1 Tuesday, 12 December 2017 2 (9.30 am) 3 CHAIR OF THE INQUIRY: Good morning. 4 MR MCCLELLAND: Thank you, my Lord. The next witness is 5 Stewart McGarrity. 6 MR STEWART MCGARRITY (sworn) 7 CHAIR OF THE INQUIRY: Two things. First of all, on 8 a Tuesday there's a fire alarm test at 10 o'clock. So 9 don't be concerned at that time. 10 Secondly, you're going to be asked questions in the 11 first instance at least by Mr McClelland, one of the 12 Counsel to the Inquiry. If you just listen to the 13 question and answer it as directly as possible. 14 If you can speak into the microphone so that you're 15 heard by everyone, and speak at a level, moderate pace 16 so the shorthand writers can keep up with you. 17 A. Yes, my Lord. 18 Examination by MR MCCLELLAND 19 MR MCCLELLAND: Would you please state your full name. 20 A. Stewart McGarrity. 21 Q. You should find in front of you, Mr McGarrity, a copy of 22 the written answers that you supplied to the Inquiry. 23 Do you see that there? 24 A. Yes. 25 Q. Just for the record, the reference for that is 1 1 TRI00000059_C. 2 Now that you're under oath, Mr McGarrity, are you 3 content that the answers you've given remain accurate 4 and truthful? 5 A. Yes, I am. 6 Q. And that they should stand as your evidence to the 7 Inquiry? 8 A. Yes. 9 Q. Thank you. 10 Just by way of introduction today, you're 11 a chartered accountant; is that correct? 12 A. I am, yes. 13 Q. You were the Finance Director of tie? 14 A. Yes. 15 Q. But I think you were not a Director of tie in the 16 Companies Act sense? 17 A. No, not in the legal sense, no. It was only the 18 Chief Executive, and perhaps the Chairman, who were 19 actually Directors of the company. 20 Q. I think you were with tie between approximately 21 February 2005 and December 2010? 22 A. That's correct. 23 Q. It appears from minutes for the Tram Project Board 24 meeting in December of 2008 that you were appointed as 25 the senior responsible owner for the project? 2 1 A. Yes. On an interim basis, until the new 2 Chief Executive -- Willie Gallagher left, as you know, 3 at very short notice in December. It's an OGC 4 requirement to have an SRO on a project under OGC 5 guidance. So I was the SRO until the new -- the new 6 Chief Executive arrived in April. 7 Q. So do we understand from your answer that it was 8 Willie Gallagher who was the SRO -- 9 A. No, sorry, no. It was -- Neil Renilson was the SRO up 10 until that point. Sorry, it's Neil Renilson -- two 11 people left at once literally. Willie Gallagher and 12 Neil Renilson. So it was Neil Renilson who was the SRO 13 on the project. 14 Q. Okay. So you held that post between about December 2008 15 and April 2009 when Richard Jeffrey arrived? 16 A. Yes. 17 Q. What were your responsibilities in that role? 18 A. Practically on a day-by-day basis, it made no difference 19 to what we were -- we were doing at all. It was still 20 the same team doing the same things. Coping with 21 Willie's departure was a challenge. The company was 22 without its Chief Executive, in fairly short order, 23 and I thought we coped with that as a team very well 24 during that time. 25 Q. Okay. Thank you. 3 1 If we could look, please, at page 193 of your 2 statement, you should see that come up on screen in 3 front of you. 4 A. Yes. 5 Q. We don't need to worry about the question that's being 6 answered here, but do you see the bullet pointed 7 paragraph in the middle? You're talking there about 8 funding for the project after congestion charging 9 referendum. What you say is: 10 "From the day I joined tie in February 2005 making 11 the cost of the project and its phasing fit with the 12 funding available was extremely challenging 13 and I believe this was greatly exacerbated by not having 14 Congestion Charging revenues available. This was 15 thereafter a matter of difficulty between the Scottish 16 Government, CEC and tie which was always a source of 17 tension - albeit I believe tie handled this very well." 18 Could you just give us some indication of the 19 challenges that tie faced in that regard and how tie 20 addressed them? 21 A. The -- literally, the week I joined tie was the week 22 that the referendum rejected congestion charging in 23 Edinburgh, and congestion charging revenues were the 24 source of funding for a whole range of initiatives which 25 were planned for Edinburgh at that time. I mean, in 4 1 fact I think that might even be where tie got its name 2 from, Transport Initiatives Edinburgh. tie had 3 developed the -- had carried out the development work on 4 the congestion charging scheme up to that -- up to that 5 point, and in the absence of congestion charging 6 revenues, there was no source of funding to fund the 7 trams to the extent that they weren't going to be funded 8 by the government grant, to fund tramline 3 -- I mean, 9 it was shortly after the congestion charging referendum 10 that tramline 3 was just dropped completely because it 11 was never going to be affordable. There was no -- there 12 was just no visible sources of funding for it. 13 So from that point onwards, it was a case of the 14 Council still wants to have a tram project. So what 15 could we deliver from the government grant, indexed or 16 not, and what would that look like as a viable first 17 phase of a tram project, always with the intention, or 18 the vision, rather, that in the future there would be 19 a full network of tramlines throughout Edinburgh. 20 Q. Thank you. 21 Could we please have document CEC01453723. 22 Now, this is an email from Willie Gallagher to 23 members of the tie team, including yourself, 24 25 October 2007. What he says is: 25 "Let no one be in any doubt, we will be going back 5 1 with a number of GBP498 million for Phase 1a. Get 2 cracking on whatever needs to be done." 3 What was the significance of the GBP498 million 4 figure? 5 A. I don't recall what the 49 -- it might have been what 6 the estimate totted up to at that time. I mean, in any 7 business environment, or in any organisation, I think 8 it's -- it's fine for the Chief Executive to set targets 9 and to -- this was a call to arms really from Willie. 10 It wasn't a case of, okay, everybody, just carry on and 11 we'll just see what it's going to cost at the end of the 12 day. It's perfectly reasonable to set targets, and this 13 was just a target which he'd given the team. 14 I think the context of this was value engineering, 15 because Jim McEwan, with Matthew Crosse, was leading on 16 identification of a number of initiatives whereby the 17 cost of the project could be reduced by value 18 engineering, and as you know, a large number of those 19 were later taken into the price with conditions by the 20 bidder. 21 So it's -- in the context of value engineering been 22 one of the ways in which the costs of the project could 23 be brought down. 24 Q. The 498 million figure, that would appear to be the 25 project budget for the whole of phase 1a? 6 1 A. Yes. 2 Q. Yes. Then you have described that as a call to arms 3 from Willie Gallagher to everyone to try to bring the 4 project budget in at GBP498 million? 5 A. Yes. 6 Q. Would that be a figure that included the allowance for 7 risks? 8 A. Yes. 9 Q. If you look briefly at the matter of optimism bias. So 10 if we could look first of all at your statement, please, 11 at page 17. 12 Your answer to question 3, just by way of 13 introduction to this: 14 "I was very aware of Optimism Bias throughout the 15 business case preparation and took advice both from our 16 own risk managers at tie and our financial advisers at 17 the time of the interim outline Business Case PwC. 18 I would note that by the time we got to Draft Final 19 Business Case for the selected phasing options (1a plus 20 1b) in December 2006 we had agreement that there was no 21 requirement to provide for Optimism Bias over and above 22 the risk allowance we then had included in our cost 23 estimates." 24 Just briefly, what's your understanding of optimism 25 bias and the provision against it? 7 1 A. Just to give a short answer, there was guidance 2 developed for public sector projects to try and deal 3 with questions of them becoming unaffordable down the 4 line because the initial cost estimates reflected 5 a degree of optimism at the time that they were 6 developed. 7 So a sensible approach for projects at the outset to 8 determine that this is the level, and it's expressed as 9 levels, percentage levels to be added to the cost 10 estimates, but then that level of required optimism bias 11 would be expected to reduce during the course of the 12 project to the point of financial close, as the 13 definition of the scheme improved, as the -- and as the 14 procurement clarified, so that by the time you get to 15 financial close, it's been eliminated. 16 Q. So in short, is this a percentage to be added to the 17 estimated cost of the project? 18 A. The guidance doesn't do other than adding percentages on 19 to the -- on to the cost of the project. 20 Q. The purpose of that addition is to counteract the 21 optimism that might creep in when assessing project 22 costs? 23 A. From the outset, yes. 24 Q. I think we see from your answer that we've just looked 25 at that there was an agreement that there was no need to 8 1 provide against optimism bias over and above the risk 2 allowance, and that that agreement had been reached by 3 the stage of the Draft Final Business Case in 4 December 2006? 5 A. Yes, that's right. Lots of discussions with 6 Transport Scotland about this all the way through, 7 Transport Scotland and their advisers, KPMG, all the way 8 through the development of the Draft Final Business 9 Case. 10 I think it's also relevant that in addressing 11 optimism bias -- I think optimism bias is as much 12 focused on affordability as it is on the absolute level 13 of a budget. So the escape valve between whatever the 14 project estimate was at any point in time, including the 15 risk allowance, the escape valve being the gap between 16 that and the total available funding, I mean, there was 17 some comfort to be had in that. 18 So I think that addressed optimism bias as well. 19 Q. There you're talking about the difference between the 20 project estimate which was at one level and the 21 available funding which was higher? 22 A. Yes, sure. 23 Q. So that excess of the funding over the budget you're 24 describing as an escape valve? 25 A. Yes. Yes, absolutely. An escape valve and there also 9 1 to deal with any scope changes or any just totally 2 unexpected circumstances that were -- that were -- could 3 not be anticipated at the point the project estimate was 4 set at financial close. 5 Q. Okay. If we could move, please, to page 26 of your 6 statement -- 7 CHAIR OF THE INQUIRY: Before doing that, you mentioned 8 Transport Scotland. Was the agreement with 9 Transport Scotland that you didn't need to include 10 optimism bias? 11 A. My Lord, I don't think it was an agreement. An 12 agreement as such. They accepted the position by the 13 time we got to December 2006 in consultation with their 14 advisers. There was a great many meetings between us 15 and Transport Scotland at that time. 16 CHAIR OF THE INQUIRY: So will that be documented? 17 A. I hope so. I can't remember how it was documented but 18 I would hope it would be documented, yes. 19 CHAIR OF THE INQUIRY: And who in Transport Scotland would 20 it be that -- 21 A. Well, the project manager at Transport Scotland was 22 John Ramsay. So he co-ordinated all the 23 Transport Scotland engagement with tie during that time. 24 CHAIR OF THE INQUIRY: Thank you. 25 MR MCCLELLAND: I think we have page 26 of your statement up 10 1 on screen. I just want to pick up from the paragraph in 2 blue at the top, about five lines from the top, there's 3 a sentence that begins: 4 "In the event, Transport Scotland ..." 5 Do you see that, Mr McGarrity? 6 A. Yes. 7 Q. I'm just going to read from there on. So just leave 8 that as it is: 9 "In the event Transport Scotland and their advisers 10 did accept the P90 estimate for the contingency 11 required." 12 Just pause there. That's a reference to the risk 13 allowance; is that correct? 14 A. Yes. 15 Q. And that the P90 reflects the degree of certainty 16 attached to the risk allowance being sufficient? 17 A. It's the statistical confidence level used to develop 18 the QRA, yes. 19 Q. Yes. So a P90 figure represents a 90 per cent chance 20 that any cost overrun will fall within the risk 21 allowance? 22 A. Yes. 23 Q. Just reading on -- 24 A. All of that -- the risk allowance -- the primary inputs 25 to the risk allowance, into the QRA process, are the 11 1 manager's estimate of the minimum, maximum and median 2 outcome, and then a probability of that. 3 So my point is that it's not a guarantee. It's 4 always -- it's always reliant on judgement in terms of 5 the input to the process. 6 Q. Yes. Thank you. We'll take a look at those issues 7 a bit later on. 8 Just to remind ourselves of this, what it says: 9 "In the event, Transport Scotland and their advisers 10 did accept the P90 estimate for the contingency 11 required - all parties agreed that this was predicated 12 on the risk transfer objectives of the procurement 13 strategy being met (including design risk transferred to 14 Infraco by SDS design novation and successful completion 15 of the utility diversions to the extent they did not 16 impact on the Infraco works) and did not provide for any 17 significant increase in the scope of the project 18 principally as a result of design changes." 19 Now, do we understand from that that 20 Transport Scotland were content to proceed without an 21 adjustment for optimism bias, but only because of 22 certain things being, as you put them there, first of 23 all, the use of a P90 probability for the risk 24 allowance, and also assumptions including that the 25 design risk was transferred and that utility diversions 12 1 were completed? 2 A. The intention at that time was, yes, to complete the 3 design prior to novation. Not complete the utility 4 diversions. I don't even think at the time of the -- 5 I checked the dates on this. I don't think even at the 6 time of the Draft Final Business Case the utilities were 7 scheduled to be complete at the time of award of the 8 Infraco. The key thing was that there was no clashes 9 with the Infraco programme which couldn't be managed 10 effectively. 11 Q. Yes. So the two pieces of work, the utility diversions 12 and the Infraco works, were scheduled so that the 13 utilities wouldn't delay the construction -- 14 A. Yes. 15 Q. I understand that was the intention. I'm just trying to 16 understand the basis on which Transport Scotland 17 optimism bias wasn't needed. I'm wondering whether -- 18 what you say here is that the parties agreed that this 19 was predicated on the risk transfer objectives of the 20 procurement strategy being met, including design risk 21 transfer and completion of utility diversions. 22 Were those assumptions made which satisfied 23 Transport Scotland that having no adjustment was 24 required for optimism bias? 25 A. Yes. I think it was, yes. 13 1 Q. I'm just wondering why those particular things were 2 assumed, because were they not precisely the things that 3 posed the greatest threat to the budgets? 4 A. I'm sorry, I don't -- part and parcel of the -- of the 5 Business Case was a procurement strategy with an 6 intended level of risk transfer in it, and the cost 7 estimate at any point in time would reflect that 8 intended level of risk transfer. 9 Q. So the risk of the risk transfer not being achieved was 10 not something taken into account? 11 A. No. 12 Q. It was left outside? 13 A. Yes. 14 Q. Okay. If we could turn now to the risk allowance that 15 was in place at financial close in May 2008, just at 16 a general level, in order to set a risk allowance, 17 presumably tie had to make sure that it properly 18 identified and understood what the risks were? 19 A. Yes. 20 Q. Who was primarily responsible for that? 21 A. By that time there was a risk manager called 22 Mark Hamill, and he reported to Susan Clark, and 23 ultimately through to Steven Bell; and Mark had a very 24 clear system, I thought, whereby he collected 25 information about risks from different people throughout 14 1 the different disciplines in the project team, the 2 engineers, the utilities people, the design people; 3 Steven himself, and to an extent the corporate level 4 risks. 5 So there was a comprehensive and very professional 6 risk register which formed the basis for managing those 7 risks. So identifying what the risk is, what possible 8 impact of it is, and very importantly, how it's going to 9 be managed, how it's going to be mitigated. 10 Q. Okay. So do we understand from that that it would be 11 Mark Hamill responsible for gathering information from 12 all parts of the company, first of all to identify what 13 the risks were, and secondly, to quantify what their 14 impact might be? His responsibility? 15 A. Yes. Two-way thing. Part of a management routine. 16 I don't think it was incumbent upon Mark to -- it wasn't 17 his sole responsibility to identify what the risk was. 18 It was a management discipline which was embedded into 19 all of the project management routines. 20 Q. You described a reporting line which went from 21 Mark Hamill through Susan Clark to Steven Bell. 22 A. Yes. 23 Q. Was it Steven Bell that was ultimately responsible for 24 the correct identification of risk? 25 A. I think this -- it's a collective responsibility, but in 15 1 the -- was it strictly like that? It was a collective 2 responsibility across the organisation, but risk 3 management fell under the project team, yes. 4 Q. Now, you were a member of tie's senior management? 5 A. Yes. 6 Q. What was your role and what was the role of senior 7 management generally in relation to the correct 8 assessment of risk? 9 A. I think we -- it would be true to say we had collective 10 responsibility to be happy that it was being done 11 properly, adequately. 12 Q. As tie's Finance Director, was the proper setting of 13 risk allowances a matter that you had an interest in? 14 A. Absolutely. I mean, whilst I did not develop the QRA 15 risk allowances, my role was very much about 16 presentation of the cost estimates of the project in 17 various formats and to various people. So understanding 18 the components of the risk allowance and how it was 19 being addressed, and its adequacy, was integral to the 20 job. 21 Q. I think I'm right in saying that you drafted the chapter 22 of the close report which reported on risk? 23 A. I did, yes. 24 Q. The purpose of the close report was to provide the 25 Council with the information that it needed to decide 16 1 whether or not to go ahead with the Infraco contract? 2 A. Yes. At a summary level. I mean, there was bundles of 3 information underneath the close report which were -- 4 the Council wanted to see. So it was -- even though 5 it's reasonably comprehensive, it was of itself 6 a summary of everything that had been done. 7 Q. If we could have document TIE00351266 on screen, please. 8 You should see that in front of you, Mr McGarrity. 9 It's an email from Susan Clark to various individuals in 10 tie, dated 17 January 2008. She says: 11 "Dear all, further to my previous email ... I attach 12 a revised document from CEC outlining what they expect 13 to see to be able to approve financial close." 14 If we just look at the attachment, which is 15 TIE00351267, and if we could scroll to the top left of 16 that, please, we see that document is headed up 17 "Critical Contractual Decisions to enable 18 Chief Executive to use delegated powers to approve tie 19 to sign the contract with BBS". 20 Are you familiar with this list? 21 A. I haven't seen this. I mean, I remember this document 22 existing, but I haven't seen it since -- since then. 23 Q. Okay. Well, it appears -- if we just look at what we 24 see on screen, it appears to be listing certain things 25 that the Council Chief Executive wants to -- the Council 17 1 wants to see before the Chief Executive approves the 2 decision to enter into the Infraco contract; is that 3 your recollection? 4 A. Yes. 5 Q. If we just scroll down, please, to -- see the column 6 with numbers in it, if we could scroll down until we can 7 see item 5, please. That's fine. 8 So do you see there the box marked "Risk", and then 9 beside it, 5.1, 5.2 and 5.3. Do you see that? 10 A. Yes. 11 Q. If we look at 5.1, one of the items that the Council 12 wants is full transparency of the QRA. If we read 13 across, that's to be provided in the risk report and the 14 close report. 15 Then do we see your initials there in the column, 16 column N? Do you see that? 17 A. Yes. 18 Q. If we just scroll back up to the top, to see what column 19 N's heading is, that says, "tie Deliverer Report". Do 20 we understand from that that the person who was to 21 provide the Council with an understanding of the QRA, 22 that was you? 23 A. No, I think there was direct engagement with the Council 24 by Mark Hamill throughout with respect to the QRA. 25 I think that refers to me to write it up in the close 18 1 report. 2 Q. In the close report. 3 A. The intention with me drafting that section of the close 4 report was someone who was not necessarily closely 5 involved in either the procurement or the development of 6 the detailed development of the contract who could take 7 an overview of what the most important risk areas were 8 which were not -- which had not been transferred to the 9 private sector at the point of financial close. 10 Q. What was the rationale for having somebody who was 11 removed from the procurement exercise do that? 12 A. Just sensible independent -- I mean, I could never be 13 independent because I was part of the management team. 14 So not independent in that sense. But just 15 a sensible -- having someone who hasn't had their nose 16 to the grindstone dealing with these matters on a daily 17 basis, to have them take a step back and ask sensible 18 questions, and determine what the major open items were. 19 And to describe them. 20 Q. Was there a risk in doing it that way that important 21 matters relevant to risk might not be properly 22 understood or reported on? 23 A. No, because I didn't draft it and then get no feedback. 24 I drafted that section and then it got played back at 25 all the members of the team. It went through several 19 1 iterations of drafting, and they confirmed or otherwise 2 whether there was any errors or omissions in what I'd 3 drafted. 4 So I didn't draft it in isolation in any sense 5 whatsoever. 6 Q. Okay. Thank you. 7 If you could just scroll back down to section 5 of 8 that spreadsheet, please, we see -- just to identify 9 some of the other matters that the Council wanted to 10 have reported, do we see 5.2(c): 11 "Detailed analysis of programme risk. Confirmation 12 of the risk allowance for programme delay. Detail of 13 items on critical path and what is being done to ensure 14 they do not cause (further) delay." 15 Again that's another matter that the Council wanted 16 to have reported in the close report. Is that your 17 understanding? 18 A. Yes. 19 Q. 5.3: 20 "Tie written statement to CEC on risks as at 21 25 October 2007 compared to immediately post contract 22 award." 23 Is that referring to the Council wanting to know 24 what the differences were from risks that had been 25 reported in the Final Business Case? 20 1 A. Yes. I don't remember any -- I don't remember -- 2 I remember somewhere in the evidence, the paperwork 3 I looked at in preparation to give evidence, that tie 4 had given a letter to the Council with respect to the 5 risk allowance at financial close. I don't remember 6 that. It certainly didn't -- I certainly didn't write 7 a letter to the Council at financial close on the 8 adequacy of the risk allowance. 9 So I don't know -- I actually don't know what that 10 refers to. 11 Q. Okay. Well, I don't have any further questions about 12 that. 13 A. But it's absolutely rational that the Council would want 14 to know what's happened, explain to us what's happened 15 between October 2007, which I think was the first 16 version of the Final Business Case, and contract award. 17 Q. Yes. Because I think it was the second version of the 18 Final Business Case that formed the basis for the 19 decision of the Full Council to go ahead with the 20 project. So any changes in the risk since then would be 21 material. 22 Okay. So just in order to report on these matters, 23 you've described the way that the close report was 24 drafted, but presumably you yourself would have needed 25 to make sure that you understood all of these issues in 21 1 drafting up the report; is that fair? 2 A. Yes. I mean, a detailed -- I would have to defer to my 3 colleagues who dealt with programme, engineering, 4 construction matters. At the end of the day, I'm an 5 accountant and it's not a problem that I'm not a design 6 or an engineering or a programming expert. It just 7 means that you have to kick the tyres with the people 8 who are and ensure that you feel happy that it's been 9 done properly. 10 Q. So if there were significant matters affecting risk 11 arising, for example, from the design, you would be 12 reliant on the technical people in tie identifying them 13 for you? 14 A. Always. 15 Q. If we just look at the close report, please, which is 16 CEC01338853, and if we could go to page 5, please. Just 17 bear with me, Mr McGarrity. 18 If we just pick up from the second paragraph there, 19 it says: 20 "A simple reconciliation of the total Risk Allowance 21 for the project between Final Business Case and 22 Financial close is ..." 23 Then there's a table which shows the risk allowance 24 in the Final Business Case at GBP49 million, and then 25 various additions and subtractions bringing out the risk 22 1 allowance at financial close of 32.3 million. 2 We see underlined beneath that it says: 3 "Subsequent to the position described in the tables 4 above being reached, a further round of negotiations 5 instigated by Bilfinger Berger took place. The detail 6 behind the final position reached has been documented 7 separately for CEC." 8 Now, is that a reference to the final increase 9 negotiated late in the day by Bilfinger Berger? 10 A. Yes. 11 Q. Did that require an adjustment to be made to the risk 12 allowance too? 13 A. It did. 14 Q. Just -- 15 A. That was the financial close process and the record of 16 recent events paper which described exactly what was 17 going to happen. 18 Q. Yes, that's right. There's another paper which 19 effectively updates everyone on the position reported in 20 the close report. 21 Just in passing, can we note that one of the 22 deductions or one of the changes in the risk allowance 23 between the Final Business Case and financial close 24 was -- you see the entry there for GBP17.8 million? 25 A. Yes. 23 1 Q. Do you recollect what that was? 2 A. Yes, it was the aggregate of all of the risk allowances 3 which had been made at Final Business Case to reflect 4 risks between -- to reflect the risks associated with 5 the procurement stage of the project, and then -- so 6 at -- in the risk allowance at financial close, those 7 were then replaced by either existing or augmented risks 8 for the risks that would be managed during the 9 construction phase of the project. 10 Q. Okay. So I think we see these referred to elsewhere as 11 the procurement stage risks? 12 A. Yes. 13 Q. Now, the breakdown or the risk allowance that's stated 14 there in the close report of GBP32.3 million, there's 15 a spreadsheet which breaks that down. If we could go 16 first of all to a cover email which is CEC01425551. 17 This is an email circulated by you dated 15 April 2008 18 to various individuals in tie, attaching something 19 called the financial analysis spreadsheet. 20 A. Mm-hm. 21 Q. What you say is: 22 "All, for info, I attach the now familiar Phase 1A 23 cost spreadsheet updated for the final knockings on 24 Infraco as of today and for the P13 0708 Project 25 Managers reports." 24 1 Just pause there. When you refer to "the final 2 knockings on Infraco", what does that mean? 3 A. This is before the -- this is before the increase, the 4 last minute request for more money from -- from Infraco. 5 And there was one from the designer as well actually in 6 the week of close, there was one from the designer as 7 well. 8 So this is all before that. 9 Q. So when you refer to -- so that price increase was the 10 one that we saw referred to in the underlined section we 11 just looked at in the close report? 12 A. Yes, the -- the close report is consistent with 508. 13 The budget increased to 512 after the agreed financial 14 impact of the two later -- the two last -- the last 15 knockings. 16 Q. Yes. 17 A. So -- 18 Q. So if those price increases come after this, when you're 19 talking here about final knockings, what are you 20 referring to? 21 A. Well, sorry, it was final knockings as far as I was 22 aware on 15 April, but it turned out not to be the final 23 knockings. 24 Q. I think there had been a price increase that was 25 negotiated in March of about GBP8.6 million. 25 1 A. Yes. Yes, there was. There was two -- between -- 2 between the numbers in the Final Business Case or the 3 situation that was reported in the Final Business Case, 4 there was Wiesbaden, there was the Rutland Square 5 Agreement, there was the 8.6 million. I don't think it 6 had a moniker, and then there was the final request for 7 more money. 8 So that was the evolution, primary steps in the 9 evolution between preferred bidder and the final price. 10 Q. So as at the time you circulate this email, some of 11 those price increases have happened, but there were the 12 later ones still to come? 13 A. Yes. 14 Q. In your second paragraph you say: 15 "In the first tab (PCB 13) the control budget at 16 financial close for Phase 1a is in column DR and totals 17 GBP508 million. As far as I'm concerned, this is locked 18 and loaded and I am now a snarling dog at Steven's side 19 guarding the sanctity of this budget and the proper 20 application of change control for any changes to it." 21 Can you just explain what you mean by that? 22 A. Well, in any project there comes a time when you have to 23 say -- draw a line in the sand, establish a control 24 budget and then have proper change control from that 25 point going forward. 26 1 I was very anxious for that to happen as soon as 2 possible because otherwise there's always a danger that 3 things are added to the project, whether it be through 4 design or additional costs of any nature which don't get 5 properly assessed through a change control procedure. 6 Especially true in this project where there was 7 a cap on funding, and therefore anyone who wanted 8 a change to the project, they would have to really 9 understand what the cost consequences were in the 10 context of a capped available amount of funding. So 11 I thought that was crucially important. 12 Q. At this time the contract was still under negotiation 13 and hadn't been signed. 14 A. Yes. It was only -- it was all the way through this 15 period, it was just about to be signed the next week. 16 In fact all of the way from -- from maybe March all the 17 way through to when it actually was signed. It was 18 never -- it was never more than a week away. So this 19 would have been prepared in anticipation of it being 20 signed imminently. 21 Q. Thank you. If we could look at the attachment, please, 22 which is CEC01425552. I should just explain, 23 Mr McGarrity, as it's coming up, the Inquiry has already 24 looked at this with other witnesses, and if I'm covering 25 ground which has already been covered, then no doubt 27 1 I'll be stopped. But we'll try and take it reasonably 2 quickly. 3 A. Okay. 4 Q. First of all, who prepared the spreadsheet? 5 A. I think this is one of mine. 6 Q. We saw -- 7 A. I would have had something to start with, but in terms 8 of who actually finished it off, it was me. 9 Q. Okay. We saw from the covering email that it was 10 circulated on 15 April 2008. 11 A. Yes. 12 Q. Can we take it that it would be up-to-date figures as at 13 that date? 14 A. Yes. 15 Q. We're just on the first tab here, which is marked PCB 16 P13. It's headed up: phase 1a, budget at financial 17 close. 18 Just in overview, can you explain to us what this 19 shows? 20 A. The categories down the left-hand side are the way that 21 costs were recorded in our financial records. The first 22 three columns are what's been spent up to March 2008. 23 So that's actual -- cost, and the other columns are for 24 future years reflecting how the costs are expected to be 25 spent during those years. 28 1 AFC is the 508. Is that -- this adds to 508, yes? 2 Q. Yes. It might help you, Mr McGarrity, if we scroll down 3 through all these lines, please. Right to the bottom. 4 I think we're in the 300s by the time we get to the 5 bottom of it. 6 A. It's okay. I have pored over this recently. So -- 7 Q. So you're familiar with it. 8 If you just scroll down a little bit more than that, 9 please, that's fine. Just stop there. 10 So we see that column DR, which has the heading 11 "AFC". Can you just confirm what AFC stands for? 12 A. I think it's anticipated final cost. 13 Q. So that would be the -- as you say, the anticipated 14 final cost for the project. If we see there in line 15 303, we've got the total for phase 1a, and that's the 16 508 million that I think you were talking about a moment 17 ago? 18 A. Yes. 19 Q. Then the column to the right of that, we see the figure 20 of 498 million -- 21 A. Yes. 22 Q. -- in the column of FBC. Would that be a reference to 23 the Final Business Case? 24 A. Yes. 25 Q. The column to the right of that is headed up: deltas. 29 1 A. Mm-hm. 2 Q. So can we take it that everything in the deltas list 3 shows you the difference between the budget at Final 4 Business Case and the anticipated final cost as at 5 financial close? 6 A. Yes. At the -- at sub -- all the subtotal levels, 7 I think, the delta is correct. I think for all of the 8 very detailed codes, there was even, at this stage, 9 there was still some figures to be moved around, but the 10 AFC at a subtotal level for each category of costs, and 11 the total is correct. 12 Q. Okay. So we see in line 303 those columns that we've 13 just been looking at, we can see the change in the 14 budget between Final Business Case and financial close, 15 where it goes from GBP498 million to GBP508 million? 16 A. Yes. 17 Q. The row immediately above that, do we see there the 18 change in the risk allowance from the Final Business 19 Case when it was GBP48 million to financial close when 20 it was 32.3? 21 A. Yes. 22 Q. That was the figure that we just saw reported in the 23 close report? 24 A. Yes. 25 Q. Now, if we look at the pale blue box that sits below all 30 1 of that, and the number right at the very bottom, the 2 32.3, is that the total risk allowance that we saw as at 3 the close report date? 4 A. Yes. 5 Q. So the figures above that represent a breakdown of the 6 risk allowance? 7 A. Yes. 8 Q. We see -- 9 A. I know you've picked up, there's an alignment issue on 10 this. 11 Q. Yes, thank you. I think the Inquiry has already been 12 told about this, but thank you for reminding us, that 13 the zero above the -- on line 322, one should 14 effectively pull that out, let all the numbers fall 15 down, and then put the zero at the top for the 16 procurement risks. 17 Just for the time being, we see a line, 323, where 18 it says "QRA Total"? 19 A. Yes. 20 Q. Can you just explain briefly what that element of the 21 risk allowance is? 22 A. That's just the raw outputs from the QRA process. But 23 then, as is perfectly acceptable, we've then said: well, 24 there's other things that we would perhaps want to 25 account for here as well. So there's a provision for 31 1 non-delivery of VE included in the contract price, and 2 also with respect to the extent of roads reinstatement, 3 on reviewing Schedule Part 4, with Steven Bell, there 4 was a condition in Schedule Part 4 which said that the 5 price only included for road reinstatement in certain 6 areas. So we felt that that was -- we collectively felt 7 that that was a risk which wasn't probably adequately 8 reflected in the QRA. 9 So we've added an additional sum of money in, based 10 upon the project team's considered judgement as to what 11 that might cost. If it crystallised. If it 12 crystallised. 13 Q. Just to take that in stages, the QRA total, those are 14 all of the risks that have been assessed in accordance 15 with the quantified risk assessment process? 16 A. Yes. 17 Q. And run through the computer modelling and so on? 18 A. Yes. 19 Q. I think we see there's another tab in your spreadsheet 20 which gives a more detailed breakdown of that? 21 A. Yes. 22 Q. Then the figures below that line, those are what one 23 might call manual adjustments to the risk allowance? 24 A. Yes. 25 Q. Based on the judgement of the project team? 32 1 A. Yes. 2 Q. You referred to the one in line 324 for non-delivery of 3 value engineering. Is that -- we understand that the 4 Infraco contract price assumed the achievement of 5 certain value engineering savings? 6 A. Yes. 7 Q. But they were based on conditions -- 8 A. But they were actually -- they were included in the 9 price, but subject to achievement of certain conditions, 10 designability, approvability, essentially. 11 Q. So the GBP2 million that we see here, is that the 12 judgement of the commercial team about the risk that 13 those value engineering savings might in fact not be 14 made? 15 A. There was -- for reasons I can't remember, it's in two 16 places. There was GBP2 million here and there's also 17 GBP2 million actually in the Infraco budget itself. So 18 it was a total. It would have been better if all 19 GBP4 million had been shown here, but there was 20 GBP2 million provision effectively included in the 21 Infraco budget as well. 22 So it was 4 million in total against total value 23 engineering opportunities. I can't remember, was it 24 GBP11 million that ended up in the Infraco contract? 25 So ... 33 1 Q. We can check that. It's in Schedule Part 4. 2 A. It's on the -- if you go to Infraco Financial Summary, 3 it's there. So VE -- GBP12.9 million. So in the final 4 final column, although it wasn't the final final, 5 12.9 million. 6 Q. That's in -- just to be clear, that's cell X9? 7 A. That's right. 8 Q. It's okay. Mr McGarrity. Thank you for doing that. 9 A. Sorry. 10 Q. We can look at the Schedule Part 4 to the Infraco 11 contract, and the value engineering is all there. 12 But in short, your evidence is that the total risk 13 allowance tie had made for value engineering savings not 14 being made was GBP4 million? 15 A. Yes. 16 Q. If you could go back, please, to tab PCB P13, and just 17 briefly, the entry in line 325 for road reinstatement of 18 GBP2 million, I think you said that that was a risk 19 identified in Schedule Part 4 of the Infraco contract? 20 A. Yes. Full depth road reconstruction. So the extent to 21 which -- rather than just taking up -- and this is 22 layman terms, rather than engineering terms. So rather 23 than just taking the top off the road, and digging down 24 to a certain level, either for engineering purposes to 25 accommodate the tramway, or because the road was in just 34 1 such a mess that it needed to be dug down to a lower 2 level, or maybe because the Council wanted to have it 3 done at location. So they are the three reasons why it 4 would be -- it would be required. 5 Q. So do you recall that Schedule Part 4 has a list of 6 about 40 Pricing Assumptions? 7 A. Yes. 8 Q. Does the entry there for the road reinstatement relate 9 specifically to one of those? 10 A. Yes. 11 Q. Yes. 12 A. It does. So one of those assumptions was road 13 reinstatement, full depth road reinstatement will only 14 be required in the following areas, and there was 15 a number of areas. So this was a judgement as to what it 16 might cost to deliver full depth road reconstruction in 17 other areas. 18 Q. Yes. In other words, if the Pricing Assumption turned 19 out not to be justified. 20 A. That's correct. 21 Q. If we could look, please, at the tab that's marked P80, 22 Risk Allocation, and if we could scroll up to the top of 23 that, please. 24 We said a moment ago that there was a tab which gave 25 a more detailed breakdown of the QRA output. Is that 35 1 this page? 2 A. If it's the one that adds up to 27938, then it is, yes. 3 Q. Okay. You can take it from me for the moment that it 4 is. 5 Now, we see that it's headed up, "EDINBURGH TRAM 6 PROJECT P80 Risk Allocation Report. Current Period 7 End, 1 March 2008". 8 Can we take it from this that that was the date on 9 which the QRA software was run to produce this output? 10 A. Yes. 11 Q. Okay. So the risk allowance reported in the close 12 report in May was based on a QRA run which was done on 13 1 March 2008? 14 A. Yes, but I don't think that should be taken in any way 15 to say that Steven and the rest of the project team did 16 not revisit all of this right up to the point where the 17 contract was signed, and satisfy themselves that it was 18 still valid. I don't think that -- my professional 19 judgement is I don't think it should be -- a conclusion 20 should be reached that because this was run on 1 March, 21 that it wasn't still valid in all respects at the point 22 of contract award. 23 Q. Okay. So if we can boil that down to two things, the 24 first is that the computer run for the QRA that formed 25 the basis for the risk allowance at financial close was 36 1 done on 1 March, but that the output was something that 2 was under review by all of the project team -- 3 A. Yes. 4 Q. -- over the following period? 5 A. It certainly wasn't a case of: right, there's the QRA, 6 put that to the side, and on we go. That's not the way 7 that it happened at all. 8 Q. Why not run the QRA again? 9 A. Unless -- we could have done. But if the inputs hadn't 10 changed in terms of the values, and the percentage 11 probabilities of the risk crystallising, it would have 12 given the same answer. 13 Q. Yes. So can we take it then that the view of the 14 project team must have been that none of the risks 15 reported here changed over the period from 1 March 2008 16 to financial close? 17 A. Yes. The only thing that happened between 1 March, 18 although this has been reported in -- the only thing 19 that happened between then and the -- was the -- 20 whatever final agreements were reached with Infraco and 21 SDS in the intervening period. That was the only thing 22 of substance that had changed, plus another two months 23 of MUDFA. 24 So I don't remember anything else happening in that 25 period which in any way substantially altered the risk 37 1 profile of the project. 2 Q. Okay. I would just like to understand a little bit more 3 about how this QRA is put together. 4 A. Mm-hm. 5 Q. So if we can just choose a line of it. If we choose 6 line 31, if we scroll down to line 31, please. If we 7 can just highlight that line. 8 A. Mm-hm. 9 Q. We'll take this as an example to inform us about how 10 this is made up. 11 So we see that's headed up "WBS Item 12 MUDFA/Utilities". What does WBS stand for? 13 A. I actually can't remember. Remember, this wasn't -- 14 this spreadsheet isn't my product. I mean, I'm able 15 to -- I'm able to, I hope, explain a lot of the 16 principles, et cetera, of how it's developed because as 17 the Finance Director, I needed to be able to explain it. 18 But I don't understand what WBS means. 19 Q. I should say, Mr McGarrity, that's perfectly fine. I'm 20 only looking for your understanding of it. So if 21 there's something I ask and you don't know the answer, 22 don't feel that you have to speculate. You can just 23 tell us that you don't know. 24 A. Okay. 25 Q. We see there there are three columns, C, D and E, headed 38 1 up "Cause", and then there's a description of utilities, 2 assets being uncovered and so on. Then column D is Risk 3 Event, and column E is Effect. 4 Who decides on that, on what goes in there? 5 A. My understanding is that it's -- every risk has a risk 6 owner, and that description would -- either it would be 7 a summary or just be a statement of cause, event and 8 effect provided by them, subject always to review by -- 9 within -- within their teams in terms of the 10 descriptions. 11 Q. So, for example, would this be somebody in the tie/MUDFA 12 team identifying a risk and defining the scope of the 13 risk? 14 A. I would expect so. That's certainly a utilities-related 15 risk. So yes, I would expect it to. 16 Q. Okay. So we have somebody in tie identifying the scope 17 of the risk. Then if we scroll along, we see there's 18 a section of lines which are headed up: Impact 19 Assessment, 8 February 2008. We've got a column for 20 Probability, a percentage, and then we've got the Impact 21 Assessment ranging from minimum through most likely to 22 maximum. 23 Can you just briefly explain what this is and who 24 selected it? 25 A. Again, it would have come from the risk owner, but 39 1 subject to cascade review and endorsement up through the 2 organisation. So what is the possible impact of finding 3 further unknown or abandoned assets, and come up with 4 a range of how bad could it be, and what the minimum 5 would be and what the most likely outcome would be. 6 Q. Sorry to interrupt, but those minimum and most likely 7 and maximum figures, that's the financial impact if the 8 risk crystallises? 9 A. Yes. And then what's the probability of it happening? 10 Well, as you know, finding previously unanticipated 11 utilities was -- had been the experience all the way 12 from the start of the MUDFA project. So the 95 per cent 13 probability reflects a very high probability that that 14 was going to continue, and therefore when you run the 15 magics of -- the magic of statistics, it delivers 16 a value for that risk which is near to the maximum range 17 of the ... 18 Q. The judgements that are made in populating this 19 spreadsheet, were those subject to scrutiny by senior 20 management in tie? 21 A. Yes. This -- I mean, this would have been -- the QRA 22 was on the table at individual team meetings. So for 23 instance, the utilities had their own sub-management 24 team, and it cascaded all the way up through the 25 organisation, absolutely. 40 1 Q. If the senior management thought that there was a risk 2 which wasn't identified or insufficient provision had 3 been made for it, what would happen then? 4 A. It would -- it would get added. An owner would be 5 allocated to it and it would be added to the risk 6 register. 7 Q. Now, we see that up in the top left-hand corner of this, 8 that this is a P80 risk allocation report. So that 9 would represent the probability of the costs falling 10 inside the risk allowance. 11 Now, at the stage of the Final Business Case in 12 December 2007, tie were still using a P90 figure. Do 13 you recall that? 14 A. Yes. 15 Q. What was the reason for the change? 16 A. In preparing for this, I just have not been able to 17 remember the circumstances why we went from P90 to P80 18 or who suggested it. I just haven't been able to 19 determine or remember how it came about. 20 P80 is still a high -- considered a high level of 21 confidence in preparing a QRA for a project, but that 22 still doesn't explain why we went from P90 to P80. 23 I cannot explain it. 24 Q. Is the result of moving from a P90 to a P80 probability, 25 that the risk allowance would reduce? 41 1 A. Yes. 2 Q. And thus the overall cost estimate would reduce? 3 A. Yes. 4 Q. Is it likely then that that was the reason for the 5 change from P90 to P80, to secure the reduction in the 6 overall budget? 7 A. I know that that's an easy conclusion to come to. 8 I just -- we were not in -- at any time trying to 9 massage this risk allowance to a budget target. At no 10 time at all. 11 So that doesn't fit with a world where we're making 12 those kind of decisions to try and manage the cost down. 13 But I can't remember the circumstances under which 14 the move from P90 to P80 was made. 15 Q. Is there any other consequence of -- benefit to the 16 project from switching from P90 to P80 other than the 17 reduction in the overall budget that you can think of? 18 A. No. It doesn't alter the risk management routines. It 19 just alters the -- 20 Q. The probability? 21 A. The probability. 22 Q. Yes. If we could look at document, please, TIE00351419. 23 A. I should say -- sorry, can I -- I don't want to 24 interrupt. Go back to that. 25 There was transparency with CEC that that move was 42 1 made to P80. So whatever the circumstances round it, it 2 wasn't something that CEC officers didn't know about, 3 because they had full transparent view of the QRAs. 4 So -- 5 Q. Were CEC officers specifically told about the change 6 from P90 to P80? 7 A. They must have been for it to be reported to them in 8 that way. But I can't remember -- it wouldn't 9 necessarily have been me that engaged with them on it. 10 You know, it might have been Steven or someone else. 11 So -- 12 Q. We do see from later documents that that QRA output or 13 similar ones were sent to the Council. So they could 14 have read it and seen that it said P80 at the top. What 15 I'm wondering is was there anything beyond that? Was 16 somebody telling the officers of the Council that the 17 change had been made and what its significance was? 18 A. My experience was that the Council officers would -- 19 would quite rightly have cried foul, and did cry foul, 20 if they thought that there was something that they 21 didn't understand. Cry foul is a terrible term. 22 I don't mean that. I mean if they were unhappy with 23 something, they would sure as heck draw it to our 24 attention. But it's also true, that at least the way 25 I dealt with Council officers, it wasn't passive in that 43 1 way, send them something and if they've got any 2 questions they'll come back. 3 The information came with a briefing on what it 4 meant at all times. I can absolutely vouch for that in 5 my own case in dealing with CEC Finance. 6 So I think at officer level that was the way the 7 relationship worked as far as I know. 8 Q. Do you yourself recall a specific occasion or a specific 9 communication by which the Council were told that the 10 probability was being reduced from a P90 to a P80? 11 A. No. No, I don't. 12 CHAIR OF THE INQUIRY: When you refer to the Council, are 13 you in fact referring to Council officers? 14 A. Sorry, an important distinction, my Lord. I mean -- 15 I mean Council officers. 16 CHAIR OF THE INQUIRY: Who would that be? Would that be the 17 Director of Finance, Mr McGougan? 18 A. In terms of the people that I had the most engagement 19 with, it was the Director of Finance, but more often the 20 people who reported to him who were initially 21 Rebecca Andrew and then Rebecca Andrew and Alan Coyle, 22 who at a later stage -- so were the primary officers 23 that I dealt with. But I did have contact with other 24 CEC officers, both at a director level and a whole range 25 of people throughout the Council, some of whom at some 44 1 stage became co-located with tie in our officers. 2 So a broad range of officers over all disciplines. 3 But in terms of who was I responsible to for provision 4 of information and ensuring that they were properly 5 briefed in preparation for Tram Project Board or for any 6 other matter, it was the Council Finance officers. 7 CHAIR OF THE INQUIRY: Thank you. 8 MR MCCLELLAND: Just returning to this issue of whether the 9 Council were told about the change from P90 to P80, 10 I think I'm right in saying that it wasn't reported in 11 the close report. 12 A. No. 13 Q. Would that not be the obvious place to report it? 14 A. Yes, could have been, yes. 15 Q. Can we look at document TIE00351419. I think we've got 16 that. I'm behind myself. 17 We have here an email from Mark Hamill to you dated 18 28 February 2008. The subject is QRA. 19 If we could just read from it: 20 "Stewart, further to our discussion re P90 v P80, 21 the information on tab ... shows a P90 of 22 GBP34.4 million, with the Phase 1A allocation being 23 31 million. The P80 value is 31 million and would give 24 a Phase 1A value of GBP28 million." 25 There we see the consequence of the change is the 45 1 reduction in the risk allowance. I should say, the date 2 of this is 28 February. So that would appear to be the 3 day before the QRA run that was shown in the spreadsheet 4 we looked at a moment ago. 5 Reading on: 6 "The P90 figure assumes a higher confidence level 7 (90%) in delivering within the capital costs 8 budget (including risk) ie GBP498 million. Reverting to 9 P80 would require us to convince CEC that being 10 80 confident was satisfactory; however 11 I suspect they would be uncomfortable about essentially 12 becoming 10 less confident about delivering to 13 budget." 14 This suggests at least that the idea of moving from 15 P90 to P80 was not the Council's idea? 16 A. That's what it would suggest. 17 Q. Does that suggest that it must have been tie's idea? 18 A. As I say, I really can't remember whose idea it was, 19 or -- this email would indicate I was being asked about 20 it on 8 February, but I can't remember the genesis of it 21 or how it was briefed to the Council. I just don't 22 know. 23 Q. I understand you don't remember. I'm just trying to 24 test what would be likely. So would you agree that it 25 seems likely -- 46 1 A. No, I think it's very unlikely -- sorry. I understand 2 what you're asking. I think it's very unlikely that it 3 was a Council officer idea. 4 Q. Yes. If that was very unlikely, the conclusion we're 5 left with is it was probably tie's idea? 6 A. Yes. 7 Q. If Mark Hamill is asking you about it, does that not 8 suggest it was your idea? 9 A. Not necessarily at all. Whoever's idea it was, it would 10 have been subject to debate internally and agreement. 11 It's not something that I could unilaterally do in any 12 way, shape or form in any case. tie didn't operate as 13 an organisation without proper cross-discipline checks 14 and balances. So I did not have -- even if I'd wanted 15 to, and I wouldn't, I had no power to make a unilateral 16 change of this nature. 17 Q. Okay. Now, if you remember Willie Gallagher's call to 18 arms to get the overall budget in at GBP498 million, is 19 it possible that the reduction in the risk allowance was 20 really just a response to that overall approach of 21 trying to get the project in under a particular budget 22 level? 23 A. I understand that that would be an easy conclusion to 24 get to, but I really don't think that Willie Gallagher's 25 call to arms was anything more than just that. The 47 1 project estimates were professionally put together at 2 all times, and there was -- in no instance was there any 3 artificial manipulation of any numbers, including the 4 QRA, to achieve that aim. 5 CHAIR OF THE INQUIRY: Who would it be then? You say that 6 it was a co-operative approach. 7 A. Sure. 8 CHAIR OF THE INQUIRY: A joint responsibility. Who would 9 ultimately be responsible for the decision to reduce it 10 from P90 to P80? 11 A. Well, the risk reporting on the organisation chart went 12 through to Steven Bell. But I don't want to -- I think 13 it would be wrong for me to isolate an individual and 14 say: it was him, not me. That's not what I'm saying. 15 There was collective responsibility for all such 16 matters. So -- and for all I know, there might have 17 been a discussion with one of the senior Council people 18 with regards to doing this and why it was justified, but 19 I really don't recall. 20 CHAIR OF THE INQUIRY: Doesn't seem that that -- any such 21 discussion has occurred by this time, suggesting that 22 they would be uncomfortable about becoming less -- 23 10 per cent less confident. That wouldn't suggest that 24 there had been any discussion by that time at least. 25 A. It doesn't suggest that, no. 48 1 MR MCCLELLAND: If we just move to the third paragraph, 2 Mr Hamill says: 3 "From a starting point, making a case for P80 would 4 be quite easy as most people would accept a confidence 5 level of 80 per cent. Moving from 90 per cent to 6 80 per cent would, in my opinion, be hard to justify. 7 The only justification I can think of would be that we 8 (tie) are so confident that we have secured a fixed- 9 price deal that the risk has been minimised to the 10 extent that the higher monetary value associated with 11 the P90 figure is now unnecessary and therefore, as 12 a result of minimising so much risk through the 13 contract, we can reduce the risk allocation figure to 14 the P80 figure." 15 Did you agree with that as a justification? 16 A. Yes, that would be -- that would be a reasonable 17 justification. 18 Q. Since we know that the P80 figure was the one that was 19 used, can we take it that this was the justification in 20 tie's mind, tie's collective mind, for using the P80 21 probability? 22 A. I'm sorry, I can't remember what the final justification 23 would have been. I really hope, given my lack of 24 knowledge on this, that it's documented some place in 25 emails and -- this whole decision to do this. I hope it 49 1 is, but presumably you haven't been able to find it 2 because -- because of this email. 3 I have no recollection of the discussions that were 4 had. 5 Q. This passage refers to tie being so confident they've 6 secured a fixed price deal, that the risk had been 7 minimised and so on. Was that tie's mindset as at 8 28 February 2008? 9 A. The deal that we had, based on our understanding of the 10 way that the contract worked, was that it was 11 substantially fixed price. So -- so that -- we were 12 confident that we'd secured a substantially fixed price. 13 Q. Then Mr Hamill's fourth paragraph: 14 "I fully appreciate the need to reduce costs where 15 possible in order to get the deal done ..." 16 Just pause there. That would seem to be Mr Hamill 17 responding to Willie Gallagher's call to arms. Do you 18 agree? 19 A. Yes, but -- Mark was a superb professional, but in 20 fairness, he wasn't part of the senior management team. 21 That doesn't -- so I don't understand what he means when 22 he says that in this email. 23 Q. Well, it suggests that he understands there's a desire 24 to reduce the budget where that can be done. 25 A. Yes. And that was -- that was absolutely the case, but 50 1 not on an unjustified -- not in an unjustified way or an 2 artificial way. 3 Q. But the way that's being proposed to do it here is to 4 find a way of reducing the risk allowance. 5 A. Yes. But -- yes. That's what is being proposed. 6 That's what Mark's words are in this email, yes. 7 Q. Is it fair to say that the risk allowance was the part 8 of the overall budget over which tie had the most 9 control? 10 A. In terms of the estimating of it? 11 Q. In terms of the ability to change it. 12 A. Yes. Yes, absolutely. 13 Q. Now, Mr Hamill goes on: 14 "However, given we have reduced the figure by 15 a considerable amount so far, I recommend manipulating 16 the current information to an acceptable P90 figure, 17 rather than go through the hassle of trying to persuade 18 CEC of the 'benefits' of a P80 figure." 19 What's your comment? 20 A. Well, my comment is that we would -- that would never 21 have happened under my watch or anyone else's watch. So 22 I don't know why he's suggested it, but it didn't 23 happen. 24 Q. He refers there to the hassle of trying to persuade the 25 Council of the benefits of a P80 figure. Does that 51 1 suggest that it was going to be difficult to persuade 2 the Council to reduce the risk allowance? 3 A. From -- from his -- from his perception, yes. 4 Q. Was it correct that the Council was a relatively risk 5 averse organisation? 6 A. They were -- they were the stakeholder. We were the 7 delivery company. They were always -- they were always 8 going to be challenging. Perfectly natural that they 9 should -- that they should be that way. Perfectly 10 natural. 11 So I don't think -- did I ever find them 12 conservative? Not really. 13 Q. I mean, they were ultimately the funder of last resort 14 if there were any cost overruns? 15 A. Yes. 16 Q. Presumably the Council was keen to avoid cost overruns 17 which took the project over budget? 18 A. Sure. 19 Q. You accept that? 20 A. Yes. 21 Q. So that might be a reason why Mr Hamill identifies 22 difficulty in persuading the Council to reduce the risk 23 allowance. Would that be fair? 24 A. Yes, but I think it -- yes, but I think it's also 25 important that, reading this, maybe Mark felt put upon 52 1 through his own engagement at Council officer level. 2 I mean, that happens. I don't think he's talking about 3 me in my role having to persuade the Council. I think 4 he's worried about -- what I read into this is that he's 5 worried about his own personal engagement with the 6 Council officers. 7 Q. Was it a matter of concern to you that a member of tie's 8 staff responsible for risk felt under so much pressure 9 to get the budget down that he was talking about 10 manipulating the way the risk allowance was presented to 11 the Council? 12 A. I mean, we would never have done what Mark's suggesting 13 there, ever. And I must say, I found Mark all the way 14 through his employment at tie to be a consummate 15 professional. I don't know why he's said that, but it 16 would never have happened in any circumstance. 17 CHAIR OF THE INQUIRY: I appreciate that, but I think the 18 question was: was it a matter of concern to you that he 19 was -- 20 A. I don't recall this particular email or being concerned 21 about it. I mean, six years' worth of project that 22 I was involved in, lots of people said inappropriate 23 things at all kinds of times in emails. But I don't 24 recall suddenly thinking: hang on a minute, Mark, you 25 can't do this. I don't recall having those thoughts, 53 1 no. 2 MR MCCLELLAND: Now, just moving on, we mentioned earlier 3 that after the close report, Bilfinger Berger came back 4 and an increase in the price was negotiated. I think 5 there were some changes in the risk allowance made 6 around that time. Can you recall that? 7 A. Sorry, could you repeat the question? 8 Q. Yes, of course. We're changing subjects, moving away 9 from that. 10 Do you recall we looked at the close report? 11 A. Yes. 12 Q. And the risk allowance reported to there? 13 A. Sure. 14 Q. I think what you said earlier was that after the close 15 report was drafted, Bilfinger Berger sought an increase 16 in the price. The price was increased, but there was 17 also then an adjustment to the risk allowance which was 18 reported in another paper? 19 A. Yes. 20 Q. Just in brief, we understand that the nature of the 21 price increase was -- there were two elements to it. 22 First, that there was a payment of GBP1.2 million to be 23 made on completion of each of the four work sections. 24 So a total of GBP4.8 million? 25 A. Yes. 54 1 Q. There was also provision for a payment of GBP3.2 million 2 if tie decided not to proceed with phase 1a? 3 A. Phase 1b. 4 Q. Sorry, phase 1b. So you recall that was the 5 consequence? 6 A. Yes. 7 Q. Now, in response to that, there was an adjustment to the 8 risk allowance. If we could go, please, to document 9 CEC01338847. This is headed up: EDINBURGH TRAM PROJECT, 10 FINANCIAL CLOSE PROCESS AND RECORD OF RECENT EVENTS. Is 11 that the paper that you were referring to? 12 A. Yes. 13 Q. If we go to page 6, please, it's the final paragraph 14 there that I want to look at. 15 This follows the discussion about the price increase 16 and the changes in the risk allowance, and summarises 17 them. So just reading that: 18 "Taking all these matters together, the net result 19 is that tie has negotiated a cash and contingent price 20 amendment in favour of exposure elimination which 21 substantially offsets the majority of the price 22 amendment. tie would recommend that the budget be 23 increased to accommodate the agreed cash amendment of 24 GBP4.8 million and that the risk contingency be reduced 25 by a total of GBP1.8 million reflecting a conservative 55 1 portion of the improved specific risk positions, then 2 augmented by an increased general provision of 3 GBP1 million resulting in a net increase to the headline 4 budget of GBP4 million. This will result in the overall 5 budget moving from GBP508 million to GBP512 million. 6 The underlying base cost is now GBP480.8 million and the 7 risk contingency is GBP31.2 million. Although a case 8 could be made for further reduction in the risk 9 contingency, it would be tie's recommendation that the 10 balance be retained." 11 Are you able to explain briefly the movements in the 12 risk allowance? 13 A. Arising from this? 14 Q. Yes. 15 A. Yes. The risk -- the -- this is the 1.8 million you 16 want me to talk about? 17 Q. I'm keen just to understand in a global way, if I can, 18 the changes made in the risk allowance as a consequence 19 of this late price increase that was negotiated. 20 A. Well, the -- both this -- both how -- how it was, there 21 was identified and evaluated risk reductions arising 22 from the final deal with Infraco, which I think in this 23 paper talked to about GBP4 million. 24 So -- and most of those are time related, so 25 reducing the risk of delays. 56 1 So what the paper says, there was about a third of 2 those taken into -- as a reduction in the risk 3 allowance. That came to GBP1.3 million, and the 4 judgement was that that was a reduction in the general 5 delay provision, as provided for in the QRA. 6 The other GBP0.5 million was because we managed to 7 negotiate a cap on the cost of road reconstruction in 8 the areas that were defined in the contract. So we 9 reduced the level of the risk allowance, the specific 10 standalone risk allowance for road reinstatement by half 11 a million pounds. 12 Q. Just to pause there, was that one of the GBP2 million 13 manual adjustments that we saw to the QRA in your April 14 spreadsheet? 15 A. Yes. 16 Q. Sorry, carry on. 17 A. Sorry, that's the 1.8 million. I'm in danger of 18 rabbiting on. 19 Q. No, that's helpful, thank you. 20 It goes on to read that tie recommended an increase 21 in the general provision of GBP1 million. What was that 22 for? 23 A. Just good luck money. It wasn't related to any 24 specifically new identified risk. Just a demonstration 25 that -- of prudence, I guess. But that 1 million was 57 1 actually used, just a few -- about a week later to deal 2 with part of the last minute SDS increases. So it 3 didn't last long. 4 Q. When you set aside the GBP1 million of good luck money, 5 was the SDS issue coming down the tracks? 6 A. No. 7 Q. No? 8 A. No. 9 MR MCCLELLAND: I note the time, my Lord. It might be 10 a convenient moment for the morning break. 11 CHAIR OF THE INQUIRY: We'll have a break for the shorthand 12 writers. About 15 minutes. 13 You can get a cup of tea or coffee if you wanted. 14 We will resume again at 11.25. 15 (11.09 am) 16 (A short break) 17 (11.25 am) 18 CHAIR OF THE INQUIRY: You're still under oath, 19 Mr McGarrity. Yes, Mr McClelland. 20 A. Am I allowed to just very, very briefly revisit one 21 subject from before the break? 22 CHAIR OF THE INQUIRY: Yes. Just to clarify something? 23 A. Yes, it is. 24 It's in relation to this 498 million target and the 25 extent to which that -- this was influencing decisions. 58 1 I just wanted to offer as evidence that of course 2 between then and now, the budget had increased as 3 a result of negotiations which had taken place, treated 4 as a crystallisation for budgetary purposes of 5 procurement stage risks, but also there had been new 6 risks added to the risk register, or augmented risks for 7 delay and consents and approvals, and also Steven and 8 I had sat and added that GBP2 million for road 9 reinstatement. 10 So that's not representative of an environment where 11 we're trying to hit a target. That's representative of 12 an environment, I believe, where we're trying to come up 13 with the best estimate of the outturn costs of the 14 project, taking account of all the uncertainties 15 involved. 16 So it's just in relation to this idea we're hitting 17 this target or else. That never -- certainly never 18 influenced me in any way, shape or form. That was just 19 my point. 20 MR MCCLELLAND: Thank you for that clarification. 21 Just in relation to that point, if the project costs 22 were going up, which I think they were as a consequence 23 of various negotiations by the Infraco consortium from 24 January through to May, did that put pressure on the 25 risk allowance? 59 1 A. No, to the extent that allowance had been made in the 2 risk allowance at the time of the Final Business Case to 3 deal with those very uncertainties. Having a two-stage 4 tender process, conducting that in the context of an 5 incomplete design. So this was crystallisation of those 6 risks. 7 There was the general upward pressure, yes, 8 absolutely. 9 Q. Thank you. Now, just before we broke, we had a look at 10 the recent events paper, and we were discussing the 11 changes in the risk allowance as a consequence of the 12 final Infraco price negotiation? 13 A. Yes. 14 Q. If we could have document, please, CEC01295185. 15 We see this is an email from Graeme Bissett to 16 various people in tie, including you, and it's dated 17 15 May 2008. So that's the day after the Infraco 18 contract was signed. Would that be correct? 19 A. Yes. Yes, that week anyway, yes. 20 Q. You can take it from me that the Infraco contract was 21 signed or was completed on 14 May? 22 A. I would have to confess that I was on leave that week, 23 the week that the contract was signed, which is why me 24 coming back on Monday has been referred to here. 25 Q. Okay. Thank you. 60 1 Had you been away for the two weeks prior to -- 2 A. Yes. 3 Q. -- the signing of the contract? 4 A. Yes. 5 Q. So were you involved in any of the changes to the risk 6 allowance that happened as a consequence of the last 7 negotiation by the Infraco consortium? 8 A. Not at the time, but I've satisfied myself when I came 9 back that there was nothing that gave me any concerns in 10 what had been done. 11 Q. If we just read what Mr Bissett has to say, he says: 12 "After all the twists and turns of the last 13 fortnight, we need to arrive at a final form settled 14 base cost and risk contingency. I think it's important 15 that the baseline is crystal before change orders start 16 to appear from all quarters." 17 When he talks about Change Orders starting to appear 18 from all quarters, what did you understand him to be 19 talking about? 20 A. I don't think that's Graeme making a judgement as to the 21 volume of Change Orders which he or anyone else expects. 22 It's just a colloquial term that he's using. So 23 I don't -- I would use the same language myself, but not 24 in any expectancy that we were just about to get a whole 25 bunch of Change Orders coming in from -- from all 61 1 quarters. 2 So not an anticipation of hundreds of INTCs from the 3 contractor. 4 Q. Well, it does suggest that Mr Bissett was expecting 5 there to be a flurry of Change Orders, does it not? 6 A. Taken literally, these words, that's what it would 7 suggest, yes. 8 Q. Why should we take it anything other than literally? 9 A. I would just -- I'm sorry, I was just trying to give 10 a bit of context in that I don't believe that this 11 reflects that Graeme or anyone else expected there to be 12 a flurry of Change Orders. 13 Q. Just to put that question, was there an expectation 14 within tie that there were going to be a number of 15 Change Orders coming their way? 16 A. I think everyone would have expected that there would 17 have been Change Orders. The concept of a fixed price 18 contract, this label, fixed price, well, it's fixed. 19 But it's for a scope and it's for a programme, and it's 20 based upon a number of underlying assumptions. 21 So there's no contract is fixed. There's always 22 going to be change unless it's what's called 23 a guaranteed maximum price. So the concept of a fixed 24 price, it's only ever fixed for a given set of 25 circumstances. 62 1 So yes, I think -- I didn't at any stage think there 2 would be no changes. There was one change which was 3 basically agreed to at the point of financial close, and 4 it was reported, and that was a change which had 5 happened to the design programme from the one that 6 the -- the Infraco's price -- the one that was embedded 7 in Schedule Part 4. But that was properly assessed as 8 to its likely outcome, and we expected to be able to 9 engage with the Infraco to manage the impact of that, to 10 mitigate the impact of that on their works. 11 So in other words, I don't think the cost was 12 expected at financial close to be very high. 13 Q. That's clearly not what Mr Bissett is referring to, 14 because he's not talking about a Change Order singular. 15 He's talking about Change Orders plural, and not only 16 that, starting to "appear from all quarters". So the 17 impression given here is that tie were expecting to be 18 under siege from change. 19 A. I'm sorry, I've answered the best I can. I really 20 don't -- I can't put words in Graeme's mouth here. All 21 I can do is tell you what I didn't expect and 22 I wasn't -- I didn't know that anyone else expected 23 Change Orders to appear from all quarters. 24 It was important to get the budget locked down. 25 This goes back to the earlier question about having 63 1 a project control budget that you can then process 2 change again. I absolutely agree with that. 3 Q. Okay. Mr Bissett carries on: 4 "I suggest a discussion on Monday with Stewart back, 5 commando knife between the teeth ... 6 There are two groups of information relevant to 7 this: 8 The final deal terms paper, copy attached, contains 9 the details of how we dealt with the BB gouge." 10 You can take from me, that's the recent events paper 11 that Mr Bissett has attached. 12 Then: 13 "The subsequent SDS deal involved confirmed numbers 14 on accumulated change controls and ER's alignment plus 15 their gouge. Steven and/or Dennis know the details." 16 What is the reference there to a "subsequent SDS 17 deal"? 18 A. What happened was, it might have been one day or maybe 19 even two days before close, SDS arrived at the door and 20 wanted more money. 21 I think the way that it happened, as I recall, was 22 very similar to Infraco. It started up with -- it 23 started with: we need X more money to close the deal; 24 and tie had -- tie then engaged with them to manage that 25 cost down, and try as best as possible to get some kind 64 1 of value for money out of their last minute request. 2 But in terms of both the Infraco and the SDS, in 3 both cases it was commercially a last minute request for 4 more money. That is what they were. And I think the -- 5 the tie negotiating teams did everything in their power 6 to manage that additional cost down and try to get to 7 the maximum extent possible value for money concessions 8 to set against those costs. 9 Q. What did tie get in return for the extra money to be 10 paid to SDS? 11 A. I can't -- I can't remember. I don't -- I don't think 12 that -- well, I know, because there was -- I had 13 a discussion, all the people there, and I subsequently 14 documented what we'd agreed it would do. 15 So other than using up the -- the SDS final increase 16 in costs was 2 million something, and the -- and that 17 was taken from -- either from the GBP1 million 18 contingency that we referred to earlier. 19 Q. The good luck money? 20 A. The good luck money, or it was taken out of existing 21 provisions on the Infraco budget for construction 22 support, in other words post contract close services to 23 be provided by SDS. 24 Q. We'll have a look at the document I think you're talking 25 about, which may allow that explanation to be a little 65 1 more easily understood? 2 A. Yes. 3 Q. Mr Bissett carries on: 4 "In both cases there are options as to how the 5 changes to base and risk are reflected, so long as the 6 totals in each case return to the totals notified to the 7 Council PSC ..." 8 I think that's Policy and Strategy Committee? 9 A. Yes. 10 Q. "... on 13 May (480.8 million and 31.2 million)." 11 Those are the figures from the recent events paper; 12 is that correct? 13 A. Yes. 14 Q. So it suggests in Mr Bissett's mind there was an element 15 of flexibility about the way these matters could be 16 shown in the base cost and the risk allowance., is that 17 correct? 18 A. Yes. 19 Q. If we could go, please, to document CEC01295328. We see 20 at the bottom, that's the email from Mr Bissett that 21 we've just been looking at. Then the email above is 22 from you in reply on 19 May 2008. 23 You say: 24 "Following our meeting today - the attached wee 25 summary lays out a simple recon of how I think we get 66 1 from the last reported estimate (GBP508 million) to our 2 final control budget (GBP512 million) including the SDS 3 increases. This is consistent with Graeme's paper in 4 respect of Infraco except that the risk allowance is 5 reduced by GBP1.1 million to fund the SDS increases." 6 If we just pause there, your reference to Graeme's 7 paper, is that to the recent events paper? 8 A. Yes. 9 Q. And the reference to a reduction in the risk allowance 10 of GBP1.1 million, was that what you were referring to 11 just a moment ago? 12 A. Yes. 13 Q. Then you go on to say -- 14 A. Are we going to look at the -- 15 Q. We will look at that attachment which will make it 16 easier. 17 You also say there: 18 "Mark will adjust the QRA accordingly." 19 A. Mm-hm. 20 Q. What did that involve? 21 A. The one element of it which I think went against the QRA 22 was, I think, the 1.3 million reduction in the delay 23 allowance which was in the record of recent events. So 24 that was the only item, and that came out of the Infraco 25 last minute price increases, not SDS. So there was a -- 67 1 the 1.3 million taken into -- the 1.3 million worth of 2 benefits of the last minute Infraco deal that was 3 adjudged to be accounted for in the final control 4 budget, that was the only item that actually adjusted 5 the risk allowance. 6 Q. The QRA? 7 A. The QRA, I mean. 8 Q. Go, then, to the attachment which is CEC01295329. Thank 9 you. 10 If we just look at columns D and column F, do we see 11 column D, headed up "AFC P1", and if we look down that 12 in row 306, we see the GBP508 million figure. 13 A. Yes. 14 Q. Then in the column F, which is headed up "PCB", which 15 I presume is project control budget? 16 A. Yes. 17 Q. We see in row 306 the figure of 512? 18 A. Yes. 19 Q. So do we see in these two columns the changes between 20 the GBP508 million reported in the close report, and the 21 GBP512 million reported in the recent events paper? Is 22 that correct? 23 A. Yes. 24 Q. Below that, in each column, we see a breakdown of the 25 risk allowance? 68 1 A. Mm-hm. 2 Q. So the GBP32.3 million from the close report and the 3 30.4 from the recent events paper. 4 A. Yes. 5 Q. Does this document make it easier to explain the changes 6 in the risk allowance that were made? 7 A. Yes. I mean, I looked at this yesterday because I was 8 mentioned in previous dispatches. Yes, so this -- this 9 is exactly how the price increases from Infraco and SDS 10 were dealt with from a budgetary perspective. Not -- 11 not me decreeing how they were dealt with. This was as 12 discussed and agreed amongst the entire team. 13 My email, I'm playing back: this is how we agreed we 14 were going to do it, and it is all entirely rational. 15 Q. Okay. So you are saying this was agreed amongst the 16 people who were sent Mr Bissett's email? 17 A. Yes. 18 Q. If we keep in mind that the final increase in the price 19 boiled down to the GBP4.8 million paid on completion of 20 the work sections, GBP3.2 million if phase 1b was not 21 built, how do those changes relate to the changes in the 22 risk allowance? 23 A. Well, the 4.8 in cell I264, that's the additional 24 sectional completion milestones; part of the overall 25 price increase that Infraco -- finally agreed with 69 1 Infraco was these four sectional completion milestone 2 payments. 3 Q. Yes. 4 A. I don't -- they didn't manage risk at all really, 5 because they got them anyway as soon as they hit the 6 sectional completion dates. So not really a reduction 7 in risk. 8 Q. So was no reduction made in the risk allowance in 9 relation to that payment? 10 A. No. 11 Q. So what are -- 12 A. So that's why it's on the total -- it's been added to 13 the base cost. It's not taken out of risk or managed 14 against risk. It's added to the Infraco bundle. So 15 it's an increase in costs. 16 Q. So that accounts for most of the difference between the 17 508 and the 512 million? 18 A. Yes. 19 Q. So what were the adjustments made to the risk allowance 20 and what was the justification for them? 21 A. They were dealt with in the paper, financial close 22 process and record of recent events, and it was actually 23 listed out, what the negotiated benefits would be in 24 terms of reduction in risk exposure. As I said, it came 25 to far more than GBP1.3 million. It came to about three 70 1 times that. 2 But as the paper says, the decision was to 3 conservatively take GBP1.3 million of those benefits as 4 a reduction in the risk allowance. 5 I think the most tangible one there, from my 6 perspective, is there was a cap on liability for 7 programme extension arising out of roads design, 8 roads -- roads reconstruction. And I thought that was 9 quite a tangible reduction in risk. 10 Q. So we see that in line 323, where the risk allowance for 11 that is reduced by half a million pounds? 12 A. Yes. It was -- it was in two parts. First of all, it 13 was a cap on the cost of GBP1.5 million. So -- and 14 that's the cost of the works themselves. And then the 15 other -- the second piece was a cap in terms of number 16 of weeks which they would be entitled to as extension of 17 time with associated costs; in the event they were 18 delayed due to problems with buttoning down the design 19 of the roads. 20 Q. So there's the half a million pounds reduction in the 21 risk allowance for that. 22 In row 316, general programme delay, that part of 23 the allowance has been cut by GBP1.3 million. What's 24 the justification for that reduction? 25 A. So that -- so that was the -- one-third of the whole 71 1 range of benefits as identified in the paper, financial 2 close process of recent events, and most of those 3 events -- most of those negotiated agreements were 4 related -- were time related. So the decision to take 5 the 1.3 million against the general programme delay was 6 entirely rational. 7 Q. Okay. So to justify the GBP1.3 million reduction in 8 general programme delay, I think from your previous 9 answer, the GBP4.8 million to be paid on completion of 10 the four work sections, that had no bearing on it? 11 A. No, none whatsoever. 12 Q. So can you recall what it was that made general delay 13 less of a risk? 14 A. There was three or four examples referred to. Three or 15 four areas referred to in the paper, financial close 16 process and record of recent events. I'm sorry, as 17 I was -- as I've just said in my answer to my previous 18 question, one of those that had a real tangible benefit, 19 I thought, was the cap on entitlement to extension of 20 time and costs arising from full depth roads 21 reconstruction design. So I thought that was a tangible 22 benefit. 23 Q. Is that a separate reduction from the half a million 24 pounds that is shown in line 323 -- 25 A. As I said, there's two elements. The 500,000 reduction 72 1 is just construction -- 2 Q. The cost of the works? 3 A. The cost of the work. The -- the limitation on -- the 4 cap on the exposure to prolongation arising from roads 5 design, that was time related. So that's why it's gone 6 against the general delay provision. 7 Q. I think we also see, if you look at column J, which is 8 headed up "SDS", we see that the -- if I understand it 9 correctly, the risk allowance relating to SDS has been 10 cut by GBP1.1 million. Is that correct understanding of 11 that? 12 A. Yes. So -- but it's not a QRA risk allowance. As 13 I said, this is -- this is being offset against the 14 GBP1 million general contingency that was established as 15 part of the accounting for the final Infraco deal. 16 Q. What was the justification for reducing that part of the 17 risk? 18 A. It was unspecified. It was -- I think I described it 19 as, you know, lucky day money or something, didn't I? 20 It just wasn't actually tagged to any specific risk. It 21 was just a general contingency. 22 So we thought it was perfectly acceptable to use 23 that for the purposes of reporting the increase in the 24 SDS costs. 25 Q. So in short, there was no reduced risk relating to that 73 1 reduction in the risk allowance? It was simply used to 2 pay money to SDS? 3 A. Yes. Yes. I don't know -- I haven't seen the SDS 4 Novation Agreement since 2008 and I don't -- I'm afraid 5 I'm the wrong person to give you details on what 6 additional measures of protections tie managed to 7 negotiate as part of this overall last minute increase. 8 But this is not -- this is not tying any element of 9 increase in the SDS cost to a reduction in the QRA risk. 10 Q. Yes, thank you. 11 If we could go, please, to CEC01288043. You 12 remember in the previous email we looked at, you said 13 that Mark Hamill was going to adjust the QRA? 14 A. Yes. 15 Q. This is Mr Hamill, on 27 May 2008, subject QRA at 16 financial close. 17 He says: 18 "All, please see attached spreadsheet which I have 19 updated following our meeting last week. As agreed, 20 Risk ID343 which allows for delays has been reduced by 21 GBP1.3 million which means we now have GBP5.187 million 22 against this risk and, accordingly, the overall risk 23 allocation has reduced by GBP1.3 million to 24 GBP26.637 million." 25 That's the reduction in the general delay part of 74 1 the QRA that we were -- that we saw in your spreadsheet 2 a moment ago. 3 A. Yes. 4 Q. He goes on: 5 "One thing which we all need to be aware of is that 6 it is not possible to reduce the value of one risk in 7 the QRA without affecting all the others." 8 Is that essentially because the QRA output is the 9 result of a computer simulation? 10 A. Yes. Any time you change those four elements in 11 relation to a risk, the minimum, mean, max -- I'm saying 12 all of this is my understanding. I'm not a QRA 13 practitioner, never have been. This is my understanding 14 of how the process works. 15 So if you change the value of any of the three 16 monetary inputs, or the probability, if you re-run it, 17 then it will -- it will change -- it will change the 18 value of the -- the attributed value of every single 19 risk. That's just how the process works. 20 Q. Okay. Mr Hamill goes on: 21 "This is because the P80 allocation is driven by the 22 total mean sum." 23 That may be the technical explanation for what you 24 have just said. 25 "Therefore, in order to get round this problem, 75 1 I have basically 'pockled' the spreadsheet and hard 2 entered some values. This solves the problem and helps 3 us get the final result past CEC as I doubt they will 4 notice what I have done." 5 Now, that -- it suggests that what Mr Hamill was 6 wanting to do was to mislead the Council. Is that fair? 7 A. That's what his words would suggest. I mean, I don't 8 know what actually happened at the end of the day, but 9 what should -- I would have been -- I would have been 10 happy with a manual adjustment to the QRA, but also 11 I would have wanted to make sure that Council officers 12 knew that that's exactly what had been done. I wouldn't 13 have pockled anything because it calls what I thought 14 was a very good process into question, and I think it's 15 really unfortunate, this email. 16 Q. It appears from what Mr Hamill is saying, what he's 17 suggesting is that rather than be transparent with the 18 Council in explaining that there had been a manual 19 adjustment, he wanted to present something to them which 20 had the appearance of a statistically valid computer 21 output, but in fact wasn't. 22 A. That's what it would suggest, yes. 23 Q. This email was sent to you, amongst others? 24 A. Yes. 25 Q. What did you do in response to it? 76 1 A. I can't remember. I wouldn't have been concerned -- 2 I mean, other than any suggestion that any Council 3 officer was being misled, I was happy for the 4 1.3 million to be set against the QRA total with no 5 further amendment. In other words, in terms of 6 materiality, I wouldn't have been worried about not 7 re-running the whole QRA again, going back to first 8 principles, to get the 1.3 million properly reflected in 9 the general delay allowance, because it just wouldn't 10 have made in aggregate any material difference. 11 So I wasn't -- I wouldn't have been worried about 12 that. I would have just shown it as a manual adjustment 13 to the QRA, and then just accepted that next time we run 14 the QRA, all the numbers are going to look slightly 15 different, as would be normal. 16 The financial close is a point in time, but this -- 17 the QRA process wasn't something which was delivered 18 specifically for financial close. It was ongoing. It 19 was a -- it was a regular management routine. 20 Q. Mr Hamill's evidence to the Inquiry is that, as the risk 21 manager in tie, he was concerned about doing this, but 22 when he raised his concerns, he was just told to get on 23 with it. Is that -- 24 A. Not by me. That's not how I would have dealt with him 25 or anyone else. 77 1 CHAIR OF THE INQUIRY: So what did you do to advise your 2 counterpart in the Council, the Director of Finance, 3 that this had been a manual adjustment? And he should 4 be aware that the programme hadn't been re-run? 5 A. My Lord, I don't remember having any specific 6 discussions with my finance colleagues about this item. 7 CHAIR OF THE INQUIRY: Did you not find it rather strange 8 that someone below you was suggesting that the figures 9 had been pockled? 10 A. Yes. It's language he's using in an email which -- 11 which shouldn't be used. 12 CHAIR OF THE INQUIRY: It's more than that, isn't it? It's 13 suggesting deception. 14 A. Yes. 15 CHAIR OF THE INQUIRY: Well, given that it suggests 16 deception, did you not think you had an obligation to 17 deal with it? 18 A. I have no collection -- given the materiality of the 19 amounts involved, I have no collection having a concern 20 about Mark's language in this email. 21 Should I have done? I can't say. 22 MR MCCLELLAND: The third paragraph in Mr Hamill's email, he 23 says: 24 "I will revert to normal practice for QRAs however 25 in this instance I think this is the best way to do it 78 1 in order to avoid unnecessary scrutiny from our 2 'colleagues' at CEC." 3 He's put 'colleagues' there in inverted commas, 4 which would suggest they weren't truly to be viewed as 5 colleagues. What's your comment on that? 6 A. I don't know why he would have put it in inverted 7 commas. 8 Q. It suggests that there's a group of people in tie who 9 are doing particular things and then there's a group of 10 people in the Council who are doing something, but 11 they're not colleagues in achieving the same objectives. 12 Would you agree that that might be a fair assessment of 13 what Mr Hamill means? 14 A. Taking those words on their own, that's -- and if you -- 15 and with the inverted commas, you could get to that 16 conclusion, yes. 17 Q. Was there a view within tie that they were pro-tram, but 18 some of the officers in the Council might have been 19 anti-tram? 20 A. Officers at officer level, I don't -- I can't remember 21 any specific officer who was anti-tram. 22 I also, from my own perspective, never saw any 23 conflict of interest at all between the interests of the 24 Council and those of tie, and certainly the way that 25 I conducted myself. I mean, as far as I was concerned, 79 1 Council are the shareholder. We -- we exist to serve 2 the interests of the shareholder, and -- and why would 3 we behave in any other fashion? 4 I don't remember a pervasive resistance from tie at 5 any level to doing exactly -- so that's right from board 6 level all the way down to individual managers. I don't 7 recall anyone doing other than acting in the best 8 interests of the Council. 9 Now, in terms of individual relationships, there was 10 undoubtedly, as would happen in any situation -- I mean, 11 I have experienced through my career friction between 12 the stakeholders and the people who are actually doing 13 the job in every single job that I've ever had. But 14 it's always managed, and it always ends up being 15 constructive, and my evidence is that I thought that 16 that was the case at tie. 17 The Council were the client. They needed to be 18 properly informed about things. And also, if the 19 Council ever felt that tie were inadequate, then that 20 should have been coming back down the line. 21 Q. You said in your view there was no scope for a conflict 22 of interest between the Council -- 23 A. I didn't say -- there's scope there, but I don't 24 think -- I don't think that in my experience there was. 25 Q. Would it be fair to describe the Council's interests as 80 1 having a project budget that was sufficiently high that 2 they wouldn't be faced with any unexpected cost 3 overruns? 4 A. Yes. I think that would be ... 5 Q. I think we saw some documents earlier this morning which 6 tended to suggest at least some people within tie were 7 of the view that steps had to be taken to lower the 8 overall budget. Was there not scope for a conflict 9 there? 10 A. I just think that -- I can only really speak from my 11 perspective as the Finance Director. What I wanted to 12 do was establish a control budget at financial close 13 that we could then measure change against, acting 14 entirely in the Council's interests. 15 CHAIR OF THE INQUIRY: I think the question was: was there 16 scope for a conflict? I would have thought that was 17 capable of yes or no. 18 A. In any -- sorry, the answer is yes, there was scope 19 for -- there is scope for conflict where you've got two 20 groups of people working for two different 21 organisations. I can't think of a situation where there 22 isn't scope for conflict. 23 MR MCCLELLAND: So Mr Hamill's email says it attaches a QRA 24 making the adjustment to the general delay element of 25 the QRA part of the risk allowance. If you just go to 81 1 his attachment, please, which is CEC01288044. We see in 2 the top left-hand column that the period end again is 3 1 March 2008. So that reflects your evidence earlier 4 that the final QRA run was done at 1 March. 5 If we just look down to line 18, please, we see 6 there the entry for general delay to programme. If we 7 scroll along to the end of that row, please, we see 8 there a figure of GBP5.187 million. 9 So do we understand that would be the manual 10 adjustment that Mr Hamill had made to the QRA output? 11 A. Sorry, are you saying it does -- 12 Q. Yes. 13 A. I can't do the arithmetic. It was 6.6, wasn't it? So 14 that's the lower figure, yes. 15 I would not have -- two levels here. At the level 16 of, did the risk allowance end up being what had been 17 reported at -- to the Board and then the financial close 18 process and record of recent events, yes. Okay, there's 19 no discrepancy there. 20 This is entirely about whether there's 21 a 1.3 million -- and as I said, I wouldn't have had 22 a problem in any way, shape or form with this just being 23 a minor adjustment to the QRA. 24 What perhaps -- not perhaps, it shouldn't have 25 happened, is that we had manual adjustment here which 82 1 wasn't communicated to Council officers. 2 Q. Yes. In fact, if we just go to document TIE00352465. 3 This is Mark Hamill to Alan Coyle on 11 June 2008, 4 subject, QRA at financial close: 5 "Alan, please see attached, as requested. Regards, 6 Mark." 7 You can take it from me that the attachment is the 8 same as the QRA output we just looked at, with the 9 adjustment to the general delay allowance. We see there 10 there's no explanation that the figures had been 11 manually adjusted. 12 A. I don't want to clutch at straws, but maybe it was 13 discussed with Alan as between whoever went to the 14 meeting with him. 15 CHAIR OF THE INQUIRY: How can you say that, standing the 16 terms of the email? 17 A. I'm sorry? 18 CHAIR OF THE INQUIRY: How can you say that, maybe it was 19 discussed, if you look at the terms of the email? 20 A. Sorry, my Lord, what I'm saying is I -- I don't know 21 whether this was verbally advised to -- 22 CHAIR OF THE INQUIRY: I appreciate that, but how can you 23 even say that? 24 A. It's speculation, yes. 25 CHAIR OF THE INQUIRY: And quite contrary to the terms of 83 1 the email. 2 A. Yes, sure. 3 MR MCCLELLAND: I would now like to turn to look at 4 different aspects of the risk allowance. First of all, 5 what you referred to earlier as the procurement stage 6 risks. 7 A. Yes. 8 Q. So if you would look at the close report, please, which 9 is CEC01338853. Just while we are waiting for that to 10 come up, this was the category of risk valued at around 11 GBP17 million which I think was closed off between Final 12 Business Case stage and financial close? 13 A. Yes. 14 Q. If you go to page 28, please, there's a passage just in 15 the middle of this. I think it's the fourth paragraph 16 down. If you just expand that, please. 17 It reads: 18 "The Project Control Budget at Financial Close 19 totals GBP508 million." 20 Of course this is before the final adjustment. Then 21 in brackets: 22 "... (Final Business Case GBP498 million) including 23 a risk allowance of GBP32 million (Final Business Case 24 GBP49 million). This change primarily reflects the 25 closure of procurement stage risks on Infraco and Tramco 84 1 including all the risks associated with achieving price 2 certainty and risk transfer to the private sector as has 3 been effectively achieved in the Infraco contract as 4 summarised above." 5 So we see there that the closure of these risks is 6 described as being associated with achieving price 7 certainty and risk transfer to the private sector. 8 A. Yes. 9 Q. If you look, please, at page 4, the bottom two 10 paragraphs: 11 "The increase in Base Costs for Infraco is a result 12 of a negotiated position on a large number of items 13 including the contractual interfaces between the 14 Infraco, Tramco, and SDS contracts and substantially 15 achieving the level of risk transfer to the private 16 sector anticipated by the procurement strategy." 17 Then the second paragraph: 18 "The increase in Base Costs for Infraco of 19 GBP17.8 million approximates closely to the allowance 20 which was made in the Final Business Case for 21 procurement stage risks ie the increase in Base Costs 22 which might have been expected to achieve the level of 23 price certainty and risk transfer which has been 24 achieved." 25 When this talks about the risk transfer anticipated 85 1 by the procurement strategy having been achieved, what 2 did you understand that to refer to? 3 A. That the -- in terms of the Infraco, the SDS novation 4 had been achieved, and that thereafter the Infraco was 5 responsible for taking the design through to its 6 completion, to the extent that it had not been completed 7 at that stage, that their price allowed for the normal 8 design development provisions in Schedule Part 4, but 9 there was substantial achievement of the level of risk 10 transfer, but there was the consents and approvals risk 11 which had emerged since preferred bidder stage. 12 In summary, Infraco were unwilling to take the risk 13 of delays getting through the consents and approvals 14 process, and indeed they had a limited level of exposure 15 to continuing delays by SDS just producing the work. 16 All of that subject to the Infraco -- subject to the 17 qualification that Infraco were responsible for 18 competent managing of the design process from the point 19 of the novation. 20 Q. Yes. 21 A. The other -- substantially achieving the level of risk 22 transferred to the private sector, would also be 23 qualified by an assessment that MUDFA was still not 24 going to impact upon the Infraco programme, because that 25 was also a pillar of the procurement strategy. 86 1 Q. In your answer there you talked about the novation of 2 the SDS contract to the Infraco consortium, and the 3 transfer of responsibility for completion of the design 4 to them. 5 Did you understand that the risk of a construction 6 cost increase arising from completion of the design had 7 been transferred to the Infraco? 8 A. That is sure what I believed at this stage. I mean, 9 much later, of course -- it's really important for me to 10 tell you what I thought then, because the fact that 11 contractual flaws meant that that didn't happen much 12 later, it's what I believed then, at this time, that 13 counts. 14 Q. So when you talk here in close report about 15 substantially achieving the level of risk transfer to 16 the private sector, you were meaning to include within 17 that the risk of a construction cost increase arising in 18 the completion of the design? 19 A. Yes, except to the extent it was something that didn't 20 fall within the definition of the normal design 21 development provisions or fell -- and also the 22 Employer's Requirements, because when I wrote this, 23 I had no appreciation that legally the Employer's 24 Requirements and the normal design development 25 provisions could be -- that there was any wedge between 87 1 them, which I think it's quite important in what 2 happened later, that distinction. 3 So yes. 4 Q. We see the second paragraph there, where you refer to 5 the increase in the base costs of GBP17.8 million 6 approximating closely to the allowance. 7 I think in fact the GBP17.8 million increase is -- 8 it's the full amount that had been set aside for the 9 procurement stage risks. 10 A. Mm-hm. 11 Q. Is that correct? 12 A. I can't remember the exact numbers, but yes, it was 13 about the same amount. 14 Q. Okay. Well, if we proceed on the basis that it was the 15 same amount, if the whole of the risk allowance had been 16 used up, that would tend to suggest that all of the 17 risks associated with achieving price certainty and risk 18 transfer had been achieved in full. Would that be fair? 19 A. Yes, it would be a total coincidence if there was 20 a complete match between the uncertainties at preferred 21 bidder and the fact of using this -- the allowance that 22 was made in the Final Business Case for aggregate 23 procurement stage risks. You know, the two are kind of 24 unconnected. 25 Q. But the reader might say: well, there was 88 1 GBP17.8 million set aside for these procurement stage 2 risks. They read here that the risk transfer has been 3 substantially achieved -- 4 A. Yes. 5 Q. -- to the private sector, and then they're told that the 6 17.8 million risk allowance for that has gone 7 completely. So the natural inference from all of that 8 is that all of the risks associated or that had been 9 identified in relation to risk transfer to the private 10 sector, they'd all gone. 11 A. They'd all gone and been replaced by new or augmented 12 additional risks which reflected the deal which had been 13 struck, yes. 14 Q. Okay. If we could go, please, to CEC01423172. 15 Now, this is going back in time, Mr McGarrity, to 16 February, 11 February 2008. It's an email from you to 17 others in tie. It attaches financial analysis 18 spreadsheet from that date. 19 What you say is: 20 "All, the attached spreadsheet has the numbers which 21 I intend presenting to the Tram Project Board on 22 Wednesday as showing where we will stand on our budget 23 at financial close. I propose issuing the first three 24 tabs of the spreadsheet as hand-outs with appropriate 25 supplementary notes. Please can you look carefully at 89 1 the numbers (which reflect the latest negotiation 2 concluded with BBS last week)." 3 Do you recall what that latest negotiation was? 4 A. The February -- is that what was called the 5 Rutland Square Agreement? 6 Q. The Rutland Square Agreement is dated 7 February 2008. 7 So is it likely that your document had been updated to 8 take account of that? 9 A. Yes. I mean, there was -- sorry, as we went through the 10 negotiation period, I prepared various documents which 11 showed how the price was marching along and how things 12 were moving up into the price or were outwith the price, 13 and as well as the negotiated increases at the 14 Rutland Square and the 8.6 million referred to earlier, 15 there was actually quite a lot of things moving around 16 as between -- whether they were in the contract or not 17 in the contract, and therefore still outwith -- so there 18 was quite a lot moving around, and I tracked the changes 19 quite closely, carefully, as we went through that 20 period. 21 Q. Just to help everybody get their bearings, we've got the 22 Rutland Square Agreement on 7 February? 23 A. Yes. 24 Q. We've got this email that we're looking at now, and then 25 after that we've got the -- what you've referred to as 90 1 the GBP8.3 million increase without a name, and then the 2 final increase that came in May. 3 If we look at the attachment to this email, which is 4 CEC01423173, we are just looking here at tab summary 5 P11, and the top left-hand column, this page is headed 6 up: PHASE 1A - BUDGET AT FINANCIAL CLOSE. 7 This looks in broad overview like an earlier version 8 of the financial analysis spreadsheet that we looked at 9 from April. 10 A. Yes. 11 Q. Is that correct? 12 A. Yes. 13 Q. Okay. Was this a spreadsheet that you'd prepared? 14 A. Yes, this is one of mine as well. I mean, with inputs 15 from lots of people, but I have had oversight of the 16 whole thing. 17 Q. If we look at column DI, which is headed up "FBC", does 18 that set out the breakdown of the project budget at the 19 Final Business Case stage? 20 A. I believe so. 21 Q. We see down at the bottom of that column, the estimate 22 then of GBP498 million and just above it, the risk 23 allowance from then, GBP48 million? 24 A. Sure. 25 Q. If we look along to column DO, which is headed up "Fin 91 1 close", I suppose financial close, and we have down at 2 the bottom a total figure again of GBP498 million. But 3 in this column the risk allowance has reduced to 4 GBP30.3 million. 5 A. Yes. 6 Q. Now, we can perhaps note in passing that that's pretty 7 much where the risk allowance ended up at financial 8 close. Approximately there or thereabouts. 9 A. Yes. I don't -- that's probably a coincidence. There's 10 probably pluses and minuses between here and financial 11 close. In fact, undoubtedly so. 12 Q. Okay. If we look at row 957, please, and if we just 13 look along that row, to get from the risk allowance at 14 Final Business Case, GBP48 million, to the risk 15 allowance at financial close of GBP30.3 million, we see 16 three reductions in red figures. Do you see that? 17 A. Yes. 18 Q. What are those reductions for? 19 A. The Infraco is the cumulative impact of all of those 20 changes to the Infraco price, plus items included in the 21 infrastructure budget but which are not actually part of 22 the Infraco contract. 23 Tramco is similarly the negotiation -- reflects the 24 negotiation position with CAF at that date, and I don't 25 know what the other cost increases represent. 92 1 Q. If you look at the Infraco reduction of GBP11 million, 2 does that reflect the up-to-date position on Infraco 3 negotiation? 4 A. As far as I'm aware, yes. 5 Q. So we saw the email, the timing of it relative to the 6 Rutland Square Agreement. Would that take account of 7 the Rutland Square Agreement? 8 A. I can't say for sure, but I would have hoped -- my email 9 referred to last week's negotiations. So I hope it's 10 included in that. 11 Q. Is it likely that it does? 12 A. Yes. 13 Q. Likewise, the figures for Tramco and the other costs, 14 did they reflect the up-to-date state of negotiations? 15 A. Yes. 16 Q. Then if we look down at row 966, please, this is within 17 the risk allowance section. This is the element of the 18 risk allowance for Infraco and Tramco procurement. 19 A. Yes. 20 Q. These are the procurement stage risks that we've been 21 discussing? 22 A. Yes. 23 Q. We see there that, if we look along at the table, there 24 are reductions made to take that down from the 25 17.5 million at the Final Business Case stage to zero at 93 1 financial close. Do you see that? 2 A. Yes. 3 Q. Is there a connection between the reductions made there 4 and the reductions that we looked at a moment ago in row 5 957? 6 A. Yes. It's the same -- it's the same amounts. 7 Q. So these are reductions made in the procurement risks 8 element of the risk allowance to reflect the up-to-date 9 state of negotiations as at February 2008? 10 A. Yes. I mean, as agreed with all my colleagues, that was 11 the rational way to present it. There's an offset 12 against the allowance for procurement stage risks that 13 we'd made in the FBC. 14 Q. So these figures here, these have been discussed with 15 the -- within the senior management group at tie? 16 A. Yes. I never did anything without -- at this level 17 without full discussion with the entire management team. 18 Q. We see that the procurement risks element of the risk 19 allowance had been reduced to zero? 20 A. Yes. 21 Q. Does that reflect a judgement by tie's senior management 22 that all of those procurement stage risks had been 23 closed off by 11 February 2008? 24 A. No, we hadn't reached close at that stage. This is -- 25 this is still an interim stage. 94 1 So it wasn't over until it was over, if you like, in 2 terms of the negotiation. So this was an interim stage. 3 It wasn't the end picture. 4 Q. I understood you a moment ago to say that the reductions 5 shown in the risk allowance reflected the up-to-date 6 state of negotiations. 7 A. Yes. 8 Q. So does that not suggest that those deductions only 9 reflect what has happened up to 11 February? 10 A. Yes. 11 Q. So by completing the spreadsheet in this way, we see 12 a judgement from tie's senior management that all of the 13 procurement stage risks had gone by 11 February? 14 A. I don't think that's what I was presenting here. There 15 were still -- the 8.6 million increase which came later 16 you talked about, that -- part of that was to adopt 17 a new programme and a new version of the Employer's 18 Requirements, I think. 19 So the -- the procurement stage risks had not been 20 eliminated until the point that the contract was closed. 21 So I wouldn't want this spreadsheet to -- if the 22 spreadsheet has given the impression that we thought 23 only the procurement stage risks were closed down at 24 this interim stage, then no, I don't think that is the 25 case. 95 1 Q. What then is the explanation for the reduction in the 2 procurement stage risks shown here of GBP17.5 million -- 3 A. Progressive -- progressive negotiations had led to those 4 increases in the base cost reflected in the negotiated 5 prices under the two contracts. It's entirely rational 6 to regard those as being -- to be set against the 7 allowance which had been made for those very 8 uncertainties in the procurement stage of the -- at the 9 Final Business Case, which reflected the preferred 10 bidder stage. 11 Q. So there was a need to fund increases in the various 12 contract prices which were being negotiated, correct? 13 A. Yes. 14 Q. And this spreadsheet shows that tie were funding them 15 out of the procurement stage risks part of the risk 16 allowance? 17 A. Yes. 18 Q. And as at 11 February 2008, all of it was used up? 19 A. Yes. Numerically that's the result, yes. So the 20 implication being there was nothing to fund further 21 increases. 22 Q. Well, that's the question. Was it the case that there 23 was nothing left to fund other increases, or had tie 24 come to the view that these risks didn't remain anymore? 25 A. No, we hadn't come to -- the procurement team was going 96 1 through a very, very difficult negotiation. I don't 2 think me or anyone else at any stage in time thought it 3 was going to be finished until it was finished. 4 So that's not what -- that's not the picture that's 5 intended to be presented by this spreadsheet from 6 February. Not at all. 7 CHAIR OF THE INQUIRY: If you needed additional money beyond 8 the GBP17.5 million for procurement risk, that's between 9 February and the financial close, does that mean that 10 your initial assessment of 17.5 million was too low? 11 A. Yes. 12 MR MCCLELLAND: If we go, please, to the tab marked, "Risk 13 Allowance QRA", if we just pause there before we scroll 14 anywhere, do we see in column BH, the figure of 15 48.9 million? 16 A. Yes. 17 Q. Would that be the risk allowance that was reported at 18 the stage of the Final Business Case? 19 A. Yes. 20 Q. If we scroll up through this, do we see a breakdown of 21 that risk allowance into its different elements? 22 A. Yes. 23 Q. We don't need to go back down and look at it, but just 24 for the record, the Infraco procurement stage risks are 25 noted in cell BH116 as being the GBP17.2 million figure. 97 1 Do we see in the right-hand column here a list of 2 labels for each of the entries -- 3 A. Yes. 4 Q. -- some of which say Tramco procurement and some of 5 which say Infraco procurement? 6 A. Yes. 7 Q. Are those all of the elements which, added together, 8 come to the 17 million for procurement stage risks? 9 A. I believe so. 10 Q. These would be all of the risks that the first page 11 would say had been reduced to zero? 12 A. Yes. 13 Q. If we could look, please, at row 23, and just highlight 14 that, we see in column C, this risk is identified as 15 being: 16 "Two stage tender pricing does not achieve price 17 certainty for works at first stage." 18 Column D: 19 "Price certainty is not achieved." 20 Then column E: 21 "Price creep post tender (during pre-construction 22 period)." 23 The provision for that is GBP5.3 million. 24 A. Yes. 25 Q. So just to be clear, when we saw that all of the 98 1 procurement stage risks were reduced to zero, had tie 2 come to a view that that risk or rather that price 3 certainty had indeed been achieved? 4 A. Certainly the allocation of the GBP17 million against 5 that risk allowance is reflective of the fact that it 6 was cost which was being incurred by way of hard 7 negotiated increases in the contract, and those 8 additional costs were the very reason for which this 9 allowance was made at preferred bidder stage. 10 So we had a two-stage tender process going to one 11 bidder -- there was -- the first negotiation of that 12 type in history where there wasn't increases after 13 preferred bidder, and this is one of the allowances that 14 was made for that eventuality. 15 Q. I just want to be clear. Were tie making a judgement 16 that price certainty had been achieved by this point and 17 that was why the risk portion for this was reduced to 18 zero, or was it simply -- 19 A. No, it's just -- here is the money and here is the price 20 increases, and they go against it. It's not reflective 21 of procurement stage risk being closed out in February. 22 It's anticipatory, because until the deal was done, 23 there was still a residual risk of procurement stage 24 additional costs. 25 Q. If the -- if at this stage tie could tell that all of 99 1 that risk allowance was going to be used up, was there 2 a case for resetting the risk allowance to include 3 another provision for price uncertainty, to carry it 4 through the remainder of the procurement process? 5 A. Yes. If it had been considered at that stage that we 6 weren't very, very close to getting the contract signed, 7 then yes, that might have been appropriate. 8 Q. In fact what we do know is that there were two later 9 increases in the price which were negotiated after this 10 stage. 11 A. Yes. From this stage, from February, all the way 12 through to financial close, there are spreadsheets which 13 track the further movement in the price, and how that is 14 dealt with in the -- I can't remember if any of that 15 ended up being 17.6 million in aggregate by the end. 16 But there was final reconciliations prepared. 17 Q. If we just look through briefly a couple of other risks, 18 in row 24, we see there: 19 "SDS designs are late and do not provide the detail 20 Infraco requires. Infraco does not have detail to 21 achieve contract close without provisional designs." 22 Then row 26: 23 "Poor design and review processes. Cumbersome 24 approvals process. Reiterative design/approvals 25 process." 100 1 The risk is: 2 "Completion of MUDFA works is delayed (due to late 3 designs/approvals)." 4 So all of these fall within the category of the 5 procurement stage risks that were being reduced to zero; 6 is it the case that for all of these that tie regarded 7 these risks as still existing but simply not funded 8 anymore by -- 9 A. I don't think they were -- sorry, I see where you're 10 getting from. No, they weren't closed out. So the 11 spreadsheet that you just saw was just reflecting proper 12 discussion amongst the management team, was allocation 13 of the cost increases as we go against that risk, would 14 not have reflected a closeout, a formal closeout of the 15 risk and removal of it from the risk register. Not at 16 all. 17 Q. If we could go, please, to CEC01489953. 18 This is Mr Hamill's reply to the email from you that 19 we looked at a moment ago attaching that spreadsheet. 20 This is Mr Hamill on 11 February to you: 21 "Stewart, the sheet which is titled 'Summary P11' 22 contains information relating to the risk allowance 23 which I am not aware of. 24 You are more involved in the negotiations than me, 25 therefore I assume that where you have reduced the risk 101 1 allowance, you are content or have been assured that 2 this is correct? I reviewed those risks which are 3 included in the QRA on Friday and input will be required 4 from others before we can amend these risks. 5 I've attached the QRA with my comments and you'll 6 notice at the end a number of queries regarding 7 potential 'new risks'. Again, I would prefer someone to 8 let me know if these issues need to be catered for in 9 the risk allowance. 10 Stewart, my main concerns here is that (a) we are 11 reducing the risk allowance while the risk has not 12 actually been transferred or closed and (b) the new risk 13 allocation is not sufficient for the risks which tie 14 will retain. I cannot overstate how anxious I am to 15 ensure that the final QRA truly reflects the actual risk 16 profile at financial close." 17 So we see here Mr Hamill querying the very 18 adjustments that we've just been looking at. 19 A. Yes. I would -- the risks weren't being closed out that 20 I'm aware of in the register itself. And I think the 21 missing bit of communication here is between Steven or 22 the procurement team and Mark to keep him closer to 23 what's being achieved through the course of the 24 negotiations. 25 So validating that link between the way I'm 102 1 presenting the numbers, the increases as being against 2 the procurement stage risk allowance, and what was being 3 achieved through the negotiations. 4 But not -- I mean, I haven't closed out any risks. 5 It wasn't within my -- I didn't unilaterally close risks 6 out. This is just a presentation of the cost increases 7 from the negotiation being allocated against the 8 allowances that were made. 9 I mean, not totally unrelated from the risk 10 management process. It's just a representation of what 11 was happening. 12 Q. You referred there to a missing piece of communication 13 between the project team and Mr Hamill. 14 A. Mm-hm. 15 Q. Presumably it would be quite important to keep the risk 16 manager up to speed with matters affecting the 17 appropriate assessment of risk? 18 A. Yes. And I don't think that happened. I mean, the 19 procurement team were working very, very hard and 20 I don't suppose for a moment they weren't deliberately 21 not engaging with Mark throughout. But this email, when 22 I read it, seemed to suggest that at the time he sent 23 it, he wasn't close enough to what was happening on the 24 procurement and how positions were getting taken to 25 understand it. 103 1 Q. Okay. 2 A. It's actually incumbent upon the budget holders, whoever 3 they might be, to talk to Mark. But also at a senior 4 management level. The procurement was being conducted 5 within, you know, quite a discrete group of people, with 6 DLA supporting on the outside. And then getting 7 discussed at senior management meetings as to where we 8 were getting to. 9 Q. Who within that team of discrete people should have been 10 reporting these developments to Mr Hamill? 11 A. Well, it would be Geoff -- Geoff Gilbert was the 12 Procurement Director. On the chart he reported through 13 to the Project Director, who was at that stage 14 Matthew Crosse. Steven Bell, as Project Director elect, 15 was well and truly involved by this stage. 16 Dennis Murray, the Commercial Director. Jim McEwan, 17 who -- I can't remember Jim's job title, but he played 18 a role in the procurement as well, and Geoff Gilbert 19 himself had a number of people who worked for him on the 20 procurement also. 21 So -- 22 Q. Any one of those people presumably could have kept 23 Mr Hamill up to speed with procurement developments 24 affecting risk? 25 A. Yes. 104 1 Q. But it appears from this email that they hadn't. 2 A. That's what this would suggest, yes. 3 CHAIR OF THE INQUIRY: You mentioned budget holders, whoever 4 they might be. Would that be the same group of people? 5 A. Yes, I would expect there to be a match there. 6 CHAIR OF THE INQUIRY: The people you mentioned as the 7 procurement -- 8 A. Yes, some of these Infraco procurement risks related to 9 design. Maybe the risk -- sorry, the risk owners, not 10 budget holders. My mistake. 11 The risk owners might well have been people on the 12 design management side of the house, but all sitting 13 under the same roof, as it were. 14 MR MCCLELLAND: If we go, please, to the attachment, which 15 is CEC01489954. This appears to be the output of the 16 QRA with Mr Hamill's notes added to it. 17 If we could just make sure we've got columns DG to 18 DI -- we've got them. That's good. They're in the 19 middle of the page there. 20 If we can go, please, to line 56. If we just scroll 21 back along to see what's said in the first column of 22 that row, we see there that that's the two-stage tender 23 pricing risk that we looked at a moment ago. If we 24 scroll back to columns DG to DI, we see Mr Hamill's 25 comment in row 56. So his comment is: 105 1 "Potentially increase probability." 2 A. Mm-hm. 3 Q. So his view was that, rather than that risk 4 disappearing, there was actually a case for increasing 5 it. Would you agree with that at the time? 6 A. Would I agree there was a -- do I agree with -- sorry, 7 the comment? 8 Q. Yes, the comment that potentially tie should be thinking 9 about increasing that risk allowance? 10 A. Yes. As I said, there would have been a case for 11 increasing the risk allowance at that stage for the fact 12 that we were still in negotiations. 13 Q. If we look at line 57, again, just scroll back to see 14 the description of that risk. That is: 15 "SDS Designs are late and do not provide detail 16 Infraco requires." 17 Again, that's one of the risks we looked at? 18 A. Yes. 19 Q. If we scroll back along to see Mr Hamill's comment: 20 "No evidence to suggest amending risk - propose 21 amending exposure end date." 22 So he appears to be concerned that this part of the 23 risk allowance is shown as being used up. Do you agree 24 with his comment that there was no evidence to suggest 25 amending that risk? 106 1 A. No, because I think the whole issue of incomplete SDS 2 designs had -- as far as we understood, been quite 3 significantly amended by the Wiesbaden Agreement, which 4 was the point at which the -- and this is kind of 5 notwithstanding what happened afterwards. 6 As far as we were concerned, the Wiesbaden 7 Agreement, the contractor had agreed to take design 8 development risk, had agreed to complete the designs, 9 and that they would pay, or their new price included for 10 any consequence of those designs being completed under 11 normal design development conditions, meaning, as 12 I understood it, if -- if a bridge is a bridge, 13 notwithstanding that the design for that bridge has not 14 been submitted and we don't have an issued for 15 construction drawing, we've taken our view on what it 16 will take to finish that structure, and therefore our 17 price included for it. 18 My understanding, and the understanding of everyone 19 else in tie, was that that is what had been achieved. 20 Q. So you would regard what had been agreed at Wiesbaden as 21 justifying the removal of that risk? 22 A. I don't think there's a one for one match between every 23 negotiation and the risks allowed for at procurement 24 stage. I think it would be very, very difficult to draw 25 a matrix, a direct matrix. But this -- the risk of 107 1 incomplete SDS design is absolutely one of the risks 2 that I believed had been very significantly removed as 3 a result of the Wiesbaden Agreement. 4 Q. We see there, row 59, the comment is: 5 "No evidence to suggest amending risk - propose 6 amending ..." 7 Sorry, I think that's the one we just looked at. 8 Okay, we can move on from that. 9 A. I don't recognise any of these comments. I wouldn't 10 even know for sure that I went through this at the time. 11 Q. Okay. Well, do you recall what you did in response to 12 Mr Hamill's concerns, the ones that he referred to in 13 his email? 14 A. I think in my written answer, I said the most likely 15 thing I would have gone is gone to Steven and 16 said: Steven, QRA is not actually my process; you need 17 to speak to Mark and explain to him what's going on. 18 Just what I said, communication. 19 Q. Mr Hamill's evidence to the Inquiry is that he had no 20 idea where what he perceived as changes in the QRA were 21 coming from. And he was very concerned as to why they 22 were being changed without any justification that was 23 apparent to him. 24 He says -- he recalls having a dealing with you 25 about that. Do you recall that? 108 1 A. No. 2 Q. Mr Hamill's recollection is that you were angry with him 3 for querying what was being done. Do you recall that? 4 A. If I had an altercation with Mark, I'd remember it. 5 I don't recall any such altercation. I might well have 6 been very frustrated that he didn't know what was going 7 on, but it wouldn't have been anger with him per se. 8 Q. I think the phrase he uses is that he was told to get 9 back in his box. 10 A. It's not something I would say to someone, but if -- did 11 he say that that's what I said? 12 Q. To be fair, I don't think he said those were your words. 13 I think he was describing what he took as the overall 14 meaning conveyed to him. 15 A. Sir, I don't deal with people in that way. I have no 16 recollection of any altercation with Mark Hamill on this 17 issue at all. 18 I can well believe that I might have been frustrated 19 that he didn't know what was going on with the 20 procurement, but as I said, the way I would have dealt 21 with that is I would have gone to either Steven Bell or 22 Susan Clark, and said: look, can somebody please bring 23 Mark up to speed. And give him comfort that we weren't 24 closing the risks out. This was essentially an 25 accounting exercise to reflect that -- the entirely 109 1 valid presentation whereby the cost increases through 2 the negotiation were being set for presentation purposes 3 against the -- the risk allowances made at Final 4 Business Case. 5 Q. Okay. Thank you. 6 Now, we've discussed through this morning the final 7 piece of negotiation by Bilfinger to increase the 8 Infraco price. What was your view on how that reflected 9 on Bilfinger and the consortium as a contractor? 10 A. This is a value judgement. It's -- I thought that -- 11 I think this is the hardest commercial negotiation I've 12 ever witnessed. I mean, I wasn't involved in the 13 day-to-day meetings in the rooms, but I think, as a -- 14 a very general statement is I think the procurement team 15 found it very, very hard to reach a settled position 16 without the detail then being -- or attempts being made 17 to then open the detail back up. 18 So it was very, very difficult for the procurement 19 team to reach that settled position. Hence the 20 reason -- when we submitted the Final Business Case, we 21 actually had commitment to close the contract at the end 22 of January, which is why the Final Business Case was in 23 December, and not in May. So we then had unexpectedly 24 several months of protracted negotiation in the detail 25 from that point. 110 1 Now, what was driving the stances being taken by BSC 2 during that period, I can only guess. 3 Q. I understand there were various negotiation points 4 through the period from January to May 2008. But 5 specifically the last one, do you think that reflected 6 well, the tactics that Bilfinger were using, do you 7 think it reflected well on them as a contractor? 8 A. No. I mean, it won't be the first time a contractor has 9 turned up on the front door on the day the contract has 10 been signed and said: excuse me, it's going to cost more 11 money. It certainly won't be the first time it's 12 happened. But I think it's -- you know, reflects poorly 13 on them that it did happen. 14 Q. Did it bode well for the project going forward? 15 A. At the time of -- at the time of contract award, did 16 I think that the hard slog through procurement was going 17 to give rise to what happened afterwards? No. I mean, 18 we had in fairness in response to how difficult the 19 procurement phase was, we had adopted a much stronger 20 commercial and construction management team than had 21 originally been intended, because we anticipated that 22 they would be commercially active and we needed to be 23 prepared to deal with that. 24 What we didn't expect was that nothing was going to 25 get done until a reinterpretation of the contract was 111 1 agreed to. 2 Q. I understand that you perhaps didn't anticipate the 3 severity of what was to come, but the last minute 4 negotiating tactics by Bilfinger, did that reveal an 5 attitude which in your view presented a new risk for the 6 project? 7 A. I think the risk of poor commercial behaviour is always 8 there. And I think the -- although -- so I don't think 9 that was a new risk at all. I think it's all about 10 a case, well, how are you addressing that risk, and the 11 way you address it is in the way that -- the project 12 management procedures and the resources that you deploy 13 to manage the commercial side of the project, and as 14 I said, even at that stage, we had a bigger commercial 15 team -- because the way the contract was set up was that 16 in actual fact the project management service was to an 17 extent coming from Infraco. 18 They do the hard work on the assessment of change, 19 if that is what the particular subject matter is. They 20 manage the design, for instance. And if anything 21 requires assessment and approval, they bring it to us. 22 That was the way -- it was a partnering type 23 contract. So we weren't tooled up initially with an 24 army of people to deal with commercial disputes, but we 25 did have, even at financial close, we had more people on 112 1 the ground in the Infraco team, and in our commercial 2 team, than had originally been anticipated. 3 Q. If we just look -- I note the time. We're just before 4 1 o'clock. But if we could just look briefly at the 5 financial close record of recent events paper, which is 6 CEC01338847. If we go please to page 11. In the 7 section headed up "Conclusion", the first sentence there 8 is: 9 "The process to reach Financial Close has been 10 tortuous and a partnerial approach from BBS has been 11 notable by its absence." 12 Had tie been expecting more of a partnerial 13 approach? 14 A. Yes, absolutely. 15 Q. That is what I mean when I say that the way the 16 negotiations were conducted, did they present a new risk 17 if that assumed partnerial approach had been noted to be 18 absent? 19 A. I think the risk was always there. I think the way that 20 we were addressing that risk was through more robust 21 and -- sorry, not more robust. An amended project 22 management structure to respond to the risk that that 23 might actually crystallise. 24 Q. Was there an additional element added to the risk 25 allowance to take account of that new risk? 113 1 A. No, but the -- the costs associated with it were 2 actually crystallised and included in the budget on the 3 resources line. 4 Q. Okay. If we just look slightly higher up on page 11, we 5 see there section 4 -- 6 A. I don't know if that would have appeared as a specific 7 risk in the risk register. It might well have done. 8 But I can't remember. 9 Q. I don't think we saw any reference to it in the passage 10 which deals with the change in the risk allowance at 11 financial close? 12 A. It didn't have -- it wouldn't have had a quantified 13 value, but I'm pretty sure or I would have expected it 14 to be in the risk register. 15 Q. So you would expect to see a risk allowance -- 16 A. No, not a risk allowance. A risk item, and -- it's kind 17 of implicit in all of the project management routines 18 that this is how we're going to manage. You know, 19 that's the mitigation. 20 It could have appeared as a separate item in the 21 risk register. I don't know. 22 Q. If we look to section 4, it says: 23 "The final matter addressed by tie and discussed at 24 the Tram Project Board/tie Boards on 7 May 2008 is the 25 suitability of BBS as a contract partner in view of 114 1 their behaviour during the negotiations. There are 2 three reasons why this concern should not be a barrier 3 to entering into the contracts: 4 1. Tie has established a strong commercial team to 5 manage the contract obligations and risks. These 6 experienced operators have had a lengthy period to 7 familiarise themselves with the contract and to 8 anticipate where and how disputes may arise in future. 9 2. Tie will have the strength of the contract 10 terms as support in future disputes, which will provide 11 a considerably stronger defence against unsupportable 12 positions taken by BBS; in addition, tie is in 13 a position to pursue recompense against BBS under the 14 contract, where no such leverage exists pre-Close." 15 So in short, this is really the point you were 16 making? 17 A. Yes. This is much better articulation than mine of what 18 I meant. 19 Q. This is the point you were referring to. 20 A. Yes. 21 Q. So tie is essentially putting its faith in the strength 22 of its commercial team and the strength of the contract 23 terms as being a mechanism for dealing with what one 24 might describe as an aggressive commercial attitude -- 25 A. I don't think it's unusual, okay, that -- to have 115 1 a position where commercially it's a lot more difficult 2 before the contract gets awarded than after. It might 3 still be commercially active afterwards, but they're 4 getting on -- the contractor is getting on with 5 delivering the project, whatever it is. 6 But I just think this would be such a highly unusual 7 position whereby the contractor just doesn't get on with 8 the job, very, very unusual, I would have thought. 9 Q. Do you accept that tie's faith in its -- in the strength 10 of its commercial team and the strength of the contract 11 terms -- 12 A. Absolutely. 13 Q. -- turned out to be misplaced? 14 A. It -- it just didn't anticipate the circumstances that 15 came at us. When you say misplaced, do you mean could 16 we have reasonably anticipated what was going to 17 happen -- 18 Q. No. 19 A. -- in the period before close? No. I just -- what 20 happened after close was -- just could not have been 21 anticipated in any way. But we were putting our faith 22 in our own project management routines. We were putting 23 faith in the -- in the contract, but probably most 24 importantly of all, we were putting faith in Bilfinger 25 Berger and Siemens to get on with the contract and 116 1 deliver the project and deliver a service and engage 2 effectively with our team. 3 Q. Would you accept that in placing faith in all of these 4 three things, that that faith turned out to be 5 misplaced? 6 A. Yes. Sorry, can I just come back -- just be careful 7 what you mean by misplaced. Do you mean did it turn out 8 not to be the case? Yes, it absolutely did. But we did 9 not anticipate it at the time. I don't think we could 10 have reasonably anticipated it at the time, 11 notwithstanding the difficult -- I mean, in hindsight, 12 because I went through all of the grief that happened 13 afterwards, it's easy to ask yourself, should we have 14 known? But I've placed myself in the position before 15 close, I just would -- and I saw my -- my understanding 16 that the contract work, and I saw our project management 17 team assembled and ready to go. Did at any stage I, or 18 anyone else -- so we, did anyone else -- did people at 19 tie think, you know: there's a good chance that this is 20 all going to be a total mess. No. Absolutely not. 21 MR MCCLELLAND: Okay. I note the time, my Lord. I have 22 gone over a bit. I apologise for that. 23 CHAIR OF THE INQUIRY: We will adjourn for lunchtime and 24 resume again at 2.10. 25 (1.06 pm) 117 1 (The short adjournment) 2 (2.10 pm) 3 CHAIR OF THE INQUIRY: You're still under oath, 4 Mr McGarrity. 5 A. Yes, my Lord. 6 MR MCCLELLAND: Could we please have up on screen document 7 TIE00110802. 8 You can take it from me, Mr McGarrity, this is 9 a breakdown of the QRA at financial close. 10 Just a couple of things I would like to address. 11 The first is in relation to the risk of an increase in 12 the Infraco construction costs arising from completion 13 of the design; as I understand your evidence, it is that 14 there is not a provision for that in the QRA, is that 15 correct? 16 A. At close? 17 Q. At close. 18 A. No. 19 Q. No provision for it? 20 A. No. There were -- sorry, just to clarify, there were 21 allowances in the budget where design wasn't advanced 22 enough at the point of close for Infraco to put a price 23 on it, a firm price. So that was -- for instance, 24 provisional sums in relation to Picardy Place, okay, 25 where the design was not complete. No argument about 118 1 that. Burnside Road at the airport, where there was 2 still ongoing discussion with Edinburgh Airport Limited 3 about specifically what their requirements were and how 4 much it was going to cost. The RBS tram stop. So third 5 party things, where that incomplete design wasn't 6 addressed as a risk allowance, it was made by -- it was 7 dealt with by specific provisions in the contract. 8 But holistically the movement between the design and 9 the Employer's Requirements, as they existed at 10 preferred bidder stage, and the way that that was 11 impacted by the fact that the design was not complete by 12 financial close, was dealt with in the contract. So 13 there was no -- there are -- there's a number of 14 individual risks here which you can relate to incomplete 15 design, but there was no single risk that said design 16 not complete. 17 Q. Yes. The matters that you referred to as having been 18 provisionally priced, would we -- we don't need to look 19 at it, but if we were to look at Schedule Part 4, we 20 would see there provisionally priced items. Is that 21 what you're referring to? 22 A. Yes, provisional sums in the Infraco contract, but also, 23 for instance, in the case of Burnside Road, the 24 Edinburgh -- at the airport, that wasn't a provisional 25 sum. We had a sum of money provided for that outside of 119 1 the Infraco contract as a standalone non-Infraco item. 2 But it would have -- the way that that would have been 3 implemented, I presume, is by instructing the Infraco 4 consortium in due course on exactly what was required at 5 Burnside Road. 6 Q. Do we understand what you say about the Burnside Road 7 example that we should see an entry for that in the 8 financial close budget? 9 A. Yes. 10 Q. But it's not shown in the risk allowance? 11 A. Correct. 12 Q. It's shown somewhere in the lines above that? 13 A. Yes. 14 Q. The second point I want to check, just in relation to 15 this QRA at financial close, are you able to help us 16 about the provision that's made there for the cost of 17 delay in the Infraco contract which is a consequence of 18 delay in the MUDFA works? 19 It may help if we look -- if we scroll down through 20 this, we should come to some green lines. Just keep 21 those up on screen. 22 So we see there, Mr McGarrity, from lines 31 to 35, 23 this is the breakdown of the risk allowance relating to 24 MUDFA, which elsewhere in the spreadsheet we're told 25 totals GBP8.6 million? 120 1 A. Mm-hm. 2 Q. Do these provisions that we see on screen include the 3 cost of knock-on delay to the Infraco programme? 4 A. As a -- as a general principle, not -- the delays to the 5 Infraco were in the general delay allowance, and not in 6 the MUDFA allowances. So to the extent it would require 7 extra costs to be paid to Infraco, I think it's dealt 8 with in the general delays allowance, rather than -- or 9 risk, rather, rather than being specifically dealt with 10 in the MUDFA risks. 11 Q. We can look at it if it would be helpful, but I think 12 I'm right in saying that the close report tells us that 13 the cost of delay to the Infraco programme is not 14 included in this MUDFA element of the -- sorry, it's not 15 included in the general delay element of the risk 16 allowance? 17 A. Sorry, I don't -- I can't remember what the close report 18 says in that respect. 19 Q. Okay. If we look, please, at line 23. 20 A. Yes. 21 Q. Which is actually in the -- this is the section on 22 Infraco delivery risks. 23 A. Yes. 24 Q. We see there risk 931? 25 A. Yes. 121 1 Q. Utilities assets uncovered during construction that were 2 not previously accounted for, and so on. If we read the 3 effect column, it talks about redesign and delay. 4 If we scroll along that line, we see that the 5 provision made for that risk is GBP747,000. 6 A. Yes. 7 Q. Then if we just look briefly at line 26, risk 318: 8 "Failure to make arrangements with Utilities for the 9 phasing of necessary connections ..." 10 And the effect: 11 "Potential delay to the start of Infraco works in 12 certain sections." 13 If we scroll along, we see that the total for that 14 is GBP166,000. 15 I'm just trying to understand, are these the only 16 entries in the QRA for the cost of delay to the Infraco 17 programme resulting from utility delays? 18 A. Without sitting with all of this and rationalising it, 19 I can't -- I can't actually answer that question with 20 any degree of precision, I'm sorry. 21 Q. Okay. Just sitting there -- I recognise the point you 22 make. We won't make you sit and read through all of 23 this just now. 24 A. Without my glasses, I can hardly see that. 25 Q. In terms of general recollection, you can't tell us 122 1 today where the provision for Infraco programme delay 2 resulting from MUDFA delay was made within the QRA? 3 A. I can't -- as I sit here, I can't point to it. I'm 4 sorry. 5 Q. Now, you can take it from me that the total provision 6 made here for MUDFA risks at financial close was 7 GBP8.6 million. You can also take it from me that in 8 the project control budget set by the Tram Project Board 9 immediately after financial close, the budget for MUDFA 10 works was GBP48.5 million. 11 So GBP48.5 million for the works and a risk 12 allowance of GBP8.6 million? 13 A. Yes. 14 Q. We understand that the outturn costs for utilities works 15 was over GBP100 million by the end of the project? 16 A. I don't remember -- I think when I left the -- I can't 17 remember the exact numbers, but it was 70 something. So 18 I don't know how it ended up being 100. The numbers 19 I recall being reported when I left the project, it was 20 not just MUDFA, all the other utility works, totted up 21 to something over GBP70 million. I have no idea where 22 the GBP100 million comes from. So -- 23 Q. Okay. So you can't speak for what happened after you 24 left in late 2010. 25 A. No. 123 1 Q. But the utilities weren't complete when you left then? 2 A. I can't remember with precision. The MUDFA contract was 3 closed out. But I think the work -- the work being 4 carried on, there was two new contractors brought in to 5 do utilities in Leith and -- and at the airport. 6 I think that work was still ongoing. But I think the -- 7 I think -- and there might have been other utility 8 diversions procured outside the MUDFA contract which 9 were ongoing when I left, but I think the MUDFA contract 10 had been closed out. 11 Q. Just at the highest level, at financial close, the MUDFA 12 budgets, GBP48.5 million, and there's a risk allowance 13 set aside of 8.6 million, which takes you to sort of 14 GBP56 million, GBP57 million in total, and even if you 15 just look at the cost at the time you left, which if you 16 say was GBP70 million or so, does that suggest to you 17 that something went wrong with tie's risk assessment? 18 A. I think the -- the people at tie at the time of close -- 19 I was happy that they'd sat down and really thought 20 about the experience with the utilities so far, with 21 extra quantities being discovered, with the redesign 22 issue, meaning having to go back through the design 23 process because what they found when they opened the 24 ground wasn't there, and also the traffic management 25 embargo arrangements and how that impacted. 124 1 I think that they made the best professional 2 assessment at the time of close of how it was going to 3 end up. I mean, it did turn out to be even more 4 difficult than they anticipated, the utilities programme 5 after close. 6 CHAIR OF THE INQUIRY: So what's your answer to the 7 question: does it suggest that something went wrong with 8 the risk assessment; yes or no? 9 A. Yes. It was inadequate. The amount provided for was -- 10 was inadequate in light of what transpired, yes, 11 my Lord. 12 MR MCCLELLAND: If, as we've seen, there has to be input 13 data put in to come up with a particular risk allowance, 14 can you say whether there was something wrong with the 15 information that tie gathered when making that 16 assessment? 17 A. Something wrong -- it was -- it didn't prove to be 18 enough, given the emergent difficulties continuing with 19 the utility diversions after contract close. 20 Q. So had tie taken insufficient steps to inform themselves 21 about the relevant facts? 22 A. Yes, but the relevant facts and circumstances at close 23 were what were taken into account in establishing that 24 budget, but the facts and circumstances as they emerged 25 were different. So ... 125 1 Q. Was there anybody in the senior management of tie with 2 experience of utility diversions to challenge the risk 3 assessment, to say, you know, it doesn't look like 4 you've made enough -- 5 A. We had a Construction Director in place on MUDFA, and 6 I think he did. Graeme Barclay, I think, was the MUDFA 7 Director. So he, working with Steven, I would have 8 hoped, would have been in a very good position to make 9 those judgements. 10 In respect of sheer quantities, and redesign was one 11 element of difficulty. I mean, introducing management 12 routines, because what happened is that increasingly, 13 there were management routines implemented such that the 14 MUDFA works in terms of obtaining the necessary design 15 was being actively -- was being more actively managed by 16 tie people to manage the interface between SDS and MUDFA 17 and SUCs. Sorry, I'm talking too much. 18 Q. No, I understand that you're explaining the management 19 arrangements. 20 A. What I'm saying is that the management arrangements were 21 part of that assessment of what the risk -- the effect 22 of the risk would be. 23 Q. The point remains that the risk assessment made for 24 utilities, taking account of those management 25 arrangements, was inadequate? 126 1 A. Yes. 2 Q. I don't think we need to go to it, but what you say in 3 your statement at page 12 in question 20, you were 4 asked: 5 "Do you consider that risk management was 6 effective?" 7 Your answer is: 8 "I have no reason to believe that tie's risk 9 management reporting was in any way significantly flawed 10 or that it was ineffective." 11 In light of what you have said about the utilities, 12 would you review that answer? 13 A. I don't think -- what I should say, I don't think there 14 was anything wrong with the process. But there was no 15 doubting that the estimates that came out of that 16 process turned out to be inadequate in terms of what 17 actually happened. 18 Is that a fault in the process? I don't think so. 19 But the estimate -- the estimating of what circumstances 20 could arise in the remaining utility diversions and the 21 way that that was going to be managed was the primary 22 determinant of the inputs to this QRA. 23 Q. Thank you. 24 CHAIR OF THE INQUIRY: Is it not well known that the utility 25 diversions in contracts of this type were a recognised 127 1 significant risk? 2 A. Yes. I mean, that was -- my Lord, the reason for -- the 3 rationale in the procurement strategy for doing the 4 utilities upfront was precisely to deal with that, 5 because any contractor bidding for a job that also 6 involves moving the utility diversions through a busy 7 city centre is going to -- is going to add -- the 8 experience was that contractors had bid huge premiums to 9 deal with the risk on that. If indeed you could get 10 them to bid on a fixed price basis for that kind of work 11 at all. They might just not have the appetite to bid on 12 a fixed price basis for utilities work because of the 13 difficulties of doing it. 14 MR MCCLELLAND: If we could go, please -- 15 A. I'm afraid -- whether it comes to -- sorry, please 16 excuse me. I didn't mean to interrupt. 17 When it comes to what were those difficulties 18 associated with the utilities, I mean, I can express my 19 understanding as an accountant. I'm sure the people who 20 were involved in it could provide much better answers to 21 the questions than I've just given. 22 Q. That's understood, thank you. 23 If you could go, please, to document CEC01500067. 24 Please take it from me, Mr McGarrity, that this is 25 an attachment to an email you sent to Duncan Fraser of 128 1 the Council on 29 November 2007. 2 As we can see, it's a draft of a report to the 3 Council to be considered on 20 December 2007 which was 4 the meeting at which approval was sought of version 2 of 5 the Final Business Case. 6 If we could go, please, to page 2, paragraph 3.3, if 7 we could include the comments box to the right of that, 8 please, it says: 9 "Negotiations have also encompassed design scope and 10 details. However the final negotiated contract price 11 is based on the preliminary designs made available to 12 the bidders during the tender negotiation period. As 13 a result of the negotiations, and submission of designs 14 for technical and prior (planning) approval, final 15 designs may be changed from the preliminary designs with 16 consequent cost changes. An additional contingency sum 17 is therefore included in the cost estimates which are 18 set out below in Section 4.2." 19 That's the text of the report that you were 20 considering. We see the comment on -- the comments box 21 is on the right-hand side. I think from the 22 annotations, we can take these as comments from you? 23 A. Yes. 24 Q. The first one: 25 "Might this give the impression that nothing has 129 1 moved on in the design for a long time? This has 2 already been discussed with Duncan by Geoff Gilbert." 3 The second one: 4 "I think this needs to be clear about the difference 5 between design evolution (emerging clarity about detail 6 and the approvals process) and scope changes (building 7 more) - there is no ability to absorb scope changes here." 8 Can you just clarify what you meant by those 9 comments? 10 A. Well, the first one is the estimate in the -- the 11 estimate that was -- the bid by Infraco, which informed 12 the budget at the time of the FBC, had moved on in the 13 intervening period, okay. So between the time that the 14 budget was set for FBC version 1, which was back in 15 October that year, and the point at which this report 16 was being drafted by Council officers, the design had 17 moved on. 18 So that's the point of number 1. 19 The second one -- very, very clear that this goes 20 back to my earlier point about the need to have 21 absolutely rock solid change control at the point of 22 Final Business Case. In other words, there's two kinds 23 of design change, okay. So I believe it falls into two 24 boxes. One is evolution. So there is a bridge in that 25 design, and it's -- it's going through to completion of 130 1 the design of that bridge. That's evolution, okay. But 2 introducing a new bridge is a scope change. 3 So I think it is very important to differentiate 4 between design evolution and something which is actually 5 change in scope. 6 Of course there's a grey area. There's no absolute 7 dividing line between the two. But regardless, you need 8 to have change control. In other words, from the point 9 you establish the control budget for a project, or any 10 other budget in any organisation, you need to have 11 a real understanding of why that's moving around, and 12 a proper approval process with all of the stakeholders 13 involved, signing off and taking responsibility for the 14 consequences. 15 Q. If we could move on, please, to page 3 and 4.3, again, 16 if we can just highlight 4.3 and the comments boxes 17 which I think includes the blue one. That's fine, thank 18 you. 19 What this says is: 20 "These estimates include an allowance for risk 21 contingency of X per cent or GBP49 million that was 22 estimated - to be expressed as a percentage of an agreed 23 sum, say GBP250 million, from a detailed statistical 24 analysis of project risks. The estimates however 25 exclude additional cost arising from final detailed 131 1 design or from scope changes required by the client (tie 2 or CEC). A further contingency of GBP25 million is 3 recommended to cater for required any such design 4 changes as described in 3.3 above." 5 Your comment there in capitals is: 6 "Alarm bells all over the place. What additional 7 GBP25 million??" 8 A. Yes. 9 Q. It seems that the text here is acknowledging the 10 possibility of additional cost arising both from 11 completion of the design or from change in scope. Would 12 that be your understanding? 13 A. I think my comment is in the context of actual scope 14 changes. I would -- 15 Q. Before we get to your comment, do you accept that the 16 text here is acknowledging the possibility of additional 17 cost arising from completion of the design or from scope 18 change? 19 A. Yes, it is. 20 Q. Do you accept that both of those were a possibility at 21 that time? 22 A. Yes. 23 Q. And was it appropriate for the Council, when assessing 24 the likely overall cost of the project, to be given 25 a provision for such costs? 132 1 A. Sorry, I don't -- could we have given them -- but this 2 was a question earlier on. Could we have put 3 a provision, a specific provision for evolution of 4 designs into the QRA, yes. 5 Q. That's what the person who has drafted this report is 6 suggesting, isn't it? 7 A. I thought this 25 million was actually about scope 8 change. 9 Q. Right. But you accept that the sentence before the 10 25 million talks about additional cost arising from 11 final detailed design or from scope changes? 12 A. Yes. 13 Q. So it's being proposed as a contingency for covering the 14 cost of both of those? 15 A. Yes. 16 Sorry, it refers to 3.3 above the 25 million. What 17 does 3.3 say? 18 Q. I think 3.3 was the paragraph that we looked at a moment 19 ago. 20 A. All right, okay. Sorry. 21 Q. Does that alter your answer? 22 A. Can I see it again, please? 23 Q. Just go back. 24 A. Sorry, this is a Council report that I'm commenting on. 25 CHAIR OF THE INQUIRY: It seems to be a draft that you had 133 1 an input into. 2 A. Sure. 3 Yes. I mean, I'm reading into the drafting here, 4 but I think what -- I have actually said is it needs to 5 be clear about design evolution versus scope changes. 6 I think there is a grey -- big huge grey area as to 7 which box a change falls into. 8 Q. Was it your view that it was inappropriate for 9 a provision to be made for either scope change or 10 development of the design at that time? 11 A. I don't think scope change should have been incorporated 12 into the budget at all. I think I would concede there 13 was an argument for including a provision for general 14 evolution of the design, but I think before it was 15 incorporated, I and everyone else would want to have an 16 analysis of it. In other words, where has this 17 evolution taken place? 18 Q. Thank you. 19 A. So just general provisions. Let's add GBP10 million. 20 I don't think I could have supported that other than 21 just for general prudence purposes. I would have wanted 22 to see an analysis of where the design had evolved. And 23 why that wasn't going to be something that the Infraco 24 contractor had paid for. 25 Q. Okay. Thank you. 134 1 Could you look, please, at document TIE00062379. We 2 see this is an email from Miriam Thorne to you on 3 28 November 2007. She's discussing the same paper. 4 First of all, can you just clarify who Miriam Thorne 5 was, please? 6 A. Miriam -- she worked for me. I employed her. So she 7 was essentially my assistant. 8 Q. What was her professional background? 9 A. She's an accountant. 10 Q. If we just read what she says: 11 "Stewart, please find attached my comments and 12 concerns in relation to the draft for the report to the 13 full Council on 20 December. As well as including 14 a number of inaccuracies and inconsistencies, I am 15 particularly concerned about the treatment of Cost and 16 Risk estimates in the report. I have included detailed 17 comments in each section but in summary the issues are 18 as follows: 19 The report suggests that the final Infraco price is 20 based on Preliminary Design - this is not correct as 21 certain design will be settled by the time of contract 22 award. 23 The report goes on to suggest that additional 24 contingencies should be provided for to cover changes in 25 design and scope. Based on some comments the additional 135 1 contingencies could be as much as GBP25 million. We 2 should resist this as: 3 (a) This would suggest that the capex cost estimate 4 is more than GBP498 million." 5 That was the figure that Mr Gallagher was keen on: 6 "(b) Scope changes are controlled through the change 7 control process and require additional funding. 8 (c) Cost increases due to design changes are 9 broadly within CEC's gift to avoid." 10 That final point that she makes, "Cost increases due 11 to design changes are broadly within CEC's gift to 12 avoid", did you agree with that at the time? 13 A. Yes. To the extent that -- the only people who are 14 going to propose scope changes are the project owners. 15 So it was within the gift of CEC not to introduce design 16 creep into the project by instituting or initiating 17 design change which had not gone through proper change 18 control, such that everybody understood the consequences 19 for the budget and for -- in the context of a fixed 20 funding level of funding. More important in this 21 project than other ones I have worked on, to ensure that 22 everybody understands who is importing those changes. 23 It doesn't mean that the change shouldn't happen. As 24 long as everyone understands what the consequences are 25 in relation to a fixed level of funding. 136 1 Q. But at this point in time, the design wasn't complete; 2 is that correct? 3 A. That's correct. 4 Q. So if the design change was needed to turn an incomplete 5 design into a complete one, it might not be the case 6 that the Council had any power or any real control over 7 the cost increase? 8 A. The -- the budget that this was based upon was -- or the 9 Infraco price that this was based upon was where they 10 had provided a price which -- and I can't remember the 11 numbers, but there was -- let's say it was 200 million. 12 They'd priced 150 as fixed and firm, based upon the 13 design information they had when they prepared their 14 bid, and I think there was 50 million -- GBP50 million 15 of provisionally priced items where the design wasn't 16 complete. 17 But that didn't mean that there was going to be -- 18 there wasn't an expectancy that they would come and add 19 to the price as a result of the design being incomplete. 20 In the end, as you know, what happened was we signed the 21 Wiesbaden Agreement, we paid our premium of 22 GBP8 million, and -- as we understood it, they took the 23 design completion risk on all of the items which they 24 had previously priced as provisional. 25 Q. Just on this point of the Council -- of it being within 137 1 the Council's gift to avoid cost increases due to design 2 changes, is that based on the assumption that at that 3 time you had a price which was for the completion of 4 a full tram system with a completed design? 5 A. Yes. As -- as represented on the drawings that were -- 6 that were used by the Infraco to price, plus the 7 Employer's Requirements, and the Infraco's proposals to 8 deliver on those Employer's Requirements. 9 The design -- the design drawings concerned -- my 10 understanding is that a lot of that was civil 11 engineering works, and that the Siemens part of it 12 wasn't necessarily represented on those drawings. So 13 you couldn't understand the design for the project, the 14 scope of the project, without with reference to all of 15 the above. 16 Q. Okay. 17 I think we'll move on from that. Do you recall what 18 the consortium's price was around the time they were 19 appointed as preferred bidder? 20 A. It's about GBP200 million or thereabouts. Sorry, yes, 21 it's GBP200 million or thereabouts. 22 Q. It's not a memory test, Mr McGarrity. I would suggest 23 to you it's about GBP208 million. Does that seem about 24 right? 25 A. Yes. 138 1 Q. I want you to have in mind the period around early 2 December 2007. 3 A. Yes. 4 Q. Were you aware around that time that the cost of the 5 Infraco works might turn out to be significantly higher 6 than the GBP208 million then under discussion as the 7 price? 8 A. No. 9 Q. Were you aware of any suggestion that the figure might 10 be GBP80 million or so higher than that? 11 A. Absolutely not. 12 Q. So not aware of any comments of that nature emanating 13 from anyone in the consortium? 14 A. Nobody at all. I would have had a heart attack if I'd 15 heard any such comments coming from anyone. 16 Q. Could we take it from that then that Andrew Fitchie of 17 DLA, you do not recall him saying anything to that 18 effect? 19 A. Absolutely not. 20 Q. If Mr Fitchie had given evidence that following 21 a meeting he'd had with Richard Walker in 2007, at which 22 Mr Walker had made comments to that effect, that he had 23 then walked through the building and told you all about 24 it, what would your response be to that? 25 A. No. Didn't happen. I would absolutely remember that. 139 1 I have no such -- as certain as I can be that no such 2 exchange took place with Andrew Fitchie. 3 Q. If Andrew Fitchie or anybody else had made a comment of 4 that nature to you around that time, what would you have 5 done with that information? 6 A. I would have taken it straight to Willie Gallagher and 7 to Steven Bell and the entire team and said: we need to 8 bottom this out; we can't continue any further with this 9 procurement until we understand the context of that 10 comment. 11 Q. Mr Fitchie was on secondment to tie at the time I think; 12 is that correct? 13 A. I believe so, yes. 14 Q. How did he generally report on matters concerning the 15 project, important matters concerning the project while 16 he was on secondment? Did he do it in writing or do it 17 orally or what? 18 A. If it was -- it would be both. DLA did write to the 19 company on occasion. In terms of who he engaged with 20 internally, very obviously Geoff Gilbert, who was the 21 Procurement Director who was leading with the 22 procurements. So his day-to-day engagement would have 23 been with Geoff Gilbert. 24 I believe he met regularly with Willie Gallagher and 25 also with Steven Bell. 140 1 So those would have been the primary people he was 2 talking to on a daily basis. 3 Q. Based on your knowledge of the way Mr Fitchie generally 4 communicated with the tie management team, if he did 5 have information to the effect that the consortium 6 expected their final price for the works to be so much 7 higher, how would you have expected Mr Fitchie to report 8 that? 9 A. At the very least in an email. They're so important. 10 It would have to at the very least be communicated in 11 writing, I would have thought. 12 Q. Now, in around the middle of December 2007 some members 13 of the tie management team went to Wiesbaden for 14 a meeting with the consortium. I think you say in your 15 statement you were aware that this was happening, but 16 you weren't at the meeting yourself? 17 A. No, I wasn't. 18 Q. But that understanding what had been agreed was 19 something that you regarded as something that you had to 20 do? 21 A. Yes. I mean, immediately thereafter I had to provide an 22 update to the Tram Project Board on what it all meant 23 for the cost estimates. So I had to understand what had 24 been agreed. 25 Q. And that presentation to the Tram Project Board, on what 141 1 information was your understanding of the Wiesbaden 2 Agreement based when you made that presentation? 3 A. I sat down and discussed it with -- with -- certainly 4 with Geoff Gilbert, because he documented or he -- 5 after -- I don't think -- Geoff wasn't in Wiesbaden 6 either. It was Willie and Matthew that went. So -- 7 Q. Willie Gallagher and Matthew Crosse? 8 A. Yes, sorry. So it was understanding from Geoff what had 9 been agreed, and how that impacted on the figures -- so 10 there was actually a price in the Wiesbaden Agreement. 11 So how do you get from preferred bidder to Wiesbaden? 12 So what's changed in that price and what have we got for 13 it? 14 Q. Why did you give the presentation based on a briefing 15 from Geoff Gilbert when neither of you had been at 16 Wiesbaden? 17 A. Well, Geoff did -- I did the numbers part. I think 18 Geoff did the slides on the -- the commercial -- the key 19 commercial points arising from Wiesbaden. 20 I don't think that would be unusual for 21 Chief Executive to agree a number of principles in 22 a high level negotiation and then say: right, can you 23 guys take that off and present it? I don't think that 24 that would be that unusual. 25 Q. But Matthew Crosse was the Project Director and he was 142 1 reporting to the Project Board all the time? 2 A. Yes. 3 Q. So why did he not do the presentation? 4 A. I'm sorry, I don't know. 5 Q. Just to be clear, in relation to the transfer of the 6 risk of construction cost increases arising from 7 completion of the design, what was your understanding of 8 what had been agreed at Wiesbaden? 9 A. That the -- all of the previous -- previous 10 provisionally priced sums had been taken to -- into firm 11 and fixed. So that was part of the changes in the 12 price, the pricing make-up. 13 And that we'd paid GBP8 million, and that 14 substantively what we'd got for that GBP8 million was 15 the contractor had explicitly taken the risk of taking 16 the designs from where they were to completion, forming 17 their view of -- as experienced contractors as to what 18 would change between the designs that they had and when 19 they would be complete. 20 Q. How much risk did you understand tie to retain in 21 relation to construction cost increase arising from 22 completion of the design? 23 A. None except insofar as it fell to be outwith normal 24 design development. 25 Q. That understanding, did that come from the briefing you 143 1 got from Geoff Gilbert? 2 A. Yes. 3 Q. If we could go, please, to document CEC01483731. 4 We see from page 1, this is a slideshow presentation 5 headed up "Tram Project Board 19 December 2007"? 6 A. Yes. 7 Q. If we could move to page 4, please. It appears to be 8 a section on price with your name on it. 9 A. Yes. 10 Q. Then if we go to page 5, we see there a heading, 11 "Progress To Closing Infraco Contract". Do you recall 12 if this slideshow was -- formed part of your 13 presentation to the Tram Project Board on that date? 14 A. Me personally, I don't know if I talked to this 15 particular slide, but between Geoff and I -- I think 16 between Geoff and I, we did this presentation. 17 Q. Okay. Based on this slideshow? 18 A. Yes. 19 Q. We see there that it's headed up, "Headlines of Deal 20 agreed in Wiesbaden based on 21 BBS taking detailed design development risk ..." 22 Then the bottom line: 23 "Contract negotiations as at 14/12/07." 24 A. Yes. 25 Q. Does that suggest that the briefing you gave to the 144 1 Project Board was based upon the negotiations as they 2 stood at that date? 3 A. The -- the Wiesbaden discussions -- sorry, I wonder if 4 you could help me. Is 14/12 the day of the visit to 5 Wiesbaden? 6 Q. Yes, I think I am right in saying -- 7 A. It is, okay. 8 Q. -- it was 13 and 14 December. 9 A. The actual signed Wiesbaden Agreement was, I think, 10 about a week later. 11 Q. It was -- I can tell you that the agreement was signed 12 on 20 and 21 December. 13 A. Yes. So it was based on discussions that took place on 14 that day, but then in the intervening period, the 15 documentation of the principles of what had been agreed 16 was conducted as between principally Geoff and 17 Richard Walker, I presume, on the other side. 18 Like all of those engagements, it wasn't a simple 19 process. I think it was -- took quite some time for 20 them to -- 21 Q. Just to be clear about the basis for the presentation to 22 the Tram Project Board, which comes before the final 23 agreement is signed, was this presentation that you did 24 based on an oral briefing to you on what had happened in 25 Wiesbaden, or was it based on drafts of the agreement? 145 1 A. No, I think it was -- based on drafts of the agreement. 2 It might even be -- it might even have been based on the 3 final agreement. 4 The Project Board was on the 19th? 5 Q. On 19 December. 6 A. Yes. It might not have been physically signed, but 7 I think this might have been based upon the signed 8 version of the Wiesbaden Agreement. 9 Q. So were you aware of the exchange of drafts of the 10 written version of what had been agreed at Wiesbaden? 11 A. No. I didn't follow the -- the in between drafting. As 12 a general -- as a general principle, I didn't try -- and 13 this is with all the negotiation of the contract, in my 14 role I would just have found it impossible to follow all 15 the step by step iterations on the negotiation. That 16 was for others to do. 17 What I did do was look at final versions of 18 documents. 19 Q. So do we take from that that you yourself would not have 20 been aware of the waxing and waning of drafting on the 21 scope of the design risk being transferred by tie to the 22 consortium? 23 A. No. 24 Q. So who would have been aware of that? 25 A. I don't know. 146 1 Q. Well, would Geoff Gilbert have been aware -- 2 A. Geoff Gilbert was leading it. So yes, he absolutely 3 would have. 4 Q. Did he give you any indication that in the course of 5 drafting the agreement, there was a -- an issue over the 6 precise scope of the design risk being transferred by 7 tie to the consortium? 8 A. No, I don't recall that. 9 Q. And that there was a to-ing and fro-ing about the amount 10 of risk being transferred? 11 A. Much later on, if you -- there was a piece of work which 12 I did much, much later for -- as part of establishing 13 the background to how those words developed at 14 Wiesbaden, where I did go and have an extract, because 15 it was important to -- considering how to tackle 16 Schedule 4 that we knew who proposed the eventual words. 17 So I did a bit of work for Brandon Nolan, digging 18 out a whole bunch of Geoff's old emails, to try and 19 establish what had happened. 20 I don't think we actually ever got to the bottom of 21 it. 22 So even with a forensic -- a much later forensic 23 examination, I don't think we got to the bottom of what 24 actually happened. 25 Q. Okay. If you try and put that subsequent investigation 147 1 out of your mind, and recall what was the basis for your 2 presentation to the Tram Project Board at the time, I'm 3 just trying to get my head round whether that was having 4 read the drafts or whether it was a briefing to you from 5 Geoff Gilbert as the person who was handling the drafts? 6 A. Based on what was -- if not the signed version, a very 7 advanced version of the document and discussion with 8 Geoff, and discussion with Willie on -- in the context 9 of is this what he agreed. 10 Q. But you were not aware, I think you said, of any to-ing 11 and fro-ing about the exact scope of the design risk 12 being transferred? 13 A. No. No. 14 Q. If we could look, please, at the Wiesbaden Agreement 15 itself, which is CEC02085660. 16 If we could just go, please, to page 5. It's 17 clause 3.3 which I suspect you're now familiar with, 18 Mr McGarrity? 19 A. Sorry? 20 Q. I suspect you're now familiar with this clause? 21 A. Absolutely. 22 Q. Just reading there, it says: 23 "The BBS price for civils works includes for any 24 impact on construction cost arising from the normal 25 development and completion of designs based on the 148 1 design intent for the scheme as represented by the 2 design information drawings ..." 3 As at 25 November 2007. 4 Does that reflect your understanding of the 5 construction risk, construction cost risk which had been 6 transferred to the consortium? 7 A. Yes. 8 Q. If we go to page 7, please, and just the clause at the 9 top, we have the clause that reads: 10 "For the avoidance of doubt, normal development and 11 completion of designs means the evolution of design 12 through the stages of preliminary to construction stage 13 and excludes changes of design principle, shape and form 14 and outline specification." 15 A. Yes. 16 Q. For tie to assess the risk they've retained in relation 17 to construction cost, they would need to understand what 18 was contained within that exclusion; is that correct? 19 A. Yes. 20 Q. What assessment did tie carry out in that regard? 21 A. I wasn't close enough to the design myself to be able to 22 answer that question as to what was done. 23 Q. Do you know if that particular risk was quantified? 24 A. No. We didn't have a risk allowance for design 25 evolution. We thought that this was -- that what this 149 1 clause did was it transferred the risk of that evolution 2 to the contractor. 3 Q. But the language is -- there are aspects of the clause 4 that are not clear, but what's very clear is that 5 excluded from the consortium price is any change of 6 design principle, shape and form, and outline 7 specification? 8 A. Yes. 9 Q. If tie didn't assess that risk, then they couldn't know 10 the scope of the risk they were facing. 11 A. The changes in design principle, shape and form and 12 outline specification, in my simple 13 compartmentalisation, was that would be a design change 14 that had to go through change control. So it's a change 15 in scope. 16 In other words -- sorry, I know I'm over-simplifying 17 here, but a bridge is a bridge, and when it's moving 18 from preliminary stage to completed design, it doesn't 19 change -- I mean, I had no appreciation either at this 20 time or at the time that we awarded the contract that 21 those words could be interpreted to mean any change at 22 all as a change. I had no appreciation that that's what 23 those words in terms of a strict legal interpretation, 24 that that's what they would mean. 25 Q. For you as an accountant, would you have been able to 150 1 assess or quantify whatever risk was within that 2 exclusion? 3 A. No. 4 Q. So you would have been reliant on somebody within tie? 5 A. Absolutely. 6 Q. Who within tie would have had the knowledge to assess 7 that? 8 A. The people managing the design would -- first and 9 foremost. 10 Q. Who would that be? 11 A. Who was managing the design at that time? There was 12 two -- there was a couple of external people reporting 13 into Matthew, who I think were the primary people who 14 were moving the design forward at that time. I'm sorry, 15 I have forgotten their names. 16 Q. There's Tony Glazebrook? 17 A. He's one of them. 18 Q. And David Crawley? 19 A. Yes. 20 CHAIR OF THE INQUIRY: Can I just be quite clear on what 21 you're saying. You are saying, or you said that: 22 "The changes in design principle, shape and form and 23 outline specification, in my simple 24 compartmentalisation, was that would be a design change 25 that had to go through change control. So it's a change 151 1 in scope." 2 Can I be quite clear, is that something that went 3 through your head at that time, that you interpreted 4 this as meaning a change in scope? 5 A. I thought if there was -- just to clarify that, if there 6 were -- if there was actually an error in the design, 7 that that would need to be assessed as well. 8 CHAIR OF THE INQUIRY: I'm just trying to get clear in my 9 own mind what exercise went through your mind, if any, 10 when you saw that the -- did you interpret that in 11 a particular way which enabled you to determine what, if 12 any, risk there was to tie? 13 A. Me personally, I asked what that meant, and was given no 14 indication that there had been any evolution of design 15 that would fall out of this -- this description. And 16 that none was expected. 17 CHAIR OF THE INQUIRY: You see, what you're saying, you say 18 that you were given no indication. Can you remember, 19 first of all, who you asked and what you were told? 20 A. I don't recall the specific conversations. In terms of 21 what this agreement says, I definitely spoke to 22 Geoff Gilbert. I think the other person I would have 23 spoke to would have been Steven Bell and/or 24 Matthew Crosse about the -- about what development of 25 the design might still come through from this point on. 152 1 CHAIR OF THE INQUIRY: Following those discussions, were you 2 able to form a view as to the effect on the risk to tie? 3 A. I thought that we'd -- that there was -- with no 4 anticipated or known significant changes to the design, 5 which wouldn't -- in other words, changes that wouldn't 6 be covered by this provision, and with the allowances 7 that had been made in the budget for areas where the 8 design wasn't complete -- I made reference earlier on to 9 the provisional sums for Picardy Place and Edinburgh, 10 et cetera. 11 CHAIR OF THE INQUIRY: Yes. 12 A. I formed the view that as far as I knew, we were 13 properly covered. 14 CHAIR OF THE INQUIRY: So there was a conscious decision 15 that no additional provision was required for risk? 16 A. Yes. 17 MR MCCLELLAND: Just returning briefly to a point you made 18 earlier, Mr McGarrity, about whether or not tie assessed 19 the risk inherent in the exclusion from clause 3.3. 20 A. Yes. 21 Q. I think you made reference to David Crawley and 22 Tony Glazebrook. 23 A. Mm-hm. 24 Q. If they had given evidence to the effect that they 25 didn't see that wording and hadn't been involved in any 153 1 assessment of that risk, would that surprise you? 2 A. Yes. 3 Q. If those individuals hadn't carried out an assessment of 4 that risk, would tie have been in a position to assess 5 it at all? 6 A. I'm sorry, I can't answer that question. I don't know, 7 is the answer. 8 Q. Mr Crawley and Mr Glazebrook were, broadly speaking, 9 design people; is that correct? 10 A. Yes. 11 Q. Was there anybody else in tie who had their level of 12 expertise on design? 13 A. Matthew Crosse himself, I think, was quite experienced 14 in design management, but I think those two people were 15 the main people when it came to design. 16 Q. As the two individuals most closely involved at tie with 17 the design, do you agree that they would have been the 18 people best placed to assess the risk presented by that 19 exclusion clause? 20 A. Yes, as far as I'm aware. Yes. In the detail, yes, 21 absolutely. 22 Q. Now, in due course the Wiesbaden Agreement was signed on 23 behalf of tie by Willie Gallagher. Were you involved in 24 briefing him or advising him or giving him comfort that 25 signing it was an appropriate thing to do? 154 1 A. No, I don't believe so. 2 Q. So if that was Mr Gallagher's recollection, would you 3 disagree with that? 4 A. Yes. Recollection in that he came and asked me, is this 5 okay? 6 Q. Or in any sense you told him it was all right to sign 7 this agreement? 8 A. No, no, I don't think I -- I don't recall doing that at 9 all. 10 Q. Would that be within the normal scope of your duties? 11 A. No, I think the -- this was a commercial agreement by 12 the procurement team, initiated by Willie, and 13 I wouldn't necessarily be involved in advising him, yes, 14 you can sign this, at all. 15 Q. You said that -- obviously, Matthew Crosse was in 16 Wiesbaden and Geoff Gilbert was then given the task of 17 drafting the agreement. Did you feel that you were 18 given adequate information by them about what had been 19 agreed and so on? 20 A. For the purposes of what I had to do, which was to write 21 up the financial impact of it, yes. I mean, always 22 reliant on people, as the finance guy in an 23 organisation, you're always reliant upon the subject 24 experts to give you comfort and tell you that it does 25 what it's supposed to do. 155 1 Q. If the Inquiry had evidence from Andrew Fitchie that you 2 frequently commented to him that you had a lack of 3 information from Matthew Crosse and Geoff Gilbert, what 4 would your response be to that? 5 A. No, not at all. No. I don't know why Andrew Fitchie's 6 said that. I didn't feel a lack of engagement from 7 Matthew and Geoff at all. 8 CHAIR OF THE INQUIRY: Mr McClelland, is this -- 9 MR MCCLELLAND: Yes. 10 CHAIR OF THE INQUIRY: We'll break again for the shorthand 11 writers and resume again at 3.30. You can get a cup of 12 tea. 13 (3.13 pm) 14 (A short break) 15 (3.30 pm) 16 CHAIR OF THE INQUIRY: You're still under oath, 17 Mr McGarrity. 18 MR MCCLELLAND: Thank you, my Lord. 19 Could you please have document CEC01374219. Now, 20 this is an email from Dennis Murray to you and to 21 Andrew Fitchie, dated 22 April 2008. The subject is ETN 22 Schedule 4. It reads: 23 "Schedule 4 attached for QA review." 24 Do you recall being involved in a quality assurance 25 review of Schedule Part 4 of the Infraco contract? 156 1 A. Yes. 2 Q. In very broad terms, what was the purpose of that 3 review? 4 A. Much like the close report, and indeed it informed the 5 close report, it's a cold review by someone who hadn't 6 been involved in the development of Schedule Part 4 to 7 determine if any of it didn't make sense. 8 Not intended in any way to replace the -- the 9 technical expertise and not intended in any way to 10 replace the oversight of DLA in attending to the whole 11 contract. 12 It made sense for me to do it because the main thing 13 in Schedule Part 4 was the price. So that's why I did 14 it. 15 Q. Yes. Schedule Part 4 is about pricing and risk. As 16 Finance Director of tie, these were matters of 17 importance to you? 18 A. Yes. 19 Q. If the document failed to achieve the risk transfer that 20 tie thought they had negotiated, was that the kind of 21 thing that this review was intended to pick up? 22 A. I don't think it was -- yes. If there was obvious 23 flaws, it would have been capable of picking those up, 24 but not in a legal sense. Not in a sense of the 25 interpretation of those words from a legal perspective. 157 1 At all times relying on a legal perspective, and also on 2 the engineering because many -- many of the exclusions 3 and assumptions were engineering and construction 4 related, and I did discuss them all with people like 5 Dennis Murray, with people like Steven Bell, and so 6 I thought for an accountant, I had a pretty good 7 understanding of what it all meant. 8 Q. Specifically in relation to Pricing Assumption 1, do you 9 recall if you discussed that with anyone? Sorry, 10 I should say, do you recall what Pricing Assumption 1 11 is? 12 A. Is it the normal design development? 13 Q. Yes. 14 A. Mm-hm. Yes, I mean, it was not just then, I mean, it 15 was discussed at various junctures throughout the period 16 from Wiesbaden to -- to signing of the Infraco contract, 17 and when I read it again, looking at Schedule Part 4, 18 I didn't -- my understanding of it did change from what 19 was in the Wiesbaden Agreement. 20 Q. You referred there to discussions that had taken place 21 throughout the period after Wiesbaden. Were any of 22 those discussions around whether or not Pricing 23 Assumption 1 correctly achieved what tie thought it had 24 negotiated at Wiesbaden? 25 A. I don't -- I don't recall anyone saying that it didn't 158 1 at all. Very difficult to recall specific conversations 2 and with whom during that period. I'm sorry, I just 3 can't. 4 Q. We see this email was sent not just to you, but also to 5 Andrew Fitchie at DLA. 6 A. Mm-hm. 7 Q. Did Mr Fitchie play any role in the quality assurance 8 review? 9 A. I think the quality assurance review was -- I might be 10 wrong somewhere on this, but I thought the quality 11 assurance review was internal at tie, and then the DLA 12 overview, legal quality assurance review, was -- 13 whatever their internal processes are, was separate to 14 that. 15 Q. Had Mr Fitchie's secondment to tie come to an end by 16 this point, do you know? 17 A. No, I think he was still -- I think he was still on 18 secondment, but I don't think that the secondment -- as 19 far as I know, I don't think the secondment meant that 20 the full weight of DLA's legal support wasn't behind the 21 work that he was doing. I mean, letters were still 22 going out under the name of DLA. 23 Q. I don't think you quite answered the question I asked 24 a moment ago, which was whether or not Mr Fitchie played 25 a role in the quality assurance review. 159 1 A. I think -- I don't think -- the quality assurance review 2 process, I don't think, had DLA on the schedule as such. 3 Their quality assurance review was -- was outside of 4 that. 5 Q. We'll see the form that you completed for your part of 6 the quality assurance review in a minute. 7 A. Mm-hm. 8 Q. Did you consult with Mr Fitchie at any point during your 9 review? 10 A. I don't recall doing so, no. 11 Q. Do you know why Mr Murray sent QA review, as he puts it, 12 to both you and Mr Fitchie? 13 A. I understand why we were both getting it. I mean, 14 Andrew because he was the lawyer. I understand why I'm 15 getting it because I'm on the list to do the QA review, 16 but I don't think -- I don't think Andrew was on the QA 17 review list, the internal QA list. I stand to be 18 corrected if he was, but I don't recall him being on the 19 QA list. 20 Q. You said you understood why this was being sent to him. 21 Could you just expand on that, please? 22 A. Well, because Andrew's -- Andrew's, meaning DLA's -- 23 I take the point about the secondment. But I didn't 24 consider for a moment at any stage that the full weight 25 of DLA's legal advice was not behind this contract in -- 160 1 in all parts of it. And I think that's why he was being 2 sent it. 3 Q. Are you yourself aware from your own direct knowledge of 4 the extent of Andrew Fitchie's involvement in the 5 drafting of Schedule Part 4? 6 A. Yes, I mean, I answered questions about his involvement 7 at Wiesbaden, and he wasn't. But thereafter, I think, 8 Andrew was very aware, as far as I knew, of what was 9 going on in the Schedule Part 4, because he had to be 10 because it was an integral part of a wider contract 11 suite. It couldn't be outside of -- it couldn't be 12 excluded from the legal advice that was being provided. 13 Q. So when you say Mr Fitchie was involved in Schedule 14 Part 4, is that your inference based on your view that 15 to advise on the contract in full, he would have to take 16 account of that, or are you saying that you have direct 17 knowledge that he was involved in the drafting of 18 Schedule Part 4? 19 A. I think, given that the -- most of the assumptions were 20 technical engineering assumptions, he wouldn't -- he 21 would have been sent it as -- as progressively those 22 assumptions developed, and -- and so he wouldn't -- he 23 wouldn't necessarily understand or be able to comment on 24 a particular technical issue, but he absolutely in terms 25 of how Schedule Part 4 fitted with the rest of the 161 1 contract, and the wording on normal design development, 2 I would have expected him to be signing off or -- as far 3 as I'm concerned, the signing off by DLA on the contract 4 was also sign-off on the legal competence in drafting in 5 Schedule Part 4. 6 Q. Were you yourself involved in the instruction of 7 Andrew Fitchie? 8 A. No. The secondment agreement was concluded in my 9 absence. I don't -- and as I said, he was working very 10 closely with -- with the procurement team all along. 11 Q. Just in the final line of Mr Murray's email, he says: 12 "Base Date Design Information to be inserted in 13 Appendix H." 14 We understand that in actual fact Appendix H 15 remained blank and there weren't details of the Base 16 Date Design Information inserted there. 17 Do you know why? 18 A. No, I'm sorry, I don't. I know that there was a data 19 room, and I know that there was -- that what constituted 20 Base Date Design Information was supposed to be in that 21 data room, but I don't know, other than it being 22 incorporated by a reference about a data room, I can't 23 explain why it wasn't all physically included in 24 Appendix H. 25 Q. Could we go, please, to CEC01286695. 162 1 We see here this is the form that you completed 2 following the quality assurance review, dated 3 23 April 2008. 4 Do you recall how long you spent on the review? 5 A. No, I don't. Sorry. I can't remember. 6 Q. Reading short, you say you confirmed that this document: 7 "c) has significant issues listed overleaf to be 8 addressed prior to signature." 9 Then you say: 10 "Okay for QC." 11 Does that mean quality control? 12 A. Yes. 13 Q. And so on. If you just, looking through the email -- 14 sorry, if you go to page 2, which is an email that you 15 sent to Dennis Murray, 23 April 2008, you make various 16 comments. 17 A. Yes. 18 Q. For example, the second bullet -- the -- the fifth 19 bullet, you refer to Pricing assumption 22. In your 20 review, did you go through all of the Pricing 21 Assumptions and consider what they did for risk and 22 price in relation to tie? 23 A. Yes, I did. 24 Q. I think it's clear you didn't raise any concern about 25 Pricing Assumption 1? 163 1 A. No. 2 Q. Just -- the second bullet there, which reads: 3 "Provisional and VE ..." 4 I assume that's value engineering: 5 "... items." 6 What you say is: 7 "As we all know, a well orchestrated resolution of 8 design, value and timing of all provisional and value 9 engineering items with a wary eye on the programme is an 10 absolutely critical part of our post close management 11 and I know you have your man on the case. I do not have 12 'the knowledge' when it comes to the detail behind some 13 of engineering and design related items but trust our 14 collective brains do and can mitigate against us being 15 picked off by BBS post contract. Should be on the 16 agenda for all Senior management meetings." 17 Can you explain the reference to being picked off by 18 BBS post contract? 19 A. Losing the opportunity in the context of the VE items, 20 losing the ability to implement those VE items. 21 So they came with conditions about approvability and 22 completion of the design to reflect those VE items. So 23 we couldn't just leave it to Bilfinger Berger to go and 24 deliver on them. We had, on VE in particular, we had to 25 be proactive in ensuring that to the maximum extent 164 1 possible, those VE opportunities were delivered, and any 2 others that came along that hadn't actually been thought 3 of at that point. Either proposed by us or by the 4 contractor. 5 Q. If we could go, please, to your statement, which is 6 TRI00000059_C, it's page 112, please. 7 Sorry, we can skip that. 8 If we go, please, to page 144. In particular, the 9 answer to question 81. I'll just read out what you say: 10 "The objective of the quality control reviews was to 11 have the constituent parts of the contract reviewed by 12 persons independent of their development to supplement 13 the review by DLA. The assumptions and exclusions in 14 Schedule Part 4 were under constant review by the 15 commercial/project team to assess their potential impact 16 on outturn costs, how that impact was being managed on 17 an item by item basis, and how that impact should be 18 reflected in the overall cost estimates and risk 19 allowance for the project. My review would have focused 20 on making sure I understood how the project team had 21 assessed the potential impact on outturn costs if there 22 were departures, what measures were in place to manage 23 or mitigate against such changes taking place and if our 24 overall cost and risk allowance took cognisance of the 25 risk of changes." 165 1 You refer there to an item by item basis. You'll 2 recollect that there are about 40 Pricing Assumptions in 3 Schedule Part 4? 4 A. Yes. 5 Q. It appears that you can't simply read across from each 6 of those Pricing Assumptions into the QRA or the risk 7 allowance? 8 A. No. So there's broad themes, the broad themes being 9 setting aside the normal design development clause, 10 where, you know, there was no allowance in the risk 11 allowance for normal design development. But the other 12 major themes in there were no utilities included in the 13 price, the extent of road reconstruction, which was 14 dealt with specifically by additional provision, and 15 ground conditions, unforeseen ground conditions. So 16 there was a number of Pricing Assumptions around that. 17 So those were the themes, but you can't -- you can't 18 do a direct read across between -- it wasn't -- it 19 wasn't done as: here is Pricing Assumption 3, and here 20 is our risk allowance in relation to that. It wasn't 21 done that way. 22 Q. Would that not have -- why not? Would that not have 23 made it easier to see how the risks had been assessed? 24 A. Yes. It would have been clear, but I don't mean that to 25 say that what was done was inadequate or ill considered. 166 1 But it would have been a clear audit trail of exactly 2 how every single assumption had been dealt with. 3 Q. Now, we talked a moment ago about Mr Fitchie and his 4 involvement in the quality assurance process. 5 Moving back from that quality assurance process and 6 thinking more generally about the period between January 7 and May 2008 over which Schedule Part 4 of the Infraco 8 contract was evolving, were you aware over that period 9 of advice being received from Mr Fitchie in relation to 10 Schedule Part 4? 11 A. No. Not that it came to me anyway. I presumed that he 12 was involved from a legal perspective as part of his 13 engagement with the procurement team. 14 Q. Was there any discussion within tie, for example, at 15 management meetings about advice received from DLA about 16 Schedule Part 4? 17 A. I don't recall any, I'm sorry. 18 Q. If there had been specific advice about Schedule Part 4, 19 which after all was about pricing and which you as the 20 Finance Director had an interest in, would you expect to 21 have been made aware of that advice? 22 A. Yes. 23 Q. In particular, do you recall any -- 24 A. Sorry, especially if it was advice regarding the 25 adequacy of achieving the risk transfer objectives that 167 1 I understood it to be. I would absolutely expect to be 2 told that, as would the rest. 3 Q. Was Mr Fitchie aware of what tie understood themselves 4 to have achieved in terms of risk transfer at Wiesbaden 5 in relation to the construction cost risk on completion 6 of the design? 7 A. I believed he did, yes. 8 Q. You say believed. Do you have direct knowledge that 9 Mr Fitchie was aware of that? 10 A. I can't -- I can't remember any documentation of that or 11 anything. So I don't mean to sound unsure, but I can't 12 point to a specific document which evidences what Andrew 13 was doing with Schedule 4 in the overall -- my 14 engagement with Andrew wasn't on a day-to-day basis. 15 That just wasn't my role. 16 Q. Were you aware of any advice emanating from Mr Fitchie 17 or DLA more generally that Schedule Part 4 carried 18 significant cost and programme risks for tie? 19 A. Absolutely not. 20 Q. Or that the language in Schedule Part 4 on design 21 development was not free from doubt, but obviously 22 transferred cost and time risks back to tie? 23 A. No. 24 Q. Or that the consortium were likely to exploit ambiguity 25 in that language and be adversarial in operating the 168 1 contract? (Pause) 2 Can we go, please, to DLA00006319. 3 If you go to page 2 of that, please. 4 Now, we see that this is headed up: DLA PIPER FILE 5 NOTE, CLIENT: TIE Limited; MATTER: Infraco, and the date 6 is given as 9 April 2010. 7 A. Mm-hm. 8 Q. But given the context, it may be that that's wrong. So 9 shall we just proceed on the assumption that this 10 relates to a meeting on 9 April 2008. 11 We see that it purports to record a meeting with 12 Geoff Gilbert, Howard McGarrity, Steven Bell, 13 Andrew Fitchie and others. Were you aware of anyone 14 called Howard McGarrity? 15 A. No. Just for clarity. 16 Q. We will proceed to the basis that the Howard McGarrity 17 is a reference to you. It goes on to say: 18 "Break out from negotiations with BBS to discuss 19 commercial proposition by BBS which involves tie 20 agreeing to further price increases, approximately 21 GBP9 million to be split between ..." 22 Then there's a blank: 23 "VE, NR immunisation phase 1B bid costs. Can tie 24 close on this?" 25 Do you recall a meeting about that in or around 9 169 1 April 2008? 2 A. Is this -- is that the day that the additional -- the 3 8.2 million was agreed to? 4 Q. I'm not 100 per cent sure, but I don't think so. I 5 think that was in March. 6 A. I can tell you that -- I can say, without fear of 7 contradiction, that the only time I was in -- in the 8 room or in the premises when one of these further deals 9 was agreed was at Rutland Square, and I think I just got 10 wheeled into that one because I was around. So if this 11 is a record of a meeting on the same day as that 12 8.2 million increase, I wasn't there. 13 Q. Now, the Rutland Square Agreement, I think, was signed 14 in the early part of February 2008. 15 A. Yes. 16 Q. But there was another price increase in March which was 17 for a figure of around GBP8.2 million or GBP8.3 million? 18 A. Yes. 19 Q. Can you be clear on which of those -- 20 A. It's the second one. It's the 8.3. So that's 21 a different date to this. 22 Q. I think you said earlier that the 8.3 was the increase 23 without a moniker, I think was how you put it? 24 A. Yes, that's right. 25 Q. Are you sure in your recollection that that was the only 170 1 occasion on which you attended a meeting about 2 a proposed increase in the consortium's price for the 3 Infraco contract? 4 A. It's certainly the only one that I attended where there 5 was actually a price arrived at. I don't recall this 6 meeting taking place at all. I can't remember. 7 Q. Okay. We see the other individuals said to have been at 8 the meeting? 9 A. Yes. 10 Q. Geoff Gilbert, Steven Bell, Jim McEwan, Dennis Murray. 11 Were you in the habit of attending meetings with those 12 individuals who one might describe as the senior 13 management of tie? 14 A. Yes. Absolutely. 15 Q. About procurement of the Infraco contract? 16 A. Yes. Fairly -- we met as a group fairly regularly. 17 Q. Do you recall those meetings also involving 18 Andrew Fitchie? 19 A. Very often. 20 Q. But you don't recall this particular meeting? 21 A. No. 22 Q. If we read on, heading "AF:". 23 "Advised that this represented a major procurement 24 risk in the light of the very slim price differential at 25 preferred bidder appointment in December. Also advised 171 1 that Schedule Part 4 already contained numerous 2 relief/compensation/arguable risk allocation points for 3 BB(S) - on civils work especially. Biased for Infraco. 4 Risk of BB exploiting Schedule Part 4." 5 Now, in light of that, do you recall advice along 6 those lines from Mr Fitchie? 7 A. No, I don't. 8 Q. If Mr Fitchie was to have given evidence that he did 9 give advice on these matters, what would your response 10 be to that? 11 A. I just -- I just don't recall it. I just -- I just 12 don't think it happened. If the lawyer had been -- had 13 told that group of people that in his opinion there was 14 substantial risk coming back to tie, we would have done 15 something about it. It just -- it would not have 16 happened. So I can't explain this file note at all. 17 Q. If Mr Fitchie's evidence was to the effect that he 18 delivered this advice, but it seemed to him that he was 19 delivering a very unwelcome message to the tie 20 management, what would you say to that? 21 A. Well, if he ever had delivered this kind of message, we 22 wouldn't have been happy, but we wouldn't have not done 23 something about it. 24 Q. What would you have done? 25 A. Stopped and revisited the whole issue of Schedule Part 4 172 1 and what it achieved. 2 Q. When you say stopped, stopped what in particular? 3 A. Well, stopped the procurement. Regardless of what the 4 consequences of that would have been, we would not have 5 individually or collectively have made a decision to 6 proceed if we thought or had been advised by our lawyer 7 that the contract had these kind of flaws. 8 Q. Was there concern within tie that further delay in the 9 procurement would lead to tie incurring additional 10 costs? 11 A. Yes, there was concern, but -- of course, but that -- 12 under no circumstances would that lead this group of 13 people to collectively say we should proceed with a -- 14 we should proceed in any case with a contract which our 15 lawyer is telling us has flaws in it. 16 Q. If we read down through the note, under the third bullet 17 point there's a paragraph which says: 18 "AF - clear that Schedule Part 4 not negotiable. 19 Had one serious endeavour to shift Pinsents but the 20 document was cemented into BB's approach from Wiesbaden 21 Agreement." 22 Do you recall whether there was a view that Schedule 23 Part 4 was not negotiable? 24 A. No. 25 Q. Were you sufficiently close to the negotiations to have 173 1 a view about that? 2 A. Very probably not. In fact, I'll say no. As the -- as 3 the process developed, there was endless drafting rounds 4 and I was not involved in them. So I don't know the 5 extent to which things were non-negotiable or not on any 6 part of it. 7 Q. The next bullet point says: 8 "JME ..." 9 We can just take that as a reference to Jim McEwan. 10 What's said there is: 11 "... comes a point where if contract is to be 12 lended, tie will need to make a choice. Will always be 13 risks, but main risk would be [blank] and real - that 14 the project is a 'busted flush' and government cancels 15 funding to recoup GBP500 million in one go." 16 A. Mm-hm. 17 Q. Do you understand what point is being made there? 18 A. I don't. I think that the -- there were conditions 19 attached to the government funding, and I think there 20 always was a risk that the government funding would be 21 pulled, but that would not under any circumstance -- 22 that the imperative to secure the government funding 23 would not overrule the imperative to make sure that we 24 were looking after public money by signing a contract 25 that we believed was effective. 174 1 CHAIR OF THE INQUIRY: Would the loss of government funding 2 have meant the end of the project? 3 A. Pretty much would have guaranteed that that would be the 4 case. 5 CHAIR OF THE INQUIRY: Would that have been the end of tie? 6 A. Yes, I would imagine so, yes. 7 MR MCCLELLAND: Okay. We can close that document, thank 8 you. 9 Were you aware of a provision in the Infraco 10 contract which said that the consortium should not start 11 work which was subject to a Notified Departure until 12 they were instructed by a tie Change Order? 13 A. Yes. 14 Q. Do you know anything about how that provision in the 15 Infraco contract came to be there? 16 A. Sorry, I don't. 17 Q. If the Inquiry had heard evidence that the relevant 18 clause had been drafted by Geoff Gilbert, would you know 19 anything about that? 20 A. Well, it would be rational because Geoff was leading on 21 the procurement. So -- and he would have been engaging 22 directly with the consortium and the lawyers with DLA as 23 appropriate to come up with a change mechanism which 24 worked for all concerned. 25 Q. The question is specifically about whether you were 175 1 aware of Geoff Gilbert himself -- 2 A. No, I wouldn't have known who specifically drafted the 3 wording. 4 Q. Now, do you recall that one of the Pricing Assumptions 5 in Schedule Part 4 was to the effect that there wouldn't 6 be a delay in the design programme? 7 A. Yes. 8 Q. I think you said earlier it was known at financial close 9 that there was already some slippage in the design 10 programme? 11 A. Yes. 12 Q. Was it correct that tie knew then at financial close 13 they were going to have to pay the costs associated with 14 that delay? 15 A. Yes, to the extent that engaging with a reasonable 16 contractor, we couldn't work out ways to mitigate 17 whatever the costs were associated with that. 18 Q. I think in your statement you say that the estimate by 19 tie at financial close for the cost of that was about 20 GBP1 million? 21 A. Yes. 22 Q. That was assuming -- that could perhaps be reduced if 23 mitigation was possible. 24 A. I discussed that one specifically with Steven Bell at 25 the time of close. 176 1 Q. So whose assessment was it that GBP1 million would be 2 sufficient to cover that delay? 3 A. I think it came to me from Steven, but I'm presuming 4 that he'd had discussions with others in his team about 5 it. 6 Q. I think we know from minutes of the Tram Project Board 7 that the cost of that design programme slippage in fact 8 was agreed at GBP3.524 million. 9 A. Yes. 10 Q. Does that accord with your recollection? 11 A. I picked it up in the documents in evidence, yes. 12 Q. We don't need to go to it, but just for the record, the 13 reference is CEC00416111, which are the minutes of the 14 Tram Project Board on 18 November 2009. 15 Does that not indicate once again that tie's pre 16 close estimate of the risk was much too low? 17 A. Yes, but I think -- yes, it was, it's a matter of fact 18 it was. But why did it end up being too low? To what 19 extent was it because the ability to mitigate against 20 that cost was effectively lost in the circumstances of 21 what happened after close? And also -- so that's in 22 terms of the time consequences, but also the cost 23 consequences, because the valuation of that -- the 24 valuation of that extension of time claim went through, 25 as I recall, a very, very tortuous process of debate on 177 1 what the constituent elements of the extra costs should 2 be, especially round preliminaries, I think. 3 So contractors' overheads and profit added to the 4 price. 5 Q. If we could go, please, to the close report, which is 6 CEC01338853. 7 If we could go, please, to page 28. It's the third 8 paragraph down which reads: 9 "The only material change in the Risk Allocation 10 Matrices between Preferred Bidder stage and the position 11 at Financial Close is in respect of the construction 12 programme costs associated with any delay by SDS in 13 delivery of remaining design submissions into the 14 consents and approvals process beyond Financial Close." 15 Now, do you accept that it was incorrect, that that 16 statement was incorrect? 17 A. Sorry, can you clarify what you mean by that? 18 Q. Well, this talks here about the only material change in 19 the risk allocation matrices relating to construction 20 programme costs associated with delay in the delivery of 21 design into the consents and approvals process. 22 In light of what we know about the extent of the 23 transfer of the risk of a construction cost increase 24 from completion of the design, would you accept that the 25 statement here was in fact incorrect? 178 1 A. It was incorrect, only insofar as the drafting in 2 Schedule Part 4 to pass the risk of completing design 3 was ineffectual. This statement was made in the context 4 of Schedule Part 4 and the way it worked with the rest 5 of the contract was competent in doing what it was 6 understood to do. 7 Q. So you would accept with hindsight -- 8 A. Oh, with hindsight. With hindsight, the drafting of 9 Schedule Part 4 and the way it was interpreted at 10 adjudication and legally means that that was not 11 achieved. 12 Q. Now, do you recall that a committee made up of 13 Neil Renilson, Willie Gallagher, and David Mackay, was 14 formed and given authority to decide whether or not to 15 approve execution of the Infraco contract? 16 A. Yes, I believe I do, yes. 17 Q. I don't think we need to go to it, but the resolution 18 authorising them to do that says that they had to be 19 satisfied the contractual arrangements were within the 20 terms of the Final Business Case. Do you recall that? 21 A. I don't. 22 Q. Take it from me that that's what it says. 23 A. Yes. 24 Q. That committee of course in due course approved the 25 execution of the Infraco contract? 179 1 A. Mm-hm. 2 Q. Were you involved to any extent in advising them or 3 guiding them about whether or not they should do that? 4 A. I don't -- I don't remember involvement. 5 Q. Do you know on what basis that committee informed itself 6 about whether or not it was appropriate to authorise 7 signing of the contract? 8 A. I don't -- I'm sorry, I just don't recall any -- the 9 deliberations of that committee at all. I've got no 10 recollection. 11 Q. When you say -- if we had evidence to the effect that 12 you did brief and guide them on that, would you say that 13 you just don't know if that's true or not, or that you 14 did or didn't? 15 A. I would say I just don't know. Specifically, I have no 16 recollection of ever actually attending the committee, 17 but that doesn't mean to say I didn't. I mean, if the 18 evidence shows I was at these committee meetings, then 19 I can answer questions about whatever it was that I did. 20 But as I sit here, I can't remember being at any of 21 them. 22 Q. Okay. I don't mean to suggest that I'm only interested 23 in whether you attended a formal meeting. Do you recall 24 being asked by any of those three about, you know, them 25 saying to you something along the lines of: should we go 180 1 ahead with this or not? 2 A. Well, Willie, in terms of getting together with the 3 management team, the contract was being discussed 4 regularly on a daily basis at the management team. 5 Willie would have been at those management teams. But 6 I don't recall being asked: are you happy for me to sign 7 this contract? I don't remember that. 8 Q. Okay. I would like to ask you about the question of 9 bonuses for those working in tie, relating to the period 10 up to financial close. 11 A. Yes. 12 Q. Were those bonuses to any extent based on a figure for 13 the total anticipated cost of the project? 14 A. I mean, I established in evidence that there was -- 15 there was a number included in the contracts for certain 16 externals, so not staff. So the Project Director and 17 Procurement Director and others. So I established that 18 there was an element which was in relation to the 19 outturn budget on the project. 20 In terms of the staff generally, I honestly can't 21 remember what the criteria were. They might have been 22 different for different individuals, and they certainly 23 wouldn't have been solely dependent upon -- on price 24 or -- or the date of getting to financial close would 25 have been other things as well. 181 1 Q. Would you as the Finance Director of tie have had any 2 oversight role in relation to bonuses or the terms on 3 which they were awarded? 4 A. Me personally, no. Okay. That was entirely dealt with 5 by -- by Willie, making recommendations to the 6 Remuneration Committee. And the HR Director. I was not 7 involved in the determination of those bonuses at all. 8 That's not unusual for -- in these circumstances. 9 Q. You referred there to the HR Director. Was that 10 Colin McLauchlan? 11 A. Yes. 12 Q. Could you please have document CEC00114414. Just as 13 this is coming up on screen, you can take it from me, 14 Mr McGarrity, that that is an attachment to an email to 15 you from Mr McLaughlin dated 10 March 2008? 16 A. Yes. 17 Q. Are you familiar with this document? 18 A. It was part of the documents given to me in my evidence, 19 yes. 20 Q. Could you mean documents given to you by the Inquiry? 21 A. Yes. 22 Q. Do you recall having seen this at the time, which is 23 back in 2008? 24 A. Not specifically, but there's -- as you say, it was sent 25 to me by Colin. So I had it. 182 1 Q. Do you know what it is? 2 A. It's -- as far as I can make out, it's the determination 3 of the additional payments to be made to these four 4 people based upon the criteria. So these were the 5 people that I was saying in relation to, not staff. 6 These were external people. 7 So this was a scoring against opportunities that had 8 been contractually agreed with them to determine what 9 their bonus payments should be. 10 Q. So if we look down column A, we see the individuals 11 named there. Matthew Crosse, Geoff Gilbert, and 12 Bob Dawson, and there's another name, David Powell, in 13 relation to Tramco. 14 The top three, Crosse, Gilbert and Dawson, were they 15 all involved in negotiations for the Infraco contract? 16 A. Yes. 17 Q. Would they all have been in a position to assess and 18 advise internally within tie on the risks that were 19 arising in the procurement of the Infraco contract? 20 A. Yes. 21 Q. We see there columns G, H, I and J. Look at that part 22 of the table. 23 We see reference to phase 1a, and then a figure of 24 490 to 530. 25 A. Mm-hm. 183 1 Q. Can you explain to us what that is about? 2 A. I have to presume it means the outturn -- outturn budget 3 for phase 1a. 4 Q. So does that suggest that part of the budget -- part of 5 the bonus for these individuals was related to the 6 budget for the project reported at financial close? 7 A. Yes. 8 Q. Is it your recollection that that was part of their 9 bonus entitlement? 10 A. I didn't recall it until I saw these documents again. 11 Q. But do you recall it now? 12 A. Yes, absolutely. Yes. No, yes. I do, yes. 13 Q. If we see -- 14 A. I also did a lot -- was I consciously aware of it on the 15 day I was sent these emails? No, because I said 16 I didn't have a role in either the concluding of the 17 contracts with these consultants under which these 18 bonuses became payable. Nor did I have a role in 19 determining what these percentages of achievements were 20 or that they were -- or the approval of the final 21 determined payments. I wasn't involved. 22 Q. That's all very clear. I'm just keen to know if it's 23 your understanding that these were elements of the bonus 24 scheme for these individuals? 25 A. Yes. 184 1 Q. If we look down, there's a list of figures underneath 2 that column where we have 490. If we take that as 3 GBP490 million, with a figure of 100 per cent beside it, 4 and then it goes all the way down through various 5 numbers to 530, take that as 530 million, 0 per cent, 6 that might appear to suggest that there's -- the lower 7 the project cost that's reported, the higher the bonus 8 the individuals get? 9 A. Yes. 10 Q. Was it your understanding that that was the nature of 11 the bonus scheme they had? 12 A. I don't think I was aware of it -- I wasn't aware of it 13 at the time that the agreements were concluded with 14 them, but I'm obviously aware of it -- I have become 15 aware of it here by receipt of this email, yes. 16 Q. Can you confirm from your time at tie whether you 17 uncovered it after financial close or otherwise? 18 A. Oh, yes. 19 Q. That these individuals earned bonuses on the basis of 20 the reported -- 21 A. The question -- I mean, much later, Richard Jeffrey 22 became rightly concerned that the fact of people 23 receiving bonuses round financial close time, which were 24 higher than they'd been before or after, would only 25 naturally become, in terms of what had happened with the 185 1 project, that these would become under scrutiny. 2 So I dug out all of the information that I could get 3 hold of in relation to previous bonuses, including 4 talking to -- Colin McLauchlan was gone by that time. 5 So a lady called Claire Malecki, who was the HR person 6 reporting to Richard Jeffrey then. She assisted me, and 7 I assembled all the information I could get, and this 8 was part of it. 9 Q. So from the investigations you carried out, was it 10 apparent that these individuals were under a bonus 11 scheme which incentivised them to report as low a figure 12 for the anticipated cost to the project as they could? 13 A. That's the -- that would be the incentive, yes. 14 Q. Can you confirm that that was the incentive they were 15 under? 16 A. Yes. 17 Q. I think you accepted that each of these individuals 18 would in their own way be responsible for reporting on 19 the risk that the project faced? 20 A. Yes. 21 Q. So if they identified the risk as being low, the effect 22 of that might be to reduce the risk allowance for the 23 project and therefore in turn the reported outturn cost 24 of the project? 25 A. Yes. 186 1 Q. Would that be correct? 2 A. That would be correct, but there's also -- there's one 3 thing incentivising people. There's another thing them 4 individually and collectively not having the integrity 5 to carry out their job properly and honestly in the 6 context of these sums of money. 7 Q. Let's accept that integrity and how they act is an 8 issue. But let's put it to the side for the moment. 9 Was this an appropriate way to incentivise people 10 who were involved in these negotiations? 11 A. In retrospect, I wish we -- we didn't have these big 12 bonuses at financial close for anyone. So maybe in 13 retrospect paying bonuses where it's public sector money 14 is -- is just maybe not a place to -- where you should 15 go. But that's with retrospect. 16 Q. Yes. I'm talking specifically about incentivising them 17 by reference to forecast outturn costs for the project. 18 Would you regard that as being an inappropriate 19 incentive for people who were involved in these 20 negotiations? 21 A. Now, I would never accede to that now. No, I wouldn't. 22 Q. Within your knowledge, were any other individuals in 23 tie, whether contractors or employees, given an 24 incentive of that type? 25 A. There were -- there were a whole number of people, but 187 1 I really don't recall, other than this one, what the 2 detailed natures of their incentive arrangements were. 3 Q. Did you yourself receive a bonus? 4 A. I did, yes. 5 Q. Was that part of the incentive attached to your bonus? 6 A. I can't remember. I mean, the HR records will show how 7 my bonus was arrived at. I honestly can't remember. 8 CHAIR OF THE INQUIRY: Did you not know? 9 A. No. 10 CHAIR OF THE INQUIRY: Really? 11 A. I don't think -- 12 CHAIR OF THE INQUIRY: I'm sure the whole point of a bonus 13 is that you're aware of the incentive and you achieve 14 that. 15 A. I did -- my Lord, I'm sure I did at the time, but 16 I can't remember now. 17 MR MCCLELLAND: Okay. I'm finished with that document. 18 Now, Mr McGarrity, we've heard earlier that you left 19 tie in late 2010. 20 A. Yes. 21 Q. So over the period you were there, there were disputes 22 between tie and the Infraco? 23 A. Yes. 24 Q. They were ultimately not resolved until, speaking 25 broadly, the summer of 2011. 188 1 In your view, could anything have been done to 2 resolve them any sooner than that? 3 A. I have thought carefully about this in the light of 4 these proceedings, again, and I can't find an obvious 5 stage in the whole programme where things could have 6 been brought to a head any sooner. 7 In early 2009 there was this, you know, sudden -- 8 maybe not so sudden -- message coming from the 9 contractor that -- that the contract worked for them, 10 that they wanted substantial amounts of additional 11 money, et cetera, et cetera. 12 I don't think we'd any choice at that point. We 13 couldn't -- there was no way to say: oh dear, okay, 14 well, let us think about it. There was no choice but to 15 test the contract and determine what it was which was 16 behind their claims. And that took all the way, really, 17 in the end analysis, through to the end of 18 2009/beginning of 2010, with the adjudications. We then 19 had a period of obtaining legal advice about high level 20 opportunities there might be, including, you know, 21 a legal determination, in other words going to court 22 with Schedule Part 4, and other such measures; and then 23 we were into the summer of 2010 and having -- having 24 exhausted most of the legal avenues and still getting 25 nowhere, we had Project Carlisle, which was essentially 189 1 a huge compromise, and that didn't work out either. 2 So I can't -- in that timescale, I can't see any 3 point in time where we could have -- so, for instance, 4 at the point which the demands came out, someone might 5 reasonably say: why didn't you just terminate the 6 contract? And the answer is because our legal advice 7 was that nothing they had done up to that point 8 constituted such clear and material breach that we would 9 be capable of doing that. 10 So we couldn't at that juncture terminate the 11 contract. It wasn't for us to do that anyway. That 12 would have required both City of Edinburgh Council and 13 ministerial approval to go down that route. 14 So I can't obviously see where we could have taken 15 great chunks out of that. 16 Q. You referred in your answer there to the option of going 17 to court on Schedule Part 4. You also made reference to 18 the various adjudication decisions. 19 A. Yes. 20 Q. Would it be fair to say that the adjudication decisions 21 did not go in tie's favour? 22 A. I think in general that's true. In terms of legal 23 principle, although there were -- there were 24 adjudications on the BDDI issue which had differing 25 interpretations in them, and again, legal advice was 190 1 sought on that, and I think, as I recall, the only way 2 to make the adjudication decisions that had gone against 3 us -- the only way to tackle those properly was actually 4 to legally challenge the adjudication, I think. 5 Q. So why not do that? 6 A. I can't -- I think it was -- it was a number of measures 7 which would be looked at, but on balance we went with 8 the -- the other proposal, which was to issue further 9 DRPs to try to better tackle the very minute detail of 10 what was not right about the wording in Schedule Part 4, 11 and address that in the context of specific areas of the 12 work where it was -- where it was being a problem. 13 Q. Why put that issue to another adjudicator rather than 14 going off to a higher authority such as a court? 15 A. I can't recall the -- I think -- there was 16 a time-related part to that as well. 17 This is where my memory as jogged by documents is -- 18 is struggling a little bit. I think there might have 19 been a time bar in relation to the time you had to 20 challenge the adjudication. So I recall that being an 21 issue as well. 22 MR MCCLELLAND: I note the time, my Lord. My estimate is 23 I've probably got 15 minutes or so for Mr McGarrity. 24 A. Please, I would really be happy if we could finish 25 tonight. 191 1 CHAIR OF THE INQUIRY: I think there are problems in that 2 regard with -- there may be other questions from other 3 people. And also I don't know about the shorthand 4 writers. 5 Can I just check, are there other people who have 6 questions? 7 MR DUNLOP QC: My Lord, it's inevitable I'll be asking 8 your Lordship leave to ask questions of Mr McGarrity. 9 I think the only option is to adjourn. 10 CHAIR OF THE INQUIRY: Yes, I think given the shorthand 11 writers can only manage another 15 minutes, we will 12 adjourn until -- I think we've identified as Thursday 13 morning. We've only got one witness on Thursday, and it 14 is the continuation of his evidence, but we could take 15 Mr McGarrity first, at 9.30; I understand that you are 16 available on Thursday. 17 A. Yes. 18 CHAIR OF THE INQUIRY: So we'll adjourn your evidence until 19 Thursday at 9.30. If you're in here before 9.30. We'll 20 get started sharp. 21 MR DUNLOP QC: My Lord, without wanting -- I will of course 22 accede to whatever your Lordship says in this regard, 23 but I have a court commitment at 9.00 on Thursday, which 24 I have been released from this to do on the basis that 25 it wasn't likely I was going to have to ask Mr Renilson 192 1 anything. 2 If it's possible to take Mr Renilson and then 3 Mr McGarrity on Thursday, I would be most grateful. If 4 it's not, I will cede to Mr Walker, who can ask the 5 questions of Mr McGarrity. 6 CHAIR OF THE INQUIRY: I think Mr McGarrity was asked before 7 we came back, and certainly first thing in the morning 8 you were free, but what about the rest of the day? 9 A. Well, aside from an actual desire to get it over and 10 done with as soon as possible, I'll -- I can come in 11 the -- I can come when you want me to. 12 MR MCCLELLAND: I'm content with whatever suits 13 your Lordship. 14 CHAIR OF THE INQUIRY: Whatever suits anyone. Anything 15 suits me, Mr McClelland. 16 What we'll do then is we'll take Mr Renilson first, 17 and we will get the office to liaise. It's a different 18 Counsel asking Mr Renilson questions. We'll check with 19 him about the likely duration and get the office to be 20 in touch with you, rather than have you sitting here 21 longer than absolutely necessary. 22 A. Thank you. 23 MR MCCLELLAND: I'm much obliged, my Lord. 24 CHAIR OF THE INQUIRY: We'll adjourn until tomorrow at 9.30. 25 (4.33 pm) 193 1 (The hearing adjourned until Wednesday, 13 December 2017 at 2 9.30 am) 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 194 1 INDEX 2 PAGE 3 MR STEWART MCGARRITY (sworn) .........................1 4 5 Examination by MR MCCLELLAND ..................1 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 195