1 Thursday, 26 October 2017 2 (9.30 am) 3 CHAIR OF THE INQUIRY: Good morning. 4 MR MACKENZIE: Good morning, my Lord. The next witness is 5 Colin MacKenzie. 6 MR COLIN MACKENZIE (sworn) 7 CHAIR OF THE INQUIRY: Mr MacKenzie, you will be asked some 8 questions and if you just listen to the question and 9 answer it directly, and as concisely as possible, and if 10 you keep your voice up and speak at a steady pace, so 11 the shorthand writers can keep up with you. 12 A. Thank you, my Lord. 13 Examination by MR MACKENZIE 14 MR MACKENZIE: Good morning. 15 A. Good morning. 16 Q. Can you state your full name, please? 17 A. Colin George MacKenzie. 18 Q. And your current occupation? 19 A. Retired. 20 Q. When did you retire? 21 A. In April 2011. 22 Q. You provided a statement to the Inquiry. I would like 23 to take you to that, please. The number is 24 TRI00000054_C. 25 Now, could you please go to the last page, to 1 1 page 121, just so I can check your signature. 2 We see a signature dated 7 November 2016. Can you 3 confirm, please, that this is your signature, and that 4 this is a written statement you have provided to the 5 Inquiry? 6 A. I confirm that is my signature and that is appended to 7 my statement provided to the Inquiry. 8 Q. Thank you. Now, your evidence to the Inquiry, 9 Mr MacKenzie, will comprise both your written statement 10 in its entirety, together with the evidence you give 11 today. 12 I would like to start at page 1 of your statement, 13 please. You set out here, I think, essentially, you 14 have spent all of your career in local government; is 15 that correct? 16 A. That's correct. 17 Q. If we pick it up, please, towards the bottom of the 18 page, three lines down, four lines down, you say: 19 "Following the Local Government re-organisation in 20 1996, I was appointed to the post of Solicitor in the 21 section called Legislation and Advice. Within a month 22 or two I was moved up to the position of Senior 23 Solicitor. I worked in the same Section from 1997 until 24 April 2004. From May 2004 I was the Principal Solicitor 25 in the re-named Commercial Practice Team. From 2 1 August 2006 I was Principal Solicitor in Litigation, 2 heading up the Team dealing with all aspects of Civil 3 Litigation ... I also provided advice to Committees ... 4 I was effectively seconded on to the Tram Project from 5 August 2006, probably for the sake of continuity, given 6 the Commercial Practice role which I previously 7 undertook. In effect my duties were split between 8 managing the Litigation Team and corporate work on the 9 Tram Project." 10 Could you perhaps explain, between August 2006 and 11 May 2008, what was the approximate percentage split of 12 your time spent on litigation and the tram project? 13 A. That's quite a difficult question to answer without 14 having access to time recording sheets, but from memory, 15 I would say that from August 2006, I wasn't hugely 16 involved in the tram project, but, as one moved into 17 2007, and probably from about the middle of 2007 through 18 to financial close in May of 2008, time spent did 19 increase significantly. But I'm unable to assist the 20 Inquiry and say whether it was 50 per cent, 75 per cent 21 on trams as one moved from 2007 to 2008. 22 Q. Would you be able to say that between May 2007 to 23 May 2008, the majority of your time was spent on trams? 24 A. Yes. 25 Q. Thank you. If we then please go to page 3 of your 3 1 statement. In paragraph 5 we can see: 2 "I am asked whether I reported to Gill Lindsay, as 3 Line Manager." 4 You say: 5 "The post of Council Solicitor, held by 6 Gill Lindsay, disappeared in a departmental 7 restructuring at the end of 2009. Up to that time 8 I therefore reported to Gill Lindsay. Thereafter, all 9 the Principal Solicitors, including myself, reported to 10 the Head of Legal and Administrative Services, 11 Alastair Maclean." 12 Could I just pause to check, we've heard evidence 13 from Nick Smith. Did Mr Smith report to you between the 14 period, say, May 2007 and May 2008? 15 A. That's correct. 16 Q. Thank you. Now, then, at page 6, please -- sorry, 17 page 3, in paragraph 6, we can see a few lines from the 18 bottom, you say: 19 "After Financial Close in May 2008, I was beginning 20 to wind down my involvement in the project." 21 Then if we just continue that at page 4, please, we 22 can see at the end of the top paragraph, last sentence, 23 you say: 24 "I would say I had no really significant involvement 25 from some time midway through 2009." 4 1 Perhaps just for clarification, if I ask you about 2 one further sentence further down this page, on 3 paragraph 9, please. There's reference to yourself and 4 Mr Smith and Alan Squair: 5 "We had a good relationship." 6 One sentence I didn't understand, you said towards 7 the bottom: 8 "We had a laugh from time to time about how TIE were 9 behaving." 10 What is that a reference to? 11 A. I think I mean that in almost ironic terms. 12 From some time in 2007, when we had our meetings 13 with City Development and finance people, they began to 14 feed to us progress on the project, and I think one of 15 the things that kept coming out was a mantra from tie 16 that it was on time -- the project was on time and on 17 budget. And it was becoming apparent to us that that 18 was not the case. 19 Q. You say "from some time in 2007". Are you able to be 20 a bit more specific? Was it the first half of that 21 year, the second half that year or what? 22 A. I would say probably about the late spring into the 23 summer of 2007. 24 Q. Thank you. Could we then please go on to page 8. 25 At paragraph 20 I think we had asked you about the 5 1 use of tie as a delivery vehicle for the project, and 2 you set out your views there. You said: 3 "It didn't make sense in my view to set up 4 a delivery company from scratch which as a corporate 5 body had no previous experience of Tramway construction. 6 TIE was in a sense no different from a firm of 7 engineering consultants or designers acting on behalf 8 the Council, except that such consultants would not 9 normally have been the contracting party delivering such 10 a project." 11 Now, we've heard evidence that tie of course, when 12 it was initially set up, it was intended it would be 13 involved in delivering a number of projects under the 14 Council's new Transport Initiative. I just wonder, your 15 comments in your statement about it didn't make sense in 16 my view to set up a delivery company from scratch, 17 et cetera, was that directed to the period of your 18 involvement really from May 2007 onwards, or do you also 19 mean going back to the beginning in, I think, 2002 when 20 tie was set up? 21 A. I think probably from the beginning of my involvement, 22 that was the view that I took. Looking back in time. 23 But as time progressed, I gained a better understanding 24 of the background to the setting up of tie and the fact 25 that the Minister had insisted that Council set up an 6 1 arm's length company in order to receive grant funding. 2 Q. We've also heard evidence that the Council lacked 3 in-house expertise and resources to deliver the project 4 itself. 5 Do you have any views or comments on that 6 suggestion? 7 A. Yes, that was my feeling at the time, and even now. 8 This was a hugely significant and complex project, and 9 looking at my own team at that time, commercial 10 practice, I was clear that neither myself nor any of the 11 team members had the requisite experience to really 12 assist in this project from a contractual perspective. 13 Q. Just for the avoidance of doubt, why was that? 14 A. My background had been one of litigation for a number of 15 years up until 2004. 16 Q. How about the other members of your team? Why did you 17 consider they didn't have the requisite experience? 18 A. The other members were perhaps more steeped in contract 19 law than I was, but I recall taking the view that nobody 20 had the requisite experience of a major construction 21 building civil engineering project which could assist 22 the Council in providing support to this. 23 Q. I will come back to look at a number of emails in this 24 regard. If I can just deal with things chronologically 25 at this stage, please, and ask you to look at a paper on 7 1 governance which will come up on the screen. 2 CEC01566497. 3 The Inquiry has looked at this before. We can see 4 it's headed "TIE - Governance Arrangements, Briefing 5 Paper for the Chief Executive". It was put before the 6 Internal Planning Group meeting on 24 July 2007, and if 7 we can go, please, to page 8 of the document, we will 8 see the name Jim Inch, Director of Corporate Services, 9 20 July 2007. 10 Do you recall playing a part in the drafting of this 11 document, Mr MacKenzie? 12 A. Yes, I do. 13 Q. If we can go back to page 1 of the document. I won't 14 take you to every paragraph, but paragraph 2.3, please, 15 there's reference to: 16 "There is currently no "Tram Operating Agreement" 17 between the Council and TIE, merely a general agreement 18 dealing with various transport projects. The 19 consequence of this is that there is no satisfactory 20 detailed level of control over TIE and its activities as 21 "agent" for the Council in matters such as procurement, 22 contracting and incurring expenditure." 23 Why does it mean, the fact that there was only 24 a general Operating Agreement, why did it follow from 25 that that there was no satisfactory detailed level of 8 1 control over these matters? 2 A. I seem to recall discussing with a colleague in my team 3 who was a company law specialist that -- first of all, 4 receiving confirmation that there was a general 5 Operating Agreement between the Council and tie, but 6 that had been drafted and agreed before the tram project 7 came to the fore. I took the view that it was necessary 8 in the Council's interest that there be a more 9 definitive and focused agreement dealing with the tram 10 project. 11 Q. Why was that necessary to obtain satisfactory detailed 12 level of control over tie in matters such as 13 procurement, contracting and incurring expenditure? 14 A. I just felt that it was necessary that the Council who 15 would be financing or guaranteeing the project, the 16 Council was also the promoter, and that there should be 17 a very specific Operating Agreement between the Council 18 and tie whereby the Council could exercise matters of 19 control over the powers it was devolving relating to the 20 finance, and generally to keep a watching eye and 21 control over tie. 22 Q. All the powers and control mechanisms would be set out 23 in a more detailed Operating Agreement? 24 A. That's correct. 25 Q. In paragraph 2.4, please, about halfway down this paper 9 1 says: 2 "Increasingly, officials have found it necessary to 3 take a much closer and proactive role in seeking to 4 protect the Council's interests. It cannot always be 5 said that TIE's close focus on the Tram project, and the 6 Council's wider interests, are at one." 7 Can you explain what your view was in these 8 sentences? 9 A. I think what was meant there, and that may well have 10 followed my wording and contributing to the drafting of 11 the report, was that the Council had a number of 12 functions. Not only was it the sponsor and promoter of 13 the tram project, but it was also going to be giving 14 a financial guarantee. 15 It exercised various statutory powers such as the 16 Planning Authority, Roads and Bridges Authority, and to 17 my mind that's what was meant there, that tie was 18 particularly focused or perhaps only focused on 19 delivering the tram, whereas the Council had a number of 20 roles to perform. 21 Q. If we could please go over the page to page 2, we note 22 in passing, in paragraph 2.5, the question, halfway 23 through the paragraph: 24 "It should be noted that the Tram Project Board is 25 not a legal entity, and there must be some doubt as to 10 1 whether the Council can competently delegate its 2 functions to said Board." 3 Are you able to say when you were satisfied that 4 powers had been competently delegated from the Council 5 to the Tram Project Board? 6 A. I think from memory it was probably around the time of 7 the reporting to Full Council, later in the year. 8 I think it was maybe December, 20 December 2007 when 9 satisfactory delegation had been put in place by the 10 Council. 11 Q. In the next paragraph, paragraph 2.6, it states: 12 "Against the background of the funding cap set by 13 Transport Scotland, and a greater financial risk to be 14 borne by the Council, it is imperative that far more 15 rigorous financial and governance controls are put in 16 place by the Council." 17 Was that your wording? 18 A. I think so. I can't be absolutely certain, but it -- 19 there's a familiar ring to it. 20 CHAIR OF THE INQUIRY: Why was that? Did you not want to 21 have rigorous financial and governance controls wherever 22 the money was coming from? 23 A. Yes, that's probably true, my Lord. 24 MR MACKENZIE: Was there an element of things changing for 25 the Council after the Transport Scotland -- after the 11 1 Scottish Government announced in, I think, end of June 2 or July that there would be a cap on the 3 Transport Scotland grant contribution and 4 Transport Scotland would no longer play a direct role in 5 governance arrangements? Did that change things for the 6 Council in any way? 7 A. In my view it did. It signified that a line had been 8 drawn in the sand by Transport Scotland and they said 9 this was a limit of the contribution they would make, 10 and therefore, flowing from that, it suggested to me -- 11 it was plain to me that any increase in the outcome of 12 the tram project would have to be borne by the Council. 13 Q. The wording, "it is imperative that far more rigorous 14 financial and governance controls are put in place by 15 the Council", I take it you agreed with that view at the 16 time? 17 A. Absolutely, yes. 18 Q. Did it follow from that that you were of the view that 19 at that time, there weren't sufficiently rigorous 20 financial and governance controls in place? 21 A. That's correct. 22 Q. When did these controls in your view require to be put 23 in place? Was it immediately or over time or what? 24 A. I think probably over a period of time. At that point 25 in the middle of 2007, it was still quite some way from 12 1 financial close, and therefore contracts hadn't been 2 concluded between tie and Infraco and CAF. But 3 obviously it was in my mind that these more rigorous 4 financial controls should be put in place in reason and 5 in course. 6 Q. I may be corrected, but I think at that time the 7 intention was to award the Infraco contract in 8 January 2008. Does that seem correct? 9 A. That -- yes, I think that's correct. 10 Q. Do you consider that more rigorous financial and 11 governance controls were put in place? 12 A. Yes. Certainly from the governance side, yes. Perhaps 13 it wasn't quite so obvious to me what financial controls 14 were put in place. 15 Q. So from the governance side, what controls were put in 16 place and when? 17 A. Matters like the Operating Agreement between the Council 18 and tie and between the Council and TEL. There was 19 formal delegation from the Council of its statutory 20 powers under the Tram Acts to tie. Proper delegation 21 from the Council to tie and TEL, and from them to the 22 Tram Project Board, and I think much of these took place 23 in -- following the decision of the Council in 24 December 2007. 25 Q. The more detailed Operating Agreement between the 13 1 Council and tie was entered into on 12 May 2008. And 2 financial close of the Infraco contract took place on 14 3 and 15 May 2008. 4 Given that timescale, it's not obvious that putting 5 the more detailed Operating Agreement into place, 6 a matter of days before the contract close, gives any -- 7 gave any additional controls to the Council, at least in 8 respect of the procurement of that contract and the 9 risks arising from that contract. 10 A. Yes, I would agree. 11 Q. If we then please go back to the briefing paper, 12 paragraph 3.1 sets out: 13 "The current governance arrangements for TIE are 14 complex ..." 15 Did you agree with that view? 16 A. Yes. 17 Q. What if any difficulties did that give rise to? 18 A. I think from memory it was -- it was difficult for the 19 Council to know how the project was being governed. 20 Possibly -- I have to say at that time I personally was 21 still finding out how the different roles were being 22 performed, and was trying to get to grips with it and 23 establish in my mind what would be in the Council's best 24 interests from a governance point of view. 25 Q. Was that an easy exercise at the time to get to grips 14 1 with finding out the different roles of the different 2 bodies involved in the project? 3 A. Yes, it was. 4 Q. How did you find that out? 5 A. I think through a mixture of discussions with colleagues 6 in City Development and Finance and also one or two 7 briefings with colleagues in tie. 8 Q. Could I then please go on to page 8. In paragraph 4.2: 9 "A number of options have been identified to achieve 10 these enhanced controls." 11 Had you played a part in identifying these options? 12 A. Yes, I did. 13 Q. Did you at the time have a preferred option? 14 A. I can't recall, to be honest. 15 Q. We can put that paper to one side for now, thank you. 16 You had mentioned the question of the more detailed 17 Operating Agreement between tie and the Council. Could 18 we now please go to page 42 of your statement. 19 About eight lines down, we see a reference to: 20 "Nick Smith was leading the work on the TIE 21 Operating Agreement and liaising regularly with me." 22 There's then a quote from Nick Smith in italics, and 23 then you say: 24 "I fully agreed with Nick Smith's position that the 25 Council's rights were being watered down ... In various 15 1 respects he was being pressed by TIE Directors into 2 changes which eased obligations for TIE. They were 3 seeking less or weaker rights for the Council. In 4 general terms it's the rights to hold TIE to account 5 that were being watered down. It was the best shot, or 6 the only shot that we had, of making clear to TIE "these 7 are what your obligations are in delivering the 8 contract". These were the rights which the Council had, 9 or should have. In general terms we felt undermined. 10 It was a constant chipping away by TIE. Nick started 11 off quite properly with 'absolute duties' and 'best 12 endeavours'. He was met in discussions with a constant 13 "no, that's not acceptable" from TIE. What we ended up 14 with in the Operating Agreement was, to my mind, much 15 less than what we should really have achieved in line 16 with Council's instructions from August 2007. I think 17 it was Graeme Bissett who was leading negotiations from 18 TIE's perspective. I would also have to say that senior 19 officers in City Development did not support us. In my 20 opinion they gave in too easily to some of the points 21 that TIE were disputing or attempting to dilute." 22 For the avoidance of doubt, who were the senior 23 officers in City Development that you considered did not 24 offer support in that regard? 25 A. Andrew Holmes, the then Director. 16 1 Q. Did you discuss these concerns with the 2 Council Solicitor around that time? 3 A. Yes, I think that -- that there was a briefing session 4 with her, and perhaps more than one briefing session, 5 where we expressed our frustration, disappointment that 6 the instruction that we had been given by Council 7 earlier to prepare a robust Operating Agreement, we felt 8 that we were not on the way to achieving that. 9 Q. What was the Council Solicitor's response to that? 10 A. I can't recall. 11 Q. I would now like to come back to the issue you raised of 12 whether Council legal officers had sufficient experience 13 and expertise to advise on the tram project, and in 14 particular the Infraco contract. 15 So just for the avoidance of doubt, what were your 16 views at the time on whether the Council should instruct 17 independent legal advice on the risks arising from the 18 Infraco contract and why? 19 A. Following an internal discussion between Nick Smith, my 20 senior solicitor, and Alan Squair, who was a Principal 21 Solicitor in the Planning Section, we, after a number of 22 discussions, decided that the best option was that we 23 recommended to the Council Solicitor that an independent 24 legal review was in the best interests of the Council. 25 This was based on the fact that, as I've earlier 17 1 stated, we did not feel that the Commercial Practice 2 Team had sufficient expertise to give a view on 3 the contract which was being developed between tie and 4 the preferred bidder. 5 It was a very technical contract. It was a bespoke 6 contract. It was one of high value. It was one of -- 7 as would later be seen, some substantial risk. And 8 there were reputational issues as well for the Council. 9 So with all these matters to the fore, we took the 10 view that it would be appropriate or most appropriate 11 from the Council's perspective that an independent 12 review of the implications arising from the contract 13 should be undertaken on behalf of the Council. 14 Q. Now, I would like to go to a number of emails. If we 15 could start, please, with CEC00013273. If we could 16 start at page 3, please. We can see an email from 17 Graeme Bissett at tie dated 7 August 2007, to various 18 directors at CEC, and Gill Lindsay and yourself. 19 Subject, "Tram Project". There's a reference to: 20 "The document I referred to this morning ..." 21 So I think that's a reference to a meeting, perhaps. 22 Then Mr Bissett says: 23 "I thought it might also be useful to summarise the 24 main actions we agreed." 25 We can just skim over them for ourselves, and then 18 1 please go over the page to page 4. Point 6 states: 2 "I will contact DLA about the legal relationship 3 between DLA and the Council and set up a meeting to 4 discuss how this can be concluded to the Council's 5 satisfaction." 6 Then if we can go, please, to page 2, just to follow 7 the chain, we can see this is an email at the bottom of 8 the page from Gill Lindsay dated 10 August, back to 9 Mr Bissett and others, including yourself, Mr MacKenzie. 10 Then Ms Lindsay states: 11 "Thank you. It was good to see you. Moving forward 12 on your point 6, as discussed, what is needed here is 13 a legal acceptance that DLA regard this Council as 14 a joint client with Tie or the ultimate client ie 15 a direct client/legal adviser relationship and not 16 merely a duty of care, to reflect the new relationship 17 and positioning ... 18 As soon as this is received, we would wish to 19 receive from DLA in this capacity, a risk analysis of 20 the Infraco contract, highlighting all and any 21 particular and unusual risks and how these risks are to 22 be managed, a clear positioning of the relationship 23 between the Council and the ultimate successful bidder 24 and DLA's recommendation to the Council that this be 25 provided by the Council in the commercial circumstances. 19 1 As early notification and receipt of the above as 2 possible is needed as this will determine the extent and 3 type of additional diligence the Council may wish to 4 undertake. Colin MacKenzie is leading on the project 5 from Legal and forms a team with Alan Squair and with 6 Nick Smith from our commercial team." 7 To pause there, the question of: 8 "As early notification ... is needed as this will 9 determine the extent and type of additional diligence 10 the Council may wish to undertake." 11 Do you know what was meant by that, the reference to 12 additional diligence? 13 A. No, I don't fully understand that, but I would hazard 14 a guess and say that Gill was saying there that there 15 were a number of checks and balances that she would want 16 to be put in place before the Council agreed to the 17 contract being signed by tie. 18 Q. If we then please go to page 1 to continue the chain. 19 Then halfway down, you see an email from yourself, 20 Mr MacKenzie, dated 15 August 2007 to Ms Lindsay. 21 Trying not to read it all, in the second paragraph, 22 I think in short, to paraphrase this email, you are 23 setting out certain concerns in relation to Ms Lindsay's 24 suggestion in relation to DLA, and I think your 25 recommendation here is that the Council should seek 20 1 independent legal advice; is that a fair summary of the 2 email? 3 A. That is a fair summary, yes. 4 Q. For example, in this third paragraph, you say: 5 "In these circumstances I believe it will be 6 impossible for the internal Team to provide the expected 7 level of comfort in relation to the two outstanding 8 contracts." 9 Go over the page to page 2, please. Can I clarify 10 one matter, please. In the second paragraph, in the 11 third line up, you say: 12 "Whilst tie has indicated that they are not 13 expecting the Council to conduct a full review of the 14 documentation, it could be said that by drawing the 15 Council in as joint client we have walked into a trap. 16 The late involvement of the Council as an uninformed 17 client may well let tie off the hook." 18 What was the trap? 19 A. I think, from memory, I was suggesting there that tie 20 were trying to -- it might be seen that tie were trying 21 to draw the Council in. It was basically their contract 22 and they had drafted and were negotiating it, and I took 23 the view there in the wording that if the Council gave 24 the okay, gave the sign-off to it, that would make life 25 easier for tie and perhaps -- yes, I think give them 21 1 some relief. 2 Q. So instead of the Council being able to say to tie: you 3 are responsible for this contract; in some way it's 4 a shared responsibility for the contract? 5 A. Yes, I think that's well put. 6 Q. Then in the last paragraph of this email, please, you 7 say: 8 "On another note, it is being made clear to us at 9 various meetings that certain aspects of the MUDFA 10 contract, and of the contract between tie and the SDS 11 are possibly heading towards claims and resulting 12 overspend. Please could you advise when you consider 13 that the Council Solicitor is obliged to draw such facts 14 to the attention of members given the risk 15 responsibility now carried by the Council on any and all 16 overspend, which is looking ever more inevitable." 17 What was the issue or issues you were drawing out 18 there? 19 A. I think by that time we were receiving information from 20 our colleagues in City Development on a -- I seem to 21 recall that the B team were meeting probably weekly, and 22 they were drawing our attention to the fact that certain 23 aspects of the MUDFA contract were not progressing well, 24 and also that there were difficulties between tie and 25 SDS about the design of the tram route, et cetera. 22 1 These obviously had financial implications in terms 2 of cost and possible overspend of the budget, and 3 standing the fact that Transport Scotland had intimated 4 that it was going to accept no liability over the grant 5 level of 500 million, then I was exercising caution 6 there and indicating that this may be a matter which 7 should be drawn to the attention of members. 8 Q. Can I go back to page 1 to ask you about one final 9 matter in this email, please. 10 In the second paragraph of the email, in the third 11 line down, it states: 12 "Whilst the word from the Chief Executive has been 13 to avoid being overtly negative in the report to 14 Council, when it comes to fundamental issues of risk on 15 contracts worth in excess of GBP350 million, I would be 16 failing in my professional obligation not to draw such 17 concerns to your attention, or indeed to members before 18 a crucial decision is taken." 19 What is the reference to "the word from the 20 Chief Executive has been to avoid being overtly negative 21 in the report to Council"? 22 A. I think that maybe came from an IPG meeting which was 23 chaired by the Chief Executive, and looking back at 24 this, I suspect my reference there was informed by 25 a comment or by guidance by the Chief Executive 23 1 suggesting that in any public reporting to Council, that 2 we avoid being overly negative or overtly negative. 3 Q. Thank you. I would like to move on to another document, 4 please. CEC01711054. 5 This is an email from Andrew Fitchie to 6 Gill Lindsay, dated 16 August 2007. In this email, 7 second paragraph, Mr Fitchie states: 8 "As discussed, I attach a draft of the letter 9 I would propose to send to the Council to affirm our 10 duty of care and the joint client status." 11 Then in the second paragraph: 12 "I do not envisage any conflict of interest here; to 13 the contrary ..." 14 Could I then please go to the draft letter which was 15 attached to the email. It's CEC01711055. I'm not going 16 to read it, but can we see in, I think the third 17 paragraph down, it states: 18 "This letter reconfirms that as from 5 December 2003 19 onwards, DLA Piper Scotland LLP has owed and owes the 20 same contractual duty of care to CEC as owed to 21 tie Limited ... We acknowledge CEC as joint client with 22 tie Limited on the basis that ..." 23 And certain conditions are then set out. 24 Over the page, please, to page 2, we can see, if we 25 scroll down a little again, please, scroll down the page 24 1 a little, we can see there is space for the City of 2 Edinburgh Council to indicate they have agreed and 3 acknowledge the terms of the letter by a signature being 4 inserted. 5 Now, in short, are you aware whether that letter or 6 any other similar letter was ever agreed and signed on 7 behalf of the Council? 8 A. I have no knowledge that it was signed on behalf of the 9 Council. There were a number of occasions when I put 10 the question to Gill Lindsay as to whether this 11 Agreement had been concluded, and I received no 12 confirmatory response. 13 Q. What were your views at the time as to whether an 14 Agreement along these lines would have satisfactorily 15 protected the Council's interests? 16 A. I didn't think that it satisfactorily protected the 17 Council's interest. 18 Q. Why not? 19 A. I thought it was an odd situation from the start when it 20 was suggested that DLA, who had been working on the 21 project advising tie for something like four years 22 before this matter came up, could then say: all of the 23 work which we have done on tie's instructions are 24 effectively the same as if we had been acting throughout 25 for the Council as joint client. 25 1 Q. Why was that an odd situation? 2 A. It was difficult to see that there was any commonality 3 between tie and the Council, or rather full commonality 4 between the tie company and Council. 5 Much of the instructions to DLA, in fact all of the 6 instructions to DLA from 2003 up to 2007, had come from 7 tie. And the Council had little or very little input to 8 that. 9 Q. Thank you. I would like to move on to another document, 10 please. It's TIE00897231. We can see this is 11 a memorandum from Gill Lindsay, Council Solicitor, to 12 yourself, Mr MacKenzie. It's 17 August 2007, heading 13 "TRAM PROJECT". The first paragraph states: 14 "At this stage and after my numerous attempts to 15 secure discussion with you I am extremely concerned at 16 the content of your recent email re the position which 17 appears to have been reached as regards this Division's 18 input to the project." 19 What was your understanding of Ms Lindsay's 20 concerns? 21 A. Well, first of all, I wasn't aware of numerous attempts 22 to secure discussion with me. And it was a rather 23 strange memo altogether. 24 Q. Why do you say it was rather a strange memo? 25 A. Well, it spent more time in my view on dealing with 26 1 internal management matters than it actually did with 2 the significant point of the role of DLA on behalf of 3 tie and the Council. 4 Q. If we go then, please, to page 2. At the bottom of the 5 memo, we see a reference to: 6 "I attach hereto copy letter and initial draft from 7 Mr Fitchie which will require to be considered and 8 adjusted in light of the approved way forward for the 9 project. The draft requires to be revised to reflect 10 the content of my email of 10 August and 11 Andrew Fitchie's email of 16 August and to secure all 12 required interests ... It is critical that a response is 13 forwarded to DLA immediately and to that end I will make 14 time available later today to discuss this." 15 Do you remember discussing the matter with 16 Ms Lindsay at that time? 17 A. I remember certain discussions. Whether it was 18 discussed on 17 August, I can't be sure. 19 Q. The last page, please, page 3. Ms Lindsay states: 20 "Such is the importance of this project that 21 following discussion with Mr Fitchie, I took the 22 opportunity of updating the Director." 23 Which Director? 24 A. That would be Jim Inch. The Director of Corporate 25 Services. 27 1 Q. "In all the circumstances there will be no further 2 dialogue of this nature. Future communication must be 3 confined to advance the agreed way forward and I am 4 certain that we can successfully deliver this Division's 5 input to the project." 6 What did you understand by the sentence: 7 "In all the circumstances there will be no further 8 dialogue of this nature." 9 A. I understood that I was being told not to raise matters 10 of this nature. 11 Q. Did you follow that instruction? 12 A. No. 13 Q. Why not? 14 A. I felt that the matter -- first of all, I felt that 15 I hadn't received a satisfactory explanation as to why 16 no independent legal advice was going to be sought on 17 behalf of the Council as opposed to relying on the role 18 of DLA covering the Council's interest. 19 Q. Thank you. I would like to go to another document, 20 please, in this chain. CEC01567522. If we can start at 21 page 4, please. We can see from the top, this is an 22 email from Duncan Fraser dated 23 August 2007 to 23 Andrew Holmes, copied in to other people, including 24 yourself. The subject matter, "Recommendation to the 25 Council to accept Final Business Case and the Infraco 28 1 Contract". 2 We can read for ourselves what is set out there. 3 Then at the very bottom of the email: 4 "A team familiar with contract law and related 5 financial risks to this form of contract be appointed to 6 work with CEC and to inform the Council as to what 7 risk it is exposed to and how best to cover these risks 8 both legally and financially." 9 What was the purpose of this email? 10 A. This followed discussions in the B team about these 11 specific issues. 12 The client, in the shape of Duncan Fraser, was very 13 clear that from his perspective, and from the Council's 14 perspective, he wished that there be an independent 15 legal review carried out to inform the Council about the 16 risks that it was going to be -- possibly be exposed to 17 and how best to cover these risks. 18 Q. When you say the client, do you mean by that the client 19 department? 20 A. Yes, I do. 21 Q. So that's the City Development Department? 22 A. That's correct. 23 Q. I think the Director of that Department at the time was 24 Andrew Holmes? 25 A. Yes. 29 1 Q. Was he also of the view that he wished an independent 2 legal review, or was that simply Duncan Fraser was of 3 that view? 4 A. I think I can only state that it was Duncan Fraser's 5 view. I'm not sure what view Andrew Holmes took. 6 Q. Thank you. Move on to page 3, please, of this email 7 chain. Towards the bottom, an email from yourself dated 8 23 August 2007 to Gill Lindsay, I think forwarding the 9 email from Duncan Fraser we have just looked at. 10 We can see what is set out there. Then if we go one 11 up, please, we can see Ms Lindsay's response the same 12 day: 13 "Colin, we can discuss next week. Meantime please 14 action to completion as agreed DLA letter. Target was 15 to complete this week." 16 If we go to page 2, please, and at the top of the 17 page, this is an email from yourself dated 18 24 August 2007 to Gill Lindsay. In the second paragraph 19 you say: 20 "Since the receipt of DLA's draft letter of 21 appointment there has been a significant change of 22 direction in terms of an instruction from the client to 23 instruct a fully independent legal review." 24 Then a few paragraphs down, the paragraph 25 commencing: 30 1 "When we met on 20 August you expressed the view 2 that Andrew Fitchie's draft required some amendments. 3 I agree that it is not in the form which could be said 4 to best meet the Council's interests." 5 You then set out a number of comments on 6 Andrew Fitchie's draft, et cetera. 7 On the last paragraph, go back, please to page 3, 8 the last paragraph states: 9 "In my e-mail of 15 August I sought your guidance on 10 the way forward. Nothing new has been added to the 11 debate ... the clear choice ..." 12 You end by saying: 13 "If it is still your preferred course of action to 14 instruct DLA, could you please explain the basis upon 15 which you consider the above concerns to be unfounded as 16 it will be necessary to report the position to the 17 client. In such circumstances we would also appreciate 18 your comments on the amended wording for the DLA 19 letter." 20 Back to page 1, please. Bottom of the page, an 21 email from Ms Lindsay of 24 August 2007 saying: 22 "Colin, we met at length on Monday and again through 23 this week. We agreed that the letter from DLA would be 24 revised and finalised this week. Please ensure this is 25 actioned without further delay. I will not be utilising 31 1 time in addition to meetings to revisit issues. The DLA 2 letter must be concluded now." 3 At the top of the page we can see the end of this 4 chain is an email from yourself dated 27 August 2007 to 5 Ms Lindsay. About three paragraphs down, you say: 6 "With reference to the draft letter attached to said 7 e-mail [from Mr Fitchie] I propose the following 8 comments/amendments." 9 Then you set out certain matters we can read for 10 ourselves. 11 Then leave that, please, and go on to another 12 document, CEC01561179. This is a meeting of the 13 Property and Legal Group on 4 September 2007. You 14 appear to have been present at this meeting, along with 15 Duncan Fraser, Alan Squair and Nick Smith. 16 On page 2, please, it's noted about halfway down: 17 "Council Solicitor declined that opportunity to 18 appoint independent solicitors, instead choosing to rely 19 upon DLA letter of comfort to act in the Council's 20 interest subject to agreeing the appointment of DLA." 21 A little bit down: 22 "Group seeking confirmation through 23 Council Solicitor that the advice on contract from DLA 24 (Infraco) can be relied upon in full. 25 It is the belief of the group that it is still 32 1 prudent to seek legal advice before enabling the 2 contractual approval." 3 Did you regard the matter as closed at this time or 4 is it still ongoing, the question of whether to seek 5 independent legal advice? 6 A. I suppose the preference still existed that independent 7 legal advice be sought on behalf of the Council, but the 8 reality at that stage was that Gill Lindsay had taken 9 a decision to go with advice from DLA. 10 Q. Now, we've heard from Nick Smith that he had 11 a conversation with you in autumn 2007 about whether you 12 should individually or together inform the Council's 13 Monitoring Officer of your views, in particular in 14 relation to the decision not to obtain independent legal 15 review and the risks associated with that. 16 Do you have any recollection of that matter? 17 A. I don't, but it's not to say it didn't happen. I can't 18 say either way. 19 Q. Thank you. 20 Another email, please. CEC01567660. 21 Email towards the bottom of the page from yourself 22 dated 20 September 2007 to Gill Lindsay. In the second 23 paragraph you say: 24 "You made reference to the instructions given to 25 Andrew Fitchie. It would be helpful for us to receive 33 1 a copy of any formal letter of instruction sent to 2 Andrew, together with his acceptance of terms or 3 engagement letter. This would give us a good 4 understanding of his role and remit. Can you confirm 5 that DLA's appointment will endure through to financial 6 close and that by implication an external independent 7 legal review is not to be sought?" 8 Back to page 1, please. A response from Ms Lindsay, 9 20 September 2007, stating: 10 "Council has just ended. Have you discussed and 11 made arrangements with Andrew re tomorrow? Present 12 situation is as advised re DLA at present. Please 13 ensure as far as possible that discussions with Andrew 14 continue as quickly as possible." 15 Lastly, top of the page, please, an email from 16 yourself to Gill Lindsay dated 21 September 2007, the 17 second paragraph: 18 "I am sorry but I do not know what the 'present 19 situation' is with DLA's instructions. That was the 20 point of my question to you yesterday. I am not clear 21 if you have provided written instructions to 22 Andrew Fitchie, and, if so, what these instructions are. 23 I also look forward to hearing from you regarding 24 the duration of DLA's appointment, and how that sits 25 with an external independent legal review." 34 1 Now, it seems from these emails, Mr MacKenzie, that 2 you are assuming that Ms Lindsay is finalising the 3 question of the letter from DLA? 4 A. That was my understanding, but the terms of discussions 5 between Ms Lindsay and DLA, Andrew Fitchie, were not 6 obvious to us. 7 Q. Just to continue on that point, please, if we can go to 8 CEC01545855. We can see, if we scroll down a little, in 9 the middle paragraph -- middle email, you can see it's 10 an email from Andrew Fitchie dated 7 December 2007 to 11 yourself, Mr MacKenzie. Mr Fitchie states: 12 "Colin, you had asked Sharon for a copy of the 13 letter I proposed to Gill covering DLA Piper's Duty of 14 Care. It is attached. As mentioned, Gill 15 and I discussed this shortly after its production on 16 either 19 or 26 August. I had understood that there 17 might be some minor points that are requiring adjustment. 18 I confess that I did not follow through with Gill on 19 what these were. The best of my memory, Gill was going 20 to think on it and let me know, but the thrust of the 21 letter stands most certainly. 22 "If you would like this signed now, let me know." 23 Top of the page, please. Email from yourself dated 24 7 December to Mr Fitchie saying: 25 "I am obliged to you for digging out this 35 1 correspondence. Gill returns from leave early next week, 2 so I shall forward the papers to her for her to attend 3 to, consistent with your earlier dealings." 4 I think lastly on this point, if we can go, please, 5 to another document, CEC01400601. 6 This is an email from yourself dated 18 January 2008 7 to Gill Lindsay, which starts by saying: 8 "As indicated in my message yesterday I would write 9 to you about risks in the context of the relationship 10 with DLA. We also had a telephone discussion, during 11 which you expressed your preference for a letter from 12 DLA without any caveats." 13 I think to avoid confusion, that may be a reference 14 to the letter from DLA advising or in relation to the 15 contract rather than the letter from DLA to the Council 16 in terms of any duty of care owed by DLA to the Council. 17 But the next paragraph states: 18 "I have gone back through the file to consider the 19 correspondence with Andrew Fitchie in the run-up to the 20 Council meeting on 20 December 2007. Early in that 21 dialogue I queried whether the appointment of DLA had 22 been put in place. I also wrote to you on 7 December. 23 Can you please confirm the nature of the appointment of 24 DLA: is there either a Duty of Care or full agency in 25 place? Clearly that is part of our internal due 36 1 diligence. It would be helpful to have a copy of the 2 formal arrangements for the file." 3 So at this point, 18 January 2008, it appears you've 4 still not seen a copy of any finalised agreement or 5 letter from DLA to the Council; is that correct? 6 A. That's correct. 7 Q. Did you ever see such a letter, agreed letter or 8 agreement? 9 A. No, I did not. 10 CHAIR OF THE INQUIRY: I see in the third paragraph of that 11 letter that there's -- you say: 12 "Ultimately we received a letter dated 16 December 13 from Sharon [Fitzgerald]/Andrew, with advice from the 14 latter that said letter be not appended to the Council 15 report." 16 Did you understand what that was about? 17 A. I think from memory, my Lord, that -- that was more to 18 do with -- sorry, less to do with the appointment of DLA 19 as acting on behalf of the Council and more to do with 20 DLA's advice on the contract suite. 21 I think there was an anxiety on the part of DLA that 22 any advice that they were giving to the 23 Council Solicitor should not go as an appendix to the 24 Council report, which was going to be considered in 25 public. 37 1 MR MACKENZIE: So I would like to move on from that line 2 we've just been looking at to look at the role of 3 Mr Fitchie around this time. 4 If we could go, please, to document CEC01399996. 5 The second email on the page we can see is an email 6 from yourself dated 23 November 2007 to Gill Lindsay. 7 The second paragraph states: 8 "It appears clear to us that following 9 Andrew Fitchie's move to tie, there has been little or 10 nothing in the way of discussions between 11 Sharon Fitzgerald and Council officials as to ongoing 12 contractual negotiations with BBS. On the face of it, 13 no instructions have been sought from the Council in 14 respect of the Council's interests in the outcome of the 15 negotiations. Since Andrew's appointment as a Director 16 of tie it is fair to say that he can only act in that 17 company's best interests." 18 We can read for ourselves what's in the second 19 paragraph, and then the top of the page, please, 20 Gill Lindsay replies on 23 November 2007: 21 "Please write to Sharon Fitzgerald as agreed and 22 meet as agreed. She can advise us directly of DLA's 23 position and we will update LAG Monday." 24 Then please go to a document shortly afterwards, 25 CEC01500853. We see this is a minute of a meeting of 38 1 the CEC/tie Legal Affairs Group on 26 November 2007. We 2 can see, I think, Mr MacKenzie, you were in attendance. 3 We can see also under "Apologies" that Mr Fitchie was 4 not, and in fact we can see from those in attendance 5 that there's no one attending on behalf of DLA. 6 Can we then please go to page 6. It's stated in 7 this minute: 8 "DLA Duty of Care. 9 Colin MacKenzie asked about the status of 10 Andrew Fitchie in relation to signing off the INFRACO 11 Contract. It was noted that DLA would report to the 12 Council independently of Andrew Fitchie who would be 13 acting in his tie Contracts Director role." 14 Now, to pause there, why were you under the 15 impression that Mr Fitchie was acting in a tie Contracts 16 Director role? 17 A. I think it had been made known to us that he had been 18 seconded into tie and was being employed or fulfilling 19 the role of Contracts Director. 20 By implication, that -- not that he'd cut his ties 21 with DLA, but that he was full time seconded to tie. 22 Q. Was there any discussion of that matter that you can 23 recall at this meeting on 26 November 2007? 24 A. I'm afraid not, other than just the minuting of it. 25 I can't recall the extent of discussions. 39 1 Q. If we could then please go to another document in the 2 same line, CEC01544715. We can see this is an email 3 from yourself, Mr MacKenzie, dated 28 November 2007 to 4 Sharon Fitzgerald. The second paragraph states: 5 "The Legal Affairs Committee of tie on Monday noted 6 that DLA would report to the Council independently of 7 Andrew Fitchie, who would be acting in his tie Contracts 8 Director role. Following that meeting the 9 Council Solicitor has instructed me to ensure we have 10 DLA's advice on the contract terms being negotiated, 11 leading up to the Council report of 20 December." 12 You then say: 13 "I believe that the formal relationship between the 14 Council and DLA was a matter dealt with by Gill Lindsay 15 and Andrew Fitchie. I therefore presume that you are 16 happy to continue that relationship for the purposes of 17 providing advice to the Council Solicitor in relation to 18 the following matters." 19 We can then read for ourselves what these matters 20 were to be. Now, do you remember receiving a response 21 around this time, whether from Mr Fitchie, 22 Sharon Fitzgerald or anyone else, that your 23 understanding set out in this email was incorrect? 24 A. I don't recall receiving anything, but my memories of 25 events these years ago are not perfect. 40 1 Q. Now, in the event what happened at this time, so late 2 2007, late November into December 2007, what happened, 3 in that did the Council receive advice from DLA 4 independently of Mr Fitchie, do you know? 5 A. I don't recall seeing anything independently. There are 6 a number of letters produced, in fact a whole series of 7 them, on DLA headed notepaper, and in looking at these 8 documents in preparation for the Inquiry over the last 9 few days, I noted that quite a few of these documents 10 actually bore the reference AF, which signified 11 Andrew Fitchie. 12 Q. Thank you. I think what I intend to do is to -- because 13 these various letters from DLA were sent to Ms Lindsay, 14 I think I'll go over them in detail with her. We can 15 remember to check the references when we do that. 16 Now, finally on this point, Mr Fitchie's position is 17 that as a matter of fact he did not become a director or 18 employee of tie, and that he remained acting as 19 a partner of DLA throughout this period. Are you in 20 a position to dispute that? 21 A. I cannot dispute that. 22 Q. Was that position made clear to you at the time? 23 A. No, it was not. 24 Q. I would like to now move on to another matter, please, 25 and to look at the role of the Council legal officers in 41 1 relation to the tram project, but in particular the 2 Infraco contract. 3 If I could start, please, with a document 4 CEC01567527, we can see the second half of this email -- 5 this page, there's an email from Jonathan More of tie, 6 dated 23 August 2007 to yourself, Mr MacKenzie. We can 7 see in the second paragraph: 8 "Please find attached to this email the draft 9 Infraco contract which is currently in the process of 10 fairly intensive negotiations." 11 Then at the top of the page, please, an email from 12 yourself dated 27 August 2007 to Nick Smith, copied into 13 Gill Lindsay and Alan Squair. You say: 14 "Nick, I have been directed by the Council Solicitor 15 to instruct you to read through the attached documents 16 received from tie. This is top priority and I would 17 like to hear from you by Wednesday afternoon, with your 18 views on the implications for the Council on risks, 19 liabilities, step-in rights, etc. This report is 20 for internal consumption only." 21 When you say you had been directed by the 22 Council Solicitor to instruct Mr Smith to read through 23 the attached documents and provide a report, is there 24 anything significant in your use of the words "directed 25 by the Council Solicitor to instruct you"? 42 1 A. Yes. These were words deliberately used to signify to 2 Nick that I was being told by the Council Solicitor to 3 tell him to read through the documents and give a report 4 to Gill Lindsay, and this was against a background on 5 the correspondence we've looked at earlier this morning 6 where we said (a) we didn't have the experience to 7 properly protect the Council's interest on these 8 matters, and also our view that the Council's interests 9 would be best served by an external or independent legal 10 review of the tie contract. 11 Q. What were your views then of Mr Smith being instructed 12 to do that? 13 A. I thought it was an unfair task. Standing the view 14 which the small group had taken and expressed to 15 Gill Lindsay, and also the -- it was very tight 16 timescale to look at a considerable number of documents. 17 Q. The next document, we'll see Mr Smith's response. 18 CEC01564795. At the top of the page we see it's an 19 email from Mr Smith dated 28 August 2007 to yourself. 20 He states: 21 "Given the nature of our recent discussions and the 22 content of your recent emails to Gill, I was somewhat 23 surprised to receive your email this morning." 24 We can see what is set out for ourselves in the 25 second paragraph. Then the third paragraph, towards the 43 1 end, rather in the middle: 2 "As discussed with you at length, anything less than 3 a comprehensive review of risks and obligations would 4 not be in my view be in the Council's best interests 5 and I would be failing in my professional obligations if 6 I did not raise this issue with you. Unfortunately, 7 given the circumstances, it will not be possible for me 8 to respond as requested." 9 Finally: 10 "As discussed, I look forward to being able to 11 assist yourself and Alan with other more appropriate 12 matters in relation to the Tram project." 13 So in short, Mr Smith said no to the instruction? 14 A. Correct, and understandably so. 15 Q. What was your response? 16 A. I can't remember if I gave a response, but I -- in 17 writing, that is, but looking at this correspondence, 18 I fully understood why he had taken the view and I did 19 not see it as defying me. 20 Q. Did you advise Ms Lindsay of Mr Smith's response? 21 A. I probably would have. It's not a matter -- I doubt if 22 I would have left it lying because obviously there was 23 a timescale put on it by Gill Lindsay in her 24 instruction. 25 Q. Do you have a clear recollection of having advised 44 1 Ms Lindsay of Mr Smith's response? 2 A. No, I don't. 3 Q. So what was your understanding of the role Mr Smith was 4 prepared to take in relation to the tram project and 5 contracts and what role he did take? 6 A. Well, I think it's clear from this that he had drawn 7 a line and said it was not appropriate or in the 8 Council's best interests for him to look at the contract 9 documentation. In the final paragraph he said he looked 10 forward to being able to assist myself and Alan Squair 11 with other more appropriate matters, and he did in fact 12 go on to do that, taking lead role in terms of the draft 13 Operating Agreements between the Council and tie on one 14 hand and TEL on the other hand, and developed quite 15 a role beyond these matters as well. 16 Q. So it was your clear understanding that Mr Smith was not 17 prepared to review or advise on the Infraco Contract, 18 including the risks arising from that contract? 19 A. Yes. 20 Q. Was Ms Lindsay made aware of that? 21 A. Again, I suspect yes, but I can't recall. 22 Q. What was your position? Were you prepared to review and 23 advise on the Infraco contract, including the risks 24 arising from that contract? 25 A. No, I was not. 45 1 Q. Was Ms Lindsay aware of your position? 2 A. Yes. 3 Q. How was she made aware of your position? 4 A. I recall or suspect that I would have told her as well 5 that neither Nick nor myself were prepared to undertake 6 it. 7 Q. Is it possible that Ms Lindsay was unaware of the 8 positions adopted by yourself and Mr Smith, and is it 9 possible that she was under the impression that in fact 10 yourself and/or Mr Smith were in fact reviewing the 11 contract, including the risks arising from the contract? 12 A. I think it's unlikely she would be unaware of it. As 13 time went on, I did look at certain -- or was asked to 14 look at certain parts. Very late in the day, I recall 15 having a look at Schedule Part 4 about a month before 16 financial close. But that was pretty much the extent of 17 looking at the contract. 18 Q. I will come back to that particular matter. 19 If we just go back to your statement -- 20 CHAIR OF THE INQUIRY: Before doing that, and before leaving 21 this email, Mr Smith, in the second paragraph, says that 22 his understanding from you was that City Development and 23 Finance had urgently requested an external legal review, 24 and that was mentioned in a paper to Councillor 25 MacKenzie. 46 1 Can you tell us something about that? What's your 2 recollection of that? 3 A. I think that goes back to meetings which we'd had of the 4 B team. 5 I think they were taking place on a regular basis. 6 It was obviously a matter which was discussed within the 7 team, the developing situation about the contracts, and 8 I think we'd looked at -- earlier at a minute of 9 a meeting where Duncan Fraser had been particularly keen 10 for an independent review of the contract documents to 11 establish the risks which the Council might be made 12 liable for. 13 CHAIR OF THE INQUIRY: But -- we've seen Duncan Fraser's 14 email but it also mentions finance. So finance 15 confirmed that there should be an independent legal 16 review? 17 A. My recollection, my Lord, is that finance were also -- 18 they had representatives on the B team in the shape of 19 Alan Coyle and Rebecca Andrew, and that there was 20 unanimity about an independent legal review. 21 MR MACKENZIE: Thank you. If we can look, please, to your 22 statement to page 28. The top of the page, line 2: 23 "In effect we were left to run with the preferred 24 option adopted by the Council Solicitor, namely relying 25 on DLA. CEC Legal did not conduct a separate assessment 47 1 of the evolving contract documentation." 2 So is that essentially a reference to what we've 3 just discussed, that neither yourself nor Mr Smith were 4 prepared to review and advise on the Infraco Contract? 5 A. That's correct. 6 Q. Again at page 44, paragraph 94, perhaps we can blow that 7 up and read for ourselves. The reference in the second 8 sentence, "Later on we were asked to comment", is that 9 a reference to the emails we just looked at between 10 Nick Smith and yourself? 11 A. It might have been, but equally it might have been later 12 in the day, as I mentioned a few minutes ago, by 13 receiving a copy of Schedule Part 4 in April of 2008. 14 I think that might have been the reference I was making 15 there. 16 Q. In the next paragraph in the statement, please, 17 paragraph 95, on the same page, it's a matter of 18 clarification. You say here: 19 "Gill Lindsay did not agree that a third party at 20 this juncture should take a view and advise CEC. She 21 had determined with Andrew Fitchie the way forward and 22 it was 'all hands to the pump'." 23 What do you mean by all hands to the pump? 24 A. I think what I'm saying there is that the decision had 25 been taken to use Andrew Fitchie and DLA notwithstanding 48 1 the preference which had been expressed by myself and 2 Nick Smith for an independent legal review. So it was 3 a case of just get on with it and this is the way that 4 the Council's interest will be protected. So move along 5 with it. 6 Q. So get on with it, but without yourself or Mr Smith 7 reviewing and advising on the Infraco contract, 8 including the risks arising from that contract? 9 A. Yes, that's correct. 10 Q. Were you aware whether Ms Lindsay was reviewing and 11 advising on the Infraco contract? 12 A. I cannot say either way. I knew that she had certain 13 discussions with Andrew Fitchie and some meetings, 14 because I was occasionally passed or copied into an 15 email between the two, and that referred to telephone 16 discussions of the occasional meeting, and I think also 17 that I was aware that Gill Lindsay was also having 18 discussions with Graeme Bissett of tie. 19 Q. Could I also clarify a matter at page 107 of your 20 statement, please. 21 If we go to the top of the page and paragraph 220, 22 just to give the context, it was an email from 23 Andrew Fitchie to Richard Jeffrey dated 11 June 2010, in 24 which Mr Fitchie had responded to a suggestion by 25 Nick Smith that: 49 1 "If CEC legal had been more heavily involved first 2 time round we wouldn't be in the mess we are in now." 3 Could we then please look at paragraph 221 below 4 that. You say: 5 "I wouldn't have welcomed more involvement for CEC 6 Legal (those persons below Gill Lindsay). I think, at 7 the time, there was a deliberate and considered approach 8 taken by the Legal Team about roles (whether we liked 9 them or not). The approach was that DLA were there to 10 advise TIE given that the contract was between TIE and 11 BSC. More involvement by CEC legal would have muddied 12 the waters with regards to the contract negotiations or 13 the drafting of the contracts. Too much had been done 14 by the time we began to be involved in looking at risk, 15 etc." 16 So is that again consistent with the approach you've 17 explained to us this morning? 18 A. Yes, it is. 19 Q. Before we leave this line, just for the avoidance of 20 doubt, was anyone in the CEC Legal Team advising the 21 Council on the Infraco contract? 22 A. No. 23 Q. Including Ms Lindsay? 24 A. I can't be absolutely sure about that. Is your question 25 relating to the Council as -- in terms of Council 50 1 meetings, reporting to the Council on the contract, or 2 are you asking whether Gill Lindsay was advising Council 3 officers? 4 Q. It's in relation to advising the Council as a corporate 5 body. So it's not particularly to members, but advising 6 the Council as a body on the contract. 7 A. I doubt if she was. 8 Q. Why do you say that? 9 A. I suppose it's perhaps more accurate to say I'm not 10 aware whether she was. 11 Q. I can perhaps explore that with Ms Lindsay. 12 One final document in 2007, if I may, before we 13 break, if that would be convenient. 14 Could we go, please, to CEC01398245. This is 15 a Highlight Report to the Internal Planning Group on 16 11 December 2007. Can we go, please, to page 91. Now, 17 we've heard evidence that in short this was a briefing 18 paper provided by the B team to the directors. Do you 19 recollect that? 20 A. Yes, I do. 21 Q. What was the purpose of this briefing paper? 22 A. I think, as it says in the introduction, it was to 23 provide an update on current developments for the 24 Chief Executive's Internal Planning Group. 25 Q. Do you remember contributing to the paper? 51 1 A. Yes, some aspects of it I would have. 2 Q. If we could perhaps just look at some of the headings to 3 remind you of the content. We can see 2, "Grant Award 4 Letter", 3, "Potential Additional Project Costs". Over 5 the page, 3, pause under "Quantified Risk Allowance". 6 Paragraph 4.1 states that: 7 "The current risk allowance stands at GBP49 million. 8 This figure drops to GBP34 million following financial 9 close due to a number of risks being closed out at that 10 point. This reduction is subject to a number of 11 caveats, not least a 100% fixed price and 12 100 per cent fixed time for the contract being in place 13 at contract close. CEC have now been supplied with the 14 latest QRA for investigation." 15 Do you know what is the basis or foundation of this 16 statement that the reduction in the risk allowance at 17 contract close is based on a number of caveats, 18 including a 100 per cent fixed price and 100 per cent 19 fixed time for the contract being in place? 20 A. I think that information could only have been supplied 21 by tie to City Development and Finance officers. 22 Q. Do you know who in tie provided that? 23 A. I do not. 24 Q. Thank you. Reading on we see then item 5, 25 First Scotrail. Item 6, Utilities, at the bottom of the 52 1 page, and then on, please, to page 93. Consents/Prior 2 Approvals/Incomplete Design. It's the matter set out. 3 Page 94, item 8, Third Party Agreements; 9 4 Governance; 10, PI Cover/Guarantee. 5 Page 95, item 11, Operating Agreements and item 13, 6 contract risk. 7 Page 96, if I could pause, please, at 8 paragraph 13.4, it states: 9 "There is also the issue that Council officials do 10 not understand the contract nor have had any independent 11 review of the contract document." 12 Does that relate back to matters we discussed this 13 morning? 14 A. Yes, it does. 15 Q. Then paragraph 14.2 states: 16 "The Council members are committing to the biggest 17 project it has ever undertaken and as Council officers 18 we must ensure we are presenting them with enough 19 information to allow them to make a competent decision." 20 Then finally, please, page 97, paragraph 16.1 21 states: 22 "Guidance is being sought from Council Officers from 23 the Directors of Finance and City Development on how the 24 issues detailed above should be reported in the Council 25 report of 20 December 2007." 53 1 Then the last paragraph: 2 "Guidance is being sought from Council Officers 3 providing input to the Council report on 4 20 December 2007 on the issues detailed above 5 whether the Council is well informed enough at this 6 stage in proceedings whether a report on the 7 20th December 2007 is appropriate given the outstanding 8 issues." 9 What were your views, Mr MacKenzie, at this time as 10 to whether the Council was well informed enough to make 11 a report at that time appropriate? 12 A. I think my recollection was that I was advocating 13 a cautious approach. There was still information being 14 awaited from tie and there were developing risks such as 15 the misalignment between the SDS contract and the 16 Infraco contract. 17 So there were a number of issues of concern which 18 exercised my mind and made me wonder what could and 19 should be reported to the Council on 20 December 2007. 20 Q. Do you have any recollection of the discussion at this 21 meeting of the IPG? 22 A. I don't. 23 Q. Do you remember the decided outcome? 24 A. I think the outcome was that -- sorry, clearly the 25 outcome was that the report -- our report would go 54 1 forward to Full Council on 20 December. 2 Q. Thank you. 3 My Lord, that may be an appropriate place. 4 CHAIR OF THE INQUIRY: One thing. You referred, if you go 5 back to page 92 of this document, you referred to 6 paragraph 4.1 about QRA and the last sentence says: 7 "CEC have now been supplied with the latest QRA for 8 investigation." 9 Who would get that? Which department would that be 10 sent to? 11 A. I think initially, my Lord, these QRA reports were sent 12 to Finance Department. I'm very clear on that. Whether 13 they were also sent to City Development officers, I'm 14 not quite as clear. But certainly it was very much 15 within the sphere of interest of the finance officials. 16 CHAIR OF THE INQUIRY: It speaks about investigation, which 17 might suggest that you had someone who knew about QRA 18 who was going to look at the material. 19 A. Yes, I think that would probably be somebody like 20 Alan Coyle who was one of the senior or managing 21 accountants within the Finance Department, and he also 22 was a member of the B team. 23 CHAIR OF THE INQUIRY: Do you know what form this 24 information took? Was it, for instance, just a one-page 25 or two-page schedule, or would it be a detailed 55 1 print-out identifying all the risks and showing the 2 output of a computer analysis? 3 A. I think it was probably, my Lord, the latter. 4 Reasonably extensive as far as I can recall, outlining 5 each of the risks and putting a price against each risk, 6 as far as that was known. 7 CHAIR OF THE INQUIRY: Thank you very much. We are going to 8 have a break for the benefit of the shorthand writers. 9 But you take advantage of that if you want a cup of tea 10 or coffee. 11 We will resume again at 11.25. 12 (11.10 am) 13 (A short break) 14 (11.28 am) 15 CHAIR OF THE INQUIRY: You're still under oath, 16 Mr MacKenzie. 17 MR MACKENZIE: I would like to turn now to look at events 18 between January and May 2008, and just deal with things 19 in turn. 20 If I could start, please, with a document 21 CEC01400439. We can see from the top this is an email 22 dated 3 January 2008 from Gill Lindsay to yourself and 23 copied into Mr Squair and Nick Smith. 24 In the second paragraph, Ms Lindsay says: 25 "As you know Council approved a series of 56 1 recommendations on 20 December which require a range of 2 significant work and progress to be in place prior to 3 financial close. 4 It is imperative that we fully support work and 5 progress towards delivery. Can you please ensure that 6 all possible resources relating to this Project are 7 utilised on a full-time basis as agreed to support the 8 legal work which requires to be undertaken as a matter 9 of the utmost urgency during January and leading to 10 financial close." 11 What did you understand by the reference to "ensure 12 that all possible resources relating to this project are 13 utilised on a full-time basis as agreed"? 14 A. I think that was a clear message to give absolute 15 priority to working on the tram project, and any other 16 litigation matters were to be set aside or delegated to 17 other members of my team. 18 Q. What did you understand by the reference to "support the 19 legal work which requires to be undertaken"? 20 A. I think that was just a general reference to supporting 21 the Council Solicitor on any and all of such work that 22 was required in terms of due diligence, preparing for 23 ultimately financial close. 24 Q. Is this email consistent with the position of yourself 25 and Nick Smith you explained earlier this morning that 57 1 neither of you were prepared to be involved in reviewing 2 or advising on Infraco contract? 3 A. It's difficult to answer that. I'm not sure, looking at 4 this email, if Gill Lindsay has taken that on board. 5 That was clearly still our position, that we would 6 not be reviewing the draft Infraco contract, and I don't 7 see an express reference or instruction to do that other 8 than the general support the legal work required to be 9 undertaken. 10 Q. You see, that's why I asked the question that I can 11 quite see from your evidence that you say you and 12 Mr Smith were quite clear of your position. What I just 13 wonder is whether Ms Lindsay was made quite clear of 14 your position. 15 A. I'm not sure if one can derive an answer from looking at 16 this email, and I recall saying earlier I think I would 17 have told her Nick's position and my own position back 18 several months before this, and in any event I recall 19 that she had given a deadline for reviewing and 20 reporting on the contract terms which was a pretty short 21 period of time. 22 So my best recollection is that not having delivered 23 that report to her, she would have been aware what our 24 position was in relation to not reviewing the contract. 25 Q. What was the procedure and practice around this time of 58 1 the Council Solicitor being kept up to date of the work 2 being undertaken by her team? Was that done by writing? 3 Were there weekly meetings or what? 4 A. My recollection is that there was a variety of means. 5 Particularly as we were heading towards financial close, 6 there would be regular meetings, sometimes there would 7 be matters which required a written report, a written 8 update to Gill Lindsay. Other times we would be at 9 meetings together -- at the Legal Affairs Committee 10 meetings together in CityPoint where tie were based. 11 So there was a variety of means of communication. 12 Q. The final paragraph in this email, or perhaps the 13 penultimate one, states: 14 "Can you please ensure you have constant interface 15 with Sharon Fitzgerald of DLA in respect of 16 understanding and recognising and providing instructions 17 as appropriate in respect of progress towards financial 18 close and risk assessment on the principal contracts." 19 What did you understand by that? 20 A. I think it was just a continuation of the role which 21 Andrew Fitchie had held before he became a -- took up 22 full-time work in tie's offices. My recollection was 23 that this was just continue as before. 24 Q. As a matter of fact did you have constant interface with 25 Sharon Fitzgerald in respect of these matters between 59 1 January 2007 and -- January 2008 and May 2008? 2 A. No, I don't recall that there was much contact at all. 3 Q. Why not? 4 A. I simply can't remember that. There continued to be 5 contact with Andrew Fitchie. I can remember maybe one 6 or two meetings with Sharon Fitzgerald, but certainly 7 not much in the way of written reports. And I think 8 these meetings were probably to do with drafting of the 9 Council's agreement in relation to -- sorry, the 10 guarantee by the Council in favour of or in respect of 11 tie's obligations through the Infraco contract. 12 Q. I would like to turn to another matter. We've heard 13 evidence from previous witnesses that the concerns of 14 the B team set out in the briefing note we looked at 15 just before the break were to be addressed by certain 16 deliverables being obtained from tie before contract 17 award. Does that accord with your general recollection? 18 A. Yes, that's correct. 19 Q. If we can go, please, in that regard to document 20 CEC01485884. We can see from the top, this is an email 21 from yourself dated 10 January 2008 to Susan Clark 22 and Alasdair Sim at tie, copied in to others. Subject, 23 "EDINBURGH TRAM: CONTRACT DELIVERABLES", and we can see 24 then below that: 25 "Susan and Alasdair, I have met with colleagues from 60 1 Finance and City Development to discuss the Deliverables 2 Paper which you drafted. Following that meeting I'm now 3 in a position to forward the Council's requirements." 4 1: 5 "Contract." 6 We can see for ourselves what is set out there. 7 Just above "Programme", we also see the sentence: 8 "tie to advise on current status of MUDFA contract 9 and whether it has potential to hold up BBS contract and 10 result in increase in costs." 11 And 2, Programme, and understanding of programme 12 risk. 3. Employers' Requirements. 4, Due Diligence: 13 "Statement from the preferred bidder that they 14 accept the performance run-time model and 'law of 15 physics' results and confirmation of acceptance of the 16 emerging quality of design." 17 5, Risk. Over the page, please: 18 "There is a need for full transparency within the 19 QRA, therefore 20 tie to produce a summary statement on QRA ..." 21 With certain details set out, under (a), (b) and 22 (c), including (c): 23 "Detailed analysis of programme risk ..." 24 6, Value Engineering. 7, Pricing. We can see 25 what's set out there. 8, Funding. 9, Network Rail 61 1 Assurances, and 10, SDS Assurances. 2 "Full written explanation of SDS Novation to be 3 provided by tie, including risks of failing to deliver 4 design: will this lead to an extension of time claim and 5 additional costs payable to BBS? 6 Full details are required from tie on status and 7 degree of completion of SDS design work as at 8 14 January 2008, including prior and technical 9 approvals. If approvals risk is not being transferred 10 to BBS the Council needs to know the impact and 11 likelihood of the risks and a strategy for managing the 12 risks." 13 Over the page: 14 "tie to confirm that public sector (tie and CEC) do 15 not pick up cost of any delays in Planning Authority or 16 Roads Authority processing prior and technical 17 approvals." 18 Then the other matters we can read for ourselves. 19 So what was the purpose of this list of contract 20 deliverables? 21 A. The purpose was -- had to be seen in the context of the 22 decision which was taken by Council on 20 December. 23 Another milestone of approving the financial Business 24 Case and then moving on to take the preparatory steps 25 leading ultimately to financial close. 62 1 So these were a list of topics drawn up effectively 2 by the B team, informed by the detailed Council decision 3 as to how we were to work with tie and what to require 4 of them before they could be said to satisfy the Council 5 that it was appropriate for them to receive authority to 6 sign the contracts, and also having reference to the 7 fact that Council had put in place a mechanism whereby 8 the Chief Executive received delegated powers to grant 9 authority to tie to enter into the contracts, once he 10 was satisfied on receiving an all clear from the 11 Director of City Development, the Director of Finance 12 and from Gill Lindsay. 13 As part of that obviously there would be discussions 14 between Gill Lindsay and the two Directors as to their 15 level of satisfaction on all of these matters. 16 Q. Were all of the matters set out in this email addressed 17 and resolved to your satisfaction before contract close? 18 A. I think most of them. The one which does stand out is 19 the issue in relation to the mismatch on the design 20 issue between the SDS contract and the Infraco contract 21 and the risks flowing from that. 22 Q. Why do you refer to that as a mismatch? 23 A. There was a -- I think the contract entered into between 24 tie and Parsons Brinckerhoff as the SDS provider, 25 I think it was entered into, from memory, about 2003. 63 1 And my understanding is that it was the intention of tie 2 that all of the design drawings would be completed 3 before Infraco was concluded. Therefore allowing the 4 Infraco contractors to have a complete design package 5 and say yes, we price on this basis. 6 Had that been the case, there would have been much 7 less of a risk in the overlap. 8 Q. Were you ever clear before contract close of who was 9 accepting that risk in relation to the mismatch you have 10 described? 11 A. Well, it seemed to shift over the period from 12 December 2007. I think early on it had been stated, 13 perhaps optimistically, that all of the risk had been 14 passed to the Infraco, but as the months wore on, and we 15 got to see various reports from DLA, it was clear that 16 the risk was mixed, and when it came to financial close, 17 it was clear that the risk had not been passed entirely 18 to the Infraco, and the risk of design and consents was 19 being borne by tie and ultimately the Council. 20 Q. Thank you. It's a small point of detail. I think you 21 referred to the SDS contract as having been entered into 22 in 2003. I think in fact it was 2005. 23 A. I stand corrected, thank you. 24 Q. The next document, please -- 25 CHAIR OF THE INQUIRY: Before we do that, one of the other 64 1 things that Council seemed to be interested in was the 2 confirmation from tie that the public sector wouldn't 3 pick up the cost of delays in the planning authority or 4 roads authority processing prior to technical approvals. 5 Did you ever get confirmations from tie to that effect? 6 A. I don't think it was finally closed out, my Lord. It 7 was a matter of concern to me and had been for a number 8 of months that the Council was acting as promoter, but 9 it also had a role as roads authority and planning 10 authority, and these were under separate statutory 11 regimes, with pretty tight or regulated timescale; and 12 I was conscious of the fact that the Council's role as 13 promoter and supporter of the tram project might 14 sometimes not sit that easily with its statutory roles 15 of planning and roads authority. 16 CHAIR OF THE INQUIRY: But it was the -- who was going to 17 bear the risk of delays in the Planning Authority or the 18 Roads Authority granting consents; is that what was 19 being required? 20 A. Yes. Yes, indeed, my Lord. 21 MR MACKENZIE: Thank you. 22 The next document, please, is CEC01400919. This is 23 an email from yourself dated 19 February 2008 to 24 Gill Lindsay. There's a reference to LAC meeting last 25 night, and today's PLIG meeting. Second last paragraph, 65 1 you say: 2 "The position regarding novation of the SDS contract 3 to BBS was given next to no clarification last night, 4 with a contradictory explanation from tie. 5 I regret I have to record with you my concern about 6 tie's lack of transparency and co-operation with Council 7 officers. I do not take this personally, but find it 8 unacceptable that the Council is constantly having to 9 press tie for relevant information and face an evasive 10 response." 11 Can you explain a little more your concerns set out 12 there? 13 A. Well, obviously the Council was looking for a list of 14 deliverables to feed into the decision to give tie 15 authority to sign the contracts, and some of these 16 deliverables were just not forthcoming as and when the 17 Council expected them to. 18 It's interesting that the reference there that 19 I make, "this is hardly conducive to a good working 20 relationship". I go back to probably a number of months 21 before that, back in 2007, where the Council's 22 Chief Executive had basically set up the Legal Affairs 23 Committee, who may have had discussions with 24 Willie Gallagher in tie about it. 25 But I think for a long period the B team had been 66 1 disappointed or frustrated with lack of transparency and 2 delivery of facts and information to the Council. 3 I think although I wasn't at the first meeting of 4 the Legal Affairs Committee back in July of 2007, 5 I think it was -- it was introduced on the basis that 6 there would be no surprises and that there would be much 7 closer work between tie and the Council. 8 So by making this statement six, seven months later, 9 I was disappointed in having to report. I use the word 10 advisedly: 11 "I regret I have to record with you my concern about 12 tie's lack of transparency and co-operation ..." 13 Q. Thank you. Next document, please, is CEC01400987. 14 Over the page to page 2, please. Halfway down the 15 page, we see an email from yourself dated 16 28 February 2008 to Gill Lindsay, subject matter, 17 "EDINBURGH TRAM: CHIEF EXECUTIVE'S DELEGATED AUTHORITY". 18 In the first paragraph: 19 "Following our discussion earlier this week, I have 20 considered whether the Chief Executive is still able to 21 validly exercise the powers delegated to him by Council 22 on 20 December 2007, given the developments since then." 23 Paragraph 3: 24 "You will recall that the report in December 2007 25 was intentionally crafted to ensure that the approval 67 1 process to contract award was staged, given the serious 2 concerns expressed by officers about the many unresolved 3 and unquantified issues then outstanding, which will 4 have implications for the Council by virtue of the 5 guarantee." 6 Then the next paragraph: 7 "The question that now falls to be answered is 8 whether there has been any material change in what was 9 reported to Council on 20 December 2007. My view is 10 that there has been material change in a number of 11 aspects, which I set out below for your consideration." 12 Over the page to page 3, please. In the second main 13 paragraph you say: 14 "The LAC has received a number of update reports 15 from tie since the turn of the year which have caused, 16 and continue to cause, concern for Council officers. 17 I think it is fair to say that the number one risk for 18 the Council now is the SDS novation, and the costs of 19 dealing with that. It is still not clear (because the 20 Council is not kept fully advised of ongoing discussions 21 between tie, SDS and BBS) what the implications are for 22 the Council legally and financially." 23 The last two paragraphs: 24 "The consequences flowing from the facts above lead 25 me to recommend to you that the Chief Executive should 68 1 report to Council on 13 March 2008 updating members on 2 the material changes to the FBC and seeking a fresh 3 instruction to permit (or instruct) tie to issue the 4 Contract Award Notice ... That, of course, would be 5 subject to the earlier caveat that the Chief Executive 6 is satisfied that all remaining due diligence is 7 resolved. At the time of transmitting this report to 8 you there has been no further update from tie on the 9 various discussions with SDS and BBS, and we have still 10 to receive the first revised QRA since late last year. 11 I have held this paper back to see if there are any more 12 hard facts from tie; alas, no update." 13 Finally: 14 "From a solicitor's perspective one has a duty to be 15 honest and transparent with the Council as client ..." 16 So clearly at this stage, Mr MacKenzie, you were 17 concerned that things had changed from the report to 18 Council in December 2007 and that the matter should go 19 back to Council for fresh authorisation to complete the 20 contract? 21 A. That's correct. 22 Q. Then if we go to page 1, please, to see Ms Lindsay's 23 response, at the very bottom of the page, an email from 24 Ms Lindsay, dated 29 February 2008 to yourself. If we 25 go on to page 2, please, we see a reference about three 69 1 lines down: 2 "On the positive side, I understand tie are 3 presenting an update to finance colleagues on Monday on 4 QRA which we are all agreed is an essential in 5 determining whether or not we are within the Business 6 Case." 7 Then two paragraphs down: 8 "My concerns are around the robustness of risk and 9 contingency as although I accept there are movements 10 from risk to price and closing off of some risks, 11 I believe that the residual risk re SDS may be very 12 significant and I understand we still have no figures to 13 assess this ... The previous level of around 14 GBP3 million is appearing to me grossly undervalued 15 depending on final position." 16 So that was Ms Lindsay's response. Did you share 17 her concerns set out here that she considered that the 18 residual risk re SDS may be very significant? 19 A. Yes, I do. 20 Q. Did you also share her concerns that the previous level 21 of around GBP3 million was appearing to be grossly 22 undervalued? 23 A. Yes, I did. 24 Q. Were your concerns in that regard ever resolved to your 25 satisfaction before contract close? 70 1 A. No. 2 Q. Could I go back to your statement, please, to page 65. 3 In paragraph 142 there is reference to: 4 "In an email between Gill Lindsay and Graeme Bissett 5 dated 9 March 2008 ... Gill Lindsay noted that "We will 6 expect to see reference to SDS position on agreed risk 7 transfer which is as we are now aware and will be 8 documented through novation agreement and other 9 documentation'." 10 Now, I don't think you were included in the copy 11 list of that email, but you go on in your statement to 12 say: 13 "I did not understand what was meant by agreed risk 14 transfer. I had no understanding on 9 March of whether 15 agreement had been reached between TIE and BBS in 16 relation to who bore the risks and liabilities arising 17 from incomplete design and outstanding approvals and 18 consents." 19 If we then please go on to page 66 of your 20 statement, it's simply to note -- come back to 21 page 64 -- 65 to see the context. Paragraph 143, this 22 is in relation to an email dated 10 March 2008 from 23 Graeme Bissett to you and others attaching drafts of the 24 close report, et cetera. The email had noted that 25 negotiations on a range of issues continued, 71 1 including -- the main outstanding issues in the draft 2 close report included the section on the pricing 3 schedule being finalised and also an appendix on design 4 and consents which required to be updated to the final 5 position. 6 With that context, could we then please go to 7 page 67. In paragraph 144 you said: 8 "I still didn't feel that I was getting a complete 9 picture with regards to risk, which wasn't satisfactory. 10 I thought at that time that this wasn't the complete 11 picture. I was taking comments from TIE at this stage 12 perhaps with a pinch of salt." 13 Why was that? 14 A. I think I said that on the basis that there were delays 15 and information coming forward from tie to the Council, 16 and I had in my mind general concern about optimistic 17 statements being made by tie about the state of 18 negotiations, state of completeness, and progress of the 19 design, but actually the optimism proved to be 20 misplaced. 21 Q. The final sentence in paragraph 144, you say: 22 "To that extent, the doubts were increasing and the 23 trust in what tie were telling us was decreasing." 24 Was that just your view or was that shared by anyone 25 else in the Council? 72 1 A. I think I can fairly say that finance colleagues and 2 City Development colleagues were pretty much of the same 3 opinion. 4 Q. Do you mean members of the B team or more senior 5 officers too? 6 A. Principally the B team. 7 Q. Did you ever discuss these concerns with the 8 Council Solicitor? 9 A. Yes, I think I probably did, and I'm sure there are 10 emails where I've mentioned that I was concerned with 11 tie and their performance. 12 Q. Did you have any verbal discussions on these matters or 13 were they largely restricted to email correspondence? 14 A. Largely email, but, as I said earlier this morning, 15 there were a number of briefing meetings that we had. 16 So I may have mentioned them in these meetings, but 17 I can't specifically recall. 18 Q. Thank you. If we can leave that and go to another 19 document, please, it's CEC01399016. 20 If we can go to page 2, please. 21 Now, we can see from the top this is an email of 22 7 March 2008 to Gill Lindsay from Alan Coyle. The 23 second paragraph states: 24 "It is Donald's view ..." 25 That must be Donald McGougan, I think? 73 1 A. Yes. 2 Q. "... that you should start drafting the letter to 3 Tom ..." 4 That must be the Chief Executive, Tom Aitchison? 5 A. Yes. 6 Q. "... noting the changes from the Final Business Case to 7 the current position are in tolerable limits. 8 Estimation of the quantum related to the critical path 9 on consents will be provided by Duncan." 10 Over the page, please, page 1, do you see at the 11 bottom of the page an email from Gill Lindsay dated 12 7 March 2008 to Alan Coyle, copying in yourself, and 13 Ms Lindsay says: 14 "Thanks Alan. Can you liaise with Colin and Duncan 15 please to have this in place for Tuesday am for review 16 by myself and the Directors and passing to Tom please." 17 Then the email above that, you respond to 18 Alan Coyle, copying in others, including Gill Lindsay, 19 on 10 March 2008. You say: 20 "I will assist with this exercise from a factual 21 perspective. As you are aware I have already given an 22 anticipatory view of the Chief Executive's authority in 23 my emails of 28 and 29 February to the 24 Council Solicitor. The facts and figures are now much 25 clearer, and actually reinforce my view that the 74 1 Chief Executive should report to Council again on the 2 various material changes. For that reason I will not be 3 able to support a letter intimating that the changes are 4 within tolerable limits." 5 What do you mean by only assisting with the exercise 6 from a factual perspective? 7 A. What I meant there was that, yes, I could -- I could do 8 the drafting, but I didn't actually agree with the 9 principle because I felt that the changes were not 10 within tolerable limits. 11 Q. If we then please go to another document. CEC01399076. 12 This is a letter dated 12 March 2008 from 13 Willie Gallagher, the Executive Chairman of tie, to 14 Mr Tom Aitchison, the Chief Executive of the Council. 15 About halfway through the letter, it's stated: 16 "The Tram Project Board earlier today was given 17 a thorough review of the key contracts and issues. The 18 Tram Project Board concluded that the final terms 19 negotiated were consistent with the terms set out in the 20 Final Business Case approved in December 2007 and 21 confirm the value for money proposition demonstrated by 22 the Final Business Case. 23 Accordingly we confirm tie's view that it is now 24 appropriate to issue the intention to award letters." 25 Did you consider it was appropriate to issue the 75 1 intention to award letters? 2 A. No, I didn't consider it was appropriate. In my view it 3 was premature. 4 Q. Why? 5 A. I didn't think that all the issues had been resolved and 6 there was still uncertainty about the design issue and 7 the price was changing. 8 Q. Can we go, please, back to your statement to page 72. 9 In paragraph 155, about halfway down, we see: 10 "At 12 March I was not of the view that the price 11 and risks were sufficiently clear and fixed as to make 12 it appropriate to issue an intention to award letter in 13 respect of the INFRACO contract." 14 In relation to design approvals. 15 If we then please look at page 73 of your statement. 16 Paragraph 157 refers to three emails sent by you on 17 13 March 2008, where you set out various concerns. We 18 can read what is said for ourselves there, including 19 (b): 20 "DLA's letter of 12 March did not offer the Council 21 the degree of comfort it might expect and the Council 22 were being asked to permit notice of intention to award 23 the contract and thereafter financial close while 24 matters were still under discussion." 25 I will come to at least one of DLA's letters. So Q 76 1 clearly at this time you still had significant concerns; 2 is that correct? 3 A. Yes, I did. 4 Q. If I could then please look at another document, 5 CEC01401041. The document halfway down the page, the 6 email we can see from Duncan Fraser dated 18 March 2008 7 to various individuals in the Council, including 8 yourself, and Mr Fraser says: 9 "This is a summary of my understanding of the status 10 of this project to keep you up to date as of 8 am today. 11 The intended programme to financial close is as follows. 12 1. Sign off the PIN today -(meeting with CEC at 13 lunchtime and issue of approval from CEC to issue letter 14 to tie - anticipated)." 15 What does PIN stand for? 16 A. I can't remember. No, I'm sorry, I can't at this 17 moment. 18 Q. Is that a reference to the notice of intention to award 19 the contract? 20 A. It -- yes, it could have been. 21 Q. Because if we then look further down, we can see: 22 "To meet the above programme from the Council's 23 perspective the following issues are to be addressed." 24 We can see under PIN three matters are set out, but 25 then for financial close there's a longer list. So it 77 1 appears to be that financial close is the full and final 2 financial close and the PIN seems to be the intermediate 3 step. Is that a fair way to read it? 4 A. I think it is fair, yes. 5 Q. And we can see under PIN, and we'll assume that's the 6 intention to award unless we're corrected on that, there 7 are four matters set out. Firstly OCIP. I think that's 8 owner controlled insurance programme; is that correct? 9 A. That's correct. 10 Q. "... close out on caps and full cover." 11 The second bullet point: 12 "Novation Agreement - document to be provided by 13 tie" 14 Thirdly: 15 "DLA - to be to CEC satisfaction." 16 And in reference to: 17 "Indemnity cover from BBS to be closed out." 18 Are you aware whether those four bullet points were 19 satisfactorily addressed before the Notice of Intention 20 to Award the Infraco contract was given? 21 A. I'm not sure if they were because that obviously 22 pre-dated financial close. I can't remember which ones 23 were signed off at which stage. 24 Q. The next document, please, to complete this line, if we 25 can go to CEC02086755. If we can start at page 3, 78 1 please, we can see signatures by Andrew Holmes, 2 Donald McGougan, Gill Lindsay and then Tom Aitchison, 3 and at the top of the page Andrew Holmes, 4 Donald McGougan and Gill Lindsay have jointly signed 5 this report, saying, in the final paragraph, that: 6 "Having considered all of the above, we consider 7 that it is appropriate to accept tie's recommendation to 8 you to authorise and permit them to immediately lodge 9 the Notice of Intention to Award." 10 Do you recall whether Ms Lindsay discussed with you 11 before signing this, whether it was appropriate for her 12 to sign the report? 13 A. To the best of my recollection, she did not seek my 14 views on this. 15 Q. If Ms Lindsay had asked you whether it was appropriate 16 for her to sign this report, what would you have told 17 her? 18 A. I would have said it was premature. 19 Q. Why in? 20 A. Because things were still in a state of flux and notably 21 the issue of risk still had not been resolved to my 22 satisfaction. 23 Q. Thank you. I think in the event we've heard elsewhere 24 that the notice of intention to award was in fact issued 25 on 18 March 2008. 79 1 I would like to move on again to another document -- 2 CHAIR OF THE INQUIRY: Before you do that, could I just be 3 quite clear, the email correspondence at the beginning 4 of March involving Gill Lindsay and Alan Coyle about the 5 letter that was to be drafted to the effect -- the 6 letter to the Chief Exec to be drafted to the effect 7 that the changes were within tolerable limits, was that 8 a part of the documentation that the Chief Executive 9 would need before he could sign the contract in terms of 10 delegated authority? 11 A. Yes, my Lord, it was my understanding that was part of 12 the process. 13 CHAIR OF THE INQUIRY: Given that you were strongly of the 14 view that that -- you complied with instructions on 15 draft the factual position, but you wouldn't subscribe 16 to the view that the changes were within tolerable 17 level, tolerable limits, rather, did you think about 18 what options were available to you to draw this to the 19 attention of the Chief Executive? 20 A. I can't remember at that time, my Lord, if I did have 21 a view. I think I say elsewhere in my statement that 22 the nature of the organisation was that you went up the 23 tree. You did not miss out levels and go straight to 24 the Director or to the Chief Executive. 25 That was an unwritten rule that that was not the way 80 1 to perform one's duties where there were serious 2 concerns. 3 CHAIR OF THE INQUIRY: Even where you had serious concerns 4 about the Council signing the biggest contract in its 5 history, and associated dangers to your mind, did you 6 not think it would be possible to go at least to your 7 Director to say that you were concerned, or did you go 8 to your Director? 9 A. I think at one point -- it's probably in my statement -- 10 I did have a direct comment, either to my Director or 11 indeed to the -- probably to the Director rather than 12 Chief Executive. I recall making an observation about 13 whether it was appropriate for the Council to be signing 14 off. I can't remember exactly when that was, my Lord. 15 CHAIR OF THE INQUIRY: Do you know if similar views were 16 expressed by other members of the B team to their 17 directors such as the -- Mr Coyle to the Finance 18 Director or ... 19 A. I assumed they were because of the unanimity of the 20 views within the B team, but as to how they conveyed 21 their concerns to the respective Directors, I'm not 22 sure, and I don't think I was copied into such matters. 23 CHAIR OF THE INQUIRY: Thank you. 24 MR MACKENZIE: Thank you. 25 Could we go, please, to another document. 81 1 CEC01401109. Can we go, please, to page 5. We can see 2 it's quite faint text. We can blow up the top. It's on 3 an email from yourself dated 10 April to Andy Conway, 4 copying in Nick Smith, Rebecca Andrew, Alan Coyle, 5 subject Russell Road Bridge, prior approval. 6 Are you able to give a brief overview, Mr MacKenzie, 7 of what this issue related to? 8 A. Yes. I think it had been brought to my attention by 9 Andy Conway, who is one of the senior engineers within 10 City Development Department, that an issue had arisen 11 about the -- I think it was probably a mixture of the 12 prior approval and technical approvals in relation to 13 the Russell Road Bridge. 14 The implications of that were to the effect that it 15 may well be seen as a departure from the agreed risk and 16 therefore it would be a risk which was met by the public 17 sector, namely tie and the Council, and the costing at 18 that point I think was put at around GBP2 million. 19 My concern was that if these fears proved 20 well-founded, the sum of GBP2 million was a significant 21 proportion of the 3.3 million which had been estimated 22 to cover the entirety of the risks arising from design. 23 Q. If we could scroll down a little, we see the paragraph 24 beginning: 25 "This appears to be one of the dreaded scenarios 82 1 which we have regularly discussed at PLIG and 2 Coordination meetings. I would be most reluctant to 3 see a situation whereby the Council ends up paying the 4 cost of delays brought about by the fault of another 5 party in failing to secure a timeous prior approval. 6 I cannot confidently say that I understand what the 7 settled position is among tie/SDS/BBS and communicated 8 to the Council about Prior and Technical Approvals, and 9 specifically the liability for delays." 10 Then, please, at page 4 we see a third of the way 11 down an email from Andy Conway, dated 10 April, to 12 yourself and copied in to others. 13 At the bottom he says: 14 "Alan - is there anything in the QRA for this? Or 15 is it just a single risk for a delay in the approvals in 16 general? Depending on the delay costs that could be 17 incurred, it wouldn't look good if within a week of the 18 contract being signed we suffered a major claim!" 19 Then at the top of the page you'll see the response 20 from Alan Coyle on 10 April. He says that: 21 "There is circa GBP3 million in the QRA for SDS 22 delay. Nothing specifically with regard to this matter. 23 I find this complete nonsense (so much for risk transfer 24 to the private sector!) how can the Council take the 25 risk on these matters when we have received bugger all 83 1 information. We cannot continue to be backed into 2 a corner in these matters. I agree this should be 3 brought up at LAG but surely senior CEC officials need 4 to get involved so that a proper process can be put in 5 place to manage these kind of issues! Realise I'm just 6 ranting but how many of these things are going to come 7 out of the woodwork?" 8 Then over the page, please, to page 3. This, 9 I think, is then an email, Mr MacKenzie, from yourself 10 to Gill Lindsay dated 11 April. If we go perhaps to 11 page 2, please. At the very bottom, we can see the 12 heading from Colin MacKenzie to Gill Lindsay, and then 13 if we go back to page 3, please, you see that there at 14 the top it's dated 11 April 2008, and you say: 15 "Gill, you should be aware of this latest issue, 16 given that you are one of the triumvirate who will be 17 making a representation to the Chief Executive as to 18 tie's empowerment to sign the contracts. This situation 19 is really most unsatisfactory from the Council's point 20 of view. 21 "Bearing in mind the fact that officers are due to 22 report to Council on 1 May, I recommend to you that full 23 disclosure to members is made on this and all other 24 relevant matters before authority is granted to tie to 25 close the contracts. In my humble opinion this is 84 1 getting very close to calling upon the Monitoring 2 Officer to become involved." 3 Can you explain the final sentence in your email, 4 please? 5 A. I think such was my anxiety at the time, bearing in mind 6 it was 11 April, which was very close to intended 7 financial close, I felt that it was a risk matter which 8 we had foreseen within the B team, and it was so 9 proximate to financial close that I felt that the matter 10 was really extremely serious. 11 I'm not -- I can't recall this stage in time whether 12 I thought it was a matter of illegality. When 13 I mentioned calling upon the Monitoring Officer to 14 become involved, it's difficult to recall exactly what 15 was in my mind when I used that phrase, used that 16 expression. 17 Q. Thank you. If we could then go back to page 2 to 18 continue the chain, please. Towards the bottom of the 19 page we'll see an email from Gill Lindsay dated 20 11 April 2008 to yourself, stating: 21 "Thanks Colin. Can we get a view from Finance re 22 QRA and both Directors re issue. Can you ensure you 23 contribute as appropriate to May Report. Suggest this 24 issue then put to Tie for awareness and resolution." 25 Then go to page 1, please. We see towards the 85 1 bottom an email from Andy Conway to Dave Anderson dated 2 11 April 2008, copied in to others, including yourself 3 and Ms Lindsay. 4 Back to page 2, please. Second paragraph begins: 5 "The main issue is that this was news to us, and 6 wasn't an issue that we were aware about. It's not been 7 mentioned in the Tram Project Board papers from 8 Wednesday's meeting. It is not in the QRA or in the 9 close-out report. I've spoken within Finance to raise 10 their awareness (they are going to brief the Director of 11 Finance) and they confirmed that a total of GBP3 million 12 is identified in the QRA for delays to prior and 13 technical approvals. That said; it wouldn't be very 14 palatable if we use that up in the first week of the 15 contract award and it doesn't quite align with the 16 positive wording in the current draft of the Council 17 report." 18 Just to finish this chain, please, back to page 1. 19 Middle of the page, we see an email from Alan Coyle of 20 11 April 2008, to Donald McGougan and copied in to 21 others. The second paragraph states: 22 "We have been led to believe that the structures 23 have been given priority in terms of design approval. 24 The point is we as the Council are being backed into 25 a corner. I think this needs bottomed out with tie. 86 1 SDS continue not to deliver and these type of issues 2 could eat into the QRA (GBP3 million for SDS delay, 3 GBP6 million for General Delay) pretty quickly." 4 To pause there, why were the Council being backed 5 into a corner? 6 A. I think it was a case that it would be the Council who 7 picked up the cost of this and there was concern, as 8 I read it, that no previous warning had been given by 9 tie about this, and we were getting within weeks of 10 financial close. 11 There was obviously not a huge amount in the pot for 12 SDS delay at GBP3 million. So if this risk did 13 materialise, it would clearly add to the Council's 14 liability. 15 Q. Thank you. The next document is CEC01256710. Towards 16 the bottom of the page, an email from yourself dated 17 14 April 2008 to Andy Conway and Alan Coyle, copying in 18 others, including Gill Lindsay, and you start by saying: 19 "I have considered the draft report prepared for 20 Council on 1 May which has been circulated ... for 21 comment." 22 You then say: 23 "It will come as no surprise to you that I have an 24 overriding concern about the purpose of this report." 25 You then in the next paragraph say: 87 1 "Members have received no formal update on the Tram 2 Project since 20 December 2007 ..." 3 You then say: 4 "This is likely to be the biggest single project in 5 terms of value that the Council is involved in for the 6 foreseeable future ... In my view, given the various 7 changes which have emerged since December 2007, it would 8 be prudent and proper to report again to members before 9 Financial Close is authorised." 10 You then in the next paragraph set out the main 11 changes to the Final Business Case that you were of the 12 view had happened. 13 The next paragraph, you refer to what you refer to 14 as the extraordinary emergence of the Russell Road 15 Bridge prior and technical approval situation. Also for 16 completeness we note a reference to that you'd 17 understood the potential risk to the Council could 18 amount to an additional 2 million in a worst-case 19 scenario: 20 "... although it was generally agreed this morning 21 in discussion with planning colleagues that the risk is 22 not so great now." 23 But then you say after that: 24 "All of these matters lead me to conclude that it 25 would be inadvisable for the Chief Executive to exercise 88 1 his delegated authority in favour of tie when we are so 2 close to a Council meeting. I believe there is nothing 3 to lose by holding back the exercise of his authority 4 pending a final update report to Council on 1 May with 5 a transparent statement of changes to the vital elements 6 of the Final Business Case." 7 So that set out your views at that point; is that 8 correct? 9 A. That's correct. 10 Q. I would like now to look at a slightly different matter. 11 If we can go, please, to CEC01245223. The email in the 12 second half of the page, we see an email from 13 Stewart McGarrity of tie dated 15 April 2008 to 14 Alan Coyle, copied in to Andrew Conway and 15 Rebecca Andrew; we see attached were two files, firstly, 16 a cost analysis spreadsheet, and secondly, Part 4 of the 17 Schedule to the Infraco contract re pricing. 18 If we then scroll up the page, please, we see an 19 email from Alan Coyle dated 15 April 2008, sent to 20 yourself, Gill Lindsay, Steve Sladdin and Nick Smith and 21 copying in Andy Conway. Essentially forwarding 22 Mr McGarrity's email and attachments; is that correct? 23 A. That's correct. 24 Q. Now, Mr MacKenzie, is this the first time that you had 25 been sent a draft Schedule 4 of the Infraco contract? 89 1 A. That is correct. 2 Q. Did you read it at the time? 3 A. Yes. 4 Q. Do you have a clear recollection of that? 5 A. I have a clear recollection of reading it. How much 6 time I spent on reading it, I cannot recall. 7 Q. We will come back to Schedule 4, but just to stick with 8 the emails, could we then please go to CEC01247693. If 9 we can go to page 2, please. And we can see the, 10 halfway down the page, an email that Alan Coyle sent on 11 15 April 2008 to Stewart McGarrity with a quick question 12 regarding price concerning the Tramco price and also 13 a reduction in the QRA. 14 Then if we could just follow that up, please, above 15 that, you will see Mr McGarrity did reply on 16 15 April 2008 to Alan Coyle, saying: 17 "You got it in one." 18 Then above that, on the page, we see Alan Coyle has 19 forwarded this reply on to yourself and Gill Lindsay: 20 "See Stewart's answer to my query." 21 Then over the page, please, to page 1, we then see 22 an email at the bottom half from yourself dated 23 16 April 2008 to Alan Coyle, copied into Nick Smith, 24 saying: 25 "Alan, thanks for this information. 90 1 How does this feed through to the overall risk 2 figure? Can tie safely say that there is still enough 3 in the QRA to meet all foreseeable risks: in other words 4 can the Council be comfortable with the reduced figure?" 5 What I wasn't clear about, Mr MacKenzie, is what you 6 meant by "this", when you say: 7 "How does this feed through to the overall risk 8 figure?" 9 Is that a reference to the issue Mr Coyle had raised 10 with Mr McGarrity in relation to the Tramco movement in 11 price and the QRA, or is "this" a reference back to the 12 original email from Stewart McGarrity attaching the cost 13 analysis spreadsheet and Schedule 4? 14 A. I rather think that what I was getting at there was 15 having looked at the Schedule, I was putting the 16 question to Alan Coyle in light of all this, in light of 17 having seen this now, how does that sit with the QRA? 18 Bearing in mind concerns we'd previously had before we 19 saw Schedule Part 4, issues concerning the design, the 20 lateness of the design and the risk. 21 I put the question to him: can the Council be 22 comfortable with the reduced figure? Is there enough in 23 there to cover all eventualities? 24 Q. We can then follow that up in your statement, please, at 25 page 77. In paragraph 165, six lines from the bottom of 91 1 the paragraph, you say: 2 "I note I replied on 16 April 2008 asking how the 3 information provided fed through to the overall risk 4 figure and the quantified risk allowance. I cannot 5 recall how much time I would have devoted to reading 6 these documents at this distance in time, but within 7 24 hours I replied by email to Alan Coyle with 8 a question which clearly came from having read 9 Schedule 4 and the accompanying spreadsheet." 10 Also, please, in your statement at page 96. In 11 paragraph 195 we can read the first half for ourselves. 12 But you then say: 13 "Schedule Part 4, when finally produced, was the 14 most definitive written document from TIE that I had 15 seen setting out as it did the very heart of the price 16 negotiated and what was included and, just as 17 significantly, what was not to be included in the fixed 18 price. It was evident to me that paragraphs 2 and 3 19 excluded a fair amount from the certainty of the fixed 20 price. I was therefore wanting to know if the figures 21 mentioned in the accompanying QRA would be enough to 22 meet all of the foreseeable risks. I was satisfied with 23 Alan Coyle's response against the background of TIE's 24 delay or reluctance to provide CEC with detailed 25 information over a period of time. There was an element 92 1 of resignation on my part, and I suspect by Alan Coyle, 2 that we had to accept that TIE were being transparent 3 and accurate with CEC." 4 Now, to pause there, we've just seen the reference 5 to the Russell Road Bridge prior approvals and the 6 concern that the 3 million in the risk allowance for 7 design may not be sufficient, so you had serious 8 concerns at that stage. Were those concerns not 9 heightened when you saw the draft Schedule 4? 10 A. Yes, I think they probably were. 11 Q. Did you raise those concerns with anyone at the time? 12 A. I can't remember. 13 Q. Do you consider you ought to have? 14 A. Yes, maybe I should have. But it was -- I felt I'd done 15 quite a bit in the run-up to this to draw attention to 16 the fact that the risk pot was on the low side, and that 17 how could we be sure that that was sufficient to cover 18 all foreseeable risks. 19 I think after -- before I went off on holiday on 20 2 May, I seem to recall asking or suggesting in a note 21 to Gill Lindsay, there were a number of issues I covered 22 there. And I think I recall asking or raising 23 a question of whether 3.3 million was still enough to 24 cover all of these risks. 25 Q. We'll come back to that, but at this point, when you 93 1 have been sent and have read draft Schedule 4, which 2 contains the obvious risks you have described, surely 3 that was an obvious time at which to email Ms Lindsay or 4 in some way raise these risks and concerns with her? 5 A. Yes, it probably was. 6 Q. Do you recall whether you did at this time raise these 7 risks with her? 8 A. I can't recall if I did or not. It may be covered in 9 emails, but no, I can't point to one at the moment. 10 Q. Going back to your earlier discussion about the role of 11 yourself and Mr Smith in -- on purpose, deliberately not 12 reviewing the Infraco contract, I just wonder whether in 13 not raising these concerns was in some way consistent 14 with the role that yourself and Mr Smith had decided on 15 of really not getting too involved in this? Is that 16 fair or unfair comment? 17 A. It's probably a valid comment or observation. The 18 background was this was a huge contract. We'd already 19 expressed our views that an external independent legal 20 review would be in the best interests of the Council. 21 A decision had been taken, no, that's not the way it was 22 going to go. And that was despite pressure or requests 23 from the client department that an external review 24 should have been commissioned. When it came down to the 25 last weeks before financial close, clearly I was drawn 94 1 into or asked -- in fact, I can't actually remember 2 specifically how it arose when Schedule Part 4 became 3 available, that was late in the day. 4 That's probably the most relevant piece of the 5 contract as far as the Council was concerned. 6 Q. Could we then, please, go to draft Schedule 4. The 7 reference is CEC01245224. This is the version that was 8 sent with Mr McGarrity's email of 15 April 2008: if we 9 can go, please, to page 5, in paragraph 3.1 at the top 10 we see it states: 11 "The Construction Works Price is a lump sum, fixed 12 and firm price for all elements of work required as 13 specified in the Employer's Requirements ... and the 14 Infraco Proposals ... and is not subject to variation 15 except in accordance with the provisions of this 16 Agreement." 17 If we then please look at the next paragraph, 3.2, 18 that provides: 19 "It is accepted by tie that certain Pricing 20 Assumptions have been necessary and these are listed and 21 defined in Section 3.4 below. The Parties acknowledge 22 that certain of these Pricing Assumptions may result in 23 the notification of a Notified Departure immediately 24 following execution of this Agreement. This arises as 25 a consequence of the need to fix the Contract Price 95 1 against a developing factual background. In order to 2 fix the Contract Price at the date of this Agreement, 3 certain Price Assumptions represent factual statements 4 that the Parties acknowledge represent facts and 5 circumstances that are not consistent with the actual 6 facts and circumstances that apply. For the avoidance 7 of doubt, the commercial intention of the Parties is 8 that in such circumstances the Notified Departure 9 mechanism will apply." 10 Do you remember reading that clause at the time? 11 A. Yes. 12 Q. Did that not ring huge alarm bells? 13 A. Yes, I was aware of -- of what it was saying, that there 14 was likely to be a Notified Departure shortly after 15 execution of the Agreement. 16 Q. What is clear from this paragraph is that in fact there 17 was not a fixed price for the Infraco contract. 18 A. Not entirely, no. 19 Q. Because Notified Departures are expected or are likely 20 after contract close? 21 A. Yes. 22 Q. Were you in a position to know how many Notified 23 Departures were expected or their value? 24 A. No. 25 Q. Is that a matter you sought to clarify at the time? 96 1 A. Other than asking if the 3.3 million was enough to cover 2 the risks, and expressing concern about the potential 3 Russell Road, no, that was probably the extent. 4 Q. With the benefit of hindsight, do you accept that you 5 ought to have brought the concerns and risks in relation 6 to this paragraph to the attention of the 7 Council Solicitor? 8 A. If I didn't do so, yes. You're probably correct. 9 Q. Do you accept that you also ought to have sought 10 clarification of the number and likely value of Notified 11 Departures that were expected after contract close? 12 A. In retrospect, yes. And standing the background that 13 tie informed us that this risk was adequate, one to 14 a certain extent had to take their view on it. They 15 were the ones who had all the information. 16 Q. What I find a little puzzling, Mr MacKenzie, is that you 17 consistently raised concerns about the project from at 18 least August 2007. We have looked at various emails. 19 But at this point, when finally the Council are sent 20 a copy of Schedule 4 with these very obvious risks in 21 it, there doesn't seem to be an email or a note from you 22 expressing concern. 23 A. That would appear to be the case, yes. 24 Q. Do you have any explanation for that? 25 A. At this stage in time, no, I can't offer an explanation. 97 1 Q. One final matter, please, with this draft Schedule. If 2 we can go to the bottom of the page we see one of the 3 Pricing Assumptions, Pricing Assumption 1, concerns 4 design. I'm just going to ask you to read it, and I'll 5 ask you once you have read it whether you have a clear 6 understanding of what -- I should say whether at the 7 time you had a clear understanding of what this Pricing 8 Assumption means. I'll give you a minute to read this, 9 and then it's over the page. 10 CHAIR OF THE INQUIRY: Just indicate when you want to go 11 over the page. The operator will do that. 12 A. Yes. (Pause) 13 Yes, thank you. 14 MR MACKENZIE: Do you recall whether you had a clear 15 understanding at the time of what that Pricing 16 Assumption meant? 17 A. Casting my mind back, no, I can't fully recall what my 18 understanding was. 19 Q. Having read it again now, do you have a clear 20 understanding of what this means? 21 A. That there were risks for the Council in terms of the 22 changes which were likely to be made. 23 Q. Put that document to one side, but could I also ask, 24 please, do you recall, was there any discussion among 25 the CEC Legal Team in relation to Schedule 4 at any time 98 1 before contract close? 2 A. I think we had a read through it and there was a report 3 issued raising concerns about it before financial close. 4 I think a paper was issued -- put together following 5 discussions between Finance, City Development and Legal, 6 and a paper sent -- I can't remember whether it was sent 7 to Gill Lindsay before financial close was reached. 8 Q. We will come on to a note you prepared just before you 9 went on holiday. You described it as a report from the 10 B team prior to the recent hiccup in price, and that 11 report, I think, was drafted in response to the draft 12 close report which had been provided by tie. So when in 13 your answer you refer there to a paper that was issued, 14 put together following discussions between finance, City 15 Development and Legal, and a paper sent, et cetera, 16 could that be a reference to this other report we're 17 going to come on to, or are you saying there was 18 a report specifically on Schedule 4 produced by the B 19 team? 20 A. My recollection is that, first of all, there was a note 21 before I went off on holiday about outstanding issues 22 and concerns, and separate to that, I think my 23 recollection is that there was a report on the Contract 24 Suite or Schedule 4 with questions and concerns. 25 Q. Remind me of that, Mr MacKenzie, when we come to look at 99 1 the report you prepared before you went on holiday. 2 Let's not lose sight of the fact there may be another 3 report we are not aware of. 4 To continue with the chronology, can we go to 5 document CEC01245274. 6 If we look at the bottom of the page, we see 7 Susan Clark of tie is responding on 16 April to 8 Andy Conway's questions. We can see, I think -- 9 slightly confusing, but in short, in the first bullet 10 point, the blue text is Mr Conway's question and the red 11 text is Susan Clark's response. 12 I'll let you just take a minute to read for yourself 13 both the blue text and the red text in the first bullet 14 point. (Pause) 15 The main part of the red text I draw your attention 16 to, Mr MacKenzie, is the final sentence: 17 "Normal design development is a BBS risk as 18 described in Schedule 4 of the Infraco contract." 19 Then when we scroll down a little, we will see this 20 email was forwarded to you. If we scroll a little bit 21 down, we can see there, yes, Andy Conway on 22 16 April 2008 forwards it to Alan Coyle and 23 Rebecca Andrew and copies yourself in. 24 Do you remember having received this email at all? 25 A. I don't. It's not familiar to me. But it was clearly 100 1 stated as being copied to me. 2 Q. Is the reference to normal design development being 3 a BBS risk as described in Schedule 4, is that familiar 4 to you as a message that was received from tie? 5 A. I can't recall, to be honest. No. I just can't recall. 6 Q. Thank you. Let's move on to the next document, please. 7 CEC01246992. We can see this is another report to the 8 Internal Planning Group, this one on 16 April 2008. 9 Can I go to page 3, please. We can see the top of 10 the page, under 3, a reference to "Financial Close - 11 tie's Deliverables for Contract Award". We can see: 12 "Appendix 1 lists the activities and deliverables 13 that are expected to be achieved by 24 April 2008 to 14 allow tie to award the contract. The status column 15 indicates the current status (as of 15 April 2008)." 16 Then: 17 "Below is a summary of the anticipated outstanding 18 issues, which will not be resolved prior financial 19 close. Whilst it would be preferred to have these 20 complete - it is not essential and does not significantly 21 impact on project delivery." 22 There is then set out two issues that are not 23 expected to be complete at contract close, and we can 24 read them for ourselves. Presumably the intention at 25 this time was that all the other issues in the appendix 101 1 are expected to be complete before contract close? 2 A. Yes, that's my understanding. 3 Q. Over the page, please, at page 4, in section 6, Infraco, 4 under "Planning Prior Approvals", we can see for 5 ourselves: 6 "Of 63 batched submissions ..." 7 The report sets out how many have been granted, 8 et cetera. In the paragraph: 9 "There is concern that prior approvals may have to 10 be revisited if there are substantial changes in design 11 coming from inter-disciplinary coordination, technical 12 approvals or value engineering. Planning has written to 13 tie on 28 March 2008 raising their concerns." 14 Then under "Technical Approvals", the last paragraph 15 on the page states: 16 "Similar to the concerns raised by Planning, 17 Transport have also written to tie on 3 April 2008 18 reiterating their concerns about the quality of the 19 submissions being received." 20 Then in bold text: 21 "There is potential for the approvals to cause 22 a delay to the construction programme." 23 Presumably you agreed with that sentence at the 24 time? 25 A. Yes. 102 1 Q. Then page 5, please. Under "Infraco works commencing 2 before approvals in place", it explains: 3 "The delay in the submissions from tie ltd and their 4 designers SDS for the prior and technical approvals may 5 leave the Council in a difficult position. It is likely 6 that the appropriate Planning Prior Approvals will not 7 have been obtained prior to the commencement of 8 construction works for three locations." 9 The reference to Russell Road Bridge, Haymarket 10 Tramstop and the Depot at Gogar: 11 "These three locations are on the critical path for 12 the tram delivery and if construction is delayed, the 13 Council is responsible for these compensation events and 14 claims from the construction contractor BBS - these 15 claims could easily be in excess of GBP2 million." 16 I think in short it must have been known by this 17 time on the part of the Council that the public sector 18 would be liable for any delay in the completion -- for 19 any delay in obtaining prior approvals and technical 20 approvals; is that correct? 21 A. That's correct. 22 Q. This really harked back to the issue we'd seen in the 23 Russell Road emails that you thought that was unfair, 24 that the Council in your view weren't responsible for 25 these delays, and yet the liability for delays in these 103 1 matters was now resting with the Council? 2 A. Yes, that was my thinking. 3 CHAIR OF THE INQUIRY: The comment there about possible 4 mitigation mirrors what you said earlier about your 5 concern about the authority having different functions, 6 including planning and technical approval while being 7 the promoter of the project. 8 A. Yes, my Lord. There was -- there was a possibility of 9 conflict of interest or conflicting interests and duties 10 between promoter/funder and statutory roles of planning 11 and roads and bridges. 12 MR MACKENZIE: Thank you. 13 Then on, please, to the appendix of deliverables for 14 contract award at page 7, please. I think we can see 15 the top left-hand corner of this table states: 16 "Critical Contractual Decisions to enable 17 Chief Executive to use delegated powers to approve tie 18 to sign the contract with BBS." 19 Then zoom back out, please. In terms of the status 20 column, we can see coloured both green and amber. Do 21 you know what the different colouring represents? 22 A. I think it was consistent with traffic light. Red was 23 top concern, amber next, and then green was in a better 24 position. 25 Q. So in the left-hand column, under "Description", we see 104 1 things in red. Does that mean these matters -- haven't 2 been closed out at this stage? 3 A. That's my understanding, yes. For example, Novation 4 Agreement ready to be signed off. But not quite done. 5 So a state of readiness, but still requiring to be 6 completed. 7 Q. And we get more detail obviously in the status column, 8 and then towards the right again, we then see, if we 9 blow up the very top: 10 "CEC Deliverables - Link to Supporting Documentation." 11 Was the intention that the supporting documentation 12 was to have been provided before contract close? 13 A. Yes, I think that was the intention. 14 Q. We can read much of this for ourselves, but if we can 15 go, please, to, for example, page 8. In the second row, 16 I think we can blow up 2.3, MUDFA risks related to 17 Infraco. 18 We can see under "Status": 19 "MUDFA programme version 6 is incorporated into BBS 20 programme. Statement on QRA and what the allowance for 21 slippage is in regard to MUDFA. MUDFA related items 22 account for GBP11.4 million in QRA." 23 We can also see under item 4, Due Diligence, if we 24 blow that line up, please, the whole line, we see the 25 description is: 105 1 "Statement from the Preferred Bidder that they 2 accept the performance run-time model and 'law of 3 physics' results and confirmation of acceptance of the 4 emerging quality of design." 5 I think that wording harks back to your email of 6 January 2008; is that correct? 7 A. Yes, I think it does. 8 Q. I think in short what has happened is that the list of 9 matters set out in your email has been converted into 10 a spreadsheet? 11 A. Yes, that would appear to be the case. 12 Q. As is the way of things, perhaps. But then we can see 13 also under due diligence, under "Status", if we can blow 14 up that, please: 15 "Awaiting Confirmation. Response due from BBS on 16 1 February." 17 So certainly at this point it appears as though tie 18 had not responded to the Council on that matter; is that 19 correct? 20 A. That is how it reads to me, yes. 21 Q. One down, under "Risk", we see 5.1, if we blow up that 22 whole row again, please, we see: 23 "Full transparency of QRA." 24 We then see under "Status", a reference to: 25 "QRA updated for meeting with tie on 4 March. 106 1 Explanation given on changes in QRA - tie have provided 2 a written statement that they are satisfied that the 3 drop from GBP50 million to GBP30 million is enough 4 cover." 5 What was the point in receiving a written statement 6 from tie that they were satisfied in the drop in cover? 7 A. It's difficult to answer that. For much -- for all of 8 the time we had to rely on what they were telling us. 9 I didn't have any expertise in QRA. Finance might have 10 had enough or certainly more than me. Probably a case 11 of just relying on what -- being forced to rely on what 12 tie had told us, standing the fact that there was no 13 independent review of what they were telling us. 14 Q. Thank you. Lastly on this document, can we go to 15 page 10, please. Under the last item at the bottom, 9, 16 "SDS Assurances", three rows up, we see 9.1. If we blow 17 up the whole row again, we see: 18 "Full written explanation of SDS Novation to be 19 provided by tie, including risks of failing to deliver 20 design." 21 Then notes: 22 "Including risks of failing to deliver in terms of 23 quality and in time to meet BBS programme." 24 The status is: 25 "Awaiting draft". 107 1 Does that reflect your understanding of the status 2 of that matter at the time? 3 A. Yes, it does. 4 Q. If I can perhaps deal with one final matter to close 5 this out before lunch, can we go back to your statement, 6 please, to page 82. In paragraph 172 you refer to the 7 report to the IPG on 16 April 2008. We had looked at 8 the sentence in the report that there's a potential for 9 the approvals to cause delay to the construction 10 programme. You say you agreed with that: 11 "At that stage I understood that delays in the prior 12 approvals could be laid at the door of the public sector 13 leading to compensation events on the basis that INFRACO 14 programme was delayed. CEC had been told by TIE that 15 a risk allowance of GBP3.3 million was in the QRA for 16 this issue. There was an assurance from 17 Stewart McGarrity of TIE that this allowance, along with 18 the management procedures in place, were enough to 19 mitigate." 20 Just pausing there, what did you understand were the 21 management procedures in place that were enough to 22 mitigate? 23 A. I think what was being -- what I referred to there, my 24 understanding was that some sort of protocol had been 25 agreed between the Planning Authority, the Roads 108 1 Authority, obviously the Council, tie, and SDS, and BBS, 2 as to how to manage the process of -- the progress of 3 draft designs, what standards the Council expected them 4 to reach before in their planning and roads and bridges 5 authorities they would be able to consider them. 6 Matters such as were they meeting or up to the standard 7 of the Council's various planning policies, and really 8 trying to ensure that from a poor situation earlier in 9 the process, that matters were tightened up to ensure 10 that designs reached the best standard so that planning 11 and transport could approve them as smoothly as 12 possible. 13 Q. But I think is it correct to say that you understood 14 that if these hoped for timescales weren't met, and that 15 there was a delay in process and granting approvals and 16 consents, then that risk was one which would be borne by 17 the Council? 18 A. Yes. 19 Q. Was that an understanding more widely shared within the 20 Council? 21 A. That was my recollection, yes, that these -- these 22 points of principle had fairly wide acknowledgment and 23 understanding in Finance and City Development. 24 Q. So the Council moved forward with their eyes fully 25 opened in relation to that risk? 109 1 A. That was my understanding, yes. 2 Q. Just finally, if I may, before lunch, going back to your 3 statement, you finish off in paragraph 172 by saying -- 4 we mentioned Russell Road, but you then say: 5 "I was concerned, and it was a general sweeping 6 statement, that this allowance, along with the 7 management procedures in place, were enough to mitigate. 8 It was probably still too risky." 9 Was that your view at the time? 10 A. Yes. 11 Q. Did that ever change before contract close. 12 A. No, it didn't. I was still not satisfied that 13 GBP3.3 million was enough, but coming from the -- the 14 reality was that tie were assuring us that there was 15 more than enough in the risk pot to deal with all the 16 eventualities. I found it difficult to contradict that 17 with any hard facts. 18 MR MACKENZIE: My Lord, that would be a suitable -- 19 CHAIR OF THE INQUIRY: We will adjourn for lunch until 2.10. 20 (1.05 pm) 21 (The short adjournment) 22 (2.10 pm) 23 CHAIR OF THE INQUIRY: You're still under oath, 24 Mr MacKenzie. 25 MR MACKENZIE: Thank you, my Lord. 110 1 Could we look, please, at the next document, 2 CEC01246045. We can see from the top, Mr MacKenzie, 3 this is an email by yourself dated 30 April 2008 to 4 Andy Conway and Alan Coyle, copied into Nick Smith and 5 Duncan Fraser. 6 We can see from the bottom of the email that it is 7 sent by both yourself and Nick Smith for 8 Council Solicitor. 9 Do you remember what this email was in response to? 10 A. I think we were looking at the letters which DLA had 11 presented, a series of them in various iterations on 12 12 and 18 March and 28 April. And we had been asked by 13 Finance and City Development to give our views on the 14 suitability of these letters for the Council. 15 Q. What I wondered was at the bottom of the email, where 16 you say "for Council Solicitor", does that mean that the 17 Council Solicitor was perhaps on holiday or away at this 18 time or what? 19 A. I don't recall. I simply don't know. 20 I think what I meant there was that I'm referring to 21 the Council instruction emanating from 20 December 2007, 22 which was to the effect that the Directors of Finance 23 and City Development would, along with the 24 Council Solicitor, be prepared to certify or confirm to 25 the Chief Executive that all matters having been 111 1 satisfactorily resolved to -- in their view that it was 2 now ready for the Chief Executive to issue his approval 3 to tie to enter into the contracts, and that DLA letter 4 was simply one of these deliverables. 5 Q. The email starts with the paragraph: 6 "Further to the meeting this morning Nick and I have 7 considered the DLA letters dated 12 March, 18 March and 8 28 April." 9 Then four lines down from the bottom of the next 10 paragraph, you say: 11 "The most recent letter dated 28 April does little 12 to remove doubts and uncertainties. Specifically, that 13 letter appears to give no comfort on the risk profile 14 and acceptability in relation to the market norm. The 15 lengthy letter also narrates matters which appear to us 16 to be risky for the Council and are not fully covered by 17 the QRA." 18 I'll go to the last of the DLA letters shortly, but 19 can you remember what were the matters that you 20 considered to be risky for the Council and were not 21 fully covered by the QRA? 22 A. I think my recollection, looking at the letter again or 23 the email again, is that they were matters concerning 24 the design risk. 25 Q. Anything else? 112 1 A. Nothing that springs to mind at the moment. I think 2 design and cost implications. 3 Q. So why was design risky and why could that give rise to 4 cost implications? 5 A. As at that time, it was my understanding that the 6 Council would bear responsibility or liability for the 7 mismatch in the design and the Infraco contracts, and 8 therefore it was possible or likely that that would be 9 to the Council's account. 10 Q. Can you be more specific what you mean in relation to 11 that mismatch in the design and Infraco contracts? 12 A. The fact that not all of the approvals and technical -- 13 sorry, prior approvals and technical approvals were in 14 place, and therefore that led to a certain exposure on 15 the part of the Council, given that BBS were only 16 prepared to accept to their account designs which had 17 been completed by -- I think it was some time in 18 November 2007. 19 Q. If we then please go to the last of the DLA letters 20 referred to in that email, the one of 28 April, you will 21 find that, I think, at CEC01312368. 22 Now, if we then go, perhaps, to page 2, just to get 23 an overview of what's being reported, just with 24 reference to the headings, we can see 1, "CORE INFRACO 25 CONTRACT TERMS SETTLED AND ALIGNED WITH TRAMCO 113 1 CONTRACT", and then paragraphs 1.1 and 1.2 concern 2 Employer's Requirements. 3 Just to pause in the middle of that paragraph, we 4 can see a reference to: 5 "Nevertheless, the core Infraco terms contain 6 a clear mechanism to address any mismatch between the 7 ERs, the Infraco Proposals and the terms and 8 conditions ..." 9 So you must have been aware of that matter at this 10 time? 11 A. Yes. 12 Q. Just pausing there, did you understand there to be 13 a mismatch between these items? 14 A. Yes, I did. 15 Q. What consequences did you consider were likely to arise 16 from that mismatch? 17 A. That would in my view have led to the Council 18 potentially picking up the cost of the consequential 19 result of the mismatch. 20 Q. Then scrolling down the page, we see 2, "RISK ALLOCATION 21 MATRIX", 3, "PERFORMANCE SECURITY PACKAGE". Over the page 22 to page 3, please. 4, "CONFIRMATION OF NOVATION 23 STRATEGY". The second sentence: 24 "SDS has now committed to novation and the terms of 25 their novation agreements are settled, bar final 114 1 detail." 2 A reference to previous comments, et cetera. Then 3 5, "RISK": 4 "Following on from our letter of 12 March, we would 5 observe that delay caused by SDS design production and 6 CEC consenting process has resulted in BBS requiring 7 contractual protection and a set of assumptions 8 surrounding programme and pricing." 9 In fact would you have seen those pricing 10 assumptions by this stage, having read draft Schedule 4? 11 A. Yes. 12 Q. The next paragraph says: 13 "tie are prepared for the BBS request for an 14 immediate contractual variation to accommodate a new 15 construction programme needed as a consequence of the 16 SDS Consents programme which will eventuate, as well as 17 for the management of contractual Notified Departures 18 when (and if) any of the programme related pricing 19 assumptions fall." 20 Now, just to pause there, did you have a figure in 21 your mind before contract close as to how many Notified 22 Departures were expected and in relation to which items? 23 A. No, I did not. 24 Q. Did you have any impression as to whether there was 25 expected to be only one Notified Departure or whether 115 1 there were expected to be more than one? 2 A. I think I expected at least one. 3 Q. Did you consider more were likely? 4 A. Yes, probably I did. 5 Q. Why? 6 A. Just because of an ongoing flavour of -- I think reports 7 had been submitted to the Internal Planning Group about 8 the number of designs which had been approved or not 9 approved, and that led me to be anxious about how that 10 would transmit or translate later on in the contractual 11 process. 12 Q. Thank you. Over the page, please, to page 4. Under 13 section 7, "CONSENTS", I'll give you a moment to read 14 what's said in paragraph 7.1. (Pause) 15 A. Yes. 16 Q. Did you understand that to be a departure from what had 17 been the position in the Final Business Case? 18 A. I think I saw it as a refinement. I'm not sure if 19 I would be able to go as far as saying it was 20 a departure. It was a movement in the negotiations. 21 Q. Then on page 5, please, paragraph 11.3 states: 22 "The Pricing Schedule (Infraco Contract Schedule 23 Part 4) has been extensively discussed over the past six 24 weeks and is now settled as to its key assumptions, 25 value engineering items, provisional sums and fixed 116 1 prices. tie has assessed the likely financial impact of 2 the assumptions not holding true and triggering 3 changes." 4 So again that's a reference to at least a risk of 5 change? 6 A. Yes, I would read that. 7 Q. Although I think you have explained fairly that in your 8 mind there was an expectation of change? 9 A. Yes. 10 Q. Thank you. Put that letter to one side. 11 I would like to move on now, please, to the report 12 to Council of 1 May 2008. If we could start please with 13 document CEC01241689. If we go to page 2, please. I'm 14 so sorry. It's the bottom of page 1 we should start at. 15 The very bottom, we see an email by yourself dated 16 30 April 2008 to Gill Lindsay, subject, "EDINBURGH TRAM: 17 BBS PRICE". Then, please, to page 2. You say: 18 "Gill, you may know this already, but BBS have 19 increased the price by a significant amount. Urgent 20 discussions under way at tie this afternoon. Wonder how 21 this leaves the report to Council tomorrow!!" 22 How had you heard about that price increase? 23 A. I think it was from a colleague in Finance. 24 Q. Back to page 1, please. We see a further email from 25 yourself on 1 May 2008 to Gill Lindsay where you say: 117 1 "I have just received a briefing from the client on 2 this matter. 3 I am advised that the suggested price increase is 4 confidential; that it is not a done deal with BBS; and 5 that there will be further negotiations over the weekend 6 between tie and BBS. Most significantly, I am led to 7 believe that members will not be advised on these recent 8 developments when Council considers the report today. 9 I recall at the last IPG something being said to the 10 effect that there was a 'duty to respect Council as 11 a corporate body'. I would have thought that duty would 12 best be served by either pulling the report, assembling 13 the true picture and reporting again to members, or by 14 being open with them today about the changed situation." 15 Then: 16 "Are members being properly served by officers? Are 17 there implications for us as professional legal 18 advisers?" 19 What were your concerns in relation to this matter? 20 A. Again, that represented in my opinion a further 21 departure from the authority which had been granted by 22 the Council in December of 2007. It was a further 23 increase in price, and in my view it was appropriate to 24 report that to members of Council with an explanation as 25 to why. 118 1 Q. If the report on 1 May 2008 went to members without them 2 being told of that requested increase in price, would 3 you consider in that situation that members had been 4 properly served by officers? 5 A. No. 6 Q. Why not? 7 A. By -- well, the failure to disclose the true picture and 8 facts was falling short of what I expected members were 9 entitled to be made aware of. 10 Q. What was your reference to: 11 "Are there implications for us as professional legal 12 advisers?" 13 A. I think in terms of were we giving full disclosure to 14 the Council. We had a duty to be transparent and give 15 them as much information as possible. 16 Q. Did you give any consideration at that time to informing 17 the Monitoring Officer? 18 A. I can't recall, and in any event it was getting very 19 late in the day. But I suppose the fact as I suggested, 20 one of the options was pulling the report. That was 21 an indication of how seriously I viewed the matter. And 22 that would have given a bit of breathing space for the 23 Council to consider its position. But no, I can't 24 frankly say that at that point referral to the 25 Monitoring Officer was an option that I was considering. 119 1 Q. Could we then please go to the report to Council on 2 1 May 2008. It's CEC00906940. 3 In paragraph 1 we can see the purpose of the report: 4 "To notify the Council of the progress on the suite 5 of contracts for the Edinburgh Tram Network and to 6 provide an update on financial close and the capital 7 costs." 8 Can we then go over the page to page 2. In 9 paragraph 3.5 we see it begins with: 10 "The increase in baseline aggregate costs is largely 11 due to the firming up of provisional prices to fixed 12 sums, currency fluctuations and the crystallisation of 13 the risk transfer to the private sector as described in 14 the Final Business Case." 15 Did you consider there had been a crystallisation of 16 the risk transfer to the private sector as described in 17 the Final Business Case? 18 A. No, I did not because the position at that date was 19 that -- I suppose, sorry, going back in time to the 20 Final Business Case in -- as presented to the Council in 21 December of 2007, as I recall, had suggested that risk 22 had been transferred to the private sector, whereas 23 coming back to this date, six months later, the risk 24 profile showed that tie and the Council would be 25 expected to take some of the risk. 120 1 Q. In the next paragraph, please, could I ask you about 2 3.6. There's a reference to the utility diversion 3 works. 4 Halfway through the paragraph we see: 5 "tie Ltd continues, through its appointed 6 contractor, to execute the work under the contract for 7 utility diversion along the tram route on behalf of the 8 Council and reports that this work ... is progressing to 9 programme and budget." 10 Did you have any awareness in May 2008 as to whether 11 the utility diversion works were progressing to 12 programme and budget? 13 A. I can't remember specifically at that time, but going 14 backwards in time, I recall that there were concerns 15 that MUDFA works were behind the scheduled programme, 16 but that, as subsequent reports were made to the 17 Internal Planning Group, the situation was improving. 18 I just can't remember whether all lost time had been 19 made up. This report tends to suggest that the authors 20 in City Development and Finance were satisfied that it 21 was now back on programme and budget. 22 Q. Could we then please go over the page to page 3. 23 In paragraph 3.9 it states: 24 "The QRA has reduced from GBP49 million at [Final 25 Business Case] FBC to GBP32 million. The material change in 121 1 the QRA relates to procurement risks for Tramco and 2 Infraco closed out at the signing of the contracts 3 offset by allowance to provide for risks and 4 uncertainties to be managed by tie Ltd during 5 construction." 6 In terms of the procurement risks being closed out 7 at the signing of the contracts, we had seen, I think, 8 in the briefing note to IPG in December 2007 a reference 9 that for some of that -- for that to happen, the 10 procurement risks being closed out or reduced to zero, 11 that at least in part was due to the assumption there 12 would be 100 per cent fixed price Infraco contract, that 13 we know from having looked at the draft Schedule 4 that 14 it wasn't going to be 100 per cent fixed price. Did 15 that cause any concerns about this statement that the 16 procurement risks had been closed out? 17 A. Yes. There was an element of concern on my part that 18 they hadn't been fully closed out and that the Council 19 could still be exposed to some of the risks. Just how 20 big these risks were wasn't stated. 21 Q. What did you understand by this reference to "allowance 22 to provide for risks and uncertainties to be managed by 23 tie Ltd during construction"? 24 A. I'm not sure at the time I gave a great deal of thought 25 as to what that actually meant. I think in general 122 1 terms I probably understood it to be the case that the 2 GBP32 million had been assessed as appropriate to cover 3 all of the risks that had not been nailed down in the 4 fixed price. 5 Q. In the next paragraph, please, paragraph 3.10, it 6 states: 7 "A number of the adjustments to risk allocation are 8 positive, reflected in the reduced QRA. As a result of 9 the overlapping period of design and construction a new 10 risk area has emerged which has been the subject of 11 extensive and difficult negotiation. tie Ltd advise 12 that the outcome is the best deal that is currently 13 available to themselves and the Council. Both tie Ltd 14 and the Council have worked and will continue to work 15 diligently to examine and reduce this risk in practical 16 terms." 17 The report seems a little coy in actually stating 18 specifically what this new risk area is. Did you know 19 what it was? 20 A. I took it to mean that it was the -- again, the mismatch 21 of the design contract and the Infraco contract, and the 22 fact that the designs would not be completed before the 23 Infraco contract was let. But that wasn't in my view 24 a new risk. It had been known about for a good number 25 of months, certainly going back to 2007. 123 1 Q. In terms of Schedule 4, and we saw within that Schedule 2 a reference to a Notified Departure if and when Pricing 3 Assumptions fall, essentially, I don't think there's any 4 reference in this report to Council of it being expected 5 that there would be Notified Departures after contract 6 close; is that correct? 7 A. I think that's correct, yes. 8 Q. Equally, I don't think there's any reference in this 9 report to Council that it is expected that price will 10 change as a result of these Notified Departures? 11 A. That's correct, yes. 12 Q. Are these matters in your opinion that ought to have 13 been included in this report to enable members to come 14 to an informed decision? 15 A. Looking at it now, yes, it probably should have been -- 16 I don't know why the authors of the report decided not 17 to or how that report might have started off and changed 18 before it was finalised. 19 Q. Finally, please, look at paragraph 6.1 in the report. 20 The bullet point there. There's a reference to: 21 "It is recommended that the Council: note the 22 imminent award of the two contracts with a final price 23 for the Edinburgh Tram Network of GBP508 million ..." 24 From your knowledge of the price increase which had 25 been sought, albeit not agreed, do you consider it was 124 1 correct to have referred to the Infraco contract as 2 being a final price? 3 A. Not in the sense that there had been discussions in the 4 days beforehand leading to a further increase in price 5 up to, I think, about 512 million. 6 Q. Thank you. I would like to move on, please, to another 7 matter now. It is CEC01247791. At the bottom of the 8 page we see an email dated 2 May 2008 from yourself to 9 Gill Lindsay, and you say: 10 "Please find attached report prepared by the B Team 11 prior to the hiccup on price. This paper may fall to be 12 reviewed once further details of BBS's changed position 13 becomes known." 14 I'll come to the paper shortly, but just to continue 15 with this email chain, that was at 3.31 you sent it. 16 Ms Lindsay replied the same day at 4.41 pm, stating: 17 "I have considered briefly. My questions are is Tie 18 aware of issues and have resolutions been agreed. Time 19 is of the essence. There are significant issues at 20 present and Tie have briefed Directors and Tom this 21 morning. However Tie wish to be in a position to close 22 with immediate effect if and when resolution is agreed. 23 Any outstanding matters must be resolved with Tie very 24 quickly." 25 Then one up again, please. Then at 4.46 pm that 125 1 afternoon, Ms Lindsay emails Nick Smith, saying: 2 "Nick, I have received an out of office agent now 3 from Colin. It is essential that matters are progressed 4 with appropriate communication if they are significant 5 issues." 6 Now, what was the position? Had you sent this email 7 and then gone off on holiday for a period? 8 A. Yes. I had sought -- it was a planned holiday months 9 beforehand, and I had sought to draw together issues 10 which were outstanding and still of concern following 11 consideration by Council of the report the previous day; 12 and to do a general sweep-up and position statement 13 raising issues before I went off on leave. 14 Q. You obviously wanted to get all these matters collected 15 together into one report before you went away? 16 A. That is correct. 17 Q. Do you recall whether you tried to discuss the matters 18 in the report with Ms Lindsay before you left on 19 holiday? 20 A. I think it was probably one of the last things on my 21 desk to be dealt with before I went off on holiday. I'm 22 not sure if -- if we could scroll back, I'm not sure 23 what time I sent it to Gill. Yes, 3.31, 15.31 in the 24 afternoon. I was probably trying to catch up with 25 a number of things and get ready and leave proper 126 1 instructions and proper position statements on a number 2 of issues, including the tram, before I went off on 3 holiday. So I suspect that I wouldn't have had the 4 opportunity to discuss with Gill Lindsay. 5 Q. I think you were then, you say in your statement, on 6 planned annual leave until 20 May 2008? 7 A. That's correct. 8 Q. If we could go, please, to the report that was sent, 9 it's CEC01222467. We can see it's headed "Report on 10 Terms of Financial Close ("Closed Report") draft v 11 [version] 28 April 2008". 12 I think we have heard from other witnesses that tie 13 had sent a draft of the close report and the B Team had 14 been involved in commenting on it. 15 I think that's then reflected in the paper you've 16 produced here; is that correct? 17 A. That's correct. 18 Q. To pause here, we had discussed earlier today, I think 19 you mentioned a report or a schedule, either in relation 20 to Schedule 4 or including reference to Schedule 4. Is 21 that a different document? 22 A. No, I think this is a document that I was thinking of 23 this morning. 24 Q. Thank you. Just then if we can look at certain items in 25 it. So the first one, item 2.2, the comment is: 127 1 "Programme inconsistent with version 31 and 2 confirmation." 3 Proposal: 4 "Modify to comply with 31 and be consistent with 5 MUDFA programme revision 6." 6 Action: 7 "Confirm all parties have agreed to [version] V31 and 8 any date revisions are made." 9 So what seems to have been proposed by members of 10 the B Team is that rather than have a construction 11 programme that's inconsistent with the design programme, 12 the construction programme should be updated to comply 13 with the most up-to-date version of the design programme 14 and the then current version of the MUDFA programme; is 15 that correct? 16 A. That's my understanding and recollection. 17 Q. What would be the concern if the construction programme 18 is based on an out-of-date version of the design 19 programme? 20 A. My recollection is that that could have led to increased 21 costs and claims. 22 Q. The next line we see, under "Comment": 23 "Risk of delay to Infraco and MUDFA. Is this 24 adequately taken account of." 25 Proposal: 128 1 "Review the risk allocation/mitigation." 2 Action: 3 "Report on outcome of risk and cost/time." 4 I should just ask, who was to action these matters? 5 A. I think it was probably a mixture of raising with tie 6 and the actions would be dealt with by whoever was best 7 placed to deal with them. So it was a case of flagging 8 up to senior management within the Council that these 9 were the issues we believed to be pertinent and of 10 concern, raising awareness of them, and then seeking 11 a view as to who would take ownership of resolving them 12 and mitigating risk or whatever was the appropriate 13 action. 14 Q. The next item at 2.3 states: 15 "ER [Employer's Requirements] have only been 16 partially considered according to the DLA letter 17 28 March." 18 Proposal: 19 "Clarification of the core conditions and any gaps 20 identified between contract and ER." 21 Action: 22 "Review risk implication to CEC." 23 Presumably, if there was a risk implication arising 24 from a mismatch with the Employer's Requirements, design 25 and Infraco proposals, one would expect to see a risk 129 1 for that in the QRA or risk allowance? 2 A. Yes, that's correct. 3 Q. Then on to page 2, please. Look at some other items. 4 Four boxes down, we see 8.4. So under the comment 5 is: 6 "Review risk associated with consents and approvals 7 on the basis of SDS delivery of programme to date and in 8 relation to programme 31." 9 Under "Proposal", it's stated: 10 "Tie re-assess risk GBP3.3 million risk is this 11 adequate? (it is noted that there is a GBP6.6 million 12 general risk cover)." 13 The action is: 14 "Does SDS design and consents risk cover require to 15 be increased?" 16 The next one down states: 17 "Risk costs of delay seem to vary perhaps because of 18 mitigation factors. GBP6.6 million equals 2/3 months. 19 GBP3.3 million equals 3 months." 20 Next box says: 21 "Clarify evaluation of risk cost." 22 Next box: 23 "Review." 24 Then two down from that, under item 9.4: 25 "MUDFA impact on Infraco requires clarification 130 1 including buy in from stakeholders." 2 Next box: 3 "Agree a deliverable and TM [traffic management' 4 acceptable programme." 5 Then action is: 6 "Assess impact on MUDFA and/or Infraco." 7 Three down, item 10: 8 "Infraco Suite. 9 "Gill to confirm DLA and tie reports provide 10 adequate cover for CEC." 11 There's also a reference to Tramco Bond Information 12 missing, and the action is: 13 "Report to Directors (Finance, Corp ..." 14 Is that Corporate Services? 15 A. Corporate Services, yes. 16 Q. And CDD. 17 Then finally, if I may look at over the page, 18 please, at page 3, scroll down, thank you, under "Report 19 on Infraco Suite", again, a reference to Employer's 20 Requirements, and the box on the right says: 21 "Does this increase the risk allowance 22 (discrepancies) and can this not be closed out?" 23 Then underneath that: 24 "QRA. Contract negotiations." 25 The next box: 131 1 "Advise on changes to contract through negotiations 2 and the implications for QRA." 3 Next box: 4 "Have there been any changes and if so cost." 5 Now, you, I think, went on annual leave. Whose 6 responsibility was it to close these matters out before 7 contract award? 8 A. I think it was probably a mixture. The B Team had 9 raised these issues, having looked at the deliverables 10 as they were described and the contract suite. I can't 11 remember exactly when they met. It may have been on 12 1 May because this was produced on 2 May and 13 transmitted, raised with Gill Lindsay, and thereafter 14 I think there's a reference further up in the email 15 chain that she asked for it to be raised with tie to 16 seek resolution with them of all the points that we had 17 raised. 18 Q. Now, you were then away on leave, but at any time from 19 you returning from leave onwards, are you aware whether 20 the matters set out in this report were resolved before 21 contract close? 22 A. I can't recall what stage I was made aware of which 23 issues had been resolved and which had not. I have 24 a recollection that not all of the issues were resolved 25 because there were subsequent meetings of the Internal 132 1 Planning Group which made reference to the fact that 2 some of the deliverables, and I think that goes back to 3 the questions which were raised here, some of the 4 deliverables had still not been received from tie and 5 that, I think, was probably going into June of 2008. 6 Q. When you sent this paper on 2 May 2008, did you expect 7 the matters in the paper to be resolved before contract 8 close? 9 A. Probably. I can't remember what my thinking was at the 10 time, but I think the expectation was -- I think I knew 11 that a further stage still had to be undertaken. 12 I think I was aware that the matter was -- couldn't wait 13 for a further Council meeting, which would be a month -- 14 normally four weeks between Council meetings. So 15 I think I was probably aware that there was going to 16 be -- that matters were going to be referred to Policy 17 and Strategy Committee during the time I was on holiday. 18 Therefore I'm assuming or anticipating then that all 19 the matters should have been closed out before financial 20 close was reached. 21 Q. When you refer to a further stage still had to be 22 undertaken, is that a reference to the meeting of the 23 Policy and Strategy Committee? 24 A. That's correct. 25 Q. You can put that to one side now, thank you. 133 1 Could I go back to your statement, please, in 2 relation to your understanding of matters at financial 3 close. 4 Page 87, please. Sorry, if I'm asking you to repeat 5 any of your earlier evidence, but about ten lines down, 6 it starts: 7 "I am asked what notified departures I expected 8 following contract signature and what allowance had been 9 made for this in the risk allowance. The real concern 10 about possible notified departures was likely to be 11 INFRACO programme delays due to designs being late or 12 inadequate and I noted that the issue had been discussed 13 earlier about the bridge at Russell Road." 14 Then on a similar line, please, over the page at 15 page 88, in paragraph 182, about halfway down, you say: 16 "If there was delay in the design production and the 17 consenting process BBS would not be liable for delay to 18 the construction programme. I view it as almost certain 19 that there would be notified departures given my 20 knowledge of the SDS INFRACO mismatch." 21 Just for the avoidance of doubt, when you say 22 "I view it as almost certain", was that your view at the 23 time, ie before contract close? 24 A. Yes. 25 Q. Lastly, please, on this point, at page 98, in 134 1 paragraph 199, I think we have covered this, but for 2 completeness, you say: 3 "I am asked whether I expected there to be more than 4 one departure following the signing of the contract. 5 The way that Schedule Part 4 was structured, from my 6 reading of it, was that it was almost inevitable that 7 there was going to be an immediate notified departure. 8 From the way in which the contract was constructed, TIE 9 anticipated notified departures were coming. Just how 10 many was not clear." 11 Again, for the avoidance of doubt, was that your 12 view at the time or your view now? 13 A. My view at the time. 14 Q. Could I turn now, please, to look at events after 15 contract close. You had mentioned the question of not 16 all deliverables having been delivered before contract 17 close. Could we go, please, to document CEC01249269. 18 We can see from the top this is an email from Alan Coyle 19 dated 21 May 2008, sent to yourself and others as well. 20 We can see the text says: 21 "Please find attached the latest matrix. We have 22 highlighted issues requiring documentary evidence in 23 yellow under the heading 'CEC Deliverables - Supporting 24 Documentation Required'. Where there is reference to 25 CEC Legal, Colin can you endeavour to get the relevant 135 1 signed documents to me/Andy." 2 If we could look at the spreadsheet, please, it is 3 CEC01249270. 4 If we could scroll along to the right, please, we 5 can see at the top of column O, I think a guide to the 6 colouring. I think we can see blue is in process, green 7 is complete, and yellow is query status. Is that 8 correct? 9 A. Yes, that's correct. 10 Q. And we can see, I think, a number of yellows and blues. 11 I'm not going to go through everything, but could we 12 perhaps -- the cursor is already hovering over the 13 yellow box, "Obtain copy of Novation agreement". 14 We can see that under column S in the second or 15 third box down. 16 So that appears to be one of the bits of supporting 17 documentary evidence which hadn't been obtained before 18 financial close on the face of it; is that correct? 19 A. I would agree, yes. 20 Q. I suppose it may be said one can't obtain that until 21 it's been signed and agreed? 22 A. Yes, indeed, although a final draft or final version 23 unsigned could have been exhibited. But yes, I think 24 probably the Council's requirement would have been for 25 a signed version. 136 1 Q. Then we also see in yellow: 2 "Obtain ..." 3 I'm sorry, this is a few boxes down: 4 "Obtain final copy of matrix." 5 I think that may be a reference to the risk 6 allocation matrix, which I think was provided with DLA's 7 letter of 20 May 2008. We can perhaps clarify that with 8 others. 9 If we could also please scroll down a little bit 10 more, and then go back to the left-hand side of the 11 page. Under "Programme", item 2.3 we see: 12 "MUDFA - risks related to Infraco." 13 If we could then scroll to the right to see what's 14 in the green column, we can see in red: 15 "Revised QRA requested from tie following [Financial 16 Close] FC." 17 Do you know whether revised QRA was requested just 18 prior to contract close? 19 A. I can't answer that question, I'm afraid. 20 Q. Is that something that ought to have been obtained by 21 the Council just before contract close, the final 22 version of the QRA? 23 A. Yes, I would agree that that -- that should be the case. 24 Q. Then if we can carry on scrolling down, please. I think 25 go back up to row 20, please. Thank you. 137 1 We can see there item 5.1: 2 "Full transparency of QRA." 3 If we go back to the green column, we again see the 4 reference in red to: 5 "Further QRA required following changes to Risk 6 Profile at [Financial Close] FC." 7 We can then see the yellow box further to the right 8 saying: 9 "Obtain update to QRA." 10 Then if we can scroll back to the left, please, and 11 scroll back down a little and stop there. Under row 23, 12 I think, is it possible to blow the bit in red up at 13 all? Thank you. 14 We can see: 15 "Detailed analysis of programme risk. Confirmation 16 of the risk allowance for programme delay. Detail of 17 items on critical path and what is being done to ensure 18 they do not cause (further) delay." 19 If we then move along to the right-hand column, 20 please, to see what's said, we then see the yellow box: 21 "Obtain update to QRA." 22 So that's in relation to the programme risk, and 23 then lastly, please, if we can go to row, I think, 47. 24 We can see in red: 25 "Full details are required from tie on status and 138 1 degree of completion of SDS design work." 2 If we could then scroll along, thank you. We simply 3 see the reference in the yellow box: 4 "Obtain from tie." 5 So something, I think, was to be obtained from tie 6 there. 7 Thank you. I think we can take our time separately 8 to look at all the other items, but that perhaps gives 9 a flavour of some of the deliverables that on the face 10 of it appear to have been outstanding at contract close; 11 is that correct? 12 A. That's correct. 13 Q. Just for the avoidance of doubt, do you consider that 14 these deliverables ought to have been obtained before 15 contract close? 16 A. Yes, they ought to have been. 17 Q. Do you know why on the face of it that doesn't seem to 18 have happened? 19 A. I'm unable to comment on that. 20 Q. Thank you. 21 Now, another document relating to matters after 22 contract close, and I'm conscious from your statement 23 that I think you said you had increasingly less 24 involvement after contract close. 25 Could we go, please, to CEC00869667. We can see, if 139 1 we go over to page 2, please, if we perhaps zoom back 2 out. 3 I wonder if I have given the wrong document 4 reference. Give me a second. 5 Let's try instead, please, CEC00900404. If we could 6 go over the page, please, to 2. 7 Now, we can see this is an email, if we blow it up 8 a little, please, from yourself dated 7 April 2009 to 9 various people in the Council, including Gill Lindsay. 10 Subject is strategic options and DRP. 11 There is reference there in the first paragraph to: 12 "As you know, Nick and I were scheduled to meeting 13 with Andrew Fitchie and Stewart McGarrity on Friday 14 afternoon to seek further information on the Dispute 15 Resolution Procedure in the overall context of your 16 forthcoming report on the Strategic Options for the 17 Chief Executive. The meeting went ahead and we were 18 also joined by Dennis Murray from tie." 19 Then go to page 3, please. We can see in the last 20 main paragraph at the bottom of the page, and we can see 21 a few lines in that: 22 "It may be stating the obvious to say that the 23 Council is not a party to the Infraco contract, but the 24 consequences are that the Council has no real influence 25 or voice even if it is the paying party behind tie. The 140 1 contract terms were developed and concluded effectively 2 without reference to the Council; no independent 3 validation of the contract was undertaken to vouch for 4 the Council's interest. As I have recently pointed out 5 to the Chief Executive, Council officers do not know if 6 the Infraco contract is sound and in all respects in the 7 Council's best interests as client and funder. This 8 contract may not be robust enough to deal with a claims 9 oriented approach by BSC, which could then impact upon 10 affordability for the Council." 11 Given what we have seen set out in Schedule 4, was 12 it perhaps obvious from that that the contract may not 13 be robust enough to deal with a claims-oriented approach 14 by the contractor? 15 A. I don't think I assessed it at the time as whether it 16 would be robust in light of the way things turned out 17 with BBS. No, I don't know if I can say any more than 18 that. 19 Q. Because from the provisions of Schedule 4 we looked at 20 earlier, on one view the very purpose of those 21 provisions was to leave the door open to post-contract 22 changes and claims? 23 A. Yes. Yes, I accept that. 24 Q. So in many ways, when there are post contract changes 25 and claims, that shouldn't come as a great surprise? 141 1 A. No, and I don't think -- I'd expressed the view earlier 2 in emails that claims were likely. 3 Q. Could we then just finish this over the page, at the top 4 of the page, we can see you do in effect say here: 5 "The subject matter of the contentious points comes 6 as no surprise. The B Team clearly stated what it 7 believed to be risky areas for the project before 8 a premature Financial Close; some of these matters are 9 now heading towards DRP." 10 So I suppose the question is, Mr MacKenzie: if the B 11 Team clearly stated what it believed to be risky areas 12 before premature financial close, why wasn't something 13 more effectively done about that? 14 A. I can't answer that. At the end of the day, the project 15 was signed off at a senior level. We felt that we had 16 done as much as we could to draw these risks to the 17 attention of our respective line managers, and 18 ultimately it was -- we could only make recommendations. 19 It was their decision to reach financial close or to be 20 satisfied that financial close could be authorised. 21 Q. Thank you. 22 Then page 1, please, of this email chain. Can we 23 see the very top email. It refers to an email by 24 yourself dated 9 April 2009 to Marshall Poulton and 25 others in the Council. You then refer to: 142 1 "Please find attached the Note put together by Nick 2 and myself and sent to Gill for onward transmission to 3 Andrew Fitchie." 4 Then please go to that note. It's CEC00900405. We 5 can see from page 1 at the top that the report follows 6 a meeting held at Citypoint on 3 April, attended by 7 Nick Smith and Colin MacKenzie, Andrew Fitchie, 8 Stewart McGarrity and Dennis Murray. 9 Then at the bottom of this note we see it says, 10 under question 1: 11 "Who has responsibility for design management and 12 evolution?" 13 You then set out the -- tie and BSC's competing 14 views. At the bottom of the page then states: 15 "The main problem here stems from the fact that 16 design was not complete at Financial Close. We 17 understand from tie that the design part of the contract 18 therefore had to be based on a number of agreed 19 assumptions." 20 You then say: 21 "The reality appears to be that such assumptions 22 were based on the hope that the parties would agree 23 matters commercially." 24 To pause there, do you remember what the basis of 25 that statement was? 143 1 A. I can't at this point in time. 2 Q. Then you go on to say: 3 "However, it further appears if BSC seeks to stick 4 to the contract terms absolutely, this will likely not 5 favour tie. In short, we understand that the contract 6 does not define 'normal design development' (which tie 7 advise BBS are responsible for) on the basis that it is 8 a term understood in the market. It now appears that it 9 is more a 'term of art' capable of different 10 interpretations." 11 Could I also please go back to your statement for 12 one final matter in relation to the disputes. Page 104. 13 Again, sorry if I'm repeating what we've just looked at, 14 but in paragraph 210 you say: 15 "Disputes were expected given my knowledge at the 16 time parties entered into the signing of the INFRACO 17 agreement. There was no surprise when they did emerge." 18 Is that really consistent with what we just looked 19 at in your meeting note and your email? 20 A. Yes, it is. 21 MR MACKENZIE: My Lord, I have no further documents to put 22 to Mr Smith, but there may be one or two final 23 questions. Perhaps I could reflect on that over 24 a break, if that would be appropriate. 25 CHAIR OF THE INQUIRY: Yes. We will resume again at 3.25. 144 1 (3.10 pm) 2 (A short break) 3 (3.28 pm) 4 CHAIR OF THE INQUIRY: You're still under oath, 5 Mr MacKenzie. 6 A. Thank you, my Lord. 7 MR MACKENZIE: Mr MacKenzie, I would just like to finish by 8 taking you to certain passages in your statement under 9 the general heading of reporting. 10 Could we first please go to page 29. In 11 paragraph 66, we can see it's with reference to an email 12 of August 2007, et cetera. 13 But towards the bottom of that we can see: 14 "Concerns raised at our level were often 15 disregarded. They were reported, they were raised and 16 on some occasions nothing further was heard." 17 Are you able to explain that a little more? 18 A. Yes, what I was alluding to there is that over a period 19 of time from probably spring of 2007, the B Team were 20 becoming aware of delays in MUDFA. That was the 21 principal issue. And then as time went on, the issues 22 about the SDS design contract in relation to Infraco, 23 and generally the way -- also including the way tie were 24 not giving us as much information as we would have 25 wanted. 145 1 All of these things together caused concern and we 2 were, I suspect each of us, from our respective 3 departments and interests, were taking matters to line 4 managers and in appropriate cases to Directors. I'm 5 aware that Finance probably had an easier line or a more 6 direct line to their Director, and also Finance had 7 a more direct line to their Director. 8 We were raising concerns, expressing dismay, that 9 things were not going smoothly, and we raised them. 10 Sometimes the issues were resolved. Other times they 11 just disappeared without any sign of them being 12 resolved. To us it was a rather unsatisfactory 13 situation. 14 Q. As a point of clarification, I think in your answer you 15 said: 16 "I'm aware that Finance probably had an easier line 17 or a more direct line to their Director, and also 18 finance had a more direct line to their Director." 19 You used "Finance" twice. Was that intentional? 20 A. It was not. I beg your pardon. It was meant to be 21 a separation of Finance and City Development 22 respectively. 23 Q. Thank you. 24 Over to page 30, please. In paragraph 68, again, 25 the context is emails of August 2007, again in relation 146 1 to DLA's duty of care. About halfway through this 2 paragraph, you say: 3 "A general observation is that there were sometimes 4 discussions taking place above my level that weren't fed 5 back down to me. I was missing pieces of the jigsaw." 6 Can you explain that a little, please? 7 A. Yes. What I'm referring to there is that I became aware 8 of the fact that discussions were taking place on 9 occasions that I can't say how frequently, either by 10 meeting or by email, between Gill Lindsay and 11 Andrew Fitchie, and I was not fully informed of these. 12 Q. Thank you. The next page is 41. In paragraph 89, four 13 lines up from the bottom: 14 "I make a general observation that there was a clear 15 trend that I would raise matters and sometimes there 16 would be responses and other times there would be 17 silence. This also relates to Gill Lindsay's general 18 communication with the B Team." 19 Is that simply back to the matter you explained 20 a few moments ago? 21 A. Yes, and I extend that or expand upon it by saying 22 that -- and we have touched upon them this morning -- 23 that there were a series of emails which I sent to 24 Gill Lindsay. Sometimes she would respond. Other times 25 there was no response. 147 1 But there were occasions -- I wouldn't like to 2 suggest that there were no meetings. We certainly had 3 discussions, but on some of the more crucial matters 4 which I chose to set out in writing, they were not 5 always responded to. 6 Q. Could we then please go to page 107. In paragraph 220, 7 about halfway down, you say: 8 "Compared to the involvement of CEC engineers, who 9 had the greatest level of involvement in the project 10 followed by, to a lesser extent, my Finance colleagues, 11 I would say that CEC Legal had the least involvement in 12 the tram project." 13 Now, to pause there, was there an element of that 14 being deliberate on the part of yourself and Mr Smith, 15 given what we discussed earlier in relation to both of 16 you deciding that you wouldn't become involved in 17 reviewing and advising on the Infraco contract? 18 A. I would say that was part of it. It was quite 19 a painstaking position to reach after analysing various 20 options and assessing what we thought might be in the 21 best interests of the Council. 22 But the net result of that was that we did not have 23 any serious involvement in assessing the whole contract 24 suite, but what -- the point I'm making there is that, 25 notwithstanding that principled stance, if one can 148 1 describe it that way, we still had quite a heavy 2 involvement, but I think the numbers of people who were 3 involved from City Development, the number of engineers, 4 Tram Monitoring Officer, et cetera, compared to them, 5 our level of involvement was not at the same level. 6 Q. Thank you. You go on to say in your statement that: 7 "I, along with Nick Smith, was aware that there was 8 direct contact between Gill Lindsay and Andrew Fitchie 9 but I suspect we were not copied into the full extent of 10 their email exchanges. Furthermore, we did not attend 11 all of the meetings between Gill Lindsay and 12 Andrew Fitchie. I only personally had a few meetings 13 with Andrew Fitchie, notably on the CEC guarantee and 14 other documents and also in relation to contractual 15 disputes between TIE and BSC." 16 Is there anything you wish to add to that or is that 17 fairly self-explanatory? 18 A. I would say it's fairly self-explanatory. 19 Q. Thank you. If we then please move to page 95 in your 20 witness statement. This is in relation to reporting to 21 Council members. In paragraph 192, this was in the 22 context of Mr Aitchison's report to the Policy and 23 Strategy Committee on 13 May 2008 when you were away on 24 leave. But towards the bottom of this paragraph, about 25 five lines up, you say: 149 1 "As far as I am aware, members of the Council were 2 not ever properly advised of the risks and liabilities 3 arising from incomplete and outstanding design, 4 approvals and consents. I form this view mostly from 5 memory. It wasn't an issue that was further discussed 6 after I returned from my annual leave." 7 In relation to that point about your view that 8 members weren't ever properly advised of these risks and 9 liabilities, is that something you tried to bring to the 10 attention of Ms Lindsay or others at the time? 11 A. Perhaps not in as pointed terms. I did make reference 12 on several occasions to, I think, approaching -- this 13 may be the May report, suggesting that the report be 14 pulled if members were not going to be fully advised of 15 the changed circumstances. That's one example I can 16 think of. 17 Q. Thank you. I only have two final passages. This now 18 turns to the question of tie's reporting to the Council 19 at page 108, please. Remember earlier this morning, we 20 had seen a part in your statement dealing with an email 21 from Andrew Fitchie to Richard Jeffrey in June 2010, 22 responding to Nick Smith's suggestion that if CEC Legal 23 had been more heavily involved first time around, we 24 wouldn't be in the mess we are now. We went on to look 25 at some passages after that. 150 1 I think this is still in the same context where you 2 say: 3 "If CEC Legal had been allowed to get closer to 4 contract negotiations I think it would have helped with 5 us gaining access to more information and better allowed 6 us to assist and advise the Council of its risks and 7 liabilities." 8 To pause there, again, I think your principal 9 position was that you didn't wish to get closer to 10 contract negotiations? 11 A. That's correct. I think what I'm saying here is the 12 position taken in retrospect, years after the event. 13 Q. Thank you. You go on to say: 14 "TIE did not, to my recollection, welcome the role 15 of CEC Legal. This extended sometimes even wider eg 16 representation or involvement in the Council through 17 Finance and engineers. I can only speak from what 18 I experienced, namely that there was more than a hint of 19 resentment by certain people within TIE of the role that 20 CEC Legal were performing. CEC Legal was perceived to 21 be asking awkward questions whilst attempting to best 22 represent the Council's interests. It came to a point 23 where the Chief Executive of the Council insisted that 24 more people from CEC were embedded in TIE's offices." 25 When did that happen approximately? 151 1 A. Certainly well before financial close. I would think it 2 was probably some time -- maybe around the time that the 3 Legal Affairs Group was set up in July/August of 2007. 4 I think it may have coincided with that, that a decision 5 was taken to place more people in tie's offices. 6 Q. After that happened did you continue to form the 7 impression that CEC Legal was perceived to be asking 8 awkward questions? 9 A. Yes. 10 Q. Finally, please, on the same page, in paragraph 223, 11 three lines up from the bottom, you say: 12 "There was a general suspicion, throughout my 13 involvement in the project, that TIE were reluctant to 14 be fully transparent with CEC." 15 Is there anything you can say in -- to expand upon 16 that statement? 17 A. Probably just giving an example of the QRA reports. We 18 seemed to have to wait quite some time and raise it at 19 Legal Affairs Committee from time to time and we were 20 promised: yes, this will be -- this will be delivered, 21 you will get an update; and -- my recollection was that 22 it took longer to materialise than we wished. 23 MR MACKENZIE: Thank you. I have no further questions. 24 CHAIR OF THE INQUIRY: I think Mr Fairley and Mr Dunlop have 25 given notice of questions. Mr Fairley? 152 1 MR FAIRLEY: No, my Lord. 2 CHAIR OF THE INQUIRY: Mr Dunlop? 3 MR DUNLOP QC: My Lord, yes. Most of what I was concerned 4 about has been covered off by Counsel to the Inquiry, 5 but there are a couple of clarifications restricted to 6 the period of April and May 2008 that I would welcome 7 asking. 8 CHAIR OF THE INQUIRY: Yes. 9 MR DUNLOP QC: I'm obliged. 10 Examination by MR DUNLOP QC 11 MR DUNLOP QC: Mr MacKenzie, just to understand the 12 timeline, if at any point you want to look at the 13 document, let me know. 14 We have seen that I think I'm right in saying on 15 15 April Schedule Part 4 is sent for the first time to 16 yourself and to Mr Smith? 17 A. Yes. 18 Q. Then on 28 April 2008 we see that again you and Mr Smith 19 are -- and others are sent a number of documents, 20 including DLA's advice note of that date, 28 April. 21 Again we looked at that earlier; is that correct? 22 A. Yes. 23 Q. Then on 30 April we have the joint email sent by -- it's 24 sent from your email, but it's signed off 25 Colin MacKenzie and Nick Smith; is that right? 153 1 A. Yes. 2 Q. That's the one in which you advert to your concern about 3 risks that had been pointed out by DLA and that you are 4 underlining? 5 A. Yes. 6 Q. Thank you. 7 By the time you send that email of 30 April you have 8 read Schedule Part 4 and you have understood it? 9 A. I have read it. Whether I fully understood it, I'm not 10 entirely sure. 11 Q. You've understood at least that there are risks such as, 12 for example, as you've told us, that Pricing Assumption 13 1 is based on drawings from November 2007 and that we're 14 now several stages down the line? 15 A. That's correct. 16 Q. You knew -- and again you have told us -- that changes 17 in the design principle, shape, form, et cetera, that 18 would be a public sector risk? 19 A. Yes. 20 Q. You knew that delays in SDS, delays in MUDFA likewise 21 would be a public sector risk? 22 A. Yes. 23 Q. Accordingly, you knew that you were not looking at 24 a fixed price contract? 25 A. Much of it was fixed, but not in its entirety. 154 1 Q. Yes. 2 In between the 15th and the 30th, you told us that 3 there had been a discussion amongst the B team about 4 Schedule Part 4; is that right? 5 A. Yes. 6 Q. Including Mr Smith? 7 A. I can't remember if Mr Smith was involved or not. It 8 was likely he would be, but I can't -- I can't be 9 certain. 10 Q. The email that's sent on 30 April, if you remember, the 11 joint one, from yourself and Mr Smith? 12 A. Yes. 13 Q. Will there have been discussion between yourself and 14 Mr Smith between 15 and 30 April about Schedule Part 4? 15 A. I simply can't remember. 16 Q. Well, you will recall that he is a signatory to that 17 email; yes? 18 A. Yes. 19 Q. Is it not likely that in the period that we're looking 20 at, you will have discussed with Mr Smith, your 21 colleague, Schedule Part 4? 22 A. Yes, it's probably likely. I simply can't remember it 23 all these years ago. 24 Q. Is it likely that Mr Smith signed up to commenting on 25 things like the risks arising from Schedule Part 4 155 1 without having discussed it with you first? 2 A. No. 3 Q. So, again, I'm just trying to get a feel, please, for 4 discussions that amongst the B Team, yourself and 5 Mr Smith and any others, as to Schedule Part 4, what was 6 it you were discussing at that time. 7 A. I think a whole range of issues, including part -- 8 Schedule Part 4 and the risks from that all as set out 9 in the email report. 10 So certain paragraphs of -- or parts, headings in 11 that table which we looked at earlier were derived from 12 our discussions on Schedule Part 4. 13 Q. Do you recall any dissent from Mr Smith regarding 14 concerns which you had arising from Schedule Part 4? 15 A. I can't remember, no. 16 Q. I'm just wondering if you can give his Lordship some 17 sort of flavour of the discussions that you have told us 18 were taking place amongst the B Team at that time, that 19 is April 2008, regarding Schedule Part 4? 20 A. Not in detail other than to say the result of the 21 discussion was the paper which we produced. That was 22 the product of it. But I simply can't remember the 23 extent of the discussions we had. 24 Q. So the paper that you looked at with my learned friend, 25 which I think was dated 30 April 2008, so the same date 156 1 as the joint email from yourself and Mr Smith, that 2 arose from a consideration of Schedule Part 4? 3 A. Yes. 4 Q. Again, does that mean that Mr Smith had read and 5 understood, or at least read, Schedule Part 4 prior to 6 the issuing of that document? 7 A. I would assume so. I can't prove it either way, yes or 8 no, but the assumption is there. 9 Q. Yes. I'm interested because Mr Smith has indicated to 10 the tribunal that he didn't read Schedule Part 4 when it 11 was sent to him, and that he hadn't read it prior to 12 2009. Do you find that surprising? 13 A. Yes, but I can't categorically say that he did. I have 14 no proof to say that he did or did not. 15 Q. The document which you've taken us to or you've been 16 taken to, 30 April, was the product of a review of 17 Schedule Part 4; yes? 18 A. Amongst other things, yes. 19 Q. How could Mr Smith have had any input in that without 20 reading Schedule Part 4? 21 A. Yes, it's a fair point. As I say, I can't remember. 22 I have no notes as to whether Mr Smith was there or not. 23 Q. But, I mean, do you recollect Mr Smith somehow divorcing 24 himself from discussions in April 2008? 25 A. I can't be precise about that. I can't say yes or no. 157 1 I have no wish to be unhelpful. I just -- simply can't 2 remember. If he said no, it would probably be 3 consistent with his previous position on looking at the 4 contract documents. 5 Q. When you sent the email of 30 April that goes from your 6 email account, but runs in the name of both of you, you 7 copy it into Mr Smith? 8 A. Yes. 9 Q. Did he respond either by email or verbally to say: why 10 on earth are you sending this out in my name; I have 11 told you already I'm not getting involved. 12 A. I don't recall that. 13 Q. No. 14 Okay. Thank you. 15 The last matter I want to raise with you, 16 Mr MacKenzie, is if we can have on screen, please, 17 a document we looked at earlier. It's CEC00906940. 18 This is a document that my learned friend put to you 19 earlier, the report to Council dated 1 May 2008, but 20 I think if we turn to the last page, which is page 5 or 21 page 6, it seems to have been signed by Tom Aitchison on 22 23 April; is that right? 23 A. Yes. Well, sorry, I think it's signed PP Jim Inch for 24 Tom Aitchison. 25 Q. Yes, I'm obliged. 158 1 Were you aware of this document before it was issued 2 to Council? 3 A. I probably would have been on the basis that the 4 unwritten convention was that when reports were drafted 5 by members of the B Team such as Andy Conway and 6 Alan Coyle, it was customary for them to send a copy to 7 me for comment or information. 8 Q. Now, this is the document that when my learned friend 9 took you to it earlier, you accepted was inaccurate in 10 a number of respects; is that right? 11 A. I think I said that, yes. 12 Q. I want to then put to you a series of questions that 13 others may recollect as having been put to another 14 witness. 15 Going back then to May 2008, you would have been 16 aware that this was knowingly providing false 17 information to the Council? 18 A. No, I don't think so. It was -- I had no reason to 19 delve into it and see whether somebody had been 20 misleading the Council. I think, as I've said earlier, 21 there was information being provided -- tie were the 22 only source of the information to the Council. We had 23 asked questions of them on it, and I think at the end of 24 the day what they were saying to us was: this is the 25 best deal that the Council can obtain. 159 1 Q. But you have told us already that the information in the 2 letter is not accurate. 3 A. Sorry, which letter? 4 Q. This report we're looking at, you have told us earlier 5 that information in there is not accurate. 6 A. I think the primary concern was in relation to price, 7 because I knew that the price was still being 8 negotiated. 9 Q. You told us earlier that information in this letter was 10 not accurate; correct? 11 A. Yes, I think so. 12 Q. So if it wasn't accurate, and it was being put to the 13 Council, then knowingly inaccurate information was 14 allowed by you to be put to the Council? 15 A. Not by me. I was not an author of the report. 16 Q. You've just told us you were aware of this document 17 before it was issued. 18 A. Yes, and I'd suggested that it might be pulled. 19 Q. And when it wasn't pulled, did you do anything about it? 20 A. No, the decision had been taken by others. I'd referred 21 it as a possibility and they decided to proceed with the 22 document. 23 Q. You're aware of the legal significance of knowingly 24 providing false information to someone, aren't you? 25 A. Yes. 160 1 Q. You were aware that this document, which you had warned 2 was inaccurate, was being provided to the Council? 3 A. Yes, I'd issued the warning. 4 Q. So does it not follow that you knowingly permitted this 5 to be submitted to the Council in the knowledge that it 6 was false? 7 A. No. I didn't -- I was not an author of the report. 8 I didn't have control of the report. I raised 9 beforehand the fact that this report should be pulled, 10 or was an option to pull it. Beyond that, I felt that 11 I'd discharged my responsibility in referring it 12 upwards. 13 Q. Did you raise that with Tom Aitchison? 14 A. I can't remember who I raised it, if it was Jim Inch 15 or -- I think it was possibly Jim Inch. But I said that 16 earlier in my evidence. 17 Q. Did you not raise it with Tom Aitchison? 18 A. I don't think so. 19 Q. Did you not say: Mr Aitchison, this is a document going 20 out in your name that is false. 21 A. No. 22 MR DUNLOP QC: I'm obliged, my Lord. 23 Questions by CHAIR OF THE INQUIRY 24 CHAIR OF THE INQUIRY: Can I just clarify what the procedure 25 is for reports. 161 1 There are people there, Andy Conway and Alan Coyle, 2 who are the contacts for councillors in the event of 3 them having questions? 4 A. Yes. 5 CHAIR OF THE INQUIRY: What does that mean in terms of the 6 report? Did they draft it or what? 7 A. They certainly would have a significant role in drafting 8 the report, my Lord. Going back over the course of 9 these reports, it was customary for B Team officers to 10 do the first draft and to refer it upwards to the 11 Directors for comment and adjustment as appropriate. 12 CHAIR OF THE INQUIRY: Once it got up to the Director, could 13 he or she alter it in any way? 14 A. Yes. 15 CHAIR OF THE INQUIRY: How did it come about that a report 16 would ultimately be submitted? Whose responsibility 17 would that be? 18 A. I think in the end of the day it's the responsibility of 19 the directors or, in this case, Chief Executive signing 20 it off. 21 CHAIR OF THE INQUIRY: You mean whoever signs it -- 22 A. Yes. 23 CHAIR OF THE INQUIRY: -- will accept responsibility for it? 24 Thank you. 25 Well, thanks very much, Mr MacKenzie. That's all, 162 1 and I'm grateful to you for your time. 2 You're still under citation, so you may be recalled 3 at a future date. If that happens, the Inquiry team 4 will be in touch with you. 5 A. Thank you, my Lord. 6 (The witness withdrew) 7 CHAIR OF THE INQUIRY: We will adjourn until 9.30 tomorrow. 8 (3.57 pm) 9 (The hearing adjourned until Friday, 27 October 2017 at 10 9.30 am) 163 1 INDEX 2 PAGE 3 MR COLIN MACKENZIE (sworn) ...........................1 4 5 Examination by MR MACKENZIE ...................1 6 7 Examination by MR DUNLOP QC .................153 8 9 Questions by CHAIR OF THE INQUIRY ...........161 10 164