1 Tuesday, 23 January 2018 15 (11.44 am) 16 CHAIR OF THE INQUIRY: Yes, Mr Lake. 17 MR LAKE: My Lord, the next witness is John Swinney. 18 MR JOHN SWINNEY (sworn) 19 CHAIR OF THE INQUIRY: You are going to be asked some 20 questions initially by Counsel to the Inquiry. If you 21 don't understand a question, just say so. 22 If you listen to the question, and answer it as 23 directly as concisely as possible. Also, speak at 24 a measured pace because the shorthand writers have to 25 keep up with you. 3 1 A. Okay. 2 Examination by MR LAKE 3 MR LAKE: Mr Swinney, could you state your full name, 4 please. 5 A. My name is John Ramsay Swinney. 6 Q. What I would like to do is look at a document. You 7 should have it in hard copy in front of you, but it will 8 also be shown on the screen to your right. The 9 reference is TRI00000149_C. I hope that's the same 10 document you have both in hard copy and on screen? 11 A. It is, yes. 12 Q. You recognise that as the transcript of an interview 13 that you gave to the Inquiry solicitors? 14 A. I could. 15 Q. On the hard copy at least the final page should be 16 signed by you. 17 A. It is. 18 Q. Are you content that the answers you gave there be 19 treated as your evidence for the purposes of this 20 Inquiry? 21 A. I am satisfied. 22 Q. Thank you. 23 I do want to ask you other questions, mostly 24 elaboration of matters contained in your statement. 25 Perhaps at the outset I would like to say if you 4 1 could do this all again, go back to 2007, what would you 2 do differently in relation to the tram project? 3 A. In my opinion, the Government took decisions which were 4 commensurate with the decision taken by Parliament in 5 June 2007, very shortly after I became a Minister, and 6 the Government acted to implement those decisions as 7 effectively as we could. 8 Clearly, and the timeline of this case demonstrates 9 this, there is a tremendous amount of interaction to try 10 to ensure the project was completed, and completed in an 11 acceptable fashion. 12 It would be desirable if some of those transactions 13 could have taken place in a shorter timescale so that 14 the overall timescale of the project could have been 15 more limited, but I think, as I look at the course of 16 events, the -- the different steps that we took in 17 a sense, took the time they took to reach the 18 conclusions that we came to. 19 Q. I may not have made my question clear enough. 20 What I'm interested in is what would you have done 21 differently, if you could do it over again? 22 A. I'm satisfied the actions I took were appropriate for 23 the office I held. 24 Q. Are you saying you would do absolutely nothing 25 differently if you did it again? 5 1 A. I would take the same view as I took on the issues that 2 I wrestled with. There may have been minor 3 transactional points that we might have undertaken 4 differently, but on the strategic decisions that I took, 5 I'm satisfied with the decisions that I took. 6 Q. What do you mean by minor transactional points? 7 A. There may have been issues that we could have expedited 8 more quickly. 9 Q. Such as? 10 A. I would be speculating about what they might be. 11 Q. But you can't give me any example of something you might 12 have done differently? 13 A. Well, there may well have been individual decisions 14 where we gave something two months to get a response 15 from as part -- from the project delivery organisation, 16 where we perhaps should have given it one month, but we 17 were working in an environment where we were trying to 18 work collaboratively to deliver a difficult project. 19 Q. Other than these minor transactional matters which we 20 can't specify, should we take it that you are happy with 21 everything that was done and would do it the same way 22 again if the situation arose? 23 A. That would be my view, yes. 24 Q. Have you asked for any exercise to be carried out within 25 Government, either Transport Scotland or within the 6 1 Government itself, to consider what lessons might have 2 been learned for the tram Inquiry? 3 A. Obviously one of our key decisions was to establish the 4 Tram Inquiry, and I think it would be prudent for us to 5 wait till we hear the outcome of the Tram Inquiry before 6 we make those deliberations. 7 Q. Have you carried out any consideration of what might 8 have been done differently within Government? 9 A. I would say that in our running of major projects, we 10 are -- we take account of the issues that have affected 11 a number of projects at different stages, and worked to 12 ensure that projects are delivered effectively, and of 13 course we see the fruits of that with a range of 14 strategic projects that are delivered efficiently, 15 within budget, on timescale; and I would venture to 16 suggest that those achievements are a product of our 17 reflecting on some of the lessons that arise out of the 18 tram process, but obviously we will await the Tram 19 Inquiry and its conclusions before we take any further 20 steps in that respect. 21 Q. The Inquiry is trying to obviously consider everything 22 that's happened, and it would be interesting if you 23 already have in mind any lessons that have been learned 24 from the tram project, what those lessons are? 25 A. I think the issues that really matter to me are about 7 1 clarity of leadership and who is responsible for leading 2 projects and how they are led, about clarity of 3 contractual terms, which are vital in structuring the 4 relationship between those leading projects and those 5 delivering projects, either internally or by contracting 6 organisations, and by ensuring that we have in place all 7 of the necessary processes to make sure projects are 8 well managed. 9 Q. When you say processes to make sure they're well 10 managed, what are you referring to there? 11 A. The -- well, in a sense that's a catch-all for a number 12 of things around project leadership, around the clarity 13 of contractual terms, about expectations around budgets 14 and finance, and the methods of effective resolution of 15 issues that might be in dispute. 16 Q. Right. Now, you refer to the contract terms and 17 leadership in your statement, and I may come back to 18 those. I would like to move on for the moment to look 19 at the position back in 2007 when your party formed the 20 Government for the first time following the Scottish 21 General Election. 22 The SNP had been very clear in their manifesto 23 commitments that they did not intend at that time to 24 proceed with the Edinburgh Tram Project. 25 A. That's correct. 8 1 Q. Because of that, this led to a vote in Parliament, where 2 ultimately it was decided -- that Parliament decided 3 that you should proceed with the tram project? 4 A. That is correct. 5 Q. In that regard, could we just look at the transcript of 6 proceedings in Parliament. It is document reference 7 SCP00000030. You can see this is a transcript of the 8 parliamentary proceedings for 27 June 2007. I don't 9 know if you recall that was the date on which the vote 10 was taken? 11 A. I do. 12 Q. Could we look, please, at page 36 within this document. 13 We'll just go straight to the decision. You can see the 14 heading, "Decision time". It notes that the Presiding 15 Officer said: 16 "... there are five questions to be put as a result 17 of today's business. The first question is that 18 amendment ..." 19 And the reference is given in the name of 20 Wendy Alexander: 21 "... which seeks to amend motion [reference given in 22 your name] on transport be agreed to. Are we agreed?" 23 If we look over the page to 37, we can see about a 24 short way down on the left-hand column, that that 25 amendment was ultimately agreed to on a vote. 9 1 A. That is correct, yes. 2 Q. Then the question was -- a vote was then taken on the 3 motion as amended. If we go over the page again to 4 page 38, if we enlarge it, the upper half, we can see 5 again following the vote, the motion was agreed to. But 6 what was resolved is that the Parliament notes that the 7 Edinburgh Tram Project and EARL were approved by the 8 Parliament after detailed scrutiny: 9 "... further notes the report of the Auditor General 10 for Scotland on these projects and, in light thereof, 11 calls on the Scottish Government to proceed with the 12 Edinburgh Trams project within the budget limit set by 13 the previous administration, noting that it is the 14 responsibility of Transport Initiatives Edinburgh and 15 the City of Edinburgh Council to meet the balance of 16 funding costs." 17 Then it goes on, the remainder of it, to consider 18 EARL. You will recall that? 19 A. I do, yes. 20 Q. So the clear guidance of Parliament was effectively 21 a mandate for the Scottish Government to proceed with 22 the project? 23 A. Yes. But when we come to later in the parliamentary 24 record, it will be a couple of pages on, I give 25 a reaction to that in the form of a point of order. 10 1 Q. I was just about to turn to that. If we look to 2 page 39, so we can see what you said in response to 3 that. 4 A. My reference to that is material to being able to answer 5 your question. 6 Q. Of course. If we enlarge that. Is that -- we can see 7 in the right-hand column there, what you're referring 8 to? 9 A. That is what I'm referring to. 10 Q. Is there any particular passage you would like to draw 11 attention to? 12 A. The first part of it, essentially, where I'm quoting 13 from the letter from the former First Minister, 14 Mr Dewar, to my colleague, Bruce Crawford on 4 October 15 because it's material to answering your question about 16 a mandate to Parliament that -- Parliament was passing 17 a resolution, and as Mr Dewar had made clear in his 18 letter to my colleague, Mr Crawford, when Parliament 19 passes a resolution, that is not binding on the 20 Government. It's only when legislation is passed that 21 it's binding on Government. 22 So the question of a -- I think the question you 23 used was -- the word you used was a mandate to 24 Parliament. I think I might quibble with that word. 25 Parliament was expressing its view, certainly. I accept 11 1 that. But in the form of a resolution, Parliament does 2 not have the power to direct the Government in the 3 fashion expressed by Mr Dewar in October 1999. 4 Obviously the Parliament had legislated for the 5 Edinburgh tramlink. 6 Q. Of course? 7 A. And Edinburgh Airport rail link. What the Government 8 was trying to do was to essentially not enact that 9 proposal, which was a consequence of the outcome of the 10 election in May of that year. 11 Q. What you said in response to that, we can see on the 12 paragraph, if I read from the fourth line of the 13 following paragraph: 14 "Mindful of the extent to which those projects are 15 committed and of the level of public expenditure that 16 has already been committed to the trams project, 17 I confirm to Parliament that the Government will accept 18 and implement the provisions in the resolution that has 19 been agreed by Parliament in relation to the 20 Edinburgh Trams project." 21 That was your position, that the trams project would 22 proceed? 23 A. Yes. 24 Q. Perhaps more accurately, that the Government would 25 provide the funding that it had promised for the 12 1 project? 2 A. Yes. 3 Q. Now, that must have been a frustrating situation for 4 you, you having expressed the view that that money could 5 be better spent elsewhere? 6 A. It was very frustrating. 7 Q. What I want to look is what happened following that. 8 The first thing I would like to look at is a document 9 with reference TRS00031280. If you can enlarge it and 10 we will look at the lower half of the screen and take it 11 in chronological order. 12 We can see that the first email, dated 2 July there, 13 it's been sent on your behalf. It's been sent to the 14 Permanent Secretary at Transport Scotland. 15 It notes: 16 "Mr Swinney is looking for advice from 17 Transport Scotland in time for his return next week 18 around how we take forward Parliament's view on the EARL 19 project. Mr Swinney is minded to meet BAA and 20 Network Rail separately in order to ascertain their 21 position. Is this worth pursuing and how would it fit 22 into the overall process? As part of that overall 23 process, it would be helpful to have a description of 24 the alternatives available. For example, how does the 25 Trams scheme now fit into this changed picture. 13 1 It would also be helpful to have advice on the 2 consequences for the Government of consequentials such 3 as redundancies in tie. Please see attached a letter 4 received late on Friday from tie." 5 You will see that. 6 A. I see that, yes. 7 Q. I don't think I noted the date when I read through this. 8 This was dated 2 July 2007, a week or so after the 9 parliamentary vote? 10 A. Yes. 11 Q. Do you recall saying you wanted some advice on how to 12 take forward Parliament's view on the EARL project? 13 A. I did, yes. 14 Q. If you look to the top of the screen to see what happens 15 with that, you can see it was allocated within 16 Transport Scotland to request that a briefing be 17 provided -- thank you -- by noon on Friday, 6 July. 18 A. Yes. 19 Q. If we can just see what -- a response to that. 20 If you could go to document reference TRS00004532. 21 TRS00004523. My apologies. 22 We can see this is an Advice to Ministers from 23 Malcolm Reed, the Chief Executive of Transport Scotland, 24 and addressed to you; do you see that? 25 A. I see that, yes. 14 1 Q. The purpose is noted as being: 2 "... to provide you with advice on taking forward 3 Parliament's view on the EARL project in response to the 4 email request from your office on 2 July 2007." 5 That's the one we've seen: 6 "Because of your undertaking to Parliament that 7 alternatives to EARL would also be explored, I am also 8 setting out proposals in respect of that work, and 9 additionally, commenting on future roles in relation to 10 the Edinburgh Tram project in the light of the position 11 reached in Parliament." 12 Now, that last part, you'd asked for advice on where 13 matters were stood with EARL and how that might affect 14 the tram. You hadn't actually asked for any advice on 15 the management or governance of the tram project. Did 16 you later ask for that in a different channel so that it 17 be included in this note? 18 A. Well, I probably would have asked for that in my 19 conversations with the Chief Executive of 20 Transport Scotland in the aftermath of the parliamentary 21 vote. 22 Q. If we go to the following page then, page 2, and we 23 highlight paragraphs 9 and 10, in relation to the EARL 24 question, paragraph 9 notes: 25 "The email of 2 July asked how Tram might fit into 15 1 the alternatives available to the EARL project. Our 2 understanding is that, without EARL, the Business Case 3 for the Edinburgh Tram scheme may be strengthened and we 4 have also noted the possibility for the Tram to provide 5 links to the airport from the rail network which will be 6 explored further in the replacement study." 7 Paragraph 10 says: 8 "The Parliamentary decision on the Tram scheme has 9 clarified the position in relation to future risk- 10 bearing and governance in relation to this project, with 11 responsibility now clearly lying with tie Limited and 12 City of Edinburgh Council. This is discussed further in 13 Annex C." 14 Just dealing with that last paragraph, when it talks 15 about the position in relation to future risk bearing, 16 was the idea that the limit of the Scottish Government 17 expenditure was to be GBP500 million and everything else 18 funded by City of Edinburgh? 19 A. Correct, yes. 20 Q. Prior to that vote, were you aware the position of the 21 Government had always been that they would provide up to 22 GBP500 million, there being no question of providing any 23 additional money? 24 A. Yes. But if you go back into the parliamentary record 25 of that debate, you will see a speech by the late 16 1 David McLetchie, and in that speech, Mr McLetchie makes 2 the point that the financial cap on the project was, if 3 I recall the numbers correctly, GBP375 million indexed. 4 Q. Mm-hm. 5 A. But Mr McLetchie's point was that that was for the line 6 to go all the way to Granton, and then also to come on 7 what was called phase 1b, which comes up from Granton 8 into Roseburn, and by that time -- by the time we had 9 reached here, in 2007, Mr McLetchie's point in the 10 debate was that that phase 1b, which is the bit from 11 Granton to Roseburn, was not actually proposed to be 12 undertaken. And his argument was: we can't keep on 13 saying it's GBP375 million index linked, which 14 translates into the GBP500 million, and accept the 15 diminution of what that buys. 16 So his argument was: we need to be very clear that 17 we're only paying GBP500 million. We're not paying 18 anything more to get less or anything more to get the 19 same. 20 I was mindful -- I certainly took from that the very 21 clear inference that even amongst people who were 22 supporting the tram project, which Mr McLetchie and his 23 party were, there was concern that there might be drift 24 in the cost from what was originally proposed and 25 budgeted for by Parliament. 17 1 So I think Dr Reed's reflection in paragraph 10 is 2 an accurate summary of the mood at that time that there 3 had to be absolute clarity about the level to which the 4 Scottish public purse under the control of the 5 Government would be funding this project. 6 Q. But were you aware that there had been a number of 7 statements prior to June 2007, making it quite plain 8 there would be no increase on the 375 plus indexation? 9 That was fixed? 10 A. Yes, I was aware of those things, but I'm also -- I'd 11 been around long enough to know that people come back 12 asking for more on projects. 13 Q. So really what you were doing in the debate, and that 14 Parliament had done, was just to make it plain, or to 15 reiterate, that a line was being drawn? 16 A. Yes. 17 Q. But it would have been open, had you wanted to, for you 18 to have given additional money at any time to the tram 19 project? 20 A. I would have had to go back to Parliament, but 21 conceivably, yes. 22 Q. So in terms of the risk that deals with whether or not 23 there was any change, but looking back to paragraph 10, 24 it also said: 25 "The Parliamentary decision ... clarified the 18 1 position in relation to ... governance." 2 In what way did the resolution of Parliament clarify 3 the governance position? 4 A. I think what it made expressly clear is that this was 5 a project that was in the ownership of the City of 6 Edinburgh Council, and that my interpretation of the 7 resolution of Parliament was the acceptance of that 8 point and the fact that tie Ltd were commissioned by the 9 City of Edinburgh Council to deliver the project on 10 their behalf. 11 Q. But if we go back to the resolution, SCP00000030. On 12 page 36, the resolution we were looking at before, if 13 you go forward to 38, where we actually see the 14 resolution itself, if we could highlight -- scroll down 15 a little. Under the word "Resolved" there on the 16 left-hand side, we can actually see once again what 17 I read out earlier. There's absolutely nothing resolved 18 by Parliament about governance, is there? 19 A. Other than the fact that I think it makes it very clear, 20 and it's actually -- it was always clear, that the City 21 of Edinburgh Council were the owners of the project. 22 Q. As you say, that had always been clear. They were the 23 promoters? 24 A. Yes. 25 Q. But the resolution doesn't deal with governance at all? 19 1 A. But the -- I think it makes the point that the City of 2 Edinburgh Council are the leaders of the project. 3 Q. The resolution doesn't deal with governance at all, does 4 it, Mr Swinney? 5 A. Well, I think the inference of this is that the issues 6 of leadership are clearly vested within the City of 7 Edinburgh Council, and by consequence their delivery 8 agent, Transport Initiatives Edinburgh. 9 Q. How do you infer that from that motion? 10 A. Because the reference specifically to the 11 responsibilities on the City of Edinburgh Council and 12 Transport Initiatives Edinburgh. 13 Q. Let's be quite clear. Looking under subparagraph (a), 14 the first part is a call on the Scottish Government to 15 proceed with the budget, but it imposes the budget 16 limits set by the previous administration. That's quite 17 clear, that's a direction to the Scottish Government 18 effectively, isn't it, or it couldn't mandate them, but 19 it's advisory? 20 A. It's the view of Parliament. 21 Q. But it's aimed, if I put this way, at the Scottish 22 Government? 23 A. Yes. 24 Q. It expresses the limit on the previous administration, 25 which was the GBP375 million to be indexed? 20 1 A. Yes. 2 Q. What it makes very plain is that the money over and 3 above that will be coming from Transport Initiatives 4 Edinburgh and the City of Edinburgh Council, doesn't it? 5 A. But it puts the City of Edinburgh Council firmly in 6 the -- the frame of responsibility for meeting the 7 balance of the costs and -- 8 Q. But it says nothing about governance and any role of 9 Scottish Government -- 10 A. Well, I think the reference to the City of Edinburgh 11 Council and to Transport Initiatives Edinburgh very 12 clearly expresses where the leadership of where the 13 project is coming from. 14 Q. You consider you get that from that statement there? 15 A. That's what I get from that. 16 CHAIR OF THE INQUIRY: Can I clarify a point, Mr Swinney. 17 You told us that in accordance with the letter from the 18 late Donald Dewar, the Government wasn't bound by the 19 resolution of Parliament on this occasion. So first of 20 all, the decision to follow that would be a political 21 one, taking into account the fact that you were 22 a minority government. That would be one of the factors 23 at least that were taken into account. 24 Then later on you said that if you had wanted to 25 spend more than GBP500 million, you would have had to 21 1 have gone back to Parliament. What's the basis for 2 that -- do you want to clarify -- 3 A. Well, you're correct, my Lord, that the decision to 4 proceed and to accept the will of Parliament was 5 a political decision taken by us at that time, because 6 we'd been six weeks in office and we felt that it was 7 clear we weren't going to change Parliament's mind on 8 this issue. And we were concerned that had we not 9 acceded to the will of Parliament, there may have been 10 some possibility that the administration would have come 11 under some challenge to its continuation in office, and 12 we obviously wanted to avoid that. I didn't want -- the 13 first SNP Government in 70 years to be curtailed on the 14 basis of a trams project. 15 My comment in relation to the need to go back to 16 Parliament for further -- if we wanted to spend more 17 money would have been a political decision, but I would 18 have gone back there out of my obligation to Parliament 19 to be open and transparent and accountable to Parliament 20 about the fact that we were going to -- if we were going 21 to do that, we were going to break a commitment that had 22 been made to Parliament, and which Parliament had made 23 pretty clear in the debate it didn't want to see any 24 more money being spent on the project. 25 I suppose finally, my Lord, we would obviously in 22 1 a budget process have had to have gone back to 2 Parliament routinely to make the financial provision in 3 law, to enable us to spend more than the GBP500 million 4 on this project that we had committed to spend. 5 CHAIR OF THE INQUIRY: Thank you. Mr Lake? 6 MR LAKE: My Lord, we see reference in paragraph 10 there, 7 if we go back to that on screen, sorry, the document 8 ending 4523, it refers to something being considered: 9 The position is discussed further in Annex C. 10 Look at that, please. I think it will be on page 7. 11 This deals first of all the question we can see from 12 the heading, "Funding". 13 If we scroll down the page, we can see there's 14 a paragraph saying: 15 "The latest statements present the following 16 possible interpretations." 17 There's various options of how the grant is to be 18 paid and how it could be capped. We can see that the 19 third option is: 20 "GBP375 million recalculated on the new baseline 21 programme for 1a to be delivered at the July Tram 22 Project Board. This programme is anticipated to present 23 a degree of delay and therefore the current estimate of 24 GBP492 million will rise to circa GBP500 million with an 25 option to cap at that point or not." 23 1 I refer to that because if we go over the page, do 2 we see that the recommendation that was made to you is 3 that: 4 "We believe Option 3 provides the most explainable, 5 defendable, professional and fair position to adopt 6 whilst maintaining a cap of GBP500 million on the 7 Executive's final contribution to the scheme." 8 A. Yes. 9 Q. That was what was ultimately implemented, wasn't it? 10 A. Correct. 11 Q. Under the heading, then, "Future Governance and the Role 12 of Transport Scotland", paragraph 1 says: 13 "The Parliament's decision places the risk of any 14 cost overruns to the Tram Scheme with the City of 15 Edinburgh Council." 16 I think that's quite clear from the bit of the 17 motion we've looked at. Would you agree? 18 A. Yes. 19 Q. It goes on to say: 20 "It [that's the decision] makes it clear that 21 responsibility for managing and delivering the scheme 22 rests with the promoter." 23 Again, did you think that's what the motion said? 24 A. Well, yes. But I think also the responsibility for 25 managing and delivering the scheme always rested with 24 1 the promoter. 2 Q. So in fact the parliamentary decision has made no 3 difference at all in that regard? 4 A. Other than the fact that it clarified very visibly in 5 a parliamentary debate the significance of the role of 6 the City of Edinburgh Council. 7 Q. I'm not sure I understand, in what way did it clarify 8 the role of the City of Edinburgh Council? 9 A. Simply by the reference to the City of Edinburgh Council 10 within the motion, within the amendment to the motion, 11 which was subsequently carried. 12 Q. City of Edinburgh Council would have to pay cost 13 overruns? 14 A. Yes, but the City of Edinburgh Council were and always 15 had been the promoter of the project. 16 Q. Exactly. So they were always the person that was going 17 to be involved in delivering the project? 18 A. Well, not involved. Responsible for the delivery of the 19 project. 20 Q. That had always been the position? 21 A. Correct. 22 Q. That didn't change when the vote was taken in June 2007? 23 A. Correct. 24 Q. So if we look at paragraph 2, it says: 25 "To achieve this clarity of roles, and ensure that 25 1 situations could not arise subsequently in the 2 governance of the project which might generate further 3 calls on central funding, I propose that 4 Transport Scotland's future engagement with the 5 Edinburgh Tram Project should be on the basis of revised 6 grant conditions and once these conditions are in place 7 Transport Scotland staff should withdraw from the active 8 participation in the governance of this project." 9 Now, if the responsibility for delivering the scheme 10 hadn't changed, why should there suddenly be a change 11 taking Transport Scotland out of the picture? 12 A. Because we were moving into a phase where the project 13 was actively going to be delivered, and one of the 14 issues about which I would have been concerned and had 15 discussed with Dr Reed was the importance of there being 16 absolute clarity about who was responsible for project 17 delivery. 18 And the arrangements that we inherited were that the 19 City of Edinburgh Council were the promoter, and the 20 promoter had resolved that tie would deliver the project 21 on their behalf. 22 I felt, given the experience that I had observed in 23 the position about other projects, where there was 24 uncertainty about leadership, and competing approaches 25 to delivery, that it was essential, as we embarked on 26 1 this project, that there was absolute clarity about 2 where leadership lay and where operational 3 responsibility lay. And it is for that reason that we 4 sought to clarify that the City of Edinburgh Council 5 were the promoters, that tie were delivering the 6 project, and that Transport Scotland would put in place 7 grant conditions which governed -- the management of the 8 public finances on the Scottish budget that were being 9 allocated to this project were very clearly tabulated to 10 enable them to be delivered in -- in accordance with the 11 development and delivery of the project. 12 Q. When you refer to other projects in your statement, you 13 mentioned the Holyrood -- the Parliament building? 14 A. Yes. 15 Q. And the Stirling-Alloa-Kincardine railway. Were you 16 thinking of any others? 17 A. I think these were the two principal projects that I had 18 in mind. 19 Q. I'll come back to those in a little while. But in terms 20 of coming to the phase of delivery, that was always 21 going to be part of a phase of the tram project. It was 22 intended it should be delivered? 23 A. Of course, yes. 24 Q. Up to that time Transport Scotland had been involved in 25 issues of governance because they sat on -- they had 27 1 a representative on the Tram Project Board? 2 A. But the delivery phase is different from the project 3 formulation and promotion stage. Because the delivery 4 stage involves very detailed operational interactions 5 with a range of different contractors with the 6 possibility of -- where in my observation, if there was 7 any room for uncertainty about where responsibility lay, 8 that that uncertainty would be exploited by others. 9 Q. We will come back to that. What I want to be clear 10 about, we're agreed that Transport Scotland had been 11 involved up until this time? 12 A. They had been, yes. 13 Q. It was always envisaged that around about 2007 things 14 would be moving to a delivery phase? 15 A. That's correct, yes. 16 Q. But there had been no suggestion prior to this time that 17 Transport Scotland would stand back as that phase was 18 being reached? 19 A. I think you have to take into account -- 20 Q. Could you answer the question. Had there been any 21 stage -- 22 A. Well, I don't know because I wasn't a Minister before 23 2007. 24 Q. Were you not given briefings on these matters when you 25 became a Minister? 28 1 A. Well, these are issues about which -- whether there had 2 been discussion about that, I would not have been privy 3 to that because that would be in information in the 4 possession of the previous government. 5 Q. If you considered what the role of Transport Scotland 6 would be, were you told whether or not it was already 7 intended that Transport Scotland would be drawn back 8 from governance? 9 A. I was not told that, no. That was my decision. 10 Q. It was your decision because up to that time it was 11 intended that they would remain involved in governance? 12 A. It was my decision -- 13 Q. Could you answer my question? 14 A. Well, my decision was based on the factors that -- 15 Q. I'm not interested in what your decision was based on, 16 with respect, Mr Swinney. I want you to answer my 17 question, which was: until you took your decision, it 18 was intended that Transport Scotland would remain 19 involved; and you were aware of that? 20 A. I was aware of that, yes. 21 Q. Now, looking at the reasons for that decision, the 22 reasons stated here are said to be to achieve the 23 clarity of roles, and that role is to be that the City 24 of Edinburgh Council are responsible for managing and 25 delivering the scheme. 29 1 A. Correct. 2 Q. Now, that had always been the position that City of 3 Edinburgh had that role. Nothing had changed? 4 A. That's correct. 5 Q. The other reason that is stated here quite expressly is 6 that there was a desire to avoid anything in the 7 Government's project which might generate further calls 8 on central funding. How big a factor was that in 9 considerations? 10 A. A significant factor. 11 Q. Was it in fact the motivating factor to ensure that 12 Transport Scotland were far enough away that they 13 wouldn't get sucked into demands for more money? 14 A. There were two factors in my mind. One was that factor, 15 and another was that the lessons that I had deduced from 16 observing other capital projects was that where there 17 was uncertainty about where leadership and operational 18 delivery responsibility lay, there was the opportunity 19 for projects to get into difficulty. 20 Q. You see, that's not a reason that's put forward in this 21 advice to you, is it? 22 A. Well, I didn't write this advice. 23 Q. It's not a reason that's put forward by you in writing 24 any time up to the time that Transport Scotland are 25 withdrawn from the project, is it? 30 1 A. Well, it's -- it's the opinion that I held about why 2 this was the case. 3 Q. Is it not surprising then that there's not a single 4 written record of that being the basis for the decision, 5 when we've got all sorts of other reasons put forward? 6 A. Well, it's part of the rationale that was in my 7 consideration as to why that was the case. Whether 8 people chose to write it down or not is -- is a matter 9 for the different individuals that write down the 10 different points that I raise, but it was certainly 11 uppermost in my mind. 12 Q. Is part of good government not making sure that you 13 record the basis on which decisions are taken? 14 A. Just -- 15 Q. Is that not at the heart of good governance, is 16 recording why decisions are taken? 17 A. Yes, and -- 18 Q. So why did you not record the basis on which this 19 decision was taken, that you're now offering to this 20 Inquiry? 21 A. Well, I considered that to be -- if you look at the -- 22 Q. The question is why did you not record that reason -- 23 A. But you have to look at these things in the context of 24 what we're setting out. If you look at the 25 parliamentary record, issues about management of the 31 1 project would be very much part of what I was expressing 2 at that time. So these factors would be on the official 3 record of how we were handling -- what were -- what was 4 in our mind as we took forward these issues. 5 Q. Are you saying there is a record of you saying that the 6 basis for the decision was your concerns as to Holyrood 7 or Stirling-Alloa-Kincardine? 8 A. I'm saying that the issues about management of capital 9 projects would be very much in our thinking and in 10 our -- the words that we used about this. 11 Q. We will come to Stirling-Alloa-Kincardine and the 12 Parliament in a little while. At the moment we will 13 carry on looking at some of the emails that passed at 14 the time. 15 CHAIR OF THE INQUIRY: Before we do that, could I just ask 16 a question. You said that the delivery phase of 17 a project is different from the project and formulation 18 stage. Where does the conclusion of the contract lie in 19 that analysis? 20 A. Within -- I would say it emerges within -- well, there 21 are of course different contracts at stake here, but 22 I certainly would see the delivery phase being 23 responsible for the formulation of the contracts that 24 would be yet to be ascribed in the project. 25 CHAIR OF THE INQUIRY: Thank you. 32 1 MR LAKE: Could we keep up on screen, please, the document 2 ended 4523, the last part we were just looking at. 3 I think it was the following page. Just where we left 4 off. Just to keep our bearings. 5 Now, that advice that you were given there by the 6 Chief Executive of Transport Scotland, I think is it 7 fair to say you had indicated in advance to him what 8 advice you wanted, because you already knew what you 9 wanted to do? 10 A. I had a reasonable idea in my mind what I wanted, yes. 11 Q. So if you look at another document, TRS00011413, and if 12 we look -- this is an email from -- look at the second 13 one on the page. This is from Ainslie McLaughlin. 14 Scroll down a little bit, please. Scroll down to look 15 at the top of the page. 16 It's an email from Ainslie McLaughlin to 17 David Middleton, both within Transport Scotland, dated 18 1 December 2010. When asked about this matter he said: 19 "My recollection at the time was that Ministers 20 wanted to take what was described as a light touch. 21 Malcolm [Reed] put a note up recommending approach to 22 take to meet that expectation ... 23 I think it would be fair to say our assessment of 24 the project at the time was much as the same as AS 25 [Audit Scotland]." 33 1 Is that what happened, you described what you wanted 2 to do, and therefore you asked the civil servants to 3 provide you with a justification for that? 4 A. What I would have set out was my view of the role that 5 I wanted to see Transport Scotland performing. I would 6 not have used the term "light touch". 7 Q. So what role did you want Transport Scotland to perform? 8 A. I wanted Transport Scotland to monitor the effectiveness 9 of the -- the effectiveness and appropriateness of the 10 use of public finance in accordance with their 11 responsibilities in that respect for the GBP500 million, 12 and I wanted them to put in place a reporting 13 arrangement that would enable them to do that, but 14 I wanted the operational -- I wanted the leadership of 15 the project to be clearly vested within the City of 16 Edinburgh Council and I wanted the operational delivery 17 of the project to be clearly the responsibility of the 18 City Council, who had decided it should be undertaken by 19 tie. 20 Q. Did you have any input at that time as to what the 21 conditions for the grant would be? 22 A. The approach that would have been taken that led to the 23 formulation of the -- the writing of those reporting 24 approaches, I would -- you know, I would imagine I would 25 have had input into those, but in terms of the 34 1 conditions of grant, the conditions of grant were 2 essentially prescribed by the points we deduced from the 3 parliamentary vote. 4 Q. But in terms of deciding whether or not to proceed, 5 whether or not to advance the grant monies, and what 6 Edinburgh would have to do to satisfy Transport Scotland 7 they should get the grant money, did you provide input 8 into that? 9 A. That would be essentially determined by the requirements 10 of the Scottish Public Finance Manual. So it would not 11 be something that I would -- that I would tailor to this 12 particular project. There would be requirements of the 13 Scottish Public Finance Manual that would have to be 14 met. 15 Q. I would like to look at another document, please. It's 16 TRS00004536. 17 If we look at the lower half of the page, please. 18 We will see again this is sent on your behalf. I think 19 last time I said it was Permanent Secretary of 20 Transport Scotland. It's been pointed out to me it 21 should have been the Private Secretary of 22 Transport Scotland, dated 11 July 2007; do you see that? 23 A. Yes. 24 Q. It says in relation to EARL and Edinburgh Trams, next 25 steps: 35 1 "Thank you for your minute of 9 July regarding the 2 above. I have noted Mr Swinney's comments below." 3 In relation to the tram project, it's noted: 4 "Mr Swinney agrees with the approach outlined in 5 Option 3 (annex C of the minute) as the cap on Trams and 6 he also agrees that Transport Scotland should 'scale 7 back' its direct involvement with this project." 8 Do you recall that decision? 9 A. Yes. 10 Q. If we look at the top of this email, you can see it was 11 forwarded on by Jerry Morrissey within 12 Transport Scotland to several of his colleagues, 13 including John Ramsay, with a note saying: 14 "Can you please forward this email to your direct 15 reports. 16 "We need to define and agree 'scale back' for the 17 tram project." 18 Do you see that? 19 A. Yes. 20 Q. So it appears here what we have is a decision to scale 21 back Transport Scotland's involvement without any actual 22 concrete understanding of what that means. Would you 23 agree? 24 A. No. I wouldn't. 25 Q. Why are Transport Scotland going away now and trying to 36 1 determine what "scale back" means? 2 A. Because what I wanted Transport Scotland to do was to 3 establish an approach to the governance of the project 4 which enabled them to fulfil my expectations, which were 5 that the City of Edinburgh Council should be leading the 6 project, and they were responsible for delivery, and we 7 were principal funders of that project, with the 8 appropriate protections through the requirements of the 9 Scottish Public Finance Manual on the way in which the 10 resources that we were investing were to be utilised. 11 What followed from these transactions is further 12 transactions that culminate in a letter from 13 Dr Malcolm Reed to the City of Edinburgh Council 14 Chief Executive on 2 August 2007, which set out the 15 basis for that relationship. 16 Q. We will come to that. 17 You say you want to be clear as to the delivery and 18 funding. The funding position in terms of the role of 19 Scottish Government was clear that they were providing 20 a grant under the Transport (Scotland) Act? 21 A. Correct. 22 Q. So it was always plain that their role was funder. Not 23 entirely funder. They were funding 91 per cent of the 24 project? 25 A. Yes. 37 1 Q. The role of the City of Edinburgh Council, you said, was 2 quite clear. They were in charge of delivery because 3 they were the promoter of the project, they had put the 4 Bill through Parliament? 5 A. Correct. 6 Q. That was the position prior to June 2007, which I think 7 we have agreed? 8 A. I have. 9 Q. So what was it that you wanted to change? 10 A. I wanted to make sure that there was no possibility that 11 Transport Scotland would get into a position -- or where 12 there would be any uncertainty about where operational 13 responsibility for the project lay. 14 Q. Now -- 15 A. This was a City of Edinburgh Council project, and 16 I wanted to make it absolutely clear that was the case. 17 Q. In what way did you consider there was a danger that 18 Transport Scotland might get into the position where 19 there would be uncertainty about where operational 20 responsibility lay? 21 A. Because frequently issues that are the proper 22 responsibility of other organisations get presented as 23 the responsibility of the Government, for which the 24 Government has no operational control to deliver. 25 Q. But this -- everyone seemed to be clear that this was an 38 1 Edinburgh project. The established role of 2 Transport Scotland would be that they would have to give 3 approval before the whole project went ahead, and then 4 they had a seat on the Tram Project Board. That was the 5 position, wasn't it? 6 A. I think if you look at the parliamentary transactions on 7 a whole host of different issues, the Government is very 8 regularly presented with calls for it to do certain 9 things that are the proper responsibility of other 10 people. And I could see there being significant dangers 11 of that being the case in this respect, on the trams 12 project. So I wanted it to be absolutely crystal clear 13 that the City of Edinburgh Council were the owners of 14 this project, and responsible for the delivery of this 15 project. 16 Q. In what way was that unclear, Mr Swinney? 17 A. I was simply applying my political judgement in my 18 experience of seeing how issues are presented to 19 Government, which are not the proper responsibility of 20 Government when they are in fact the proper 21 responsibility of other organisations, and I wanted to 22 make sure there was a crystal clear understanding of 23 that point on an ongoing basis. 24 Q. You have said that a few times. I'm trying to just 25 clarify for the purposes of the Inquiry really what it 39 1 means. 2 What was going to happen whereby issues would be 3 presented as the responsibility of central government, 4 when they should be the responsibility of other 5 organisations? Can you illustrate it for me? 6 A. Just, when the project -- if the project got into some 7 difficulties, I did not want the Government to be 8 explaining those difficulties when it was properly the 9 responsibility of the City Council to explain those 10 difficulties. 11 Q. What in the governance arrangements pre June 2007 would 12 have meant it was the Government's responsibility to 13 explain? 14 A. The involvement of Transport Scotland and the Tram 15 Project Board. 16 Q. Someone sitting on the Board would be enough to bring 17 that -- in your view? 18 A. In my view. 19 Q. What about Scottish Government evaluating the benefits 20 that would flow from the project before giving the final 21 go-ahead? Was that going to cause that problem? 22 A. I think the -- by this stage all of that had essentially 23 passed because Parliament had legislated for the project 24 in its -- through its consideration of the legislation, 25 and Parliament had also passed the resolution, which, 40 1 subject to the caveats I have already put around about 2 the Government accepting motions that are passed in 3 Parliament against its will, Parliament had quite 4 clearly encouraged, supported the development of the 5 project. 6 Q. The Act had been passed, the Acts had been passed to 7 make the project possible. There was a decision to go 8 ahead from the City Council. But there still needed to 9 be a final decision by the Scottish Government to make 10 available the grant funding under the 11 Transport (Scotland) Act. That was the position, wasn't 12 it? 13 A. I think that decision was taken on 27 June 2007, to all 14 reasonable observations. 15 Q. So did you -- just to be clear about this, you regarded 16 the Scottish Parliament as binding the hands of the 17 Scottish Government to make available a grant? 18 A. Well, I've gone through -- forgive me, my Lord, if 19 I rehearse some of these caveats, but subject to the 20 terms of the late Donald Dewar's letter to my colleague, 21 Bruce Crawford, where the Government is not obliged to 22 accept every motion of Parliament, on this occasion the 23 Government had decided in my comments to Parliament at 24 the close of the business on 27 June that we would 25 accept the view of Parliament. 41 1 So that was the point at which in my mind any 2 uncertainty about the trams project going ahead was 3 removed, and up until that moment -- well, perhaps there 4 was uncertainty from early May until June 2007, but up 5 until early May 2007, the tram project was proceeding. 6 Q. Could we look, please, at the letters to do with the 7 grant then. Could we go to one which is TRS00004113. 8 You can see this is a letter that's dated 9 19 March 2007. So it's obviously before you took up 10 office. It's addressed to Andrew Holmes, the Director 11 of City Development at the City of Edinburgh Council, 12 and it comes from Transport Scotland. Do you see that? 13 A. Yes. 14 Q. It notes, if we scroll down a bit: 15 "In exercise of the powers contained in Section 70 16 of the Transport (Scotland) Act 2001, the Scottish 17 Ministers hereby offer to pay a grant to the City of 18 Edinburgh Council for the Edinburgh Tram Network. The 19 grant assistance offered shall be up to a maximum of 20 GBP60 million and must be used for utilities diversions, 21 advance works, continuing development and procurement 22 for Phase 1A of the Edinburgh Tram Network. 23 The grant is offered on the terms and conditions 24 contained in the schedule attached to this letter." 25 Do you see that? 42 1 A. I do. 2 Q. Were you aware that the limit of the grant available 3 when you came into office was this GBP60 million under 4 this letter, or were you made aware? 5 A. I can't recall if I was made aware of that. I would, 6 however, be aware that we were committed -- by that 7 stage, I think the advice I was given was that we were 8 committed to the tune of about GBP100 million, had been 9 allocated or spent on the project up until that time, 10 because that figure was in my mind as to what was 11 already committed to the process. 12 Q. Could we look at the conditions attached to this. It's 13 document reference TRS00004112. We can see under the 14 heading, we have got the Schedule of Terms and 15 Conditions relating to the Edinburgh Tram Network. 16 A. Yes. 17 Q. If we jump forward to page 5, we can see a heading, 18 "Project Management and Controls"? 19 A. Mm-hm. 20 Q. Underneath that we can see that one of the conditions 21 was that: 22 "The project governance arrangements shall be those 23 agreed at the Tram Project Board on 25 September 2006 24 and shall only be amended with the agreement of the 25 Scottish Ministers." 43 1 Do you see that? 2 A. I see it, yes. 3 Q. Now, having Transport Scotland have a say in project 4 governance, did that expose Scottish Government to risk? 5 A. Yes, because I think there would be the possibility of 6 Transport Scotland being involved in having to meet any 7 further issues or calls that may come in relation to the 8 project. 9 Q. Just from having a say in what the governance 10 arrangements would be? 11 A. I would have said so, yes. 12 Q. Really? Let's look at the following paragraph: 13 "The Council shall ensure that action plans for any 14 recommendations arising from project reviews (including 15 the Readiness Review and the Gateway Review) are agreed 16 and implemented unless otherwise agreed by the Scottish 17 Ministers. The Council shall ensure that tie has and 18 implements an action plan to ensure lessons from other 19 projects tie is involved in are applied to this 20 project." 21 Is that something that presented any risk to the 22 Ministers, to the Government? 23 A. No, these are the things that you would expect local 24 authority to be undertaking as part of their enactment 25 of the Scottish Public Finance Manual. 44 1 Q. We see the following paragraph: 2 "The Scottish Ministers have established the 3 following project hold points at which the Council and 4 the Scottish Ministers shall review whether the scheme 5 is continuing to meet its objectives and will determine 6 whether to continue to support the scheme development 7 and implementation. These points are based on key 8 elements of the Final Business Case clearly linked to 9 the likelihood of successful implementation and viable 10 operation of the Edinburgh Tram network." 11 If I jump down to the second bullet point, the first 12 hold point specified there is: 13 "On receipt of best and final offers from the 14 Infrastructure and Tram Vehicle suppliers where the 15 review shall consider likely affordability of the scheme 16 in the light of the funds available for implementation." 17 The next is: 18 "Before conclusion of negotiations with the 19 preferred bidders for Infrastructure and Tram Vehicle 20 supply a signed agreement shall be in place between the 21 Scottish Ministers and the Council covering all aspects 22 of project funding and risk allocation. A Gateway 23 Review 3 shall also be undertaken before the conclusion 24 of these negotiations." 25 Now, having a hold point at best and final offers 45 1 and another hold point at conclusion of negotiations, 2 did that expose the Scottish Government to risk? 3 A. I think what that -- what that, I think, doesn't take 4 into account is the vote of Parliament in June 2007. 5 Q. Do these hold points expose Scottish Government to risk? 6 A. They potentially might, because the second bullet point 7 makes reference to "where the review shall consider 8 likely affordability of the scheme in the light of the 9 funds available for implementation". That could expose 10 Scottish Ministers to risk, because the costs could have 11 come in significantly higher, and there could have been 12 a call on the Scottish Government to provide more money 13 for the project. So yes, that would be the case. 14 Q. But this would give the Scottish Government two 15 opportunities to examine all the data and say: no, this 16 project doesn't make sense anymore, it will cost too 17 much, it won't give benefit. That's correct, isn't it? 18 A. But it -- it would also expose the Government to the 19 possibility of having to make a -- take some action to 20 deal -- to address the issue of the comments in the 21 light of the funds available for implementation. 22 Q. Mr Swinney, this is a hold point. This is an ability of 23 the Scottish Government -- Scottish Ministers to 24 say: no, we're not giving you GBP500 million of grant 25 money; isn't it? 46 1 A. But my argument is you cannot view that in isolation 2 from the parliamentary decision that had been taken to 3 commit GBP500 million to the project and for the project 4 to proceed. Where we had quite clearly, in our actions 5 after May 2007, said: we do not want this project to 6 proceed; and Parliament essentially had said to us: we 7 want it to proceed, and we want to put GBP500 million 8 into the project; and I had accepted that point. 9 Q. Well, you'd indicated in your answer by reference to 10 Donald Dewar's letter, that Parliament didn't bind the 11 Government? 12 A. Yes. 13 Q. So the Government had a discretion to exercise; correct? 14 A. Yes, it did. 15 Q. The Government would be accountable for the half a 16 billion pounds of public money it was planning to spend? 17 A. Correct. 18 Q. Responsibly, it should consider that money was going to 19 be well spent and prudently spent? 20 A. Correct. 21 Q. If there are two hold points here, that is an 22 opportunity to look at it and say: we do not consider 23 that the project management systems are in sufficient 24 shape that we should commit this money. 25 A. There is another -- 47 1 Q. Could you answer the question? 2 A. Well, there's another factor that's relevant here. 3 Q. This is a simple -- would that have given two hold 4 points that say: we're not giving you the money because 5 we're not happy about the shape the project is in. 6 A. Yes, but it ignores the politics of it all, and it 7 ignores the parliamentary vote on this question, and it 8 also ignores the presence of the Scottish Public Finance 9 Manual, which is there to ensure that at all stages, 10 public expenditure is managed and pursued in accordance 11 with what is specified in the Scottish Public Finance 12 Manual. 13 Q. Do you consider there was compliance with the Scottish 14 Public Finance Manual in relation to the tram project? 15 A. Yes. 16 Q. So we can be fairly clear that it doesn't guarantee a 17 satisfactory outcome, can't we? 18 A. What we can be satisfied is that the expenditure is made 19 appropriately, in accordance with the purposes for which 20 the expenditure is intended to be undertaken. 21 Q. And it generates an unsatisfactory outcome, as it has 22 done here? 23 A. In these circumstances, yes. But there are ways of 24 avoiding that. 25 Q. So if the Scottish parliamentary vote didn't bind you, 48 1 in what way are you claiming that the Scottish 2 Government couldn't have decided to take advantage of 3 a hold point if that was the sensible thing to do? 4 A. Well, I'm simply -- I'm simply trying to set this within 5 the political context and the explanation I gave to 6 Lord Hardie some time ago, that Parliament had very 7 clearly voted to proceed with this project in a hotly 8 contested political environment where the Government had 9 lost a vote in Parliament and, having lost the vote in 10 Parliament, the Government was in my view obliged to 11 reflect on that, and we chose on that occasion to accept 12 the view of Parliament and to proceed accordingly. 13 CHAIR OF THE INQUIRY: The parliamentary vote or decision in 14 the summer of 2007 post-dated this letter by several 15 months. So in light of the decision of the Government 16 to further the will of Parliament, was anything done to 17 alter the conditions of grant in respect of hold points? 18 A. The -- the issues that would then be taken forward were, 19 I think, specified in the letter from Dr Reed to the 20 City of Edinburgh Council in August of 2007, which -- 21 which would address the future reporting relationships 22 that would apply in that case. 23 MR LAKE: Could we go to another document, please. It's 24 TRS00004547. 25 If we take this from the foot of the page, so we 49 1 take it from chronological order, we have got an email 2 from Damian Sharp, who was at that time within 3 Transport Scotland, dated 17 July, addressed to the 4 Private Secretary at Transport Scotland and Bill Reeve. 5 Do you see that? 6 A. I do, yes. I can't see any text. 7 Q. No, if we look over the page, we'll find the text there. 8 First paragraph notes this is: 9 "... to provide feedback from Thursday's Tram 10 Project Board." 11 If we scroll down to the heading, 12 "Transport Scotland role", paragraph 6, it's reported 13 that: 14 "David Mackay, James Stewart and Neil Renilson all 15 expressed strong support for Bill [Reeve] continuing to 16 be a member of the Tram Project Board and for 17 Transport Scotland to be actively engaged with the 18 project: Willie Gallagher was silent on this, but we 19 know he doesn't quite share that view. I said that we 20 would need rapidly to conclude our consideration of our 21 role and that we would need to ensure that future 22 arrangements were consistent with the Scottish Public 23 Finance Manual given the scale of Scottish Executive 24 funding being invested. I stressed that we would at 25 least require full compliance with the four-weekly 50 1 reporting but said that we should be able to reduce the 2 amount of ad hoc requests and meetings once the new 3 arrangements were in place." 4 So at this time, which is 17 July, there still, 5 certainly on the standpoint of Transport Scotland, does 6 not seem to be any clear view as to what scaling back is 7 going to involve; would you agree? 8 A. What was the date of that? 9 Q. 17 July. 10 A. I -- I think the process is still being -- the 11 discussions are still ongoing within Transport Scotland 12 on that question, yes. 13 Q. So we have got the decision to scale back, but no clear 14 understanding of what that is actually going to involve? 15 A. That is under consideration. 16 Q. Then if we go back to the first page of this, if we look 17 at the email towards the foot of the page, this is from 18 the Private Secretary and Transport Scotland, back to 19 Damian Sharp, to Bill Reeve, this is now dated 20 Wednesday, July 18. If we scroll down to see the -- 21 sorry, the text of that there is: 22 "I am getting very strong signals from the Cabinet 23 Secretary that Transport Scotland should not be on the 24 Project Board. He reiterated this at the Portfolio 25 Meeting on Tuesday morning. Of course we need to fulfil 51 1 any obligations under the SPFM, but we need to withdraw 2 from active engagement in the delivery of this project, 3 and crucially in any decision-making processes that 4 could compromise the new arrangements for allocation of 5 financial risk for this project." 6 Now, we can see there, strong signals from you. Do 7 you recall having given what were termed strong signals 8 that Transport Scotland shouldn't be on the Tram Project 9 Board? 10 A. I would have done that, yes. 11 Q. So even when it's not fully sorted out what scaling back 12 is to mean, you were saying that Transport Scotland were 13 to come out? 14 A. I wanted Transport Scotland to have a role as the 15 principal funder of the project, but I wanted it to be 16 crystal clear that leadership of the project lay with 17 the City of Edinburgh Council, and that tie on their 18 behalf at their choosing would be responsible for 19 operational delivery. 20 Q. You considered having a representative on the Tram 21 Project Board in your view compromised that clarity? 22 A. Yes. 23 Q. If we look at the end of that paragraph, we can see that 24 the concern expressed there is that this could 25 compromise the new arrangements for allocation of 52 1 financial risk. Is that another way of saying the 2 concern was there would be a demand for more money? 3 A. Correct. 4 Q. What we don't see is any question of clarity of 5 leadership and roles being referred to. It's all about 6 money. 7 A. There is -- you know, these factors are, in my view, 8 intertwined. 9 Q. But it's not stated ever? 10 A. They're intertwined. 11 Q. Then we go to the first email in the chain at the top of 12 the page. This is from Bill Reeve, addressed to the 13 Private Secretary at Transport Scotland, and 14 Damian Sharp. It's indicated the same day, 18 July. He 15 says: 16 "The clarity of John Swinney's advice is helpful. 17 I remain concerned about the risk arising from 18 withdrawing from governance arrangements that 19 Audit Scotland have found satisfactory. Compliance with 20 the SPFM must be seen in this context. We must have 21 a well recorded reason for making these changes." 22 He seems to be saying at that time he's not aware of 23 a well recorded reason for making the change, despite 24 having seen this email chain. Would you agree? 25 A. That's certainly Mr Reeve's view, yes. 53 1 Q. In terms of the governance arrangements that were found 2 to have been satisfactory, that was the report that had 3 been carried out by Audit Scotland at your request. 4 A. Correct. 5 Q. That came back with a conclusion that the governance 6 structures were satisfactory? 7 A. It did. 8 Q. If we look at that document that Audit Scotland 9 reviewed, we can see it's CEC00785541. If we go to 10 page 5 of this, under the heading "Edinburgh Trams", we 11 can see it starts by giving some detail of the project, 12 including at paragraph 11, the Scottish Executive, as it 13 then was, commitment to provide up to GBP500 million. 14 Do you see that? 15 A. I do. 16 Q. If we look over the page to paragraph 14, it notes that: 17 "Arrangements in place to manage the project appear 18 sound with: 19 a clear corporate governance structure ... which 20 involves all key stakeholders." 21 Do you see that? 22 A. I do. 23 Q. Then if we jump forward to page 8, paragraph 24, the 24 lower half of the page, you see the heading, "There are 25 three key players for both projects". 54 1 That's EARL and trams. Paragraph 24 says: 2 "There are a number of partners in the 3 Edinburgh Trams and EARL projects but three key players 4 are common to both projects ... 5 Transport Scotland is an Executive Agency of the 6 Scottish Executive. As the principal funder of both 7 projects it takes a close interest in the progress of 8 projects and their projected costs." 9 Do you agree Transport Scotland were a key player? 10 A. They were up until that point, yes. 11 Q. Do you think they ceased to be a key player thereafter? 12 A. They had responsibilities in relation to the monitoring 13 of the project and the costs, because those two factors 14 are related. But their role was not as significant as 15 it was prior to that report. 16 Q. If we look at paragraph 28 on page 9, we can see 17 a section all about Transport Scotland, and paragraph 28 18 notes: 19 "Transport Scotland's board meets on a monthly basis 20 and reviews, amongst other things: progress against its 21 business plan; major infrastructure projects; and 22 significant corporate risks." 23 I should for completeness notice that paragraph 29 24 then goes on to consider the role of the Chief Executive 25 of Transport Scotland, and over the page, paragraph 30, 55 1 after having looked at the major investment 2 decision-making board, it goes on to look at the 3 Transport Scotland Rail Delivery Directorate. All that 4 was taken into account by Audit Scotland in approving 5 the governance structures in existence for the tram 6 project? 7 A. Yes. 8 Q. The Auditor General didn't find anything problematic 9 with the role that existed? 10 A. No. 11 Q. They didn't report on there being any confusion between 12 Transport Scotland as funder and City of Edinburgh 13 Council as promoter? 14 A. No, but I was concerned that that issue may arise in the 15 future. 16 Q. Were there any reports due from any party, either the 17 Council, tie or within Transport Scotland, expressing 18 concern that there was such confusion or might be such 19 confusion? 20 A. That was a view that I and my ministerial colleagues 21 were concerned about. 22 Q. Was there any report to you from Transport Scotland, the 23 Council, any other person who had been involved in the 24 project, expressing their concern? 25 A. Not that I recall. 56 1 Q. If you go back to the email chain we were looking at, it 2 was the one that ended 4547, and we look at Mr Reeve's 3 email of 18 July, the following paragraph says: 4 "Is there any worth in considering a direction from 5 the Cabinet Secretary that normal governance processes 6 (Gateway reviews, Board attendance, reserved powers, 7 et cetera) should not be followed in this instance. 8 I recognise this may be a bit of a nuclear option, but 9 it would provide clarity and cover." 10 That is quite a drastic option, isn't it, having to 11 seek a direction from the Cabinet Secretary? 12 A. That's correct. 13 Q. It would mean there was essentially quite notable 14 discomfort about the proposed course of action? 15 A. But it was never asked for. 16 Q. Were you notified about the level of disquiet that this 17 email contains? 18 A. No. 19 MR LAKE: My Lord, I'm going to move on to another email. 20 That might be an appropriate moment to take a break. 21 CHAIR OF THE INQUIRY: Just before that, just taking up that 22 last point, are you aware of any circumstance where 23 civil servants have sought, at least during your time, 24 Cabinet -- a direction from a Minister that they must 25 follow a certain course of action? 57 1 A. In the form of a Ministerial Direction, my Lord? 2 CHAIR OF THE INQUIRY: Yes. 3 A. Not to my knowledge. 4 CHAIR OF THE INQUIRY: Is the requirement of a Ministerial 5 Direction an indication of a significant level of unease 6 on the part of civil servants about a course of action 7 being proposed by politicians? 8 A. There are particular requirements for a Ministerial 9 Direction to be sought, and it is -- it has to be 10 a matter of public record as well, and that's now given 11 me more confidence in my mind that there has been no 12 such request for a Ministerial Direction during our term 13 in office, because I cannot recall an instance of that 14 being in the public domain. 15 CHAIR OF THE INQUIRY: So is it a fair description to call 16 it a nuclear option? 17 A. Yes, but I think the key point is that no Ministerial 18 Direction was sought on this matter or at any stage. 19 CHAIR OF THE INQUIRY: Yes. 20 Mr Swinney, we're going to adjourn for lunch now. 21 We will resume again at 2 o'clock. 22 (1.00 pm) 23 (The short adjournment) 24 (2.00 pm) 25 CHAIR OF THE INQUIRY: You're still under oath, Mr Swinney. 58 1 MR LAKE: Thank you, my Lord. 2 Mr Swinney, could I ask you to look at another 3 document, please. The reference is TRS00004559. 4 I think we can see from this that this is an 5 internal paper from Matthew Spence to Malcolm Reed, 6 headed, "EDINBURGH TRAM: THE ROLE OF 7 TRANSPORT SCOTLAND", dated 20 July 2007; do you see 8 that? 9 A. I do, yes. 10 Q. I think you may have seen that in the course of being 11 asked questions for the purposes of this Inquiry. 12 Would you have been made aware of that at the time, 13 in 2007? 14 A. Unless -- I have to see the copy list for it, but at the 15 time, if it is addressed to Malcolm Reed, I suspect it 16 would be at internal Civil Service level. So it would 17 be -- unless I'm on the copy list -- 18 Q. I don't have a list that has your name definitively on 19 it. 20 A. If that's the case, I suspect the copy list is as 21 extensive as Dr Reed and Bill Reeve. 22 Q. I will ask you some questions about it. If you simply 23 don't have knowledge of it, by all means just indicate. 24 You can see from the first paragraph the purpose is 25 given as being: 59 1 "To define the revised 'scaled back' role of 2 Transport Scotland." 3 So you might understand this is drawing together 4 what we've seen so far. 5 If you look at the following page, paragraph 10, 6 enlarge the upper half, what is said there is that: 7 "Transport Scotland to give up its seat on the Tram 8 Project Board. City of Edinburgh Council, as the 9 promoter, to re-structure the governance arrangements as 10 appropriate." 11 That was in line with the discussions that you had 12 had and the indications you had given to your civil 13 servants; is that correct? 14 A. Yes. 15 Q. If you then scroll down to look at what's under 16 "Milestones", and paragraph 13 states: 17 "The July 2007 meeting of the Tram Project Board 18 proposes that Transport Scotland provide 'approval' at 19 two milestones in the short to medium term, namely; 20 nomination of recommended bidder and Financial Close. 21 This approach not only appears confused and is, 22 essentially, now unnecessary from a Transport Scotland 23 point of view ... it would also have led to a two-phase 24 Gateway 3 process which does not as a minimum reflect 25 good practice ..." 60 1 Paragraph 14: 2 "We propose to simplify the above by providing one 3 'agreement to release further funds' in January 2008 at 4 the point of financial close ie in practice provide 5 a final grant letter (standard conditions) releasing the 6 remaining funds up to the cap." 7 Even if you didn't see this document, is what was 8 being discussed there something that you were involved 9 in prior to this document? 10 A. I would be involved in discussions which would be 11 leading up to the letter of 2 August 2007, which Dr Reed 12 sent to the City of Edinburgh Council. So it would be 13 on that basis. 14 Q. Scroll further down the page, we can see that the 15 "approval", which I should have said first time and here 16 again is in inverted commas: 17 "... by Transport Scotland at financial close, will 18 be based on the following." 19 The first is: 20 "Compliance with standard grant conditions to date." 21 Second: 22 "Having received a copy of the completed Final 23 Business Case as endorsed by City of Edinburgh Council." 24 Thirdly: 25 "Having received confirmation that the project has 61 1 successfully passed a standard OGC Gateway 3 Review. 2 Ongoing information received via the standard 3 Transport Scotland reporting process and four-weekly 4 meetings with the City of Edinburgh Council." 5 Did you discuss the basis on which 6 Transport Scotland would give approval to the project at 7 financial close? 8 A. Not to my recollection. 9 Q. Moving on from that, can I look at the letter -- 10 A. Could I add to that. 11 Q. Yes. 12 A. That I would have expected, however, that the approach 13 to have been taken would have been consistent. The 14 requirements that Transport Scotland would be putting in 15 place would be requirements that would satisfy the 16 principles of good governance and management of the 17 public finances, which were contained within the 18 Scottish Public Finance Manual and which were -- what 19 I would describe as habitual approaches that I would 20 expect to be taken where public funds were being 21 administered. 22 Q. I appreciate you were not in office at the time of the 23 Draft Final Business Case being approved in 24 December 2006, or submitted in December 2006, but were 25 you made aware of the work that Transport Scotland had 62 1 been done on that Draft Final Business Case and how 2 involved they had been with it? 3 A. As part of our early preparations of the -- for how we 4 were handling the trams project after our appointment, 5 on about 19 May 2007, I would have been briefed on 6 Transport Scotland's work, but the Ministerial Policy 7 Direction was then changing because I was saying to 8 Transport Scotland: we are taking a different course 9 here; we are going to try to cancel this project. 10 Q. Yes. I suppose what it comes to is this: were you aware 11 if it was proposed that, from these conditions we see 12 here, that Transport Scotland give their approval on the 13 basis of being given a copy of the Final Business Case 14 as endorsed by City of Edinburgh Council, how much that 15 differed from all the work that had been done on the 16 Draft Final Business Case? 17 A. I wouldn't expect it to be any different, because the 18 City of Edinburgh Council would be operating under the 19 same constraints of the Scottish Public Finance Manual 20 as Transport Scotland would be operating. 21 Q. Were you aware that Transport Scotland had scrutinised 22 the Draft Final Business Case with some care, including 23 having it analysed by external consultants, and had 24 submitted comments upon it? 25 A. I'm not certain I was aware of that point. 63 1 Q. If you could look at a later communication, please, it's 2 reference TRS00004581. This is now dated 25 July 2007. 3 That's just five days on from the last one. And it's 4 from Matthew Spence of Transport Scotland, and it is 5 addressed to you; do you see that? 6 A. Yes. 7 Q. Its purpose is: 8 "To inform [you] of the proposed redefined role of 9 Transport Scotland with respect to the Edinburgh Tram 10 Project." 11 Paragraph 4 notes: 12 "The following proposals aim to define, in practical 13 terms 'scaling back' the role of Transport Scotland." 14 Is this you being informed finally of what the 15 content of that scaling back or scaling down is to be? 16 A. It would be -- without seeing the very bottom of the 17 email, it may be asking me to approve those terms, and 18 I can only see down to basis of proposals. So I'm not 19 sure what question I'm being asked at the end of the -- 20 Q. You go right to the end. I wasn't trying catch you out. 21 If you go to the second page. It's the copy list. If 22 we look above it, we've got Matthew Spence's name. You 23 might have to draw the page down a little so Mr Swinney 24 can see the text. 25 A. Yes. What I would normally have expected in a note of 64 1 that nature would be an additional paragraph 17, which 2 might have said you're invited to note or agree the 3 terms of this note, but it's been put to me as the basis 4 upon which we should proceed for a future engagement. 5 Q. Presumably ultimately it would be up to you as to 6 whether or not this was done? 7 A. Yes, correct. 8 Q. If we look back to the first page, heading "Governance 9 and Management", and what's underneath it, paragraph 8 10 notes: 11 "Transport Scotland to provide the associated 12 funding to City of Edinburgh Council via standard 13 Section 70 grant conditions (against an agreed draw-down 14 profile)." 15 Paragraph 9 is: 16 "Transport Scotland surrender its seat on the Tram 17 Project Board. City of Edinburgh Council, as the 18 promoter, to re-structure the governance arrangements as 19 appropriate." 20 We have discussed that quite extensively, obviously. 21 10: 22 "City of Edinburgh Council to meet with 23 Transport Scotland at official level on a four-weekly 24 basis to present a progress report ..." 25 11: 65 1 "City of Edinburgh Council Chief Executive to 2 provide confirmation on a quarterly basis that the 3 conditions of grant are being complied with." 4 Presumably you were -- you would be comfortable with 5 that? 6 A. Yes. 7 Q. What you saw there? 8 A. Yes. 9 Q. If you go on to look at the heading, "Milestones and 10 Short Term Funding", paragraph 12 notes that the is: 11 "... currently drawing on an initial grant of 12 GBP60 million to take the project to a position of 13 financial close." 14 I think we looked at the letter supporting that 15 earlier. It notes that this, that's the close: 16 "... was originally planned for October 2007 but 17 will now slip to January 2008." 18 Over the page at paragraph 13, it notes that: 19 "Transport Scotland will not offer any further 20 funding until financial close is achieved." 21 Paragraph 14 notes that: 22 "Grant funds post financial close will only be 23 provided on the condition they are accompanied by funds 24 from the Council in the ratio of 9 to 1." 25 It explains the purpose of that. You see that. 66 1 One thing that's not said in this Note of Advice or 2 seeking approval from you is any statement as to what 3 the changes are to the grant conditions for the project 4 being approved in the first place. And that it was 5 simply to be the City of Edinburgh Council would approve 6 the Final Business Case. 7 A. Yes. 8 Q. Were you made aware of that separately? 9 A. No. The -- that would be consistent with my desire to 10 establish clarity about where project ownership and 11 leadership lay. So I would view that to be a decision 12 to be taken by the City of Edinburgh Council. 13 Q. If we look at a letter, please, in relation to the 14 grant, we've earlier looked at the March letter. If we 15 look at one that was sent out in August, it's document 16 reference TRS00004780. You can see the first page of 17 this is an acceptance of the Variation to Grant Offer to 18 City of Edinburgh Council for Utilities Diversions and 19 Continuing Development and Procurement Work. 20 It notes: 21 "On behalf of City of Edinburgh Council I accept 22 that Scottish Ministers hereby vary the offer of grant 23 to City of Edinburgh Council contained in the letter of 24 19 March 2007 as detailed in the letter of 25 22 August 2007." 67 1 We can see it's been signed by Mr Holmes on behalf 2 of the Council. 3 A. I see that. 4 Q. If we look at the text of the letter, we see it's 5 addressed to Andrew Holmes at the Council. It's dated 6 22 August. On the second page we see it comes from 7 Jerry Morrissey, Head of Major Projects at Transport 8 Scotland. If you look at the following page, you will 9 see that there. 10 Could we go back to the first page of this. Sorry. 11 I said the first page of the letter. It's the first 12 page of the document. 13 If we could enlarge that, and scroll down a little, 14 we can see there the text saying: 15 "The variations to the conditions of grant are as 16 follows." 17 We can see a number of deletions there. Do you see 18 that? 19 A. Yes. 20 Q. Just to make it easy, I wonder if we can put up the 21 terms of the conditions on a split screen, so we keep 22 that on one half of the screen, and on the other half of 23 the screen, we have document TRS00004112. 24 I think, looking at the right-hand side of the 25 screen now, which is a document ending 4112, that's the 68 1 schedule of conditions we looked at before the lunch 2 break. Do you recognise those? 3 A. Yes. 4 Q. Now, looking to the left-hand side of the screen on the 5 letter of 22 August, we can see that one of the things 6 to be deleted is the condition in paragraph 16. Now, on 7 the right-hand side of the screen, could we go to page 5 8 of that document, please. We can see condition 16 was: 9 "The project governance arrangements shall be those 10 agreed at the Tram Project Board on 25 September 2006 11 and shall only be amended with the agreement of the 12 Scottish Ministers." 13 Instead, that's now to say: 14 "The Council shall ensure that appropriate project 15 governance arrangements are in place for the project and 16 enforced accordingly." 17 Were you involved in this decision to do away with 18 any say at all in the governance arrangements for the 19 project? 20 A. I was responsible for the decision to remove 21 Transport Scotland from the Tram Project Board. 22 Q. This is going slightly further in the sense that whereas 23 originally it had required the governance arrangements 24 to be those specified, now it's simply to be -- sorry. 25 Those specified and maybe amended with the agreement of 69 1 Scottish Ministers, now it's to be changed to one where 2 simply it's up to the Council to ensure that they're 3 appropriate? 4 A. Essentially that's us respecting the democratic identity 5 of the City of Edinburgh Council and making it expressly 6 clear that the Council is responsible for the ownership 7 of the project. 8 Q. Of course, Transport Scotland was also responsible for 9 the GBP500 million of public funds to be put into it? 10 A. Correct. 11 Q. That might have been thought to mean that it was 12 necessary that Transport Scotland retained some control 13 over the governance of the project? 14 A. Which -- Transport Scotland is retaining its 15 responsibility for the exercise of control over the 16 appropriate use of the public funds of GBP500 million. 17 Q. That is that they have to be used for the tram project? 18 A. Correct. So that's -- and that is an exercise properly 19 through the grant conditions put in place. 20 Q. This is Transport Scotland handing over any say over the 21 governance of how the project is to be governed. Why 22 was that appropriate or necessary in your view? 23 A. In my view that was necessary to ensure that project 24 ownership was clearly vested within the City Council and 25 they were responsible for taking forward the project. 70 1 Q. We can see, looking at the letter on the left, the next 2 bullet point notes that paragraph 17 is to be deleted. 3 We can see that paragraph 17 was a requirement that the 4 Council shall ensure that action plans for any 5 recommendations arising from project reviews are agreed 6 and implemented. 7 Why did you consider it necessary that that 8 condition be deleted? 9 A. I was not personally involved in the drafting of this 10 letter, but I could imagine that that would be viewed to 11 be something that would naturally follow from the 12 insertion of the text that is put in place at 13 paragraph 16, which is putting the onus on the 14 City Council to make sure that there are appropriate 15 project governance arrangements in place for the project 16 and enforced accordingly, and not taking an approach 17 where Transport Scotland was prescribing those to the 18 City Council, where we viewed control of the project to 19 properly lie. 20 Q. Paragraph 18 -- looking at the letter on the left, we 21 can see the next bullet is that paragraph 18 should be 22 deleted. From the document on the right, the 23 conditions, we can see that paragraph 18 was the one 24 that imposed hold points at specified times during the 25 project time frame. 71 1 A. I think -- the reason -- sorry. 2 Q. No, sorry. 3 A. If the question is why is that there, again, I think 4 that's consistent with paragraph 16, and also reflective 5 of the fact that we are in a very different political 6 situation in the writing of this letter than we might 7 have been in, because Parliament had expressly taken 8 a different view to the Government's view about this 9 project. 10 So the project was going ahead, and we were 11 essentially, in paragraph 16, making it expressly clear 12 to the City Council it is their project, and it's up to 13 them to put the appropriate project governance 14 arrangements in place and to enforce them accordingly. 15 CHAIR OF THE INQUIRY: Can we look at paragraph 17 that's 16 deleted. The last sentence is that: 17 "The Council shall ensure that tie has and 18 implements an action plan to ensure lessons from other 19 projects tie is involved in are applied to this 20 project." 21 Now, as I understood your evidence this morning, you 22 were saying that one of your concerns was the 23 Stirling-Alloa-Kincardine. Why are you deleting an 24 obligation on the Council to make sure that it 25 implements lessons learned from other projects, 72 1 including perhaps the Stirling-Alloa-Kincardine? 2 A. I think by simply saying, my Lord, that in paragraph 16 3 the onus is on the City Council to put in place the 4 appropriate project governance arrangements, and our 5 view was that the City Council, as owners of the 6 project, should be empowered to ensure the project was 7 run effectively and consistently within the terms of the 8 grant conditions that we were putting in place, but also 9 within the terms of good governance arrangements that 10 any public body in Scotland would be expected to 11 exercise any controls in that respect. 12 MR LAKE: Mr Swinney, you mentioned in the answer to my 13 question that things had changed because of the -- 14 Parliament had expressly taken a different view to the 15 Government's view about this project. That's reference 16 back to the debate in June, is it? 17 A. Yes. 18 Q. In taking that decision, the Parliament, the MSPs, had 19 available to them nothing like the information that 20 would have been available to Transport Scotland when 21 taking a decision at the hold points, would they? 22 A. But Parliament had taken a strategic decision at 23 a moment of very -- of enormous political significance 24 where a newly elected government had wanted to do one 25 thing, which was to cancel the project, and Parliament 73 1 had taken the opposite view that the project should be 2 allowed to carry forward. 3 So I was taking what I considered to be a respectful 4 view of Parliament that Parliament's view should be able 5 to be -- to prevail, that the tram project should take 6 its course. But I was also putting in place the type of 7 requirements and expectations in terms of project 8 governance, which is referred to in the change to 9 paragraph 16, and also the terms of the grant letter 10 that would ensure that the public purse -- the public 11 finances for which I had responsibility would be 12 protected in that respect. 13 Q. By which you mean you would be in a stronger position to 14 resist requests for more money? 15 A. Yes. 16 Q. Following through the grant, if we go to the letters 17 that finally awarded the grant in January 2008, and that 18 is reference CEC00021548. As with the previous one, 19 this starts as an acceptance from the Council. We see 20 here a letter dated 24 January 2008 to John Ramsay at 21 Transport Scotland, coming from Tom Aitchison, its Chief 22 Executive of the Council; do you see that? 23 A. Yes. 24 Q. In essence it's accepting the terms of a letter from 25 Bill Reeve of Transport Scotland, dated 17 January. 74 1 A. Yes. 2 Q. If we go to the third page, you find the start of that 3 letter. It's headed "GRANT OFFER TO CITY OF EDINBURGH 4 COUNCIL FOR CONSTRUCTION OF PHASE 1 OF THE EDINBURGH 5 TRAM NETWORK". 6 And read short, the first paragraph of that notes 7 that in exercise of the powers under the 2001 Act, the 8 Scottish Ministers hereby offer to pay a grant. 9 A. If yes. 10 Q. If you look at the conditions precedent for that, if we 11 go down to 3 and the text below it, 3.1, notes: 12 "The obligation of the Scottish Ministers to pay the 13 Grant or any instalment is subject to the condition that 14 the Scottish Ministers have received all of the 15 documents and other evidence listed in paragraph 3.2 all 16 in form and substance satisfactory to the Scottish 17 Ministers." 18 Do you see that? 19 A. I do. 20 Q. Then we look at what 3.2.1 says. It requires: 21 "Evidence that the Council has approved a Final 22 Business Case for the Edinburgh Tram Network containing 23 (a) an affordability assessment for Phase 1a within 24 a maximum capital cost of GBP545 million; (b) a Benefits 25 Costs Ratio greater than 1; and (c) no projection of 75 1 a requirement for an ongoing subsidy for the Edinburgh 2 Tram Network during the operational phase." 3 You see all that? 4 A. I do, yes. 5 Q. Those are all decisions to be taken by the City of 6 Edinburgh Council? 7 A. Yes. 8 Q. 3.2.2 is: 9 "Evidence that an OGC Gateway Review has been 10 completed and that all recommendations have been 11 implemented and insofar as such recommendations relate 12 to future activities robust arrangements have been made 13 to implement such recommendations." 14 Do you see that? 15 A. I do. 16 Q. Finally, at 3.2.3, the detail refers to reports, summary 17 reports, and the claims required by Annex 2 to date have 18 been received by the Scottish Ministers. Just read that 19 for completeness. You will see that. 20 Now, the substance of this appears to be contained 21 within 3.2.1, that the decision to go ahead, the payment 22 of the grant, is essentially -- could we go back to the 23 previous page -- dependent on the Council approving the 24 Final Business Case that has an affordability 25 assessment, a benefits cost ratio and no projection for 76 1 ongoing subsidy; do you see that? 2 A. I see that, yes. 3 Q. So in essence the decision to proceed has been left up 4 to the City of Edinburgh Council. 5 A. That's correct. 6 Q. Now, do you consider that the City of Edinburgh Council 7 had interests identical to those of Transport Scotland? 8 A. I don't know if I understand the question. 9 Q. Well, Transport Scotland were paying GBP500 million; is 10 that correct? 11 A. Yes. 12 Q. The City of Edinburgh Council were paying, as it was 13 programmed then, up to GBP45 million. 14 A. Yes. 15 Q. In return for that they were getting an asset worth 16 GBP545 million. 17 Put it this way, it would be a no-brainer for the 18 Council to say: we're going to proceed with this. They 19 had a very clear interest in saying yes. 20 A. I don't think that captures all of the considerations 21 the City Council should have had in their mind, because 22 based on what we discussed before the lunch break, it 23 was really very evident that the City Council was, and 24 indeed the resolution of Parliament expressly made this 25 point -- the City Council was absolutely in the frame 77 1 for anything beyond GBP545 million. 2 So I don't think it's sufficient to simply say that 3 the City Council had a GBP45 million input versus 4 a GBP500 million gain judgement to make. They had to 5 consider whether the Final Business Case would expose 6 them to any more risk beyond the GBP45 million that was 7 expected for them to contribute. 8 Q. Where in this proposal is there any review to consider 9 the interests of the Scottish Government, or its 10 interests in the project? 11 A. Those interests would be reflected by the actions of 12 Transport Scotland. 13 Q. But where in this proposal do Transport Scotland have 14 any ability to make a judgement and not pay the grant? 15 A. In my view, by being respectful of the decision that 16 Parliament arrived at on 22 June 2007, I was essentially 17 saying: well, the tram project is going to go ahead. 18 I told Parliament that, and I wanted to make sure that 19 we did what Parliament asked us to do, which was to make 20 our financial contribution to that, but that the taking 21 forward of that project was to be clearly undertaken 22 under the leadership of the City of Edinburgh Council. 23 And I was simply making that a practical possibility. 24 Q. Do you think Parliament on 26 June 2007 had all the 25 information it required in order to take a decision that 78 1 the project should proceed, come what may? 2 A. Whether Parliament had all the information, Parliament 3 was determined to take that decision. I made my best 4 efforts to put in front of Parliament as much 5 dispassionate information about the project as I could, 6 which is why I invited the Auditor General to carry out 7 the report which he thankfully produced for us, and that 8 informed the debate. 9 And the -- but Parliament in my view, on that 10 occasion, was going to take the decision it was going to 11 take, regardless of the information it had in front of 12 it. 13 Q. Is this rather reflective of the approach as a whole, 14 that the frustration of the parliamentary vote meant 15 that your approach was: right, go ahead, it goes ahead 16 now, and on your head be it. 17 A. No. I wanted to make sure that Parliament, having made 18 its position clear, and me having stood in front of 19 Parliament and said -- honestly taken it on the chin 20 that Parliament had voted in favour of the project, that 21 the Government would make it happen, and it was in my 22 view a project that should be taken forward, led by the 23 City Council, who were always the promoter, to enable 24 them to undertake the project. 25 Q. Could we look at something within your statement, 79 1 please. Could we look at page 20 of that. I'm 2 interested in the question and answer 57. The question 3 is: 4 "What was your understanding of the role and 5 responsibilities of the Scottish Government and 6 Transport Scotland in the tram project?" 7 Your response was: 8 "My view was that the Government's responsibility 9 and Transport Scotland's responsibility was two-fold. 10 Firstly, to ensure that every reasonable measure was 11 taken to ensure that the project was able to deliver 12 what had been expected of it by the parliamentary vote 13 and, secondly, to protect the Scottish Government 14 purse." 15 Do you consider that every reasonable measure was 16 taken? 17 A. Yes. 18 Q. Do you not think that some measure could have been 19 taken, such as ensuring that the contract, a review of 20 the contract or a review of the various structures that 21 would ensure, or better ensure the project was able to 22 deliver what had been expected? 23 A. I would expect those decisions to be taken by the City 24 of Edinburgh Council, who were the owners of the 25 project. 80 1 Q. If a review had been carried out by Transport Scotland, 2 the possibility would have been that the independent 3 view would have found things that hadn't already been 4 seen? 5 A. I think that would have run into some considerable 6 political difficulties, because Transport Scotland by 7 that stage, after 19 May 2007, was then an executive 8 agency responsible to Scottish National Party Ministers 9 and to me. And if Transport Scotland, let's say, nine 10 months after the parliamentary vote in June 2007 had 11 carried out a review which had said: this project is 12 doomed; I suspect my political opponents, and I think if 13 we look back at the terms of the parliamentary debate in 14 2007, there is, let me say, very little charity being 15 expressed towards me and my colleagues from our 16 opponents in that debate. 17 If Transport Scotland turned round, nine months 18 later, to undertake such an assessment, I think our 19 opponents would never have countenanced that. 20 Q. What if Transport Scotland had turned round in nine 21 months' time and said: we haven't cancelled the project, 22 because the vote of Parliament was we shouldn't have 23 cancelled the project, but we are not advancing half 24 a billion pounds of project money on this contract; go 25 and fix it, then come back. 81 1 A. I think the same conditions would have applied in terms 2 of the political judgement of Parliament, because 3 Parliament would have, in my opinion, have considered 4 that as me putting Transport Scotland up to be 5 obstructive to the process. 6 Q. So just to be clear about this, your view is that 7 Parliament's view was that the money should be put in, 8 come what may, and any question of Transport Scotland 9 applying their mind to the wisdom of the particular 10 circumstances had passed? 11 A. I wouldn't use the word "wisdom". The appropriateness 12 of the expenditure, yes. But the wisdom, no, because 13 the wisdom was fundamentally about whether the project 14 should proceed or not. 15 Q. What about the question of whether the project proceed 16 on the particular terms that were before it, rather than 17 correcting problems? 18 A. But what essentially we had done was we'd said to the 19 City of Edinburgh Council, who were under -- let's not 20 underestimate the requirements that are placed on the 21 City of Edinburgh Council to exercise due diligence over 22 any project for which it has responsibility and 23 ownership. That responsibility lies with the 24 City Council to satisfy itself that the contractual 25 terms into which it is entering are effective and 82 1 appropriate contractual terms, and that is what this 2 grant letter -- the grant letter that we just looked at 3 does. It puts that onus on to the City Council. And 4 it's then up to the City Council to satisfy itself that 5 those are appropriate arrangements that are in place. 6 Q. The Council would do that for its interest. My question 7 is: who was looking after the interests of the Scottish 8 Government and the money it was putting into it? Is it 9 still -- your answer it's still the City of Edinburgh 10 Council? 11 A. Yes, because the City of Edinburgh Council's interests 12 are not just about what's happening to our 13 GBP45 million. The City Council's interests are about 14 how do we complete a tramline from the airport to 15 a defined point within the city. 16 It's not just about what happens to the 45 million 17 that's accountable for within the City of Edinburgh 18 Council. It's about a much more comprehensive 19 undertaking to deliver that entire project, for which 20 the GBP500 million is absolutely critical to make it 21 happen, but the City Council has that overall duty to 22 make sure that all of the arrangements are in place, in 23 terms of these grant conditions, to make sure that 24 happens. 25 Q. With hindsight, would it not have been better to have 83 1 someone providing some assurance for the Scottish 2 Government that in return for the GBP500 million, they 3 were likely to get what they sought, which is a line 4 from the airport all the way down to Newhaven? 5 A. No, because we've passed that responsibility to the 6 City Council. It was their project. 7 Q. Could we look at another document, please. It's 8 reference TRS00011064. 9 We start with the email on the second half of the 10 page. It's from Ainslie McLaughlin to David Middleton 11 and Bill Reeve, all of Transport Scotland. You can see 12 it wasn't copied to you. So it's not one you have seen. 13 If we look at the second page of this, Mr McLaughlin 14 says in the final paragraph of his email: 15 "It may well come out in the wash that having the 16 major funding party remote from the decision-making and 17 management of the contract is not a sensible way to 18 manage projects like this in the future. However, that 19 doesn't take away from the fact that the responsibility 20 for the current predicament rests with CEC to resolve." 21 Now, in relation to this suggestion that it may come 22 out that it's not wise to have a funding party remote 23 from the decision-making, do you disagree with that? 24 A. Yes. 25 Q. If we scroll down a little bit, so we can see further up 84 1 the email, we can see Mr McLaughlin also says: 2 "Under the arrangements put in place for this 3 project we have little in the way of levers. That does 4 not mean we have been asleep at the wheel. We are 5 clearly concerned at the contractual disputes and we are 6 in close and regular touch with tie to ensure that they 7 are fully engaged in trying to resolve matters. While 8 that process is ongoing we continue to pay out grant 9 where CEC have furnished certified invoices for work 10 properly done under the contract. Stopping legitimate 11 grant payments would simply jeopardise the taxpayers' 12 money, even more if it led to CEC either having to 13 borrow to make up the shortfall or worse, forced them to 14 default on the contract." 15 Now, would you agree that the way that the grant had 16 been structured left Transport Scotland with little by 17 way of levers or control once the project was under way? 18 A. Yes. 19 Q. Would it have been better to have scope for more levers, 20 more control? 21 A. No, because I think that would have got us into the 22 territory of there being alternative sources of power in 23 the management of this project, which was -- which is 24 what I was expressly trying to avoid. 25 So the levers that were utilised were as expressed 85 1 by Mr McLaughlin in the third sentence of that 2 paragraph: 3 "We are clearly concerned at the contractual 4 disputes and we are in close and regular touch with tie 5 to ensure that they are fully engaged in trying to 6 resolve matters." 7 So there was regular and frequent discussion with 8 tie about issues about which we were concerned. But 9 what I was anxious to avoid was a situation where there 10 was a perception that control did not lie anywhere other 11 than with tie and the City of Edinburgh Council to 12 resolve those issues, where Transport Scotland on 13 Scottish Ministers' behalf, being as supportive and as 14 helpful as we could be to try to resolve those issues. 15 Q. Go to your statement, please, back to your statement. 16 If we look at page 47, please. You are asked there, if 17 you look at the question which leads to answer 131, the 18 question is: 19 "On 23 August 2007 Damian Sharp sent an email to 20 Malcolm Reed and Bill Reeve to update them on progress. 21 He said that he had made it clear that all discussions 22 should now be between CEC and Transport Scotland. In 23 the attached paper Damian Sharp said that 'we will have 24 access to a significant amount of information about the 25 tram project and will be able to spot issues that are 86 1 important to tram success. However, the role instructed 2 by Ministers suggests we should not be acting on some of 3 this information. On the other hand we very clearly 4 remain interested in information about the financial 5 profile to manage our overall budget'." 6 The question put to you is: 7 "Do you consider it appropriate that 8 Transport Scotland should be aware of information and 9 not act upon it?" 10 Your reply is very straightforward, in saying: no, 11 you do not. 12 Standing the very limited levers that were available 13 to Transport Scotland, what action could they have 14 taken? 15 A. They would be involved in regular dialogue with the City 16 of Edinburgh Council and with tie to try to progress 17 matters, but I think what you're inviting me to go back 18 to is to look at some of the, if I might call them break 19 points that might have existed. 20 My answer to that is covered by what I have said 21 about the political decision-making that had been taken 22 forward here. 23 So -- I think if -- when one looks at the paper 24 trail on many of the issues in this period between 2007 25 and 2011, there is extensive dialogue between 87 1 Transport Scotland and the City of Edinburgh Council and 2 tie on all sorts of different issues. 3 So the idea -- so the idea -- this point in here, 4 from Damian Sharp, is in my view a ridiculous point, 5 that we should not be acting on some of this 6 information. It's a ludicrous point, which is why my 7 response is so blunt about it. 8 Q. Can I just be clear -- 9 A. Because that's expressly not what either is -- was 10 happening or what is substantiated by the paper trail 11 that exists where we were channelling our communication 12 and our dialogue into the City of Edinburgh Council and 13 tie to resolve issues, rather than becoming what 14 I feared would be the case under the previous 15 arrangements of a separate centre of decision-making. 16 Q. Can I be clear about my question, I'm not relating just 17 to the sort of hold points. I'm talking about 18 throughout the contract, if Transport Scotland became 19 concerned, I think your answer covers that? 20 A. My answer is consistent with that as well. 21 Q. But what you're saying it was a matter of communication 22 and dialogue, it would remain the position that 23 Transport Scotland have no power to take executive 24 action in relation of any information it had that was of 25 concern to it? 88 1 A. Well, of course it had some of those powers, because it 2 would have those powers in terms of the grant 3 conditions. 4 Q. What powers? 5 A. Well, to not pay expenditure if it judged it to be 6 inappropriate, for example. 7 Q. But as long as it was expenditure on the tram project, 8 they had to pay it. 9 A. Yes, but they would have to be satisfied that that was 10 certified to them by the City of Edinburgh Council that 11 it was consistent with the requirements for payment of 12 public expenditure that would apply to the City Council. 13 So it's not -- it's not just, you know, for any old 14 thing that the money -- 15 Q. That was -- 16 A. -- would be paid for. 17 Q. In practice that was what happened. 18 A. What -- 19 Q. That is what happened. Monies were paid when they were 20 certified by the Council as being properly expended? 21 A. Correct, that's right. That is what the -- in one of 22 the earlier productions that you just showed me there, 23 which I think was Mr McLaughlin's email to 24 David Middleton, that is exactly the point that 25 Mr McLaughlin makes in his email. 89 1 Q. But this is the whole point. Following that approach 2 led to the crisis of the sums that were expended to 3 a very large degree, and very little of the tramline was 4 actually delivered by the end of 2010; would you agree? 5 A. Yes. 6 Q. So that wasn't an effective means to try and address 7 problems? 8 A. What it -- but what it was -- it was respecting the fact 9 that the observership of the project lay with the City 10 of Edinburgh Council, and they had to properly prosecute 11 that project. 12 Q. So were you happy that Transport Scotland were in 13 a position where in fact there was nothing they could do 14 but keep paying out monies, despite the fact they knew 15 the project was, put colloquially, going wrong? 16 A. They were not just doing that. They were applying 17 pressure as Ministers were applying pressure to tie and 18 to the City of Edinburgh Council to resolve issues as 19 expeditiously as possible to ensure that the project was 20 able to take its course. 21 Q. But really that's all that they could do. They had no 22 real executive hard-edged powers -- 23 A. I then come back to the view of Parliament, where 24 Parliament's view was this project had to proceed, and 25 the -- and we had taken a decision to reinforce the 90 1 situation we inherited, which was that the City of 2 Edinburgh Council were the owners and directors of this 3 project, and had responsibility for its implementation. 4 Q. When we were discussing matters this morning, you made 5 reference to the Stirling-Alloa-Kincardine railway line, 6 which had been, I think, a project that again was late 7 and quite substantially over budget? 8 A. Correct. 9 Q. This was subject to a report also by Audit Scotland? 10 A. Correct. 11 Q. Could we look at that report, please. It's reference 12 CEC01318113. 13 We can see from the front page here, it's titled, 14 "Review of major capital projects in Scotland", and was 15 dated June 2008. Do you see that? 16 A. Yes, I see that, yes. 17 Q. You will be familiar with this, I take it? 18 A. I am, yes. 19 Q. If we look at page 21, please. I'm interested in 20 paragraph 50, which starts at the foot of the middle 21 column. It says here: 22 "Case study 2 (page 24) provides an overview of the 23 changes in time and cost estimates affecting the 24 Stirling-Alloa-Kincardine Rail Link project. At the 25 time of our review (autumn 2007), Transport Scotland had 91 1 recently taken direct control of this project, and 2 project management and governance had improved. The 3 project was completed in May 2008, within the revised 4 timetable approved by Transport Scotland when it took 5 over the project." 6 So this is a project that went the other way round, 7 that Transport Scotland took over control entirely; is 8 that correct? 9 A. Yes. 10 Q. That was your decision, was it? 11 A. I'm not absolutely certain it was my decision. But 12 I think it might have been heading that -- I think it 13 might have been heading in that direction when we came 14 to office. I really would need to check the record to 15 be certain about that. 16 Q. If we look -- 17 CHAIR OF THE INQUIRY: Perhaps you can send in a note -- 18 A. I will do, my Lord. I'm just not absolutely certain 19 about the timing of it. I can't quite recall. 20 MR LAKE: If we look then at page 23, it's probably easiest 21 if we go straight to page 26, and then we see the case 22 study that's just been referred to. If we enlarge the 23 upper half of the page, you get the inception and 24 procurement are said to be: 25 "Clackmannanshire Council promoted the private 92 1 parliamentary Bill required for the project (the 2 Stirling-Alloa-Kincardine Railway and Linked 3 Improvements Act 2004). The Scottish Executive and 4 later Transport Scotland were the principal funders of 5 the project." 6 Pausing there, that's a similar arrangement to what 7 existed in Edinburgh, with the Council promoting the 8 Bill and Transport Scotland being the funder; is that 9 fair? 10 A. Yes, it would be fair. 11 Q. "Tendering of the main design and build contract took 12 place in 2003 and 2004. The Council awarded a Phase 1 13 contract (preliminary design and target cost 14 preparation) to First Nuttall Joint Venture in 15 July 2004; it awarded a Phase 2 contract ... in 16 September 2005. The Council led the project until 2007 17 but problems resulted in Transport Scotland taking 18 direct responsibility from August 2007." 19 Do you see that? 20 A. I see that. 21 Q. That accords with your recollection? 22 A. The timescales -- it might help me in my earlier answer, 23 my Lord, where I couldn't recall, but what I just can't 24 be certain of it is whether we took that decision or 25 whether essentially it had been set in motion by our 93 1 predecessors and it just happened to happen in 2007, but 2 that's the -- but certainly the pattern of events is my 3 recollection, yes. 4 Q. For completeness, we note the following paragraph: 5 "Other key parties involved in the project 6 include: Network Rail (which owns and operates the new 7 railway); Jacobs Babtie (a contract management 8 consultant the Council retained to oversee construction 9 work, later the nominated project manager for the 10 contract); and tie Ltd (which provided project 11 management services to the Council, overseeing the 12 contracts with Jacobs Babtie and First Nuttall as the 13 Council's agent and managing contacts with Network Rail 14 and others)." 15 So this was a previous project where tie were 16 involved? 17 A. Yes. 18 Q. Were you concerned that this project that had had tie 19 involved had not been a success? 20 A. I was concerned that the project was not a success, yes. 21 Q. Were you concerned that -- the involvement of tie in 22 a project that had not been a success? 23 A. What I was concerned about was the fact that in a sense 24 the second paragraph there -- well, actually both 25 paragraphs make my point for me. There are just far too 94 1 many cooks around the broth here, which is what I was 2 trying to resolve on the tram project. But my answer, 3 Counsel, Scottish Executive, Transport Scotland, First 4 Nuttall, Network Rail, Jacobs Babtie, tie, it's just 5 a boorach. 6 Q. Just looking down at all the parties, you've got the 7 Council, the promoter, the person going ahead with it. 8 You're always going to need a promoter? 9 A. Yes. 10 Q. Transport Scotland had a different role, of funder and 11 that's always going to exist as well? 12 A. Mm-hm. 13 Q. Then you're dealing with a construction project. So 14 you've got a contractor. That's First Nuttall. So you 15 need to have that other party as well. 16 A. Mm-hm. 17 Q. Then you've got Jacobs Babtie, who are consultants, 18 engineering consultants, often engaged in these 19 projects. It would be sensible for any Council which 20 doesn't have the expertise to engage it in the form of 21 external consultants, wouldn't it? 22 A. Yes, but my point is you've got to have some order about 23 this. 24 Q. What I'm wondering is which one of those parties you 25 would regard as unnecessary or superfluous. 95 1 A. Well, I think what you've -- what you've got here is the 2 Scottish Executive and Transport Scotland performing 3 a particular role, which has also got some relationship 4 to the role of Clackmannanshire Council. 5 You've got Network Rail, who have got specific 6 responsibilities, and particularly with the integration 7 of this rail link into the wider network. 8 Q. Mm-hm. 9 A. You've got Jacobs Babtie, working with First Nuttall as 10 the Council's agents, and you've also got tie trying to 11 provide project management services into the bargain. 12 My argument is that I don't think this is a recipe 13 for particular clarity in the design of a project. 14 Q. Did you not think a complex construction project such as 15 a railway, it's inevitable you're going to have all 16 those parties? 17 A. Not necessarily, no. 18 Q. Let's carry on reading further down. We will not read 19 through the numbers of the cost itself, but if we look 20 under the heading, "Reasons for cost increases", it 21 notes: 22 "Estimated costs increased by 67 per cent between 23 the Bill estimate and the contract stage. The main 24 factors were: 25 Higher land costs (up by GBP6 million), mine working 96 1 remediation (up GBP4 million), earthworks (up 2 GBP1 million), changes in contract method (up 3 GBP2 million), and scope changes on a station and level 4 crossing (up GBP2 million). 5 Inflation not allowed for at the Bill stage 6 (GBP5 million). 7 After the contract was awarded, costs increased by 8 a further GBP25 million, principally on construction 9 costs (up GBP21 million), land costs up GBP3 million) 10 and an additional GBP1 million for Network Rail costs." 11 Do you see that? 12 A. Yes. 13 Q. Now, there's nothing to indicate there that those costs 14 were attributable to governance or project management, 15 is there? 16 A. I would say they -- elements such as the construction 17 costs, the mine work remediation, the earthworks, the 18 change in contract method, the Network Rail costs, these 19 are all things that I would think are part and parcel of 20 project management. 21 Q. Well, if the cost of remediating discovered mine 22 workings happens to go up, in what way is that related 23 to the governance of the project as opposed to what is 24 found when you start working? 25 A. Well, it's about proper preparation for the project. 97 1 Q. Let's read on to "Project management and governance", 2 that heading. It notes that: 3 "In June 2007, because of a range of concerns about 4 the project, Transport Scotland took a direct role in 5 the project management on behalf of the Council and 6 commissioned a technical audit. The resulting audit 7 report revealed project liabilities significantly 8 greater than previously reported. 9 Scottish Ministers announced, in June 2007, that an 10 improved project governance structure would be put in 11 place to take the project through to completion in 12 March 2008, and to contain costs within GBP85 million. 13 The new arrangement removed tie Ltd from the project. 14 Transport Scotland took over day-to-day project 15 management in August 2007 and put in place a range of 16 measures to improve control." 17 We can see that what's being done here is to take 18 tie out as project manager and for Transport Scotland to 19 assume that role? 20 A. Yes. 21 Q. So it's one party out, one party in? 22 A. Yes. 23 Q. "Our review of the project confirmed significant 24 shortcomings before Transport Scotland took control of 25 the project." 98 1 The first is: 2 "Project requirement specifications were not 3 formalised and there was no clear baseline for planning. 4 Costs and programme timescales were based on 5 a preliminary design which was untested against 6 requirements. 7 Control and challenge were weak in the project 8 governance. Reporting was ineffective and there was 9 a poor level of challenge and poor management of cost by 10 key stakeholders. 11 Not all of the right skills and experience were 12 available. 13 Risk management was not embedded and not all 14 significant risks were identified. 15 "Project management and governance significantly 16 improved after Transport Scotland's direct involvement. 17 Construction was complete by 28 March 2008 and services 18 commenced in May 2008. Final costs for the project are 19 dependent on negotiations with contractors on any 20 outstanding claims." 21 Now, there's nothing in the Audit Scotland review 22 suggesting that the problem was one of leadership or too 23 many cooks, is there? 24 A. Yes. I think that's what -- that's the conclusion 25 I draw from a number of these elements that are 99 1 highlighted. 2 Q. Well, it identifies various elements. Nowhere does it 3 say these elements have been caused by leadership or the 4 number of parties, does it? 5 A. I think that's an inevitable consequence of what -- 6 leadership has to be replaced because Transport Scotland 7 has gone in and led the project. So that's a failing of 8 leadership, surely. 9 Q. Can we be quite clear that what it reports here is that 10 Transport Scotland have taken over from tie as project 11 manager. 12 A. I think the reason for that is that this is a project 13 which is a heavy rail project which requires it to be 14 integrated with the wider rail network for which 15 Transport Scotland has responsibilities. 16 Q. Yes? 17 A. So it makes eminent common sense for Transport Scotland 18 to be undertaking that type of a role, given the 19 development, the building up which was going on at that 20 time, it started some years before that, of the heavy 21 rail expertise of Transport Scotland and taking forward 22 projects. There was ones before that such as the 23 extension of the Larkhall route, Larkhall-Milngavie, if 24 my memory serves me right. So after years of no rail 25 projects being developed in Scotland, we began a process 100 1 of expanding these projects. 2 So the -- I think I have the terminology correct, 3 the Larkhall-Milngavie route was I think the first one. 4 We were obviously doing this one. We were building up 5 to the Airdrie-Bathgate line. We were building up to 6 the Laurencekirk station construction. And obviously 7 the most significant recent project, the Borders 8 railway. 9 So it made logical sense for Transport Scotland, 10 being active in heavy rail activity, to take that role 11 in relation to projects that affect the national rail 12 network of Scotland. 13 Now, if the -- the issue about the level of -- if 14 I was able to see the top part of this page again, 15 please. 16 Q. Could we scroll down again to see the top of the page. 17 A. You know, there are a range of different players 18 potentially doing the same things in there. 19 Transport Scotland as funders, but also tie as project 20 managers, but -- 21 Q. Stop there. Could you explain how project management 22 and funding overlap? Because they continued on the tram 23 governance after you had revised it. There was still 24 a funder. There was still tie. 25 A. Yes, but the point I'm trying to make from the detail 101 1 I have just given you about the rail projects is that 2 Transport Scotland were involved and had a locus in the 3 integration of the Stirling-Alloa-Kincardine railway 4 into the national rail network for which they had 5 responsibility. So that's the difference. 6 Q. The point is where in the review by Audit Scotland does 7 it indicate a concern between overlap of the various 8 bodies -- overlap of responsibilities or difficulties in 9 governance or lack of leadership? 10 A. Well, I deduce -- 11 Q. From what? 12 A. From -- essentially from that sheet that you've put in 13 front of me. 14 Q. Can you identify from what -- 15 A. From that congestion of bodies at the top of the page, 16 and from some of the issues that are raised at the 17 bottom of the page would give me the -- would formulate 18 my view that there was not sufficient clarity about 19 where ownership and leadership of the project lay. 20 Because in amongst all this, is Clackmannanshire 21 Council. They're players here. 22 Q. Yes. 23 A. They've developed it to a certain stage, and there's 24 also the Scottish Executive and Transport Scotland 25 around about it, and you've got various contractors, and 102 1 you've got various people involved in the interaction 2 with Network Rail as well. 3 So it's just it's too congested. 4 Q. I just want to give you one further opportunity, 5 Mr Swinney. It's the last time. 6 Can you explain how you get from the problems at the 7 foot of the page that have been identified by 8 Audit Scotland to a view that this has been caused by 9 lack of leadership? 10 A. From the connection between those points and the text 11 under "Inception and procurement". 12 Q. Right. I want to move now -- you also refer to Lord 13 Fraser's report into the Holyrood Parliament building. 14 If you could look at that report, please, it's 15 production WED00000624. This is obviously a much larger 16 document than the Audit Scotland report we've been 17 looking at? 18 A. Yes. 19 Q. Is this the document you were referring to? 20 A. Yes. 21 Q. I don't know if it's any assistance, but if we could go, 22 please, within this to page 244. This is the 23 conclusions and recommendations section. 24 Are you able to identify what it is in this document 25 that supports your view or dictated what you said should 103 1 happen in relation to the Edinburgh Tram Project? 2 A. I won't be able at this stage to point you to 3 a paragraph within this report, but what I took from my 4 reading of Lord Fraser's report was a number of things 5 about it. But one of the points that I thought came out 6 very clearly was the fact that there was a lack of 7 clarity about decision-making between various players 8 who were involved in delivery of the project, whether 9 that was at political level in the parliamentary 10 corporate body, or amongst members of Parliament, or 11 amongst agents acting on behalf of the parliamentary 12 authorities, and contractors and within contracting 13 teams. 14 If I could summarise some of what I felt about 15 Lord Fraser's report, which I thought was a really 16 powerful piece of work that Lord Fraser completed, was 17 that there was ineffective project management which 18 resulted in circumstances where phases of work would be 19 expected to be undertaken, but could not be undertaken 20 because previous phases of work upon which new phases of 21 work were dependent had not been finished. 22 Q. I think there was no doubt that he was critical of 23 project management. What I'm trying to do is understand 24 how that supports your statement that it was necessary 25 to make changes to the leadership of the tram project. 104 1 I don't -- it's a long report and I'm not trying to 2 make you remember something, and I don't want to go 3 through it page by page. What would you be able after 4 this to identify for the Inquiry what it is within this 5 report you're seeking to rely upon? 6 A. I will certainly do that, but one of the conclusions 7 from Lord Fraser's report was to the point that I have 8 made, that there were many, many players involved in 9 this with different perspectives, and that opened up the 10 opportunity for there to be difficulties in an efficient 11 design of the project. But I'll certainly consider that 12 point. 13 Q. The other thing is I come back to a point -- in a sense 14 I have touched on it this morning already -- if these 15 were the rationale for your decision, why was it never 16 recorded that you were relying on these matters and that 17 leadership was what concerned you? 18 A. Well, what I was -- what I was keen to is ensure was 19 that there was absolute clarity around the leadership 20 and ownership of the project, so that should there be 21 issues that were difficult and challenging about that 22 project, they would be handled properly and effectively 23 by those responsible for doing that. 24 Q. The thing is that's not recorded anywhere. We have seen 25 concerns about avoiding a situation where there could be 105 1 calls for money. But we've seen no mention of 2 governance, nothing about the Stirling-Alloa-Kincardine 3 railway, nothing about Holyrood? 4 A. Well, these are the reflections that I had and my 5 judgements that I was making at the time and which I've 6 recounted to the Inquiry in my evidence statement. 7 Q. The fact that they're not noted at the time might give 8 rise to the impression that these are matters that have 9 really only been thought of later when the tram project 10 started to go wrong and the question was: why did 11 Transport Scotland stand back? 12 A. These were the things that -- these were the 13 considerations that I had in my mind to ensure that we 14 avoided a situation where there was confusion about 15 project direction, and my decisions followed from the 16 conclusions I deduced from those points. 17 CHAIR OF THE INQUIRY: Can I just clarify. You were asked 18 as to why it wasn't recorded; is it fair to say from 19 your evidence that these were issues that were in your 20 mind, but you never recorded them anywhere? 21 A. Well, actually, in all of this, my Lord, I think I've 22 written down almost none of this. This is all people 23 writing down things on my behalf of what I've said. You 24 know, what I -- how I habitually operate is I will write 25 some feedback on submissions, I will speak to civil 106 1 servants, in the course of discussions, I will have 2 these conversations. I actually don't write down 3 personally very much of this. 4 CHAIR OF THE INQUIRY: No, but you would expect perhaps your 5 PS to record what your thoughts were and to circulate 6 them to officials as we've seen already happened. Can 7 you tell us, did that happen? Did your PS or any other 8 official record as far as you're aware what the reasons 9 in your own mind were? 10 A. I would be having these -- I would be expressing 11 reflections based on that -- on the experience that 12 I shared with the Inquiry in my written statement and 13 also in the discussions that we have just had. Whether 14 that would be written down by anybody is -- the public 15 record will demonstrate whether that's the case or not. 16 CHAIR OF THE INQUIRY: Thank you. 17 MR LAKE: My Lord, that would probably be an appropriate 18 time to take the afternoon break. 19 CHAIR OF THE INQUIRY: Yes. We normally have a break for 20 the benefit of the shorthand writers at this time. So 21 we'll resume again about 3.25. 22 (3.07 pm) 23 (A short break) 24 (3.25 pm) 25 CHAIR OF THE INQUIRY: You're still under oath. 107 1 MR LAKE: Mr Swinney, I would like to take you to 2 a different matter now, and look at the dispute that 3 emerged in relation to Princes Street in February 2009 4 or thereabouts. 5 Can you look at your statement in this regard at 6 page 64. 7 The question that leads to answer 185. You were 8 asked: 9 "In February 2009 contractors refused to start work 10 on Princes Street. You were made aware of the 11 Princes Street disputes, see for example email ..." 12 The reference is given: 13 "... which is referring to the dispute. What was 14 your understanding of the reason for the Princes Street 15 dispute? Can you recall the dispute?" 16 You have answered: 17 "I can. It stalled the whole thing for quite some 18 time and it was just fundamentally about where the risk 19 lay between parties. It was about the extent to which 20 the contractors were liable for additional costs of 21 issues that arose once they began their work and the 22 role of the City of Edinburgh Council. So it was just 23 another dispute over the same issue." 24 I just want to fully understand your answer. What 25 do you mean, it was about where the risk lay between the 108 1 parties? 2 A. That -- let's for example say that an item of work might 3 be expected to cost GBP100,000. And when the contractor 4 went in to do that piece of work and it cost GBP150,000, 5 because of what they found, in my estimation the dispute 6 would be about who is paying the extra 50,000. The 7 GBP100,000 was pretty much guaranteed. Who is paying 8 the extra GBP50,000 to do this piece of work, and that 9 is what I would describe as where the risk lay. 10 Q. I understand. You also refer to it being about the role 11 of City of Edinburgh Council as I read that. In what 12 way was the dispute about the role of the City of 13 Edinburgh Council? 14 A. Simply -- what I'm expressing there is essentially the 15 City of Edinburgh Council on one side, the contractors 16 on the other. 17 Q. So that's part of the same thing about the allocation of 18 the risk of additional cost? 19 A. I'm using City of Edinburgh Council there as a shorthand 20 for who is paying and the other side of who is getting 21 paid. 22 Q. How were you getting your information about the 23 Princes Street dispute? 24 A. I'd be getting it from Transport Scotland officials and 25 then I would, as my concerns grew, I would ask to see 109 1 tie to have discussions about it. 2 Q. Is that David Mackay? 3 A. It would be at that time probably David Mackay, yes. 4 Q. Did he say anything that was at odds with what you've 5 recorded here, that is your understanding? 6 A. I think the -- I think -- I wouldn't imagine so. You 7 know, what -- what these issues were all about was about 8 whether or not -- it was about what it cost to do 9 particular aspects of -- of the job, and whether that 10 should be covered by a fixed sum, which I think would be 11 the expectation of the City of Edinburgh Council and 12 tie, and whether it was an unfixed sum, which would be 13 the expectation of the contractors, to put it simply. 14 Q. Mr Mackay, as you may know, has already given evidence 15 to the Inquiry and said of one of his meetings with you 16 that you'd said to him: you are not mediating properly; 17 and his response was: it wasn't mediation, in effect it 18 was the city being held to ransom by the contractors. 19 Do you recall that? 20 A. I don't recall the exact conversation, but the 21 sentiments of it are familiar with me in the sense that 22 I would be pressing Mr Mackay to resolve the problem 23 which was holding up the works, and Mr Mackay would be 24 saying to me: well, look, I've got a really strong 25 contractual position, and I'm just going to get these 110 1 contractors to comply with my really strong contractual 2 position, and that will resolve it. And that was the 3 type of approach that was prevalent in tie at that time. 4 And went on for the best part of the period from about 5 early 2009 to mid-2010, I would say. 6 Q. When asked about this discussion and what you said to 7 him, Mr Mackay was quite clear that you told him: just 8 get it sorted. 9 A. Yes. 10 Q. Did you say that to him? 11 A. I probably would do, yes. 12 Q. What did you expect him to do to get it sorted? 13 A. To fix the issue, to make sure that the works were able 14 to proceed, because we had rising public concern and 15 political pressure about the fact that Princes Street 16 was in a mess for a prolonged period. 17 Q. You will be aware that contractors were not working 18 because they considered that they were going to be 19 entitled to more money and they wanted that issue 20 resolved? 21 A. Correct. 22 Q. So it's very difficult to actually force someone to work 23 in that situation, unless you actually give them the 24 money. 25 A. Well, you see, this essentially comes down to the kernel 111 1 of these disputes, what were people expecting. Were 2 they expecting to get -- you know, was the sum of money 3 that was being paid for a particular item of work in any 4 way in dispute? And that was obviously at the heart of 5 these issues. 6 Q. You will know from your involvement through government 7 that even if you feel you're right about some agreement 8 or contract, if you have to force someone to do 9 something, and if that requires court work or dispute 10 resolution machinery under the contract, that was going 11 to take time. You would understand that? 12 A. Yes. 13 Q. So really the only way of getting it sorted speedily 14 would be to come to a further agreement or give the 15 contractors more money? 16 A. No. The -- there would be opportunities to try to 17 resolve these issues through the mechanisms that you've 18 also cited. One of the -- at the very start of our 19 discussions this morning you asked if there was anything 20 I would do differently, and one of the things I had in 21 mind was the fact that I'd given quite a lot of time at 22 this period for these issues to work their way out. 23 I don't think there's -- you know, if there's -- I don't 24 think anybody could say that there was a rush on to 25 resolve some of these questions. They were pursued 112 1 through some of the dispute resolution mechanisms within 2 the contract. 3 So Mr Mackay would say to me something like: you 4 know, I've got a really strong contractual position, I'm 5 going to pursue it, and we'll take it to some form of 6 adjudication. And I would say, okay, but I would 7 probably use language like: just get it sorted, because 8 we need to make progress here because we have public 9 concern about Princes Street; and these issues would be 10 taken to an adjudication process and it wouldn't deliver 11 a positive outcome for tie. 12 And that concerned me greatly because I had been led 13 to believe there was a really strong contractual 14 position, which would be able to secure the resolution 15 of these issues, and then that wouldn't happen. 16 But in the process of all that happening, that might 17 take four months. 18 So it wasn't that I was saying to Mr Mackay: get it 19 sorted and do it this afternoon. I was saying: get it 20 sorted; but there was plenty of time given to try to 21 resolve these issues. 22 Q. So just to be clear about this, and I should say, the 23 Inquiry has heard evidence that the adjudication process 24 didn't start until after the Princes Street matter was 25 resolved. So there hadn't been -- 113 1 A. I think when I talk about adjudication, I'm talking 2 about the means to try to resolve -- adjudication is 3 maybe the wrong word. I don't want to use the word 4 "arbitration" because that suggests a binding nature, 5 but some form of independent validation of whose claim 6 is correct in terms of the contract. 7 Q. But it seems to be the understanding, it's for 8 Lord Hardie to determine ultimately, from Mr Mackay's 9 evidence that he had an expectation that matters would 10 be resolved and resolved quickly. Not a matter of go 11 away and start adjudication or other processes which 12 might take months and leave Princes Street shut for 13 another four months, to use your time frame. It had to 14 be resolved quickly. Is that a fair understanding of 15 what you said? 16 A. No. No. Because I don't think the timeline supports 17 that, because Princes Street was at a standstill for 18 quite a long time. 19 Q. By what -- you had a meeting with Mr Mackay, I think it 20 was in March 2009; is that correct? 21 A. I would have to check, but sounds familiar. My 22 statement will cover that. 23 Q. And an agreement was reached within -- with the 24 contractors to resolve matters in a matter of weeks 25 after that, work commencing shortly thereafter; do you 114 1 recall that? 2 A. Yes. 3 Q. Now, that's consistent with an understanding on 4 Mr Mackay's part that you were essentially directing him 5 to go away and get this sorted now, not just start 6 contract procedures and see how long they go for, but 7 get it sorted now? 8 A. Well, but my point is that the nature of -- this period, 9 if I'm recalling that period correctly, there had been 10 disputes about elements of work being undertaken which 11 had been through some process of consideration, and they 12 had not worked out successfully for tie. 13 Q. Those decisions happened later. 14 A. Okay. 15 Q. I appreciate -- 16 A. I think there were perhaps some. Were there not 17 disputes in the latter part of 2008? 18 Q. No, 2009. 19 A. Okay. 20 Q. That's the point. Adjudication wasn't tested by then. 21 That it was understood that you wanted matters resolved? 22 A. Yes. Well, in a sense I would say that's me taking 23 a very close interest in the project, and making sure 24 that things proceed. 25 Q. Is the closeness of the interest you're taking really 115 1 consistent with a hands-off or stand back that you'd 2 instructed of Transport Scotland? 3 A. Well, as I've said in my earlier answers, I would not 4 use that language. I wouldn't use hands-off. We 5 changed the arrangements around governance, but we had 6 legitimate interests, which are well documented in my 7 statement and also in the documentation, to protect the 8 public purse, and we did so. 9 Q. If you're in a situation where you're calling in the 10 chairman of tie and saying: I want this done; is that 11 not just the sort of thing that would cause confusion as 12 to leadership, that it's just been done covertly? 13 A. No, because I was doing it to the tune of tie. I wasn't 14 having the contractors in to listen to their side of the 15 argument, and to try to in any way sow confusion there. 16 I was speaking to the person who was responsible for 17 delivery of the project. 18 Q. And in a sense telling him or advising him -- 19 A. No, pressurising him to get on with it, yes. 20 Q. So in fact you were pulling the string? 21 A. I wouldn't describe that as the role I was performing, 22 no. 23 Q. You were trying to procure a particular outcome and you 24 were just doing it via Mr Mackay? 25 A. Well, I was trying to get the project finished, which is 116 1 what Parliament had voted for. 2 Q. Would it not have been more honest to have done it 3 openly with the Scottish Government and 4 Transport Scotland having an overt role? 5 A. The -- well, the danger of -- what we've gone through in 6 all of my evidence is my worry that there would have 7 been perceived to be competing centres of power and 8 influence over the delivery of the contract. And I was 9 expressly determined not to make that the case. 10 So my conversations were with Mr Mackay, or they 11 were with the City of Edinburgh Council. They were only 12 on one occasion with the contractors because I -- 13 I could see that the contract was in such a perilous 14 position, but I didn't -- you know, I was at pains to 15 channel any input I had directly into Mr Mackay and into 16 the City of Edinburgh Council. 17 Q. You said in the earlier part of that answer, you were 18 concerned that it would be perceived that there were 19 competing centres of power and influence. Does it come 20 to be that you were quite happy to have the power and 21 the influence; you just didn't want that to be perceived 22 generally in case it exposed Transport Scotland? 23 A. No. 24 Q. But you did have the power and you did seek to exert the 25 influence? 117 1 A. I was -- well, I was seeking to exercise influence to 2 try to get the project finished, so that the city of 3 Edinburgh could start moving again. 4 Q. But not openly? 5 A. Well, I'd no cause to do it openly. I was doing it 6 through the proper channels of those that were running 7 the project. I was a major funder of the project on 8 behalf of the Scottish taxpayer, and I simply wanted to 9 make sure that every step was being taken to secure the 10 project that Parliament had voted for. 11 Q. You were aware, round about the time of the 12 Princes Street dispute, Transport Scotland obtained 13 legal advice in relation to the contract and were told 14 that it was not fit for purpose, and was likely to lead 15 to disputes? 16 A. I was not aware of that. 17 Q. Would it have been useful for you to have been aware of 18 that? 19 A. Yes. 20 Q. Is that the sort of thing that really would have been 21 useful to know before the contract was entered into? 22 A. Yes. 23 Q. Would that dictate that possibly Transport Scotland 24 having obtained that advice before the contract was 25 entered into, instead of afterwards, would have been 118 1 a wise move? 2 A. It's the type of advice that I would have expected the 3 City of Edinburgh Council to have taken. 4 Q. If you could answer the question, would it not have been 5 better if Transport Scotland were going to obtain that 6 advice, if they had done it before the contract was 7 entered into, and not afterwards? 8 A. They were not a signatory to the contract, so I would 9 expect the City of Edinburgh Council to secure that -- 10 Q. Would it be better if Transport Scotland were going to 11 obtain that advice, if they had done it before the 12 contract was entered into, rather than afterwards? 13 A. I -- I -- I maintain my position that it would be the 14 type of scrutiny that I would expect the City of 15 Edinburgh Council to undertake as the owners of the 16 project. 17 Q. We understand that's the type of scrutiny that you would 18 expect the City of Edinburgh to take, but nonetheless, 19 Transport Scotland also undertook it, and would it not 20 have been better for them to undertake it before the 21 contract was entered into, rather than afterwards? 22 A. Well, I think that type of consideration was important 23 and relevant and central to the whole project for the 24 City of Edinburgh Council to undertake as the 25 contractors on the project. 119 1 CHAIR OF THE INQUIRY: Could I ask, if it is the case that 2 Transport Scotland were advised that the contract wasn't 3 fit for purpose after the contract had been signed, what 4 would you have done if you'd been told that? 5 A. In all honesty, my Lord, I don't know what I would have 6 done, because the contract would have been signed by the 7 City of Edinburgh Council. The -- whatever analysis was 8 undertaken, the legal opinion that was given about the 9 worth or the value or the robustness of the contract 10 would be a point of intense debate and contention 11 between parties when it arose after the contract had 12 been signed. So would be very difficult to speculate 13 about what I would have done in those circumstances. 14 CHAIR OF THE INQUIRY: But the validity of the contract 15 would probably have some bearing on the resolution of 16 the dispute, the Princes Street dispute, and if that had 17 been known to Transport Scotland officials, would you 18 have expected them to at least tell Edinburgh that they 19 had that information, and for Edinburgh then to go and 20 consider it. 21 A. I think that would have been reasonable, my Lord. 22 CHAIR OF THE INQUIRY: Yes. And equally, if that had been 23 passed to you by Transport Scotland officials, would you 24 have passed that on at the political level to the leader 25 of the Council, perhaps? 120 1 A. I would have probably felt obliged to do so, yes. 2 CHAIR OF THE INQUIRY: Thank you. 3 MR LAKE: If I could ask you, please, to look back at your 4 statement, something on page 61 of that. It is the 5 question that leads to answer 176. I should say for 6 context, this is in the context now of looking at the 7 various disputes that went to the dispute resolution 8 procedure, so we're talking about later 2009 and into 9 2010. 10 You were asked the question: 11 "Did you get a sense of who was right or wrong in 12 respect of their interpretation of the contract?" 13 You said: 14 "I had advice that indicated the contract was robust 15 from the Scottish Ministers' perspective. I was advised 16 that this was contractors flexing their muscles." 17 Was that advice from Transport Scotland? 18 A. The first part of it would be, and the second part of it 19 would be a combination of advice from the City of 20 Edinburgh Council and tie. 21 Q. What do you mean when you say that the contract was 22 robust from the Scottish Ministers' perspective? 23 A. That Scottish Ministers expected the contract to be able 24 to deliver the trams project and to do that in an 25 orderly fashion within the financial envelope that had 121 1 been agreed. 2 Q. So again, at this late stage, that was an issue that you 3 sought advice on, but not prior to the contract being 4 entered into? 5 A. Well, in -- before the contract was entered into, there 6 would be various conditions of grant that were applied 7 that would have to be certified by the City of Edinburgh 8 Council in coming to the award of the contract, in which 9 my -- the expectations of Scottish Ministers and the 10 various financial rules that we would apply would have 11 to be applied in that respect. 12 So all of that due diligence, we would be expecting 13 to be undertaken consistent with the requirements of the 14 Scottish public finances by the City of Edinburgh 15 Council as the owners of the project. 16 So when we looked then at some of the issues of 17 dispute after the signing of the contract, the advice 18 I would be receiving would be consistent with those 19 expectations in the run-up to the -- that were secured 20 in advance of the signing of the contract. 21 Q. There was a lot of faith placed in the City of Edinburgh 22 Council to determine whether or not the Scottish 23 Government would hand over half a billion pounds, wasn't 24 there? 25 A. Well, they were the owners of the project. 122 1 Q. And you were the owners of half a billion pounds? 2 A. Yes, but that -- but by the various processes of 3 Parliament, we had determined that the -- that money 4 would be offered to the contract. We said it would be 5 offered within the rules that we apply for the 6 management of public finances, and that put certain 7 responsibilities on the City of Edinburgh Council and 8 its accountable officer that we would expect them to 9 fulfil as the owners of the project. 10 Q. If we go to page 128 of your statement. We should 11 probably start on the previous page to pick up the start 12 of the question. It refers to a document which is 13 a document of written questions on the Edinburgh tram 14 project: 15 "In response to a question from Wendy Alexander, you 16 said that information submitted to the Public Accounts 17 Committee on major capital projects did not include 18 information on the tram project because it was a project 19 being delivered by a local authority." 20 Over the page: 21 "Do you think that is a flaw in the system of review 22 of major capital projects? If so, has it now been 23 rectified?" 24 You make the point that: 25 "There is a distinction between the trams project 123 1 and national projects. The Government takes forward 2 national projects and we are accountable to Parliament 3 for them. If a local authority is taking forward 4 a major project, albeit one that we are the funders of, 5 the local authority is responsible for delivering the 6 project and should be accountable to its members. If 7 I start saying to local authorities in Scotland that 8 they have got to account to Parliament for a project 9 then that is the first thing they would complain about. 10 We have a range of projects that we commit to and should 11 be accountable to Parliament for. But if a local 12 authority is taking forward a project, albeit one that 13 we are funding to a very significant extent in capital 14 expenditure every year, it is a slightly different 15 question." 16 Now, you make the point there that local authorities 17 are accountable to their members for projects undertaken 18 by them; yes? 19 A. Yes. 20 Q. And also that should the Scottish Government take 21 forward a project, the Scottish Government is 22 accountable to the Scottish Parliament for that project? 23 A. Yes. 24 Q. But what about when the Scottish Government decides to 25 spend GBP500 million of public money on a project? 124 1 Would you accept that the Ministers are accountable for 2 that? 3 A. We're accountable for the proper use of that money 4 towards the project concerned. 5 Q. You don't consider that you should be accountable for 6 ensuring or having taken proper steps to ensure that 7 that delivers what was intended? 8 A. That is exactly what we did. Because we put in place 9 the grant conditions that obliged the City Council to 10 follow the financial rules that we would expect for 11 financial management of a project. But you raised with 12 me the issue of GBP500 million. Routinely every year 13 the Government is passing in excess of GBP10 billion to 14 local authorities around the country to fund public 15 services and invest in capital projects. We are doing 16 the same with a variety of other providers, housing 17 associations and other organisations, of similar sums of 18 money. 19 Q. Mm-hm. 20 A. We don't manage all of those projects. Indeed, my 21 answer at 397 expressly gives the reasons why not, 22 because it would be considered to be intrusive on local 23 democracy within Scotland. We are funding local 24 authorities to -- the last time I looked, around 86, 25 87 per cent of their financial activities, but we do not 125 1 control or run their decision-making around this 2 project. We have rules that they have to follow. They 3 have accountable officers that have to be accountable 4 for the decisions that they take and accountable to 5 their elected members, and those rules are crystal clear 6 to anybody holding executive office within those bodies. 7 Q. When we are coming to the question of grant funding 8 a particular project from central government funding, is 9 there any accountability then on the part of Scottish 10 Government for those funds and achieving the intended 11 outcome? 12 A. For the point of certificating the appropriate -- the 13 appropriate use of the money for that project, yes. 14 There is that accountability on Ministers. But for the 15 design and direction of various projects, the financial 16 rules that we put in place and the terms of grant that 17 we put in place pass those obligations to others within 18 the public service to exercise essentially on behalf of 19 Scottish Ministers within their own corporate body, ie 20 a local authority or a non-departmental public body or 21 whatever. 22 Q. So does it come to this: provided that the funds are 23 used for the particular project for which they're 24 intended, the responsibility for ensuring that they 25 achieve the outcomes is delegated to the local authority 126 1 or other body? 2 A. That would be correct, yes. 3 Q. I think that notwithstanding that, particularly during 4 2010, you started to have a number of meetings with 5 people at tie. I think eight throughout the year. 6 Eight meetings throughout the year with representatives 7 of tie; is that correct? 8 A. It would be something like that, yes. 9 Q. This is taking an increasingly active role and seeking 10 to influence the project? 11 A. Yes. 12 Q. If we look at -- 13 A. Well, seeking to resolve the project is how I would more 14 characterise it. 15 Q. What do you mean by that? 16 A. Well, the project was clearly in great difficulty in 17 2010, and my -- more active engagement in meetings was 18 recognising the fact that the project was in a very 19 difficult place. 20 Q. Standing that and the limited role you played, which was 21 essentially trying to influence or pressure people at 22 tie and the Council to take certain steps; would that be 23 fair statement first of all? 24 A. Not to take particular steps until one particular step, 25 which I suspect we'll come on to. 127 1 Q. Mediation? 2 A. Mediation. But certainly pressurising to resolve 3 issues, to make progress, to get the project moving 4 faster, to get things under way. But not to say: you 5 must do this, you must do that; until we get to the 6 point of mediation. 7 Q. Rather than have to pressurise people and hope they do 8 what you want, would it not be more satisfactory from 9 the central government standpoint to be able to take 10 direct action? 11 A. Well, for that we would have to be the owner of the 12 project, and at no stage were we. 13 Q. You would have to be the owner of the project, or you 14 would have to have built into the grant conditions 15 certain scenarios in which you would be able to take 16 executive action or give directions. 17 A. In that circumstance I think we would be creating the 18 possibility of confusion around leadership of the 19 project. 20 Q. Why does that create confusion, when doing it behind 21 closed doors, by means of influence and pressure, 22 doesn't? 23 A. Because I'm communicating privately and directly with 24 those responsible for the ownership of the project. 25 Q. With the intention that your view should be taken 128 1 account of in the management of the project? 2 A. Well, my view was not suggesting that they should do 3 anything other than work to complete the project, which 4 is what they were trying to do. 5 Q. If we look at page 79 of your statement, if we look at 6 paragraph 233 at the foot of the page, you say: 7 "Of course I could." 8 That is turn off funding: 9 "I also had to be mindful of the implications of 10 turning off the funding. What do I do about 11 Princes Street, the half-built trams, my commitment to 12 Parliament to support the project? It cannot be said 13 that Transport Scotland and Ministers had no oversight 14 of the project because there is very clear evidence 15 which shows that we were absolutely on the case." 16 What do you mean, "absolutely on the case", here? 17 A. The eight meetings that you've raised with me. 18 Q. That was in 2010. There were very few in 2009 and 2008. 19 A. Well, what would be -- what would be happening after 20 2007 was the regular reporting streams of the City of 21 Edinburgh Council to the Scottish Government, which 22 would be reporting on progress on the project. 23 When we got to a situation where things were very 24 difficult on the project, obviously I took much closer 25 personal involvement in trying to resolve the issues. 129 1 Q. Instead of taking close personal involvement, either at 2 Ministerial level or Transport Scotland level once 3 things go wrong, would it not be more satisfactory that 4 that input is available throughout the project to try 5 and stop things going wrong in the first place? 6 A. I think that was available through the reporting 7 mechanisms that we'd put in place and the grant 8 conditions which should have prevailed -- which were put 9 in place for the project. 10 Q. Let's deal with those one at a time. Firstly, the 11 reporting mechanisms. How would reporting enable 12 Transport Scotland to take an active role? 13 A. Because the reporting would throw up information to 14 Transport Scotland on which it would give opinions and 15 views to the City of Edinburgh Council or to tie to try 16 to resolve difficulties. 17 Q. Did that happen? 18 A. Yes. 19 Q. There seems to be very little record of information. We 20 have heard of discussions taking place, but nothing 21 seems to have been recorded or noted? 22 A. I think in the discussions that would be taking place, 23 there would be dialogue going on between our officials 24 and Transport Scotland and City of Edinburgh Council and 25 tie to understand and to address some of the issues that 130 1 prevailed. 2 Q. But if you were going to have a governance structure 3 considering projects where difficulties arise, is it not 4 appropriate or even necessary that the flow of 5 information is recorded, so people know what's being 6 said, know what's going back and forth? 7 A. Well, fundamentally it's about having a channel of 8 communication very directly with -- with those 9 responsible for the delivery of the project to ensure 10 that they're aware of the perspective of 11 Transport Scotland in that respect. 12 Q. In the earlier answer, you said there were two things, 13 the reporting mechanisms and the grant conditions, which 14 enabled there to be involvement throughout the project. 15 In what way did the grant conditions enable Ministerial 16 or Transport Scotland involvement in the project before 17 things went wrong? 18 A. To essentially put the obligations on the City of 19 Edinburgh Council to ensure that the project was 20 properly constructed to enable it to be delivered. 21 Q. What I was interested in is: what was in the grant 22 conditions? My original question, just for clarity, I 23 should say, was instead of taking close personal 24 involvement, either at Ministerial level or 25 Transport Scotland level once things went wrong, would 131 1 it not be more satisfactory to consider things before 2 they went wrong? Paraphrasing it slightly. Your answer 3 was that was taken care of by the grant conditions. But 4 what in the grant conditions enabled you or 5 Transport Scotland to get involved before things went 6 wrong? 7 A. Well, essentially, requiring the City Council to take 8 the project forward consistent with the terms of the 9 grant letter. 10 Q. But that doesn't enable Transport Scotland or yourself 11 to get involved, does it? 12 A. No, but it's putting down the expectations on the 13 City Council of what they have to do to follow that, and 14 then it's reinforced by the financial rules that we hold 15 public servants to account for in enacting consistently 16 with the requirements of, for example the Scottish 17 Public Finance Manual. 18 Q. In the various discussions you had with representatives 19 of tie in 2010, it appears that there's no written 20 record being kept of the discussions. Was there 21 a reason for that? 22 A. No, because -- no, not particularly, no. 23 Q. This is an involvement where you are trying to exert 24 influence or pressure. Why not have any record of what 25 you're being told and what you're telling them? 132 1 A. Well, I -- no express decision was taken by me in that 2 respect. I obviously don't prescribe what -- 3 I certainly -- I don't actively prescribe what meetings 4 that I'm involved in are minuted or not minuted. 5 I think there are judgements made within the Civil 6 Service about what's -- what's necessary to report in 7 these circumstances. 8 My discussions with tie would have been focused, and 9 with the City Council, on ensuring that progress was 10 made in respect of the project direction, to resolve the 11 issues that they were briefing me about when they came 12 to see me. 13 Q. We've already had some reference to the move to 14 mediation. You're quite clear in your statement in this 15 regard that you told the Council that they were going to 16 mediation. 17 A. Yes. 18 Q. That's a big break from everything you've said so far, 19 that you couldn't get involved and you hadn't got the 20 direct authority? 21 A. Yes. 22 Q. What -- first of all, why take that action at that time? 23 What changed? 24 A. I thought the project was in perilous condition and all 25 that I had been briefed about by tie about the strength 133 1 of their contractual position, and their ability to 2 exert that degree of control over the contractor was -- 3 well, I had no confidence in that -- in that analysis 4 because clearly it was not resulting in a sustained, 5 focused delivery of the project. 6 Q. Why did that become clear to you at that stage, I should 7 say in November 2010 rather than beforehand? 8 A. I just -- I had watched for some time and you made 9 reference earlier on to the series of meetings that we'd 10 had. We would talk in those meetings about how progress 11 was likely to be made, and then it wouldn't be made, 12 and I would be briefed -- there would be some further 13 progress was going to be made, and then it wouldn't be 14 made, so my confidence declined, and I came to the 15 conclusion that the contract had reached a position 16 where there had to be a resolution to the issues that 17 underlay the problems. 18 Q. If we could look at page 66 of your statement. 19 This is in relation to the direction that you gave. 20 If you look right to the foot of the page, you can see 21 in the last paragraph you begin by noting that: 22 "We had a meeting with the Council on 23 16 November 2010 when I told them they were going to 24 mediation." 25 You explain, when you get to the last sentence, 134 1 where you say: 2 "Eventually I reached the conclusion in the latter 3 part of 2010 that this project was going nowhere and 4 that it had to go to mediation." 5 In your view, is that something you could have 6 decided earlier if you wanted? 7 A. These matters were always a careful balance between 8 giving enough time to tie and the City Council to try to 9 resolve issues within the terms of the contract as it 10 stood, or not being able to do so. And essentially for 11 some time I was wrestling with whether or not we'd 12 reached that point. And again going back to our opening 13 questions in this session, and I make the point here 14 about the length of time it took to get to that point, 15 I was essentially giving every opportunity I thought 16 reasonable to resolve these issues within the contract 17 or having to take some action outwith the contract, and 18 I was -- I simply was trying to weigh up what was a fair 19 moment at which to say: look, this isn't working. 20 Q. What was the basis of your action? This was a contract 21 to which the Scottish Ministers weren't a party. How 22 could you direct the Council to mediate? 23 A. I had a meeting with the leader of the Council, the 24 Chief Executive, the Director of Finance, 25 and I said: look, this is going nowhere and you've got 135 1 to go to mediation. 2 Q. Could you have compelled them to do it? 3 A. Well, in other parts of my statement we talk about Cure 4 Notices, where I could have applied a Cure Notice, which 5 would have turned off the tap of funding. 6 Q. I think you make the point there wasn't much point in 7 doing that, in your statement? 8 A. Which is essentially my answer to your question, that 9 I couldn't compel them to do it. I could -- I could 10 apply a Cure Notice. It would have stopped the money, 11 but if they said: look, we are not going to mediation; 12 then they wouldn't have gone to mediation. But they 13 agreed to go to mediation. 14 Q. There was a Transport Scotland representative, 15 Ainslie McLaughlin, at the mediation. What did you 16 understand his function to be? 17 A. I offered the contribution of Mr McLaughlin to try to 18 resolve issues he had had. He was the Director of 19 a major roads project. He had had active involvement or 20 he'd supervised the successful delivery of -- or was at 21 that time -- probably still at that time was supervising 22 the successful delivery of the upgrade of the A80 to 23 motorway status between Stepps and Haggs, which involved 24 one of the principal contractors, Bilfinger Berger. He 25 was experienced at project management, and I felt he 136 1 would perhaps help to resolve issues, and the 2 City Council were keen to have input from somebody of 3 Mr McLaughlin's nature and quality. 4 Q. Prior to directing the Council they would have to 5 mediate, I think by that time you had decided to meet 6 contractors, which earlier you said you wouldn't do? 7 A. That's right. 8 Q. Why did you decide to meet them? 9 A. Because I felt I was -- I needed to have a better 10 understanding of what informed their -- the strength of 11 their position. I heard -- I'd heard up until then 12 about the strength of tie's position and the 13 City Council's position. It clearly was not prevailing. 14 So I felt I had to understand what underpinned the 15 strength of the contractor's position; and it was for 16 that reason that -- and because I was thinking about 17 mediation, I had to understand what -- you know, what 18 were the relative dynamics of that relationship. 19 Q. Was it the fact the contractors explained their position 20 to you, made you realise that there would need to be 21 a mediation? 22 A. I got from that conversation, and also from my other 23 conversations with tie over a longer period of time, 24 that we were in a position where both sides believed 25 firmly and strongly in their respective positions to an 137 1 extent that it would -- it would have to be resolved by 2 something, and it would have to be resolved either by 3 mediation or it would have to be resolved by what 4 I would imagine to be a protracted legal process. 5 CHAIR OF THE INQUIRY: Was the meeting with the contractors 6 minuted? 7 A. I don't know, Lord Hardie, my Lord, but I will determine 8 that. 9 CHAIR OF THE INQUIRY: Could I just ask, all of these 10 meetings with tie, the Council and the one with the 11 contractors, were you accompanied by an official or 12 officials? 13 A. At all times. 14 CHAIR OF THE INQUIRY: Yes. You say that you left -- the 15 question of minuting meetings was really left up to the 16 Civil Service to decide; is that right? 17 A. That's -- I certainly don't direct meetings to -- 18 I certainly don't give a direction which says: minute 19 this meeting, don't minute that meeting. I don't do 20 that. 21 CHAIR OF THE INQUIRY: With the benefit of hindsight, would 22 it -- which is always easy, would it have been a good 23 idea to have minutes of these meetings, so that everyone 24 knew and there was a certain transparency as to what was 25 being discussed? 138 1 A. I think that would be a fair observation. 2 MR LAKE: Prior to the conclusion of the discussions at the 3 mediation, Mr McLaughlin went away to make telephone 4 calls. Was he involved in telephoning you and getting 5 your approval to the deal that would be done? 6 A. He didn't require my approval, but he phoned me to let 7 me know how it was going. 8 Q. This was at the stage of actually doing the deal. Did 9 you say you were content for the deal to be done on the 10 terms on the table? 11 A. What I was interested in was a deal being arrived at 12 that would lead to the completion of the project, and my 13 approval for the terms of that were not required and 14 I didn't give them. 15 Q. Could I ask you to look at another document, please. 16 This is reference TRS00031263. You can see this is 17 information issued by the Cabinet Secretariat on 18 6 September 2011. 19 The passage shown we've got: 20 "Following City of Edinburgh Council's decision on 21 25 August to take the tram only to Haymarket, Ministers 22 announced that the remaining grant funding of 23 GBP72 million would be withheld on the grounds that the 24 decision represented a significant departure from the 25 original concept that the Government agreed to support 139 1 to a maximum of GBP500 million." 2 Then if I read short to the fact we know that the 3 grant was eventually reinstated, the last three lines: 4 "As part of any agreement to release further grant 5 payments, the Government will require the Council to 6 agree that Transport Scotland should assume a greater 7 role in the management of the project." 8 So this is post Mar Hall, for the remainder of the 9 works being carried out, it becomes a Scottish 10 Government requirement to have Transport Scotland 11 involved. Why the change of heart? 12 A. Because quite clearly the mediation process, it had 13 become apparent that the role of tie had become so 14 difficult in relation to contractual relationships that 15 there had to be essentially new input into the -- into 16 that relationship. 17 Q. We have heard that tie were completely taken out of the 18 picture. The Council took the project back and they 19 appointed consultants, Turner & Townsend, to act as 20 their project managers. That took care of tie. Why 21 bring in Transport Scotland? 22 A. To provide some greater assistance to try to resolve the 23 remaining parts of the project. 24 Q. What assistance did they need to provide in respect of 25 what parts of the project? 140 1 A. I'm not familiar well what -- by this time, this is post 2 2011. So I'm not in operational -- I don't have 3 operational responsibility for the project for that 4 time. It passed to Mr Neil, who is the author of this 5 item at the Cabinet. But I understand that the 6 Transport Scotland, I think, seconded a number of 7 individuals to assist the City Council. 8 Q. Although you had moved on, this was a Cabinet decision? 9 A. Yes. 10 Q. We seem to here have an 180-degree turn, from pulling 11 Transport Scotland out to making it mandatory that they 12 are put back in. That's not -- it seems to be 13 recognising now that good governance requires the input 14 of Transport Scotland? 15 A. No, I think it's practical assistance that 16 Transport Scotland were offering to assist with the 17 completion of the project, because the project had got 18 into such a perilous position. 19 Q. Is this not some evidence that perhaps it would have 20 been better had Transport Scotland not been taken out in 21 the first place? 22 A. No, because that would involve is speculating about how 23 we would have managed in a project with the potential 24 for leadership to be confused and split, and we don't 25 know what the effect of that would have been on the 141 1 project. 2 MR LAKE: Thank you very much, Mr Swinney. 3 CHAIR OF THE INQUIRY: I don't think there are any questions 4 from anyone else. 5 Thank you very much, Mr Swinney. 6 Examination by MR BARNE 7 MR BARNE: I wonder if I might ask very briefly, one point. 8 Good afternoon, Mr Swinney. Do you recall the 9 advice that you received from Dr Reed on 10 6 September 2007? We can call it up. It's TRS00004523. 11 I will just give you a moment to refresh your memory. 12 A. Oh, yes. I remember. 13 Q. I want to ask you about this in the context that we've 14 seen, which is that the Scottish Parliament had voted in 15 terms of the resolution, and what discussions can you 16 recall that you would have had with Dr Reed in advance 17 of this particular advice being given to you? 18 A. I imagine that I would have had very brief conversations 19 with Dr Reed in the aftermath of the debate which took 20 place on Wednesday, 27 June. If I recall correctly, 21 that weekend I went on leave and was not involved in 22 anything other than essential Government business during 23 that time. 24 So I don't think in the course of the time I was 25 away that I spoke to Dr Reed. And then this would have 142 1 been awaiting my return from leave. 2 Q. Do you recall it being suggested to you in the questions 3 that were put to you this afternoon that it might be 4 seen to have been a justification that you have come up 5 with after the event that you had concerns at the time, 6 or that there were concerns at the time about there 7 being clear roles within the delivery of the tram 8 project? 9 A. I recall that, yes. 10 Q. I wonder if you could then -- we could have a look at 11 page 8 of this advice, please. The section I would like 12 you to look at is just under the heading, "Future 13 Governance and the Role of Transport Scotland". You see 14 paragraph 1 there says: 15 "The Parliament's decision places the risk of any 16 cost overruns on the Tram Scheme with the City of 17 Edinburgh Council, and makes it clear that 18 responsibility for managing and delivering the scheme 19 rests with the promoter." 20 I think that's the point that we -- that was 21 discussed earlier about insulating Transport Scotland 22 and the Government from future calls on funding. Is 23 that how you read that? 24 A. Yes. 25 Q. It's really the second paragraph I want to ask you 143 1 about: 2 "To achieve this clarity of roles, and ensure that 3 situations could not arise subsequently in the 4 governance of the project which might generate further 5 calls on central funding, I propose that 6 Transport Scotland's future engagement with the 7 Edinburgh Tram Project should be on the basis of revised 8 grant conditions and once these conditions are in place 9 Transport Scotland staff should withdraw from active 10 participation in the governance of this project." 11 I would invite your comment on the words "to achieve 12 this clarity of roles". How did you understand 13 Dr Reed's advice to be in relation to that issue? 14 A. That would be Dr Reed essentially addressing the concern 15 that I had, that there was a potential with a number of 16 players involved, that there could be some uncertainty 17 about where project leadership lay, and where the 18 responsibility for exercising that leadership would 19 rest. 20 That is -- the material which would have been in my 21 mind in my discussions which took place around the 22 resolution of these -- of these questions. 23 MR BARNE: Thank you, Mr Swinney. 24 CHAIR OF THE INQUIRY: Thank you very much, Mr Swinney. 25 You're free to go. You're still subject to your 144 1 citation and could be recalled. I hope that won't be 2 necessary. 3 A. Thank you. 4 MR LAKE: The next witness we have available tomorrow is 5 Marshall Poulton. 6 CHAIR OF THE INQUIRY: I think it's a later start. We will 7 adjourn until 10 o'clock tomorrow morning. 8 (4.17 pm) 9 (The hearing adjourned until Wednesday, 24 January 2018 at 10 10.00 am) 145 1 INDEX 2 PAGE 3 Discussion re procedural matters .....................1 4 5 MR JOHN SWINNEY (sworn) ..............................3 6 7 Examination by MR LAKE ........................4 8 9 Examination by MR BARNE .....................142 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 146