1 Wednesday, 15 November 2017 2 (9.30 am) 3 CHAIR OF THE INQUIRY: Good morning. 4 MR MACKENZIE: Good morning, my Lord. The next witness is 5 Richard Walker. 6 MR RICHARD WALKER (sworn) 7 CHAIR OF THE INQUIRY: You are going to be asked some 8 questions by Counsel to the Inquiry, Mr Mackenzie, and 9 if you just listen to the question and answer it as 10 directly as possible. If you can speak slowly and 11 clearly into the microphone, so the shorthand writers 12 can keep up with you. 13 A. Yes, my Lord. 14 Examination by MR MACKENZIE 15 MR MACKENZIE: Good morning. 16 A. Good morning. 17 Q. Could you state your full name, please? 18 A. Richard John Walker. 19 Q. And your current occupation? 20 A. I'm retired. 21 Q. Now, you provided a CV to the Inquiry. I'll give the 22 reference for the record. It's CVS00000067. I think in 23 short, Mr Walker, you're a chartered civil engineer; is 24 that correct? 25 A. That's correct, yes. 1 1 Q. And that before joining Bilfinger Berger UK in 2006, you 2 had been responsible for delivering a number of roads 3 and highways projects as more fully set out in your CV; 4 is that correct? 5 A. That's correct. 6 Q. I think is it also correct to say that before the 7 Edinburgh Tram Project, you personally didn't have any 8 experience of delivering a tram or a light rail project? 9 A. That's correct. 10 Q. Is it also correct to say that Bilfinger Berger UK as 11 a company didn't have any prior experience of delivering 12 a tram or light rail project? 13 A. The UK members that we started with did not, but we had 14 German people who came and worked with us who did. 15 Q. Thank you. I think you were Managing Director of 16 Bilfinger Berger UK between 1 May 2006 through to 2011; 17 is that correct? 18 A. That's correct. 19 Q. Thank you. 20 I would like now, please, to turn to your statement 21 you provided to the Inquiry. The reference number is 22 TRI00000072_C. A copy, I think, is on the screen. 23 I think you may also have a hard copy there as well; is 24 that correct? 25 A. I have a hard copy. There's just my CV -- no, it's on 2 1 now, thank you. 2 Q. I think in short your statement is in two parts. If we 3 go first to page 88, I think in short the first part of 4 the statement is the statement taken by the Inquiry, 5 which ends at page 88, and I think if we go to page 89 6 we will see an appendix 1, another statement dated 7 12 February 2016 which was a voluntary statement 8 produced to us as the Inquiry. If we go to the very end 9 at page 115, please, we can see two signatures. I take 10 it both signatures are yours, Mr Walker? 11 A. That's correct, yes. 12 Q. So can you confirm, please, for the record that this is 13 the written statement you have provided to the Inquiry? 14 A. Yes. May I comment that the main part of the statement, 15 the front part of the statement, is not paginated on the 16 copy that I've got. 17 Q. I see. That's unfortunate. 18 A. If we can refer to the clauses when talking about it, 19 I can find my way around that way. 20 Q. I think the copy on the screen is paginated? 21 A. It is, yes. 22 Q. We can use that. 23 I think you have also provided recently 24 a supplementary statement to clear up one matter. It 25 will come up on the screen. TRI00000178. 3 1 A. I do know what you're talking about, although it's 2 not -- here it is, I think. 3 Q. Do you see the statement -- 4 A. Yes. 5 Q. On the screen? 6 A. That's correct. 7 Q. Dated 10 November 2017? 8 A. Yes. 9 Q. I think in short what you say here is that Mr Laing was 10 not at the meeting in Wiesbaden; is that correct? 11 A. That's correct, yes. 12 Q. Thank you. Now, Mr Walker, your evidence to the Inquiry 13 will comprise your written statements to the Inquiry, 14 and the evidence you give today. 15 We can put that to one side. I would like to start, 16 please, by asking you about the relationship between 17 Bilfinger UK and Bilfinger Germany. Just to be clear, 18 did Bilfinger UK or Bilfinger Germany have the ultimate 19 say in important decisions relating to the tram project? 20 A. I flew to Germany approximately twice a month to update 21 my managers who were German what I was doing. 22 I was given a lot of freedom in the power that 23 I had, but I was very, very closely monitored, and there 24 were some decisions which were overruled by Germany. So 25 they kept pretty tight control of what I did and were 4 1 aware of everything that I did. 2 Q. So would it be fair to say that Bilfinger Germany had 3 the ultimate say in important decisions relating to the 4 project? 5 A. Yes. 6 Q. Now, you mentioned that there were some decisions which 7 were overruled by Germany. Is there anything in 8 particular you are referring to there? 9 A. There was one decision. I was made aware yesterday, 10 just before I left, in fact, of a draft letter which was 11 never sent. I do have a copy with me. I managed to go 12 to my store box and find it, and I took a copy and I've 13 got that with me, if you would like to see it. 14 It basically confirms a discussion I had with 15 Willie Gallagher. Most of the correspondence that 16 I have generated both in email and hard copy is 17 confirmation of discussions for the record. 18 It confirms a conversation I had with 19 Willie Gallagher, and my Chief Executive felt that it 20 was overstepping the mark if I actually sent it in 21 writing, because it was calling into question answers 22 that I'd been given verbally. So it was never sent. 23 Q. Who was this draft letter from and who was it to? 24 A. It was from myself and Michael Flynn, who was my 25 opposite number in Siemens. And it was to 5 1 Willie Gallagher. 2 Q. I think what we should do, Mr Walker, we haven't seen 3 this before, so I think we should deal with this in the 4 morning break. We can make copies and circulate it and 5 what have you, and maybe come back to it after that, 6 once we've all seen it. 7 But perhaps just briefly, what was the subject 8 matter of the letter? 9 A. It was asking for confirmation -- well, it was 10 confirming the conversation I'd had with Mr Gallagher, 11 where I asked for confirmation that City of Edinburgh 12 Council were aware of the nature of the contract and 13 that it was likely to increase significantly in cost and 14 time, once we had signed it. 15 Q. Finally, at this stage, can I just ask you, what was the 16 date of the letter? 17 A. May I refer to it? I have a copy with me. 18 Q. Please do, and we can then circulate it after the break. 19 A. 22 April 2008. 20 Q. Thank you. I think that's all I should ask about this 21 at this stage until everyone can see a copy. I should 22 just say the Inquiry has not seen a copy yet either. 23 So put that to one side for just now and come back 24 to it later. 25 Sticking please, going back to the relationship 6 1 between Bilfinger UK and Bilfinger Germany, to what 2 extent did Bilfinger Germany require to approve 3 important decisions relating to the project, including 4 a decision to bid for the project and also a decision to 5 enter into the contract? 6 A. Germany gave approval to -- to bid, and Germany gave 7 approval to sign. 8 Q. Also in this matter, did Bilfinger Germany review the 9 risks arising from the project and whether those risks 10 were acceptable to Bilfinger? 11 A. Many times. I can expand if you wish. 12 Q. Yes, please. 13 A. Bilfinger Germany actually sent in a team which they 14 drew from projects around the world -- we called them 15 the red team -- to completely go through and evaluate 16 the whole of the contract, both in terms of the 17 conditions of contract, the risk balance, and the 18 pricing that we were able to do. 19 Q. Was that before contract close? 20 A. Yes. 21 Q. Thank you. Then finally on this point, we know of 22 course that a dispute arose after the contract was 23 entered into. What extent, if at all, did Bilfinger 24 Germany review and approve the strategy adopted by the 25 consortium in the dispute? 7 1 A. As I said earlier, Mr Mackenzie, I was across there 2 twice a month, and giving them breakdown and analysis of 3 what was going on, and they approved of everything. 4 Q. Thank you. 5 Now, I would like to move on, please, to the 6 procurement exercise for the Infraco contract. Just 7 standing back and by way of overview, can you help us 8 with to what extent was the procurement exercise for the 9 tram project similar to other procurement exercises 10 you've been involved in, and to what extent was it 11 different? 12 A. It wasn't really similar at all to anything that I had 13 come across in that time. 14 We were -- we pre-qualified for the project. It was 15 of interest. We were asked to -- an invitation to 16 negotiate. Conditions laid out in that invitation, 17 right at the start, were not acceptable to us, 18 and I actually had a discussion with tie's Project 19 Director at the time, which was Andie Harper, I think at 20 the time. And the conversation went something 21 like: Andie, there are certain terms and conditions in 22 this which we can't comply with; and the response 23 was: well, it's an invitation to negotiate, so let's 24 negotiate about them. And I said: but there are -- 25 I think the number was 30 mandatory tie clauses; and his 8 1 response was: you have to comply with those. 2 And I said: but there are at least five of those that we 3 cannot and will not accept. 4 So to cut a long story short, I said: would you like 5 me to destroy the tender documents or return them to 6 you? And he said: can you come and see us and talk to 7 us. And we came up, I think, somewhere around about 8 12 October and we set off on a lengthy, difficult and 9 very trying negotiation to try and get agreement such 10 that we could enter into a contract. 11 Q. When you refer to the lengthy, difficult and very trying 12 negotiation, et cetera, are you referring really to the 13 whole period up to the contract close in May 2008? 14 A. Yes. 15 Q. Thank you. I would like to go back to your statement, 16 please, at page 5. Towards the top of the page, this in 17 fact does relate to events around October 2006 you've 18 just referred to. At the top of page 5, you say: 19 "No contractor would accept it. A fixed price (with 20 full risk transfer) contract was wholly unsuitable for 21 the purposes of this project given the uncertainty 22 surrounding some of the key aspects of the project, such 23 as design and obvious delays in utility diversion. 24 I could not understand the motivation to attempt to let 25 a project of that nature on such an inappropriate form 9 1 of contract. After 30 years of experience of working in 2 an urban environment I knew that it was extremely 3 difficult and needed a flexible approach." 4 Is there anything else you would like to add to that 5 or is that fairly self-explanatory? 6 A. It's fairly self-explanatory, but what I would add is 7 that utility contractors -- utility companies are 8 generally a law unto themselves. They don't keep 9 accurate records of what is in the ground. They don't 10 all go in the same trench. And in addition to that, in 11 an ancient city such as Edinburgh, there is often 12 infrastructure built on top of infrastructure and built 13 on top of infrastructure. 14 To that I would evidence the cemetery site that we 15 came across, the underground toilets that we came 16 across, that did not appear anywhere on any drawings; 17 and the plethora of unchartered utilities in the ground, 18 which is what caused a lot of the disruption, I'm sure, 19 to the MUDFA contractor. 20 Q. Now, you say in this paragraph that: 21 "A fixed price ... contract was wholly unsuitable 22 for ... this project given the uncertainty surrounding 23 some of the key aspects ... such as design and obvious 24 delays in utility diversion." 25 I just wondered, do you consider that a fixed price 10 1 contract would have been achievable if design and 2 utility diversions had been complete before the Infraco 3 contract award? 4 A. Pretty much, yes. 5 Q. Sticking with your statement, can we go on to 6 paragraph 10, please, which we'll find at pages 6 and 7. 7 Paragraph 10 starts by referring to: 8 "In January 2007 tie issued a Supplemental 9 Instructions to Tenderers document ..." 10 A few lines down, the document set out that: 11 "During the period between 12 January and 12 16 April 2007 it was intended that Tenderers would be 13 provided with further information including updated 14 Employer's Requirements, significant development to the 15 Preliminary Design (including surveys) carrying price or 16 risk implications, updated traffic modelling, current 17 programme for the MUDFA works and detailed design for 18 key structures ..." 19 If we can go to page 7, please, over the page, at 20 the end of the paragraph you say, in the last sentence: 21 "When I first received the Supplemental Instructions 22 to Tenderers document in January 2007, I knew then that 23 it would still drift and there was not a hope in hell of 24 it working." 25 Now, why were you of that view at that time? 11 1 A. There was absolutely insufficient information. The 2 first part of the paragraph talks about detailed design 3 on structures. There was none. In fact, even at, 4 I believe, the final signing of the contract, there was 5 not one drawing issued for construction. The final 6 design was not even there then. 7 So at this period it was just awash with unknowns, 8 unfathomable pieces of information which couldn't be -- 9 couldn't be effectively strung together to form 10 a coherent set of guidelines for which we could price 11 against. 12 Q. Was there ever a time when you were of the view that 13 tie's procurement programme was realistic and 14 achievable? 15 A. No. 16 Q. Did you make tie aware of that view? 17 A. Yes, many times. 18 Q. So who in tie was made aware of that, approximately when 19 and how? 20 A. I would suggest it was verbally done generally, although 21 I think there might be reference at one stage to putting 22 the whole thing on hold for a year while the design and 23 the utilities were sorted out. 24 The people I was dealing with were Geoff Gilbert, 25 Bob Dawson, and either Andie Harper or Matthew Crosse. 12 1 Probably both of them. 2 Q. Are you able to help us with approximately when this 3 would have happened? Was this, for example, in late 4 2006, during 2007, even into early 2008 or what? 5 A. I think it started back end of 2006 when they -- they 6 said they were going to release supplementary 7 information, which is indicated here, and the date for 8 return of the tenders wasn't altered. 9 Q. What was the tie response to that suggestion that the 10 procurement programme was unrealistic? 11 A. Pretty much the response that we had all the way 12 through, which was bullying and cajoling for us to 13 perform. 14 Q. Now, I'm not going to take you to it today, we went 15 through it with Mr McFadzen yesterday. We know that in 16 January 2007 the consortium put in proposals and 17 a Schedule of Clarifications. We know that in May 2007 18 the consortium submitted consolidated proposals. 19 I would like then to go, please, to June 2007, and 20 in paragraph 12 of your statement at page 7, towards the 21 bottom, paragraph 12, there's reference to an email 22 exchange of June 2007 between Geoff Gilbert and 23 yourself. 24 This noted that you had some concerns over the 25 standard of drawing information provided. In your 13 1 statement, you say: 2 "This was an issue due to the information being 3 lacking and incomplete, and the scope continually 4 altering. These matters were never fully resolved. The 5 design around that time was abysmal. I thought the 6 designer, Parsons Brinckerhoff, were treating the whole 7 thing as a training exercise for graduates, not as 8 a project which would actually be constructed. By this 9 I mean that I suspected that the SDS thought that the 10 requisite funding would never be made available and 11 therefore that their design would never have to be 12 used." 13 So when you say that in June 2007 you considered the 14 design was abysmal, did your view on the design and the 15 performance of the designer change at any time in the 16 project? 17 A. Possibly towards the -- 2011, back end of 2010, maybe, 18 but not up until then. 19 Q. So even after novation of the SDS contract, the 20 consortium in May 2008, is it your position even after 21 that novation you still had concerns about the 22 performance of the designer? 23 A. We did. 24 Q. And can you explain what those concerns were? 25 A. The price for the design was set for us. A designer 14 1 works on hours, man hours. He's paid a rate per hour 2 for the man hours he puts in. And I felt that he was 3 controlling his resource so that he didn't run out of 4 budget. 5 So there was insufficient resource dedicated to the 6 design to get it out in time. 7 In terms of -- if I may explain why I said it was 8 abysmal, most typical projects that I've been involved 9 with, if you have a number of bridges, for example, they 10 follow a pattern. There is a suite of bridges, all the 11 same, all the same design, all the same to look at, 12 because it makes it easier to build. One can re-use the 13 temporary materials. One's workforce becomes familiar 14 with the actual construction involved. The second one 15 is more efficient than the first one. The third one is 16 more efficient than the second one and so on, and you 17 get into a rhythm. 18 Every single bridge on this was different. It had 19 been done by a different person, in my opinion, and some 20 of them -- I particularly remember one on section 1b 21 were -- it just -- the design would not have worked. 22 Q. Now, we've heard from design witnesses that they 23 considered they experienced a number of problems in 24 trying to produce the design, including constant 25 changes. I think it was referred to as design 15 1 auctioneering. Also, a lack of clear instructions in 2 certain key locations, for example, Picardy Place, there 3 were others. And also, I think, certainly in relation 4 to highways design, again, constant changes from the 5 Council and too many comments, a plethora of comments. 6 Do you have any comments on these points and whether 7 they could in any way explain your views on design and 8 the performance of the designer? 9 A. Well, I understood the design through the 10 pre-qualification process and the early part of the 11 tendering process would be 100 per cent complete and 12 delivered by the time we got to contract award. And it 13 wasn't. We probably had about 60 per cent of the design 14 done, and that is not to say complete, because there 15 were no issued for construction drawings. It's not 16 complete until it's actually issued for construction, 17 and we could then take it and go and build. 18 It was 40 per cent possibly not even commenced. We 19 saw no sign of it. And this was absolutely contrary to 20 what we were led to believe. 21 So the design had been struggling from way before 22 I -- I ever became aware of this project. 23 Q. I understand that. What I understand the designers have 24 told us is that in between approximately June 2006 and 25 approximately June 2007, they were unable to 16 1 meaningfully progress detailed design because of the 2 reasons I have indicated. Were you aware of that? 3 A. No. We were not introduced to the designers until 4 possibly even 2008, before we ever met them. We were 5 kept well away from the design team by tie. 6 Q. Did you want access to the design team? 7 A. Yes, absolutely. 8 Q. Did you say that to tie? 9 A. Yes. 10 Q. Who to? 11 A. Did I say it personally to tie? No, I don't recall, but 12 I -- knowing Mr McFadzen, who was on yesterday 13 reasonably well, having worked with him on a number of 14 projects in the past and since, then I firmly believe 15 that he would have done the asking on a regular basis. 16 Q. Why did the consortium want access to the designer at 17 that stage? 18 A. Because the client wanted a price that we could stand 19 by. If you can't see something, it's very difficult to 20 put a price on it. 21 Q. Thank you. I would like to move on, please, to 22 paragraph 17 of your statement, to page 10. This 23 alludes, I think, to something you've mentioned earlier 24 this morning. 25 In paragraph 17 it refers to: 17 1 "On 20 September 2007 Parsons Brinckerhoff gave 2 a presentation to both Infraco bidders ..." 3 You then go on to say: 4 "I can recall this presentation was given by 5 Steve Reynolds ... and my recollection is that we were 6 dismayed that the evident progress of the design was 7 even further behind than we had been given to believe. 8 Around that time is when I voiced my view that the 9 tendering process should be put on hold for a year to 10 allow the design and the MUDFA contract to be progressed 11 to a suitable condition at the time of the Infraco 12 bidders due diligence and at the time of contract 13 close." 14 To whom in tie did you say that? 15 A. It would be -- I'm not quite sure in my mind when 16 Andrew Harper moved on and Matthew Crosse came in, but 17 it would have been to the incumbent Project Director. 18 Q. I think Mr Harper finished in December 2006. And 19 Mr Crosse -- 20 A. So it would be Matthew Crosse then. And may I just 21 point out that the presentation was a presentation. It 22 was one way. We were not given access to the designer. 23 Q. Now, what was Mr Crosse's response to your suggestion 24 that the tendering process should be put on hold for 25 a year? 18 1 A. That tie had various mitigation plans which they were 2 putting in place, and would speed up the design so that 3 we would have it. 4 Q. What did you understand those mitigation plans to be? 5 A. I didn't. 6 Q. Was it ever explained to you? 7 A. No. 8 Q. Now -- 9 CHAIR OF THE INQUIRY: Could I ask, you said the 10 presentation was one way, and you weren't given access. 11 Was the designer there, giving the presentation to you? 12 A. It was given by Steve Reynolds in the form of 13 a PowerPoint presentation, my Lord. After the 14 presentation I think we were allowed to ask one or two 15 questions, but then the designer was taken away. We 16 weren't allowed to take him to one side for a number of 17 days to actually try and get a greater understanding of 18 his thought process and where he was coming from. 19 CHAIR OF THE INQUIRY: Was this a joint presentation to 20 Scoop and Roley, or was it -- 21 A. I believe it was. 22 CHAIR OF THE INQUIRY: So by that time -- 23 A. I couldn't -- please don't hold me to that, but 24 I believe it was. 25 CHAIR OF THE INQUIRY: By that time, if it was joint, you 19 1 would then discover the identity of your competitor? 2 A. We knew who our competitor was. 3 CHAIR OF THE INQUIRY: Thank you. 4 A. It's the nature of the industry, my Lord. 5 MR MACKENZIE: Thank you. 6 Just continuing with the chronology, we heard 7 yesterday that I think Bilfinger put in a further price 8 and Schedule of Clarifications in August 2007. And that 9 the consortium were appointed preferred bidder in 10 October 2007. 11 I would like to go back to your statement, please, 12 at paragraph 20, which we'll find at paragraph 11. In 13 paragraph 20 we see reference to the preferred bidder 14 agreement. 15 Then at the bottom of the page: 16 "The relevance of the 218.5 million sum noted in 17 clause 4.3.1, I felt, was a financial gateway that I had 18 been told to get to, or had to offer to get to. The 19 reality appeared to be that tie had a top price, which 20 I understood as a 'gateway' and was referred to as the 21 'business case', which the price had to be under in 22 order to be approved by the Council. tie was trying to 23 manipulate the numbers to get the price through this 24 'gateway'. tie did not disclose to BBS what this figure 25 was. We were simply aware that they were under pressure 20 1 to get the number below a set figure in order for this 2 'business case' to be approved by the Council. This was 3 apparent both at tender stage and during the subsequent 4 contractual negotiations." 5 Now, why was that apparent at both the tender stage 6 and during the subsequent negotiations? 7 A. Well, in a normal tendering process, the contractor's 8 tendering will submit a price. 9 They may then be asked to submit a best and final 10 offer, which is usually a case of one going back to 11 one's Board and looking for a commercial judgement, 12 depending on the appetite that the company has to win 13 the job, and give some measure of discount. 14 Here we were continually being told what figure we 15 had to reach. It was tie trying to set the price, 16 rather than us telling them how much we believed it 17 would cost. 18 Q. Was that unusual in your experience? 19 A. Yes. 20 Q. Being told of the figure you had to reach? 21 A. Yes, Mr Mackenzie. 22 Q. Presumably in other projects clients must have budgets 23 and they required the price to be within the budget. So 24 why was it unusual here to be told of the figure you're 25 required to reach? 21 1 A. Possibly because the budget that it would appear that 2 tie had was not sufficient to actually undertake the 3 works. 4 Q. Can you remember any particular discussions or 5 correspondence to that effect, saying that there is 6 a figure we have to get under? 7 A. No, they didn't say that at all. That is my 8 supposition. What we did have, we were presented at 9 regular meetings with -- let's call it a budget sheet, 10 where we had various prices that we'd put in for things, 11 and a figure which they called normalisation, which was, 12 I assume was their comparator to make the -- the 13 respective bids equal. 14 Every time we went back and looked at something and 15 tried to come up with a more economical solution, the 16 price went down and the normalisation figure went up. 17 So we were still in the same position and there was more 18 pressure to us to reduce something else, and we had no 19 idea how this normalisation was calculated. It was 20 a moveable feast. And it was just there as a tool to -- 21 to try and get us to reduce the price in my belief. 22 Q. What do you mean by when the price went down, the 23 normalisation figure went up? I'm a little unclear as 24 to what exactly the normalisation figure is. 25 A. If I can use an analogy, if we said that our price was 22 1 GBP10, they would add normalisation of GBP2 for that, 2 giving an outturn figure of GBP12. We would then 3 say: we'll take GBP1 off to make it more amenable to 4 you. So our figure would be GBP9. Normalisation would 5 suddenly go up to GBP3. So the end figure remained more 6 or less the same. 7 Q. Did tie ever explain to you why they were doing that and 8 what this normalisation adjustment was? 9 A. No. 10 Q. Now, you say in your statement: 11 "tie was trying to manipulate the numbers to get the 12 price through this 'gateway'." 13 Why do you use the word "manipulate"? 14 A. Because of the way that this figure of normalisation was 15 adjusted. It was purely -- in my view, a manipulation 16 to get our price down. 17 Whether the normalisation was real or not, I don't 18 know. I don't know to this day. 19 Q. Thank you. I would like now to move to events -- 20 CHAIR OF THE INQUIRY: Before that, if you look at the next 21 sentence, you say: 22 "tie would tell us how much we needed to take off 23 the price to put us back in poll position to be awarded 24 the contract." 25 Then you say you assume a similar exercise was done 23 1 with the competitors. Had you ever been in a situation 2 like that before, where the client was giving you 3 information that would put you back in poll position? 4 A. No, my Lord. 5 CHAIR OF THE INQUIRY: Did you consider it was appropriate 6 in a procurement exercise? 7 A. Not appropriate really, no, my Lord. 8 CHAIR OF THE INQUIRY: Why not? 9 A. Because it is the client trying to tell us, and 10 essentially reducing -- what's the right word -- giving 11 out potential confidential information as to what the 12 other bidder's price was. It's -- it's not 13 a professional way of working, in my view. 14 MR MACKENZIE: Thank you. I would like to move to 15 a document now, please, which will come up on the 16 screen. CEC01328042. It's minutes of a meeting on 17 27 November 2007. We can see that from the top of the 18 page. We can also see from those listed in attendance 19 that you appear to have been at this meeting. 20 Can we then please go to page 2. Under item 4, 21 "Pricing Priorities", we see the first bullet point: 22 "Geoff Gilbert and Matthew Crosse echoed 23 Willie Gallagher's earlier concerns and need to firm up 24 on prices to take confidence level to the high 25 90 per cent. tie has yet to receive comments on the 24 1 repricing dates schedule." 2 The next bullet point: 3 "BBS were uncertain if the information was 4 sufficiently complete enough to achieve firm prices." 5 Sub-bullet point: 6 "BBS considered that Phase 1B was the most complete, 7 followed by the Airport to Haymarket section for 1A. 8 They are still doubtful over the street section of 1A." 9 Do you recollect this meeting or discussion? 10 A. Not in particular, Mr Mackenzie, no. 11 Q. Does what is set out seem familiar in terms of, on the 12 one hand, tie pressing for the firming up of prices and 13 to a confidence level of the high 90 per cent, and yet 14 on the other hand the consortium, on the face of it, 15 being reluctant to do so? 16 A. Very much so, yes. 17 Q. Is this perhaps -- is it fair to say that this minute 18 indicates, perhaps, two opposing views? 19 A. Fair deduction, yes. 20 Q. Again, correct me if I am wrong, but on the face of it 21 it's not obvious that these two contrary positions are 22 going to be able to be bridged. Did that happen? 23 A. Well, to try and get some agreement, what I did was to 24 try to the best of my abilities to make sure that risk 25 which the contractor was not willing or able to take was 25 1 borne by tie. So therefore, on the risk that the 2 contractor could take, on the design that the contractor 3 did have, we could actually firm up the price for those 4 parts. 5 So we could say for the drawings available in this 6 section, yes, we're 90 per cent certain. For this 7 section, you have to take the risk. 8 Q. What I would now like to do, we've heard about a meeting 9 in Wiesbaden. I would like firstly to look at some of 10 the correspondence in the lead-up to that meeting, 11 before going to the meeting itself. The first document 12 in the lead-up is CEC01494152. 13 The bottom of the page, we see an email from 14 Scott McFadzen dated 10 December 2007 to Geoff Gilbert, 15 copied in to yourself and Mr Flynn of Siemens, and 16 Scott McFadzen says: 17 "Geoff, the responses, and they are not what you 18 want to hear, are in your text below." 19 Then go over the page, please. We can see this is 20 an email from Geoff Gilbert dated 7 December 2007 to 21 Scott McFadzen and others, subject of updated pricing. 22 I think the bold text represents Mr McFadzen's comments. 23 So, for example, under "Selected structures", we can see 24 for ourselves what Mr McFadzen says there, including the 25 last sentence: 26 1 "There are more, and more significant differences, 2 between the available information on 7 August and now 3 than I had understood." 4 Then the last sentence, Mr McFadzen states: 5 "The whole concept of re-pricing on the basis of 6 these measurement issues, is not working. We need to 7 discuss this ASAP." 8 Can you recall this correspondence at the time? 9 A. I can certainly recall the nature of the correspondence. 10 Can I recall that particular email? No. It's -- my 11 apologies. It's ten years ago and there were hundreds 12 of them. But the theme of it, yes, I can recall. 13 Q. And then back to page 1, please. At the top of the 14 page, an email from Geoff Gilbert dated 15 10 December 2007, back to Scott McFadzen, copied in to 16 others, including yourself. 17 We can see for ourselves what is said in the first 18 two -- few sentences. Halfway down, in the first 19 paragraph, Mr Gilbert says: 20 "Unless I have radically misunderstood we will not 21 be able to achieve any of this and will get nothing of 22 any significance tonight or in the near future." 23 It's that phrase there, "we ... will get nothing of 24 any significance tonight or in the near future", was 25 that correct? 27 1 A. Yes. 2 Q. Why? 3 A. For the reasons that Scott has put in the bold print 4 down below, that it is not simply a re-measurement 5 exercise. There are principles which have changed. And 6 it needs, for example, something sitting on the ground 7 going to something that is piled into the ground. It 8 needs a complete -- needed a complete re-pricing 9 exercise, which is not something one can undertake in 10 a couple of weeks on a project of this scale. 11 Q. The next document is CEC01481843. This is a letter from 12 Willie Gallagher to yourself, dated 11 December 2007. 13 Can we see in the first paragraph, please, Mr Gallagher 14 says: 15 "Your news today that BBS are unable to achieve the 16 pricing objectives we set you is extremely 17 disappointing." 18 Now, that suggests that you had had some 19 conversation perhaps or email before this letter. Do 20 you remember that? 21 A. We were asked to produce new pricing in time to -- for 22 tie to make a presentation to CEC by, I think, the date 23 which was at 20 December, the date that was in the 24 previous email. There was pressure on us. We went 25 away, used our best endeavours to look at and comply 28 1 with what they required. We realised that we couldn't 2 without taking a huge unquantifiable risk, which we 3 weren't minded to do, and so we wrote to them and told 4 them. 5 Q. When you say you wrote to them and told them, was there 6 a letter, do you remember, before this letter or -- 7 A. No. No, Scott's -- when we wrote and told them, Scott's 8 response to Geoff Gilbert. 9 Q. The email we looked at? 10 A. Yes. 11 Q. Reading on with Mr Gallagher's letter, we see halfway 12 down: 13 "Our visit to Germany on Thursday is focused on 14 cementing the final deal and particularly finalising the 15 price." 16 Then: 17 "Unless you are able to confirm that, by the end of 18 Thursday's meeting, we will have been able to consider 19 and agreed the following items then I must state that 20 tie will not attend and we will need to revisit the 21 entire preferred bidder programme." 22 The first item is price confidence: 23 "We ask you to consider fixing your price, save for 24 a very few notable exceptions where, for example, the 25 design itself is absent." 29 1 And then 2: 2 "Price level: we ask that, having been through the 3 value engineering exercise including the targets agreed 4 at preferred bidder date - your price level and VE 5 savings are confirmed at a level that enables our 6 project business case target to be met." 7 We can read the other parts of the letter for 8 ourselves. 9 I would like please then to go on to your response 10 to this letter. If we could bring it up, it's 11 CEC00547788. We can see this is a letter dated 12 12 December 2007, which I think is a Wednesday, 13 addressed to tie, and in particular Mr Gallagher. 14 Go to the bottom of the page. You will see it's 15 from yourself, Mr Walker. 16 Then back towards the top of the page, we see under 17 1, "Price Confidence: 18 We have considered fixing our price on the 19 information provided and believe that we are able to do 20 this in all areas where the design is available. See 21 attached schedule." 22 Then we also see in the second last paragraph 23 a reference to assumptions which are attached as well. 24 Then please go over the page to stage 2 -- 25 A. Excuse me a second. Where is the bit about assumptions? 30 1 Paragraph 3? 2 Q. No, I'm so sorry. The first thing I looked at was in 3 paragraph 1, Price Confidence? 4 A. Yes. Yes. 5 Q. See attached schedule, which we'll go to. Then in the 6 second last paragraph: 7 "We therefore believe that with the due cognisance 8 of our assumptions (see attached)." 9 And I'll come back to that in a second. 10 Over the page at page 2, please, look firstly at the 11 schedule referred to. We see "Updated Schedule of 12 Clarifications", and then: 13 "Items marked 'provisional' in our August 14 Submission." 15 In short, we can see the price can be fixed by 16 adding certain sums totalling 8.12 million. 17 Are you able to explain what you meant by that? 18 A. They were areas where we had some design information 19 which we now had at that time, which was different from 20 the original price. We had analysed that during the 21 preceding weeks and come up with those figures, 22 and I maintain to date that where we had information, we 23 were able to quantify the risk and work out the actual 24 price and give them a firm price. 25 The difficulty we had is 40 per cent of the project 31 1 we had no information on. No drawings. 2 Q. Thank you. Then over the page we'll see the 3 assumptions. We can see under "Assumptions": 4 "In respect of our pricing and programming certainty 5 exercise we have made the following assumptions." 6 They're broken down into two parts, into design and 7 general. 8 Now, I read them out yesterday, so I'm not going to 9 do it today, but just take a minute yourself, if you 10 would, to read both the design and general assumptions. 11 A. Okay. 12 Q. Now, at the top, under "Design", where it states: 13 "In those locations where the design is absent, we 14 are not able to fix our price. Typically these 15 include: Picardy Place, St Andrew Square, London Road, 16 York Place, Forth Ports Area, etc." 17 Does that mean those areas must remain as 18 provisional sums? 19 A. No, I believe those areas we probably hadn't priced at 20 all. 21 Q. When we come -- 22 A. I can't be quite certain on it. It's -- certainly they 23 would not -- they were not fixed, as it says there, and 24 that is a substantial portion of the on-street works. 25 Q. In the next paragraph reference to: 32 1 "In areas where design is partial we have made 2 reasonable assumptions based upon our experience and the 3 existing design information provided." 4 For those areas where design is partial, was the 5 price fixed or not? 6 A. It was fixed in terms of the seven or eight items that 7 we looked at on the previous screen. 8 Q. So that's a reference to the previous page? 9 A. Yes. 10 Q. We then see the sentence: 11 "Notwithstanding material design changes we have 12 a high level of confidence in our pricing, eg Track Slab, 13 Roads and Pavements ..." 14 Now, what was the meaning of that, in particular 15 what if there were material design changes, what effect, 16 if any, would that have on the price? 17 A. A huge effect. There's material changes that changes 18 the whole pricing structure. I mean, if I can expand, 19 a typical one is that we priced a lot of the on-street 20 works for just planing the original surface of the road 21 and putting it back again. So taking off the top 22 40 millimetres and putting a new wearing course down, 23 rather than digging it out to 2 foot down and building 24 up a road structure. 25 So if it changed from one to the other, there was 33 1 a huge price difference: an increase if it went to 2 2 feet, 600 millimetres deep; a reduction if it came 3 from 600 millimetres deep to only 40 millimetres. 4 Q. And the consortium had planed -- it priced on the former 5 model, planing? 6 A. Planing, yes. 7 Q. I would like to move on to look at Mr Gallagher's 8 response to this letter. 9 CHAIR OF THE INQUIRY: Before doing that, can we go back to 10 your letter, please, which I think was two documents 11 before. If you could highlight the number 2, price 12 level. You say that you believe that with willingness 13 and co-operation you will be able to achieve the value 14 engineering savings targets agreed at preferred bidding 15 date. Do you know what these were, what sort of figure 16 we're talking about at that stage? 17 A. 17 or 18 million comes to mind, my Lord. 18 CHAIR OF THE INQUIRY: Did you think that was achievable? 19 A. With the co-operation of everybody, and everybody was 20 not just tie and ourselves. It included third parties. 21 A typical one where we could have saved maybe 22 1.5 million on one structure was the curved bridge -- is 23 it at Gogar, the viaduct, which was a seven span 24 structure, and I can remember saying if we can put that 25 down to either a single span or two span across the 34 1 railway and have earthwork embankments running up to it, 2 instead of a very pretty curved seven span structure, we 3 could probably save 1.5 million there. But it required 4 co-operation of the planning authority. It required 5 co-operation of particular landowners and the -- 6 CHAIR OF THE INQUIRY: Yes. That's Edinburgh Park. We 7 heard about that yesterday. 8 Mr McFadzen seemed to have doubts about achieving 9 value engineering savings even of 9 million at one 10 point. He thought these were totally unrealistic. 11 A. Well, the ones when it comes down to the sort of 9, 12 10 million were what was incorporated into the Wiesbaden 13 Agreement. And there were a significant number of those 14 where there was no time allowance for redesign. And 15 that is why, I think, that he believed that they were 16 not achievable. Because to go to a redesign may take 17 several months and in our construction programme the 18 design was already late. 19 CHAIR OF THE INQUIRY: So if it took several months, there 20 would be a delay in your construction programme. 21 A. Which would outweigh the cost of doing it. 22 CHAIR OF THE INQUIRY: And that would add to cost. 23 A. Yes. 24 CHAIR OF THE INQUIRY: So that would affect your net 25 savings, if any, from value engineering. 35 1 A. And more, yes. Yes, my Lord. 2 CHAIR OF THE INQUIRY: So how did you think that value 3 engineering in excess of 10 million could be achieved at 4 this stage, even with the support of everyone else? 5 Would it not still affect your programme? 6 A. At this stage we were five, six months away from -- from 7 getting contract award. We'd maybe had the opportunity, 8 if the willingness was there, to look at some fairly 9 radical things. 10 CHAIR OF THE INQUIRY: Thank you. 11 MR MACKENZIE: Just on that last point, I think we see in 12 the second last paragraph that proposed contract award 13 is 28 January 2008. Does that really leave enough time 14 to get the approval and willingness and consent of the 15 other parties? 16 A. I don't think I ever really believed that January -- 17 28 January 2008 was a realistic timescale for award. 18 Q. I would like to move on, please, to another letter, 19 CEC02086504. This is Mr Gallagher's response to your 20 letter, Mr Walker. We've seen this one is dated 21 13 December 2007. 22 One point, it may be simply a point of detail. 23 I think the meeting in Wiesbaden was due to take place 24 on Thursday, 13 December, and I wondered, was this 25 letter handed over at the meeting? Was it emailed 36 1 before the meeting? Do you remember? 2 A. I believe I got it beforehand. 3 Q. Thank you. 4 Then just looking through the first paragraph, about 5 the middle of the way down, Mr Gallagher says: 6 "This letter is the product of the labours 7 undertaken ... and yet it gives little of the required 8 certainty we are seeking and without which we cannot 9 proceed." 10 Then he says: 11 "In reviewing your response to our 'particular points 12 1 to 5', I have outlined below the form and assurance we 13 require against each. 14 1) Price Confidence - We will fix our price in 15 accordance with the attached schedule." 16 Back to what I think is the schedule. And then: 17 "2) Price Level - We confirm that we will be able 18 to achieve the VE savings targets as agreed at the 19 preferred bidder date." 20 We can read the other points for ourselves. 21 Then go over the page, please, to page 2. We can 22 see in the second last line, again reference to: 23 "… completion of the attached schedule of prices, by 24 tomorrow, 14 December." 25 Then please go to another document which we think 37 1 was attached to this letter. It's CEC02086506. We can 2 see from the very top of the page, it states: 3 "We have modified your assumptions to a form which 4 we believe is required." 5 Then under "Design", we can see most of what the 6 consortium had put in the design assumptions we looked 7 at earlier has been removed and replaced by this 8 sentence: 9 "See attached file 'AnticipatedPrice.xls'." 10 And then the next sentence remains from having been 11 the consortium's assumptions, and then there's 12 a completely new paragraph in relation to value 13 engineering which states: 14 "It is accepted by tie, Bilfinger Berger and Siemens 15 that there is a joint responsibility to delivering the 16 VE target of GBP22 million and that each must assist 17 fully in the process and recognise that each bears an 18 equal share of any shortfall accruing." 19 On that last point, that each bears an equal share 20 of any shortfall accruing, was that ever agreed by the 21 consortium? 22 A. No. Not in the final contract. This is on the 23 negotiating process as we go through. 24 Q. Was it ever agreed before the final contract? 25 A. No. 38 1 Q. What was your -- 2 A. May I -- 3 Q. Please. 4 A. -- interject for a second. In a normal construction 5 tendering process, if there is value engineering, the 6 contractor would normally benefit by, say, 50 per cent, 7 maybe only 40, maybe 60 on some occasions, and the 8 client would also benefit by 50 per cent. 9 In this particular instance tie wanted 100 per cent 10 of the savings. 11 CHAIR OF THE INQUIRY: Yes. We heard that yesterday, that 12 you would expect to share the -- there would be an 13 incentive to the contractor. 14 A. That's right. 15 CHAIR OF THE INQUIRY: In terms of a percentage, but 16 I understand from Mr McFadzen yesterday that that was 17 not the position. All the saving was going to the 18 client. 19 A. That's correct, my Lord, yes. 20 MR MACKENZIE: Can you remember, Mr Walker, what your 21 reaction was on receiving this and to see all of the 22 consortium's design assumptions having been deleted and 23 largely replaced with this statement: 24 "See attached file 'AnticipatedPrice.xls'." 25 A. Essentially I felt it was a bullying tactic. I was 39 1 under the threat of having to report to Mr Enenkel who 2 was my Chief Executive of civil engineering in Germany 3 that we'd been -- we'd had a preferred bidder position 4 and we'd lost it. 5 He had copies pretty much immediately that they 6 landed on my desk across to him of this level of 7 correspondence. I felt it was completely out of order 8 to receive threats putting not just words in our mouths, 9 but trying to get us to put words on paper. Obviously 10 we didn't want the meeting cancelled. We didn't want to 11 lose preferred bidder status. We wanted Mr Gallagher to 12 go across to Germany and meet with our principals, both 13 Siemens and Bilfingers. 14 So there was a measure of trying to protect that 15 position that at least enabled the meeting to take 16 place. But this is -- to see it now is infuriating in 17 the extreme, the level of bullying and personal stress 18 that this kind of thing caused at the time. 19 Q. When you talk about essentially bullying, was that 20 a general approach on behalf of tie or are you talking 21 about particular individuals? 22 A. A general approach. 23 Q. I would also like to go to what we think is the schedule 24 referred to in the letter, CEC02086505. Now, it's 25 a spreadsheet. It's not entirely easy to read, but 40 1 I think if we look at the left-hand column, we can see 2 the words, if we can blow them up, in rows 4, 5 and 6, 3 we see the words "base", "firm", and provisional"? Do 4 you see that? 5 A. Yes. 6 Q. Then if we just scroll to the right, we can see the 7 headings to the different columns which then end up in 8 the very far right with a total column, and we can see 9 three figures, including the figure of GBP208,700,342. 10 Mr McFadzen told us yesterday he thought that may 11 have been the price in the preferred bidder agreement. 12 Do you have any views on that? 13 A. I can't -- I cannot recall, Mr Mackenzie, if that was 14 the price in the preferred bidder agreement or not. The 15 price is familiar to me, but at what stage it came in, 16 I'm not -- 17 Q. Then if we go back to the left-hand side of the page, 18 please. We can see the next sub-heading is 19 "Normalisation". We can see then "Firm" and then 20 a reference in rows 14 and 15 to "Move item from 21 provisional below". 22 If we then scroll to the far right of the screen 23 again, please, we can see three zeros in the total 24 column. So we then scroll back to the left-hand side of 25 the page, please. So there seems to have been, on the 41 1 face of it, some hope or anticipation by tie that items 2 under the "Provisional" column can be moved up to be 3 firm on the face of it. 4 Then just -- we can then see the "Provisional" 5 sub-heading. We can just scroll down through that. 6 Then we see a subtotal, provisional normalisation. If 7 we carry on scrolling down, we then see value 8 engineering, a reference to firm, subtotal for firm 9 value engineering. 10 If we carry on scrolling, I think we'll see 11 "provisional", which I think means provisional value 12 engineering. If we then go to the very bottom line, 13 please, we can see in red "total anticipated value", and 14 then scroll to the right of the screen, please, we see 15 the figure in red GBP203,664,794. 16 Does this schedule look familiar to you at all? 17 A. Not particularly, I'm afraid. Not the bottom half of 18 it. 19 Q. Do you understand, just from that brief overview of the 20 schedule, what the process was that tie -- what it was 21 that tie were trying to achieve? 22 A. It looks to me as though they were trying to take the 23 provisional sums and to spread them into areas of the 24 job. They're still provisional. Provisional sum means 25 it isn't fixed. They know there will be some cost to be 42 1 incurred. They don't know the answer. And it's a sum 2 of money that they take a view on and put in their 3 budget such that if and when it occurs, it can be 4 expended. If it doesn't occur, it won't be expended. 5 So we as a contractor wouldn't get it unless we did 6 that particular element of work. 7 Q. Do you recall whether there was discussion at the 8 meeting at Wiesbaden either about the schedule or in 9 relation to the question of provisional sums and value 10 engineering sums? 11 A. Certainly there was value engineering, and I think to 12 the best of my recollection provisional sums as well, 13 yes. 14 Q. Thank you. 15 If I could then please turn to the meeting at 16 Wiesbaden we've heard about, and we think it took place 17 on Thursday, 13 December and Friday, 14 December 2007. 18 Does that sound right? 19 A. Yes, certainly the back end of that week. 20 Q. Do you have a clear recollection of the meeting? 21 A. Pretty reasonably clear, yes. 22 Q. So firstly, what was the purpose of the meeting? 23 A. The purpose of the meeting was to try and get agreement 24 between the organisation principals, which was 25 Willie Gallagher, Joachim Enenkel for Bilfinger, and 43 1 Stefan Hofsaess, I believe, as the representative for 2 Siemens, to try and cut through some of the difficulties 3 that myself and Michael Flynn were having over in the -- 4 here in the UK, to try and get a measure of confidence 5 with tie, or such that tie had that they felt they 6 needn't withdraw us from preferred bidder. 7 Q. Who suggested the meeting? 8 A. I can't answer you, I'm afraid. I don't know. It would 9 have been either Mr Gallagher or Mr Enenkel. 10 Q. Do you remember whether you briefed Dr Enenkel before 11 the meeting? 12 A. I did. It's Mr Enenkel. He's not a doctor. 13 Dr Keysberg is the doctor of engineering. Yes, I did. 14 Q. What did you brief him? 15 A. Essentially that tie were trying to get us to agree to 16 prices that we probably couldn't and certainly didn't 17 want to accept, price reductions that we didn't want to 18 accept, and to take on risks that we -- I felt we 19 shouldn't accept because they were unquantifiable. And 20 it was one of the mantras of the company is: one shall 21 not take on risk which is unquantifiable. 22 Q. Now, who was present at the meeting? 23 A. Stefan Hofsaess, if I recall the correct name for the 24 Siemens guy. Joachim Enenkel, Willie Gallagher, 25 Matthew Crosse, myself. I think we had a guy called 44 1 Axel Metzger. We may have had a chap called 2 Robert Sheehan who was a Brit, but worked in Wiesbaden. 3 I'm not sure if there was anything else, whether 4 Siemens -- Michael Flynn would have been there from 5 Siemens. I don't think there was anybody else. 6 I did at one stage think, as we discussed right at 7 the beginning, that my lawyer was there, but I've been 8 told by other colleagues that there were no lawyers 9 present. 10 I think Mr Gallagher didn't want lawyers present 11 because he felt they might become entrenched and not 12 enable the principals to cut through. 13 Q. I think we've heard evidence that Bilfinger Germany's 14 contracts lawyer was present. Do you recall that? 15 A. Christian Korf, highly likely. 16 Q. Now, did the meeting take place at Bilfinger Germany's 17 offices in Wiesbaden? 18 A. Yes. 19 Q. Can you remember on the Thursday, was it an all day 20 meeting or did it start, for example, in the 21 afternoon -- 22 A. No, it started in the afternoon, late-ish afternoon, 23 I recall. 24 Q. How long did it last? 25 A. Three, four hours, maybe. Probably 4.00 till 8.00 or 45 1 something like that. 2 Q. On the Thursday? 3 A. Yes. 4 Q. And was the meeting continued again on the Friday? 5 A. It was a different kind of meeting on the Friday. 6 Q. Let's just deal with each in turn, if I may. 7 So on the Thursday what was discussed? 8 A. The value engineering for certain. Likely the 9 provisional sums. Possibly also some of our 10 assumptions. 11 Q. Was anything agreed on the Thursday? 12 A. A number was agreed, yes. 13 Q. What was the number and how was that agreed? 14 A. My recollection is that the three principals left the 15 room and came back some time later, maybe 20 minutes, 16 maybe half an hour, and said: right, this is the number, 17 you guys go away and make it fit into the spreadsheet. 18 CHAIR OF THE INQUIRY: When you say the three principals, 19 who do you mean? 20 A. Mr Enenkel, Mr Hofsaess and Mr Gallagher. 21 CHAIR OF THE INQUIRY: Was Mr Enenkel present throughout the 22 meeting? 23 A. Apart from when the three of them went out of the room, 24 yes. 25 MR MACKENZIE: What was the number? 46 1 A. I can't recall specifically. My main -- if I can just 2 say that my main task, apart from heading up the 3 company, was to agree the terms and conditions of the 4 contract and not so much the actual pricing which was 5 undertaken by estimators and technically by Mr McFadzen. 6 Q. Now, we asked Mr Enenkel yesterday about this meeting, 7 and he has no recollection of that. His position was 8 that essentially he -- I think, firstly, he had very 9 little if any recollection of the meeting at all. His 10 position then was that he is likely to have essentially 11 played a hosting role, but he is unlikely to have been 12 involved in detailed discussions, and he certainly had 13 no recollection of having left the room in this fashion. 14 Do you say he's simply wrong in his recollection? 15 A. His recollection about the detail, one could suggest 16 that he's correct in that because the detail of how that 17 is spread through the sheet we've looked at, he wouldn't 18 have had an interest in. 19 The overall figure, if that's what he said 20 yesterday, then I would have to disagree, I'm afraid. 21 Q. But you're absolutely clear that this is what happened? 22 A. I am. 23 Q. I think you said a reference to: this is the number. 24 Did you say make the figures fit? 25 A. Yes. 47 1 Q. What did you understand was meant by that instruction? 2 A. Well, if one refers to the spreadsheet we've just looked 3 at, it's got a series of categories along the top and 4 a series of items down the side, giving the various 5 cells on the spreadsheet, and to put the overall -- the 6 overall figure we'd got as to break it down into where 7 we thought the most realistic numbers could be, to make 8 the bottom line equal what we'd been told to did -- 9 Q. Did this private meeting, if I can call it that, did 10 that happen towards the end of the meeting on Thursday? 11 A. Yes. 12 Q. And when the three principals came back and said what 13 you've told us, did you have any queries or concerns 14 about that? 15 A. Not that I voiced. We were -- not that I can recollect. 16 We were told what to do by our most senior people in the 17 company. 18 Q. So what time was this private meeting approximately on 19 the Thursday? 20 A. Well, if I'm correct in saying that the meeting went on 21 between 4.00 and 8.00, it was some time, 7.00-ish. 22 Q. Did anything then happen at the meeting after the three 23 principals had come back and said that? 24 A. Not at the meeting, no. It was more or less we decided 25 on the agenda for the next day and how we would try and 48 1 resolve the requirement to do what we'd been told. 2 Q. So was that the first part of the meeting essentially 3 over? 4 A. Yes. 5 Q. So what then happened the next day, on Friday? 6 A. I think -- I can't remember who actually led it, but we 7 split the overall figure into -- or compared what we 8 already had in terms of value engineering and 9 provisional sums and tried to take various proportions 10 of those and apply it to the new figure and come up with 11 new sub-figures that would total what we had been 12 instructed to do. 13 Q. Who was present at the meeting on Friday? The same 14 people as had been present the day before? 15 A. The principals weren't there. It would have been 16 Matthew Crosse, myself, Axel Metzger, Michael Flynn, 17 possibly Christian Korf. I couldn't say. My main 18 recollection is of the Thursday. 19 Q. Was Mr Gallagher present on the Friday? 20 A. Not in the -- in the detail meeting that we -- where we 21 tried to adjust the figures. 22 Q. Now, was anything discussed or agreed on the Thursday or 23 the Friday in relation to design and design risk? 24 A. No, I don't think so. 25 Q. Are you quite sure about that? 49 1 A. I don't believe that we varied from our position that we 2 would not be responsible for unquantifiable risk. In 3 fact I'm certain that we -- we reiterated that. 4 Q. Was any record kept of the discussions on the Thursday 5 or the Friday? 6 A. Not to my knowledge. 7 Q. Why not? 8 A. Hindsight would say that it is not the kind of meeting 9 one keeps a record of. 10 Q. Because ... 11 A. Because of a potential situation such as we're in now. 12 It is fair to say it was a negotiation along the way, 13 some months before the contract was signed. 14 CHAIR OF THE INQUIRY: What do you mean, because of the 15 situation you were in now? 16 A. It's possibly not a totally correct way of arriving at 17 a contract sum, for the principals to go out of the room 18 and come back in and tell the -- the people who work for 19 them what to do. 20 MR MACKENZIE: Now, at the meeting in Wiesbaden do you 21 recall Mr Gallagher saying anything in relation to the 22 price? 23 A. Not specifically. I'm quite sure that he will have 24 continued with his normal rhetoric of trying to get us 25 to reduce the price and take more risk. 50 1 Q. Do you remember him saying anything in relation to 2 Notified Departures at this meeting? 3 A. No. 4 Q. Could I clarify this, please, by going to page 97 of 5 your statement. In paragraph 28 at the bottom you refer 6 to: 7 "This Agreement was discussed in November and 8 December 2007 between me and Geoff Gilbert, tie's 9 Commercial Director. The Agreement was finalised during 10 the meeting in Wiesbaden on 20 December 2007. I recall 11 that during this meeting Willie Gallagher, tie's 12 Chief Executive, and Joachim Enenkel of Bilfinger left 13 the room to discuss the number which had to be inserted 14 into the Agreement as the price, subject to the 15 assumptions and exclusions in the Agreement." 16 So that's consistent with what you've just told us. 17 You then go on to say: 18 "I remember that at this meeting Willie Gallagher 19 said that we all knew that the 'price' wasn't a real 20 number and that as soon as the contract started the 21 price would change because the Notified Departures in 22 Schedule Part 4 would kick in immediately, but that for 23 the purposes of getting the business case approved by 24 the Council, there had to be a lower number in the 25 Agreement." 51 1 So to pause there, what is your position? Did 2 Mr Gallagher say these things at this meeting or not? 3 A. I sit here and I'm not 100 per cent sure that the term 4 "Notified Departures" was in general use by that stage. 5 But in terms of Mr Gallagher saying that: we all know 6 that the price isn't going to be the price and it will 7 go up immediately upon execution of the contract; 8 I definitely remember him saying that. 9 CHAIR OF THE INQUIRY: Did he give an explanation for that? 10 You say "because the Notified Departures in Schedule 11 Part 4 would kick in immediately". Did he say anything 12 to that effect? 13 A. Because of the assumptions and exclusions that we'd put. 14 As I say, my Lord, I'm not -- I am not actually sure 15 when the terminology "Notified Departures" and "Schedule 16 Part 4" actually came about. It developed into that. 17 It was our Pricing Assumptions and exclusions, and at 18 some time that I cannot recollect, it morphed into 19 "Notified Departures " and "Schedule Part 4" as the 20 official mechanism written into the contract. 21 CHAIR OF THE INQUIRY: Can I just clarify, what you're 22 saying is that you said something that you now relate to 23 the Notified Departures and Schedule 4, although that 24 terminology was not in existence at that time? 25 A. It may have been. It may not have been. I'm not sure 52 1 of the date when the terminology became -- but he 2 definitely said that: we all know that the price isn't 3 the price and it's going to go up as soon as we sign the 4 contract. 5 CHAIR OF THE INQUIRY: Because? 6 A. Because the Pricing Assumptions and the exclusions that 7 we had put in our contractor's proposals would come into 8 effect. 9 CHAIR OF THE INQUIRY: Thank you. 10 A. It's just the timing of those particular words that 11 I'm -- now I'm not sitting here, not convinced that they 12 were in use on 14 -- 13 or 14 December 2007. They may 13 have been or they may have come in January-ish, 14 February, but I'm not sure. I apologise. 15 MR MACKENZIE: Mr Walker, what I don't understand is you say 16 that Mr Gallagher definitely said that: we all know that 17 the price wasn't the price and it would increase; but 18 just a few questions back, when I asked you whether 19 Mr Gallagher said anything about the price, you either 20 said no, or you don't recall. 21 A. No, you asked me, Mr Mackenzie, about Notified 22 Departures. And you used that terminology. 23 Q. I think my first question was: did Mr Gallagher say 24 anything in relation to the price? 25 A. My recollection is you said that the price would change 53 1 due to Notified Departures. Not just the price. And 2 it's that term, Notified Departures, that gives me the 3 slight bit of confusion. 4 Q. Well, the transcript -- 5 A. But he did say about the price. 6 Q. The transcript can be checked in due course. Just to be 7 quite clear, what is your position in relation to what 8 Mr Gallagher said about the price at the meeting in 9 Wiesbaden? 10 A. We all know that the price will -- is not the price that 11 it will end up with. It will go up after award of 12 contract because of exclusions and -- what's the word -- 13 I have just used the word -- assumptions. Exclusions 14 and assumptions that we've made. 15 Q. When did he say that? 16 A. He was in the meeting on Thursday. 17 Q. On the Thursday or the Friday? 18 A. Thursday. 19 Q. Was this after the private meeting you've referred to? 20 A. I believe it was. 21 CHAIR OF THE INQUIRY: Could I just refer you to the 22 transcript. Mr Mackenzie asked: 23 "Now, at the meeting in Wiesbaden do you recall 24 Mr Gallagher saying anything in relation to the price?" 25 Your answer was: 54 1 "Not specifically. I'm quite sure that he will have 2 continued with his normal rhetoric of trying to get us 3 to reduce the price and take more risk." 4 Then he said: 5 "Do you remember him saying anything in relation to 6 notified departures at this meeting?" 7 You said: 8 "No." 9 Then you referred to the statement. So I think the 10 question is really: when you were first asked about 11 Mr Gallagher saying anything in relation to the price, 12 you said "not specifically"; but now you are saying that 13 it's as stated in the statement? 14 A. That's correct, my Lord. 15 CHAIR OF THE INQUIRY: Can you explain why that difference 16 appears? 17 A. When Mr Mackenzie asked me about the price, I was 18 thinking about the 208 million, not the fact that a sum 19 of money for the -- for the project. I was actually 20 thinking numbers. Did Mr Gallagher say anything in 21 relation to 200 -- let's call it 210 million for clarity 22 now. Did he say anything in relation to 210 million? 23 No. Did he say anything in terms of we all know that 24 the price will go up eventually? Yes, he did. I'm 25 sorry for the confusion, my Lord. 55 1 MR MACKENZIE: That may be a suitable place to break. 2 CHAIR OF THE INQUIRY: Yes. We normally have a break in the 3 morning for the shorthand writers. So we'll adjourn 4 until 11.15. You can get a cup of tea or coffee if you 5 want to. We will adjourn until 11.15. 6 (11.00 am) 7 (A short break) 8 (11.24 am) 9 CHAIR OF THE INQUIRY: Mr Walker, I'm sorry we're later than 10 planned, but the letter you mentioned, we had to check 11 our system and also get copies round to everyone, and 12 give them an opportunity of reading it before we 13 resumed. So we will carry on now. 14 You're still under oath. 15 MR MACKENZIE: Thank you, my Lord. Just on the question of 16 the draft letter, it's dated 22 April 2008. So I think 17 what I will do is leave that to one side until we come 18 on to that in terms of the chronology. 19 So just going back to the meeting in Wiesbaden on 20 the Thursday and Friday, 13 and 14 December 2007, 21 I think we've heard evidence that in the week afterwards 22 there were further discussions and negotiations, in 23 particular in relation to the wording of the Wiesbaden 24 Agreement; is that correct? 25 A. I believe so, yes. 56 1 Q. I think these further discussions and negotiations took 2 place back in Edinburgh; is that correct? 3 A. Yes. 4 Q. Now, do you remember after the Wiesbaden meeting, did 5 you report anything back to Scott McFadzen? 6 A. Undoubtedly I will have done, but I don't specifically 7 remember the conversation. 8 Q. Because Mr McFadzen told us yesterday that he felt that 9 Bilfinger Berger had agreed to take on more design risk 10 than they should have at the meeting in Wiesbaden. Do 11 you have any recollection of that? 12 A. No. 13 Q. I think to paraphrase Mr McFadzen's evidence, I think 14 his view was that he then required to address that what 15 he saw as a problem in the drafting of the agreement to 16 ensure that Bilfinger's acceptance of design risk was 17 based on the design he had priced. Do you have any 18 recollection of that? 19 A. I think that was always the mantra by which we led our 20 daily lives. 21 Q. Thank you. I would like then to turn to one of the 22 drafts of the Wiesbaden Agreement. Just to see what the 23 wording says about design. It's CEC00547729. If we can 24 go, please, to page 3, and in clause 3.3 it states: 25 "Detailed designs - BBS included in their price for 57 1 the construction cost risk in the development and 2 completion of detailed designs being prepared by SDS, 3 save for: 4 a) Any future changes to elements of the design 5 for civils works that are substantially different 6 compared to those forming the current scheme being 7 designed by SDS." 8 Does that reflect anything that had been agreed at 9 Wiesbaden? 10 A. It would seem to be reasonable, but I can't recall 11 actual words. 12 Q. Do you remember who produced this wording in the draft 13 agreement? 14 A. No. 15 Q. Sorry, you shook your head in response to that question? 16 A. No, sorry. 17 Q. Did you have any involvement yourself in the drafting of 18 the wording of the Wiesbaden Agreement? 19 A. What generally happened on the vast majority of meetings 20 is the drafting was undertaken by DLA Piper. It was 21 then presented to us and quite frequently the words that 22 were presented to us could have come from a different 23 meeting to the one which I attended. 24 So it used to go to and fro a few times until we got 25 an agreed wording. If it was to do with the design, 58 1 I imagine that Scott was involved. 2 Q. Now, in relation to the Wiesbaden Agreement, I may be 3 corrected, I think Mr Fitchie's evidence is that he had 4 no involvement whatsoever in drafting the Wiesbaden 5 Agreement. Do you dispute that? 6 A. No, I'm not disputing it. He wasn't there. 7 CHAIR OF THE INQUIRY: Would it not be unusual for 8 Mr Fitchie or anyone else from DLA Piper to draft an 9 agreement based on a meeting that they hadn't attended 10 or -- how would that work? 11 A. Possibly, my Lord, but my recollection is that all the 12 draftings were undertaken by the various legal teams. 13 CHAIR OF THE INQUIRY: On the question of legal teams, 14 I think when you were giving evidence earlier, you said 15 that Mr Gallagher didn't take his legal advisers to 16 Wiesbaden because he didn't really want lawyers 17 involved. 18 A. That's what I believe, yes. 19 CHAIR OF THE INQUIRY: But on the other hand it seems that 20 the senior lawyer for Bilfinger was present at the 21 Wiesbaden meetings. Was Mr Gallagher aware of that -- 22 that the lawyer from Bilfinger was there? If he had 23 some concerns about lawyers being present at the 24 meeting? 25 A. I think his concern was about third party lawyers for 59 1 the -- the different organisations being -- Siemens had 2 McGrigors, I think. Bilfinger had the people over here. 3 CHAIR OF THE INQUIRY: Pinsent Masons? 4 A. Pinsent Masons. And tie had DLA Piper, and he didn't 5 want those involved. Whether he made any objection to 6 Christian Korf being present, I cannot recall. 7 MR MACKENZIE: I think we have heard evidence that the 8 Wiesbaden Agreement was drafted and agreed in the week 9 after the meeting in Wiesbaden. Can you recall whether 10 any Bilfinger lawyers were involved in the drafting or 11 agreeing of the terms of that agreement? 12 A. I could only say that I think they would have been. 13 Q. I would like to move on to another document, please, 14 CEC00547732. 15 The email, the second part of the page, we can see 16 an email from yourself, Mr Walker, dated 17 19 December 2007 to Geoff Gilbert and copied in to 18 others. 19 We can see in the second part of your email, you 20 say: 21 "Secondly, having consulted with my team and 22 reviewed emails and meeting minutes, our firm price 23 including the additional GBP8 million to fix the 24 'variable' sums noted in our tender is based on all the 25 additional information which we received from SDS via 60 1 the four number CDs. The last of which was delivered to 2 us on 25 November 2007. We therefore insist that our 3 contract be related to this." 4 What was the point you were seeking to make there? 5 A. Firstly, may I say that I actually think there were five 6 CDs and I'm not sure if that's a typographic error. 7 What was happening at this stage, and throughout, 8 was the design was changing and developing day by day. 9 So what we as Bilfinger insisted that at some stage we 10 have to draw a line in the sand and say: that is what it 11 is now, that's what we'll price, anything on that side 12 is not subject to this price if it changes. 13 Q. Now -- 14 A. And that -- 15 Q. Sorry. 16 A. Sorry, that is why we ended up saying: let's take these 17 CDs, whether there were four or five, I have in my mind 18 that there was five, I could be stood to be corrected. 19 They are the ones upon which our price was based. 20 Q. And if we then scroll up the page, please, to see 21 Mr Gilbert's response, we can see the same day, 22 19 December 2007, under point 2, he states: 23 "Don't understand what this really means and will 24 call now to discuss." 25 Do you remember any discussion with Mr Gilbert 61 1 around that time in relation to that point? 2 A. Many, many discussions. Mr Gilbert was not a civil 3 engineer. He wasn't an engineer of -- of any shape or 4 form. I believe his background was in finance and 5 trying to explain the complexity and vagaries of civil 6 engineering information to him, I did continually. So 7 I think that's why he didn't understand what I was 8 saying, is that if something changes, then the price has 9 to change. And we needed to fix a point where everybody 10 agreed that's the information you've got. 11 Q. So certainly you're quite satisfied in your mind that 12 you explained to Mr Gilbert your position as you've 13 explained to us? 14 A. Yes. 15 Q. Do you consider there can be -- there was room for any 16 remaining doubt in his mind about what your position 17 was? 18 A. Not at the end, and in fact we actually wrote it into -- 19 got it written into the contract in very, very precise 20 terms what we meant. 21 Q. The next email, please, is CEC00547735. We can see this 22 is an email again from yourself, Mr Walker, dated 23 19 December 2007, to Mr Gilbert on the question of 24 pricing. You say: 25 "I have concerns that this amount was the amount 62 1 envisaged when we thought SDS design would be complete 2 at novation. Obviously this is not now the case 3 and I believe the [pound million symbols] will need to 4 be increased in the Infraco contract. I presume you 5 have the budget for this elsewhere and that this will be 6 made available." 7 What was the point you were making in this email? 8 A. That the information we'd been told about the future 9 progress of the design was not correct. It wasn't going 10 to be complete at the time of novation of the designer. 11 The elements that -- that they hadn't completed 12 would add to the cost. And did he or was he sure that 13 City of Edinburgh Council had the budget? 14 Q. In the email we see in the second line there isn't 15 a figure. There's simply the pound sign and then M for 16 millions. Can you explain why there's no figure there? 17 A. I couldn't price it. One cannot price what one doesn't 18 know about. 19 Q. So what does that represent, the pound sign and the M 20 for millions? 21 A. A significant number of millions, I would suggest. 22 Q. So should one in fact read that as being a pound sign 23 question mark million? 24 A. Possibly. 25 Q. If not, please say so. I'm just trying to understand 63 1 what you meant by that. 2 A. Well, euphemistic term in the industry is pounds 3 considerable, with the million sign at the back of it. 4 Q. So does that symbol represent pounds considerable? 5 A. Yes. 6 Q. I understand, thank you. 7 So essentially is it the quotation marks means 8 considerable? 9 A. It's -- it's not meant to be literally a quotation 10 marks. It means lots of millions of pounds. 11 Q. Can I go back to your statement, please, at page 22 in 12 paragraph 37. About halfway down we see reference to 13 this email we just looked at. You say: 14 "The point I was making in that email was, our price 15 was based on the premise that the SDS design would be 16 complete at the point of novation; and they were not. 17 I was informing them that this was going to cost them 18 millions more, and asking if they had the budget for it. 19 I discussed this with Willie Gallagher. One of the 20 outcomes of discussions I had with Willie Gallagher was 21 that he stated that everybody knew that the price was 22 going to increase after award." 23 Now, your reference there to discussions with 24 Willie Gallagher, when did those discussions take place? 25 A. I believe that I spoke privately to Willie Gallagher, 64 1 I think twice about it, and publicly he talked about it 2 on Thursday night at Wiesbaden. 3 Q. When you say you believe you spoke privately to 4 Willie Gallagher about it, you think twice, was that 5 before Wiesbaden, at Wiesbaden meeting or afterwards? 6 A. I would suggest afterwards. To the best of my 7 recollection. 8 Q. Can you try and pin down approximately when those two 9 conversations took place? For example, are they likely 10 to have been before 20 December 2007, are they likely to 11 have been some time in 2008 or when? 12 A. I think the first time would have been the week after we 13 came back from Wiesbaden. The second time could have 14 been January. Maybe February 2008. 15 Q. Now, you have referred to: 16 "One of the outcomes of discussions I had with 17 Willie Gallagher was that he stated that everybody knew 18 that the price was going to increase after award." 19 I can understand that as a principle, but was there 20 any discussion in relation to how much the price may 21 increase after award? 22 A. I think at one stage I suggested using the words 23 something like 40, 50, 60, 80, 100 million. Probably 70 24 or 80. 25 Q. You don't seem to have a clear recollection about that, 65 1 or do you? 2 A. Reasonably clear, yes. I didn't know, I couldn't know 3 exactly how much, but it wasn't 1 or 2 million. It was 4 40, 50, 60, 80, 100. 5 Q. I'm sorry to press you on this, but again, for the 6 avoidance of doubt, at which meeting or meetings is that 7 discussion likely to have taken place? 8 A. Likely I would suggest after Wiesbaden. I can't be 9 clearer than that, I'm sorry. 10 Q. Because you had referred, I think, to two meetings, one 11 afterwards from Wiesbaden and another meeting in January 12 or February 2008. So is it your recollection this 13 discussion and these figures were mentioned at one or 14 both of these meetings? 15 A. I couldn't say, Mr Mackenzie. But I will say that 16 I even got into print to Mr Gilbert and told him without 17 putting figures the price -- we were telling tie all the 18 time that the price was going to go up. We weren't 19 trying to hide anything. And we were telling them why 20 it was going to go up. 21 Q. The two conversations with Mr Gallagher you mentioned, 22 one after Wiesbaden and one in January or February 2008, 23 do you remember where those discussions took place? 24 A. I used to meet Mr Gallagher in his office, in -- I have 25 forgotten the name of the building now, it's down at 66 1 Haymarket. 2 Q. Do you have a clear recollection of meeting Mr Gallagher 3 and discussing these matters with him in his office? 4 A. Yes, I think so. I think his office was on a -- 5 a curved window, which is my recollection there. Yes. 6 I used to see him quite a lot. He was pretty heavily 7 involved. 8 Q. At these meetings, again, the one after Wiesbaden and 9 the one in January or February 2008, that you had with 10 Mr Gallagher and you say you discussed the fact the 11 price was going to go up, and you also mentioned the 12 figures you've discussed, was anyone else present at 13 either of these meetings? 14 A. No. 15 Q. What was Mr Gallagher's response to you saying the price 16 is going to go up in particular by these sorts of 17 figures? 18 A. I believe he responded by saying: everybody knows that. 19 Q. Was any record kept of these meetings or discussions? 20 A. No. 21 Q. Why not? 22 A. Essentially they were informal meetings where I went to 23 see Willie Gallagher to put my point of view across. If 24 there was a record, any records kept, it was in 25 a subsequent email. 67 1 Q. Could I turn, please, to another email, CEC00547738. We 2 can see this is an email from Geoff Gilbert dated 3 19 December 2007 in the evening at about 7.43 pm to 4 yourself, copied in to others, reference to: 5 "We went through this at the Board today and 6 generally everyone was okay with it. However, to get 7 CEC's buy we need to make a few changes. I have also 8 corrected a few typos as well. I don't think there is 9 anything controversial in this but call me if you wish 10 to discuss." 11 Then if we can look, please, at the draft of the 12 Wiesbaden Agreement attached to this email, it's 13 CEC00547739. If we can go, please, to page 3. And 14 again to clause 3.3, I think we'll see the same wording 15 as we saw in the previous version, with, at the end of 16 subparagraph (a), the words "as typically represented by 17 the drawings issued to BBS with the design information 18 drop on 25 November 2007". Do you see those additional 19 words? 20 A. Yes. 21 Q. Was that as a result of your email that we looked at 22 earlier dated 19 December in relation to the four or 23 five CDs? 24 A. I couldn't say without referring back to it, I'm sorry. 25 Q. Okay. The next email, please, is CEC00547740. At the 68 1 top of the page, we'll see an email from yourself dated 2 20 December 2007, is this the day the Wiesbaden 3 Agreement is signed, just after 6 o'clock in the 4 morning, sent to Mr Gilbert and copied into 5 Scott McFadzen. 6 You say: 7 "We still have issues with accepting design risk. 8 We have not priced this contract on a design and build 9 basis, always believing until very recently that design 10 would be complete upon novation. With the exception of 11 the items marked provisional which we have now fixed by 12 way of the 8 million we cannot accept more drain 13 development ..." 14 I think in your statement you say that's a typo for 15 design development; is that correct? 16 A. I would think so, yes. 17 Q. "... other than minor tweaking around detail. Your 18 current wording is too onerous. Trust we can find 19 a solution." 20 Do you recall sending this email? 21 A. No. 22 Q. The next document, please, is CEC00547737. We can see 23 top of the page, email from Matthew Crosse, dated 24 19 December 2007, just after 6.00 pm to yourself and 25 others with an agenda for the meeting at 11 o'clock the 69 1 next day. 2 Item 1 was to sign agreements (Mobilisation and 3 Contract price Agreement). 4 So it looks as though a meeting was arranged for 5 11 o'clock on 20 December, I think that's the Thursday, 6 including to sign the agreements. 7 Including the contract price agreement. 8 Do you have any recollection of attending a meeting 9 on 20 December to sign the Wiesbaden Agreement? 10 CHAIR OF THE INQUIRY: Was it the Wiesbaden Agreement? 11 MR MACKENZIE: That was, my Lord, yes. 12 If we then go to the Wiesbaden Agreement -- 13 actually, I'll do that just shortly. If I could firstly 14 please go back to your statement at page 24 in 15 paragraph 41, to clarify one matter. 16 Paragraph 41 refers at the top to the meeting on 17 Thursday, 20 December, and that the Wiesbaden Agreement 18 was signed the same day. You go on to say in your 19 statement: 20 "I cannot recall the meeting in detail, but I know 21 that the agreement was signed that day. Geoff Gilbert 22 and Matthew Crosse and Willie Gallagher fully understood 23 that the price of GBP218,262,426 was subject to 24 exclusions, provisional sums, assumptions and 25 conditions. I had already identified to them previously 70 1 that there would be changes which were going to be in 2 the millions. I suspect they did not want to pass that 3 information to CEC, because the contract would have been 4 cancelled." 5 Just to try and clarify, when you say that "I had 6 already identified to them previously that there would 7 be changes which were going to be in the millions", how 8 had you done that? 9 A. One of the ways is that earlier email to Geoff Gilbert, 10 where I put in print that it was going to be -- 11 I actually -- on here it was pounds and speech marks 12 millions. I had spoken to them. 13 Q. When you say -- 14 A. If I can just say, that if you have a fixed price 15 subject to anything, it is not a fixed price anymore. 16 Q. When you say you had spoken to them, you told us about 17 your discussions with Mr Gallagher. Had you also 18 discussed with Mr Gilbert and Mr Crosse that there would 19 be changes which were going to be in the millions? 20 A. Certainly I can recall with Mr Gilbert. I cannot recall 21 specifically with Matthew Crosse. But knowing the way 22 that I have conducted my career, I'm quite sure that 23 I probably did. 24 Q. Are you able to help us with approximately when and 25 where you advised Mr Gilbert of that and possibly 71 1 Mr Crosse? 2 A. Well, where would have been at CityPoint. When, for 3 probably many, many times over many, many weeks and 4 months. 5 Q. If -- 6 A. If I can just say, I had to try and get them to 7 understand that a fixed price that was subject to 8 a change was not a fixed price. And I believe they did 9 understand that. 10 Q. Can you go on, please, to the Wiesbaden Agreement. It's 11 CEC02085660. 12 At page 3, please -- page 5, we can just read for 13 ourselves what is said under clause 2 and 2.1 and 2.2, 14 2.3, 2.4, take a minute to look at that. 15 Then under -- if we scroll down to clause 3.3, 16 please, with the design, I'm not going to read it out, 17 but I'll give you a minute to read for yourself what is 18 under clause 3.3, and it then continues on to page 7, 19 once you have had a chance to read page 5. 20 Go on to page 7 as well, please. You will see 21 a paragraph at the very top of the page. 22 Now, you'll have seen the wording there, and the 23 reference to normal design development, together with 24 the paragraph we can see here, which gives certain 25 exclusions to normal design development. 72 1 The concept of normal design development together 2 with the exclusion appears, I think, in this final 3 version of the Wiesbaden Agreement. 4 Do you have any recollection of how the concept of 5 normal design development together with the exclusion 6 clause found its way into the agreement? 7 A. It was a negotiation between myself and Geoff Gilbert. 8 Q. Do you have a recollection of -- of that? 9 A. Yes. 10 Q. So do you recall which party suggested this wording? 11 A. Primarily myself and through discussion with Geoff, it 12 came out of that. I probably suggested something that 13 was even tougher to start with. 14 Q. What was your understanding of what this clause set out 15 in the final version of the agreement meant? 16 A. Well, if we define normal design development, it could 17 be an increase in concrete quantity of -- or a decrease 18 in concrete quantity of plus or minus 5 per cent and 19 keep the same rate per cubic metre for it. If it goes 20 outside those parameters, the option to change the rate. 21 Likewise with reinforcement. 22 If the position of a drip channel on the other side 23 of a concrete soffit was moved by a few millimetres, 24 tens of millimetres, that's development. 25 If it's altered in shape or profile, that isn't 73 1 design development. 2 Q. The exception clause we can see on the screen, can we 3 see it says: 4 "For the avoidance of doubt, normal development and 5 completion of designs means the evolution of design 6 through the stages of preliminary to construction stage 7 and excludes changes of design principle, shape and form 8 and outline specification." 9 If one excludes those items from the definition of 10 normal development and completion of designs, can you 11 give examples of what is left? What would be normal 12 development and completion of designs? 13 A. Changing the quantities by plus or minus 5 per cent. 14 Q. Did you consider at the time of this agreement that what 15 was set out in clause 3.3 was clear? 16 A. I did, yes. 17 Q. Looking back on it now, do you consider the wording is 18 clear? 19 A. Absolutely, and I think there are adjudication cases 20 that side with my view. 21 Q. We know that discussions continued up until May or 22 certainly April and May 2008. In particular in relation 23 to Schedule 4 of the Infraco contract. 24 Were you involved in those ongoing discussions? 25 A. Yes. 74 1 Q. Now, to what extent was the wording in the Wiesbaden 2 Agreement in clause 3.3 in relation to design considered 3 to be closed and to what extent, if at all, was that 4 still open for further discussion and negotiation? 5 A. In my mind it was closed. 6 Q. Now, if we put that document to one side, you have 7 referred to discussions with Willie Gallagher where you 8 advised him of the likely price increase for the reasons 9 you've described. 10 Do you recall having any discussions with 11 Andrew Fitchie about these matters? 12 A. Generally when I met with Geoff Gilbert, who I undertook 13 most of the negotiation of the contract terms with, 14 I had my legal adviser by my side. 15 When I had my legal adviser by my side, 16 Geoff Gilbert had his. 17 Q. Who was Geoff Gilbert's legal adviser? 18 A. Andrew Fitchie. 19 Q. I would like to go to Mr Fitchie's statement, please, to 20 put something to you that Mr Fitchie says. It's 21 TRI00000102_C. Before we go to the detail, can I just 22 ask you again, I am not sure you answered the question. 23 You had referred to discussions with Mr Gallagher where 24 you advised him of the likely price increase. Did you 25 have any discussions with Mr Fitchie about a likely 75 1 price increase? 2 A. Mr Fitchie was in the room when I talked to 3 Geoff Gilbert. 4 CHAIR OF THE INQUIRY: About the likely price -- 5 A. Yes. Did I address myself to Mr Fitchie? No, my Lord. 6 MR MACKENZIE: If we can go, please, to page 150 of this 7 statement, and if we blow up, please, the second half of 8 the page under the subheading, do you see in 9 paragraph 7.123, Mr Fitchie says: 10 "I had had a conversation with Richard Walker ... 11 which I would place in early December 2007, in the first 12 floor Telfer/Isambard Kingdom Brunel meeting room at 13 tie's CityPoint offices. The main meeting had broken 14 out for some reason, but in the room with the two of us 15 was a Pinsent Masons junior lawyer ... and I think 16 Ian Laing of Pinsent Masons ... at any rate Richard 17 spoke directly to me." 18 I'll let you read paragraph 7.124 for yourself. 19 A. I have no recollection of speaking directly to Andrew. 20 Q. So are you quite sure about that? 21 A. In my mind, yes. 22 Q. Is it possible you're wrong? 23 A. I don't think so. 24 If we can take the expletive in paragraph 7.124, 25 that is not language that I use. 76 1 Q. Just reading on, in paragraph 7.125, we can see what is 2 said there. Mr Fitchie says that: 3 "I realised he had sort of blurted this out because 4 of the intense pressure he was taking from BB ... head 5 office Wiesbaden not to take on the Project without 6 cast-iron protections ..." 7 Is that correct? Were you under intense pressure 8 not to take on the project without cast-iron 9 protections? 10 A. No. It was a mantra of the company that we would not 11 accept risk which is undefined and could not be priced. 12 But I wouldn't say there was undue pressure applied at 13 all from Wiesbaden. 14 Q. Reading on, paragraph 7.126, it's said: 15 "Indeed, long after the Infraco Contract was under 16 way, at the formal event held at Edinburgh Castle to 17 celebrate the M80 Project Financial Close in 2009 ... 18 I sat at a table with Richard Walker and his wife." 19 Do you remember that dinner? 20 A. Yes. 21 Q. Reading on, please: 22 "He repeated to me how he had stressed to tie in 23 late 2007 that their publicly visible budget was not 24 going to be anything like enough and that he had never 25 been authorised by his head office at Wiesbaden to 77 1 provide a fixed price, in fact the exact opposite." 2 Now, was that correct, that you had stressed to tie 3 in late 2007 that their publicly visible budget was not 4 going to be anything like enough? 5 A. Well, I think we've already seen -- I think it was an 6 email to Geoff Gilbert where I asked if CEC had the 7 funds. 8 Q. Do you remember at this dinner discussing these matters 9 with Mr Fitchie? 10 A. I can remember having quite an abusive conversation with 11 him, after probably imbibing a little too much alcohol. 12 We were celebrating the success of the M80 project which 13 we did for Transport Scotland. 14 Q. In terms of the question -- 15 A. Mr Fitchie could be extremely abusive, and not just to 16 male members of my team. 17 Q. I think I'll try and put that to one side, but in terms 18 of the question -- 19 A. I think we should, yes. 20 Q. Do you remember at this dinner discussing matters with 21 Mr Fitchie? 22 A. Yes. Yes. 23 Q. So you would accept what Mr Fitchie says there, that you 24 did discuss these matters with him at this dinner? 25 A. Yes. I would like to clarify what he has said about 78 1 providing a fixed price. We would only provide a fixed 2 and firm price for that work which we could define, and 3 which was on the drawings. 4 Q. So again -- 5 A. So it's a partially fixed price. 6 Q. Do you then agree that again Mr Fitchie is correct in 7 saying that you had never been authorised by your head 8 office at Wiesbaden to provide a fixed price? 9 A. Well, as I was strictly informed that I would -- could 10 not and should not accept undefinable risk, then by 11 inference I cannot authorise a fixed price. 12 Q. Could you also please go on to page 156. I want to ask 13 you about one other matter. In paragraph 7.146 we can 14 see a reference here to Mr Fitchie attended a tie 15 executive management group meeting on 12 December 2007 16 chaired by Willie Gallagher. 17 That's by way of context. Then go on, please, to 18 paragraph 7.148. So it appears to be at this meeting 19 that Mr Fitchie says: 20 "Willie Gallagher said that BBS had 'screwed up' 21 their pricing and their programme. Richard Walker had 22 now told him that GBP498 million was no longer feasible 23 and that BB Germany's Wiesbaden group management was 24 involved in re-thinking this after an internal review had 25 raised significant concerns about the BBS BAFO tender 79 1 submitted to tie and project risks." 2 Was it correct that BB Germany's Wiesbaden group 3 management was involved in rethinking matters after 4 an internal review? 5 A. The price which we had put in was on the assumption that 6 the design would be 100 per cent complete upon novation, 7 and that the MUDFA contractor would have completed 8 100 per cent of his works upon award of contract. 9 It became apparent this was not to be the case. So 10 yes, of course we had to rethink it. 11 Q. I understand that -- 12 A. And that, if I may say so, is not screwing up our price. 13 That is becoming aware of the true picture of the design 14 development and the utility diversions which we were 15 informed should be and would be 100 per cent complete 16 upon award. 17 Q. I understand that, but the question was directed to 18 whether there was an internal review in Bilfinger around 19 this time which raised significant concerns about the 20 BAFO tender submitted to tie and the project risks? 21 A. That is best and final offer, yes. We reviewed it on 22 a regular basis, as I stated earlier, I was across there 23 twice a month. 24 Q. Was there concern within Bilfinger, both UK and Germany, 25 in relation to the BAFO tender and the project risks? 80 1 A. There was concern that tie were trying to get the 2 Bilfinger Berger Siemens consortium to take risks which 3 weren't and should not have been aligned to their 4 contract. 5 Q. I would like to move on, please, to another letter. 6 CEC01432556. You can see this is dated 18 January 2008, 7 once it comes up. 8 We can see this is a letter from the consortium. Go 9 to page 2, perhaps. Now, we can see it's by yourself 10 and Michael Flynn. Back to page 1, please. 11 The first paragraph states: 12 "Following our discussion in your offices today 13 I can confirm that we will submit a programme by Monday 14 evening 21 January outlining the steps necessary for 15 achieving contract closure." 16 Then two paragraphs down: 17 "As you are aware there are still a significant 18 number of issues requiring resolution which is outlined 19 below although you should note this list is not 20 exhaustive." 21 I won't read it all, but we can see, for example, in 22 the second bullet point: 23 "Novation of the SDS into the Infraco." 24 The third bullet point: 25 "Resolution of outstanding SDS/tie issues." 81 1 Further down we see: 2 "Resolution of liability for Planning and Third 3 Party Consents." 4 Then we also see, for example: 5 "Status and Completion of Design." 6 Now, do you remember the discussion referred to in 7 this letter? 8 A. I think so, yes. Yes. 9 Q. You paused for some time before replying. How sure are 10 you? 11 A. That's why I paused, to think about it. Yes, I'm sure. 12 Q. So what's your recollection of what was discussed and 13 what was the outcome? 14 A. That there are a significant amount of issues to be 15 resolved before we can actually agree a programme, and 16 some of the issues are listed there, the major ones. 17 Q. Can -- 18 A. How are we going to deal with them? 19 Q. Can you recall whether there was any discussion of the 20 price, including whether it may increase? 21 A. Not specifically. 22 Q. Go to your statement, please, to page 27. At the top of 23 the page, this was in reference to the letter we've 24 looked at. You say: 25 "On 18 January 2008 Scott McFadzen, Mr Flynn and 82 1 I had a discussion with Willie Gallagher. This 2 discussion consisted of everybody agreeing and giving 3 verbal assurance that we all were aware that the price 4 was going to go up." 5 So from what you've just said, is what is in your 6 statement perhaps not correct? 7 A. No, I would think my statement is correct because 8 I wrote my statement over a number of months, with back 9 reference to a huge amount of documentation, which 10 I don't have now, and I haven't got the time to review 11 it at the moment. 12 So I would take the statement as being the absolute 13 correct. What I recollect sat here being considerably 14 nervous, if you don't mind my saying, my Lord, in the 15 situation, might be slightly different. 16 So please take my statement as being the actuality. 17 Q. I would like to move on now, please, to another 18 document, CEC01489538. Can we see this is an email from 19 yourself, Mr Walker, dated 1 February 2008 to 20 Geoff Gilbert and copied in to others, including in tie 21 Matthew Crosse and Steven Bell, headed "Big Banana 22 Issues", and then the second paragraph, we can see you 23 say: 24 "Bilfinger Berger's business model does not permit 25 the liability for risks that do not belong in our 83 1 industry or risks which are unable to be assessed and 2 quantified." 3 Is it your position that essentially is what you 4 were saying from really Wiesbaden onwards? 5 A. Yes. 6 Q. Then we can read -- 7 A. May I interject there. From the very first conversation 8 I had with Andie Harper, on I think about 2 or 3 October 9 in 2006, there are -- there were certain conditions and 10 conditions precedent in there that we could not accept 11 because we didn't feel they belonged to our industry or 12 they were unquantifiable. So I've been saying it 13 steadily all the way through, not just from Wiesbaden. 14 Q. So in short, your position is that the sentence I just 15 read out represents the approach Bilfinger took 16 throughout? 17 A. Throughout the world. 18 Q. Then we can see what is then set out for ourselves. You 19 also say that: 20 "Tie have not delivered the Issued for Construction 21 Detailed Design in accordance with the Procurement 22 Strategy and therefore the Risk Profile has changed for 23 BBS, Tramco and SDS. It is this which is giving rise to 24 the current difficulties and apparent shifting of 25 position." 84 1 Is there anything you wish to add to that or is that 2 fairly self-explanatory? 3 A. I think it's self-explanatory. 4 Q. I should also ask: do you recall any discussions with 5 Andrew Fitchie in or around February 2008 regarding the 6 true cost of the project and the likelihood of a price 7 increase after contract close? 8 A. Whether they were with Andrew Fitchie to himself or to 9 Andrew Fitchie as part of a discussion with other tie 10 members, I'm not sure, but for sure he was as aware as 11 everybody else. 12 Q. If we go back to Mr Fitchie's statement, please, it's 13 TRI00000102_C, page 177, paragraph 7.255. Mr Fitchie 14 states: 15 "In February 2008, I had a further conversation with 16 Richard Walker along similar lines to that in 17 December 2007 which I discuss at paragraph 7.123 ... 18 above. Richard asked me again whether tie had enough 19 money because he thought they would need it. This is 20 the conversation mentioned in my email to 21 Graeme Bissett ..." 22 Do you recall a discussion along these lines taking 23 place around that time? 24 A. I think that's the one we're referring to in the earlier 25 document, yes. 85 1 Q. I don't understand your answer, I'm sorry. 2 A. Yes. 3 CHAIR OF THE INQUIRY: I think the witness said that that's 4 the conversation he was referring to earlier, a few 5 minutes earlier. 6 MS FORSTER: My Lord, it seems to me that the witness here 7 is being asked the same question over and over again. 8 I think he has been clear about the discussions he had 9 with Mr Fitchie and who may or may not have been 10 present, and obviously with the passage of time some of 11 this is becoming difficult for the witness. But there 12 seems to be repetition of the same question. 13 CHAIR OF THE INQUIRY: I think if you just leave it to me to 14 assess evidence. 15 MR MACKENZIE: So just for the avoidance of doubt, 16 Mr Walker, what is your position in relation to whether 17 a conversation took place along those lines around this 18 time? 19 A. I do not recall the conversation that he alleges took 20 place in December directly to himself. I do recall 21 something later on. 22 Q. Along these lines? 23 A. Yes. 24 Q. Thank you. Now, the next matter is the Rutland Square 25 Agreement, which was entered into in February 2008. 86 1 I don't propose taking you to that, unless there is 2 anything you want to draw our attention to in that 3 regard? 4 A. No. 5 Q. The next item, please, is PBH00035854. 6 Now, if we go to the bottom right-hand corner of the 7 page, please, we can see a date of 29 February 2008. In 8 short, this document is a weekly report prepared by 9 Steve Reynolds of Parsons Brinckerhoff for internal 10 purposes and consumption. 11 Page 3, please, of the document. If we blow up, 12 perhaps, the first half of the page, it's the third 13 paragraph which begins: 14 "An attempt was then made to water this statement 15 down ..." 16 I'll let you read that for yourself. 17 Do you see the reference there to Mr Reynolds 18 saying: 19 "… it is Richard's view of the strategy he has adopted 20 to retain as much flexibility pre-contract with a view 21 to securing substantial variations post-contract." 22 To pause there, was that correct? 23 A. No. 24 Q. Can you explain that, please? 25 A. My strategy was to ensure that risk which shouldn't be 87 1 taken by the construction element of the industry or 2 which was unquantifiable was not taken by the company 3 that I work for; and was taken by the persons best 4 placed to take it, which in this case was tie. tie knew 5 exactly where the design was up to. tie knew exactly 6 where MUDFA was up to and the rate of progress of both 7 of them. They were the ones able to assess and take on 8 that risk, not ourselves. 9 Q. Now -- 10 A. If I -- may I say that I didn't muse that if tie 11 understood the true likely cost. It was if City of 12 Edinburgh Council, and I did ask on a number of 13 occasions which -- we've covered some of them earlier 14 this morning, were CEC aware and did they have the 15 funds? 16 Q. On that point, we will come on to the letter very 17 shortly in April 2008. So before the letter, when and 18 how had you asked on a number of occasions that were CEC 19 aware and did they have the funds? 20 A. One, I had actually written to Geoff Gilbert in an 21 email, and secondly is the February discussion with 22 Andrew Fitchie. 23 Q. Now, the other point Mr Reynolds makes, he says: 24 "On a related note, Richard has also informed me 25 that he and his manager (from Wiesbaden) have seriously 88 1 discussed withdrawing from the bid." 2 Was that correct? 3 A. We had no desire to withdraw from the bid. 4 CHAIR OF THE INQUIRY: I think the question was: was there 5 a discussion with your manager as to whether you might 6 withdraw from the bid? 7 A. It is likely, my Lord, yes. Do I recall it? No. Did 8 we want to? No, we didn't. 9 MR MACKENZIE: I would like to go on to another document, 10 please, CEC01463888. 11 We can see the second half of the page, an email 12 from Steven Bell, dated 10 March 2008, to Geoff Gilbert 13 and Jim McEwan. So it was an internal tie email. 14 We see reference to: 15 "An agreement was made on Friday 7 March 2008 ... 16 with Richard Walker and Michael Flynn representing BBS 17 and Steven Bell and Jim McEwan representing tie. 18 The Contract Price is to be amended by 19 GBP8.6 million to fully incorporate all of the following 20 items." 21 Do you remember this agreement? 22 A. Yes. 23 Q. So was it essentially a price increase sought by the 24 consortium or what happened? 25 A. It was a price increase. 89 1 Q. And why did the consortium seek a price increase? 2 A. For a start, from point number 5 on the bottom, tapered 3 poles cost more than the uniform section ones that we 4 had in. 5 SDS design quality risk was something that was new. 6 So we prepared to take on that because we thought we had 7 enough experience of designers to know what that was 8 likely to be. 9 I can't recall the specifics of version 3.3 of the 10 Employer's Requirements, I'm afraid. And the impact of 11 amending the programme from Edinburgh port to Newhaven, 12 that was putting some time back on to it before damages 13 would become applicable. So that actually works the 14 other way. The balance being 8.6 million as it's got 15 there. 16 Q. I want to move on to another document, please, 17 PBH00018333. This is another weekly report by 18 Steve Reynolds. We see at the bottom right-hand corner 19 it is dated 18 April 2008. If we can go back, please, 20 to page 1, paragraph 1.3, I'll let you read that for 21 yourself. (Pause) 22 So we can see the paragraph begins with saying: 23 "Richard Walker indicated to me on Friday that he 24 has concerns over the presentation of the Infraco 25 Contract deal to Council." 90 1 Is that correct? 2 A. Yes. 3 Q. Halfway through we see: 4 "Richard is now expressing (to me) similar concerns 5 and has suggested that he will take this up with tie 6 separately." 7 Was that correct? 8 A. Yes. 9 Q. Does that then perhaps lead us into the letter you have 10 produced to the Inquiry today? 11 A. Yes. 12 Q. Can we perhaps go to that letter. It doesn't yet have 13 an Inquiry reference number. We will have to give it 14 that later, but we can bring the copy up on to the 15 screen, and I'll simply refer to it as the draft letter 16 of 22 April 2008. 17 If we can go first to page 2, please, over the page, 18 we can see the names Richard Walker and Michael Flynn. 19 Can you recall, was this letter ever discussed 20 and/or agreed with Mr Flynn? 21 A. Yes. 22 Q. Did he agree with the contents of the letter? 23 A. Yes. 24 Q. Back to page 1, please. 25 CHAIR OF THE INQUIRY: Can you remember when that was? Was 91 1 it -- 2 A. Probably the day before the date on the letter or the 3 day of the letter. 4 CHAIR OF THE INQUIRY: Would that be in Edinburgh, or in the 5 office, or ... 6 A. In Edinburgh, yes. 7 CHAIR OF THE INQUIRY: In the site office at Lochside House? 8 A. Yes. 9 MR MACKENZIE: For the avoidance of doubt, what had prompted 10 this letter? 11 A. Essentially, as Stephen Reynolds indicated, I had 12 concerns and I had voiced them on a number of occasions 13 earlier on that if City of Edinburgh Council were fully 14 aware of what was going on, I could not envisage how 15 they would enter into a contract. I had a discussion -- 16 if I may carry on. I had a discussion with 17 Willie Gallagher and I asked him: can you, you know, 18 give me the undertaking that City of Edinburgh fully 19 aware of what's going on, and the price is going to go 20 up, and the time is going to go out; and then this was 21 a confirmatory letter. My Chief Executive felt it would 22 spoil my relationship with Willie Gallagher if, having 23 asked him and had verbal assurance, I then went into 24 print. 25 CHAIR OF THE INQUIRY: So when you say you had 92 1 a conversation with Willie Gallagher, the letter refers 2 to a meeting on the evening of 17 April. Is that when 3 you had a discussion? 4 A. Yes. 5 CHAIR OF THE INQUIRY: And when was that? 6 A. All of my meetings with Willie Gallagher were in Centre 7 Point. 8 CHAIR OF THE INQUIRY: At CityPoint? 9 MR MACKENZIE: And in the letter it also refers to "our 10 subsequent telephone call to". Was there also 11 a telephone call during which you set out your concerns? 12 A. I can't recall, but if it says so, then I cannot imagine 13 me putting that into print if I didn't have one. It was 14 purely that Mr Enenkel felt that: Richard, he's told you 15 the answer, don't spoil your relationship with him by 16 putting on paper that, you know, what could be construed 17 as you don't trust his answer. 18 Q. When you refer to concerns as to whether the Council 19 were fully aware of what was going on, can you summarise 20 just what you mean by that, what was going on? 21 A. The effects of the incomplete design and the woefully 22 inadequate progress of the utility diversions were 23 dramatically going to affect the price by a significant 24 number of tens of millions. 25 Q. What was Mr Gallagher's response to you raising concern 93 1 about these matters? 2 A. That CEC were fully informed. 3 Q. That was his position? 4 A. Yes. 5 Q. We can see in the letter before us you set out your 6 various concerns, so the second paragraph, you refer to 7 the acknowledged misalignment between the SDS design and 8 Infraco proposals. You also refer to further delays to 9 the design programme and MUDFA works, and also 10 indications that the advance works being undertaken at 11 Haymarket depot by ScotRail may also be delayed. You 12 say: 13 "It is clear from this that substantial additional 14 costs and prolongation of the construction programme 15 will result. Whilst there are processes in the contract 16 to value and assess this, we are extremely uncomfortable 17 with these circumstances which will, undoubtedly, strain 18 contractual relationships at an early stage in the 19 project." 20 To pause there I think you have told us this letter 21 wasn't sent, but was Mr Gallagher nonetheless made aware 22 by you of these concerns we see in this letter? 23 A. I believe this was confirmatory of our meeting and 24 subsequent telephone conversation, although I don't 25 recall a telephone conversation. 94 1 Q. So your position is that Mr Gallagher ought to have been 2 clear that there would be substantial additional costs 3 and prolongation of the construction programme? 4 A. Absolutely. And he informed me that DLA Piper had 5 passed that on to CEC. 6 Thinking back, I'm not sure of what relationship 7 DLA Piper would have had with CEC really. 8 Q. The next paragraph you say: 9 "In addition, we are concerned that, while tie and 10 BBS understand the processes and risk allocation as it 11 is largely agreed, we understand that DLA Piper have 12 briefed CEC and they appreciate the detail of the 13 contract that they are about to authorise you to sign 14 with us which we believe will require CEC to fund 15 substantial increases in the construction works price 16 and prolongation to the construction programme after 17 contract award." 18 Your letter then says: 19 "With respect, I request you advise CEC of these 20 matters and in particular affirm their understanding of 21 the requirement under the contract for additional funds 22 to be made available to Infraco as a result of the 23 alignment and Notified Departure processes, including, 24 for example, the effect of Pricing Assumption 4 which 25 means there will be an immediate requirement for 95 1 a Notified Departure due to the misalignment between the 2 Infraco and SDS design delivery programmes." 3 To pause there, you refer to that one particular 4 immediate Notified Departure by way of example. Were 5 you quite clear that there were likely to be other 6 Notified Departures as well? 7 A. Yes. 8 Q. You consider Mr Gallagher was made clear of that as 9 well? 10 A. Yes. 11 Q. By you in your discussions with him? 12 A. Yes. 13 Q. Over the page -- 14 A. And, if I may say, by the wording which is in Schedule 15 Part 4. 16 Q. And the various Pricing Assumptions, for example? 17 A. It's quite clear, I think, clause 3.2.1 says it's 18 acknowledged by tie, and it goes on. We can possibly 19 put it up on the screen for people to read. It was down 20 in print in the contract, and it wasn't just a -- 21 Schedule 4 wasn't just a schedule at the back of 22 a contract. It was elevated through the priority of 23 documents, clause 4.3 in the main contract, which says 24 that nothing in this contract, it commences, nothing in 25 this contract shall -- I think the words are "prevent 96 1 the contractor from claiming" just compensation under 2 Schedule Part 4. It was down in print. We could not 3 have been clearer, Mr Mackenzie. 4 Q. We might come back to Schedule 4 later. 5 Just to finish off with this letter, we see at 6 page 2 at the top it states: 7 "You will appreciate that the purpose behind this 8 letter is to ensure that all parties are clear and that 9 there is no misunderstanding or misrepresentation. The 10 BBS companies have, as do tie, an excellent C corporate 11 reputation ..." 12 What's the reference to C corporate reputation? 13 A. I'm not sure. Not even sure that's a typographical 14 error. 15 Q. I understand: 16 "... with business values which demand that we 17 behave ethically, professionally and with integrity, and 18 for these reasons I am obliged to send you this letter." 19 Who had prompted this letter? 20 A. Me. 21 Q. Were you obviously concerned about the matters set out 22 in the letter? 23 A. Well, what I was concerned about is that Mr Gallagher 24 had given me his assurance that DLA Piper had 25 communicated the issues, which Mr Gallagher certainly 97 1 understood, to CEC. I had had many experiences of 2 sitting in meetings where DLA Piper and Pinsent Masons 3 were present. DLA Piper always did the drafting of the 4 changes to whatever we were talking about, and quite 5 frequently when I read them the following day, or 6 whenever they were produced, it was as though they were 7 minutes or notes of a different meeting to the one that 8 I attended. And we had to go back over several 9 iterations to get an agreed wording for what I believed 10 the discussions entailed. 11 So when Mr Gallagher said that DLA Piper had 12 communicated to CEC, the extent of the potential future 13 delays and price increases, I queried in my own mind 14 what had they actually said, which is why I drafted 15 this, but my Chief Executive said: the man has told you 16 that his lawyers communicated it to CEC, don't upset 17 your relationship with him, don't send it; so I didn't. 18 CHAIR OF THE INQUIRY: Why did you send your draft letter to 19 your Chief Executive? Was that Mr Enenkel? 20 A. Yes. 21 CHAIR OF THE INQUIRY: Why did you send this draft letter? 22 A. We were in Wiesbaden when I did it. 23 CHAIR OF THE INQUIRY: Sorry? 24 A. I was in Germany when I did it. 25 CHAIR OF THE INQUIRY: When you drafted this letter? 98 1 A. When I actually got the -- the final copy ready to sign, 2 yes. I mean, it's fairly -- potentially explosive if 3 CEC hadn't been informed. I probably showed it to him, 4 in truth. I'm sending this, just to confirm my 5 discussions with Willie Gallagher, to make sure, because 6 the last thing that we wanted, my Lord, was to get into 7 a contract where the client thought he was buying one 8 thing and in actual fact he was buying something else, 9 which is what happened. 10 CHAIR OF THE INQUIRY: So the sequence was that you had the 11 meeting with Mr Gallagher in Edinburgh, on 17 April and 12 perhaps a telephone call on the 22nd, but you also had 13 some sort of meeting with Mr Flynn to agree the terms of 14 the letter? 15 A. We were both based in Edinburgh for pretty much five 16 days a week in the same office complex, temporary 17 office. 18 CHAIR OF THE INQUIRY: So the terms of the letter were 19 agreed in Edinburgh with Mr Flynn. 20 A. Yes. 21 CHAIR OF THE INQUIRY: Then you went to Wiesbaden. 22 A. Twice a month, yes, as I said. 23 CHAIR OF THE INQUIRY: It was in Wiesbaden that you printed 24 out the version to be signed? 25 A. I think if my recollection is actually correct, I showed 99 1 it to a guy called Axel Metzger, who said we ought to 2 show this to Enenkel. 3 CHAIR OF THE INQUIRY: Am I correct, are you saying that it 4 was printed out in Wiesbaden? 5 A. One can print out anywhere, my Lord. 6 CHAIR OF THE INQUIRY: I appreciate that, but I'm just 7 wondering why you would do that. If Mr Flynn -- was 8 Mr Flynn in Wiesbaden? 9 A. No. 10 CHAIR OF THE INQUIRY: Can you explain why you didn't just 11 print it out in Edinburgh for Mr Flynn to sign? 12 A. I can't. 13 MR MACKENZIE: What was your reaction to Mr Enenkel's 14 decision that the letter shouldn't be sent? 15 A. I wasn't happy. 16 Q. Did you tell him that? 17 A. Yes. 18 Q. And why weren't you happy? 19 A. I think it's self-explanatory, to be honest. Had 20 I signed it, and actually sent it, then I would be able 21 to sit here and say I took absolutely every single 22 measure that I could have done to ensure that the 23 ultimate body in City of Edinburgh was aware, whereas in 24 the end I took a verbal say-so. 25 Q. Was there any discussion or consideration to the 100 1 consortium contacting the Council direct with their 2 concerns? 3 A. Not at that stage, no. No. We had no contacts with 4 City of Edinburgh at all. 5 Q. Do you consider that would have been appropriate? 6 A. Hindsight, I would say no. We did ask very early on 7 for -- we did -- I'm not sure if we contacted tie about 8 it. I think we did, but we asked for a letter from City 9 of Edinburgh underwriting tie, because tie ostensibly 10 was an arm's length company set up to deliver this 11 project and was actually didn't -- didn't have any 12 capital value behind it. And with the failure of the 13 Edinburgh airport rail link in the recent past, we 14 wanted assurance from City of Edinburgh Council that 15 they would fully support tie and act as a guarantor to 16 tie. 17 But I do think we approached tie over that, and to 18 request that, and not City of Edinburgh. 19 Q. Now, I think this letter, although a draft letter, it 20 hasn't previously been produced to the Inquiry. So 21 I should ask, where did it come from? Was it among your 22 records? 23 A. My personal record, yes. 24 Q. Your personal records? 25 A. And I was telephoned yesterday, just before I left to 101 1 drive up here after it -- I believe, Mr McFadzen 2 referenced it. 3 Q. So do you have other personal records relating to the 4 tram project? 5 A. Not that you don't have, I believe. The reason you 6 don't have this one is it didn't have a signature on the 7 bottom. So I didn't see the relevance to the Inquiry. 8 Q. So just so I can be quite clear, is it your position you 9 don't have any other documents you consider are of 10 relevance to the Inquiry's terms of reference? 11 A. That's correct. 12 Q. I would like to move on, please, to another price 13 increase. The best document is perhaps CEC01274958. 14 CHAIR OF THE INQUIRY: While we are waiting for that, if the 15 letter had been sent and the City of Edinburgh had 16 decided that they weren't going ahead with the project 17 because -- if they didn't know about the risks and 18 decided not to go ahead, what implications would that 19 have had for you? 20 A. Well, I was trying to build a business for Bilfinger 21 Berger in the UK. It would have set back the building 22 of that business until we could find something to 23 replace it. 24 As it happened, we were on the way to being awarded 25 the M80. So it wouldn't have had much effect at all. 102 1 As it happened. 2 CHAIR OF THE INQUIRY: But given Mr Enenkel's reaction 3 you've described, do you think it would have had any 4 effect on your continued employment with -- 5 A. No. 6 CHAIR OF THE INQUIRY: -- Bilfinger Berger? 7 A. No. I believe and still believe that Mr Enenkel had 8 every faith in me. 9 CHAIR OF THE INQUIRY: Thank you. 10 MR MACKENZIE: Now, at the top of the screen we can see this 11 is an email from Willie Gallagher dated 30 April 2008 to 12 Mr Hofsaess of Siemens, Mr Enenkel, and also copied in 13 to yourself and others. 14 We can see the email begins: 15 "I met with Richard and Michael prior to the Tram 16 Project Board at 3.30 pm today. Richard formally 17 communicated that BB require an additional GBP12 million 18 to exclude the deal. The rationale was sketchy ..." 19 Do you remember this request for an additional 20 GBP12 million? 21 A. Yes. 22 Q. What were the reasons for that request? 23 A. Essentially that our increasing concern that the 24 information we were being given about the progress of 25 the design and the progress of MUDFA was still not 103 1 correct. 2 Q. What reasons were given to tie for the price increase? 3 A. I can't recall. 4 Q. You see, Mr Gallagher describes the rationale as 5 sketchy. Was that a fair description of the rationale? 6 A. No. It's subjective, isn't it? What I said is we have 7 got increasing concern that what we're being told is not 8 the reality, and therefore we want some extra 9 reassurance in terms of money. 10 Q. Were you involved in the discussions which followed this 11 request and the agreement reached? 12 A. I don't think so. I don't think Willie Gallagher wanted 13 me in there. 14 CHAIR OF THE INQUIRY: He says that quite clearly, doesn't 15 he? 16 A. Yes. 17 CHAIR OF THE INQUIRY: In the middle paragraph, that he 18 wants -- he wants you taken off the project, 19 effectively. That seems to be what he's saying in that 20 middle paragraph. 21 A. Yes. 22 CHAIR OF THE INQUIRY: Were you taken off the project by 23 that time? 24 A. No, my Lord. Not until after the Mar Hall Agreement in 25 2011. 104 1 MR MACKENZIE: So at this time I think we've heard evidence 2 that the price increase was resolved by the Kingdom 3 agreement. If we can perhaps go to that, please. It's 4 WED00000023. 5 We can see condition 1 refers to an incentivisation 6 bonus and condition 2, reference to a payment of 7 GBP3.2 million in relation to phase 1b. In short, were 8 you involved at all in any of the discussions -- 9 A. Yes. 10 Q. Yes, you were? 11 A. Yes. 12 Q. Leading to this Kingdom Agreement? 13 A. Yes. 14 Q. What are your views on condition 1, the reference to the 15 incentivisation bonus of GBP4.8 million? 16 A. Well, firstly, to be awarded -- if we take the first 17 bullet point -- GBP1.2 million within seven days of 18 issue of Sectional Completion A, that is not an 19 incentive. If it was sectional completion A by such and 20 such a date, that would be an incentivisation. It was 21 a matter of fact that we would achieve at some time that 22 sectional completion and be given the 1.2 million. 23 Likewise for the other three amounts under the total 24 in 4.8. It was basically a way of adding 4.8 million to 25 the contract price without it showing up on the headline 105 1 figure. 2 CHAIR OF THE INQUIRY: It does say at the bottom, after the 3 sectional completions, "as detailed on the contract 4 programme in Schedule Part 15". Did the contract 5 programme give dates for completion of sections A, B, C 6 and D? 7 A. Yes. 8 CHAIR OF THE INQUIRY: So would that not be read along with 9 that programme then? 10 A. The contract programme was able to be adjusted on the 11 issue of design. The design was already behind. So in 12 actual fact the dates were probably not achievable in 13 the first instance. 14 MR MACKENZIE: In relation to the payment of GBP3.2 million 15 in relation to phase 1b, could I take you to something 16 in your statement, please, at page 19, paragraph 28. 17 There I think there had been some previous 18 discussion at the end of 2007 in relation to this sum, 19 and you refer here to an email dated 12 December 2007 20 from Michael Flynn in Siemens which referred to the 21 transfer of money from 1a price to 1b price, and you 22 say: 23 "This was tie's attempt to reduce the price of 24 phase 1a by moving monies for phase 1a into phase 1b 25 because phase 1b did not seem to be under the commercial 106 1 scrutiny that phase 1a was, and it was an attempt to 2 mislead City of Edinburgh Council. There cannot have 3 been any other reason for it." 4 Now, why do you use the word "mislead"? 5 A. Well, that was my deduction because I felt all along 6 that there was a certain financial gateway to go 7 through, or goalpost to go under that City of Edinburgh 8 had set, and I felt there was manipulation of money to 9 achieve that. There didn't seem to be same sort of 10 scrutiny on 1b, and I deduced for myself -- whether 11 I was right or wrong, I don't know to this date, 12 I cannot say, but that was the feeling that I had. That 13 was the feeling that I have now, is that money was 14 manipulated to move it from a section which was under 15 quite close scrutiny to one that wasn't, and that to me 16 is misleading. 17 Q. We see of course the reference in the Kingdom Agreement 18 in May 2008 to payment of the 3.2 million essentially if 19 phase 1b doesn't proceed, to oversimplify it. 20 What was your view around May 2008 as to whether 21 phase 1b was likely to proceed? 22 A. I don't recall whether I had a particular view. 23 I wasn't concerned because we had what we felt was the 24 right price for phase 1b. The design was much more 25 developed in phase 1b, much more straightforward because 107 1 it was -- a lot of it was on an old railway track, which 2 was free of utilities. And the design was more 3 developed. So I was reasonably confident that our price 4 was correct. There was an extra 3.2 million in there. 5 If it didn't go ahead, we would get it back anyway. So 6 it didn't unduly concern me. 7 Q. Thank you. I would like now to move on to financial 8 close, which I think took place on 14 and 15 May 2008, 9 and start by just asking you a few general questions, if 10 I may. 11 Firstly, what were your views just before contract 12 close as to whether the outstanding design approvals and 13 consents were likely to be completed and obtained in 14 accordance with the design programme then in force? 15 A. Firstly, the design programme was revised on a monthly 16 basis, and habitually it slipped in time on a monthly 17 basis. 18 Our design programme incorporated into the contract 19 was version 26. We were already at version 31. That 20 would immediately give rise to a Notified Departure 21 number 1 upon -- upon award of the contract, and 22 contract signing. 23 So we had mechanisms to transfer the risk of 24 slippage in the design programme embodied in the 25 contract. So I wasn't unduly concerned about it. 108 1 Q. I think the question was a rather different one. What 2 were your views around that time on whether the 3 outstanding design approvals and consents were likely to 4 be completed and obtained in accordance with the SDS 5 programme in May 2008? 6 A. I believed they would continue to slip. 7 Q. Based on ... 8 A. Previous experience. 9 Q. A similar question in relation to the MUDFA works. What 10 were your views around the time of contract close as to 11 whether the MUDFA works were likely to be completed in 12 accordance with the MUDFA programme then in force, ie by 13 late 2008? 14 A. Well, I was informed that there were mitigation measures 15 which tie were employing, both with the designer in fact 16 and with MUDFA, to ensure that although they wouldn't be 17 completed at the time of signing, they would be 18 completed in time for us to progress the works in 19 accordance with our construction programme. 20 Q. On the question of Notified Departures, what was your 21 view just before contract close on the likely number and 22 value of Notified Departures that would arise after 23 financial close? 24 A. Probably several hundred after financial close. In 25 terms of value, I could only put a finger in the air and 109 1 make a -- albeit an educated guess at it, that's all it 2 would be. 3 Q. If we could then please go back to your statement, at 4 page 40? 5 A. Probably back up to the 70, 80 million-ish that I always 6 thought. 7 Q. You'll see at the top of the page in line 2, you say: 8 "It is my belief that several hundred changes were 9 likely to arise prior to contract completion. Although 10 I did not consider the likely total value of the 11 Notified Departures at the time, I think the end total 12 ended up being tens of millions. This was discussed 13 with tie on numerous occasions prior to contract close. 14 Willie Gallagher even stated, 'We all know the price is 15 going to go up once the contract has been awarded'." 16 Is that a reference to the evidence you've given 17 already this morning? 18 A. Yes. 19 Q. About your discussions with both Willie Gallagher and 20 others in tie? 21 A. Yes. 22 Q. If we go to page 99 of your statement, please. Do you 23 remember Mr Gallagher saying anything in relation to the 24 price or the price increase at the time of signing the 25 contract? 110 1 A. If we talk about the week around the signing of the 2 contract, yes. 3 Q. What did he say? 4 A. He could not go back to City of Edinburgh Council and 5 ask for more money when we hadn't even put a shovel in 6 the ground. 7 Q. So what had prompted him saying that? What was the 8 context for that? 9 A. The slippage in the construction programme corresponding 10 to the slippage in the Design Delivery Programme. If 11 one can recall, Mr Mackenzie, our price was based on 12 drawings as of 25 November 2007, and our programme was 13 based on version 26 of the design programme, and time 14 had marched on and both of those had changed. 15 Q. I will come back to the passage you've given evidence of 16 there. I would like to try and keep things in order for 17 just now, if I may. 18 If I can go to paragraph 33 on page 99. We can see 19 there you say: 20 "On 14 May 2008, we signed the Infraco Contract. The 21 price which was included in that Contract was based on 22 significant assumptions and both Infraco and tie knew 23 that the price was going to increase as soon as we 24 signed the Contract. We all knew that. I recall 25 Willie Gallagher, tie's Chief Executive saying this to 111 1 me as the Infraco Contract was signed." 2 What's your position today? Do you recall that 3 being said or not? 4 A. Yes. And then he explained to me afterwards that he 5 couldn't do it immediately because we'd not even 6 started. We'd not even got construction issued drawings 7 on that date. 8 Q. So that discussion you're referring to, did that take 9 place on the day of contract signature? 10 A. That day or -- probably the next day, to be honest. 11 I would think that had we had that discussion on the day 12 of contract signature, I might not have put pen to 13 paper. 14 Q. I see. So this discussion took place shortly after the 15 contract signature? 16 A. Yes. 17 Q. Had it been prompted by anything you had said in 18 relation to Notified Departures or how they were going 19 to be dealt with or what? 20 A. It's quite clear in the contract how they would be dealt 21 with. It's quite clear in the contract they would 22 become -- some of them would become applicable 23 immediately on signing. I have forgotten what time of 24 day we ended up signing, but I can remember leaving the 25 premises at midnight on 13 May, much to the -- I won't 112 1 use the word disgust of tie, but they did not want us to 2 leave, but we'd been at it for something like 16 hours, 3 trying to finalise the last bits and pieces; and I led 4 my team away at midnight and we returned at 8 o'clock 5 and went on until, I think, quite late in the afternoon 6 of the following day. 7 MR MACKENZIE: My Lord, I'm about to turn to another 8 document. This might be a suitable time to break for 9 lunch. 10 CHAIR OF THE INQUIRY: Just before we adjourn for lunch, the 11 contract was signed and, as I understand your evidence, 12 it was understood by everyone that the minute the 13 contract was signed, there would be an immediate 14 Notified Departure. 15 A. Yes, my Lord. 16 CHAIR OF THE INQUIRY: Entitling the Infraco to 17 additional -- to money. 18 A. Yes, my Lord. 19 CHAIR OF THE INQUIRY: Payment. Did you trigger that or 20 attempt to trigger that the day after or shortly after 21 the contract? 22 A. Shortly afterwards, with Notified Departure number 1. 23 CHAIR OF THE INQUIRY: Was that what prompted the comment by 24 Mr Gallagher that he couldn't go to the Council for 25 money for that, when there hadn't been a shovel put in 113 1 the earth? 2 A. I believe it probably did, yes. 3 CHAIR OF THE INQUIRY: So was there anything further 4 discussed about when you would get your -- when he would 5 process -- 6 A. We had -- we had some lengthy discussions which 7 terminated in -- in what I call a gentleman's agreement 8 between him and I. 9 CHAIR OF THE INQUIRY: When was that? We may come on to 10 that this afternoon, I don't know. 11 MR MACKENZIE: I think we will, my Lord, yes. 12 A. Over the next few weeks. 13 CHAIR OF THE INQUIRY: I understand we're going to come on 14 to that. So we will adjourn for lunch until 2 o'clock. 15 (1.00 pm) 16 (The short adjournment) 17 (2.00 pm) 18 CHAIR OF THE INQUIRY: Good afternoon, Mr Walker. You're 19 still under oath. 20 A. Thank you. 21 MR MACKENZIE: Thank you, my Lord. 22 Mr Walker, I would like to turn, please, to Schedule 23 Part 4 of the Infraco contract. So if we could go, 24 please, to USB00000032 and if we could go to page 15, 25 please. We see an Appendix A, Construction Works Price 114 1 Analysis. We see at the top a lump sum firm and fixed 2 price of just over 231 million. We then see at the 3 bottom a reference to Construction Works Price of just 4 over 238 million. 5 In relation to the extent to which the Construction 6 Works Price was truly a firm and fixed price, you have 7 expressed your opinion in your statement, if we could go 8 to that, please, it's at page 39 of your statement. In 9 paragraph 77 you explain that: 10 "The extent to which the Construction Works Price 11 was fixed and firm was approximately 45 to 50 per cent." 12 Now, why do you say that? 13 A. That was the view that I had of how much of the job we 14 could actually price in a firm manner. 15 Q. Do you consider tie were aware of that view? 16 A. Absolutely. It's written down in the contract. Well, 17 possibly the percentage isn't, but the fact that it is 18 not fixed is written down clearly in the contract. In 19 fact, if I could take you to clause 3.2.1 of Schedule 4, 20 it says the parties acknowledge that the facts and 21 circumstances upon which the price is based are not the 22 facts and circumstances that will apply. 23 Q. Yes, I'll come back to that. To try and sum up your 24 position, is it in short that if tie had had a good 25 understanding of the contract and the facts, then they 115 1 ought to have arrived at a similar view to yourself, 2 that in fact the Construction Works Price were fixed and 3 firm to about the sums you've set out? 4 A. I believe that is reasonable to say, yes. 5 Q. Back, please, to Schedule 4, page 15. In relation to -- 6 we then see "deduct identified value engineering" of 7 about GBP9.9 million. And then a reference, two lines 8 below, to "deduct further value engineering" of about 9 GBP2.6 million. Then go back to your statement, please, 10 to see your views on that. 11 I think it's back to page 39, in paragraph 78. We 12 can see you say in the second sentence: 13 "My belief is that this was an attempt to lower the 14 reported cost of the job as the works were not going to 15 be achievable because there was no time allowed to start 16 amending and researching different designs to 17 incorporate the Value Engineering, so it was 18 a smokescreen. If the VE savings were not achieved the 19 price would go back up. I did not think any of the VE 20 savings would be achieved, and tie was aware of my 21 opinion. In the end I think the vast majority of VE 22 savings were not achieved. I cannot categorically say 23 whether none of them were achieved." 24 When you say there that: 25 "I did not think any of the VE savings would be 116 1 achieved, and tie was aware of my opinion." 2 Do you consider tie was aware of your opinion in 3 that matter before the contract was entered into? 4 A. Yes. 5 Q. How and when were tie made aware of your opinion in that 6 regard? 7 A. I had fairly extensive discussions, I think, with 8 Matthew Crosse about Edinburgh Park viaduct. It's one 9 particular incident. And also the depot is another one 10 that springs to mind. Both of those required third 11 parties to agree to the changes. 12 I didn't believe there was the appetite to even 13 approach the third parties by tie. I didn't believe 14 that the third parties would move in sufficient time to 15 enable those to happen. 16 And they are certainly two that I recall. 17 Q. Even if there had been an appetite to approach third 18 parties, and their consent for these changes had been 19 sought, do we then run into the problem you mentioned 20 this morning, that would have taken time to redesign and 21 was likely to have disrupted the construction programme, 22 and the costs of that may well have outweighed any VE 23 savings? 24 A. If one had waited until the signing of the contract, 25 then that would have been the case, but these issues 117 1 were on the table back in December, some five to six 2 months before. Had they been addressed then, that part 3 of the issue may have been overcome. It may not have 4 been, but it quite conceivably could have been with an 5 extra five to six months. 6 Q. But if the obtaining of consent of third parties hadn't 7 taken place by the time of the signing of the contract, 8 then is it your position it was really then too late to 9 try and seek such consent to VE savings, because the 10 disruption and added cost that was likely to result in 11 would probably outweigh any VE savings? 12 A. Quite possibly, yes. 13 Q. So going back to page 15 of the Schedule Part 4, we see 14 the reference to the two value engineering figures. 15 Just to be quite clear, was it your view, just before 16 the contract was entered into, that the sums shown there 17 for value engineering were not realistic and were 18 unlikely to be achieved? 19 A. Yes. 20 Q. So I think the next question is: why then did the 21 consortium agree to those sums being in the contract? 22 A. We had to produce a price which was in agreement with 23 tie as to what went in the contract. And we also 24 insisted on having in the contract clauses and words 25 which protected us in the event that they weren't 118 1 delivered. 2 Q. Because it may be suggested that it is misleading to 3 agree sums for value engineering if you think they are 4 unrealistic and unlikely to be achieved? 5 A. What I wasn't aware of was any background work with the 6 designer that tie had been doing before they were 7 novated. They could have been, for all I knew, actually 8 working on these and working on third party consents and 9 working on redesign. Without our involvement. 10 So they could potentially have been achieved, but if 11 they hadn't been doing that advance work, they had had 12 knowledge of what these issues were for a good five to 13 six months. They should have been instructing the 14 designer to undertake at least preliminary works to get 15 them up and running. So we were only dotting Is and 16 crossing Ts to finalise them. They were in control of 17 the designer. If they did nothing ... 18 Q. So is it essentially your position the onus was on tie 19 to take steps to ensure these sums could be achieved? 20 A. In terms of instructing the designer to progress on 21 third party consents, absolutely. They were in control. 22 Q. And did you check with tie before contract signature 23 whether they had taken any of these steps? 24 A. I don't think so. 25 Q. The next figures we see are in relation to provisional 119 1 sums of about 11.4 million and just over 8 million. 2 Did you consider at the time of contract signature 3 that the figures shown for provisional sums were 4 realistic and likely to be achieved? 5 A. I thought those were reasonably realistic, yes. 6 Q. Go then -- 7 A. I think, if I can just interject. There was one 8 regarding major utility works in -- I'm not sure whether 9 it was the bottom of York Place. Somewhere around 10 GBP3 million, and I didn't know whether that was -- was 11 realistic or not. But the rest of them generally seemed 12 to be in the right order. 13 Q. Back, please, to page 5 of the schedule. And 14 clause 3.2.1. Have you had a chance to read that clause 15 again recently? 16 A. Yes. 17 Q. What did you understand the purpose of that clause to 18 be? 19 A. To make it perfectly clear that the price that was in 20 the contract did not represent what was going to happen 21 or the cost of what was going to happen in reality. 22 Q. Do you consider there was a good understanding between 23 the parties as to the particular Pricing Assumptions 24 that were known not to be true at contract close? 25 A. I think if someone in the -- the positions that the 120 1 negotiators were in read that, it is absolutely clear 2 what it says. And that's why it's there. Absolutely 3 clear, I would like to reinforce that, and as it should 4 be to anybody in this room now. 5 Q. I think we can read and see for ourselves what it says. 6 It's when there's a reference to "in order to fix the 7 contract price at the date of this agreement certain 8 Pricing Assumptions represent factual statements that 9 the parties acknowledge" in short are not true. It's 10 the reference to certain Pricing Assumptions without 11 going on to then identify what are the Pricing 12 Assumptions that are known not to be true. 13 A. They're listed in 3.4 below. 14 Q. I think 3.4 lists approximately 43 Pricing Assumptions? 15 A. Yes. 16 Q. Is it your position that every one of these Pricing 17 Assumptions was known by the parties at contract close 18 not to be true? 19 A. I don't like the terminology you're using as not to be 20 true. They are -- the Pricing Assumptions are 21 absolutely true. Did all the parties know that if these 22 Pricing Assumptions occurred, the price and/or the time 23 would be affected? Yes, they did. 24 Q. Well, just going back to the wording of 3.2.1, and I'll 25 read the sentence in full. About halfway through it 121 1 begins: 2 "In order to fix the Contract Price at the date of 3 this Agreement certain Pricing Assumptions represent 4 factual statements that the Parties acknowledge 5 represent facts and circumstances that are not 6 consistent with the actual facts and circumstances that 7 apply." 8 So what that clause doesn't say is that all 43 9 Pricing Assumptions represent factual statements that 10 the parties acknowledge represent facts and 11 circumstances are not consistent, et cetera. It refers 12 to certain Pricing Assumptions being based on facts 13 which are known not to be true. I just wonder, why 14 hadn't those particular Pricing Assumptions identified 15 which were known to be based on facts that weren't true? 16 A. What I would like to say is that to arrive at these 17 words, there were many hours of discussion, negotiation, 18 to-ing and fro-ing, drafts put forward, amended, 19 redrafted, to actually arrive at these words. 20 Q. Now, I would like to -- unless there's anything else in 21 Schedule 4 you would like to draw our attention to, I'll 22 move on from that. 23 A. All I would like to say is that it is quite clear that 24 Schedule 4 means that the price is -- for the works is 25 not fixed and firm. And to give the importance of this 122 1 document, I insist that it was listed in clause 4.3 of 2 the main contract, priority of documents, and I would 3 like, if you can, as to put that up for people to read. 4 Which basically says something of the order: nothing in 5 this agreement shall prejudice the right of the 6 contractor to claim just compensation for events which 7 occur through Pricing Assumptions listed in Schedule 4. 8 Q. Yes. I think you do make these points in your 9 statement, Mr Walker, and these points are all duly 10 noted. 11 A. Accepted. 12 Q. I would like to move on to something you touched upon 13 just before lunch, this question of your discussion with 14 Mr Gallagher after the contract was signed. Perhaps the 15 best way to do that is to go to your statement, please, 16 at page 43 and paragraph 87. 17 In the second sentence you say: 18 "As identified in the contract, it was likely there 19 was going to be a Notified Departure immediately on 20 signing, primarily because of the programme issue. We 21 raised this Notified Departure and Willie Gallagher said 22 that tie could not be seen to be increasing the duration 23 and the price of the contract when no work had 24 physically been carried out." 25 Is that a reference to what you told us about this 123 1 morning? 2 A. Yes. 3 Q. And you think this conversation took place shortly after 4 signing of the contract? 5 A. Within a couple of weeks, I would suggest, yes. 6 Q. To read on, you say in your statement: 7 "I actually said, "Well, it is the middle of May 8 now, we can wait until the holiday season. We will work 9 in good faith over the summer period and we will get 10 some holes in the ground and some structures up and some 11 works visibly seen and we will keep a record of 12 everything and then we will submit it in September so 13 that you can pay us then, when you have some works on 14 the ground to show what is going on'. We shook hands on 15 it and he agreed." 16 To pause there, is this a reference to the 17 gentleman's agreement -- 18 A. Absolutely. 19 Q. -- you've referred to elsewhere? 20 A. Absolutely, Mr Mackenzie, yes. 21 Q. Just for the avoidance of doubt, what exactly was 22 agreed? 23 A. That I would work to the best of my endeavours to 24 progress whatever works that I could, that I had access 25 to. I would keep records of them, and in September we 124 1 would raise the relevant notices, and we would then 2 evaluate those and submit them with our monthly account, 3 and assuming that they were -- they were fair and 4 reasonable, there may have been a bit of negotiation on 5 the prices, but the monies would be incorporated into 6 our payment. 7 Q. Why was what you -- sorry. Why was the agreement you 8 had reached different to the contract in which Bilfinger 9 were obliged to carry out works in any event? What was 10 the difference? 11 A. Well, the contract requires that an Infraco notice of 12 Notified Departure -- Infraco notice of tie change, 13 I think is the word, becomes a Notified Departure which 14 becomes a mandatory tie change. 15 Clause, I think it was 80.13.1, actually forbids the 16 contractor from commencing work until agreement has been 17 reached, and the notice of tie change issued. 18 So we put in Notified Departure number 1. Until 19 that is agreed, we're not permitted by the contract to 20 progress works. 21 Mr Gallagher had said that that wasn't really 22 acceptable because it was, I think possibly too 23 embarrassing to go back to City of Edinburgh Council on 24 day 1 or 2 of the contract and say: we owe these guys 25 some time, which was eventually agreed at 7.3 weeks, and 125 1 we owe these guys some money, which was eventually 2 agreed some time later at 4.9 million; and had we stuck 3 to the letter of the contract, we were actually not 4 permitted to start work until both the time and the 5 price were agreed. 6 That's what clause 80.13.1, I think it is, states. 7 Q. Did you make Mr Gallagher aware of your interpretation 8 of the contract during this meeting? 9 A. I don't believe I needed to. 10 Q. Does that mean you didn't make him aware of that? 11 A. I think he was perfectly aware of what clause 80.13.1 12 said. 13 Q. So was it in short your position that this gentleman's 14 agreement was essentially an agreement to put the strict 15 terms of the contract to one side to allow some work to 16 be carried out in the meantime? 17 A. Yes. 18 Q. Can you remember where this conversation took place? 19 A. In his office. Just refresh me, is it Centre Point or 20 CityPoint? 21 Q. I think it's CityPoint. 22 A. CityPoint, isn't it? Apologies, thank you. 23 Q. Did you keep any record of this discussion and 24 agreement? 25 A. No. 126 1 Q. Now, when you say works were then carried out, was that 2 in relation to Leith Walk? 3 A. Yes. 4 Q. Can you perhaps give an overview of the works that the 5 consortium attempted to carry out and the difficulties 6 and problems you experienced? 7 A. Well, in Leith Walk my interpretation is that we should 8 have had exclusive access to the working area which we 9 deemed to be approximately 300 to 350 metres in length. 10 The utility contractor was still working away in there. 11 We started where we could. We had to -- one of the 12 tasks we had to do was to re-align the kerbs where Leith 13 Walk was -- had intermittent car parking bays and we had 14 to straighten the kerb line out. 15 We were seldom given more than 20 to 25 metres at 16 a time. So we would have to mobilise the workforce, 17 mobilise a section of traffic management, put it all in 18 place, set to work, do 25 metres of work, strip it all 19 down, and move not to the adjacent 25 metres, but 20 possibly 200 metres up the road. Maybe even to the 21 other side, and put in another set of traffic management 22 and start it all over again. There was no consistency, 23 no flow of work. Stop, start, stop, start. 24 Q. What effect does that have on you as a contractor, 25 including your pricing for that work? 127 1 A. It delays it considerably. It's multiple mobilisations 2 of traffic management and temporary works. There were 3 also, I recall, many minor utilities which required us 4 to divert them because they had not been diverted by the 5 MUDFA contractor. 6 Q. Do these matters in short increase your costs? 7 A. Absolutely. 8 Q. So did these works take place perhaps over the summer of 9 2008; is that correct? 10 A. I believe so, yes. 11 Q. I think you also refer in your statement to then, 12 I think, in September, a further meeting with 13 Mr Gallagher; is that correct? 14 A. That's right, I went and told him: this is what we've 15 done. These are the records we've got. We would like 16 our valuation included in the next payment, please. 17 Q. What was the response? 18 A. He said he'd talk to his people and get it sorted for 19 me. 20 Q. Then did you include these valuations in the next 21 payment? 22 A. I believe we did, yes. 23 Q. What happened? 24 A. We didn't get anything. 25 Q. What happened after that? 128 1 A. I actually compiled a -- what you might call a photo 2 montage of the situation. Some aerial photographs 3 outlined what was our theoretical working area with 4 unrestricted access in accordance with clause 18-point 5 something in the main contract. 6 And I overlaid that with what we actually had to 7 show him the extent of the disruption. 8 Q. Was there -- 9 A. And asked again please could he resolve the payment 10 issue. 11 Q. What was the response? 12 A. He then also agreed again to speak to his people. 13 I believe he said it was administration oversight or 14 something, and he would get it resolved and we would get 15 paid. 16 Q. And did you? 17 A. No. 18 Q. How did that affect the consortium's view of the 19 contract and doing the works? 20 A. Well, in that time Mr Gallagher resigned to spend more 21 time with his family. Mr Mackay stepped in as interim 22 Chief Executive, and basically told us not a penny more, 23 I believe, and also said it publicly in the press in 24 contravention of clause 101. 25 And I said -- I may have actually said to 129 1 Willie Gallagher at the time that if we don't get paid, 2 we will have to resort to the terms and conditions of 3 the contract, but certainly when Mr Mackay came on the 4 scene, I said: you leave us no alternative but to pick 5 over the contract and let the contract do its work. 6 It's there for the protection of both parties. 7 Q. If we go back to your statement, please, at page 44, we 8 can see the top, you say: 9 "So in good faith, we put that to one side ..." 10 That's a reference to the contract, in particular 11 clause 80.13: 12 "... and we carried on working." 13 You refer to the September meeting you have told us 14 about, and also an October meeting you've told us about. 15 You then say: 16 "At that time we had undertaken that the cost of our 17 disruption was around GBP2.5 million." 18 Is that correct? 19 A. Yes. 20 Q. We can also see what you say there, I think in your 21 statement you do there say: 22 "If this did not happen then the goodwill would 23 disappear and we would have to revert to the contract 24 and not commence works subject to a tie change." 25 We can see what else is said. 130 1 You also say: 2 "Close and proper administration of the contract was 3 actually going to be embarrassing to tie in respect of 4 time and monies becoming due immediately (before we had 5 even started work). Willie Gallagher and tie refused to 6 keep their end of the deal and we were approximately 7 GBP2.5 million out of pocket." 8 It may be obvious, but could you explain what you 9 meant by "close and proper administration of the 10 contract was actually going to be embarrassing to tie"? 11 A. Well, as I have described a few minutes ago, 12 clause 80.13.1 does not permit the contractor to start 13 work until a Notified Departure has been agreed. So if 14 we put Notified Departure number 1 in for the extension 15 of time with costs, and it's not agreed, we can't 16 actually do anything else. The contract does not permit 17 us to do anything else. It's basically unworkable. 18 Q. In terms of the applications for payment made by the 19 consortium in certainly October, could we look, please, 20 at document CEC01122383. We can see this is a letter 21 dated 20 October 2008 from Colin Brady, the consortium's 22 Project Director, addressed to Steven Bell. 23 We can see from the heading it relates to 24 "Application for Milestone Payment No 10 - Schedule 25 Part 5". Then over the page, please, to page 2. Try 131 1 and blow this up, I think. In short, Mr Walker, what 2 I was trying to do was to find a sum relating to either 3 the GBP2.5 million you'd mentioned in your statement or 4 in relation to the utility works -- the works being 5 carried out on Leith Walk, and I couldn't immediately 6 see a sum here, but it may be I'm either missing it or 7 looking at the wrong document. 8 Can you help with that at all if we just scroll down 9 a little? 10 A. No, I can't see it either. 11 Q. Is this the document one would expect to see it in, or 12 have we got the wrong document? 13 A. No, I think you would expect to see it in this one or 14 the month after, yes. 15 Q. There was one other document we managed to track down 16 around this time. If we can go, please, to CEC01123714. 17 This was a letter dated 3 November 2008 from Mr Bell to 18 Colin Brady in relation to the same interim certificate 19 number 10. 20 Then over the page, please, page 2, if we can blow 21 that up, I think we see -- carry on scrolling down, 22 please. Thank you. 23 I think that's similar to the document we looked at 24 before, the application. Again, for my part I couldn't 25 see these sums. 132 1 A. The way that this valuation actually works is that it is 2 agreed between the parties and what is agreed is then 3 submitted on paper. So if they hadn't agreed the 4 2.5 million, it wouldn't have been on that paper. 5 Q. So there might be a prior document in which Bilfinger 6 submitted claims for the sums you have mentioned -- 7 A. There certainly should be. 8 Q. There should be? 9 A. Yes. My recollection is that there would have been, 10 yes. 11 Q. It's a point of detail, but to help us find it, do you 12 know what the heading or title of that document may be? 13 A. No idea. I didn't have any involvement in the 14 day-to-day administration of the actual contract. 15 Q. That was taking place at a level or levels below you? 16 A. Yes. 17 Q. Thank you. In relation to the works carried out by the 18 consortium at Leith Walk, did you continue to undertake 19 works in Leith Walk until the end of 2008 and indeed 20 into the beginning of 2009? 21 A. We were actually instructed at some stage, the date 22 I cannot bring to mind, by Steven Bell, to cease all the 23 works in Leith Walk and remove our workforce and 24 equipment. 25 Q. And why was that instruction given? 133 1 A. Because he could see that we couldn't work in a proper, 2 meaningful fashion. We were arguing with them all the 3 time to pay us for this and to acknowledge the 4 disruption, which Mr Gallagher had said that he would. 5 And it was becoming increasingly strained. The progress 6 of the works wasn't really going anywhere. So we got 7 a letter telling us to move out. 8 Q. If we could go then to document CEC00630202, we see 9 a letter dated 6 March 2009 addressed to Martin Foerder 10 as Project Director of the consortium. If we scroll 11 down, please, we see it's from Steven Bell. Go to the 12 second paragraph, we can see a reference to: 13 "We note your comments contained therein with 14 respect to disruption to the works and the lack of 15 availability of workforces." 16 Do you remember, what was the reference to the lack 17 of availability of workforces? 18 A. I have no idea. 19 Q. Thank you. The next paragraph we can see a reference to 20 Leith Walk, and then in the last paragraph we see the 21 sentence: 22 "In the meantime, we agree that it would be more 23 appropriate to concentrate efforts outside of Leith 24 Walk." 25 So this appears to be the letter you've just 134 1 referred to; is that correct? 2 A. Yes. 3 Q. Could I also ask, please, a question which has arisen, 4 whether the consortium carried out any other on-street 5 works under the Infraco contract with the exception of 6 Leith Walk? 7 A. At this time? 8 Q. Before Mar Hall. 9 A. Yes, we did. 10 Q. Can you -- 11 A. We worked in Princes Street. 12 Q. Yes, I think Princes Street works were carried out under 13 the separate agreement, the Princes Street Supplemental 14 Agreement. So put that to one side. 15 What I'm wondering is whether the consortium carried 16 out any other on-street works under the original Infraco 17 contract with the exception of Leith Walk? 18 A. Before Mar Hall? 19 Q. Yes. So any time between May 2008 and Mar Hall in 20 March 2011. 21 A. I can't recall, I'm afraid. 22 Q. Could I take you, perhaps, to page 46 of your statement, 23 please. 24 Approximately in the middle, there's a sentence that 25 begins: 135 1 "Typically on Shandwick Place, which is a stretch 2 about 700 metres long, after MUDFA had completed their 3 work in Shandwick Place, there was still 302 utilities 4 within our designated working area that had not been 5 moved." 6 I wonder from that whether the works in 7 Shandwick Place carried out by the consortium were 8 carried out before Mar Hall or after, if you can recall? 9 A. I think they were carried out before because we were 10 able to chart the services which had not been moved. 11 At -- MUDFA had gone through and we chartered the 12 services that were left. So from that I had deduced 13 that we had worked in Shandwick Place. It was what I 14 was pondering when I paused in my answer before. 15 Q. We have Jim Donaldson coming tomorrow. Is this an issue 16 he could perhaps help us with? 17 A. I would think so. Jim Donaldson was one of the guys in 18 control out on the site. 19 Q. I would like to move on to the Princes Street dispute. 20 What was the cause of the Princes Street dispute? 21 A. We submitted an Infraco notice of tie change for 22 alterations to traffic management in the sum of 23 GBP8,000, which included GBP1,500 in terms of 24 preliminaries, which was in accordance with the 25 contract. 136 1 tie refused to pay the 1,500, to agree to pay the 2 1,500 preliminaries. That meant that that was in breach 3 of the words of the contract, in my opinion, and 4 therefore, in accordance with clause 80.13.1, we weren't 5 in agreement. So we were prevented from starting work. 6 Q. Would it be fair to say the underlying cause of the 7 dispute from your perspective is essentially that the 8 consortium insisted on compliance with the contract, as 9 you interpreted it? 10 A. Yes. 11 Q. And that perhaps was flavoured by your experience in 12 Leith Walk; is that fair to say? 13 A. We had referred, I think, to both Mr Gallagher and 14 Mr Mackay that we now had to work in -- strictly in 15 accordance with the terms of the contract. As I had 16 looked Mr Gallagher in the eye and shaken hands on 17 something which his party then reneged on. 18 Q. Can you remember, was it a decision of Bilfinger UK or 19 Bilfinger Germany or both to take this position? 20 A. Both. 21 Q. Can we go to a document, please, CEC00867153. Halfway 22 down we can see this is an email from Robert Sheehan 23 dated 18 February 2009 to Steven Bell in relation to 24 Princes Street. Do you remember who Mr Sheehan was? 25 A. Yes. 137 1 Q. Who was he? 2 A. He was attached to the Wiesbaden Legal Department, 3 Contracts Department, I think. 4 Q. What I'll do is just let you read the text for yourself, 5 and let's see, I think, what has prompted this. We can 6 see: 7 "Following our meeting on 17 February 2009 we have 8 been asked the following question: 9 Is it Infraco's position that there is no 10 obligation to accept a tie instruction to commence work 11 in Princes Street?" 12 Then Mr Sheehan sets out the Infraco position as 13 follows, and I'll let you read those two paragraphs, 14 please, to yourself. 15 Then over the page. (Pause) 16 A. Yes. 17 Q. Do you agree with the position as set out there? 18 A. Yes. 19 Q. Is there anything further you wish to add or is that 20 fairly self-explanatory? 21 A. Only that words were twisted and put in the press in 22 contravention of Clause 101, basically saying that 23 I demanded 80 million before I would commence work. We 24 were looking for either the GBP1,500 premiums or formal 25 instruction from tie, not 80 million. 138 1 Q. I understand. 2 A. And I'm sure that -- if I can interject for a minute, 3 I'm sure that we will come on to the way that I was not 4 allowed to be -- answer questions the press put to me 5 about it. 6 Q. I wasn't planning to, Mr Walker, because you set out the 7 position in your statement, but I think in short, for 8 the record, Clause 101.14 of the Infraco contract, 9 CEC00036952, at page 231, states: 10 "Any public relations material, press release, 11 et cetera, in relation to this Agreement planned by the 12 Infraco requires tie's prior written approval." 13 I think that's the clause you are referring to; is 14 that right? 15 A. Yes. 16 Q. I think essentially your position was that you thought 17 that was unfair because tie could speak to the press, 18 but Infraco couldn't, and tie didn't approve Infraco's 19 requests under that clause to issue press releases, 20 et cetera? 21 A. My recollection is earlier parts of the clause are 22 binding on both parties, not to divulge information 23 about the contract. In terms of that particular clause 24 or subclause, we had questions from the press. We put 25 model answers to it. We submitted both to tie and asked 139 1 for permission to release them, and we were not given 2 permission. But earlier on I'm sure it says that the 3 confidentiality clauses are incumbent upon both parties. 4 I would have to read it again to be sure. 5 Q. We can all go back and read that for ourselves, thank 6 you. 7 Returning to the Princes Street dispute, were you 8 involved in its resolution? 9 A. No. 10 Q. Did that take place involving Bilfinger Germany 11 individuals? 12 A. No. No, I think it was the operational staff who were 13 on the ground. 14 Q. I think we know that Princes Street Supplementary 15 Agreement was entered into. Did you play a part in 16 that? 17 A. No. I may have signed it at the end, being the nominal 18 figurehead of the company. But in terms of the 19 day-to-day negotiation of bottoming that out, I wasn't, 20 to the best of my recollection, anyway. 21 Q. So just for the avoidance of doubt, who in the 22 consortium was involved in negotiating and agreeing -- 23 A. I would think it would be the Project Director and the 24 Commercial Director. Possibly Mr Sheehan as well. 25 Q. Was the Project Director still Mr Brady at this stage -- 140 1 A. No. 2 Q. Had Mr Foerder joined? 3 A. Mr Foerder. 4 Q. I'll maybe ask him questions about that agreement in 5 that case. 6 Go back to the question of design. Could I ask the 7 general question, please: why did it take so long to 8 complete design and obtain all approvals and consents 9 after contract close? 10 A. The design was so far underdeveloped, there was far more 11 work to do than we thought there should be. Again, I'll 12 reiterate, it was supposed to be 100 per cent complete 13 at the time of award. I trust the same question is 14 asked of people who were in charge of the designer prior 15 to contract award, if I can say that, my Lord. 16 Q. Could we also please go back to your statement at 17 page 54, and to paragraph 99. We see reference to a tie 18 internal email of November 2008 by Steven Bell, 19 et cetera. You then say: 20 "Redesign costs money and therefore SDS needed an 21 instruction, in accordance with the novation agreements 22 and the contract, before they would implement work and 23 therefore we needed an instruction from tie before we 24 pass down the instruction to them. We are not in 25 a position to reimburse them for their costs unless we 141 1 are going to get reimbursed from tie so that was the 2 flowdown, if you like. The dispute between tie and BSC 3 held up completion of the design by SDS and the 4 obtaining of outstanding approvals and consents as they 5 were not going to do the work unless they knew they were 6 going to get paid and we are not going to pay them 7 unless we know we are going to get paid." 8 So I think you do seem to recognise there that the 9 dispute between the consortium and tie affected 10 completion of the design; is that correct? 11 A. The dispute between the consortium and tie, under the 12 operation of Clause 80.13.1, prevented work being 13 commenced. Redesign is work. 14 Q. So would it be fair to say -- and tell me if I'm 15 wrong -- that that dispute between the consortium and 16 tie was the main reason for design not being completed 17 earlier? 18 A. One of the main reasons. 19 Q. In addition to, you would say, the state of 20 incompleteness you inherited? 21 A. Yes. 22 Q. Also, sticking with design, if we can go to page 61 of 23 your statement, please, and paragraph 107, about 24 two-thirds of the way down, a sentence commenced: 25 "The reasons for the continuing delay in completing 142 1 design and in obtaining all outstanding statutory 2 approvals was the quantity and the amount of rework." 3 Is the question of rework, is that another factor 4 for the delay in completing design? 5 A. Well, the rework -- the rework is the design -- the 6 changed design that is required due to the Notified 7 Departures. It needs to be -- you need to view it in 8 two elements. One, design which isn't complete, which 9 isn't going to change from the original concept and just 10 needs doing; and design which is either not done, not 11 complete, that needs to be altered from the concept 12 design because of changes, which at that time were not 13 agreed. So that we would call rework. 14 Q. Presumably -- 15 A. Two elements to it. 16 Q. -- were changes and rework required as a result maybe to 17 obtain the statutory approvals and consents; is that 18 correct? I'm trying to list reasons for rework of 19 design, and one obvious one might be any rework or 20 changes required to obtain an approval or consent. 21 A. I think the two are separate. 22 Q. In what way? 23 A. Rework is required to provide a buildable design, not 24 necessarily to gain approvals and consents. 25 Q. Although presumably if the Council as statutory 143 1 authority, consenting authority, won't grant a consent 2 unless a design is reworked, then it will have to be 3 reworked to get that consent? 4 A. One can't really apply for a consent until the design is 5 done. It's not that rework has to be done to the 6 consent element of it. It's the sequence. 7 Q. I'll move on to another document, Mr Walker. If we 8 could go, please, to CEC00328711. Sticking to the 9 question of design. If we go to page 2, please, if we 10 can blow up about halfway down the page, we can see this 11 is an email from Suzanne Moir of Pinsent Masons to 12 Balthazar Ochoa of Bilfinger, dated 9 December 2009. 13 In the main body of the email, we see a reference to 14 a SDS minute of understanding, MoU, and then it states: 15 "I understand the purpose of the MoU is to get SDS 16 agreement to an acceleration of the design programme, 17 which they will sign up to in exchange for the 18 additional sums payable as set out in appendix 3 ... 19 This is required because Infraco believe SDS may have 20 a successful defence in relation to any claim under the 21 SDS Agreement for late delivery of the design, as 22 a result of BB/Siemens failure to provide design 23 information, carry out the CIDR etc in time and in 24 accordance with the current design programme. This 25 could result in Infraco being exposed under the Infraco 144 1 Contract if as a result of the OSSA or success in the 2 Adjudications, tie instructs or Infraco become obliged 3 to proceed with the works, for which there is no design 4 at this time as a result of Infraco failures as set out 5 above. However, Infraco also believes that SDS is 6 culpable for some of the delay, but intend to deal with 7 this issue 'after the fact', given the potential 8 exposure as a result of the design being incomplete and 9 the need to have SDS 'on side' to assist with future ND 10 claims." 11 A point of detail. Do you know what CIDR stands 12 for? 13 A. No, sorry. 14 Q. Now, this email states: 15 "... as a result of BB/Siemens failure to provide 16 design information, carry out the CIDR etc in time 17 and in accordance with the current design programme." 18 Was it correct that there had been a BBS/Siemens 19 failure in respect of these matters? 20 A. Through a mechanism of down flow, I think the previous 21 document we looked at in the final paragraph, the 22 analogy made there was for the design of a tram stop, 23 could not be commenced until the position of the ticket 24 machine was known, because the ticket machine requires 25 an electrical feed, which must come across the road. So 145 1 until that is known, and that is provided to us by our 2 client, we can't then flow down the information. We 3 can't provide the SDS with the information to design the 4 tram stop. 5 Q. So in answer to the question, do you consider it was 6 correct to state that there had been Bilfinger/Siemens 7 failure to provide design information, carry out the 8 CIDR, et cetera, in time and in accordance with the 9 current design programme? 10 A. As a result -- in terms of the information, as a result 11 of flow down of information. In the SDS's eyes, we had 12 to provide the information. We couldn't provide it. 13 Q. Can we also please see, in the last line of that 14 paragraph, the reference to the need to have SDS "on 15 side" to assist with future ND claims. Do you know what 16 that is a reference to? 17 A. Yes. We have -- when we put in an Infraco notice of tie 18 change, we have 18 days to provide an estimate. If that 19 requires some redesign or some rework of the design, we 20 need that to be done pretty snappily. And we needed the 21 full co-operation of SDS to have the resources 22 available. So if we said: you need to redesign this bit 23 because we have a claim against tie and we do not wish 24 to default on the date that we submit it, so you need to 25 allocate resources immediately to do that. 146 1 Q. Now, do you know whether the draft Memorandum of 2 Understanding was signed or agreed with SDS? 3 A. I believe it was. I don't know. 4 Q. What did you understand was the purpose of that 5 Agreement? 6 A. To incentivise the designer to have adequate resource 7 immediately available at our beck and call. 8 Q. Could I also please take to your statement at page 55. 9 About halfway through the top paragraph, your sentence 10 commences: 11 "I would also state that SDS were never the critical 12 delay on the project, albeit they were also delayed by 13 the continued presence of utilities, etc and the 14 need to complete their design out of sequence. The 15 continued presence of the utilities ... was the critical 16 delay." 17 Is there anything you wish to add to these sentences 18 or do you regard that as self-explanatory? 19 A. I think that's self-explanatory. 20 Q. Now, moving on, we know there were attempts at 21 settlement in 2009 and 2010. And we also know of 22 various adjudication results. I am not going to take 23 you to these matters. They are covered in your 24 statement and other statements, and we can look at the 25 adjudication results ourselves. 147 1 One point of detail. We also know in March 2010, 2 you wrote directly to the Council setting out your 3 concerns? 4 A. Yes. 5 Q. That's covered in your statement, and in your letter 6 I think you mentioned likely additional costs to 7 Bilfinger in excess of GBP100 million. 8 If we go, please, to page 71 of your statement, 9 again halfway through the paragraph, just a point of 10 clarification, if I may, we see: 11 "The figure of GBP100 million was arrived at as we 12 knew the direct costs of the situation at that time. We 13 knew our monthly billing cost." 14 Do you remember what your monthly billing cost was 15 and how it was comprised? 16 A. A contractor's price is generally built up of the cost 17 of direct works, if we exclude the cost of design for 18 the moment, cost of the direct works, cost of risk, and 19 the running costs of the site; and the running costs of 20 the site encompass everything from telephone and 21 photocopier rental and operation to staff, to vehicles, 22 to plant and equipment, to welfare facilities onsite; 23 and I would suggest that we were somewhere between 24 possibly just under the million a month. On a large 25 site such as this, with multiple offices, many, many 148 1 items of equipment, which we paid on quite a lot of them 2 on an hourly or a weekly rate, et cetera. 3 Q. This may be overly simplistic, but does it follow from 4 that that if the consortium was correct in its position 5 in the dispute, then essentially tie were going to be 6 hit by a bill of at least GBP1 million for each month by 7 which the project was delayed? 8 A. That would be reasonable. 9 Q. A separate matter, please. If we can go to document 10 CEC00099403. In the bottom half of the page we see an 11 email. It's an internal one from Richard Jeffrey of 12 tie, dated 8 October 2010, to Tony Rush, David Mackay 13 and Steven Bell. We can see a reference to taking 14 a call from yourself last night. It's the bullet point 15 about four up from the bottom: 16 "They (BB) want out ASAP, a clean break." 17 Was that correct? 18 A. We had been involved in this project for the best part 19 of three and a half years by this time. We were in 20 constant head to head dispute. My personal opinion was 21 if we could get out, that might be the easiest solution. 22 As a company, from -- ruled by my German colleagues, 23 no, they didn't want to get out. 24 Q. I see. So is it the position that you thought that 25 might be a good idea, but BB Germany didn't want to do 149 1 that? 2 A. No, they didn't. 3 Q. Did you discuss that with them around this time? 4 A. At some -- possibly even earlier than this. I will add 5 that it was me at the sharp end that was taking the 6 brunt of all this, beating around the head, as it so 7 clearly put the ... 8 Q. Could I just check then. We know the position that had 9 been adopted by the consortium in the dispute perhaps as 10 reflected in the email we looked at earlier, I think in 11 February 2009. Were you quite comfortable with the 12 consortium's position adopted in the dispute? 13 A. Would you repeat that, please? 14 Q. Yes. The position adopted by the consortium in the 15 dispute was to stick to the letter of the contract? 16 A. Yes. 17 Q. Were you -- I'm just checking, were you quite 18 comfortable with that position? 19 A. Yes. 20 Q. When you telephoned Mr Jeffrey around this time in 21 October 2010, did you have any sorts of figures in your 22 own mind as to a clean break? 23 A. I think some figures had maybe been put in my mind by 24 Mr Jeffrey, is my recollection. 25 Q. So what was Mr Jeffrey's response to this suggestion? 150 1 A. I -- I believe that Mr Jeffrey and tie were talking 2 about terminating the contract anyway. 3 Q. Was that -- 4 A. They kept issuing remediable termination notices. 5 Q. The question of termination, was that something 6 different to the question of a clean break? 7 A. Well, a clean break is an amicable termination, where 8 both parties decide that that's maybe the best thing, 9 we're never going to get on. 10 Q. Were any figures discussed by either yourself or 11 Mr Jeffrey as being the price of a clean break? 12 A. I have a recollection of somewhere around 40, 13 45 million. 14 Q. Do you -- 15 A. I just hope I'm not getting confused with something else 16 that you're going to put up. 17 Q. It sounds from what you've said in any event, however, 18 that that would have been a non-starter because of the 19 position adopted by Bilfinger Germany; is that correct? 20 A. Yes. 21 Q. I think also you refer in your statement to a meeting or 22 meetings with John Swinney around October 2010. Do you 23 recall any such meeting or meetings? 24 A. Yes. 25 Q. Was there one meeting or more than one? 151 1 A. Well, when we were not allowed on a number of occasions 2 to report our position to the press, I discussed with my 3 lawyers who can I talk to, because the contractor story 4 is not being heard, only tie's story. 5 I was informed that I could talk to members of City 6 of Edinburgh Council and members of the Scottish 7 Parliament. So I set about systematically trying to 8 talk to anybody who would listen to me. I had a meeting 9 with Jenny Dawe and Donald McGougan. I had a meeting -- 10 I think my first meeting was with Phil Wheeler, who was 11 Transport Secretary for the Council at the time. 12 I had a meeting at some stage with Alastair Maclean, 13 also with Donald McGougan at that one. I went to 14 John Swinney. I think Keith Brown was present at that 15 meeting. And Ainslie McLaughlin was maybe present at 16 that meeting. I had meetings with Ainslie McLaughlin as 17 well because when he was Transport Scotland, we were 18 doing a project further down the M80, just outside 19 Glasgow. So we had a reasonable relationship with him. 20 I met with Margaret Smith, I think, who was the MP 21 for Corstorphine, is it? 22 CHAIR OF THE INQUIRY: She was the MSP for Edinburgh West. 23 A. Shirley-Anne Somerville, my Lord. 24 Shirley-Anne Somerville as well, I recollect, and the 25 leader of the Labour Party in the Scottish Parliament. 152 1 MR MACKENZIE: Could I come back to the meeting with 2 Mr Swinney, please, in late 2010. 3 A. Yes. 4 Q. What was discussed and what was the outcome? 5 A. Basically I repeated the story that I had put to all of 6 them, is that we had a contract. We'd started working 7 in a goodwill fashion to try and overcome the 8 difficulties. We were stone-walled. We believed that 9 our interpretation of the contract was correct. Nobody 10 would listen to us. Please could somebody do something 11 because we were suffering. The contract was going 12 nowhere. It was constant dispute and somebody needed to 13 read the words and euphemistically to smell the coffee 14 and realise that the project was just going to get worse 15 and worse and worse unless something was done. 16 Q. And what was the outcome of the meeting? How were 17 things left? 18 A. The outcome was up until one particular meeting with 19 Ainslie McLaughlin, the outcome was absolutely zero. 20 And the meeting with Ainslie McLaughlin, nothing 21 appeared to happen, and then two to three weeks later 22 I was summoned to see Alastair Maclean and 23 Donald McGougan, and I went to see them and they heard 24 me, and subsequent to that we ended up in Mar Hall. 25 I also wrote to Tom Aitchison at the time, and I had 153 1 letters back from DLA Piper asking me to withdraw my 2 letter. Otherwise they would sue me personally for 3 defamation, was one of the responses I got. 4 Q. Thank you. My Lord, I'm at the door of Mar Hall. It 5 may be a suitable place to stop. 6 CHAIR OF THE INQUIRY: We will have another break of 7 15 minutes. We will resume again at 3.20. 8 (3.05 pm) 9 (A short break) 10 (3.21 pm) 11 CHAIR OF THE INQUIRY: You're still under oath, Mr Walker. 12 MR MACKENZIE: Thank you, my Lord. 13 Mr Walker, could I turn now to Mar Hall, the 14 mediation in March 2011. 15 Do you have a good recollection of what happened 16 that week? 17 A. Yes. 18 Q. Could I start by asking, please, who were the leads for 19 on the one hand the consortium and on the other tie and 20 the Council at the mediation? 21 A. Susan Bruce was the lead for City of Edinburgh Council, 22 the new leader, and I was the lead for the consortium. 23 Q. Can you tell us, please, what happened over the first 24 couple of days? 25 A. I met Susan Bruce ten minutes before the start. 154 1 I offered if she wished to go first, she could, or if 2 she wished me to go first, I would. She elected to go 3 first. She had a prepared -- looked to be handwritten 4 statement, which she read out. And which gave me the 5 opinion that she had listened to and accepted what she 6 had been told by officials of tie. She completed that, 7 and then I stood up and gave a Power presentation, which 8 clearly demonstrated or in my view clearly demonstrated 9 the kind and level of interruption that we were 10 suffering through the failure of the utilities 11 contractor to progress the works in accordance with not 12 just their programme, but our programme as well. 13 The mediator was a gentleman called Michael Shane, 14 an American gentleman, who had a formidable reputation, 15 being involved in the resolution of the Wembley Stadium 16 construction project. Following the presentations, 17 I was expecting that Michael Shane would be to-ing and 18 fro-ing, mediating between the two sides all day. Maybe 19 coming back and telling us not to be -- to be more 20 realistic in our expectations, et cetera. And we didn't 21 see sight nor sound of him all day. He spent the whole 22 day locked in a room with tie and CEC. 23 The following day, I recollect that the basis of an 24 acceptance by tie and City of Edinburgh, that in actual 25 fact the contract interpretation was in reality as the 155 1 consortium interpreted it. 2 They, I understand, didn't have sufficient budget to 3 complete the whole 18 kilometres, and looked to try and 4 salvage what they could working in true partnership with 5 us. What they could resurrect from the ashes of what 6 was a very, very nasty and horrible contract. 7 The particulars of how that was thrashed out, 8 I wasn't involved in. Whilst they accepted, eventually 9 accepted and believed what I was saying to be right, 10 I didn't win many -- many friends that day, and my 11 involvement basically ceased that week. 12 That's my recollection of it. 13 Q. Pausing day 1, I understand what you say there. I think 14 you mentioned essentially an acceptance that the 15 consortium's interpretation of the contract was correct. 16 Was that expressly said in those terms or was that 17 rather an inference you drew from what happened? 18 A. That's an inference I drew. 19 Q. So that was day 1. 20 Day 2, were you still involved in the negotiations 21 in day 2? 22 A. I was in the building, but I sat around for most of the 23 day. 24 Q. I see. 25 A. I remember being excluded from some meetings. 156 1 Q. Excluded -- 2 A. From most meetings in fact. 3 Q. Excluded by who? 4 A. Well, I was told by Dr Keysberg that I wasn't required. 5 Q. So from day 2 on, did Dr Keysberg lead the negotiations 6 for the consortium? 7 A. Yes, I think that's correct to say. 8 Q. So I should perhaps ask him tomorrow -- 9 A. Yes. 10 Q. -- more detail of what happened, at least from day 2 on? 11 A. I believe there were some sub-groups sat around to 12 discuss various aspects of the project, but the overall 13 lead became Dr Keysberg. 14 Q. Could I please go to the key points of principle 15 document, CEC02084685. 16 I think we can see at the top, if we ignore for just 17 now all the handwriting at the top, and blow up the 18 heading, we can see: 19 "ETN MEDIATION WITHOUT PREJUDICE MAR HALL AGREED KEY 20 POINTS OF PRINCIPLE." 21 Then I think 13 points set out on this page, 22 including 1, the price of 362.5 million for, in short, 23 the off-street works, and then under 2, again read 24 shortly, the target price of GBP39 million for the 25 on-street works. 157 1 Did you play any part in the negotiation or 2 agreement of these figures? 3 A. No. 4 Q. Is that again back to Dr -- 5 A. Other than -- and I notice it says in handwritten 6 "pursuant at Project Phoenix", which I obviously had 7 a hand in, but that was before Mar Hall. 8 Q. So again I should ask perhaps Dr Keysberg about how 9 those figures were arrived at? 10 A. Yes. 11 Q. Thank you. Did you have any views at the time on these 12 sums of 362.5 million and the target price of 13 39 million? 14 A. I wasn't even aware of them at the time. 15 Q. So when were you first made aware of these figures? 16 A. Probably September. 17 Q. September 2011? 18 A. Yes. Maybe August. Some months afterwards, after 19 they'd -- a lot of things had been established. 20 I almost had no involvement after the first day of 21 mediation. I rather suspect, if I may say, that 22 somebody said, as per Willie Gallagher had said earlier, 23 they didn't want me to be part of the job anymore. 24 Q. I understand. When you were first aware of these 25 figures, did you have any views on the figures, 158 1 including whether they were reasonable? 2 A. I think the outcome was a reasonable and probably the 3 best possible outcome that could be had for both 4 parties. I don't think either party was pleased by the 5 outcome at all. I think they were probably both 6 satisfied with the outcome. 7 Q. Now, before leaving Mar Hall, I should say for the 8 record that the Inquiry is aware of a document 9 TIE00670846 which appears to be a note taken of your 10 opening statement by someone in tie, but your position 11 is that you do not accept that that is a true and 12 accurate account of what you said; is that correct? 13 A. It's not a true and accurate account of what I said, no. 14 I've seen it. 15 Q. Thank you. You've made your position clear on that 16 matter. 17 After Mar Hall I should take you to one document, 18 please. It's CEC02083979. 19 CHAIR OF THE INQUIRY: Do you have a copy of your opening 20 statement in your personal papers? 21 A. I don't know, my Lord. I can go and check and inform 22 the Inquiry. 23 CHAIR OF THE INQUIRY: Yes, thank you. 24 MR MACKENZIE: Thank you. 25 Now, this document, we can see, City of Edinburgh 159 1 Council, Post Settlement Agreement Budget, Report 2 19 August 2011. Bottom right-hand corner, we can see 3 it's produced by Faithful+Gould. 4 Now, from what you have said, it relates to a period 5 of time in which you weren't involved in the project. 6 So if you can't answer these questions, you should say 7 so. 8 But if I can go, please, to page 5, and under 9 paragraph 2.7, "On-Street Works", this is setting out 10 the opinion of Faithful+Gould. They say: 11 "We are of the opinion that the on-street work costs 12 are grossly inflated by Infraco both for the civil work 13 and the Siemens works. The Siemens position is 14 explained in paragraph 2.6 above. Siemens hold 15 a 'golden key' due to the materials being on site and 16 already paid in full. With regards to the civil works 17 the cost is also grossly inflated and the contractor has 18 allowed for the very worst-case scenario for all works. 19 If this was a competitive tender then we would expect 20 some of the risk to be taken by the contractor to secure 21 the works. We have highlighted areas that we think are 22 overpriced." 23 We can then see what's set out. 24 Do you have any comments on that passage? 25 A. The only comment I can make is one that I'm thinking 160 1 now, and that is that the price was -- the new cost was 2 negotiated between the teams. tie and CEC were very, 3 very tough negotiators, as were we, as an international 4 contractor, but I don't think it was -- what's the 5 word -- grossly inflated, I think, is probably not 6 correct. 7 Q. Then -- 8 A. I would suggest the people who were involved in those 9 negotiations, you would pose the questions to. 10 Q. We have and we will continue to do so, Mr Walker. 11 Over the page, please, just for your comments, if 12 any. 13 Paragraph 2.8, we see under "Recommendations", this 14 provides: 15 "Due to the circumstances and contractual agreement 16 presently in place for this project it is almost 17 impossible to change contractors. The grossly inflated 18 prices from Infraco for the on street works indicate 19 that it would almost be more cost effective to carry out 20 this section of works on a cost plus basis." 21 Do you have any comments on that provision? 22 A. I actually consider the whole procurement, government 23 procurement strategy for civil engineering to be 24 incorrect in the -- not just in Scotland, but in the UK. 25 If works are carried out genuinely on a cost plus 161 1 a fee basis, that is the cheapest way of delivering 2 a project. But it does need to be managed fairly 3 closely if that's the case. 4 Q. Are you saying that's not the general approach that's 5 followed? 6 A. No, it's the cheapest is best. That's always the way. 7 Q. Why do you say cheapest isn't always best? 8 A. Because there's evidence of so many contractors actually 9 getting it wrong because they -- they are led down 10 a path of being ultra-competitive and end up losing 11 money. I don't have a belief that the skills that we 12 possess in the contracting industry should result in 13 projects where the outturn is a loss, and I think the 14 latest example might be the new bridge across the Forth. 15 I don't know what agreement they've reached at the end, 16 but I do know the tender price was 790. My estimate, 17 because I was involved in it early doors, was it was in 18 excess of GBP1 billion to complete that project. And 19 the UK is littered with contractors who have gone into 20 receivership or have been purchased by others because 21 they've made significant losses by being too competitive 22 and taking on risks which they didn't know anything 23 about. 24 Q. Thank you. 25 Now, we can leave that document to one side. We 162 1 know that the Settlement Agreement in the tram project 2 was entered into in September 2011, and I think in your 3 statement, you say you ended your involvement in the 4 project around 1 September 2011? 5 A. Yes. 6 Q. I think you also make reference to it was clear that 7 Bilfinger Berger in the UK was going to be wound down. 8 Do you remember approximately when that decision was 9 taken? 10 A. What happened there -- if I can just go back a second to 11 a question Lord Hardie asked me, if I may. The 12 presentation that I gave on day 1 of Mar Hall was 13 a PowerPoint presentation, and basically I learned what 14 I was going to say and was prompted by the slides. 15 The PowerPoint should be in existence. I didn't 16 have words to say. It spoils the flow if one does that. 17 CHAIR OF THE INQUIRY: When you say it should be in 18 existence, would it be in your records or in 19 Bilfinger's? 20 A. Bilfinger's. My computer was handed back in when I left 21 the company. 22 Sorry, Mr Mackenzie. 23 MR MACKENZIE: Yes. The decision by Bilfinger Germany to 24 wind down UK operations, when was that made, 25 approximately? 163 1 A. When I joined Bilfinger we had a group Chief Executive 2 called Herbert Bodner who was a civil engineer and was 3 firmly supportive of the civil engineering and 4 construction side of the business. 5 He retired, I think, in 2010, and he was replaced by 6 a guy called Helmut Koch, I think, K-O-C-H, who was 7 a politician. And on Mr Koch's first visit to the UK, 8 some two to three months after he took office, his first 9 words to me were: if I got rid of the civil engineering 10 business, the share price would jump by about 11 20 per cent. 12 So from that point I thought the writing was on the 13 wall. At some stage during -- possibly the -- 14 24 November springs to mind, of 2010. I was told that 15 I was not permitted to tender for any more work at the 16 current time. And my argument was that if I get off the 17 tendering merry-go-round, I won't be able to climb back 18 on it. So I have to keep tendering to be -- to give the 19 company a realistic proposition of continuing to grow. 20 Eventually, in, I think, February of the next year 21 or something, I was told very firmly I couldn't tender 22 any more work. And that was when it became apparent to 23 me that at the end of the current projects we had, 24 sorry, with the exception of the Crossrail projects in 25 London, they were the only ones we were allowed to look 164 1 at. 2 That was when I became aware that the idea of trying 3 to grow a general civil engineering business to compete 4 with, say, the Laing O'Rourkes and the McAlpines and 5 the Balfour Beattys, and that was not going to happen 6 any time in the near future, and that's when -- then, 7 after Mar Hall, when I was excluded, pretty much from 8 the whole of the tram project and focused my efforts on 9 the tender for Crossrail and the M80 project, which 10 actually went very well, at the end of those periods, if 11 we weren't successful on Crossrail, there wasn't going 12 to be a business in the UK. 13 Q. Thank you. I would like to finish by putting to you 14 some suggestions that are made in the statement of 15 Damian Sharp who was tie's design manager at one point. 16 If we can go, please, to the statement, it's 17 TRI00000085_C, and I can find at page 154, please. In 18 paragraph 357, I'll just ask you to read this paragraph 19 for yourself, and then let me have your comments on it, 20 including whether you agree or disagree with what's said 21 there. 22 (Pause) 23 Do you have any comments on that paragraph? 24 A. I'm afraid I have to watch my language. 25 Our attitude, as a contractor, to start with, was to 165 1 try and work to overcome all the issues that were there. 2 Yes, I accept that in the contract we put in clauses to 3 protect ourselves. Should things not turn out as was 4 originally intended, which I reiterate is a fully 5 completed design, fully completed utility diversion and 6 a build only contract, I put measures in there to 7 protect us. 8 But the attitude of getting on the ground and 9 working, we did everything we could to get it going. 10 If I can suggest a scenario in Shandwick Place, what 11 the contract actually provides for if we start digging 12 the ground between yourself and where I am and we hit 13 a cable, we stop work. We notify. We have 18 days to 14 price the works necessary to overcome that issue. 15 Assuming that tie doesn't delay any further, they 16 issue a tie change to overcome that. We recommence work 17 2 metres further on, we hit another one and we go 18 through the same scenario. We never adopted that 19 approach. If we'd been in strict accordance with the 20 contract, that's what we would have done. 21 In fact, if we'd been in strict accordance with the 22 contract, we wouldn't have done anything until Notified 23 Departure number 1 was agreed, which took until 24 December 2008 to agree the time and even that is not 25 agreeing the Notified Departure. One has to agree the 166 1 cost as well, which was agreed at 4.9 million, some -- 2 I don't know how many months later. But a number of 3 months later. 4 So I would completely change that and say the 5 crucial difference with the tram project was the 6 attitude of the client. 7 Q. I understand. 8 A. And I could go on all afternoon if you wish. 9 Q. No, please don't. 10 The next paragraph, with regard to the time, the 11 suggestion in the next paragraph, if we can blow up 358, 12 please: 13 "The contractor's attitude was influenced by 14 Scottish Ministers' withdrawal from the tram project." 15 Read on to the next page, please. Simply to get 16 your response as to whether this suggestion is correct 17 or not. (Pause) 18 Do you agree or disagree with what's set out there? 19 A. I'll apologise in advance, but what rubbish that is. 20 Q. I understand. Then the next paragraph? 21 A. May I say -- 22 Q. Please. 23 A. We worked on the M80 and we worked in fantastic harmony 24 with our client down there because they knew what they 25 were doing. They didn't have a bunch of incompetent 167 1 people who were ill-equipped to deliver what they were 2 trying to deliver. 3 Q. I think the last one actually is paragraph 360. 4 I should again just put to you to look at. Give you 5 a minute to read that, and then ask if you agree or 6 disagree with what's suggested there. (Pause) 7 A. I think the -- well, I've only read the first part are 8 of it, but I think the timing is probably wrong. It's 9 towards the end of the Infraco contract, I think. So 10 let me read the rest, please. (Pause) 11 No, that's totally incorrect about the -- it wasn't 12 a tunnel collapse anyway, in Cologne. It was 13 a collapse, but not of a tunnel. 14 I disagree that the German management was not 15 particularly concerned with the tram project. They were 16 very concerned. 17 Bilfinger Berger was a massive, massive company. No 18 problems in meeting any financial liability in terms of 19 the collapse in Cologne. 20 No, I don't agree with it. 21 MR MACKENZIE: Thank you, Mr Walker. I have no further 22 questions. 23 Questions by CHAIR OF THE INQUIRY 24 CHAIR OF THE INQUIRY: Could I just ask about a couple of 25 things. First of all, there was an exchange between you 168 1 and Mr Mackenzie about reworking designs, and there 2 seemed to be some confusion as to what that involved. 3 Is that a term of art, reworking of the designs? 4 A. Yes. 5 CHAIR OF THE INQUIRY: So do I understand that what you say 6 is if you're reworking designs, it's for the benefit of 7 the contractor to know what he's got to build? 8 A. There could be a variety of issues. I mean, one that 9 particularly springs to mind is Russell Road retaining 10 wall. That started off as an L-shaped -- if I can 11 demonstrate -- ground bearing retaining wall and sits on 12 the ground. Because of a requirement of Network Rail to 13 have an emergency vehicular access between the tram and 14 the rail line, that embankment that this retaining wall 15 was supporting, extended outwards. That required 16 a change in the design, a rework of the design, to get 17 something that would actually cope with that situation, 18 because we had lost the land for you to the left of 19 this, we'd lost this land where this was going to sit. 20 So we had to position it here and sit it on some piles, 21 totally different. Complete redesign to enable it to be 22 carried out. 23 Not just for our benefit, but actually to make the 24 structure stand up and do its job of retaining the 25 railway embankment. 169 1 CHAIR OF THE INQUIRY: At some point presumably the planning 2 authority would have to approve the final version so 3 that it could be built. Is that fair to say? Or are 4 you saying that there wouldn't require to be -- it would 5 be a planning -- 6 A. It depends -- yes, the planning authority has to 7 approve. The planning authority would approve the use 8 of a retaining wall to retain the railway embankment, 9 not necessarily the particular detail of the design. 10 CHAIR OF THE INQUIRY: So could you have a reworked design 11 that then went to planning authority and they wanted it 12 changed, amended in some way, which didn't affect the -- 13 A. It could happen. 14 CHAIR OF THE INQUIRY: So would that be an amended reworked 15 design? 16 A. It would have to have more work done on it. In the 17 ideal world, one brings the planning authority along 18 with you and say: these are our proposals, are you okay 19 with those; yes, we're fine, we will develop it a little 20 bit more and see you next month and show you where we're 21 at. 22 CHAIR OF THE INQUIRY: But in the example I gave, would the 23 amended design that ultimately satisfied the planning 24 authority, would that be a reworked design as well? Or 25 would it have a different terminology? 170 1 A. It could be a -- it really depends, my Lord, on whether 2 the original concept is just taken through to conclusion 3 or whether it's changed by some external body or force 4 acting on it. 5 CHAIR OF THE INQUIRY: I just want to get the terminology 6 right -- 7 A. If it's changed, it's reworked. If it just progresses 8 from preliminary through to issued for construction, 9 it's not reworked. 10 CHAIR OF THE INQUIRY: The other thing that I wondered 11 is: you mentioned the 2.5 million in Leith Walk, and you 12 said the documents we had weren't the right ones because 13 they would be prepared once there had been agreement as 14 to what the cost was. And there would be an earlier 15 document which would amount to the claim for the 16 2.5 million. 17 Would that be retained by Bilfinger? 18 A. It's probably in the private notes of the -- the 19 commercial people on the site. What would happen was 20 a meeting between, I think, the chap was called 21 Dennis Murray, and I think we had -- I'm not sure if we 22 had David Gough in at the time or whether there was 23 somebody else earlier than him, and they would meet and 24 discuss what was going to go into the valuation. So 25 there wouldn't be a huge disagreement. If the 171 1 contractor submitted a valuation where there was an 2 unagreed sum in it, for example if we submitted 3 a monthly valuation of GBP7 million and there was, to 4 take an extreme view, GBP1 disagreement, they wouldn't 5 pay the 7 million. So we had to get agreement first. 6 CHAIR OF THE INQUIRY: I understand that, but the -- it's 7 the earlier document which would result in agreement. 8 Would that be a claim document for 2.5 -- 9 A. I don't believe there was any official document that you 10 can probably get hold of. It will be in somebody's 11 notebook. 12 CHAIR OF THE INQUIRY: I think that's all. 13 There were a couple of matters I want to raise with 14 Ms Forster. I think you're aware that Mr Dunlop has 15 asked for the original letter, Ms Forster, dated 16 22 April 2008, and I understand that you've agreed to 17 obtain that and send it to the Inquiry. 18 MS FORSTER: Yes, my Lord, I discussed that with Mr Walker 19 just before lunchtime. I understand that the original 20 is at home in his papers and can be forwarded forthwith. 21 A. Yes. 22 CHAIR OF THE INQUIRY: It's sent to the solicitor. 23 The other thing, Ms Forster, there's reference to 24 the PowerPoint presentation at Mar Hall. It may be, 25 I don't know, I can't recall, has that been lodged with 172 1 the Inquiry? 2 MS FORSTER: My Lord, I think it has. I think it's actually 3 on Haymarket, and I think one of the witnesses has 4 referred to it. So we were just actually trying to find 5 the number for you. 6 CHAIR OF THE INQUIRY: I was going to say, if it isn't with 7 us, could we have a copy, but we can check. 8 MS FORSTER: I think it is, but if not, we will make sure 9 you have a copy. 10 CHAIR OF THE INQUIRY: Thank you. I don't think there are 11 any questions, but there may be issues. 12 MR DUNLOP QC: My Lord, for my clients, there have been 13 a couple of instances in which the witness has been 14 taken to Mr Fitchie's statement, and there appears to be 15 some difference between them. Although I'm unclear as 16 to what extent there is a difference, I would welcome 17 five minutes just to explore that. 18 CHAIR OF THE INQUIRY: What about the letter of 22 April? 19 Do you want to wait and see? 20 MR DUNLOP QC: I think I would prefer to wait and see what 21 is further forthcoming in that regard, my Lord, yes. 22 I think there are further discussions ongoing with other 23 parties as well regarding that letter. But there might 24 be nothing to ask at the moment in that regard. 25 CHAIR OF THE INQUIRY: Anyone else? 173 1 Very well, Mr Dunlop. 2 Examination by MR DUNLOP QC 3 MR DUNLOP QC: Mr Walker, very briefly, on the question of 4 Mr Fitchie's involvement, you were asked about -- 5 I think you said it was DLA in general, involved with 6 the DLA in drafting the contract. 7 You were asked that in the context of looking at 8 Wiesbaden, and am I right in understanding that 9 Mr Fitchie had no involvement in the Wiesbaden Agreement 10 because he wasn't there? 11 A. He had no involvement in the discussions in Germany. My 12 perception is that DLA Piper drafted everything for tie. 13 Q. As in thereafter? 14 A. Yes. I cannot conceive of -- I cannot imagine anybody 15 in tie who would actually put words on a piece of paper. 16 It always came via DLA Piper. 17 Q. When it came to the wording of Wiesbaden, that was 18 largely the product of discussions between yourself and 19 Geoff Gilbert; is that right? 20 A. Yes. 21 Q. So, for example, you were taken to the -- what was meant 22 by normal design development. That was something that 23 came about as a result of discussions between you and 24 Mr Gilbert? 25 A. And I had Suzanne Moir by my side. 174 1 Q. Yes. 2 A. On 99 per cent of occasions. 3 Q. Yes. 4 Now, Wiesbaden was meant to put questions of pricing 5 to bed, wasn't it? 6 A. I couldn't say that. 7 Q. Earlier in your evidence, you indicated that you’re 8 view Wiesbaden was a done deal; you weren't expecting 9 it to be open for negotiations thereafter? 10 A. No. 11 Q. And that Wiesbaden represented what you were content to 12 accept in terms of risk? 13 A. Not me personally. It was what my superiors were -- 14 Q. Sorry. I put it badly. What Bilfingers were prepared 15 to accept, what the consortium was prepared to accept in 16 terms of risk? 17 A. Yes. 18 Q. Indeed, you tell us in your statement that if tie had 19 wanted a truly fixed price, that price would have been 20 GBP1 billion? 21 A. That was the figure that I put to Matthew Crosse at one 22 stage, yes. 23 Q. Yes, okay. 24 Now, you were taken to Mr Fitchie's statement. 25 I wonder if we could have that back up on the screen, 175 1 please. It's TRI -- just for the note, it's 2 TRI00000102. 3 If we go to page 150, please. 4 If we enlarge the second half of that page, please, 5 7.123, you're talking -- Mr Fitchie is talking about 6 a meeting in early December 2007. Is this -- I think 7 you indicated either you couldn't recall it happening or 8 you didn't think it had happened. But if we just look 9 at what he says there, 7.124, Mr Fitchie has you saying: 10 "Andrew, I hope you realise how much more this job 11 is going to cost them." 12 Mr Fitchie asked: 13 "What do you mean, in variations?" 14 He has you saying: 15 "No, I mean because we cannot price the job properly 16 and we are not prepared to take the risk of the SDS 17 design being so rank and so late." 18 Now, whether or not this meeting happened, do you 19 not agree with me that that accurately represents how 20 you felt at the time? 21 A. I'll reiterate that we as a company were not prepared to 22 take risk which was unquantifiable. 23 Q. Yes. So do you agree with me that what Mr Fitchie has 24 said you said to him is an accurate representation of 25 how you felt at the time? 176 1 A. Yes, but it is not my language. Yes. I agree with the 2 theme. I actually think I said it to Geoff Gilbert, to 3 be honest, but -- 4 Q. You think you said this -- 5 A. I don't think I said that directly to Andrew then. 6 Q. But you think you may have said it to Geoff Gilbert? 7 A. And Andrew would have been with us, yes. 8 Q. I understand you don't like the suggestion that you 9 referred to -- the expletive in the next sentence. 10 We'll pass from that. But he also has you saying in 11 response to a question of how much more: 12 "GBP80 million or thereabouts." 13 And that again is consistent with the evidence 14 you've given today, isn't it? 15 A. Yes. 16 Q. So -- 17 A. I'm likely to have said 50, 60, 70, 80, 100. 18 Q. So Mr Fitchie appears to be correct in this paragraph, 19 in recounting what you said, although he may be 20 incorrect as to whom you were saying it. 21 A. Yes. And he's particularly incorrect in the language. 22 I use bad language, not that sort. 23 Q. What is the particular objection that you have? 24 A. Well, (a) it -- what I'm saying is it's not language 25 that I use. 177 1 Q. Which word? 2 A. Anything that I use was more like to have an F on the 3 front of it. 4 Q. So it's too polite for you; is that it? 5 A. No, I think it's worse. 6 Q. 7.126, there's a reference to you being at a dinner with 7 Mr Fitchie, you and your wife being at a dinner with 8 Mr Fitchie, and again, are we agreed that that happened? 9 A. That happened, yes. 10 Q. And Mr Fitchie says, right at the bottom of 7.126 and 11 over the page, he, that's Mr Walker: 12 "... repeated to me how he had stressed to tie in 13 late 2007 that their publicly visible budget was not 14 going to be anything like enough and that he had never 15 been authorised by his head office at Wiesbaden to 16 provide a fixed price. In fact, the exact opposite." 17 Now, again, leaving to one side the politeness or 18 otherwise of this conversation, that's correct, isn't 19 it? 20 A. I had told Matthew Crosse that I would do it for 21 GBP1 billion. I'd never had authorisation from Germany 22 to say that. 23 Q. So there seemed to be -- 24 A. The bit about the exact opposite is rubbish, as far as 25 I'm encouraged. 178 1 Q. I'm sorry. I'm not quite understanding that. 2 A. I'd never been authorised by the head office in 3 Wiesbaden to provide a fixed price, correct. I hadn't. 4 In fact, the exact opposite. That's -- I don't know 5 where he's got that from. I'd been told to make sure 6 that we did not carry risks which were not ours to carry 7 and were not able to be priced. 8 Q. Is that not the exact opposite? 9 A. Well, that's a matter of opinion. 10 Q. So it is true to say that you would have indicated to 11 anyone who had asked that you had never been authorised 12 by Wiesbaden to produce a fixed price; that's correct, 13 isn't it? 14 A. No, I don't like what you're saying, I'm afraid. 15 The intent to start with was to have 100 per cent 16 complete design and all utilities out of the way and to 17 build only. 18 If we do that, if we take those two elements of the 19 project to be as said, finished, completed, it is 20 possible to give a fixed price. 21 Yes, we had the authorisation to do that. What we 22 didn't have the authorisation to do was to give a fixed 23 price for something we couldn't define. 24 Q. In the situation that obtained at all material times 25 prior to financial close, there would have been no 179 1 prospect of you providing a fixed price other than one 2 of GBP1 billion? 3 A. That's correct. 4 MR DUNLOP QC: Yes, thank you. 5 MR MACKENZIE: I'm obliged, my Lord, I think that's all. 6 CHAIR OF THE INQUIRY: Thank you very much, Mr Walker. I'm 7 grateful to you for your time. You're still under 8 citation, so it's possible you will be recalled. 9 Hopefully that won't be necessary. But if you liaise 10 with Ms Forster about the arrangements for sending up 11 the principal copy of the letter, and you're now free to 12 go. 13 A. Thank you, my Lord. Thank you, Mr Mackenzie. 14 (The witness withdrew) 15 CHAIR OF THE INQUIRY: We will adjourn now until tomorrow at 16 9.30. 17 (4.02 pm) 18 (The hearing adjourned until Thursday, 16 November 2017 at 19 9.30 am) 20 21 22 23 24 25 180 1 INDEX 2 PAGE 3 MR RICHARD WALKER (sworn) ............................1 4 5 Examination by MR MACKENZIE ...................1 6 7 Questions by CHAIR OF THE INQUIRY ...........168 8 9 Examination by MR DUNLOP QC .................174 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 181