1 Tuesday, 14 November 2017 2 (9.30 am) 3 CHAIR OF THE INQUIRY: Good morning. 4 Yes, Mr Mackenzie? 5 MR MACKENZIE: The next witness, my Lord, is Scott McFadzen. 6 MR SCOTT MCFADZEN (sworn) 7 CHAIR OF THE INQUIRY: You are going to be asked questions 8 initially at least by Counsel to the Inquiry, 9 Mr Mackenzie. 10 If you just listen to the question and answer it as 11 directly as possible. If you speak into the microphone 12 so everyone can hear what you're saying and speak in 13 a measured pace so that the shorthand writers can keep 14 up with you. 15 The final thing I have to tell you is that every 16 Tuesday there's a fire alarm test at 10 o'clock. 17 Examination by MR MACKENZIE 18 MR MACKENZIE: Good morning. 19 A. Good morning. 20 Q. Could you state your full name, please? 21 A. George Scott McFadzen. 22 Q. And your current occupation? 23 A. I'm Technical Services Director for BMB (Balfour Beatty, 24 Morgan Sindall) joint venture on the Thames Tideway West 25 project. 1 1 Q. You have provided a CV. I won't go to it. I'll just 2 give the reference number for the transcript. It's 3 CVS00000063. 4 I think in short you have a degree in civil 5 engineering; is that correct? 6 A. That's correct. 7 Q. And prior to the Edinburgh Tram Project, you had 8 experience in a variety of construction projects, 9 including, but not restricted to, roads, bridges and 10 other structures; is that correct? 11 A. That's correct. 12 Q. But I think you didn't have previous experience in tram 13 or light rail projects; is that correct? 14 A. That's correct. And I said that in my witness 15 statement. 16 Q. Indeed. If we can go now, please, to your witness 17 statement. The number is TRI00000058_C. I think you 18 may also have a hard copy in front of you as well; is 19 that correct? 20 A. Yes. 21 Q. Just formally go to the last page, to page 57. We see 22 a signature there dated 18 June 2017, together with 23 a short note in relation to Mr Laing. In short, could 24 you confirm, please, that this is your signature and 25 this is the written statement you have provided to the 2 1 Inquiry? 2 A. That is my signature, and that is my written statement. 3 Q. Thank you. Mr McFadzen, your evidence to the Inquiry 4 will comprise both your written statement and the 5 evidence you give today. If we start then at page 2 of 6 your statement, look at some initial matters. 7 In paragraph 5 you explain you joined Bilfinger 8 Berger at the start of 2006, and a few sentences down, 9 you say you joined them in January 2006 as Project 10 Director. Was that Bilfinger Berger UK as opposed to 11 Germany? 12 A. That was Bilfinger Berger UK. 13 Q. In paragraph 6 you explain you were heavily involved in 14 the pre-qualification process for the tram project, and 15 indeed in persuading Bilfinger that it was worth going 16 for, et cetera. 17 Paragraph 7, please, you explain you reported to 18 Richard Walker who was the Director of Bilfinger Berger 19 UK. 20 Then over the page, please, at page 3, paragraph 9, 21 we can see when you left the tram project. You say in 22 paragraph 9: 23 "I left the Tram Project to work on the M80 job in 24 August 2008. The tram contract had been awarded in May 25 of that year. Colin Brady took over as Project Director 3 1 from me in June. We had about two months handover." 2 So that's just an overview of your involvement in 3 the project. 4 I would like now to turn to the procurement of the 5 Infraco contract. If we could start, please, at page 4 6 of your statement. In paragraph 14 you say: 7 "There were things I thought quite unusual about 8 TIE's procurement strategy ..." 9 Just pausing there, by way of overview, are you able 10 to compare the tram project procurement with other 11 procurement exercises you have been involved in, what 12 was similar, what was different? 13 A. The tram procurement was different insofar as the 14 designer was already contracted to the client. 15 My design and build procurement projects have all 16 been designer appointed by the contractor for the 17 tendering phase, and then with a view to taking them on 18 into the delivery phase. 19 Q. What do you think are the pros and cons of each of these 20 approaches? 21 A. It probably costs less to have the designer already 22 working for the client. There does appear to be 23 a certain element of waste in a project where, for 24 example, four bidding contractors have to engage four 25 designers to do a tender design. 4 1 So from that point of view, that's positive, but it 2 means that the designer is having to -- should have had 3 to feed the tendering process as well as feeding their 4 contract with the employer. Which I think I comment on 5 in a later part of the statement. 6 Q. Thank you. Towards the end of paragraph 14, last 7 sentence, you say: 8 "I proposed to Bilfinger Berger UK and Bilfinger 9 Berger Germany to go for this project on the basis of 10 the original strategy." 11 What do you mean by the original strategy? 12 A. On the basis of the novated designer coming to us at 13 award. So we could have, for example, said we want to 14 have our own designer on this, but Bilfinger had an 15 in-house design capability and were pretty capable of 16 viewing designs and whether they were efficient or not. 17 Q. Go to paragraph 15, please. You say: 18 "Our understanding at the time was that design would 19 be completed and all necessary statutory approvals and 20 consents would be obtained prior to the Infraco Contract 21 award. That was the big selling point for us." 22 Why was that the big selling point? 23 A. The selling point was that we had certainty. The 24 downside was not having what I would call control of the 25 design. But at least we would have a complete design, 5 1 and the -- the tie's procurement strategy said that we 2 would have a complete design and all the consents and it 3 looked like a reasonable idea. 4 And if you add to that the fact that they were going 5 to procure the utility diversions in advance and get 6 them completed before we started the work, that appeared 7 good to me. 8 Q. Now, you mentioned recommending to both Bilfinger Berger 9 UK and Bilfinger Berger Germany to go for the project. 10 Who was the ultimate decision-maker as to whether to 11 bid for the project? Was it Bilfinger Berger UK or 12 Bilfinger Germany? 13 A. Bilfinger Germany. 14 Q. And again, who was the ultimate decision-maker as to the 15 price and the terms at which to bid? 16 A. Joachim Enenkel. 17 Q. How did that work? Did you or did Bilfinger Berger UK 18 produce regular reports for Bilfinger Germany or what? 19 A. Yes, we reported -- Joachim Enenkel came to meetings in 20 the UK or we -- and this was Richard Walker and myself 21 and Gary Dalton -- went to meetings in Wiesbaden. 22 Q. Did Bilfinger Germany carry out their own review of the 23 proposed bids and the documentation? 24 A. They -- there were people in Wiesbaden who -- it was not 25 just Joachim Enenkel. There were others in the 6 1 Wiesbaden office who sat in on the meetings when we were 2 making decisions as to whether we went for projects or 3 not. 4 Q. Did you have to produce actual written reports in 5 relation to proposed bids and also the stage of entry 6 into a proposed contract? 7 A. Yes. 8 Q. They were sent by Bilfinger UK to Bilfinger Germany? 9 A. Yes. There were -- the reports were normally in the way 10 of going and doing a slideshow, saying this is the job 11 and this is what it's all about and these are the risks. 12 Q. And how about -- we're jumping forward a little, but in 13 the lead-up to contract close in May 2008, were the 14 draft contracts actually sent to Bilfinger Germany for 15 review? 16 A. Sorry, my phone is making a noise. 17 Sorry. 18 Q. Yes. In the run-up to contract close in May 2008, were 19 the actual draft contracts sent to Bilfinger Germany for 20 review? 21 A. Yes. 22 Q. Including Schedule 4, which we'll come on to? 23 A. Yes. 24 Q. Now, back to your statement, please. We're still at 25 page 4. In paragraph 16 you explain: 7 1 "We did think the TIE procurement programme was 2 going to be difficult eg to complete the design prior to 3 award. One of the many flaws in the procurement process 4 was that TIE were employing the designer to design to 5 completion, ie to detailed design stage, but that some 6 of the work which we needed to bid for the job was not 7 being progressed. TIE were getting into lots of detail 8 on some parts of the scheme and hardly any, if anything 9 at all, on other parts. We needed them to run two 10 parallel design teams, one to complete the design for 11 the award and the other to feed the bidders that would 12 let us quantify, programme and assess the commercial 13 risks." 14 You say you did suggest that to tie; is that 15 correct? 16 A. Yes. 17 Q. Why do you say two parallel design teams were required? 18 Was that not liable to lead to confusion? 19 A. They could have. I believe they could have had what 20 I would call a Chinese wall between a design team that 21 was giving necessary information to the tendering 22 contractors, plural, and they may have needed to have 23 two teams. There was two bidders. So they may have 24 needed to have a team feeding the other bidder and 25 a team feeding us. 8 1 Because there were so many gaps in the information, 2 you know, we were having to -- well, as I'm sure we'll 3 come to, we were having to put provisional sums in for 4 works that we didn't have enough information to quantify 5 and price. 6 Q. During 2006 and 2007, what in general were your views on 7 the design and the designer? 8 A. The -- it was a developing picture, but the design was 9 in not good shape. There were -- and I think it says in 10 my statement, that there were parts of the design that 11 were very complete and they had gone into lots of 12 detail, which was more than we would have had if we had 13 been doing what I would call a normal design and build. 14 So there were parts of the design that were very 15 good and parts of the design that were not there at all, 16 and were very sketchy. 17 There was parts of the design that were at AIP 18 stage, approved in principle stage. 19 Q. Do you remember in general which parts of the design had 20 been developed to quite a detailed stage and which parts 21 were hardly there? 22 A. Well, in particular, the -- some of the structures were 23 well developed, for example the A8 underpass had been 24 designed in quite a level of detail. Again, this -- 25 this will come up later in my statement, I think, if 9 1 you're asking me questions on it, that it was developed 2 to the extent that they had even designed the 3 reinforcement in the piles, and they had designed the 4 pile system as what I thought was an expensive secant 5 pile; both male and female piles -- and this is a bit 6 engineering speak, but both male and female piles were 7 reinforced which I thought, we thought, was an 8 over-the-top design. 9 So that was a well developed piece of design. And 10 there were other parts of the design where, as I say, we 11 only had approval in principle, which were pretty 12 sketchy, and some -- some of the structures we had no 13 information on at all. 14 CHAIR OF THE INQUIRY: I think you favoured the adjacent 15 piles rather than the secant piles; is that right? 16 A. Sorry? 17 CHAIR OF THE INQUIRY: Did you favour the adjacent piles 18 rather than the secant piles? 19 A. The solution that was eventually built on the A 20 underpass was contiguous piles. 21 CHAIR OF THE INQUIRY: Contiguous, sorry. 22 MR MACKENZIE: Thank you. You also mentioned in 23 paragraph 16, you referred to one of the many flaws in 24 the procurement process. What were the other main flaws 25 in your opinion? 10 1 A. The conditions of contract being bespoke, and this was 2 a developing picture. The Employer's Requirements were 3 under development and quite heavily under development. 4 Again, my other design and build tenders principally for 5 Transport Scotland, the Employer's Requirements are very 6 well developed when the tenderers pick up the documents, 7 and on the tram the Employer's Requirements were being 8 developed and, as I understood it, were being developed 9 by Parsons Brinckerhoff, who were also doing the design. 10 And that's not unusual in itself, that the Employer's 11 Requirements were being prepared by a consultant for the 12 employer, but it's slightly unusual in that they're 13 doing the design and the Employer's Requirements in 14 parallel. 15 So I would have said that was a flaw. 16 Q. One would have thought that one would usually at the 17 very beginning of the procurement process start with 18 a set of Employer's Requirements and then things go 19 forwards from there; is that correct? 20 A. Yes. 21 Q. So was it unusual to have a developing set of Employer's 22 Requirements really throughout the procurement process? 23 A. To the extent that they were developing. Again, from my 24 experience, Transport Scotland's Employer's Requirements 25 do develop as the bidder prices the work, but not to the 11 1 extent that was happening on the tram. 2 Q. So it's a question of degree? 3 A. Yes. 4 Q. Thank you. 5 Also, please, on page 5, paragraph 17, in relation 6 to MUDFA, towards the bottom of the paragraph, halfway 7 down, you say: 8 "We could also see that the utilities diversion 9 contract, MUDFA, was not going according to plan, and 10 that this was going to run late. The complete design 11 assumed completely diverted utilities and we could see 12 it was just going to run on way beyond TIE's procurement 13 programme date." 14 This question of you could see utilities contract 15 was not going to plan, was going to run late, when were 16 you of that view? Was that in 2006, 2007, 2008 or when? 17 A. I would be aware of it in late 2006. 18 Q. I think the MUDFA contract was awarded in October 2006. 19 Can you remember why you were aware of difficulties or 20 delays in late 2006? 21 A. I think the MUDFA programme had -- the MUDFA programme 22 was -- always looked a bit optimistic. You know, it 23 was -- it's a difficult part of the -- it was 24 a difficult part of the project to get the utilities out 25 of the way. And the MUDFA project was slow in getting 12 1 up and running, and it was just -- it was a developing 2 picture. It became clearer to me as 2007 went along 3 that the MUDFA programme was slipping. 4 Q. How were you aware of that? Was it through meetings 5 with tie or other sources? 6 A. It would be through meetings with tie where they were 7 reporting -- well, they weren't really reporting to us, 8 but they were letting us know where the MUDFA contract 9 was. 10 Q. Thank you. On to page 9, please, in the statement, back 11 to design. In paragraph 30 at the top of the page, 12 there's reference to a meeting in November 2006. The 13 second last sentence in the paragraph, you say: 14 "They had no organised drawing numbering system that 15 they could issue to tendering contractors. 16 November 2006 was the first sign that the design 17 information in particular was a bit of a shambles." 18 Can you remember why you were of that view? 19 A. The inconsistencies, the numbering system was difficult 20 to understand. There was a lot of drawings that were 21 just at this approved in principle stage. 22 I would have expected there to have been a drawing 23 registered in whatever stage of development it was, that 24 would have given us a picture of all of the scope of the 25 project that we had to build. 13 1 Q. Now, when you refer to the design information in 2 particular was a bit of a shambles, is that a reference 3 simply to record-keeping, or does that apply to the 4 design process more generally? 5 A. Both. It was the numbering system and the way drawings 6 were issued to us, and it was also the state of 7 completion of the design, that some drawings were well 8 advanced and some drawings were not there at all, and 9 some were in this grey area in between. 10 Q. I would now like to look at a number of Bilfinger's bids 11 and try and track through how the price and the 12 conditions developed. 13 Could we start, please, with CEC01533655. We can 14 see this is a letter on behalf of the Bilfinger Siemens 15 Consortium of 12 January 2007 to Geoff Gilbert. We can 16 see in the heading, "SUBMISSION OF PROPOSALS". If we 17 scroll down a little, we can see under the bullet points 18 the paragraph commencing: 19 "We further acknowledge that tie intends to release 20 further project information in the period from 21 12 January 2007 to 16 April 2007 and engage in a period 22 of dialogue and negotiation with us based on our 23 proposals." 24 Then please go to page 3 to see Schedule of 25 Clarifications. I'm not going to read them all, but can 14 1 we see, for example, a heading, "Schedule of 2 Clarifications". 3 Now, it may be obvious, but what was the purpose of 4 the Schedule of Clarifications? 5 A. It was to set out what we believed were the gaps in the 6 information we were being asked to price on. Number 3 7 is: 8 "Due to unavailability of design information." 9 That's gaps in the design information. 10 Q. Yes. I'll just read that. Number 3, under "General", 11 states: 12 "Due to unavailability of design information and the 13 uncertainty of the final delivered solution all prices 14 are based on similar technical solutions offered for 15 Tram systems, out with the UK. The prices quoted, whilst 16 as accurate as possible, are therefore indicative and do 17 not form an offer which can be accepted." 18 Is that self-explanatory or is there anything you 19 wish to add to that? 20 A. I think that's self-explanatory. It was a budget price. 21 Q. Then we see, if we scroll further down the page, the 22 next sub-heading, "Civil - General". Then go over the 23 page, please. Page 4, paragraph 4 at the very top, 24 states: 25 "Generally, the quantities in the Pricing Schedules 15 1 have been priced except where clear and major 2 discrepancies have been identified between the Pricing 3 Schedule quantities readily identifiable from the 4 drawings. Quantities, rates and programme durations are 5 subject to adjustment as detailed design information is 6 issued sufficient to allow these to be accurately 7 assessed." 8 Again, do you wish to add anything by way of 9 explanation or is that fairly self-evident? 10 A. The Pricing Schedules we got from tie and -- it more or 11 less tells the story there, that some of the Pricing 12 Schedules we took had a fairly coarse check that they 13 were in the right park. Others we found reasonably big 14 errors in and we did our own assessment of, what they 15 should be. 16 Q. Thank you. Then please go back to your statement to 17 page 5. Paragraph 18, you say, in the second half, you 18 say: 19 "As a result, it was not possible to submit a fully- 20 compliant tender because when we looked at the documents 21 and saw the status of the design we had to submit what 22 I would describe as a very heavily qualified tender. We 23 started with a large list of 24 qualifications/clarifications and some of these were 25 maintained right through this procurement process. The 16 1 qualifications became Schedule Part 4 of the Infraco 2 contract." 3 We refer there to a heavily qualified tender and 4 starting with a large list of 5 qualifications/clarifications. Is that a reference to 6 the Schedule of Clarifications we just looked at? 7 A. Absolutely. We call them clarifications rather than 8 qualifications. 9 Q. Just standing back and thinking about your experience of 10 other procurement exercises, is it normal for 11 qualifications to be maintained right the way through 12 the procurement process and end up in the contract or do 13 they tend to be bought out beforehand? 14 A. No. Normally qualifications are what I would describe 15 as bought out by the employer as the procurement process 16 goes on. 17 Q. So one would expect to see, come the final contract, 18 there may be some qualifications but not a large list? 19 A. In my Transport Scotland experience, very, very few 20 qualifications, and in Transport Scotland's case, 21 they're usually absorbed into some change in the 22 Employer's Requirements or some further loosening of 23 Employer's Requirements. 24 Q. Another document, please. CEC01818715. This concerns 25 the price for the January 2007 bid. We see a one-page 17 1 pricing summary. I won't go to it, but this was 2 attached with an email dated 13 January 2007 which is 3 document CEC01818708 which ties the price summary we're 4 looking at with the January 2007 tender. 5 I think if we look at each box in turn, the bottom 6 line figure, so we see firstly the box at the top, grand 7 summary full scheme. Perhaps we can blow up the figure 8 in the right-hand box, if we may. We can see, I think, 9 GBP295,846,555. That must be, I think, for both phases 10 1a and 1b; is that correct? 11 A. Yes. 12 Q. Look at the box below that, please. We see a reference 13 for the section 1b option scheme. I won't look at that. 14 The box below, section 1a scheme. Again, perhaps blow 15 up the box in the bottom right-hand corner. We can see 16 the price, GBP243,697,218. 17 So in short, was that the offer price for 1a at this 18 time, subject to all these qualifications? 19 A. That was the offer price, yes. 20 Q. Thank you. We can leave that then to one side, please. 21 Go back to your statement, please, to page 11. In 22 paragraph 37, you say: 23 "By January 2007, the proposed procurement programme 24 was becoming more and more unachievable." 25 Why were you of that view? 18 1 A. Design progress and MUDFA process -- MUDFA progress. 2 Q. Did you make tie aware of that view? 3 A. Yes. 4 Q. How? 5 A. At meetings. We were meeting tie on a regular basis, 6 and it may have been no more than words saying this 7 looks very difficult. But the procurement programme was 8 to place the award -- to place the contract by October 9 on a completed design and a completed MUDFA looked not 10 possible to me by January 2007. 11 Q. Who were the main individuals in tie you were dealing 12 with and expressed this view to? 13 A. In January 2007 it was still Andie Harper and 14 Geoff Gilbert was there already. 15 Q. Were you of that -- did your view change in any way 16 during 2007 in relation to whether the procurement 17 programme was realistic and achievable? 18 A. No, and in fact it got worse. You know, the longer time 19 went on, the more I thought it was -- the programme was 20 getting more and more difficult. 21 Q. Why? 22 A. Because there was no recovery plan, particularly for the 23 design. There was no recovery plan for the utilities 24 contract that was -- they weren't being paid to 25 accelerate or even accelerating under instruction or 19 1 anything like that. 2 Q. What was the response from individuals in tie when you 3 expressed your view that the programme was unrealistic? 4 A. I would say that tie were slightly heads in the sand, 5 saying: yes, it will be all right, don't worry, just get 6 on with the procurement process. And to an extent, that 7 was what we did. We just kept working away on the bid 8 for the Infraco contract. 9 Q. I would like to move on to May 2007 now, please. If we 10 go to CEC01656123, to the consolidated proposals. We 11 see a letter again. It's from the Bilfinger Berger 12 Siemens Consortium. Now, the date of the letter is 13 8 May 2006. I think, however, that's the wrong year, 14 and it should be 2007; does that seem right? 15 A. That is correct. 16 Q. We can see in the first two paragraphs, we can just read 17 them for ourselves. We can see the second paragraph 18 refers to our consolidated proposals. 19 If we can then, please, go to another document which 20 will show us the price. It's CEC00573745. We can see 21 this is headed "Tender Submission by the BBS 22 Consortium, 8 May 2007". If we can go over the page, 23 please. 24 Now, I think this only shows us, I think, the price 25 for the whole scheme, both 1a and 1b. We can perhaps 20 1 blow up the price in the bottom right-hand corner. 2 Grand summary full scheme, GBP268,491,001. 3 Just in general, there seems to have been 4 a reduction from the January price for the whole scheme, 5 of about 295 million reduction of the whole scheme now 6 to about 268 million. In general, why was there 7 a reduction? 8 A. It would be based on the developing information. 9 I don't particularly recall what the big differences 10 were between January and May, but it was just -- there 11 was just more information to price and quantify. By May 12 I think we had a PQS on board that was taking quantities 13 off and we were not quite as reliant on the pricing 14 schedules that were supplied by tie. 15 Q. Was there any negotiation with tie between January and 16 May 2007 in relation to the price? 17 A. There was nothing that I would describe as negotiation, 18 no. 19 Q. Did that come later? 20 A. It came later, yes. 21 Q. Back to your statement, please, at page 13, if I may. 22 In paragraph 43, halfway through, you say: 23 "The consolidated proposal was a development of the 24 12 January submission. It was re-priced, contained new 25 information and the clarifications were reset. The 21 1 clarifications were a reflection of our growing concern 2 about design, approvals, third party agreements, 3 conditions of contract and delays to MUDFA. We set 4 these out clearly, together with what was provisional 5 and what qualifications applied." 6 Why do you say you had growing concern about these 7 matters? 8 A. As time went on in 2007, the developing picture on 9 design, for example, and now the third party approvals 10 began to become more of an issue. And consents for 11 fixing overhead line equipment to buildings in the city 12 centre, these were all what I would call growing 13 concerns. 14 Q. Why did these matters give rise to concern? 15 A. Because there were risks to the project. You know, 16 whether they were risks for BBS were -- that was kind of 17 up to us whether we chose to qualify further or more 18 clearly, but they were definitely risks to the project. 19 Q. Thank you. 20 Page 11 of your statement, please. I would like to 21 clarify one thing you say. Page 11, paragraph 38. You 22 say: 23 "Final consolidated proposals were, I believe, 24 submitted on 8 May 2007. They were not fully 25 consolidated ..." 22 1 What do you mean by that, they were not fully 2 consolidated? 3 A. They were part of the steps to getting a clearer and -- 4 clearer picture. Final consolidated proposals were 5 a tie term, you know: please send your final 6 consolidated proposals; and we just had to do the best 7 we could with what we had. 8 Q. So are you saying there that they weren't final 9 consolidated proposals because you didn't have 10 sufficient and complete information to enable you to do 11 that? 12 A. Yes. 13 Q. Page 9, please, another matter of clarification, if 14 I may? 15 CHAIR OF THE INQUIRY: Before that, can I just go back to 16 the consents for overhead line fixings to buildings. 17 Can you just explain what consents are you talking 18 about? Are you talking about the consents of the owners 19 of the building? 20 A. Mm-hm. 21 CHAIR OF THE INQUIRY: Or are you talking about -- and 22 perhaps are you talking about planning consents or -- 23 A. No, the consent from the owners of the buildings to 24 enable the contractor to drill fixings into their 25 buildings. 23 1 CHAIR OF THE INQUIRY: And did you understand at any stage 2 whose responsibility that was? Was this something that 3 Edinburgh officials, Council officials took on behalf of 4 tie or was this something that tie did themselves? 5 A. At that stage we understood and I believe had clarified 6 that it was tie's responsibility to get the fixings. 7 These were, as I said before, these were risks to the 8 project, not necessarily risks to us, but it certainly 9 doesn't help our -- didn't help our confidence in things 10 going ahead smoothly. 11 CHAIR OF THE INQUIRY: Thank you. 12 MR MACKENZIE: Thank you. 13 Page 9, paragraph 31. You say in the second last 14 sentence: 15 "I would add that we thought it very unusual to 16 submit prices in May and August. This was the start of 17 the financial pressure that TIE were trying to put us 18 under." 19 Why did you think it was very unusual to submit 20 prices in May and August? 21 A. Well, it wasn't just May and August. There were prices 22 submitted in January, May. May and August are quite 23 close together. So this is -- this was as a result of 24 tie asking us to review certain things in our offer. 25 You know, in -- in what I would call normal design 24 1 and build, you make one offer and you become preferred 2 bidder and then -- then it goes to financial close. On 3 something that's quite complicated like a PFI. 4 On a design and build, you make one offer for -- in 5 my experience, in Transport Scotland, you make one 6 offer, and that is either accepted or not. 7 Q. Whereas here you had submitted prices in January 2007, 8 in May 2007, and I think twice in August 2007; is that 9 correct? 10 A. We made one offer in August which was -- was then firmed 11 up into October, which was the preferred bidder 12 agreement, and then later on in 2007 there was the 13 Wiesbaden Agreement, which I'm sure we are coming to. 14 Q. Thank you. I would like to go to another document, 15 please. CEC01654151. Go to page 2, please. We can see 16 it's headed, "Notes of Meeting: Infraco Contract. 17 Bidder: BBS. Date: 11 June 2007". We can see you are 18 listed as having been in attendance. 19 If we can go, please, to the third box down, it 20 states: 21 "Clause 32.3 - BBS expects all approvals and 22 consents in place at novation of SDS." 23 Was that something that was of importance to BBS? 24 A. Again, it's from the project perspective, you know. We 25 were -- as it says at the top, we expected approvals and 25 1 consents to be in place at novation. But from a -- from 2 a looking to the future point of view, it would have 3 been nice to have known that things were moving along to 4 enable us to perform if and when we did get the 5 contract. 6 Q. When it said that BBS expects those to be in place, was 7 that a hope or an expectation at that stage? 8 A. That was -- that was how we understood the procurement 9 process, that all the consents would be procured by the 10 SDS and/or tie. 11 Q. Back to your statement, please, at page 15. 12 Paragraph 50, top of the page, a reference to an email 13 in June 2007. You say: 14 "We had lots of concerns about the design and about 15 the programme and the quality, and I do not think they 16 were ever resolved. The programme alarm bells were 17 starting to ring louder and louder." 18 Why were those bells ringing louder and louder? 19 A. In the developing picture, design -- the design 20 programme was slipping even further. By observation, by 21 discussion with tie, the utilities programme was 22 slipping, and other things like getting approval for 23 some of the finer points of design from City of 24 Edinburgh Council were also beginning to impact on 25 programme. 26 1 Q. Another document, please. If we can go to CEC01611490. 2 We can see at the top, minutes of BBS technical meeting, 3 12 July 2007. I think we can see, about halfway down, 4 you were noted as being in attendance at this one too. 5 Page 3, please. Under item 6, Programme, about ten 6 bullet points down, roughly, we see one beginning: 7 "MUDFA diversions completion is used as the kick-off 8 dates for work sections." 9 Does that mean in short that BBS had drafted their 10 construction programme in such a way that the 11 construction works would start once the MUDFA works were 12 finished in a particular section? 13 A. In July 2007 we were still programming as if MUDFA 14 diversions were complete at the start of the project. 15 Q. Then if we can go down two to three bullet points: 16 "Expectation that all SDS detail design will be 17 complete by contract award date." 18 Again, was that an expectation or a hope? 19 A. By that time it was a hope. 20 Q. Why do you say that? 21 A. Well, it was becoming clearer and clearer to us that the 22 design would not be complete at the contract date. 23 Q. Are you aware of any strategy tie had around this time 24 to try and deal with that problem? 25 A. No. I -- it appeared to us as if tie were expecting -- 27 1 when novation took place, that we would improve the -- 2 the management of the SDS's programme. 3 Q. I won't go to it, but in your statement in paragraph 54, 4 you refer to the bullet point we've just read, 5 expectation that all SDS detail design will be complete 6 by contract award date, as fantasy. Did you make tie 7 aware of those views around that time? 8 A. Yes. 9 Q. Who to, do you remember? 10 A. It -- it would be in the technical meeting. There are 11 clearly things that are not all recorded in the minutes, 12 but -- I probably didn't use the word "fantasy", but 13 I would say it's looking difficult. 14 Q. So you -- 15 A. In July we were still in a competitive situation as 16 well. So I was probably having to choose my words more 17 carefully then. 18 Q. So on the one hand you are wanting to get the bid, but 19 on the other hand you want to express your views to tie 20 on how realistic and achievable their programme is; is 21 that a fair way to put it? 22 A. Yes. 23 Q. So is it your position you would have explained your 24 views in suitable language to the people in tie we see 25 present at these kind of meetings? 28 1 A. Yes. 2 Q. Was there any discussion at any time of pausing the 3 Infraco procurement to allow design to catch up to be 4 completed and for all approvals and consents to be 5 obtained? 6 A. No, there was no proposal like that. They were still 7 aiming at an award date that was fairly unachievable, 8 I thought. 9 Q. If that had been proposed to pause the Infraco 10 procurement to let design catch up, what do you think 11 your views would have been on such a proposal, say in 12 2007? 13 A. We would have accepted it, and there was -- later in the 14 process tie did agree to change start date by about 15 three months, which was one of the revised prices we 16 gave in 2007. That would be Rutland Square or something 17 like that. 18 Q. I would like to move on now to August, please, and to 19 document CEC01604676. We can see again, top of the 20 page, it's a letter from the BBS consortium. The date 21 again is dated 7 August 2006. I think the year is 22 a mistake and it should be 2007; is that correct? 23 A. Definitely something wrong with our template at that 24 time. 25 Q. Yes, I think so. We see it popping up again in the next 29 1 letter we'll come to. 2 We see the heading though: Edinburgh Tram Network: 3 Updated Proposals and Financial Submission. 4 I would like then to go over the page to see the 5 updated price. Page 2, under numbered paragraph 11, the 6 last sentence states: 7 "Our revised Tender Sum is GBP254.5 million." 8 We do have a breakdown of that I'll come to shortly. 9 But I think that's still for the whole scheme, for 10 phases 1a and 1b; is that correct? 11 A. Yes. 12 Q. If we go then to the Pricing Schedule, please. It's 13 a separate document, CEC02086332. We go to the last 14 page, please, page 19. If we could blow up the very 15 bottom right-hand figure on the page, the very bottom, 16 we see grand summary full scheme, GBP254,543,038. So 17 that just gives us a breakdown of the sum that we looked 18 at. 19 There was also a Schedule of Clarifications, if we 20 could go to that, please. It's CEC01491869. We can see 21 at the top it's headed "Schedule of Clarifications", and 22 the sub-heading 1, "General/Contractual". 23 Look, please, at paragraph 1.5. For example, it 24 states: 25 "Planning Consents and Building Fixing Consents will 30 1 be in place prior to commencement of works in the areas 2 subject to the Consents." 3 1.6: 4 "Our programme and price assumes that Services; 5 overhead, overground and underground, will all diverted 6 or protected by MUDFA/others to enable us to start 7 works as indicated on our programme." 8 I won't read them all out, but over the page, by way 9 of example, under sub-heading 2, "Civil - Design", we 10 see paragraph 2.2: 11 "Our quantities are calculated from the drawings 12 where they are sufficiently detailed to enable an 13 accurate take off. Where any of the drawings used for 14 take off are changed, post tender, we will re-calculate 15 the quantities and adjust our price, as agreed at the 16 mid-bid meetings." 17 Over the page, please, page 4, in paragraph 2.4 at 18 the top: 19 "Our Tender is based on the SDS providing approved 20 for construction Design information in time to enable us 21 to procure resources, plan our works and execute 22 construction in accordance with our programme." 23 Can you explain that point a little, please? 24 A. The -- well, the earlier clarification that said we 25 expect the SDS design to be complete, that there may be 31 1 other design information that we needed to procure, so 2 this was like a second level of insurance that we would 3 be able to get the stuff we needed to build the tram 4 based on the drawings. 5 Q. How important is it for a contractor to get approved for 6 construction design information in time to enable the 7 contractor to do what he has to do? 8 A. Absolutely. 9 Q. Why? 10 A. To get -- 11 Q. Why is that important? 12 A. To get the information to procure -- 13 Q. Yes? 14 A. Because we live or die by the programme. So we've got 15 to get the design information to be able to procure the 16 materials to do the construction. 17 Q. And why do you say live or die by the programme? 18 A. Well, you don't die by the programme, but you either 19 make or lose money if you don't keep up with your 20 programme. 21 Q. Go on, please, to page 6. A slightly different matter 22 under sub-heading 7, "Civil - Construction". 7.1: 23 "In the absence of a Geotechnical Interpretative 24 Report, we have not allowed for any risk in respect of 25 Ground Conditions, foreseen or unforeseen. This 32 1 includes risk relating to the presence of sub-surface 2 voids and measures required to deal with ground water 3 levels not allowed for in the current SDS Design." 4 Now, did the consortium ever get such a report? 5 A. No. This was, if you like, it was a sore point with me 6 that we expected, you know, and again, going back to my 7 experience of Transport Scotland jobs where the 8 contractor's designer will do an interpretative report 9 that will say the ground -- what the ground conditions 10 are at points along the alignment. And we didn't get 11 that, and we asked for it, and we asked for it until -- 12 well, I still have no idea why tie didn't want to 13 instruct the SDS to do it. I presume it was budgetary 14 constraints they were under. But it was absolutely 15 fundamental to ... 16 Q. Are there two things here? Firstly, going out on site 17 and carrying out -- sampling investigations, and then 18 secondly, someone interprets the results of those 19 investigations by means of an interpretative report; is 20 that correct? 21 A. Yes. 22 Q. Were the consortium given the first part of that 23 exercise, the actual results of the investigations? 24 A. Yes. 25 Q. But you weren't given the second part, an interpretative 33 1 report? 2 A. That's correct. 3 Q. Could we go to your statement, please, at page 21. In 4 paragraph 75 you state, with reference to the minutes of 5 the weekly progress meeting with tie held on 6 13 November 2007, and it was recorded under "Issues 7 arising" that BBS were concerned about gaining access to 8 current information via the data room and the GI 9 interpretative report offered by SDS being inadequate. 10 Then you say: 11 "The GI interpretative report was definitely 12 inadequate. In my experience, if the designer were 13 working for us then you would ask him, amongst other 14 things to look at the GI and give us his interpretation 15 of how far below the underside of the track slab we 16 needed to dig to be able to provide a firm foundation. 17 The interpretive report would then explain where we 18 would be digging and where we would not be digging 19 because it is hard. Nothing like that was provided in 20 this case." 21 Paragraph 76 -- 22 CHAIR OF THE INQUIRY: Leaving that, that seems to suggest 23 that there was an interpretative report, but it wasn't 24 satisfactory. 25 A. It wasn't what -- what we expected as an interpretative 34 1 report. What I mean by that is it didn't say: in 2 this -- in this 500-metre section, you can expect to dig 3 half a metre below underside a track slab and fill it 4 with granular material, and that's -- in design and 5 build, that's pretty fundamental to both the price and 6 the programme. 7 CHAIR OF THE INQUIRY: So what did this one say, in general 8 terms? How was it inadequate? You told us it didn't 9 say a stretch of 500 metres you would be digging to 10 a certain depth and filling it with granular material. 11 What -- 12 A. I can't remember what it said, but it was -- it just -- 13 it didn't do what I would think is -- what I thought was 14 a simple exercise, to go through -- to go through the 15 project and on the basis of the boreholes and the trial 16 pits say: that is soft, that's soft. So you will be 17 digging half a metre here. You're on rock here so 18 that's -- I used the word "hard". So you'll be trimming 19 off the rock and you will be putting your foundation 20 right on the rock. Absolutely fundamental to us pricing 21 and programming a job. It is a significant element of 22 earthworks. 23 CHAIR OF THE INQUIRY: So is the interpretation of boreholes 24 or trial pits, is that a specialist -- specialist 25 engineers who undertake that exercise that you would 35 1 have a borehole at one point and another borehole at 2 another point, and they would make assumptions or 3 interpretations of the two, what you might expect in 4 between? 5 A. Yes. 6 CHAIR OF THE INQUIRY: Is that something that any engineer 7 can do or is that -- 8 A. Any -- most consultant engineers will have 9 a geotechnical section that they can do that. 10 CHAIR OF THE INQUIRY: So it's the geotechnical engineers 11 who -- 12 A. Yes. 13 CHAIR OF THE INQUIRY: -- have to provide that? 14 A. Yes. 15 CHAIR OF THE INQUIRY: Thank you. 16 MR MACKENZIE: Thank you. 17 In the next paragraph, 76, in the last sentence, you 18 say: 19 "I did say that if we got an interpretative report 20 we might be prepared to take some risk on the ground, 21 and that is the GI we are talking about." 22 So was it your position in short that if you had 23 been given such a report, you might have been able to 24 price and accept some of the risk for ground conditions? 25 You're nodding your head. 36 1 A. Yes. We would have. I mean, that -- that's -- you 2 know, on the job that I went to, on the M80, for 3 example, we took the risk on the ground conditions based 4 on a designer's interpretation. 5 Q. Is it also your position that, because you weren't given 6 such an interpretative report on the tram project, that 7 the consortium weren't prepared to take any of the 8 ground conditions risk? 9 A. Absolutely. 10 Q. I would like to move on in the procurement process to 11 another document, TIE00087652. Again, we can see again 12 I think the wrong date. 24 August, it should be 2007. 13 It's a letter from the consortium. We see the heading, 14 "Confirmation of Revised Price Proposal". There's then 15 reference to a meeting, it must be with Mr Gilbert, on 16 24 August 2007. Then: 17 "We confirm our revised price, as presented at the 18 meeting, as follows." 19 We can see the price for phase 1a is 20 GBP217.2 million. 21 I think we had looked earlier that the price in 22 January 2007 for phase 1a was just over 243 million. 23 Why has it been reduced down to about 217 million? 24 A. Again, this was developing information. We were 25 getting -- drawing information from the SDS and we 37 1 definitely had the PQS on board by August 2007. So it 2 would be being quantified and rebid. 3 Q. Again, just to be quite clear, was there any negotiation 4 with tie in relation to pricing around this time? 5 A. It was becoming a factor in meetings where we were being 6 expected to deliver below their budget. 7 Q. Over the page, please, at page 2, we can see the second 8 last paragraph says: 9 "We confirm that the Clarifications enclosed with 10 our submission dated 7 August 2007 remain effective 11 unless specifically amended above." 12 Just to carry on, I think BBS were appointed 13 preferred bidder in October 2007; is that correct? 14 A. Yes. 15 Q. Do you remember, was there a further price between the 16 one we've just seen in that letter of 217.2 million and 17 the preferred bidder price or was that your last price 18 at this stage? 19 A. The -- I think the preferred bidder price was less than 20 217.2 for 1a. This -- there'll be records to say what 21 it was. 22 The document that I got did not have the -- the 23 appendix which was the price for the preferred bidder 24 agreement, but my recollection is that it was 25 210 million or thereby. 38 1 Q. Thank you. But if we can find the Pricing Schedule in 2 the preferred bidder agreement, that would confirm that? 3 A. Yes. 4 Q. Thank you. 5 Now, I think one of the matters discussed, both 6 before and after the preferred bidder appointment, was 7 the question of value engineering savings. Why did you 8 understand that tie either wished to or required to make 9 value engineering savings? 10 A. The value engineering is -- is a normal process in 11 projects. I thought that tie's -- I could almost call 12 it an obsession with value engineering was to get the 13 price below the budget that they were trying to procure 14 the Infraco project on. 15 I say that, and again, this is elsewhere in my 16 statement. 17 Some of the value engineering was at the extreme 18 ends of what we could have done to save hundreds of 19 thousands or indeed millions of pounds, because the 20 value engineering pot at one point was 22 million, which 21 in reality was completely and utterly impossible, 22 I would say. And the mechanics of the value engineering 23 process were not really being progressed. 24 Go back to the question on the secant piles or 25 contiguous piles on the A underpass. The SDS continued 39 1 with the design based on the secant piles, where I would 2 have thought that tie should have stopped the SDS where 3 they were and said: this looks like a really good idea 4 from -- albeit one of the bidding contractors and maybe 5 it was not possible until October, until we were in 6 preferred bidder position, to say stop, and design on 7 the basis of BBS's proposal. 8 But there were other -- that was worth about 300,000 9 or something, the difference in pile detail. 10 Edinburgh Park Station viaduct, we proposed to change it 11 from seven span, I think, viaduct into single or two 12 span bridge over the railway, with approach embankments, 13 which would have generated a pretty spectacular saving 14 of 1.4 million, I think it was, on one of the VE 15 schedules. 16 But to deliver that would have meant going back to 17 the City of Edinburgh Council and Edinburgh Park Limited 18 and saying: we would like to redesign this viaduct, and 19 it just -- it didn't happen. The Edinburgh Park 20 viaduct. 21 We also had proposals in there to change it from 22 precast concrete to concrete deck, composite to steel 23 concrete deck, which would have saved 400,000, and at 24 the end of the day, I think we delivered something that 25 was modifying bridge piers to make it more buildable, 40 1 which probably saved 100,000. 2 But the real prizes in value engineering were to be 3 won by making it a big change to a design. 4 Q. Thank you. Sticking with this line, please, at page 14 5 of your statement, if we can go back to that, in 6 paragraph 46, you say: 7 "Workshops were held on Value Engineering on 1 and 8 7 June 2007 ..." 9 Reference to the reports and action plan. You then 10 say: 11 "In my view, the VE savings TIE were looking for 12 were not achievable. The workshops were instigated by 13 TIE." 14 When you say the VE savings were not achievable, was 15 that your view just in relation to these workshops or 16 value engineering savings being sought more generally? 17 A. It was my view at the time that the savings were not 18 achievable. 19 Now -- again, in June almost certainly I had to make 20 that a private view because we were still in 21 a competitive situation. 22 Q. Was that a private view you made to others within 23 Bilfinger or was that a view you expressed perhaps off 24 the record to tie? 25 A. I'm not even sure that I expressed them off the record 41 1 to tie, but I certainly expressed them to my Bilfinger 2 colleagues. 3 Q. The next paragraph please, paragraph 47. You explain: 4 "Normally, a tender would include VE proposals. 5 However, in a normal tender any VE proposal would then 6 result in a 50/50 share of the savings. This did not 7 happen on the Edinburgh Tram. The VE was all the 8 client's saving. We put in the effort and the money 9 saved was used to reduce the price." 10 So was your position that in a usual procurement, 11 any value engineering savings are split equally between 12 the client and the bidder? 13 A. Or split in some way. There would normally be an 14 incentive on the bidding contractor to -- to do value 15 engineering on what is the reference design. 16 Q. So where was the incentive in the tram project to 17 achieve value engineering savings? 18 A. There was nothing -- nothing in it for us. 19 Q. Other than perhaps at this stage, at least, being able 20 to reduce your price to get the contract? 21 A. Well, in that respect there was something in it for us 22 in the fact that we would get to a position where there 23 would be a tram project. So you can say that's a little 24 bit of an incentive. 25 Q. Once the contract was awarded, was there any incentive 42 1 to the contractor to achieve value engineering savings? 2 A. Not -- not really. Apart from the -- if you like, we 3 felt morally obliged to pursue some of these things. 4 But there is -- there is an incentive to achieve 5 value engineering, because whatever you do in a project 6 to reduce the cost, it helps the employer -- helps the 7 employer and he will almost certainly deal you with you 8 in a more fair and reasonable way if you're making the 9 effort to try and reduce the cost. 10 So there's little bits of incentive in there. 11 Q. Then finally on this point, please, at page 20, 12 paragraph 74, there's a reference to the minutes of 13 a meeting with tie and the consortium in October 2007, 14 a reference to the value engineering meetings, and 15 a comment by, I think, yourself that tie must have 16 spectacular ideas for this saving. We see what else you 17 say there. But you then go on to note: 18 "... the minutes of a Structures meeting held on the 19 same day which recorded that a saving of GBP9 million 20 was required on the structures budget." 21 You say: 22 "A saving of GBP9 million on that budget was 23 absolute fantasy. I think we had pretty much convinced 24 ourselves that the real spectacular savings, such as 25 changing Edinburgh Park viaduct, were no longer 43 1 possible." 2 Essentially is that for the reasons you've already 3 discussed? 4 A. That there had been nothing done on getting consent for 5 the changed form of bridge. 6 CHAIR OF THE INQUIRY: Do you know if tie ever approached 7 Edinburgh or the owners of Edinburgh Park to sound them 8 out as to whether they would be willing to consider 9 a redesign of the viaduct. 10 A. I'm not sure whether they did or they didn't. 11 MR MACKENZIE: Thank you. I would like to move on to 12 another matter, please, at page 22 of your statement. 13 CHAIR OF THE INQUIRY: Before that, I think later on in your 14 statement you describe the provision for value 15 engineering as financial engineering. Would you just 16 like to explain that, what you mean by that? 17 A. We thought it was being used as a number. This is going 18 on to other things that are in my statement. 19 When tie were presenting the numbers for the 20 project, here is BBS's bid, it's more than budget, but 21 there's this plan to value engineer GBP9 million worth 22 of cost out of the bid. 23 So, you know, that brought an unaffordable price for 24 the City of Edinburgh Council into an affordable price. 25 And that's what I mean by financial engineering. 44 1 CHAIR OF THE INQUIRY: So by including that sum which you 2 thought was unachievable, they were bringing it within 3 budget and the impression would be that the -- the 4 impression the Council might have is that it would be 5 built for the sum that the Council had allocated; is 6 that what you're saying? 7 A. Yes. 8 CHAIR OF THE INQUIRY: Thank you. 9 MR MACKENZIE: Thank you. 10 Page 22, please, and paragraph 80. We can read that 11 for ourselves, but four lines down, we can see 12 a reference to five CDs were a means of getting round 13 SharePoint, tie's document management software, which at 14 that time, you say, was not fit for purpose. 15 So I think in short we've heard evidence that 16 perhaps five CDs were delivered to Bilfinger Siemens 17 Consortium at around this time containing design 18 information; is that correct? 19 A. The five CDs contained the -- the design -- what I would 20 call design freeze. When you're pricing a design and 21 build project, you've got to get to a point where the 22 design stops being developed. So for us, the five CDs 23 in November 2007 was our design freeze, and that would 24 be the basis of quantification programme and assessment 25 of risk. 45 1 That's all there is. 2 Q. Why do you need a design freeze to be able to assess 3 these matters? 4 A. Well, you don't necessarily need it to decide these 5 matters, but there's a long process after you get to 6 what I would call design freeze, where the PQSs quantify 7 the information that's in the design freeze, and the 8 programmer programmes the information that is contained 9 within the design freeze, and the commercial guys and 10 people like me decide on what residual risks are left. 11 So it's -- you've got to fix the information at 12 a point in time, and that would have been the same if we 13 had been briefing our designer. We would have set 14 a period in time before tender submission to say: you 15 have to have all of your design information fixed by 16 that time. 17 Q. Could we also please look at the next paragraph. In 18 paragraph 81 of your statement, you also refer there to 19 the issue of design freeze in the last sentence. You 20 also say that the design freeze was also needed to fix 21 quantities as well; is that correct? 22 A. Yes. 23 Q. I would like to move on to another document, please, 24 now, in November 2007. CEC01328042. 25 We can see this is headed "Preferred Bidder Weekly 46 1 Progress Meeting", 27 November 2007. We see 2 Mr Gallagher is there partially. We can see who else is 3 there, including yourself. 4 I should perhaps ask you, do you have any 5 recollection of this particular meeting? 6 A. If you scroll down, there may be things in there that -- 7 Q. If we perhaps go to page 2, and I'll show you the 8 passage I'm particularly interested in. It's page 2, 9 section 4. We will blow it up and give you a second 10 just to look at that for yourself. 11 A. I don't really recall anything particular about this 12 meeting, but these meetings were happening on a regular 13 basis. 14 Q. We can see in item 4, under "Pricing Priorities", the 15 first bullet point states: 16 "Geoff Gilbert and Matthew Crosse echoed 17 Willie Gallagher's earlier concerns and need to firm up 18 on prices to take confidence level to the high 19 90 per cent. tie has yet to receive comments on the 20 repricing dates schedule." 21 The next bullet point states: 22 "BBS were uncertain if the information was 23 sufficiently complete enough to achieve firm prices." 24 The next sub-bullet point: 25 "BBS considered that Phase 1B was the most complete, 47 1 followed by the Airport to Haymarket section for 1A. 2 They are still doubtful over the street section of 1A." 3 What I wondered really in short, just standing back, 4 was whether there was a tension around this time between 5 on the one hand tie wanting a fixed price for the 6 contract and Bilfinger Siemens saying you were unable to 7 do so? 8 A. Definitely. I mean, this is November 2007. There was 9 definitely a tension between having enough information 10 to give greater certainty on the price and not having 11 that information. That was exactly the situation we 12 were in. 13 Q. And did you -- tell me if I'm wrong, but did you feel at 14 the time you were being pushed into trying to give 15 a fixed price when you didn't feel you were able to do 16 so? 17 A. We were definitely being pushed into giving a fixed 18 price. 19 Q. Do you consider that you made tie aware that you were 20 unable to produce a fixed price or to what extent, if at 21 all, did you go along with that? 22 A. Well, I think the minutes confirm that, that there 23 were -- there was information. You know, BBS were 24 uncertain if the information was sufficiently complete. 25 That's a polite way of saying the information is not 48 1 sufficiently complete. 2 Q. Now, we've heard evidence of a meeting in Wiesbaden in 3 December 2007. What I would like to do is to look 4 firstly at some correspondence in the lead-up to that 5 meeting, before coming on to then the meeting and what 6 happened afterwards. So starting please, with document 7 CEC01494152. 8 I think the best way to deal with this, perhaps, we 9 can see the email in the bottom of the page is from 10 yourself, dated 10 December 2007 to Geoff Gilbert. You 11 say: 12 "Geoff, the responses, and they are not what you 13 want to hear, are in your text below." 14 If you then go to page 2, please, I think we'll see 15 Mr Gilbert's email and your responses. So we can then 16 see an email from Mr Gilbert dated 7 December 2007 to 17 yourself and copied in to others. 18 Mr Gilbert states: 19 "At yesterday's progress meeting you advised that we 20 will receive updated pricing late on Monday. For 21 clarity and so that I am able to brief my review team, 22 please advise the specific items that we will receive. 23 Am I correct in assuming that it will include ..." 24 Firstly: 25 "All the highways and drainage pricing ..." 49 1 I think your response is: 2 "We have had a communications issue with the PQS 3 doing 1B and we have no highways quantities. We are 4 doing 1D highways quants "internally" but we are still 5 working on them." 6 Then the next one that Mr Gilbert asks about: 7 "Repriced OLE?" 8 And you respond: 9 "We are not submitting a repriced OLE." 10 Then Mr Gilbert states: 11 "Selected structures?" 12 And you reply: 13 "The structures exercise is not as straightforward 14 as we had expected. There are items in most of the 15 re-billed structures done to date which require re-quotes 16 from sub-contractors (eg piling) and/or significant 17 changes to temporary works. This is a major re-pricing 18 exercise and not as simple as applying new quants to 19 existing rates. There are more, and more significant, 20 differences between the available information on 21 7 August and now than I had understood." 22 Then Mr Gilbert states: 23 "Alignment earthworks?" 24 You say: 25 "As you are aware, we need information to price 50 1 earthworks." 2 Finally, you say: 3 "The whole concept of re-pricing on the basis of 4 these Measurement Issues is not working. We need to 5 discuss this asap." 6 Now, what was going on in this email exchange? 7 A. This was Geoff Gilbert putting the pressure on us to 8 update our pricing based on the design drop of 9 25 November, and I guess not really understanding or 10 wanting to believe the length of process that was 11 involved in getting the -- our PQSs, who were Corderoy, 12 to take off quantities and then get subcontract quotes 13 in and for the estimators to turn these subcontract 14 quotes and the stuff that were being self-delivered into 15 an estimate and a price. 16 Q. Was it simply a question of needing more time to do it, 17 or was there any issue as to whether the consortium had 18 enough information from tie to be able to give tie what 19 they wanted? 20 A. Well, there were still gaps in the -- in the information 21 at November 2007. And I think later on there were -- 22 you know, in terms of completion of design, when we were 23 getting to award of contract, completion of design, 24 there was only 60 per cent of the design complete, which 25 was pretty poor from our point of view. But even in 51 1 November 2007, designs were not as well developed as we 2 needed to -- to price and assess commercial risk. 3 Q. What did you mean in the final sentence, when you said: 4 "The whole concept of re-pricing ... is not working." 5 Was that related just to the alignment earthworks or 6 did you mean the whole concept generally of re-pricing? 7 A. What I'm saying in that is that this is not just 8 a measurement issue, which is again going back to what 9 I was saying about having to go out to the market and 10 get re-quotes for things like piling and ... 11 It's more of a comment on programme, that we can't 12 just turn around a re-pricing exercise in a few days. 13 Q. Thank you. We can see Mr Gilbert's response, back to 14 page 1, please. Top of the page, we can see the email 15 from Mr Gilbert dated 10 December 2007 to yourself, 16 copied to others, subject updated pricing, and 17 Mr Gilbert states: 18 "You are right this is not at all what I wanted to 19 hear. Based on our discussions over the last two weeks 20 we made a presentation to our Board on Friday setting 21 out the timetable for firming up prices. This aligned 22 with achieving the 20 December. All of this we made you 23 aware of previously. Unless I have radically 24 misunderstood we will not be able to achieve any of this 25 and will get nothing of any significance tonight or in 52 1 the near future." 2 Do you have any comments on what is said there? 3 A. Only insofar as this was the -- the time pressure and, 4 you know, we -- tie saying to us we want answers and we 5 want them tomorrow, which was pretty unreasonable. 6 Q. So was Mr Gilbert correct in stating "we will not be 7 able to achieve any of this and will get nothing of any 8 significance tonight or in the near future"? 9 A. This is aiming at the 20 December presentation of the 10 Board. I think he would be absolutely correct that he 11 would not get what he was looking for. 12 Q. And also his reference to setting out the timetable for 13 firming up prices, was that going to be achievable in 14 the near future? 15 A. The -- I think -- well, the timetable for agreeing 16 prices, it's all -- it's all coming, I think, in this, 17 but -- the timetable for firming up prices, we firmed up 18 our price but it was accompanied by a list of 19 clarifications. 20 So I guess we did firm up the prices as we were 21 required to do. It was just a price that tie didn't 22 like. 23 MR MACKENZIE: That may be a suitable point to pause. 24 CHAIR OF THE INQUIRY: Just before we leave that email, you 25 see the penultimate paragraph says that they've been 53 1 trying to contact you, as has Matthew: 2 "We have therefore spoken with Michael who advised 3 that what you have outlined is not his understanding of 4 the position." 5 Then he goes on to suggest a meeting or 6 a teleconference with you, Michael and Richard so that 7 they can be entirely clear on BBS's position. Were you 8 aware of a difference of opinion within Bilfinger Berger 9 on this matter? 10 A. No. 11 CHAIR OF THE INQUIRY: Who is Michael? 12 A. Sorry? 13 CHAIR OF THE INQUIRY: Who is Michael? 14 A. Michael Flynn, Siemens. 15 CHAIR OF THE INQUIRY: Were you aware of any -- sorry, carry 16 on. 17 A. Siemens were -- Siemens had -- in my view, had a simpler 18 task that they were dealing with M&E stuff that was 19 easier to understand and they were -- there were 20 specialists in the field. 21 We were relying on SDS's design information -- 22 sorry, we, the Bilfinger part of the consortium, were 23 relying on design information to a far greater extent 24 than Siemens were. 25 CHAIR OF THE INQUIRY: So was there a difference of opinion 54 1 between Bilfinger Berger and Siemens within the 2 consortium about this matter at that time? I appreciate 3 that you're saying it's a different exercise for 4 Siemens. 5 A. Not really, no. 6 CHAIR OF THE INQUIRY: Did the meeting take place that he 7 mentioned or the conference? Was there any change in 8 your approach? 9 A. No, and this being 10 December is a few days before the 10 Wiesbaden meeting, which set another price for the job. 11 CHAIR OF THE INQUIRY: Yes. We're going to have a break now 12 of 15 minutes to give the shorthand writers a break. We 13 will resume again at 11.20. 14 (11.03 am) 15 (A short break) 16 (11.20 am) 17 CHAIR OF THE INQUIRY: You're still under oath, Mr McFadzen. 18 MR MACKENZIE: Mr McFadzen, I would like to just again 19 continue looking at the correspondence before the 20 meeting in Wiesbaden. 21 The next document is CEC01481843. We can see this 22 is a letter. Go over the page to page 2, please. You 23 can see it's signed by Willie Gallagher. We can see 24 that. 25 Go back to page 1, please. It's to Richard Walker 55 1 of Bilfinger Berger, and we can see it's dated 2 11 December 2007. I think that was a Tuesday. 3 Then we can see Mr Gallagher says: 4 "Your news today that BBS are unable to achieve the 5 pricing objectives we set you is extremely 6 disappointing." 7 Then in the next sentence we see the reference to 8 tie's critical milestone on 20 December, where the Full 9 Council finally accept the project Business Case and 10 Infraco and Tramco deals. 11 Then we see, fourth paragraph, a reference to 12 a visit to Germany on Thursday is focused on cementing 13 the final deal and particularly finalising the price. 14 The next paragraph: 15 "Unless you are able to confirm that, by the end of 16 Thursday's meeting, we will have been able to consider, 17 and agreed the following items then I must state that 18 tie will not attend and we will need to revisit the 19 entire preferred bidder programme." 20 Then item 1, "Price confidence: 21 we ask you to consider fixing your price, save for 22 a very few notable exceptions where for example the 23 design itself is absent." 24 And then 2: 25 "Price level: we ask that, having been through the 56 1 value engineering exercise including the targets agreed 2 at preferred bidder date - your price level and VE 3 savings are confirmed at a level that enables our 4 project business case target to be met." 5 The rest we can read for ourselves. 6 Do you remember this letter? 7 A. Not -- not specifically, but I mean, I certainly have 8 read it, and I certainly was aware of these exchanges 9 going on at the time. 10 Q. Was there any discussion within Bilfinger or within the 11 consortium about the matters in the letter? 12 A. There would be, yes. About the response to the letter? 13 Q. Yes. 14 A. Yes, there certainly was. 15 Q. It's perhaps then best just to go to that response? 16 A. I think if you just scroll back to page 1, you know, 17 save for a few items, price confidence, we ask you to 18 consider fixing your price, save for a very few notable 19 exceptions, that was quite a notable exception, that the 20 design was not in a good state. 21 Q. The next letter is CEC00547788. This we can see is 22 a letter from Richard Walker on behalf of the consortium 23 to tie, dated 12 December. So it's now the Wednesday, 24 2007. 25 Then under 1, "Price Confidence", the response is as 57 1 follows: 2 "We have considered fixing our price on the 3 information provided and believe that we are able to do 4 this in all areas where the design is available. See 5 attached schedule." 6 We also -- we will come to this that in a second. 7 If we scroll further down, the final paragraph: 8 "We therefore believe that with the due cognisance 9 of our assumptions (see attached) and the willingness 10 and co-operation of all parties, we will greatly be able 11 to achieve the objectives and move towards a contract 12 award on 28 January 2008." 13 Then go over the page, please, to page 2. We can 14 see this is headed "Updated Schedule of Clarifications". 15 And we then see items marked provisional in our August 16 submission. Various items are listed, and it is stated 17 that the price can be fixed by adding certain sums which 18 total 8.12 million; do you see that? 19 A. Yes. 20 Q. Was that a reference to these sums being absolutely 21 fixed or would those sums still be subject to any other 22 conditions or qualifications? 23 A. And particularly the earthworks, where we were 24 maintaining an assumption because we didn't have the 25 information to price the earthworks or indeed take 58 1 commercial risk on the earthworks. 2 Q. Then please go to page 3 to see the assumptions. We can 3 see, headed "Assumptions": 4 "In respect of our pricing and programming certainty 5 exercise we have made the following assumptions." 6 Under "Design", it's set out: 7 "In those locations where the design is absent, we 8 are not able to fix our price. Typically these 9 include: Picardy Place, St Andrew Square, London Road, 10 York Place, Forth Ports area ..." 11 Now, to pause there, for those areas where design 12 was absent, and the consortium was not able to fix its 13 price, were provisional sums provided for those areas? 14 A. Sorry, I missed the question there. 15 Q. Yes. So in the locations where the design is absent, 16 there's then a list of examples. For those areas the 17 consortium is saying they're not able to fix its price, 18 was a provisional sum provided for those items? 19 A. That's correct. 20 Q. Thank you. Then the next assumption states: 21 "In areas where design is partial, we have made 22 reasonable assumptions based upon our experience and the 23 existing design information provided. Notwithstanding 24 material design changes we have a high level of 25 confidence in our pricing, eg Track Slab, Roads and 59 1 Pavements, Drainage section connections, all as 2 identified in our initial main submission." 3 Now, for those items referred to in that paragraph, 4 were the consortium providing a fixed price? 5 A. For track slab and -- well, roads and pavements are 6 partly qualified by the following statement where our 7 proposals were not in perfect alignment with SDS's 8 design or probably the Employer's Requirements. 9 But the track slab, as I was saying before, the 10 track slab is relatively simple and straightforward to 11 price. It's the preparation for the track slab and 12 the -- the below ground excavation, if any, that's 13 required that makes it a little bit more difficult. 14 Q. What I was wondering, in the preceding paragraph where 15 design was absent, the consortium said: we're not able 16 to fix our price and instead provisional prices were 17 offered, in situations where design was partial, were 18 the consortium offering to fix their price? 19 A. We were offering to submit a price, but it would have to 20 be read with the clarifications that we were 21 maintaining. 22 Q. The next paragraph -- 23 CHAIR OF THE INQUIRY: And if these assumptions or 24 clarifications changed, then you would expect a change 25 in the price? 60 1 A. It would -- well, it would depend on what way they 2 changed. We were -- we were being reasonably 3 consistent. If we got information that was letting us 4 drop a clarification or pricing assumption, then we 5 could change the price. 6 CHAIR OF THE INQUIRY: Yes. 7 A. We could reduce the price, probably. But it might have 8 been that the information we got meant that the 9 quantities went up and the price went up. 10 CHAIR OF THE INQUIRY: The price could vary up or down. 11 A. Absolutely. 12 CHAIR OF THE INQUIRY: Could I also ask you about the 13 building from wall to wall. Was that the initial plan 14 that the scheme would have construction from -- 15 including pavements, basically, and what you're doing 16 here is you're excluding the pavements? Or is this not 17 a change in -- 18 A. The -- this was all about the construction of the pieces 19 of on-street carriageway that were -- that were not part 20 of what I would call the tram box. We had proposed to 21 do what I would call minimum reconstruction on these 22 non-tram pieces, which was to use the existing kerbs and 23 use existing footway surface and pavement flags, and 24 just to skim off the road surface and put a new wearing 25 course down. 61 1 Because we had the impression, and it wasn't clear 2 in the Employer's Requirements, that we were expected to 3 fully reconstruct the pieces of carriageway that were 4 off the line of the tram, if you follow my logic. 5 CHAIR OF THE INQUIRY: I do. You have the impression that 6 you weren't to reconstruct anything beyond the kerb 7 line. 8 A. Well, again, it was just not clear, and we had -- we had 9 sought to clarify that what we were planning to do was 10 do as little as possible, and this was all in an effort 11 to keep the costs down. 12 CHAIR OF THE INQUIRY: Yes. Is that what you ultimately did 13 then, that you'd constructed from kerb to kerb, as it 14 were? 15 A. I'm not sure what we eventually did. You need to ask 16 some of my following. 17 CHAIR OF THE INQUIRY: Because if that's what was done, and 18 what was then done on the pavement under some other 19 budget of the Council, then to get a fairer picture of 20 what the tramline actually cost, should we be adding in 21 the pavement works? 22 A. I think whatever was done would -- was done by BBS. 23 Whatever was done to the pavements was done by BBS. 24 There's more to this as well. Using the existing 25 kerbs and in doing this minimal reconstruction, this 62 1 is -- geometry, this is going to get very complicated. 2 This is where I need a whiteboard. 3 The alignment of the track needs to follow pretty 4 much the alignment of the existing street. So to make 5 this deliverable, the SDS would have had to do some fine 6 geometry design to make sure that the tram was following 7 the existing road profile, if you follow my logic. 8 That was why we had gone into a reasonable level of 9 detail to show how it could be done and -- but at that 10 stage, I don't believe the SDS were instructed by tie to 11 do any review of vertical alignment geometry. 12 CHAIR OF THE INQUIRY: Thank you. 13 MR MACKENZIE: Thank you. In your answer, Mr McFadzen, you 14 referred to the tram box. Are you able to explain what 15 you mean by that? 16 You said: 17 "... this was all about the construction of the 18 pieces of on-street carriageway that were -- that were 19 not part of what I would call the tram box. We had 20 proposed to do what I would call" -- 21 A. What I'm talking about the tram box is, you know, if you 22 are looking at Princes Street in cross-section, you've 23 got the centre part where the trams run. So the tram 24 box is what is occupied by the track slab and the -- the 25 ducts for the communication system that are on the 63 1 outside of the track slab. That's what I'm talking 2 about as the tram box. 3 Q. Thank you. Now, returning to the document we were 4 looking at, another assumption, we see the final 5 sentence under the design part states: 6 "Design must be delivered by the SDS in line with 7 our construction delivery programme previously 8 submitted." 9 We then see under "General", various assumptions as 10 well. I think we'll just take all of them as read. 11 There's also a reference to not dealing with utility 12 diversions. 13 The next item, please, of correspondence to continue 14 this trail is CEC02086504. We see this is -- over the 15 page, please. It's again a letter from 16 Mr Willie Gallagher. Back to page 1, please, to 17 Mr Walker, dated 13 December 2007. So this now appears 18 to be, I think, the Thursday of that week. 19 We can see Mr Gallagher sets out in the first 20 paragraph: 21 "This letter is the product of the labours 22 undertaken since the announcement of BBS as the 23 preferred bidder and yet it gives little of the required 24 certainty we are seeking and without which we cannot 25 proceed. The seriousness of this in the context of the 64 1 approval of this Project cannot be overstated and unless 2 we can find some way forward which removes the 3 uncertainty, then my recommendation to the City of 4 Edinburgh Council will be that the Project should not 5 proceed." 6 I should pause. Do you remember seeing this letter 7 at the time? 8 A. I'm certainly aware of this kind of stuff going on. 9 These were the -- the threat to us was that -- we will 10 just not build the tram. So that was Willie Gallagher's 11 negotiating position and we -- we were having to, if you 12 like, cut the fine line between maintaining our risk 13 position and, if we could, help tie to get the tram 14 built. 15 Q. What do you mean by your risk position? 16 A. Well, we could have said, yes, we'll take risk for all 17 of the stuff that we've got no information for, and that 18 would have meant -- that would have been commercial 19 suicide. So we had to maintain our low risk position. 20 Q. Then the letter goes on: 21 "In reviewing your response to our 'particular 22 points 1 to 5', I have outlined below the form and 23 assurance we require against each: 24 10 Price Confidence - We will fix our price in 25 accordance with the attached schedule. 65 1 2) Price Level - we confirm that we will be able 2 to achieve the VE savings targets as agreed at the 3 preferred bidder date." 4 If we then please go over the page to page 2, we'll 5 see a reference to: 6 "I would ask that the BBS consortium reflect on this 7 letter and provide me with a formal response, including 8 completion of the attached schedule of prices, by 9 tomorrow 14 December." 10 I'll come back to the schedule referred to shortly, 11 but if we can go first to the modified assumptions, 12 I think that's CEC02086506. We can see at the top of 13 the document states: 14 "We have modified your assumptions to a form which 15 we believe is required." 16 Then under "Design", we can read for ourselves, but 17 I think in short what seems to have happened is that tie 18 have sought to remove almost all of the consortium's 19 design assumptions and replaced them with "see attached 20 file 'AnticipatedPrice.xls'". 21 I think the next sentence, assumption in relation to 22 pavements, that remained as the consortium assumption. 23 Then I think there's a brand new assumption under "Value 24 Engineering": 25 "It is accepted by tie, Bilfinger Berger and Siemens 66 1 that there is a joint responsibility to delivering the 2 VE target of 22 million and that each must assist fully 3 in the process and recognise that each bears an equal 4 share of any shortfall accruing." 5 Can you remember what the consortium's view or 6 reaction was to this quoting by tie in terms of the 7 revised assumptions relating to design? 8 A. On the value engineering? 9 Q. Well, do you remember in the previous document we looked 10 at, the consortium had set out certain assumptions in 11 relation to design? 12 A. Yes. 13 Q. So the first thing that's happened is that almost all of 14 these assumptions have been removed by tie and replaced 15 with "See attached file 'AnticipatedPrice.xls'". So 16 what was the consortium's view or reaction on tie 17 seeking to remove almost all of the design assumptions? 18 A. That we would resist removal of the assumptions. 19 Q. And then -- 20 A. Pretty fundamental to ... 21 Q. The next point, the addition of this value engineering 22 assumption, do you remember whether the consortium 23 accepted that? 24 A. Well, the value engineering -- the value engineering had 25 grown from -- I think it was 9 million at preferred 67 1 bidder stage to 22 million, and had just become more 2 unachievable. 3 Q. But do you see here tie are seeking to insert 4 an assumption that there's a joint responsibility to 5 deliver that target, and that each must assist fully in 6 the process and recognise that each bears an equal share 7 of any shortfall accruing. Did the consortium agree to 8 that? 9 A. No. 10 Q. I think we can then, under the assumptions under 11 "General", we can read them for ourselves, but I think 12 they largely have been left alone, as were set out by 13 the consortium previously. 14 Mr Gallagher's letter also referred to a schedule. 15 It might in fact be -- if we can scroll to the top of 16 this page again -- a reference to this Excel 17 spreadsheet, anticipated price. If we can go to another 18 document, CEC02086505. This is a dreaded spreadsheet, 19 but I think if we can look at the top left-hand corner, 20 we see a reference to base and then firm and 21 provisional. 22 Then we can just read for ourselves the heading of 23 each of the various columns, going from left to right. 24 If we then scroll to the far right, I think we will 25 see a total column, and three lines down, looking at the 68 1 numbers, if we can blow up, please, the third figure we 2 see in the right-hand column. So I think we can see in 3 column R the figure GBP208,700,342 which seems to be the 4 subtotal base. 5 Does this spreadsheet look at all familiar? 6 A. Well, the number 208.7 is about the preferred bidder 7 agreement. I thought it was about 210 million. So 8 208.7 is there or thereabouts. 9 Q. I see. So what tie may be doing is starting with the 10 figure in the preferred bidder agreement and then seeing 11 if various adjustments can be made. If we just follow 12 that through the schedule, if we can scroll back to the 13 far left-hand side, please, we can see the sub-heading 14 "Normalisation", and then below that, another 15 sub-heading, "Firm": 16 "Move item from provisional below." 17 If we then scroll back to the far right-hand side, 18 please, we see under the total column zero figures at 19 this stage for any movement from provisional to firm. 20 If we then go back to the left-hand part of the 21 document, we then see under "Provisional" various items, 22 and a subtotal for provisional normalisation. 23 Just to pause here, are you able to explain what was 24 going on here in terms of what normalisation was and 25 what tie's hope appeared to be to achieve items from 69 1 provisional to firm normalisation? 2 A. I'm -- I don't actually recall this schedule in 3 particular as being -- this, if you like, was tie's 4 offer. But I'm sure it would be because this was, if 5 you like, their style. 6 Q. The impression might be that what tie are hoping for is 7 that sums will be removed from provisional and will 8 become firm; does that seem correct? 9 A. Possibly. I don't really know what the background to 10 this was. 11 Q. Did that form any part of your discussions with tie 12 around this time, them saying we want to try to firm up 13 provisional sums? 14 A. Absolutely. I mean, I was involved in the -- what can 15 we firm up. 16 Q. So that in general is what tie were hoping to achieve? 17 A. Yes, absolutely. 18 Q. If we can scroll down a bit more, please, we'll also see 19 a sub-heading, "Value engineering", and we can then see 20 a reference to "firm", and then "provisionals". So 21 I think that's firm value engineering sums and 22 provisional value engineering sums. 23 Again, was there any sort of exercise in trying to 24 take provisional value engineering sums to become firm 25 value engineering sums? 70 1 A. That was tie's goal, was to make value engineering firm, 2 and I think the words in the Wiesbaden Agreement reflect 3 that. 4 Q. If we could then finally please carry on scrolling down 5 to the very bottom. Do we see a total anticipated 6 value, and if we could then scroll to the right, please, 7 I think we can see in red the figure GBP203,664,794. 8 Now, on the face of it, it may be tie were by some 9 process trying to go from the preferred bidder price to 10 the figure in red we see there. Is that correct? Do 11 you have any recollection of that? 12 A. That's what it looks like. Again, it's not a piece of 13 work that I'm really familiar with. But it was typical 14 of the time. 15 Q. Thank you. Let me ask you this. Whatever figures were 16 agreed, and whatever figures were entered in this 17 spreadsheet, did it remain subject to any assumptions or 18 conditions that had not been bought out, to use your 19 language? 20 A. Absolutely. 21 Q. I would like now to put that to one side and turn to the 22 meeting in Wiesbaden we've heard about. 23 I may be corrected, but I think the evidence 24 suggests that took place on Thursday 13 and Friday 14 25 December. You say in your statement you weren't present 71 1 at the meeting; is that right? 2 A. I wasn't present at the meeting, and I think I said in 3 my meeting who I thought was there, and on further 4 reflection and discussion, I think Ian Laing of 5 Pinsent Masons was not there. 6 Q. If we could please go to your statement at page 26. In 7 paragraph 93, you say: 8 "It would be correct to say that we could firm up on 9 certain items for GBP8.2 million, but only if we had the 10 design information." 11 What do you mean by that? 12 A. Well, we could -- it's as it says there. We could firm 13 up on 8.2 million. I think there is a letter from 14 Richard to Willie Gallagher saying that, and it's a list 15 of items that we had priced as provisional that we said 16 we could take. 17 Q. Yes. I think we had seen that just a moment ago in 18 Mr Walker's letter of 12 December 2007. It may be 19 thought the impression given from that was that these 20 provisional items could become fixed by adding the 21 GBP8.2 million. I just wonder why you add the extra 22 qualification that only if you had the design 23 information? 24 A. The clarification that we needed design information was 25 maintained throughout and even in writing up the 72 1 Wiesbaden Agreement from what had been agreed verbally 2 to what was signed on 20 December, that clarification 3 which became a Pricing Assumption was maintained that we 4 needed design information. 5 Q. Now, you've said you weren't present at the meeting in 6 Wiesbaden. Was there any reporting back to you on what 7 was happening or what had happened? 8 A. There might have been phone calls, but I -- it was a -- 9 this was happening above my level. You know, 10 Richard Walker was my boss and Joachim Enenkel was 11 Richard Walker's boss. So it was -- they didn't really 12 need to report to me. 13 Q. You also -- if we can go, please, to page 27 of your 14 statement. In paragraph 100, the very bottom, you say: 15 "I was not really kept informed of on-going 16 developments at the meeting because the serious 17 discussions happened quite late at night, and into 18 14 December 2007." 19 How do you know that the serious discussions 20 happened quite late at night? 21 A. Well, this was Richard Walker feeding back to me on 22 either Friday the 14th or Monday the 17th. 23 Q. What did Mr Walker report back on what had been 24 discussed and what, if anything, had been agreed? 25 A. I mean, he reported back on -- on what had been 73 1 discussed and agreed at the meeting, which, on Monday 2 the 17th, we then had to start writing up into a formal 3 agreement. 4 Q. What did you understand were the main things that had 5 been discussed and possibly agreed? 6 A. I -- I thought -- as Richard described it to me, 7 I thought we had agreed to take on a bit more risk than 8 I thought we should, and -- and that's -- so that was 9 the -- that was the basis for me assisting with the 10 writing up of the agreement. 11 Q. Now, you say: you think you had agreed to take on a bit 12 more risk than you thought we should; in relation to 13 what? 14 A. It sounded like that to me. So -- at this stage, this 15 was verbal -- well, it was all verbal because it had 16 just been an agreement and a handshake at a meeting. 17 Q. But in what ways did you consider that the consortium 18 had agreed to take on a bit more risk than you thought 19 they should? In relation to which items? 20 A. Sorry? 21 Q. Yes. I'm just trying to explore. You say that -- you 22 said "I thought we had agreed to take on a bit more risk 23 than I thought we should", and I was wondering, risk in 24 relation to which items? 25 A. Some of the risks to do with design. It wasn't clear to 74 1 me from the -- the way the meeting agreement, the verbal 2 agreement had been made, whether we had or -- well, it 3 sounded to me like we had agreed to take on a bit more 4 design risk, and I didn't think that was the right thing 5 to do. 6 Q. What had Mr Walker said to you to make you think that? 7 A. I can't remember, but, I mean, it was -- it must have 8 been something significant because in one of the 9 documents I got last Friday, I think I even put it down 10 on an email that I was concerned about the -- the 11 agreement that had been made at Wiesbaden. Which was me 12 kind of covering my tracks for the future. 13 Q. We may come on to that. 14 So Mr Walker has come back from Wiesbaden. We're 15 now on to the Monday. What then happened that week? 16 A. We wrote down what we believed was the agreement 17 reached, and there are a number of email exchanges 18 between BBS and tie and ultimately there was a document 19 on 20 December that was signed and agreed as being the 20 Wiesbaden Agreement. 21 Q. Was the Wiesbaden Agreement drawn up and agreed by 22 people who had been present at the meeting in Wiesbaden? 23 A. It was always done with reference to people that had 24 been present at the meeting. So even though people like 25 myself, who were not present at the meeting, I was 75 1 always referring stuff to Richard. And Richard would 2 spend most of that week, I think, in Edinburgh. 3 Q. Thank you. 4 I would like then to go on to one of the drafts of 5 the Wiesbaden Agreement, to see what it says. It's 6 CEC00547729. And this is going to come up on the 7 screen. It's a draft from 18 December 2007. We can see 8 the date there. 9 I'm just going to, for the transcript, say that the 10 wording -- I'm going to take you to in relation to 11 design, we will see the same or at least a very similar 12 wording in a draft dated 14 December, which is 13 CEC00547724. 14 Let's look at this draft, from 18 December, on 15 page 3, please. In paragraph 3.3 we can see: 16 "Detailed designs - BBS included in their price for 17 the construction cost risk in the development and 18 completion of detailed designs being prepared by SDS, 19 save for: 20 a) Any future changes to elements of the design 21 for civils works that are substantially different 22 compared to those forming the current scheme being 23 designed by SDS." 24 And the rest we can read for ourselves. 25 Was that the wording which gave you concern? 76 1 A. Yes. 2 Q. Why? 3 A. That was one of them. Because at that point we had 4 maintained a position that our price was based on the 5 SDS's design, and that if the SDS changed their design, 6 pretty much in any way, we would be entitled to be paid 7 more or paid less for that change. And this -- that 8 clause there was appearing to take a little bit more 9 design risk than I thought we had corporately agreed to 10 take. 11 Q. Can you remember, was there any discussion with 12 Bilfinger Germany around this time in relation to these 13 matters? 14 A. I -- I'm not sure, but I don't think so. I think 15 Bilfinger Germany were leaving this pretty much to 16 Richard Walker and Gary Dalton and myself. 17 Q. Thank you. I would like to go to an email now, please, 18 CEC00547732, dated 19 December 2007. In the second half 19 of the page, we can see an email from Richard Walker 20 dated 19 December 2007, copied into -- it's to 21 Mr Gilbert and to yourself, copied into Michael Flynn of 22 Siemens. 23 Mr Walker states: 24 "Thanks for your latest updates. In respect of new 25 clause 3.7, the description is fine ... 77 1 Secondly, having consulted with my team and 2 reviewed emails and meeting minutes, our firm price 3 including the additional GBP8 million to fix the 4 'variable' sums noted in our tender is based on all the 5 additional information which we received from SDS via 6 the four number CDs. The last of which was delivered to 7 us on 25 November 2007. We therefore insist that our 8 contract be related to this." 9 Do you remember this email? 10 A. Yes. But, I mean, this would be part of my trying to 11 make the -- the Wiesbaden Agreement fit with what 12 I believed was BBS's corporate position, that we were -- 13 our offer was based on the 25 November drawing. 14 Q. Did you discuss this email with Mr Walker before it was 15 sent? 16 A. I would have, yes. 17 Q. Did you -- 18 A. I couldn't say I did or I didn't. But I'm absolutely 19 certain I was in the discussion that led to that. 20 Q. Please, of course, just say if you don't remember 21 something, please just say that. 22 Did you prompt this email? 23 A. I don't think so, no. I think this was just an email 24 that was borne out of a discussion probably between 25 Richard Walker and Gary Dalton and Tom Murray was the 78 1 commercial manager in the office. 2 Q. If we could scroll up the page, please, we can see 3 Mr Gilbert's response on 19 December 2007 to Mr Walker. 4 Point 2: 5 "Don't understand what this really means and will 6 call now to discuss." 7 Do you recollect any discussion around this time 8 between Mr Gilbert and Mr Walker on this point? 9 A. There was probably a discussion between Mr Gilbert, 10 Mr Crosse, Mr Walker and me on this point. 11 Q. Do you remember when that took place? 12 A. Well, it must have taken place on 19 December. That's 13 11 minutes past 9. It must have taken place on the 14 19th because the agreement was signed on the 20th. 15 Q. What was discussed and what was the outcome of the 16 discussion? 17 A. Well, it would be clarifying the point on the -- our 18 offer, our interim offer, being based on the 25 November 19 design. 20 Q. Did tie appear to accept that point? 21 A. Well, they accepted it because they signed the agreement 22 on 20 December. 23 Q. During the discussion you've mentioned, do you have any 24 recollection of those from tie who were present 25 saying: okay, we now understand your point and we accept 79 1 it; or was the matter left open-ended? 2 A. It was never quite as -- as clear as that. It was 3 accepted insofar as the agreement was signed. This is 4 just negotiation and getting to a point of agreement. 5 Q. Could I then please go to another email, CEC00547738. 6 We can see this is from Geoff Gilbert, dated 7 19 December 2007, it appears to be 19.43 in the evening, 8 to Richard Walker. You don't appear to be copied into 9 this one. 10 Mr Gilbert states: 11 "Richard, we went through this at the Board today 12 and generally everyone was okay with it. However, to 13 get CEC's buy we need to make a few changes ... I don't 14 think there's anything controversial in this, but call 15 me if you wish to discuss." 16 So on the face of it, a draft of the Wiesbaden 17 Agreement appears to have gone to a Board that day. If 18 we then look, please, at the draft of the Wiesbaden 19 Agreement attached to this email, we should find it is 20 CEC00547739. 21 We can see the date there, 19 December 2007. If we 22 can go, please, to page 3. Again, at paragraph 3.3, we 23 can read for ourselves what is said, but I think the 24 wording in the introductory passage is the same, or at 25 least very similar, as is, I think, the wording in 80 1 subparagraph a), with the addition of the words "as 2 typically represented by the drawings issued to BBS with 3 the design information drop on 25 November 2007". So 4 that seems to be an addition to the wording; is that 5 correct? 6 A. Yes. 7 Q. Then another email, please. CEC00547740. We can see 8 towards the top email, please, from Richard Walker, sent 9 on 20 December 2007. So this was the day the Wiesbaden 10 Agreement is signed. Just after 6.00 in the morning, 11 sent to Mr Gilbert, and to yourself, and Mr Walker 12 states in this email: 13 "We still have issues with accepting design risk. 14 We have not priced this contract on a design and build 15 basis always believing until very recently that design 16 would be complete upon novation. With the exception of 17 the items marked provisional which we have now fixed by 18 way of the 8 million, we cannot accept more drain 19 development ..." 20 I think Mr Walker accepts in his email that is 21 a typo, and it should be "design development": 22 "... other than minor tweaking around detail. Your 23 current wording is too onerous. Trust we can find 24 a solution." 25 Do you remember this email? 81 1 A. I don't remember the email, but I do remember the 2 discussion on building up to how -- how we agreed the 3 risk we were taking in terms of design development. 4 Q. Were you also of the view at this time that the current 5 wording on the draft remained too onerous for the 6 consortium? 7 A. Yes. 8 Q. Go to another document, please. CEC00547737. We can 9 see this is an email from Matthew Crosse, dated 10 19 December 2007, sent just after 6.00 pm, and we can 11 see subject: 12 "Agenda for Progress meeting at 11.00 tomorrow. 13 Please see below for tomorrow ... I think we need 14 at least 2 hours. 15 1. Sign agreements (Mobilisation and Contract 16 price Agreement)." 17 So on the face of it, it looks as though a meeting 18 was planned for 11 o'clock on 20 December to include 19 various matters, including signing the Wiesbaden 20 Agreement; is that correct? 21 A. That was the intention of the meeting. 22 Q. Do you recall what -- I should say first, did a meeting 23 take place on 20 December? 24 A. It would take place, but I don't recall whether it did 25 or it didn't. But it would take place. 82 1 Q. Do you recall any discussion at a meeting around this 2 time in relation to the wording in the draft agreement 3 in relation to design? 4 A. I don't know whether it had been -- I can't recall 5 whether it had been sorted out by 11 o'clock or not. 6 Q. We'll come to the final signed agreement shortly, but 7 we'll see there is a change to the wording on design. 8 I just wondered if you have any recollection of the 9 meeting that took place that came up with the final 10 wording on design. 11 A. I would be involved. I don't have a particular memory 12 of -- I remember the week because it was quite a hectic 13 week, but I don't have any particular memory of the 14 meeting that finally, finally agreed the form of wording 15 that we would accept as part of the Wiesbaden Agreement. 16 Q. But just for the avoidance of doubt, which individuals 17 from the consortium and from tie are likely to have been 18 present at the meetings that week? 19 A. Yes. 20 Q. Which individuals from the consortium were present at 21 these meetings? 22 A. Sorry, I -- I think this was what I would call a big 23 boys meeting, that Richard Walker and Michael Flynn 24 would be there as well as Stephen Wright and myself. 25 Q. How about on tie's side? Who were involved in these 83 1 meetings during this week? 2 A. Matthew Crosse, Geoff Gilbert, probably Bob Dawson. 3 Q. We'll then go, please, to the Wiesbaden Agreement in its 4 final form, if I may. It's CEC02085660. We can see 5 this is dated 20 December 2007. If we can go, please, 6 to page 5. You can see at paragraph 2.1: 7 "The negotiated price for Phase 1a is 8 GBP218,262,426. Details of the build-up ... are set out 9 in appendix A." 10 Then 2.2: 11 "The agreed Value Engineering items ..." 12 Set out in the appendix. 13 I should pause to ask: did you have a view around 14 this time of whether the agreed value engineering items 15 were realistic and achievable? 16 A. I thought the agreed value engineering items were not 17 achievable. 18 Q. I'll come back to that again when we look at the final 19 version of Schedule 4. 20 Sticking with this item, 2.3: 21 "Provisional sums (previously normalisations) 22 included within the price are as set out ..." 23 In another appendix. 24 So the same question: did you have a view at this 25 time in relation to whether the provisional sums were 84 1 realistic and achievable? 2 A. Well, the provisional sums were just that. They were 3 provisional sums that were just put in there to add up 4 to the total. Whether they are or are not is in my 5 view, is irrelevant. Provisional sums are the best we 6 can do. 7 But the provisional sums were not challenged by tie 8 or anything like that. So I don't really have a view on 9 whether they were realistic or not. 10 Q. I'll come back to that again once we get to Schedule 4. 11 But sticking with this, paragraph 2.4 states: 12 "All other prices are fixed and firm, based on the 13 Basis of the Price as set out below." 14 If we scroll down, please, to paragraph 3.3 and see 15 what's said about design. I think we can now see 16 changed wording. What's set out is this: 17 "The BBS price for civils works includes for any 18 impact on construction cost arising from the normal 19 development and completion of designs based on the 20 design intent for the scheme as represented by the 21 design information drawings issued to BBS up to and 22 including the design information drop on 23 25 November 2007. The price excludes ..." 24 Various things are set out. 25 If we then please go over the page to page 7, 85 1 I think it is, we can see at the top of the page: 2 "For the avoidance of doubt normal development and 3 completion of designs means the evolution of design 4 through the stages of preliminary to construction stage 5 and excludes changes of design principle, shape and form 6 and outline specification." 7 Now, I think this introduces the concept of normal 8 design development for the first time, together with the 9 exclusion to normal design development. Does that tie 10 in with your recollection? 11 A. Yes. 12 Q. Do you know whose wording this was? 13 A. It would be -- I don't remember whose wording it was in 14 particular. This would be after discussion with the 15 team. That was -- these were the words that we thought 16 correctly reflected our willingness to take risk on 17 design. 18 Q. If we could then go back, please, to the previous page, 19 page 5, it may be, again, if we can just go back to 20 clause 3.3, please, and remind ourselves of that 21 wording. What was your understanding of what this meant 22 at the time, in particular in relation to what design 23 risk the consortium were taking on? 24 A. As in the risk on normal development and completion of 25 design? 86 1 Q. Just generally, what was your understanding of what this 2 provision meant? 3 A. Well, I haven't quite got the -- 4 Q. Yes. So we see in clause 3.3, we see the wording, and 5 I'm simply wondering what your understanding was at the 6 time of what that wording meant? 7 A. Well, our -- we were looking to limit our design risk to 8 what I would call normal design and build risk. So 9 things like section depth increasing from 1 metre to 10 1.1 metres, or reinforcement content increasing from -- 11 I think I've got this in my statement -- increasing from 12 250 kilograms a cube to 255 kilograms. That's what you 13 would normally expect to accept the design and build 14 risk on. 15 What we were trying to guard ourselves against was 16 that a bridge had to be wider because it had to 17 incorporate a footway, or that it had to be wider 18 because of a footway going under it. So the span got 19 bigger. And stuff like that. 20 So that was -- that was -- the intent was to contain 21 the limit of our risk exposure to that extent. 22 Q. And if we go back to page 7, please, to look at the 23 exception, we can see the top of the page again: 24 "... normal development and completion of designs 25 means the evolution of design through the stages of 87 1 preliminary to construction stage and excludes changes 2 of design principle, shape and form and outline 3 specification." 4 If one excludes all these items from normal 5 development and completion of designs, what's left? 6 A. There's -- that's just the risk that we were prepared to 7 take. 8 Q. I'm simply trying to understand what this passage does. 9 It expressly excludes certain things from the definition 10 of normal development and completion of design, but what 11 it doesn't seem to do is say what's left included within 12 the definition. 13 A. Well, that is the -- it is to exclude things like shape 14 and form. So it does include increases in section size, 15 increases in reinforcement content. That's why we 16 considered it to be the normal risks we would expect to 17 take in design and build. 18 Q. Did you consider this provision, and by that I mean the 19 whole of 3.3, at the time was clear in its meaning? 20 A. It was clear in my mind that that was the risk we were 21 taking, we were prepared to take. 22 Q. Reading the wording again today, do you still think this 23 provision is clear in its meaning? 24 A. Yes. 25 Q. Now, we also know that discussions continued between the 88 1 consortium and tie between January and up to May 2008. 2 We know that this wording, or at least a variation of 3 it, found its way into Schedule 4 of Infraco contract. 4 Now, to what extent was what was set out in the 5 Wiesbaden Agreement in relation to design open for 6 further discussion between January and May 2008 and to 7 what extent, if at all, was what was set out intended to 8 be closed and not open for further discussion? 9 A. We -- in the period from Wiesbaden to contract -- the 10 contract date of May, we maintained our position on 11 design risk. And as you say, this was words that were 12 actually put into the Schedule Part 4. 13 Q. Do you recall whether there was any attempt to re-open 14 or re-discuss what we just looked at? 15 A. I think there was, but, I mean, I wasn't personally 16 involved in attempts to renegotiate that. 17 Q. To what extent, if at all, were you involved in the 18 Schedule 4 discussions between January and May 2008? 19 A. A significant amount. I was at most of the meetings 20 that discussed. 21 Q. Thank you. I would like to move on now to -- 22 CHAIR OF THE INQUIRY: Before doing that, there's the 23 handwritten addition in 3.4(c). Do you know who added 24 that? I know it's initialled by two people, but was 25 that added by the instigation of Bilfinger or was 89 1 that -- Infraco, rather, or was that put in by tie? 2 A. Was the -- 3 CHAIR OF THE INQUIRY: If you look at the document, 3.4, 4 paragraph c) is handwritten. So it speaks about 5 conflicts between the obligations in the Employer's 6 Requirements and the SDS design, the decisions in the 7 Employer's Requirements will prevail. 8 A. Yes. 9 CHAIR OF THE INQUIRY: Was that put in by tie or by -- 10 A. I'm pretty sure that is Geoff Gilbert's handwriting and 11 it was written in there, albeit it was signed by -- 12 CHAIR OF THE INQUIRY: Yes. It's part of the contract. 13 A. BBS. 14 CHAIR OF THE INQUIRY: Thank you. 15 MR MACKENZIE: Thank you. 16 Could we move on then, please, to January 2008, to 17 document CEC01529968. We can see these are notes of 18 a meeting on 15 January 2008. You're noted as being 19 present. Under item 1, "SDS Programme", we see the 20 second bullet point: 21 "BBS stated that they qualified their bid such that 22 they would not take any risk in respect of the SDS 23 programme." 24 Then after that: 25 "BBS want stronger control and incentivisation of 90 1 the SDS performance." 2 Then: 3 "BBS want tie to take risk on SDS programme 4 performance." 5 Then: 6 "BBS expressed concern that SDS's programme is 7 slipping." 8 Do you recall any discussion of these matters around 9 this time? 10 A. Yes. It was continuing concern that we had that the 11 design programme slipped and slipped. 12 Q. Then under the next item, 2, "Programme and 13 Enforceability", we see the final bullet point: 14 "Geoff Gilbert explained that details of what the 15 contract price represents will be defined in detail in 16 Schedule 4. Any changes from this will be a tie 17 change." 18 Do you recollect any discussion of these matters 19 around this time? 20 A. Yes, this was about the time that all of these 21 discussions were taking place. 22 Q. What was the relevance of Schedule 4 and any changes 23 from that being a tie change? 24 A. Well, I think this was the developing picture on how to 25 deal with change that eventually became -- became 91 1 embedded in the contract. 2 The SDS's programme was part of that change 3 mechanism and became Pricing Assumption number 1, 4 I think. 5 Q. Go back to your statement, please, at page 36. 6 Paragraph 133, we'll see reference to on 4 February 2008 7 you sent an email to Bob Dawson attaching a Schedule 4 8 Pricing Assumptions document. 9 You explain: 10 "The Pricing Assumptions were fundamental because of 11 what was not fixed in our price ... In a normal 12 negotiation, the client slowly buys out the Pricing 13 Assumptions. It is possible to fix the price, but this 14 costs more, and delivers less. Schedule 4 and the 15 change mechanism probably formed the main part of 16 discussions in the run up to 14 May 2008." 17 Another document, please, to continue matters in the 18 chronology. The Rutland Square Agreement, which is 19 CEC01284179. Before we look at it, do you remember what 20 the purpose of this agreement was, the Rutland Square 21 Agreement? 22 A. What the purpose of -- 23 Q. The Rutland Square Agreement was. 24 A. Well, it was -- it was -- it was another step in the 25 negotiations. I can't remember in particular what it 92 1 was about, but it would be, I guess, about trying to 2 make more of the provisional items, non-provisional and 3 take them into the price. 4 Q. If we go then please to page 2, we see under 5 paragraph 1.1, reference to an agreed construction 6 contract price for phase 1a of GBP222,062,426. 7 Then please go to page 3. In clause 2 there's 8 a reference to: 9 "tie and the BBS Consortium agree that under no 10 circumstances shall the Construction Contract Price ... 11 be increased” ... except in respect of 2.1. 12 The reference to the changes to the Employer's 13 Requirements, and 2.2, the resolution of the SDS 14 residual risk issue. 15 Then paragraph 4, please, it provides that: 16 "The SDS Residual Risk Issue relates to the 17 provision of adequate design information, and 18 particularly earthworks design by SDS and the recovery 19 by the BBS Consortium of costs and expenses from SDS in 20 the event that their designs are inadequate." 21 I'm not sure I fully understand what the SDS 22 residual risk issue is. What was your understanding of 23 that at the time? 24 A. Well, my understanding of the time was that the SDS -- 25 the residual risk in the SDS was that the -- the big 93 1 thing was that the design was incomplete, and we had 2 expected it to be complete. And there were big gaps in 3 it, and particularly in earthworks and the like. 4 But just going back to your previous question on 5 what the Rutland Square Agreement was about, a big 6 element of that was the three-month delay on the 7 contract. So there were additional preliminaries priced 8 into the -- into our price for -- to cover that 9 three-month delay. 10 Q. And did that increase the price? 11 A. It increased the price. 12 Q. Then please go to page 7. We can see this is 13 a schedule, Infraco Contract Suite close-out. There's 14 one matter I would like to try and clarify, please. 15 Over the page at page 8, bottom of the page, clause 3.2: 16 "The BBS Consortium's agreement to novate SDS is 17 confirmed and the novation agreement is to be finalised 18 based on tie's position as agreed on 5 February 2008." 19 Do you have any recollection of what tie's position 20 as agreed on 5 February 2008 was? 21 A. No. 22 Q. It doesn't ring any bells? Okay. 23 Could we then finally in this document go to 24 page 27. This is a paper at the end of the document. 25 It's headed "SDS Novation - RODs". 94 1 Do you know what ROD stands for? 2 A. I would at the time, but suffer from abbreviation 3 overload. 4 Q. It may be review of designs; could that be correct? 5 A. It could be. 6 Q. We then -- 7 A. It looks like it. 8 Q. Set out: 9 "Agreed that: Design Growth: The design information 10 which provided the basis for BBS's price will be 11 a pricing assumption under Schedule 4. The risk of 12 design 'creep' accordingly lies with tie." 13 To pause there, did you have an understanding at the 14 time of what that meant? 15 A. Yes. Design creep again is one of the risks that you 16 sometimes take on in design and build that if -- if 17 bridges get a metre bigger than span, or add walkways or 18 things like that, then that is a risk. 19 Q. What I don't understand is that in this situation, where 20 design is only about 60 per cent complete, it's 21 inevitable that another roughly 40 per cent requires to 22 be completed. Now, is that design creep or is that 23 simply the completion of design? 24 A. That's just completion of design. Design creep is 25 where -- as I say, where bridges get wider or 95 1 underpasses get bigger in span, or high quality 2 materials are incorporated in tram stops that were not 3 in -- were not priced in our offer. 4 Q. So did you understand -- if you can't remember, just say 5 so. Did you understand the reference to design creep to 6 mean something different to the missing roughly 7 40 per cent of design? 8 A. No, it was -- it was in the -- the design that we did 9 have some detail for that could have been subject to 10 design creep as well as -- the missing information was 11 just missing information. 12 Q. The next paragraph states: 13 "Design quality: Infraco will take the risk in 14 relation to design quality (eg buildability and the risk 15 that the design has been negligently performed)." 16 I think that was a risk that Infraco did take on; is 17 that correct? 18 A. Yes. 19 Q. Then a reference to: 20 "It is assumed that tie will nevertheless retain the 21 risk that losses exceed the SDS cap, to be confirmed." 22 If we then also look two bullets down: 23 "Late Delivery of Design: tie and SDS will agree 24 liquidated damages for late delivery of Ready for 25 Construction design. tie will hold the Infraco harmless 96 1 under the Infraco Contract in respect of time and costs 2 incurred as a result of the late delivery of the design 3 by SDS which exceed the liquidated damages recoverable 4 from SDS under the SDS Contract. Recovery of liquidated 5 damages will be an Infraco risk." 6 What did you understand had been agreed there? 7 A. No, not while -- not really. I'm not really familiar 8 with this -- this level of detail on the Novation 9 Agreement. 10 Q. Go to a different document, please. DLA00006338. We 11 can see this is produced by the consortium, Design Due 12 Diligence Summary Report. At the bottom, the date of it 13 is 18 February 2008. Do you recall this document? 14 A. Yes. 15 Q. If we can go, please, to page 3, what was the purpose of 16 this document? 17 A. This had been -- well, this was an ongoing request that 18 we would carry out due diligence on the SDS's design, 19 and therefore issue a report at the end of it. 20 So it was to -- it was to advise tie that we had -- 21 we were content with the SDS's design as much as it had 22 been presented to us. 23 Q. If we also perhaps go to page 4. In the third 24 paragraph, we see a reference to: 25 "In order for BBS to understand the risks associated 97 1 with the SDS novation at this stage ..." 2 Was that another one of the purposes of carrying out 3 this exercise? 4 A. For example, is to satisfy ourselves that they hadn't 5 grossly under-designed any of the structures, so that you 6 know what I was saying before about a metre thick slab 7 becoming 1.1 metres. That is, if you like, acceptable, 8 whereas a 300 thick slab becoming a metre thick slab is 9 not really acceptable. We would have been claiming 10 their insurance or something like that. 11 So that was what due diligence was about. 12 Q. Then back to page 3, please. I'm not going to read out 13 all of this. We looked at this before. But if we can 14 go to the final paragraph, please, we can read for 15 ourselves what is set out, and then the final bit that: 16 "A novation is considered to present significant and 17 unforeseeable risks to the project." 18 Did you agree with that at the time? 19 A. Yes. 20 Q. What were the risks? 21 A. If the SDS continued to underperform, it would impact on 22 the construction programme and would ultimately delay 23 completion of the tram project. It was a real risk. 24 Q. What did the consortium do to protect itself against 25 those risks? 98 1 A. We sought to -- if you like, improve relationships with 2 the SDS and introduce them to what we expected once they 3 were novated to us. So that, if you like, was a risk 4 mitigation measure. 5 And to some extent the improvement in relationships 6 took place in 2007, but I don't think it ever delivered 7 real improvements in SDS performance. 8 Q. Did the consortium seek to protect itself from the 9 contract at all in relation to these risks? 10 A. From the performance to programme risk, yes, was Pricing 11 Assumption number 1. 12 Q. Next document, please. CEC01450025. We can see it's an 13 email from yourself dated 26 February 2008, to various 14 individuals in tie, et cetera. You say: 15 "Matthew, et cetera, please find enclosed revised 16 Civil Infraco Proposals. 17 There is a reference to the Design Due Diligence 18 Summary Report in it and I have therefore attached 19 a further copy. 20 Appendix A, the schedule of design documents, is 21 not complete and will be added later." 22 I think just as an aside, that became, I think, 23 Appendix H of Schedule Part 4 of the Infraco contract 24 and in fact was never completed. 25 Do you know why that was? 99 1 A. It did become Appendix H, I believe that was something 2 that should have happened, that Appendix H should have 3 been completed inasmuch as there should have been a list 4 of drawings and documents included in it. 5 Q. If we go to the revised civil proposals, please, it's 6 CEC01450027. If we can start at page 7, please, just to 7 finish this point. We can see Appendix A document list, 8 and it's blank. So it hadn't been completed at this 9 stage, and I think, as we know, that never happened. 10 But back, please, to page 1. If we blow up what's 11 said under "Introduction", this whole page, please. 12 We can see the first paragraph: 13 "BBS proposals for Civil Works are generally as 14 illustrated by the SDS Design, to be developed and 15 finalised to IFC status under BBS Design Management 16 procedures. 17 The Design is, at present, incomplete and doesn't 18 fully or accurately illustrate our proposals at this 19 stage ..." 20 Next paragraph: 21 "It is BBS's intention that the Design will, where 22 possible, be subject to change where: 23 1) It is not in accordance with BBS Pricing 24 Assumptions, Part 1 of Schedule 4 of the Infraco 25 Contract and/or 100 1 2) It is not in accordance with BBS Programme 2 Assumptions." 3 I should also, in the previous paragraph, have 4 referred to, it states: 5 "We refer to the Design Due Diligence Summary 6 Report ... which should be read in conjunction with 7 these Proposals." 8 What was the purpose of inserting that, that the 9 proposals should be read in conjunction with the Design 10 Due Diligence Report? 11 A. Well, the Design Due Diligence Report -- it's a good 12 tool for describing what the scope of the works are that 13 we had reviewed all of the design that was going to 14 be -- was going to be our design on novation. 15 If you like, it was a convenience to saying: these 16 are the Infraco proposals and the Design Due Diligence 17 Report is part of these proposals. 18 Q. Was it a qualification in any way? 19 A. I -- well, these are my words. I didn't really intend 20 it as a qualification. 21 Q. So was reference made to the due diligence report as 22 an indication of what the consortium were proposing to 23 build? 24 A. The drawings that we had done due diligence on were -- 25 were our proposals, except for where we had, if you 101 1 like, a better idea. So things like the drawings that 2 we were -- that didn't show the minimal reconstruction 3 on the street works, things like that, we were going to 4 develop these into for construction drawings, to reflect 5 our proposals. That's not very well said, but ... 6 Q. Then the passage: 7 "It is BBS's intention that the Design will, where 8 possible, be subject to change where: 9 1) It is not in accordance with BBS Pricing 10 Assumptions, Part 1 of Schedule 4 of the Infraco 11 Contract ..." 12 What was meant by that? 13 A. That's an illustration of what I was saying, that the 14 things that we were wanting to change, like the street 15 works reconstruction, and the -- go back to the piling 16 on the A8 underpass, these were the items that we would 17 expect to change. 18 Q. In short, I think it's quite clear from these civils 19 proposals that there are going to be design changes; is 20 that correct? 21 A. Yes. 22 Q. So the only question then is whose cost or risk? 23 A. Well, it would depend on the nature of the change. If 24 it was something that we were just improving, then we 25 would expect it to cost -- we would be changing it to 102 1 make it cost less. 2 Now, the complication there was that that may have 3 been a value engineering item in which we would have had 4 to pass on the saving to the employer. 5 Q. If we can then please go over the page to page 2, and 6 under, by way of example, trackform, we see a reference 7 to "Design to be completed and all consents and 8 approvals obtained". We can then see for ourselves that 9 same or very similar sentence appearing under the other 10 items, at least on this page, and in fact that appears 11 throughout these civil proposals. 12 So in short, the reference to "design to be 13 completed and all consents and approvals obtained", who 14 was to do that? 15 A. That is where required -- there were things -- you know, 16 on vertical alignment, for example -- it's more relevant 17 to some of these headings than others. On vertical 18 alignment, it was subject to a consent. We couldn't 19 just redesign a bit of vertical alignment, or SDS 20 couldn't just redesign a bit of vertical alignment 21 without referring it to the consenters, who in this case 22 were the City Council. 23 Q. Presumably, after SDS novation, it would be 24 a requirement of the consortium to ensure that design 25 was completed and all consents and approvals obtained? 103 1 A. Was maintaining the -- if you like, the procurement 2 strategy that -- that the SDS would complete the design 3 and get all the consents. 4 Q. Put it this way. These civils proposals in 5 February 2008, I assume what you're not saying is that 6 you expect tie to complete design and obtain all 7 outstanding consents and approvals? 8 A. Well, we were expecting SDS to complete the design and 9 get the consents. 10 Q. After SDS novation? 11 A. Yes. So we had a pricing assumption to cover, that if 12 that delayed the construction works, then we would be -- 13 we would recover the cost of that delay. 14 Q. I understand. 15 Next document, please, is TIE00078797. 16 We can see at the very top, headed "Infraco Proposal 17 Discussion". If we can scroll up a bit more, please. 18 We see meeting date 27 February 2008. Document 19 under discussion is the document we just looked at, the 20 Infraco proposal. We can see for ourselves who is 21 present. 22 I think you are noted as having been present by 23 telephone. Do you have any recollection of this 24 meeting? 25 A. Yes. I mean, the in particulars, this meeting discussed 104 1 the -- the drawings that illustrated our proposal for 2 street works, and that's number 5, 27 hand annotated 3 drawings and BBS illustrated cross-sections. 4 So that was part of the Infraco proposals. 5 Q. Okay. At the top of the page, under "Comment 6 Introduction". This appears to be a comment by tie 7 under row 9: 8 "General comment, proposal fails to meet 9 expectations. Not precise, opens up opportunity to 10 propose changes in the future. 11 Does not describe the scope of work to allow 12 a commercial baseline to be provided and is therefore 13 unacceptable." 14 Do you have any comments on that comment? 15 A. No. It was, if you like, typical of the time that this 16 was a very demanding client and wasn't happy with pretty 17 much everything that it got. 18 Q. But was it factually correct that the civil proposals 19 did open up the opportunity to propose changes in the 20 future? 21 A. There was -- there was definitely an opportunity to 22 propose change in the future, but, I mean, that's -- 23 that was part of the contract. 24 Q. If we then scroll down this page, please, we can see 25 under row or line 33 the words "structures", the 105 1 sub-heading, and if we carry on going down, please, and 2 we go back up, please, stop there, please, we see in row 3 41. What I don't know is whether this is in relation to 4 structures because it's under that sub-heading, or 5 whether it's more generally, but what is set out in row 6 41, a tie comment: 7 "Does price include acceptance of emerging current 8 design? With exception of value engineering." 9 It then appears to be a BBS comment: 10 "Price based on design at 25 November." 11 Reading on, two comments that appear to be 12 attributed to tie: 13 "Paragraph 2 of introduction intimates that the 14 baseline of 25 November is not complete and therefore 15 qualifies the final statement regarding price based on 16 Design information produced up to 25 November 2007." 17 Then: 18 "Is price based on Design information up to 19 25 November 2007 except where assumptions are qualified 20 by previous 27 drawings plus cross-sections previously 21 discussed." 22 Do you remember any discussion of these matters at 23 this meeting or around this time? 24 A. Not -- I mean, I do remember the discussion on the 27 25 drawings because they were -- they were not SDS's 106 1 drawings. They were ours. 2 Q. Did you say these 27 drawings related to roadworks as 3 opposed to structures? 4 A. Yes. 5 Q. On the face of it, from this short note, there appears 6 to be some continuing uncertainty around this time of 7 what exactly the price was based on and the purpose of 8 the design baseline; is that fair to say? 9 A. Well, we were absolutely clear that our -- our price at 10 this stage was -- was based on the 25 November design 11 freeze with a few -- a few additions like the drawings 12 of the street works cross-sections. 13 Q. Did you have any impression as to whether tie had 14 a clear understanding of what the position was in that 15 regard? 16 A. If tie had a clear ...? 17 Q. Whether tie had a clear understanding of what the 18 position was in that regard, in respect of the design 19 freeze and the whole point and purpose of the design 20 freeze? 21 A. This would tell you that they did have, and indeed they 22 should have had, because we couldn't have been clearer 23 that that was the basis of our price. 24 Q. I would like to go to another document, please. It's 25 CEC01463888. This concerns a price increase in March. 107 1 If we can -- the document -- email, halfway down the 2 page, from Steven Bell, dated 10 March 2008, we can see 3 the text. It's to Geoff Gilbert and Jim McEwan. The 4 text says: 5 "An agreement was made on Friday 7 March 2008 ... 6 with Richard Walker and Michael Flynn representing BBS 7 and Steven Bell and Jim McEwan representing tie. 8 The Contract Price is to be amended by 9 GBP8.6 million to fully incorporate all of the following 10 items." 11 We can read them for ourselves. Were you involved 12 in this negotiation or this price increase? 13 A. Yes, I was. 14 Q. What was your involvement? 15 A. Sorry? 16 Q. What was your involvement? 17 A. I was at the meetings that led up to this agreement to 18 increase the price. 19 Q. In item 3 we can see: 20 "Acceptance by BBS of any SDS design quality risk 21 and consequent time impact." 22 What did you understand that to mean? 23 A. Was the buildability of the SDS design, principally. 24 Q. What's the reference to time impact? 25 A. That we were -- we were accepting the risk of, if you 108 1 like, making their designs buildable, because we'd had 2 a look and decided that they were in fact buildable. So 3 that was an acceptable risk for us to take. 4 Q. And if one of the designs wasn't buildable and this 5 had -- 6 A. That was our -- that was our problem. 7 Q. Yes. So I'll just finish the sentence. If one of the 8 designs wasn't buildable and delayed the programme, that 9 was a consortium risk? 10 A. Yes. 11 Q. I think we had seen in the Rutland Square Agreement that 12 the price was not to be increased except under two 13 circumstances to do with the misalignment of Employer's 14 Requirements and the SDS residual design issue. Was 15 this increase contrary to the Rutland Square Agreement? 16 A. Sorry, can you repeat the question? 17 Q. Yes. Do you remember we saw in the Rutland Square 18 Agreement a reference to there won't be an increase in 19 the construction price, except in two situations. One 20 was a reference to the misalignment of the Employer's 21 Requirements and the second related to the SDS residual 22 design issue. Do you remember that reference? 23 A. No. 24 Q. If the agreement had contained such a clause, would this 25 price increase be a breach of it? 109 1 A. I don't know. I couldn't comment on that. 2 Q. It may not be a big point at the end of the day, but 3 let's just go back to the Rutland Square Agreement. 4 It's CEC01284179. At page 3, please, in paragraph 2, at 5 the top, clause 2 -- I'll just give you a minute to read 6 that yourself. 7 (Pause) 8 I just wonder whether the 8.6 million price increase 9 in March was contrary to the letter or spirit of the 10 Rutland Square Agreement. 11 A. The -- the 8.6 increase in price? The 8.6 million was 12 the Rutland Square Agreement, was it not? 13 Q. It doesn't seem to be. If we can go back then to the 14 March, CEC01463888, so the Rutland Square Agreement was 15 signed in February, on 7 February 2008. But this email 16 of 10 March 2008 refers to an agreement made on 17 7 March 2008, the contract price to be amended by 18 8.6 million to fully incorporate all of the following 19 items. 20 So on the face of it, this seems to be an increase 21 from the Rutland Square Agreement price. 22 A. It does on the face of it, yes. 23 Q. So presumably tie are getting something in return as set 24 out in this email? 25 A. Well, they were certainly getting the -- the impact of 110 1 changing the Employer's Requirements to 3.5, and the 2 design quality risk which we've talked about earlier. 3 There was a bit of detail on the Siemens side of the 4 consortium about depot equipment and tapered poles, 5 because up to that point we had maintained that the 6 poles would all be stepped poles, and I think City of 7 Edinburgh Council required the nice tapered poles that 8 we've now got. 9 Q. I think there was one further price increase. Go, 10 please, to CEC01274958. This is an email at the top 11 from Willie Gallagher dated 30 April 2008 to himself, 12 and also Stefan Hofsaess in Siemens and Joachim Enenkel, 13 Bilfinger, et cetera. And in the text Mr Gallagher 14 states: 15 "I met with Richard and Michael prior to the Tram 16 Project Board at 3.30 pm today. Richard formally 17 communicated that BB require an additional GBP12 million 18 to conclude the deal. The rationale was sketchy, but he 19 accepts that he should have communicated this factor 20 before our meeting with you in Edinburgh on 14 April." 21 Do you remember this further price increase? 22 A. Yes. 23 Q. Do you remember what it was for? 24 A. It was -- it was borne out of our -- what I think I have 25 described in my statement as increasing alarm that this 111 1 was not going to be a good project. All of the things 2 that were coming up like the design was late, MUDFA was 3 late, albeit that we had Pricing Assumptions that were 4 protecting us from that, but nonetheless the reality of 5 projects are that it looked like a job that was heading 6 for disputes and big disputes, and big disputes are 7 expensive. 8 That's pretty easy to say at this stage, when it did 9 go to lots of disputes, but this was -- growing alarm to 10 the extent that we, Bilfinger Berger, were considering 11 whether this job was worth doing or not. 12 Q. Was there any discussion on that matter within Bilfinger 13 UK and perhaps with Bilfinger Germany? 14 A. Absolutely, yes. 15 Q. So what was discussed and what was the outcome of the 16 discussions? 17 A. I mean, we variously discussed things, and before 18 30 April, discussed setting out our growing alarm in 19 writing, and writing a letter and bypassing tie and 20 writing a letter to City of Edinburgh Council. 21 And principally on the fact that we -- our -- we 22 believed that tie were misleading the Council on a lot 23 of fronts. Pricing Assumptions, if you had to put money 24 to all of the Pricing Assumptions, it would have added 25 up to a considerable sum, and that may have made the 112 1 project unaffordable from the City of Edinburgh 2 Council's and the Scottish Government's point of view. 3 Q. Just to be quite clear, your concerns in relation to 4 whether the Council were being misled, when did you have 5 those concerns? Were they before or after contract 6 close? 7 A. Before contract close. And before this -- the -- 8 I mean, it was during April that we started to get 9 really concerned. I mean, it was -- certainly was after 10 14 April, but before the 30th. 11 CHAIR OF THE INQUIRY: Mr Mackenzie, I'm conscious of the 12 time because we've got Mr Enenkel. 13 MR MACKENZIE: Yes, my Lord. We have Dr Enenkel by 14 videolink at 2.00. So what I would propose, if it was 15 acceptable, is to have Dr Enenkel at 2.00, and then 16 resume Mr McFadzen after that. I'm quite confident we 17 will finish both today. 18 CHAIR OF THE INQUIRY: Yes. I understand this has been 19 explained to you already, Mr McFadzen, that Dr Enenkel 20 apparently has flown from the Philippines to Germany, 21 and there's a videolink to take his evidence fixed for 22 2 o'clock. So we would start with him, but Mr Mackenzie 23 is confident that he'll finish both of you by the end of 24 today. 25 A. It would have a -- I'm booked on a flight at 7.30 to fly 113 1 to London. 2 CHAIR OF THE INQUIRY: You will be -- 3 A. But I have to go home and get my car before that. 4 CHAIR OF THE INQUIRY: So would 4.30 be all right? 5 A. Well, I wouldn't make it back -- I could change my 6 flight to tomorrow morning. 7 CHAIR OF THE INQUIRY: Well, I think we'll just have to do 8 our best to see what we can do. Certainly you will be 9 finished. 10 MR MACKENZIE: I will, my Lord. 11 CHAIR OF THE INQUIRY: Do you have any better idea of time 12 for the witness? 13 MR MACKENZIE: It depends how long Dr Enenkel takes. 14 I would hope to take no more than an hour with him. 15 I may be able to finish Mr McFadzen by 4.00, but it 16 depends. 17 CHAIR OF THE INQUIRY: We will do our best. We will adjourn 18 for lunch, and everyone else will be back for 2 o'clock. 19 But you can have a bit longer, I think. If you're back 20 in the office by 2.30. Would that be -- 21 MR MACKENZIE: Indeed, my Lord, yes. 22 CHAIR OF THE INQUIRY: Be back in the office by 2.30. We 23 will start you as soon as Dr Enenkel's video evidence 24 has finished. 25 A. Okay. I think I'll change my flight in any case. 114 1 (1.07 pm) 2 (The short adjournment) 3 (2.00 pm) 4 (Proceedings delayed) 5 (2.10 pm) 6 DR JOACHIM ENENKEL (sworn) 7 CHAIR OF THE INQUIRY: Good afternoon, Dr Enenkel. Can you 8 hear me? 9 A. Yes, my Lord, I can hear you. 10 CHAIR OF THE INQUIRY: You're going to be asked some 11 questions by Mr Mackenzie QC who is one of the Counsel 12 to the Inquiry. If you listen to his question and 13 answer it as directly as possible, and also relatively 14 slowly because we have shorthand writers who are noting 15 all of the evidence and they have to keep up. Do you 16 understand? 17 A. Yes, my Lord. I did understand. 18 CHAIR OF THE INQUIRY: Thank you. 19 Examination by MR MACKENZIE 20 MR MACKENZIE: Good afternoon. Can you hear me? 21 A. Yes, I can hear you. 22 Q. Can you state your full name, please. 23 A. My full name is Joachim Enenkel. 24 Q. And your current occupation, please? 25 A. My current occupation is I'm a civil engineer and CEO 115 1 president of construction group in South East Asia. 2 Q. Thank you. I would like to ask you various questions, 3 please, with reference to the written statement you have 4 provided to the Inquiry. I would like to go to that 5 statement first, please. 6 Now, I think the written statement you have provided 7 consists of questions by the Inquiry together with 8 answers you have provided; is that correct? 9 A. Was this a question? 10 Q. Yes. I'm just checking, Dr Enenkel, you have provided 11 a written statement to the Inquiry; is that correct? 12 A. Yes, I did. Yes, I did. 13 Q. Thank you. I think the Inquiry has also recently sent 14 you, perhaps by email, a copy with the Inquiry's 15 reference number on it and the Inquiry's page numbering; 16 is that right? 17 A. I think I understood you were asking whether the 18 reference paper and access to it has been provided to 19 me. Yes, recently I got this access. 20 Q. Thank you. Could I check, please, does your version 21 have the Inquiry reference number TRI00000161? 22 A. Just a few minutes ago I run through these documents and 23 can confirm that these are the answers which I have 24 given to your Inquiry. 25 Q. Thank you very much. 116 1 Now, what I'm doing, I have brought up your written 2 statement on the screens we have in front of us. So 3 that's now available for everyone to see who is present 4 in this room. 5 Now, I think the statement you have provided is not 6 signed or dated, but you have confirmed that this is 7 your statement. Could I also please ask you to confirm 8 that the answers are true to the best of your knowledge 9 and belief? 10 A. I do confirm that the answers are true and to my best 11 memory and recollection. 12 Q. Thank you. Now, I would like, please, to go to page 2 13 of your statement. Do you have that with you? 14 A. Yes. 15 Q. Thank you. On page 2 we start with by way of 16 introduction, we had asked about your experience and you 17 set all of that out. Thank you. 18 Could I just check, please, did you personally have 19 any experience in tram or light rail projects before the 20 Edinburgh Tram Project? 21 A. You were asking whether I had personally experience with 22 a tram-related project similar than Edinburgh; is this 23 what you were asking? 24 Q. Yes. 25 A. I have been involved in similar projects, one -- to name 117 1 one is the Taiwan high speed rail project in Taiwan, 2 where I was the project manager for design and 3 engineering. 4 Q. Thank you. 5 CHAIR OF THE INQUIRY: The Taiwan project, does that go 6 through the city streets or is it elevated and above the 7 streets or does it travel underground? 8 A. My Lord, I think you were asking whether the project is 9 similar to Edinburgh. The project I mentioned is 10 80 per cent elevated and 20 per cent F grade(?) and 11 tunnel works. 12 CHAIR OF THE INQUIRY: Thank you. 13 MR MACKENZIE: Thank you. Dr Enenkel, we have also seen 14 evidence that Bilfinger Berger had experience of a light 15 rail project in Montpellier, France and a light rail 16 project in Turkey; is that correct? 17 A. The one in France is correct. The one in Turkey, I'm 18 not aware personally. But the one in France I'm aware 19 of through an affiliated company. 20 Q. Thank you. Do you know whether Bilfinger Berger had 21 experience of any other tram or light rail projects? 22 A. I think you were asking whether Bilfinger had any other 23 experience. Bilfinger had other experience in rail 24 projects even in Germany, various larger or smaller type 25 projects, with continuous engagement in similar type. 118 1 Q. I'm trying to make a distinction between heavy rail 2 projects and light rail or tram projects. I just wonder 3 whether Bilfinger Berger had any experience in light 4 rail or tram projects in addition to those in 5 Montpellier and possibly Turkey. 6 A. The experience I was referring in (inaudible) other 7 projects in Germany is rather light rail and tram type 8 than heavy rail. Is this part of (inaudible) -- 9 CHAIR OF THE INQUIRY: We seem to be having some technical 10 difficulties just now in hearing you. We will see if we 11 can get that sorted. 12 MR MACKENZIE: Can you still hear me, Dr Enenkel? 13 A. I can hear you, yes. 14 Q. Thank you. I'll just repeat my last question because 15 I'm sorry, part of your answer broke up. I apologise. 16 If I may repeat the question, I was simply trying to 17 find out whether Bilfinger Berger had any experience in 18 light rail or tram projects in addition to those in 19 Montpellier and possibly Turkey. 20 A. My answer to this was Bilfinger had experience of 21 similar light rail or tram type projects, but it was in 22 Germany, in various German cities. 23 Q. Thank you. I would like to move on, please, to page 3 24 of your statement, and we can see in the letter (b) we 25 had asked between what dates you had responsibility for 119 1 the Edinburgh Tram Project, and you set out -- I'll just 2 read out what you say. Between 2003 and 2006 you were 3 a member of the executive management of Bilfinger's 4 construction subgroup. 5 Between 2006 and 2010, you were the Chief Executive 6 officer and member of the executive management of 7 Bilfinger's construction subgroup. And then between 8 2010 and 2015, you were the Chief Operating officer and 9 member of the group Executive Board of Bilfinger SE; is 10 that correct? 11 A. Yes, you're right. 12 Q. Again, sticking at letter (c) of your statement, the 13 reporting lines are set out. 14 Could I ask, please, how did Bilfinger Berger UK 15 report to Bilfinger Berger Germany, both before and 16 after contract close in May 2008? 17 A. Could you please repeat your question? It came 18 scrambled, some of it we could not understand. 19 Q. I'll try and shorten the question. How did Bilfinger 20 Berger UK report to Bilfinger Berger Germany? 21 A. The original responsibility for Bilfinger UK was with 22 Bilfinger's construction subgroup. 23 Q. How -- by what means was there reporting between 24 Bilfinger UK to Bilfinger's construction subgroup? Were 25 there regular written reports? Was the reporting done 120 1 in meetings or what? 2 A. The reporting was done through regular meetings. 3 Usually we called them (inaudible) tried to have one per 4 month. One per month. 5 Q. And were any records kept of these meetings? 6 A. There were usually minutes of meetings which have been 7 established by Bilfinger UK. Otherwise there could be 8 only handwritten notes. 9 Q. I would like to move to page 4 of your statement, and 10 the top of the page, letter (d), we asked when and why 11 you ceased to have responsibilities in relation to the 12 Edinburgh Tram Project. You explained that 13 a reshuffling of regional responsibilities within the 14 Bilfinger Civil Subgroup Executive Board (Germany) took 15 place at the end of 2008, and Dr Keysberg took over from 16 you at that time and continued to report to the Subgroup 17 Executive Board of Bilfinger Civil which was chaired by 18 you. 19 We then asked for generally about the relationship 20 between Bilfinger Germany and Bilfinger UK. If we go to 21 page 5 of your statement, please, you had provided 22 a diagram showing the different boards or bodies 23 involved. 24 What I would like to do, the copy we have is not 25 very legible in A4 size. So I would like just to go 121 1 through the different levels and hierarchy to check 2 we've got our understanding correct. 3 So I think the lowest level in the hierarchy is the 4 consortium, and we see a reference to Scott McFadzen, 5 Colin Brady, or later, Martin Foerder, who are 6 responsible for the project management on a day-to-day 7 basis; is that correct? 8 A. Yes, it is correct. 9 Q. Then one level up in the hierarchy we see a reference to 10 Bilfinger UK, who undertook the country management, and 11 we see a reference to Richard Walker or Scott McFadzen 12 as representing Bilfinger in the consortium. 13 Then in the next level up in the hierarchy, we see 14 a reference to Bilfinger Civil Germany Subgroup 15 Executive Board consisting of four to five executive 16 members, ie Joachim Enenkel or Dr Jochen Keysberg, and 17 essentially at this level the body is giving strategic 18 direction, and I think this is the subgroup you were 19 a member of between 2006 and 2010; is that correct? 20 A. That's correct. 21 Q. Thank you. Then one level up again in the hierarchy, 22 please, we see a reference to Bilfinger SE Group 23 Executive Board consisting of five executive members, 24 and we can see that you joined this Board in late 2010, 25 and we can see this Board has an oversight role. 122 1 Then the next and last body in the hierarchy we see 2 is the Bilfinger SE Supervisory Board consisting of 12 3 non-executive members. Again, this Supervisory Board 4 has an oversight role. 5 I just wondered what is the difference between the 6 oversight role carried out by the Supervisory Board and 7 the oversight role carried out by the Group Executive 8 Board? 9 A. The Supervisory Board in a German publicly listed 10 company is simply overseeing governance and shareholder 11 interest, whereas the Group Executive Board, which is 12 the Executive Board, and there are the executive 13 members; but non-executive Board, the Supervisory Board, 14 has non-executive members which quarterly would come 15 together and discuss the business in general, the 16 governance and shareholder interests. The Group 17 Executive Board has continuous involvement oversight on 18 all its sub-groups, and this is based -- on the basis of 19 KPIs, which means key performance indicators. 20 Most of them financial key performance indicators. 21 Q. Thank you. Which board took important decisions in the 22 tram project? Was it the Group Executive Board or was 23 it one level down at the Subgroup of the Executive 24 Board? 25 A. It was one level down. The Bilfinger Civil Germany, the 123 1 subgroup. 2 Q. So was that the subgroup which took or approved the 3 decision to bid for the project? 4 A. The projects in excess of 50 million euro total contract 5 had to be recommended by the subgroup for bidding and 6 for finally signing contracts to the Group Executive 7 Boards, one level up, and the Group Executive Board 8 would, on the basis of consistency in business and KPI, 9 give an approval to bid or no bid, or to sign a contract 10 or not to sign a contract. 11 So this is between the Group Executive Board and the 12 Subgroup. Subgroup takes the decision to bid. It is 13 asking for approval by the group -- given by the Group 14 Executive Board. 15 Q. Thank you. After the contract was entered into, there 16 was a dispute between Bilfinger -- I should say the 17 consortium -- and tie. 18 Now, at some stage the consortium had to decide on 19 its strategy in the dispute. Is that something which 20 would have been decided or approved between the Subgroup 21 of the Executive Board and the Group Executive Board? 22 A. Could you please repeat the question? We did not fully 23 get it. 24 Q. Yes. I understand what you have just said in relation 25 to the decision to bid for the project and the decision 124 1 to enter into the contract. 2 What I'm wondering about is the period after the 3 contract was entered into, when a dispute arose between 4 the client, tie, and the contractor, the consortium. 5 Which Board within Bilfinger decided or approved on 6 Bilfinger's strategy in that dispute? 7 A. The answer is, first of all, all decisions are made by 8 the consortium and by the project management within 9 certain given frame of authorities. When it exceeded 10 these authorities, then the client went up to Bilfinger 11 UK. When there, they have as well governance within 12 a certain authority level. Once this was exceeded, then 13 it went up to the Bilfinger Subgroup. Bilfinger Civil 14 Germany, the Subgroup, and this -- in between these 15 three levels, decisions were taken, and each of these 16 three had a higher authority reporting to in (inaudible) 17 in regular meetings. 18 So depending upon the gravity of the issue, such 19 issues were conveyed up. Otherwise they would have been 20 decided at the level they were within the authority 21 given to them, letter of direction, power of attorney, 22 something like this. 23 Q. Thank you. I would like then to go to page 7 of your 24 statement, and if you go to page 7 and towards the 25 bottom at letter (e), I'll read out your answer. You 125 1 say: 2 "It is worthwhile to note that Bilfinger as 3 a contractor was driven by Risk Management and 4 consequent mitigation. As such all members of 5 Management, be it in Germany, UK or elsewhere, were 6 guided by the understanding, that risk should be only 7 taken which is reasonable and can be clearly identified, 8 addressed, managed, quantified, priced and consequently 9 embedded in the Delivery Scope of Services and the 10 Contract itself." 11 Now, in your experience was that a usual or an 12 unusual approach in the construction industry? 13 A. Are you referring to page 11, item 4? 14 Q. I'm so sorry. It's page 7. Do you have page 7 there? 15 A. Yes. 16 Q. Do you see the letter (e) where we asked: 17 "How (and by whom) was that done?" 18 A. You were asking whether this is a common approach of 19 a contractor. 20 Q. Yes? 21 A. If this was the question, the answer is yes. 22 Q. Thank you. Could I move on now to page 16, please. In 23 question 7 we see a reference to a meeting that took 24 place between the consortium and tie in Wiesbaden, 25 Germany. 126 1 Now, I think we have given the dates in the question 2 as 17 and 20 December 2007. I think in fact the meeting 3 may have taken place on Thursday the 13th and Friday 4 14 December 2007. 5 Do you remember attending a meeting around that time 6 in Wiesbaden in relation to the Edinburgh Tram Project? 7 A. I remember that once Willie Gallagher and a small team 8 visited Wiesbaden, and I welcomed him at the time, was 9 certainly a certain time at the beginning of the 10 meeting, and then maybe at the end of the meeting 11 present. 12 I remember that he was there, that I was some time 13 in the meeting. This is what I can remember. 14 Q. What was the purpose of you attending the meeting? 15 A. I believe, as a host, and as a CEO at the time of the 16 subgroup. It was for me courtesy to welcome him, and to 17 demonstrate support for his project. 18 Q. Did you get involved in any of the detailed discussions? 19 A. I don't fully remember, but I don't think that I would 20 have contributed to the detail -- to a detailed 21 discussion as I was not part of the detail. 22 Whether I was in the room when detail was discussed, 23 could be, but I don't think that I contributed in the 24 detail. 25 Q. Do you remember who else was present from Bilfinger 127 1 Berger? 2 A. I believe from Bilfinger Berger's side, surely 3 Richard Walker, Scott McFadzen, and for sure our lawyer, 4 our head lawyer, Christian Korf, and partially myself. 5 Q. What was the purpose of Bilfinger's head lawyer being 6 present? 7 A. Bilfinger, this is Bilfinger's subgroup. Bilfinger's 8 subgroup head lawyer, we take continuously safeguards in 9 a development of a project. And it's a contract lawyer. 10 It's not a civil or criminal lawyer. It's a contract 11 lawyer, commercial. 12 Q. Now, it may be suggested by another witness that at one 13 point in this meeting, yourself and Mr Gallagher left 14 the meeting to have a discussion. Do you have any 15 recollection of that happening? 16 A. Not that I remember. Not that I remember. If ever 17 I left with Mr Gallagher the room, maybe to the 18 restroom, but I don't have a recollection that I left 19 the room for a particular discussion. 20 Q. It might also be suggested by other witnesses that there 21 was a late night discussion, so not between regular 22 business hours, but discussions going on into the night. 23 Do you have any recollection of that? 24 A. Maybe there was a dinner, but not a discussion that 25 I recall which is connected directly to the contents. 128 1 If ever there was, I believe it was a dinner. 2 Q. Do you have any recollection of any discussion regarding 3 design and design risk? 4 A. Do you mean in Wiesbaden? 5 Q. Yes. 6 A. Not -- not to my -- not to my recollection. I don't 7 have a particular memory on this. Like I said, I was in 8 general, a very general sense involved, probably 9 hosting, trying to be friendly, but the detail was 10 discussed by our people. 11 Q. Thank you. Were any records kept by you or others of 12 this meeting? 13 A. If there are or if there were records, they should have 14 been kept by our colleagues from the UK, Richard Walker 15 or Scott McFadzen. So they certainly have put down 16 records for this meeting. 17 Q. Thank you. 18 I think the Inquiry sent you a copy of the Wiesbaden 19 Agreement recently. Do you have that before you? It's 20 an agreement -- 21 A. I was just earlier opening. 22 Q. I'm sorry -- 23 A. I have this in front of me, yes. 24 Q. Thank you. I'm just going to give the Inquiry reference 25 number. So it comes up on our screens. It's 129 1 CEC02085660. 2 Could I ask you, please, to look at page 5. Do you 3 see clause 3.3 which begins: 4 "The BBS price for civils works includes ..." 5 Do you see that clause? 6 A. Can you please repeat your question? 7 Q. Yes. Do you have the clause before you? 8 A. Yes, I have. Yes, I have. 9 Q. Thank you. Could you please just take a minute to read 10 for yourself what is set out there in clause 3.3 and 11 then it continues as well over the page. Just take 12 a minute to read it yourself. 13 (Pause) 14 Do you recollect discussing any of these matters at 15 this meeting in Wiesbaden? 16 A. I think I won't have gone into detail, you know, when it 17 is referred here to kinematic envelope, I don't think 18 I have discussed these items or what could have been 19 a general statement. What is written in the upper part, 20 construction costs arising from the normal development 21 and completion of designs based on the design intent for 22 the scheme as represented; I believe general statements 23 certainly have been made, but particular statements and 24 developing an appendix, I do not recollect that I was 25 party of this. 130 1 Q. Thank you. I would like to move on, please, back to 2 your statement. At page 22 of your statement, and in 3 letter (c) you, in your answer, explain: 4 "It is the business model of an experienced 5 Contractor (see graphic) to categorise risks and further 6 only assume risks already which can be identified, 7 managed, assessed, quantified and priced." 8 Then at page 23, if we can go to that, please, to 9 look at the graphic, do you have a legible copy before 10 you? 11 A. Yes. 12 Q. In short, we can see different risk categories 1, 2, 3 13 and 4. What was your view at the time as to which risk 14 category the Edinburgh Tram Project fell within? 15 A. The Edinburgh Tram Project fell under risk category 3. 16 Q. Why? 17 A. Because it was a design and construct, respectively the 18 design was to be novated. Hence parts, if there was 19 more than 10 per cent of the projects indicated become 20 a lump sum, it would automatically get into a risk 21 category 3. 22 And finally, the size of the project, if a project 23 exceeded the certain size, and the Edinburgh tram with 24 about 200 million British pounds exceeded a certain 25 size. So through size, through complexity, through 131 1 design development, it became part of risk category 3. 2 Q. If the project fell within risk category 4, does that 3 mean Bilfinger would not bid for it? 4 A. That's true. If it was risk category 4, we would not 5 bid this project. 6 Q. Did you have any concerns before entering into the 7 contract as to whether the risk for Bilfinger was too 8 high? 9 A. At the time, I did not have the concern that the risk 10 was too high for us, but I was aware that this is a risk 11 category 3 project which needs continuous attention. 12 Q. Was there any discussion within Bilfinger before 13 entering into the contract about withdrawing from the 14 project? 15 A. There were discussions withdrawing from the project, but 16 this was in very early phases, when we were selecting 17 our system partner. There were suggestions whether to 18 team up with Siemens or to Bombardier. If we would have 19 teamed with Bombardier, we would probably have dropped 20 the bid. Since we teamed with Siemens, we continued to 21 bid for the project. 22 Q. Thank you. 23 A. This is the only one I recollect. Otherwise I don't 24 think that we had -- we are spending money and resources 25 to bid the project to finally withdraw. 132 1 So we certainly were looking with all safeguards to 2 make a successful project. 3 Q. Thank you. 4 Could I turn now back to your statement, please, to 5 page 37. In question 35 we had asked about the Pricing 6 Assumptions contained in Schedule Part 4 of the Infraco 7 contract, and we had asked in sub-question (a): 8 "To what extent were the Pricing Assumptions and the 9 terms of Schedule 4 discussed with you?" 10 You explained in your answer that: 11 "Such Pricing Assumptions were surely discussed 12 within Bilfinger's specialist departments ... and should 13 be confirmed to be reasonable to the Executive 14 Management. On such basis I would have concluded and 15 accepted." 16 So in short, Dr Enenkel, was Schedule Part 4 of the 17 Infraco contract considered by Bilfinger Germany? 18 A. Could you please repeat the last part of your question 19 related to Schedule 4? 20 Q. Of course. Was Schedule 4 considered and reviewed by 21 Bilfinger Germany? 22 A. I would -- I would expect so. That it was considered 23 because, after all, it was part of the contract. So 24 there will be reviews. There surely were reviews 25 related to this Appendix 4. 133 1 Q. Thank you. 2 Now, I think the Inquiry has recently sent you 3 a copy of Schedule Part 4. Do you have that before you? 4 A. Yes, I have this now in front of me. 5 Q. Thank you. I think you will see that the schedule 6 contains a number of Pricing Assumptions; is that 7 correct? 8 A. Yes. 9 Q. Thank you. We know that any departure from one of those 10 Pricing Assumptions would result in what was called 11 a Notified Departure and a client change; is that 12 correct? 13 A. I believe this is the understanding, yes. 14 Q. Thank you. 15 So in short, if any of those Pricing Assumptions 16 turned out not to be correct, that was going to result 17 in a change and the client having to pay more; is that 18 correct? 19 A. I believe this is correct, to pay more or less. 20 Q. Can you remember whether there was any discussion within 21 Bilfinger before the contract was entered into of the 22 number and value of changes that were likely to arise? 23 A. I cannot fully recollect, but what I can recollect, 24 there were discussions. To what extent a design which 25 is still to be developed may trigger potential changes 134 1 in a very old city like Edinburgh. But we have -- and 2 you may refer then later to the number of Notified 3 Departures, but at that time we probably considered 4 a few handful of Notified Departures which will be 5 managed and which are probably common to a project, an 6 inner city project of this type. So there has been 7 general discussions, but when you aim to look at the 8 many Notified Departures, we never anticipated such 9 a number. 10 So we anticipated a few, but not the volume which we 11 finally experienced. 12 Q. Before I leave the question of Schedule Part 4, 13 could I just check, please, do you remember yourself 14 reading Schedule Part 4 before the contract was entered 15 into? 16 A. It would have been very unusual for me to read this 17 information in this detail. This is why we had our 18 specialist department who would have read and confirmed 19 to me that this is sufficient and adequate. 20 Q. Thank you. I would like please to go to page 40 of your 21 statement. Question (c) asked about Bilfinger's 22 position or strategy in relation to the dispute. 23 You explain in the second part of your answer that: 24 "As a publicly listed company, the understanding of 25 Bilfinger was that by no means items which are duly owed 135 1 to Bilfinger (more likely than not) can be foregone, 2 except Executive Management (in Germany) accepts to 3 drop. This implicitly meant that disputes will have to 4 be pushed through all levels ... and if not successful 5 to be pursued in court." 6 Are you able to explain that answer a little, 7 please? 8 A. I believe what is meant by my answer in the first 9 paragraph, we tried to avoid any dispute if possible. 10 But if unavoidable, we would seek internal and external 11 legal advice on the likelihood, of course depending on 12 the gravity of the subject, but on the likelihood to 13 pursue. 14 The second paragraph clearly says nobody in 15 Bilfinger, if there was a clear -- let's call it a clear 16 receivable, duly owed to Bilfinger, none of Bilfinger, 17 not even the executive management, could drop such a -- 18 such a receivable, and would have to pursue. 19 Q. We looked earlier at the hierarchy within Bilfinger and 20 we looked at the diagram, you'll remember. Did any of 21 the Boards in that hierarchy have the power to drop sums 22 which Bilfinger may have received advice were due to 23 them? 24 A. The answer is: if whatever there was was duly owed, then 25 the legal advice given was it is more likely than not to 136 1 be successful even in court, so none of the executive 2 managers could drop. 3 If in the Executive Board, that's the second -- the 4 second last level, decided unanimously, then maybe or 5 perhaps it could be dropped. But in my experience 6 I never experienced that. 7 None of the Bilfinger managers could drop a duly -- 8 a receivable which is due to Bilfinger. So we could 9 not. 10 Q. Thank you. 11 Now, we have heard evidence that the dispute was 12 settled or resolved in 2011 following a mediation at 13 Mar Hall in Scotland. 14 Now, I know that Dr Keysberg was present at that and 15 not you. But did you have any views at the time on the 16 Settlement Agreement reached? Was it a good deal, a bad 17 deal for Bilfinger or what? 18 A. I can only recollect in a very distant manner, but I do 19 remember before such an agreement, a settlement was 20 reached that our departments, which I was referring in 21 my answers a few times, had to confirm that this is 22 a fair settlement. 23 So in such a case, I surely noticed fair settlement 24 on the basis of our departments giving confirmation. 25 The detail and the content, I cannot recall. But 137 1 I recall when there was a settlement, our people 2 regarded this as a fair settlement. 3 Q. Thank you. I have one final question, Dr Enenkel. We 4 have heard a suggestion that Bilfinger decided to 5 withdraw from the UK market and that influenced 6 Bilfinger's approach to the dispute. Do you have any 7 comments on that suggestion? 8 A. I don't have a particular comment, but as far as 9 I remember, we have been involved in the M80 project 10 which was in the neighbourhood of the Edinburgh tram. 11 To us the UK market was a vital market as any other 12 market in Europe. So I do not recollect that we 13 announced withdrawal from the market. 14 MR MACKENZIE: Dr Enenkel, thank you. I have no further 15 questions, but please stay on the line. 16 Questions by CHAIR OF THE INQUIRY 17 CHAIR OF THE INQUIRY: Dr Enenkel, there's one matter 18 I would like to ask. Could you go to your statement, 19 please, at page 27. It's TRI00000161_C. Do you have 20 that? 21 At paragraph 20 it says: 22 "An internal Weekly Report by Steve Reynolds, 23 Parsons Brinckerhoff, dated 29 February 2008, noted that 24 "in separate discussions with Richard Walker he has 25 mused that if TIE understood the likely true cost of 138 1 building the scheme then it would be cancelled. This is 2 not idle chat - it is Richard's view of the strategy he 3 has adopted to retain as much flexibility pre-contract 4 with a view to securing substantial variations 5 post-contract. On a related note, Richard has also 6 informed me that he and his manager (from Wiesbaden) 7 have seriously discussed withdrawing from the bid'." 8 So there are two parts to this. First of all, were 9 you aware of the suggestion that there was a conscious 10 strategy by Richard Walker to retain as much flexibility 11 before the contract, so that he could secure the 12 contract and then add on additions after the contract? 13 Were you aware of that strategy? 14 A. My Lord, you were asking whether I was aware of the 15 attitude of Richard Walker, and probably arrogance. 16 I think Richard Walker as a personality, I don't 17 know whether you have met him, but as a personality he 18 is probably somebody who is a bit overwhelming in his 19 speeches. 20 But as a hard worker, I don't think that he was -- 21 that he was making suggestions that whatever is to be 22 agreed, might later be overturned. I would not believe 23 that. 24 CHAIR OF THE INQUIRY: You're not -- sorry. 25 A. If it is David, I was not aware. 139 1 CHAIR OF THE INQUIRY: Finally, I think you've been asked 2 about the second part. Were you aware or have you 3 seriously discussed with Richard Walker about 4 withdrawing from the -- from the bid? 5 A. My Lord, the only time when we discussed whether or not 6 to pursue the bid was the discussion and the decision 7 about the system partner, whether it was Siemens or 8 Bombardier. At the time I made very clear if it was 9 Bombardier, we would not pursue the bid. 10 CHAIR OF THE INQUIRY: Thank you very much. 11 I don't think there are any questions from anyone 12 else. 13 Thank you very much, Dr Enenkel, for coming from so 14 far to join us by video link. I'm grateful to you for 15 your assistance. 16 Technically, you're still under citation, and it 17 would be possible to ask you to give further evidence. 18 Hopefully that will not be necessary. 19 In the meantime, thank you very much. That 20 concludes today's evidence. 21 A. My Lord, thank you very much. And I wish you the best. 22 CHAIR OF THE INQUIRY: Thank you. 23 (The witness withdrew) 24 CHAIR OF THE INQUIRY: We'll adjourn for -- until 3.25. 25 Would that still give you plenty of time to finish? 140 1 MR MACKENZIE: It will, my Lord, yes. 2 CHAIR OF THE INQUIRY: We will adjourn until 3.25. 3 (3.11 pm) 4 (A short break) 5 (3.25 pm) 6 MR SCOTT MCFADZEN (continued) 7 Examination by MR MACKENZIE (continued) 8 CHAIR OF THE INQUIRY: Good afternoon, Mr McFadzen. Sorry 9 for the delay. There was a technical hitch to begin 10 with. We are now ready to continue and finish your 11 evidence. Thank you very much. 12 You're still under oath. 13 MR MACKENZIE: Thank you, my Lord. 14 Mr McFadzen, before we broke at lunch, I think you 15 had said that this was in a period just before entering 16 into the contract in May 2008 that this looked like 17 a job that was heading for big disputes. 18 Was that your view just before the contract was 19 entered into? 20 A. Yes. 21 Q. Why? 22 A. Because of the difficulty we'd had in agreeing the 23 terms. You know, the -- agreeing of the terms of the 24 contract had to us seemed to have gone on and on and on. 25 Q. What were your views around this time as to whether 141 1 Bilfinger should proceed or should withdraw from the 2 bid? 3 A. I mean, I guess my -- I kind of put a bit of personal 4 slant on this, that this could have been my job for the 5 next two years. So I -- on balance, I was in favour of 6 persisting with trying to get to a deal. 7 Q. Again, sticking to around this time, so just before the 8 contract was entered into, what were your views on the 9 likelihood of design being completed to programme? 10 A. It was quite evident that design would not be completed 11 in time for award. 12 Q. I can understand that, but there's then a separate 13 question of the design still to be completed and the 14 approvals and consents still to be obtained. 15 SDS produced a programme for the outstanding matters 16 to be completed by. Did you have any views before 17 financial close on the likelihood of that programme 18 being met? 19 A. Before -- no, before award, I didn't think that was 20 going to be met, no. 21 Q. Why? 22 A. Just on the basis I think of the information that I had. 23 I'm not quite following the question though. 24 Q. Yes. Well, put it this way. In May 2008 SDS had 25 produced a design programme which listed the dates by 142 1 which all outstanding design was to be completed and all 2 outstanding approvals and consents were to be obtained. 3 I just wondered whether you had a view at that time as 4 to whether the current version of the SDS programme was 5 realistic and was likely to be achieved? 6 A. Well, the programme was what I would call almost 7 realistic in that we had -- we were then in a position 8 to manage their design to meet our construction 9 programme, whereas up to novation they were designing 10 for tie. So when we took control, we could say, right, 11 could you please concentrate your efforts here. 12 So there was possibly a little bit of optimism at 13 that stage. 14 Q. So you thought there was an opportunity for things to 15 improve while instead the consortium were in charge? 16 A. Yes. 17 Q. Again, just before the contract was entered into, what 18 were your views on the likelihood of the MUDFA works 19 being completed to the MUDFA programme? 20 A. Well, again, it was definitely not completed and -- 21 I can't remember quite when I was aware that some of 22 the -- some of the MUDFA so-called completed works was 23 not quite complete. In Leith Walk they had installed 24 all the ducts and put in the cables, but I believe the 25 cables had not -- the BT cables in particular had not 143 1 been jointed, and that was going to be -- I couldn't say 2 when I became aware of that, but that was -- that was 3 another concern as we moved into the contract phase. 4 Q. Put it another way. I think just before contract close 5 it was anticipated still that the MUDFA works would be 6 completed by late 2008, and therefore before the Infraco 7 works. Was that your understanding? 8 A. I -- the intention was that they would complete in 9 stages to permit our construction programme to go ahead. 10 Q. And did you think that was likely to happen? 11 A. I thought it was unlikely, but that was just maybe 12 a cautious project manager's view. 13 Q. Now, moving on to the question of Schedule 4 and the 14 various Pricing Assumptions which, if not true, would 15 trigger Notified Departures, at any time before contract 16 close did the consortium have any discussions with tie 17 in relation to the changes or Notified Departures that 18 were likely to arise, including the value of any such 19 changes or Notified Departures? 20 A. I can't recall whether it was immediately before award 21 or immediately after award that the -- one of the 22 Notified Departures which -- sorry, one of the Pricing 23 Assumptions which was the one about excavation below 24 earthworks outline was valued for part of the works. 25 But that will be a matter of record because that was an 144 1 exchange of emails between us and tie. 2 Q. What we do know happened after contract award is that 3 hundreds and hundreds of Notified Departures were 4 intimated by the consortium at a value of tens and tens 5 of millions of pounds. I'm just wondering, was there 6 any discussion with tie before contract award that that 7 was likely to happen? 8 A. I -- I believe there probably was discussions on that. 9 I can't recall any particular occasion, but we -- in our 10 concern that tie were not informing the Council of the 11 likely added costs of the job, we were reminding them 12 that there were a number of Notified Departures coming 13 along that would add significant amounts of value. 14 Q. Can you be more specific? Who did you have these 15 conversations with in tie and when? 16 A. This would be at meetings, and I guess this would be at 17 top level, would be meetings that included 18 Richard Walker and Willie Gallagher. Certainly at 19 meetings at my level with Steven Bell. 20 Q. But you can't be more specific in terms of would this be 21 in late 2007? Would this be into 2008 or what? 22 A. It -- it would be on or about award time in May 2008. 23 Q. Just to be quite clear, what was it you say the 24 consortium were trying to make tie aware of? 25 A. That there were -- that there was significant 145 1 additional -- there was going to be Notified Departures 2 that would give rise to significant additional costs. 3 Q. What were the consortium's concerns in relation to how 4 tie were reporting things to Council? 5 A. That tie were reporting to? 6 Q. The Council. 7 A. We were still concerned that they were not reporting 8 what I considered to be the true position to the 9 Council. 10 Q. What do you mean, for the avoidance of doubt, by the 11 true position? 12 A. That there was a lot of additional cost that would 13 inevitably arise from the -- after signing of the 14 contract. 15 Q. Now, tie had a risk allowance of between GBP30 million 16 and GBP32 million at contract award. They may say: 17 well, that was sufficient to deal with Notified 18 Departures. Do you have any comments on that? 19 A. I would say that was not sufficient. 20 Q. Why not? 21 A. Because of the nature of the job and the number of 22 Pricing Assumptions/Notified Departures that were there. 23 Q. As a matter of detail, I think you referred before lunch 24 to the consortium sending a letter to the Council, 25 I think before the contract was entered into. Do you 146 1 remember saying that? 2 A. Well, we thought about sending a letter to the Council. 3 Q. I see. You thought about it? 4 A. We didn't send it. 5 Q. I see. When was this approximately? 6 A. It was in mid-April. 7 Q. I see. Had it got to the stage of a letter being 8 drafted? 9 A. I believe so, yes. 10 Q. Can you remember what the letter said? 11 A. No, I can't. I can't remember in detail. But it was -- 12 it was along the lines of we are concerned that the 13 allocation of risk is being misrepresented, and it was 14 along these lines. 15 Q. You're absolutely clear that was before the contract was 16 entered into? 17 A. Absolutely. 18 Q. Who in the consortium decided not to send that letter? 19 A. Well, that would go to the highest level. That would go 20 to Joachim Enenkel. 21 Q. Can you remember why the letter wasn't sent? 22 A. No, I can't. I mean, that's another conversation -- 23 I was not party to that conversation. 24 Q. Thank you. 25 If we go back to your statement, please, which was 147 1 TRI00000058_C. At page 50, please, in paragraph 173, 2 halfway down, it picks up, you say: 3 "I knew there would be a lot of Notified Departures, 4 but not precisely how many or what their value would be. 5 These matters were discussed by BBS and TIE prior to 6 contract close. For BBS, those involved from 7 Tom Murray, Richard Walker, Gary Dalton, Michael Flynn, 8 Herbert Fettig, Ian Laing and Suzanne Moir. On the TIE 9 side it was Steven Bell, Jim McEwan, Andrew Fitchie and 10 others by that time, and probably also Dennis Murray." 11 Now, in relation to these discussions, again, to try 12 and pin down when you say these discussions took place, 13 is this again quite close to contract close? 14 A. This would be very close to contract close. 15 Q. Where did these discussions take place? 16 A. Definitely in the Point. When it says "and probably 17 also Dennis Murray", I would now say: and definitely 18 Dennis Murray. He was a former colleague of mine at 19 Lilly Construction, and for some time I thought he might 20 be the source of reason on tie's side of the fence. 21 Q. When you say these discussions took place, is it 22 Citypoint at tie's offices you mentioned? 23 A. Yes. Sorry. 24 Q. Around the time, just before contract close? 25 A. Yes. 148 1 Q. And was there one meeting? Was there a number of 2 meetings? 3 A. That's a number of meetings. 4 Q. Do you remember anything said by anyone from tie in 5 response to these matters? 6 A. Not -- not particularly. You know, the new guy on the 7 team was Dennis Murray, and he -- he did spend some time 8 with me as a former colleague asking me how I thought 9 these things worked. 10 Q. Was that before or after the contract was entered into? 11 A. Both, I think. 12 Q. Is it possible that on tie's side, as a result of these 13 discussions, there was an awareness that there would be 14 some change, but no one knew just how many Notified 15 Departures there would be or their likely value? 16 A. I don't know what tie thought. 17 They certainly should have been aware that there was 18 going to be a number of Notified Departures. 19 Q. Did they ever say to you at any of these meetings: we 20 accept there will be some Notified Departures. 21 A. I think -- well, I think they did in terms of 22 particularly Pricing Assumption number 1. I think they 23 acknowledged -- but we kind of forced the issue on 24 Pricing Assumption 1 in that we -- there is an email 25 exchange that's in the documents that I got that -- 149 1 where we say: do you realise there's going to be 2 a Notified Departure the day after contract award? 3 Q. Could that be one of the problems that tie were aware 4 Notified Departure was likely in relation to that 5 Pricing Assumption, but hadn't been told by the 6 consortium about all the other Notified Departures that 7 were likely to arise? 8 A. The -- I can only say that they should have been aware 9 of the other Notified Departures. 10 Q. Because? 11 A. Because they are pretty obvious to -- I mean, they were 12 pretty -- should be pretty obvious to anybody, I would 13 have thought. 14 I'll go with the example of Pricing Assumption 12, 15 I think it is, on not -- no excavation below earthworks 16 outline. You know, of course there was going to be 17 excavation below the earthworks outline. 18 Q. Why? 19 A. Because -- because the formations of the track slab were 20 not on rock over its entire 18-kilometre line. That's 21 the only way there would have been no excavation below 22 outline. 23 Q. Now, in your statement you say that you knew there would 24 be a lot of Notified Departures, but not precisely how 25 many or their value. When I asked you about tie's risk 150 1 allowance of GBP30 million, GBP32 million, you 2 considered that wasn't going to be enough. 3 Presumably you knew the importance to tie of both 4 obtaining a fixed price and also meeting their budget, 5 correct? 6 A. Yes. 7 Q. Did you at any time warn them that the price wasn't 8 fixed and their budget was likely to be exceeded? 9 A. Not in so many words, but to me it was blindingly 10 obvious that that was going to take place. 11 Again, in the context of the time, we, BBS, were 12 flat out on finalising the contract and we already had 13 a mobilisation contract, and these two things were -- 14 and we were trying to get the SDS up and running and 15 into better shape. 16 So, I mean, it's maybe a -- not quite a great 17 excuse, but we were very busy and explaining the obvious 18 to people in tie was not a good use of our time or my 19 time. 20 Q. Put it this way: if one looks at Schedule 4 and the 21 Pricing Assumptions, one can see that simply on the face 22 of it, if any of the Pricing Assumptions change, there 23 would be a Notified Departure. Presumably, in order to 24 know whether a Pricing Assumption is going to change, 25 one needs a good understanding of the facts and 151 1 circumstances; is that correct? 2 A. Yes. 3 Q. So, for example, you've mentioned the Pricing Assumption 4 in relation to the ground conditions, Pricing 5 Assumptions we know about in relation to programming, 6 the MUDFA works will be completed. So in short, is it 7 correct that to have a good understanding of which 8 Pricing Assumptions are likely to fall and where the 9 Notified Departures are likely to come, one would need 10 to have a good understanding of the facts at the time? 11 A. Yes, but it's not -- it's not a difficult concept. You 12 know, the tie people were all experienced civil 13 engineers who I would have thought should have 14 understood the implications of that notified -- that 15 Pricing Assumption in particular. 16 Q. If we could now please go to Schedule 4. It's 17 USB00000032. We can see, please, at page 4 the 18 Construction Works Price at the very top in this box of 19 just over GBP238 million. But with various adjustments, 20 it comes down to the capital expenditure of just over 21 GBP304 million. 22 Go, please, to page 5, the next page. Then I think 23 it's referred to as a section 3.1. We can see it 24 provides: 25 "The Construction Works Price is a lump sum ..." 152 1 Subject to qualifications. Then please go to 2 page 15, to see the analysis of the works price at 3 page 15. We can see lump sum firm and fixed price, 4 GBP231,797,342. Just to pause there, the description of 5 it being a lump sum firm and fixed price, would you have 6 agreed with that description at the time? 7 A. It was a lump sum subject to the Pricing Assumptions. 8 Q. Then please go to your statement at page 49. In 9 paragraph 171, halfway through, you say: 10 "I would say that 50 per cent of the GBP238 million 11 was fixed and firm. The remainder was subject to 12 increase and/or provisional sums. VE also had to be 13 delivered to get the price down to GBP238 million and my 14 view, which TIE were aware of, was that the nearer we 15 got to construction work, the harder VE became. Some 16 minor VE was achieved, for example the A8 underpass and 17 the depot, but apart from that I do not think that much 18 was achieved." 19 You say there: 20 "I would say that 50 per cent of the GBP238 million 21 was fixed and firm." 22 Did you or others in the consortium make tie aware 23 of that before contract close? 24 A. No. 25 Q. Why not? 153 1 A. That was in response to a question from the guy that 2 took my statement. 3 Q. I understand that, but I think you accepted before you 4 understood the importance to tie of getting a fixed and 5 firm price. So on the one hand tie are saying: we need 6 a fixed and firm price; and if your view was that, well, 7 only about half of the contract sum was fixed and firm, 8 is that not something you ought to have told tie? 9 A. Maybe with the benefit of this hindsight, we should have 10 been even more explicit, but I thought we were being 11 pretty clear as to the risks that we were not taking and 12 therefore the financial impact that might have on the 13 project. 14 Q. Then please go back to Schedule 4 and back to page 15, 15 if we may. Go back to the table. We can see "deduct 16 identified value engineering" of GBP9.9 million. 17 Then two lines down, "deduct further value 18 engineering", about GBP2.6 million. 19 If we then go back to your statement at page 49, 20 paragraph 172, in the second sentence you say: 21 "The aim was to produce a figure at or as near to 22 GBP219 million as possible, excluding the Provisional 23 Sums." 24 Just to pause there, why was that the aim? 25 A. Why was the -- 154 1 Q. Why was it the aim to produce a figure at or as near to 2 GBP219 million as possible? 3 A. Well, that was tie's target price. 4 Q. Did they explain why that was their target price? 5 A. At various times, yes, they did. That was what made 6 the -- that was what they could get City of Edinburgh 7 Council's approval for. 8 Q. Now, you go on in the statement to say that: 9 "I would describe the GBP9.9 million of value 10 engineering and GBP2.67 million of further value 11 engineering which are identified in the breakdown as 12 "financial engineering". This was a matter of 13 presentation and showing BBS's price as affordable." 14 At the time did you consider that the sums for value 15 engineering were realistic and likely to be achieved? 16 A. Were unlikely to be achieved, yes. 17 Q. Did you advise tie of that? 18 A. Yes. 19 Q. Where and when and to whom? 20 A. I couldn't put a date on it, but, I mean, there was 21 other people in my team that were advising tie that the 22 value engineering savings were not achievable. The 23 design manager that was working with me, I have referred 24 to earlier, David Taylor, certainly advised in a value 25 engineering meeting that I think I was not at, that he 155 1 had said, again, that this was going to be difficult. 2 Q. So why did the consortium agree to these sums being 3 included and presented in the contract in this way? 4 A. Because we -- because we believed this was a means to 5 get our price below City of Edinburgh Council's 6 affordable price. That's what I mean by "financial 7 engineering". 8 CHAIR OF THE INQUIRY: So would the financial engineering be 9 undertaken by Bilfinger -- 10 A. By tie. No, this was tie -- I would say manipulating 11 numbers so that they could put an affordable figure to 12 City of Edinburgh Council. 13 CHAIR OF THE INQUIRY: I understand that, but I think the 14 question was why did Bilfinger, you, agree to put in 15 figures for value engineering to bring the price down, 16 when these figures were unrealistic? 17 A. Well, it was -- it was kind of no risk to us because if 18 you couldn't deliver the value engineering, as the 19 contract was finally put together, it -- it didn't 20 mean -- it didn't mean that we had to take -- you know, 21 if we didn't deliver GBP2 million worth of value 22 engineering, it didn't mean we had to take GBP2 million 23 off the contract sum. 24 CHAIR OF THE INQUIRY: I appreciate that, but the impression 25 that people might get is if this was financial 156 1 engineering, by putting in figures that were totally 2 unrealistic, and by tie doing that, the question really 3 is: were you a part of that then by going along with it 4 and putting in unrealistic value engineering figures at 5 no risk to yourselves? 6 A. The value engineering figures -- some of the value 7 engineering figures were, as I've said before -- were 8 correctly calculated, you know, insofar as we -- do this 9 by example. Edinburgh Park Station viaduct bridge, we 10 had a quotation for redesign and we had a quotation for 11 a much simpler bridge that added up to a GBP1.4 million 12 saving, which I don't think was in the final 13 9.9 million. So that there was back-up numbers to the 14 value engineering numbers. 15 CHAIR OF THE INQUIRY: But you would never get to 16 9.9 million, would you? 17 A. I don't think we were ever going to get to 9.9 million. 18 CHAIR OF THE INQUIRY: So that was the financial fiction, 19 and by putting these figures in to bring your tender 20 down even at no risk to yourself, to bring the cost down 21 on the face of it, although at no risk to Bilfinger 22 Berger because if you didn't make these savings, it 23 didn't matter, then were you not simply going along with 24 this financial engineering? 25 A. To an extent, I guess we were. But, you know, in -- the 157 1 project as far as we were concerned was going to change 2 and the costs were going to go up, and it was 3 essentially a publicly funded project and we would be 4 paid -- we would be paid in line with the contract. So 5 if value engineering wasn't delivered, and if Pricing 6 Assumptions came to pass, then one way or another we 7 would be paid for what we did. 8 MR MACKENZIE: Mr McFadzen, this of course is public money 9 being spent, and you must have been aware that tie were 10 reporting back to the Council. In that context, it may 11 be suggested that it is misleading to agree sums for 12 value engineering that you think are unrealistic and are 13 unlikely to be achieved. 14 A. It's -- it's possible that that was adding to the 15 misleading picture, but, again, I would have thought 16 that the tie people should have known that some of the 17 value engineering was going to be difficult and possibly 18 impossible to achieve. 19 Q. Could we go back, please, to the Schedule Part 4, back 20 to page 15, and look at the next entries. If we could 21 blow up again the box, please. 22 So we see in the middle of the box, subtotal, and 23 then "add defined provisional sums" of 11.4 million, and 24 then "add undefined provisional sums" of just over 25 8 million. 158 1 Did you consider, just before contract close, that 2 the figures shown for provisional sums were realistic 3 and likely to be achieved? 4 A. I think they were realistic. I'm pretty sure they were 5 realistic and they had -- some of them had been 6 challenged -- the defined provisional sums, some of 7 these had been agreed between tie and BBS. Sums that 8 were entered for SDS work. 9 Q. Now, you have said in answer to the question you thought 10 these provisional sums were realistic. Did you consider 11 they were likely to be achieved? 12 A. I would say they were realistic and likely to be 13 achieved. 14 Q. Can we go back to your statement, please, to page 10. 15 In paragraph 33, this is in response to the previous 16 paragraph that dealt with events in February 2007. So 17 that's some time before contract close. 18 But we see in paragraph 33, you explain: 19 "We were always trying to make sure we were not 20 exposing ourselves to risk ..." 21 Then: 22 "When we used a provisional sum, it did not really 23 matter whether it was realistic or not. We were trying 24 to be realistic but we were in a competitive situation. 25 If, for example, we were pricing a bridge with outline 159 1 information only and where we thought the value would be 2 about half a million pounds, we would use quarter of 3 a million as the provisional sum. That is the real 4 world." 5 I appreciate at this time you're talking about 6 earlier in 2007. Was that same approach taken by the 7 consortium around the time of contract close? 8 A. No. No, the -- because most of the -- that was an 9 illustration rather than a -- what I think we did. 10 But as we got nearer to contract close, the 11 provisional sums were being tested by tie. So I believe 12 they were more realistic as time went on. The initial 13 provisional sums for the missing information were early 14 in 2007. 15 Q. Thank you. Back, please, to Schedule Part 4, to page 5, 16 if I may. 17 Could we look, please, at section 3.2.1. I'm just 18 going to give you a minute to read that for yourself, 19 please, Mr McFadzen. (Pause) 20 A. Yes. 21 Q. What was the purpose of this provision? 22 A. Well, the purpose was to take a Pricing Assumption, if 23 you like, and convert it into a tie change for which we 24 would receive additional payment. 25 Q. We can also see, I think, that in short this provision 160 1 provides that certain Pricing Assumptions are based on 2 facts which the parties acknowledge are not true; is 3 that correct? 4 A. Yes. 5 Q. Why was that inserted? 6 A. Sorry? 7 Q. Why was that inserted? 8 A. This was -- I think somewhere else in my statement it 9 says I found this quite unusual, that this -- I was not 10 familiar with this Notified Departure mechanism. 11 I didn't particularly -- the fact that the Notified 12 Departure -- the Pricing Assumptions were statements of 13 fact that were almost certainly not going to be correct 14 at contract award. 15 Q. Now, this provision acknowledges that some Pricing 16 Assumptions are based on facts that are known not to be 17 true. Why didn't parties just sit down and identify the 18 Pricing Assumptions that were known not to be true? 19 A. I don't know. This was a mechanism of developing 20 Pricing Assumptions, from our point of view into 21 additional payments. 22 Q. What I can quite understand is that a price may be 23 subject to certain Pricing Assumptions which, if they 24 change in the future, that triggers a Notified 25 Departure. What I don't understand is why a contract is 161 1 based on Pricing Assumptions which parties acknowledge 2 at the time some of which aren't true. Can you help 3 with that? 4 CHAIR OF THE INQUIRY: This is not to do with the base 5 date -- base design date information. This is not to do 6 with taking the design at a date, fixed date, and 7 therefore when you're signing the contract -- 8 A. And the design programme. 9 CHAIR OF THE INQUIRY: -- that the design has moved on, and 10 the programme. 11 MR MACKENZIE: My Lord, I think there are perhaps two points 12 in this provision. One is that the parties acknowledge 13 that certain of these Pricing Assumptions may result in 14 the notification of a Notified Departure immediately 15 following execution of this agreement. I think we've 16 heard evidence that it was known that the construction 17 programme was based on design programme 26 -- 18 A. The design programme. 19 Q. But that had moved on, and that was going to trigger 20 a Notified Departure. 21 What I'm interested in is then two sentences on: 22 "In order to fix the contract price at the date of 23 this agreement, certain Pricing Assumptions [plural] 24 represent factual statements that the parties 25 acknowledge ..." 162 1 Essentially aren't true. 2 So on the face of it, this provision seems wider 3 than that one known and expected Notified Departure. 4 What I don't understand is why parties didn't actually 5 identify in the contract or elsewhere the Pricing 6 Assumptions which were known not to be true. I'm 7 wondering whether you can help me with that at all. 8 A. Again, I said before, this was -- this was an unusual 9 aspect of contract for me, not something that I had 10 experience of before. 11 Pricing Assumptions are not unusual, but instant -- 12 instant Notified Departures following from Pricing 13 Assumptions is. But that -- and that was the -- that 14 was how the contract was constructed and that was how we 15 set out the change mechanism in the contract or part of 16 the change mechanism in the contract. 17 Q. What Pricing Assumptions did you consider at contract 18 close were not true? 19 A. Well, without -- we could go through the list and -- in 20 particular, the -- for example, excavation below 21 earthworks outline was -- was never going to be true. 22 There would be no excavation below earthworks outline, 23 which I think is what Pricing Assumption 12 says. 24 Q. Then go back to the previous page, to page 5, and look 25 at the first Pricing Assumption in relation to design. 163 1 I'm not going to read it out, but I'll just let you read 2 that for yourself. In short, I'm going to ask: were you 3 involved in any revision of this wording from the 4 wording we saw back in the Wiesbaden Agreement? 5 A. Was I involved in the crafting of this? 6 Q. Yes. 7 A. I was involved, yes. 8 Q. To the extent there were any changes from the wording in 9 the Wiesbaden Agreement, do you know why any changes 10 were made? 11 A. No. I couldn't say there was any particular reason. 12 Q. We can put that to one side. 13 We know that the BDDI was defined with reference to 14 the design deliverables available as at November 2007. 15 But we also know that by this time, May 2008, some 16 further design had been produced. 17 In short, was there any consideration given to 18 changing the -- to updating the base date to perhaps 19 April or May 2008 and to re-pricing accordingly? 20 A. Well, it could have been done, but it goes back to the 21 point I was making, about you've got to fix a point in 22 time when your price is correct, and then measure -- if 23 there was a change mechanism and then measure the change 24 from that point in time. 25 So yes, we could have. 164 1 Q. If that had been done, is that likely to have reduced 2 the scope for Notified Departures and price changes 3 after contract close? 4 A. It would have reduced the scope for Notified Departures. 5 Q. In a material way or what? 6 A. If this is just on the basis of the additional design, 7 it would -- it would not have had a huge effect on the 8 number of Notified Departures. 9 Q. Why not? 10 A. Sorry, when I say the number of Notified Departures, on 11 the value of Notified Departures because some of the -- 12 the real value in the Notified Departures was in other 13 Pricing Assumptions. 14 Q. In particular? 15 A. In particular, the earthworks outline. 16 Q. I think there's also -- we've heard evidence of there 17 having been a misalignment between SDS design and 18 Employer's Requirements, and also between the SDS design 19 and civils proposals. And that these matters were to be 20 aligned after contract close. 21 Was there any discussion of pausing the contract 22 award to let these matters be aligned before contract 23 award? 24 A. I don't think there was. I mean, the Employer's 25 Requirements were a bit of a moving target, but -- 165 1 I guess the Employer's Requirements were moving a little 2 bit closer to SDS's design all the time, given that SDS 3 were also preparing the Employer's Requirements. 4 Q. If the SDS design, Employer's Requirements and civils 5 proposals had been aligned before contract award, would 6 that have led to less scope for Notified Departures and 7 price changes after contract award? 8 A. Yes. 9 Q. In a material way? 10 A. It would have led to less -- again, possibly not -- not 11 as significant as some of the other Pricing 12 Assumptions/Notified Departures. 13 Q. Thank you. I would like to look at another document, 14 please, the final Infraco proposals. It's USB00000088. 15 If we then go, please, to page 2, the reference to 16 Schedule 30, Infraco proposals, and then to page 3, 17 please. If we blow up the first half of the page, 18 please, we see "Introduction": 19 "BBS proposals for Civil Works are the SDS Design, 20 to be developed and finalised to Issued For Construction 21 status under the Design Management Plan." 22 Then: 23 "The Design is, at present, incomplete or not issued 24 to BBS for some Sections of the Works." 25 Then: 166 1 "We refer to the Design Due Diligence Summary 2 Report ... 3 The Design will, where possible, be developed and 4 finalised in accordance with Section 3.4 Pricing 5 Assumptions included in Part 4 of the Schedule to the 6 Infraco Contract." 7 Then: 8 "Part 4 of the Schedule deals with Notified 9 Departures from the Pricing Assumptions." 10 What was the purpose of putting those introductory 11 sentences into the civil proposals? 12 A. Just to be clear as to how the design -- the Infraco 13 proposals interfaced with the provisions of the 14 contract. 15 Q. Was it usual or unusual to see such an introduction in 16 civil proposals? 17 A. Well, nothing was usual in the tram contract. So this 18 was no more unusual than some of the other things that 19 were in it. 20 Q. I think we've heard the contract described as bespoke. 21 Would you agree with that? 22 A. Absolutely. 23 Q. One thing I didn't understand. The first sentence: 24 "BBS proposals for Civil Works are the SDS Design, 25 to be developed and finalised ..." 167 1 So on the face of it, it appears to be that the 2 civil proposals are essentially defined with reference 3 to an incomplete and evolving design; is that correct? 4 A. Developed from whatever status of design the SDS design 5 was at the time. That was the intention, was to take 6 the SDS design and develop it to something that could be 7 issued as an IFC document. 8 Q. Thank you. 9 Two final issues, if I may. 10 I think you explain in your statement that after 11 financial close Colin Brady became Project Director in 12 June 2008, that you had about a two-month handover 13 period, and that you stopped full-time involvement in 14 the project in August 2008. 15 I would like to go to one final document, please, 16 which is DLA00001673. We can see top of the page, 17 please, minutes of a meeting between yourself and 18 Steven Bell on 10 June. This is 2008: 19 "The purpose of the meeting was called to discuss 20 tie's concern over lack of visibility of Infraco's 21 Mobilisation progress and other specific issues raised 22 and discussed." 23 Then over the page at page 2, please, top of the 24 page: 25 "tie expressed its strong concern over little 168 1 visible progress on both staff recruitment and 2 appointment of Key Subcontractors despite four weeks 3 passing since contract signature." 4 Then if we look under key subcontractors, terms and 5 conditions, we can see for ourselves what it set out 6 there. 7 So I think in short tie have a criticism over the 8 consortium being slow in mobilising and appointing 9 subcontractors. Do you have any views on that issue? 10 A. I -- it was a complicated contract on which to 11 subcontract. Had it been -- had it been -- had it not 12 been a bespoke contract, then it would have been -- we 13 would have had a standard form to follow. 14 So we -- so they were very difficult subcontracts to 15 form, and in particular the programme in any 16 subcontract, we should have been putting a programme, 17 and that of itself was difficult because of -- well, 18 because of Pricing Assumption 1 and the Notified 19 Departure thereto, meaning that I think we didn't have 20 an accepted programme. 21 That's an NEC term. We didn't have an agreed 22 programme for the first few months of the project. 23 So that made appointing subcontractors more 24 difficult, even though we'd had the subcontracts on 25 memorandums of understanding all the way through, that 169 1 were pre-selected for the various sections of the work. 2 Q. Just on this point, if we could go back to your 3 statement, please, to page 53. Paragraph 185, first 4 bullet point, we have put tie's various allegations or 5 criticisms to you, and the first bullet point, second 6 sentence, you say: 7 "In my view, our mobilisation would be open to some 8 criticism, but the mobilisation never affected overall 9 progress. It was never a critical delay." 10 Now, why do you say that the mobilisation would be 11 open to some criticism? 12 A. Because it's -- it was difficult to get people into key 13 positions. But, I mean, that's just a fact of life, 14 that Bilfinger were new on the block as far as the 15 Scottish construction industry was concerned, and we had 16 to get people in. 17 Q. Thank you. I would like to finish with -- I should ask 18 you about some criticisms you make of SDS. 19 If we go to page 8 of your statement, and in 20 paragraph 28, you say in relation to 21 Parsons Brinckerhoff: 22 "Occasionally we thought that Parsons Brinckerhoff 23 did not believe that the Tram would ever be built and 24 were just fee earning when they could. I could unkindly 25 say they were probably putting some reasonably 170 1 lightweight guys on it because they did not think it 2 really mattered." 3 I think again, you don't have to go to it, but 4 page 56 of your statement, you -- in relation to SDS, 5 say: you considered they were poor, however, this may 6 have been because they were under budget control from 7 tie. 8 So in short, what were your views on the performance 9 of SDS? 10 A. I thought they were poor when I was dealing with them. 11 The comment on lightweight guys, I'm not sure 12 whether that was right or wrong, but there must have 13 been some underlying reason for their poor performance 14 on the project. 15 I think elsewhere in my statement I have said they 16 were possibly under a very tight budgetary control by 17 tie, and they couldn't increase resources, if that was 18 what they wanted to do. But I don't really know that 19 they had lightweight guys on this or not. But ... 20 Q. Are your views based essentially on the delays and 21 difficulties in progressing design? 22 A. My -- my views are based on having seen designers on 23 other design and build projects, albeit not a tram 24 project, and thinking that these guys were not as good 25 as some others that I've worked with. 171 1 Q. I think in short SDS's position, as spoken to by the 2 witnesses, is that their team was perfectly competent to 3 do the design, but there were other factors outwith 4 their control which resulted in the difficulties and 5 delays. Do you have any comment on that? 6 A. I do acknowledge that SDS were having to get approval 7 from the Council for some parts of the design, and that 8 was slow, and I am absolutely certain it would be 9 difficult. I'm absolutely certain it was difficult, 10 but -- and this is just on balance. I thought they 11 could have dealt with things better than they did. 12 But again, that's a bit of opinion, rather than 13 fact. 14 MR MACKENZIE: Thank you. I have no further questions. 15 Questions by CHAIR OF THE INQUIRY 16 CHAIR OF THE INQUIRY: I don't think there were any 17 questions. 18 Could I just ask a couple of points. 19 Just to go back to Employer's Requirements and 20 design, did I understand you to say that normally the 21 employer would have a designer who would prepare the 22 Employer's Requirements and the contractor would have 23 a designer who would design to meet the Employer's 24 Requirements; and as the design developed, both would 25 change and -- as you went along? 172 1 A. To an extent. This is about comparing -- for example, 2 and this is what I can do is compare 3 a Transport Scotland model with the tram scheme, and 4 Transport Scotland would have had -- would not have gone 5 out to procurement without having had a well developed 6 set of Employer's Requirements. 7 You know, the brief of this Inquiry is to find out 8 what went wrong. That's one of the things that I think 9 was wrong, that the Employer's Requirements were not, if 10 you like, nailed down properly or at least well 11 developed enough to go to tender. 12 CHAIR OF THE INQUIRY: In this case, because the designers 13 were the same who were preparing the Employer's 14 Requirements and the design, was the design being 15 prepared in accordance with the Employer's Requirements 16 or were the Employer's Requirements being adjusted to 17 suit the design? 18 A. I think the Employer's Requirements were being adjusted 19 to fit the design, and there is always an element of 20 that in -- even in a -- what I would call a good example 21 of a Transport Scotland job, because 22 Transport Scotland's consultant would have been 23 developing a reference design or a specimen design at 24 the same time as he was writing the Employer's 25 Requirements. And it would be the same consultant. 173 1 So there is -- there is interplay between the design 2 and the Employer's Requirements. But very unusual that 3 this was happening as we were trying to bid for the job 4 against this, what I would call a moving target. 5 CHAIR OF THE INQUIRY: Yes. Following on from that really, 6 on the question of design, I think you said that in 7 June 2007, there were concerns about design and design 8 programme slipping even further at that time. 9 Did you get any impression as to who was responsible 10 for that? 11 A. For the programme slippage? 12 CHAIR OF THE INQUIRY: Yes, of design. 13 A. On design? There were two -- two parties that were -- 14 well, sorry, there were three parties. It was tie's job 15 to manage the design and I doubt very much whether they 16 were the best design managers in the world. 17 But it was the SDS's responsibility to design to 18 programme, and there may have been things impacting 19 that, like approval from the City Council on elements of 20 design. 21 So I do acknowledge that design is -- design and 22 probably design for a tram scheme is at the difficult 23 end of the spectrum. 24 CHAIR OF THE INQUIRY: Just one other matter. Can we go 25 back to your statement, please. I'm afraid I don't know 174 1 the pages, but if we can scroll down to paragraph 117, 2 first of all. 3 I think you were talking or you have spoken about 4 yours or Bilfinger's concerns about reporting to the 5 Council, and paragraph 117 is one example that you 6 mentioned. 7 If you go to paragraph 122, probably the next page, 8 is another example. 9 I think speaking about: 10 "Our opinion was that TIE had almost certainly 11 misled CEC on the risk position ..." 12 Then another example is paragraph 164. About two or 13 three pages further on. Back one. You speak about an 14 internal -- this is an internal weekly report where 15 Steve Reynolds mentions Richard Walker having concerns, 16 and he had also expressed concerns. 17 I think finally, or maybe not finally, another 18 example is 169, next page. This is a further concern 19 where Steve Reynolds observed that tie had sponsored 20 a paper which was materially incorrect when it was 21 presented to the CEC on 1 May. 22 Are you able to say in what respects it was 23 incorrect? 24 A. The statement that he observed that tie had sponsored 25 a paper which was materially incorrect at the time? 175 1 CHAIR OF THE INQUIRY: Yes. 2 A. Well, I think if you go back to one of my previous parts 3 of my statement, that there was certainly a -- I think 4 there was a misrepresentation of the risk profile of the 5 project to CEC. 6 CHAIR OF THE INQUIRY: Thank you very much. You're still 7 under your citation. So it would be possible to recall 8 you if issues arose. Hopefully that won't arise. But 9 thank you very much for your attendance. I apologise 10 for the inconvenience of splitting your evidence because 11 of Dr Enenkel. 12 I hope you managed to get your flight all right? 13 A. I managed to get my flight. Thank you. 14 (The witness withdrew) 15 CHAIR OF THE INQUIRY: We will adjourn until 9.30 tomorrow. 16 (4.30 pm) 17 (The hearing adjourned until Wednesday, 15 November 2017 at 18 9.30 am) 19 20 21 22 23 24 25 176 1 INDEX 2 PAGE 3 MR SCOTT MCFADZEN (sworn) ............................1 4 5 Examination by MR MACKENZIE ...................1 6 7 DR JOACHIM ENENKEL (sworn) .........................115 8 9 Examination by MR MACKENZIE .................115 10 11 Questions by CHAIR OF THE INQUIRY ...........138 12 13 MR SCOTT MCFADZEN (continued) ......................141 14 15 Examination by MR MACKENZIE (continued) .....141 16 17 Questions by CHAIR OF THE INQUIRY ...........172 18 19 20 21 22 23 24 25 177