1 Wednesday, 1 November 2017 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) 7 190 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