1 Tuesday, 21 November 2017 17 MR LAKE: My Lord, the first witness today is David Mackay. 18 MR DAVID MACKAY (sworn) 19 CHAIR OF THE INQUIRY: You are going to be asked questions 20 initially at least by Counsel to the Inquiry, Mr Lake. 21 If you listen to the question and answer it as directly 22 as you can, and if you speak into the microphone so that 23 the public can hear what you're saying, and also speak 24 in a measured pace so that the shorthand writers can 25 keep up with you. 1 1 Finally, I've got to tell you that every day there's 2 a fire alarm test about 10 o'clock. So that will 3 happen. 4 A. Thank you, my Lord. 5 CHAIR OF THE INQUIRY: Every Tuesday, rather. 6 Examination by MR LAKE 7 MR LAKE: Mr Mackay, could you state your full name, please. 8 A. David James Mackay. 9 Q. I would like you to look at a document, please. You 10 have a hard copy in front of you. It will also be shown 11 on screen. It's next to you. It is reference 12 TRI00000113_C. 13 I do not know -- 14 A. Yes. 15 Q. Do you recognise that as the statement you give to this 16 Inquiry for the purposes of the Inquiry? 17 A. I do. 18 Q. Do you see that? 19 A. Yes, I do. 20 Q. If you look at the hard copy on the second last page, 21 I think you will see that you have signed it. 22 A. Yes, that's my signature. 23 Q. Are you content that that -- first of all, I should ask 24 you to look at another document, please. It's reference 25 TRI00000173. Again, you will see a document on screen. 2 1 You should have a hard copy available in front of you as 2 well. Do you recognise this as a list of corrections 3 that you sought to make to your statement? 4 A. I do. 5 Q. Subject to these corrections, are you happy that your 6 statement be taken as your evidence to this Inquiry? 7 A. Yes, I am. 8 Q. I want to ask you some additional questions. Turning 9 first to the various bodies that were involved in the 10 tram project, we've heard that we had the Tram Project 11 Board, Transport Edinburgh Limited and tie Ltd. What in 12 your view was the particular responsibility of each of 13 those bodies? Perhaps if we start with the Tram Project 14 Board. 15 A. tie was involved in the design and build. TEL was set 16 up to deal with the integration of trams and buses. The 17 Tram Project Board was a sort of workhorse reporting 18 into either TEL or tie. 19 Q. Was the Tram Project Board part of one of the companies? 20 A. It eventually, I think, was absorbed by -- was reporting 21 into TEL. But it was a separate -- it was a Project 22 Board, an engine room or workhorse. 23 Q. What do you mean by an engine room or workhorse? 24 A. A lot of the work went through the Tram Project Board 25 and then reported back to TEL or TPB as appropriate. 3 1 Q. Which body had the responsibility for taking decisions 2 about contract works and what should actually be done in 3 the project? 4 A. That was the tie Board. 5 Q. And how, if the Tram Project Board was the workhorse or 6 the engine room, would that relate to the tie Board? 7 A. The TPB could make -- Tram Project Board could make 8 recommendations to the tie Board, but couldn't take 9 final decisions. Although in the final analysis anyway, 10 the final decisions were -- lay in the court of City of 11 Edinburgh and Transport Scotland. 12 Q. I want to come back to the role of the City Council in 13 just a moment. Just understanding what you say, is your 14 understanding the way things worked then that the Tram 15 Project Board would make a decision, would report that 16 to the tie Board, but ultimately the decision would have 17 to be taken anew or again by the tie Board? 18 A. Yes. 19 Q. Did that result in a lot of duplication and 20 inefficiency? 21 A. I think in the early days it did. There were various 22 checks and balances. But as the project progressed, 23 I think more and more went through the Tram Project 24 Board to try to avoid duplication, and that was 25 summarised to TEL and tie. 4 1 Q. But if you say more and more went through the Tram 2 Project Board, does that mean that the role of tie 3 and/or TEL diminished? 4 A. Yes, I think it's fair to say that. 5 Q. So what was left for tie, first of all? 6 A. Well, as I say, tie was design and build. 7 Q. But if the decisions were being taken by the Tram 8 Project Board, what were tie doing? 9 A. Well, recommendations were taken by the Tram Project 10 Board, taken to tie. 11 Q. What about TEL? What were they doing if the Tram 12 Project Board took more of a role? 13 A. TEL was very much the vehicle for integration of trams 14 and buses. So it had little to do apart from 15 preparing -- helping to prepare revenue forecasts, 16 dealing with the Competition Act, eventually removing 17 Transdev. 18 Q. The things you are describing there sound like very much 19 to do with the operation of the trams once the 20 construction was completed; is that correct? 21 A. That's correct. 22 Q. So in terms of dealing with the construction phase, what 23 was the TEL role on that? 24 A. It didn't have a role on the construction phase. 25 Q. Were there joint meetings that took place between the 5 1 Tram Project Board, tie and TEL or various combinations 2 of them? 3 A. Yes, there were. 4 Q. Did they work efficiently? 5 A. Yes, I think they did work efficiently. I didn't hear 6 any of the directors complaining about them. The 7 paperwork and the debate was full and frank. 8 Q. Was it clear which body was taking a decision when you 9 were having these joint meetings? 10 A. Yes. I don't think the boards had any doubt whatsoever 11 where the final decision process lay. 12 Q. So does that mean that it was clear which -- if 13 a decision was taken at a joint meeting, which body was 14 actually taking the decision? 15 A. I don't think directors had any doubt. 16 Q. So at a meeting, say, for example, a joint meeting with 17 the tie Board and the Tram Project Board, was there 18 differentiation between which decision was that of the 19 Tram Project Board and which decision was that of tie? 20 A. I think I would have to be -- you would have to be more 21 specific about what the decision was. 22 Q. I'm simply asking your impression about how clear these 23 matters were. 24 A. I think I'm saying that I thought it was very clear and 25 I didn't hear any complaints from the Board about the 6 1 process. 2 Q. I think within your statement you say that your strategy 3 was to integrate tie, TEL and Lothian Buses? 4 A. That was much later in the process, on the director -- 5 of the City of Edinburgh, and also in my suggestion that 6 because -- because of the volume of work, it was very 7 much better to have joint Board meetings. 8 Q. But this was going, was it not -- I should actually 9 refer you to the point in your statement. If you could 10 look at page 29. 11 A. Yes. 12 Q. If you look at paragraph 100, towards the foot of the 13 page. What you say there is: 14 "I was not directly involved with internal audit on 15 internal governance, referred to at item 2.11. The 16 Audit Committee would come to me with questions but 17 I did not undertake the auditing and they were totally 18 independent. I was one of a group of people who were 19 questioned. I agreed with the content of the paper. My 20 strategy was quite simple: I was trying to integrate 21 tie, Lothian Buses and TEL. The long-term gain for us 22 would be one organisation, fit for purpose." 23 That's all following on, we can see it at the top of 24 that page, referring to minutes of the January 2008 25 Board meeting. 7 1 A. Mm-hm. 2 Q. What was it round about this time that made you feel 3 that these bodies should be integrated? 4 A. I think, as you were suggesting earlier, there was more 5 than a degree of duplication, and it would be simpler to 6 have one vehicle doing most of the work. 7 Q. Why had that become an issue in January 2008? 8 A. I don't know why it became an issue in January 2008. 9 Q. In an earlier answer when I raised the question of 10 integration, you said that was later on. Is this the 11 time you're talking about, January 2008? 12 A. Yes. 13 Q. Obviously at that time, at the end of the previous year, 14 the Council had approved the Final Business Case. 15 A. Mm-hm. 16 Q. Discussions were going on to conclude the contract, the 17 Infraco contract. I'm just interested as to what was 18 going on at that time to make you feel in particular 19 that it was appropriate that matters be integrated in 20 this way. 21 A. I don't know of a specific answer to that. I joined TEL 22 in 2005. I think I joined with TPB in 2006. And I sat 23 in tie Board meetings from then through to 2008. 24 Q. But you're not aware why in particular it was then that 25 you considered it better to bring the matters together? 8 1 A. I don't have a specific -- I can't give you a specific 2 reason for that. 3 Q. I want to ask you a slightly different question 4 concerning the councillors that sat on these various 5 matters. 6 What in your view -- in your view, was there any 7 advantage to having councillors sitting on those bodies? 8 A. It was an instruction from City of Edinburgh that 9 councillors should be on these bodies. Some of them 10 were quite talented individuals. But I think they had 11 split responsibilities. They had -- they were looking 12 for public support. They were looking for votes. They 13 were looking for re-election. And they had been -- some 14 of them had been very used to communicating regularly 15 with the press, and I found a growing flow of 16 information emerging from Board meetings or other 17 meetings which would appear in the Evening News or one 18 of the other newspapers within hours of us discussing 19 things. And that alarmed me. 20 Q. Did that impede the working of these bodies? 21 A. Yes, it did. It meant that on occasions we would be 22 very, very cautious about what was said in front of 23 councillors. 24 Q. Did it in your view have an effect on the relationship 25 with or negotiations with the contractors? 9 1 A. I was regularly very concerned that the contractor was 2 in receipt of information which they should not have 3 been. 4 Q. In your view, were the councillors able to contribute to 5 the working with these bodies? 6 A. Some of the councillors were able to contribute better 7 than others. 8 Q. In what way do you consider they contributed? 9 A. Sorry? 10 Q. In what way do you consider they contributed? 11 A. They encouraged healthy debate. They gave us a view of 12 the Edinburgh councillors. They were meant to be 13 independent. And they were meant to be challenging. As 14 I said earlier, some were better than others. 15 Q. You say they were meant to be challenging. Do we read 16 into that you consider there was in fact not an 17 effective challenge function performed? 18 A. I think some of them were very challenging. Others were 19 less so. 20 Q. Challenging can be constructive or destructive, and in 21 a Board context, one would presumably hope it would be 22 a constructive challenge? 23 A. I thought it was constructive challenging. 24 Q. The other thing, you said they were meant to be 25 independent. In an earlier answer for me, you indicated 10 1 that councillors would be looking for votes and looking 2 for support. Do I infer from that you are suggesting 3 that they were putting other interests possibly ahead of 4 those of the tram project or the companies in question? 5 A. I think inevitably politicians find it difficult not to 6 follow the party line. So the SNP were anti-tram. 7 Others were very pro-tram. And that led to a conflict. 8 Q. What conflict? 9 A. Well, one councillor, for instance, never attended 10 a Board meeting, but received all the papers. 11 Q. Which councillor was that? 12 A. Am I required to name that councillor? 13 CHAIR OF THE INQUIRY: Yes. 14 A. It was the Green councillor, Maggie Chapman. 15 MR LAKE: Now, obviously there would be a -- if she's not 16 attending, the boards are not getting the benefit of 17 what input she might have. Do you consider there's 18 a disadvantage to the Board over and above that if she 19 was getting the papers you described? 20 A. Yes, she was in receipt of papers. I don't know what 21 she did with the papers. Other councillors sometimes 22 appeared to open their papers on the day of the Board 23 meeting. 24 Q. Presumably that would mean they could provide little, if 25 any, effective input and challenge? 11 1 A. Yes. 2 Q. There is a point in your statement, if you could look, 3 please, at page 49, paragraph 176. In the second half 4 of that paragraph -- this is just referring to what was 5 going on at the time, and I'm not concerned about the 6 particular activities. What you say is: 7 "The Council knew exactly what was going on too, as 8 there were elected Councillors sitting on the Board." 9 Now, from that you seem -- it appears that you are 10 assuming that because there were councillors on the 11 Board, it could be taken to mean that the City Council 12 knew what was going on. 13 A. Yes. I think there's a clear definition between the 14 City Council, all the councillors and the city 15 officials. 16 Q. What do you mean by that? 17 A. Well, there are many more councillors than those who 18 attended the Board. 19 Q. Yes. 20 A. So if you were, for instance, a Labour councillor, no 21 doubt you told your Labour Group details of what had 22 been discussed at the Board and so on. 23 Q. In your view, was that the intention of what should 24 happen with having councillors on the Board? 25 A. No, it wasn't. In fact, quite often we had special 12 1 briefing groups to pass on information to various 2 parties. 3 But I understood the pressure on the councillors. 4 Q. The pressure being ...? 5 A. What happened today? What is the latest information? 6 Q. That would be from the non- -- the councillors who 7 weren't members of the Boards asking those who were 8 members to give them information? 9 A. Yes. 10 Q. Was your working understanding that that information 11 would be disseminated? 12 A. I always said -- mostly said at Board meetings that the 13 information that we were discussing was strictly private 14 and confidential, and that we would hold briefings in 15 due course with each party, and I think on two occasions 16 we also briefed the whole Council in the Council 17 chambers. 18 Q. From what you are saying to me, it sounds very much as 19 if you're saying that although you said the information 20 was confidential, you were aware it wasn't being treated 21 that way by the councillors who were members of the 22 Board? 23 A. By some councillors. 24 Q. By some councillors. But in the statement -- the 25 paragraph of your statement we see on screen, you seem 13 1 to go as far as to say that you could take it that the 2 Council knew exactly what was going on -- that's the 3 Council, the general body of members -- because there 4 were elected councillors sitting on the Board. That's 5 quite a jump from what you've just been saying, isn't 6 it? 7 A. Yes, the definition of "Council" is -- that gives the 8 impression that I'm saying they were allowed to pass on 9 information to the whole Council. That was not the 10 agreement. 11 Q. So did you work on the basis that in fact the whole of 12 the elected membership of the Council would be aware of 13 what was going on in the companies? 14 A. No, we did not. 15 Q. If we could look, while we are still with your 16 statement, please, to page 29. 17 A. Did you say 29? 18 Q. 29. Paragraph 98, it's at the top of the screen. 19 You note there: 20 "I have been referred to the Minutes of the 21 January 2008 Board meeting contained in the 22 February 2008 Tram Project Board papers and note that at 23 page 6 there is reference to concern from CEC as to 24 conflict of interest from the members of CEC and the 25 Councillors sitting on the Tram Project Board. It was 14 1 inevitable that there was conflict. If you were an SNP 2 Councillor or a reluctant supporter of the Project then 3 you could be difficult." 4 Just pausing there for a moment, is that the only 5 form of conflict that you envisaged would be there, that 6 somebody would have party loyalties which would conflict 7 with the project? 8 A. I think it's more than party loyalty. Some councillors 9 were anti-tram, and didn't disguise the fact that they 10 were anti-tram. 11 Q. Did you have anti-tram councillors sitting on the 12 Boards? 13 A. Not obviously so. 14 Q. What do you mean, not obviously so? You think they were 15 there, but hadn't disclosed their position? 16 A. No, I didn't see anyone sitting on the Board who was 17 obviously anti-tram. What they did after they left the 18 Board, I don't know. 19 Q. What do you think then when you say in your statement 20 that it was inevitable that there would be conflict, 21 what was the conflict that was inevitable? 22 A. Because some people were pro-tram and some people were 23 anti-tram. And some parties were pro-tram, some parties 24 were anti-tram. 25 Q. I'm just trying to understand what the conflict is then. 15 1 Is that a conflict within the body of elected members of 2 the Council? 3 A. Yes, there would be a conflict there as well. 4 Q. You said as well. What's the first conflict? What's 5 the conflict you are referring to in your statement? 6 A. If I can try and give you another example, the 7 Labour Party were very pro-tram. Very pro-tram. And 8 they were very unhappy with when one of their 9 councillors crossed the floor and joined the SNP. 10 That caused conflict for a long time. 11 Q. That could cause, one would imagine, conflict within the 12 Labour Party and with their former member who had 13 departed to the SNP? 14 A. And with SNP. 15 Q. Yes. What relevance was that to your position within 16 the various boards and companies? 17 A. I was patently aware that there was ill feeling, that 18 they were not acting -- that they were not acting as 19 a body. 20 Q. Who was not acting as a body? 21 A. The councillors. 22 Q. So you're talking about the elected membership of the 23 Council as a whole were not unified in their views? 24 A. They were not. 25 Q. What difference did that make to you in your role at TEL 16 1 and later tie, and the Tram Project Board? 2 A. I often found that information appeared to be leaking 3 from the Council who were given regular written reports 4 by Council officials. That information was leaking in 5 advance of Council meetings to Infraco. 6 Q. Right. 7 A. And the press. 8 CHAIR OF THE INQUIRY: When you say it was leaking in 9 advance of meetings, are you aware that prior to Council 10 meetings, there's an obligation to publish an agenda and 11 supporting documents? 12 A. Yes, I am, sir. 13 CHAIR OF THE INQUIRY: Are you speaking about that period or 14 are you speaking about a different period? 15 A. Earlier, my Lord. 16 Quite often we were asked to have a look at the 17 draft papers that were going out to the Council on tram 18 or on integration, and we suggested some quite heavy 19 editing because of the fear of what might be exposed to 20 Infraco and others. 21 CHAIR OF THE INQUIRY: What was the effect of the editing 22 then? It kept it out of the public domain, but what 23 about the councillors who were receiving the report? 24 Would you not keep the information away from them as 25 well? 17 1 A. I'm sure that they understood what was happening and why 2 it was happening. 3 CHAIR OF THE INQUIRY: What makes you sure? 4 A. The networking in the Council is very strong. 5 MR LAKE: You referred there to leaks to the news media and 6 also to the consortium of contractors. 7 The leaks to the news media would presumably result 8 in publicity and questions which would generate 9 additional work for the various delivery companies? 10 A. Sorry, would you mind repeating that, please? 11 Q. The leaks to the news media would result in additional 12 work by way of queries and questions being directed to 13 the delivery companies? 14 A. Yes, but it was very much more serious than that. 15 Q. In what way? 16 A. If our strategy was being revealed to Infraco, that 17 weakened our strategy. 18 Q. That was the thing I was turning to. Apart from leaks 19 to the press, the leaks to the Infraco were presumably 20 more serious? 21 A. Very, very serious. 22 Q. Can you give us any practical or concrete examples of 23 that and the effect that it had? 24 A. One of my biggest fears was when we were getting advice 25 from a very senior QC, and were adopting a change in our 18 1 tactics. The last thing on earth the Board wanted was 2 for that information to be revealed to Infraco, for 3 obvious reasons. 4 Q. So what did you do to limit that -- information about 5 that advice getting into the hands of the consortium? 6 A. Urged the Board, urged the members to remember that 7 everything discussed at these meetings was confidential. 8 But I knew that leaks were continuing. 9 Q. That's what I was going to ask. In your view, did it 10 remain confidential or did news about that advice and 11 tactics leak? 12 A. I think often -- it was -- it continued to happen. 13 Q. What was the effect of that? 14 A. It weakened our position. 15 Q. Were you actually aware in concrete terms that you went 16 in to have a discussion, the consortium were aware of 17 your position, and as a result of that, your negotiating 18 position was damaged? 19 A. I can't put a finger on a specific meeting or a specific 20 event. But I've got absolutely no doubt that that was 21 the case. 22 Q. If I could look in similar vein, please, to another 23 document. It's CEC00132866. 24 Looking at a point here much later in the overall 25 process, because this is the minutes of the TEL Board 19 1 meeting which took place on 22 September 2010. You'll 2 see that. 3 A. Yes, I see that. 4 Q. Obviously it's noted at the front page here that you 5 were in attendance at that as a Director. But if you 6 look, please, with me at the second page, we see the 7 last paragraph on the page which begins with your 8 initials, "DJM"? 9 A. Yes. 10 Q. It notes: 11 "DJM made his own position clear that he was 12 uncomfortable about the developments over the last three 13 to four months and advised that this also made it 14 difficult for the Councillors on the Board in terms of 15 governance going forward." 16 Is that generally referring to the matters we've 17 just been discussing? 18 A. I would like to read the paragraph before that. 19 Q. Certainly. If we -- 20 A. Yes, please. 21 Q. If we could enlarge the whole of the bottom half of the 22 page. 23 A. Thank you. (Pause) 24 I think this was more about the delay in dealing 25 with appointments rather than the areas we've been 20 1 discussing for the last five, ten minutes. 2 Q. So what was it over the developments of the last three 3 or four months made you consider things were difficult 4 for councillors on the Board in terms of governance in 5 future? 6 A. I think if you go further up that page, it says: 7 "DMcG [Donald McGougan] asked which areas are being 8 hampered by the delay in confirming the appointments." 9 Q. Yes. 10 A. At that stage I think I was trying to get agreement that 11 a chap called Ian Craig was made Operations Director of 12 TEL. 13 Q. Just to provide you the context, if we do look back at 14 the first page, and under the heading "Nominations 15 Committee", if we look at the first paragraph there, it 16 notes that you had asked the Board to support the 17 appointments of Richard Jeffrey as Chief Executive 18 Officer Designate and Ian Craig as Chief Operating 19 Officer Designate of TEL. You say that that is the 20 context of what was taking place. 21 When you refer then in that final paragraph to the 22 developments over the last three months, is that solely 23 in relation to this issue of appointing a new 24 Chief Executive and Chief Operating Officer? 25 A. I don't think the two are directly related. 21 1 Q. So what were your concerns that you noted in the last 2 paragraph there, about the developments of the last four 3 months that you were uncomfortable about, and that made 4 it difficult for the councillors on the Board? If we go 5 to the next page and the last paragraph? 6 A. I'm sorry, I don't recollect the reason for that 7 statement. 8 Q. Okay. Was there a significant amount of overlap in the 9 membership of these various bodies? That's tie, TEL and 10 the Tram Project Board. 11 A. Inevitably there was, yes. 12 Q. Did that frustrate any effective oversight by one body 13 of another? 14 A. I don't think it did. 15 Q. So you think it was okay to have the same people 16 reviewing the work that those people carried out in 17 another capacity? 18 A. I don't think it caused any great harm. 19 Q. In terms of the role of the Council, if you could look, 20 please, at page 22 of your statement. 21 A. 22? 22 Q. 22. If we could perhaps enlarge paragraph 74 for the 23 moment. In the last sentence in relation to the Tram 24 Project Board you note: 25 "I suppose that the interpretation that the Tram 22 1 Project Board were a "pivotal oversight body" was correct, 2 however the final authority would always be taken by the 3 City of Edinburgh and Transport Scotland." 4 Also in the same vein, could I ask you to look at 5 this following page, paragraph 82. You say: 6 "There was always a danger of assumption that the 7 Tram Project Board had primacy over the TEL Board. At 8 the end of the day, any decisions taken by any of these 9 Boards had to be referred to the City of Edinburgh and 10 Transport Scotland. We could have been overruled at any 11 stage." 12 Now, reading these paragraphs together, they both 13 seem to refer to the idea that in some sense it was 14 truly the City of Edinburgh Council or even 15 Transport Scotland that was in charge of the contract, 16 making the effective decisions? 17 A. I never had any doubt whatsoever that CEC and/or 18 Transport Scotland could overrule any decision that 19 these Boards made. 20 Q. You see, there's two aspects. One is saying they could 21 overrule, and the other is saying that the final 22 authority would always be taken, as you put it, by the 23 City of Edinburgh Council and Transport Scotland. 24 Who actually took the decisions in relation to the 25 Tram Project Board? 23 1 A. The Board took the decisions and reported them. At any 2 stage Transport Scotland or CEC could overrule that. 3 Q. Dealing firstly with Council then, was there any example 4 of an instance in which the Council overruled the 5 decision taken by one of the management companies? 6 A. The appointment of Ian Craig. 7 Q. In terms of practical matters concerning the delivery of 8 the tram project rather than membership of the 9 companies, was there a way in which the Council 10 overruled the companies? 11 A. No, I can't give you an example of that. 12 Q. When the Council influenced the matter in relation to 13 Ian Craig, was that them exercising their rights as 14 a shareholder? 15 A. Yes, it would be. 16 Q. What about Transport Scotland? What was the basis on 17 which they might intervene in the decisions of the 18 companies? 19 A. I think Princes Street is a very good example where the 20 Deputy First Minister told me to get it sorted out or 21 else. 22 Q. I want to come back to ask a bit more detail about the 23 Princes Street difficulties that emerged. So if we can 24 leave that to one side for the moment, were there other 25 instances in which there was direct input by 24 1 Transport Scotland or Scottish Ministers? 2 A. I remember regular problems in the early days with an 3 official from Transport Scotland called John Ramsay, who 4 I think was very unhappy that tie were involved in the 5 project and thought it should be Transport Scotland, and 6 he was extremely difficult on almost every decision. 7 Q. Difficult in what way? 8 A. He would hold back funds. He would ask impossible 9 questions, and increase the level of reporting 10 extensively. 11 Q. I would just like to put a little bit of flesh on those 12 bones, please. Can you give me a -- take a step back. 13 First of all, what sort of timescale are we talking 14 about here? 15 A. That was very early in the project. So early 2008. 16 Q. Before -- if I put it by reference to the works, was it 17 before the works had started on the infrastructure? 18 A. Yes. 19 Q. In terms of -- as I suggested earlier, to put some flesh 20 on the bones of impossible questions, can you give 21 an idea of what you mean by that, what was being asked of 22 the companies? 23 A. Can you repeat that question, please? 24 Q. Yes. I'm just trying to put some flesh on the bones of 25 what you mean when you say you got asked impossible 25 1 questions; can you give me some idea of what was being 2 asked of the companies by John Ramsay? 3 A. I can't readily give you an example of that. I was 4 often called in to -- into meetings to see, and could 5 see the frustration amongst the tie team arguing with 6 John Ramsay. 7 Q. You also referred to him imposing additional reporting 8 requirements? 9 A. Yes. 10 Q. Are you able to give me an example of that? 11 A. I can't give you a direct example. 12 Q. Back to the question of councillors on the Board if 13 I can for a moment. Could you look at page 21 of your 14 statement. Paragraph 71. 15 You note that: 16 "It was my proposal to transfer the Elected Members 17 of the tie Board and its Non-Executive Directors to the 18 Tram Project Board. I have no further comment to make 19 on this." 20 Nonetheless, I would like to ask you why did you 21 suggest that the councillors were transferred from the 22 tie Board to the Tram Project Board? 23 A. It was better to have them on the Board than off the 24 Board. 25 Q. Why? 26 1 A. I knew what was happening if they were on the Board. 2 Q. You had them in the tent? 3 A. Pardon? 4 Q. You had them in the tent? 5 A. Yes. 6 Q. Do we take it from your answer then you had encountered 7 difficulty by this time with the elected members within 8 tie? 9 A. It was better, using your words, to have them in the 10 tent than outside the tent. 11 Q. But if they were involved sitting on the Board, was 12 there not then a necessity that they would be given the 13 very sensitive information that was the cause of 14 concern, whereas if they were not on the Tram Project 15 Board, they wouldn't be privy to the information? 16 A. I think it would have caused even more conflict if 17 they'd been removed from any of that information. 18 Q. Would it not have been possible to have the Tram Project 19 Board being the engine room, as you put it, looking at 20 the most sensitive information, making representations 21 which could then be reported to the tie Board which 22 would have elected members, but not access to all the 23 sensitive information? 24 A. I didn't consider that at that stage. 25 Q. Would it have been a possibility, a good idea? Might it 27 1 have been? 2 A. I think it would have caused problems with City of 3 Edinburgh officials as well. 4 Q. What problems with the officials? 5 A. Because the officials then have to report to the Council 6 on what the structures are, and the Council then have to 7 vote on these structures, and I think if they saw their 8 Council representatives removed from the so-called 9 engine room, that would have been resisted. 10 Q. That's a slightly different matter. That's dealing with 11 whether or not you think the Council would have accepted 12 that governance proposal. 13 A. Well, the Council did vote on that governance proposal 14 on a paper produced by the Chief Executive. 15 Q. What I understand you're saying is you are concerned 16 that if the suggestion had been that the councillors 17 would not be on the tram project, but might be on the 18 other company boards, you are concerned that the 19 Council, as in a body of elected members, would not have 20 approved that. Have I understood that? 21 A. Yes. 22 Q. A slightly different question is whether or not they 23 might have liked it, whether or not it would have been 24 a good idea; I'm asking do you think it would have been 25 a good idea to isolate the councillors in this way from 28 1 the most sensitive information? 2 A. No, I think it would have caused even more difficulties 3 to isolate them. 4 Q. Difficulties because they would have objected to not 5 getting the information? 6 A. Yes. 7 Q. Could we go to page 29 of your statement. If you could 8 enlarge paragraph 98. I did look at this slightly 9 earlier, but it's now to look at a later passage in it. 10 If you look just after the passage in the middle in 11 italics, you note: 12 "I have to confess that I started trying to be more 13 selective about what we put to elected members. Quite 14 often we would get a draft of a report that would be 15 going to the full Council meeting. The amount of 16 editing that I and others had to do made it almost 17 a re-write. I felt uncomfortable at the prospect of 18 Bilfinger becoming aware for instance that we were 19 employing Richard Keen QC to give us advice on 20 Schedule 4 Part 4. If that leaked our negotiations 21 would be severely compromised." 22 I take it that passage at the end there is the 23 advice from a QC that you are referring to earlier in 24 your evidence? 25 A. Yes, it is. 29 1 Q. When you say you were almost rewriting the reports going 2 to Council, that was the view, to restricting the 3 information that would be flowing to the elected 4 members? 5 A. It's the point I made to you earlier. We would be given 6 a draft by the CEC officers of what the report was that 7 was going to Council. And we were allowed to contribute 8 to that. That involved especially towards the end some 9 very heavy editing. I have used these words earlier on, 10 because a lot of the information that we provided to the 11 city officials was confidential, and I was concerned 12 that if it went in an open Council report, it would leak 13 and would leak very quickly. And that would damage our 14 strategy. 15 Q. You refer to providing information to the officials of 16 the Council. Certain of those officials did sit on the 17 Tram Project Board and the Company Boards also. 18 A. Very senior ones. 19 Q. Very senior ones? 20 A. Very senior. 21 Q. I take it -- were you concerned about any information 22 leaking from them? 23 A. None whatsoever. 24 Q. What input do you consider that they were able to 25 provide to the companies and the Tram Project Board? 30 1 A. I was very impressed with -- if I start with 2 Donald McGougan, who was the Finance Director, 3 Dave Anderson who was the Development Director, 4 Marshall Poulton who was the Tram Monitoring Officer, 5 all these people were first class executives, 6 challenging but supportive, and I was very happy to have 7 them on board. 8 When I say I, we were very happy to have them on 9 board. 10 Q. Did that remain the position throughout the time that 11 you were involved with the company? 12 A. All of the time. 13 CHAIR OF THE INQUIRY: I think Mr Anderson took over from 14 Mr Holmes. Did you have any experience of Mr Holmes? 15 A. Yes, my Lord. Andrew Holmes was the Development 16 Director when I first joined TEL. He'd been there for 17 a long time. He knew his stuff. Was challenging and 18 supportive. 19 I thought sometimes the decision-making about 20 projects like park and ride and other major things were 21 taking far too long, but I wondered if that was 22 something in the machine that clogged at CEC, rather 23 than Andrew Holmes himself. I was -- in fact, I may as 24 well say it, I was very fond of Andrew Holmes. I found 25 him very supportive and a useful contributor. 31 1 CHAIR OF THE INQUIRY: I just wonder, you didn't mention him 2 in the list of people that you were saying that you had 3 great confidence in. Was he in that category as well? 4 A. Yes. He certainly was. 5 MR LAKE: Could I ask you to look at the paragraph below 6 this, paragraph 99. What you say there is: 7 "If we had put what we knew in relation to risk 8 allowance in an open forum, this would have shown our 9 hand to the contractors. We were battling every day 10 with Bilfinger and Siemens, and I did not want to be 11 battling with the Council as well." 12 The two halves of that seem to deal with two 13 different things. So if we could look firstly at the 14 first sentence, you didn't want to make known your risk 15 allowance because it would have shown the hand to the 16 contractors. What was your concern that would follow 17 from that? 18 A. I'm sorry, I don't really understand your question. 19 Q. Why did you not want to make known your risk allowance? 20 A. In an open forum? 21 Q. So that it would be known to the contractors, yes. 22 A. Yes. 23 Q. What did you consider would happen? 24 A. If the contractor knew what our risk allowance was for 25 every item, and how we had calculated that or tabled 32 1 that, that was an invitation to the contractor to go 2 after us. I really don't understand your question. 3 Q. It comes to this. I think the questions of -- 4 an allowance was made for risk in the overall budgeting 5 for the tram project. 6 A. Yes. 7 Q. That was a matter that was considered by the elected 8 members of the Council. 9 A. Mm-hm. 10 Q. So did -- was in a sense made known in a public forum 11 that there was a substantial allowance for risk. Did 12 that affect the project? 13 A. No, that did not affect the project. Everyone knew 14 there was a risk allowance which had been quantified. 15 What was not in the public eye was how that risk was 16 allocated. 17 Q. If there's a large allowance of many millions of pounds 18 made for risk generally, what would the concern be if it 19 was allocated, for example, to the utilities works or 20 the design works or the infrastructure works? 21 A. Well, I think where do you stop in revealing what the 22 allocation of the risk allowance is? I think it would 23 have been absolutely crazy for any business to put that 24 level of detail into an open forum. I'm not talking 25 about the Board. I'm talking about an open forum. 33 1 Q. Yes. 2 A. I think it would have been suicidal. 3 Q. So at what level do you draw the line? Is it simply 4 that there is an overall risk allowance and nothing 5 below that may be or should be made available? 6 A. That was my view. 7 CHAIR OF THE INQUIRY: And the quantification of the overall 8 risk allowance, you have no difficulty about that being 9 in the public domain? 10 A. No, I didn't, my Lord. 11 MR LAKE: On any view, contractors would be aware -- any 12 contractor in a similar situation would be aware that in 13 addition to the contract sum, there was a risk allowance 14 of however many million pounds. They knew there's more 15 money there. 16 A. Yes, they did. 17 Q. That would happen whenever there is a contract awarded 18 through the public sector where the existence of a risk 19 allowance is made public. 20 A. I'm sure it does. 21 Q. In your view, did that lead to a desire to get hold of 22 that risk allowance? 23 A. There was always a desire to get more money by Infraco. 24 They had an insatiable appetite to get more money. 25 Q. Do you consider that the -- my question however is: do 34 1 you consider that the availability, the public knowledge 2 of the availability of a risk allowance had an impact on 3 that? 4 A. Inevitably it did. 5 Q. Turning to the second sentence within that paragraph, 6 you refer to battling with Bilfinger and Siemens, and 7 you say: 8 "I did not want to be battling with the Council as 9 well." 10 Again, this is in the context of putting the risk 11 allowance into an open forum. What battles did you wish 12 to avoid with the Council? What did you foresee 13 happening? 14 A. I didn't want to be -- I didn't want to reveal all the 15 details of the risk allowance to an open forum, open 16 forum being the Council. 17 Q. Mm-hm. I can see why you didn't want to go into the 18 contractors and we have dealt with that. But you say 19 you didn't want to be battling with the Council. 20 A. If councillors, for whatever reason, had that 21 information, and were able to reveal it to people that 22 they shouldn't be revealing it to, that would have 23 caused us great concern and damaged our strategy. 24 Q. But is that revealing it once again to the contractors? 25 A. Yes. 35 1 Q. That doesn't really mean that you would be battling with 2 the Council. What did you mean here: 3 "I did not want to be battling with the Council ..." 4 A. Forgive me. That's a turn of phrase. 5 Q. I want to go on to ask you different matters in relation 6 to the contract close, bringing matters to a head in 7 December 2007, where I think it was envisaged that you 8 wanted to get final approval of the Final Business Case 9 by the Council and the go-ahead for the project? 10 A. Yes. 11 Q. Was there pressure from the Council to get everything 12 done by December 2007? 13 A. There was pressure all round that there had been 14 a change in the Scottish Government, and there was 15 a feeling, a very strong feeling, that if we didn't get 16 on with it, the contract -- the funding may well have 17 been pulled. The SNP were certainly not generally 18 supportive of tram, and would happily have used these 19 funds for other projects. 20 Q. That's more dealing with the Scottish Government then, 21 rather than the Council. 22 A. Yes. 23 Q. That was a perceived pressure? 24 A. Yes. 25 Q. Was there any pressure from the Council, particularly 36 1 for December? 2 A. No, I don't think there was. 3 Q. Was there pressure from within tie to get it done -- did 4 the people there want to get it done by a certain date? 5 A. I think everyone wanted to get on with the job that they 6 were employed for, rather than the constant negotiation, 7 and so there was some pressure within tie. 8 Q. Was there a question whether or not the bonus structure 9 that was in existence put pressure on people to get the 10 contract concluded by a certain date? 11 A. I think I'm on record as saying that I was not 12 particularly a fan of the bonus structure. I believe 13 that bonuses have to be earned against proper 14 challenges. And in fact I dismantled the bonus 15 structure later in my role, after Willie Gallagher had 16 stood down. 17 But I think, if -- forgive me for saying this. If 18 you're trying to put words in my mouth that people were 19 desperate to get to close so they could earn a bonus, 20 I have no evidence of that whatsoever. 21 Q. Do you think the existence of the bonus structure had 22 any effect on the desire to get to contract close? 23 A. It may well have done, but I have no direct evidence of 24 that. 25 Q. Just sticking with the bonus structure then for the 37 1 moment, you said you believed it should be earned for 2 meeting challenges. Do I take it from what you say 3 there that the bonus structure that was there when you 4 came to it did not do that? 5 A. I was unhappy that -- about the way it had been set. 6 I was unhappy at the way it was measured. I thought it 7 should be dealt with by a Remuneration Committee, and 8 those involved in bonuses should have no part in the 9 decision-making process. 10 Q. Why were you unhappy on the basis that it had been set? 11 What made you unhappy about the existing structure? 12 A. I thought it was not a challenge, not a big enough 13 challenge. 14 Q. In what way? What sort of things would trigger bonuses 15 that you did not consider were sufficient challenge? 16 A. I really can't be specific here, but if there are five 17 items that you have to reach, say, before you're paid 18 for a bonus, I would like to see all of these being 19 challenging, not just appearing for work, and that's me 20 being flippant when I say that. But it wasn't 21 challenging enough, and there wasn't enough independent 22 supervision of it. 23 Q. Turning to the question of supervision, I think you said 24 it should be under the supervision of a Remuneration 25 Committee? 38 1 A. Yes. 2 Q. I think there was a Remuneration Committee in existence? 3 A. Yes, but some of the executives of tie sat on that 4 Remuneration Committee. 5 Q. That is what I was going to ask you. Is that common 6 practice in your experience? 7 A. No, it's not. 8 Q. Is it good practice? 9 A. No. 10 Q. Why not? 11 A. I think it inhibits discussion around the remuneration 12 table and maybe creates pressure on the Remuneration 13 Committee itself. 14 Q. Because in an earlier answer to me, you said there 15 should be no participation by the people who might get 16 bonuses in that oversight committee? 17 A. In my view there should not be. 18 Q. I take it then you thought there was that participation 19 when you came -- 20 A. I didn't sit in the Remuneration Committee, but I had 21 a very strong feeling that there was influence. 22 Q. What do you mean by influence? Participation by means 23 of voting or simply being able to lean on the people who 24 were on the committee? 25 A. To sell the case. 39 1 Q. So what changes did you make? 2 A. I made a -- I think I encouraged Brian Cox to become 3 Chairman of the Remuneration Committee. I had -- we had 4 various other senior executives, Kenneth Hogg and 5 Peter Strachan, I think, on that committee. And there 6 was no participation and no attendance by anyone who was 7 entitled to a bonus. 8 Furthermore, when it came to the bonuses, I asked 9 the Remuneration Committee to consider that if someone 10 earned a bonus of, say, GBP1,000, that only 50 per cent 11 or a per cent of that was paid in cash, and the rest was 12 banked as a way of putting handcuffs on the individual 13 to stay. And I think that was accepted. 14 Q. Was there a problem with people not staying, a turnover 15 of staff? 16 A. Yes, there was a growing turnover of staff. It was 17 a very difficult project, lots of pressure, constant 18 pressure, and quite simply, tram specialists were able 19 to find jobs elsewhere which were very much easier. 20 Q. And the result of that was what? 21 A. We lost people, and there was staff turnover. 22 Q. Did that have an effect on the delivery of the project? 23 A. It didn't help. 24 Q. Did it actually have an adverse effect, in your view? 25 A. Yes, I think it did. Because new people have to pick up 40 1 the traces and catch up. 2 Q. If it was suggested that the way to get -- ensure that 3 the staff stayed longer was simply to pay larger 4 salaries, what would your comment be on that? 5 A. I would not have supported that. We had a salary 6 structure. We knew what the earnings at -- similar jobs 7 across the country were paying. 8 Q. Turning back to December 2007, and the desire to 9 proceed, look at the Draft Final Business Case, please. 10 It's reference CEC01821403. We can see the front page 11 here of the Draft Final Business Case dating from 12 November 2006. 13 A. I do. 14 Q. Do you recognise this? It's a document you had dealings 15 with at the time? 16 A. I'm sure I do. 17 Q. What I would like to do, please, if we could look at 18 a passage on page 20, first of all. Enlarge 19 paragraph 1.91. 20 A. That's page 19. 21 Q. I'm sorry. There's a difference between the digital 22 pages and the paper pages. It's digital page 20, paper 23 page 19? 24 A. Thank you. 25 Q. It's paragraph 1.91. We see: 41 1 "The responsibility for delivering this document was 2 given to the Tram Project Board by the City of Edinburgh 3 Council through Transport Edinburgh Limited and by 4 Transport Scotland." 5 Now, I think at this time, in 2006, your principal 6 role was still with Transport Edinburgh Limited. 7 Am I understanding correctly? 8 A. Yes, that's correct. 9 Q. That doesn't refer to tie having a role in terms of 10 delivering the Draft Final Business Case. Did that 11 accord with your recollection of how the matter was 12 approached at the time? 13 A. I don't know why tie is not detailed in that paragraph. 14 Q. Do you consider that in fact tie's role was greater than 15 is the impression given there? 16 A. I'm sure it was. 17 Q. Do you know it was? 18 A. 2006 is a long time away. I think it was. 19 Q. Can you remember how many employees TEL had round about 20 this time? 21 A. TEL? 22 Q. TEL. 23 A. It didn't have many employees at all. It would be me, 24 Alastair Richards, Neil Renilson, Norman Strachan, Bill 25 Campbell and one secretarial support. 42 1 Q. A number of people you are referring to there, yourself, 2 Alastair Richards, Neil Renilson, Peter Strachan, they 3 were certainly all at director level? 4 A. They were Directors of Lothian Buses as well. 5 Q. But in terms of employees to do the day-to-day work in 6 something like preparing a Business Case, did TEL have 7 employees? 8 A. No. We would share the resource that tie had. And 9 indeed Lothian Buses. 10 Q. If you could look, please, I want to look at the 11 question of the procurement strategy. If you could look 12 to page 85 of the electronic pages. That's page 84 of 13 the paper. Enlarge paragraph 7.53. Under the heading, 14 "Activities under the SDS contract", the statement here 15 is that: 16 "It is expected that the overall design work to 17 Detailed Design will be 100 per cent complete when the 18 Infraco contract is signed." 19 Now, was your understanding any different from that 20 as to how complete the design work would be, it was 21 intended the design work would be when the contract was 22 signed? 23 A. I had constant concerns about incomplete design. From 24 the very first day I joined TEL, and from the first time 25 I sat in as a spectator at tie Board, and I didn't 43 1 attend all of them by any means, there was a constant 2 theme that SDS were not performing. 3 Q. That being your experience of sitting on the Boards, 4 were you aware of this statement, nonetheless, at the 5 time, that the anticipation was that the detailed design 6 would be 100 per cent complete when the contract was 7 signed? 8 A. I don't recall reading that, but I think people were 9 saying there was no reason that the design would not be 10 100 per cent complete -- 11 Q. Were you content with that? Did you regard it as 12 attainable? 13 A. I'm sure I had doubts. 14 CHAIR OF THE INQUIRY: Did you express them? 15 A. Sorry, my Lord? 16 CHAIR OF THE INQUIRY: Did you express them? 17 A. I was constantly worried about SDS's performance. 18 CHAIR OF THE INQUIRY: I understand that, but I'm just 19 wondering whether you expressed the doubts that you had 20 at Board meetings. 21 A. I think I'm on record at some stage of saying I was 22 really concerned about SDS, and the uphill battle we 23 were having to get them to catch up on the timeline. 24 MR LAKE: I think from what you say, it's quite clear that 25 the concerns about SDS performance didn't just arise in 44 1 December 2007. They had been known about for some time. 2 A. I'm certain they'd been known about for some time. In 3 fact I know it was known about for some time. 4 Q. Nonetheless, you will be aware that in the second half 5 of 2007, the decision was made to go ahead and get best 6 and final offers from the Infraco bidders. Were you 7 happy that those offers were being sought at a time when 8 there was no completed designs? 9 A. I think it's easy for me to say in hindsight that one of 10 the biggest errors was going ahead with that, with an 11 incomplete design. 12 Q. I think it's fair to say you have said that in your 13 statement, you think it was a major error of judgement to 14 go ahead with an incomplete design? 15 A. Yes. 16 Q. Was that a matter, whether or not to go ahead with the 17 incomplete design, that was discussed by either TEL, tie 18 or the Tram Project Board? 19 A. I don't think it was discussed primarily by TEL. It was 20 certainly discussed by tie. And indeed I'm sure by CEC. 21 Q. We know that the matter -- it did go ahead. Why was it 22 decided to go ahead in defiance of the procurement 23 strategy that was outlined in the Draft Final Business 24 Case? 25 A. On the basis that people were reporting that the design 45 1 could be caught up and should not be a major problem. 2 Q. Did you believe that? 3 A. It's easy for me to say in hindsight, no. 4 Q. But even looking at the time, as you say, it had been of 5 concern for some time, throughout 2007. And hadn't been 6 brought under control by the end of 2007. Was there any 7 basis which would make it possible to conclude that it 8 could be brought up to date on time? 9 A. People were giving reports that it could be caught up. 10 They were experts and they were believed. 11 Q. Can you remember who was giving that advice or those 12 reports? 13 A. I mean, in the early days it would be Ian Kendall who 14 was the Tram Project Director. I can't name any others. 15 Q. I think he had gone quite some time before 16 December 2007, and it got to the Final Business Case. 17 Can you remember who was giving that sort of advice on 18 that timescale? 19 A. No, I can't give you a name. 20 Q. Were you aware of any other of the Directors of the 21 company, rather than the technical experts who were 22 employed, having concerns about proceeding at this 23 stage? 24 A. Well, I know that Andrew Holmes, who sat on the Board, 25 had serious concerns about design, and I think 46 1 Donald McGougan, the Finance Director, also had concerns 2 about design. 3 Q. Were you aware whether or not they were reassured by 4 what they were being told? 5 A. I think they were assured by what they were being told. 6 Q. What about legal advice? I think we have heard that DLA 7 were being retained to provide legal advice to tie at 8 this time. Did you have dealings with Andrew Fitchie 9 around about this time? 10 A. I don't remember dealing with Andrew Fitchie on the 11 question of design. 12 Q. Do you recall any advice being given to the tie Board or 13 the Tram Project Board or TEL that it would be unsafe or 14 inappropriate to proceed in view of the state of the 15 design? 16 A. No, I don't. 17 Q. If -- is it a question, as you said before, that this is 18 all a long time ago and it might have been said and you 19 can't remember, or do you think if you had been told, 20 you would remember? 21 A. I think if Andrew Fitchie had told me or told the Board 22 that it would be unsafe to proceed, then the Board would 23 have taken heed of what he was saying. 24 Q. I want to turn now to the question of the finalisation 25 of the terms of the contract. I take it you were made 47 1 aware of the agreement reached at Wiesbaden in 2 December 2007? 3 A. I received a verbal -- I think I have said in this in my 4 statement -- a verbal statement from Willie Gallagher on 5 Wiesbaden, and there was a one or two-page report which 6 was produced for the tie Board. 7 Q. Did you have any questions, can you recall, or concerns 8 about that at the time when you were first told about 9 it? 10 A. I think I'm on record that I always had concerns about 11 Infraco and Bilfinger Berger in particular, 12 and I thought that part of the Wiesbaden Agreement was 13 another gouging, is the word I think we've used, by 14 Bilfinger Berger to get more funds. 15 Q. I'll come to ask questions about your concerns about 16 Bilfinger in general later on. But we've heard that the 17 sum of GBP8 million -- there was an increase of 18 GBP8 million in the contract sum. Is that what you're 19 referring to as gouging here, or paying more money? 20 A. Yes, I am. 21 Q. Were you given to understand that tie had got anything 22 in return for that out of the Wiesbaden Agreement? 23 A. Yes, that Bilfinger would work more co-operatively, that 24 some progress would be made on novation of design with 25 SDS, and that generally they would be a more flexible 48 1 contractor. 2 Q. In terms of drafting of the terms of the Infraco 3 contract in 2008, leading up to close, could I ask you, 4 please, to look at page 37 of your statement. If we 5 could enlarge paragraph 132. 6 You note there: 7 "Part 4 of the Schedule to the Infraco contract 8 dealt with price and I am of course aware that it was 9 this that later caused considerable problems. I had no 10 direct involvement in respect of the price to be paid 11 for the works, it was approved by the Board and I think 12 this was long before I was responsible for such 13 matters." 14 When you say it was approved by the Board, which 15 Board do you mean? 16 A. I assume that's the tie Board. 17 Q. I want to ask you about a slightly different question of 18 approval. Could I ask you, please, to look at document 19 CEC01515189. We can see here this is a resolution of 20 the Tram Project Board. This one is not signed, but 21 it's got the date on the top of 23 January 2008. It 22 refers to a meeting held jointly -- "the members of the 23 Tram Project Board at a meeting held jointly with the 24 Boards of tie Limited and Transport Edinburgh Limited". Do 25 you recall this meeting and the authority that was 49 1 conferred at this time? 2 A. Yes, I think I do. 3 Q. If we could enlarge the foot of the page. You can see 4 that there were delegated authority arrangements 5 proposed and approved, were: 6 "A Committee of the Boards of the Company, the Tram 7 Project Board and tie Limited would be immediately formed 8 comprising Messrs Gallagher, Mackay and Renilson, to 9 whom authority is delegated to approve final execution 10 by the tie Chairman of Notification to Award, the 11 Infraco Contract Suite and any necessary related 12 agreements on condition that: 13 1. The final terms of the contractual arrangements 14 are within the terms of the Final Business Case, subject 15 to slippage of up to one month ... programmed revenue 16 service in 2011; and 17 2. They unanimously conclude that it is 18 appropriate to do so; and 19 3. Approval had been received from the CEC 20 Chief Executive to proceed to execution of the Infraco 21 Contract Suite." 22 Now, do you recall the purposes of that authority 23 being conferred? 24 A. Yes, I do. 25 Q. What was the purpose in establishing this three-man 50 1 committee? 2 A. I think it was so the Board didn't have to be dragged 3 through every sentence, every page. 4 Q. So it was intended that this committee, it would be 5 small so it could provide a detailed scrutiny? 6 A. Yes. 7 Q. At the time this was set up, at the end of January, what 8 did you envisage would be scrutinised by this three-man 9 committee? What work would it undertake? 10 A. I assume -- well, I didn't assume. We'd been given 11 very, very detailed papers and presentations. So we 12 were going to run through that once again to see if 13 there was anything that troubled us or anything that 14 would prevent us from going ahead and signing. 15 Q. Right. If I could ask you to look at this minute of the 16 committee, please. It's reference CEC01289240. Just 17 enlarge the upper half of the page. 18 We can see it's headed, "MEETING OF TIE AND TEL 19 APPROVALS COMMITTEE TO CONFIRM THE AUTHORITY TO PROCEED 20 WITH COMPLETION OF THE INFRACO CONTRACT SUITE". It has 21 a date of 13 May 2008. And in attendance there's 22 Willie Gallagher, yourself and Neil Renilson. Do you 23 see all that? 24 A. Yes. 25 Q. Now, do you recall the meeting taking place on 13 May 51 1 for the purposes of giving the approval? 2 A. I recall a meeting taking place. I don't know whether 3 it was 13 May or not. 4 Q. Were there any meetings of this three-man committee 5 between January, when it was set up, and 13 May? 6 A. I think that the next paragraph says: 7 "The Committee and each member individually noted 8 that adequate information had been provided on which to 9 competently proceed." 10 Q. Yes. Now, I'll ask the question again. Were there any 11 meetings of this three-man committee prior to 12 13 May 2008? 13 A. I can't remember any specific meetings. 14 Q. So in terms of you noticed the second paragraph there, 15 it records the provision of adequate information. We 16 should probably read on, because it says: 17 "Adequate information ... on which to competently 18 proceed. In particular, the terms of the Infraco 19 Contract Suite and all key related information had been 20 set out in successive versions of ..." 21 It's got: 22 "The Close Report prepared by tie Limited. 23 A letter from DLA providing an opinion on the legal 24 competence of the Infraco contract suite and including 25 a comprehensive risk matrix. 52 1 Supporting papers prepared by tie Limited addressing: 2 Detailed Infraco Contract Suite terms and 3 conditions. 4 Procurement process and risk of challenge. 5 The final deal terms and relationship to value for 6 money and the risk of challenge." 7 Did you have more than these papers or was that in 8 fact what you had been given to make up your mind? 9 A. I think we had these papers and these had been presented 10 to us, not -- verbally presented to us, not just paper. 11 Q. When was that done? Was that on 13 May or was it done 12 over a period of time leading up to 13 May? 13 A. I don't remember, but I think it would be over a period 14 of time, and not on 13 May. 15 Q. It refers there to the terms of the Infraco Contract 16 Suite being set out in successive versions of -- and the 17 bullet points. 18 Were you actually given a copy of the contract and 19 talked through the contract itself? 20 A. I think we were. 21 Q. Who did that? 22 A. Perhaps Graeme Bissett. 23 Q. Did he speak to or take you through any others of these 24 documents? 25 A. I think he probably did. And I think that the Finance 53 1 Director, Mr McGarrity, was also involved in that. 2 I'm sure that Andrew Fitchie was involved as well. 3 Q. Other than those three, can you recall presentations or 4 information being given to you by anybody else? 5 A. No, I can't. 6 Q. One of the things we saw on the remit of the committee 7 was to ensure that the -- excuse me one moment. 8 The purpose of this was that the contract as 9 approved would fall within the terms of the Final 10 Business Case as approved by the Council in 11 December 2007. That was part of the remit to the 12 committee; do you recall that? 13 A. Yes. 14 Q. Could we look at the Final Business Case, please. 15 CHAIR OF THE INQUIRY: Before doing that, before leaving 16 this document, you see under the bullet points it says: 17 "The Committee noted that the final contract terms 18 had been approved at a meeting of the Council's Policy 19 and Strategy Committee earlier in the day." 20 So did that influence you in any way, the fact that 21 the contract terms had been approved by the Council 22 earlier? 23 A. It would help our decision-making, my Lord. 24 MR LAKE: If we could just look at the Final Business Case, 25 please. It's document CEC01395434. You will probably 54 1 recognise the front page of that as being the Final 2 Business Case Version 2, which was issued on 3 7 December 2007. 4 A. I think so. 5 Q. Once again, if you could go, firstly, to page 24 of 6 this. We can see that in paragraph 1.110: 7 "The responsibility for delivering this document was 8 given to the Tram Project Board by CEC through TEL." 9 Again, there's no mention of tie. You'll see that. 10 Do you recall approving this document in your role at 11 TEL and the Tram Project Board? 12 A. As I said before, I'm surprised at the omission of tie. 13 Q. Could we go back, please, to look at page 18. Enlarge 14 paragraph 1.77. This is an executive summary of the 15 Procurement Strategy. It notes: 16 "The Procurement Strategy followed by tie responds 17 to feedback from the National Audit Office in 2004 on 18 the effectiveness of light rail schemes. The objectives 19 of the procurement strategy are summarised as follows." 20 The first is: 21 "Transfer the design, construction and maintenance 22 performance risks to the private sector; 23 Minimise the risk premium (and/or exclusion of 24 liability) that bidders for a design, construct and 25 maintain contract normally include. Usually at tender 55 1 stage bidders would not have a design with key consents 2 proven to meet the contract performance obligations and, 3 hence, they would usually add risk premiums for this; 4 Mitigation of utilities diversion risk (ie 5 potential impact of delays to utilities diversion 6 programme on Infraco works); and 7 Gain the early involvement of the operator to 8 mitigate the risk relating to the future operation of 9 the tram." 10 Now, in terms of the three-man committee considering 11 whether or not what was approved met this requirement, 12 what investigation or what information did you have to 13 support the view that there had been a transfer of the 14 design, construction and maintenance performance risks 15 to the private sector? 16 A. We didn't have confirmation of that as far as I can 17 recollect. 18 Q. As we've seen as part of the procurement strategy, the 19 transfer of the design risk appeared to be something of 20 some importance? 21 A. The whole purpose of design and SDS was that the design 22 risk would be novated to Infraco. 23 Q. Can you recall whether any questions were asked on 24 13 May as to whether or not that risk -- that objective 25 had been met before the contract suite -- signature of 56 1 the contract suite was approved? 2 A. I can't specifically recollect, but I'm certain that 3 that would be discussed, and we'd be given assurances 4 about design. 5 Q. By whom? 6 A. By the Tram Project Director. 7 Q. That's why I asked you. You said earlier you had 8 Mr McGarrity, Mr Bissett and Mr Fitchie giving you 9 information. But you say now that the Tram Project 10 Director also gave you information? 11 A. Yes. Yes, I am. 12 Q. When did he give you information? 13 A. I think when the papers were being presented. I think 14 he would be invited in. 15 I really can't recollect this in any detail. 16 Q. Can you remember, was there a formal presentation in the 17 sense that there were papers or a PowerPoint 18 presentation to you, or was it purely oral? 19 A. Normally there would be PowerPoint presentations. 20 CHAIR OF THE INQUIRY: Were any minutes taken? 21 A. I don't think there are minutes per se, my Lord. 22 CHAIR OF THE INQUIRY: Was that usual or unusual? 23 A. I think generally it was unusual. 24 CHAIR OF THE INQUIRY: If there were no minutes, can you 25 explain why the unusual course was taken on this 57 1 occasion? 2 A. I think we took a unanimous decision that it was in 3 order to go ahead. 4 MR LAKE: There were three members to the committee, 5 Mr Gallagher, Mr Renilson and yourself. Were all three 6 entirely happy to proceed? 7 A. Yes, they were. 8 Q. Were either of the other two reluctant in any way to 9 agree that it should proceed? 10 A. I am aware from papers that I read that Mr Renilson 11 claimed that he felt under pressure to go ahead. 12 I found these comments quite astonishing. Neil Renilson 13 was a very talented executive, a very good public 14 transport operator. A demanding individual who didn't 15 hesitate to challenge and would not accept anything 16 unless he was given proper assurance. 17 There is absolutely no way that he would have agreed 18 to proceed on any basis, apart from that he was fully 19 satisfied it was the right thing to do. 20 Q. And if the Inquiry were to hear evidence that you had 21 attempted in some way to coerce him or pressure him to 22 sign, did you do that? 23 A. Would you mind repeating that question, please? 24 Q. If it was to be suggested that you had in some way tried 25 to coerce Mr Renilson to sign or put pressure on him to 58 1 sign up, either to the Final Business Case or to this 2 committee meeting, what would your response be to that? 3 A. Total nonsense. Neil Renilson could never be coerced 4 into doing anything that he wasn't happy with. 5 Q. Was the question of transfer of design responsibility 6 something discussed between the three of you? 7 A. I'm sure it was. Really you're asking me to remember 8 details of an event that was nine years ago. 9 Q. But I'm asking you to look back. I think there were 10 certain key elements of the procurement strategy for the 11 tram project which had run for some time; one of them 12 being the completion of design or the transfer of design 13 risk. And just was there discussion about these 14 fundamental planks of the strategy? 15 A. I'm certain that that was discussed, and I'm certain 16 that we were given assurances that we could catch up on 17 the delay with design, and that design would be novated 18 to Infraco. 19 Q. Just coming back to really what the role of this 20 three-man committee was, were you there -- did you see 21 your role as being to test the information that you were 22 being given, or simply to ensure that it was there, it 23 was all in line, so you could proceed? 24 A. It certainly wasn't a rubber-stamping exercise. We were 25 there to test. 59 1 Q. What did you do to go beyond rubber stamping? 2 A. We asked questions and got acceptable answers. 3 Q. Over what period of time were these questions asked and 4 answers given? 5 A. I can't answer that offhand. 6 Q. Are we talking about essentially a discussion that took 7 place on 13 May, or are we talking about the whole of 8 the -- 9 A. No, no, prior discussion. I mean, earlier on there's 10 a list of the papers that we were given. I'm sure that 11 that was a build-up. 12 Q. If we go back to look at the minute that was there, 13 that's CEC01289240. 14 If you enlarge the middle part of the page -- 15 A. Yes. 16 Q. -- is that the list of documents you're referring to? 17 A. Yes. 18 Q. But I come back to the earlier question. Had the 19 three-man committee, had you met over time to consider 20 and discuss these, and if so, what, if any, record was 21 kept of that? 22 A. We met every day in TEL and tie. I can't give you an 23 appropriate -- I can't give you an answer about why 24 there was no minute as such. We obviously didn't 25 consider it was necessary to have a minute because we 60 1 were fully satisfied with these papers and the answers 2 we were being given to our questions. 3 This, as I said, it wasn't a rubber-stamping 4 exercise. I have already talked about Neil Renilson. 5 There is no way you could bulldoze Neil Renilson into 6 agreeing unless he was fully satisfied. 7 Q. I just want to build up a picture of what was done to 8 make sure it wasn't just a rubber-stamping exercise. 9 I'm just trying to go through this so we can have 10 a better idea. 11 A. We'd read these reports. We'd asked questions about 12 these reports and we were satisfied with the answers we 13 received. I may add that as well as talking about 14 Neil Renilson being -- never having to be persuaded, it 15 would have been impossible to persuade me to accept this 16 recommendation unless I was wholly satisfied by what I'd 17 been told and had acceptable answers to questions we had 18 raised. 19 Q. Looking at that list of documents there, if we see in 20 the third bullet point, and the first sub-bullet point 21 refers to a detailed Infraco Contract Suite terms and 22 conditions, or a paper addressing that matter. Do you 23 see that? 24 A. Yes. 25 Q. I would like to go and look at that document, please. 61 1 It's reference CEC01340809. 2 Just taking in the page as a whole, the first page 3 as a whole, is this something that seems familiar to 4 you? 5 A. Not particularly. 6 Q. I want to refer in particular to the second paragraph -- 7 second last paragraph shown on this page, beginning "In 8 broad terms". I should say, we have heard evidence that 9 this was one of the documents that was handed over to 10 the committee, but it notes: 11 "In broad terms, the principal pillars of the 12 Edinburgh tram network contract suite in terms of scope 13 and risk transfer have not changed materially since the 14 approval of the Final Business Case in October 2007. 15 The process of negotiation and quality control has 16 operated effectively to ensure that the final contract 17 terms are robust and that where risk allocation has 18 altered this has been adequately reflected in suitable 19 commercial compromises." 20 Now, again, that statement as to the fact that the 21 principal pillars in terms of scope and risk transfer 22 have not changed materially, do you recall that at all? 23 A. I recognise a question on this in my statement about the 24 principal pillars of the contract, and some confusion 25 about how you define principal pillars, in -- 62 1 particularly in terms of scope and risk, rather than the 2 whole contract suite. 3 I think I've answered that in my witness statement. 4 Q. Really the question is: is this a matter that was the 5 subject of any questions being put to the people coming 6 to give you information? Did you have further 7 information about risk transfer and what should have 8 been done in respect of it? 9 A. Sorry, I can't specifically remember what we had. 10 Q. But you are aware, from what happened afterwards, of the 11 very substantial difficulties that arose in relation to 12 Part 4 of the Schedule? 13 A. Yes, I think it's fair to say that interpreting that 14 Schedule led to all sorts of problems. But it's also 15 fair to say that the interpretation of the meaning of 16 the Schedule had lots of differing opinions, and that 17 came through in some of the adjudications and other 18 areas. 19 Q. You can take it from me that there has been a suggestion 20 made to the Inquiry that that Schedule effected 21 a significant transfer of risk to tie away from the 22 consortium. 23 There was evidence also that that Schedule was 24 negotiated certainly between January and May 2008, which 25 would mean, if those were both correct, that there had 63 1 been a material change in the allocation of risk in this 2 period. 3 A. I certainly did not appreciate a material change of 4 risk. 5 Q. You said you had a presentation from Mr Fitchie? 6 A. Yes. 7 Q. I have to put it to you directly: did he say to you that 8 in fact the effect of Schedule Part 4 was to transfer 9 risk, a significant risk, to tie? 10 A. If Mr Fitchie had said that to me, I would be able to 11 tell you that. He did not say that to me. 12 May I add, he would not only -- if he was saying 13 that, he wouldn't only say it to me. He would be saying 14 it to other directors of the businesses. 15 Q. Are you aware of him -- 16 A. And, furthermore, I would have expected to see it in 17 writing. 18 Q. I have asked you the question specifically in relation 19 to the three-man committee. Can you ever recall advice 20 of that nature being given to tie, TEL or the Tram 21 Project Board? 22 A. I certainly cannot remember. In fact, I'm certain it 23 was never given. 24 Q. Are you able to recall -- you said you have, if 25 I understood you correctly, you don't have a clear 64 1 recollection of being shown this particular document at 2 the time? 3 A. No. 4 Q. So I take it you wouldn't be able to say -- 5 A. But I recognise the bit that's highlighted just now. 6 Q. Do you recognise that from the document or from the 7 questions that were put to you from your statement? 8 A. It could be both actually. 9 Q. Would you be able to recall whether or not that was 10 something that was shown to you or discussed with you 11 prior to 13 May, during the early part of 2008, or 12 presented to you just at the last minute? 13 A. I think the latter. 14 Q. Last minute? 15 A. Yes. 16 Q. So you really have very little chance to ask questions 17 about this? 18 A. Yes. Nor did I appreciate the seriousness of that. 19 Q. Seriousness of ...? 20 A. The Schedule 4 Pricing Assumption. 21 Q. Could we look, please, also at page 4 of this document, 22 and enlarge the sub-heading "Price" and the paragraph 23 underneath. The report says: 24 "A contract price has been agreed. The detailed 25 contract price and pricing schedules for carrying out 65 1 the Infraco Works is contained in Schedules to the 2 Infraco Contract. A substantial portion of the Contract 3 Price is agreed on a lump sum fixed price basis. There 4 are certain work elements that cannot be definitively 5 concluded in price and therefore Provisional Sums are 6 included. A number of core pricing and programming 7 assumptions have been agreed as the basis for the 8 Contract Price. If these do not hold, Infraco is 9 entitled to a price and programme variation known as 10 'Notified Departure'." 11 Now, firstly, can I ask you, there is reference 12 there to "provisional sums". From your experience at 13 the SRU, and building contracts there, were you familiar 14 with the concept of provisional sums? 15 A. Yes. 16 Q. Are you also familiar with the notion of a lump sum 17 fixed price contract? 18 A. Yes. 19 Q. Now, I think there was some controversy arose later as 20 to when it was suggested that you said fixed price 21 didn't mean fixed price? 22 A. Yes. 23 Q. What did you understand by "fixed price"? 24 A. That a large element of the contract was fixed price, 25 but design changes would incur further -- further price 66 1 movement, whether these came from tie, from the city, or 2 from Transport Scotland. 3 Q. How likely did you consider it was that there would be 4 such design changes? 5 A. I had no appreciation whatsoever about how onerous that 6 was going to be. None whatsoever. And if I had done, 7 I would never, ever have agreed to proceed. 8 Q. In the latter part of that paragraph, we see there's 9 a reference to the number of assumptions that had been 10 agreed and that if they do not hold, there'll be a price 11 and programme variation, known as a Notified Departure. 12 Did you have information about what those assumptions 13 were? 14 A. I don't think I did. 15 Q. If you had been made aware that one of the assumptions 16 was that the MUDFA works, the utility works would be 17 complete by the start of the infrastructure works, would 18 you have been content with that? 19 A. Did you say if I had had a -- 20 Q. If you had known that that was an assumption, would you 21 have been content? 22 A. That MUDFA would be incomplete? 23 Q. Would be complete? 24 A. Yes. 25 Q. You would have been content? 67 1 A. Yes. 2 Q. So what did you understand was the state of the MUDFA 3 works in May 2008? 4 A. That it was well behind, but that there would be no 5 major difficulty in bringing it up to schedule. 6 I think there were moves at that stage to replace 7 the first Infraco -- first MUDFA contractor and also to 8 bring in other contractors, so that people were working 9 across Edinburgh in total, rather than in local sites. 10 Q. I think we might be talking slightly at cross-purposes, 11 because what you're saying there is that you knew the 12 works were incomplete as of May? 13 A. Yes. 14 Q. If you had been told that the contract assumption was 15 that the works would be complete and therefore the 16 assumption was wrong, would that have been a concern to 17 you? 18 A. It would have been a concern. 19 Q. Were you given any information as to the likely 20 financial exposure of the MUDFA works not being 21 complete? 22 A. No, I was not. 23 Q. Were you given any information about the likely 24 financial exposure in relation to any Notified 25 Departure? 68 1 A. No, I was not. 2 Q. Can you recall whether anyone said that there had been 3 a term put into Part 4 of the contract which indicated 4 expressly that the facts were not as stated -- not all 5 as stated in the notified -- that the facts were not all 6 as stated in the assumptions? 7 A. At that stage, no. But obviously afterwards. 8 Q. Would that have made a difference if you were told that 9 it was already appreciated that certain of the 10 assumptions would not hold true? 11 A. It would have made a big difference. 12 Q. I appreciate I have asked you with hindsight, but what 13 sort of things would you have wanted to have done if you 14 had known that some of the assumptions at least were not 15 true? 16 A. I think I would have urged that we delayed further 17 progress until I had sufficiently more detailed 18 information on what the potential impact of that was 19 going to be. 20 MR LAKE: My Lord, I see it's 11.15. That would be an 21 appropriate time to take a break. 22 CHAIR OF THE INQUIRY: We will adjourn now for 15 minutes, 23 Mr Mackay. It's to give the shorthand writers a break. 24 But you will be shown back to the witness room if you 25 wish, and you can probably have a cup of tea or coffee. 69 1 A. Thank you very much, my Lord. 2 CHAIR OF THE INQUIRY: We will resume again at 11.30. 3 (11.15 am) 4 (A short break) 5 (11.30 am) 6 CHAIR OF THE INQUIRY: You're still under oath, Mr Mackay. 7 MR LAKE: My Lord. 8 Mr Mackay, we've just been looking at a report on 9 the Infraco Contract Suite which was one of the 10 documents noted in the bullet points for the meeting of 11 13 May. Now I would like to look at another of those 12 documents noted in the bullet points. This is the one 13 referred to as the close report. It's reference 14 CEC01340807. 15 You can see the heading on this, the Edinburgh trams 16 report, "REPORT ON TERMS OF FINANCIAL CLOSE ("CLOSE 17 REPORT")". 18 I want to ask you about firstly something on page 4, 19 if we look at that. 20 If we could look at the lower part of the page, we 21 can see under the table, it's noted: 22 "The increase in Base Costs for Infraco is a result 23 of a negotiated position on a large number of items 24 including the contractual interfaces between the 25 Infraco, Tramco and SDS contracts and substantially 70 1 achieving the level of risk transfer to the private 2 sector anticipated by the procurement strategy. It also 3 reflects capital expenditure required on lifecycle 4 related costs including mobilisation of the maintenance 5 teams and acquisition of spare parts." 6 We can see that touches on the level of risk 7 transfer which was something that was a feature of the 8 Final Business Case. 9 A. Yes. 10 Q. You had this statement made in the report. What 11 I wondered, is there any questioning to go behind it to 12 investigate further the comments as to the level of risk 13 transfer? 14 A. I can't particularly remember the detailed level of 15 questioning, but I'm certain that it would be 16 questioned. 17 Q. Again, who would address or deal with questions such as 18 this? 19 A. I think a combination of the tie Chief Executive, the 20 Finance Director, and probably the Tram Project 21 Director. 22 Q. You say the tie Chief Executive. I think at this time 23 that was Willie Gallagher. 24 A. Yes. 25 Q. He was actually sitting on the three-man committee. 71 1 A. Yes. 2 Q. Along with Mr Renilson and yourself. So did that cause 3 a difficulty in the sense that he was both the person 4 sitting on the committee providing an oversight view 5 and, from what you say, the person who had the 6 information you were relying upon? 7 A. At the time I didn't see it as being a negative factor. 8 Willie was very, very much involved in the detail. So 9 he was able to answer questions and I had no doubt that 10 he was giving us the correct information. 11 Q. Could I ask you to go back to your statement for 12 a moment and look at page 51. 13 If we look at paragraph 184, at the foot of the 14 page, you say: 15 "I am aware that on page 20 of the papers for the 16 Tram Project Board in February 2008 is a note that 17 design was still causing concern. This was at a stage 18 when it was intended that the contract should already 19 have been awarded and detailed reviews and discussions 20 were under way with SDS, CEC and BBS to provide 21 solutions." 22 If you read over the page, in the following 23 paragraph: 24 "On page 6 of the papers for the March Meeting, in 25 the February minutes, Donald McGougan is noted as having 72 1 asked if the design risk could be bought out. The 2 response is that neither consortium would accept this, 3 by contrast with the earlier statement that BSC had 4 taken the risk of design development. There was an 5 understanding that design risk had been novated and with 6 that went risk and management, however they were not 7 managing SDS and they were not accepting financial 8 responsibility. This all hones in on the 9 interpretation, or misinterpretation, of Schedule Part 4 10 of the contract, which was a constant theme." 11 Now, would you agree that it appears from these 12 statements you make about February and March that there 13 was some awareness that the design risk hadn't 14 transferred or wasn't going to be transferred -- 15 A. Yes. 16 Q. -- to the consortium? 17 A. Yes. 18 Q. Now, that being the case, what information did you have 19 when it came to 13 May to satisfy you that it was now 20 clear that design risk was being transferred? 21 A. I was satisfied that I was being told by Willie and 22 others that the design risk would not be a major 23 difficulty. 24 Q. That's a rather interesting way of putting it, because 25 that's not dealing with the question of whether or not 73 1 the risk had been transferred. That's just his view 2 that it wasn't going to be, as you say, a major 3 difficulty? 4 A. They were still working on trying to novate SDS to 5 Bilfinger. 6 Q. What effect did you understand that novation would have 7 on the transfer of design development responsibility? 8 A. That that risk would -- would not lie with tie. 9 Q. Because of novation? 10 A. Yes. 11 Q. Again, are you aware, can you recall, what the 12 information was that you were given that led you to that 13 view? 14 A. Not precisely, sorry. 15 Q. Even in general terms? 16 A. That discussions were going well. There was an 17 acceptance that this was part of the assurances we'd 18 been getting from Bilfinger Berger, and there was 19 confidence that there would be an agreement. 20 I can't remember if this is before Wiesbaden or 21 after Wiesbaden. 22 Q. This is after Wiesbaden. Wiesbaden was December 2007. 23 A. Yes. Well, that also related to the so-called Wiesbaden 24 Agreement. 25 Q. In what way? 74 1 A. That Bilfinger would manage SDS very much better than 2 they had been managed and would take an interest in it. 3 Q. If we could look further down this page to 4 paragraph 187. In fact, sorry, could I ask to you look 5 at both paragraph 186 and 187. In 186 you say: 6 "Those few words about design development in the 7 contract were examined by many lawyers, including QCs, 8 for interpretation, but if the design risk had not been 9 novated, responsibility lay with us. An element of that 10 responsibility is reflected in the risk registers, 11 although it is impossible to fully reflect all the 12 risk." 13 Obviously you accept that if the risk isn't 14 transferred, it still remains with tie? 15 A. Yes. 16 Q. Is that making the point once again that it is the 17 novation, as you understood it, that was to transfer the 18 design risk over to the other side? 19 A. Yes. 20 Q. That would transfer the responsibility for actually 21 carrying out the design; is that your understanding? 22 A. Yes. 23 Q. But in terms of the responsibility for having to 24 construct in accordance with the design, and that is for 25 bearing the additional costs if the design changes, was 75 1 that also dealt with by the novation? 2 A. No, that would be down to the people who made the 3 changes. So tie or the city. 4 Q. If there were to be changes arising out of these 5 assumptions? 6 A. These would be down to tie. 7 I think elsewhere in my statement I talk about 8 putting pressure -- it's here -- putting pressure on 9 City of Edinburgh to point out the risks to the public 10 sector by the increasing number of changes or the delays 11 in producing design for changes. 12 Q. You are referring to the second sentence of 13 paragraph 187? 14 A. Yes, I am. 15 Q. That was the point to try and emphasise to the Council 16 or tie that they should, where possible, avoid design 17 changes? 18 A. Absolutely. At one stage I seem to recall a number of 19 253 pending changes, which was a gigantic number. 20 Q. That was while the contract works were being carried 21 out? 22 A. Yes. 23 Q. In the first sentence of paragraph 187, you say: 24 "Earlier discussions had proceeded on the basis that 25 this risk was transferred and there comes a stage when 76 1 you cannot go back and reconsider what had been done and 2 the amount of risk being carried in the public sector." 3 Was there a time when you had to say -- there was 4 a suggestion that you reconsider it and you had to say 5 it was too late? 6 A. I think I can recollect quite clearly saying you can't 7 go back to the beginning, but you can restart from where 8 you are and improve the end. 9 Q. So what was someone wanting to reconsider or restart? 10 A. You can't tear up a contract. 11 Q. Did someone suggest that you needed to start again with 12 the contract? 13 A. I don't think so. 14 Q. So was there a time during the lead-up to the contract 15 close where you just wanted to go back and reconsider, 16 but felt you couldn't? 17 A. No, I can't claim that that was the case. 18 Q. If we could return, please, to the close report. It was 19 reference CEC01340807. That was the first page. Could 20 we go to page 26. 21 Under the heading "Infraco price basis and 22 exclusions"? 23 A. Yes. 24 Q. And the paragraph underneath it. You note: 25 "The Infraco price is based upon the Employer's 77 1 Requirements which have been in turn subject to thorough 2 quality assurance ... significant areas where 3 post contract alignment of the SDS design will be 4 required. Crucially the price includes for normal 5 design development (through to the completion of the 6 consents and approvals process - see below) meaning the 7 evolution of design to construction stage and excluding 8 changes of design principle shape form and outline 9 specification as per the Employer's Requirements." 10 What did you understand you were being told here 11 about liability or inclusion of normal design 12 development and what was excluded from that? 13 A. I think I understood that these changes were down to 14 tie. 15 Q. If it changed design principle, shape, form and outline 16 specification? 17 A. Yes, material changes were down to tie. 18 Q. Was that a source of any concern? 19 A. I was concerned about the number of changes and the 20 significance of these changes. But I also knew we had 21 a risk allowance which I thought was substantial enough 22 to cover these. 23 Q. So that was a concern you had at the time of contract 24 close? 25 A. Yes. 78 1 Q. Were you given any assurances as to the likely exposure? 2 A. I can't recall specific assurances. 3 Q. Did you seek any information as to what changes might 4 come, for example, to outline specification which would 5 be at tie's expense? 6 A. No. 7 Q. I think, if we could look, please, back at your 8 statement, at page 40, and if we can enlarge 9 paragraph 141. You say there: 10 "I satisfied myself that statements within the 11 Contract Close Report were correct. I gathered as much 12 advice as possible from our senior executives, my 13 lawyers, the City and Transport Scotland." 14 The exercise of satisfying yourself that the 15 statements in the Contract Close Report were correct, is 16 that the one that you've already carried out? 17 A. Yes. 18 Q. And that is that you considered, listened to and read 19 the information that was provided to you? 20 A. Yes. 21 Q. Did you carry out any enquiries of your own? 22 A. Only by asking questions of my senior executives and the 23 lawyers. 24 Q. You mentioned there advice from the City Council or the 25 City, you say. What advice did you obtain from the 79 1 City? 2 A. I was very close to Donald McGougan, the Finance 3 Director, and I rated him very highly, and we often 4 discussed current matters. I took a lot of comfort from 5 his support. 6 Q. You've mentioned also taking advice from 7 Transport Scotland. 8 A. There were no secrets with Transport Scotland. So we 9 were in regular discussion with them. 10 Q. That would be -- what you're talking about there, 11 information being provided by tie or the Tram Project 12 Board, or even the Council, to Transport Scotland? 13 A. Yes. 14 Q. What you have referred to in this paragraph 141 is that 15 you gathered advice from Transport Scotland. I'm just 16 interested in what advice was coming from 17 Transport Scotland? 18 A. I think Transport Scotland were still sitting on our 19 Board at that stage. 20 Q. The Inquiry has heard evidence that that ended in 21 mid-2007, following the Scottish general election; that 22 there was a decision to withdraw from the Tram Project 23 Board? 24 A. Well, my chronology is wrong, sorry. But that didn't 25 stop me talking to people like Bill Reeve and 80 1 Damian Sharp. 2 Q. So did you have discussions with them in the period 3 right up to contract close? 4 A. I can't remember the specifics of that, sorry. 5 Q. Can you remember whether or not you had conversations, 6 irrespective of what the subject matter was? 7 A. I certainly had conversations with Transport Scotland 8 people. 9 Q. Why? 10 A. Pardon? 11 Q. Why did you have those conversations? 12 A. Because it was important to keep in touch with them on 13 a regular basis and keep them posted. 14 Q. In addition to keeping them posted, were you seeking 15 anything from them by way of information or advice? 16 A. Comfort more than anything else. 17 Q. What sort of comfort? 18 A. That we were going in the right direction and we had 19 their support. 20 Q. Dealing with both those matters one at a time, but in 21 reverse order, what do you mean by support? 22 A. Well, if we didn't have the support of 23 Transport Scotland, then we were in serious trouble. So 24 they were not denying support. They weren't telling 25 us: don't go any further. They were content with the 81 1 progress we were making. 2 Q. What about support or comfort that you were going in the 3 right direction; were you seeking their approval or 4 agreement to what was happening? 5 A. I don't think I was seeking their approval. I was 6 making sure that they were fully aware of what we were 7 doing. 8 Q. Was that on a formal or an informal basis? 9 A. Informal. 10 Q. Was that instigated by you or by people from 11 Transport Scotland? 12 A. I think both. 13 Q. Was it something which essentially they required or was 14 it purely voluntary on your part? 15 A. I think it was an implied requirement, but I was very 16 happy to be involved in that process. 17 Q. Part of what you were describing appeared to sound like 18 a passive role for Transport Scotland receiving 19 information from you. Was there a more active role? 20 A. I wouldn't describe their role as passive. 21 Q. What were the active elements of the Transport Scotland 22 role? 23 A. They -- they were receiving topical information very 24 regularly. Just as an aside, can I say that I was 25 hugely disappointed when the decision was taken to 82 1 remove or to stand down from the Board by Bill Reeve and 2 Damian Sharp. I thought that was a major error. 3 Q. Why? 4 A. Because they were very talented and experienced 5 executives. They were very challenging and yet very 6 supportive, and they gave us a link to 7 Transport Scotland which was active rather than 8 a passive or merely interrogatory role. 9 I think, as I say, it was a major mistake. 10 Q. Did they give you any indication whether they were 11 content that Transport Scotland were withdrawing from 12 the Tram Project Board? 13 A. I think when you're on the payroll of 14 Transport Scotland, and a decision is taken which 15 I think probably came from the Scottish Government, you 16 have to be extremely careful on how you respond to that 17 sort of situation. They both had careers, and I can 18 understand it was more important for them to look after 19 their careers than to consider whether it was a good 20 decision or a bad decision. 21 I later sought and recruited Damian Sharp because 22 I thought he was such a useful person for the project, 23 and I missed his input enormously. And Bill Reeve -- 24 I've got nothing but praise for Bill Reeve. 25 Q. When you refer to it being a bad decision, and you've 83 1 mentioned the sort of loss to tie, have you at any time 2 been able to form a view as to whether or not it was 3 good or bad for Transport Scotland to step away from the 4 project? 5 A. I have no doubt at all that it was bad for 6 Transport Scotland. 7 Q. Why? 8 A. Because they were not in the fire. They were not seeing 9 at first hand what was happening at the Board meetings, 10 getting bang up-to-date details on what was happening 11 with Bilfinger Berger, what the nuances were. They were 12 not looking into the eyes of the tie and TEL Directors. 13 They were not part of the fraternity, although as 14 non-executives they were good challengers. I think it 15 was a very bad error. 16 Q. Earlier, before the break, when I asked you questions 17 about whether or not -- whether there was discussions as 18 to whether or not to proceed, you said it was a matter 19 discussed within tie and you assured the City Council. 20 A. Yes. 21 Q. When you say within the Council, was that referring to 22 the elected members or the officials? 23 A. No, the officials. 24 Q. The officials. Did they tell you that they were having 25 any concerns about whether or not you should proceed? 84 1 A. I don't remember any direct concerns being expressed. 2 We were very close together. So we were talking -- 3 I mean, I was speaking to Tom Aitchison almost on 4 a daily basis, Donald McGougan, Dave Anderson, 5 Marshall Poulton were on the Boards. Other people 6 attended the Boards as guests or on special research 7 projects. So there was a very close affinity. 8 Q. The Council officials, were they raising at the various 9 Boards their concerns about the proceedings, standing 10 the state of designs? 11 A. I think Donald McGougan is on record several times, 12 raising concerns about design and whether or not it 13 could be bought out. And previously Lord Hardie said 14 about Andrew Holmes. Andrew Holmes also raised 15 questions and concerns about design. 16 Q. If you could look at paragraph 143. You note there the 17 view that I have already asked you about in part, that 18 you never had any doubts that it was not a fixed price 19 contract. 20 Nonetheless, you had seen in the information that 21 was being provided to you in the reports, the close 22 reports, it had been described as a fixed price 23 contract. Did that cause you concern? 24 A. I never thought it was a totally fixed price contract. 25 Q. But it was being described to you in the official 85 1 reports that were being brought forward as a fixed price 2 contract, and I'm wondering whether or not you raised 3 a concern that those reports were not reflecting the 4 position accurately? 5 A. No, I didn't. 6 Q. Did you discuss it with your fellow committee members, 7 Mr Renilson and Mr Gallagher, that fixed wouldn't really 8 mean fixed? 9 A. I think all three of us knew it wasn't fixed per se. 10 Elements of it were fixed. But design changes, 11 especially if they'd been promoted by us, were down to 12 us. 13 Q. In view of the knowledge that you had about the state of 14 design, did you take any steps to consider the size of 15 that risk? If design changes were going to cause 16 additional cost and the design was not complete, was 17 there not a foreseeable problem? 18 A. I didn't see it as an enormous problem. It became an 19 enormous problem. I think I got assurances that it was 20 manageable within the total price that we had allocated. 21 Q. Can you remember from whom you got those assurances? 22 A. I think primarily from Willie Gallagher. 23 Q. I want to turn to a different matter. Once 24 Willie Gallagher had left, and you have said within your 25 statement that you found things in a poor state, things 86 1 within tie in a poor state, what were the problems? 2 A. I think it's probably an understatement to say it was in 3 a poor state. We were battling every day with Bilfinger 4 Berger. I couldn't see an end to the road. 5 Staff morale was particularly low. We'd been losing 6 people, and we didn't seem to be making any material 7 progress. Willie's departure was a bombshell in terms 8 of staff morale. 9 I think I added then that someone had to step into 10 the breach. And I stepped into the breach as 11 a short-term solution. 12 Q. Did you have concerns as to the way matters had been 13 managed up to that time? 14 A. In some respects, yes. 15 Q. What were your concerns? 16 A. I had -- I had quite a strong concern that tie were so 17 committed to building trams and to going on to 18 potentially other projects that sometimes they were 19 blindfolded. 20 I also recognised that poor Willie had not been 21 firing on all cylinders. I think he had domestic 22 difficulties, and he was beginning to show stress and 23 strain. 24 Q. So had there been a vacuum at the top of the company in 25 essence? Not being critical, but is that a statement of 87 1 fact? 2 A. I think these are your words, not my words. 3 Q. I'm just trying to understand. You've relayed the facts 4 that he had not been firing on all cylinders. What was 5 the practical result of that? 6 A. There was a void. 7 Q. What had resulted from that? 8 A. I just didn't think we were tackling various issues as 9 appropriately as we should have been. 10 Q. In what way should they have been tackled that they 11 hadn't been? 12 A. Well, using the contract where we could, being much more 13 direct with Bilfinger Berger, trying to manoeuvre a gap 14 between Bilfinger and Siemens. 15 Q. Why did you want to manoeuvre a gap between Bilfinger 16 and Siemens? 17 A. Because I had a very strong impression that Siemens were 18 unhappy with Bilfinger, and I had a hope or an 19 aspiration that perhaps Siemens one day might become the 20 primary contractor, doing both their work and the 21 construction work. 22 Q. Was that a matter that was pursued after you took over 23 chairmanship of tie? 24 A. Yes. 25 Q. How far do you consider you got with that? 88 1 A. I think we got very close to it. Unfortunately, a chap 2 called Michael Flynn was badly hurt in a car accident 3 and that abruptly halted the situation. 4 But I also think that Bilfinger were getting a bit 5 fed up with the whole scenario, and may well have been 6 happy to get out. 7 Q. When did you form that view of Bilfinger? 8 A. I think probably late in 2008. 9 Q. 2008. So really just about the time you took over as 10 Chairman? 11 A. Yes. 12 Q. But of course they hadn't done so by the time you left 13 tie in 2010? 14 A. They got quite close to it a couple of times, I think. 15 Q. Was that a matter that was pursued by the company? 16 A. Sorry, can you -- 17 Q. Was that a matter pursued by tie, trying to procure that 18 situation? 19 A. There were new people arriving on a regular basis. 20 David Darcy is a name that I remember. And there seemed 21 to be a change of attitude and a willingness to at least 22 talk more constructively and we were having framework 23 meetings at all levels. People were discussing rather 24 than firing difficult correspondence at each other. 25 There was a different mood for a while. 89 1 Q. I want to return to the strategy and the different mood 2 for a while in due course. But for the moment I'm just 3 coming back to your original impressions when you took 4 over as Chairman in late 2008. One of the things you 5 referred to was tie being blindfold. 6 Do I understand that they were not taking account of 7 or were refusing to consider certain matters? Is that 8 what you're saying? 9 A. I think perhaps what I was trying to say was that they 10 were outwitted by Bilfinger. 11 Q. Now, in relation to what? 12 A. The contract. 13 Q. Post signature or pre signature? 14 A. Post. Well, pre and post. 15 Q. So dealing with the post, first of all, to what extent 16 had they been blindfold in relation to Bilfinger post 17 signature? 18 A. The Pricing Assumption thing, as I said before, was 19 subject to many interpretations. So there was no 20 unanimous view on that. And I think it could have been 21 challenged much earlier than it was properly challenged. 22 Q. If we can return to that in due course, but turning back 23 now to the question of pre contract close, to what 24 extent do you consider tie had been blindfold there? 25 A. I think tie had been, in the simplest possible terms, 90 1 outmanoeuvred in negotiation. 2 Q. Was that apparent to you when you arrived in late 2008? 3 A. I had a strong feeling that that was the case. 4 Q. On what basis? 5 A. We seemed to be losing ground and not even standing 6 still. 7 Q. What ground do you consider you were losing? 8 A. Well, I think, is that not -- without being direct, is 9 that not pretty straightforward? Nothing was happening 10 on the streets. We were paying a lot of money. We had 11 paid preliminaries. I had pointed out that there was -- 12 we had pointed out that in terms of on-street, Bilfinger 13 only had 1 kilometre where they couldn't work, and yet 14 we weren't pushing that. And not using the contract to 15 force them to work. 16 Q. I want to ask now about some other on-street works as 17 they emerged, and in particular the Princes Street works 18 and dispute. 19 I think you had quite a direct involvement in that. 20 A. Yes, I was directly involved. 21 Q. What I want to do is firstly look at the nature of the 22 dispute. Could we look at a document CEC01032608. 23 This, as you can see from the title, is a position 24 paper which is prepared for dispute resolution. It's 25 dated 2 March, and relates to the Princes Street 91 1 dispute. 2 If we just look at the next page of this, page 2, 3 and if we highlight paragraph 2, "THE DISPUTE", we can 4 see: 5 "The Dispute concerns the issue of whether Infraco 6 is obliged pursuant to the Infraco Contract and without 7 further instruction to proceed with carrying out of 8 Works on Princes Street, Edinburgh from 21 February 2009 9 at the latest." 10 Do you recall this document? 11 A. Yes, I do. 12 Q. I think this was for the purpose of the Dispute 13 Resolution Procedure, the formal Dispute Resolution 14 Procedure? 15 A. Yes. 16 Q. Although ultimately, to jump ahead, it was resolved by 17 an agreement that you reached with the consortium? 18 A. Yes, the DRP was dropped eventually. 19 Q. If we just stick with the DRP at the moment, could we 20 enlarge the lower half of the page, heading 3 and the 21 text underneath it. We see, under the heading, "TIE's 22 POSITION ON THE DISPUTE": 23 "The Infraco works as described in the Infraco 24 contract include works on Princes Street. Without 25 comment on any underlying delay to progress, it is 92 1 common ground that the works on Princes Street were due 2 to commence on the morning of 21 February 2009 as 3 defined in the Princes Street programme. 4 Following lengthy meetings in November and 5 December 2008 tie on 12 January 2009 gave a Notice of 6 Change for the provision of a contingency bus lane at 7 Princes Street for a period of two weeks during the 8 carrying out of those works. Infraco prepared and sent 9 to tie an estimate ... relating to the proposed Change. 10 tie issued tie Change Order number 21 on 11 13 February 2009. The work to be carried out and the 12 estimated Actual Cost of this work as claimed in the 13 Estimate is agreed and it is only the correct method of 14 calculating Head Office Overheads and Profit, Consortium 15 Preliminaries and other Preliminaries elements that is 16 not agreed." 17 If I jump forward to the following paragraph: 18 "Notwithstanding the agreement and approval referred 19 to in paragraph 3.3 above, Infraco stated by email on 20 18 February 2009 that Infraco were not obliged to 21 commence work on Princes Street giving reasons of the 22 lack of an exclusive licence to the Designated Working 23 Area and the non-agreement of an Estimate." 24 So we can see there, as far as tie understood the 25 dispute, it was all about agreement as to overheads of 93 1 preliminaries and a question of exclusive possession of 2 the Princes Street site. 3 For completeness, if we could look at the Infraco 4 position in relation to this, and look at document 5 CEC01032611. We can see the first page here is a letter 6 dated 2 March 2009 from the consortium to tie. The 7 final paragraph of the letter notes that they serve in 8 accordance with the provisions of clause 111 their 9 written position paper in relation to this dispute. 10 A. Yes. 11 Q. If we look at that position paper, page 2, and the 12 heading "Factual Background" and the text underneath it: 13 "Upon receipt of the tie Notice of Change dated 14 12 January 2009, Infraco proceeded to calculate 15 an Estimate as required by clause 80.4 of the Contract. 16 Infraco provided tie with its Estimate in draft form on 17 12 February 2009 (later issued formally under cover of 18 letter dated 16 February 2009). The Estimate included 19 Infraco's opinion that the Change would result in an 20 increase in the sums due to be paid to Infraco under the 21 contract in the amount of GBP8,001.96 excluding VAT. 22 Tie purported to issue a tie Change Order number 21 23 on 13 February 2009 with a value of GBP6,546.55 24 excluding VAT. However, this was on the basis of their 25 unilateral amendments to Infraco's estimate which had 94 1 not been agreed with Infraco." 2 Looking at that, the sum at stake appears to be 3 very, very small. It's GBP1,500. Was that your 4 understanding at the time? 5 A. No, not at all. Princes Street is the most important 6 street in Edinburgh, if not in Scotland. To have it 7 closed for any period of time was an obvious huge 8 pressure on tie to agree to all sorts of things. 9 I believe the Princes Street tactics by Infraco were 10 appalling. They had done their preliminary searches. 11 They knew how old the infrastructure was below the 12 street. They were desperately keen to change the fabric 13 of the contract. And to have supplemental agreements 14 throughout. 15 Q. Now, how did that relate to the dispute? Because on the 16 face of it here, we have got a dispute about the extra 17 costs of a bus lane and the question of exclusive 18 control of the contract area. 19 A. It was very much more than that. 20 Q. I think ultimately it's a matter of record that an 21 agreement was reached under which work would be done on 22 a demonstrable cost basis. 23 A. Correct. That came as a direct result of me having 24 a meeting with John Swinney, a regular update meeting, 25 and I told him what my views were on Princes Street, 95 1 that we'd already paid preliminaries, that it was 2 possible that there were problems underground which had 3 not been anticipated, but that if we merely collapsed on 4 that, we'd end up with supplemental agreements across 5 all of Edinburgh. 6 He listened carefully and said: get it sorted. 7 Q. Get it sorted? 8 A. Get it sorted. 9 Q. What did you take that to mean? 10 A. I took it, get it sorted or else. 11 Q. The "or else" being ...? 12 A. That I might be removed from tie, and tie might be 13 removed. I talked about values and standards, the fact 14 that we'd already paid substantial sums to Infraco. And 15 he said: you're not mediating properly. I said: this is 16 not a case of mediation, this is a case of being held to 17 ransom. 18 Q. What was Mr Swinney's response to that? 19 A. Get it sorted. 20 Q. Did he -- 21 A. I went back to the office, sat down with my senior 22 colleagues, and we discussed that and possible 23 solutions. And Alastair Richards, one of our 24 executives, said: we could deal with Princes Street 25 purely in isolation on a demonstrable cost basis, 96 1 providing we have supporting time and labour sheets; the 2 contract allows us to do that, and that might help to 3 get rid of the logjam. 4 I cannot over-emphasise how sensitive Princes Street 5 was to Edinburgh, to retailers, to tourists, to the 6 country. 7 So very reluctantly, I picked up the telephone and 8 phoned Dr Jochen Keysberg, and said: we need to break 9 the deadlock on Princes Street; as a one-off, I suggest 10 we deal with Princes Street on a demonstrable basis, by 11 time and labour sheets; I think we should put our two 12 teams together and metaphorically lock the door until 13 they come up with a Supplemental Agreement which we both 14 support. 15 He was quite receptive to that, and we duly did 16 that, and we got a solution to Princes Street. I have 17 to say that I personally was very unhappy at having to 18 do that because I didn't think it was justified. But 19 sometimes your own personal standards have to be 20 overtaken by other considerations. 21 So we went ahead with it and in actual fact after 22 the solution was publicised and the work started, 23 Mr Swinney phoned me at home one Saturday afternoon to 24 thank me on achieving a major breakthrough. 25 Q. When he said: get it sorted; that was, I think, after 97 1 you'd outlined to him that you felt the matter should 2 just stay under the current contract. Have I understood 3 you correctly? 4 A. I have no doubt he was saying: get it sorted, do 5 whatever you have to do to get it sorted. 6 Q. Was there discussion about whether or not getting it 7 sorted was going to cost additional money for tie? 8 A. He wasn't interested in whether -- that's not true. 9 That was not part of the discussion. But it was implied 10 by me that getting it sorted was going to cost more 11 money. 12 In actual fact, you know, we paid 17.5 per cent 13 premium on the preliminaries, and their claim was 14 65 per cent. I think these are the numbers which are in 15 my witness statement. 16 Q. Mm-hm. 17 A. But that's not the point. We had a contract. And I was 18 disappointed that we stepped outside the contract. But 19 the pressure was enormous and I have to accept now it 20 was the right thing to do at that stage. Edinburgh was 21 at a standstill. Retailers were going crazy. Tourists 22 were going crazy. 23 Q. You've emphasised how important Princes Street is to 24 Edinburgh. Had there been discussion about which was 25 the first section of roadway to be done? You said there 98 1 was 1 kilometre available that they could work in. Was 2 Princes Street part of that kilometre? 3 A. No, it wasn't. 4 Q. So why did it come to be that Princes Street was the 5 focus of the dispute? 6 A. Because Princes Street was the major problem. Infraco 7 would -- they would only operate to a fixed programme of 8 work. So they wouldn't hop, skip and jump. Whereas 9 I believe a flexible contractor would have said: well, 10 we can't get access to X, Y, Z, so shall we move to A, 11 B, C? 12 Q. Who had chosen that the first on-street works should be 13 Princes Street? 14 A. I don't know. 15 CHAIR OF THE INQUIRY: Did you say that there was 1 16 kilometre that the consortium could work in or could not 17 work in? 18 A. Could not work in, Lord Hardie. 19 MR LAKE: Could you look at a letter, please. It's 20 reference CEC01009884. Enlarge the upper half of this. 21 You can see that this is a letter. It's dated 22 23 February 2009, and it's addressed to you as CEO of 23 tie at the time. 24 Do you recall this letter? 25 A. I think so, yes. 99 1 Q. If you scroll down, so we can look at the second 2 paragraph, I should say it's from Dr Keysberg. He says: 3 "Initially as I made quite clear in our meeting we 4 are not making and indeed never have made any demands 5 for GBP80 million. In fact we gave a range of the 6 likely additional costs being between GBP50 million and 7 GBP80 million. Likewise that the joint exercise carried 8 out between tie's and Infraco's planner identified an 9 agreed overrun of 16 months to the completion date. 10 These are the facts." 11 Where had the reference to GBP80 million arisen? 12 A. That is -- that is total nonsense. Very, very early in 13 meetings with Bilfinger, Richard Walker popped up at 14 a meeting in the tie building and said: look, we're 15 looking for somewhere between GBP50 million to 16 GBP80 million to complete -- X additional to complete 17 this contract, and that is the minimum we are looking 18 for. 19 Now, I was not in tie at that stage, but honestly, 20 I lost my temper. I was absolutely furious because we'd 21 already been gouged on the cost of steel and various 22 other factors. And here was another 50 to 80 million, 23 without any justification, without any detail, and he 24 wasn't prepared to give detail. 25 That is evidenced several times, these numbers, 50 100 1 to 80 million, told by Richard Walker to MSPs, leaked to 2 the press. I think last night I read a paper that we 3 gave to Mike Heath who did the Gateway Reviews, again 4 talking about the 50 to 80 million, and giving direct 5 evidence of his comments. 6 So Dr Keysberg is either being misled or is 7 misleading. 8 Q. If it was suggested that prior to contract signature the 9 consortium had said to Andrew Fitchie that it was going 10 to cost a very substantial additional sum, GBP50 million 11 to GBP80 million, and that he had passed that 12 information on to tie executives, were you ever made 13 aware of anything like that? 14 A. I certainly was not. 15 Q. Would you expect to have been made aware if that comment 16 had been made? 17 A. Not directly, but I would have expected tie to be told, 18 and I would then be told. 19 Q. If we go to the last paragraph of this letter now, on 20 this first page: 21 "Turning to the Princes Street area, we are not and 22 have never made it a condition to commencing works that 23 the above mentioned sums be agreed to. Clearly since 24 the sums mentioned above are largely estimated amounts 25 any prior agreement would simply not have been possible. 101 1 A matter that appears to have been misunderstood is the 2 fact that despite our contractual position, we had 3 offered in subsequent correspondence to commence work in 4 Princes Street under a clause 80.15 instruction. 5 Another very troubling matter to me is the apparent 6 firm belief by tie that this project is a fixed price 7 contract and that all the risks with respect to time and 8 remuneration are to be borne solely by the contractor. 9 Nothing could be further from the truth. As you know 10 Schedule 4 clearly sets out a long list of areas 11 expressly attributing liability for changes to tie. 12 Current progress on changes is protracted even on simple 13 and straightforward changes (for example Russell Road 14 Retaining Wall) and does nothing to reassure me that 15 other entitlements will be recognised without protracted 16 negotiation and subsequent disputes." 17 There's a number of things. Firstly, what did you 18 understand his concern to be regarding protracted 19 negotiations and subsequent disputes and what difference 20 did it make to their stance? 21 A. Sorry, could you ... 22 Q. What was the consortium's concern about protracted 23 negotiations and subsequent disputes that's referred to 24 at the end of that paragraph? 25 A. I think they were concerned that we were aggressively 102 1 managing the contract or trying to aggressively manage 2 the contract. 3 There must be a reply on record from me to that 4 letter. I can't remember my reply. 5 Q. I'm more just interested in knowing what your views were 6 as to the consortium position, if I can call it that. 7 A. I don't think the 50 to 80 million was directly -- 8 directly related to Princes Street. But it was a useful 9 other pressure point on us. 10 Q. In the first of the two paragraphs we looked at, the one 11 at the foot of the preceding page, the point was made 12 that the consortium weren't making it a condition to 13 commencing works that the GBP50 million to GBP80 million 14 was agreed to. 15 What was your understanding as to what the 16 pre-condition was for them starting works? What were 17 they seeking from you? 18 A. It was to proceed under a change in the contract. 19 A Supplemental Agreement. And they assumed that if we 20 did that once, there was a possibility that on-street -- 21 all on-street works would be dealt with on that basis. 22 Q. I think it's known that the works under the 23 Princes Street Supplemental Agreement cost substantially 24 more than it had been anticipated that the 25 Princes Street works would cost. Would you agree with 103 1 that? 2 A. Yes. We'd already paid for the preliminaries. We did 3 not expect to be held to ransom on Princes Street. 4 Q. So what I'm wondering is: on what basis did the 5 consortium claim that they were entitled to 6 a supplementary agreement or that there should be one? 7 A. Unforeseen underground conditions, I think was the 8 phrase that was used. 9 Q. So -- 10 A. But, you know, I mustn't beat around the bush here. 11 I have absolutely no doubt that Princes Street was 12 a tactic. A tactic to bring Edinburgh, tie and CEC to 13 our knees. And it almost worked. 14 Q. Had the Supplemental Agreement not been signed? 15 A. Yes. I think I have read somewhere that Dr Keysberg has 16 said that the dispute would have gone on for many, many, 17 many months. It had already been going for some time. 18 Edinburgh would have been the laughing stock of 19 Scotland, if not the world. 20 You know, later, and I'm not sure about chronology 21 here, later he said to me: you know, my advice -- it 22 could be earlier -- my advice to you, Mr Mackay, is to 23 close the contract down for two years; get design 24 finished and MUDFA finished; we will demobilise and 25 remobilise and we'll come back and we'll work quite 104 1 normally. 2 This was where only 1 kilometre of roadworks was 3 fettered. I think it was a ludicrous proposition to us. 4 I think that was very shortly after Willie Gallagher had 5 gone. 6 Q. What would the advantage be, or what was he saying the 7 advantage to tie would be in halting works for that 8 while? 9 A. Design would be complete. There would be no more 10 arguments. There would be no more additional costs. 11 Q. What would the advantage to the consortium be in going 12 away for two years and coming back? 13 A. I wonder what the price would have been when they came 14 back. 15 Q. So essentially it was -- there would have been 16 a re-tendering exercise or a re-pricing exercise anyway? 17 A. I don't think under tendering law, whatever the proper 18 legal thing is, we would have been allowed to do so 19 anyway. I think it would have caused problems with the 20 Tramlines bid and various other things. 21 But my own view is if that had happened, Edinburgh 22 would have been a mess for many, many years and to 23 recover from that would have been extremely difficult. 24 The damage to the economy, the damage to people, was 25 much more than anyone should even consider. 105 1 Q. We've seen that in the dispute as formulated for the 2 Dispute Resolution Procedure, it was really very narrow, 3 turning on the bus lane and the question of access to 4 the whole of the working area. 5 What information were you given about the 6 consortium's concerns as to the -- what was under the 7 road? When did that emerge? 8 A. First of all, the author of one of these letters, 9 Colin Brady and a colleague, I think Martin Foerder, 10 came to either a Tram Project Board or a tie Board to 11 talk about Princes Street and the bus lane. 12 If I remember rightly, I described the -- that 13 meeting, which is minuted, as amicable and encouraging. 14 That was not the case three months later. 15 Q. What had changed? 16 A. Do it our way or else. And the bus lane -- I put it to 17 you, here is the main avenue in Edinburgh. Under the 18 contract they were entitled to say: we don't have 19 exclusive access so we're not doing it. We were 20 arguing: we'll have a bus lane on the north side or the 21 east side for X, Y, Z weeks and then we will change it 22 on the other side. But we must keep people, traffic and 23 commerce moving. 24 They said no. 25 Q. Was there any consideration to simply saying: right, we 106 1 won't have the bus lane, get on with it? 2 A. Yes, there was. 3 Q. Did they indicate whether or not they would get on with 4 it in the absence of the bus lane? 5 A. No. 6 Q. What did they say? 7 A. I think by then they were hell-bent on getting very much 8 more out of Princes Street. 9 I'm sorry about my emotions here, but I still 10 have -- still very raw about that whole period. 11 Q. Was it articulated in express terms to you that: we will 12 not start work unless and until you give us 13 a demonstrable cost agreement. 14 A. No. To be fair, I went to them with that proposition 15 and they readily accepted it. 16 Q. Was there any investigation of what less might have been 17 sufficient to satisfy them by way of dealing with 18 unanticipated situations under the road? 19 A. I'm not an engineer, but I would have thought in a city 20 the age of Edinburgh, when you do your initial surveys, 21 you are well aware that the underground situation will 22 not necessarily be as is drawn on maps. And in fact, 23 I've read somewhere else from Dr Keysberg, I think 24 probably in the paper I was talking earlier, that he 25 said: we knew that Princes Street would be a mess; we 107 1 knew in advance there would be a lot of complications. 2 Q. If you knew there were going to be complications in 3 Princes Street, did that apply also to the remainder of 4 the on-street works? 5 A. No. I think Leith Walk had its own peculiar problems. 6 That there was a leper cemetery, there were various 7 other problems in there, unforeseen circumstances, which 8 caused all sorts of delays. And rightly, in many 9 respects, caused delays. 10 Q. You've outlined -- 11 A. But elsewhere building a tram network, putting 12 tramlines, was simple. The route from airport to 13 Haymarket, simplest place in the world to build 14 tramlines. They chose not to work there. 15 Q. And why did they say that was? 16 A. We have a structured plan which we agreed. We've 17 mobilised our contractors which they hadn't formally 18 done. And they said: that's the way we're doing it. 19 Now, I'm -- the simple Mackay would say a willing 20 contractor would be flexible. I thought they were very 21 unwilling and very inflexible. 22 Q. Once they had concluded the Supplemental Agreement in 23 relation to Princes Street, did that have an impact on 24 getting other on-street works done? 25 A. It suddenly appeared that we were getting more activity, 108 1 and there was a certain euphoria about Edinburgh that 2 I hadn't seen for a long time. It wasn't messy. There 3 was a prospect of Princes Street re-opening. There 4 seemed to be more activity out and about. 5 But bingo, within a matter of months the 6 abbreviation OSSA cropped up. On-street Supplemental 7 Agreement. 8 And the strategy was that they required on-street 9 Supplemental Agreements elsewhere, wherever there was 10 some sort of complication. 11 Q. Now, what effect did the Princes Street Supplemental 12 Agreement have on the position you could take with the 13 consortium in relation to the general on-street 14 Supplemental Agreement? 15 A. I made it perfectly clear to Dr Keysberg, and to our 16 people, that this was a one-off Supplemental Agreement, 17 that we had a contract, we should ensure that the 18 contractor stuck to the contract, and we should use 19 everything in our power in the contract to try and 20 enforce that. It was a one-off and I never had any 21 intention -- sorry, we never had any intention of having 22 further supplemental agreements. 23 Q. I think we've heard evidence that there was a draft of 24 an on-street Supplemental Agreement -- started to be 25 discussed and developed, although never signed. 109 1 A. It wasn't agreed by me. 2 Q. May I ask why you didn't agree that? 3 A. Am I perhaps not being vehement enough about my views 4 that we had a contract and there was a one-off -- 5 one-off -- Supplemental Agreement to break an impasse, 6 and that was it. 7 Q. Turning then to what was done in relation to the 8 contract once this impasse had developed, that's the 9 consortium saying they want an on-street Supplemental 10 Agreement, what was your role in the strategy that was 11 pursued thereafter? 12 A. By then we had -- I think with the help of Brandon Nolan 13 of McGrigors, brought a chap called Tony Rush who was an 14 expert in Dispute Reconciliation. He was a complex 15 character, very difficult to manage. But he had much 16 wider experience than anybody else in our organisation. 17 We started launching DRPs. We clearly knew that not 18 all of these would be won. Not all of them would be 19 lost. In actual fact many of them resulted in very 20 significant reductions to the claims being made by the 21 consortium. 22 We also -- we, through Tony Rush, introduced RTNs. 23 So we were applying the contract very aggressively, 24 and I believe that that was making the -- Infraco 25 uncomfortable. 110 1 Q. What was the intention behind applying the contract 2 aggressively? 3 A. To either get them to be more flexible or to get out. 4 Q. Was there any sign of any more flexibility? 5 A. A little. But it wasn't significant enough. 6 Q. You've given us before your views as to whether or not 7 they might have got out if left long enough. 8 A. We had hearsay that they wanted out, and there was 9 a price to get out. By then Richard Jeffrey had been 10 appointed and was Chief Executive, and he was leading 11 that along with Tony Rush and Brandon Nolan, and we had 12 advice from Richard Keen QC and various other people. 13 In fact a lot of expensive advice all round, which was 14 justified though. 15 Q. Your role by this time had returned to that of Chairman? 16 A. Yes. 17 Q. What practical role did you take in relation to either 18 the Notices to Terminate, the DRP, or the attempts to 19 enforce the contract? 20 A. I was aware of all of them. I listened to 21 presentations -- listened and watched presentations from 22 Tony and Brandon Nolan and others. I had -- and again, 23 I'm not sure of the chronology. I had forcibly 24 persuaded Andrew Fitchie to bring in another senior 25 lawyer to help him, because I felt we were being 111 1 out-muscled in meetings with the consortium, and 2 somebody called Stuart Jordan was brought in from the 3 London office. 4 So we were beefing up that whole part of our 5 operation. So I was supportive. I was a non-Executive 6 Chair, but very much involved in the discussions, and in 7 the approval process. 8 Q. You referred there to bringing in an additional lawyer 9 from DLA. Were you involved in the decision to engage 10 McGrigors to provide advice to tie? 11 A. I wasn't directly involved in that. I'd met 12 Brandon Nolan and I was very impressed by his -- his MOD 13 on the DRPs, his feedback. I thought he was incisive 14 and he communicated with greater clarity. 15 Q. I want to turn to the -- come to the Dispute Resolution 16 Procedures in a moment, but just dealing with the -- 17 your involvement through the Tram Project Board as all 18 of these things unfolded, how were the Tram Project 19 Board briefed as to what was happening? 20 A. By me, by Richard Jeffrey, by the Project Director and 21 by Finance Director. 22 Q. We've heard that PowerPoint presentations were given to 23 the Tram Project Board. 24 A. Yes. 25 Q. How much information in your view was provided in those 112 1 presentations as opposed to being in papers that were 2 circulated in advance? 3 A. PowerPoint presentations were summaries of the Board 4 papers. So the Board papers were, I think, issued 5 a week or so before the Board meeting. 6 So a diligent director would have done his homework 7 and when it came to the PowerPoint presentation, he 8 would have recognised. He would have also anyway have 9 had his questions prepared in advance of the PowerPoint 10 presentation. 11 I don't want to give the impression that these TPB 12 meetings were nodding donkeys. There was some very 13 aggressive questioning and discussions with them. They 14 were very active meetings. I made a point of making 15 sure I knew exactly what our Directors were going to say 16 and how they were going to present long before the Board 17 meeting took place. And we would analyse afterwards how 18 successful or less successful a Board meeting might have 19 been. 20 Q. If the PowerPoint presentations were summaries of the 21 papers, that would give the impression that they weren't 22 providing additional information over and above the 23 papers; is that -- 24 A. Sorry, I didn't mean to give that impression. They 25 would be given topical information. 113 1 Q. Brought up to date? 2 A. It was dynamic. 3 Q. Did you take a decision -- were you involved in taking 4 a decision as to how much information was to be included 5 in the Tram Project Board papers at each meeting? 6 A. I was closely involved in it. I mean, I often commented 7 that it was -- some of the papers were very onerous. 8 Q. Yes. 9 A. But I think you have to start with the full pack and 10 allow people to distil beyond that. 11 Q. Was your impression that the members, particularly the 12 councillors and the non-executive members, had read and 13 were on top of the information provided to them? 14 A. The professional non-Executive Directors were top 15 drawer. First class. They had done their homework. 16 They were being paid and they were a great asset. 17 I think it would be unfair to imagine that the 18 councillors on the Board had the same appetite to pore 19 through the papers in detail, and they would depend more 20 on summaries. 21 I also, I think I have commented that we had lots 22 and lots of graphs and schematics and charts, et cetera, 23 et cetera. I don't think many of the Directors went 24 through these in any great detail, including myself. 25 Q. For example, if there were graphs showing the slippage 114 1 in design, are you saying that they generally wouldn't 2 have been gone through in detail? 3 A. I think the words were stronger than the graph in terms 4 of the slippage in design. 5 Q. If there were table reports each month of what 6 percentage of Infraco works or of MUDFA works had been 7 completed, were they considered in any detail? 8 A. It was always a concern. 9 Q. A concern. That doesn't quite answer the question. 10 Were they considered in detail to see exactly where 11 things stood? 12 A. The Project Director would be questioned by the Board, 13 by individuals. 14 Q. I want to turn now to the Dispute Resolution Procedures 15 that took place, in particular the adjudications. 16 You've already said in an answer to me that it wasn't 17 the view that it was assumed that all of them would be 18 won. 19 What was the process for identifying which matters 20 should be taken to adjudication and Dispute Resolution 21 Procedure? 22 A. I think that's probably Richard Jeffrey and Tony Rush 23 and Steven Bell. And Brandon Nolan and/or DLA. 24 Q. Do you know which issues were identified, how 25 a particular issue was the one that should go as opposed 115 1 to one that shouldn't? 2 A. I think there was a priority list of what the major 3 blockers were. 4 CHAIR OF THE INQUIRY: You said that the decision would be 5 a combined one involving Brandon Nolan or DLA. Did you 6 ever think there was any issue or difficulty with having 7 different firms involved in the same matter? 8 A. Lord Hardie, I thought that McGrigors or Brandon Nolan 9 brought a different complexion to the advice we were 10 getting. 11 CHAIR OF THE INQUIRY: Yes, I understand you said that, but 12 was there any difficulty in having DLA and McGrigors 13 involved in the same general issue of the disputes? 14 A. I didn't see it as a difficulty, Lord Hardie. 15 CHAIR OF THE INQUIRY: Thank you. 16 MR LAKE: If the intention was to identify major issues that 17 were blockers and it was accepted that some of them 18 might not be won, was there a plan B as to what would 19 happen if tie started to lose on major issues? 20 A. If I have given you the impression we were setting off 21 on the premise that we wouldn't win them all, but we 22 should continue with them, that wasn't -- we set out 23 with the best possible advice from various sources, that 24 we had a very good chance of winning or having a major 25 reduction of the claims that Infraco was making. 116 1 Q. Did you have any discussion on what to do if decisions 2 went against you on these matters of principle? 3 A. We had an opportunity to appeal the decision if we 4 thought the adjudication had been unrealistic or 5 illogical. But we wanted to, quite frankly, roll out as 6 many DRPs as possible in a short period of time, to 7 exert more pressure on Infraco. Justifiably. 8 Q. So you've referred to getting decisions on matters that 9 were important of principle, and also applying pressure 10 to the consortium. Were there other reasons for 11 instigating DRPs that you're aware of? 12 A. Ancillary reasons. Nothing that ... 13 Q. I think we have heard that the decisions of the 14 adjudicators were not provided to the Tram Project 15 Board. Is that your understanding? 16 A. Yes. 17 Q. Were you involved in that decision? 18 A. I agreed with it. 19 Q. We've also heard that the decisions were not provided -- 20 decisions themselves were not provided to councillors. 21 A. I agreed with that too. 22 Q. Why did you agree with both those decisions? 23 A. I was worried about leaks on the DRPs and the associated 24 legal advice. 25 Q. These DRPs were reporting the outcome of Dispute 117 1 Resolution, so would be already known to the contractors 2 by definition. Would you agree? 3 A. Yes. 4 Q. So to whom were you concerned they would leak? 5 A. I just -- I did not like material being leaked from tie. 6 When I say I, we didn't want material leaked from tie. 7 Q. Was it in order to keep quiet that tie were in fact 8 losing these adjudications? 9 A. No, not at all. That is not the case. 10 Q. I'm just trying to understand what harm then could come 11 from the terms of an adjudication being known to 12 a councillor, for instance. 13 A. I think it was a perception that it would cause harm. 14 Q. Looking back at it, are you able to identify whether or 15 not in fact there would be any harm? 16 A. I find it difficulty -- find it difficult to look back 17 with a calm view on that period of my time at tie. 18 Q. If I ask you to do so, can you find -- identify any harm 19 that would be caused by the release of an adjudication 20 decision already known to the consortium? 21 A. No. 22 Q. You say in your statement -- to show you the passage, 23 could we look at page 92. If we could look at 24 paragraph 332 there. You note on the second and into 25 the third line that the instructions were reported in 118 1 "full detail" to the Board. I think that's the Tram 2 Project Board. 3 What do you mean by "full detail"? 4 A. That's an incorrect use of the word "full". They were 5 summarised. 6 Q. Do you consider them accurately summarised? 7 A. I remember saying in my statement that one adjudication 8 in particular, the narrative was clumsy and certainly 9 didn't say at the very beginning: tie have lost this 10 adjudication. You had to pore into the detail, 11 and I accept that one in particular was -- could have 12 been misleading. 13 Q. I think what you're referring to there were the -- it 14 didn't give the statement it had been lost. There was 15 a report prepared by DLA that had been sent to the 16 Council. 17 A. Yes. 18 Q. And subsequently you obtained a report, a further report 19 by Shepherd & Wedderburn solicitors, to consider the DLA 20 report? 21 A. Yes. 22 Q. One of the things they noted was that there hadn't been 23 a frank statement that it had been lost? 24 A. Yes. 25 Q. Is that what you're referring to? 119 1 A. Yes, I am. 2 Q. What I'm more concerned with now is what was in fact 3 going to the Tram Project Board all along. Did you 4 consider that that was accurate? 5 A. Yes. 6 Q. I would like to look at that a little bit further then. 7 Could we look at Tram Project Board minutes. Could we 8 go to document CEC00681328. You will see that this 9 is -- these are, I should say, the papers for the Tram 10 Project Board meeting that took place on 11 18 November 2009. 12 A. Yes. 13 Q. Could we look at page 12 of this, please. I'm just 14 looking at this to identify, this is the page where we 15 see the start of the Project Director's report in the 16 papers. That was a common feature of the papers, wasn't 17 it? 18 A. Yes. 19 Q. If we go forward on to the next page, and enlarge the 20 foot of the page, under the heading, "Progress", there's 21 a sub-heading, "Dispute Resolution (Infraco)". It's 22 reported: 23 "At the end of Period 8, only three items remained 24 in dispute with BSC. The first decision in relation to 25 DRP3 was reached by adjudication and found in tie's 120 1 favour. Agreement was reached without furthering the 2 DRP process on Haymarket Viaduct and MUDFA Revision 8 3 and agreement was reached on EOT1 at mediation. The 4 agreement on the way forward on MUDFA Revision 8 is 5 significant as with it comes a commitment from BSC to 6 produce a mitigated programme and commence work in 7 a number of additional locations." 8 Then over the page we see a table provided. We can 9 see that in relation to two in particular, 5a and 5b, 10 Gogarburn and Carrick Knowe, it's simply noted that the 11 decision was outstanding? 12 A. Yes. 13 Q. I think that's because although the decision is noted as 14 being due on 16 November, although this meeting was on 15 18 November, this report would have to be prepared some 16 time in advance; would that be correct? 17 A. Yes. 18 Q. Could we follow these two through, please, and look at 19 the December papers. That's CEC00416111. 20 We can see that this is the set of papers for the 21 Project Board meeting on 16 December 2009. Do you see 22 that? 23 A. Yes. 24 Q. Go firstly to page 5. We can see the minutes of the 25 previous meeting, that's the meeting of 121 1 18 November 2009. 2 A. Yes. 3 Q. I take it was common practice always to include the 4 minutes of the previous meeting so they could be 5 approved? 6 A. Yes. 7 Q. If we look at the following page, please, right at the 8 foot of the page, we can see that under the heading 9 "Strategic Summary", that it says: 10 "RJ provided the Board with a report on the outcome 11 of the decisions from the Adjudicator on the 12 Carrick Knowe and Gogarburn Bridge (BDDI to IFC design 13 development) matters. 14 A full review of this determination is underway 15 and it was noted a decision on the Russell Road DRP item 16 is scheduled for 17 December and that papers are due to 17 be submitted to (a new) Adjudicator on 19 November 2009. 18 KH [Kenneth Hogg] asked if tie's interpretation of 19 the contract has changed through the evolution of this 20 process, and queried whether a review of the strategic 21 direction of the DRP is necessary. The Board discussed 22 at length a number of matters including interpretation 23 of the contract, both from a legal and technical 24 perspective, as well as the strategic direction of 25 further submissions to the formal process. It was 122 1 reiterated that it is too early in the process (for 2 either party) to establish precedence at this stage in 3 the process, and it was agreed that the current strategic 4 direction should continue." 5 Now, although it's not noted precisely what the 6 outcome is there, on the issue of principle as to 7 whether or not there had been a Notified Departure, tie 8 had been unsuccessful; is that fair comment? 9 A. I don't remember the particular details of that, but I'm 10 sure if you say that is the case, and we haven't used 11 it, that is fair comment. 12 Q. Was there a reason for not including within the minutes, 13 a summary of what the outcome had actually been, that 14 tie had been unsuccessful on the issue of principle? 15 A. I'm not aware of any reason that would justify that. 16 Q. Do you recall the discussion that took place way back in 17 December 2009 regarding the outcome of these decisions? 18 A. Yes, I'm not suggesting I don't remember the 19 discussions. I think very shortly after that we were 20 picking up on Kenneth Hogg's comments and taking 21 a decision that we should probably drop DRPs. That's my 22 recollection from there. 23 Q. So do I take it from that there was a concern at the 24 Tram Project Board that this adjudication had not 25 produced the result that tie sought? 123 1 A. Yes. 2 Q. If we can go to later within the same set of papers, and 3 in particular to page 47, this is in -- it would 4 probably be easier if I started at page 45 to provide 5 some context. 6 We can see here, period 9 Transport Scotland report, 7 Sections 2 to 7: 8 "On following pages are Sections 2 to 7 of the 9 Transport Scotland report (Section 1 is the Project 10 Directors report)." 11 Was the practice that the Tram Project Board always 12 got sections 2 to 7 of the same report that had gone to 13 Transport Scotland? 14 A. Yes. 15 Q. This is what we're seeing in this part of the papers and 16 further on? 17 A. Yes. 18 Q. If we go to page 47, please, we can see that at the end 19 of period 9, only one item remained in dispute at BSC. 20 This relates to Russell Road, and the decision was due 21 on 18 December 2009. In relation to the two that have 22 come out, Gogarburn and Carrick Knowe, all that's noted 23 is the decision is made and is under review. 24 A. Mm-hm. 25 Q. Can you recall what that review consisted of? 124 1 A. No, I'm sorry. I don't. 2 Q. We will see, looking at what was going here to 3 Transport Scotland, if we scroll down the page, we can 4 see at the foot of the page, there's reference to 5 outturn costs, and the fact that it couldn't be reported 6 more accurately until the contractual issues are 7 resolved. Do you see that? 8 A. Yes. 9 Q. Over the page, it begins by noting: 10 "It is also not possible ... to predict the 11 conclusions of reviews of contingency option programme 12 delivery options ..." 13 Then it goes on to consider the instruction of works 14 under Clause 80.15. That is particularly in relation to 15 the Carrick Knowe Bridge and Russell Road Bridge. 16 A. Mm-hm. 17 Q. Reading further down, we can see reference to work 18 commencing at some particular locations. Six of them 19 are mentioned. 20 In bold it notes that there's a timetable for 21 resolution of contract disputes, and in the final 22 paragraph, that: 23 "Regular briefings will be provided to both CEC and 24 Transport Scotland to keep them updated ..." 25 Do you see that also? 125 1 Nothing is said in this report as to what -- apart 2 from it is going to Transport Scotland, as to what the 3 outcome of the Gogar bridge and Carrick Knowe was, 4 and I wonder, do you know what the reason for that was? 5 A. No, I don't. But I would be astonished if 6 Richard Jeffrey hadn't told Transport Scotland the 7 outcome of these decisions. 8 Q. Do you think it would have been useful for it to have 9 been reported in writing to them, so they had a written 10 record of what the outcome was? 11 A. I accept that. 12 Q. Can we look, please -- we are going to look at another 13 project, my Lord. We could break there if that is 14 convenient? 15 CHAIR OF THE INQUIRY: We will break for lunch now, 16 Mr Mackay, and resume again at 2 o'clock. 17 A. Thank you. 18 (1.00 pm) 19 (The short adjournment) 20 (2.00 pm) 21 CHAIR OF THE INQUIRY: Good afternoon. You're still under 22 oath, Mr Mackay. 23 MR LAKE: Mr Mackay, just before we broke for lunch I was 24 about to start looking at the papers for the 25 January 2010 Tram Project Board. If we look, please, at 126 1 CEC00473005. This is the pack of papers for the meeting 2 that was to take place on 13 January 2010. Could we 3 look at page 12. 4 If we enlarge the upper half of the screen, we can 5 see under the sub-heading "Dispute Resolution", it 6 notes: 7 "At the end of Period 10, there are no matters under 8 formal DRP at present. A decision on the Russell Road 9 retaining walls issue was determined on 4 January 2010. 10 The next series of five DRP items are planned for 11 release week commencing 11 January 2010." 12 Can you recall what the Russell Road DRP concerned? 13 What was the point of it? 14 A. I just remember it was something to do with retaining 15 walls. It was crucial in terms of progress for the 16 contract. 17 Q. Can you recall what the point of principle was, or if 18 there was indeed a point of principle? 19 A. I cannot recall what the point of principle was. 20 Q. There's a reference there, in the third sentence I read, 21 that: 22 "The next series of 5 DRP items were planned for 23 release week commencing 11 January." 24 You mentioned earlier that at some time a decision 25 was taken to stop referring matters to DRP. Was that 127 1 later than this that came about? 2 A. According to that text, it must be. 3 Q. Could we go on, please, and look at page 47 of this same 4 document. We can see the heading, "Dispute Resolution", 5 and the text underneath it, it notes: 6 "To date five number disputes have been referred to 7 DRP by tie (Hilton Car Park, EOT1, Carrick Knowe Bridge, 8 Gogarburn Bridge and Haymarket Viaduct). Agreement has 9 been reached on Hilton (Adjudicator awarded in tie's 10 favour) and commercial settlement has been reached on 11 Haymarket (BDDI to IFC) and EOT1. In the period we 12 received the Adjudicator's response for the DRPs raised 13 by tie against Gogarburn and Carrick Knowe Bridge, the 14 Adjudicator found largely in favour of the position 15 taken by BSC. tie's response to the Adjudicator's 16 decision remains under review." 17 I think you said you can't recall the details of 18 what that review included; is that correct? 19 A. I'm trying not to be unhelpful, but I really can't 20 remember the particular details of that. 21 Q. It goes on then to say: 22 "BSC have so far referred two number disputes to DRP 23 (Russell Road Retaining Wall and delays associated with 24 the MUDFA Revision 8 programme). Agreement has been 25 reached with respect to delays associated with the MUDFA 128 1 Revision 8 programme. The Adjudicator's decision 2 against Russell Road was received on 4 January 2010 and 3 will be reported in Period 11. A significant saving 4 resulted (in excess of GBP400,000) on the estimate 5 presented by BSC and the adjudicator agreed with tie on 6 many of the principles in dispute." 7 Now, do you recall at all the decision in relation 8 to the Russell Road retaining wall? 9 A. I don't. 10 Q. When you said for the purposes of your statement that 11 you regarded that the adjudications were reported in 12 detail, did you have a chance to compare statements such 13 as this against the adjudication decisions? 14 A. Yes, I think when the Board read that, they would ask 15 questions, asking for greater detail. 16 Q. Do you recall that or are you supposing that? 17 A. No, I'm supposing that. 18 Q. Are you able to offer any view as to whether or not, 19 taken as it stands there, that is a full or accurate 20 reflection of the outcome of the Russell Road 21 adjudication? 22 A. I don't think that is a full explanation of that 23 adjudication. But, you know, the Board weren't tame 24 pussy cats. They were intelligent people who would ask 25 questions. So I'm quite certain that questions were 129 1 asked. But I have no evidence of that. 2 Q. We see there it's noted that it would be reported in 3 more detail in the next period, period 11. If we go to 4 the pack for that, it's reference CEC00474418. 5 We can see these are the papers for the meeting on 6 10 February 2010. 7 A. Yes. 8 Q. If you go to page 28, please. We can see the heading, 9 "Dispute Resolution". The text says: 10 "A summary of the DRP process at the end of 11 Period 11 and outcomes is presented below." 12 We can see a table that we've seen in earlier 13 reports. Do you see that? 14 A. Yes. 15 Q. If you look over the page, if you just take a chance to 16 look through that, read through that text until we get 17 down to the commercial update on MUDFA, all I'm going to 18 ask you: is it in fact the case that there's no further 19 information given about the Russell Road adjudication? 20 A. I don't see anything further, no. 21 Q. Whatever was happening at the Tram Project Board, 22 insofar as we're looking at the papers that went to 23 Transport Scotland, it's clear that they weren't being 24 given the complete picture in these reports? 25 A. I can't dispute that based on the papers you have 130 1 produced. I've got absolutely no doubt that verbally 2 they would be brought bang up to date. 3 Q. But that's something you are basing on -- you assume 4 would have happened, rather than having any record of it 5 having happened? 6 A. I don't have a record, but I knew my Chief Executive, 7 and he was very close to Transport Scotland. 8 Q. Chief Executive of? 9 A. tie. 10 Q. Richard Jeffrey? 11 A. Yes. And I've got absolutely no doubt that there is no 12 way he would try to disguise the outcome of a DRP in any 13 shape or form. 14 Q. Is there a reason then why it's not being stated clearly 15 in writing in the reports to Transport Scotland and the 16 Project Board? 17 A. I can't give you an explanation for that. 18 Q. If we could look, please -- jump forward to the August 19 paper. It's CEC00013703. Do you see there's a pack of 20 papers for August 2010? 21 A. Yes, I do. 22 Q. Can you look at page 34. Enlarge the lower half of the 23 page. 24 Above the table it notes: 25 "The decision on the Murrayfield (Clause 80.13/34 131 1 instructions) DRP was also received. This gave some 2 useful interpretation of these clauses in respect of 3 known Notified Departures which tie has reviewed and is 4 issuing further instructions to BSC in respect of this 5 interpretation." 6 Do you recall this DRP? 7 A. I know there was a DRP on Murrayfield. But quite 8 frankly, you are asking me detailed questions which I'm 9 not able to answer. 10 Q. So are you really able to say whether or not what is 11 stated there is a report in detail of the outcome of 12 that adjudication? 13 A. I can read what it says, but I can't give you the 14 explanation you're obviously looking for. 15 Q. I'm interested that you have said in your statement -- 16 your choice of words -- that these were reported in 17 detail. 18 A. I think there's a difference in written text and verbal 19 reporting. And I don't think you're accepting that 20 there is. 21 Q. Is your position then that, first of all, dealing with 22 the reported, the written reports, do you regard them as 23 being detailed? 24 A. These written reports are not detailed enough. 25 Q. So in what form was the more detailed information 132 1 provided? 2 A. I think summarised by the Tram Project Director, and he 3 would respond to questions from the Board. 4 Q. That of course leaves no record of what has been said? 5 A. If it's not minuted, there isn't. 6 Q. Okay. 7 Did you have any view as to whether or not the 8 contract permitted the disclosure of Dispute Resolution 9 decisions outside the company? 10 A. No, I didn't have a view on that. 11 Q. You mentioned earlier, before the lunch break, that 12 decisions were taken in respect of -- the avenue of 13 remediable termination notices was pursued. Did you 14 have any involvement in that at all? 15 A. On a fringe basis. 16 Q. What do you mean by that? 17 A. I would be advised by Richard Jeffrey, Tony Rush, and 18 perhaps Brandon Nolan what we were doing and why we were 19 doing it, but I wasn't directly involved. 20 Q. Jumping back to the DRPs for one moment, were you aware 21 of advice being sought from Counsel, and in particular 22 Richard Keen, in relation to that matter? 23 A. Yes. 24 Q. Do you recall what the general tenor of that advice was 25 in relation to the BDDI/IFC issue? 133 1 A. I think it wasn't all that helpful to us. 2 Q. Did that cause you to change -- did that cause tie or 3 the Tram Project Board to change the approach it had 4 pursued to that date? 5 A. I think it increased the time -- encouraged us not to 6 follow up on any more DRPs. 7 Q. In relation to that issue? 8 A. Yes. 9 Q. Do you recall -- I should ask to you look at it, 10 please -- a document CEC00591754. You can see that this 11 is a report from McGrigors solicitors, dated 12 23 March 2010, in relation to contractual issues 13 concerning the Edinburgh Tram Project. 14 Do you recall seeing this at the time? 15 A. I think so. 16 Q. Do you recall the general tenor of this report and the 17 effect it had on the strategy being adopted by tie? 18 A. No, I don't, but I wouldn't mind reading some more of 19 it. 20 Q. Certainly. We can go to the second page of this. If 21 you go to page 5, first of all, looking at the Executive 22 Summary, could we enlarge paragraph 1.5 and 1.6. 23 This is just an executive summary, but there it 24 notes that: 25 "Whilst there is a stateable argument that something 134 1 has gone wrong with the wording ..." 2 I should say that's the wording regarding design 3 development: 4 "... this meets only part of the required test. 5 What is also required is to determine the result which 6 must rationally have been intended, and to propose the 7 wording that would achieve that result. Whilst that may 8 appear straightforward, it is an extremely difficult 9 exercise. That exercise is not assisted by the factual 10 background which has been presented in relation to the 11 execution of the Wiesbaden Agreement. This issue is 12 still under consideration by McGrigors LLP in 13 conjunction with Richard Keen QC. 14 Richard Keen QC has reviewed the sections of the 15 report which deal with Pricing Assumption number 1 and 16 he concurs with the views expressed." 17 Do you recall that advice? 18 A. That is familiar. 19 Q. What difference, if any, did that make to the approach 20 being adopted by the company? 21 A. I think it demonstrates that we were getting or trying 22 to get the best possible advice in a very difficult 23 situation. 24 Q. Once you had this advice, what difference did it make to 25 the approach you took? 135 1 A. If the advice was conclusive, we would drop DRPs. 2 I remember in particular one DRP, very intimately, 3 and I think it was Lord Dervaird's judgement. 4 Q. That's the Murrayfield one, yes. 5 A. We had very strong advice from McGrigors that we'd 6 a good case, and when the judgement came through, we were 7 all shattered by the judgement. 8 Q. Now, that judgement concerned whether or not -- we saw it 9 referred to in an earlier minute -- whether or not works 10 could be instructed to proceed under Clause 80.13 and 11 Clause 34.1. Is that your understanding? 12 A. I think so. 13 Q. Once you got the negative result from Lord Dervaird, 14 what result did that have on the strategy being adopted 15 by tie? 16 A. It put some doubt on our interpretation, obviously. 17 Q. The doubt on the interpretation, what difference did it 18 make to the strategy you were pursuing? 19 A. I think to stop DRPs and to move on to something else. 20 Q. We've seen advice from McGrigors earlier in the year 21 regarding the design issue, BDDI to IFC. Pricing 22 Assumption 1. 23 Was that regarded as negative advice or are you 24 aware, was that matter pursued further? 25 A. I think I have said to you before, there were many 136 1 interpretations of that clause. 2 Q. Yes. 3 A. None really definitive. Some quite confusing. 4 Q. So did at some stage you decide to stop pursuing 5 disputes over Price Assumption number 1? 6 A. I think we did. 7 Q. What caused that? What finally made tie decide to stop 8 pursuing that? 9 A. I think probably the weight of opinion. 10 Q. Once you had a weight of opinion that caused you to stop 11 challenging that, stop disputing that, where did that 12 leave tie in relation to the liability for design 13 changes? 14 A. In a difficult position. 15 Q. It left tie in a position where they were facing an 16 extremely large potential liability? 17 A. Could you repeat that, please? 18 Q. It left tie in a position where they were facing an 19 extremely large potential liability? 20 A. Yes. 21 Q. So leaving aside the question of whether or not they 22 could compel works to start, what discussion was there 23 of what would have to be done to meet that liability? 24 A. I can't remember that discussion. We had a risk pot. 25 Q. Was there analysis as to whether or not the risk pot 137 1 would be sufficient to meet that liability? 2 A. No, because I don't think you could quantify what the 3 liability was. 4 Q. If you were running a limited company and you have an 5 unquantified liability, does that not affect the ability 6 of the company to carry on its business? 7 A. I think you are talking to a non-executive chairman who 8 was not involved in depths in these areas. 9 Q. You were facing a large liability? 10 A. Yes. 11 Q. Did you know how large it was? 12 A. No. 13 Q. You had finite funds? 14 A. No, we didn't have finite funds. 15 Q. In what sense did you not have finite funds? You were 16 proposing to draw further and further on the Council? 17 A. Well, that was a possibility, yes. 18 Q. Where else were funds going to come from? 19 A. Well, Transport Scotland had already said not a penny 20 more. 21 Q. Correct. So where were the funds going to come from? 22 A. So the next thing to look at was truncating the 23 programme. 24 Q. Was that looked at when you decided to stop pursuing the 25 Pricing Assumption 1 arguments? 138 1 A. I can't give you the exact chronology on that. 2 CHAIR OF THE INQUIRY: Can I just go back to the question. 3 You were asked if you had finite funds and you said you 4 didn't have finite funds. So eventually the response 5 seemed to be that you could truncate the programme. 6 How does that affect the funds that are there? 7 A. Hopefully we could get -- the plan would have been to 8 get a shorter tramline for monies that were available, 9 Lord Hardie. 10 CHAIR OF THE INQUIRY: I appreciate that, but did you or did 11 you not have finite funds? Because if you had funds 12 that were restricted to the shorter line, that might 13 suggest you did have finite funds. 14 A. I think we had finite funds unless the city were 15 prepared to give more money. 16 MR LAKE: I think the point is, is it not, that in the 17 absence of any indication from the city that they would 18 be willing and able to provide further funds, and now 19 that you had -- you were no longer going to pursue an 20 argument which meant there was this large liability, did 21 that not present an immediate crisis to tie that it had 22 liabilities for which it didn't have funds? 23 A. I don't think tie viewed it in that form. 24 Q. In what form did they view it then? 25 A. I'm struggling to give you an answer to that. 139 1 Q. I would just like to go back to a couple of matters 2 which I touched upon earlier, one of them relating to 3 the question of the Princes Street Agreement. You have 4 explained to us that after a discussion with 5 Alastair Richards, you made contact with the contractors 6 and suggested a Supplemental Agreement solely for 7 Princes Street -- 8 A. Yes. 9 Q. -- whether you would be paid on a demonstrable cost 10 basis? 11 A. Yes. 12 Q. I referred you earlier to the terms of the original DRP 13 dispute statements which showed quite a -- on the face 14 of them, a narrow dispute? 15 A. Mm-hm. 16 Q. What I'm interested in is what caused you to make such 17 a big offer switching to a demonstrable cost agreement? 18 How had you got from the initial dispute to the need for 19 the new agreement? 20 A. I thought I'd explained that at a meeting with 21 John Swinney, he made it perfectly clear that I had to 22 get it sorted out. 23 Q. John Swinney told you you had to get it fixed, and 24 you've also emphasised, and I can understand why, the 25 importance of Princes Street to Edinburgh. This was 140 1 causing problems to the retailers and others in the city 2 centre. 3 But in the initial phase, if you were faced with 4 a dispute which, on the face of it, is over as little as 5 GBP1,500, I just want to understand what made you think 6 you were going to have to offer so much to the 7 contractors to get them to agree? 8 A. I think we knew the claim was going to be very, very 9 much more than the somewhat insignificant sums that you 10 mentioned earlier. 11 Q. What had the contractors said to you about what the 12 claim would be? 13 A. I think they were talking about unforeseen underground 14 conditions. A platform along Princes Street, utilities, 15 not where they thought they were. Of that -- I assume 16 had come from the test drills. So they knew the 17 situation when they bid for the contract. 18 Q. Did they tell you? Did they tell you what they were 19 looking for in order to start works on Princes Street? 20 A. No, they didn't. 21 Q. I'm just trying to understand, we are in a situation 22 where we know that no works were happening, and 23 a Dispute Resolution Procedure had been started. But 24 from what you're saying, it sounded that like that 25 Dispute Resolution Procedure wasn't going to address the 141 1 real point in Princes Street? 2 A. I didn't think the DRP was going to address anything on 3 Princes Street. I saw that as a tactical move by 4 Infraco. When I say I, we saw. 5 Q. I'm just trying to ensure that the Inquiry has the 6 information that I understand Mr Swinney's position, and 7 the Princes Street decision, but what other factors were 8 taken into account by you that made you think the 9 appropriate step, the necessary step, was to offer 10 a demonstrable costs supplementary agreement? 11 A. I did that to remove the logjam that was there. I can't 12 remember what the total cost of Princes Street was in 13 additional money, but it was very, very much more than 14 the elementary figures that you talked about earlier. 15 Very, very much more. 16 Q. Just by way of an indication, if we could look at an 17 email, please. It's CEC00445284. 18 If we could look at the half of the screen here, 19 it's an email from Anthony Rush, to Andrew Fitchie, but 20 it's copied to Richard Jeffrey and yourself, dated 21 16 April 2010. Do you see all that? 22 A. Yes. 23 Q. I'm just trying to get a rough figure on the 24 Princes Street Agreement. If you could look at the 25 following page, the pagination of this version is 142 1 different from mine. Could we look at the bottom of the 2 preceding page. 3 This is concerning a discussion that Mr Rush has had 4 with Michael Flynn. In the last paragraph on the page 5 he said: 6 "He raised payment for the PSSA and I advised him 7 that I thought they shouldn't go there. GBP13 million 8 and GBP8 million appeared outrageous. It would have to 9 be scrutinised to establish how the cost had increased 10 from the original GBP2.8 million." 11 Just taking these as very summary figures, if the 12 original was GBP2.8 million, and the sum being claimed 13 was either GBP13 million or GBP8 million, that's 14 indicative of the scale of increase that arose on 15 Princes Street? 16 A. I think it ended up as being bigger than that. 17 Q. So I'm still trying to understand -- presumably you 18 would have wanted to get works started on Princes Street 19 as cheaply as possible or for as little extra from tie 20 as possible. 21 A. We were proceeding on Princes Street on a Supplementary 22 Agreement, based on time sheets and material. 23 Q. What I want to understand is why you offered to proceed 24 on a demonstrable cost basis. 25 A. Because that was the only way I thought they would work 143 1 on Princes Street. 2 Q. What I'm trying to understand is why did you think that 3 was the only way that they would work on Princes Street? 4 A. Past experience of my dealings with Infraco. 5 Q. I'm still -- what are you referring to by that? We know 6 the Princes Street dispute arose in February 2009. 7 Which elements of the previous experience with them made 8 you think that they required demonstrable costs? 9 A. Mr Lake, almost every element of my dealings with 10 Richard Walker and others, and I haven't forgotten the 11 GBP50 million to GBP80 million sums, the earlier 12 gouging, based on steel pricing and currency. 13 Q. Mm-hm. Gouging being the increases in price demanded 14 before the contract was actually concluded? 15 A. Yes. 16 Q. We can see all that. The records show by how much the 17 price had -- was increased between the best and final 18 offer, and the conclusion of the contract. I'm still 19 trying to understand the thought process that made you 20 think: the only way we're going to get work started on 21 Princes Street is to offer demonstrable cost. 22 A. I thought -- 23 MR FAIRLEY: I hesitate to interrupt, but I'm conscious 24 there is a clear document chain that deals with this. 25 I'm not sure if the witness is not being taken to that 144 1 deliberately. It respectfully seems to me that Counsel 2 to the Inquiry is struggling to get any sort of 3 recollection from the witness and it might be that 4 referring him to the document chain assists with his 5 memory. 6 It's a document chain we referred to last week and 7 I can provide the document numbers to the Inquiry 8 Counsel if that assists. It's turning into a bit of a 9 memory test, and it seems to me it might be useful to 10 look at the documents. 11 It is only a suggestion. 12 CHAIR OF THE INQUIRY: Thank you, Mr Fairley. No doubt 13 that's been taken on board. 14 MR LAKE: My Lord, the documents, I'm aware, are there and 15 have been referred to, but because of the importance of 16 this matter, and this witness's involvement in it, 17 that's why I was seeking to test if he could explain it 18 to me. But we have the witness's evidence on the 19 matter. 20 Another matter I would like to return to is the 21 meetings you had in relation with Transport Scotland and 22 Scottish Ministers. 23 When I was discussing earlier the question of the 24 information you had at contract close, you said you'd 25 had discussions with officials from Transport Scotland. 145 1 I wasn't sure, were these discussions that had taken 2 place once Transport Scotland withdrew from the Tram 3 Project Board, or did they continue all the way up to 4 contract close? 5 A. I think, although Bill Reeve and Damian Sharp had left 6 the Board, we did continue to talk. 7 Q. Are you able to recall on what sort of frequency? 8 A. Not with any great accuracy. 9 Q. Did that continue once the contract works were under 10 way, your discussions with Bill Reeve and -- presumably 11 not Damian Sharp because he came to tie? 12 A. I think Ainslie -- McCulloch? 13 CHAIR OF THE INQUIRY: McLaughlin. 14 A. McLaughlin and David Middleton, I had regular 15 discussions with David Middleton. 16 MR LAKE: What was the nature of those discussions? Were 17 you getting stuff from them? Were they seeking 18 information from you? 19 A. No, I was updating them on where we were and where 20 I thought we were going. 21 Q. What information were they seeking about the project, or 22 were you providing? 23 A. I would give them topical information on the latest 24 state of play with Bilfinger and what our strategy was 25 on RTNs, the contract truncation. 146 1 Q. Did they provide any suggestions or comments in 2 response? 3 A. They -- I mean, there was a comment that 4 Transport Scotland were not having any problems on the 5 M74 with Bilfinger Berger. And therefore it was 6 somewhat perplexing that we were having such great 7 problems on the Edinburgh Tram Project. I think I made 8 the point, the obvious point, that they were totally 9 different projects and we were dealing with totally 10 different people. 11 CHAIR OF THE INQUIRY: You've said you had regular 12 discussions with them. Can you give us some indication? 13 Are we talking about weekly, monthly? 14 A. I would have thought more like monthly, my Lord. 15 MR LAKE: What about your contact with the Minister, 16 Mr Swinney? 17 A. I think my witness statement talks about five meetings 18 I had with Mr Swinney. Often with Donald McGougan and 19 once we brought Tony Rush along to the meeting, which 20 actually backfired. It wasn't a very clever idea. 21 Q. Why? 22 A. Because Tony liked to dominate proceedings. And the 23 Minister didn't like that. And rightly so. 24 Q. Did the Minister make comments or suggestions on what 25 was happening? I'm talking about post Princes Street. 147 1 A. He believed that we should continue to mediate. He was 2 interested in a potential change of attitude with the 3 arrival of David Darcy, and others. I think I have 4 already said to you, appeared to be much more receptive 5 and I also updated him on a meeting that I had with 6 Kenneth Reid, who was a Scots-born Director of Bilfinger 7 Berger. 8 Q. What was the Minister's interest in these matters, 9 David Darcy and Mr Reed? 10 A. It gave them a feel of what we were doing and how we 11 were trying to make progress. 12 Q. Earlier the Minister had been quite blunt and saying he 13 wanted you to get it sorted, did he give -- 14 A. Sorry, that was at one meeting. 15 Q. Yes. 16 A. There were several meetings. 17 Q. Yes. 18 A. And he wasn't always quite blunt. Sometimes he could be 19 very pleasant. 20 Q. What I'm asking is, during the later meetings, the ones 21 after -- the one about the Princes Street dispute, did 22 he ever again make a direct suggestion or instruction 23 along the lines of: get it sorted. 24 A. No, he didn't prescribe anything beyond that. 25 MR LAKE: My Lord, I have no further questions. 148 1 CHAIR OF THE INQUIRY: Thank you. I think Mr Martin, you've 2 given notice of questions. 3 MR MARTIN: I beg your pardon, my Lord. I have no 4 questions, thank you. 5 CHAIR OF THE INQUIRY: Mr Fairley? 6 MR FAIRLEY: If I may, my Lord -- 7 MR DUNLOP QC: My Lord, I wonder, just to give intimation, 8 that a couple of questions have been put to this witness 9 which went beyond his statement on the question of 10 reporting by Mr Fitchie. That leads me to ask leave to 11 raise a couple of clarifying questions with the witness, 12 and I intimate that in advance, so that that can be done 13 before Mr Fairley, if that's thought appropriate. 14 CHAIR OF THE INQUIRY: Very well. If it's confined to that 15 matter. 16 MR DUNLOP QC: I'm obliged. 17 Examination by MR DUNLOP QC 18 MR DUNLOP QC: Mr Mackay, you were asked a number of 19 questions about what you were told by Mr Fitchie prior 20 to contract close. 21 Just to be absolutely fair to you, I don't 22 understand Mr Fitchie to have said he was telling you 23 very much prior to contract close. Are we right to 24 understand that contract close being in May 2008, you 25 were at that time not part of tie at all? 149 1 A. I was sitting in on tie Boards, but I was not 2 officially. 3 Q. Yes. You weren't Chief Executive of tie until after 4 contract close? 5 A. Yes. 6 Q. Yes. And at that time, is it perhaps more likely to be 7 the case that Mr Fitchie would have been reporting to 8 others at tie, such as Mr Gilbert, Mr Bell, Mr Murray? 9 A. Yes. 10 Q. Is it also fair to say that before contract close in 11 May 2008, you won't have been as involved in day-to-day 12 operations at tie as would latterly become the case, 13 once you became Chief Executive? 14 A. That's perfectly fair. 15 Q. So you won't necessarily have been aware of what 16 Mr Fitchie was telling people at tie on a day-to-day 17 basis? 18 A. That's fair. 19 Q. And simply by way of example, the Inquiry has heard 20 evidence of email warnings about the extent of Notified 21 Departures from Mr Fitchie in March 2008. Were you made 22 aware of those? 23 A. I don't think so. 24 Q. The Inquiry has heard evidence of a meeting, Mr Fitchie, 25 attended by Mr Gilbert, Mr Bell and others in 150 1 April 2008, where he made reference to the risks arising 2 from Pricing Assumptions and the risk of that being 3 exploited by the consortium. Were you made aware of 4 that? 5 A. I certainly wasn't at that meeting. And I don't 6 recollect being made aware of that. 7 Q. Yes. The only other point arising from that, Mr Mackay, 8 is that on the question of the fixed price contract, and 9 design changes, you told my learned friend, Mr Lake, 10 that you didn't see design changes as an enormous 11 problem. Do you remember saying that? 12 A. Yes, I do. 13 Q. I'm just wondering if that was correct. If we can go 14 back to your statement, please, paragraph 143, which we 15 looked at earlier, which is on page 40. 16 Now, you were taken to page -- can we block the 17 whole of the bottom half, please. 18 You were asked about paragraph 143. If we just look 19 down to paragraph 144, you said: 20 "I am aware that there is reference to a "lump sum 21 fixed price basis" for the Infraco contract on page 39 of 22 the Joint Board meeting on 23 January 2008. I do not 23 think there was anyone who had any doubt that the price 24 was not fixed, although elements of it were. There were 25 many variables and that is why we had a risk provision 151 1 and a risk analysis. If the design changed, for 2 example, or if CEC wished changes, MUDFA held things up, 3 everything stopped. Everyone knew that with an 4 incomplete design, there were going to be additional 5 costs and that is why decoupling design was a major 6 weakness." 7 Now, an enormous problem, a major weakness, you knew 8 it was a problem, didn't you? 9 A. Decoupling or disaggregation or whatever it was called, 10 was a tremendous weakness. 11 I never, ever thought that design should have been 12 decoupled. 13 Q. Yes. 14 A. Never, ever. I thought it was a very, very bad error in 15 agreeing that. 16 Q. And the lack of congruence between the contract and the 17 design was known to be a risk and potentially a major 18 weakness? 19 A. Yes. 20 MR DUNLOP QC: Thank you very much. I'm obliged, my Lord. 21 CHAIR OF THE INQUIRY: Mr Fairley? 22 Examination by MR FAIRLEY 23 MR FAIRLEY: Thank you, my Lord. I would wish to ask a few 24 questions about the involvement in the Princes Street 25 Supplementary Agreement, and perhaps a couple of 152 1 questions about the Tram Project Board minutes, but 2 I don't anticipate I'll be very long with either. 3 CHAIR OF THE INQUIRY: Very well. 4 MR FAIRLEY: Mr Mackay, could we look first at a document 5 which is one of the Tram Project Board sets of papers. 6 It's CEC01053731. 7 We see there that's a set of papers for the Tram 8 Project Board meeting on 19 November 2008. 9 A. Yes. 10 Q. Attached to that, as I think was the practice, was the 11 minutes of the previous meeting which was a meeting 12 in -- I'm sorry, my Lord. I think I have the wrong 13 reference here. What I'm looking for is the minutes of 14 the October meeting. If my Lord can bear with me for 15 a moment, I'll try and find those. 16 I'm sorry, I do have the right document. It's on 17 page 7 of that document. My apologies. 18 Can you blow up paragraph 5, please. 19 You'd referred earlier in your evidence, Mr Mackay, 20 to there being -- you recalling a meeting which was 21 attended by a representative of the consortium who 22 I think is noted there with the initials CB. Do you see 23 that? 24 A. Yes. 25 Q. Can you tell us who that was? 153 1 A. Colin Brady. 2 Q. In this section of the minute, which is the minute 3 from -- if we just go back to the first page of that, we 4 can see the date of it, please. If you go on to the 5 start of those minutes, which I think is probably about 6 page 5. 7 So this is the minute of 22 October 2008, Tram 8 Project Board, and we see there that Mr Brady of BBS is 9 noted as having been there for part of the time? 10 A. Yes. 11 Q. Now, you'd referred in your evidence to a meeting at 12 which you said Mr Brady had come along and there had 13 been discussion about the bus lane in Princes Street and 14 it had all been very amicable at that stage, was the 15 expression you used, but then you said that had changed 16 within a few months? 17 A. Yes. 18 Q. Is it possible that this is the meeting that you were 19 thinking of, 22 October 2008 meeting? 20 A. Yes, I'm sure it is. 21 Q. Can we go back to page 7 of this, then, and see what 22 Mr Brady is noted as having said. At 5.2 it's noted 23 that Mr Brady: 24 "... briefly outlined the base case construction 25 programme, which had originally assumed unimpeded access 154 1 to Princes Street. However, he noted that bus access in 2 one direction would now need to be maintained and that 3 this could be accommodated, although it would need to be 4 resolved as soon as work starts in January." 5 Was there any suggestion by Mr Brady at that stage, 6 in October 2008, that it would be a condition of a bus 7 lane being accommodated that the whole basis of pricing 8 for the Princes Street works would have to move to 9 demonstrable cost or cost plus? 10 A. No, there was no suggestion to that -- in fact, the 11 minute of that is exceptionally warm. It was a good 12 meeting. 13 Q. So was there any suggestion that maintaining a single 14 bus lane at that stage was going to be a difficulty? 15 A. No, there was not. 16 Q. Looking particularly at pricing, was there any 17 suggestion that Bilfinger would wish to change the 18 pricing basis on which it was paid for works in 19 Princes Street as a result of maintaining a bus lane? 20 A. Certainly not. 21 Q. Can we move forward then and look at another document, 22 please. Can you look at CEC00867153. 23 Now, we see from the top of this that this is an 24 email sent by someone called Julie Thompson to various 25 people. I think Julie Thompson is noted there as being 155 1 your PA; is that right? 2 A. Yes, that's correct. 3 Q. If we scroll down to the bottom of it, just go back 4 a little bit, we see there an email from someone called 5 Robert Sheehan at Bilfinger, an email dated 18 February 6 2009, timed at 14.07 to Steven Bell, and the subject 7 matter is Edinburgh tram network, Princes Street: 8 "Dear Steve, as agreed please find attached the 9 response to tie's question. Could you please forward 10 this to David Mackay?" 11 There's then reference to a meeting having taken 12 place on 17 February 2009 at which tie appeared to have 13 asked Bilfinger the following question: 14 "Is it Infraco's position that there is no 15 obligation to accept a tie instruction to commence work 16 in Princes Street?" 17 Now, first of all, do you remember a meeting round 18 about 17 February 2009 with Bilfinger about 19 Princes Street? 20 A. Yes, I remember this situation very well. 21 Q. Who was it asked the question, is it Infraco's position 22 that there is no obligation to accept a tie instruction 23 to commence work in Princes Street? 24 A. I think that wording came from one of our legal 25 advisers. 156 1 Q. If we go further down, then, we see the Infraco answer: 2 "The Agreement provides for exclusive licence to the 3 Infraco to enter and remain upon its Designated Working 4 area. It is our understanding that we do not have this 5 exclusive licence to those areas inter alia due to 6 maintaining a bus route." 7 Had the issue of the bus route assumed some greater 8 importance by this stage or was there some particular 9 difficulty with the bus route? 10 A. No, this is a totally different change of attitude in 11 terms of Princes Street, compared to the earlier session 12 with Colin Brady and, I think, Martin Foerder. 13 Q. So far as tie was concerned, had the maintenance of 14 a bus route become any more difficult by February 2009 15 than it had been in October 2008? 16 A. No, not at all. 17 Q. Reading on then, it says: 18 "The Agreement provides for prior agreement to 19 an Estimate as a precursor to executing the changed 20 works. Currently agreement cannot be reached on changes 21 relating to these works. Given the obstacles to 22 progress, we are precluded from properly planning and 23 executing the works with the inevitable consequence that 24 those works will be delayed and disrupted." 25 Now, is the reference there to the lack of agreement 157 1 over an estimate, is that really the reference to the 2 difference of GBP1,500 that you were taken to earlier by 3 Inquiry Counsel? 4 A. No, it certainly is not. 5 Q. What is it a reference to then? 6 A. It's a reference to a change in attitude by Bilfinger 7 Berger, and the start of a very long and difficult 8 negotiation. 9 Q. What do you mean, a change in attitude? 10 A. I don't know whether the change of attitude came on an 11 instruction from Germany. 12 Q. But I'm just interested to understand what you mean by 13 a change in attitude. An attitude to what? 14 A. To working in Princes Street. 15 Q. And to the basis on which they were going to be paid for 16 that or just to working? 17 A. Well, the two are complementary. They go hand in glove. 18 Q. If we go on to the next page, could we look at the final 19 part of this email. What seems to be said then, taking 20 the email from page 1 on to page 2, is that Bilfingers 21 cannot accept liability for inevitable consequences 22 arising from inter alia the impact upon the works of 23 maintaining the bus lane. So we seem to be back to this 24 issue with the bus lane. Was it your understanding that 25 the bus lane was a cause of any problems for starting 158 1 work on Princes Street? 2 A. No, I think that certainly wasn't my opinion. That's 3 a red herring. 4 Q. By red herring, do you mean an excuse or -- 5 A. Yes. 6 Q. What's then recorded is: 7 "In consideration of the above we do not consider 8 ourselves contractually obliged to commence works in 9 Princes Street." 10 But there's then a paragraph that indicates 11 a condition upon which Bilfingers would be prepared to 12 start work on Princes Street. It's the paragraph 13 beginning with the word "However". Do you see that? 14 A. Yes. I do. 15 Q. Just take a minute to read that, please. 16 A. Yes. 17 Q. This looks like a suggestion that Bilfinger were 18 prepared to start work on Princes Street if they were 19 paid on a demonstrable cost, or as it's sometimes 20 called, a cost plus basis. Am I right about that? 21 A. Yes. 22 Q. Is this perhaps the genesis then of where we get the 23 cost plus basis of payment for the Princes Street 24 Agreement? 25 A. Yes, that's fair. 159 1 Q. The reason I'm asking you about this is I think you had 2 said in your earlier evidence that your recollection was 3 that the suggestion of cost plus had perhaps come from 4 tie. But I wonder, is that right? 5 A. We certainly had a discussion in tie. Alastair Richards 6 certainly came up with demonstrable cost. But he may 7 well have been spurred on by this email. I really can't 8 recall. 9 Q. So you can't tell us whether the discussion you had with 10 Alastair Richards was before or after this email about 11 cost plus? 12 A. No, I'm sorry, I can't. 13 Q. Then if we look then at one final document in this 14 chain, CEC00417040. 15 If we just look at the second page of this letter, 16 which is dated 19 February 2009, sorry, go to the third 17 page, this is your response, I think, to the email that 18 we just looked at. 19 A. Yes. 20 Q. If we go back to the first page of this, you say: 21 "I refer to the email received on 18 February 2009 22 (timed at 14.07)." 23 So that would appear to be a reference to the email 24 we just looked at? 25 A. Yes. 160 1 Q. "We are astonished at both the tone and the substance of 2 the message." 3 What was it about the substance of the message that 4 astonished you? 5 A. We had gone from a situation that Infraco seemed ready, 6 willing and able to work on Princes Street to 7 a situation where they weren't going to work on 8 Princes Street without a very huge increase in costs and 9 other conditions. 10 Q. So was the email of 18 February 2009 timed at 14.07 11 really the first indication that tie had had of the 12 change in Bilfinger's position? 13 A. Yes, it was. 14 Q. What about the meeting on 17 February? Had there been 15 discussion at that meeting about -- 16 A. There certainly had been no discussion. 17 Q. So is this really the point at which discussion starts 18 about the conditions on which Bilfinger would be 19 prepared to work on Princes Street? 20 A. Yes, I believe it is. 21 Q. It seems to have been their position that they would be 22 prepared to work on Princes Street, provided that the 23 payment under the contract was changed from what you'd 24 originally agreed to a demonstrable cost basis; is that 25 right? 161 1 A. Yes, that is. 2 Q. Just one final matter, Mr Mackay. 3 You were asked just before lunch about the December 4 Tram Project Board papers, and I don't know if you 5 recall this passage when Inquiry Counsel pointed out to 6 you that there was no reference within the December Tram 7 Project Board papers in the Transport Scotland report to 8 the outcome of the Gogarburn and Carrick Knowe 9 adjudications. Do you recall being asked about that? 10 A. I certainly recall being asked about that. 11 Q. I think you assented to a proposition that was put to 12 you that it would have been helpful for 13 Transport Scotland to have had a written record of the 14 outcome of those adjudications. 15 A. I did. 16 Q. You were shown another document just after lunch from 17 the January Tram Project Board papers, and I wonder if 18 we could just very briefly go back to that. It's 19 CEC00473005. 20 This is the papers for the Tram Project Board on 21 13 January 2010. Could we go to page 45 of that, 22 please. We see, just to orient you as to where we're 23 looking at in this document, this is the passage in the 24 papers which contains the period 10 Transport Scotland 25 report, which is the period after the one that was 162 1 attached to the December Board papers. Do you 2 understand? 3 A. Yes. 4 Q. If we go forward to page 47, you were referred to this 5 page earlier by Inquiry Counsel, but you weren't told 6 what it was at the time. So now that you know that this 7 is the Transport Scotland report, do we see there 8 a reference in the first paragraph of paragraph 2.2 to 9 the adjudicator's response to the DRP decisions at 10 Gogarburn and Carrick Knowe Bridge which records that 11 the adjudicator found largely in favour of the position 12 taken by the consortium? 13 A. Yes. 14 Q. So it's not true to say that Transport Scotland never 15 got a written record of the outcome. They just got it 16 in January, rather than in December? 17 A. I didn't realise that was the Transport Scotland report. 18 MR FAIRLEY: I rather suspected that. Thank you. 19 CHAIR OF THE INQUIRY: Mr Barne? 20 MR BARNE: I have no questions, my Lord. They have been 21 adequately covered by Inquiry Counsel, for which I am 22 grateful. 23 MS FORSTER: No further questions here either. 24 CHAIR OF THE INQUIRY: Thank you very much, Mr Mackay. 25 You're free to go. You're still subject to your 163 1 citation. You could be recalled. Hopefully that won't 2 be required, but as of today you're free to go. Thank 3 you very much for your help. 4 A. Thank you, my Lord. 5 (The witness withdrew) 164 1 INDEX 2 PAGE 3 MR DAVID MACKAY (sworn) ..............................1 4 5 Examination by MR LAKE ........................2 6 7 Examination by MR DUNLOP QC .................149 8 9 Examination by MR FAIRLEY ...................152 10 11 MR IAIN MCALISTER (sworn) ..........................164 12 13 Examination by MR MCCLELLAND ................165 14 15 16 17 18 19 20 21 22 23 24 25 213