transport 17 Edinburgh? 18 A. I would expect to see similar things covered elsewhere, 19 but perhaps not drafted in these terms. 20 Q. Then paragraph 20, the requirement is that: 21 "The Council shall comply with Transport Scotland's 22 project monitoring and control procedures including but 23 not limited to the quarterly review process, 4-weekly 24 project reporting and review, risk and opportunity 25 reviews, Gateway Review and monitoring of action plans. 71 1 The Council shall ensure that it and tie ltd take all 2 reasonable steps to provide information comprehensively 3 and timeously when requested by Transport Scotland on 4 behalf of the Scottish Ministers." 5 Now, obviously the reference to the Council -- this 6 Council and tie are peculiar to this project. 7 A. Yes. 8 Q. However, the requirement to comply with 9 Transport Scotland's project monitoring and control 10 procedures, et cetera, bespoke or particular to this 11 project? 12 A. It reflects the approach to project monitoring we had in 13 place at that time, so they're bespoke to that extent. 14 Q. If they reflect the approach to project monitoring at 15 the time, is it not more likely that they would be 16 included in other standard terms as well? 17 A. Well, we didn't have too many other rail projects that 18 we were funding through grant at the time. 19 CHAIR OF THE INQUIRY: Did your conditions of grant not 20 apply to grants for other projects apart from the rail? 21 A. They will have done, but most of our -- most of our rail 22 projects, was the point I was making, my Lord, would be 23 funded through a debt arrangement bespoke to 24 Network Rail, where -- which involved the Office of Rail 25 Regulation, as it was then at that time, and so wouldn't 72 1 have had a grant letter in this form. 2 MR LAKE: Could I ask you then to look, please, at another 3 document. It's TRS00004780. If we enlarge the upper 4 half of the page, we can see what this document says on 5 it. It is headed, "Acceptance of Variation to Grant 6 Offer to City of Edinburgh Council for Utilities 7 Diversions and Continuing Development and Procurement of 8 Phase 1a of the Edinburgh Tram Network". 9 The text is: 10 "On behalf of City of Edinburgh Council, I accept 11 that Scottish Ministers hereby vary the offer of grant 12 to City of Edinburgh Council contained in the letter of 13 19 March 2007 as detailed in the letter of 14 22 August 2007." 15 It's been signed by Andrew Holmes in front of 16 a witness? 17 A. Okay, yes. 18 Q. I think the letter we just looked at will be the one 19 contained in the offer on 19 March? 20 A. Yes, indeed. 21 Q. If we look at the next page of this, we will see the 22 letter dated 22 August. What we can see here is it's -- 23 the letter is now addressed to Andrew Holmes. It's 24 dated 22 August 2007, as we have seen, and this time 25 I think it comes from Jerry Morrissey within 73 1 Transport Scotland? 2 A. Okay, yes. 3 Q. If we scroll down so we can see a little more of the 4 text, we can see that: 5 "In exercise of the powers contained in section 70 6 of the Transport (Scotland) Act 2001, the Scottish 7 Ministers hereby vary the offer of grant to City of 8 Edinburgh Council contained in our letter to you of 9 19 March following the position reached in Parliament on 10 Wednesday, 27 June 2007." 11 That was the date of the vote where the motion was 12 to discontinue the tram project, but that was defeated? 13 A. Yes, that's correct. And that led to a putting in place 14 of revised governance arrangements. 15 Q. We can see that the variations made to the conditions of 16 grant that are described here -- if we just disregard 17 the ones about clause 12.2 and 12.3, we can see that 18 clause 16 is to be deleted and we saw that that was the 19 one that required that project governance shall be as 20 agreed previously and shall only be amended by Scottish 21 Ministers, that that is deleted, and what's put in its 22 place is: 23 "The Council shall ensure that appropriate project 24 governance arrangements are in place for project and 25 enforced accordingly." 74 1 A. That's correct. That's consistent with the decision at 2 the time that the lead role of the City of Edinburgh 3 Council should be reinforced in these new arrangements. 4 Q. That's not a lead role even in terms of making 5 decisions. That's Transport Scotland abandoning any say 6 that it has, or any control that it has, or perhaps more 7 accurately, to use Lord Hardie's word, veto over changes 8 to the governance arrangements. 9 A. That's Transport Scotland giving effect to the decision 10 that had been taken that the arrangements should be 11 clarified to make clear the lead role of City of 12 Edinburgh Council and its responsibility for governance. 13 CHAIR OF THE INQUIRY: Well, Mr Reeve, I think the question 14 was quite clear. 15 A. Yes. 16 CHAIR OF THE INQUIRY: Was this in fact Transport Scotland 17 giving up its right of veto to reflect the change of 18 situation? 19 A. I think, my Lord, you will have seen in the evidence 20 already, I anticipate, or if not, I expect we will come 21 to it, that there was a process of discussion between 22 Transport Scotland officials and Ministers at the time, 23 and a decision was taken that Transport Scotland should 24 distance itself from the day-to-day management of the 25 project. 75 1 CHAIR OF THE INQUIRY: I understand that. 2 A. And -- so yes. This was giving effect to that decision. 3 CHAIR OF THE INQUIRY: It would help the Inquiry, Mr Reeve, 4 if when you're asked a question, if it's capable of 5 being answered yes or no, that you did that. And then 6 perhaps went on to an explanation, if it was absolutely 7 necessary. It's not really helpful to give long 8 explanations which avoid answering the question. 9 A. I'm sorry, my Lord. That's not my intention. 10 CHAIR OF THE INQUIRY: Is this a convenient point? 11 MR LAKE: Yes, my Lord. 12 CHAIR OF THE INQUIRY: We will adjourn for 15 minutes and 13 resume again at 11.30. 14 (11.14 am) 15 (A short break) 16 (11.30 am) 17 CHAIR OF THE INQUIRY: You're still under oath, Mr Reeve. 18 A. Thank you, my Lord. 19 MR LAKE: Thank you, my Lord. 20 I think if we could try and get two documents up on 21 screen, which may make matters a little bit quicker. 22 Could we have on screen one document we've already 23 looked at, TRS00004112 and also -- put that one on 24 first. That was the schedule of terms and conditions we 25 looked at. If we could also have up TRS00004780 which 76 1 is the one we were just looking at before the break. 2 On the right-hand one, could we look at the second 3 page. Is it possible on the document on the left-hand 4 side of the screen, the one 4112, to look at page 5? 5 A. Just to remind myself, the one on the left is from 6 March; is that correct? 7 Q. Yes. 8 A. Thank you. 9 Q. What we've just been look at, we have just looked at the 10 fact that the letter on the right, 4780, said that 11 paragraph 16 was to be deleted. That's the one we just 12 discussed. 13 If we go on and see that paragraph 17 is to be 14 deleted which means there was no longer any power on the 15 part of Transport Scotland to insist on recommendations 16 from action reviews and project reviews being 17 implemented. 18 A. Mm-hm. 19 Q. There was no longer any requirement for -- 20 Transport Scotland no longer imposed a requirement to 21 implement action plans to ensure that lessons are 22 learned from other projects. 23 A. Sorry, was that a question? Yes. 24 Q. That was the intention -- 25 A. Yes, I see that. 77 1 Q. Transport Scotland took away that requirement on tie -- 2 on the Council? 3 A. Yes. 4 Q. Then the next point of the letter of 22 August is that 5 it deletes paragraph 18, which is the one that provided 6 all the project halt points that we previously 7 considered. 8 A. Yes. 9 Q. We can see in relation to paragraph 19, which is the one 10 relating to robust project controls, it puts in 11 something which is shorter than -- 12 CHAIR OF THE INQUIRY: That must be over the page, is it? 13 MR LAKE: Yes. I don't know how easy it's going to be to 14 make that change. 15 A. I think I can recall it. 16 MR LAKE: You can see the letter on the right deletes the 17 existing paragraph 19 and puts in its place the 18 requirement that: 19 "The Council shall ensure that robust, transparent 20 and externally verifiable project controls are in place for 21 the project and that these controls are applied to all 22 those involved in project implementation." 23 That seems to be a cut-down version of what was 24 there previously? 25 A. Yes. 78 1 Q. Paragraph 20 is also deleted. That's the one in 2 relation to project monitoring, and instead the 3 requirement is to be: 4 "The Council shall comply with Transport Scotland's 5 standard project reporting procedure. The standard 6 project report templates are to be completed on 7 a four-weekly basis and these will form the Council's 8 progress report to Transport Scotland. The report is to 9 be forwarded to Transport Scotland by no later than 12 10 noon on the Friday of ’Week 1‘ in the cycle for the 11 preceding 4-week period. The latest report is to 12 form the agenda for a formal meeting of 13 Transport Scotland and Council officials. This meeting 14 is to be convened within the first half of ’Week 2‘ of the 15 cycle." 16 A. That's correct. 17 Q. So again, it's a limitation then to Transport Scotland's 18 standard reporting procedure, rather than all the detail 19 that was previously required in clause 20? 20 A. Yes, and if I may, taking your guidance, my Lord, in the 21 context of the change in governance arrangements that 22 had been agreed to be put in place at that time. 23 Q. That letter we have just looked at of 22 August, I would 24 like to look at a further letter in relation to the 25 grant, please. It's reference CEC00021548. 79 1 We can see what we have on the front page here is 2 a letter addressed to John Ramsay, dated 3 24 January 2008, from Tom Aitchison, Chief Executive, in 4 which he refers to a letter of yours and encloses 5 a signed acceptance on behalf of the Council of the 6 offer of grant. 7 A. Yes. 8 Q. Look at the second page of this. I think that's blank. 9 Look at the third page. 10 We can see that there was a letter dated 11 17 January 2008 to Tom Aitchison, the Chief Executive of 12 the Council, and this letter is from you? 13 A. Yes. 14 Q. We can see your name on page 5 of the scan? 15 A. That's fine. 16 Q. Your signature had been blanked. 17 Just looking at the terms of what is set out here, 18 if you can enlarge the lower half of the page, we can 19 see there are now what's described as conditions 20 precedent for the grant. We can see that the first one 21 is that: 22 "The obligation of the Scottish Ministers to pay the 23 Grant or any Instalment is subject to the condition that 24 the Scottish Ministers have received all of the 25 documents and other evidence listed in Paragraph 3.2." 80 1 A. That's correct. 2 Q. We will look at that in more detail. 3 We then see paragraph 3.2.1, the first thing is: 4 "Evidence that the Council has approved a Final 5 Business Case for the Edinburgh Tram Network containing 6 (a) an affordability assessment for Phase 1a ... 7 a maximum capital cost of GBP545 million; (b) a Benefits 8 Costs Ratio greater than 1; and (c) no projection of 9 a requirement for an ongoing subsidy for the Edinburgh 10 Tram Network during the operational phase." 11 Do you see those? 12 A. Yes, indeed. 13 Q. Now, what's notable there is that the approval of that 14 Final Business Case is to be given by the Council, not 15 by Transport Scotland? 16 A. That's correct. 17 Q. So Transport Scotland no longer reserve to themselves 18 any decision-making power as to the adequacy of or 19 contents of the Final Business Case? 20 A. That's correct. 21 Q. They no longer wish to verify the cost-benefit ratio or 22 the affordability assessment? 23 A. Yes, that's correct. 24 Q. We look at the next condition, 3.2.2: 25 "Evidence that an OGC [Office of Government 81 1 Commerce] Gateway Review has been completed and that all 2 recommendations have been implemented and insofar as 3 such recommendations relate to future activities, robust 4 arrangements have been made to implement such 5 recommendations." 6 A. That's correct, and the context of this was us looking 7 for assurance from CEC that these conditions had been 8 complied with. 9 Q. That actually requires the provision of evidence too 10 that these have been done, whereas in relation to the 11 previous clause, it simply is that the Council tell you 12 that they have approved these matters? 13 A. Yes. I think 3.2.2, we would have expected the Council 14 to provide us with that evidence. 15 Q. But not 3.2.1? 16 A. Well, in 3.2.1 we were looking for evidence from the 17 Council that it had done the following. So again, 18 that's seeking assurance. 19 Q. 3.2.1 is evidence that the Council has approved. That 20 is in the evidence that is required. 21 A. Approved a Final Business Case containing the following. 22 Q. Yes? 23 A. Yes. Correct. 24 Q. Then if we look over the page, there's a condition 25 precedent that: 82 1 "All reports, summaries reports and claims required 2 by Annex 2 to date have been received by the Scottish 3 Ministers." 4 We will come to look at Annex 2 in a moment. 5 3.4 gives the Scottish Ministers entitlement to 6 waive any of the previous conditions. 7 A. Yes. 8 Q. 3.5 is: 9 "The Council shall use its best endeavours to 10 procure that the conditions precedent set out in 11 Paragraphs 3.2.1 and 3.2.2 shall be satisfied as soon as 12 practicable, and in any event not later than 13 31 January 2008 or such later date as the Scottish 14 Ministers may agree in writing." 15 What was the significance of the date of 16 31 January 2008? 17 A. I think that was consistent with the expectation that 18 the Business Case would have been completed by then. 19 Q. On the one hand, you have an expectation that it will be 20 done by then, but this seeks to turn it into an 21 obligation. Why were Transport Scotland keen to see it 22 as an obligation? 23 A. I think it's reasonable to put sensible deadlines in 24 arrangements of this case, and that was -- that at the 25 time would have appeared to have been a reasonable 83 1 deadline. 2 Q. Do you consider that might create an artificial pressure 3 to get something done and to rush matters at all? 4 A. I don't think so. I think it might have concentrated 5 minds helpfully. But it's not unreasonable to see 6 things done in a reasonable time. 7 Q. This doesn't just say a reasonable time. This puts 8 a deadline, doesn't it? 9 A. Yes, and with of course an option for us at our 10 discretion to waive that deadline if we had been 11 satisfied there were good reasons for that. 12 Q. Of course. Now, we saw there reference to reporting 13 requirements and annex. Could you look, please, at 14 a further document. The reference to this is 15 CEC00021547. 16 We can see that this refers to the grant offer to 17 the Council for Construction Phase 1 of the Tram 18 Network. It's described as Schedule 1, Terms and 19 Conditions? 20 A. Yes. 21 Q. Are these the terms and conditions that would be 22 attached to the offer letter we've just been looking at? 23 A. I believe so, yes. 24 Q. If we just take a brief look at some of the things 25 within this, if we look at the second page of this, we 84 1 can see the defined term "Reports" is the reports 2 referred in annex 2. We saw reference to Annex 2 in the 3 letter. 4 A. Sorry? 5 Q. You see the defined term "Reports" is the reports 6 specified in Annex 2. We saw in your letter a reference 7 to Annex 2? 8 A. Yes. 9 Q. If we look at the following page, page 3, clause 3.1, we 10 can see that the grant was to be used only for meeting 11 part of the eligible capital costs of the construction 12 of the project incurred until 31 March 2011 and for no 13 other purpose whatsoever, but this provision shall not 14 prevent the Council from making application for 15 instalments after 31 March 2011. 16 That's a standard restriction on use, as we saw 17 before? 18 A. I think that's -- yes, that would be a fairly normal 19 thing. 20 Q. If you look at the following page, one further page on, 21 if we could enlarge the heading "Payment", and down and 22 including clause 4.3. 23 It says here: 24 "The Grant so far as not already paid shall be paid 25 in instalments and the first instalment shall be paid 85 1 following receipt of a valid claim in accordance with 2 Annex 2 and accompanied by the Reports completed to the 3 satisfaction of the Scottish Ministers." 4 A. Indeed. 5 Q. In short, if you want to get the money, you have to 6 comply with Annex 2? 7 A. And provide the evidence, yes. 8 Q. 4.2 is: 9 "The Council shall provide the Reports and 10 application for instalments in accordance with clauses 11 4.2.1 and shall take part in the review meetings in 12 accordance with Clause 16.2." 13 4.2.1 which follows says: 14 "Reports and applications for instalments shall be 15 made in accordance with the programme of Period end 16 Dates and Application Dates notified to the Council by 17 the Scottish Ministers before the commencement of each 18 Financial Year." 19 That's merely regulating the time at which the 20 applications are made? 21 A. Yes. 22 Q. 4.3: 23 "Each application for an instalment shall be 24 accompanied by evidence of the extent to which the 25 Council has funded from its own resources its share 86 1 (8.3%) of the Eligible Capital Costs ("the CEC 2 Contribution") and any other costs of the Project 3 incurred to the date of claim and in the event that any 4 of the reports disclose that the Council has not 5 provided such funding in whole or in part, then such 6 Report shall set out the Council's proposals and 7 timetable for providing funding to the level required." 8 That's basically making sure that the Council are 9 paying their share? 10 A. Yes, correct. 11 Q. Now, we'll come to look at what is in Annex 2 in a 12 minute, but if we just carry on going through this at 13 the moment, if we look at page 6 of this, under clause 14 8.2: 15 "The Council are required to supply and procure the 16 supply by tie to the Scottish Ministers such documents 17 and information that they may reasonably require in 18 connection with the grant and the project." 19 Scottish Ministers can request any documents? 20 A. That's correct. 21 Q. When necessary. 22 If we look to Clause 13 on page 9, we can see 23 there's a heading at the bottom, "DEFAULT, CURE AND 24 REMEDIES", and the sub-heading at 13.1, "Default", under 25 which it says: 87 1 "The occurrence of any of the following 2 circumstances or events shall constitute an event of 3 default." 4 A. Mm-hm. 5 Q. If we look over the page to subparagraph (b), one of the 6 events of default is: 7 "the Council ceasing or threatening to cease to 8 deliver the Project or any material part thereof." 9 A. Yes. 10 Q. I'm happy if you want time to read through the various 11 defaults, but exceeding the budget by any amount is not 12 a default under the provision of the grant agreement? 13 A. I think that's correct, but the context of that was 14 a clear understanding that any increase in cost should 15 fall to City of Edinburgh Council to pay, and hence the 16 500 million of capped contribution that the Scottish 17 Ministers committed themselves to at that time. 18 Q. Then if we go to page 13, and look at the heading, 16.1, 19 and the heading above it: 20 "The Council shall comply with Transport Scotland's 21 project monitoring and control procedures from time to 22 time applicable, including but not limited to the 23 project reporting and review specified in Annex 2. The 24 Council shall ensure that it and tie take all reasonable 25 steps to provide information comprehensively and 88 1 timeously when requested by the Scottish Ministers." 2 So that was the new reporting requirement? 3 A. That's correct. 4 Q. If you can then, turn to Annex 2, which is on page 20. 5 You can see from looking at the whole page that Annex 2 6 is divided into four parts, the first of which is 7 a pro forma application. That's the application for 8 payment that we have seen referred to; is that correct? 9 A. Yes. 10 Q. Then we see the reporting instructions, and that's 11 instructions to the recipient of the grant as to what 12 they're to do; that's correct? 13 A. Yes. 14 Q. Part 3 consists of what are termed Project Financial 15 Summaries. And they -- just as they say, certain 16 tabular formats providing information in quite a concise 17 summary form to Transport Scotland? 18 A. Yes. 19 Q. The final thing is what's termed in Part 4 the 4 Week 20 Reporting Pack? 21 A. Yes. 22 Q. We see the following page is just a cover page, headed, 23 "Application for Payment". If we go to the next page, 24 that is simply an example of what an application for 25 payment is to look like in order to be processed by 89 1 Transport Scotland? 2 A. Yes. 3 Q. In fact I think if we just slowly move through the 4 various pages, we can see that the various components of 5 it continue all the way up to page 32. 6 This is just an example -- keep going -- of the sort 7 of financial information that has to be provided with 8 each application for payment, in terms of the 9 application to date, the previous application and the 10 sums sought? 11 A. Yes. 12 Q. We can perhaps go straight past that and go to page 33. 13 This is the title page of the reporting instructions. 14 If we go to the following page, if we just enlarge the 15 upper half of the page, to make it a bit more readable, 16 is this, taking it short, instructions on how to 17 complete the project financial summaries? 18 A. Yes. 19 Q. If we look at the next page, we can see the instructions 20 there, under the heading PFS 2, Project Financial Summary 21 2, and the next page, PFS 3, instructions on how to 22 complete that? 23 A. Yes. 24 Q. Go to the next page. This is page 37. It's the title 25 page for the Project Financial Summaries, and if we go 90 1 to the next page, 38, is that a pro forma that is to be 2 completed by the recipient of the grant? 3 A. I believe so, yes. 4 Q. Is that a standard form that's re-used for -- was used 5 at that time for all grants? 6 A. I couldn't tell you whether that was the same as another 7 form or similar, but it's that sort of template, yes. 8 Q. But it really is seeking, crudely put, numbers rather 9 than any further information? 10 A. That's correct. As evidence for payment. 11 Q. As evidence of payment. Perhaps if we just look at the 12 next page, and the page following. Without going 13 through them all, we can see that the various financial 14 summaries -- 15 A. Yes. 16 Q. -- are just figures, essentially? 17 A. Yes. 18 Q. If we go then to page 46 of this, this is the title page 19 for Part 4, the 4 Week Reporting Pack. Look at the 20 next page. That's an indication as to the intended 21 cover sheet for the project reporting? 22 A. Yes. 23 Q. I notice there that John Ramsay's name has been included 24 as the Transport Scotland Project Manager. Is that 25 because he would be the person receiving these reports? 91 1 A. Yes, and meeting, I think, every four weeks or so. 2 Q. And having a meeting. 3 Could we look at the following page, please. Could 4 you enlarge it. I accept that the actual entries in 5 this table are obviously not what's intended to be 6 reported in future. They're intended as examples. 7 But can you explain what Transport Scotland were 8 looking for in this part of the report? 9 A. I think we were looking for indication of any issues 10 arising with the delivery of the project and its impact 11 on the financing. So we were looking for issues around 12 opportunity and risk and -- well, I think all of the 13 examples provided there. So we were looking for some 14 description behind the numbers. 15 Q. It looks like it's a sort of very much a summary 16 statement of any issue, concern or risk? 17 A. That's a fair summation, yes. 18 Q. Then if we look at the next page, the heading is "Past 19 and Planned Activity", and there's a table with the 20 left-hand column being achievements in the period and 21 the right-hand as being activities in the next period. 22 Is that essentially looking at what's been done and what 23 is about to be done? 24 A. That's correct. 25 Q. The examples there are ones particular to the project. 92 1 For example, we've got the reference, we can see halfway 2 down the left-hand column to the MUDFA works: 3 "Potential issues related to the delayed 4 commencement of Alfred MacAlpine works have been 5 discussed in detail with them, resulting in an agreed 6 way forward." 7 That's the sort of information you were looking for? 8 A. Yes. 9 Q. At the foot of it, you've got Risk and Opportunity 10 Management Commentary. 11 A. Mm-hm. 12 Q. What were you looking for there? 13 A. A description of risks which might affect the programme 14 or the cost and a description of opportunities which 15 might either reduce the cost or improve the benefits 16 from the investment. 17 Q. You would expect a project such as this to have some 18 risk management procedures in place? 19 A. I would. 20 Q. And possibly a risk register? 21 A. Indeed. 22 Q. Are you looking there for a copy of the risk register or 23 something else? 24 A. I think we are looking for a summary of key risks. 25 Q. Key risks. 93 1 If we could look at the next page. We have got 2 Schedule Milestones. I think this speaks for itself. 3 Look -- it identifies that the milestone, its baseline 4 date and its actual forecast date. 5 I take it the baseline date was the original planned 6 date for it? 7 A. Yes, I would need to know which baseline, but yes. 8 Q. The actual forecast date is the one by which it's really 9 thought it's likely to happen? 10 A. Yes. 11 Q. This slippage can be identified? 12 A. Yes. 13 Q. Finally, if we look at the next page, you can see 14 there's a reference there to again provision of 15 financial information and that continues, information 16 required continues over to the next page? 17 A. Mm-hm. 18 Q. Is that simply requiring financial information from the 19 company set out in a slightly different format? 20 A. Yes. 21 Q. Can I ask, why did Transport Scotland want all this 22 information? 23 A. I think as evidence in support of the applications for 24 payment. 25 Q. But provided the application is put in with this 94 1 information, no matter how much bad news there is in it, 2 there's nothing Transport Scotland can do about it on 3 these grant terms, is there? 4 A. Unless they get into an event of default and occasions 5 when one might serve a cure notice, no, that's correct. 6 Q. So for example, if it's starting to disclose that things 7 are slipping badly, there's nothing immediately that 8 Transport Scotland can do about it on these grant 9 conditions? 10 A. We have discussions with City of Edinburgh Council and 11 enquire of them what they were doing about it, as indeed 12 we would have done and did, but no immediate step-in 13 provision, that's correct. 14 Q. Anyone can have discussions at any time. That's not 15 something specified in the letter, is it? 16 A. That's true. 17 Q. The letter doesn't give any particular sanction or 18 remedy to Transport Scotland if there's slippage? 19 A. If it was in the letter or in the annex attached to it, 20 but I think it's the four-weekly meetings to discuss the 21 report and there's the quarterly senior level meeting. 22 So there were opportunities for such discussions to 23 understand the context of this. 24 Q. There are plans for routine discussions. Is there any 25 sanction if there is -- or power on the part of 95 1 Transport Scotland? 2 A. Beyond those set out in the grant condition, no. 3 Q. And the only thing set out in the grant condition is 4 discussion? 5 A. No, there's the event of default. 6 Q. If there's a full default? 7 A. Yes, indeed. 8 Q. But delay of itself is not a default? 9 A. No. It would give rise to options. If you recall, 10 there's a date by which the expenditure should have been 11 completed, and there was an option not to provide any 12 further funding beyond that date. 13 So -- 14 Q. That was the date in March 2011, from recollection? 15 A. I would have to check, but I think that's correct. So 16 clearly a slip in delivery starts to open up an option 17 for Scottish Government. 18 Q. Cutting off the funding? 19 A. Cutting off the funding, yes. 20 Q. It is perhaps fair to say that there is an option within 21 the grant letter for Transport Scotland to serve what is 22 termed a cure notice? 23 A. That's correct. 24 Q. In relation to excess costs, again, other than possibly 25 a cure notice, there's no sanction available to 96 1 Transport Scotland if costs start to spiral? 2 A. No, and the context of that was an understanding that 3 City of Edinburgh Council would be liable for any 4 increase in costs. 5 Q. So is that to say that Transport Scotland weren't that 6 bothered about increases because they wouldn't be paying 7 for them? 8 A. Well, we wouldn't regard it as helpful or good that City 9 of Edinburgh Council had to pay more money. Not for the 10 broader good of the Scottish nation. But it was clear 11 where the responsibility lay. 12 Q. You say it is not good that City of Edinburgh Council 13 would have to do that. If we treat that as you saying 14 that Transport Scotland regarded that as undesirable, 15 nonetheless they didn't put any condition in to allow 16 them to control or step in or assist in that situation? 17 A. Beyond those I have already outlined with respect to 18 programme slippage and the capped amount and the cure 19 notice, no. 20 Q. Of course, you could get to a situation where the costs 21 rise so much that Edinburgh City Council are no longer 22 able to complete the entire project, couldn't you? 23 A. Indeed, and there's a provision under the default terms 24 around if City of Edinburgh Council came to the 25 conclusion it wanted to cease the project in any 97 1 material part. 2 Q. There is -- that can be treated as an event of default? 3 A. That's correct. 4 Q. But the remedy is to regard it as a default, rather than 5 step in with any other powers? 6 A. Correct. 7 Q. Thank you. I'm finished with that production. 8 We have just been considering -- before I turn to 9 the grant letter, the Draft Final Business Case. 10 In relation to that, can I direct you to your 11 statement on page 7 of that, please. Look at 12 paragraph 23. If we read from a sentence beginning on 13 the fourth line, this is in relation to evaluation of 14 a Draft Final Business Case: 15 "It should be borne in mind that tie's cost 16 estimates had been prepared by reputable advisers to tie 17 and that the tie team was comprised of people that had 18 been secured for their expertise at private sector 19 market rates." 20 A. Yes. 21 Q. Why should that be borne in mind? 22 A. Because tie had a team in place to prepare estimates in 23 an effective manner. 24 Q. But why bear that in mind? Do you give them the benefit 25 of the doubt, do you assume they're correct? 98 1 A. You don't give them the benefit of the doubt, but we 2 would expect estimates to be prepared by competent 3 people, to be established on a competent basis 4 ordinarily. 5 Q. But you note in that same paragraph that, nonetheless, 6 this is the preceding sentence, your colleagues in the 7 economics team in Transport Scotland would have carried 8 out a review of the Draft Final Business Case. 9 A. Yes, that would be quite normal. 10 Q. So notwithstanding the fact it had been prepared by 11 experts, it was felt it was appropriate that it be 12 subject to review? 13 A. At that stage, yes, and the economic Business Case is 14 more than just a cost estimate, of course. 15 Q. Yes. It would consider the benefits that arise from it? 16 A. Yes. 17 Q. Because that is key to the cost-benefit analysis as a 18 robust understanding of the benefits? 19 A. That's correct. 20 Q. If we go over to paragraph 27 of your statement, on the 21 following page, you note that: 22 "The estimates provided by TIE would have been 23 looked at by Transport Scotland staff and advisers. 24 A number of staff and advisers would have been involved, 25 and reports would have been coordinated through the 99 1 Transport Scotland rail major projects team in the 2 normal manner." 3 Which advisers were you talking about there, looking 4 at the estimates? 5 A. Oh, gosh. I think at the time we had retained KPMG and 6 Cyril Sweett, I think, at that point, to support us on 7 a number of projects. 8 Q. Were Cyril Sweett performing an exercise akin to 9 a quantity surveyor? 10 A. Yes, in essence, yes. 11 Q. Whereas obviously one knows what KPMG are and what sort 12 of experience they bring to bear on the matter? 13 A. A breadth of experience, more than just accounting as 14 a rule. 15 Q. Once again, notwithstanding the fact that, as you put it 16 previously, these had been prepared within tie by 17 reputable advisers, Transport Scotland looked for 18 themselves, had Cyril Sweett, had internal economists 19 and KPMG check over? 20 A. Yes, and I think in the context also of our 21 understanding of the cost of other tram projects at the 22 time. 23 Q. The cost being -- concern then that they would escalate? 24 A. But the point I was trying to make, and I think I have 25 put in there, is that we were also aware of the costs of 100 1 other comparable, broadly comparable tram projects at 2 the time. So we were having regard to other tram 3 projects, having regard to the team that was compiling 4 the estimate and having regard to our own advice. 5 Q. That sounds like quite a substantial amount of work was 6 carried out in relation to the Draft Final Business 7 Case? 8 A. I think that's fair, yes. 9 Q. Whereas we've already seen from the grant letter that 10 when we get to the Final Business Case, it's essentially 11 left for the Council to say that they're happy with it 12 and Transport Scotland did no verification of it 13 themselves? 14 A. It's -- our role was to be assured that City of 15 Edinburgh Council was satisfied the Final Business Case 16 was complete. That's a fair -- 17 Q. And Transport Scotland did no verification at all 18 themselves on that? 19 A. Other than assuring ourselves that we had received that 20 statement of assurance from City of Edinburgh Council. 21 Q. Do you think now, with hindsight, that was wise? 22 A. I think that reflected the agreement put in place 23 between Scottish Government and City of Edinburgh 24 Council at the time, and you may be coming on to this, 25 but it reflected that change in governance arrangements 101 1 following the change of government, and we were then 2 officials working for a government whose manifesto had 3 included the cancellation of the tram project, and who 4 had sought to cancel the tram project in the Parliament. 5 So this change reflected the deal that was done at 6 that time. 7 Q. I am mindful of your role as an officer within 8 Transport Scotland. 9 A. Indeed. 10 Q. And your task as a civil servant to support the policies 11 and implement the policies of the government of the day. 12 A. Thank you. 13 Q. However, what I'm interested here is in your own 14 individual view, not the Transport Scotland line, of 15 whether or not you thought that was wise to have 16 absolutely no Transport Scotland verification of the 17 Final Business Case, when there had been so much work on 18 the Draft Final Business Case. 19 A. I remember a debate at the time, before the change of 20 arrangements were put in place, about the relative 21 merits of different approaches. And that was a matter 22 of judgment and there was something to be said for 23 different courses and we now look with the wisdom of 24 hindsight. 25 I think at the time I understood a -- I raised 102 1 question about what our appropriate role should be. 2 I understood the strength of view which said there is 3 merit in role clarity and in making City of Edinburgh 4 Council clearly responsible for the project. That was 5 the decision that was taken as approved by Ministers at 6 the time and we put arrangements in place consistent 7 with that. 8 If you ask for my personal reflection, that 9 arrangement is not inconsistent with those I would 10 expect on comparable tram projects elsewhere, where they 11 are principally a matter for local authorities to 12 deliver, rather than central government. And those 13 arrangements seem to have worked well elsewhere. 14 Q. It is a very diplomatic answer. But if I could remind 15 you of my question. I can say that you're quite 16 entitled to have the benefit of hindsight here. 17 A. Indeed. 18 Q. Was it wise to have absolutely no check by 19 Transport Scotland at the stage of Final Business 20 Case -- and I would add when it was going to go on and 21 hand over half a billion pounds of money? 22 A. I think at the time it was wise to follow the 23 arrangements that had been put in place consistently, 24 rather than to seek to subvert them, which is a slightly 25 different answer to your question. I understand that. 103 1 I think that it is not good, once role clarity has 2 been established, to seek to compromise that 3 unnecessarily. 4 I think that such arrangements have worked 5 elsewhere, and the interesting question is: why they 6 didn't in this case. 7 If I -- this is now into speculation. But if I were 8 to speculate about what we would have done about the 9 estimates at the time, I think we would have seen 10 estimates compiled that were consistent with the 11 Business Case being fit for purpose. And the 12 interesting question, I think, is what happened not so 13 much at the time of the Final Business Case, as why the 14 estimates contained in the Final Business Case did not 15 prove to be accurate subsequently. 16 Q. I may return to that. 17 CHAIR OF THE INQUIRY: I'm not sure if I still know what 18 your position is. I can understand that your evidence 19 is following the department line and supporting the 20 ministerial decision. I can perfectly understand that 21 it. But I think the point that was being asked about 22 was a substantial amount of work went into reviewing the 23 Draft Business Case. 24 A. Indeed. 25 CHAIR OF THE INQUIRY: By the department, by department 104 1 officials, by external consultants. But when it came to 2 the Final Business Case, for reasons which you've 3 explained and I understand, that was all taken away and 4 left exclusively to the City of Edinburgh Council, for 5 reasons of good governance regarding -- to the 6 department. 7 But do you not think, with hindsight, it would have 8 been wise to subject the Final Business Case to the same 9 level of scrutiny as the Draft Business Case? 10 A. I think my difficulty in answering that -- that 11 hypothetical question is: I don't know whether, had we 12 subjected the Business Case to that scrutiny, we would 13 have found anything which might subsequently have 14 prevented what happened. That's my reluctance to give 15 an opinion. 16 CHAIR OF THE INQUIRY: I can see that, Mr Reeve, but if it 17 had been done, I suppose there is a chance that you 18 might have found something. 19 A. I couldn't deny there could have been a chance. So 20 I see that. And clearly, given where we ended up, I'm 21 sure that folk might have wanted to go with the wisdom 22 of hindsight, you do something different. 23 But if you ask me the question, would that have made 24 material difference to the outcome, I genuinely don't 25 know. 105 1 CHAIR OF THE INQUIRY: I'm not asking that question. I'm 2 just wondering about whether it might have been prudent. 3 If you had been giving someone half a billion 4 pounds, do you consider it prudent or not to take as 5 many steps as possible to make sure that that investment 6 is protected? 7 A. I think that would depend upon my role. I understand 8 the point. Of course I do. 9 CHAIR OF THE INQUIRY: Yes. 10 A. But the arrangements that were put in place sought to 11 very clearly transfer that responsibility to City of 12 Edinburgh Council and to make them step up to the plate 13 to discharge that responsibility. 14 I don't think that approach is fundamentally 15 unsound. With the wisdom of hindsight, if we could have 16 done anything that prevented that, of course I wish that 17 could have been done. 18 CHAIR OF THE INQUIRY: Thank you. 19 MR LAKE: Can I just pick up you said in an answer to me 20 a little earlier. I was asking about would it have been 21 wise -- my question, and you said it wouldn't have been 22 prudent, I think may have been your word, to change 23 where there was clarity of roles. It wouldn't have been 24 prudent to change that. 25 A. Or to confuse that. 106 1 Q. Confuse that. 2 I think you agreed with me earlier that by the time 3 we got to end of 2006/early 2007, you had bottomed out 4 the roles of the various bodies and roles of governance, 5 and clarity had been achieved? 6 A. Yes. 7 Q. Would that not militate against not changing that during 8 the course of 2007? 9 A. I think there's more than one way in which effective 10 governance for a project can be put in place. 11 Q. I'm sure of it, but if you have -- 12 A. So I think I understand the question. So that the key 13 test for me in moving from that which we had had 14 previously, which reflected the preferred position of 15 the previous government, to the arrangements for us to 16 put in place, the question at that point was: were the 17 new roles clear? And I believe they were at that point. 18 Q. But nonetheless, if having clear roles was a reason not 19 to change, that would have been a reason not to change 20 in 2007? 21 A. Well, there were reasons why there had to be a change, 22 and it was important, therefore, that the change took 23 account of the need to establish new role clarity 24 consistent with the principles we were trying to put in 25 place. 107 1 Q. I'll come back to the reasons why there was a change 2 made in a wee while, but what I would like to do now is 3 come back to your statement and look at page 17 of that, 4 please. I'm interested in both paragraphs 57 and 59 5 here. We will start with 57. 6 You can see that: 7 "Transport Scotland raised concerns over the slow 8 progress of MUDFA and advised that getting the MUDFA 9 contract back on track was important. However, it was 10 not Transport Scotland's role to manage the contractor. 11 Transport Scotland did not have a contract 12 with Alfred MacAlpine/Carillion. It was not our 13 contract to manage. TIE were the project managers for 14 that project. They were responsible for managing the 15 contractors. I did not have any concerns on how TIE 16 were managing the MUDFA contract, but I certainly went 17 on to have concerns about the success of the delivery of 18 MUDFA." 19 So when did you have concerns about the delivery of 20 MUDFA? 21 A. Gosh, I would have to go back and check the record at 22 the time, but as the MUDFA contract, the utility 23 diversion contract was under way, it became clear 24 that -- I think this appeared in the record over some 25 months that progress was not as fast as had been hoped 108 1 for. 2 Q. If I try and pin it down this way, was it while you were 3 still sitting on the Tram Project Board that you had -- 4 A. I believe that was the case. I believe we had those 5 concerns in -- certainly in 2007. I would have to check 6 whether it was in 2006. Forgive me, I just can't 7 recall. 8 Q. Pre June 2007? 9 A. I believe so, yes. 10 Q. Also, we can look at paragraph 59 of this same page. 11 This is more in relation to the SDS contract and you 12 say: 13 "As with MUDFA the SDS contract was not TS's to 14 manage. It was apparent that progress on the design 15 programme was not as it should be. It was therefore 16 appropriate that Transport Scotland raised that as 17 a concern. Again, however, it was not TS's contract to 18 manage and I would not know the detail of the matter. 19 I do know that for the designs to be signed off, they 20 had to go to City of Edinburgh Council to be approved by 21 the planning department." 22 You go on to elaborate on that a little bit more. 23 Once again, there was a concern in relation to the 24 design? 25 A. There was concern in relation to the progress with the 109 1 design and that it was -- and that the suite of designs 2 which needed to be completed was not making progress to 3 final sign-off that had originally been intended in the 4 programme. 5 Q. Once again, was that a concern of which you were aware 6 while you were still on the Tram Project Board? 7 A. I believe that's correct. 8 Q. I think in our discussions earlier this morning, you 9 said that you were aware that getting the MUDFA works 10 done and getting the design complete were both 11 components, key components of the procurement strategy? 12 A. Indeed. 13 Q. They were to be a means to attempting to get a fixed 14 price? 15 A. Yes. 16 Q. So how concerned were you that these key elements of the 17 procurement strategy were not coming to fruition? 18 A. We expressed those concerns, that they need to come to 19 fruition, and I think it's fair to say that colleagues 20 in tie understood those concerns and shared those 21 concerns. 22 Q. Why did you raise those concerns with tie at the time, 23 pre June 2007? 24 A. Consistent with our role on the Project Board at the 25 time to offer what we felt was appropriate advice. 110 1 Q. The intention being perhaps that it would assist tie? 2 A. Yes, although I have to say, in fairness, I think they 3 were as aware of that as an issue as we were. 4 Q. So by the time you -- at the time you withdrew from -- 5 Transport Scotland withdrew from a more active 6 involvement, you were aware that two key elements of the 7 procurement strategy were not working out? 8 A. Yes, but I don't think we thought that they were 9 incapable of being fixed at that point. 10 Q. But you would have little -- less information as to them 11 being fixed and no control over them being fixed, once 12 the withdrawal was complete? 13 A. That is a logical consequence of the changes that were 14 put in place, yes. I think I would say such problems 15 are not without precedent. I can think of many projects 16 that would have had some delays in the design programme 17 and some delays in preparatory works and would still go 18 on to be successful. So they were not of themselves 19 a red flag which said there is no way this project can 20 be brought to a sensible completion. 21 Q. I would like to go on now to look at another document. 22 The reference for it is SWT00000056. We can see this as 23 a memorandum addressed to you and dated 21 June 2007. 24 Do you see that? 25 A. Indeed. This was from -- 111 1 Q. You can see it's from Nadia Savage and was copied to 2 Jerry Morrissey and Ken Davis. 3 A. I understand. 4 Q. The three other people mentioned there, Mr Morrissey, 5 Mr Davis and Ms Savage, were they all Transport Scotland 6 employees? 7 A. Nadia and Jerry were. I do Mr Davis the discourtesy of 8 not remembering precisely his role at the time, but 9 he may well have been. 10 Q. Do you recall seeing this? 11 A. Not specifically, but I don't doubt that I did. 12 Q. If you can look at what was said in a bit more detail, 13 it begins by saying: 14 "Having now had sight of the published Audit 15 Scotland report, Edinburgh Transport Project Review, 16 I consider it necessary to draw your attention to the 17 following information and concerns related to the 18 Edinburgh Tram Project as represented in the document." 19 Then some key discrepancies, sub-heading, "COST 20 ESTIMATE": 21 "The Draft Final Business Case submitted by tie in 22 November 2006 presented an updated estimate for Phase 1 23 as GBP592 million, split GBP512 million phase 1a and 24 GBP80 million phase 1b. In subsequent financial 25 reporting tie has documented GBP593.8 million split as 112 1 GBP501.8 million for phase 1a and GBP92 million for 2 Phase 1b. This is a change of GBP12 million for 3 Phase 1a. The Audit Scotland Report states that 4 GBP501.8 million is the current anticipated final cost 5 of Phase 1a." 6 That's simply a narrative of the factual position, 7 I think. Would you agree? 8 A. It would seem to be, yes. 9 Q. She goes on then to start expressing her concern: 10 "However the initial tender returns from the 11 Infraco bid in January 2007 are different to these 12 figures. Information was presented to 13 Transport Scotland by tie in correspondence of 14 26 January 2007 and this raised questions that were 15 communicated to tie by email on 29 January 2007. 16 Additionally, tie made a limited presentation to 17 Transport Scotland on 30 January and subsequently 18 D Sharp [Damian Sharp] instructed a review by 19 Transport Scotland in tie's premises, of the process 20 surrounding the letter of 26 January 2007. A response 21 was received from tie that was reviewed by 22 Transport Scotland and enabled advice to be presented to 23 Ministers to decide on the next funding stage. As you 24 will recall, this information was treated discreetly, at 25 the request of tie, as it was commercial in confidence 113 1 with only a limited circulation." 2 If I can just pause there, was the need for 3 discretion simply that it was commercial sensitivity or 4 was it something else? 5 A. Yes, I think that would have been bid information. 6 Q. The memo continues: 7 "In broad terms the normalised bids resulted in 8 a Phase 1a cost estimate of GBP545.5 million. tie 9 introduced proposals for savings to be negotiated during 10 bidding (GBP14 million) and also value engineering 11 savings (GBP14 million) which proposed to secure 12 a GBP517 million Phase 1a cost at outturn." 13 Do you see that? 14 A. I do. 15 Q. I think we would get to the 517 by deducting the two 16 lots of GBP14 million from 545? 17 A. That seems about right, yes. 18 Q. "They also tabled proposals for further savings which 19 would have required an extremely aggressive approach to 20 negotiation and extremely robust value engineering 21 processes. Tie suggested this could result in a Phase 22 1a cost outturn of GBP477.5 million." 23 Do you recall that? 24 A. Indeed. 25 Q. "Transport Scotland questioned the robustness of the 114 1 proposed savings and the processes to quantify exposure 2 and quantum of risk amongst many other items such as 3 tender qualifications on bespoke contract terms, 4 transfer of risk, time schedule certainty and current 5 progress (refer minutes of the review of 31 January 6 circulated 12 February 2007)." 7 If we look over the page: 8 "Tie responded to the questions raised and provided 9 some evidence to substantiate their responses. Based on 10 this return, Transport Scotland prepared advice to the 11 Minister which stated that the latest cost estimate for 12 Phase 1a had increased to GBP545.5 million with new 13 savings proposed by tie ranging from GBP28 million to 14 GBP68 million, reducing the estimate down to a cautious 15 view of GBP517 million." 16 I think we saw that was the figure given on the 17 previous page before what we described as the aggressive 18 cost reductions? 19 A. Mm-hm. I don't think 517 was the aggressive cost 20 reduction. Have I misunderstood you? 21 Q. 517 is before the aggressive reductions? 22 A. Yes, that's correct. 23 Q. "It was stated that there was not sufficient evidence to 24 support such a positive view of tie's savings range. 25 Transport Scotland therefore concluded that a more 115 1 prudent assessment of GBP15 million to GBP20 million 2 should be applied to the GBP545.5 million figure giving 3 an overall cost estimate for Phase 1a as GBP525 million 4 with a range of GBP510 million to GBP545 million. This 5 was against a funding of GBP490 million from 6 Scottish Executive [as it then was] and GBP45 million 7 from City of Edinburgh Council for Phase 1a, totalling 8 535 million. 9 Therefore, whilst tie continues to report 10 GBP501.8 million against GBP545 million (to Tram Project 11 Board, Transport Scotland, and as repeated in 12 the Audit Scotland report) there is other information in 13 circulation which does not substantiate this. To secure 14 the current cost estimate, tie would have to secure 15 GBP43.7 million of savings. Transport Scotland has not 16 been provided with evidence to demonstrate that savings 17 of that magnitude are being secured." 18 I'll pause there. I have read quite a bit of it to 19 provide the context. What it seems to come to is 20 encapsulated in that last paragraph: that whilst tie 21 have told Transport Scotland that the cost will be 22 GBP501.8 million, the Transport Scotland view is that 23 was not realistic because it would require savings that 24 were unlikely to be achieved. Is that a fair summary? 25 A. I think by that point -- can you remind me of the date 116 1 of this? Was this after the Audit Scotland Report, is 2 that correct? Forgive me, I have forgotten. 3 Q. This is dated 21 June 2007. 4 A. Yes, I think that's a fair representation. I think 5 it's -- if I remember the context of this at the time, 6 tie was of the view in the light of their discussions 7 with other tram projects that there were opportunities 8 for savings to be negotiated in the final stages of the 9 contract, and there was some evidence to support that 10 that had been done elsewhere, but I think the team is 11 saying here they haven't yet seen the concrete evidence 12 of what those will be, and so there has to be some 13 question over whether that would be achieved. 14 Q. There's some question over whether or not the figure 15 supplied to Audit Scotland is correct or appropriate? 16 A. Well, I think that the letter is suggesting that 17 a higher figure might have been appropriate. 18 Q. If you look at the next paragraph, the one that begins 19 "page 3": 20 "Page 3, paragraph 10 of the report [that is the 21 Transport Scotland report] states that costs have been 22 subjected to robust testing, also that 79 per cent of 23 estimates are based on firm bid rates and prices. In 24 correspondence and at the review in January 2007, 25 Transport Scotland challenged these categories and 117 1 percentages and questioned the robustness. These 2 percentages are open to different interpretation." 3 Do we take it from that final sentence that when 4 Transport Scotland challenged these categories, they 5 were of the view that they were not nearly so firm or as 6 rigid as were presented to Audit Scotland? 7 A. Well, I think it's saying there -- sorry, it may be 8 a little further down -- that they based -- that the 9 assessment by tie of GBP501.8 million was based on firm 10 bids may be the case, but Transport Scotland are not at 11 that point seeing the detail of the build-up that got 12 them to that figure. 13 Q. Let's look on then to the final paragraph I think you 14 are referring to. The next paragraph is saying: 15 "However, ignoring the 79% statistic, the 16 ultimate test of an estimate is the marketplace and the 17 Infraco test has demonstrated that the bidder's returns 18 are higher than the initial tie estimates. Page 13, 19 paragraph 5 acknowledges that the initial bids have been 20 opened. It states that tie's confidence in its cost 21 estimates has grown as a result, and that the current 22 estimate (GBP501.8 million) is 'based on firm bids'. 23 This may be the case, but if so, Transport Scotland has 24 not been updated by tie on the build-up to the latest 25 cost estimate or the secured savings, either through 118 1 routine reporting or through updated correspondence such 2 as that received in January 2007. Further, it is 3 Transport Scotland's understanding that bids are not yet 4 firm, they are still initial. This lack of clarity may 5 not support the Audit Scotland Report statements 6 surrounding sound financial management and reporting, 7 clear governance or robust cost estimating." 8 Now, first dealing with Ms Savage's comment that 9 it's Transport Scotland's understanding that bids are 10 not yet firm, as at this time, in June 2007, that's 11 correct, isn't it? 12 A. Yes, I think that's fair. 13 Q. That rather bears out the conclusion that the lack of 14 clarity in all this does not support or may not support 15 the audit report statements surrounding financial 16 management and reporting, governance or cost estimating? 17 A. It may not support the audit report statements. I'm 18 a bit puzzled by the clear governance question. I can 19 see this raises a question over the cost estimation. 20 Q. Cost estimation is material, both for affordability and 21 for cost-benefit analysis, isn't it? 22 A. Yes. 23 Q. That's something which, certainly the latter, would be 24 something in which Transport Scotland should have an 25 interest? 119 1 A. I'm trying to remember at what point we were in our 2 role, but yes, I take your point. 3 Q. Even if -- I think this is before Transport Scotland had 4 withdrawn, but even if it was after, Transport Scotland 5 would still have an interest in the benefits that they 6 were to -- that were to be achieved as a result of 7 spending GBP500 million, would they not? 8 A. Yes. I'm not sure that this is touching on the benefits 9 at the moment, but I take your point, yes. 10 Q. It would have an interest in the cost-benefit analysis, 11 and if the costs go up, the cost-benefit analysis 12 changes. 13 A. The ratio does, but the benefit may be independent of 14 the cost. 15 Q. But if the costs go up, you might change from 16 a cost-benefit ratio in excess of 1 to one that's below 17 1? 18 A. That's possible, yes. 19 Q. That's very material for how public money is spent, 20 isn't it? 21 A. It can be, though we don't always rely just on the 22 benefit to cost ratios in the assessment of a value of a 23 project. We have invested in a number of transport 24 projects with BCRs less than 1. I take your point. 25 Q. It was a requirement here that it be in excess of 1. 120 1 A. Yes, that was requirement, yes. 2 Q. So it would be material if the costs were going to 3 change? 4 A. Significantly, yes. 5 Q. What did you do in response to this? 6 A. The honest answer is I can't recall specifically, to 7 this letter. I dare say it would have been weighed in 8 the balance alongside other evidence at the time as we 9 were putting the arrangements in place. 10 Q. If you discussed it with other people or communicated to 11 other people, would you expect there either to be 12 records of meetings or records of emails? 13 A. There may be. I'm sorry, I genuinely don't have 14 a recollection of this letter. I don't doubt that I may 15 have seen this at the time. But I don't recall this. 16 This would have been one of a number of letters at the 17 time, and I would be surprised if we hadn't discussed 18 this at the time. 19 Q. Is there a procedure within Transport Scotland for 20 retaining and storing documents such as this, emails 21 exchanged between people? 22 A. We use the electronic record data, the management 23 system. 24 Q. Would you have expected something like this to be stored 25 within that? 121 1 A. I think I would, yes. 2 Q. Because you will see that the reference to this document 3 begins "SWT", which tells us that it's been provided by 4 Cyril Sweett. No version of this was provided by 5 Transport Scotland to the Inquiry. 6 Do you have any reason why that would be the case? 7 A. No, is the honest answer. As I said, I don't recall 8 seeing this document. I don't understand why it 9 wouldn't have been filed, if we'd received it. I have 10 no reason to doubt that it was sent, but I'm sorry, 11 I can't answer that. 12 Q. Would you look at page 4 of this, please. Could you 13 highlight the second paragraph, beginning 14 "The Audit Scotland report", down to the end of the 15 bullet point. You will see a note here: 16 "The Audit Scotland report states that tie now 17 report some slippage but that tie's actions have mostly 18 recovered the slippage and forecast a service date of 19 21 January 2011. 20 Specifically, the report records that the Final 21 Business Case has slipped circa 4 to 5 months from 22 September 2007 to January 2008. It also records in 23 page 13, paragraph 52, that the preferred Infraco bidder 24 will be appointed in September 2007. This is a 5 25 month slip from the May 10 date forecast in tie's Draft 122 1 Final Business Case programme. The report does not 2 mention any other delay areas identified by tie or 3 assessment of the impact. 4 However, slippage areas against the Draft Final 5 Business Case Programme that are evident to tie and 6 Transport Scotland as of May 2007 are: 7 Firstly: 8 "SDS design progress (both tie and Transport 9 Scotland period reports record difficulties as well as 10 the response from tie to the review on 31 January 2007); 11 Award of GBP60 million funding (possible delay); 12 MUDFA progress (partly SDS impact); Infraco negotiation 13 (partly SDS impact); and Final Business Case progress 14 (impacted by all of the above)." 15 A. I think those bullet points are broadly consistent with 16 the discussions we had earlier about the MUDFA and SDS 17 contracts. 18 Q. Yes. If we look at the foot of the page, please, to the 19 final paragraph with its bullet points, the conclusions 20 that Ms Savage reaches, drawing this together is: 21 "The concern around all of these conflicting dates 22 is this. 23 The Audit Scotland Report clearly indicates an 24 approximate 5 month delay in the project (based on 25 the December 2006 programme) on key activities such as 123 1 the Final Business Case and Infraco award; The Draft 2 Final Business Case programme was issued by tie with 3 a statement that it contained "zero float"; However the 4 current end date is reported to have slipped by only 1 5 month; This is reported to be due to actions taken by 6 tie to mitigate the impact of the 5 month slippage, 7 ie bringing forward advance works and critical path 8 works such as the construction of the tram depot at 9 Gogar." 10 If you look over the page: 11 "However, these works are not a response to delay as 12 reported in page 14 paragraph 54. These works were 13 always planned to be sequenced that way by tie, as 14 reflected in the Draft Final Business Case programme and 15 reflected in the planned expenditure authorised in the 16 GBP60 million grant early in 2007. 17 So if these actions were always planned, what are 18 the actions that have been taken by tie to mitigate the 19 5 month delay on a zero float programme?" 20 Once again we can see that, taking it short, there 21 appears to be concerns about the accuracy of statements 22 as to the progress being made by tie and their controls 23 as represented to Audit Scotland. 24 A. Yes, I think that's fair. 25 Q. Obviously, if information has been given 124 1 to Audit Scotland that is not wholly accurate, that 2 would have the ability to greatly undermine their 3 conclusions? 4 A. I think it's axiomatic, if they're given wrong 5 information, that's not helpful. 6 This is the judgment of Cyril Sweett at the time. 7 Q. I think if we look at page 6 of this, we can see that 8 the author, Nadia Savage, is the Head of Programme 9 Management at Transport Scotland. 10 A. I think at that time on secondment. I'll have to check 11 that. Nadia's status changed over the period. From 12 memory, I think Mr Davis was from Cyril Sweett. Again, 13 please -- 14 Q. So Nadia Savage may have been some time at Cyril Sweett, 15 may have been some time at Transport Scotland? 16 A. I believe so. I would have to check that, but that's my 17 recollection. 18 Q. There she is expressing a concern about these 19 representations which have formed the foundation for 20 the Audit Scotland conclusions? 21 A. That's what it would seem, yes. 22 Q. Do you know what happened with this? 23 A. With this letter? 24 Q. Yes. 25 A. No I'm afraid I can't recall this letter. I can recall 125 1 discussions at the time about the programme. So 2 I recognise a number of the issues. I understand the 3 observations about costs but I don't specifically recall 4 this letter. I'm sorry. 5 Q. But on a number of occasions this morning, you have 6 placed reliance on the Audit Scotland Report. And this, 7 on the face of it, creates some doubt about the 8 soundness of the conclusions reached or the evidence 9 base on which the conclusions were reached? 10 A. I can understand that observation. 11 Q. I'm finished with that document. 12 A. May I ask, do we know if that letter was sent? 13 CHAIR OF THE INQUIRY: Sorry? 14 A. Do we know if that letter was sent? 15 CHAIR OF THE INQUIRY: That last document? 16 A. Yes. Forgive me. I'm not saying it wasn't. I just 17 don't have a recollection of it. 18 MR LAKE: You say Mr Davis was in Cyril Sweett. 19 A. I would need to check that, but from recollection, that 20 may be the case. 21 Q. And it is -- that letter came -- it was provided by 22 Cyril Sweett. It was in their possession? 23 A. I'm not denying that. 24 Q. It appears to have been sent by Ms Savage who was at 25 that time on secondment or otherwise within 126 1 Transport Scotland? 2 A. Well, that was -- forgive me. That was just my 3 question. Was it sent or was it something that was 4 drafted? 5 Q. It was produced initially on any view by Nadia Savage, 6 wasn't it, and she was in Transport Scotland. If 7 there's that -- 8 A. Okay. Forgive me. 9 CHAIR OF THE INQUIRY: We have seen that it's a document 10 that appears to have been produced by Nadia Savage, who 11 at that time either on secondment or otherwise, was head 12 of project management within your department. 13 A. Indeed. 14 CHAIR OF THE INQUIRY: There are various recipients, 15 including Mr Davis, whom you think may be a Cyril Sweett 16 person. 17 A. Yes, forgive me, my Lord, for my lack of recollection on 18 this one. 19 CHAIR OF THE INQUIRY: No, I couldn't remember everyone from 20 11 years ago. But if he is a Cyril Sweett employee or 21 whatever, and Cyril Sweett, as opposed to 22 Transport Scotland, produced this document to the 23 Inquiry, it would seem that that document must have been 24 in the possession of Cyril Sweett. 25 A. That would seem likely. 127 1 CHAIR OF THE INQUIRY: Which might suggest, or an inference 2 might be drawn, that it has gone from Transport Scotland 3 to Cyril Sweett. 4 A. The other way round, I think, perhaps. 5 CHAIR OF THE INQUIRY: No, can we go back to the document? 6 A. Sorry, I don't want to detain us on this. 7 CHAIR OF THE INQUIRY: No, if you think it's important as to 8 whether this document has gone out, clearly we want to 9 clarify this. It's a memorandum to you. 10 A. To me. 11 CHAIR OF THE INQUIRY: Copied to, among others, Ken Davis. 12 A. And Jerry from Nadia. Sorry, I don't know that it 13 wasn't sent and I don't want to put too much on that. 14 I just don't recall this document specifically. 15 CHAIR OF THE INQUIRY: How else would it get into the 16 possession of Cyril Sweett? 17 A. They may have been considering sending it. I am content 18 to assume it was sent. I don't want to dwell on this 19 unduly. 20 CHAIR OF THE INQUIRY: You can't shed any light on why it 21 disappeared from -- 22 A. That's partly why I'm puzzled, my Lord. 23 MR LAKE: Moving on to a different matter now, and the role 24 of Transport Scotland after June 2007. I think there 25 was description of the post 2007 role as being that of 128 1 bankers, I think maybe a term that you used to describe 2 the role. 3 A. I think, if I'm thinking of the document, bankers in 4 inverted commas. But yes, I think I recognise that 5 reference. 6 Q. What did you mean by that? 7 A. I was, I think, trying to convey to team members that we 8 were stepping back from the more active role of 9 engagement in the Tram Project Board, consistent with 10 the agreement that had been reached with Ministers 11 around how our role was to change, and I was trying to 12 give them an easy frame of reference to think about our 13 new role as distinct from our previous role. 14 Q. Accepting that you put the term in inverted commas and 15 it's not to be applied too literally, is it not the case 16 that a banker advancing half a billion pounds for 17 a project would take a very keen interest in whether or 18 not the project was going to come to fruition. 19 A. Yes, and I see the limitations of my metaphor there. 20 What we were is central government advancing money to 21 a local authority under a grant arrangement. So it 22 was -- clearly had a limitation. 23 Q. If you were looking even at commercial lending of this 24 sort of scale for a capital project, would you expect 25 the bank to take some interest and actually closely 129 1 monitor what was happening? 2 A. I would. 3 Q. Would you expect them to have people in the project 4 actually watching what was happening on the decision? 5 A. I would expect some manner of scrutiny, yes. 6 Q. But despite the fact this wasn't commercial money, this 7 was public money, none of that was done post 2007 here? 8 A. Because we were giving effect to that decision as to 9 what our role should be, yes, that's correct. 10 Q. That was the Minister's decision? 11 A. That was the decision that was approved by the Minister, 12 yes. 13 Q. Now, was the decision the Minister's decision or 14 approved by the Minister? 15 A. I think you would have to go back to the documents, but 16 as I recall, the advice we received was to produce an 17 arrangement which allowed us to step back from the 18 day-to-day management of the project, and we made 19 recommendations to the Cabinet Secretary as it then was 20 as to what that might be, and he signalled he was 21 content. 22 CHAIR OF THE INQUIRY: Does that not amount to a ministerial 23 decision? I always thought that people, civil 24 servants -- 25 A. I think that's a fair -- 130 1 CHAIR OF THE INQUIRY: -- give me a memorandum with options 2 when I was Lord Advocate, but I thought if I decided to 3 go for Option 3, or Option 4, that was my decision. 4 A. I think that's very fair, yes. 5 CHAIR OF THE INQUIRY: So is that what happened? 6 A. Yes. 7 MR LAKE: A document I would like to take a look at in terms 8 of how the decision was taken. Could you look at 9 TRS00011413. 10 This is an email string, the final email is between 11 David Middleton, who I think was the Chief Executive of 12 Transport Scotland at the time? 13 A. That's correct. 14 Q. And Ainslie McLaughlin. The second email of the chain 15 which was from Ainslie McLaughlin to Mr Middleton. It's 16 dated 1 December 2010, with the heading "Urgent". 17 Sorry, it's the one above it. It's headed "Re URGENT - 18 TRAM Briefing". What Mr McLaughlin said is: 19 "My recollection at the time was that Ministers 20 wanted to take what was described as a light touch. 21 Malcolm put up a note up recommending approach to take 22 to meet that expectation. I can dig that note out and 23 let you see." 24 To what extent does your recollection of what 25 happened accord with what's said there? 131 1 A. I think that's right. I think that's -- 2 Q. That appears to express that the initial approach came 3 from the Ministers saying they wanted a light touch. 4 And Malcolm, who I think would be Malcolm Spence, put up 5 a note -- Malcolm Reed. 6 A. I think that would have been Malcolm Reed. I'm sure we 7 have got the record here, and perhaps we will come to 8 it, but I think there would have been perhaps a sequence 9 of notes. I think you are seeing Malcolm Reed 10 separately, and given the political import of this at 11 the time, I would have expected him to have led those 12 discussions in the first instance. 13 But there were then a set of notes testing that we 14 had understood the preference, and, as you explained, 15 my Lord, a decision at the end that we should proceed on 16 that basis. 17 Q. But what I'm interested in is the sort of sequence of 18 things as it's represented here. This has the initial 19 step for Ministers saying: we want a light touch. And 20 then Mr Reed puts up a note recommending an approach to 21 meet the Ministers' expectations? 22 A. I think you would have to ask Malcolm Reed whether he 23 offered a set of suggestions and they picked that one, 24 or the idea of the light touch came from Ministers. 25 I simply don't know, but there would have been 132 1 a discussion about the merit of different options, and 2 then that decision was taken. 3 Q. In terms of the various justifications, perhaps for 4 completeness, I could refer you to TRS00004523. I think 5 we can see here a paper -- advice from Ministers 6 addressed to the Cabinet Secretary for Finance and 7 Sustainable Growth, from Mr Reed, and it's dated 8 6 July 2007? 9 A. Indeed. 10 Q. If we go to page 7 of this, we can see Annex C to the 11 memorandum and it begins with a heading relating to 12 overall funding of the project. We can see there that 13 there are five options put out as to how the grant might 14 be stated and managed in relation to this project. 15 A. Yes. 16 Q. Do you see that? 17 A. Indeed. 18 Q. If we go over the page, a recommendation -- the 19 recommendation is given that Option 3 is the most 20 explainable, defendable, professional and fair position 21 to adopt while maintaining the cap. Do you see that? 22 A. Mm-hm. 23 Q. In relation to then the next heading, "Future Governance 24 and the Role of Transport Scotland"? 25 A. Could you just remind me which Option 3 was? My 133 1 apologies. 2 Q. Go back to the previous page. Could we enlarge the 3 options when we get there. 4 A. Thank you. 5 Q. Option 3 is: 6 "GBP375 million recalculated on the new baseline 7 programme for 1a to be delivered at the July Tram 8 Project Board. This programme is anticipated to present 9 a degree of delay and therefore the current estimate of 10 GBP492 million will rise to circa GBP500 million with an 11 option to cap at that point or not." 12 A. Yes, that's fine, thank you. 13 Q. I take it the rise from the 375 to 492 was reflecting 14 inflation over the -- 15 A. Yes, there was a deal of debate about whether the 16 original 375 million should be indexed or not, but that 17 decision had been taken by that point, I believe. 18 Q. That was contested for a little while, wasn't it? 19 A. Most numbers like that are, but yes, that was ... 20 Q. There was no general willingness on the part of 21 Transport Scotland simply to increase the sum of GBP375 22 million which had first been offered? 23 A. I think we understood why the question had come, and in 24 the end, the decision was taken that that was 25 a reasonable request. 134 1 Q. Then if we go back to the second -- the following page 2 of this, page 8, and look under the heading, "Future 3 governance": 4 "Future Governance and the Role of 5 Transport Scotland. 6 The Parliament's decision places the risk of any 7 cost overruns on the Tram Scheme with the City of 8 Edinburgh Council, and makes it clear that 9 responsibility for managing and delivering the scheme 10 rests with the promoter." 11 A. Yes. 12 Q. It may be a question which can be more easily put to 13 Mr Reed, but what was it in the Parliament's decision 14 that did that? 15 A. Well, the Parliament -- so the government of the day had 16 proposed the cancellation of the project. The 17 Parliament had proposed that it should continue. 18 I think Malcolm's note reflects that. 19 Q. Well, the Parliament did indeed say that the project 20 should not be cancelled. It should go ahead. 21 A. Indeed. 22 Q. I think the Cabinet Secretary, Mr Swinney, said that he 23 would respect the will of Parliament in that regard. 24 A. Indeed. 25 Q. But the Parliament didn't consider anything about where 135 1 the risk of cost overruns should lie, did it? 2 A. I think you would need to ask Mr Swinney what 3 discussions he'd had and I think you're right. You 4 could ask Malcolm. But in answer to the question why 5 did Malcolm write that, that's my reflection, that's my 6 understanding. 7 Q. Then we can see the other recommendation in paragraph 2: 8 "To achieve this clarity of roles ..." 9 That must be referring to the role of delivering the 10 scheme in the previous paragraph: 11 "... and ensure that situations could not arise 12 subsequently in the governance of the project which 13 might generate further calls on central funding, 14 I propose that Transport Scotland's future engagement 15 with the Edinburgh Tram Project should be on the basis 16 of revised grant conditions and once these conditions 17 are in place, Transport Scotland staff should withdraw 18 from active participation in the governance of this 19 project." 20 I think that's what ultimately was put into effect? 21 A. Yes, that's correct. 22 Q. Now, I think you were at the forefront of 23 Transport Scotland's engagement with the project prior 24 to the withdrawal? 25 A. Yes. 136 1 Q. What was it about what you were doing that might 2 generate further calls for funding on the government? 3 A. Sorry, I'm not quite sure I understand that. 4 Q. We can see here that the concern is that you want to 5 avoid generating further calls on central funding and 6 that is why you should step back? 7 A. So there was a concern expressed by new Ministers about 8 the risks of further cost overruns on this project, and 9 so that concern related to the risk that this project 10 might be subject to further cost increases. 11 Q. But what was it about what you were doing in the 12 project, or Transport Scotland were doing in the 13 project, that would mean it would generate calls on 14 Transport Scotland for further funding? 15 A. I think, again, you should ask Mr Reed directly, but 16 I think the point he's making here is that the Scottish 17 Government could make clear that it was prepared to fund 18 500 million, but no more, because its view remained that 19 the project should not proceed, and to the extent that 20 those in other parties wished it to proceed, then to the 21 extent they were reflected in City of Edinburgh Council 22 at the time, City of Edinburgh Council should take the 23 lead role for responsibility for any further cost 24 overruns. 25 Q. I think by the time Transport Scotland withdrew, the 137 1 fact that there would be no more than GBP500 million 2 available had been reiterated by Transport Scotland. 3 A. I think that's true, yes. 4 Q. And that being -- 5 A. I would actually have to check that in the light of the 6 letter I have just seen. I can't remember at what point 7 that was finally confirmed. I think in essence it was 8 confirmed when we wrote the final grant letter, but that 9 was the emerging understanding, I think. 10 CHAIR OF THE INQUIRY: I may be wrong, but I thought the 11 Cabinet Secretary said on the day when Parliament took 12 the view that they would take a different decision from 13 the one recommended by the Ministers, I had an 14 impression -- I may be wrong -- that Mr Swinney said, 15 and not a penny more. 16 A. You may well be right, my Lord, and my apologies. 17 I just don't recall at what point the number 500 million 18 was confirmed, and I am happy to defer to that. 19 MR LAKE: So that having been said, why would you carrying 20 on doing what you'd always been doing generate further 21 calls for funding from Transport Scotland? 22 A. Again, I would ask you to address that to Malcolm, but 23 I think the concern relates to the extent that we are 24 actively involved in the project, the extent to which 25 there are further cost increases might be seen as our 138 1 responsibility and therefore something for us to fund, 2 as distinct from the responsibility of City of Edinburgh 3 Council, and therefore for the Council to fund. 4 MR LAKE: My Lord, I notice the time. That would be an 5 appropriate time. 6 CHAIR OF THE INQUIRY: We will adjourn for lunch and resume 7 again at about 2 o'clock. 8 (1.00 pm) 9 (The short adjournment) 10 (2.00 pm) 11 CHAIR OF THE INQUIRY: Good afternoon. You're still under 12 oath, Mr Reeve. 13 A. Thank you, my Lord. 14 CHAIR OF THE INQUIRY: Yes, Mr Lake. 15 MR LAKE: We've just been looking at the memo that was 16 provided to the Cabinet Secretary by Mr Reeve. Can we 17 look at TRS00004536. 18 If we could enlarge the lower half of the screen 19 here, we can see that this is an email which was sent on 20 behalf of the Cabinet Secretary on 11 July 2007, and you 21 were one of the people to whom it was copied? 22 A. Indeed. 23 Q. It says: 24 "Thank you for your minute of 9 July." 25 I think we have seen it was 6 July, but the covering 139 1 email was 9 July. You can that from me. 2 We see Mr Swinney's comments noted below. Under the 3 heading "Tram Project": 4 "Mr Swinney agrees with the approach outlined in 5 Option 3 (annex C of the minute) as the cap on Trams and 6 he also agrees that Transport Scotland should "scale back" 7 its direct involvement with the project." 8 A. Yes. 9 Q. Does that seem to be -- you understand that as an 10 approval of what was being said as regarding governance 11 in the project? 12 A. Yes. 13 Q. If we look at the upper half of the screen here, next 14 email in the chain, you can see this is from one of with 15 your colleagues, Jerry Morrissey, in the major projects 16 team, and is sent to John Ramsay and various others, but 17 not you this time. 18 A. Indeed. 19 Q. Did he discuss this with you, his response? 20 A. I expect he would have done, yes. So I think that would 21 have been passing on the import of that to the wider 22 team. 23 Q. He's asking for the email to be forwarded or 24 disseminated further, and he says: 25 "We need to define and agree "scale back" for the tram 140 1 project." 2 A. Yes. 3 Q. So was that the major projects team, the rail director, 4 thereafter started to consider what was meant by scaling 5 back? 6 A. Looking at the names, yes, it's how do we give effect to 7 that decision. 8 Q. Not just to give effect to, but to define and agree 9 scale back. 10 A. Yes. I think that would have been understood as -- how 11 do we give effect to that through our engagement and our 12 approach. 13 Q. Were you involved in consideration after 11 July in what 14 was meant by defining and agreeing the scale-back for 15 the project? 16 A. I think I would have been, yes. 17 Q. What was -- what exercises or work did you undertake to 18 sty what the scale-back should consist of? 19 A. I can't recall specifically exercises but we were 20 given -- I do recall discussions about how direct should 21 our involvement be, should we withdraw from the Tram 22 Project Board, and how we might give effect to that 23 through any further instructions and grant agreement to 24 tie and City of Edinburgh Council, and that process of 25 discussion led to the grant letter that I think we have 141 1 referred to earlier. 2 Q. Can I ask you to look at another document, please. It's 3 reference TRS00004559. I should say, before that comes 4 off the screen, you can see one of the people to whom 5 Mr Morrissey sent the email is M Spence? 6 A. Matthew Spence, yes. 7 Q. He is on your team? 8 A. Indeed, yes. 9 CHAIR OF THE INQUIRY: Was Nadia Savage the lady who wrote 10 that other one? 11 A. If it helps, my Lord, I did take the opportunity to 12 check with a colleague what her recollection was with 13 respect to Ken Davis and Nadia Savage, and my 14 recollection now, as helpfully prompted, was that 15 Nadia Savage was actually an employee of Cyril Sweett, 16 but seconded into a Transport Scotland post while we 17 were still recruiting full-time staff, and Ken Davis was 18 her boss within Cyril Sweett, if that helps. 19 Q. This is the further document I gave for the reference 20 ending 459. We can see this is a paper which comes from 21 Matthew Spence, Deputy Head of Major Projects in your 22 department? 23 A. Indeed. 24 Q. It's addressed to Malcolm Reed and copied to you? 25 A. Indeed, yes. 142 1 Q. Do you recall this document, I should ask first? 2 A. I don't say I recall specifically, but I recall 3 a sequence of documents and discussions around this 4 time. 5 Q. Is this document the output of the project, considering 6 what was meant by scaling back? 7 A. It would appear to be, yes, or at least a recommendation 8 to Dr Reed copied to myself as to what that should be, 9 yes. 10 Q. If we could look, please, at the second page of this. 11 The heading "Governance & Engagement", the paragraphs 12 under that. 13 A. Mm-hm. 14 Q. We can see that: 15 "Transport Scotland to provide the associated 16 funding to City of Edinburgh Council via standard grant 17 conditions." 18 A. Yes. 19 Q. Were the conditions we saw largely standard grant 20 conditions in the revised grant letter? 21 A. Yes, very much so, yes. 22 Q. "Transport Scotland to give up its seat on the Tram 23 Project Board. City of Edinburgh Council, as the promoter, 24 to re-structure the governance arrangements as 25 appropriate." 143 1 The understanding being there, it is entirely up to 2 Edinburgh what they do once Transport Scotland come off. 3 A. Yes. 4 Q. If we could look down at the foot of the page, at 5 paragraph 15, we can see that, "The 'approval' by 6 Transport Scotland at financial close will be based on 7 the following". 8 A. Mm-hm. 9 Q. Looking at the four bullet points there, are they 10 essentially the points that you found had made their way 11 into the grant letter that we looked at this morning? 12 A. Yes, I see that. 13 Q. If we go forward then to page 4, in paragraph 24, you 14 can see that it says there: 15 "The above arrangements detail an appropriate role 16 for Transport Scotland in line with the wishes of the 17 parliament whilst maintaining the appropriate controls 18 expected/required in relation to the investment of 19 public funds." 20 A. Indeed. 21 Q. Now, the first question is, it refers there once again 22 to the wishes of Parliament. Beyond the desire that the 23 tram project not be cancelled, did Parliament give any 24 other indication as to what its wishes were in relation 25 to the project? 144 1 A. I think I would have to refer you to the Cabinet 2 Secretary and to any further discussions that he may 3 have had with other -- with other members of the 4 Parliament, which I might not have been party to, but 5 this was our understanding of what it was that we had to 6 give effect to. 7 CHAIR OF THE INQUIRY: Sorry, how would that define the 8 wishes of Parliament? The discussions between the 9 Minister and the leaders of other parties or individual 10 MSPs surely wouldn't define the role of Parliament, 11 would it? 12 A. I think that's a very fair point. 13 The context, I think, was discussions as are normal 14 in politics, particularly with a minority government, as 15 to what deal would be done and what the basis of that 16 deal would be, in order that Parliament should proceed 17 and the Budget Bill should be passed on the basis of 18 this; and it was our understanding from those 19 discussions that the basis was GBP500 million would be 20 made available, but that responsibility would transfer 21 to City of Edinburgh Council for -- directly for the 22 management. 23 CHAIR OF THE INQUIRY: Would -- 24 A. So that's -- I think I can accept your point that the 25 wishes of Parliament is a loose term here. 145 1 CHAIR OF THE INQUIRY: They would be determined by looking 2 at the reported proceedings of any resolution of 3 Parliament. 4 A. So clearly the reported proceedings are one aspect. 5 Another aspect of Parliament is the discussions that 6 takes place between Ministers and representatives of 7 other parties. 8 CHAIR OF THE INQUIRY: Thank you. 9 MR LAKE: We can put it this way, Mr Reeve. If the wish of 10 Parliament is that project not be cancelled, everything 11 else really wasn't the wishes of Parliament, but the 12 Minister's wishes, the Minister's desire. 13 A. Well, that was the -- consistent with our understanding 14 of the Minister's preference, as I think you have seen 15 from the previous minutes, yes. 16 Q. What is proposed in this paper is consistent with his 17 wishes? 18 A. I believe so, yes. 19 Q. Rather than the wishes of Parliament. What we are 20 really -- quite candid what we're reflecting is 21 ministerial wishes, not Parliament's? 22 A. I understand your point. I wasn't aware that there was 23 that distinction, but I see your point. I clearly 24 understand the distinction between Parliament and the 25 Minister, but I thought this was consistent with an 146 1 understanding that had been reached. 2 Q. You were the head of the team that produced this 3 scale-back. And I think you said you were probably 4 involved in it? 5 A. Involved in the discussions that would have led to this, 6 yes. 7 Q. This paper was sent to you, presumably, because your 8 approval to it is required or if you had any dissent 9 from it, you would make it known? 10 A. Indeed. 11 Q. But were you proceeding on the basis that it was the 12 wish of Parliament that Transport Scotland stand back? 13 A. Clearly we were proceeding on the basis that this was 14 consistent with the Cabinet Secretary's expressed wish, 15 and I think in good faith, it was our understanding that 16 that was consistent with wider discussions. But I don't 17 think I could go further than that. 18 Q. Very well. 19 Again, in that paragraph there's a reference to 20 appropriate controls expected/required in relation to 21 the investment of public funds. Which controls did you 22 place reliance upon in that regard? 23 A. Well, I think we -- I think there's a reference further 24 on up in the letter, I think I saw it as we flicked 25 through to the Scottish Public Finance Manual, and our 147 1 starting point for a grant letter to a local authority 2 project was to look at the source of terms and 3 conditions that would ordinarily be required by the 4 Scottish Public Finance Manual. So that is where we 5 would look to for appropriate controls. 6 Q. If I can refer you to the second page of the document. 7 I could take you to paragraph 8 and the heading above 8 it? 9 A. Yes, there we are. Yes. 10 Q. There it says: 11 "Basis for the Revised Arrangements. The following 12 key points represent the basis for formulating the 13 revised role of Transport Scotland." 14 A. I think that's consistent with our idea of appropriate 15 controls. 16 Q. So just as long as it's in accordance with the Scottish 17 Public Finance Manual, that's what is required? 18 A. Well, that's our starting point certainly, and the 19 Scottish Public Finance Manual covers the arrangements 20 that should be put in place for the provision of capital 21 grant to local authorities for the delivery of projects. 22 Q. Your starting point is it also your finishing point, you 23 went no further? 24 A. I think it was -- clearly it was adapted to some of the 25 specifics, for example, the amounts involved and the 148 1 shared -- the basis of the shared funding and one or two 2 other aspects, but that really was our place to look to 3 see we could not put in place a standard, or a pretty 4 standard grant letter consistent with those guidelines. 5 Q. If I could ask you to look at another document, please. 6 It's got the reference TRS00004547. It's an email 7 chain, so it's easiest to look at the whole chain. If 8 we start by looking at the foot of the page here, it's 9 a message from Damian Sharp in Transport Scotland to the 10 Private Secretary and yourself, copied to various 11 others? 12 A. Indeed. 13 Q. If we go over the page, you will see what's said about 14 it there. There's a heading, "Purpose", and beneath 15 that, it's noted: 16 "To provide feedback from Thursday's Tram Project 17 Board". 18 A. Remind me, was this from Damian? 19 Q. This is the email from Damian to various people and 20 yourself. 21 A. Damian would have attended that Board, yes. 22 Q. So it's to provide feedback from the Tram Project Board. 23 If we scroll down to look at paragraph 6, we can see: 24 "David Mackay, James Stewart, and Neil Renilson all 25 expressed strong support for Bill continuing to be 149 1 a member of the Tram Project Board and for 2 Transport Scotland to be actively engaged with the 3 project. Willie Gallagher was silent on this but we 4 know he doesn't quite share that view. I said that we 5 would need rapidly to conclude our consideration of our 6 role and we would need to ensure that any future 7 arrangements were consistent with the Scottish Public 8 Finance Manual, given the scale of Scottish Executive 9 funding being invested. I stressed that we would at 10 least require full compliance with the 4-weekly 11 reporting but said we should be able to reduce the 12 amount of ad hoc requests and meetings once the new 13 arrangements were in place." 14 So it appears that -- do a simple head count, the 15 majority of people noted there were in favour of you 16 continuing in your role with the Company, the Board? 17 A. It would seem to be, yes. Gratifying vote of confidence 18 at one level. 19 Q. Indeed. If we come to the recommendations section on 20 page 6, if we get right to the end, once again, we have 21 got different pagination in two different versions. 22 Can I look at the previous page, please. We can see the 23 recommendations to the Tram Project Board at the foot of 24 the page. Paragraph 33: 25 "Matthew Crosse made 11 recommendations to the Tram 150 1 Project Board - not all of which were accepted but most 2 were." 3 The first one is: 4 "More focused role of Transport Scotland - all 5 agreed in principle but we now need to agree and 6 document this." 7 So again, the final matter that said -- said to have 8 been all agreed in principle, was that 9 Transport Scotland would continue with the role? 10 A. Yes. A more focused role. That's not inconsistent with 11 where we ended up. 12 Q. If we look back then at page 1, however, of this, look 13 at the foot of the page, you can see the reply that came 14 from the Private Secretary/Transport for Scotland, which 15 is addressed to Damian Sharp, another private secretary 16 and yourself. It's: 17 "Damian, I'm getting very strong signals from the 18 Cabinet Secretary that Transport Scotland should not be 19 on the project board - he reiterated this at the 20 Portfolio Meeting on Tuesday morning. Of course we need 21 to fulfil any obligations under the SPFM..." 22 Presumably that's Scottish Public Finance Manual? 23 A. It is, yes. 24 Q. "... but we need to withdraw from active engagement in 25 the delivery of this project – and - crucially in any 151 1 decision-making processes that could compromise the new 2 arrangements for the allocation of financial risk for 3 the project." 4 A. And I think if it's helpful, I think the "Malcolm" there 5 will be Malcolm Reed, I think that, so he will have 6 a personal email box and his PS/Transport Scotland is 7 for the Chief Executive of Transport Scotland. 8 Q. But we see this has been sent in response to what has 9 been relayed by Damian Sharp. It appears to be that in 10 response to that, the Cabinet Secretary is given very 11 strong signals that Transport Scotland should not be on 12 the Project Board? 13 A. Yes. 14 Q. So it seems to be once again a directive coming from 15 above that he does not want Transport Scotland on that 16 Board, full stop? 17 A. That's what that says, yes. 18 Q. Were you aware of that at the time? 19 A. I think so, because I think I'm next up in the -- I was 20 aware of it in that I had read that, because I replied 21 to it. 22 Q. But aware that -- you talked about governance and you 23 talked about other things. What this appears to be 24 recording is that it was bluntly the wishes of the 25 Cabinet Secretary that Transport Scotland should simply 152 1 not be there? 2 A. Yes. 3 Q. There's -- after a reference to the Scottish Public 4 Finance Manual, there is a reference to withdrawing from 5 engagement in the delivery and from decision-making 6 processes that could compromise the new arrangements for 7 allocation of financial risk. 8 A. Yes. 9 Q. Presumably, the allocation of risk is bluntly that the 10 Council would bear the cost of any overrun? 11 A. Yes. 12 Q. It comes back to the point I asked earlier. Was there 13 anything in the role that you were performing prior to 14 June 2007 that would have compromised that allocation? 15 A. I think to the -- I think the point the Cabinet 16 Secretary is making is to the extent that we are 17 involved in decisions, that we might be held accountable 18 for the success of those decisions, and I think the 19 Cabinet Secretary was seeking to establish clearly that 20 it was for City of Edinburgh Council to take on 21 responsibility for these decisions and to be accountable 22 for the success of those decisions. 23 Q. If you go to the top of the page, you will see your 24 response? 25 A. Indeed. 153 1 Q. It's dated the same day, 18 July 2007. You note that: 2 "The clarity of John Swinney's advice is helpful. 3 I remain concerned about the risk arising from 4 withdrawing from governance arrangements that Audit 5 Scotland have found satisfactory. Compliance with the 6 Scottish Public Finance Manual must be seen in this 7 context. We must have a well recorded reason for making 8 these changes. 9 Is there any worth in considering a direction from 10 the Cabinet Secretary that normal governance processes 11 (gateway reviews, board attendance, reserved powers) 12 should not be followed in this instance. I recognise 13 this may be a bit [of] a nuclear option, but it would 14 provide clarity and cover." 15 A. Yes. 16 Q. So you express there your concern about the withdrawal 17 from arrangements found to be satisfactory. What was 18 the basis of your concern? 19 A. Well, it was -- I suppose it's consistent with the kind of 20 observations of others on the Board that they found our 21 involvement of some value, and so there was just 22 a question about whether removing something that might 23 be helpful would be seen to be a good thing. I think 24 that email led to further discussions in the normal 25 course of things, and the conclusion was reached that we 154 1 should stick with the wishes of the Cabinet Secretary 2 with respect to the simpler arrangements. 3 Q. Is it bluntly the case that your views were overridden? 4 A. I think it would be fairer to say that the decision that 5 we finally took was not the one that perhaps is 6 reflected in that email. 7 I wasn't in the end uncomfortable with the decision 8 we got to. I did see the advantage of role clarity. 9 I understood the intent of that change. 10 Q. But you nonetheless were concerned that after Audit 11 Scotland had approved or found satisfactory the 12 governance arrangements, you were concerned that 13 Transport Scotland should then withdraw? 14 A. I don't think it was specifically the Audit Scotland 15 issue. I think it was just generally that point about 16 if our assistance is seen to be helpful, is it right 17 that we should withdraw. As I said, I did understand 18 the balancing argument. This was a matter of judgment 19 with something to be said for a number of courses. But 20 I understood the logic of the position that we did 21 reach. 22 Q. None of these things that you're now adding as a gloss 23 are contained in your email, are they? 24 A. No, there was quite a lot of discussion as well as 25 written record at the time. 155 1 Q. Your email is quite clear, that your concern about 2 withdrawing arises from the fact that Audit Scotland 3 found the governance arrangements satisfactory? 4 A. It would be -- 5 Q. That's what you're stating, isn't it? 6 A. Did I say Audit Scotland? 7 Q. The second paragraph: 8 "I remain concerned ..." 9 A. Oh, yes, thank you. 10 Yes. So yes, in the normal course of internal 11 discussion about the right course, it's quite normal for 12 folk to have a debate, and we had that discussion, we 13 had that debate, and a decision was reached, and it then 14 became my role to enact that decision. 15 Q. You are aware that the Audit Scotland Report was 16 something that was put before and referred to during the 17 parliamentary debate on whether or not to proceed with 18 the tram project? 19 A. Yes, I think I did know that, yes. 20 Q. So reliance was based on that conclusion, 21 the Audit Scotland conclusion? 22 A. Well, I'm sure it informed the debate, yes. 23 Q. When you say compliance with the Scottish Public Finance 24 Manual must be seen in this context, that's presumably 25 the context of approval by Audit Scotland of the 156 1 governance arrangements? 2 A. Yes. 3 Q. So I have no doubt there was going to be compliance with 4 the Finance Manual, but what was the point that you were 5 seeking to make, that compliance with that must be seen 6 in context with the Audit Scotland Report? 7 A. I think it's the point you have already made, that 8 the Audit Scotland Report had said that the arrangements 9 were satisfactory. We were proposing a change to those 10 arrangements. So the point of these discussions and the 11 debate was about: can we be satisfied that the new 12 arrangements put in place would still be satisfactory. 13 Q. The final sentence there: 14 "We must have a well recorded reason for making 15 these changes." 16 Presumably, if by then you had seen a well recorded 17 reason for making the changes, you wouldn't have had to 18 have said that? 19 A. No, I would need to see what the date of this was in 20 relation to when we finally sent the grant letter, but 21 I dare say there was a further process beyond this 22 email. 23 Q. We can take it by 18 July, put it this way, nothing that 24 pre-dates 18 July that you have seen amounted to 25 a well-recorded reason for making the change? 157 1 A. Well, in a sense I have seen the emails further down as 2 to the strong preference. It just seems sensible to 3 record the basis of that preference. 4 Q. You then consider a direction from the Cabinet Secretary 5 and describe it as a nuclear option. Why is it 6 a nuclear option? 7 A. It's unusual, I think, for Ministers to give directions, 8 and I think I was persuaded it wasn't appropriate in 9 this case. 10 Q. It would be regarded as quite a serious matter for the 11 civil service to approach the Cabinet Secretary and say 12 in a sense: direct us? 13 A. Yes, it would, and I think I was persuaded it wasn't 14 appropriate in this case. 15 Q. You but the reason you would do that, get a direction, 16 is if you were being asked to do something you 17 considered wasn't appropriate? 18 A. Yes. 19 Q. That's what you mean when you said it would provide 20 clarity and cover. It covers the civil servants for 21 doing what they've been ordered to do? 22 A. Yes, but please note I'm asking a question, rather than 23 saying it is my firm view that this would be right. 24 Q. It's something you consider is worthwhile considering. 25 Presumably that's to give you the necessary cover? 158 1 A. I thought it was worthwhile considering, and you will 2 see the point I have made about things I thought we 3 should consider, and we did then have that consideration 4 and a decision was made and we proceeded. 5 Q. Why did you need cover? 6 A. Well, I'm not sure at the end we did. 7 Q. Why at that time did you think you needed cover? 8 A. It's not an unknown phrase for officials to use in 9 relation to ministerial decisions. 10 So I think that the reasons for my -- the reasons 11 for my concern, I'm not sure I would add to what I have 12 written. 13 Q. I have finished with that production. 14 CHAIR OF THE INQUIRY: Before you leave it, could I ask what 15 the last paragraph means: 16 "Is there any clean funding transfer arrangement 17 that would supplant the need to follow many of the SPFM 18 requirements. Perhaps a one-off transfer of funds?" 19 A. Gosh. Well, I think I was thinking more widely about 20 whether there was any other -- any other mechanism by 21 which funds might be transferred to City of Edinburgh 22 Council that would make that clearer, whether there was 23 any other way of transferring the project work. 24 It was an open question really. I didn't have 25 a particular thing in mind, I don't think. 159 1 CHAIR OF THE INQUIRY: So if there was a one-off transfer of 2 funds, as a possibility, would that get out of the SPFM 3 requirement? 4 A. I'm not sure that it would. This should be seen in -- 5 as a sort of generation of ideas, rather than a firm 6 proposal. 7 CHAIR OF THE INQUIRY: Thank you. 8 A. Certainly I don't recall that we identified any such 9 option in subsequent discussion. 10 MR LAKE: I want to go on and ask you about activities 11 involving Transport Scotland after this time, into 2009 12 and beyond. 13 How would you describe the involvement of 14 Transport Scotland officers after 2008? What was your 15 role? 16 A. It was to give effect to the -- to the agreement that 17 had been put in place as reflected in the terms of the 18 grant agreement. So it was to monitor progress and 19 expenditure, to make payments in response to appropriate 20 evidence from City of Edinburgh Council, to provide 21 advice to Ministers on progress, and I think 22 specifically in my case to attend -- I forget whether we 23 called it the high level meeting or the senior meeting, 24 but a quarterly meeting between myself and an 25 appropriate official from City of Edinburgh Council. 160 1 Q. Do you recall a dispute broke out under the Infraco 2 contract in 2009 in relation to works on Princes Street, 3 February/March 2009? 4 A. I do, thank you for reminding me of the month, but 5 I recall there was a dispute. I think it was in essence 6 one of the first pieces of work that the Infraco was due 7 to deliver. 8 Q. Did you get involved in that? 9 A. I think I was involved in the sense that I was advised 10 by City of Edinburgh Council, and probably occasionally 11 in direct discussions with tie, as to what the nature of 12 the dispute was. Because of course we were looking to 13 report to Ministers on progress. But I wouldn't have 14 been involved directly in the resolution of that 15 dispute. 16 Q. What involvement did the Minister have in that dispute, 17 do you recall? 18 A. I don't recall anything specifically at that point. 19 Q. Do you recall him contacting people within the companies 20 and giving his views about what should be done? 21 A. He may well have done. I don't know. I genuinely can't 22 recall. 23 Q. Do you recall anyone within your department going to 24 seek legal advice in relation to what was happening 25 around that time? 161 1 A. I think that John Ramsay would have looked for further 2 advice. I seem to recall there was some such advice. 3 Q. Would he have discussed that advice with you? 4 A. I expect so. 5 Q. Do you recall him saying that he had been informed by 6 solicitors, Dundas & Wilson, that the Infraco contract 7 was not fit for purpose? 8 A. I think there were questions arising at the time as to 9 why, on the first application of the contract in anger, 10 as it were -- perhaps that's not the right word to 11 use -- the first application of the contract for the 12 first substantive piece of work, that everything seemed 13 to be held up with a dispute over how the contract 14 should be interpreted. 15 So I think the advice that John secured would have 16 been in that context and looking for advice on that. 17 Q. In that context, do you recall him saying he had been 18 informed that the Infraco contract was not fit for 19 purpose? 20 A. I don't recall those words specifically, but I can 21 recall discussions about -- about whether it was an 22 effective contract. 23 Q. So you recall advice to that import, that there were 24 problems with the contract, more neutrally? 25 A. Yes, and I think that was -- the question that we had at 162 1 that time, I think you will see in the record at the 2 time, was, well, what's -- it's puzzling to see 3 a dispute arise quite so early in a civil engineering 4 contract. Disputes are not entirely unknown in civil 5 engineering contracts, but this was right at the start 6 and seemed, I think, from an early stage to be quite 7 fundamental. 8 Q. Was that something that you reported to the Minister? 9 A. I believe we did report to Ministers the concerns with 10 progress. Not at least because I think there was an 11 impact on -- from recollection, without checking the 12 documents directly, but I seem to recall there was some 13 impacts on the timing of these works. 14 Q. Can I be clear that I'm not talking about impact on 15 progress. I'm talking about, did you report to the 16 Minister the view that had been indicated by a solicitor 17 that the contract was not fit for purpose? 18 A. I can't recall whether that specific piece of 19 information was passed to Ministers, discussion -- 20 Q. Why would it not be passed to Ministers? Was there any 21 reason? 22 A. None. I think -- just in the sense that we are advising 23 Ministers of our assessment of the difficulty that we 24 seemed to be observing. 25 Q. Presumably, looking at yourself and other officers 163 1 within Transport Scotland for the moment, advice of that 2 nature would be of some concern to you? 3 A. I think -- I think -- how can I put it, a more material 4 concern to us was the fact that the project was being 5 delayed and that there was a debate over the costs and 6 clearly the interpretation of the contract was an issue. 7 I think there was a range of views at that time as 8 to whether this contract was fit for purpose or not and 9 tie was continuing to assert that it was okay, and that 10 it was just Bilfinger Berger's interpretation of the 11 contract. 12 Q. Leaving aside whatever tie told you, and in the context 13 where you were being faced by delays, I'll ask my 14 question again. Was it not of concern to you in 15 Transport Scotland that you had advice that the contract 16 was not fit for purpose? 17 A. Yes. 18 Q. Would that be something that would have been better 19 investigated before the contract was entered into and 20 before the Scottish Ministers committed themselves to 21 pay half a billion pounds? 22 A. I think the Scottish Ministers had committed themselves 23 to pay half a billion in the deals that were done 24 earlier. I understand your point, but in this 25 instance -- 164 1 Q. Could you answer the point. If you're going to find out 2 that the contract is not fit for purpose, is that not 3 better before you committed GBP500 million of public 4 money? 5 A. Well, that would be helpful, but it was the role of City 6 of Edinburgh Council to make that assessment. 7 Q. It could have been the role of Transport Scotland if 8 they'd wanted it to be, couldn't it? 9 A. Except that that wasn't the position that had been 10 agreed we should take. 11 Q. It could have been the role of Transport Scotland if 12 they had wanted it? 13 A. Look, let me see if I can help. Clearly, had we decided 14 to have a different role in this project, we could have 15 done that. 16 Q. It would have been helpful to have done that? 17 A. I think with the wisdom of hindsight, I can see it would 18 have been, yes. 19 Q. When it was reported to the Minister, was he concerned 20 to discover that quite so much money was being staked on 21 a contract with these problems? 22 A. I think there was a growing level of concern with 23 ministers about why there wasn't progress with the 24 contract. 25 Q. Was the Minister concerned if he was advised that the 165 1 contract was not fit for purpose, knowing the Government 2 commitment? 3 A. I cannot recall -- forgive me -- whether we used 4 specifically those terms or not in any advice. We would 5 certainly have expressed concerns about the 6 effectiveness of the contract. I'm not sure whether we 7 used specifically the term fit for purpose. 8 CHAIR OF THE INQUIRY: Even if you didn't use the term fit 9 for purpose, did you or any other official within 10 Transport Scotland advise the Minister that there were 11 concerns -- 12 A. Yes. 13 CHAIR OF THE INQUIRY: -- about the efficacy -- 14 A. Yes, thank you. I'm sure -- both in reporting and in 15 discussions we would have expressed a concern, based not 16 least on the evidence that we were seeing, as to whether 17 this contract was operating in the manner that it had 18 been intended to operate. 19 CHAIR OF THE INQUIRY: And that professional advisers had 20 separately advised Transport Scotland that -- 21 A. That's the difficulty, my Lord, and I can't recall that 22 specific -- whether we specifically relayed that piece 23 of information or not. We certainly relayed concerns 24 about the efficacy of the document. I am not saying we 25 didn't, I just generally can't remember specifically 166 1 whether we did. 2 MR LAKE: If I could ask a question now about a different 3 document. Could we have on the screen now document 4 TRS00010668. 5 Could we look at the second page of this. What we 6 see here is an email from you to Richard Jeffrey, the 7 Chief Executive of tie, on 8 March 2010. 8 A. Gosh, yes. Okay. 9 Q. It's entitled "Tram Project Questions": 10 "Further to today's conversation, here is 11 a structure for our discussions tomorrow. I believe our 12 discussion tomorrow gives you a good opportunity to 13 clarify a number of issues in advance of discussions on 14 Wednesday." 15 There's then a number of numbered paragraphs in 16 which you set out the issues. The first being Strategic 17 Direction, where you want to know what the 18 recommendations are to the Board. Then questions about 19 the master programme, design, you're asking things, is 20 the design now frozen. Utilities, where you want to 21 know what's left to complete, Infraco, where you're 22 asking about the completion date, critical path. 23 Questions about dispute resolution, where you want to 24 know the nature of the legal advice received. You've 25 got cost project, anticipated final cost analysis. 167 1 If you scroll further down, and over to the next 2 page, you want to discuss consortium arrangements, 3 project organisation, outstanding third party interface 4 issues, and the risk register. 5 Now, that's an extremely detailed list of things 6 about which you want to have discussions with 7 Richard Jeffrey, isn't it? 8 A. Yes. 9 Q. This is not in any sense by now, March 2010, a hands-off 10 approach, is it? 11 A. I think it's consistent with our right to ask for 12 information as set out, and it reflected the level of 13 growing concern over the delivery of the project at that 14 point. 15 Q. Is it consistent with the scaled-back approach? 16 A. It's not what I would have expected had the project been 17 proceeding satisfactorily. 18 Q. In fact, having relinquished the position on the Tram 19 Project Board which might have provided information as 20 you went along, this is trying to play catch-up and get 21 involved in all these policy decisions of the Company in 22 March 2010. 23 A. I'm not quite sure it's playing catch-up. It's having 24 regard to the position we were in at that time. I mean, 25 there had been -- so this is, what, 15 months or so 168 1 after the contract was signed. Forgive me if I've got 2 that maths wrong, but this is about where we were at 3 that point. 4 The information flow had given us a developing 5 understanding of the problems. At that point this felt 6 like an appropriate set of information to ask for. 7 Q. Why? Why did you want it for? 8 A. To understand the thoroughness of tie's approach in 9 addressing what were clearly problems with the programme 10 and with the application of the contract and the 11 performance of the contractor, and because we had to 12 have in mind the provisions under the Grants Agreement 13 about whether we might institute a cure notice, for 14 example, and to the extent that City of Edinburgh 15 Council was already -- through its agent tie was already 16 discharging a satisfactory programme report, that was 17 important information for us to understand. 18 Q. Were you contemplating serving a cure notice at that 19 time? 20 A. I forget whether they were at this time or later in the 21 year, but yes, it was certainly something we gave 22 thought to. 23 Q. And it was never done? 24 A. No, I think as I recall the discussions, they ran 25 something along the lines of if we were to serve a cure 169 1 notice, it would result in a cure plan. What would 2 a cure plan look like; it would look like, frankly, the 3 sorts of things that tie was doing anyway to remedy the 4 difficulty it had with its contractor. 5 So on balance at that juncture, I recall the 6 judgment was: serving a cure notice might not 7 practically change anything that was doing done, but 8 might actually serve as a distraction of some of the 9 resource that was doing what needed to be done. 10 Q. It would be fair to say that that illustrates some of 11 the shortcomings of trying to use a cure notice as an 12 effective means of control in this situation? 13 A. I think it illustrates the nature of a cure notice. 14 I mean, in a sense, if that which needed to be done was 15 being done anyway, I'm not sure what it was else that we 16 might have done at that point. 17 Q. Did you discuss all these matters with Richard Jeffrey? 18 A. Sorry, which matters? 19 Q. These ones you have gone through the list -- 20 A. I assume we did, because this was an agenda for 21 a meeting. I would need to check that the meeting took 22 place, but I presume so. 23 Q. Were they then followed up? 24 A. Again, I would expect so. 25 Q. How often did you engage in meetings and correspondence 170 1 with the company office of tie from July 2010 onwards? 2 A. So in the first instance, I think we started with direct 3 engagement with City of Edinburgh Council. I seem to 4 recall there was a meeting at which it was felt helpful 5 after Richard Jeffrey had arrived that he should attend 6 that discussion. 7 I would have to check the diary to see how often 8 these discussions took place directly with tie, with 9 Richard, rather than with City of Edinburgh Council. 10 Q. Was it more than once a week, do you think? 11 A. More than once a week, did you say? 12 Q. Your involvement? 13 A. From time to time, it may have been, but not ordinarily, 14 I suspect. 15 Q. What about the Minister's involvement? How often was he 16 getting involved in 2010? 17 A. I think, as the scale of the difficulties was mounting, 18 and the advice with respect to the likely cost was 19 increasing, Ministers were becoming more involved. 20 Q. Are you aware whether he was having meetings with people 21 at the Council or people at tie in respect of the 22 problem? 23 A. I believe that he would have had some -- some 24 discussions directly, yes. 25 Q. Was that a frequent occurrence? 171 1 A. I couldn't say. Not unusual, but not frequent, I do not 2 think. 3 CHAIR OF THE INQUIRY: Would you expect the Minister to be 4 accompanied by a civil servant? 5 A. That's very much at the Minister's discretion. 6 CHAIR OF THE INQUIRY: If there was a civil servant in 7 attendance, would you expect him or her to take notes? 8 A. Ordinarily. Depending whether it's an incidental 9 meeting in the margins of another meeting or a more 10 formal meeting. 11 CHAIR OF THE INQUIRY: You may not know, but are you aware 12 if there are any notes of ministerial meetings with 13 parties? 14 A. Well, I can honestly say I'm not aware of any notes we 15 have not already disclosed. 16 CHAIR OF THE INQUIRY: Thank you. 17 MR LAKE: Thank you, Mr Reeve. I've got no further 18 questions. 19 CHAIR OF THE INQUIRY: No one has any questions for you, 20 Mr Reeve. So that's the end of your evidence. 21 You may be -- you're still subject to your citation. 22 There's a possibility you may be recalled. Hopefully 23 that won't be necessary. 24 A. Thank you, my Lord. I hope that may be of some use to 25 you. 172 1 (The witness withdrew) 173 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 17 18 19 20 21 22 23 24 25 231