1 Wednesday, 29 November 2017 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