1 Thursday, 16 November 2017 2 (9.30 am) 3 CHAIR OF THE INQUIRY: Good morning. 4 MR MACKENZIE: Good morning, my Lord. The next witness is 5 Jochen Keysberg. 6 CHAIR OF THE INQUIRY: Is he a doctor? 7 MR MACKENZIE: He is a doctor, my Lord, yes. 8 DR JOCHEN KEYSBERG (affirmed) 9 CHAIR OF THE INQUIRY: You will be asked questions initially 10 at least by Counsel to the Inquiry, Mr Mackenzie. If 11 you listen to the question and answer it as directly as 12 possible. If you keep your voice up, speaking into the 13 microphone and at a reasonable pace, so the shorthand 14 writers can keep up with you. 15 Examination by MR MACKENZIE 16 MR MACKENZIE: Good morning. 17 A. Good morning. 18 Q. Can you state your full name, please? 19 A. My name is Jochen Keysberg. 20 Q. And your current occupation? 21 A. My current occupation is CEO of a bigger real estate 22 company. 23 Q. I would like to go to your CV, please. It will come up 24 on the screen. It's CVS00000061 and I think under the 25 education we can see you have a degree and doctorate in 1 1 civil engineering. If we then scroll to the bottom of 2 the page, please, you set out your experience there. 3 In 1997, is that when you joined Bilfinger Berger? 4 A. That's true, yes. 5 Q. Thank you. Then we can scroll up and read for 6 ourselves. We can see, for example, between 2002 and 7 2005 you were Project Director with the international 8 division in Wiesbaden with assignments in Central 9 America and the Middle East. And we can see between 10 2004 and 2005, you were Project Director and Chairman 11 Steering Committee for the Dubai light rail tender which 12 was a US$5 billion metro project. 13 Was that project built? 14 A. It was built but we were not successful in the tender. 15 We became second in the tender. 16 Q. I understand. Then above that we see between 2005 and 17 2007 you were general manager of the company's affiliate 18 in Australia, and we can see the projects set out there. 19 Then between 2007 and 2008 you were a member of the 20 executive management of Bilfinger Berger AG civil in 21 Wiesbaden, and then between 2008 and 2010 you were 22 a member of the Executive Board of the company in 23 Wiesbaden, and I think I'm right in saying it's in that 24 period in particular you had responsibilities for the 25 Edinburgh Tram Project; is that right? 2 1 A. That's correct. It started late 2008. 2 Q. May 2008? 3 A. Late. 4 Q. Late 2008? 5 A. I think end of November or so, in 2008, I became 6 responsible. 7 Q. I understand. Then carrying on, we see between 2010 and 8 2012, you were Chairman of the Executive Board of 9 Bilfinger in Wiesbaden, and then 2012 to 2016 you were 10 a member of the Executive Board of Bilfinger in 11 Mannheim. 12 Then finally, 2016 to present, CEO of Apleona. 13 Can I check, has Apleona any connection with Bilfinger 14 or is it an entirely separate company? 15 A. It is a separate company, but the spin of Bilfinger. 16 2016, Bilfinger demerged and sold their real estate and 17 building construction business to a company with the 18 name of financial restorers, the name EQT. And I joined 19 then this new company as the CEO. 20 Q. I would now like to go, please, to the statement you 21 have provided to the Inquiry. It's TRI00000050_C. 22 I think there may be a hard copy in front of you as 23 well; is that correct? 24 A. Yes, that's correct. 25 Q. Could I start please by going to the last page to check 3 1 your signature, page 35. 2 A. That's my signature. 3 Q. Thank you. Could I just formally ask you to confirm 4 that this is the written statement you have provided to 5 the Inquiry? 6 A. Yes, I confirm. 7 Q. Your evidence to the Inquiry will comprise both your 8 written statement and the evidence you give today. 9 A. Yes. 10 Q. Now, sticking with your statement, if we can go to 11 page 2, please, and in the right-hand column, under the 12 proposed answer (b), you explain you had responsibility 13 for the Edinburgh Tram Project from late 2008 to 14 October 2012: 15 "During this period I was a member and from summer 16 2010 the Chairman of the Bilfinger Civil Board. Prior 17 to this, Mr Enenkel had held this position." 18 In terms of reporting lines, if we look down at 19 answer (c), you explain you reported to the Group 20 Executive Board of Bilfinger Berger AG and those 21 reporting to you included Richard Walker and 22 Martin Foerder. 23 You say: 24 "... whom I brought in as one of our very senior 25 Project Managers. Martin did not report to 4 1 Richard Walker but directly to me." 2 When you essentially took over from Mr Enenkel, did 3 you receive any briefing about the Edinburgh Tram 4 Project from either Mr Enenkel or Richard Walker? 5 A. I definitely got briefing, as you would expect in 6 a professional company from both, but I would say even 7 more, we have always had an independent legal team 8 within our company that -- as it was quite obvious that 9 even at that stage, the project was already entering 10 into -- I would say dispute or at least in a difficult 11 situation. 12 I certainly had as well briefing of our legal team 13 at this stage when I entered into the -- into the 14 responsibility. 15 Q. Can you remember what the legal team told you? 16 A. Yes, I think the most important was the explanation how 17 the contract works. Contract is, I would say, the way 18 it's written, it is not how you would normally write 19 a construction contract if you have a plain piece of 20 paper, and so to understand the contract properly, they 21 led me through the contract and specially how the change 22 mechanisms would work in the contract. 23 Q. Was that the Bilfinger legal team in Germany or was it 24 external legal advice or both? 25 A. The briefing was certainly by our internal, but they 5 1 liaised and co-ordinated with external ones. But we had 2 a very -- always very strong legal construction team 3 in-house. But additionally, a local external legal 4 team. 5 Q. Did you receive in addition any briefing from Mr Enenkel 6 or Mr Walker? 7 A. From there -- from them, I would certainly had 8 a briefing on how operational things worked out and what 9 their discussions were at this time with the responsible 10 people from tie and our client side. 11 Q. Now, you referred to having brought in Martin Foerder, 12 and I think from Mr Foerder's statement, he was brought 13 in in March 2009. Does that seem correct? 14 A. That seems correct. I mean, it was my idea to bring him 15 in. He was at that time still working on a project in 16 Malmo, in Sweden, and as it -- I would have liked to 17 have him earlier but that is the normal way of business, 18 that we -- we pulled him out as quickly as possible in 19 order to send him to Edinburgh. 20 Q. And why did you want to bring Mr Foerder in? 21 A. We had -- and that explains as well the direct reporting 22 line. We had in Bilfinger system where we had a handful 23 of really senior project directors that took responsible 24 of the really major projects we had in the organisation. 25 And as those individuals were quite senior persons, we 6 1 had them reporting directly to the Board and not to 2 a sub-organisation in there, because of their seniority 3 level, and we wanted to be closely updated and involved 4 in those major projects. 5 And when I became involved, maybe from a size, it 6 wasn't our biggest project we had, but it became 7 apparent that it could become a quite problematic and 8 complex project for us. So I brought him in, and 9 secondly, I think he had a record that he was very well 10 highly regarded by all his previous clients on the side, 11 and as there was already quite a tension between the 12 client organisation and ours, I had the hope that with 13 bringing him in, we could resolve some of those tensions 14 between the client organisation and ours. 15 Q. Thank you. I would like to turn to page 3 of your 16 statement, please. Again, the right-hand column, in 17 answer (b). Answer (a), you explain: 18 "The Bilfinger Civil Board on which I sat reported 19 to the Bilfinger Berger AG Executive Board. Major 20 decisions such as that to tender for and take on the 21 Edinburgh Tram Project would have needed approval of the 22 Executive Board." 23 You then go on to explain although you weren't 24 involved in the tender for the tram project: 25 "... we have a Major Projects Organisation who, 7 1 along with our group legal team, would have reviewed the 2 tender and proposed contract and made a recommendation 3 to enter into the Contract. They operate independently 4 from the Civil Board and we would not have signed the 5 Contract without approval from the Major Projects 6 Organisation and the Legal team. Once their approval 7 was obtained, the final decision would have been taken 8 by the Executive Board." 9 I assume the Major Projects Organisation, was that 10 based in Wiesbaden? 11 A. No. 12 Q. Where was it based? 13 A. That was based in Mannheim. That was -- the internal 14 name, it may be, if you hear at another point, is 15 project controlling. That's how this was called, the 16 internal name of it, and it was same as the Legal 17 Department, not -- purposely not under the control of 18 any subgroup, but under the control of the Executive 19 Board in order to be completely independent in their 20 view on projects. 21 That was a risk management measure, to have 22 a completely independent legal team, and to have 23 a completely independent major projects or project 24 controlling team, so the legal team was looking on the 25 contract, so from a legal perspective, whereas this 8 1 other -- the project controlling team was looking more: 2 is the schedule feasible of a project, is the resourcing 3 feasible, is the pricing feasible. 4 So to have a view on both sides of a tender, these 5 two departments were existing and they had to give 6 a written report at the end of this to the Executive 7 Board in order to make sure. 8 Q. What was the relationship between Bilfinger Wiesbaden 9 and Bilfinger Mannheim? Did Bilfinger have its 10 headquarters at Wiesbaden and did it have other offices 11 in Mannheim or what? 12 A. The Civil was at the headquarter in Wiesbaden, always, 13 and the group's headquarter was in Mannheim. 14 Q. Thank you. 15 CHAIR OF THE INQUIRY: Could I ask you about Mr Foerder. 16 I understand from what you said about his appointment 17 based upon his experience and the reputation that he 18 had, could he overrule Mr Walker? 19 A. He could at least -- he had direct reporting line to me 20 and if he thought they wouldn't get an agreement, he 21 would have called me and I would have made the decision. 22 So he was not under the instruction of Mr Walker. 23 CHAIR OF THE INQUIRY: So did that in any way, to your mind, 24 undermine the authority of Mr Walker? 25 A. Maybe to a certain extent, yes, of course, because he 9 1 wasn't -- it wasn't clear line, but we exercised those 2 things in other countries as well, and we thought -- and 3 it worked in other countries and my view at least on 4 this, it worked as well here. So we didn't have issues 5 that came out of this double reporting line. 6 MR MACKENZIE: From the evidence we've heard, both from 7 yourself, Doctor, and from other witnesses, the 8 impression is that Bilfinger Germany kept a very tight 9 control of projects in the UK and certainly this 10 project; is that fair to say? 11 A. On this project, sure, because we saw the risk that is 12 coming up here, and the dispute. If I compare it to the 13 other projects which certainly you've heard about, which 14 took place in Scotland as well at the same time, 15 I think, M80 was the name, as this was running properly, 16 there was certainly not, I think, I visited once, this 17 project. Really you had to dedicate your time and 18 attention to those ones which were more critical. 19 Q. Now, you've said there that in this project, you saw the 20 risk that was coming up, or the risks that were coming 21 up. I appreciate you weren't responsible for the 22 project at the time of tender and entering into the 23 contract, but are you aware whether Bilfinger saw the 24 risks in the project before entering into the contract? 25 A. I think, as I said in my statement, there was very 10 1 precise risk assessment before we entered into those 2 contracts, and I think the contract, as it is written or 3 was written, protects or has protected Bilfinger from 4 many of those risks which could come up with the design 5 is changing and so on, and so on. So from this point of 6 view, the contract is protecting us, and therefore the 7 company was probably willing to enter in this. With the 8 knowledge of hindsight, and the amount of issues that 9 came up, no contract at the end can really protect you 10 to 100 per cent. That is as well an experience you have 11 over the time. 12 So the contract alone doesn't protect you. 13 Q. Could I also check, you mentioned the Major Projects 14 Organisation and the Legal team examining the tender and 15 examining the contract. Do you know if they produced 16 any reports or risk assessments for consideration by the 17 Board? 18 A. I would assume that they have. Normally they have. 19 I couldn't say now out of memory that I have seen -- 20 probably I've even seen them retrospectively, but 21 I would expect maybe that they have. That was the 22 normal procedure, that they produced written reports for 23 the approval process of the Board. 24 Q. But you've no clear recollection of having read those 25 reports or risk assessments? 11 1 A. I have no recollection of the content. I mean, the way 2 we worked, I would assume, taking over the project, 3 I have read them. That would have been the normal 4 process, gathering documents together in order to get 5 introduced into the project. That's what I would 6 normally do, and therefore I think I have done it, 7 without knowing today exactly what was in there. 8 But I'm sure there was nothing in -- otherwise it 9 wouldn't have been approved. It was very strict 10 procedure. 11 Q. Would these reports and risk assessments be in German? 12 A. Yes. 13 Q. Where would they be kept if they were still in 14 existence? 15 A. If ever they would be kept in the headquarter in 16 Mannheim. 17 Q. I would like to move on, please, to page 6 of your 18 statement. Again, right-hand column, answer (d). This 19 was in relation to a question -- if we go over the page 20 to page 7, I think we'll see the question. You see 21 question (d), we had asked: 22 "Did Bilfinger consider withdrawing from the bid, 23 and, if so, why?" 24 Go back please to page 6. In answer (d) you say: 25 "I did not have any discussions with Mr Walker at 12 1 that time. However, it is always an option to withdraw 2 from a bid if acceptable terms cannot be agreed. As 3 a company, we would have had some minimum requirements 4 and there would be risks we could not accept. In all of 5 our major projects, we were selective about the jobs we 6 would take and would not accept a project with an 7 unacceptable level of risk. Our Executive Board would 8 not have sanctioned entering into a contract based on 9 speculation on future claims." 10 Over the page, please: 11 "...that was not the way we operated and is not 12 a strategy which would ever have been approved. 13 However, these are general comments ..." 14 You were not involved at the time. 15 Can you give any examples of risks Bilfinger would 16 not be prepared to accept? 17 A. A very prominent one is unknown ground conditions. And 18 if I talk normally, this is more related to really big 19 civil contracts where you have put -- you have to enter 20 into deep into the ground, tunnelling projects or those 21 kind of projects, where you don't know how the ground 22 conditions are, and of course it has major impact on the 23 way you construct. 24 Here it was more about the -- not really deep ground 25 conditions, more what you will find once you start 13 1 digging. Because it's simply an unknown which you 2 cannot estimate. How should I have explained to my 3 Board at whatever point in time that I would take this 4 risk without knowing what the risk is? 5 So you cannot price it. So whatever is not 6 priceable, we wouldn't have taken, not even -- and 7 I think it has proven here, that nobody would have been 8 able to really make a correct assessment of what the 9 effort would be to remove utilities and those things, 10 and find artefacts in the ground of Edinburgh. That 11 would be a risk which we would have never taken. 12 CHAIR OF THE INQUIRY: So in tunnelling operations where 13 there were unknown ground conditions, would you pass 14 that risk to the client? 15 A. Yes. And it's commonly taken by the client. The client 16 is taking -- is doing ground investigations and we build 17 our bid under those assumptions, but they take it on the 18 100-metre or whatever sequence, and if they vary in 19 between, it's the risk of the client. 20 CHAIR OF THE INQUIRY: That's quite common, isn't it, in 21 engineering contracts, that you would have a series of 22 boreholes. 23 A. Certainly. 24 CHAIR OF THE INQUIRY: You make assumptions about what 25 happens in between, and they are interpreted so that if 14 1 the conditions turn out to be different, then the client 2 would meet that cost. 3 A. Exactly. 4 MR MACKENZIE: Presumably, speaking in general, if the 5 contractor takes a risk for something they will increase 6 their price accordingly, and if the client retains the 7 risk for something, they will increase their risk 8 allowance or budget accordingly. 9 A. That's how it should be. Honestly speaking, very often 10 clients are probably not careful enough or conservative 11 enough in doing this. 12 Q. I would like to move on then, please, to page 7. In 13 question 7 we refer to the contract close, and in 14 question (a) we asked about your understanding of the 15 extent to which the construction works price was a fixed 16 price, et cetera. 17 In your answer in the right-hand column, you say: 18 "I had no understanding at the time as I was not 19 involved. However, when I became involved, it was clear 20 to me that this was not in any way a fixed price 21 contract. It was subject to many Pricing Assumptions 22 which we knew were highly likely not to be met, 23 entitling us to additional time and money." 24 Now, what's the basis for you saying that "it was 25 clear to me that this was not ... a fixed price 15 1 contract" and that "it was subject to many Pricing 2 Assumptions which we knew were highly likely not to be 3 met"? Were these things you formed your own view on as 4 a result of the briefings and any reports, or is that 5 something you were told by others? 6 A. I would answer it's both. I mean, I was used, and I'm 7 still used, to reading construction contracts. So 8 I knew how a normal construction contract would look 9 like, and it's relatively uncommon to have this amount 10 of partially extremely precise Pricing Assumptions in 11 there. This is not common in construction. 12 So if you find this in reading a contract, you know 13 there has been a discussion, a detailed discussion, and 14 there's a reason why those Pricing Assumptions are in. 15 So even without a briefing, I would have known there's 16 a high likelihood that things are going to change. 17 Otherwise nobody would have gone into the details of 18 listing all those Pricing Assumptions. 19 But of course it was certainly as well part of the 20 briefing. 21 CHAIR OF THE INQUIRY: You say it's not common. Had you 22 ever experienced it before? 23 A. Not to the extent it is shown here. Yes, sometimes you 24 have Pricing Assumptions, but as it is listed here, and 25 it was -- I don't have the example, but it was 16 1 partially -- extremely detailed. On really on a certain 2 location, on a tram stop, I don't know what it was, but 3 if the size changes or this one changes, that is not 4 common, in construction contracts. 5 MR MACKENZIE: Now, just sticking with the Pricing 6 Assumptions, you just explained that the detail in the 7 assumptions was unusual. How about the number of 8 Pricing Assumptions? I think there were about 43 in 9 this Pricing Schedule. Was that usual or unusual in 10 your experience? 11 A. It was more unusual because if the design -- everything 12 goes back -- there are several type of construction 13 contracts you would use for different type of projects. 14 And if everything is designed as ready, all approvals, 15 the tendency is towards fixed price lump sum contract. 16 If lots of things are still open, the tendency is 17 towards a re-measurable contract. And the re-measurable 18 contract doesn't need Pricing Assumptions because the 19 quantities and everything is measured. And that it was 20 a bit of a combination where you had a -- it was called 21 a fixed lump sum contract, but lots of Pricing 22 Assumptions that made it to a certain extent into a 23 re-measurable contract, at least in this area, and when 24 the whole design is affected, it makes at the end the 25 whole contract in my view to a re-measurable contract to 17 1 a certain extent. (Pause) 2 Q. Sticking with the Pricing Assumptions, and also thinking 3 about the subject matter of them and whether that was 4 usual or unusual, we know, for example, that Pricing 5 Assumptions included things to cover a known mismatch 6 between the construction programme and the design 7 programme. That was known to be a mismatch on that. 8 Is that usual or unusual to have a known mismatch 9 between these two programmes at the time of entering 10 a contract? 11 A. No. 12 Q. Is that usual or unusual, sorry? 13 A. It's unusual. 14 Q. Why? 15 A. Because normally -- as I say, if those things are open, 16 you would enter into a different type of contract. 17 I worked in Australia. They use alliance contracts, 18 which are purely partnership contracts for inner city 19 construction projects, where lots of things are still 20 open, and simply because of unknowns, not to be detailed 21 in advance, and -- so -- but for this type of contract, 22 it's relatively unknown -- uncommon. 23 CHAIR OF THE INQUIRY: When you say partnership contracts, 24 that would be a partnership between the contractor and 25 who? 18 1 A. And the client, which would be the municipality or 2 whatsoever. 3 MR MACKENZIE: How are the works priced in these different 4 contracts you have described? 5 A. You very much price on unit. You build it up on unit 6 prices, or if it's a full partnership, it's really at 7 a cost -- at the end, it's a kind of cost plus fee 8 contract, with certain incentives in that the contractor 9 is not just earning more money with more fees, whenever 10 the quantities increase. So you can always put 11 mechanisms in that the fees kept, or you have 12 a incentive to keep the whole cost down. 13 But the more unknown, the more contracts turn into 14 a kind of cost plus fee contract, with again some 15 parallel mechanisms, and the more detail is fixed or 16 known before it turns into a fixed lump sum contract. 17 That is in general my experience. 18 Q. So is it your position in short that for this project, 19 given the uncertainties and unknowns, it was 20 inappropriate to seek a fixed price contract and one 21 should have chosen a different type of contract model? 22 A. If I were the client, I would have chosen a different 23 contract, yes. 24 Q. Coming back to the Pricing Assumptions, and again just 25 to ask whether this is usual or unusual in your 19 1 experience, there was also a Pricing Assumption to cover 2 a known mismatch between the design and the Employer's 3 Requirements. In your experience, is it usual or 4 unusual to have a mismatch between those two things at 5 contract award? 6 A. It's uncommon. 7 Q. What is the importance of a design and Employer's 8 Requirements being aligned at contract award? 9 A. It's simply to avoid any disruption of the construction 10 progress. The disruption is extremely expensive, and 11 normally everything which could disrupt because you have 12 to align programmes, you have to align certain 13 procedures, can lead to a disruption of the construction 14 progress, and that is why normally clients tend to have 15 this all agreed beforehand, and not after. 16 Q. Another Pricing Assumption related to a known mismatch 17 between the design and the civil proposals. 18 Again, in your experience, is it usual or unusual to 19 have a mismatch between these two matters? 20 A. Can you explain the two matters? I don't know all the 21 Pricing Assumptions, I must admit, so can you explain 22 again, please? 23 Q. One of the Pricing Assumptions said in short that the 24 SDS design was aligned with Bilfinger's civil proposals, 25 but we've heard evidence that in fact there was 20 1 a misalignment, or a mismatch between the SDS design and 2 Bilfinger's civil proposals, and that that misalignment 3 would be addressed and sorted in workshops to take place 4 after the contract was entered into. 5 I just wonder whether in your experience, it was 6 usual or unusual to have a mismatch or misalignment, 7 a difference between the design and the civils 8 proposals? 9 A. I would say it's unusual. It just demonstrates that 10 there was obviously a hurry to enter into the contract. 11 Q. Another -- and in fact the first Pricing Assumption, of 12 course, related to design against a background where the 13 design for the project was incomplete and was still 14 developing. 15 Do you have any comments on that, the fact that 16 a contract is entered into when design is incomplete? 17 A. I would say that that happens from time to time, but it 18 is not that critical if, for example, you build a big 19 bridge here and in the span of the bridge, the design is 20 not complete, because that's a purely technical 21 finalisation of a design, and some contractors would 22 even take the risk of this. 23 But if this design is very much dependent on third 24 party approvals, on certain situations, you find with 25 utilities and those things, in an inner city, then 21 1 contractors normally wouldn't take this risk. 2 So I have seen projects and we have had projects, 3 maybe green field projects, where you would say, okay, 4 we know how to finalise, and we can assess the risks in 5 finalising a design, so that can be, but never in an 6 inner city like this. So again, something like green 7 field or where there's no other impact on the design, 8 rather than the technical impact of making it work and 9 getting approval from a technical point of view. 10 Q. Presumably where -- in a situation where design is 11 incomplete at contract award, both parties would want to 12 be very clear as to who was bearing the risk of design 13 development and completion? 14 A. Yes, of course. 15 Q. Can we turn, briefly, please, to Schedule Part 4 of the 16 Infraco contract. It's USB00000032. Go to page 5, 17 please. 18 In section 3.2.1, if we blow up that provision, 19 please. 20 I'll give you just a minute, Doctor, to read that 21 for yourself. (Pause) 22 A. Yes. 23 Q. Do you remember whether you read that provision around 24 the time you assumed responsibilities for the project? 25 A. I'm 100 per cent sure that I read it. I don't -- 22 1 I couldn't say on what date or whatever, but that would 2 be something I certainly have read and -- and my teams 3 have told me to read it, yes. 4 Q. Do you remember what your views were when you read that 5 provision for the first time? 6 A. If you ask me that specifically, I couldn't tell you 7 because I don't even know if I was briefed on this 8 clause before I read it or if I read it first. That is 9 certain -- it's unfortunately not in my memory anymore. 10 Even if I read it today, I think it's relatively clear. 11 Q. So what is your understanding from reading it today? 12 A. For me it is clear that it was accepted at that point in 13 time that Pricing Assumption had to be made on a, say, 14 preliminary basis, on a preliminary design basis, and 15 that any changes to this would lead to a Notified 16 Departure mechanism. 17 Q. Can I ask you about two sentences in particular. Can 18 you see the second sentence states: 19 "The Parties acknowledge that certain of these 20 Pricing Assumptions may result in the notification of 21 a Notified Departure immediately following execution of 22 this Agreement." 23 In your experience of other projects, was that usual 24 or unusual? 25 A. I would say rather unusual. 23 1 Q. Presumably -- why do you say that was unusual? 2 A. Because I said I would have -- we would -- you would 3 normally try to solve those things before the contract 4 signature and not immediately after. If you know that 5 there is a problem there, you do it before you sign it 6 or not. If there is not a good reason, for seasonality 7 or whatever to enter into this contract, and there's 8 enough time, it's as well a matter of how much time you 9 have, if it's a matter that is only related to the very 10 end of the project, you can do it. But if it's 11 something quite important that impacts on the project 12 from day 1, most clients would probably say: I solve 13 this before I enter into the contract. 14 Q. Presumably, if you solve the problem before entering 15 into the contract, you have certainty? 16 A. Yes. 17 Q. You can price whatever the change is in advance? 18 A. Exactly. 19 Q. Moving on two sentences, please, the sentence begins: 20 "In order to fix the Contract Price at the date of 21 this Agreement certain Pricing Assumptions represent 22 factual statements that the Parties acknowledge 23 represent facts and circumstances that are not 24 consistent with the actual facts and circumstances that 25 apply." 24 1 Again, from your experience of other projects, was 2 what is set out there usual or unusual? 3 A. It is unusual, and I come back to what I said earlier. 4 Other clients would have used different contract types 5 in this space, and that's why I say these clauses are 6 unusual. If you use a fixed -- if you use the contract 7 structure of a fixed lump sum, then you wouldn't need 8 this, and here, as I say, there was a structure of fixed 9 lump sum, but it was opened up into a re-measurable 10 contract by adding those clauses. 11 Q. What the sentence is saying is that certain Pricing 12 Assumptions are based on facts which are known at the 13 time of entering the contract not to be true. Have you 14 ever come upon wording of that sort in any contract you 15 have been involved in? 16 A. From memory, no. But might be, but at least I don't 17 recall. 18 Q. Could we also, please, then go down the page to look at 19 Pricing Assumption 1 in relation to design. Again, if 20 we blow up that, please, 3.4.1. I will give you 21 a minute just to read that, and then there's another bit 22 over the page as well. (Pause) 23 A. Could you please repeat which clause? 24 Q. 3.4, we see: 25 "Pricing Assumptions are: 25 1 1. The Design prepared ..." 2 If you could just read to yourself from there to the 3 bottom of the page and then indicate once you have done 4 that, please, and we will go to the bit over the page. 5 (Pause) 6 A. Yes. 7 Q. Over the page, please, there's one final paragraph we 8 can blow up at the top. Sorry, there is two actually. 9 There's 1.3, if you read that please, and then the final 10 paragraph as well. 11 A. Yes. 12 Q. Now, the meaning of this Pricing Assumption became 13 controversial, and went off to adjudication, but do you 14 remember reading this Pricing Assumption before now? 15 A. As with the other one, I'm 100 per cent sure that I read 16 it at that time. It wasn't -- it wasn't my daily 17 business to know each of these Pricing Assumptions by 18 100 per cent, but for a normal briefing and to enter 19 into discussions with our client organisation, I saw it 20 certainly as a need to read those important clauses of 21 the contract, yes. 22 Q. Did you have any views on this Pricing Assumption, 23 either previously or now, having just read it again? 24 A. It's the same what I've said earlier. It's really 25 saying it gives -- it tells you the story that there was 26 1 a design where people knew when the contract would close 2 that it was outdated on -- on the contract signature day 3 already, and that amendments would happen, and that is 4 the clause that is triggering the mechanism for changes 5 following from those designs. 6 And the last paragraph about normal development, 7 I think that was an argument I remember very often what 8 is normal development in the design and what is not. 9 For us, normal development is something -- was always 10 something different. As in the other ones are clear 11 precisely, if shape changes and those things, that is 12 not design development. 13 If you get three more steel bars in a concrete 14 foundation, out of a technical design, that is a normal 15 design development. But not changing the whole shape or 16 type of construction or those things, and I think that 17 was part of many debates. The borderline between design 18 development and the other clauses, the other three 19 clauses. 20 Q. So was your reading of this provision that in short, 21 what is normal design development is a matter of degree? 22 A. Excuse me, I didn't understand. 23 Q. I'm sorry, yes. Is your reading of this provision that 24 what is normal design development is a matter of degree, 25 is perhaps a scale on which the more change there is, 27 1 something may then cross the line into being outwith 2 normal design development? 3 A. If the construction methodology is changing, it's 4 definitely something that -- if the quantities are 5 changing dramatically -- there is certainly somewhere 6 a grey area between what is a design development and 7 what is a change. There's no doubt, you cannot define 8 it that precisely that there's not a grey area in 9 between. But many -- I remember many of the design 10 changes were not in this grey area. They were in the 11 100 per cent area, or they might have been, and I wasn't 12 in that detail at all during the time, there might have 13 been a few which were more in the grey area, is it now 14 normal design increase development or is it a change. 15 That would be my view on it. 16 Q. Thank you. Could I also again ask you to slow down 17 a little, just to make sure we pick everything up. 18 To move on, please, to page 8 of your statement. 19 Question 9 states: 20 "The contract price assumed that a number of value 21 engineering savings would be made." 22 There's then reference to an internal tie email 23 dated 19 March 2010 in which Richard Jeffrey of tie 24 circulated a draft document setting out his 25 understanding of various matters in which he had noted 28 1 you as having, apparently, said, including he had 2 referred to you having referred to the value engineering 3 nonsense, which was a scam for getting the price below 4 the approved budget. 5 We can see your answer to that in (a) in the 6 right-hand column. You say: 7 "I did not make that statement to Richard Jeffrey. 8 In fact, I did not know the meaning of the word 'scam' 9 and had to look it up in the dictionary in order to 10 answer this question. I don't recall any conversation 11 with Richard Jeffrey from which he can have taken this 12 understanding." 13 You also then say in (b): 14 "I had no views on such matters before contract 15 close, not having been involved. When I became 16 involved, I don't recall that value engineering formed 17 any part of the dispute with tie." 18 Do you know whether the value engineering sums in 19 the contract were regarded by Bilfinger Berger as 20 realistic and achievable? 21 A. When I entered into the project in -- end of 2008, or it 22 might have been early 2009 when the briefing to me was 23 that the likelihood that the sum that was stipulated in 24 the contract would be achieved is relatively low. 25 So it really -- and I got the impression, I must 29 1 say, that that was seen from both sides at that point 2 already. And there might have been reasons for tie 3 being -- I don't recall the reasons that was, and 4 therefore -- and I think even from tie's side, it wasn't 5 in the heart of any dispute, and I, in my role at that 6 time, I had to prepare myself for the big topics in the 7 disputes in order to discuss them, and not cite things. 8 So the -- when I came in, the expectation that there 9 would be an outcome of value engineering was, at least 10 on our side, extremely low. 11 Q. Thank you. I would like to move on to another matter. 12 Page 10 of your statement, please. In the question on 13 the left-hand column, (c), we had asked: 14 "What was Bilfinger's position or strategy in 15 relation to the dispute that had developed?" 16 You say in (c), in the right-hand column: 17 "At this time I was not directly involved but was 18 aware that a large dispute was developing. I was aware 19 that Bilfinger had carried out some work on a good faith 20 basis on Leith Walk which we were not obliged to do. 21 I understood that that work had not gone well due to 22 many, many utilities still being present when they 23 should have already been moved. In fact it was such 24 a mess that we were subsequently instructed to close it 25 up again. We also were not paid for doing this work 30 1 despite previous assurances. This made everyone very 2 nervous and reluctant to continue working on a good 3 faith basis." 4 What did you mean by "working on a good faith 5 basis"? 6 A. That means the contract was relatively clear how to 7 operate with changes, and I think that is core of the 8 whole discussions that the contractor had to agree the 9 price and get a -- I don't know exactly the name -- tie 10 change order, I think was the name, and in order to 11 obtain this, you have to do sometimes design. You had 12 to do an estimate, agree an estimate and get this change 13 order done. 14 And only after this you were allowed to execute the 15 work. 16 If you had started -- that was our contract reading 17 at least. If you had started those works without those 18 process, you wouldn't have been entitled to get paid for 19 it. And so when I say good faith, I'm saying at the 20 beginning, I think it must have been -- I wasn't 21 there -- clear that applying this process of going 22 through design estimate and waiting would never be 23 really workable on a project basis, because it took, 24 I think -- later on it demonstrated it took more than 25 half a year, this process. 31 1 So the contractor or us went in into -- despite this 2 clause, relying on the client to -- to pay for it, even 3 though we deviated basically from the contract, but in 4 good faith, in order to progress the works. 5 Otherwise we would have just stopped at the first 6 utility and said: that is a change, we go now into 7 design, we go into estimate, we go into agreement, and 8 once everything is agreed, we get the tie change order 9 and then we pick up this utility or we -- whatever it 10 was, and do the work. But that would have taken half 11 a year. I don't have to explain that is absolutely 12 unworkable. 13 Q. So by good faith, do you mean in short putting the 14 strict terms of the contract to one side and carrying on 15 with the work? 16 A. Exactly. 17 Q. Just again on the same point, I think, over the page at 18 page 11, in 14, answer (b), in the right-hand column, 19 a few lines from the bottom, you say: 20 "As subsequently became clear, where we did start 21 work without tie's agreement, we lost out because tie 22 would not accept that matters would have to be dealt 23 with as Notified Departures." 24 Is that a reference just to the work on Leith Walk 25 or is that a reference to other work too? 32 1 A. That's -- I couldn't particularly say now which area of 2 work, but that was at least our fear and understanding 3 and I cannot say if it was proven, but from all the 4 conversation at least, and there might have been proven 5 cases which I don't memorise today, we had this -- 6 actually happened, but tie was taking a very strict 7 contractual approach, and it was on the approach we 8 don't want to increase the project price, and therefore 9 it was cautious for us not to be too exposed and to 10 those works where, even from our view on the contract, 11 we wouldn't be entitled to get the work when we start 12 outside the contract to do it. 13 So it was really getting in a disputed time money on 14 a good faith basis from the client was for us quite 15 risky. 16 Q. Thank you. Go back then, please, to page 10, to clarify 17 one matter. 18 In question 13 we refer to over 700 INTCs having 19 been intimated between contract close and Mar Hall 20 mediation. 21 Then could you go, please, to answer (a) in the 22 right-hand column. You say: 23 "The main reasons for the changes were that the 24 MUDFA works did not appear to be aligned with our 25 contract. In other cases, design was not 33 1 co-ordinated: there were many design changes. Where 2 this occurred, the Contract provided that we should send 3 INTCs. These happened throughout the whole project - it 4 seemed to be a complete mess." 5 Could I just check, when you say "it seemed to be 6 a complete mess", what was that a reference to? What 7 was a complete mess? 8 A. The complete mess was the handling of the MUDFA works 9 relating into this INTCs or this change -- I don't know 10 exactly what the -- these change requests and change 11 order mechanism at the end: it was kind of bizarre that 12 we entered into areas where supposingly MUDFA had 13 cleared all the area, and once you opened it, you found 14 lots of utilities. So that's -- and you know the number 15 of 738 changes and all those changes required the 16 process I just described, and I must admit to a certain 17 extent, I think it was one of your questions, we were as 18 well not prepared to prepare so many estimates in a very 19 short period of time and of course -- we first had to 20 do -- the design work had to be done. Third party 21 authorities to be involved in this design. That was 22 a quite time extensive process. Then you had to 23 estimate them and so on. That is what I mean is a 24 mess -- so -- and at the same time, you find three more 25 of those utilities on the same day, and you don't know 34 1 how to handle this whole -- that's what I call mess at 2 the end. This is simply not doable. The mechanism, 3 that's what we always try to explain to tie, that the 4 mechanism of the contract with the conditions we find 5 here, that won't work. 6 Q. Now, returning to your statement, please, in answer (b), 7 in the same page, you say: 8 "Nobody expected the number of changes we 9 experienced and it was an extremely high number compared 10 with other projects. tie were the only ones with the 11 knowledge who might have been able to predict the amount 12 of change (given that they were in contract with the 13 MUDFA Contractor). The number of changes which were 14 disputed and which remained unresolved for a long time 15 was also unprecedented. For infrastructure projects 16 there was an abnormally high ratio of unresolved 17 compared with resolved changes." 18 So what usually happens in other projects where 19 there is a dispute as to whether there has been a change 20 and, if so, the amount of any change? 21 A. The mechanism that you have to have an estimate, as 22 a design estimate, before you even start working on it, 23 is not common. In normally construction contracts the 24 client has the right to instruct certain works and at 25 the same time when -- with this instruction, the 35 1 contractor gets an entitlement for compensation, which 2 still has to be defined, but it's done in parallel or 3 after the works have been concluded. 4 That would be the common process for dealing with 5 it. 6 But here, with the amount of changes we have here, 7 that would have been as well quite difficult. 8 But normal construction contracts have this -- what 9 I just described mechanism, in order not to stop the 10 works permanently, because then the work is going to 11 continue throughout and financials are sorted out later. 12 But, as I wrote in my statement, I was told -- 13 I wasn't present at that time -- that tie was insisting 14 on having this complicated clause in, in order not to be 15 exposed to financial claims from a contractor at a later 16 stage. So to have always control on financials before 17 the works for those additional price would start. So it 18 was their wish in the contract concluding negotiations 19 to have this clause in. That is at least what I was 20 told. I wasn't there. 21 Q. Thank you. I would like to move on, please, to page 17 22 of your statement. We can see, I think, towards the 23 very bottom of the page a letter (a), and there's 24 reference to: 25 "TIE's internal notes of a meeting on 36 1 9 February 2009 noted you had, apparently, stated at 2 a meeting in December 2008 that the best outcome for CEC 3 in cost and programme terms was to suspend construction 4 for a period of time (except where there was an agreed 5 basis to progress on an actual costs basis) sufficient 6 to complete design and utility diversions and 7 re-price/re-programme." 8 Do you remember saying that at a meeting around 9 December 2008? 10 A. I remember exactly that I told this in a meeting to 11 David Mackay. If it was December 2008 -- we had several 12 meetings there, or another day, obviously I don't know 13 any more. But I remember exactly, I have even the 14 picture in my memory when I said this, and how 15 I explained this to him. 16 Q. Was that view you formed fairly early on in becoming 17 involved in the project? 18 A. Yes. It was quite obvious, and I think that with this 19 type of contract, and all the obstacles and the 20 unfinished design, both together wouldn't work. So 21 either we changed the contract into something like 22 a cost plus fee based or re-measured the contract, or the 23 conditions for a fixed lump sum contract need to be 24 prepared, and that means the design has to be finished 25 and the utilities have to be removed, and either 37 1 different contract or that -- but if we just go this 2 path, it's a dilemma, and it will never work, and at the 3 end it -- just costs are increasing because we have 4 contractors on standby. It's all works are disrupted, 5 and that is the most costly way to execute works. 6 For us to demobilise, and come back, if it's half 7 a year or a year later, when everything is finished, 8 I still claim would have been a far cheaper way to do 9 it, rather than being there, fully mobilised and working 10 in a completely disrupted mode. 11 Q. So is that -- if your suggestion had been accepted in 12 late 2008 or early 2009, is that likely to have saved 13 money for tie? 14 A. In my view, yes. 15 CHAIR OF THE INQUIRY: What would be the implications? You 16 would have the costs of demobilisation, and then costs 17 of remobilisation when -- after a period. Did you have 18 any idea of the sort of period that we would be talking 19 about? 20 A. It would have been to do sensible -- it would have been 21 a year, if you ask me. Half a year, in my view, 22 wouldn't have been sufficient to do this. And it is 23 really about demobilising officers, people, getting them 24 back, and mobilising them in again, and certainly you 25 would have claimed a certain price increase of inflation 38 1 or whatever, which happened in this year, and we had the 2 subcontractor negotiate with our subcontractors; but 3 still the alternative was just to stay in a disrupted 4 mode, and there was not much progress on site from end 5 of 2008, or maybe from the beginning of contract right 6 into 2009 in there. 7 So it is -- for construction -- for the civil 8 contractor, coming in, having the road blocked, all the 9 utilities removed, design ready, that is the fastest way 10 to do it. And my other concern was -- I said this 11 constantly -- we will bring the whole city to a stop, 12 because we enter into a certain location, we block the 13 roads, and then we come to a change, and the whole thing 14 comes to a standstill. Once we have reached agreement 15 on a certain change, we come to the next one. That is 16 the way we're going to work. 17 So the whole blockage -- that was the background why 18 eventually tie agreed to go on this Supplementary 19 Agreement for Princes Street, because otherwise 20 Princes Street would have been blocked for ages, if we 21 hadn't done this. 22 CHAIR OF THE INQUIRY: So are you saying that even with 23 demobilisation costs, remobilisation costs, a delay of 24 a year, and renegotiating the price really, because of 25 the -- would you renegotiate the contract price because 39 1 of the -- 2 A. No, we wouldn't -- what you can renegotiate is the 3 inflation. That means the price is just increase over 4 a one-year period. But you wouldn't -- the concrete -- 5 putting concrete into a form is the -- has a certain 6 inflation, but that is not a different type of work 7 a year later. So the contract price would have more or 8 less stayed the same. But it is really a price about 9 demobilisation and coming back a year later. That would 10 have been -- I don't have -- I haven't had, to be fair, 11 an estimate at that point in time. So I didn't present 12 an estimate. So it was just finding ways how to get out 13 of this dilemma which we had at that point in time. 14 CHAIR OF THE INQUIRY: What was Mr Mackay's reaction to 15 that? Obviously he didn't accept it. 16 A. I think even he reacted, I would say, more emotional. 17 He said he didn't want to hear about it. So it was not 18 an argument he was open to or a scenario he was open to. 19 It was very clear from him, and -- that this was 20 something he doesn't want to enter into any discussion 21 about. 22 CHAIR OF THE INQUIRY: Thank you. 23 MR MACKENZIE: Thank you. In respect of any cost savings 24 for tie, did you have any views then or do you have any 25 views now as to what they might have amounted to? Might 40 1 it in fact have been a cost neutral, or if there were 2 savings, are we talking about hundreds of thousands? 3 Millions? Tens of millions or what? 4 A. The savings through demobilisation? 5 Q. Yes. 6 A. Don't please -- please accept that I don't want to give 7 an estimate here, out of the situation. I don't have at 8 this point in time. 9 But if we were just talking about 100,000, it 10 wouldn't make sense to do this. It must be more. But 11 how much more, I couldn't say. We talked certainly 12 about millions, but not 100,000s. But don't ask me now 13 how much it would have been. Again, it hasn't been 14 calculated, but it was just a scenario, where we 15 said: let's do this. If at the end it had turned out, 16 it's my belief it would have been cheaper. But at that 17 point in time nobody knew what the final cost would be, 18 and we presented shortly after, and I don't -- the team 19 or the team -- with the team together, we said we need 20 to tell the organisation what we today think the 21 additional costs are going to be, because could have 22 been that tie was still thinking the additional costs 23 are 2 million or 3 million. Why should we let them go 24 and come back and all this, explain this to the public 25 for 2 or 3 million. 41 1 That is why we came up early 2009 and told them 2 there is a range, and you see on the range that it was 3 not an exact figure of 50 to 80 million, and I think it 4 was more than a year contract -- extension of time on 5 the contract that was our best guess at that point in 6 time what the additional cost would be. 7 Q. Thank you. If you go back, please, to page 16 of the 8 statement, right-hand column, second paragraph, you say: 9 "In terms of the question asked, I recall that on 10 several occasions ..." 11 You made this suggestion. So it wasn't just on one 12 occasion, it was on several occasions; is that right? 13 A. That's right, yes. 14 Q. Then the next page, page 17, top of the page, right-hand 15 column, you say: 16 "I really tried to explain this to Mr Mackay, but he 17 was not interested in listening." 18 Presumably, if tie had agreed to your suggestion at 19 this time, that would essentially have been an admission 20 on their part that they had entered into the Infraco 21 contract prematurely? 22 A. No, there was no recognition at all. 23 Q. What were your views on whether the Infraco contract had 24 been entered into prematurely? 25 A. From -- yes, my -- at that point in time it was obvious 42 1 that with the contract mechanisms, and the amount of 2 changes, it wouldn't work together. And that -- that 3 led to my proposal to postpone, basically demobilise, 4 and that is the consequence out of this. 5 If I thought -- I had thought that everything is in 6 the right space, and in the right timing, I wouldn't 7 have made this proposal. 8 Q. Now, we also see in the top right-hand column, you say: 9 "One of my main criticisms of tie is that they had 10 no one who had experience of major construction 11 projects, especially in inner city areas. They appeared 12 to come from a rail project background." 13 Now, can you explain what you mean there? 14 A. My impression was that the resourcing of tie was very 15 much focused on people having experience with rail 16 systems, with tram systems, with rolling stock, but the 17 complexity and the difficulty here was not the tram 18 itself. There was hardly anyone, at least in the senior 19 level, who had really first-hand experience with inner 20 city infrastructure works and how construction contracts 21 work. 22 Tram contracts, ordering a tram, are different 23 contracts than a inner city construction contract, 24 and I haven't met one in the organisation that had this 25 experience in there. 43 1 Q. I would like to move on, please, to the Princes Street 2 dispute, and you deal with this at pages 18 and 19, 3 I think, of your statement. 4 At page 18, under letter (c), we had asked: 5 "What were your views on the cause(s) of the 6 Princes Street dispute?" 7 You replied: 8 "The actual cause of the dispute was a minor change 9 to a bus lane which tie did not instruct as a tie Change 10 Order and appeared not to accept that it should have 11 been treated as such. However, we also knew that we 12 would find a substantial amount of utilities when we 13 started to dig up the road and that it would be 14 a complete mess if we had to progress this under the 15 contract regime by raising a Notified Departure for each 16 and every change. 17 This was the first occasion when we refused to 18 carry out work without a tie Change Order ..." 19 Reference to clause 80.13. Then: 20 "Tie thought that they could put us under such 21 pressure that we would just proceed with the works. We 22 could not proceed in this way as we would have lost 23 a lot of money, knowing as we did by this point in time 24 that tie were taking a very different view to us on the 25 interpretation of the contract." 44 1 So in short, would it be fair to say that the 2 consortium decided to take a stand? 3 A. Yes. But Princes Street is not a normal street in 4 Edinburgh, and we -- we felt at that time that -- and 5 you know that the public pressure was used to a big 6 extent at that point in time, to bring us into 7 Princes Street, and once we are in, that we, under the 8 public pressure would just work through, and by doing 9 this, we would have given up on all entitlements and we 10 would have paid the complete bill for Princes Street at 11 the end. That was our concern, and therefore it -- it 12 was very obvious that we had to take a stand here, 13 because once we entered into this one, that would have 14 been -- will only become worse. Without a decent 15 agreement that would allow us to progress work in there, 16 in the existing agreement, it would have been a complete 17 mess in Princes Street. 18 So from a timing perspective and Change Order 19 mechanism and those things, and we saw that tie had the 20 strategy of using this public pressure in order to get 21 us out of the contract, and that's why we had to take 22 a stand then, yes. 23 Q. And that, was it ultimately your decision to take 24 a stand on this matter? 25 A. The decisions prepared -- I don't want to overestimate 45 1 my role. I was the approval party. All the decisions 2 were prepared in the consortium, and I think it's worth 3 to mention all those decisions were as well approved by 4 Siemens. It's not only us. And Siemens was only 5 indirectly involved, but they had the same view on 6 contract and contract mechanisms as we had, even though 7 they were not involved at all in those kind of physical 8 works. 9 So those things had to be approved in the 10 consortium, with the consortium partners, and us. And 11 me finally approving it for Bilfinger. Sorry. 12 Q. I'm sorry for interrupting you. 13 What were Siemens' views on the stand taken; in 14 particular did they have any concerns in relation to 15 Bilfinger's interpretation of the contract and approach 16 to the contract? 17 A. No. And the situation was Bilfinger had a quite 18 experienced legal in-house team in reading contracts. 19 We had an external -- both had the same opinion. 20 Siemens, you may imagine, has quite an extensive legal 21 team, and they had as well another external lawyer 22 looking at this. All four legal parties had exactly the 23 same view on the -- on the risk of the contracts and the 24 interpretation of the contracts, and that is why Siemens 25 basically approved our decisions on -- on those matters. 46 1 CHAIR OF THE INQUIRY: You mentioned the sensitivity of 2 Princes Street and tie using Princes Street and the 3 public pressure to bring pressure to bear upon you. 4 It might also be suggested that you, the consortium, 5 took advantage of the significance of Princes Street by 6 stopping work and bringing everything to a halt. Do you 7 have anything to say about that suggestion? 8 A. I -- first of all, I had discussions with Mackay, and 9 I think there were others as well, not to do the whole 10 blockage at all before we have finalised an agreement 11 how to work in this area. 12 So it was not us saying: we don't work there, once 13 the whole street was blocked. So we told them very 14 clearly beforehand: let us find an agreement how we work 15 in there, and don't do the road blockage beforehand; so 16 it's not -- that we don't come to a situation where the 17 road is blocked and nothing is going to happen there. 18 They still did it, in my recollection and there were 19 a few days or weeks of road blockage without physical 20 works in there, and now -- I mean, under our 21 interpretation of the contract, there was -- I think 22 there was no reason why we should try to put pressure on 23 them. For us it was very clear, nobody could really 24 argue under the contract that we were obliged for all 25 the utilities that were still there in Princes Street. 47 1 And if you had our belief of the contract, and our 2 interpretation, I think it has to a certain extent been 3 confirmed, at least by the adjudications, then you could 4 only come to -- there was nothing about putting pressure 5 on them. 6 I mean, you might have read on memory that they even 7 put in the press that we linked an 80 million claim 8 towards starting in Princes Street, which is -- sorry, 9 absolutely wrong, I say now, absolutely wrong, because 10 you wouldn't find any evidence, I would say, where we 11 have made any connection between an 80 million claim and 12 starting on Princes Street. We always said we need to 13 have contract mechanism to work quickly through 14 Princes Street, because there was a Christmas season at 15 the end of the year, I think that was the aim to get out 16 of this before the Christmas season; and we know -- we 17 knew by that time all the damage, the reputational 18 damage and everything, would lie on us if Princes Street 19 was blocked. 20 Actually, the negative was not so much on tie at 21 that point in time. It was all on us, and -- 22 reputation-wise, when this dispute about Princes Street 23 started. 24 So I think it -- at that point in time has damaged 25 us much more than tie. 48 1 CHAIR OF THE INQUIRY: When you mentioned the GBP80 million 2 claim, is that a reference back to the range of 50 to 3 80 million that you quoted to tie as your rough estimate 4 of what it might cost to complete the contract -- 5 A. That's right. 6 CHAIR OF THE INQUIRY: -- without demobilising or 7 remobilising. 8 A. No, no, that was just continuing the contract that would 9 be the range, and there was never any connection between 10 this range and -- and mobilising or starting on 11 Princes Street. Zero connection to this. But we were 12 prevented by the contract to make any public statement 13 or any statement to somebody outside of tie in order to 14 correct this. 15 MR MACKENZIE: Thank you. 16 Did you have any involvement in resolving the 17 Princes Street dispute? 18 A. Not in the detail. The detail of this, I think 19 Supplementary Agreement or what the name was, in this 20 additional agreement, was definitely negotiated by the 21 site personnel. I think it was one of Mr Foerder's 22 first tasks after he arrived. But I definitely had 23 phone calls or meetings also with Mackay at the same 24 time. So leading to this agreement in principle. But 25 the details would have been agreed between the tie teams 49 1 and our site teams. 2 Q. Moving on, please, to another matter. Can you go, 3 please, to page 20 of your statement. In question 21, 4 this is reference to something else that Richard Jeffrey 5 has attributed to you. We can see in question 21 it 6 refers to: 7 "A subsequent internal tie email (dated 8 13 January 2010) from Richard Jeffrey noted that at 9 a meeting with him on or about 6 July 2009 you had, 10 apparently, said words to the effect that 'this is 11 a great contract for us, it allows us to hold the client 12 to ransom' ..." 13 Now, what's your position? Did you use those words 14 or similar wording at this meeting? 15 A. No. As I stated in my answer, definitely 100 per cent 16 I never used these words. That is for sure because they 17 are simply not words which -- that I know or that 18 I would frequently use from -- just from the phrase. 19 When it comes to something with -- I would use 20 different words, as a foreigner. Those are not typical 21 words a foreigner would use here. So it's not known to 22 me, those words. If it means to the effect or with a 23 similar meaning, I say as well, no, I didn't say this. 24 And I wouldn't have said this to a client before or 25 afterwards. There's a certain borderline you don't 50 1 cross, and that is a borderline which I would have never 2 crossed. What I can tell you, what I probably said in 3 this meeting and in others, is always that that was like 4 permanent repetition that we explained to them: if we 5 don't move on and find alternative scenarios for this 6 contract, and we start working in the city, the city 7 will be blocked for the mechanism I explained, and the 8 project will never be built, completed; because 700 9 changes we see here, and every change in average takes 10 half a year, of course -- I don't know how many run in 11 parallel, you can imagine that at that point in time, it 12 was absolutely clear without finding resolution, this 13 will not be built. 14 If he has seen this as putting him under pressure, 15 can be, but definitely I didn't say these words. And 16 nothing which have the same meaning as this. 17 Q. I understand. 18 Now, one of the allegations made by tie against the 19 consortium is that estimates for Notified Departures 20 were routinely excessive or exaggerated. Were you aware 21 of that allegation? 22 A. I was. That was a permanent allegation of tie. 23 Basically, yes. If you want me to comment on -- 24 Q. Yes. What's your views on that allegation? 25 A. Obviously it is no. It is a common process in 51 1 construction projects that clients and contractors don't 2 agree in the first instance exactly on the price, on 3 a variation or a change, and there's always the kind of 4 negotiation coming to it. 5 If I remember correctly, from basically adjudication 6 decisions, yes, we never succeeded 100 per cent with our 7 estimates, but maybe -- and that is now -- it could be 8 wrong -- maybe with 70 per cent or whatever. So with 9 a substantial amount of our estimates, and that would 10 have normally, in a normal construction process, simply 11 be the negotiation you have with your clients, and he 12 would come in here, and he would come in there; and at 13 the end those kind of negotiations end up in 14 a compromise. That is what is normal practice, I think 15 not only in construction, you will find this somewhere 16 else as well. 17 So it overly exaggerated they were not. That we 18 come in and price everything in we think is applicable, 19 and that the contract -- that the client has to certain 20 elements a different meaning, I think, is a completely 21 normal process. But the adjudications, in my view, have 22 demonstrated that we have not excessively priced it. 23 Q. In your estimates, did the consortium put in as 24 a starting figure the various -- very highest figures 25 that could be justified? 52 1 A. No, I wouldn't say so. But you always have elements 2 that are questionable. That is when it comes, for 3 example, to disruption. How would you ever -- you 4 always have to explain to the client what would have 5 been the performance you would have had completely 6 undisrupted and what's the difference in a disrupted 7 mode. And there's no black and white in there. 8 That simply makes the difference, and I have never 9 seen that two people, even from a contractor's side, 10 would estimate this and come exactly to the same point 11 because that is not black and white. 12 If you have just an increase in quantity, so 1 cubic 13 metre more of concrete, that's relatively precise thing 14 and you can claim for it and you have some surrounding 15 works. 16 But lots of those works we had were a bit more 17 complex, and that is why we have probably had 18 a different opinion, and of course we took our opinion 19 to the -- to the estimate, and the client had its own 20 opinion. But the problem was that tie, most of it 21 refused in principle. We were -- would have been happy 22 if they would have negotiated with us the changes, but 23 in most cases they simply rejected completely, and that 24 was the difficulty we had in the process. 25 Q. In litigation, I think it's probably everyone's 53 1 experience that the party pursuing a claim starts off 2 with the very highest figure they can possibly justify, 3 and the party defending a claim starts off with the 4 lowest figure they can justify, and invariably parties 5 meet some point in the middle. I just wonder whether 6 there was a similar approach here in relation to 7 estimates for Notified Departures, that the consortium 8 perhaps understandably starts off with the highest value 9 that can possibly be justified, tie for their part start 10 off with the lowest, with both parties hoping they can 11 meet somewhere in the middle. 12 Is that fair or can -- 13 A. I think that's a fair description of what normally 14 happens, and what our approach was. I would say tie in 15 most instances went in and refused completely to pay 16 anything because they went back to the contract, and not 17 just to the estimate. 18 Q. One of the points made by tie, I think, is that they say 19 because the consortium's estimates were routinely 20 excessive, that made it very difficult for tie to agree 21 estimates. But is it your position that tie didn't even 22 try to agree estimates? 23 A. Yes, because they would have meant, if on our level or 24 a little bit lower level, an increase to the contract, 25 and that is something which in tie's view was hardly 54 1 possible in their fixed lump sum view of the contract, 2 and they tried to avoid any increase in the contract 3 price. 4 Q. Correct me if I am wrong, but was it tie's position that 5 if they did not accept a Notified Departure had taken 6 place, they then refused to consider whether any 7 estimate in relation to that Notified Departure could be 8 agreed? 9 A. I don't know -- honestly, I don't know the detail. But 10 I know on some the principles were disputed already. On 11 others, and that is as well, and that's not uncommon 12 tactic, but if it comes to this amount of changes, it 13 gets a bit of a mess. On others, that by requiring more 14 information, requiring more information, requiring more 15 information, disputing certain parts of it, you can put 16 this into a one and a half years exercise on a small -- 17 relatively small estimate. 18 It is -- let's be fair. That happens as well on 19 other construction contracts, but then it is on an 20 isolated matter, and not on basically the whole 21 contract. 22 Q. I would like to turn to a separate matter, please, with 23 reference to document CEC00099403. This is an email 24 from October 2010. It will come up on the screen. 25 The bottom of the screen, we see it's an internal 55 1 tie email from Richard Jeffrey, dated 8 October 2010 to 2 Tony Rush, David Mackay and Steven Bell. 3 Mr Jeffrey says: 4 "I took a call from Mr Walker last night." 5 A few bullet points down, four up from the bottom in 6 fact, you say: 7 "They (Bilfinger) want out ASAP [as soon as 8 possible], a clean break." 9 Then the last bullet point: 10 "[yourself] wants to talk today to set the tone for 11 the meeting." 12 In short, can you recollect whether there was any 13 discussion within Bilfinger around this time of trying 14 to achieve a clean break? It's been also, I think, 15 referred to as an amicable termination of the contract? 16 A. Yes. So referring to this document, I don't recall that 17 I gave instructions to Mr Walker to do this. It could 18 be that I did, but I don't recall, and I don't recall if 19 I ever had a conversation with Richard Jeffrey about it. 20 But internally, within Bilfinger, that was your 21 question. We definitely always pursued different 22 scenarios or options we would have, and that was late -- 23 autumn 2010. I think that was the phase where it was 24 quite obvious that tie was pursuing the strategy to 25 terminate the contract. And even though all our legal 56 1 teams involved were of the firm belief there was no 2 breach existing or no reason existing, still the doing 3 of tie was so strange to a certain extent that we didn't 4 exclude that they would do it. Even -- and that would 5 have brought us into a situation of -- I don't know how 6 many years in front of court, extremely costly, extreme 7 damage to our reputation. And in those situations of 8 course we have as well internally discussed wouldn't it 9 be better -- we anyhow won't come together, things were 10 just escalating and not calming down, wouldn't it be 11 better to separate here and free up, and if we get 12 acceptable settled agreement done with tie, that was one 13 of the options we certainly discussed within Bilfinger. 14 I think we had to discuss other -- being responsible 15 company leader. 16 Q. I think Mr Walker's evidence yesterday was to the effect 17 that he had raised the responsibility of a clean break 18 with Mr Jeffrey, but Bilfinger Germany didn't want to 19 pursue that option. Does that ring any -- 20 A. That might be. As I said, we investigated options. As 21 I said, I never instructed him -- at least from my 22 recollection, to actively pursue this. But what we did, 23 I can -- you can imagine, we had lots of internal crisis 24 meetings when those things came up, and where we always 25 discussed several options which we would have. And that 57 1 was always one option, and I don't recollect now why 2 this was not our preferred or proactively preferred 3 option. I don't know. But you asked me the question; 4 I said definitely that was one of the options we 5 discussed. 6 Q. I would like to move on to another matter, please, now. 7 Page 27 of your statement. In the right-hand column, in 8 the box at the bottom, a reference to meeting Sue Bruce 9 on 15 February 2011. You say that was not the first 10 time you met her. 11 You go on then to explain that: 12 "The background to this is that on 8 November 2010 13 I met Ainslie McLaughlin of Transport Scotland and 14 John Swinney ... at St Andrew's House." 15 Siemens were also represented and Gordon Wakefield: 16 "We had been asked to attend this meeting by the 17 Scottish Government in order that they could understand 18 exactly what was going on." 19 Can you remember how that meeting came about? Were 20 Bilfinger contacted by the Scottish Government or what? 21 A. One correction to the statement. I'm not sure if 22 Dr Schneppendahl -- when I read it, Dr Schneppendahl -- 23 it doesn't change any of the meaning, but I'm not 24 sure -- if Wakefield was there, probably Schneppendahl 25 wasn't joining. 58 1 At that point in time, we desperately tried to find 2 another party to whom we could talk to, because the 3 handling of the project became more and more desperate 4 on the tie side, and again, we had to fear that they 5 would even go to termination of the contract, which in 6 my view would have been a disaster after many, many 7 years for the City of Edinburgh. But it would have 8 taken many years. 9 So we always tried to get in contact with Council or 10 with the Scottish Government, and we knew, as we had 11 another project in Scotland, that with 12 Transport Scotland, there was an extremely 13 knowledgeable, experienced construction authority 14 existing here; and we knew once we would have the 15 opportunity to talk to those kind of people and explain 16 the situation in the project, they would understand 17 where we stand, and that action has to be taken. 18 I cannot recollect -- it could be that we approached 19 them or they approached us. You know, there was so much 20 talking during that time on different levels. So who 21 made the first move -- we would have definitely tried 22 to, but if we were then successful or they contacted us, 23 I don't know. 24 I would think that in getting there, Richard Walker 25 was involved, but -- that's just how things worked. 59 1 I don't remember that he was involved, but I would 2 believe that he was involved in bringing those together 3 because I had no -- no local contacts here in Edinburgh 4 or in Scotland. 5 Q. What was discussed at the meeting and what was the 6 outcome? 7 A. I think the other parties also, Mr Swinney, and 8 Mr McLaughlin, they were very much in a listening mode. 9 For us it was extremely important. So our strategy in 10 the meeting was not to go out with an agreement on 11 something that would have been completely unreasonable, 12 but to tell our side of the story, and ask them to look 13 deeper from their side into it. 14 So I don't recollect that there was any action 15 agreed when we left. So what we did, I think we told 16 the story of the project, which certainly started at the 17 beginning and I'm pretty sure that we talked about the 18 outcomes of other adjudications, which were seen 19 differently from us as they had been communicated to the 20 public from tie, and brought, I think, certainly as well 21 some evidence with us. I don't remember that Mr Swinney 22 or Mr McLaughlin gave us a positive response or not. 23 I think they tried to appear relatively neutral in this 24 very first meeting, and just being in a listening mode 25 and then do internally their actions. 60 1 So there was no agreement. Nevertheless, for us it 2 was extremely important because we were always convinced 3 if somebody like Ainslie McLaughlin knows the details of 4 it, he will immediately understand that something is 5 going wrong in there. 6 Q. Just to continue with that answer, please, over the page 7 at page 28, you say: 8 "It was a very good meeting. Ainslie McLaughlin is 9 a person who understands construction ... In my mind, 10 this was the turning point in the whole project. We 11 were able to explain our side of what had been happening 12 and what the contract actually said." 13 You then say: 14 "After this meeting, the Minister (Mr Swinney) asked 15 the Council to look into this. I was then asked to 16 attend a meeting on 13 December 2010 with Councillor 17 Jenny Dawe. I was introduced to Sue Bruce at this 18 meeting." 19 Can you remember what was discussed at the meeting 20 on 13 December 2010 and what was the outcome? 21 A. Two things. It is an assumption from myself that 22 Mr Swinney took action on it, because we tried to reach 23 out to Council many times and we were never successful, 24 and suddenly -- I think at -- that meeting was initiated 25 by Council and not by us, and therefore for us it 61 1 appeared from our view logical, after having the Swinney 2 meeting, suddenly being invited by Council that 3 something happened behind the scene which we were not 4 aware of. So that was an assumption. 5 In the meeting, I think it was more or less similar. 6 So it was giving the same story which we have given 7 Swinney as well to the Council. Here of course it may 8 be a little bit different -- would in -- with 9 Transport Scotland on the table, it was maybe a little 10 bit more technically which we explained and 11 contractually, because we knew that he would understand, 12 and with Council, nevertheless, we would have told them 13 the story, and I remember as well that they were very 14 much in a listening mode. But of course not in 15 a situation where they would give us any hint that they 16 would understand what we are saying. They were very 17 friendly, which we were not used to at that time, and 18 so -- so that was first experience. 19 But they don't say: okay, fine, we enter now into 20 mediation; or something like that. This wasn't the 21 case. 22 Q. I'll just finish this line of questioning, if I may, 23 carrying on to the next paragraph. You say: 24 "After this, I met with Sue Bruce on 25 15 February 2011 at the City Chambers. In addition to 62 1 Sue, Vic Emery and Councillor Jenny Dawe were also at 2 this meeting." 3 Again, could you just explain what was discussed at 4 this meeting and what was the outcome? 5 A. Yes. I don't recall the details. At that point in 6 time, I think it was clear that we enter into mediation 7 and I assume that we discussed some principles of -- 8 that we re-affirmed that we go into mediation with the 9 aim to come to a conclusion. Because we had lots of 10 attempts in the past where -- not formal mediations, 11 but, you know, Project Carlisle, project -- whatever 12 project, we tried to put on the table, and parties never 13 came together, and I think it was from their side to get 14 (a) assurance that we were really willing to get into 15 a compromise, and of course it was as well important for 16 us, but we would have taken the opportunity anyhow. 17 But I think it was more from their side getting 18 reassurance that we were not just coming there and 19 taking a stand in the mediation, but being really open 20 to discuss issues and then resolve them. 21 Q. That may be a suitable time to take a break. 22 CHAIR OF THE INQUIRY: We normally have a break at this time 23 for the benefit of the shorthand writers. So we will 24 have a 15-minute break and resume again at 11.25. 25 (11.08 am) 63 1 (A short break) 2 (11.26 am) 3 CHAIR OF THE INQUIRY: Dr Keysberg, you're still under oath. 4 MR MACKENZIE: Thank you, my Lord. 5 Doctor, I would like now to move on to the Mar Hall 6 mediation, please. I think you attended the Tuesday, 7 Wednesday and Thursday; is that correct? 8 A. That is correct. 9 Q. Now, who were the leads for, on the one hand, the 10 consortium and on the other hand tie and the Council at 11 the mediation? 12 A. So I think the principals from the consortium side were 13 Mr Schneppendahl from Siemens side, I think 14 Antonio Campos was there from CAF. I'm not sure if he 15 was there the whole time, but he was there, and myself, 16 and from the Council side, it was definitely Sue Bruce, 17 Vic Emery, and of course there was a bigger team with 18 them. I would say the two principals on those sides 19 were the two, Vic Emery and Sue Bruce. 20 Q. Now, what happened on the Tuesday, day 1? 21 A. Tuesday started in the big room with many, many 22 attendants, where both parties gave their initial 23 presentation to -- to the mediation forum, basically. 24 So to both teams and the mediator itself. 25 I think Sue Bruce did it on the -- for the Council 64 1 side, tie and the Council side. I had just a very quick 2 introduction our side and Richard Walker did the details 3 for the consortium side. 4 Q. Did anything else happen on the Tuesday? 5 A. For sure, but the rest of it was never in -- there were 6 several rooms. There was one smaller room, and I think 7 it was taken, but in pieces where -- from a principal 8 point of view, where certain matters were presented, 9 then more by tie representatives or representatives from 10 our side, Martin Foerder. So really on a little bit 11 more detail side, and those things were discussed. 12 Principals were then in more of a listening mode to get 13 their view from both sides of the story, and that is how 14 it started and how the mediation was structured, and the 15 mediator was of course in the middle of it. 16 Q. Now, I think Mr Walker told us yesterday that after he 17 had made the opening statement, he essentially did not 18 then play a part in the negotiations or agreement 19 reached after that; is that correct? 20 A. He -- I'm not sure if he attended meetings from the 21 principals that did the deal or the ones -- I just 22 mentioned. I think at that time it was Martin Foerder 23 who was, as I say, my direct lead in there. So who was 24 my direct contact into the team. And we purposely 25 decided to put Richard not in the front row during this 65 1 mediation because lots of the motions that have piled up 2 over the years were a little bit, if rightly or wrongly, 3 but as well in his person, and if you want to enter into 4 a mediation, you want to have a positive outcome and 5 a change in culture you're working. You better don't 6 put the one in front which was fighting all the years in 7 the first row. 8 So that I think -- if it's fair to him or not, but 9 it's a sensible approach in order to reach a compromise 10 in a mediation. Yes, so there was a certain intention 11 to not have him in the front row. 12 Q. What happened on the Wednesday? 13 A. I would think on Wednesday those meetings continued, but 14 there had been -- there must have been first attempts on 15 finding as well more global solutions. Because from my 16 recollection, initially it was meant that the mediation 17 would be finished on -- on Thursday morning or even 18 Wednesday evening. Because I know that I postponed 19 a flight which I originally had, I think on Thursday 20 morning and postponed it to Thursday evening, later on. 21 So my intention was to be ready at -- Wednesday night. 22 So there must have been some -- but I don't know the 23 sequence in detail anymore. 24 Q. Was there discussion among the principals for each of 25 the parties on the Wednesday? 66 1 A. I would assume so, but I cannot tell you 100 per cent 2 sure. But I would assume so, with the mediator element. 3 That's the purpose of the mediation, that the mediator 4 from time to time brings principals together and is 5 trying to facilitate direction and then at the end 6 a compromise. 7 But could I tell you 100 per cent sure? No. But 8 I think it happened, yes. 9 Q. Was agreement reached on the Wednesday? 10 A. No. 11 Q. Was agreement reached the next day, on the Thursday? 12 A. Thursday, yes. 13 Q. Can you explain, please, how that came about? 14 A. Only very rough. I know that, as it is maybe not 15 uncommon in mediation, on Wednesday evening, Wednesday 16 night, so things were not really coming together, and 17 both parties had to reconsider and that is again the 18 purpose of the mediator, to talk seriously to the 19 parties and to -- in order to tell them: you have to 20 move on if you want to move from your position. 21 Then on Thursday, I think, both parties again moved 22 from their position towards a compromise. But that is 23 a general -- I cannot recall numbers also how this 24 happened exactly. 25 Q. Over the course of the Tuesday, the Wednesday and into 67 1 Thursday, had there been a series of offers and 2 counter-offers in terms of the numbers between the 3 parties? 4 A. I think it was too complex as if to put it in just one 5 number. You know, as you certainly know, it ended up in 6 a one page with 10 or 12 sentences on, where there were 7 numbers, but there was always a discussion. I think we 8 had put not long before the mediation a proposal on the 9 table, with the name Phoenix, which probably was as well 10 to a certain extent part of negotiations. So at least 11 to have something you can base your discussions on, and 12 there was always different discussions on what -- what 13 would be required for off-street works, and what would 14 be required for on-street works. 15 That was always a discussion. How long would the 16 future on-street works be. So is it from up to 17 Haymarket or is it up to -- to Princes Street or further 18 on, and I think there -- so I couldn't say we were 19 sitting there and just talking about one number, but 20 there were several aspects, how do we execute the 21 on-street works, what is with the off-street works, and 22 all together, and had to come to a conclusion. 23 Q. If we could now please go to the key points of principle 24 document. It's CEC02084685. If we go towards the 25 bottom, is that your signature we can see at the bottom 68 1 dated, I think, 10 March 2011? It's the second 2 signature in from the right, on the top row; is that 3 your signature? 4 A. Yes, the blue one, yes. 5 Q. Just scroll back to the top, please. Are these the key 6 points of principle which were agreed on the Thursday? 7 A. Yes. Some of them might have been established the day 8 before, but that was the final conclusion on Thursday. 9 Q. Do you remember who typed up these 13 points, this one 10 page? 11 A. I believe it was on tie's side. I'm pretty sure that 12 me, I didn't do it, and we didn't do it. I believe it 13 was somebody from the tie team or the Council team. 14 Q. Can you remember was this bit of paper given to you as 15 a suggested agreement, or rather had all of these points 16 been discussed over the previous few days? 17 A. I think they have been discussed over the previous days, 18 and the outcome of those discussions was basically this 19 paper. 20 Q. Now, number 1, the price, 362.5 million for essentially 21 the off-street works. 22 Can you remember how that figure was made up? 23 A. I think that would have been probably quite a commercial 24 discussion between the two parties on this one, because 25 the on-street works at that point in time were clearer 69 1 with regard to changes and obstructions. That was why 2 it was always separated and not kept -- it wasn't as 3 open from a pricing perspective as the on-street works. 4 So the off-street works here, that was -- I think 5 the Project Phoenix must have had a similar scope in 6 there, and an initial price for us, and probably under 7 this basis it was negotiated. But I don't have full 8 recollection. 9 Q. Can you remember whether there had been a series of 10 offer and counter-offer in relation to the price for the 11 off-street works or rather did this figure seem to 12 appear from nowhere? 13 A. I don't think it appeared from nowhere, because, again, 14 in Phoenix there were prices established, and I think it 15 was a negotiation. 16 I don't recall if it went back and forth and back 17 and forth, but I'm relatively sure that within Project 18 Phoenix we had an offer for this kind of work, and that 19 was basically negotiated, and it might have been that 20 I wasn't even part of all this really financial, because 21 I wasn't in the detail of the financials at that point 22 in time. 23 Yes, but my recollection is it was a negotiated 24 agreement at the end. 25 Q. Can you remember whether this sum of 362.5 million for 70 1 the off-street works was suggested by tie and the 2 Council or by the consortium? 3 A. No. 4 Q. Finally on this point, are you able to give a breakdown 5 of how that figure was made up or is it essentially 6 a compromise figure? 7 A. At least I cannot give a breakdown. So for me it was 8 a compromise figure. 9 I would assume we had a breakdown and tie had 10 a breakdown of this figure. If we really opened up our 11 breakdowns, I don't recall. 12 Q. Now, a similar set of questions for number 2. We see 13 the target price of GBP39 million for the on-street 14 works. Can you remember whether that figure was 15 suggested by tie and the Council or by the consortium? 16 A. As you would imagine, I'm relatively sure that we have 17 asked for a higher number here. We described earlier 18 today, and that was the outcome again of -- of 19 a commercial negotiation. 20 Knowing that this is called a target price where 21 both parties knew that it's not a fixed price in this 22 instance, a target price is something different again. 23 Q. What were your views at the time on the figures agreed? 24 A. I think it was considered a fair compromise. Still 25 having risks on both sides, and the risk was that the 71 1 governance wouldn't work afterwards. 2 So with the old tie governance -- so if we had 3 managed the contract as it was before, there would have 4 still been substantial risk for increasing -- so vital 5 element of -- of the mediation, of the outcome of the 6 mediation was as well regaining trust and regaining 7 a different project management and governance on the 8 project itself. 9 That was as important as the numbers, because the 10 best contract doesn't protect you as we have seen in the 11 two years before, if it's not properly managed. 12 Q. Now, I think this was agreed and signed on the Thursday. 13 Did you then leave the mediation? 14 A. Yes, I flew back on Thursday afternoon from Glasgow. 15 Q. I think if we go over the page, please, to page 2, we 16 see at the top, "HEADS OF TERMS FOLLOWING MEDIATION". 17 I think we've heard evidence, the Heads of Terms were 18 then negotiated in the days after Thursday; is that 19 correct from your understanding? 20 A. Yes. I remember that -- I don't know -- I thought they 21 moved into the lawyers' offices, somewhere in the city 22 of Glasgow, in order to finalise, and they -- so the 23 instruction from the principals was to -- to stay 24 together and -- until Heads of Terms have been put 25 together. And do this not -- wait for three weeks until 72 1 all the positive motion has gone, but bringing Heads of 2 Terms together and finalise them next day or day after. 3 That was my recollection. 4 Q. And if we go to page 6 of this document, I think we will 5 see the Heads of Terms, a different signature for 6 Bilfinger. I think the first signature, is that 7 Martin Foerder? 8 A. Yes. 9 Q. I think, just for completeness, in your statement, in 10 answer 32(c), you say that because you were there, you 11 had authority to do a deal and there was no need for you 12 to seek further authority from Bilfinger Germany; is 13 that correct? 14 A. That's correct. 15 Q. Could I turn now to one -- 16 CHAIR OF THE INQUIRY: Before that, can we go back to page 1 17 of the Heads of Agreement. You said that the -- 18 paragraph 2, you said that the price there was a target 19 price, and it was clear that it wasn't a fixed price. 20 Is the price in paragraph 1 a fixed price? 21 A. That was a fixed price, yes. 22 CHAIR OF THE INQUIRY: Fixed price? 23 Then under paragraph 3, there was to be additional 24 price to be agreed for the Edinburgh Gateway/Gogar 25 Interchange as well. Right? 73 1 A. That must have been -- that must have been one big, say, 2 change or something which was so material that it was 3 taken aside, I assume. 4 CHAIR OF THE INQUIRY: The paragraph 5, the price included 5 all Siemens materials and equipment to Newhaven, so that 6 is part of the solution, as it were, was that the tie 7 would pay for -- 8 A. I think all the material was delivered already and was 9 somewhere on stock already, and I could understand that 10 Siemens says that is purpose built for this tram. So 11 I have had -- there's no value for me to take it back, 12 and if there's an intention to extend the tram at 13 a later point in time, it might be of use because it 14 complies with the systems you are using here. So the 15 intention, of course, of Siemens was to not take this 16 back at that point of time. 17 CHAIR OF THE INQUIRY: Thank you. 18 MR MACKENZIE: Thank you. 19 I would like to turn to another document, please, 20 after Mar Hall. It's CEC02083979. 21 Now, you may not have seen this before, Doctor. It 22 was instructed on behalf of the City of Edinburgh 23 Council. We can see in the top right-hand corner, it's 24 described as a Post Settlement Agreement Budget, Budget 25 Report, 19 August 2011. 74 1 At the bottom right-hand corner, we can see it's 2 prepared by Faithful+Gould. 3 If I could put certain passages to you for your 4 comments, please, starting at page 5, if I may. 5 At paragraph 2.7 -- I wonder if we have the right 6 document? We can scroll down, please. Scroll down to 7 the bottom of the page. Thank you. Yes. 8 In paragraph 2.7, under "On-Street Works", I'll just 9 read it out. It says: 10 "We are of the opinion that the on-street work costs 11 are grossly inflated by INFRACO both for the civil work 12 and the Siemens works. The Siemens position is 13 explained in paragraph 2.6 above. Siemens hold 14 a 'golden key' due to the materials being on site and 15 already paid in full. With regards to the civil works 16 the cost is also grossly inflated and the contractor has 17 allowed for the very worst case scenario for all works. 18 If this was a competitive tender then we would expect 19 some of the risk to be taken by the contractor to secure 20 the works. We have highlighted areas that we think are 21 overpriced." 22 They're then set out. 23 Do you have any comments on that, including in 24 particular the suggestion that the civil works cost is 25 grossly inflated? 75 1 A. First of all, I haven't seen this report. In my 2 recollection, the on-street works were what I said 3 target price mechanism, extremely transparent. So if 4 I remember correctly, Council or the Council 5 organisation at that time was involved in all 6 subcontractor lettings. So we choose together the 7 subcontractors that would -- were working in and they 8 knew it was to a certain extent open book. So they saw 9 exactly, and in such a transparent mode, it is 10 relatively difficult to inflate your price. You can 11 always speculate as a client that somebody is 12 under-pricing it, and then you get a better price for it, 13 but certainly it wasn't -- at the end what was spent was 14 overpriced because it was so transparent that I would 15 have difficulties to imagine that this was -- that 16 somebody could claim at the end it was highly inflated. 17 But that must be factual somewhere on records as 18 well, how this works. 19 Q. The other passage I would like your comments on, please, 20 over the page at page 5, paragraph 2.8, if we can blow 21 that up, please -- 22 A. Can I add, just out of clearness, if I speak about 23 transparency and common selection of subcontractor, that 24 means if we achieve savings in the letting to 25 subcontractors, they will reduce the target price. So 76 1 it's not in the contractor's pocket. So that really 2 selection and those things are done commonly, in order 3 to stay within the target price. Or even below. 4 Q. Thank you. 5 Then this paragraph provides: 6 "Due to the circumstances and contractual agreement 7 presently in place for this project it is almost 8 impossible to change contractors. The grossly inflated 9 prices from INFRACO for the on-street works indicate 10 that it would almost be more cost effective to carry out 11 this section of works on a cost plus basis." 12 Do you have any comments on that sentence, that it 13 would almost be more cost-effective to carry out this 14 section of works on a cost plus basis? 15 A. In -- in my view, but I must admit, there might be 16 witnesses that have a better detailed view on this one, 17 we were relatively close with our transparency to a cost 18 plus fee here. Relatively. Then there was -- I think 19 there was a point in time when it was turned into 20 a fixed. Then -- when most of designs was ready, but 21 there was so much transparency which you would have 22 under the cost plus fee contract as well. That was my 23 view on it. 24 This allegation -- I do not really understand this 25 allegation because it is -- they probably don't know the 77 1 governance on the on-street works, how this was done. 2 Q. Just for clarification, when you say that we were 3 relatively close with our transparency to a cost plus 4 basis here, is that in relation to the Mar Hall 5 Agreement or do you mean back to the original Infraco 6 contract? 7 A. I mean the on-street section after Mar Hall. 8 Q. Thank you. 9 Then the final point I could put to you, please. 10 A few sentences down, the sentence begins: 11 "This should be considered, and would also nullify 12 any costs that INFRACO have built into their costs for 13 carrying out the remedial works on Princes Street which 14 is possibly part of the issue why their costs are 15 grossly inflated (which should be INFRACO cost)." 16 So I think in short the suggestion there is that 17 there's a possibility that the consortium have built 18 into their costs for the on-street works the cost of 19 carrying out the Princes Street remedial works. Do you 20 have any comment on that suggestion? 21 A. Again, under my view, if you have this kind of 22 transparency, it's impossible to build in substantial 23 other costs of past or other works into such a block. 24 I don't know how this would have happened. 25 Q. Now, one final question, Doctor. It harks back to 78 1 Clause 80.13. Essentially, the problem, as you've 2 discussed, that where there was a Notified Departure, 3 the consortium considered it couldn't start work until 4 an estimate had been agreed; is that correct? 5 A. Yes. 6 Q. So what I'm slightly puzzled at is why did the 7 consortium, Bilfinger in particular, enter into this 8 contract with that clause against the known background 9 of problems and delays with design and utility works? 10 A. I can only guess because, as I've said it, I wasn't 11 there when the decision was taken. 12 I think the -- the pure amount of changes was -- 13 wasn't expected by any party. Especially the utility 14 part. The utility part, I don't think it was expected 15 at that point in time. 16 Otherwise, I understand your question. If you had 17 known the full extent of changes or required changes, 18 I understand your question, but I can only assume that 19 the -- to the extent of changes that would come up were 20 not known or not estimated at the point when the 21 contract was entered in. 22 Q. So is it your position that the contract with that 23 change mechanism might have worked had there been 24 a normal or usual number of changes, but it wasn't going 25 to work given the number of changes in this project? 79 1 A. Could have worked, yes. Yes, and when I -- when 2 I suggested that we demobilise and come back, I didn't 3 suggest it to exclude this clause. I just said then the 4 design is finished and you might find a few changes on 5 the way, and then you need maybe to -- depending on what 6 size the changes are, have separate agreements on those 7 changes in order to proceed with the works. And then in 8 any good governance, that is possible. 9 MR MACKENZIE: Thank you. I have no further questions. 10 Questions by CHAIR OF THE INQUIRY 11 CHAIR OF THE INQUIRY: Can I follow on from that. If it had 12 been appreciated that there might be as many as 700 or 13 what have you, changes, I appreciate you weren't 14 involved at the time, but if you had been involved, 15 would you have advocated entering into the contract with 16 Clause 80.13 in the knowledge that there were so many -- 17 A. I would have been very sceptical entering into this 18 contract from our point of view. 19 CHAIR OF THE INQUIRY: Why do you say you would be very 20 sceptical? What would be the effect of that? 21 A. You mean if I could have hindered it -- that depends, if 22 I were the -- the responsible board member for this 23 project, then we wouldn't have entered into it, if I'm 24 sceptical. 25 CHAIR OF THE INQUIRY: You would not have entered into it? 80 1 A. No. 2 CHAIR OF THE INQUIRY: I think you mentioned earlier on in 3 your evidence this morning that you or Infraco did work, 4 I think, in Leith Walk on a goodwill basis, and not 5 insisting upon -- in the expectation that you would get 6 paid. Is there normally an expectation that contractors 7 and clients will work co-operatively towards achieving 8 the objective of completing the project? 9 A. I think it is not uncommon at the beginning of -- of 10 contracts. That's where the mobilisation has to do 11 this. So -- and very often there's work. So if both 12 parties put good faith and goodwill into it, a good 13 partnership develops, even though of course you have 14 a contract mechanism. 15 So it's not uncommon that we as well as contractor 16 put some good faith at the beginning in things where it 17 could be some other things that -- that mobilisation is 18 hindered because the client is lacking some other 19 approvals, or those things happen from time to time if 20 you mobilise projects, and, if you then start sending 21 out the first claim notice on the very first day, that 22 is not helping to create a good relationship; and 23 therefore it is quite often that at the very beginning 24 of a project, in the mobilisation phase, you're not 25 starting with a -- a confrontational approach, but with 81 1 a goodwill or good faith approach, I would say. 2 CHAIR OF THE INQUIRY: When you first became involved in the 3 project, did you get any impression as to the nature of 4 the relationship between Infraco and tie? 5 A. I think the relationship was quite bad at that time 6 already. The former project -- that was the 7 Chief Executive, Mr Gallagher, he has left, I think. 8 I never met him. So that might have been a different 9 relationship. But with the team of tie, the 10 relationship was already deteriorating. The Project 11 Director was, I think, Steven Bell at that time, 12 and I felt that the relationship wasn't good. When we 13 entered in, and Mr Mackay had at that time -- I think he 14 had on an interim basis taken the Chief Executive role. 15 That's my recollection. At least he appeared in a more 16 active role than in the later stage of the project. 17 I had the impression that there was already friction 18 between the parties, yes. 19 CHAIR OF THE INQUIRY: Mr Fairley? 20 MR FAIRLEY: My Lord, I apologise. There is one point that 21 arises from the evidence that has been given about the 22 Princes Street Agreement and the interaction with 80.13. 23 There are two documents which seem to me to contain 24 within them a tension and I wonder if I might just be 25 allowed to refer the witness to these. 82 1 CHAIR OF THE INQUIRY: Certainly. 2 Examination by MR FAIRLEY 3 MR FAIRLEY: Dr Keysberg, could I ask you first to -- could 4 we have on the screens, please, document CEC01053731. 5 This is the papers for meeting of the Tram Project 6 Board on 19 November, and if we go to the fifth page of 7 this document, please, we will see there, Dr Keysberg, 8 minutes of an earlier meeting of the Tram Project Board 9 on 22 October 2008. Do you see that? 10 A. Yes. 11 Q. The reason I'm asking you about this is that noted as 12 being in attendance at that Tram Project Board meeting 13 on 22 October 2008 is Mr Brady of BBS. He's noted there 14 on the left-hand column as having been in attendance for 15 part of that meeting. Do you see that? 16 A. Yes. 17 Q. If we go forward in this document to paragraph 5 of the 18 document, which is found at page 7 in the document as 19 it's been uploaded to the document management system, 20 can you enlarge the section? Thank you. 21 At paragraph 5 here, there seems to have been 22 a discussion about Princes Street. At 5.2 Mr Brady is 23 noted as having outlined the base case construction 24 programme which had originally assumed unimpeded access 25 to Princes Street: 83 1 "However, he noted that bus access in one direction 2 would now need to be maintained and that this could be 3 accommodated, although it would need to be resolved soon 4 as work starts in January." 5 Do you see that? 6 A. Yes. 7 Q. So if this is an accurate note, it would appear that at 8 this point, Mr Brady is telling the Tram Project Board 9 that the need to maintain a single bus lane in 10 Princes Street is not going to be a problem so far as 11 BBS are concerned. Do you see that? 12 A. Your interpretation -- I see what you mean. First of 13 all, please apologise, but I'm not in the detail. 14 By coincidence, of course, I know that the bus lane 15 was the point discussed in the Princes Street Agreement. 16 Maintain -- and I think you don't have to be a civil 17 engineer or anything, but that to know if you have the 18 street completely on your own and working there, or if 19 you have one bus lane opened, we know how the bus 20 traffic on Princes Street is, causes quite a difference 21 to it. 22 What surprises me, and I don't know those details, 23 but it's just an example how the project worked, that it 24 was not possible apparently from that time up to 25 February or March to reach an agreement because there 84 1 was no change order, what the name was, in the contract, 2 existing for this deviation from the original programme. 3 That is my recollection. 4 Q. I appreciate you weren't at this Tram Project Board 5 meeting, but it certainly seems to be the case that 6 Mr Brady is saying at this stage that single lane bus 7 access could be accommodated, is the expression used. 8 Do you see that? 9 A. Yes, but it doesn't mean -- I wasn't there. It doesn't 10 mean -- first of all, these are internal meetings. 11 I don't know if he has signed them. But I don't want to 12 go this legal approach. 13 But to be accommodated, it's a thing it was executed 14 with this bus lane, according to my knowledge. Yes, it 15 could be accommodated, but it means different, because 16 you have completely different access to the site, and 17 again, you don't have to be a civil engineer to 18 understand if you have a bus, permanently bus traffic 19 there, as if you have a quiet street, makes a big, big 20 difference to construction. 21 Q. Would you agree with me, there's nothing in this minute 22 that suggests that BBS are going to exercise 23 a contractual right not to start work on Princes Street 24 because they're not being given unimpeded access? 25 A. No, I agree that it's not noted here, but I would assume 85 1 that there was a request for a change issued any time 2 after. But that's ... 3 Q. If we move forward to another document, which is -- 4 CHAIR OF THE INQUIRY: Before doing that, Mr Fairley, the 5 note ends by saying that although it would need to be 6 resolved -- that's the accommodation of the bus lane -- 7 soon as work starts in January. So there's an 8 acknowledgment that there has to be a resolution. 9 Now, could I ask, if it was intended to keep a bus 10 lane in Princes Street, what would have to be agreed 11 with the contractor about that? Would it involve any 12 change in the work system? 13 A. Change in the work system? Where are the access points? 14 So we need traffic to go in, to go out. We have to -- 15 do we -- can we access from both sides of Princes Street 16 or just from one side with our traffic and those kind of 17 things. I don't know what actually was to be built, but 18 that is now -- imagination, if I imagine what was the 19 discussion on this. So how would you enter in. 20 Could you do -- normally you have one line across 21 the whole site where you have your own site traffic. So 22 you have access to all your -- your foundations, 23 whatever work sites, small sites you have, that might 24 have been changed now, that you didn't have this long 25 access road, because that was the bus road. But it's 86 1 imagination. I don't know. 2 But this kind of things would have to be checked and 3 that could have had an impact, how the works have been 4 executed. If you go from the one end to the other end, 5 if you have to start in the centre and then go one by 6 one, can you open three -- as I say -- 7 CHAIR OF THE INQUIRY: Access -- 8 A. Yes, access point or only one. So that would be the 9 part of things. 10 And how you do your excavation pits, I don't know, 11 where the bus lane was, that was to be maintained, 12 would -- would it mean that you have to put something in 13 to protect the wall of your excavation? Those kind of 14 things would have to be checked. 15 So that you don't cause any danger to the public 16 traffic on the bus lane which wasn't an issue 17 beforehand. 18 CHAIR OF THE INQUIRY: Yes. Mr Fairley? 19 MR FAIRLEY: Moving on then to another document, 20 CEC00867153. 21 If we go to the foot of that email chain, please, we 22 see there an email from a Mr Sheehan of Bilfingers to 23 Steven Bell, dated 18 February 2009. 24 There appears to have been a meeting the previous 25 day, on 17 February 2009, at which Bilfingers were asked 87 1 the question: 2 "Is it Infraco's position that there is no 3 obligation to accept a tie instruction to commence work 4 in Princes Street?" 5 What is then recorded as Infraco's position by 6 Mr Sheehan is: 7 "The Agreement provides for exclusive licence to the 8 Infraco to enter and remain upon its Designated Working 9 Area. It is our understanding that we do not have this 10 exclusive licence to those areas inter alia due to 11 maintaining a bus route." 12 Now, my question is, what has changed between 13 October of 2008, when Mr Brady seemed to think that the 14 bus route could be accommodated, and February of 2009, 15 when Mr Sheehan is saying that Infraco has no obligation 16 to do the works on Princes Street because of the 17 maintenance of the bus route? 18 A. Actually I don't see a contradiction between the two 19 statements. I mean, this is -- obviously no change was 20 agreed. I don't know what actually happened in between, 21 but no change was agreed in the meantime, and this is 22 just the legal stand, that those changes, and I don't 23 know exactly what changes would have been required, have 24 not been agreed in the meantime. So the old position 25 was still valid, that we have exclusive access. 88 1 And those -- what was mentioned to be resolved 2 apparently hasn't been resolved in the meantime. 3 Q. So was what required to be resolved then what we see 4 further down in Mr Sheehan's email, if we just scroll 5 down? It says: 6 "The Agreement provides for prior agreement to 7 an Estimate as a precursor to executing the changed 8 works. Currently agreement cannot be reached on changes 9 relating to these works. Given the obstacles to 10 progress, we are precluded from properly planning and 11 executing the works with the inevitable consequence that 12 these works will be delayed and disrupted." 13 If we then go on to the next page: 14 "Accordingly we cannot accept liability for 15 inevitable consequences arising from inter alia the 16 impact upon the works of maintaining bus lane. 17 In consideration of the above, we do not consider 18 ourselves contractually obliged to commence works in 19 Princes Street. 20 However, we understand the importance of this area 21 to you. Therefore as a gesture of goodwill and without 22 prejudice to any entitlements with respect to events and 23 circumstances giving rise to this action we are prepared 24 to evaluate diligently any proper instruction to 25 commence the works in Princes Street. Such proper and 89 1 detailed instruction is still outstanding. It is our 2 strict understanding that we shall receive a proper 3 instruction prior to our commencement of the works in 4 Princes Street containing clear details on reimbursement 5 of our actual costs and overheads, prelims and profit - 6 further that tie accept of the risks associated with 7 proceeding with the works under these circumstances. In 8 addition that any extensions of time to the relevant 9 milestones will be granted where such works are 10 delayed." 11 Is this not effectively Bilfingers saying to tie 12 that they will commence works on Princes Street, 13 provided there is prior agreement to pay them on a cost 14 plus basis? 15 A. Yes, and that is actually what happened later on in the 16 Supplementary Agreement. 17 Q. That is really what had changed between Mr Brady's 18 position in October, when he said that the bus lane 19 could be accommodated, and the position here in 20 February, which is that Bilfingers were saying it's 21 a condition now of us starting work in Princes Street 22 that we are paid on a cost plus basis. That's what had 23 changed, isn't it? 24 A. Yes, but nevertheless tie could have resolved this by 25 issuing a change order, accepting an estimate, issuing 90 1 a change order, but what would have happened, that is 2 not in here, we would have reached after two days the 3 first -- the next item causing a change anyhow. So it 4 was for the project, for tie, for everybody, better to 5 do it anyhow on a cost plus fee basis. 6 But here the difference is yes, and we always said 7 this, not only here, with the -- with this Clause 80, we 8 won't be able to execute the works on Princes Street. 9 Q. We will doubtless hear from Mr Mackay about this in due 10 course, but it does not appear from the minute in 11 October of 2008 that Mr Brady stated that it was 12 a condition of working with a single bus lane that 13 Bilfingers would receive payment for Princes Street on 14 a cost plus basis. Do you know whether or not that was 15 something said by Mr Brady? 16 A. No. 17 Q. Because it doesn't appear to have been recorded in the 18 minute if it was. 19 A. Obviously I don't know. 20 MR FAIRLEY: Thank you. 21 CHAIR OF THE INQUIRY: Thank you, very much. 22 MS FORSTER: My Lord, there was one issue I wanted to raise. 23 Yesterday the statement of Damian Sharp was put to 24 Mr Walker, and I think if that was something that the 25 Inquiry did want to explore further, then actually 91 1 Dr Keysberg is possibly a more appropriate witness 2 for -- to answer some of those statements that were made 3 by Mr Sharp. 4 But I'm not by any means insisting upon that line 5 being pursued. I'm just pointing out that that was 6 something that was raised yesterday. 7 CHAIR OF THE INQUIRY: Yes. I think if you have some 8 concerns, if you want to put it to the witness, I'm 9 quite happy for you to do that. 10 MS FORSTER: If the Inquiry are not intending to pursue that 11 particular line further -- 12 CHAIR OF THE INQUIRY: I'm not prepared to say what line or 13 lines I may not pursue because it depends on the 14 evidence at the end of the day. If you think it is 15 important, then clearly I think I will ask you to do 16 that. 17 MS FORSTER: I will do that if that's okay, in that case. 18 Examination by MS FORSTER 19 MS FORSTER: I wonder if we could have Mr Sharp's witness 20 statement on the screen, and apologies, I wasn't 21 disputing that Counsel might want to ask these 22 questions, but I will quickly get that number pulled up. 23 MR MACKENZIE: I'm not being unhelpful. I don't have the 24 number here just now either. 25 MS FORSTER: Apologies. 92 1 MS ANDREWS: It's TRI00000085_C. 2 MS FORSTER: If we could go, please, to page 154, 3 paragraph 357. 4 Now, the question which was asked of Mr Walker 5 yesterday, he was asked to read this paragraph, and then 6 to say whether he had any comments on that, 7 and I wonder, Dr Keysberg, if you could also read that 8 paragraph and say whether you have any comments on that. 9 A. On this paragraph? I mean, that is his view and that 10 things went substantially wrong, and that's due to the 11 attitude of the contractor. Obviously -- that's 12 coincidence, but as at the beginning I think we tried, 13 and it's not uncommon to enter into this contract with 14 good faith. 15 I -- obviously I don't see a lack of good faith, and 16 even my witness statement, that's why I remember, I was 17 asked the question why, what were the circumstances of 18 ceasing goodwill works in 2010. That just demonstrates 19 the opposite, that even until 2010, where the dispute 20 was really evident at that point, we were still 21 executing what we call goodwill works, simply works 22 which we are not obliged to execute under the contract, 23 where we took the risk on us not getting paid for it 24 later on. 25 So obviously -- and we -- I mean, Bilfinger has an 93 1 extremely high reputation, not only in Germany, around 2 the word world, and if you were talking to 3 Transport Scotland, that was the same UK organisation 4 about our reputation just -- I don't know -- 5 80 kilometres away from here, I think it was extremely 6 good. 7 So I don't understand the attitude part here. 8 Q. I wonder if we could look at the next paragraph, please. 9 Paragraph 358 which is at the bottom of that page and 10 then continues on to the following page. 11 A. Yes. 12 Q. Again, I think the question was: do you agree with what 13 is set out in that paragraph? Is that a correct 14 suggestion? 15 A. No, I totally disagree. I agree that normally we do the 16 same as the contract -- as he is describing, that we try 17 to maintain a very good relationship with our clients. 18 That is for me very clear and Bilfinger wouldn't have 19 this international reputation without maintaining this 20 approach over many, many, many years. 21 I -- I don't know where he's got this from, 22 honestly. 23 Q. Then finally, Dr Keysberg, if we could look at 24 paragraph 360. Apologies. This is quite a long 25 paragraph, and probably would be worthwhile just taking 94 1 a minute to read what is said there. 2 A. Yes. (Pause) 3 Q. Again, the question is: do you agree with any of the 4 statements in that paragraph? 5 A. I think it's -- at the end, it's good example how tie 6 worked. Instead of managing the contract properly, they 7 invented funny stories excusing their failures in 8 managing the contract. 9 It's bad taste to use a terrible accident, as the 10 one in Cologne, in order to construe here some 11 relations -- the accident in Cologne happened in spring 12 2009. Three parties -- three contractors were in 13 a joint venture. Very challenging tunnelling project. 14 The cause of the accident, still nobody knows. It's 15 still under investigation and it will take another three 16 to four years in order until we know whose 17 responsibility it was. 18 So Bilfinger always said to the public, and the 19 public listed company, those kind of messages have to be 20 right, that if ever Bilfinger would take part of all the 21 responsibility in the joint venture, for the tunnel 22 collapse, the financial implications would be completely 23 covered by insurance. So there was never any 24 relationship between money that was needed and taken 25 somewhere else. 95 1 The accident happened in spring 2009. By that time 2 I was involved here already, and the relationship was 3 bad, and the Princes Street dispute was in its heart. 4 So to make a relationship between the tunnel 5 collapse in Cologne and what was happening here is 6 bizarre, and the UK withdrawal is as well not right 7 because I think there's enough evidence that we tendered 8 many projects after -- I don't know, after completion, 9 but we tendered all the Crossrail projects, Crossrail, 10 I think, was the name in London, Mersey Gateway and all 11 those projects. But what in fact happened is that our 12 reputation was so damaged due to the -- due to Edinburgh 13 tram and what tie released to the press on false 14 statement that we missed out on lots of those tenders. 15 That was the true fact on them. 16 That was a serious damage caused to us by the 17 handling of the press during the dispute. 18 So now I completely disagree with what is -- it's 19 factually not true, what is said in here. 20 MS FORSTER: Thank you, Dr Keysberg. I have no further 21 questions. 22 CHAIR OF THE INQUIRY: Thank you very much, Dr Keysberg for 23 your attendance today. Technically you're still under 24 citation and you could be recalled, but hopefully that 25 won't be necessary. In the meantime, you're now free to 96 1 go. 2 A. Thank you. 3 (The witness withdrew) 97 1 INDEX 2 PAGE 3 DR JOCHEN KEYSBERG (affirmed) ........................1 4 5 Examination by MR MACKENZIE ...................1 6 7 Questions by CHAIR OF THE INQUIRY ............80 8 9 Examination by MR FAIRLEY ....................83 10 11 Examination by MS FORSTER ....................92 12 13 MR JAMES DONALDSON (sworn) ..........................97 14 15 Examination by MR MACKENZIE ..................97 16 17 Questions by CHAIR OF THE INQUIRY ...........162 18 19 20 21 22 23 24 25 166