1 Tuesday, 28 November 2017 2 (9.30 am) 3 CHAIR OF THE INQUIRY: Good morning. Yes, Mr Mackenzie. 4 MR MACKENZIE: Good morning, my Lord. The next witness is 5 Tom Aitchison. 6 MR TOM AITCHISON (sworn) 7 CHAIR OF THE INQUIRY: The first thing I should tell you is 8 that there will be a fire alarm test at about 10 o'clock 9 which happens every Tuesday, and the second thing I want 10 to say is that Mr Mackenzie, Counsel to the Inquiry, 11 will be asking questions in the first instance. If you 12 just listen to the question and answer it as directly as 13 possible. 14 If you also speak into the microphone so that people 15 in the public benches and other benches can hear what 16 you say, and if you speak at a measured pace, so that 17 the shorthand writers can keep up with you. 18 Examination by MR MACKENZIE 19 MR MACKENZIE: Good morning. 20 A. Good morning. 21 Q. Could you state your full name, please? 22 A. My name is Thomas Nisbet Aitchison. 23 Q. And your current occupation? 24 A. Retired. 25 Q. I think you were the Chief Executive of the City of 1 1 Edinburgh Council between 1995 and December 2010; is 2 that correct? 3 A. That's correct, yes. 4 Q. I would like to go to the statement, please, you 5 provided to the Inquiry. I'll give the reference. It's 6 TRI00000022_C. I think you've got a hard copy in front 7 of you on the desk and also a copy will appear on the 8 screen. If I could firstly go to the very last page to 9 check if this is your signature. Page 111. Can you 10 confirm, please, that that is your signature, and this 11 is a written statement you have provided to the Inquiry; 12 is that correct? 13 A. That's correct, yes. 14 Q. I think you recently contacted the Inquiry with one 15 point of clarification, namely in paragraph 307 of your 16 statement, I think you had said that no bonus payments 17 were paid to tie Directors from about late 2008/early 18 2009. But I think you've sought to clarify that by 19 saying that it may be possible that reduced payments 20 were made after that date, but you didn't have the 21 documentation to be able to clarify that; is that 22 correct? 23 A. That's also correct, yes. 24 Q. So we in the Inquiry can double-check the documentation, 25 just to see what the position was. Thank you, 2 1 Mr Aitchison, for that clarification. 2 So in short, your evidence to the Inquiry forms both 3 your written statement and the evidence you give today? 4 A. Yes. 5 Q. I would like to start please with some questions with 6 the benefit of hindsight. So looking back with the 7 benefit of hindsight, what, if anything, would you have 8 done differently and why? 9 A. I think there was a lot that was correct about the tram 10 project. Certainly up until the time of contract close. 11 It became clear, probably clearer, in about 2009, that 12 there were some quite diverse views legally on the 13 soundness of the contract. 14 So whether, as you say with the benefit of 15 hindsight, I look again at the contract at either 16 financial close stage or once the project began to 17 encounter difficulties, that may have been one thing it 18 was worth -- it would have been worth doing. 19 Q. Again, with the benefit of hindsight, do you consider 20 that you properly understood the risks arising from the 21 project before the contract was entered into, and if 22 not, why not? 23 A. I think I make the point in my statement that I didn't 24 have a day-to-day hands on role in relation to the tram 25 project. Certainly in the early stage. By early, 3 1 I mean 2007, going into 2008. 2 I put in place what I thought was a proper 3 management arrangement ie to ask three senior colleagues 4 on the Council supported by written documentation from 5 tie, that they had explored all the necessary 6 implications of the contract, of the risk elements, and 7 were satisfied that that was sufficient, and I supported 8 their professional view in that. 9 Clearly, subsequently that situation changed. But 10 your question was about hindsight rather than what 11 happened at the time. 12 Q. I will come back to look at the documentation and the 13 assurances you got from the other senior Council staff. 14 Just to be quite clear, with the benefit of hindsight, 15 do you consider that you properly understood the risks 16 arising from the project before the contract was entered 17 into, looking back, and if not, why not? 18 A. Okay. I think I had a good understanding of the risks 19 associated with utilities. That was quite clearly 20 documented in various reports to the Council. 21 I think the key element was probably design. When 22 the Council approved the outline Business Case in 23 October 2007, there were references to design at that 24 time, being incomplete. Now, clearly that subsequently 25 became a major element of what went wrong. I did begin 4 1 to get a greater understanding of the design risk in the 2 period between October/November 2007 and financial close 3 in 2008. I did understand there to be an additional 4 risk because of the overlapping period between design 5 and construction. 6 Now, did I have, you know, knowledge of every single 7 aspect of that? The answer is no. But I certainly felt 8 there was a sufficient awareness amongst the team, both 9 in tie and the Council, about that, and I did receive an 10 assurance that that was under control. It was 11 identified. It could be dealt with. It was not 12 necessarily a major problem. 13 Q. So is it your position in short that looking back, you 14 considered you didn't properly understand the risks 15 arising from design before the contract was entered 16 into? 17 A. I would say I had a reasonable understanding of the 18 design issue, yes. 19 Q. Is it your position that you did have a good 20 understanding of the risks before the contract was 21 entered into? 22 A. Did you say did or didn't? 23 Q. Is it your position that you did have a good 24 understanding of the risks before the contract was 25 entered into? 5 1 A. I think I had a reasonable understanding. 2 Q. How does that then explain what happened in terms of the 3 cost and time overrun, if you had a good understanding 4 of the risks at the time? 5 A. Well, if you -- as I said quite clearly at the time, 6 while there was a risk associated with design, the 7 advice was that by the autumn of 2008, the design was 8 expected to be complete. 9 The initial work on the contract was due, I think, 10 to take place around about the depot and other areas. 11 So it was explained to me to be a short-term risk. 12 Clearly, again, that proved not to be the case. So 13 my -- my view, my opinion on how the risk element, 14 particularly in relation to design unfolded was not the 15 same as it was at the time of contract close. 16 Q. So does that mean in short you didn't have a good 17 understanding of the extent of the design risk at 18 contract close, looking back with the benefit of 19 hindsight? 20 A. I perhaps would have preferred to have had a greater 21 understanding of it. 22 Q. Now, again, a similar question. Looking back with the 23 benefit of hindsight, do you consider that the risks 24 arising from the project were properly reported to 25 members of the Council and if not, why not? 6 1 A. I think I've got to make a distinction. I think 2 certainly in the run-up to the Final Business Case in 3 December 2007, and in the period between then and 4 financial close, I think there was sufficient reporting 5 to members. 6 The members -- you may want to ask me about later, 7 but I really need to make a distinction between what was 8 said in official Council reports and what was said to 9 members individually. 10 I had huge contact with the political leadership of 11 the Council; that's the Council Leader and other people 12 in executive positions. Members of the opposition were 13 briefed extensively. So there was an attempt made on 14 behalf of the officers of the Council to give as much 15 information as possible to the elected members of the 16 Council. 17 Q. Just to be quite clear, do you consider that looking 18 back, the risks arising from the project, in particular 19 in relation to delays and difficulties with utilities 20 and design, were properly reported to members of the 21 Council? 22 A. I think when I re-read the -- all the various reports in 23 preparation for today's Inquiry hearing, there were one 24 or two instances where I felt Council reports could have 25 been perhaps more extensive in relation to explaining 7 1 more fully what the background to the risk was. 2 There was a constant tension between trying to not 3 place commercially sensitive information into the public 4 domain, and trying to reconcile that against the need to 5 report properly to elected members of the City of 6 Edinburgh Council. 7 Q. When you say there were one or two instances where you 8 felt Council reports could perhaps have been more 9 extensive in relation to explaining more fully what the 10 background to the risk was, in relation to which risk or 11 risks? 12 A. Particularly design. I think utilities -- the initial 13 reports to the Council tended to report, I presume was 14 the case at the time, that utilities work was by and 15 large on schedule. That then started to slip as it 16 became apparent that there were a greater -- there was 17 a greater requirement for utilities works than had 18 originally been anticipated. That was reported in terms 19 of -- I think it was the linear square metreage to be 20 undertaken. 21 So I think on utilities, there was a reasonable if 22 not good understanding in the Council what was happening 23 there. 24 I think in response to your question, perhaps more 25 could have been done to explain why the design was late, 8 1 and the interface between design work, construction work 2 and utilities work. 3 Q. Thank you. Now, again with the benefit of hindsight, do 4 you consider that the governance arrangements for the 5 tram project were effective and, if not, why not? 6 A. I think the governance arrangements as far as the -- the 7 tie -- the tie Board and the Tram Project Board, I think 8 these worked quite effectively. 9 I think the -- I think the key was how we got from, 10 if you like, the Boards of tie, the Tram Project Board 11 and TEL, into reporting to the Council. 12 Now, the Council -- we as Council officers at the 13 time were often frustrated that we had deadlines set for 14 reports to the Council, but because information was 15 slower than anticipated in coming through from -- from 16 tie, that knocked back -- and reporting deadlines and 17 all of that began to accumulate into a situation where 18 it became -- became less acceptable. 19 Q. Given what happened in terms of the huge cost overrun, 20 isn't the short answer to the question: looking back, 21 was the governance effective; no, clearly not. 22 A. I think you have to say the governance in relation to 23 also the material at the disposal of those who were 24 reporting to the Council. I'm certainly not trying to 25 make any kind of presentation that the governance was 9 1 perfect. It wasn't. But nor am I saying the governance 2 was wholly inadequate. I think it was somewhere in the 3 middle of these two positions. 4 Q. Looking back, what in your view does explain the huge 5 cost overrun? 6 A. Well, I think there were a number of factors. Clearly, 7 I think the contract was not as tightly drawn as tie 8 thought, and as the Council thought at the time. We 9 then saw the development of a fairly antagonistic 10 relationship between the -- between tie and the 11 infrastructure consortium. 12 We had clearly had major -- again, this is probably 13 back to the first point -- major issues of the 14 interpretation of what design actually meant in the 15 contract, and what the obligations were. And all of 16 that, I think led to a steadily -- worsening of the 17 position between the various parties. 18 Q. Now, my final hindsight question at this stage 19 is: looking back with the benefit of hindsight, do you 20 consider that the Council exercised effective oversight 21 over tie, TEL and the tram project more generally, and 22 if not, why not? 23 A. Well, I think you can always say you could have 24 exercised greater control. The Council's position was 25 that of financial -- well, it had various positions. 10 1 That of financial guarantor. Clearly, in the minds of 2 the public, it was the Council's project, not tie's 3 project. 4 I think again with the benefit of hindsight, clearly 5 improvements could have taken place. We almost got 6 locked into position quite early, where things were 7 beginning to go wrong, if you like, to use that 8 language. 9 The explanation from tie was that they were taking 10 further technical advice, further legal advice. They 11 were doing what appeared to be the right things to do. 12 But at the end of the day, that was not successful, by 13 which time the cost overrun and the programme slippage 14 was very considerable, but that placed the Council in an 15 extremely difficult position. 16 Q. Again, given the huge cost overrun, isn't the short and 17 simple answer to the question: no, clearly effective 18 oversight was not exercised by the Council? 19 A. I think the Council was trying to exercise oversight. 20 It was ineffective in bringing about a change in 21 behaviour between tie and the consortium. 22 Q. Now, you mentioned, I think, that being locked into 23 a position quite early. Surely being locked into 24 a position was when the contract was entered into, 25 because that then crystallised parties' duties and 11 1 liabilities? 2 A. Well, that's correct, but that wasn't necessarily known 3 at the time. By which I mean the financial close in 4 May 2008. 5 Q. Perhaps -- 6 A. Just to add to that, when we got to the end of 2007 and 7 the start of 2008, the pattern was that there had been 8 extensive examination of the tram project by Audit 9 Scotland, who were appraising tie's approach to 10 financial control, to procurement, to risk management. 11 That was reinforced by the OGC reports at the end of 12 October 2007. There was a degree of confidence within 13 the Council that tie had led the project successfully to 14 that point. We then had the assurances from tie and 15 others that they'd gone through the due diligence on the 16 contract, it had been supported by extensive legal 17 advice, which tie had obtained. All of that seemed to 18 indicate that we were in a reasonably good position. 19 Now, clearly a year or so on from 2008, that 20 position was no longer sustainable. But that was, if 21 you like, the view within the Council at the time, 22 that -- where we stood in relation to tie. 23 Q. We will come back to explore some of these issues in 24 more detail shortly. Thank you. But just pausing on 25 the question of Audit Scotland report, could I ask to 12 1 what extent, if at all, did you derive reassurance from 2 that report? 3 A. I personally took a lot of comfort from the report. 4 Q. Now, you referred to an extensive examination by Audit 5 Scotland. Do you know over what period of time 6 approximately that review took place? 7 A. Well, maybe -- I think it was a six-week period after 8 the election in -- that would be the spring of 2007. 9 I think they reported, what, June/July of that year. So 10 I think -- sorry, I shouldn't -- the -- Audit Scotland 11 are asked by the incoming government to do a review of 12 both the EARL project and the tram project. You will 13 find, I acknowledge, there's qualifications in their 14 remarks, that they hadn't had an opportunity to go into 15 it in great detail. But Audit Scotland were 16 a well-recognised, or prestigious organisation, and, you 17 know, they made the remarks they did, and it's up to 18 them to, in a sense, defend their remarks. 19 Q. The Inquiry has heard evidence that between Audit 20 Scotland first being requested to undertake the review 21 and producing their report, that took 16 days. Were you 22 aware of that? 23 A. Well, I can't confirm one way or another on that. But 24 it did appear as if they had certainly done a very 25 extensive review of a lot of the background reports that 13 1 underpinned the Council's position at that time. 2 Q. We've also heard evidence that Audit Scotland as an 3 organisation had little experience in undertaking 4 reviews of large infrastructure projects. Does that 5 surprise you? 6 A. Well, given the tram was by far the largest 7 infrastructure local government project in Scotland, 8 I presume they hadn't come across a project of that 9 scale before. I can't really comment what their 10 previous workload and work programme had been. 11 Q. We've also heard evidence that it was very unusual for 12 Audit Scotland to audit a live project, rather than one 13 that had finished. Were you aware of that? 14 A. I think that's probably generally -- yes, Audit 15 Scotland, generally speaking, were doing reviews post 16 event rather than pre event. 17 Q. Thank you. I would like to go back to your statement to 18 look at some of your other duties and responsibilities, 19 please. 20 CHAIR OF THE INQUIRY: Before doing that, you asked a number 21 of questions about the benefit of hindsight, but one of 22 the things you said was that there was a need to 23 reconcile trying to -- not to place commercially 24 sensitive information in the public domain and also 25 ensuring that you reported properly to elected members. 14 1 Is that always a problem with public sector 2 contracts? 3 A. Yes. I mean, it comes up at various stages. Clearly 4 when the Council or a public authority have gone out to 5 contract and receive tenders, normally these are 6 anonymised when they go to Council so that they don't 7 know which firm -- there will be a scoring system 8 associated with that. So there's certainly a clear 9 understanding -- sorry, I'm being distracted by 10 information flying up here. There's a clear 11 understanding that that would be a situation where you 12 would not name the individual contracting firm's 13 concern. 14 When we got into dispute on the tram project, what 15 was concerning tie was they had been a report to the 16 Council saying that: there were X million pounds 17 under-provided for. That would immediately set, if you 18 like, a floor upon which the infrastructure consortium 19 would begin to assess their future figures. 20 So there was legal advice taken at various stages 21 about what could and what could not be reported to 22 Council. 23 CHAIR OF THE INQUIRY: Yes. The allocation of a sum for 24 risk will always be a sensitive matter, but is it normal 25 for that information, for instance, to go into the 15 1 public domain, how much has been allocated against risk? 2 A. I think you would normally put perhaps the figure, and 3 you might itemise some of the major elements that would 4 be in the figure without specifying the individual sums 5 attached to the individual elements. So you might say 6 theoretically, in project X, there's a GBP20 million 7 risk -- risk provision contained in it. You might say 8 the three main risks are, whatever they are, A, B and C. 9 You wouldn't necessarily say in great detail what these 10 are, and enter into the public domain the detailed 11 figure work that would be behind that. 12 CHAIR OF THE INQUIRY: Do you see any difficulty in 13 disclosing even the block figure in your example of 14 GBP20 million, that the contractors would then know that 15 there was GBP20 million in the pot, as it were? 16 A. Well, the answer to that of course is yes. In relation 17 to the tram project, the bulk risk figures were 18 presented. I think it was 49 million at Business Case 19 stage and 32 or thereabouts when we got to financial 20 close. 21 And the Council -- maybe this was a mistake that was 22 made on the Council's part. The Council made a lot of 23 the fact that if you took a combination of the risk 24 allowance and the gap between what became the 512 figure 25 and the 545, there was considerable headroom. So in 16 1 that sense in theory it was giving a contractor a view 2 as to what potential headroom or more might be in the 3 contract. 4 MR MACKENZIE: If we go to page 1, please, of your 5 statement, and paragraph 1, we see the reference to the 6 Council being a large organisation. When you left, it 7 had about 20,000 employees, the revenue budget 8 approaching GBP1 billion. 9 In paragraph 3 you set out: 10 "The job also involved taking the lead in ..." 11 Other matters. We can see a number of other 12 important and diverse matters, including, for example, 13 child protection. Over the page we see you were taking 14 a lead in a project called Alternative Business Models, 15 et cetera, involving the transfer of a range of Council 16 services to private sector, and also chairing a group on 17 equal pay issues from the Council, et cetera. 18 I'm sure, Mr Aitchison, there were many, many other 19 tasks you required to be involved in as Chief Executive 20 as well; is that correct? 21 A. Yes. 22 Q. Thank you. 23 So in short, and sorry, we can also see at page 2, 24 in paragraph 5, just by way of example, you also explain 25 you were Chief Executive of the Lothian and Borders 17 1 Police Board, Fire Board, the Valuation Board, festival 2 involvement, and also of course returning officer for 3 the city. 4 So in short, looking back, do you consider you had 5 sufficient time to devote to the tram project? 6 A. I think that's why I said in the statement that until 7 about 2006 or thereabouts, the project was essentially 8 departmental led through Director of City Development. 9 As things worsened, I did see it as my 10 responsibility to be at least taking an overview of what 11 was happening with the project. But these are some 12 examples that you're drawing my attention to, and there 13 were many more. So it was difficult. 14 For example, these projects that you put on the 15 screen, the alternative business models, which had it 16 gone ahead, would have led to the transfer of some 17 functions from the public sector to the private sector, 18 was probably a contract worth in excess of 19 GBP100 million. 20 The equal pay, I lost track because that was sorted 21 after I left the Council, was again tens of millions of 22 pounds associated with that. 23 The conference centre was a project worth, I think, 24 between GBP80 million and GBP90 million, on an 25 extension. 18 1 One I didn't mention I was quite heavily involved 2 in, in the last few years in the job, was the St James 3 development. I wouldn't claim that was taking a massive 4 amount of my time, but again, that was a 5 multimillion-pound project, and child protection was 6 very sensitive. Some of you may recall in the room that 7 there was a child death in Edinburgh, a child called 8 Caleb Ness, who was under the care of the Council at the 9 time; and following that, I personally wanted to put 10 a bit of time and effort into reviewing where child 11 protection was and trying to improve it. 12 So the long-winded answer to your question is that 13 yes, there were many other things happening as well. 14 Q. Yes. The question was, looking back, do you consider 15 you had sufficient time to devote to the tram project? 16 A. Probably not. 17 Q. Because of all the other duties you had to undertake as 18 well? 19 A. Yes. 20 Q. Just on that point, Mr Aitchison. It would be helpful 21 if you could answer a question, where possible, with 22 a yes or no, and then go on to an explanation, if you 23 think that's necessary, rather than do the explanation 24 first, and I'm not quite sure what your answer is, thank 25 you. 19 1 Similarly, do you consider that other senior Council 2 officers had sufficient time to devote to the tram 3 project? Looking back? 4 A. You are looking for a yes-or-no answer? 5 Q. Well, if it's capable of a yes or no, please do so, but 6 obviously then go on with an explanation, if you feel 7 that's necessary? 8 A. I think the -- well, I can't give a simple yes or no. 9 I think the Director of Finance in particular faced the 10 similar situation to me. He was treasurer to -- 11 Treasurer to the Police Board, Treasurer to the Fire 12 Board, et cetera. So he had a range of other duties as 13 well. 14 The primary responsibility fell on the Director of 15 City Development. Now, we had a change in directors in 16 the spring of 2008. So the incoming Director did have 17 more of an opportunity to in a sense devote more of his 18 time to the project. But having said that, in making 19 that appointment, the Council also wanted somebody who 20 could restore the Council's focus on economic 21 development. So he was split between trying to breathe 22 in new life into the Council's view on economic 23 development, while at the same time taking on board the 24 various responsibilities associated with the tram 25 project. 20 1 He was supported in due course by the Head of 2 Transport. That again was a new appointment, and that 3 was probably the first person in the management 4 structure whom you were expecting to be able to devote 5 something like 100 per cent of his time to the project. 6 Each of these two Directors -- again, you'll know 7 this -- had a number of dedicated staff pretty much full 8 time on the project, and likewise there were a number of 9 staff in the Legal Services Department who were also 10 fully engaged in the project. 11 But all of us at senior level, myself, Director of 12 Finance in particular, and Director of City Development, 13 were never in a position to devote 100 per cent or 14 anything like 100 per cent of our time to it. 15 Q. You have said that looking back, you considered that you 16 probably didn't have sufficient time to devote to the 17 tram project. Just to be quite clear, looking back, do 18 you consider that the Directors of Finance and City 19 Development had sufficient time to devote to the tram 20 project, given all their other duties and 21 responsibilities? 22 A. Well, that's maybe no, rather than yes. 23 Q. Now, we also know there was a new administration in the 24 Council in May 2007. If we can go, please, to page 2 of 25 your statement, and paragraph 4. 21 1 You explain, halfway down, that: 2 "The Administration that was formed in 2007 was 3 established through a coalition between 4 Liberal Democrats and the SNP. Within the ruling 5 Administration, only one Councillor had previously been 6 in power. The situation was quite a difficult one for 7 elected members to get to grips with. It impacted on 8 the managerial system for maybe a year to 18 months. 9 This covered the period when the business case on the 10 tram was submitted to the Council. Financial Close was 11 in the early months of 2008 ..." 12 I think it was May 2008: 13 "... within 12 months of the 2007 election." 14 In short, do you consider that the change in 15 administration had any impact on the tram project? 16 A. I think it probably did, yes. 17 Q. In what way? 18 A. I think it was a lack of experience. The -- prior to 19 2007, the Council had a system based upon what was 20 called the Full Council meeting, a Council Executive, 21 and what were called scrutiny panels. That in itself 22 had replaced a very traditional approach with 23 a single -- what had replaced what most authorities had, 24 which was a traditional committee system. The incoming 25 Liberal Democrat/SNP administration didn't like the 22 1 executive scrutiny panel model. So they moved back to 2 something more akin to a traditional model. 3 That took probably the better part of five or six 4 months to do the research, but it put the arrangement 5 into place. 6 We had councillors who, as I say in this statement, 7 had not been in a position of power before. They in 8 turn had to establish relationships with the officer 9 corps in the Council. It tends to be kind of one to 10 one, Director of, say, Education, with the Chair of the 11 Education Committee; that is just one example. 12 So all of that took a little bit of time, and 13 I think that probably meant that by the time we got to 14 the Business Case in October of that year, there was 15 still a number or many councillors who were relatively 16 inexperienced in dealing with issues of that type. 17 Q. On the change of administration, were there then new 18 appointments to the Tram Project Board and to the Boards 19 of tie and TEL? 20 A. Yes, I can't recall the exact sequencing of all of that, 21 but certainly Councillor Wheeler, who was the -- at the 22 time the Chair of the Transportation Committee, he 23 became a member of the Tram Project Board, and there 24 were places allocated on to the Boards of TEL for -- 25 I think it was essentially a position for each political 23 1 party, to make a nominee to. I don't recall initially 2 the SNP, for reasons that will be well understood, 3 taking up that position. But the other parties did. 4 They were able to nominate a member of their group to 5 serve on these various bodies. 6 Q. Now, we also know that the administration was split in 7 their support for the tram project. 8 Do you consider that that played any part in the 9 failings of the project, and if so, why? 10 A. Well, it didn't help. It's always best to have 11 a unified approach to these things, rather than a split 12 approach, is what happened. 13 It caused difficulties sometimes between information 14 that could be shared between officers such that -- 15 officers wanted, generally speaking, to share 16 information with the administration ie the two groups. 17 But because of the SNP unwillingness to be associated 18 with the project, that information had to be directed 19 towards the Liberal Democrat part of the group and not 20 the SNP. 21 Having said all of that, there were occasions where 22 as elected members of the Council, it was appropriate 23 for certain information to be given to the SNP. 24 Q. Now, you seem to be describing there a situation where 25 within the administration, the Liberal Democrat party 24 1 were given more information about the tram project than 2 the SNP; is that correct? 3 A. Certainly behind the scenes, that's correct, yes. 4 Q. Just for the avoidance of doubt, why is that? On the 5 face of it, it seems an odd situation? 6 A. Well, you know, the Council Leader was a member of the 7 Liberal Democrat Group. New arrangements came into 8 effect with the change -- the change in local governance 9 system in 2007, that gave particular responsibilities to 10 Council leaders. 11 So it was certainly always my view that the 12 Council Leader had to be given as much information as 13 possible on the tram project. I suspect that was 14 replicated by my colleagues, Director of Finance and 15 Director of City Development. 16 As that moves on, just in case this has not been 17 explained so far, there were clearly meetings at 18 individual level between named officers and members of 19 the Liberal Democrat Group. There were opportunities 20 given when reports were going to Council at pre-meetings 21 for issues to be discussed. There were many occasions 22 where myself and colleagues were invited to attend not 23 only Liberal Democrats, but the Lib Dems, the SNP, 24 Labour Groups, Conservative Groups, to give information 25 on what was happening, and to the best of our ability, 25 1 we tried to be as full in our accounting of the project 2 as we possibly could to the various groups. 3 So I'm trying to say that we did our level best to 4 make sure the members were kept up to speed on the 5 project. 6 Q. Now, the situation where the SNP part of the 7 administration received less information about the tram 8 project, was that their choice or was that the choice of 9 officers or was that the choice of the leader of the 10 administration or what? 11 A. It was partly their choice. I think they essentially 12 wanted to be seen to be standing well back from any 13 issues associated with the tram project. But there were 14 also occasions where Liberal Democrat leadership would 15 have concerns about, as they would see it, too much 16 information potentially being given to the SNP Group. 17 Q. What were the concerns in that regard? 18 A. I think the concerns were that information might leak. 19 If we were giving what was regarded as confidential 20 information, I think there was an element of mistrust, 21 if that was shared with the SNP Group, that it might 22 find its way into the media. 23 Q. Now, I had asked you a few questions ago, looking back, 24 did you consider that you and the other directors had 25 sufficient time to devote to the tram project, and you 26 1 replied: probably not. 2 What were your views at the time, do you remember, 3 as to whether you and the directors had sufficient time 4 to devote to the tram project? 5 A. My position was influenced by -- originally I had 6 intended to retire from the Council in May 20 -- 7 May 2010. Councillor Dawe asked me not to do that, and 8 to stay a while longer. So May 2010, for me, was 9 a difficult -- or difficult, it was a busy period, with 10 the Westminster general election. 11 Once she asked me to stay on, I tried to devote as 12 much time as I possibly could in the six-month period 13 between May and the end of December to the tram project. 14 But again, there's certain things you cannot escape 15 from if you're Chief Executive of the Council that have 16 to have your attention. 17 Q. In respect of the period 2007 up until May 2008, so the 18 procurement period up until contract close, what were 19 your views during that period as to whether you and the 20 directors had sufficient time to devote to the tram 21 project, in addition to your other duties and 22 responsibilities? 23 A. I think the directors, they will need to speak for 24 themselves. I think they clearly devoted a lot of time 25 trying to get towards contract close. 27 1 I was a step or two back from that. I was chairing 2 meetings of the Internal Planning Group. I was trying 3 to be -- to be kept briefed on how the kind of final 4 contract close and due diligence process was unfolding. 5 But I certainly wasn't involved in a day-to-day sense. 6 That's why I said earlier, and you said you might 7 come back to it, that I specifically said to the 8 Director of Finance, City Development, and the Council 9 Solicitor, that I wanted the three of them to take 10 responsibility for going over the contract close 11 documents, the period of contract close, and to make 12 a written recommendation to me at the end of that. 13 Q. I will come back to that. Just to be quite clear, do 14 you remember what your view was in 2007 and up until 15 contract close in May 2008 as to whether you had 16 sufficient time to devote to the tram project? 17 A. The answer is no, but I didn't at the time feel I needed 18 to devote additional -- massively additional time to it. 19 I put in place what I thought was a correct management 20 process involving three of the Council's most senior 21 officers supported by their staff. And I wanted them to 22 go through the various processes necessary. 23 Q. My final question in this area is: do you have any views 24 more generally on whether local authorities have the 25 expertise, capacity and time to deliver large complex 28 1 transport infrastructure projects such as the tram 2 project? 3 A. Well, if I had my time to do again, I certainly wouldn't 4 do it that way. I think it's just impossible to expect 5 Council officers to be doing, if you like -- this is 6 senior Council officers -- the day-to-day job, while at 7 the same time being heavily involved, substantially 8 involved time wise, in a project of that magnitude. 9 Q. In terms of the expertise, do you have any views on 10 whether local authorities have the expertise to deliver 11 this sort of project? 12 A. Not on that scale. I think over the last 20 years, 13 particularly if you look at the department such as City 14 Development, they lost a lot of their capacity, their 15 engineering capacity, their technical capacity, and that 16 just didn't exist for a project of the scale of the 17 Edinburgh Tram Project. 18 CHAIR OF THE INQUIRY: When did they lose that? 19 A. Really I would think you could trace that back to 20 probably -- it probably started in the late 1980s, 21 whereabouts, when we had the cuts coming through at that 22 time from the then Conservative Government. It was just 23 a constant squeeze all the time on budgets and budgets. 24 It's a question we may return to, but the Scottish 25 Executive, in the two or three years preceding 2007, 29 1 were very keen on public/private sector models. I think 2 in turn you can trace that to the Blair Government in 3 London. 4 Again, I'm not passing judgement one way or another 5 on that. I'm merely making a factual statement that 6 that was the case. 7 My colleague, Andrew Holmes, used to tell a story 8 that when he worked in the north of England, I think it 9 was Durham County Council were involved in building 10 motorways. There was absolutely no way that could have 11 happened in Scotland in the early part of the 12 20th century. 13 CHAIR OF THE INQUIRY: Can I also ask you, you said there 14 was an element of mistrust of the SNP in relation to 15 giving them information that might leak into the public 16 domain. Who took that decision, not to give the SNP the 17 information? 18 A. Well, some of us might -- behind the scenes there were 19 clearly people in the SNP Group and the Liberal Democrat 20 Group whose job it was to try and ensure that the two 21 groups worked effectively together. I think that was 22 probably to try and get some kind of code between the 23 two parties at the time. 24 I wouldn't like to give -- I think generally 25 speaking, the administration between the two parties 30 1 worked well. I think they would probably both say that. 2 But given hostility -- maybe that's too strong a word. 3 Given the concern that the SNP had over the tram 4 project, and given that the SNP were in government 5 nationally, and given the SNP initially were not wanting 6 the tram project to proceed, there was a kind of context 7 there where I think it was felt that there had to be 8 certainly a degree of careful judgement exercised in what 9 was given between the Lib Dems and the SNP, or the 10 officers and the SNP. 11 CHAIR OF THE INQUIRY: I can see that that's the explanation 12 behind it, but who ultimately took the decision to keep 13 information away from the SNP which was part of the 14 ruling group? Was that an official's decision or was 15 that a decision by the other half of the group? 16 A. I would say it's more likely to be that than to be 17 officials of the Council. 18 CHAIR OF THE INQUIRY: So the leader of the Council, 19 Jenny Dawe? 20 A. Well, ultimately. I'm not saying specifically I have 21 knowledge that she specifically said that. But that was 22 certainly the tone at the time about being careful. 23 CHAIR OF THE INQUIRY: As the senior official for the 24 Council, did you consider giving any advice about the 25 propriety of that? 31 1 A. We did discuss it. But that's partly why I said a few 2 moments ago that there were -- I mean, personally I must 3 have attended maybe five or six meetings of the SNP -- 4 when I say meetings, group meetings, either over 5 lunchtime or prior to Council meetings -- when I would 6 do my best to give them as much information as possible 7 on the tram project. 8 CHAIR OF THE INQUIRY: I think what I was really asking 9 was: did you discuss with the leader of the 10 administration or anyone else the propriety or otherwise 11 of withholding information from members of the ruling 12 group in the coalition? 13 A. We did discuss that, yes. 14 CHAIR OF THE INQUIRY: Who did you discuss that with? 15 A. It would be Councillor Dawe. If I can give an example, 16 it might help to illustrate it. 17 I met with Councillor Dawe every Monday, early 18 afternoon. And normally speaking, Councillor Cardownie, 19 or his nominee, he was the leader of the SNP, would be 20 there. Quite often, towards the end of the meeting, 21 I would say: there's certain information or certain -- 22 maybe more updates rather than hard specific information 23 I can give you on the tram; and Councillor Cardownie 24 would often voluntarily withdraw from that, rather than 25 be party to it. Whether behind the scenes he and 32 1 Councillor Dawe had come to some accommodation, 2 I couldn't precisely say, but I'm trying to make the 3 point, I think in response to your question, that I was 4 at all times mindful of the need to try, as best as 5 possible, to treat all councillors equally. 6 Having said that, within that there's then the 7 leadership compared to so-called backbench councillors. 8 CHAIR OF THE INQUIRY: Had you ever come the situation 9 before, where you withheld information from members of 10 the ruling group or coalition? 11 A. My personal view all the time I was in a senior position 12 was to be as honest and forthright with councillors as 13 I possibly could. 14 CHAIR OF THE INQUIRY: So is the answer you hadn't ever -- 15 A. I certainly can't recall a situation as I sit here this 16 morning. 17 MR MACKENZIE: Thank you, my Lord. 18 I would like to move on, please, and ask some 19 questions about tie. 20 Is it correct to say that tie as an organisation had 21 little or no experience of delivering major 22 infrastructure projects? 23 A. That's correct in the sense that tie was an organisation 24 formed in 2002. So they didn't have, under their belt 25 as an organisation, a track record in actually building 33 1 major infrastructure projects. 2 Q. Even as at 2007, they didn't have that track record, did 3 they? 4 A. Correct. 5 Q. Is it also correct to say that tie was largely staffed 6 with people with no experience of delivering a tram or 7 light rail project? 8 A. I think that's by and large correct. I think there 9 were -- some of the project managers in tie or project 10 director did have -- one of them had worked in, 11 I recollect, in the Croydon light rail system. But 12 extensive experience, no. 13 Q. I think we've seen a reference to some of the tram 14 directors, perhaps all of them, having tram experience. 15 Certainly Ian Kendall and then Andie Harper, and then 16 Matthew Crosse. There's three, but is it correct to say 17 that in general tie was largely staffed with people with 18 no experience of delivering a tram or light rail 19 project? 20 A. I think that's correct. 21 Q. Doesn't it rather beg the question why, then, did the 22 Council allow tie to attempt to deliver and project 23 manage the Edinburgh Tram Project? 24 A. I touched it earlier when we had a discussion about 25 Audit Scotland, and also the OGC reviews. 34 1 tie in turn were employing a wide range of fairly 2 prestigious management consultants. I would accept the 3 point that that was trying to build up to the case for 4 the tram proceeding as opposed to actually building it. 5 But I think as the question was asked of me in the 6 witness statement, and -- about this, and it's certainly 7 the case that there was no consideration given in, say, 8 2007, to replacing tie with another, perhaps more 9 directly experienced organisation in these matters. 10 Q. Now, one can quite see that there were different 11 circumstances when tie was set up around 2002, in 12 particular to deliver the various projects under the new 13 transport initiative. But after the result of the road 14 charge and referendum in 2005, circumstances had 15 changed, hadn't they? 16 A. Correct, yes. 17 Q. So was there any consideration given at that time, 18 around 2005, for the Council or alternatively 19 a slimmed-down version of tie to have instructed 20 a multi-disciplinary engineering company, with 21 experience and expertise in light rail and a proven 22 track record in delivering major transport projects, to 23 have delivered or at least assisted in the delivery of 24 the Edinburgh Tram Project? 25 A. I personally don't recall any such discussion taking 35 1 place. 2 Q. Is that not an obvious thing to have done, to have 3 decided in light of the changed circumstances, to have 4 instructed an experienced company with a proven track 5 record, rather than have tie attempt to deliver this 6 large and complex project? 7 A. I have said it once or twice now. tie had been 8 successful in taking -- with Council officers, taking 9 the proposals through to Royal Assent. They had, 10 although you queried it, the endorsement of Audit 11 Scotland in June/July 2007. They had been through the 12 OGC Reviews. All of that seemed to point to an 13 organisation that was in decent shape, and ready to move 14 on to oversee the tram project. 15 That was the feeling at the time. You've asked me 16 questions about hindsight. That's what I felt at the 17 time. 18 Q. Do your views change at all in hindsight? 19 A. Well, it's fairly obvious now that had we had time to do 20 it again, things may have been done differently. 21 Q. It may be suggested that the Council were taking an 22 obvious risk in allowing an organisation with little 23 experience in light rail and little or no track record 24 for delivering major infrastructure projects to attempt 25 to deliver a complex project such as the Edinburgh Tram 36 1 Project. 2 A. Yes. Another thing I would add is we did, or the 3 Council did try, in relation to appointments to the 4 Board, to appoint someone with light rail experience, 5 heavy rail experience, public policy sector. To try and 6 bring that degree of expertise into the governance 7 structure of the project. 8 Q. Can I just be quite clear to your answers though. Do 9 you accept the Council were taking an obvious risk in 10 allowing tie to attempt to deliver this project, rather 11 than instructing an experienced company with a proven 12 track record? 13 A. I'm not sure the risk was obvious at the time. I said 14 in my earlier remarks, and I'm sure we'll return to it, 15 much of this, I think, hinges on the contract. And tie 16 had behind them in the contract DLA, later had other 17 legal firms involved. That again was, if you like, one 18 of the almost quality assurance checks that the Council 19 had to ensure that tie were giving satisfactory advice 20 and -- I'm not gainsaying your point, that when you look 21 at the personnel in tie as an organisation, it was not 22 widely populated with people who had experience in 23 building either tramways or light rail infrastructure. 24 Q. I think you said there, yes, I understand. 25 Separate question about reporting. Did you ever 37 1 have any concerns about tie's reporting to the Council? 2 A. Yes, I got increasingly frustrated that deadlines that 3 were set for tie, or that tie volunteered, were not 4 being met, and behind that there were sometimes concerns 5 about the quality of the information coming through from 6 tie. 7 Q. What period, roughly, was that? 8 A. I think we're talking really from probably the summer 9 of -- particularly from the summer of 2009 onwards. 10 Q. Did you have any concerns about tie's reporting to the 11 Council before contract close? 12 A. I had no major concerns then, no. 13 Q. Are you aware whether any Council officers ever 14 expressed concerns about tie's reporting to the Council 15 before contract close? 16 A. Not to my knowledge, no. 17 Q. Did anyone else outwith the Council ever express any 18 concerns to you in relation to tie's reporting? 19 A. No. 20 Q. Did you have regular discussions with Neil Renilson in 21 relation to the tram project? 22 A. Not regular, no. 23 Q. How many, approximately, a year? 24 A. I tended to see Neil Renilson more on Lothian Buses 25 business, rather than TEL business. 38 1 Q. Did Mr Renilson ever express any concerns to you about 2 the accuracy of tie's reporting? 3 A. Not that I can recall, no. 4 Q. Are you quite sure about that? 5 A. You have put a doubt in my mind, but I don't -- I'm 6 certainly not aware of any written record to that. If 7 he had concerns, I would have expected them to be placed 8 in writing. There were -- not so much concerns, there 9 was a view that perhaps Lothian Buses, represented by 10 Neil Renilson, were never entirely convinced by the need 11 for the tram project in Edinburgh. That's a different 12 thing from the question you've asked me about: did 13 I have concerns expressed by him about the accuracy of 14 tie's information. 15 Q. So what was Lothian Buses' attitude towards the tram 16 project? 17 A. Sorry, say that again? 18 Q. What was Lothian Buses -- 19 A. I think Lothian Buses felt that certainly based upon the 20 original line 1a, it was only going to make a relatively 21 marginal difference to the public transport provision in 22 Edinburgh; and therefore was it really worth all 23 investment and disruption. I think Neil Renilson's view 24 was that the buses could do just as good a job as trams. 25 Q. So were Lothian Buses supportive of the tram project? 39 1 A. Yes, because I specifically asked that several times. 2 Towards the end of the project, I personally went to 3 meet with the Board of Lothian Buses. They were 4 concerned, I think, on a number of points (a) in their 5 view was a tram project necessary, and (b) was it 6 necessary to create a new organisation called TEL to 7 bring together buses and trams in Edinburgh. 8 Q. Did they have any concerns in relation to competition 9 with the bus service? 10 A. No, because that was all going to be under one 11 ownership. 12 Q. Are you quite sure about that, that Lothian Buses never 13 had any concerns about the tram being in competition 14 with the bus service? 15 A. Very early on the Council made sure, through the Board 16 of Lothian Buses, that did Lothian Buses as a corporate 17 entity support the tram, and the answer was yes. 18 Now, whether individuals within the company had 19 reservations, that's a matter for them. But the clear 20 declared policy of the Board of Lothian Buses was to be 21 supportive of the Edinburgh Tram Project. 22 CHAIR OF THE INQUIRY: At the outset, did Mr Renilson 23 express any view as to whether he was in favour of or 24 opposed to the tram project? 25 A. I do not think he was ever massively in favour. He 40 1 wasn't an advocate for the tram project. I think he had 2 reservations just explained. But he was given 3 a position of Chief Exec of TEL specifically to try and 4 overcome that reservation, and to ensure that his 5 knowledge and expertise about how public transport 6 operated in the city was brought to bear on the future 7 arrangements, leading to the integration of bus and 8 tram. 9 MR MACKENZIE: Thank you. 10 In relation to the issue of governance, which body 11 do you or did you consider was in charge of the tram 12 project? 13 A. Well, essentially the Tram Project Board. 14 Q. Who did you consider was the senior responsible officer 15 for the project? 16 A. That would be Neil Renilson. 17 Q. Was that all the way throughout the project? 18 A. Well, he left at the end of, what, 2008. When the 19 Board -- from memory, the Board to the TPB was chaired 20 by David Mackay. They had Neil Renilson and Bill 21 Campbell from Lothian Buses, Donald McGougan, and then 22 originally Andrew Holmes from the City of Edinburgh 23 Council, and Councillor Wheeler. I may have missed 24 somebody there, but that's who were on the Board. 25 Q. Now, Neil Renilson, you say, was the responsible senior 41 1 officer for the project. Was he the Chief Executive of 2 Lothian Buses? 3 A. Yes. 4 Q. Do you know whether he had any experience at all in 5 building large infrastructure projects? 6 A. I don't think he did, no. 7 Q. Because one can quite understand why people from 8 Lothian Buses would have expertise in the operational 9 phase of the tram project. What I struggle a little to 10 see is what they can bring to the procurement and 11 particularly the construction phase. 12 A. Well, as I said, you asked me the question. The Tram 13 Project Board as a collective body were the primary body 14 responsible for the tram project. They in turn were 15 reporting to the Board of TEL upon which there were 16 a wider range of councillors and individuals I mentioned 17 earlier -- I think it was scales and so on -- who had 18 expertise in light rail and heavy rail. 19 Q. Now, the Tram Project Board, you say, were reporting to 20 the Board of TEL. Do you know whether that was before 21 and after contract close or was there a change at any 22 time? 23 A. There was some, I think, confusion on this point. 24 Again, I think I'm right in saying, the Tram Project 25 Board was partially requirement of Transport Scotland in 42 1 the early years of the project. 2 Now, up until I think even when Audit Scotland 3 reported in the summer of 2007, they were making the 4 point that the Tram Project Board had full delegated 5 authority. That turned out not to be the case, but that 6 was rectified by a decision of Council, I think in 7 December of 2007. 8 So there were clearly operating day-to-day prior to 9 that, but without the authorised and full delegated 10 authority from the City of Edinburgh Council. 11 Q. But you're certainly quite clear that at some point in 12 the project, the Tram Project Board reported to TEL? 13 A. Yes. 14 Q. So does that mean then TEL were really in charge of the 15 project? 16 A. Well, I think in -- I think the delegation went from the 17 City of Edinburgh Council to TEL, and I think TEL in 18 turn delegated to the Tram Project Board. But I do 19 recall seeing somewhere in the background papers, 20 clearly, even the act of delegation doesn't remove 21 responsibility from you. So in that sense the TEL Board 22 did have responsibility. 23 Q. To just be quite clear, is it your position that the 24 Tram Project Board remained in charge of the project 25 even though they were reporting to the TEL Board? 43 1 A. They were the ones who were involved in it kind of day 2 to day who were driving the project. 3 Q. So just to be quite clear, what were TEL's 4 responsibilities for the project? 5 A. Well, in overall terms, TEL originally were established 6 to be the body that would bring about the integration of 7 public transport in Edinburgh Trams, trams and buses, 8 but beyond that, also interchange facilities, at 9 Haymarket, Waverley, and so on. They also had the 10 responsibility, I think it said something like in the 11 documentation, to promote or support individual 12 projects, of which clearly the tram was the major one. 13 Q. What were TEL's responsibilities during the procurement 14 and construction phases? 15 A. During procurement -- during the procurement phase, 16 they, I think, were also involved in signing off much of 17 the documentation and the recommendations that formed 18 the financial close documentation. 19 In the construction phase, the Tram Project Board 20 was meant to be reporting to TEL. 21 Q. So presumably TEL had some form of oversight role during 22 the procurement and construction phases; is that 23 correct? 24 A. That's correct, yes. 25 Q. How many employees did TEL have? 44 1 A. TEL -- TEL had very few, if any employees. 2 Q. So how could TEL as an organisation discharge its 3 responsibilities for the project? 4 A. It was through the Board of TEL, you know, which was 5 made up of experienced private sector individuals with 6 a substantial track record, City of Edinburgh 7 councillors and City of Edinburgh Council officials. 8 Q. Where did tie and the Board of tie fit into all that? 9 A. Again, that as the -- there was a change round about the 10 autumn of 2009, when -- I can go back a half step, it 11 was always assumed that we would go from having three 12 companies, tie, TEL and Lothian Buses, into an eventual 13 merged structure of probably one, had the project gone 14 ahead satisfactorily. 15 There was then work under way to move towards 16 a final stage. Now, stage 1 of that work involved the 17 coming together of tie and TEL, the Boards of tie and 18 TEL. 19 That I think happened in the autumn of 2009 going 20 into the winter of 2009. The Council was proposing to 21 transfer its shareholding in tie across to TEL as 22 a precursor to eventually having a single transport 23 entity running transport in Edinburgh. 24 Q. We could spend a lot of time talking about the detail of 25 the governance structure, but I think in short it may be 45 1 suggested that the governance structure of the tram 2 project was obviously confused and confusing. Do you 3 have any comments on that suggestion? 4 A. I never thought it was overly confusing. I think it 5 was -- it did appear to be complex, with these three 6 major companies involved. But that was understood way 7 back, probably in 2005/2006, that that was to be the 8 initial structure, and during the kind of phased 9 approach, that would lead up eventually to a more 10 streamlined, more cost effective, more efficient 11 structure. 12 Q. If it was understood back in 2005 or 2006 that the 13 governance arrangements were complex, why weren't steps 14 taken at that time to simplify and make clearer the 15 governance structure? 16 A. Well, I think there were -- I think I say somewhere in 17 my statement that there was a set of arrangements in 18 place until the acquisition of Royal Assent. There was 19 a set of arrangements in place between Royal Assent and 20 financial close, and then after financial close the 21 arrangements began to change again over the next two 22 years or thereabouts as a move towards the final 23 integrated transport structure. It was always 24 understood to be like that. That's partly why there was 25 a decision again taken by the Council to try and ensure 46 1 a degree of commonality from the Boards of 2 Lothian Buses, tie and TEL, so that all concerned had 3 a clear idea, clear vision in mind as to where the end 4 point should be. 5 Q. I would like to move on to a separate matter, please: 6 the question of Mr Willie Gallagher and his appointment 7 to various roles in tie. 8 Now, I think just by way of background, Mr Gallagher 9 was a Director of Lothian Buses, I think, between 10 January 2001 and November 2008; does that seem correct? 11 A. It does seem correct, yes. 12 Q. I think Mr Gallagher was also a Director of TEL between 13 October 2005 and November 2008; does that seem correct? 14 A. Yes. 15 Q. I think he was then appointed as a Director of tie in 16 February 2006. That's with reference to a report to 17 Council on 23 February 2006 by yourself. I'll give the 18 reference for the transcript without going to it. It's 19 CEC02083493. 20 I think Mr Gallagher was then appointed as Chairman 21 of tie on 1 June 2006 following advertisement and 22 interview; is that correct? 23 A. Yes. 24 Q. Again, I'll give the reference without going to it. 25 There's a letter from yourself to Mr Gallagher, dated 47 1 1 June 2006, reference CEC01745343. I think also in 2 August 2006, Mr Gallagher was appointed as executive 3 chairman of tie on an interim basis; is that correct? 4 A. Yes. 5 Q. I'll come back to look at the documentation there 6 shortly, but I would like to start, please, by looking 7 at Mr Gallagher's CV. It's CVS00000003. It's the CV, 8 I think, provided by Mr Gallagher. 9 If you go to page 2, you see at the top 10 Edinburgh Trams - Executive Chairman. What he then sets 11 out below that is his prior experience before joining 12 the tram project. I'll give you a minute just to read 13 what is said. My question at the end of it was going to 14 be: what had Mr Gallagher built? Just take a minute to 15 read this. 16 A. Sorry, would you mind repeating that? 17 Q. Yes. My question at the end of this is: what has 18 Mr Gallagher built? I'm going to give you a second to 19 read what he sets out in his CV in relation to his prior 20 experience before he joined tie. 21 A. I think one of the main aspects -- I can't quite see 22 there just now -- was his work on the strategic rail 23 authority, and also his work with Scottish Power, where, 24 again, you asked me the question: what had he built? He 25 hadn't built trams, he hadn't built light railways, but 48 1 he did appear to have a quite wide-ranging career 2 background, certainly in the Scottish power industry, 3 that gave him a degree of qualification for the post he 4 applied for. 5 What of course I can't recall is which other 6 candidates were interviewed at the time and what skill 7 set they may or may not have had. 8 Q. No doubt Mr Gallagher may have had various management 9 skills and experience, but the question is: what had he 10 built? 11 A. He hadn't specifically built anything. 12 Q. So on the face of it, Mr Gallagher appears to have had 13 no experience of delivering a major infrastructure 14 project, far less a tram or light rail project; is that 15 correct? 16 A. That seems to be correct, yes. 17 Q. So I should ask then, in what way did you consider that 18 Mr Gallagher did have the necessary experience and 19 expertise to deliver the tram project? 20 A. They were looking -- we, being the Council, were looking 21 at the time for leadership skills. Clearly underneath 22 Mr Gallagher was going to be a structure, a management 23 structure with a programme director, a project director, 24 who had some of the skills that I think you're referring 25 to. 49 1 He was partly chosen as an advocate for the project 2 as well. He was chosen by elected members for the 3 position of Chair of the Board of tie. 4 Q. I would like to move on to another document, please. 5 It's CEC01891602. We can see this is headed "tie Limited - 6 Interim Appointment of Executive Chairman". It's 7 a report to the Council, I think, 24 August 2006. 8 If we go over the page, I think we'll see it's 9 a report by yourself, Mr Aitchison. Yes, we can see 10 that's by you. 11 So back to page 1, please. We can see in 12 paragraph 1, the purpose of the report is to advise of 13 the appointment of Mr Gallagher as Executive Chairman of 14 tie on an interim basis. 15 We can read for ourselves what's set out in 16 paragraphs 2 and 3 and 4. 17 We can see, however, in paragraph 3, you do say you 18 had agreed that exceptionally, and for an interim period 19 only, Mr Gallagher should assume the dual role of 20 Executive Chairman, and in paragraph 4 you say that: 21 "It remains my view, and it is Council policy, that, 22 in a company of the size and importance of tie, there 23 should be a clear separation between roles and 24 responsibilities of the Chairman and the 25 Chief Executive. I had to recognise, however, that 50 1 there were special circumstances in tie at the time 2 which required the adoption of a pragmatic approach." 3 And two things are set out. 4 Now, why were you of the view that in a company of 5 that size and importance, there should be a clear 6 separation between the roles and responsibilities of 7 Chairman and Chief Executive? 8 A. Well, that was a standard approach to the Cadbury 9 Committee recommendations. We tried to follow that 10 approach all the time in relation to major local 11 authority companies. 12 Q. Why is that important, that there is such a separation? 13 A. Separation of responsibility and accountability. 14 Q. Why is that important? 15 A. It's to enable the chair of the organisation to have 16 scrutiny authority over the Chief Executive of the 17 organisation. 18 Q. It avoids putting too much power into the hands of one 19 person, and enables and encourages challenge, scrutiny 20 and oversight; is that a fair way to put it? 21 A. Yes. 22 Q. If one doesn't do that, there's then a risk that there 23 is too much power in the hands of one person and a lack 24 of challenge, scrutiny and oversight; is that the 25 logical corollary? 51 1 A. I think that's the logical conclusion from that, yes. 2 Q. Just to be quite clear, what were the special 3 circumstances at this time that you considered justified 4 essentially a departure from good corporate governance? 5 A. Well, I think that's referred to in these two bullet 6 points. It could certainly take somewhere between six 7 and nine months to appoint a new Chief Executive, and 8 that was important, given the stage the project had 9 reached in 2006/2007. It says there the imminent 10 commencement of the procurement and tendering processes 11 and the Business Case. So it was trying to avoid any 12 dip in the momentum generated by the tram project. 13 Q. Did you envisage at the time this would be an interim 14 situation? 15 A. Yes. 16 Q. Until perhaps six months, I think that's perhaps 17 mentioned in the report? 18 A. I think I did say somewhere, I can't see it on the 19 screen at the moment, but I would review it later in the 20 year, early the following year. 21 Q. Yes. On page 2, paragraph 8: 22 "The Council is asked to note the appointment ... 23 I shall report further, following a review of the 24 position in December [2008]." 25 CHAIR OF THE INQUIRY: December 2006. 52 1 MR MACKENZIE: Thank you, my Lord. December 2006. 2 So, Mr Aitchison, was it essentially your decision 3 to appoint Mr Gallagher at that time as interim 4 Executive Chairman? 5 A. Yes and no. Sorry, I am giving you the kind of answer 6 you don't like. There was extensive discussion with the 7 Council's then political leadership. I think it does 8 say somewhere, if we can maybe go back a page again, 9 that there had been discussion with the political 10 leadership in various political groups of the Council. 11 Q. Can you name any names? 12 A. Well, Councillor Anderson was the one who interviewed 13 Mr Gallagher for his position as -- to become Chairman 14 of tie, not Executive Chairman. Chairman of tie, a few 15 months before, in June 2006. 16 I think he had been impressed with the way 17 Mr Gallagher was going about his business and was 18 supportive of a view that he should be -- or could be 19 appointed the Executive Chairman. 20 Q. Just to be quite clear, at this stage there had been no 21 advertisement or open competition for the post of 22 Executive Chairman? 23 A. No, that took place for Chairman, but not Executive 24 Chairman. 25 Q. Then look forward, please, to another document, 53 1 CEC02083465. This was the report to Council in 2 December 2006 that will come up on screen. Over the 3 page, please, page 2. We see again it's a report from 4 yourself. 5 Back to page 1, please. We can see report to 6 Council, 21 December 2006. Paragraph 1: 7 "This report recommends that the existing interim 8 Executive Chairman arrangement for tie is extended for 9 a further period until the autumn of 2007." 10 We can read for ourselves what's set out in 11 paragraphs 2 and 3. Paragraph 4 states: 12 "Although substantial progress is being made, final 13 decisions on the Edinburgh Tram Project will not be 14 taken until September 2007. Also, by next summer the 15 way forward on EARL will be clearer. Accordingly, it is 16 proposed that the existing interim Executive Chairman 17 arrangements be extended for a further period until the 18 autumn 2007 ..." 19 Now, to pause there, what steps, if any, had been 20 taken between August 2006 and December 2006 to identify 21 a suitable Chief Executive or head hunt one or advertise 22 that post? 23 A. I don't recall any -- any steps of that nature. There 24 was some discussion between myself, Mr Gallagher, and 25 I think Mr Mackay as to when we might begin to move 54 1 towards appointing a new Chief Executive. 2 I think part of the rationale was that had we 3 started our process, say, in December 2006/January 2007, 4 we may have got to a point where a new Chief Exec was 5 coming in at a point where the Business Case was not 6 going to be approved and there was no project to be 7 taken forward. So it seemed sensible to wait a further 8 period before moving on a new Chief Executive. 9 Q. Now, was that your view or was that the view of members? 10 A. It was probably a combined view. 11 Q. In the report we're looking at, there's no mention at 12 all of this proposal being contrary to good corporate 13 governance. 14 A. Not in that report, no. 15 Q. Should that not have been included to enable members to 16 come to a properly informed decision? 17 A. That might have been helpful. I think it was probably 18 assuming that they would have tracked back to read the 19 previous report, but that's not the same thing, 20 I accept, as reiterating in this report what the good 21 corporate governance should have been or could have 22 been. 23 Q. I assume again it would be correct to say that when this 24 decision is taken to extend the existing interim 25 Executive Chairman appointment, that that was done 55 1 without advertisement or open competition for the post? 2 A. Yes. There was no appointment being made. So there was 3 no process behind it. 4 Q. Can I just continue this chain, please. Another report. 5 CEC02083455. We can see this is a report to Council of 6 20 September 2007, and if we go, please, to page 4, 7 we'll see again this is a report by yourself. If we 8 then please go to page 3, under "Recommendations", 9 paragraph 20: 10 "It is recommended that Council: ... (iii) note that 11 the role of Executive Chairman of tie is being reviewed 12 by the tie Board and its remuneration committee and that 13 the contract and responsibilities of the post are being 14 revised." 15 Was that not a matter for the Council to decide on, 16 rather than the tie Board? 17 A. I think it was proper for the tie Board to begin that 18 process. But it would have been subsequently and 19 ultimately a matter for the Council. 20 Q. Mr Gallagher is Chairman of the tie Board, is he not, at 21 this point? 22 A. Sorry, say again? 23 Q. Mr Gallagher is Chairman of the tie Board at this point? 24 A. Yes, that's correct. 25 Q. And also Chief Executive of tie? 56 1 A. Yes. 2 Q. Do you know if he was involved in any way in the review 3 of his position, including the contract 4 responsibilities? 5 A. I think, from memory, this may hinge on the remuneration 6 remark. I think the view was coming through -- was that 7 they were working very extensively on tie arrangements 8 and what should be the appropriate remuneration for the 9 post. 10 I think in an earlier report it says somewhere, 11 I think there was something like GBP8,000 per month was 12 being paid. But I think there may have been 13 a discussion around this time about whether or not that 14 was the appropriate remuneration level. 15 Q. Given the unusual situation which had arisen, namely 16 that Mr Gallagher was, contrary to good corporate 17 governance guidance, both Chairman and Chief Executive 18 of tie, did that not make it all the more important that 19 the Council took the decision on whether that situation 20 should continue or not? 21 A. Yes, I mean, when I read that, I read that as suggesting 22 that that would have been the case eventually. A report 23 would have gone to the Council, either recommending or 24 not recommending, or supporting or not supporting the 25 views coming through from tie. So I don't read that -- 57 1 maybe I'm wrong in this -- as being the end of the 2 story. Merely as noting something that's actually in 3 progress at the time. 4 Q. Do you know whether the matter ever came back to the 5 Council for approval? 6 A. The matter being what? 7 Q. The question of whether Mr Gallagher should continue as 8 Executive Chairman of tie? 9 A. That was under review, and eventually was overtaken by 10 events when he resigned his post. 11 Q. Well, this is September 2007. He resigned in 12 November 2008. So let's just stick with September 2007. 13 We see a report to Council by yourself where the 14 Council are being asked to note that the role of 15 Executive Chairman of tie is being reviewed by the 16 tie Board. I just wondered, are you aware whether the 17 matter was ever put back to the Council for approval? 18 A. I can't say definitively. I think not, but I'm not sure 19 about that. 20 Q. What were your views around this time as to whether 21 Mr Gallagher should continue in the role of Executive 22 Chairman? 23 A. I didn't want that to last too long. I did want to 24 revert to the traditional model of a separate 25 Chief Executive and a separate Chairman. That's why 58 1 I said in the very first report that the circumstances 2 were described as exceptional, rather than -- rather 3 than the norm. 4 Q. You say you didn't want it to last too long. The 5 interim arrangement as it was described had been in 6 existence for over a year; is that correct? 7 A. The -- 8 Q. Since August 2006. 9 A. Yes, that's correct. He maintained his position as 10 Executive Chairman between August 2006 until he left in 11 November 2008. 12 Q. That seems like quite a long time for that to have gone 13 on for? 14 A. Yes. There was discussion starting in the spring of 15 2008, round about the time of financial close, about 16 whether that arrangement should be changed, but we 17 hadn't advanced the work sufficiently before he decided 18 later that year that he was leaving his position. 19 Q. I would like to go to another document, please. 20 CHAIR OF THE INQUIRY: Did you see any difficulty with the 21 contract and responsibilities being revised including 22 remuneration, when Mr Gallagher was Executive Chairman? 23 A. Remuneration was a major problem. The individual we're 24 talking about, Mr Gallagher in particular, but also 25 others who had come from a private sector background, 59 1 were, if I can put it crudely, looking for a private 2 sector salary. 3 That was not necessarily commensurate with the 4 remuneration policy in the public sector or the Council 5 in particular; and there was a degree of tension trying 6 to navigate a way through to recognise that there 7 were -- these individuals were, Mr Gallagher, later 8 Mr Mackay, doing a major -- undertaking a major task on 9 behalf of the Council, while at the same time not 10 allowing the salaries to go to a point where that would 11 bring public criticism on the Council. 12 Q. I think -- I understand what you're saying. What I was 13 really wondering was: did you see any difficulty about 14 the question of remuneration being discussed by the 15 tie Board and its Remuneration Committee when the 16 Executive Chairman was -- who would be the recipient of 17 the remuneration -- 18 A. It's far from ideal, isn't it? 19 CHAIR OF THE INQUIRY: That's what I was wondering. 20 A. Yes. This is maybe a shortcoming on my part. I wasn't 21 aware until later, beyond this period. I actually 22 thought there was a separate individual who was chairing 23 tie's Remuneration Committee, then in reading some of 24 the background papers for the Inquiry, discovered that 25 for a period of time he was actually chairing that 60 1 committee. It's not something I would support. 2 CHAIR OF THE INQUIRY: Thank you. 3 MR MACKENZIE: Another document in the chain, please. 4 CEC02086883. 5 Now, we can see this is a letter from yourself dated 6 21 September 2007 to Brian Cox of tie Ltd. Was Mr Cox 7 a Director of tie? 8 A. Yes. 9 Q. Was he perhaps on the Remuneration Committee? 10 A. Sorry, I cannot actually read this letter. It's -- it 11 needs to be brought up the screen a bit. 12 Q. Yes. We'll scroll down a little. Perhaps we can blow 13 up the two main paragraphs. Thank you. 14 So just to read this letter, it states: 15 "Dear Mr Cox. 16 "THE EXECUTIVE CHAIRMAN OF tie. 17 I write with reference to the report 'Edinburgh 18 Tram: Further update' which was considered and approved 19 by the full council at its meeting this morning. I have 20 attached a copy of the report for your information. You 21 will note that the recommendations include a note that 22 'the role of Executive Chairman of tie is being reviewed 23 by the tie Board and its remuneration committee and that 24 the contract and responsibilities of the post are being 25 revised'. 61 1 I understand that there is a meeting of the 2 tie Board on Monday and that this matter could be 3 considered at that time. An outline of the proposed 4 terms and conditions for this post have been discussed 5 extensively between the Council and tie and I have also 6 attached a draft letter that you may wish to use in 7 writing to the post holder." 8 So in short, what had been the discussions between 9 the Council and tie in relation to this matter? 10 A. It's the first time I have seen this letter since I must 11 have signed it back about ten years ago, so it's not 12 something that's ringing an immediate bell. 13 Do we have the report that's referred to there, the 14 Edinburgh tram update approved by the Full Council? 15 Q. That's the one we've just looked at. 16 A. No. Sorry, was that the one you're referring to on 17 appointments? 18 Q. Yes. We had looked at the report dated 19 20 September 2007, and we looked at the final 20 recommendation? 21 A. Right. Sorry. Sorry, I thought it was a more extensive 22 report that had gone to the Council at that time. 23 Q. So is it your position in short you can't remember any 24 discussions that had taken place between the Council and 25 tie at around this time in relation to this matter? 62 1 A. I'm afraid that is in fact the case. Yes, this has got 2 me completely on the back foot, this one. In one 3 respect, the first paragraph is merely factually me 4 informing Mr Cox that what -- as you just said, what had 5 happened in relation to that report. 6 The second paragraph I'm less sure about. So I'm 7 sorry, my memory has gone on this one. 8 Q. Perhaps if we go over the page to page 2, you'll see the 9 draft letter. 10 We can see it's a letter addressed to Mr Gallagher. 11 The first paragraph: 12 "I refer to recent discussions proposing your 13 appointment as the Executive Chairman of Transport 14 Initiatives Edinburgh Ltd." 15 Perhaps just note in passing that paragraph 4 is -- 16 a reference to the salary has been redacted, but also 17 a 50 per cent bonus. We can see there how it's made up. 18 Page 3, we can see this is a draft letter by Mr Cox, 19 Chair of the Remuneration Committee of tie. 20 So in short, Mr Aitchison, the impression given is 21 that there has been some discussion between tie and at 22 least Council officers in relation to Mr Gallagher 23 continuing as Executive Chairman of tie, but it's not 24 obvious, I have to say, whether Council members were 25 part of these discussions. Can you help in that regard? 63 1 A. Can I help in that regard? I suspect there would have 2 been discussion with certain elected members, possibly 3 Councillor Wheeler as a Board member of the TPB, perhaps 4 others. But I can't give you -- I'm sorry -- chapter 5 and verse on this. 6 Could you go -- could you go back to the earlier 7 part of the letter? 8 Q. Yes, to page 1? 9 A. Yes. 10 Q. Page 1, please, if we can pull up again the two main 11 paragraphs. 12 A. Sorry, it's the information behind it, I beg your 13 pardon. 14 CHAIR OF THE INQUIRY: You want page 1 of the next document? 15 Page 1 of the next document? 16 A. Yes. 17 MR MACKENZIE: Perhaps we can blow up the first main 18 introductory paragraph. 19 A. That's better, thank you. 20 Well, this does appear to give some succour to the 21 point I made earlier about a separation between 22 Mr Gallagher in his role as Chairman of the Remuneration 23 Committee, given this is a letter from Mr Cox. In one 24 level, it's clearly appropriate to have a degree of 25 communication between the Remuneration Committee in tie 64 1 and Mr Gallagher upon assuming his duty. But the 2 question you asked me was what recollection do I have 3 and would members be involved. I have very little 4 recollection of the specifics of this, but I do think 5 generally speaking, these things were discussed with 6 elected members informally. 7 Q. What perhaps I don't understand is that on the one hand 8 we saw the report to Council in September 2007 saying 9 this matter would be dealt with by the tie Board and the 10 tie Remuneration Committee, and yet on the other hand we 11 see you supplying a draft letter to the Chair of the 12 Remuneration Committee. 13 I don't understand why you are supplying a draft 14 letter. 15 A. Well, I don't -- I certainly don't recognise these 16 changes in handwritten form. That's not my handwriting, 17 so ... 18 Q. But then to complete this link, please, by going to the 19 letter sent by Mr Gallagher to Mr Cox. It's 20 CEC02086884. 21 Again, this is redacted, but we can see it's dated 22 3 October 2007. It's to Mr Gallagher. If we scroll 23 down a little, I think we can see the letter is in very 24 similar terms to the draft you had proposed. Then if we 25 go over the page, I think we'll see it's by Mr Cox. 65 1 Yes. We can see his name at the bottom. 2 So in short, this is the letter confirming 3 Mr Gallagher's appointment in the continued role of 4 Executive Chairman. So I think in short, Mr Aitchison, 5 this time the interim appointment was made permanent; is 6 that correct? 7 If we can perhaps go back to page 1 and blow up the 8 paragraph, introductory paragraph, it states: 9 "I refer to the discussion at the tie Remuneration 10 Committee held on 24 September 2007 regarding your 11 continued appointment as Executive Chairman of tie. 12 The terms and conditions included in this letter 13 were agreed at the tie Remuneration Committee and 14 subsequently approved on the same day by the tie Board. 15 I am now therefore writing to you to confirm that 16 the post of Executive Chairman is offered to you on the 17 basis of an employment contract for the duration of the 18 project and is subject to the following terms and 19 conditions." 20 So in short, it appears that the interim position 21 has now been made permanent? 22 A. I'm not sure I entirely agree with that. I think it was 23 always a matter for the Council to decide whether or not 24 they wanted to make a replacement. So if the Council 25 had taken advice to separate out as you asked me 66 1 earlier, the position of Executive Chairman and 2 Chief Executive, that could and would have been done. 3 CHAIR OF THE INQUIRY: But until it was done, the position 4 seems to be that the post was now being recognised as 5 a permanent post, as opposed to an interim one. 6 A. Yes, you can read it that way. But to me it's 7 regularising in a contractual sense what his 8 relationship to tie was, what the salary and all the 9 other associated benefits would be. So you will know a 10 lot better than me, but that does smack -- or accept of 11 a kind of permanent contract. 12 MR MACKENZIE: Just to be quite clear, that's been done 13 without any advertisement of the post or without any 14 open competition. 15 A. That's correct. 16 Q. Again, that's been done in the knowledge that that is 17 contrary to good corporate governance guidance? 18 A. Yes. 19 Q. Was that being done with the knowledge and approval of 20 members? 21 A. It wouldn't appear so, no. 22 Q. Just to finish this line, Mr Aitchison, I do have to 23 suggest to you that it was clearly inappropriate for 24 Mr Gallagher to have acted as both Chairman and 25 Chief Executive of tie between August 2006 and 67 1 November 2008. 2 A. No, I wouldn't go as far as that, but I accept the 3 qualifications you've made. 4 Q. I should also put to you that it was clearly 5 inappropriate for Mr Gallagher to have been appointed to 6 and have remained in that position, without 7 advertisement or open competition? 8 A. That was always the Council's and my personal preferred 9 choice. 10 Q. I should finish this line by putting to you that you 11 should not have allowed either of these things to 12 happen. 13 A. No, I'm not sure I entirely accept that. I thought in 14 good faith I was reporting to the Council on: he became 15 a Board member, he was Executive Chair, that was 16 extended. I think it was extended again. So there was 17 an opportunity at various stages for that recommendation 18 to be challenged. 19 So I certainly thought, at least in part, that I was 20 discharging responsibilities to the City of Edinburgh 21 Council. 22 MR MACKENZIE: My Lord, that would be a suitable -- 23 CHAIR OF THE INQUIRY: The letter of appointment that we 24 have just seen, which is on the screen, that followed on 25 a draft letter which seemed to come from you; is that 68 1 right? 2 A. I'm not sure about that, no. 3 CHAIR OF THE INQUIRY: You've seen a draft letter. 4 A. I beg your pardon. It may have come from somebody on my 5 behalf, but I do not specifically recall personally 6 being involved in that. 7 CHAIR OF THE INQUIRY: Sorry. It would seem to come from -- 8 would that be an official in the Council -- 9 A. Yes. 10 CHAIR OF THE INQUIRY: -- who drafted that letter? 11 A. I assume so, yes. 12 CHAIR OF THE INQUIRY: And that then -- did the draft letter 13 include the passage about the post being offered on the 14 basis of an employment contract? 15 MR MACKENZIE: Yes, we should perhaps go back to it, 16 my Lord. It's CEC02086883. If we go to page 2, in the 17 end of the first paragraph, we can see the reference to: 18 "... the post of Executive Chairman is offered to 19 you on the basis of an employment contract for the 20 duration of the project ..." 21 CHAIR OF THE INQUIRY: So that presumably the policy of the 22 Council, requiring advertisement of positions such as 23 this, would be known to all senior officials in the 24 Council. 25 A. Yes. 69 1 CHAIR OF THE INQUIRY: So if that was drafted by 2 a councillor, did that contravene that policy? 3 A. It would appear so, yes. 4 CHAIR OF THE INQUIRY: Thank you. Did you say this was 5 a convenient point? 6 MR MACKENZIE: Yes, my Lord. 7 CHAIR OF THE INQUIRY: We will have a break now, 8 Mr Aitchison, for 15 minutes to enable the shorthand 9 writers to have a break. 10 A. Thank you. 11 CHAIR OF THE INQUIRY: You will get that cup of tea or 12 coffee if you want. 13 (11.10 am) 14 (A short break) 15 (11.28 am) 16 CHAIR OF THE INQUIRY: You're still under oath, 17 Mr Aitchison. Yes, Mr Mackenzie. 18 MR MACKENZIE: Thank you, my Lord. 19 I would like to move on, please, Mr Aitchison, to 20 the summer of 2007, when we know that the Scottish 21 Government decided to cap Transport Scotland's 22 contribution to the project and also withdrew 23 Transport Scotland from the direct governance or 24 decision-making arrangements for the project. 25 What were your views on these matters at the time? 70 1 A. At the time I think it led to a number of improvements 2 to the governance between the Council and tie; for 3 example there was additional material inserted into the 4 Operating Agreement between the Council and tie, and we 5 were also beginning to move towards the creation of 6 a Tram Sub-Committee of elected members. There was 7 various steps of that type taken to reflect the fact 8 that given the GBP500 million was capped, any additional 9 cost movement would fall solely on the shoulders of the 10 Council. 11 Sorry, I beg your pardon. You may ask -- questions. 12 I felt it would have been helpful had Transport Scotland 13 continued in a more participatory role, but I do 14 understand behind the scenes were regular meetings 15 between officials of the Council and Transport Scotland 16 in relation to funding and various other matters. 17 Q. Now, before that decision was made by the Scottish 18 Government in relation to Transport Scotland, to what 19 extent had the Council been reliant on 20 Transport Scotland's experience and expertise in 21 delivering major transport infrastructure projects? 22 A. I don't know if I would use the word "rely". But 23 certainly in my view it was reassuring as 24 Chief Executive that alongside professionals from tie 25 and the Council, there was an input from 71 1 Transport Scotland for the very reasons you articulate, 2 ie they had more experience and expertise in large 3 projects than the City of Edinburgh Council did. 4 Large transport projects. 5 Q. Would it be fair to say that Transport Scotland's 6 withdrawal from the decision-making aspects of the 7 project left a gap in relation to experience and 8 expertise of delivering these sorts of projects? 9 A. Yes. 10 Q. Now, were the Council able to fill that gap, and if so, 11 how? 12 A. They weren't able to fill it in the sense it was hard to 13 replicate the potential input from a national 14 organisation. 15 The steps taken by the Council were to try and 16 ensure they had as many well qualified members from the 17 private sector involved in the Board of TEL and tie. 18 Q. Because it may be suggested that an obvious way to have 19 filled that gap would have been for the Council or 20 a slimmed-down version of tie to have instructed 21 a multi-disciplinary engineering company with experience 22 and expertise in light rail and a proven track record in 23 delivering major transport projects to have delivered 24 the Edinburgh project, or at least have assisted in its 25 delivery. Was any consideration given to that at the 72 1 time? 2 A. Not as I recall. 3 Q. Looking back, do you consider consideration ought to 4 have been given to that? 5 A. As I said in response to one of your questions earlier, 6 in the summer of 2007, in the autumn, there did appear 7 to be reasons for believing that tie was 8 a well-performing organisation. And that they had 9 therefore the expert -- they had the expertise to go on 10 and deliver the tram project, supported where necessary 11 by involving other contractors and companies from the 12 private sector. 13 Q. When you say reason to believe tie were 14 a well-performing organisation, is that a reference to 15 the Audit Scotland and OGC Reviews? 16 A. Yes. 17 Q. I think members of the Council, certain officers and 18 what were referred as the B team, wouldn't have agreed 19 with that. Were you aware of their concerns in relation 20 to tie? 21 A. No, I have come across some of these references in the 22 background papers. They were not drawn to my attention 23 at the time, no. 24 Q. We've heard evidence that in the second half of 2007, 25 there were discussions within the Council in relation to 73 1 whether the Council should instruct an independent legal 2 review of the risks for the Council arising from the 3 tram contracts. Were you aware of these discussions at 4 the time? 5 A. No. 6 Q. So was it never brought to your attention for decision 7 or guidance as to whether the Council should obtain 8 independent legal advice? 9 A. No. 10 Q. Do you have any views on that matter with the benefit of 11 hindsight? 12 A. Well, it would be helpful, wouldn't it? 13 Q. Why? 14 A. It may have exposed what became the difficulties over 15 certain clauses in the contract. 16 Q. Now, separately to the question of an independent legal 17 review, there was also a discussion within the Council 18 around September/October 2007 of the Council obtaining 19 independent external advice on the risks to the Council 20 arising from the project from a company like 21 Turner & Townsend. Were you aware of these discussions 22 at the time? 23 A. I don't think so, no. 24 Q. Could I go, please, to a document CEC01630955. 25 Now, we can see, I think, if we look at the email at 74 1 the bottom of the page, towards the bottom, this is an 2 email from Rebecca Andrew, who was an officer in the 3 Finance Department, sent on 12 September 2007 to 4 Susan Clark of tie, and the subject is "External Adviser 5 Brief". 6 In short, Ms Andrew wished and thought it advisable 7 that the Council should instruct external advisers to 8 report on the risks to the Council arising on the tram 9 project. 10 We see in the second line from the bottom Ms Andrew 11 stated: 12 "I would also like to emphasise that the appointment 13 of external advisers (if it goes ahead) is no way 14 a criticism of the expertise or work carried out within 15 tie. It is simply a recognition that CEC officials do 16 not have appropriate experience to perform their 17 monitoring/assurance role, particularly given the extent 18 of the risks involved." 19 Now, to pause there, was it correct that there was 20 a need for independent assurance of the risks for the 21 Council ie independent of tie? 22 A. Well, that was not to my knowledge drawn to my attention 23 at the time. I would have taken advice from the 24 Council Solicitor, Director of City Development, 25 Director of Finance, and I don't recall any of this 75 1 being brought to my attention in the autumn of 2007. 2 Q. The question really is: standing back, was there a need 3 for independent assurance of the risks for the Council 4 ie independent of tie? 5 A. Are you asking me with the benefit of hindsight? 6 Q. No. What were your views at the time as to whether the 7 Council required independent assurance of the risks for 8 the Council arising from the project? 9 A. Well, I was given to believe by colleagues that the 10 matter was fully under consideration, that the advice 11 being taken by -- given by tie supported by DLA was -- 12 was moving towards a satisfactory conclusion, and I had 13 no involvement in this whatsoever. 14 Q. I think what influenced Ms Andrew, she explained in her 15 evidence, was she was aware of Prince 2 project 16 management guidance, and explained it was an important 17 part of that that the client should always obtain 18 independent assurance, and it wasn't enough just to rely 19 on what the -- tie in this case was saying; even if one 20 had no concerns at all about tie, there was still a need 21 for independent assurance. What were your views on that 22 at the time? 23 A. Well, as far as I was aware and concerned, I thought 24 colleagues were following properly the project 25 management principles. 76 1 Now, if you tell me there was that requirement in 2 there, I have to accept that. But I would have thought 3 something of that potential importance would have been 4 flagged up through the internal planning arrangement, or 5 brought to my attention, and clearly had it been, then 6 I would have taken action on it. 7 Q. Just to be quite clear. Was your view at the time that 8 you considered it was sufficient to rely on tie, tie's 9 legal advisers and Council officers, and you didn't 10 consider there was a need for independent assurance of 11 the risks for the Council? 12 A. Yes. 13 Q. The other point made by Ms Andrew in her email is that 14 Council officials did not have the appropriate 15 experience to perform that monitoring assurance role. 16 What were your views on that matter? Was she correct? 17 A. Well, she was correct subsequently, but again, going 18 over some of the background papers for today's meeting, 19 I've come across some references to that. Generally 20 speaking, they were in 2008, rather than 2007. But it 21 worries me now, having seen that, that apparently these 22 points were being raised. I can't speak for my 23 colleagues who would have discussed that with Rebecca 24 and colleagues in legal services, and they clearly came 25 to a conclusion that seeking separate independent legal 77 1 advice at that point in time was not necessary. 2 Q. Now, you have explained that you weren't aware of the 3 discussions in relation to whether there was a need for 4 independent legal advice, and you weren't aware of the 5 discussions as to whether there was a need for a review 6 by a company such as Turner & Townsend. Are these 7 matters that ought to have been put to you at the time 8 for your decision? 9 A. That would have been a correct reporting line. Most 10 issues of that nature were being considered by 11 colleagues individually and collectively. But generally 12 speaking, that advice would have come through the 13 Internal Planning Group, which I chaired. Unless I've 14 missed something here, I don't recall any of that ever 15 being a feature at these meetings. 16 CHAIR OF THE INQUIRY: Can I just be clear. What would be 17 the process if that email went to the appropriate 18 director or directors -- I think we see early on that 19 they were absent at that time. But if it went to them 20 when they came back, I think the following Monday, would 21 you expect these directors to bring that up to the IPG? 22 A. On balance, yes. They may have felt they were -- these 23 are senior people we're talking about. One who was in 24 charge of the project and the Director of Finance was 25 working with him. 78 1 So I presume they considered it. I presume also -- 2 there's a lot of presumptions in here -- they discussed 3 it with the member of staff or staff who were raising it 4 with them, and have come to a view. So they have 5 presumably not felt it was necessary to bring it to me, 6 either individually or through the group we had in place 7 to consider these matters. 8 MR MACKENZIE: Could we also please just finish this by 9 going to another document, CEC01567757. The middle 10 email is an email from Rebecca Andrew dated 11 2 October 2007 to Jim Grieve. It's not sent to 12 yourself. 13 Ms Andrew states that: 14 "I have discovered that tie have now engaged OGC to 15 look at Risk next week and not Turner & Townsend, as 16 previously understood." 17 I will explore that in more detail with other 18 witnesses. But the next paragraph: 19 "I have concerns that the OGC review may be at too 20 high a level and that our need to have comfort over the 21 detail of the risks will not be met." 22 Did you have any concerns as to whether the OGC 23 Review around this time was at too high a level, and in 24 not enough detail to adequately protect the Council's 25 interests? 79 1 A. No, I took reassurance from the fact that, first of all, 2 we'd gone through the three OGC Reviews. I'm not 3 100 per cent clear, but I think, looking at this email 4 here, I think tie requested a supplementary risk report 5 based upon OGC3, which again seemed to be indicative of 6 them trying to get as much information as possible on -- 7 on risk. 8 The OGC was a requirement of the governance 9 methodology for large scale projects. So at the time it 10 did seem to me that they were trying to follow -- not 11 trying, were following the national advice set out about 12 major project development. 13 Q. I take it there was no discussion with you around this 14 time as to whether it was appropriate to instruct the 15 OGC to review the risks rather than Turner & Townsend? 16 A. There was -- no. 17 Q. And we have heard evidence from an OGC witness that they 18 did spend two or three days, I think in October 2007, 19 specifically reviewing the risks and in short they 20 produced a report which described the risk allowance as 21 prudent. 22 Ms Andrew's concern, however, was that that was 23 simply too high a level and not detailed enough, and 24 you've explained your response to that. 25 So that was the review of risks carried out in 80 1 October 2007. Contract close wasn't until May 2008. 2 Was there any consideration to instructing a further 3 independent review of the risks before contract close? 4 A. Not as I recall it, no. 5 Q. Why not? 6 A. I think because it was thought that the processes put in 7 place by three senior colleagues, their supportive 8 teams, tie and DLA, were sufficient to identify and 9 explain the risks involved. 10 Q. Because the problem with that may be that when the OGC 11 carried out their review, the price terms and conditions 12 of the contract and risk allocation had not been agreed, 13 and these matters don't become fixed until much closer 14 to contract award. 15 A. Well, that's correct, but the movement on cost, I think, 16 in the late autumn of 2007, was 498. Sorry, 500. It 17 went down to 498. Then clearly up to 508 and 512. So 18 the movement was substantial, and I think there is 19 a reference in a report somewhere, possibly to tie, 20 which said that the movement between approval of the 21 Business Case and financial close was primarily related 22 to additional risks associated with late -- with design 23 as yet incompleted. 24 Q. I would like to move on to another document, please. 25 CEC01398245. We can see this is a report to the IPG on 81 1 11 December 2007. If we can go, please, to page 91. 2 We can see, top right-hand corner in red, this is an 3 Appendix 3 of the report. In short, this is a document 4 we've looked at before that's been referred to as the 5 director's briefing note which was compiled by what has 6 been referred to as the B team for the senior officers' 7 consideration at this meeting. 8 I take it you've seen this report before, 9 Mr Aitchison? 10 A. I think so, yes. 11 Q. Do you recall what the purpose of this note was? 12 A. I think it's flagging up various issues. Sorry, could 13 you remind me what date this is? December? 14 Q. Yes. 15 A. So I think it was close to the report going to the 16 December Council. So it was necessary to ensure that 17 the Council had all the necessary information and 18 analysis to support a recommendation one way or another 19 to the Council at its December meeting. 20 Q. I think in short it raises a number of concerns of the B 21 team. Is that a fair way to put it? 22 A. The recollection is that this came primarily from 23 Mr Coyle in the Finance Department. But yes, 24 I think ... 25 Q. If we then, for example, under 3, "Potential Additional 82 1 Project Costs", under 3.2: 2 "It is currently unclear to CEC as to the scope of 3 the works, the timescale of the project, and the 4 allowance for incomplete detailed design and implication 5 for gaining approved designs (technical and prior 6 approvals). All the above can have potential impacts of 7 time and costs and under this form of contract potential 8 major cost implications because of delay and disruption 9 to the position at financial close." 10 In paragraph 3.3: 11 "This form of contract was adopted 'fixed price' on 12 the basis of complete approved designs however as this 13 is not where we are this current position requires to be 14 reflected in the QRA and contingency allowance." 15 3.4: 16 "The underlying concern is that while it may be 17 achievable to reach a financial close of GBP498 million, 18 this will result in a major challenge in managing this 19 during the contract. It has been confirmed by tie that 20 the extension of time from the current target would have 21 a significant impact on overhead costs on this form of 22 contract." 23 So in short, what this is saying, it's trying to 24 flag up the problems arising from design not being 25 complete and not all approvals and consents having been 83 1 obtained; is that right? 2 A. Yes. 3 Q. So that was an issue you were aware of both at this time 4 and all the way up until contract close, I take it? 5 A. Yes. 6 Q. Is this also perhaps flagging up the problem with the 7 procurement strategy, which was based on having complete 8 designs, approvals and consents, before contract award 9 in order to de-risk the contract and obtain a fixed 10 price, but that wasn't going to happen? 11 A. Yes, that's also correct. 12 Q. So was it on your radar at this time that there was 13 a problem in meeting the procurement strategy and 14 objectives? 15 A. Yes. What this did was to clearly flag up a number of 16 important issues, and I think I say in my statement 17 that's why I understood that the director colleagues, 18 City Development and Finance, inserted into the December 19 report that the -- there had to be further due 20 diligence, and until I was satisfied as Chief Executive 21 that that had been done, the contract wouldn't be 22 signed. 23 So I regarded these as important issues. They were 24 still work in progress. 25 If I can sort of jump ahead to the end of the 84 1 contract close period, there was clearly a lot of 2 attention focused on how much design had been completed, 3 what had still to be started, what was in progress, and 4 a further additional sum was included into the risk 5 allowance to reflect that. 6 At the same time, it was being advised to me that 7 the design was expected to be, I think, ready at that 8 time by the autumn of 2008, and if it was possible, to 9 synchronise design with construction programme, while 10 there was undoubtedly a new risk that had been 11 identified, it was manageable and was able to be 12 included in the -- in the risk allowance for the 13 project. 14 Q. Would it be fair to try and sum up by saying that 15 because of the concerns and matters listed in this 16 report, it wouldn't have been appropriate to seek the 17 Council's authorisation in December 2007 to award the 18 contract? 19 A. I think when I look back at it, it would have been 20 helpful to put more into the report about the specific 21 areas still under review, of which design was clearly 22 one of them. So the councillors would have more -- 23 I think there was a reference to design in the report 24 and the fact it was not yet complete. But I think 25 perhaps that could have been spelt out in greater 85 1 detail. 2 Q. When you say it would have been helpful, is that to 3 enable members to come to a properly informed decision? 4 A. It would have given members an opportunity if they 5 wished to scrutinise that particular aspect in more 6 detail. 7 Q. Without being given that information, they weren't 8 perhaps in a position to properly scrutinise that aspect 9 if they had wished to do so? 10 A. Well, I said it would have helped, had there been more 11 information on the specifics of design, it may have led 12 to some questions that weren't asked at the time. 13 Q. And the purpose of that would have been to enable 14 members to be in a better position to scrutinise that 15 aspect if they wished to do so? 16 A. Yes, although again I make the distinction I made 17 earlier in today's proceedings, that what was said in 18 the Council report was one thing. But there were 19 certainly briefings behind that informally with 20 councillors. I didn't attend all these briefings, but 21 I do recall there being mention at the time of the fact 22 that design was still to be complete, as you asked me, 23 that was a key component of the procurement strategy. 24 But the advice coming from my Council colleagues and 25 from tie was that that was not of sufficient magnitude 86 1 to cause the Council at its December meeting not to wish 2 to proceed. 3 Q. Another question I had asked was that because of the 4 concerns and matters listed in this report, it wasn't 5 appropriate in December 2007 to ask members to authorise 6 awarding the contract. 7 A. No, I think the report to the Council in December from 8 my two colleagues was a fair report on the whole. 9 Q. Yes. It's just that you had referred to that report, 10 I think delegating authorisation to you to authorise 11 award of the contract when you were satisfied it was 12 appropriate to do so; is that correct? 13 A. Yes. 14 Q. I think it follows from that that it wasn't appropriate 15 to give that authorisation to tie at this time, because 16 of the various concerns in the report? 17 A. Well, tie were not authorised until much later into 18 2008, and that was based upon a further examination of 19 some of the points that are here and others. What was 20 called, I think, at the time the contract deliverables, 21 and they received -- I think when we come on to say, 22 I didn't -- I didn't use that delegated power. I felt 23 it was too important a project for an officer of the 24 Council to do that. 25 That was reported back to the Council in May 2008 87 1 twice. So by 2008, May 2008, I felt, based upon the 2 written letter from tie, and the written confirmation 3 from my colleagues, that all the necessary points had 4 been bottomed out to their satisfaction. 5 Q. And we'll come back to those other reports. 6 Sticking with this report, please, page 92, page 92, 7 at the very bottom of the page, we see 6, utilities, and 8 over the page, please, to page 93, paragraph 6.1 we can 9 read for ourselves. Paragraph 6.2: 10 "There have been problems with Utilities adhering to 11 the MUDFA programme and misadvising of where utility 12 pipes/cables are active." 13 And 6.3: 14 "The MUDFA works programme has a direct impact on 15 Infraco's ability to start works on street. The MUDFA 16 works have been delayed by design drawing delays." 17 Then 6.4: 18 "There is growing concern that lack of agreement 19 with Utilities may become critical in terms of 20 connection works." 21 Does that accord with your understanding at the time 22 in relation to delays and problems with utility works? 23 A. Yes or no. There were other reports round about the 24 time that said that the utilities work was proceeding 25 reasonably satisfactorily. I think the references to 88 1 Leith Walk, for example, were in that regard. 2 So again, I would have looked at this and thought: 3 yes, there are problems here, and these are flagging up 4 things that need to be attended to. But the decision, 5 I think, that would have been taken was to identify an 6 individual or individuals to pursue these various points 7 before we got to contract close, to either bottom them 8 out or to flag them up as an ongoing issue. 9 Q. So what was your understanding in December 2007 in 10 relation to the MUDFA works, and in particular if there 11 were difficulties and delays? 12 A. I think at that time, my recollection was it was broadly 13 on programme. Subsequently, it became clear in terms of 14 volume that there was much more work to be done than had 15 been anticipated, and the relationship between the MUDFA 16 programme design and construction became much more 17 complex and delayed. But at the time, while utilities 18 were always flagged up in the Council reports as 19 a potential risk area, quite a substantial amount of 20 money was set aside against utilities. I think you'll 21 know this as well, that it very quickly became apparent 22 there was a deficiency in record-keeping by the Council 23 and by utility companies. But round about -- if I've 24 got my chronology correct, round about the end of 2007, 25 it was not being flagged up as an absolutely major issue 89 1 to be attended to. 2 Q. We then read on, please, under 7, "Consents/Prior 3 Approvals/Incomplete Design", and 7.3: 4 "The Council has always sought tie to procure 5 a fixed price contract. Inevitably, the absolute fixing 6 of the price by BBS would require finalised approved 7 drawings. For whatever reason, tie and SDS have failed 8 to obtain approvals for the drawings to date." 9 7.4: 10 "Accordingly, the present price must be based on 11 unapproved drawings. If the Council accepts the risk re 12 the approvals rather than BBS this will likely lead to 13 (i) inappropriate pressure being put on to planning 14 colleagues to approve drawings simply to stop a delay 15 and added expense to the project; and (ii) the Council 16 being left to foot the bill for any consequent delays." 17 7.6: 18 "One option, should BBS remain concerned, would be 19 to ask them to increase their costs by adding a 'risk 20 premium'." 21 So essentially these are all matters you were aware 22 of at the time. That must be right? 23 A. Yes. 24 Q. Over the page, please. Page 96. Sorry, page -- we will 25 stick with this page, 94, and paragraph 7.10. Things 90 1 are summed up with the comment that: 2 "The fact that the design is incomplete will 3 increase the risk of variation orders, delay to MUDFA 4 and subsequent delay to Infraco and have a knock on 5 effect to the TRO process." 6 Page 96, please. Under 13.4, if we can blow that 7 up, please: 8 "There is also the issue that Council officials do 9 not understand the contract nor have had any independent 10 review of the contract document." 11 In short, if officers do not understand the 12 contract, then presumably they don't understand the 13 risks arising from the contract? 14 A. Well, this was a note from a member of staff. Whether 15 the Director of Finance, Director of City Development, 16 and Council Solicitor took that view, I don't know. 17 I suspect they didn't. I think they probably felt they 18 had a sufficient understanding of the contract to move 19 on to the next stage. 20 Q. So was it your understanding that the Directors of 21 Finance, City Development, and the Council Solicitor, 22 did have a good understanding of the contract? 23 A. Yes. 24 Q. Did they say that to you? 25 A. I can't recall whether that was said in so many words. 91 1 But every time -- when we sat down to discuss it, 2 I certainly had a clear -- I had a view from them that 3 they understood what was in the contract. 4 Q. And that they understood the risks to the Council 5 arising from the contract? 6 A. Yes. 7 CHAIR OF THE INQUIRY: Can I just be quite clear. A number 8 of times you've referred to the Council Solicitor. Can 9 you put a name to that person? 10 A. Yes. At this time it was Gill Lindsay. 11 CHAIR OF THE INQUIRY: I think when Mr Maclean came in, did 12 he come in as Council Solicitor or did he have some 13 other title? 14 A. He had another title. Partly as a result of various 15 budget and other pressures, the Council late in 2009 16 merged the division of committee of services and legal 17 into one division. So I think Mr Maclean's title was 18 Director of Legal and Administration. 19 CHAIR OF THE INQUIRY: So that any time you're referring to 20 the Council Solicitor, can I take it that that is 21 Ms Lindsay you're talking about. 22 A. Up until, yes, December 2009 or thereabouts. 23 MR MACKENZIE: So on this point that it noted that Council 24 officials do not understand the contract, is it your 25 position that, well, if more junior officials don't 92 1 understand the contract, that doesn't really matter as 2 long as the more senior officials understand the 3 contract? 4 A. No, certainly not saying that. What I'm saying, 5 I regarded this at the time as an important document in 6 terms of things that were still outstanding. And it 7 provided an opportunity for further work to be done to 8 get to the bottom of any issues being raised. In the 9 period between the end of 2007 and May of 2008, given 10 the intense involvement of Council officers with their 11 counterparts in tie, I never at any time had a reason to 12 believe there was a -- other than a reasonable 13 understanding of the contract. 14 Q. I think we've heard evidence from individuals of what's 15 been referred to as the B team that in short, in legal, 16 the Council Solicitors, not Ms Lindsay, but those below 17 her, simply didn't have sufficient expertise or 18 experience in this area to properly understand the risks 19 arising from the contract, and then in perhaps the 20 finance side of things, we saw the email from Ms Andrew 21 that she didn't consider that officials had sufficient 22 experience or expertise in this particular area to 23 understand the risks. 24 So really the more junior members seem to be 25 saying: we don't have the experience or expertise in 93 1 this area to properly understand the risks. Do you have 2 any comments or views on that position? 3 A. Well, that's clearly a matter for record from what 4 you've shown me and what's contained in the background 5 documentation. 6 Colleagues at any time had an opportunity to augment 7 their advice, but for example, you've asked me about 8 whether or not there should have been an opportunity to 9 seek independent legal advice. I can only assume or 10 presume that if that was raised, it was raised within 11 legal services, but I don't recall it being anywhere -- 12 raised anywhere else, other than internally. 13 Q. I just wonder why it is, if the members of the B team 14 are correct that they didn't have the necessary 15 experience or expertise in this area to properly 16 understand the risks, why would the more senior 17 directors be different? 18 MR DUNLOP QC: My Lord, I wonder before that question is 19 answered, it's not clear to me that that is a fair 20 appraisal or summary of the evidence when one has in 21 mind the evidence of Colin MacKenzie who was very 22 clearly (a) part of the B team and (b) fully aware of 23 the risks. So if it's going to be put to the witness on 24 the basis of what we've heard so far, there should be 25 perhaps some recognition of that evidence. 94 1 CHAIR OF THE INQUIRY: I think this was under reference to 2 this report, Mr Dunlop. 3 MR DUNLOP QC: Well, what the question is, my Lord, is: if 4 the members of the B team are correct that they didn't 5 have the necessary experience or expertise in this area. 6 That's not what Mr MacKenzie's evidence was. 7 CHAIR OF THE INQUIRY: I appreciate that, but this question 8 is just in relation to this report. Perhaps we can just 9 leave it. 10 MR DUNLOP QC: My Lord. 11 MR MACKENZIE: Yes, Mr Aitchison. We can all go back and 12 read the details of the evidence of the witnesses in due 13 course, of course. 14 What I'm seeking to sum up is the position adopted 15 by the members of the B team which in short was that, as 16 I read it, they in general didn't have sufficient 17 expertise or experience in this area to understand the 18 risk to the Council. They may have had inklings or be 19 able to highlight things they thought might be problems, 20 but fundamentally they didn't consider they had 21 sufficient experience or expertise. If they were right 22 in that regard, and on the hypothesis that's attributing 23 to the evidence, why would the senior directors be 24 different? 25 A. Well, I'll try and explain by example. If I take the 95 1 Director of Finance then to begin with, he had a long 2 involvement with -- well, I'll take three projects in 3 particular. There were two phases of the major 4 refurbishment or school rebuilding in Edinburgh; I think 5 somewhere between 30 and 40 schools were rebuilt during 6 the kind of ten years prior to 2007 or thereabouts. 7 He was a key member of that. So had a lot of 8 experience in a contractual situation. These were 9 contracts worth individually probably over 10 GBP200 million. He had a long involvement with the 11 Edinburgh Conference Centre. He was the Council's 12 representative on most of the local authority property 13 companies. So he had, if you like, certainly much more 14 experience of these matters than his own staff would 15 have had at the time. 16 Now, whether that was sufficient, I don't know, but 17 he certainly was the most experienced member in the 18 finance department with that range of expertise behind 19 him. 20 Q. Could we also, please, go to page 97 of this document. 21 I think we see the very last paragraph states: 22 "Guidance is being sought from Council Officers 23 providing input to the Council report on 24 20 December 2007 on the issues detailed above whether 25 the Council is well informed enough at this stage in 96 1 proceedings whether a report on the 20 December 2007 is 2 appropriate given the outstanding issues." 3 What were your views at the time on whether any 4 report to Council was appropriate seeking approval of 5 the Final Business Case, given these outstanding issues? 6 A. I thought it was appropriate to report to the Council. 7 They had been advised an October report would be 8 forthcoming. Clearly behind -- behind paragraph 15.2 9 was a lot of discussion between the Director of Finance 10 and his staff, Council Solicitor, and Director of City 11 Development. They clearly -- sorry, I'm beginning to 12 repeat myself. They clearly believed it was appropriate 13 to report. They put in the major caveat that they 14 wanted it to be delegated to my good self to judge 15 whether or not the contract could finally be signed, and 16 that allowed a number of issues contained here to be 17 taken forward. 18 I think some months ago, I looked at the advice note 19 that followed on from this particular meeting of the 20 Internal Planning Group, and I think it did identify 21 specifically named individuals to follow up on each of 22 the reports, each of the points itemised in the report. 23 So there did appear to me to be a management process 24 under way to try and deal with the kind of issues that 25 were being raised by, as you say, the -- as you call 97 1 them, the B team. 2 Q. Did you think it appropriate to recommend that members 3 approve the Final Business Case, given there were all of 4 these outstanding issues? 5 A. Well, that was a judgement taken by my two colleagues. 6 I'm not trying to divorce myself from my responsibility 7 there. They were the two in charge of the project, and 8 they clearly decided in due course that they had 9 sufficient basis upon which to recommend moving ahead to 10 the Council. 11 Q. What were your own views on whether it was appropriate 12 to recommend at the meeting on 20 December 2007 that 13 members approved the Final Business Case? 14 A. I was generally satisfied with that as a recommendation. 15 Q. Even against the background of all the concerns set out 16 in the Director's briefing note we have just looked at? 17 A. Yes, but I have never come across a project in senior 18 management local government when every single aspect had 19 been finally nailed down. There was not a question of 20 going to contract close on 20 December. It was 21 establishing a further process beyond which more 22 information, more analysis could be undertaken, leading 23 to an eventual final decision to go or not to go with 24 the tram project. 25 Q. If we could then please go to the report on Council on 98 1 20 December 2007. The reference is CEC02083448. 2 If we go, please, to page 9, we'll see this report 3 is by the Directors of Finance and City Development. So 4 it's not by yourself. 5 If we go to page 1, please, we can see the purpose 6 of the report, 1.1, is to recommend approval of the 7 Final Business Case Version 2, and paragraph 1.2, for 8 then staged approval for the award by tie of the 9 contracts, and you've discussed that. 10 Could we also please go to page 6. In 11 paragraph 8.10, the first sentence: 12 "The fundamental approach to the Tram contracts has 13 been to transfer risk to the private sector. This has 14 largely been achieved." 15 Did you agree with that at the time? 16 A. As far as the tram vehicles were concerned, and I think 17 on the whole I did agree with it. It seemed to me that 18 within the totality of GBP500 million or thereabouts, 19 where there was still a number of outstanding issues, 20 that the Council was on track to -- to achieve the -- 21 tie were on track to achieve the basic rationale of 22 transferring the majority of risk to the -- to the 23 contractor. 24 Q. I just wondered how that could be said, that the 25 fundamental approach of transferring risk to the private 99 1 sector has largely been achieved in light of the 2 concerns raised by the B team in their briefing note, 3 including the statement that officers did not understand 4 the risks arising from the contract. 5 A. Well, if you go ahead, as I said, to the financial close 6 documents, I think it's something like GBP3.3 million 7 was added to reflect the so-called overlapping period of 8 design and construction. And that was said at the time 9 to be the only material change between financial 10 close -- sorry, between the Business Case being approved 11 and financial close. 12 So in turn it seemed to me -- this is May rather 13 than December -- that if it came down to it, a movement 14 of 3.3 million or thereabouts, that was not necessarily 15 a major departure from the overall procurement strategy. 16 Q. Move on then, please, to events in March 2008, when 17 a notice of intention to award was provided. 18 Go, please, to a document CEC02086755. 19 CHAIR OF THE INQUIRY: While we're waiting for that, was 20 there any pressure on directors or yourself not to delay 21 the report to Council; say in December, when you had 22 this report, was there any downside in delaying the 23 report? 24 A. I think there was -- I'm not sure about the word 25 "pressure", but there was a kind of tone the elected 100 1 members wanted to move on quickly. 2 CHAIR OF THE INQUIRY: And what would have been the effect 3 of delaying the December -- withdrawing the December 4 report and saying to Council when that came up: we're 5 not really in a position to report to you, but we'll do 6 that in a couple of months. What would be the -- 7 A. I do recall some discussion along the lines of a report 8 could have gone to the Council in December, but perhaps 9 indicating it was more of a holding report rather than 10 a definitive final report, which might have said that 11 report would come in one month, two months, whatever the 12 time period was judged to be. 13 So there was some officer discussion around that, 14 which may have tracked back in turn to some member 15 discussion. 16 CHAIR OF THE INQUIRY: What were the advantages or 17 disadvantages of adopting that alternative strategy of 18 putting in a holding report, then a later more detailed 19 report? 20 A. I suppose it would have depended what final view was 21 taken on the kind of issues I was just drawn -- my 22 attention was just drawn to. Had that led to a lengthy 23 delay, it may have called into question some of the 24 procurement regulation timetabling aspects. tie, 25 I think, have said somewhere that they were running at 101 1 a cost of GBP800,000 per month. So each month before we 2 got to financial close was adding additional close. 3 Now, that probably seems trivial now in comparison to 4 what eventually happened, but it was also seen, you 5 know, as a project with the exception of the SNP that 6 was widely supported across all political groups in the 7 Council, Lib Dem, Labour, Conservative. There's one or 8 two of their backbenchers who were less convinced, but 9 as a group they were supportive, and the Greens. So 10 there was -- I used the word "tone". It was just an 11 undercurrent, feeling that we needed to keep progressing 12 the project at a reasonable pace. 13 MR MACKENZIE: Thank you. 14 Over the page to page 3, please. Reading perhaps 15 from reverse order, we can see your signature under the 16 paragraph which states: 17 "I, Tom Aitchison ... having received the request 18 from tie and the information detailed above, agree and 19 confirm that tie Limited may immediately lodge the Notice 20 of Intention to Award Contract." 21 We then see the signatures of Andrew Holmes, 22 Donald McGougan and Gill Lindsay, and just above their 23 signatures we see the paragraph: 24 "Having considered all of the above, we consider 25 that it is appropriate to accept tie's recommendation to 102 1 you to authorise and permit them to immediately lodge 2 the Notice of Intention to Award." 3 Now, to pause there, Mr Aitchison, what steps, if 4 any, did you take to satisfy yourself that it was 5 appropriate to authorise the Notice of Intention to 6 Award? 7 A. I think I have touched on that once or twice. There was 8 a process going through the Internal Planning Group. 9 There was briefings I had individually with the 10 colleagues who were mentioned there. I also had 11 a similar letter to this one from colleagues in tie. 12 I set up what I thought was an appropriate management 13 process in late December to get to this point where it 14 was delegated to my three colleagues to go away and only 15 come back to me when professionally satisfied that what 16 was being proposed was in the best interests of the 17 Council. 18 So to a large extent I did rely upon their 19 professional advice. 20 Q. Do you remember before signing this document whether you 21 checked if the price and terms were consistent with the 22 Final Business Case? 23 A. There would have been discussion along these lines, I'm 24 pretty sure, yes. 25 Q. Do you have a clear recollection of that? 103 1 A. No. No, I can't say specifically on a certain day, but 2 I'm fairly sure that would have happened. 3 Q. Go back to page 1, please. Blow up, please, the last 4 paragraph on the page. It states: 5 "As discussed at our meeting yesterday in addition 6 to this alteration to finance, the negotiations have 7 required and provided for a 3 month extension to the 8 programme and a range of adjustments to the risk 9 allocations. Many of these adjustments to risk 10 allocation are positive, reflecting the reduced risk 11 contingency. There are some which do pass additional 12 risk to the public sector. Of these, the most important 13 is considered to be SDS. As you are aware, this has 14 been a very difficult point for tie to negotiate and 15 they have provided for the best deal which they advise 16 us is currently available to themselves and the Council. 17 In essence, the contractor BBS will accept the design 18 risk for SDS to a high financial ceiling, whereas the 19 Council and tie must remain financially liable for delay 20 by SDS in relation to the provision by them of 21 information for a range of consents and approvals. Both 22 tie and the Council have worked diligently to examine 23 and reduce this risk in practical terms and tie advises 24 that the new risk contingency contains suitable 25 adjustment for this residual risk." 104 1 Now, what was your understanding at the time of the 2 additional risk in relation to design that was being 3 accepted by tie and the Council? 4 A. When I started to discuss this in more detail between 5 October and March, I had originally thought like 6 everybody else that procurement strategy was going to 7 deliver a full design before the contract commenced in 8 detail. 9 I was then advised that something like two-thirds of 10 the design had been completed, but not the remaining 11 one-third. 12 I was also advised at the time that steps were being 13 taken to address that through improved joint working to 14 try and accelerate the delivery of the design. But at 15 the end of the day, it was clear that both SDS and the 16 consortium were not prepared to accept the risk of 17 designs that may have been started, but were incomplete, 18 or designs that had not been started at all. 19 So that's the point I made earlier, where that was 20 eventually translated into a specific financial sum 21 designed to plug that gap, together with the assertion 22 which proved to be wrong, that the design would be 23 complete by the autumn of that year. 24 So it did appear to be a containable risk. I think 25 that's what the top -- the top line is saying. 105 1 Q. If we go back to page 1, please. In the fifth line up 2 from the bottom, we see the reference to: 3 "In essence, the contractor BBS will accept the 4 design risk for SDS to a high financial ceiling, whereas 5 the Council and tie must remain financially liable for 6 delay by SDS in relation to the provision by them of 7 information for a range of consents and approvals." 8 What this appears to be saying is that beyond 9 a certain cap, tie and the Council were liable for SDS 10 delay; is that correct? 11 A. Yes. 12 Q. In accepting responsibility for that SDS delay, the 13 Council were accepting liability for something that was 14 not its fault and was outwith its control; is that 15 correct? 16 A. Yes. 17 Q. So why did the Council accept that risk? 18 A. Because I think, as I said a moment or two ago, it was 19 judged to be financially relatively small at the time, 20 and to be time limited in relation to the completion of 21 the design process. 22 Q. Now, the procurement strategy and indeed the Final 23 Business Case were based on the premise that design risk 24 would be transferred to the private sector; is that 25 correct? 106 1 A. Yes. 2 Q. So the retention by the public sector of significant 3 risks arising from SDS delay appears to have been 4 a departure from the procurement strategy and the Final 5 Business Case? 6 A. Well, that's correct as well, yes. 7 Q. Do you consider you had authority to authorise the 8 Notice of Intention to Award to be issued if the 9 retention of this risk by the public sector was not 10 consistent with the Final Business Case? 11 A. I did, yes, for the reasons I have explained once or 12 twice. It seemed to be a relatively small risk that was 13 containable. Plus -- sorry, I beg your pardon. Plus 14 the fact it had been flagged up in the Business Case 15 report to the Council that design was incomplete, and 16 could lead to some additional cost. So this seemed 17 consistent with that earlier -- earlier comment. 18 Q. Were members of the Council told that the Council had 19 accepted risks arising from SDS delay before the notice 20 of intention to award was issued? 21 A. Not formally, no. 22 Q. Were members ever told that? 23 A. There was a reference, I think, in the reports that went 24 to the Council in May 2008. 25 Q. We will come to that shortly. 107 1 Were members ever told that the retention of this 2 risk by the Council either was or might be inconsistent 3 with the Final Business Case? 4 A. Not in the terms you put the question to me, no. 5 Q. And I suggest that if members had been advised of this 6 matter, they may have asked further questions, for 7 example about why the Council were taking on the risk 8 for something that was not the Council's fault and was 9 outwith the Council's control? 10 A. That's possible, certainly, yes. 11 Q. We know that tie did issue the Notice of Intention to 12 Award on 18 March 2008. Were you aware at that time 13 whether there were ongoing negotiations in relation to 14 price, risk and the terms of the contract? 15 A. I was aware that the final contract considerations had 16 not been finalised. 17 Q. Do you recollect the matters that were still under 18 discussion? 19 A. Sorry, could you repeat that, please. 20 Q. Do you recollect the matters that were still under 21 discussion? 22 A. Price was still to be sorted out. 23 Q. Was it appropriate to issue the Notice of Intention to 24 Award while the price was still to be sorted out? 25 A. The advice I think I had at the time was that -- the 108 1 answer to your question was yes, that the key was the 2 final report to the Council on financial close, which 3 would either recommend approval to the project or not, 4 or some other holding position. 5 Q. I would like to move to another document, please. It's 6 CEC01246992. 7 CHAIR OF THE INQUIRY: While we are waiting for that, 8 can I just clarify, what did you expect the three senior 9 officials to do to satisfy themselves that they could 10 advise you to sign the authorisation? 11 A. I expected them to -- which I think is contained in some 12 of the paperwork, to have put in place a proper 13 management review process, to have identified all the 14 issues that required to be addressed before the Council 15 or myself could take a decision of that sort, to 16 document it, to -- to question it and query it, and, you 17 know, make sure they had all the aspects covered, prior 18 to making the recommendation to myself. 19 CHAIR OF THE INQUIRY: Did you expect them to simply rely 20 upon tie in saying: well, it's all right; or in DLA 21 saying: well, it's all right. 22 A. No, I didn't expect them to hold -- I expect them to 23 trust their own judgement and to do what they thought was 24 right in the interests of the Council, which partly 25 reflects on the Council's role as financial guarantor. 109 1 So as I recollected, there was issues -- to take a legal 2 example, there were issues going back and forward 3 between the Council Solicitor and tie/DLA to seek 4 clarification on the points of the contract. Because 5 that's what I was told at the time. 6 CHAIR OF THE INQUIRY: But would that not then mean that the 7 Council Solicitor ultimately was simply accepting 8 reassurances from the DLA solicitor, which wouldn't be 9 what you intended? Did you not intend the solicitor to 10 carry out some independent assessment, independent of 11 what DLA said? 12 A. I assumed that's what was happening. Not to -- not to 13 negate any advice coming from DLA. To recognise that as 14 professional -- professional work, but to ask, if you 15 like, the hard questions on behalf of the Council as 16 well, and to seek to come to a view whether what was 17 being proposed by tie/DLA was sufficiently sound to 18 enable events to proceed. 19 CHAIR OF THE INQUIRY: On one view it might appear that if 20 there was no independent assessment by the two directors 21 and the Council Solicitor, then they were not in fact 22 satisfying themselves that it was all right for you to 23 sign this document, and were simply accepting tie's word 24 for it. 25 A. Well, that may or may not have been the case. I know 110 1 from working with some of these colleagues for many 2 years, Director of Finance, for example, was always in 3 my view tenacious in trying to get to the bottom of 4 things. So I think he would have asked the hard 5 questions and wouldn't have put his name to a report to 6 me unless he was satisfied about the way forward. 7 CHAIR OF THE INQUIRY: Thank you. 8 MR MACKENZIE: Thank you. 9 Now, the report now on screen is a report to the IPG 10 on 16 April 2008. Go to page 4, please. We can see 11 under 6, "INFRACO", sub-heading, "Planning Prior 12 Approvals", and it sets out the position there. Then 13 the paragraph states: 14 "There is concern that prior approvals may have to 15 be revisited if there are substantial changes in design 16 coming from inter-disciplinary coordination, technical 17 approvals or value engineering. Planning has written to 18 tie on 28 March 2008 raising their concerns." 19 Under "Technical approvals", we see the final 20 paragraph on the page: 21 "Similar to the concerns raised by Planning, 22 Transport have also written to tie on 3 April 2008 23 reiterating their concerns about the quality of the 24 submissions being received ... There is potential for 25 the approvals to cause a delay to the construction 111 1 programme." 2 Presumably, any such delay in that regard was known 3 to be a risk for which tie and the Council may be 4 liable? 5 A. Yes. But again, I read that as work in progress. 6 Things were being flagged up to be attended to by 7 colleagues in the Council, with the support of tie and 8 others, to make sure that these things didn't happen. 9 Q. Over the page, please, at page 5. Under -- halfway 10 down, sub-heading, "Infraco Works commencing before 11 Approvals in Place", we see: 12 "The delay in the submissions from tie Ltd and their 13 designers SDS for the prior and technical approvals may 14 leave the Council in a difficult position. It is likely 15 that the appropriate Planning Prior Approvals will not 16 have been obtained prior to the commencement of 17 construction works for three locations. They include 18 Russell Road bridge, Haymarket Tramstop and the Depot at 19 Gogar. These three locations are on the critical path 20 for the tram delivery and if construction is delayed, 21 the Council is responsible for these compensation events 22 and claims from the construction contractor BBS - these 23 claims could easily be in excess of GBP2 million." 24 Now, I think we've heard evidence that the allowance 25 in the QRA for design risk was about GBP3 million. Did 112 1 that accord with your recollection at the time? 2 A. My recollection, which having read emails, I didn't see 3 at the time, was that that figure of GBP2 million was an 4 exaggerated figure. In fact it came down to a much 5 lower amount. So what appeared to be -- I'm not in any 6 way trying to diminish the importance of what's 7 contained in the paragraph, but it was work in progress, 8 and when Russell Road was finally, if you like, 9 determined, I think the claim was a much lower sum than 10 GBP2 million. 11 So to some extent that was an indication of the 12 issues being flagged up by Council staff, as you call 13 them, the B team, which were then subsequently taken on 14 board by more senior colleagues and bottomed out. 15 Q. Was it your understanding at this time that the 16 allowance in the QRA for design risk was around 17 GBP3 million? 18 A. There was a specific 3 point -- I think it was 3.3, but 19 I may be slightly wrong in that, was added into the risk 20 allowance before contract close. There was a general -- 21 provision for general contract delay contained in the 22 QRA as well. 23 Q. Just sticking with the 3 or 3.3 million for design delay 24 in the QRA, did this report not cause concern as to 25 whether that allowance was sufficient? 113 1 A. I recall it being discussed at the time, and again being 2 reassured that the 3.3, if that's what it finally was, 3 was sufficient. I beg your pardon. These designs were 4 on the -- I think it says that -- the critical path for 5 the construction programme. 6 Had these been attended to timeously, taken together 7 with the fact the design was meant to be complete by 8 August of that year, then it did seem to be that the 9 risk had been identified and appropriate financial 10 provision had been made for it. 11 Q. Now, who provided reassurance to you that the figure of 12 3 or 3.3 million in the QRA was sufficient? 13 A. Well, I think eventually that came through in a second 14 letter signed by colleagues and also -- and also the -- 15 a company letter from tie at final contract close that 16 they had a handle on the risk, they'd made additional 17 provision for it, and they were satisfied that would be 18 sufficient. So I took that -- I took that advice on 19 board. 20 Q. I would like to turn now, please, to the report to 21 Council on 1 May 2008. It's CEC00906940. Go to page 4, 22 please. We can see this is your report, Mr Aitchison. 23 Then back to page 1, please. 24 I think it's right to say this was the first report 25 to Council since the report on 20 December 2007; is that 114 1 correct? 2 A. Yes. 3 Q. Why was that? Why hadn't there been a report in 4 between? 5 A. The -- the Council, I think, in December, when it 6 delegated authority to me, anticipated that it would be 7 possible to move to financial close within four to six 8 weeks. 9 That clearly didn't prove to be the case. 10 The first scheduled meeting beyond December would 11 have been the end of February, I think, something like 12 that. But you're right in what you say. There was no 13 report until then because the due diligence process was 14 still being undertaken by -- by Council officers. 15 Q. Why was this report by yourself when we saw the previous 16 report had been by the Directors of City Development and 17 Finance? 18 A. Well, I'm not trying to make a clever point. It was not 19 actually signed by me, but that's neither here nor 20 there. 21 The reason would be that the Council took a decision 22 to delegate the authority to contract sign or not to me. 23 I think I said in my witness statement, I made up my 24 mind very early that that would be totally 25 inappropriate. I felt a decision of that magnitude had 115 1 to be taken by elected members, and therefore I felt 2 obliged to put my name to a report, rather than the two 3 directors in reporting back to the Council in May. 4 Q. If we look, please, at paragraph 1.1, we see the purpose 5 of the report is: 6 "To notify the Council of the progress ... and to 7 provide an update on financial close and the capital 8 costs." 9 If we can go to page 2, please, and paragraph 3.5, 10 in the first sentence we see: 11 "The increase in baseline aggregate costs is largely 12 due to the firming up of provisional prices to fixed 13 sums, currency fluctuations and the crystallisation of 14 the risk transfer to the private sector as described in 15 the Final Business Case." 16 Now, I think you accepted a moment ago that the 17 acceptance by the public sector of the risks arising 18 from SDS delay was not consistent with there having been 19 a risk transfer to the private sector; is that correct? 20 A. Yes. 21 Q. In the next paragraph, 3.6, this is a reference to the 22 utility works. Can we see towards the bottom, the very 23 last line, is a reference to the utility diversion works 24 progressing to programme and budget. 25 Was that consistent with your understanding of 116 1 matters at the time? 2 A. Well, that was certainly the advice that was given. 3 I referred to that earlier. In the early stages of the 4 programme, by and large utilities were on -- on 5 programme and on time. You draw my attention earlier to 6 some exceptions to that, but by and large I believed 7 that to be a correct statement at the time. 8 Q. When you say that was the advice that was given, is 9 that -- was that advice given to you by someone? 10 A. Who would you mind going to the final page of the report 11 to see who actually wrote the report? 12 Q. Yes. Page 4. We can see the contact details are 13 Andy Conway and Alan Coyle? 14 A. Well, that would be consistent with most of the tram 15 reports which were drafted by colleagues in Finance and 16 City Development, supported where necessary by 17 colleagues in legal, and there were -- there would have 18 been discussion on the report, but I wasn't in 19 a position to query whether the utilities were exactly 20 on track or not. 21 Q. If we go back, please, to page 2, and at paragraph 3.6, 22 the wording about utilities progressing to programme and 23 budget, we've looked at other witnesses, that that 24 wording, "progressing to programme and budget", had come 25 from Graeme Bissett of tie. Does that surprise you at 117 1 all or is that consistent with your understanding at the 2 time? 3 A. I'm not surprised it came from tie. Whether it was 4 Graeme Bissett or someone else, I really couldn't say. 5 Q. Just so we're quite clear, did you understand at this 6 time whether there were any difficulties with the MUDFA 7 works? 8 A. Sorry, could you -- 9 Q. Did you understand at that time if there were any 10 difficulties or delays with the MUDFA works? 11 A. I wasn't aware at the time that that was a major 12 consideration. Generally speaking I felt what was 13 contained in the report, that things were beginning 14 to -- they were by and large on programme. 15 Q. To what extent did you check matters in reports you were 16 asked to sign and to what extent did you just assume 17 that things were fine? 18 A. I sometimes assumed things were fine if I was getting 19 professional advice from director colleagues. But 20 generally speaking, nearly all reports would go through 21 a draft or drafts plural, and that gave me 22 an opportunity and others to question things, to seek 23 background information where necessary. 24 But if I was told by two director colleagues that 25 the programme was -- the MUDFA programme was by and 118 1 large on schedule, I would have accepted that. 2 Q. If we can go, please, to page 3. Under paragraph 3.9, 3 we can see this is under the quantified risk allowance. 4 It states: 5 "The QRA has reduced from GBP49 million at FBC to 6 GBP32 million. The material change in the QRA relates 7 to procurement risks for Tramco and Infraco closed out 8 at the signing of the contracts offset by allowance to 9 provide for risks and uncertainties to be managed by 10 tie Ltd during construction." 11 What was your understanding of the risks and 12 uncertainties that were to be managed by tie during 13 construction? 14 A. That I think again was primarily down to design, and the 15 incompleted design at that time. 16 Q. In the next paragraph, please, paragraph 3.10, states: 17 "A number of the adjustments to risk allocation are 18 positive, reflected in the reduced QRA. As a result of 19 the overlapping period of design and construction a new 20 risk area has emerged which has been the subject of 21 extensive and difficult negotiation." 22 What was your understanding of the new risk area 23 that had emerged? 24 A. That's the reference, I think, to the fact the design 25 was incomplete. SDS were not prepared to see their 119 1 contract novated to -- to the consortium. Bilfinger 2 Berger were not happy about taking on board incomplete 3 design. Perhaps the quality they were concerned about, 4 and all that led to this -- as it says there, this new 5 risk area of an overlapping period of design and 6 construction, where there was a -- the designer had not 7 yet started and some designs that had started but had 8 not yet been approved. 9 Q. Was that a reference to the Council taking on the risk 10 of SDS delay? 11 A. I thought at the time it was the Council taking on board 12 what I have just said, that for a limited period of 13 time, between financial close and the completion of 14 design, by later in that calendar year, that the bulk of 15 that risk would fall to tie and the Council, rather than 16 to anyone else. 17 Q. When you say that was for a limited period of time, that 18 was only correct if there were no further delays in 19 completing design and obtaining approvals and consents. 20 A. Well, that's correct. 21 Q. Could we look, please, at a different document, to go 22 into this in a little more detail. It's CEC01245473. 23 We can see this is an email sent on behalf of 24 Gill Lindsay, dated 22 April 2008, to Alan Coyle, copied 25 in to Nick Smith and Colin MacKenzie, subject Council 120 1 report. 2 The first paragraph, Ms Lindsay stated: 3 "I have used the latest version of the Report which 4 I have, which contains Graeme's provisional changes, to 5 provide some very minor adjustments from myself. In 6 essence, I have pulled out the SDS risk, as it seems to 7 me this is actually the most significant risk and as the 8 matter is now going back to Council, it would not be 9 appropriate to preclude a reference to this. Can you 10 please consider how SDS should be referred to and make 11 any necessary adjustments to the wording." 12 If we then please look at the wording Ms Lindsay had 13 suggested, it's in a different document. It's 14 CEC01245474. Go, please, to page 3. In paragraph 3.10, 15 I think this colour is Ms Lindsay's addition. We can 16 see similar wording to begin with: 17 "Many of the adjustments to risk allocation are 18 positive, reflecting the reduced risk contingency. 19 There are some which do pass additional risk to the 20 public sector. Of these, the most important is 21 considered to be SDS. This has been a very difficult 22 point for tie to negotiate and they have provided for 23 the best deal which they advise us is currently 24 available to themselves and the Council. In essence, 25 BBS will accept the design risk for SDS to a high 121 1 financial ceiling, whereas the Council and tie will 2 remain financially liable for delay by SDS in relation 3 to the provision by them of information for a range of 4 consents and approvals." 5 I think the wording we see there is very similar to 6 the wording we saw in the report by the directors to you 7 in relation to the release of the Notice of Intention to 8 Award; is that correct? 9 A. Yes. 10 Q. So that is the proposal at that stage. If we can then 11 please go to another document, CEC01373468. We'll see 12 different wording proposed again. 13 Now, the email a third of the way down is from 14 Graeme Bissett at tie, dated 22 April 2008 to 15 Gill Lindsay and copied in to others, but not yourself. 16 The second paragraph, Mr Bissett states: 17 "In addition to the points below, especially the 18 definition point in 6.1, we feel the language used in 19 3.10 should be re-assessed. There is nothing factually 20 wrong with it. However, the report will be read by the 21 bidders and it seems both disproportionate to expand 22 upon this risk and also financially dangerous to link 23 the specific comments about SDS performance with the 24 statement that there is a specific risk contingency pot 25 available to cover this area. Experience says this 122 1 could act as an invitation to SDS/BBS to pursue further 2 remuneration for their work beyond the sums which are 3 embedded in their contracts. 4 As an alternative, would the following suffice: ..." 5 We can read for ourselves the wording which does 6 then appear in the final version of the report to 7 Council. So in short, what is being removed is the 8 reference to the Council accepting risk for SDS delay; 9 is that correct? 10 A. It would seem to, yes. 11 Q. If we scroll up to the top of this page, please, we see 12 an email from Gill Lindsay dated 23 April 2008 to 13 Graeme Bissett, copied in to others, but not yourself, 14 and the text says: 15 "Graeme, thanks. Have responded to Andrew 16 agreeing." 17 So on the face of it, Ms Lindsay appears to have 18 agreed to Mr Bissett's suggested re-wording. 19 So I think in short Mr Aitchison, reading these 20 documents, what appears to be the case is that members 21 of the Council were not advised in your report to them 22 of 1 May 2008 that the Council had accepted the risk in 23 relation to SDS delay; is that correct? 24 A. I would want to go back and check the report, but 25 I think that's correct, yes. 123 1 Q. We should perhaps just go back to the report again, 2 please. It's CEC00906940. On page 3, paragraph 3.10, 3 I think we'll then see Mr Bissett's wording having been 4 accepted. 5 What is really left unsaid is what is the new risk 6 area that has emerged. Ms Lindsay had initially sought 7 to clarify that expressly, but then had agreed to 8 Mr Bissett's wording. 9 So in short, the suggestion, I think, is that by not 10 advising members in this report that the Council had 11 accepted risk in relation to SDS delay, members were not 12 able to come to a properly informed decision in relation 13 to the project. 14 A. That would appear to be the case, yes. 15 Q. If we could also please go to -- in paragraph 5.1 of the 16 report, on the same page, we see, about four or five 17 lines down, towards the right-hand side of the page: 18 "A significant level of risk has been assumed by the 19 private sector considerably reducing the Council's 20 exposure to future uncertainty." 21 Again, perhaps, the suggestion is that that offers 22 false reassurance to members if they are not also told 23 that the Council has accepted a risk in relation to SDS 24 delay. 25 A. Yes, would you mind just scrolling back up a page or 124 1 two? Yes, I think in paragraph 3.10, there's a point 2 I have made several times, where I think there was a -- 3 an attempt being made to advise the Council that a new 4 risk had emerged, but at the same time saying that we 5 felt that risk was -- was containable. But I accept the 6 point it doesn't specifically go on to nail the point as 7 far as elected members are concerned. 8 Q. Could I please then run through a number of matters 9 which are not mentioned in your report, and ask whether 10 you were aware of them at this time. 11 Firstly, the history of delay and difficulties with 12 design approvals and consents. 13 A. That became -- I became more aware of that between 14 December/January 2008 and the final close documents in 15 May 2008. 16 Q. Because the report doesn't appear to set out clearly 17 that history of delay and difficulties with design 18 approvals and consents? 19 A. It doesn't spell it out in detail. I said, I think, 20 a few moments ago, there is, I'm fairly sure, 21 a reference in the December Council report from my two 22 colleagues that the design was behind schedule and that 23 might lead to additional cost. But it wasn't elaborated 24 on in great detail. 25 Q. There's no mention of that in your report in May 2008? 125 1 A. Apparently not, no. 2 Q. Also there's no mention, I think, in your report in 3 May 2008 to the extent to which design was incomplete 4 and approvals and consents were outstanding. 5 A. No, there's no mention of that there. 6 Q. Now, we've heard evidence that there was a known 7 misalignment at this time between the construction and 8 design programmes; in short the construction programme 9 was based upon an earlier version of the design 10 programme which was known to be out of date and which 11 was known to lead to an immediate Notified Departure and 12 contract close. Is that a matter you were aware of at 13 this time? 14 A. Not -- not substantially, no. I think again there is 15 a reference in one of the reports to the fact that, as 16 you've just said, upon contract close there would be an 17 almost immediate notification of contract departure. 18 But I wasn't aware in the detailed terms. I certainly 19 was unaware, I think I said this in my statement, of the 20 various design elements -- I'll start again. The state 21 of the design programme at various stages. I certainly 22 relied upon technical colleagues to deal with that. 23 Q. I may be corrected, but I'm not aware of any reference 24 in any report to Council of there being anticipated to 25 be an immediate Notified Departure in contract close. 126 1 Is your recollection different? 2 A. I can certainly visualise there was, but I think maybe 3 in the contract close report, as opposed to a Council 4 report. But I need to double-check that. 5 Q. Another matter. There is no reference in this report to 6 Council to known misalignments between the SDS design 7 and the Employer's Requirements and also known 8 misalignments between the SDS design and the 9 consortium's civil proposals; which misalignments would 10 require to be dealt with after financial close and which 11 risked causing delay to the construction programme. Are 12 these matters you were aware of at this time? 13 A. Not in detail, no. 14 Q. And also and lastly, there's no reference in this report 15 to the pricing provisions contained in Schedule Part 4 16 of the Infraco contract, including that the contract was 17 subject to a long list of price assumptions, some of 18 which were known not to be true, and which would trigger 19 a Notified Departure or Notified Departures immediately 20 upon signature of the contract. Are these matters that 21 you were aware of at this time? 22 A. I don't recall that, no. 23 Q. With the benefit of hindsight, do you consider that your 24 report gave members sufficient information to enable 25 them to come to an informed decision? 127 1 A. With the benefit of hindsight, I would have preferred it 2 to have been a more detailed report, drawing out 3 particularly issues associated with design and the 4 reconciliation of design to the construction programme. 5 Q. So is that a yes or no to the question? 6 A. I think the question was did I consider sufficient -- 7 the answer would be no. 8 Q. Now, go back to the report, please. At page 3, under 9 paragraph 6.1, please, the first bullet point, it 10 states: 11 "It is recommended that the Council: note the 12 imminent award of the two contracts with a final price 13 for the Edinburgh Tram Network of GBP508 million which 14 is within the funding envelope of GBP545 million." 15 Over the page, please, we see the top bullet point: 16 "Refresh the delegated powers already given, to 17 authorise me to instruct tie Ltd to enter the 18 contracts ..." 19 We also see in the next bullet point: 20 "Note that the Final Business Case Version 2 which 21 was approved by Council on 20 December 2007 is modified 22 to reflect the above position." 23 Back to the previous page, please, page 3. Now, the 24 reference in the last bullet point to a final price, 25 I think I'm right in saying you were aware before this 128 1 meeting that the consortium had sought a further price 2 increase; is that correct? 3 A. I think that's correct. I think that came through the 4 day before, the 30 April. So at what point in time 5 I was advised, that I can't be sure of. But I would 6 have known certainly in the morning of the Council 7 meeting that there had been further representations from 8 the consortium. 9 Q. I take it you knew that was -- a significant price 10 increase of many millions of pounds was sought? 11 A. It was a -- it was a request for additional funding. It 12 was by no means going to be authorised. 13 Q. Now, were members of the Council told of the price 14 increase sought either before or at the meeting on 15 1 May 2008, and if not, why not? 16 A. They were not -- I don't think they were formally made 17 aware of the late proposed change from the consortium. 18 I did recall advising the Council Leader before the 19 meeting started that such requests had come in the day 20 before; it was being actively followed up by Council 21 staff, and may or may not lead to some further changes. 22 Q. So Councillor Dawe was aware of that price increase that 23 had been sought? 24 A. I recall having a conversation with her, yes. 25 Q. What was her response to that, and whether members of 129 1 the Council should be told of the price increase sought? 2 A. I think -- I think her reaction was concern that 3 a second proposed increase would come through. I felt 4 it was important that the Council went on to discuss the 5 report, given as you said to me earlier there had been 6 no information given in front of the Council since the 7 December report at the end of 2007. But again, if we 8 come on, which we may do shortly, to the final report, 9 the 512 report, I wanted the final decision to be taken 10 by elected members on the contract suite. 11 Q. So just to be quite clear, why were members at this 12 meeting on 1 May 2008 not told of the price increase 13 that had been sought? 14 A. Because nothing had been agreed. It had come through 15 a matter of hours before the Council meeting. Both tie 16 and their advisers and the Council were urgently trying 17 to find out was it a valid claim, could it be accepted 18 in whole or in part? Need it be rejected? All that was 19 still up in the ether. Whether it would be -- I think 20 it was judged to be inappropriate to set hares running 21 at the meeting if there was perhaps a possibility of any 22 further increase not being approved. 23 Q. Would it be correct to say that members thought they 24 were voting on a final price without knowing that the 25 consortium did not regard the price as final? 130 1 A. In theory that's correct, yes. 2 Q. We know that in the event, a price increase of 3 GBP4.8 million was agreed? 4 A. Are you talking about going from 508 to 512? 5 Q. I think that may be right. I have to double-check the 6 figures. 7 A. Yes. Well, the reason I asked you was I thought the 8 increase went from 508 to 512, ie 4, not 4.8. There 9 were a number of adjustments up and down that netted to 10 a figure of a further GBP4 million. 11 Q. But in short, we know that after this meeting, 12 a substantial price increase was agreed? 13 A. Yes, and was reported to elected members. 14 Q. Now, at the time, did you consider it was appropriate to 15 report to members that this was a final price, and seek 16 authorisation from them when you knew this may not be 17 a final price? 18 A. Well, I didn't know that. It was a possibility. 19 Q. Well, that's what the question was. The question 20 was: you knew this may not be a final price? 21 A. That's correct, yes. 22 Q. With the benefit of hindsight, do you consider it was 23 appropriate to represent to members at this meeting that 24 this was a final price? 25 A. I feel comfortable with the advice I gave members at 131 1 that meeting and the questions that followed, 2 and I believe that Council colleagues would also have 3 advised other members of Council about the possibility 4 of an increase. And I felt on balance a more important 5 thing was to have a report, you know; rather than 6 withdraw the report or ask for it to be continued, 7 I wanted to give an opportunity for the report to be 8 discussed, to be debated, and for officials to be 9 questioned on it. 10 Q. The report also asked the members to refresh the 11 delegated powers given to you, to authorise you to 12 instruct tie to enter the contracts; is that correct? 13 A. I think that's what the second recommendation says. 14 Q. You see, in short, Mr Aitchison, I have to suggest to 15 you that it was both inaccurate and potentially 16 misleading for you to represent to members that 17 508 million was the final price for the project, when 18 you knew that a substantial price increase had been 19 sought and remained unresolved. 20 A. I don't like any implication that -- I never, ever 21 sought to mislead elected members in all the time 22 I worked in local government. I may have made a mistake 23 in reporting, but I certainly was trying very hard to 24 ensure that elected members had as much information as 25 possible, and I think that's verified by the decision 132 1 I took to report as quickly as possible to the Policy 2 Committee, which was, I think, two weeks later, to 3 advise of the final -- the final 512 figure. 4 Q. I'm not, Mr Aitchison, asking about or questioning your 5 other reporting. I'm simply suggesting that in this 6 particular instance it was both inaccurate and 7 potentially misleading for you to have represented to 8 members that this was the final price, when you knew 9 that a substantial price increase had been sought and 10 remained unresolved? 11 A. I accept that. 12 CHAIR OF THE INQUIRY: Mr Mackenzie, is this a convenient -- 13 MR MACKENZIE: Sorry, my Lord. It would be a convenient 14 time. 15 CHAIR OF THE INQUIRY: We will adjourn for lunch, 16 Mr Aitchison. We'll resume again about 2.10. 17 (1.06 pm) 18 (The short adjournment) 19 (2.10 pm) 20 CHAIR OF THE INQUIRY: You're still under oath, 21 Mr Aitchison. 22 MR MACKENZIE: Thank you, my Lord. I would like to move on, 23 please, Mr Aitchison, to document CEC01338846. 24 We can see this is an email from Graeme Bissett at 25 tie, dated 12 May 2008, sent in the evening to various 133 1 individuals there within the Council, and others, but 2 not, I think, to yourself; is that correct? 3 A. Correct, yes. 4 Q. In this email Mr Bissett is sending a final set of "our 5 internal approval documents". If we scroll down 6 a little, we can see the sub-headings, close report, 7 paper on Infraco terms, tie paper on procurement 8 challenge and tie paper on final deal terms. 9 And the rest we can read for ourselves. 10 Now, I think in short, in your statement, 11 paragraph 142, you say that you don't think you saw the 12 final version of these documents at the time; is that 13 correct? 14 A. Yes. 15 Q. I think you also say in your statement, in 16 paragraph 143, that you don't think that members of the 17 Policy and Strategy Committee who are meeting the next 18 day, on 13 May 2008, saw these documents either; is that 19 correct? 20 A. That's also correct, yes. 21 Q. So presumably before you authorised or rather sought 22 members' authorisation to authorise tie to enter into 23 the contracts, you would have wanted a good 24 understanding of the contracts, including the risks to 25 the Council? 134 1 A. Yes. 2 Q. It may be suggested that these documents may be a good 3 place to start in that regard. 4 A. Yes, I was made aware of the documents that had come in, 5 as you say, I think, on 12 May. Is that the date, yes? 6 The day before -- yes. 7 Q. Yes. 8 A. And I was, I think, advised at the time by director 9 colleagues that they had seen the documents and 10 participated in the preparation of some of the material, 11 and that they were satisfied that that gave them the 12 confidence to give me an assurance that it was safe to 13 proceed. 14 Q. Now, when you say you were advised at the time by 15 director colleagues, et cetera, was that the next day, 16 on 13 May 2008? 17 A. I believe it was, but I couldn't say that categorically. 18 I think so. Can you go back up to the top of the email, 19 please, if that's -- 20 Q. Of course. 21 A. You can see it's come in at ten minutes to 8 in the 22 evening. So it would have been the following morning 23 when I saw the material. Well, not saw the material, 24 was advised material had been received. 25 Q. Do you know what the purpose was in sending these 135 1 documents at that time if they were not seen by yourself 2 or members of the Policy and Strategy Committee? 3 A. Well, I think it was a sort of chain of command thing. 4 The three colleagues to whom I have referred several 5 times now had to be satisfied what their recommendation 6 to me would be, and I in turn had to be assured before 7 making such a recommendation to the elected members. 8 It certainly wasn't standard or normal practice to 9 submit large detailed documents of that nature to 10 elected members. 11 Q. Now, can we go to another document, please. 12 USB00000357. This is the report to the Policy and 13 Strategy Committee on 13 May 2008. Just to pause there, 14 why did this report go to this committee rather than 15 back to a full meeting of the Council? 16 A. I wanted to get the material in front of elected members 17 as quickly as possible. 18 Now, clearly most of the major reports had gone 19 through the Full Council, rather than a committee. But 20 if you look at the composition of the Policy and 21 Strategy Committee, they had the leaders of the various 22 political groups on it. They had senior elected members 23 on it. Now, had they -- I think I make this point in my 24 statement. Had they in any way wanted further time to 25 consider, they could have continued their report for 136 1 another meeting. They could have referred their report 2 on to the Full Council itself. 3 But time was clearly -- it wasn't a very extended 4 time period by the time we got to 13 May, and I made the 5 point this morning, that every month that passed, tie's 6 costs were also increasing as well. So it seemed 7 appropriate to use the first possible senior elected 8 member vehicle into which I could report. 9 Q. Would it have been possible to have arranged an 10 extraordinary meeting of the Full Council to have 11 considered this matter? 12 A. In theory, yes, but that was always at the discretion of 13 the Lord Provost. But he in turn had taken soundings, 14 I imagine, from the leaders of the various groups. So, 15 yes, there was provision for such a thing in the 16 Council's standing orders. 17 Q. We will come back to the report. We will just digress, 18 please, to look at CEC01248988. 19 We can see, a their of the way down, an email from 20 Stan Cunningham. Who was he? 21 A. Stan Cunningham was the Council Secretary, the most 22 senior member of the committee staff. 23 Q. Dated 8 May 2008 to Gill Lindsay and others in relation 24 to the report to the Policy and Strategy Committee. 25 Mr Cunningham sets out: 137 1 "The P and S Committee meets at 10 am on Tuesday. 2 Your current plan means that the report will have to be 3 tabled and it may be the first time that many of the 4 members are aware of this matter. This is not 5 satisfactory." 6 To pause there, now, did in fact that happen, that 7 the report to the P and S Committee was tabled during 8 the committee meeting? 9 A. I don't think it would have been tabled during the 10 meeting. It would have been tabled at the start of the 11 meeting. 12 Q. Now, Mr Cunningham's position appears to have been that 13 that was not satisfactory. Was he right? 14 A. Well, he and I were both, generally speaking, of a 15 similar view. I didn't like reports going to members at 16 short notice. But the -- if you like, the seriousness 17 of the circumstances demanded in my view at this time 18 that I report to elected members. 19 Q. This was the, I think, biggest project in the history of 20 the Council. If any report to members ought to have 21 been given to members well in advance of the meeting, it 22 may be suggested it was this one? 23 A. You know, I would accept that. But it's also in the 24 back of the previous report to the Full Council on 25 1 May, it's on the back of extensive briefings to 138 1 politicians individually, and in political groups. So 2 it was also, as I said, I think, this morning, I felt it 3 was utterly important that the final decision to proceed 4 or not was taken by members, not by me. And it was the 5 first opportunity to report on the further increase from 6 508 to 512. 7 Q. I can quite understand, Mr Aitchison, the importance of 8 the final decision being taken by members. The issue in 9 short, perhaps, is were members given sufficient 10 information to enable them to come to a properly 11 informed decision? Do you have any comments on that? 12 A. I think on the whole, the elected members had the report 13 at the start of the meeting. I think from memory other 14 business was discussed before we got on to the tram 15 report to allow elected members time to, at the very 16 least, read the report and try and understand it, but 17 there was then a very extensive period of questioning of 18 myself and senior colleagues about the content of the 19 report. As I said a moment or two ago, had they in any 20 way not been entirely satisfied with what they were 21 hearing, or wanted additional information, then they had 22 a facility within the Council's standing orders to deal 23 with that. 24 Q. Can you remember the questions members asked at this 25 meeting and the answers given? 139 1 A. I'm afraid not, no. 2 Q. Can you remember even very generally of the subject 3 matters that were the subject of the discussions? 4 A. Well, sorry, maybe I should qualify it. There were 5 clearly questions about why had it gone from 508, 13 or 6 14 days before, to 512. So that was explained to 7 elected members. 8 I'm hesitant to say something I can't specifically 9 recall, but my recollection would have been that there 10 was certainly some discussion around this question of 11 risk in design that we talked about earlier -- earlier 12 today. 13 Q. Do you recollect whether members were told that the 14 Council had accepted risk in relation to SDS delay? 15 A. No, I can't recall definitively on that. Had I been 16 asked, I repeat an answer I gave you this morning about 17 the period of overlapping design and what was then 18 estimated to be a limited period before the design was 19 finalised. 20 Q. If we can go back, please, to the report. It's 21 USB00000357. Go to page 3, please. We will see the 22 report is by yourself. And back to page 1, please, and 23 paragraph 1.1 we can see the purpose of the report. It 24 was to advise the committee of a changed commercial 25 position and to seek approval now to instruct tie to 140 1 enter into the contracts, subject to the satisfactory 2 final conclusions of negotiations. 3 On 13 May, when this report was tabled to members, 4 were there still matters being negotiated? 5 A. I think that word was probably used because of the 6 protracted nature of discussions between the consortium 7 and tie. There was a kind of catch all that -- to make 8 sure that there weren't any last minute issues being 9 raised on either side of the contracting -- either two 10 of the contracting parties. But -- sorry, as far as 11 I was aware going into that meeting, all the -- you have 12 just been referring to the contract close documents. 13 All the necessary documentation was in place to allow 14 the contract to be signed once authority was granted 15 from the Council. 16 Q. Go to page 2, please. In paragraph 2.7, about halfway 17 through, we will see a reference to: 18 "Offsetting the increase in cost is a range of 19 negotiated improvements in favour of tie Ltd and the 20 Council in order to reduce the risk of programme delays 21 and minimise exposure to additional cost pressures, as 22 well as better contractual positions." 23 What was your understanding of these matters, the 24 better contractual positions? 25 A. I think there were a number of things, and I hope I'm 141 1 not confusing the 508 to 512. But there were things 2 like value engineering was reduced from a certain sum to 3 a lower sum, partly placed in the risk allowance, and 4 partly added to the contract price. 5 There were references to adjustments on road 6 reinstatements consequent upon the tram programme that 7 had provisionally been set at one price, with a whole 8 host of issues of that type that had been subject to 9 quite extensive discussion and negotiation throughout 10 the process. 11 Q. Then please go to paragraph 2.11. Under "Benefits of 12 the final deal", it states: 13 "In return for the financial amendments, tie Ltd has 14 secured a range of improvements to the contract terms 15 and risk profile." 16 Is that really a reference to the recent agreed 17 price increase, tie had got something in return for it? 18 A. Yes, I think we discussed earlier that throughout the 19 period between Final Business Case and contract close, 20 the elements of price and risk were moving. The overall 21 risk, I think, came down from -- I hope I've got these 22 figures correct -- 49 million to approximately 23 32 million, and certain provisional prices were firmed 24 up as new issues were identified, and various things 25 were placed into the appropriate either final price or 142 1 into the QRA. 2 Q. Now, there's no reference in this report to the pricing 3 provisions of the Infraco contract in Schedule Part 4, 4 the issue of the price being subject to a long list of 5 Pricing Assumptions, some of which were known not to be 6 true, and the risk of Notified Departures and price 7 increases after contract award. 8 Were you aware yourself of these matters at this 9 time? 10 A. No, I certainly went into the meeting on 13 May on the 11 clear assumption that the vast majority of costs had 12 been secured. 13 I recognise, as I said once or twice now, there was 14 certain things in the risk allowance to be further 15 developed in due course. We've talked -- I have talked 16 about the overlapping design risk and so on. But all of 17 that appeared to be not at the core of what was being 18 asked for, but at the margins and was manageable, and 19 deliverable, according to the advice we had from tie and 20 senior colleagues. 21 Q. So just to be quite clear, at the time of this meeting 22 you had no personal knowledge or awareness of Schedule 4 23 or its contents? 24 A. I had never seen or looked at or sought to look at these 25 detailed schedules to the contract. 143 1 Q. Did there come a time later when you were made aware of 2 Schedule 4 and its contents? 3 A. Not per se, but there was -- there was extensive 4 discussion subsequent to contract close as the situation 5 deteriorated about what was causing that, and that led 6 us into discussions about particularly Clause 80, 7 I think, the one which had allowed or didn't allow tie 8 to instruct work to begin before design was completed. 9 That became a very, very acute focus of attention. 10 Q. Because the suggestion in short would be that without 11 members having a good understanding of Schedule 4 and 12 its contents, then they weren't in a position at this 13 meeting to come to an informed decision in relation to 14 the project; do you have any comments on that 15 suggestion? 16 A. Well, I think the elected members would be relying on 17 the professional advice from their Council officers. 18 Q. On a similar theme, could I move on to another document, 19 please, CEC01244245. 20 We can see, I think, this is a note provided by the 21 Directors of Finance, City Development, and the 22 Council Solicitor, on 13 May 2008, to you, in short, 23 where they say that it is appropriate for you to 24 authorise tie to award the contracts. 25 Is that correct? 144 1 A. Yes. 2 Q. Now, was there any discussion with the Directors of City 3 Development and Finance or the Council Solicitor about 4 Schedule 4 or its contents at this time? 5 A. It's not something I can recall being discussed, no. 6 Not with me anyway, personally. 7 Q. Was there any discussion at this time among these people 8 and with you in relation to the extent to which the 9 fixed -- sorry, the extent to which the price was truly 10 a fixed price, and the extent to which there were likely 11 or may be changes after contract award that would 12 increase the cost of the project? 13 A. I mean, I do remember discussing with colleagues, 14 probably finance colleagues. I had asked them for what 15 was in the risk allowance and what was not and where the 16 major risks to the Council were, and they talked me 17 through that in broad terms, and I asked them several 18 times, were they professionally satisfied that it was 19 safe to move towards contract -- contract signature. 20 Their advice -- their view would have been while there 21 were risks, while there were some new risks, while we 22 had not, if you like, secured our original objective of 23 having all the design completed by the contract close 24 period, that all of that was understood by tie and 25 Council staff, that it had been discussed in some 145 1 detail. It was understood to be manageable, and ergo it 2 was -- led to their advice to me that it was safe on 3 that basis to proceed. 4 Q. Was there any discussion at this time as to whether 5 there would be an immediate Notified Departure or 6 Notified Departures following contract award? 7 A. Yes, that's when I probably got a bit mixed up this 8 morning. I recall these words. I think they are in the 9 contract close report. 10 Now, I had seen some of the contract close 11 documentation earlier in the calendar year. I think it 12 went through the Internal Planning Group, but not all of 13 it. 14 So while I have now seen that reference to there 15 being a Notified Departure after the contract was 16 signed, I don't think I was aware of that at the time of 17 the -- well, of 13 May. 18 Q. Just to try and clarify that, what was your position 19 before contract award as to whether you were aware that 20 there would be a Notified Departure or departures after 21 contract award? 22 A. I was unaware of that. 23 Q. Now, given the delays and difficulties with the design 24 and MUDFA works, was there any discussion at this time 25 to whether contract award should be delayed until design 146 1 had been completed, approvals and consents obtained, and 2 the MUDFA works finished? 3 A. Again, that's not something I recall being raised with 4 me or discussed in my presence at the time. 5 Q. Because it may be suggested that that would have been 6 more consistent with the procurement strategy to have 7 paused the contract award to allow design to be 8 completed, et cetera. 9 A. Yes, I can see the logic of that, and had that taken 10 place, how long would it have taken to resolve it? 11 I don't know. I suspect that probably would have 12 rendered the tram project null and void at that point in 13 time. I'm not saying that was not -- I think that may 14 have been the right course of action, but at the time, 15 it certainly didn't seem to be that way. 16 Q. Now, why do you say that may have rendered the project 17 null and void? 18 A. Well, I think -- given that the design wasn't completed 19 for months and months and months after contract 20 signature, had we said for the sake of argument in 21 May 2008: let's pause; we would have required advice 22 from procurement lawyers on whether there was any 23 infringement of procurement law, had we extended it by 24 three or six months. We would need to make sure 25 thereafter that the design work was in fact concluded to 147 1 a satisfactory standard, and by that I mean 2 a satisfactory standard to the construction -- to 3 Infraco coming in to deal with it. 4 There were a whole range of kind of complex 5 considerations. They may have brought the tram project 6 into jeopardy at that time, with hindsight. 7 Q. Was the option of delaying contract award until design 8 had been completed, et cetera, ever put to members for 9 their decision? 10 A. Not to my knowledge, no. 11 Q. So is that essentially a decision taken by officers? 12 A. In that sense, yes. 13 Q. Now, it may be suggested that given the known 14 difficulties and delays with design, and the MUDFA 15 works, that it was a risky strategy to proceed to 16 contract award in the hope that the outstanding design 17 approvals and consents and MUDFA works would be carried 18 out and completed without further delay. Do you have 19 any comments on that suggestion? 20 A. It was clearly -- a risk was clearly a need to 21 synchronise a number of important elements, utilities, 22 design, and the work being undertaken by the consortium. 23 I think I said this morning that tie had put in 24 place specific management improvement measures to cope 25 better with the design -- by that I'm talking about 148 1 quality, co-location, a much quicker escalation process, 2 should the programme be slipping. So there was, if you 3 like, a set of management processes declared in relation 4 to the -- to the design element. The utilities always, 5 I think, was a concern to everybody in the Council, 6 given that until you're actually -- although there was 7 a phase of survey work done to try and estimate how much 8 work required to be done under utilities, there were 9 always risks associated with that. I think I tried to 10 explain this morning that there were volume increases. 11 There were deficiencies in -- in plans held by the 12 Council and other utilities. And it was quite a -- what 13 at the time was thought to be quite a generous allowance 14 set aside the utilities contract to cope with that. 15 Now, I know that doesn't quite deal with your full 16 point about how you mesh the whole thing altogether, but 17 tie, I think at the time, were confident that they had 18 the ability within their organisation to ensure that 19 critical path to perhaps focus elements of the 20 construction on design that had been completed to date, 21 which I think was mainly they were trying to start work 22 west of Murrayfield, rather, for example, than -- down 23 in the Leith section. So the advice to me, they were 24 giving me professionally, was that: we think we have 25 a clear way through this that will not jeopardise the 149 1 delivery of the tram project. 2 Q. In relation to the management of design, you mentioned 3 tie had put in place specific management improvement 4 measures to cope better with the design. 5 After contract award, the consortium were going to 6 take over the management of the design, weren't they? 7 A. Yes. 8 Q. So how would any improvement measures put in place by 9 tie help with that? 10 A. Well, I think -- I think tie were also working with the 11 Council. You had to work back. There were things that 12 had to be complied with like the -- I think there was 13 a tram design manual. There were certain elements that 14 had to be put in place by whomsoever is doing a design 15 before it was submitted to the Council for consent and 16 approval, and the Council was also trying to gear up to 17 make sure that it could turn around these approvals 18 timeously without infringing any of the requirements in 19 the contract. 20 Q. And these design improvement measures, were they already 21 in place or were they to be put in place? 22 A. I think they were put in place round about the end of 23 2007/going into 2008. 24 Q. I would like to come back to Schedule Part 4, please. 25 Let's bring it up without going into the details of it. 150 1 It's USB00000032. I'm not going into the details, but 2 perhaps we can just go to page 3, for example, to see if 3 this rings any bells. 4 So, for example, under 2, "DEFINITIONS USED IN THIS 5 SCHEDULE", we see a reference to 2.3, to the "Base Date 6 Design Information", meaning: 7 "... the design information drawings issued ... up 8 to and including 25 November 2007." 9 Just by way of example, over the page, please, to 10 page 4, 2.8, we can see a reference to a Notified 11 Departure, and an explanation, and 2.9, Pricing 12 Assumptions, the definition. 13 Then on to page 5, please. At 3.1 at the top, you 14 see a reference to: 15 "The Construction Works Price is a lump sum, 16 fixed ... not subject to variation except in accordance 17 with the provisions of this Agreement." 18 3.2.1, an explanation of why Pricing Assumptions 19 have been necessary, et cetera. 20 3.3 is specified exclusions, and 3.4, Pricing 21 Assumptions are, and then it lists a number of Pricing 22 Assumptions. 23 The purpose, Mr Aitchison, was simply to ask: do you 24 recall whether you ever saw or were shown this document? 25 A. I don't think I've ever seen this document. 151 1 Q. I apologise if I'm repeating myself. Can you recall 2 whether you ever were briefed or given advice on this 3 document? 4 A. I was never taken through the document in detailed 5 terms. Any overall advice arising from it would have 6 been contained in the comprehensive advice given to me 7 by colleagues and by tie. This was not something I was 8 personally or specifically involved in. As I say, this 9 is the first time I think I have seen this document. 10 Q. I would like to move on, please, to after contract 11 award, and the dispute that arose. 12 Can you remember approximately when you were first 13 made aware that there was a fundamental dispute or 14 disputes between tie and the consortium? 15 A. That would probably be early 2008, running in to the 16 commencement of work on Princes Street. 17 Q. I think that may be early 2009; is that correct? 18 A. Sorry, I beg your pardon, 2009. 19 Q. Contract award was in May 2008? 20 A. Sorry, yes. 21 Q. What did you understand to be the cause of the 22 Princes Street dispute? 23 A. There was -- I think I remember several causes, but 24 clearly the consortium were looking for additional -- 25 additional payments. This is maybe indicative of the 152 1 questions you have been asking in the last few minutes. 2 It was building up to a situation where clearly of all 3 the areas of the tram contract, Princes Street was the 4 most highly visible. It was on the BBC almost every 5 other night in terms of the works to be done and so on, 6 and the Council was under a huge pressure to find a way 7 forward on Princes Street, and that led me into a lot of 8 liaison and discussion with David Mackay at that point 9 in time. 10 I think there may have been a precursor to this in 11 an exchange of emails that I had or Willie Gallagher 12 sent me towards the end of 2008, where he spoke about 13 the price for Princes Street, where he said the price 14 was not agreed, which I assumed to mean the price for 15 Princes Street was not agreed. So in that sense that 16 was probably the first formal alerting I had to the 17 possibility of a difficulty between tie and the 18 consortium over the works on Princes Street. 19 Q. What was your involvement, if any, in the resolution of 20 the Princes Street dispute? 21 A. Well, none per se, other than wanting to be kept 22 informed, at one stage almost on a daily basis from 23 David Mackay as to what was happening. This thing I can 24 remember quite well. I was actually sitting in 25 Councillor Dawe's office with her and 153 1 Councillor Buchanan, when he phoned through to say that 2 he thought they had now found a way forward on 3 Princes Street, which became the multiple cost element; 4 and I advised the councillors at the time of the fact -- 5 we're all sitting in one room -- of the telephone 6 conversation, and there didn't seem any reason not to be 7 other than pleased that a way had been found forward on 8 the Princes Street works. 9 Q. Did you have any understanding at that time as to 10 whether the Princes Street agreement resulted in 11 additional risk to the Council and/or was likely to 12 result in increased costs for that section of work? 13 A. Both these things, risk and costs, were possible. But 14 had tie not in a sense pragmatically taken that 15 decision, then I really don't know what would have 16 happened as far as Princes Street is concerned. We had 17 pressure from retailers. We had pressure from 18 politicians. I think round about that time, there was 19 an exchange of correspondence between Councillor Dawe 20 and Councillor -- Struan(?) Stevenson MSP, all 21 expressing frustration about the lack of progress on the 22 project. 23 Q. Could we go, please, to another report to Council, 24 CEC01891494. We see it's the report to Council on 25 12 May 2009. 154 1 Go to page 5, please. Sorry, it's page 4. We'll 2 see this report was by yourself. This particular 3 version is not signed. Back to page 1, please. 4 In paragraph 1.1, we see the purpose of the report 5 is to inform members of the current position of the tram 6 project in light of the contractual difficulties, et 7 cetera. Paragraph 2.2, please, provides: 8 "In my report to the Policy and Strategy Committee, 9 I pointed out that in May 2008 tie concluded a fixed 10 price contract for the delivery of Edinburgh's tram 11 project ..." 12 We see there the reference to fixed price contract, 13 and also, please, paragraph 2.3: 14 "Prior to financial close of the contract 15 negotiations, tie agreed an additional sum with BSC for 16 completion of the tram project and, in so doing, 17 cemented the risk allocation position agreed by client 18 and consortium, whose three members are jointly 19 and severally liable for its successful completion 20 within the terms of the fixed price contract." 21 Now, do you have any comments with the benefit of 22 hindsight on the reference to this being a fixed price 23 contract? 24 A. With the benefit of hindsight, yes. I think it should 25 have been explained that -- my clear understanding when 155 1 the contract was going through the financial close phase 2 was that it was substantially a fixed price contract. 3 By that I mean there were various figures bandied around 4 about 90 per cent, 95 per cent. There were clearly 5 always things that were potentially sitting outwith the 6 contract, ground conditions and so on. So in good faith 7 that was reported to the Council at the time. But you 8 have clearly asked me a number of questions all on a 9 similar theme, that with the benefit of hindsight, 10 perhaps -- not perhaps, it would have been beneficial to 11 have explained more fully to members where the fixed 12 elements were and where the non-fixed elements were. 13 Q. Yes. I think in short the suggestion would be that for 14 members to be properly informed of the price, and to be 15 able to make properly informed decisions, they would 16 need to be properly advised of Schedule 4 and its 17 contents. Do you accept that? 18 A. I think that would have been beneficial. I made the 19 point several times again that when I speak about the 20 members, I'm primarily speaking about the official 21 reporting into the Council. I don't want you to 22 underestimate the intensity of activity between Council 23 officers and elected members in private meetings 24 and group meetings and so on, where issues such as this 25 would have been -- would have been discussed. 156 1 Q. Do you have any recollection in any of these meetings of 2 members ever being told of Schedule 4 and its contents, 3 including in particular that the price was subject to 4 a long list of Pricing Assumptions, some of which were 5 known not to be correct at financial close and would 6 lead to a likely -- a Notified Departure or departures? 7 A. No. 8 Q. Just to be quite clear, I suggest that members required 9 to be aware of these matters in order that they could 10 take properly informed decisions in relation to the tram 11 project? 12 A. That would have been beneficial, yes. 13 Q. I suggest necessary, not just beneficial. 14 A. I accept that. 15 Q. Can I take it -- I should ask, Mr Aitchison, in this 16 report to Council, on 12 March 2009, the use of the word 17 again, "fixed price contract", does that suggest that 18 your understanding in relation to the price hadn't 19 changed since your understanding at contract close? 20 A. My understanding was it had not substantially exchanged. 21 It was clearly -- tie were coming under pressure from 22 the consortium, but at that point in time they had not 23 acceded to any major increases in contract price. 24 Q. Did there come a time when your understanding as to 25 whether this was truly a fixed price contract changed? 157 1 A. Yes. That would be -- try and get my years right this 2 time round. 3 Increasingly from probably the summer/autumn of 4 2009, things were less clear with the advice being 5 received from tie. I did sincerely hope that the 6 Princes Street agreement was a one-off. They would get 7 the project moving. It would -- the works in 8 Princes Street were completed, from memory, by 9 November 2009. But that did not become the kind of way 10 forward with the consortium, that the Council and tie 11 had been hoping for. 12 Q. Can I also please in this report go to page 4. In 13 paragraph 4.1, the third recommendation: 14 "It is recommended that the Council ... re-affirms 15 to tie its support for their insistence on the terms of 16 the current contract being adhered to." 17 Presumably that recommendation was based on tie's 18 interpretation of the contract being correct? 19 A. Primarily, yes, although I think again -- I'm starting 20 to lose the chronology of all this. But there was 21 a special meeting of the Policy and Strategy Committee 22 at which David Mackay was invited along to speak to the 23 then position that was current in relation to the 24 contractual circumstances. He was questioned at great 25 length by the elected members present, and I think they 158 1 took his assurance along with that, that the -- that 2 efforts should be made to stick to the terms of the 3 contract. 4 CHAIR OF THE INQUIRY: Was anyone from tie present at the 5 earlier Policy and Strategy Committee in May of 2008? 6 A. I honestly can't recall that. I think there may have 7 been. I don't recall there being someone from tie who 8 would have been seated at the table to answer questions 9 should members so wish. I think they may have had an 10 observer sitting in the audience, so to speak. But 11 I can't be definitive about that. 12 CHAIR OF THE INQUIRY: Who would be at the table to answer 13 questions? Would that include you? 14 A. It would be -- yes, it would be myself, Director of City 15 Development, Director of Finance, and Council Solicitor, 16 who would -- who would have answered questions on these 17 matters. 18 MR MACKENZIE: Were you aware around this time that it was 19 the consortium's position that they were strictly 20 adhering to the contract? 21 A. Not -- by this time, you mean March 2009? 22 Q. Yes. 23 A. No, it's fairly -- certainly during the course of 2009, 24 it became clear that the consortium appeared to be 25 confident in their position, tie also appeared to be 159 1 confident in their position, all of which led to 2 additional technical advice, additional legal advice, 3 I think also QC's opinion. 4 So tie appeared to be doing some of the right things 5 in trying to fully bottom out what their position was. 6 Q. So essentially there was a standoff between tie and the 7 consortium. Each thought their interpretation of the 8 contract was correct? 9 A. It felt like that for quite some time, yes. tie were 10 concerned about the public purse and the budget, not 11 acquiescing to requests that couldn't be substantiated 12 with supporting information, and all of that led to the 13 kind of phraseology we have got here about the Council 14 backing tie's position in 2009, about safeguarding the 15 public purse, and thinking we had a contract that was 16 secure. 17 Q. But if tie were wrong about their interpretation of the 18 contract, then any delay in settling the dispute would 19 make the position worse for the public purse? 20 A. That's correct. 21 Q. Now, did you give any consideration at this time to 22 whether the Council should instruct its own independent 23 legal advice? 24 A. No, the Council's position, I think, was as I have just 25 said, that to be made aware of and understand more fully 160 1 what additional legal advice tie were taking, I think 2 they also had specialist claims staff on board as well, 3 all of which was leading to a QC's opinion later in 4 2009. 5 Q. It may be suggested that when the Council is faced with 6 a position where there's a standoff between the parties 7 as to who was correct on the contract, an obvious thing 8 for the Council to do is to instruct its own independent 9 legal advice in order to properly protect the Council's 10 interests. Any comment on that suggestion? 11 A. Well, it's a reasonable remark to make, and had any such 12 request been submitted to me, I certainly would have 13 probably approved it. 14 Q. Did you consider that was something which perhaps the 15 Council Solicitor or one of the directors required to 16 suggest to you before you could consider it? 17 A. Probably -- I mean, the circumstances in 2009 were 18 Princes Street was stalled, and then got the go-ahead. 19 A new Chief Executive was coming in to tie in the shape 20 of Richard Jeffrey. There was, I think, put in place, 21 I recall, a project development panel or management 22 panel. It was also said there were possible changes to 23 personnel coming through within the consortium's side of 24 things. So all of that seemed to lead to a view from 25 the Council that tie were taking the necessary steps to 161 1 try and deal with the issues in front of them. 2 So it didn't -- it wasn't recommended to me to seek 3 independent legal advice, and nor did I make any 4 specific recommendation of that type to my respective 5 colleagues at that point. 6 Q. Thank you. 7 I would like to move to a separate document, please. 8 It's CEC00688908. 9 We can see this is a report to the IPG on 10 27 July 2009. Go to page 2, please. We can see in the 11 third paragraph an explanation that: 12 "The normal format for this report has not been 13 followed. Instead it has been replaced with a note from 14 the Director of Finance and a list of decisions that are 15 required to be taken to allow the completion of the 16 Council Report." 17 Then we see a reference to: 18 "INSERT TEXT FROM ALAN COYLE" 19 Could we then please go to page 5. Sorry, we start 20 at page 3 to provide the context. We can see at the 21 top: 22 "3. Decisions required to be taken for the 23 finalisation of the Tram Council Report on 20 August." 24 That's all by way of context. Now, please, page 5. 25 In the top box under "Option/Comment", can we see, it's 162 1 a question of bonus. It says: 2 "Question of whether any bonus should be payable at 3 all now funding envelope likely to be exceeded for 4 completion of 1a in full and there is now significant 5 delay to completion?" 6 It's the next bit I'm interested in: 7 "On one view tie has failed to deliver as promised 8 (on their own admission tie admit that 40 to 80 per cent 9 of changes and delay are down to them, not BSC) ..." 10 To pause there, can you recollect any such admission 11 being made by tie? 12 A. No. 13 Q. Can you recollect any discussion at either this IPG or 14 other IPGs as to what extent any changes and delay were 15 due to tie? 16 A. I think I said that going through summer of 2009 and 17 into the autumn, frustration was increasing about the 18 late submission of reports from -- from tie in relation 19 to various programme elements. 20 I think there was a recognition in one of the 21 reports or one Council report that some of the delay had 22 been at tie's hand directly, but not, I think, to the 23 extent of the figures that are being shown there. 24 Q. I would like to move on, please, to another -- 25 CHAIR OF THE INQUIRY: Do you recall discussing bonuses at 163 1 that IPG? 2 A. I can't recall specifically, but clearly bonuses were 3 being discussed at that time. That's where I think 4 I made an error in my earlier submission to the Inquiry. 5 I had quite -- I thought I had a clear recollection that 6 neither in 2009 nor in 2010 were any bonuses being paid. 7 That is certainly what I would have wished to have seen 8 happening. 9 I think round about this time there's information 10 coming through from tie that they were trying to much 11 reduce the entitlement to bonus payments to align it 12 more fully to contract milestones. But what I couldn't 13 find in the papers available to me was to complete the 14 paper trail in 2009 as to whether any bonuses, 15 particularly to senior staff, had been paid or were they 16 deferred, and again, I have no information as to what 17 happened after I retired from the Council. But I would 18 like to think that no bonuses were paid to senior staff 19 from 2009 onwards. 20 CHAIR OF THE INQUIRY: Just looking at that top entry, 21 number 5, the question of bonuses features there, but 22 also it seems to suggest that there has been an 23 admission by tie that 40 to 80 per cent of the changes 24 and delay are their responsibility. Clearly if you were 25 discussing bonus payments, would that not be a factor 164 1 that you would want to also discuss and clarify what is 2 meant? 3 A. Yes. But I think, if I'm being correct about it, the 4 procedure was for the Remuneration Committee of tie to 5 determine whether or not bonuses were to be paid. That 6 was then bound to be referred across to the Tram 7 Monitoring Officer. That changed later to me, I think 8 a year or so later, in the Operational Agreement. 9 So what I can't recall from this and subsequently is 10 what view the Tram Monitoring Officer or anybody else on 11 the officer side of the Council took about bonuses. 12 But I would be surprised if it was other than 13 a negative one. 14 MR MACKENZIE: Mr Aitchison, could I check, which officer in 15 the Council was responsible for the oversight of tie's 16 bonus scheme? 17 A. That originally was the Tram Monitoring Officer, and 18 that was altered later when there was an attempt to, 19 I think, strengthen the operational agreement between 20 the Council and tie, and my name was written into the 21 documentation, rather than the Tram Monitoring Officer. 22 Q. When you say Tram Monitoring Officer, I think on one 23 view that title, term didn't officially come into being 24 until an Operating Agreement in May 2008. I just 25 wondered, before May 2008, who was the official within 165 1 the Council responsible for overseeing tie's bonus 2 scheme? 3 A. That would have been the Director of City Development. 4 Q. I can perhaps ask Mr Holmes more questions about that, 5 thank you. 6 So I could then go to another document, CEC00548728. 7 We can see this is a letter from the consortium sent 8 on 8 March 2010 to various Council officers, including 9 yourself, and also to Councillor Gordon MacKenzie. 10 If I can look firstly, please, at the second 11 paragraph. Do we see in the second line, it states: 12 "At this time, the utility diversion works remain 13 significantly delayed with no clear idea of when they 14 will actually be completed or in what sequence." 15 Did that reflect your understanding of that matter 16 at the time? 17 A. I think clearly the works had not been completed. 18 Therefore they were beginning to be behind schedule. 19 Q. Could I also then please go to page 2. In the paragraph 20 two up from the bottom, it states: 21 "From the first day tie has publicly sought to 22 insist that it has signed a lump sum, fully fixed price 23 contract with the consortium. This is not the case, as 24 evidenced by the extensive list of defined pricing 25 assumptions which form an integral part of the contract, 166 1 and also by the clear rulings of the independent 2 adjudication process which fully support the 3 consortium's legal and contractual interpretation." 4 Now, by this stage would you have agreed with what 5 is said in the first two sentences, ie that in fact this 6 was not a lump sum fully fixed price contract because it 7 was subject to an extensive list of defined price 8 assumptions? 9 A. That seems to be correct, yes. 10 Q. Would that have been a change in your understanding of 11 the price from the position at contract award? 12 A. Yes, as was becoming clear by the spring of 2010, there 13 clearly was a huge gulf in the different interpretation 14 of the contract between tie on the one hand and the 15 consortium on the other, and evidence was beginning to 16 come through that it did appear as if the consortium 17 were more right in that regard than tie were more right. 18 Q. Were members of the Council ever advised that this was 19 not truly a fixed price contract because of the content 20 of Schedule 4, ie the various Pricing Assumptions and 21 risk of Notified Departures? 22 A. Not specifically in relation to the schedule. But they 23 were advised -- again, this is not necessarily a public 24 report. But given the extent of the pressure tie were 25 coming under contractually, and upon further examination 167 1 of the position, then it was clearly no longer the case 2 that a fixed price contract within an envelope of 512 or 3 545 was tenable. 4 Q. Could I also then please look on to the next page, top 5 of page 3. The very first paragraph states: 6 "The three adjudications on the Contract wording to 7 date have all been decided in favour of the Consortium's 8 interpretation. The key dispute was the extent to which 9 changes in the scope give rise to a contractual 10 entitlement in favour of the consortium." 11 Did that accord with your understanding at this time 12 that the three adjudications had been decided in favour 13 of the consortium? 14 A. In relation to the adjudications, I think it was always 15 the case that no one adjudication was binding on either 16 party in terms of a final determination of the rights or 17 wrongs of the contract. 18 I also think tie were correct to challenge the 19 adjudications, given the amounts of money that were 20 saved through the public purse. But it did appear to be 21 increasingly the case that the legal interpretation 22 expressed through the adjudications was falling on the 23 consortium's side, rather than on tie's side. 24 Q. On the question of the -- no one adjudication being 25 binding on either party, it's correct to say, is it not, 168 1 that one of the important purposes of the adjudications 2 was for parties to obtain guidance, even if non-binding, 3 on the correct interpretation of the contract? 4 A. Yes. 5 Q. Go to your statement, please, TRI00000022_C, at page 70, 6 please. In paragraph 212 this starts by referring to an 7 email dated 11 March 2010. It refers to 8 Donald Anderson, the former Council Leader, had texted 9 you on behalf of his clients, BBS, to advise that he had 10 read the three adjudication decisions for himself, and 11 that "tie have unequivocally lost each one", et cetera. 12 It's then the last sentence, you say: 13 "I didn't think that the decision necessarily 14 indicated a complete vindication of one side's position 15 over the other but BBS's interpretation of the 16 contractual issues did appear to be strengthened." 17 Now, in light of that answer, and the answer you've 18 given us just a moment ago, was there any consideration 19 on your part at this time to whether the Council should 20 step in and try and resolve the dispute? 21 A. That was beginning to become quite an issue, certainly 22 in 2010, that the Council was beginning to lose faith in 23 tie. I was asked by Lord Hardie earlier when Mr Maclean 24 took office, he did that. He came into the Council in 25 December 2010, and I think he brought with him a sort of 169 1 fresh perspective on where things were. So there was 2 the beginnings of a clear recognition that the Council 3 had to begin to do perhaps more of its own thinking, 4 rather than overly rely on tie. 5 Q. Just to be quite clear, as a matter of fact, did you 6 give any consideration, for example, upon receipt of the 7 consortium's letter of 8 March 2010, as to whether the 8 Council at that time should step in to try and resolve 9 the dispute? 10 A. Just try and give you a slightly longer answer. 11 Richard Jeffrey had put in place a process I think 12 at the beginning of January 2010, which he said that we 13 need to try and, if you like, bring things to a head, by 14 which he meant a report going to the Tram Project Board 15 and tie, in March. 16 That was leading to a review of a whole range of 17 circumstances that became known, I think, as Project 18 Pitchfork. At long last we were beginning to see some 19 figures coming together as to what the implications of 20 the original contract price were, what additional monies 21 might be required to deliver the whole project or 22 and/or, whether through contingency planning. Sorry, 23 with -- and contingency planning was under 24 consideration, and whether it may be necessary to 25 contain the cost within the budget, to begin to 170 1 contribute -- to truncate the line. 2 So all of that was activity beginning to happen 3 within the Council. 4 From Project Pitchfork, that led into the Carlisle 5 initiative, which I think was a genuine attempt on both 6 parties to try and see whether a way forward could be 7 found. So all of that seemed to be on behalf of the 8 Council reasonable activity, but it did not mean that 9 the Council was leaving that entirely in the hands of 10 tie to do that. 11 Q. Now, on the question of the adjudication decisions, 12 there was a question that arose as to whether members of 13 the Council should be given access to adjudication 14 decisions so they could read them and come to a view 15 themselves as to who was winning. I think a decision 16 was made not to give members access to adjudication 17 decisions; is that correct? 18 A. I'm not -- I don't know who you're saying -- which 19 members had requested information and who denied them. 20 That would not be the sort of thing I would have 21 condoned. 22 Q. I think two documents may help in that regard. Firstly, 23 CEC00012827. Can we see at the very bottom of the page, 24 please, an email from Councillor Barry dated 25 18 October 2010 to yourself. It says: 171 1 "Dear Tom, I should be pleased if one of your staff 2 could give me some advice about the problematic contract 3 for trams and an understanding of the relationship 4 between the various parties." 5 Just to pause, was Councillor Barry a member of 6 a particular party? 7 A. He was a member of the Labour Group. 8 Q. We see then the questions set out over the page, please. 9 We see further questions, including: 10 "Where can I view a copy of the contract with BSC? 11 Where can I view the results of arbitration?" 12 Go back to -- I think that should be "adjudication". 13 Go back then to page 1, please. We can see in the 14 middle email an email from, I think, your PA or 15 secretary to Donald McGougan and Alastair Maclean, 16 asking for a draft response to Councillor Barry's email. 17 We can then see the letter you sent to Councillor Barry, 18 the next document, CEC00037338. We can see this is 19 a letter dated 21 October 2010, sent by yourself to 20 Councillor Barry. 21 Over the page I think may help. Question 4: 22 "What is the Council's exposure to delay, et cetera, 23 risk and why is this risk not with tie alone?" 24 We can see what is said, but no reference, for 25 example, to Schedule 4 or its contents. 172 1 Then under question 6 we see the answer: 2 "The Infraco contract and the arbitration results 3 are subject to detailed confidentiality provisions. 4 Unfortunately, it will therefore not be possible for you 5 to view these." 6 So this appears to have been a position you have 7 approved by sending this letter; is that correct? 8 A. That would be correct, yes. 9 Q. Do you accept that councillors were unable to come to 10 a properly informed view of the dispute and the 11 adjudication decisions if they weren't given access to 12 the contract or the adjudication decisions? 13 A. Yes. Councillor Barry was one of the few members of the 14 Labour Group who was not supportive of the tram project. 15 I'm surprised I have -- I would have preferred to have 16 said he could have access to some of these documents 17 under controlled circumstances, perhaps with some 18 redaction taking place as well. But I have said it 19 and signed it, so I have to stand by it. 20 CHAIR OF THE INQUIRY: Did the fact that he was opposed to 21 the tram project influence your decision as to whether 22 he should have access to documents? 23 A. No. I think in that sense all 58 members of the Council 24 have equal status and equal standing. He was -- he was 25 elected by the people of Edinburgh. So I always try to 173 1 treat all councillors in that -- in that regard. 2 I suppose in my defence I have clearly taken advice 3 from somewhere in relation to what I have said about 4 viewing the arbitration results, and I have to stand by 5 it. If we jump on a little bit to the business -- the 6 renewal of the business plan that went to the Council, 7 I think, in December of 2010, and they asked for access 8 to a full copy of the plan, I kind of overruled my 9 colleagues in that regard by saying the members must 10 have access to the full copy of the plan. There was 11 a redacted version with only very limited redactions put 12 into the public domain, but all members of Council, 13 and I also secured agreement of the Chief Executive 14 designate of Lothian Buses, that he would also show that 15 to the members of the Lothian Buses Board. 16 So I'm trying to really say to you that this is 17 atypical of how I would have regarded such a request. 18 I always tried to meet the requirements of individual 19 and collective elected members. 20 CHAIR OF THE INQUIRY: Could I ask you a different matter. 21 You were referred to paragraph 212 of your statement, 22 and that related to the involvement of former councillor 23 Donald Anderson who had been a leader of the Council. 24 At that time was there any equivalent to the Ministerial 25 Code which would affect what councillors could do while 174 1 they were councillors and also what councillors could do 2 after they ceased to be councillors? 3 A. Yes, a good point. I don't really know the answer to 4 that. I think you will see from my statement that I was 5 cautious about the approach forthcoming from 6 Donald Anderson. I had no idea what authority, if any, 7 he had to speak for or on behalf of the consortium, and 8 I was very guarded in any dialogue that I personally had 9 had, or any Council officers would have with him in 10 relation to the tram project. 11 CHAIR OF THE INQUIRY: I don't think there's any doubt about 12 his authority. I think he was instructed by BSC as 13 a PR -- in the context of his employment as a PR person 14 or a communications person. So I think he had authority 15 to communicate on that. 16 What I was wondering is there any code which would 17 affect people who were formerly councillors dealing with 18 matters that had featured in the Council when they were 19 councillors. 20 A. It's not ringing any bells with me immediately. 21 I understand, I think, fully the point behind your 22 question. You will know as well that sometimes these 23 were time limited considerations, albeit he left the 24 Council in the May 2007, I think it was. He stood for 25 the Scottish Parliament. 175 1 So this is, you know, several years further on. So 2 even had there been such a code, and I'm not saying or 3 sure there was, it may well have been that he was 4 outwith the designated time period thereafter. 5 But there was a situation that made people 6 uncomfortable. 7 CHAIR OF THE INQUIRY: Yes. Where would be the best source? 8 Would it be COSLA or -- 9 A. COSLA would know. I mean, when I was asked this morning 10 about the changes consequent upon the election in 2007, 11 that was the first time we had proportional 12 representation voting into Council elections. A lot of 13 the councillors had retired about then, and it was 14 accompanied, I think, by the documents that came from 15 COSLA under then Scottish Government, which was setting 16 out, if you like, role responsibilities for 17 Council Leader, leader of the opposition, you know, 18 a range of other senior people in Council. So to that 19 extent, was there inference that more executive 20 authority was being vested in individual councillors 21 than had perhaps been the case under the previous 22 system. 23 Now, as I say, Donald Anderson had left the Council 24 at that time, and if you're looking for a source of 25 information, I think probably COSLA would be certainly 176 1 a very good starting point to establish that. 2 CHAIR OF THE INQUIRY: Thank you. 3 MR MACKENZIE: There's one final matter, if I may, before we 4 break. 5 Mr Aitchison, I think you attended a meeting on or 6 about 16 November 2010 with John Swinney and 7 Councillor Dawe? 8 A. Yes. 9 Q. Can you recall how that meeting came about? Who 10 suggested it? 11 A. I think it was at the request of John Swinney. And 12 I think he was -- I cannot speak for a Government 13 Minister, but I think he was growing increasingly 14 frustrated at the lack of progress, the constant media 15 and political turmoil, and he invited Councillor Dawe 16 and myself to attend a meeting with him. 17 Q. What was discussed at the meeting and what was the 18 outcome? 19 A. He really wanted -- he said something to the effect 20 that, well, he had been meeting tie on a reasonably 21 regular basis. He was increasingly or had increasingly 22 lost faith in them. And he wanted to hear from the 23 Council where is the Council -- where is the Council's 24 thinking in all this, and what was the Council going to 25 do. 177 1 I think I do say in the statement that I had -- as 2 it happened, discussed with Councillor Dawe in the 3 preceding days the possibility of moving towards 4 mediation. 5 Now, Mr Swinney didn't say yea or nay to that. 6 I think he heard what we had to say, and I hope he 7 thought it was a reasonable response to the 8 circumstances we found ourselves in at the time. And he 9 did go on to say that should we require further 10 assistance from Transport Scotland, that he was prepared 11 to make that available. In fact, there was a member of 12 staff from Transport Scotland present at the meeting. 13 Q. Thank you. Now, I think you retired in December 2010? 14 A. Yes. 15 MR MACKENZIE: So I won't ask you any further questions in 16 relation to events after that. I have no further 17 questions, my Lord. 18 CHAIR OF THE INQUIRY: I don't think anyone has intimated 19 any other questions. 20 Thank you very much, Mr Aitchison. That concludes 21 your evidence. 22 A. Thank you very much. 23 CHAIR OF THE INQUIRY: You're still subject to your 24 citation, so that it would be possible to recall you if 25 anything else arises. Hopefully that won't be 178 1 necessary, but in the meantime thank you very much for 2 your time. 3 A. Thank you. Given I'm moving house tomorrow for the 4 first time in 35 years, I'm glad we are finished today. 5 Thank you. 6 (The witness withdrew) 179 1 INDEX 2 PAGE 3 MR TOM AITCHISON (sworn) .............................1 4 5 Examination by MR MACKENZIE ...................1 6 7 MR ANDREW HOLMES (sworn) ...........................179 8 9 Examination by MR MACKENZIE .................179 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 212