1 Thursday, 14 December 2017 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) 133 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