1 Thursday, 14 December 2017 2 (9.30 am) 3 MR NEIL RENILSON (continued) 4 CHAIR OF THE INQUIRY: Mr Renilson, you're still under oath. 5 A. Understood. 6 CHAIR OF THE INQUIRY: If you just listen to the question 7 and answer it. 8 A. Thank you. 9 Examination by MR LAKE 10 A. Before we commence, my Lord, having reviewed the 11 evidence I gave on the two previous occasions, there is 12 one issue where I told the truth, but I didn't perhaps 13 tell the full truth. Might I be permitted a couple of 14 minutes to complete that? 15 CHAIR OF THE INQUIRY: Yes. 16 A. Thank you. It relates to governance and structure 17 questions. And I was asked about TEL and the general 18 composition of the structure and the governance, and 19 particularly the issue that TEL had no staff or 20 resources. 21 I would explain that to this day Transport Edinburgh 22 has no staff. The tram is up. The tram is functioning. 23 It has some directors. It has directors and those 24 directors, non-executive directors, most of them, do 25 receive some remuneration, but the only paid employees 1 1 it has, as I understand it, is one secretarial support, 2 which is very much the same as it was when you were 3 asking me. 4 So that hasn't changed, and it was never the 5 intention that TEL or -- should be anything other than 6 a holding company. 7 That was the intention, and that's how it's worked 8 out. The reason TEL was created, why it had to be 9 there, was twofold. The first one relates to the 1998 10 Competition Act. Following the 1997 Amsterdam protocol, 11 EU, it was a situation where two companies cannot 12 collude on prices if they are under separate ownership. 13 Lothian Buses, although 91 per cent owned by the City of 14 Edinburgh Council, was not under common ownership with 15 Edinburgh Trams, or whatever form it was going to take. 16 That would have been 100 per cent owned by the City of 17 Edinburgh Council. 18 So in order to deliver an integrated network where 19 bus and trams agreed common fares, common terms and 20 conditions, effectively colluded to provide a common 21 service, they had to be under common ownership. 22 So TEL had to be created, if for no other reason 23 than to allow an integrated transport system to be 24 implemented, or City of Edinburgh Council had to acquire 25 the other 9 per cent of the shareholding, but 2 1 East Lothian, West Lothian, and Midlothian were not 2 minded at all to sell. 3 It was called Transport Edinburgh Limited because 4 really TEL was Lothian Buses under a different name. It 5 was called Transport Edinburgh Limited because 6 Lothian Buses -- City of Edinburgh Council would love to 7 call Lothian Buses at that time Edinburgh buses, but 8 clearly, with the three other shareholders, and all four 9 councils were under Labour control at that time, there 10 was no desire on the part of the Labour Party or the 11 Labour Council in Edinburgh to fall out with the other 12 three surrounding authorities who were, you know, all of 13 the same mind. 14 So Lothian Buses stayed, following the dissolution 15 of Lothian region, as Lothian Buses, whereas City of 16 Edinburgh Council would have liked to call it Edinburgh 17 Buses, but as I have said, didn't. 18 Edinburgh Tram, however, was never going to be 19 Lothian Tram, quite simply from the point of view that 20 as far as City of Edinburgh were concerned, it's ours, 21 it's 100 per cent ours. So we are not giving any 22 recognition to any other body. 23 So Transport Edinburgh was essentially Lothian Buses 24 in a different guise. It was necessary for the 1998 25 Competition Act to allow an integrated operation and it 3 1 was never ever intended to be anything other than 2 a holding company and that is the way it is to this day. 3 Thank you. 4 MR LAKE: Thank you, my Lord. 5 Mr Renilson, when you last were giving evidence, we 6 finished off by talking about the obtaining of approval 7 for the Final Business Case and that aspect of close -- 8 A. Sorry, could you repeat. 9 Q. When you were last giving evidence, you were speaking 10 about obtaining approval of the final business case and 11 the Council decision to proceed in December 2007. 12 A. Yes. 13 Q. What I want to do now is just look what was happening 14 the following month, in January 2008. 15 A. Yes. 16 Q. Do you recall, after the close, a committee being set up 17 that consisted of you, Willie Gallagher and 18 David Mackay? 19 A. Yes. Is this what was essentially -- was it termed the 20 Approvals Committee? 21 Q. Yes. That's the one I'm thinking of. 22 A. This was -- if it's the one I'm thinking about, it was 23 essentially one person each from tie, TEL -- anyway, the 24 objective of it was to formally sign off on behalf of 25 the companies the business plan, and I think that took 4 1 place immediately prior to contract closure. 2 Q. Yes. I just want to ask you a little bit more details 3 about this committee, and I would like to ask you to 4 look at one of the resolutions that established it. It 5 is CEC -- 6 A. I have nothing on the screen. 7 Q. It will come up. CEC01515189. 8 If we look at the upper half of this so we can make 9 it larger to see. The title is -- it's headed "TRAM 10 PROJECT BOARD", and then it has the title, "RESOLUTION 11 OF THE MEMBERS OF THE Tram Project Board AT A MEETING ON 12 23 JANUARY 2008, HELD JOINTLY WITH THE BOARDS OF Tie Ltd 13 AND Transport Edinburgh Limited". Do you recognise this 14 document? 15 A. Not immediately, but -- 16 Q. We will look through the details -- 17 A. If you want me to browse quickly through it, I'll see if 18 that triggers anything. 19 Q. I'll let you read through it. I'm more interested in 20 stuff at the end, but if you look at the whole of it 21 just now. 22 A. Okay, thank you. (Pause) 23 CHAIR OF THE INQUIRY: When you get to the bottom, if you 24 just -- 25 A. Yes, thank you. Yes. 5 1 This isn't exactly what I thought we were talking 2 about. 3 This committee appears to be established to approve 4 final execution of notification to award ITN, the 5 Infraco and related. The one I was thinking of came 6 somewhat later and it was actually, I think, the same 7 people in May, and that was to actually sign the 8 contracts. 9 Yes, I understand this, yes. 10 Q. If we just look at paragraph 4 of this resolution at the 11 moment, this is to approve -- the Tram Project Board 12 decision is simply to approve delegated authority 13 arrangements, to ensure, as it is put, an efficient and 14 properly controlled process was followed through to 15 contractual commitment and during project 16 implementation; do you see that? 17 A. Yes. 18 Q. Then underneath that: 19 "The delegated authority arrangements ..." 20 That is approved is that a committee of the boards 21 of the company, the Tram Project Board and tie Ltd would 22 immediately be formed consisting of Messrs Gallagher, 23 Mackay and Renilson, and you recall there being 24 a committee of the three of you? 25 A. Yes. 6 1 Q. "... to whom authority is delegated to approve final 2 execution by the tie Chairman of Notification to Award, 3 the Infraco Contract Suite, and any necessary related 4 agreements ..." 5 So there's three things you can approve execution 6 of: the Notification to Award, the Infraco Contract 7 Suite and related agreements; do you see that? 8 A. Yes. 9 Q. Was it the case that ultimately this three-man committee 10 did sit in order to approve the execution of the Infraco 11 Contract Suite? 12 A. I cannot bring that immediately to mind. I can 13 definitely clearly remember the meeting in May of the 14 same people, but whether this actually met or whether 15 this was a paper exercise, I don't know. I can't 16 immediately remember. But, I mean, I guess there will 17 be minutes or a record. 18 Q. I will take you to the main minute in a little while. 19 I just want to look at this at the moment to see what 20 the criteria are for giving your approval. There's 21 three given. 1 is that the final terms of the 22 contractual arrangements are within the terms of the 23 Final Business Case, subject to slippage of up to one 24 month in programmed revenue service in 2011, and 2, they 25 unanimously conclude that it is appropriate to do so, 7 1 and 3: 2 "Approval has been received from the Council 3 Chief Executive to proceed to execution of the Infraco 4 Contract Suite." 5 Obviously the third of those is really nothing to do 6 with the three of you. It's to do with a third party; 7 do you agree? 8 A. Yes. 9 Q. In terms of the first of these, though, being satisfied 10 that the terms of the contractual arrangements are 11 within the terms of the Final Business Case, can you 12 recall what work you undertook to satisfy yourself? 13 A. No. I mean, I can't. I can guess at it, but I can't 14 recall. 15 Q. Was this simply a paper exercise? 16 A. I cannot remember, I'm sorry. It may have been. It may 17 not have been. 18 As I say, I can clearly remember subsequent meeting 19 of these three people in a slightly different form. 20 This doesn't ring a bell particularly though. 21 Q. If we come back to this in a moment, but for the moment 22 I would just like to look at the Business Case to see 23 what some of the key elements of it were. Could we have 24 CEC01395434. 25 You will recognise this as being the version 2 of 8 1 the Final Business Case from December 2007. 2 A. Yes. 3 Q. I want to look at a number of parts of it. There will 4 be a degree of overlap. If we could start with page 18. 5 Can we enlarge paragraph 1.77. This is in the summary 6 section. 7 A. Mm-hm. 8 Q. We have "Procurement strategy and risk allocation": 9 "The Procurement Strategy followed by tie responds 10 to feedback from the National Audit Office in 2004 on 11 the effectiveness of light rail schemes. The objectives 12 of the Procurement Strategy are summarised as follows." 13 The first is: 14 "Transfer the design, construction and maintenance 15 performance risks to the private sector." 16 Does that accord with your understanding that one of 17 the key elements of the procurement strategy was that 18 risk be transferred? 19 A. Absolutely. 20 Q. If we go then to page 115 of this, this time could we 21 enlarge paragraph 7.111 at the foot of the page. The 22 more detailed section under the heading, "Benefits and 23 risk allocation", this paragraph says: 24 "The key benefits of the Infraco procurement 25 strategy are primarily through the award of a single 9 1 turnkey fixed price contract and in the novation of the 2 SDS and Tramco contracts and the transfer of risks to 3 the Infraco." 4 Then it goes on to describe the benefits of this. 5 Again, does that accord with your understanding that key 6 elements of the strategy were to be a fixed price 7 contract and once again the transfer of risks? 8 A. Certainly it was the strategy to achieve, to try and 9 achieve a fixed price contract. Yes, that was the 10 strategy. 11 Q. Perhaps just for completeness, if we go to page 166, and 12 enlarge paragraph 10.53. We can see once again 13 reference to fixed price here because the paragraph 14 says: 15 "The contractual terms agreed with the bidders 16 accommodate the phased approach. Fixed prices have been 17 agreed for Phase 1a and an option arrangement has been 18 negotiated which will allow the Council to commit to 19 Phase 1b by March 2009 for commencement of construction 20 in July 2009." 21 So again, there was no doubt this was to be fixed 22 price? 23 A. No. What that's saying to me, they accommodate the 24 phased approach. Fixed prices have been agreed for 25 phase 1a, and throughout there was never any claim that 10 1 it was 100 per cent fixed. Various percentages were 2 used, like 95 and so on, and it was always fully 3 understood that there would be issues outwith the 4 contract that could result in a change to that fixed 5 price; a very obvious one would be ground conditions. 6 For example, Leith Walk, it's fundamentally built on 7 sand. If they had priced it on that and then suddenly 8 came across a load of rock at Pilrig or something, that 9 would be a change to the price. 10 So there clearly were -- it was always understood 11 there were exceptions to it. 12 But as I say, various percentages were bandied 13 around, but 95 was one that was regularly used. So 14 fixed, largely fixed, but never in my mind, or indeed as 15 far as I'm aware in anybody's mind, was it 100 per cent 16 fixed. 17 Q. What was the understanding as to what elements might 18 bring about a change in price? You've referred to 19 ground conditions being an obvious one? 20 A. Ground conditions is a pretty standard one in that sort 21 of contract. 22 Unforeseen circumstances. It's not exactly 23 force majeure, but let's say there was major flooding 24 out at Murrayfield, the Water of Leith decided it was 25 going to flood the work site or whatever. These sort of 11 1 things. 2 Things essentially that hadn't been priced in by the 3 contractor. But this is December 2007. 4 Q. Yes. 5 A. Yes, by that time, you know, it was well understood that 6 MUDFA and SDS, the design, were not on time. 7 Q. Well, that really -- 8 A. But -- sorry -- 9 Q. That comes to be the point. That you knew that MUDFA 10 wasn't on target and the design was behind. 11 A. Correct. 12 Q. Did that not provide an indication that the price wasn't 13 going to be fixed in the way it was intended to be? 14 A. I think -- I assume this -- is there an actual date on 15 this in December? 16 Q. On the Final Business Case? 17 A. The FBC. 18 Q. I think it's 7 December. 19 A. Fine, okay. Clearly it wasn't written on the 6th. This 20 had been written over a number of months and indeed was 21 a rework and update of previous business cases, and yes, 22 there was exactly as you say: look, you know, this is 23 not as fixed as we want it to be. And that resulted, 24 I think, subsequently, 7 December, in Willie and Matthew 25 flying off to meet in Wiesbaden, and that was again an 12 1 attempt to move it further towards fixed. 2 So it wasn't a question that on 7 December, this was 3 released and it was then a question of: well, it's not 4 fixed but don't mention it, we will sit on our hands. 5 All sorts of efforts were made to try and make it more 6 fixed. 7 But yet it was not, over and above the sort of 8 geographical and extra -- and geological terms, yes, 9 there were elements that weren't fixed and everybody was 10 doing what they could to try and fix them. 11 Q. If I could go back to the resolution in relation to the 12 Approvals Committee, that was document CEC01515189. 13 A. Yes. 14 Q. Once again, if you look at the lower half of the screen, 15 you were given three conditions you have to consider 16 there, and the first is whether or not the final terms 17 of the contractual arrangements are within the terms of 18 the Final Business Case. 19 In deciding whether or not you could give approval, 20 how did you judge whether or not it was fixed price? 21 A. As I said, I can't be sure that anything -- whether this 22 was a paper exercise or whether a meeting took place. 23 I just genuinely cannot remember. 24 The final terms of the contractual arrangements are 25 within the terms of the Final Business Case. That was 13 1 certainly the objective. 2 I'm very happy to sit here and say at that time 3 that's what we were trying to do, which is why there was 4 various fairly intense activities taking place in the 5 first five months of 2008 to try and ensure it as far as 6 possible did. 7 That's all I can say. But yes, technically, there 8 may well be a situation where, you know, that very stark 9 absolute commitment was not met. 10 Q. Looking -- apart from the question of the fixed, the 11 transfer of risks? 12 A. Yes. 13 Q. What did you, the Approvals Committee, do to ensure 14 there had been transfer of risk, and in particular, did 15 you have in mind which risks were to be transferred? 16 A. The objective clearly was to transfer all risk, but that 17 was not going to be possible. 18 I think the largest single concern was around the 19 design, and that, for various reasons, was just really 20 going nowhere. Not going nowhere, but not proceeding at 21 the rate necessary to achieve concluded design by May. 22 That was pretty obvious. 23 So the objective was to try and get that design risk 24 novated across to the consortium on signature. 25 I wasn't closely involved in that personally, but 14 1 I was well aware of the principles of what was going on, 2 and it was becoming -- it was becoming fairly clear that 3 BBS, particularly Bilfinger, Siemens weren't really an 4 issue, but Bilfinger were pretty uncomfortable about 5 taking on all the design risk. Hence, among other 6 things, Wiesbaden. 7 Q. You talked about the novation of design. 8 A. Yes. 9 Q. Had that always been part of the procurement or the 10 contract strategy or was that put in simply because the 11 design was lagging? 12 A. No. I hesitate to use the word "always", but it had 13 certainly been the -- certainly been the strategy long 14 before it became obvious that MUDFA and SDS were not 15 going to make it. It had always been -- by this rather 16 cockeyed system that had been adopted on day 1, it was 17 always intended that the design and -- yes, the SDS and 18 MUDFA would have been novated into Infraco. I don't 19 think it was originally intended that Tramco be novated 20 into the -- or be incorporated in the consortium. 21 I think that did come later, but certainly very early 22 on. 23 Q. So what was the relationship between the novation of the 24 design contract on the one hand and the transfer of 25 design risk on the other? 15 1 A. Effectively that when that -- my understanding, as 2 I say, this wasn't my specialist area. But my 3 understanding was that if or as and when the novation 4 took place, the agreed design risk would transfer to 5 BBS, and BBS's price included not just the cost of 6 building the thing, but a premium, a risk premium, for 7 taking on these undetermined design issues, but it was 8 never expected -- it was never expected that they would 9 take on all the design risk. Because in the same way as 10 you had issues like ground conditions, flooding, 11 whatever it might be, you also had the situation where 12 CEC were deemed to be a major blockage in the design 13 approvals system. 14 Again, not -- not something I was directly involved 15 in personally, but I was well aware through board 16 meetings and Project Board meetings what the mood was, 17 and the mood was we send, you know, the designers send 18 completed designs off to CEC and they don't come back, 19 and they don't come back, and we chase them and we get 20 them far, far too late, and that was slowing the whole 21 thing down. 22 The second issue was that CEC were rejecting designs 23 because they didn't meet their aesthetic requirements, 24 and BBS were not prepared to take on at the risk of CEC 25 not performing or being recalcitrant. 16 1 Q. I just want to clarify -- we've been talking about the 2 transfer of design risk, exactly what we mean. It could 3 mean on the one hand they were taking on the risk of 4 completing the designs. That's actually employing 5 designers to produce the drawings and things, or it 6 could be that they would take on the responsibility of 7 building the tram according to whatever the final design 8 turned out to be. 9 A. My understanding is the former. That, for example, such 10 and such a bridge has been roughly designed in outline. 11 It's not the design has not been fully completed. And 12 on novation, and when they take on the design risk, 13 that -- at that point, BBS will become -- they will take 14 the SDS team and staff into -- into effectively their 15 body, and they will be responsible for finishing off the 16 design of that bridge, designing it in detail, getting 17 permissions, et cetera, et cetera. 18 Q. If the final design costs more to construct than the 19 design that was available, say, in December 2007 -- 20 A. Yes. 21 Q. -- what was the arrangement for who was going to pay for 22 the increase in cost of that risk? 23 A. I cannot quote contractually what the arrangement was. 24 I can give you my understanding. 25 Q. What was your understanding of the intention? 17 1 A. My understanding was that if the reason that the item of 2 design, let's use the bridge at Gogar, if the Gogar 3 bridge was half designed at the time of novation, and in 4 completing the design it was going to cost more to build 5 than they had included in their prices, that was 6 their -- they were -- that was their problem. They were 7 carrying that cost. If, however, it was because 8 Riccardo Marini had decided that it was the wrong shade 9 of concrete or the wrong shape and they had to go away 10 and redesign it, that was very much CEC/tie's costs. 11 Q. I just want to be clear. You did understand that if the 12 completion of the design pushed the cost up just from -- 13 A. Yes. 14 Q. -- not Mr Marini's input, but just completion of the 15 engineering process -- 16 A. If it was nothing to do with an outside factor such as 17 CEC or related people, then, yes, that was Bilfinger's 18 responsibility, was my understanding. 19 Q. Right. In carrying out the work of the Approvals 20 Committee, can you recall what steps you took to ensure 21 that risk had been passed to the contractors? 22 A. Well, not specifically in terms of carrying out the -- 23 the Approvals Committee, because I say, I can't be sure 24 if it ever actually happened. But in general, just as 25 in terms of one's responsibilities for the project 18 1 overall, it was -- I'm not a contract lawyer, but it was 2 down to taking advice from the -- listening to and 3 taking advice from those people who were specifically 4 employed to cover that issue, and to advise on that 5 issue. By that I mean fundamentally two or three groups 6 of people. The tie specialists in design, and tie's 7 legal, DLA, Andrew Fitchie, et cetera, and if they were 8 saying: yes, you know, the design risk passes; then I'm 9 not going to question Fitchie. 10 Q. Were you aware of any quality assurance procedures in 11 place in relation to the terms of the contract? 12 A. Sorry, could you expand. 13 Q. Were you aware of any quality assurance that had been 14 put in place to check the terms of the Infraco contract? 15 A. When you say quality assurance, do you mean from a legal 16 point of view? 17 Q. Legal and general drafting? 18 A. Well, yes. 19 Q. Legal and commercial? 20 A. That basically was the lawyer. That was -- the -- 21 I mean, Andrew and his people were involved in drawing 22 up the contracts. They'd produced them. They allegedly 23 knew what they were doing, and had experience of similar 24 work. 25 So I essentially, because they'd produced it, yes, 19 1 one assumed they knew what they were doing. 2 In terms of independent review, I'm unaware of any 3 independent review being undertaken into the contract 4 accuracy or validity. Although with hindsight, clearly 5 that would have been a good idea. 6 Q. I'll come back to that in a little while because it's 7 something you deal with in your statement. We have been 8 looking at the first of these numbered paragraphs at the 9 foot of the page in the resolution? 10 A. Yes. 11 Q. The second one is that they unanimously, that's the 12 committee unanimously conclude that it is appropriate to 13 do so, to conclude the contract? 14 A. Yes. 15 Q. What factors did you take into mind there? Was it 16 simply that all the other formal process were in place, 17 or did you stop to consider commercial, legal, 18 engineering aspects? 19 A. I would have -- well, I would, and indeed did later, 20 take the view there that the key -- the key point about 21 2 was unanimously, that if David and Willie and I were 22 all in agreement, fine. If we weren't, then there was 23 an issue. 24 So if we all thought it was -- it's a unanimity. 25 This wasn't going to be a majority decision. It had to 20 1 be unanimous. 2 Q. Were you exercising any discretion or judgement other 3 than that, the terms of the contract were within the 4 terms of the Final Business Case? Or was that it? 5 A. I don't really understand what you're -- 6 Q. You had to make a decision as to whether or not to 7 approve final execution? 8 A. Yes. 9 Q. What I'm interested to know is what criteria you applied 10 in your mind to make that decision? Was it simply -- 11 just hold on a moment. 12 CHAIR OF THE INQUIRY: Just carry on. 13 MR LAKE: I'm interested in what the criteria was. Was the 14 thing that you turned your mind to whether or not the 15 contract was in the final terms of the Business Case, or 16 was it that plus other things? 17 A. I would have said it was that plus other things. 18 Q. What I'm interested in is: what were the other things? 19 A. Well, when I say other things, I'm not entirely sure 20 whether these sort of things -- without re-reading the 21 Business Case, which I haven't done, and the three 22 guiding principles were: can it be done for 545; will 23 it, once it's operational, operate at break even or 24 better; and will it have a BCR of 1 or greater? 25 Q. Those are all matters within the Business Case? 21 1 A. And they really were the key things that I was -- and 2 really points 2 and 3 were the key things that I was 3 absolutely focused on. 4 1 was really a bit -- you know, can it be done for 5 545? I'm not that closely involved with the contracts 6 with the suppliers. If that's what everybody is saying, 7 they are far more skilled than I. 8 My skill and focus is on what's it going to be like 9 once it's switched on. Is it going to lose money? Is 10 it going to, you know -- or is it -- whatever. 11 Q. Just for completeness, I would like to look at two 12 further documents. The first is CEC01515190. The first 13 document we looked at had the heading: Tram Project 14 Board had set up the committee. 15 Here we can see that it's headed up "tie LIMITED", and 16 again, it's a resolution of the 23 January. If we 17 scroll to the foot of the page, we can see it's the same 18 delegated authority put in place. It will be the 19 three-man committee and it's the same terms of 20 reference. Do you see that? 21 A. Yes. 22 Q. Finally, if we go to another document, which is 23 CEC01515192, to complete the set, this time we see the 24 document is headed "TRANSPORT EDINBURGH LIMITED". Again 25 it's a resolution of 23 January, and if we scroll down, 22 1 it's the same delegated authority arrangement for the 2 three-man committee with the same terms of reference? 3 A. Might I ask, are these effectively the same documents 4 with different company names on the top? It appears to 5 me they are. 6 Q. In effect, that's what they look like, isn't it? 7 A. In which case I think that possibly lends weight to -- 8 no, I don't remember meetings taking place and that's 9 possibly why. This was a -- this is a governance issue. 10 We have to have these things in place. You know. 11 Because they're all the same time, the same date, the 12 same words, just change the name at the top. I'm not 13 saying that was the case, but that would lend weight to 14 my lack of recollection about it actually happening. 15 Q. We have seen all three bodies, the Tram Project Board, 16 tie and TEL, joining to set up this committee, a joint 17 committee of these three entities. Do you know why it 18 was all three had to join in, tie, TEL and Tram Project 19 Board? 20 A. Well, clearly tie had to because they were the ones who 21 were actually going to sign -- they had the authority to 22 sign the contracts. They were a given. 23 Q. Yes. 24 A. Because under the governance arrangements, tie 25 theoretically was reporting through or operated with 23 1 powers delegated by TEL, then clearly TEL also had to be 2 involved. 3 Why Tram Project Board? Probably because it was the 4 body, if I recollect correctly, that had power delegated 5 to it from CEC. 6 So I can certainly see why tie and TEL had to be 7 there. 8 Q. Might this have been a reflection on the fact it really 9 wasn't clear at that time which of these bodies was 10 ultimately responsible for taking the decision to go? 11 A. I understand where you're coming from. It was quite 12 clear that the mechanics were that tie were the ones 13 entering into the legal agreement. Equally, it was well 14 understood by most that TEL were the people -- TEL were 15 the people who were going to carry the -- who were going 16 to carry this thing forward. tie were just the builder. 17 Five years' time, tie go. Next 40 years, TEL have it. 18 So they have to be closely involved. 19 Tram Project Board just because that was where the 20 real decisions were taken. That was where -- yes, that 21 was -- that was really the body that made it happen. 22 I don't -- a lot -- you know, we're going back perhaps 23 to the very first thing I said. I didn't have any 24 confusion as to who was where in terms of 25 responsibilities. 24 1 If we were starting with a blank sheet of paper, we 2 wouldn't have had that structure, but when this first 3 commenced there was no concept of TEL. It was to be 4 competitive. It was to be a re-run of CERT, the tram 5 was to be run by CEC, possibly through a contractor, as 6 a competitive operation. 7 We didn't start with a blank sheet of paper. What 8 then happened was I and the Chairman and the rest of the 9 Board lobbied every politician, councillor, MP, MSP, 10 even MEPs, everyone we could get our hands on, that this 11 was crazy, this was crackers. And very quickly it was 12 changed to integration, and from that -- from that point 13 on, TEL had to be there. But tie were so far down the 14 parliamentary powers route by then that they couldn't 15 just say: all right, we got this wrong, we are going to 16 have one body and we will incorporate the two into one, 17 so it carried on. 18 And it kind of developed by accident. 19 Q. When you say: I and every other members of the Board, 20 lobbied every politician, et cetera; was that the Board 21 of Lothian Buses? 22 A. Yes. 23 Q. So this was Lothian Buses -- 24 A. TEL did not exist at that time. 25 Q. So Lothian Buses resisted having the trams as an entity 25 1 in competition with the bus service? 2 A. Yes. We wanted an integrated network, and to be fair, 3 once it was explained to most of the politicians that 4 this was not what they were going to get, they were not 5 at all amused. That's what they wanted as well. 6 Q. There was initially some -- I hate to use the word 7 hostility, but some opposition by Lothian Buses towards 8 the tram and the project, because it was going to be 9 running in competition with them? 10 A. No, you're right, hostility, yes. My job, and the job 11 of the directors, was to protect the interests of the 12 company. We went through this last time. Therefore, my 13 job was to protect -- my primary function under the 14 Companies Act was to protect Lothian Buses. We already 15 had a run-in with the Council over CERT. It looked like 16 they were going to re-run it. We'd had another run-in 17 with the Council over concessionary fares, but which you 18 may or may not be aware of. I know Mr Martin is. 19 And yet again I found myself to discharge my duties 20 as a Director of Lothian Buses, and the same thing went 21 for the Chairman and the other directors, we had to -- 22 we had to take issue with something that was being 23 proposed by our major shareholder, and we did. And we 24 lobbied as hard as we could, and it didn't take long. 25 We were kind of pushing at an open door. Once the 26 1 politicians realised that they hadn't really been 2 explained properly, and this was actually going to be 3 a competitive thing against Lothian Buses, it was: we 4 don't want that. 5 Q. You said that the effect of that was that the tram was 6 transferred into TEL, and TEL was in essence 7 Lothian Buses? 8 A. TEL -- TEL was the body that was going to run bus and 9 tram. With 650 buses and 20 trams, clearly it made 10 sense, if you're going to integrate it. So TEL, I said 11 in all but name, TEL was going to be the body going 12 forward. 96 per cent of its passengers would travel on 13 buses and 4 per cent would travel on tram. 14 Q. And once that transfer was completed, Lothian Buses were 15 content with the situation? 16 A. Absolutely. Not only were we content, we were actually 17 very happy to be getting GBP500 million of investment 18 into transport. One of the problems I had, though, was 19 that having its -- you never get a second chance to make 20 a first impression, and having spent six months or maybe 21 nine months, you know, doing our damnedest to make this 22 not happen in that form, when it changed the other way, 23 Lothian Buses were still tarred with, you know, the anti 24 thing. 25 So that first impression, those first nine months 27 1 when we had to do our level best to stop it happening in 2 a competitive format, coloured an awful lot of people's 3 view for an awful long time. 4 Q. Can we look at another document now, please. It's 5 reference CEC01289240. 6 If we just look at the whole page for the moment, we 7 can see the heading. It's the meeting of the tie and 8 TEL Approvals Committee to confirm the authority to 9 proceed with completion of Infraco Contract Suite. 10 It has a date of 13 May 2008. And the three people 11 attending are yourself, Willie Gallagher and 12 David Mackay? 13 A. Yes. 14 Q. So this was a meeting of the Approvals Committee that we 15 just saw established? 16 A. Correct, this is the one that I have clear recollection 17 of. 18 Q. Did that committee meet periodically or at all between 19 being established in January and this May meeting? 20 A. I could not say yes or no. All I can say is I had no 21 recollection of it meeting, but that's not to say it did 22 or it didn't. This is the meeting I did remember. 23 Q. Could we enlarge the upper half of the screen now for 24 readability. 25 Can you recall, was this minute of meeting prepared 28 1 in advance of the actual meeting taking place to guide 2 what you were supposed to do? 3 A. I can't answer that. What I can say is I think if you 4 were to dial up 79774, that would be very illuminating 5 on this issue. 6 Q. 79 -- 7 A. 79774 CEC. 8 Q. I might do that a little bit later. I want to stick 9 with this for the moment. 10 A. Sure. 11 Q. You can see the introduction here that is -- 12 A. Yes. 13 Q. The committee had been established on 23 January as 14 a means of ensuring the integrity of the governance 15 process? 16 A. Yes. 17 Q. Controlling the approval. Now, that chimes slightly 18 with an answer you gave earlier that this was really all 19 a governance issue. Is that what it was, or was there 20 actual substance to the consideration you were giving? 21 A. Now, there was substance at this meeting on the 13th, 22 and there was questioning done. 23 Q. There was what? 24 A. Questions were asked. 25 Q. Of whom? 29 1 A. Well, if you -- I say, I realise this is, you know, it's 2 you're asking the question, but if you look at 79774. 3 It will give you some answers. Because it's minutes of 4 the meeting, I think, or the agenda or it's a different 5 version of something relating to this meeting. 6 Q. We will look at that document then. Can we have 7 CEC00079774. 8 A. Yes. I just hope I've got the right number remembered. 9 That's it. 10 Q. We can see, this is an agenda for a Tram Project Board 11 meeting that was also to take place, we can see from the 12 date, on 13 May 2008? 13 A. Okay. Can I first of all point out that that funny 14 squiggle mark in the top corner is my filing mark. This 15 is one of my papers. I have ringed the date and time. 16 Now, unfortunately -- it seems to be the only one of 17 mine that I have come across, although I haven't checked 18 them all. If we can scroll down. 19 Q. You want to look at further pages? 20 A. Sorry, yes, next page. 21 Q. If we go to the second page, we can see this is a paper 22 relating to finalisation of the SDS novation? 23 A. If you look at the top there, you will see I have 24 written in the margin, and this is how I know it wasn't 25 a paper exercise. Because I remember the meeting 30 1 anyway. 2 545, 512, 33 within 545, 31 R&C. 3 So what I have done there is I have taken 512 being 4 the price of 545, the budget, which means that there's 5 33 within the 54 -- within the 545, and within the 512, 6 there's 31 for risk and contingency, giving 64 million 7 of what you might term cover for the unexpected or the 8 unbudgeted. 9 Now, that represented, if I remember correctly, 10 14 per cent at that time. I thought, well, that seems 11 reasonable. In fact, we now know that 2 in 150 per cent 12 would have been inadequate, but at that time to me 13 inexperienced, but clearly at that meeting I had asked 14 questions and got those figures and done the wee sum. 15 Q. That's a question of what was termed the headroom and 16 the risk allowance? 17 A. Yes. 18 Q. What I'm interested in is the three-man committee -- 19 A. Yes. 20 Q. -- and the exercise it had to do of considering whether 21 or not something was in the Business Case. We can do it 22 within this. 23 If you go to page 4, we find the same meeting that 24 we were looking at a minute ago? 25 A. Yes. 31 1 Q. Now, in terms of this committee meeting, not the Tram 2 Project Board, this committee, was that simply 3 a governance process, or was it a substantive discussion 4 of whether or not the criteria for approval were met? 5 A. Can I talk you through the 13 May? There was a meeting 6 of -- 7 CHAIR OF THE INQUIRY: Well, before doing, that can you 8 answer the question? 9 A. I don't know, is the simple answer as to whether -- 10 CHAIR OF THE INQUIRY: That's what the answer should be. If 11 you don't know, say you don't know. 12 A. I don't know, but I can put that into context, if I may. 13 13 May, there was a meeting of P and S -- sorry, 14 policy and strategy in the City Council in the morning. 15 There was then a chain of meetings to take place at 16 Citypoint. There was a meeting of the Tram Project 17 Board. There was a meeting of -- there were various 18 meetings. This -- this was one of them. And they were 19 kind of scheduled at half hourly intervals, and it 20 was -- what's the word -- yes, orchestrated, 21 choreographed. It had been choreographed in advance 22 that on the due day, the Council will do this in the 23 morning, tie will do that, TEL will do that, the Project 24 Approvals Board will do that, and then we will go round 25 to Rutland Square and start signing. So, no, no serious 32 1 debate could have taken place, although clearly I had 2 asked questions as per my handwritten notes, but it was 3 choreographed series of meetings. 4 Q. That's what -- 5 A. And they were not detailed discussions. But some 6 discussion took place. 7 Q. Thank you for that. Understanding that they were 8 choreographed, and therefore there was not time for 9 detailed consideration to take place on the 13th, when 10 did the detailed work of the Approvals Committee, the 11 three-man committee, take place? 12 A. Clearly some time between its establishment on -- in the 13 middle of January, early January and then. 14 Q. How did that committee go about doing its work? Did you 15 sit with the three of you? Did you do it individually? 16 A. No. Well, I cannot remember, but the three of us, two 17 of us shared an office and the third guy was next door. 18 We were in and out of each other's offices all the time. 19 You know: what do you think about this? Okay. You 20 know, we didn't formally say: we will book a meeting 21 room for two hours and go and discuss this. It was just 22 part of everything, of the general high tension activity 23 that was in place in the run-up to contract close. 24 So no, you know, I can't say it happened at 2.00 pm 25 on such and such a date in such and such a room. 33 1 Q. I'm less interested in the time, but understanding was 2 there a time when the three of you came together and 3 applied your minds to the question of: does this 4 contract come within the terms of the Final Business 5 Case? 6 A. All I can say is almost certainly. That's all. I'm 7 sorry. I cannot remember something as specific as that 8 from ten years ago. 9 Q. If we can enlarge this document, so it's a bit more 10 readable and look under the heading, "Infraco Contract", 11 we can see that: 12 "The Committee and each member individually noted 13 that adequate information had been provided on which to 14 competently proceed." 15 If I pause there, were you quite happy then with all 16 the information being provided and you considered you 17 had enough on which to make a decision? By the time you 18 got to the 13th? 19 A. Yes. Now, I have to qualify that and say yes, I was 20 happy to make the decision, and yes, I was happy that 21 I had all the information that was available. I'm not 22 necessarily saying that all the information that one 23 might have liked was available. 24 Q. Did you have in mind any information that you would have 25 liked that you did not have? 34 1 A. I'm thinking particularly around some of the -- an awful 2 lot of people got awfully hung up on SDS, but I actually 3 got very, very worked up about MUDFA. But I wasn't that 4 comfortable with the progress and where we were and more 5 importantly, where the future progress would be on 6 MUDFA. 7 But it was swimming in treacle. 8 Q. What was swimming in treacle? 9 A. Trying to get the information about MUDFA, how things 10 were, what the projected timescale was, et cetera. 11 I don't think the contractor actually knew himself. 12 Q. Were you aware by then that one of the Pricing 13 Assumptions contained within the Infraco contract that 14 was about to be signed was that the MUDFA works would be 15 completed by the time the Infraco works got under way? 16 A. Yes. 17 Q. You knew that the MUDFA works weren't going to be 18 completed? 19 A. Yes. 20 Q. Was that a concern that this was going to generate 21 a liability? 22 A. It was a big concern, yes, and I remember it was 23 discussed as well that there might well be mitigation 24 that could be undertaken whereby the delay or -- 25 mitigation, that's a posh word, we could do something 35 1 else to either reduce or negate the impact of that by 2 getting -- getting Infraco working in areas where MUDFA 3 had been completed, or indeed where there was no MUDFA 4 required on the off-road sections and so on. 5 Q. Okay, so the MUDFA wasn't complete -- MUDFA works 6 weren't completed on time, that was immediately 7 a departure from the strategy in the Final Business 8 Case? 9 A. Agreed. 10 Q. If it was going to give rise to additional costs because 11 it would generate a deviation from a Pricing Assumption, 12 that too could undermine the fixed cost aspect of the 13 strategy? 14 A. We are getting into an area in terms of the cost. My 15 understanding was -- it may be faulty -- 16 CHAIR OF THE INQUIRY: Before you go into your 17 understanding, can you apply your mind to the question, 18 please? 19 A. Which was? 20 CHAIR OF THE INQUIRY: Which was: if it was going to give 21 rise to additional costs because it would generate 22 a deviation from a Pricing Assumption, that too could 23 undermine the fixed cost aspect of the strategy. 24 A. The answer is: I was not convinced that it would produce 25 a deviation from the agreed price. 36 1 MR LAKE: When you say you weren't convinced that it would, 2 does that suggest you thought it might and you weren't 3 sure? 4 A. No, I was being told there were ways round it. 5 Q. By whom? 6 A. The -- those responsible for the programme. The 7 Susan Clarks, the Steven Bells, those sort of people, 8 that they could manage this by getting the MUDFA 9 contractor to do other things -- getting Bilfinger to do 10 other things while MUDFA finished off the other stuff. 11 Q. Was this possibility of the -- this departure from the 12 strategy and the possibility of additional costs 13 something that you discussed with Mr Mackay and 14 Mr Gallagher? 15 A. Oh, yes. I mean, it was discussed -- it wasn't just 16 discussed among the three of us. It was discussed at 17 Tram Project Board and so on. 18 Q. I'm particularly thinking in the context of the 19 Approvals Committee, the three of you having to decide: 20 should this contract be executed? 21 A. Not that I can recollect, but it was discussed widely 22 within tie at the time, and TPB and TEL. But I can't 23 specifically remember a special meeting in the context 24 of this sub-committee to discuss that issue. 25 And I doubt it happened. 37 1 Q. Did the three of you have any special meeting as this 2 sub-committee to consider the effect that the delayed 3 design might have on the prices under the contract? 4 A. You can -- you can put ditto to my last question. It 5 was -- it was widely discussed and talked about at 6 all -- almost all levels throughout tie, CEC, Tram 7 Project Board. 8 Q. Was there a specific time that either you individually 9 or the three members of the Approvals Committee 10 collectively applied minds to the question: does this 11 contract come within the terms of the Final Business 12 Case? 13 A. As three of us in a separate meeting, as we were talking 14 about earlier, no, I can't bring that to mind. I cannot 15 recollect it. I think it's unlikely because we were all 16 involved in all these issues regularly. 17 Q. Was there a time that you individually sat and applied 18 your mind to the very question: does this question fall 19 within the terms of the Final Business Case? 20 A. Probably not. 21 Q. If we scroll down here -- sorry, now on the top of the 22 screen, pardon me. After the reference to information, 23 it says: 24 "In particular, the terms of the Infraco Contract 25 Suite and all key related information had been set out 38 1 in successive versions of ..." 2 We see: 3 "The Close Report prepared by tie Limited. 4 A letter from DLA providing an opinion on the legal 5 competence of the Infraco Contract Suite and including 6 a comprehensive risk matrix. 7 Supporting papers prepared by tie Limited addressing: 8 Detailed Infraco Contract Suite terms and 9 conditions. 10 Procurement process and risk of challenge. 11 The final deal terms and relationship to value for 12 money and the risk of challenge." 13 Now, the Inquiry has already seen these various 14 documents. Were you aware of what they are referring to 15 or would you prefer that I show you what they are? 16 A. If you just give me a minute to re-read it, thank you. 17 (Pause) 18 Yes, right. I now -- I have now read that, and 19 absorbed it. The question is ...? 20 Q. Do you recognise which documents it's referring to? 21 A. The close report prepared -- close report, sorry, 22 prepared by tie Ltd, yes, I'm conscious that there was 23 one and that I read it. 24 Letter from DLA, I'm sure there was one. I wouldn't 25 have read it, but, you know, as long as the letter from 39 1 DLA said you're good to go, I would have taken that at 2 face value. 3 Supporting papers prepared by tie, if I -- I would 4 not have read detailed Infraco Contract Suite and terms 5 and conditions, no. I would not. I would have read -- 6 had I been provided, a summary, an executive summary. 7 Q. With the exception of obviously the DLA report, these 8 were documents prepared by tie? 9 A. Yes. 10 Q. So essentially, having to decide whether or not to enter 11 into the contract, you were entirely dependent on 12 information provided by tie? 13 A. No. 14 Q. Did you -- 15 A. Very largely, very largely. Some of this was TEL stuff. 16 The thing about, say, the risk of challenge, I'm 17 assuming that's risk of challenge from unsuccessful 18 bidders. So in that case TEL handled the Tramco 19 procurement. So that was something that I'd dealt with, 20 but it's a very minor matter in the context of the 21 whole. But by and large, you're right, yes. By and 22 large, tie. 23 Q. If I bring it to this: in deciding whether or not the 24 contract did fall within the Business Case, there was no 25 independent scrutiny provided. You relied upon the 40 1 reports as to that provided by tie and TEL? 2 A. Correct. 3 Q. Do you think it might have been preferable to have some 4 independent scrutiny of this issue at that time? 5 A. With hindsight, yes. 6 Q. Were you given opportunity to question the various 7 people involved in production of these various 8 documents? 9 A. Oh, yes. 10 Q. Go behind them? 11 A. Yes. 12 Q. Did you? 13 A. I would have done on certain issues. I almost certainly 14 did not, for example, go through the entire contract 15 suite. But I would have questioned issues related to 16 them or raised by them. 17 Q. If we look at the close report that's referred to there, 18 if we see document CEC01338853. 19 This, we can see from the heading, is the report on 20 the terms of financial close or the close report. 21 If we go down to page 7 within this, and look at the 22 upper half of the page, we can see, although it's under 23 the heading "Tramco relationship", the second paragraph 24 there deals with an SDS issue, by saying: 25 "Programme version V31 will be contained within the 41 1 SDS novation agreement. Any variance between V26 and 2 V31 which has an impact on the BBS programme will be 3 dealt with through the contract change process." 4 A. Yes. 5 Q. Was there enquiry made as to what the effect of that 6 might be on the Pricing Assumptions and therefore the 7 cost that would be payable? 8 A. Sorry, can you repeat the last part of the question? 9 Q. Did you make any enquiries as to what the effect of that 10 would be on the contract change mechanism and the price 11 payable? 12 A. Yes, very much so. If this is what I think it is, 13 I think this is -- because it was an ongoing project, 14 and things like MUDFA and SDS were not concluded at the 15 time of contract close, at some point we had to draw 16 a line in the sand and say: we are going to do the 17 contracts on the basis of where we are today, and that 18 would be from reading this, version 26. 19 By the time we actually got to contract close, 20 reading this, I assume we were now on version 31. 21 So in that intervening period, various issues had 22 been finalised or new ones appeared and so on. So there 23 would -- there was -- I can't remember the detail of 24 this, but there certainly was discussions as to, right, 25 how is it different today to how it was six weeks ago or 42 1 whenever that line V26 was drawn in the sand? 2 Some of it was positive, some of it was things that 3 had now been bottomed out and cleared, and other ones 4 were less positive. 5 Q. Had you formed a view as to the actual extent of the 6 liability that might arise for these changes? 7 A. Purely on those V26 through V31 changes, my recollection 8 is that it was not material -- the net effect was not 9 material in the context of the contract sums. 10 Q. Looking at the DLA letter that's referred to, could we 11 see CEC01033532. 12 We can see this is a letter on DLA headed paper, 13 addressed to both Gill Lindsay at the Council and 14 Willie Gallagher at tie. 15 I should just say it's dated 12 May 2008. 16 Could you look, please, at page 3, and the heading, 17 "RISK", and the two paragraphs underneath it. 18 A. Yes. 19 Q. You see: 20 "Following on from our letter of 12 March we would 21 observe that delay caused by SDS design production and 22 CEC consenting process has resulted in BBS requiring 23 contractual protection and a set of assumptions 24 surrounding programme and pricing. 25 tie are prepared for the BBS request for an 43 1 immediate contractual variation to accommodate a new 2 construction programme needed as a consequence of the 3 SDS Consents Programme which will eventuate, as well as 4 for the management of contractual Notified Departures 5 when (and if) any of the programme related pricing 6 assumptions fall." 7 That seems to be referring to the same matter of the 8 programming? 9 A. Yes. 10 Q. That we've just been talking about? 11 A. Yes, exactly. That would be my read of it. 12 Q. In relation to the question of what changes there might 13 be to the design that would lead to claims for increase 14 in price, design variation generally, did you have any 15 view on to what extent that might give rise to liability 16 or claims for additional cost? 17 A. Well, he covers two issues here. Or two causes. 18 One of which is CEC consenting process, and I was -- 19 as I have mentioned earlier, that was 100 per cent our, 20 tie, City Council's risk. If the planners weren't 21 turning the stuff round or whatever, not granting 22 things, then that was our cost. No doubt about that. 23 And I have no idea -- I had no feeling at all for 24 what that might be. Quite simply because you can't 25 predict which side of bed they're going to get out on 44 1 that day when they look at the design for something. 2 You know, it's not -- it's an intangible. 3 Planners, it's just whatever they feel like. 4 Q. In the course -- 5 A. So we can leave that to one side. I was fully expecting 6 that, and I had no way of putting a value on that. 7 Q. In the course of the committee work of ensuring that the 8 goals of risk transfer had been achieved, what did you 9 do, either individually or as the three of you together, 10 to satisfy yourself that risks had been transferred 11 where appropriate? 12 A. Specifically, as a committee, as I've said, of three 13 people, I have no recollection of that happening 14 other -- I have no recollection of there being formal 15 meetings of that committee, other than the one that we 16 saw on 79774. 17 Q. As an individual, what did you do to satisfy yourself 18 that risks had been effectively transferred? 19 A. Participated in the various discussions and meetings, be 20 they tie Board, TEL Board, Tram Project Board, asked 21 questions, when there was something that bothered me, 22 I would track down the person who I thought most likely 23 to give me an answer and ask them. 24 Q. In that regard, if you could look at your statement, 25 please? 45 1 A. Yes. 2 Q. And page 78 of that. Paragraph 250 at the foot of the 3 page. 4 A. Yes. 5 Q. You say there: 6 "At the time of contract close, I was given to 7 understand that BBS and tie had agreed that they both 8 bore risks and liabilities arising from incomplete 9 design and outstanding statutory approvals and consents. 10 But with BBS taking on the lion's share of the risk, ie 11 there was still some potential liability to remain with 12 tie but a minor share. While I might have had my doubts 13 that this was the case, I had no reason to go and start 14 investigating. This was not my department." 15 A. Yes. 16 Q. Now, in terms of the some things rested with tie, did 17 you have in mind the regulatory approvals? 18 A. That was one. Yes, the regulatory approvals, and as 19 I mentioned earlier, unforeseen ground conditions or, 20 you know, weather or whatever. 21 Q. This is specifically in relation to incomplete design? 22 A. In relation to incomplete design, my understanding at 23 that time was that that risk passed to BBS, barring 24 those exceptions I have just mentioned. 25 Q. The exception being ground conditions? 46 1 A. And CEC planning issues, and granting approvals. 2 Q. The last few lines of this, you say: you might have had 3 your doubts that this was the case, but you had no 4 reason to start investigating. Did you have doubts as 5 to whether or not the risk had been transferred? 6 A. No. That's not what I'm actually referring to. What 7 I'm referring to was BBS taking on the lion's share of 8 the risk. 9 Q. Did you doubt that? 10 A. I just -- already I was beginning to get the impression, 11 the feeling, that BBS were -- I'm just trying to find an 12 appropriate form of words. That BBS were pretty sharp 13 or perhaps maybe, I think, a bit slippery. I'm not 14 intending to be critical by saying that, you know, these 15 were -- this was a pretty -- this was whatever it was, 16 the fifth biggest civil engineering firm in Europe. 17 They don't get to be that size without knowing which 18 side their bread is buttered on, and I was just wary 19 that these guys were probably a fair bit cleverer than 20 us and our guys were, and I was just always a bit ... 21 umm, I'm not too sure, but it was no more than that. 22 I would defer to DLA. 23 Q. You say here you had no reason to go and start 24 investigating. 25 A. Reason is the wrong word. I had no -- I had no ability, 47 1 or it wasn't appropriate for me to then go and 2 say: I want to open up this whole issue of this element 3 of the contract with BBS. That was very much a tie 4 responsibility, and if they were saying and DLA were 5 saying it's done, then, you know, it's not for the 6 outsider who has no skills in that area to go and start 7 questioning. 8 Q. Was that not precisely your role on the Approvals 9 Committee, to question, and if you had doubts, perhaps 10 to require someone else to look at it, or to get further 11 assurance? 12 A. The problem is I wouldn't have understood what I was 13 told anyway, not being a lawyer. You know, the 14 intricacies of however many pages of legalese, on 15 construction contracts, would have been beyond me. 16 I would have been very easy to bamboozle, to be 17 bamboozled, to pick up the wrong end of the stick or 18 anything like that. It would not -- you know, I wasn't 19 qualified, you know. I might have just had a: I'm not 20 too sure about that. I wasn't in a position to do that. 21 Q. If you can look at the following page, page 79. 22 Paragraph 250 at the top of the page. 251, pardon me: 23 "At the time of contract close my understanding of 24 the purpose of an agreed base date for design 25 information was that it was the date when the design was 48 1 taken as being priced firm to." 2 A. V26. 3 Q. Did it follow from that that if it was priced firm to 4 that date, that what was going to come afterwards would 5 be at tie's expense? 6 A. No, loose wording on my part. 7 What I intended to say there -- at the time of 8 contract close, my understanding of the purpose of an 9 agreed, call it V26, was that that was the date when the 10 design was to be frozen and the contract based on or 11 being priced from. The word "firm", that's ... I would 12 say loose wording on my part. I would delete "firm" too 13 and put in "from" or "at". 14 Q. Even taking "at" or "from", if it was priced at that 15 date, does that infer that where there were changes 16 after that date, they would be at tie's expense? 17 A. There would be changes between, I can't remember the 18 numbers, 26 and 32, and it depended how those changes 19 netted out. But if they were net increase, then -- then 20 depending on what the changes were and why they'd 21 arisen, they would be at tie's expense, and if they 22 weren't, they would be at BB's. So for example, if in 23 the intervening period, something had been signed off, 24 a design element, that had got -- that had got 25 a provisional sum against it, that could now be firmed 49 1 up and the provisional sum might yield a surplus or -- 2 a positive or a negative, a credit or a debit. 3 Q. The possibility of those matters being at tie's expense, 4 was that not a highly material factor in deciding 5 whether or not to approve the contract? 6 A. Yes, it was, if those sums -- if the sum was material. 7 Now, I think I said earlier, I can't remember the 8 numbers. But my understanding was that between V26 and 9 V whatever, when they were netted out, it was not 10 a material sum. At the time, it was, oh, right, you 11 know. So I might be wrong. No doubt you have the 12 figure for what it was. But that was my recollection. 13 Q. If it was priced firm -- if it was priced, leaving out 14 the word "firm", to a certain date, it's not just from 15 V26 to V31 because you were aware, weren't you, that the 16 design wasn't complete at the contract close? 17 A. Yes. 18 Q. Is that correct? 19 A. Correct. 20 Q. So it was going to continue developing? 21 A. Yes, but my understanding was under the novation 22 arrangements, with the previously expressed exceptions, 23 design change thereafter, the cost thereof, fell to BBS. 24 Q. Okay. 25 A. Sorry. 50 1 Q. That's useful to clarify. 2 Could we then look at page 81 and paragraph 259. 3 What you say here is: 4 "Overall, I was not confident that the contracts 5 should be awarded. I felt pressurised to sign. I was 6 in a situation where, if I refused to sign, the 7 Council Solicitor, Donald McGougan, David Anderson and 8 others would say I was holding things up. I felt 9 I might be told that if I didn't sign an immediate Board 10 meeting would be convened and I would be removed from 11 the Board." 12 Was someone actually pressurising you or was this 13 pressure you felt from circumstances as a whole? 14 A. This was the pressure -- there was nobody standing over 15 me. This was a pressure I felt from circumstances as 16 a whole. We covered it on either my first or second day 17 of evidence, and I used -- I used an example, Schindler. 18 And that's what I'm saying there; that -- and I took the 19 liberty of reading one or two of the other transcripts 20 since mine, and I see I'm by no means the only person 21 who has made that point. I see Tom Anderson -- 22 Tom Aitchison and others said it had to go ahead. That 23 was the pressure that we were under. They were under, 24 we were under. This has to happen. 25 Q. They said they felt under pressure because the matter 51 1 had to proceed. Here you're specifically referring to 2 feeling a pressure from a number of other individuals, 3 and you might be removed? 4 A. I've picked those names essentially as being people who 5 were senior to me in some way or another. I'm not 6 specifically singling out Gill Lindsay, Donald McGougan 7 or Dave Anderson, no. 8 Q. This is not just a question of actually stating your 9 views or not stating your views and whatever is 10 righteous in that regard. This is a question where 11 you're called upon, actually, should you give approval 12 to enter into the contract. 13 If ever there was a time to say: I have my doubts; 14 was that not it? 15 A. No. Actually I would disagree with that. I would say 16 that was far too late. If I had been going to stand up 17 and, you know, as I mentioned on a previous case, we 18 know what happened to people who did. I have learned -- 19 I observed that. I knew what the position was. 20 And I still believed -- it was going to happen anyway 21 and I believed I could do more good by trying to guide 22 it and mitigate it and reduce -- get the best outcome 23 possible. That was the mission I'd been given, to do 24 the best we could. We are going to have a tram. Will 25 you do the best you can, Neil? And yes, it wasn't -- it 52 1 wasn't the right thing to do. 2 I could have at that point said: no, I'm not doing 3 it; but that wouldn't have stopped it happening and it 4 wouldn't have stopped it happening because I would have 5 been replaced by someone who would sign. 6 Q. You don't think if you had taken a decision to say no, 7 such as the Approvals Committee couldn't give the 8 go-ahead, whilst it is possible, of course, that you 9 could have been removed, that would have created enough 10 of a notice that something was not right, that something 11 might have been done if someone had said no? 12 A. I don't think so. 13 Q. And that, while you say you've been trying for years to 14 steer it in certain directions, this was the crunch 15 point. This was the last possible point to say: we need 16 to change things. 17 A. If I had take -- yes, you are right, it was the last 18 possible point. If I had taken the line you say, 19 and I could have, then I'm confident I would have been 20 back at Annandale Street looking after some buses with 21 no other involvement thereafter. Somebody else would 22 sign. It would have gone ahead, and the -- some of the 23 more asinine proposals that I managed subsequent to 24 contract signature to get rid of would have been 25 implemented. 53 1 Let me -- may I give you a very simple example? One 2 minute. 3 In the -- in the -- I'm just struggling to find the 4 right word for it. 5 It's not panic, but in the pursuit of cost reduction 6 through value engineering, one of the proposals that 7 they were seriously going to do was to reduce the height 8 of the overhead wires in Princes Street. Now, that 9 would save you a few hundred thousand pounds because the 10 poles would be a couple of metres shorter and also the 11 pantographs on the trams would be a couple of metres 12 shorter. That would, however, if I hadn't -- and this 13 was one of about 20 examples. That would have happened 14 and they would have saved their GBP200,000, GBP400,000, 15 but we would not have been able run open-top tour buses 16 thereafter, because the height requirement was that 17 which had been used to set the height of the wires. 18 So we would have saved GBP300,000, GBP500,000, and 19 lost GBP5 million worth of profitable business. So 20 that's why I was better on the inside than being sent 21 back to Annandale Street to play with my buses. Sorry. 22 That's the way it was. 23 Q. Go back to page 73 of your statement, please, and look 24 at paragraph 231. This is just in the consideration of 25 the development of the infrastructure contract. What 54 1 you say is: 2 "With hindsight, and in view of Andrew Fitchie's 3 position and behaviour, there is absolutely no doubt 4 that it would have been a good idea to have had an 5 independent legal review of the contracts. I think 6 I would have thought that at the time due to my concerns 7 already mentioned." 8 A. Yes. 9 Q. Now, can I ask you firstly what you mean by position and 10 behaviour? 11 A. I think I have said in the statement that I was -- I'd 12 concluded -- well, we had, me and various -- I and 13 various others, Andrew had gone native. He was meant to 14 be, to my understanding, representing the interests of 15 tie and CEC with a joint remit. 16 Now, tie and CEC's interests ought to be pretty 17 closely aligned. One is a wholly-owned subsidiary of 18 the other and it's trying to deliver a project under 19 direct instruction from CEC. 20 As I have said at various other points in my 21 statement, that wasn't necessarily the case. tie had 22 developed a -- had gone its own way in many areas. 23 And I sensed that Andrew had bought in probably from 24 a very early day, and I was by no means the only one, 25 had bought in from a fairly early day to being tie's 55 1 legal support. 2 I'm not suggesting he did anything directly negative 3 to TEL, to Lothian Buses -- well, no, to CEC, but he did 4 seem to be focused entirely on tie. 5 That was not helpful to us, when tie's objectives 6 did not align with TEL or Lothian Buses' objectives. 7 Q. When was that? In what respect did they not align? 8 A. I'm not being fatuous, but the most recent example that 9 I have just used. Let's save GBP500,000 by making the 10 wires lower. That's -- tie's objectives are getting the 11 price down. It's certainly not TEL or Lothian Buses or 12 City of Edinburgh Council's objective to lose GBP5 13 million worth of revenue which is earning a significant 14 profit to cross-subsidise the red buses to Niddrie and 15 Wester Hailes on Sundays or whatever it might be. 16 I mean, there was something earlier on in my 17 statement where Alastair Richards, who was -- 18 Alastair Richards was TEL's only employee. He wasn't 19 paid by TEL. He was paid by Lothian Buses. But 20 Alastair spent -- worked full-time on the tram project 21 and he had sent me an email some time after the event, 22 saying, I can't remember the precise wording, but: hey, 23 no surprises here, look what Fitchie did to us. It had 24 come out later that he'd supplied in -- he'd edited 25 something, he'd taken stuff out and claimed it was 56 1 because we'd said take it out. You know. He was no 2 friend of ours. So I was very wary. We were all very 3 wary of Andrew's motivation. 4 He seemed to be -- yes, he was motivated to serve 5 tie, not the greater interests of the whole project. 6 CHAIR OF THE INQUIRY: You say that it would have been 7 a good idea to have an independent legal review. To 8 what extent did you get the impression that Gill Lindsay 9 as Council Solicitor and her department were performing 10 that function? 11 A. I didn't -- I didn't attend legal affairs. It's not my 12 subject. Therefore, my opinion is based purely on what 13 I picked up along the way at Board meetings, Project 14 Board meetings, et cetera. And the contact I had with 15 the people from Finance and Legal, who spent a lot of 16 time at the tie office, and certainly some of the -- not 17 Gill Lindsay. She was pretty much Board meetings only, 18 but some of the lesser individuals who were there and 19 really in about it, in both commercial and legal, they 20 had to my mind a pretty good grasp of what was going on. 21 And were certainly asking -- asking the awkward 22 questions, perhaps privately or amongst -- amongst their 23 own, but yes, I certainly got the impression that 24 they -- they were acting as a sort of independent review 25 of what was going on from a legal and commercial point 57 1 of view. 2 CHAIR OF THE INQUIRY: Did you get the impression from these 3 people on the legal side that they thought that the 4 contract shouldn't be signed? 5 A. Not that specific, no. I'm not saying that they didn't 6 hold that view, but I didn't actually pick that up from 7 them. But I wasn't meeting them all the time. I might 8 just be, you know, passing the time of day, or sat -- 9 sat beside, because it was an open plan office, sat with 10 them -- or sat with somebody else and they were next 11 door and you got into a conversation. 12 But no, I never got the impression that it was: you 13 must not sign this. 14 You know, they certainly were -- they clearly had 15 their reservations. 16 CHAIR OF THE INQUIRY: And you say they were asking awkward 17 questions and they had their reservations. Did you pick 18 up on that and raise it at meetings to say that you 19 understood that junior lawyers had reservations? 20 A. I think -- I remember an incident certainly -- the 21 answer to your question is no, I didn't raise it, but -- 22 at the meetings, because I think -- I remember there was 23 an incident with Trudi Craggs where she did, and, you 24 know, she was quite upfront about it in a Project Board 25 or something. And I think, you know, I said to her, 58 1 after the meeting, you know: good on you, you know; you 2 actually said your bit there. 3 I think she got her head in her hands, if I remember 4 correctly, she got her head in her hands for doing so 5 and it's not legal, but on -- I'm pretty sure that 6 happened with Rebecca Anderson (sic) -- Rebecca Andrew 7 on the commercial side. Similarly, she -- she stuck her 8 head above the parapet and got it shot off. 9 As I have said before, no, my view very simply was 10 head down, do the best I can, in the circumstances I'm 11 in, to try and mitigate the effects, because I don't 12 want to end up like others who have put their head above 13 the parapet. That will do nobody any good, and we 14 wouldn't be in the position we're in today where the 15 tram is actually doing as well as you could hope in the 16 circumstances. And the buses have survived largely 17 unscathed. 18 CHAIR OF THE INQUIRY: Thank you. 19 MR LAKE: I want to move on to a slightly different matter, 20 Mr Renilson. Could we look at page 93 of your 21 statement. 22 A. Yes. 23 Q. Paragraph 300. What you say here is: 24 "The election ..." 25 The Scottish general election: 59 1 "... was in May and Parliament did not recommence 2 until around September. Over that summer they tasked 3 Transport Scotland with looking for ways out of both the 4 tram project and EARL. Transport Scotland were to 5 consider whether a large section of tram could be built 6 as a guided busway, or something that would cost an awful 7 lot than, at that time, their GBP500 million contribution. 8 I had involvement with the Transport Scotland team 9 looking at the other options but, Bill Reeve who led the 10 Transport Scotland review was not keen on any of the 11 alternative possibilities, and was far more interested in 12 finding reasons why the Tram should/could not be 13 cancelled." 14 Do you see that there? 15 A. I do indeed. 16 Q. I think for completeness, if we look at page 98 -- 17 A. Before we leave that page, can I just say there may be 18 one thing in there that's not quite right. 19 Q. What is that? 20 A. The election was in May. I've -- I have said Parliament 21 did not recommence until around September, over that 22 summer. What I think that should say, because I can't 23 remember the precise timing, but I think that ought to 24 read is "following the election they tasked 25 Transport Scotland". It might have been over the summer 60 1 or it might have been very quickly after the election. 2 But that's just a timing issue. Basically, yes, stand 3 by that completely. 4 Q. I will come back to the timing in a moment. If to 5 complete this we go to page 98, we have that on screen 6 now, and look at paragraph 316. Reading from the fourth 7 line, we can see: 8 "When Transport Scotland were tasked by the SNP 9 between May and September 2007 to come up with some 10 alternatives that would give Edinburgh something 11 cheaper, but not the tram, I was very firmly left with 12 the opinion after spending time with him that 13 Bill Reeve's view was not to genuinely look for 14 alternatives." 15 That's your view; is that correct? 16 A. That was my view at the time and that remains my view. 17 Q. We have evidence -- obviously we know the date of the 18 general election was in May? 19 A. Yes. 20 Q. But the vote in Parliament to proceed with the tram 21 project was actually on 27 June 2007. 22 A. So is what you're saying it took -- I have said between 23 May and September. You are saying it was between May 24 and June. 25 Q. That's what I'm asking. Were you involved with this 61 1 prior to the vote in Parliament, or are you suggesting 2 it continued after the vote in Parliament? 3 A. I couldn't be absolutely clear, but the reason 4 I corrected the first one is on reflection, I think it 5 happened very quickly after the election that -- because 6 the SNP manifesto was to cancel EARL and to cancel tram. 7 Although it wasn't spelt out quite so clearly on tram. 8 But it was words of one syllable on EARL. 9 Q. What was your involvement? 10 A. Well, can I finish this wee bit before we go on, please? 11 And it may indeed be that it occurred immediately 12 after the election and the vote took place, as you say, 13 at the end of June, before the recess. 14 It certainly was after the election shortly. 15 What was my involvement? My involvement was -- 16 don't get me wrong. I like Bill Reeve. Very, very good 17 guy -- 18 Q. I'm less interested in Bill Reeve, I'm more interested 19 in what was your involvement -- 20 A. My involvement was Bill came and said right, he and a 21 couple of other people from Transport Scotland: let's go 22 out for a couple of days and let's go and drive the 23 route and see what else we can do. So there was four of 24 us in a car, trundling round west Edinburgh, stopping, 25 looking at bridges, saying: what can we put down here, 62 1 what can we do; can we do a guided busway extension; you 2 know, what are the other possibilities for something -- 3 some public transport improvement in that area which 4 would cost some millions of pounds, but would be -- 5 would release basically the 500 million for the A9 6 dualling. And you were looking at maybe, I don't know, 7 somewhere less than 50 million as opposed to 500, and 8 that was exactly the same thing happened with EARL, but 9 in the case of EARL, they got the station on the 10 tramway. That was a sop for cancelling EARL. 11 Q. Now, I'm going to ask you one more question. 12 Can I impress upon you this time that what I'm looking 13 for initially is a yes-or-no answer? 14 A. Understood. 15 Q. I'm going to be quite limited. 16 It's: do you have information to the effect that 17 there were employees or agents of tie soliciting or 18 receiving corrupt payments? 19 CHAIR OF THE INQUIRY: Just answer yes or no. 20 A. Can I ask you to rephrase -- repeat the question? 21 MR LAKE: Do you have information as to whether employees or 22 agents of tie were soliciting or receiving corrupt 23 payments? 24 A. Yes. 25 Q. Would you be willing to provide that information to the 63 1 Inquiry? 2 A. Yes. 3 Q. Will you do so, please, by midday on Monday? 4 CHAIR OF THE INQUIRY: In writing. 5 MR LAKE: In writing, to the solicitor to the Inquiry, and 6 address and contact details can be provided. 7 A. Mr McNicholl? 8 Q. Yes. And you undertake to do that? 9 A. Yes. Yes, is it possible for me to dictate it this 10 afternoon? I mean, through there, with one of your 11 staff? I'm very happy to do that. 12 CHAIR OF THE INQUIRY: We'll discuss that over -- at the 13 coffee break. 14 A. Thank you, okay. I'm just going to be away this 15 weekend. So Monday would be a bit of a problem, but I'm 16 happy to do it this afternoon if I've finished -- if 17 you've moved on to Stewart by this afternoon. 18 MR LAKE: My Lord, I have no further questions for 19 Mr Renilson. That was my last. 20 CHAIR OF THE INQUIRY: Mr Dunlop? 21 Examination by MR DUNLOP 22 MR DUNLOP QC: My Lord, just one question that was rather 23 left hanging, if I might, on the question of the DLA 24 advice letter. 25 Does your Lordship want to know first what I want to 64 1 ask before he gives permission or is your Lordship 2 prepared to -- 3 CHAIR OF THE INQUIRY: If it's about the DLA advice letter, 4 I'm quite happy. 5 MR DUNLOP QC: I'm obliged. It's CEC01033532. 6 It's page 3 of that letter. Paragraph 5, 7 Mr Renilson. You were looking at this earlier with my 8 learned friend. You indicated in the second paragraph, 9 under section 5, that Mr Fitchie was advising of two 10 things. You mentioned the first thing, and then you 11 were interrupted and I think the discussion moved on. 12 You didn't mention the second. I wonder if I could just 13 ask you to explain what the two things were that you 14 were -- 15 A. Can I just have a minute to re-read it again. 16 Q. Please. (Pause) 17 A. tie are prepared for the BBS request for an immediate 18 contractual variation, blah blah blah. That, my 19 understanding, was basically the day after we signed, we 20 were going to be putting in a variation to handle V26 to 21 V31 issues. 22 Q. So on that first issue, you were aware that there would 23 be an immediate Notified Departure -- 24 A. Yes. 25 Q. -- immediately following this signature of the contract? 65 1 A. Yes, thank you. Was that the question? 2 Q. That was the first one. I think you had addressed that. 3 Then there's a second point that you had identified, 4 and I just want to understand what your understanding 5 was of that second point as well, please. 6 A. "As well as for the management of contractual Notified 7 Departures when (and if) any of the programme related 8 pricing assumptions fall." 9 Now that you've pointed that out, tie are prepared 10 for the BBS request for an immediate contractual 11 variation to accommodate, and if you were to put in a 1 12 at that point, we have talked about it, and a 2 in at 13 the beginning of "as well as ... the management of 14 contractual Notified Departures". 15 Now, that to me sounds like a non-cash issue that as 16 soon as we've signed the documents, BBS are going to 17 want a different protocol for management of Notified 18 Departures. 19 If that is what it is saying, then that would have 20 been of no concern to me whatsoever because that just 21 sounds like making an alteration to, you know, who tells 22 who what when or whatever, a non-cash issue. 23 The first one would have been a cash issue, but 24 I may be misreading that. 25 Q. What it's clearly identifying under the topic of risk 66 1 is: Notified Departures, when and if any of the 2 programme-related Pricing Assumptions fall. 3 A. Fall, yes. 4 Q. Now, you were aware that the contract contained a number 5 of Pricing Assumptions, weren't you? 6 A. Yes. 7 Q. You were aware that if those Pricing Assumptions did not 8 hold good, then that would be a change and that would be 9 at tie's risk? 10 A. In its -- if in its most simplistic form. If during the 11 construction period the Water of Leith floods and washes 12 away half the embankment, yes. 13 Q. If any of the Pricing Assumptions did not hold good, 14 then that was at tie's risk? 15 A. Any of the Pricing Assumptions, no. It depends what -- 16 I mean, things like the price -- the price for -- the 17 price for Siemens' substations, for overhead copper 18 wire, that was all fixed. And if the prices still went 19 up, that was Siemens' problem. 20 Q. I'm talking about the Pricing Assumptions in Schedule 21 Part 4 of the contract. You know that there were 22 Pricing Assumptions contained in the contract 23 saying: this price is based on the following 24 assumptions. 25 A. I'm aware of that, yes. 67 1 Q. You know that the price would not hold good if the 2 Pricing Assumptions did not hold good? 3 A. No. 4 Q. You weren't aware of that? 5 A. May I explain? I was not -- I had not invest -- or 6 reviewed that part of the contract -- I think I have 7 said earlier a number of times, the full contract suite, 8 particularly with relation to Infraco, I had not 9 reviewed the contact -- contract in great detail. 10 I wouldn't say I was word perfect on Tramco, but I had 11 a pretty close handle on Tramco. 12 But Infraco, no. I had not gone into the innermost 13 details of the contract. My assumption or my 14 understanding was that barring the sort of things we've 15 talked about, ground and weather and so on, and CEC 16 planners' moods, then the price from BBS was fixed. 17 I'm sorry, that may be incorrect, and I think, with 18 hindsight, based on the outcome of adjudications and so 19 on, my view was incorrect, but that was my understanding 20 at the time, and had I read the detail of these elements 21 of the Infraco contract, as I said earlier, I would not 22 have understood them. I'm not a contract lawyer. I had 23 to rely on the advice being provided by Andrew Fitchie 24 and -- and the people -- the Steven Bells and so on and 25 Susan Clarks at tie who were -- had experience in that 68 1 field. 2 Q. So if his Lordship has heard evidence from Mr Bell, for 3 example, that Mr Bell fully understood where the 4 incidence of risk lay, and fully understood what the 5 Pricing Assumptions meant, should we understand that 6 Mr Bell, for whatever reason, did not pass that on to 7 you? 8 A. I think you're jumping two -- making too large a jump 9 there. I do not in any way think Mr Bell deliberately 10 withheld. It may be that I had not asked the question, 11 or I had not been present at the meeting when this 12 subject had been gone through in detail. All I can say 13 is I was not aware of it. 14 But I don't think -- I doubt Steven would have held 15 out, you know, deliberately kept it to himself, and 16 maybe -- maybe it had been explained but it hadn't 17 registered. 18 I was of the opinion, the understanding that it 19 was -- it was with the exceptions that we've talked 20 about, it was essentially on the part of BBS, Bilfingers 21 and Siemens, and to be fair, CAF, fixed price. 22 Q. I'm not sure why you think I'm making too great a leap 23 there, Mr Renilson. What I'm putting to you is that if 24 his Lordship has heard evidence, which he accepts, that 25 Mr Bell fully understood the risks, does that mean 69 1 Mr Bell did not pass that understanding on to you? 2 A. Yes. 3 MR DUNLOP QC: Thank you. I'm obliged, my Lord. 4 CHAIR OF THE INQUIRY: I don't think there are any other 5 questions. 6 A. My Lord, can I -- just to say apologies for that, but 7 I thought you were implying that Mr Bell had wilfully 8 withheld information. I would just say that at no time 9 at tie did I ever get the impression that any of the 10 senior staff at tie or TEL or CEC were acting other than 11 in what they perceived to be the best interests of the 12 project. We may have had -- well, we did have differing 13 objectives. We all had our character flaws. And we're 14 all human beings. But nobody took it lightly. Nobody 15 took it lightly amongst the senior staff that I dealt 16 with. You know, everybody was very committed to doing 17 the very best as they saw it, as they saw their 18 responsibilities, for their, you know, who they were 19 responsible to. 20 Yes, poor decisions were taken. Some of those poor 21 decisions were recognised as poor decisions at the time, 22 and with hindsight, they were a damn sight poorer, but, 23 you know, conflicting motivation, yes, they were there 24 and we knew they were there. 25 So I just wanted to say, nobody tried to -- nobody 70 1 sat there and did what they did lightly. 2 Thank you. Sorry for that. 3 CHAIR OF THE INQUIRY: We'll adjourn until 11.30. During 4 that period, representatives of the Inquiry can speak to 5 you about -- 6 A. Sure. 7 MR DUNLOP QC: My Lord, just before your Lordship rises, 8 I was completely unsighted on the last topic raised by 9 my learned friend and the point that Mr Renilson is to 10 advise of in due course. 11 I just would like some clarity on how that is going 12 to be dealt with. 13 CHAIR OF THE INQUIRY: I think in the first instance I want 14 to see the allegations. 15 MR DUNLOP QC: Yes. Is there a reason why they're not 16 simply being taken from him -- 17 CHAIR OF THE INQUIRY: Yes. 18 MR DUNLOP QC: Doubtless we will all be able to see it and 19 respond in due course. 20 CHAIR OF THE INQUIRY: Yes, certainly, in due course, but 21 I don't want disclosure to be made publicly of 22 allegations until at least I know what they are and some 23 investigation is made into them. 24 MR DUNLOP QC: I'm obliged. 25 CHAIR OF THE INQUIRY: So we'll adjourn until 11.30. 71 1 (Witness withdrew) 2 (11.12 am) 3 (A short break) 4 (11.30 am) 5 CHAIR OF THE INQUIRY: Yes, Mr McClelland. 6 MR MCCLELLAND: Thank you, my Lord. The next witness is 7 Stewart McGarrity. 8 MR STEWART MCGARRITY (continued) 9 Examination by MR MCCLELLAND (continued) 10 CHAIR OF THE INQUIRY: You're still under oath, 11 Mr McGarrity. 12 MR MCCLELLAND: Mr McGarrity, do you recall that on Tuesday 13 I asked you some questions about bonuses relating to 14 financial close? 15 A. Yes. 16 Q. Those questions had focused on individuals who had been 17 contracted into tie rather than tie employees? 18 A. Yes. 19 Q. You will recall, I think, that we looked at the part of 20 their bonus which incentivised them to report a low cost 21 forecast for the project? 22 A. Yes. 23 Q. You were asked whether that was a feature of the bonus 24 scheme for tie employees as well, but you couldn't 25 remember. Have you had a chance to think any further 72 1 about that since Tuesday? 2 A. I've been back since Tuesday and looked through my own 3 personal records and I can't find anything in my 4 personal records with that regard. 5 I went back and looked at the spreadsheet which 6 I got as part of the evidence, and there's no clues 7 there. But I can't conclude otherwise than it's very 8 highly likely that it did have those same or similar 9 determinants in it. There might have been a broader 10 range of objectives in relation to the tie project -- 11 that tie, the company, in terms of the broader cultural 12 aspects of the company. But it's still true. I don't 13 remember the details. So I'm trying to draw my own 14 conclusions here. 15 Q. We have got a document that you could look at which may 16 help. If we could just bring that up, please, it's 17 WED00000140. If we could go, first of all, to page 4 of 18 that document, do you recall looking at a document -- 19 not completely identical to that one, but a variant of 20 it, on Tuesday? 21 A. Yes. 22 Q. That's the one relating to Matthew Crosse, 23 Geoff Gilbert, Bob Dawson and so on. If we could just 24 go now to page 5, please. I'm afraid the quality of the 25 copying is not great, but if we try to magnify the top 73 1 left-hand quarter of that, we see a list of names down 2 the left-hand column: Steven Bell, then yourself, 3 Graeme Bissett, Colin McLauchlan, Susan Clark. 4 A. Yes. 5 Q. If you look at the fourth column there, do we see that 6 column is similar to the one that we looked at in 7 relation to Mr Crosse and Mr Gilbert? 8 A. Yes. 9 Q. Does that help jog your memory about whether that was 10 also a feature of the bonus scheme for tie employees as 11 it was for the contractors? 12 A. In terms of jogging -- it's actually -- it's documentary 13 evidence that it was. So yes. 14 Q. So that confirms your recollection that it was highly 15 likely that the -- 16 A. I still don't remember this, but there it is. It did. 17 Q. Thank you. 18 A. Was this a paper that was -- is this a Remuneration 19 Committee paper or is this something that the tie 20 management had, that -- sorry -- 21 Q. This sheet comes within a bundle of papers relating to 22 the Remuneration Committee. 23 A. Right. I had -- I think I said in my written evidence, 24 to be clear, I had no part in the Remuneration Committee 25 deliberations on any subject. 74 1 Q. That's fine. That's understood. 2 CHAIR OF THE INQUIRY: Can I just understand this. Did you 3 receive a bonus or not? Is it possible to tell from 4 this if you received a bonus? 5 A. No. I certainly didn't get the number that's in the 6 left-hand column there. That's for sure. 7 CHAIR OF THE INQUIRY: That's your salary, I think? 8 A. Oh, is it? I mean, you have a record of the individual 9 bonuses received from -- by everybody at the point of 10 financial close, yes. 11 MR MCCLELLAND: We have those figures, but it would be 12 helpful -- unless his Lordship would find it helpful, 13 I think the question at the moment is simply: do you 14 recall receiving a bonus? 15 A. Yes, I did. 16 Q. Do you recall it being based in part on the reported 17 anticipated cost of the project? 18 A. This shows that it did, yes. I'm not trying to be coy 19 or anything here. I really -- the passage of time, 20 I don't remember how my bonus was calculated. But here 21 it is. 22 Q. Okay. We can close that document, thank you. 23 Just a point of clarification. Do you remember on 24 Tuesday that we discussed the cost of delay to the 25 Infraco programme resulting from delay in the MUDFA 75 1 programme? 2 A. Yes. 3 Q. And in particular, the provision made for that risk in 4 the risk allowance at financial close? 5 A. Yes. 6 Q. I think your recollection had been that there was 7 something in the general delay element of the risk 8 allowance to provide for that risk. 9 A. Yes, to the extent that it was going to be a cost that 10 we'd bear from -- from Infraco, the rationale there was 11 included in the general risk delay allowance. 12 Q. I think I indicated to you, but we didn't go to the 13 document at the time, that the close report might have 14 said something different to that. If we just bring up 15 the close report, please, which is CEC01338853. If we 16 go to page 28 of that, please. 17 About halfway down, there's a paragraph with four 18 bullet points in it. If we can scroll up a little bit. 19 That's fine, thank you. Reading from there, it says: 20 "The risk allowance of GBP32 million includes the 21 following provisions for residual risks retained by the 22 public sector during the construction phase of Infraco 23 and Tramco." 24 Then the fourth bullet: 25 "GBP6.6 million to provide for the cost of minor 76 1 Infraco/Tramco programme slippage of up to three months 2 (other than as a result of delays to MUDFA which is 3 provided for elsewhere in the risk allowance)." 4 If that remark appeared in the close report, is that 5 likely to be an accurate statement of the position? 6 A. I can't remember that. So I can't remember. 7 Q. In light of what's said there, would you like to review 8 what you'd said about the likelihood of a risk allowance 9 for MUDFA-related delay to the Infraco programme being 10 provided within the general delay element of the risk 11 allowance? 12 A. Yes, I think going back over all of the papers to 13 provide my written evidence, I think that the 14 consequences to Infraco being delayed were provided for 15 within -- by MUDFA were provided for in the 6.6 million. 16 I think what was in the MUDFA risk allowance was 17 delays that would have -- have to be paid to MUDFA. 18 So -- but not consequential costs of delay to Infraco. 19 So to that extent these words are not entirely 20 accurate, no. 21 Q. So your position is that what's put in the close report 22 there is not accurate; is that correct? 23 A. Yes. Even as I read these words now, sir, that was 24 what -- whatever it means -- whatever it says literally, 25 and I take the literal, that's what it says, I believe 77 1 what it meant was that it was -- it's the delays that 2 would have to -- it's the prolongation delays to MUDFA. 3 So to the contractor, the utilities contractor, that was 4 provided for in the -- whatever the total of the risks 5 at close in relation to the utilities was. 6 So the 6.6 million was costs that would be -- that 7 might end up being payable to the Infraco contractor, 8 and the MUDFA allowances included the risk that -- the 9 time-related allowances for prolongation of the MUDFA 10 contractor. 11 But I take your point, that doesn't actually -- 12 you've obviously read it that way. So that's -- that's 13 what it means. 14 CHAIR OF THE INQUIRY: Well, I don't think you can just 15 assume that because Counsel is asking a question, he's 16 formed a view about the interpretation. I think what we 17 want to know is what your evidence is. 18 A. Sorry. That's my explanation. 19 MR MCCLELLAND: Thank you. If I might just repeat back what 20 I have understood from that, to make sure we're 21 understanding one another, when this provides in the 22 close report that "GBP6.6 million to provide for the 23 cost of minor Infraco/Tramco programme slippage of up to 24 three months (other than as a result of delays to MUDFA 25 which is provided for elsewhere in the risk allowance)", 78 1 you say that that's discussing -- that the words in 2 brackets are relating to the cost of delay arising under 3 the MUDFA contract itself, and not the knock-on cost of 4 delay to the Infraco programme resulting from MUDFA 5 delays? 6 A. Yes. As I sit here in this room, and read the words at 7 the start that say "other than", that would suggest 8 absolutely that I'm still talking about Infraco and 9 Tramco programme delays. 10 Q. The way the general risk allowance element is put in 11 other documents doesn't give much indication of how the 12 total figure is made up. Can you recall what element of 13 the general delay allowance was for the cost of delay to 14 the Infraco programme resulting from MUDFA delays? 15 A. No. 16 Q. Is that not such an important and significant risk that 17 it really should have been provided for separately? 18 A. Yes, it could have been. 19 CHAIR OF THE INQUIRY: You say it could have been -- all 20 sorts of things could have happened. 21 A. It should have been, yes. 22 MR MCCLELLAND: Thank you. You can close that document 23 down. 24 Again, on Tuesday, Mr McGarrity, I was asking you 25 whether in your view anything more could have been done 79 1 to resolve the Infraco disputes sooner than the three 2 years or so that it actually took? 3 A. Yes. 4 Q. At the time your answer was that you couldn't think of 5 anything. 6 Is it your recollection that the contract allowed 7 tie to insist on work proceeding in spite of 8 disagreement about change as long as tie had referred 9 the estimate to the Dispute Resolution Procedure? 10 A. Yes. And that was my understanding of that all the way 11 up to -- we may even have referred an item to the 12 Dispute Resolution Procedure because the Infraco -- that 13 was one of the effectiveness of that very clause, was 14 also in dispute with the contractor. 15 So I think that one was referred -- was part of 16 Clause 80, the change clause, and it was all about our 17 ability to insist that the contractor continued while an 18 item was in DRP. 19 But I don't think we were -- I don't recall us being 20 successful in that adjudication. 21 It was also tested legally by -- or reported on 22 legally at one stage as well, I think, by McGrigors. 23 I can't recall the details. 24 Q. Are you talking there about making progress with work in 25 the particular circumstances of tie having referred the 80 1 estimate to the Dispute Resolution Procedure? 2 A. Yes. 3 Q. You are. Do I take it from your answer that your 4 understanding was that there was uncertainty about the 5 extent of tie's power to insist on work proceeding in 6 those circumstances? 7 A. Yes, because the -- because the contractor was disputing 8 that they had that obligation. 9 Q. So if I was to ask you the general question whether tie 10 could have made more use of that power to progress works 11 by referring more estimates to Dispute Resolution 12 Procedures, what would your answer be to that? 13 A. I think it was appropriate in selecting specific 14 instances to go to the Dispute Resolution Procedure that 15 in making those selections, that you pick ones -- apart 16 from testing the legal position with regards to the 17 contract, the selection of the specific items was also 18 based on what work is critical to programme and we need 19 to get on with in order to protect in the circumstances 20 to the maximum extent possible the programme. 21 So wholesale -- part of the -- so that was fine, but 22 wholesale referring costs items to DRP without actually 23 knowing what the outcome of the dispute was going to be, 24 there was always a judgement to make about the contractor 25 carrying on with work, but at the same time not knowing 81 1 what the outcome of the dispute was going to be. 2 I mean, to take it to its ridiculous example -- I'm 3 trying to articulate myself here -- if you referred 4 everything to DRP, and then the costs of that work which 5 you had assessed at so many million pounds ended up 6 costing double of that, well, that's a lot of money that 7 you have incurred in the end analysis without having 8 tested the -- without being certain what the outcome of 9 the legal interpretation was going to be. 10 I don't think it was possible to -- or sensible to 11 wholesale refer everything to DRP. There always had to 12 be that balanced view on what was important to 13 programme. 14 Q. In relation to Notified Departures specifically, was it 15 not the case that tie were going to have to pay for the 16 cost of the scope change anyway? 17 A. I don't -- right up until -- right up until the point 18 where we were referring these to DRP, I don't think -- 19 all of -- a lot of this is based upon my engagement with 20 the commercial team, the Infraco -- the infrastructure 21 team managing the infrastructure contract, and 22 Steven Bell. They didn't -- we didn't, for a long time, 23 have -- or they didn't for a long time have enough 24 information to be able to understand why these changes 25 had taken place. Either an estimate that they could 82 1 analyse and look at, or the detailed engineering and 2 design justification for why it had happened. 3 So the uncertainties were not just about the legal 4 position with the contract. We actually didn't -- the 5 people on the tie side didn't have the information that 6 they needed to do a sensible -- not sensible -- an 7 adequate check on why the change had happened, why it 8 was justified, who had caused it. 9 So unable to explain it either in terms of cost or 10 money. 11 Q. We understand that very substantial amount of the cost 12 overrun is attributable to delay. 13 A. Yes. 14 Q. Now, is it possible that those delay costs could have 15 been saved by tie referring the estimates to Dispute 16 Resolution, trusting in those procedures and the 17 contract to set tie's liability appropriately for the 18 cost of any change in the scope, but in the meantime 19 allow tie to insist on the work going ahead and saving 20 any costs associated with delay? 21 A. Delay costs were -- were very significant. Very 22 difficult to -- again, the programme was at large, and 23 when I say "at large", meaning any -- all the internal 24 attempts by tie to deliver -- to produce a revised 25 programme dealing with all the delays that had happened 83 1 at any point in time. 2 All of those efforts meant nothing except -- meant 3 nothing -- they were not reliable unless that had been 4 agreed with Infraco. 5 I remember several false dawns where we were just 6 about to get a new programme agreed with Infraco to 7 take -- to accommodate all the risks to date, but that 8 never happened. 9 I mean, the eventual outcome on the delays caused by 10 MUDFA, because the -- circling back on where the 11 contractor stood, when -- the first time that, I think, 12 I was in the room with them was in early 2009, when they 13 said all the delays up to date, and this is a précis, 14 all the delays up to date are tie's fault, and you need 15 to pay for them. 16 We just knew that that wasn't the case. There was 17 concurrent delays with respect to the fact that they 18 hadn't mobilised and didn't have their subcontractors in 19 place, and the -- the expectation that we would just pay 20 for all of the delays to the extent they had occurred 21 due to late running utility works, it wasn't -- there 22 was an attribution analysis that needed to be done on 23 that to determine where those delays in -- in other 24 events could have been managed away by the contractor. 25 The MUDFA delays were actually part of a referral to 84 1 DRP of their own. 2 Q. Yes. I think we've perhaps wandered away from my 3 question, which is: in relation to the contractual 4 procedure for agreeing change, processing change, do you 5 accept that there was delay within that process itself? 6 A. Yes. 7 Q. Was a consequence of that, delay in progressing with the 8 work itself? 9 A. Yes. 10 Q. What I'm trying to understand, one can understand the 11 point you make, that if there's uncertainty about the 12 cost of the change in scope, tie might prefer certainty 13 about that rather than referring all of the disputes to 14 DRP, but what I would like to know is: did that desire 15 for certainty come at the cost of delay which could have 16 been avoided by tie putting these disputes into the 17 Dispute Resolution Procedure, then insisting on the 18 works being progressed? 19 A. I wasn't close enough to the programme to be able to 20 give you an informed answer on this. 21 It's not just a case of every month forward means 22 another month on to -- because it's the end date of the 23 programme which is just as important as the start date. 24 So every month of delay doesn't mean that the end 25 date necessarily slips out. 85 1 So -- and the selection of the DRPs was at least 2 partly influenced by selecting those items which were on 3 the critical path of the programme to make progress on. 4 Q. Okay. 5 A. I'm sorry, I am not a programming expert, but I think 6 this is my understanding of it. 7 Q. Were the strategy and tactics of how tie might improve 8 its position in relation to change and delay something 9 that was discussed at senior management level within 10 tie? 11 A. Yes, absolutely. 12 Q. So are the answers that you have given based on your 13 participation in those discussions? 14 A. Yes. 15 Q. Were you satisfied that tie had done everything they 16 could to make use of that power under the contract to 17 refer disputed estimates to DRP and insist on that work 18 being done in the meantime? 19 A. Yes. An appropriate range of measures were being -- 20 points were being referred to DRP at the time, yes. 21 Q. Okay. We'll move on from there, thank you. 22 Do you recall that some time in 2009 the consortium 23 proposed stopping work altogether to allow completion of 24 utility diversions and of the design? 25 A. Yes. 86 1 Q. tie obviously didn't accept that proposal; is that 2 correct? 3 A. Yes. 4 Q. Why was that? 5 A. It wasn't a formal proposal, was it? I think it was 6 just something they said in a meeting. I don't -- 7 I don't recall that being -- ever being provided in 8 writing, but I might be wrong in that regard. 9 Q. Put it this way. The suggestion was made by the 10 consortium and not taken up by tie; is that correct? 11 A. I was -- I was in the room, yes, when that suggestion 12 was made, yes. 13 Q. What I would like to know is why didn't tie take that 14 opportunity? 15 A. Because being told in a room on a particular day: this 16 whole contract works for us, you're responsible for all 17 delay, you're responsible for everything that's happened 18 to the design, and all of the costs attributable to 19 that, is -- it's going to cost you within a range of 20 here to here to fix it, and we must stop right now, and 21 in essence we'll provide you with a new price for doing 22 the job when that's finished. 23 How could we competently accept that without saying: 24 hang on a minute, we need to -- the only competent way 25 to deal with this is -- is to drive out the detail. 87 1 There's no way to go and -- we can't even convince 2 ourselves that stopping now would be a good idea, 3 without driving out that detail, and understanding what 4 specific elements of the contract don't work as we 5 understood them to work. It was the only competent 6 thing to do. 7 Q. Are there not two separate issues there? There is the 8 question of who is liable for what under the contract, 9 but separately from that, there's the simple -- perhaps 10 not simple, but the factual position that utilities and 11 completion of the design were a cause of delay. 12 If there was an opportunity to allow both of those 13 problems to be resolved, was that not one which should 14 have been taken? 15 A. I don't think stopping and re-pricing after six months -- 16 my understanding of it was there was plenty of work that 17 could be -- be getting on with. 18 I don't think -- my understanding was that all these 19 things about incomplete design, it doesn't mean that 20 there was -- there wasn't construction activities that 21 could be taking place. 22 Q. Would you accept that if the opportunity had been taken 23 at that point to pause, allow the utility works to be 24 completed and the design to be completed, and then carry 25 on once that had been done, that some of the significant 88 1 delay costs ultimately incurred might have been saved? 2 A. Yes, but I don't know what other costs that process -- 3 yes, is the answer to your question. I don't know what 4 other -- I don't know what the outturn of the -- the 5 re-pricing of the job would have been either, or if 6 wholesale statements about the efficacy of the contract 7 would have been continued -- would have continued after 8 that point. 9 Q. Were those matters that could have been resolved in 10 negotiations, had they been followed up in response to 11 that proposal? 12 A. I think -- I mean, I think there were further 13 discussions and engagement with Infraco after that 14 point, but I think it was -- it was an impasse for quite 15 a long time on those issues. So, for instance, there 16 was mediation shortly after Richard Jeffrey arrived, and 17 that was -- I think it was June 2009, and those were 18 facilitated by an independent third party. I wasn't 19 part of those engagements myself, but even -- even the 20 outcome of that mediation in June did not serve to 21 resolve any of those impasses about seeking a global 22 settlement of all delays to the project to date to be to 23 tie's account. That's my recollection. 24 Q. If we can look briefly at a passage in your statement, 25 which is TRI00000059_C. 89 1 If we could go to page 222, please. This is in 2 a passage when you're explaining the various strategic 3 options that were open to tie, and at the time tie had 4 decided on a rigorous and targeted use of the DRP 5 procedures. 6 A. Mm-hm. 7 Q. If you see the third bullet point on that page. 8 A. Yes. 9 Q. Just reading from there. This is dealing with one of 10 the alternatives of a negotiated global resolution. You 11 say: 12 "Negotiated settlement of all matters and/or working 13 on a cost plus basis. Tie would be in a position of 14 great weakness in any such settlement given the extent 15 of the disagreements on the contract provisions and the 16 Infraco stated position that extra costs so far were 17 GBP50 million to GBP80 million (with insufficient 18 detail) ..." 19 When you say there that tie would be in a position 20 of great weakness in that negotiation, can you just 21 explain why you said that? 22 A. Well, if we start from a position that the contractor 23 has a conviction that all delays are to tie's account, 24 and that the contract requires us to pay for it all, 25 you're in a great position of weakness unless you've 90 1 tested what they're saying. 2 So that is exactly what I mean there. 3 Q. Yes. So the question of whether tie's position was weak 4 or strong, not determined by the consortium's position, 5 but by the facts on the ground -- 6 A. Yes. 7 Q. -- and the contract that they have? 8 A. Reference -- reference to -- and not even general -- 9 I mean, general testing of the terms of the contract, 10 sure, but we'd quite a conviction that that had to be 11 done with reference to specific examples. So nothing 12 global. We wanted to see it tested with reference to 13 specific examples that were giving rise to that, yes. 14 Q. Okay. 15 A. The devil was very often in the detail here. So global 16 statements about change, I don't think were relevant. 17 I think what was important was even right down to 18 individual INTCs and specific elements of the work and 19 understanding what's changed, why has it changed, who 20 was managing it, when it was changed, and last, but not 21 least, what's -- well, what's the correct estimate for 22 it, and who is responsible for it? 23 Q. I just wanted to explore the reason you'd used the term 24 "weak" to describe tie's position there. I think from 25 what you are saying, you hadn't come to a view that 91 1 objectively under the contract terms tie had a weak 2 position. Rather, you wanted to test just how strong 3 tie's position was -- 4 A. Yes. 5 Q. -- before doing any settlement; is that a correct 6 understanding? 7 A. Yes. I mean, a settlement was always -- again, there 8 were several false dawns where we thought we were going 9 to get to a position where -- through engagement with 10 Infraco that we were actually going to get to a position 11 where we could perhaps reach a settlement, whether that 12 would be at a reasonable level or an affordable level, 13 I don't know. 14 But a couple of times encouraging signs did not 15 translate into -- in other words, as I understood it, 16 quite often it was reverting back to entrenched 17 positions. 18 Q. Moving on from that, was it part of your role after 19 financial close to monitor and report on the project's 20 compliance with the budget? 21 A. Yes. 22 Q. Did you face difficulties in that? 23 A. In terms of compliance with budgetary control 24 procedures, no. In terms of delivering at any stage 25 a reliable outturn estimate for the project, I don't 92 1 think I was really able to do that at all from around 2 the first -- end of first quarter 2009, because these -- 3 failure to have -- I said the programme was at large. 4 Failure to have an agreed programme with the contractor 5 and wholesale disagreement on fundamental principles of 6 the contract meant that was pretty much impossible to 7 do. 8 Q. Did that remain the position all the way through until 9 your departure from tie in late 2010? 10 A. Yes, it absolutely did. I mean, at several junctures, 11 we sat down and, based upon some assumptions about what 12 might happen, based upon our own internal analysis we 13 were doing -- so where we couldn't get the information 14 from Infraco, doing our own analysis, and presenting 15 a view, but it could only ever be based upon assumptions 16 with regards to how it was going to be resolved, and 17 when. Back to your point about programme. 18 In that situation, just impossible to make 19 a reasoned judgement as to when the clouds are going to 20 clear and we're going to be able to get on with the 21 project. 22 It's a very, very uncomfortable position to be in. 23 Q. Were there difficulties in ensuring consistent reporting 24 to the Council on the one hand and to Transport Scotland 25 on the other? 93 1 A. No. I mean, at one -- there was a point in middle of 2 2009 where in relation to the 545 million cap, we were 3 clearly reporting to all that it was unlikely in any 4 event to be delivered within the funding cap. So -- and 5 that was really important point to be reporting 6 consistently. 7 Q. Could we just have a look briefly at TIE00088999. 8 This is an email from you to Gregor Roberts, who 9 I think was your Deputy Finance Director? 10 A. Yes, he was. 11 Q. And Mark Hamill, the risk manager. 22 April 2009. 12 Just reading from here, it's obviously an internal 13 email in tie: 14 "Gregor/Mark, there may need to be some nimble 15 thinking and most of all absolute clarity amongst 16 ourselves about which QRA/Risk Allowance is being 17 reported where and recognising that there is only one 18 QRA/Risk Allowance 'approved' and that's the one we had 19 in the Project Control Budget at Financial Close." 20 Paragraph 1: 21 "The approved QRA/Risk Allowance in the project 22 control budget at Financial Close was GBP30.3 million." 23 Then reading on, paragraph 2: 24 "In the P13 report to Transport Scotland we reported 25 the 'high side' QRA/Risk Allowance of 94 1 GBP38.4 million ..." 2 Reading on to paragraph 3: 3 "For reporting an updated cost outturn range to CEC 4 ten days ago, I used the very latest updated P80 QRA 5 which was produced in very short order by the commercial 6 team and Mark has attached. After my adjustments the 7 QRA/Risk Allowance total is GBP59.9 million ..." 8 Then reading on from there: 9 "The highest allowance at 3 above was provided to 10 CEC to satisfy their desire to see a first cut of how 11 bad it might get and was qualified heavily (for any who 12 have not seen it the short paper attached was provided 13 to CEC). This has not been reported to 14 Transport Scotland. The Risk Allowance we should 15 continue to report to Transport Scotland is that at 2 16 above." 17 Can you just explain why there were different 18 figures being reported to the Council and to 19 Transport Scotland? 20 A. There was a difference between the -- what was approved, 21 which was what was being -- appearing in the 22 Transport Scotland reports, but Transport Scotland, 23 through briefings from -- what date was this? Sorry. 24 Q. That's 22 April 2009. 25 A. Transport Scotland at a senior level, and perhaps even 95 1 there were briefings at ministerial level as well, were 2 in no doubt as to the gross uncertainties with respect 3 to our project costs. 4 So -- so I think the context is that the number that 5 was in the Transport Scotland -- Transport Scotland 6 report was the approved risk allowance. 7 Q. Yes, okay? 8 A. So the -- the 59.9 wasn't an official number. It was -- 9 it wasn't based on any certainty or anything else. It 10 was -- it was a highly uncertain scenario plan, which is 11 what all of the cost estimates from this point onwards 12 represented. 13 Q. Would it not have been helpful for Transport Scotland to 14 see that too? 15 A. Yes. I mean, I don't know if -- I don't know for sure 16 that they didn't. I can't remember them saying those 17 numbers. 18 Q. I just -- 19 A. Sorry, I had -- I mean, by -- again, by this stage the 20 engagement with Transport Scotland, the primary 21 engagement with Transport Scotland was at CEC officer 22 level, and perhaps Steven Bell or others made attendance 23 as requested. 24 So I didn't at this point have -- I wasn't reporting 25 unless on a specific subject I was asked about, I wasn't 96 1 necessarily providing information to Transport Scotland, 2 to the extent that I had been before mid-2007. 3 Q. As I understand your email, you are directing others in 4 tie not to report that higher figure to 5 Transport Scotland. 6 A. Sorry, I don't -- I'm not -- I'm not -- I'm saying that 7 the number that should go into the Transport Scotland 8 report should be the approved -- 9 Q. Approved one? 10 A. -- QRA allowance. I'm not saying: pull the wool over 11 Transport Scotland's eyes here; because that wasn't 12 happening. They were being briefed at a senior level 13 and in the four-weekly meetings on exactly how difficult 14 the situation was in terms of uncertainties. 15 Q. Thank you. Just generally on the role of 16 Transport Scotland, you say elsewhere in your statement 17 that throughout the preparation of the business cases, 18 you had extensive engagement with them? 19 A. Yes, very much. 20 Q. Now, in 2007, Transport Scotland withdrew from 21 representation on the Tram Project Board. In your view, 22 what effect did that have on the project? 23 A. I think in my written answer I said I really find it 24 hard to give an objective view on what the outcomes 25 would have been if they -- if they had remained formally 97 1 part of the project. They had expertise and knowledge 2 and experience that we could have continued to benefit 3 from. 4 I think there was -- I mean, I think people like 5 Richard Jeffrey and Steven Bell still had engagement on 6 a regular basis with senior Transport Scotland officials 7 to -- to brief them and to garner their views on what we 8 were doing. 9 But officially, they weren't at the Tram Project 10 Board anymore. 11 Q. Was it your view that the withdrawal of 12 Transport Scotland led to a loss of expertise and 13 experience from the project? 14 A. At the margin, yes. Their continued involvement would 15 have been incrementally better than not having them 16 involved, yes. 17 Q. Was there experience and expertise they had that wasn't 18 replicated within tie? 19 A. No, I don't think so. I mean, they did have the broader 20 perspective at a national level. So, for instance, 21 Bilfinger Berger were doing another job for -- a big job 22 for Transport Scotland. So maybe that would have been 23 relevant as well. 24 Q. Just focusing generally on tie as a project management 25 organisation, would you say that in hindsight tie had 98 1 sufficient experience and resources to project manage 2 the tram project? 3 A. I have no reason even with retrospect to say no. 4 Q. You wouldn't say that the way the project turned out was 5 an indication on tie's contribution to the project 6 management of the project? 7 A. I can't -- I can't come up with an objective answer to 8 this. I mean, I think the -- at the point at which 9 you -- I think it's a reality that at the point you hand 10 the contract over to a contractor, you are to an extent 11 reliant on their project management services as part of 12 delivering the project under -- under that contract. 13 That is the substantive reality of the way these 14 projects work. My own global perspective is I don't 15 think we got that, based on all my understandings. 16 Go back to -- on the design, I go back to the early 17 days of the design. I thought -- I think maybe our 18 early days management of the design maybe could have 19 been better, but I thought all of that was addressed by 20 the time we got to financial close through the design 21 management routines that had been implemented. 22 Q. You referred there to needing project management from 23 the contractors themselves. 24 A. Mm-hm. 25 Q. Would you accept that once the contract is signed, the 99 1 contractors were going to be primarily interested in 2 their own commercial position? 3 A. Yes. 4 Q. Is there not therefore a role for a project manager on 5 the employers' side, who is looking after the employers' 6 interests of those commercial matters? 7 A. Sorry, could you repeat the question? Is there not -- 8 just the last bit, is there not therefore -- 9 Q. It's probably easier if I start from the beginning, or 10 I'll forget the way I put it. If you've got the 11 contractors looking out for their own commercial 12 position, do you not therefore also need a project 13 manager on the employers' side, who is looking out for 14 the employers' commercial position? 15 A. Absolutely. We didn't not. I thought we'd a very 16 experienced team underneath Steven Bell who were doing 17 just that. 18 Q. But tie as an organisation hadn't run a project of the 19 scale of this one before? 20 A. No. 21 Q. It was managing two contractors who were very 22 experienced in running these sorts of projects. 23 A. Yes. 24 Q. Do you think in hindsight that tie's lack of experience 25 as an organisation in running projects perhaps told 100 1 against it? 2 A. Yes. I think there's -- I mean, as an overall -- as an 3 overall view on, you know, lessons learned from this, 4 then the overall question of should you really set up 5 a special purpose company to deal with a project like 6 this, I think that's a valid question to ask, yes. 7 Q. What would your answer be? 8 A. I don't think that the tie model is not capable of 9 delivering results. I mean, the history of tie was it 10 wasn't just set up to deliver on the tram project, of 11 course. It was set up to deliver on a whole range of 12 initiatives, but always as the project management arm. 13 You know, at the end of the day, you're reliant on the 14 contractors that you employ to be competent as well. 15 So it is driven by commercial interests, but it's 16 also driven by delivery and partnering, and I don't 17 think we got that from the Infraco. 18 CHAIR OF THE INQUIRY: Did you understand that tie was 19 always intended to be the project management company to 20 bring about this project, or was it to be a procurement 21 company and then it changed, as it were, or developed 22 into having responsibilities for project management? 23 A. My Lord, my understanding was it was always going to be 24 the -- it was always going to be the project management 25 company through delivery. 101 1 Now, that -- that might have been -- I mean, all of 2 the long-term planning from the moment I arrived at the 3 organisation was I was taking it all the way through 4 delivery as well. I don't recall anything -- so when 5 I arrived we were going through the parliamentary 6 approval process for the project, although not what 7 ended up becoming phase 1a and phase 1b. It was wider 8 than that. And at that stage there was already 9 a delivery team in place. 10 CHAIR OF THE INQUIRY: You referred earlier to tie being 11 established for much wider purposes. It was supposed to 12 gather the revenue from congestion charging if that 13 happened. 14 A. Yes. 15 CHAIR OF THE INQUIRY: And then use that revenue to develop 16 various transport projects. 17 A. Yes. 18 CHAIR OF THE INQUIRY: But at that stage was it intended 19 that they would actually be the project managers of 20 every project? I mean, I'm just asking. I'm asking the 21 question. 22 A. I don't recall it not -- not being -- I mean, there 23 would always at any point in time have been the option 24 to take a less detailed role in project management and 25 outsource parts of the project management to an external 102 1 organisation. 2 So coming back to Counsel's question on lessons 3 learned, maybe -- you know, that's part of that question 4 as well. Could you step back from the day-to-day 5 management of commercial activities by outsourcing to 6 another company? Yes. I have read the OBC for the 7 completion down to Leith, and obviously 8 Turner & Townsend look as if they're fulfilling that 9 role for the Council on that project. So that's a model 10 that would definitely work as well. 11 CHAIR OF THE INQUIRY: But you say "as well". Do you think 12 the tie model worked? 13 A. There's -- it's really difficult to sit here without 14 a very keen awareness of all of the outcomes on the 15 project which were not good. 16 MR MCCLELLAND: Do you recall on Tuesday, Mr McGarrity, that 17 we discussed the question of whether Andrew Fitchie had 18 given advice on the risk profile of Schedule Part 4? 19 And in particular highlighting that it presented cost 20 and programme risks for tie. 21 A. Yes. 22 Q. Your evidence was you weren't aware of any such advice, 23 but if you had been, your view would have been that the 24 procurement of the Infraco contract should have been 25 stopped or paused to allow those issues to be addressed? 103 1 A. Yes. 2 Q. Could we just bring up document CEC01506128. This is an 3 email exchange between you and Rebecca Andrew from the 4 Finance Department of the Council in March 2008. 5 We can see at the bottom the email from 6 Rebecca Andrew, and the way that this is done is that 7 you've put your answers to her questions in blue text. 8 Her questions are in black and your answers are in blue. 9 If we just look at page 2, please, and if we could 10 just magnify answer 2 -- question 2 and the answer to 11 it, so Ms Andrew had asked for: 12 "A note on the risks of delaying contract signature 13 versus the risks of signing the contracts if any of the 14 items in the matrix are not resolved (I appreciate that 15 tie is aiming to close out most of these over the next 16 week, but we need to deal with the eventuality that some 17 may not be resolved in full). This can be included in 18 the close report if necessary." 19 Your answer is: 20 "We believe that assuming the SDS novation gets 21 agreed this week and the Network Rail framework 22 agreements are signed up, then the only significant 23 additional public sector risk compared to December is 24 the delay in post close SDS design delivery. This would 25 only go away if we waited for the design to complete 104 1 which would in say September. Six months inflation on 2 the programme would cost GBP15 million to GBP20 million 3 alone. More likely is that either BBS or the 4 Transport Scotland funding or both would walk away and 5 we'd have no project." 6 A. Mm-hm. 7 Q. Was that an accurate estimate of the costs involved in 8 postponing the Infraco award? 9 A. Ultimately, you'd only be able to come up with an 10 accurate estimate when -- if it had been priced in by 11 the Infraco. So we developed -- for the purposes of 12 answering this and other questions about what the likely 13 costs were of delay, we came up with benchmarks. So 14 I think 3 million a month is what springs to mind as the 15 benchmark we came up with. 16 Q. Was that the best estimate you could come up with based 17 on the information available to you at the time? 18 A. Yes, absolutely. 19 Q. When you say there, BBS or the Transport Scotland 20 funding or both might walk away, did you perceive risks 21 at the time that delay would lead to Transport Scotland 22 withdrawing its funding? 23 A. Yes, I think that was always one of the black flag risks 24 on the project, always, that the Transport Scotland 25 funding would be withdrawn. 105 1 I mean, from 2007 this was clearly a case 2 of: central government will continue to support this 3 project, but we'll only do it if we're satisfied that 4 things are progressing, and that we're going to get what 5 we're paying for, and the conditions of the grant were 6 that it could be withdrawn at any time. 7 Q. Was there a particular reason why you thought that they 8 might withdraw the funding in the event of delay? 9 A. I think that there would come a point -- I thought there 10 would come a point where continued delay would mean that 11 they might, yes. 12 Q. Was that based on your own gut reaction to it or was it 13 based on something specific Transport Scotland had said? 14 A. I don't think -- I don't recall Transport Scotland ever 15 saying get it done by such and such a date or the 16 funding is off the table. Sorry, that's the real 17 question, isn't it? 18 Q. Okay. In relation to Bilfinger Berger Siemens walking 19 away, was it your view there was a significant risk that 20 delay would cause that to happen? 21 A. Yes. For this -- I thought that there was a risk of -- 22 we all believed that there was a risk that the tenderer 23 might walk away, yes. 24 Q. Again, was that based on something the consortium had 25 said, or was it just your -- 106 1 A. It's not just my judgement. Making these judgements, this 2 reflects the views of the entire tie management. 3 Q. Yes. 4 A. Those were risks. 5 Q. Would those considerations have militated against 6 stopping the Infraco procurement if Mr Fitchie had given 7 the advice that he says he gave about the risk profile 8 of Schedule Part 4? 9 A. Notwithstanding any -- notwithstanding the veracity of 10 these comments here, there is absolutely no way that we 11 would have signed that Infraco contract if -- if we had 12 legal advice saying it didn't work. Notwithstanding the 13 consequences. It's just -- speaking, me personally, 14 I just would never have sanctioned it. 15 Q. So you would have been prepared to see the loss of the 16 project altogether as a possible outcome of delaying the 17 procurement? 18 A. Yes. Always in the expectation that common sense would 19 prevail and we might get to a position where there was 20 delayed financial close. 21 Q. Going back to the early stages of the Infraco 22 procurement, back in early 2007, were you involved in 23 considering bids from the Infraco bidders? 24 A. No. 25 Q. Was there a point around that time when you held the 107 1 view that the bids were nothing more than indicative 2 because of the incomplete state of the design? 3 A. No, never at all. As I understood it, the -- these 4 large construction companies were capable of delivering 5 us a price for the job based upon the information which 6 they had, taking a view on how things would get to 7 completion, but clearly stating where they didn't think 8 they could give that -- they couldn't give that as 9 a fixed price. 10 So that was my understanding. 11 Q. If you look at the time when the first bids came in, or 12 the early bids, would you have described those as 13 indicative at the time? 14 A. When -- when did the first bids come in? Sorry, you 15 will need to -- 16 Q. In the early part of 2007. 17 A. I don't recall them being labelled as such at that time. 18 Q. So if Andrew Fitchie had given evidence that you had 19 described the bids to him as being indicative, what 20 would your response be to that? 21 A. I don't -- I don't recall the context in which I would 22 have said that. 23 Q. Are you able to contradict what he says about that? 24 A. No. 25 Q. Matthew Crosse, moving on to a separate point, 108 1 Matthew Crosse was appointed the Project Director in 2 early 2007. 3 A. Yes. 4 Q. Around that time tie stood DLA down as their legal 5 advisers for a period that lasted for about five or six 6 months, between about April and September 2007. Do you 7 know why that was done? 8 A. I don't remember. I don't -- I didn't actually 9 specifically remember Andrew not being around until -- 10 until I read an email in the evidence that he wasn't. 11 That's at least partly because, as you know, I was 12 gone myself for -- for three months during that period. 13 Q. Can you recall the rough duration -- when your absence 14 began and ended? 15 A. End of August to -- sorry, end of July to the end of 16 October. 17 Q. Were DLA stood down to save money? 18 A. I don't know. 19 Q. Again, if Mr Fitchie had given evidence that you had 20 told him that DLA were to be stood down after a tie 21 budget review, would you be able to contradict that? 22 A. I wouldn't be able to contradict that. 23 CHAIR OF THE INQUIRY: Presumably as Finance Director you 24 would know why you were taking a decision, if it was 25 related to the budget or saving money. 109 1 A. Yes. 2 CHAIR OF THE INQUIRY: What's your position then? 3 A. I should have -- I should have known that. 4 CHAIR OF THE INQUIRY: Well, you should have known that, but 5 what is the position -- are you saying that DLA were 6 stood down because there was a lack of money or because 7 of the budget, or are you saying that they weren't? 8 A. I'm saying I don't remember. I don't remember being 9 part of that decision. 10 CHAIR OF THE INQUIRY: Who else would be part of the 11 decision if it was a finance budget? 12 A. The people managing the engagement would have been the 13 people -- I didn't manage the DLA engagement. Others 14 did. 15 CHAIR OF THE INQUIRY: Who would that be? 16 A. I presume -- I mean, the primary engagement was with the 17 procurement team. 18 MR MCCLELLAND: That would be headed up by the project 19 director. 20 A. Yes. 21 Q. Would it be likely then to have been Matthew Crosse's 22 decision? 23 A. Yes, it could have been, but I can't definitively say. 24 Q. Now, do you recall that the Infraco contract milestones 25 required tie to pay to the consortium a mobilisation 110 1 payment of GBP45.2 million? 2 A. Yes. 3 Q. Just for the record, I'll note that you give an 4 explanation of the reasons for that at page 164 and 5 following in your statement. We don't need to go to 6 that. 7 But you explain in your statement that tie agreed to 8 pay that sum in late 2007 during the time that you were 9 absent from tie? 10 A. Yes. 11 Q. What was your view about tie's agreement to pay that 12 sum? 13 A. It was higher than I was expecting. No doubt about 14 that. But I fully understood the value for money 15 aspects of it in terms of as explained to me, the 16 discount that had been achieved from the -- Infraco's 17 price as a result of agreeing that in principle, at 18 preferred bidder stage. 19 I think both bidders -- my recollection is both 20 bidders wanted to have a payment profile where they 21 would be cash neutral, for want of a better way of 22 putting it, throughout the project. 23 I also understood that -- I think what was different 24 or what in terms of quantum between this and other 25 advance payment -- mobilisation payments that I've seen 111 1 was that a big element of it was to secure the supply 2 chain for advance materials. Things like rails and M&E 3 equipment and other long lead items that needed to be 4 paid for right at the start of the programme. 5 So there was a programme advantage to it as well. 6 So in terms of why was it done, I think the discount 7 that we got at -- my recollection, it was in excess of 8 GBP10 million, and that was very significant in 9 comparison to the -- the payments being made. 10 Q. So who had negotiated that payment for tie? 11 A. That would -- that was the procurement team, as far as 12 I'm aware. But I wasn't involved myself. 13 Q. Were you in any way uncomfortable about the payment? 14 A. I think I had -- quite apart from the benefits that we 15 were getting from it in terms of price reduction, 16 et cetera, I was very -- obviously very concerned to 17 make sure that I knew how we were covered off in the 18 event of default by the contractor, and for that 19 purposes, the fact that it was Bilfinger Berger and 20 Siemens with a joint and several liability under the 21 contract, and we had recourse to parent company 22 guarantees, plus the value of the -- the bonds which 23 were in place, I got myself comfortable on that basis. 24 Q. Could you just look briefly at Andrew Fitchie's 25 statement, please, which is TRI00000102. 112 1 Page 240. Paragraph 7.571. Just reading from 2 there: 3 "I recall that Stewart McGarrity expressed disquiet 4 about being asked by Transport Scotland, during Project 5 budget reviews post contract award, about the 6 circumstances in which the GBP42 million advance payment 7 was agreed and paid by tie. I found this very odd 8 because Stewart McGarrity was tie's Finance Director. 9 The Finance Director would usually be the person who is 10 explaining the drawing down of a large payment to 11 a would-be contractor, but I was not involved in how 12 Transport Scotland grant funding was drawn in proportion 13 to CEC's funding contribution. I recall Stewart joking 14 in Stewart's style about what would happen to him if 15 Transport Scotland asked detailed questions. At the 16 time, the gist of what Stewart said to me, in a private 17 conversation was: "I feel extremely exposed here. What 18 have I got contractually to tell Transport Scotland that 19 covers this. Do we have an argument" and I had nothing 20 I could say. I said to Stewart "I do not know about 21 this advance payment." 22 In the following paragraph: 23 "I found it very odd that Stewart appeared to have 24 been blind-sided about how this decision had happened. 25 His discussions about it, or comments on it, came up 113 1 during tie management meetings at some point after 2 contract signature. My impression was that Stewart was 3 angry about not being told about this at the time." 4 What's your comments about those remarks? 5 A. First of all, dealing with the Transport Scotland piece 6 of it, there was absolutely no way that 7 Transport Scotland were going to hand over this sum of 8 money without full understanding of what it was, what we 9 got for it and how we were protected. And well before 10 financial close, I engaged directly with the Finance 11 Director at Transport Scotland on the whole issue of the 12 justification for this advance payment, and also from 13 a government perspective how it was going to be 14 accounted for, which is kind of irrelevant for the point 15 we're making. 16 So I don't think the wool was ever -- I knew about 17 this principle of an advance payment pretty much from 18 the moment I came back from my absence from the project. 19 So there was no point I didn't know about it. 20 Even when I was doing the work on checking -- even 21 when I was doing the work on checking the contractual 22 provisions that were in place, I'm sure there will be 23 emails back -- I'm sure there's -- I engaged with 24 Andrew Fitchie on that point as well, even at that time, 25 pre contract, about the extent of the potential 114 1 contractual protections in place. 2 In fact, I can tell you -- because I can remember 3 now, we were looking at what other possibilities there 4 might be to get additional protection, and that included 5 having step-in rights to subcontractors to, for 6 instance, take ownership of materials on site in respect 7 of contractor default. But I think that was discounted 8 as pretty much undeliverable to go and get those written 9 into -- they would have to be in Infraco's contracts 10 with its subcontractor, and weren't really replacement 11 for the overall credit standing, and joint and several 12 liability of the might of Bilfinger Berger and Siemens 13 in any case. 14 So I do remember engaging with Andrew pre close on 15 the issue of the protections were in place. 16 Q. The impression one gets from reading Mr Fitchie's 17 comments are that there was -- that you as the Finance 18 Director were very uncomfortable about financial 19 commitments being made and you, only after the 20 commitment had been made, having to get up to speed with 21 the basis for it and the protections for it. 22 A. It's a fact -- 23 Q. Is that a fair comment? 24 A. It's a fact that the principle was agreed while I was 25 gone. I got myself comfortable with what we were 115 1 getting as a benefit from it when I came back. 2 Q. Just one final point, Mr McGarrity. The Business Case 3 for the project included consideration of its cost 4 benefit ratio? 5 A. Yes. 6 Q. That had to be greater than 1 for the project to be 7 approved? 8 A. Yes. I think the guidance says not normally approved if 9 the BCR is less than 1. So pretty much I took it that 10 if the BCR was less than 1, then there was a big problem 11 with approvability of the project, yes. 12 Q. Were PwC involved at some stage in preparing reports 13 relating to the cost benefit ratio? 14 A. I don't think -- the cost benefit ratio was -- there was 15 cost benefit ratios delivered at the time of 16 parliamentary approval by the two consultants that dealt 17 with the Bills for lines 1 and line 2, and then the BCR 18 for what became phase 1a plus phase 1b was developed 19 with Steer Davies Gleave who were the consultants who 20 produced the BCR in -- for the Draft Final Business 21 Case. 22 I don't remember PwC being involved in BCR work. 23 Q. I'm just going to put to you something that's said about 24 this by Neil Renilson. I don't think we need to bring 25 it up on screen, but for the record his statement 116 1 reference is TRI00000068_C. 2 The reference is at page 65, paragraph 215. What he 3 says is: 4 "I recall attending the meeting where PWC presented 5 their business case for the first time. Rupert ..." 6 Who he says is somebody from PwC: 7 "... stood in front of the well attended meeting and 8 the PWC people went through their presentation. They 9 had calculated a cost benefit ratio of less than zero - 10 a negative CBR. Stewart was the senior tie officer 11 present. He became very aerated and said something 12 along the lines of how dare you come here saying that 13 for every pound we spend, we would actually be worse 14 off? This is not what we require. You know we require 15 a Business Plan that returns a positive ratio of greater 16 than one. Go away and come up with something that gives 17 us the answer we need. I have to say, that was unusual 18 for Stewart, but it was indicative of the prevalent 19 attitude at tie." 20 What would be your response to that? 21 A. I -- I invited -- it was Steer Davies Gleave. 22 Rupert Ingham worked for Steer Davies Gleave. Rupert 23 came at my invite to that -- was it a tie Board or 24 a Tram Project Board? Rupert came at any invite to 25 explain the process that we were going through to 117 1 develop the BCR. The figure that was quoted was wholly 2 unreliable, and there was somebody who got very 3 exercised about it, but it wasn't me. Rupert was there 4 at my invitation. I knew what he was going to say. 5 And I guess my biggest concern after that was: what did 6 we do that for? Why did we bring an incomplete piece of 7 work to a Board meeting? 8 So far from me being the one who has turned round to 9 SDG and said: how dare you do this; it was my -- Rupert 10 was reporting for all intents and purposes to me on this 11 work. It was my decision to take it to the Tram Project 12 Board. 13 Q. Do you recall who it was who was agitated? 14 A. I can't. 15 CHAIR OF THE INQUIRY: Was this a presentation which came up 16 with a BCR of less than 1? 17 A. Yes. The modelling outputs all the way through -- this 18 wasn't: we'll go away and we'll work, we'll produce the 19 answer. I established a very inclusive stakeholder 20 group, and I can't remember what we called it now, but 21 it involved people from Transport Scotland, 22 Lothian Buses, Transdev, the operator, the Council, SDG, 23 and to make sure that the modelling outputs from the JRC 24 were not only -- learned from all of that expertise, but 25 also had buy-in from all of the major stakeholders 118 1 involved before it dropped out at the end. 2 What I didn't want to see was an outcome where the 3 SDG drops a STAG report on the desk somewhere towards 4 the end of 2006 and everyone says: that's rubbish. It 5 was important to do it in an inclusive -- an inclusive 6 way. 7 MR MCCLELLAND: I have no further questions for you, 8 Mr McGarrity, but I think others may do. 9 CHAIR OF THE INQUIRY: Mr Dunlop? 10 MR DUNLOP QC: My Lord, I'll try and be more accurate than 11 my learned friend's 15 minutes. I have probably got 12 20 minutes. 13 If your Lordship is prepared to sit on, we can 14 probably finish this without the need to resume again. 15 CHAIR OF THE INQUIRY: I don't know if other people -- 16 Mr Fairley, do you have -- 17 MR FAIRLEY: My Lord, I'm very grateful to Mr McClelland for 18 dealing with all of the points that I have raised. 19 Whilst my absence of questions shouldn't be taken as 20 uncritical acceptance of the answers, I can deal with 21 the matters that have arisen in submissions. 22 CHAIR OF THE INQUIRY: We will just carry on then until 23 1.10. The shorthand writers are all right for that. 24 MR DUNLOP QC: I'm obliged, my Lord. 25 Examination by MR DUNLOP 119 1 MR DUNLOP QC: Mr McGarrity, you will recall discussion of 2 the meeting that is documented having happened in 2008, 3 attended by yourself and others with Mr Fitchie. 4 A. That is the file note that came up yesterday. 5 Q. You will recall saying that you had no recollection of 6 that meeting? 7 A. Yes. 8 Q. You also mention that you couldn't recall a variety of 9 committee meetings, but if the evidence showed you'd 10 been there, then you must have been there? 11 A. Which -- which committee -- 12 Q. It was your evidence. You said that you didn't recall 13 certain committee meetings, but if evidence showed that 14 you'd been there, you must have been there? 15 A. I'm sorry, I can't -- unless -- which -- which committee 16 meetings? 17 Q. Well, what I'm asking is: is it fair to suggest that the 18 position here may well be that this meeting happened, 19 and you simply can't recall it? 20 A. Yes. I mean, I can't -- I can't remember what I was 21 doing on a particular day in 2008. 22 Q. Yes, that's fair. Thank you. 23 Now, can I understand what it is that you thought 24 regarding this topic of fixed price? You would agree, 25 I assume, that the price is not fixed where risks are 120 1 left with the public sector? 2 A. Yes. 3 Q. You knew, did you, that the public sector were left with 4 the risks of significant change in design? 5 A. No. 6 Q. Okay. 7 A. Not evolution of the design, normal design development, 8 as I understood it to work. 9 Q. So you didn't know that significant change in design was 10 a public sector risk? 11 A. Where it was deemed to fall outside normal design 12 development, I knew that it was a public sector risk. 13 But I think it was also to give it context, because 14 that's important, I don't think the design, the scope of 15 the project, could be understood without reference to 16 the Employer's Requirements as well. As I understood 17 it, the Employer's Requirements had primacy under the 18 contract, but, I mean, I know that the subsequent 19 disputes brought that into question. 20 Q. I'm just wanting to know what you knew about risks, 21 Mr McGarrity? 22 A. Okay. 23 Q. You also knew that delays in consents or approvals was 24 a public sector risk? 25 A. Yes. 121 1 Q. You knew that 40 per cent of the BDDI had not been 2 issued to BBS at all by the date of Wiesbaden? 3 A. I didn't know that. I'm sorry. 4 Q. You knew that at the date of Wiesbaden, formal approvals 5 were generally outstanding? 6 A. When you say generally, what do you mean? I don't 7 recall the extent of approvals or anything at the point 8 of Wiesbaden. That will be a matter of record. 9 Q. Do you recall that not a single design element had 10 received final approval and been issued for construction 11 as at the date of Wiesbaden? 12 A. I don't recall the details of that. The people who were 13 managing design are much better to answer these 14 questions than me. 15 Q. Were you aware that it was known as at the date of 16 contract close that a number of the Pricing Assumptions 17 were incorrect and would result in a Notified Departure? 18 A. I don't recall at the point of contract award having an 19 awareness that there was a number of those Pricing 20 Assumptions might already -- I mean, I knew about the 21 Pricing Assumption with -- there was already a Notified 22 Departure on the way with regard to the change in the 23 design programme. That is the only one -- the only 24 specific Notified Departure that I remember being aware 25 of was coming down the line at the point of contract 122 1 award. 2 Q. But you were aware that Wiesbaden was tied to version 26 3 of SDS? 4 A. Yes. Mm-hm. 5 Q. You were aware that at the date of contract close, SDS 6 had moved to version 32? 7 A. I don't remember that. 8 Q. You were aware it wasn't 26 anymore, weren't you? 9 A. I knew -- I knew it had moved on from the -- from -- 10 I was aware that it had moved on from the Wiesbaden 11 version, yes. 12 Q. You were aware that that change would result in an 13 increase in price? 14 A. Yes. 15 Q. By way of Notified Departure? 16 A. Yes. 17 Q. You were aware that even at the date of contract close, 18 design was not complete? 19 A. Yes. 20 Q. Now, you were sent an email, I think, by Mr Laing at 21 Pinsent Masons saying there was a Notified Departure 22 happening immediately on contract close. Do you 23 remember that? 24 A. No. I have said I was aware of it. 25 Q. So you were aware -- we can pass from that then. 123 1 A. Yes. 2 Q. It's that awareness that led Mr Bissett -- do you 3 remember looking at Mr Bissett's email immediately after 4 contract close, mentioning change orders starting to 5 appear from all quarters? 6 A. Yes. I mean, I know that's what Richard -- I know 7 that's what, sorry, Graeme -- that email from -- I don't 8 think Graeme would have been -- in his role would have 9 been close enough to know whether change orders were 10 in -- in a position to anticipate change orders raining 11 in, any more than I was. 12 Q. You were aware, were you, that the Notified Departure 13 that was anticipated was advised as likely to be all 14 encompassing? 15 A. No I don't. 16 Q. If we could have, please, on the screen document 17 CEC01466394. CEC01466394. Thank you. 18 Go to page 2, please. Page 2. 19 Do we see -- in fact, sorry -- no, that is fine. 20 If we go to the bottom of that page, please, do we 21 see this is an email from Ian Laing. He was the lawyer 22 for BBS at Pinsent Masons, to a number of individuals, 23 including yourself; do you see that? 24 A. Yes. 25 Q. As we discussed earlier, design delivery will be version 124 1 28. The Pricing Assumption is version 26. 2 The possibility that there will be an immediate 3 Notified Departure on contract execution, and asking 4 that this be confirmed. Do you remember that? 5 A. Yes. I was aware about this change in the design 6 programme. 7 Q. If we go back to page 1, please, in that document, we 8 see at the top of the page, Mr Fitchie responding to 9 a request from Mr McEwan, saying: 10 "If the situation is that at this point SDS is 11 unable to produce a design delivery programme which is 12 reliable and static at V26 - and this is indeed the 13 situation that SDS have articulated - and that this 14 programme will need to be varied immediately post 15 contract award, tie needs to endeavour to negotiate with 16 BBS now the specifics of what is or is not to be 17 permitted as a variation ... otherwise the Notified 18 Departure mechanism is too blunt and will permit BBS to 19 include everything that they estimate is going to affect 20 them to be priced and to be granted relief. That 21 Estimate is bound to be all encompassing and 22 conservative." 23 You weren't sent that email, Mr McGarrity. Are you 24 saying that you weren't aware of that advice? 25 A. No. Who has this come from? 125 1 Q. That's from Mr Fitchie to Mr Bell, Mr McEwan and others? 2 A. No. Sorry, I don't have any recollection on this at 3 all. 4 Q. So Mr Bell did not pass this advice on to you as Finance 5 Director? 6 A. I don't recall being aware of this. 7 Q. We've heard evidence that Mr Bell understood this and 8 discussed this with Mr McEwan and others. And it was 9 agreed, as indeed Mr Fitchie suggested in the email, 10 that the mitigation was not a legal one, but a factual 11 one, a practical one. And that steps had to be taken by 12 tie to try and do what they could from an engineering 13 and technical point of view to mitigate this risk. And 14 that they then took steps to do that. Were you unaware 15 of that as well? 16 A. It sounds like a sensible thing to do, yes. 17 Q. Were you aware that that's what they were doing? 18 A. I don't recall being specifically aware of this. 19 Q. Okay. 20 Moving on, Mr McGarrity, the final point I want to 21 ask you about. 22 You told his Lordship that CEC was tie's client and 23 it needed to be properly informed about this? 24 A. Yes. 25 Q. You wouldn't want relevant information withheld from the 126 1 Council? 2 A. No. 3 Q. We've looked at a lot of spreadsheets, many of which you 4 were handed? 5 A. Mm-hm. 6 Q. These were, I presume, created on Excel? 7 A. Lots of spreadsheets were done on Excel, yes. That's 8 how -- that's how they were done. 9 Q. Was there any practice of withholding Excel files and 10 only giving the Council a PDF or a hard copy? 11 A. I don't recall that ever being part of standard 12 practice. I mean, when I dealt with Council Finance 13 people, or anyone for that matter, I would have just 14 given them the Excel spreadsheet. I don't recall it 15 being a matter of practice not to. 16 Q. If there was such a practice, it would mean that the 17 Council couldn't interrogate the spreadsheet. It could 18 only see the resulting figures and not the underlying 19 data; is that correct? 20 A. Yes. That's factually a statement of truth. Unless 21 they came back and asked the questions. 22 Q. Would you have tolerated any such practice? 23 A. It would depend on the circumstances ie why it was being 24 done that way, rather than providing them with the 25 underlying information. 127 1 Q. Could you think of a good reason for such a practice? 2 A. Generally not. 3 I mean, I know in business, I think, it's quite 4 common to PDF documents, to send them off, but -- I have 5 done it myself all the way through my career, but 6 I wouldn't have thought, unless there was a -- unless 7 there was a reason in a specific instance, there 8 wouldn't be any reason to do it. 9 Q. If you could have on screen, please, TIE00351419. 10 We have looked at the top half of this document 11 earlier. If we could look at it again, please. 12 The top half of that document, please. This is an 13 email from Mr Hamill to yourself. This is the one where 14 he talks about manipulating figures; is that right? 15 A. Yes. 16 Q. The penultimate paragraph: 17 "I recommend manipulating the current information to 18 an acceptable P90 figure rather than go through the 19 hassle of trying to persuade CEC of the 'benefits' of 20 a P80." 21 He's put "benefits" in inverted commas as he had 22 done with "colleagues" in an earlier email. Is that 23 because he didn't really see a benefit in moving to P80? 24 A. Taken of its own, that's what it would suggest. 25 Q. If we look at the foot of the page, please, another 128 1 email to you. Do you see what's in bold underlining, 2 please? 3 A. Yes. 4 Q. "Can I please ask that we don't forward any Excel sheets 5 on to CEC. If we need to give them anything, can we 6 please PDF the document or give a hard copy." 7 A. Yes. I can't understand why in this particular instance 8 he would be saying that. 9 Q. Is there any response from you saying: why on earth 10 would we do that, they're our client? 11 A. I can't -- I can't -- Mark would have to give some 12 context to that. I don't know. 13 Q. It's an email sent to you, Mr McGarrity. 14 MR FAIRLEY: My Lord, I hesitate to interrupt, but I recall 15 Mr Hamill did in fact give evidence on this, 16 and I wonder whether my learned friend is going to put 17 to the witness what Mr Hamill's explanation was. If he 18 doesn't, I would wish the opportunity to do so. 19 MR DUNLOP QC: I'm quite happy to do that, my Lord. I'm 20 just trying to understand this witness's own explanation 21 before we put Mr Hamill's -- 22 A. I don't have an explanation. 23 Q. What Mr Hamill said was that he would have wanted it so 24 that Edinburgh Council couldn't change any of the 25 figures themselves. 129 1 A. Well, that's a good -- that's -- as a general practice, 2 that's why I would PDF a document and send it to 3 someone, so that they can't change it. But what reason 4 would -- what reason would City of Edinburgh Council 5 have for changing a document that we had sent them? 6 Q. I don't know, Mr McGarrity. Do you know? 7 A. No. 8 Q. Would the normal practice in such a situation not be to 9 lock the cells on the Excel document? 10 A. It's easier -- some people might do it that way, but in 11 business, when I've been sending information to people, 12 and I don't want them to change it, what I do is I'll 13 PDF it. That's generally what I would do. 14 Q. If you lock the cells, then at least the person with the 15 Excel spreadsheet can see the underlying data and 16 understand the resulting figures? 17 A. Yes, that's true. 18 Q. Is this indicative of something to which you assented by 19 way of withholding from Edinburgh Council the underlying 20 data? 21 A. No. As I said, my practice was -- my practice was to 22 send them everything, including the spreadsheets. So 23 all of the spreadsheets that were referred to in my 24 evidence, I generally provided the spreadsheet itself to 25 the Council people. 130 1 Q. I may be wrong, but I don't recall seeing any response 2 by you to this email saying: I'm not signing up to that, 3 Mr Hamill. 4 A. As a matter of course, I wouldn't necessarily have 5 replied to every single email that I receive. I don't 6 recall having any regard to this particular email at the 7 time. 8 MR DUNLOP QC: My Lord, on time. I'm obliged. 9 CHAIR OF THE INQUIRY: Thank you. 10 MR FAIRLEY: Just one matter arising from that, my Lord. 11 Examination by MR FAIRLEY 12 MR FAIRLEY: Mr McGarrity, Mr Hamill gave evidence that 13 there had been occasions when his spreadsheets, having 14 gone to City of Edinburgh Council, had undergone change 15 at the hands of the Council with the result that what 16 appeared to be the same spreadsheet was circulating in 17 a number of different forms with different numbers, and 18 that that had been the cause of confusion. 19 Were you aware of that having happened? 20 A. No. 21 Q. If Mr Hamill says that is what happened, are you in 22 a position to contradict that? 23 A. No, I'm not. 24 Q. But it would be fair to say that if he's right about 25 that having happened, about spreadsheets having been 131 1 altered, having been sent in Excel format, that could 2 conceivably be a cause of significant confusion in an 3 assessment of the risk allowance? 4 A. Yes. 5 Yes, I mean, it depends how it was being -- for 6 instance, I think -- when sending these spreadsheets to 7 Alan Coyle on finance matters, I was quite happy for him 8 to take that information and re-present it any way he 9 wanted internally. I didn't have a problem with that. 10 But so long as the outcome in terms of financial -- 11 it wasn't any -- it wasn't represented as my product or 12 tie's -- more correctly tie's product, I wouldn't really 13 have had a problem with it. 14 Q. Just to be absolutely clear about this, what Mr Hamill 15 said in his evidence, as it's been recorded in the 16 LiveNote, is: 17 "What was happening was I had sent some Excel sheets 18 earlier and so obviously that sheet has a lot of 19 formulas and information which is pulled from other 20 sheets in the background, and what was happening was 21 people were amending the sheet and sending it back or 22 sending it around and people were having -- inputting 23 different numbers and it was messing up the Excel 24 sheets. It was purely just a quality control thing 25 because I had seen a few scenarios, people were sending 132 1 information back, and the minute you start to overwrite 2 formulas in these ..." 3 I think "these" is a reference to the Excel 4 spreadsheets. 5 "... the whole thing, and I was having to spend time 6 trying to rectify and explain, so that's why ..." 7 And he gives that as the explanation for the PDF. 8 A. Yes. 9 Q. Does that sound to you like a sensible explanation? 10 A. Yes. I have had people with far more -- you know, quite 11 complex financial models in other employments who have 12 overwritten formulas in spreadsheets and then come back 13 to me and said: this doesn't seem to work. Of course it 14 doesn't work because you've wrecked the whole model by 15 manually overwriting things, yes. 16 MR FAIRLEY: Thank you. I have no further questions. 17 CHAIR OF THE INQUIRY: Thank you very much, Mr McGarrity. 18 You're still under your citation. So it would be 19 possible to recall you if that was necessary. Hopefully 20 it won't be necessary. 21 You're now free to go. Thank you very much. 22 A. Thank you. 23 (The witness withdrew) 24 CHAIR OF THE INQUIRY: We'll adjourn until January, and as 25 I said earlier, we'll give core participants notice of 133 1 the precise date. We're having a meeting about that. 2 It depends on availability of witnesses, but it's 3 unlikely to be before the week of the 15th. 4 MR DUNLOP QC: Is there a likely date on which we will be 5 advised as to when the Inquiry is to recommence? 6 CHAIR OF THE INQUIRY: Well, we'll do it certainly -- 7 hopefully next week. 8 MR DUNLOP QC: I'm obliged. 9 CHAIR OF THE INQUIRY: And obviously, once we have 10 a timetable for witnesses, that will appear on the 11 website, so the public can -- I'm certainly hoping that 12 would all be sorted before the end of the year. Thank 13 you. 14 (1.13 pm) 15 (The hearing adjourned until a date to be confirmed in 16 January 2018) 17 18 19 20 21 22 23 24 25 134 1 INDEX 2 PAGE 3 MR NEIL RENILSON (continued) .........................1 4 5 Examination by MR LAKE ........................1 6 7 Examination by MR DUNLOP .....................64 8 9 MR STEWART MCGARRITY (continued) ....................72 10 11 Examination by MR MCCLELLAND (continued) .....72 12 13 Examination by MR DUNLOP ....................119 14 15 Examination by MR FAIRLEY ...................131 16 17 18 19 20 21 22 23 24 25 135