1 Thursday, 28 September 2017 2 (9.30 am) 3 (Proceedings delayed) 4 (9.38 am) 5 CHAIR OF THE INQUIRY: Good morning. Before we start this 6 witness, I should make an announcement that Mr Harper 7 will not be giving evidence today, and his date for his 8 evidence will be rearranged. 9 We discovered an issue after we rose last night. 10 I think an email was sent to core participants. 11 Hopefully it arrived in time to arrive any unnecessary 12 preparation. 13 Mr Ramsay, you're still under oath. Yes, Mr Lake. 14 MR JOHN RAMSAY (continued) 15 Examination by MR LAKE (continued) 16 MR LAKE: My Lord, Mr Ramsay, we just concluded yesterday 17 afternoon when we were looking at some of the advice 18 from Dundas & Wilson. 19 What I would like to do is look at a different 20 aspect of your statement, and that's in page 41. It's 21 a comment that runs from the foot of this page on to the 22 rest. It's probably easiest to read the whole of the 23 final bullet point paragraph to provide some context: 24 "In the March 2009 Quarterly Review it is noted that 25 "although Bilfinger Berger is working across the 1 1 geography of the project, their overall performance 2 remains mixed, poor in some places and elsewhere 3 acceptable. The reasons for this relate to; (1) 4 "Utilities" - in some cases the utility works are 5 outstanding and in others Bilfinger Berger are unwilling 6 to begin work in advance of agreements in place; (2) 7 "Outstanding Design - Design was novated at Contract 8 close but in some areas their design completion remains 9 poor”; (3) "Package/Sub Contractors & Supply Chain - 10 Performance here remains questionable". None of this 11 was of any surprise to Transport Scotland. Bilfinger 12 Berger Siemens were obviously playing hard ball with 13 a contract that they knew was in their favour. TIE had 14 been anxious to transfer up to 90% of the risk 15 to the contractor. We knew that TIE had signed 16 a contract based on design that had not performed well. 17 Latterly, we also knew that the contractor was going to 18 play hardball because the weaknesses of the contract 19 was in their favour and not in TIE's." 20 I just want to ask you some questions about your 21 text after that quotation. 22 Firstly, in the fourth last line of the previous 23 page, after giving your quotation from the quarterly 24 review, you say none of this was of any surprise to 25 Transport Scotland. If it wasn't a surprise, that 2 1 suggests you already had the information. Where had it 2 come from? 3 A. Essentially it came from papers and meetings that I had 4 with staff from CEC and it also came directly from 5 Stewart McGarrity of tie. 6 Q. Can you remember who it was in CEC you had your meetings 7 with? 8 A. I can't recall exactly, but I would assume it would be 9 Alan Coyle. And some of his colleagues. 10 Q. When had these meetings taken place? 11 A. That I can't give you with any kind of certainty. There 12 would have been the preceding quarterly review and there 13 were the four-weekly meetings that we had with CEC. 14 Q. Are you able to assist whether or not these meetings 15 with Alan Coyle, possibly Alan Coyle and Mr McGarrity, 16 were before the contract close in May 2008 or after? 17 A. After. 18 The discussion with Stewart McGarrity that 19 I referred to was, I think, a month or so after contract 20 close. 21 Q. What can you recall in general, even specific items of 22 what he told you at that time? 23 A. I'm sorry, I'm smiling because it was unlike Stewart to 24 get into that kind of discussion. But as I recall it, 25 he did say: we're in bed with the big boys now and they 3 1 have us over the barrel. Or words to that effect. 2 Q. A month after the contract? 3 A. A month or two after the contract, yes. 4 Q. What was the context of that meeting? Was it a formal 5 meeting or informal? 6 A. I can't remember the context of the meeting. 7 Q. Did he give any indication of what tie intended to do 8 about that situation? 9 A. No, and I didn't ask. 10 Q. So at the foot of the page, where you say "we" knew -- 11 that is "we", Transport Scotland, knew -- that tie had 12 signed a contract based on a design that had not 13 performed well, was that knowledge that 14 Transport Scotland had at the time the contract was 15 being signed, or did it come afterwards? 16 A. All this came after. 17 Q. This came afterwards? 18 A. Yes. 19 Q. When you say that finally, over the page in that 20 section, you said: 21 "We also knew that the contractor was going to play hard 22 ball because the weakness of the contract was in their 23 favour ..." 24 Was again that knowledge that came after the 25 contract had been signed? 4 1 A. Yes. 2 Q. As you were confronting this at the quarterly review in 3 March 2009, did it cause you concern? 4 A. Of course. 5 Q. What if anything could Transport Scotland do about it? 6 A. Well, my responsibilities were quite limited in respect 7 of gathering the intelligence in and providing that to 8 my senior managers. That's really a question you would 9 have to address to them. 10 As I recall, it was a continuing growing unease 11 about the way ahead for the project. 12 CHAIR OF THE INQUIRY: Did you pass it up the line to your 13 managers at that time? 14 A. Yes. With specific reference to the quarterly reviews, 15 if you recall what I said yesterday was that I would be 16 at these quarterly reviews along with my senior 17 managers. I can't -- up to that point it would have 18 been Bill Reeve, I'm fairly sure, March 2009. That 19 would have been before Ainslie McLaughlin's time, and 20 that was the way I operated. When we withdrew from the 21 Tram Project Board, I did all I could to ensure that 22 I could encourage not only CEC, but also some of tie, to 23 be open and receptive to providing information on what 24 was happening. 25 Because otherwise we only relied on -- the quality 5 1 of information that they were giving in their 2 four-weekly reports, which, as we heard yesterday, was 3 of continual annoyance to me and others in TS. 4 MR LAKE: I'll come on to look at those quarterly reports 5 later on in your evidence to understand that. 6 Could I ask you to look over the page at page 42 of 7 the statement, please. Right at the foot of that, you 8 can highlight the last two lines, under the heading 9 "2010": 10 "It is worth noting from the context of the 11 following points that from the outset TIE had refused to 12 give SG/TS a copy of their fully costed project 13 programme. Accordingly, references by TIE to subsequent 14 revisions viz Revision 1 or Revision 3 were always 15 irrelevant. In the June 2010 four-weekly report, it was 16 reported that Bilfinger Siemens CAF, the consortium, 17 were reporting against a Revision 3A project programme 18 and that TIE was reporting against a Revision 1 19 programme. This was typical TIE nonsense at a key 20 period in time." 21 Why did you consider that to be nonsense? 22 A. If I could just come back to one of the points you 23 covered in that opening statement, within the 24 Cyril Sweett expertise, there was one particular 25 contract -- sorry, programme expert who was always 6 1 critical based on his previous construction experience 2 of what tie were trying to do and what was apparent in 3 other things that they were saying. 4 There was an ongoing development of the programme 5 which we should have seen on a month -- a four-weekly 6 cycle. Obviously it's not going to develop sufficiently 7 within one four-weekly cycle as against the next one, 8 but over a period of time, you would see successive 9 changes building up into a revised programme. 10 Also, on top of this, was from the very outset, we 11 couldn't get tie to release a copy of their costed 12 programme. 13 Now, in a sense, we didn't really need it to that 14 extent up until the point when the problem began, but 15 when the problems began, it would have helped us to make 16 more sense and actually be able to challenge, where 17 possible, the problems that were occurring and the 18 problems were being reported -- there was a difference. 19 There was always a time gap. 20 This is one of the reasons, I think, that tie kept 21 referring to a Rev 1 programme when we knew in the body 22 of the report, there was a contradictory reference to a 23 Rev 3A programme. In other words, there was an ongoing 24 programme of work which they were trying to get their 25 contractor to work to, which they weren't fully 7 1 declaring to ourselves. 2 It was just another symptom of the quality rather 3 than the quantity of information we were getting. 4 Q. Just to be clear, essentially they were -- presumably 5 the Revision 1 programme was the first programme? 6 A. Yes. 7 Q. They are reporting against that on the one hand, whilst 8 in fact using a different programme? 9 A. With the contractor. That would be -- that was what -- 10 the point I was trying to make there. 11 Q. Apart from the fact that you are not informed, 12 Transport Scotland are not informed, does that lead to 13 difficulties? 14 A. I'm not sure of the point you are making here. 15 Q. Does having two programmes in existence like that lead 16 to confusion? 17 A. Normally it would, but if you recall, at that point we 18 were off the Tram Project Board. We were continuing to 19 be the major funder, certainly. But we didn't have any 20 other status than that within the governance procedures 21 that were in play at the time. 22 So I think this gave a lot of ammunition to tie to, 23 I think, edit the information that we required as major 24 funder only. 25 Q. Going on to a different matter, the Princes Street 8 1 dispute. Could I ask you to look, please, at page 48. 2 We can highlight the paragraph towards the middle of the 3 page. You note here that: 4 "An email from Bill Reeve dated 20 March notes that 5 a Princes Street agreement had been reached." 6 You give the reference: 7 "I sent an email dated 23 March 2009 providing 8 a summary of the Princes Street agreement in which 9 I claim that I had been advised that no additional money 10 will be paid and that the Princes Street Agreement does 11 not affect the Infraco contract. This was a reiteration 12 of the advice given by Stewart McGarrity of TIE at that 13 point in time. Transport Scotland did not agree with 14 those comments. It was important to us to advise senior 15 managers and Ministers that an agreement on 16 Princes Street appeared to have been reached, so there 17 was a degree of optimism coming from that." 18 What was the context in which Stewart McGarrity had 19 said to you that the Princes Street Agreement would not 20 result in a payment of additional monies? 21 A. We couldn't understand, given the nature of the dispute 22 that had flared up so quickly, why tie were so insistent 23 that this would not mean that additional funding would 24 be -- additional cost would be incurred by them. And 25 they tended to confuse their advice to us accordingly. 9 1 As it turned out, I think we were quite right to 2 sustain that scepticism, because it was the basis on 3 which future agreements would be made, with the 4 contractor. 5 It appeared to resolve the various disputes as they 6 arose. 7 Q. But it resolved it, I think we saw, on the basis of 8 a letter from Dundas & Wilson, that they would be 9 paid -- I think the phrase was demonstrable costs, plus 10 all their overheads? 11 A. I can't remember the detail of that context, but that 12 wouldn't be a surprise, no. There is a reference in 13 various parts of various reports that I had seen over 14 the period, prepared by both CEC and tie to the effect 15 that they were well aware of the weaknesses of the 16 contract they had with Bilfinger, and how they might be 17 open to exploitation, and they were well aware that 18 there would be additional costs required on top of their 19 projections at various times to meet these secondary 20 agreements. 21 Q. Who within tie said they had that awareness there would 22 be additional cost? 23 A. Obviously Stewart McGarrity, but I can't remember -- it 24 was -- it was a common area of discussion between myself 25 and CEC at the four-weekly report sessions. 10 1 Q. Are you aware whether it did result in additional cost? 2 A. Well, I think that's self-evident. 3 Q. I'll just ask you questions about -- before I do that, 4 we saw in the reference to -- in the letter from Dundas 5 & Wilson yesterday, there was reference made to the 6 Princes Street Agreement. 7 A. Mm-hm. 8 Q. Did you decide to seek advice on that agreement after it 9 had been entered into? 10 A. I think it was on the basis of information that we had 11 been given by CEC. We had received it from tie 12 initially, and I had included it in some of the 13 documentation that I had shown to Dundas & Wilson. But 14 there was no desire on our part for them to provide 15 chapter and verse on it. This was an agreement that had 16 already been reached by tie with their contractors. It 17 was simply an indication of further difficulties that 18 may lay ahead -- that was the context at that time. 19 Q. What made you show that agreement, the Princes Street 20 Agreement, to Dundas & Wilson? 21 A. Because there was a background of scepticism about 22 whether or not that was a one-off or whether that was 23 a continuing source of dispute or type of dispute that 24 was going to be exploited. 25 Q. What was the outcome? 11 1 A. I cannot clearly remember with sufficient clarity, but 2 we started to see the overall disputes mushroom, and 3 although we were concerned about it, we obviously had no 4 clear part in the governance. So we sat back from that 5 and merely tried to get the information where we could 6 about what was actually happening. 7 It was clear that some disputes were very, very 8 different to that which had happened on Princes Street, 9 but we were also clear that by and large, the disputes 10 seemed to arise either in combination with disputes over 11 design and/or on-street working. 12 Q. How would you characterise the nature of the dispute 13 that arose in relation to Princes Street? What was the 14 cause of that dispute? 15 A. It didn't come as a complete surprise, but the timing 16 came as a surprise to everybody. It certainly, as 17 I recall, shocked Ministers that the contract would 18 deteriorate as quickly and as openly public as it did. 19 I think that's perhaps something that you might need to 20 ask the Bilfinger representatives more than us, why did 21 they choose Princes Street. I think there are several 22 cynical replies that could be given to that question. 23 Beyond that, I can't recall with clarity exactly 24 what it was that drove the reactions of everybody at 25 that time. 12 1 Q. You've indicated you were attending the quarterly review 2 meetings with the other senior staff within 3 Transport Scotland. 4 A. Mm-hm. 5 Q. The four-weekly reports that were made by the Council 6 and/or tie, I think they were sent to you; is that 7 correct? 8 A. Yes. 9 Q. That was part of the -- those two elements were part of 10 the governance arrangements that had been put in place 11 at the time of making the grant offer? 12 A. From recollection, I think it was also part of the grant 13 agreement. 14 Q. Now, in Princes Street Agreement, did your role 15 increase -- the Princes Street dispute, did your role 16 increase? 17 A. No, I think it was an example, as I saw it at the time, 18 if I recall, that we had to do our best to get the 19 intelligence about what was happening, rather than rely 20 purely on a written four-weekly report and a subsequent 21 series of meetings thereafter. 22 Q. But did you do that? Did you start to require more 23 information and a greater degree of involvement than 24 you'd had up to the time -- 25 A. Yes. Against a background of hardening attitudes, that 13 1 has to be said, within tie. They were reluctant to 2 release any information directly to us unless they were 3 really forced to do so and it was clear with the 4 Council. 5 The line of communication was ostensibly between 6 ourselves and the Council, and the Council would in turn 7 seek the answers from tie to the questions we were 8 raising. 9 But in parallel, I did develop sources of 10 information within tie to continue that source of 11 intelligence to -- continue. 12 Q. Was the decision that you should start to seek more 13 information one that was taken by the Ministers? 14 A. Not at first, no, but subsequently, as things really 15 deteriorated, and Ministers took a more active interest 16 in improving communications with both CEC and tie, we 17 did get a much more open working relationship with the 18 senior managers in tie. 19 Q. When was that? When did the Ministers seek a more 20 active -- 21 A. Honestly, I can't recall, but it is within the 22 documentation somewhere. There's reference to daily 23 bulletins at one point, which was a set-up that we 24 initiated between ourselves and mostly Stewart McGarrity 25 and tie, where we would have a regular daily update on 14 1 how the Dispute Resolution Process in particular was 2 going; what remained to be the -- shall we say the 3 political realities and how these were being dealt with 4 both by tie and the Council, and there were subsequent 5 briefings in turn from ourselves up to Ministers. 6 Q. When did the daily briefings -- can you recall when the 7 daily briefings in relation -- 8 A. I can't. I suspect it would have been -- it wouldn't 9 have been before 2010. And it wouldn't have been before 10 the Princes Street dispute. 11 Q. Can I ask you to look at another production, please. 12 It's reference CEC01009977. We have got here an email 13 from Stewart McGarrity of tie to you and Jerry Morrissey 14 and Bill Reeve, all within Transport Scotland. And 15 copied to a further person within Transport Scotland. 16 Do you see that? 17 A. Mm-hm. 18 Q. If we look at the content of the email, we can see that: 19 "The status as of 1 pm [that day, 20 March] is that 20 David Mackay ..." 21 Who I think was the Chairman of the Tram Project 22 Board: 23 "... and Dr Keysberg of Bilfinger Berger agreed this 24 morning the principles of 1. An agreed amendment to the 25 measurement and payment regime for Princes Street ... 15 1 2. The full-scale commencement of work on 2 Princes Street early next week following the conclusion 3 of 1." 4 It notes that the principals of the three entities 5 and their lawyers are locked away in the boardroom 6 trying to agree details? 7 A. Mm-hm. 8 Q. Had you been asked to be given a more constant update on 9 what was happening in relation to those negotiations and 10 the attempt to break the impasse? 11 A. That was an example of the daily briefings and 12 discussions that we had over that period of time. I do 13 know that -- yes, it is following the Princes Street 14 dispute. 15 Q. If I could ask you to look at another production, again, 16 it's reference TRS00016963. 17 We can see that this is a report -- an email from 18 you to Jerry Morrissey and Bill Reeve, both within 19 Transport Scotland, the subject matter being the daily 20 bulletin, 23 March 2009. 21 It's headed "Edinburgh Tram - Current Dispute", again, 22 the same heading and the date, and the first point is: 23 "Last Friday evening's successful conclusion to the 24 preceding 3 days of negotiations have been codified into 25 an Infraco "Supplemental Agreement. It successfully ends 16 1 only the issues raised via the formal dispute resolution 2 process and only refers to the Princes Street works 3 dispute. In essence it ring-fences this part of the 4 contract from elsewhere in the City." 5 Is this again just an example of the -- 6 A. Yes. 7 Q. The daily reports being provided to you and you 8 disseminating the information? 9 A. Mm-hm. 10 Q. That seems to be quite a marked change from the 11 hands-off approach, the scaled-back approach that was 12 being suggested at contract close. 13 A. I think one needs to be posing that question within the 14 context of the way in which the developments were 15 increasing. We were getting increasingly concerned, 16 Ministers were concerned. Ministers were being asked 17 what they were proposing to do. 18 We still had no -- we had -- we were clearly aware 19 that Ministers -- Ministers wanted increased 20 intelligence from the Council and tie, and they wanted 21 to get these two respective groups together and provide 22 us with information on a daily basis as they could. 23 Some days nothing happened, so obviously there was no 24 daily briefing of any note. 25 But Ministers were also taking a closer interest in 17 1 terms of how they themselves wanted to be involved and 2 engaged with the developments, and with the ongoing 3 disputes. 4 But apart from that, I don't think there was any 5 particular change in the context, other than more 6 immediacy was demanded by Ministers in terms of 7 intelligence briefing, et cetera. 8 Q. If the Ministers wished a greater degree of involvement, 9 was there any consideration at that time whether the 10 scaled-back approach was appropriate? 11 A. I wasn't aware of anything of that sort, no. 12 Q. Did you have a view on whether the scaled-back approach 13 was presenting difficulties at that time? 14 A. Did I have a personal view? 15 Q. Yes. 16 A. I know it sounds a bit blasé, but I would have to say 17 not really. There was a logic about our position in 18 Transport Scotland and the Government's position being 19 quite clear. We were the major funder. We had 20 a situation whereby we were involved in a process, in 21 a governance process, that resulted in a contract that 22 we hadn't been involved in, or engaged in prior to 23 contract close. The reality was that the Council were 24 both the owner and client. They had the ultimate 25 responsibility in terms of risk. 18 1 I think there was a certain amount of logic to that. 2 I was more involved on a daily basis, I guess, with 3 colleagues in the Council and in tie. So it had 4 obviously made my job, as I think I said yesterday, that 5 much more difficult. But at the same time I could see 6 the logic in having a clear separation. 7 Q. What made your job more difficult? 8 A. The lack of intelligence and the quality of information 9 that we were getting, against the context of 10 deteriorating contractual disputes. 11 Q. As you point out, the Council owned the project and were 12 ultimately responsible for it. Why was the Minister so 13 keen on having information, daily updates and such? 14 What difference would it have made to 15 Transport Scotland? 16 A. From memory, it was entirely because they knew that 17 unless they asked for and got the agreement from the 18 Council and tie, we would have to revert to the 19 intelligence and information they were getting on 20 a four-weekly and a quarterly basis. And we had 21 continuing scepticism -- sorry, I think I'm repeating 22 what I said yesterday. 23 Ministers were well aware of that, but I was never 24 at any meeting with Ministers or senior managers where 25 there was any kind of review process taking place about 19 1 the decision that had been reached, following the 2 Parliament's decision that the Government should 3 continue funding the project. 4 CHAIR OF THE INQUIRY: We see in this document that's on the 5 screen there's a reference to a conversation between 6 Mr Swinney and David Mackay on a Saturday. I appreciate 7 you wouldn't be involved in that. 8 A. No. 9 CHAIR OF THE INQUIRY: But do you know if any other civil 10 servant would be present or recording what was being 11 said? 12 A. I rather doubt it. I don't recall exactly the context, 13 but I would imagine, looking at that document, that it 14 was referring to a one-off conversation. And I refer 15 back to the context of the Princes Street dispute. It 16 was so public. It was so immediate. And it was a smack 17 in the face for everybody that the contract which had 18 been so new and so fresh had suddenly deteriorated in 19 such a dramatic way. 20 Ministers were obviously aware of the situation and, 21 from memory only, and I could be wrong here, I think 22 this was more or less a one-off between Mr Swinney and 23 David Mackay that they would discuss the outcome of the 24 meetings that had preceded that conversation -- 25 CHAIR OF THE INQUIRY: Thank you. 20 1 A. -- over the weekend. 2 MR LAKE: Can I ask you to go back to your statement, 3 please, and look at page 52. Could we look at the first 4 bullet point under the heading "2008 onwards". You note 5 there: 6 "In the January 2008 report, it was stated that the 7 'Agreement for Contract Price for Phase 1a' was signed on 8 21 December 2007, which fixed the Infraco price and 9 effectively transferred design development risk to 10 Bilfinger Berger Siemens. We foresaw it being 11 a continuing problem right up to Contract Close. 12 I would describe the quality of tie's assessment and 13 reporting as questionable." 14 That Agreement signed on 21 December, are you aware 15 that's an Agreement sometimes referred to as the 16 Wiesbaden Agreement? 17 A. I couldn't remember that with that degree of clarity, 18 I'm afraid. 19 Q. You say you foresaw it -- presumably this is in 20 December 2007 -- as being a continuing problem right up 21 to contract close. Why did you foresee that? 22 A. That wasn't just myself, obviously. 23 Q. We, Transport Scotland? 24 A. Yes. We were aware that the calendar for contract close 25 had slipped considerably. We were also aware that in 21 1 parallel, additional costs had been agreed with the 2 contractor, and we were also aware latterly that on the 3 very eve of contract close, Bilfinger Berger had 4 returned and demanded yet more money. 5 So that was within the context, I guess, if memory 6 serves me right, of the design, the incomplete design, 7 being an area which was of great sensitivity to tie and 8 an area which was capable of being openly exploited by 9 Bilfinger. 10 If you recall, tie had considerable problems in 11 completing the bulk of the design work prior to contract 12 close. And the intention was to include the remaining 13 aspects of design work and transfer that in the contract 14 to Bilfinger. So they would then become responsible for 15 completion of that design. 16 Q. Did you or anyone else in Transport Scotland consider 17 whether that had been done effectively by the time of 18 contract close? 19 A. We were totally reliant on CEC in that regard. 20 Q. Was that a situation you were content with, being 21 reliant on CEC? 22 A. Yes. We were quite happy with the situation whereby 23 they were the owner, they were the client, we were the 24 major funder. That was the Agreement in place at the 25 time. There was no desire for Transport Scotland to 22 1 become in any other shape or form engaged at the kind of 2 level that I think your question is inferring. 3 Q. That was the corporate view of Transport Scotland, not 4 to become involved? 5 A. I think that's a negative way of phrasing it, but 6 I think the reality was that we were in a situation 7 where Ministers made it quite clear to us, they wanted 8 us to withdraw from the governance. They wanted us to 9 be quite clear about our role as major funder. And not 10 be over-engaged with -- my view -- not be over-engaged 11 with the detail of the process leading up to contract 12 close. 13 Q. We discussed that aspect with you yesterday. I won't go 14 over that again today. 15 In relation to the contract, were you aware -- when 16 you say you were reliant on City of Edinburgh Council -- 17 what they were undertaking to satisfy themselves of the 18 contract? 19 A. That's a question you would need to ask the Council. 20 Q. But I'm asking did you know, what was your impression of 21 what they were undertaking? 22 A. No. I was aware that there was a great deal of 23 sensitivity and my major source of -- our major source 24 of information at that point would have been through 25 Alan Coyle. I was aware of their increasing 23 1 sensitivities about this particular issue. 2 Q. What do you mean sensitivities? 3 A. They were very much concerned that tie and the 4 prospective contractor, because at that point contract 5 close had not been reached, was breaking down. And they 6 were concerned about the way in which this was 7 developing, and the additional costs that were being 8 agreed with Bilfinger Berger. 9 Q. In terms of the transfer of design development risk 10 which you refer to within that highlighted paragraph, 11 did you know what steps, if any, were being undertaken 12 by the Council to ensure that transfer was achieved? 13 A. No. 14 Q. If I could just ask you to look, please, at the Final 15 Business Case. The document reference for that is 16 CEC01395434. We can see from the cover page, this is 17 the "Edinburgh Tram Network, Final Business Case 18 Version 2, with the date of 7 December 2007". 19 A. Mm-hm. 20 Q. Were you familiar with this document at the time? 21 A. Mm-hm. 22 Q. Could we look, please, at page 105. This is under 23 a section with the entitlement of "Procurement". We can 24 see on this page the sub-heading, "Activities under the 25 SDS contract". Could we enlarge paragraph 7.53 24 1 underneath that. We see what was recorded in the Final 2 Business Case was: 3 "The original assumption was that the overall design 4 work to detailed design would be 100% complete 5 when the Infraco contract is signed. Due to a number of 6 delays, largely outwith tie's control, this is now not 7 achievable. However, by identifying key risk areas and 8 prioritising SDS activities, tie is completing several 9 key elements of the Detailed Design in time to inform 10 the Infraco bids on price-critical items. This has 11 enabled the Infraco bidders to firm up their bids based 12 on the emerging Detailed Design, and thereby reduce the 13 provisional scope allowances and design risk allowances 14 that they would otherwise have included." 15 Now, this obviously reminds you that the intention 16 was that the detailed design would be 100 per cent 17 complete, but it makes it plain that wasn't to be the 18 case. That was understood by Transport Scotland at the 19 time? 20 A. Yes, we were well aware of the ongoing problems that tie 21 had or had had with their contractors in terms of design 22 completion. 23 Q. You explained yesterday that you had an understanding 24 that the completion of the design was one of the key 25 elements of the procurement strategy to get a fixed 25 1 price contract? 2 A. Yes. 3 Q. What was the reaction within Transport Scotland to being 4 told that the design wasn't going to be complete after 5 all? 6 A. We were well aware that that was the situation they were 7 in. 8 Q. Even prior to getting the Final Business Case? 9 A. Yes. It had been ongoing for some years, as I recall. 10 Q. Even with that knowledge building up over a period of 11 time, what was the Transport Scotland reaction to that 12 situation? 13 A. I think we took that as it stood at the time. It was 14 a statement by tie that was underwritten by the Council. 15 That was the reality. 16 Q. What was underwritten by the Council? 17 A. The reality of the Business Case as explained there. 18 Q. All that's really explained there is that they've put in 19 place measures to try and get the bids firmed up? 20 A. Yes. That was their intention in 2007, when they 21 completed the Business Case. But the situation, one 22 would have expected at the time, at 2007, reading that 23 document, for it to be further improved before contract 24 close. As it turned out, it wasn't. 25 Q. But as Transport Scotland were at that time -- part of 26 1 the conditions for release of grant were that they were 2 given a -- informed by -- start again. 3 One of the conditions for the grant was that the 4 City of Edinburgh Council would confirm that they had 5 received a Business Case which contained certain 6 requirements in relation to benefit-cost ratios and 7 total price? 8 A. Yes. Well, I can't recall the detail going on to 9 include total price. I think we have -- I think it was 10 couched in terms of an AFC, if that's what you are 11 referring to. 12 Q. Yes, I'm paraphrasing. Here you're being told that 13 notwithstanding there is a Final Business Case with 14 which the Council are content, that it's departing from 15 the procurement strategy that you have -- 16 A. I think there was a considerable amount of -- from 17 memory, there's a fair gap between what was said in the 18 Final Business Case and what was said in our conditions 19 for grant following contract close. 20 Q. If we just look at the grant letter from January 2008, 21 shortly after this, it might assist. 22 If we look at production reference CEC00021548. 23 The first page is an acceptance letter from the 24 Council. If we could go to the third page. This is the 25 letter dated 17 January from Bill Reeve at 27 1 Transport Scotland to Tom Aitchison of the Council. 2 I think we've heard from Mr Reeve that this was the 3 grant letter -- 4 A. Yes. 5 Q. -- that was put in place. 6 If we enlarge the lower half with the heading, 7 "Conditions Precedent", we can see 3.2.1: 8 "Evidence that the Council has approved a Final 9 Business Case for the Edinburgh Tram Network containing 10 (a) an affordability assessment ... with a maximum 11 capital cost of GBP545 million ... a benefits costs 12 ratio greater than 1; and (c) no projection of 13 a requirement for an ongoing subsidy for the Edinburgh 14 Tram Network during the operational phase." 15 Now, you said just a minute ago: 16 "I think there was ... a fair gap between what was 17 said in the Final Business Case and what was said in our 18 conditions for grant following contract close." 19 Is that what you're referring to, the gap between 20 the Business Case and what we see there? 21 A. Yes. 22 Q. What was the gap in your view? 23 A. Apart from the time gap, we were looking to an increased 24 performance in achieving design completion. I think 25 that was the point we were discussing a minute or two 28 1 ago. 2 Q. Yes. 3 A. This was an ongoing development situation running in 4 parallel with the exchange between ourselves and the 5 Council in terms of the grant agreement. There's no 6 complete tie-in with one and the other, not as I recall, 7 and certainly not to the extent that they would preclude 8 our ability or continuing ability to offer a grant. 9 Had it been, my guess, from memory, is that we would 10 have asked for a meeting with the Council prior to that 11 being -- that agreement being reached between ourselves. 12 But as far as my memory goes, that was never done. It 13 was never required. 14 Q. The way the grant letter is written there, we might 15 suppose that the Business Case is to be provided after 16 the grant letter? 17 A. There was an element of continuing Business Case 18 development running in parallel, as I recall. 19 Q. But I don't think we see any -- I'll be corrected if I'm 20 wrong, but I don't think we see any Business Case after 21 that one I've just looked at in December 2007? 22 A. Probably not. 23 Q. The grant letter requiring a Business Case comes later 24 in January 2008? 25 A. I can't recall with any great clarity any further 29 1 information would help answer that question, I'm sorry. 2 Q. I'm finished with that production now, please. 3 If we could go to page 57 within your statement. 4 It's probably easiest to start at page 56, the bullet 5 point towards the lower half of the page. You refer to 6 a paper that you drafted on governance dated 7 4 July 2007. 8 I wonder if it might be easier to look at that 9 paper, rather than the quotation. If you could have on 10 screen TRS00004511. 11 We can see this is your paper, isn't it? 12 A. Yes, it does look familiar. 13 Q. We can see it bears the date in the footer of 14 4 July 2007. 15 A. Mm-hm. 16 Q. Under the background, you note that: 17 "Last week Parliament successfully opposed 18 ministers’ expressed wish regarding the cancellation of 19 the Edinburgh tram project. This ensured that the 20 Executive continued to support the project "to the limit 21 of the previous administration's funding limit". 22 Ministers subsequently committed the Executive to this 23 decision but then went on to say that, a) the funding 24 support would be capped at GBP490 million "and no more" 25 and b) affirmed that the Tram project was the City of 30 1 Edinburgh's - not the Executive's." 2 Just dealing with that second point, that's what you 3 were saying, really, everyone was clear that this was 4 the Council's project, not Transport Scotland's? 5 A. Yes. 6 Q. What was the position before the vote in Parliament? 7 Was it the Council's project or also 8 Transport Scotland's? 9 A. I can't recall it being that clear a differentiation. 10 I think we were engaged from the outset as the major 11 funder. It was made clear to me when I began working 12 with the project that it was the Council's project, and 13 they made it very clear to me from time to time that 14 I was either incapable of understanding the difference 15 or confusing the difference, or it was a matter entirely 16 for them as owner of the project rather than for 17 ourselves. 18 Q. You say "they", who are you referring to there? 19 A. The Council. So there was clarity from the outset of 20 our position. And I don't think that we had, in the 21 run-up to the parliamentary decision, sat down and said: 22 well, let's be clear now about our role, our continuing 23 role in this project. We never had that view. We never 24 had that doubt. 25 But I think Ministers did, and that's why they were 31 1 insistent upon making it clear to us what they wanted of 2 us. 3 Q. So when you say there was no doubt, you describe 4 Transport Scotland as the funders. 5 A. Yes. 6 Q. Is that what you're saying you had no doubt, 7 Transport Scotland had no doubt that their role was 8 funder? 9 A. Yes. The only difference being that the governance 10 changed when we withdrew from the Tram Project Board. 11 Q. Can we look then at the second page of that document. 12 I'm sorry. It would probably be easiest if we start on 13 the previous page, just to provide some context for the 14 various options. 15 We see there's the heading, 3, "Overall Funding". 16 If we look at the end of the paragraph, it notes that: 17 "The option which ministers seized on cites an 18 expected indexed total support requirement of 19 GBP490 million, however, this is not necessarily what 20 Parliament wish to see delivered and the following 21 differing scenarios offer varying degrees of consistency 22 with both positions." 23 You there note a number of options. The first is: 24 "Fix GBP375 million indexed to expect between 25 GBP450 million - GBP500 million towards overall cost of 32 1 project depending on inflation, on receipt of a robust 2 Final Business Case." 3 Just pausing there, is what you were saying the 4 indexation will be carried out at the time of the Final 5 Business Case, and that's the anticipated range? 6 A. I honestly can't recall how that affected the final 7 decision. The question of indexation was a decision, as 8 I recall, for Ministers. I can't recall exactly when 9 they chose to make that decision. And I can't recall 10 exactly what were the -- the implications leading to 11 their decision. I know they were set out in a document. 12 We are obviously seeing that here. But I can't remember 13 the full context of how that was actually delivered. 14 Q. If we jump over the page then to look at the fourth 15 option, if we enlarge the upper half of the page, we can 16 see that the fourth option is: 17 "A flat support fixed at GBP490 million (or GBP500 18 million)." 19 I think that's ultimately what we ended up with, 20 isn't it? 21 A. Mm-hm. 22 Q. If we look -- although that's option (d), I think you 23 then -- there's a slight quirk, you look at options (a), 24 (b) and (c) and then you refer to option 4 rather than 25 (d), but if we look at what you say about option 4, 33 1 which is obviously what we're looking at, you say: 2 "It has some attractions and is now apparently 3 receiving support from CEC and tie, but there is an 4 accompanying expectation from the promoter that there 5 would then only be a very minimal engagement/oversight 6 from Transport Scotland. While this may be attractive 7 to them, I cannot envisage a project funded to this 8 scale by the public purse being managed at such 9 a distance and with such a hands-off approach." 10 In fact, it was what turned out to be precisely the 11 sort of distance or hands-off approach you said there 12 you couldn't imagine? 13 A. Yes. 14 Q. Why at that time did you say that while it would be 15 attractive to the Council and tie, you couldn't envisage 16 it being done in such a hands-off way? 17 A. I think that was my personal view. 18 Q. Yes, understood. 19 A. And I don't think it was at all different to the 20 variations of views that were being discussed at the 21 time with others, senior managers, and I think it very 22 much was couched in the context of the public finance 23 manual. And the knowledge that we would be openly 24 criticised for continuing to fund such a project with 25 such a hands-off approach. 34 1 What I'm not saying is that view was shared 2 necessarily by others within Transport Scotland. 3 Q. I understand. You said there at the start of your 4 answer, "I don't think it was ... different to the 5 variations of views that were being discussed at the 6 time with others". 7 But from what you said at the end there, 8 I understand you to say there were different views 9 within Transport Scotland? 10 A. I think what you have to recall is that I was not party 11 to the direct discussions with Ministers. So I wasn't 12 aware of the sensitivities unless they were being 13 relayed to me. I was making my point quite clear. 14 Q. When you talk about the sensitivities, were you talking 15 about political sensitivities? 16 A. I guess that -- there could be others, but I would guess 17 that would be, yes, exactly what I was conscious of at 18 the time. 19 Q. Were there other sensitivities you felt weren't made 20 known to you, other than political? 21 A. I wasn't aware. I was aware of the generality of the 22 political sensitivities that were being voiced at that 23 time. 24 Q. But the view that you've expressed in this paper is one 25 that doesn't take any account of political 35 1 sensitivities? 2 A. As I said, that was my personal view. 3 Q. Were there others within Transport Scotland who shared 4 your view? 5 A. I'm sure there were. But I can't recall it being openly 6 shared by others. 7 Q. If we could look then at the next paragraph, the one 8 under the heading, "Transport Scotland Role and 9 Engagement", you say there: 10 "Following on from the question of funding limits, 11 ministers also made it perfectly clear that this is 12 a CEC project and not the Executive's." 13 If I could just pause there, from your earlier 14 answer, I take it that Transport Scotland already knew 15 that? 16 A. Yes. 17 Q. You didn't need to be told that? 18 A. I think that was simply Ministers making quite clear 19 that which we already knew. The variation was how we 20 dealt with that. 21 Q. "We have therefore assumed that our role has now changed 22 from being that of a fully supportive and promoting 23 funding partner to that of a major funder or banker. 24 Given Minister's strength of opinion on the project and 25 accompanying comments on capped funding, this has 36 1 implications for the style and level of management that 2 we see Transport Scotland assuming responsibility for." 3 Then you go on to review the options as to how 4 Transport Scotland will continue with the project. 5 What did you mean when you referred to "Minister's 6 strength of opinion on the project"? 7 A. I'm not clear what the question is there. 8 Q. What did you mean by that? What did you understand was 9 the strength of opinion on the project? 10 A. I was aware that there was a strong opinion being 11 expressed by Ministers. I was aware that there were 12 concerns about how that could and might be adopted by 13 ourselves and how that would be expressed in terms of 14 our changing role. 15 Q. I mean, the Scottish National Party manifesto in the 16 2007 election was quite open in saying there was a wish 17 to cancel the Edinburgh Tram Project. 18 A. We were well aware of that, as were tie and CEC. 19 Q. And presumably that was the Ministers' opinion that 20 you're referring to there? 21 A. No, I think that the opinion I'm talking about was my 22 recollection of reporting or reports back of discussions 23 with senior managers and Ministers following the 24 parliamentary decision. 25 Q. Was the opinion then about how Transport Scotland should 37 1 conduct itself or was it an opinion of the tram project? 2 A. No. It was the former. 3 Q. How Transport Scotland should conduct itself? 4 A. Yes. I think that's what it said. 5 Q. So do we take it that even before you had started to 6 develop this paper and perhaps others had developed 7 their papers, you had had a steer from the Minister as 8 to the extent of involvement he wished 9 Transport Scotland to have? 10 A. That was my understanding based on reports back from -- 11 from senior managers, yes. 12 Q. Thank you. 13 Could we look over the page to page 3 of the 14 electronic version. If we look to the lower part of the 15 page, the heading, "(b) Role and Engagement of 16 Transport Scotland". There you say: 17 "We argue that the recent clearance on project 18 governance et cetera by Audit Scotland is a clear 19 reflection of the project oversight and management that 20 Transport Scotland has maintained to date. Against the 21 argument for its removal, we also consider that sound 22 control, financial control and public probity should 23 remain our priority and be safeguarded through 24 continuing engagement, regardless of the promoter's 25 wishes, but this must be balanced against the redundant 38 1 need for the higher level supportive and promotional 2 role that we have previously adopted. This may be 3 a decision that can be made within Transport Scotland 4 but we recommend that ministers are advised 5 accordingly." 6 Now, that looks very much like a view that you are 7 expressing to give an opinion contrary to the desires of 8 the Minister; is that fair to say? 9 A. No, I think that was an argument that I was espousing 10 internally within Transport Scotland. Trying to 11 influence the decisions that would be made by senior 12 managers with Ministers. 13 Q. But that view you express there is not in accordance 14 with the managerial hands-off -- 15 A. I was merely raising a personal sensitivity, I guess. 16 Q. And that's that "sound control, financial control and 17 public probity should remain our priority"? 18 A. Yes. 19 Q. Presumably what you meant -- involved in that is that 20 there would be, as you describe it, continuing 21 engagement, even regardless of the Council's wishes? 22 A. Yes. Sorry, not just the Council, but tie. 23 Q. tie also. 24 A. I don't recall there being any reticence in our 25 engagement and our relationships with the Council on 39 1 this particular point. I think they too fully 2 understand what we were referring to, what I was 3 referring to here, when I had discussions with the way 4 forward or the ways forward with counterparts in the 5 Council. 6 Q. I think that expressing your view here, you thought that 7 the requirements of sound control, financial control and 8 probity would be safeguarded through continuing 9 engagement? 10 A. Yes. 11 Q. Is it reasonable to conclude that the fact that that 12 engagement was in fact not maintained means that these 13 three things were not given the priority that you wished 14 them -- you thought they should have? 15 A. I cannot recall it being as sharply defined as that. 16 I think what we ended up with was something which I had 17 set out in argument there, but which we achieved anyway 18 and which the Council were quite content with. 19 We had a standardised reporting context in which the 20 Council were obliged to provide us with information 21 about the development of the project, costs disputes, 22 et cetera. And I think, looking back, as much as I can, 23 that that actually met, along with an ongoing engagement 24 with the Council, and an openness on the Council's 25 behalf to speak to us about their problems, which varied 40 1 from time to time according to the sensitivities in 2 time -- ongoing at the time. But I think that actually 3 met my desires as expressed in that paper. And didn't 4 run counter to the Minister's desire for us being quite 5 clear in our roles. 6 Q. That engagement with the Council, was that of a formal 7 or informal nature? 8 A. Both. That's what I have just said. We had within the 9 Grant Agreement a clear need set out which was met by 10 the Council in terms of their reporting responsibilities 11 to us. But on top of that, I had -- I developed 12 subsequently a continuing relationship with the Council. 13 Q. The continuing relationship, that was the informal part 14 where you would be making contact with Council officers? 15 A. Yes, exactly. 16 Q. The formal part of the reporting and perhaps the 17 quarterly reviews, you have already expressed your 18 dissatisfaction with the reporting that you were being 19 given? 20 A. The quality of it from time to time. 21 Q. Transport Scotland's role in relation to that is quite 22 passive in the sense you received information? 23 A. Yes. 24 Q. And that might be -- 25 A. Well, I think passive is perhaps overstating it, but 41 1 I accept the generality of your point there. 2 Q. That may be contrasted with what was going on before, 3 when Bill Reeve actually had a seat on the Tram Project 4 Board and was there when decisions were being taken and 5 matters were being discussed? 6 A. Yes. 7 Q. And had some input? 8 A. Yes. 9 Q. Which is very much more active? 10 A. Mm-hm. It's much more hands on in the sense that there 11 was an arena by which senior managers would engage 12 directly with their counterparts throughout the project. 13 But from the Minister's desire for us to be quite 14 clearly withdrawing from that, it became clear that 15 there was a -- as you term it, an informal line of 16 intelligence remaining, and that needed to be kept in 17 place. 18 And that allowed us the ability to engage with tie 19 on a day-to-day basis as we discussed previously this 20 morning. 21 Q. But that was something that in a sense was entirely 22 dependent on you making that effort and tie and/or the 23 Council being willing to engage afterwards. There was 24 no obligation or no predefined structure. That just 25 happened? 42 1 A. Yes, it was driven by events as they occurred. But as 2 I said, it was based on the informal relationships which 3 I continued to have with the Council. 4 Q. For the grant of the sort of size that we're looking at 5 here, is it common practice to rely on that sort of 6 informal relationship to provide the necessary control 7 and probity and monitoring? 8 A. I hesitate, because I can only speak about this 9 particular size of grant. I have no previous experience 10 of comparable grant size with other projects I have 11 worked on. 12 CHAIR OF THE INQUIRY: I think at the time, this was the 13 fourth biggest infrastructure project for Scotland. 14 A. Yes, I think that was the -- it was certainly in my list 15 of briefing points to use time and time again. 16 CHAIR OF THE INQUIRY: So this was an unusual experience for 17 you, at least, to be dealing with grants of half 18 a billion pounds. 19 A. Yes. 20 CHAIR OF THE INQUIRY: Was that, whatever the size of the 21 grant was, the fact that that substantial grant was 22 being handed over, did that drive or have an influence 23 on your personal view about control, financial control 24 and public probity? 25 A. Obviously. 43 1 CHAIR OF THE INQUIRY: Thank you. 2 A. But could I just add the rider, that perhaps I'm more, 3 shall we say, old-fashioned, in that respect; having 4 worked in a variety of roles across the Scottish Office 5 on various projects, I could see the requirement, the 6 continuing requirement, for more hands-on approach from 7 time to time, as situations began to develop. 8 I don't know if that helps answer your question more 9 fully. 10 CHAIR OF THE INQUIRY: Thank you very much. There's nothing 11 wrong with being old-fashioned. 12 MR LAKE: Could I ask you, please, to finish that document 13 and go back to your statement and look at something on 14 page 59. 15 Enlarge the bullet point in the centre of the page. 16 You note here: 17 'On 20 July 2007, Matthew Spence produced a note 18 short on "scale back" for Malcolm Reed, referred to as the 19 "one pager". The purpose of the note was "to define the 20 revised 'scaled back' role of Transport Scotland with 21 respect to the Edinburgh Tram Project in light of the 22 modified funding arrangements". Matthew Spence rejects 23 Willie Gallagher's earlier suggestion of 24 Transport Scotland approving preferred bidder and the 25 Final Business Case. Instead, "the 'approval' ..." 44 1 So I think that's -- "instead, the 'approval'", and 2 that is in quotation marks in the memo from which you 3 are quoting: 4 "... by Transport Scotland at contract close will be 5 based on the following ..." 6 The first is: 7 "(1) Compliance with standard grant conditions to 8 date. (2) Having received a copy of the completed Final 9 Business Case as endorsed by City of Edinburgh Council. 10 (3) Having received confirmation that the project has 11 successfully passed a standard Office of Government 12 Commerce Gateway 3 Review. (4) On-going information 13 received via the standard Transport Scotland reporting 14 process and four-weekly meetings with the City of 15 Edinburgh Council." 16 I think these four conditions were the ones that 17 were ultimately carried into the grant letter that was 18 made? 19 A. Yes, as I recall. 20 Q. We see there the final point there is the one that 21 provides for the formal aspect of review and updating 22 that we've just been discussing. 23 A. Sorry, was that a question? 24 Q. Part 4 of that, the ongoing information via reporting 25 process and four-weekly meetings, is the formal part of 45 1 the -- 2 A. Relationship I was referring to, yes. 3 Q. -- relationship that we just discussed. 4 These were described in the note by Matthew Spence 5 as appropriate controls. Do you consider those to the 6 appropriate controls in a grant of this size? 7 A. Personally, I would hesitate to accept that. 8 And I continue to have a problem accepting it. But the 9 reality was that senior managers had decided the way 10 forward and Ministers subsequently accepted their 11 suggestions. 12 Q. I think from your answer earlier you said there had 13 essentially been discussions right at the outset with 14 Ministers, where they were indicating what they wished 15 to see happen? 16 A. This process went on, as I recall, for some weeks, 17 following Minister's initial declaration of what he 18 wanted to see. 19 Q. If you had been given a free hand, what other controls 20 do you think could have been added that would have 21 better protected Transport Scotland's position? 22 A. I really can't answer that question. I'm sorry, I'm not 23 trying to evade it. It's just from recalling the 24 processes that were ongoing at the time, when we were 25 reviewing our role, and making suggestions that we felt 46 1 the Ministers were looking for from ourselves, I wasn't 2 sufficiently outside or that sufficiently removed from 3 the generality of what we were discussing and agreeing 4 internally, to feel that I personally was sufficiently 5 unhappy that I had to say something else that hadn't 6 been set out on paper during our discussions. 7 I can't recall that I ever felt that: this is 8 completely unsatisfactory and I want nothing more to do 9 with it, this is just a recipe for disaster all round, 10 et cetera, et cetera, et cetera. That was never the 11 context. 12 So I can't really answer the question as to the 13 extent of what I would have preferred to have seen. 14 I think my thoughts were quite clearly expressed in the 15 paper that I contributed to the process which we 16 discussed a few minutes back. 17 Q. Thank you. Can I ask you to look at another paper on 18 governance, round about the time of July 2007. It's 19 reference CEC01567396. 20 We can see a document here headed, "SUPPLEMENTARY 21 PAPER GOVERNANCE ARRANGEMENTS FOR TIE LIMITED". This 22 doesn't bear your name, but is this something that you 23 drafted? 24 A. No. 25 Q. Do you recall having seen this? 47 1 A. Not immediately, no. 2 Q. I won't ask you any questions about it. 3 A. I think this is an internal paper from CEC. 4 Q. I'll not ask you any further questions about that then. 5 Could we go back to your statement, please, and look 6 at page 61. If we could look at the first bullet 7 pointed paragraph on that page: 8 "Transport Scotland remained suspicious of the 9 continuingly positive risk registers, and sceptical that 10 the treatments identified were likely to be effective in 11 mitigating the scale and potential impact of the risks 12 identified. The contract had been signed and the risk 13 had been transferred. Although there were disputes, we 14 were not interested in the risk as we were only 15 interested in the impact it had on the project." 16 Firstly, why were you suspicious of the risk 17 registers? 18 A. I have to say that is very much a reiteration of the 19 advice we were getting from Cyril Sweett. They had 20 a team of risk managers who, as I've said on several 21 occasions already, had been very, very sceptical about 22 tie's treatment of risk. 23 This is all very well, I guess, in a situation where 24 we were immediately involved and engaged with 25 development and the treatment of risk, but we were very 48 1 much removed from that. 2 Q. That is what you note in that paragraph. By that time 3 the contract had been signed and the risk had been 4 transferred? 5 A. Yes. 6 Q. So we note by that time Transport Scotland had stood 7 back? 8 A. Well, we'd stood back, to be honest, following 9 John Swinney's discussions with ourselves on our new 10 governance arrangements and the changes to the Tram 11 Project Board, et cetera. 12 But previous to that, we would have relayed our 13 continuing scepticism through the Tram Project Board and 14 sought improvement on various areas. That wasn't open 15 to us, and at this particular point that you're 16 referring to here, in this paper, things had moved on to 17 the extent the contract had been signed, the outstanding 18 design work in particular being novated, the relevant 19 risks attached to that had been novated to within the 20 contract, and any continuing interest we had was thereby 21 very much limited and remained almost academic, to be 22 honest. 23 Q. You've already explained how the cost of financial 24 overrun would be met by the City Council, rather than 25 Transport Scotland. 49 1 If Transport Scotland had remained involved, would 2 they have been very concerned about these risks, 3 standing the fact that it was the Council who would pick 4 up the consequence? 5 A. I would have thought we would have continued to be 6 engaged at the level of saying we were concerned, yes. 7 Q. Would that concern have had any impact on 8 Transport Scotland making available the grant funding? 9 A. No. 10 Q. What I would like to do is look at some questions of 11 reporting. In this regard go back to page 26 of your 12 statement. If we look at the first full bullet point on 13 this page, and we look at the last paragraph 14 particularly, you say: 15 "TIE was under pressure to report that nothing had 16 changed and the Council was under pressure to report 17 this politically." 18 I think you discussed a similar issue yesterday, 19 that is a matter of the Council not wanting to report to 20 the local politicians the problems that were occurring 21 with the costing; is that correct? 22 A. That was what they were continuing to say to ourselves, 23 yes, within the context generally of the quarterly 24 reviews. 25 Q. You note here that tie was also under pressure to report 50 1 that nothing had changed. Where did that pressure come 2 from? 3 A. I may have misinterpreted that in response to some 4 questions yesterday, but if I can clarify, tie appeared 5 from memory to be of the continuing opinion they would 6 not react to the increased AFC and the increased 7 costings generally until they were in a clear position 8 or a clearer position. In other words, where they had 9 no ability to manoeuvre on the question itself, the 10 costs will be that, rather than in a range. 11 In general, we had been dealing with terms of costs, 12 particularly at these quarterly reviews, in terms of 13 a range. Plucking figures out of the air from 14 600 million to 650, to 692 million, depending on 15 developing scenarios. But they were never prepared to 16 report that officially as being one or the other. 17 Does that clarify things? 18 Q. Yes. 19 I want to look on now to the reports that you were 20 actually being sent by -- I think they were prepared by 21 tie, but probably sent to you by the Council. The first 22 document I would like you to look at is CEC00681325. 23 Do you recognise this document or this type of 24 document as being the four-weekly reporting pack that 25 they say you were sent in compliance with the grant 51 1 conditions? 2 A. Yes. 3 Q. If we could look in this at page 6, and the lower half 4 of the page, you can see there's a heading, "Progress". 5 Underneath that, there's a sub-heading, "Dispute 6 Resolution (Infraco)". It says: 7 "At the end of period 8, only three items remained 8 in dispute with BSC. The first decision in relation to 9 DRP3 was reached by adjudication & found in tie's 10 favour. Agreement was reached without furthering the 11 DRP process on Haymarket Viaduct and MUDFA Rev 8 and 12 agreement was reached on EOT1 at mediation. The 13 agreement on the way forward on MUDFA Rev 8 is 14 significant as it comes with a commitment from BSC to 15 produce a mitigated programme and commence work in 16 a number of additional locations." 17 We can see then there's a table setting out the 18 various -- some of the DRPs. We can see the first one 19 is Hilton hotel car park, and that's the one that's 20 noted to be found in tie's favour; do you see that? 21 A. Mm-hm. 22 Q. It records then EOT, again, it was agreed at mediation. 23 We then see two of them at Gogarburn and Carrick Knowe. 24 Did you understand what the issue was in relation to 25 those dispute resolution procedures? 52 1 A. On a few of those, we had some discussion between 2 ourselves and the Council. Just to understand what 3 these actually meant. I think we were going through the 4 same processes that you're now going through yourself; 5 what does this information actually tell us. 6 Q. Yes. 7 A. By and large, what we were interested in was not that 8 table, but the end results. In other words, how was 9 that likely to impact on the AFC as it was developing. 10 Q. The anticipated final cost? 11 A. Yes. 12 Q. If we just look at a comment in relation to that over 13 the page, we can see that in this report, it says: 14 "We continue in this report to reflect an outturn 15 estimate of GBP527.1 million. However, given the 16 commercial uncertainties with BSC and continuing delays 17 to the project it is now considered unlikely that the 18 full scope of Phase 1a will be completed within the 19 available funding envelope of GBP545 million. Until the 20 key issues are resolved through the contractual and 21 legal process, it will not be possible to forecast 22 accurately a revised budget outturn. It is also not 23 possible at the present time to predict the conclusions 24 of reviews of contingency option programme delivery 25 options, including additional sources of funding." 53 1 So is that what you were referring to earlier, that 2 they continued to report that the final cost would be 3 527 million, whereas in fact they knew that there might 4 be a departure, but they couldn't say what, or wouldn't 5 say what? 6 A. Exactly. 7 Q. Because you were getting different briefings directly to 8 you from the Council or tie as to what the number might 9 actually be? 10 A. I think the Council were in the same situation as 11 ourselves. They were getting that level of degree of 12 breakdown of thinking from tie, but they weren't getting 13 the actuality that tie knew they had in front of them at 14 any one time, unless -- and it did happen from time to 15 time -- the Council demanded of tie that they come to 16 a decision on what the impact was at any particular 17 time, and how that would impact on the AFC as it was 18 changing. 19 Q. I should say just for one moment, if you could just go 20 back to the first page of this document. When 21 I directed you to it, I didn't take the date of this 22 report, which was necessary to provide some context for 23 what we are looking at. This was for what was described 24 as period 8 in the year 2009 to 2010, and the date on 25 which the report had been signed was 13 November 2009, 54 1 and it's signed by Steven Bell? 2 A. Yes. 3 Q. I think he was the Tram Project Director; is that 4 correct? 5 A. As I recall he had various titles. But yes, I know 6 Steven. 7 CHAIR OF THE INQUIRY: So is the year the same as the tax 8 year, is it? 9 A. It's confusing because it refers to a construction 10 calendar that was being used by the rail industry and 11 which we continued to adopt. So confusingly, a monthly 12 report is not a monthly report. It's a four-weekly 13 report. So depending on the way the calendar runs. So 14 that's why we referred to period 8 of that particular 15 year. Does that -- 16 CHAIR OF THE INQUIRY: Yes. 17 MR LAKE: If I could then take you to -- 18 A. I'm sorry, is it possible to have a short interruption? 19 CHAIR OF THE INQUIRY: Yes, certainly. We'll break for 20 20 minutes. We will resume at 11.25. 21 (11.04 am) 22 (A short break) 23 (11.27 am) 24 CHAIR OF THE INQUIRY: Yes, Mr Lake. 25 MR LAKE: Thank you, my Lord. 55 1 Mr Ramsay, we were just looking at the four-week 2 period reporting pack from 11/2009. Just before 3 I return to that, I was going to ask you, were you aware 4 that disputes started to arise as to whether or not 5 there had been a design change between November 2007 and 6 later stages of the project? 7 A. I can't recall. 8 Q. Do you recall disputes that were known as the BDDI to 9 IFC issue? Does that ring a bell? 10 A. No, that doesn't. 11 Q. If you carry on looking back to the reporting pack, 12 could we look at page 10, please. 13 This obviously, dating as it does from 14 November 2009, comes some time after the Princes Street 15 Agreement. You understand that? 16 A. Mm-hm. 17 Q. How well or otherwise were the works going by 18 November 2009, from recollection? 19 A. Not well. We were aware of the generality of disputes 20 ongoing and the frequency with which tie appeared to 21 downplay these, but which discussions between ourselves 22 and the Council make quite clear that they had equal 23 concerns about the way in which it was developing, 24 without any apparent -- successful mechanism being 25 deployed, either by the contractor or the Council, which 56 1 would achieve resumption overall of the programme. 2 Q. We've heard about the separate agreement being concluded 3 in relation to the works to be carried out on 4 Princes Street. Were any other on-street works carried 5 out? 6 A. From memory at that time, very little. 7 Q. Can we look, please, in this page 10. I would like to 8 look at the upper half of the page. 9 It's to the effect that: 10 "The cost, programme and risk information in this 11 Period 8 report continues to be based upon an unapproved 12 forecast on the information reported in May 2009. This 13 will be updated once the above actions are progressed. 14 Overall progress remains behind the master 15 programme, primarily due to: Finalisation of the 16 agreement of change delaying the commencement of work." 17 Perhaps it's easiest if I pause there. Do you 18 understand what was meant by that? 19 A. Do I understand what was meant by what? 20 Q. What was meant by that? 21 A. By bullet point 1? 22 Q. Yes. 23 A. Yes. 24 Q. Were you aware that this was something that was slowing 25 down the work? 57 1 A. Yes. Amongst other issues. 2 Q. Amongst other issues. The second one is: 3 "Incomplete utility diversions in the On-Street 4 sections caused in part by traffic management 5 constraints." 6 A. We were well aware of the problems they were 7 experiencing with the utility diversions. 8 Q. They were current problems in November 2009; is that 9 right? 10 A. Yes. 11 Q. "Slow mobilisation of INFRACO, including lack of formal 12 sub-contracts being in place." 13 A. We were aware of that as well. 14 Q. Was that still an issue in November 2009? 15 A. I think that was an issue throughout. My understanding 16 of it at a simple level is that there was an ongoing 17 dispute between tie and Bilfinger in particular on the 18 use of their contractors. How this was detailed and 19 notified throughout and back to tie. 20 I believe there was a dispute in particular about 21 the way subcontractors were deployed. 22 Q. The next bullet point is: 23 "Failure of INFRACO to submit preparatory paperwork 24 in a timely manner and of a suitable content ie work 25 package plans, method statements, et cetera." 58 1 A. Mm-hm. 2 Q. Were you aware of that issue and the detail of that 3 issue at the time? 4 A. It isn't something that comes to mind straight away, no. 5 But I think it was one of the package of disputes that 6 we were generally aware of. 7 Q. We have then got: 8 "Requirement for re-design of temporary works." 9 What did that relate to? 10 A. I can't actually -- other than taking that comment at 11 face value, I couldn't add anything further to it. 12 Q. The next one: 13 "Design slippage since novation of design to 14 INFRACO." 15 That perhaps speaks for itself? 16 A. Yes. We were aware prior to the contract close that tie 17 had had particular problems for some time with their 18 design contractors. I think we were generally surprised 19 that they continued to be as common an area of dispute 20 as it was prior to contract close. Whether that's 21 a comment on the way in which it was exploited by the 22 contractor, I can't say. Certainly I think on tie's 23 part, they were always open to suggestion of that. But 24 it wasn't something we were engaged with. We just took 25 it at face value. 59 1 Q. What do you mean, "open to suggestion"? 2 A. What I meant by that was that from time to time, they 3 would quite clearly and unofficially complain about the 4 contractor's attitude. They had given us to understand 5 that the successful novation would lead to a successful 6 completion of design in quick order. 7 Q. Had it done so? 8 A. Not according to tie, no. 9 Q. The second to last bullet point is: 10 "Design changes as a result of the Prior and 11 Technical Approvals process." 12 What was that referring to, as you understood it? 13 A. That's the process with the Council on accepting the 14 change and putting that into their road closure 15 programmes, et cetera. 16 Q. So was that a matter of getting finalised designs again? 17 A. I think it's a spin-off from it, yes. Once you achieve 18 a final design, it's agreed upon, it then has to be 19 acted upon by the Council. 20 Q. The last thing is: 21 "Consortium integrated design programme and 22 validation." 23 What was that? 24 A. That's another issue we took at face value. We weren't 25 going to get into the detail of that any time soon. 60 1 Q. Did you have an impression as to which of these, if any, 2 had the most impact on keeping progress behind programme 3 as at November 2009? 4 A. Our feeling was that the first three, if not four, were 5 significant. Certainly the first three were 6 significant. 7 Q. Can we look, please, at the following page. And at the 8 lower half of the table. We can see, I think, 9 a repetition of the material we saw earlier in this 10 report about dispute resolution procedure. 11 A. Yes. 12 Q. I won't read through that again. 13 Are you aware that within the grant conditions, 14 there was a specification as to how reporting should be 15 carried out to Transport Scotland? 16 A. By the Council? 17 Q. Yes. 18 A. Yes. 19 Q. Did you consider that these reports were meeting the 20 requirements? 21 A. At the risk of repeating what we've discussed at some 22 length, the answer to that is a question of quality, not 23 quantity. We were getting the quantity of information 24 in terms of pages. We weren't getting the quality that 25 we would have expected, given what we knew unofficially 61 1 was happening. 2 Q. Your unofficial information, was that coming from your 3 informal contact with the Council and from tie? 4 A. Yes. 5 Q. What I would like to do now is follow through a number 6 of these reports over successive months, just to look at 7 how the reporting developed, particularly in relation to 8 the dispute resolution procedure. Just so you 9 understand where I'm going to go with this. 10 The next document is reference CEC00472633. We can 11 see this time it's a four-week reporting pack for -- in 12 the year 2009/2010, and this is Period 9, with a date on 13 it of 11 December 2009. 14 If you go to page 3, we can see, as you saw in the 15 last report, an executive summary. Rather than look in 16 the summary, if I can go to the more detailed evaluation 17 by turning to page 10. We can see there, if we enlarge 18 the upper half of the page, there was a repetition of 19 the same factors that were said to be holding back 20 progress? 21 A. Yes, that was very much the norm, and that's what 22 I meant about quality as against quantity. We were 23 getting the quantity, but we wanted the quality. 24 Q. What about the quality was inadequate in that? 25 A. It doesn't tell us what progress they have made in 62 1 essence from one month to the next. It's a re-issue, 2 a repetition of what went previously. 3 Q. If we look then at the section on the next page, 4 page 11, enlarge and scroll down, so we see the heading, 5 "Dispute Resolution", what's underneath that -- 6 A. Sorry, could I just ask you to take it back up to the 7 top for a minute? 8 Q. Certainly. 9 A. I think this helps answer one of the questions you made 10 a minute ago, about the bulk of the disputes being 11 on-street or off. 12 Q. Mm-hm. 13 A. That section there gives you a good indication of the 14 key on-street areas. 15 Q. So all the areas listed there, are they key on-street 16 areas? 17 A. They're not all on-street, no, but if you take the 18 first, Newhaven Road to Foot of the Walk, clearly that's 19 on-street. Foot of the Walk, McDonald, et cetera, 20 et cetera. That gives you a clearer idea of the -- the 21 impact of the disputes on -- generally being on-street, 22 rather than off-street. 23 Though they were key off-street areas that were key 24 to the disputes, the generality was they were all 25 on-street. 63 1 Q. This just gives us what is termed an unmitigated finish 2 date and a re-baseline finish. 3 What's the unmitigated finish date that's been given 4 there? 5 A. That's the worst-case scenario, as I recall, the use of 6 that phrase. 7 Q. Look back to the previous page, page 10 of the scan. 8 The very end of the page. It talks about the table and 9 says: 10 "The table below remains as was previously reported 11 and as well as the recalibrated baseline programme it 12 also reflects a completely unmitigated programme as 13 a control scenario only. This is an unapproved delay to 14 the open for revenue service date. On a section by 15 section basis, there are swings and roundabouts 16 identified in terms of improvement/degradation of 17 delivery dates." 18 A. Yes. 19 Q. What did you take from that? 20 A. I think there was a continuing scepticism about whether 21 this was actually useful. It was useful in the general 22 sense of an explanation of their view of -- the impact 23 on the programme in terms of the ongoing disputes and in 24 terms of their best and worst-case scenarios. 25 I think this is how they were inclined, month by 64 1 month or four-weekly by four-weekly report, to refer to 2 that. 3 Q. If I could ask you, still on the question of dates then, 4 for completion, to look at page 32 of the same document. 5 If we look at the upper half of the page, so we can read 6 the text before the table. This is a report against key 7 milestones: 8 "In advance of developing agreement with BSC, tie 9 has developed an unapproved recalibrated baseline 10 programme which reflects an Open for Revenue Service 11 date of 23 February 2012." 12 Am I correct in understanding there, that unapproved 13 recalibrated baseline programme is the same as the thing 14 we have just been looking at in the first part of this 15 report? 16 A. Yes. 17 Q. "A completely unmitigated programme as a control 18 scenario only has also been produced which shows a date 19 of 17 October 2012." 20 That's again what we saw in the early part of the 21 report? 22 A. Yes, that's their worst case. 23 Q. So if you don't mitigate the delays at all, we are now 24 looking at it won't open until October 2012, but what 25 they term the recalibrated programme still has it 65 1 completing in February 2012. 2 A. Mm-hm. And all of that was set in the context of the 3 Dispute Resolution Process, and how successful or 4 otherwise that was. 5 Q. What effect would the Dispute Resolution Process have on 6 these timescales? 7 A. We would have expected to have seen a much more frequent 8 adjustment. We understood the general concept of having 9 a recalibrated baseline, and we understood what they 10 meant by an unmitigated programme, which would show 11 a further period of delay before opening. But what we 12 wanted to see was that on a more frequent updated 13 reported version, and we didn't get that. 14 So we were continuing our scepticism of how 15 successful the -- the resolution -- dispute resolution 16 programme was actually in their favour. Does that make 17 sense? 18 Q. Yes, it does. What I would like to do now is look at 19 the table and understand some of the entries in that. 20 We can see even in what's on screen at the moment, 21 there's some colour coding. I would just like to see an 22 explanation for the colour. So we could look firstly at 23 the next page, page 33. And if we highlight the text 24 beneath the table, still fairly small, but we can see 25 that the guidance for completion, legend of colouring of 66 1 actual/forecast date text: green means actual/forecast 2 date is ahead of or in line with baseline; yellow is 3 a slight slippage recoverable with action; pink is 4 significant slippage but expect recovery can be 5 achieved; red is notable significant slippage, it will 6 be difficult to recover even with action. 7 A. Mm-hm. 8 Q. If we look back then to the previous page, if we look 9 down, we can see -- stop scrolling now -- just about 10 a third of the way down the screen, there's an entry: 11 "Haymarket viaduct commences." 12 The original date for that was 8 May 2008. The 13 re-estimated date has been 18 June 2009, then a further 14 date is put into the right of that of 1 September 2008, 15 and that's coloured pink, showing significant slippage, 16 recovery possible. 17 In that this report actually dates from 18 December 2009, do you understand why that is coloured 19 pink and it might be possible to recover when we're past 20 all the dates that are specified there? 21 A. We understood what they were saying. It didn't 22 necessarily mean that we accepted that as a reality. 23 Q. As of December 2009, the date of this report, how could 24 recovery be made to any of the dates that were given 25 there? 67 1 A. Exactly. That was very much the question and the line 2 of questions we were asking ourselves. 3 Q. The same would be true of the Edinburgh Park viaduct 4 commencement in December 2009. You couldn't recover to 5 any of the dates shown there? 6 A. Mm-hm. 7 Q. We see that referring to a number of them. Are you 8 saying with the utilities works complete, just a few 9 down, we've got the date -- I don't know if we can 10 scroll up to see the heading on the centre column. This 11 is the unapproved programme. And the actual forecast 12 date. The actual forecast date now is being 13 September 2010. The earlier date was September 2009, 14 but in that that's past, would recovery have been 15 possible at that date? 16 A. I think it's -- I think it's a classic example of what 17 we were being given as current reporting, when in fact 18 it was open to almost total misunderstanding and 19 confusion. 20 Q. Was this helpful to you in any way? 21 A. I think we took it at face value. We accepted it for 22 what it was. What was more important to us was getting 23 a copy of the mitigated programme live. They referred 24 to the live programme. We never actually got a copy of 25 the live programme. 68 1 Q. Did you ask for it? 2 A. Yes. 3 Q. Was there an explanation given as to why you weren't 4 being given it? 5 A. I can't recall what the reasoning behind that was. We 6 did get programme updates from time to time, but they 7 weren't given in any kind of logical fashion as we 8 understood it. And certainly our in-house programme 9 managers were particularly baffled by this as an example 10 of online realtime reporting. 11 Q. If we could go back to the dispute resolution section, 12 please, on page 11 of this, what we see here in the text 13 under the heading, "Dispute Resolution (Infraco)", is: 14 "At the end of Period 9 only one item remained in 15 dispute with BSC. This relates to Russell Road and 16 a decision is due on 18 December 2009." 17 The previous one, I think we have seen in relation 18 to both Gogarburn and Carrick Knowe, a decision was 19 expected shortly afterwards, and we can see on the table 20 below here that the decision is made and under review. 21 But do we see anything in this report as to what the 22 decision was in relation to Gogarburn and Carrick Knowe? 23 A. No. As you may recall yesterday, I made it quite clear 24 that tie were very, very guarded in the information they 25 released to ourselves when asked. 69 1 Q. This doesn't even give you an indication of what the 2 outcome is, never mind how they got there? 3 A. No. That information only began to become part of the 4 regular information flow from tie once Ministers started 5 to ask for more frequent briefings and updates. 6 Q. Could you look at the text beneath the table. It now 7 says: 8 "We continue in this report to reflect an outturn 9 estimate of GBP533.3 million ..." 10 Previously it had said: 11 "We continue to reflect an outturn estimate of 12 GBP527 million." 13 So there has been some change here, an increase of 6 14 million? 15 A. Yes. This is an example of when they actually declare 16 more fully and more openly what they assessed the 17 ongoing impact to be on AFC. 18 Q. It continues: 19 "However, given the commercial uncertainties with 20 the consortium and continuing delays to the project, it 21 is now considered unlikely that the full scope of 22 Phase 1a will be completed with the available funding 23 envelope of GBP545 million." 24 Which is the same as they had said the month 25 previously. 70 1 "Until the key issues are resolved through the 2 contractual and legal process, it will not be possible 3 to forecast accurately a revised budget outturn. It is 4 also not possible at the present time to predict the 5 conclusions of reviews of contingency option programme 6 delivery options, including additional sources of 7 funding." 8 So the situation remaining as it was before, it's 9 going to cost more, but we are not going to tell you 10 what we think it might cost? 11 A. Yes. 12 Q. Can we go then, please, to look at the next monthly 13 report, the reference for which is CEC00472988. 14 We see once again, in a similar sort of cover page, 15 but this time it's Period 10, 2009/2010, and the 16 handwritten date is now 8 January 2010. 17 If we could look at page 7 of this, we can just -- I 18 don't think we need to enlarge it, we can see towards 19 the start of that, the same text you have seen before: 20 "The overall progress remains behind the master 21 programme, primarily due to ..." 22 And the same bullet points as we've seen in the 23 previous two months. Is that the sort of thing you were 24 being faced with, month after month? 25 A. Yes. 71 1 Q. If we look over the page, dispute resolution, we can 2 see: 3 "Dispute Resolution (Infraco)". 4 What it now says is: 5 "To date 5 disputes have been referred to DRP by 6 tie." 7 It names them: 8 "Agreement has been reached on Hilton (Adjudicator 9 awarded in tie's favour) and commercial settlement has 10 been reached on Haymarket (BDDI - IFC) and EOT1. In 11 the period we received, the Adjudicator's response for 12 the DRP’s raised by tie against Gogarburn and 13 Carrick Knowe Bridge, the Adjudicator found largely in 14 favour of the position taken by BSC. tie's response to 15 the Adjudicator's decision remains under review." 16 Were you provided with any other information about 17 what the outcome of the Gogarburn and Carrick Knowe 18 Bridge adjudications was? 19 A. No, not at that time. 20 Q. Had you been provided with it informally through other 21 channels? 22 A. From time to time. Within the context of what are the 23 key issues in terms of areas, geographical areas across 24 the programme, how well are these going, did you think. 25 And these are the questions I was asking of the Council 72 1 and not of tie, because tie were pretty much refusing to 2 discuss these issues with Transport Scotland at all. 3 Q. What were the Council able to tell you in answer to your 4 question about what was going on with the adjudications? 5 A. I think it depended on the sensitivity of some of these 6 issues. I think they were having -- equally having 7 problems with tie in getting the kind of, or the level 8 of, quality of information on these issues that they 9 were requiring. 10 Q. At that time, going back to January 2010, were you aware 11 that there was an issue of principle arose as to whether 12 or not certain things would constitute what were known 13 as notified departures in terms of the contract; and 14 that these two adjudications, Carrick Knowe and 15 Gogarburn, had been to determine whether or not things 16 were notified departures? 17 A. In general terms we were aware, yes. 18 Q. And although it's said here, as it is put, the 19 adjudicator found largely in favour of the position 20 taken by the consortium, were you aware how the issues 21 of principle had turned out in that adjudication? 22 A. No. This was one of the areas of sensitivity I referred 23 to. 24 Q. The text continues that: 25 "BSC have so far referred 2 disputes to DRP ... 73 1 Agreement has been reached with respect to delays 2 associated with the MUDFA Revision 8 programme. The 3 Adjudicator's decision against Russell Road was received 4 on 4 January 2010 and will be reported in Period 11." 5 The next month. 6 "A significant saving resulted on the estimate 7 presented by BSC and the adjudicator agreed with tie on 8 many of the principles in dispute." 9 Now, it's clear here that tie have had the decision 10 and have had time to report certain features of the 11 outcome? 12 A. Mm-hm. 13 Q. Again, did you get any indication of whether or not -- 14 the adjudicator had found whether or not there was 15 a notified departure? 16 A. As I said, we got some information and pretty much in 17 general terms, without any great specific detail. We 18 were aware that the generality of the decisions had been 19 against tie, not for them. 20 So we took these kind of reports from time to time 21 as being over-optimistic, and very much having been 22 edited to reflect the position more favourably for tie. 23 Q. We can see in the table below this that insofar as the 24 Gogarburn and Carrick Knowe decisions are concerned, it 25 is noted that the decision made was under review. Was 74 1 that review discussed with you? 2 A. No. 3 Q. Have you any idea what that review consisted of? 4 A. No. 5 Q. And what outcomes might be generated by that review? 6 A. Not on a continual basis. 7 Q. If we look to the next page and the text under the 8 table -- 9 CHAIR OF THE INQUIRY: Before going to that, Mr Lake, you 10 said something about the Russell Road decision being 11 known at the time of the report, but if you look at the 12 table, I think the decision was only dated 4 January, 13 and the report was 8 January. So it may be that they 14 didn't have adequate time to go into any great detail 15 about the Russell Road. 16 MR LAKE: No, my Lord, but I think the witness had 17 recognised that looking at the end of the first 18 paragraph under that heading, "Dispute Resolution 19 (Infraco)" -- sorry, it's probably the second paragraph. 20 It's noted that it had been received on 4 January in the 21 text. That there has been significant saving and that 22 the adjudicator agreed with tie on many of the 23 principles in issue. So it had been digested and 24 partially reported. 25 CHAIR OF THE INQUIRY: But it would be reported further. 75 1 MR LAKE: Yes, more detail next month. 2 If we could go to the next page, please, page 9. 3 I think we could take this quite briefly. 4 If you look at the paragraph of text underneath the 5 table, we can go through it word by word if it's more 6 convenient, but essentially it is the same text that we 7 saw the previous month? 8 A. Mm-hm. 9 Q. Can I ask you to say your answer out loud so it's noted 10 in the transcript? 11 A. Sorry, yes. 12 Q. If we could then look at the next report, this is 13 reference CEC00474413. 14 We can see from the cover sheet that this is the 15 four-week period reporting pack. It relates to 16 Period 11 in the 2009/2010 year, and it's been dated 17 5 February 2010. 18 A. Mm-hm. 19 Q. Would you look then, please, at page 8 of the report. 20 If we look at the second paragraph there, on the bullet 21 points, I think we can see from looking at it, it's 22 essentially the same that we have seen in the three 23 preceding months? 24 A. Yes. 25 Q. Could we then look at the next page of this, on the 76 1 lower half of the page. 2 Under the heading, "Dispute Resolution", we see 3 a summary of the DRP process at the end of Period 11 and 4 the outcomes. We can see the Russell Road one no longer 5 says the decision is expected on 4 January. It now 6 notes that it's been made and is under review. 7 And that remains the position for Gogarburn and 8 Carrick Knowe. Do you see that? 9 A. Yes. 10 Q. Above the table, it simply says this is a summary of the 11 DRP process at the end of Period 11. You see that also? 12 A. Yes. 13 Q. If you look over the page, please, the paragraph at the 14 top, again, if you take a moment to look at it, is it 15 essentially in the same terms once again as the 16 paragraph we saw in the previous two reports? 17 A. Sorry? 18 Q. Do you see that that paragraph is in the same terms as 19 the previous two? 20 A. Yes. 21 Q. Looking at that section on Dispute Resolution, do you 22 see any discussion whatsoever as to the outcome of the 23 Russell Road adjudication? 24 A. No. 25 Q. That's despite what was said, as Lord Hardie noted, in 77 1 a previous report? 2 A. Yes. 3 Q. If we go on and look at the next one for March, the 4 reference is CEC00474810. 5 Now, we can see, this is the Period 12 report for 6 2009 to 2010 and the date on it is 5 March 2010. 7 A. Yes. 8 Q. This time, could we look at page 10. I think once again 9 you see the familiar text about overall progress just 10 being reproduced. Was this helpful for you to get the 11 same thing month after month? 12 A. I think the word I would use was it was very grating. 13 Q. If we look at the next page, please. In terms of the 14 Dispute Resolution and the summary of the various issues 15 there contained in the table, certainly as far as 16 Gogarburn and Carrick Knowe and Russell Road, it's 17 exactly the same as has been the situation before? 18 A. Yes. 19 Q. I think there was a change in that MUDFA Revision 8, 20 which was previously noted as being on hold, is now 21 noted as having mediation taking place in March 2010? 22 A. Mm-hm. 23 Q. Other than that, there's no change. 24 Were you being provided with any informal indication 25 of what was taking place in the review for the first 78 1 three items noted on the table? 2 A. No. If there was any decision and we were aware of 3 a decision outwith this almost constant reiteration or 4 reiteration, we were -- there was a discussion from time 5 to time had with in particular Alan Coyle in the Council 6 on what the reality of the outcome actually was. What 7 was the impact in general terms. 8 How would it impact on the AFC. How would it impact 9 on the general programme completion? Because it was 10 also a growing sensitivity towards the open for 11 completion date, and you recall we discussed that in 12 passing some minutes ago. 13 So we were looking at the impact of the success or 14 failure of Dispute Resolution Process in terms of their 15 impact on the cost and on the open for completion date. 16 The latter was becoming more significant as it 17 became more apparent in public terms that the delays 18 were not -- were sufficient that they would impose 19 considerable delay on the actual opening date for the 20 service. And there was from time to time as much 21 concern about that as there was about the increased 22 cost. 23 So in general terms, we were trying to get a handle 24 on what was actually happening with the Dispute 25 Resolution Process and what did that actually mean. 79 1 Q. You said -- sorry, I interrupted you? 2 A. And not without any great outcome, I have to say. We 3 were not terribly successful. 4 Q. You talked about discussions with Alan Coyle there. 5 Were you having discussions with anyone or seeking 6 information from anyone at tie about this? 7 A. On a fairly informal basis, and it was in the context of 8 things are not going well or things are going slightly 9 better or we're near a decision point. But never in 10 terms of what it actually represented in terms of 11 a positive or negative outcome. 12 Q. So were you given any information as to what the effect 13 of these first three decisions might be on the cost or 14 the completion date? 15 A. No. 16 Q. And I think you said you weren't given any information 17 as to what the review consisted of and what it was 18 generating? 19 A. No. Not that I recall. 20 Q. If we look at the text after the table on the next page 21 of this, on to page 12, I think we can see the text 22 there is text that has already become quite familiar to 23 us from previous reports? 24 A. Yes. 25 Q. Move on then to the next report yet. It's CEC00476817. 80 1 You can see this is the Period 13 report for the 2 year 2009 to 2010, and it's been dated 1 April 2010. 3 A. Mm-hm. Yes. 4 Q. If you could look at page 10 of this. Now, towards the 5 centre of that page, we can see the same text we're 6 familiar with: 7 "Progress remains behind the master programme 8 primarily due to ..." 9 And the various bullet points. 10 If we do scroll down a little, so we can look at 11 what is above it, which is new, we see: 12 "Overall, the relationship with BSC is suffering in 13 the following key areas: The refusal of BSC to progress 14 works while Clause 80 changes being agreed; Work unable 15 to start on-street where sites are available as 16 contractual obligations are not satisfied; Resolution of 17 the contractual interpretation on BDDI-IFC (pricing 18 assumption 1)." 19 Had you asked for that additional detail? 20 A. We had continued to ask for more detail on a four-week 21 by four-week basis, but that didn't give us any greater 22 understanding than we had previously. 23 Q. If you look at the lower half of this page, it reports 24 that: 25 "There has been no further Infraco works on-street 81 1 other than those structures at Lindsay Road and Tower 2 Place bridge, due to a lack of agreement on programme 3 going forward, suitable subcontractor ... and completion 4 of final design assurance checks by [the consortium]." 5 Had you understood that to be the position before 6 you received this report in April 2010, that there were 7 no further works taking place on the street? 8 A. Yes, that was the general flow of information. 9 Q. If we look over the page then to the Dispute Resolution 10 Section, we can see that this month once again you get 11 as, far as the first three items on the table are 12 concerned, Gogarburn, Carrick Knowe and Russell Road, 13 nothing has changed, you're still just told, the 14 decision is made and it is under review. 15 A. Yes. 16 Q. Several months later, you still had absolutely no 17 discussion of the detail of the Russell Road decision? 18 A. Yes. 19 Q. Once again, just for completeness, had that been given 20 to you informally, rather than through the formal 21 reports? 22 A. Not to any great extent, as far as I can recall. 23 Q. Then beneath the table, if we scroll down, it's just the 24 same text that's been given in the previous months? 25 A. Yes. 82 1 Q. I should perhaps for completeness note that if we scroll 2 up a little bit again, in relation to MUDFA, Revision 8, 3 it does now note that the mediation took place in March, 4 resolution wasn't reached, and the item is therefore 5 referred to adjudication? 6 A. Yes. Can I just make one point. If you scroll down 7 a little, that second last paragraph: 8 "A strategic review of commercial and contractual 9 options is underway ..." 10 I think that's actually a reference to what was 11 called the Pitchfork Report, which we saw latterly, but 12 weren't engaged with in the process in any way. 13 Q. So did you know at that time what was involved in the 14 strategic review? 15 A. No. 16 Q. But later -- 17 A. That's why I was making the note here for the record 18 that that was our first clear indication that the 19 process was not going well and there was a strategic 20 review being undertaken, obviously with a view to 21 bringing this to some form of satisfactory conclusion. 22 Q. You say that this was the first time -- the first clear 23 indication that the process was not going well. But it 24 might be said that you'd had a number of indications in 25 previous years -- 83 1 A. Sorry, can I rephrase that. If that's what I said, 2 I didn't mean to say it in such terms. 3 This was the first, clearest indication that the 4 process had not gone sufficiently well for them to 5 say: we need -- now have to have a strategic review. 6 Q. You had been told, as you have noted in your evidence 7 already, even the previous year, that the costs were 8 going to be exceeded? 9 A. Yes. 10 Q. What is different now? 11 A. What's different now is we're now getting a clear and 12 succinct reference to the beginning of a strategic 13 review process, because of the sensitivities that were 14 beginning to arise within both tie and the Council as to 15 the way their Dispute Resolution Process was impacting 16 both on cost and open for service dates. 17 Q. We've seen for a number of months now that in relation 18 to the first three Dispute Resolution matters noted on 19 the table, the decision made is under review. Were you 20 given any indication of whether or not the strategic 21 review there is linked to or follows from the review of 22 the adjudication decisions? 23 A. No. My take on that, and my subsequent discussion with, 24 I believe it was Alan Coyle, was in the context of what 25 actually is the strategic review aiming to achieve, and 84 1 I was told it was a review of the contractual situation 2 that had developed up to that point and the success or 3 otherwise of the Dispute Resolution Process. 4 And the way forward as it was appearing in general 5 terms, what were the options, et cetera, for tie and for 6 the Council. 7 Q. Okay. Were you kept informed of the progress of that 8 review and the outcome of it? 9 A. I certainly wasn't. From time to time I got snippets of 10 information, but very little that made any coherent 11 sense, capable of being reported. 12 Q. When you say "I certainly wasn't", does that mean that 13 no one else in Transport Scotland was, or it was just -- 14 A. Some of my senior managers may have. I don't know. 15 Q. If you go forward to the next report, it's got reference 16 CEC00113636. We can see this time, it's the four-week 17 reporting back for the Period 1 in the 2010/2011 year, 18 and this has been signed on 30 April 2010, a little over 19 four weeks after the last one we looked at? 20 A. Yes. 21 Q. If we could look at page 10 of this. Just looking at 22 the progress report, we can see -- I haven't looked at 23 it in all of them, but it's noted once again that in the 24 first paragraph: 25 "The cost, programme and risk information in 85 1 Period 1 report continues to be based upon an unapproved 2 forecast on the information reported in May 2009. This 3 will be updated once agreement is reached with BSC on 4 a new revised programme. Work is ongoing to this end, 5 and the first outputs from this were issued during 6 Period 12." 7 Were you aware of the disputes taking place between 8 tie on the one hand and the consortium on the other as 9 to a revision to the programme? 10 A. In general terms, yes. We didn't know what that was. 11 Q. We can see beneath this there's the same comment that: 12 "Overall, the relationship with BSC is suffering in 13 the following key areas ..." 14 The same three bullet points we made before, and 15 below that: 16 "Progress remains behind the master programme, 17 primarily due to ..." 18 And the same cut and paste from the previous report. 19 A. Mm-hm. 20 Q. At the end of the page, we see that there have been no 21 further works on-street, once again, other than the 22 structures at Lindsay Road and Tower Place Bridge. Do 23 you see that also? 24 A. Yes. 25 Q. If we look at the Dispute Resolution on the following 86 1 page, we can take this relatively briefly, because once 2 again, if you look at the table, we can see that as far 3 as the first three are concerned, there's absolutely no 4 change at all. As far as the MUDFA Revision 8 programme 5 was concerned, it now simply has a blank in the 6 right-hand column giving information about it, and no 7 reference to the fact about how it's proceeding towards 8 adjudication, as was noted in the last one? 9 A. Mm-hm. 10 Q. The text beneath the table is similar to that we have 11 seen in other ones. 12 A. Yes. 13 Q. If we look over the page, to page 12, again, it's very 14 similar. We are just told that a strategic review of 15 commercial and contractual options is under way and will 16 be reported at the end of May 2010. 17 A. Yes. 18 Q. Following it through, just trying to follow the 19 information trail, if we go to the next one, the 20 document reference is CEC00113637. We can see that 21 confirms that we're looking at the Period 2 report, and 22 this hasn't actually got a signature on it, on the front 23 page; and a -- hasn't got a handwritten date this time. 24 Can you see that? 25 A. Yes, it happened occasionally. 87 1 Q. Could we look at page 7. I think we can see here all 2 the same elements as previously. It starts with the 3 reference to the unapproved forecast. In relation to 4 the relationship with BSC, it's moved from three bullet 5 points to four bullet points and these are changed 6 slightly in their wording? 7 A. Yes. 8 Q. One of them is the resolution of the contractual 9 interpretation of BDDI-IFC which we saw before, but we 10 now have added at the end, the refusal of BSC to 11 progress works under tie instruction in relation to 12 clauses 80/34/22/65. 13 A. Yes. 14 Q. Were you involved in that issue on that dispute between 15 the parties? 16 A. Not at all. 17 Q. Further down it notes that: 18 "Progress remains behind the master programme, 19 primarily due to ..." 20 And the same bullet points, although with some 21 changes, and at the end of the first bullet point, in 22 relation to agreement of change, we've now got the 23 additional words added, "even though instructed to 24 progress by tie"? 25 A. Yes. 88 1 Q. That perhaps reflects the refusal of BSC to progress 2 works we saw referred to above? 3 A. Yes. We assumed that to be part of their attempts to -- 4 if I can use the words in inverted commas -- strengthen 5 their position against tie -- sorry, against their 6 contractors. And almost use as much force as they could 7 deploy against them. 8 CHAIR OF THE INQUIRY: Could we go back to the top of this 9 page, please. Do you see the second paragraph, it says: 10 "tie are now in receipt of two independent experts' 11 views and report on ... attainable Revision 3 programme 12 proposals, both of which indicate that Revenue Service 13 is still achievable by late 2012, if a proactive 14 approach is taken by the Contractor." 15 Do you know if that Revision 3 programme proposals 16 was something prepared by the contractor or by tie? 17 A. I can't recall directly. I'm aware vaguely. I can 18 recall vaguely what tie were attempting to report in 19 general terms with that statement. I wasn't -- we 20 weren't at that point trying to retain a handle on how 21 they were actually maintaining progress under Revision 22 3. 23 Was it their view of actual progress or was it the 24 actuality, given the delays and the obstructions which 25 they were reporting that their contractor had imposed on 89 1 the programme? 2 MR LAKE: My Lord, thank you. 3 Could we go to page 8 within the document, the 4 following page. 5 Again, looking at what's said about Dispute 6 Resolution, we take the text first of all above the 7 table. It says: 8 "The Baird Drive dispute was resolved during the 9 period without having to resort to formal adjudication. 10 The Adjudicator's decision was provided on the 11 Tower Bridge DRP. Both of these have been useful in 12 reducing costs. In Period 3 a decision is due on 13 Section 7 drainage and the first hearing is being held 14 on the MUDFA Revision 8 DRP. A summary of the DRP 15 process at the end of the Period 2 and outcomes is 16 presented below." 17 Now, were you given any more information than that 18 as to what had happened at Tower Bridge DRP? 19 A. Not that I can recall, no. 20 Q. We can see if we look at Tower Bridge DRP in the table 21 below, the nature of the dispute is described as BDDI to 22 IFC. 23 A. Other than what was reported to us, we weren't aware of 24 any significant detail. 25 Q. But you can see that that same issue is the same one 90 1 that has arisen in respect of the first three? 2 A. Yes. 3 Q. And in fact another four. It seems to be recurrent? 4 A. Yes. 5 Q. Additionally, we see in respect of the first three, 6 Gogarburn, Carrick Knowe and Russell Road, that no 7 longer is the decision said to be under review. It's 8 now just decision made complete? 9 A. Mm-hm. 10 Q. Were you told what the outcome of the review had been? 11 A. No. We didn't know the detail of the outcome. In 12 particular, we didn't know the detail of any outcome 13 that went against tie. 14 Q. In terms of the decision in the Tower Bridge 15 adjudication, were you informed that tie had argued 16 their basis on the -- accepting the contractors' 17 approach from the first three adjudications, certain 18 things did constitute notified departures, they were 19 essentially no longer arguing that? 20 A. I don't recall having that knowledge. 21 Q. After the table, we can see it notes simply that 22 a strategic review of commercial and contractual options 23 under way, and now it says: 24 "... and is reported to the Tram Project Board each 25 period." 91 1 I think we saw in the previous report, it was noting 2 that it was going to be reported at the end of May. 3 A. Mm-hm. 4 CHAIR OF THE INQUIRY: Is this the next page? 5 MR LAKE: Sorry, my Lord, yes. I change pages rather more 6 easily. This is the top of the next page: 7 "A strategic review of commercial and contractual 8 options is under way and is reported to the Tram Project 9 Board each period." 10 A. Yes. 11 Q. Had you had any indication by this time of what the 12 result of the review had been so far? 13 A. No, not as far as I can recall. As I said, we certainly 14 saw a copy. Bill Reeve got a copy, but I can't remember 15 the actual date of receipt, but it would have been after 16 this report. 17 Q. The previous report we looked at had the handwritten 18 report of 30 April on it and it said it would be 19 reported at the end of May? 20 A. Mm-hm. 21 Q. So the report we are looking at now is the one four 22 weeks later. Would you have expected to see something 23 about the outcome of that review? 24 A. Yes. 25 Q. Can we look then at the next report. We're now going 92 1 to -- sorry, one second. 2 Go to the next report, please. It's reference 3 CEC00113638. We can see this is the Period 3 period for 4 2010/2011, and this time we have got a date of 5 25 June 2010, handwritten on to it. Do you see that? 6 A. Yes. 7 Q. Could we look at page 7 of this. If we look under the 8 heading, "Contractual Strategy & Dispute Resolution", 9 it notes: 10 "As was reported to City of Edinburgh Council on 11 24 June 2010, intensive work has continued over the 12 period in respect of the overall contractual strategy 13 for Infraco which has been briefed to Stakeholders 14 during the period." 15 Do you think you'd had a briefing by then on what 16 the strategy was to be? 17 A. I can't recall. As I said previously, I know we got 18 a report from the Council. But I'm not sure of the 19 dates. 20 Q. We can see that there's now a twinned track approach in 21 action, the first item of which is: 22 "Plans to reach an agreed solution with BSC to 23 complete the infrastructure works, at least as far as 24 Haymarket under the Infraco contract." 25 The second is: 93 1 "Termination of the Infraco contract." 2 Now, obviously, termination of the Infraco contract 3 is quite a dramatic change in terms of the delivery of 4 the project. 5 A. Yes. 6 Q. As far as you're aware, were Transport Scotland 7 consulted on the pursuit of that option, the 8 termination? 9 A. Not to my knowledge. 10 Q. Would you have expected them to be consulted on 11 something as drastic as termination of the contract? 12 A. I would have anticipated some kind of informal 13 discussion with the Council on that point, yes. 14 Q. Would you have expected to be consulted on the prospect 15 of restricting the line from -- it doesn't say there, 16 but restricting it so it would terminate at Haymarket? 17 A. Yes. 18 Q. And were you? 19 A. Not to my recollection, no. And it would have to have 20 been driven, I guess, by the decision of Parliament to 21 continue funding the project. 22 Q. What would have to be driven by it? 23 A. That was the overall driver for us. We had to meet both 24 Parliament's decision and Ministers' interpretation of 25 that decision, et cetera, and how we went forward from 94 1 that. 2 That kind of decision-making process having been 3 reached, but not yet concluded, would have been 4 significant to us in terms of reporting to Ministers. 5 Q. Look at the text underneath those two points. It's: 6 "In total, 15 items have now been referred to the 7 formal dispute resolution process, 11 by tie and 4 by 8 Infraco. Three have been resolved through negotiation, 9 three through external mediation, eight referred to 10 adjudication and one is still at the early stage of the 11 process. It is important to note that overall, the 12 application of DRP to disputed matters has reduced BSC's 13 claims for additional payment from GBP18.2 million to 14 GBP7.6 million in relation to those DRPs which have 15 actually reached a financial settlement (9 out of the 16 15)." 17 Was that helpful to you in understanding what 18 happened at the adjudications? 19 A. Yes, but it was of limited assistance to us in the 20 overall sense. 21 Q. Why? 22 A. Well, you recall I made the statement a short while ago, 23 that what we were looking for was a continual reporting 24 on the impact of the Dispute Resolution Process in terms 25 of time and money, in terms of its impact on the AFC and 95 1 in terms of the open for service date. 2 This was useful to us because it gave us a clearer 3 indication that there was a financial impact on the AFC. 4 And it would be in the order of 7.6 million at that 5 point, given that we may or may not have a handle on 6 what tie's version of the AFC was at that particular 7 point. 8 You will recall, we are back into the context of 9 them reporting what was politically convenient on 10 a regular basis, rather than tell us what the actuality 11 was. 12 And that actually only became really apparent at the 13 time of the quarterly reviews. 14 So we would have to marry that into the context of 15 what was actually being said, or had been said at the 16 most recent quarterly review. 17 Q. This is telling you that the actual sums that would be 18 paid to the consortium have reduced. Are you able to 19 take anything from that as to how the various issues of 20 principle have been decided -- 21 A. No, because we couldn't relate that to the -- that very 22 point in terms of general principles or specific 23 principles, rather. 24 Q. That in turn would affect your ability to consider the 25 question of anticipated final cost and completion date? 96 1 A. Yes. 2 Q. I think the same text is repeated slightly lower down 3 the page, under the heading, "Dispute Resolution 4 (Infraco)". It does, however, note, in addition there, 5 in the period they had received one adjudicator 6 decision, had hearings on MUDFA Revision 8 adjudication, 7 one item was referred to adjudication, and one new item 8 referred to the Dispute Resolution Procedure by Infraco. 9 There's a bit of detail about that underneath? 10 A. Yes. 11 Q. You see the second bullet point giving the detail as: 12 "Infraco also put a new item into dispute - 13 Murrayfield underpass. This is effectively disputing 14 tie's right to instruct Infraco to continue with works, 15 even if the issue has not been referred to dispute. The 16 CEO's meeting has been held and this will go to the 17 legal panel for adjudication." 18 In terms of the ability to compel Infraco to work 19 under instruction even if there's a dispute, was that 20 material for the question of the completion dates? 21 A. Well, yes, quite clearly, if they were having any kind 22 of difficulty in instructing and successfully 23 instructing their contractor to commence work or 24 recommence work, or complete work, that was obviously 25 going to have an impact on the programme, it was 97 1 obviously going to have an impact on the AFC. 2 What you have to remember, as I said yesterday, in 3 parallel with this failure to spend money on actual 4 works in progress, and to complete progress on actual 5 works, they were spending considerable sums out of the 6 grant on non-productive costs, as we referred to them, 7 soft costs. 8 Q. Overheads? 9 A. Lawyers, adjudication, personnel, et cetera, et cetera. 10 In fact, we knew they had employed additional staff to 11 take on this very area of work. And this was in 12 addition to the previous number -- staff levels. So 13 there was obviously a clear indication that costs were 14 going up and the delays were impacting on the open for 15 service timetable. 16 Q. You said there was a clear indication that costs were 17 going up and delays were impacting, but do you know by 18 how much costs were going up and by how much? 19 A. No, as I said before, we would only get a handle on 20 that, tie -- or the Council and tie would only give 21 a better handle on that at the quarterly review process 22 timing. 23 Q. Returning to the page you have on screen, if we look at 24 the next bullet point on the page, the final one on the 25 page, it does note that: 98 1 "The adjudicator decision on Section 7 drainage was 2 received on 24 May 2010 and supports Infraco as to the 3 existence of a change in one section. Value being 4 ascertained with final resolution expected - GBP650,000 5 to GBP750,000 - generating, approximately GBP600,000 6 saving from Infraco's initial claim." 7 Were you given any other information of the issue of 8 principle as to the existence of a change being found by 9 the adjudicator? 10 A. No. 11 Q. The final bullet point notes, for completeness, that 12 there's five days of adjudication had been held on the 13 MUDFA Revision 8 programme dispute, with a decision 14 expected in July. 15 We can see that the table has now been cut down, so 16 that we no longer get any reference to Carrick Knowe, 17 Gogarburn or Russell Road. Had you ever been told by 18 this time what happened at Russell Road? 19 A. No, not to my knowledge. 20 Q. Once again, we see underneath, we are told that 21 a strategic review of commercial and contractual options 22 is under way, and is reported to the Tram Project Board 23 and Transport Scotland each period. 24 How was that being reported to you, you being 25 Transport Scotland? 99 1 A. I wasn't aware of that periodic report. The only -- as 2 I have already referred to, the only document I can 3 recall having seen that could be called a strategic 4 review of the commercial and contractual options was the 5 Pitchfork Report. 6 Q. If there was a report to be made to Transport Scotland 7 each period, would it -- who would it have -- who might 8 it have come to, other than you? 9 A. It should have come to me in the first instance. If it 10 didn't, it would have gone to one of my senior managers, 11 but I would have been aware of it. 12 Q. They would have told you? 13 A. Well, yes. 14 Q. If we can keep working through the chronology, I'll 15 take -- if we jump a month, just to try and take matters 16 slightly faster, if we could go to the next document, 17 CEC00021014. This has a date on it, the signed date is 18 20 August 2010. This is relating to Period 5 in the 19 year 2010/2011. 20 If you could look with me, please, at page 8. Under 21 "Dispute Resolution", we are now told that: 22 "In total, 16 items have now been referred to the 23 formal Dispute Resolution Process - 11 by tie and 5 by 24 Infraco. The latest was referred by BSC early in 25 period 6 and relates to the Landfill Tax exemptions. 100 1 Three have been resolved through negotiation, three 2 through external mediation, and nine were referred to 3 adjudication. It is important to note that overall the 4 application of DRP to disputed matters has reduced BSC's 5 claims for additional payment from GBP18.2 million to 6 GBP7.6 million in relation to those DRPs which have 7 actually reached a financial settlement (9 of the 8 15)." 9 Once again that's a repeat of the final cost saving, 10 without giving any indication to the principles? 11 A. Yes. 12 Q. So all the comments you have already made would apply 13 equally here. 14 We are told in the next paragraph: 15 "In the period we received one adjudicator detailed 16 reasoning behind a decision provided in period 4. This 17 was in relation to the MUDFA Revision 8 dispute. 18 A review of this will be held in period 6 to identify 19 any further actions required. Meantime, BSC has 20 submitted their Estimate for the extension of time 21 awarded for Sectional completion ... which is under 22 review by tie." 23 I think the "a" is probably superfluous, "which is 24 under review by tie". 25 Were you given any other indication of what the 101 1 outcome was and what the reasoning was? 2 A. No. 3 Q. What the implications of it were? 4 A. Not as I recall. 5 Q. We then see that a decision on the Murrayfield -- this 6 is in brackets, Clause 80.13/34 instructions: 7 "DRP was also received. This gives some useful 8 interpretation of these clauses in respect of known 9 Notified Departures which tie has reviewed and is 10 issuing further instructions to BSC in respect of this 11 interpretation. The Depot Access Bridge dispute is in 12 the adjudication process with hearings completing during 13 week commencing 16 August." 14 Now, in relation to the Murrayfield adjudication, 15 I think we saw in previous reports it was noted that 16 this was to give guidance in relation to whether or not 17 the consortium could be compelled to work. 18 A. As I understand it and recall it, yes. 19 Q. Do we see any indication here of what the outcome of 20 that was? 21 A. No. 22 Q. In fact, you can take it from me that the outcome was 23 that tie were unsuccessful. Would you be able to draw 24 that conclusion from what is said here, that the 25 decision gives useful interpretation of the clauses in 102 1 respect of a known notified departure? 2 A. Well, yes, but I can't actually recall that that's what 3 we did at the time. 4 Q. That you did what, sorry? 5 A. We made that assumption, based on what was said here. 6 Q. Are you saying you don't recall making that assumption? 7 A. Yes. 8 Q. Was there anything in that, what you see here, that 9 would indicate that tie had been unsuccessful in that 10 adjudication? 11 A. I would have to take a minute or three to think about 12 that, and look at it again, and try and recall what we 13 actually decided was being implied at the time, but 14 there was nothing obvious. 15 Q. If we go to then -- that was the August report. If we 16 jump forward to the October report. 17 CHAIR OF THE INQUIRY: You haven't given the reference. 18 MR LAKE: Easy for me. It's reference CEC00023062. 19 We can see now that we have the document, this is 20 the Period 7 Report for 2010/2011 with a date on it of 21 October 2010. 22 A. Yes. 23 Q. Could we look, please, to page 8, under the heading, 24 "Progress", in the upper half of the page. We can see 25 that on Friday, 1 October 2010, the consortium began to 103 1 demobilise and cease work on certain sites across the 2 route, reflecting an escalation in the contractual 3 dispute between the consortium and tie: 4 "In response to this action, tie has entered into 5 formal correspondence with the contractor, and is 6 undertaking detailed site monitoring on both active and 7 inactive sites." 8 Is what is reported there something of which you 9 were already aware by the time this report was given to 10 you? 11 A. Yes, in general terms. 12 Q. In general terms. Who made you aware of that? 13 A. The Council. 14 Q. Who within the Council? 15 A. It would have been Alan Coyle. 16 Q. Could you look then at page 10. If we look at the -- 17 under the heading, "Contractual strategy and dispute 18 resolution", the first paragraph notes that: 19 "In recent weeks, tie has adopted a strategy of not 20 launching further DRPs but has instead focused on the 21 assertive management of the Infraco contract. However, 22 since August, the consortium have increased the 23 intensity of referral to DRP with 1 new DRP launched 24 in the period." 25 Had that strategy of focusing on assertive 104 1 management of the contract rather than DRPs being 2 discussed with Transport Scotland, as far as you're 3 aware? 4 A. No. 5 Q. Then we can see in the following paragraph the familiar 6 statement about reducing the actual sums paid, but not 7 giving any indication of the decisions of principle? 8 A. Yes. 9 Q. We do get a note in the respect of the outcome of the 10 Depot Access Bridge which notes that: 11 "The Adjudicator decided on a narrower scope than 12 suggested by tie. However, the financial award made was 13 some GBP1.25 million lower than what was claimed by BSC. 14 This figure is included in the GBP8.8 million quoted 15 above." 16 Again, was there any information given to you as the 17 basis of the decision or the merits of the decision? 18 A. No. 19 Q. Over the page, we see the reduced summary of the -- 20 summary of the various decisions and beneath that, once 21 again: 22 "A strategic review of commercial and contractual 23 options is under way and is reported to the Tram Project 24 Board and Transport Scotland each period." 25 Had anything changed by this time in terms of what 105 1 was being reported to you? 2 A. No. Throughout this period it remained a particular 3 sensitivity with tie and they would release no 4 information to us at all. Anything I gained was gained 5 from the Council. 6 Q. I would like then to look at another production. It's 7 reference TIE00896978. Now, this is, rather than being 8 a report to Transport Scotland, a report to the Tram 9 Project Board. Were you routinely shown these? 10 A. No. 11 Q. Could you look, please, at page 31 of this. I think we 12 can see here the terms of the report are essentially 13 similar to the information that would have been conveyed 14 to you in the four-week period reporting pack. 15 A. We were aware that what we were receiving in terms of 16 our standard four-weekly report was very much a cut and 17 paste job. 18 Q. From the material that had gone to the Tram Project 19 Board? 20 A. Yes. 21 Q. We don't have the report that this relates to accessible 22 in the Inquiry at the moment, but if we look at what was 23 being reported at this time, it's that over the period, 24 tie has submitted five new topics into DRP: 25 "2 of these have already been agreed in the 106 1 internal stages of the process." 2 Then we get the usual paragraph about reduction of 3 the ultimate liability, and I take it all the same 4 comments apply as you've made before? 5 A. Yes. 6 Q. "During the period, Landfill Tax adjudicated and 7 a decision provided. The adjudicator decided that the 8 landfill would not have been exempt and therefore there 9 was no need to apply for the exemptions." 10 From that, were you able to work out who had been 11 successful? 12 A. From memory, and please take it -- take this what I'm 13 about to say in inverted commas, I think we had given up 14 trying to make any kind of clarity and sense with this 15 kind of -- with this level of reporting. We were not 16 getting the essential information that I think is 17 mirrored in your question. Were we able to make any 18 judgment on what was being reported in terms of both 19 finance and on delay? We couldn't. 20 Q. I have finished with that document. 21 Could I look at a different document now. It's 22 CEC01222014. 23 I'm interested -- if we look at the lower half of 24 the screen, it's an email that was sent by 25 Dave Anderson, who I think was at the Council, to you, 107 1 and it's dated 2 May 2008. 2 So jumping back here to about the time of contract 3 close. 4 We see that he refers to your email of 1 May to 5 Rebecca Andrew and Duncan Fraser in which you relay the 6 Cabinet Secretary's concerns about financial close on 7 the project: 8 "Discussions are scheduled to take place on Monday 9 with the preferred bidder to resolve the remaining 10 outstanding issues. I would hope that these will be 11 capable of speedy resolution and that we shall be able 12 to reach financial close very quickly thereafter. 13 We look forward to addressing any points that 14 Mr Swinney may care at any time to raise about the 15 programme." 16 It's clear from this, obviously, that the Cabinet 17 Secretary had contacted you and asked you to make 18 representations to the Council? 19 A. Contacted Transport Scotland. 20 Q. Contacted Transport Scotland? 21 A. I don't recall him speaking directly to me on that 22 point. 23 Q. But his request presumably had been passed to you to 24 action with the Council? 25 A. I would imagine so, yes. 108 1 Q. Was there any explanation of what the Cabinet 2 Secretary's interest was in securing the conclusion of 3 the contract? 4 A. If you remember, I mentioned growing concerns about the 5 difficulties which were becoming more apparent between 6 tie and their contractor, their final contractor, in 7 reaching a financial close. 8 Q. Yes. 9 A. The negotiation seemed to go on and on and on. I think 10 from memory they were scheduled to complete around the 11 late autumn of 2006, perhaps. But in the event they 12 went on. I could be wrong on the year, but they went on 13 to the succeeding spring before they were actually 14 completed, and over that period we had received some 15 reports of, as I said at the time, demand after demand 16 from the contractor on various other options that they 17 wish to be incorporated in the final contract, and which 18 hadn't been previously agreed in the negotiations. 19 So there was a general concern within ourselves and 20 obviously the Ministers about the whole process of 21 financial close. 22 Q. But how was that level of concern reconcilable with the 23 scaled-back approach? What was the Minister's interest 24 in that? 25 A. Well, I think it would be obvious. We were marrying the 109 1 problems that tie and the contractors appeared to have 2 with our expectations against the programme which had 3 been originally provided by the Council, which detailed 4 when they expected -- when they anticipated to close the 5 contract negotiations, and when they would be able to 6 give us the start of the programmes thereafter. 7 The longer the negotiations went on, the longer it 8 would be before the contract started, obviously. And 9 that would impact on the due service date. 10 Q. There's one matter I wanted to take you in relation to 11 the adjudication. I forgot to do it earlier. I would 12 like to go back to it now. 13 If we could look at production TRS00010627. 14 We can see that this is a briefing note for the 15 Minister for Transport, Infrastructure and Climate 16 Change. It's been prepared by you and it's dated 17 21 January 2010; is that correct? 18 A. Yes. 19 Q. If we look at the paragraph 3, background, in fact 20 sorry, could I ask for both paragraphs 2 and 3. In 21 fact, 1, 2 and 3 would be best, to provide the context. 22 This is a briefing for the Minister ahead of a 23 meeting which was to take place with Richard Jeffrey on 24 25 January 2010. Do you see that? 25 A. Yes. 110 1 Q. Then we go to the background: 2 "The Minister will recall that he last met 3 Richard Jeffrey, together with Jenny Dawe, Leader of 4 Edinburgh City Council, on 2 December 2009. 5 Richard Jeffrey had cautioned that while there had been 6 some signs of improvement, the difficulties remaining 7 should not be underestimated." 8 He follows this up with a further briefing to 9 Transport Scotland: 10 "... the key points of which were set out in our 11 briefing to Ministers on 22 December 2009." 12 Then if we could go to the start of the next 13 paragraph, the large paragraph 4, it begins: 14 "Against a position where recent adjudication 15 decisions have been made (mostly against tie) and 16 disappointing physical progress by the contractor since 17 beginning of January, Richard Jeffrey has advised 18 Transport Scotland that he has held separate discussions 19 with both Siemens and Bilfinger Berger in early January 20 to discuss the deteriorating situation." 21 I just want to ask you about the opening of that 22 paragraph. It may be said that if you're able to say to 23 the Minister that there have been recent adjudication 24 decisions made mostly against tie, it would appear that 25 you did have enough information to assess the position 111 1 and report to the politicians. I wondered what your 2 response would be to that. 3 A. My usual workings leading up to this kind of briefing 4 were to speak to the Council and gain a more up-to-date 5 situation report from them which I would incorporate 6 into the briefing to Ministers. 7 That sounds very much like a case there. So I'm 8 actually probably paraphrasing what the Council had just 9 told me. 10 Q. Did you have information that went much further than 11 that? 12 A. Not that I recall, no. 13 MR LAKE: Thank you very much, Mr Ramsay. I have no further 14 questions. 15 CHAIR OF THE INQUIRY: Mr Fairley, I think there was an 16 issue that you wished to clarify, or has it been 17 covered? 18 MR FAIRLEY: There were a couple of issues I would wish to 19 clarify, my Lord, if that's possible. 20 Examination by MR FAIRLEY 21 MR FAIRLEY: Mr Ramsay, you were referred yesterday to 22 a meeting in November of 2009, at which an indication 23 was given by tie that the most realistic estimate of 24 final cost was likely to be between 600 million and 25 620 million; do you remember that being discussed 112 1 yesterday? 2 A. Vaguely. 3 Q. It was the context -- the context in your evidence was 4 when you talked about those within City of Edinburgh 5 Council having certain difficulties with how they were 6 going to report that? 7 A. Okay, yes, I recall that. 8 Q. Do you remember the funding envelope of 545 million 9 being discussed? 10 A. Yes. 11 Q. You were asked by his Lordship in the Chair if you 12 remembered who had been present at that meeting, and 13 I think in fairness to you, given it was nine years ago, 14 your memory was a little hazy on that. 15 I wonder, could I refer to you a document, please. 16 CEC00475412. 17 I think we see that this is a meeting note dated 18 13 November 2009. Can we go to page 3 of this note, 19 please. I'm not finding it. If you take it from me, 20 Mr Ramsay, that this note records at one stage that tie 21 indicate the most realistic estimate of final cost is 22 between 600 and 620 million? 23 CHAIR OF THE INQUIRY: I think it's in the second -- 24 MR FAIRLEY: Yes, I'm told it's right in the middle of the 25 page, point number 2: 113 1 "tie advise that 545 million is very difficult with 2 600 - 620 million most realistic." 3 So it would appear that that's the meeting you were 4 talking about, that this is the meeting you were talking 5 about yesterday? 6 A. Yes, I think it is. 7 Q. Can we go back to the front page of this, please, 8 page 1, so we can see who is there. I think we see on 9 the front page that those in attendance from City of 10 Edinburgh Council were Dave Anderson, Marshall Poulton. 11 I think he was the Tram Monitoring Officer; is that 12 right? 13 A. I wasn't aware of any particular designation for 14 Marshall. I met him from time to time, is all I can 15 recall. 16 Q. The attendees, so far as City of Edinburgh Council are 17 concerned, appear to be Dave Anderson, Marshall Poulton, 18 Alan Coyle, and Andy Conway. Do you see that? 19 A. Yes. 20 Q. And we see from tie it's Mr Jeffrey, Mr Bell and 21 Mr McGarrity? 22 A. Why he. 23 Q. From Transport Scotland it's Mr Reeve, Mr Morrissey and 24 you? 25 A. Yes. 114 1 Q. If that is what is recorded in this note, do you take 2 issue with that? 3 A. No. 4 Q. So can we take it that these are probably the people who 5 were in attendance at that meeting? 6 A. These are the people who were. 7 Q. Thank you. Moving on to a different point, an issue was 8 raised with you today about an observation in your 9 statement at pages 42 to 43 when you talked about the 10 period of time June 2010, and you said that at that 11 stage the consortium was reporting against Revision 3A 12 of the programme and tie was reporting against 13 Revision 1 of the programme, do you remember being asked 14 about that? 15 A. Yes. 16 Q. I think what you say in your statement about that, you 17 describe that as "typical tie nonsense at a key period 18 in time"? 19 A. Yes. 20 Q. Were you or are you aware that the Infraco contract 21 contained detailed provisions about how variations from 22 agreed programme were to come into effect? 23 A. No, I wasn't. 24 Q. So can I take it you were not aware then that part 11 of 25 the Infraco contract required tie to give approval to 115 1 any variation to the programme put forward by Bilfinger? 2 A. I think I recall being informed in general about that, 3 but I don't think we had any particular report given to 4 us on that question. 5 Q. So can I take it that you would not be aware whether the 6 reference to Revision 3A was to an approved variation of 7 the programme or to a variation that tie had not 8 approved as at June 2010? 9 A. I could only guess at that answer, and I'm sorry, 10 I don't recall sufficiently. 11 Q. You don't know whether it was an approved or 12 a non-approved variation? 13 A. I don't remember. 14 Q. Can I ask you then, if you don't remember, to look at 15 CEC00113638. Can we go to page 6 of that document. 16 Just for completeness for the record, this is the 17 report for the period 3 of 2010 to 2011, and it's dated 18 25 June 2010. 19 Can we go to page 6 of that document, please. 20 I'm looking for paragraph 2.1 of that document. I'm 21 sorry. The version I have, it's on page 6. Yes, there 22 it is. 23 Paragraph 2.1. The second paragraph reads: 24 "As of Period 3, 2010-2011, and despite 25 correspondence issued by tie to the contrary, BSC are 116 1 now reporting only against their proposed Revision 3A 2 (mitigated) programme ..." 3 It says that has been rejected by tie. Do you see 4 that? 5 A. Yes. 6 Q. That would appear to suggest that the reporting by BSC 7 against Revision 3A was unilateral on the part of BSC? 8 A. That would be my reading of it, yes. 9 Q. And in fact what tie were doing at this point in time 10 was reporting against the only version of the 11 contractual programme that was actually agreed, which 12 was version 1; is that right? 13 A. That would be my understanding and recollection. 14 Q. So what tie are doing, effectively, is enforcing their 15 rights under the contract to report on programme version 16 1? 17 A. I can only assume that to be the case. 18 Q. Thank you. Finally, you were asked a number of 19 questions about the reporting of the DRP outcomes. 20 Taking this as shortly as I can, would it be fair to say 21 that from January 2010, you were aware that tie were 22 losing adjudications? 23 A. I can't remember the exact chronology, but certainly we 24 were aware in general terms. Sorry, let me be quite 25 precise about this. We were made aware, through my 117 1 conversations with the Council, more likely Alan Coyle, 2 but not just, it would also be Dave Anderson, that that 3 process was not going in tie's favour. 4 Q. Yes. What you didn't have were copies of the actual 5 adjudication decisions? 6 A. We saw nothing of that sort. 7 Q. And you therefore didn't know why tie were losing. You 8 knew that they were losing, but you didn't know why? 9 A. Yes. We didn't at any time. 10 Q. Were you ever made aware by Mr Coyle or by anyone else 11 within the Council that there was a solicitor within 12 City of Edinburgh Council by the name of Nick Smith? 13 A. I heard the name mentioned from time to time. 14 Q. Were you ever made aware that Mr Smith was carrying out 15 a detailed review of all of the adjudication decisions? 16 And had copies of them? 17 A. No. 18 Q. So I take it you were not aware then that you could have 19 got these adjudication decisions directly from the party 20 to which you were providing funding, City of Edinburgh 21 Council? 22 A. Yes, but I would also, just to further set the context 23 in my answer, I would refer you back to the comment 24 I made earlier this morning, that there were particular 25 sensitivities both -- sorry, not just by tie, but also 118 1 with the Council in what they reported to us about the 2 DRP process. And I think that what you have just said 3 is a classic example. 4 Q. Your funding arrangement, though, was directly with City 5 of Edinburgh Council. It was not with tie? 6 A. No. Sorry, I should have said yes. tie never received 7 any funding direct from us. Everything went to the 8 Council. 9 Q. Indeed. And you were not aware, then, that there was an 10 individual within City of Edinburgh Council Legal 11 Department who had a detailed understanding of the 12 adjudication outcomes? 13 A. No. 14 Q. Because you were never told that? 15 A. Yes. 16 MR FAIRLEY: Thank you. 17 CHAIR OF THE INQUIRY: Thank you very much. Mr Ramsay, 18 that's the end of your evidence. 19 You're free to go. You're still subject to your 20 citation in case you have to be recalled, but I would 21 hope that won't be necessary. 22 Thank you very much. 23 A. Thank you. Can I just say, I hope I have been of 24 assistance to the Inquiry. 25 CHAIR OF THE INQUIRY: You have indeed. Thank you very 119 1 much. 2 A. Thank you. 3 (The witness withdrew) 4 CHAIR OF THE INQUIRY: We'll adjourn until 2.10. 5 (1.05 pm) 6 (The short adjournment) 7 (2.10 pm) 8 MR LAKE: My Lord, the next witness is Malcolm Reed. 9 DR MALCOLM REED (affirmed) 10 Examination by MR LAKE 11 CHAIR OF THE INQUIRY: Could I ask you to speak clearly into 12 the microphone and slowly so that the shorthand writers 13 can keep up with you and to answer questions directly 14 and as concisely as possible. 15 A. I will attempt to do that, my Lord. 16 MR LAKE: Thank you, my Lord. 17 Mr Reed, can you state your full name, please? 18 A. It's Malcolm Christopher Reed. 19 Q. The Inquiry has your full address. I think you were the 20 Chief Executive of Transport Scotland from its formation 21 in 2006 until your retirement in 2009? 22 A. That's correct. 23 Q. But although you were Chief Executive from inception in 24 2006, you had in fact done some work for 25 Transport Scotland ahead of its official formation? 120 1 A. I was appointed as Chief Executive designate in 2 August 2005. 3 Q. I would like to you look at a document, please. It's 4 got reference TRI00000066_C. That will be shown on the 5 screen just to your right. 6 Perhaps it would be easiest if we look at the third 7 page of this. 8 I hope you have a paper copy of this document? 9 A. Yes, I do. 10 Q. Is this the witness statement that you provided to the 11 Inquiry? 12 A. Yes, it is. 13 Q. I think I can see you checking. It is the copy that you 14 signed on the last page? 15 A. Yes. 16 Q. Are you content to adopt that as the evidence that you 17 give to this Inquiry? 18 A. I am indeed. 19 Q. I want to ask you a few other questions, some arising 20 out of your statement and some more general. 21 You will be aware that in 2007, after the General 22 Election, John Swinney sought a report from Audit 23 Scotland in relation to the Edinburgh rail link and the 24 Edinburgh Tram Project? 25 A. Yes. 121 1 Q. Did it surprise you that the Minister turned 2 to Audit Scotland to report on those projects, rather 3 than Transport Scotland? 4 A. To be honest, I didn't give it any thought at the time. 5 It was a new government. Relationships were being 6 built, and I think it was perfectly in order for 7 Mr Swinney to request, as you say, he requested, rather 8 than to instruct that report from Audit Scotland. 9 Q. But Transport Scotland had been in existence for about 10 a year and a half and it had been involved in the 11 project by that time? 12 A. Indeed. 13 Q. Presumably the persons within Transport Scotland would 14 have had some involvement in the project prior to the 15 formation of Transport Scotland? 16 A. Very much so, yes. 17 Q. Whereas Audit Scotland had a period of just some weeks 18 to investigate in 2007? 19 A. That's correct. 20 Q. Do you think Audit Scotland would be in as good 21 a position as Transport Scotland to give a detailed 22 review of the project in mid-2007? 23 A. I think the Auditor General did caveat his report very 24 carefully to say it was not an in-depth report. 25 Q. Would Transport Scotland have been in a better position 122 1 to give an in-depth report on the project at that time? 2 A. I'm sure we would, yes. 3 Q. Now, the role of Transport Scotland in relation to the 4 project was a provider of grant finance; is that 5 correct? 6 A. Yes. 7 Q. That was to be given under the Transport Scotland Act 8 2001? 9 A. If I can just clarify, that was after the change of 10 government in 2007. Sorry, we were providing grant 11 finance, yes. 12 Q. Let's look at the period pre 2007. There was still 13 a grant to be provided by Transport Scotland to 14 Edinburgh City Council? 15 A. Yes. This is where we get into sort of slight 16 semantics. The initial grant was provided by the 17 Scottish Executive and that grant was in place when 18 Transport Scotland started. 19 Q. But the involvement of Government, if I use the term to 20 include both the Executive and the Ministers after the 21 election, was that they were providing a grant? 22 A. That's correct, yes. 23 Q. It wasn't a Scottish Executive or Scottish Government 24 project? 25 A. In the formal sense, no. 123 1 Q. It was a City of Edinburgh Council? 2 A. Correct. 3 Q. If we look at your statement at page 43 and 4 paragraph 93, if you have that enlarged, you begin that 5 by saying that when Transport Scotland was established 6 on 1 January 2006: 7 "... the tram project was an existing partnership 8 between the Scottish Executive and the City of Edinburgh 9 Council." 10 Now, no one else is using the word "partnership". 11 Why do you use it? 12 A. I think I used "partnership" in the sense that it was 13 literally the outcome of the Partnership Agreement that 14 set up the coalition. But -- 15 Q. Well, that -- can we just stop for a second there. 16 There were certain projects brought forward in the 17 Partnership Agreement between the parties, as you say, 18 that formed the coalition in the Scottish Parliament? 19 A. Yes. 20 Q. But what you're talking about here is a partnership 21 between Scottish Executive and CEC, which is quite 22 different, isn't it? 23 A. I think that's correct, yes. 24 Q. So let's leave aside the political partnership or 25 coalition. In what sense do you describe it as 124 1 a partnership between the Scottish Executive and the 2 Council? 3 A. I think for the reason that you stated previously, that 4 staff from Scottish Executive had been quite closely 5 working with -- with the City of Edinburgh Council in 6 bringing the project forward and in taking it through 7 the parliamentary stages. 8 Q. But through that period, ultimately the role of the 9 Scottish Executive and then -- there was 10 a Scottish Executive throughout -- was that it was 11 providing a grant under the Transport (Scotland) Act? 12 A. Yes, that's correct. 13 CHAIR OF THE INQUIRY: You said earlier on, when you were 14 asked whether it was a Scottish Government contract, you 15 said not in the formal sense. Could I just clarify, 16 what did you mean by that? 17 A. The point I was trying to make, my Lord, was that 18 although the promoter of the project was City of 19 Edinburgh Council and tie were leading in its 20 development on behalf of the City of Edinburgh Council, 21 as far as I'm aware, Scottish Executive colleagues had 22 been very closely involved informally in the -- I'll 23 choose my words carefully. Had been very closely 24 involved in the development of the project to the extent 25 that, for example, there were meetings and working 125 1 parties before Transport Scotland was in existence. 2 MR LAKE: Both before and after Transport Scotland came into 3 existence, was the nature of the role played by 4 Government one of providing assistance to City of 5 Edinburgh Council in the project that they were 6 promoting? 7 A. I think that's a fair statement, yes. 8 Q. Now, you make reference in your statement to a number of 9 other projects that involved steering groups? 10 A. Yes. 11 Q. What is a Steering Group and what does it do? 12 A. I think I was trying to make the point in my statement 13 that we inherited a large number -- a reasonable number 14 of projects. There was no single template for projects 15 which were being developed jointly with local -- local 16 authorities. 17 For example, the Aberdeen Western Peripheral Road 18 was a shared endeavour with -- between the Scottish 19 Office, Scottish Executive and Aberdeen and 20 Aberdeenshire Councils. 21 There was a -- if you like, an oversight Board which 22 met not terribly frequently, but discussed issues to do 23 with the project. It was a means of sharing information 24 about the project. 25 Q. Was that actually a Transport Scotland project in the 126 1 sense they were the promoter or was it the Council's, 2 Aberdeen Council's? 3 A. Transport Scotland was promoting the project, but 4 I believe -- I may be wrong on this, but I believe there 5 was a financial contribution from the North-Eastern 6 Councils. 7 Q. But essentially it was a central government project? 8 A. It was a central government project, that's correct. 9 Q. You make mention in your statement of the Waverley 10 station refurbishment? 11 A. Yes. 12 Q. That was a Network Rail project, wasn't it? 13 A. Yes. It was, but fund -- that too was being funded by 14 the Scottish Government, the Scottish Executive. 15 Q. So that seems to be a bit more akin to the trams in that 16 it was someone else's project and the Scottish 17 Government were funding it? 18 A. That's correct, yes. 19 Q. Now, there's a steering group in that, and 20 Transport Scotland participated in that? 21 A. That's correct. 22 Q. Was that regarded as having caused any particular 23 difficulties in relation to Waverley station? 24 A. Not that I'm aware. 25 Q. I would like to you look at some documents for me. 127 1 Could you first of all look at CEC02083844. 2 Do you recognise this publication, 3 Scottish Executive publication, entitled "Building 4 Better Transport"? 5 A. Indeed, yes. 6 Q. I think if we look at the third page of it, it's the end 7 of a statement from the then Minister Iain Gray, and we 8 see the date of it is March 2003. 9 A. Yes. 10 Q. If we read the first paragraph there, it says: 11 "The City of Edinburgh, in particular, requires major 12 investment in its transport infrastructure. The Council 13 has developed an Integrated Transport Initiative. Their 14 plan seeks GBP375 million of central government funding. 15 With the development of our investment strategy, we are 16 now able to guarantee the future availability of that 17 level of funding. That support is not conditional on 18 the introduction of congestion charging, which the 19 Council is considering in order to reduce traffic levels 20 in and around the city. Our commitment ensures that 21 funding for at least the first tramline is available as 22 soon as the Council produces a robust Final Business 23 Case." 24 If I just stop there, we can see that the commitment 25 that was made by Government at that time was 128 1 GBP375 million. 2 A. Yes. 3 Q. Was that your understanding when you -- 4 A. Yes. 5 Q. You came in. 6 Are you aware whether attempts had been made to seek 7 indexation of that sum? 8 A. This is before my time at Transport Scotland. From 9 papers I have seen, I believe there were -- there was 10 a discussion about indexation. I put it no stronger 11 than that. 12 Q. It wasn't quickly conceded or acknowledged by the 13 Ministers that there would be indexation? 14 A. Well, as I say, I don't have direct knowledge, but it 15 seems not, yes. 16 Q. Then look at another document, please. It's got 17 reference CEC00630633. 18 You can see that we've moved on a year now. We are 19 now looking at September 2004, and this is the 20 preliminary Final Business Case update for line 1 in the 21 Edinburgh Tram Network. Do you see that? 22 A. Yes. 23 Q. We see in the following page, if we go to that, the bold 24 type at the bottom, this document has been prepared by 25 tie ltd and Grant Thornton on behalf of the City of 129 1 Edinburgh Council. 2 A. Yes. 3 Q. Can we go to page 13 within this. This is page 12 of 4 the document. 5 If we look at the paragraph beginning, "In assessing 6 affordability", and the two underneath it, the position 7 here is that at this time: 8 "In assessing affordability, two key assumptions 9 have been made: that there will be no indexation for 10 further Scottish Executive funding than the 11 GBP375 million grant which was conditionally proposed by 12 the Scottish Executive in March 2003." 13 Were you aware of this document? 14 A. No, because it was before my time at Transport Scotland. 15 Q. Have you read this document before? 16 A. No, I haven't. 17 Q. We can see from looking at it there that tie, producing 18 something on behalf of the Council in September 2004, 19 were assuming that it would be GBP375 million and no 20 more? 21 A. Yes, I see that. 22 Q. Then look at another document, please. It's got 23 reference CEC01875336. 24 We can see from the cover sheet here that this is 25 the interim outline Business Case from May 2005, it's 130 1 a draft for discussion with the date of 30 May 2005. 2 A. Yes. 3 Q. We can see from the logo in the bottom right-hand 4 left-hand corner, this has been again produced by tie? 5 A. Yes. 6 Q. Can we look at page 125 of this. 7 If you could highlight "Key Funding Assumption" and 8 the two paragraphs underneath it, you can see under that 9 heading, it says: 10 "SE [Scottish Executive] Grant: 11 "The financial model assumes that the grant from 12 Scottish Executive is capped at GBP375 million to be 13 paid either upfront as a capital grant, as LPFS during 14 operations ..." 15 I pause there to ask you what LPFS is? 16 A. I'm afraid I can't elucidate. 17 Q. "... or as a combination of both. Under project 18 configurations "Tram Line 1 only" and "Tram Line 2 only", as 19 total capital expenditures are lower than 20 GBP375 million, we are assuming that the total available 21 grant is capped at the total nominal capital 22 expenditures in each of these scenarios. 23 The GBP375 million funding is based on the award 24 announced in April 2003 by the Minister that the 25 GBP375 million grant will secure at least the completion 131 1 by 2009 of the north Edinburgh loop (Line 1), the first 2 tram line for the city in almost 50 years." 3 That last reference there seems to be a reference 4 back to the first document I showed you, the original 5 announcement? 6 A. Yes. 7 Q. What we see from the first of those two paragraphs are 8 quite clear references on two occasions that the grant 9 that is available is to be capped. 10 A. Yes, I see that. 11 Q. If we carry on looking through, that's in 2005. Go 12 through to 2006, document TRS00002128. 13 Presumably this is a form of paper which you're 14 familiar with? 15 A. Yes. 16 Q. Advice to Ministers? 17 A. Yes. 18 Q. It's from Damian Sharp, who was noted as Head of Major 19 Projects there, within Transport Scotland? 20 A. Yes. 21 Q. This is in the early days of Transport Scotland, the 22 very early days? 23 A. Yes. 24 Q. It's addressed to the Minister for Transport. Do you 25 see that? 132 1 A. Yes, I see that. 2 Q. The first paragraph notes: 3 "To recommend that you accept the phased approach to 4 the construction of Edinburgh Trams agreed by City of 5 Edinburgh Council on 26 January and that you agree in 6 principle to indexation of the GBP375 million previously- 7 committed Executive funding, in line with general 8 construction cost inflation." 9 This is going back to the issue of indexation which 10 was still live at that time? 11 A. Yes. 12 Q. Were you aware that it was a live issue when 13 Transport Scotland was set up and you took up your role? 14 A. It was not something that was brought to my notice. 15 I think it's fair to say, having looked at the papers 16 that I have been asked to look at by the Inquiry, that 17 obviously some discussion was going on in 2005 between 18 officials at the Scottish Executive and City of 19 Edinburgh Council or tie, and that ministerial -- this 20 was seeking ministerial approval for a discussion -- the 21 outcome of a discussion between officials. 22 Q. And ultimately indexation was agreed? 23 A. Indeed. 24 Q. Can we look over to the second page of this paper of 25 advice, at paragraphs 10 and 11. We can see that 133 1 paragraph 10 begins: 2 "We will also require City of Edinburgh Council and 3 tie to produce robust risk management proposals that 4 build on best practice elsewhere. tie's preferred 5 procurement strategy is a combination of conventional 6 capital procurement for the infrastructure and leasing 7 of the tram vehicles rather than PPP. Work on this is 8 being concluded with the Finance Partnerships Unit. 9 Following last week's meeting with the Minister for 10 Finance we have made it clear that we need to see clear 11 proposals for how the benefits of disciplined and 12 rigorous risk management brought by PPP can be applied 13 to this project, given tie's preferred procurement 14 structure. tie have already done some work on this and 15 are due to present further proposals as part of the next 16 Business Case update in March." 17 Then paragraph 11: 18 "We have made it clear to CEC and Tie that the 19 Executive commitment is capped and any future shortfall 20 would be for City of Edinburgh Council and Tie to deal 21 with." 22 So you see, Mr Sharp is quite clear in this, isn't 23 it, that there is a cap on this grant, and there are not 24 additional monies available? 25 A. Yes, that's been made clear, I agree with that. 134 1 Q. It's said that that has been made clear already to the 2 Council and tie? 3 A. I'm assuming that's correct then. 4 Q. But in the paragraph previous to that, number 10, 5 notwithstanding the fact that excess expenditure would 6 fall to the Council, Transport Scotland is taking an 7 interest in ensuring that there's a -- there are 8 appropriate risk management proposals in place, and how 9 the benefits of risk management can be applied to this 10 project? 11 A. That's correct, yes. 12 Q. So even when Transport Scotland weren't going to be 13 bearing the brunt of a cost overrun, they nonetheless 14 took an interest in ensuring that tie had procedures in 15 place to manage this? 16 A. Yes. 17 Q. Why would Transport Scotland do that? 18 A. Because the Ministers want the assurance going forward 19 that the project was viable. 20 Q. In what sense would it become unviable if the cost 21 increased? 22 A. Well, you would get a benefit to cost ratio which was 23 below parity. 24 Q. So even where the costs are capped, there's a clear 25 interest in monitoring what those costs would be and 135 1 controlling them? 2 A. Yes. 3 Q. Could we look at another document, please. It's 4 reference TRS00002205. We can see this is headed, "KPMG 5 notes from the meeting with Transport Scotland" - 6 Monday, 6 March 2006. 7 A. Yes. 8 Q. If I could -- we can see -- I should note the attendees 9 include from Transport Scotland, Damian Sharp, who was 10 the author of the last paper? 11 A. Yes. 12 Q. John Ramsay and Lorna Davis. 13 Could we look at the next page, please. I would ask 14 you to look at the heading at the bottom, "Gain/Pain", 15 and the text underneath it. The note of the meeting 16 says there: 17 "There will be no "Pain" mechanism. All costs over 18 and above the Scottish Executive's budget (including 19 headroom) will have to be funded by the City of 20 Edinburgh Council." 21 Once again, it seems to be quite a clear position on 22 the part of Transport Scotland at this time that there 23 would be no additional funding over the level of the 24 offered grant? 25 A. That's correct, yes. 136 1 Q. Going on further, another document. TRS00003241. Can 2 we enlarge the upper half of the page, to make it a bit 3 more readable. 4 Do you recognise what this paper is? 5 A. Yes, indeed. Yes. 6 Q. What is it? 7 A. It's a paper to our Investment Decision Making Board. 8 Q. What was the Investment Decision Making Board? 9 A. That was a Board of Directors within Transport Scotland 10 who provided advice to me as investment decision-maker 11 on proposals for major investments. 12 Q. They would have to -- materials would be provided to 13 them? 14 A. That's correct. 15 Q. They would consider them perhaps in some detail and make 16 recommendations to you? 17 A. Indeed; which I in turn would make to Ministers. 18 Q. If we look at the first paragraph of this, we can see 19 the purpose of the paper is: 20 "To seek the Board's views on the Edinburgh Tram 21 Draft Final Business Case. This paper, together with 22 any further views from the IDM ..." 23 Is that you? 24 A. No, I suspect that is probably -- well, it could be, but 25 it could equally be the Board itself. 137 1 Q. "... the IDM, would form the basis of advice to Ministers 2 on the tram network and whether to commit GBP60 million 3 to GBP70 million to cover utilities diversions and 4 further development until autumn 2007." 5 A. Yes. 6 Q. If we look at what is said about this on the second 7 page, if we could enlarge paragraph 6 and the bullet 8 points beneath it, you can see: 9 "The Board is invited to note: the Edinburgh tram 10 network is a Partnership Agreement commitment." 11 Is that a reference to the Partnership Agreement 12 being the Coalition Agreement? 13 A. Yes. 14 Q. Then the second bullet point is: 15 "Ministers are committed to a capped 16 contribution of GBP375 million in 2003 prices towards 17 phase 1a." 18 A. Yes. 19 Q. So it's consistent with all we have seen before, that 20 the contribution of the Ministers or the Government is 21 to be capped? 22 A. Yes. 23 Q. One last document to look at for the time being. It's 24 reference TRS00003584. We can see this is an email from 25 Damian Sharp, who I think was within Transport Scotland; 138 1 is that right? 2 A. That's correct, yes. 3 Q. It's addressed to Lorna Davis and copied to 4 Matthew Spence and John Ramsay, all three of those being 5 also within Transport Scotland? 6 A. Yes. 7 Q. The date on it is 30 January 2007. If you could enlarge 8 the lower half of the page, could we go up to the upper 9 part of the page for context, it says: 10 "Lorna, for the record. I trust you have filed the 11 original email from Bill Reeve." 12 I'll come to that in a moment: 13 "This note records the reasons that 14 Transport Scotland decided not to send the letter 15 requested. Essentially, Transport Scotland as an 16 Executive Agency of the Scottish Ministers was not in 17 a position to say anything beyond that which the 18 Minister for Transport has already said publicly. 19 In terms of the specific letter proposed, I have 20 highlighted the two passages that go significantly 21 beyond Ministers' stated position." 22 If you scroll down to the second highlighted 23 passage, we can see the passage was: 24 "At this stage it is not possible for 25 Transport Scotland or Scottish Ministers to provide any 139 1 specific guidance about additional capital funding which 2 may be forthcoming." 3 What's noted in relation to that is: 4 "I consider that this statement is not a full 5 statement of Ministers' position. Ministers have said 6 repeatedly that there won't be further funding beyond 7 the GBP375 million indexed - Nicol Stephen gave the very 8 simple answer no to whether there would be any 9 possibility of funding increase when giving evidence to 10 the Tram Bill Committees. The subsequent inclusion of 11 indexation did not alter this principle and Mr Scott has 12 also confirmed publicly that there will not be 13 additional funding available for the tram network. 14 Transport Scotland and Scottish Ministers have 15 therefore given specific guidance about additional 16 capital funding which may be forthcoming - there won't 17 be any." 18 That's quite unequivocal, isn't it? 19 A. Yes, but it has to be read with the final sentence. 20 Q. Let's read it: 21 "It is, of course, possible that this position will 22 change, but we must not refer to this possibility 23 publicly when Ministers have made it clear publicly that 24 there will be no additional funds." 25 A. Yes. 140 1 Q. So we have seen that that confirms what the Ministers 2 have stated in public and we have seen a number of 3 references by tie or the Council to that being the 4 position as understood by them, that there would be no 5 additional funds? 6 A. Yes. 7 Q. Also in internal papers, it was internal to 8 Transport Scotland, making it plain that there would be 9 no additional funds. 10 A. Yes, I agree with that. 11 Q. So when after the Scottish Parliament's debate in 12 mid-2007, the position was reached that the project 13 would go ahead within the funding limits set by the 14 previous administration, that in fact was no change to 15 the position as it had been generally understood? 16 A. That's correct. 17 Q. So there was no material change then in risk allocation 18 at that time? 19 A. I believe there was. 20 Q. In what sense? 21 A. In the sense that Transport Scotland was involved in the 22 governance of the project, influencing decisions that 23 were being taken on the project, and the change that 24 took place in summer of 2007 was to remove any ambiguity 25 that that created. 141 1 Q. What -- 2 A. My view is that there was an explicit risk transfer. 3 Q. Well, the position before -- as you've seen -- was that 4 the funding was capped at a fixed level? 5 A. Indeed. 6 Q. The position afterwards was that the funding was capped 7 at a fixed level? 8 A. Yes. 9 Q. So beforehand, if the costs exceeded the funds 10 available, they would be picked up by City of Edinburgh 11 Council? 12 A. We're dealing in a situation where City of Edinburgh 13 Council obviously had aspirations for a little bit more 14 comfort than they had. 15 Q. But they had acknowledged that they weren't going to get 16 that. The Ministers had said they weren't going to get 17 that, and internally, Transport Scotland were working on 18 the basis they weren't going to get that; is that 19 correct. 20 A. That's correct, yes. 21 Q. Now what happened then is that the Parliament said it 22 was to be carried out within the funding agreed by the 23 previous administration? 24 A. That's correct. 25 Q. Which is essentially exactly the same position as 142 1 everyone was discussing beforehand. 2 A. Yes, but the Parliament also said some other things. 3 Q. Can we go to the Parliament's debate on this, please. 4 It's reference SCP00000030. We can see we are looking 5 here at the meeting of the Parliament on Wednesday, 6 27 June, and if we could go forward within this, please, 7 to page 12, could we highlight the text in the upper 8 left-hand corner, down to 15.05. What it says there is 9 that the presiding officer noted that the next item of 10 business was a debate on the numbered motion in the name 11 of John Swinney on transport: 12 "I call Mr Swinney to move the motion." 13 The motion moved was: 14 "That the Parliament endorses the Government's 15 transport priorities and notes that the Government party 16 proposed during the election campaign not to proceed 17 with the Edinburgh Trams and current EARL projects, but 18 planned an additional crossing for the River Forth." 19 So that was the first motion put before the 20 Parliament? 21 A. Yes. 22 Q. Then if we go forward to the following page, and if we 23 could highlight the text in the right-hand column 24 beginning "I move the amendment", and the paragraph 25 underneath it. This was something moved by 143 1 Wendy Alexander. She moved the amendment, again with 2 the given reference, to leave out from "endorses" to the 3 end and insert instead: 4 "Notes that the Edinburgh Trams project and EARL 5 were approved by the Parliament after detailed scrutiny; 6 further notes the report of the Auditor General for 7 Scotland on these projects and in light thereof calls 8 upon the Scottish Government to proceed with the 9 Edinburgh Trams project within the budget limit set by 10 the previous administration, noting that it is the 11 responsibility of Transport Initiatives Edinburgh and 12 the City of Edinburgh Council to meet the balance of the 13 funding costs ..." 14 It then goes on to deal with EARL, which is 15 a separate matter? 16 A. Yes. 17 Q. If we go to the further pages within this, if you go to 18 page 36 of the electronic version, perhaps just look at 19 the whole page. We can see the first thing in the 20 left-hand corner is whether or not the amendment in the 21 name of Wendy Alexander should be agreed to. There 22 wasn't agreement and it went to a vote. 23 If we look at the following page, we can see the 24 presiding officer notes that the result of the division 25 was that there were 81 votes for Ms Alexander's 144 1 amendment, 47 against, so the amendment was agreed to. 2 Then the Presiding Officer notes the second question 3 is whether the motion as amended, Mr Swinney's motion as 4 amended should be agreed to. 5 Do you see that? 6 A. Yes. 7 Q. If you go to the following page, I can't immediately put 8 my finger on it, but ultimately the outcome of the 9 Parliament was to agree to Wendy Alexander's amended 10 motion to proceed with the tram project? 11 CHAIR OF THE INQUIRY: 1189, under the Presiding Officer, 12 there seemed to be some confusion. He says: 13 "The division was on a motion in the name of 14 John Swinney, on transport as amended." 15 MR LAKE: I think it was the reference to Tom McCabe that 16 threw me because that was an error on the part of the 17 presiding officer. The outcome of that was 18 that Mr Swinney's motion as amended was agreed to by the 19 Parliament. 20 A. Yes. 21 Q. Now, what other guidance do you consider was provided by 22 the Parliament that was material? 23 A. I think it's important to look at the contributions of 24 a number of members in the debate, because I think they 25 reflect perception, or perhaps not perception, an 145 1 intended outcome which was different from, let's say, 2 the letter of the law as you've outlined it previously. 3 Q. Just before I do that, can I just ask, in trying to 4 determine what the will of the Scottish Parliament is, 5 would you do that by looking at individual contributions 6 or the vote that's taken on the motion? 7 A. We are not going to get into Pepper v Hart territory 8 here, are we? 9 Q. We are not construing legislation, are we? 10 A. No, we are construing a motion. We are construing the 11 context in which the amended motion was passed. 12 Q. Is there any -- 13 A. I think you might find it helpful to look at the late 14 Mr McLetchie's contribution to the debate. 15 Q. Can we look at page 20 of the scan, please. Is it the 16 text towards the lower right-hand corner? 17 A. I think it's on the next page. Could I read out the 18 paragraph that I have in mind, which is the top 19 paragraph. 20 Q. Certainly. Could we highlight the top paragraph, 21 reading down to "Margaret Smith"? 22 A. I need to start halfway through that paragraph: 23 "It is, in our view, time to volley the ball back 24 into the court of tie and the City of Edinburgh Council, 25 and to make it clear to them that as promoters of the 146 1 scheme, it is their responsibility to bridge any funding 2 gap and that they alone are responsible ..." 3 Et cetera. I think the fact that Mr McLetchie 4 thought it important to read that into the official 5 record does suggest that that is not how he perceived 6 the position as it stood then. 7 Q. Just to be clear, we're talking about one statement by 8 a member of the Scottish Parliament, someone who wasn't 9 a member of the administration. Did that dictate what 10 Transport Scotland did thereafter? 11 A. No. 12 Q. If we look at the terms of Ms Alexander's motion once 13 again -- 14 CHAIR OF THE INQUIRY: Before you do that, that sentence in 15 Mr McLetchie's speech, does it really alter what we've 16 seen before, that he puts it in a more forceful way, but 17 he's making it clear that the burden of meeting any 18 funding gap rests with the City of Edinburgh and tie. 19 That's all he is saying. 20 A. He is saying it, but he's echoing the comments of 21 previous members who use expressions like no bailout, no 22 blank cheque. I'm simply drawing attention to the fact 23 that the motion which was an opposition amendment is 24 being very firm about what it feels needs to change. 25 MR LAKE: We can get that, if we look back at the terms of 147 1 the amendment as it appears on page 13 of the scan, and 2 we highlight the paragraph on the right-hand side, 3 beginning: 4 "I move the amendment and the terms of the amendment 5 thereafter ..." 6 We can see, we don't need to go ferreting through 7 the undergrowth of the individual contributions to the 8 debate, do we, because paragraph (a), beginning on the 9 fourth line there: 10 "... calls on the Scottish Government to proceed 11 with the Edinburgh Trams project within the budget limit 12 set by the previous administration, noting that it is 13 the responsibility of Transport Initiatives Edinburgh 14 and the City of Edinburgh Council to meet the balance of 15 the funding costs." 16 It couldn't be clearer, could it? 17 A. No, it couldn't. 18 Q. That is exactly the same position that already existed 19 if Transport Scotland were going to cap the funding, as 20 they put it. 21 A. I won't pursue this further. I think we have a 22 difference of understanding. 23 Q. What is your understanding? 24 A. That I think if the motion was intended to do simply 25 what you're suggesting, the first clause after (a) would 148 1 be sufficient. I think noting that it is the 2 responsibility of Transport Initiatives Edinburgh, and 3 the City of Edinburgh Council, if that is already the 4 position, why restate it? It is the position, but it 5 is, as I say, I don't think it was the understood 6 position. 7 CHAIR OF THE INQUIRY: No, but the amendment was in the face 8 of a motion by the Minister to effectively -- to 9 withdraw funding. 10 A. I agree. 11 CHAIR OF THE INQUIRY: So the amendment was to grant or to 12 restore the status quo. 13 A. Yes. 14 CHAIR OF THE INQUIRY: I'm bound to say, it's an interesting 15 piece of constitutional law as to whether a contribution 16 by a member in the Commons or the Lords or the Scottish 17 Parliament can define the will of Parliament. 18 A. I agree, but the point does not occur once. It occurs 19 several times. It's made by the speaker who spoke 20 immediately after Wendy Alexander. 21 There's a theme. That's all I'm saying. And that 22 is apparent in the official record. 23 MR LAKE: Could I ask you to look, please, at page 55 of 24 your statement, page 57 of the scan. I'm starting at 25 page 55 to provide some context. You're starting with 149 1 paragraph 123, where you're considering emails and 2 communications that passed after the parliamentary vote 3 that we've referred to. 4 But if you could go to the next page of this, and 5 look at the lower half of the screen, we will see 6 there's a reference to a document ending 4547. If 7 I could read after that, what you say is: 8 "I agree with the first part of statement, that the 9 Auditor General had concluded that the governance 10 arrangements were effective; however, what John Ramsay's 11 paper did not reflect was the fact that the status of 12 the tram project had changed fundamentally with the 13 ministerial decision that the financial risk for the 14 project should lie entirely with CEC." 15 What do you mean the financial risk for the project 16 should lie entirely with CEC? 17 A. The risk of any overrun. 18 Q. Now, we discussed this again -- we discussed this 19 already, but prior to the parliamentary vote, we have 20 seen a number of references to the grant being capped. 21 A. Yes. 22 Q. That's taken -- in its terms it means that the risk of 23 excess cost would already fall on CEC. 24 A. I agree. But this -- 25 Q. So can I ask you here what was the ministerial decision 150 1 that you're referring to, that the risk should lie 2 entirely with CEC? 3 A. Effectively, the ministerial decision was that the 4 project was now CEC's to run in a way that it hadn't 5 been unambiguously before then. 6 Q. That's not a decision as to the allocation of financial 7 risk, is it? That's a decision on his part that 8 Transport Scotland wouldn't play any part in it? 9 A. I think it has a bearing in risk. 10 Q. In what sense? 11 A. In the sense that I have set out in my statement. If 12 a senior member of Transport Scotland staff is 13 participating in decision-making on the tram, I think it 14 would be reasonable for the City of Edinburgh Council to 15 say: well, if you're influencing decisions, you also 16 have to bear some of the risk. 17 Q. Transport Scotland participated in the tram project 18 prior to the parliamentary vote, didn't they? 19 A. Yes. 20 Q. They sat on the Tram Project Board. Despite that, we 21 have seen consistent references to the fact that the 22 grant was being capped? 23 A. Yes, but I think you will also find, and I think you 24 have perhaps referred to them, there are letters to City 25 of Edinburgh Council seeking to change that position. 151 1 Q. But it's easy for the Government to say no, when they 2 have made it plain for years it's been capped? 3 A. I agree. 4 Q. So there was nothing in the parliamentary vote which of 5 itself changed the risk? 6 A. No, but I think it crystallised the situation. 7 Q. Very well. 8 Just what is the ministerial decision you're 9 referring to? I come back to that. I'm not sure 10 I understand your answer. What decision was taken by 11 the Minister that had the effect of transferring risk? 12 A. As I have said, to the extent to which 13 Transport Scotland was involved in -- directly involved 14 in the governance of the project, to my mind, that 15 imported risk to Scottish Ministers. 16 Q. What decision of the Minister had the effect that risk 17 for the project should lie entirely with the Council? 18 A. If you want to narrow it down to those terms. 19 Q. Yes? 20 A. It was his wish that Transport Scotland should cease to 21 be on the Tram Project Board. 22 Q. Then if we read on, we see: 23 "What this paper argued for was a status quo in 24 governance when actually the status of the tram project 25 itself had changed. I do not disagree that sound 152 1 financial control and public probity should be the 2 priority. Within the Scottish Public Finance Manual, 3 there were adequate controls and measures to protect the 4 public financial interest through a purely grant aided 5 mechanism, and that was what Transport Scotland's 6 involvement in the tram project evolved into. It was 7 moving from being a project jointly funded by the 8 Scottish Executive and the Council with shared risk to 9 a project where, as Ministers had made very clear, all 10 the financial risk lay with CEC." 11 Just dealing with that last sentence, prior to the 12 vote, it wasn't a project with shared risk, was it? As 13 matters stood? 14 A. As matters stood, yes. 15 Q. So there was no shared risk? 16 A. There -- I think I have pointed out elsewhere in my 17 statement that if there had been any risk, any 18 overspend, my interpretation was that there would have 19 been a negotiation. 20 Q. There's always a possibility of negotiation, isn't 21 there? 22 A. Yes. 23 Q. In theory, even after Mr Swinney's statement, even after 24 a parliamentary vote, there could have been some form of 25 negotiation. It's always possible? 153 1 A. Yes. 2 Q. But in what sense would you have said, pre 2007, that 3 the risk was shared? Just because there was 4 a possibility the Government might choose to pay? 5 A. No, I think the risk was there in the governance 6 arrangements we had for the project. 7 Q. Had any suggestion been made that that would lead to 8 Transport Scotland being on the hook? 9 A. I think it would have probably created an expectation. 10 CHAIR OF THE INQUIRY: I think the question was: had there 11 been any suggestion to that effect? 12 A. I can't point to a direct suggestion. 13 Q. Then if you go -- if you read the last sentence of 14 that -- last word of that page is the name "John", and 15 then if we go over the page: 16 "John Ramsay's paper did not reflect the risk 17 transfer that the Scottish Ministers expressly required 18 following the Parliamentary decision." 19 Here we are talking about a different thing, not 20 that the Parliament in any sense transferred risk, but 21 that the Scottish Ministers were the ones that 22 transferred risk. Is that the Ministers' decision to 23 step back from all governance in the project? 24 A. Yes. 25 Q. So if we go to paragraph 9 of your statement, it's on 154 1 page 4 of the statement, which is page 6 of the scanned 2 version: 3 "So far as the Edinburgh Tram Scheme was concerned, 4 Transport Scotland's role changed in 2007 from that of 5 a project partner into simply that of a funder." 6 That essentially was the decision that the Ministers 7 took, that you were to step back and simply be a funder? 8 A. Yes. 9 Q. "The two airport rail links, EARL and GARL, did not go 10 ahead, so the issue of Transport Scotland's role in 11 their delivery arrangements did not materialise. At its 12 outset the tram project was similar to other joint 13 projects. However, the outcome of decisions by the 14 Scottish Ministers and the Scottish Parliament in 2007 15 was that there was a change in responsibilities for the 16 tram project and the nature of its governance, 17 reflecting an explicit risk transfer from the Scottish 18 Government to the City of Edinburgh Council." 19 Once again, just to be quite clear, that although 20 there you say the decisions by the Scottish Ministers 21 and the Scottish Parliament, the risk transfer was 22 actually the decision of the Scottish Ministers? 23 A. In that sense, yes. 24 Q. Then if we look at page 17, it will be at page 19 of the 25 scanned, we see that if we look at paragraph 38, 155 1 highlight it, and look towards the end, about eight 2 lines up, seven lines up, there's a sentence that 3 begins, "TS was at this stage asking for conditions". 4 Do you see that? 5 A. Yes. 6 Q. "TS was at this stage asking for conditions to be met 7 which would have been appropriate if Scottish Ministers 8 had continued to have a potential financial exposure 9 beyond their initial commitment. That of course ceased 10 to be the case, and the immediate purpose of some of 11 those conditions was overtaken by the events following 12 the Scottish parliamentary election and the change in 13 government." 14 Again, just looking at the period prior to 2007, 15 when those conditions were there, there was no actual 16 exposure of the Scottish Ministers -- 17 A. No. 18 Q. -- to overrun? 19 A. The word I used was "potential". 20 Q. So essentially, the Scottish Ministers, are you 21 suggesting that they asked for conditions to be put in 22 just in case in future they decided to concede that they 23 would make further payment? 24 A. The conditions were designed to protect the Scottish 25 Ministers' financial interests in the project. 156 1 Q. What risk did they have prior to 2007? 2 A. My view is that the risk was there, as it was in any 3 other jointly funded project, such as the Aberdeen 4 western peripheral road, such as the M74 extension. 5 Those were both joint projects, and if those had gone 6 over budget, I'm quite sure that there would have been 7 an expectation that Scottish Ministers would have stood 8 alongside the local authorities in meeting that 9 overspend. 10 Q. You have already told me this afternoon that the 11 Aberdeen Western Peripheral route was a Scottish 12 Government project, so of course the Scottish Government 13 were on the hook for overrun? 14 A. Yes. 15 Q. This was entirely different. This was a City of 16 Edinburgh Council project, and the Scottish Government 17 were making available the grant. 18 A. I believe that -- I cannot at this stage -- I believe 19 there was local authority money in the Aberdeen Western 20 Peripheral. There was certainly local authority money 21 in the Glasgow M74 extension. 22 CHAIR OF THE INQUIRY: But they were government projects, 23 weren't they? 24 A. I would need to refresh my memory on that, but my 25 recollection is that Glasgow City Council actually led 157 1 on the M74 extension. 2 CHAIR OF THE INQUIRY: So it's a local authority. 3 A. With funding from Scottish Ministers. 4 MR LAKE: You say in the next sentence: 5 "That of course ceased to be the case and the 6 immediate purpose of some of those conditions was 7 overtaken by events." 8 What was the immediate purpose of those conditions 9 that you are referring to? 10 A. The immediate purpose, as I have said, was to protect 11 Scottish ministers' financial interest in the project, 12 however defined. 13 Q. I'll leave it there. 14 If we then go to page 24 within your statement. 15 Sorry, wrong numbering. Can we go to page 36. Is 16 that -- look at paragraph -- pardon me. Could you go to 17 page 38, which is page 36 of the statement. Could we 18 enlarge paragraph 81. 19 Is what you're talking about there the same as we 20 have just been discussing? 21 A. I think it is, yes. 22 Q. Could we look, please, at page 44 of the scanned 23 version. Look at paragraph 95. What we see here is: 24 "Transport Scotland had no direct role in requiring 25 or promoting the changes in the responsibilities of 158 1 these bodies. The changes that took place in 2007 were 2 as a [direct] result of the change of the Scottish 3 administration and the change in the status of the 4 project following the parliamentary resolution of 5 27 June that year. 6 While the detailed implementation of these changes 7 took some time to formalise, the broad intention was 8 clear from the outset. The balance of responsibilities 9 had altered so the basis of the relationship needed to 10 be altered to reflect that." 11 Here we're talking about the change in the 12 relationship, the governance relationships, between the 13 Council on the one hand and Transport Scotland on the 14 other. 15 Now, if you're saying that relationship had to be 16 changed because of other changes in 2007, what are the 17 other changes that meant the governance relationship had 18 to be changed? 19 A. I think the reiteration of the fact that this was the 20 City of Edinburgh Council's project. 21 Q. But you told me the reason that came about -- start 22 again. 23 There seems to be a circularity here. On the one 24 hand, you are telling me that the transfer of risk took 25 place as a result of the governance changes. And now 159 1 you are saying that the governance changes took place 2 because essentially of the change in risk? 3 A. No, what I'm saying is that the governance, to my mind, 4 the governance retained risk for Scottish Ministers. 5 The governance structures retained risk for Scottish 6 Ministers. 7 Q. In what sense? 8 A. In the sense that if Transport Scotland was influencing 9 decisions on the future of the project, then they were 10 opening up the Ministers to a counterclaim by the City 11 of Edinburgh Council that -- by their actions they had 12 caused an outcome. 13 Q. Transport Scotland had come into existence in 14 January 2006. Between January 2006 and end of 15 June 2007, was there any expression of concern within 16 Transport Scotland that they would be subject to 17 financial risk of the overrun of this project? 18 A. No, because at that stage of the project we were still 19 in project development stage. The sums at risk were 20 monies that had been advanced for MUDFA and for taking 21 the project to Final Business Case. 22 Q. And in mid-2007, what was the change in the project 23 stage in mid-2007? What was the change in the project 24 stage in mid-2007? 25 A. We were looking forward to Final Business Case and the 160 1 letting of contracts. 2 Q. You could have looked forward to the Final Business Case 3 from the start of 2006, couldn't you? 4 A. We could, yes. 5 Q. Essentially, this is a fiction. The only thing that 6 changed at that time was the change in government, and 7 this is trying to find a reason to satisfy the political 8 will to withdraw? 9 A. I think you're overstating the case. 10 Q. But that -- you use an interesting term there, 11 "overstating". Does that mean you accept that part of 12 that is the justification for what's happened? 13 A. No, that was not why I wrote that section in those 14 terms. The project was moving forward. It was moving 15 from a project that was in development still with future 16 stop points in the project, but we were getting to the 17 point where serious money was being committed in major 18 contracts. 19 Q. You're aware that in the grants that existed -- the 20 grant terms which existed as at June 2007, there was 21 a stop point for the Scottish Government when the Final 22 Business Case was presented? 23 A. Yes. 24 Q. So the Scottish Government had ample opportunity to 25 reconsider things when the Final Business Case was 161 1 presented, if it really wanted to? 2 A. Yes. 3 Q. So there was no need to suddenly do that in 4 June/July 2007? There was no need to change the 5 governance relationships and the basis of governance in 6 June or July 2007? 7 A. I would disagree. 8 Q. Very well. 9 If we look in a similar vein at page 57 of the scan, 10 page 55 of your statement, if you enlarge paragraph 122. 11 Reading some eight lines down: 12 "Transport Scotland could not remain a part of the 13 governance arrangements and on the Tram Project Board 14 because of the change in risk management 15 responsibilities." 16 Earlier this afternoon you told me that the change 17 in risk management responsibilities was because of the 18 change in governance arrangements. Here you are saying 19 explicitly that the governance arrangements mean that 20 there was a change in risk. Which is it? 21 A. Sorry, I don't quite follow what you're saying. 22 Q. I asked you earlier what was it changed the risk in 23 2007. You said, well, it was the change in governance. 24 A. No -- 25 Q. Here you seem to be saying that the change in governance 162 1 is what gave rise to the change in risk? 2 A. No, what I'm saying is that with the governance 3 structure that existed up to the summer of 2007, there 4 was a risk. And in order to satisfy the requirements of 5 both the -- explicitly the requirements of both the 6 Parliament and the Ministers that -- that risk should 7 cease, that is why the governance changed. 8 Q. Could we go to page 64 of your statement. It's page 66 9 of the scanned version. You highlight the uppermost 10 paragraph on the page. Take it from the fifth line: 11 "The Scottish Ministers had expressed their 12 intention to change the basis on which the tram project 13 would be carried forward, and I was not aware of anyone 14 in Transport Scotland complaining about the new 15 arrangements once the situation was understood." 16 What was the Scottish Ministers' expression of 17 intention to change the basis? What had they said they 18 intended to do? 19 A. They'd said they wished Transport Scotland to withdraw 20 from the Tram Project Board. 21 Q. That was expressed, an intention of the Ministers 22 expressed to you following the vote, was it? 23 A. It was -- it was -- it was developed, as you will see in 24 the papers which were exchanged between my office and 25 the Cabinet Secretary's office, but as you will see from 163 1 one of the papers, I refer to an oral reminder by the 2 Cabinet Secretary that he wished Transport Scotland to 3 withdraw from the Board. 4 Q. If we look at -- 5 CHAIR OF THE INQUIRY: So the impetus came from the Cabinet 6 Secretary? 7 A. Explicitly express interest -- explicit expression, yes, 8 came from the Cabinet Secretary. 9 CHAIR OF THE INQUIRY: Thank you. 10 MR LAKE: Could we look at page 10 of your statement, 11 page 12 of the scanned version. In paragraph 24, if we 12 highlight that, what you say there is: 13 "Up until the summer of 2007, when the status of the 14 project changed, Transport Scotland would have 15 scrutinised the estimates and commented as appropriate. 16 That was because the Scottish Government potentially had 17 a financial exposure to any cost overruns." 18 A. Yes. I used the word "potentially" there as well. 19 Q. Yes, we have been through that extensively. Was it not 20 the case, as you have acknowledged today, that the other 21 reason why you would scrutinise estimates and costs is 22 to be sure of the benefit-cost ratio? 23 A. Indeed. 24 Q. Because the Scottish Government would make grants 25 available to projects which produce a sufficient 164 1 benefit? 2 A. That's correct. 3 Q. So the fact that estimates and things were scrutinised 4 beforehand is just as consistent with Transport Scotland 5 wanting to be sure of the benefit-cost ratio as opposed 6 to being any potential financial exposure? 7 A. But later in the documentation, you will see the report 8 that was prepared within Transport Scotland on the Final 9 Business Case, and it's made clear that the tests we're 10 now saying, is yes, we still wanted to have an assurance 11 that the benefit-cost ratio was above 1, but 12 essentially, we were looking to City of Edinburgh 13 Council to give assurance on the other things that the 14 Business Case was satisfactory, and that a Gateway 15 Review had been carried out. 16 Q. If we look at the grant letter -- I'm just trying to 17 find the reference for it. Could we look, please, at 18 reference CEC00021548. The front page of this, we can 19 see, is a letter dated 24 January 2008, and it's 20 a letter of acceptance from Tom Aitchison, the 21 Chief Executive of the Council, to John Ramsay within 22 Transport Scotland. Can you see that? 23 A. Yes. 24 Q. Look at page 3 of this, please. We can see this is the 25 letter offering the grant from Bill Reeve at 165 1 Transport Scotland to Tom Aitchison at the City of 2 Edinburgh Council, and it's dated 17 January 2008. Do 3 you see that? 4 A. Yes. 5 Q. If you can enlarge the lower half of the screen, under 6 the heading "Conditions Precedent", you can see that 7 what is required is that evidence that the Council has 8 approved a Final Business Case for the Edinburgh Tram 9 Network containing, and if you read down to (b): 10 "A Benefits Costs Ratio greater than 1." 11 A. Yes. 12 Q. So it wasn't something Transport Scotland was going to 13 examine itself. Like everything else, it was left up to 14 the Council to approve a Final Business Case with that 15 final costs-benefits ratio? 16 A. Yes. 17 Q. But earlier on in the project, prior to these changes 18 brought about for whatever reason, it would have been -- 19 if Transport Scotland itself had wanted to be assured 20 that the benefits-cost ratio would exceed 1, that is 21 a reason why they might have carried out an analysis of 22 the likely costs? 23 A. We didn't carry out an analysis from the raw data. We 24 commented on the figures that were provided to us by CEC 25 and tie. We did not go back to first principles. 166 1 Q. Figures were provided in the Draft Final Business Case 2 submitted at the end of December 2006. Were you aware 3 of that? 4 A. Yes. 5 Q. What was done in relation to the information in the 6 Draft Final Business Case then? What did 7 Transport Scotland do with that? 8 A. We took reassurance from City of Edinburgh Council. 9 Q. Is that all? You're talking about the Draft Final 10 Business Case, December 2006? 11 A. No, we examined the figures. We tested the 12 sensitivities, checked the assumptions that were 13 correct. 14 Q. Who carried out that assessment? 15 A. It was carried out within Transport Scotland by 16 Damian Sharp and one of our economists. 17 Q. Are you aware also that Cyril Sweett were engaged to 18 examine the cost in some detail? 19 A. That's correct. 20 Q. And KPMG were engaged on that project as well? 21 A. Yes. 22 Q. So it's something that Transport Scotland did in fact 23 examine in some detail? 24 A. We did. 25 Q. That's because Transport Scotland needed to be assured 167 1 of the benefits-cost ratio, that it was an appropriate 2 project to put GBP500 million of public money into? 3 A. At that stage we were -- what was under investigation 4 was the next phase. This is a phase project. 5 Q. Can I ask my question again. The detailed examination 6 was because Transport Scotland needed to be assured of 7 the benefits-cost ratio, that it was an appropriate 8 project in which to put GBP500 million of public money? 9 A. Yes. 10 Q. Thank you. 11 In relation to advice given after the parliamentary 12 vote, before you gave any advice to the Cabinet 13 Secretary, did you discuss matters with him or did he 14 discuss matters with you, whichever you prefer? 15 A. We're talking about events ten years ago. 16 Q. Yes. 17 A. As I said in my statement, I was meeting the Cabinet 18 Secretary very frequently over the course of those 19 months. 20 I cannot recollect the detail of any particular 21 discussion I had with the Cabinet Secretary at that 22 stage. That is not an evasion. It is a fact. I cannot 23 recollect which meetings I had and what was discussed in 24 those meetings because, frankly, I was meeting him two 25 or three times a week at some stages. 168 1 Q. Can we look at document reference TRS00004523. 2 I don't know if you recognise this. It appears to 3 be an advice to Ministers prepared by you, addressed to 4 the Cabinet Secretary, with the date of 6 July 2007. 5 Now, do you recall, had the Minister discussed with 6 you -- I'll start that again. What I would first of all 7 like to do is look at later pages within this. I think 8 it is more efficient. 9 Look, please, at page 7 in this; where you provide 10 there in relation to the Edinburgh Trams, advice into 11 overall funding. You set out a number of options, 1 12 through to 5, as to how the finance might be structured 13 and provided. 14 A. Yes. 15 Q. If you go over the page, we see your recommendation as 16 to option 3 provides the most -- reading short, the best 17 one. 18 A. Yes. 19 Q. Then under the heading, "Future Governance and the Role 20 of Transport Scotland", you give the advice that: 21 "The Parliament's decision places the risk of any 22 cost overruns on the Tram Scheme with the City of 23 Edinburgh Council, and makes it clear that 24 responsibility for managing and delivering the scheme 25 rests with the promoter." 169 1 Do you see that? 2 A. Yes. 3 Q. Now, we have already looked at the Parliament's 4 decision. Can you explain how that decision, as opposed 5 to anything that was there before, places the risks of 6 cost overrun with the Council and makes it clear that 7 the responsibility for managing it rests with the 8 promoter? 9 A. There's a sequence of events here. The Parliament took 10 its decision and then Mr Swinney stated publicly the 11 Government's position. 12 So the parliamentary decision preceded the 13 ministerial statement of how he proposed to take the 14 project forward. 15 Q. I'm just talking about the Parliament's decision here, 16 because that's what you're talking about in your advice 17 to the Minister, isn't it? 18 A. Yes. 19 Q. You're talking about the Parliament's decision in that 20 paragraph, are you? 21 A. In the way that is worded, yes, I agree. 22 Q. There's not really any ambiguity about it. 23 A. No, there isn't. 24 Q. It's not a question of how it's worded. It's what it 25 says. 170 1 A. Mm-hm. 2 Q. I'm just wondering what it was in the Parliament's 3 decision that placed the risk one way or another or made 4 it clear that responsibility for managing and delivering 5 risk was with the promoter. 6 A. I think this takes us back to the discussion we had 7 previously. 8 Q. In what sense? 9 A. We've already debated, and I think that's probably the 10 word to use, the -- how one should interpret events at 11 this -- that -- political events at this stage in the 12 process. 13 Q. So are you able -- I'm giving you an opportunity. If 14 you don't want to take it, that's fine. Do you wish to 15 point to anything in the Parliament's decision which 16 deals expressly with the question of risk or of 17 management and delivery of the project? 18 A. The Parliament expressed a very clear view about risk 19 and about responsibility. In a position where the 20 ministers or the -- the administration's intention was 21 to stop the project entirely. 22 Q. How did the Parliament or where did the Parliament 23 express its view, clear view, about risk? 24 A. By saying that responsibility for any financial overrun 25 lay with City of Edinburgh Council. 171 1 Q. If you look at the second part of this -- your second 2 paragraph of your advice, it's: 3 "To achieve this clarity of roles ..." 4 Presumably, that's reference to the responsibility 5 for delivering and managing the project? 6 A. Yes. 7 Q. A reference back to that: 8 "... and ensure that situations could not arise 9 subsequently in the governance of the project which 10 might generate further calls on central funding, 11 I propose that Transport Scotland's future engagement 12 with the Edinburgh Tram Project should be on the basis 13 of revised grant conditions, and once these conditions 14 are in place, Transport Scotland staff should withdraw 15 from active participation in the governance of this 16 project." 17 A. Yes. 18 Q. Had the Minister indicated to you prior to this that 19 that was the -- essentially the approach he wanted and 20 you provided a paper to support that view? 21 A. Unfortunately what's missing from this exchange is that 22 the email, to which this is a reply. 23 Q. Of course. Let's go to that. It's TRS -- sorry, to 24 which this is a reply? 25 A. Yes, this is a reply to an email from the Minister's 172 1 office of 2 July, which I'm afraid I have never seen or 2 has not been produced to me. 3 CHAIR OF THE INQUIRY: Mr Lake, is this a convenient moment? 4 MR LAKE: Yes, I'll try and find it. 5 CHAIR OF THE INQUIRY: We will have a short break for the 6 benefit of the suppliers. We will resume again at 3.35. 7 (3.25 pm) 8 (A short break) 9 (3.35 pm) 10 CHAIR OF THE INQUIRY: You're still under oath, Dr Reed. 11 MR LAKE: Thank you, my Lord. 12 Mr Reed, I have a copy of that email available to 13 me, but, my Lord, I'm afraid it's not on the 14 TrialDirector system which displays matters on the 15 Inquiry screens. So what I was going to suggest is that 16 I simply just read it, in terms of the email to the 17 witness, and I will make arrangements that it is put on 18 the Haymarket system for all core participants or copies 19 can be provided after the hearing. 20 CHAIR OF THE INQUIRY: Do you know why that was? 21 MR LAKE: Yes. I have made some enquiries. The reason was 22 the email in question was not in the papers for the 23 materials provided by us to the Inquiry by 24 Transport Scotland originally, and it was only made 25 available to us on 31 August this year, after the 173 1 Cabinet Secretary had given his statement. So it was 2 a very late addition to the Inquiry materials. 3 CHAIR OF THE INQUIRY: As long as it's put on Haymarket to 4 allow people to read. 5 MR LAKE: What you were considering there, Mr Reed, was an 6 email that was sent from the Assistant Private Secretary 7 or the Cabinet Secretary, I think, to the Private 8 Secretaries within Transport Scotland, dated 2 July 9 2007. 10 A. That's correct. 11 Q. I'll read the copy of this and you can confirm whether 12 or not it's the one you are referring to. 13 A. Can I make clear. I haven't seen this email either. 14 Q. The one I have says: 15 "Mr Swinney is looking for advice from 16 Transport Scotland in time for his return next week 17 around how we take forward Parliament's view on the EARL 18 project. Mr Swinney is minded to meet BAA and 19 Network Rail separately in order to ascertain their 20 position. Is this worth pursuing and how would it fit 21 into the overall process? As part of that overall 22 process, it would be helpful to have a description of 23 the alternatives available. For example, how does the 24 tram scheme fit into this changed picture? It would 25 also be helpful to have advice on the consequences for 174 1 the government of consequentials such as redundancies in 2 tie. Please see an attached letter received late on 3 Friday from tie." 4 Now, we can see that the focus of that email, 5 2 July, is principally EARL, rather than the trams? 6 A. Yes. 7 Q. Trams get something of a passing mention? 8 A. Yes. 9 Q. Nonetheless, you provided the document that we were 10 looking at, the one with reference TRS00004523, in 11 response to that, in which you considered at some length 12 the financing -- 13 A. Yes. 14 Q. -- of the trams and the possible future governance 15 options. 16 Did you have a further request made to you for some 17 further assistance in relation to those matters or did 18 you just take it upon yourself to provide them? 19 A. At this distance in time, I can't be sure. 20 Q. Do you have any recollection of whether it's a matter 21 that the Cabinet Secretary -- that had been involved in 22 your discussions with the Cabinet Secretary? The 23 question of the trams and these proposals had already 24 been discussed with the Cabinet Secretary when you wrote 25 this paper? 175 1 A. I would assume so, but at this distance in time, I can't 2 confirm that. 3 CHAIR OF THE INQUIRY: I thought you said -- I got the 4 impression -- I may be wrong -- that there was 5 a sequence of events that there was the decision of 6 Parliament and did you say that there was some oral 7 communication by the Cabinet Secretary? And was that 8 before or after? 9 A. What I can't be sure of, I apologise, but it is a matter 10 of memory, there were a lot of meetings in that period 11 of the year, and I'm not sure what -- to be honest, 12 I cannot be sure of the sequence of events. So the 13 reason I was interested to see that email was whether or 14 not it contained an explicit request from the Cabinet 15 Secretary for advice on governance. Apparently it 16 doesn't. 17 So I really can't help the Inquiry any further as to 18 where the initiative for this email -- where the email 19 you've got on screen at the moment came from. 20 Q. Could I ask to you look at another document and ask you 21 whether it sheds any light on matters. The document 22 reference is TRS00011413. 23 Look at the upper half of this. 24 A. All right. 25 Q. That's email from Ainslie McLaughlin within 176 1 Transport Scotland, from David Middleton, who I think 2 was your successor as Chief Executive, is that correct? 3 A. Correct. 4 Q. Dated 1 December 2010. What Mr McLaughlin says is: 5 "My recollection at the time was that Ministers wanted 6 to take what was described as a light touch. Malcolm 7 put a note up recommending approach to meet that 8 expectation. I can dig that note out and let you see." 9 A. Yes. 10 Q. Taken at face value, it's suggesting that you were told 11 what the Ministers wanted and provided a note 12 accordingly. Is that a reasonable assumption that that 13 is what took place? 14 A. Ministers had a press conference on the day of the 15 parliamentary decision. Again, I cannot recall what was 16 in -- what was said at that press conference. That 17 would have provided us with an indication what line 18 ministers wished us to take. 19 But I think what you're seeing here is the working 20 through of that expression of intent from the ministers, 21 which frankly I think I did not have any great problem 22 with. 23 Q. That summary that I just gave? 24 A. Yes. 25 Q. Move on from that. 177 1 As at June 2007, Transport Scotland had sat or had 2 a representative that sat on the Tram Project Board for 3 some 18 months of Transport Scotland's existence? 4 A. Yes. 5 Q. During that 18 months, had there been any concern raised 6 to you about blurred accountability for the project? 7 A. I think there was an ongoing debate about governance. 8 Remembering that in a sense TS were the newer of the 9 organisations represented on that board. 10 CHAIR OF THE INQUIRY: Could you speak slightly -- a bit 11 more clearly. 12 A. Sorry. My memory is that within TS we were trying to, 13 if you like, get to terms with the governance structure 14 that we had inherited and to see ways in which it could 15 be enhanced or improved. 16 MR LAKE: You recall, as I have already mentioned, that the 17 Draft Final Business Case was provided in December 2006 18 and considered the project governance. 19 A. Yes. 20 Q. And referred to the role that Transport Scotland had on 21 the Tram Project Board? 22 A. Yes. 23 Q. You will be aware that Transport Scotland prepared 24 comments on the Draft Final Business Case? 25 A. Yes. 178 1 Q. Which included considerations of governance, where they 2 said that that section needed to be significantly 3 strengthened? 4 A. Yes. As I think I said in my own statement, I am not 5 sure whether that referred to the governance itself 6 needed to be strengthened or whether the description of 7 the governance needed to be strengthened, and at this 8 point in time, I can't remember which it was. 9 Q. Despite having the minds of people within 10 Transport Scotland directed to governance, there was no 11 suggestion there whatsoever of concern about 12 accountability? 13 A. No, because, as I say, the decisions that were being 14 taken in 2006 and in 2007 were actually, if you like, 15 still at the early stages of the project. 16 Q. We're talking about the Draft Final Business Case 17 statement? 18 A. Yes. And the approval that we recommended to Ministers 19 around the Draft Final Business Case was to make money 20 available for the MUDFA contract and to see the project 21 through to Final Business Case. 22 Q. I appreciate tie was already established by the time 23 Transport Scotland came into existence, but did you have 24 any consideration about whether or not it was 25 appropriate or useful to use an arm's length company to 179 1 deliver the tram project? 2 A. I have a personal view, which is that I think that 3 however the project was taken forward, it needed to have 4 a dedicated team within the City of Edinburgh Council as 5 promoter. That was my view. Whether an arm's length 6 company is the way to do it -- I choose my words 7 carefully. I'm not persuaded it had to be an arm's 8 length company. But that was the status quo that we 9 found. 10 Q. You will be aware that tie was involved in delivering 11 various other projects, including the 12 Stirling-Alloa-Kincardine railway? 13 A. Yes. 14 Q. As you note in your statement, that ran into 15 difficulties? 16 A. It did. 17 Q. Which led to Transport Scotland essentially taking it 18 back from tie? 19 A. Well, we never had it. We took it in. It's never been 20 in our purview. 21 I think I was careful to say that it was -- it was 22 the whole governance structure, not just tie's role, 23 that was causing us concern. 24 Q. Did you have concerns about tie as a result of that 25 project going over budget and over time? 180 1 A. No, I had no specific concerns about tie in -- I had no 2 general concerns about tie as a consequence of that. 3 There were specific concerns about the role of tie in 4 Stirling-Alloa-Kincardine, because frankly, I didn't 5 feel there was any alignment of interest. I couldn't 6 see any evidence that it was -- that tie was putting the 7 interests of the funder particularly highly in its 8 management role. 9 Q. Could you clarify what you mean by alignment of interest 10 in that answer? 11 A. They were operating a management contract, I believe on 12 behalf of Clackmannanshire Council, but I couldn't see 13 anything in the way tie was behaving on that project 14 that was actually delivering the protection of 15 Transport Scotland financial interests, which was 16 important. 17 Q. What was the Transport Scotland financial interest in 18 that project? 19 A. We were funding that project. 20 Q. Now, I would ask you to look at page 40 of your 21 statement. It's page 42 of the scanned version. Could 22 you highlight paragraph 91 at the foot of the page. 23 You put it here: 24 "I have been asked to speculate from hindsight about 25 what more might have been done in relation to oversight 181 1 and protection of the funding for the tram project that 2 Transport Scotland was administering on behalf of the 3 Scottish Ministers. Clearly such reflections can have 4 little or no evidential value, but so far as I am aware, 5 Ministers' financial exposure to the tram project was 6 not increased by the later problems that were 7 encountered. Their funding therefore continued to be 8 protected. Beyond that, I consider that it was 9 reasonable to expect that the second largest local 10 authority in Scotland, well-resourced financially and 11 professionally, and with significant collateral at its 12 disposal, would be very well equipped to provide all the 13 necessary oversight of a project which it had promoted 14 and which was being executed through its own subsidiary 15 organisations. So, even with the benefit of hindsight, 16 my conclusion is still that what was actually done was 17 appropriate to the circumstances and requirements of the 18 time when these decisions were being taken." 19 Now, is what you're intending to convey there that 20 you wouldn't make any changes to the way this was 21 delivered? 22 A. Apart from possibly the proposition that we wouldn't 23 have started from here, but no, I think, as I said, the 24 circumstances and requirements of the time. That's the 25 test I'm applying. 182 1 Q. What do you mean by that? 2 A. That the -- with the state of knowledge we had, with the 3 state the project was at, my view was, and remains, that 4 it was appropriate for City of Edinburgh Council 5 effectively to take over the promotional -- 6 unambiguously take over the promotion of this scheme. 7 Q. You don't think it could have been that any checks or 8 assistance -- might have been of some assistance in 9 preventing the problems arising? 10 A. I'm not fully sighted on the cause of the problems that 11 arose. I left Transport Scotland. So all I have is 12 what I read in the Inquiry papers and obviously in the 13 newspapers at the time. 14 Insofar as the problems arose particularly with one 15 contract, I have to ask myself what Transport Scotland 16 could have done in that situation. And I'm not very 17 clear. 18 For example, we did not, on our staff, have 19 commercial lawyers, contract lawyers, who could have 20 taken a forensic view of the contract. We could have 21 asked for advice from -- solicitors of the Scottish 22 executive, but that's different from having solicitors 23 embedded as part of a project team. 24 Q. When in 2009 did you retire? 25 A. I retired in February 2009. 183 1 MR LAKE: Thank you very much, Mr Reed. I've got no further 2 questions. 3 CHAIR OF THE INQUIRY: I don't think anyone else has asked 4 to ask you any questions, Dr Reed. So thank you very 5 much. You're free to go. 6 A. Thank you. 7 CHAIR OF THE INQUIRY: You're still subject to your citation 8 in case we need to recall you. 9 A. I understand, thank you. 10 CHAIR OF THE INQUIRY: We will adjourn until Tuesday at 11 9.30. 12 (3.50 pm) 13 (The hearing adjourned until Tuesday, 3 October 2017 at 14 9.30 am) 15 16 17 18 19 20 21 22 23 24 25 184 1 INDEX 2 PAGE 3 MR JOHN RAMSAY (continued) ...........................1 4 5 Examination by MR LAKE (continued) ............1 6 7 Examination by MR FAIRLEY ...................112 8 9 DR MALCOLM REED (affirmed) .........................120 10 11 Examination by MR LAKE ......................120 12 13 14 15 16 17 18 19 20 21 22 23 24 25 185