1 Wednesday, 1 November 2017 2 (9.30 am) 3 CHAIR OF THE INQUIRY: Good morning. Sorry I'm a few 4 minutes late. 5 Mr Lake. 6 MR LAKE: My Lord, the first witness today is former 7 Councillor Gordon MacKenzie. 8 MR GORDON MACKENZIE (affirmed) 9 CHAIR OF THE INQUIRY: You are going to be asked questions 10 in the first instance at least by Mr Lake, Counsel to 11 the Inquiry. If you just listen to the question and 12 answer it as clearly and concisely as possible, and if 13 you could keep your voice up and speak at a measured 14 pace, so the shorthand writer can keep up with you. 15 Do you have something there? Did you bring 16 something in with you? 17 A. I just brought a copy of my statement. 18 CHAIR OF THE INQUIRY: I think it should be there. 19 Examination by MR LAKE 20 MR LAKE: Mr MacKenzie, could you state your full name, 21 please. 22 A. Gordon Ferguson MacKenzie. 23 Q. The Inquiry has details of your address. I would like 24 to you look at a document, please. It's reference 25 TRI00000086_C. You will see that on the screen to your 1 1 right. You should have a paper copy in front of you. 2 A. Yes, I do. Thank you. 3 Q. You will recognise that as the statement you gave for 4 the purposes of this Inquiry? 5 A. That's correct. 6 Q. Are you happy that that be -- that you adopt that as the 7 evidence that you give to this Inquiry? 8 A. Yes, I am. 9 Q. There's a few additional questions I would like to ask 10 you in relation to it or arising out of it. 11 I think you were a councillor from 2003 to 2012; is 12 that correct? 13 A. Yes, it is. 14 Q. You were part of the Council administration from 2007? 15 A. That's correct. 16 Q. You at various times were Convener of Finance and also 17 the Convener of Transport? 18 A. That's correct, yes. 19 Q. Also you had involvement in Transport Edinburgh Limited, 20 TEL, tie, the Tram Project Board and various Council 21 committees that were involved in the tram project? 22 A. Correct. 23 Q. I think is it correct to say your involvement with tie 24 dated back to about August 2007? 25 A. Yes, that would be correct. 2 1 Q. It was in that regard -- that was tie and TEL was round 2 about the same time? 3 A. Yes, that would be correct. 4 Q. Then you joined, I think, the Tram Project Board in 5 about 2008? 6 A. Yes. I think so. 7 Q. As you are well placed to have experience of all these 8 bodies, did you regard tie, TEL and the Tram Project 9 Board as having distinct roles in relation to the tram 10 project? 11 A. I saw TEL as having a very distinct role in that it 12 brought together not just the tram, but also concerns 13 around Lothian Buses. That came into TEL. 14 In my experience with the Tram Project Board and 15 with tie, a lot of it was conflated, a lot of it was 16 repeated. So they were principally or solely, in fact, 17 dealing with matters around the tram as far as 18 I could -- yes, the general understanding was it was 19 matters to do with the tram. 20 There was more -- perhaps more detail at the Tram 21 Project Board, but a lot of it was the same stuff. 22 Q. So between tie and Tram Project Board, that was the same 23 stuff being considered? 24 A. Pretty much, yes. 25 Q. So was it difficult to determine from time to time which 3 1 hat you were wearing and which body was actually taking 2 the decision? 3 A. Yes, it would be. Yes. Yes. I would say so. 4 Q. Which body were actually in charge of delivering the 5 tram project? 6 A. You mean between those bodies or -- 7 Q. Between those three? 8 A. Yes. I felt it was tie. 9 Q. Were you aware of various governance changes which took 10 place from time to time while you were involved? 11 A. I was aware of them, but as in my statement, I didn't 12 follow them particularly closely or well. 13 Q. Did they make any practical difference to you as they 14 changed from time to time? 15 A. I didn't feel that they did. Referring back to what 16 I just said a moment ago, a lot of the information was 17 duplicated and it seemed that -- I think it's noted in 18 papers that some -- at some points they kind of met 19 together. 20 Q. I was going to ask you about that. If we look just at 21 some meetings. If we could look at document 22 CEC01015023. 23 A. Is that going to come up on the screen? 24 Q. It's going to come up on the screen. 25 We see these are papers relating to a meeting that 4 1 was going to take place on 23 January? 2 A. Yes. 3 Q. We see this is described as a meeting of the Tram 4 Project Board, the tie Board and the TEL Board. If we 5 go to page 5 of this, we can see that the previous 6 minutes that are included there are from the start of 7 January 2008, so ones that are solely for the Tram 8 Project Board. 9 When you had a meeting like this which was to be one 10 that all three bodies were to take part in it, TEL, tie 11 and the Tram Project Board, was there any 12 differentiation between the business that was being 13 dealt with or was it all dealt with as one? 14 A. Largely it was all dealt with as one. There might be -- 15 I couldn't say that on this occasion or any specific 16 occasion that there was -- at the very end David Mackay 17 would say: we are meeting as TEL just now to confirm 18 certain points or to make certain decisions that were 19 for TEL. 20 Might I also just highlight that in the previous one 21 that you just showed there, it didn't have the names of 22 Councillor Tom Buchanan or Maggie Chapman who would have 23 been Directors of TEL, I think, at that time. I just 24 noted that -- 25 Q. On the front page? 5 1 A. Yes, as people who should have been invited anyway, or a 2 distribution list, if they were TEL. 3 Sorry, I have just noticed that. 4 Q. If we then go to another document, CEC01246826, this 5 time the papers are referred to as being solely for the 6 Project Board. We can see at that time that you're not 7 a member of that. But again if we go to page 5, it's 8 got the minutes for the previous meeting which is the 9 one at which you were in attendance that we just saw the 10 papers for? 11 A. Yes. 12 Q. Following the pattern through, if we then go to the next 13 one in the chain, to document CEC01246825 -- 14 CHAIR OF THE INQUIRY: Before leaving that, this was 15 a meeting of one body which you weren't a member of; is 16 that right? We see that it refers to the meeting of the 17 joint Tram Project Board, the tie Board and the 18 TEL Board, and the first item is the minutes. It says: 19 "The previous minutes were taken as read and the 20 outstanding actions from previous meetings were agreed 21 as complete." 22 So that would be that meeting agreeing that some -- 23 the minutes of another meeting of which they may not be 24 members; is that right? 25 A. That's my reading of it now, sir, yes. 6 1 MR LAKE: To follow the point made by Lord Hardie forward, 2 when we come to this meeting that's due to take place in 3 February, it would be approving the January minutes, 4 despite the fact not all the people who were at the 5 January meeting were at the February meeting because it 6 was a different body. 7 A. Yes, I see -- I see what you're saying, yes. 8 Q. Was that the way things were generally conducted 9 throughout, that the papers were just considered from 10 one meeting to another, despite the fact that the 11 membership of those meetings didn't always stay 12 constant? 13 A. It wasn't aware of -- something I was aware of at the 14 time, but highlighted here now, yes, that's pretty much 15 the practice that you were at a meeting, you got minutes 16 for the next meeting, and ... 17 Q. I understand. If you then go to the next document I was 18 referring to, it's CEC01246825. We can see this is 19 a pack of papers for a meeting which was due to take 20 place on 12 March, which is the next Tram Project Board 21 following as we follow this through. 22 We can see that you are included there, and the 23 right-hand column of the three at the foot of the page? 24 A. Yes. 25 Q. Again, if we go forward to look at page 5, it's got the 7 1 approval of the minutes that were dated 13 February that 2 we've just been looking at, but here they are designated 3 not just for the Tram Project Board, but it having been 4 a Project Board/TEL Board meeting? 5 A. Yes. 6 Q. Was there quite a bit of flexibility about meetings 7 would be changed to joint meetings quite late on in the 8 process? 9 A. I can't honestly say that I was aware of the issue at 10 the time. Looking back, I was thinking of it, before 11 you'd raised these questions with me, I was aware that 12 the meetings were conflated and that things were brought 13 together. So I think that general point, yes, there was 14 an element of flexibility apparent. 15 Q. Again, if we just follow it through so we have got a set 16 of four to look at, if we look at CEC00114831, the pack 17 is designated papers for the Tram Project Board, and 18 this time it's for the meeting on 9 April. So we're one 19 month on from where we were before. 20 But if we look at page 5 in this, this seeks 21 approval for the previous minutes, it's now referring to 22 a joint meeting between the Tram Project Board and 23 tie Board, rather than previously it was a joint meeting 24 with the TEL Board the previous month? 25 A. Yes. 8 1 Q. Were you given notice of when these meetings were going 2 to be run together with the various groups, various 3 bodies, I should say? 4 A. I can't say that I was -- I recall being aware that it 5 was going to be a joint meeting as opposed to a meeting 6 that I was invited to relating to the tram. 7 Q. So basically did it make any difference to you whether 8 it was a joint meeting or a single meeting? 9 A. To me it didn't make a difference, no. I'm trying now 10 to recall the meetings and you would be -- as a tie 11 member, if it was a joint Tram Project Board and tie 12 meeting, if I wasn't at the Tram Project Board, I would 13 have been aware that I wasn't on the Tram Project Board 14 and there were certain -- I was aware of my role in that 15 sense. 16 But I just thought that was a way of getting around 17 having the same items discussed twice, back-to-back. 18 Q. We've heard evidence, and you refer in your statement, 19 indeed, to the Tram Project Board having oversight of 20 the trams project. That would be oversight in relation 21 to tie; is that right? 22 A. I think that was more a general description, that it 23 was -- it was looking at matters concerning -- 24 pertaining to the tram. In terms of who had oversight 25 over -- which body had oversight over each other, my 9 1 understanding was that TEL had oversight of tie and Tram 2 Project Board. The tie and Tram Project Board were -- 3 tie and Tram Project Board were different in terms of 4 who was -- who the membership was. But in relation to 5 oversight of -- which oversaw which, I couldn't honestly 6 say I was clear on that. Or I'm not clear on that just 7 now. 8 Q. Do you think -- 9 A. I'm thinking that it's tie was -- had oversight of the 10 Tram Project Board, but, you know, that's my impression. 11 Q. Obviously the Council had an overarching oversight 12 function perhaps in relation to all the companies? 13 A. Yes. 14 Q. Now, there was clearly quite a lot of overlap between 15 the membership of these various bodies? 16 A. Yes. 17 Q. I think indeed you in a sense are one of the people who 18 had a clean sweep, in that you were also involved in the 19 Policy and Strategy Committee within the Council and 20 obviously a member of the Council in general? 21 A. Yes. 22 Q. Did the common membership between all these bodies -- in 23 your view, did it get in the way of effective oversight? 24 A. No. But -- in my view, no. I thought it was a benefit 25 in many ways that there was commonality of some of the 10 1 membership, certainly. 2 That people in tie Board and the TEL Board and 3 indeed in my position within the Council on the Policy 4 and Strategy Committee or Full Council, I would know 5 that the information being shared between those three 6 bodies, for example, was consistent. 7 Q. So you'd know that the information was being shared, but 8 did you find it difficult at all to think that wearing 9 one hat, you were being asked to oversee your work 10 wearing another hat? 11 A. Yes, in relation to the Council and my role on tie, or 12 the Council and my role on TEL, there was a conflict of 13 interest there which, as I said in my statement, that -- 14 those conflicts were allowed for generally within the 15 arrangements that were in place for councillors, in that 16 there was no financial -- no pecuniary interest that 17 I had in tie or TEL. The practice from the Council, 18 with respect to outside bodies, was that you could be 19 a member of an outside body and still take decisions 20 relating to that outside body as a councillor. There 21 was clearly a tension there. There was a potential for 22 conflict of interest. 23 Q. Is that what you mean by conflict of interest was 24 allowed for, that it was -- 25 A. Yes. 11 1 Q. It was dealt with by means of a declaration of interest? 2 A. Yes, that's correct, and -- yes. 3 Q. In terms of looking at your role as councillor at the 4 moment on the Council, you were in a position, obviously 5 because of your involvement in TEL, tie, and the Tram 6 Project Board, that you had much more knowledge of the 7 background circumstances than your fellow councillors 8 who had no involvement in these things? 9 A. Yes, that's correct. 10 Q. Did that create a difficulty, do you think? 11 A. There was a difficulty in relation to commercially 12 sensitive information which ran throughout the project 13 in that there was certain information or detail that 14 I wouldn't have been able to share, wasn't able to share 15 with councillors who were not on the Board, and you -- 16 as a councillor with your colleagues within your 17 political group or indeed with other councillors, you 18 had to make a judgement about what you could and couldn't 19 share based around the issue of commercial 20 confidentiality. 21 Q. Were you given guidance or instructions as to what was 22 confidential by tie, TEL or the Tram Project Board? 23 A. Yes, at the start of every meeting and through the 24 meetings, it was emphasised very heavily that matters 25 being considered within that -- at the tie and TEL Tram 12 1 Project Board were potentially commercially sensitive. 2 I don't think there was any specific guidance on an 3 item-by-item basis. This is commercially sensitive. 4 But, you know, we were -- it was highlighted at the 5 start of every meeting as a matter of concern, a matter 6 of importance that information was not shared beyond the 7 meeting that was considered to be commercially 8 sensitive. 9 Q. Would that be really everything that was being 10 considered by the Board, these various Boards was judged 11 commercially sensitive, and not to be shared by you with 12 anyone outside the Board? 13 A. I didn't take it as a blanket statement that anything 14 discussed at these meetings was not to be discussed with 15 others. I took it that there was certain information 16 that was clearly to me commercially sensitive, and 17 therefore should not be shared. 18 Q. So was it left to the judgement of the individual Board 19 member which information was on the confidential side of 20 the line and which not? 21 A. Yes, I think that's a fair summary. 22 Q. Were you under pressure to provide information from 23 other councillors, either ones within your own political 24 group or more generally? 25 A. I have to say that the group that I was a member of 13 1 respected my position and that of my colleague 2 Phil Wheeler on the Board, and they did not press very 3 heavily for information which we believed to be 4 commercially sensitive. 5 There was a lot of political theatre, not theatre, 6 but a lot of political comment, comment in the wider 7 political chamber, that information -- councillors 8 weren't getting commercially confidential information. 9 I think a lot of councillors understood why they 10 weren't. They had -- many of them had been party to the 11 decision to set up tie and TEL in such a way, and part 12 of the reason that councillors, myself and the other 13 councillors on the Board were there was because there 14 was an understanding and appreciation that there was 15 certain information that could not be shared more 16 widely. 17 Nonetheless, that didn't stop people from 18 complaining about it. 19 Q. Did it ever create a situation where matters were being 20 discussed at a Council committee or the Council more 21 generally where you felt a frustration on your part that 22 the discussions and possibly the decisions that were 23 taking place were ill-informed, because you knew 24 information that they didn't; you felt people would 25 decide differently if they just knew all the facts? 14 1 A. I don't think so, no. I mean, I think in -- it's 2 a generalisation, but I think people had certain views 3 about the tram project, whether they were for or against 4 it, and that tended to colour their judgement about any 5 information that they were -- well, to some extent it 6 coloured their judgement of the information they were 7 getting. 8 Understanding of the project, I think across the 9 Council, 58, 59 members, there would be a range of 10 understanding between different members, and some were 11 obviously less engaged than others in the process and -- 12 I didn't find that -- I didn't find the tension that you 13 refer to particularly. 14 Q. There was also -- I appreciate there were political 15 divisions, political lines in relation to the tram 16 project. 17 A. Yes. 18 Q. But when it came to any discussion or decision-making, 19 the councillors generally would know that there was 20 a small group of councillors who were actually on the 21 boards -- 22 A. Yes. 23 Q. -- who would have more knowledge? 24 A. Yes. 25 Q. Do you think there was any tendency to give the views of 15 1 those councillors more weight, or just for others to 2 simply, perhaps within a political group, to what -- in 3 your political group, to watch what you're doing and 4 assume: he must know what he's doing, he's got all the 5 information. 6 A. I think there would definitely have been a view amongst 7 councillors within my group, and as other groups also 8 had representatives on tie and TEL, that they would look 9 to those members on those committee -- on those boards 10 as having additional information and look to them for 11 a lead. 12 Q. Mm-hm. 13 A. Or a steer. And the extent to which they had confidence 14 in those -- their colleagues, political colleagues, they 15 would -- they would be led by their views or influenced 16 by their views. 17 I suppose within my group there was myself and 18 Phil Wheeler, so there was two of us. So you would hope 19 that one of us was able to explain the information 20 clearly enough to our colleagues and they would, along 21 with the briefings that they got from Council officers 22 and the papers that were in front of them, feel that 23 they had enough confidence in the recommendation or the 24 reports that were there in front of them. 25 Q. Just following up this -- the role of councillors on the 16 1 Board, if I could ask you to look please at your 2 statement at page 10. If we can enlarge paragraph 20 at 3 the foot of the page? 4 A. Yes. 5 Q. You express the view that you don't think that 6 a political body such as a Council should take these 7 types of projects forward: 8 "It creates too many opportunities for division and 9 divulging information which may disadvantage the public 10 purse." 11 I think there's two different things there. On the 12 one hand, division, and the second divulging 13 information. If you could just look at them in turn? 14 A. Yes. 15 Q. What do you mean by "it creates too many opportunities 16 for division"? 17 A. Speaking as an ex-politician, political parties will 18 take a stance depending on -- will often take a stance 19 depending on what they see as being politically the most 20 advantageous course for them, and not necessarily what 21 is in the best interests overall. 22 In the situation of the tram, it was a very, very 23 politically contentious issue, and political -- I assume 24 you want me to talk about in relation to the tram 25 specifically? 17 1 Q. Yes, specifically the tram, yes. 2 A. If you looked at the political context of this, Labour, 3 the Conservatives, the Liberal Democrats, voted to take 4 this project forward. As it became more unpopular, 5 Labour and the Conservatives, my perception, Labour and 6 the Conservatives wanted to distance themselves from, 7 you know, a project that was going really badly wrong, 8 and would take opportunities as they arose to distance 9 themselves from it, so it creates a certain division 10 there. 11 Equally, the SNP had taken a view that they were 12 against the tram for whatever reasons that they gave. 13 And they were not shy about hammering that point home at 14 every opportunity. 15 So because it was such a -- because it went wrong, 16 or it was going wrong, there was far greater 17 opportunity, there was a really good opportunity for 18 political parties to make play of that for political 19 ends. 20 Q. If they're making play in the Council or Council 21 committees, you're in the lucky position you could also 22 see things from the standpoint of tie, TEL and the Tram 23 Project Board? 24 A. Yes. 25 Q. Did what was happening in the Council have any effect on 18 1 the project and its implementation by the other bodies? 2 A. I felt not, right up until very late in the day. 3 Effectively the decision about stopping at Haymarket 4 versus going on to St Andrew Square. 5 Up to that point, we had managed to broker deals 6 between those parties that were supporting the tram in 7 order to give the Council's continuing support for the 8 project. 9 So whatever the hot air or whatever the political 10 debate and division within the Council Chamber, we got 11 to a place, we got to decisions which supported the 12 Council and tie in taking the project forward. It 13 wasn't until the Haymarket decision that that had 14 a really significant effect, in my opinion. 15 Q. So although there were opportunities for division -- 16 A. Yes. 17 Q. -- you are saying that they didn't really have an impact 18 on the project here, in your view at least not until 19 quite a late stage? 20 A. They didn't have an impact on the project in such 21 a major way. 22 What happened as part of the project was there was 23 a huge amount of interest, political interest, public 24 interest, and every time that there was a meeting of the 25 Council or some -- a report came to Council or something 19 1 was leaked into the press, there would be lots of 2 questions asked. There would be lots of Freedom of 3 Information requests and all the rest of it, and that, 4 I think, had quite a significant effect in terms of 5 management time for tie, and also for those involved in 6 the project beyond tie, the councillors. 7 So had there been a straightforward project -- and 8 gone well, and none of us would have been here, 9 obviously. But there would have been far less 10 contentious matter. There would be far less public 11 interest in it, and there would be far less work needing 12 to be done, because it was divisive. There was an 13 element beyond that, but I think the real crux of the 14 matter for me was: did it affect the decisions about 15 going forward with the tram project or not, and in that 16 sense it didn't. 17 Q. The other point that you raise in this paragraph 20 is 18 the -- too many opportunities for divulging information 19 which may disadvantage the public purse. Perhaps that 20 ties in with what you just said about FOI requests? 21 A. It wasn't so much the FOI requests in that situation. 22 I'm thinking about decisions that were made about 23 providing for risk, you know, headroom, negotiating 24 positions. That sort of thing. 25 Every time a Council report came up that considered 20 1 matters around, you know, what would be a fair price, 2 for example, what would be a reasonable price, what 3 allowance do we need to make; we're not just telling 4 each other that. That's going out publicly and the 5 contractor can see that. The contractor knew what the 6 delegated authority of the Chief Executive was. The 7 contractor potentially, had the Council been provided 8 with information about the legal advice, the -- the 9 councillors, in the public domain, being provided with 10 certain advice on strategy, on -- commercial strategy, 11 on legal advice, those sort of really commercially 12 sensitive, I would say, points. 13 That would have given the contractor a heads-up on 14 what the Council was doing. That to me seems nonsense, 15 and that's why I say I don't think that's the right way 16 to run a project like this. 17 Q. If we could look over the page, please, at paragraph 21, 18 if you could enlarge paragraph 21 generally, and just 19 looking at the last few lines of this paragraph, the 20 sentence begins: 21 "Separately, I do not think that CEC should have 22 been the body, through tie, to have taken the project 23 forward. I think that it should have been a national 24 transport agency that did so, backed by the Scottish 25 Government, and subject to separate legal advice." 21 1 That, I think, follows on from what we've just been 2 discussing? 3 A. Yes. 4 Q. But why in particular do you think it should be at 5 a national transport agency? What advantages are there? 6 A. I was aware of the -- in Ireland, Republic of Ireland, 7 they'd set up a national agency to take forward large 8 infrastructure projects like this, and I think there's 9 an element of, you know, learning that happens as you go 10 project to project. 11 So you build up an experience and expertise in 12 dealing with these projects. 13 I think also it was clear that the Edinburgh Council 14 wasn't going to do, you know, several of these types of 15 projects, and so you have the short life of the project 16 itself. And the fact that you're not providing 17 potential contractors with a menu of -- a menu -- yes, 18 a menu of contracts, you don't have the financial muscle 19 to be able to say to them: look, in my view I felt that 20 the time the contractor was taking was being excessive 21 in the way it was taking forward the claims-based 22 approach. 23 A bigger organisation that maybe the contractor was 24 interested in getting other contracts from could have 25 had -- would have -- the power relationship between them 22 1 and potential contractors would have been different. 2 The Council was small compared to Scottish 3 Government and I think size does matter in these 4 situations. 5 Q. I want to look now at the question of councillors 6 sitting on the boards of companies such as TEL or tie 7 and what they do. 8 You said in your statement that you don't consider 9 that they should sit on those boards. 10 You say there that you don't think it generates 11 sufficient benefits. Do you think there are any 12 benefits of having councillors on boards? 13 A. There would be an argument that having councillors on 14 those boards gives the wider body of councillors some 15 reassurance that decisions are being made in a proper 16 way, that they aren't up to things that they shouldn't 17 be up to. 18 I think my experience of the tram project is even 19 having councillors on the Board doesn't guarantee that 20 they will be able to, you know, identify things that -- 21 that they clearly don't have the skills or expertise to 22 understand fully. 23 I think with smaller, much smaller bodies, with 24 a turnover of hundreds of thousands or whatever, you 25 might argue that that's fine. Your community centres 23 1 and that sort of thing, that's fine. But for large 2 projects like this, complex projects like this, in my 3 statement it also says I was a chair in fact and 4 a Director of EDI and CEC Holdings. They had a capital 5 value of over GBP100 million. There was no independent 6 non-execs in there. It just seems to me that there's 7 very little benefit of having councillors on committees, 8 on boards, when they don't have anything other than the 9 corporate social responsibility type background, I would 10 say. 11 The average councillor would perhaps be able to give 12 a useful input in that type of domain of a board's 13 responsibilities, but in terms of the technical, the, 14 you know, procurement or anything like that, you know, 15 none of us had that background. 16 Q. One of the things you mentioned in your statement is 17 that one of the rationales might have been that it was 18 to help secure support within the political groups, if 19 they knew that they could have a representative? 20 A. Yes. 21 Q. Do you think that worked or did it happen? Did it work? 22 A. That was my understanding. That was the understanding 23 given to me by a colleague, another councillor, before 24 or at the time that I was appointed to tie. You know, 25 I asked the question, why are -- something around: why 24 1 have we got these councillors on tie and we don't ... 2 There had been a practice in Edinburgh Council prior 3 to 2003, I think, where -- tended to be only the ruling 4 administration that had members on outside bodies, not 5 exclusively, but that was -- that was common. That was 6 quite common practice. 7 And there was a sense that things were being hidden 8 away from opposition groups. 9 I wasn't involved in the discussions around the 10 setting up of tie and who went on the Board, but my 11 understanding was that the arrangement of having other 12 political parties on tie was partly to get buy-in to the 13 whole tie -- tie agenda, the transport initiatives 14 agenda. 15 Q. You also consider the issue of conflicts of interest 16 that arise. What conflicts, if any, do you consider 17 arise when councillors are sitting on these company 18 boards? 19 A. Well, I think that conflict of interest, is that the 20 right phrase? There's guidance given to councillors and 21 to senior Council officials about not being too close, 22 that you -- if you get too close in terms of your 23 working relationship, you can lose objectivity, and 24 I think it's probably that that was more -- is more 25 concerned to me and was more in my mind around -- around 25 1 councillors being on outside -- on outside bodies, and 2 having a closer working relationship. They're not -- 3 you know, you build up a relationship with somebody, you 4 start to trust them and perhaps give more leeway or less 5 inclined to scrutinise than in the way if you didn't 6 have that, I suppose, personal relationship with them. 7 So that was one -- that's one sense in which I meant 8 conflict of interest in that sense. 9 There were also specific points. For example, when 10 it came to tram -- Traffic Regulation Orders that 11 because I was on the tie Board, I had a conflict of 12 interest, a legal conflict of interest, when the TROs 13 came to the Transport Committee, I absented myself from 14 decisions around that because that was -- that was 15 a conflict of interest which I didn't feel could be 16 managed or accommodated within the arrangements that 17 were understood to be in place for councillors. 18 I think it just gives you -- that separation just 19 gives you more objectivity perhaps. 20 Q. I want you to look at another production with me. It's 21 reference CEC00132866. You can see that these are 22 minutes of a TEL Board meeting that took place on 23 22 September 2010. You are one of the people that 24 attended that. 25 A. Yes. 26 1 Q. Could you look at the second page, please. If we look 2 after the bullet points right at the foot of the page, 3 you were saying that Mr Mackay made his own position 4 clear that he was uncomfortable about the developments 5 over the last three or four months and advised that this 6 also made it difficult for the councillors on the Board 7 in terms of governance going forward. 8 Can you recall what was going on there and why 9 Mr Mackay felt it should be difficult for the 10 councillors on the Board? 11 A. No, unfortunately I can't. I remember reading this for 12 my statement and I couldn't remember then and I still 13 can't remember. 14 Q. Could I ask you then to look back at your statement, 15 please. Page 122 of that. If we could enlarge the 16 paragraph at the top of the page. It's just reading 17 from the very top line there, you say: 18 "Steve Cardownie and Steve Burgess should have been 19 receiving briefings either from their representatives on 20 the TEL Board or from CEC officers." 21 I was just puzzled by the reference to these 22 councillors getting briefings from the party -- the 23 group representatives on the TEL Board. Is that not 24 slightly at odds with what you are saying about 25 confidentiality and the need to keep things private? 27 1 A. No. Well, I don't think so. Obviously there's 2 information that is shared with representatives on the 3 TEL Board that's not commercially confidential. 4 Q. Mm-hm. 5 A. And there's the discussions that I understand 6 Tom Buchanan had with Richard Jeffrey and others would 7 have given him a better understanding of decisions that 8 were being taken within the tram project, and he would 9 have been able to explain perhaps better to 10 Steve Cardownie, who is his group leader, about those 11 decisions perhaps more than was available or more than 12 that was in the Council reports. 13 Does that answer your question? Sorry. 14 Q. From what you are saying, the ideas that the party 15 representative on the Board might be the person who 16 passes information back to the party in the Council, it 17 seems to place a lot of reliance on this rather informal 18 channel of communication to inform councillors about the 19 affairs of the company. 20 A. I think it was -- it was perhaps to give reassurance as 21 opposed to replacing the formal channels, if there was 22 questions that came up in relation to a report perhaps 23 to the Council, a councillor -- I'm speculating here to 24 some extent -- 25 Q. Does it reflect a concern either that you had or that 28 1 you were aware that others had at the time that the 2 formal channels weren't telling the councillors in the 3 Council enough, that they needed more information, 4 better information, more detailed information? 5 A. It reflects -- I would say it he reflects my view that 6 there was a limited amount -- there was a limit to what 7 you could put in a Council report. So to that extent, 8 yes, I would agree with what you're saying. 9 There needed to be some other way perhaps to give 10 reassurance. If you're asking people to go with 11 a report that didn't necessarily give all the detail 12 behind it, you perhaps needed reassurance from somebody 13 who was privy to that detail who was one of your 14 political colleagues that -- the information that they 15 had substantiated the detail -- the statements in the 16 report. 17 I'm thinking up of an example, a theoretical 18 example, I can't think of a specific example off the top 19 of my head. 20 Q. Is that one of the perceived reasons behind the desire 21 to have councillors sitting on the Board, is that -- the 22 feeling of that need for connection or another channel 23 of communication? 24 A. Possibly, yes. 25 Q. I want to move on to a different thing now -- 29 1 CHAIR OF THE INQUIRY: Before you do, you mentioned 2 Steve Cardownie and Steve Burgess. Was Steve Burgess 3 SNP as well? 4 A. No, Steve Burgess was the leader or co-leader of the 5 Green Group. He was nominally the leader of the Green 6 Group for, I think, administrative purposes. 7 CHAIR OF THE INQUIRY: Did they each have representatives on 8 TEL? 9 A. Yes, all five political groups had a representative on 10 tie -- on TEL. Only the Greens and the SNP did not have 11 a political representative on tie. 12 CHAIR OF THE INQUIRY: The other thing I was going to ask 13 following your answers to Counsel to the Inquiry about 14 dissemination of information. We've heard that at some 15 points, a data room was made available where councillors 16 could have access to confidential information. Would 17 that be the way of doing it if you wanted to get 18 information over to each of the groups that the 19 individual councillors could go to the data room? 20 A. I think -- I recall the data room being used on a couple 21 of occasions. Once actually -- I'm not sure -- once for 22 a different contract. It had nothing to do with the 23 tram. And I think that it gave some -- it was -- it was 24 of some use. 25 The difficulty is that a lot of the councillors, 30 1 myself included, did not have the technical expertise to 2 understand a lot of what -- the information that 3 potentially was in that data room. Even, you know, 4 somebody who had been there at all the meetings or most 5 of the meetings as I had, when it came to legal opinions 6 and stuff like that, you know, I'm not legally 7 qualified. So I wouldn't necessarily know -- understand 8 the nuances of opinions or decisions. That sort of 9 thing. 10 So I think having councillors being able to access 11 information within a data room could be a useful tool, 12 but essentially councillors are not the right people, in 13 my opinion, to be taking these sort of decisions which 14 require a level of professional knowledge or experience 15 in these type of projects. 16 CHAIR OF THE INQUIRY: Thank you. 17 MR LAKE: I think that's a theme I would like to return to 18 in just a little while. 19 What I would like to start looking at at the moment 20 is the decision to award the Infraco and Tramco 21 contracts that came up in December 2007. 22 You've made the point in your statement that 23 ultimately the decision was that taken by the Council 24 itself. But what was the role of tie, TEL and the Tram 25 Project Board in that decision, assisting the Council? 31 1 Were you aware of what's -- the role of each one of 2 those entities was? 3 A. Sorry, I was anticipating something coming up on the 4 screen and I was slightly distracted. Can you just 5 summarise that question again? 6 Q. If the decision to actually award the contract was made 7 by tie -- pardon me, the Council, what was the role of 8 tie in assisting the Council in their decision? 9 A. I understood that tie was there to provide the 10 information and the assurances that the Council needed 11 in order to make a decision essentially. 12 Q. What about the role of TEL? 13 A. TEL wasn't as involved in the day-to-day running of the 14 tram project. So it may have formally been the 15 information came from tie to TEL to the Council in terms 16 of governance structure. But in terms of the day-to-day 17 operation, tie -- people working for tie, they pulled 18 together information that the Council officers required 19 in order to be able to put a report in front of 20 councillors. That was how it -- how it worked. 21 Q. The last piece of the jigsaw, what was the role of the 22 Tram Project Board towards the Council? 23 A. As previously mentioned, the two were largely conflated. 24 The Tram Project Board to me was initially somewhere 25 where there was more detailed discussion of issues in 32 1 relation to the tram project with tie taking a slightly 2 higher level view on that, but the two became conflated. 3 So in terms of governance, I couldn't tell you what 4 the route was. Both bodies were party to bring -- 5 pulling the information together, which came across to 6 the Council, was my understanding of it. 7 Q. You talked there about information and assurances. Were 8 any of these bodies actually providing advice to the 9 Council in relation to what to do in your view? 10 A. Well, I suppose I have used the word "assurances" 11 because I have read in various papers for this that the 12 Council officers were looking for legal assurances and 13 other assurances. 14 Essentially they were looking to tie -- can you just 15 repeat the question again so that -- 16 Q. You talked about information and assurances. 17 A. Yes. 18 Q. I'm wondering, rather than merely providing information 19 and assurance, were any of these bodies, the three 20 bodies, providing advice to the Council, going further 21 than merely providing information? 22 A. I can't say that I know directly of that. It was my 23 understanding that information and advice was going 24 backwards and forwards between them at an officer level 25 all the time. 33 1 Q. I would now like to look at a document on the screen 2 with document reference CEC01338847. 3 You've probably seen this document in the course of 4 preparing your statement, but do you recall having seen 5 that as part of the decision-making process in 6 December 2007? And later, I should say, in May 2008? 7 A. No. Sorry, I don't recall seeing this at the time. 8 Q. Could I ask you just to look at another one then. It's 9 document reference CEC01338851. This is a report on the 10 Infraco Contract Suite. Again, do you recall seeing 11 that as a councillor? 12 A. No. 13 Q. At any time in the period? 14 A. No. 15 Q. Just for completeness, if I could ask you to look at 16 CEC01338853. This one is headed "EDINBURGH TRAM PROJECT 17 REPORT ON TERMS OF FINANCIAL CLOSE ('CLOSE REPORT')". 18 Again, do you recall having seen that as a 19 councillor in the period leading to contract close? 20 A. I don't, but it's quite some time ago. So -- 21 Q. I specifically framed my question -- 22 A. I remember the terminology, the close report. So I was 23 aware that there was a close report. I would need to 24 sit down and go through this and see if it ... 25 Q. You say you were aware of the term? 34 1 A. Yes. 2 Q. Terminology. Were you aware of it, can you recall, as 3 a councillor sitting in the Council or its committees, 4 or in your role with the various companies and boards? 5 A. In my role on the companies and board, I would say 6 I remember it from that, not from -- 7 Q. Do you recall whether you had any hand in approving its 8 terms or finalising its terms? 9 A. No. 10 Q. Is that you don't recall? 11 A. As in I don't recall and I'm pretty sure as I can be 12 that I wasn't involved. 13 Q. Could I ask you to go to your statement, please, and 14 look at page 33. Could you enlarge paragraph 84, 15 please. You have stated here you suppose: 16 "... likely that the TPB [Tram Project Board] would 17 recommend that all the contracts be entered into. 18 Otherwise, there would be no point in having them 19 executed. If there was a suggestion that the contracts 20 did not stack up, however, I would expect that the 21 non-executive Directors and the Councillors would pick 22 up on that." 23 A. Mm-hm. Yes. 24 Q. When you say the councillors, I take it you mean there 25 the councillors sitting on the companies and the Tram 35 1 Project Board? 2 A. Yes. 3 Q. Now, do you think the councillors would have had 4 sufficient knowledge and expertise to pick up on 5 problems with the contracts not stacking up? 6 A. No. If there was -- I think the point I was making, and 7 it was -- I don't know if it was because I wasn't 8 understanding the question properly, but it seemed to me 9 that we were at a stage where the TPB would be bringing 10 to us things -- something that they would have been 11 satisfied with. There would have been little point 12 bringing us something that they weren't satisfied with 13 and saying to us: we're not satisfied with this. 14 The difficulty for councillors would be that they 15 wouldn't necessarily know if the -- if the language was 16 subtle. They wouldn't necessarily know, the point you 17 just made there, if there was a suggestion that the 18 contracts didn't stack up. 19 But if it was quite clear from the Tram Project 20 Board that they felt that the contracts weren't stacking 21 up, then I would have expected the councillors would 22 have picked up on that as well. 23 Q. Now, you've noted in your statement again that prior to 24 award of the contracts, you'd been told that the MUDFA 25 works were only 30 per cent complete. 36 1 A. Right. 2 Q. Now, I think you would have been aware that one of the 3 strategies for procuring the tram project was that the 4 MUDFA works should be complete before the Infraco works 5 commenced. Yes? 6 A. Yes. 7 Q. Another part of the strategy was that the design, the 8 detailed design, should be 100 per cent complete by the 9 time the contract was signed? 10 A. Yes. 11 Q. Presumably from your involvement with the tie Board and 12 the Tram Project Board, you would be aware that there 13 were issues with the design throughout the whole of 2007 14 and it wasn't complete? 15 A. Yes. 16 Q. What consideration was there of this departure from the 17 procurement strategy when entering into the contract, in 18 either the Tram Project Board, tie or TEL? 19 A. Strategy -- there was -- there was a lot of concern that 20 the -- the design wasn't -- wasn't where it needed to 21 be. I was -- I would say I was not as aware of the 22 significance of this as clearly I am now, but others 23 were. 24 For instance -- 25 Q. Others being -- 37 1 A. Donald McGougan, for example, who is the Director of 2 Finance for Edinburgh Council. He had raised it. But 3 others around the tie Board were raising concerns about 4 the design over months and months. 5 So -- and that -- sorry I'm kind of jumping ahead 6 here, but that was where I thought that the novation 7 issue was resolving a lot of that potential problem, 8 potential risk in that there was a base date design, the 9 SDS were being novated over, that that risk was being -- 10 had been -- was being treated. There was a strategy in 11 place for -- there was a strategy for treating that, 12 which was to get the design novated and have agreement 13 over the Base Date Design Information, and that was the 14 way that they were resolving the fact that there wasn't 15 a design in place by the time the contract was due to be 16 signed. 17 In relation to the utilities, it's difficult to 18 distinguish what I now know from what I knew then, but 19 certainly there was a view, or we were told, that the 20 utilities -- there was plenty of areas that the 21 contractor could work on that had been -- the utility 22 work had been done or didn't require any further utility 23 work, and therefore that was not an impediment, shall we 24 say, to the contract being signed. 25 Q. You explained you thought that the novation would deal 38 1 with the incomplete design? 2 A. Yes. 3 Q. Was that said to you by someone? Were you advised of 4 that by someone within the company? 5 A. It was definitely seen as a good thing, but I think that 6 that came more from my limited previous experience of, 7 you know, a build on a care home that I had been 8 involved in, where novation had been a way of taking the 9 risk around the design out of -- of the -- of the 10 project. 11 Q. Did anyone within tie, any of the officers within tie, 12 discuss with you the various Pricing Assumptions that 13 had been built into the Infraco contract? 14 A. Not to my recollection, no. Sorry, the Pricing 15 Assumptions within the contract, no. The fact there 16 were risks for certain things, yes, but Pricing 17 Assumptions, that particular -- no. 18 Q. You didn't know that that was a means by which they had 19 sought to deal with the fact that the design was late? 20 A. No. 21 Q. It wasn't explained to you? 22 A. No, not at all. 23 Q. What did you know in May 2008 of the price increases 24 that had taken place between December, when the Council 25 approved the project, and May, when it was contemplated 39 1 that the contract be signed? 2 A. I think I've referenced a couple of occasions where 3 information was brought to the Board, as in tie Board, 4 about the contractor wanting more -- more money. 5 It was also brought to councillors separately from 6 that as well by Council officers, and the general view 7 was that the contractor was at it. That was a very 8 strong -- the underlying message, but they were using 9 the pretext of changes in suppliers' costs had not been 10 provided for. Currency fluctuations was another one 11 that was mentioned. 12 There was -- but it was heavily imbued with 13 a scepticism from Council officers and from tie, 14 particularly from tie, that the reasons given by the 15 contractor were the real reasons. It was more that the 16 contractor now knew that they had us on a hook. They 17 were the preferred bidder, and they were going to try 18 and get what they could from the Council before they 19 signed the contract. 20 That was -- that was said not necessarily in those 21 words, but that was made very clear to myself and others 22 on the tie Board. 23 Q. As far as you were aware, either as councillor or as 24 member of the boards, was anything being obtained in 25 return for these additional sums in reality, not just 40 1 what they were saying, but in reality were the companies 2 getting anything in return? 3 A. There was -- there was -- there were reports that said 4 that they were getting certain elements -- certain risks 5 closed. I can't remember off the top of my head, but 6 there were certain risks being closed out. But it 7 didn't feel like there was a great deal of substance to 8 it, and that, to some extent, contrasted with the very 9 clear message that they were -- they were trying 10 whatever means they could to get more money out of the 11 Council. 12 Whether that was justified or not, I wasn't in 13 a position to say. Council officers justified why they 14 were giving them more money. So I went with that. 15 But ... 16 CHAIR OF THE INQUIRY: You say it was Council officers who 17 were giving you that impression or that message. Which 18 Council officers are you talking about? 19 A. So the message about the tie -- about the contractor 20 being at it came more strongly from tie. 21 The Council officers, I'm talking about the Council 22 reports here that came to, I think, all councillors, 23 which would have been in the name of the Chief Executive 24 or the Director of Finance or the Director of City 25 Development at that time, whoever was signing off that 41 1 report, the report was in his name. 2 So in the reports it said: we have got X, Y and Z 3 for this, but the message that I had had before that 4 came to as was from tie, and I think that my main point 5 of contact at this time, and throughout, one of the main 6 points of contact I had throughout this process was 7 Donald McGougan, the Director of Finance, because I was 8 Convener of Finance at that time. So that was the main 9 officer that I related to, and he was also involved in 10 the tram project. 11 So he was echoing the message that came from tie 12 that -- you know, that there was a feeling -- the view 13 was that the contractor was at it. 14 CHAIR OF THE INQUIRY: Can you remember who in tie was 15 giving you that message? 16 A. Well, I would have said it was Willie Gallagher and 17 Dave Mackay, but Steven Bell would have been there at 18 the time. I mean, it was a very -- you know, it was -- 19 everybody round the table seemed to know or believe -- 20 everybody, that is, that was on the tie side and the 21 non-exec Directors as well, believed this to be the 22 case. That was the impression that came across to me. 23 CHAIR OF THE INQUIRY: Thank you. 24 MR LAKE: You will be aware that after some initial claims 25 for further monies, there was one last claim made right 42 1 at the start of May 2008. 2 A. Right. 3 Q. Were you involved in any discussions about that, and 4 whether or not the company should accede in part to 5 those demands or should simply end the negotiations? 6 A. I don't remember being involved in any discussions about 7 it. I remember -- well, I think I said in the report or 8 I read or -- I said in my statement or read in the 9 report, there was a feeling that we needed to get this 10 signature on the page from the contractor, and that, you 11 know, that was -- that that's something that we had to 12 swallow to get to that stage. 13 But I don't remember being involved in any 14 discussions about that. 15 Q. When you say you needed to get the signature on the 16 page, either in December 2007, when the matter was 17 reported to Council for approval, or in May 2008 when it 18 was coming up for signing the contract, was 19 consideration given of pausing the process and delaying 20 it to see if either the design situation could be 21 improved, or you could go back to the other contractor, 22 or do something to improve the Council's position? 23 A. There was very little consideration. I would say -- 24 I wouldn't say there was no consideration. It was more 25 in the -- if you turn it over the other way, the -- the 43 1 strong message we were getting was that delays were 2 costing GBP68 million a month, I think it was. The 3 construction inflation at that time was going up at that 4 rate. And so if you wanted to argue out the point over 5 the next three months to save yourself 3 million or 6 4 million, you potentially were losing 18 to 24 million 7 in terms of construction inflation. So, you know, there 8 was that -- that element of -- that was the context that 9 I believed that we were in at the time. 10 Q. Were you aware whether there was any pressure from 11 outside bodies, either the contractors, the Scottish 12 Government, the Council, to get matters done? 13 A. To get ... 14 Q. To get the contract concluded, to get the report to 15 Council in December? 16 A. I -- I had very strong -- to get the report in December? 17 Q. Either to get the report in December or to get the 18 contract signed in May. 19 A. There was definitely a strong emphasis or strong impetus 20 to get it done, you know, as soon as reasonably 21 possible, reasonably feasibly possible. 22 I wasn't -- I wasn't as concerned about that, 23 notwithstanding the issues around potential construction 24 inflation, which I think I understood. I have read in 25 the reports or in statements that there's -- there was 44 1 an imperative to get it done quickly and to work to 2 a certain timescale. I wasn't -- that wasn't my 3 imperative. I didn't feel strongly: we need to get this 4 done now, we need to have it running by a certain date. 5 So I didn't feel as strongly about that. I was 6 looking at it more from the point of view of, well, this 7 is going to cost us more in the inflation in the time it 8 would take us to sort this issue out. Let's get the 9 issue sorted out, and perhaps we have to accept 10 something that, had there not been the construction 11 inflation, we could have argued about for weeks or 12 months until we got a better deal. 13 Q. I would like to ask you now a few questions concerning 14 risk. 15 You will be aware that an allowance was made for 16 risk by the time the contract was signed. During the 17 contract, there would be drawdowns against that risk 18 made at, I think, the Tram Project Board. 19 You were involved in those discussions at the Tram 20 Project Board; is that correct? 21 A. Yes. I mean -- sorry, yes. 22 Q. Was there consideration of whether -- real consideration 23 of whether or not a drawdown would be allowed or not, or 24 was it really just something that had to be done? 25 A. Normally what happened was that -- or often what 45 1 happened was that the likelihood of a drawdown risk 2 would be highlighted at one meeting, and then a paper 3 would be presented at the next meeting or a subsequent 4 meeting. 5 So to that extent you were -- you were anticipating 6 there was an issue, in that intervening period, tie and 7 Council officers would be working on that. 8 So when the report came formally recommending or 9 requesting a drawdown, my understanding was that that 10 had been thoroughly examined, tested by tie and Council 11 officers. 12 So in that sense, when a report requesting a risk 13 drawdown came to the tie Board, and I didn't have any 14 other information to go on, I was -- I was ready to give 15 it my assent. 16 Q. So was there -- 17 A. I think -- I assumed that the due diligence had been 18 done by the Council and tie officers. 19 Q. So do I take it from that there wasn't really any 20 detailed discussion? 21 A. Not substantially, no. 22 Q. Was there consideration at the Tram Project Board of the 23 extent to which there was still risk allowance left 24 after each drawdown and whether or not it would be 25 adequate for the remainder of the project? 46 1 A. There was certainly an awareness obviously that we were 2 drawing into the risk -- into the risk allowance. That 3 was commented upon, especially when we were early in the 4 project, we've still got two or three years to go, we're 5 already drawing down into risk. So there was an 6 awareness that if this continues at a certain rate, 7 we'll exhaust our risk allowance. 8 So a general awareness, I think. 9 Q. Was there any discussion at the Tram Project Board or 10 any of the other companies about -- at an early stage, 11 that the risk allowance might run out sooner rather than 12 later? 13 A. Not -- other than in that wider context, no. Not 14 a specific, you know, we're -- I think we're going to 15 run out of our risk allowance. 16 Q. Were there discussions reviewing the various risks in 17 the risk register and whether or not sufficient 18 allowance had been made for them? 19 A. There were discussions about what was in the risk 20 register, yes, and the allowances, I think so. 21 But in terms of the detail, the reason that I can 22 say yes, there were discussions, was because I recall at 23 one point, there was a discussion about the risk 24 register and one of the tie execs, I think it was 25 Willie Gallagher, mentioned the fact that there was 47 1 nothing on the risk register about the possibility of 2 the Scottish Government pulling the funding for the 3 project, and that that should go on the risk register. 4 So I recall that there were discussions about the 5 risk register, but unfortunately I cannot recall the 6 detail of those discussions other than that bit that 7 sticks out in my mind. 8 Q. Sticking with some of the areas we've already discussed 9 in relation to the difficulties arising with design or 10 the getting the MUDFA works done, were there discussions 11 of whether or not sufficient allowance had been made, 12 for example, for discovering unmapped utilities? 13 A. There were discussions -- there were briefings on many, 14 many occasions. It was -- we were briefed -- I say I, 15 councillors on the tie Board, but councillors outwith 16 the tie Board as well, were briefed to the effect that 17 tie had made a huge overprovision for the necessity to 18 divert utilities; that the indications from the trial 19 digs that had been taken were X, but the provision for 20 utility diversions were massively greater than -- 21 a factor 2 or 3 greater than that from memory. 22 So in that sense we were -- I felt we were being 23 given a reassurance that there is -- there's a very 24 substantial provision within the budget or the risk 25 allowance for utilities, and within that general 48 1 description also for ground conditions, I have to say, 2 I don't know that it was necessarily expressed in those 3 terms, but, you know, people in -- in the wider public 4 domain were saying: there's stuff under Princes Street, 5 there might be unexploded bombs, there are archaeology. 6 And the message coming from tie was: yes, and we're 7 aware of that, we know that there's the possibility of 8 these things there, and the budget provides for 9 substantial element. 10 Q. Okay. 11 Turn now to the question of progress of the works, 12 and I would like to look at another document, please. 13 Could we look at CEC01210242. 14 You can see these are the papers for the Tram 15 Project Board meeting on 22 October 2008. Could we 16 look, please, at page 10. Perhaps for context, 17 could I ask that we look at page 9 first of all. You 18 see that what we are looking at here within these papers 19 is the Project Directors' report. 20 If we do look over to page 10, if you could enlarge 21 from the heading "Progress Infraco" to the remainder of 22 the page. We can see what was reported there is: 23 "Summary against the agreed Infraco contract 24 milestones is shown in the table below (number of 25 milestones)." 49 1 If we just look at the three right-hand columns 2 under the bold heading, "Cumulative (contract)", we can 3 see that whilst various matters had been planned in 4 terms of prelims and were achieved, in terms of 5 construction, there's a 0 per cent has been achieved? 6 A. Mm-hm. 7 Q. This was some months after the contract had been signed 8 in May. Was this a cause for concern at the Tram 9 Project Board? 10 A. It was a cause for concern that Infraco did not appear 11 to be mobilising and taking forward the construction of 12 the tram. That was the overarching concern. 13 I think in relation to the specific question I was 14 given, from my statement, and I think your question is 15 bearing on that, this particular report would have 16 reflected what we understood to be the position, which 17 is basically that they weren't getting on with the job. 18 We knew that, and there was a concern about that. 19 So yes, there was -- there very much was a concern about 20 it. 21 Q. Could we just look over the page, at the start of 22 page 11, and enlarge the upper part. 23 In terms of the reasons for that, it notes: 24 "The project continues to experience problems with 25 slow mobilisation and, in particular, appointment of 50 1 direct BSC resource and final appointment of the main 2 package contractors. 3 However, work has commenced on a number of work 4 sites including the Haymarket and Edinburgh Park 5 Viaducts and the A8 underpass. Significantly, the 6 on-street works also commenced with roadworks on Leith 7 Walk using sub-contractor resources." 8 Now, that gives one explanation there, simply 9 referring to slow mobilisation and appointment of 10 resource and contractors. Were you being given any 11 other information on what any underlying problems might 12 be that were resulting in the fact that no work had been 13 carried out? 14 A. No. Not really. I mean, there was an element of what 15 are the contractor up to here -- sorry, what is the 16 contractor up to here, you know, they're not mobilising 17 or they're not taking things forward in the way we would 18 expect them to. We're not sure what's going on. 19 That was the position that was being portrayed to 20 myself and other directors. 21 Q. After this, I think matters then came to a head in 22 relation to Princes Street? 23 A. Mm-hm, yes. 24 Q. At the time what was your understanding of what the 25 problem was in relation to Princes Street? 51 1 A. At the time? Again, there's the -- there's the overview 2 that the contractor was trying -- with Princes Street, 3 the contractor was trying to put pressure on tie and 4 Council particularly to cough up more money. 5 The view being put across was that Princes Street 6 was, you know, the foremost street in Scotland and this 7 was an opportunity to put the Council under a great deal 8 of pressure and try and get a better -- contractor 9 trying to get a better deal than they were entitled to. 10 The view from tie executives was that there's 11 a contract in place here. They should be getting on 12 with it. 13 So that was the -- that was the explanation that was 14 given to us at the time. 15 Q. But if there was concern about the fact that nothing was 16 happening, this contract wasn't being implemented, and 17 you'd been given that sort of explanation, was there 18 discussion within the Tram Project Board or tie or TEL 19 as to what should happen about it? Were the 20 non-executives or the councillors pressing for something 21 to happen? 22 A. The tie executives were saying: we're engaging with the 23 contractor to try and get them to put substantial 24 resources into this, and we're working with -- we're 25 trying to work with them and build a relationship with 52 1 them. I think that was the language used later on. It 2 wasn't the language used at the time. But they were 3 trying to press them to get on with the job. 4 That to me at the time seemed like a reasonable 5 course of action. You know, the contractor is not doing 6 the job. You need to be getting on the back of the 7 contractor and saying, you know, why aren't you doing 8 more to get this -- to get this going? That was -- that 9 was the level of discussion that I recall around it. 10 Q. Once things had then crystallised with Princes Street, 11 you explain in your statement that there was 12 a Settlement Agreement reached? 13 A. Yes. 14 Q. Now, you are very candid in your statement, saying 15 you're not sure there's much point putting that in front 16 of the non-executives and councillors, to involve you 17 about whether or not you were happy about it? 18 A. Yes. 19 Q. Does that come back to the same point about lack of 20 experience and not being able to comment in detail on 21 the commercial aspects of it? 22 A. Yes. That and the fact that, again, my recollection is 23 we were told that that didn't create a precedent, and my 24 understanding at the time was that Council officers and 25 tie were sharing information. Subsequently that's 53 1 clearly not been anywhere near the level of sharing that 2 I understood, but that there was -- the technical side 3 of that was understood by Council officers and tie, and 4 what was coming to us was a recommendation that had 5 backing of councillors, Council officers and tie 6 executives. 7 Q. You also note in your statement that you were being 8 given conflicting information even within a single 9 meeting about whether or not there would be additional 10 cost as a result of the Princes Street Agreement. 11 Was that the subject of questions that were asked at 12 the Tram Project Board or otherwise? 13 A. I'm trying to -- I'm trying to remember off the top of 14 my head. I think what I understood or I rationalised at 15 the time was that there was provision within the risk 16 allowance and that that was what was being used to 17 resolve that problem, but I'm not certain enough of that 18 to -- you know, I would need to go back and look at it. 19 But that's my general recollection of that. 20 Do you have the -- do you have the bit where 21 I reference that? 22 Q. Yes. If you could look, please, it's within your 23 statement at page 82. 24 A. 82? 25 Q. In paragraph 233? 54 1 A. Yes. 2 Q. You refer to the Tram Project Board meeting where it was 3 stressed that there would not be an increase in cost, 4 whilst at the same time, there was also a note within 5 the meeting that the cost would increase? 6 A. Yes. Yes. So that -- that statement that I've made 7 there, I looked at it again the other night, and the way 8 it could be rationalised is that what tie were saying 9 was that actually they discovered that there was 10 a liability for them to pay more. And that the 11 agreement that they reached just crystallised that 12 liability, that they'd not been aware of. 13 I think that is a bit disingenuous, if that's what 14 they were saying. But my understanding at the time -- 15 I can't say with certainty what my understanding is, as 16 I mentioned to you a few moments ago, potentially I was 17 looking at it and saying: well, are they drawing 18 something out of the risk allowance? 19 Q. If it was thought that there would be any additional 20 cost, is that something you would have expected to have 21 been brought to the attention of the various boards? 22 A. Yes. Yes, if it created -- certainly if it created 23 precedent and if it was a one-off issue coming from the 24 risk allowance, you would expect there to be a drawdown 25 from the risk allowance. So either way you would expect 55 1 that to be -- 2 Q. But were you aware of either of those being -- 3 A. No, no. 4 Q. Once things moved on from Princes Street -- we're 5 finished with that part of the statement just now -- you 6 note that there was a discussion of strategic options, 7 and the option that was ultimately pursued was the one 8 to take a formal contractual approach to pursue the 9 terms of the contract in essence? 10 A. Yes. 11 Q. How much discussion was there about which of these 12 options should be taken? We should, perhaps for 13 convenience, refer you to the various options. If we 14 put those in a document, it makes it easier to see. If 15 you could look at CEC00379021. 16 A. Ahead of those coming up, my recollection is that 17 certainly amongst the councillors on the tie Board, 18 there was an exasperation that we had not gone to 19 a formal process earlier. There had been talk about it, 20 you know, but it seemed to us to take an eternity to get 21 to the stage where we were actually formally taking it 22 through. 23 Q. You say "we". Who is "we"? 24 A. tie. 25 Q. So is that everyone in tie was frustrated that matters 56 1 weren't being -- 2 A. The councillors. The councillors that I was, you 3 know -- generally the councillors tended to sit in the 4 same sort of area and talk about things a wee bit 5 afterwards, maybe. You know, there was a frustration 6 that things were not being taken forward in the 7 formal -- through the formal mechanisms. 8 I think Council officers also expressed some 9 exasperation later on about the speed or lack of speed 10 of tie taking things forward. 11 Q. Just staying with this question then for the moment, was 12 that something that you or the other councillors had 13 raised at tie or the Tram Project Board, your anxiety 14 that more should be done at an earlier stage? 15 A. It -- it was something we did raise in due course, but 16 at the time -- at the earlier part of it, obviously, 17 they are saying they're going to do this or they're 18 thinking about doing this, they're bringing up the 19 possibilities, give them a certain amount of time to 20 work that through. 21 So it wasn't at the very outset we were saying we're 22 frustrated. It was later on down the line. 23 Q. But you say -- if you actually turn to your statement to 24 page 95. 25 A. Yes. 57 1 Q. In paragraph 278, very succinct, you say: 2 "I think TIE should have been using these 3 procedures..." 4 That's the dispute resolution procedures: 5 "... at an earlier stage." 6 A. Yes. 7 Q. Were you raising it at an earlier stage, that these 8 should be done, or was anybody else raising it at an 9 earlier stage? 10 A. It was certainly being raised by us before tie actually 11 went down that route. Was that a matter of a couple of 12 months or was it six months? Or was it longer than 13 that? It was at least a couple of months. 14 Q. What issues did you consider should have been taken to 15 dispute resolution earlier? Which particular aspects? 16 A. I think issues around them not getting on with the work. 17 Principally that was what first came up to us as 18 a concern was that we felt tie -- sorry. We felt the 19 contractor, or it was said to us that the contractor had 20 plenty of scope to go and get on with works -- not 21 having a good moment here -- had plenty of scope to get 22 on with works at different parts of the line, and that 23 there was a clause within the contract that allowed tie 24 basically to direct the contractor to do that. 25 I think that would have been the first one that -- 58 1 that was the one that was in our mind as much as 2 anything else. 3 Q. Why was that not done? Who said it shouldn't be done 4 and why? 5 A. My recollection is that it was tie that was reluctant to 6 go down that route, tie executives, sorry, that were 7 reluctant to go down that route until such time as they 8 had tried and tried again to develop a relationship with 9 the contractor. That was the message that came across 10 repeatedly, and also to make sure that there was 11 a preparedness for going into any formal procedure. 12 They had to make sure that their legal case was strong 13 for that. 14 In very simplistic terms, you wouldn't go down that 15 route on the very first evidence of that sort of thing, 16 was the way I was given to understand it, that you -- 17 Q. You say tie wanted to try and build up a relationship 18 and do that again and again. Who was saying that to you 19 within the officers of tie or the other directors? 20 A. Initially it would have been Willie Gallagher. And 21 latterly Richard Jeffrey. Dave Mackay was obviously in 22 there as well, covering both periods. 23 So, yes, that was the message that was coming from 24 that -- the Chief Executive and Dave Mackay, in 25 whichever role he was in over that period. 59 1 Q. If we go back to the document that shows the options, it 2 was CEC00379021. 3 It's headed "Joint Tram Project Board and 4 tie Board". It's got a date on it of 11 July 2009. 5 I think we can see this is a print of a PowerPoint 6 presentation. 7 Could you look at page 15. 8 This notes firstly that: 9 "Mediation held week covered 8 individual items 10 and whilst useful discussions were held and additional 11 information provided, no overall movement or agreements 12 were reached." 13 Were you aware that a mediation had been attempted 14 in June/July 2009? 15 A. I was aware that there were -- a mediation was part of 16 the DRP process and there were mediations attempts. 17 Q. It then notes: 18 "4 options presented to the TPB [Tram Project Board] in 19 July: a) Negotiate settlement with all issues with 20 BSC." 21 It's noted: 22 "3 months and mediation has not delivered an 23 outcome which is acceptable in terms of certainty on 24 delivery, engagement, programme and costs. 25 b) Formal contractual approach - DRP and other 60 1 remedies. 2 c) Reduce/rephase BSC scope - instruct or by 3 negotiation and reprocure. 4 d) End BSC contract." 5 Now, were you involved in the discussion of all 6 these various options? 7 A. At that -- 8 Q. At that time? 9 A. At that Board, yes. 10 Q. And option a), the first one, is really continuation of 11 what had been going on? 12 A. Yes. 13 Q. For some time? 14 A. Yes. 15 Q. Presumably you, from what you say, were keen to move on 16 from that and had been for some time? 17 A. Yes. 18 Q. Going to the more drastic end of the scale, looking at 19 the options c) and d) there, what was your view in 20 engaging on those? 21 A. I think that the way that the -- it worked was that 22 there was a presentation on this, and, you know, the 23 explanation was that that didn't look like a good 24 option, and I didn't disagree with that, that view. 25 That's my recollection of how that meeting went. 61 1 Q. To what extent do you feel that you as the councillors 2 had a real input into that, or to what extent was 3 it dictated by the company officers? 4 A. I would like to think if I felt strongly that one of the 5 other options was preferable, that I would have said 6 that at the time. 7 I -- you know, we didn't get to the situation where 8 I or one of the other councillors were saying, no, let's 9 go down route c) or d). We were pretty much -- you 10 know, whether we'd already been conditioned to think in 11 terms of option b) or whether that was tie executives 12 reflecting or -- reflecting to us something that they 13 had -- that had come from us, I can't say. But it's not 14 clear to me that -- I didn't feel dictated to at the 15 time. 16 Q. Returning then to the option that was favoured, option 17 b), using the formal contractual approach, the DRP; in 18 seeking to enforce the contract, it does seem that there 19 are two issues that arise. Does the contract have the 20 meaning that tie wanted; even if it does, will it affect 21 the other side? Would you agree with that? 22 A. I think so. 23 Q. In terms of the first issue, does the contract have the 24 meaning, that's essentially: will tie win if they start. 25 What consideration did you have of that? 62 1 A. Well, again, I think I mentioned in the statement, the 2 initial comments, the initial feedback that we got via, 3 I think it was Dave Mackay or -- and certainly from tie 4 executives, was that, you know, they were quite bullish 5 about the -- tie's prospects of success in the DRP 6 process. 7 You know, why we robustly -- assessed by our legal 8 advisers, confident in position, et cetera, et cetera. 9 So at that stage I thought, well, you know, let's 10 crack on and get ourselves to a position where we have 11 clarity on those issues and the disputes are behind us, 12 I suppose. 13 Q. Was there any consideration of what would happen if 14 these decisions went against tie? 15 A. There was some consideration, a little consideration, in 16 the sense that, you know, clearly they were there and we 17 understood that if they went against us, it would be 18 a negative. Exactly the extent to which it would be 19 a negative, I don't think I or the other councillors 20 knew the quantum. 21 There was some information provided not necessarily 22 at this meeting, but over time there was information 23 provided about what the nature of the specific DRPs 24 were. 25 Q. We'll come to that. 63 1 A. That corresponded with information we'd had earlier and 2 is probably covered in this bit here. 3 Q. We will come to the DRPs. I'm just looking here at the 4 decision right at the outset to embark upon them? 5 A. Yes. 6 Q. Was there any consideration of where tie would be left 7 if the decisions went against them; not only would they 8 not have got what they wanted, but what would they be 9 able to do next? 10 A. tie was quite bullish going into it. 11 Q. Does that mean there was really no consideration of 12 plan B? 13 A. It was -- it was -- there wasn't a discussion about 14 plan B. Not that I'm -- no. 15 Q. Where would you go and what would happen if you started 16 getting decisions that said that tie's interpretation 17 wasn't right? 18 A. No, there wasn't a discussion about that, that I recall 19 certainly. 20 CHAIR OF THE INQUIRY: Mr Lake, is this a convenient point? 21 MR LAKE: Yes, my Lord. 22 CHAIR OF THE INQUIRY: We will adjourn until 11.30. We 23 normally have a break for the shorthand writers. You 24 can get a cup or tea or coffee if you want. We will 25 resume again at 11.30. 64 1 (11.12 am) 2 (A short break) 3 (11.30 am) 4 CHAIR OF THE INQUIRY: You are still under oath, 5 Mr MacKenzie. 6 MR LAKE: Thank you, my Lord. 7 Mr MacKenzie, we were just looking at the option B 8 that had been selected there? 9 A. Yes. 10 Q. We had looked at the question to which it was confidence 11 on tie's part as to their arguments on the contract. 12 But I want to look at the second aspect of this 13 strategy. What was it thought the effect would be of 14 doing this? What did you hope to achieve? 15 A. To bring the contractor to a place where they would get 16 on and progress the works. To, I suppose, bring them to 17 an understanding that we weren't going to be messed 18 about with, and stand up for -- assert our rights within 19 the contract. 20 At a later point -- I think it was at a later point, 21 rather than now, there was also an issue about close the 22 gap in terms of what was genuinely a difference of 23 opinion. I suppose that was possibly there too, there 24 was the possibility that there was just different 25 interpretations of the -- different interpretations of 65 1 the -- of the contract. 2 We were really trying to move things forward. That 3 was the overarching intention, to move things forward, 4 and to do it on a basis that was favourable to tie. 5 Q. Can we look at your statement, please, at page 100. 6 Enlarge paragraph 295. 7 You note there in relation to a set of minutes that 8 the DRP process need not go all the way to a conclusion. 9 It was part of the idea that it was hoped that 10 simply initiating these processes would be enough to 11 bring about a change in the contractor's behaviour or 12 performance? 13 A. Yes, pretty much. Yes. 14 Q. But of course if you started the process, is there any 15 thought about how you were going to stop it once it was 16 already running, and what the effect would be? 17 A. I don't recall a discussion about that, other than, you 18 know, it was hoped that -- it was all positive. It was 19 optimistic. You know, you hoped going into it, will 20 reach a positive conclusion, a conclusion, there wasn't 21 a discussion about, well, does that -- well, saying 22 that, sorry, there was a concern expressed it might 23 entrench positions. Yes, there was -- sorry, there was 24 a concern expressed that they might entrench positions 25 in terms of relationship with the contractor. 66 1 Q. Why was that -- why was less weight accorded to that, in 2 making a decision? 3 A. Because the relationship wasn't good. You know, it was 4 really -- I think there had been several attempts by 5 that stage already to try and move things on. It needed 6 a significant change, and this was a significant change. 7 It was hoped. 8 Q. If the Inquiry has heard evidence from people within 9 Transport Scotland that they had had advice from a firm 10 of solicitors to the effect that the contract was not 11 fit for purpose round about this time, would that have 12 been a surprise to you at tie? 13 A. Yes. I think that the contractor was asserting at 14 certain points that the contract wasn't fit for purpose, 15 but a legal view from somebody that was independent of 16 the contractor, shall we say, to that effect would have 17 been a major surprise, yes. 18 Q. Would it have been of assistance to you? Would it have 19 possibly changed decision-making processes? 20 A. It would have had a very significant impact on view of 21 where we were, absolutely. 22 Q. I want to look at some of the outcomes of the DRP 23 processes, the adjudications as they were undertaken. 24 A. Yes. 25 Q. Could we look, please, at a project, papers for the 67 1 Project Board in November 2009. 2 A. Yes. 3 Q. It's reference CEC00681328. We can see there that -- 4 the cover sheet for the papers for the meeting on 5 18 November 2009. 6 Could we look at page 12 of this. We can see there 7 that we're looking at the start of the Project 8 Director's report which was in the papers? 9 A. Okay. 10 Q. Could you go over, please, to page 13. If we enlarge 11 the heading "Progress" and the text underneath it. We 12 can see there's a sub-heading, "Dispute Resolution 13 (Infraco)", and it notes: 14 "At the end of Period 8, only 3 items remained 15 in dispute with BSC. The first decision in relation to 16 DRP3 was reached by adjudication and found in tie's 17 favour. Agreement was reached without furthering the 18 DRP process on Haymarket Viaduct and MUDFA Revision 8 19 and agreement was reached on EOT1 at mediation. The 20 agreement on the way forward on MUDFA Revision 8 is 21 significant as it comes a commitment from BSC to produce 22 a mitigated programme and commence work in a number of 23 additional locations." 24 Now, presumably, from what you have been saying 25 already, that commitment to undertake work at additional 68 1 locations would have been of particular value or 2 importance? 3 A. Yes. Yes. 4 Q. If we look over the page to page 14, and look at the 5 upper half of the page, we can see several different 6 DRPs referred to there, and the first one, DRP3, Hilton 7 Car Park, is the one that we've already seen referenced, 8 it having been awarded in tie's favour; do you see that? 9 A. Yes. 10 Q. And the EOT1 was one that we've seen that was agreed at 11 mediation, and we have been told about that. 12 In relation to 5a, 5b and 5c, that's 13 Gogarburn, Carrick Knowe, and Russell Road, did you have 14 explained to you what the issue was, why they were being 15 taken to dispute resolution? 16 A. Yes. There were -- we asked for information on -- I say 17 "we". The non-exec Directors -- the tie Board, myself 18 and other councillors, I recall, asking for explanations 19 of what they were about. 20 Q. What was your understanding of why they were taken to 21 mediation, what the issue was? 22 A. Well, there would have -- design obviously was one of 23 the major issues, the Base Date Design, and the normal 24 design development issue. 25 I can't remember the detail of all of them, but 69 1 there was that sort of extension of time was one of -- 2 I don't know if it only related to that, or was -- it 3 came up again. 4 I now know, but I can't honestly say if I knew at 5 the time, that there was ones to do with earth that was 6 taken out and who would be responsible for Landfill Tax, 7 that sort of thing. 8 There was a document put up, a sheet like this put 9 up, that had explanations at one point. 10 Q. Looking at the text underneath the table, we can see it 11 states: 12 "We continue in this report to reflect an outturn 13 estimate of GBP527.1 million. However, given the 14 commercial uncertainties with BSC and continuing delays 15 to the project it is now considered unlikely that the 16 full scope of Phase 1a will be completed within the 17 available funding envelope of GBP545 million. Until the 18 key issues are resolved through the contractual and 19 legal process, it will not be possible to forecast 20 accurately a revised budget outturn. It is also not 21 possible at the present time to predict the conclusions 22 of reviews of contingency option programme delivery 23 options, including additional sources of funding." 24 Just to look at some of the issues in this, in the 25 first and second line, it says "given the commercial 70 1 uncertainties with BSC". What did you understand that 2 to refer to? 3 A. I honestly can't remember at this time. I mean, it's in 4 the context of these DRPs. So one assumes it's with 5 relation to the -- the contract, the interpretation of 6 the contract, but I can't actually recall what 7 I understood of it at the time. 8 Q. Go on to the second half of the paragraph. It notes: 9 "It is not possible to forecast accurately a revised 10 budget outturn." 11 What was your reaction to being told this? 12 A. Well, I think -- I think -- my reaction to being told 13 that and the previous line about the -- unlikely that 14 the full scope of phase 1a will be completed within the 15 available funding envelope, I hadn't -- I hadn't 16 recalled that in preparation for this -- for this 17 meeting. I hadn't recalled that that was provided to 18 us -- that information was provided to us at the time. 19 Q. Was it the subject of any discussion or expression of 20 concern that you can recall at the time? 21 A. The way things were expressed to us on a number of 22 occasions was that there was a range of possibilities. 23 That the range of possibilities included coming within 24 budget, but also a number above -- possibility of it 25 being above budget. So that's the way that it was 71 1 expressed, and it was at the time my -- obviously my 2 hope that we would be successful with the outcome of the 3 DRPs and that we would be able to keep a budget within 4 the 545. 5 Q. This is actually going further. Despite the apparent -- 6 A. No, I know, I'm agreeing with you. Sorry. 7 Q. We have discussed earlier that there was a confidence in 8 the contractual arguments, notwithstanding that, it's 9 being stated to you as board members that it's 10 considered unlikely that it will be delivered within 545 11 envelope? 12 A. Yes. No, I understand the point that you're making, and 13 I think that obviously anything -- anything like that 14 was a matter of concern. There was concern at that 15 information, whether it was expressed as part of a range 16 or as it is here, saying it's unlikely. 17 Q. You were also being told -- if I can cut you off, you 18 were also being told there that it is not possible to 19 say how much it's going to be accurately. 20 Was there any discussion of the open-ended nature of 21 that and how it was going to be funded? 22 A. No. 23 CHAIR OF THE INQUIRY: Could I just -- 24 MR FAIRLEY: My Lord, I'm sorry, I'm having great difficulty 25 hearing the witness, especially when he drops his voice. 72 1 I don't know whether others are in a similar position. 2 I wonder if he could maybe move the microphone across. 3 CHAIR OF THE INQUIRY: Move closer to the microphone. 4 I think a previous answer, you said that you hadn't 5 appreciated this point until preparation for this 6 meeting. Are you talking about preparation for giving 7 evidence today or are you talking about preparation for 8 the meeting that we've been talking about? 9 A. This particular phrase -- the point generally was 10 something I was well aware of. This particular phrase 11 in this report, I hadn't picked up on in preparation for 12 this meeting. 13 CHAIR OF THE INQUIRY: For the meeting that you attended. 14 A. No, for just now. I had -- 15 CHAIR OF THE INQUIRY: For giving evidence. 16 A. I had forgotten over the -- over the years about this, 17 and I haven't picked up on it. 18 CHAIR OF THE INQUIRY: Presumably, when you received the 19 papers for the meeting, was this mentioned in the papers 20 that you got, or would this be something that was raised 21 orally in the course of the meeting? 22 A. Sorry, my Lord, I don't understand your question. 23 CHAIR OF THE INQUIRY: It says: 24 "Given the commercial uncertainties ... and 25 continuing delays ... it is now considered unlikely that 73 1 the full scope of phase 1a will be completed within the 2 available funding envelope ..." 3 Was that something you were given a report about, or 4 this report, in advance of the meeting, or was it 5 something that you were told at the meeting? 6 A. No, this would have been for the meeting. The report 7 given -- circulated to us for the meeting and then 8 discussed at the meeting. 9 It wouldn't have come without any context, not -- 10 sorry, my Lord. Something like this is likely to have 11 been -- you know, we knew that the costs were going -- 12 were going upwards, drifting upwards or moving upwards. 13 So there would have been an appreciation that things are 14 moving in the wrong direction, but this particular point 15 wasn't something that I recall being discussed ahead of 16 this meeting. I don't know whether it was in previous 17 papers. I guess it wasn't in previous papers, or it 18 would have been highlighted just now in this way. 19 CHAIR OF THE INQUIRY: As far as you can remember, this was 20 the first indication. 21 A. I think so. 22 CHAIR OF THE INQUIRY: Do you remember discussion of that 23 point at the meeting? 24 A. Unfortunately, I don't. 25 CHAIR OF THE INQUIRY: Thank you. 74 1 MR LAKE: What I would like to do is just follow through 2 a few meetings now, not looking at every one month by 3 month, but just some of them to see how matters 4 progressed. 5 A. Yes. 6 Q. If I could go to the next month now into December, and 7 look at the papers pack which is CEC00416111. 8 We can see that these are the papers for the report 9 on Period 9, papers for the meeting 16 December 2009. 10 You're one of the people to whom it's distributed? 11 A. Yes. 12 Q. What I want to do is start by looking at page 5. These 13 are the minutes for the 18 November meeting of the Tram 14 Project Board at which you were in attendance, but for 15 part of the time only; do you see that? 16 A. Yes. 17 Q. What I would like to do is look at page 6, please. Just 18 at the very foot of the page, under the heading 19 "Strategic Summary". It notes that: 20 "RJ [Richard Jeffrey] provided the Board with 21 a report on the outcome of the decisions from the 22 Adjudicator on the Carrick Knowe and Gogarburn Bridge 23 (BDDI to IFC Design Development) matters. 24 A full review of this determination is underway 25 and it was noted that a decision on the Russell Road DRP 75 1 item was scheduled for 17 December and that papers are 2 due to be submitted to (a new) Adjudicator on 3 19/11/2009. 4 KH [Kenneth Hogg] asked if tie's interpretation of 5 the contract has changed through the evolution of this 6 process, and queried whether a review of the strategic 7 direction of the DRP is necessary. The Board discussed 8 at length a number of matters including interpretation 9 of the contract, both from a legal and technical 10 perspective as well as the strategic direction of 11 further submissions to the formal process. It was 12 reiterated that it is too early in the process (for 13 either party) to establish precedence at this stage in 14 the process, and it was agreed that the current 15 strategic direction should continue." 16 Can you recall what you were told by Mr Jeffrey 17 about the outcome of the adjudications in Carrick Knowe 18 and Gogarburn Bridge? 19 A. I can't recall the specifics of this. 20 I can't recall the specifics. I'm pretty sure 21 I would have been told that it was -- it had gone 22 against -- against tie, but I can't recall the specifics 23 of what he said about it. 24 Part of the reasons for my hesitation is that the 25 second line, a full review of this determination is 76 1 under way. So I can't be absolutely sure that he said, 2 you know, and we've lost that. 3 So I don't know. 4 Q. The last paragraph there, the one that begins with 5 reference to Kenneth Hogg, he seems to be asking if 6 tie's interpretation of the contract has changed through 7 what he described as the evolution of the process? 8 A. Yes. 9 Q. There's then reference to the Board at length discussing 10 a number of matters, including the interpretation of the 11 contract? 12 A. Yes. 13 Q. Do you recall those discussions? 14 A. I don't recall the specifics of the discussion, no. 15 I do recall or do have a sense that there was 16 a discussion about the progress of the DRP process, but 17 I can't remember the specifics. 18 Q. These were the first two decisions -- the Carrick Knowe 19 and Gogarburn Bridge were the first two references to 20 DRP by tie? 21 A. Mm-hm. 22 Q. In respect of the design issue. 23 A. Mm-hm. 24 Q. Now, was your understanding that the intention, the hope 25 was that it would get a decision favourable to tie on 77 1 that issue? 2 A. Yes. Although in saying that, yes, that was clearly 3 what we understood at the outset. There were from time 4 to time updates given on the DRPs, some of which had 5 been put in by the contractor, where tie had indicated 6 they didn't think that they had a good chance of 7 winning. But the ones that tie had put in, they had put 8 in thinking they had a good chance of winning. So ... 9 Q. I'm just wondering, having selected two in relation to 10 the -- what's described as the BDDI to IFC design 11 development matter, and having got what appears to be an 12 adverse decision, the responses to that is to say it's 13 too early in the process to establish precedence? 14 A. Yes. 15 Q. Now, is the whole purpose of this decision not to try 16 and establish a principle and it had been established 17 against tie? 18 A. It is, but the -- there was a document that came to us 19 and you'd asked -- somebody had asked me for an 20 adjudication that I'd subsequently read that made me 21 think: gosh, it was worse than we'd originally thought; 22 and I have the number of the document. It was in 23 relation to this particular set of adjudications, and 24 the view of DLA Piper, I have the reference for you. 25 Q. Just to be clear about what you're talking about, this 78 1 is a document prepared by DLA Piper describing the 2 outcome of the adjudication? 3 A. Yes. And it's in the pack that was given to me for 4 this -- 5 Q. For preparing your statement? 6 A. For preparing a statement. 7 And what it's -- summarise what it said was 8 basically we had lost, but we think that the adjudicator 9 was wrong in the way that he'd come to certain of the 10 decisions, and we think it's worth challenging, and 11 getting Senior Counsel's opinion to challenge this. 12 Do you want me to give you the document reference? 13 Q. Perhaps it would be useful if you could do? 14 A. It's CEC00479382. CEC00479382. 15 Q. Now, when you say that was something -- I think from 16 what you're saying you got only when you were preparing 17 your statement -- 18 A. The document was one that I got when preparing the 19 statement. My supposition is that when they refer to 20 this determination or review of the determination is 21 under way, that that was what they were alluding to. I 22 am putting two and two together, I may be making five, 23 but that was -- I'm pretty confident that what they were 24 saying at around that time was: we've lost this, but we 25 think that it's worth appealing. 79 1 Q. Just looking at what you actually knew at the time? 2 A. Yes. 3 Q. That document certainly came to you later? 4 A. Yes. 5 Q. You knew you'd lost it? 6 A. Yes. 7 Q. On what had been taken to the adjudication as a matter 8 of principle? 9 A. Yes. 10 Q. Did that cause any concern? In a sense it's the point 11 raised by Mr Hogg, that there was going to have to be 12 a rethink; on this issue of principle, you were 13 getting -- you had had two decisions by one adjudicator 14 against tie's interests. 15 A. In my statement I've said that I don't recall that there 16 was -- I would have expected a far greater discussion 17 about the fact that these DRPs -- not these ones 18 specifically, but a number of DRPs were going against 19 us, and I wondered whether or not I'd missed something, 20 because it appeared to me it was quite significant. It 21 was very significant that we'd lost a number of DRPs. 22 As I say in my statement, I had actually to ask what 23 had happened about some of the DRPs. 24 Obviously this is saying there was a discussion at 25 the time, but I can't remember the details of the 80 1 discussion. 2 Q. You say eventually you got copies of two of the DRP 3 decisions? 4 A. Yes. 5 Q. Can you remember which two? 6 A. I think one of them was Russell Road, but I can't 7 remember the other one. 8 Q. Did it relate to the design issue? Or was it something 9 different? 10 A. I'm -- I can't remember the particular -- particular 11 issues that the other one raised. The Russell Road one 12 or the issues in relation to Russell Road are the ones 13 that I think stuck out in my mind. 14 I'm not 100 per cent sure about that. I would need 15 to go back and look at the adjudications and satisfy 16 myself which ones they were. 17 Q. What I would like to do is still within this pack of 18 papers, could we go to page 45? 19 A. Just while we are waiting for that, I do recall that one 20 of the adjudications I read did relate to normal design 21 development. So it was -- 22 Q. I think that Russell Road certainly covered that issue. 23 A. And piling, I remember. 24 Q. If we look at page 45, we see this is the cover sheet 25 for the part of the paper that relates to the 81 1 Transport Scotland report. If you look on two pages of 2 that to page 47, and if we sort of enlarge from heading 3 2.2 to the lower part of the page, we can see it's under 4 the heading "Dispute resolution, Infraco". There's 5 reference: 6 "At the end of period 9, only one item remained in 7 dispute with BSC." 8 That related, as you have just mentioned, to 9 Russell Road, and a decision was due on that in 10 mid-December. 11 In relation to the Carrick Knowe decisions, and 12 the -- the Carrick Knowe and Gogarburn decisions, it's 13 noted that the decision was made and under review. 14 You have referred already to the DLA report, saying 15 that it might be possible to challenge. Are you aware 16 what that review that's been talked about involved? 17 A. Am I aware now or was I aware? 18 Q. Were you at that time? 19 A. I'm pretty sure that it was -- that they considered that 20 the decisions had been -- whether there was an error in 21 the decisions. That, to the best of my recollection, is 22 what was -- 23 Q. Was that discussed at the Tram Project Board, the view 24 that there was an error? 25 A. To the best of my recollection, I think that was. But 82 1 I'm not 100 per cent certain of that, and I don't want 2 to say something that I'm not sufficiently -- 3 Q. If it was going to be the subject of a review, were you 4 told who was reviewing it and to what end they were 5 reviewing it? 6 A. That's really difficult to distinguish between what 7 I knew then and what I know now, but my -- my 8 recollection as best I can is that it was Legal. They 9 were looking for -- at that legally. 10 Q. Is that your understanding now and you think it was -- 11 A. Well, my understanding now is that they were looking at 12 that from a legal point of view. They may have been 13 looking at it from other perspectives as well, but 14 certainly along with that adjudication that I've -- that 15 DLA document that I have referred to, there was the 16 opinion of Richard -- of Richard Keen which I think 17 related to the Gogarburn one, where he said that: no, 18 there wasn't a -- you weren't going to win on taking 19 this to court and challenging the decision. 20 Q. I think the Inquiry has heard that he gave an opinion in 21 January the following year, 2010, to the effect that he 22 preferred the consortium's argument over tie. Is that 23 the one you are referring to? 24 A. Yes. 25 Q. We will come back to look at some further legal advice 83 1 in due course. 2 If we could look at the papers for the meeting in 3 January 2010, the reference is CEC00473005. 4 You can see the cover sheet here for the papers for 5 the meeting on 13 January 2010. If we go straight to 6 the part of the report to Transport Scotland, and we go 7 to page 47 and if we look at the lower half of the page, 8 we can see that it says that: 9 "BSC have so far referred 2nr disputes to DRP 10 (Russell Road Retaining Wall and delays associated with 11 the MUDFA Revision 8 programme). Agreement has been 12 reached with respect to delays associated with the MUDFA 13 Revision 8 programme. 14 The Adjudicator's decision against Russell Road was 15 received on 4 January 2010 and will be reported in 16 Period 11." 17 The following period: 18 "A significant saving resulted ... on the estimate 19 presented by BSC and the adjudicator agreed with tie on 20 many of the principles in dispute." 21 Do you recall, was there any discussion of the 22 Russell Road outcome in this meeting? 23 A. I don't recall. 24 Q. If you look at the table that sets out the decisions, we 25 can still see that the one in respect of Carrick Knowe 84 1 and Gogarburn, they're still referred to as being under 2 review. Were questions asked about why they were still 3 under review? 4 A. Not to -- I don't recall if there was. 5 Q. If we then go back to the February pack, the reference 6 to that is CEC00474418. 7 Again, we see from the cover sheet that this was the 8 papers for the meeting on 10 February 2010. 9 If you go straight to the part within the 10 Transport Scotland report by going to page 28. We can 11 see in the lower half of table -- of the page, the table 12 giving the summary of the dispute resolution decisions; 13 do you see that? 14 A. Yes. 15 Q. Now, we can see that in relation to Gogarburn and 16 Carrick Knowe, it's still simply noted that the decision 17 is under review. Were you being given any update as to 18 what was happening with that review and how it was 19 going? 20 A. Not that I recall. 21 Q. We can also see that in relation to Russell Road, it's 22 simply noted that the decision made and under review. 23 If you go over the page, even a quick look at the upper 24 half will indicate that there's nothing said there about 25 the Russell Road decision. 85 1 We had seen in the previous month's one, it was said 2 it would be reported this month, but in fact nothing is 3 said about it. 4 Were you given a report on the outcome of 5 Russell Road? 6 A. Not to my recollection. I -- unfortunately I just don't 7 recall if we -- that we were. 8 Q. We saw in the previous month's report -- 9 A. Sorry, just to clarify that. 10 Q. Certainly. 11 A. I don't know if you're going to come to it later, but 12 there were -- we were given a summary of decisions and 13 outcomes at some point. As I say in my statement, one 14 of the things I did was I checked -- I took two 15 adjudications to check for myself, just to satisfy 16 myself that we were getting what -- I thought we were 17 getting reliable information on the outcomes. So we 18 must have been given some information as we went along 19 about what the -- what the -- what the high level 20 outcome of each decision was. 21 Q. We saw when we looked at the papers for the January 22 meeting, although it was said that Russell Road would be 23 reported the next month, it had noted that a significant 24 saving resulted, and the adjudicator agreed with tie on 25 many of the principles in dispute? 86 1 A. Yes. 2 Q. Can you remember if you were given anything in more 3 detail or that was elaborated on? What was your 4 understanding of the Russell Road outcome for tie? 5 A. I cannot -- I can't recall that. I mean, obviously 6 I have read -- I have read subsequently. My 7 understanding at some point before I read the 8 adjudicator -- before I read the adjudicator's 9 decisions, we had been told that they'd lost on the 10 principle of the design development, but they had made 11 savings in relation to the cost that had been entered by 12 the contractor. 13 So at some point we were told that. Whether we were 14 told that at this meeting or a subsequent meeting, I'm 15 not sure. 16 Q. If we go back to the document on screen, and the 17 previous page, we can see that the first three entries 18 in the table of dispute resolution matters all refer to 19 BDDI to IFC? 20 A. Yes. 21 Q. If the Inquiry has heard evidence to the effect that in 22 each one of those three, the outcome was a conclusion 23 that there had in fact been a Notified Departure for 24 which tie would have to pay, does that accord with your 25 understanding? 87 1 A. Yes. 2 Q. So that's in the first three of these things referred on 3 a matter of principle. Tie had been unsuccessful -- 4 A. Yes. 5 Q. -- ultimately each time, on the issue of principle? 6 A. Yes. 7 Q. Was that made known to you in those rather bald terms at 8 the time? 9 A. I think it was, yes. I mean, the -- the -- yes, it was. 10 I can't say it was made known to us at that meeting, or 11 was it at a subsequent meeting, but it was made known to 12 us. 13 Q. We can see, looking at this table, a further six dispute 14 resolution issues arising which have the same BDDI to 15 IFC issue in them? 16 A. Yes. 17 Q. As a result of the outcomes of the first three, was 18 there any decision taken as to what should be done in 19 future? 20 A. Again, I cannot recall that there was a discussion or 21 a decision about that. I do recall that there was 22 discussions about different adjudicators potentially 23 coming to different decisions, but that -- and that 24 there may be nuanced points within the overall issue of 25 design development that could be tackled subsequently by 88 1 other DRPs. 2 Q. Even if there was a decision by another adjudicator the 3 other way round, was that going to be of assistance to 4 tie in trying to establish an issue of principle? 5 A. I -- legally, I don't know the answer to that question, 6 sorry. It would have been -- 7 Q. I more meant as a matter of practicality, why -- the 8 matter had been referred to adjudication in the hope of 9 getting a decision in the tie's favour? 10 A. Yes. 11 Q. You now had a decision against tie? 12 A. Yes. 13 Q. If you managed to find another one referred to 14 adjudication, and that time you did get a decision in 15 tie's favour, do you think overall it would have 16 improved tie's position? 17 A. If they got one going in their favour, yes. I assume 18 that tie would have used that adjudicator's decision to 19 try and challenge any -- as the basis for any future 20 DRPs that it put in. So you would try -- they were 21 trying to establish some -- either doubt around the 22 principle that may have been established from the 23 earlier decisions and create something more favourable, 24 or find something more favourable for them. 25 Q. You will be aware that designs were still being provided 89 1 by the SDS provider at about this time. They were still 2 being created? 3 A. Right. 4 Q. Were you aware of that? 5 A. Yes. 6 Q. You say within your statement you had to ask for the 7 outcome of the DRP decisions. Perhaps I should refer 8 you to page 67 of your statement? 9 A. Yes. 10 Q. When was it that you were asking for the outcomes of the 11 adjudications in relation to these meetings that we've 12 seen reported? 13 A. I can't remember the specific date, I was asked to 14 appear on Newsnight Scotland. So presumably we could 15 find somewhere in the archive when that was. 16 We were at the stage where I think there was ten or 17 12 DRPs in. So in terms of generally describing 18 where -- where we were in the process, that might help. 19 Q. Perhaps if I could refer you to page 67 of your 20 statement. 21 A. Yes. 22 Q. Paragraph 180. Where you note that: 23 "TIE was quite quick to report on the first 24 adjudication which came out in their favour, but a lot 25 less clear and a lot slower to come forward with 90 1 information about ones that had gone against them. 2 There was a very significant one, I think about design, 3 that I recall I had to ask about only to be told that 4 TIE had lost." 5 Which one was that? 6 A. I think if I'd -- was sure which one it was, I would 7 have said in that particular -- in my statement. 8 Q. You see, that might create the impression that 9 information was being withheld from you, but from the 10 Tram Project Board meetings I've looked at, I think 11 we've seen that your understanding was when these 12 things -- decisions were made, that you understood that 13 you had lost? 14 A. Yes. 15 Q. I'm just trying to reconcile what you said about 16 understanding you lost with this comment in your 17 statement that you had to ask because you weren't being 18 told? 19 A. Yes. How can I reconcile that? I don't know whether 20 that is because of the -- the way it was presented, that 21 the decision was under review. But we've already 22 covered that, and as I said, yes, I understood that the 23 principle had gone against them. 24 I cannot recall which one I'm referring to. Sorry, 25 I can't recall which one I'm referring to. 91 1 Q. Go on to look at page -- 2 A. I think -- sorry, the -- I think the general point there 3 I'm making is that there was more made of the initial 4 one that went well for us than there was in the ones 5 that went against us. That was -- that's my sense of 6 what was going on at the time, but, as you have pointed 7 out, there was information given to us and I knew that 8 too. 9 Q. Could we look at page 76 of your statement, please. 10 CHAIR OF THE INQUIRY: Is this a different point, Mr -- 11 MR LAKE: Yes. 12 CHAIR OF THE INQUIRY: I wonder if I could just pick up on 13 this point. 14 You referred to a document that had been sent to you 15 by the Inquiry in preparation for preparing your 16 statement. Had you seen that document before? 17 A. No, I hadn't, your Honour. Your Lordship. 18 CHAIR OF THE INQUIRY: I wonder if we could just look at 19 a document we've been looking at, first of all, and that 20 is CEC00474418. 21 If you go to page 28, which I think you were taken 22 to before -- first of all, before doing that, we see 23 that this is papers for a meeting of 10 February 2010. 24 And then page 28. 25 This is the table at the bottom of the page, the 92 1 table that shows that the Gogarburn and Carrick Knowe 2 decisions had been made and were under review. So as at 3 February 2010, that was your understanding; is that 4 correct? 5 A. That's correct, yes. 6 CHAIR OF THE INQUIRY: I wonder if you could look at the 7 document you've mentioned as being sent by the Inquiry. 8 That's CEC00479382. 9 Now, is that what you were referring to, the 10 overview of adjudicator's decisions by DLA Piper? 11 A. Yes, it is. 12 CHAIR OF THE INQUIRY: We see the date of that is 13 18 November 2009. If we go into that document, looking 14 at the next page, so the introduction, if we can just 15 highlight that: 16 "This paper is an overview of each of the 17 Adjudicator's Decisions dated 16 November 2009 in 18 respect of ... the Gogarburn Bridge and Carrick Knowe 19 Bridge." 20 It then goes on to give the overview of these two 21 decisions. Were you ever told that that had been done 22 and by November, DLA Piper had advised tie of their view 23 about the decisions? 24 A. I hadn't seen this paper before receiving it with the -- 25 all the papers for the -- my witness interviews. 93 1 CHAIR OF THE INQUIRY: Before February of 2010, were you 2 ever told that tie had received advice from DLA Piper 3 about these two decisions? 4 A. I -- I'm pretty sure that we had been told that there 5 was a basis for challenging the decision. I can't say 6 that we were told it was DLA -- it would have been 7 DLA Piper, I'm sure, but I can't say definitely -- we 8 were told that DLA Piper had provided advice to -- it 9 would have been -- it could only have been DLA Piper. 10 I'm just thinking about what you're asking me as I'm 11 answering the question, but I can't think it would have 12 been any other basis that any other organisation, it 13 would have given that advice. 14 So we were told it was being reviewed and that my -- 15 to the best of my recollection, that it was because they 16 felt that the decision was wrong. 17 Sorry for being so vague about it. I just can't 18 remember the detail of the discussion at the time. 19 CHAIR OF THE INQUIRY: I think that if you look at the last 20 page of this document, the final paragraph is that they 21 strongly recommend as a first step: 22 "... that the potential ground for challenge of each 23 of the Adjudicator's decisions ... be explored with 24 senior counsel ... An opinion of counsel ... would then 25 form the basis for any future steps which may be taken." 94 1 Were you told that that had been the advice? 2 A. I don't think -- I'm sorry not to be more -- 3 CHAIR OF THE INQUIRY: No, no, I'm just -- 4 A. My sense is that we were told that there was -- there 5 were grounds for challenging these decisions. That's 6 why they were -- they were under review. 7 The specifics of what the DLA advice was to tie, 8 I don't -- I don't know that we were told that. And 9 I don't know that we weren't told that. 10 It was just that was what was conveyed -- my 11 recollection as best I can conveyed that the view from 12 DLA Piper, or the people who were putting together the 13 case, as it were, for tie in the adjudications was that 14 this is definitely worth -- these are worth exploring 15 further, because we feel that we've got a wrong decision 16 here. 17 CHAIR OF THE INQUIRY: Thank you. 18 MR LAKE: Just something that arises out of that, 19 Mr MacKenzie. I'm not asking you for legal advice. 20 I want to give you -- 21 A. Good. 22 Q. -- a legal proposition and ask you whether or not you 23 understood it at the time, whether this was made clear 24 to you. If there was to be a challenge to the decision 25 of an adjudicator, it couldn't be on the basis that he'd 95 1 got the wrong result. It could only be on the basis 2 that there was something wrong with his decision-making 3 process? 4 A. Yes. 5 Q. You couldn't say he'd just got it wrong? 6 A. Yes. 7 Q. Did you know that at the time? 8 A. I think I did. I think that was explained in the -- it 9 was -- I knew it before I read about this -- there's 10 detail here about the basis on which you can challenge. 11 I think that we had -- I know that we had queried 12 this business of decisions going against us and 13 I think -- and I'm pretty sure that it was explained 14 that it could only be on certain grounds. 15 Q. So it was clear that even though there was going to be 16 a challenge, it wouldn't be getting someone to make -- 17 remake the decision anew. It was just establishing that 18 that adjudicator had gone wrong in his procedures? 19 A. I don't know that -- I don't know that I would have 20 understood it that far. I would have understood that 21 you can only go to a sheriff -- you could only go to 22 court to have it overturned on certain grounds. 23 I don't know that I would have known whether that 24 would then mean the decision would change or not. 25 Q. Perhaps just a last question in relation to the reviews. 96 1 If you could look at another document, please. It's 2 CEC00261936. 3 We can see that this is the document that is the 4 Tram Project Board papers for the meeting that was to 5 take place on 2 June 2010. 6 If we can go straight to the section, it's the 7 Transport Scotland report at page 30. Again, we see the 8 heading "Dispute Resolution" and the familiar table. 9 I think this is -- you can take it from me, this is 10 the first time that we see in respect of the Gogarburn, 11 Carrick Knowe and Russell Road decisions that it's 12 simply noted in the right-hand column, the decision is 13 made and complete. It's no longer under review. 14 We've just seen from the document that -- to which 15 Lord Hardie referred you that it was suggested that 16 there would be opinion taken on whether or not it was 17 worth reviewing, actually mounting a court challenge to 18 the decisions? 19 A. Mm-hm. 20 Q. Were you told what the outcome of the review is, that 21 it's marked now simply "complete"? 22 A. I don't think I was, and that refers back to the 23 question -- two or three questions ago about me saying 24 that I had to ask what the outcome was, that I'm 25 recollecting that actually it's this bit that I've 97 1 conflated in the two that -- I think I had to ask what 2 the outcome of that review was, not the decision. 3 I think that's where -- that was where I expect to hear 4 what the outcome of that review was, and I had to ask. 5 Q. So -- 6 A. That's -- sorry. 7 Q. Do I take it from that that you were not involved in any 8 decision not to challenge those decisions? 9 A. Yes. 10 Q. Do you know who took the decision not to challenge those 11 decisions? 12 A. No. 13 Q. Do you know then of the basis on which it was finally 14 concluded that those decisions should not be challenged? 15 A. Did I know then? 16 Q. Yes. 17 A. No. 18 Q. Do you know now? 19 A. Well, I have seen Richard Keen's opinion. 20 Q. That's the opinion from early 2010? 21 A. Yes. 22 Q. If we could turn to your statement, please, at page 76. 23 You start at paragraph 215 at the foot of the page. 24 You're referring to an email of 6 March 2009 which is 25 dealing with position papers in the Princes Street 98 1 dispute. 2 If we read through this paragraph over to the 3 following page, and read from the third line, you say: 4 "I do not recall receiving briefings from CEC 5 officers around this time on the differing 6 interpretations of the contract. I do recall that the 7 implications of losing the DRPs were discussed at the 8 TIE and TPB [Tram Project Board meetings]." 9 What were the implications seen as being as a result 10 of losing those adjudications? 11 A. Well, they would have been financial. I didn't -- we 12 don't know exactly -- I didn't know exactly what the 13 quantum was. But clearly if the -- because tie had 14 lost, they would have been liable for changes to the 15 design, for example. Changes to the -- in cost arising 16 from the design. 17 Q. Was there any discussion about what the likely effect on 18 the outcome cost of the project would be? 19 A. No, it was always pretty -- there was an issue around -- 20 of looking back, there was an issue around that in the 21 sense that the information wasn't offered to the best of 22 my recollection, and I don't know that -- because 23 there's a commercial sensitivity around that, whether -- 24 whether that information would have been shared as in if 25 there was still ongoing discussions with the contractor 99 1 about, well, that's the -- that's the decision, what's 2 the -- what's the financial result of that decision? 3 The contractor might have said: we want 10 million 4 or 20 million; and tie might have said: no, no, it 5 doesn't go that far. So there would be an agreement to 6 have -- sorry, a discussion, an argument to have about 7 what the quantum of it would be. 8 Q. Leaving aside the contractor for a moment, and whatever 9 they might want, just within tie, was there any 10 consideration about the likely financial consequence, 11 what the extent of the financial exposure was as 12 a result of the -- 13 A. Not that I recall. 14 Q. Was that not something that anybody was asking 15 a question about in that these matters had been taken to 16 establish a point of principle, and it had been 17 established against tie, what it was going to cost? 18 A. I -- I have a recollection that there was questions 19 asked at the outset -- not the very outset, but earlier 20 in the process, what the possible implications of 21 a decision could be, and that tie executives didn't want 22 to give an indication of that because they felt it was 23 so commercially sensitive. 24 Q. When you say at the outset -- 25 A. Not at the very outset, before these things -- we 100 1 were -- I say we, myself and I think other councillors, 2 were aware enough to be concerned about the potential 3 financial repercussions of the decisions going against 4 tie. And made enquiries of that. 5 I think possibly before the decisions were actually 6 reached, certainly -- 7 Q. So that would be late 2009? 8 A. It would have been around about that time. But my 9 recollection or my sense is, because I can't remember 10 the specific discussions, my sense is that that was -- 11 that was pushed back, as in tie executives didn't want 12 to give a figure to those. 13 Q. Who did you ask and who was pushing back? 14 A. I think that the question was asked in the tie Board 15 meeting, and that -- I cannot remember who. It would 16 have been a tie executive, but I cannot remember who 17 said: we don't want to go into that detail. 18 Q. Were you not a bit -- did you not find it a bit strange 19 that here you had the company officers telling the 20 directors that they weren't going to give the directors 21 information about the company, and its potential 22 liabilities? 23 A. I think the -- there was a tension, there was a balance. 24 There was a tension between what could be shared in that 25 forum because of potential for leaks out of that forum 101 1 into the public domain. 2 Q. When you say that forum, you mean -- 3 A. tie Board or TPB, depending upon what forum it was 4 meeting. 5 There was a concern, I said already about how at the 6 beginning of every meeting, especially David Mackay 7 would emphasise the need for commercial sensitivities. 8 But there was a sense that information was leaking out 9 of tie as well, possibly from the tie Board meeting, 10 I don't know. 11 So that was -- that was the context for that 12 discussion, if you like, for that -- that point and 13 that -- I accepted it at the time. You put it to me 14 just now: did it seem extraordinary? Yes, it does, it 15 seems very strange, it does. But I was willing to go 16 with that view at the time because I didn't want to do 17 anything that compromised the public purse, as we saw it 18 at that time. 19 Q. I'm asking you to cast your mind back a long way, but 20 was your understanding that the work had been done, and 21 you and the other councillors weren't to be given the 22 information; or simply that tie simply hadn't looked at 23 the issue of how much it might cost them overall? 24 A. I think more the former rather than the latter. 25 Q. So the information was there, but you weren't getting 102 1 it? 2 A. My expectation was that they would know because of -- 3 because of their job, because of their role, they should 4 have known what the quantum of these decisions would be, 5 within broad parameters. So that was my assumption. 6 Q. Still sticking with the adjudication, I think you said 7 that you were told that the outcome of the adjudications 8 was confidential. And shouldn't be disclosed? 9 A. Yes. 10 Q. Who said that to you? 11 A. Again, it was tie executives. I think, but I'm not 12 100 per cent sure, it was Steven Bell. But it was 13 certainly one of the senior tie executives. Steven 14 certainly arrived to provide me with the information 15 that -- from the adjudications. So he was part of that 16 discussion, but I can't say hand on heart it was Steven 17 that said that to me. That was a point that was put 18 across fairly forcibly, not in a, you know, bullying way 19 or anything like that, but it was quite strongly put 20 forward. 21 Q. Were you told why it was confidential, what made it 22 confidential? 23 A. Sorry. I was told that if we -- are you talking about 24 the information that I -- that I sought and got for the 25 Newsnight interview? 103 1 Q. Just generally, information about the outcomes and the 2 basis of the decision in the adjudications. 3 A. Sorry, I may have misunderstood your question. I was 4 thinking about something else. 5 The outcome of adjudications, as I said already, we 6 got some high level information on it. The specifics, 7 the detail of the adjudications, we didn't until I asked 8 for specific -- to get to see a couple of adjudications. 9 I hadn't seen the specifics of any of them. Or the 10 detail of any of them. 11 The concern was that if I or anybody else got into 12 discussing the adjudications and the relative merits of 13 the tie position, that that would then open up tie or 14 those -- our legal advice within tie to Freedom of 15 Information requests. It was initially suggested, said 16 that we shouldn't get -- I shouldn't get the 17 adjudication -- or more that I shouldn't be discussing 18 the adjudications. 19 Q. If you go to your statement at page 122 in this regard. 20 I think if we enlarge paragraph 377. 21 It's just, I think, covering some of the ground you 22 have just mentioned. You say: 23 "I have mentioned before that I sought and saw two 24 adjudication decisions as a TPB member. I did not 25 regard the position that we were not going to get to see 104 1 the adjudication decisions as satisfactory. TIE were 2 very resistant to the idea that I would get to see the 3 adjudications, and I do not know if anybody else asked." 4 If I can just pause there, was it explained to you 5 why they were resistant -- why they were resistant to 6 you as a Director seeing adjudications? 7 A. They didn't -- they didn't say to me: because you might 8 leak something to the outside world. It was more a case 9 of: if we give people the -- copies of the 10 adjudications, there is a chance that the information 11 might get out. That's not -- there was two parts to 12 that. One was, as I mentioned earlier, about the legal 13 advice. The other was I think that there was 14 a confidentiality about adjudication decisions. I think 15 there was supposed to be a confidentiality about 16 adjudication decisions that didn't go outwith the 17 parties. 18 Q. Who was saying that to you? 19 A. It was -- it was tie executives. I can't say which one. 20 But that was where we were getting it from. 21 Q. Coming to the question of how it relates to advice and 22 information going out, I think you note here that you 23 had to insist on seeing them -- this is in the fifth 24 line? 25 A. Yes. 105 1 Q. "... the ones that I did see had borne out what I was 2 being told in the TPB and TEL Board. To that extent, 3 I was satisfied by what I was being told. We were 4 advised that to put the adjudication decisions to 5 members or into the public domain would prejudice TIE's 6 position. This, we were advised, was not because of 7 what was in the adjudication decisions themselves, but 8 because if they were put in the public domain, TIE would 9 be open to freedom of information requests around the 10 legal advice, which would be exploited by the 11 consortium." 12 Was that something also being said to you by tie 13 executives? 14 A. Yes. That was the -- that was the principal basis on 15 which, you know, the -- they were saying that it 16 wouldn't be a good idea for me to have sight of the 17 adjudications. Or certainly to be discussing -- 18 Q. We have finished with that paragraph now. 19 I think you explain in your statement that you 20 suggested that other opinion, legal opinion, should be 21 sought, and that you obtained the name of Richard Keen 22 and put that forward? 23 A. Yes. 24 Q. Ultimately an opinion was obtained from him, but you 25 weren't given sight of that opinion? 106 1 A. That's correct. 2 Q. Were you told that the opinion from Richard Keen was 3 there? 4 A. No. 5 Q. I think you were told at that Board meeting in 6 March 2010 that further legal advice had been obtained, 7 and that it backed tie. Do you recall getting that? 8 Were you told that, sorry? 9 A. Further legal advice had been obtained and backed tie? 10 Q. Yes. 11 A. In respect of the adjudications? 12 Q. Perhaps if I show you the minutes, it would be easier to 13 do it that way. If we go to production CEC00379020. 14 We can see that these are the Tram Project Board 15 minutes for 10 March 2010. 16 A. Yes. 17 Q. Can we look at page 3, please. I should have 18 established, sorry, if we look back at page 1, just to 19 provide the context for this. We see the heading 2.0, 20 this is the Chief Executive's Update that we're looking 21 at? 22 A. Yes. 23 Q. If we go then back to page 3, we can see a sub-heading 24 at the top, "Contractual Mechanisms". Just reading the 25 last two lines of this, in relation to the contractual 107 1 mechanisms, it is noted that: 2 "RJ confirmed that independent legal and Counsels' 3 advice has been analysed and this has affirmed tie's 4 approach to these matters." 5 Did you ask to see that advice? 6 A. No. 7 Q. Were you given sight of that advice at the time? 8 A. No. 9 Q. About this time, March 2010, were there changes made to 10 the strategy that was being pursued by tie? Or the Tram 11 Project Board? 12 A. I don't recall if there was. I would need to look at 13 documentation to refresh my memory. 14 Q. I want to refer you back to your statement, if I can, 15 please? 16 A. Yes. 17 Q. Go to page 123. I would like to look at paragraph 380, 18 which reads over the page, obviously. 19 What it starts by saying here is: 20 "The minutes of the Tram Project Board meeting 21 on ..." 22 There's a note to the right here which is 23 a correction that it should be 2 July: 24 "Note that an independent review of the programme 25 had been conducted and that it concluded that delivery 108 1 of Phase 1a could be achievable by December 2012." 2 I take it, did you -- were you provided with a copy 3 of that expert report? 4 A. I don't recall that I was. 5 Q. If we also look at paragraph 391 -- sorry, page 127, 6 paragraph 391, the notes there that the PD Report, 7 Project Director's Report: 8 "... for late June 2010 notes that there were two 9 such independent reports to the effect that recovery was 10 possible. I do not recall if these were provided to me, 11 nor the basis for their conclusions." 12 By this time it was apparent that the contract was 13 sliding quite dramatically. Did you have a view as to 14 whether or not recovery would be possible? 15 A. I'm not sure. Is that referring to recovery in terms of 16 costs or recovery in timescale? 17 Q. Time. Programme. 18 A. I think I say in subsequent part of the statement, 19 subsequent paragraph, that more time went on, the less 20 likely that they would be able to effect recovery. 21 Though for some -- by that time, it was clear that the 22 project was in serious difficulty. And had been for 23 some time. 24 The extent to which I was aware of it, probably less 25 than others, but the -- if things turned round very 109 1 quickly, and the contractor started working in 2 a positive way with tie, then I'm sure that substantial 3 recovery would have been possible. 4 But the history of it to that date, and as time went 5 on, leads -- to conclude that it's not a strong 6 possibility. You know, there was comment at various 7 points about false logic within the programme, 8 et cetera, et cetera. And the amount of resource. So 9 it may have been possible, but I suppose scepticism was 10 growing over time. 11 Q. Going to a different matter now, quite different, we've 12 finished with that statement for the time being, I think 13 it's correct that you sat on the tie Remuneration 14 Committee; is that correct? 15 A. Yes. 16 Q. Councillor Henderson was also on that with you; is that 17 your recollection? 18 A. I don't recall being in a meeting with 19 Councillor Henderson. 20 Q. You don't? In terms of other -- 21 A. But he was there in the earlier part of my time on tie. 22 So ... 23 Q. Other members of that committee would include, I think, 24 Brian Cox, Willie Gallagher and Peter Strachan? 25 A. Yes. 110 1 Q. Now, did you have a view on whether or not it was 2 appropriate that Willie Gallagher, who is the Executive 3 Chairman, was sitting on the Remuneration Committee? 4 A. Again, I think I touched on this. 5 I thought it was strange at the time that -- it 6 wasn't just Willie Gallagher. I think there were other 7 people in that meeting whose remuneration was being 8 discussed as well. 9 I was new to that environment. Brian Cox was 10 chairing that meeting, is my recollection, and he seemed 11 content with that. 12 I found it odd to be discussing somebody's -- yes, 13 yes, to discuss somebody's performance with them, but 14 not necessarily whether that -- you would then go on and 15 decide, well, they should get some or all of whatever -- 16 Q. I take it from what you say that the person in question 17 didn't even withdraw from the meeting? 18 A. I don't think that they did, no. No. I contrast that 19 with my experience with EDI, where there were 20 discussions about different members of staff with the 21 Chief Executive and the -- I don't think the top title 22 was Deputy Chief Executive, but the two most senior 23 people in EDI, where we discussed the bonus that would 24 be awarded to other staff, and then when it came to the 25 deputy, he left. 111 1 So that was what the practice was in EDI, but 2 I think this was before the EDI meeting, and so at that 3 stage it was -- do you have the date of that? My 4 recollection is that it was early-ish on, and to me that 5 was the whole bonus remuneration thing was new to me. 6 So it seems strange, I have to say, at the time it 7 seemed strange, and I ask myself why didn't I question 8 this. I think the answer that I come up with is 9 Brian Cox was there, an independent non-executive 10 chairing it, and he was happy with it, and I took my 11 lead from that. 12 Q. Just in terms of -- it is asking you to look a long time 13 back, I know, but can you remember to what extent the 14 achievement of various milestones in the project was 15 relevant for determining bonus, such as outline Business 16 Case, Draft Final Business Case, MUDFA contract or any 17 of these matters were relevant to determining the amount 18 of bonus? 19 A. I can't remember the specifics of which things were 20 relevant, but there were certainly -- it was of that 21 ilk, and it may also have been contract close by 22 a certain date was part of that as well. 23 I can't remember the specific detail, but there were 24 those sort of milestones in the -- in the remuneration 25 scheme for each individual. 112 1 MR LAKE: Thank you very much, Mr MacKenzie. Those are my 2 questions. 3 Questions by CHAIR OF THE INQUIRY 4 CHAIR OF THE INQUIRY: Can I just pick up on the question of 5 political divisions. I think earlier on in your 6 evidence you gave evidence to the effect that the 7 Liberal Democrats were in favour of the tram as you 8 thought Labour and the Conservatives were, but SNP 9 clearly -- made it clear that they were opposed to the 10 tram. 11 Did you consider it strange or not strange that the 12 Liberal Democrats went into coalition with the SNP and 13 part of the Coalition Agreement was that the SNP would 14 not support the tram? 15 A. I -- I knew it would be highlighted at the time. There 16 was a very -- I think there was quite a strong will 17 within the Council Chamber not just amongst the 18 Liberal Democrats and the SNP, but also including the 19 Conservatives, that there needed to be a change in 20 administration. Labour had been in power for a long 21 time and it was -- there needed to be a change. 22 This, because the numbers and the politics of it 23 didn't stack up in any other way, there couldn't be 24 a coalition with the Conservatives and Greens, for 25 example. This was the only way that that could be 113 1 achieved. The tram was a significant issue within the 2 overall consideration of the task, the job of the 3 Council, but the Council budget at that time was over 4 GBP1 billion per annum. You know, so it was -- it was 5 part of it, and a very significant part of it, but the 6 whole -- the whole running of the Council was a far 7 greater undertaking, and the benefit of getting a new 8 administration in to change the culture of the Council 9 was supported by not just the Liberal Democrats and the 10 SNP, but also the Conservatives. 11 But we also knew that the SNP -- the Labour and the 12 Conservatives supported the tram, supported the 13 principle of the tram, and so we believed that we had 14 the votes within the Council to be able to continue to 15 progress the project. 16 CHAIR OF THE INQUIRY: So you were really relying on these 17 other pro-tram parties, if I can put it that way. 18 A. Yes. 19 CHAIR OF THE INQUIRY: To give you support for the tram 20 project. 21 A. Yes. 22 CHAIR OF THE INQUIRY: We've heard from some councillors 23 that the provision of information by the administration 24 about the tram was not as they had hoped it might be, 25 and they were given late information, perhaps on the day 114 1 of a vote, where the Liberal Democrats Leader would 2 be -- Jenny Dawe would be asking them, or other people 3 in the Liberal Democrats would be asking councillors 4 from Labour to support that motion and there was a bit 5 of tension. Were you aware of that view? 6 A. I find it difficult to go along with that view, 7 respectfully to whoever was saying it, because within 8 the tie Board there was a representative from the 9 Labour Group and from the Conservative Group. So if 10 that was being said by the Labour and Conservative 11 Group, then they had somebody within that group who 12 could provide them with information on an ongoing basis 13 about what was happening. 14 The normal way of running business in the Council, 15 and I don't think this had changed from before to when 16 the Lib Dems were in administration, is that there would 17 be draft papers for the Council brought to the Convener 18 responsible for the committee or the Council -- the 19 Council Leader, and a discussion held with them about 20 what was in it, so that they knew about it. That could 21 be a week or two weeks ahead, and then the papers would 22 be shared with the councillors. I think it was roughly 23 a week before the meeting. 24 Where because of -- that's a normal business. 25 Where because of late changes, and I'm thinking 115 1 particularly the increase in the -- around the contract 2 close time, where that information came late, it came 3 late to everybody. So to the best of my recollection, 4 the information that we got about some of that came on 5 the day, you know, or at most the evening before, just, 6 you know, that there would have been very little. 7 It wasn't the case that something -- I stand to be 8 corrected, obviously, but if there was something that 9 was going to be tabled on the day, I don't think that we 10 got sight of that like a week ahead or anything. 11 CHAIR OF THE INQUIRY: So you are saying that the late 12 production of information on occasions happened, but it 13 happened -- 14 A. Happened -- 15 CHAIR OF THE INQUIRY: Across the board. 16 A. Happened infrequently and it happened across the board. 17 CHAIR OF THE INQUIRY: The other matter I wanted to ask you 18 about was the confidentiality of adjudication decisions 19 you have given evidence about that. 20 Did there come a point where you were aware that 21 Bilfinger Berger or Mr Walker, I think it was, had 22 written to councillors about the dispute, basically? 23 A. (Witness nods) 24 CHAIR OF THE INQUIRY: Did you get a copy of that letter? 25 A. I did get a copy of at least one letter. 116 1 CHAIR OF THE INQUIRY: Yes. I think from recollection there 2 was indications from Bilfinger Berger that they were 3 willing to waive confidentiality in the adjudication 4 presumably if the other side, tie, waived it. Was that 5 ever considered by tie? 6 A. I -- well, it was considered by councillors as in we -- 7 we wondered -- I wondered, and others did, whether that 8 might be helpful. And we were told that basically it 9 was a divisive tactic to ratchet pressure on the 10 Council, and it would also potentially afford the 11 opportunity for people to find out about tie's legal 12 advice because the Council and tie were covered by 13 Freedom of Information and the contractor wasn't. 14 I don't know if that's quite the correct legal 15 definition of -- or explanation of the Freedom of 16 Information Act, but that was -- there would be 17 implications on the release of information that would be 18 different on the Council and tie than they would on the 19 contractor. 20 So they strongly recommended that we didn't go down 21 that route. 22 CHAIR OF THE INQUIRY: I don't think there are any other -- 23 MR DUNLOP QC: My Lord, for DLA one matter arises. The 24 witness was asked a question about the content of legal 25 advice, in a fairly general but leading question, and 117 1 without any criticism of that expression, gave an answer 2 which might be thought to be potentially misleading, 3 and I wonder whether I might explore that for a couple 4 of minutes. 5 CHAIR OF THE INQUIRY: Carry on. 6 Examination by MR DUNLOP QC 7 MR DUNLOP QC: Thank you. Mr MacKenzie, you will recall you 8 introduced a letter from DLA reviewing the adjudication 9 decisions at Gogarburn and Carrick Knowe? 10 A. Yes. 11 Q. In summary, that letter explores potential arguments 12 against the validity of the adjudicator decisions, 13 explains the limits open to someone like tie of 14 resisting the enforcement of a decision of an 15 adjudicator, but recommending that an opinion be taken 16 of Senior Counsel; is that right? 17 A. That's correct, yes. 18 Q. Am I right in understanding it was yourself that 19 suggested that Mr Keen be the Senior Counsel approached? 20 A. As a general point, yes. 21 Q. And we know that he was approached. 22 Now, the reason I wanted to ask this question is my 23 learned friend Counsel for the Inquiry put to you that 24 Mr Keen had come back and said of the adjudication that 25 tie were wrong and the consortia was right, and you 118 1 assented to that. I just wonder if that's correct. 2 Could you have in front of you, please, or on the 3 screen CEC00356397. 4 A. Just while that's coming up, could you just say again 5 the last bit of what you -- 6 Q. Yes. Mr Lake put it to you that Mr Keen's advice had 7 been that the consortium were correct and that tie was 8 wrong. And I'm just wondering if that's correct. 9 We can see at the end of the document, if we need 10 to, this is Mr Keen's opinion of January 2010. 11 If we go to the second page first, please. 12 Paragraph 3, if we can expand the bottom half of the 13 page, 3 and 4, please. 14 In the third line of paragraph 3, we see that the 15 terms of Schedule Part 4 are mentioned and the 16 observations made concern the interpretation of the 17 relevant contract terms by the adjudicator regarding 18 Gogarburn Bridge. So that's the context of this 19 opinion. 20 Paragraph 4, in terms that might be familiar to 21 those that know Mr Keen's work: 22 "Although the reasons given by the Adjudicator for 23 his decision of 16 November 2009 may not be 24 distinguished by their clarity they are readily to be 25 construed as meaning that in the opinion of the 119 1 Adjudicator, the Construction Works Price is fixed by 2 reference to the work identified in the BDDI [Base Date Design 3 Information], with the result that any further work required to 4 meet the Employer's Requirements will constitute a Notified 5 Departure in accordance with Schedule Part 4." 6 That summarises what the adjudicator has done. 7 Over the next page he sets out various paragraphs 8 from the adjudication decision. On the next again page, 9 please, paragraph 6, he says: 10 "The Adjudicator's analysis of the issue has at 11 least a superficial attraction when one comes to 12 consider the provisions of Schedule Part 4 and more 13 particularly the definition of terms in that schedule." 14 He then goes on to look at the analysis. If we can 15 turn to the next again page, please. 16 At paragraph 8 we see: 17 "The result of the foregoing analysis would be that 18 any part of the design of the Edinburgh Tram Network for 19 work required in terms of the Employer's 20 Requirements ... not incorporated in Design Information 21 Drawings ... November 2007 would constitute 22 a Notified Departure as defined in Schedule Part 4 and 23 would therefore be deemed to be a mandatory tie 24 Change ... That conclusion, whatever its superficial 25 attraction, is in my opinion wrong." 120 1 So am I right in understanding that actually what Mr 2 Keen was saying was the Adjudicator's approach was 3 erroneous, and that tie's argument was correct? 4 A. I based my response on something that I think comes 5 later in the document or -- that the -- Mr Keen says he 6 prefers the contractor's interpretation. That was my -- 7 Q. Yes. So if we go to the next page, please, paragraph -- 8 page 7. So he's asked a variety of questions. So issue 9 3, he's asked: 10 "What is the relevance of the Employer's Requirements 11 and the Infraco Proposals ..." 12 His answer is: 13 "In my opinion the Employer's Requirements and the 14 Infraco Proposals are conclusive as to what is included 15 in the Construction Works Price." 16 That's an answer in favour of tie's interpretation? 17 A. Yes. 18 Q. Question 4: 19 "Is the Construction Works Price ... limited to only 20 what is depicted on the BDDI [Base Date Design Information]?" 21 Answer: 22 "No." 23 That's again in favour of tie's interpretation? 24 A. Yes. 25 Q. Question 5: 121 1 "Can it be said that a Notified Departure has 2 occurred in the circumstances where an item of work is 3 not depicted on the BDDI [Base Date Design Information] but that 4 item of work is nonetheless called for or required by the 5 Employer's Requirements?" 6 Answer: 7 "No." 8 Again, that's in favour of tie's interpretation? 9 A. Yes. Sorry. 10 Q. Question 6: 11 "Can it be said that the Infraco is entitled to an 12 increase in the sums due to it under the Infraco 13 Contract in the circumstances where an item of work is 14 not depicted on the BDDI [Base Date Design Information], but 15 [it] ... is ... called for or required by the Employer's 16 Requirements ..." And again: 17 "No." 18 Again, that's in tie's favour? 19 A. Yes. 20 Q. The one exception is the one that you've alluded to, and 21 that's at paragraph 11. It goes back to the very first 22 issue you've been asked: 23 "Which interpretation of Pricing Assumption 1 put 24 forward by the parties ... is to be preferred? 25 In my opinion, the interpretation put forward by 122 1 Infraco is to be preferred to the interpretation put 2 forward by tie." 3 A. Yes. 4 Q. So we see of the various issues that Mr Keen was asked 5 to opine on, he opined in favour of tie in six of the 6 seven, I think. In particular, with regard to what the 7 adjudicator had said regarding his reasoning and the 8 superficial attraction, but he said that Infraco were 9 correct on Pricing Assumption 1? 10 A. Yes. 11 MR DUNLOP QC: I'm obliged, thank you. 12 CHAIR OF THE INQUIRY: Thank you very much. Well, 13 Mr MacKenzie, that's the end of your evidence. 14 MR FAIRLEY: My Lord, I'm sorry to interrupt and I'm sorry 15 to be tiresome, but I had put in a request for questions 16 of this witness as well. There are some matters that 17 arise. I'm not sure whether my Lord would prefer if 18 I dealt with those after lunch. I think I might be 19 between 10 and 15 minutes, so it might be better if I 20 dealt with them after lunch. 21 CHAIR OF THE INQUIRY: They have not been covered already? 22 Very well. 23 We will adjourn for lunch. You're not finished. We 24 will adjourn for lunch until 2 o'clock and we will 25 resume then. Thank you. 123 1 (1.00 pm) 2 (The short adjournment) 3 (2.00 pm) 4 CHAIR OF THE INQUIRY: Good afternoon. Mr MacKenzie, you 5 are still under oath. 6 Yes, Mr Fairley. 7 Examination by MR FAIRLEY 8 MR FAIRLEY: Mr MacKenzie, just picking up where my friend 9 Mr Dunlop left off with the Richard Keen opinion, I know 10 that you didn't see this at the time and it is perhaps 11 rather unfair to ask you questions about it, but you 12 were asked by Counsel to the Inquiry about one section 13 of that that Mr Dunlop alluded to. 14 As a summary of Mr Keen's position, would it be fair 15 to say that he ultimately said he didn't agree with the 16 reasoning of the adjudicator -- that's point number 1; 17 is that right? 18 A. Right, yes, yes, sorry. Yes. 19 Q. He thought that tie had pursued the wrong argument 20 before the adjudicator in that of the competing 21 arguments as they were summarised to him, that had been 22 pursued by tie and Infraco before the adjudicator, he 23 said that he thought that the Infraco argument was 24 correct, and that's what we see at paragraph 11 of his 25 opinion? 124 1 A. I think I remember that, yes. 2 Q. But there were other sections in Richard Keen's opinion 3 where he put forward other arguments, better arguments 4 perhaps, which favoured tie's interpretation of the 5 contract, and militated against the extreme 6 interpretation of that that was being taken by Infraco, 7 and those were the sections Mr Dunlop referred you to 8 before lunch? 9 A. Okay, yes. 10 Q. Or is the position simply that you never really 11 addressed Mr Keen's opinion in enough detail to be able 12 to express an opinion? 13 A. I think that's a better summation of the position. 14 Q. I don't want to be unfair to you then. 15 Going back in time, you were asked questions by 16 Counsel to the Inquiry about what discussions there were 17 at Tram Project Board about the price increase that 18 Infraco came up with immediately prior to financial 19 close. Do you remember that? 20 A. Yes. 21 Q. I want to ask about that, because if I have understood 22 your position correctly, you didn't recall any 23 discussions over what could be done about that. You 24 said you didn't recall there being any discussion about 25 either halting the procurement process or going back to 125 1 the other possible bidder, which was Tramlines, and 2 I think you also said in a slightly earlier passage that 3 you didn't recall any discussion over what means there 4 were for -- in the contract for dealing with design 5 being late. Have I understood your evidence correctly 6 on those points? 7 A. I recall -- I think you've probably understood me 8 correctly, but I may have, as you are saying it, I'm 9 thinking there was quite a clear determination expressed 10 to try and fight or resist the proposed increases. 11 Q. Right. So there was discussion then about what might be 12 done about that? 13 A. I think it was -- I read a statement that there was 14 determination to get as much of this off the table as 15 possible, or words to that effect. 16 Now, I can't recall that there was a discussion of 17 this at the Tram Project Board, but I'm remembering 18 reading something that said, you know: we need to try 19 and resist these attempts by what means we can. 20 Q. I wonder if I can help you with that, please? 21 A. Please do. 22 Q. At the full-time meeting of the Tram Project Board 23 before -- final meeting of the full Tram Project Board 24 before financial close was on 7 May 2008. Could we 25 have, please, document CEC00080738. 126 1 Now, what you have on the screen in front of you 2 there is in fact the Tram Project Board papers for the 3 meeting on 4 June, but the reason I'm taking you here is 4 that these contain the minutes of the previous meeting 5 on 7 May, and we see that if we can go, please, to 6 page 5. 7 We see, I think, those are the minutes of the Tram 8 Project Board, dated 7 May 2008, and you are noted in 9 the left-hand column there as being one of those in 10 attendance? 11 A. Yes. 12 Q. Am I right about that? 13 A. Yes. 14 Q. If we go to -- on that first page there, if you could 15 just blow up the bottom half of the page, under 16 paragraph 2, and we will be going over the page in 17 a moment. 18 What's noted there is that WG, I think 19 that's Mr Gallagher: 20 "... gave an update of the current status of 21 contract close (the discussion is summarised below)." 22 I think what is meant by that is in the 23 paragraphs 2.2 and following: 24 "He outlined his and the Boards' frustration and 25 disappointment in Bilfinger Berger's strategy." 127 1 Am I right in saying that his frustration and 2 disappointment at Bilfinger Berger's strategy was at the 3 strategy of producing a last minute price increase? 4 A. That's my recollection, yes. 5 Q. Yes. At 2.2 he is then recorded as having outlined the 6 chain of events since a communication was received from 7 Bilfinger Berger on 30 April, including an emergency 8 Tram Project Board on 30 April. 9 Now, I'm not sure if you were at that one. Do you 10 recall that? 11 A. I don't recall that one, no. 12 Q. He also talks about discussions with a Bilfinger Berger 13 Board Director, briefing Transport Scotland and the 14 Minister, I say Transport Scotland, it's Bill Reeve, but 15 Bill Reeve was at Transport Scotland. That is right, 16 I think, isn't it? 17 A. Yes. 18 Q. He talks about sending a letter in response to 19 Bilfinger's demands and their subsequent response to 20 that letter. 21 We then see that David Mackay stressed there was no 22 need for recriminations and that further resolve and 23 determination was needed by all to see the process 24 through. 25 Do you see that? 128 1 A. Yes. 2 Q. Do you recall any -- is this any of this jogging your 3 memory? 4 A. It is to the extent that I was aware in the background, 5 so to speak, that there obviously was a reaction to tie 6 receiving this, and that they were -- this -- this 7 request, demand for additional funds and they were 8 trying to resist it by whatever means possible. 9 I was aware that that had gone on. I wasn't 10 involved in that discussion to the best of my 11 recollection, I certainly wasn't involved in the 12 emergency Tram Project Board meeting. 13 Q. But you were at that meeting on 7 May when this 14 discussion is taking place? 15 A. Yes. 16 Q. Okay. I think in the next paragraph on there in 2.4, we 17 see somebody, BC, is that Mr Cox? 18 A. It could well be, yes. 19 Q. "... queried whether there was adequate protection to 20 protect the project from commercial challenges in the 21 future." 22 Now, if I understand correctly, is that a reference 23 to risk transfer and to effectively guarding against 24 further price increases? 25 A. I don't know the answer to that question, I'm sorry. 129 1 Q. The reason I ask that is that the response to that from 2 Mr Gallagher seems to be to state that the contract is 3 robust. Do you see that? 4 A. Yes. 5 Q. So is it possible that that was a discussion over 6 protection over further attempts by Bilfingers to seek 7 more money post financial close? 8 A. It's possible. Yes. 9 Q. If we go over on to the next page then, on to page 6, 10 and if you can blow up the top half of that page, 11 there's a passage there where AF -- I think that's 12 Mr Fitchie -- added that: 13 "... BB were extremely nervous about the state of 14 design." 15 Do you see that? 16 A. Yes. 17 Q. Presumably Bilfingers would only be nervous about the 18 state of design if they were assuming risk for the 19 development of design? 20 A. Yes, possibly. 21 Q. Was that your understanding of that at the time? 22 A. I think it probably would be, yes. 23 Q. What Mr Fitchie is recorded as saying is that: 24 "However, this should reduce as the contract 25 progresses and the risk of using it as a lever in 130 1 a claim will reduce." 2 What did you understand him to mean by that? 3 A. I don't know the answer to that question just now. 4 I don't know what I thought of it at the time. 5 Q. Do you recall there being discussion over risk? 6 A. No, I don't recall the discussion here at all. I know 7 that we had a discussion, but I don't recall the -- 8 sorry, I don't recall the detail of the discussion. 9 Q. But if we assume for the moment this is an accurate 10 record -- 11 A. No, I'm happy to accept that. 12 Q. -- it would appear there has been discussion; is that 13 right? 14 A. Yes. Yes. 15 Q. What we then move on to is Mr Hogg asking at what point 16 any increase in price will be something that simply 17 cannot be lived with, without having to return to the 18 reserve bidder. So it looks here as if there is 19 consideration being given to other options, including 20 the possibility of re-engaging with Tramlines; is that 21 right? 22 A. Certainly that's the point that Kenneth Hogg was 23 raising. I don't recall there being a detailed or 24 a significant -- a lengthy discussion about the 25 possibility of going back to Tramlines. I think there 131 1 was concern about if Bilfinger Berger were given 2 additional funds, that that might be a possible line of 3 challenge by Tramlines. That's my recollection of this 4 issue, rather high level, I'm afraid, not the detail 5 that perhaps you're looking for. 6 Q. There does seem to be a discussion -- 7 A. Yes. 8 Q. -- within the following paragraphs, and it's maybe 9 unfair to you to take you to just one paragraph and ask 10 you about it, but there does appear to be a discussion 11 developing over the following paragraphs about the 12 effect which a return to Tramlines would have upon both 13 cost and timing? 14 A. Mm-hm. 15 Q. Am I right in saying that? 16 A. Well, it's clearly there, and I'm not disputing the 17 accuracy of the minutes at all. 18 Q. So we should understand that there was at least some 19 level of discussion? 20 A. Yes. 21 Q. Which has been recorded in these paragraphs? 22 A. Yes. 23 Q. 2.6 and following about the possible return to 24 Tramlines? 25 A. Yes. 132 1 Q. There is then, at paragraph 2.9, an indication by 2 Mr Gallagher that there was a willingness to negotiate 3 and that both Bilfingers and Siemens were in Edinburgh 4 today, but the longer the process takes, the more 5 opportunities arise for the other contractors to shift 6 their position. Do you see that? 7 A. Yes. 8 Q. Do you remember that discussion? 9 A. I don't remember the specifics of the discussion, I'm 10 afraid. 11 Q. But there was a -- do you remember there being a 12 discussion? 13 A. There was a discussion. 14 Q. Then at 2.11 we see: 15 "There was general agreement by those attending that 16 an increase may just have been tolerable one or two 17 months ago. It was also accepted that although this was 18 not unusual behaviour by BB [Bilfinger Berger], tie did not 19 have a lot of room to negotiate." 20 A. Yes. 21 Q. Do you recall that being said? 22 A. I think I recall that. That point does seem to stand 23 out, or -- in my memory better than the other points 24 that are -- that are around preceding it. 25 Just -- the phraseology there just seems familiar 133 1 about being tolerable one or two months ago. That -- 2 there's a little recollection, a faint recollection 3 going off of that sort of terminology. 4 Q. What does it mean? 5 A. Well, my -- I was trying to remember as best I can here, 6 but I think what -- what was being alluded to or what 7 was being said was had Bilfinger Berger come to tie 8 a couple of months ago and said: look, we've seen this 9 coming through, the reasons for the proposed now, 10 a couple of months ago; it might have been more 11 believable. It might have been consistent with what you 12 expect in terms of a reasonable behaviour, but the fact 13 that came up at the very last minute made it appear that 14 actually it was -- it was in the last minute attempt to 15 get more money out of -- that's my interpretation of it, 16 I'm sorry. That's just -- 17 Q. Does it perhaps link back to the final sentence in 2.5, 18 where Mr Fitchie has noted that the timing of the demand 19 was, as he puts it, cynical? 20 A. That -- yes, that would be another way of putting it, 21 yes. 22 Q. At 2.13 we see, if we just scroll down the page 23 slightly, that the resolution of those in attendance at 24 the Tram Project Board on that day was to continue with 25 the negotiations for the best deal and then report to 134 1 the previously appointed sub-committee of Boards who 2 will meet as required in the ensuing days to make 3 a decision, and that would then be ratified by the 4 Council Policy and Strategy Committee on Tuesday, 5 13 May. 6 Do you see that? 7 A. I do, and that broadly accords with my recollection that 8 they were going to go and try and fight off as many of 9 these requests as possible before they come back. 10 Q. So to sum up, there does seem to have been a discussion 11 of risk? 12 A. Yes. 13 Q. There does seem to have been a discussion over what 14 could be done or not be done about the demand for price 15 increase, and there does seem to have been discussion 16 over whether or not it would be feasible to move back to 17 the alternative contractor? 18 A. Yes. But in that last statement that you've made there, 19 my recollection doesn't -- doesn't give me -- I don't 20 have the sense that there was a substantial discussion 21 about going back to Tramlines. That's just not my 22 recollection. It's there in the minutes that it was 23 discussed. You know, I'm not -- just the emphasis there 24 in terms of my recollection of that discussion is that 25 it would have been more about how do we get this off the 135 1 table than a serious discussion about going back to 2 Tramlines. That's my recollection of it. 3 Q. Would it be fair to say that it was a view generally 4 held within the Tram Project Board that that -- going 5 back to Tramlines was a pretty unattractive option as at 6 May 2008? 7 A. Yes. 8 Q. When Bilfinger had been the preferred bidder for some 9 months? 10 A. Yes. 11 Q. And you were on the verge of -- a matter of days away 12 from a financial close? 13 A. Yes. 14 Q. That had already been postponed on at least one 15 occasion? 16 A. Yes. I think that's fair. 17 CHAIR OF THE INQUIRY: Could I just ask about 2.13. The 18 decision was to continue with the negotiations and 19 report to a previously appointed sub-committee of the 20 Board. And then it gives the composition of these. Can 21 you just tell me who these are. DJM? 22 A. Would you like me to answer that, your Honour? 23 CHAIR OF THE INQUIRY: Yes. 24 A. DJM is David Mackay. 25 CHAIR OF THE INQUIRY: Willie Gallagher. 136 1 A. Willie Gallagher. Neil Renilson, one of the non-exec 2 Directors. 3 CHAIR OF THE INQUIRY: And who supported them? 4 A. Donald McGougan, Director of Finance. DA would be 5 David -- now -- was David Anderson in place by then? 6 I don't know. And GL? I can't tell you. 7 If you go to the -- who was at that meeting, it 8 might help. 9 CHAIR OF THE INQUIRY: Can we go back to the first page, 10 please. 11 A. Dave Anderson is on that list. So I assume DA is 12 Dave Anderson, and GL might be Gill Lindsay. That's 13 a guess. 14 CHAIR OF THE INQUIRY: Thank you. 15 MR FAIRLEY: Certainly Gill Lindsay appears within the 16 glossary page 5 as GL. I don't think Mr Anderson 17 appears within that list because he doesn't seem to have 18 been in attendance at the meeting. If we look on the 19 right-hand column there, Gill Lindsay is annotated as 20 GL. We see David Mackay, for example, DJM; 21 Donald McGougan, DMcG; is that right? 22 A. Did I not see Dave Anderson's name on that somewhere, if 23 you take away that -- there was something that flashed 24 up a minute ago with David Anderson's name on it. 25 Q. I think he may have been on the circulation list for the 137 1 papers for this meeting, but may not have been at the 2 7 May 2008 Tram Project Board. 3 A. Yes. 4 Q. If I can leave that then, and just go back briefly to 5 look at the question of adjudications. 6 We've spoken about Richard Keen's opinion, and you 7 were asked questions about that by Mr Dunlop. 8 You've also spoken about the adjudications at 9 Carrick Knowe and Gogarburn. I think you said you had 10 actually seen copies of Mr Hunter's decisions in those 11 adjudications at some point; is that right? 12 A. No. That's not correct. I asked for two adjudications 13 in preparation for interview with Newsnight Scotland. 14 To the best of my recollection, one of them was 15 Russell Road, and I can't remember the other one. 16 Subsequently, in preparation for my witness 17 statement I was sent papers which included the DLA Piper 18 summary of the adjudications on Gogarburn Bridge and 19 Carrick Knowe. 20 Q. Right. There had certainly come a point by early to 21 mid-2010 where there were conflicting views being 22 expressed over the interpretation of the contract and in 23 particular the Pricing Schedule. Would that be fair? 24 A. Yes. 25 Q. You have Mr Keen, for example, saying he thinks that the 138 1 adjudicator's reasoning at Carrick Knowe and Gogarburn 2 is wrong? 3 A. Yes. 4 Q. And the Russell Road adjudication was one which -- if 5 I characterise this incorrectly, please let me know, but 6 it has been described as tie's interpretation on points 7 of principle being in large measure accepted by 8 Mr Wilson, but on the particular facts, he nevertheless 9 held that there were Notified Departures; is that fair? 10 A. I haven't seen the Russell Road adjudication in seven 11 years. It's not in the documentation that came to me. 12 So I don't recall what it said. 13 My recollection of it is that tie lost on the 14 principle of the design, and they managed to claw back 15 some money and costs that Bilfinger Berger or the 16 contractor was claiming for the works that had been 17 taken forward, especially on piling, I seem to remember. 18 Q. Well, if that's your recollection, I won't press you on 19 it. I think others may have expressed a different view 20 about what the outcome of Russell Road was. But it 21 perhaps illustrates the more general point that there 22 was a degree of disagreement, if I can put it that way, 23 about what the contract meant in the early part of 2010, 24 moving towards the summer of 2010. Would that be fair? 25 A. Yes. 139 1 Q. You were asked by learned Counsel to the Inquiry in the 2 section where he said he wasn't going to ask you for 3 legal advice of what your understanding was about the 4 grounds on which adjudications might be challenged. 5 I'm going to adopt a similar approach, because I'm 6 not going to ask you for legal advice, but can I ask you 7 this. 8 Was it your understanding that decisions of -- 9 a decision of single adjudicator was not binding on any 10 other adjudicator? 11 A. Yes, although it was my understanding that it could be 12 used by the -- by whoever. If it went for you, you 13 would use it in subsequent adjudications with another 14 adjudicator. 15 Q. Yes. You could use it to try and persuade another 16 adjudicator, by saying: look, this is what somebody else 17 did. 18 A. Yes. The extent to which adjudicators came up with very 19 different or are likely to come up with quite different 20 interpretations, I didn't know. 21 Q. In fact, I think that was one of the things that 22 featured in the Russell Road adjudication in that 23 reference was made before Mr Wilson to the decisions of 24 Mr Hunter in respect of Carrick Knowe and Gogarburn. 25 Were you aware of that? 140 1 A. I can't recall that, I'm afraid. 2 Q. But in fact Mr Wilson took a rather different route and 3 applied a rather different interpretative approach to 4 that which Mr Hunter had applied. Were you aware of 5 that? 6 CHAIR OF THE INQUIRY: Mr Fairley, I'm just wondering what 7 the value of this evidence is. It appears the witness 8 doesn't know. You can no doubt make submissions about 9 the adjudications. 10 MR FAIRLEY: I'll move on then, my Lord. 11 You had indicated, Mr MacKenzie, that you saw in 12 a set of Board papers from late 2009 an indication from 13 the Project Director that the -- given the commercial 14 uncertainties that existed, it was not possible to 15 produce a final outturn figure of what the overall 16 contract was going to cost, albeit that the funding 17 envelope of 545 million was unlikely to be one that 18 would contain the cost. Do you remember that? 19 A. Yes. I remember discussing it earlier this morning. 20 Q. The reason I think that the Project Director at that 21 stage was saying that it wasn't possible to put figures 22 on what the final outturn would be was the commercial 23 uncertainty, by which he meant the contractual disputes. 24 A. Very possibly, yes. 25 Q. That remained the position really through the early part 141 1 of 2010 and indeed up towards the summer of 2010, 2 because different people were reaching different views 3 as to what the contract meant. 4 A. Yes. Yes. 5 Q. The reason I'm pursuing this with you is that you had 6 offered a view that the executives in tie had perhaps 7 carried out their own assessments of what the outturn 8 cost was going to be, but wouldn't disclose those to the 9 Board for reasons of confidentiality. 10 I wonder if in truth the position is that the senior 11 executives in tie weren't able to make a particularly 12 meaningful assessment of what the outturn costs would be 13 while there were still these commercial uncertainties? 14 A. I suppose that is an interpretation that I was of -- 15 when I was asked the question, I was thinking, well, my 16 assumption was that they would have an idea of the 17 quantum. 18 Now, you're going back to the fundamental of was the 19 price, was the basis on which they would calculate that, 20 was that still in question? That hadn't occurred to me 21 when I responded to the question earlier. 22 Q. Yes. The reason I'm putting it to you is we may hear 23 evidence from Mr Jeffrey, who arrived in 2009, that he 24 was reluctant to commit to any figure because he simply 25 wasn't in a position to say what that figure would be. 142 1 A. Mm-hm. 2 Q. Is that possible? 3 A. Yes. Yes. 4 Q. So it may not be the case that the Directors in tie had 5 carried out detailed assessments of what the outturn 6 would be, simply because they weren't in a position to 7 do so, given the commercial uncertainties. That's 8 possible, isn't it? 9 A. I think it's -- I think it's possible. Again, I come 10 back to the question that I was asked earlier, was about 11 the quantum of those particular decisions. And I would 12 have assumed that from those decisions, had they stood, 13 there would be an understanding amongst tie senior 14 executives of what the quantum of that -- of those 15 decisions would be if those decisions held. 16 Q. Yes. There might be an understanding in relation to 17 individual decisions, but one thing that they couldn't 18 give any clear assessment of was what the total outturn 19 cost would be, until the ambiguities over the contract 20 had been resolved, and people therefore were in 21 a position to say what that was going to cost? 22 A. Yes, I can accept that interpretation, yes. 23 MR FAIRLEY: Thank you. I have no further questions. 24 CHAIR OF THE INQUIRY: Thank you very much, Mr MacKenzie. 25 You are free to go. You are still subject to your 143 1 citation, so that you could possibly be recalled if 2 something else came up. Hopefully that won't happen, 3 but if it does, we will get in touch with you. Thank 4 you for your time. 5 A. Thank you very much. 6 (The witness withdrew) 7 CHAIR OF THE INQUIRY: Mr Lake? 8 MR LAKE: My Lord, the next witness is Ian Perry. 9 MR IAN PERRY (sworn) 10 CHAIR OF THE INQUIRY: You are going to be asked questions 11 in the first instance at least by Counsel to the 12 Inquiry, Mr Lake. If you just listen to the question 13 and answer it as clearly and concisely as possible. If 14 you can speak in a steady pace and into the microphones, 15 so the shorthand writers can keep up with you, and 16 people in the public areas can hear you. 17 Examination by MR LAKE 18 MR LAKE: Councillor Perry, could you state your full name, 19 please. 20 A. My name is Ian Perry. 21 Q. The Inquiry has details of your address, and I think as 22 my Lord has already said, you are a councillor, and it 23 is clear from your statement you have been a councillor 24 for 25 years now? 25 A. Approximately. 144 1 Q. Of particular relevance to this Inquiry, between 2009 2 and 2011, you were a member of the Transport 3 Infrastructure and Environment Committee of the Council. 4 A. That's correct. 5 Q. I would like you to look at a document, please. It will 6 be shown on the screen to your right and you should have 7 a paper copy. It's reference TRI00000107. Do you 8 recognise this as the statement you provided to this 9 Inquiry? 10 A. Yes, sorry, yes, yes. 11 Q. Are you content that that be adopted as your evidence 12 for the purposes of this Inquiry? 13 A. Yes. 14 Q. There is one minor query I have in relation to it, where 15 I think something has been missed off. Could we go to 16 page 82 of this statement. If we enlarge paragraph 398. 17 I don't wish to turn this into too much of a memory 18 test, but we will see here the second sentence in this 19 paragraph is: 20 "Within another email dated 30 November 2010 21 Nick Smith ..." 22 It rather peters out. I don't suppose you can 23 remember what was supposed to go in there, can you? 24 If you can't, it doesn't matter. 25 A. It would be difficult at this stage. 145 1 Q. I understand, yes. 2 I want to start by asking you some questions about 3 councillors sitting on the boards of companies? 4 A. Yes. 5 Q. You of course sat on the Boards of tie and TEL and the 6 Tram Project Board; is that correct? 7 A. tie. 8 Q. tie. Do you recall sitting also on the Board of TEL? 9 A. I may have done. I don't recall it precisely. 10 Q. And the Tram Project Board? 11 A. Tram Project Board? Yes. 12 Q. What did you see as being your role in sitting on these 13 Boards? Why were you there? 14 A. Well, every Council has got a fiduciary duty, or every 15 member of a Board and the Council has not excluded that 16 from -- to -- are responsible for ensuring that the 17 company delivers against the aims and objectives it sets 18 for itself. The councillor is there as a company 19 representative, not as a councillor. 20 Q. Why put a councillor on the Board as opposed -- 21 A. Why put a councillor on the Board? 22 Q. Why put a councillor there rather than anybody else? 23 A. I think there's two reasons. It's a Council project. 24 So we have previously historically in Edinburgh had 25 a number of boards which councillors are involved in. 146 1 So it's not an unusual thing for councillors to be on 2 the Board. And secondly, it allows the councillors 3 access to information, the councillors on the Board, to 4 scrutinise the performance of the company. 5 Also, allows us to report back into the Council 6 itself and to various political groups about the actions 7 and activities of the company. 8 Q. Just dealing with some of these aspects there, when you 9 talk about information being obtained about the project 10 and being passed -- the company affairs and being passed 11 back, what restrictions are there on a councillor 12 passing information back to the Council and further 13 councillors? 14 A. Well, there will be financial restrictions on the way in 15 which the company is performing. There may be -- may 16 not be, it depends on what the issues are. We would be 17 generally reporting back on the general performance, not 18 necessarily the individual items on the Board. 19 Q. Something that -- sorry, I cut you off there? 20 A. No, fine. 21 Q. In terms of the general financial performance, 22 presumably you'd expect all Council-owned companies to 23 be reporting to the Council from time to time on the 24 company's affairs through formal channels? 25 A. Through, sorry? 147 1 Q. Through formal channels? 2 A. Yes. 3 Q. There would be company reports? 4 A. There would be company reports, yes. 5 Q. The Council can, in terms of its agreements with these 6 companies, require that there be statements provided 7 monthly, quarterly, whatever it likes. 8 A. Yes. 9 Q. So what is the advantage in having councillors there 10 from -- in particular political groups joining the Board 11 and having this other channel of information passing? 12 A. Well, the -- in relation to delivering, right, what 13 the -- we set the companies to do in the first place, 14 there's two ways -- three ways you can do it. You can 15 have all councillors on the Board. You can have 16 a mixture or you can leave it to other individuals in 17 the private sector or some other sector to deliver for 18 you. We historically have found it more advantageous to 19 have councillors on the Board, because the 20 councillors -- the Council set up the company to do -- 21 for a specific purpose to deliver a certain thing, 22 a certain -- in this case the trams, but there's been, 23 for instance, a conference centre, there's been other 24 things we have developed. So we have used that as 25 a model and it's worked for us quite well until this 148 1 project. 2 Q. Why do you think this project was different then in that 3 regard? 4 A. This project was different because it was delivering 5 a different thing, and I assume you are going in to ask 6 me specific questions about various -- the way in which 7 it went wrong -- 8 Q. I was just wondering in general why did you think, if 9 it's worked in other projects, was there any headline 10 reasons you think it was different here? 11 A. I think this project was different in terms of the 12 complexity of the project. Obviously if you look at 13 other tram projects which we did, we looked at 14 Sheffield, we looked at Dublin, so we're well aware of 15 the complexities of this project. And we were well 16 aware of the difficulties that other cities have 17 experienced when you actually dig up the roads to lay 18 the track, and that is always -- we were always aware 19 that was going to be a time in which it was not going to 20 be popular as a project. 21 Any tram project, anywhere in the world, ran into 22 this difficulty. At the beginning of it, if you -- if 23 you court public opinion, when you show what you want, 24 people are quite keen: yes, that sound like a good idea. 25 You dig up the road. The people who are inconvenienced 149 1 by dig up the roads don't like that, because clearly it 2 inconveniences them quite a bit. So if you then take 3 the -- gauge the public opinion during that stage of it, 4 then it goes the other way, and the tram is then 5 running. If you then gauge public opinion then, then 6 you get support for it. That's what's happened to every 7 tram project that we looked at. There's a bit in the 8 middle where you're digging up the road for -- where 9 you're inconveniencing people, where it's going to be 10 unpopular. 11 Q. Turning back to the Directors on the Board, one of the 12 things you said was that the Council Directors, I should 13 say, on the Board, you said that they would provide 14 scrutiny? 15 A. Mm-hm. 16 Q. If they're providing scrutiny, and they reach a view 17 that something is unsatisfactory, what do they do with 18 that information? To whom do they report? 19 A. Well, it's first of all it would be the -- you would 20 have a discussion within the Board. If you were unhappy 21 about things or unsure about things, you would have 22 a discussion on the Board, and then hopefully that would 23 be resolved. 24 If it wasn't resolved and you felt that the company 25 was not performing either its fiduciary duties or 150 1 there's a budget problem, or it was delivering something 2 it's not -- it wasn't entitled to do that, you would 3 have to report that back into the Council again. 4 Q. And that might give rise to issues of confidentiality, 5 presumably, in reporting -- 6 A. It wouldn't, because if you set down the guidelines and 7 the criteria, which that company is delivering against, 8 if they deliver against that criteria, then there 9 shouldn't be a problem. If they're not delivering 10 against that criteria, clearly they are going out of the 11 remit that the Council set them. 12 Q. But if the company doesn't wish to have its confidential 13 information disclosed to the Council, what does the 14 councillor do then? 15 A. It goes back. The Council has agreed a remit for the 16 company. If the company is performing that remit, if 17 financially it's sound, and there's no financial 18 problems, then there won't a be -- there wouldn't be any 19 conflict. If it goes outside that remit, then there's 20 clearly a conflict in terms of if you're sitting on 21 a Board, and they go outside the remit that they've been 22 set, you then have -- we as a councillor, I would feel 23 obliged to go back and say: look, this company is not 24 performing against the remit that was set by the 25 Council. 151 1 Q. You said in an earlier answer to me that if you're 2 sitting as a Director on a company, your primary duty, 3 your duty, your fiduciary duty, is to the company. Did 4 I understand you correctly there? 5 A. No, your duty is to the company, to the remit that the 6 company was set up. If the company then chooses to move 7 away from that remit, without the agreement of the 8 Council, because it's delivering a Council -- the remit 9 was set by the Council, if it moves outside that, then 10 I would feel a duty to inform the Council that it's 11 acting outwith the remit that we set it. 12 Q. Is what you are saying there that you consider that 13 a duty to the Council would override any duty owed to 14 the company, and you could disclose affairs of the 15 company -- 16 A. If it moved outside its remit -- 17 Q. And -- 18 A. -- that we had set by the Council, then I would feel 19 there was a duty to the Council, not to the company. 20 Q. Do you consider that scrutiny operated effectively in 21 relation to the tram project? 22 A. In terms of my role on the Board, yes. I felt I could 23 scrutinise with -- with any decision that was on -- that 24 was there taken on the Board, yes, I could scrutinise. 25 Q. In terms of you having information which would have to 152 1 be kept confidential from your fellow councillors, did 2 that cause difficulties with your fellow councillors who 3 didn't have the information? 4 A. No, because the information that would be confidential 5 would be mainly financial and they would be financial 6 details, and in relation to the general purpose of the 7 Board, and the way in which the project was developing, 8 if it was going on course, was on budget, then there 9 wouldn't be an issue. 10 Not a lot of people would want the detail of 11 day-to-day spending in a company. But they would want 12 to know if it's performing against -- it's the budget 13 that you've set it. 14 Q. Was there any information other than financial 15 information in relation to the tram companies that was 16 confidential that you were aware of? 17 A. There may have been issues in relation to the contract 18 itself. In the early days the contract was public, and 19 everybody could have seen it. I certainly know that 20 we've -- we saw it as a Council because it was quite 21 a huge document to scrutinise, and we certainly know 22 that we had a number of companies who specialise in 23 contracts, reviewing that for us. But apart from the 24 financial, I wouldn't have felt there would be anything 25 that was confidential. 153 1 Q. Just dealing with the contracts for a moment, you said 2 you had people scrutinising it for you? 3 A. When the contract was drawn up, as far as I recall, 4 there was -- we -- there was a company who we employed 5 to either scrutinise it or to help us write it, I can't 6 remember which one. 7 Q. Where did that information come from? 8 A. What -- 9 Q. About there being a company to scrutinise it? 10 A. It's my recollection, that at the time when the contract 11 was drawn up, we scrutinised it. 12 Q. Are you talking about a firm of solicitors? 13 A. Yes, yes, outside the Council. 14 Q. We've heard that there's -- a firm of DLA Piper were 15 advising tie; is that the firm that you consider were 16 also assisting the Council? 17 A. Yes. And I have a recollection there was another 18 company involved, but I can't remember. 19 CHAIR OF THE INQUIRY: What was that, another legal firm? 20 A. Yes. Yes. 21 CHAIR OF THE INQUIRY: Did you recognise the name Dundas & 22 Wilson or Pinsent Masons? Or McGrigors? 23 A. We've used all these companies at one point. I wouldn't 24 be sure which one we used for which. 25 MR LAKE: In terms of other financial information -- sorry, 154 1 in terms of other confidential information, we've heard 2 reference in the course of the Inquiry to the outcome of 3 the Dispute Resolution Procedures, the adjudications 4 being regarded as confidential. Did you regard them as 5 confidential? 6 A. The actual -- because they were involved in money, then 7 it was confidential. People understood that there was 8 a process going on, and these adjudications were taking 9 place, and it was about obviously at the end of the day 10 it's about money, who owes this, and -- and the 11 developer was saying that they wanted -- the cost that 12 we'd put to that bit of whatever the adjudication wasn't 13 high enough. So it was about financial, and therefore 14 it was about financial, then it would be confidential. 15 Q. There was a bit of financial, but do you understand the 16 issues that were put -- were you made aware of what 17 issues were being put before the adjudicators for them 18 to decide? 19 A. Yes, they were about the time it was taking to -- the -- 20 the -- they were -- the adjudications were about 21 sections within the contract, and some of them were 22 revolving round quite very technical details. 23 And all that was about money and the cost of -- 24 Q. If there were arguments put before the adjudicators 25 about the interpretation of the contract, and who had 155 1 responsibility for various things, would you regard them 2 as being confidential? 3 A. At the time they were being adjudicated I would say they 4 were confidential. But at the time after the 5 adjudication, they had no reason to keep them 6 confidential. 7 Q. What do you mean by the time after the adjudication? 8 A. When the adjudication was finished. 9 Q. So were you made aware of the results of the 10 adjudications? 11 A. Yes. 12 Q. So did you regard yourself as being at liberty to 13 discuss the outcome of the adjudication with your fellow 14 councillors? 15 A. Yes. 16 Q. Did anyone within any of the tram companies say to you 17 you shouldn't be discussing that? 18 A. Not -- not that I recall. No. Certainly made clear 19 during the time of adjudication, then it should be kept 20 confidential. After the adjudication, that shouldn't 21 be. I know there was an issue where I think -- I can't 22 remember who it was, said that we should keep all this 23 confidential, but obviously the -- the adjudication, the 24 result of the adjudication was known. 25 Q. When you say someone said that, can you remember who or 156 1 what -- 2 A. No. 3 Q. Was it someone at the company, someone at the Council? 4 A. I think there was an issue around there was -- as 5 I remember, there was three adjudications down at this 6 one time, and I think the issue was about whether we 7 should release information in relation to them all 8 finishing or -- because they finished at different 9 times. I think there was an issue about discussion 10 around: should we announce the results of adjudication 11 1, let's wait until 3 and 4, because that gave you 12 better picture; because at that time, it was a crucial 13 time in the project because the dispute -- depending on 14 how the adjudications went, for instance, if all 15 adjudications went the way of tie, then that would have 16 justified the approach that tie was taking in relation 17 to the disputes. 18 That would then have -- that would then inform the 19 budget going ahead. 20 If tie then lost some of these adjudications, that 21 would affect on the budget going ahead. So that's 22 where -- that's what the discussion was around, because 23 it would become obvious in terms of you lose disputes, 24 you -- the approach you are taking is incorrect. So 25 that's going to have a consequence for the financial 157 1 future of the company. 2 Q. I'll return to that. Just picking up a couple of things 3 you said there, you said: we had a discussion as to 4 whether or not to release -- 5 A. I think it was at Board level. 6 Q. A Board level discussion? 7 A. Yes, I think. 8 Q. We understand you're saying there was a discussion at 9 company Board level as to whether or not the results of 10 the adjudication should be released? 11 A. Yes. 12 Q. You also said sometimes in that "someone" said, and you 13 didn't really say who the person was or what they said. 14 It was in relation to discussing the contents of the 15 adjudications. 16 A. Yes. 17 Q. Was someone taking a different view and telling you you 18 shouldn't be discussing -- 19 A. I may have misled you in terms of the details of the 20 adjudication were -- the main interest in the 21 adjudications, were they won or lost. That was the main 22 indication. Because that for me had consequences for 23 the company. In terms of -- these were very, very 24 technical matters. So the ability for me to understand 25 these technical matters in relation to the laying of 158 1 tracks, I can't remember what the three were about, but 2 it was very, very technical. 3 The key for me is that the company, we were advised 4 again by lawyers, and I don't know which ones they were, 5 that we had a very, very strong case. So if you have 6 a very strong case, I remember there being three of 7 them, and therefore if you win them, because it was 8 about the cost of it all. So if you then lose them, 9 then that -- that has an effect on going ahead in terms 10 of the budget within the project. 11 Q. Why was it decided to send matters to adjudication -- 12 part of the Dispute Resolution Procedure that leads to 13 adjudication? 14 A. Well, that was in the contract. Whether that was a -- 15 whether that was a useful thing to do at the time, I'm 16 not too sure. I'm no expert on contracts, but if you 17 have an adjudication system in there, then it sort of -- 18 what you should try and do in contracts, particularly 19 contracts of this size, is try to come to an agreement 20 between yourself and the delivery agent. But -- 21 whatever it is. 22 Q. Was that tried here? 23 A. Yes, it was. 24 Q. What was the outcome? 25 A. We went to adjudication. So there wasn't a positive 159 1 outcome in terms of informal -- of informal process. 2 But if you have a dispute like that, and it has to go to 3 an adjudication, then there's a -- for me, that was the 4 start of me thinking this isn't -- this is not the right 5 way to do this, because you're in dispute, and if you 6 can't resolve the disputes without going to 7 adjudication, it means there's been a breakdown in 8 relationship. 9 Q. Did you understand what the underlying problem was 10 between the parties that was being taken to 11 adjudication? 12 A. It was to do with a -- it was to do with a contract and 13 the detail in the contract. It became -- it became 14 obvious over a period of time that -- that the developer 15 questioned certain aspects of the contract that they'd 16 signed. 17 Q. Was it -- 18 A. That was the big issue. The big issue was they've 19 signed a contract. They should be delivering against 20 that contract. The developer was saying we can't 21 deliver against this contract because we can't make 22 a profit. So in that situation it needs to be resolved 23 somehow. And you will not resolve that through 24 a disputes procedure. Because it will just go on and on 25 and on. 160 1 Q. Just to be quite sure I'm understanding what you mean, 2 if the disputes arise in relation to the contract, did 3 it concern -- was the dispute what the contract meant? 4 A. The detail -- in applying the contract, there was 5 a different interpretation. 6 Q. Right. Was that issue of interpretation something that 7 was sent to the adjudicator? 8 A. The consequences and the differences of interpretation 9 then went to the adjudication. Because it would -- 10 interpretation would come down to the cost of something. 11 So -- and there was different interpretations of the 12 contract. 13 Q. And in relation to those being sent to adjudication, 14 I think you referred to three of them being sent round 15 about the same time? 16 A. I think so. I think I remember that. 17 Q. Can you remember what the outcome of those three was? 18 A. I think -- it was definitely not positive. I think we 19 won one, lost two or we lost one and one was a no score 20 draw. But at the time our position was that we had 21 a very strong position. We were told we had a strong 22 position. Therefore we'd expect to win them. 23 Q. Then you say you didn't get what you expected; is that 24 right? 25 A. Yes. 161 1 Q. What was the result of that in terms of your 2 consideration of how you managed relationships with the 3 contractors? 4 A. It then goes back to -- within this contract there's 5 a set of money set aside. There's a contingency in all 6 big contracts like this to deal with risk. The real 7 question for me was: when do we get to the point where 8 the contingency is used up? 9 Q. Did you ask that? 10 A. Sorry? 11 Q. Did you ask that? 12 A. Yes. 13 Q. Did you get an answer? 14 A. Well, the -- I don't think I got a precise answer, but 15 what they -- what I -- what they said was -- what 16 I insisted was that they told us when they thought -- at 17 what point they thought the contingencies were used up, 18 and that was after the adjudication. But I can't -- 19 I can't remember -- I can't remember the exact time. 20 But that then became apparent -- for me it became 21 apparent that we were going to run into these 22 contingencies because we were losing these 23 adjudications. 24 Q. Was it as a result of losing the adjudications you were 25 told that the contingency would be used up or was it 162 1 simply just after the adjudication -- 2 A. No, I remember saying at one meeting that clearly if 3 we're losing these, then it's going to eat into the 4 contingencies, because the contingencies were used for 5 various things, but this was -- this was going to eat 6 into it as well. So I needed to know, in order to 7 perform my fiduciary duties on there, when the 8 contingency is running because as soon as that 9 contingency ran out, we'd be trading insolvent. 10 Q. In that the adjudications had gone against you and the 11 contingency was used up -- 12 A. It wasn't used up, sorry? 13 Q. It wasn't used up? 14 A. No, I asked for them to tell me when we get to the stage 15 where we could no longer reasonably -- the 16 contingency -- we could no longer reasonably cover the 17 cost of going ahead with the project. 18 Q. When were you -- were you told that eventually? 19 A. Yes. 20 Q. When? 21 A. I can't remember, to be honest, but that's why the 22 company had to change direction, because it became 23 apparent we couldn't deliver the contract in the sum 24 that we were giving, and that's when the change of 25 direction happened. 163 1 Q. Can you remember roughly when that happened? 2 A. No, I couldn't, no. 3 Q. What do you mean, "change of direction"? 4 A. Well, we -- previous to that, the -- what we were trying 5 to do was to make the company deliver according to the 6 contract. The company were saying we couldn't deliver 7 according to the contract because they would make a loss 8 on it. 9 Now, you might ask the question why they signed the 10 contract in the first place, but that became apparent 11 that was the line they were going down. And the 12 adjudications which -- I can't remember exactly, but 13 that then said that what they were saying had -- at the 14 time we thought, right, sticking to the contract was the 15 right thing to do, although I had some doubts about it 16 because in situations like this you have to come to 17 a compromise. It's not try and force your view on one 18 side or the other. It's to try and compromise because 19 these contracts are difficult. Digging up roads is 20 difficult because you never know what's underneath it, 21 and that was one of the problems we ran into. So there 22 was always got to be a bit of flexibility in this. 23 And then, when it became apparent we were losing the 24 adjudications, we were going to run out of money 25 eventually, then we needed a different approach to it, 164 1 and that's when we started to say: look, we need to 2 start to examine the contract, we need to examine how 3 much we've actually set aside for this, and that's -- 4 the whole thing then changed then. 5 Q. I want to try and press you a little bit on the 6 timescales of this. You can take it from me that the 7 Inquiry has heard evidence that results of adjudications 8 in relation to one of the major issues started to come 9 in towards the end of 2009/the start of 2010. 10 A. Yes. 11 Q. Just take that from me. 12 A. Yes. 13 Q. Can you recall how long after that it was that this 14 change of approach came about? 15 A. Well, the then chair -- it was -- whenever the chair 16 resigned, the chair who was David Mackay, when he 17 resigned, there was discussions before that. 18 Q. So it was round about the time of his resignation that 19 there was a change? 20 A. Yes. 21 Q. Now, if the decisions -- if you take my word for it, 22 came in, in late 2009/early 2010, that leaves quite some 23 months between the decisions coming in and the change of 24 approach? 25 A. Yes. 165 1 Q. Does that mean it wasn't the adjudication decisions 2 which gave rise to the change of approach? 3 A. Why I was saying was that -- for me it's the 4 adjudications were the trigger for me. And then I was 5 then pressing to say, right, what point does the 6 contingencies run out, and it then became apparent over 7 lots -- over that period of discussions that people were 8 having is that we needed to change direction. We needed 9 a different strategy. 10 Q. So -- 11 A. It took a while to work that round because this is 12 a private company. 13 Q. Do I take it then that it was in late 2010, round about 14 the time that David Mackay left, that you were told that 15 the contingency would be exhausted? 16 A. It became apparent. I can't remember the timing, but it 17 became apparent to most people, I think, everybody, that 18 in fact we couldn't deliver the contract within the 19 funding envelope we'd set aside, and that meant -- for 20 me, the trigger was the contingencies running out. 21 Q. If we could look, please, at a production. It's 22 CEC00681328. It will be shown on the screen to your 23 right. 24 If you go -- I should say, first of all, these are 25 the papers for the Tram Project Board for a meeting that 166 1 was taking place on 18 November 2009. We can see under 2 the heading "Members and attendees", the left-hand 3 column, your name at the foot of the column there? 4 A. Yes. 5 Q. Do you recall getting these papers? 6 A. No, but I assume I did. 7 Q. Could we look please at page 32. 8 A. 32. 9 Q. We can see here we have got a heading, a cover page 10 within the report, which is the Transport Scotland 11 report Sections 2-7? 12 A. Mm-hm. 13 Q. "On following pages are Sections 2-7 of the 14 Transport Scotland report." 15 Now, do you recall being sent a copy of the reports 16 to Transport Scotland? 17 A. I don't recall it, but I assume if -- if I was at the 18 meeting, I got the papers, I received it. 19 Q. If we could go forward two pages to page 32 here. 20 A. Mm-hm. 21 Q. Sorry, we are on page 32. Page 34. 22 Thank you. 23 If we enlarge the lower half of the page. We will 24 see a reference here to Dispute Resolution. 25 A. Mm-hm. 167 1 Q. We can see tables out there, giving a summary of various 2 of the matters referred to Dispute Resolution Procedure 3 and where they stood at that time? 4 A. Yes. 5 Q. Do you recall having seen this? 6 A. There was lots of papers like this delivered. So this 7 particular one, no. 8 Q. Do you recall seeing stuff like this? Does this ring 9 any bells? 10 A. I remember seeing a lot of tables like that, a lot of 11 dispute resolutions. There was a lot produced. Me 12 trying to remember this particular one is virtually 13 impossible. 14 Q. Scroll down a little bit so we can look easily at the 15 text beneath the table. 16 The report is that: 17 "We continue in this report to reflect an outturn 18 estimate of GBP527.1 million. However, given the 19 commercial uncertainties with BSC and continuing delays 20 to the project it is now considered unlikely that the 21 full scope of Phase 1a will be completed within the 22 available funding envelope of GBP545 million. Until the 23 key issues are resolved through the contractual and 24 legal process, it will not be possible to forecast 25 accurately a revised budget outturn. It is also not 168 1 possible at the present time to predict the conclusion 2 of reviews of contingency option programme delivery 3 options, including additional sources of funding." 4 Dealing with the major point in that, we can see 5 that it intimates that it's considered unlikely that it 6 will be possible to complete the project within 7 GBP545 million? 8 A. The word is unlikely. They are not saying definitely. 9 Q. So do you understand that -- it wasn't enough for you to 10 know that it was unlikely you could do it. You would 11 only -- the problem for you would arise only when you 12 were told it was definite that it could not take place? 13 A. Yes. 14 Q. It also notes here that it's -- we see the reference in 15 the second line, the commercial uncertainties with BSC. 16 What did you understand that to be referring to? 17 A. I'm not sure, to be honest. I'm not sure. 18 Q. Then in the second half of the paragraph, after the 19 figure of 545 million, it is that: 20 "Until the key issues are resolved through the 21 contractual and legal process, it will not be possible 22 to forecast accurately a revised budget outturn." 23 A. Yes. 24 Q. Were you content with the situation where you were being 25 told it simply wasn't possible to forecast what the 169 1 outcome would be? 2 A. What I needed from the tie Board, and I expressed at the 3 time, I don't know if I expressed at this meeting, but 4 I expressed at a lot of meetings, I wanted to know when 5 the contingency would run out. 6 Q. When you say when the contingency would run out, from 7 your earlier answer, is that on a definite basis that 8 there was -- 9 A. On a definite basis. 10 Q. It was absolutely certain or solid that there would not 11 be enough money any longer? 12 A. Yes. What they are saying is that it's impossible to 13 predict conclusions and reviews. What we were saying in 14 the Board, and I'm pretty sure, I don't know if I said 15 it at this meeting, what I said: we need certainty 16 whether this project can be delivered within that 17 envelope, plus the contingencies. As soon as it was 18 became known, and the officials in the -- the finance 19 officials in tie were well aware of this, as soon as it 20 become known, then they need to tell the Board. 21 Q. Turn it round and look at it the other way. It can 22 certainly be said by this time it was uncertain that you 23 would be able to complete it within the available funds? 24 A. Yes. 25 Q. Was that a cause of concern? 170 1 A. Of course it was a cause for concern, but until they 2 told me that the contingency had ran out, then there 3 was -- it needed to be absolutely certain, because the 4 consequences of that is the project is not longer 5 viable. 6 Q. But if it's unlikely to be completed within that sum, it 7 might be said that it's unlikely that the project is 8 viable? 9 A. Yes, unlikely. It's not telling me definitely it's not. 10 Until I know definitely it's not, you can't take 11 political decisions on the basis of a project until you 12 know it's definitely not going to be. 13 Q. Okay. Can I ask you please to look at your statement, 14 page 62 of that. There's a couple of things that you 15 say about the outcome of the adjudications and I just 16 wanted to try and clarify them in case there's 17 ambiguity. I'll identify the three different sections 18 in question. 19 The first is this one on page 62, if you look at 20 paragraph 294. You note there: 21 "My understanding of the Adjudicator Decisions was 22 that it was more of a "no score draw". I do not know if 23 anybody appeared to come out more favourably, although 24 there was a clear expectation that the decisions would 25 be more favourable to TIE than BSC." 171 1 A. Yes. 2 Q. I'll come back to what is meant by no score draw, but 3 for the moment, when you say there was a clear 4 expectation, you mean that was the expectation before 5 you started? 6 A. Yes. 7 Q. The next section I want to look at is -- 8 A. And we also had legal advice to that effect as well. 9 Because we asked for separate legal advice. I can't 10 remember which lawyers we brought in. So it's not only 11 the tie Board. We got separate legal advice in as well. 12 CHAIR OF THE INQUIRY: When you say separate legal advice, 13 are you speaking about someone other than DLA Piper? 14 A. No, I think it was DLA Piper. 15 MR LAKE: The next passage is on page 72. If we could look 16 at paragraph 345. I'm interested in the second half of 17 this. You note there: 18 "The Dispute Resolution was finely balanced, 19 although the understanding was that they would favour 20 TIE more than BSC." 21 Again, that understanding was the understanding 22 beforehand? 23 A. Beforehand, yes. 24 Q. You continue: 25 "The result was the biggest surprise and this report 172 1 was saying that we needed to put 10% above the 2 GBP545 million because we were losing the DRPs. My view 3 was that if the DRPs had been more favourable to us we 4 could probably have kept within the GBP545 million. The 5 report was a fair reflection of where I thought we were 6 at that time." 7 Just for completeness, so we see what report we are 8 referring to, if we go back to the preceding page, 9 page 71, paragraph 343, indicates we're looking at an 10 update on the tram project by means of a joint report by 11 the Directors of City Development and Finance on 12 24 June 2010. 13 A. Mm-hm. 14 Q. Now, this report, as you noted in paragraph 345, 15 required you or suggested that the Council would need 16 another 10 per cent above the GBP545 million. 17 A. Mm-hm. 18 Q. A 10 per cent increase on 545 million is 54.5 million. 19 So that would be essentially doubling the Council's 20 contribution? 21 A. Mm-hm. 22 Q. Was that a concern? 23 A. I don't remember it -- I don't remember this 24 specifically. And I don't remember it being a concern. 25 Q. Did you regard that what you were being told there as 173 1 being the definitely unable to complete? 2 A. Well, I suppose I go back to my original answer. What 3 we were advised at the time is these would not be finely 4 balanced. We would actually -- we -- that there was the 5 expectation that we would win the adjudications. 6 Q. What I'm concerned about here is you're being told here 7 that the report was saying you needed to put 10 per cent 8 above the GBP545 million because you were losing the 9 DRPs, and linking that to your earlier evidence that 10 what you wanted was a certainty -- 11 A. I don't see the 10 per cent in that report. 12 CHAIR OF THE INQUIRY: I think that was the next page. 13 MR LAKE: I'm looking at paragraph 345 on the next page. 14 Highlight that again, please. 15 It was when we were looking at the second half of 16 this. Six lines from the end, five lines: 17 "The result was the biggest surprise and this report 18 was saying that we needed to put 10% above the 19 GBP545 million because we were losing the DRPs." 20 Was this a trigger point for you in now considering 21 it was certain that more money would be required? 22 A. I honestly can't remember. These -- I suppose that the 23 way I was thinking about this was -- and I thought about 24 this all through the contract -- is that we were told 25 that I think 90 or 95 per cent of this was a fixed 174 1 contract. And that's what we were told. 2 Therefore, there was 5 per cent which is variable. 3 I always had my doubts about it being fixed in that 4 sense, because I thought a contract as this complex 5 that -- that there was always going to be need to 6 negotiate round things when things happened. 7 And I suppose that -- 8 Q. I would like to press you for an answer to the core of 9 my questions -- 10 A. I'm just trying to remember, right, where did this take 11 place? Which report was this again? 12 Q. This was a report of June -- 13 A. Yes, I suppose the simple answer is yes. 14 Q. You said that the change in direction took place after 15 David Mackay left later that year? 16 A. Yes. 17 Q. You've referred to the duties you would have if you felt 18 that the company couldn't afford it. What did you do 19 now that this situation had developed, at this time, 20 mid-2010? 21 A. Well, I was of the opinion that we needed to change 22 direction. So that would then -- that -- I remember 23 talking -- the politics of this were difficult because 24 we weren't in administration. So it was 25 administration's decision to change direction, not the 175 1 Council's -- not me as an individual politician. 2 Q. What about the company's decision to change its 3 direction? Because it's the company that's in the 4 contracts. So what did you do within the company -- 5 A. As soon as I knew that -- that the -- that -- and 6 I can't remember how it was expressed. I can't even 7 think if it was expressed at a meeting. As soon as 8 I knew we were going over the contingency, I said we 9 couldn't continue the way we were doing. We needed to 10 change direction. 11 Q. If we could go back to look at the full page, 72, and 12 look further down at paragraph 347. We can see there 13 you say: 14 "I think it was a fair reflection that the outcome 15 of the Dispute Resolution Procedures was finely 16 balanced." 17 A. Yes. 18 Q. That's the last of the three passages I said I was going 19 to refer to. We have seen on paragraph 294, it was a no 20 score draw. In paragraph 345, you referred to finely 21 balanced. And in paragraph we have just looked at, 347, 22 you refer also to it being finely balanced? 23 A. Go back to before. The expectation was that the tie 24 would -- were in a strong position to win these 25 adjudications. Right. It turned out they were finely 176 1 balanced. Therefore -- that's what I think I am 2 referring to there. It then became finely balanced. So 3 if we are not winning the adjudications, then that has 4 financial implications which then leads to when is 5 the -- when will the contingency be used up. 6 Q. Councillor Perry, it says there quite clearly that it's 7 the outcome of the dispute resolutions you considered 8 was finely balanced, not the arguments in advance. If 9 you look at the paragraph that's enlarged on screen? 10 A. What I'm saying is the actual outcomes, and if it's not 11 clear on there, what I was saying on there is the 12 outcomes, it's a fair reflection, the outcomes of the 13 dispute procedures was finely balanced. That's the 14 outcome was finely balanced. 15 Q. Do you consider the outcome was finely balanced? 16 A. Yes, because we won one, we drew one and we lost one. 17 Q. If we look back at paragraph 345, the sentence that we 18 looked at before says: 19 "The result was the biggest surprise and this report 20 was saying that we needed to put 10% above the 21 GBP545 million because we were losing the DRPs." 22 A. Yes. 23 Q. Now, a need to find another GBP54 million, is that 24 a finely balanced outcome? 25 A. No, you're misunderstanding. Or I'm not explaining 177 1 properly. Probably I'm not explaining properly. 2 The actual outcomes of the dispute resolutions were 3 finely balanced. I didn't expect them to be finely 4 balanced. I expected -- and the information we were 5 given at the Board, that tie would win these 6 resolutions. Because they were then finely balanced, 7 then that had financial implications. That's an actual 8 statement of fact. 9 The financial implications then may be it's 10 10 per cent, 20 per cent. At that point the Council 11 could have, if it wanted, put extra money in. So the 12 Council could have taken a decision to put some extra 13 money in. And that would then have made the project 14 viable again. But what I -- as a member of the Board, 15 what I was interested in is at what point does the 16 contingency run out. Therefore, the Council -- the 17 company doesn't become viable unless there's additional 18 money put in. 19 Q. Are you saying it's finely balanced because one decision 20 found in favour of -- 21 A. Yes. 22 Q. -- tie and two found against tie? 23 A. Yes. 24 Q. Were they all considering the same issue, those three 25 decisions? 178 1 A. I can't remember. 2 CHAIR OF THE INQUIRY: Mr Lake, is this -- 3 MR LAKE: I'm going to go to another matter, my Lord. 4 CHAIR OF THE INQUIRY: We will have a break, Councillor, 5 until 3.30, to give the shorthand writers a break. 6 A. Okay. 7 (3.12 pm) 8 (A short break) 9 (3.30 pm) 10 CHAIR OF THE INQUIRY: You are still under oath, Councillor. 11 Mr Lake. 12 MR LAKE: Thank you, my Lord. Just to conclude the 13 consideration of the adjudications, Councillor Perry, 14 could we look at page 65 of your statement. 15 If you could enlarge paragraph 313. This arises in 16 a discussion about confidentiality, but what you say is: 17 "This [the requirement of confidentiality] did not 18 affect the ability of myself and other members to take 19 informed decisions relating to the tram project. The 20 key issue for the politicians to know was whether we 21 could deliver the project within the agreed price. And 22 if the answer was no - a discussion could then commence 23 around how best to realign the project and to deliver 24 the council policy to build the tram." 25 Two issues arise here. Firstly, in the second line, 179 1 when you say the key issue for the politicians, are you 2 talking about politicians in the Council or politicians 3 on the Board? 4 A. Council. 5 Q. Then when you talk about if the answer was no to the 6 question, could we deliver within the agreed price, is 7 that on the basis that we discussed before the break, 8 when it's absolutely certain that you are not going to 9 be able to do so? 10 A. When it's absolutely certain it can't be delivered for 11 the price, then the Council has a decision to take, 12 whether it needs to put extra money in, or it needs to 13 stop the project altogether. 14 And that was a key bit of information for the 15 Council, and the Council, we weren't obviously in 16 administration at that time, but the administration need 17 to take a decision, either put more money in or stop the 18 project. 19 Q. Is there a third road there, not just put money in and 20 stop the project; but the third road is to narrow the 21 scope of the project as eventually happened? 22 A. Sorry, yes. What I should have said is stop the project 23 as it is now and reconsider what the options were. 24 Sorry. 25 Q. Now, when you arrived at tie, when you first joined, it 180 1 had been in existence for a while because you replaced 2 Councillor Henderson; is that correct? 3 A. Yes, I think I did. 4 Q. What was your view of the state of things when you 5 arrived, I think it was in 2008? 6 A. I don't remember having a strong opinion one way or the 7 other, to be honest. It was a company being run for the 8 Council to deliver the tram, and I didn't -- the first 9 two meetings, I did not have any strong opinions one way 10 or the other. 11 Q. The main infrastructure contract was already in place, 12 I think, by the time you arrived? 13 A. Yes. 14 Q. Had work started? 15 A. Yes. 16 Q. Just the utility works or was the work -- 17 A. I think the utility works were just finishing and they 18 were just -- well, you never -- the utility works never 19 finished actually, but the majority of the utility works 20 were finishing and were then going on to lay the tram 21 tracks. 22 Q. I think you note in paragraph 233 of your statement, if 23 we can go to, if it assists, it's on page 51? 24 A. 2 -- sorry? 25 Q. It's paragraph 233, page 51? 181 1 A. Okay. 2 Q. You are talking about at this stage. Now, that stage in 3 the context is May 2009. 4 "BSC were supposed to have almost 50% of the 5 work completed and instead had only completed 6 3%." 7 Was that a concern to you? 8 A. Yes. Sorry. I thought you -- the initial questions was 9 about the way in which a company had been run in terms 10 of the Board. I had no concerns about that. In terms 11 of delivering the project, clearly there were concerns 12 because it was well known at that time, because of the 13 Infraco project, that it was behind schedule. So that 14 didn't come as a surprise to me because we were already 15 aware of that fact. 16 Q. When did you first become aware of problems with the 17 project works? 18 A. I have no idea. I can't remember. It was pretty well 19 known at the time that there was difficulties. 20 Q. Do you recall discussions within tie as to what strategy 21 should be pursued in relation to the difficulties that 22 arose? 23 A. Well, the overriding strategy was to make the developer 24 fulfil their contract obligations in relation to the 25 tender document they signed. That was the overarching 182 1 objective of the Board. 2 Q. Did you consider how you might -- how tie might go about 3 that? 4 A. Well, personally, no. I mean, that would be up to the 5 delivery team on the ground to tell us how they were 6 going to do that, and it became obvious -- as soon as 7 you went into adjudications, then it became obvious that 8 the contract was starting to fail. In my opinion it was 9 starting to fail, as I said before, as soon as you go 10 into that sort of process, where does it stop. Then 11 adjudications just grow and grow and grow. 12 If we won the first three adjudications, maybe it 13 would have been different, but because it wasn't clear 14 cut, then that's when the difficulties started. 15 Q. Do you recall while you sat on the Board of tie and the 16 other companies also, discussion regarding the risks 17 facing the project, the risk register? 18 A. Yes. 19 Q. Do you recall carrying out reviews of the risk register? 20 A. I think so, yes. 21 Q. What did that involve? 22 A. There was reports going into the tie Board and there was 23 a risk register, and there was reporting back against 24 the risk register. 25 Q. Do you recall risks being used up essentially as the 183 1 project progressed? 2 A. I wouldn't have used that term. I think, as towards the 3 end -- it was all in relation to -- as I remember, to 4 the adjudications, because if -- it was all -- the risks 5 were associated with cost, obviously. And that was 6 a major risk. There were some technical risks in 7 relation to -- but all, at the end of the day, if that 8 technical risk was bigger than was identified within the 9 risk register, then there would be a financial 10 consequence of that. 11 There was disputes between that within the -- 12 between the contractor and ourselves which then led to 13 adjudications. And that is -- that was the key point 14 for me in this process. 15 Q. In relation to risks, were there discussions as to the 16 actions that might be taken to mitigate or reduce risks? 17 A. Yes. There was. I remember there was something about 18 Murrayfield. There was some issue about a bridge at 19 Murrayfield not being completed, and there was 20 discussion within the officials, the technical people 21 who were technically experts about how you build 22 bridges, those -- there was discussions within the 23 Board, and on the Board there were non-exec Directors 24 who were appointed for specific purposes, and some of 25 them had experience of this. And there was discussion 184 1 about that, yes. 2 Q. Were these matters of assessment of risk and how to 3 reduce it largely left to the people with the technical 4 expertise on the Board? 5 A. Yes. 6 Q. I won't ask you more about that then. 7 Within your statement, if we could look, please, at 8 page 3, paragraph 8. You conclude that paragraph by 9 saying: 10 " . . . it would be true to say that there is a definite 11 advantage to major projects getting all party support." 12 Why is that an advantage? Put it the other way 13 round, why is not having it a disadvantage? 14 A. The disadvantage is that if you're in opposition, what 15 you're trying to do is -- and you oppose something, 16 you're trying to find ways to undermine, and in 17 political terms, political parties, you're trying to 18 expose the defects of something. 19 A lot of that is wrapped in press coverage and your 20 ability -- and things are said which are not true, for 21 instance. And it goes into the press, and a lot of that 22 happened in this case, and it's very difficult to 23 counter that. 24 So what happens is the opposition starts to build 25 up. 185 1 Q. Is that a matter of politics with a capital P? 2 A. No. Politics with a capital and a small P, because 3 if -- as I said, before in this project, there was going 4 to become a time when we were digging up the roads and 5 laying the rails that's going to be inconvenient to 6 people, and if you looked at how it happened in other 7 cities, when you did public opinion at the start of the 8 process, this is a good idea. Then when you get into 9 actually delivering it, then if you do a public opinion, 10 then it goes against it. Then if you do -- when it's 11 down and running like now, if you take a public opinion, 12 they think it's great. But we always knew there's a bit 13 in the middle that was going to inconvenience people, 14 and it was going to be difficult because it happened in 15 other projects. 16 So if all the political parties are together in 17 that, then clearly you're not trying to undermine each 18 other. If there's a political split, then there would 19 be the opportunity to play politics with a big and 20 a small P about that disruption. So it was much more 21 difficult. 22 Q. Dealing with that, not only was there an opportunity to 23 do that, you would be aware, sitting as a councillor, 24 that that is what happened to an extent? 25 A. Absolutely. 186 1 Q. There was obviously a lot of press coverage about it, 2 and quite a lot of it quite unfavourable? 3 A. Yes, which -- 4 Q. Turning to your role within tie, did that have 5 a practical effect on how things were operating within 6 tie? 7 A. I do remember going to at least two or three tie Board 8 meetings, where I was reading about what was on the 9 agenda before it arrived, and in my inbox. 10 So in a Council, even alone a private company, 11 because these papers are circulated within a Council as 12 well, because the chief officials will get them, and 13 it's -- and it's very difficult to be -- to be 14 confidential in that sense, because there's lots of 15 people get them. 16 So if it is involving the Council, and I personally, 17 if it was more than two people know about it, there's 18 a chance it will get leaked. So that was a real 19 problem, and that led to people being careful about what 20 they put on agendas, and rather than putting on 21 agendas -- reports were fine, but there would be 22 a consciousness if I put this on this, then it would be 23 leaked, and that -- that proves it very difficult for 24 tie to operate under these circumstances. 25 Q. That's a matter of information leaking and getting into 187 1 the public realm. What I was thinking about were the 2 actual political divisions that were taking place. Did 3 they affect the work of tie in delivering the project? 4 A. No, because that's what politics is about. You don't -- 5 I mean, we were being very lucky in Edinburgh, big 6 projects, the conference centre for one example, is 7 there was cross-party support on that. It spanned two 8 councils, and because all the parties agreed on it, we 9 all pulled together to make the project successful, as 10 opposed to a part of the Council trying to undermine it. 11 Q. But in the trams, you weren't all pulling together? 12 A. That's right. It started off all political, as an all 13 party project, because at that time the SNP didn't have 14 any councillors, although Steve Cardownie defected to 15 the SNP. So they had one councillor. But there was 16 very much a cross-party support. 17 After the election, then the SNP became part of the 18 administration, and they were against the trams. 19 Q. Then the SNP became coalition partners? 20 A. Yes. 21 Q. Really what I'm trying to get at was the fact that there 22 was divisions within the Council? 23 A. Absolutely, sorry. 24 Q. You weren't in a situation like the conference centre? 25 A. No, absolutely. Sorry. 188 1 Q. Did that cause real practical difficulties in delivering 2 the project? 3 A. No, I don't think so, because politics is about -- it's 4 not about everybody agreeing everything. So we're used 5 to dealing with things that are in opposition. But this 6 is a particularly big project, and I suppose the 7 difference is that everything that was done was repeated 8 in the Evening News. That is abnormal. 9 Q. Thank you very much, Councillor Perry. Those are my 10 only questions, my Lord. 11 CHAIR OF THE INQUIRY: I don't recollect there were any 12 questions. 13 Thank you very much. 14 A. Okay. 15 CHAIR OF THE INQUIRY: Councillor Perry, that's the end of 16 your evidence. You're still subject to your citation. 17 In case anything -- 18 A. Yes, okay. 19 CHAIR OF THE INQUIRY: -- came up, you could be recalled, 20 but hopefully that won't be necessary. 21 A. Thank you. 22 CHAIR OF THE INQUIRY: Thank you for your evidence. 23 (The witness withdrew) 24 MR LAKE: My Lord, I've got no further witnesses available 25 today, but tomorrow we do have two further councillors 189 1 who sat on the companies. 2 CHAIR OF THE INQUIRY: Yes. We will adjourn until 9.30 3 tomorrow. 4 (3.43 pm) 5 (The hearing adjourned until Thursday, 2 November 2017 at 6 9.30 am) 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 190 1 INDEX 2 PAGE 3 MR GORDON MACKENZIE (affirmed) .......................1 4 5 Examination by MR LAKE ........................1 6 7 Questions by CHAIR OF THE INQUIRY ...........113 8 9 Examination by MR DUNLOP QC .................118 10 11 Examination by MR FAIRLEY ...................124 12 13 MR IAN PERRY (sworn) ...............................144 14 15 Examination by MR LAKE ......................144 16 17 18 19 20 21 22 23 24 25 191