1 Thursday, 7 December 2017 2 (9.30 am) 3 MR AXEL EICKHORN (continued) 4 Examination by MR MCCLELLAND (continued) 5 CHAIR OF THE INQUIRY: Good morning. You're still under 6 oath. 7 A. I understand, my Lord. 8 CHAIR OF THE INQUIRY: Mr McClelland? 9 MR MCCLELLAND: Thank you, my Lord. 10 Could you please have on screen document 11 CEC00183919. If we could go, please, to page 29. Do 12 you remember, Mr Eickhorn, that we looked at this 13 yesterday? 14 A. Yes. 15 Q. This is the first Project Carlisle Proposal from the 16 consortium. We see in that breakdown of the 17 consortium's proposed price a figure there for Change 18 Orders of GBP5.3 million. 19 A. Yes. 20 Q. If we could move, please, to page 32, do we see there 21 a list of Change Orders totalling GBP5.3 million? 22 A. Yes. 23 Q. So is that a breakdown of the Change Orders which formed 24 the GBP5.3 million we saw on the last sheet? 25 A. Yes. I can't say just now if all of these had been 1 1 finally agreed with the client. I have a figure in mind 2 of around 4 million of Change Orders that had been 3 agreed with the client between contract signature in 4 May 2008 and the time of that proposal. 5 Q. But this list of Change Orders here, were those the only 6 changes that Siemens sought payment for in the Project 7 Carlisle Proposal price? 8 CHAIR OF THE INQUIRY: Can we make it bigger to make it 9 easier to read? 10 A. I don't think so, because if -- we could probably go 11 back to the first page, because from what I see just 12 now, I don't think the -- our claims for the extension 13 of time are not included in those figures. These appear 14 to be changes more of a technical nature and not 15 a time-related nature. 16 MR MCCLELLAND: If this list doesn't include the extension 17 of time claims, is this a complete list of the Change 18 Orders relating to a change in Siemens' scope? 19 A. That were known at the date, yes. 20 Q. Yes, okay. Thank you. 21 Bear with me a moment, please. (Pause) 22 What you say in your statement -- I don't think we 23 need to go to it, but at page 23, paragraph 39 for the 24 record, you say that circa 100 of circa 850 of the INTCs 25 raised before the Mar Hall mediation related to Siemens 2 1 directly. These represented an increase claimed by 2 Siemens of approximately GBP35 million. 3 What I was wondering is if 100 of the INTCs related 4 to Siemens directly, why there were only the 20 or 30 5 that we saw in the list there. 6 A. I think the explanation is that there were more items 7 that were still under discussion, and in a kind of 8 preliminary stage, and the numbers -- I mean, the 9 multitude was probably around 100. The biggest 10 individual elements would have been the extension of 11 time claims. 12 Q. So when we see the shorter list in the Project Carlisle 13 Proposal, does that indicate that Siemens in respect of 14 scope were seeking payment for fewer changes than they 15 had intimated to tie beforehand? 16 A. I think there were more items than indicated here, but 17 they had not been agreed at the time and were still 18 under discussion and not decided. So I think that is 19 the nature of that list. 20 Maybe it would be helpful to go back to that first 21 overview of that -- in that document. 22 Q. Okay. That's document CEC00183919. 23 I think it was page 29. 24 Was that the page that you wanted to see? 25 A. Yes. yes, I think that line that says Change Orders 3 1 here, where we saw the list, these were the more or less 2 known and determined items at the time. Everything else 3 was wrapped up in that third line, the 26 million. 4 Q. Okay. So if we wanted to have an indication of the 5 price placed by Siemens on changes to their scope of 6 works, is that figure of GBP5.3 million an accurate one, 7 or is the figure higher than that because some of it is 8 wrapped up in the other part of the price? 9 A. Okay. Without looking into the details of those 10 figures, I would think that -- that there was 11 a potential that more changes would occur during the 12 development of the project. At that time design was 13 still ongoing. Scope clarifications with the client 14 were still ongoing. So I think the possibility of 15 additional changes was always there, but I think the 16 degree to which they could be determined at the time was 17 not sufficient to include them in this proposal. 18 However, all the known facts to date, we endeavoured 19 to include in that proposal to give the client the best 20 price certainty possible at the time. 21 Q. Okay. So I understand that there were changes that came 22 after the Mar Hall settlement, and I think we have other 23 documents which give us an indication of those. 24 As at the time of this proposal, was the 25 GBP5.3 million the best estimate of the value of any 4 1 changes in Siemens' scope? 2 A. For the scope related changes, yes. There were -- the 3 other figure I mentioned already is time-related impact. 4 That is a different story. 5 Q. Yes, thank you. 6 If we could go to page 33, please. His Lordship 7 asked you yesterday about what the charge was for 8 additional components. That document there appears to 9 be a breakdown of the additional components. 10 Can you just -- can you recall what these were 11 needed for? 12 A. The first item there, the Urban Traffic Light Control, 13 that is an item that in the original contract was listed 14 under the provisional sums, and we -- at the time we 15 sought to include that scope as part of the fixed price 16 Carlisle Proposal, if you like. 17 The second item were finials on OLE poles in the 18 on-street section, and that was a client requirement, if 19 I remember correctly, to have the street lighting on top 20 of the OLE poles which had not been foreseen in the 21 original proposal, in the original scope of the 22 contract. 23 Q. Okay, thank you. 24 Could we please have document TIE00667410. Now, 25 this, Mr Eickhorn, is the second Carlisle Proposal from 5 1 the consortium, dated 11 September 2010. Again, were 2 you involved in the pricing of this proposal? 3 A. I think I had more involvement in this one, in the 4 second one. 5 Q. If we could just go to page 63, please. 6 We see here the Project Carlisle scope, and the 7 first paragraph reads: 8 "As previously stated we have updated this Revised 9 Proposal to reflect the scope Infraco will be able to 10 agree on. In essence, we will carry out the works shown 11 on the GMP Drawings for scope of work between the 12 Airport to Haymarket and the enabling works." 13 So the scope of this proposal was shorter than the 14 scope of the first Carlisle offer which went to the east 15 end of Princes Street; is that correct? 16 A. Yes, I think that's correct. Before we had this term -- 17 termination point, I think it was, and that was in a not 18 defined location somewhere in the city centre, and this 19 does relate to the scope up to Haymarket, yes. 20 Q. Okay. So the key point is this is for a shorter line 21 than the first proposal? 22 A. Yes, as it seems. 23 Q. We don't need to go to it, but at page 70 of this 24 document, it confirms that once again this proposal 25 includes Siemens materials and equipment for the section 6 1 to the east. So beyond the line that was being built. 2 If we could go, please, to page 28, this is 3 a section giving the breakdown of Siemens price 4 proposal, and if we just move forward to page 29, 5 please, we see at the bottom there the total proposed 6 price is GBP118 million. So this is a shorter scope 7 than the previous proposal, and one would expect the 8 price to be lower, and we see that it is. 9 Can I just ask, in the previous proposal we saw 10 a detailed breakdown of the price, but in this proposal, 11 this sheet is all we have. 12 So can you explain why that was done in that way, 13 without the detailed breakdown? 14 A. I can't remember why this was presented in 15 a different -- different way. I can't remember the 16 reasons for that. 17 Q. Do you agree with me that it makes it difficult to 18 compare this proposal with the first Carlisle Proposal? 19 A. At first sight potentially, but, I mean, there was 20 always the option to -- to investigate from the client 21 side. So necessarily yes, at first sight of course, but 22 there was always the possibility to -- to substantiate 23 the proposal. So ... 24 Q. Yes. In the last proposal that we saw, you will recall 25 yesterday there was a breakdown that showed us where 7 1 there were additional costs and where there were savings 2 and so on. But this proposal doesn't give us that 3 breakdown. 4 A. It doesn't, but I suppose it could have been produced. 5 I don't know if it was at a later stage produced or not. 6 I don't recall that. 7 Q. Okay. 8 If we could turn now to document BFB00053258. 9 This is the consortium's Project Phoenix Proposal 10 dated 24 February 2011. We know from other witnesses 11 that this formed the basis of discussions at the 12 mediation at Mar Hall. Is that your recollection? 13 A. Yes, this was the proposal which -- was the proposal 14 made before -- yes, the mediation started and on which 15 basis the mediation took place. That's correct. 16 Q. If we go, please, to page 141, we see there this is the 17 scope of the proposal. The first paragraph, just 18 reading from the second sentence: 19 "In essence, Infraco will carry out the works shown 20 on the PPP Drawings for the scope of work between the 21 Airport and Haymarket (East end of Haymarket Viaduct), 22 and the Enabling works in Section 1A etcetera." 23 Can you just confirm, Mr Eickhorn, that the scope of 24 this proposal was the same as the second Carlisle 25 Proposal that we looked at a moment ago? 8 1 A. I think largely it would have been the same, yes. 2 Q. If we go, please, to page 27, this is the Siemens 3 Proposal, and we see down at the bottom that the 4 proposed price here is 136.8 million. Do you see that? 5 A. Yes. 6 Q. So there's an GBP18 million increase from the Carlisle 2 7 Proposal. Can you explain what accounts for that 8 increase? 9 A. I can only assume that this would have been 10 a time-related impact. 11 Q. So I think I'm right in saying that the time period 12 between the second Carlisle Proposal and this Phoenix 13 Proposal was about five months. So are we to understand 14 that that five months of delay came with a cost of 15 GBP18 million for Siemens' element? 16 A. It seems a lot, but the detail I cannot remember as of 17 just now. 18 Q. Yes, because it would break down at about GBP3.5 million 19 in delay cost per month. Is that more or less than the 20 cost for Siemens of being on the project for a month? 21 A. As I cannot remember what the basis of the -- what the 22 programme was in the first -- in the second Phoenix 23 Proposal, it's hard for me to tell. But the cost -- the 24 monthly running cost would have been lower. So I am 25 fairly confident that the price difference here is not 9 1 only an effect of the -- of the cost of time and 2 resources. 3 Q. So -- yes, for something else other than delay? 4 A. Yes. 5 Q. Can you recall even in broad terms the approximate 6 monthly cost for Siemens of being on site? 7 A. Sorry? 8 Q. Can you recall what it cost for Siemens to be on site 9 for a month? 10 A. It fluctuated a bit. I mean, we submitted the detail of 11 that in large detail to tie at the time, and the -- the 12 rates in the -- in the Settlement Agreement which 13 I cannot recall from the top of my head just now, but 14 they reflected -- gave a good impression or reflected 15 fairly the cost of Siemens for a month of extended 16 project execution. 17 Q. Okay. But do we understand it was quite a bit less than 18 GBP3.6 million? 19 A. Yes, that's why I -- I would have to look -- check the 20 detail of that build-up, but I assume that could have 21 been -- must have been some other influence. 22 Q. Okay. 23 Now, we see that the breakdown of the price is 24 presented in a third way. Can you explain why it was 25 done differently again? 10 1 A. From memory, we ran different scenarios of how the works 2 could be implemented, and different ways of looking at 3 things, the cost build-ups, et cetera. So this had 4 developed over time, and the end product was a slightly 5 different form of presentation. 6 I remember having discussions about the -- about the 7 build-up of the prices and the impacts with tie 8 personnel. The presentation of the price and front page 9 was never something that was of particular concern. 10 Q. Do you recall who you discussed the price with at tie? 11 A. Yes, the time element I discussed with Dennis Murray in 12 tie. He was, I think, the finance -- no, the 13 commercial -- principal quantity surveyor, I think he 14 was. 15 Q. Okay. It may be that these figures appear differently 16 to a quantity surveyor, but to the -- to the lay person 17 in this context, one can say that if you look at the two 18 Carlisle Proposals and then the Phoenix Proposal on this 19 front page sheet, it's actually very difficult to 20 compare one with the other. Do you accept that? 21 A. I accept that, but for our client with additional 22 detail, I think that would have been understandable what 23 was the detail and the rationale of that. 24 Q. Was it your impression that Mr Murray understood the 25 development of Siemens' price across the two Carlisle 11 1 Proposals and the Phoenix Proposal? 2 A. I would -- I think so. In particular I remember that 3 I think he understood very well that the greatest 4 problem in terms of cost for Siemens was the time 5 impact, because I had discussions with him about the 6 resources, the cost attached to those resources, and we 7 provided a lot of additional information to substantiate 8 our proposal at the time. 9 Q. We see down at the bottom of that list, an entry for 10 changes where it's GBP2.165 million. Do you see that? 11 A. Yes. 12 Q. If we go to page 28, we see the detailed breakdown of 13 that. 14 Both of the Carlisle offers, the entry for Change 15 Orders had been over GBP5 million. Are you able to 16 explain the reduction? 17 A. When looking at the list now, I think the content is 18 slightly different. I just -- by way of observation, 19 it's been a long time since I saw these lists for the 20 last time. 21 Q. Of course. 22 A. In the other one, for example, there was -- included 23 extension of time number 1, which doesn't appear on that 24 list. So I think we have a different list of changes. 25 From memory, I think that those changes here were 12 1 the ones that had been identified in the meantime 2 between the two proposals, and that were proposed here 3 to fix the price at the bottom line, at the bottom line 4 figure. 5 Q. Okay. I'm just trying to get an understanding of the 6 cost of change in the scope of Siemens' works. 7 I wondered whether it was fair to take the figure of 8 GBP2 million as shown on this sheet as a broad 9 indication of the cost of scope change for Siemens. Is 10 that fair? 11 A. Scope change in relation to technology, materials, 12 equipment, requirements, but not in relation to time. 13 Q. Yes. Excluding anything to do with time. 14 A. Yes. 15 Q. Thank you. 16 A. Again, at the time it was still possible to have 17 changes, because in my understanding still utility 18 diversions were going on, design was being developed, 19 approvals and consents were still coming in or 20 outstanding. So it was the best estimate made at the 21 time to fix the price to the -- to the scope known to 22 date. 23 Q. Thank you. 24 Now, I think I should probably just note for the 25 record that in your statement you've indicated that the 13 1 Phoenix Proposal, I think both for Siemens and 2 Bilfinger, included all of the claims that they 3 considered themselves to have accrued under the Infraco 4 contract to date. 5 A. Yes, that was certainly the purpose. That's correct. 6 The idea of the Phoenix Proposal was to give the client 7 more price certainty, taking into account all the 8 knowledge that we had acquired at that point in time, 9 and also -- this also is expressed in the -- in the 10 reduced number of Pricing Assumptions that were -- if 11 you compared those proposals with the original -- with 12 the original contract. 13 Q. I just want to look for the moment at the understanding 14 of Siemens' price that the other side had. 15 If we could go, please, to document BFB00094604. 16 If we could go, please, to page 4, first of all. 17 Now, we see, about halfway down the page, there's an 18 email from Brandon Nolan of McGrigors to 19 Fraser McMillan. Are you familiar with those 20 individuals? 21 A. Not -- I cannot really recall them, no. 22 Q. Well, these were the solicitors acting for the parties 23 in the run-up to the Mar Hall mediation. 24 If we just read from Mr Nolan's email he says: 25 "Fraser, with regard to Infraco's Project Phoenix 14 1 Proposal Price, tie and CEC would request more detailed 2 information in relation to Siemens' PPP Price 3 Breakdown." 4 That was the document that we looked at a moment 5 ago: 6 "Siemens' PPP of circa GBP136.5 million is double 7 Siemens' original price of GBP68 million (Airport to 8 Haymarket). It is not clear what the basis for this 9 increase is. There is no Schedule Part 4 Pricing 10 Assumption 1 issue in relation to Siemens' work which 11 has undergone little change since tender." 12 Just pausing there, I think from your previous 13 answers, you would agree that there wasn't a Pricing 14 Assumption 1 issue in relation to Siemens' work; is that 15 correct? 16 A. There wasn't -- sorry, again? 17 Q. There wasn't any issue arising from Pricing Assumption 1 18 in Schedule 4 of the Infraco contract, bringing about an 19 increase in Siemens' price; is that correct? 20 A. Pricing Assumption number 1 in the Infraco contract was 21 the Base Date Design Information. 22 Q. Yes. 23 A. I cannot positively exclude that there had been impacts 24 from design changes to the -- compared to the BDDI, no. 25 Q. If there was an impact, did it have a significant impact 15 1 on the cost of Siemens' works? 2 A. A significant impact was the time-related cost, as 3 I tried to explain earlier, and this analysis here is 4 fundamentally flawed in my point of view, because it 5 disregards -- it tries to calculate a price in relation 6 to a length of line, completely ignoring that the 7 original contract period had already expired at this 8 point of time. 9 Q. That's really my point, because these individuals are 10 trying to understand Siemens' price proposal, and 11 obviously you understood it because you knew how it had 12 been calculated, but it was difficult for others to 13 understand the basis of Siemens' price increase from the 14 way it was presented in the Phoenix Proposal. 15 A. If that was the case, then I don't understand why that 16 was the case, because during the course of the project, 17 we had gone to great -- a great deal of effort to -- to 18 develop and present our methodology of pricing the 19 impact of the delays, and all that information was 20 accessible to the client. 21 So it seems to suggest that this information had not 22 been passed on to the people that are on that email. 23 Q. Okay. So your evidence is that you had explained the 24 price fully to the quantity surveyors within tie? 25 A. That would have been part of our submissions. 16 1 I remember very well that the question of the resources 2 that we had deployed on the project and the cost of 3 those resources had been discussed in great length, and 4 one of the -- one of the topics I very well remember is 5 that the question of rates that represented a cost of 6 those resources, and even before the Phoenix and even 7 the Carlisle Proposals, we had our rates audited by 8 external firms to confirm that what we put -- had put 9 forward represented the true cost of those resources, 10 and these reports, if I remember, they were accessible 11 and known by the client, and I think the rates per se 12 were -- had been accepted as true and fair. 13 Q. Thank you. 14 If we could move just further up the chain to 15 page 3, we have just in the middle of that page, we have 16 an email from Anne Houston on behalf of Brandon Nolan. 17 He's saying -- this is another attempt to explain their 18 understanding of the price: 19 "tie's calculation of the Siemens figures are 20 deduced from the Siemens' CPA which totals 21 GBP96.9 million. tie's breakdown on a pro rata basis is 22 as follows." 23 Then we see a breakdown of various figures. He 24 says: 25 "As previously indicated, without further 17 1 information in relation to Siemens' PPP Price Breakdown, 2 meaningful analysis of it is not possible." 3 I think from your previous answer, you would say 4 that that was not an appropriate way to assess the cost 5 of Siemens' works between the airport and Haymarket? 6 A. Yes, any pro rata breakdown in this situation was not -- 7 not an appropriate way of analysing the price, I agree. 8 Q. But we see this email is dated 4 March and the mediation 9 began a few days later than that. 10 Based on your discussions with Dennis Murray, are 11 you surprised at that analysis of Siemens' price? 12 A. Maybe surprised is -- yes, I am surprised. I mean, 13 I can only reiterate. I mean, a lot of information had 14 been submitted also by -- I think by way of formal 15 communication, formal correspondence, in terms of the -- 16 the time impact had been well communicated. I mean, 17 these -- in the course of the -- what was referred to 18 the MUDFA claims, so I think there was a lot of detail 19 available. 20 So yes, I am kind of surprised that this information 21 was not taken into account when I read these emails, 22 which I have never seen before, by the way. 23 CHAIR OF THE INQUIRY: Can you recall if anyone contacted 24 you after -- about this time to say that the lawyers 25 were seeking clarification? 18 1 A. What I do remember is -- and that is -- by memory, the 2 most -- well, we had this process I earlier described 3 to -- to substantiate our rates, and the audits. That 4 was -- that was before mediation. 5 I remember going through that exercise again, but 6 after mediation, when we were discussing the on-street 7 works price, which again was heavily influenced by the 8 time element of that -- of that piece of the line, and 9 not so much by the works. 10 CHAIR OF THE INQUIRY: So the answer is no, you don't 11 remember anyone coming to you or asking you for 12 information to enable the solicitor acting for the 13 consortium at the mediation to respond to the question 14 by the solicitor on behalf of tie? 15 A. I cannot remember anything in particular, no. I must 16 say, though, that at the time shortly before the 17 mediation, I myself, I was ill at home, due to an 18 accident. So I can -- it could be that someone else 19 received such enquiries, but I'm not aware of them. 20 CHAIR OF THE INQUIRY: Thank you. 21 MR MCCLELLAND: Do you recognise the name Tony Rush? 22 A. Yes, but I have never met him in person. 23 Q. Okay. Were you aware of his role for tie in relation to 24 the project? 25 A. I understand he was a consultant to tie. 19 1 Q. You say that you never met him. Were you ever involved 2 in supplying information to him about Siemens' price? 3 A. Not directly. It could be that some information that 4 I produced was forwarded to him, but I had no direct 5 contact with Mr Rush. 6 Q. As far as you were aware, did Siemens pass pricing 7 information to Mr Rush? 8 A. I don't know that. 9 Q. Don't know. 10 If we could just look briefly at his statement to 11 the Inquiry, which is TRI00000141_C. If we could go to 12 page 9, please. At the second paragraph down, this is 13 Mr Rush discussing the Project Carlisle Proposals from 14 Siemens. What he says is: 15 "We analysed the differences between tie's offer and 16 Infraco's counter offer. The difference in relation to 17 Siemens' work was disproportionately higher than 18 Bilfinger Berger's. I think I regarded both sums as 19 being 'negotiable claims'. Because Siemens' work 20 content was substantially unchanged from BDDI my 21 reaction was that their element was largely 22 opportunistic and likely intended to correct tender 23 errors." 24 What's your response to that comment? 25 A. I think there are various aspects. Again, seeing this 20 1 for the first time, but my response now would be that 2 the second sentence, that the difference in relation to 3 Siemens' work is disproportionately higher, again 4 ignores the impact of the time-related cost that we had 5 suffered, and in comparison with Bilfinger's scope, 6 ignores the fact that the Siemens scope of work was 7 more -- I mean, the cost for that was more contingent on 8 time than maybe construction works. 9 I don't think -- substantially unchanged from BDDI 10 in relation to Siemens' work, I wouldn't agree to that. 11 It is true that the Base Date Design Information 12 informed the Siemens scope to a lesser extent, and 13 comparing the two elements of works, ie Siemens and 14 Bilfinger, I think the technical changes were less in 15 proportion. But to say substantially unchanged, 16 I wouldn't agree, and again, it ignores the fact that 17 our real problem was the -- was the thickening and 18 length of providing resources. 19 Q. Okay. Perhaps the most striking of Mr Rush's comments 20 is that Siemens' price was largely opportunistic and 21 likely intended to correct tender errors. 22 A. Okay. Opportunistic is -- I don't entertain any kind of 23 that language. I think we put forward a very -- very 24 fair proposal which was fair also in relation to the 25 scope and the time that had passed. 21 1 Tender errors, I myself am not aware that there had 2 been any significant tender errors that required 3 correction through any -- through reclaiming money from 4 the client, through false pretence. I really don't 5 understand these comments, and I don't think they are 6 true and fair. 7 Q. But do you accept that the consortium were in a strong 8 negotiating position before Mar Hall? 9 A. I wouldn't phrase it that way. I think it made sense 10 for all parties to find a way to continue the contract. 11 It was in fact seen as a major risk for Siemens that the 12 contract would end up in a termination scenario, whether 13 rightful or not. I mean, that was a different question. 14 But the intention was clearly to continue and to 15 compromise to get the scheme built. 16 Q. Thank you. 17 CHAIR OF THE INQUIRY: I appreciate that, but I think the 18 question was: did you consider that the consortium were 19 in a strong negotiating position -- 20 A. No, I didn't. 21 CHAIR OF THE INQUIRY: -- when you went into Mar Hall? 22 A. No, my Lord, I didn't, because at the time we were 23 willing to compromise on what we had put forward. 24 I think at the time -- I mean, we had put forward what 25 we believed to be fair and reasonable, and at the same 22 1 time we were willing to compromise to be able to 2 complete the project that we had come to build. 3 MR MCCLELLAND: If we could look briefly at your statement, 4 please, which is TRI00000171, thank you, at page 70, 5 paragraph 167. Just reading from 167, you note -- 6 you're talking here about the Heads of Terms agreed at 7 Mar Hall: 8 "The Heads of Terms included an agreed price of 9 GBP362.5 million for the Off-Street Works, certain 10 enabling works and the prioritised works. That figure 11 was based upon the price set out in the Phoenix 12 Proposal, less concessions made as part of the 13 negotiations. It is difficult to say to what extent the 14 Off Street works price agreed included a payment to 15 settle claims which the Consortium considered had 16 accrued to it under the Infraco contract. A commercial 17 negotiation took place and there is no detailed analysis 18 that I am aware of which attributes a specific figure to 19 the Consortium's claims. I do not know to what extent 20 the value of those claims were analysed, discussed and 21 agreed, and am not aware of any such analysis having 22 been recorded anywhere. The concessions made in the 23 settlement do not reflect any perceived weakness in the 24 Consortium's claims. In my opinion, however, the 25 settlement reached was adequate to recover an 23 1 appropriate portion of Siemens' rightful claims (but not 2 all of them) considering the potential consequences in 3 case of not finding a settlement." 4 Does that remain your position? 5 A. I think I've said the same thing in slightly different 6 words before. So I -- I stand to what I said there, 7 yes. 8 Q. If we look, please, at document SIE00000184, are you 9 familiar with this document? 10 A. Yes, I am. 11 Q. I think we see in the first column of numbers, which is 12 the second column from the left, those are the figures 13 from the Phoenix Proposal. 14 A. Yes. 15 Q. Then the red figures in the column to the right of that, 16 those are the discounts accepted by the consortium at 17 Mar Hall? 18 A. Correct. 19 Q. Then the following column are the figures from the 20 Settlement Agreement for the off-street works. So we 21 see there that Bilfinger Berger accepted a discount of 22 GBP10 million on their proposal and Siemens, 23 GBP11 million from their proposal. Does this suggest 24 that the consortium were largely successful with all of 25 the claims they'd made under the Infraco contract prior 24 1 to the mediation? 2 A. I'm speaking for Siemens now, because the commercial 3 aspects of the -- of the project were of course managed 4 by the respective companies. So speaking for Siemens, 5 it was not a sense of being successful. It was more 6 a sense of relief that we could find a position that 7 enabled the project to continue, and to get a fair 8 proportion of the claims and additional costs that we 9 had put forward recovered. But success at the time, it 10 was -- it was seen as a success that things were in 11 a position to move on. 12 Q. Did you come out of the mediation feeling as though the 13 consortium had won? 14 A. No. Definitely not. But there was a great sense of 15 relief, I think, throughout the team, and I think there 16 was still a bit of scepticism because all the new 17 methods of working and collaboration with the client 18 still had to be implemented and tested, but at the time 19 I think there was a sense of relief that a way had been 20 found to continue with the project. 21 Q. What you say in paragraph 167 of your statement, and we 22 don't need to bring it up on screen, you say: 23 "In my opinion, however, the settlement reached was 24 adequate to recover an appropriate portion of Siemens' 25 rightful claims, (but not all of them)." 25 1 Can we take it from that that Siemens did not make 2 a loss on the project? 3 A. At the time when the settlement was made, I think we 4 were still anticipating an overall loss on the project. 5 Q. And at the conclusion of the project? 6 A. At the conclusion of the project, I think our situation 7 had gradually improved, but if I may say that, this was 8 not the best project in Siemens' history. 9 Q. Was the commercial outcome for Siemens at the end of the 10 project better or worse than had been anticipated at 11 financial close? 12 A. I can't recall that. 13 Q. Just looking again at the document that's on screen, if 14 you look at the fourth and the fifth columns together, 15 the fourth column is the one headed up "Off-Street Works 16 Price", and then the one to the right of it is the 17 on-street works price. These are, you can take it from 18 me, the prices that appear in the Settlement Agreement 19 from September 2011. 20 If we just look at the Siemens line, there's a price 21 of GBP125 million for the off-street works and 22 12 million for the on-street works. So that gives 23 a total of about GBP138 million. 24 If we compare that to the -- you will recall the 25 figure of GBP96 million being Siemens' share of the 26 1 original Infraco price. There's an increase of about -- 2 I think it's about GBP46 million. 3 A. Yes. 4 Q. I think from your evidence nearly all of that was 5 attributable to the cost of delay? 6 A. Yes, a significant portion of that was. 7 Q. You may not be able to answer the questions about 8 Bilfinger, so don't speculate if you can't, but their 9 figures, GBP221 million for the off-street and 10 GBP34 million for the on-street, so the increase in 11 price for them is around GBP120 million from the 12 original Infraco price; does that seem about right? 13 A. Yes. 14 Q. Was their increase a combination of both delay and 15 change in the scope of their works? 16 A. I think it's fair to assume that that was the case, yes. 17 Q. Was there a higher proportion of their increase 18 attributable to scope change than was the case for 19 Siemens? 20 A. By the nature of their work, I would expect that 21 a higher proportion was directly related to scope 22 changes than to time-related changes, but that really is 23 for Bilfinger to answer. I have no insights in their 24 detailed financial analysis of the project. 25 Q. Okay. If we focus for the moment on the delay costs, 27 1 the increase attributable to delay, in your view could 2 anything have been done on the project to avoid or 3 reduce those? 4 A. The main contributing factor, in my point of view, were 5 the ongoing utility diversions, and these halted the 6 works on the critical path, resulting logically in the 7 delays that we saw. 8 So any way of dealing with those proceeding utility 9 works would have helped a lot, and this was in this 10 contract the client responsibility, and the client 11 probably could have ensured that the sites had been 12 handed over in the shape and form where they were ready 13 for the construction works for the tram to commence. 14 Q. Let's imagine that all the utility works had been 15 completed before the contract began. In your view would 16 some delay still have occurred? 17 A. I cannot entertain that kind of speculation, but again, 18 the utilities were the most major contributing factor. 19 So I think it's fair to assume that less delays would 20 have occurred. There were other problems, though, in 21 terms of other inputs to be provided. It's difficult to 22 say. 23 Q. Now, if we could go to document CEC02084685, please. If 24 we just look at paragraph 5 in that list, it says: 25 "Price ..." 28 1 I should say, this is the list of key points of 2 principle agreed at Mar Hall. It says there: 3 "Price includes all Siemens materials and equipment 4 to Newhaven." 5 So that includes the stretch beyond York Place. We 6 had some discussion about this yesterday. I'm just 7 going to read from your statement. I don't think we 8 need to bring it up on screen. Page 72, paragraph 175: 9 "The price of GBP362.5 million also included all 10 Siemens’ materials and equipment to Newhaven. There was 11 an extensive list of materials that were transferred to 12 CEC in an inventory provided under cover of a letter 13 from the Consortium to CEC ... There were some materials 14 that could be cancelled and in those circumstances, it 15 was agreed that the items would not be supplied, and the 16 Consortium would give credit for those items against the 17 price." 18 Then reading on a little bit further: 19 "Furthermore, CEC did not want to cancel them in the 20 event that they could be used in the near future as part 21 of the secondary phase, (Phase 1a of this Project." 22 The way that's put there, suggests that the Council 23 have got some but not all of the materials and equipment 24 that are needed to build the line to Newhaven; is that 25 correct? 29 1 A. At the point in time when the Mar Hall mediation took 2 place and the Settlement Agreement was fixed, it is 3 correct what is stated here, that the price included all 4 the materials from the Siemens side of -- point of view 5 that would have been needed. 6 After we went through a cost engineering exercise, 7 if you like, and in the course of that, some of the 8 remaining orders that still could be cancelled at that 9 point in time, they were then cancelled and a credit 10 given to CEC. 11 So -- but your question was as of now, not -- not 12 all available -- not all materials are on site and 13 available to build the extension. 14 Q. Okay. Are you able to say how close the Council are to 15 having everything that they would need? Have they got 16 half the items that they would need, have they got 17 90 per cent of them? 18 A. I would -- I would probably say maybe even less than 19 half, but it's hard to tell. I mean, some things have 20 been taken into storage. There's electrical equipment, 21 that's been in storage for some time. So it would have 22 to be checked, is it still in good condition, still 23 usable, et cetera. 24 So this would have to be assessed in detail, 25 I think, in the course of planning the extension. Heavy 30 1 equipment like rails, that was -- and OLE poles, that 2 was what still would be cancelled, and we cancelled 3 that, so that would have to be re-procured. And from 4 a Siemens point of view, that represents 5 a substantial -- substantial cost, should Siemens build 6 the track again. 7 Q. So do I understand from what you said that the price 8 agreed at Mar Hall was based on the assumption that the 9 Council would buy all of the equipment required, but 10 that afterwards, there were credits given for orders 11 being cancelled? 12 A. No, any credit was not anticipated. I mean, up to the 13 point in time when the Settlement Agreement was signed, 14 we were technically under the obligation to provide all 15 materials up to -- up to Newhaven, and accordingly -- 16 yes, that was -- and that's why -- and most of the 17 orders had been placed. So the discussions about 18 cancelling some orders were later -- I think there was 19 some sort of anticipation that in the near future the 20 extension would be built. 21 Q. Was that an assumption on the part of the Council? 22 A. I can't recall that. What I do recall, that as a matter 23 of fact, we completed -- as a consortium, completed 24 design to the -- to the extent possible for the 25 secondary phase 1a, as it was referred to then. 31 1 So there wasn't -- I think there has always been the 2 plan to build it, but when is a different question. 3 Q. What you say in paragraph 175 is that CEC did not want 4 to cancel them in the event that they could be used in 5 the near future as part of the secondary phase, phase 1a 6 of this project. 7 Now, that suggests that there were some orders that 8 could be cancelled, but which the Council decided not to 9 cancel; is that your recollection? 10 A. I can only refer to the facts. I mean, that 11 cancellation then happened later, after -- after the 12 settlement had been signed as part of -- as a cost 13 engineering exercise. 14 I don't recall any discussions about cancellations 15 of orders before that. 16 Q. So it sounds as though if in the future the Council 17 decides to extend the line all the way to Newhaven, it's 18 going to have to buy materials and equipment which it 19 doesn't presently have? 20 A. Yes, that's correct. 21 Q. Will they have to buy that from Siemens? 22 A. There is no must, no. I think it would -- I think from 23 my point of view, it would make sense to continue with 24 Siemens because it is a case of extending the systems 25 that we have installed there. So for many reasons it 32 1 makes a lot of sense technically, I would even think 2 commercially, from a maintenance point of view, but it 3 is not must. 4 Q. But if the Council holds materials and equipment 5 supplied by Siemens, whatever proportion it is, for the 6 line from York Place to Newhaven, is it straightforward 7 for another supplier to supply materials that will 8 integrate with that material? 9 A. Depends on the nature of the material. I mean, 10 I suppose if there were any OLE poles, they could be 11 erected by anyone, I suppose, installing and testing of 12 switch gears is a different story, even more complicated 13 than installing of signalling equipment. 14 So it depends really on the element of work. 15 Track work, I suppose, is a very generic type of 16 work, so that could easily be done by another company. 17 So for some elements, it makes a lot of sense to 18 continue with the company that has already installed the 19 equipment, for others to a lesser extent. 20 Q. So the Council's decision at Mar Hall to buy equipment 21 from Siemens for the part of the line yet to be built, 22 does that give Siemens a commercial advantage over other 23 suppliers when it comes to supplying the rest of the 24 equipment that's needed? 25 A. It's hard to say -- 33 1 MR MACLEOD: My Lord, I'm sorry to interject at this point, 2 but I do wonder what relevance this line of questioning 3 has to the remit of the Inquiry, which, as I understand 4 it, is not looking at the extension part of the process. 5 CHAIR OF THE INQUIRY: I think it may have some relevance to 6 the consequences. 7 MR MACLEOD: If your Lordship is satisfied that that is in 8 the terms of the Inquiry's remit, then so be it. 9 CHAIR OF THE INQUIRY: Do you remember the question? 10 A. No, if you could ask the question again. 11 MR MCCLELLAND: Yes. The Council having decided to buy 12 materials and equipment from Siemens for the line 13 between York Place and Newhaven, does that give Siemens 14 a commercial advantage over other suppliers when it 15 comes to supplying the rest of the materials and 16 equipment that are needed to build that line? 17 A. Not necessarily. I can't say. I mean, it is -- it is 18 a matter of fact to determine what the scope of such 19 extension would be. And then to -- to determine what 20 the design will look like and what technologies were to 21 be applied. 22 So it -- it is not possible to say that Siemens 23 would have per se a commercial advantage. 24 Q. Is it easier for Siemens to supply the missing bits than 25 it would be for another supplier to do it? 34 1 A. Yes, because it is a -- it is a system that is already 2 exists, to integrate your own technology and to extend 3 it is obviously -- very obviously easier than it would 4 be for a third party. 5 Q. Are you referring there to the rest of the line that's 6 already installed, rather than to the extra materials 7 and equipment that are sitting in a warehouse? 8 A. I'm -- I cannot comment on the items that are put in 9 storage because I'm not aware of the condition in which 10 they are. 11 Q. Okay. 12 Now, you've explained in your statement that there 13 were various vesting certificates given to the Council 14 in relation to that materials, those materials and 15 equipment. If we just look briefly at page 73 of your 16 statement, please. 17 In paragraph 176 you list the vesting certificates 18 and the values attributable to the items in each of 19 them. 20 In paragraph 177 you say: 21 "Due to there being no rates available for these 22 materials, the price was in effect a proportion of the 23 price for equipment from the Infraco Contract. The 24 price for equipment in the Infraco Contract would have 25 been based upon a contract specific sell-rate (ie the 35 1 cost of the items plus an element of profit and overhead 2 costs)." 3 Could you just explain that a little bit more, 4 please? 5 A. Yes, I think at the time the question came up how to 6 value those equipments in a fair and transparent manner, 7 and from memory, I think they made reference to the 8 original contract value, we identified the direct cost 9 of those materials, plus the -- plus the surcharges, the 10 element of design cost of that material, and then other 11 mark-ups, and that was the basis that formed then the 12 prices in that list. 13 Q. If the works had been done under the Infraco contract in 14 its original form, would the prices paid for these items 15 have been the same? 16 A. If nothing had changed, I think that would have been the 17 case. 18 Q. I'm just trying to understand, was there any increase in 19 the price of these items compared to what would have 20 been paid under the contract in its original form? 21 A. I can't say. In a way it was a bit of a -- let's say -- 22 it was an exercise to get some value to those -- to 23 ascertain some value of these items. The precise 24 methodology that we applied at the time, I cannot 25 remember. 36 1 Q. Okay. 2 Now, I'm just conscious of the time. Briefly, 3 Mr Eickhorn, do you recall that under Minute of 4 Variation 4, which was entered into after Mar Hall, 5 there was a payment of GBP49 million made by tie to the 6 consortium? 7 A. To the consortium, yes. 8 Q. I think part of that was for the materials and equipment 9 that we've just been discussing? 10 A. I think in fact the payment was made in several 11 instalments, but the materials would have been a part of 12 that, yes. 13 Q. Yes. If we could just look, please, at document 14 SIE00000304. This is an MIS report from Siemens dated 15 13 April 2011. 16 Sorry, I think I may have given you the wrong 17 document reference. 18 There's something gone awry with the document. 19 Can we maybe just look at the second page of that. 20 Sorry, page 3. 21 There's a passage in the middle of that page headed 22 "Disputes", and it reads: 23 "On 2 March 2011, prior to the Mediation at 24 Mar Hall, the Adjudicator found in favour of Infraco in 25 the dispute relating to payment of preliminaries. As 37 1 a result Infraco is entitled to payment of outstanding 2 preliminaries of GBP14 million." 3 Was there any connection between that sum due to the 4 consortium and the GBP49 million payment under Minute of 5 Variation 4? 6 A. I'm not -- I'm not familiar with the details of that 7 dispute. I remember as a matter of fact that the client 8 had not paid prelims for some time in the period before 9 that. I think for over a year, if I remember correctly. 10 There was more -- I mean, our concern, yes, it was 11 the time-related costs, and at the time I think we -- 12 our concern was to find a transparent and logical 13 mechanism to -- to put us back into a cash position 14 where we weren't suffering any longer, as we did at the 15 point in time. Then the idea was to vest the materials 16 that you already had to the client, to give the client 17 the benefit, and by way of doing that, to substantiate 18 a payment to the consortium. 19 I explained that there were direct costs of 20 materials and mark-ups. So some of the mark-ups could 21 have included an element of preliminaries, but I'm not 22 able to say to what extent, and I don't recall any 23 direct connection of that and the vesting exercise. 24 Q. I think the total value of the materials and equipment 25 comes to something like GBP28 million, GBP29 million. 38 1 I was just wondering if that GBP14 million of 2 outstanding preliminaries was part of what was paid 3 under Minute of Variation 4. 4 You can't recall if that was the case? 5 A. I can't say if it was the case and to what proportion. 6 By the way, also these 14 million are an Infraco number, 7 if I see that correctly, and the 49 and respective 8 portions of that were different. 9 From memory, I think certainly the idea was to catch 10 up in terms of cash flow somehow, to catch up the 11 non-payment of prelims in the period before. 12 MR MCCLELLAND: Okay. Thank you very much, Mr Eickhorn. 13 I know you have come a long way to be here, so thank 14 you. And I have no further questions for you. 15 A. Okay. 16 CHAIR OF THE INQUIRY: I don't think anyone else has got any 17 questions. 18 Thank you very much, Mr Eickhorn. You're 19 technically -- not technically, you are still under your 20 citation, so you could be recalled if other matters 21 arose. Hopefully that won't be necessary. 22 In the meantime, you're free to go, and safe 23 journey. 24 A. Thank you, my Lord. 25 MR MCCLELLAND: The next witness, my Lord, is to be taken by 39 1 Mr Lake. So I'm not sure if you would prefer a short 2 break to allow the handover. 3 CHAIR OF THE INQUIRY: Yes. We'll have a break of five 4 minutes, I think. We will just break for five minutes. 5 (10.40 am) 6 (A short break) 40 1 INDEX 2 PAGE 3 MR AXEL EICKHORN (continued) .........................1 4 5 Examination by MR MCCLELLAND (continued) ......1 6 7 MR JULIAN WEATHERLEY (affirmed) .....................40 8 9 Examination by MR LAKE .......................40 10 11 MR BRANDON NOLAN (sworn) ...........................114 12 13 Examination by MR LAKE ......................114 14 15 Examination by MR DUNLOP QC .................207 16 17 18 19 20 21 22 23 24 25 214