1 Wednesday, 6 December 2017 20 MR MCCLELLAND: The next witness, my Lord, is Axel Eickhorn. 21 MR AXEL EICKHORN (sworn) 22 CHAIR OF THE INQUIRY: You are going to be asked some 23 questions, initially at least, by Counsel to the 24 Inquiry, Mr McClelland. 25 If you listen to the question and answer it as 138 1 directly as possible. If you speak into the microphone 2 so that everyone can hear what you're saying, and also 3 if you speak at a measured pace, so that the shorthand 4 writers can keep up with you. 5 A. Okay. 6 Examination by MR MCCLELLAND 7 MR MCCLELLAND: Could you please state your fall name. 8 A. Axel Eickhorn. 9 Q. You should find sitting in front of you, Mr Eickhorn, 10 copies of the statements that you've supplied to the 11 Inquiry. Do you have those there? 12 A. Yes, that's true. Yes. 13 Q. Just for the record, the references for these are 14 TRI00000171 and TRI00000185. 15 Now that you're under oath, do you confirm that 16 these statements are accurate and true? 17 A. Yes, they are. 18 Q. Are you happy for them to stand as your evidence to the 19 Inquiry? 20 A. Yes. 21 Q. Is there anything in them that you no longer think 22 accurate or would like to clarify? 23 A. No. 24 Q. Just by way of introduction, Mr Eickhorn, can you please 25 confirm your professional qualifications? 139 1 A. I completed an apprenticeship as a clerk in Siemens. 2 I hold a German degree in -- a diploma in business 3 administration, and I hold a bachelor's degree in 4 commercial economics. 5 Q. Thank you. 6 I think you said also in your statement that you 7 have a project management certificate from Siemens; 8 that's correct? 9 A. Yes. In fact I hold two project management 10 certifications issued by Siemens as part of the internal 11 training programme, that's correct, yes. 12 Q. Can you confirm what role you held in the Edinburgh Tram 13 Project? 14 A. There were basically two phases of my involvement, and 15 from 2008 until 2011, I was in the role of commercial -- 16 Deputy Commercial Project Manager and from 17 1 October 2011, I took on the role as the Commercial 18 Project Manager for the Siemens part of the project. 19 Q. Within the hierarchy of the project team, roughly how 20 senior were you within that hierarchy? 21 A. In terms of the project management organisation, in that 22 first phase I referred to, I would probably say the 23 second layer, and from 2011 I was part of the -- of the 24 project management together with my technical partner, 25 Alfred Brandenburger, as the responsible project 140 1 management. 2 Q. Thank you. 3 You say in your statement that you started on the 4 project shortly after the Infraco contract was signed in 5 May 2008; is that correct? 6 A. That's correct. I think the contract was signed on 7 15 May, if I remember correctly, and I arrived for the 8 first time in Edinburgh on 7 July. In the time in 9 between, I had the opportunity to familiarise myself 10 with the terms of the contract in its signed form. 11 Q. Now, do you recall Schedule Part 4 of the Infraco 12 contract? 13 A. Yes. 14 Q. In particular, there's a Pricing Assumption, Pricing 15 Assumption 1, concerned with departures from the Base 16 Date Design Information. Do you recall that? 17 A. Yes. 18 Q. You say in your statement that that was of far more 19 relevance to Bilfinger than it was to Siemens. Can you 20 just explain why that was the case? 21 A. The information contained in the Base Date Design 22 Information was mainly construction drawings, and so by 23 nature of them being construction drawings, and in 24 relation to the split responsibility within the 25 consortium, that related to Bilfinger's scope of work. 141 1 Q. Where was the Siemens scope determined, within the 2 contract? 3 A. There were, I would say, two elements that informed the 4 Siemens scope. One, the Employer's Requirements, and 5 the construction design to the extent it had an 6 influence on the Siemens elements of the works. 7 Q. Now, you say that -- in your statement that it was known 8 that there would be changes from the Base Date Design 9 Information. We've just established from the dates that 10 you began that you were not involved in the project at 11 contract close. So I would just like to ask, what was 12 the source of your knowledge that it was known that 13 there would be changes in the -- from the Base Date 14 Design Information? 15 A. I cannot name the precise source of that knowledge, but 16 I think it is self-evident that the base date for the 17 design information was quite a while back, and it was 18 common knowledge that design development had been -- had 19 carried on in the meantime, and that things would have 20 moved on and changed to an extent. 21 But to what extent I didn't know at the time. 22 Q. So when you joined the project team, was it generally 23 understood that there were going to be a significant 24 number of departures from the -- from Pricing Assumption 25 number 1? 142 1 A. I don't think that there was a judgement made, at least 2 not by myself, that there was a significant -- number 3 would be significant or not. But it was established or 4 known that there would be -- would be changes to be 5 expected. 6 Q. Okay. 7 Now, were you involved in the change procedure that 8 operated under the contract? 9 A. Not in the drafting of the change procedure, but in the 10 application of the change procedure, yes. 11 Q. Okay. We've heard that most of the Notified Departures 12 concerned Bilfinger's scope of work. Is that your 13 understanding? 14 A. I think that is a fair assessment, yes. 15 Q. Was that both in terms of number and in terms of value? 16 A. I would say so, yes, in terms of number I can positively 17 confirm that. I think an -- 80 or 90 per cent of the 18 changes that occurred related to the civil work scope, 19 yes. 20 Q. Do you have a feel for the percentages in relation to 21 value? 22 A. No, I cannot say that from the top of my mind. What 23 I can say is that the main concern on -- on the Siemens 24 part of the works was that many delays occurred, and 25 I think in -- taking the facts, all together, I think 143 1 that had the most significant impact on our works, the 2 delays. 3 Q. The delays, thank you. 4 If you could please go to your statement at 5 TRI00000171, at page 6, please. 6 Paragraph 16. I'll just read out what you say 7 there, Mr Eickhorn: 8 "When I joined the Project team, I familiarised 9 myself by studying the contract which I found to be 10 unusually complex. It seemed to me that there was 11 a lack of flexibility within the contract, that there 12 were lengthy tightly defined processes in terms of 13 deadlines to be met and a lot of control for the client. 14 By way of example, it was apparent that under the change 15 mechanism, work could not commence until the Estimate 16 for the change was agreed by the client. This change 17 mechanism was much more complex than is usual for 18 projects of this nature." 19 First of all, could you give us an indication of the 20 extent of your experience of change mechanisms in 21 similar contracts? 22 A. My observation at the time was that there were many 23 mechanisms specified in the contract that would give -- 24 that would result in a change potentially. In other 25 contracts that I've seen it's more streamlined. There's 144 1 one change mechanism for many instances and many parties 2 can instigate a change. So that was more complex and it 3 was very detailed, to be honest. 4 Q. Was it your view that that complexity contributed to the 5 problems that the project suffered? 6 A. I think it was more a challenge for the people who had 7 to apply the contract to follow the correct terms in all 8 occasions, because the environment of a project can be 9 very dynamic, and to apply the correct terms of the 10 contract in any given situation, then is more an 11 administrative challenge, I would say. 12 Q. You say there that the change mechanism gave a lot of 13 control to the client. One might suggest that that's 14 a good thing. 15 A. Yes, if the client wishes to control the client, then it 16 is a good thing for the client, and why I said that is 17 what you often find -- I would say normally find in 18 contracts in my experience is that a client can instruct 19 a change to be executed, even in the absence of an 20 agreed estimate, ie the precise impact of the change is 21 not determined. 22 But this wasn't a case here. There was no right for 23 the client to instruct the implementation of a change in 24 the absence of an agreed estimate, and agreed in that 25 sense typically means scope, money, time, requirements, 145 1 et cetera. 2 Q. That is what the contract said. But if both parties 3 wanted to make progress, why not just go ahead and do 4 the work and agree the consequences later? 5 A. I think the contract, as I saw it, had a history, 6 and I refer to the period when I was involved in the 7 contract. I think in the beginning there was -- there 8 was the willingness to say -- be a little bit more 9 relaxed about the application of these precise terms, 10 but, as I see the number of changes that couldn't be 11 agreed, that grew, and the consortium felt more and more 12 exposed that it might not be possible to be recompensed 13 in a fair manner for those changes that had occurred. 14 Q. If we could go, please, to page 44 of your statement, 15 I'm just going to -- it's from paragraph 90. I'm just 16 going to read from this, Mr Eickhorn, and in this part 17 of your statement you're quoting from a document that 18 was shown to you: 19 "The Inquiry has referred me to a spreadsheet 20 (SIE00000190) listing INTCs which on Tab 2 also contains 21 comments referring to ..." 22 Then this is the quote from the document: 23 "The first 50 per cent of all BB Estimates (in total 24 number) do not even account for 1 per cent of the total 25 BB claim value. As a consequence, the change process is 146 1 collapsed, tie resources are also collapsed; and, as 2 will be shown in a separate graphic, BB own resources to 3 produce Estimates are also collapsed, so that the time 4 alone for submitting BB Estimates is, in average, late 5 by more than six to seven months than the contractually 6 permitted 18 business days. Combined with BB's own 7 refusal to start works without agreeing on an Estimate, 8 this implies a high risk of concurrent delay in the 9 ongoing extension of time negotiations." 10 I think you go on to say that you're not sure that 11 this is a Siemens document at all, but, putting that to 12 one side, do you agree that what is said there was an 13 accurate description of the position on the contract? 14 A. As you rightly said, I don't know whose statement that 15 is. My own concern at the time was more that in fact 16 the sheer number of those changes made it very difficult 17 to manage that process in terms of the contract. 18 The change team -- not so much in Siemens, but in 19 Bilfinger and in -- well, in the consortium in general, 20 had to be ramped up significantly, and that presented an 21 organisational challenge in administering the contract. 22 Q. As you say, you go on in paragraph 90 to say that you 23 were concerned that the sheer number of changes made the 24 change process unmanageable, and then you go on to say: 25 "... and responsibilities for delays and cost 147 1 overruns could not be allocated properly any longer." 2 Was that just a concern or would you say that point 3 had been reached, that it was no longer possible 4 properly to allocate responsibility for delays and cost 5 overruns? 6 A. It was a concern. I wouldn't say the point had been 7 reached, and I say that because we, as a consortium, we 8 maintained throughout the project a very detailed change 9 register. So we went to great lengths in terms of 10 resources and attention to detail to track all the 11 changes that had occurred in a proper manner. 12 Q. Was it correct that Bilfinger had intimated a large 13 number of claims for change which had a low value in 14 monetary terms? 15 A. That might be the case. I would really have to go back 16 to the detailed change register to say if that was 17 a large amount. I remember there were items that were 18 smaller, but I would not necessarily say that this is 19 a problem per se because items that can be minor in 20 value could have significant impacts elsewhere. So 21 I don't think you can draw conclusions from that fact 22 alone. 23 Q. Okay, and what would the other reasons be for notifying 24 a change which might have a very small impact on the 25 price? 148 1 A. Changes in the design, for example, that have an impact 2 on safety of the system, just by way of example. 3 Q. Yes. Okay. If it was to be suggested that it suited 4 the consortium to overload the change process because it 5 increased the pressure on tie to renegotiate the 6 contract, what would your response be to that? 7 A. The way you say it seems to imply that there was 8 potentially a strategy, but I would not agree with 9 that -- with that view. I think from the beginning of 10 the contract, the consortium tried to apply the terms of 11 the contract because that was the yardstick, as we saw 12 it, and as was agreed between the parties to manage the 13 job. 14 Q. If we could turn to the question of Siemens' 15 mobilisation on the contract. 16 One of the complaints made by tie early in the 17 project was that the Infraco consortium was slow to 18 mobilise. Do you accept that criticism? 19 A. I don't accept that, and the specific reason for -- 20 speaking for Siemens is that we mobilised a very 21 professional team, fairly early in the contract. 22 Experience from other projects shows that it sometimes 23 can be a challenge even to mobilise people in time and 24 with the right qualifications, but we did that. 25 Another point of criticism I'm aware of is that we 149 1 didn't mobilise our subcontractors, but in fact we had 2 mobilised our main subcontractor, BAM, at a very early 3 stage, and in fact that caused us problems later, when 4 we couldn't expedite the works as planned. 5 CHAIR OF THE INQUIRY: What was the name of the 6 subcontractor? 7 A. BAM. They were responsible for the track laying. 8 MR MCCLELLAND: Another aspect of mobilisation, I think, lay 9 in either ordering or manufacturing the equipment that 10 Siemens were to supply. Just can you explain in 11 overview what was done in relation to mobilisation for 12 that. 13 A. So in the first time of the project, more and more 14 delays became apparent, but in Siemens we took 15 a decision to continue the manufacturing, the design 16 manufacturing and delivery programme for the parts and 17 equipment, for two reasons. Reason number 1 is that 18 many items are bespoke and long lead items, and second, 19 we didn't want to risk to be in a position that once 20 sites, work sites would become available to us, that we 21 would risk not to be able to install our equipment as 22 quickly as possible. 23 Q. So for Siemens, when taking decisions about their 24 mobilisation and when to do particular things, to what 25 extent was that dictated or influenced by the contract 150 1 programme for the Infraco works? 2 A. For the said reasons, I think we had -- we were well 3 advised to assume in the first -- in the beginning of 4 the project to assume that largely we would have to 5 deliver our works as planned. For the said reason that 6 you risk that you're not in a position to finish the 7 project and install the works when you don't expedite 8 the works, the manufacturing, from the very beginning. 9 Q. I think you said that relatively early on you became 10 aware that there were delays, but that you decided to 11 carry on with the mobilisation. Why was that? Why 12 carry on if you knew that there were delays? 13 A. The extent of the delays was not known. And, as I said, 14 many items are long lead items, bespoke equipment, and 15 it -- the extent of the delays was not clear. So you -- 16 we had to avoid a scenario which -- where we were 17 suddenly granted access to work sites, but the equipment 18 wasn't there. 19 So that would probably not be a good situation for 20 the client, for ourselves. So that was a very natural 21 decision to -- to start the ordering and procurement and 22 manufacturing process. 23 Q. Once the delays had started, I think one of the problems 24 on the project was a failure to agree on a new 25 programme; is that correct? 151 1 A. Yes, that was one of the problems, yes. 2 Q. Was the absence of an agreed programme which took 3 account of the delays something which was an obstacle 4 for Siemens in perhaps delaying their own mobilisation? 5 A. The absence of the programme did not impact on our 6 manufacturing programme, so to say. Simply once the 7 process has started, you cannot easily stop it 8 without -- without incurring additional cost or 9 increasing the risk for the project as a whole. 10 So for that reason we continued with the delivery of 11 the materials. 12 CHAIR OF THE INQUIRY: Did there ever come a stage when you 13 thought: well, we've got so much material here, and 14 we're so far behind, that we should delay ordering more. 15 A. In fact, the big ticket procurement, you do that in 16 a fairly early stage of the project, and once the 17 machine is running, so to say, it is really difficult to 18 stop that. 19 The factories, they have their production programme. 20 So if you interfere with that, you'll really create 21 a problem in your own organisation. 22 So that's why we decided to continue with that as 23 smoothly as possible, and to bring the equipment to 24 site. So that it is -- will be ready once we have site 25 access. 152 1 CHAIR OF THE INQUIRY: I think we know that part of the 2 mediation settlement was that equipment was -- the 3 ownership of equipment was transferred to the Council in 4 exchange for a sum of money. Is that equipment likely 5 to still be of any value? 6 A. Sorry, could you repeat the last part of the question? 7 CHAIR OF THE INQUIRY: Is that equipment still likely to be 8 of any value in the context of any extension of the 9 line? 10 A. So, first of all, only a few items of that material that 11 was transferred to the Council could be used in any 12 case. The bulk of that equipment that was transferred 13 into the property of the Council, the bulk of that was 14 used in what is now referred to as initial phase 1a. 15 The items that are presumably still in storage 16 somewhere would have to be investigated in terms of what 17 condition they are in and what the final design will 18 look like for the extension. 19 So it is hard to say. 20 CHAIR OF THE INQUIRY: Do you know what proportion was used 21 and what proportion is left? 22 A. Most of it was used. In fact, after -- and that is now 23 after Mar Hall and after the Settlement Agreement in 24 2011, in fact, we undertook an exercise, together with 25 CEC, to cancel some of the orders that had not been 153 1 delivered to site, so that there would not be any risk 2 for the Council of having materials here that would 3 effectively be useless. 4 CHAIR OF THE INQUIRY: And CEC did not have to pay any 5 cancellation fee? 6 A. No, to the extent we could return and cancel these 7 orders, we did not charge a cancellation fee. 8 CHAIR OF THE INQUIRY: Thank you. 9 MR MCCLELLAND: Just a couple of questions related to that, 10 Mr Eickhorn. 11 I think we've seen from other documents that 12 Siemens' element of the Infraco price was about 13 GBP100 million or thereabouts at financial close. Does 14 that seem about right to you? 15 A. Yes, 97 million, if I recall correctly. 16 Q. Okay. Are you able to indicate what proportion of that 17 related to materials and equipment? 18 A. I'm not in a position to say. The material and 19 equipment price is always a combination of the elements 20 like really the hardware, but there's design elements, 21 there's manufacturing cost, all of that would be part of 22 what you refer to as materials and equipment. I am 23 not -- from top of my head, I'm not able to say. 24 Q. Can you just give us a broad indication of what these 25 materials and equipment consist of? I realise probably 154 1 there's a long list of lots of different items, but -- 2 A. Yes. I think the biggest -- biggest part of the 3 hardware that we had to deliver was rails, sleepers and 4 the fastening system for the rail. Other considerable 5 parts were the switch gears, the cables for the overhead 6 line, signalling system, communication equipment, this 7 sorts of materials. 8 Q. Thank you. 9 CHAIR OF THE INQUIRY: Is this a convenient point? 10 MR MCCLELLAND: Yes. I think perhaps if I may have one 11 question before we break. 12 You mentioned that some of this material was 13 bespoke. Of the materials and equipment ordered for the 14 Edinburgh scheme, what proportion of it could be used in 15 another scheme? 16 A. Overall, very little, I suppose. Rails, for example, 17 they are standard equipment. So they could be used 18 elsewhere, but even if you think about rails in a curve, 19 they're pre-bent specifically for the project. 20 Also next to what you would call a standard 21 equipment is probably switch gears, but yet again these 22 are built, made to order for the specific project. So 23 even those cannot be re-used without modification in 24 another project. So pretty much everything is bespoke. 25 CHAIR OF THE INQUIRY: We will have a break for 15 minutes 155 1 for the shorthand writers. So we'll resume again at 2 3.45. 3 (3.28 pm) 4 (A short break) 5 (3.45 pm) 6 CHAIR OF THE INQUIRY: You are still under oath, 7 Mr Eickhorn. 8 A. I understand. 9 MR MCCLELLAND: If we could please have on screen 10 Mr Eickhorn's statement at page 10, please. 11 In paragraph 22.1.1, about five lines from the top, 12 there's a sentence that begins "As a matter of record". 13 Do you see that? 14 A. Yes. 15 Q. I'm just going to read from there. 16 A. Yes. 17 Q. "As a matter of record, Siemens issued an Instruction to 18 Commence to its sub-contractor, BAM Rail, on 22 May 2008, 19 14 days after contract signature. Siemens were, in 20 fact, required to mobilise too early. In particular, 21 the insistence that Siemens mobilise its Key- 22 subcontractor, BAM, was misguided, but Siemens had to 23 instigate this as it could not risk failing to be ready, 24 and had to work according to the Programme. Siemens 25 could have mobilised BAM a lot later, with savings in 156 1 costs." 2 Can you just clarify who had insisted on Siemens 3 mobilising BAM? 4 A. That was tie at the time. 5 Q. Was that an instruction from tie over and above what 6 appeared in the programme? Were you specifically asked 7 by tie to mobilise BAM? 8 A. I can't recall that. 9 Q. What were the consequences for Siemens of having 10 mobilised BAM when they did? 11 A. For longer times BAM were basically idle because there 12 was no access to the work sites. I mean, some of the 13 element of their work was to complete their own designs. 14 They were doing that. But shortly after they were 15 supposed to begin installations of tracks and they 16 couldn't. 17 So we were confronted with claims from BAM that we 18 had to deal with at the time. 19 Q. You explain that if BAM had been mobilised later on, 20 costs could have been saved. Can you give us 21 an indication of the amount of costs that could have 22 been saved? 23 A. I can't do that from the top of my head, no. 24 Q. In the end did Siemens recover these costs from tie? 25 A. The claims that were brought forward by BAM towards 157 1 Siemens, they were part of our submission to tie, and -- 2 so it is fair to say a portion of that was in the end 3 recovered from tie in the settlement. 4 Q. You explain -- we don't need to go to it, but at 5 paragraph 22.4.2, you explain that Siemens were keen to 6 make work sites available for BAM. Can you just explain 7 what you were able to do to keep BAM working? 8 A. There was one particular work site that comes to mind, 9 and that is work that Siemens undertook on the guided 10 busway. The guided busway was a place which was 11 relatively unaffected by any utility diversions, because 12 there was already a structure in place for the buses to 13 travel along, and Siemens in fact found an arrangement 14 with our partner, Bilfinger, to even take over some of 15 the construction works there, simply -- which we took 16 on, on our own risk, to enable BAM to give BAM some work 17 sites so that they wouldn't be idle. 18 Q. I have some questions for you about design. You've made 19 clear in your statement that you were not closely 20 involved in the design process. So if you don't know 21 the answer to these questions, please just say. 22 A. Okay. 23 Q. If you go to page 30 of Mr Eickhorn's statement, please, 24 at paragraph 59, what you say there is: 25 "Each party within the Consortium was responsible 158 1 for its own scope of the management of design 2 production. BB would build what had been designed by 3 the SDS provider. Siemens delivered its own designs in 4 accordance with the Employer's Requirements in a way 5 that fitted with the design of the SDS provider, ie 6 Siemens provided design input so that those details 7 could be integrated with the overall system design. For 8 example, the SDS provider would determine where a track 9 had to go, and the dimensions. Siemens would provide 10 input, for example, what materials would be used." 11 So in short, was the division of work in relation to 12 the design that the civil engineering works were 13 designed by Parsons Brinckerhoff and the mechanical and 14 engineering elements delivered by Siemens? Sorry, 15 mechanical and electrical elements? 16 A. Yes, to clarify this, I think it is fair to say it is in 17 between the share of the works within the consortium, 18 the construction was -- the construction design was 19 managed by Bilfinger and by Siemens, our own -- the 20 design for our own products and the track works. So 21 that's the electrical systems and the E&M systems, as we 22 referred to. 23 As far as I'm aware, for the civil element, in fact, 24 Parsons Brinckerhoff were designing for Bilfinger, yes. 25 Q. Thank you. 159 1 If you could go, please, to document CEC01284179. 2 If we -- I should just explain to you, Mr Eickhorn, 3 this is an agreement referred to as the Rutland Square 4 Agreement from February 2008. I'm not interested so 5 much in the terms of the agreement, but if we could go 6 to page 27, please, were you familiar with the 7 Rutland Square Agreement? 8 A. No. 9 Q. Do you recognise this document, this page that's in 10 front of us? 11 A. No. 12 Q. Okay. 13 About halfway down there's a paragraph with the 14 heading "Systems Design". What it says is: 15 "Siemens are uncomfortable with certain aspects of 16 the systems design. Siemens to consider what items of 17 the SDS design scope could be removed from the SDS and 18 performed by Siemens in order to resolve this concern." 19 Do you know what is that is referring to? 20 A. I think that was before my time on the project. So 21 I don't know what the concerns -- if there were any, 22 what they were. 23 Q. Are you aware of any design scope being taken over by 24 Siemens from Parsons Brinckerhoff? 25 A. As far as I know, the Parsons Brinckerhoff design 160 1 contained on the preliminary stage, design assumptions 2 of what the systems design, and that is for the E&M 3 systems, the electrical and mechanical systems, what 4 that could look like. 5 But as I said, when I arrived on the contract, in 6 the project, it was clear that Siemens would design -- 7 finalise the systems design by ourselves. 8 So that suggests to me that certain elements had to 9 be adjusted by integrating the design, but I would 10 regard this as a normal process. 11 Q. Okay. You're saying what you would infer from what's 12 said on that piece of paper. Were you yourself aware of 13 Siemens doing design work, making changes to design 14 already produced by Parsons Brinckerhoff? 15 A. There was a design integration process. It was always 16 envisaged, even at contract close, that this design 17 integration process would take place. 18 So in the course of that process, yes, it could be 19 possible that details of the design required adjustment 20 to integrate the various elements of the project. 21 Q. So far as you are aware, did that integration of Siemens 22 design bring about a requirement for changes from the 23 Base Date Design Information? 24 A. I'm not in a position to say. 25 Q. Over the course of the Infraco contract, the consortium 161 1 made extension of time claims which were based on 2 delayed utility diversions; is that correct? 3 A. That's correct. 4 Q. Were there also delays in the production of the design? 5 A. That might be. I cannot recall any particular delays. 6 Q. You can't recall any delays in the production of the 7 design? 8 A. I'm not aware of any. I mean, what I can say is there 9 is -- there was no -- no instance where -- I'm talking 10 about the Siemens element here, because that's the part 11 I'm most familiar with. I cannot recall any instance 12 where a delay of a design, if there had been any, had 13 had an impact that delayed the project as such. That 14 is -- I'm not aware of any instances. 15 I was not involved to this deep level of managing 16 the design that I could make such a statement. 17 Q. If there had been delays in the production of design 18 that threatened progress on the project, would that have 19 come to your attention? In the normal scope of your 20 functions? 21 A. I think it would have come to my attention if that had 22 significant impact, yes. That would have come to my 23 attention. 24 Q. Were there concerns within the consortium that the 25 consortium might be held responsible for delay in 162 1 production of the design? 2 A. If there were concerns inside the consortium? 3 Q. Yes. 4 A. I remember discussions that we should in any case, and 5 this is again, Siemens, should continue with the design 6 works, without hesitation, not to -- so that there would 7 not be any risk out of any such alleged delays. That is 8 what I recall. 9 Q. Okay. If you could look, please, at document 10 SIE00000211, please. 11 We see there this is minutes of a Siemens biweekly 12 team briefing on 20 May 2009. 13 I don't think you're listed as one of the people 14 attending the meeting, but if we could go, please, to 15 page 3? 16 CHAIR OF THE INQUIRY: Do you know where this meeting would 17 take place, from that -- 18 A. Yes, I'm familiar with the format of that -- these 19 notes. These meetings would normally take place in the 20 consortium office in Lochside Avenue. 21 Q. I see. 22 CHAIR OF THE INQUIRY: I see there's reference to the oval 23 office. I take it that's somewhere in Edinburgh as 24 opposed to anywhere else. 25 A. That was our meeting room, yes. 163 1 MR MCCLELLAND: On page 3 -- in fact, if we can go over on 2 to page 4, please, the heading there at 5.1 is, "Need to 3 change Siemens review work flow of SDS Design - risk of 4 Siemens being guilty of delay". 5 Are you aware of what this issue was? 6 A. Where is that? 7 Q. Sorry, just at the top of the page. The heading is: 8 "Need to change Siemens review work flow of SDS 9 design - risk of Siemens being guilty of delay". 10 Then reading on: 11 "MBe ..." 12 I think that's Miguel Berrozpe: 13 "... expresses his concern from several BB letters 14 documenting that Siemens is late in our review of SDS 15 Design." 16 Are you aware of this issue? 17 A. In my role at the time, I might have heard about this, 18 but I had no involvement in the process. 19 Q. If we could go, please, to CEC00328711, and if we could 20 go, please, to page 2 of that, this is an email from 21 Suzanne -- the bottom half of the page is an email from 22 Suzanne Moir of Pinsent Masons to Baltazar Ochoa of 23 Bilfinger. Again, you weren't copied in on this, but 24 what Ms Moir says to Mr Ochoa is, second paragraph: 25 "I understand that the purpose of the MoU is to get 164 1 SDS agreement to an acceleration of the design 2 programme ..." 3 Then jumping forward a bit: 4 "This is required because Infraco believe SDS may 5 have a successful defence in relation to any claim under 6 the SDS Agreement for late delivery of the design as 7 a result of Bilfinger/Siemens failure to provide design - 8 information, carry out the CIDR, et cetera in time and 9 in accordance with the current design programme. This 10 could result in Infraco being exposed under the Infraco 11 Contract if as a result of the OSSA or success in the 12 Adjudications, tie instructs or Infraco become obliged 13 to proceed with the works - for which there is no 14 design at this time as a result of Infraco failures as 15 set out above. However, Infraco also believes that SDS 16 is culpable for some of the delay ..." 17 Were you aware of that issue? 18 A. No, not about that particular issue. I am aware that at 19 the time, as I said, the team, the design team was 20 briefed to expedite the design, without any delay, and 21 in general, in the light of all the delays that had 22 occurred at the time, without speculating, but I think 23 there was concern that -- that the Infraco sticks to the 24 obligations it had in terms of the delivery of the 25 design. 165 1 Q. Again, if we could look briefly at SIE00000220, these 2 are the minutes of a Siemens meeting on 19 April 2010. 3 Just in that first box, item number 1, the third 4 paragraph there reads: 5 "Another big issue is SDS delay. There have been 6 and will be allegations that Siemens is the main cause 7 of SDS's delay. The fight is between BB/SDS and 8 Siemens." 9 Again, were you aware of that issue? 10 A. I think I wasn't at the meeting. However, at the time 11 the process of expediting the Siemens work, including 12 the design, that was challenged internally. As 13 I explained earlier, we were concerned that we should 14 always be ready to install our works when the sites were 15 available, and this is probably an expression of that 16 general concern. 17 Q. The impression from all of these documents is that there 18 was an ongoing concern that Siemens might be responsible 19 for delay in production of the design. Would you accept 20 that there was such a concern? 21 A. If there was, it wasn't brought to my attention, and as 22 I said earlier, I think I would have learned about that 23 if it -- in the greater scheme of things would have had 24 a significant impact on the delivery of the project. 25 Q. Could you please have document WED00000533. Now, 166 1 I think probably you won't have seen this document 2 before, Mr Eickhorn; is that correct? 3 A. No. I have never seen this before. 4 Q. Just to put this in its context for you, this was 5 a draft report prepared by consultants appointed by tie 6 in March 2011 in response to the consortium's extension 7 of time claim based on MUDFA delays. 8 In the event it was superseded by the mediation of 9 Mar Hall. 10 But in this report tie's consultants set out their 11 view that the dominant cause of delay was no longer 12 utility diversions, but was in fact delay in production 13 of the design. 14 If we could go, please, to page 11, paragraph 1.8.4, 15 we see that what the consultant says is: 16 "My overall finding was that, at the INTC 536 17 Estimate base date of 31 July 2010, the Infraco Work had 18 experienced a significant amount of delay and the 19 programme was projecting considerable over-runs on the 20 four Sectional Completion Dates. These delays and 21 overruns were not being driven or actually caused by 22 late completion of MUDFA Works and other utilities 23 diversions. The critical delays were the result of, 24 amongst other things, late delivery of design for the 25 Infraco Works and the Infraco's apparent refusal to 167 1 commence available works pending resolution of 2 contractual disputes. While the MUDFA Works were, in 3 several locations, being completed later than planned, 4 they (in virtually every location) did not actually 5 cause delay. They were not the dominant cause of delay 6 and therefore, in my opinion, did not give rise for 7 requirements for extensions of time." 8 That's the opinion of tie's consultant. What is 9 your response to it? 10 A. Okay. I have seen this view for the first time. 11 I -- this was certainly not shared by the 12 consortium, and from what I know, I mean, as a matter of 13 fact, even after -- after the settlement, there were 14 utilities that were causing critical delays to the -- to 15 the project. 16 So to this end I -- I cannot understand how they 17 came to this assessment. I think we had a fairly robust 18 process and a very experienced programme scheduling 19 manager preparing the contract programme and developing 20 it over -- over time. 21 So in essence, my comment is that this view was 22 definitely not shared by the consortium and probably was 23 not appropriate, but I am not a scheduling expert. 24 Q. Yes, I understand that, Mr Eickhorn. 25 If we could look, please, at page 108, please. 168 1 Paragraph 11.7.3. What the consultant says there is: 2 "Having said all of that, with the passage of time 3 and lack of progress on many significant work fronts, it 4 appears to me that the following matters are, or most 5 likely to be the actual dominant causes of delay. 6 a) Much later than planned delivery of the M&E 7 design. 8 b) Much later than planned delivery of the civil 9 engineering and building design for a considerable 10 proportion of the Infraco Works. 11 c) much later than planned commencement of many 12 elements of the Infraco Works arising from the actual 13 time taken to complete the processes required by the 14 change mechanisms contained in the Infraco Contract and 15 the resolution of disputes associated with same." 16 Again, that's that consultant's opinion. But do you 17 accept that the M&E design was delivered much later than 18 had been planned? 19 A. I'm not in a position to confirm positively or deny that 20 fact. I think it is necessary to look at individual 21 reasons for certain activities, what again the reason is 22 for timing a delivery or a delay of a delivery of 23 a design input. So I think to ascertain this is -- 24 would be subject to a detailed analysis, root cause 25 analysis of the individual elements, and to ascertain 169 1 if -- if there was -- there were any delays, if they 2 were in the end critical to the project. 3 Q. Okay. I understand. 4 But just at the very highest level, was it your 5 understanding that the mechanical and engineering design 6 was later than had originally been planned? 7 A. As I said before, I think there were no instances where 8 the delay -- where any such delays, if there were any, 9 had an impact on the completion of the project. So even 10 if there had been instances in certain instances, then 11 from my point of view they had never been critical to 12 the completion of the project. 13 Q. Okay. Thank you. It's helpful to have that answer, but 14 that's a separate issue, whether the delay affected the 15 overall programme. 16 Just on the simple question of whether the M&E 17 design was later than planned, are you able to say 18 whether that -- 19 A. I don't know that. 20 Q. Thank you. 21 CHAIR OF THE INQUIRY: If it was later than planned, it 22 would affect the issued for construction drawings, 23 wouldn't it, because it would have to be integrated into 24 the SDS design? 25 A. Could be the case. Not necessarily. I think there 170 1 could be instances where -- I mean, sometimes it's 2 thickness of a cable and it doesn't in the end have an 3 impact on the works that have to be constructed. 4 So again, I think this would have to be looked at 5 case by case. 6 CHAIR OF THE INQUIRY: But I thought there had to be 7 co-ordination between the SDS design and the M&E design? 8 Have I misunderstood that? 9 A. Yes, there was that task, yes. 10 CHAIR OF THE INQUIRY: There was the need for co-ordination? 11 A. Definitely, yes. 12 CHAIR OF THE INQUIRY: So if the M&E design were late -- was 13 late in a situation where it related to a design that 14 had to be integrated into the SDS design, would that 15 have the effect of a late SDS issued for construction 16 drawing? 17 A. Hypothetically that could be the case. Again, design 18 inputs for the M&E design in turn again could require 19 inputs from other parties. So even if at first sight 20 there could be a delay, it's well worth to investigate 21 how that occurred, if that was in the end then, for 22 example, a Siemens responsibility or a third party, 23 et cetera. 24 So it is -- hypothetically, as I said, it is true 25 what you say, my Lord. In the detail, you need to 171 1 investigate case by case. 2 CHAIR OF THE INQUIRY: Thank you. 3 MR MCCLELLAND: If we could return to your statement, 4 please, Mr Eickhorn. At page 9, please, paragraph 21. 5 You say there: 6 "When I joined the project, in terms of the intended 7 approach to utility diversion works, it was well known 8 that there were complications to be expected due to the 9 fact that the utility works had not been completed." 10 Did those complications that were known or that were 11 expected include delay to the Infraco programme? 12 A. Could you repeat the question, please? 13 Q. Yes. You say there that it was known, it was well 14 known, when you joined the project that there were 15 complications to be expected due to the fact that 16 utility works had not been completed. I just wonder 17 whether it was known or if it was well known within the 18 consortium that there were going to be delays to the 19 Infraco programme. 20 A. I think it was to be expected, but as a matter of fact, 21 the first delay that I dealt with was a delay in -- was 22 the impact of change in a design programme at the time. 23 That was already known by contract close that there was 24 a new revision of the design programme, I think 25 version 31, whereas the price had been fixed on the 172 1 version 26. 2 So that was the first delay that I encountered. The 3 extent of the other delay, any other potential delays, 4 was not known. 5 The fact that there could be some was, I think, was 6 expected, was known. 7 Q. Yes. So would you put it as a possibility or 8 a probability that there were going to be 9 utility-related delays affecting the Infraco programme? 10 A. At the time when I arrived at the project, yes, that 11 was -- that was -- that was known, yes, that would 12 happen, but the -- with a high probability, but the 13 extent was not known. 14 Q. Okay. Could we look, please, at page 31 of your 15 statement, paragraph 61. 16 In the middle of that paragraph there's a sentence 17 that begins "the on-street section". Do you see that? 18 A. Yes. 19 Q. It says: 20 "The On-Street section was on the critical path for 21 the overall works; any critical delay to the On-Street 22 works would automatically have had an impact on the 23 overall Programme." 24 So was the effect of that that any -- if there was 25 any utility delay, the consortium could claim 173 1 an extension of time and put back the entire work 2 programme? 3 A. Provided that this particular delay caused by -- by 4 a utility diversion to be undertaken was affecting an 5 element of the works on the critical path. 6 Q. Yes. 7 A. In this case it would have been a risk of the client, 8 yes. 9 Q. Yes. The utility diversion issue was one that 10 predominantly affected the on-street section rather than 11 the off-street; is that right? 12 A. I think it affected both sections, the on-street to 13 a greater extent than the off-street. 14 The on-street was in particular -- was of particular 15 importance for my point of view for the said reason that 16 the on-street works were on the critical path of the 17 project. 18 Q. Do you know why the work was programmed so that the 19 on-street section was on the critical path? 20 A. I don't think there was an intention to have the 21 on-street works on the critical path, but by the -- 22 I can only surmise now, but by the nature of the works 23 and the magnitude of the task, this is where the 24 critical path ended up. 25 Now, by the logic of such a programme, the critical 174 1 path has to run somewhere, and there were many instances 2 in the on-street section, and so that is where, 3 logically speaking, that critical path ended up. 4 Q. Okay. So you don't mean to say in your statement that 5 the programme had been set up with the on-street works 6 on the critical path from the beginning? 7 A. What I'm saying is that I can only repeat myself here, 8 but the critical path runs through certain elements of 9 work which, when they are impacted by delay, that this 10 has an impact on the overall completion. 11 So simply, I think, because of the multitude of the 12 utilities in the on-street section, this is where the 13 critical path of the project ended up. 14 Q. Yes. Okay. 15 A. I don't know how to make that clearer. 16 Q. I would like to turn to the subject of Project Carlisle 17 which was the process of negotiations between tie and 18 the consortium from mid-2010 aimed at resolving all of 19 the Infraco disputes. You indicated in your statement 20 that you were involved in the price calculations for 21 Siemens, is that correct? 22 A. That's correct. 23 Q. So were you therefore involved in the price calculations 24 for the first Carlisle Proposal, second Carlisle 25 proposal, and then Project Phoenix which preceded the 175 1 Mar Hall mediation? 2 A. If I remember correctly, the first Carlisle Proposal was 3 put together by a separate team that had been brought in 4 from our bid group in Germany. 5 So I did not have the same extent of involvement in 6 that as I had in particular with the pricing of then 7 Phoenix. 8 Q. I'm going to ask you some questions about the first 9 Carlisle Proposal, but if you can't answer them because 10 you weren't involved, then please just say. 11 It's document CEC00183919. Just to put this in its 12 context, we see that this is dated 29 July 2010. It 13 wasn't accepted but it may help us understand something 14 of what follows. 15 If you go, please, to page 58, we just see there, 16 this is headed up "PROJECT CARLISLE SCOPE", and this 17 sets out the scope of works for this proposal. In the 18 opening paragraph, it talks about: 19 "The design, construction, installation ..." 20 Then reading down to the bottom line: 21 "... of those parts of the Edinburgh Tram Network as 22 defined in this Proposal." 23 Then there's a section headed up: 24 "Off-Street Works to the following Sections from 25 Haymarket to Edinburgh Airport." 176 1 Then below that: 2 "On-Street Works to the following Sections from 3 Haymarket to Princes Street East." 4 Then below that: 5 "Enabling Works in Section 1A ..." 6 So in short, is it your recollection that the scope 7 of work for the first Carlisle Proposal was for a line 8 from the airport to the east end of Princes Street plus 9 those enabling works? 10 A. Yes, that's correct. It mentions here terminal point 11 and if I remember correctly, the precise location of the 12 termination point was not specified at the time. 13 Q. Yes. I think we see elsewhere in this proposal that 14 there's an indication that a separate price would have 15 to be discussed to get from the east end of 16 Princes Street to the terminal point? 17 A. Yes. I think a precise scope of how to terminate the 18 line and to develop a turn-back strategy there, that was 19 still to be developed and potentially would have had 20 a price impact at the time, yes. 21 Q. Thank you. 22 In relation to the enabling works in Section 1A, 23 am I right in thinking that's outside the scope of the 24 line that was proposed to be built under Project 25 Carlisle? 177 1 A. No, the enabling works affected our consortium partner, 2 Bilfinger, in the first instance. So I'm not really in 3 a position to speak about the details, but it was, if 4 I remember correctly, mainly completion of some works 5 that already had commenced there to the extent possible. 6 Q. Okay. We see right at the bottom of that page: 7 "No systems-related works required." 8 In relation to the enabling works. So Siemens' 9 involvement was only up to the end of -- or the east end 10 of Princes Street? 11 A. Yes, correct. 12 Q. If we can go, please, to page 29, just rotate that, 13 please. 14 I think what we see here is a summary of Siemens' 15 proposed price for the Carlisle Proposal; is that 16 correct? 17 A. Yes, that's correct. 18 Q. And the top line, the original contract value, is that 19 the Siemens share of the construction works price in the 20 Infraco contract? 21 A. That is 69 -- 96.9 million, yes. 22 Q. We see at the bottom the figure of GBP126 million being 23 the total proposal from Siemens for the Project Carlisle 24 scope? 25 A. Yes, correct. 178 ] - 1 Q. So what we see then is that there's a shorter scope, but 2 the price has gone up by GBP30 million. Can you just in 3 overview explain why that was? 4 A. Mainly because of the longer duration of the overall 5 programme by that time. I mean, the programme on which 6 the Carlisle Proposal -- all the Carlisle and later then 7 the Phoenix Proposal was based was much, much longer. 8 I think we're talking about July 2007. That was 9 roughly, I think, two years into the contract. So 10 consequently the end dates in this proposal had moved 11 out significantly. 12 Q. If we go forward, please, to page 30 -- 13 CHAIR OF THE INQUIRY: Before that, what's the additional 14 GMP Carlisle components, two lines below that? 15 A. I cannot remember, my Lord. 16 CHAIR OF THE INQUIRY: So is this equipment? 17 A. The term "components" suggests equipment, yes. 18 CHAIR OF THE INQUIRY: Do you know why there would be extra 19 equipment if you're building a shorter line? 20 A. I cannot remember what this line refers to in detail. 21 CHAIR OF THE INQUIRY: Thank you. 22 MR MCCLELLAND: If we could maybe just magnify the left-hand 23 column, please, do we see down at the bottom, 24 Mr Eickhorn, the original CPA split. So 96.9 million. 25 That's the original Siemens share of the price from the 179 1 Infraco contract in its original form; is that correct? 2 A. Yes, seems correct. 3 Q. So the figures above it, does that give us a breakdown 4 of the GBP96 million figure? 5 A. Yes. 6 Q. If we could just have a look at the whole page, it's 7 a little bit difficult to see, but the right-hand is 8 headed up "Deductions Project Carlisle", and at the 9 bottom, there's a figure of GBP3.7 million. Does that 10 give us a breakdown of the deductions that were made 11 from Siemens' costs when arriving at the Carlisle 12 proposed price? 13 A. These were the deductions that were made to take into 14 account that the alignment was ultimately shorter than 15 originally planned. 16 Q. Now, we see in relation to the section from Haymarket to 17 Newhaven, which is presumably the section where the 18 greatest amount of work was removed from the scope, we 19 see there a deduction of GBP3 million or so in relation 20 to that section, but if we just go back out to the full 21 document, we see that there the original cost for that 22 section was GBP17 million. So can you just explain why 23 the reduction was so small for that section, given the 24 amount of it that wasn't being built? 25 A. Mainly because the equipment had already been ordered 180 1 and was -- I'm not able to say 100 per cent, but much of 2 it presumably was already in Edinburgh. We had -- as 3 I explained earlier, we had continued with our 4 production -- production procurement programme. So at 5 this stage the savings weren't -- the savings that could 6 materialise weren't as great, but as most of them, the 7 budget for the project had already been committed. 8 Q. Yes, okay. 9 Likewise, in the top section, we can see that the 10 system-wide costs in the original split were 11 GBP41 million, and the reductions were only half 12 a million pounds. Again, are you able to explain why 13 the reduction was so small? 14 A. Under the system-wide costs, the full cost of the 15 production of the design, for example, is considered. 16 I see the reduction preliminaries, but I'm unable to 17 comment what that entailed in detail, now, from the top 18 of my head. But as -- in -- by general comment, the 19 impact of a short line in terms of the systems, the E&M 20 systems, was not very significant, simply because the 21 design was well progressed. The procurement had already 22 progressed. So -- a lot of the cost in a project of 23 this type on the E&M part is a system-wide cost rather 24 than a cost that is specific to a specific location 25 only. 181 1 Q. Yes. If we look very briefly, please, at the following 2 page, page 31, in particular, at the left-hand column, 3 if we could just magnify that, please, this is the 4 additional costs for the line which we can see at the 5 bottom totalled GBP26 million. 6 Just taking that very quickly, if we look through 7 the breakdown, we see system-wide, 30 million for 8 preliminaries, Section A, 7.8 million for preliminaries, 9 and 2 million for track. 10 Can you just in broad overview explain why there was 11 an increase of that amount? 12 A. I think it is a fairly good presentation or 13 representation of the problem that we faced at the time, 14 that we had mobilised our team, that our resources were 15 on site already, sometimes being idle, and so we had to 16 maintain these for longer, and that was in fact our most 17 pressing risk that we saw at the time; the presence of 18 the mobilised team and not only the early mobilisation 19 that had taken place, but also the thickening of 20 resources during the development of the project. 21 Q. In short, these increases were they largely to do with 22 delay? 23 A. I think that's fair to say. Yes, with delay or -- in 24 the end, with the extension of the programme, which was 25 caused by the delay effectively. 182 1 MR MCCLELLAND: I note the time, my Lord. 2 CHAIR OF THE INQUIRY: Yes. We'll adjourn until 9.30. 3 We'll adjourn until tomorrow at 9.30. You will be 4 advised when you should attend before that. 5 (4.33 pm) 6 (The hearing adjourned until Thursday, 7 December 2017 at 7 9.30 am) 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 183 1 INDEX 2 PAGE 3 MR MICHAEL FLYNN (sworn) .............................1 4 5 Examination by MR MCCLELLAND ..................1 6 7 MR AXEL EICKHORN (sworn) ...........................138 8 9 Examination by MR MCCLELLAND ................139 10 184 1 Thursday, 7 December 2017 2 (9.30 am) 3 MR AXEL EICKHORN (continued) 4 Examination by MR MCCLELLAND (continued) 5 CHAIR OF THE INQUIRY: Good morning. You're still under 6 oath. 7 A. I understand, my Lord. 8 CHAIR OF THE INQUIRY: Mr McClelland? 9 MR MCCLELLAND: Thank you, my Lord. 10 Could you please have on screen document 11 CEC00183919. If we could go, please, to page 29. Do 12 you remember, Mr Eickhorn, that we looked at this 13 yesterday? 14 A. Yes. 15 Q. This is the first Project Carlisle Proposal from the 16 consortium. We see in that breakdown of the 17 consortium's proposed price a figure there for Change 18 Orders of GBP5.3 million. 19 A. Yes. 20 Q. If we could move, please, to page 32, do we see there 21 a list of Change Orders totalling GBP5.3 million? 22 A. Yes. 23 Q. So is that a breakdown of the Change Orders which formed 24 the GBP5.3 million we saw on the last sheet? 25 A. Yes. I can't say just now if all of these had been 1 1 finally agreed with the client. I have a figure in mind 2 of around 4 million of Change Orders that had been 3 agreed with the client between contract signature in 4 May 2008 and the time of that proposal. 5 Q. But this list of Change Orders here, were those the only 6 changes that Siemens sought payment for in the Project 7 Carlisle Proposal price? 8 CHAIR OF THE INQUIRY: Can we make it bigger to make it 9 easier to read? 10 A. I don't think so, because if -- we could probably go 11 back to the first page, because from what I see just 12 now, I don't think the -- our claims for the extension 13 of time are not included in those figures. These appear 14 to be changes more of a technical nature and not 15 a time-related nature. 16 MR MCCLELLAND: If this list doesn't include the extension 17 of time claims, is this a complete list of the Change 18 Orders relating to a change in Siemens' scope? 19 A. That were known at the date, yes. 20 Q. Yes, okay. Thank you. 21 Bear with me a moment, please. (Pause) 22 What you say in your statement -- I don't think we 23 need to go to it, but at page 23, paragraph 39 for the 24 record, you say that circa 100 of circa 850 of the INTCs 25 raised before the Mar Hall mediation related to Siemens 2 1 directly. These represented an increase claimed by 2 Siemens of approximately GBP35 million. 3 What I was wondering is if 100 of the INTCs related 4 to Siemens directly, why there were only the 20 or 30 5 that we saw in the list there. 6 A. I think the explanation is that there were more items 7 that were still under discussion, and in a kind of 8 preliminary stage, and the numbers -- I mean, the 9 multitude was probably around 100. The biggest 10 individual elements would have been the extension of 11 time claims. 12 Q. So when we see the shorter list in the Project Carlisle 13 Proposal, does that indicate that Siemens in respect of 14 scope were seeking payment for fewer changes than they 15 had intimated to tie beforehand? 16 A. I think there were more items than indicated here, but 17 they had not been agreed at the time and were still 18 under discussion and not decided. So I think that is 19 the nature of that list. 20 Maybe it would be helpful to go back to that first 21 overview of that -- in that document. 22 Q. Okay. That's document CEC00183919. 23 I think it was page 29. 24 Was that the page that you wanted to see? 25 A. Yes. yes, I think that line that says Change Orders 3 1 here, where we saw the list, these were the more or less 2 known and determined items at the time. Everything else 3 was wrapped up in that third line, the 26 million. 4 Q. Okay. So if we wanted to have an indication of the 5 price placed by Siemens on changes to their scope of 6 works, is that figure of GBP5.3 million an accurate one, 7 or is the figure higher than that because some of it is 8 wrapped up in the other part of the price? 9 A. Okay. Without looking into the details of those 10 figures, I would think that -- that there was 11 a potential that more changes would occur during the 12 development of the project. At that time design was 13 still ongoing. Scope clarifications with the client 14 were still ongoing. So I think the possibility of 15 additional changes was always there, but I think the 16 degree to which they could be determined at the time was 17 not sufficient to include them in this proposal. 18 However, all the known facts to date, we endeavoured 19 to include in that proposal to give the client the best 20 price certainty possible at the time. 21 Q. Okay. So I understand that there were changes that came 22 after the Mar Hall settlement, and I think we have other 23 documents which give us an indication of those. 24 As at the time of this proposal, was the 25 GBP5.3 million the best estimate of the value of any 4 1 changes in Siemens' scope? 2 A. For the scope related changes, yes. There were -- the 3 other figure I mentioned already is time-related impact. 4 That is a different story. 5 Q. Yes, thank you. 6 If we could go to page 33, please. His Lordship 7 asked you yesterday about what the charge was for 8 additional components. That document there appears to 9 be a breakdown of the additional components. 10 Can you just -- can you recall what these were 11 needed for? 12 A. The first item there, the Urban Traffic Light Control, 13 that is an item that in the original contract was listed 14 under the provisional sums, and we -- at the time we 15 sought to include that scope as part of the fixed price 16 Carlisle Proposal, if you like. 17 The second item were finials on OLE poles in the 18 on-street section, and that was a client requirement, if 19 I remember correctly, to have the street lighting on top 20 of the OLE poles which had not been foreseen in the 21 original proposal, in the original scope of the 22 contract. 23 Q. Okay, thank you. 24 Could we please have document TIE00667410. Now, 25 this, Mr Eickhorn, is the second Carlisle Proposal from 5 1 the consortium, dated 11 September 2010. Again, were 2 you involved in the pricing of this proposal? 3 A. I think I had more involvement in this one, in the 4 second one. 5 Q. If we could just go to page 63, please. 6 We see here the Project Carlisle scope, and the 7 first paragraph reads: 8 "As previously stated we have updated this Revised 9 Proposal to reflect the scope Infraco will be able to 10 agree on. In essence, we will carry out the works shown 11 on the GMP Drawings for scope of work between the 12 Airport to Haymarket and the enabling works." 13 So the scope of this proposal was shorter than the 14 scope of the first Carlisle offer which went to the east 15 end of Princes Street; is that correct? 16 A. Yes, I think that's correct. Before we had this term -- 17 termination point, I think it was, and that was in a not 18 defined location somewhere in the city centre, and this 19 does relate to the scope up to Haymarket, yes. 20 Q. Okay. So the key point is this is for a shorter line 21 than the first proposal? 22 A. Yes, as it seems. 23 Q. We don't need to go to it, but at page 70 of this 24 document, it confirms that once again this proposal 25 includes Siemens materials and equipment for the section 6 1 to the east. So beyond the line that was being built. 2 If we could go, please, to page 28, this is 3 a section giving the breakdown of Siemens price 4 proposal, and if we just move forward to page 29, 5 please, we see at the bottom there the total proposed 6 price is GBP118 million. So this is a shorter scope 7 than the previous proposal, and one would expect the 8 price to be lower, and we see that it is. 9 Can I just ask, in the previous proposal we saw 10 a detailed breakdown of the price, but in this proposal, 11 this sheet is all we have. 12 So can you explain why that was done in that way, 13 without the detailed breakdown? 14 A. I can't remember why this was presented in 15 a different -- different way. I can't remember the 16 reasons for that. 17 Q. Do you agree with me that it makes it difficult to 18 compare this proposal with the first Carlisle Proposal? 19 A. At first sight potentially, but, I mean, there was 20 always the option to -- to investigate from the client 21 side. So necessarily yes, at first sight of course, but 22 there was always the possibility to -- to substantiate 23 the proposal. So ... 24 Q. Yes. In the last proposal that we saw, you will recall 25 yesterday there was a breakdown that showed us where 7 1 there were additional costs and where there were savings 2 and so on. But this proposal doesn't give us that 3 breakdown. 4 A. It doesn't, but I suppose it could have been produced. 5 I don't know if it was at a later stage produced or not. 6 I don't recall that. 7 Q. Okay. 8 If we could turn now to document BFB00053258. 9 This is the consortium's Project Phoenix Proposal 10 dated 24 February 2011. We know from other witnesses 11 that this formed the basis of discussions at the 12 mediation at Mar Hall. Is that your recollection? 13 A. Yes, this was the proposal which -- was the proposal 14 made before -- yes, the mediation started and on which 15 basis the mediation took place. That's correct. 16 Q. If we go, please, to page 141, we see there this is the 17 scope of the proposal. The first paragraph, just 18 reading from the second sentence: 19 "In essence, Infraco will carry out the works shown 20 on the PPP Drawings for the scope of work between the 21 Airport and Haymarket (East end of Haymarket Viaduct), 22 and the Enabling works in Section 1A etcetera." 23 Can you just confirm, Mr Eickhorn, that the scope of 24 this proposal was the same as the second Carlisle 25 Proposal that we looked at a moment ago? 8 1 A. I think largely it would have been the same, yes. 2 Q. If we go, please, to page 27, this is the Siemens 3 Proposal, and we see down at the bottom that the 4 proposed price here is 136.8 million. Do you see that? 5 A. Yes. 6 Q. So there's an GBP18 million increase from the Carlisle 2 7 Proposal. Can you explain what accounts for that 8 increase? 9 A. I can only assume that this would have been 10 a time-related impact. 11 Q. So I think I'm right in saying that the time period 12 between the second Carlisle Proposal and this Phoenix 13 Proposal was about five months. So are we to understand 14 that that five months of delay came with a cost of 15 GBP18 million for Siemens' element? 16 A. It seems a lot, but the detail I cannot remember as of 17 just now. 18 Q. Yes, because it would break down at about GBP3.5 million 19 in delay cost per month. Is that more or less than the 20 cost for Siemens of being on the project for a month? 21 A. As I cannot remember what the basis of the -- what the 22 programme was in the first -- in the second Phoenix 23 Proposal, it's hard for me to tell. But the cost -- the 24 monthly running cost would have been lower. So I am 25 fairly confident that the price difference here is not 9 1 only an effect of the -- of the cost of time and 2 resources. 3 Q. So -- yes, for something else other than delay? 4 A. Yes. 5 Q. Can you recall even in broad terms the approximate 6 monthly cost for Siemens of being on site? 7 A. Sorry? 8 Q. Can you recall what it cost for Siemens to be on site 9 for a month? 10 A. It fluctuated a bit. I mean, we submitted the detail of 11 that in large detail to tie at the time, and the -- the 12 rates in the -- in the Settlement Agreement which 13 I cannot recall from the top of my head just now, but 14 they reflected -- gave a good impression or reflected 15 fairly the cost of Siemens for a month of extended 16 project execution. 17 Q. Okay. But do we understand it was quite a bit less than 18 GBP3.6 million? 19 A. Yes, that's why I -- I would have to look -- check the 20 detail of that build-up, but I assume that could have 21 been -- must have been some other influence. 22 Q. Okay. 23 Now, we see that the breakdown of the price is 24 presented in a third way. Can you explain why it was 25 done differently again? 10 1 A. From memory, we ran different scenarios of how the works 2 could be implemented, and different ways of looking at 3 things, the cost build-ups, et cetera. So this had 4 developed over time, and the end product was a slightly 5 different form of presentation. 6 I remember having discussions about the -- about the 7 build-up of the prices and the impacts with tie 8 personnel. The presentation of the price and front page 9 was never something that was of particular concern. 10 Q. Do you recall who you discussed the price with at tie? 11 A. Yes, the time element I discussed with Dennis Murray in 12 tie. He was, I think, the finance -- no, the 13 commercial -- principal quantity surveyor, I think he 14 was. 15 Q. Okay. It may be that these figures appear differently 16 to a quantity surveyor, but to the -- to the lay person 17 in this context, one can say that if you look at the two 18 Carlisle Proposals and then the Phoenix Proposal on this 19 front page sheet, it's actually very difficult to 20 compare one with the other. Do you accept that? 21 A. I accept that, but for our client with additional 22 detail, I think that would have been understandable what 23 was the detail and the rationale of that. 24 Q. Was it your impression that Mr Murray understood the 25 development of Siemens' price across the two Carlisle 11 1 Proposals and the Phoenix Proposal? 2 A. I would -- I think so. In particular I remember that 3 I think he understood very well that the greatest 4 problem in terms of cost for Siemens was the time 5 impact, because I had discussions with him about the 6 resources, the cost attached to those resources, and we 7 provided a lot of additional information to substantiate 8 our proposal at the time. 9 Q. We see down at the bottom of that list, an entry for 10 changes where it's GBP2.165 million. Do you see that? 11 A. Yes. 12 Q. If we go to page 28, we see the detailed breakdown of 13 that. 14 Both of the Carlisle offers, the entry for Change 15 Orders had been over GBP5 million. Are you able to 16 explain the reduction? 17 A. When looking at the list now, I think the content is 18 slightly different. I just -- by way of observation, 19 it's been a long time since I saw these lists for the 20 last time. 21 Q. Of course. 22 A. In the other one, for example, there was -- included 23 extension of time number 1, which doesn't appear on that 24 list. So I think we have a different list of changes. 25 From memory, I think that those changes here were 12 1 the ones that had been identified in the meantime 2 between the two proposals, and that were proposed here 3 to fix the price at the bottom line, at the bottom line 4 figure. 5 Q. Okay. I'm just trying to get an understanding of the 6 cost of change in the scope of Siemens' works. 7 I wondered whether it was fair to take the figure of 8 GBP2 million as shown on this sheet as a broad 9 indication of the cost of scope change for Siemens. Is 10 that fair? 11 A. Scope change in relation to technology, materials, 12 equipment, requirements, but not in relation to time. 13 Q. Yes. Excluding anything to do with time. 14 A. Yes. 15 Q. Thank you. 16 A. Again, at the time it was still possible to have 17 changes, because in my understanding still utility 18 diversions were going on, design was being developed, 19 approvals and consents were still coming in or 20 outstanding. So it was the best estimate made at the 21 time to fix the price to the -- to the scope known to 22 date. 23 Q. Thank you. 24 Now, I think I should probably just note for the 25 record that in your statement you've indicated that the 13 1 Phoenix Proposal, I think both for Siemens and 2 Bilfinger, included all of the claims that they 3 considered themselves to have accrued under the Infraco 4 contract to date. 5 A. Yes, that was certainly the purpose. That's correct. 6 The idea of the Phoenix Proposal was to give the client 7 more price certainty, taking into account all the 8 knowledge that we had acquired at that point in time, 9 and also -- this also is expressed in the -- in the 10 reduced number of Pricing Assumptions that were -- if 11 you compared those proposals with the original -- with 12 the original contract. 13 Q. I just want to look for the moment at the understanding 14 of Siemens' price that the other side had. 15 If we could go, please, to document BFB00094604. 16 If we could go, please, to page 4, first of all. 17 Now, we see, about halfway down the page, there's an 18 email from Brandon Nolan of McGrigors to 19 Fraser McMillan. Are you familiar with those 20 individuals? 21 A. Not -- I cannot really recall them, no. 22 Q. Well, these were the solicitors acting for the parties 23 in the run-up to the Mar Hall mediation. 24 If we just read from Mr Nolan's email he says: 25 "Fraser, with regard to Infraco's Project Phoenix 14 1 Proposal Price, tie and CEC would request more detailed 2 information in relation to Siemens' PPP Price 3 Breakdown." 4 That was the document that we looked at a moment 5 ago: 6 "Siemens' PPP of circa GBP136.5 million is double 7 Siemens' original price of GBP68 million (Airport to 8 Haymarket). It is not clear what the basis for this 9 increase is. There is no Schedule Part 4 Pricing 10 Assumption 1 issue in relation to Siemens' work which 11 has undergone little change since tender." 12 Just pausing there, I think from your previous 13 answers, you would agree that there wasn't a Pricing 14 Assumption 1 issue in relation to Siemens' work; is that 15 correct? 16 A. There wasn't -- sorry, again? 17 Q. There wasn't any issue arising from Pricing Assumption 1 18 in Schedule 4 of the Infraco contract, bringing about an 19 increase in Siemens' price; is that correct? 20 A. Pricing Assumption number 1 in the Infraco contract was 21 the Base Date Design Information. 22 Q. Yes. 23 A. I cannot positively exclude that there had been impacts 24 from design changes to the -- compared to the BDDI, no. 25 Q. If there was an impact, did it have a significant impact 15 1 on the cost of Siemens' works? 2 A. A significant impact was the time-related cost, as 3 I tried to explain earlier, and this analysis here is 4 fundamentally flawed in my point of view, because it 5 disregards -- it tries to calculate a price in relation 6 to a length of line, completely ignoring that the 7 original contract period had already expired at this 8 point of time. 9 Q. That's really my point, because these individuals are 10 trying to understand Siemens' price proposal, and 11 obviously you understood it because you knew how it had 12 been calculated, but it was difficult for others to 13 understand the basis of Siemens' price increase from the 14 way it was presented in the Phoenix Proposal. 15 A. If that was the case, then I don't understand why that 16 was the case, because during the course of the project, 17 we had gone to great -- a great deal of effort to -- to 18 develop and present our methodology of pricing the 19 impact of the delays, and all that information was 20 accessible to the client. 21 So it seems to suggest that this information had not 22 been passed on to the people that are on that email. 23 Q. Okay. So your evidence is that you had explained the 24 price fully to the quantity surveyors within tie? 25 A. That would have been part of our submissions. 16 1 I remember very well that the question of the resources 2 that we had deployed on the project and the cost of 3 those resources had been discussed in great length, and 4 one of the -- one of the topics I very well remember is 5 that the question of rates that represented a cost of 6 those resources, and even before the Phoenix and even 7 the Carlisle Proposals, we had our rates audited by 8 external firms to confirm that what we put -- had put 9 forward represented the true cost of those resources, 10 and these reports, if I remember, they were accessible 11 and known by the client, and I think the rates per se 12 were -- had been accepted as true and fair. 13 Q. Thank you. 14 If we could move just further up the chain to 15 page 3, we have just in the middle of that page, we have 16 an email from Anne Houston on behalf of Brandon Nolan. 17 He's saying -- this is another attempt to explain their 18 understanding of the price: 19 "tie's calculation of the Siemens figures are 20 deduced from the Siemens' CPA which totals 21 GBP96.9 million. tie's breakdown on a pro rata basis is 22 as follows." 23 Then we see a breakdown of various figures. He 24 says: 25 "As previously indicated, without further 17 1 information in relation to Siemens' PPP Price Breakdown, 2 meaningful analysis of it is not possible." 3 I think from your previous answer, you would say 4 that that was not an appropriate way to assess the cost 5 of Siemens' works between the airport and Haymarket? 6 A. Yes, any pro rata breakdown in this situation was not -- 7 not an appropriate way of analysing the price, I agree. 8 Q. But we see this email is dated 4 March and the mediation 9 began a few days later than that. 10 Based on your discussions with Dennis Murray, are 11 you surprised at that analysis of Siemens' price? 12 A. Maybe surprised is -- yes, I am surprised. I mean, 13 I can only reiterate. I mean, a lot of information had 14 been submitted also by -- I think by way of formal 15 communication, formal correspondence, in terms of the -- 16 the time impact had been well communicated. I mean, 17 these -- in the course of the -- what was referred to 18 the MUDFA claims, so I think there was a lot of detail 19 available. 20 So yes, I am kind of surprised that this information 21 was not taken into account when I read these emails, 22 which I have never seen before, by the way. 23 CHAIR OF THE INQUIRY: Can you recall if anyone contacted 24 you after -- about this time to say that the lawyers 25 were seeking clarification? 18 1 A. What I do remember is -- and that is -- by memory, the 2 most -- well, we had this process I earlier described 3 to -- to substantiate our rates, and the audits. That 4 was -- that was before mediation. 5 I remember going through that exercise again, but 6 after mediation, when we were discussing the on-street 7 works price, which again was heavily influenced by the 8 time element of that -- of that piece of the line, and 9 not so much by the works. 10 CHAIR OF THE INQUIRY: So the answer is no, you don't 11 remember anyone coming to you or asking you for 12 information to enable the solicitor acting for the 13 consortium at the mediation to respond to the question 14 by the solicitor on behalf of tie? 15 A. I cannot remember anything in particular, no. I must 16 say, though, that at the time shortly before the 17 mediation, I myself, I was ill at home, due to an 18 accident. So I can -- it could be that someone else 19 received such enquiries, but I'm not aware of them. 20 CHAIR OF THE INQUIRY: Thank you. 21 MR MCCLELLAND: Do you recognise the name Tony Rush? 22 A. Yes, but I have never met him in person. 23 Q. Okay. Were you aware of his role for tie in relation to 24 the project? 25 A. I understand he was a consultant to tie. 19 1 Q. You say that you never met him. Were you ever involved 2 in supplying information to him about Siemens' price? 3 A. Not directly. It could be that some information that 4 I produced was forwarded to him, but I had no direct 5 contact with Mr Rush. 6 Q. As far as you were aware, did Siemens pass pricing 7 information to Mr Rush? 8 A. I don't know that. 9 Q. Don't know. 10 If we could just look briefly at his statement to 11 the Inquiry, which is TRI00000141_C. If we could go to 12 page 9, please. At the second paragraph down, this is 13 Mr Rush discussing the Project Carlisle Proposals from 14 Siemens. What he says is: 15 "We analysed the differences between tie's offer and 16 Infraco's counter offer. The difference in relation to 17 Siemens' work was disproportionately higher than 18 Bilfinger Berger's. I think I regarded both sums as 19 being 'negotiable claims'. Because Siemens' work 20 content was substantially unchanged from BDDI my 21 reaction was that their element was largely 22 opportunistic and likely intended to correct tender 23 errors." 24 What's your response to that comment? 25 A. I think there are various aspects. Again, seeing this 20 1 for the first time, but my response now would be that 2 the second sentence, that the difference in relation to 3 Siemens' work is disproportionately higher, again 4 ignores the impact of the time-related cost that we had 5 suffered, and in comparison with Bilfinger's scope, 6 ignores the fact that the Siemens scope of work was 7 more -- I mean, the cost for that was more contingent on 8 time than maybe construction works. 9 I don't think -- substantially unchanged from BDDI 10 in relation to Siemens' work, I wouldn't agree to that. 11 It is true that the Base Date Design Information 12 informed the Siemens scope to a lesser extent, and 13 comparing the two elements of works, ie Siemens and 14 Bilfinger, I think the technical changes were less in 15 proportion. But to say substantially unchanged, 16 I wouldn't agree, and again, it ignores the fact that 17 our real problem was the -- was the thickening and 18 length of providing resources. 19 Q. Okay. Perhaps the most striking of Mr Rush's comments 20 is that Siemens' price was largely opportunistic and 21 likely intended to correct tender errors. 22 A. Okay. Opportunistic is -- I don't entertain any kind of 23 that language. I think we put forward a very -- very 24 fair proposal which was fair also in relation to the 25 scope and the time that had passed. 21 1 Tender errors, I myself am not aware that there had 2 been any significant tender errors that required 3 correction through any -- through reclaiming money from 4 the client, through false pretence. I really don't 5 understand these comments, and I don't think they are 6 true and fair. 7 Q. But do you accept that the consortium were in a strong 8 negotiating position before Mar Hall? 9 A. I wouldn't phrase it that way. I think it made sense 10 for all parties to find a way to continue the contract. 11 It was in fact seen as a major risk for Siemens that the 12 contract would end up in a termination scenario, whether 13 rightful or not. I mean, that was a different question. 14 But the intention was clearly to continue and to 15 compromise to get the scheme built. 16 Q. Thank you. 17 CHAIR OF THE INQUIRY: I appreciate that, but I think the 18 question was: did you consider that the consortium were 19 in a strong negotiating position -- 20 A. No, I didn't. 21 CHAIR OF THE INQUIRY: -- when you went into Mar Hall? 22 A. No, my Lord, I didn't, because at the time we were 23 willing to compromise on what we had put forward. 24 I think at the time -- I mean, we had put forward what 25 we believed to be fair and reasonable, and at the same 22 1 time we were willing to compromise to be able to 2 complete the project that we had come to build. 3 MR MCCLELLAND: If we could look briefly at your statement, 4 please, which is TRI00000171, thank you, at page 70, 5 paragraph 167. Just reading from 167, you note -- 6 you're talking here about the Heads of Terms agreed at 7 Mar Hall: 8 "The Heads of Terms included an agreed price of 9 GBP362.5 million for the Off-Street Works, certain 10 enabling works and the prioritised works. That figure 11 was based upon the price set out in the Phoenix 12 Proposal, less concessions made as part of the 13 negotiations. It is difficult to say to what extent the 14 Off Street works price agreed included a payment to 15 settle claims which the Consortium considered had 16 accrued to it under the Infraco contract. A commercial 17 negotiation took place and there is no detailed analysis 18 that I am aware of which attributes a specific figure to 19 the Consortium's claims. I do not know to what extent 20 the value of those claims were analysed, discussed and 21 agreed, and am not aware of any such analysis having 22 been recorded anywhere. The concessions made in the 23 settlement do not reflect any perceived weakness in the 24 Consortium's claims. In my opinion, however, the 25 settlement reached was adequate to recover an 23 1 appropriate portion of Siemens' rightful claims (but not 2 all of them) considering the potential consequences in 3 case of not finding a settlement." 4 Does that remain your position? 5 A. I think I've said the same thing in slightly different 6 words before. So I -- I stand to what I said there, 7 yes. 8 Q. If we look, please, at document SIE00000184, are you 9 familiar with this document? 10 A. Yes, I am. 11 Q. I think we see in the first column of numbers, which is 12 the second column from the left, those are the figures 13 from the Phoenix Proposal. 14 A. Yes. 15 Q. Then the red figures in the column to the right of that, 16 those are the discounts accepted by the consortium at 17 Mar Hall? 18 A. Correct. 19 Q. Then the following column are the figures from the 20 Settlement Agreement for the off-street works. So we 21 see there that Bilfinger Berger accepted a discount of 22 GBP10 million on their proposal and Siemens, 23 GBP11 million from their proposal. Does this suggest 24 that the consortium were largely successful with all of 25 the claims they'd made under the Infraco contract prior 24 1 to the mediation? 2 A. I'm speaking for Siemens now, because the commercial 3 aspects of the -- of the project were of course managed 4 by the respective companies. So speaking for Siemens, 5 it was not a sense of being successful. It was more 6 a sense of relief that we could find a position that 7 enabled the project to continue, and to get a fair 8 proportion of the claims and additional costs that we 9 had put forward recovered. But success at the time, it 10 was -- it was seen as a success that things were in 11 a position to move on. 12 Q. Did you come out of the mediation feeling as though the 13 consortium had won? 14 A. No. Definitely not. But there was a great sense of 15 relief, I think, throughout the team, and I think there 16 was still a bit of scepticism because all the new 17 methods of working and collaboration with the client 18 still had to be implemented and tested, but at the time 19 I think there was a sense of relief that a way had been 20 found to continue with the project. 21 Q. What you say in paragraph 167 of your statement, and we 22 don't need to bring it up on screen, you say: 23 "In my opinion, however, the settlement reached was 24 adequate to recover an appropriate portion of Siemens' 25 rightful claims, (but not all of them)." 25 1 Can we take it from that that Siemens did not make 2 a loss on the project? 3 A. At the time when the settlement was made, I think we 4 were still anticipating an overall loss on the project. 5 Q. And at the conclusion of the project? 6 A. At the conclusion of the project, I think our situation 7 had gradually improved, but if I may say that, this was 8 not the best project in Siemens' history. 9 Q. Was the commercial outcome for Siemens at the end of the 10 project better or worse than had been anticipated at 11 financial close? 12 A. I can't recall that. 13 Q. Just looking again at the document that's on screen, if 14 you look at the fourth and the fifth columns together, 15 the fourth column is the one headed up "Off-Street Works 16 Price", and then the one to the right of it is the 17 on-street works price. These are, you can take it from 18 me, the prices that appear in the Settlement Agreement 19 from September 2011. 20 If we just look at the Siemens line, there's a price 21 of GBP125 million for the off-street works and 22 12 million for the on-street works. So that gives 23 a total of about GBP138 million. 24 If we compare that to the -- you will recall the 25 figure of GBP96 million being Siemens' share of the 26 1 original Infraco price. There's an increase of about -- 2 I think it's about GBP46 million. 3 A. Yes. 4 Q. I think from your evidence nearly all of that was 5 attributable to the cost of delay? 6 A. Yes, a significant portion of that was. 7 Q. You may not be able to answer the questions about 8 Bilfinger, so don't speculate if you can't, but their 9 figures, GBP221 million for the off-street and 10 GBP34 million for the on-street, so the increase in 11 price for them is around GBP120 million from the 12 original Infraco price; does that seem about right? 13 A. Yes. 14 Q. Was their increase a combination of both delay and 15 change in the scope of their works? 16 A. I think it's fair to assume that that was the case, yes. 17 Q. Was there a higher proportion of their increase 18 attributable to scope change than was the case for 19 Siemens? 20 A. By the nature of their work, I would expect that 21 a higher proportion was directly related to scope 22 changes than to time-related changes, but that really is 23 for Bilfinger to answer. I have no insights in their 24 detailed financial analysis of the project. 25 Q. Okay. If we focus for the moment on the delay costs, 27 1 the increase attributable to delay, in your view could 2 anything have been done on the project to avoid or 3 reduce those? 4 A. The main contributing factor, in my point of view, were 5 the ongoing utility diversions, and these halted the 6 works on the critical path, resulting logically in the 7 delays that we saw. 8 So any way of dealing with those proceeding utility 9 works would have helped a lot, and this was in this 10 contract the client responsibility, and the client 11 probably could have ensured that the sites had been 12 handed over in the shape and form where they were ready 13 for the construction works for the tram to commence. 14 Q. Let's imagine that all the utility works had been 15 completed before the contract began. In your view would 16 some delay still have occurred? 17 A. I cannot entertain that kind of speculation, but again, 18 the utilities were the most major contributing factor. 19 So I think it's fair to assume that less delays would 20 have occurred. There were other problems, though, in 21 terms of other inputs to be provided. It's difficult to 22 say. 23 Q. Now, if we could go to document CEC02084685, please. If 24 we just look at paragraph 5 in that list, it says: 25 "Price ..." 28 1 I should say, this is the list of key points of 2 principle agreed at Mar Hall. It says there: 3 "Price includes all Siemens materials and equipment 4 to Newhaven." 5 So that includes the stretch beyond York Place. We 6 had some discussion about this yesterday. I'm just 7 going to read from your statement. I don't think we 8 need to bring it up on screen. Page 72, paragraph 175: 9 "The price of GBP362.5 million also included all 10 Siemens’ materials and equipment to Newhaven. There was 11 an extensive list of materials that were transferred to 12 CEC in an inventory provided under cover of a letter 13 from the Consortium to CEC ... There were some materials 14 that could be cancelled and in those circumstances, it 15 was agreed that the items would not be supplied, and the 16 Consortium would give credit for those items against the 17 price." 18 Then reading on a little bit further: 19 "Furthermore, CEC did not want to cancel them in the 20 event that they could be used in the near future as part 21 of the secondary phase, (Phase 1a of this Project." 22 The way that's put there, suggests that the Council 23 have got some but not all of the materials and equipment 24 that are needed to build the line to Newhaven; is that 25 correct? 29 1 A. At the point in time when the Mar Hall mediation took 2 place and the Settlement Agreement was fixed, it is 3 correct what is stated here, that the price included all 4 the materials from the Siemens side of -- point of view 5 that would have been needed. 6 After we went through a cost engineering exercise, 7 if you like, and in the course of that, some of the 8 remaining orders that still could be cancelled at that 9 point in time, they were then cancelled and a credit 10 given to CEC. 11 So -- but your question was as of now, not -- not 12 all available -- not all materials are on site and 13 available to build the extension. 14 Q. Okay. Are you able to say how close the Council are to 15 having everything that they would need? Have they got 16 half the items that they would need, have they got 17 90 per cent of them? 18 A. I would -- I would probably say maybe even less than 19 half, but it's hard to tell. I mean, some things have 20 been taken into storage. There's electrical equipment, 21 that's been in storage for some time. So it would have 22 to be checked, is it still in good condition, still 23 usable, et cetera. 24 So this would have to be assessed in detail, 25 I think, in the course of planning the extension. Heavy 30 1 equipment like rails, that was -- and OLE poles, that 2 was what still would be cancelled, and we cancelled 3 that, so that would have to be re-procured. And from 4 a Siemens point of view, that represents 5 a substantial -- substantial cost, should Siemens build 6 the track again. 7 Q. So do I understand from what you said that the price 8 agreed at Mar Hall was based on the assumption that the 9 Council would buy all of the equipment required, but 10 that afterwards, there were credits given for orders 11 being cancelled? 12 A. No, any credit was not anticipated. I mean, up to the 13 point in time when the Settlement Agreement was signed, 14 we were technically under the obligation to provide all 15 materials up to -- up to Newhaven, and accordingly -- 16 yes, that was -- and that's why -- and most of the 17 orders had been placed. So the discussions about 18 cancelling some orders were later -- I think there was 19 some sort of anticipation that in the near future the 20 extension would be built. 21 Q. Was that an assumption on the part of the Council? 22 A. I can't recall that. What I do recall, that as a matter 23 of fact, we completed -- as a consortium, completed 24 design to the -- to the extent possible for the 25 secondary phase 1a, as it was referred to then. 31 1 So there wasn't -- I think there has always been the 2 plan to build it, but when is a different question. 3 Q. What you say in paragraph 175 is that CEC did not want 4 to cancel them in the event that they could be used in 5 the near future as part of the secondary phase, phase 1a 6 of this project. 7 Now, that suggests that there were some orders that 8 could be cancelled, but which the Council decided not to 9 cancel; is that your recollection? 10 A. I can only refer to the facts. I mean, that 11 cancellation then happened later, after -- after the 12 settlement had been signed as part of -- as a cost 13 engineering exercise. 14 I don't recall any discussions about cancellations 15 of orders before that. 16 Q. So it sounds as though if in the future the Council 17 decides to extend the line all the way to Newhaven, it's 18 going to have to buy materials and equipment which it 19 doesn't presently have? 20 A. Yes, that's correct. 21 Q. Will they have to buy that from Siemens? 22 A. There is no must, no. I think it would -- I think from 23 my point of view, it would make sense to continue with 24 Siemens because it is a case of extending the systems 25 that we have installed there. So for many reasons it 32 1 makes a lot of sense technically, I would even think 2 commercially, from a maintenance point of view, but it 3 is not must. 4 Q. But if the Council holds materials and equipment 5 supplied by Siemens, whatever proportion it is, for the 6 line from York Place to Newhaven, is it straightforward 7 for another supplier to supply materials that will 8 integrate with that material? 9 A. Depends on the nature of the material. I mean, 10 I suppose if there were any OLE poles, they could be 11 erected by anyone, I suppose, installing and testing of 12 switch gears is a different story, even more complicated 13 than installing of signalling equipment. 14 So it depends really on the element of work. 15 Track work, I suppose, is a very generic type of 16 work, so that could easily be done by another company. 17 So for some elements, it makes a lot of sense to 18 continue with the company that has already installed the 19 equipment, for others to a lesser extent. 20 Q. So the Council's decision at Mar Hall to buy equipment 21 from Siemens for the part of the line yet to be built, 22 does that give Siemens a commercial advantage over other 23 suppliers when it comes to supplying the rest of the 24 equipment that's needed? 25 A. It's hard to say -- 33 1 MR MACLEOD: My Lord, I'm sorry to interject at this point, 2 but I do wonder what relevance this line of questioning 3 has to the remit of the Inquiry, which, as I understand 4 it, is not looking at the extension part of the process. 5 CHAIR OF THE INQUIRY: I think it may have some relevance to 6 the consequences. 7 MR MACLEOD: If your Lordship is satisfied that that is in 8 the terms of the Inquiry's remit, then so be it. 9 CHAIR OF THE INQUIRY: Do you remember the question? 10 A. No, if you could ask the question again. 11 MR MCCLELLAND: Yes. The Council having decided to buy 12 materials and equipment from Siemens for the line 13 between York Place and Newhaven, does that give Siemens 14 a commercial advantage over other suppliers when it 15 comes to supplying the rest of the materials and 16 equipment that are needed to build that line? 17 A. Not necessarily. I can't say. I mean, it is -- it is 18 a matter of fact to determine what the scope of such 19 extension would be. And then to -- to determine what 20 the design will look like and what technologies were to 21 be applied. 22 So it -- it is not possible to say that Siemens 23 would have per se a commercial advantage. 24 Q. Is it easier for Siemens to supply the missing bits than 25 it would be for another supplier to do it? 34 1 A. Yes, because it is a -- it is a system that is already 2 exists, to integrate your own technology and to extend 3 it is obviously -- very obviously easier than it would 4 be for a third party. 5 Q. Are you referring there to the rest of the line that's 6 already installed, rather than to the extra materials 7 and equipment that are sitting in a warehouse? 8 A. I'm -- I cannot comment on the items that are put in 9 storage because I'm not aware of the condition in which 10 they are. 11 Q. Okay. 12 Now, you've explained in your statement that there 13 were various vesting certificates given to the Council 14 in relation to that materials, those materials and 15 equipment. If we just look briefly at page 73 of your 16 statement, please. 17 In paragraph 176 you list the vesting certificates 18 and the values attributable to the items in each of 19 them. 20 In paragraph 177 you say: 21 "Due to there being no rates available for these 22 materials, the price was in effect a proportion of the 23 price for equipment from the Infraco Contract. The 24 price for equipment in the Infraco Contract would have 25 been based upon a contract specific sell-rate (ie the 35 1 cost of the items plus an element of profit and overhead 2 costs)." 3 Could you just explain that a little bit more, 4 please? 5 A. Yes, I think at the time the question came up how to 6 value those equipments in a fair and transparent manner, 7 and from memory, I think they made reference to the 8 original contract value, we identified the direct cost 9 of those materials, plus the -- plus the surcharges, the 10 element of design cost of that material, and then other 11 mark-ups, and that was the basis that formed then the 12 prices in that list. 13 Q. If the works had been done under the Infraco contract in 14 its original form, would the prices paid for these items 15 have been the same? 16 A. If nothing had changed, I think that would have been the 17 case. 18 Q. I'm just trying to understand, was there any increase in 19 the price of these items compared to what would have 20 been paid under the contract in its original form? 21 A. I can't say. In a way it was a bit of a -- let's say -- 22 it was an exercise to get some value to those -- to 23 ascertain some value of these items. The precise 24 methodology that we applied at the time, I cannot 25 remember. 36 1 Q. Okay. 2 Now, I'm just conscious of the time. Briefly, 3 Mr Eickhorn, do you recall that under Minute of 4 Variation 4, which was entered into after Mar Hall, 5 there was a payment of GBP49 million made by tie to the 6 consortium? 7 A. To the consortium, yes. 8 Q. I think part of that was for the materials and equipment 9 that we've just been discussing? 10 A. I think in fact the payment was made in several 11 instalments, but the materials would have been a part of 12 that, yes. 13 Q. Yes. If we could just look, please, at document 14 SIE00000304. This is an MIS report from Siemens dated 15 13 April 2011. 16 Sorry, I think I may have given you the wrong 17 document reference. 18 There's something gone awry with the document. 19 Can we maybe just look at the second page of that. 20 Sorry, page 3. 21 There's a passage in the middle of that page headed 22 "Disputes", and it reads: 23 "On 2 March 2011, prior to the Mediation at 24 Mar Hall, the Adjudicator found in favour of Infraco in 25 the dispute relating to payment of preliminaries. As 37 1 a result Infraco is entitled to payment of outstanding 2 preliminaries of GBP14 million." 3 Was there any connection between that sum due to the 4 consortium and the GBP49 million payment under Minute of 5 Variation 4? 6 A. I'm not -- I'm not familiar with the details of that 7 dispute. I remember as a matter of fact that the client 8 had not paid prelims for some time in the period before 9 that. I think for over a year, if I remember correctly. 10 There was more -- I mean, our concern, yes, it was 11 the time-related costs, and at the time I think we -- 12 our concern was to find a transparent and logical 13 mechanism to -- to put us back into a cash position 14 where we weren't suffering any longer, as we did at the 15 point in time. Then the idea was to vest the materials 16 that you already had to the client, to give the client 17 the benefit, and by way of doing that, to substantiate 18 a payment to the consortium. 19 I explained that there were direct costs of 20 materials and mark-ups. So some of the mark-ups could 21 have included an element of preliminaries, but I'm not 22 able to say to what extent, and I don't recall any 23 direct connection of that and the vesting exercise. 24 Q. I think the total value of the materials and equipment 25 comes to something like GBP28 million, GBP29 million. 38 1 I was just wondering if that GBP14 million of 2 outstanding preliminaries was part of what was paid 3 under Minute of Variation 4. 4 You can't recall if that was the case? 5 A. I can't say if it was the case and to what proportion. 6 By the way, also these 14 million are an Infraco number, 7 if I see that correctly, and the 49 and respective 8 portions of that were different. 9 From memory, I think certainly the idea was to catch 10 up in terms of cash flow somehow, to catch up the 11 non-payment of prelims in the period before. 12 MR MCCLELLAND: Okay. Thank you very much, Mr Eickhorn. 13 I know you have come a long way to be here, so thank 14 you. And I have no further questions for you. 15 A. Okay. 16 CHAIR OF THE INQUIRY: I don't think anyone else has got any 17 questions. 18 Thank you very much, Mr Eickhorn. You're 19 technically -- not technically, you are still under your 20 citation, so you could be recalled if other matters 21 arose. Hopefully that won't be necessary. 22 In the meantime, you're free to go, and safe 23 journey. 24 A. Thank you, my Lord. 25 MR MCCLELLAND: The next witness, my Lord, is to be taken by 39 1 Mr Lake. So I'm not sure if you would prefer a short 2 break to allow the handover. 3 CHAIR OF THE INQUIRY: Yes. We'll have a break of five 4 minutes, I think. We will just break for five minutes. 5 (10.40 am) 6 (A short break) 40 1 INDEX 2 PAGE 3 MR AXEL EICKHORN (continued) .........................1 4 5 Examination by MR MCCLELLAND (continued) ......1 6 7 MR JULIAN WEATHERLEY (affirmed) .....................40 8 9 Examination by MR LAKE .......................40 10 11 MR BRANDON NOLAN (sworn) ...........................114 12 13 Examination by MR LAKE ......................114 14 15 Examination by MR DUNLOP QC .................207 16 17 18 19 20 21 22 23 24 25 214