1 Wednesday, 29 November 2017 2 (9.30 am) 3 MR ANDREW HOLMES (continued) 4 Examination by MR MACKENZIE (continued) 5 CHAIR OF THE INQUIRY: Mr Holmes, you're still under oath. 6 MR MACKENZIE: Thank you, my Lord. 7 Good morning, Mr Holmes? 8 A. Good morning. 9 Q. Now, at the start of your evidence yesterday, you 10 mentioned a supplementary note or statement you had 11 provided commenting on certain parts of Neil Renilson's 12 statement. I've got the doc ID number for that now. 13 I would like to bring that up. It's TRI00000187. 14 I think we can see at the top, "Comments on 15 Neil Renilson's witness statement", and if we go over to 16 page 2, please, and we blow it up, we can see your name 17 and also the date. I think that should be 18 27 November 2017. Is this the note you provided to the 19 Inquiry? 20 A. It is. I beg your pardon about the date. 21 Q. So this will also form part of your evidence to the 22 Inquiry. Thank you. If we can put that to one side. 23 I would like to move on to the events around the 24 summer of 2007 when Scottish Government capped their 25 contribution at GBP500 million and Transport Scotland 1 1 withdrew from the Tram Project Board and the direct 2 governance arrangements for the project. 3 Now, can you remember, did these things cause you 4 any concern at the time? 5 A. Yes. I think there were several -- the concerns came 6 from several aspects. Firstly, obviously we were losing 7 on the Tram Project Board the presence of 8 Transport Scotland. Secondly, the figure was capped, 9 whereas previously there had been some discussion about 10 the indexation of the sum, and finally, of course, 11 remember at that point Scottish Government had announced 12 their intention to cancel the project. 13 So there was a lot of activity and concerns really 14 about the three related points, and it went on for some 15 time. 16 Q. You mentioned losing the presence of Transport Scotland 17 on the Project Board. What was the issue there? 18 A. They had brought a particular perspective around major 19 projects, from the -- let's call it the client side, 20 which wasn't matched elsewhere, and the individuals 21 involved had been able contributors to the general 22 discussion and debate. 23 Q. Presumably Transport Scotland had experience and 24 expertise in delivering major transport infrastructure 25 projects? 2 1 A. Yes. Transport Scotland had not been in existence for 2 very long, but the individuals who had come from the 3 former mainstream Scottish Executive, yes, they had. 4 Q. Now, to what extent had the Council been reliant on 5 Transport Scotland's experience and expertise in 6 delivering major transport infrastructure projects? 7 A. To a considerable extent. We had been -- I think, as 8 I said a minute ago, recognising that they brought that 9 additional dimension to the client team. We had 10 individuals within the Council at the start of the 11 process who had also brought major project experience in 12 there. The Head of Transport until his departure in 13 early 2007, for example, but yes, I think we -- we 14 certainly didn't have anybody in-house beyond that point 15 with that level of experience. 16 Q. Now, were the Council able to fill the gap in experience 17 and expertise left by the -- Transport Scotland's 18 withdrawal? 19 A. No. For various reasons I wasn't able to find 20 a temporary successor to the Head of Transport. One of 21 the features of the time, and I think it impinges on 22 quite a lot of the background to this, is just the 23 dearth of individuals on the job market at that time 24 with major project experience. We were in a boom 25 situation pre 2008, and the individuals just weren't out 3 1 there. Or prepared to come into local government, 2 rather. 3 Q. Yes. Now, it may be suggested that to fill the gap in 4 experience and expertise left by Transport Scotland's 5 withdrawal, one option may have been for the Council or 6 a slimmed-down version of tie to have instructed a firm 7 of multi-disciplinary engineers with experience and 8 expertise in light rail and a proven track record in 9 delivering such projects, to have delivered or at least 10 assisted in the delivery of the Edinburgh Tram Project. 11 A. I think there are -- there are two points. I don't 12 think there were all that many people out there who 13 actually had the experience as opposed to those claiming 14 the experience, who were available for a piece of work 15 like that. 16 The second, I suppose, brings us back to the very 17 reason for creating tie in the -- in the first case. 18 I suppose the working assumptions that we had made was 19 that tie was providing that which the Council could not 20 provide, and that goes back to the fundamental reasons 21 for establishing tie. 22 Q. The difficulty with tie perhaps, it might be suggested, 23 is that as an organisation it did not have a proven 24 track record of delivering major transport and 25 infrastructure projects, and also that most of the staff 4 1 in tie had no experience of delivering a tram or light 2 rail project. 3 A. I think the individuals in tie, there were plenty of 4 individuals in tie who had a track record or appeared to 5 have a track record in the delivery of major 6 infrastructure projects, including rail-related 7 projects. 8 I come back to the point again that it -- and it 9 wasn't just tie talking to individuals in other 10 organisations in the UK, there was great difficulty in 11 finding the individuals who actually were on the job 12 market and had experience in the delivery of light -- of 13 light rail systems. 14 The one person who came into the project in the 15 early stages was -- was Ian Kendall. He had experience. 16 He'd been on the Croydon Tramlink. Beyond that point, 17 I don't think it was -- with distance of time it's 18 difficult to recall, but I do -- I do -- I did have the 19 general impression that the job market was not producing 20 necessarily the individuals with 100 per cent of the 21 attributes that one would have liked on the -- on the 22 project. 23 But the early tram projects in the UK, and there 24 weren't -- all started from that point of related 25 skills, rather than direct experience. 5 1 Q. I suppose the point may be, given the difficulties you 2 have outlined in trying to populate tie with 3 sufficiently experienced individuals, instead of trying 4 to reinvent the wheel, why not just go to an existing, 5 established multi-disciplinary engineering company who 6 have got these individuals and can call upon them? 7 A. Well, I think there's a -- there's two questions. One, 8 do you actually remove tie from the process altogether 9 and replace them with someone like that? Or do you 10 bring in somebody and integrate them with tie? 11 I think in the -- in the first case we had -- when 12 faced with the prospective cancellation of the tram 13 project, we'd done a huge amount of work in what does 14 this involve in actually winding down tie, closing down 15 the project, and the cost implications were -- and 16 contractual implications were quite significant. A lot 17 of the contracts were flowing through tie. The costs of 18 dispensing with the organisation were considerable. 19 So I don't think that at that stage it was seen 20 perhaps as an easy or cheap option. 21 Bringing in somebody else, I can't recall an 22 extensive discussion around that. It may well have 23 taken place. But again, bringing in somebody, 24 integrating with tie, first of all, can you actually buy 25 somebody out there in the market who can bring what you 6 1 think you don't already have within tie? 2 Q. I think, just to finish that point, I think about 2011, 3 a company, Turner & Townsend, were brought in to 4 essentially project manage and deliver the project, 5 being instructed directly by the Council. They at least 6 appear to have been a firm available who could undertake 7 that task? 8 A. Yes. At that particular stage of the -- of the tram 9 project, yes, and after all the various issues which 10 had -- had arisen. At that point in time it was not 11 seen as a viable project. 12 I think Turner & Townsend are a project management 13 company. I don't -- I'm not aware that -- certainly at 14 my time that they were offering any specific rail 15 expertise or light rail expertise. 16 Q. Is that perhaps the issue that at least they were 17 a company with a proven track record in project managing 18 and delivery -- delivering infrastructure projects in 19 a way that tie simply weren't? They didn't have that 20 track record? 21 A. No, tie as an organisation did not have that track 22 record. You wouldn't expect it because tie had been set 23 up. The individuals within tie appeared to -- 24 sufficient individuals within tie appeared to come with 25 that track record. 7 1 Q. But not as an organisation, I think you accept? 2 A. Not the organisation, no. The organisation was a new 3 organisation. 4 Q. So was that perhaps a bit of a gamble, asking a new 5 organisation to attempt to deliver a major and complex 6 project like this? 7 A. I think that brings you back to the -- the very origins 8 of tie and the establishment of -- and population of an 9 arm's length company like that. 10 Had the original conditions and the original concept 11 of what tie was established to do been perhaps 12 different, then a different route would have been 13 followed. I don't think there's any question of the 14 Council establishing an internal design team the way 15 local authorities had done so in the past. I think 16 there would have been some form of contractual 17 relationship. 18 CHAIR OF THE INQUIRY: Was tie not created initially or 19 incorporated initially to give effect to the new 20 transport initiative and to take over lots of 21 projects -- 22 A. That is correct, my Lord. There were a basket of -- of 23 projects and tie, I think, subsequently picked up 24 projects from -- from Scottish Government. 25 There was an euphoric period, I think, in there, 8 1 where tie were seen as a Scotland-wide delivery vehicle. 2 CHAIR OF THE INQUIRY: Was the initial intention or hope 3 that tie would receive the revenue from congestion 4 charging if that had come about? 5 A. That tie would be the vehicle for the recycling of that 6 congestion charge revenue into transport investment. 7 CHAIR OF THE INQUIRY: Yes. Initially, was it anticipated 8 that tie would also be a project management company or 9 not? 10 A. I'm trying to recollect the early 2000s and what tie was 11 intended to -- to do. 12 I think tie were certainly going to manage projects. 13 I think its evolution into the detailed management of 14 the projects was probably over -- took place over 15 a couple of years, but I can't honestly remember the 16 decision-making steps along that line. 17 MR MACKENZIE: Thank you. I would like to move on, please, 18 Mr Holmes, to the question of the Council's 19 consideration obtaining an independent legal review. 20 Now, were you aware of a discussion going on within 21 the Council in the second half of 2007 as to whether the 22 Council should obtain independent legal advice on the 23 risks to the Council arising from the tram project 24 contracts? 25 A. I can recall the discussion going on and being -- being 9 1 part of it, yes. 2 Q. What were your views? 3 A. My views were probably that the Council -- I think that 4 the Council should seriously consider that. All the -- 5 I think there are two points. First of all, only the 6 Council Solicitor can adequately -- and her director, 7 Director of Corporate Services, could adequately assess 8 the strength of their own in-house resources for dealing 9 with a complex issue like that. 10 Secondly, I think as a point of principle that 11 department had in the past not been happy with 12 suggestions of external legal advice, and I -- I had 13 a -- much less complex issues, but I had had differences 14 of opinion in the past over that. 15 Q. Can you remember why the department were resistant or 16 not happy, rather, with suggestions of external legal 17 advice? 18 A. I think historically it had been a -- it had been 19 a point of -- of principle. On this particular one, 20 I think the Council's solicitor was very strongly of the 21 view that existing resources, possibly augmented by one 22 or two staff who had come in recently, were going to be 23 sufficient. 24 Q. Could we go to an email, please. CEC01567522. If we 25 can go to page 4, please. Blow up the names at the top. 10 1 Can you see, this is an email from Duncan Fraser, 2 23 August 2007, to yourself and copied in to others. 3 The subject is: Recommendation to the Council to 4 accept the Final Business Case and the Infraco Contract. 5 Then in the text is set out: 6 "Business Case. 7 Currently tie is preparing the final business case. 8 The outcome of the Government decision to make the 9 Council 'funder of last resort' significant changes the 10 risk profile of the Council. Consequently it will be 11 incumbent upon the Council working with the tie to 12 determine the risks inherent in the bespoke Infraco 13 Contract (including novation of the Tramco and SDS 14 contracts) and assess what headroom is to be recommended 15 for budgeting purposes. The time available to do this 16 is very short ..." 17 The reference then to: 18 "The Council currently does not have this 19 information, as it was not party to the development on 20 the Infraco contract nor negotiations ..." 21 Then after that, the next paragraph states: 22 "It is my understanding that the DLA letter of 23 comfort does not comprehensively cover all the Council's 24 interests or liabilities. We are unfamiliar with the 25 bespoke contract and have very limited time to gain the 11 1 information that will be required assure the Council's 2 interests under these new 'risk transferred' 3 circumstances. There is a recognition in my role as 4 co-ordinator that the legal and financial 5 representatives agree that external resources are 6 required as a matter of extreme urgency to enable the 7 risks to be understood and translated into a financial 8 statement that informs the budget setting exercise ... 9 it is my role to draw this critical issue to your 10 attention so as to facilitate a means to move the agenda 11 forward to a satisfactory conclusion. 12 Recommendation: 13 A team familiar with contract law and related 14 financial risks to this form of contract be appointed to 15 work with CEC and tie to inform the Council as to what 16 risk it is exposed to and how best to cover these risks 17 both legally and financially." 18 Now, to pause there, do you recall receiving this 19 email or do you recall any discussion about this matter? 20 A. I don't recall the specifics of receiving that email. 21 It's a very good email in terms of summarising the 22 issues, and it puts it in a way that I would certainly 23 have reacted to it. My reaction would probably have 24 been to discuss it with the -- with the 25 Council Solicitor, whom I notice is not copied into 12 1 that, although her staff are. 2 Q. That's correct. In principle, can you recall, would you 3 have been in agreement with Mr Fraser's suggestion? 4 A. Yes, in principle, that's, I think, the way that the -- 5 it's set out there, one could not be. 6 Q. Albeit your position is that it was ultimately a matter 7 for the Council Solicitor and her Director? 8 A. It is -- I don't wish to sound bureaucratic, but Council 9 standing orders in fact delegate that responsibility to 10 the Director of -- or did delegate that responsibility 11 to the Council Solicitor and Director of Corporate 12 Services. I would have discussed it with them, we would 13 have had the discussion, and the end product was to 14 proceed in-house. 15 Q. Thank you. If we can go then to page 3 of this email 16 chain. In the bottom email, if we can blow up, please. 17 Thank you. An email from Colin MacKenzie dated 18 23 August 2007 to Gill Lindsay. We can see: 19 "Please see message from Duncan Fraser set out 20 below ..." 21 Then: 22 "The possibility of an independent Legal review was 23 discussed at the Property and Legal Issues group meeting 24 on 21 August. An informal instruction was given to 25 Legal by Finance and City Development requesting that 13 1 such a review was urgently initiated." 2 Then the last paragraph states: 3 "Duncan Fraser called to ascertain the position 4 and I advised him of the outcome of our discussion. He 5 is clearly very concerned that the contractual risks 6 should be reviewed externally on behalf of the Council, 7 and has his Director's support in that regard." 8 So to pause there, it appears from this, if that is 9 correct, that at the time you supported Mr Fraser's 10 recommendation. Do you have any recollection of that? 11 A. I don't. We were -- we were discussing matters almost 12 daily at that point. So we can't have failed to discuss 13 it and I presumably said what it summarised in that 14 email. 15 Q. Could we then please go to page 1 -- 16 CHAIR OF THE INQUIRY: Sorry, could I just go back to the 17 question of who would take that decision. Mr Fraser was 18 in your department, was he? 19 A. Mr Fraser was in my department and was placed within the 20 tram project, working in tie's offices with one or two 21 support staff. 22 CHAIR OF THE INQUIRY: And who would have the ultimate 23 decision? Presumably your department then would be the 24 client of the Council Solicitor? 25 A. I think at that point in time, I don't think it was seen 14 1 as being a client-solicitor relationship. It was 2 a question of different -- different Council 3 departments. It would have been, I think, cleaner to 4 have had that kind of business relationship, but that 5 was not the practice at the time. 6 CHAIR OF THE INQUIRY: So if you, as Director of City 7 Development, had decided that Mr Fraser's proposal was 8 the way forward, could you have insisted that the 9 Council Solicitor instruct -- 10 A. Not in -- again, I'm sorry if I sound bureaucratic, but 11 no, in terms of Council standing orders. I could not 12 have insisted. These decisions were delegated to the 13 Council Solicitor and the Director of Corporate 14 Services, her manager. 15 CHAIR OF THE INQUIRY: Thank you. 16 MR MACKENZIE: Thank you. 17 In we go to page 1, which we're at, we can see an 18 email from Colin MacKenzie dated 27 August 2007 to 19 Gill Lindsay. The first paragraph states: 20 "At our meeting ... you instructed me to revise the 21 draft letter provided by DLA, notwithstanding the terms 22 of my emails to you ..." 23 I will come to this draft letter shortly to give the 24 context. It's probably best to do that now. 25 If we can go, please, to CEC01711055. I'm going to 15 1 this draft letter to provide the context for the 2 question I'm going to ask afterwards. We can see, if we 3 blow up, please, towards the top, we can see it's 4 a draft letter of August 2007, and it's on behalf of 5 DLA Piper Scotland LLP, addressed to the 6 Council Solicitor. 7 The third paragraph in the narrative, commencing: 8 "This letter reconfirms that as from 5 December 2003 9 onwards, DLA Piper Scotland LLP has owed and owes the 10 same contractual duty of care to CEC as owed to 11 tie Limited ... We acknowledge CEC as joint client with 12 tie Limited on the basis that ..." 13 A number of conditions or qualifications are then 14 set out, and the first one states: 15 "DLA Piper's primary responsibility has been to 16 advise tie Limited and DLA Piper may at all times and for 17 all purposes rely on tie's instructions given to us 18 under the Appointment as being identical to CEC's 19 instructions as if emanating from CEC itself and as 20 taking into account CEC's requirements, objectives and 21 best interests." 22 Now, if we can put that to one side, please, and if 23 back to the email chain, which was CEC01567522, and if 24 we can blow up, we can see under the numbered 25 paragraph 1, about halfway down, Mr MacKenzie states: 16 1 "Before you accept this condition, which is not 2 really amenable to any revisal, I recommend that you 3 obtain written confirmation from Andrew Holmes that all 4 instructions given to DLA by tie were and are 'identical 5 to CEC's instructions as if emanating from CEC itself 6 and as taking into account CEC's requirements, 7 objectives and best interests'." 8 Now, to pause there, can you recall whether you were 9 ever asked to give written confirmation in the terms set 10 out there? 11 A. I can't recall. And I mean it. I can't recall whether 12 that was -- reading it now, I think I would have been 13 reluctant to -- to do that. I think paragraph 1 itself 14 requires a legal assessment of the background to that -- 15 to that letter. And I wouldn't necessarily -- I think 16 I would have required considerable explanation as to the 17 implications of sending that letter in terms of the 18 issues set out. 19 It's not, I think, a particularly happy email. 20 Q. Could I also please ask, what was your view at the time 21 in that would you have been able to have confirmed that 22 all instructions given to DLA by tie were and are 23 identical to CEC's instructions as if emanating from CEC 24 itself and as taking into account CEC's requirements, 25 objectives and best interests? 17 1 A. I think my first question would have been -- in that 2 respect is: what are the legal implications of sending 3 such a letter? 4 Q. I'll leave that matter, thank you, and go on to the 5 consideration of another type of independent review of 6 risks. 7 Could I start by asking, please, were you aware of 8 a discussion within the Council in 9 September/October 2007 as to whether the Council should 10 instruct an independent review of risks from a company 11 such as Turner & Townsend? 12 A. I -- from the -- the papers, yes, if such a discussion 13 was taking place, I would have -- I would have been 14 involved in it. 15 Q. Do you have any recollection of your views on that 16 matter? 17 A. I can't recall the specifics of it. My recollection is 18 that we discussed it. We went as far -- Duncan Fraser 19 in discussion with myself and others, drawing up 20 a possible consultancy brief. 21 I can't recall the reasons why that didn't go ahead, 22 and I don't know whether there's anything minuted in any 23 of the groups -- Chief Executive group around that. 24 I suspect that the view might have been that we had 25 the OGC review and that was going to -- going to be 18 1 sufficient. 2 I think part of the background, again, to all this 3 is the information flow and the reassurance that was 4 coming from -- from tie and the history of the previous 5 OGC reviews, giving us the comfort that it was going to 6 be a pretty good assessment of the project at that point 7 in time. 8 Q. Now, what was the information flow and reassurance 9 coming from tie? 10 A. Coming through the meetings of the Tram Project Board 11 and others -- other working arrangements. 12 Q. Are you able to sum up the type of reassurances given 13 and by whom? 14 A. The -- I mean, the principal players obviously would 15 have been Steven Bell, who I think at that point was 16 Tram Project Director, and Willie Gallagher. 17 Q. I think Mr Bell -- I may be corrected -- became Tram 18 Project Director in early 2008, I think. 19 A. Well, it would have been his predecessor then. Was it 20 Matthew Crosse at that point? 21 Q. I think it was, yes. 22 Now, if I could go back to the question of an 23 independent review from a company such as 24 Turner & Townsend, and look at some documents in that 25 regard, please. The first one is CEC01630955. Go to 19 1 the bottom of the page, please, and blow it up. Thank 2 you. We see an email from Rebecca Andrew dated 3 12 September 2007 to Susan Clark in tie, 4 subject: external adviser brief. 5 We see a reference at the beginning to: 6 "Thanks for your phone call outlining your 7 concerns." 8 Then the paragraph at the bottom states: 9 "I would also like to emphasise that the appointment 10 of external advisers (if it goes ahead) is in no way 11 a criticism of the expertise or work carried out within 12 tie. It is simply a recognition that CEC officials do 13 not have appropriate experience to perform their 14 monitoring/assurance role, particularly given the extent 15 of the risks involved." 16 Now, what were your views on that? Do you agree 17 that Council officers did not have sufficient or rather 18 appropriate experience to perform that 19 monitoring/assurance role? 20 A. Not in its entirety, no. That's a view formed by 21 hindsight. I didn't see -- I wasn't copied into that. 22 From recollection, I was on leave at the time that it 23 was -- it was sent. So I wouldn't have either seen it 24 or been copied into it. 25 I think it's perhaps a bit of an overstatement to 20 1 say -- to say that they -- the Director of Finance and 2 I don't have sufficient experience "to perform their 3 monitoring/assurance role", rather than recognising that 4 there are gaps in that. 5 Q. So what Rebecca Andrew is saying is that she didn't have 6 appropriate experience to perform that monitoring and 7 assurance role. Is it your position that you did? 8 A. No. What I think I'm saying is that there were -- there 9 were gaps in that. I mean, we -- obviously the Director 10 of Finance and I, sitting in the Tram Project Board, 11 asking questions around that, were -- were to 12 a considerable extent able to exercise that role in some 13 areas. 14 What we weren't able to exercise our role from in, 15 I think, was the assessment of the project state of 16 readiness at that point, which would have been the 17 subject of that review. 18 Q. Were you able to identify the main risks arising to the 19 Council and to assess and quantify those risks? 20 A. The risks were around -- I mean, first of all, I think, 21 the risks that were around for the project were 22 comprehensively reviewed within the risk registers for 23 the project, which were assessed on a continuous basis, 24 and which Director of Finance and I were part of the 25 assessment of that. 21 1 I think we were aware of the -- we would have been 2 aware of the headline risks for the Council. But that 3 then brings us back into the extent to which these risks 4 are dealt with in the contractual side. 5 The point at that -- I think, this stage, was to 6 assess the readiness of the project as we approach Final 7 Business Case approval and moved into contract letting. 8 CHAIR OF THE INQUIRY: Would that have a bearing on risk? 9 A. Yes, my Lord. It would. It would have done. It was, 10 I suppose, a health check as to the state of the project 11 for moving forward. 12 MR MACKENZIE: Thank you. 13 I think Rebecca Andrew's position was, firstly, as 14 a matter of good project management, there is a need to 15 obtain independent assurance of what the project manager 16 is saying. That's her first point. Do you agree with 17 that? 18 A. Yes. 19 Q. Her second point, I think, is that she felt she was not 20 able to check if tie's assessment and quantification of 21 the risks were correct. Now, did you consider you were 22 in a position to check whether tie's assessment and 23 quantification of the risks was correct? 24 A. Rebecca and her Director were looking at the -- at the 25 financial risks. I would have been looking at the 22 1 variety of -- of other risks, and I suppose the purpose 2 of the Turner & Townsend report, I suppose, without 3 revisiting what the brief actually said, was to, in the 4 round, look at the state of readiness of the project. 5 But I can't recall what was -- what went into the brief 6 at this point in time. 7 Q. I'll come back to the brief very shortly. But just to 8 be quite clear, in relation to the financial risks, do 9 you consider you were in a position to check whether 10 tie's assessment and quantification of the financial 11 risks were correct? 12 A. I wasn't as an individual, no. 13 Q. Go then, please, to another document, CEC01567757. If 14 we can go to page 3, please. And blow up the email at 15 the top. This is from Duncan Fraser, dated 16 24 September 2007, to Susan Clark, subject, 17 Turner & Townsend: 18 "The Directors of Finance and City Development are 19 in agreement with the appointment of Turner & Townsend 20 to enable the attached brief to be provided to the 21 Council." 22 Do you have any recollection of that? 23 A. I have no recollection of that email. And I can't 24 recollect at that point in -- in time the state of the 25 Turner & Townsend brief. I have no reason to believe 23 1 that I hadn't seen the brief that was attached to that 2 as of that date. 3 Q. Presumably, Mr Fraser was correct that both yourself and 4 Mr McGougan were in agreement with the appointment of 5 Turner & Townsend to enable the attached brief to be 6 provided to the Council? 7 A. He would not have said that if that had not been the 8 case. 9 Q. Could we then, please, go to the brief. It's 10 CEC01652669. 11 Now, it starts -- we can blow up the very top, 12 background. I won't go into all of that. If we could 13 scroll down, please, to look at assignment objectives. 14 We see first bullet point: 15 "To review the contract Risk Allocation Matrix for 16 the ... contracts and identify those risks that remain 17 within the public sector." 18 The second bullet point: 19 "To assess and quantify the level of public sector 20 risk in proposed contractual arrangement, by reference 21 to the Risk allocation matrix ..." 22 So that's really the main issue, I think, to assess 23 and quantify the level of public sector risk in the 24 proposed contractual arrangement. Rebecca Andrew was 25 saying she wasn't in a position to do that, and I think 24 1 the B team generally were of that view. 2 Presumably you must have agreed to some extent with 3 that position, given you had agreed to the proposal that 4 Turner & Townsend undertake this? 5 A. Yes. If the -- if the B team felt they were unable to 6 do that, then yes, I would have had to agree with that. 7 Q. Then the next bullet point: 8 "To provide a reasoned explanation of the adequacy 9 or otherwise of the available financial headroom, in 10 view of the identified risks retained by the public 11 sector, their probability of occurrence, impact in cost 12 and time to the extent that these are not already 13 provided for within the Project Risk allowances ..." 14 So we can see what is set out there. 15 Go over the page, please, to page 2. Under "Access 16 to information/personnel": 17 "The following documents will be available for 18 review." 19 We can see what's set out ourselves, including the 20 proposed contracts, and the last bullet point: 21 "Capital Cost Estimates." 22 So a fair amount of documentation. 23 Then under "Resources", we see: 24 "It is anticipated that work will be carried out by 25 qualified professionals with experience of similar large 25 1 scale infrastructure projects in the transportation 2 sector." 3 So that's the plan at that stage. If we go back to 4 the email chain, please, which was CEC01567757, and go 5 to page 2, please, and blow up the email in the middle, 6 this is from Susan Clark of tie dated 27 September 2007 7 to Malcolm Hutchinson of the OGC team, and it's copied 8 in to others in tie. It states: 9 "Malcolm, CEC had been looking for a separate review 10 of risk as part of their governance process for Tram and 11 prepared the attached brief. 12 Is this something that you would be able to cover 13 in your review next week?" 14 Now, to pause there, Mr Holmes, I think the OGC team 15 were lined up to carry out a Gateway Review. So they 16 were already lined up, and I think the proposal then 17 came from within tie: well, why don't we also ask the 18 OGC team to undertake a review of risk. 19 Now, do you remember any discussion with tie or 20 Council officers about the OGC undertaking the risk 21 review rather than Turner & Townsend? 22 A. I don't recall there -- I don't recall a discussion, 23 which may or may not have taken place. 24 Q. If you had been -- if that proposal had been put to you, 25 what do you think your response is likely to have been? 26 1 A. I think my -- my response would be on the face of it, 2 it's a reasonable request to make. You have a six or 3 seven person very experienced team in the OGC review. 4 It's going to be carried out in any case around that 5 point in time. Can they do -- can they do the work? 6 On the surface it seems a reasonable request to 7 make, if it is being made in the context of the brief 8 that had been drawn up. 9 Q. If we can just continue this email chain, please, go to 10 page 1. The very bottom, if we blow up the email, 11 please. It's from Matthew Crosse to tie, dated 12 28 September 2007, to Duncan Fraser and copied in to 13 others, but not yourself. 14 It says: 15 "Duncan, just spoken to Malcolm Hutchinson. OGC 16 have now agreed to add a separate assignment to their 17 remit subject to the detail could being agreed early 18 next week. The timing and reporting of the additional 19 review will need to follow the main Gateway review 20 planned for next week - most likely the following week. 21 They also indicated that they may bring in one of their 22 specialists. 23 I presume this now wraps this up. As soon as we 24 have sorted the detail out I will stand 25 Turner & Townsend down." 27 1 Finally, please, back to page 1. In the middle we 2 see an email from Rebecca Andrew with her views. This 3 is to Jim Grieve, on 2 October 2007. First paragraph: 4 "Further to our conversation earlier today, I have 5 discovered that tie have now engaged OGC to look at risk 6 next week and not Turner & Townsend, as previously 7 understood. 8 I have concerns that the OGC review may be at too 9 high a level and that our need to have comfort over the 10 detail of the risks will not be met. I hope to get the 11 OGC remit from tie and will forward it on to you." 12 Now, so in short, Rebecca Andrew is saying her 13 concerns were the OGC review may be at too high a level 14 and in not enough detail to adequately protect the 15 Council's interests. What were your views on that? 16 A. I don't recall that email chain. I would presume that 17 in the interval between the previous email and that one, 18 some agreement had been reached with -- with 19 Duncan Fraser over -- over the matter. 20 Q. So you certainly don't recall this being discussed with 21 you? 22 A. I don't recall it being discussed with me. I think 23 I would have -- I would have taken advice from my staff 24 over it either way. 25 Q. Do you have any comments on Ms Andrew's concerns that 28 1 the OGC review may be at too high a level and not enough 2 detail? 3 A. Yes, if she doesn't know -- if she's seen the -- she's 4 obviously been part of the draft brief for 5 Turner & Townsend and she hasn't seen what the OGC remit 6 is, and wants to be satisfied that it covers her points. 7 Q. I think her position is that she wasn't, but we can 8 check her evidence. 9 In short, we do know that the OGC review, I think it 10 was a three or possibly four-man team. It took two to 11 three days in total, the risk review, and produced 12 a report. 13 It may be suggested that a two to three day high 14 level review simply couldn't offer the Council the 15 assurance it required and that given the size of the 16 project and the complexities, this required a detailed 17 in-depth review? 18 A. My recollection of the OGC reviews is that it involved 19 more people than that, but I will go by the record. 20 Q. Put it perhaps another way. Would you agree with the 21 proposition that this required a detailed in-depth 22 review; however that was done and by whoever that was 23 done, what was required was a detailed in-depth review? 24 A. It required a review in terms of the points set out in 25 the draft brief prepared earlier. 29 1 Q. I understand. 2 On a separate but related point, it may also be 3 suggested that at the time of this OGC risk review, the 4 price, terms and conditions of the contracts, and indeed 5 the risk allocation, had still to be agreed, with the 6 result that a further independent review of the risks 7 ought to have been instructed by the Council shortly 8 before contract award when these matters had been 9 agreed. 10 A. I'm not sure about the point that the contract, whether 11 an independent review, I think that comes back to the 12 point of the level of scrutiny carried out in-house by 13 the Council over the contract itself. And the 14 assurances that appeared to have been -- been given from 15 within the wider legal team. 16 Q. I think you accepted there was a requirement for an 17 independent check of what the project manager was 18 saying. Do you accept that? 19 A. Yes. 20 Q. I think that perhaps lay behind the OGC review at this 21 stage. 22 A. Yes, perhaps -- yes. I think the issue is -- I think is 23 the adequacy or not of the OGC review compared to the 24 earlier -- the earlier brief. 25 Q. Well, I'm moving on to a different point in that we've 30 1 discussed that and we have your evidence. What I'm 2 simply wondering is: if it's accepted at this stage 3 there is a need for an independent check on the project 4 manager and what they were saying, in particular in 5 relation to risks, at that stage it was considered that 6 the Council didn't have sufficient expertise to do that 7 themselves, so they brought in independent experts, do 8 these same factors not apply, but even more so, shortly 9 before contract award when at that stage the price, 10 terms and conditions of the contract and final risk 11 allocation have been agreed? 12 A. Yes, I can't recall whether there was a further OGC 13 review at that stage or not. 14 Q. There was no further independent review of risks. 15 A. Right. 16 Q. With the benefit of hindsight, do you think that would 17 have been prudent? 18 A. With the benefit of hindsight, yes. 19 Q. Do you consider it was an error not to have obtained 20 a similar independent review of risks shortly before 21 contract close? 22 A. You have to say that in hindsight, yes. 23 Q. I'm trying to get away from hindsight. The likes of 24 Ms Andrew and other members of the B team were 25 exercising foresight. They could see the problems and 31 1 the difficulties that may arise, and they were saying 2 essentially: we need independent assistance with this. 3 And that was given at this stage -- 4 A. Yes, and I -- I think I must have agreed with that 5 because I would have discussed the content of the -- the 6 brief that was intended to go to Turner & Townsend. 7 Where I cannot follow is the process which led to that 8 being covered by the OGC review rather than the -- 9 rather than the independent review. 10 Q. I would like to move on to another point, please. It's 11 another document, CEC01383667. If we could blow up this 12 email in the middle. It's from Duncan Fraser, dated 13 20 November 2007, to yourself, copied in to others, 14 subject: fixed price contract. 15 The text states: 16 "Tie have agreed to a fixed price contract for 17 Infraco on the original basis that: 18 The detailed design would be completed by SDS. 19 That all the designs are technically approved by 20 the road authority. 21 That all designs have prior approvals granted by 22 planning. 23 The current situation is that only some of the 24 designs have been completed in detail and none of the 25 designs are technically approved and only four out of 32 1 the 61 packages for prior approvals have been agreed. 2 Consequently there is a reasonable case for arguing that 3 there should be a 'risk premium' established to enable 4 changes to be made post financial close with BBS. 5 Importantly this must be presented in a manner that 6 minimising the risk of members believing that this is an 7 increase in the cost. Rather that it is the normal 8 process for completion of the design process. The 9 design process can be broken down on to three elements 10 roads, drainage and structures. In the absence of 11 information from tie I suggest that we should make 12 an allowance of GBP25 million for this, in the 13 expectation that the cost falls below this, thus 14 avoiding any suggestion that the costs are not in 15 control 'Holyrood on Wheels'." 16 Now, to pause there, do you remember getting this 17 email? 18 A. I don't remember it, no. 19 Q. So I think -- 20 A. But I obviously did. 21 Q. Yes. I think in short the point Mr Fraser is seeking to 22 make is that in order to get a fixed price contract, 23 that was to be on the basis that design had been 24 complete, and all approvals and consents were obtained. 25 That wasn't the position that parties were in with the 33 1 result that there should be a significant allowance for 2 changes post financial close. I think that was his 3 point. Did you have any views on that matter at the 4 time? 5 A. Yes, I -- I think I would have agreed with him that we 6 need -- that we needed to ensure that the -- if you 7 like, the risk was paid for within the contract price. 8 Q. Mr Fraser is suggesting an allowance of GBP25 million, 9 a very significant sum. Did you have any views on the 10 sort of allowance that should be made for that risk? 11 A. No. I would -- I can't recall having any views on that. 12 It's something I would have discussed with him at the 13 time. 14 Q. Would you have been in a position to disagree with his 15 figure? 16 A. I think I would have been in a position to question him 17 as to what the -- how he had made it up, yes. But 18 not -- he may well in discussion have changed that view. 19 He may not. I can't recall. 20 Q. Could you also then pleads go to the next paragraph, 21 which states: 22 "At the last IPG I raised this topic however there 23 was a concern about such a statement being minted." 24 Now, to pause there, in his evidence to the Inquiry 25 there was a discussion with Mr Fraser as to whether he 34 1 meant "minted" or "minuted". I forget what his final 2 position was. I think he may have accepted it was 3 "minuted", but we will have to check. 4 In short, can you remember whether in any IPG 5 meeting, there had been discussion of that, and there 6 being concern about such a statement being minuted, if 7 that's what Mr Fraser meant? 8 A. I'm sure that's what he meant, but I can't recall the 9 suggestion or who would have been party to that 10 discussion. 11 Q. Can you remember more generally there being any concern 12 about advising members of the state of design and the 13 problems that may cause post contract close? 14 A. I think there's always a concern about advising members 15 about a problem, if you're not advising them about the 16 solution at the same time. 17 Q. Why is that? 18 A. They're relying upon you to, I think -- on any matter, 19 if you've identified a problem, to say how this problem 20 is being addressed. 21 Q. I understand. Let's move on, please, to another 22 document, CEC01023764. This is a report to the Tram 23 Project Board. 24 CHAIR OF THE INQUIRY: While we are getting that, that last 25 document referred to approvals and consents, including 35 1 planning consent. 2 You had a very wide experience in planning matters. 3 Could you give me some indication of how long it might 4 take planning officials to approve the design of 5 structures or any part of the -- of the route of the 6 tram submitted to it? 7 A. I think the objective from the start, my Lord, was to 8 ensure that everything was got right first time, and 9 that within the -- the allowed time, whatever was set 10 out in the contract. That's why we did rehearsals, 11 even, for the prior approvals. It's why a particular 12 staffing team was -- was set up. 13 I had had some previous experience in an earlier 14 life with them -- prior approvals and that kind of 15 thing, and it had also been a feature on a related PFI 16 project. So we -- we knew the pitfalls and certainly 17 prior to my departure, we were trying to set it up so 18 that the design team got it right first time, that the 19 planning team saw what they were expecting to see, and 20 were able to pass it through. 21 CHAIR OF THE INQUIRY: Would any of these designs involve 22 consulting outside bodies such as Historic Scotland, if 23 that is what they're still called? 24 A. It's now Historic Environment Scotland, my Lord, but 25 the -- there will have been issues involving that 36 1 consultation where one has got -- obviously where you 2 were affecting the setting of a listed building. 3 I think that there would have been blank -- from memory, 4 I think things like the Tram Design Manual, the design 5 of the overhead lighting columns, et cetera, would -- 6 should all have been the subject of prior discussion 7 with Historic Scotland as it was at the time. 8 CHAIR OF THE INQUIRY: Yes. That would include things like 9 the tram stops and the poles? 10 A. The design of the tram -- the tram stops, the poles, 11 the -- the treatment of the surfaces in the key areas, 12 Princes Street, Haymarket, et cetera, would have been 13 part of that discussion. 14 CHAIR OF THE INQUIRY: Thank you. 15 MR MACKENZIE: Thank you. Now, the document on screen we 16 can see are papers relating to the Tram Project Board. 17 If we can go, please, to the papers for the meeting of 18 7 December 2007, and go, please, to page 12. I think we 19 can blow up the top of the page, thank you, this is 20 a report to the board. 21 Under "Design deliverables", it states: 22 "To 23 November, of the 344 design deliverables, 236 23 have been delivered, representing 63 per cent of the 24 tram system design. 66 per cent of Phase 1A detailed 25 design is now complete ..." 37 1 So I think in short this is telling us that about 2 two-thirds of detailed design for phase 1a was complete. 3 I take it that that would have accorded with your 4 understanding at the time? 5 A. Yes. Yes. I was -- I would have been present at the 6 meeting, and I would have -- so the figure wouldn't have 7 come -- doesn't come as a surprise. 8 Q. Can we also then, please, see in the next paragraph 9 a reference to: 10 "SDS design progress will be discussed with 11 Tom O'Neill, the PB [Parsons Brinckerhoff] President, on 12 5 December." 13 Does that suggest there were still problems with 14 design around this time? 15 A. I think that -- yes, it does. 16 I do recall that Willie Gallagher had a number of 17 high level meetings with Parsons Brinckerhoff about 18 recovery of design and PB sticking to agreed timescales 19 going forwards. 20 Q. Thank you. I would like to move on now, please. We 21 will come to the report to Council on 20 December 2007 22 shortly. I would just like to look at some of the steps 23 up to that report, please. Firstly, document 24 CEC01383999. I think if we look, please, in the middle 25 email, and blow it up, thank you. 38 1 This is from Stewart McGarrity, tie's finance 2 director, an email dated 29 November 2007, sent to 3 Duncan Fraser and Rebecca Andrew, but not to yourself. 4 We can see Mr McGarrity says: 5 "Attached is the draft report copied from the tie 6 Extranet yesterday and with Miriam and my own comments 7 added to Lex's. 8 It seems to me that we might want to have a step 9 back and to have an open discussion re what we're trying 10 to say with this report." 11 To pause there, there does seem to have been quite 12 a theme in reports to Council in relation to the tram 13 project of tie having a fairly heavy input into the 14 drafting of these reports; is that fair? 15 A. Not in terms of first round drafting or anything like 16 that. I think the way in which the report would have 17 been assembled is that Duncan Fraser and Rebecca Andrew, 18 possibly with others, would have had a go at doing the 19 first draft. There are obviously huge chunks which were 20 relating to tie's own activities. So tie would have 21 been given an opportunity to either comment or supply 22 specific paragraphs. I think it would be wrong to say 23 that tie were actually drafting the reports. The 24 reports were being drafted by the Council team with 25 input from -- from tie. It couldn't have happened any 39 1 other way. 2 Q. Was it common practice more generally in the Council for 3 third parties to be involved in commenting on reports to 4 Council or supplying wording for reports to Council? 5 A. It would depend on who the third parties were. I think 6 with other Council companies, I can recall from time to 7 time that drafts having been shared, I think it's back 8 to the -- the nature of tie and what they were -- what 9 they were doing. I think it was -- they certainly 10 wouldn't have shared the drafting of a report with 11 a third party developer or anything like that, but 12 I think we're back to the general feeling of tie being 13 one of the family, so to speak. 14 Q. Was this common practice among other Council-owned 15 companies when reports were being drafted? 16 A. I don't think with other Council-owned companies, one 17 got to the -- the level or intricacy of report -- report 18 drafting. 19 I certainly would not have put a report to any 20 Council committee or Council on one of the other Council 21 companies without either making them aware of the 22 content of it or sharing their -- a draft with them at 23 some stage. 24 Q. I would like now, please, to look at the revised, or 25 rather draft report. It's CEC01384000. If we can go, 40 1 please, to page 2, paragraph 3.3. We see it states: 2 "Negotiations have also encompassed design scope and 3 details. However the final negotiated contract price is 4 based on the preliminary designs made available to the 5 bidders during the tender negotiation period. As 6 a result of the negotiations, and submission of designs 7 for technical and prior (planning) approval, final 8 designs may be changed from the preliminary designs with 9 consequent cost changes. An additional contingency sum 10 is therefore included in the cost estimates which are 11 set out below in Section 4.2." 12 We should perhaps look at the comments box in pink 13 to the right, please. Is it possible to blow up the two 14 comment boxes again, please? 15 Yes, we can see the first comment box states: 16 "Might this give the impression that nothing has 17 moved on in the design for a long time? This has 18 already been discussed with Duncan by Geoff Gilbert." 19 Then the next comment box: 20 "I think this needs to be clear about the difference 21 between design evolution (emerging clarity about detail 22 and the approvals process) and scope changes (building 23 more) - there is no ability to absorb scope changes 24 here." 25 That's by way of context. On page 3, please, could 41 1 we look at paragraph 4.2. We see then, under "Capital 2 Costs", provides: 3 "The revised and final cost estimates are shown in 4 the table below and compared to the October figures." 5 Blow up the comments box, please: 6 "As of today there is nothing which has changes what 7 was in the Final Business Case version 1. Why so much 8 detail?" 9 Then paragraph 4.3, please, is the more important 10 one. Blow up paragraph 4.3, please, thank you. 11 This states: 12 "These estimates include an allowance of risk 13 contingency of XX per cent, or GBP49 million that was 14 estimated - to be expressed as a percentage of an 15 agreed sum say GBP250 million from a detailed 16 statistical analysis of project risks. The estimates 17 however exclude additional costs arising from final 18 detailed design or from scope changes required by the 19 client (tie or CEC). A further contingency of 20 GBP25 million is recommended to cater for required any 21 such design changes as described in 3.3 above." 22 So I think in short this is, again, Mr Fraser's 23 point he had made previously in his email to you that he 24 could recognise that because design was incomplete, 25 there would require to be a further significant 42 1 contingency to allow for changes after contract award; 2 is that a fair way to express it? 3 A. Yes, that seems to relate to the point he was making 4 earlier. 5 Q. Then please look at the comment box to the right here 6 and blow it up, please, the one in pink. It's a comment 7 from Mr McGarrity in upper case: 8 "ALARM BELLS ALL OVER THE PLACE - WHAT ADDITIONAL 9 GBP25 MILLION???" 10 Did you have any views on this matter around this 11 time? 12 A. No, I wouldn't have -- I mean, this looks -- looks as if 13 it was the early stages of the drafting of the report, 14 and I don't think I would necessarily have -- 15 I certainly don't recall seeing it with the tie comments 16 on it. 17 Q. Thank you. If we then please look at page 10. We can 18 see appendix 3, risks. Over the page, please. If we 19 can then blow up the top of the page, please. It 20 provides: 21 "The risks fall into the following broad categories. 22 (a) Project Risks ... 23 (b) Operational risks." 24 Now, I think in short, Mr Holmes, this essentially 25 is an appendix to the Council report which sets out 43 1 officers' view of risks, and this, I think, appendix was 2 in the same or at least very similar terms to an 3 appendix which had been provided already in the report 4 to Council on 25 October 2007. So I think in short the 5 proposal here is to again provide a fairly detailed 6 appendix on risks along the lines previously provided, 7 and we won't go into the detail here. 8 If we can then go to the next page, please, we can 9 see it does run on to the next page. We can see, if we 10 perhaps blow up the bottom, "Operational Risks". They 11 are also then set out. And also then on to the last 12 page as well. 13 So that's the state of the draft report at this 14 stage. If we go to another document in the chain, 15 please, it's CEC01384035. 16 The second email is from Duncan Fraser, dated 17 30 November 2007, to Rebecca Andrew, copied in to 18 Colin MacKenzie, but not yourself. He states: 19 "I have compressed the report as requested by Andrew 20 to show what can be done, however I still have concerns 21 about the completeness of information that informs the 22 members decisions. I will discuss this with Andrew 23 tonight and would appreciate your comments and Colin's 24 when he gets back." 25 Now, can you remember having asked Mr Fraser to 44 1 compress the report? 2 A. Well, I can't -- I can't remember the specific, but it's 3 not a surprise. 4 Producing reports, especially complex reports for 5 the Council, was always an issue because you were trying 6 to produce a report that people were actually going 7 to -- this sounds rather blunt -- that the members were 8 actually going to -- were going to read. Therefore it 9 was always a question about making it clear. The 10 clarity of the report, the length of the report, and 11 covering the -- a lot of the information in appendices 12 and background papers. The objective is not to try and 13 obfuscate the issue, but to produce a report that the 14 totality of members can -- can understand what it is 15 that they're being recommended to -- to do. 16 That was -- was not -- not uncommon. It was -- 17 I mean, I was -- in the typical week, I might be having 18 30 or 40 reports to different Council committees or 19 Council going across my desk, and it was a common theme 20 with a lot of them, the need to actually present the 21 report in a clearer fashion so that members didn't have 22 to wade through vast amounts of -- of paper. 23 So that might well have been the reason behind the 24 compression. I can't recall what the compression 25 actually produced. It certainly wouldn't have been 45 1 intended to try and suppress any vital information. 2 Q. We can see Mr Fraser's concerns that he's had concerns 3 about the completeness of information that informs the 4 members' decisions. Presumably if one compresses 5 a report, there is a danger that important information 6 may not find its way to members and may be left out? 7 A. That is -- that is a danger, and he would certainly have 8 come back and discussed it with me. 9 Q. Mr Fraser does say that he intended to discuss that with 10 you that evening. Do you recall Mr Fraser ever 11 expressing concerns to you in relation to the 12 completeness of information in this report? 13 A. I can't recall that. 14 Q. Then go to another chain, please. CEC01384036. This is 15 the revised report produced by Mr Fraser. If we can go, 16 please, to page 3, just to compare with the previous 17 version, and I think we can see, if we blow up, please, 18 under "Capital Costs". I think what's been taken out is 19 a reference to the October estimate. I think we can see 20 all of the deleted text underneath that, including in 21 particular paragraph 4.3 the reference to a suggested 22 further contingency of GBP25 million. So that's gone. 23 Then please look at page 5. In paragraph 4.11, 24 under "Risks", the text has been deleted with 25 a substitution of: 46 1 "Tie to provide text." 2 Now, why was text on the risks to the Council to be 3 provided by tie rather than Council officers? 4 A. I think, first of all, I think it would have been tie to 5 produce the -- the draft of that. I think it was 6 possibly a view from the team that they did not -- that 7 tie had a better understanding of the overall risks and 8 that the draft of that may sit better in their hands. 9 Q. Because it might be suggested on that point that if 10 Council officers properly understood the risks, then 11 they should have been able to draft that section of the 12 report themselves. 13 A. Yes. Yes, and I -- from the -- the notes, it appears 14 the suggestion is that the text should be that which was 15 in the Final Business Case. 16 Q. Thank you. I would like to move on to another matter, 17 please. Again, leading up to the report to Council on 18 20 December 2007. 19 CHAIR OF THE INQUIRY: Before leaving that, looking at the 20 comment in the margin from Mr McGarrity, can you blow 21 that up? He seems to be questioning the need to put in 22 anything about risks or additional risks which aren't 23 already dealt with in the Final Business Case. Do you 24 understand -- 25 A. That seems to be the basis of his -- of his comment, 47 1 my Lord. I'm presuming that what he's asking for is -- 2 is a translation from the Final Business Case risk 3 section into the report. 4 CHAIR OF THE INQUIRY: Had there been any change, as far as 5 you can recall? 6 A. I can't recall what -- what the changes were, my Lord. 7 CHAIR OF THE INQUIRY: But if there had been a change, why 8 would you not report that to the Council? 9 A. If there had been a change, then -- then that would have 10 been -- I would have expected that to have been picked 11 up and reported. 12 I'm not sure whether the additional risk insertions 13 are in terms of additional risks or just the insertions 14 themselves, which is concerned here. 15 MR MACKENZIE: Thank you. I would like to deal with the 16 next matter by going to your statement, please, at 17 TRI00000046_C. And in particular, at paragraph 229, we 18 see it on the screen. 19 I think the Inquiry had referred you to the 20 highlight report to the meeting of the IPG on 21 11 December 2007, which included a briefing note that 22 had originally been sent to yourself and Mr McGougan by 23 Alan Coyle on 3 December 2007. The statement then says: 24 "The Briefing Note set out a number of important 25 issues which could impact on the report to Council on 48 1 20 December and sought guidance on how these issues 2 should be treated in the report." 3 Then the next paragraph, paragraph 230, states: 4 "I think the Briefing Note probably reflects the 5 underlying concern that while it may be achievable to 6 reach a Financial Close, there was a major challenge in 7 managing the steering of the contract, and while there 8 could have been an extension of time, that would have 9 had a significant impact on overhead costs. I think, 10 however, that the Briefing Note probably was a fair 11 reflection of the concerns at the time." 12 Now, we went through the briefing note in some 13 detail yesterday, and it may be we don't have to do that 14 today. 15 Can I ask, in short, from what you said there, that 16 the briefing note is probably a fair reflection of the 17 concerns at the time, does that mean that in general, 18 you agreed with the concerns set out in the briefing 19 note? 20 A. I said that in my statement. I'm sorry, sir, I would 21 need to ask you to put the briefing note back up again. 22 Q. Well, let's do that, please, then. It's CEC01398245. 23 We can see this is the highlight report to the meeting 24 of the IPG on 11 December 2007. If we can go to page 91 25 and blow up the top paragraph, please, Introduction: 49 1 "This briefing is intended to provide an update on 2 current developments on the tram project." 3 I think in short we've seen from other documents 4 that the B team together drafted this report with 5 different people inputting different bits. And it was 6 then, I think, sent to the directors before this 7 meeting, and then also it formally finds its way as an 8 Appendix 3 to the report to the meeting. 9 If we look under 3, please, "Potential Additional 10 Project Costs", in paragraph 3.2, I think what we'll do, 11 Mr Holmes, is identify the paragraphs and ask you to 12 read them yourself, rather than me reading them out. It 13 may save a little time. 14 So paragraphs 3.2, 3.3 and 3.4, please? 15 A. "It is currently unclear to CEC as to the scope of the 16 works ..." 17 Q. I'm sorry, Mr Holmes, if you just read them to yourself, 18 to save a little time. 19 A. Yes. (Pause) 20 Yes. 21 Q. I think perhaps, to summarise, that perhaps harks back 22 to Duncan Fraser's point about design being incomplete, 23 it may be difficult to get a fixed price contract; does 24 that seem a reasonable summary? 25 A. Yes. 50 1 Q. Then, please, over the page, if I may, to page -- bottom 2 of page 92, if we blow up number 6, "Utilities". Thank 3 you. 4 Over the page again, please, at page 93. I'll just 5 please let you read to yourself what's said in 6.1 and 6 6.2, 6.3 and 6.4. (Pause) 7 A. Yes. 8 Q. So I think, to try and summarise, that's setting out 9 concerns about certain difficulties and delays with the 10 utilities works; is that correct? 11 A. Yes. 12 Q. Then, please, same page, I'll let you again, please, 13 read to yourself all that's set out under 7, 14 "Consents/Prior Approvals/Incomplete Design". (Pause) 15 A. Yes. 16 Q. Thank you. Would you have broadly agreed with these 17 concerns at the time? 18 A. Yes. 19 Q. Thank you. Over the page, please, page 94. Could I ask 20 you to look at paragraph 7.10, please. (Pause) 21 Would you have agreed with that at the time? 22 A. In general. I'm not quite sure what the specifics would 23 have been in terms of the TRO process, but I'll let that 24 pass. 25 Q. Thank you. I should also perhaps go back to page 92, 51 1 please. Page 92, paragraph 4.1, please, in relation to 2 the Quantified Risk Allowance. Again, I'll let you read 3 that for yourself, please. (Pause) 4 A. Yes. 5 Q. Would you have broadly agreed with that at the time? 6 A. Yes, I would have done. 7 Q. Also, please, page 96. Paragraph 13.4 states: 8 "There is also the issue that Council officials do 9 not understand the contract nor have had any independent 10 review of the contract document." 11 Now, at least at that time, would it have surprised 12 you to have read that? 13 A. I think it would have -- it would have at that time, it 14 would have surprised me very much to have read that. 15 This was a report to the Internal Planning Group, 16 I believe. I would have expected the Director of 17 Corporate Services to have reacted to that. 18 Q. By doing what? 19 A. By questioning his -- well, either discussing it in the 20 meeting or going back to the Council Solicitor. 21 Q. Also, please, paragraph 14.2. Would you have agreed 22 with that? 23 A. Yes. 24 Q. Also then, please, page 97. The last paragraph. In 25 short, I think, guidance being sought from Council 52 1 officers in relation to the report, including at the end 2 whether a report on 20 December 2007 is appropriate 3 given the outstanding issues. 4 So having looked at least at these passages 5 I brought to your attention, Mr Holmes, would you have 6 broadly agreed with the passages I brought to your 7 attention? 8 A. Broadly, yes. 9 Q. Were you of the view at this time that it would not be 10 appropriate for the Council to authorise tie to enter 11 into the contracts until Council officers were satisfied 12 on the concerns set out in this note? 13 A. Yes. I think we would have required satisfaction as to 14 how these concerns were being addressed. 15 Q. Now, given these unresolved concerns, why was it 16 appropriate to report to members on 20 December 17 recommending approval of the Final Business Case? 18 A. I can only presume that the issues and concerns were 19 addressed around things like the risk premiums or 20 whatever going into the report. I don't think it would 21 have -- trying to sweep them under the carpet, it would 22 have been on a genuine belief that measures were in 23 place to address them. 24 Q. Would it not have been better to wait until the concerns 25 set out in this note had been resolved before asking 53 1 members to approve the Final Business Case, because it 2 was only then that officers could know whether the final 3 price, terms and conditions of the contract and the risk 4 allocation were consistent with the Final Business Case? 5 A. With hindsight, yes. At the time there must have been 6 a view that, taking all the different factors into 7 account, there was sufficient reason to move forward to 8 reporting on the -- on 20 December, rather than -- 9 rather than delay. 10 The question of whether the risks were being covered 11 within the quantified risk allowance, the question of 12 the issues around not being able to draw down the 13 tranche of Scottish Government grant and losing it, 14 issues around the level of background construction price 15 inflation that was -- that was present. I can't recall 16 what different factors came to play in deciding to go 17 ahead on 20 December. 18 Q. What was the issue in relation to being able to draw 19 down the tranche of Scottish Government grant and not 20 losing it? 21 A. I seem to recall at some point along the line that you 22 had to get past certain milestones with the project in 23 terms of contract acceptance to be able to continue -- 24 to be able to draw down the next tranche, and that that 25 was going to be lost. But that is a vague memory. 54 1 Certainly monies were conditioned. 2 Q. Now, the action note of the meeting of the IPG on 3 11 December 2007 -- I'll give the reference, 4 CEC01391159 -- discloses you weren't present at this 5 meeting. So I won't ask you about any discussion of the 6 meeting. But do you recall being advised of the outcome 7 of the meeting? 8 A. I would have received the minute. 9 Q. But you don't recall any discussion, for example with 10 Mr Fraser or other directors as to what was to happen 11 with the report to Council? 12 A. There would certainly have been a discussion around it. 13 I don't know why I wasn't present. Nor -- nor 14 can I recall what the minuted discussion was. 15 Q. Thank you. I would like to move on, please, to another 16 document. It's CEC01483731. 17 Now, if we can blow up the box, thank you. 18 These, I think, were slides for a PowerPoint 19 presentation at the Tram Project Board on 20 19 December 2007. If we can go, please, to page 4. We 21 can see there are now some slides on the question of 22 price by Stewart McGarrity. If we can go to page 5, 23 please. We can blow up the slide, please, thank you. 24 It's headed, "Progress to Closing Infraco Contract". 25 "Headlines of Deal agreed in Wiesbaden." 55 1 To pause there, do you have any recollection at all, 2 Mr Holmes, of being told what had been agreed in 3 Wiesbaden? 4 A. I have a recollection of being told. I can't recollect 5 what the -- what I was told. 6 Q. I quite appreciate you may not be able to recollect the 7 details. Do you have any recollection at all? 8 A. That agreement had been essentially reached on 9 de-risking elements that had been of concern. 10 Q. Now, in saying that, are you taking your prompt from the 11 slide we can see, or is that something you separately 12 remembered? 13 A. It's something that I separately remember. I can't 14 remember the details other than it was a question of 15 premiums being applied to different elements in return 16 for reduction in risk. 17 Q. Thank you. Just continuing with this slide, bullet 1, 18 based on, firstly: 19 "BBS taking detailed design development risk." 20 Do you have any recollection of that having been 21 said at or around this time? 22 A. I can recall it being said. 23 Q. Can you remember who it was said by and when and how? 24 A. It was said principally by Willie Gallagher, supported 25 by those of his staff who had been involved in the 56 1 discussion. 2 Q. Do you think that was said at a Tram Project Board 3 meeting or in a different forum? 4 A. I think it was said in the Tram Project Board. It may 5 well have in addition been discussed separately. 6 Q. What did you understand by what was being said in this 7 regard? 8 A. In summary, that a lot of the earlier concerns that had 9 been expressed had been addressed at a price by that 10 discussion. 11 Q. Thank you. Also, finally on this one, page 8, please. 12 We can see under "Progress to closing Infraco contract": 13 "Why is this a good deal?" 14 First bullet point: 15 "Design development risk transferred to Infraco from 16 this point on." 17 Do you have any comments on that? 18 A. That that was at the core of my understanding of the 19 outcome of the agreement. 20 Q. Now, also, please, the minutes of this meeting are 21 CEC01363703. We can see these are papers for the 22 meeting, the next meeting, on 9 January 2008, but they 23 include the minutes for the previous meeting at page 5, 24 please. 25 We can see if we blow up the top, please, minutes of 57 1 the meeting of the Tram Project Board on 2 19 December 2007. 3 If we scroll down, please, to item 4, we can see 4 "Infraco price update", and 4.1: 5 "SMcG [Mr McGarrity] provided an update on the 6 status of the project cost estimate and the anticipated 7 Infraco contract price. He explained that the contract 8 price was based on the Wiesbaden deal, subject to 9 certain conditions that were covered by existing 10 contingency. This deal meant that BBS had accepted most 11 items on the VE [value engineering] register and taken them 12 into their contract price." 13 In item 4.2: 14 "He further explained that a premium had been 15 included in the contract price to firm up previous 16 provisional sums. Of the outstanding provisional sums, 17 the vast majority relates to Picardy Place." 18 So far, is that generally consistent with your 19 recollection of matters at the time, if you have any 20 recollection? 21 A. Yes, it's consistent. 22 Q. Then if we look, please, under item 5, "Project Cost 23 Estimate update", and under 5.4 we see your initials, 24 Mr Holmes: 25 "AH questioned how the risk of programme delays, 58 1 specifically due to design delays, had been allowed for 2 in the cost estimate. WG [Mr Gallagher] explained that 3 a number of factors provided comfort in this matter: 4 Normal design risk is passed to BBS through the SDS 5 novation." 6 Then at the bottom we see that you requested further 7 details on the design risk being passed to BBS: 8 "Steven Bell to provide." 9 Do you remember any of this? 10 A. Yes, I can remember the -- questioning that particular 11 issue. 12 Q. Can you remember why you were questioning it? 13 A. Because of its criticality. 14 Q. Do you have any recollection of whether further details 15 were provided? 16 A. I can't recall them being provided. They -- they must 17 have been either directly to me or through 18 Duncan Fraser. 19 Q. I will come back -- 20 A. I was presumably satisfied with what I got. 21 Q. I'll come back to other minutes which show that. But 22 just sticking with this one, please, at page 7, if we 23 can scroll down a little, please, under 8, "Programme", 24 we'll see under 8.3, again, you expressed your concern 25 about potential programme impacts arising from design 59 1 delays. Steven Bell to provide greater detail on how 2 the risk was passed to BBS. 3 Do you have anything to add to that? 4 A. No. I can recall raising -- raising these. At this 5 point -- well, throughout that year, the Tram Project 6 Board meetings tended to go on a long time and I think 7 tried to bottom out as many -- obviously as many of 8 these issues either through the risk register or 9 specifics as -- as possible. 10 Q. Thank you. The last document, please, is CEC01015023. 11 It's another set of papers for the Tram Project Board. 12 We will see at page 5, please, it's the minutes of the 13 meeting at 9 January 2008. 14 If we go, please, to item 1.5 we see: 15 "Previous minutes: SDS design and risk transfer - 16 Steven Bell stated that further details had been 17 provided to AH [yourself] regarding [your] queries. The 18 discussion on risk transfer was continuing with BBS and 19 progress updates would be presented to the Tram Project 20 Board." 21 So that seems to suggest two things, Mr Holmes. 22 Firstly, Mr Bell had come back to you with further 23 details. Does that seem correct? 24 A. That seems correct. 25 Q. Can you remember that happening? 60 1 A. No. 2 Q. Can you remember if you still had any outstanding 3 queries or concerns on these matters? 4 A. Not -- I can't remember whether I had -- if I had had 5 any remaining concerns, either there or through the risk 6 register, I would have expressed them in the Tram 7 Project Board and expected them to be minuted. 8 Q. The second point then, we can take from this, is that 9 there were ongoing discussions on risk transfer; is that 10 correct? 11 A. That seems to be what the minute says, yes. 12 Q. Could I also, please, just finish off this line of 13 questioning, if I may, by going back to your statement 14 at page 77. In paragraph 281, towards the bottom of 15 this paragraph, this was a reference to the minutes of 16 a meeting of the Legal Affairs Group on 7 January 2008, 17 but towards the bottom you say: 18 "My understanding, reading the minutes, corresponds 19 with the general impression that SDS were being novated 20 to BBS, who were in full knowledge as to the current 21 state of design, and that the issue of the necessary 22 approvals remained with CEC." 23 Then just to finish that also, please, at page 81, 24 in paragraph 294, you state: 25 "My assumption is that the issue of incomplete 61 1 design was addressed by transferring responsibility to 2 the Infraco bidder as part of the novation of SDS." 3 So the question there of your assumption being that 4 the issue of incomplete design was being addressed by 5 transferring responsibility to the Infraco bidder. What 6 did you understand by that? 7 A. I understood that the -- that the transfer of design and 8 the appropriate risk payments that had gone with that 9 meant that the total design responsibility remained with 10 the -- with the bidder, and in effect the remaining part 11 of that was becoming similar to a design and -- a design 12 and build type contract. 13 Q. There may perhaps be three risks or matters arising from 14 incomplete design. 15 One is the very narrow point of which party is going 16 to complete the design and pay the designer for doing 17 that, the very narrow point, and clearly that's going 18 to, following novation, be the consortium; is that fair? 19 A. Yes. 20 Q. The second, and entirely different matter, perhaps, what 21 if incomplete design means there is an increased 22 building cost? So let's, for example, say preliminary 23 design of a certain sort of structure, by the time 24 detailed design is finished, there are some differences 25 which lead to additional costs. Then that is a separate 62 1 risk arising from incomplete design; is that fair? 2 A. Yes. I think -- I do recall being -- discussing this, 3 assurances that the major structures had in fact passed 4 beyond that stage. That's -- it may not be a correct 5 recollection, but it is a recollection. 6 Q. The third, perhaps, risk arising from incomplete design 7 is that the very process of completing design may lead 8 to programme delays, including delaying the construction 9 programme. That's a separate risk, isn't it? 10 A. Yes, though I suppose I would have assumed that that 11 element had -- had gone over, except where it had 12 applied to the necessary approvals coming back. 13 Q. Now, could I ask, please, at the time of the report to 14 Council on 20 December 2007, we've seen the reference to 15 the consortium accepting, as reported to you, normal 16 design development. Which of these three risks I've set 17 out -- I'm sorry. Let me ask this question again. 18 We've seen the reference to it being reported the 19 consortium were accepting the risk of normal design 20 development. Did you have a clear understanding at the 21 time of the report to Council on 20 December 2007 as to 22 which of these three risks was included within that? 23 A. I think my understanding would have been that -- if 24 I can put it in summary -- that the design had 25 effectively been de-risked by that. At this passage of 63 1 time, I can't recall what discussion there was around 2 those -- those different elements other than the fact 3 that I think I can recall discussion around principal 4 structures and the necessary assurances about design 5 stages. 6 MR MACKENZIE: Thank you, my Lord. That may be a suitable 7 place to pause. 8 CHAIR OF THE INQUIRY: Yes. Before we rise, on the screen 9 there's paragraph 294 of your statement. The last 10 sentence says: 11 "The Council Solicitor, herself, was intimately 12 involved in the process." 13 Can you just clarify when you are speaking about 14 "the process", what do you mean by that? 15 A. I think the -- the process, my Lord, of how that 16 actually was reflected in the final contract. 17 CHAIR OF THE INQUIRY: So that's the transfer -- you're 18 talking in this paragraph about the issue of incomplete 19 design being addressed by novation. 20 A. Yes. 21 CHAIR OF THE INQUIRY: Is that the process you're talking 22 about? 23 A. Yes. 24 CHAIR OF THE INQUIRY: What's the basis for your saying that 25 the Council Solicitor herself was intimately involved in 64 1 that process? 2 A. From memory that this was all being discussed within 3 the -- within the Legal Affairs Group which she was 4 running. 5 CHAIR OF THE INQUIRY: Thank you. 6 We'll adjourn now to give the shorthand writers 7 a short break. We'll resume again at 11.30. In the 8 meantime, you can get a cup of tea or coffee. 9 (11.15 am) 10 (A short break) 11 (11.33 am) 12 CHAIR OF THE INQUIRY: You're still under oath, Mr Holmes. 13 MR MACKENZIE: Could we turn now, please, to the report to 14 Council on 20 December 2007. It's CEC02083448. If we 15 go to page 9 to begin with, we can see, I think, if we 16 blow up the names, this report is by yourself and 17 Mr McGougan. 18 I think we can see the signatures are dated 19 17 December 2007. Does that suggest the report was -- 20 do you recall when members were given this report? 21 A. No, I can't. It does suggest that it was late 22 circulation. 23 Q. So it may have been shortly before the meeting on 24 20 December? 25 A. It may have been. 65 1 Q. From the date of your signature, I think we had seen 2 just before the break that the -- there had been 3 a meeting of the Tram Project Board on perhaps 4 19 December. So again, this report appears to have been 5 finalised before that meeting; is that correct? 6 A. Yes. 7 Q. Now, going back to page 1, please, we see paragraph 1.1, 8 1.2, we see the purpose of the report. 1.1: 9 "Recommending approval of the Final Business Case 10 Version 2 prepared by tie ..." 11 1.2: 12 "Recommending staged approval for the award by tie 13 of the contracts ... subject to price and terms being 14 consistent with the Final Business Case, and subject to 15 the Chief Executive being satisfied that all remaining 16 due diligence is resolved to his satisfaction." 17 Perhaps then just scroll down and get an overview of 18 this report. We see the summary. We then see main 19 report, recent developments. Then please, over the 20 page, we see a section on project governance. Carry on 21 scrolling down. Thank you. 22 We see here, I think, reference to the Tram 23 Monitoring Officer we had touched upon yesterday. We 24 see: 25 "The Operating Agreements with tie and TEL envisage 66 1 a 'Tram Monitoring Officer' ..." 2 I think that's a reference to the tram-specific 3 agreements which were signed in May 2008. 4 If we can move on, please, to the next page, just by 5 way of overview, we see a reference to the Tram 6 Sub-Committee. That's all set out there. We don't have 7 to go into that. 8 Over the page, please. A reference to the Final 9 Business Case. We see 5.1: 10 "... is included as a background paper ..." 11 We don't have to look at the bikes on trams or Gogar 12 Station. Over the page, please. 13 Under 8 we see "Financial implications", and then we 14 look at paragraph 8.2, capital costs. We can compare 15 that with the previous drafts we had seen in Mr Fraser's 16 report, and I think in short there's now no reference to 17 Mr Fraser's suggested contingency of GBP25 million to 18 address post contract change. That's gone. 19 Then look under "Funding", please. We see 20 a discussion set out there. 21 The next page, please, under CEC guarantee and 22 delegation of authority, that's all set out. 23 Then, please, in paragraph 8.10, we see the 24 statement, first sentence: 25 "The fundamental approach to the Tram contracts has 67 1 been to transfer risk to the private sector. This has 2 largely been achieved." 3 Now, how could that be said, given the unresolved 4 concerns set out in the paper to the IPG we looked at 5 before the break? 6 A. I can only say that, you know, I agree with you. It 7 must have been decided to cover that with the caveat 8 about subject to necessary satisfaction of -- within the 9 due diligence process. I think the message of resolving 10 these issues had clearly been set up, and I suppose we 11 must have had the confidence that we would be able to 12 bottom out any issues over the next few days. 13 Q. So that -- 14 A. Which we believed we had. 15 Q. So that was included in the hope or expectation that the 16 unresolved concerns would be resolved? 17 A. Yes. The expectation. 18 Q. The report doesn't say that, does it? It says: 19 "This has largely been achieved." 20 A. Yes, that's correct. 21 Q. I can quite see why the first sentence is correct: 22 "The fundamental approach to the Tram contracts has 23 been to transfer risk to the private sector." 24 That's the aim or aspiration, but what I do suggest 25 is that it was premature and incorrect and potentially 68 1 misleading to go on to say: 2 "This has largely been achieved." 3 A. It's -- with -- in retrospect, it's probably a few days 4 premature, unless it was intended to reflect the pre 5 Tram Project Board feedback that, yes, things were -- 6 were generally resolved in that respect through the 7 Wiesbaden Agreement. 8 Q. Do you accept that second sentence shouldn't have been 9 stated in those terms? 10 A. I think it should have perhaps been: this is expected to 11 be achieved over the course of the next few days, would 12 have been more accurate. 13 Q. What you have just said is very different to a sentence 14 which states boldly: 15 "This has largely been achieved." 16 A. Yes, with -- with hindsight. What I can't recall is the 17 level of pre-discussion before the Tram Project Board 18 that there had been, but it was obviously taking the 19 view that we believed that that had been the case. 20 Q. I think your position, you said previously was that you 21 accepted there was still unresolved concerns which had 22 not been resolved at the time of the meeting of the 23 Council on 20 December; is that correct? 24 A. I'm assuming that by the day of the meeting, or 25 thereabouts, that I'd had the necessary feedback from -- 69 1 from tie that had satisfied myself and my staff. 2 Q. Do you have -- 3 A. But -- yes, it does not read -- that short sentence does 4 not read accurately with the benefit of cross-reference. 5 Q. Because we have heard evidence that in short, the 6 various concerns set out in the paper we looked at 7 before the break were addressed by drawing up a list of 8 deliverables the Council required from tie before the 9 contract could be awarded, and the process of obtaining 10 the various deliverables went on for months. 11 A. Yes. And again, I think that comes back to the -- the 12 caveat at the start about satisfaction through the due 13 diligence prior to awarding of the contract. 14 Q. I would like to move on in the report then please. 15 Under "Risks", what I would like to do, Mr Holmes, is 16 again just invite to you read to yourself what is set 17 out before I then go on to ask a series of questions 18 about what is said. 19 So if you start, please, just by reading to yourself 20 paragraph 8.11. (Pause) 21 CHAIR OF THE INQUIRY: When you want the page turned over, 22 just say so. 23 A. Right, carry on. 24 MR MACKENZIE: Again, I'm sorry. I think I'll have to ask 25 you to read what all of what's on this next page. So 70 1 please just indicate when you would like us to scroll 2 down the page. (Pause) 3 A. Carry on, please. (Pause) 4 Yes. 5 Q. Now, just to complete our overview of the report, if we 6 can go to the next page, please, we can blow up the top 7 half. We see the next steps are set out, the intended 8 timetable. And under the conclusions, we can see 9 various things are set out as well. 10 Then the various recommendations. We should just 11 finish with an overview of the last page, please, page 9 12 again. Thank you. So that's all what's set out there. 13 Now, my question, Mr Holmes, is that with the 14 benefit of hindsight, do you consider that this report 15 adequately explained to members the difficulties and 16 delays with design consents and approvals and the MUDFA 17 works? 18 A. It -- I think there are two points. It explained them 19 to the best of our understanding at the time. Whether 20 our understanding was correct is another issue. 21 Q. Can you go into a little more detail, please? 22 A. Neither of us would have tried to suppress information 23 from the members. I think I made the point about trying 24 to present it in a concise version. We wouldn't have 25 signed a report unless we actually believed the 71 1 sentiments that were expressed within it. 2 Q. In relation to the design, you, for example, must have 3 been aware that the design was only about two-thirds 4 complete; is that correct? 5 A. Yes. 6 Q. There's no mention of that in the report. 7 A. No. No, there's not. But I think the report does 8 mention the -- the proposal to pass the design risk 9 over, doesn't it? Scrolling back. 10 Q. I'm not sure. Go back, perhaps, to page 1. 11 Paragraph 3.2 at the bottom: 12 "The cost estimates for the project reflect 13 provision for evolution as the detailed design will be 14 completed in the coming months. The design is completed 15 under the Infraco contract from the point of award of 16 that contract through novation ..." 17 That, I think, isn't expressly dealing with the 18 question of the risk -- 19 A. No, it doesn't. I'm trying to -- that's certainly in 20 the case of the report. 21 I can't recall. Normally, when we put a report to 22 Council, we would -- we would carry out some form of 23 presentation to members beforehand, going into more 24 detail. I can't recall whether that happened at this 25 point. And that might have expressed more, but 72 1 certainly the report itself does not mention the 2 two-thirds figure that we've discussed earlier this 3 morning. 4 Q. Nor does it mention the known chronic history of design 5 difficulties and delays. 6 A. No, this report doesn't. 7 Q. But you were aware of that? 8 A. I was aware of that, and believed that what was emerging 9 at that time was going to de-risk that element. 10 Q. The report doesn't mention that very few approvals or 11 consents had been obtained? 12 A. No. 13 Q. There doesn't appear to be any mention in the report of 14 any delays and difficulties with the MUDFA works. 15 I should ask, what was your understanding around this 16 time of whether there had been any delays and 17 difficulties with the MUDFA works? 18 A. I was aware that there had been delays and difficulties, 19 and I was, I suppose, relying on the assurance that I'd 20 had about how that work was going to be resolved and 21 integrated with the construction programme. 22 Q. Again, you've referred to relying on assurances about 23 how these things would be resolved. It may be suggested 24 more generally that reports to Council on the tram 25 project tended to present an overly optimistic or 73 1 rose-tinted view of matters, and either under-reported, 2 or in some cases failed to report difficulties and 3 delays affecting the project. Do you have any comment 4 on that suggestion? 5 A. Reports to Council are always of their nature relatively 6 summary. I would -- I don't think there was an 7 intention to mis -- there certainly wasn't an intention 8 to mislead members. Clearly in the light of the 9 subsequent difficulties, there were issues which might 10 have been -- had they been properly identified at the 11 time, brought into a report. 12 Q. Members can perhaps be misled either intentionally or 13 unintentionally. I just wonder whether, looking back at 14 these reports, you consider that members were 15 unintentionally misled in any way? 16 A. I accept that this particular report could have said 17 more about the outstanding risks. It wasn't the 18 intention to remove vast chunks of it. I think it was 19 the intention to try and summarise the case as we 20 assumed it at the time, that on the basis of the 21 assurances in discussions that these issues had been 22 dealt with. Otherwise the report wouldn't have gone up. 23 Q. Could I also then please look at the Final Business Case 24 which members were asked to approve. It's CEC01395434. 25 MR DUNLOP QC: My Lord, just before that document is put up, 74 1 could I just ask for clarification; on the [draft] 2 transcript, the first word of the last answer is "except 3 that". I understood the witness to have said "I accept 4 that". I wonder if that could be clarified? 5 CHAIR OF THE INQUIRY: What's the position, Mr Holmes? 6 I think the answer that you gave to the question as to 7 whether members were unintentionally misled, what has 8 been recorded [draft transcript] is "except that this 9 particular report could have [been] more about the 10 outstanding risks". 11 A. I think it would have been "I accept". 12 CHAIR OF THE INQUIRY: Thank you. 13 MR MACKENZIE: I'm grateful. 14 So the next document, please. This we see is the 15 Final Business Case Version 2, dated 7 December 2007. 16 If we go, please, to page 7, to have a look at the 17 Executive Summary. 18 If we could blow up the text at the very top, 19 please, we can see this is the Executive Summary. If we 20 can then please go to page 18, to look at what's said 21 about the procurement strategy. 22 On page 18, about halfway down, I think we'll see 23 "Procurement strategy and risk allocation". In 24 paragraph 1.77, in the second sentence, we see: 25 "The objectives of the Procurement Strategy are 75 1 summarised as follows: 2 Transfer the design ... risks to the private 3 sector." 4 Next bullet point: 5 "Minimise the risk premium (and/or exclusions of 6 liability) that bidders for a design, construct and 7 maintain contract normally include. Usually at tender 8 stage bidders would not have a design with key consents 9 proven to meet the contract performance obligations and, 10 hence, they would usually add risk premiums for this." 11 Just to pause there, I think that text is very 12 similar to what we saw yesterday in the Draft Final 13 Business Case in November 2006; is that fair? 14 A. Yes. 15 Q. Now, what the Executive Summary does not go on to say is 16 that while these had been the objectives of the 17 Procurement Strategy, the objectives had either not been 18 met or were at risk of not being met in relation to the 19 transfer of design risk to the private sector, because 20 design was incomplete and very few consents and 21 approvals had been obtained. 22 A. If -- it doesn't say that, no, there. 23 Q. It may be suggested that in order for members to come to 24 an informed decision on whether to approve the Final 25 Business Case, they ought to have been advised of these 76 1 matters. 2 A. I can't -- I can't recall what information they were 3 provided with. There were normally supplementary 4 presentations, but yes, I think the report would have 5 been improved by rather more on the -- on the status of 6 some of these issues. 7 Q. Thank you. 8 A. And -- and, to be fair, with how they were being 9 addressed through our understanding of the transfer of 10 risk around novation. 11 Q. Also, please, at page 19, in paragraph 1.81, I think we 12 will again see similar wording to the Draft Final 13 Business Case, but it starts by saying: 14 "In summary, the key attributes of the strategy 15 are ..." 16 Again, I think about the fourth bullet point from 17 the bottom: 18 "Separate procurement of utilities works under 19 MUDFA." 20 We can read the rest for ourselves. On the same 21 point, please, the next page at page 20 also mentions 22 MUDFA. 23 Yes, we can see in the second line: 24 "For this reason, a prompt start to these works was 25 made in 2007, including advance works at the Gogar depot 77 1 site. This allowed some of the delay, caused by the 2 review of the project following the May election, to be 3 absorbed. The current programme is fully aligned with 4 the preferred Infraco bidder's programme of works and 5 progress to date has been excellent with no major issues 6 encountered so far." 7 Do you consider that was an accurate and complete 8 summary of the MUDFA position at that time? 9 A. My -- my belief was entirely as set out in the 10 penultimate line of that section, which was that the 11 current programme was fully aligned with the preferred 12 Infraco bidder's programme of works, and I can recall 13 questions around that particular issue. That was my 14 belief. 15 Q. What was that belief based on? 16 A. On the assurances from the tie Executive. 17 Q. Given in the Tram Project Board? 18 A. Either in the Tram Project Board or outside it. 19 Q. Can you remember the names of the tie Executives who 20 gave you these assurances? 21 A. Well, these were fairly high level concerns. So again, 22 it would have been through the -- Willie Gallagher or 23 his very senior managers. 24 Q. Could we pause, please, to go back to your statement at 25 page 25. In paragraph 99 you say: 78 1 "I think, with the benefit of hindsight, that we 2 were not necessarily getting the full position on the 3 utilities diversion works. There was a massive amount 4 of exploratory work but I think there must have been 5 some rose-coloured spectacle reporting at the time. 6 However, I think from a pretty early stage it was seen 7 as the critical risk." 8 Now, when you talk about the rose-coloured spectacle 9 reporting, what's that a reference to? 10 A. I think that we were not -- when tie were reporting 11 progress, they were -- let's say being overoptimistic as 12 to the rate of progress and the completion of works. As 13 I said, it was the critical risk which is why I would 14 have looked for the -- the assurances in respect of 15 alignment with the Infraco programme. 16 Q. Thank you. What I would like to do now, we've heard 17 evidence in relation to a number of difficulties and 18 delays with the MUDFA works. I would like just to list 19 them and ask whether you were aware of these issues at 20 the time. 21 So, firstly, we've evidence that the MUDFA programme 22 had slipped, and there was now little or no gap between 23 the completion of the MUDFA works and the start of the 24 Infraco works. Were you aware of that around 25 December 2007? 79 1 A. I think the message we were getting around that was yes. 2 I mean, there had been a slippage. That was very, very 3 obvious. One, there was going to be recovery, but two, 4 the discussions with the Infraco contractor were 5 producing a programme that allowed work on the completed 6 sections and restored the cushion that we were looking 7 for on areas where there was still outstanding works. 8 Q. Were you aware that while it had initially been intended 9 for there to be a gap of several months between 10 completion of the MUDFA works and the start of the 11 Infraco works, by December 2007 there was little or no 12 such gap? 13 A. I was aware that the -- that yes, I mean, that the -- 14 the gap had virtually disappeared, which is why I was 15 looking -- the team were looking for that reassurance 16 regarding the Infraco programme being aligned with that 17 to restore the cushion where it mattered. 18 Q. The second matter I would like to ask if you were aware 19 of at this time. We've heard evidence that there were 20 chronic difficulties and delays in producing the 21 issue -- issued for construction utilities design. Were 22 you aware of that? 23 A. Issues in producing -- in delays in producing the design 24 for -- 25 Q. The utility diversions. 80 1 A. I would have been -- I suppose I would have been aware 2 of some of the background. I might not have been 3 directly aware. I would have expected it to have been 4 picked up in Tram Project Board reporting. 5 Q. Were you aware that there were chronic difficulties and 6 delays in obtaining the agreement of the statutory 7 utility companies? 8 A. I would have taken the difficulties for granted. 9 Everybody who has ever dealt with the utility companies 10 knows that there are difficulties around that and 11 factors it into their own calculations. 12 Q. Were you aware at the time that it had not been possible 13 to complete the pre-construction phase of the MUDFA 14 contract before moving on to the construction phase? 15 A. Not in so many words. I think it's coming back again to 16 this how the -- the difficulties with MUDFA were being 17 dealt with through the integration of the programmes. 18 Q. Were you aware that the MUDFA contractor had been 19 instructed to undertake significant advance earthworks 20 at the depot which were properly part of the Infraco 21 work, it appears to mitigate against claims by the MUDFA 22 contractor for prolongation and delay? 23 A. I can't recall -- I can't recall that. 24 Q. Were you aware that the more difficult on-street MUDFA 25 works were not due to commence until late 2007/early 81 1 2008? 2 A. I can't recall that, no. 3 Q. Finally, were you aware of the fact that because records 4 and radar surveys were unreliable, it was well known 5 that the true position in relation to the utility 6 diversion works would not be known with any degree of 7 accuracy until the ground had been dug up and the 8 utilities apparatus uncovered? 9 A. I mean, again, I think that any designer or contractor, 10 MUDFA contractor, knows that utility records are not 11 accurate. I can recall discussion around this, and that 12 a programme of excavation being incorporated at critical 13 locations. 14 Q. Now, if it's well known that utilities records are not 15 accurate, and if it's the case that the more difficult 16 on-street works were not planned to commence until late 17 2007/early 2008, how could you have derived any 18 reassurance from tie that they had sought to integrate 19 the utilities and construction programmes? 20 A. I don't know how -- we must have been provided with 21 information that gave us that -- that assurance. It was 22 known as a risk, and it was being -- seeking to have it 23 bottomed out. 24 Q. Do you accept with the benefit of hindsight, in light of 25 all these matters, Council members ought to have been 82 1 given fuller information? 2 A. I think with the benefit of -- of hindsight, there might 3 have been rather more in the report on the current state 4 of -- of progress. 5 I think with these matters, I think the point that 6 I suppose we always had in mind was that we were 7 confident from the information we were being given that 8 these items had been de-risked. 9 Q. Isn't that simply an aspiration in relation to the 10 utility diversions, until the ground has been dug up and 11 the apparatus uncovered? 12 A. It's -- it's an expectation, but as I said, at this 13 point in time, I can't say that I was aware that there 14 had not been that level of -- of investigation. 15 I had -- I had seen the excavations going on prior to 16 that date, and I had -- I suppose -- always one assumes 17 that -- on the basis of the assurances that the 18 situation was under control. 19 Q. Thank you. I would like to go back to the Final 20 Business Case, please, which was CEC01395434. Page 20, 21 please. We were still sticking with the executive 22 summary and what was said about the procurement 23 strategy. 24 Can we then see the bullet point, "Changes to scope 25 or specification", states: 83 1 "A great deal of care has been taken in defining the 2 scope and specification of the tram project throughout 3 the Parliamentary process and during design 4 development ..." 5 Now, to pause there, presumably if design is 6 two-thirds complete, then the specification has not been 7 fully defined; is that correct? 8 A. I think it depends on the level of -- level of 9 specification. Yes, obviously, it's not -- it's not 10 fully -- fully specified. Again, one's assumption in 11 that is that the critical specification is there. 12 Q. Reading on, please: 13 "However, significant unforeseen changes to scope 14 and specification could have a very significant impact 15 on the deliverability of the project. Similarly, any 16 changes introduced by stakeholders that are over and 17 above the approved scope will increase the project 18 estimate. Effective management of the consideration of 19 changes through the Governance processes implemented for 20 the project will be vital to mitigate this risk." 21 Now, we see the reference to significant unforeseen 22 changes to scope and specification. I suggest the 23 problem here was that there were going to be significant 24 foreseeable changes to scope and specification because 25 the design was incomplete and very few, if any, 84 1 approvals and consents had been obtained. 2 A. No, I don't think the -- dealing with them, I don't 3 think the -- at that point, I didn't believe that there 4 was anything foreseeable in terms of the consents, 5 et cetera, because of the amount of work that we had put 6 up to apparently de-risk the -- the process. And 7 equally, I think the -- the views on transfer novation 8 to -- to SDS appeared to -- to deal with that issue 9 of -- of foreseeability. 10 Q. But isn't it correct that that was the point Mr Fraser 11 was seeking to make, that he could foresee changes to 12 scope and specification because design was incomplete, 13 and it was foreseeable changes he was trying to say 14 there should be allowance for? 15 A. Yes, he -- he was. And I'm -- I would need to revisit 16 all the different -- I presume that I -- looking at the 17 different figures to ensure that I thought -- we thought 18 that there was sufficient risk allowance in there. 19 Q. Then the next bullet point: 20 "Obtaining consents and approvals - Responsibility 21 for the preparation and application for most necessary 22 consents and approvals has been passed to the SDS 23 provider, and this risk will pass to the Infraco at the 24 point of novation. However, tie and the other 25 stakeholders must continue to ensure there are clear 85 1 strategies and effective processes to deliver all 2 consents and approvals including planning approvals and 3 Traffic Regulation Orders (TROs)." 4 There's no mention in this Executive Summary that -- 5 nor indeed in the report to Council, that very few 6 approvals and consents had been obtained by this time, 7 nor indeed which party would bear the risks arising from 8 that; is that correct? 9 A. It doesn't at this point. I thought we -- the earlier 10 reports had dealt with the issue of where the risk lay, 11 if there were failure to deliver timeously the planning 12 approvals. 13 Q. Now, it may be suggested that taking all of these points 14 together, because of the under-reporting, if I can put 15 it that way, of the true position in relation to design 16 consents and approvals and the MUDFA works, the 17 Executive Summary of the Final Business Case was 18 inaccurate and potentially misleading because it 19 represented that everything was fine when it clearly 20 wasn't. 21 A. It certainly does not, reading it now, reflect what 22 appeared to be some of the underlying risk factors at 23 that -- at that time with the -- again, with the benefit 24 of hindsight. 25 I can't -- it was not written to be misleading. 86 1 That's -- though I agree that it could have said more. 2 Q. Do you agree it should have said more? 3 A. It should have said more. 4 Q. Finally on this point, it may also be suggested that the 5 Executive Summary of the Final Business Case was 6 inaccurate and potentially misleading because it failed 7 to explain the knock-on effect that these difficulties 8 and delays were likely to have on the procurement 9 strategy, including the objective of de-risking the 10 Infraco contract and obtaining a fixed price for that 11 contract. 12 A. From the Council's side, we, I think, genuinely believed 13 that the negotiations that had taken place had 14 sufficiently de-risked the contract. 15 Q. With the benefit of hindsight, what are your views? 16 A. Well, with the benefit of hindsight, they clearly 17 didn't, but that is what we believed at the time. 18 Q. Thank you. I would like to move on, please, to events 19 in 2008, starting with a document, please, CEC01475121. 20 We can see that these are the minutes of a meeting 21 of the Council -- sorry, if we blow up the top of the 22 page, please. Thank you. 23 We can see these are the minutes of a meeting of the 24 Council and tie Legal Affairs Group meeting on 25 7 January 2008. We can see you were in attendance, 87 1 along with other Council officers and representatives of 2 tie, including Mr Gallagher. 3 At the bottom of the page, please -- 4 A. Sorry, can we just stop it there, because I seem to have 5 been both recorded in attendance and giving apologies. 6 Q. Yes, you're quite right. Do you have any views on which 7 is correct? 8 A. I -- no -- I can't other than -- unless I was actually 9 minuted as -- as actually doing anything coming out of 10 that meeting. 11 I will say that once we had set up the Legal Affairs 12 Group, I was trying -- there were just too many groups. 13 I was trying to ensure that as the Council Solicitor was 14 running this group, that I didn't feel that my 15 attendance at all the meetings was -- was necessary. 16 So I may well have not been present. 17 Q. Was it your general practice to attend these meetings or 18 not to attend or -- 19 A. I attended the initial meetings of the Legal Affairs 20 Group. I was trying to concentrate on the meetings that 21 I thought -- that I thought were the most -- the most 22 critical at that time, provided that I actually had 23 staff who were attending the meetings and flagging up 24 any issues that they thought needed to be brought back 25 to me. 88 1 Q. Did you have a practice of reading the minutes of these 2 meetings, or did you rather rely on members of staff to 3 flag up any issues that needed your input? 4 A. I think my primary reliance would have been on members 5 of staff flagging up issues. I may well have in 6 addition read the meetings as they appeared. But 7 I can't recall the -- the specifics of that. 8 But my primary reliance would have been on people 9 identifying issues and coming back to me. I think, just 10 because of the sheer number of papers, both in relation 11 to the tram and other projects that were coming across 12 my desk at the time. 13 Q. I understand. We will read on just to see if it rings 14 any bells. Scroll down the page, please. Under 2, 15 "Critical Issues Update", then under "Contract", 16 et cetera, we see Mr Gallagher is noted as reporting 17 that: 18 "... the contract negotiations with BSS are 19 proceeding satisfactorily and following the trip to 20 Germany, fixity on price, scope and programme as 21 reported to Council on 20 December 2007." 22 Do you have any recollection of something along 23 those lines having been said or reported back to you? 24 A. I think that that particular sentence was the gist of 25 most of what was being reported to us around that point 89 1 in time. 2 Q. Also, please, at page 4, under "SDS Design Status", we 3 see it states: 4 "SDS have completed 70% of detail design. 5 BBS are prepared to accept SDS under novation agreement 6 (quality of design, programme and commercial position). 7 This will be set out in the Novation Schedule which 8 forms part of the SDS contract." 9 Then: 10 "Consents and approvals remains an area of risk that 11 BBS are not happy to sign up to, as there is no time 12 obligation on SDS to obtain all necessary approvals, 13 whereas the Infraco contract has a liquidated damages 14 mechanism in place which has a time dependency. The tie 15 commercial team are currently working through these 16 issues with BBS." 17 Do you recall any discussion or reporting back to 18 you of these matters around this time? 19 A. I can't recall it, but it seems quite logical that that 20 was the -- the state at that time. 21 Q. Could we go, please, to another document in January. 22 CEC01390618. This is a report to the IPG on 23 24 January 2008. Can we go, please, to page 15. 24 Now, we can see, if we blow up the top, please, this 25 is a draft report, draft of -- a tie document called the 90 1 close report. 2 Do you recollect seeing drafts of this report around 3 this time? 4 A. I don't. I'm assuming the staff -- staff would. I may 5 have. I may not have. I can't recall. 6 Q. Can we go, please, to page 46. There's one particular 7 passage I would like to ask you about. 8 A. Sorry, can I just go back. If the question was 9 do I recall seeing that report in front of -- here, to 10 the Tram Project Board, et cetera, then yes, I almost 11 certainly would have seen it. Whether I saw the full 12 close report is another matter. 13 Q. Yes. Now, on this page, towards the top, under "Infraco 14 price basis and exclusions", can we see in the third 15 line down, the sentence: 16 "Crucially, the price includes for normal design 17 development (through to the completion of the consents 18 and approvals process -- see below) meaning the 19 evolution of design to construction stage and excluding 20 changes if ..." 21 I think that should be "of": 22 "... design principle shape form and outline 23 specification as per the Employer's Requirements." 24 To pause there, I think we had seen, I think perhaps 25 a presentation to the Tram Project Board, about the 91 1 consortium accepting normal design development. So this 2 is giving a little more detail about what that is 3 intended to mean. 4 Do you have any recollection of seeing the phrase 5 set out here which seeks to give a definition or an 6 explanation of normal design development? 7 A. I can't recall it. I would have seen it. 8 Q. In relation to this particular definition, where we see 9 the words that normal design development, and skip a few 10 words, means the evolution of design to construction 11 stage and excluding changes of design principle, shape, 12 form and outline specification, do you have an 13 understanding now as to what that means? 14 A. Now, no, too far removed from it to fully understand it. 15 Q. I'll move on in any event, please, to another document. 16 CEC02086755. We're coming up to the time of issue of 17 the Notice of Intention to award the Infraco contract. 18 If we can go, please, to page 2 of this document. 19 Sorry, it's page 3. 20 If we blow up the first half, thank you. 21 So reading from the bottom, we see the signature of 22 Mr Aitchison, dated 18 March 2008. And we see above 23 that the text: 24 "I, Tom Aitchison ... having received the request 25 from tie and the information detailed above, agree and 92 1 confirm that tie Limited may immediately lodge the Notice 2 of Intention to Award Contract." 3 We then see, I think, is that your signature, 4 Mr Holmes? 5 A. Yes. 6 Q. And also that of Mr McGougan and Ms Lindsay. And above 7 there's three signatures, the text: 8 "Having considered all of the above, we consider 9 that it is appropriate to accept tie's recommendation to 10 you to authorise and permit them to immediately lodge 11 the Notice of Intention to Award." 12 Now, to pause there, can you remember what steps you 13 took to satisfy yourself that it was appropriate to sign 14 this note? 15 A. I can't recall the steps, but I imagine they would have 16 involved considerable discussion with both -- between 17 the three of us and with staff involved in the project. 18 Q. Can you recall checking with Mr Fraser or other members 19 of what have been referred to as the B team whether they 20 considered all of their concerns had been resolved? 21 A. I can't imagine signing it without doing that. 22 Q. But I think the evidence to the Inquiry at any rate, 23 from all members of the B team, were that in general, 24 their concerns remained unresolved. 25 A. I just come back. I had -- I can't imagine that we 93 1 would have signed it without extensive -- extensive 2 discussion. 3 Could we perhaps scroll back through all of the 4 above? 5 Q. Yes, indeed. Go back to page 1, please. It's probably 6 best again, Mr Holmes, just to blow it up and give you 7 a chance to read it all for yourself. (Pause) 8 A. Thank you. (Pause) 9 Thank you. (Pause) 10 Thank you. (Pause) 11 Thank you. 12 Q. And back to the page we've looked at already. 13 Now, is there anything you wish to add to your 14 answer, having now read all that? 15 A. Just that as the -- first of all, I'm not sure who 16 actually drafted the particular agreement. It 17 doesn't -- there's no indication -- initials. I suspect 18 that the drafting was probably done by the Council 19 solicitor. That's not -- not -- that's not material. 20 But it does, I think, as I said, refer to 21 discussions that have been taking place with tie and 22 with Council officers around that. So there would have 23 been -- I think I'm pretty certain there were 24 significant collective discussions around this. I can 25 recall meetings in the Chief Executive's meeting room 94 1 with the -- with the team around that time. 2 So it certainly wouldn't have been signed by Donald 3 and myself in isolation from seeking views from our 4 supporting staff. I'm not trying to finger them. 5 I think just collectively that's what we believed the 6 situation to be. 7 Q. Can we go back to page 1, please, to ask about 8 a particular point. 9 Can we blow up, please, the final paragraph. Do we 10 see that in the third sentence, the right-hand side -- 11 the third line begins: 12 "Many of these adjustments to risk allocation are 13 positive, reflecting the reduced risk contingency. 14 There are some which do pass additional risk to the 15 public sector. Of these, the most important is 16 considered to be SDS. As you are aware, this has been 17 a very difficult point for tie to negotiate and they 18 have provided for the best deal which they advise us is 19 currently available to themselves and the Council. In 20 essence, the contractor BBS will accept the design risk 21 for SDS to a high financial ceiling, whereas the Council 22 and tie must remain financially liable for delay by SDS 23 in relation to the provision by them of information for 24 a range of consents and approvals." 25 What was your understanding of this additional risk 95 1 in relation to design that was being accepted by the 2 public sector? 3 A. I do not recall what that is. I suspect that my 4 understanding was around the -- the timely provision of 5 consents and approvals. 6 Q. Just looking at the wording of this note, it appears to 7 be that subject to this high financial ceiling, beyond 8 that the Council were accepting liability for delay by 9 SDS; is that correct? 10 A. That is what it appears to say. A recollection, again, 11 is that there was felt -- you know, there was this 12 additional high ceiling which was felt to be sufficient 13 at the time. 14 Q. But it's clearly an additional risk in relation to 15 design that the Council are agreeing to? 16 A. Yes. 17 Q. In accepting responsibility for SDS delay, SDS were 18 accepting liability for something that was not its fault 19 and was outwith its control? 20 A. In -- in respect of the provision to them of information 21 for a range of consents and approvals that we had been 22 working very hard to ensure -- I had been working very 23 hard to ensure that that information was going to be 24 available. 25 Q. Subject to that qualification, the Council were 96 1 accepting liability for something that was not its fault 2 and was outwith its control? 3 A. I'm not sure where the -- where the out of -- outwith of 4 the Council's control comes for in that respect. I had 5 read that with the passage of time to relate to the 6 supply of information from the Council. 7 Q. It's the reference to "must remain financially liable 8 for delay by SDS". It's not about Council delay. It's 9 about delay by SDS. 10 A. In relation to the provision by them -- yes, of 11 information for a range of -- of consents. 12 Yes, that's what it appears to say, yes. 13 Q. Not only was that a matter outwith the Council's 14 control, following SDS novation, that was going to be 15 under the control of the consortium, because they were 16 going to take over responsibility for managing design 17 and approvals. 18 A. Yes. 19 Q. So why did the Council accept that risk? 20 A. I think the -- the assumption must have been that the -- 21 that it was not going to be a significant -- 22 a significant issue within the -- within the risk 23 headline. I can't think of any other reason for it. 24 Q. The procurement strategy and the Final Business Case 25 were based on the premise that design risk would be 97 1 transferred to the private sector; is that correct? 2 A. That's correct. 3 Q. So the retention by the public sector of risks arising 4 from SDS delay was a departure from the procurement 5 strategy and the Final Business Case? 6 A. It was at this point. I think the words, "BBS will 7 accept the design risk for SDS to a high financial 8 ceiling", must have reflected a belief that that was 9 going to be sufficient. 10 Q. Do you know whether members of the Council were told 11 that the Council were accepting risks from SDS delay? 12 A. Not prior to my departure, no. 13 Q. Do you know whether members were told that this was 14 a departure from the procurement strategy and the Final 15 Business Case? 16 A. Not prior -- not prior to the end of March, no. I don't 17 know. 18 Q. Do you consider that members ought to have been advised 19 of these matters? 20 A. I think it would have -- it would have been appropriate 21 if -- I can't -- I can't recollect the discussions 22 around that particular point. With the benefit of 23 hindsight, an additional information report to members 24 prior to the signing of the contract would have been 25 appropriate. 98 1 Q. On the hypothesis that members were not told that the 2 Council had assumed risk in relation to SDS delay, then 3 that was a risk that officers had decided to assume on 4 behalf of the Council; is that correct? 5 A. That is certainly what it reads at. With the caveat 6 that says below, both tie and the Council have worked 7 diligently to examine and reduce this risk in 8 practical -- whatever. 9 Q. On the same hypothesis, that members were not told of 10 that assumption of risk, what, if any, authority did 11 officers have to assume that risk on behalf of the 12 Council? 13 A. I think we must have assumed that it was covered by 14 the -- by the risk contingencies within the contract. 15 Q. I think you've accepted that the assumption of this risk 16 was a departure from the procurement strategy and the 17 Final Business Case. 18 A. Yes, at that point it certainly reads that. 19 Q. I think we read earlier the report to Council on 20 20 December 2007. I think any authority given to 21 members was predicated on the final deal remaining 22 within the terms of the Final Business Case? 23 A. Yes, that's what the report said. 24 Q. So simply on the face of it, on the hypothesis that 25 members were not told of the assumption of this risk, 99 1 and if that is correct, there may at the very least be 2 a question mark whether officers had authority to accept 3 this risk on behalf of the Council? 4 A. There must be a question mark. Would you mind scrolling 5 down a line or two? 6 Q. Over the page? 7 A. No, the sentence that begins "Both tie and the Council" 8 at the foot of the page. 9 CHAIR OF THE INQUIRY: You want to turn over the -- 10 A. Turn over the page. 11 Yes, that's my point, that the risk -- that it must 12 have been around the -- the assumption that the risk 13 contingency had been adjusted to cope with this. 14 MR MACKENZIE: There are two -- 15 A. Which obviously proved inaccurate. 16 Q. There are two separate things, aren't there? There's 17 the first question of accepting liability for a risk. 18 The second and separate point is what is the correct 19 quantification or risk allowance for that risk, and it's 20 really the first point I'm focusing on, the assumption 21 of liability on the face of it by officers for this 22 risk. 23 A. On the face of it, yes. 24 Q. On a separate but related point, could I ask, please, 25 around this time, and before this note was signed, was 100 1 there any discussion among Council officers to whether 2 the contract should be -- I'm sorry -- to whether award 3 of the contract should be delayed to allow design to 4 become complete and for all approvals and consents to be 5 in place? 6 A. I think there was certainly a lot of discussion about 7 the fact that the contract needed -- that there were 8 quite a lot which needed to take place before the final 9 contract was -- was signed. I think it was less about 10 perhaps completion and more about being satisfied that 11 the various, rightly or -- being apparently satisfied 12 that the various risks had -- had been dealt with. 13 Q. Looking from the outside in, and trying to stand back 14 from it all, the procurement strategy was very simple. 15 Complete design, obtain all approvals and consents, 16 complete MUDFA, award the Infraco contract. 17 I just wonder whether there was any discussion of 18 that, of rather of pausing contract award to allow these 19 steps to be completed? 20 A. I think we -- I think the point -- right. 21 First of all, I think there were -- in terms of 22 finance, there were issues behind, as I recall, over the 23 continuing availability of Scottish Government grant. 24 If milestones were missed, then money in effect fell off 25 the table. 101 1 Secondly, the overlying level of construction price 2 inflation from that time. 3 So there was always a kind of worry that a long 4 delay would actually be counterproductive in -- in that 5 the money would no longer be available to complete the 6 project. 7 I think we were assuming that what was taking -- 8 what had been agreed through Wiesbaden, through 9 novation, through the agreement over the contract on the 10 various de-risking issues, plus the incorporation of the 11 further risk premium, had removed the need for 12 a complete delay of the award of contract as opposed to 13 being satisfied that we'd ticked all the necessary boxes 14 in terms of these outstanding issues before the contract 15 was awarded. 16 Q. Now, when you mention the incorporation of the further 17 risk premium, what's that a reference to? 18 A. Well, I think that because the -- I think there had been 19 adjustments to the final cost of it reflecting the 20 negotiations with -- with Infraco and their acceptance 21 of novation and various other issues. So -- and the 22 increase in the final contract price is a result of 23 that, plus what was there in the contingencies. 24 Q. So was that essentially an assumption on your part that 25 at least part of the price increase reflected the 102 1 consortium accepting more design risk? 2 A. That had been the constant assumption in that, that the 3 consortium had accepted additional risk and the contract 4 had been adjusted accordingly to compensate for that. 5 Q. If it had been the case that in fact the price increases 6 had been in relation to other matters, and in fact the 7 consortium hadn't increased their price to include 8 a risk premium for incomplete design, would that have 9 caused you any concern or to have changed your views in 10 any way? 11 A. Yes, it obviously would have caused concern, and I think 12 I would have suggested sitting on this project for 13 a while while we sorted that out. 14 Q. You mentioned availability of funding from 15 Transport Scotland. Was there any discussion or 16 consideration to saying to Transport Scotland: look, we 17 have these difficulties, the original strategy was to 18 complete the design and MUDFA; it hasn't happened; we 19 think it's more sensible to stick with our strategy, but 20 that will involve us asking you for grant monies, maybe 21 next year, but not this year. 22 A. I can't remember it being put as simply as that. I can 23 remember the message coming back in terms of discussions 24 about grant: we are sorry, that's it, it falls -- it's 25 in the books for this financial year, and if it's not 103 1 taken up, you've lost it. 2 CHAIR OF THE INQUIRY: The total grant of 500 million was in 3 one financial -- 4 A. My recollection, my Lord, is that they -- my 5 recollection, and it might be a question better 6 addressed to the Director of Finance, that the 7 conditions of the grant award required money to be taken 8 in tranches. 9 It's the way in which the public sector worked. 10 Money was available in a particular financial year, and 11 there is not necessarily any carryover from one year 12 to -- not necessarily any carryover from one year to the 13 next. 14 CHAIR OF THE INQUIRY: I can understand that, but if it 15 covered several financial years, then you might lose 16 your first tranche, but when you get to the next 17 financial year, you would be back on track -- 18 A. You would get into the next financial year, but without, 19 say, the GBP10 million or GBP20 million that had been in 20 the books to be spent the previous year. That's my 21 understanding at this point -- at this length of time 22 from the process, my Lord, that it was a consideration 23 in terms of drawdown of finance. 24 CHAIR OF THE INQUIRY: We can ask the Director of Finance 25 about that. 104 1 MR MACKENZIE: Thank you. 2 So was it your understanding that if that grant 3 money had not been used up for this financial year, it 4 may not be available the following financial year, which 5 may jeopardise the project going ahead at all? 6 A. That was my understanding, that if we weren't able to 7 spend money, the money was lost. 8 Q. Thank you. 9 A. That may not be an accurate understanding but that's my 10 best recollection at the time. 11 Q. Coming back to the procurement strategy, do you accept 12 that it was a departure from the procurement strategy to 13 proceed with contract award while design was incomplete 14 and not all approvals and consents had been obtained? 15 A. Yes, it was a departure from the original procurement 16 strategy. I'd rather we hadn't gone down that 17 particular route. The route we went down, I suppose, 18 was trying to get the project back on course within the 19 spend envelope. 20 Q. Was the option -- 21 CHAIR OF THE INQUIRY: Sorry, which particular route would 22 you rather not have gone down? 23 A. I'm sorry, my Lord, I didn't hear that. 24 CHAIR OF THE INQUIRY: I'm just wondering, you say you would 25 have rather not gone down that particular route. I just 105 1 wonder which route we're talking about. Was it 2 procurement strategy -- 3 A. From having a clean procurement strategy of completed 4 designs, cushion for MUDFA, the rest of it, you can't 5 argue that that procurement strategy was right at the 6 start, and I would certainly rather not have gone down 7 that. As I said, I think it was -- the reason for going 8 into this process and the novation and the additional 9 payments to BBS was to try and get at this point in 10 time, my recollection, trying to get the project back on 11 time -- on track within the -- the envelope of 12 affordability. 13 I can't think of any other reason for the Council to 14 have followed that particular course. There were no 15 other motives driving it. 16 MR MACKENZIE: Was the option of delaying contract award, 17 until design was complete and all approvals and consents 18 had been obtained, discussed with members? 19 A. Only, I think, insofar as saying that, you know, the 20 design hadn't been completed and the novation would take 21 care of it. 22 Q. When you say that, is that a reference back to reports 23 to Council -- 24 A. I think that's -- from -- probably a reference to what 25 we -- what we said back in -- in the earlier reports to 106 1 Council. I don't think there would have been any doubt 2 from the reports and the presentations that we made that 3 we had moved towards making the contractor responsible 4 through novation for that element of design. 5 Q. Would you accept that it was never put to members as 6 a clear choice between option A, deferring contract 7 award until we have completed design and obtained all 8 approvals and consents, or option B, we depart from the 9 procurement strategy along the lines that we have 10 discussed? 11 A. Yes, I think that was never put as a clear option. It 12 was more a kind of incremental process that brought us 13 to where we were with the report. 14 Q. So would it be fair to say that if that wasn't put to 15 members as a clear option, then essentially it was the 16 decision of officers to proceed with contract award, 17 even though that represented a departure from the 18 original procurement strategy? 19 A. I can't recall whether the earlier reports actually 20 contained sufficient information to say this was the 21 route that we were going -- going down. I think the -- 22 certainly we got to that position that we were in the 23 spring of 2008 through an incremental process of trying 24 to get the project back on track. 25 Q. Now, Mr Holmes, we've brought ourselves up to, I think, 107 1 18 March 2008 when the Notice of Intention to Award was 2 issued. I think your last day at the Council was 3 1 April 2008; is that correct? 4 A. Correct. 5 Q. Did you remain involved in the tram project during 6 March 2008, and to what extent, if at all, were you 7 starting to hand over to your successor? 8 A. I think my successor was in the office from early March. 9 So we were -- we were in a gradual handover process, and 10 by the end of March I was certainly out of it. 11 Q. We've heard a lot of evidence about something called 12 Schedule Part 4 of the Infraco contract which contained 13 the pricing provisions of the contract, and we know that 14 drafts were in circulation, I think certainly in 15 February and March 2008. 16 Can you recall while you were still with the Council 17 whether there was any discussion or awareness on your 18 part in relation to Schedule Part 4 of the Infraco 19 contract? 20 A. It -- it's not a phrase which -- which I can recall. If 21 it had -- if it was being circulated through the Tram 22 Project Board when I was in attendance, then I would 23 have seen it or heard of it. 24 Q. Can you recall any discussion with others or awareness 25 on your part to the effect that the Infraco price was 108 1 subject to a number of Pricing Assumptions, and that if 2 these Pricing Assumptions did not hold good, then that 3 would lead to a Notified Departure or Notified 4 Departures? 5 A. I can't recall that. 6 Q. Finally on this point, could I ask, when you left the 7 Council, what was your understanding of the extent to 8 which the Infraco price was fixed and the extent to 9 which it was liable to change after contract award? 10 A. My understanding was that it was essentially fixed apart 11 from the -- anything -- issues that might arise from the 12 consents process, which I had assumed were manageable by 13 the Council. 14 Q. I think before the break this morning, I suggested there 15 may be three risks arising from incomplete design. One 16 was who would actually complete the design and pay the 17 designer. Secondly was that may add to additional 18 building costs, and thirdly, there may be a risk that 19 incomplete design could affect the programme in 20 a particular construction programme. 21 Do you remember what your understanding was when you 22 left the Council of who bore each of these three risks? 23 A. I -- my understanding was that the majority of the 24 design risks had been novated to the -- the Infraco 25 contractor, and that was reflected in the contract and 109 1 the contract sums, and that where residual risks lay -- 2 remained with the approvals process, which my assumption 3 had been with appropriate diligence could be managed by 4 the Council. 5 Q. What in particular were the risks in relation to the 6 approvals process? 7 A. My -- the risks that I was assuming were in terms of 8 the -- the Council taking too long in approval of the 9 processes, and the, I suppose, compounded by the -- the 10 designer not getting it right first time, which is why 11 we had spent a lot of time in trying to ensure that the 12 designer did. 13 Q. What about if there were delays for whatever cause -- 14 sorry, whatever reason in obtaining approvals and 15 consents which impacted upon the construction programme, 16 what was your understanding as to who bore those risks? 17 A. Well, if the delays were down to the Council not 18 reacting fast enough, then my assumption had been that 19 those remained with the Council and had been reflected 20 in the contract and in earlier reporting. 21 Q. Thank you. 22 A. That -- whether that understanding was an accurate one 23 is another matter. 24 Q. I'm almost finished. Could I ask please about tie, the 25 question of reporting. Did you at any stage have any 110 1 concerns in relation to tie's reporting either to the 2 Council or to the Tram Project Board? 3 A. No. Concerns is perhaps the wrong -- I didn't feel they 4 were misleading us. I felt, as with all these things, 5 you sometimes had to harass them to get information out, 6 but that's not unusual dealing with any third party. 7 I think the relationships appeared to be pretty good and 8 that there wasn't -- that we were getting what we asked 9 for. 10 Q. Now, when you say sometimes you had to harass them to 11 get information out, can you give any examples? 12 A. Well, the tram -- the Tram Project Board meetings, 13 I spent a lot of time, as you would expect, asking 14 questions, asking for information or clarifications. 15 Sometimes this was seen as a bit of a bind. It always 16 came through eventually. Or if I sent somebody to 17 harass them for it. But it came -- generally I felt 18 that there was a good trusting relationship with tie. 19 Certainly a lot better than I'd experienced with some of 20 the other Council companies. 21 Q. It may seem a little surprising on the face of it, 22 a senior officer in the Council such as yourself has to 23 harass tie, a wholly Council-owned company, for 24 information on occasions? 25 A. Not really. As I said, relationships with tie were 111 1 considerably better than with some of the Council's 2 property companies in that respect, and it's the nature 3 of people engaged on busy projects. I have had the same 4 issues with colleagues in -- in-house when they feel 5 that you're asking a question which is somehow delaying 6 the process. The information came. The relationships 7 were good. That's part of the problem, I think, that 8 we -- we've been working with them so long, they were 9 seen as part of the family, almost. 10 Q. I would like to finish, please, by asking you a few 11 questions on the tie bonus scheme. 12 Mr Aitchison yesterday, I think, gave evidence that 13 as Monitoring Officer for tie, he considers that you 14 were responsible for the Council's oversight over the 15 tie's bonus scheme. Do you accept that? 16 A. Up to -- up to a point. I think to -- I think up to the 17 point where you're satisfied that they have 18 a Remuneration Committee in place, and it's -- and it's 19 doing something sensible. I can't recall the nature of 20 the individual tie bonuses. 21 Q. Could we go to your statement, please, at page 105. 22 Paragraph 388. About the third line down, you say: 23 "I have no knowledge how the bonus scheme operated." 24 In the second last line you say: 25 "I do not think that Council officers saw themselves 112 1 as responsible for signing off TIE bonuses. It was an 2 internal matter for TIE and for the TIE Remuneration 3 Committee. We neither controlled bonus payments or 4 salaries nor were we necessarily aware of them, other 5 than the remuneration for Board members." 6 Also, please, at page 114, in paragraph 423, we see: 7 "There was a need for confidentiality for things 8 like salaries, and, I suppose, bonuses." 9 Now, were you aware of the guidance on remuneration 10 and bonuses contained in the combined Code of Good 11 Corporate Governance? 12 A. I would have been at some point, I suppose. 13 Q. I think in short the message from the code in relation 14 to bonuses is that there should be transparency, both in 15 relation to the criteria by which bonuses are 16 determined, and the individual payments made to 17 Executive Directors. Does that accord with your 18 recollection? 19 A. Yes. 20 Q. Now, was tie's bonus scheme transparent to you? 21 A. No, I think beyond the fact that, from memory, I can't 22 recall seeing the nature of individual bonuses, other 23 than that the fact that they had a Remuneration 24 Committee, and that that discussed them. 25 Q. Can you recall whether you ever checked or reviewed the 113 1 terms of tie's bonus scheme? 2 A. I can't recall it. 3 Q. Can you recall whether you ever checked if individual 4 payments made to directors and other senior staff were 5 appropriate? 6 A. No, and I don't think we did that for any of the Council 7 companies. I think we regarded the existence of 8 a Remuneration Committee looking at these things as 9 being sufficient delegation. 10 Q. Now, if the Council didn't oversee tie's bonus scheme, 11 and the amounts of individual bonuses paid, how could 12 the Council know whether the scheme was based on 13 appropriate targets and whether individual bonus 14 payments were reasonable and appropriate? 15 A. I can't recall. I mean, it must have appeared in tie's 16 accounts in the -- in the round. I think it was -- it 17 was an assumption as with all the Council companies that 18 the Remuneration Committees were doing their job. 19 Q. Just on the question of tie's accounts, my understanding 20 is that there was a note in the accounts referring to 21 the total remuneration of directors, but there was no 22 individual breakdown of the amount of bonus paid to 23 individuals. Does that accord with your recollection, 24 if you have one? 25 A. I don't have a recollection. 114 1 Q. Thank you. Really in short, I think the suggestion is 2 that if the Council did not know and oversee the terms 3 of tie's bonus scheme and the individual payments made, 4 how was the Council in a position to know whether public 5 money was being paid in bonuses that was achieving best 6 value? 7 A. As I have said, I think that the -- the assumption was 8 that delegation stopped in that respect by the 9 establishment of a Remuneration Committee and the 10 assumption that they were -- that they were doing 11 their -- they were doing their job, and that was the 12 position as far as I can recall for all the Council 13 companies. 14 MR MACKENZIE: Thank you, Mr Holmes. I have no further 15 questions. 16 Questions by CHAIR OF THE INQUIRY 17 CHAIR OF THE INQUIRY: Mr Holmes, there are two matters 18 really. I want to ask you about 18 March, when you 19 authorised the -- or told the Chief Executive, the three 20 senior officials, that he could sign the Notice of 21 Intention to Award. 22 Prior to that -- giving that advice, although tie 23 and the Council were part of the same family, as you put 24 it, did you see that you had a different function of 25 checking the appropriateness of giving that advice? 115 1 That's independently of tie and tie's legal advisers? 2 A. I think the -- there were a -- there were a lot of 3 meetings went on round that, and I think we were -- it 4 wasn't a decision that we just walked into the room 5 and -- and signed that. There would have been 6 considerable pre-briefing, considerable discussion, 7 discussion with the Council Solicitor as to the -- the 8 Director of Corporate Services as to the appropriateness 9 of the agreement that we were -- that we were signing. 10 It was not entered into lightly. I think we -- we 11 believed that the necessary checks had been made. 12 CHAIR OF THE INQUIRY: I can understand that you would want 13 to speak to tie officials to get information, but what 14 I'm trying to understand is what independent checks were 15 done by you, Mr McGougan, and Ms Lindsay, the 16 Council Solicitor, to enable you to say that you were 17 independently satisfied that it was appropriate to 18 advise the Chief Executive that he could sign the Notice 19 of Intention to Award. 20 A. I think the -- the checks referred to were just that our 21 own questioning of tie, our own understanding of the 22 contract, the information that we'd received, it wasn't 23 a question of engaging an independent third party body 24 to ask these questions. It was from our own internal -- 25 for want of a better phrase, due diligence. 116 1 CHAIR OF THE INQUIRY: Did the due diligence include any 2 activity on the part of the Council Solicitor to satisfy 3 you about the suitability of signing this contract, of 4 authorising the Chief Executive to tell tie that they 5 could sign? 6 A. It would have been, my Lord. I mean, we -- we wouldn't 7 have signed it without the Council Solicitor being 8 involved in it and giving us the -- the necessary legal 9 reassurances in that -- in that respect. 10 As I think I said, I can certainly recall quite 11 a significant number of meetings around the drafting of 12 that and the information that was input into it. 13 CHAIR OF THE INQUIRY: So it's not just a case of relying on 14 what tie Executives or DLA may have said. You did your 15 independent checking? 16 A. No, I think the -- the DLA input was being -- being 17 vetted by the Council Solicitor and the rest of it, and 18 in terms of tie's input, yes, I mean, to a certain 19 extent, they are supplying information. There's a point 20 at which you satisfy yourself that what they're telling 21 you is correct, but you -- I think, you know, you reach 22 a point where you are -- where for a lot of matters you 23 are having to believe what you are being told. 24 CHAIR OF THE INQUIRY: The other point relates to the -- you 25 were asked a number of questions about the tie 117 1 Executives having an input into Council reports. And 2 then you were asked about the Final Business Case 3 Version 2. Could I just clarify, who actually prepared 4 or had an input into the Final Business Case Version 2? 5 By who, I mean Council officials or was it tie officials 6 or both? 7 A. It would be a collective -- it would be a collective 8 effort, my Lord, in terms -- 9 CHAIR OF THE INQUIRY: So both? 10 A. Yes. 11 CHAIR OF THE INQUIRY: Thank you. I don't think there are 12 any notices of any questions. So thank you very much, 13 Mr Holmes. You're now free to go. 14 You're still under citation, so it would be possible 15 to recall you, if that proved necessary. Hopefully it 16 won't prove necessary. In the meantime, thank you very 17 much for attending today and yesterday. 18 A. Thank you, my Lord. 19 CHAIR OF THE INQUIRY: And good luck with the operation. 20 A. Thank you. 21 (The witness withdrew) 22 CHAIR OF THE INQUIRY: We'll adjourn until 2.10. 23 (1.05 pm) 24 (The short adjournment) 25 (2.10 pm) 118 1 CHAIR OF THE INQUIRY: Good afternoon. 2 MR MACKENZIE: Thank you, my Lord. The next witness is 3 Donald McGougan. 4 MR DONALD MCGOUGAN (sworn) 5 CHAIR OF THE INQUIRY: You are going to be asked some 6 questions, initially at least by Counsel to the Inquiry, 7 Mr Mackenzie. If you listen to the question and answer 8 it as directly as possible, and if you speak into the 9 microphone so everyone can hear what you're saying, and 10 also speak at a measured pace so the shorthand writer 11 can keep up with you. 12 A. Thank you. 13 Examination by MR MACKENZIE 14 MR MACKENZIE: Good afternoon. 15 A. Good afternoon. 16 Q. Can you state your full name, please? 17 A. Donald McDougall McGougan. 18 Q. And your current occupation? 19 A. I'm retired. 20 Q. I think you were Director of Finance at City of 21 Edinburgh Council between July 1995 and June 2011; is 22 that correct? 23 A. That's correct. 24 Q. Thank you. Could I go to the statement, please, you 25 provided to the Inquiry. The reference number is 119 1 TRI00000060_C, and you will see a copy on the screen. 2 I think there should be a hard copy in front of you as 3 well. 4 Could we go, please, to the very last page, just to 5 double-check your signature. That's page 152. Can you 6 confirm, please, that that is your signature and this is 7 the written statement you have provided to the Inquiry? 8 A. I can confirm both. 9 Q. Thank you. So, Mr McGougan, your evidence to the 10 Inquiry will comprise both your written statement and 11 the evidence you give at these hearings. 12 Could I start, please, by looking at your CV. We 13 will bring it up on the screen. It's CVS00000006. At 14 the very bottom of the page we can blow up, please, we 15 can see while you were Director of Finance at the 16 Council, we can see another -- a number of other posts 17 you held as well. We can see you were Treasurer of 18 Lothian and Borders Police and Fire Boards, the Lothian 19 Joint Valuation Board, and the Forth Bridge Joint Board. 20 Over the page, please, to page 2, you set out your 21 key responsibilities. Perhaps we could blow that up, 22 thank you. 23 I think we can just read for ourselves all of your 24 other key responsibilities. 25 I think if we go to the very bottom, we can see: 120 1 "In overall terms, taking Revenue and Capital 2 together, the net expenditure of these bodies was around 3 GBP1.5 billion per annum." 4 Can we pause then for me to ask: do you consider 5 that you had sufficient time to devote to the tram 6 project, given all of your other duties and 7 responsibilities? 8 A. I -- I did consider that I had sufficient time to devote 9 to the project, given a certain degree of reliance on 10 the information and the activities that were being 11 undertaken by the Council delivery agent, that is tie. 12 Q. Thank you. I would like to go back now to your 13 statement, please, to clarify some introductory matters. 14 Could we start at page 3, please, of your statement. In 15 paragraph 4, can we see in the first few sentences you 16 say: 17 "My direct involvement in the project increased from 18 mid-2006 when I started attending the Tram Project 19 Board. In December 2007 I was appointed as a member of 20 the Tram Project Board by CEC." 21 Pausing there, is the distinction that before 22 December 2007, you were simply an attendee of the Tram 23 Project Board, and after 2007 you were a member? 24 A. I think so. My memory is certainly not perfect on this 25 aspect, but I think that at some stage what became the 121 1 Tram Project Board was almost a project steering group 2 for the project. And my formal appointment from the 3 Council was from December 2007. But I certainly had 4 been attending as an observer, perhaps, for a period of 5 time before that. 6 Q. Before December 2007, when you attended meetings of the 7 Tram Project Board, I take it you weren't simply 8 attending as a silent observer. I take it you were 9 participating where necessary in discussion? 10 A. Yes. 11 Q. Thank you. 12 Sticking with this paragraph, you then go on to say: 13 "I had an on-going role in supporting the project's 14 Senior Responsible Officer (the Director of City 15 Development) ..." 16 Now, to pause there, is that a reference to 17 essentially who was the lead officer in the Council for 18 the project? 19 A. Yes, I think that's a better term than the term I've 20 used, because the term I have used can be confused with 21 the Project Senior Responsible Officer. But the Lead 22 Director was the Director of City Development. 23 Q. Yes. I was going to ask you about that. I take it the 24 senior responsible owner for the project, that's 25 a different term and a different individual; is that 122 1 correct? 2 A. Yes. 3 Q. So while we're on it, what was your understanding as to 4 who was the senior responsible owner for the project? 5 A. In project governance terms, it was Neil Renilson in his 6 capacity as Chief Executive of TEL. 7 Q. Thank you. Now, I think you were a Director of TEL 8 between March 2006 and August 2011, is that correct? 9 A. That would be a matter of record, but I certainly don't 10 have recollections about being a Director of TEL. 11 Q. I see. I think I saw that from the records of 12 Companies House, but maybe either I'm wrong or the 13 records are wrong. But is it your position you were not 14 a Director of TEL as you recollect? 15 A. No, I think if that's what's shown in Companies House, 16 that would be correct and it's my memory that's at 17 fault. 18 Q. I see. Do you have any recollection of attending any 19 meetings of the TEL Board? 20 A. No. I attended the Tram Project Board which was 21 a sub-committee of TEL, but I don't remember being 22 a member of the TEL Board, and indeed the Council had 23 moved away at a previous date from having officers as 24 directors of companies. So I really can't say any more 25 than that, I'm afraid. 123 1 Q. I understand. Now, again, sticking with TEL, what did 2 you understand to be the role of TEL in the governance 3 arrangements for the project? 4 A. TEL had been brought in to the governance arrangements 5 to attempt to ensure that there was integration of tram 6 and other public transport activities going forward once 7 the tramway had been built. 8 So they had -- they had an oversight of tie. The 9 way I understood it was tie was the agreed delivery 10 agent for the project and were involved in 11 specifications and contracts and project delivery. But 12 that had to be done under the oversight of TEL to ensure 13 that bus and tram could work together for the benefit of 14 the Edinburgh public once operations had started. 15 Q. So what was your understanding of the role of TEL during 16 the procurement and construction phases of the tram 17 project? 18 A. During the early stages of procurement and the -- the 19 evolution of the procurement strategy, I don't think TEL 20 would have had a role at all in relation to that. 21 Again, I'm afraid I can't remember the date when TEL 22 were brought into the arrangements for an oversight, to 23 have such an oversight. But the bulk of -- tie were the 24 delivery agent for the project in my mind. And it was 25 their responsibility that the contracts were properly 124 1 drawn up and executed. 2 Q. Sticking again with the governance arrangements, and 3 looking at the period during 2007 up until contract 4 award in May 2008 -- I'll call that the procurement 5 period, if I may -- which body or organisation was in 6 charge of the project during that period? 7 A. I think TEL had oversight during that period. 8 Q. Now, I can quite understand TEL's role during the 9 operational phase. What's perhaps in the face of it 10 a little harder to understand is why TEL were in charge 11 of the procurement phase and also indeed perhaps the 12 construction phase. What expertise could they bring to 13 that? 14 A. I think TEL had oversight rather than -- sorry, the word 15 that you used, I can't remember what it was, but it 16 wasn't oversight. It was in charge of. So TEL had 17 oversight of that procurement at contract delivery. But 18 tie was -- were the people who were doing all the -- the 19 work in relation to that. But it was important, for 20 example, if I could give an example, that might help 21 my -- show my understanding of what the different 22 companies were doing. 23 If tie wanted to perhaps make a reduction in costs 24 in terms of the specification for the contract, and did 25 that simply by extending the run time of trams or indeed 125 1 removing tram stops completely, then TEL needed that 2 oversight because such actions by tie simply to contain 3 costs within a budget sum would not have been productive 4 in the long term for the operation of the tram and bus 5 network. 6 Q. Just sticking again with the procurement period, so 2007 7 up until May 2008, are you able to say which body was in 8 charge during that period or if the terminology is 9 wrong, perhaps which body had ultimate responsibility 10 for the procurement period? 11 A. Ultimate responsibility, I think, would rest with the 12 Council who were relying on an oversight by TEL and the 13 diligence that was taking place by tie. 14 Q. Thank you. 15 Now, in relation to TEL's oversight role, we've 16 heard evidence that TEL during this time had very few 17 employees. I think the numbers had ranged from zero to 18 perhaps two, but I may be wrong. What was your 19 understanding as to how many TEL had during the 20 procurement phase? 21 A. Well, that would concur with my understanding. TEL were 22 drawing their employees from different organisations. 23 Mainly, I guess, from Lothian Buses. 24 Q. And did that remain the case during the construction 25 phase? 126 1 A. Generally, yes. I don't ever recall TEL having 2 a significant number of employees. 3 Q. Why was it the case that employees from Lothian Buses 4 were exercising this oversight role for the tram project 5 during the procurement and construction phases? 6 A. Because experience had shown that in other areas where 7 trams had been brought in and proved to be running in 8 competition with the bus network, in Sheffield, I think, 9 certainly, and perhaps in Nottingham as well, there had 10 been real difficulties once the trams were operational. 11 And it was regarded as absolutely critical, regarded by 12 the Council as absolutely critical for the future 13 operation of the trams that they were run in 14 a complementary fashion to the bus network and vice 15 versa, to ensure the maximisation of benefits for the 16 citizens of Edinburgh. 17 Q. Did you ever have any concerns as to whether TEL had 18 sufficient employees or resources to properly exercise 19 their oversight role during the procurement and 20 construction phases? 21 A. No, I didn't, and that was based on the fact that tie 22 were doing the huge majority of the work, and that the 23 oversight was of a strategic nature rather than a nuts 24 and bolts nature. 25 Q. On a point of detail, please, you've mentioned employees 127 1 from Lothian Buses providing services to TEL, if I can 2 put it that way. I think Mr Renilson himself, he was 3 Chief Executive of TEL. Was he also Chief Executive of 4 Lothian Buses? 5 A. He had been Chief Executive of Lothian Buses, but at 6 some stage, I think, he stepped aside and Lothian Buses 7 brought in a managing director from outside the company 8 to reflect the fact that Neil Renilson was now spending 9 a lot of time, almost all of his time, on TEL duties, 10 rather than being involved with the responsibilities as 11 chief exec of the bus company. 12 Q. Now, how was this reflected -- this was the point of 13 detail question. How was that reflected in the 14 accounting arrangements? For example, I think in the 15 tie accounts I have seen reference to quite significant 16 sums of perhaps GBP600,000 a year being recharged from 17 Lothian Buses to tie in relation to the tram project. 18 Are you able to explain that, even in general terms? 19 A. I'm not able to give a definitive answer on that, but 20 I would imagine that that is the type of activity that 21 was being recharged to -- by tie to Lothian Buses. 22 Q. Was there also some form of re-charging between -- in 23 relation to Council officers working on the project as 24 well? 25 A. Yes, there were a number of Council officers seconded to 128 1 the project and there was also a requirement in at least 2 two areas, I think, for additional staff to be brought 3 in, because Council staff were dedicating themselves on 4 a full-time basis to work on the tram project. 5 So in these instances the cost of staff who were 6 actually working on the project were re-charged to tie. 7 Q. Would that then appear in tie's accounts? 8 A. Yes. 9 Q. I understand. We mentioned Neil Renilson. I should 10 ask, did Mr Renilson at any time ever express any 11 concerns to you, either in relation to the project or in 12 relation to the accuracy of the information being 13 provided by tie? 14 A. None at all in the time that he was Chief Executive of 15 TEL. Prior to that, when tie were -- had a former 16 Chief Executive, when any meetings I was at with 17 Neil Renilson were about bus company business, rather 18 than necessarily tram project business, but he did -- he 19 did on occasions express concerns about what was 20 happening in relation to the tram project at that stage. 21 Q. So when would that have been, approximately? 22 A. I would think probably before 2005. 23 Q. So in the very early days of the project? 24 A. Yes. 25 Q. Can you indicate the sorts of concerns he was 129 1 expressing? 2 A. Well, he was never very complimentary about the 3 executive team at tie in those stages. And he felt 4 that -- that proposals for the tramlines as they were 5 emerging didn't reflect enough the revenue raising 6 requirement in order to make the operation of the trams 7 profitable in the medium to longer term. 8 Q. Now, this is another point of detail, but at page 6, 9 please, of your statement -- sorry, page 4, it's a few 10 lines up from the top paragraph. We see a reference to 11 having the off-balance sheet company gave potential 12 advantages, et cetera. Just in short to ask: my 13 understanding is that tie was not an off-balance sheet 14 company because tie's assets and liabilities were 15 included in the Council's accounts. Am I right or wrong 16 about that? 17 A. Yes, strictly speaking that's correct. This statement 18 was compiled from a question about an off-balance sheet 19 company and I've not picked that up properly. So yes, 20 the tie accounts were incorporated in the Council's 21 group accounts at the end of each financial year. 22 Q. So it wouldn't be correct for us to describe it as an 23 off-balance sheet company? 24 A. Technically, no. 25 Q. Coming back to the question +of the Tram Project Board, 130 1 I think both yourself and the Director of City 2 Development attended the Board. Is it fair to say that 3 you and the Director of City Development were the two 4 officers in the Council who were best placed to firstly 5 know what was going on in the tram project, and 6 secondly, influence decision-making? 7 A. I think I would unpick that a little in relation to -- 8 there were officers in the Council, perhaps at a more 9 junior level, who were 100 per cent involved in the 10 project, and I think perhaps they might know more about 11 the detail of what was going on in the project, but 12 certainly in terms of the latter half of your question, 13 about being able to influence the decision-making, 14 I would think that it would be myself and the Director 15 of City Development on a regular basis through 16 attendance at the Tram Project Board. 17 Clearly the Chief Executive of the Council, if we 18 took concerns to him, would have that ability to 19 influence another Council company as well. 20 Q. Thank you. I would like to divide my next question into 21 two parts. The first relates to the period up until 22 financial close in May 2008 and the second part looking 23 at the period after that. So firstly, in relation to 24 the period up to financial close, did you have any 25 concerns in relation to tie's reporting, either to the 131 1 Council or to the Tram Project Board? 2 A. No. 3 Q. How about for the second part, so for the period after 4 contract close onwards, did you have any concerns about 5 tie's reporting to the Council or the Tram Project 6 Board? 7 A. Yes, I think we were in a -- a difficult position after 8 the spring of 2009, and I can't honestly put a date on 9 this where one day I had total confidence in tie's 10 reporting and the next I didn't. But as we moved 11 through the process of disputes with the contractor and 12 proposals for moving forward with the project, I think 13 it became extremely difficult for anyone, because of the 14 scale of the disputes and the depth of the disputes, for 15 anyone to report properly on the programme and the 16 anticipated costs of the project. 17 So tie were attempting and the Council officers were 18 involved in this, at a lesser extent. But they were 19 attempting to cost a number of scenarios which might 20 provide us with a way out of the disputes and to get 21 a tram built, and I think the degree of confidence that 22 I would have in tie was certainly lesser at that stage. 23 But I think I would -- to be fair, I think I would 24 have had lesser confidence in anyone trying to estimate 25 programme and cost, given the nature of difficulties 132 1 that developed. 2 Q. Thank you. I would now like to look at a number of 3 events and issues and documents in chronological order. 4 So I'll start, please, with the procurement strategy. 5 What was your understanding of the original 6 procurement strategy? 7 A. My understanding was that it had been developed by 8 a working group that involved representatives from tie, 9 from Partnerships UK, from Transport Scotland, and 10 I think there might have been representation from the 11 Council as well. But I wasn't personally involved in 12 the procurement strategy. 13 But the procurement strategy was a matter of record, 14 and was reported to various bodies, including the 15 Council. 16 Would you like me to try and summarise what the 17 procurement strategy was? 18 Q. If you are able to just provide a brief summary, please, 19 yes? 20 A. Well, the clear intention was to learn lessons from 21 other projects, tram projects in the rest of the UK that 22 perhaps hadn't been delivered in a hugely successful 23 manner. 24 So the strategy was to de-risk the project as far as 25 possible. It recognised that there was a major risk 133 1 associated -- associated with the project in relation to 2 the revenue risk of the operations going forward, and it 3 was considered that it would be very difficult to get 4 the private sector to take over the project through 5 a PPP mechanism, because of that revenue risk. 6 Therefore, with, as I understand it, PUK's agreement, 7 the PPP mechanism was discarded. 8 So the strategy then became to try and de-risk the 9 construction of the tramline as far as possible by 10 having different contracts for design and utilities, and 11 ensuring that design was, if possible, 100 per cent 12 complete, and utilities the same, before the Infraco 13 contractor arrived on site. 14 So that was the strategy. Different contracts for 15 different elements, and the revenue risk remaining with 16 the public sector. 17 Q. Thank you. I think we've also seen a reference in 18 a Draft Final Business Case in November 2006 to an 19 intention to complete design approvals and consents and 20 the MUDFA works in advance of the Infraco contract. 21 Does that accord with your recollection? 22 A. Sorry, what date? 23 Q. This was the Draft Final Business Case in November 2006. 24 A. Yes. 25 Q. Thank you. 134 1 Then moving on, please, to the summer of 2007, we 2 know that the Transport Scotland grant was capped at 3 GBP500 million, and Transport Scotland withdrew from the 4 Tram Project Board and the direct governance 5 arrangements for the project. 6 Can you remember, did that cause you any concerns at 7 that time? 8 A. I didn't think it was the best of timing because we were 9 at the stage of about to go out for best and final 10 offers on the Infraco contract, and the removal of 11 Transport Scotland from the project meant that 12 responsibilities had to change and governance had to be 13 reviewed, and it wasn't ideal certainly that such 14 a change was taking place at that critical stage of the 15 project development. 16 Q. What problems did that cause the Council? 17 A. Sorry? 18 Q. What problems did that cause the Council? 19 A. Well, it required the Council to -- to review the 20 governance arrangements and to look at the relationships 21 within that, because prior to that, Transport Scotland 22 were actively involved in all decisions relating to the 23 project as they happened, and now it was changed that we 24 were in a position where we would simply report these 25 matters to Transport Scotland after the event. 135 1 Q. When Transport Scotland were being actively involved in 2 all matters relating to the project, did you consider 3 they were bringing their experience and expertise to 4 bear in delivering major transport infrastructure 5 projects? 6 A. Yes, absolutely, and I think that in relation to major 7 transport projects, I do say in my statement that City 8 of Edinburgh Council probably didn't have the capacity 9 or the skill set to undertake that on our own, and that 10 relates to partly the reason that tie was set up in the 11 first place. 12 Q. So when Transport Scotland withdrew from the project in 13 that extent, would it be fair to say that then left 14 a gap or a hole in terms of people who were actively 15 involved having this experience and expertise in 16 delivering major projects like this? 17 A. Yes, the Transport Scotland people were an additional 18 check and balance on -- on what tie activity was at that 19 time. 20 Q. Were the Council ever able to fill that gap or hole in 21 experience and expertise? 22 A. Well, I think that's something that might have come out 23 of the deliberations of the Inquiry, but I would have 24 preferred -- if I could answer it this way, I would have 25 preferred to have Transport Scotland still actively 136 1 involved in the project, particularly when we got into 2 the area of the contractual disputes. 3 Q. Why do you say that? 4 A. Because I think for major engineering projects of that 5 nature, that they would have been able to draw on 6 a skill set and experience perhaps in terms of -- 7 perhaps finding a way through the disputes in a speedier 8 fashion than we were able to do with the Council and tie 9 and TEL working together. 10 Q. I would like to move on, please, to the question of 11 a discussion regarding whether the Council should obtain 12 independent legal advice, and perhaps do that with 13 reference to a document CEC01560815. Blow this up, 14 please, so we can see, this is an email from 15 Rebecca Andrew dated 23 August 2007 to yourself, headed 16 "Legal advice on contracts risks". I'll just read out 17 what it says: 18 "Thought I'd update you on the latest position on 19 identifying the risks in the Infraco and Tramco 20 contracts. 21 We are looking for an analysis of the retained 22 risks from the contract and what is the potential 23 financial impact, should they materialise. 24 We don't think we have sufficient internal resource 25 in CEC to get this, and Andrew and Gill are both 137 1 reluctant to engage external advisers (or even to 2 approach tie on jointly commissioning them). 3 Having said that, DLA have written to say they will 4 also act on the Council's behalf and will produce a risk 5 matrix, which will help. However, external advice will 6 probably give us greater comfort, particularly as DLA 7 are using a proforma contract, which is unfamiliar to 8 CEC lawyers. 9 What is your view on this, and how do you think we 10 should approach tie? We are not seeking to challenge 11 tie's work, simply to get a better idea of the amount of 12 headroom we need." 13 In short, can you remember being involved in any 14 discussions or expressing a view around this time as to 15 whether the Council in your opinion should obtain 16 independent legal advice? 17 A. Well, my -- my overview was that the Council should be 18 able to rely to a large degree on the advice from tie 19 and from their legal advisers, given that we had secured 20 a duty of care from DLA to the Council that they would 21 have regard to the Council's interests in development of 22 the contract. 23 Beyond that, I was aware that the Council Solicitor, 24 as I think it says in this email, that the 25 Council Solicitor was of the view that the contract was 138 1 still under development at this stage. It wasn't 2 a completed suite of contract documents that someone 3 could come in and look at. But the city's solicitor was 4 of the view that another firm of lawyers, external 5 lawyers, coming in to work beside DLA, working for tie 6 and for the Council, would confuse the issue and could 7 lead to delays and be damaging. 8 I was happy to take the city's solicitor's view in 9 regard to this proposal. 10 Q. Thank you. I would like to move on -- 11 CHAIR OF THE INQUIRY: I don't think the suggestion was that 12 the independent solicitor or what have you would be 13 providing any advice to tie or sitting alongside DLA. 14 This was the City of Edinburgh wondering, or rather 15 Rebecca Andrew wondering if the City of Edinburgh should 16 have its independent advice. 17 So would that make any difference to you, if that 18 was what was being suggested? 19 A. I think I was conscious, my Lord, that the contract was 20 not fully developed at this stage. What we were asking 21 for was -- well, it's an analysis of the retained risk 22 from the contract, and I think I was of the view that 23 the responsibility that DLA had to the Council was 24 sufficient in that. 25 CHAIR OF THE INQUIRY: Did you think that the contract had 139 1 to be signed before such an analysis could be 2 undertaken? Or did you think that it would be 3 appropriate to have an analysis before the contract was 4 signed? 5 A. No, it wouldn't make sense for the -- the contract to be 6 analysed after it was -- after it was signed. That 7 would be stable door and horse has bolted kind of stuff. 8 But there was consultation with or between 9 departments about the need for an independent legal 10 analysis of the contract, and the city's solicitor was 11 clear that she felt that that wasn't required. And 12 I was -- I was prepared to go along with that. 13 CHAIR OF THE INQUIRY: Thank you. 14 MR MACKENZIE: Thank you. 15 Moving on, please, to a separate type of independent 16 review. We can perhaps start with an email, 17 CEC01630955. 18 If we can blow up the bottom of the page, please, we 19 can see an email from Rebecca Andrew dated 20 12 September 2007 to Susan Clark in tie, 21 subject: external adviser brief. 22 We can see: 23 "Susan, thanks for your phone call outlining your 24 concerns." 25 I think you perhaps are absent at this stage and 140 1 a reference to Donald and Andrew's absence. 2 Then moving on, please, towards the bottom of the 3 page: 4 "I would also like to emphasise that the appointment 5 of external advisers (if it goes ahead) is in no way 6 a criticism of the expertise or work carried out within 7 tie. It is simply a recognition that CEC officials do 8 not have appropriate experience to perform their 9 monitoring/assurance role, particularly given the extent 10 of the risks involved." 11 Now, to pause there, do you accept that there was 12 a need for somebody to, in short, check what tie were 13 saying in relation to risks? 14 A. I accepted and supported the wish to have an independent 15 review at this stage of the process. 16 Q. Thank you. Do you remember having discussed this with 17 Ms Andrew or how had that come about, your support of 18 this? 19 A. I can't -- I can't remember the detail of that. It 20 might have been -- it might have been through an email 21 exchange or it might have been a personal discussion 22 with Ms Andrew. 23 Q. Thank you. Just to continue with the chain of events, 24 the next document, please, is CEC01567757. If we can go 25 to page 3, please, and we blow it up, we can see an 141 1 email from Duncan Fraser, dated 24 September 2007, to 2 Susan Clark, subject, Turner & Townsend, and it's then 3 stated: 4 "The Directors of Finance and the City Development 5 Department are in agreement with the appointment of 6 Turner & Townsend to enable the attached brief to be 7 provided to the Council." 8 Presumably what's set out there was correct? 9 A. I presume so. I would be relying on memory. But sorry, 10 just to clarify, yes, I was in agreement that there 11 should be at this stage an independent review of the 12 risks relating to the project. 13 Q. Just for the avoidance of doubt, why were you in 14 agreement with that proposal? 15 A. Because at this stage of a public procurement project, 16 there would normally be a Gateway Review undertaken 17 through the auspices of the OGC. Because 18 Transport Scotland had withdrawn from the project, that 19 would have been a requirement, as I understand it, of 20 Transport Scotland that a further Gateway Review be 21 undertaken. And this was a proposal to introduce 22 a similar level review in my view at the appropriate 23 stage of the project. 24 Now, if I can go on, you may be coming to this, but 25 we were then made aware that, unusually, given that 142 1 Transport Scotland were no longer part of the governance 2 arrangements, the OGC were prepared to come back and do 3 a further review. And that was the way that this 4 proposal was eventually taken forward. 5 Q. So is it -- to be quite clear, is it your position that 6 this email we are looking at, that you had agreed to the 7 appointment of Turner & Townsend to undertake a review 8 of risk because you were unaware that the OGC had 9 already been lined up to undertake a Gateway Review? 10 A. I'm not -- I'm not sure if it had already been lined up, 11 is correct. I don't know about the relative timings of 12 when these mechanisms were put in place. In sort of 13 looking at some of the documentation surrounding this, 14 I've seen that the first proposal was indeed that 15 Cyril Sweett be asked to do a review of the risks, and 16 indeed a high level review of the legal position, and 17 that was, I think, the initial proposal possibly coming 18 from finance officials, but I couldn't be sure about 19 that. 20 I was in favour of the review. The question of who 21 would be best placed to do the review was something 22 that, until I heard the OGC were still prepared to 23 undertake it, I didn't take a particularly big interest 24 in. 25 Q. So you had no concerns from the fact that it was 143 1 proposed that the OGC would review risk rather than 2 Turner & Townsend? 3 A. No. In fact, quite the -- quite the reverse. They were 4 a specialist body or organisation who were well 5 practised in the review of major public sector projects 6 and had experience of the project, having undertaken two 7 Gateway Reviews before that. And previously the client 8 had been Transport Scotland for these reviews, but there 9 was now possible that -- it became possible for the 10 Council to be the client, for this further review, and 11 I think the Council at the behest of Ms Andrew and 12 Mr Fraser wrote in that they wanted a supplementary 13 review on the risks arising from the project. 14 So I was content with those proposals once they 15 emerged. 16 Q. So essentially, did you derive reassurance that it was 17 OGC and not in fact Turner & Townsend who would 18 undertake the review? 19 A. Yes, although I think that's linking this with your 20 previous questions about legal review, I was never sure 21 about to what extent Cyril Sweett, Turner & Townsend or 22 OGC would be able to interrogate a very large suite of 23 contract documents and give 100 per cent reassurance on 24 risks that were attached to that part of the project. 25 Q. Did that perhaps then point towards the need for an 144 1 independent legal review as well? 2 A. Well, I'm not sure that an independent legal review at 3 that stage would have highlighted the difficulties that 4 were to come in relation to the project. I think that 5 looking forward for a period of about three years, it 6 would be, post this, there were numerous firms of 7 commercial lawyers seeking to define and interpret the 8 contract and different opinions were taken over a period 9 of time, from those firms and from several QCs. 10 So whether a top level legal review at that stage 11 would have exposed what actually happened in relation to 12 contract implementation, I couldn't be confident about 13 that. 14 Q. Is the point not in short that if there was an 15 independent legal review at this stage, before the 16 contract is signed, then any ambiguities in the contract 17 can be clarified before contract signature, therefore 18 avoiding years of dispute afterwards? 19 A. I think I did say earlier the contract was still under 20 development, and I think the difficulties that emerged 21 in relation to the contract were in relation to the 22 novation of design and the issues about design moving 23 from BDDI to IFC, and I don't think these contract 24 provisions were in place at this time. 25 So I can't see how an independent legal review would 145 1 have exposed them. 2 Q. I'll come back to that point, if I may. 3 But just sticking with this, I think to sum up, 4 essentially, you are happy that the OGC have agreed to 5 review the risks; is that right? 6 A. I was content that the OGC had agreed to do this further 7 Gateway Review and pay particular attention to the 8 risks, with CEC as the client. 9 Q. How important did you regard it that there was an 10 independent review of risks? 11 A. That's very difficult to answer several years on, but 12 I would -- I would say that the proposal that had been 13 brought to me, I was content to support that proposal. 14 Q. Could we go then, please, to page 1 of this email chain. 15 In the middle paragraph, middle section, rather, we'll 16 see an email from Rebecca Andrew of 2 October, to 17 Jim Grieve, not copied to you. We can see Ms Andrew 18 says: 19 "Further to our conversation earlier today, I have 20 discovered that tie have now engaged OGC to look at Risk 21 next week and not Turner & Townsend, as previously 22 understood. 23 I have concerns that the OGC review may be at too 24 high a level and that our need to have comfort over the 25 detail of the risks will not be met." 146 1 Did you ever have concerns that the OGC Review on 2 risks may be at too high a level and not go into enough 3 detail to properly protect the Council's interests? 4 A. No, I thought they were, as I've said previously, 5 I thought they were the organisation with the specialist 6 skills to conduct this sort of review, and I -- I would 7 have expected -- we'd had two previous Gateway Reviews 8 from the OGC that -- one that had been classified 9 perhaps red and one that was amber, and there was no way 10 that this was regarded as a toothless body that would be 11 compliant in terms of accepting the position as 12 explained to them. 13 So I had confidence in the OGC. I don't think this 14 is correct to the extent that CEC was the client for the 15 OGC Review, and tie was not the client for the OGC 16 Review. I don't know the actual mechanisms whereby the 17 remit was established, but CEC was the client for that 18 review and the report -- the review report came to CEC. 19 So I can't understand why Turner & Townsend would be 20 in a better position to do such a review than the OGC. 21 Q. I think the suggestion is, in short, because they would 22 take longer over the review and go into more detail. 23 Do you have any comments on that suggestion? 24 A. Well, I think -- I think the remit of the review would 25 be the critical area of concern in relation to that. 147 1 And the OGC would then require to take sufficient time 2 to fulfil the remit as set out in the documentation. 3 Q. I think we've heard evidence that this risk review took 4 between two and three days from start to finish to 5 actually producing the report. Were you aware of that 6 at the time? 7 A. Probably not. 8 Q. Do you consider that a sufficiently detailed review of 9 the risks could be undertaken within that period? 10 A. I don't think I can give you a view on that, but 11 I wouldn't have expected the OGC to undertake such 12 a review and agree to a further review of the risks if 13 they weren't able to do it in the time that they were 14 setting aside for the project. 15 From memory, the cost of the review as outlined -- 16 perhaps not for Turner & Townsend, but for Cyril Sweett, 17 which was to include a review of the legal aspects of 18 the contract as well -- was 25,000. And I'm not sure 19 how that translated into a time commitment in relation 20 to what review activities were to be undertaken. 21 Q. Do you remember reading the OGC report on risk when it 22 became available? 23 A. I can't remember that specifically, but I remember the 24 OGC report coming in and the classification was green, 25 but there were issues in it that required to be -- were 148 1 identified as requiring attention and needed to be 2 addressed as we moved forward during the contract 3 process. 4 Q. Can you remember what those issues were? 5 A. No. 6 Q. Would it be fair to say that then you were aware of the 7 issues in the report, and you would want to make sure 8 they were followed up and resolved? 9 A. Yes. 10 Q. Now, another point we have touched upon is the question 11 of whether there should be a follow-up independent 12 review of risk. So in short, it may be suggested that 13 at the time of the OGC Review, the price, terms and 14 conditions of the contract, and risk allocation, are 15 still to be agreed with the result that a further 16 independent review of the risks ought to have been 17 instructed by the Council shortly before contract award 18 at a time when the price, terms and conditions and risk 19 allocation had been finalised. Do you have any comments 20 on that suggestion? 21 A. I think with hindsight certainly that is something that 22 may well have proven of value. I think you can easily 23 see from looking at all the documents and the trail 24 about how we finally got to contract close that there 25 were changes being made right up to the last minute. 149 1 That, I think, as I say in my evidence, isn't 2 necessarily unusual in major public sector projects, but 3 it would be of concern if these changes were material in 4 nature. 5 But we did have, and I think we were entitled to 6 rely on due diligence in tie and the written information 7 from DLA, together with the discussions that our legal 8 section were having with DLA, to take the view that the 9 changes in risk that had happened in the run-up to 10 contract close had been understood in terms of the 11 overlapping elements of design construction; and that 12 a provision had been made for them in the risk register. 13 Q. But how does that meet the requirement for an 14 independent check of what is happening? 15 A. It's not an independent check of what's happening. DLA 16 had a duty of care to the Council and we expected them 17 to properly undertake that duty of care and alert the 18 Council to any areas where the final contract 19 negotiations had changed the transfer of risk balance. 20 MR MACKENZIE: My Lord, I'm moving on to another document. 21 I'm happy to do so, or it may be a suitable time to 22 pause. 23 CHAIR OF THE INQUIRY: No, we'll just pause now. We 24 normally have a break for the shorthand writers in the 25 afternoon. So we'll resume again at 3.25. 150 1 (3.06 pm) 2 (A short break) 3 (3.25 pm) 4 CHAIR OF THE INQUIRY: You're still under oath, Mr McGougan. 5 MR MACKENZIE: Thank you, my Lord. 6 I would like, please, Mr McGougan, to turn now to 7 the report to Council on 25 October 2007. It will come 8 up on the screen. It's CEC02083538. We will start, 9 please, at page 17. 10 We can see, I think, the signatures. This is 11 a report from both yourself, albeit signed on your 12 behalf, and also from Mr Holmes. 13 If we could then please go back to page 1, to see 14 the purpose of the report. Paragraph 1.1, we see this 15 is: 16 "To seek approval for the Final Business Case 17 version 1 ..." 18 There's only one matter in this report I would like 19 to ask you about. If we go, please, to page 8, and we 20 can see just the very bottom of the screen, a section 21 beginning "Capital Costs". We see a table, and then 22 please can we go to page 10. In paragraph 4.10, I'll 23 just read out what it says. It provides: 24 "The above estimates also include a risk allowance 25 of GBP49 million. This allowance is calculated based on 151 1 the perceived cost and likelihood of over 400 risks in 2 the project risk register. A statistical analysis known 3 as a QRA (Quantified Risk Assessment) is then carried 4 out at a 90 per cent probability level. The analysis 5 concludes that there is a 90 per cent chance that final 6 costs will be within this risk allowance. This 7 demonstrates a higher than normal confidence factor for 8 a project of this scale and complexity." 9 Now, what is being set out there, is that something 10 to be undertaken by tie rather than the Council? 11 A. tie had responsibility for the identification, 12 quantification and mitigation of risk. Council officers 13 were closely involved in the process with tie to take -- 14 to seek assurance on the process, and the results that 15 were to be incorporated into this Business Case and 16 others. 17 Council officers were not expected by me to have 18 100 per cent understanding of all the risks in the 19 project which may arise during the construction period, 20 but they were expected to satisfy themselves that 21 a proper process had been undertaken, that in general 22 terms risks had been identified, things like risk owners 23 had been identified, and mitigation plans put in place. 24 The QRA was, as I understood it, a bit of a black 25 box that came up with these probability levels, and 152 1 you -- as I understood it, you could set probability 2 level to what you thought you should be looking for in 3 a project of this nature, and that would then produce 4 the financial sum that required to be put into the 5 Business Case against these risks. 6 Now, Council officers had oversight of the QRA or -- 7 and the risk process. The Tram Project Board certainly 8 considered the risk register on a regular basis, and 9 both the OGC and the Audit Scotland Review in 2007 10 looked at the process for the identification and 11 calculation and mitigation of risks, and I think both 12 the OGC and Audit Scotland actually commended the 13 process that had been put in place. 14 Q. So a system or method that's been described in this 15 paragraph, and as you've just explained, does that 16 involve one starts with identifying risks from the 17 project risk register? 18 A. Yes. 19 Q. Is that undertaken by tie? 20 A. They would have the primary responsibility for that. If 21 Council officers or before that, Transport Scotland, had 22 a view on what potential risks may be, then they could 23 discuss then with officers at tie and there would be 24 agreement on whether or not they were included in the 25 risk register. 153 1 Q. But in short, one starts with the risk register which is 2 maintained by tie, if I can put it that way? 3 A. Yes. There were -- sorry, there were actually also 4 workshops undertaken with tie and a wider group to -- to 5 try and identify risks as well, but I'm not sure how 6 many of those that there would be. 7 But you're absolutely right. Primary responsibility 8 was with tie. 9 Q. Any workshops or other input would be fed back to tie 10 who would then update the risk register? 11 A. They would be part of the workshops, I think, as well. 12 Q. So one has the risks identified in the risk register. 13 Now, you then refer to, in terms of what happened next, 14 a black box. Does that essentially mean the use of 15 computer software, to -- one puts in certain figures and 16 certain figures comes out? 17 A. As I understood it, if you put in the probability that 18 you wanted to achieve, a figure, a financial figure 19 would then come out. If you put in a different 20 probability level, 80 per cent, you would get 21 a different level of risk that should be included in the 22 Business Case. 23 Q. But in terms of what's happening inside the black box, 24 if I can put it that way, the report refers to 25 a statistical analysis. All of that's happening within 154 1 the black box; is that correct? 2 A. Yes. 3 Q. I think we've heard evidence this was based on 4 a Monte Carlo simulation. Were you aware of that? 5 A. No. 6 Q. Do you know what that means? 7 A. No. 8 Q. I think in short it's where, as I understand it, the 9 computer undertakes many calculations to arrive at 10 a spread of outcomes from which statistically valid 11 estimates can be arrived at. 12 A. Thank you. 13 Q. Is that something you're simply not aware of? 14 A. Yes. 15 Q. Now, what's the purpose of using this statistical 16 analysis rather than an individual or individuals simply 17 sitting down and coming to their own views on the risk? 18 A. Well, I'm -- I'm not an expert and I wasn't an expert in 19 this area. But how it was explained to me was that, as 20 you said, there could be a number of simulations run and 21 the result you get to should be more secure than simply 22 one person or two people sitting down, or even a small 23 number of people sitting down and think: what would the 24 impact of that risk possibly be? 25 Q. Now, to what extent, if at all, did you derive 155 1 reassurance that this was the approach to risk and 2 quantifying the risk allowance being followed by tie? 3 A. Well, to some extent that was -- I was encouraged that 4 both the OGC and Audit Scotland commented on this in 5 favourable terms. But I think I would certainly concede 6 and I was aware at that time that if the risk hadn't 7 been identified, then it could -- could have no impact 8 on the -- on the QRA. 9 Q. But in terms of the risks that had been identified, this 10 was presumably an established and recognised methodology 11 by which to quantify risk? 12 A. It was explained to me that it was at the cutting edge, 13 and it was -- as I have said twice now, it was commented 14 favourably upon by independent reviews, but I think also 15 the Council staff were aware of the QRA process and 16 certainly didn't raise any concerns about it. 17 Q. Did you expect that process or methodology to continue 18 to be followed up until contract award? 19 A. Yes. 20 Q. I would like to move on, please -- I'm not going to ask 21 you about anything else in the report to Council in 22 October 2007, unless there's anything in particular you 23 want to draw our attention to. 24 A. No, I'm happy to move on. 25 Q. We can take that as read, thank you. 156 1 I would like to go on to another document, 2 CEC01023764. This is moving on to December 2007. We'll 3 see this is a pack of papers for the Tram Project Board 4 for the meeting on 7 December 2007. If we can go, 5 please, to page 12. I think if we can blow up the first 6 paragraph, we see under "Design deliverables", it 7 states: 8 "To 23 November, of the 344 design deliverables, 236 9 have been delivered, representing 63 per cent of the 10 tram system design. 66 per cent of Phase 1A detailed 11 design is now complete ..." 12 Presumably that would have accorded with your 13 general understanding around that time of the extent to 14 which design had been completed, and the extent to which 15 it remained incomplete? 16 A. Yes. I mean, I -- I think I have said in my statement 17 that I was aware that design was not complete, but 18 I wasn't, from memory, very clear about percentages at 19 particular points in time. But this refreshes my 20 memory, and I would say, yes, that's broadly in line 21 with, I think, my understanding. 22 Q. Thank you. In the next paragraph we see a reference to 23 SDS design progress will be discussed with Tom O'Neill, 24 the Parsons Brinckerhoff President, on 5 December. 25 Were you aware around this time of any difficulties 157 1 or delays with the design process? 2 A. Yes, there had been frustration and concerns about 3 delays to the design process from the time that I'd been 4 involved with the Tram Project Board. 5 Q. Thank you. I would like to leave that and go on to 6 another document, please. It's CEC01398245. We can see 7 this is a report to the Chief Executive's Internal 8 Planning Group on 11 December 2007. If we go, please, 9 to page 91, we can see in red, in the top right-hand 10 corner, it's an appendix. Appendix 3 to the report. 11 In short, Mr McGougan, this is what has also been 12 referred to as the Director's briefing note. It was 13 a note produced by the B team around early December with 14 different contributions from different members, and it 15 was then brought together into this note which was put 16 before the Directors at this meeting of the IPG, I think 17 in short to seek guidance on how matters should be 18 reported to members. 19 Does this ring any bells? 20 A. Yes, this was -- this was one of two or three occasions 21 when, as we approached a critical milestone in terms of 22 the tram project, the supporting officers were drawing 23 matters to the IPG's attention, so that guidance could 24 be given. 25 Q. Thank you. What I would like to do, without trying to 158 1 take too much time, but to help refresh your memory, is 2 perhaps identify particular passages in this report and 3 ask you to read them to yourself, not out loud, just to 4 yourself, and I'll then ask you at the end of that 5 whether you broadly agree with what is set out in these 6 passages. 7 So I would ask you, please, first to look at 8 paragraph under 3, "Potential Additional Project Costs". 9 Could I ask you, please, to look at 3.2, 3.3 and 3.4. 10 (Pause) 11 Could I ask if you've had a chance to read them, 12 would you have broadly shared these concerns at this 13 time? 14 A. At this time I was clear that the intention had been, 15 I think, to move towards perhaps even seeking approval 16 for contract close in December 2007. And at this time 17 I was aware of these concerns had not been addressed in 18 the contract documentation, or there hadn't been 19 agreement between the parties as to how these issues 20 would be dealt with within the contract; and I would 21 agree with the view that we were not therefore in 22 a position to move to contract close at this time. 23 Q. So would you have agreed that what is set out in the 24 passages I have just mentioned were valid concerns which 25 required to be resolved? 159 1 A. Yes, I think in -- in 3.2 I'm not sure to what extent 2 I would have agreed fully with that, or if I thought it 3 was perhaps overstating the issues to a certain degree. 4 But these are mainly issues of an engineering 5 nature, and I think I would have -- how they would have 6 been dealt with in the contract, and I would probably 7 have deferred to others in terms of an 8 absolute 100 per cent understanding of where we were. 9 But I knew there wasn't agreement between tie and 10 preferred bidder about how these issues would be dealt 11 with. 12 Q. Presumably issues of an engineering nature, you would 13 have deferred to colleagues in the City Development 14 Department; is that fair? 15 A. Yes. 16 Q. Any aspects of a legal nature, you would have deferred 17 to the Council Solicitor, presumably? 18 A. Yes, I would defer, but I would seek to take an interest 19 in them as well. 20 Q. I understand. Over the page, please, to page 92. We 21 can see paragraph 4.1 in relation to the QRA. Again, 22 could you then read that, please, to yourself. 23 Would you have broadly agreed with what's said there 24 at the time? 25 A. Yes. 160 1 Q. Then, please, at the very bottom of the page, we'll see 2 the heading, "Utilities", under 6, and over the page, 3 please, I'll again ask you please just to read to 4 yourself paragraph 6.1, 6.2, 6.3 and 6.4. 5 A. Yes, I would agree with that. I knew that MUDFA 6 programme had been delayed because of the issues that 7 are notified here, and also the issue of the grant 8 funding for MUDFA was delayed. But by this time it was 9 becoming clear that the Infraco contract programme was 10 going to be delayed as well in terms of the time taken 11 to get to contract close. So to some extent the delays 12 in the MUDFA programme were -- or the chance of Infraco 13 and MUDFA being on site at the same time were lessened 14 by the delay in the Infraco programme. 15 Q. We may come back to that issue, but in short presumably 16 you would have been aware around this time of these 17 sorts of difficulties and delays with the MUDFA works? 18 A. At that time, compared to the original programme, MUDFA 19 was subsequently reprogrammed as the project moved 20 forward. 21 Q. I think I simply mean, Mr McGougan, at this time, so the 22 date of this meeting, on 11 December 2007, if you had 23 read this briefing paper, and I assume that you did at 24 the time, you would have been aware of these 25 difficulties and delays that are set out in relation to 161 1 the MUDFA works? 2 A. Yes, and if -- if I could go further, I think the 3 decision arising from this was that all of these key 4 critical issues were to be addressed, with the tram 5 co-ordinator ensuring that all of these things were 6 bottomed out in the run-up to contractual close, and 7 also, as I did indicate earlier, the timetable initially 8 of -- probably not initially, but the last variation on 9 it was suggesting that we could -- we could close on the 10 Council report in December 2007, and it's very clear 11 from what's been exposed in this report that we were not 12 in a position to do that. 13 Having said that, that report to Council was already 14 being drafted, and we were already aware that we 15 wouldn't be in a position to recommend to Council to 16 close on 20 -- I think it was 20 December. 17 Q. Reading on, please, under 7, "Consents/Prior 18 Approvals/Incomplete Design", could I ask you to read 19 paragraph 7.3, 7.4 and 7.6. (Pause) 20 A. I mean, I think at this stage we were discussing design 21 delays at the Tram Project Board on a regular basis, and 22 it was known, and I think it was at this stage, but the 23 timeline is something that gives me an issue in being 24 definitive in terms of my answers. I think at this 25 stage, certainly when we went out to best and final 162 1 offer, so that was before this, the intention would be 2 to transfer the design risk to the preferred bidder, 3 before contract close. And the evolution of designs, 4 which became a -- the critical area under the contract, 5 and led to so many difficulties, it was clear the 6 expectation and the intention was to transfer that risk 7 to the contractor. 8 Q. The intention from the beginning had been to transfer 9 design risk to the Infraco contractor. That's correct, 10 isn't it? 11 A. Yes. 12 Q. That, however, was based on the assumption that design 13 would be complete and approvals and consents obtained 14 before contract award. That's correct too? 15 A. Yes, and when it became apparent that that was not going 16 to be the position, the proposal changed to the 17 development of the concept of introducing for pricing 18 purposes the Employer's Requirements, and the -- the 19 risk for the development of design to base date design, 20 to issued for construction design, to the Infraco 21 contractor in the light of the lack of progress in the 22 design that had been made by this stage. 23 Q. We will come back to that. I'm just trying to take 24 things one step at a time. So sticking with this note, 25 can we also please look at paragraph 7.10 over the page. 163 1 Could you please read 7.10 and let me know whether 2 you would have agreed with that statement at the time. 3 (Pause) 4 A. Yes. 5 Q. Then, please, page 96. In paragraph 13.4, would that 6 have surprised you when you read that at the time? 7 A. Yes. 8 Q. Why do you say that? 9 A. Because the city's solicitor had been actively involved 10 in reviewing the contract documentations for 11 a significant period by then, and, as we discussed 12 earlier, there had been two solicitors in the Legal 13 Services Division allocated to the tram project with 14 their costs being reimbursed by tie. 15 Q. Could you also please look at -- 16 A. The latter issue, the independent review, I think we've 17 discussed earlier, and I concede there had been no 18 independent review. 19 Q. I understand. Also, please, paragraph 14.2. Would you 20 have agreed with what's set out there? (Pause) 21 A. Yes. 22 Q. Then over the page -- 23 A. Well, sorry, can I qualify that? The biggest project it 24 had ever undertaken, yes. Not the biggest contract that 25 the Council had ever entered into, because the contract 164 1 for infrastructure of educational works under a PPP 2 scheme had an equivalent amount of value in relation to 3 infrastructure, but also included the transfer of 4 facilities management, catering and cleaning, to 5 a private sector contractor over a 30-year period. 6 So taking those two together, the actual contract 7 for probably both education PPP schemes would have been 8 bigger than the value that the Infraco contract was 9 expected to have. But the project in total was bigger, 10 because there was land assembly and trams and project 11 management areas and other issues. 12 Q. Under these PPP schemes, am I right in thinking that 13 risks for design, build and operation and maintenance 14 are passed over to the private sector? 15 A. That's correct. 16 Q. Then, please, last page, 97, if we may. Can I ask you, 17 please, at paragraph 15.3, the second sentence: 18 "Experience would tend to suggest that the presumed 19 commonality between tie and the Council cannot be taken 20 for granted." 21 Would you have agreed or disagreed with that 22 statement at the time? 23 A. I expected there to be full commonality between the 24 Council and tie in relation to the planning and 25 execution of contracts for the delivery of the tram 165 1 project on time and on budget. 2 Q. What was your experience in that regard? Had there been 3 in your experience complete commonality between tie and 4 the Council? 5 A. In terms of their objectives, that had been set out when 6 the company had been set up, and the Board of 7 Independent Directors and Councillors established to 8 ensure that tie delivered against the objectives of the 9 company. 10 So I felt that there was no reason at all for there 11 to be a departure between tie's interests and the 12 Council's interests in relation to the delivery of the 13 project. 14 I think the Council clearly had a wider interest, 15 which might have been related to the impact on the city 16 and traffic management issues, but tie should have had 17 an interest in that as well because they were a company 18 set up and established by the City Council. 19 CHAIR OF THE INQUIRY: I think you've answered that question 20 in terms of the objectives of tie and the Council and 21 commonality of that. I think you were asked about your 22 experience. The question was: what was your experience 23 in that regard? That is the question, full commonality 24 between the two. 25 A. Yes. 166 1 MR MACKENZIE: Thank you. 2 A. If I could answer -- sorry, thanks, my Lord. If I could 3 answer that in the negative, I can't recall an 4 experience where there was a divergence in terms of 5 commonality of interest. 6 Q. Did you consider that the Council and tie's interests 7 were the same? 8 A. In relation to the successful delivery of the project, 9 they should have been the same. 10 Q. Did there ever come a time in the tram project where you 11 considered that tie and the Council's interests 12 diverged? 13 A. That's difficult in terms of answering in relation to 14 the entity, the company that was tie, and the 15 individuals that were working for tie. 16 But certainly the -- they diverged after mediation 17 when the Council cut back on tie to a great extent and 18 finally closed it down. That was after I'd resigned. 19 But there was a divergence certainly, that we'll 20 probably talk about later, in the run-up to mediation, 21 about what the optimum outcome would be from that 22 process, between the tie Executive and the Council. But 23 I'm making some kind of possibly pedantic connection in 24 my own mind between the Council and the company, and the 25 company should have had commonality of interest with the 167 1 Council. 2 Q. I wasn't sure what you meant when you said in your 3 answer: 4 "That's difficult in terms of answering in relation 5 to the entity, the company that was tie, and the 6 individuals that were working for tie." 7 So presumably, am I right in thinking your position 8 is that tie as a company ought to have had the same 9 interest as the Council? Are you making a distinction 10 with individuals within tie in some way? 11 A. Well, that would be my position, that the company should 12 have had commonality of interest. There would be 13 a responsibility on the Board of Directors of tie to do 14 everything they could to ensure that that commonality of 15 interest was 100 per cent. 16 Everyone that works for the City of Edinburgh 17 Council or any large organisation or any organisation, 18 perhaps, because tie wasn't that large, but certainly 19 everyone that works for City of Edinburgh Council should 20 have had a commonality of interest in relation to 21 Council objectives and how they were secured. 22 But culturally it's difficult to achieve that, and 23 if you're asking me did everyone in tie at all times act 24 in the interests of the Council in terms of the project 25 delivery, I doubt if that is realistic. I doubt if that 168 1 happened. 2 Q. Do you have any particular examples in mind? 3 A. No, the example I gave was in -- in the run-up to 4 mediation, where -- and I think it's -- I think it's 5 understandable, that because of what had happened over 6 the previous 18 months to two years, people had an 7 emotional response to where the project might be going, 8 and as I say, I think that's understandable, and I think 9 within some tie representatives or executives, or 10 members of staff, there was a reluctance to face up 11 completely to the fact that we weren't actually getting 12 a tram built, and we had to find some sort of 13 break-through. 14 Q. Thank you. We might come back to that period later in 15 your evidence. 16 So we just looked at the note to the IPG on 17 11 December, and I think you had described the note as 18 raising a number of key critical issues; is that fair to 19 put it? 20 A. It documents a number of key critical issues. I think 21 some of them had been -- we were aware of a lot of these 22 before, and the progress was -- should have been under 23 way to try and resolve them. 24 Q. I think I'm right in saying your position is that 25 because of these unresolved issues, it would not have 169 1 been appropriate for the Council to have authorised tie 2 to enter into the contracts at that stage? 3 A. Absolutely. But I think I would -- I would add to that, 4 and again, the point about the timeline, what were you 5 aware of when, I think we had reached that conclusion 6 before the date of this IPG meeting. 7 Q. Thank you. Presumably does it follow that your position 8 was that it would not be appropriate to authorise tie to 9 enter into the contracts until these key issues had been 10 resolved? 11 A. Yes. 12 Q. Now, given these unresolved key issues, why was it 13 appropriate to report to members on 20 December, 14 recommending that members approve the Final Business 15 Case? 16 A. Because they'd had a report in October on version 1 of 17 the Final Business Case, and this was updating it. But 18 the recommendation to members was more than what you've 19 just articulated. It was they confer on the 20 Chief Executive delegated authority to authorise tie to 21 conclude the contracts, provided -- subject to due 22 diligence, which refers to a number of the issues that 23 are detailed in this report, but also subject to 24 compliance with the Final Business Case. 25 So there was no difficulty, in my view, in 170 1 establishing a Final Business Case at this stage, given 2 that if we were departing from it in the future, before 3 contract close, we would have to come back to the 4 Council. 5 If alternatively we had left, we hadn't reported to 6 Council in these terms in December, and we had been able 7 to bottom out all of the issues that were surrounding 8 this to tie and the Council's satisfaction by February, 9 the whole project would then be held up while a Final 10 Business Case was submitted to Council. 11 So I think it was -- I think it was acceptable to 12 submit in advance, providing the authority rested on 13 compliance with that Final Business Case. 14 Q. Is the problem not that until these key issues are 15 resolved, officers simply were not in a position to know 16 whether the final price, the final terms and conditions 17 of the contract, and importantly, the final risk 18 allocation were consistent with the Final Business Case 19 or not? 20 A. You would expect to know that before the contract 21 closed. But you wouldn't know the final price, as we'll 22 discover later, until the contract was actually closed 23 and signed. 24 Q. And -- 25 A. So the Final Business Case has to be in advance of 171 1 contract closure. 2 Q. Given that these unresolved key issues, would it not 3 have been better to wait until these issues had been 4 resolved and there was certainty before officers then 5 sought members' approval of the Final Business Case? 6 A. Well, that, as I thought I had just explained, would -- 7 could have led to another six-week delay, and there were 8 already concerns from a number of fronts about the delay 9 and the impact of delay on the project. 10 CHAIR OF THE INQUIRY: But why would it have been a six-week 11 delay? I think you envisaged negotiations or 12 discussions resolving the issues by February. Are you 13 saying there would be six weeks after that before you 14 could get it to Council? 15 A. Possibly, because Council would meet on a -- a monthly 16 basis, my Lord, and there would need to be time to 17 prepare the report and expose it in the public domain 18 and brief the elected members, in that respect. So it 19 could be up to six weeks from the date of everything 20 being concluded to run through to a Council meeting. 21 CHAIR OF THE INQUIRY: So is that a weakness of the local 22 authority system, that you can't act quickly? 23 A. If there was an emergency, a Council or a local 24 authority could act quickly. So I wouldn't describe it 25 in those terms, and I think I'm reiterating that I don't 172 1 see the difficulty in approving the Final Business Case 2 in advance of every issue being resolved, provided that 3 if there's any departure from that Final Business Case, 4 a report must come back to the Council. 5 CHAIR OF THE INQUIRY: I appreciate that. Would the 6 conclusion of the negotiations and the resolution of 7 these issues be sufficient reason to call a special 8 meeting of the Council, to avoid a delay which would 9 have financial consequences for the Council? 10 A. That would be a matter that I think would be -- that 11 would be a matter for the Lord Provost of the Council to 12 so determine, but that was something that said -- the 13 Council were generally reluctant to do because many 14 elected members planned their holidays and their work 15 commitments round about the Council timetable, and the 16 political balance in the Council, for example, could be 17 changed if there was a special meeting held on a date 18 that perhaps didn't suit a number of councillors from 19 a particular group. 20 So there was a kind of presumption against it, but 21 the facility was there. 22 CHAIR OF THE INQUIRY: Thank you. 23 MR MACKENZIE: So just to be quite clear, Mr McGougan, was 24 the approach of officers at this time that officers 25 recognised that there were a number of key unresolved 173 1 issues which may affect what was there in the Final 2 Business Case, but that members' approval of the Final 3 Business Case would be sought; an attempt would then be 4 made to resolve these issues. If they were resolved in 5 such a way that was consistent with the Final Business 6 Case, that was fine, but if the resolution was 7 inconsistent with the Final Business Case, the matter 8 would have to go back to members? 9 A. Correct. 10 Q. So in short, this Final Business Case was put to members 11 for their approval in the hope or expectation that these 12 unresolved key issues would be resolved? 13 A. Yes. 14 Q. And would be resolved in a manner consistent with the 15 Final Business Case? 16 A. That -- that would have been the ideal situation for the 17 Council, yes. 18 Q. Were members aware that that was the approach taken by 19 officers when they were asked to approve the Final 20 Business Case? 21 A. I think they should have been aware from the contents of 22 the report that indicated there were matters still under 23 consideration, and the briefings that would no doubt 24 take place round about the consideration of that report, 25 and also the fact that the recommendation was such that 174 1 there was still due diligence to take place, and that 2 this delegated authority would only subsist if there was 3 consistency with the Final Business Case. 4 So that suggests very clearly, I would suggest, that 5 there could be changes to the Final Business Case. 6 Q. Now, moving on to another matter, please, we've heard 7 evidence of a meeting in Wiesbaden in Germany, on, 8 I think, 13 and 14 December 2007. Do you have any 9 recollection of any report back from that meeting? 10 A. There was a report back, I think, to the Tram Project 11 Board towards the end of December. I don't have the 12 dates in -- in my memory, but certainly it was reporting 13 the outcome or potential outcome of Wiesbaden because 14 Wiesbaden might not have finally concluded by then. 15 But I remember the report -- there was a report back 16 to the Tram Project Board, and in summary it indicated 17 that the principle of novation of design and transfer of 18 risk for the development of design, the normal 19 development of design, had been agreed by the 20 consortium. 21 Q. Now, is that something you have a clear recollection of 22 or is that based on documents you've been provided with 23 by the Inquiry? 24 A. The latter. 25 Q. Could you then please go to your statement, to put two 175 1 paragraphs. Firstly, at page 26, in paragraph 73 we can 2 see for ourselves what you say there. So that is 3 essentially, that's based on the documents you were 4 provided by the Inquiry with. 5 A. Yes. 6 Q. I understand. Again then, please, at page 27, a similar 7 point. Paragraph 75, again, you then say: 8 "Generally I have looked through the minutes of the 9 Tram Project Board on 19 December 2007. I can speak 10 from the notes of the meeting rather than from personal 11 memory. Wiesbaden was presented as a critical break 12 through by TIE." 13 Now, to pause there, Wiesbaden being presented as 14 a critical break-through by tie, is that again simply -- 15 do you say that from having read the documents or is 16 that something you can recall? 17 A. Yes, it's from the documents, but it really is from the 18 next sentence in the documents. 19 Q. I understand. 20 A. Sorry, the next sentence in my statement. 21 Q. Yes. But again, that's taken, I think, from the 22 documents. 23 A. Yes. 24 Q. I should perhaps then just go to the document. I think 25 it's CEC01483731. We can see these, I think, are slides 176 1 from a PowerPoint presentation to the Tram Project 2 Board. At page 4 we see a presentation on price by 3 Stewart McGarrity, and at page 5, please, we can see 4 under "Headlines of Deal agreed in Wiesbaden": 5 "Based on 6 BBS taking detailed design development risk." 7 So in short, do you have any recollection of this 8 meeting or is the evidence you have given simply based 9 on reading this document? 10 A. I think I would say it's based on the reading of the 11 document. 12 Q. Thank you. I would like to then move on to the report 13 to Council on 20 December 2007. It's CEC02083448. If 14 we go first, please, to page 9. I think we can see this 15 is a report from both yourself and Mr Holmes, and your 16 signatures are 17 December 2007. 17 So presumably the report was given to members either 18 on that date or some time between that date and the 19 meeting on the 20th. Must that be correct? 20 A. Yes. That must be correct. 21 Q. Go back to page 1, please. 22 CHAIR OF THE INQUIRY: That wouldn't be in accordance with 23 normal timescales, would it, for Council papers? 24 A. No, my Lord. That's why I paused. But yes, that's -- 25 that's late. The Council papers should be with members 177 1 seven days before the date of the Council meeting. 2 CHAIR OF THE INQUIRY: And available to the public? 3 A. Yes. 4 CHAIR OF THE INQUIRY: Unless they're confidential. 5 A. Yes. 6 MR MACKENZIE: Could we also, please, go back to page 9. 7 Can we see at the bottom, background papers. And blow 8 up, perhaps, the Edinburgh Tram Final Business Case 9 Version 2. Would it also be the case that that would 10 have been made available to members with the report? 11 A. Generally, background papers were available for members 12 to look at if they wished. It wasn't standard practice 13 to attach always background papers with the report. 14 But I can't say with assurance on this whether that 15 Business Case Version 2 was circulated with the Council 16 papers or not. I know that there were complaints from 17 some members about the volume of papers they were 18 getting in relation to the business cases. So I think 19 at some stage -- well, it could have been October that 20 they got the full document and really it should be 21 a matter of record whether they got the full Business 22 Case Version 2 with the Council papers or not, but 23 I would think not if it's described as a background 24 paper. 25 If it was -- if it was circulated, it would be -- it 178 1 should have been described as an appendix. 2 Q. Could we perhaps go to page 4 of the report in this 3 regard. I'm not sure if this may help at all. 4 In paragraph 5.1 we see: 5 "Final Business Case Version 2 is included as 6 a background paper to this report and reflects no 7 material changes since FBC v1 in respect of ..." 8 Various matters set out. 9 A. Yes. 10 Q. In short, does that reference to it being included as 11 a background paper to this report, does that suggest 12 that Final Business Case Version 2 was made available to 13 members at the same date of this report, or is that 14 a separate matter? 15 A. It would absolutely be made available. I think the 16 question is whether it was circulated with the Council 17 report or whether it was just available as a background 18 paper for members to look at, should they so choose. 19 Q. Would it also be correct to say that on any view the 20 Final Business Case Version 2 is unlikely to have been 21 made available to members before the date of this 22 report? 23 A. Absolutely. 24 Q. So it doesn't seem to leave much time for members to 25 read what's a very detailed and complex document. 179 1 A. That's certainly correct. Partly it's reflecting the 2 fact that we were, for some of the issues that had been 3 detailed before, we were struggling to pull the full 4 report together until the last minute, but also that 5 this is a development of a very fully detailed Business 6 Case that they saw in October, and this is saying that 7 there's no material changes in respect of these 8 individual things. 9 But yes, I agree, two days or three days at the most 10 in December to thoroughly analyse a very long document 11 doesn't seem long enough to me. 12 Q. So putting that factor, adding that to the point that 13 there were a number of key critical unresolved issues on 14 reflection, would it not have been better to delay 15 seeking members' approval of the Final Business Case at 16 this stage? 17 A. I think the members were expecting a further report on 18 this, and may have been questioning if it didn't come 19 forward, but some of the issues that we'd talked about 20 earlier, to wait, I don't agree that it was necessary to 21 wait for them to put the Final Business Case up. But 22 I think members might have expected a bit more notice 23 about the detail of what was included in the Final 24 Business Case. 25 Q. Given you were one of the authors of the report, why 180 1 didn't you intervene at the time to make sure that 2 members did have sufficient time to read the Final 3 Business Case before being asked to approve it? 4 A. You're asking me why I didn't do something, and I'm not 5 sure that I find that a very easy question to answer. 6 Maybe it's not supposed to be. 7 I must have felt on balance that the advantages to 8 submitting the Final Business Case Version 2 in December 9 were -- outweighed the potential disadvantages. 10 Q. Is that not a matter that should have been discussed 11 with members for them to decide? 12 A. If members had considered that they hadn't enough time 13 to properly digest the report, they could simply have 14 continued it at the December Council for a month. And 15 that would have -- that would have allowed them another 16 period of time to come to terms with what was included 17 in the report. That was an option available to the 18 members. 19 Q. So that then puts the onus on the members to tell 20 officers if they think they have had a sufficient 21 opportunity to read the report? 22 A. Absolutely. 23 Q. Going back to this report, then, in page 1, 24 and I apologise if I have read this before, but we can 25 see the purpose in paragraph 1.1, to recommend approval 181 1 of the Final Business Case, and 1.2, to recommend staged 2 approval for the award by tie of the contracts, subject 3 to price and terms being consistent with the Final 4 Business Case, and subject to the Chief Executive being 5 satisfied that all remaining due diligence is resolved 6 to his satisfaction. 7 I would like then to give an overview of the report, 8 before I come to ask you some questions about it at the 9 end. 10 So if we can just scroll down, please, to refresh 11 your memory, we'll see paragraph 2, the summary. We 12 then see 3, main report; an update on recent 13 developments, including 3.2: 14 "The cost estimates for the project reflect 15 provision for evolution as the detailed design will be 16 completed in the coming months. The design is completed 17 under the Infraco contract from the point of award of 18 that contract through novation of the System Design 19 Services contract with Parsons Brinckerhoff to Infraco." 20 We can then see for ourselves what's set out in 21 project governance. We will just take that as read just 22 now. 23 Over the page, please, we'll see what's -- a section 24 on the Tram Sub-Committee. We don't have to go into 25 that just now. That's all set out. 182 1 The next page, please, we've looked at the 5.1 2 already. Bikes on trams. Gogar station. 3 Moving on, please, to the next page. We see 4 financial implications set out in 8.1. I'll give you 5 just a minute to read what is set out in 8.1 onwards. 6 Capital costs set out and the funding also then set 7 out. I don't intend to ask you about that. 8 Then over the page, please, under "CEC Guarantee and 9 Delegation of Authority", we can see what's set out. 10 I am interested in paragraph 8.10. It states: 11 "The fundamental approach to the Tram contracts has 12 been to transfer risk to the private sector. This has 13 largely been achieved." 14 Now, how could that be said that this has largely 15 been achieved, given the unresolved critical issues or 16 key issues set out in the report to the IPG? 17 A. Well, I think the first point I would make is that it's 18 the tram contracts and it's plural. So it would include 19 the contract for the supply of the trams with CAF, 20 because that's all included in the Business Case. It's 21 designed to reflect everything in the project. 22 In terms of largely being achieved, that relates to 23 the position whereby at BAFO, best and final offer, 24 contractors were asked to price on the basis of outline 25 design and compliance, I think at that stage with the 183 1 Employer's Requirements, which was a significant part of 2 the design of the project at that stage. 3 I think you showed me something earlier that was 4 something in the 60s. So I think it's not wholly 5 achieved, but it's largely been achieved because it's 6 everything in relation to costs other than the 7 contracts, and also the tram contract, and the issue of 8 design was felt -- that it was still under discussion, 9 was felt to be the portion that remained to be fully 10 developed, and was being addressed through the contract 11 negotiations. 12 Q. Why did you mention the position in relation to BAFO? 13 I think that was back in October. This is a report to 14 Council on 20 December 2007, stating in very black and 15 white terms: 16 "The fundamental approach to the Tram contracts has 17 been to transfer risk to the private sector. This has 18 largely been achieved." 19 It's talking about the position at the time of the 20 report. 21 A. In December? 22 Q. Yes. So I think really -- 23 A. Yes, because -- because by that stage the preferred 24 bidder had bid on the basis of the outline design and 25 the Employer's Requirements. And negotiations were 184 1 going on to complete agreement about what happened to 2 the design that remained to be developed, but it wasn't 3 100 per cent of the design work on -- on the tram. 4 Q. Now -- 5 A. On the Infraco, sorry. 6 Q. I think you had agreed with me that the matters set out 7 in the note to the IPG raised a number of unresolved key 8 issues. I think the expression "key issues" may have 9 been yours. So at the time of this report to Council, 10 these key issues remain unresolved, which they included 11 matters such as risk and incomplete design, outstanding 12 approvals and consents, and perhaps difficulties with 13 MUDFA. 14 How can it be said that until these key issues have 15 been resolved, that the fundamental approach of 16 transferring risk to the private sector has largely been 17 achieved? 18 A. I think it turns on what interpretation you would put on 19 "largely". It's certainly not saying it's been fully 20 achieved. So it's something short of fully achieved. 21 And "largely" indicates that -- well, I would need 22 a dictionary, but I think that's why the word was used. 23 Q. Does the report go on to explain and identify the key 24 unresolved issues? 25 A. I'm sorry, I would need to read the full report to 185 1 answer that question adequately. 2 Q. Yes. Let's read on? 3 A. I would take -- I would take your view on that. I would 4 be happy to do that, if you think it doesn't. 5 Q. My view doesn't matter Mr McGougan. Let's just read on. 6 We can see under risks, "Public Sector Risks". I'll let 7 you read this and then the next page to yourself as well 8 out of fairness. (Pause) 9 A. Well, I think the -- I mean, I think the first sentence 10 in there is perhaps what I was struggling to articulate 11 coherently. 12 Q. So do you draw attention to the first sentence simply to 13 say that there are outstanding matters? 14 A. Yes, that's my understanding of that. 15 Q. But does the report go on to tell members what these 16 outstanding matters are, in order that they can form 17 their own views as to how key these outstanding matters 18 are? Let's just read on to the next page, please, 19 page 7. 20 A. Okay. 21 Q. Again, just take a couple of minutes, please, to read 22 this page. (Pause) 23 A. If we could move down. Thanks. 24 (Pause) 25 Okay. 186 1 Q. We should then just complete our overview of the report 2 by going on to the next page, please. We can see 3 heading, "Next Steps", and a timetable. And then see 4 various conclusions are set out, before then various 5 recommendations. 6 That then just finishes over the next page as well, 7 further recommendations set out there as well. 8 So I think my first question had been: do you 9 consider that the report identifies the unresolved key 10 issues that had been set out in the report to the IPG? 11 A. I think very much in summary form. I don't think it 12 goes into them in any detail. 13 Q. With the benefit of hindsight, do you consider that the 14 report adequately explained the difficulties and delays 15 with design consents and approvals and the MUDFA works 16 and the main risks facing the project? 17 A. I haven't read the entirety of this report, but I think 18 the October report and the Final Business Case Version 1 19 certainly did have a lot of detail about the risks that 20 were still carrying to the project and still had to be 21 resolved. 22 I think as well -- I don't think it would have been 23 wise to articulate in a public report at this stage, 24 when negotiations were ongoing with the contractor, the 25 issues that remained to be resolved and tie's position 187 1 on them. 2 Q. So were members advised of those issues at this time? 3 A. They were advised that there were issues that still had 4 to be resolved, but they weren't -- they weren't advised 5 of the detail of those. 6 CHAIR OF THE INQUIRY: Do you say that was a positive 7 decision then by you and Mr Holmes, to leave that out, 8 because it wouldn't have been wise to include it? 9 A. I think if there's matters still to be resolved, 10 a preference would be rather than to include them in 11 a report and detailing that they still had to be 12 resolved, to say that there were still issues to be 13 resolved, and bring the matter back to Council for 14 decision once it's been resolved one way or the other. 15 CHAIR OF THE INQUIRY: Yes, I can understand that's what 16 you're saying, but are you saying that there was 17 a positive course of action determined by you and 18 Mr Holmes -- to follow that course? 19 A. I don't recall it as a positive decision between the two 20 of us. The process for developing these reports for 21 Council was fairly protracted, and is set out in a lot 22 of detail in my statement. But basically it involved 23 a strategic decision, perhaps at the IPG, or perhaps 24 between myself and Mr Holmes, about the areas that were 25 to be covered in the Council report, a first draft of 188 1 that report to be prepared by -- if we could go down 2 just a little -- probably in this instance by one of the 3 contact officers, Duncan Fraser, and then that would be 4 circulated across all the Council departments for 5 commentary. 6 Once that version had been established, it would 7 also be circulated to tie for commentary, and it would 8 come back to certainly myself and Mr Holmes at points in 9 that process if required. 10 I can't speak for Mr Holmes, but this has got 11 Rebecca Andrew's name on it as a contact officer as 12 well. So if there had been points of issue between 13 different departments that were contentious, and were 14 going to be a block on getting agreement on the final 15 terms of the report, Ms Andrew might come back to me and 16 say: this is the evolving position, what is your steer 17 on it? 18 Or it may be that I just saw a later version of the 19 report once it had commentary from legal services, from 20 City Development, from finance, and from tie. 21 I can't remember with any security the different 22 iterations of this report, but that was the standard 23 process for developing reports to the Council on the 24 project. 25 MR MACKENZIE: I wonder if I may finish with two very short 189 1 suggestions, my Lord, to finish this chapter? 2 Mr McGougan, it may be suggested that members were 3 simply not in a position to come to an informed decision 4 without being made aware of the difficulties and delays 5 with design and MUDFA, and indeed any key unresolved 6 issues. 7 A. I would tend not to agree with that because members were 8 aware that timetable was that we were aiming at one 9 stage to have contractual close certainly by maybe even 10 before December 2007. So we were -- I think we were 11 making them aware that there were still issues to be 12 resolved, and that we didn't have full security over 13 contract provisions at this time. 14 Q. But not telling them what those issues were? 15 A. No. 16 Q. Then finally the suggestion is that it may be suggested 17 more generally that reports to Council on the tram 18 project tended to present an overly optimistic or 19 rose-tinted view of matters, and under-reported or in 20 some cases failed to report difficulties and delays? 21 A. I would -- I would certainly not agree with that. I did 22 check. There were 22 reports to the Council before 23 contract close over the period of the project, and 15 24 after. And I think anyone who reads the whole suite of 25 reports to the Council will be aware that in overall 190 1 terms they were frank and gave the correct position, and 2 said as much as we were -- it was prudent to say in the 3 light of some commercial confidentiality issues. 4 Now, I'm not saying to you that you can't go to some 5 of these 35 or 37 reports and pick out individual lines 6 or sentences that could perhaps now be regarded as 7 over-optimistic. But I don't believe that the reporting 8 to the Council was inaccurate over the period of the 9 project before and after contract close. 10 Q. Have we not just seen a good example by your own 11 admission of a report to Council which failed to report 12 difficulties or key issues? You've just, I think, 13 accepted that you knew there were key unresolved issues 14 which deliberately were not included in this report. 15 A. No, we've said that there were unresolved issues at this 16 stage. We've not gone into the detail of what all of 17 these unresolved issues were. And all of these 18 unresolved issues related to commercial negotiations 19 that were taking place at that time between tie and the 20 consortium. 21 And to have a public discussion on where we were at 22 that stage in the commercial process, with all the 23 individual issues, would have been dangerous. 24 MR MACKENZIE: We can perhaps continue matters tomorrow. 25 A. Okay, thank you. 191 1 CHAIR OF THE INQUIRY: We will adjourn until 9.30 tomorrow. 2 If you speak with the staff, they'll advise you when you 3 should be in the witness room, ready to start. 4 A. Thank you very much. 5 CHAIR OF THE INQUIRY: We'll adjourn until 9.30. 6 (4.38 pm) 7 (The hearing adjourned until Thursday, 30 November 2017 at 8 9.30 am) 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 192 1 INDEX 2 PAGE 3 MR ANDREW HOLMES (continued) .........................1 4 5 Examination by MR MACKENZIE (continued) .......1 6 7 Questions by CHAIR OF THE INQUIRY ...........115 8 9 MR DONALD MCGOUGAN (sworn) .........................119 10 11 Examination by MR MACKENZIE .................119 12 13 14 15 16 17 18 19 20 21 22 23 24 25 193