1 Wednesday, 13 December 2017 2 (9.30 am) 3 CHAIR OF THE INQUIRY: Good morning. Mr Mackenzie? 4 MR MACKENZIE: Good morning, my Lord. The next witness is 5 John Connarty. 6 MR JOHN CONNARTY (affirmed) 7 CHAIR OF THE INQUIRY: You are going to be asked questions 8 in the first instance at least by Mr Mackenzie, one of 9 the Counsel to the Inquiry. If you just listen to the 10 and answer it as directly as you can. And if you speak 11 into the microphone so everyone can hear what you are 12 saying and speak at a measured pace to the shorthand 13 writers can keep up with you. 14 A. Thank you, my Lord. 15 MR MACKENZIE: Thank you, my Lord. 16 Examination by MR MACKENZIE 17 MR MACKENZIE: Good morning. 18 A. Good morning, Mr Mackenzie. 19 Q. Could you state your full name, please. 20 A. Yes, it's John Connarty. 21 Q. And your current occupation? 22 A. I'm the business support manager in finance in Edinburgh 23 Council. 24 Q. Thank you. You have provided a statement to the 25 Inquiry. We will go to that, please. It's TRI00000153. 1 1 It's a copy on the screen. I think there should be 2 a hard copy in front of you as well. 3 Can we go to page 8, please, just to confirm that 4 this is your signature and this is the statement you 5 provided to the Inquiry. 6 A. Yes, that's correct. 7 Q. Thank you. What I would like to do is just go through 8 your statement and some of the appendices to make sure 9 we understand everything that you say. 10 So starting at page 1, please, with the statement, 11 and we can see in paragraph 1.2, you say while you were 12 employed by the Council over the duration of the tram 13 project, you had no direct involvement in the project at 14 any time. 15 In paragraph 2.1 we see the statement has been 16 prepared in response to a request from the Inquiry for 17 an account of the tram project budget and final costs. 18 In paragraph 2.2 we see that in short, in preparing 19 the statement, you have relied heavily on reviewing 20 available public records -- reports rather -- together 21 with a review of the tram project financial management 22 records which were maintained by the Council following 23 handover of responsibility from tie during the financial 24 year 2011/2012. 25 Now, the next bit, please, in your statement, if we 2 1 scroll down a little on the page, we asked you about the 2 project budget at financial close in May 2008. We've 3 heard quite a lot about this, various spreadsheets. So 4 I won't take too long over this, but in paragraph 3.1 5 you explain that the estimated final cost for phase 1a 6 of the tram project at financial close on 14 May 2008 7 was GBP512 million, consisting of base costs of 8 481.8 million and a risk allowance of GBP30.2 million. 9 Then it was noted a further contingent payment of 10 GBP3.2 million would be due if phase 1b was not built. 11 You give a document reference at the end of that 12 paragraph. I won't go to it, but I'll note in passing 13 that that's a reference to a report by the Directors of 14 City Development and Finance to the Tram Committee of 15 the Council on 16 June 2008. 16 I think we'll see the relevant numbers at page 2 of 17 that report. 18 Then in the next paragraph, 3.2 of your statement, 19 you explain: 20 "A detailed project budget estimate of 21 GBP508 million was provided by tie Limited on 22 15 April 2008." 23 That analysis was prepared prior to final changes 24 agreed through contract negotiations which increased 25 estimated costs by GBP4 million to GBP512 million. You 3 1 say: 2 "It has not been possible to source a later version 3 of the tie Limited detailed spreadsheet reconciling to the 4 position at Financial Close." 5 I'll just note in passing, without going to them, 6 the two document references you give are documents we 7 have looked at previously. The first one is a reference 8 to an email by Stewart McGarrity of tie to Alan Coyle 9 dated 15 April 2008, which attached both a spreadsheet 10 and a copy of Schedule Part 4, and then the second 11 document reference you give is in fact to that 12 spreadsheet; and in fact I think yesterday we looked at 13 another copy of that, the same version, with 14 Mr McGarrity, which was a very detailed spreadsheet 15 giving the breakdown of the figure of 508 million. 16 I think you said you've not been able to find a similar 17 spreadsheet giving a breakdown of the final figure of 18 512 million; is that correct? 19 A. That's correct, yes. 20 Q. Thank you. 21 Over the page, please. Paragraph 3.3, you say you 22 have provided a summary of the detailed project budget 23 of GBP508 million at 15 April 2008 at Appendix 1. I'll 24 just note in passing that essentially is an extract from 25 Mr McGarrity's spreadsheet. We don't have to go to 4 1 that. 2 In paragraph 3.4 you say: 3 "The risk allowance at Financial Close was 4 GBP30.2 million." 5 You go on to say: 6 "A detailed analysis of the risk allowance of 7 GBP32.3 million at 15 April 2008 was included in the 8 project budget file supplied by tie Limited on 9 15 April 2008." 10 Pause there. That again is simply a reference to 11 the spreadsheet attached to Mr McGarrity's email to 12 Alan Coyle of 15 April, and it's the tab that shows the 13 breakdown of the risk allowance. 14 You go on to say in your statement: 15 "It has not been possible to identify a later 16 version of the tie Limited risk allocation reconciling to 17 the position at Financial Close." 18 What you have done, you say, a summary of the 19 estimated risk allowance of US$32.3 million at 20 15 April 2008 is included at Appendix 2. And also 21 a detailed breakdown of the quantified risk allowance of 22 GBP27.9 million is included as Appendix 2a. 23 So I think in short you, like us, have been able to 24 find Mr McGarrity's spreadsheet, which included the 25 breakdown of the risk allowance in a tab showing the QRA 5 1 as at 15 April, but you weren't able to find 2 a reconciliation of the final risk allowance at 3 financial close of GBP30.2 million; is that correct? 4 A. Yes, that's correct. 5 Q. I should also say we yesterday, with Mr McGarrity, 6 looked at a reconciliation document, I think, enclosed 7 the email of 19 May 2008. I'll give the reference 8 without going to it. CEC01295329. That, I think, shows 9 a risk allowance of 30.4 million or 30.441. So it's 10 still, I think, a slight discrepancy or further 11 reconciliation to get to the GBP30.2 million. But 12 I think essentially your position, Mr Connarty, is that 13 you have done what you can to try and reconcile it, but 14 you can't find a final reconciliation of the 15 30.2 million; is that correct? 16 A. Yes, that's correct. 17 Q. Paragraph 3.5 we can read for ourselves. Similarly, 18 3.6. 19 So that's all, thank you. The position at financial 20 close in May 2008. 21 We then asked you in paragraph 4 of your statement 22 about the project budget post mediation in 2011. In 23 paragraph 4.1 you explain that: 24 "Following on from mediation talks a revised project 25 budget of GBP776 million was approved, comprising a base 6 1 budget of GBP742 million and a risk/contingency budget 2 of GBP34 million." 3 You say: 4 "The revised budget provided for completion of the 5 tramline to York Place and confirmed a funding 6 requirement of GBP231 million in addition to the 7 previously approved funding of GBP545 million." 8 The document ID at the end of that paragraph is the 9 report to Council on 25 August 2011 by the Director of 10 City Development. We don't have to go to that. 11 Then in paragraph 4.2 you say: 12 "A summary of the detailed project budget of 13 GBP776 million is included at Appendix 5 ..." 14 We will go to that in a second: 15 "... and a summary of the risk allowance of 16 34.207 million (as at 3 November 2011) is included at 17 Appendix 5a." 18 We will go to that in a second. 19 So Appendix 5, please, should be at page 19. Blow 20 up the box. Thank you. So this in short is the budget 21 following the mediation and settlement in 2011. It 22 gives a fairly high level breakdown of the different 23 sums which arrive at the GBP776 million revised budget, 24 and we can note there the contingency of GBP34 million. 25 If we then go over the page, please, just to note 7 1 the contingency breakdown, page 20, thank you. We can 2 see this is headed, "Edinburgh Tram Project Risk Budget 3 at 3 November 2011". Various risks are set out. The 4 two I would like to draw attention to, if I may, please, 5 if we scroll further down, we can see under the 6 subcategory, "Other Risks", there's one, I think it says 7 FG Risk 12: 8 "Overall time delay impact (assessment of cumulative 9 effect of identified risks on this register)." 10 At GBP11.610 million. I simply note in passing, 11 Mr Connarty, we've heard evidence that I think the risk 12 allowance for general programme delay at contract close 13 in May 2008 was about GBP5.2 million. So we can see 14 that that is now doubled at the time of this revised 15 budget some three years after contract close. 16 Below that we also see a reference to general design 17 risk of GBP5.925 million. Again, I simply note in 18 passing that I think we've heard evidence that at the 19 time of the original contract close in May 2008, there 20 was an allowance for design risk of about 21 GBP3.3 million. So again, despite the project being 22 three years further down the line, that allowance 23 appears to have almost doubled. 24 So that's that, thank you. 25 Back to the main text of your statement. Back to 8 1 page 2, please. 2 We had also then in paragraph 5 asked about the 3 actual final cost of the project, and in paragraph 5.1, 4 you say: 5 "Project expenditure (net of contributions and 6 recharges) incurred against the revised approved budget 7 of GBP776 million is GBP776.7 million. A summary of 8 project costs and income as at 31 March 2017 is included 9 at Appendix 6 with further detail on project income 10 shown in Appendix 7." 11 Now, if we go to Appendix 6, please, it should be at 12 page 21. It's quite small print. So we'll have to blow 13 it up. Thank you. 14 We can see the very top of the page, it says -- if 15 we scroll back out or zoom back out, the heading at the 16 very top of the page, we can see, "Project Costs at 17 31 March 2017". And there's then a breakdown of the 18 various costs. I'll just highlight one or two. We can 19 see very roughly ten lines down the first row which is 20 shaded, if we blow that up, please. The very end of the 21 row, if we may. Thank you. 22 We can see the second line from the top of this 23 blow-up, we can see "total tie PM costs". That must be 24 project management costs; is that right? 25 A. Yes, that's right. 9 1 Q. If we look at the very far right of that -- is it 2 possible to blow up the figure again, please? The very 3 far right box? Thank you. We can see the total tie 4 project management costs have outturned at 5 GBP67,762,176. That's one I should draw attention to 6 for reasons I'll come back to later on. 7 Could we also look at the total SDS costs please. 8 It's about halfway down the page. We can see "Total 9 SDS" in the shaded row. Again, go to the end of that, 10 please, and perhaps we could blow up the figure again at 11 the very far right, the outturn cost. Thank you. 12 I think we can see the total SDS costs of GBP26,391,925. 13 That is, however, subject to one caveat. We should also 14 note in a separate document, I hope it's TRI00000248, 15 and go to that, please. 16 Now, if we can go over the page, please, to page 2, 17 the email -- this is fine. So this is essentially an 18 email from Mr Murdoch, assistant solicitor at the 19 Inquiry. We had asked you, Mr Connarty, we had said: 20 "We are trying to determine the total sum paid to 21 Parsons Brinckerhoff ... in particular after the SDS 22 contract was novated ..." 23 So in short, we wondered whether there may be 24 further sums that were paid to SDS via the consortium 25 and therefore showed up somewhere else in the total 10 1 accounts, and then go back to page 1 to see your 2 response, please. 3 The email at the bottom. Thank you. 4 You say: 5 "I have reviewed our records. My understanding is 6 that GBP6.032 million in respect of the SDS contract was 7 paid to the Bilfinger Berger Siemens consortium (and in 8 turn to Parsons Brinckerhoff). This sum is included in 9 the Infraco account and is accounted for through the 10 T19.01.20 code." 11 Then below that you say: 12 "Adjusting for the above, estimated final 13 expenditure on Design was GBP32.7 million ..." 14 We then leave that email and go back, please, to 15 Appendix 6 of your statement, and in particular if we 16 go, please, to page 22. 17 If we can go to -- we see the shaded line, subtotal 18 construction. If we go to four above that, if we could 19 blow up the line -- so we have got the subtotal 20 construction shaded line, and there are four entries 21 above that. The one, "Unallocated to section", I think 22 we can just see T19.01.20, unallocated to section. Go 23 to the far right of that, we see just over 24 GBP24 million. So I think in short, Mr Connarty, 25 am I right in thinking that just over GBP6 million paid 11 1 to SDS after novation of the SDS contract is found 2 within the sum there of just over GBP24 million? 3 A. Yes, that's my understanding. 4 Q. Thank you. Also on the same page here, we can see the 5 MUDFA outturn costs. We can see total MUDFA/utilities, 6 a shaded line. It's about halfway down the page we're 7 looking at. 8 If we blow up that, we can see at the end of this 9 line the total MUDFA/utilities of -- blow that figure 10 up, please -- GBP70,066,922. 11 Now, to pause there, does that include the utilities 12 works carried out after the settlement in 2011? 13 A. I'm not certain on that point. I think it does, but I'm 14 not certain. 15 Q. I might be able to clarify that when we come on to look 16 at some other figures very shortly. 17 Then please go to page 23, another of the main 18 items. 19 Infraco, if we keep on scrolling, please, we can see 20 there is a shaded row, "Total Infraco". If we can blow 21 up the figure at the very end of that row, please. 22 We can see the figure of GBP471,345,952. However, 23 we have to treat that with caution because if we then 24 zoom back out, please, in short, we'll see in a second 25 that figure includes non-Infraco works, non-Infraco 12 1 changes and non-Infraco provisional sums. 2 So if -- just reading up from the total Infraco, we 3 can also then see a row, subtotal non-Infraco works. 4 Perhaps we can blow up the figure on the bottom right, 5 please. Totals GBP49,079,278. We zoom back out. We 6 can see that figure is made up in the line above 7 subtotal non-Infraco works. We see a total for Infraco 8 non-provisional sums. We can see it's just over 9 GBP29 million. We can also note, for example, the 10 fourth item up from subtotal non-Infraco provisional 11 sums, we see a reference to McNicholas utilities works 12 totalling just over 20.5 million. 13 It's my understanding, Mr Connarty, those works 14 relate to the utilities works carried out after the 15 settlement in 2011; is that within your knowledge or 16 not? 17 A. Yes, that's my understanding, yes. 18 Q. I'm sorry? 19 A. That's my understanding, yes. 20 Q. Thank you. 21 Just to complete this, see the other things that 22 aren't -- they are non-Infraco. We can see at the top 23 of the screen, subtotal of non-Infraco changes, various 24 things set out above. 25 If we can zoom back out, please, then at the top of 13 1 the page we see a subtotal of non-Infraco works. There. 2 So the purpose of drawing attention to that was to 3 really say we must be wary of treating the total Infraco 4 figure of relating to payments to consortium, because it 5 does include these other non-Infraco matters; is that 6 correct? 7 A. That's correct. I think the information in Appendix 6 8 follows the accounting records structure set up by tie 9 in -- at the start of the project and that was 10 maintained through the project. 11 There's actually a full reconciliation at page 28, 12 back to the Infraco main contract sum within the 13 evidence. So that isolates the elements of the costings 14 which relate directly to the Infraco contract. 15 Q. Thank you. I think we'll just note that. We can find 16 it at page 28 if we wish to look at that in more detail. 17 I will come back to the final sum paid to the 18 consortium and look at that shortly. 19 If we now go back to your statement, please, at 20 page 2, and to pick up the second half of paragraph 5.1, 21 you went on to say: 22 "Contributions received totalling GBP7.447 million 23 are shown in Appendix 6 and these are represented by 24 items 1 to 12 in Appendix 7." 25 We will come to that in a second. You then go on: 14 1 "Revenue expenditure recharged to the Council 2 revenue account totalling GBP8.682 million is shown in 3 Appendix 6 and this is represented by items 13 to 15 in 4 Appendix 7." 5 Again, we'll come to that shortly. 6 So, firstly, please, the question of the 7 contributions received totalling 7.447 million are shown 8 in Appendix 6. We have looked at that appendix already. 9 I'm not going to go back to that. 10 But in Appendix 7, if we can go, please, to page 24, 11 I think in short -- blow up the box a little, please -- 12 items 1 through to 12 represent contributions; is that 13 correct? 14 A. That's correct, yes. 15 Q. They total GBP7.447 million. So are these 16 contributions, just reading through them, mostly from 17 third parties but also from other parts of Council 18 budget? 19 A. Yes, they're primarily from third parties, but from 20 lines 6 to 9, you see contributions from other parts of 21 the Council's capital investment programme. 22 Q. And these contributions, I think, don't include any 23 betterment payments received from utility companies; is 24 that correct? 25 A. That's correct. 15 1 Q. They are accounted for separately? 2 A. They are, yes. 3 Q. Thank you. Then items 13, 14 and 15, I think in your 4 statement, these were explained as items of revenue 5 expenditure recharged to the Council revenue account 6 totalling GBP8.684 million. Can you explain a little 7 what they relate to, please? 8 A. It largely relates to -- within the project, there's an 9 accounting requirement to review expenditure and to 10 identify whether it falls into the capital definition or 11 the revenue definition. So those costs, as they didn't 12 contribute to the actual creation of the asset, were 13 treated as revenue costs and charged through into the 14 Council's revenue account. 15 CHAIR OF THE INQUIRY: Is that a book exercise, transferring 16 stuff from capital to revenue? 17 A. It's essentially that. It's looking at the expenditure 18 at the end of each year and seeing how much of that is 19 capital and how much of it is revenue. 20 CHAIR OF THE INQUIRY: Could I ask about the items 6 to 8. 21 This is recharging to Edinburgh and you speak with the 22 public realm works at St Andrew Square. 23 Would these normally be part of the highways budget 24 or some other budget within the Council? 25 A. My understanding of these particular items is that they 16 1 relate to a higher specification of the materials used 2 in St Andrew Square. So I think it relates to the stone 3 setts between the lines and pavements. So my 4 understanding is that those relate to a higher 5 specification and that it would be correct to charge 6 those to the Council's capital programme. 7 CHAIR OF THE INQUIRY: So it's an additional charge because 8 of the higher specification. It's not the total cost of 9 the public realm works? 10 A. That's an additional charge relating to the higher 11 specification through St Andrew Square. 12 CHAIR OF THE INQUIRY: So that the other part of the public 13 realm works would be, what, attributed to the tram 14 project? 15 A. I'm not -- I'm not familiar with wider -- the treatment 16 of wider public realm works. This really just relates 17 to the specific higher specification. 18 CHAIR OF THE INQUIRY: Yes. If -- the public realm works 19 would include the improvements to the pavements, for 20 instance, adjacent to a road carrying the tram. Do you 21 understand that it would only be if there was a higher 22 specification requiring setts or particular granite 23 slabs or something like that, that is all that would be 24 recharged? 25 A. That's my understanding of the situation. 17 1 CHAIR OF THE INQUIRY: What about salaries of Council 2 employees? Were they recharged? 3 A. I'm not familiar with the detail throughout the period 4 of the project. I'm familiar with a period post 5 mediation when staff within Finance were involved 6 directly in the project and supporting the project and 7 their costs were initially recharged to the project. 8 CHAIR OF THE INQUIRY: Thank you. 9 A. We will maybe come on to that point at a later point in 10 my statement. 11 MR MACKENZIE: Thank you. If we could then go back to your 12 statement, please, to page 3. At the top of the page, 13 paragraph 5.2, you explain: 14 "Expenditure on Utilities is net of GBP3.824 million 15 of 'betterment' payments received from utility 16 companies." 17 Then paragraph 5.3, you explain: 18 "All project expenditure is net of Value Added Tax. 19 VAT incurred on the Tram project was recoverable from HM 20 Revenue and Customs." 21 Then in paragraph 5.4, you explain: 22 "There are a small number of ongoing matters 23 relating to the Tram project. Current estimates are 24 reflected in project expenditure in respect of these 25 matters. Outstanding issues include final settlement 18 1 with Scottish Water for utility diversions where 2 discussions are ongoing." 3 Are these discussions still ongoing or have they 4 been completed? 5 A. No, my understanding is they're still ongoing. 6 Q. Are they likely to result in a final adjustment to the 7 accounts for the tram project? 8 A. We've made a provision for our estimated cost of 9 settlement within the figures that are reported to the 10 Inquiry, and there will be a final adjustment once the 11 final settlement is confirmed. 12 Q. Thank you. Then paragraphs 5.5, 5.6, 5.7 and 5.8, 13 I think we'll just take as read. You explain really the 14 handover of the accounting documentation from tie to the 15 Council, and how tie undertook their accounting, and 16 then how the Council picked things up or took things 17 over. 18 Then pick up in paragraph 5.9. You explain: 19 "Reconciliations have been undertaken to show how 20 total expenditure certified in the final account 21 statements for the main project contracts has been 22 accounted for within project accounting. These 23 reconciliations are included at Appendix 8 (Tram 24 Vehicles), Appendix 9 (Infraco) and Appendix 10 25 (MUDFA)." 19 1 You say: 2 "It should be noted that the breakdowns of 3 expenditure in these reconciliations differs from the 4 breakdowns shown in the main project contracts. The 5 breakdown in the tie financial ledger (project 6 accounting) was based on the contract monitoring 7 structure adopted by tie Limited. By contrast, the final 8 account statements reflect the agreed contract sums 9 resulting from the mediation process, and the subsequent 10 changes agreed thereafter." 11 We should perhaps look at the Infraco final account 12 statement that represents the biggest sum -- a separate 13 document, please. WED00000101. We have looked at this 14 before with one of the Bilfinger witnesses. If we go to 15 page 3, please. So the final account for the Bilfinger 16 Siemens consortium as it became after the mediation is 17 for the sum of GBP427,206,309.52. Is that correct? 18 A. Yes, that's correct. 19 Q. So that's the final sum paid to that consortium. If we 20 go back, please, to your statement to page 28, I think 21 we will see in Appendix 9 a breakdown of that. 22 So this is Appendix 9 of your statement. If we see 23 at the very bottom right, the Infraco final contracts 24 summary. If we blow up that figure, please, I think 25 we'll see that ties in with the figure in the final 20 1 account statement, albeit you've rounded up the 52p to 2 GBP310 at the end. 3 Then if we zoom back out, we can see a fairly high 4 level breakdown of that sum, and perhaps we could just 5 again note one detail in the shaded row, subtotal 6 construction, we can see four items up from that, the 7 code we looked at before, the unallocated to section. 8 We can see at the far right of that, the sum of just 9 over GBP24 million. So I think again we should bear in 10 mind that includes the sum of just over GBP6 million 11 paid to SDS via the consortium after the settlement; is 12 that correct? 13 A. Yes, that's correct. 14 Q. We can leave that appendix, thank you. 15 Back to your statement, please, to page 4. 16 We'd also asked you about other items of 17 tram-related expenditure, and in paragraph 6.1 you say: 18 "The following tram-related expenditure was funded 19 outwith the GBP776 million budget for the construction 20 phase of the project." 21 Paragraph 6.2, in relation to the parliamentary 22 process, you explain that the costs to progress the 23 bills amounted to GBP16.852 million which was funded by 24 the Scottish Government by separate grant funding. So 25 that's outwith the GBP776 million budget; is that 21 1 correct? 2 A. Yes, that's correct. 3 Q. Then in the paragraph below that, in relation to 4 reinstatement works and public realm works, you explain: 5 "It is estimated that GBP5.38 million has been 6 incurred to date in relation to additional 7 infrastructure works which were directly related to the 8 Tram Project. This includes GBP3.953 million relating 9 to road and pavement reinstatement works at Leith Walk 10 and Constitution Street together with public realm works 11 at St Andrew Square and wider works. It is estimated 12 that further expenditure of GBP1.547 million will be 13 incurred to complete reinstatement works at Leith Walk 14 and Constitution Street and this would take additional 15 infrastructure investment to GBP6.927 million." 16 You go on: 17 "The reinstatement works on Leith Walk and 18 Constitution Street are being carried out as part of 19 a wider programme of public realm improvements. Given 20 the size and scope of the project, the works are being 21 carried out in phases with Phase 4 due to be completed 22 in October 2007." 23 Was it? 24 A. Yes. 25 Q. "If the extension of the tram to Newhaven takes place, 22 1 it is anticipated that the remainder of the 2 reinstatement works, phases 5 and 6, will be carried out 3 as part of the tram extension project. All of this 4 expenditure has been funded through the Council's 5 Capital Investment Programme and a summary of this 6 capital expenditure is included at Appendix 11." 7 If we can go to that -- 8 CHAIR OF THE INQUIRY: Sorry, what does that mean, the 9 Council's Capital Investment Programme? Is that not 10 part of the tram project? 11 A. It's not part of the tram project, no. That's the 12 Council's wider capital budget essentially covering its 13 capital works on roads, schools and wider assets. 14 CHAIR OF THE INQUIRY: So that where the pavement has been 15 reinstated at Leith Walk, say, that's been treated as 16 part of the general capital expenditure, whereas in fact 17 was it -- it may have been caused as a result of the 18 tram works. 19 A. Well, I think the -- the GBP4 million approximately 20 within this statement relating to the works at 21 Leith Walk is related to the -- effectively the 22 reinstatement following the decision to stop the tram at 23 York Place. So it was essentially that's the element, 24 the GBP4 million is the element of the additional cost 25 relating to reinstatement of works following that 23 1 decision. 2 CHAIR OF THE INQUIRY: So does that go into the tram budget 3 then? 4 A. It's charged against the Council's capital investment 5 programme. That was reported to Council, I think, in 6 2008, when the decision was taken to take the tram to 7 York Place. 8 CHAIR OF THE INQUIRY: Yes. If it was caused or due to the 9 tram works in Leith Walk, why shouldn't it go into the 10 tram budget? 11 A. Yes, the tram budget was -- was -- the GBP4 million was 12 reported to Council in terms of the cost of 13 reinstatement. So it was reported. 14 CHAIR OF THE INQUIRY: I'm not suggesting there's anything 15 improper, if the Council decided that. I'm just trying 16 to understand why it wasn't added to the GBP776 million. 17 A. As I understand it, the decision would be to take that 18 reinstatement works forward separately from the tram 19 project. So through the Council's capital investment 20 programme as part of a wider programme of improvements 21 in Leith Walk. But what this report -- what the Council 22 does recognise is that there is an additional cost which 23 is related to the decision not to -- to take the tram to 24 York Place. 25 CHAIR OF THE INQUIRY: Thank you. 24 1 MR MACKENZIE: Thank you. So if we can go, please, to 2 page 31 of your statement, which gives a breakdown of 3 the reinstatement works and public realm works costs, 4 perhaps start with the total. At the very bottom row, 5 if we can blow that up, please, we'll see two figures in 6 from the end, the grand total of 5.38 million, which 7 corresponds with the figure of 5.38 million in 8 paragraph 6.3 of your statement. 9 Then zoom back out, please, and see what that sum 10 relates to. Is it possible to blow up the whole box 11 a little, please? Thank you. 12 Perhaps we could blow up the whole box, but leaving 13 out the description boxes at the right, just to see the 14 main figures is what I'm trying to see. 15 Thank you. 16 So the first item we can see, I think, transport 17 Coates and Atholl Crescent, reinstatement, public realm, 18 capital investment programme, a total sum of -- total 19 spend GBP296,000. We can see then under "West End - 20 Traffic Management", some lower sums for signals and 21 vehicle management signs. 22 We then see Leith Walk and Constitution Street, we 23 see Leith Improvement Programme, Public Realm, Capital 24 Investment Programme, total of 9 -- then if we blow that 25 one up, it may be 8.963. Possibly actually 3.953, thank 25 1 you. 2 So fairly minor -- so that's the 3 -- blow that up 3 again, please. This is in hundreds of thousands. So if 4 we blow that figure up again, please, it's the Leith 5 Walk and Constitution Street, and Leith Improvement 6 Programme. So that is GBP3.953 million. I think that 7 is right? 8 A. That's right, yes. 9 Q. Thank you. Then we can just see, so that's the major 10 item. We can also see reference to St Andrew Square, 11 a sum for granite setts, and a sum for footways, 12 I think, and the figures there, if we can blow them up, 13 this is in the hundreds of thousands. I think one is 14 7 -- so the figure -- two figures at the bottom 15 right-hand corner. The total spends -- yes. 789,000 16 and 286,000 for those. 17 So that's a breakdown of the 5.380 for the 18 reinstatement works and public realm works. 19 If we can go back to the body of your statement, 20 please, at page 4, in paragraph 6.4, these again are 21 items which are not included in the GBP776 million tram 22 budget. In paragraph 6.4, you say: 23 "A rateable value reduction scheme was applied for 24 retail properties impacted during Tram construction." 25 Then reading this short, there was a reduction in 26 1 non-domestic, ie business rates payable under this 2 scheme of around GBP6.3 million. And that was something 3 that was met by the Scottish Government; is that 4 correct? 5 A. That's correct, yes. 6 Q. So a tram-related cost, but not included within the 7 budget of GBP776 million? 8 A. It's not included within the 776, no. 9 Q. The next paragraph, please, paragraph 6.5, there's 10 reference to a hardship relief scheme, and we see the 11 total value of that was GBP85,469, with GBP21,367 being 12 met by the Council. Over the page, please, page 5, in 13 paragraph 6.6 we see an additional support scheme was 14 also introduced for small businesses impacted during 15 tram construction, provided for one-off lump sum 16 payments. We can see the last sentence of this 17 paragraph, you say: 18 "GBP1.697 million of expenditure was incurred under 19 this scheme and this was accounted for within the 20 GBP776 million Tram Project budget." 21 In paragraph 6.8, another scheme, you say: 22 "In addition, a budget allowance of GBP0.545 million 23 in 2011/2012 and GBP0.445 million in 2012/2013 was 24 established by the Council to provide support for the 25 'Open for Business' scheme. This expenditure was funded 27 1 separately through the Council's Revenue budget." 2 Just totalling these two figures up, I think, come 3 to GBP0.99 million, and that would not be included 4 within the GBP776 million project budget; is that 5 correct? 6 A. That's correct, yes. 7 Q. Then again, just sticking with the question of sums not 8 included within the tram budget, in paragraph 6.9 we 9 come on to the costs of winding down tie Ltd. You 10 explain: 11 "Tie Limited Pension Fund cessation costs were 12 GBP4.798 million. These costs were outwith the 13 GBP776 million Tram project budget and were contained 14 within the Council's overall revenue budget for 15 2011/2012." 16 Then at paragraph 6.10, you say that: 17 "Revenue costs associated with tie voluntary 18 redundancies were GBP2.561 million. These costs are 19 included within the Tram project costs of 20 GBP776.7 million." 21 CHAIR OF THE INQUIRY: You may not know, but do you know why 22 the pension fund cessation costs weren't included in the 23 tram? 24 A. I don't know the detail of that. 25 CHAIR OF THE INQUIRY: It just seems that you're treating 28 1 these costs differently from the redundant payments. 2 A. Yes. I don't know -- I'm -- I don't know whether the 3 information -- the information around redundancy costs 4 would have been known, I assume, when they were 5 resetting the budget post mediation. I'm not sure 6 whether they had enough certainty around the pension 7 deficit liability. But ... 8 CHAIR OF THE INQUIRY: Thank you. 9 MR MACKENZIE: As a matter of accounting practice, is there 10 any reason for these sums to be treated differently or 11 is it simply a matter of choice? 12 A. Yes, I'm not aware of any reason for these to be treated 13 differently, no. 14 Q. Then under the next sub-heading, "Tram Project Revenue 15 Costs", paragraph 6.12, you explain: 16 "From 2012/2013, following a decision within the 17 Tram Project, project revenue expenditure, including CEC 18 tram-related staff costs previously funded through the 19 Tram project budget, was funded outwith the 20 GBP776 million project budget with this expenditure 21 being met through the Council's overall revenue budget." 22 You go on to explain in the next paragraph, 6.13, 23 that: 24 "GBP9.821 million of revenue expenditure was 25 incurred over three financial years, 2012/2013 to 29 1 2014/2015, comprising GBP8.682 million which was 2 recharged from the Tram project account to the Council's 3 revenue budget and GBP1.139 million of expenditure which 4 was charged directly to the Council revenue budget. 5 A summary of this revenue expenditure is included at 6 Appendix 15." 7 Now, to pause there, do you know why these sums were 8 originally charged to the tram project account but were 9 then recharged to the Council's revenue budget? 10 A. I don't know the detail of that. My understanding is 11 that there was a decision taken within the project team 12 around about the end of financial year 2012/2013 to 13 re-charge those costs out of the project budget, but I'm 14 not aware of the detail. But I understand it was 15 a policy decision within the tram project team. 16 CHAIR OF THE INQUIRY: So that's taking money out of the 17 project budget, as it were, and transferring it to the 18 Council so that they -- the Council meet that cost? 19 A. Yes. 20 CHAIR OF THE INQUIRY: One of my earlier questions was about 21 recharging before that. It was the other way about, 22 really. 23 If you had Council employees working within the tram 24 project, even for a few days a week or what have you, 25 I think you've indicated you don't know the answer to 30 1 this, but can I just confirm: do you know if those 2 salaries or partial salaries were recharged to the tram 3 project? From the Council? 4 A. Yes. My understanding is that -- I don't know the full 5 detail, but my understanding is that certainly some 6 staff costs were charged into the tram project, and up 7 to and including 2011/2012 financial year, those costs 8 remained within the tram project's accounts and then 9 from 2012/2013, there was a decision taken within the 10 project to effectively take those costs back out of the 11 project and put them back into the Council's main 12 revenue account. 13 CHAIR OF THE INQUIRY: Thank you. 14 MR MACKENZIE: Thank you. 15 So just to try to summarise this chapter, 16 Mr Connarty, of other tram-related expenditure, what 17 I have done is try to add up the various items we have 18 just discussed, and I come to a figure of just over 19 GBP44 million for items of expenditure which were 20 related to the tram project but not included within the 21 tram budget of GBP776 million. I should explain, I get 22 to that by adding up the parliamentary costs of 23 16.852 million, the additional works of 5.38 million, 24 the rates relief met by the Scottish Government of 25 GBP6.3 million, the open for business scheme figure of 31 1 GBP0.99 million, the tie pension fund costs of 2 GBP4.798 million and the tram project revenue costs of 3 GBP9.821 million. I'm not going to ask you to undertake 4 that calculation now. People can check that later. But 5 in short, if my calculation is right, then it would 6 appear that there are about GBP44 million of additional 7 tram-related costs. Would that seem right, if my 8 figures are correct? 9 A. I think, yes, I think these are tram-related costs. 10 I think -- possibly I think the only comment in terms of 11 the parliamentary process which was run before the 12 construction period, that wouldn't normally have been 13 built into the initial budget at financial close. So it 14 wouldn't be built into the tram construction project, 15 and the rateable value -- the rateable value reduction 16 scheme set out at paragraph 6.4 again, that's not 17 something which would normally sit within the project, 18 within the costing. But I accept everything as I have 19 set out in the statement. The costs there are not 20 within the 776 figure. 21 Q. Yes. So it could be said, at least from a lay 22 perspective, that if one adds these total additional 23 costs of GBP44 million to the project expenditure figure 24 of 776.7 million, one comes to a total of about 25 GBP820 million which on one view, and excluding the 32 1 interest payments for additional borrowing, could be 2 said to be the true cost of the tram project? 3 A. Yes, it could, yes. 4 CHAIR OF THE INQUIRY: That would be subject to your caveats 5 about whether it would be appropriate to include in that 6 the cost of the parliamentary process? 7 A. Yes. I think also to say that I think the -- the costs 8 have generally been set out within -- within separate 9 reports to the Council throughout. So I think that's -- 10 that is -- each of these items have generally been 11 reported separately to Council and the funding 12 arrangements have been explained throughout that 13 process. 14 CHAIR OF THE INQUIRY: I think what Mr Mackenzie is seeking 15 to get is some -- this may be a range of figures where 16 the public could then appreciate what the cost of the 17 project has been to date. 18 A. Yes. 19 CHAIR OF THE INQUIRY: Would that exercise that he's 20 undertaken be a reasonable one? 21 A. Yes. Well, certainly that's what I have tried to 22 support through this evidence, is to set out all of the 23 tram-related expenditure that is available, is known. 24 CHAIR OF THE INQUIRY: Thank you. 25 MR MACKENZIE: Thank you. I would like to move on to 33 1 another matter, please, over the page at page 6. We see 2 the heading here, "Funding of Tram Project Budget 3 Increase of GBP231 million, August 2011". We should 4 just go through each paragraph in turn again. 5 Paragraph 6.14, you explain that: 6 "As reported to Council on 25 August 2011 ... 7 a revised ... budget ... of GBP776 million was 8 established. On that basis, the additional funding 9 requirement over the previous budget sum of 10 GBP545 million was GBP231 million. Council agreed that 11 the additional GBP231 million budget requirement would 12 be funded by prudential borrowing." 13 Could you explain what prudential borrowing means? 14 A. Yes, prudential borrowing relates to prudential code, 15 which is a professional code which sets out its guidance 16 around decisions on capital investment and whether 17 borrowing can be undertaken to support that guidance, so 18 prudential borrowing effectively allows borrowing to go 19 ahead where the Council is satisfied that the plans are 20 affordable and sustainable and prudent. 21 Q. Is that a code which is issued or was issued by CIPFA? 22 A. It is, yes. 23 Q. Just for completeness, can you remember what 24 CIPFA stands for? 25 A. Chartered Institute of Public Finance and Accountancy. 34 1 Q. Paragraph 6.15. You explain that: 2 "Based on the assumptions set out within the report 3 to Council on 25 August 2011 (additional borrowing of 4 GBP231 million, repayment period of 30 years and 5 interest rate of 5.1 per cent), it was estimated that 6 the additional revenue cost arising from this additional 7 borrowing would be GBP15.3 million per annum (comprising 8 repayment of principal and interest) over a 30-year 9 period." 10 Then in paragraph 6.16 you say: 11 "Council borrowing is carried out on a programme 12 basis through a consolidated loans fund, and not on 13 a project-by-project basis. It is not therefore 14 possible to specify the actual cost directly associated 15 with the additional borrowing requirement of 16 GBP231 million. However, the marginal interest rate on 17 the Council's external borrowing in 2011/2012 and 18 2012/2013 was around 4 per cent compared to the prudent 19 estimate of 5.1 per cent which was assumed in the 20 Council report of August 2011. Based on a lower 21 marginal interest rate of 4 per cent, the annual revenue 22 cost arising from the additional borrowing requirement 23 of GBP231 million would equate to circa GBP13.4 million 24 per annum (comprising principal and interest) over 25 a 30-year period." 35 1 So am I correct in understanding that in short, at 2 the time of the report to Council in August 2011, the 3 additional borrowing was costed on the assumption the 4 interest rate would be 5.1 per cent, whereas in reality 5 the interest rates for borrowing have been lower? 6 A. Yes, that's right. 7 Q. In fact they have been, as you say, around 4 per cent. 8 Could that interest rate change in the future? Could it 9 go up or down, or is it an example where the Council has 10 a contract or an agreement where there's an interest 11 rate over the whole term of the 30 years? 12 A. The rates -- the pro-rate that the Council operates 13 could change over time. But 4 per cent is the prudent 14 rate that we are assuming just now, looking at our 15 projections going forward. 16 Q. So the rate could go up or down? 17 A. It could, yes. 18 Q. Thank you. Just sticking with the -- based on the lower 19 marginal interest rate of 4 per cent, the annual review 20 cost arising from the additional borrowing requirement 21 of GBP231 million would equate to circa GBP13.4 million 22 per annum over 30 years. I think by my calculations, 23 13.4 million times 30 years gives a total of 24 GBP402 million. If one deducts the 231 million in 25 relation to the principal, one is left with 36 1 GBP171 million for interest. So that's perhaps just 2 an indication based on those assumptions of what the 3 total interest payments may be. Does that seem 4 reasonable? 5 A. That is correct, yes. 6 CHAIR OF THE INQUIRY: Do you know what the current rate is? 7 A. The current rate that we're -- for capital investment 8 proposals that we are -- Council is looking at just now, 9 the current rate we are assuming is 4 per cent, in terms 10 of decision-making, it's 4 per cent. 11 MR LAKE: Thank you. 12 MR MACKENZIE: Thank you, then paragraph 6.17, there's 13 a slight wrinkle in those calculations, because you 14 explain in paragraph 6.17: 15 "Developer Contributions are within the Council 16 contribution of GBP45 million to the original budget of 17 GBP545 million. The Council budgeted to receive 18 GBP25 million in cash over 20 years. Developer 19 contributions received to date total GBP9.5 million with 20 the current shortfall in contributions of 21 GBP15.5 million managed through additional prudential 22 borrowing." 23 In short, I think the Council have had to borrow to 24 meet the shortfall in developer contributions; is that 25 correct? 37 1 A. That's correct. 2 Q. You go on to explain: 3 "Based on a lower marginal rate of interest of 4 4 per cent, the annual revenue cost arising from this 5 additional borrowing requirement of GBP15.5 million 6 would equate to GBP0.9 million per annum (comprising 7 principal and interest) over a 30-year period." 8 Then you sweep matters up and summarise in 9 paragraph 6.18. You explain: 10 "The annual costs (principal repayment and interest) 11 arising from additional prudential borrowing arising 12 from the Tram project are within the GBP15.3 million 13 estimate which was reported to Council in August 2011. 14 Although the level of borrowing is higher due to the 15 current shortfall in developer contributions, this has 16 been offset by lower marginal interest rates. Based on 17 a lower marginal interest rate of 4 per cent, the annual 18 revenue cost arising from the additional borrowing 19 requirement of GBP246.5 million ..." 20 You then explain: 21 "The additional borrowing of GBP231 million combined 22 with the current shortfall in developer contributions of 23 GBP15.5 million - would equate to GBP14.3 million per 24 annum (comprising principal and interest) over a 30-year 25 period." 38 1 Again, just to find out the interest part of that, 2 GBP14.3 million per year times 30 years, by my 3 calculations, comes to GBP429 million; if one deducts 4 the GBP246.5 million for capital payments, one is left 5 with interest payments of GBP182.5 million. Does that 6 seem broadly correct? 7 A. That seems correct, yes. 8 Q. What I've also done from at least a lay perspective, 9 coming back to the total cost of the project, and this 10 time adding on interest payments, if -- and based on the 11 various assumptions you set out in your statement, 12 interest rates may go up or down, more developers' 13 contributions may appear on the scene, or less, 14 whatever. But subject to these various caveats, if one 15 starts with the total cost of the project, as reported, 16 of GBP776.7 million, if one adds the interest payments 17 I have just mentioned of 182.5, one comes to a total sum 18 of GBP959.2 million, which on one view could be said to 19 be the true cost of the project, including interest; 20 does that seem fair? 21 A. Could you repeat that again just to go through those 22 numbers, sorry. 23 Q. I'm throwing all these numbers at you. 24 So what I had done, in paragraph 6.18 of your 25 statement, you had explained that the total annual cost 39 1 of the additional borrowing would equate to 2 GBP14.3 million a year. So I had just times-ed that by 3 30 years and got a figure of GBP429 million. 4 I then deducted the capital part of it, the 246.5, 5 and been left with a figure for interest of 182.5. So 6 it's that figure of interest of 182.5, and now seeking 7 to add back on to the previous sums. 8 So adding that figure of 182.5 for interest to the 9 total reported cost of the project of 776.7, I arrived 10 at a figure of just over GBP959 million? 11 A. Yes. 12 Q. My suggestion is that, at least from a lay perspective, 13 that could be said to be the total reported cost of the 14 project, including the anticipated interest payments. 15 A. No, I think that's reasonable. I think going back to 16 the August 2011 report to Council, that certainly set 17 out the -- the total cost including interest at that 18 point, yes. 19 CHAIR OF THE INQUIRY: Is 776 the correct base to be taking? 20 I thought, from the earlier parts of your evidence, you 21 had highlighted additional costs which I think 22 Mr Mackenzie worked out earlier, about 40 million or 23 something to be added to that. Should the base not be 24 the 776 plus additional cost plus the interest? 25 A. I think in terms of the project -- the project budget 40 1 that was established, it's the 776.7 plus the interest, 2 and then we have set out, my Lord, the additional tram 3 related expenditure that has been highlighted. 4 CHAIR OF THE INQUIRY: Should that be added on as well? 5 A. I think, if you're looking at it from a layman's 6 perspective, I think all of the information is there in 7 front of the Inquiry. 8 CHAIR OF THE INQUIRY: So if that were the position, you are 9 certainly over GBP1 billion? 10 MR MACKENZIE: I was coming on to that, my Lord, yes. 11 CHAIR OF THE INQUIRY: Oh, sorry. 12 MR MACKENZIE: Yes. So if one -- so that was one way of 13 looking at it, the 776.7 plus interest of 182, I think, 14 would come to the 959 million, but the other way of 15 looking at it is perhaps starting at 820 million, which 16 includes the additional tram-related sums which aren't 17 accounted for in the tram budget; and if one then adds 18 the 182 for interest on to the 820, one comes to over 19 GBP1 billion, which, from a lay perspective, may be said 20 to be the true cost of the tram project, including the 21 anticipated interest payments. Does that seem 22 reasonable? 23 A. Yes. I think all of the information within the 24 statement does come to the billion pounds area, yes. 25 Q. Thank you. We've also asked, please, going back to the 41 1 statement at page 7, we'd asked about -- this is under 2 the consequences chapter of the Inquiry's remit, to look 3 at where the additional money could have been spent. So 4 I think we'd asked you about details of the cuts that 5 the Council had had to make in recent years, and in 6 paragraph 6.19 you explained that: 7 "An analysis of revenue budget savings totalling 8 GBP145 million over financial years 2015/2016 to 9 2017/2018 is included in Appendix 16." 10 We will come to that in a second, but is that 11 essentially savings totalling 145 million over three 12 financial years? 13 A. That's correct, yes. 14 Q. So it's 2015/2016, and 2016/2017, and 2017/2018. Thank 15 you. 16 Appendix 16 starts at page 60. If we go to that, 17 please. 18 If we can perhaps blow up the very top, just to see 19 the heading, we see: approved savings for delivery, 20 2015/2016 to 2017/2018. I think then each of the 21 financial years is dealt with separately. So I think 22 what we're looking at are savings in the first financial 23 year, 2015/2016. This is just by way of comparison to 24 see where the additional funding for the tram could have 25 been spent instead. This is based on -- you had 42 1 mentioned in your statement at paragraph 6.18, the 2 annual payment of GBP14.3 million to meet the additional 3 expenditure including interest. So that is an ongoing 4 payment, or assumed payment of GBP14.3 million. 5 Just for comparison purposes, if we scroll down 6 a little on this page, keep on going, please, we can 7 see, for example, the shaded line, "Total Children and 8 Families". So in this financial year, there required to 9 be a saving of GBP11.917 million in the children and 10 families budget. So I just point to that as an example 11 of where the money could have been spent instead if 12 these additional sums hadn't been spent on the tram. 13 If we go to page 62, please, we can see, above the 14 heavy shaded row, we can see in 2015 and 2016 the total 15 Council savings were GBP38.816 million. That simply 16 provides some context for the additional sums being 17 spent on the tram, and then underneath the shaded row, 18 the heavy shaded row, it goes on to the next financial 19 year, 2016/2017. If we scroll down there, we can again 20 see by way of example the communities and families 21 budget, a similar saving of GBP12.586 million. On to 22 the next page, please. We can see the total savings in 23 this financial year, just above the heavily underlined 24 row, please. Carry on scrolling down, please. Thank 25 you. 43 1 We can see just above the heavily underlined row, in 2 the financial year 2016/2017, the Council required to 3 make total savings of GBP64.403 million. 4 Then the savings in the financial year 2017/2018 are 5 then set out beneath that. If we carry on to the next 6 page, please, page 64, we can just scroll all the way 7 down, please, to see the total savings in that year. 8 Thank you. Second figure from the bottom, total savings 9 in the financial year 2017/2018, of GBP41.623 million. 10 Thank you. That's all just by way of comparison. 11 Back to the statement, please, the main text? 12 CHAIR OF THE INQUIRY: Can I just clarify, was this exercise 13 undertaken specifically for you giving evidence, or were 14 these schedules prepared for some other purpose in the 15 Council when they're talking about reducing budgets? 16 A. The schedule is prepared each year as the Council sets 17 its budget and makes decisions around the budget. So 18 what I have done in this appendix is responded to the 19 request from the Inquiry team to look at savings over 20 a period of time. So really just consolidated the 21 detailed savings that had been approved by the Council 22 in each of the last three years. If we look back over 23 a longer period, I think over the last six years, the 24 savings would be round GBP240 million, and going 25 forwards, the projection is a further GBP160 million of 44 1 savings required by the Council over the next four to 2 five years. 3 CHAIR OF THE INQUIRY: As part of the exercise of the -- 4 presumably the Council budget, are the savings broken 5 down in this way, that each department then has to 6 find -- if it's got to find GBP10 million of savings, it 7 then has to allocate it within its internal budget? 8 A. Yes. We go through a process of political engagement 9 with the local members to decide what the priorities are 10 and where the -- where the savings can be found across 11 the organisation, and then there's an engagement with 12 the public as well through that process. 13 CHAIR OF THE INQUIRY: And the ultimate outturn is this 14 schedule which shows how it is -- 15 A. The ultimate outturn is a decision by the Council each 16 year. So each February, the Council sets its revenue 17 budget, and in that exercise it confirms the savings 18 that have to be delivered in the following year. 19 CHAIR OF THE INQUIRY: Thank you. 20 MR MACKENZIE: Thank you. 21 Back, please, to page 7 of your statement and 22 paragraph 7.1. We had also asked you to try and 23 undertake a comparison of the actual outturn costs of 24 the tram project compared to the budget at financial 25 close in May 2008. You say in paragraph 7.1: 45 1 "As requested by the Inquiry, a comparison of actual 2 costs with project budgets (at Financial Close and 3 following mediation) has been prepared, based on 4 available information. This is included at 5 Appendix 17." 6 If we can go to that, please, at page 65, we can see 7 the main items of expenditure on the left are listed. 8 We can see the different columns. Firstly, the bundle 9 at financial close. You've taken a figure of -- sorry, 10 the June 2008. We can see the total of that at the 11 bottom is at 5.15.2. Sorry, 515.2 million. The next 12 column looks at the budget post mediation in 2011. We 13 can see the total of 776 million. The next column, we 14 can see the estimated final expenditure as at March 2017 15 of GBP776.7 million. 16 I would simply like to look at three items which 17 appear to account for the main increases. 18 Firstly, Infraco. We can see the budget at 19 financial close of GBP238.5 million compared with the 20 estimated final cost of GBP419.8 million. In my 21 calculations that's an increase of just over 22 GBP181 million. The other big increase is utilities. 23 We can see they are listed in three rows: utilities 24 MUDFA; utilities other pre mediation; utilities post 25 mediation. 46 1 Taking all the utilities together, by my 2 calculations, the utilities budget at financial close 3 was 48.6 million compared with the final utilities cost 4 of 103.5 million. That resulted in a increase of 54.9 5 million. 6 I think the third big increase is under project 7 management. We see the budget at financial close of 8 54.1 million compared to the final cost of 9 GBP90.2 million, resulting in an increase of 10 GBP36.1 million, and again, by my calculations, those 11 three increases total GBP272.3 million and appear to 12 make up the bulk of the cost overrun. Does that seem 13 correct? 14 A. Yes, that seems reasonable. 15 Q. Thank you. I should just also mention the detail that 16 when we see design, the estimated final expenditure of 17 GBP26.7 million, we should bear in mind that a sum of 18 just over GBP6 million that was paid to SDS, albeit via 19 Infraco. 20 A. Yes. 21 Q. Thank you. 22 Put that to one side, please. 23 Then just finally, please, at page 7 of your 24 statement, again, in paragraph 8, 8.1, you explain: 25 "The final formal report to the Council on Tram 47 1 project costs was presented by the Council 2 Chief Executive at a Council meeting on 3 25 September 2014. At that time, final costs were 4 estimated to be GBP776 million." 5 In paragraph 8.2, you say: 6 "The current costs statement (Appendix 6) estimates 7 the final Tram project cost to be GBP776.7 million, 8 excluding those costs stated above which were met from 9 other budgets. There have been a small number of 10 adjustments to the position reported in September 2014 11 including an increase of GBP0.55 million in land and 12 property compensation expenditure." 13 So I take it that it's not possible to provide final 14 accounts yet; is that correct? 15 A. Yes. As it's referred to in the statement, there are 16 some issues outstanding and so until -- until those are 17 finally closed, we can't provide -- we've provided 18 an estimate within these numbers, but those matters are 19 still outstanding. So we continue to review those 20 matters until they are formally closed. 21 CHAIR OF THE INQUIRY: Do you have any idea when the account 22 will be closed? 23 A. I would hope during this financial year, but I can't 24 confirm that. 25 CHAIR OF THE INQUIRY: When it is closed, could it be 48 1 arranged that a copy of it be sent to the Inquiry? 2 A. Yes, of course. We could perhaps say we're not 3 anticipating a material change to the numbers shown, but 4 certainly we'll come back with the final statement. 5 CHAIR OF THE INQUIRY: Thank you. 6 MR MACKENZIE: Could I finally ask, Mr Connarty, you 7 mentioned Scottish Water was outstanding. Are there any 8 other outstanding items in addition to that? 9 A. I'm not aware precisely. I think there are perhaps two 10 items outstanding, but I can provide more information on 11 that if required. 12 CHAIR OF THE INQUIRY: Yes. I saw as we went through that 13 there's a question of VAT recovery of about GBP500 or 14 something which you won't get because tie had been -- 15 ceased to exist as a company by the time -- 16 A. Yes, that's correct. 17 MR MACKENZIE: Thank you. I have no further questions. 18 CHAIR OF THE INQUIRY: Does anyone else have questions? 19 Thank you, very much, Mr Connarty. Very helpful. 20 I'm very grateful to you for helping the Inquiry in 21 undertaking this exercise. You're still technically -- 22 you still are subject to your citation and could be 23 recalled. I think it's highly unlikely, but if that 24 happens, someone will get in touch with you. In the 25 meantime, thank you very much. 49 1 A. Thank you, my Lord. 2 (The witness withdrew) 3 50 1 INDEX 2 PAGE 3 MR JOHN CONNARTY (affirmed) ..........................1 4 5 Examination by MR MACKENZIE ...................1 6 7 MR KENNETH HOGG (sworn) .............................50 8 9 Examination by MR LAKE .......................50 10 11 Questions by CHAIR OF THE INQUIRY ...........146 12 13 14 15 16 17 18 19 20 21 22 23 24 25 150