1 Thursday, 28 September 2017 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 17 184 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 13 185