1 Tuesday, 24 October 2017 2 (9.30 am) 3 CHAIR OF THE INQUIRY: Good morning. Yes, Mr Mackenzie. 4 MR MACKENZIE: Thank you, my Lord. The next witness is 5 Steven Bell. 6 MR STEVEN BELL (affirmed) 7 CHAIR OF THE INQUIRY: You will be asked questions initially 8 at least by Mr Mackenzie. If you just listen to the 9 question and answer it as directly as possible, and if 10 you speak clearly and into the microphone, and at 11 a relatively steady pace, so the shorthand writers can 12 keep up with you. Thank you, my Lord. 13 Examination by MR MACKENZIE 14 MR MACKENZIE: Good morning. 15 A. Good morning. 16 Q. Could you state your full name? 17 A. Steven John Bell. 18 Q. And your current occupation? 19 A. I'm the Engineering Director North for Amey Rail 20 Limited. 21 Q. I would like to turn to your CV you have provided to the 22 Inquiry. The number is CVS00000036. If we can go to 23 page 4, please. We will see towards the bottom third, 24 under "Qualifications", that you have a degree in civil 25 engineering and we can see your membership of various 1 1 professional bodies. If we just scroll up the page 2 a little, we can then see between 1996 and 2002, you 3 were Contracts Manager, et cetera, in relation to 4 First Engineering. I think in short that's to do with 5 the maintenance of heavy rail infrastructure; is that 6 correct? 7 A. That's correct. 8 Q. Thank you. And page 3, please. We can see between 2002 9 and July 2006, Management Director of Track Group, 10 previously Technical Director, First Engineering 11 Limited. Is that again in relation to the maintenance 12 of heavy rail infrastructure? 13 A. Heavy rail infrastructure, but also projects and 14 framework renewals contracts and also some consultancy 15 work as well as some technical supervision and 16 governance. 17 Q. Thank you. If we scroll up the page again, we can see 18 at the top September 2006 to December 2007, you were 19 Engineering, SQE and Procurement Director for tie. What 20 does SQE stand for? 21 A. Safety, Quality and Environment. 22 Q. We can see the responsibilities set out there. We will 23 come to some of those later. 24 Then over the page, please, to page 2. We can see 25 January 2008 to October 2011, you were the Edinburgh 2 1 Tram Project Director for tie. 2 Now, looking at what is set out there, I just wonder 3 if everything is entirely correct. 4 You say: 5 "Responsible for safe, efficient and timely delivery 6 of Edinburgh Tram Project for tie ..." 7 I think we know that in the event, the delivery 8 wasn't timely; is that correct? 9 A. That's correct. 10 Q. Yes. That same paragraph refers to the 700 million plus 11 scheme, reintroduces trams to the city of Edinburgh, 12 linking the airport with the city centre and Leith 13 waterfront. I think they stop at York Place, don't 14 they? 15 A. Yes, the scope that's defined there was the original 16 scope of the tram project. 17 CHAIR OF THE INQUIRY: The price wasn't the original price 18 though. 19 A. No, sir. 20 MR MACKENZIE: Why did you describe the original scope? 21 A. Pardon? 22 Q. Why did you describe the original scope in your CV as 23 opposed to what was built? 24 A. That was the scope at the time I was -- commenced that 25 role. It was intended that the project would extend 3 1 through the whole of line 1a. In fact when I started 2 with tie, there was some options with regard to line 1b 3 as well. 4 Q. Under "Key Achievements include: in the first bullet 5 point, you state: 6 "Major dispute management, including resilient 7 leadership of wide-ranging mediation and adjudication, 8 to resolve significant legal and contractual differences 9 over an extended period ..." 10 Et cetera. In terms of resolving the significant 11 legal and contractual differences, I think that the 12 evidence to the Inquiry is that in short that happened 13 at Mar Hall, when essentially the Council stepped in to 14 do it; is that correct? 15 A. There was certainly a mediated resolution to the Infraco 16 dispute at Mar Hall. There was a number of mediations 17 and adjudications in advance of that over the period 18 that I was the Tram Project Director. And we also 19 resolved some differences with Carillion Utility 20 Services. 21 Q. Then the first page of your statement, please, finally, 22 in the box at the top, there's a summary. You refer to: 23 "An effective and successful leader of 24 transportation/infrastructure businesses and projects 25 who has a proven track record of exceeding targets ..." 4 1 Then the second last paragraph in the box: 2 "He leads through strength, resilience ... to ensure 3 optimum return on investments and best value." 4 I take it you wouldn't apply those statements in 5 relation to the tram project? 6 A. The summary is for my range of responsibilities. 7 I would say that I applied resilience, integrity, 8 personal ethics and value to the tram project. I don't 9 think we got an optimum return on investment and best 10 value. 11 Q. Thank you. If you put the CV to one side, you have also 12 provided a written statement to the Inquiry. I would 13 like to go to that, please. It's TRI00000109_C. 14 I think you should have a written copy in front of 15 you and a copy will also come up on the screen. There 16 we go. 17 Could we please start at the very end at page 183, 18 just to check your signature. Now, we see a signature 19 there dated 7 August 2017 at the very last page. 20 A. Yes. 21 Q. Could you please confirm that's your signature and this 22 was the written statement you have provided to the 23 Inquiry? 24 A. That's correct. 25 Q. Thank you. So, Mr Bell, your evidence to the Inquiry 5 1 will comprise both that written statement in its 2 entirety, together with the evidence you give at the 3 hearings. 4 A. Just on that point, there was one minor change that was, 5 I think, a document reference that has been made and I'd 6 been advised of in correspondence. So I think that 7 seems all in order. 8 Q. Thank you. Could we then start at page 1 of your 9 statement, just by way of introduction. 10 In question 1, sub-question 2, just for a point of 11 clarification, in the second paragraph, the last 12 sentence, you say: 13 "I did not have a particular tram and light rail 14 project focus." 15 Would it be fair to say that before your involvement 16 with tie, you didn't have any experience at all in tram 17 or light rail projects? 18 A. In terms of delivery of any of those projects, I had no 19 direct experience. Some of the consultancy work that 20 was undertaken aligned to that, but no direct 21 experience. 22 Q. If we could go to page 2, we had asked in sub-question 23 4: 24 "To what extent was your experience in heavy rail 25 transferable to a light rail scheme, such as the 6 1 Edinburgh Trams Project?" 2 You go on to explain your experience was very much 3 transferable. 4 Would it be fair to say that the one aspect where 5 heavy rail experience was not transferable is in 6 relation to the city centre aspects of the tram scheme, 7 and what I mean by that is the work involved in, for 8 example, diverting utilities in a city centre, the 9 ground conditions likely to be encountered in a city 10 centre, the issues that arise in relation to trams 11 sharing the roads with other road users, and also the 12 planning approval requirements of running a tram system 13 through a city centre? 14 A. The tram approvals, correct, I would agree with you, and 15 also the road interface particularly. Some of the 16 unforeseen ground conditions, utilities and working in 17 city centres apply when undertaking railway projects in 18 that type of environment as well. But I think your main 19 point on highways and planning approvals is correct. 20 Q. In relation to utilities, it must be very different to 21 divert utilities under Princes Street or the junction 22 with Lothian Road, compared to diverting utilities on an 23 established existing heavy rail line? 24 A. Yes, but there are significant utility diversions to 25 undertake within the rail sector as well. Particularly 7 1 associated with signalling schemes. 2 Q. Go on to page 3 of your statement, please. We can see 3 paragraph 2, we asked sub-question 1 about your job 4 titles and between what dates with tie, and you explain 5 that your initial job role with tie from September 2006 6 was Engineering and Procurement Director, et cetera: 7 "... my key responsibilities were for TIE's 8 engineering, technical standards, health and safety, 9 risk and procurement and supporting all other key 10 projects. That included Edinburgh Trams, 11 Stirling-Alloa-Kincardine and EARL." 12 I think you also say at the very bottom of the page, 13 we asked who did you report to. 14 You explain that in your engineering, procurement 15 and safety role between 2006 and the end of 2007, you 16 reported to Willie Gallagher, the Executive Chairman. 17 I'll come back to the tram project, but in relation 18 to the EARL project, can you just sum up what your 19 responsibilities were for that project between 2006 and 20 the end of 2007? 21 A. There was a separate Project Director. I think it was 22 Susan Clark at that time that focused on the EARL 23 project. I was looking at understanding the proposed 24 technical solutions for some of the options that were 25 being developed for EARL. And also looking at the 8 1 engagement with the industry parties. There was 2 a tunnelling scheme proposed for a station underneath 3 the airport at Edinburgh Airport at that time. So 4 significant civil engineering and transportation related 5 project which would connect into the heavy rail network 6 in the east of Scotland. 7 Q. Now, there came a time, I think, in June or July 2007 8 when the Scottish Government announced it was no longer 9 going to go ahead with the EARL project. What were your 10 responsibilities in relation to EARL after that 11 announcement? 12 A. We had to have an orderly transition and to close off 13 the expenditure associated with EARL, ensure that all of 14 the information was captured and stored, if anybody else 15 wanted to come back and look at it previously, and we 16 looked at redeployment of any of the skilled staff that 17 were currently working on the EARL project, to see 18 whether they were able to support the Edinburgh Tram 19 Project. 20 Q. Did there come a time in 2007 when you had no or minimal 21 involvement with EARL? 22 A. Yes, I think from a tie point of view, around about 23 October/November 2007, the main transition and closeout 24 of the EARL related works were complete. 25 Q. Thank you. Another project you mentioned was the 9 1 Stirling-Alloa-Kincardine rail project. What were your 2 responsibilities in that project? 3 A. There was a project manager from tie allocated to 4 support the Clackmannan Council on that project. There 5 were some emerging ground condition contractual dispute 6 related issues, and I was asked by Willie Gallagher to 7 review the approach with regards to supporting 8 Richard Hudson on that project and attend with -- some 9 meetings with Transport Scotland and also with -- with 10 Clackmannan Council. 11 Q. We have heard that there were some difficulties with the 12 Stirling-Alloa-Kincardine project in relation to its 13 programme and budget. Were you aware of these 14 difficulties? 15 A. Yes. 16 Q. So what were the difficulties? 17 A. It related to some claims from the civil engineering 18 contractor. It was a joint venture by Nuttall and 19 First Engineering undertaking the works, and it related 20 to ground conditions and the remedial works that were 21 required to be undertaken to enable the railway to be 22 constructed as planned. 23 Q. To what extent, if at all, were these difficulties in 24 relation to programme and budget caused or materially 25 contributed to by tie's project management of that 10 1 project? 2 A. The cause and the contribution was related to the facts 3 of the ground conditions that were in existence and were 4 found to be in existence. The governance arrangements 5 and approach in relation to tie's input was to report on 6 the emerging difficulties and propose or comment on the 7 entitlement under the contract, which I think was an NEC 8 contract for the contractor to make his claim. And to 9 support Clackmannan Council to ensure there was a fair 10 valuation of any such claim. 11 Q. Were you involved in any way with tie's reporting to 12 Transport Scotland in relation to this project? 13 A. Was I -- could you repeat the question, please? 14 Q. Were you involved in any way in relation to tie's 15 reporting to Transport Scotland in relation to this 16 project? 17 A. The reporting was produced by the project manager. 18 I reviewed some of those reports and I'm sure I met with 19 Damian Sharp and other members of the project team with 20 regards to the project on site in Stirling. 21 Q. Now, the Inquiry has heard from Mr Sharp that 22 Transport Scotland had concerns in relation to tie's 23 reporting on that project. Were you aware of these 24 concerns? 25 A. Mr Sharp had stated to me that he had concerns over that 11 1 at the time I became involved, and I think we were very 2 transparent in setting out the options and issues at the 3 time to try and resolve the difference and give some 4 advice to Clackmannan and to Transport Scotland. 5 Q. What did you understand Mr Sharp's concerns to be about 6 the reporting? 7 A. I think he felt earlier that there was not -- there was 8 no concise summary of the issues as he saw it at that 9 time. When I reviewed those matters with 10 Richard Hudson, we certainly ensured that the options 11 and the contractual issues were set out for both 12 Clackmannan and for Transport Scotland, to enable them 13 to come to a more considered decision. 14 Q. I think Mr Sharp's evidence to the Inquiry in short was 15 that his concerns didn't relate so much to the fact that 16 difficulties weren't being reported. It was rather the 17 fact, as he saw it, that the reasons for these 18 difficulties weren't being reported. Do you have any 19 views on that? 20 A. From the point I looked at it, it was very clear there 21 were some key ground condition and contractual claim 22 issues associated with entitlement under the contract, 23 and those were reported very clearly, and I discussed 24 them with Damian at the time. 25 Q. I would like to move on now, please, to page 4 of your 12 1 statement. This is just by way of overview and 2 introduction. We see towards the top of the page, in 3 the second paragraph, we had asked who reported to you, 4 and you explained that there are a number of people who 5 reported to you as Tram Project Director. We can see 6 the various names set out there. 7 If we go on to page 6, please, of the statement, in 8 question 5, now coming back to the tram project, we 9 asked about your responsibilities in relation to the 10 tram project, and you explain that you had a general 11 obligation to tie between 2006 and 2007 around the 12 overview on engineering assurance and safety. 13 Now, did you report to the Tram Director in relation 14 to these matters? 15 A. No, to Willie Gallagher. 16 Q. We've heard that David Crawley and Tony Glazebrook job 17 shared the role of Engineering Assurance and Approvals 18 Director for the tram project. Was there any overlap 19 between their role and your role as Engineering, 20 et cetera, Director? 21 A. They had a specific focus for the project itself, where 22 I could provide some support or -- to test some of the 23 issues with them, then that's -- I was able to do so. 24 I don't believe there was overlap. It was 25 complementary. 13 1 Q. It may be over-simplifying things, but in short I think 2 they considered their job title was that of Engineering 3 Director for the tram project, and it seems as though 4 between 2006 and 2007, your job title was Engineering 5 Director overall for tie; is that correct? 6 A. Correct. 7 Q. So on the face of it, there would seem to be an obvious 8 scope for overlap or confusion of responsibilities and 9 roles? 10 A. I don't think it was, sir. 11 Q. So in short, then, between 2006 and 2007 what 12 specifically did you do in relation to the tram project 13 and what did they do? 14 A. So I was asked to give some support to the tram project 15 associated with some of the emerging utilities-related 16 issues. And look specifically on some of the design 17 elements, I think, during 2007. 18 I was also particularly looking at the -- there was 19 a series of panels set up to review the procurement 20 process and I think that's touched on in some of the 21 later questions. 22 So I was testing the proposed recommendations from 23 the tram project team against that. Also in relation to 24 Stirling-Alloa-Kincardine, I think we've already touched 25 on some areas of responsibility there. 14 1 With regard to issues arising from a design 2 perspective, David Crawley and Tony Glazebrook also 3 discussed some potential issues or items to try and 4 resolve with their design provider, SDS, 5 and I participated in solving some of those particular 6 areas with them. 7 Q. So in relation to the tram project, you in short had 8 a wider role than Mr Crawley and Mr Glazebrook? 9 A. Correct. 10 Q. Mr Crawley and Mr Glazebrook said that they reported to 11 the Tram Project Director, and yet I think you have said 12 you reported to Mr Gallagher. Did that give rise to any 13 difficulties or confusion? 14 A. No -- both Matthew Crosse was Tram Project Director from 15 2007, and Andie Harper before him in late 2006, when 16 I joined. So I -- were part of the senior management 17 team who reported in to Willie as the Executive 18 Chairman. I was part of that team, as were other 19 colleagues as Stewart McGarrity, the Finance Director, 20 and we had a regular open conversation around the key 21 issues. 22 Q. You mentioned utilities. In relation to the utilities 23 works required for the tram project, let us be quite 24 clear. When did you have involvement in the utilities 25 issues? 15 1 A. The utilities contract, I think, the MUDFA contract, was 2 awarded about October 2006. So I was aware of that 3 happening. It was within the first couple of weeks that 4 I had joined tie. There was a Project Director that was 5 focused particularly on MUDFA. Graeme Barclay. And 6 during 2007, I think probably in the first quarter of 7 2007, there were emerging issues around the completion 8 of the utilities designs to enable the MUDFA contractor 9 to go and commence the utilities diversion works on 10 schedule. 11 There were some internal committees and reviews held 12 which I attended at delivery -- Design, Delivery and 13 Procurement Sub-Committee, looked at some of the 14 MUDFA-related activities as well as some of the 15 design-related activities, and I attended that, and that 16 was an opportunity to test and flush out some of the key 17 issues and propose some mitigations and solutions. 18 Q. So did you have some involvement, albeit it may have 19 varied, in relation to utilities throughout 2007? 20 A. Probably from the end of the first quarter 2007 onwards, 21 I would think. 22 Q. Thank you. 23 Just be quite clear. What were your 24 responsibilities in relation to utilities? Was it 25 a sort of troubleshooting role? 16 1 A. Initially it was to look at some of the blocking issues 2 and to try and see if those could be resolved. 3 Q. So it was a problem-solving role? 4 A. Correct. 5 Q. In relation to design, again, we've heard evidence from 6 Mr Crawley and Mr Glazebrook as to their role in 7 relation to the design of the tram project in 2007. 8 Could I just be quite clear. What was your role in 9 relation to design for the tram project in 2007? 10 A. In 2007, again, I would suggest a similar 11 testing/problem-solving and identification of issues, 12 escalation where necessary. I worked with David and 13 Tony and the designers to -- and CEC particularly, to 14 seek to unblock certain items that appeared to be stuck 15 in terms of progress, and David ran a weekly key issues 16 review session at our instigation to try and ensure 17 there was timely resolution of such matters and 18 visibility when it was still stuck. 19 Where relevant, I escalated that also within tie, 20 and I think in later years that certainly came to Tram 21 Project Board via myself. 22 Q. Did you attend these weekly critical issues meetings 23 with Mr Crawley? 24 A. Some of them. Not every one. 25 Q. Thank you. You also, I think, mentioned the question of 17 1 procurement during 2007 in relation to the tram project. 2 I'm going to separately come back to look at your role 3 as Tram Project Director in 2008, but just sticking with 4 2007, what was your involvement with the procurement of 5 the Infraco contract? 6 A. I think it's covered in one of the questions. I think 7 question 5, part 3. I was part of the Infraco Tender 8 Evaluation Panel and the Procurement Team that were 9 looking at both the Infraco and the Tramco Contracts 10 presented the propositions from the individual bidders, 11 and had proposed weighing up and evaluation as part of 12 that. We reviewed that, tested some key areas, and went 13 through to make sure that we were comfortable with 14 recommendations that were going forward from that panel 15 around who should be selected as a preferred bidder. 16 I think there were four bidders in relation to the 17 Tramco Contract and two bidders in relation to the 18 Infraco Contract. There's a governance summary slide, 19 I think, that's referred to in the notes that lay out 20 the responsibilities of that panel. 21 Q. Now, you've explained, I think, that your role in 2006 22 and 2007 was Engineering SQE and Procurement Director. 23 Just so we're quite clear, between 2006 and 2007, was 24 your role in relation to the procurement of the Infraco 25 contract to lead the procurement or was it rather an 18 1 evaluation and advisory role? 2 A. It was in relation to procurement of tie matters, not 3 the Infraco or tram contracts. That was a tram project 4 specific responsibility. I did contribute as we've just 5 discussed in terms of that review and challenge and 6 evaluation. 7 Q. Thank you. So in relation to the reference to 8 procurement in your job title in 2006 and 2007, you have 9 explained that relates to tie -- 10 A. tie Limited, yes. 11 Q. So can you give us examples of the sort of contracts you 12 were involved in the procurement for? 13 A. It may have been for some minor designer support 14 services. It would have been also for supporting 15 systems and IT. It was relatively minor organisational 16 procurements at that time. The responsibility for the 17 main project procurement sat with the Tram Project 18 Director and their team. 19 Q. Thank you. 20 Now, I think I mentioned before that in June or 21 July 2007, the Government announced the cancellation of 22 the EARL project. 23 Is it correct to say that by that time, tie were no 24 longer project managing the Stirling-Alloa-Kincardine 25 project? 19 1 A. I'm not sure exactly when that transition happened. 2 I would imagine it was during 2007. (Pause) 3 CHAIR OF THE INQUIRY: Standard alarm. I should have warned 4 you that there's a test on a Tuesday. 5 A. Thank you. 6 MR MACKENZIE: So I think you said it was during 2007 -- 7 A. I think it was during the summer of 2007, but I would 8 need to check on correspondence to confirm. 9 Q. Now, I would like next to go to a document, please. 10 It's CEC01441488. You will see a document from 11 Mr Gallagher on 30 October 2007 in relation to 12 organisational changes. Can you see at the top of the 13 page, "ORGANISATIONAL CHANGES tie TUESDAY 14 30 OCTOBER 2007". If we scroll down, maybe over the 15 page again, you will see at the bottom it's from 16 Willie Gallagher. 17 Go back to page 1, please. If we look at the first 18 three paragraphs, we see it states: 19 "With the full agreement of the tie executive team 20 and the tie Board, I am pleased to announce some key 21 changes within the tie executive management structure." 22 If we scroll down, please, we can see your name, 23 Mr Bell? 24 A. Yes. 25 Q. "Tram Project Director (designate)", and it's stated: 20 1 "Steven will be the Project Director for the 2 construction phase. His transition will be in parallel 3 to the end of the Procurement phase and will take full 4 responsibility for the project from 28 January 2008." 5 Just to pause there, in the event, did that happen? 6 Did you take full responsibility for the project from 7 that date? 8 A. That was a role I undertook from that point in time, or 9 thereby. It might have been a week or two. We were 10 running, Matthew Crosse and I, were running in parallel 11 during the first month or so of 2008. 12 Q. I'll come back to that running in parallel, thank you. 13 Read on: 14 "As of 30 October he will fully manage the 15 Programme, Engineering and MUDFA teams led by 16 Susan Clark, David Crawley and Graeme Barclay." 17 Again, to pause there, did that happen, ie as of 18 30 October, did you fully manage the programme, 19 engineering and MUDFA teams? 20 A. Yes, we acted on that basis and I fed any material 21 issues into Geoff and Matthew. 22 Q. Now, we heard from Mr Crawley and Mr Glazebrook that 23 throughout 2007, they reported to the Tram Project 24 Director. So on the face of it, it seems odd, if you're 25 supposed to be managing them, they're not reporting to 21 1 you? 2 A. Technically they would be correct as I had the designate 3 title afterwards. I think at a practical level, I was 4 working with Tony and David on a very regular basis, and 5 we probably spoke daily and certainly we worked out of 6 the same office. 7 Q. From 30 October do you consider you were managing the 8 programme, engineering and MUDFA teams? 9 A. Yes. 10 Q. Do you consider from that date you were responsible for 11 the work of those teams? 12 A. Yes. 13 Q. So between 30 October and end of December 2007, what was 14 the Tram Project Director doing? 15 A. I think he moved -- if you could move up the screen 16 a little bit, please. At the final stage of 17 procurement, I think it sets out clearly that there's 18 a lot of work to be done to secure the final negotiated 19 agreement on the Infraco and Tramco contracts and move 20 that through the contract commercial and financial close 21 process. I think Willie's document tries to summarise 22 that in that paragraph, and that was what I expected and 23 saw Matthew, Geoff Gilbert and Bob Dawson who are all 24 mentioned there undertaking that role. And clearly 25 Mr Fitchie was also supporting from a legal perspective. 22 1 Q. We will come back to Mr Fitchie. 2 This document is dated 30 October 2007. It's being 3 announced that as of that date, the same date, you are 4 the Tram Project Director designate and you will fully 5 manage the programme, engineering and MUDFA teams. Had 6 there been any prior discussion with Mr Gallagher about 7 these matters? 8 A. Willie had discussed his desire to focus the procurement 9 team on closing the Infraco contract, and therefore 10 I had already been supporting MUDFA in engineering 11 related issues, and it was an extension of that in 12 effect. So I couldn't tell you exactly what date, but 13 I imagine during October, Willie, myself, Matthew and 14 others would have discussed that as a sensible 15 transition through to delivery. 16 Q. In relation to your appointment as Tram Project Director 17 designate, can you explain the circumstances surrounding 18 that, please? Was the post advertised? Did 19 Mr Gallagher approach you or what? 20 A. Mr Gallagher -- Mr Gallagher asked me, approached me. 21 I'm not aware if it was advertised. 22 Q. And what did he say? 23 A. He asked me if I would take on the Tram Project Director 24 role through the construction phase. 25 Q. What did you say? 23 1 A. I agreed to take that role on from the completion of the 2 procurement activities. I did discuss with him the 3 consistency and making sure that Matthew and the team 4 closed out the procurement and that I could mobilise and 5 get the delivery teams up and running in parallel with 6 that. 7 Q. Do you accept that in an ideal world, it would be better 8 for someone filling the post of Tram Project Director to 9 have experience of delivering a tram or light rail 10 scheme? 11 A. Yes. In an ideal world. 12 Q. Because of course we learn from our experience, don't 13 we? 14 A. We do, and there are some transferable experiences, but 15 there are, as you've already outlined, certain areas 16 that I have stronger experience in, compared to some of 17 the highways-related matters. 18 CHAIR OF THE INQUIRY: Could I go back a little and ask you 19 about the negotiations towards the conclusion of the 20 Infraco contract. 21 Did I understand that you're saying that that was 22 the responsibility of Geoff Gilbert and Bob Dawson? 23 A. And Matthew Crosse. 24 CHAIR OF THE INQUIRY: And Matthew Crosse. I think we heard 25 last week, from Mr Gilbert, that the people involved in 24 1 taking control of the negotiations to conclude the 2 contract were Mr McEwan and you. He of course was 3 involved as well, but the control was either Mr McEwan 4 or you. What do you say to that? 5 A. The original contract close was intended to be 6 completed, I think, by the end of January 2008, which is 7 where the dates for this transition came from. And 8 that's what we sought to try and maintain. 9 By, I think, mid-February 2008 it was clear there 10 were still some outstanding matters to be resolved, and 11 Matthew and Geoff were working hard to resolve a number 12 of those issues, but they weren't all being unblocked, 13 and Willie asked Jim and I to further support that and 14 take forward closing out some of those -- primarily 15 technical and commercial related items, and do that in 16 conjunction with Geoff's work, Matthew's work on the 17 Employer's Requirements, and complete the contract 18 close. 19 So we did become more actively involved from -- in 20 that procurement commercial closeout, from, I think, 21 about mid to late February 2008. 22 CHAIR OF THE INQUIRY: So what was the structure then? Who 23 was in charge of that? 24 A. The -- Geoff and Matthew had responsibility to close off 25 their items, but it was working in conjunction with me 25 1 and I was taking over the role of Project Director. So 2 I needed to be clear on what was being proposed and 3 agreed. So they shared that information pretty much 4 from late February onwards. 5 CHAIR OF THE INQUIRY: So from that point in time, were you 6 in charge of that? 7 A. I was certainly actively involved with regards to that. 8 I expected them to close out their individual areas, and 9 I had visibility of that. I had overall accountability 10 by the time of contract close for the role of Tram 11 Project Director. 12 CHAIR OF THE INQUIRY: Thank you. 13 MR MACKENZIE: Thank you. 14 I would like to move forward to the end of 2007 and 15 pick things up again from there. 16 If we go to page 26, please, of your statement, 17 towards the bottom of the page, we can see a bullet 18 point commencing "WG advised that", and it's actually 19 the paragraph below that. We see reference to: 20 "The progress report presented to the meeting of the 21 Tram Project Board on 7 December 2007 noted: "To 22 23 November, of the 344 design deliverables, 236 have 23 been delivered, representing 63% of the tram 24 system design. 66% of Phase 1A detailed design 25 is now complete ..." 26 1 Now, to pause there, I assume what is set out would 2 have accorded with your understanding at the time? 3 A. If that's what was in the Project Board minutes at that 4 time, I'm pretty sure that would be my understanding. I 5 saw those reports contemporaneously and attended 6 a number of those meetings, yes. 7 Q. What is being said is that about two-thirds of the 8 detailed design over phase 1a is complete. I think we 9 have heard from other witnesses that for that design, it 10 didn't mean that all approvals and consents had been 11 obtained, and in fact at that time I think very few 12 approvals and consents had been obtained. 13 Does that accord with your general recollection at 14 the time? 15 A. It does. 16 Q. Now, in December 2007 to what extent, if at all, were 17 you involved in the procurement of the Infraco Contract? 18 A. Having just discussed some of the engineering issues to 19 be resolved, there were elements that were being 20 completed on that design element of work, but in terms 21 of the procurement itself, other than reviewing items 22 from the Infraco procurement panels, not a day-to-day 23 activity. I was focusing on getting the design and the 24 utilities works completed. 25 Q. For the avoidance of doubt, during December 2007, to 27 1 what extent, if at all, were you involved in the 2 discussions and negotiations regarding price? 3 A. I was aware from feedback from Willie Gallagher, from 4 Matthew Crosse and Geoff Gilbert, I think particularly 5 a meeting that Matthew and Willie attended in Wiesbaden 6 with Bilfinger and Siemens to try and resolve some 7 outstanding price matters, I certainly saw feedback and 8 an agreement from that, from that meeting, and there was 9 some issues that arose from that that were shared in 10 correspondence. 11 Q. I will come back to that, but could I just check then. 12 When -- let's see, Mr Gallagher, was it Matthew Crosse, 13 had both of them been to Wiesbaden, is that correct? 14 A. They were the two tie representatives that went to 15 Germany, yes. 16 Q. So what did they say to you had happened when they came 17 back? 18 A. They had a written agreement with Bilfinger and Siemens 19 that they were clear that they had settled the 20 outstanding price matters that they believed they need 21 to settle at that meeting that would allow the project 22 to progress to financial close. 23 Q. Did they say any more? 24 A. I'm sure we did speak about some of the specific -- 25 specific areas. I think there was about six or eight 28 1 topic areas that were covered in the agreement, and they 2 went into detail on that. Value engineering, I recall, 3 was a particular area of discussion, and clearly we 4 later had long debates on normal design development as 5 the contract progressed. And that was certainly a topic 6 that we believed had been concluded at that meeting. 7 Q. Were you involved in any way in the actual discussions 8 or negotiations, either when Mr Gallagher, Mr Crosse 9 were actually at Wiesbaden, or very shortly after they 10 returned? 11 A. I saw the outputs from it, and we discussed the outputs. 12 Q. Can we then please go to the Wiesbaden Agreement. 13 CEC02085660. Do you remember when I first saw a copy of 14 the Wiesbaden Agreement? 15 A. I would expect it would be within a day or two of the 16 meeting. I think it was sent by email. So I would 17 imagine pre-Christmas in 2007. 18 Q. If we can go to page 5, I think it is. We can see 19 clause 2.1 states: 20 "The negotiated price for Phase 1a is 21 GBP218,262,426." 22 Then scroll down, please, to paragraph 3.3. I think 23 we can read for ourselves wording. If we then go over 24 the page as well, please, and over the page again. The 25 paragraph at the top of the page, we can see wording 29 1 which then becomes, I think, Pricing Assumption 1 in 2 Schedule 4 which we will come back to. 3 Do you remember when you first read the Wiesbaden 4 Agreement, if you had any thoughts in relation to the 5 wording we've just looked at in clause 3.3? 6 A. My reflection at the time was that that was intended 7 clearly to -- ensure normal development in completion of 8 design was the contractor's responsibility. If it was 9 beyond normal design development, then that was likely 10 to be a client change. 11 Q. Just sticking with the paragraph that's blown up in 12 front of us: 13 "For the avoidance of doubt, normal development and 14 completion of designs means the evolution of design 15 through the stages of preliminary to construction stage, 16 and excludes changes of design principle, shape and form 17 and outline specification." 18 If one excludes changes of design principle, shape 19 and form and outline specification, what is left? 20 A. The phrase as read was read by me and my colleagues that 21 if there were significant changes to design principle, 22 or outline specification, it rightly would be beyond 23 normal design development. 24 The contract set out Employer's Requirements that 25 SDS were producing a detailed design for. It wasn't all 30 1 complete, as you've already said, and our expectation 2 was that the experienced design and construction 3 contractor would interpret the status of those, whether 4 it was nearly finished or whether it was early in its 5 development, expect to achieve the ERs, and if there was 6 a change in principle, outline specification of 7 significance, then that would be a change. 8 If it was just the normal process of completing 9 design, then we would expect that to be included within 10 the price and we thought that was the language that was 11 covered there. It has been tested at length after the 12 fact, but certainly at that time that was our very clear 13 understanding of the mechanics. 14 Q. Now, in your answer you said that: 15 "The phrase as read was read by me and my colleagues 16 that if there were significant changes to design 17 principle ..." 18 So you've read in the word "significant", but that 19 doesn't appear in this wording, does it? 20 A. No. 21 Q. Is your position that to really make sense of this, you 22 have to read in the word "significant"? 23 A. No, I don't think so. That was the interpretation that 24 has applied. We read those words in that way. We did 25 not expect a very small dimensional change in shape or 31 1 form to equate to something that was a change or beyond 2 normal design development. 3 Q. We will come back to that wording. 4 Just go back to the page 5, please. We saw the 5 price at the top had been agreed at -- very top, just 6 over GBP218 million. What I would like to do is remind 7 ourselves of what I think was the previous price. If we 8 go to a different document, please, TIE00087652. 9 I think we can see this is the letter from the 10 Bilfinger Berger Siemens Consortium dated 11 24 August 2006. I think that's a mistaken date. 12 I think we have established that should be 13 24 August 2007, and it's sent to Mr Geoff Gilbert, and 14 in short I think this is a revised price by the 15 consortium, and we can see that: 16 "We confirm our revised price, as presented at the 17 meeting, as follows. Phase 1a GBP217.2 million." 18 So in short, comparing that price with the price 19 agreed at Wiesbaden, the price has only gone up by about 20 GBP1 million; is that correct? 21 A. It certainly looks like that, yes. 22 Q. Now, the particular make-ups of the two different prices 23 may be different, I don't know, but just looking at that 24 headline figure, did it not seem on the face of it odd 25 that the consortium were accepting design risk for just 32 1 an extra GBP1 million? 2 A. I think the Wiesbaden Agreement has to be read as 3 a price for the works. That's not just an issue around 4 design risk. So design risk was one of the examples. 5 I didn't see this letter at the time. It was 6 earlier in the procurement process. I did see the 7 Wiesbaden Agreement, and for me that had to be read as 8 part of the overall price to complete the obligations of 9 the contractor with the requirements programme, and the 10 obligations that both the contractor and tie had as part 11 of that. 12 There were always mechanisms in the contract if tie 13 or the Council changed things for the contractor to be 14 compensated. So the price was for a set of outcomes and 15 deliverables. It has to be read in its totality. 16 Q. Before -- we can put that letter to one side, thank you. 17 Before we leave December 2007, there's one further 18 matter I should ask you about. I think this concerns 19 events before the Wiesbaden meeting in December 2007. 20 Do you have any recollection of it being reported to 21 tie in early December 2007 that the Infraco Contract 22 would end up costing about GBP80 million more than the 23 price that had been offered by BBS? 24 A. Absolutely not. 25 Q. The reason I ask is that, as you may be aware, 33 1 Andrew Fitchie has given evidence that Richard Walker of 2 the consortium advised Mr Fitchie in early December 2007 3 that the contract would cost about GBP80 million or 4 thereabouts more, and that Mr Fitchie had reported that 5 conversation to tie management the same day. Do you 6 have any awareness or recollection of that? 7 A. Not reported to me for sure. And I'm not aware of 8 anybody in tie management that that was reported to. 9 The first time I heard figures of that scale were in 10 February 2009 when I met with Mr Walker and Mr Flynn. 11 Q. Given your involvement in the tram project in 12 December 2007, if Mr Fitchie had reported that figure 13 and that conversation with Mr Walker to tie management, 14 is that something you are likely to have been made aware 15 of? 16 A. I would have expected so, yes. 17 Q. Why do you say that? 18 A. Because it would have been a significant cost that was 19 different from the values that everybody had been 20 preparing and working through as part of the procurement 21 process. That would be a very material change circa 20 22 to 25 per cent, perhaps more, depending on which end of 23 the range to that price you've just described. 24 Q. Now, I would like to move on to January 2008. 25 I apologise if we go back over some of the ground the 34 1 chairman took you to. 2 Could I just ask, please, what was your involvement 3 in and awareness of the discussions and negotiations in 4 relation to Schedule Part 4, the Infraco Contract 5 between January and contract close in May 2008? 6 A. I think we touched on it earlier from, I think, middle 7 to late February 2008. I attended a number of meetings 8 and working sessions with -- in DLA's office with the 9 consortium and with colleagues from tie to try and 10 resolve outstanding matters that had not been settled 11 prior to contract close. 12 Some of those were matters that Geoff Gilbert and 13 Matthew Crosse had been working on, and the purpose of 14 Schedule Part 4 was to see whether we could conclude the 15 matter satisfactorily for tie and the preferred bidder, 16 and complete the contract close. 17 Q. I think Mr McEwan may have referred to him and yourself 18 perhaps being given a list of Schedule 4 issues to close 19 out. Does that ring any bells? 20 A. I'm sure there will be -- it was Geoff Gilbert kept 21 a very thorough list of matters not yet agreed, some of 22 which was detailed drafting, some of it were more 23 fundamental significant issues. Yes. So that does 24 sound familiar. 25 Q. When did Mr Crosse's involvement in Schedule 4 35 1 discussions and negotiations come to an end? 2 A. I think Matthew remained engaged in that during 3 February 2008, and certainly he was doing a lot of work 4 on finalising the Employer's Requirements document which 5 became part of the overall contract suite. That was 6 referred to in, I think, in the final version of 7 Schedule Part 4, so we understood the baseline that was 8 being required. 9 So I would -- I suspect during late February and 10 during March 2008 would be the practical timing. 11 Q. The same question for Mr Gilbert? 12 A. Geoff continued to work through the drafting, I think 13 from my recollection right up to pretty much the final 14 versions of that in April 2008. 15 Q. So it sounds as though a number of individuals were 16 involved in the discussions and negotiations in relation 17 to Schedule 4; is that correct? 18 A. Yes. 19 Q. Who was in charge? 20 A. In the first part of that process, in Schedule 4, from 21 December through to February, Geoff was in the lead from 22 the commercial and procurement perspective and finishing 23 the drafting of that document; still under the 24 overarching accountability of the Tram Project Director, 25 Matthew Crosse. 36 1 I took that up from that -- from the -- I would say 2 from late February in practical terms. 3 Q. So you took up the overarching responsibility for 4 Schedule 4, is that correct, from late February 2008? 5 A. The Tram Project Director role, Geoff was completing his 6 procurement activities and negotiations and I was 7 actively involved in that at that point. And I wanted 8 to satisfy myself that we had a clear picture moving in 9 to the final version of financial close. I didn't see 10 Matthew involved really from late March/early April. 11 Q. I think you were the Tram Project Director from roughly 12 28 January 2008; is that correct? 13 A. That was the intended transfer date, linked to financial 14 close being at that time. To all intents and purposes 15 I think we -- Matthew and I had a smooth transition and 16 took that matter on from -- certainly from 17 February 2008. We didn't have a formal date that we 18 handed over. 19 Q. So you couldn't point to a day when you in fact became 20 Tram Project Director? 21 A. I would say it was during February 2008. 22 Q. Would you agree that certainly by the end of 23 February 2008, you had become Tram Project Director? 24 A. I was undertaking that role, and individuals like 25 Matthew and Geoff were completing the work that they had 37 1 set out to do as part of that -- taking on that role. 2 Q. Just back to the question. Would you agree that by the 3 end of February 2008, you had become Tram Project 4 Director? 5 A. Yes. 6 Q. In March and April 2008 Mr Gilbert was still involved in 7 Schedule 4? 8 A. Absolutely. 9 Q. Would you say he was still taking the lead on Schedule 4 10 during March and April? 11 A. In the detailed drafting and items, yes. There were 12 a number of items of principle that Jim McEwan 13 and I were also involved in resolution and discussions 14 with the Infraco. 15 Q. Did he report to you as Tram Project Director in March 16 and April in relation to Schedule 4? 17 A. In practical terms, yes. 18 Q. In any event, I think you said, in fairness to you, you 19 were in any event taking a direct interest in 20 Schedule 4? 21 A. Correct. 22 Q. What was Jim McEwan's role in all of this? 23 A. Jim was assisting to get these negotiated items across 24 the line. I think you used the phrase yourself earlier, 25 this kind of problem solving or troubleshooting items. 38 1 So we were trying to make sure there was a clear 2 crystallisation of any outstanding difference between 3 BBS and tie, and could we come to a settlement on the -- 4 on the particular item. 5 Q. Could we go to another document, please. It will come 6 up. It's CEC01430245. We can see this is an email from 7 Jim McEwan dated 18 March 2008, sent to yourself and 8 various other people in tie. Mr McEwan states: 9 "Further to this morning's management meeting, 10 Willie has reconsidered the position on managing the 11 process towards contract close-out and has asked that 12 I advise you that he has asked that I pick up that role 13 on the basis that it will, on reflection, be better to 14 have a member of the 'deal' team of the last few weeks 15 responsible for same. In addition I will continue to 16 manage the SDS novation process." 17 So this seems to suggest that Mr Gallagher has asked 18 Mr McEwan to manage the process towards contract 19 closeout. Is that correct? Did Mr McEwan play that 20 role? 21 A. I think about managing the process and getting the 22 logistics lined up for that, yes, he actively 23 contributed and played that role. 24 Q. But he would have sat beneath you as Tram Project 25 Director? 39 1 A. Yes. 2 Q. You can put that document to one side, thank you. 3 Again, in January 2008, Mr Sharp has given evidence 4 that he recalled a meeting where you reported to tie 5 staff in relation to the outcome of the Wiesbaden 6 meeting. Do you remember that? 7 A. I remember we did a number of briefings to key members 8 of staff around the journey towards contract close. So 9 Damian did work with me in the engineering and approvals 10 work stream. That sounds correct. I can't remember the 11 individual meeting. I certainly remember briefing 12 people on our -- tie's clear understanding of the 13 outcomes from Wiesbaden. 14 Q. Throughout your involvement in Schedule 4, so between 15 January and May 2008, to what extent did you consider 16 that certain matters had already been agreed and could 17 not be revisited, and to what extent did you consider 18 that everything was still up for negotiation? 19 A. I considered the Wiesbaden Agreement was the frame that 20 we expected to complete the agreement on. There was 21 certain individual points within the contract suite that 22 still had to be concluded, and those matters had to be 23 filled in, but I expected that Wiesbaden would be the 24 framework that we would expect to work to. And that's 25 what the parties, Willie on behalf of tie and I think it 40 1 was Richard Walker and some of his senior German 2 colleagues that attended that meeting in Wiesbaden. 3 So that was the Heads of Terms, if you like. 4 I didn't expect it to be significant change from those 5 items. 6 Q. Another matter I should put to you is that Mr Fitchie in 7 his statement said that he observed a lack of clarity in 8 communications between Matthew Crosse, Geoff Gilbert, 9 Stewart McGarrity and yourself in January, February and 10 March 2008. Is that a fair comment? 11 A. I'm not sure what he refers to. I would consider there 12 was daily and clear communication, particularly between 13 the people mentioned, and including with DLA and Andrew. 14 So I wouldn't agree with that. 15 Q. Sticking with Mr Fitchie, what was Mr Fitchie's role in 16 Schedule 4? 17 A. He was the lead partner for our legal adviser who were 18 fundamental to the drafting of and finalisation of 19 Schedule 4. 20 Q. Do you know whether Mr Fitchie had any involvement in 21 the Wiesbaden Agreement? 22 A. I don't know. I wasn't -- I certainly didn't send 23 anything to Andrew, but it was a matter that was being 24 dealt with by Willie, Matthew and Geoff at that time. 25 Q. I think Mr Fitchie's position is that he had no 41 1 involvement at all in the Wiesbaden Agreement. 2 A. I would find that very surprising. 3 Q. I think his position is he wasn't at Wiesbaden? 4 A. Yes, I agree. I'm surprised he had no consultation with 5 the points with regards to that. 6 Q. So you would have expected senior tie executives who 7 were negotiating an important matter such as the pricing 8 schedule to take legal advice before agreeing to 9 anything? 10 A. Yes. 11 Q. And if -- 12 CHAIR OF THE INQUIRY: If that's the case, would you not 13 have expected them to take the legal adviser with them 14 to a meeting in Germany where we hear that on the one 15 side, there were two representatives of tie and on the 16 other side, there were six representatives of the 17 consortium, in the headquarters or in the offices of 18 Bilfinger? Would you not think that if the senior 19 members of tie wanted legal advice, they would have 20 taken Mr Fitchie or someone with them? 21 A. I think that was a question perhaps for Mr Gallagher, 22 but he may well have spoken with Mr Fitchie and others 23 in advance of going. 24 I wasn't party to the arrangements for Wiesbaden, 25 my Lord, and I expected just as the matters were shared 42 1 with me on return in terms of the draft -- the drafting 2 and the documents, that that would have clearly also 3 been circulated with DLA as well. 4 CHAIR OF THE INQUIRY: But that might be too late. The deal 5 might have been done. Do you accept that? 6 A. I think that Willie and Richard Walker were clear that 7 they thought they'd got to a firm price. There was some 8 formalisation of that into appropriate contractual 9 language that was required thereafter, and that was 10 always the intent. Sometimes in doing so, contractual 11 or legal issues arise and they have to be revisited. 12 I think that was the expectation that would be dealt 13 with coming back from Wiesbaden, but they wanted the 14 principles to be clear. 15 MR MACKENZIE: Thank you. 16 Between January and May 2008, to what extent, if at 17 all, did tie request or receive advice from 18 Andrew Fitchie on Schedule 4, including in particular 19 the risks that gave rise to tie? 20 A. I became specifically involved in the Schedule Part 4 21 discussions from about mid-February, and that was at 22 meetings with DLA, including Andrew, and some of his 23 colleagues present, and generally they tended to be at 24 the working sessions that we had with BBS to try and 25 resolve these matters. 43 1 So I consider them implicitly involved in providing 2 comment and advice from the point that I was involved in 3 Schedule Part 4 from. I don't know about the level of 4 engagement that happened in January or prior to that. 5 And certainly Andrew had a risk matrix document to 6 prepare as part of the Final Business Case, and that was 7 discussed as part of that conversation around Schedule 8 Part 4 and in finalisation of that risk matrix. 9 So my view was that DLA and Andrew personally and 10 some of these key team members, I think, Phil Hecht and 11 Joanne Glover were a couple of the lawyers who were 12 involved, attended virtually all of those sessions, if 13 not all of them, and they were certainly fundamental to 14 any circulation of any working drafts and proposals. 15 I didn't ask for any -- I personally didn't ask for 16 any additional advice from DLA, knowing that he was 17 implicitly in attendance. He had raised points around 18 the mechanics of schedule -- Clause 80 as we went 19 through, and that he was providing input to the risk and 20 close report. 21 Q. At any of these meetings or sessions you've mentioned in 22 relation to Schedule 4, did you ever expressly say to 23 Mr Fitchie: I would like your advice on this, please. 24 A. I'm sure we would have asked him about the mechanics of 25 how that would work, yes. I'm sure we would have. 44 1 Q. Do you specifically remember ever asking Mr Fitchie for 2 advice at any of these meetings or sessions? 3 A. I remember asking how the Notified Departure mechanism 4 would work, and he gave verbal advice at that time, 5 which was the mechanism by which Schedule Part 4 would 6 convert into a tie change. 7 Q. Any other matters in relation to which you specifically 8 remember asking him for advice? 9 A. Andrew contributed as he went along. I don't think we 10 specifically addressed or asked him for any additional 11 follow-up items over and above what he was already 12 providing for the close report and other comments. 13 Q. We're going to come back to pricing assumption 1 in 14 Schedule 4, but I think you would agree that your 15 interpretation was important to tie's position; is that 16 correct? 17 A. Yes, I think tie's interpretation, and I shared that 18 interpretation, was that -- was the basis by which we 19 felt it was an appropriate assumption. 20 Q. That interpretation was really fundamental to tie 21 entering the contract; is that correct? 22 A. It's one of the key -- the key pillars, yes. 23 Q. Now, you were Tram Project Director, I think you said, 24 from the end of February 2008. So in March, April, 25 early May, did you ever ask Mr Fitchie whether your or 45 1 tie's interpretation of Pricing Assumption 1 was 2 correct? 3 A. I don't recall asking him the question in the way that 4 you've just described. I do recall then and thereafter 5 that DLA's view was that our interpretation of Pricing 6 Assumption 1 and normal design development meant that 7 that risk was a matter for the Infraco, and when it went 8 beyond that, it was a matter for tie; and that was 9 supported as we prepared for emerging disputes that 10 happened later in 2009 and beyond, or 2008 and beyond, 11 after contract close. 12 Q. What I want to be absolutely clear about is whether tie 13 at any time before contract close took legal advice on 14 the correct interpretation of Pricing Assumption 1. 15 A. I believe DLA were clear around how we were interpreting 16 it, and they supported our risk transfer and approach. 17 CHAIR OF THE INQUIRY: How did they do that? How did they 18 do that? 19 A. They had -- as we'd gone through each of those drafting 20 points and items, where Andrew and his team were clear 21 that if there was another matter that caused them 22 concern, they raised it with us. They -- used 23 a Notified Departure example. He said: are you quite 24 clear at this point that you -- this gives you 25 a statement of fact and deals with it that a change has 46 1 occurred? Are you clear on that and therefore you then 2 have to apply through the tie mechanism how that would 3 be valued or any impact of it. 4 So where he was clearly identified that there was an 5 area of concern as we had gone through it, he raised 6 those items. Those would be examples for me where he 7 was specifically flagging a concern he had. 8 CHAIR OF THE INQUIRY: Yes, but, Mr Bell, I think what I was 9 interested in, you say that: 10 "... DLA's view was that our interpretation of 11 Pricing Assumption 1 and normal design development meant 12 that that risk was a matter for the Infraco ..." 13 How did Mr Fitchie or DLA ratify that 14 interpretation? 15 A. My understanding of that ratification was in supporting 16 the risk profile matrix and the agreement as we'd 17 discussed normal design development as we were 18 negotiating it, and therefore it was a verbal 19 confirmation. We didn't have a written separate 20 submission on a point that later became very 21 contentious, as far as I can recall. 22 CHAIR OF THE INQUIRY: Did you or anyone else in tie tell 23 Mr Fitchie or DLA what your interpretation was? 24 A. I'm absolutely sure it was -- it was clear that -- and 25 discussed in those kind of working sessions. I'm sure 47 1 it was before I attended at DLA's offices, 2 and I certainly recall in conjunction with some of my 3 colleagues, and Andrew and others, the clear view that 4 normal design development would be for the Infraco's 5 risk. Beyond that would be for tie's risk. And that 6 was the debate that we had at that time. 7 MR MACKENZIE: So just for the avoidance of doubt, Mr Bell, 8 I asked the question: did tie at any time before 9 contract close take legal advice on tie's interpretation 10 of Price Assumption 1? What's your answer? 11 A. I would say verbally, yes. In writing, no. We relied 12 on the contract -- the reporting and documentation that 13 had been prepared. 14 Q. So is it your position that you or someone else in tie 15 said to Mr Fitchie: this is our interpretation of 16 Pricing Assumption 1; is it correct? 17 A. It's my -- I certainly recall discussing that with my 18 colleagues and I'm certain Andrew and perhaps some of 19 his colleagues were there, that we clearly set out the 20 application of normal design development as SDS complete 21 that design, that's a Infraco risk based on the 22 Wiesbaden wording that was there. If it's beyond that, 23 that's a tie risk. And that was my clear understanding 24 at that time. We did not put that in writing between 25 us, between DLA and ourselves. 48 1 Q. Mr Fitchie being present at a meeting when tie's 2 interpretation is discussed, isn't the same thing as tie 3 seeking, requesting legal advice on whether that 4 interpretation is correct. 5 A. I believe we probably followed that up after contract 6 signature, but at that time, no, we didn't, I don't 7 believe we put it formally in writing. I certainly 8 don't recall doing it, unless you have some records that 9 suggest otherwise. It was done in that discussion. 10 Q. Do you accept the proposition in the question that 11 Mr Fitchie being present at a meeting when tie's 12 interpretation is discussed isn't the same thing as tie 13 requesting legal advice on whether that interpretation 14 is correct? 15 A. I accept that given the contention of this point, it 16 would have been good to have a written request and 17 a written response that was contemporaneous at that 18 time. 19 Q. So is it your position essentially that Mr Fitchie being 20 present at these meetings and remaining silent was 21 a form of agreeing with tie's interpretation? 22 A. There was absolutely no push-back on that interpretation 23 and I believe that he supported that interpretation. 24 I don't have that in writing. 25 Q. Are you absolutely sure about what you've just said? 49 1 A. That I believe he agreed with the interpretation? 2 Q. Yes. 3 A. I believe he did, yes. 4 Q. Is there any possibility at all that you're wrong in 5 your recollection in that regard? 6 A. I don't think so. It is nine years ago, but this is 7 certainly an area I'm very clear that for a number of 8 years, not just a number of months, DLA supported our -- 9 as in tie's -- position in the interpretation of that 10 pricing assumption through 2008/2009, and I don't 11 believe it was -- alternative legal position was tested 12 on that until 2010. 13 Q. Focusing very deliberately on the period between January 14 and May 2008, so before contract close, so just bear 15 that in mind. 16 Now, Mr Fitchie, his position is that tie wanted 17 Mr Fitchie, and indeed the other parties' lawyers, to 18 have minimal input into Schedule 4, and that as a matter 19 of fact, Mr Fitchie had minimal input into the drafting 20 of or advising on Schedule 4; do you have any comments 21 on that suggestion? 22 A. That is definitely not my recollection. Mr Fitchie or 23 his colleagues, as I've said earlier, were in attendance 24 at the vast majority, is my recollection, of these 25 reviews and meetings. And certainly were a core player 50 1 in any circulation of proposed changes or amendments or 2 finalising of the drafting of Schedule Part 4. 3 Q. Mr Fitchie has also given evidence that he rang alarm 4 bells in relation to Pricing Assumption 1, including in 5 particular that it did not transfer design risk to the 6 consortium. Do you recollect that? 7 A. That's not my recollection, no. 8 Q. I would like, please, now to go to Mr Fitchie's 9 statement. Now, hopefully it's TRI00000102. 10 CHAIR OF THE INQUIRY: Does it not have an underscore? Is 11 this not an amended statement? 12 MR MACKENZIE: I don't have that, my Lord, no. I suspect 13 that any changes tend to be in the document numbering. 14 But I think the substance of what the evidence is, 15 I suspect, will be the same. 16 If we can go, please, to page 185. If we can go 17 over to the previous page, please. The paragraph one 18 above that, please, 7.290. There's a reference there: 19 "I do not recall Steven Bell giving me his view at 20 the time in early February 2008 on where Pricing 21 Assumption 1 had come from. But I had made it clear to 22 Steven by that time that it had not come from or ever 23 been agreed by DLA Piper." 24 Then at the bottom of that: 25 "We discussed what might be understood by design 51 1 development, design principle, shape, and form and 2 outline specification and we discussed the words 3 themselves." 4 Over the page, please, top of the page: 5 "I believe that my verbal advice on this was very 6 clear: it introduced obvious blunt transfer back to TIE 7 of cost and time implications from SDS design 8 development post BDDI. At this point ..." 9 And this refers, according to Mr Fitchie, to early 10 February 2008: 11 "... it was left that Steven would consider this and 12 discuss it with Geoff Gilbert and then Scott McFadzen of 13 Bilfinger Berger. This was because DLA Piper were not 14 involved in the genesis and development of SP4." 15 But the question there of Mr Fitchie says that his 16 verbal advice on this was very clear. It introduced 17 obvious blunt transfer back to tie, et cetera. Do you 18 recall receiving that advice from Mr Fitchie? 19 A. I recall receiving advice from Andrew around work beyond 20 normal design development, but not that that drafting 21 included normal design development. And that would be 22 the type of exchange or discussion that -- perhaps 23 touched on earlier. 24 Q. So is it your position that Mr Fitchie is simply wrong 25 when he says he gave you that advice? 52 1 A. That is certainly not my recollection. I believe that 2 he's recalled that incorrectly. 3 Q. Look then, please, at paragraph 7.294. Mr Fitchie says: 4 "It appeared to me that, from an engineering and 5 design production management standpoint, TIE was 6 trusting that there would be a collaborative and 7 partnering approach to managing the entire issue of 8 novated SDS completing the underdeveloped, missing 9 and/or non-consented SDS Design. Nearly all of this 10 design, TIE (and CEC) knew, could not reach IFC status 11 until well after Infraco Contract award. It appeared 12 that TIE was trusting that there would be a collegiate 13 approach in managing the impact of the entire missing 14 design component of the Infraco Contract post novation." 15 Is that last sentence correct, that were tie 16 trusting that there would be a collegiate approach with 17 the consortium in managing the impact of the entire 18 missing design component? 19 A. I think we hoped there would be a collegiate approach, 20 but we were not trusting that there would be a 21 collegiate approach. There are obligations under the 22 contract to work collaboratively, and the Infraco had to 23 insert their Infraco proposals into the final design. 24 So there was always going to be an extensive amount of 25 integration required. But I would not use the word 53 1 "trusting". 2 Q. But there's a big difference between design being 3 complete or almost complete, and Infraco inserting their 4 components and what in fact happened, that the design 5 certainly at November 2007 was only two-thirds complete? 6 A. Yes. It was two-thirds complete, and there was a very 7 clear amount of due diligence, I think, done by the 8 Infraco to understand that. And there was a clear 9 direction towards the Employer's Requirements that were 10 also set out. So in our view it was expected clearly 11 that the Infraco would be able to interpret that 12 clearly, and make necessary allowance for normal design 13 development. Where it changed from that, for whatever 14 reason, then that was not an issue for the Infraco 15 unless it was driven by their Infraco proposals. 16 Q. We will come back to some of these matters, but sticking 17 with this. In paragraph 7.295, we see: 18 "Steven Bell considered that with "normal design 19 development" a contractor would expect and include for 20 some elaboration of design in the journey to 'Issued for 21 Construction' drawings. In the industry, he reasoned, 22 this would rarely be considered to be design development 23 of the sort that PA1 was written to capture. We 24 identified there were different ways of reading the 25 language on normal design development in PA1 and I gave 54 1 my view that BBS were likely to exploit this." 2 Do you remember him saying that? 3 A. In relation to this specific item, no. He did make some 4 general comments around he believed that BBS were likely 5 to seek to optimise any contractual opportunities 6 available to them, but I don't recall it in the way that 7 he's described it in his statement, no. 8 Q. Is it possible that Mr Fitchie advised you before 9 contract close that BBS were likely to exploit the 10 language of Pricing Assumption 1? 11 A. In that way, no. 12 Q. It's simply not possible he gave such advice? 13 A. I don't believe he did, and I don't recall any such 14 advice on that specific point. 15 Q. Reading on: 16 "As I discuss above, Steven appeared comfortable 17 that this would not, in practice, create issues and the 18 discussion ended. It was left that he would discuss it 19 with Geoff Gilbert, who it appeared had overall 20 responsibility for negotiating SP4." 21 Look, please, at the next paragraph, 7.296: 22 "I was not in a position to gainsay Steven's view as 23 an engineer - but I knew that due to Germany's risk 24 aversion that BBS were going to be adversarial in 25 operating the contract and I said so." 55 1 Did he say that to you? 2 A. He didn't -- I don't recall the word "adversarial". As 3 I said to you a moment ago, I believe that he expected 4 a robust application of the contract in the number of 5 areas. I do recall him saying that. I can't remember 6 if it was then or thereafter, but I do recall him saying 7 that. 8 Q. The next paragraph, please. 7.297. This is later on, 9 and I will come back to look at this email, but this 10 refers to Mr Fitchie. He says: 11 "I sent a specific email about SP4 to Jim McEwan on 12 31 March 2008." 13 I'll let you read that for yourself, Mr Bell, but 14 you will see, about four or five lines down, Mr Fitchie 15 says: 16 "I had had a further discussion with Steven Bell at 17 around this time concerning SP4 and SDS design 18 development; this resumed after Rutland Square 19 and I explained that we had secured agreement to remove 20 certain limbs from PA1 but I still had serious 21 misgivings about how post-BDDI SDS design development 22 time and cost responsibility now sat squarely with TIE. 23 I believe that this would have been around the time that 24 TIE had agreed to pay BBS a further GBP8.6 million in 25 early March 2008." 56 1 So to pause there, what Mr Fitchie is saying is that 2 he had a conversation with you in March 2008 that he has 3 serious misgivings about how post BDDI SDS design 4 development time and cost responsibility now sat 5 squarely with tie. So that's completely different to 6 tie's interpretation of Pricing Assumption 1 that you 7 explained to us earlier, isn't it? 8 A. As Andrew stated, yes, his view as he stated there, 9 I don't recall him having that discussion with me at 10 that time. I do recall talking about design development 11 time and the issue of an immediate Notified Departure 12 between completion of SDS design packages, and that's 13 where we discussed the Notified Departure mechanism. 14 You may come on to that later. 15 I certainly don't recall the language that Andrew 16 has used there, and indeed, I think is part of some of 17 the Rutland Square discussions. This issue around 18 design development time touched on quality of 19 submissions by SDS, and there was a specific acceptance 20 in one of those agreements that that was a risk that BBS 21 were prepared to take. 22 So that resume is incorrect for me. 23 Q. So in short, Mr Fitchie's position is that in 24 February 2008, and again in March 2008, he has told you 25 of his concerns in relation to Pricing Assumption 1 and 57 1 that in fact that Pricing Assumption gives rise to 2 serious risks for tie. That's his position. Do you 3 understand that? 4 A. I do understand that's his position. 5 Q. You are saying that neither of these discussions or 6 conversations happened? 7 A. We had a discussion about the design development time 8 issue, and we acknowledged that there was going to be 9 a Notified Departure associated with that, and that was 10 going to be an additional cost over and above the 11 proposed contract works price at that time. 12 Q. But your position -- 13 A. And that was acknowledged that that was going to be 14 a fact. 15 Q. But in relation to the risks more generally arising from 16 Pricing Assumption 1 -- 17 A. Absolutely don't agree with Andrew's point there, and 18 this issue of cost responsibility and normal design 19 development is one we've already touched on, but we were 20 very clear, and I do not believe Andrew came back to me 21 at that time with that particular point again. 22 Q. If we then please go to page 190. 23 CHAIR OF THE INQUIRY: Mr Mackenzie, will you find 24 a convenient point? 25 MR MACKENZIE: I think maybe five more minutes, I could 58 1 finish this point. 2 In paragraph 7.319, at the bottom, Mr Fitchie 3 states: 4 "I discussed the effect of PA1 directly with TIE 5 once more at the latest on 9 April 2008 (with TIE 6 management personnel), after SP4 sessions finished on or 7 around 20 March 2008, immediately after TIE had been 8 confronted by a further serious price increase demand 9 off the back of Network Rail immunisation works. 10 I wanted to alert the responsible TIE managers again to 11 the magnitude of the change in risk allocation plus the 12 demand for more money ... I said that TIE should 13 consider stopping the procurement. They understood what 14 I was saying and I repeated that advice to a full TIE 15 management meeting if not that day, 9 April, in the next 16 TIE management meeting - probably Monday, 11 April." 17 I take it, Mr Bell, you attended these tie 18 management meetings? 19 A. I attended, yes, a number of tie management meetings. 20 I don't recall that particular session per se. I don't 21 recall -- the immunisation issue, I think, was a matter 22 related to Network Rail. I don't recall that being 23 related to the Infraco. 24 Q. So what Mr Fitchie is saying is that in April he again 25 alerted tie managers to the magnitude of the change in 59 1 risk allocation in relation to Pricing Assumption 1. Do 2 you remember him saying that? 3 A. In that language, no, I do not. 4 Q. Well, in any similar language? 5 A. No. 6 Q. Again, is it possible he gave that advice? 7 A. If I wasn't at the meeting, possible. Therefore 8 I wouldn't recall it. I'm sorry, I don't recall it. 9 And I don't -- it would have been in our minds, I'm 10 pretty sure. 11 CHAIR OF THE INQUIRY: Do you recall anyone mentioning the 12 possibility of stopping the procurement? 13 A. Yes. I think we had a discussion probably -- it would 14 be in 2007. David Crawley talked about the procurement 15 timing and process, and the preparation for completing 16 design and allowing the preferred bidder process to 17 conclude. It was originally, I think, scheduled for the 18 summer of 2007, and preferred bidders were recommended, 19 I think, in October 2007. 20 But David certainly had a discussion around that. 21 I do recall that. 22 CHAIR OF THE INQUIRY: What about post Wiesbaden? 23 A. I think there was a general risk that you could get to 24 a point where you couldn't come to an agreement. 25 CHAIR OF THE INQUIRY: I'm just trying to find out, do you 60 1 recall any mention being made of the possibility of 2 stopping the -- 3 A. I think -- 4 CHAIR OF THE INQUIRY: Post Wiesbaden? 5 A. I think round about February, when we had missed our 6 planned completion at the end of January. It was -- it 7 was difficult to be certain that the completion -- there 8 could be a contract completion on acceptable terms 9 because we were conscious that we had to align the 10 terms. Our advisers also would contribute and be 11 content with those points, and we had to make a report 12 to Council. 13 So there was always a possibility, I think, in our 14 mind that we might have had to stop. 15 MR MACKENZIE: This is a suitable time to have a break. 16 CHAIR OF THE INQUIRY: We will break now to give the 17 shorthand writers a break and resume again at 11.25. 18 (11.10 am) 19 (A short break) 20 (11.29 am) 21 CHAIR OF THE INQUIRY: You're still under oath, Mr Bell. 22 MR MACKENZIE: Thank you, my Lord. Mr Bell, I would like 23 you to turn to the Rutland Square Agreement in February 24 2008. I would like to start by going to your statement 25 at page 89. 61 1 Halfway down the page, in the paragraph commencing 2 "there was also the fact", you say: 3 "It would also be fair to say that regarding IFC 4 drawings, if you go back to the Rutland Square 5 Agreement, there was a commitment from BSC to accept the 6 SDS risk at that point. That is something that 7 contractually was their problem now." 8 So I would like to now then go to the Rutland Square 9 Agreement and for you to help me identifying the 10 provision where you say there was a commitment from the 11 consortium to accept the SDS risk. 12 Going to the Rutland Square Agreement, please, it is 13 CEC01284179. 14 If we go to page 5 we will see the date of the 15 Agreement. We can see, I think, it's dated 16 7 February 2008, and we can also see, I think, that it's 17 been signed on behalf of tie by Matthew Crosse. Can we 18 see that? 19 A. Yes, I can. 20 Q. I should ask you, Mr Bell, did you have any involvement 21 in the Rutland Square negotiations or agreement? 22 A. I'm certainly aware of the output from that, and I'm 23 sure at the time we would have had some discussions but 24 it was an item, I think, Matthew and Geoff were trying 25 to finalise in the first instance. 62 1 Q. Is that consistent with your earlier evidence that at 2 this time, Mr Gilbert was still taking the lead on 3 Schedule 4? 4 A. That's correct, yes. 5 Q. Now, if we could then please go to page 2. In 6 paragraph 1.1, you see reference to "a construction 7 contract price for Phase 1a of [just over 8 GBP222 million]". To pause there, I think that's an 9 increase of very roughly GBP4 million from the Wiesbaden 10 price of 218 million; is that correct? 11 A. That sounds correct, yes. 12 Q. If we could zoom back out, please, I'll just give you 13 a minute to read what's on that page. Would it help if 14 it was blown up a little? 15 A. Please. Thank you. 16 Q. Just to remind yourself of what it said. Perhaps we 17 could scroll down a little, thank you. 18 (Pause) 19 Over the page, please, we see in paragraph or 20 clause 2 of the agreement, we see the top, it says that: 21 "tie and the ... Consortium agree that under no 22 circumstances shall the Construction Contract Price of 23 [just over 222 million] be increased ..." 24 Towards the bottom: 25 "Except in respect of 2.1: the formalisation of the 63 1 price for changes to the Employer's Requirements 2 Version 3.1; and 2.2, the resolution of the SDS Residual 3 Risk Issue." 4 Then zoom back out. We will see what that's 5 a reference to. Paragraph 3, we can zoom that out and 6 just read for ourselves what it says in relation to 7 Employer's Requirements. But then paragraph 4, please, 8 if we look at that. This explains that: 9 "The SDS Residual Risk Issue relates to the 10 provision of adequate design information, and 11 particularly earthworks design by SDS and the recovery 12 by the BBS Consortium of costs and expenses from SDS in 13 the event that their designs are inadequate." 14 Did you have any understanding at the time in 15 relation to what was meant by the SDS Residual Risk 16 Issue? 17 A. At the time, I think it was around the status of design 18 information, and the extract mentions particularly 19 earthworks design. I think there was a question around 20 the level of ground investigation that had or hadn't 21 been done at that time, and to be available to inform 22 the design. 23 Q. Was your understanding that the SDS Residual Risk Issue 24 was only in relation to the adequacy of earthworks? 25 A. It draws out there, particularly the earthworks design 64 1 was as discussed in early February. That was an area of 2 particular interest or concern from BBS. And that's why 3 I think they chose to highlight that language in the 4 Agreement. 5 Q. I can quite see that, that there is reference in 6 particular to the earthworks design, but there's also 7 the more general reference to the provision of adequate 8 design information. So just read literally, it may be 9 that that related to design beyond the earthworks 10 design? 11 A. It could be, yes. 12 Q. Did you actually have a clear understanding at the time 13 as to what was meant by the SDS Residual Risk Issue? 14 A. I recall discussing the earthworks design item with 15 Geoff and Matthew, and generally we were still working 16 at a time when the detailed design was not complete and, 17 as we've already discussed, that was the purpose of some 18 of the Base Date Design Information discussions. 19 Q. Then zoom back out and I'll let you read for yourself 20 what's set out in paragraphs 5 and 6 of the agreement. 21 (Pause) 22 Then over the page, please, to page 4. Perhaps 23 highlight paragraphs 7 to 12, and I'll let you read for 24 yourself. (Pause) 25 The purpose of this, Mr Bell, I'm trying to search 65 1 for the provision in the Agreement that relates to the 2 statement in your statement that, if you go back to the 3 Rutland Square Agreement, there was a commitment from 4 BSC to accept the SDS risk at that point. For my part, 5 I don't see anything so far that relates to that. Do 6 you? 7 A. No, I would agree with you. I think that's perhaps it 8 was one of the other discussion points or agreements at 9 that time. 10 Q. Hang on. There's more. 11 If we now please go to -- go back a page, please, to 12 6.2. You will see in 6.2 a reference to a Schedule 13 Infraco Contract Suite Close Out. Then go to page 7, 14 please. We will see that Schedule to see if that helps 15 us. Again, I'll just try and give you a minute to skim 16 that, if you could. (Pause) 17 Scroll down then and over the page afterwards. 18 Scroll down, perhaps. Thank you. 19 Over the page, please. (Pause) 20 Just pausing at 2.5, Schedule 4, this does, I think, 21 relate to certain changes or amendments to the draft 22 Schedule 4. So it does appear that at least certain 23 parts of Schedule 4 were amenable to change; is that 24 fair? 25 A. Yes. 66 1 Q. At the bottom of the page, do you see a reference under 2 3 to novation, and in particular under 3.2: 3 "The BBS Consortium's agreement to novate SDS is 4 confirmed and the novation agreement is to be finalised 5 based on tie's position as agreed on 5 February 2008." 6 Is that what you were referring to when you said in 7 your statement that there was a commitment from BSC to 8 accept the SDS risk at that point? 9 A. I think certainly novation was a point that was not 10 agreed pre December. It was always set out as the 11 strategy, but both SDS and BBS had not confirmed their 12 agreement to the novation. And this was -- as part of 13 this Agreement, BBS confirming that they would accept 14 SDS to be novated to them. 15 Q. Could I ask you to look finally at page 12. We should 16 see, I think, a draft of Schedule 4. Yes. 17 This is simply a draft of Schedule 4. Presumably if 18 there was anything in that draft you were unhappy with, 19 then this would have been an opportunity for you to have 20 raised that? 21 A. At that time, I mean, I think I saw this Agreement in 22 mid-February, just after it had been signed. I'm sure 23 there were specific points like the Design Management 24 Manual, I was in discussion with Matthew and Geoff in 25 advance of that. And I then -- Schedule Part 4 wasn't 67 1 agreed at that point, and as we touched on earlier, 2 Jim McEwan and I took forward some of the outstanding 3 issues, some of which I think are actually on your front 4 listing, of this document related to the items to be 5 concluded or amended. 6 Q. If we just turn the pages until we find the version of 7 Pricing Assumption 1. Can we carry on. 8 Go back to page 13 and pause there. We can blow up 9 under Base Case Assumptions. 10 A. Yes. 11 Q. So I think we see a similar-ish wording to Pricing 12 Assumption 1 in the Wiesbaden Agreement, but in 13 a different place in Schedule 4. 14 We see the phrase there, under (a)(ii): 15 "not, in terms of design principle, shape, form 16 and/or specification, be amended from the Base Date 17 Design Information." 18 So it does appear that there was ongoing 19 negotiations in respect of -- indeed Pricing Assumption 20 1, we see it appears now in different format? 21 A. Yes. 22 Q. When you referred earlier to inserting the word 23 "significant", then this would have been an opportunity 24 to have done that; correct? 25 A. Yes, but our understanding was -- was clear in our mind 68 1 at that time. 2 Q. But you must know, Mr Bell, that contracts are 3 interpreted by the words used on the page, not by what's 4 in parties' minds? 5 A. Yes. 6 Q. So it was -- 7 A. Our interpretation of the words on the page though were 8 as we have stated, I think pretty consistently. 9 Q. Why didn't you insert the word "significant" for the 10 avoidance of doubt? 11 A. I believe our view at the time was that it was -- it 12 covered the intent that we ascribed to it. 13 Q. We will come back to that wording. 14 You can put that to one side just now, thank you. 15 I would like to move on to another document. Firstly, 16 if we could go to your statement, please, at page 38. 17 We can see question 25, we say: 18 "On 18 February 2008 BBS produced a Design Due 19 Diligence Summary Report ..." 20 We asked: 21 "Were you aware of that report at the time?" 22 You replied: 23 "I recall being presented with that report around 24 2010 as part of the disputes we had but I do not recall 25 seeing it at the time." 69 1 I think we found the email from Bilfinger sending 2 the report to tie. If I can go, please, to CEC01449440. 3 We can see from the top of the page, it's an email sent 4 on behalf of Scott McFadzen at Bilfinger dated 5 19 February 2008, to various people in tie, including 6 yourself, Mr Bell, and the text says: 7 "Please find attached for your information our 8 Design Due Diligence Summary Report ... The report is on 9 Design Information issued to us up to 14 December 2007." 10 So it appears from this email that you were sent the 11 report at the time; do you accept that? 12 A. It does, yes. 13 Q. If we look at the report itself, please, it is 14 CEC01449100. Page 3, please. Again, we can see in the 15 first paragraph that: 16 "The due diligence process has been based on the 17 relevant design information received by BBS by 18 14 December 2007." 19 What did you understand to be the purpose of this 20 report? 21 A. That Bilfinger Berger had satisfied themselves that 22 they'd understood this status of the design being 23 produced by SDS at -- up to that point in time. 24 Q. Is the clue really in the title of the report, this is 25 Bilfinger carrying out a due diligence of the design? 70 1 A. Yes, that is perhaps what I meant by they had satisfied 2 themselves in relation to the breadth and the detail 3 included in that design. So they understood exactly 4 what had been done up to that point. 5 Q. And presumably if the consortium were going to accept 6 any design risk, then carrying out a thorough due 7 diligence on the design available would be an important 8 aspect to them in deciding what design risk, if any, to 9 accept? 10 A. Yes, I think that would be correct. 11 Q. Now, reverting to the report, we can see in the second 12 paragraph, a reference to "According to the SDS document 13 tracker, more than 40% of the detailed design 14 information has not been issued to BBS at all by the 15 above mentioned cut-off date". 16 I think very broadly, I think that accords with the 17 two-thirds figure we looked at for November 2007 18 earlier. Do you accept that? 19 A. Yes, I do. 20 Q. Could we then please look at the paragraph commencing 21 "For many areas", a little bit down the page: 22 "For many areas the 3rd party approval status is 23 not clear. Formal tie/CEC design approvals are 24 generally outstanding. Not a single design element has 25 received final approval and has been issued for 71 1 construction." 2 Were you aware at the time whether that statement or 3 these statements were broadly correct? 4 A. I would think at that stage, there were some residual, 5 both prior and technical approvals outstanding. So yes, 6 I think that -- I don't suspect that Scott has 7 incorrectly recorded that. I think that would be true. 8 It would also be covered, I think, in the design 9 trackers that were available at that time which are 10 usually reported on a four-weekly basis by SDS because 11 they track the status of each of those items. 12 Q. I think we've seen evidence that as at 13 November/December 2007, hardly any of the approvals -- 14 A. The final approvals, yes, I think that's correct. 15 Q. You referred to: 16 "I would think at that stage, there were some 17 residual prior and technical approvals outstanding." 18 They weren't residual things outstanding. Almost 19 all of them were outstanding? 20 A. I think that's correct, yes. 21 Q. Then: 22 "The latest available SDS programme is version V23. 23 This shows a slippage of more than a year compared to 24 the programme in the SDS agreement. It schedules the 25 release of issue for construction information from 72 1 April 2008 to the end of 2008. This is based on 2 optimistic approval periods for which no contractual 3 reference could be found." 4 Would you have agreed with what's in that paragraph 5 at the time? 6 A. There was definitely slippage compared to the original 7 programme. So I think that was probably a factual -- 8 factually correct statement. 9 In relation to the point around optimistic approval 10 periods, there was a baseline assumption for the number 11 of weeks that the Council could consider an application. 12 And in some circumstances the -- we had agreed 13 additional resource from the Council to supplement those 14 reviews. So there was an anticipation that provided the 15 submission had been competently made, that there was 16 likely to be certainly no worse than the planned 17 timescale, but potentially some improvement in that 18 timescale, perhaps from eight weeks to six weeks or six 19 weeks to four weeks. 20 There were a number of initiatives we discussed 21 earlier. Some of the key issue items to be resolved 22 with the Council, and with SDS. This would be an area 23 where we tried to focus resources where appropriate to 24 expedite some of the design deliverables and approvals. 25 Q. I'll come back to that issue once we're closer to 73 1 financial close, if I may. 2 Sticking with this document, the final paragraph 3 here states: 4 "In accordance with tie's original procurement 5 concept, a complete and issued for construction design 6 would have been novated to the Infraco." 7 To pause there, that statement is correct, isn't it? 8 A. I believe that was the strategy that was set out back in 9 2005 or 2006 when the SDS contract was originally 10 awarded, yes. 11 Q. There's a logic to that strategy, isn't there? If 12 design is complete, then the contractor knows what it 13 has to build and can price accordingly and you're more 14 likely to get a fixed price. Is that correct as 15 a matter of logic? 16 A. That's a logical analysis. 17 Q. Equally, it must follow logically that the more you move 18 away from having a complete design, the less fixed will 19 be the price? 20 A. You start to import a degree of risk or assumption that 21 that price can -- can change from that -- from that 22 base. That's correct. 23 Q. The more a design is complete before novation, the more 24 certainty there should be in relation to the price? 25 A. Yes, and that was -- that's one of the reasons for the 74 1 strategy being set out in the way that it was. 2 Q. Then just turning to this document, it goes on to say: 3 "The current design is far from meeting these 4 requirements and, as consequence, a novation is 5 considered to present significant and unforeseeable 6 risks to the project." 7 Finally, please, if we may go to page 9, in page 9 8 we can see under "Conclusion", the paragraph: 9 "The evolution of the design programme and the fact 10 the target design completion date has slipped by 13 11 months over 2 years suggests that the design 12 development process is not running smoothly and that 13 there are significant risks that further slippages will 14 occur." 15 Would you have agreed at the time with that 16 statement? 17 A. I certainly agree that it had slipped by 13 months over 18 two years, and there would have been risks that unless 19 the issues identified that had been addressed, there 20 could have been further slippage. 21 Q. Indeed, significant risks of further slippage? 22 A. I think that there are clearly additional risks of 23 slippage, yes. 24 Q. We can put that document to one side. 25 A. Could I just add -- just clarify that, that was very 75 1 much a technical assessment document. I think it was 2 probably prepared from December through to early 3 February. I would have expected that would have 4 informed BBS in their resolution of the Rutland Square 5 Agreement, where they had made the point that they 6 intended and committed to a novation at that point in 7 time, which would have been about ten days before this 8 particular report landed with tie. 9 Q. Well, that may have been an assumption on your part, but 10 as a matter of fact, this design due diligence report is 11 dated ten days after the Rutland Square Agreement. 12 That's correct? 13 A. That's correct, yes. 14 Q. So do you agree with the proposition that whatever may 15 or may not have been the purpose of the Wiesbaden and 16 Rutland Square Agreements, the conclusions in the design 17 due diligence report appear inconsistent with the 18 suggestion that the consortium have accepted the risks 19 arising from incomplete design or changes to design? 20 A. I don't think I agree with the proposition in the way 21 that you framed that. 22 It was clear that the procurement strategy to 23 complete the design before novation was not going to be 24 successful. We sought, therefore, to identify and 25 clarify the basis of the price for the Infraco, and we 76 1 firmly and clearly considered that that was based on 2 what was known in the November 2007 baseline, and 3 allowed for, in our view, very clearly normal design 4 development to completion. 5 It also protected the Infraco on a number of other 6 pricing assumptions of matters that weren't yet 7 concluded, and allowed the price to be adjusted if those 8 matters came to arise. 9 So I think it was acknowledged that the original 10 strategic intent of the completion of design prior to 11 novation and contract award was not going to be the 12 case. An appropriate protection for all parties we 13 considered had been put in place. However, there 14 clearly later emerged a difference in view as to what 15 was transferred from normal design development risk and 16 what was -- and what the Infraco considered that to be. 17 Q. Did this report, the design due diligence report, give 18 you any pause for thought as to whether your 19 understanding in relation to what design risk the 20 consortium were accepting was correct? 21 A. I think there were elements that were encouraging in 22 that they noted specifically the design that had been 23 completed was of acceptable or adequate quality. 24 I think that was positive for all parties. 25 It identified there were some significant areas that 77 1 were not complete, and you've referred to things like 2 some of the approvals. So those were known issues at 3 the time, and I don't think it fundamentally changed the 4 fact those were issues still to be addressed or were in 5 the process of being addressed at the time, partly 6 through the conclusion of the negotiations on the 7 Infraco contract. 8 Q. Was the design due diligence report sent to the Council? 9 A. I don't know. There was a number of Council staff that 10 were seconded to tie and operated and worked with us at 11 that time, and later. I can't -- I can't recall if that 12 was specifically sent on at that time. 13 Q. Do you consider it should have been sent to the Council? 14 A. I wouldn't have had a problem with it being sent to the 15 technical part -- key members in the Council, absolutely 16 not. 17 Q. It may be suggested that without seeing this report, the 18 Council were not fully aware of the consortium's 19 position on the design that had been provided to them? 20 A. I think the Council were quite clear on the importance 21 of completing the necessary technical and prior 22 approvals, which were some of the key elements that are 23 included in that report. That had been the subject of 24 debate and discussion and issues really from 2007 25 onwards at Tram Project Boards where the senior Council 78 1 officers were in attendance, and indeed they had raised 2 some particular questions on that, both at the Project 3 Board and outwith it. 4 So I think the -- the senior officers were very 5 clear on the importance of making sure that whatever tie 6 and CEC had obligations to undertake to support the 7 completion of that design, they knew that was an 8 important thing to get -- to get finished. 9 Q. The question was rather that without seeing this report, 10 the Council were not fully aware of the consortium's 11 position on the design that had been provided to them. 12 A. We may go into it shortly, but I thought in the Final 13 Business Case and the associated Council reports, there 14 was a clear acknowledgment that the design hadn't been 15 completed, and still required to be so, and there was 16 a requirement then for the parties that contributed to 17 that, including tie and CEC, to make sure that that was 18 completed as originally scheduled. 19 Q. Well, how about the passage in the report which said 20 that: 21 "The current design is far from meeting these 22 requirements and, as a consequence, a novation is 23 considered to present a significant and unforeseeable 24 risk to the project." 25 How would the Council be aware of that if they had 79 1 not been sent the report? 2 A. I think -- I think they would have had to have seen that 3 information from the report. I would say, though, that 4 the risk of novation and completion of that was covered, 5 I think, at both Tram Project Boards and in the -- the 6 proposals for contract close. We saw it as an important 7 requirement to complete the contract suite, and that was 8 one of the reasons why we continued to work with SDS and 9 the Infraco to resolve and complete that novation. 10 Q. I would like to turn to another document around this 11 period, please. It is CEC01450025. 12 We can see at the top of the page it's an email from 13 Scott McFadzen of Bilfinger, sent on 26 February 2008. 14 We can see Matthew, et cetera, please find enclosed 15 revised Civil Infraco Proposals: 16 "There is a reference to the Design Due Diligence 17 Summary Report in it and I have therefore attached 18 a further copy. 19 Appendix A, the schedule of design document, is not 20 complete and will be added later." 21 Now, I think you are not included in this email 22 list, Mr Bell, but I think you were then forwarded the 23 revised proposals by Matthew Crosse on 26 February 2008. 24 We will see if the document is in the system. It's 25 CEC01491360. 80 1 We can see at the top of the page, Mr Crosse on the 2 same day, 26 February 2008, has forwarded this to 3 yourself and Andy Steel of TSS. 4 If we can go, please, to the revised Civils 5 Proposals which are CEC 01450027. Perhaps we can blow 6 up the text. I'll just give you a minute to read the 7 text. (Pause) 8 Do you have any recollection of seeing this document 9 at the time? 10 A. I'm sure if Matthew forwarded it to me, I would have 11 received it. And I certainly recall Infraco proposals, 12 both from a civil and a systems point of view, being 13 further refined or discussed at that point in time. 14 Q. We can see in the second paragraph, the last sentence, 15 they refer to the design due diligence summary report? 16 A. They do. 17 Q. Which should be read in conjunction with these 18 proposals. Then after that, a reference to: 19 "It is BBS's intention that the Design will, where 20 possible, be subject to change where; 1) It is not in 21 accordance with BBS Pricing Assumptions, Part 1 of 22 Schedule 4 of the Infraco Contract and/or 2) It is not in 23 accordance with BBS Programme Assumptions." 24 What's your understanding there of that paragraph 25 I have just read out, in relation to it being BBS's 81 1 intention that the design will, where possible, be 2 subject to change? 3 A. So BBS have offered what they see as a very 4 cost-effective solution for the Edinburgh Tram Network, 5 and my interpretation of that as read would be if SDS's 6 final detailed design looks different from that, then 7 they will review whether or not that could be amended to 8 align it with the pricing assumptions as made. If it's 9 aligned with the pricing assumptions, then there should 10 be no difference in the overall price for that 11 particular item. It may not be possible to do that, 12 though, because that may add some time to the process, 13 or it may be put in as a requirement of an approval 14 body. 15 Q. Over the page, please. Look under "Trackform", for 16 example. We see under "Trackform": 17 "Design to be completed and all consents and 18 approvals obtained." 19 We see that same sentence repeated throughout these 20 revised civils proposals. We see similarly under 21 "Horizontal Alignment", under "Vertical Alignment", 22 under "Tramstops", and essentially throughout this 23 agreement. If we just scroll through the pages just to 24 check that, we will see the same sentence throughout: 25 "Design to be completed and all consents and 82 1 approvals obtained." 2 Under "Roads", "Drainage", under "Structures" we see 3 it there. Carry on, on the next page, please. We see 4 it essentially running throughout this revised civils 5 proposals. 6 What did you understand the consortium to mean by 7 that sentence appearing throughout their revised 8 proposals? 9 A. They were affirming that they would complete the civils 10 design as part of the Infraco Civils Proposals, where 11 they required to amend or adjust that to properly 12 incorporate all of the Infraco proposals. 13 So Infraco were providing systems-related solutions 14 such as trackform or overhead line equipment, some of 15 the communication systems, and that may or may not have 16 required some adjustment to the proposed completed SDS 17 design. And I understood that phraseology to be Infraco 18 committing to: we'll finish the design and secure any 19 necessary consents and approvals associated with that 20 integration activity. 21 That's why it was headed up, "Infraco Proposals". 22 Q. Put to one side the question of Infraco's components 23 having to integrate with the design. The phrase is used 24 throughout this document in relation to almost every 25 item, including on the page before, there is all these 83 1 various structures. So what did you mean by that 2 sentence appearing in relation to structures? 3 A. I think in each location, you would need to test that 4 there was no amendments, fixings or alterations required 5 to that. Some of them, I'm sure they would be very 6 minor. Others, given the timing and status of this, 7 I think it's already been acknowledged that the design 8 is not in its 100 per cent complete state. Therefore, 9 as part of what Infraco would do, they would need to 10 ensure that it is completed, and post novation, that 11 would be through SDS, but with their input. They would 12 be accountable for that. 13 Q. So is this document really emphasising that a lot of 14 design were required to be completed after contract 15 award? 16 A. I think they are being clear that that's what they would 17 do, yes, and it was always required that they would 18 integrate their own proposals, and that might require 19 revisiting of certain consents, approvals or issued for 20 construction drawings. And that's partly what the 21 design review processes that were touched on, I think, 22 in one of the other agreements, were intended to guide 23 and govern. 24 Q. But in short, it does seem to be suggesting that there 25 are many issues in relation to design consents and 84 1 approvals which were required to be addressed after the 2 award of the contract? 3 A. I think that's a function of the comment you'd made 4 earlier around the design generally being two-thirds 5 complete at the sort of November/December baseline that 6 was taken. Design continued, but it was still being 7 forecast to be completed later in 2008 at this time. 8 I took this as a positive that Infraco were clearly 9 setting out that they understood their obligation to 10 complete that design, including obtaining any necessary 11 consents and approvals. 12 Q. I would like to move on now to another document in 13 March 2008. It's CEC01463888. 14 Now, I think we had seen the Rutland Square 15 Agreement was the first price increase in 2008. I think 16 this is the second one. If we look at the email, 17 a third of the way down the page, it's from yourself, 18 dated 10 March 2008, to Geoff Gilbert and Jim McEwan. 19 Subject matter, "Updated Agreement with BBS: Friday 20 7 March 2008". 21 You say: 22 "An agreement was made on Friday, 7 March 2008 at 23 Citypoint with Richard Walker and Michael Flynn 24 representing BBS and Steven Bell and Jim McEwan 25 representing tie. 85 1 "The Contract Price is to be amended by 2 GBP8.6 million to fully incorporate all of the following 3 items." 4 We can read these for ourselves, including number 3: 5 "Acceptance by BBS of any SDS design quality risk 6 and subsequent time impact." 7 To pause there, presumably, Mr Bell, you were 8 involved in this agreement? 9 A. Yes. 10 Q. In relation to item 3, that appears to be the consortium 11 accepting SDS design quality risk, but that doesn't seem 12 to include, on the face of this email, any acceptance 13 for the development of outstanding design, any changes 14 to existing design, or a late provision of design; is 15 that correct? 16 A. The entry in here was around BBS accepting 17 responsibility if the design provided was not accept -- 18 not capable of being accepted by the approving 19 authorities. So it was about the quality of that, and 20 if it had to be reworked, they were very clear that that 21 was a risk they were prepared to formally confirm and 22 accept in this. 23 In relation to your question around development of 24 design, I think that's previously been covered by, in 25 our view, the expectation of 3.4.1 addressing normal 86 1 design development being Infraco's risk, and beyond that 2 being the client's risk, in effect tie's. 3 Q. In relation to the timely provision of design, my 4 understanding from looking at this email is that the 5 consortium are not accepting that risk? 6 A. For that -- this particular element -- 7 Q. In general. 8 A. As a generality? 9 Q. Yes. 10 A. This particular email doesn't address the generality. 11 Q. Thank you. 12 I would like to move on now to the end of March, and 13 to an email chain. It is CEC01465908. 14 If we could start, please, at page 2 of the email 15 chain. Towards the bottom of the page, we can see an 16 email from Ian Laing of Pinsent Masons dated 17 26 March 2008. Subject, "Re: Schedule 4", and I think 18 your name appears among the recipients, Mr Bell? 19 A. It does. 20 Q. We can see in the text, Mr Laing says: 21 "As we discussed earlier today, the Design Delivery 22 Programme will be V28. The Pricing Assumption in 23 Schedule 4 of the Infraco Contract assumes that the 24 design delivery programme will not change from V26. It 25 follows that there is the possibility that there will be 87 1 an immediate Notified Departure on contract execution. 2 Given the unusual position that we are in, please can 3 you confirm that this is understood and agreed by tie." 4 To pause there, what did you understand to be the 5 unusual position the parties were in? 6 A. The position as defined and what we stated in Schedule 7 Part 4 was a statement of fact that the Design Delivery 8 Programme wouldn't change from version 26, which was the 9 version that was valid, I think, back in November 2007. 10 So we knew by this time that some of these items had 11 been delayed. So factually it would not be possible to 12 recover all of those items and hence it would be 13 different from that stated assumption, and therefore we 14 understood that the design delivery dates were factually 15 going to be different from that assumed in the price, 16 and hence the Notified Departure mechanism for that item 17 would apply, and that would then trigger a tie change; 18 and that would mean that the Infraco would provide 19 information to support or identify: are there any time 20 or cost impacts of that; and if so, that would be an 21 obligation for tie to evaluate, agree that as a value, 22 and time as a change, and issue that necessary change 23 order. 24 Q. So was the unusual position in short that there was 25 a statement of fact in the contract which parties knew 88 1 not to be true? 2 A. That was the construct of that mechanism and we knew 3 that was an item that was going to be factually 4 different. 5 Q. Just reading on in this email chain, if we scroll up, we 6 can see, I think, Mr Laing sends a follow-up reminder on 7 31 March 2008. If we scroll up again, we can see an 8 email from Jim McEwan to Andrew Fitchie on 9 31 March 2008. Then we can see Mr Fitchie says: 10 "Can you advise on a response to this please, what 11 Ian is saying is factually correct ..." 12 CHAIR OF THE INQUIRY: I think it's Mr McEwan. 13 MR MACKENZIE: Sorry, Mr McEwan, my Lord, yes. He says: 14 "Can you advise on a response to this please, what 15 Ian is saying is factually correct albeit that we are 16 working to minimise the impact and variance between 17 critical path items." 18 Then over the page to page 1, please. We can see 19 a response from Andrew Fitchie, again 31 March 2008, to 20 Jim McEwan and yourself, Mr Bell, and copied into 21 others. Mr Fitchie gives certain advice in paragraph 1. 22 We can see. Then paragraph 2, Mr Fitchie says: 23 "The only approach open to tie, in my opinion, is 24 a factual one, not a contractual one (since the 25 mechanism for Notified Departure puts the advantage with 89 1 BBS by creating an automatic tie Change): to capture as 2 many identified key changes that tie knows will be 3 required and to attempt to fix them and agree their 4 likely programme and/or cost impact with BBS prior to 5 contract award, or at the least identify the reasonable 6 range of programme and cost impacts." 7 Then towards the last paragraph: 8 "This is one where Steven and Geoff must, I feel, 9 have a better sense of how factually to restrict BBS's 10 ability to exploit this." 11 Then just to finish this chain, please, at the top 12 of the page we can see Jim McEwan sends a response to 13 yourself, Mr Bell, but not to anybody else on the face 14 of it. Again, on 31 March 2008, where Mr McEwan states: 15 "Steven, my view is that if we pursue Andrew's steer 16 on this, we will open up the whole can of worms on the 17 Infraco contract cost overall, and that we have to take 18 on the chin that the programme version is not 19 consistent, get the deal signed and then fight the 20 notified departure tooth and nail. I understand 21 Andrew's point, but if we are at all hopeful of getting 22 this done by 15 April (this year) we cannot take his 23 suggested approach." 24 Now, scrolling back down to Mr Fitchie's email, 25 please, and the second paragraph, where he talks about 90 1 the only approach to tie, he goes on: 2 "... to capture as many identified key changes that 3 tie knows will be required and to attempt to fix them 4 and agree their likely programme and/or cost impact with 5 BBS prior to contract award ..." 6 Do you understand Mr Fitchie there to be talking 7 more widely than just the one known Notified Departure 8 in relation to the programme, and to talk more generally 9 about as many identified key changes that tie knows will 10 be required? 11 A. I think he's focusing particularly on this example, but 12 the point he makes is a general one. If there are other 13 known Notified Departures, then to seek to identify what 14 that is and either sort it so that it doesn't become an 15 impact or understand what that might be, and make an 16 appropriate assessment or inclusion and risk provision. 17 CHAIR OF THE INQUIRY: Well, in the first paragraph he 18 really warns you, doesn't he, that unless what he's 19 going to propose is followed, you're running a risk of 20 the BBS making the most of it, as it were, and 21 submitting claims right, left and centre. 22 A. I think he's rightly identifying that mechanism is 23 a blunt mechanism, and therefore the best defence to 24 that is to ensure that the smallest number of Notified 25 Departures arise, and when they do, then you cannot then 91 1 have a debate or an argument about is it a change, 2 because it's automatic. What you do need to identify 3 then is what's the reason for it and its impact fairly, 4 and I think to be fair, at this point we were very clear 5 that there would be some changes that the Infraco should 6 properly be compensated for with a fair change in 7 estimate. So we weren't expecting to have zero changes 8 at this point. 9 CHAIR OF THE INQUIRY: I don't think he's suggesting that. 10 I think he's saying that the estimate of BBS is bound to 11 be all encompassing and conservative. I don't think he 12 was just talking about one or two changes, where Infraco 13 would have a justifiable claim. This was a risk that he 14 was pointing out to you, wasn't it? 15 A. And I think with one of my colleagues, Dennis Murray, 16 and my Commercial Director, that was an area we spent 17 quite some time in properly furnishing the back-up to 18 Schedule Part 4 in terms of appropriate rates and prices 19 to properly assess and quantify estimates, so that we 20 didn't have a debate around the rates and prices that 21 would be used, because we anticipated that would be one 22 avenue that might be more all-encompassing or more 23 generous than would be fairly assessed. 24 MR MACKENZIE: Thank you. 25 Just reading these two emails from Mr Fitchie and 92 1 Mr McEwan, on the face of it, Mr Bell, they are 2 suggesting two different approaches to the question of 3 Notified Departures. Mr McEwan's approach appears to be 4 to simply accept there will be a Notified Departure in 5 relation to the programme and deal with the consequences 6 after contract close, whereas Mr Fitchie seems to be 7 making the more general point that one should face up to 8 anticipated Notified Departures and deal with them 9 before contract close. 10 Do you accept there are two different approaches set 11 out in the emails? 12 A. I do agree that there are two different approaches, yes. 13 Q. You, as a Tram Project Director, were then placed in 14 a position of having to decide between these two 15 different approaches at the end of March 2008; is that 16 correct? 17 A. There is, I think, another email that Geoff Gilbert, who 18 is also copied in on this chain, also highlighted, and 19 he tends to support the point that Andrew makes around 20 trying to make sure we identify key changes or 21 anticipated key changes. And that we are taking actions 22 to either mitigate them and minimise them or to -- 23 and/or to make appropriate allowance for that. You 24 still end up with acknowledging that this change in 25 programme is likely to be a Notified Departure. We're 93 1 aiming to minimise its impact, and that was the 2 approach, I think, that we took. 3 Q. I think Mr Gilbert's email, from memory, it was in 4 relation to the known Notified Departure relating to 5 programme? 6 A. Yes. 7 Q. He recommended -- 8 A. Which is where this email started. 9 Q. But what I'm interested in, in particular, is 10 Mr Fitchie's email and suggested approach which, as 11 I read it, is more widely than just relating to the 12 known Notified Departure relating to programme. I think 13 you did accept that there are two different approaches 14 set out here. So in short, which approach did you 15 choose as Tram Project Director to follow? 16 A. We took the approach that wherever we had a known area 17 of likely Notified Departure, we'd sought to make an 18 appropriate allowance in risk or to minimise the impact 19 of that, and by that I mean there might be some 20 mitigating actions we could take between this point in 21 time and the time it would have an impact on the 22 programme, and consequently whilst it would still be 23 a Notified Departure, we were able to minimise its cost 24 effect or impact. 25 Q. What were the likely Notified Departures? 94 1 A. In our -- in our assessment, there were a number of 2 areas. There were elements associated with the MUDFA 3 provisions, the utility diversions. So we expected that 4 there would be some areas that we needed to -- we 5 wouldn't have cleared all the services to allow Infraco 6 access to. It was possible, but there was likely to be 7 a risk that there would be a number of areas within 8 that. 9 There were issues associated with pricing 10 assumptions on road reconstruction and depths of road 11 reconstruction, for example, that we had done some 12 analysis around what might be a likely sizing of that 13 problem based on the initial drawings that were 14 available at that time. 15 We didn't expect wholesale design development 16 changes. We were subsequently at a difference with the 17 Infraco over a very extended period of time on that. 18 And we also expected that there might be some 19 general delay-related items that if triggered by an 20 original Notified Departure, there would be elements of 21 delay that would be the client's responsibility, and 22 hence we had a more general delay allowance that was 23 included as well. 24 Q. When you say you didn't expect wholesale design 25 development changes, did you expect some design 95 1 development changes? 2 A. Yes, I think we expected that there would be things that 3 were in our view beyond that normal design development 4 definition, for a legitimate reason that had arisen, and 5 Infraco should rightly be protected from that change in 6 their Pricing Assumption; and one of our challenges was 7 to make sure that there wasn't any approval body or 8 third party influence on that that might maximise the 9 requirement for that change in cost. Because that would 10 have clearly been to the client's responsibility rather 11 than Infraco's. 12 Q. Can you give any examples that you had in mind before 13 contract close of changes that were expected to be 14 beyond normal design development? 15 A. I think we were unclear at that point as to what 16 conditions might be applied by some of our third party 17 commitments. CEC and the third parties such as 18 Forth Ports may have required different final design 19 finishes or solutions to that, which both SDS and the 20 Infraco were aware at that point in time. 21 In some circumstances that may have been paid for by 22 the third party, in which case it would have been 23 neutral to the tram budget. An example for that would 24 be RBS tramstop, if they were looking for a different 25 quality of finish. But in some cases the third party 96 1 agreements put the obligation on CEC, but we didn't know 2 what those outcomes might be. So Forth Ports might have 3 insisted on a particular solution that wouldn't have 4 been the Infraco or SDS's responsibility to -- so that 5 might have been beyond normal design development. 6 Q. How about structures? 7 A. Yes, that would have included structures or -- 8 associated with those particular locations. Some of the 9 elements that were driven by ground condition 10 uncertainty, it's likely that there might have been 11 a requirement to change based on that information. 12 I think we've touched on that earlier. 13 Q. How about structures outwith the RBS and Forth Ports? 14 How about other structures along the tramline? Was 15 there any anticipation -- 16 A. Most of the structures had a reasonable degree of 17 development. Some were later than others and were a bit 18 more conceptual. So I think, from memory, some of the 19 structures in the vicinity of Murrayfield were earlier 20 in their design completion back in November 2007, and 21 subsequently there may well have been more of 22 a practical development on those, and therefore probably 23 a higher risk of something being beyond normal design 24 development. 25 Q. We will go back to these points with reference to your 97 1 statement shortly. But just before we leave the email, 2 go back to the top of the page again, please. 3 What did you understand Mr McEwan to mean by "we 4 will open up the whole can of worms on the Infraco 5 contract cost overall"? 6 A. I'm sure you will have asked Mr McEwan that question, 7 but my understanding of at that time was that we were 8 trying to have a firm price based where necessary on 9 certain assumptions, which is what Schedule Part 4 was 10 about concluding, and what he was trying to make sure 11 that we continued on that basis to get to a fair 12 assessment and conclusion. He didn't want to reset or 13 open up a whole new line of points to close out. 14 Q. The phrase "can of worms" seems to suggest you're trying 15 to contain something by keeping a lid on it, and if that 16 lid comes off, then all the worms will come wriggling 17 out. Is that a fair interpretation of the phrase? 18 A. I'm sure that's a sort of interpretation that literally 19 you can take it as. Jim used flowery language 20 sometimes. I think he was very focused, as we touched 21 earlier, on the process of getting Schedule 4 to 22 a conclusion, to a satisfactory conclusion for the 23 parties at that time. 24 Q. I just wondered what, sticking with the metaphor, may be 25 the worms that may come wriggling out? 98 1 A. I think his general point was that we weren't going to 2 complete the Contract Agreement. I'm not thinking of 3 anything in particular at that time. 4 Q. I'm sorry if I did ask you this. You will recall, 5 I suggest, that in this email chain you were being 6 presented with two options: essentially whether to 7 address and deal with anticipated Notified Departures 8 before or after contract close. Did I ask you which 9 option did you choose and why? 10 A. Yes, and I think it was biased towards the option that 11 both Geoff and Andrew had talked about us trying to 12 crystallise any issues that we were aware of, take 13 action on those to minimise the chance of them to be 14 Notified Departures, and where they were likely to be 15 so, make an appropriate allowance for that. 16 Q. So in terms of trying to crystallise any issues in 17 relation to anticipated Notified Departures, how was 18 that done? 19 A. In different approach for different parts of the 20 programme. So we anticipated there were some 21 assumptions around roads reconstruction, and there was 22 a bit of detailed analysis looking at the drawings and 23 an assessment made of potential exposure on the amount 24 of additional road reconstruction that might be 25 required. That was done with some of the engineering 99 1 and commercial staff within tie. 2 An example from the structures perspective would be 3 to look at the state of the developed design and 4 completed design on the structures, and assess whether 5 that was well progressed on the key structures or 6 whether it was early in its design. 7 If there was a significant number that were looked 8 at early in its design, there was more likely to be more 9 of a chance of beyond normal design development, and 10 therefore we looked at -- I think from memory -- 11 allowing some single digit millions in the risk 12 allowance for items that were beyond that normal design 13 development in our interpretation. 14 Q. Thank you. I'll come back to look at the risk 15 allowance. 16 A. I'm sure we will. 17 CHAIR OF THE INQUIRY: Before going on, you said Mr McEwan 18 didn't want to reset or open up a whole new line of 19 points to close out. What do you think of that approach 20 generally? 21 A. In terms of? 22 CHAIR OF THE INQUIRY: In terms of prudence. 23 A. Jim was conscious of the on -- it had been a very 24 extended negotiation with the preferred bidder for six 25 months, I think, circa, by this point, and there is 100 1 a real cost to all parties that are participating in it 2 at that time, and what he didn't want to do was have 3 unnecessary revisiting of points that were not going to 4 be material. 5 In my view he was clear on matters like the 6 novation, which was an issue of materiality that needed 7 to get resolved at that point in time. That wasn't for 8 moving on with, and I think similarly the approach we 9 ended up taking on the Notified Departures, we aimed to 10 look at what we thought were likely to be the 11 significant points and make sure they were dealt with, 12 my Lord. 13 CHAIR OF THE INQUIRY: But this comment by him was made in 14 the context of Mr Fitchie suggesting that you identify, 15 as far as possible, issues that could be closed out. 16 He's saying, well, don't -- if your interpretation is 17 correct, don't let's open up a whole new line of points 18 to close out. 19 If he's referring to the points that Mr Fitchie has 20 suggested that you should identify, and having 21 identified them, if that's his attitude, is that 22 indicative of the culture within tie? 23 A. I don't believe so. I read that as being associated 24 primarily with the items that we had been discussing and 25 negotiating associated with design delivery timescales 101 1 and any other known potential Notified Departures. 2 Certainly not as a general culture point, no. 3 CHAIR OF THE INQUIRY: Can we scroll up a bit on this email 4 from Mr Fitchie. 5 In the first paragraph, did you endeavour to 6 negotiate with BBS the specifics of what is or is not to 7 be permitted as a variation to the Infraco contract and 8 its master construction programme? 9 A. I'm just re-reading that point. 10 My recollection of what we did at that time and 11 immediately after was to test all of the pricing 12 assumptions that had been included in that. 13 CHAIR OF THE INQUIRY: I think the question is -- you can 14 come on to what you did later on. But the question that 15 I'm interested in is: did you or did tie, rather, 16 endeavour to negotiate with BBS the specifics of what is 17 or is not to be permitted as a variation to the 18 contract, and its master construction programme; yes or 19 no? 20 A. I believe we did discuss and negotiate with BBS items on 21 what were likely to be variations to that programme. We 22 were aiming to confirm the master construction programme 23 with an open for revenue service date, and that would 24 sit in the contract documentation, and we talked about 25 specifics related to Schedule Part 4, which triggers 102 1 a variation point or a change control item. 2 CHAIR OF THE INQUIRY: So you are saying -- 3 A. We talked about some of those specifics. 4 CHAIR OF THE INQUIRY: But did you negotiate with BBS about 5 these things? 6 A. I would say that we did because in some circumstances -- 7 and I'm sure we will come to it shortly -- there was 8 a further application for increase in price just before 9 the contract was eventually signed. 10 CHAIR OF THE INQUIRY: Were your negotiations successful to 11 any extent? 12 A. I believe in part. 13 CHAIR OF THE INQUIRY: Then if you go down -- if we can 14 scroll up again, please -- sorry, down, the last 15 paragraph speaks about the end of this review. That's 16 where you've identified all these issues or possibly. 17 Mr Fitchie suggests: 18 "We might be able to go about trying to structure 19 acceptable controls in the Infraco Contract." 20 Was that done? 21 A. An example of my understanding of what he meant by that 22 would be around -- 23 CHAIR OF THE INQUIRY: Was it done? Are you saying yes or 24 no, and then you can go on and qualify it. 25 A. I believe we confirmed what items could be acceptable 103 1 controls within it. I don't recall additional 2 acceptable controls. 3 CHAIR OF THE INQUIRY: So you didn't go about trying to 4 structure acceptable controls? 5 A. I believe, my Lord, what we did was clarify for all 6 parties the controls we intended to use. 7 CHAIR OF THE INQUIRY: Thank you. 8 MR MACKENZIE: Thank you, my Lord. 9 So, Mr Bell, at the risk of no doubt simplification 10 on my part, there were essentially two approaches to how 11 to deal with anticipated Notified Departures, in short. 12 One approach was to seek to identify and close out these 13 points before contract award. The other approach was to 14 seek to deal with these points after contract award; is 15 that a fair way to put it? 16 A. That's the way you have constructed it, yes. Yes, 17 I agree. 18 Q. It sounds, from what you have said, that you chose the 19 latter approach, ie to seek to deal with anticipated 20 Notified Departures after contract award albeit you also 21 sought to satisfy yourself that the risk allowance was 22 adequate for these anticipated changes; is that correct? 23 A. I think for items that we believed that we could impact 24 and minimise the likely circumstance, such as some of 25 the design elements, we sought to do that at that time 104 1 and had been doing that. So we sought to do what we 2 could before contract close, and to assess: were there 3 likely to be any impacts thereafter; if so, what would 4 be an appropriate quantification of that. I think we're 5 between the two alternatives. 6 Q. I see. So a bit of both. 7 Just for the avoidance of doubt, what do you mean 8 when you say that for items that we believed that we 9 could impact and minimise the likely circumstance, such 10 as some of the design items elements, we sought to do at 11 that time and had been doing that; what's that 12 a reference to? 13 A. So you will have -- the example that this email chain 14 started was around design deliverables and the 15 difference between version 26 and version 28 of SDS's 16 design deliverables programme. 17 There were elements of those deliverables that we 18 could have recovered some time on or sought to reduce 19 any further impact because of work that we, SDS or CEC 20 undertook to try and get those deliverables agreed and 21 closed out. 22 So where we could bring forward, recover or ensure 23 they did not become any more significant, that's what we 24 sought to do, to use that as a worked example. 25 Q. So in relation to steps taken by tie before contract 105 1 award to seek to minimise or mitigate any anticipated 2 Notified Departures, did these steps essentially amount 3 to programming and reprogramming steps? 4 A. And interventions to try and get points that had not 5 been resolved, and to allow SDS in some cases to then 6 recover time on their programme. 7 Q. Thank you. 8 If we then please go to your statement at page 71. 9 In question 56 we refer to Schedule 4 of the Infraco 10 contract, and sub-question 2 we had asked: 11 "What did you consider were the main Pricing 12 Assumptions that were likely to change and result in 13 Notified Departures and why?" 14 I think you have spoken to a number of these items. 15 In, for example, the last paragraph on the page, you say 16 you expected there was a risk, not a guarantee, of some 17 of the MUDFA revision 2006 works not being completed in 18 time, et cetera. 19 Then: 20 "We did expect if the Council amended more than 21 normal design development, there may be additional costs 22 to pay ..." 23 Over the page, please, when you say: 24 "As some structures were at an early stage of design 25 in November 2007 ... I expected some not to fall under 106 1 the category of normal design development." 2 Did you have a clear idea before contract close as 3 to the particular structures that would fall within the 4 normal design development provision? 5 A. I think I tried to answer that question illustratively 6 earlier. I thought there was likely to be some third 7 party items at the extremities, both in the Edinburgh 8 Airport area and the Forth Ports area. Additionally, in 9 the vicinity of Murrayfield, some of those structures 10 were less well developed than others. So I expected 11 a degree of change that was likely to be beyond normal 12 design development at that time. 13 Q. I suppose one option may have been to have sought to 14 have clarified that before contract close, and to have 15 altered Schedule 4 accordingly? 16 A. We -- our approach was based on our understanding and 17 interpretation of completion and of normal design 18 development by the Infraco. We accepted that there 19 would be some of those other items that still had to be 20 further developed. And that was the approach that we 21 took. 22 Q. Yes, but what I suggested that one option may have been 23 to have sought to have clarified that before contract 24 close. So to list the structures, for example, that tie 25 accepted would be outwith the normal design development 107 1 provision? 2 A. That would have been an approach that could have been 3 taken, yes. 4 Q. That way agreement could have been reached perhaps on 5 the cost of dealing with these structures? 6 A. I suspect the challenge in circumstances like that, you 7 would still need to look at where was the design at the 8 point that you were looking at it, and another pricing 9 exercise for the Infraco and others to ascertain what 10 would firm up their price for that item. 11 Q. Returning to your statement, please, at sub-question 3 12 we asked: 13 "Approximately how many Notified Departures did you 14 consider were likely to arise?" 15 You replied: 16 "I think we ended up with 800 plus and I would be 17 expecting more in the range of 60-100 rather than 18 800." 19 The next question we asked: 20 "What did you consider to be the likely total value 21 of the Notified Departures?" 22 You replied: 23 "We were not in a position to calculate how many 24 individual Notified Departures there were likely to be 25 and what the total value would be." 108 1 To pause there, when you say you were expecting in 2 the range of 60 to 100, what was that based on? 3 A. I would say it was looking at examples that you touched 4 on associated with certain structures areas. We 5 accepted that there were a number of points on the 6 programme where the utilities work either wouldn't have 7 been complete or would fall within the definition of 8 Notified Departures. So that would be an example of 9 that. 10 And it was possible or likely that some of the 11 design related items, given our history that we had 12 dealt with to that point, there were some challenges in 13 getting all of the design finished in a timely manner, 14 there were likely to have been a number of design 15 related items still cropping up as potentially Notified 16 Departures. 17 Q. Was the figure of 60 to 100 a figure you had in your 18 mind before contract close or is that a figure that's 19 been prompted by the Inquiry asking you questions? 20 A. I think -- I think that was pre-contract close 21 expectation. We certainly knew there would be a number 22 of Notified Departures. And in Ian Laing's email 23 touching on V26 to V28 is a good example of there are 24 certainly going to be some items that are likely to 25 trigger that mechanism. 109 1 Q. This may be a silly question, but bear with me. Just 2 for the avoidance of doubt, why were you not in 3 a position to calculate how many individual Notified 4 Departures there were likely to be? 5 A. It was a comparison at the time of base date -- 6 interpretation of the Base Date Design Information. 7 Whether or not the Infraco had consolidated its items -- 8 some items were driven by Infraco proposal change and 9 that wouldn't have been a Notified Departure. We 10 identified things that we need at that point, but we had 11 a number of live production activities under way. Some 12 of which were statutory obligations such as planning and 13 technical approvals. Those were things that were 14 assumed to happen against a programme in the future. 15 If those did not happen, then there was a risk that 16 that would trigger a Notified Departure mechanism. We 17 didn't know whether they would all be complete or 18 whether there would be a significant number not 19 achieved. 20 I believe we put in place actions where we could to 21 expedite the undertaking of all of those works, but 22 MUDFA is a very good example where even if the 23 generality of access is available to the Infraco, 24 technically it still triggers a Notified Departure of -- 25 if one cable is not cleared exactly at the time as has 110 1 been suggested in the original mechanism. 2 Q. Again, just for the avoidance of doubt, why were you not 3 in a position to calculate the total value of the 4 Notified Departures? 5 A. Well, we made assessments of the items that we had 6 identified as likely to be Notified Departures or 7 changes, and incorporated elements of that in the -- 8 either the risk allowance and in some cases it was 9 covered by provisional sum items. 10 The final value of the Notified Departure is driven 11 by a tie change mechanism, and that requires an estimate 12 to come from the Infraco for us to review it and agree 13 the time and the cost impact of that. 14 So it is a process that needs to be concluded. We 15 estimated what we thought those should be, but we did 16 not have a definitive calculated answer because it did 17 rely on other parties as well. 18 Q. The suggestion may be that without knowing the likely 19 number and value of Notified Departures after contract 20 close, tie weren't in a position to know whether the 21 risk allowance was adequate. 22 A. We had assessed this from the perspective of what were 23 the likely risks to arise and how might these items be 24 triggered as entitlement or otherwise through the 25 contract. 111 1 So we'd started from the perspective of the likely 2 risk areas. That helped inform whether or not the -- it 3 would be triggered via a general tie change mechanism, 4 a compensation event issue, or a Notified Departure. 5 And we had made assessments against those key headings 6 in the risk register. 7 That was the approach that we took, and we 8 calibrated that against some of the specific examples, 9 for example a Pricing Assumption around roads 10 reconstruction, we had done some work from drawings and 11 that sized the anticipated cost that might be required 12 in the risk profile for that. 13 Q. Just a point of detail. On the question of roads 14 reconstruction, what did that refer to? 15 A. In the -- sort of two elements, I think, to that. There 16 was an outline design from the Infraco after they had 17 incorporated their systems into it, and that was taken 18 forward by SDS for final technical approval. 19 Infraco's proposals suggested the level of cutting 20 back of base course and wearing course and tying into 21 the existing roads. So it was a function of how much 22 work required to be done around the tram envelope. 23 That still required technical approval from the 24 roads authority, who were CEC. So there had to be 25 an assumption and agreement around the quantum of that. 112 1 Infraco proposed a very minimal amount of stitching into 2 existing road network, and the question that was being 3 raised here was: does more work need to be done than 4 that? Is it likely that there was going to be some 5 additional requirements, either from the design process 6 or from the CEC technical approval process? 7 And that was some of the assessment that was made 8 around additional depth of road reconstruction. 9 Q. I see. So that issue of roads reconstruction in the way 10 you have described it, is that quite separate to -- we 11 have heard evidence from the Parsons designers about 12 their suggestion of having a reinforced concrete bed or 13 foundation for the track. Is that a separate issue? 14 A. It's linked. It's a linked issue. There would have 15 been -- part of the roads reconstruction element would 16 have addressed some elements of it, but the Parsons 17 question around concerns over voids and otherwise was 18 a more specialist issue. 19 Q. Would it be fair to say the roads reconstruction issue 20 is primarily as you have described it, and less to do 21 with the Parsons issue, if I can call it that? 22 A. Yes. 23 Q. Thank you. Now, I would like to turn, please, to the 24 question of reporting to the Council, and in particular 25 Gill Lindsay. If we can start with your statement, 113 1 please, at page 29. 2 We can see in the second paragraph you say: 3 "I recall a detailed discussion with the CEC 4 solicitor Gill Lindsay, near to Final Contract Close, 5 that went through the risk transfer proposals." 6 I would also, please, like to take you to page 59 of 7 your statement. In sub-question 3, this is in the 8 context of Notified Departures, we asked: 9 "To what extent were these matters discussed with 10 CEC?" 11 You say you refer to the DLA letter, and then you 12 say: 13 "I also recall a conference call with Gill Lindsay 14 and Andrew Fitchie going through these matters in late 15 April/early May." 16 So in your statement, Mr Bell, you refer to this 17 telephone conference call with Gill Lindsay -- 18 A. Yes. 19 Q. -- in late April/May, and we saw that you have 20 previously referred to a detailed discussion with 21 Gill Lindsay near to final contract close that went 22 through the risk transfer proposals. 23 Are these one and the same meetings or two different 24 meetings, or what? 25 A. One and the same. 114 1 Q. I see. So in short, your position is that there was 2 a conference call with Gill Lindsay and Andrew Fitchie 3 going through certain matters in late April/early 4 May 2008? 5 A. Correct. 6 Q. Where were you when this all took place? 7 A. I think I was in city -- CityPoint, tie offices at 8 CityPoint. 9 Q. Where was Mr Fitchie? 10 A. He may have been in his own offices. I can't recall. 11 I certainly remember Gill being on the other end of the 12 telephone. So Andrew might have been with me, or he 13 might have been also on the conference call. But 14 certainly the subject matter that we were talking 15 through was the updated DLA report on the risk transfer. 16 Q. I was going to ask: what was the purpose of this call? 17 A. It was really to go through the -- a refresh of -- 18 I think there was a draft letter and associated risk 19 transfer report that DLA were writing both to tie and to 20 CEC, in support of the contract documentation by that 21 point in time. And that, I think, from memory, we went 22 through the main line entries and headings on that 23 schedule with -- and Gill asked a few questions as we 24 went through. Our staff had been previously circulated 25 with the information, I believe, but certainly I believe 115 1 she was on the other end of that call. 2 Q. Sorry, what was the reference to a schedule? 3 A. It's -- there's a DLA risk allocation matrix. I think 4 that's also in the close -- close report and Final 5 Business Case. 6 Q. Was this the only occasion that you discussed matters 7 with Ms Lindsay? 8 A. I'm sure she -- she occasionally attended some of the 9 Project Board or came down to the tie offices. So I'm 10 sure we discussed matters in whatever forums those were. 11 However, on this particular topic around contracts and 12 risk transfer, I remember this as being the particular 13 meeting. I'm sure we would have discussed it other 14 times, but this had a particular purpose. 15 Q. So what was discussed during this conference call? 16 A. We basically went through the risk allocation matrix 17 that DLA had drafted. I think Andrew had developed an 18 earlier version back in December or January, and this 19 was being updated or confirmed as no significant change 20 in terms of the overarching risk provision against 21 particular items. It allocated responsibilities or 22 likely liabilities with either the private sector, where 23 they shared, or with tie/CEC. 24 Q. I think this risk allocation matrix runs to roughly 25 30 pages. And it contains lots of ticks with different 116 1 columns as to which party is responsible for the risk. 2 I think it contains between 300 to 400 ticks and risks. 3 Is that the risk allocation matrix you're referring to? 4 A. Yes, it is. 5 Q. Is that what was gone through at this conference call? 6 A. Yes, albeit I think we focused on items that were 7 subject of discussion from the earlier version that had 8 been reviewed back in December/January. I wasn't party 9 to that legal review, but I understood this version was 10 the updated one that DLA were content with at that point 11 in time. 12 Q. Was there any discussion during this conference call of 13 the likely number and value of Notified Departures after 14 contract close? 15 A. I'm sure we discussed the design obligations and the 16 elements associated with obligations to complete that 17 design, the novation of SDS, and we discussed that there 18 was a mechanism in the contract to address pricing 19 assumptions particularly. And that there were likely to 20 be pricing assumptions and Notified Departures that 21 arose, that would mean there was a requirement to change 22 the price through the mechanism in the contract as 23 agreed. 24 I'm absolutely sure we touched on a -- on a range of 25 examples of reasons for that, albeit Gill's focus was 117 1 more on the legal perspective of that. 2 CHAIR OF THE INQUIRY: Did you make any assessment in the 3 call of the number or value of Notified Departures? 4 A. I don't believe so. I think we would have referred to 5 it as to the question -- it may have been that meeting. 6 It may have been in different discussions 7 contemporaneously. But we would have been confirming 8 that we had made some assessments to incorporate items 9 within the risk register for elements we thought were 10 likely to generate a change that was going to fall to 11 tie or CEC's liability under the contract. I don't 12 recall talking about specific numbers. 13 MR MACKENZIE: Thank you. Finally, if I may, in relation to 14 this meeting, in your written statement to the Inquiry, 15 you have said that: 16 "We were not in a position to calculate how many 17 individual Notified Departures there were likely to be 18 and what the total value would be." 19 Did you advise Ms Lindsay during this telephone 20 discussion or at any time before contract close that tie 21 were not in a position to calculate how many individual 22 Notified Departures there were likely to be or what the 23 total value would be? 24 A. At that level of detail, I don't believe so. I believe 25 what we discussed was the overall likely risk items, 118 1 areas and values and whether that was included within 2 the risk allowance. It wasn't down to specific Notified 3 Departures or groupings thereof. 4 MR MACKENZIE: Thank you. 5 CHAIR OF THE INQUIRY: We will adjourn for lunch now and 6 resume again at 2.10. 7 (1.03 pm) 8 (The short adjournment) 9 (2.10 pm) 10 CHAIR OF THE INQUIRY: Good afternoon. You're still under 11 oath. 12 MR MACKENZIE: Thank you, my Lord. 13 Mr Bell, before the lunch break we had discussed the 14 question of the telephone call with Gill Lindsay. 15 A. Yes. 16 Q. I would like to stick, please, with the question of 17 tie's reporting of the issue of Notified Departures, and 18 the next document I would like to go to in passing is 19 the close report which is CEC01338853. I think you'll 20 probably recognise this document; is that correct? 21 A. Yes. 22 Q. I'm not actually going to go into the body of it at all. 23 As far as I can see, it contains no reference at all to 24 Notified Departures. Now, I may be corrected it on that 25 in due course, but I can't see any explicit reference to 119 1 that in that report. So I'm going to leave that report 2 to one side and move on to another report where Notified 3 Departures is mentioned, and that is document 4 CEC01338851. 5 We can see this is headed "REPORT ON INFRACO 6 CONTRACT SUITE". 7 Do you remember who drafted this report? 8 A. The format of it looks like one that perhaps 9 Graeme Bissett or Stewart McGarrity would have pulled 10 together, with contributions from others, I think. 11 Q. Thank you. I should just clarify that this version is, 12 I think, the final version which was circulated with 13 Graeme Bissett's email on, I think, 12 May 2008. 14 Indeed, if we go to page 15 of this document, please, 15 you will see at the bottom a reference to tie Limited, 16 12 May 2008. So this appears to be a tie document, and 17 that would be consistent with your understanding? 18 A. Yes, I think so, yes. 19 Q. Thank you. If we then please go to page 4. Under 20 "Price", just read out what it says. It states: 21 "A contract price has been agreed. The detailed 22 contract price and pricing schedules for carrying out 23 the Infraco Works is contained in Schedules to the 24 Infraco Contract. A substantial portion of the Contract 25 Price is agreed on a lump sum fixed price basis. There 120 1 are certain work elements that cannot be definitively 2 concluded in price and therefore provisional sums are 3 included. A number of core pricing and programming 4 assumptions have been agreed as the basis for the 5 Contract Price. If these do not hold, Infraco is 6 entitled to a price and programme variation known as 7 'Notified Departure'." 8 Under "Programme", please, there's reference to: 9 "The agreement provides that Infraco shall progress 10 the Infraco works to achieve timeous delivery and 11 completion of the Infraco works (or parts thereof) and 12 in their obligations under the Agreement, all in 13 accordance with an agreed Programme which is bound into 14 the Schedules. This Programme is the product ... 15 Following contract signature it is expected that BBS 16 will seek a Notified Departure on Programme due to SDS 17 delay in design production. However, both BBS and SDS 18 have a contractual obligation to mitigate. The exposure 19 has been assessed in detail by tie and confirmed as 20 acceptably within the risk contingency." 21 Now, that's my understanding of what that document 22 says about Notified Departures. The other document 23 I would like to take you, please, to is a DLA letter to 24 CEC dated 12 May 2008. The reference for that letter is 25 CEC01372309. I'm simply going to this letter to see 121 1 what it says about Notified Departures. We can see it's 2 a letter sent from DLA to both Gill Lindsay, 3 Council Solicitor, and Willie Gallagher of tie. 4 Page 3, please. Under paragraph 5, "RISK", I'll 5 again read it out. It states: 6 "Following on from our letter of 12 March, we would 7 observe that delay caused by SDS design production and 8 CEC consenting process has resulted in BBS requiring 9 contractual protection and a set of assumptions 10 surrounding programme and pricing." 11 Then: 12 "tie are prepared for the BBS request for an 13 immediate contractual variation to accommodate a new 14 construction programme needed as a consequence of the 15 SDS Consents Programme which will eventuate, as well as 16 for the management of contractual Notified Departures 17 when (and if) any of the programme related pricing 18 assumptions fall." 19 Now, to pause there, what I suggest, Mr Bell, is 20 that while the documents I have just read out state that 21 the price was based on a number of pricing assumptions 22 and that if these did not hold, that would give rise to 23 a Notified Departure, the impression given is that the 24 only Notified Departure that was expected after 25 financial close was in relation to the mismatch in 122 1 relation to version 26 of the design programme. 2 A. I think that was the one that was most significantly 3 discussed by the parties in the immediate run-up to this 4 agreement, and it was highlighted in correspondence. 5 However, I think it's also clear that it makes the point 6 around the management of contractual Notified 7 Departures, when or if any of those pricing assumptions 8 fall. 9 So I think there is clarity that there is a set of 10 assumptions there, and the change mechanism would apply 11 if any of those do not hold to be true. 12 Q. Do you accept my suggestion that the provisions and the 13 documents I have just read out give the impression that 14 the only Notified Departure expected after financial 15 close was in relation to the mismatch with version 26 of 16 the design programme? 17 A. I think they highlight that, but the item that's on the 18 screen just now also highlights that it deals with other 19 contractual Notified Departures as well, and the point 20 around a contractual protection and set of assumptions 21 surrounding the programme and pricing. I think that was 22 well understood at the time. 23 Q. In relation to the second paragraph highlighted in DLA's 24 letter, first of all, you will see reference to "as well 25 as for the management of contractual Notified Departures 123 1 when (and if) any of the programme related pricing 2 assumptions fall". The inclusion of the word "if" 3 suggests that it is not necessarily expected there will 4 be other Notified Departures. You accept that? 5 A. Yes. 6 Q. Also, sticking with that sentence, it refers to "any of 7 the programme related pricing assumptions". So that 8 simply seems to be in relation to the programme pricing 9 assumptions. 10 A. I think that's what's highlighted in DLA's letter, yes. 11 Q. What I suggest is that in the documents I have read out, 12 there is little or no reference to other Notified 13 Departures being expected after financial close? 14 A. I think we're clear that the mechanism exists, and in 15 Graeme Bissett's document, that -- the tie document on 16 the 12th, it highlights the basis of the price on those 17 assumptions. So it's very clear to parties that this is 18 a mechanic that can arise and does give rise to an 19 entitlement to change to that price. 20 Q. But it's two different things, is it not? On the one 21 hand to say there is a mechanism in the contract for 22 Notified Departures, and then quite separately, to say: 23 and we expect X Notified Departures to arise at Y value. 24 MR DUNLOP QC: My Lord, the document there for your Lordship 25 to understand. I'm not quite clear why my learned 124 1 friend is pressing the witness to try and tell your 2 Lordship what this document means. 3 CHAIR OF THE INQUIRY: There may be a point as to what the 4 witness's position is. 5 MR MACKENZIE: Yes, Mr Bell. What I'm trying to clarify is 6 how the issue of Notified Departures was reported to the 7 Council, what exactly they were told, and we have seen 8 the provisions in these documents, and I have suggested 9 that the suggestion from these provisions is that one 10 Notified Departure is expected after contract close, and 11 I think you then replied essentially that, well, there's 12 a reference to provision -- a mechanism in the contract 13 for Notified Departures. I'm simply making the 14 suggestion that it could be one thing to have 15 a mechanism in a contract for Notified Departures, and 16 quite another thing to advise the Council that so many 17 Notified Departures were expected at a certain value. 18 A. I think the topic areas were very clear from a risk 19 perspective in terms of programme delay, in terms of 20 change for factors that the client was going to be 21 responsible for. 22 And that was part of the purpose of this kind of 23 documentation and the various reports. And many of the 24 Council officers participated and were aware of a number 25 of the iterations of these reports through the Tram 125 1 Project Board and elsewhere in the run-up to this formal 2 stage in the process. 3 So I absolutely accept that we have highlighted the 4 known SDS version of the programme Notified Departure 5 item and it's in there very, very clearly. I believe 6 that everybody was also clear that there was a mechanism 7 to permit adjustment to the price if those terms arose. 8 Q. You have explained to us that you expected between 60 9 and 100 Notified Departures after financial close. Do 10 you know whether the Council were ever told that that 11 number of Notified Departures were expected? 12 A. I don't know. 13 Q. What the provisions in the documents I've read out do 14 not appear to refer to are expected Notified Departures 15 in relation to changes to the Base Date Design 16 Information which would not be normal design 17 development; is that fair? 18 A. Could you rephrase that? Are you asking me does it 19 highlight items beyond normal design development? Is 20 that what you mean? 21 Q. No. The documents I have read out refer to the expected 22 Notified Departure in relation to the mismatch of 23 version 26 of the design programme? 24 A. Yes. 25 Q. But you before lunch explained that you expected 126 1 Notified Departures in relation to exchanges which were 2 not normal design development? 3 A. Yes, there could have been, yes. I expected there were 4 likely to be some of those to arise. 5 Q. Were you aware whether the Council were ever advised 6 that Notified Departures were expected in relation to 7 changes which were not normal design development? 8 A. I believe that was the clear understanding when we were 9 talking about matters that might have been planning 10 consents or conditions that were added and/or where 11 there were third party agreements that impacted the 12 scope of the works and the requirements that hadn't been 13 taking cognisance of by SDS because they didn't know 14 them at that time. 15 So I think those examples were clear. 16 Q. You gave evidence before lunch in relation to expecting 17 Notified Departures in relation to certain structures 18 which you thought would not be normal design 19 development. Do you know whether the Council were told 20 of those expected Notified Departures? 21 A. I -- I don't recall personally speaking to some of the 22 Council staff regarding -- with regard to that. I do 23 think that we discussed the generality of if there are 24 significant changes from the existing design, that would 25 be likely to be a Notified Departure. 127 1 Q. So is your position essentially that the discussion with 2 the Council as to what was expected after financial 3 close wasn't necessarily couched in the language of 4 Notified Departure, but rather in relation to changes? 5 A. Correct. 6 Q. I would like to move on now, please, to another 7 document. It's CEC01274958. 8 I think if we go to the top of this, it's an email 9 from Willie Gallagher dated 30 April 2008. We can see 10 the second sentence: 11 "Richard [Walker] formally communicated that BB 12 require an additional GBP12 million to conclude the 13 deal. The rationale was sketchy, but he accepts that he 14 should have communicated this factor before our meeting 15 with you in Edinburgh on 14 April." 16 Do you remember this additional price increase? 17 A. Yes. 18 Q. Did you play a part in resolving what happened? 19 A. I was involved in discussions with Willie and with BBS 20 after Herr Enenkel's visit, I think, on the Monday after 21 this email. 22 Q. How was this matter resolved? 23 A. A revised agreement was made that dealt with, I think, 24 eight or nine points, some of which adjusted price, some 25 of which clarified elements of risk or confirmed 128 1 commitments to, I think, address matters associated with 2 the Tramco Novation and the SDS Novation. That's 3 a document I think perhaps we will come to. 4 Q. If you go to that document, it's WED00000023. I think 5 this is referred to as the Kingdom Agreement, is that 6 correct? 7 A. Yes, that's the meeting room where it was made. 8 Q. I see. I think this document is dated 13 May 2008. 9 Just looking at the initial two clauses, we see 10 condition 1. We can see: 11 "tie shall pay the BBS Consortium an incentivisation 12 bonus of GBP4.8 million ... to be paid ..." 13 In a manner set out. 14 Then we can see condition 2: 15 "If tie does not proceed with Phase 1b ... BBS shall 16 receive a payment of GBP3.2 million." 17 Is that right? 18 A. Yes. That's from the Agreement. 19 Q. So I think, to recap, this was the third price increase 20 in 2008. I think first we had Rutland Square in 21 February 2008. We then have the March 2008 additional 22 8.6 million, from memory, we looked at this morning, and 23 this, I think, is the third and final price increase in 24 2008; is that right? 25 A. Yes. 129 1 Q. In relation to the payment of GBP3.2 million, if phase 2 1b did not proceed, did you have any concerns in 3 relation to that Agreement? 4 A. This was one area where BBS had provided an offer for 5 line 1b's price. There was still work to be updated and 6 produced during the start of the contract being 7 implemented, and that would allow us to consider whether 8 that was something that we would accept the estimate on. 9 So at some point in the future, a 1b option existed, 10 subject to the necessary permissions. 11 My concern associated with this particular area was 12 that whilst I didn't dispute BBS had spent 13 GBP3.2 million or thereby associated with preparing some 14 of their initial bid, then it's whether that should have 15 been part of their bid costs or otherwise, and that was 16 part of the discussion we had with them at the time. 17 Q. Put that document to one side now, thank you. 18 Going back to Schedule 4, and now turning to the 19 final version of it, which was inserted in the Infraco 20 Contract, could I ask who agreed the final version of 21 Schedule 4, including all of the various pricing 22 assumptions? What I mean is: was that simply agreed by 23 tie senior staff on behalf of the company? Did that go 24 to the tie Board of Directors? Did that go to the Tram 25 Project Board, or what? 130 1 A. My recollection is that the final draft was reviewed by 2 the senior staff involved in negotiation, including 3 myself, and we then reported on that to the Tram Project 4 Board and the tie Board. 5 Q. Do you remember whether those reports to the Tram 6 Project Board and the tie Board contained an actual copy 7 of the final version of Schedule 4? 8 A. I can't -- I can't recall. It was part of the Infraco 9 Contract Suite and I do recall at later stages sharing 10 the Infraco Contract Suite which is a number of volumes 11 of documentation, with the Tram Project Board and the 12 tie Board as we were going through some items with that. 13 At that time I can't recall, I don't know if there's any 14 documentation that would affirm that. 15 Q. We've also seen reference to quality control of the 16 Schedule 4 being carried out. Could we in that regard, 17 please, go to document CEC01399321. 18 We can see, top left-hand corner, "FINANCIAL CLOSE - QC 19 PROCESS". We can see the title of different columns. 20 The blue one, a Main QC Review, Secondary QC Review(s), and 21 then at the right-hand one, "Full DLA QC review. 22 Did these intended QC reviews take place? 23 A. I believe they did. I certainly recall going through 24 each of the schedules where my initials are against 25 them, and I'm absolutely sure that a number of other 131 1 colleagues on those did exactly the same. 2 Q. We can see, for example, in line 21, under "Pricing 3 Schedule 4", we see, I think, your initial, initials 4 under the secondary QC review; is that correct? 5 A. That's correct. 6 Q. Are you aware, did DLA undertake a final and full QC 7 Review as well of the various documentation shown? 8 A. I believe so for completeness and integrity of the 9 document, so that there were no residual references not 10 covered and I believe that also informed the DLA letter 11 that we were talking about earlier as well. 12 But I know that the lawyers from DLA were intimately 13 involved in the drafting of the -- of that as it went 14 through, and I'm sure that was done. I don't think it 15 would have had a tick at the end of the summary to 16 confirm other than that. 17 Q. I should just, for clarity, when you say: 18 "... I know that the lawyers from DLA were 19 intimately involved in the drafting ... of that as it 20 went through, and I'm sure that was done." 21 What do you mean by that? Do you mean Schedule 4? 22 A. No, all the contract documentation, they were the legal 23 advisers for tie on the suite of Infraco and Tramco 24 related contracts, and where -- also where relevant, 25 where it touched on other documents such as the CEC 132 1 guarantee. 2 Q. Thank you. I think we can also go to a document giving 3 guidance on the QC approach. It is CEC01399322. We can 4 see the title of this document at the top, "EDINBURGH 5 TRAM PROJECT, FINANCIAL CLOSE PROGRAMME, QC AND 6 APPROVALS PROCESS". If we carry on scrolling down, 7 please, under 3, "Quality control", we then see "Quality 8 control approach": 9 "The objective is to ensure that a knowledgeable tie 10 or TEL person, semi-independent of the front-line 11 negotiating and legal team, reviews the final form of 12 the documents. The review should identify 1) fatal 13 flaws; 2) potentially important issues needing 14 an internal debate before sign-off; and 3) obvious 15 errors. This review is not about nuances or minor 16 drafting changes nor is it designed to second-guess 17 negotiated commercial positions unless there is an 18 obvious serious issue." 19 So presumably you had that guidance in mind when you 20 were QC reviewing Schedule 4? 21 A. Yes. 22 Q. Thank you. If we could then please go to Schedule 4. 23 The reference is USB00000032. If we could go, please, 24 to page 3, in paragraph 2.3 we see the reference to: 25 "The "Base Date Design Information" means the design 133 1 information drawings issued to Infraco up to and 2 including 25 November 2007 listed in Appendix H to this 3 Schedule Part 4." 4 If we go to Appendix H, please, which I think is 5 page 53, we can see the top of the page, that there 6 isn't a listing of drawings. Instead, a statement that 7 all of the drawings available to Infraco up to and 8 including 25 November 2007. 9 Now, we've heard from the witnesses from 10 Parsons Brinckerhoff that their records would have 11 enabled a list of design as at that date to have been 12 produced. In short, do you accept that there should 13 have been a listing of drawings in Appendix H? 14 A. It would have provided increased clarity. The 15 information was available on discs issued to and access 16 to the electronic data room, but it would have provided 17 increased clarity if there was a listing on that 18 Schedule, yes. 19 CHAIR OF THE INQUIRY: Did this not feature in one of the 20 adjudications? 21 A. It was one of the DRP points, my Lord, yes. 22 MR MACKENZIE: Presumably you must have seen this when 23 undertaking the QC check, but decided not to insist on 24 a list of drawings. Would that be fair? 25 A. We reviewed this and we had an auditable trail of access 134 1 to the documents and the versions of the drawings and 2 when, along with records of issues of discs as well to 3 the Infraco, and we decided to proceed without 4 completing that Appendix. 5 Q. But do you accept that there should have been a list of 6 drawings set out in Appendix H? 7 A. That was the original intent. 8 Q. So is this a yes to the question? 9 A. It would have been more complete, yes. 10 Q. Can we go back to page 5, please. Clause 3.2.1. I'll 11 try not to read all of this out because we have looked 12 at it before. We can see the reference to certain 13 Pricing Assumptions, and then in the second sentence: 14 "The Parties acknowledge that certain of these 15 Pricing Assumptions may result in the notification of 16 a Notified Departure immediately following execution of 17 this Agreement. This arises as a consequence of the 18 need to fix the Contract Price against a developing 19 factual background. In order to fix the Contract Price 20 at the date of this Agreement, certain Pricing 21 Assumptions represent factual statements that the 22 Parties acknowledge represent facts and circumstances 23 that are not consistent with the actual facts and 24 circumstances that apply." 25 Now, in all your experience, Mr Bell, both before 135 1 and after the tram project, have you ever seen a clause 2 like this in a contract containing that sort of wording? 3 A. It's not a standard clause. I've principally come 4 across it in relation to the tram project. 5 CHAIR OF THE INQUIRY: Did you say it is a standard clause? 6 A. It's not a standard clause. 7 MR MACKENZIE: Is this really back to what we looked at this 8 morning, Ian Laing's email, he talked about being in an 9 unusual situation which I think you agreed was that 10 there was a factual statement included in the contract 11 which parties knew not to be correct. 12 A. Yes, for the purposes of the Pricing Assumption, yes. 13 Q. Presumably this clause and the wording it contains must 14 have been included on purpose? 15 A. Yes. 16 Q. It wasn't an accident or an oversight? 17 A. The intent was part of that firming that construction 18 works price and having a very clear basis by which it 19 was administered and could be adjusted if a Notified 20 Departure occurred. I think that was the clear intent 21 of both parties. 22 Q. Isn't that the opposite of firming up a construction 23 price? 24 A. It allows us to be firm on the price. It doesn't -- it 25 doesn't mean it's fixed. 136 1 CHAIR OF THE INQUIRY: Firm on the price; in these 2 circumstances the price is a fiction? Is the price 3 a fiction in those circumstances, if you alight on 4 a price which you acknowledge the day after the contract 5 won't apply? 6 A. I don't believe it's a fiction. It is the basis on 7 which the obligations are going to be delivered. There 8 were certain elements that were not complete in the 9 design, and this approach allowed us to be firm on the 10 items that were clear and to take cognisance of areas 11 that weren't, for example by provisional sums, and to 12 allow a mechanism to say: well, you've based this 13 element of work as follows; if it changes from that 14 outwith in a review normal design development, then the 15 Infraco is entitled to make the case on that, and it's 16 our job to have identified elements within the risk 17 allowance to deal with the items that we saw. 18 CHAIR OF THE INQUIRY: But if I had come along to you on the 19 day of the contract signing and said: right, what's the 20 cost then; what would you have said? 21 A. We would have said we had a firm construction works 22 price and there are elements of risk that need to be 23 addressed. So the contractor is obliged to provide 24 certain things for this amount of money. If certain 25 events happen, then he may be entitled to additional 137 1 monies. Our approach from a project perspective was to 2 address that through either a contingency sum for 3 certain items or a risk allowance. 4 CHAIR OF THE INQUIRY: What's the price? 5 A. The contract price is for the items that we can be firm 6 on. 7 CHAIR OF THE INQUIRY: But it's acknowledged here that it's 8 based on circumstances that don't exist. So what's the 9 price? If I want to know, is it 100 million, 10 200 million, you can't tell me, can you? You can see 11 there are certain things we've priced on the basis 12 they're fixed, but that might change. But in any event 13 it's based on a design that has developed, and therefore 14 it's not fixed at all. 15 A. It's fixed in terms of the elements that are clear from 16 the documentation, and has to be read in conjunction 17 with the commitment from the contractor to achieve the 18 Employer's Requirements, and there are a number of areas 19 that were not fixed and we agreed a mechanism by which 20 we would value them. 21 CHAIR OF THE INQUIRY: There's a price based on certain 22 elements, but as of today's date, when I've signed it, 23 there's an immediate uplift. Would that be a fair 24 way -- 25 A. There is. Yes. There is a Notified Departure, and 138 1 that's why in the items we discussed a couple of 2 questions ago, it was very clear that we knew there was 3 going to be an impact of the SDS design deliverables 4 version of the programme. 5 CHAIR OF THE INQUIRY: So if the people of Edinburgh or the 6 Council came to you and said: we need to know what the 7 price is; you wouldn't have been able to tell them, 8 would you, apart from this formula that you keep 9 repeating? But if we want to know what the price is, 10 can you tell me? 11 A. The contract was not set as a guaranteed maximum price 12 form of contract. If it had been, then you could use 13 that number. 14 CHAIR OF THE INQUIRY: Thank you. 15 MR MACKENZIE: Thank you. Just sticking with the wording in 16 this clause or paragraph, Mr Bell, was the purpose of 17 this wording to acknowledge that certain matters were 18 anticipated to give rise to Notified Departures which 19 would be dealt with after contract close? 20 A. Yes. 21 Q. Just again sticking with the wording, there's 22 a reference to certain factual statements that in short 23 the parties acknowledge not to be true. What were the 24 factual statements at financial close that you 25 considered weren't true? 139 1 A. We've just talked about an example of the SDS design 2 delivery programme. The version 26 -- sorry, version 26 3 of that programme had already been forecast and 4 confirmed that certain dates could not be met or were 5 not going to be met. That would be an example of facts 6 that we knew by that time were different, and the 7 Infraco had based its price on receiving the SDS 8 deliverables at the time of the version 26 programme. 9 So the impact of that, which may have ranged from 10 zero time and zero money to an extension of time and 11 additional cost, still had to be evaluated. 12 But we were not disputing that there was going to 13 have to be that evaluation. It was a change. 14 Q. Do you accept that it was an important part of the 15 procurement strategy that there would be a fixed price 16 for the Infraco Contract? 17 A. The original procurement strategy endeavoured to have 18 a fixed price for the Infraco Contract. That was based, 19 as we've discussed earlier, on having a completed 20 design, and over the period during 2007, I think it 21 became clear to the project that that wasn't going to be 22 able to be fully achieved, and consequently the 23 proposals that were put forward to address that resulted 24 in the Schedule Part 4 adjustments. 25 Q. Now, when you say the original procurement strategy was 140 1 intended to a fixed price based on completed design, and 2 I think during 2007 that was not going to be fully 3 achieved; do you mean that some time in 2007 it became 4 apparent that design wouldn't be completed in advance or 5 do you also mean that during 2007 it also became clear 6 that a fixed price for the Infraco Contract wouldn't be 7 achieved? 8 A. I think in the autumn of 2007 it became clear that the 9 design wouldn't be complete, and that the Infraco 10 bidders could not -- would not settle on a guaranteed 11 fixed price taking all the risk of any change. 12 Q. So did the procurement strategy change around that time? 13 A. I think what was updated to the Tram Project Board was 14 the fact that the design was going to be incomplete, 15 still intended to be novated to the Infraco contractor, 16 and -- but they would have to address the pricing 17 certainty through, as was proposed, a mechanism that 18 baselined that price. 19 Q. So from late 2007 onwards, what was your understanding 20 as to whether it remained part of the procurement 21 strategy to obtain a fixed price for the Infraco 22 Contract? 23 A. I think it was clear from late 2007 that an absolute 24 fixed price was not going to be obtained. 25 Q. To what extent from late 2007 could price certainty be 141 1 obtained? 2 A. I think there was a very clear factual background that 3 the Infraco looked at a whole range of areas in the 4 design, as did tie. We agreed certain things should be 5 provisional sums. We agreed certain things which should 6 be based on the status of information as at 7 December 2007. And that gave us a firm assessment of 8 those prices against all of the terms and obligations of 9 the contract at that time. And Infraco updated their 10 prices accordingly. 11 Q. Thank you. Now, what I would like to do is look through 12 the Pricing Assumptions and ask you to indicate the ones 13 which were known not to be true at financial close. 14 I'll also ask you one or two other questions about some 15 of them as well. 16 So if we please go to the same page in 17 paragraph 3.4, "Pricing Assumptions", we see number 1 18 relates to design. Just for the avoidance of doubt, was 19 this Pricing Assumption derived from the process we 20 discussed earlier today? 21 A. This Pricing Assumption's genesis was back pre-Christmas 22 at Wiesbaden principles about dealing with that issue of 23 uncertainty, and then we refined that during the 24 discussions in February 2008, to finalise this part of 25 Schedule Part 4. 142 1 Q. I think beyond February 2008, I think into March and 2 perhaps April as well? 3 A. Yes. 4 Q. I'm not going to ask you again for your understanding of 5 it, but what I would like to ask you, remember this 6 morning I asked you for your understanding in relation 7 to the Wiesbaden draft of this. 8 A. Yes. 9 Q. Was that an understanding you had come to yourself from 10 reading the words at that time or was that an 11 understanding based on what you had been told by others? 12 A. Was the question: is this a lift from Wiesbaden; or is 13 the question something else? 14 Q. Sorry. Simply I asked you earlier this morning about 15 your understanding of some of the -- essentially this 16 pricing provision in the Wiesbaden Agreement. What I'm 17 interested in is whether that's an understanding you 18 came to yourself reading the Wiesbaden Agreement or 19 whether that was an understanding based on what you'd 20 been told by others as to what the intention of the 21 agreement was. 22 A. Thank you. I think we touched on it earlier. The 23 intention was that that Agreement would frame the 24 approach taken, and generally these words look as if 25 they're pretty much consistent with the Wiesbaden draft. 143 1 Certainly it was Willie and Matthew's intention that 2 there wouldn't be further significant adjustments from 3 the points raised and come to an agreement on in 4 Wiesbaden. 5 Q. If you go over the page, please, to page 6, at the top, 6 the paragraph, "For the avoidance of doubt", I think 7 I took you to that paragraph in the Wiesbaden Agreement. 8 I think you read in the word "significant" before 9 "design principle". Do you remember that? 10 A. I do. 11 CHAIR OF THE INQUIRY: Before "changes"? 12 MR MACKENZIE: Sorry, my Lord? 13 CHAIR OF THE INQUIRY: Does "significant" not go before 14 "changes"? 15 MR MACKENZIE: Yes, thank you, my Lord, that must be right. 16 I think, as my Lord has pointed out, I think you 17 read in the word "significant" after "excludes"; is that 18 correct? 19 A. It was the way I illustrated it in my answer, yes. 20 Q. Does it follow that if one reads literally that 21 paragraph without the word "significant", does it follow 22 that for almost all changes from BDDI would amount to 23 Notified Departure? 24 A. I did not read it in that way at that time. 25 Q. You didn't read it in that way at that time? 144 1 A. No. 2 Q. Because you had read in the word "significant" after 3 "excludes"? 4 A. Even if I ignore the "significant" point, I would still 5 read that as not excluding it. 6 Q. I think things had started with my question that you 7 see: 8 "For the avoidance of doubt normal development and 9 completion of designs means the evolution of design 10 through the stages of preliminary to construction stage, 11 and excludes changes of design principle, shape and form 12 and outline specification." 13 So that read literally means that changes of design 14 principle, shape and form and outline specification are 15 not normal development in completion of design. I just 16 wondered what was left, if you strip out changes of 17 design principle, shape and form and outline 18 specification, what is left that would be normal 19 development in completion of design? 20 A. I have tried to explain previously, I expected the 21 normal completion of design to align with the Employer's 22 Requirements, to be included in that. If we change the 23 design principle: I'm not going to build a bridge, I'm 24 going to build an underpass to deal with an obstruction; 25 that would clearly be a change of design principle, and 145 1 that would be of significance and therefore not normal 2 development of the design. 3 If you change the high level outline specification, 4 then absolutely, we would expect that to be excluded. 5 I'm trying to be very clear with the Inquiry that we 6 were -- as we read that point, and this whole issue of 7 normal design development, we expected that the Infraco 8 had an element of normal design development included 9 within their price to complete the works, and there are 10 certain circumstances that might go beyond that, and 11 they would be entitled to change. That was the intent. 12 Subsequent disputes and DRP processes tested that 13 understanding and there was quite a difference of that 14 opinion legally. 15 Q. Finally in Pricing Assumption 1, reading it now, do you 16 consider its meaning is entirely clear or do you 17 consider it ought to have been more clearly expressed? 18 A. Hindsight has demonstrated that tie and Infraco had 19 a different interpretation of this, and that's been part 20 of the problem. I thought we were clear on it at that 21 time. 22 Q. I would like to move on, please, to other Pricing 23 Assumptions. We see 2 relates to design delivery by the 24 SDS provider has been aligned with the Infraco 25 construction delivery programme. That, I think, was 146 1 accepted not to be correct at financial close; is that 2 right? 3 A. Correct. 4 Q. Then 3: 5 "The Deliverables prepared by the SDS Provider prior 6 to the date of this Agreement comply with the Infraco 7 proposals and the Employer's Requirements." 8 Was that accepted not to be correct? 9 A. I don't think so. I think SDS had warranted that their 10 proposals would achieve those Employer's Requirements. 11 Q. I think we've heard evidence from the Parsons witnesses 12 that there was a misalignment before financial close 13 between the SDS design and the Employer's Requirements, 14 and also between the SDS design and the Infraco 15 proposals. And that that misalignment was referred to 16 in the SDS Novation Agreement and would be dealt with or 17 re-aligned in workshops after financial close. Were you 18 aware of these matters? 19 A. There was amendments and alignments to the Employer's 20 Requirements and confirming the SDS proposals were going 21 to achieve those. As part of integrating Infraco 22 proposals, there were planned to be workshops for that. 23 Yes, I agree with that. And if there were minor changes 24 to that, we would expect to deal with that beyond it, 25 but there was no fundamental misalignments as I recall. 147 1 Q. So was Pricing Assumption 3 considered to be -- by you 2 to be correct or incorrect at financial close? 3 A. I considered it to be correct, but there may have been 4 found at these workshops examples where it was not 5 aligned, in which case if there was an entitlement to 6 change matters, then it could utilise the Notified 7 Departure mechanism. 8 Q. Pricing Assumption 4: 9 "That the Design Delivery Programme as defined in 10 the SDS Agreement is the same as the programme set out 11 in Schedule Part 15." 12 Was that known to be incorrect? 13 A. That was -- yes, I think that was known to be incorrect 14 because that -- I think you made the comment earlier 15 that elements of the original programme were 16 a significant number of months, 13 months behind, if 17 this relates to the original agreement. 18 Q. We've heard evidence that at financial close, the SDS 19 programme was based on version 31 which -- in respect of 20 which all deliverables were to be completed and 21 delivered by January 2009, including all approvals and 22 consents? 23 A. Yes. 24 Q. I would like just to pause at this stage to go to 25 a different document, please. It's CEC01494162. 148 1 We can see this is a letter dated 10 April 2008 to 2 Mr David Leslie, City of Edinburgh Council. And it's by 3 Willie Gallagher, if we scroll down a bit. 4 I think in short the Inquiry has previously seen 5 letters from Mr Leslie at the end of April concerned 6 about design applications for consents and approvals. 7 Over the page, please, we can see the top of this 8 document, "DESIGN & APPROVALS - SUCCESSFUL DELIVERY IN 9 COMPRESSED TIMESCALES": 10 "Shared purpose: the team to successfully deliver 11 the approvals to the timescale & programme needed to 12 avoid unnecessary delay & cost to the tram project." 13 We then see a little further down: 14 "Given where we are with design & approvals, all 15 parties (tie, SDS, CEC, BBS) need to get it right first 16 time to meet the construction programme." 17 Presumably you were aware of that matter at the 18 time, Mr Bell? 19 A. Yes. 20 Q. Would it also be true to say that, for whatever reason, 21 right first time design had not been achieved before? 22 A. It was inconsistent. Some elements were right and 23 others were not, and had to be revisited. 24 Q. Would it again be correct to say that, for whatever 25 reason, no previous version of the design programme 149 1 appears to have been met? 2 A. I would say that from the period I overviewed the design 3 programme, when I first started involved in these 4 issues, there was always some element of slippage or 5 delay, whether minor or non-critical, or very 6 significant. There was always something that was not 7 100 per cent met. 8 Q. Given the history of difficulties and delays with design 9 approvals and consents, how confident were you just 10 before financial close that version 31 of the design 11 programme would be met? 12 A. I think that it was a realistic programme at that time. 13 However, it did require all of the parties mentioned 14 there to continue to address any residual outstanding 15 questions or issues, and co-operate fully with each 16 other to do so. So it was realistic to say that it can 17 be done. There was a residual risk of delay. 18 Q. I would like at this stage to go back, please, to 19 Schedule 4 and look at the other programme assumptions. 20 Back to USB00000032. Go to page 6. 21 Look, please, at number 11 at the bottom of the 22 page. We can read for ourselves how that starts. Then 23 over the page, please. At the top it states: 24 "The Infraco shall not encounter any below ground 25 obstructions or voids ..." 150 1 Is that something that -- one would expect to see 2 an allowance for that in the risk allowance? 3 A. Yes. 4 Q. Then the next Pricing Assumption 12, we can see the 5 final sentence: 6 "Full depth reconstruction as the current designs in 7 this area shall not be required." 8 Is that a reference to the roads issue I asked you 9 about this morning? 10 A. Yes, it is. 11 Q. Thank you. 12 Again, would one expect to see some allowance for 13 that in the risk allowance if that was required? 14 A. Yes. 15 Q. The other issue I had asked you about -- I think the 16 separate but related issue of Parsons having advised 17 that full depth reconstruction would be required, ie 18 a reinforced concrete base for the track to sit on. Is 19 that also something that one would expect to see a risk 20 allowance for that in the risk allowance? 21 A. I think in relation to the trackform discussion, there 22 was a very clear proposal from the Infraco that they 23 were prepared to stand behind and that -- 24 Parsons Brinckerhoff as designer had recommended some 25 additional arrangements. 151 1 Their key concern appeared to be related to the 2 potential for voids and that was being worked through at 3 the time with the two respective parties to get to 4 a technical conclusion on it. 5 I think any impact of doing more work on that would 6 be either part of general delay or some unspecific -- 7 specific roads-related allowances. 8 Q. Just on that point, I think the evidence of the Parsons 9 witnesses was that they were very clearly of the view 10 that there was a need for a reinforced concrete base for 11 the track because in short one unknown void could derail 12 the tram. 13 Presumably at some point before financial close in 14 accepting the consortium's offer which didn't allow for 15 that, somebody in tie must have decided to reject 16 Parsons' advice in that regard? 17 A. I think we accepted that the Infraco, we felt, had had 18 a strong proposal with regards to that, and the approach 19 was sustainable and correct from the Infraco in terms of 20 completing their Infraco proposals and design. So we 21 would have preferred their solution. 22 Q. So in short, the price accepted by the consortium didn't 23 include for reinforced concrete base? 24 A. As I recall, not to the extent that Parsons were 25 proposing. 152 1 Q. So that suggests that somebody in tie must have decided 2 to reject Parsons' advice in that regard? 3 A. We reviewed their proposal, I recall, and we were 4 content to support the Infraco solution. So yes, but we 5 preferred the Infraco solution with that circumstance. 6 Q. So who in tie came to that decision? 7 A. I suspect ultimately I would be accountable for that. 8 I'm sure it was discussed in some delay with the 9 technical leads for the trackform and for the -- and 10 support that we had from TSS and others. 11 Q. Now, the Parsons witnesses explained that they were of 12 that view, given their experience of designing and 13 building tram systems in UK cities. I just wonder what 14 basis was there for rejecting Parsons' advice in that 15 regard? 16 A. I think I would have to review the papers and 17 correspondence that was discussed at the time, but 18 I think we were also informed by the Infraco's view on 19 their track slab solution and how that would support and 20 deliver a sustainable and safe service. 21 But there was a technical disagreement between both 22 SDS and Infraco at that time. 23 CHAIR OF THE INQUIRY: Would that be part of the Civils? 24 A. It's the interface, my Lord, between the trackform and 25 what -- there is an integrity provided by the trackform 153 1 that's installed as part of the rail system, but it sits 2 and is based on the supporting substructure. 3 CHAIR OF THE INQUIRY: Sorry, it's the way I have put the 4 question, it's not very fair. 5 In deciding what the trackform should be, would that 6 be Bilfinger Berger's part of the consortium? 7 A. Well, I suspect they leaned on the experience of Siemens 8 because the trackform solutions tended to be led by 9 Siemens, but there had to be an integration with 10 Bilfingers undertaking the associated Civils work, and 11 they were both jointly and severally liable for the 12 performance of that. 13 CHAIR OF THE INQUIRY: And it turned out that SDS, at the 14 end of the day, were right; is that right? Because 15 there was problems we heard -- well, at least we heard 16 evidence that there was problems in Princes Street with 17 a junction -- 18 A. There were certainly problems in Princes Street, but 19 that tended to be the interface between the road 20 surfacing and the head of the rails, and the quality of 21 that construction. I don't believe that's -- I think 22 the -- from memory, the issues associated with -- or the 23 concern around voiding in Princes Street was not found 24 to be as significant as people feared. That was the -- 25 the reality was there were not as many problems or voids 154 1 uncovered as originally had been the concern of SDS. 2 CHAIR OF THE INQUIRY: So ultimately was the Infraco 3 original proposal maintained or was it replaced with 4 SDS. 5 A. I think there were certainly some amendments made. The 6 only section of street running that was completed at the 7 time I was in post was the first -- the first 8 construction of Princes Street in 2009. That was later 9 subject of extensive remedial works and then there was 10 further on-street works that happened after I left tie 11 in 2011. So I haven't seen the final construction 12 details that was installed over the remainder of that 13 route and any remedial works. 14 CHAIR OF THE INQUIRY: Thank you. 15 MR MACKENZIE: In Princes Street, when you were still at 16 tie, was a reinforced concrete base laid as suggested 17 originally by SDS? 18 A. I would need to review the drawings. Sorry, I don't 19 know if you have those available. I can't -- I can't 20 recall the final detail. We got to an approved 21 construction detail. A lot of the debate at the time 22 was around accessing and completing the works and the 23 detail with the finishes on the road level. I certainly 24 recall that. Perhaps in a break we can look at the 25 drawings and I can confirm to the Inquiry. 155 1 Q. Well, the evidence of the design witnesses was very 2 clear that there were two fundamentally very different 3 things. There was the BBS proposal which was simply 4 skimming the existing road surface and laying the 5 tracks, and on the other hand there was the Parsons 6 advice that what was required was a deeper excavation 7 and the laying of reinforced concrete base upon which to 8 lay the tracks. 9 I'm simply wondering, Mr Bell, which of those two 10 proposals in fact was adopted in Princes Street when you 11 were there? 12 A. When I was there, there was certainly more extensive 13 works to the surfacing than the skimming or re-planning 14 process that was there, and that was part of the final 15 finishing details that were agreed for Princes Street 16 itself. That, certainly from the road resurfacing point 17 of view and road depth construction, there was more than 18 the original works intended by the Infraco. 19 Q. Thank you. Almost finished with Schedule 4, if I may. 20 If we then go back to Schedule 4, please. In 21 Pricing Assumption 13, I'll let you read that for 22 yourself. 23 Again, Pricing Assumption 19. 24 Now, it appears, just from reading those Pricing 25 Assumptions, that they are not subject to the normal 156 1 design development exception. Was that your 2 understanding at the time? 3 A. Yes, and I think Tower Place Bridge was subject to one 4 of the DRPs later in the process. 5 Q. Then finally, please, over the page, Pricing Assumption 6 24, in relation to utilities, again, I'll let you read 7 that for yourself. (Pause) 8 Is this a Pricing Assumption which at financial 9 close you expected would not be true? 10 A. We expected that there was a risk of that not being true 11 because of the difficulties in MUDFA completing the 12 programme, but at that time I don't believe it was 13 impossible to achieve. Later we did trigger this 14 particular Pricing Assumption, and we had expected that 15 this was a risk area. 16 Q. Just finally, just before financial close, would you 17 have rated that risk as low, medium or high? 18 A. This particular item? 19 Q. Yes. 20 A. I think there would be at least a medium level risk that 21 we wouldn't complete all of the utilities as set out in 22 the original programme sequence. 23 MR MACKENZIE: Thank you, my Lord. That may be an 24 appropriate point to have a break. 25 CHAIR OF THE INQUIRY: We will break for 15 minutes. We 157 1 will resume again at 3.30. 2 (3.14 pm) 3 (A short break) 4 (3.30 pm) 5 CHAIR OF THE INQUIRY: You're still under oath, Mr Bell. 6 MR MACKENZIE: Thank you, my Lord. 7 Mr Bell, I would like now to move back to the 8 question of whether there was a misalignment between the 9 SDS design, the ERs and the consortium's proposals. 10 I'm going to take you, please, to a document 11 PBH00034982. Now, I suspect you will not have seen this 12 document before. What it is, it is a weekly report 13 compiled by Steve Reynolds of Parsons Brinckerhoff for 14 internal reporting purposes. We can see from the bottom 15 right-hand page of this document that this particular 16 report is dated 15 February 2008. 17 If we then go over the page, please, to page 2, 18 under 2.1.1, "Employer's Requirements", we can see it 19 states: 20 "Following PB's completion of the review of the 21 revised set of ERs produced by tie as version 3.1, 22 a five hour meeting was held with Matthew Crosse on 23 Monday." 24 Just to pause there, who within tie was responsible 25 for the Employer's Requirements during the Infraco 158 1 procurement process? 2 A. Originally elements of -- I think Matthew Crosse took 3 ownership of. I don't know who before Matthew looked 4 after that, but certainly in my understanding that was 5 a primary focus for Matthew. 6 Q. The end of this first paragraph states: 7 "The truth is that tie has lost control over the 8 development of the Employer's Requirements." 9 Did you have any knowledge of that matter at the 10 time in February 2008? 11 A. I don't recall that kind of language or comment. That 12 was definitely work that Matthew wanted to do to make 13 sure that he was content with the Employer's 14 Requirements for the final version. But it's not 15 language I recognise. 16 Q. Then in the last paragraph we see blown up states on the 17 subject of the BBS Civils Offer: 18 "This has not still not been received from tie for 19 review. I have expressed (to Steven Bell) serious 20 concern that there is likely to be a significant 21 disconnect between the scope of the BBS Offer and the 22 current status of the SDS Design." 23 Do you remember Steve Reynolds saying that to you 24 around February 2008? 25 A. I remember Steve seeking the Infraco proposals and 159 1 particularly Civils design, and he wanted to make sure 2 that he understood what was expected. 3 I thought round about then is when they had been 4 provided, but I'm sure the documentary record would show 5 that. So he certainly knew that was an item he had to 6 undertake a review on. 7 I think later on he produced a report. I don't know 8 if the Inquiry has seen that. 9 Q. Yes, I think that's right. 10 I would also like then to take you to the SDS 11 Novation Agreement to see what it says about these 12 matters. If we can bring up, please, document 13 CEC01370880. 14 I think we can see halfway down, this is the 15 Novation System Design Services Agreement signed at 16 contract close. 17 If we can go, please, to page 7, and in clause 4.6 18 we see there reference to: 19 "tie warrants that it has received a report from the 20 SDS Provider [annexed to this agreement] ... setting out 21 the misalignments between the Deliverables completed 22 prior to the date of this Agreement and the Employer's 23 Requirements and that it has issued initial instructions 24 (in the form of the letter annexed ...) to the SDS 25 provider in relation to addressing all such 160 1 misalignments. Upon completion of the work entailed to 2 resolve the misalignments, the SDS Provider confirms to 3 tie and the Infraco that such Deliverables shall be 4 consistent with the Employer's Requirements." 5 So I think in short, according to the evidence we've 6 heard, that had been recognised before financial close 7 that there was a misalignment between the SDS design and 8 the Employer's Requirements, and that that misalignment 9 would be addressed after contract close; does that 10 accord with your recollection? 11 A. Yes, I think that there was work already under way at 12 this period in time, but it had not been completed, so 13 it was going to be completed after financial close. 14 Q. Then in relation to the Civils proposals, if we look at 15 the next clause, please, clause 4.7, we can see there it 16 sets out: 17 "As soon as reasonably practicable, the Parties 18 shall commence and expeditiously conduct a series of 19 meetings to determine the development of the Infraco 20 Proposals and any consequential amendment to the 21 Deliverables (the 'Development Workshops'). The matters 22 to be determined at the Development Workshops shall be 23 those set out in the report annexed at Part C ..." 24 Which I think may be the report you referred to: 25 "... (the 'Misalignment Report'), together with any 161 1 items identified as "items to be finalised in the 2 SDS/BBS alignment workshops' in Appendix 4 to be dealt 3 within the following order of priority and objective 4 unless otherwise agreed." 5 We then see reference to 1: 6 "Roads and associated drainage ..." 7 2: 8 "Structures value engineering ..." 9 3: 10 "OLE Design ..." 11 4: 12 "Trackform ..." 13 Over the page, please, 5: 14 "Sub-station buildings ..." 15 Then after that: 16 "The following to be reviewed at the end of the 17 Development Workshop to identify any issues arising from 18 the above items." 19 We see listed Earthworks, Landscaping, OLE 20 Foundations, Alignment, Site Clearance, Tramstops, all 21 other items in the misalignment report, et cetera. 22 Then in paragraph 4.8 we see reference to: 23 "The product of the Development Workshops shall be 24 a report ..." 25 And what have you. 162 1 Then a reference to: 2 "Any consequential tie Change Orders or instructions 3 shall be appended to such report as and when the same 4 are issued." 5 So in short, these provisions do, I think, suggest 6 that there was recognised to be a misalignment between 7 the SDS design deliverables and the consortium's 8 proposals, which misalignment would be addressed after 9 contract close. Does that accord with your 10 recollection? 11 A. Yes, it does, and I think the order of priority 12 described in this document earlier highlights areas 13 which were focused on as part of the listing in Schedule 14 Part 4, the potential Notified Departures. 15 So to try and resolve those matters promptly, and in 16 that order, to resolve any differences whether it's 17 about roads, value engineering structures, trackform or 18 similar. 19 Q. So in short, was it expected before financial close that 20 there were likely to be Notified Departures in relation 21 to the issues of the alignment between the SDS design 22 and the Employer's Requirements and the issue of the 23 misalignment between the SDS design and the consortium's 24 proposals? 25 A. They were likely to be Change Orders. They wouldn't 163 1 necessarily spring from a Notified Departure. That 2 might be the mechanism if it was -- fell into one of the 3 particular categories, but the intent clearly was to 4 resolve the differences, the Employer's Requirements had 5 primacy. SDS warranted their proposals would achieve 6 that, as did Infraco. 7 If there were some integration to be done within, 8 there was then that is what the purpose of the 9 development workshop was, to make sure that there was no 10 minor misunderstanding on each of those points, and if 11 that resulted in extra work for, in this case, SDS, then 12 they would be paid for that. 13 Q. Perhaps just to be quite clear, any resolution of the 14 misalignment between the design and the Employer's 15 Requirements and the design and the proposals that would 16 take place after contract close? 17 A. Related to these workshops, yes. 18 Q. And that had the potential to create a Notified 19 Departure or a tie Change Order? 20 A. It had the potential to do that, yes. And if it had 21 been adopting the Infraco proposal, that might have had 22 no effect on Infraco. But may have had an impact on 23 SDS. 24 Q. Ought there to have been allowance in the risk allowance 25 for any Notified Departures or Change Orders which may 164 1 arise as a result of curing any such misalignment? 2 A. From recollection, I think we had made some 3 consideration for that, but we shall no doubt get to 4 that. 5 Q. Is that something that ought to have been included in 6 the risk allowance? 7 A. It's in relation to the time effect of undertaking this, 8 we had a more broad delay allowance that we considered 9 was likely to be impacted by this. 10 Q. I would like, please, to move on to the separate issue 11 of the MUDFA works and take you to certain documents in 12 that regard. 13 I would like to start, please, with document 14 CEC01455620. 15 We can see this is headed "MUDFA Contract Review 16 Report", 31 March 2008. 17 Just to pause, do you remember who produced this -- 18 these reports? 19 A. Normally I think this was the MUDFA team led by 20 Graeme Barclay, and his senior commercial manager, 21 John Casserly, who supported him from a commercial 22 perspective. 23 Q. When you were Tram Project Director, would you have been 24 sent these reports? 25 A. Yes, I would have, and elements were incorporated into 165 1 the Tram Project Board reports. 2 Q. We can see in the boxes on the right-hand side, "Overall 3 Performance to Date". And we can see for ourselves what 4 that says in terms of the metres planned and actual and 5 similarly with chambers. 6 I would like to go to page 30 of this document. If 7 we could turn that round. We can see this graph is 8 headed "MUDFA - Issue of IFC Design Packages for 9 Construction". We can see, I think, on the left-hand 10 axis, number of design packages, and then at the bottom 11 we see dates. I wonder if we could perhaps blow up 12 under 7 March 2008. Blow up that part of the figures. 13 If we could perhaps go back, sorry, to remind us of 14 what these figures represent. Thank you. So go to the 15 bottom left-hand corner of the graph. We see the 16 description of "Original Planned Cumulative", and then 17 the current planned revision 2005 cumulative, then the 18 actual cumulative, and then the latest forecast 19 cumulative. With that in mind, we then, I'm sorry, back 20 to where we were, please, under 7 March 2008. 21 So under 7 March 2008, the planned total number of 22 IFC MUDFA drawings were 138, but we can see, I think, 23 the actual delivery is about half of that, 71; is that 24 correct? 25 A. Certainly as it reads here, yes. 166 1 Q. If we could scroll back, zoom back out, please, I think 2 we can also see just by looking at the -- different 3 coloured lines, for example, I think it's a blue dashed 4 line represents original planned cumulative and then the 5 black dashed line with the shorter dashes, I think, 6 represents the current planned cumulative for revision 7 2005. 8 I think in short these lines come together 9 approximately 30 November 2007. Do you see that? 10 A. Yes. 11 Q. So it appears that in terms of that programme, the 2005, 12 it had been intended that almost all of the IFC design 13 packages for the MUDFA construction works would have 14 been delivered by 30 November 2007; is that broadly 15 correct? 16 A. Yes, that was the intention of that programme. 17 Q. But we can see that some four months later, in 18 March 2008, only about half have been delivered; is that 19 correct? 20 A. Yes. 21 Q. So really -- and presumably any delay in the issue of 22 the IFC design packages for the MUDFA works was likely 23 to result in delay to the actual MUDFA construction 24 works? 25 A. It certainly has the potential for that, and if the 167 1 items are on the critical path, it would result in delay 2 unless we could re-sequence work. 3 Q. Presumably had you seen this graph at or around this 4 time, 31 March 2008? 5 A. I'm sure we would have seen this report and status. It 6 was one of the areas to resolve in MUDFA to try and 7 ensure those works were complete. 8 Q. One only has to look at this graph to, I think, have 9 very -- fairly strong alarm bells ring that the MUDFA 10 works don't look as though they were going to be in 11 programme. Would that seem right? 12 A. They're certainly a big risk in the design element of 13 this, and it's likely that some parts of that will carry 14 through into delivery. 15 Q. Thank you. We can put that to one side. 16 I would like to look at another report, please, in 17 April 2008. It's CEC01293830. Again, we can see this 18 is the MUDFA Contract Review Report for 24 April 2008. 19 We can perhaps zoom in on the top right-hand corner, 20 overall performance to date, and we can read for 21 ourselves what is said there about planned metres and 22 actual and similarly for chambers. 23 Could we then please go to page 2 of the report. 24 Under "Period Progress", about a third of the way down, 25 we see: 168 1 "Works progressing in 7 areas." 2 The report then says: 3 "Progression of service diversions in the period has 4 shown a downturn in output from previous period; 5 70% achieved in the period. 77% 6 achieved in total to date. Cumulative effect on the 7 sections is approximately seven weeks. Overall effect 8 on the critical path remains at 2 weeks, but 9 implementation of revised recovery programme actions 10 required urgently." 11 What's the reference to critical path? 12 A. In relation to the MUDFA Contract, that's the critical 13 path to get them to their current completion date, and 14 it was being tested from memory at that time against 15 what was required by the Infraco Contract programme to 16 allow them access to on-street sections, having 17 confirmed that the utilities work had been completed by 18 that point in time. 19 There might be other things that Infraco had to have 20 ready, but this was to ensure that the utilities were 21 diverted. 22 Q. So when the report says "overall effect on the critical 23 path remains at 2 weeks", does that mean the critical 24 path of the Infraco programme? 25 A. Of the MUDFA elements, but they would be two weeks late 169 1 on certain items. So if they were going to clear work 2 at St Andrew Square, for example, that might be what the 3 critical path item in their forecasting being two weeks 4 later than we had -- committed in the Infraco programme 5 that the MUDFA activities would be complete. 6 Q. Does that mean there may be a two week delay in the 7 Infraco programme of works for those areas? 8 A. It could be if that was on their critical path. It 9 certainly would need to be evaluated and Infraco would 10 be entitled to say: I should be getting access at this 11 point in time. 12 Q. Thank you. Over the page, please, at page 3. Now, 13 I think at this time it was MUDFA Programme 06 which was 14 in place, and I think it was MUDFA Programme 06 which 15 was carried forward into the Infraco Contract if I can 16 put it that way; is that correct? 17 A. Certainly round about June 2008, I'm pretty sure it was 18 the MUDFA Revision 6 Programme that was accepted and 19 adopted by tie and Carillion. 20 Q. We may come back to this with other witnesses. 21 I think I have seen various references in documents 22 to contract close in May 2008, the Consortium's 23 Construction Programme was based on MUDFA Programme 06; 24 do you know if that's correct? 25 A. Yes, I think that's correct. 170 1 Q. Now, reverting to the document we are looking at, 2 halfway down we see: 3 "Review of recovery programme and re-phasing of 4 several sections has led to the development of the 5 latest agreed MUDFA Construction Programme revision 07. 6 Recovery programme has shown a reduction in peak 7 resource demand of 25% ..." 8 Then: 9 "Peak demand is within the months of May through to 10 July. Output demand indicates a required increase of 11 40% in present average output of 64%. 12 This being achieved, completion date (excluding the 13 Mound) would be maintained as mid December 2008." 14 Is it correct to read from that report that the 15 completion date, excluding the Mound, of mid-December 16 2008 was dependent upon the recovery actions being 17 successful? 18 A. I believe that's correct, yes. 19 Q. Just for completeness, I should refer to the last 20 paragraph here, which states: 21 "Rescheduling of the works in line with the 22 Revision 07 programme will result in elements of the 23 city centre works (the Mound area) extending into the 24 first quarter of 2009." 25 Page 18, please, of this document. 171 1 Under "Commercial" in the third last paragraph, do 2 we see: 3 "The joint review of the required utility diversions 4 to update the AFA ..." 5 Is that anticipated final account? 6 A. Yes. 7 Q. "... based upon currently issued IFC and issued for 8 approval drawings has not been fully agreed with AMIS 9 but the exercise has confirmed an anticipated increase 10 measured quantity of 10,550 metres of utility diversions 11 from the originally assessed measured works quantity." 12 Could I ask, please, do you know whether the -- 13 whether MUDFA programme 06 was based on the originally 14 measured quantity of utility diversions or the 15 anticipated increase? 16 A. I believe it was on all of the diversions that were 17 known about and included on IFC drawings at that time 18 and also the items that had been at -- issued for 19 approval but not yet approved by the statutory 20 utilities. 21 There would be still further requirements to address 22 as obstructions or unknown services perhaps came to 23 light as work commenced, but I believe it would have 24 been made on all of the known IFC scope and drawings and 25 issued for approval drawings at that time, or at the 172 1 time of the MUDFA rev 6. 2 Q. In short, what this report dated 28 April 2008 seems to 3 be suggesting is that a joint review has been carried 4 out which has confirmed an anticipated increase in -- of 5 10,550 metres of utility diversions. What I'm not clear 6 from your answer is whether the revision -- the 06 MUDFA 7 programme at that time took into account the anticipated 8 increase of just over -- of 10,550 metres of utility 9 diversions or whether that was something that had still 10 to be factored into either that programme or a future 11 programme? 12 A. Without checking the baseline of MUDFA 06 Agreement, 13 I can't confirm. I would have assumed that we would 14 have used all the contemporaneous information available. 15 If this is information that informs MUDFA Rev 7, then it 16 wouldn't be in MUDFA Rev 6. 17 Q. Can I also then, please, go to page 29 of this document 18 to look at another graph. 19 This one we can see is headed "Project Metres 20 Status", and again, if we can go first of all to bottom 21 left-hand corner to see the key, we can see a reference 22 with the blue dashed line to "Revision 6 Planned 23 Cumulative", and below that, in red, is the "Actual 24 Cumulative". 25 If we could then please zoom back out and if we 173 1 could go to halfway along the graph, period 1, "pd 1", 2 just above the word "Period", yes. 3 We can see there that for period 1, 2008/2009, there 4 had planned to be 19,783 metres of works. In fact only 5 12,421 had been actually carried out. 6 I should qualify that. If we can back up, if we 7 zoom back out, look at the end of the red line, it seems 8 to stop about halfway through that period. If we zoom 9 up on the actual red line on the graph, where it ends, 10 I think we can see that stops halfway through the 11 period, so perhaps there are further works to be added 12 to that total. 13 But really the purpose in looking at this graph, as 14 well as seeing the actual against the planned metreage, 15 was to look at the bigger picture. 16 If one can go back to the enlargement we had before 17 above the period, yes, that's perfect. 18 I wonder if we could enlarge another perhaps five 19 columns to the right of that. So we've got P03. If we 20 could go up to P07. 21 We see at the end of period 1 in 2008/2009, the 22 planned metreage was 19,783, and we can see that the 23 total of approximately 40,054 is due to be completed by 24 P07 and 2008/2009. 25 Just to pause, Mr Bell, is each period four weeks or 174 1 one month? 2 A. It's a four-week period. So it's 13 periods in the 3 year. 4 Q. So in short, we can see that between -- from period 02 5 of 2008/2009 through to 07 of 2008/2009, it's 6 anticipated that approximately half of the utility 7 diversion works will be carried out, about 8 20,000 metres? 9 A. Very extensive period, yes. 10 Q. Well, is it -- that's essentially six periods or six 11 times four weeks. If we zoom back out, please, we can 12 see, if we can to the very left-hand side of this graph, 13 the first period, which is P03 and then also the next 14 one, P04 of 2007/2008, by my calculations there are 15 essentially 11 periods between 04 in 2007/2008 through 16 to 01 in 2008/2009, which is where the red tip of the 17 graph stops. So essentially 11 periods to carry out 18 20,000 metres, about half the works, and after that, 19 there's only then six periods for the remaining half; is 20 that a fair way to read the graph? 21 A. In terms of the profile, yes, it is. 22 Q. Now, I think we've also -- so in short, it appears that 23 the work was loaded more towards the back of the 24 programme? 25 A. Certainly in the first two or three months there was 175 1 mobilisation and access requirements to be set up, 2 including roads diversion, et cetera, and there was 3 a staged programme that allowed access at different 4 times throughout the city and in the off-street 5 sections. Therefore, this graph should capture the 6 intended access for each section and then aggregate it 7 into this total. 8 Perhaps a way to think about it also is the gradient 9 of the graph, both the planned and the actual. In the 10 last couple of periods, you see the gradient is starting 11 to achieve the required outputs to meet that volume of 12 programme, albeit it's still sitting at 5,000, 13 6,000 metres below where Rev 6 would have wanted it to 14 be. 15 Q. Is it also correct to say that of the remaining roughly 16 20,000 metres of works that had to be carried out, they 17 were entirely or largely in the on-street sections? 18 A. There was certainly a significant portion of on-street 19 sections. I think there was some elements of 20 off-street, but I think the majority was on-street. 21 Q. Is it correct to say that in general the on-street 22 sections were more difficult than the off-street 23 sections? 24 A. In the centre of town, definitely. 25 Q. So we saw the previous graph in the previous report 176 1 about the delay in issue of the IFC drawings for MUDFA. 2 We now see this graph. Putting the two together, did it 3 give rise to a real concern at the time that there was 4 going to be significant delays to the MUDFA works? 5 A. It was a definite risk that was in everybody's mind, and 6 also we had a series of individual actions for some of 7 the problem areas to try and resolve them. So, for 8 example, dealing with the delay in IFC drawing issues 9 was a particular set of interfaces, including with the 10 SUCs, with -- I think it was Halcrow acting on behalf of 11 PB, with tie. 12 Separately, there was issues around the traffic 13 management arrangements, and we worked closely with the 14 Council to maximise the space that we could take 15 possession of in order to undertake the works, and we 16 also worked with the utilities to have individuals on 17 site to deal with the unexpected finds or unknown 18 services that they weren't able to advise us of in 19 advance, so we could to react to these matters more 20 quickly. 21 All of the above were elements that had caused some 22 of the previous delay, and that we were putting in place 23 to try and ensure any such effect was minimised going 24 forward. 25 Q. I would like, please, to look at your statement, to see 177 1 the next report, at page 62 of your statement. 2 In question 48 it sets out the Construction 3 Director's Report for the meeting of the Utilities 4 sub-committee on 7 May 2008. That noted: 5 "... under Overall Performance to date that a total 6 of 12,421 metres (against a planned 16,051 metres had 7 been undertaken)." 8 It was also noted that: 9 "Under Period Progress ... there was a downturn in 10 output from the previous period, ie 70% 11 achieved ... The cumulative effect on the sections was 12 approximately 7 weeks. The overall effect on the 13 critical path remained at two weeks, "but implementation 14 of revised recovery programme actions required 15 urgently"." 16 "It was noted that 17 elements of the city centre works (the Mound area) 18 would extend into the first quarter of 2009." 19 You have referred to various remedial or mitigation 20 measures having been put in place in relation to the 21 MUDFA works, but at this time, say 7 May 2008, did you 22 have any reliable evidence that these mitigation and 23 remedial measures were being effective? 24 A. We had seen some evidence of it over the previous 25 months, but it wasn't consistent and we were still 178 1 finding some unknown obstructions and issues that 2 required additional or separate work. 3 Q. So how would you have described both the state of the 4 MUDFA works as at May 2008 and also whether you expected 5 that version of the MUDFA programme to be met? 6 A. So the state of the works were progressing but there was 7 still some individual areas, despite having applied 8 mitigations, we hadn't solved all of the problems. 9 We were behind the MUDFA Rev 6 Programme. There 10 were some opportunities to recover some of that, and we 11 were looking at some scenarios with the Infraco 12 programme team as to their priority, locations for 13 access. So if we were delayed via the MUDFA works, that 14 it could be mitigated or minimised, its effect on the 15 Infraco Contract. 16 We also raised matters with the SUCs to try and 17 resolve some of the historical constraints, for example, 18 discussed with British Telecom some accelerated cabling 19 working to recover time associated with that. And they 20 did that work directly, and we paid them accordingly. 21 Q. In short, as at May 2008, do you accept that there had 22 been difficulties and delays with the MUDFA works? 23 A. Yes, I do. 24 Q. Do you also accept that if you had been asked in 25 May 2008 whether difficulties and delays were likely to 179 1 continue, you would have had to have recognised that 2 yes, they were likely to continue? 3 A. There was definitely going to be some impacts, yes. 4 Q. Could I then, please, look to what was said in the close 5 report about these matters. This is CEC01338853. The 6 Close Report, was this another report which had a number 7 of authors? 8 A. Yes. 9 Q. Did you contribute to it at all? 10 A. Yes, I would have. 11 Q. Presumably as Tram Project Director, you would have read 12 the final version to satisfy yourself it was correct? 13 A. I did read the final version. 14 Q. If we then please go to page 5. It's simply to note, 15 under "Summary of Programme - Infraco and Tramco", we can 16 see under critical milestones, "Commence on Street Works 17 August 2008". Do you see that? 18 A. Yes. 19 Q. And also "Commence Princes Street Blockade 20 January 2009"? 21 A. Yes. 22 Q. Now please go to page 30. Under 9.4, "MUDFA including 23 interface with INFRACO programme", we see: 24 "The MUDFA is currently being progressed to 25 programme Revision 06 as agreed in November 2007." 180 1 The next paragraph, last sentence, states: 2 "Specific elements of diversions have been 3 transferred to INFRACO where it is required by 4 construction sequencing for the final utilities works." 5 The next paragraph: 6 "It is expected that, despite detailed subdivision 7 of works to facilitate BT cabling and commissioning, 8 there will remain some overlapping of work sections as 9 INFRACO commences. It is likely to be restricted to 10 section 1C and 1B and can be managed with INFRACO, BT, 11 AMIS and tie." 12 Then the last paragraph: 13 "Overall progress on the utilities works has been 14 good in terms of adherence to budget ... and to 15 programme." 16 Do you consider that fully and accurately conveyed 17 what had been happening with the MUDFA works? 18 A. I think that there could have been more explanation in 19 this report around the elements that were exhaustively 20 discussed week by week -- or month by month at the Tram 21 Project Board. So we covered progress issues, what we 22 were doing about them at that time, but I think it would 23 be -- would probably have been helpful to further 24 emphasise that in that paragraph. I do think it clearly 25 acknowledges there's going to be some overlapping 181 1 sections of work. We expect to be able to manage it, 2 but it's recognised there. 3 Q. What I think is not included, and correct me if I'm 4 wrong, is that there's no reference to the difficulties 5 and delays that had been experienced in producing the 6 utilities design. 7 A. I don't see that explicitly in there. 8 Q. There's no reference to the difficulties and delays that 9 had been experienced with the statutory utility 10 undertakers? 11 A. I think the reference that we can work with BT in some 12 of these particular areas had been previously 13 acknowledged, some of the challenges, but we don't draw 14 it out as a residual problem at this point. 15 Q. There's no reference to the difficulties or delays that 16 had been experienced in the actual utility construction 17 works themselves? 18 A. I don't think in this section of this report it's 19 explicit. 20 Q. There's no reference to the risk or indeed likelihood 21 that MUDFA Programme Revision 06 would not be met? 22 A. I think it's clear that we anticipate some overlap and 23 some works are transferred. It doesn't explicitly 24 say: MUDFA Rev 6 will not be able to be met in here. So 25 I would agree with that. 182 1 Q. I would like, please, to go to another document around 2 this time. It's CEC01338847. This is headed "FINANCIAL 3 CLOSE PROCESS AND RECORD OF RECENT EVENTS". We don't 4 have to go to it, but at page 11, it's stated to be 5 a tie document dated 12 May 2008. Was this again 6 compiled by joint authors or by only one person or what? 7 A. Again, I think this was a consolidation with input from 8 several. 9 Q. Look at the final paragraph on the first page, please, 10 which states: 11 "Works on utility diversion works continue on time 12 and to budget. Works in Leith Walk are now coming to 13 a close and earlier than planned completion is 14 anticipated for the works in Shandwick Place. The 15 construction programme for the tram system remains as 16 previously reported ..." 17 Now, do you consider what is set out here in 18 relation to the utility diversion works as correct? 19 A. I'm sure it's factually correct around the Leith Walk 20 work completing and the Shandwick Place forecast at that 21 time. I do think that in relation to circumstances that 22 we're reviewing just now, there could have been some 23 additional comment around the risk of additional 24 activities required for MUDFA. Excuse me. 25 CHAIR OF THE INQUIRY: What about the first sentence? Was 183 1 that accurate? 2 A. It was on budget. It wasn't fully on time to the 3 Revision 6 Programme, my Lord. 4 CHAIR OF THE INQUIRY: So the statement wasn't accurate? 5 A. It wasn't fully accurate, no. 6 MR MACKENZIE: Then revert back to your statement, please. 7 At page 84, in question 66 at the bottom of the page, we 8 can read that for ourselves. It relates to emails in 9 June and July 2008. 10 Over the page, please, if I may. In sub-question 1, 11 and we've dealt with the first bit of it, you say: 12 "Yes, the pricing programme for the Infraco works 13 were based on MUDFA Revision 06." 14 It's the next paragraph where you say: 15 "We came to the conclusion during June 2008 that we 16 were going to have to refresh and revise the programme 17 to a Revision 07." 18 I just wonder whether that is in fact correct, and 19 whether rather you either came to that conclusion or 20 ought to have come to that conclusion before financial 21 close? 22 A. We were working very hard on ensuring that we could 23 deliver the MUDFA Revision 6 Programme. A lot of 24 actions were being undertaken during April and May 2008, 25 and into June 2008. My recollection is that during 184 1 June 2008, it was agreed that we needed to document 2 a revised MUDFA programme, and that was likely to have 3 an impact then on some of the access windows for the 4 Infraco, which we would try to mitigate. 5 Q. Because of all the -- having regard to all the documents 6 we've looked at in the last roughly half hour, Mr Bell, 7 I do suggest that it ought to have been obvious to you 8 and others in tie before financial close in May 2008 9 that it was likely you were going to have to refresh and 10 revise the MUDFA programme to a Revision 07. 11 A. The programme mechanic and refreshing of that would 12 happen when we were able to agree that. 13 The fundamental point here was addressing the 14 issues, and at the time of -- in the run-up to financial 15 close, there were clear plans to seek to achieve it with 16 commitment both from the designers, from the SUCs and 17 from tie and its contractors. So they were striving to 18 do that at that time, and my view at that time was that 19 it was possible to recover that. That was then 20 reflected on with the additional working information 21 we'd done after that in June, and we revised the 22 programme to a Revision 7 with Carillion and agreed it. 23 Q. You see, we have on the one hand what I suggest were 24 known and chronic difficulties and delays with the MUDFA 25 works, because of things such as unforeseen and 185 1 unexpected underground conditions, because of delays in 2 the utility design, because of delays in the utility 3 companies responding, and because of known delays in the 4 number of metres of diversions carried out. So these 5 are all known things. Against that, you have the hope 6 that mitigation and remediation efforts will be 7 successful. 8 Is that a fair way to put it so far? 9 A. We had the mitigated plans and we'd seen some evidence 10 of them improving. But it wasn't consistent, and we 11 intended to undertake that with further energy, vigour, 12 and seek to ensure that that was able to be delivered. 13 That was our clear view at the time. 14 Q. When were these mitigation plans first put in place? 15 A. I think there were a number of them that commenced 16 from -- particularly in liaison with the SUCs from late 17 2007 and I think we saw some initial improvement from 18 that period in time. 19 The extract you showed me from April was 20 Graeme Barclay's acknowledgment, I think, that having 21 certain items improved, they've slipped back again, or 22 they've not shown all the improvement that we need. 23 Q. You see, in terms of the remedial plans, surely the 24 position is this: that either they had been in place for 25 some time and weren't working, or they had only recently 186 1 been in place and were untested? 2 A. There were some plans that had been in place for some 3 time and had been working. Some had been in place for 4 some time and hadn't had all the effects that we 5 required, and there were some additional activities that 6 the teams, including tie, including the SUCs and 7 Carillion, also were implementing in effect, the third, 8 fourth and fifth month of 2008, and that was starting to 9 show effect, but it hadn't achieved the full outputs 10 that we desired under the programme. 11 Q. I would like to move on to a final document in relation 12 to the MUDFA works. It is CEC01140099. We can see this 13 is an email from Graham Christie of Carillion, dated 14 22 October 2008 to yourself, Mr Bell. We can see it 15 starts off by saying: 16 "As briefly discussed yesterday ... I list below the 17 major items which are currently detrimentally impacting 18 or likely to detrimentally impact the MUDFA completion 19 programme ..." 20 We see a reference to TM. Is that traffic 21 management? 22 A. Traffic management, yes. 23 Q. Constraints. We see then a reference to: 24 "The design is incomplete." 25 About the second sub-bullet point: 187 1 "Many IFC drawings have yet to be issued ..." 2 Then the next bullet point, the main bullet point: 3 "There are many existing utilities which are 4 unforeseen, congested ..." 5 The next main bullet point: 6 "Although there has been a vast reduction in the 7 number of open TQs over the last two weeks ..." 8 Is that technical queries? 9 A. It is, yes. 10 Q. "... there remain many TQs to be answered." 11 Over the page, please. Next main bullet point: 12 "As a consequence of the above, there is 13 insufficient work available on site to effectively and 14 efficiently deploy our current resource level." 15 Then after that a reference to Christmas embargo 16 limits. Then: 17 "The latest review of progress against programme 18 revision 7.09 as of 14 October 2009 gives a forecast end 19 date of November 2009 ... this date may slip further 20 depending on the extent of permitted TM combinations 21 going forward." 22 So in short we see from this email that within about 23 five months of contract close, it is now being predicted 24 that there would be a slippage of at least one year in 25 the completion of the MUDFA works; is that correct? 188 1 A. I have seen evidence of significant slippage, yes, and 2 that was predicted as Steve Beattie has outlined. 3 Excuse me. 4 Q. I think the question was in short that from this email 5 within about five months of contract close, it has now 6 been predicted that there would be a slippage of at 7 least one year in the completion of the MUDFA works. 8 A. That's correct. 9 Q. Did that come as a surprise to you? 10 A. The MUDFA reports had continuing during the summer of 11 2008. Some issues had been improved. Others had not 12 been solved, and there were certainly some key access 13 constraints that we discussed with Carillion and in 14 going through the revised programme, that was the 15 forecast for the last element of utilities work that was 16 intended to be undertaken, and that had moved out from 17 the Mound in June 2009, I believe, to November 2009. 18 Now, if you recall, in the previous discussions, 19 they'd proposed works to be completed by December 2008, 20 excepting the Mound related diversions. 21 CHAIR OF THE INQUIRY: I think the question was: did it come 22 as a surprise to you? 23 A. No. Not -- because in the preceding months these issues 24 had been discussed with us on a four-weekly basis, and 25 it had been flagged up as we tried to solve some of 189 1 these problems, there were additional ones emerging. 2 MR MACKENZIE: If you can go back to the first page, please, 3 and in relation to the main bullet points, I just 4 wonder, could it really be said that any of these main 5 bullet points were unforeseeable before contract close? 6 So the first one, traffic management constraints, was 7 that known just before contract close? 8 A. There were a number of traffic management constraints, 9 but until the actual detailed proposals were put 10 forward, the exact combinations weren't always known. 11 But some of them would have been. For example, 12 Mound, Princes Street and Lothian Road would have been 13 known, and that was one of the reasons why we intended 14 to undertake the Mound utility diversions at the same 15 time there was access for the Infraco works in the 16 summer of 2009. 17 Q. The next bullet point, the design is incomplete. That 18 must have been foreseeable at contract close? 19 A. Yes, and as we have discussed this afternoon, there were 20 a number of initiatives to resolve that co-ordination of 21 design with the SUCs and the designer. 22 Q. The next main bullet point, I think on any view that 23 must have been foreseeable at contract close; is that 24 right? 25 A. In terms of unforeseen congested issues? 190 1 Q. Yes. 2 A. Yes, and we, I think, have made that clear in the 3 contingencies and allowances that we'd continued to make 4 within MUDFA. 5 Q. Looking at matters a bit more broadly, Mr Bell, I would 6 ask you the question why did it take so long to complete 7 the MUDFA works after financial close? 8 A. For a variety of reasons, some of which are related to 9 in this -- particular extract and document. 10 There continued to be unknown and unexpected 11 diversions and obstructions to deal with on the ground. 12 Design was later than expected and in some cases we 13 instructed surveys of that work rather than waiting for 14 SUCs. 15 There had been some inconsistent performance from 16 the delivery contractors. Again, that was -- work was 17 done to address that. And in relation to the access 18 windows, there were traffic management and embargos when 19 we couldn't do work within the annual programme, and 20 that restricted our ability, if we had been delayed in 21 one window, to continue. Some things we had to come 22 back in two or three months' time. 23 Q. Now, I think we have either heard evidence or will hear 24 evidence that at some point tie decided to release 25 Carillion from the MUDFA contract and reprocure some of 191 1 the MUDFA works; is that correct? 2 A. Yes, there was work at Edinburgh Airport and in the 3 Forth Ports Estate primarily. 4 Q. Now, I think we have also heard evidence that certain 5 utility apparatus was left in place by the MUDFA 6 Contractor. Do you recollect that issue? 7 A. I think there were further conflicts identified when 8 Infraco came to site in certain locations. Yes, there 9 were. 10 Q. I think we heard evidence that -- perhaps from 11 Jason Chandler, I think, that some of these MUDFA -- 12 utility apparatus was deliberately left in place. It 13 wasn't because a solution couldn't be found, but as 14 I understand it, some of this apparatus was deliberately 15 left in place, and it was known that it would be in the 16 way of the swept path, if I can put it that way. Does 17 that ring a bell? 18 A. I think there were certain locations where we were clear 19 that the right solution was for the Infraco to undertake 20 the utility diversion, for example at Picardy Place, or 21 where there was likely to be a construction phasing 22 solution associated with the permanent works 23 construction, and it was more efficient to do that at 24 that time. 25 So an example that springs to mind would be in 192 1 Russell Road retaining walls, there were certain 2 elements of utility works that needed to be done in 3 conjunction with the Infraco's works, and that was 4 agreed that that would be the best way to deal with 5 that, and the appropriate change was made for that. 6 Q. I think we've also been told that there are about 1,200 7 known utility conflicts on Leith Walk. Essentially the 8 unbuilt section from York Place down to Newhaven. Were 9 you aware of that? 10 A. An extensive amount of work was undertaken at Leith. 11 There were some residual works to be done in the tie-ins 12 to the pavements that was, I think, undertaken around 13 about 2011. I don't know if there are still some 14 residual items to be addressed as part of that, but 15 there was an extensive metreage of diversions; 16 section 1b in the document is the area that covers Leith 17 Walk. And we did a significant amount. I'm not aware 18 of a number of 1,200 conflicts remaining. 19 CHAIR OF THE INQUIRY: I think it's in the whole section. 20 From York Place to Newhaven. 21 A. So the remainder of the original route. 22 MR MACKENZIE: When you were still employed by tie, were you 23 aware that there remained outstanding utility conflicts 24 in the York Place/Newhaven section? 25 A. Just beyond York Place, yes, at Picardy Place, we knew 193 1 that we had a number of conflicts to resolve there as 2 the construction was required to tie into York Place. 3 And also at Broughton Street, there was a significant 4 set of diversions to be undertaken. I certainly believe 5 the vast majority of the diversions that we knew about 6 were complete from the section from the top of Leith 7 Walk down through Constitution Street and towards 8 Newhaven. 9 Q. Finally, in relation to MUDFA, I think there was an exit 10 agreement entered into between tie and Carillion; is 11 that correct? 12 A. Yes. 13 Q. I think under the terms of that Agreement, Carillion no 14 longer required to resolve any outstanding conflicts; is 15 that correct? 16 A. We agreed the scope of work that they were going to 17 finish, which they did, and the Settlement Agreement was 18 for full and final settlement of that scope of work. 19 I think that was agreed in 2010 finally. 20 Q. I'm not asking you to give an opinion as a lawyer, but 21 in your role as Tram Project Director, was it your 22 understanding at that time that if Carillion completed 23 the outstanding work as specified in the Agreement or 24 Agreements, then that was an end of their obligations? 25 A. In general terms, yes. 194 1 Q. And that if other outstanding utility conflicts on, for 2 example, Leith Walk section were found, that wouldn't be 3 their responsibility to divert? 4 A. I think it would be best to re-read the Settlement 5 Agreement for clarity on that. However, my expectation 6 was that they had no further work to come back to 7 undertake. 8 MR MACKENZIE: Thank you. 9 My Lord, that may be a suitable point at which to 10 stop. I have completed MUDFA. I've got perhaps another 11 hour, hour and a half tomorrow, if I may. 12 CHAIR OF THE INQUIRY: I understand you are available to 13 come back. 14 A. I can make arrangements to do that. 15 CHAIR OF THE INQUIRY: We will adjourn until 9.30. 16 Ms Fraser will speak to you about the detailed 17 arrangements. 18 We will adjourn until 9.30. 19 (4.32 pm) 20 (The hearing adjourned until Wednesday, 25 October 2017 at 21 9.30 am) 22 23 24 25 195 1 INDEX 2 PAGE 3 MR STEVEN BELL (affirmed) ............................1 4 5 Examination by MR MACKENZIE ...................1 6 196 1 Wednesday, 25 October 2017 2 (9.30 am) 3 MR STEVEN BELL (continued) 4 CHAIR OF THE INQUIRY: Good morning. You're still under 5 oath, Mr Bell. 6 Examination by MR MACKENZIE (continued) 7 MR MACKENZIE: Good morning. 8 A. Good morning. 9 Q. I would like to move on the question of the risk 10 allowance at contract close. Is that something you were 11 involved in or had any responsibilities for? 12 A. Directly we reviewed -- I reviewed the risk allowance 13 and one of my team, Susan Clark, dealt with the risk 14 management on a day-to-day basis using her risk manager. 15 That was Mr Mark Hamill. 16 Q. Did Susan Clark deal with that in terms of the procedure 17 of that or the substance of it? 18 A. She dealt with the process and she contributed to the 19 key elements, particularly on scheduling programme. 20 Q. Would it be fair to say that as Tram Project Director, 21 you would have required to have satisfied yourself at 22 contract close that the risk allowance was adequate? 23 A. Yes. I did review the risk allowance and the headings 24 that the items were identified against, in conjunction 25 with my colleagues as well. 1 1 Q. When exactly did that take place? 2 A. We reviewed it on a number of occasions between January 3 and May 2008, and certainly in the run-up to contract 4 close in May 2008. 5 Q. Who else was involved in that review exercise? 6 A. I would recall Mark Hamill as the Risk Manager, and 7 Susan certainly contributed from a programme 8 perspective. Dennis Murray, my Commercial Director, 9 myself, and Stewart McGarrity or his deputy, 10 Gregor Roberts, I'm pretty sure were also involved with 11 the finance leads. 12 Q. From what you have described, that sounds like a fairly 13 regular process of reviewing the risk allowance; is that 14 correct? 15 A. We dealt with it on a monthly or bimonthly basis, but we 16 particularly looked at matters when there was more 17 significant potential change during that contract close 18 period. So if there was a suggestion that a price 19 movement or a particular term was intended to be 20 amended, that was usually considered at that time, not 21 necessarily by all of those people, but certainly by the 22 relevant ones. 23 Q. So between, say, January and contract close in May, how 24 many of these reviews took place, roughly? 25 A. I would -- I would -- I certainly recall undertaking one 2 1 during March 2008, and we did undertake a review, 2 and I certainly reviewed the final version of that in 3 May 2008 with input from some of my colleagues. 4 Q. So you talk about a review in March 2008, and then you 5 reviewed the final version in May 2008. Did any further 6 reviews take place between the review in March and the 7 review in May? 8 A. There may well have been detailed risk assessment 9 sessions that Mark ran individually with some of the 10 project managers or individuals in the lead areas. That 11 was an ongoing process that he may have described to you 12 or to the Inquiry. And that continued throughout the 13 duration of my time at tie as a regular review process. 14 Q. You're quite sure you carried out a review, the final 15 version in May 2008? 16 A. I reviewed the consolidated numbers that were proposed 17 for risk in total in May 2008, yes. 18 Q. Just for the avoidance of doubt, did any of your 19 colleagues take part in that May 2008 review? 20 A. I'm sure they reviewed it. I can only recall myself 21 sitting and reviewing the numbers and the Schedule. I'm 22 sure they would have reviewed it in addition. 23 Q. Do you recall whether you suggested or instructed any 24 changes as a result of your review in May 2008? 25 A. I recall that we had made some amendments in -- I can't 3 1 remember if it was late April or early May 2008, 2 associated with roads reconstructions. And also to 3 finalise the -- to finalise the Project Control Budget. 4 However, that may have been -- that particular session 5 may have been after contract close. 6 Q. When you talked about the review you carried out in 7 May 2008, just to be quite clear, you're referring to 8 a review before contract close? 9 A. In relation to the likes of roads reconstruction items, 10 yes, I did, yes, reviewed that. 11 Q. I think you -- 12 CHAIR OF THE INQUIRY: Was it restricted to roads? 13 A. No. 14 CHAIR OF THE INQUIRY: It was a general review of risk? 15 A. Yes, the risk elements, including the non-Infraco 16 elements. So it included matters for MUDFA, for 17 example, and matters that were reserved for the Council. 18 Q. We also looked yesterday at Schedule 4 of the Infraco 19 contract. I think there were about 43 Pricing 20 Assumptions set out there, any one of which had the 21 potential to result in a Notified Departure, and I think 22 you explained yesterday that you did expect certain 23 Notified Departures after contract close. 24 I think you also yesterday explained that you had 25 reviewed the risk allowance in light of the expected or 4 1 anticipated Notified Departures. Is that correct? 2 A. Particularly in relation to Schedule, yes, but also 3 against all of the Pricing Assumption headings, we 4 reviewed those items, yes. 5 Q. So just to be quite clear, are you saying then that you 6 went through the risk allowance with reference to the 7 Pricing Assumptions in Schedule 4 to check that the risk 8 allowance was adequate? 9 A. I reviewed the Pricing Assumptions and the items 10 I considered were -- had the potential to have 11 a Notified Departure impact, and satisfied myself that 12 I considered the total risk allowance was adequate. 13 Q. That exercise you just described, when did that take 14 place? 15 A. I would suggest probably in the first or second week of 16 May. I would have looked at certain of the individual 17 elements before that as particular elements were 18 discussed at previous agreements. So I think when we 19 discussed some of the Schedule Part 4 elements in 20 March 2008, and talked about things like the V26 to V28 21 SDS design change, or a specific where we did some work 22 on roads reconstruction options, we certainly -- and the 23 commercial team did some analysis of that, and I think 24 we incorporated that between May and April -- sorry, 25 between March and April, and then certainly there was 5 1 an entry in there, as I recall, for the May 2008 2 conclusion. 3 Q. Just again to be quite clear, when you said in the first 4 or second week of May, you have reviewed the Pricing 5 Assumptions against the risk allowance, did that result 6 in any changes to the risk allowance? 7 A. In -- in total terms, no. I think we re-allocated some 8 of the risks and we certainly formalised that in 9 a session with Mark and others in late May 2008. 10 Q. I'm interested in before contract close. So when you 11 carried out the review in the first or second week of 12 May, did that result in any changes to the risk 13 allowance? 14 A. I don't believe it changed the totals, we understood 15 where the individual entry areas were intended to be 16 adjusted, and I don't think we reran the quantified risk 17 analysis at that point. 18 Q. Why not? 19 A. We -- I think we'd considered that the adjustments that 20 were being made were appropriate and discrete to the 21 entries, and from recollection, the overall adjustment 22 was circa GBP1 million, GBP1.5 million. 23 Q. I would like now, please, to go to look at the actual 24 figure of the risk allowance at contract close and try 25 and explore how that was made up. I think the best 6 1 starting point is the Close Report. If we can go to 2 that, please, it's CEC01338853. If we can go to page 5, 3 please. We can see in the middle of the page, we can 4 perhaps blow up "Risk Allowance at Financial Close", 5 32.3 million. So that's the figure to bear in mind just 6 now. 7 We see underneath that there that there has been 8 a further round of negotiations, and it then explains: 9 "The detail behind the final position reached has 10 been documented separately for CEC." 11 I will come back to that. I think there was one 12 final adjustment to this figure, but just to take it 13 step by step, bear in mind the GBP32.3 million. We can 14 then put that to one side. 15 I would like then, please, to go to a document, 16 CEC01245223. If we look at the second half of the 17 document, we will see an email from Stewart McGarrity of 18 15 April 2008 to Alan Coyle, and others in the Council. 19 He attaches two files, firstly: 20 "The cost analysis spreadsheet ... which I have 21 updated to reflect the very last knockings on Infraco 22 price but which does not change the budget." 23 If we can go to that spreadsheet, please, it's 24 CEC01245225. 25 If we can scroll down this page, please, to I think 7 1 line 313. 2 Sorry, 313. At the very bottom, you'll find a blue 3 box. That's it. We can see it's headed "Risk Allowance 4 Analysis". If we go to the bottom right-hand corner of 5 this box, we can see a figure, GBP32.3 million, which 6 seems to correlate with the GBP32.3 million figure we 7 saw in the Close Report. 8 Just sticking with the blue box, I think we have 9 looked at this before at the hearings, but in short, 10 I think the main headings of the various risk topics are 11 set out together with the sum allowed for them in the 12 risk allowance. 13 I think there's one mistake we discovered in this 14 table. Do you see, Mr Bell, at the top left-hand 15 corner, the reference to Infraco/Tramco Procurement? 16 A. I do. 17 Q. There's a figure given there for 6.8 million, but 18 I think what has happened, that should be zero because 19 this is the risk allowance at financial close. So where 20 we see in the right-hand column a zero, I think it has 21 been explained to us that that zero should be at the top 22 of that column and all the figures should drop down one. 23 So I think there should read -- 24 A. So the Infraco/Tramco Delivery item would be 6.8 million 25 and so on and so forth; is that -- 8 1 Q. Exactly, Mr Bell. Does that accord with your 2 recollection of matters? 3 A. It does, and an example of a couple of the areas that 4 were added into this over that period are shown at the 5 bottom, non-delivery of VE items, including in the 6 Infraco price, GBP2 million. And extent of road 7 reinstatement, a GBP2 million risk were examples of some 8 of the adjustments that had been made during 9 March/April. 10 Q. So am I right in thinking that where we see QRA total of 11 GBP27.937 million, is that the figure that's been 12 generated by the computer software? 13 A. The analysis based on the detailed individual line 14 entries, yes, and then there's been two additional 15 specific entries underneath that, one in relation to the 16 risk of non-delivery of value engineering that's 17 incorporated in the price, and one in relation to the -- 18 primarily one of the Pricing Assumptions associated with 19 road reinstatement. 20 Q. Yes. So in short, as I understand it, and tell me if 21 I'm wrong, the QRA total of 27.937 million has been 22 generated by the computer software, the quantified risk 23 allowance software, but then manually a human being or 24 beings have come to a judgment that there should be 25 additional sums added in relation to the non-delivery of 9 1 value engineering, the risk of that, and also the risk 2 relating to road reinstatement, and also unspecified 3 risks, but in short the GBP2 million plus the 4 GBP2 million plus the 409,000, et cetera, they have been 5 added manually; is that correct? 6 A. Yes, that's correct. 7 Q. Just again to deal with this, the extent of road 8 reinstatement, does that relate to the issue you told us 9 about yesterday in terms of the extent to which the 10 consortium were to reinstate the road and -- 11 A. And assumption around planning back and tying into 12 existing road structures, yes. 13 Q. To what extent, if at all, does that risk allowance 14 figure of 2 million deal with the risk that Parsons 15 might be right, that in fact there would require to be 16 a full depth excavation of the road, and a reinforced 17 concrete base for the track would require to be put in? 18 A. I think there may be an element of it, but it wasn't 19 intended primarily for that. 20 Q. Thank you. Just to be quite clear, do you know when 21 these additional sums of 2 million plus 2 million plus 22 409,000-odd were added in? 23 A. I expect that happened during either March or 24 April 2008. I believe you'd said this related to 25 a spreadsheet that Stewart McGarrity sent on 15 April. 10 1 So in that time window, from early March through to 2 mid-April, as a number of these matters were being 3 discussed in finalising Schedule Part 4. 4 Q. Why were these added items added in manually rather than 5 being identified as a risk and run through the computer 6 software QRA process? 7 A. It was a specific piece of work that the commercial team 8 looked at, based on the Infraco Proposals and drawings, 9 and did some quantity surveying work to size some of the 10 potential difference between Infraco Proposals and what 11 might be a more significant road reinstatement. So we 12 based that on some calculations from first principles 13 and drawings provided. 14 So that was that particular element. 15 On the Infraco price and the risk of non-delivery of 16 VE, I think it was an assessment made at that time that 17 not all of the value engineering elements may be fully 18 realised. Some of them have conditions around them, and 19 therefore it was considered appropriate to make an 20 element of allowance for that. 21 Q. Before leaving this, I would like you just to remember 22 the QRA total of GBP27.937 million. We will keep that 23 figure in our head, please, and go to a different tab. 24 The P80 risk allocation 1a plus 1b tab, please. 25 Now, do we see towards the top right-hand corner in 11 1 yellow, phase 1a allocation GBP27.937 million? 2 A. Yes. 3 Q. So I think what this tab does is give a breakdown of how 4 that sum has been made up; is that correct? 5 A. Yes, that is a carry forward number. 6 Q. Can we also see at the top left-hand corner of this 7 spreadsheet, this is in relation to the current period 8 end 1 March 2008? 9 A. Yes. 10 Q. So on the face of it, we saw that this was sent with an 11 email dated 15 April. So on the face of it, the QRA 12 hasn't been updated since the period ending 13 1 March 2008? 14 A. That was -- I think that was the basis that was used, 15 and then there was the additional manual adjustments 16 that you've described. 17 Q. Can we also please go to now another document, 18 CEC01506052. 19 We can see from the top, this is an email from Mark 20 Hamill dated 3 March 2008 to Duncan Fraser and others in 21 the Council. In this email Mr Hamill says that: 22 "Stewart asked me to send on the attached document. 23 Please note that this document is strictly work in 24 progress at this moment and should be regarded as being 25 for information only." 12 1 Now, I'll give the attachment in passing for the 2 record; it's CEC01506053. Without going to it, but 3 I have checked, Mr Bell, and the QRA attached to this 4 email of 3 March is exactly the same as the QRA we just 5 looked at that came to the GBP27 million-odd. 6 So in short, what appears to have happened is that 7 at least the QRA aspect of the risk allowance had 8 remained unchanged since 3 March 2008, when Mr Hamill 9 sent it to tie, saying it was strictly a work in 10 progress and should be regarded as information only; is 11 that correct? 12 A. Certainly my -- my reading of what you have presented 13 there looks correct, sir, yes. Yes, it looks correct. 14 I would perhaps amplify that you've seen some additional 15 entries included in a later version, but they're not 16 embedded within the QRA. 17 Q. We will come back to that, but just to be absolutely 18 clear, is it correct that the QRA aspect of the risk 19 allowance, which came to GBP27.937 million, had remained 20 unchanged since this version sent on 3 March 2008? 21 A. Yes. 22 Q. So does it follow -- 23 CHAIR OF THE INQUIRY: Sorry, I understood that the Schedule 24 that we looked at was based on a run of the programme on 25 1 March. So that was the latest -- looking at that 13 1 document at any rate, that was when it was run, was it? 2 A. Yes, I am sorry. I thought that's what Counsel to the 3 Inquiry had asked. 4 CHAIR OF THE INQUIRY: I'm just trying to get it clear in my 5 own mind. 6 So in fact what Mr Hamill is probably sending is 7 based upon the run of 1 March? 8 A. Yes, a week before this email, I would think. 9 CHAIR OF THE INQUIRY: Or even two days before. 10 A. Sorry. 11 MR MACKENZIE: Yes, thank you, my Lord, for clarifying that. 12 Again, just so there's no doubt at all, Mr Bell, as 13 the Chairman says, essentially the QRA part of the risk 14 allowance at financial close of GBP27.937 million was 15 based on a run of the QRA programme on or about 16 1 March 2008. 17 A. Yes. 18 Q. So does that mean that the QRA part of the risk 19 allowance did not reflect any changes that may have 20 occurred in the risk profile between 1 March and 21 financial close? 22 A. It hadn't been re-run at that point, and there hadn't 23 been any re-allocation of items within it. So it 24 wouldn't have been in -- it would have reflected the 25 base information included. 14 1 Q. So just to repeat the question, does that mean that the 2 QRA part of the risk allowance did not reflect any 3 changes that may have occurred in the risk profile 4 between 1 March and financial close? 5 A. Generally correct for the QRA portion, yes. Yes. 6 Q. You say generally correct. It must be correct. 7 A. Yes, for the QRA portion, sorry, yes. 8 Q. I would also, please, like to move on to another 9 document now, to look at the one change that I think did 10 occur to the risk allowance at financial close. 11 It's another document, please. It is CEC01338847. 12 I think we've looked at this yesterday. We can see from 13 the top, it's "FINANCIAL CLOSE PROCESS AND RECORD OF 14 RECENT EVENTS. 15 If we go, please, to page 6. I'm going to 16 paraphrase this page and then let you read it for 17 yourself, but I think in short there was a change in the 18 risk allowance to reflect the Kingdom Agreement we 19 looked at yesterday. So I'll let you just take a couple 20 of minutes to read the page yourself. Perhaps we can 21 blow it up a little, the text. Thank you. (Pause) 22 So I think the headline figure for us is three lines 23 from the bottom, where we see the risk contingency is 24 GBP31.2 million. So I take it that was the final risk 25 allowance at contract close? 15 1 A. It was, yes. 2 Q. So it's changed just a little from the figure of 3 32.3 million we saw in the Close Report down to 4 GBP31.2 million, and I think we can see from the text in 5 that paragraph that that came about by the risk 6 allowance being reduced by GBP1.8 million on the one 7 hand, but on the other hand being increased by 8 GBP1 million, resulting in a net overall reduction, 9 I think, of GBP800,000; is that correct? 10 A. Yes. 11 Q. Are you able to briefly explain the thinking or 12 reasoning behind, on the one hand, the figure reducing 13 by 1.8 million and on the other hand increasing by 14 GBP1 million? 15 A. There were some -- I think it's mentioned at the top of 16 the page. There were some explicit items that the 17 agreement capped under the contract. So there was 18 a GBP2 million allowance for roads reinstatement in our 19 original risk allowance that was capped in the final 20 agreement at 1.5. Therefore, we were able to remove the 21 GBP0.5 million or make that element of the adjustment. 22 That was an explicit item. 23 There was adjustments to the Infraco budget in 24 consequence, and we reviewed at the time the overall 25 elements associated with the completion of the novation 16 1 and the risk activities on schedule, and concluded in 2 overview that a net adjustment was merited in total. 3 Q. Thank you. Now, the net reduction was GBP800,000. 4 I think when one deducts GBP800,000 from the previous 5 figure of GBP32.3 million, one arrives at 6 GBP31.5 million. It's hard, I think, to reconcile that 7 31.5 million with the figure we see in the report of 8 31.2 million. 9 It sounds as though some final reconciliation was 10 required; is that correct? 11 A. Yes, I think it would have been some of the 12 non-attributed contingency item, but yes, that needed to 13 be reconciled to a final control budget. 14 Q. Could I then please put that document to one side and go 15 on to another document. It is CEC01288043. We can see 16 this is an email from Mark Hamill. It's after contract 17 close, 27 May 2008. Subject "Private - QRA at Financial 18 Close". Why was it private? 19 A. I don't know. 20 Q. We can then see it is sent to yourself, Mr McGarrity, 21 Susan Clark and Dennis Murray. 22 Sensitivity: confidential. Why was it confidential? 23 A. I don't know why Mark marked it in that way. 24 Q. Mr Hamill then says: 25 "Please see attached spreadsheet which I have 17 1 updated following our meeting last week." 2 I'll pause to give the reference for the record 3 there, going through the spreadsheet, I think it's 4 CEC01288043. 5 The reference by Mr Hamill to "our meeting last 6 week", were you at that meeting? 7 A. I'm sure I would have been. He wouldn't have -- sent it 8 to me on that basis. I recall reviewing this item for 9 the project control budget in late May. So I'm sure 10 that would be the meeting Mark refers to. 11 Q. So what was the purpose of the meeting and what was 12 discussed and what was the outcome? 13 A. As I recall the purpose of the meeting was to ensure 14 that the up-to-date project control budget, including 15 the risk elements, accurately reflected the final 16 financial close numbers that you alluded to earlier, and 17 that would enable each of the project managers within 18 our organisation to be allocated the appropriate area of 19 budget to manage to a conclusion, and then to identify 20 if there were any change control items to be raised from 21 that throughout the duration of the programme. 22 Q. Thank you. I'll read on: 23 "As agreed, Risk ID 343 ..." 24 I think in the QRA spreadsheet that's referred to as 25 general programme delay; does that sound right? 18 1 A. It does sound right, yes. 2 Q. "... which allows for delays has been reduced by 3 GBP1.3 million which means we now have GBP5.187 million 4 against this risk and, accordingly, the overall risk 5 allocation has reduced by GBP1.3 million to 6 GBP26.637 million. 7 "One thing which we all need to be aware of is that 8 it is not possible to reduce the value of one risk in 9 the QRA without affecting all the others. This is 10 because the P80 allocation is driven by the total mean 11 sum. Therefore, in order to get round this problem, 12 I have basically 'pockled' the spreadsheet and hard- 13 entered some values. This solves the problem and helps 14 us get the final result past CEC as I doubt they will 15 notice what I have done." 16 What do you understand Mr Hamill to mean by the use 17 of the word "pockled"? 18 A. He's made a manual adjustment to achieve the final 19 answer reconciled with the 1.3 million adjustment, 20 because the software wouldn't assure that it landed at 21 exactly the same number. 22 Q. Pockle, I think, means cheating or dishonesty, doesn't 23 it? 24 A. I believe that could be a dictionary definition. I'm 25 absolutely sure that's not the intent behind Mark's use 19 1 of that language. 2 Q. Put the word "pockle" to one side. That is exactly what 3 was happening here, wasn't it? A figure was being 4 manually inserted in the QRA spreadsheet to give the 5 appearance to the Council that that figure was included 6 in the programme, the figures produced by the computer 7 software? 8 A. I don't think that was the intention at all. It was to 9 confirm that the entire risk register matched back to 10 the final control budget based on the summaries that we 11 had previously agreed. 12 Q. Well, Mr Hamill refers to "this solves the problem". 13 What was the problem? 14 A. I assumed from his email to get the totals to match the 15 discussion that we'd already had. 16 Q. And how about his reference to "helps us get the final 17 result past CEC as I doubt they will notice what I have 18 done"? 19 A. I didn't read that into that what you appear to suggest. 20 For me, we had a project control budget to reconcile 21 against the approved Final Business Case. That was the 22 process we were closing off, and that -- that visibility 23 was shared with CEC at a budget level and I think with 24 Alan Coyle. 25 Q. Stepping back a little, the QRA computer programme or 20 1 process, that I think is based on the Monte Carlo 2 statistical method; is that correct? 3 A. I believe so, yes. 4 Q. Essentially, I think that involves the computer 5 undertaking multiple calculations to generate a range of 6 possible outcomes and by doing that, the software is 7 able to arrive at the probability of occurrence and 8 value identified risks; is that correct? 9 A. Yes. 10 Q. So -- and the software is set up in such a way that 11 there is a statistical validity to that method? 12 A. Yes. 13 Q. And that statistical validity is derived from the 14 computer -- I emphasise -- undertaking multiple 15 calculations to generate a range of possible outcomes; 16 is that correct? 17 A. I understand that to be its purpose, yes. 18 Q. So what Mr Hamill is doing for the programme figure in 19 the QRA is completely departing from that proven and 20 accepted statistical method involving many calculations 21 and just entering one figure. That's what he's doing? 22 A. He's adjusting this particular figure, yes. 23 Q. I can quite understand when we looked back at how the 24 GBP32.3 million manually adding figures outwith the QRA, 25 I can quite understand that, and that's perfectly open 21 1 and transparent, but what I suggest is not honest is to 2 change figures which are part of the QRA and present 3 them as though they have been produced by the computer 4 model? 5 MR FAIRLEY: My Lord, I hesitate to interrupt learned 6 Counsel to the Inquiry. I am conscious he was not 7 Counsel who took the evidence of Mr Hamill. And 8 respectfully, it seems to me that he's putting to this 9 witness matters which would probably better, if they 10 were going to be put to anyone, have been put to 11 Mr Hamill. But he appears now to be suggesting things 12 to this witness that should have been put to Mr Hamill, 13 if they were going to be put, and in particular he 14 appears to be suggesting that Mr Hamill has behaved in 15 a way which was dishonest. 16 I may be wrong, but I don't think that was the 17 gravamen of the examination by Counsel to the Inquiry 18 who took Mr Hamill's evidence. I think it may be 19 a little unfair to Mr Hamill to take that evidence from 20 a different witness when what the witness is being asked 21 about is something that Mr Hamill did and something in 22 an email written by Mr Hamill. 23 CHAIR OF THE INQUIRY: I think two things. 24 First of all, I think the Counsel to the Inquiry who 25 examined Mr Hamill took him to the spreadsheet which 22 1 seemed to be, from recollection, a readjustment of the 2 figures which had been produced by the QRA, a manual 3 readjustment. And I certainly remember putting to 4 Mr Hamill the interpretation of the word "pockle", and 5 so I think Mr Hamill probably was in no doubt as to what 6 was being suggested. 7 However, if you're concerned on behalf of Mr Hamill, 8 then you can make an application to have him recalled. 9 The other thing is that this witness is part of that 10 because he was in a superior position. He received this 11 email and I would certainly like to know what, if 12 anything, he did about it. 13 MR FAIRLEY: I certainly have no objection, my Lord, if 14 learned Counsel to the Inquiry's questions followed the 15 line that my Lord has just indicated, but it seemed to 16 me that that wasn't what he was being asked. If that is 17 what he was being asked, then I'll withdraw my -- it's 18 not an objection. I'll withdraw my observation. 19 But if the line of questioning is indeed as my Lord 20 has indicated it is, I have no objection to it. 21 CHAIR OF THE INQUIRY: Thank you. 22 MR MACKENZIE: My Lord, I wonder if I may respond to that. 23 CHAIR OF THE INQUIRY: I don't think it's necessary. 24 MR MACKENZIE: No. If I could just finish the line I have 25 started. I think my suggestion in short, Mr Bell, is 23 1 that what is being done here is dishonest, because it is 2 making a manual entry to what should be a computer 3 derived model and sum, and is then presenting or passing 4 off that manual entry as having been produced by the 5 computer model. Do you have any comments on that 6 suggestion? 7 A. I certainly don't believe it was intended to be 8 a dishonest or misleading action. I believe the reason 9 Mark adjusted the Infraco delay entry because it was 10 already a known entry in the risk log, ID 343, and rather 11 than make a manual adjustment outwith that, what he 12 adjusted was the particular entry in question. 13 I understand the comment that you make around the 14 transparency of that. I think it was very clear to the 15 parties who reviewed that that the intent was clearly to 16 make that adjustment identified against delay so that 17 was traceable, not to mislead anybody in relation to 18 QRA. 19 CHAIR OF THE INQUIRY: Mr Bell, I think the impression that 20 might have been given by Mr Hamill was that he was under 21 pressure to change the figures. 22 Do you have any comment to make? Were you aware of 23 that, that he was put under pressure to alter the 24 figures manually, and he was unhappy with that? 25 A. My recollection at the time was that everybody was in 24 1 agreement that we would reconcile the project control 2 budget back to the final close number. That confirmed 3 an adjustment to risk, and that Mark would undertake 4 that adjustment to the risk summary. 5 CHAIR OF THE INQUIRY: And he would use a method that wasn't 6 really appropriate in the sense that he was adjusting 7 a figure derived by -- rather, the computer programme, 8 to make it appear that that was the figure that the 9 computer programme had produced? 10 A. I think the intention behind -- 11 CHAIR OF THE INQUIRY: Is that what actually happened? 12 A. He adjusted that figure associated with the particular 13 risk that we had been talking about that we believed 14 merited the reduction. That happened to be a specific 15 item within the entries that had previously run through 16 the QRA. 17 CHAIR OF THE INQUIRY: He adjusted a figure that was in the 18 QRA. He manually adjusted the figure in the QRA to make 19 it appear that that was the QRA figure. If you look at 20 the Schedule, and you see the QRA output, and the figure 21 for that particular risk item has been manually 22 adjusted, and there's no note to that effect, then the 23 impression that you would get was that this was 24 a generation of the QRA programme; is that right? 25 A. I thought there was a note that had identified 25 1 adjustment to delay, general delay on the risk summary, 2 in a Schedule that I'd previously been shown that showed 3 the project control budget. 4 CHAIR OF THE INQUIRY: Perhaps we can go to the Schedule. 5 A. And there was an entry to say that, my Lord. 6 CHAIR OF THE INQUIRY: We will go to the Schedule after the 7 break. 8 MR MACKENZIE: So just finally this point, Mr Bell. Was 9 Mr Hamill's version of the Schedule, the QRA Schedule, 10 sent to the Council? 11 A. I believe it was. 12 Q. Thank you. Now, I would like to move on -- 13 CHAIR OF THE INQUIRY: Before you do that, look at the 14 email. What did you make of the email when he says: 15 "... helps us get the final result past CEC as 16 I doubt they will notice what I have done." 17 What did you make of that? 18 A. I considered that Mark was sharing the answer with CEC. 19 He made an observation around whether there would be 20 particular scrutiny of that. At that time I didn't give 21 it particular weight, my Lord. 22 CHAIR OF THE INQUIRY: What about the next sentence: 23 "I will revert to normal practice for future QRAs." 24 So did you recognise that that this was an abnormal 25 practice? 26 1 A. I think we were clear that he was making an adjustment 2 to reconcile this budget -- 3 CHAIR OF THE INQUIRY: Was that normal practice or not? 4 A. It was not. 5 CHAIR OF THE INQUIRY: And you knew that? 6 A. Yes, I did. 7 CHAIR OF THE INQUIRY: Why did you allow it? You were the 8 superior person in the department, weren't you? 9 A. I considered that it was a transparent adjustment to 10 reconcile to the total risk number. 11 CHAIR OF THE INQUIRY: Why did you allow a practice that was 12 not normal? 13 A. I considered in this particular circumstance, my Lord, 14 that we had transparently explained what we were doing. 15 CHAIR OF THE INQUIRY: And so transparently explained it 16 that it would get past the CEC without noticing what had 17 been done, and he then goes on, after reverted to normal 18 practice: 19 "However in this instance I think this is the best 20 way to do it in order to avoid unnecessary scrutiny from 21 our 'colleagues' at CEC." 22 What did you make of that? What did you think he 23 was saying there? 24 A. In recollection at that time, I believed that there was 25 a number of conversations that Mark had had over 27 1 a number of months where he felt there had been 2 amendments to some of his work that he'd shared, perhaps 3 not helpfully, and perhaps that's what he intended to 4 mean. But I didn't particularly go back and query with 5 him. 6 MR MACKENZIE: Thank you. 7 Mr Bell, I would like now to move on to the period 8 after contract close. And I'm going to ask you just 9 about particular matters in that regard, and largely 10 take your statement as read. 11 If we could, please, go back to your statement to 12 page 79. In question 61 we refer to the dispute which 13 arose and we asked: 14 "What were the main matters in dispute?" 15 You explained: 16 "I think there were three topic areas. The first, 17 which primarily drove the interpretation of 18 Clause 3.4.1, was "what is normal design 19 development?" ... 20 The second strand was that the value of estimates 21 produced was excessive ... 22 The third strand was the issue surrounding whether 23 the Infraco should be progressing with works while 24 Notified Departures and estimates were being agreed or 25 whether they were entitled to wait until an estimate had 28 1 been agreed." 2 In relation to the second strand, the value of 3 limits produced was excessive, can you expand upon that 4 a little, please? 5 A. When Infraco produced estimates and there was some delay 6 in doing so, generally for the items that were agreed as 7 a change, and we had an agreed value and signed change 8 order, it was finally agreed at a number, on average, of 9 circa 52 per cent of the original application from the 10 contractor, and this felt that this was excessive and 11 wrong. 12 This is an average over a number of, I think, 13 probably a couple of hundred change orders at this 14 particular point, or at that point in time, when we 15 undertook this analysis. 16 Q. What were your main concerns in relation to the 17 performance of the consortium after contract close? 18 A. I think there were three areas particularly. One was 19 the management and completion of the design and 20 associated works to then commence on site. So there was 21 a mobilisation and completion of design area. 22 When changes were identified or Infraco Notices of 23 tie change were notified, there was a reluctance from 24 the consortium to progress works until that change had 25 been finally agreed and signed off. 29 1 And where we had other factors that were not the 2 consortium's responsibility, such as MUDFA delays, there 3 was a reluctance to consider any mitigating actions from 4 their programme that could ease the effect on the 5 overall open for revenue service work for the tram. 6 Q. Do you know why it took so long to complete the design 7 and obtain all approvals and consents after contract 8 close? 9 A. I believe there were a variety of reasons suggested over 10 that period of time. These included completion of 11 design by SDS, incorporation of the Infraco proposals. 12 We touched yesterday on some requirements to align SDS 13 and Infraco proposals to meet the Employer's 14 Requirements, and there were outstanding technical and 15 prior approvals and completion of the conditions 16 associated with those prior approvals prior to the 17 Infraco completing works, commencing works. 18 Q. To what extent, if at all, did tie lose visibility over 19 and control of the design process after SDS novation? 20 A. The novation put the Infraco as client to the SDS, and 21 that was the intention, but there was a design review 22 process agreed as part of that contract suite in one of 23 the schedules, which was intended to ensure that there 24 was consistent visibility of progress in the area of 25 completion of design, progress against the necessary 30 1 approvals, and to identify if there were any key items 2 or issues that were causing a blockage or a hold upon 3 completion of the design, particularly if it was 4 a matter that tie could contribute to solving. 5 Damian Sharp, our design and consents manager, had 6 a particular focus on working with the consortium and 7 their designer to review progress in this area. 8 Q. So to what extent, if at all, do you consider that tie 9 lost visibility over and control of the design process 10 after SDS Novation? 11 A. We retained a degree of visibility through that process 12 and the reporting from the Infraco. There were 13 improvements that could have been made. So we did lose 14 some visibility on that, and the -- it took longer to 15 get to the root of any particular issues or problems, be 16 they tie, CEC or Infraco, SDS related. 17 Q. So do you accept there was some loss of visibility over 18 and control of -- 19 A. Yes. Yes, and the intention was that there would be 20 a change in control in that the client became Infraco, 21 and it was in Infraco's focus and responsibility to 22 manage that design to completion, including 23 incorporating the proposals. 24 Q. In relation to the misalignment workshops in relation to 25 the SDS design and Employer's Requirements, and also SDS 31 1 design and Infraco proposals, I think we heard evidence 2 from Mr Chandler of SDS that before contract close, he 3 had, I think, appointments in his diary, I think, for 4 these workshops to take place in the weeks following 5 contract close. But in the event these workshops didn't 6 take place until late 2008 and early 2009. 7 Was there a delay in these workshops taking place? 8 A. My recollection was it was late 2008 the workshops were 9 finally undertaken. I can't recall a primary reason for 10 that at this time. 11 Q. I think we have seen from documentation it was both late 12 2008 and early 2009, and some in fact were later. Your 13 position is you can't recall why there was a delay? 14 A. No. I wasn't aware of that question before today, 15 sorry. 16 Q. Did you have any involvement in any of the workshops? 17 A. No. One of my delivery managers, Bob Bell, was in the 18 lead for progressing those workshops, and I don't recall 19 a specific reason from that time as to why that was 20 later than Jason appears to have expected it to be. 21 Q. Mr Chandler also referred to a Value Engineering 22 Structures Workshop where his evidence was that he, 23 I think, turned up to the workshop being -- expecting to 24 have to justify and explain the SDS design, and 25 expecting the meeting to perhaps go over several days? 32 1 A. Yes. 2 Q. There were various meetings over several days, and 3 I think he said that what happened at this workshop was 4 that essentially Bilfinger, the consortium turned up and 5 accepted the SDS design without any discussion or 6 consideration of value engineering opportunities. And 7 that Parsons were baffled, but that you were present and 8 agreed to that. Do you recall that? 9 A. I don't actually. I don't recall that meeting. I do 10 recall looking, and we looked specifically at a number 11 of value engineering opportunities over the life of the 12 contract, and there were key conditions to be met in 13 order to instruct them, and that was part of the 14 Contract Schedules. 15 I don't recall that particular workshop. 16 Q. When you say you don't recall it, are you saying you 17 don't recall it but it may have happened as Mr Chandler 18 described it, or are you saying you don't recall it and 19 it's very unlikely to have happened as Mr Chandler 20 described it? 21 A. I genuinely don't recall it. 22 Q. Do you recall -- 23 A. My position would be I would be surprised not to be 24 encouraging any value engineering opportunity that could 25 be realised. That's where I would have expected to be. 33 1 Q. Do you recall whether there were discussions with the 2 consortium in relation to value engineering 3 opportunities for structures? 4 A. I believe there were on all topics, not just structures. 5 But I believe there were, yes. 6 Q. Do you recollect whether any value engineering savings 7 were made in relation to structures? 8 A. There was a detailed schedule for all of the value 9 engineering opportunities. Some were able to be 10 realised. Some were definitely not, and some elements 11 needed to be evaluated over the duration of 12 implementation. I don't think I saw final schedules. 13 I can't recall if there's a specific structures example 14 that springs to mind. But I'm sure that the Inquiry 15 should have records to demonstrate what change control 16 items were agreed on that basis. 17 Q. I would like to move on to another matter, please. If 18 we can go to document CEC00652924. 19 We can see these appear to be the minutes of a 20 meeting between tie and BSC, 16/17 December 2008. In 21 attendance, yourself, Stewart McGarrity, Richard Walker, 22 Michael Flynn. Then blow up the first bit of the table, 23 please, under 1. Princes Street. Thank you. 24 We can see that instructions are required for 25 certain items. For example, 1(c): 34 1 "Instruction required to implement modified track 2 slab/base designs to suit ground conditions with 3 a provisional sum to cater for cost and time if 4 necessary." 5 Then (d): 6 "Instruction required to prepare modified road 7 construction options to suit ground conditions ..." 8 I just wondered, Mr Bell, what was this meeting in 9 relation to? 10 A. We were looking -- from memory, it was two particular 11 elements. One was general progress and issues around 12 mobilisation on parts of the site, and also particularly 13 with regard to Princes Street, which was due to 14 commence, I think, about three months after that 15 meeting, with physical works on site; and there required 16 to be traffic management enabling works undertaken in 17 advance of that, because much of the Princes Street 18 traffic was going to be diverted on to George Street and 19 surrounding routes. 20 It also dealt with elements of Change Orders and 21 items that had been identified by BSC, and we were in 22 the process of resolving either with an agreed estimate 23 or confirming that we were not agreed on the principle 24 of the change. 25 Q. We've heard evidence, I think, from the Parsons 35 1 witnesses that when work started in Princes Street, the 2 ground conditions were found to be such that their 3 recommended track slab was required. 4 Do you agree with that? 5 A. That's my recollection, there certainly had to be 6 additional work to be done in Princes Street. 7 Q. Do you remember when it was discovered that additional 8 work was required to be done in Princes Street? 9 A. For that particular item or more generally? 10 Q. For that -- for the track slab. 11 A. I think it would have been round about this time, 12 because clearly there's been some discussion on -- some 13 intention to amend designs or at least have a design 14 ready if ground conditions were found to be more onerous 15 than originally expected. 16 Q. Yes. What I wondered in short was whether the reference 17 in 1(c) to "Instruction required to implement modified 18 track slab/base designs to suit ground conditions", if 19 it was known at this time that the ground conditions 20 were such that there would require to be modified track 21 slab and base designs, and that an instruction was 22 required for that to be done. 23 A. My recollection at the time was that we wanted to have 24 a design option available, so that if it was desired to 25 be implemented as we uncovered the ground and tested it, 36 1 then we didn't have extra delay of waiting for that 2 design to be completed. So it was a preparatory 3 measure, so that we had a design ready to implement if 4 required, as opposed to we definitely knew there was 5 a problem at that particular point in time. That's my 6 recollection. 7 Q. So do you know when it was known that this would be 8 required? 9 A. I think, as the excavations commenced of the existing 10 road and there was testing of the sub-surface and 11 inspection of the ground conditions. So as the access 12 was taken, is my recollection, we tested that as we went 13 along the particular route and confirmed whether 14 a modified track slab was required. 15 Q. When did that excavation take place on Princes Street? 16 A. I think we eventually started in August -- sorry, in 17 April 2009. Certainly the traffic management was set up 18 from March 2009, but we had a significant dispute about 19 whether the Infraco would start under the current terms 20 and conditions of the Infraco contract, and that -- and 21 advised us in February they would not do so. There was 22 a fairly public difference of views and that resulted 23 finally in a Princes Street Supplemental Agreement being 24 made, to deal with the expected circumstances for 25 Princes Street particularly. 37 1 I think that's referred to as the PSSA. 2 Q. When you say there "the expected circumstances for 3 Princes Street", I'm a little confused, because you say 4 that it wasn't known that the modified track slab and 5 base designs would be required until excavation started 6 in April 2009. You just referred there to expected 7 circumstances? 8 A. Yes, there were other matters that were expected/known 9 about in relation to some residual utilities diversions 10 to be addressed. These were matters that would fall 11 under the terms of the contract that would be changes, 12 and the Infraco -- my recollection at that time was the 13 Infraco were not prepared to undertake that work without 14 agreed change, or in alternatively of confirming that 15 they were going to recover their costs associated with 16 that work. 17 Q. In relation to the Princes Street dispute, can I just be 18 quite clear, please. What was your understanding of the 19 cause or causes of that dispute? 20 A. Primarily at the -- I think it would be round about 21 February 2009, Richard Walker and some of his colleagues 22 from Bilfinger, and Michael Flynn and a colleague from 23 Siemens met with Stewart McGarrity and I, and advised us 24 of a, in their view, the likelihood that the Infraco 25 contract was going to cost Infraco GBP50 million to 38 1 GBP80 million more than originally intended, and they 2 believed that that was a -- in the main, a tie 3 liability. 4 They also advised at that time they weren't prepared 5 to start on Princes Street without an agreement on 6 recompense for items they viewed as would fall under the 7 tie change clause, including matters such as utilities 8 diversions, but also any other items that would fall 9 under the Pricing Assumption Schedule. 10 As a consequence, they had confirmed to us they did 11 not intend to mobilise at the scheduled time to start 12 work in Princes Street unless we came to a different 13 agreement on how that would be valued. 14 Q. Did you have any involvement in the resolution of that 15 dispute? 16 A. I worked with my colleagues around understanding what 17 the key issues and concerns were and whether we could 18 propose a Supplemental Agreement that could be tested to 19 address those matters for the Princes Street section of 20 works, which was circa a kilometre or so worth of 21 on track work. And therefore still take advantage of the 22 access that had been negotiated with the Council between 23 April and November 2009. 24 Q. What was the price basis for the Princes Street 25 Supplementary Agreement? 39 1 A. The approach was to identify and agree the costs that 2 the contractor and their supply chain incurred, record 3 and measure those items, and identify and deduct the 4 core price that was already included within the Infraco 5 contract, so that elements weren't being paid for twice, 6 and that was in general terms a process put in place to 7 supply the records of plant, labour, materials and other 8 resources associated with all of those works, including 9 their supply chain, for that period of time. 10 tie would have visibility and review that on 11 a weekly basis with the Infraco, and confirm the 12 validity of these submissions or have them amended in 13 realtime in effect, and there would be, as I said, 14 a deduction for the element that was already within the 15 Infraco price. 16 Q. Now, I think we know the works were carried out between 17 April and November 2009, but there were defects 18 discovered and the works had to be redone later? 19 A. There were. 20 Q. What was your understanding of the cause of the defects? 21 A. Considered it was a -- fundamentally a solution that 22 didn't satisfy the Employer's Requirements, and the 23 installation of that by the Infraco had failed to 24 demonstrate that it did so satisfy the specification. 25 There were, I believe, some -- a range of technical 40 1 reports undertaken, and subsequent on-street sections 2 had amended detailing and design, particularly in the 3 rail and road interface. 4 Q. When you say there was a solution that didn't require 5 the Employer's Requirements, can you briefly explain 6 what you mean by a solution? 7 A. Sorry, the design that was -- and detailing that was 8 proposed by Infraco for Princes Street for that section 9 did not satisfy the performance characteristics and 10 criteria. There was subsequent cracking and 11 delamination gaps opening up between the rails and the 12 road surfacing, amongst other things. 13 Q. I think we've also read that the works were undertaken 14 during a period of very heavy rain. Was that 15 a contributory factor? 16 A. I think it would be fair to say that the works were 17 undertaken over a significant six or seven-month period. 18 There was inclement weather on some occasions, but 19 Infraco suggested that was entirely because of the rain 20 and nothing to do with any workmanship or specification 21 issues. tie didn't agree with that. 22 Q. Thank you. 23 I would like to move on to another matter, please. 24 I think after contract close in May 2008, and then in 25 the following months, many Notified Departures were 41 1 received by tie from the consortium. 2 One matter I would like to put to you, Mr Fitchie 3 has given evidence, at least in his written statement, 4 that he advised you from the summer of 2008 that tie 5 should take the impasse regarding Notified Departures to 6 dispute resolution procedure, but that wasn't in fact 7 done until well into 2009. 8 Do you remember receiving any such advice from 9 Mr Fitchie in the summer of 2008? 10 A. I don't know it was the summer of 2008, but I do 11 remember Andrew Fitchie suggesting that we should use 12 the dispute resolution mechanics under the contract. 13 Certainly I'm sure it was at some point in 2008, 14 I suspect the autumn of that point, as the volume of 15 items started to arise. 16 Q. So why wasn't that done at that time? 17 A. We were seeking to understand and support -- in effect, 18 understand and confirm whether or not we considered the 19 items raised by the Infraco were in fact changes. There 20 was some delay in achieving clarity on the argument or 21 the justification. We were making some progress in 22 a number of areas with Infraco at that time to try and 23 fully mobilise the works, and we believed that we could 24 agree without going to the formality of the DRP process, 25 an acceptable resolution. 42 1 From late 2008 onwards, I think it became 2 increasingly clear that the Infraco had a singular 3 position on matters such as design development and whose 4 liability that was. It was a position we disagreed 5 with, and we tried to mediate -- to have a session 6 through the -- a general mediation on issues in, 7 I think, the early summer of 2009, and when that was 8 unsuccessful, we commenced some of the more formal 9 specific DRP processes. 10 Q. I suppose it would have been possible, when you say that 11 from late 2008 onward, it had become increasingly clear 12 that the Infraco had a singular position on matters such 13 as design development and whose liability that it was, 14 it is possible to have a twin-track process to go to the 15 DRP processes while also seeking to achieve a mediation 16 settlement as well. Was any consideration given to that 17 twin-track process? 18 A. In essence, yes, because there was some preparatory work 19 to think around how would we resolve this process 20 through dispute resolution mechanics in the contract, 21 which had in essence a five-stage process for -- and 22 that is for myself and the Infraco representative to see 23 if we can come to a resolution. 24 If not, to take that up between the respective CEOs 25 of tie and the consortium, which was Richard Walker from 43 1 Bilfinger. 2 And then you can move into a formal DRP process of 3 either mediation or adjudication or eventually, if you 4 so wish, to litigation. 5 Q. With the benefit of hindsight, do you think tie ought to 6 have gone to formal DRP earlier? 7 A. Looking back then, there may have been some advantages 8 to crystallise the position sooner, yes. 9 Q. We've also heard reference to Project Pitchfork, which 10 I think may have begun in early 2010. Are you able to 11 give a brief overview of what Project Pitchfork was, 12 including, importantly, where did the name come from? 13 A. I have no idea where the name came from. The areas that 14 we were looking at under that particular project aimed 15 to understand what resolution options we had under the 16 contract, including using the formal Dispute Resolution 17 Processes. In parallel, are there any other 18 alternatives which might include consideration of 19 termination of the existing Agreement and reprocuring. 20 It also addressed the funding issues and options 21 that were becoming evident at that time, and clearly the 22 original funding envelope of 545 million was not going 23 to be able to be kept within, and elements such as 24 consideration of shortening of the scheme or alternative 25 funding scenarios were being tested. 44 1 These were areas that were discussed at the Tram 2 Project Board as a set of actions that tie should 3 progress and develop, in parallel with continuing to 4 seek to resolve matters through the Infraco contract. 5 Q. We've also heard reference to things such as Carlisle, 6 Project Carlisle negotiations and offers. Is that 7 something you were involved in or was that -- Tony Rush 8 involved in that? 9 A. Tony Rush was in the lead. So Tony was brought in by 10 Richard Jeffrey at that time, but certainly myself and 11 some of my colleagues such as Dennis Murray and 12 Susan Clark contributed to certain factual information 13 and tested some of the proposals that Tony was putting 14 forward, round what he could seek an agreement on for 15 completion of. I think Carlisle, definitely the 16 off-street works and then consideration of what approach 17 might be taken to on-street works. 18 Q. Thank you. 19 Now, we know that various matters were taken to 20 adjudication and various adjudication decisions were 21 issued between, I think, late 2009 and early 2011. 22 Did there come a point in time when you began to 23 form the view that tie were starting to lose more 24 adjudications than they were winning? 25 A. I think we reviewed the adjudication decisions as they 45 1 were made. We also resolved matters at mediation as 2 well in that time frame. 3 During 2010 I think we also had additional legal 4 input from Brandon Nolan of McGrigors, and Brandon, for 5 example, challenged what -- our interpretation and DLA's 6 interpretation of the Design Development Clause 7 particularly, and that was an area where we had been 8 consistent in our approach and he offered a challenge or 9 an alternative view to that. 10 There were a number of areas where we continued to 11 seek resolution of differences, whether it was around 12 extension of time entitlement or obligation to commence 13 work without tie change orders being made, and tested 14 certain provisions of the contract particularly, and 15 those were run, from memory, during 2010. 16 So I would suggest by late 2010, there was certainly 17 a mix of outcomes from the DRP process and some 18 challenge around some of the core tenets that we had 19 been relying on and utilising under the contract. 20 Q. Did it go further again by late 2010 in that around that 21 time, did you begin to form the view that tie was 22 starting to lose more adjudications than tie were 23 winning? 24 A. I think it's simplistic to call it winning and losing. 25 On certain points of principle, we were successful. On 46 1 a number of others the Infraco were held to be 2 successful by the adjudicator on that item. Generally 3 also there was -- if we had asked for a valuation, there 4 was a resolution that was nearer our estimate than the 5 Infraco's. 6 So I don't recognise it as winning or losing, but 7 there was certainly a number of adjudications where the 8 adjudicator found for the argument of principle with the 9 Infraco in late 2010, and probably one that springs to 10 mind would be Lord Dervaird on Murrayfield underpass, 11 where it was around our ability to instruct the Infraco 12 to progress works. 13 Q. At the risk of over-simplification, it may be suggested 14 that overall tie tended to lose on liability but have 15 some success on quantum. 16 A. That probably is a little bit of over-simplification, 17 but there are certain elements of truth in your 18 statement, yes. 19 CHAIR OF THE INQUIRY: Were tie ever guilty of 20 over-simplification about the outcome of these 21 adjudications? Did tie ever speak in terms of winning 22 and losing? 23 A. Personally, I didn't use the language of winning and 24 losing. From a tie perspective, I'm sure there were 25 conversations around what was a successful outcome and 47 1 not a successful outcome. 2 CHAIR OF THE INQUIRY: I'd certainly the impression from 3 stuff that I had read that the city were being advised 4 that tie were winning many of these adjudications. Is 5 that not -- was that -- were you not aware that that 6 message might have been conveyed? 7 A. We tried to give a very -- particularly in the formal 8 reports that were produced and the discussions at the 9 Tram Project Board and the like, we tried to give a very 10 accurate representation of what we knew at the time. 11 I would say that sometimes we should have followed 12 up with further amplification as more matters became 13 clearer, and I know we did in Tram Project Board 14 discussions, but there's probably areas that we could 15 have in the written reports amplified certain things 16 that would have made it more helpful for the less 17 informed reader. 18 MR MACKENZIE: Thank you. 19 Another document I should put to you, Mr Bell, for 20 your comments. If we can go, please, to CEC00013342. 21 What this is, you may not have seen it before. If 22 we can go to page 3, please. We can see it's a document 23 by Alastair Maclean who was Head of Legal and Admin at 24 the Council, 17 November 2010. 25 If we go back to page 1, please, the paragraph at 48 1 the top states: 2 "The purpose of this note is to report to the City 3 of Edinburgh Council monitoring officer concerns in 4 relation to tie which yesterday were raised with 5 Alastair Maclean ..." 6 We see at 2.1: 7 "Richard Jeffrey, the chief executive of tie 8 yesterday indicated that he had concerns in relation to 9 events at the time the tram contract with Infraco was 10 entered into." 11 The reason I'm putting this document to you is 12 simply because you were a senior officer in tie at that 13 time, and to get your comments on what is suggested 14 here. 15 2.2 says: 16 "Those events require to be investigated but there 17 is a suspicion that: ..." 18 I'll just give you a minute to read each of the 19 points set out there. (Pause) 20 Thank you. 21 What are your views on each of these concerns set 22 out? 23 A. It's the first time I have seen this type of document 24 set out. I can answer for myself that I absolutely do 25 not consider that I was incentivised to negotiate a deal 49 1 at a headline rate. 2 I don't believe that there was softening of other 3 positions from that perspective, certainly not in my 4 view. 5 Other provisions, I don't believe there was any 6 collusion with the Infraco that I was aware of. 7 After financial close, I think I became aware of the 8 point number 2.2.4 that was suggested that 9 Andrew Fitchie had been paid a bonus. But I had no 10 knowledge of that at the time. 11 With regards to contract being defective in a number 12 of respects, we were -- I was certainly not aware of any 13 defects in the contract at the time it was signed, and 14 that -- I can only answer that I don't believe that was 15 associated with any incentivisation or negligence from 16 my perspective. 17 In the closing report, I don't believe that was 18 misrepresentation. 19 I haven't spoken, I don't believe, with Andrew 20 since -- as part of any investigation if that was 21 carried out. I don't believe so. So I don't know the 22 outcome of that investigation. 23 Q. Just for -- 24 A. And if it was held. 25 Q. Did Mr Jeffrey discuss any of these concerns with you at 50 1 any time? 2 A. We certainly discussed the emerging fact base that there 3 were areas in the contract that appeared to be defective 4 to tie, compared to our understanding. So we definitely 5 discussed that, and the design development type point 6 would be an example of that. 7 I don't recall discussing any of the other items, 8 other than in passing the comment around his 9 understanding that there had been a bonus paid to 10 Andrew Fitchie. 11 And in the Close Report, I think, you know, 12 matters -- matters were read and entered at that time 13 with the understanding that the tie officers had of 14 those matters. 15 Q. Thank you. I would like to move on, please, to 16 Mar Hall, the mediation in March 2011. 17 Just by way of overview, what was your involvement 18 and role at the actual mediation discussions? 19 A. I was in attendance at Mar Hall. I had done some 20 preparatory work with Colin Smith, Tony Rush and others 21 who were also in attendance. The principals, I think, 22 were Sue Bruce and Vic Emery from CEC and tie 23 respectively, and clearly senior representation from the 24 consortium and also, I think, a representative from 25 Transport Scotland, Ainslie McLaughlin. 51 1 I presented a number of topics or positions from 2 tie's perspective during the mediation to -- and the 3 approach that was taken was that the seniors for the 4 relevant companies listened to key points or topics that 5 were being debated and the position was put forward 6 generally by Martin Foerder for the Infraco or myself 7 from tie, to understand the background of the difference 8 or the issue. 9 Then there was then subsequent discussions 10 follow-ups or negotiations. I tended to concentrate on 11 the Infraco-related matters. One of my colleagues, 12 Alastair Richards, was involved specifically for some of 13 the Tramco-related matters with CAF; and I would say 14 that was a very intensive first couple of days and then 15 there were some discussions that I wasn't particularly 16 party to from the sort of third day of the mediation 17 forward, and the representatives of the organisations 18 concluded, I think, on the Thursday, Thursday evening, 19 with a proposed form of agreement or way forward. 20 Q. Thank you. Now, we've heard evidence from 21 Alastair Maclean that agreement was reached in the 22 evening of day 2 regarding Heads of Terms, including an 23 off-street price and a target on-street price, and in 24 particular that agreement on behalf of the Council tie 25 side was led by Sue Bruce and Vic Emery. Does that 52 1 accord with your recollection? 2 A. It does, yes. 3 Q. In the Heads of Terms, the agreed price for the 4 off-street works were GBP362.5 million, and the target 5 price for the on-street works was GBP39 million. 6 I think that then increased before the Final Settlement 7 Agreement was reached in September 2011. 8 In short, what were your views on the sums agreed 9 and why? 10 A. It felt like an expensive final answer. In preparation 11 to Mar Hall, CEC and Vic Emery for -- who was the 12 Chairman of tie at this point, had asked for some work 13 to be done looking at the likely costings and various 14 options on that, and I would have to accept that this 15 was a negotiation led by CEC. So at the end of the day, 16 Sue Bruce was the primary decision-maker on what was 17 tolerable for her from a Council perspective, just as 18 the seniors from Bilfinger and Siemens were similar from 19 the Infraco's perspective. 20 But it felt like an expensive final resolution. The 21 approach that was proposed was a series of amendments 22 following on from those Heads of Terms, and then seeking 23 to achieve a final ratification or final agreement in 24 September 2011. I think the target was slightly earlier 25 than that originally. 53 1 Q. You've referred to undertaking various preparatory work 2 in the run-up to Mar Hall. Did that involve costing 3 various options on different scenarios? 4 A. It did, yes. 5 Q. From the work you had done in preparation for Mar Hall, 6 do you consider that the sums agreed could be considered 7 to be reasonable? 8 A. I thought they were expensive. 9 Q. Thank you. 10 Now, I think you then left tie in October 2011; is 11 that correct? 12 A. That's correct. 13 CHAIR OF THE INQUIRY: I think the question was: did you 14 consider them to be reasonable, and you said they were 15 expensive. I suppose things can be expensive and 16 reasonable, or expensive and unreasonable. 17 What is your position about the reasonableness of 18 the solution, of the figure? 19 A. My reflection at the time was that there was a number of 20 proposed changes to the contract as well as part of 21 that. The figures would be at the top end of any range 22 for me, and I felt that there was some weakening of the 23 client side terms and conditions. 24 However, I would acknowledge that CEC had a view 25 that they had considered a number of options, including 54 1 termination and reprocurement and the risks associated 2 with that, and they had certainly done some, in their 3 view, some scenario planning around what that might or 4 might not cost. 5 I assume that informed their ranging on their 6 figures, but it seemed, as I say, at the top end of 7 a range from my perspective. 8 MR MACKENZIE: Thank you. There's one final matter I would 9 like to go to, please, Mr Bell, in reference to two 10 short documents. 11 It concerns the question of bonuses because that has 12 been raised by other witnesses. 13 If we go, please, to CEC01491920. 14 We can see in the middle of the page, towards the 15 top, an email from Mr Gallagher dated 21 March 2008 to 16 Brian Cox and copied to others. 17 Mr Gallagher says: 18 "I would like to meet up in Edinburgh week after 19 next if possible to discuss the bonus options and issues 20 associated with contract close. In essence, the deal 21 has really been delivered by Jim McEwan, Steven Bell and 22 Andrew Fitchie - not Matthew. We had an incentive 23 agreement in place with the Procurement team which 24 I intend to alter to reflect the outcome and individual 25 contributions." 55 1 To pause there, do you know what Mr Gallagher is 2 referring to when he talks of an incentive agreement in 3 place with the procurement team? 4 A. No, I don't. 5 Q. Did you in fact receive a bonus for closing the 6 contract? 7 A. I -- I received a bonus, I think, in the -- about the 8 end of the first quarter of 2008 that ran from the 9 period from 2007 up to that point. It was prior to 10 contract close, and for the year 2008 through to 2009 11 there was a bonus entitlement assessed, and a number of 12 the tie executives, including myself, deferred that 13 bonus entitlement until open for revenue service after 14 a discussion with Richard Jeffrey. 15 Q. Do you know whether it was any part of receiving bonuses 16 that procurement milestones had been met? 17 A. In terms of -- for -- 18 Q. Yes, in terms of were -- let me rephrase the question. 19 Were bonus payments to any extent dependent on 20 procurement milestones having been met? 21 A. I don't know how it relates to the procurement team or 22 matters with regards to that or other executives. There 23 were about six headings that were quoted to me, 24 including works that I did in 2007, closing out of EARL, 25 some particular engineering work, progressing the 56 1 particular support to the tram procurement process, 2 including the evaluations, et cetera, and an anticipated 3 outcome, I think, within a range of financial values for 4 the tram which was within the overall funding budget. 5 That's my recollection. 6 Q. And the last document I would like to take you to in 7 this regard, please, similar point, CEC02084810. 8 This, Mr Bell, you won't have seen. It's a lessons 9 learned document produced by Trudi Craggs of Dundas & 10 Wilson in 2008. 11 If we can go to page 3, please, and under 12 "Programme" towards the bottom, Ms Craggs has said: 13 "This needs to be realistic and not based on bonuses 14 if milestones are reached (this impacts on quality as 15 the need to meet the deadline outweighs the need to get 16 it right)." 17 Do you have any comments on what is set out there? 18 A. I think programme does need to be realistic and the 19 milestones absolutely should be appropriate. The 20 milestones were amended a number of times during this 21 procurement process. I don't think there was a blind 22 affirmation or alignment with original milestones. 23 Q. Finally, do you know -- it may not be a matter within 24 your knowledge, but do you know whether bonuses paid to 25 senior tie staff were based to any extent on procurement 57 1 milestones being reached? 2 A. I can only comment about my own, which I have already 3 said. There was a procurement time frame and support to 4 that timetable, was one of six particular criteria. 5 Q. Thank you. My Lord, I have no further questions, but 6 there was the outstanding matter in relation to QRA 7 spreadsheet. I think we should check that over the 8 break, if we may? 9 CHAIR OF THE INQUIRY: I think actually an opportunity of 10 looking at -- I think, Mr Fairley, I overstated the 11 position about the adjustment of the figure and I was in 12 error when I said that Mr Hamill had adjusted the figure 13 that was produced by the QRA, in the sense of -- if the 14 impression that I gave and wrongly had was that he had 15 actually adjusted that figure, whereas in fact the 16 figure was adjusted in the sense of a deduction being 17 made in the Schedule. 18 MR FAIRLEY: Yes, I think that's right. I was intending to 19 ask Mr Bell, if permitted, some questions about this in 20 any event, and it was my intention to take him to the 21 Schedule. So I'm happy to do that if it saves the 22 Counsel to the Inquiry from doing so. 23 CHAIR OF THE INQUIRY: That's very helpful. 24 I think there have been intimations of questions 25 from Edinburgh and from you. I don't know what the 58 1 position is about Edinburgh. 2 MR BURNET: My Lord, I'm grateful, and I'm grateful to 3 Counsel to the Inquiry, and given his thorough 4 examination of the witness, I think he's covered the 5 areas that we indicated we would like to put to this 6 witness. So I'm not intending to proffer any additional 7 questions. 8 MR DUNLOP QC: My Lord, for myself, there are a couple of 9 follow-up questions I would like to put to the witness, 10 following on from the questions my learned friend, 11 Counsel to the Inquiry, has put, regarding knowledge and 12 mitigation of risk. I envisage no more than five to ten 13 minutes. I'm quite happy to do that before Mr Fairley 14 wraps up with this witness. 15 CHAIR OF THE INQUIRY: Well, I think we will adjourn for 15 16 and then we will start with Mr Dunlop and Mr Fairley. 17 We will resume again at 11.25. 18 (11.11 am) 19 (A short break) 20 (11.30 am) 21 Questions by CHAIR OF THE INQUIRY 22 CHAIR OF THE INQUIRY: You're still under oath, Mr Bell. 23 I think before Mr Dunlop asks you any questions, 24 could we go back, please, to the CEC01288043. 25 That's the email that we looked at before, and 59 1 attached to it was the spreadsheet that Mr Fairley is 2 going to ask you about. 3 In the second paragraph, Mr Hamill explains that you 4 can't alter one figure in the QRA without affecting the 5 others, and he then says: 6 "Therefore, in order to get round this problem, 7 I have basically 'pockled' the spreadsheet and hard- 8 entered some values." 9 So what did you understand by "hard-entered"? 10 A. He didn't run a calculation against that particular line 11 entry. He made a direct adjustment to that particular 12 risk ID. 13 CHAIR OF THE INQUIRY: He put in a predetermined figure? 14 A. Adjusted it, yes. So it resulted in the revised number. 15 CHAIR OF THE INQUIRY: Thank you. 16 Examination by MR DUNLOP QC 17 MR DUNLOP QC: I'm obliged, my Lord. 18 Mr Bell, if we leave to one side the difference 19 between what Mr Fitchie said and what you have said 20 regarding normal development risk, normal design 21 development, am I right in understanding that you 22 certainly knew that significant change in design was at 23 tie's risk? 24 A. Yes, it is beyond that normal design development, that 25 would be a client-related risk. 60 1 Q. And likewise delays in consents or approvals would be 2 a tie risk? 3 A. Yes, but I think with a certain minor caveat such as the 4 quality of submission. That was an Infraco and SDS 5 risk. Similarly, if matters had been associated with 6 Infraco proposals, that was not a tie risk. That would 7 have been an Infraco responsibility. 8 Q. If we have those two examples in mind, please, could we 9 look again at parts of a document we've seen but weren't 10 taken to. CEC01449100. 11 Do you remember looking at this with my learned 12 friend? This is Bilfinger's Design Due Diligence 13 Summary Report. I think you accepted seeing it at the 14 time; is that right? 15 A. Or certainly shortly thereafter, yes. 16 Q. Thank you. If we go to page 3 of that document, and if 17 we look at the top half of the page, I think you were 18 taken to the first paragraph, and we see that the 19 executive summary says: 20 "In order to determine the design status prior to 21 contract award a technical due diligence has been 22 carried out for the design of the ETN Project. The due 23 diligence process has been based on the relevant design 24 information received by [the consortium] by 25 14 December 2007." 61 1 If we could just look at the next paragraph, it 2 says: 3 "Contrary to the tie's original intention for this 4 project stage, the design is incomplete and will require 5 significant further development." 6 Is that correct? 7 A. It's what it says, yes. 8 Q. So significant further development, you were aware that 9 that was going to be at tie's risk? 10 A. The design was incomplete. The design that SDS were 11 completing is to achieve the Employer's Requirements, 12 Infraco understood what they were, as did SDS. So some 13 elements will be less progressed. So there's quite 14 a lot of work to do, but the end result was a clear 15 outcome in target, and therefore I would have expected 16 that the Infraco would have assessed what that normal 17 design development would have been. If it was beyond 18 that, then that would have been at tie's risk, but just 19 because it's early in the process doesn't mean that it 20 automatically falls to be automatically beyond normal 21 design development. You have to measure it against 22 where you start from in the process. 23 Q. Well, it's you that's used the word "significant" in 24 your own evidence. I'm just asking you to comment on 25 the fact that you must have been aware, from this 62 1 document, that significant further development of the 2 design was going to be necessary. 3 A. The design needed to be completed. So in terms of 4 volume of work, there was a more significant volume of 5 work than items that had still to be completed, but the 6 principles may well -- they are normally set out in the 7 outline design, and therefore I would have expected that 8 that would have been taken cognisance of by the Infraco 9 as part of that. 10 Q. In terms of to what extent it was completed, if we look 11 to the last sentence in that paragraph, we see that: 12 "According to the SDS document tracker more than 13 40% of the [DDI] has not been issued to BBS at 14 all by the above mentioned cut-off date." 15 Is that right? 16 A. That's what it says, yes. 17 Q. The importance of the above-mentioned cut-off date, 18 December 2007, was that Wiesbaden was tied to what was 19 apparent as at that date, wasn't it? 20 A. It was. However, the outline design information was 21 also available. So that's the earlier stage in the 22 process. So it was not unknown, the type of solution 23 that was there. What hadn't been issued in certain 24 circumstances was some of the detailed design drawings 25 or information in individual packages. 63 1 Q. Yes. Okay. On the question of delays in consents and 2 approvals, if you look down that document, please, and 3 if we see the third last paragraph on that page: 4 "For many areas the 3rd party approval status is 5 not clear. Formal tie/CEC design approvals are 6 generally outstanding. Not a single design element has 7 received final approval and has been issued for 8 construction." 9 So again, that was known. This is February 2008. 10 It was known that there was an outstanding issue with 11 regards to consents and approvals? 12 A. There was, and the lack of clarity on third party 13 approval status was highlighted there, yes. 14 Q. And consents or approvals, subject to the caveat you 15 mentioned earlier, were a tie risk? 16 A. If the -- yes, subject to the caveat around there needs 17 to be a quality submission with regards to that, and if 18 the third party or consenting authority required 19 a different change from that proposed, then that was 20 likely to result in a tie risk, yes. 21 Q. It was also known that a number of the Pricing 22 Assumptions in Wiesbaden carried forward into Schedule 23 Part 4 were incorrect, and that, as and when they fell, 24 there would be a Notified Departure? 25 A. I think we'd already talked extensively about the design 64 1 programme example. 2 Q. Yes. 3 A. The other regularly discussed example was the roads 4 reconstruction assumptions that Infraco had made, and 5 we've already talked about that specific pricing 6 assumption, and yes, that was identified. 7 The purpose of Wiesbaden was also to confirm the 8 value engineering approach, and those were elements that 9 were also clearly embedded within that Schedule. So 10 that was discussed. 11 Q. We can go back to it, if necessary, but it's perhaps not 12 immediately required. If you think about the email from 13 Mr Fitchie, 31 March 2008, do you remember that one 14 talking about the risk of Notified Departure? 15 A. Yes. 16 Q. Using the words like "all encompassing" and 17 "conservative" would be the approach of Bilfingers? 18 A. Yes. 19 Q. So from that email, you were aware, or tie generally 20 were aware, that there were going to be Notified 21 Departures, plural, once the contract was signed? 22 A. We did expect Notified Departures, and I think we 23 covered that yesterday. 24 Q. Yes. As you fairly indicated, you weren't able to say 25 with certainty how many there would be or to what extent 65 1 they were agreed? 2 A. Yes. 3 Q. Mr Fitchie suggested a mitigation approach, and we saw 4 the two responses, one from Mr Gilbert, one from 5 Mr McEwan, that perhaps suggested a difference of 6 approach in dealing with that. 7 Your evidence is that you, I think, largely heeded 8 Mr Fitchie's advice; is that right? 9 A. We undertook a number of mitigations or continued with 10 a number of mitigations, but there were some matters 11 that weren't fully resolved. 12 Q. As Mr Fitchie said in that email, the mitigation risks 13 were practical ones, rather than legal ones. They were 14 ones that you and Mr McEwan were best placed to deal 15 with; is that right? 16 A. I think in the main, yes. There were a number of 17 contractual or risk allocation items that were tweaked 18 that we touched on, I think, in the two stages of price 19 adjustment. One on 7 March and one on the 9th or so of 20 May. 21 So there was some contractual risk adjustment in 22 those examples, but many of the other things were about 23 delivery performance. 24 Q. Yes. Primarily you dealt with that by making risk 25 allocations, by making provisional sums and the like? 66 1 A. From a financial perspective, yes, but from an action 2 point of view, confirming that any mitigations were 3 being undertaken, or planning to do so. 4 Q. You will have told Mr Fitchie that you were acting in 5 accordance with his advice and taking steps to mitigate 6 the risk? 7 A. We certainly went through those mitigating actions and 8 reinforcement of those that I can recall with Andrew. 9 I don't think we went through every single item, but we 10 certainly covered a number of them. 11 Q. Yes. If we could go back, please, to the DLA advice 12 letter, CEC01033532. 13 You will recall looking at this. This is DLA's 14 letter of 12 May 2008, shortly before close? 15 A. Yes. 16 Q. If we go to page 3 of that, please. Paragraph 5 under 17 "Risk". You looked at this yesterday. I just want to 18 be clear. 19 My learned friend sought to suggest that the second 20 paragraph under "Risk" only alerted parties to one 21 possible Notified Departure. I think you were telling 22 his Lordship that the position was otherwise. 23 Can I just be clear; is that correct? 24 A. Yes, the point around management of Notified Departures, 25 plural, when and/or if any of the programme-related 67 1 Pricing Assumptions fall was the illustration that was 2 given there. 3 Q. Yes. Just to be clear, as at 12 May 2008, was there any 4 doubt that some of the Pricing Assumptions would fall? 5 A. We expected some of them to a degree. 6 Q. Yes, thank you. 7 That, you were telling his Lordship yesterday about 8 the conference call that you took part in with -- 9 I think it was yourself and Mr Fitchie and Ms Lindsay? 10 A. Yes, and there may have been others on the call, but 11 certainly that's my recollection. 12 Q. And the possibility of multiple Notified Departures will 13 have been part of that conference call? 14 A. We didn't -- I don't recall talking numbers of, but I do 15 recall about the principle of Notified Departures, and 16 that entitlement sits in the suite of documents. 17 Q. Yes. We've already spoken about things like the design 18 needing to be completed, consents being outstanding for 19 multiple items, and that remained something that was -- 20 was live in May 2008, didn't it? 21 A. It was, yes. 22 Q. If you could look, please, at CEC01347795. 23 That's the risk allocation matrix that I think you 24 were talking about yesterday with his Lordship. 25 A. Yes. 68 1 Q. You indicated that -- perhaps a previous iteration of 2 this, but these sorts of things will have again been 3 discussed in the conference call? 4 A. Yes. I think the purpose of the call was to really 5 highlight any differences from the previous version of 6 this, which from memory I think was produced round about 7 early March. 8 Q. Yes. Okay. So as far as you were concerned, Edinburgh 9 Council were, or Ms Lindsay at least, was fully sighted 10 on the risk allocation matrix if you wanted to make 11 clear any differences that there were? 12 A. Yes, and I think to be fair to Ms Lindsay, it was 13 an action arising from one of the Tram Project Boards 14 that -- to make sure that that tripartite discussion had 15 taken place. 16 Q. Yes. If you just look briefly at this document, please. 17 If we can turn to page 22 in the document. If we look 18 to the bottom half, just after the table break, we see 19 a number of items where public sector holds the risk. 20 The first is Pricing Assumption does not hold good; 21 is that right? 22 A. Yes. 23 Q. Five below that: 24 "Execution of Utilities Works or MUDFA works." 25 A. Yes. 69 1 Q. Then four again below that: 2 "Failure by tie to obtain any Land Consent, Building 3 Fixing Agreement, Consent, land agreement or TRO." 4 A. Yes, that's Traffic Regulation Order, yes. 5 Q. All at the public risk? 6 A. Yes. 7 Q. Again, if we turn on, please, to page 24 in that 8 document, if we see at the top, the third line in the 9 top part of the table, 80.14, that's referring to 10 Clause 80 in the contract, I think? 11 A. Yes. 12 Q. "Delay/costs due to a tie Change (save where the Infraco 13 could have prevented the need for the tie change)." 14 A. Yes. 15 Q. And again public sector risk? 16 A. Yes. 17 Q. Again, please, to page 26. Do we see there, again, 18 a reference to Clause 80. It's the second line after 19 the break: 20 "tie Changes, Mandatory tie Changes and Notified 21 Departures." 22 Again, noted as being public sector risk? 23 A. Yes. 24 Q. Thank you. 25 Matters such as Notified Departures you were telling 70 1 us earlier will have been discussed with Ms Lindsay in 2 the course of the conference call? 3 A. I expect so, because they're in effect the kind of 4 mandatory tie change Notified Departure part of that 5 line 80. 6 Q. Yes. You will have discussed at least at a level of 7 generality that tie were anticipating and assessing 8 anticipated Notified Departures and were making 9 mitigation or trying to mitigate this by making 10 contingencies; is that right? 11 A. I think we probably discussed two levels mitigating to 12 try and avoid the Notified Departure, but if that was 13 not able to be mitigated, then an appropriate 14 contingency or allowance for it, as we evaluated. 15 Q. Yes. On things like contingencies and allowances, 16 that's a technical or commercial matter rather than 17 a legal one? 18 A. Primarily, yes. 19 Q. Again, you will have discussed that with Ms Lindsay? 20 A. I'm sure we did in the generality of that principle. 21 Q. So if we think about a question that his Lordship asked 22 you yesterday, if someone -- let's say the Council -- 23 wanted to know what the exact price would be, then you 24 indicated you wouldn't be able to say: I can tell you 25 what the exact price would be. 71 1 A. Correct. 2 Q. Ms Lindsay would have known that she couldn't say what 3 the exact price would be? 4 A. I believe so because we did discuss, I'm pretty sure, 5 the description of the construction works price and what 6 that was made up of. 7 Q. Because frankly, at the point of contract close, no one 8 could know what the final price was going to be. Were 9 you hiding any of that from the Council? 10 A. No. 11 Q. Had you any reason to conceal that from the Council? 12 A. Absolutely not. 13 MR DUNLOP QC: Thank you, Mr Bell. I'm obliged, my Lord. 14 CHAIR OF THE INQUIRY: Mr Fairley? 15 Examination by MR FAIRLEY 16 MR FAIRLEY: Mr Bell, could I take you back to the early 17 part of 2008 when Mr Gilbert was discussing and 18 negotiating with Bilfingers over the Part 4 of the 19 Schedule and in particular the Pricing Assumptions. 20 At that stage, if I have understood correctly, 21 design was around 40 per cent incomplete; is that right? 22 A. Yes. I think we talked earlier circa two thirds 23 complete, but yes, between -- 24 Q. Somewhere of that -- 25 A. Between 60 and 70 per cent complete or 30 to 40 per cent 72 1 incomplete. 2 Q. Yes. Can I take you that that would have been known to 3 Mr Gilbert as a senior member of the commercial team? 4 A. Absolutely. 5 Q. Now, I think it's also fair to say that that created 6 a potential departure from the procurement process which 7 had been to ensure that there was 100 per cent design by 8 the time the contract was let to Infraco; is that right? 9 A. Yes. 10 Q. And again, I don't think it's contentious, but simply to 11 set the context of what I'm asking you about here, tie 12 evolved a strategy to deal with that, that essentially 13 had two limbs. The first being novation of the design 14 subcontract to Bilfingers and the second being 15 a transfer to Bilfingers of normal design development 16 risk; is that right? 17 A. Yes. The novation strategy was set though fairly early 18 in the process. So that was always the intent. 19 Q. Okay. I'm not going to ask you about the novation 20 strategy. I simply mentioned it in case I was accused 21 of being selective. 22 But I really just want to ask you about the transfer 23 of risk of normal design development. 24 When we talk about normal design development risk, 25 that's risk to cost and risk to time; is that right? 73 1 A. Yes. 2 Q. Again, how clear was it to Mr Gilbert in early 2008 that 3 the strategy of tie was to transfer normal design 4 development risk in terms of cost and time to the 5 consortium? 6 A. I think it was very clear. 7 Q. You've talked about meetings attended not just by people 8 from tie, but by external advisers, including DLA. How 9 clear was it to DLA that the strategy of tie in the 10 period early 2008 was to transfer normal design 11 development risk of cost and time to BBS? 12 A. I believe that was very clear, and I think we've covered 13 some email correspondence from Mr Fitchie to that effect 14 where he talks about it. 15 Q. Okay. 16 But the question that may beg, I suppose, is: what 17 is the meaning of normal design development? And that, 18 I think, ultimately came to be at the heart of a lot of 19 the disputes that tie ended up in with BBS. Am I right 20 about that? 21 A. It did, yes. 22 Q. You were asked yesterday by Counsel to the Inquiry for 23 an example of something that would fall outwith normal 24 design development, and the example I think you gave was 25 something like a change from a bridge to an underpass; 74 1 you said would go beyond the scope of normal design 2 development. Am I right about that? 3 A. That was the example I gave, yes. It's probably at the 4 extreme end of the spectrum. 5 Q. Yes. 6 Well, that's really why I want to explore this with 7 you in a little more detail. 8 I took from that, although you weren't asked about 9 the other end of the spectrum by Counsel to the Inquiry, 10 about what would fall within normal design development, 11 but I took from that an implication that it was changes 12 that were fundamental and perhaps also unforeseen or 13 unforeseeable. Am I right about that? 14 A. At which end of the spectrum? 15 Q. That would fall outwith normal design development? 16 A. Yes. They wouldn't have been foreseen by the concept of 17 the design or the normal completion of that design. 18 Q. Yes. So if there was a radical change that had not been 19 either foreseen or foreseeable at the time when 20 Bilfinger were fixing their price, such as a change from 21 a bridge to an underpass, that would constitute a change 22 to normal design development? 23 A. Yes. 24 Q. But I think we know that there were other sources of 25 information available to Bilfingers apart from simply 75 1 design drawings as to how this tram was going to be 2 built; is that right? 3 A. That's correct. 4 Q. We'll come on in a moment and I'll ask you about 5 Employer's Requirements, but just pausing here, at this 6 time was it tie's strategy then to pass on to Bilfingers 7 risk for normal design development, that being things 8 that were unforeseeable at the time when Bilfingers were 9 quoting their price? 10 A. I heard that question as normal design development 11 including unforeseeable matters; is that what you mean? 12 Q. Sorry. It's my fault. It's a bad question. 13 The strategy of tie at this time was to pass to 14 Bilfingers the risk for normal design development? 15 A. Yes. 16 Q. And tie's understanding of what normal design 17 development was, was it was everything apart from the 18 unforeseeable? 19 A. Particularly matters that could be moved to completion 20 from the current design status as viewed by an 21 experienced design and build civil engineering 22 contractor. 23 Q. As viewed by an experienced design and build civil 24 engineering contractor with information about what it 25 was he had to build? 76 1 A. Correct, which included the Employer's Requirements, 2 information such as the Tram Design Manual and other 3 guidance. 4 Q. So was that strategy one that Mr Gilbert was well aware 5 of? 6 A. Yes. 7 Q. Was that strategy one which DLA were well aware of? 8 A. Yes. 9 Q. So was it therefore tie's strategy that in addition 10 to -- sorry, that any changes additional to Base Date 11 Design Information that were consequent upon Employer 12 Requirements should fall to BBS as at their risk? 13 A. Yes, generally. Clearly if there's a specific example, 14 BBS intimated that we would review that on the base of 15 its individual facts, but generally you're correct. 16 Q. And the reason I ask that is we looked at a couple of 17 the Pricing Assumptions yesterday, I think it was 13 and 18 19, where there was a very specific area of work where 19 Bilfingers said: we are not taking risk for anything on 20 this beyond what is in the Base Date Design Information. 21 A. Yes. 22 Q. That might tend to suggest that in other areas where 23 that wasn't specifically catered for in those very 24 specific Pricing Assumptions, there was the prospect of 25 Bilfingers taking risk for things that went beyond Base 77 1 Date Design Information. Was that your understanding? 2 A. Correct, and I think that was debated in some of the 3 Dispute Resolution Procedures as well. 4 Q. Was that a clear understanding within tie, and in 5 particular on the part of Mr Gilbert, that that was what 6 you were trying to achieve? 7 A. I believe that was very clear, yes. 8 Q. Were DLA clear about that too? 9 A. I believe so, yes. 10 Q. Now, at any stage did Mr Gilbert say to you that the 11 words that he had negotiated with BBS did not achieve 12 that objective? 13 A. No. 14 Q. The same question in relation to DLA. At any stage did 15 anyone at DLA say to you: you haven't achieved that 16 objective of transferring risk for completing Employer's 17 Requirements, effectively, to BBS? 18 A. No, that wasn't stated. 19 Q. If we look just briefly at the Schedule Part 4, please, 20 which is document CEC01245224. 21 If we go in that document, please, to page 5, and if 22 you could enlarge the section at the foot of page 5, 23 3.4, Pricing Assumptions, just down to the foot of the 24 page is fine. 25 Now, just looking at this section in isolation, this 78 1 Price Assumption is to the effect that the design 2 prepared by SDS will not, and then there's a section in 3 parenthesis which I'll come back to, but if we leave the 4 section in parenthesis just now, it says it will not: 5 "in terms of design principle, shape, form 6 and/or specification be amended from the drawings 7 forming the Base Date Design." 8 Do you see that? 9 A. Yes. 10 Q. If we then read into that the section in parenthesis, so 11 the general proposition is that the designs prepared by 12 SDS will not differ in design principle, shape, form 13 and/or specification from the drawings forming the base 14 date design. That's the general principle. But the 15 exception in parenthesis is: 16 "... (other than amendments arising from the normal 17 development and completion of designs)" 18 Do you see that? 19 A. Yes. 20 Q. So thus far in this clause, what we have is a provision 21 that says that if it's normal development and completion 22 of designs, that is at BBS risk. Is that right? 23 A. Yes. 24 Q. That would be regardless of whether or not it was 25 a change to design principle, shape, form and/or 79 1 specification? 2 A. That's correct. That's -- 3 Q. So there could be changes to design principle, shape, 4 form and/or specification that were simply normal design 5 development? 6 A. Yes. 7 Q. Your understanding was that the strategy at tie was to 8 transfer all of that risk for normal design development 9 to BBS; is that correct? 10 A. That's correct. 11 Q. When we go on, however, in this clause, and if you can 12 just go over the page, please, could you enlarge the 13 section -- just the section, "For the avoidance of 14 doubt", please. This is the section right at the end of 15 this clause which I think we now know caused all the 16 difficulty because what it says is that: 17 "normal development and completion of designs means 18 the evolution of design ... 19 and excludes changes of design principle, shape and 20 form and outline specification." 21 That's exactly the opposite of the strategy that tie 22 was trying to pursue, isn't it? 23 A. Yes. 24 Q. Was that ever highlighted to you by Mr Gilbert in the 25 course of his drafting and negotiation of this document? 80 1 A. Not that I can recall. No. 2 Q. Did you notice this problem in the document when you 3 read it at the time? 4 A. I read it understanding it to enact the transfer of risk 5 that we identified for normal design development. 6 I didn't read it in the way that was subsequently tested 7 in a number of disputes, and highlighted the difficulty 8 in reading it, as did, I think I mentioned earlier, when 9 McGrigors reviewed it, this was a particular area of 10 concern they flagged in 2010. 11 Q. Yes. So it was really only when tie started losing 12 adjudications that the penny started to drop that 3.4, 13 pricing assumption 3.4 may not have fulfilled to any 14 extent the strategy that had been in the minds of 15 yourself and others at the start of 2008? 16 A. That we believed had been delivered through the 17 contract, yes. 18 Q. And that led to some fairly extreme results in certain 19 of the adjudications. In the Carrick Knowe 20 Adjudication, for example, there was, I think, an 21 argument about whether anti-pigeon measures on 22 Carrick Knowe Bridge were a Notified Departure. Do you 23 remember that? 24 A. I do remember that, yes. 25 Q. And in fact I think I'm right in saying that the 81 1 conclusion of that adjudicator was that these 2 anti-pigeon measures on the Carrick Knowe Bridge were 3 a Notified Departure because even though they were in 4 the Employer Requirements, they weren't shown on the 5 Base Date Design Information. 6 A. For example, that particular adjudicator had 7 a particular view on the interpretation of that. Others 8 had a different perspective. 9 Q. I understand that. I'm really focusing on the defect in 10 the contract as it was interpreted by those 11 adjudicators. But that certainly, if that adjudicator 12 was right, and that's the hypothesis on which we're 13 operating for the purposes of these questions, his 14 reasoning was that the reason that the consortium was 15 entitled to be paid more for anti-pigeon measures on the 16 bridge was that even though they knew that that was part 17 of the Employer's Requirements, and they knew from the 18 outset that that was what they were going to have to 19 build, because it wasn't specifically drawn on the Base 20 Date Design Information, it was a Notified Departure. 21 That was his conclusion? 22 A. It was. 23 Q. Was that extreme interpretation or result of the 24 contract something that you had anticipated? 25 A. No, it was not. 82 1 Q. Was it something that anybody, Mr Gilbert or anybody 2 else, had ever warned you about? 3 A. No, I can't recall any discussion of that type of 4 conclusion. 5 Q. Leaving that point now, Mr Bell, could I take you to the 6 Schedule of Risk Allocation that was mentioned in the 7 email that you looked at earlier, but you weren't taken 8 to it, so I'll do that, having undertaken to do so. 9 CEC01295329. CEC01295329. 10 Now, if you take it from me, Mr Bell, this is the 11 spreadsheet that was attached to the email you were 12 referred to earlier from Mr Hamill. I think I'm right 13 in saying that the figures shown there in red are the 14 adjustments that Mr Hamill had hard entered to this 15 Schedule. Is that your understanding? 16 A. That's my understanding, yes. 17 Q. Can I just, first of all, start below the line 321 that 18 reads "QRA Total". Do you see that? 19 A. Yes. 20 Q. So there's a line there that says "QRA Total" and 21 beneath that there are three other items. I think you 22 told us about each of these in your evidence earlier, 23 but these were pretty round figures that had been 24 included for respectively value engineering, road 25 reinstatement, and a less round figure for unspecified 83 1 risks, but these are all added after the QRA total? 2 A. Yes. 3 Q. So this is taking the QRA total which the computer 4 software has thrown up and it's adding in manually 5 additional allowance for risk; is that right? 6 A. Yes, it is. 7 Q. It was that that brought out the figure of 32,000. 8 Now, can I ask you, first of all, what was the 9 thought process behind adding in figures to the QRA 10 total? Surely if the QRA total is designed to do what 11 it's supposed to do, then you should just live with the 12 QRA total and you don't have to add anything else in? 13 A. That is based on the risk items identified and included 14 in the modelling. There were examples that you see at 15 the bottom such as non-delivery of VE and extent of road 16 reinstatement weren't included at the time of that March 17 review, but arose during the items where we were 18 confirming agreements with the Infraco on Schedule 19 Part 4. So we considered that in those examples that 20 there was the potential for a risk of non-achievement or 21 non-delivery of VE and that we should make an allowance 22 for that; and similarly, as I've touched on in my 23 earlier evidence, there was a difference between the 24 Infraco proposals on road reinstatement and what may be 25 required, depending on the CEC technical approval final 84 1 conclusion, which is why we had made that original 2 assessment of circa GBP2 million in each of these 3 categories. 4 Q. Would it be over-simplistic to describe this as a human 5 intervention in what would otherwise be an entirely 6 automated programme? 7 A. Definitely a human intervention. 8 Q. So you're applying your mind to whether or not the 9 number that the computer has coughed out is adequate? 10 There's clearly been a conclusion that additional 11 numbers need to be put in, and that has been done; is 12 that right? 13 A. That's correct. 14 Q. Now, you spoke about the extent of road reinstatement, 15 and I think you said in your evidence that there came 16 a point when the maximum liability for that was capped 17 off at 1.5 million. Did I understand that correctly? 18 A. That's correct. 19 Q. Is that what we see there in line 323, where 20 an allowance has been made of 2 million, but you have 21 then learned that the maximum liability is 1.5 million, 22 and so there's a manual reduction of that by 500,000 in 23 that same line, 323 in the deltas column? 24 A. That's correct. 25 Q. By the same token, if we go up above the VRA total line 85 1 to 316, under "General Programme Delay"? 2 A. Yes. 3 Q. There has been a manual reduction of 1.3 million in 4 relation to general programme delay. 5 A. That's correct. 6 Q. How was that assessed? 7 A. Again, that was assessed looking at the change in risks 8 and liabilities on quality of SDS design, and as part of 9 the final contractual discussions, the roads 10 reinstatement item and a series of four GBP1.2 million 11 incentivisation payments were identified. So there 12 would have been time elements associated with road 13 reinstatement that would have reduced a general risk, 14 and also there was a consideration that being 15 incentivised to deliver the key milestones with 16 a financial incentive on time would allow some reduction 17 of general programme delay. That's how we concluded 18 that GBP1.3 million adjustment. 19 Q. Is it fair to say that that is more a question of 20 judgment than the extent of road reinstatement saving on 21 risk of 500,000? 22 A. It is, yes. 23 Q. Did you and others exercise your judgement about whether 24 or not it was appropriate to make a reduction of 25 1.3 million in general programme delay? 86 1 A. Yes, we did. 2 Q. Were you satisfied that it was? 3 A. At that time, and with our understanding of the contract 4 and terms, yes. 5 Q. So were you making that reduction honestly and in good 6 faith? 7 A. Absolutely. 8 Q. Looking at the reduction for road reinstatement, that 9 wouldn't affect the QRA figures if they were re-run 10 because it's below the line; is that right? 11 A. That's correct, unless we amend the QRA and add in a new 12 risk ID for road reinstatement, and then incorporate it. 13 At this point in time, that hadn't been done. 14 Q. But any change to anything below the QRA total line is 15 not going to have an effect if you re-run the QRA 16 programme? 17 A. No, it's just going to be added afterwards. 18 Q. But something above the line is going to affect the QRA 19 programme, isn't it? 20 A. When it's re-run. 21 Q. When it's re-run. If I have understood Mr Hamill's 22 evidence on that correctly, it is not possible simply to 23 take GBP1.3 million out of general programme delay 24 because the computer doesn't understand that, and when 25 you re-run the figures, all of the figures change; is 87 1 that right? 2 A. Yes. 3 Q. This discussion over risk in the period leading up to 4 financial close, was this something in which City of 5 Edinburgh Council officials had been closely involved? 6 A. I don't think they were at the final meeting that we 7 discussed this item -- 8 Q. No, sorry, that wasn't my question. In the period 9 leading up to the point at which this spreadsheet was 10 produced, had there been discussions over a period of 11 weeks and months with City of Edinburgh Council about 12 risk allocation? 13 A. Yes, there had, and in particular some of the technical 14 items associated with things like road reinstatement and 15 the approvals risks, because they were intimately linked 16 to the City of Edinburgh's ability to perform in those 17 areas. 18 Q. Just taking one example out of this, if we look at the 19 Infraco/Tramco delivery risk, which is shown there at 20 6.872314 million, is that a figure that would have been 21 discussed with City of Edinburgh Council in the period 22 leading up? 23 A. I'm sure the summary that totalled up to the 32.347 was. 24 Q. Yes. 25 A. So each of the individual build-ups would have been 88 1 discussed, and, for example, things like TROs were very 2 much informed by the City of Edinburgh Council's 3 expertise on that process. 4 Q. Yes. 5 A. And we -- we relied on some key information from their 6 officers. 7 Q. So if we look at the figures in the AFC P1 column, from 8 line 313 down to 320, just the line above the total, do 9 I understand then that those are all figures with which 10 those in CEC would have been familiar as a result of 11 these earlier discussions? 12 A. Yes, and I would have expected that type of summary to 13 be part of what had been shared with Alan Coyle and his 14 colleagues back in March. 15 Q. So was the point that Mr Hamill was making in his email 16 effectively that if you try to deduct 1.3 million from 17 general programme delay in isolation, you're actually 18 going to change every single one of these figures if you 19 run the QRA again? 20 A. That's the risk, yes. 21 Q. It's not just a risk. That's the way the programme 22 works, isn't it? 23 A. Yes. 24 Q. That would have meant that the figures that you would 25 have then have been showing City of Edinburgh Council 89 1 for, for example, Infraco/Tramco delivery, would have 2 been different? 3 A. It would have been different. We don't know what it 4 would be, but it would have been different. 5 Q. But in point of fact, the risk profile of Infraco/Tramco 6 delivery had not, as far as you were concerned, changed? 7 A. We hadn't made a change too that at all. 8 Q. And similarly, I could go down through the risk, but the 9 risk profile for designs and consents remained at 10 3.301992? 11 A. Yes. 12 Q. And MUDFA 8644277; is that right? 13 A. Yes. 14 Q. So really what Mr Hamill was saying he was trying to do 15 was maintain the position on these other risks which had 16 not changed, so as to give City of Edinburgh the figures 17 that they were used to seeing? 18 A. Yes. 19 Q. Whilst at the same time taking 1.3 million out of 20 general programme delay? 21 A. Correct. 22 Q. There was no subterfuge involved in that. It was simply 23 a question of presenting figures that they'd already 24 seen? 25 A. Absolutely not. And any time that Alan Coyle or his 90 1 team sought to enquire on some of these matters, my 2 recollection is he got a very clear opportunity to work 3 through the detail. And as did some of his colleagues. 4 Q. Is it correct that when the human element becomes 5 involved in a risk assessment, there can be a level of 6 subjectivity in deciding what figures to put in? 7 A. Yes. 8 Q. That explains the 2 million additions that we see for 9 value engineering and 2 million for road reinstatement, 10 but it also explains the 1.3 million reduction? 11 A. They were -- had an element of subjectivity applied to 12 them. 13 Q. And in the Close Report -- I wonder if we could just 14 look finally at that. That's CEC01338847. 15 Can you go to page 6 of that document when it's on 16 the screen, please. 17 If you just stay on page 1 of the document so we can 18 see what it is. I think I have described it wrongly. 19 It's one of the financial close documents, but it's 20 the financial close process and record of recent events 21 document that you were shown. 22 Could you go to page 6, please, now. 23 In the fourth line of that page 6, there is 24 a reference to 4.6 million of exposures having been 25 removed, acknowledging that their evaluation is 91 1 judgmental. 2 Now, I know we're not talking about exactly the same 3 thing, but is that a reference to there being an element 4 of subjectivity when looking at risk exposure? 5 A. Yes, it is an element of subjectivity in that reference. 6 Q. But you are saying that in the report, in this report -- 7 A. Yes. 8 Q. -- which is part of the close papers? 9 A. At that time. 10 Q. And there is an element of subjectivity in that? 11 A. And it draws out where there are some explicit items. 12 Q. That was the next question. The 0.5 million is 13 explicitly reflected in the QRA; is that the roads 14 reinstatement? 15 A. Strictly speaking, it was in the line below the QRA 16 number, but as part of the overall risk summary, and 17 I think in this report, QRA was being used as shorthand 18 for the total risk. 19 MR FAIRLEY: Shorthand for risk. I see, I understand. 20 Thank you, Mr Bell. I have no further questions. 21 Questions by CHAIR OF THE INQUIRY 22 CHAIR OF THE INQUIRY: Mr Fairley, you referred Mr Bell to 23 the Schedule 01295329, which I also recognise, and that 24 was the Schedule which I mentioned before the break. 25 But as I understand it, the mechanism adopted by 92 1 Mr Hamill related to the QRA document CEC01288044. So 2 could you put that up, please. CEC01288044. 3 Now, this is the QRA assessment. I think if you -- 4 can we scroll down, please? I'm looking for a figure 5 under PB. Sorry, go back up. There's a column with PB. 6 Can you move it to the left, please. 7 If you go back then to P80, to the left. I'm 8 looking for a figure of 517. 9 Anyway, perhaps we can deal with this another way. 10 But I understood from material I have read that what 11 happened was that Mr Hamill took a figure here and 12 instead of the formula which -- the computer uses 13 a formula, instead of the formula for particular 14 figures, he put in the figure overriding the formula. 15 And he got a print-out showing the figure which then 16 adjusted. 17 Did you understand that had been done? 18 A. When we reviewed it and discussed it with Mark, we 19 utilised the summary sheet that we've just looked at 20 prior to this sheet. So this was around what 21 adjustments were to be made. 22 CHAIR OF THE INQUIRY: Yes. And then did he go on and 23 adjust -- 24 A. At the time I had assumed that he had gone on and dealt 25 with it within the individual line entry -- 93 1 CHAIR OF THE INQUIRY: Yes. 2 A. -- that was relevant to general delay. That was my 3 understanding of what he was going to do; it was one of 4 the reasons why we had flagged that in the summary sheet 5 to show that's what we had done in that particular 6 circumstance. 7 CHAIR OF THE INQUIRY: Would that involve adjusting the QRA 8 figure -- 9 A. I think -- 10 CHAIR OF THE INQUIRY: -- by substituting the figure that 11 you want for the formula? 12 A. My expectation was -- I don't know the mechanics of how 13 it would work -- that he would look at the relevant 14 total column and make that adjustment, rather than 15 trying to adjust matters within the min/max and most 16 likely values because he doesn't know what's going to 17 spit out accordingly. 18 So the column on the right-hand side in total for 19 that entry, I believe was the one he intended to make 20 a manual adjustment to. 21 CHAIR OF THE INQUIRY: So he would make a specific entry 22 relating to -- 23 A. Yes. 24 CHAIR OF THE INQUIRY: In the QRA relating to a particular 25 item of risk. 94 1 A. Against that particular item. 2 CHAIR OF THE INQUIRY: And that's achieved by overriding the 3 formula and putting in the figure that you want to see? 4 A. I believe that was the end result, subjective 5 conclusion, that that element within the QRA was 6 adjusted to the 5.7 number as opposed to its 7 predecessor. 8 CHAIR OF THE INQUIRY: Do you want to ask anything else, 9 Mr Fairley? 10 MR FAIRLEY: No, my Lord. 11 CHAIR OF THE INQUIRY: Thank you. 12 Thanks very much, Mr Bell. You're free to go. 13 You're still under citation, and it's possible you could 14 be recalled. But if that happens, we will be in touch. 15 A. Thank you. 16 (The witness withdrew) 95 1 INDEX 2 PAGE 3 MR STEVEN BELL (continued) ...........................1 4 5 Examination by MR MACKENZIE (continued) .......1 6 7 Questions by CHAIR OF THE INQUIRY ............59 8 9 Examination by MR DUNLOP QC ..................60 10 11 Examination by MR FAIRLEY ....................72 12 13 Questions by CHAIR OF THE INQUIRY ............92 14 15 MS SUSAN CLARK (sworn) ..............................95 16 17 Examination by MR MACKENZIE ..................95 18 19 Examination by MR DUNLOP QC .................169 20 21 Examination by MR FAIRLEY ...................172 22 23 MR TOM HICKMAN (sworn) .............................177 24 25 Examination by MR MACKENZIE .................178 203