1 Tuesday, 13 March 2018 2 (9.30 am) 3 CHAIR OF THE INQUIRY: Good morning. 4 MR MCCLELLAND: Thank you, my Lord. The next witness is 5 Vic Emery. 6 MR VIC EMERY (sworn) 7 Examination by MR MCCLELLAND 8 CHAIR OF THE INQUIRY: You are going to be asked some 9 questions by Mr McClelland, one of the Counsel to the 10 Inquiry. If you just listen to the question and answer 11 it as directly as possible, and if you don't understand 12 the question, just let us know. 13 Mr McClelland? 14 MR MCCLELLAND: Thank you, my Lord. Could you please state 15 your full name. 16 A. My name is Victor Reginald Emery. 17 Q. Mr Emery, you should see sitting in front of you, on the 18 desk there, the written answers that you supplied to the 19 Inquiry? 20 A. Yes. 21 Q. Do you recognise those? 22 A. Yes, I do. 23 Q. Now that you are under oath, do you confirm that the 24 answers you gave are complete and true and should stand 25 as your evidence to the Inquiry? 1 1 A. To the best of my ability, yes. 2 Q. Is there anything in there you think is perhaps no 3 longer accurate or wish to clarify? 4 A. Only the opening statement. I was taken on to be the 5 chair of tie. I wasn't taken on simply to close it 6 down. 7 Q. Okay. 8 A. So this statement implies that I was taken on simply to 9 close it. And that wasn't the case. It subsequently 10 turned out to be the case, but it wasn't at the time. 11 Q. Okay, thank you. 12 You were appointed as the Chairman of tie and TEL 13 also on 3 February 2011? 14 A. Yes. 15 Q. In your answers you say that you applied for the job 16 through a recruitment consultant, but your CV suggests 17 that you were asked to take over as Chair of the 18 project. I just wanted to clarify, were you approached 19 to join the project? 20 A. I was approached by Monroe’s to apply for the job. 21 That's the way head-hunters work. 22 Q. Do you know if anybody had indicated to Monroe that you 23 were the person they wanted for the job? 24 A. No. 25 Q. Were you aware when you joined the project that there 2 1 was a serious dispute between tie and the Infraco 2 consortium? 3 A. Yes, I was. 4 Q. What skills and experience did you have at the time that 5 were relevant to dealing with a dispute of that nature? 6 A. Well, I come from a major programme contracts 7 background. I used to run the shipyards as you will see 8 from my CV. I used to run the shipyards in Glasgow. 9 Also, the shipyards in Portsmouth and we had 10 a design office in Bristol. I was the Chief Executive 11 of BAE Systems Surface Ships organisation, and in that 12 capacity I managed huge contracts, GBP7 billion, 13 GBP8 billion contracts, very complex, very difficult 14 contractual arrangements, interpretation of contracts, 15 and securing delivery, hopefully on cost and on time. 16 So my background I thought was appropriate for 17 applying for this. 18 Q. If you were to identify skills and experience that you 19 had that helped in addressing the dispute on the Tram 20 Inquiry, are there particular skills that you would pick 21 out? 22 A. Probably my project management skills. 23 Q. What about costs, construction costs under contract? 24 Was that any part of your expertise? 25 A. Construction costs are an expertise that I have, but not 3 1 in the civil engineering world. My construction costs 2 are about constructing ships, and large vessels. 3 I didn't have any personal knowledge of civil 4 engineering. 5 Q. In overview, how would you describe the contribution 6 that you made to the resolution of the dispute on the 7 tram project? 8 A. Well, my opening meetings, it became obvious that 9 I asked for the earned value that we had earned thus far 10 on the contract, and the earned value was -- I can't 11 remember the exact numbers, you'll have to forgive me. 12 But it was about 0.6, 0.5 or 0.6, something like that. 13 Now, if you compute a very simple calculation, if you 14 take the earned value of what has been done so far and 15 compute that into the value of the contract cost, you 16 can immediately see that it cannot be delivered for the 17 cost. 18 Q. Yes. You referred there to earned value and values of 19 0.5 and 0.6. Can you just clarify what you mean by 20 those, please? 21 A. That means that the value that the estimators or the 22 organisation had placed on the work that had been done 23 thus far computed against the actual cost of doing it, 24 gives you the differential. So, for example, if you had 25 estimated at GBP100 or 100 hours to do a piece of work, 4 1 and it had cost 200, then your earned value is 0.5. 2 It's only half of what you expected it to be. 3 Q. Was this something that you identified relatively early 4 on after joining the project? 5 A. Yes. 6 Q. What was the source of your information for that? 7 A. The source of the information was the performance 8 documentation prepared by tie for presentation to the 9 Board. So this became evident at a Board meeting, my 10 first Board meeting actually. 11 Q. Okay. Now, I think you have given us that answer in 12 response to my question about the contribution that you 13 made to the resolution of the dispute. So with that, we 14 can see that you've identified there is a shortfall 15 between the money spent on the project and the value 16 that has been delivered? 17 A. Yes. 18 Q. In terms of resolving the dispute that had arisen 19 between tie and the consortium, how would you describe 20 your contribution to that? 21 A. Well, I attended the mediation. I was a primary player, 22 for the want of a better word, at the mediation. 23 And I contributed what I thought would be a solution; as 24 you would expect, in a mediation it's iterative. So 25 there was a lot of to-ing and fro-ing, lots of meetings 5 1 with the other parties as well as the mediator himself, 2 who was anxious to secure a resolution as soon as 3 possible. 4 So my contribution was to offer suggestions on how 5 the resolution of the mediation could resolve. 6 Q. When you were appointed as Chairman of tie and TEL, that 7 was about a month before the mediation, I think? 8 A. Yes, it was. 9 Q. The decision to mediate the despite had already been 10 taken by the time you arrived? 11 A. Yes, it was, although I didn't know that at the time. 12 Q. Okay. If we focus for a moment on the City of Edinburgh 13 Council, through the process of preparing for and 14 attendance at the mediation, who was representing the 15 City of Edinburgh Council? 16 A. Well, the primary representative was Sue Bruce who was 17 the Chief Executive. 18 Q. Was she supported by other officers of the Council? 19 A. Yes, she was. There was a whole cadre of officers that 20 was supporting her, mainly Alastair Maclean who was, 21 I think at that time, legal Counsel. I think he moved 22 on to a more general job, but at that time I think he 23 was legal Counsel, and others that had been involved in 24 the tram. I can't -- forgive me, I can't remember all 25 of their names, but there were accountants, project 6 1 managers, and the like. 2 So there was a complete cadre of people. 3 Q. As well as Sue Bruce, can you recall which of the 4 Council officers were most prominent in achieving the 5 outcome of the mediation? 6 A. Alastair Maclean. 7 Q. Were there others as well as Mr Maclean? 8 A. Yes, there were, but to be honest, I cannot remember 9 their names. It was seven years ago. 10 Q. Fair enough. 11 Were any councillors involved to any extent in 12 preparing for or attendance at the mediation? 13 A. Not that I was aware of. They certainly were not at any 14 of the mediation meetings. 15 Q. What was the division of responsibility between, on the 16 one hand, those officers from the City of Edinburgh 17 Council and on the other hand, tie and TEL in relation 18 to the mediation? 19 A. Well, we worked as a collective. tie was not front and 20 centre in any of the negotiations on the mediation. It 21 had been made fairly clear, certainly to me, by City of 22 Edinburgh Council that they were considered toxic, and 23 therefore they were playing more of a role of providing 24 data, back-up information, should costs and the like. 25 So they were not in the negotiation per se. 7 1 Q. You said there that the City of Edinburgh Council told 2 you that tie were considered toxic. 3 A. Yes. 4 Q. Could I clarify first of all who was it from the Council 5 that told you that? 6 A. Sue Bruce. 7 Q. When she said to you that tie were considered toxic, by 8 whom? 9 A. By the opposing parties. So when I say opposing party, 10 by Bilfinger Berger, Siemens and CAF. 11 Q. Was this view of tie as toxic to any extent held within 12 the Council or the body of officers representing the 13 Council? 14 A. I think partially, yes. I cannot speak for them, 15 obviously. But the general attitude towards the tie 16 people was one of keeping them at arm's length, rather 17 than involving them in the open discussions. They were 18 clearly quite present and did a lot of work in the 19 background, and each time Bilfinger Berger or Siemens 20 made a particular offer or a suggestion, it would be 21 taken to the tie guys and said: well, what do you think 22 of this? 23 So their expertise was still in play. 24 Q. Insofar as the attitude of keeping tie at a distance was 25 taken by the officers of the Council, do you know what 8 1 it was that underlay that attitude towards tie? 2 A. I think it was the past performance or the contractual 3 arrangements or the relationships that had broken down 4 as a result of the -- as you've already said, the work 5 had stopped, and it had stopped because of a contractual 6 dispute, and it was brought to my attention that 7 contractors believed it was an intransigent position 8 that tie was taking that had caused this to happen. And 9 that's why they were considered somewhat toxic. 10 Q. Yes. Did you understand that that was a view shared by 11 the Council officers or was their attitude one of 12 pragmatism, given the attitude of the contractors? 13 A. I think it was mixed. I think some officers thought, 14 yes, they were toxic, but the people at the negotiation 15 wanted to get a practical solution. 16 Q. Who was it that decided what outcome should be pursued 17 at the mediation? 18 A. Well, the key person was Sue Bruce, as the 19 Chief Executive. But we worked very much as 20 a collective, to be honest. I don't -- we never went 21 off -- I was not aware of any of the parties who went 22 off and did separate deals behind closed doors or 23 anything like that. 24 As far as I was concerned, we recessed after every 25 discussion we'd had, and we debated what was the next 9 1 step and how we would take this forward. 2 Q. Who was the "we" in this decision-making collective? 3 A. The "we" was myself, Sue Bruce, Alastair Maclean, 4 Ainslie McLaughlin from Transport Scotland, and our 5 lawyers and their advisers. There were lawyers there, 6 Brandon Nolan from McGrigors, and he had employed some 7 advisers to advise him. 8 Q. Are you referring there specifically on the mediation 9 itself, or do you include the period prior to mediation 10 when the preparations were underway? 11 A. I'm talking mainly about the mediation itself. 12 Q. Was it the same collective and the same process that was 13 used to decide not only on the objective to be pursued, 14 but on the strategy or tactics to be used to achieve it? 15 A. Yes. 16 Q. If we could look briefly, please, at document 17 CEC00645838? 18 A. Sorry, where do I find that? 19 Q. Sorry, I'm asking the document handler to bring up the 20 documents. It should appear on the screen. 21 CHAIR OF THE INQUIRY: It should come up on the screen. 22 A. Okay. 23 MR MCCLELLAND: Now, this, Mr Emery, is the Operating 24 Agreement between the City of Edinburgh Council and TEL. 25 This is the version dated 18 December 2009. Was that 10 1 a document you were familiar with? 2 A. It's not one that I could say that I recall, no. 3 Q. Okay. Were you aware that there was an Operating 4 Agreement between the Council and TEL? 5 A. Well, there must have been. It was a fully -- it was 6 a wholly-owned organisation, owned by the Council. So 7 there must have been some articles of association or 8 mandate to perform. 9 Q. Okay. Well, if I could ask you just to look at page 9 10 of that document, please. Page 9 will just come up 11 there on the screen in front of you. We have there 12 clause 2.22. 13 A. Yes. 14 Q. Bear with me for a moment. 15 Just towards the end of that first paragraph, about 16 three lines from the end of that first paragraph, do you 17 see the word "the", right at the end? 18 A. "the following matters will be"? 19 Q. Yes. 20 A. Yes. 21 Q. I'll just read on from there: 22 "The following matters will be for the TEL Board to 23 determine and report to the Council as appropriate in 24 terms of the governance arrangements set out in 25 Schedule 2." 11 1 Then it carries on: 2 "All matters affecting the programme, cost and 3 scope of the Project except the following which are 4 matters reserved to the Council ..." 5 Those matters reserved to the Council are, first: 6 "any actual or reasonably expected delay beyond 7 three months after the Baseline Date; or (ii) any actual 8 or reasonably expected increase in capital cost which 9 would mean that the Baseline Cost is exceeded by greater 10 than GBP1 million ..." 11 I think you can take it from me, Mr Emery, that the 12 baseline cost at that time was GBP545 million. Do you 13 recall that? 14 A. I recall that, yes. 15 Q. Then (iii): 16 "any substantial change to the design, scope or 17 service pattern set out in the Final Business Case." 18 Now, if we just pause there, we see that any 19 significant cost increase or substantial change to the 20 scope were matters that were reserved to the Council. 21 So was it the case that insofar as the mediation 22 required decisions to be made on those items, that was 23 firmly within the decision-making realm of Sue Bruce, as 24 opposed to anyone from tie or TEL? 25 A. I would say yes. These conditions are fairly normal for 12 1 a shareholder, primary shareholder for an operating 2 organisation. So they're given a specific scope of 3 work, and if they deviate by whatever margin is 4 determined, then that needs to go back to the 5 shareholders. 6 Q. Yes. 7 If we just read on, the final sentence in that block 8 begins: 9 "In assessing the source of ..." 10 Do you see that? 11 A. Yes. 12 Q. "In assessing the source of actual or potential cost 13 increases, the Board of TEL will use best endeavours to 14 ensure that all financial claims are taken properly into 15 account." 16 A. Yes. 17 Q. That phrase there, that all financial claims are to be 18 "taken properly into account", was that relevant in your 19 view to the role played by TEL and tie at the mediation? 20 A. I think by then, my own view is that by then the 21 negotiation had pretty much been taken over by the City 22 of Edinburgh Council, and that tie were playing very 23 much a supporting role, rather than a leading role. 24 Q. Yes. From the document we've just looked at, it would 25 appear that in relation to decision-making about scope 13 1 and cost, TEL and tie were very much in a position of 2 deferring to whatever decision was made by the Council? 3 A. Correct. 4 Q. Yes. But just that second sentence, in relation to the 5 provision of information about financial claims, to 6 ensure that those are taken properly into account when 7 deciding upon cost increases, that responsibility 8 appears to have rested with TEL. Do you accept that? 9 A. Yes. Yes, I would. 10 Q. In practical terms at the mediation, where was the 11 information about cost and financial issues relating to 12 the project -- where was that coming from? 13 A. That would have come from tie, from the Finance 14 Directorate within -- there was a Finance Director. The 15 Finance Director worked closely with the Finance 16 Department in Edinburgh Council. So they were quite 17 closely together. So there was no -- there was no 18 secrets. It was quite open and transparent. 19 Q. Thank you. 20 If we just look briefly, please, at your witness 21 statement, for which the reference is TRI00000035. If 22 we could just go to page 3 of that, please. You were 23 asked here about the role of tie at the mediation, and 24 your answer is: 25 "tie were involved to the extent that they produced 14 1 a significant volume of back-up data and analysis. They 2 were also used extensively during the mediation process 3 to analyse various discussion points and statements made 4 by Infraco. tie was not central to the mediation 5 process because the shareholder, CEC, had lost 6 confidence in their credibility as a project team." 7 I think that's the thrust of your answers so far 8 this morning? 9 A. Yes. 10 Q. How did CEC's officers reconcile their loss of 11 confidence in tie with their need to rely on tie for 12 data and analysis? 13 A. Well, we had -- tie had employed subject matter experts 14 who were actually very genuine in their belief in what 15 they were doing. The issues -- and I'm sure you will 16 come on to this. The issues were all about the 17 contractual interpretation, rather than actually the 18 cost of doing things. 19 So there was -- although CEC had lost confidence in 20 tie as an organisation to negotiate and complete this 21 project, there was still a reliance on them to produce 22 the technical data, if you like. So the cost -- what do 23 you call the -- not the cost accountants, but the guys 24 that measure work. I can't remember -- 25 Q. Quantity surveyors? 15 1 A. Correct. Quantity surveyors, yes. So they relied on 2 these guys heavily. 3 Q. So in that sense, were the officers of the Council 4 content to rely on data produced by tie? 5 A. Yes, and they took their own judgement on it. Don't 6 forget they also had, through McGrigors, some 7 consultants of their own which they assessed the answers 8 from the tie team. 9 Q. When -- you referred a moment ago to subject matter 10 experts employed by tie. Were you talking there about 11 tie employees or consultants engaged by tie in relation 12 to the mediation? 13 A. Both. 14 Q. In the latter category, can you recall which subject 15 matter experts had significant input for the mediation? 16 A. There was a guy called Tony Rush, I believe, and there 17 was a construction lawyer who was employed by McGrigors, 18 and I can't -- to be honest, I cannot recall his name. 19 He -- I know he practised in Newcastle and then retired 20 to the Lake District somewhere. But I cannot recall his 21 name. But there were people that had done this before. 22 Q. Was that Nigel Robson? 23 A. It could be, yes. Could be. 24 Q. Another lawyer involved at the time, I think, would have 25 been Brandon Nolan for McGrigors? 16 1 A. Brandon was the representative for McGrigors. He was 2 the key front man for McGrigors. 3 Q. So we've got Tony Rush, Brandon Nolan and perhaps 4 Nigel Robson. Were there any other of these experts who 5 were of significant assistance at the mediation? 6 A. No, I think mostly the other assistance came from the 7 tie employees themselves or the tie executive, shall 8 I say. So Steven Bell would have played a key role in 9 assessing the value or the veracity of Bilfinger's 10 answers. 11 Q. Are you familiar with an individual called 12 Dennis Murray? 13 A. I know the name. I think he was a tie employee. I'm 14 not sure, but I think he was a tie employee. 15 Q. Yes. 16 A. He was a quantity surveyor. 17 Q. That's right. Was he involved as far as you recall at 18 the mediation? 19 A. As far as I recall, no. Unless he was in the back room 20 somewhere. 21 Q. Okay. When you say the back room, were people located 22 in different rooms at the mediation? 23 A. Yes. 24 Q. Perhaps you wouldn't have mixed with all of them? 25 A. No, as you would expect. The consortium which was CAF, 17 1 tie and Siemens, were in separate rooms at one end of 2 the building. We were -- I think in the basement. So 3 we operated in the basement. We had a caucus room where 4 the negotiators met. The mediator was in another room. 5 So everyone was divided up, and we cross-fertilised from 6 time to time, but mostly stayed in other own room. 7 Q. Was the tie and CEC team split into different rooms? 8 A. Yes. There was no lock on the door though. 9 Q. So did you feel you had access to the relevant experts 10 whenever you needed it? 11 A. Yes, I do. 12 Q. Were you familiar with an individual called Colin Smith? 13 A. Yes, I know Colin, yes. 14 Q. What was his role at the mediation? 15 A. Well, he was the other player. I'm sorry, I forgot his 16 name when I was reeling off the name. He was brought in 17 by Sue Bruce, and he did a lot of the mediation and even 18 after the mediation, carried on as the primary interface 19 with the contractors. 20 Q. You describe him as a player at the mediation. As 21 closely as you can, how can you define the role he 22 played there? 23 A. Well, he has a background of projects, managing 24 projects. I believe he runs his own business, and 25 therefore he had an input to the meeting. When I say he 18 1 was a major player, there were the people I have already 2 named, so Colin, myself, Sue Bruce, Ainslie and 3 Alastair Maclean, I think were the people that were 4 sitting across the table from -- from the contractors. 5 Q. Apart from you, were any other directors of tie and TEL 6 involved in preparing for or conducting the mediation? 7 A. No, they weren't. 8 Q. I think Richard Jeffrey was a Director of both those 9 companies. Was he involved at the mediation? 10 A. He was at the mediation, and he -- he came through to 11 the caucus room and worked with his own team to produce 12 answers and solutions. But he wasn't at the negotiating 13 table. Not that I can recall. 14 Q. Why was that? 15 A. Again, he was a part of the tie team, and I think that 16 in order to try and come to a settlement, both sides -- 17 there were also some people on the -- Infraco's team 18 that were considered toxic and therefore weren't 19 involved either. 20 So the contractors kept their people out of the 21 equation and Sue Bruce agreed to keep tie out of the 22 equation. 23 Q. Okay. So did that mean that -- well, take Mr Jeffrey as 24 the person in that position on the tie and CEC side. 25 Does that mean he was kept out of the front line of 19 1 negotiations with the other side but was he involved in 2 the back room, if you like? 3 A. Yes, he was. 4 Q. Did his advice and judgement play any role in 5 decision-making by the CEC team at the mediation? 6 A. Yes, I think everyone involved had an influence on the 7 final outcome. 8 Q. Just to be clear, were any of the councillors or other 9 non-executive directors on the Boards of tie and TEL 10 involved in any -- 11 A. No, not that I'm aware of. There were three non-exec 12 directors. As far as I recall, they all subsequently 13 resigned as a result of the mediation going ahead 14 without them really being involved. So they felt that 15 they were compromised and they resigned. 16 The other people around the Board table were 17 councillors and tie executive -- and CEC executives, and 18 they were not at the mediation. 19 Q. Okay. I think in particular Donald McGougan, the 20 Director of Finance of the Council, was a Director of 21 TEL. Was he not at the mediation? 22 A. He might have been in the back office, but he wasn't at 23 the table doing the negotiation. 24 Q. Okay. 25 A. Donald was the finance guy. 20 1 Q. Yes. If we could bring another document up on screen, 2 please. It's TIE00897064. 3 If we could go to page 5, please. You should see 4 there on screen, Mr Emery, minutes of the Project Board 5 meeting on 9 February 2011. 6 A. Yes. 7 Q. We see from paragraph 1.1 that this was your first 8 meeting of the Tram Project Board? 9 A. Yes. (Pause) 10 CHAIR OF THE INQUIRY: I should have warned you, every 11 Tuesday at 10 o'clock there's a test. 12 MR MCCLELLAND: At 2.0 on the screen we have a heading, 13 "Update on Progress with BSC". If we go over the page, 14 please -- sorry, just on this page, we've got "RJ", 15 which is Richard Jeffrey: 16 "... reminded the Board of the recommendations from 17 the December Tram Project Board to: Commence mediation as 18 soon as possible." 19 Then if we go over the page, please, it carries on: 20 "Richard Jeffrey went on to confirm that the 21 mediation will be undertaken during early March. 22 A number of possible outcomes were discussed. These 23 were: 24 "1. Agreement is reached with BSC to continue with 25 the works to a defined scope under revised contractual 21 1 conditions; 2 "2. Mutually agreed termination of the Infraco 3 contract; and 4 "3. Continue on under the existing contractual 5 terms which may lead to either party adopting unilateral 6 action leading to termination of the contract. 7 "VE [which I think must be you] noted that (3) above 8 is not a realistic option against the background of 9 litigation risks and it was agreed that such an outcome 10 would represent a failure of the mediation process." 11 Now, just to give these different options labels, 12 option number 1 of reaching agreement with BSC to 13 continue the works under revised contractual conditions, 14 were you familiar with that being known as the Project 15 Phoenix approach? 16 A. I am familiar with that wording, although I have to say, 17 I didn't know what Project Phoenix was, but I do know 18 that that was a reference. 19 Q. Okay. Well, for shorthand this morning I'll refer to 20 that as Phoenix. 21 Then number 2, mutually agreed termination of the 22 Infraco contract. I think that was often referred to as 23 separation. 24 As you understood it, did that option also include 25 the idea of reprocuring the work from another 22 1 contractor? 2 A. That was one of the options. One was to just stop the 3 work, and repair the upheaval that ensued, and the other 4 one was to rebid the work to other people. There is 5 a -- I'm sure you have had it. There was a document 6 produced by McGrigors, laying out the pros and cons of 7 each of the options. I'm afraid I don't have that, but 8 I'm sure you've laid your hands on that. 9 Q. Yes. I'm sure we have that. 10 Then option 3, continuing on under the existing 11 contract terms, I think that was often referred to as 12 attrition. Does that ring a bell? 13 A. No, but I understand the term, yes. 14 Q. What you are reported in the minutes as having said is 15 that what I'll refer to as the attrition option was not 16 a realistic option against the background of litigation 17 risks. Why had you reached that view? 18 A. Because in all of my discussions with the CEC officers, 19 there was an overwhelming desire to try and finish this 20 tram project. So going into the mediation, there was 21 a desire to continue with the work and that by going to 22 an alternative supplier, or trying to redo this, would 23 simply cost more, take a long time, and subject the 24 citizens of Edinburgh to what they'd already been 25 suffering over the previous years. 23 1 Q. Okay. Thank you. 2 Was that a consensus view? 3 A. Well, it was a view portrayed to me by CEC and I assume, 4 and that's an assumption here, because there was no 5 objection from Transport Scotland, I assume that 6 Transport Scotland was of the same view. 7 Q. Was it a view shared by the Tram Project Board? 8 A. The Tram Project Board didn't actually express a view on 9 this. Except that they would like to see the project 10 finished. 11 They didn't -- there were different people. So if 12 you talk about Richard Jeffrey, Richard Jeffrey, 13 I think, would love to have removed Infraco from the 14 equation, all except CAF, of course, because the trams 15 were already pretty much built, and gone with 16 a different set of contractors. 17 So there were differing views. 18 Q. Was it more than Richard Jeffrey within the senior 19 management of tie that preferred the separation option? 20 A. Some of the non-exec directors at that time thought that 21 we should take a hard line, hard contractual line. The 22 problem with that was that each time tie had taken 23 a hard contractual line, and it had gone to an oversight 24 person like a judge or a mediator for that specific 25 item, they lost. So I think something like 90 per cent 24 1 of the time they went to do that, they lost. 2 So really the contract terms were -- as they stood 3 at that time, were against moving on. 4 Q. So did you take the outcomes of the preceding dispute 5 resolution procedures as an indication that tie were 6 unlikely to succeed with any arguments on contractual 7 interpretation in the future? 8 A. Yes, I did. 9 Q. Just returning to an answer you gave a moment ago, you 10 said that the Tram Project Board didn't express a view 11 on what should be the preferred outcome from the 12 mediation; were they asked to express a view? 13 A. Not by me, no. You will recall that was pretty much my 14 first meeting with them, and there were a cast of 20 or 15 30 people round the table, including councillors at that 16 time, and so that question was not posed at the time. 17 Q. So is it fair to say that decision-making about -- and 18 planning for the mediation, those were matters being 19 discussed within the team that you described earlier, 20 rather than within the existing governance structure of 21 the project? 22 A. Yes. I think that was a decision made by City of 23 Edinburgh Council, and tie as the subsidiary were told 24 that that was the route we were going. 25 Q. I think you said a moment ago that the preference of the 25 1 officers of CEC was for an outcome from the mediation in 2 which a deal was done with the existing consortium to 3 complete the line; is that correct? 4 A. Yes. Because that was considered the least disruptive 5 and probably the most economic. 6 Q. Yes. You said that Richard Jeffrey's preference was for 7 separation from that consortium, and you also discussed 8 the Board members. 9 In terms of the other people within tie who were 10 involved in running the project, people like Steven Bell 11 and Dennis Murray, for example, did they share the view 12 that separation was the better option? 13 A. Again, there were mixed feelings there. Some people 14 were emotional about it and just wanted to get out of 15 town, as it were. Others were more sanguine by 16 saying: actually if we did jump off this horse, the next 17 horse might be just the same; and therefore we should 18 try and seek a settlement. 19 Q. When you said a moment ago -- I think your phrase was 20 "get out of town" -- do you mean by that to separate 21 from the existing contractor? 22 A. Yes. 23 Q. You addressed this question of separation on the one 24 hand and Project Phoenix on the other in your written 25 statement. One of the things you said was that the City 26 1 of Edinburgh Council and Transport Scotland were 2 concerned about the legal and political implications of 3 separation. What did you understand those concerns to 4 be? 5 A. Well, my concerns were that if you had separated and 6 gone with another contractor or just not gone ahead, 7 then clearly having spent quite a considerable sum of 8 money and nothing to show for it, and just cover it all 9 up and go away, was not a very palatable outcome. 10 What was a more sensible or considered sensible 11 outcome was, although you wouldn't probably be able to 12 raise the money to finish the whole project as it was 13 originally conceived, to shorten the route somewhat and 14 to have at least a partial delivery was better than to 15 go through the agony of either stopping it or stopping 16 it and restarting it with someone else. 17 Q. Okay. 18 A. So it was a disruptive cost. 19 Q. Those were the considerations of City of Edinburgh 20 Council and Transport Scotland as you understood it? 21 A. Yes. 22 Q. Do you recall that prior to the mediation tie had 23 prepared estimates of the cost of the Phoenix option on 24 the one hand and separation with reprocurement on the 25 other? 27 1 A. I do remember some of that, yes. 2 Q. Do you recall that on tie's forecasts, the separation 3 and reprocurement option was less expensive than doing 4 a deal with the existing consortium? 5 A. I'm afraid I don't have any of those documents. I don't 6 know. But I'll take your word for it. 7 Q. Okay. But you don't recall that was the position on 8 tie's estimate? 9 A. No. 10 Q. So do you recall any discussion within the mediation 11 team in the run-up to mediation to the effect that tie's 12 estimate of the cost of separation and reprocurement was 13 too low? 14 A. There was a general theme throughout the whole process 15 that tie estimated too long -- too low, hence the root 16 of the issues from the beginning. The contractor would 17 do a piece of work, or be disrupted by something that 18 got in the way, like a telephone wire or a sewer or 19 something, and tie's estimate of putting that right was 20 considerably different than Infraco's. And therefore it 21 led to the situation that we found ourselves in. 22 Q. When you say tie's estimates were too low, was that 23 something that applied across the board to all of their 24 estimates, or was it one that applied more to estimating 25 the cost of separating and reprocuring? 28 1 A. Well, if you look at the -- I can't answer that directly 2 because my answer is I don't know. But I would say that 3 quite a few contractual disputes, at their genesis was 4 the fact that there was a difference in the cost of 5 doing it. Sometimes on the basis that the contractual 6 terms, as interpreted by tie, was that that should have 7 been done within the contract that they already had, 8 whereas Infraco would interpret the contract as: this is 9 extra to contract, we did not price for this to be 10 included. 11 So there was a basic disconnect. 12 Q. So do you mean there that often tie's estimates would be 13 too low because they were using their favoured 14 interpretation of the contract? 15 A. They were interpreting their -- yes, the value of the 16 work from their estimates, yes. 17 Q. Now, we've heard from other witnesses that very shortly 18 before the mediation, perhaps just the day before the 19 mediation, there was a discussion centred on tie's 20 estimates of the cost of separating and reprocuring, the 21 outcome of which was that tie's estimate was increased 22 in amount by about GBP150 million. Do you recall 23 a discussion to that effect? 24 A. I'm afraid I do not, no. 25 Q. If you'd been involved in a discussion to that effect, 29 1 do you think you would have remembered it? 2 A. I don't know, to be honest. I'm not trying to dodge the 3 question, but I genuinely do not recall having that 4 discussion. There was lots of discussions going into 5 that sort of arrangement, which is what sort of figure 6 would we settle for. All that sort of preparation work 7 was going on. 8 If you went into a mediation, as you know yourself, 9 you try and prepare for eventualities. 10 So it is entirely possible that that discussion took 11 place. But personally, I cannot recall it. 12 Q. Is it correct that the two main options under 13 consideration were Phoenix on the one hand and 14 separation and reprocurement on the other? 15 A. My sense of the situation was there was an overwhelming 16 desire to get mediation and to carry on. I think, and 17 again this is an assumption, or my impression from 18 talking to various people, was the desire to get to 19 a settlement and carry on with the work. 20 Q. Early on in your answer, you referred to your sense of 21 the situation being that there was an overwhelming 22 desire to get mediation and carry on. By that do you 23 mean there was a strong preference for a resolution with 24 the existing contractor? 25 A. Yes, I do. 30 1 Q. Now, in that context was the cost of the alternative of 2 separating and reprocuring a significant factor in 3 thinking? 4 A. I think the -- well, obviously cost is a significant 5 factor, but it was also the extension of the disruption 6 to the city, the unknowns, and would actually another 7 contractor sign a contract that would allow it to all go 8 ahead as tie would have liked to have gone ahead, or 9 CEC? Because you could have ended up in exactly the 10 same position, but with a different contractor. 11 Q. Yes. What I'm trying to get to the bottom of, Mr Emery, 12 is you played a prominent role in negotiations at the 13 mediation; correct? 14 A. I would like to think I influenced the outcome. 15 Q. Yes. If that was the role you played, and if it was the 16 case that the estimated cost of the alternative, that is 17 separating and reprocuring, had been adjusted on the 18 cusp of the mediation by GBP150 million, it seems to me 19 that's likely to be something that you would have 20 a recollection of. 21 A. Yes, you could make at that assumption, but I have to 22 tell you I don't recall that. There were a number of 23 different iterations put forward, some by the tie 24 people, some by the advisers that were procured, 25 particularly Tony Rush who had a view on most things. 31 1 But I cannot personally recall that. It was seven years 2 ago. I'm sorry, I just can't remember. 3 Q. Okay, thank you. 4 You were appointed in early February 2011. 5 Sue Bruce had been appointed at the start of 6 January 2011. And her adviser, Colin Smith, had been 7 appointed some time in the course of January. 8 What level of understanding did the three of you 9 have of the project by the time of the mediation in 10 March? 11 A. Sorry, could you repeat that? 12 Q. Yes. You, Sue Bruce, and her adviser, Colin Smith, were 13 all new to the project? 14 A. Yes. 15 Q. What level of understanding about the project did the 16 three of you have by the time the mediation came around? 17 A. I had a fair understanding. I wouldn't say a complete 18 understanding. My understanding was that the contract 19 was signed when actually it shouldn't have been signed. 20 Normally you wouldn't sign a contract with some of the 21 clauses in it that were in it, which allowed almost the 22 contractor to be able to increase the price. 23 Having said that, I think that a contractor puts 24 forward the best deal that he thinks is good for him, 25 and then negotiates from that position. 32 1 I tried as best as possible to understand how all 2 that happened. I can't say that with the short period 3 that I had, that I was up to total speed with the 4 situation. But that's where tie and some of tie's and 5 CEC's advisers would come in because they had the 6 continuity and the history of the contract. 7 Q. Yes. In your view was there enough time to prepare 8 properly for the mediation? 9 A. You could always do with more time, but the time was set 10 because, as I've already said, there was a desire to get 11 on and bring to a conclusion the fact that the work had 12 stopped and that people had a desire to move on. 13 Q. Could we bring up on screen, please, document 14 CEC02083835. 15 This is a document you may not have seen before, 16 Mr Emery. It's a note prepared by Colin Smith of his, 17 as it says on the page there, first observations and 18 emerging thoughts from January 2011. 19 Is this is a paper you've seen before? 20 A. I can't recall it, no. 21 Q. If we could go, please, to page 2. We have here 22 thumbnail profiles prepared by Mr Smith. We see down at 23 the bottom there's a paragraph referring to Tony Rush. 24 What's noted here is, these are Mr Smith's notes about 25 him: 33 1 "Good grasp of people and technical issues, noted 2 comments on time to prepare for Phoenix and Separation." 3 Then it carries on: 4 "Not enough time to do both, concentrate on Phoenix. 5 I would agree with this, although Separation should be 6 developed to some degree as a negotiating lever." 7 Does that accord with your recollection that there 8 wasn't enough time to prepare both Phoenix and 9 separation by the time of the mediation? 10 A. Yes. Again, I had just come into the organisation. 11 I was trying to feel my feet. All of this was going on 12 sort of in the ether around me, and I wasn't involved. 13 I have not seen that document. So I wasn't involved in 14 some of that work. I was introduced by Colin -- to 15 Colin by Sue Bruce fairly early on, but not when I first 16 started. 17 So yes, we could always do with more time to 18 prepare, I guess. But that would suggest to me that 19 there was a desire -- it supports my general overview 20 which is there was a desire to try and settle this with 21 the existing contractors. 22 Q. Thank you. 23 If we could go from that document now, please, to 24 another, which is CEC02084603. 25 Just in the middle of that page we see an email from 34 1 Tony Rush dated 2 March 2011, timed at 9.01. 2 We see that among the recipients of that email is -- 3 I think that's you, "VRE - MobileMe", email address? 4 A. Yes. 5 Q. Just reading from what Mr Rush says there, he says: 6 "Thanks Richard." 7 I should say, this is 2 March so just a few days 8 before the mediation began: 9 "My job is to challenge and I do challenge the 10 deck-chair numbers." 11 Are you familiar with the deckchair numbers? 12 A. I assume that's just the basic numbers, referred to -- 13 I assume that's some sort of slang. 14 Q. Yes. Well, as the Inquiry understands it, there was 15 a spreadsheet containing the cost estimates for 16 different scenarios that was referred to as the 17 deckchair spreadsheet. Do you recall that? 18 A. No. 19 Q. Mr Rush says: 20 "... I do challenge the deck-chair numbers. 21 Moreover, the telecon the other day which was intended 22 to explain the numbers to Colin, Nigel and me didn't 23 help." 24 I presume that's Colin Smith and Nigel Robson: 25 "I haven't seen any output from Cyril Sweett but the 35 1 civils work may be the least of our worries. We have no 2 clear handle on the market costs of the Systems. 3 "I will be happy to look again at Gregor's numbers 4 because the potential cost of Separation is a critical 5 threshold on which we may decide to ditch Phoenix or 6 conversely decide to agree on a price for Phoenix which 7 is higher than we needed to. But ditching Phoenix is an 8 irrevocable action with an uncertain end." 9 What point do you understand Mr Rush to be making in 10 the final paragraph? 11 A. What he's basically -- what I interpret from that is: we 12 shouldn't be ditching Phoenix because that would leave 13 you with pretty much no option other than to separate. 14 That's what I interpret from that. 15 Q. Would you accept that he's also making another point, 16 which is that to make a good decision on what to pay for 17 Phoenix, one would need to know what the main 18 alternative would cost? 19 A. Yes, I think Tony Rush was very focused on cost, yes. 20 Q. So in this context, to make a good decision about 21 Phoenix, one would need to have a good view on what 22 separation would cost, were it to be done? 23 A. Yes. 24 Q. As we've seen from the note we've looked at a moment 25 ago, there wasn't enough time to develop the separation 36 1 option fully? 2 A. That's what the note says, yes. 3 Q. I'm just wondering whether in this email we see the 4 consequences of that, that Tony Rush, Colin Smith, 5 Nigel Robson, the main advisers, just one week before 6 the mediation, appear not to have understood the 7 numbers. Was that your understanding of the position 8 pertaining a few days before the mediation? 9 A. No, that wasn't my understanding of the situation. If 10 there was a spreadsheet, and there were lots of numbers 11 that were spread around, so obviously I had a copy of 12 that. It shows me on the circulation list. But 13 I thought that going -- my view was, going into the 14 mediation, we had a set of numbers on the various 15 options, but, as I've said many times, I think the 16 overriding desire was those numbers were to support any 17 sort of discussion we had on the cost from Infraco for 18 completing the work. 19 So if, for example, they said: we need another 20 GBP500 million or GBP800 million or whatever a number, 21 you would have to have some numbers to make an 22 assessment of whether you go along with that or not. 23 Q. Yes. Presumably the most important set of numbers would 24 be those pertaining to the main alternative of doing 25 a deal with the people on the other side of the 37 1 negotiating table? 2 A. Yes. 3 Q. It appears from this email that what Mr Rush is saying 4 is that there was no clear handle on the market cost of 5 the systems, and he also appears to be concerned about 6 information on the cost of the civil engineering works. 7 The impression from this email is that the tie and 8 CEC mediation team, at least the advisers, lacked clear 9 information about costs. 10 A. But I haven't seen -- you probably have -- what the 11 subsequent emails to this were. Was there 12 a clarification after this? This is a guy 13 saying: thanks for the numbers but I don't understand 14 them. Was that then followed through with other 15 correspondence that either brought him to a meeting so 16 that he did understand it or clarified his concerns? 17 I don't know. 18 Q. Well, as one of the recipients of that email, and as one 19 of the members of the main negotiating team at the 20 mediation, do you remember becoming involved to improve 21 the understanding of the numbers? 22 A. Yes, I was, and at the -- at the mediation we relied on 23 the tie team to give us those numbers. 24 Q. Did it remain the case at the mediation that there was 25 a lack of information about the cost of the alternative, 38 1 being separation and reprocurement? 2 A. The mediation was focused on finding a solution with the 3 existing contractor. 4 I don't recall during the mediation any serious 5 discussion about terminating and going to an alternative 6 plan. The main focus was to mediate and get to 7 a solution so that the project could continue with the 8 contractors that we currently had. 9 Q. Can we take it from that answer that there wasn't any 10 significant focus at the mediation on the cost of 11 separating and reprocuring? 12 A. There was a focus on cost but not of separating and 13 reprocuring, because I think going into that meeting, I 14 think it had already been pretty much decided -- that's 15 the impression that I got -- that we needed to find 16 a solution with the existing players. 17 CHAIR OF THE INQUIRY: You say that you had the impression 18 that that had already been decided. Who did you get 19 that impression from? 20 A. I got that impression from the officers in CEC. 21 CHAIR OF THE INQUIRY: Who were Sue Bruce and Alastair. 22 A. Sue Bruce and Alastair. And Ainslie to some extent as 23 well. 24 CHAIR OF THE INQUIRY: He was from Transport Scotland? 25 A. Yes. 39 1 MR MCCLELLAND: Just bear with me a moment, please, 2 Mr Emery. 3 If we could go, please, to document TIE00686267. If 4 you go to the second page, please. We see down at the 5 bottom an email from Tony Rush to you dated 6 13 March 2011. So that's after the mediation. You see 7 that? 8 A. Yes. 9 Q. It starts off, "Vic", and then if we carry on over the 10 page: 11 "Good to work with you again. 12 "I will come back to you later in the week on ideas 13 on organisation. In the meantime can I suggest that 14 that you give thought to ..." 15 Then there's a list of bullet points, and the third 16 one reads: 17 "Consider appointing a consultant to do a thorough 18 and objective assessment of the costs of termination and 19 reprocurement." 20 Then he goes on to refer to recommendations for 21 that. 22 If you go back to the second page, please, we see in 23 the middle there an email from you to Richard Jeffrey, 24 sent on 16 March 2011. You say to him: 25 "Richard, as a fall back position to our objective of 40 1 seeking a solution to continue working with Infraco, we 2 need to do a thorough, objective and independent 3 assessment of the costs of termination and 4 reprocurement. 5 "Do you have anyone in mind who could carry out this 6 work?" 7 Now, this suggests that the investigation of the 8 cost of terminating and reprocurement was done largely 9 after the mediation, rather than before it; is that 10 fair? 11 A. I think, yes, it's a fair point. 12 Q. The way you put it to Richard Jeffrey in his email, that 13 what's needed is a thorough, objective and independent 14 assessment of the costs of termination and 15 reprocurement, can we take it from the way you have put 16 it there that whatever assessment was available prior to 17 the mediation, fell short of thorough, objective and 18 independent? 19 A. Well, it was actually done by the tie team themselves, 20 and given the general view about the tie team at that 21 time, then an independent person or an independent 22 organisation would be much more acceptable. 23 Q. Thank you. 24 Now, moving on from that, in your written answers 25 you describe the negotiating position that tie and CEC 41 1 had going into the mediation as very weak. Could you 2 just elaborate why in your view you thought the 3 negotiating position was very weak? 4 A. I thought it was weak because I think the contract was 5 not evenly balanced. I think the contract favoured the 6 contractor, and unless -- it's all very well negotiating 7 a new price, but if you didn't change the terms of the 8 contract, then you would end up in the same position. 9 In all of these contracts, all of these issues, 10 you've got a contract, you've got a set of behaviours 11 that need to be followed, and you've got terms and 12 conditions and how you actually work within those terms 13 and conditions. 14 So on the one hand you could be flexible and 15 say: I'll give you this bit if you give me that bit; or 16 you could be quite hard and say: that's what the 17 contract says and I'm not moving from the contract. 18 So unless those issues, which has brought us to the 19 stoppage, unless they are addressed, then you're in 20 a weak position. 21 Q. Yes. So I think of those factors, the one that 22 particularly affected the Council and CEC were the terms 23 of the contract, which in your view favoured the 24 consortium. 25 Were there any other factors that you thought made 42 1 the negotiating position weak? 2 A. Well, I think I have already said, the terms of the 3 contract -- I think they knew, my own view was that they 4 knew we wanted to come to a settlement. And therefore 5 I don't think they had -- well, they portrayed during 6 the mediation that if you wanted to cancel, fine. This 7 is our cost of cancelling. If I can remember, it was 8 some horrendous price for cancelling which almost 9 said: it was not worth cancelling, you might as well 10 carry on then. 11 I mean, that's slightly vague because I can't 12 remember that far back, but in the -- in that sort of 13 negotiation, you get all those things put on the table. 14 So the cost of cancellation would have been more -- 15 I think more from the Infraco's point of view than 16 allowing them to carry on at that point. 17 Q. That was based on information from the Infraco? 18 A. That was based on the information from Infraco and the 19 way in which the contract had been managed thus far. 20 Q. Yes. What about the funding position of the project? 21 Did that affect the strength or weakness of the 22 Council's negotiating position? 23 A. To some extent it did, because one of the points that 24 the senior negotiators on the other side were keen to 25 have was an assuredness that the money would be 43 1 available to do it. They were -- I don't know how, but 2 they were acutely aware that there was a funding issue, 3 particularly between the Scottish Government and the 4 Edinburgh Council, and they were insisting, that's why, 5 after the mediation, it took some time for the actual 6 revised contract to be signed, because one of the issues 7 that they had was: are you going to raise the funds; how 8 do we know we're going to get paid? So: we have stopped 9 work because we are worried that we won't get paid, and 10 we won't start again until we get reassurance that we 11 will get paid; which actually is not an unreasonable 12 position. 13 Q. If the Council team had left the mediation without 14 a deal with the consortium, how would you have rated the 15 prospects of securing extra finance for the project? 16 A. Pretty low, I would have thought. 17 Q. Did it follow from that that the Council had no 18 alternative but to leave the mediation with a deal, with 19 the consortium? 20 A. Well, that is a conclusion you could come to, but as 21 I have already said, I think we went into that meeting 22 with the objective of getting to a deal. 23 Q. Was it a consideration in your mind that leaving without 24 a deal would create a funding problem for the project? 25 A. No. That didn't come into my mind. What came into my 44 1 mind was the turmoil that would ensue in either closing 2 down the project or starting again. Funding was not one 3 of the items that was in my consideration. The Scottish 4 Government had already said they were not going to pay 5 any more money. In meetings that I attended, the 6 Scottish Government said: we will not give you any more 7 money. You have -- I think it was 450 million from the 8 Scottish Government and not a penny more. 9 Q. Was there any suggestion that if the tramline wasn't 10 built, the government might seek repayment of the grant 11 funding that had already been advanced? 12 A. Not in my presence, no. 13 Q. You weren't aware of that? 14 A. No. 15 Q. In your view, did tie and the Council have any 16 negotiating leverage that they could use at the 17 mediation? 18 A. No. I don't think they did. 19 Q. Do you consider that anything could have been done, 20 whether in the period before you joined the project or 21 after you joined the project, which might have improved 22 the Council's negotiating position? 23 A. By the time I joined the project, the work had stopped. 24 There was an intransigence on both sides. The 25 contractor and their representatives were working around 45 1 tie. They were working with City of Edinburgh Council 2 rather than going through tie. My impression was they 3 thought that that was a fruitless thing to do, and that 4 they would get more traction by going to the primary 5 shareholder. 6 So yes, did I answer that question? 7 Q. The question was whether you thought there was anything 8 that could have been done prior to the mediation which 9 might have improved the Council's negotiating position. 10 A. I don't think so, to be honest. 11 Q. If you could bring up on screen, please, document 12 CEC02084685, I think you will perhaps recall this 13 document, Mr Emery. It's the agreed key points of 14 principle signed after the mediation? 15 A. Yes. 16 Q. I think we see down at the bottom right your signature? 17 A. Yes. 18 Q. Were you signing that document on behalf of tie or TEL? 19 Or both? 20 A. On behalf of tie, I believe. 21 Q. Why did you sign it rather than Richard Jeffrey? 22 A. Because I was the chair and I sat at the negotiation. 23 Richard Jeffrey was not at the negotiation. 24 Q. Can we take it from your signature that you were content 25 with each element of the agreement listed in the 46 1 paragraphs above? 2 A. I think "content" is a strong word, but that was the 3 result of the negotiation. 4 Q. If we look, please, at paragraph 1, we see there that 5 the price agreed for the line from the airport to 6 Haymarket, excluding CAF, but including the design, was 7 GBP362.5 million? 8 A. Yes. 9 Q. Just for shorthand, I'll refer to that from now on as 10 the off-street works price -- 11 A. Yes. 12 Q. -- if you're familiar with that. 13 That was for completion of the works between the 14 airport and Haymarket, and also for the settlement of 15 all claims which had accrued under the Infraco contract 16 to date; is that correct? 17 A. Yes. 18 Q. How did you satisfy yourself that that was an 19 appropriate price to pay for those things? 20 A. We didn't, to be honest. The price that was put on the 21 table from memory was about 750 million. The figures 22 that were being assessed by tie and the advisers for 23 that element of work was dramatically different, and 24 therefore to get to an agreement which was not -- it was 25 a commercial agreement, not a -- not an efficient 47 1 decision, but it was a commercial decision on the basis 2 that we wanted to carry on. That price was agreed. 3 Q. You referred there a moment ago to the contractor's 4 price being GBP750 million. Just for the sake of 5 clarity, do we understand from that that the price they 6 had offered would have led to an overall project cost of 7 GBP750 million? 8 A. No. 9 Q. So their offer would have been a part of that? 10 A. Their offer, as I recall this, their offer for finishing 11 the work was about 750 million. And we settled at half 12 of that. 13 Q. Yes. 14 A. I'm sorry I don't remember the exact numbers. It's of 15 the order of that. What -- the most significant thing 16 is we settled for half of the number that they wanted. 17 Q. That's your recollection? 18 A. Yes. 19 Q. If I was to suggest to you that when figures were 20 mentioned in the 700,000s -- sorry, the 700s of 21 millions, that was typically a figure relating to the 22 total cost of the project, and that the cost of the 23 Infraco works were only a part of that, does that 24 reflect your recollection? 25 A. Well, Infraco was the -- there were three parties at the 48 1 mediation. CAF was a minor player because they had 2 pretty much -- their increase in costs were mainly due 3 to keeping the trams because they couldn't be delivered. 4 The majority of the work, the cost was in the civil 5 engineering work, which is Bilfinger Berger, and there 6 was a cost added by Siemens for the network, as it were, 7 or the rails and the electrics and stuff like that. 8 Q. We can move on from there, I think. 9 In your written answers, the way that you have put 10 it is to say that the price agreed of GBP362.5 million 11 was the best deal that could be achieved in the 12 circumstances. Was it simply that that was the lowest 13 price that Bilfinger Berger and Siemens could be 14 persuaded to accept on the day? 15 A. Yes. 16 Q. I think from your previous answer, we can take it that 17 no steps were taken at the mediation to ensure that 18 objectively speaking, that price represented good value 19 for what the Council was getting in return? 20 A. No, I think generally the team thought it was not good 21 value, but on the basis that we wanted a continuance of 22 the -- of the project and we wanted to get to 23 a resolution, a number was agreed. I don't think anyone 24 thought it was a good value. 25 Q. Aside from you and Sue Bruce who signed this document, 49 1 was there anybody else in the team who perhaps despite 2 unhappiness with the amount, approved it as the right 3 price to pay? 4 A. Well, there was Ainslie McLaughlin. I think they were 5 the -- well, the team was all in the room together. But 6 I think the main players were Sue, Sue Bruce, and 7 Ainslie McLaughlin, who had a role for making sure that 8 the Scottish Government was represented, and myself as 9 the chair for my sins for tie. 10 Q. So if we take those three, Sue Bruce, Ainslie McLaughlin 11 and yourself, as having accepted that this was the price 12 that would have to be paid, were there others at the 13 mediation who you can recall said: yes, that's the right 14 price to pay. 15 A. None of us at the mediation thought that that was the 16 right price to pay. We all said: this is the only way 17 we can get a resolution of this and move on. As I've 18 already said, no one felt that it was a good deal. 19 Q. If I could put it the other way round, was there anybody 20 in the team at mediation who said: I refuse to endorse 21 signing up to paying that much. 22 A. The only one -- the answer to that is I can't recall 23 anyone specifically saying that. But if I were to 24 speculate that -- the person that might have said that 25 would be Richard Jeffrey, I think Richard Jeffrey would 50 1 have said: we're being done over here -- sorry, that's 2 a euphemism -- and I'm not going to be any part of this. 3 He's the only one I would think that would voice that. 4 Q. If the Inquiry was also to have evidence that as well as 5 Richard Jeffrey from tie, Steven Bell, the Project 6 Director, and Dennis Murray, the Commercial Director, 7 were not content with the price that was agreed to be 8 paid, does that reflect your recollection? 9 A. It doesn't reflect my recollection, but it wouldn't 10 surprise me. 11 Q. Did it come down to this, that in signing up to the deal 12 as tie's Chairman, did you essentially have to overrule 13 your own management? 14 A. Yes. Yes, I was the primary negotiator with Sue Bruce 15 and Ainslie. So the answer is yes. I did the -- I did 16 the deal, if you like. 17 Q. What did you consider to be your authority to do that? 18 A. The delegated authority together with Sue Bruce from 19 Edinburgh Council. 20 Q. So if your authority was coming from Sue Bruce, were you 21 essentially directed by Sue Bruce that this deal should 22 be signed up to? 23 A. No, I wasn't directed by her. As I have already said, 24 after five or six days, I can't remember exactly how 25 long, after five or six days of to-ing and fro-ing, this 51 1 was the best deal that could be done. 2 You either said yes to this deal or you walked away. 3 So I wasn't coerced in any way, if that's what you're 4 implying. I have been here before in other projects 5 where you have to carry on, if that is what you want to 6 do. It's called a pig deal. 7 Q. Would you accept that of all of those who attended the 8 mediation, Richard Jeffrey, Steven Bell and 9 Dennis Murray between them probably had the greatest 10 knowledge of the project and of the contract and of the 11 facts pertaining to tie's liability under it? 12 A. Yes, I would say that. Well, not -- they weren't -- 13 they had the greatest knowledge, but the liability under 14 it was also Brandon Nolan and the lawyers and 15 Alastair Maclean, all of who understood the contract and 16 the liabilities that went with it. 17 Q. So in signing up to this price, were those who signed 18 this document essentially giving more weight to the 19 views of Brandon Nolan and Alastair Maclean than to the 20 views of tie's management? 21 A. The answer would be yes. 22 Q. If we could go, please, to document WED00000582. 23 Again, this may be an email you have not seen 24 before, Mr Emery. If you look at it on screen, do you 25 recall having seen that before? 52 1 A. No, I don't, but I see I'm mentioned in it. 2 Q. You are. It's an email dated 14 March 2011 from 3 Tony Rush to Brandon Nolan and Nigel Robson. So very 4 shortly after the mediation, and this appears to be 5 Mr Rush's brief file note of what happened at the 6 mediation. 7 As he says at the start, it's not a fully detailed 8 file note, but he thinks it records the relevant 9 details. 10 Then if we scroll down, we see that there are lists 11 of the representatives of each body at the mediation. 12 If you just look over that, does that seem broadly 13 accurate to you? 14 A. Reading this, just give me one second. Yes, yes. 15 Q. Okay. Just the second bullet point from the bottom, it 16 says that Richard Jeffrey was in the main frozen out of 17 the decision-making process by the principals, but at 18 all times was given a chance to comment and object, 19 which he did. 20 I think that's essentially consistent with what 21 you've said about the role he played? 22 A. Yes. 23 Q. Then underneath that: 24 "Steven Bell and Dennis Murray were directly 25 involved in all matters." 53 1 Was that essentially to provide data on the project, 2 financial data and so on? 3 A. Yes. 4 Q. If you go over the page, please to, page 2, the first 5 entry is for Monday, 7 March 2011. It says there, 6 a meeting of the CEC and tie teams along with advisers 7 took place at Mar Hall: 8 "Most of the day was taken up with discussions on 9 the comparison of the potential costs of agreed 10 termination or Project Phoenix. Richard Jeffrey tabled 11 an updated version of the "deck-chair" paper. 12 "The discussions were inconclusive other than there 13 was an understanding that the "trigger point" for 14 rejecting a Project Phoenix Offer was in the region of 15 GBP740 million for all costs." 16 Do you recall that meeting? 17 A. To be honest, I can't, but clearly I was there. But 18 I cannot recall it. 19 Q. Do you recall any discussion of a trigger point? 20 A. No, I don't actually. That's a surprise to me. 21 Q. Do you recognise the figure of GBP740 million? 22 A. At that point, no, I don't. 23 Q. Are these the kinds of issues that you were likely to 24 have been aware of at the time or were these the kinds 25 of considerations done by other parts of the team? 54 1 A. I think everyone would have shared the same data. 2 I don't think anyone would have gone off into a room and 3 talked about the eventuality. 4 So although I don't remember the number, I don't 5 dispute that the number was probably put on the table, 6 and this tends to portray much of what I have already 7 said, which is you need to establish for yourself what 8 you think it's worth, so that when you get an offer from 9 the other side of the table, you've got some assessment 10 of whether it's a good figure or not. 11 Q. If I was to suggest that the GBP740 million was an 12 assessment of the cost of terminating and reprocuring 13 the work, and therefore the main alternative to the deal 14 with the consortium, does that seem broadly consistent 15 with your recollection or can you not say? 16 A. Well, as I have already said, I don't recall it, but it 17 would tend to suggest that the solution to this would be 18 to carry on with the current contractor because if the 19 alternative was about the same price but you'd go 20 through the whole upheaval of it all, then why not stick 21 with what you've got? 22 Q. Yes. 23 A. That's what it would suggest to me, although I genuinely 24 can't recall it. 25 Q. Okay. Then if we go down to the entry for Wednesday, 55 1 9 March, it reads: 2 "The day was taken up with us interrogating the 3 Infraco on the Exclusions and Clarifications and later 4 by explaining our counter offer." 5 That interrogation process, was that one that you 6 were involved in? 7 A. Yes. 8 Q. What do you recall of that exercise? 9 A. Well, they -- from what I can remember, they put an 10 offer on the table with various -- what we suggested to 11 them was that they needed some priority works addressed, 12 and therefore when the work resumed, we wanted certain 13 areas addressed before other areas and we wanted an 14 examination of the overall project time, so that it 15 wasn't simply about the cost. It was also about the 16 issues that go around the cost. 17 So, for example, we wanted Haymarket Yards finished 18 and cleaned up early. We wanted the tram base done as 19 an early item because we wanted to avoid the costs of 20 having the tram stored in Spain, bring them all over 21 here and we can store them there. So we wanted that 22 done early. 23 We wanted the line from the depot to the airport to 24 be given priority so that we could start running the 25 trams and test them and not wait until the whole thing 56 1 was finished before we could start making sure that they 2 were safe to operate, et cetera, and, as I recall, 3 Princes Street, which was a bit of a nightmare. That 4 we -- we wanted that addressed early and cleaned up. 5 There were also contract terms that needed to be 6 renegotiated, and payment schedules that needed to be 7 negotiated. 8 So that's all the issues that would have been 9 considered at that time. 10 Q. That was all at the mediation? 11 A. All of that is at mediation, yes. 12 Q. It sounds from what you're saying that -- 13 A. I think the -- somewhere in this documentation it refers 14 to priority works. What I have just described to you 15 was what, from memory, we thought was priority works. 16 Q. Yes. It sounds from what you're saying, and this is 17 perhaps consistent with what you've said this morning, 18 that the focus of discussion was on a way forward with 19 the existing consortium, perhaps rather than on the 20 cost. Would that be fair? 21 A. I don't think it was rather than. I think there was an 22 overriding scenario that we wanted to continue with -- 23 because the CEC, for whatever reasons, wanted to get 24 this project back on the rails and finished. 25 A part of that was also: exactly what are we going 57 1 to do? Because the original contract was to take the 2 line all the way down to Newhaven, and it was clearly 3 not affordable to go all the way down. So what was 4 realistic? And the general view was: what is the point 5 of doing this and finishing it as the off-road works? 6 We need to take it to St Andrew Square. 7 Q. Just reading on through Mr Rush's note, he's talking 8 about tie or CEC's counter-offer, and he says: 9 "This was based on a spreadsheet prepared by AJR..." 10 Which I think is a reference to Tony Rush: 11 "... having considered the explanations given by the 12 Infraco and SB [Steven Bell]'s pricing of the risk of 13 Exclusions, Clarifications and delay and additional 14 extension of time. 15 "In the evening the Infraco reverted with a revised 16 offer which was in effect a small reduction on the PPP." 17 Then reading on: 18 "It emerged that CEC were in need of making progress 19 which avoided political damage at this time." 20 What was your understanding of that point about CEC 21 being in need of progress which avoided political 22 damage? 23 A. We'd -- I at no time talked about the political damage. 24 It wasn't my role. It was other people's role to worry 25 about the politics of it. I was brought in to try to 58 1 deliver this project. 2 So the political connotations were more for the 3 politicians rather than for me. 4 Q. I think there weren't any politicians at the mediation. 5 So do we understand that it was for Sue Bruce and 6 perhaps Ainslie McLaughlin to worry about those 7 political issues? 8 A. Yes. They would be more concerned about them than 9 I would have been. 10 Q. What do you recall being their concerns about potential 11 political damage and the need for the Council to make 12 progress at that time? 13 A. Well, again, as I've said earlier, I think there was 14 a desire to have a tram operating, having spent all of 15 this money. 16 So I can only assume -- I have to speculate here -- 17 that the political damage would be if you'd spent all 18 this money, and achieved nothing, and you'd just filled 19 all the holes in the road and tarmacked it back over, 20 then that has a bad taste. 21 Q. Essentially Council officers had to come away from the 22 mediation with a deal? 23 A. That was my -- that was my overriding feeling, yes. 24 Q. You say it was your feeling. Was it articulated to you 25 as -- 59 1 A. It wasn't articulated per se, but you can -- you can 2 watch the body language. It's about behaviours. It's 3 about how people manoeuvre. When Bilfinger -- well, 4 when Infraco put their price on the table, we could have 5 gone: God, you must be joking, we're out of here. 6 There's no desire to do that. The desire was we need to 7 go back and make another offer. 8 Q. When it came to making the offers, who -- how did the 9 tie and CEC team decide what offers to make? 10 A. Well, as you've already alluded to, the people that 11 professed to understand the costs, which was 12 Steven Bell, Jeffrey, and the team generally, their 13 price was so far away from the offer being made by 14 Infraco that there was actually no position for us to go 15 back to. 16 We had nowhere to go, because we were miles away 17 from their number. 18 So we sat down and it was as simple as saying: well, 19 let's go back with half of their number; clearly they 20 are having a laugh here, so let's go back with half of 21 the number. Even though even half was more than the 22 numbers that tie quantity surveyors had put together and 23 Steven Bell. 24 Q. Is that your recollection of the decision-making process 25 behind the offers made on behalf of the Council team at 60 1 the mediation? 2 A. That was -- that was the process of -- for the final 3 offer, not the intermediate offers. There was a lot of 4 backwards and forwards in between, but the final offer 5 was: we've got to go back with something; why don't we 6 go back with half of what they've said? And to our 7 surprise, they said: yes, done. 8 Q. So there was a conscious departure from the financial 9 information and pricing information prepared by tie in 10 order to get a deal? 11 A. Yes, there was. As I've said before, it was 12 a commercial deal, not an efficient deal per se. And 13 you would not have got a deal if you had gone back with 14 the tie numbers. They were just way out from what the 15 expectation was. 16 Q. So in this process where you depart from the financial 17 information made available by tie and the pricing 18 information made available by tie, who is it that's the 19 source of the information underlying the price offer 20 that's made? 21 A. It was, as I've said, the source of the data always 22 remained with tie, and that team. But there was 23 a judgement made that we would never get a deal with 24 those numbers. And therefore we had to go back with 25 a -- not an arbitrary number, but a number that had some 61 1 rationale to it, that couldn't be related to any of the 2 estimates. 3 Q. When you refer there to judgement, was that the judgement 4 of you and Sue Bruce and anybody else? 5 A. It was the judgement of the whole team, top team that was 6 negotiating this. 7 Q. Just to be clear there, who was involved in that? 8 A. From memory, it was Ainslie McLaughlin, Colin Smith, 9 myself, Sue Bruce, and Alastair Maclean. I think -- 10 I think it was those five. 11 Q. Insofar as the price that was agreed at mediation 12 exceeded what tie thought was an appropriate price, do 13 we attribute all of that increase to the collective 14 judgement of that group of people you've just described? 15 A. Yes, it was. It was the collective group that made that 16 judgement, on the basis that that was the only way that 17 we could get a deal to continue with this project. 18 CHAIR OF THE INQUIRY: Can I just clarify what you thought 19 Ainslie McLaughlin's role was. Was he an observer or 20 was he a participant? 21 A. He was an observer on behalf of the Scottish Government 22 or Transport Scotland. 23 CHAIR OF THE INQUIRY: But you've put him in the group who 24 reached the collective judgement -- 25 A. Yes. 62 1 CHAIR OF THE INQUIRY: -- at that time. So -- 2 A. We were all in the group together, and he had the 3 opportunity to say: no, can't go forward with this; but 4 we all agreed that that was the number to go forward. 5 CHAIR OF THE INQUIRY: So did he have a veto then? What are 6 you saying his role was? 7 A. Not that I was aware of. But clearly he was consulted 8 and we needed his agreement to go forward with that 9 number. 10 MR MCCLELLAND: Other witnesses have been asked whether it's 11 fair to describe the process by which the price was 12 agreed as a horse trade. Is that a description that you 13 would accept? 14 A. In other circles it could be considered a horse trade. 15 CHAIR OF THE INQUIRY: Mr McClelland, will you find 16 a convenient point to ... 17 MR MCCLELLAND: Yes, my Lord. Perhaps one more question. 18 The Inquiry appears to have essentially two written 19 records of how agreement was reached at the mediation. 20 One was the email that we looked at from Tony Rush to 21 Brandon Nolan and the other is a paper prepared by 22 Colin Smith and Alan Coyle, the Finance Officer at the 23 Council in 2012. 24 Are you aware of any other written record of the 25 decision-making by the tie/CEC team at the mediation? 63 1 A. I can't say that I do. We tried to -- the piece of 2 paper you put up with everyone's signature on the bottom 3 was an attempt that we were all agreeing to the same 4 thing, and no one went away from that meeting with 5 a different interpretation. That was the whole point of 6 putting that together. 7 There was still lots of work that needed to be done. 8 The payment schedule, a schedule that needed to be done, 9 renegotiation of some of the terms and conditions, 10 et cetera, et cetera. 11 So it was -- it was an agreement to agree, if you 12 know what I mean. 13 Q. Yes. That document -- I don't think we need to look at 14 it, but the list of key points, whilst it identifies the 15 price of GBP362.5 million, it doesn't break it down. 16 I think, and no doubt I will be corrected if I'm wrong, 17 I don't think there is a breakdown of that figure. Do 18 you recall a breakdown of that figure in any document? 19 A. There was a breakdown of the -- a sort of breakdown of 20 the overall figure that Bilfinger Berger wanted, and 21 that consisted of a revision of price for CAF, for the 22 trams, for Siemens, which was for me the most difficult 23 figure to understand because their scope of work didn't 24 change at all. I can understand the civil works having 25 a problem because of all the utilities and stuff, but 64 1 I could never understand the Siemens increase in price. 2 That was always a mystery to me. 3 And then of course Bilfinger Berger. So you had 4 three elements. 5 But there was no breakdown of that price in the 6 counter-offer that -- well, how about we settle for half 7 of that? 8 Q. Yes. 9 A. And they immediately said fine. 10 Q. It sounds as though the first document that you referred 11 to, it sounds like the Project Phoenix proposal that 12 came from the consortium, where they provided 13 a breakdown of the sums they were asking for. Is that 14 what you're referring -- 15 A. No, I don't think so. It was on day two or three of the 16 mediation, where we sat down with the mediator and they 17 said this -- and they were represented by their three 18 parties, and they all came forward with the numbers that 19 they wanted, and we then engaged with the tie team to 20 interrogate those numbers. 21 Q. So these were numbers supplied by the consortium? 22 A. Yes. 23 Q. I think in your answer there you said that there was no 24 breakdown of the 362.5 million that was agreed at the 25 mediation? 65 1 A. Not that I can recall, but there must have been 2 somewhere because you have three parties on the other 3 side of the table, all of which are independent legal 4 entities. So they need to know what their -- their 5 contracts are uplifted by. 6 Q. So amongst themselves they would need to know -- 7 A. Amongst themselves they would need to know. 8 Q. Yes. 9 A. But we didn't have a breakdown on which to make our 10 decision, if that's the question you're asking. 11 Q. Yes, it is. 12 Do you think that in agreeing to pay that much 13 public money, the tie and CEC team ought to have had 14 a detailed breakdown of what they were getting for it? 15 A. As I've already said, the technical answer to that is 16 absolutely yes. But the detailed numbers that tie had 17 generated for themselves came nowhere close to the 18 numbers that were agreed, and it was -- you have called 19 it a horse trade. It was -- we needed to get a deal 20 done here. 21 MR MCCLELLAND: Thank you. That would be an appropriate 22 time, my Lord. 23 CHAIR OF THE INQUIRY: We normally have a break around about 24 this time for the benefit of the shorthand writers. So 25 we'll adjourn until 11.30, and you will be offered 66 1 an opportunity of tea or coffee. 2 A. Thank you. 3 (11.09 am) 4 (A short break) 5 (11.29 am) 6 CHAIR OF THE INQUIRY: You're still under oath. 7 MR MCCLELLAND: Mr Emery, if we take the prices agreed at 8 mediation for the off-street works, the 362.5 million 9 that we've been talking about this morning, and the 10 target price agreed there for the on-street works, which 11 at that point was GBP39 million, if we take those 12 figures, broadly speaking, the increase in the price 13 paid to Bilfinger and Siemens for their part of the 14 works was about GBP160 million or thereabouts. Does 15 that tie in with your recollection? 16 A. I guess. I don't know the breakdown to be honest. So 17 I have no reason to dispute that. 18 Q. Okay. Well, if you don't remember, it doesn't matter. 19 If you just take it from me that that was the 20 approximate extent of the increase, and of course it was 21 also for a shortened line. 22 A. There are two stages. We persuaded them that we needed 23 to go to -- you talk about the off-street works. But we 24 persuaded them during the negotiation that we needed to 25 go to St Andrew Square. 67 1 Q. Yes. 2 A. So it progressed from just terminating at Haymarket. 3 Q. Yes. Because of course the Project Phoenix proposal 4 from the consortium had been for a price only as far as 5 Haymarket? 6 A. Yes. 7 Q. In agreeing what was such a large increase in the price 8 for their works, did you and the others making decisions 9 at the mediation come to accept that the claims BSC had 10 made under the Infraco contract were substantially 11 well-founded? 12 A. A lot of the claims that had been put forward, from my 13 recollection, were disputed and taken to arbitration, 14 and for the most part, not everyone, but for the most 15 part they found in favour of Bilfinger Berger. 16 Q. Yes. I'm just trying to understand the mindset of those 17 who agreed the deal at mediation. 18 Did you in that decision-making team accept that the 19 claims the consortium had made and which remained 20 outstanding at that time were substantially 21 well-founded? 22 A. As well founded as they could be, I guess. What we were 23 seeking for, if you're trying to get to what was the 24 essence of what was going on, clearly we needed to start 25 again with a clean slate, and therefore all claims 68 1 needed to be encompassed within the new agreement going 2 forward. 3 So it was an attempt to say: we can't make an 4 agreement and still have these claims outstanding to be 5 negotiated later. So let's get a complete deal here 6 moving forward. 7 Now, I cannot honestly say I know that -- whether 8 the deals or the claims that were on the table, which 9 would be absorbed into a new price, were a good deal or 10 not. I cannot say that. 11 I can say that the mindset, as I think your words, 12 mindset of the group was, we needed a clean slate to 13 move forward. 14 Q. Yes. So can we take it from that that in reaching 15 agreement on the price at mediation, that 16 decision-making team did not form a view on the value at 17 which any claims were being settled? 18 A. No. No, it was just all claims needed to be settled as 19 a part of the price. 20 Q. Yes. In your written answers, one of the things you say 21 is that you understood that BSC's claims for extension 22 of time and related costs were disproportionately high 23 and unreasonable, and you go on to say that this was 24 something that was dealt with within the overall 25 mediation negotiation. 69 1 It sounds from what you're saying that that was only 2 to the extent that those claims were to be regarded as 3 settled. 4 A. Yes, and my view at the time was I thought that their 5 schedule of work or programme for completion was 6 excessively long. I took the view that if we had done 7 the priority works which was to take out the hotspots, 8 if you like, from the programme, we should have been 9 able to achieve a much shorter delivery by developing 10 that strategy moving forward. 11 So I was somewhat disappointed, and I think that's 12 what I have said, I was disappointed that we still had 13 quite a lengthy period for completing the overall 14 project. 15 Q. Was there any attempt made either at mediation or 16 afterwards to shorten the programme? 17 A. Yes, there were. I was not involved in the negotiation 18 of the contracts or the amendments to the contracts. 19 That was done by the lawyers, and Colin Smith. But 20 I believe that attempts were made to shorten the overall 21 time during those negotiations. I know that after 22 I wound up tie and became a consultant to CEC, 23 I attended a lot of the project meetings or the 24 programme meetings during which I repeatedly said 25 I couldn't understand why the project was taking so 70 1 long. 2 Q. Yes. I think one of the things you say in your written 3 answers is that in your view, it ought to have been 4 possible to complete the project sooner than it was 5 completed? 6 A. Yes. 7 Q. Is that what you were referring to? 8 A. Yes. 9 Q. Was this question of the length of the programme, was 10 that something that was focused and negotiated at the 11 stage of the mediation? 12 A. I believe so. In the detail. Not at the senior level, 13 not at the level I was working at, but I believe it was 14 clearly because it became, and one of the issues during 15 the performance of the contract subsequent to the 16 mediation was the fact that the schedule of work was 17 considered a contractual document. And therefore 18 Bilfinger said: I have all the time to finish this. 19 I have no incentive to finish early. I mean, they 20 didn't say that specifically, but clearly from the 21 behaviour, there was no incentive for them to finish 22 earlier, because they were paid their preliminaries in 23 order to satisfy the overall project. 24 Q. Yes. Should we understand from your answer that if 25 there were negotiations about the duration of the 71 1 programme at the stage of the mediation, they were 2 unsuccessful at that point in shortening the programme, 3 and that shortening only came later, once the programme 4 had been embedded in the contract? 5 A. I don't think the programme was shortened at any time. 6 The programme was delivered on the new time frame that 7 was agreed during the mediation. That schedule was 8 considered a contract document and Bilfinger delivered 9 against that schedule. 10 Q. Was a shortening of the programme not something that you 11 could have asked for in return for the increased price 12 at mediation? 13 A. But I assume that we did. I can't say personally 14 I asked for it, but you -- when you negotiate 15 a contract, you negotiate three things. There is 16 a triangle. You have schedule, cost and specification. 17 And it all moves according to which one you vary. 18 So there are three elements basic to any contract, 19 as you probably know better than I, which is: what is it 20 I'm delivering; when am I supposed to deliver it; what 21 the cost of doing it? 22 Q. I think I understood you to say that if that was part of 23 the negotiation, it was not something that you were 24 involved in? 25 A. No, I wasn't. 72 1 Q. One of the things you mentioned this morning, Mr Emery, 2 was concern about the increased price sought by Siemens 3 at the mediation. 4 Perhaps to put this in some context, in her opening 5 statement at the mediation, Sue Bruce expressed concern 6 that the price sought by Siemens was 100 per cent more 7 than the original contract price, and that Siemens had 8 supplied no justification for that increase. 9 Was that your recollection of the position when the 10 mediation began? 11 A. Yes, it was. 12 Q. Two or three days later, once the price was agreed, it 13 appears that for Siemens' works, the price was only 14 8 per cent less than Siemens had asked for. So in the 15 space of those two or three days, the Council appears to 16 have moved from a position of concern at the doubling of 17 the price to one where they accepted broadly all of that 18 doubling. 19 So that appears to represent a significant change in 20 the Council's position; do you agree? 21 A. I agree with the statement that you've just made, yes. 22 But it's -- it's within the overall situation that I've 23 already described to you, which was: this was 24 a commercial deal, so get it finished; and there was no 25 detail that I was aware of, of the breakdown within 73 1 that. 2 Q. So were you aware, when signing up to the price of 3 GBP362.5 million, that the Council position on Siemens' 4 price had moved that much over the two or three days of 5 the mediation? 6 A. Well, we knew it had moved, but I didn't know by how 7 much, no. 8 Q. Was that not something that you would need to know to 9 decide whether the agreed price was an acceptable one? 10 A. As I've said several times today, it was a deal to get 11 the project up and running back again, and not in 12 detail. You could -- you could examine all the numbers 13 as tie did, and tie's professional view was: these 14 numbers are too high, they're outrageous, we shouldn't 15 be paying them. We've already established that this 16 morning, I think. 17 Q. If I could put it this way -- I certainly don't want to 18 ask you to repeat yourself, Mr Emery. I apologise if 19 you think that I am. 20 But did you yourself become aware of anything to 21 satisfy you of the reasons why Siemens' price should be 22 agreed at that higher level, given the position at which 23 the mediation began? 24 A. No, I didn't see anything. I could see that because of 25 the extension of time, and because of some of the 74 1 groundworks, there would be an increase in their price. 2 But not to the level that they claimed. 3 Q. If we could look, please, on screen at document 4 TIE00106500. 5 We can see there that it's a document headed up 6 "Infraco Entitlement", and we understand that this was 7 a document prepared by Dennis Murray of tie, one of the 8 tie quantity surveyors, in order to assess tie's 9 liability under the Infraco contract for the cost of 10 building the line to Haymarket. 11 Is this a document that you recall having seen 12 before? 13 A. No, I can't recall seeing this. I may have seen it. 14 I'm not saying I haven't, but I cannot recall seeing it, 15 no. 16 Q. Without flicking through all of it, it appears to be 17 a fairly detailed set of calculations underlying tie's 18 view of the price it would be appropriate to pay. Is 19 that a document that would have been at a level of 20 detail beyond that that you were considering at the 21 mediation? 22 A. Yes, there's -- to be honest, I don't know whether we 23 saw this document at mediation or not. I can't sit here 24 and say I've seen it before. It would be a piece of 25 work that you would probably expect to be done. So yes, 75 1 it -- I'm not quite sure how you want me to answer that, 2 because I can't recall seeing it, but I'm certainly sure 3 that it's a piece of documentation that would be 4 considered in the overall negotiation. 5 Q. Okay. I think we can perhaps move on from that. 6 If we go, please, to document WED00000134. If we 7 could go, please, to page 233 of that document. 8 I think this is a document you might have been sent 9 when you were asked to prepare your written answers to 10 the Inquiry. It's the report I referred to earlier by 11 Colin Smith and Alan Coyle about what happened at the 12 mediation. Do you remember having seen that? 13 A. I think, as you say, you sent it to me when I was 14 preparing my responses to it. 15 Q. Yes. 16 A. I believe so, anyway. 17 Q. Just on that page there, paragraph 7.2, the third 18 paragraph up from the bottom which begins "It became 19 apparent". I'll just read from that: 20 "It became apparent from the pre-mediation work 21 outputs that tie's commercial assessments of the likely 22 outcomes were of a very hard line when compared to the 23 assessment of where the culpability for delay fell. It 24 has become clear that the dominant cause of delay to the 25 works was the delayed MUDFA utility diversions." 76 1 Now, was that your recollection of the position at 2 mediation, that the dominant cause of delay was the 3 delayed MUDFA utility diversions? 4 A. That was more associated -- from my recollection, that 5 is more associated with the on-street works, not the 6 off-street works. And certainly tie had contracted 7 MUDFA to clear all the utilities in order to have 8 a clear approach, and that was the subject of quite 9 a lot of discussion about the fact that the job was not 10 done properly or timely, and therefore that had delayed 11 the work from -- for Infraco. 12 Q. Yes. Do you recall that under the Infraco contract it 13 was tie that bore the risk of any delay arising from 14 delay in the utility diversions? 15 A. Yes, because it was a separate contract and it was 16 a condition precedent, if you like, for the Infraco 17 contract. 18 Q. So the significance of a view that the dominant cause of 19 delay to the works was utility diversions is that tie 20 would bear the bulk of the consequences of delay on the 21 project? 22 A. Yes. 23 Q. Was that an important consideration by you and the 24 others in the head negotiating team in agreeing the 25 settlement that was reached at mediation? 77 1 A. Yes, it would have been because obviously it's a -- it's 2 an issue that -- it was a dependency that the main 3 contract had, and if it wasn't fulfilled properly, then 4 that dependency would have resulted in delays, which 5 would have then added cost. 6 Q. Yes. Now, did the tie management accept that MUDFA 7 utility diversions were the dominant cause of delay? 8 A. Sorry? 9 Q. Did tie management accept that MUDFA utility diversions 10 were the dominant cause of delay? 11 A. I think there is mixed views there. I think, if you 12 look at the operation of the contract, as far as 13 I recall, it was actually the amount of lead time that 14 MUDFA had in order to bring on Infraco. 15 So that lead time was shortened and therefore the 16 Infraco had to stop regularly. I think that although in 17 the overall scheme of things, the tie management 18 understood that, they believed that the behaviour sets 19 were such that could have been worked around if in fact 20 there was a better working relationship between all of 21 the contractors. And therefore to some extent, and you 22 will have heard this, I'm sure, because Infraco worked 23 to the contract rather than working co-operatively, then 24 that led to claims. 25 Q. Was there a view in tie management that, rather than 78 1 delay being caused by MUDFA utility diversions, there 2 was actually another dominant cause of delay? 3 A. Well, from my recollection there were two prominent 4 causes of delay. One was the MUDFA contract in clearing 5 the physical work, but there is the design. The design 6 was not -- it wasn't a design and build. The design was 7 contracted in the beginning to another agency or another 8 contractor, and therefore the design wasn't available at 9 the time that the contractor needed to proceed. 10 So from my recollection there were two primary 11 causes. 12 Q. Were you aware that tie had expert advice from delay 13 analysts that it wasn't MUDFA that was the dominant 14 cause of delay, but in fact problems with the design? 15 A. That wouldn't surprise me. I wasn't aware of that, but 16 I think both had an effect on the overall environment. 17 Q. In reaching the settlement agreed at mediation, did you 18 and the others in the main negotiating team form a view 19 about what was in fact the dominant cause of delay and 20 who bore the responsibility for it under the Infraco 21 contract? 22 A. At the mediation we were looking at the way forward, and 23 therefore we tried to correct some of the things that 24 had happened in the past. For example, the design was 25 passed back over to Infraco so that they could not use 79 1 that as a reason for being delayed. 2 So our position was we need to clear up all the 3 issues that have caused this so that we can move forward 4 with a clean sheet of paper. 5 Q. So can we take it from that answer that the price agreed 6 at mediation was agreed without any view being taken on 7 precisely who bore the contractual responsibility for 8 delay that had occurred in the project up to that point? 9 A. Yes, because it was a commercial deal. 10 Q. If you could bring back up on screen the key points of 11 principle document, which is CEC02084685. 12 Now, you will recall, I think, Mr Emery, that a deal 13 at mediation was essentially for a line running to 14 St Andrew Square? 15 A. Yes. 16 Q. However, it's apparent from these terms that CEC agreed 17 to buy all of the Siemens materials and equipment and 18 also the design for a line going beyond that all the way 19 to Newhaven. 20 Do you recall that? 21 A. Yes. 22 Q. Why agree to buy the design and equipment for a part of 23 the line which was, at least at that time, not to be 24 built? 25 A. Because the view was that at some future date it might 80 1 be built, and therefore this was a mediation to settle 2 the current issues, and within -- I know it sounds a bit 3 contrite, but within the price we needed to show, or 4 Edinburgh City Council needed to take the line from 5 St Andrew Square, or Picardy Place just around the 6 corner, but we wanted to be -- since a part of the deal 7 was all the materials had been bought and purchased, 8 then we would want ownership of all of that moving 9 forward. And clearly the ownership of that is not worth 10 having unless you have the design to be able to contract 11 that at some future point. 12 So it was a strategic decision made by Edinburgh 13 Council to actually facilitate the pursuing the line to 14 the original destination at some future point. 15 Q. So was it a decision taken in the knowledge that the 16 then approved funding for the project would only stretch 17 to construction as far as St Andrew Square or 18 Picardy Place? Was that -- 19 A. Yes, it was. It was. 20 Q. Was there an opportunity to save money by not having the 21 design completed and not buying the materials and 22 equipment for that extra stretch of the line? 23 A. The technical answer to that is probably. I cannot 24 recall the actual state of the design, but we needed, or 25 Edinburgh Council needed to be confident that they had 81 1 access to that design if they wanted to pursue it to the 2 end. 3 At that point I cannot say whether we knew it had 4 been completely finished in time -- in terms of design 5 or whether the designer had only gone to Picardy Place. 6 You will recall that a lot of the MUDFA work is all down 7 Leith Walk and through to Newhaven, and that was the 8 cause of a lot of the disruption. 9 So having cleared the area where the tram was to be 10 going, then it would not -- I think it was considered 11 that it wouldn't have been a huge call if you had the 12 design and the materials to be able to actually take the 13 tram down there at some future date. 14 CHAIR OF THE INQUIRY: Does that assume that the same design 15 will be used for the extension of the tram. 16 A. Yes. 17 CHAIR OF THE INQUIRY: From Picardy Place to Newhaven? 18 A. Yes. 19 CHAIR OF THE INQUIRY: And does it also assume that the 20 MUDFA works in Leith Walk, from Leith Walk to Newhaven, 21 have been completed? 22 A. The answer is yes. That was an assumption that was 23 made. I think subsequently it was proved not to be the 24 case. I think the MUDFA clearance, I think there are 25 still issues, as I understand it. But that's again 82 1 hearsay. But the assumption was that we'd cleared that 2 whole area and if we had the design at our disposal, 3 then at some point it should be a less costly operation 4 to run the tram all the way down. 5 CHAIR OF THE INQUIRY: So to get value for money, the 6 Council should use that design in any extension because 7 it's been prepared and -- subject to remedying the 8 defects in the MUDFA works? 9 A. Yes. That would be a sensible conclusion, yes. 10 CHAIR OF THE INQUIRY: Thank you. 11 MR MCCLELLAND: Did you understand the agreement reached at 12 mediation to be for CEC to buy the full set of materials 13 and equipment needed to complete the line to Newhaven? 14 A. Sorry? How many sets? 15 Q. Did you understand the agreement on materials and 16 equipment referred to in the agreement up on screen, did 17 you understand that to be a full set of the Siemens 18 materials and equipment that would be needed to complete 19 the line to Newhaven? 20 A. My understanding was that it is -- it was the complete 21 material set. 22 Q. Are you aware of any later decisions by the Council to 23 cancel the order of some of those materials and 24 equipment? 25 A. No, I'm not aware about that. 83 1 Q. Not aware of that. In your written answers, one of the 2 things you say is that Infraco and particularly 3 Bilfinger Berger Siemens did not wish to continue with 4 tie and their prices were high to reflect their view of 5 the difficulties they had experienced with tie. 6 Of course, subsequently tie were removed from the 7 project? 8 A. Yes. 9 Q. Did the Council obtain any reduction in the price to 10 reflect tie's removal from the project? 11 A. It was a condition -- I think we talked about that this 12 morning. It was one of the conditions that needed to be 13 resolved as a result of negotiating or agreeing the 14 final price. And I think what -- well, I know that one 15 of the conditions was that they didn't want to continue 16 dealing with tie because that would have just ended up 17 in exactly the same position as they found themselves 18 in. 19 So there were certain -- certain characters, shall 20 we say, on BBS's side which we didn't want to deal with 21 any more, and there were certain people which were all 22 contained basically within tie that -- that BBS didn't 23 want to deal with. 24 So it was a part of the deal going forward. 25 Q. When you refer to that as a condition, do you mean it 84 1 was a position imposed by the consortium on any deal 2 being done at mediation? 3 A. Yes, I would argue that they said we don't -- part of 4 our -- part of our negotiation is if you continue with 5 tie, the price will be higher. 6 Q. Do you mean higher than the price that they had sought 7 in the Project Phoenix proposal? 8 A. Yes. So in accepting our offer of half of their offer, 9 one of the conditions was then we don't -- we don't want 10 to continue working with tie. 11 Q. That's not something which is recorded in the list of 12 key principles. Do you know why the removal of tie 13 wouldn't have appeared in that list of agreed points? 14 A. My -- I can only make an assumption here, and I hate 15 making assumptions, but my assumption is that it was 16 already given that that would be the situation. 17 Q. Yes. You mean it was already accepted within the 18 Council -- 19 A. Yes. 20 Q. -- that tie would be removed? 21 A. Yes. 22 Q. If we could just look briefly at the governance 23 arrangements in relation to settlement. Can I have on 24 screen, please, document TIE00897058. Go to page 6, 25 please. 85 1 These are the minutes of the Tram Project Board on 2 12 January 2011, which I think is the last meeting 3 before you joined as chairman? 4 A. Yes. 5 Q. If we can just go, please, to page 7. Then just in the 6 top box there's a paragraph beginning, "The Board 7 discussed the governance arrangements". Do you see 8 that? 9 A. Yes, I see that. 10 Q. Just reading from that: 11 "The Board discussed the governance arrangements in 12 regard to the future decision making processes; these 13 being: 14 "1. tie CEO presents his recommendation to the Tram 15 Project Board; 16 "2. Tram Project Board to consider and make 17 a recommendation to the TEL Board; 18 "3. TEL Board to consider and make a recommendation 19 to City of Edinburgh Council; 20 "4. Full Council to consider and as necessary, 21 ratify the TEL Board recommendation." 22 Was that governance approach followed in relation to 23 the mediation? 24 A. I think in essence, yes. I can't speak for item 4. 25 I know that the CEC executive obviously had to get 86 1 agreement with the Council and I was not present, but 2 I know papers were presented, and I think the executive 3 were called before the Council and gave updates to get 4 their approval to move forward, which I think 5 subsequently happened. 6 So in broad terms, yes. I think that happened. 7 Q. Well, if you just look a little more carefully at the 8 points, the first is that the first stage is for the tie 9 Chief Executive to present his recommendation to the 10 Tram Project Board. Was that something that happened 11 following the mediation? 12 A. No. 13 Q. The second is Tram Project Board to consider and make 14 a recommendation to the TEL Board. Did that happen 15 after the mediation? 16 A. No, it didn't. 17 Q. Then thirdly, the TEL Board to consider and make 18 a recommendation to the City of Edinburgh Council. Did 19 that happen after the mediation? 20 A. No, it didn't. 21 Q. No. So there was a departure from these governance 22 arrangements. Do you recall why that was? 23 A. It's because the negotiation of all of this was taken 24 out of the hands of tie, and was placed firmly in the 25 hands of City of Edinburgh Council. 87 1 Q. If we can go, please, to document TIE00896987. These 2 are the minutes of the Tram Project Board on 3 11 May 2011. So after the mediation. 4 We have down at the bottom the heading, "Update on 5 Mediation", and then over the page, at item 3 we have: 6 "The TPB Noted that the Council Paper refers to 7 a consultation on the future project management and 8 governance of the project." 9 Then down at the bottom of the following paragraph: 10 "It was agreed that CEC and tie will work towards 11 a proposal for review by the TPB in June. In the 12 meantime, the existing ratified project governance 13 arrangements will apply." 14 Then if we carry on to the next page, please, the 15 paragraph at the bottom: 16 "KH [Kenneth Hogg] stated that the agreement of MoV4 17 and the associated payments, costs and risks were all 18 matters which should have been the subject of scrutiny 19 by the tie/TEL Non-Executive Directors and respective 20 Board members, but this had not happened. He welcomed 21 the proposal to ask the Council on 16 May to agree that 22 revised governance arrangements should be developed and 23 put in place, in line with the new commercial strategy 24 and arrangements emerging from the mediation agreement. 25 KH said that in the absence of new governance 88 1 arrangements however, the existing governance 2 arrangements should have been used in respect of this 3 agreement of a binding variation to the contract. BC 4 and PS as the other present Non-Executive Directors ..." 5 I think that's Brian Cox and Peter Strachan: 6 "... participating in the meeting supported these 7 statements and this position. It was acknowledged that 8 until such time as any changes to the existing 9 governance arrangements are formally ratified, then the 10 TEL Board and TPB are to be afforded the opportunity to 11 scrutinise the terms of any proposals emerging from the 12 post-mediation engagement." 13 Now, did any of that scrutiny ever take place? 14 A. I'm not aware that it did. Excuse me. 15 Q. That passage referred to Minute of Variation 4. Do you 16 remember that agreement? 17 A. Not in detail, no. I can't say I do. 18 Q. If I was to say to you it was the Variation Agreement 19 which referred to the advanced works which had been 20 agreed at mediation, do you recall that? 21 A. Well, I do -- as I said this morning, I do recall 22 priority works being agreed. 23 Q. Yes. As far as you recollect, was that agreement ever 24 subject to the scrutiny of the tie and the TEL Boards? 25 A. No, by that time CEC, as the -- as the sole shareholder, 89 1 had basically taken control. And as I alluded to this 2 morning, this document just confirms what I said this 3 morning, which is that the NEDs felt that they were out 4 of the system and therefore they had some liabilities 5 that they couldn't discharge. 6 Q. Yes. I think we know from the records that most if not 7 all of the non-executive directors resigned shortly 8 after this meeting of the Tram Project Board? 9 A. Absolutely, yes. 10 Q. Was it in response to those developments -- 11 A. Yes. 12 Q. -- that they resigned? 13 A. Yes. 14 Q. I referred there just a moment ago to Minute of 15 Variation 4. Just to put that in the timeline, that was 16 signed on 20 May 2011. I think you signed it on behalf 17 of tie. You may not recollect that. 18 Do you recall that under that agreement, tie were 19 obliged to make payments in instalments to Bilfinger and 20 Siemens totalling GBP49 million? 21 A. Well, I do remember there were -- there were payments to 22 be made. I think they were advance payments, weren't 23 they? 24 Q. We will come on to what they were for. But in broad 25 terms you remember that there were payments to be made 90 1 in instalments under that agreement? 2 A. I do remember that, yes. 3 Q. You recall that they totalled GBP49 million as the 4 figure? 5 A. I don't remember the number, but -- 6 Q. Does the magnitude seem about right to you? 7 A. Yes. 8 Q. Was it the case that tie's management thought that 9 GBP49 million was an unacceptably high amount to pay, 10 and they took the view that no more than GBP19 million 11 should be paid? 12 A. I was aware of that. 13 Q. In your written answers you explain this was resolved by 14 the Council simply overriding tie's view? 15 A. Yes. 16 Q. Why was it that tie management considered GBP49 million 17 to be too much to pay? 18 A. Because again this is -- this was at the essence of the 19 dispute in the first place, which is the assessments by 20 the tie management were a lot lower than the assessments 21 by the contractors. 22 Q. When you say "assessments", do you recall what the 23 GBP49 million payment was be for? 24 A. No, I don't. 25 Q. Now, the Council obviously decided to go ahead and agree 91 1 to the payment of GBP49 million. As far as you recall, 2 did tie's management form any view on whether or not 3 what was received in return for that was worth 4 GBP49 million? 5 A. Their view was that it wasn't. 6 Q. As I said a moment ago, you signed Minute of Variation 4 7 on behalf of tie. Did you have any concerns about your 8 authority to do that? 9 A. At that time I was working on behalf of CEC really, not 10 tie. So I didn't have any concerns about my authority, 11 no. 12 Q. Well, in particular was there any concern about the 13 commitments undertaken by tie to pay the sums that were 14 due under Minute of Variation 4, including that 15 GBP49 million? 16 A. Again, this was all part of a deal, a commercial deal, 17 to get this thing rolling again. 18 Q. If we could look, please, at document CEC02087184. This 19 is a letter dated 6 May 2011 to Dave Anderson at the 20 Council. If we just look briefly at page 2. We can see 21 that the letter comes from you as the Chairman of TEL? 22 A. Yes. 23 Q. Do you recall sending this letter? 24 A. No, I don't. Clearly I did, but I don't remember 25 sending it. 92 1 Q. We will just read through parts of it. Go back to 2 page 1, please: 3 "Dear Mr Anderson - FUNDING AGREEMENT AND DELEGATED 4 AUTHORITY" 5 Then missing a paragraph: 6 "On behalf of TEL and authorities delegated by TEL 7 to the Tram Project Board, it is my obligation to inform 8 you under clauses 2.22 and 2.24 of the TEL/CEC Operating 9 agreement of all "matters affecting the programme, cost 10 and scope of the project". 11 "At the last TPB on 13 April 2011, it was reported 12 that spend on the Edinburgh Tram Project is now 13 GBP411.5 million to the end of Period 13, 2010/2011. 14 The value of budget contingency remaining available to 15 drawdown as at the end of Period 13, 2010/2011 was 16 GBP2.8 million ..." 17 If we just follow the asterisk to the bottom, it 18 reads there: 19 "including the provision of the + GBP1 million 20 funding variance allowed in the TEL/CEC Memorandum of 21 Understanding over and above the original funding cap of 22 GBP545 million for the Edinburgh Tram Project." 23 If we carry on to page 2, your letter reads: 24 "The management of TEL and tie will continue to 25 minimise additional funding commitments and we are 93 1 reviewing expenditure on an ongoing basis." 2 Then reading on: 3 "Despite this, the available funding of 4 GBP2.8 million remaining to draw down against is now 5 under pressure. We have exhausted the majority of the 6 GBP12.69 million of uncommitted budgets put "on hold" in 7 January, and we now anticipate that we will have 8 committed any residual funding within the current 9 delegated limits before the end of May 2011. 10 "In terms of the CEC/TEL and CEC/tie Operating 11 Agreements, TEL and tie are unable to make any further 12 commitments without a change in the authorised and 13 delegated funding from CEC. 14 "I request an increase in TEL's delegated authority 15 to make financial commitments exceeding the 16 GBP546 million in the TEL/CEC Operating Agreement and 17 MOU." 18 In broad terms, Mr Emery, you're there expressing 19 the view that TEL and tie had reached the limit of their 20 authorised funding? 21 A. That's correct. 22 Q. This letter is dated a couple of weeks before Minute of 23 Variation 4 was signed. At the time you sent that 24 letter, did you consider that TEL and tie's existing 25 funding authority was sufficient for you to sign Minute 94 1 of Variation 4? 2 A. This preceded Minute of Variation 4. This -- I didn't 3 see the date on this, but this is one of the early memos 4 that I sent, I think, after taking over. And it was 5 clear that from a cash flow point of view, there was 6 insufficient funds from a cash flow point of view, and 7 therefore we couldn't make further commitments, and that 8 there need to be -- I think I said at the beginning of 9 my evidence here today, if you did the earned value 10 calculation, the figure of -- the contract figure just 11 was not going to be enough. 12 Q. Yes. 13 A. And therefore I was seeking additional funds. 14 Q. So this letter is dated 6 May 2011. So it's well after 15 the mediation, and it comes just a couple of weeks 16 before you signed Minute of Variation 4 on behalf of 17 tie. 18 My question was whether you were concerned about 19 whether your existing authority was sufficient to sign 20 Minute of Variation 4, given the spending commitments it 21 represented. 22 A. Well, looking at this, I would agree with you that it 23 probably wasn't. 24 Q. If we can go, please, to document CEC02087187. We see 25 here this is a letter dated 13 May 2011 addressed to 95 1 you. We don't need to go there, but I can tell you that 2 page 2 confirms it's from David Anderson to whom you had 3 sent your letter of 6 May. 4 His reply begins: 5 "Thank you for your letter of 6 May ..." 6 Going down a paragraph: 7 "I welcome your assurance that the management of TEL 8 and tie will continue to minimise additional funding 9 commitments and to review expenditure on an ongoing 10 basis. 11 "The Council will receive a summary of the terms of 12 the priority works Minute of Variation (MoV4) arising 13 from mediation at their meeting on Monday 16 May. 14 "Our expectation is that the Council will, at this 15 stage, simply note the proposed programme of works set 16 out in MoV4 and defer decision on the future of the 17 project until the full details of the revised scope, 18 budget and programme are available. 19 "This matter will obviously be considered in full in 20 early summer, when full detail of the complete picture 21 of the full cost and revised programme for the Edinburgh 22 tram project will be reported." 23 Then over the page: 24 "In the meantime, I would like to give you the 25 comfort that after consultation with the Council's 96 1 Chief Executive, Group Leaders, Director of Finance, and 2 Head of Legal Services, we will not be recommending any 3 action being taken in relation to any technical breach 4 of the Operating Agreement as a result of implementing 5 MoV4." 6 What did you understand Mr Anderson to mean when he 7 referred to "any technical breach of the Operating 8 Agreement as a result of implementing MoV4"? 9 A. Well, I can't say because I can't remember. But I would 10 imagine, reading this, then I had agreement or approval 11 to sign things over and above the mandate that was laid 12 down. 13 Q. If I was to suggest to you that what Mr Anderson says 14 there was an acknowledgment that as a consequence of 15 signing Minute of Variation 4, tie's spending 16 commitments would exceed its spending authority, does 17 that seem to you to be right? 18 A. Yes. 19 Q. Did you understand the Council at the point in time at 20 which this letter was sent to have approved spending on 21 the project in excess of GBP546 million? 22 A. I was not aware of the timing. I don't know if I was 23 aware of that or not. As I said earlier I know this -- 24 this agreement had to be taken to the Full Council, but 25 I'm not sure of the timing vis-a-vis this letter. 97 1 Q. So was it your understanding that Minute of Variation 4 2 was to be put before the Full Council for them to decide 3 to approve it or to reject it? 4 A. I imagine so. I have no knowledge one way or the other, 5 but I would imagine they would have to take it to the 6 Full Council. Otherwise they wouldn't get the funding. 7 CHAIR OF THE INQUIRY: If you go back to the first page of 8 this letter, Mr Anderson seems to be saying that the 9 Council will receive a summary of the priority works in 10 MoV4 arising from the mediation, but his expectation was 11 that the Council would simply note that and would not -- 12 would have deferred decision on the future of the 13 project until the summer. So if that's right, then it 14 would appear that the Council at that stage, in May, had 15 not granted authority to officers to sign the MoV4. 16 A. That's what it would imply, yes. 17 CHAIR OF THE INQUIRY: Thank you. 18 MR MCCLELLAND: As the Chairman of tie and TEL, your concern 19 was presumably to ensure that those companies had 20 sufficient authority from the Council to do whatever it 21 was doing. 22 Did you concern yourself with looking behind that to 23 the question of authority that had come from the body of 24 councillors? 25 A. No. My instructions were basically coming from the 98 1 executive. Sue Bruce and Alastair Maclean et al. 2 I attended from time to time, not regularly, but 3 subsequent to all of this agreement being signed up, 4 I attended Council meetings to give updates, but that 5 was in my role as an adviser to CEC. 6 Q. If you look at the final paragraph of Mr Anderson's 7 letter on page 2, where he says that he would like to 8 give you comfort that: 9 "... after consultation with the Council's 10 Chief Executive, Group Leaders, Director of Finance and 11 Head of Legal Services, we will not be recommending any 12 action being taken in relation to any technical breach 13 of the Operating Agreement ..." 14 Were you satisfied that that was sufficient and 15 proper authority from the Council for you to sign Minute 16 of Variation 4? 17 A. Yes. 18 Q. Was this question of authority to sign Minute of 19 Variation 4 a matter about which there was some tension 20 between tie and the officers of the Council? 21 A. Not that I'm aware of. At that point it was almost 22 a given that tie would -- would not be operating in 23 a leading position on this contract, and that I was, as 24 the Chair, expressing the views of the main shareholder, 25 and taking authority from that. 99 1 Q. Yes. So the question of authority within the Council's 2 own rules and regulations, that would be a matter for 3 the officers of the Council? 4 A. Absolutely. 5 Q. If we can take a look, please, at CEC02086879. If we 6 could go, please, to page 3 of that. 7 Now, there's nothing on this letter to suggest that 8 you received it, Mr Emery, but if you look at it just 9 now, is this a letter that you recognise or that you 10 recall? 11 A. No, I can't recall seeing this letter. I'm just trying 12 to read it. 13 CHAIR OF THE INQUIRY: Do you want it blown up in size? 14 A. No, no, I'm fine. 15 No, I understand the letter, but I can't recall 16 seeing it before. 17 MR MCCLELLAND: Okay. Well, I'll ask you some questions 18 about it. 19 We see that it's a letter marked for the attention 20 of Dave Anderson, dated 3 May 2011, from Steven Bell, 21 who was the tie Project Director. 22 A. Yes. 23 Q. He says: 24 "Dear Dave. 25 "Planned Payment to Infraco associated with Minute 100 1 of Variation 4 ... 2 "We note that arrangements have been made by CEC to 3 enable payment solely based on the Hg Consulting 4 Certificate 1 for GBP27 million on Tuesday 3 May in 5 line with the agreed draft Minute of Variation 4 6 concluded between CEC and Infraco on 16 April 2011. 7 This payment is planned through the existing process of 8 CEC making funds available with it being paid to Infraco 9 (Bilfinger Berger and Siemens in this Certificate) 10 through tie Ltd." 11 Then, missing a paragraph: 12 "It is also noted that whilst such a payment does 13 not exceed the authorised actual expenditure of up to 14 GBP546 million delegated to tie via TPB, TEL and CEC, on 15 execution of MoV4 this will become a commitment to 16 a total project cost in excess of GBP546 million. 17 Consequently, in confirming agreement to pay certificate 18 1, CEC confirm and accept that this would take tie/TEL 19 outwith their current Operating Agreements with CEC once 20 MoV4 is signed." 21 Having gone through that, do you recall Mr Bell 22 sending a letter along those terms to the Council? 23 A. I don't recall it, but it reflects the sentiment, and 24 therefore I think Steven Bell, who was quite thorough, 25 would have wanted this committed in writing, so that he 101 1 wasn't in breach of any of his obligations. 2 So whilst I can't recall it, I can understand it. 3 Q. Is Mr Bell perhaps more explicit in his letter about the 4 same concerns that underlay your letter to 5 Dave Anderson, that tie and TEL lacked authority to 6 commit to the spending under Minute of Variation 4? 7 A. I think he's trying to say that he wants approval for 8 actually breaching the agreements. 9 Q. Yes. 10 A. That's what he's looking for. 11 Q. Yes, and my question is: is that, in slightly more 12 explicit terms, the same concern that underlay the 13 letter that you wrote to Dave Anderson that we looked at 14 a moment ago? 15 A. Yes. 16 Q. If we can go, please, to the first page of that 17 document. We can see, first of all, from the email 18 there that Steven Bell appears to have emailed this 19 letter to Dave Anderson. In fact you were copied into 20 that email. 21 One of the recipients of that email was 22 Alastair Maclean, and he forwards it on to Sue Bruce. 23 He says: 24 "Can you have a look at this. Will pop down to 25 discuss." 102 1 There's a handwritten comment on the email which 2 says: 3 "Stitch up. Alastair raging! This needs to be 4 responded to formally and quickly." 5 Were you aware of this issue of authority being one 6 which caused concern to Alastair Maclean or Sue Bruce? 7 A. No, I wasn't actually. It's quite a surprise to read 8 that. 9 Q. Can you think of any reason why they might have been 10 concerned? 11 A. My only -- my only conclusion to this would be that 12 people were manoeuvring as to who would take 13 responsibility if this didn't go through. 14 So again, my assumption, forgive me for making 15 an assumption, but my assumption is that Steven Bell 16 and I were writing to the Council saying: we need your 17 agreement that we're doing this, because we are 18 breaching it; and when it got to the Council, the 19 Council thought: well, they're trying to cover their 20 backside here, rather than working as a team. 21 So I don't know what -- that's my only 22 interpretation of "stitch up". I can't understand it 23 any other way. 24 Q. Were you aware of any concerns held by the officers of 25 the Council about the extent of authority that they held 103 1 from the body of councillors to sign up to Minute of 2 Variation 4? 3 A. I think they were -- from my understanding, they were 4 obviously concerned that they needed top cover, as it 5 were, and therefore they needed as a matter of urgency 6 to put it to the Council at large. The councillors. 7 Q. You used the term "top cover" there. What do you mean 8 by that? 9 A. It means the flow down of authority. So tie is already 10 beginning to manoeuvre, as you can see, to say: I need 11 cover for this. You know: I'm writing to you, are you 12 okay with what I'm doing? 13 The Council then would have to do the same thing, 14 because one assumes that they had a limit as well. 15 Q. Yes. You say one assumes. Were you aware of the extent 16 of their limit on their authority or their perceptions 17 of what authority they had from the Council in relation 18 to Minute of Variation 4? 19 A. My assumption would be that unless they got approval to 20 move forward, they were constrained by the value of the 21 current contract. 22 Q. Yes. I'm sorry to press you, Mr Emery. Were you 23 actually aware of concerns to that effect being held by 24 the Council officers? 25 A. The Council officers? Yes, of course. Yes. I think -- 104 1 I think I was aware that they knew they needed to get 2 the Full Council to agree to move forward. And that was 3 also, as I've said earlier, one of the issues around the 4 agreement with Bilfinger Berger. They wanted 5 reassurance that the money would be available to 6 actually pay for this. 7 Q. Yes. In that context of the officers of the Council 8 requiring authority to do this, can you think of any 9 reason why Sue Bruce or Alastair Maclean might have been 10 raging about tie having put this matter into print? 11 A. No, I don't -- I can't -- it would be pure speculation. 12 I have no idea. 13 Q. Okay. 14 Bear with me for a moment, please, Mr Emery. 15 (Pause) 16 If we could look briefly at document CEC02087193. 17 We see that this is an email from you to Colin Smith? 18 A. Yes. 19 Q. Dated 19 May 2011. It reads -- the subject is MoV4: 20 "Colin, thank for your email and I note your 21 intention to sign MoV4 tomorrow (Friday, 20 May). 22 "The purpose of this email is to try and avert an 23 embarrassing situation. 24 "The tie team have provided advice at various points 25 during the negotiations but have not been a member of 105 1 the negotiating team. This has been primarily done by 2 yourself and McGrigors. The tie management have written 3 to David on a number of occasions, as far back as, 4 formally 20 April raising issues with respect to 5 MoV4 ..." 6 Then your final paragraph: 7 "Either these issues need to be resolved before 8 tomorrow or, in accordance with the clearly emerging new 9 governance framework, tie needs to be instructed to sign 10 MoV4 as an agent of CEC." 11 How were these concerns resolved? 12 A. Well, I was in -- I was instructed to sign MoV4. I'm 13 not sure if that was in writing or not, to be honest. 14 Q. Do you recall who instructed you to sign it? 15 A. CEC. 16 Q. And who on behalf of CEC? 17 A. Well, it would have either been Sue or Alastair. It 18 wouldn't have been any of the others. 19 CHAIR OF THE INQUIRY: When you say CEC, you mean senior 20 officials at the CEC. 21 A. Yes. 22 MR MCCLELLAND: Minute of Variation 4 was in fact signed the 23 next day, 20 May. Of the GBP49 million in instalment 24 payments, it appears that GBP36 million was paid before 25 the agreement was actually signed. Were you aware of 106 1 that? 2 A. No. 3 Q. Would you have gone along with it if you were? 4 A. On the basis that it was -- that the agreement had been 5 agreed, and therefore it was a matter of simply signing 6 it, yes, I probably would have done. 7 Q. Moving on to August 2011, in that month a firm of 8 consultants, Faithful+Gould, produced a report about 9 project costs. We can perhaps bring it up on screen. 10 It's document CEC02083979. 11 I think this is one of the documents sent to you for 12 the purpose of preparing your written answers. You may 13 recall that one of the opinions expressed by 14 Faithful+Gould in this report is that Bilfinger and 15 Siemens' proposed prices for the on-street works which 16 were under negotiation at that time were grossly 17 inflated. Do you remember that term? 18 A. Oh, yes. 19 Q. I think in your written answers you say that you agreed 20 with that assessment; is that correct? 21 A. Correct. 22 Q. If Bilfinger Berger Siemens' on-street prices were 23 grossly inflated, did that give you any concern that the 24 off-street price agreed at mediation, GBP362.5 million, 25 might also have been grossly inflated? 107 1 A. Absolutely it would, but I think I've already made my 2 position quite clear there. I do think it was. 3 Q. Returning then to the price of the on-street works, 4 leaving the 362.5 to one side, in your written answers 5 you say that the price ultimately agreed for the 6 on-street works, you say that you were not confident 7 that that represented best value. Do you recall that? 8 A. Yes, I do. Yes. 9 Q. Now, moving on from that, Mr Emery, you describe 10 yourself -- I think you have said it this morning, but 11 also in your written answers -- as having been 12 a governance consultant for the City of Edinburgh 13 Council. 14 A. Yes. 15 Q. Just in brief terms, what did that role involve? 16 A. It involved supporting the executive in Edinburgh 17 Council in conducting progress meetings. By that time 18 tie had been disbanded or put into dormancy, and 19 Turner & Townsend had been appointed as project managers 20 for the project. So I attended meetings with the 21 Council and Turner & Townsend, and occasionally with the 22 contractors, in order to assess the performance of the 23 contract moving forward post the Settlement Agreement. 24 And I would chair those meetings if Sue Bruce couldn't 25 make them. Mostly she did, but in her absence, I would 108 1 chair them. 2 Q. Were you involved to any extent in the design of the 3 post Mar Hall governance structure for the project? 4 A. I was consulted on it but I wasn't really involved in 5 the design of it. I mean, I played a consultancy role, 6 not an active role. 7 Q. If you could look -- have on screen, please, document 8 TRS00019622. Just for context, this is a report to the 9 Audit Committee of the City of Edinburgh Council on 10 26 January 2012. 11 If we go, please, to page 7, if you just take 12 a moment to look at that diagram, please, Mr Emery. 13 A. Yes. 14 Q. Do you recognise that as the governance structure for 15 the project? 16 A. I do. I do. There were several iterations but this one 17 is familiar. 18 Q. In your view was it successful as a governance 19 structure? 20 A. Yes. A lot of dependency was placed on the independent 21 certifier. So as a governance structure, yes, it worked 22 quite well. But the meetings were informed by the 23 independent certifier, which is Colin Smith. 24 Q. You said there that a lot of dependency was placed on 25 the independent certifier. What did you mean by that? 109 1 A. Well, we had Turner & Townsend as the project managers. 2 But if there was a dispute between the project 3 management and the contractors, then that would be 4 resolved by Colin Smith as the independent certifier. 5 Q. Yes. 6 A. So they were not always in agreement with each other, 7 but Colin was basically the guy that made the decisions 8 on moving forward. 9 Q. If you look at that diagram, I think we can see the 10 independent certifier just slightly off centre to the 11 right; do you see that? 12 A. Yes. 13 Q. On that diagram he appears there as sitting between the 14 Project Delivery Group and the Joint Project Forum and 15 Principles Forum? 16 A. Yes. 17 Q. Just in terms of the way it's presented there in that 18 diagram, can you explain his role? 19 A. His role? 20 Q. Yes. 21 A. His role was the primary interface with the contractors, 22 and he would feed back to the Project Delivery Group, ie 23 the group that I chaired, and the Council as to what 24 progress there were, what payments needed to be made, 25 what was certified, what was not. So he was the primary 110 1 interface with BBS. 2 Q. Yes. I think there was an agreement in place with 3 Mr Smith under which he was appointed as the independent 4 certifier. Do you recall that? 5 A. I don't know that. 6 Q. Do we see also on that diagram there's a box just below 7 the project delivery group, which has the label "Senior 8 Responsible Officer"? 9 A. Yes. 10 Q. It was the case that Mr Smith held that role as well; is 11 that correct? 12 A. I don't know that. He certainly acted as the senior 13 responsible officer, but I don't know that he formally 14 held that role. 15 Q. Well, you can take it from me that he did. 16 A. Okay. 17 Q. As I understand it, he held the role of Senior 18 Responsible Officer at the same time that he held the 19 role of independent certifier. I think you say you were 20 aware that at least de facto Mr Smith was acting as the 21 SRO? 22 A. Yes. 23 Q. Were you concerned about him performing these two roles 24 at the same time? 25 A. Yes, because in most organisation structures that's a 111 1 conflict of interest. 2 Q. You say in most organisation structures. Was it not 3 a conflict of interest in this one too? 4 A. Yes, it could be considered as a conflict of interest. 5 If you're certifying someone's work, you're marking your 6 own homework. 7 Q. Was that something that was the subject of discussion 8 amongst those responsible for the project in the 9 Council? 10 A. Not that I was aware of. I mean, I didn't sit with 11 them, but not that I was aware of. 12 Q. Did you make your concerns about it known? 13 A. Yes. I have made my concerns known to Alastair and to 14 Sue Bruce. But they thought it was a workable solution 15 because of the behaviour sets that had gone on before, 16 and that Colin's demeanour and the way he behaves would 17 be more conducive to getting work progressed. 18 Q. You say you raised these concerns with Sue Bruce and 19 Alastair Maclean. What was the nature of -- what did 20 you say to them about it? 21 A. I said what I have just said to you, which is clearly 22 you've got what I would call the fox in the hen house 23 here, and the answer was: well, he is proven to be very 24 good at what he does. He can be independent. He is the 25 SRO. We needed to have someone to hold 112 1 Turner & Townsend to account, but also to facilitate any 2 disputes that were going on between the project group 3 and the contractor. 4 So there was a great deal of confidence placed in 5 the independent certifier. 6 Q. We can just step back a little bit from this. As Senior 7 Responsible Officer, he was accountable within CEC for 8 the project; do you accept that? 9 A. For the physical project, yes. I'm not sure about the 10 budget, but I know for the physical progress, yes. 11 Q. In that office he would have owed duties wholly to the 12 Council? 13 A. Yes. 14 Q. As the independent certifier, he owed duties both to the 15 Council and to the consortium? 16 A. Well, his main duty would be to the Council. He would 17 be certifying whether the work was done and whether the 18 claim for that work was bona fide. 19 Q. Well, you may not be aware of this, Mr Emery, but I can 20 tell you that under the Certifier Agreement, Mr Smith, 21 or at least his company, the independent certifier, was 22 obliged -- it was said in that Agreement that he owed 23 duties of care both to the Council and to the 24 consortium. 25 Were you aware of that? 113 1 A. No. 2 Q. That would seem to put in concrete form the conflict of 3 interest that you were referring to? 4 A. It would. I can't see how you could be responsible to 5 a contractor. 6 Q. You said that as the independent certifier, one of the 7 things he had to do was take decisions about whether or 8 not work was properly done and should be certified and 9 so on? 10 A. Yes. 11 Q. Now, if he'd made that decision, and it was a decision 12 that was not, for example, in the Council's interests, 13 who would have been able or likely to challenge his 14 decision within the Council's governance structure? 15 A. Well, if he brought -- if he brought a dispute to the 16 group that met twice a week, then that group would have 17 made -- given him direction as to what to do. 18 If it wasn't, and quite often decisions were already 19 brought to the group, then I assume that it was 20 either -- well, an officer inside the Executive of 21 Edinburgh Council. I don't actually know that. 22 Q. I think you said a moment ago that Mr Smith as the 23 Senior Responsible Officer was invested with a great 24 deal of the confidence of the senior officers in the 25 Council? 114 1 A. Yes. 2 Q. That they respected his judgement? 3 A. Yes, they did. 4 Q. If he as the independent certifier had reached 5 a decision, which, viewed objectively, was not in the 6 interests of the Council, would anybody remaining within 7 the governance structure have challenged Mr Smith's 8 assessment of it? 9 A. Probably not. 10 Q. Can you think of anybody within the governance structure 11 who had the same level of expertise as Mr Smith on these 12 matters? 13 A. I can't remember his name. There was a guy who ran 14 projects. I forget his name. There was a -- there was 15 one other person at the table who could challenge him 16 and Turner & Townsend could challenge, and they were 17 recruited as a replacement to tie. So they could 18 challenge that decision. But not -- not at the CEC 19 table. 20 Q. Given that Mr Smith held the role of senior responsible 21 officer within the Council, was it likely that these 22 people would challenge decisions he had made as the 23 independent certifier? 24 A. Well, I think it would be. I certainly challenged him 25 on one or two occasions, on some of the things, and he 115 1 gave a plausible response. 2 Q. Because one of -- I think the point is made by Mr Smith 3 that none of his decisions as independent certifier was 4 challenged. I would suggest that that's perhaps not 5 surprising if he was also the senior responsible 6 officer. 7 A. Well, he would bring -- he would bring issues to the 8 table and I for one would challenge him. But I wasn't 9 in a position to actually certify whether he could sign 10 off a payment or a progress statement. 11 Q. Yes. Okay. Still looking at this diagram that's up on 12 screen, one of the points that you make in your written 13 answers concerns the role of political representatives 14 in the governance structure for a project like this. 15 I think I'm right in saying that in this diagram on 16 the screen, the politicians, the councillors, appear 17 only in those boxes in the top right-hand corner, the 18 Council audit committee and the All Party Oversight 19 Group; is that correct? 20 A. In this diagram, yes. 21 Q. Under the previous structure, councillors had attended 22 meetings of the Tram Project Board and had sat on the 23 Boards of tie and TEL? 24 A. They did. 25 Q. What in your view were the merits of this new approach 116 1 that we see on screen when compared with the previous 2 approach? 3 A. When I chaired the meetings in tie, the councillors were 4 cross party, and some were in favour of the project and 5 some were not. Things that were -- some of this 6 pre-dated me, but some of it was whilst I was there. 7 I think there were only about two or three meetings 8 before it all went into mediation. 9 But there was a concern that matters that should 10 have stayed within the project or within the 11 organisation were appearing in the press. So there 12 was -- and there was a disagreement amongst them 13 generally about progress. So they slowed things down 14 considerably. 15 Q. So is it your view that it would never be appropriate to 16 have political representatives on project boards for 17 a project of this nature? 18 A. I believe that to be the case. I think the politics 19 should be done at a different arena, not on a project 20 delivery arrangement. 21 Q. Another point you make in your written answers is that 22 the post Mar Hall governance structure involved the 23 heavy engagement of top management. I think the point 24 you make is that that disempowered the delivery team. 25 Have I understood your point correctly? 117 1 A. Yes. 2 Q. Could you just expand on it a bit for us, please? 3 A. I think that Turner & Townsend were appointed to be 4 project managers, but on one or two occasions their 5 advice was ignored and matters were progressed, I would 6 say against their better judgement. 7 CHAIR OF THE INQUIRY: Can you give an example of what -- 8 A. Certification of completion of works. The value of 9 claims that -- for progress payments, et cetera. Those 10 are the two things I can think of off the top of my 11 head. 12 CHAIR OF THE INQUIRY: Who overruled Turner & Townsend on 13 that matter? 14 A. Well, the Executive in Edinburgh -- City of Edinburgh 15 Council. So, for example, they would challenge -- I can 16 remember two occasions where they challenged the 17 validity of the work done by the contractor. But it was 18 signed off by Colin anyway. And that could only have 19 come from the authority that he gained from people above 20 him. 21 CHAIR OF THE INQUIRY: So would a consequence of that be in 22 that example that the Council were paying more than the 23 project managers thought they should be paying. 24 A. No, I don't think so, because the -- there was a price 25 that was agreed at the -- it was a matter of the cash 118 1 flow rather than the overall price. 2 CHAIR OF THE INQUIRY: So it would be paid sooner rather 3 than later when it should be. 4 A. Yes. 5 MR MCCLELLAND: Just to make sure I can understand it, 6 Mr Emery, you were saying there were a couple of 7 instances of work being certified by the independent 8 certifier against the views of Turner & Townsend as the 9 project manager? 10 A. Yes. 11 Q. So if Turner & Townsend were giving advice that 12 particular work or payments should not be certified, the 13 Council would presumably have to take a view on that? 14 A. Yes, and I believe they did, and they weighed up what 15 Turner & Townsend were saying against what the 16 independent certifier was saying, and for the most part 17 they -- they went in favour of the independent 18 certifier. 19 Q. Yes, who was also the Senior Responsible Officer for the 20 project within the Council's governance structure? 21 A. Yes. 22 Q. So is that a concrete example of a conflict of interest 23 having an influence on decision-making about the 24 project? 25 A. It could be interpreted that way. No one is saying, and 119 1 I'm certainly not saying, that Turner & Townsend was 2 right, and that Colin was wrong. What I'm saying is 3 that they took a view which was contrary to what Colin 4 said, and Colin's view was upheld. 5 Q. Yes, and Colin was the person in whom Sue Bruce, I think 6 you said earlier, had invested a good deal of her 7 confidence about running this project? 8 A. Yes. 9 Q. The diagram that's up on screen, we see scattered 10 throughout it golden hexagons, representing the 11 involvement of Transport Scotland? 12 A. Yes. 13 Q. Their view as described in the big hexagon is one of 14 oversight? 15 A. Yes. 16 Q. What was your view overall of the role played by 17 Transport Scotland in the governance structure after the 18 Mar Hall mediation? 19 A. Well, at the project forum chaired by Sue Bruce, 20 Transport Scotland were always there. I can't recall 21 a single meeting where they were not there. And at 22 a lower level at project management level, so not the 23 same individuals, but different individuals, also came 24 to the meetings that I held on project progress. 25 So they were -- they were always there in one form 120 1 or another. 2 Q. One reason they no doubt were there was to reflect the 3 fact that they as principal funders were paying for most 4 of this. Did they also assist the project in your view? 5 A. Yes, I believe they did, yes. 6 Q. In what ways? 7 A. At the Project Delivery Group level, the group that 8 I chaired, they brought some good advice on project 9 management, and at this time, you may already know this, 10 but there was also an interchange being built by 11 Transport Scotland to bring the Fife rail line, then 12 join it up into -- so there was an easy transfer into 13 the tram out at Gogar. So there was some mutual 14 interests there. 15 So that was very useful, to make sure that we didn't 16 interrupt each other's programmes, as it were. 17 Q. Are there any features of this governance structure that 18 was used after the Mar Hall mediation that you would 19 regard as being particularly important to note for 20 future projects? 21 A. Well, for future projects I would take out the 22 independent certifier. If you're going to employ 23 a Project Management Group which is Turner & Townsend, 24 who are a professional, well-respected group, you would 25 expect them to certify the work is either done or it 121 1 isn't done and the value of the work, and you would 2 expect that the contract would dictate in advance the 3 value of each of those progress payments as you went 4 forward. 5 The only difference between this and what I'm used 6 to is I'm used to fixed progress payments, whereas here 7 you have these things called preliminaries, which is all 8 about really paying the overhead as you go, and that 9 then encourages people to stretch it out because the 10 longer it stretches out, the more money you get for it. 11 But in this -- in the normal structure, you appoint 12 a project manager and you hold them accountable for 13 delivering the project in terms of schedule and cost and 14 quality. 15 Q. Yes. If you had a project manager performing that role, 16 you might end up then with situations where there was 17 a disagreement between the client and the contractor 18 about whether or not something should be certified. Did 19 you see a role there for someone akin to the independent 20 certifier? 21 A. No, you'd normally -- you'd normally go to an 22 independent group or a consultant on an individual basis 23 if that sort of thing happened. 24 If it escalated and you had a huge problem, then you 25 would go to arbitration or mediation again. But, 122 1 I mean, I run big projects all the time, and you have 2 a project manager and they are empowered: this is the 3 budget, this is when we agree to it being delivered, and 4 this is what I expect to be delivered; and you hold them 5 to account. 6 Q. Excuse me just a moment, Mr Emery. (Pause) 7 Just briefly, please, if we could go to your written 8 answers. The reference for that, I think, is 9 TRI00000035, and to page 42, please. Just answer 10 number 1 there, reading from that, you say: 11 "The project was not set up properly from the 12 beginning. The contract was biased towards Infraco, the 13 engineering and design was incomplete and the project 14 structure was flawed. The allocation of risk was 15 inappropriate, probably due to a lack of pre-contract 16 surveying and tie/CEC were too hasty to conclude 17 a contract without efficient competition." 18 Now, just, when you say there that the contract was 19 biased towards Infraco, what provisions in particular 20 did you have in mind? 21 A. I think some of the contract clauses, normally in 22 a contract you have a clause that says: in the event of 23 a dispute, you carry on working and we will resolve the 24 dispute, either amicably or whatever. But you don't 25 stop work. 123 1 That was the primary cause here, and that's really 2 why the whole project ground to a halt. 3 So from my point of view, I would never want that 4 clause in unless I had no choice but to put it in. 5 So -- and the way the contract was subdivided, as we've 6 already spoken about this morning, I would have given 7 a design and build contract, not have the design given, 8 because if I was going to do that, I would have to be 9 100 per cent sure that the design is workable and is 10 available and on time, and that there is an appropriate 11 Bill of Material that accompanies the design. And 12 clearly that wasn't here either. 13 So for me, in fairness to BBS, when they bid, they 14 put a lot of exceptions in their bid. And for reasons 15 not known to me, it was signed anyway. Therefore, 16 there's a bit of problems on both sides going forward. 17 So I think it was -- it was not set up properly 18 right from the beginning. In all the work that I do, 19 which cuts across lots of different things, the issues 20 all come back to the management capability of delivering 21 it and getting the design and the conditions right 22 before you start. If you start in haste, or you start 23 before you're ready to start, you will come unstuck. 24 Q. You mention there that your preference would be for 25 a design and build contract. Would you accept that 124 1 having a separate design contract might be an acceptable 2 way to proceed with a project like this, as long as the 3 design was finished before tendering the infrastructure 4 structure? Or would you avoid it altogether? 5 A. No, you could have a design separate, but you would need 6 some contract clauses that recognised the status of the 7 design and you would actually -- for me, I would 8 catalogue all of the primary documentation with dates 9 against that primary documentation, that it will be 10 available for the following contract to come along. 11 So you'd set it out quite differently than was here. 12 I mean, I'm in danger of giving you a lecture on 13 project management and I apologise for that. That's not 14 what I'm -- 15 Q. No, I'm grateful for your answer. 16 Would you regard the project after Mar Hall as 17 having been a success? 18 A. Overall, yes. Yes, I do. 19 Q. Without provoking too long an answer, to what would you 20 attribute that? 21 A. I think a direct hands on from City of Edinburgh 22 Council. I think the Executive were absolutely focused 23 on delivering this project. It wasn't just something 24 else that needed to be done. It was absolutely focused. 25 Sue Bruce held meetings on a Tuesday morning and 125 1 a Thursday morning at 8 o'clock in the morning in her 2 offices. We set up all the controls to allow us to 3 understand what was going on. Colin Smith did a good 4 job in my view mediating and dealing with what was quite 5 an aggressive contract, because I believe that 6 pre Mar Hall, I think the BBS exploited the contract. 7 I believe they didn't operate the contract. They 8 exploited the contract. And I think all of those things 9 were exposed at Mar Hall and all the claims were put to 10 one side. The design responsibility was moved over. 11 The risk apportionment was much better defined, and a 12 plan forward, and actually, as I've already said, 13 I think there was more than enough time available to 14 deliver this programme. It could have been done 15 earlier, in my view. 16 Q. It might be suggested that the project ran much more 17 smoothly after Mar Hall because the contractors were 18 being paid a very much higher price for a much reduced 19 scope of work. Would you agree with that? 20 A. I don't think that that's relevant here, to be honest. 21 I believe that's the case. However, the organisation 22 that was put in place was much more robust. There was 23 a degree of confidence. The behaviour sets were 24 different. Not sure where the final price ended up. 25 I left when it was still going to be 777, I think. 126 1 Something like that. I left at that point. 2 But I wouldn't say that if you're implying that the 3 contractors rested on their laurels because they got 4 a good deal and they had plenty of time and plenty of 5 money and therefore it wasn't an issue, I don't think 6 that really came into the equation. 7 MR MCCLELLAND: My Lord, I note the time. There is one more 8 issue which I might want to put to Mr Emery, but I may 9 not need to. I would like to just reflect on that once 10 we break. So it may not be necessary for Mr Emery to 11 return after lunch, unless there are questions from core 12 participants. But that's a matter I can clarify during 13 the break. 14 CHAIR OF THE INQUIRY: Are there likely to be questions from 15 the core participants? No. Very well. We will adjourn 16 until 2.05. 17 Mr Emery, what's going to happen is that Counsel is 18 going to think over lunch as to whether he has this 19 other question to ask you. 20 If he doesn't, we will just tell you informally that 21 that's the end of your evidence. If it does arise, then 22 I would like to thank you for coming to give your 23 evidence. 24 Technically you would still be under your citation 25 and it would be possible to recall you, but I hope that 127 1 that wouldn't be necessary. 2 A. Thank you. 3 CHAIR OF THE INQUIRY: We will adjourn until 2.05. 4 (1.05 pm) 5 (The short adjournment) 6 (2.05 pm) 7 CHAIR OF THE INQUIRY: Good afternoon. Mr McClelland 8 doesn't have any more questions of Mr Emery. So 9 Mr Mackenzie? 10 MR MACKENZIE: Thank you, my Lord. The next witness is 11 Brian Cox. 12 MR BRIAN COX (affirmed) 13 Examination by MR MACKENZIE 14 CHAIR OF THE INQUIRY: I see you have got a folder in with 15 you. You will actually be referred to documents in the 16 course of your evidence. So you shouldn't refer to that 17 at all. 18 You will be asked questions by Mr Mackenzie, one of 19 the Counsel to the Inquiry. If you just listen to the 20 question and answer it as directly as possible. If you 21 don't understand a question, just say so. 22 MR MACKENZIE: Thank you, my Lord. Good afternoon. 23 A. Good afternoon. 24 Q. Could you state your full name, please? 25 A. Brian John Cox. 128 1 Q. And your current occupation? 2 A. I'm retired. 3 Q. Now, you have provided a written statement to the 4 Inquiry. There should be a hard copy on the desk in 5 front of you and we will also bring a copy up on the 6 screen. Our reference number is TRI00000259. If we can 7 go, please, to page 17, the very last page of that 8 document. I think we can see, Mr Cox, both your name 9 and the date, 1 February 2018. Can I ask you to 10 formally confirm, please, that this is the statement you 11 have provided to the Inquiry? 12 A. I confirm it is the statement I have provided to the 13 Inquiry. 14 Q. Thank you. For my part, I can say that your evidence to 15 the Inquiry will comprise both that written statement 16 and the evidence you give today. 17 Now, I think, Mr Cox, your involvement in the 18 Edinburgh Tram Project was as a Non-Executive Director 19 of both tie Ltd and TEL Limited; is that correct? 20 A. That's correct. 21 Q. Now, if we could start, please, with looking at the 22 question of qualifications and experience, and go to 23 page 8 of the statement, please. 24 We can see in question 1 if we could blow that up, 25 please, you explain that you had 34 years in the bus and 129 1 rail industries in planning and management roles until 2 your retirement in 2002, et cetera. 3 Would it be fair to say that your experience and 4 expertise was more relevant to the operational phase of 5 the tram project rather than the procurement and 6 construction phases? 7 A. That's correct. 8 Q. Sticking at page 8, in question 4, rather answer 4, you 9 say in the second sentence there that: 10 "I was one of four NEDs appointed, two of whom had 11 infrastructure project experience." 12 Can you remember the names of the two Non-Executive 13 Directors who did have infrastructure project 14 experience? 15 A. Yes, that was Neil Scales and Peter Strachan. 16 Q. Thank you. Now, I think Mr Strachan, from looking at 17 the statement he's provided to the Inquiry, his 18 experience was in heavy rail rather than in light rail. 19 Were you aware of that? 20 A. That's my understanding. Obviously he can speak for 21 himself. 22 Q. Are you aware whether any of the tie or TEL Board 23 Directors had experience of light rail or building 24 a tramline? 25 A. Well, Neil Scales was involved in creating a plan for 130 1 them, but in the end it didn't proceed. My 2 understanding is he was quite generally experienced in 3 the area. 4 Q. So was Mr Scales the only tie or TEL Board Director that 5 you understood to have experience in light rail? 6 A. To the best of my knowledge, yes. 7 Q. That was in relation to a plan to build a light rail 8 scheme rather than it actually being built? 9 A. That's correct. 10 Q. I would like to turn to certain governance questions, 11 please. If I can go to page 9, please, of your 12 statement. One point in question 7, rather answer 7, we 13 can see in the second line you state: 14 "I believe the Tram Project Board was always 15 technically a committee of TEL ..." 16 Can you explain, please, what you mean about that, 17 that you believe the Tram Project Board was always 18 technically a committee of TEL? 19 A. Well, when you sent me these questions, I had to scratch 20 my head a bit, and I had to do a little bit of homework 21 because I really couldn't remember; particularly since a 22 lot of this was before I actually went on to tie, 23 and I thought in fact that when I went there, that TPB 24 was simply a committee of tie. Subsequently I found 25 that it was a committee of TEL, and it appeared to have 131 1 been, quite -- from before 2007, although it was only 2 formally, I understand, made a formal sub-committee in 3 2007. I'm really not entirely clear, but that was the 4 best of my understanding. 5 Q. I see. When you say you believe the Tram Project Board 6 was always technically a committee of TEL, does that 7 mean your understanding was that the Tram Project Board 8 in some way sat below TEL in the governance structure? 9 A. Yes, although I was never terribly clear in the early 10 days exactly where TEL sat either. 11 Q. I think we've heard some evidence that TEL in some way 12 did sit above the Tram Project Board, at least in 13 theory. What was your understanding as to which body 14 was in charge of the tram project? 15 A. My understanding, prior at least to TEL taking over tie, 16 was that tie was on behalf of CEC. In practice. 17 Q. So what was TEL's role before that happened? 18 A. Well, I think my understanding is that TEL was 19 originally set up to act as the integrating agency for 20 the whole of Edinburgh's transport. 21 It also took responsibility for the Business Case 22 because it included Lothian Buses, which of course was 23 separate from tie. But really I think it was not 24 exactly dormant, but it was still -- still in waiting to 25 play its major role subsequently, when the -- when the 132 1 tram system was up and running or part of the combined 2 network with Lothian Buses. 3 Q. Did you have a clear understanding at the time of the 4 respective roles and responsibilities of the different 5 bodies? 6 A. Probably -- probably not -- probably not as good as 7 I should have done. In practice, I simply worked on the 8 basis of who was there and who was doing which jobs. At 9 that point TEL didn't seem to be particularly 10 significant. It was mostly tie and TPB, although 11 I wasn't invited to TPB until -- I think it was early 12 2008. I did say somewhere what the time was. 13 So until I got on to TPB, I didn't really realise 14 how important that was. 15 Q. Thank you. Now, moving on, please, page 9 of your 16 statement in answer 10, I think we had asked who you 17 understood to be the senior responsible owner for the 18 tram project. You replied that the Tram Project 19 Director was the SRO. Was that your understanding at 20 the time? 21 A. Yes. 22 Q. Do you remember what was the basis for your 23 understanding? 24 A. I'm pretty sure my basis for the understanding was that 25 was the way he was introduced to me. 133 1 Q. Do you remember the name or names of the Tram Project 2 Director? 3 A. Steven Bell latterly. That was the only one really who 4 I'm referring to. 5 Q. We have not heard any evidence at all that the Tram 6 Project Director, whether Mr Bell or others, was the 7 SRO. Rather we've heard evidence that Neil Renilson was 8 the SRO for the project between 2006 and his departure 9 in late 2008. Do you have any recollection of that? 10 A. Obviously, as representing TEL, he had the overview 11 position of the whole Edinburgh transport scene. But 12 I don't recall or have any recollection that he was seen 13 at the time as the person in charge of the tram project. 14 I may be wrong, but I don't have any recollection. My 15 recollection was it was -- within tie Steven Bell was 16 the person who was the SRO. I may be wrong, but that's 17 my understanding. 18 Q. Thank you. I would like to move on to the question of 19 the meetings of the three main bodies, the Tram Project 20 Board, the tie Board and the TEL Board. 21 Now, I think when one goes back over and reads the 22 minutes of the meetings of these three bodies, that the 23 impression one gets from reading the minutes at least of 24 each Board is that issues relating to the tram project 25 were mainly discussed and decided at the Tram Project 134 1 Board rather than at meetings of the tie and TEL Boards. 2 Does that accord with your recollection? 3 A. The detailed discussions were held mostly at TPB. And 4 that was the reason the non-executive directors were 5 invited to attend TPB, to avoid a lot of repetition. 6 Nevertheless, there was still quite a lot of discussion 7 about trams subsequently on the more strategic side at 8 the tie or TEL meetings. But the detail was all 9 discussed at the TPB. 10 Q. Was the detail also decided at the TPB? 11 A. Yes. I think that's correct. Certain issues were then 12 subsequently discussed at the main Board meetings, but 13 most of the practical matters were sown up, as it were, 14 at the TPB meetings. 15 Q. Now, if that was the case, how were the Directors of tie 16 and TEL able to discharge their duties? 17 A. Well, as I said in my statement, we were always 18 encouraged to and did participate in the TPB meetings, 19 even though we didn't necessarily have a specific remit, 20 representing a particular agency, and we did ask a lot 21 of questions and challenge quite a lot of issues. 22 Q. Put it another way, if matters of detail relating to the 23 tram project were discussed and decided at the TPB, what 24 was left for the Boards of tie and TEL to decide? 25 A. Well, particularly later on, all the issues about how 135 1 the project was going, the strategic issues on the 2 project, the design problems which were a constant issue 3 on the Board, the problems with BBS which were 4 a constant issue, and then of course all the legal 5 issues about what should be done to try to get a better 6 performance from the Infraco. 7 Q. Another striking thing when reading the minutes of the 8 TEL Board, at least the minutes available to the 9 Inquiry, is that there don't appear to be any minutes at 10 all for the TEL Board in 2009. Does that accord with 11 your recollection? 12 A. Well, when I was asked to make the statement, I was 13 trying to remember what was tie and what was TEL quite 14 often. And sometimes -- I think some of the Board 15 meetings were effectively tie and TEL all in one. Some 16 of the meetings, there had been a tie Board and the 17 TEL Board is more or less written over to the tie Board. 18 So I'm not entirely surprised there aren't any minutes 19 in some cases. 20 But I think it's probably due to the thing I have 21 just said, that there was an element of duplication 22 between -- all the members of the two Boards were the 23 same. And sometimes I had to admit myself, one could 24 never quite remember whether I was going for a tie Board 25 or a TEL Board. 136 1 Q. If it is correct that there were no meetings at all of 2 the TEL Board in 2009, how could the Directors of TEL 3 fulfil their duties during that period? 4 A. As I said, I think most of the meetings were effectively 5 combined tie and TEL meetings, and all the Boards 6 members were the same. 7 Q. In the minutes the Inquiry has, the minutes are always 8 quite clear as to whether they are minutes of a meeting 9 of the tie Board, the TEL Board, the Tram Project Board, 10 or a joint combination of any of these Boards. 11 Certainly in the Inquiry's records, I couldn't see any 12 record of either -- of a TEL Board meeting in 2009, 13 either the TEL Board by itself or combined with another 14 Board. 15 A. Well, I can't recall precisely. All I can say is that 16 when TEL was first set up, as I understand, it's before 17 my time when TEL was first set up, it was to begin to 18 make the position for the -- later role clear. 19 It -- I believe it did actually fall away and become 20 semi-dormant for a period. I can't say whether that's 21 2009 or not. Because most of the -- most of the 22 business there was tram project related. After the 23 contracts were let, it was really tram project related, 24 and until all that was sorted out, other than looking 25 after the Business Case, I'm not really sure quite what 137 1 role TEL had. I can't say any further than that because 2 I'm not an expert on the governance, and I did have some 3 difficulty in actually remembering what TEL was doing in 4 that period when I was asked to do these questions. 5 So I can't dispute what you say. I'm hazy on the 6 whole thing, but I think it was fairly much in the 7 background. 8 Q. Yes. I simply wonder if TEL was semi-dormant in 2009, 9 ie the Board didn't meet, I'm simply puzzled as to how 10 a Director of TEL could fulfil their duties to the 11 company during that period of the Boards not meeting. 12 A. Well, the issue, I guess is, is what duties were there 13 if the company wasn't actually acting? 14 Q. So it may be from your recollection that TEL may have 15 been semi-dormant during that period? 16 A. I think so. My recollection is that there were Board 17 meetings that dealt with all of the key issues during 18 that period that needed to be dealt with. 19 Q. Board meetings of which company? 20 A. Of whichever company. As I just said just now, post the 21 contract signing, predominantly tie because it was 22 a tram -- details of the tie tram contract that were 23 exercising the Board almost to exclusion at that period. 24 Q. So is the position in short that whatever may have been 25 the governance structure on paper with different boards 138 1 and companies and different duties and responsibilities, 2 in practice there was a certain merging or overlap of 3 these different duties and responsibilities? 4 A. Well, I think so, but I'm not probably the best person 5 to ask that question of. 6 Q. Thank you. 7 Now, moving on to the tie Board, if we could bring 8 up a document on screen, please, CEC00531325. We'll see 9 these are the minutes of a meeting of the tie Board. 10 Blow up the top of the page, please. Minutes of 11 tie Board meeting on 16 December 2009. If we could then 12 scroll down a little, please. We can see in 13 paragraph 1, in the second paragraph it stated: 14 "The Chairman advised the Board that dependent on 15 today's full Council meeting, this may be the last 16 formal tie Board and would be replaced by the new 17 TEL Board." 18 Now, to pause there, it appears from looking at the 19 collection of tie Board minutes the Inquiry has that 20 that was in fact the last meeting of the tie Board due 21 to changes in the governance structure, and that 22 thereafter from, I think, January 2010, while there are 23 then meetings of the TEL Board, I can't find any minutes 24 in 2010 or 2011 of the tie Board. 25 Does that accord with your recollection? 139 1 A. Yes, it does. 2 Q. So again, a similar question. How could the Directors 3 of tie fulfil their duties to the company if there were 4 no meetings of the tie Board in 2010 and 2011? 5 A. I think the layman's answer simply is that the business 6 that had been dealt with by the tie Board was dealt with 7 by the TEL Board thereafter. 8 Q. Despite the fact that tie was the contracting party to 9 these contracts and remained a significant employer? 10 A. Yes, it remained a significant employer. I do remember 11 reading somewhere in fact that its main task as 12 a separate entity at that point was actually as 13 an employer. 14 Q. Did it cause you any concerns at the time that the 15 tie Board wasn't meeting in 2010 or 2011? 16 A. No, it did not. I'm not an expert on governance. All 17 the issues that seemed to be critical to be discussed 18 were discussed in one place or another, either in TPB or 19 in tie/TEL. So it didn't cause me any concern. 20 The governance issue was quite complex. And I know 21 that Kenneth Hogg in particular has given a lot of 22 explanation about it, and I don't really have any more 23 detailed or expert or specialist knowledge, and I can't 24 really remember very well either, other than the fact 25 that in practice all the same people were in the same 140 1 room, discussing the key issues which were appropriate 2 at the time. 3 Q. Another matter relating to governance was Mr Gallagher's 4 role as both Chief Executive and Chairman of tie, and 5 I think he exercised that role, combined role from 6 August 2006 until his departure in November 2008. 7 Could we go, please, to a document CEC01584735. 8 Now, we can see this is a letter addressed to 9 Mr Gallagher dated 27 September 2007. Over the page, 10 please, we will see it's a letter by yourself, Mr Cox, 11 as Chair of tie's Remuneration Committee. 12 If we go back to page 1, please, if we blow up the 13 first few paragraphs, please. Thank you. 14 So I think in short the previous year, in 2006, 15 Mr Gallagher had been appointed as interim Executive 16 Chairman of tie and this letter is then continuing that 17 combined appointment. We can see in paragraph 1: 18 "I refer to the discussion at the tie Remuneration 19 Committee held on 24 September 2007 regarding your 20 continued appointment as Executive Chairman of Transport 21 Initiatives Edinburgh Limited (tie)." 22 We can then see in the third paragraph down: 23 "I am now therefore writing to you to confirm that 24 the post of Executive Chairman is offered to you on the 25 basis of an employment contract for the duration of the 141 1 project ..." 2 So there the combined post of Chief Executive and 3 Chairman is being offered to Mr Gallagher for the 4 duration of the project. 5 Now, I explored this letter, Mr Cox, with 6 Tom Aitchison, the former Chief Executive of the 7 Council. Do you remember any discussion with 8 Tom Aitchison or others from the Council at the time 9 regarding Mr Gallagher continuing in this combined role? 10 A. Well, I was going to say, if I may, when this letter 11 came up, I was going to say I don't recognise this 12 letter, but it can only have been written on 13 Tom Aitchison's instruction because it's not a letter -- 14 it is a letter that would have been written for me to 15 sign. 16 I don't remember the letter, but I didn't have the 17 authority to make that offer. It would have been 18 undoubtedly, I don't know what Tom said to you, but it 19 would undoubtedly have been the Council's wish that that 20 was -- to continue to be the position. 21 Q. Did you have any views or concerns at the time about 22 Mr Gallagher continuing in the combined roles of 23 Chief Executive and Chairman of tie? 24 A. It's not an ideal situation to have the two fulfilled in 25 one role. My understanding is that when 142 1 Willie Gallagher became Chairman and Chief Executive was 2 the time of some crisis for tie, and therefore, as far 3 as I could see, it was a reasonable thing for him to do 4 to continue. 5 Q. Well -- 6 A. But it was not my decision and I certainly would not 7 have been in any position whatever to have any say on 8 this issue other than by instruction from the city. 9 Q. One can perhaps understand the time of crisis doing 10 something on an interim basis. Mr Gallagher was 11 appointed in this combined role back in 2006. I just 12 wonder what was the crisis that was continuing until 13 September 2007 that justified him continuing in this 14 role for the duration of the project? 15 A. Well, you have to perhaps ask him this, but tie seemed 16 to be in crisis throughout the whole period that I was 17 on the Board there. The new team he'd got was now in 18 place. Work on preparing for the contracts and the 19 Final Business Case was speeding up, so I can imagine 20 that he would still have wanted to have both hands on 21 the tiller. 22 But the position of the Chief Executive/Chairman was 23 always in the city's gift. It was not something that 24 the non-executive directors had any -- had any say in. 25 Q. I just -- 143 1 A. Quite rightly. 2 Q. I understand that. I just wondered whether you flagged 3 up any concerns that combining these two roles was 4 contrary to good corporate governance? 5 A. Well, as I said, it's not normally the right thing to 6 do, but it does happen. So I wouldn't -- I think -- it 7 may sound a flip answer, but as far as tie was 8 concerned, you wouldn't really want to be starting where 9 you started from in 2006/2007. 10 CHAIR OF THE INQUIRY: I think the question was: did you 11 flag up any concerns about Mr Gallagher having the joint 12 role? 13 A. Not that I can recall, sir. 14 MR MACKENZIE: Thank you. If we can go to another document, 15 please, CEC02084834. Blow up the heading at the top, 16 please. We can see this is the combined code, 17 "PRINCIPLES OF GOOD GOVERNANCE AND CODE OF BEST PRACTICE 18 Derived by the Committee on Corporate Governance from 19 the Committee's Final Report and from the Cadbury and 20 Greenbury Reports". 21 Were you aware of this guidance at the time, Mr Cox? 22 A. I would have been, yes. 23 Q. Go, please, to page 5. About halfway down in A.2 we can 24 see the sub-heading, "Chairman and CEO". I'll just give 25 you a second to read that for yourself. 144 1 A. Yes, I'm familiar with it. 2 Q. I take it you agree with the sentiment expressed there? 3 A. Yes. 4 Q. Underneath that, in A.2.1, we can see: 5 "A decision to combine the posts of chairman and 6 chief executive officer in one person should be publicly 7 justified." 8 Now, to pause there, when you wrote or rather sent 9 the letter to Mr Gallagher in September 2007 we just 10 looked at, what would you consider to have been the 11 justification to have continued Mr Gallagher acting in 12 these two roles? 13 A. I think, as I -- I think I have already answered that 14 question. The justification would have been the project 15 was at a critical stage, and the City of Edinburgh 16 clearly felt more comfortable or -- with that situation 17 of continuance. I mean, I had -- I had experience of 18 the two roles being separated, as they should be, and 19 the experience of them not being separated for a period 20 of time. 21 So although the principle is quite correct, it does 22 happen. 23 I think -- I think I can only really answer that it 24 was the city's call. 25 Q. Did you feel you were in a position to disagree with 145 1 that decision? 2 A. I think if I felt I disagreed with it, I would have -- 3 would have done so. The question was at that particular 4 point in time, would splitting the roles at that 5 particular point in time have been beneficial? By and 6 large, I have to say, I can't remember any of the detail 7 of this, but by and large I have to say my recollection 8 is that broadly that was the -- that was the solution 9 handed down, and that was what was going to happen, and 10 therefore there wasn't a great deal of -- great deal to 11 discuss. 12 Yes, I would certainly have raised it with Tom, had 13 I felt it was a problem at that stage. 14 Q. The problem in combining the roles, presumably, is that 15 it may put too much power in the hands of one individual 16 in the company? 17 A. Absolutely correct. There was a time perhaps when 18 that's necessary. If you ask me in hindsight, I would 19 say no. I would have pressed hard to have them split. 20 Q. I just wondered why that wasn't obvious at the time? 21 A. I guess you would have to have been within tie at that 22 time to see how the operation -- the business was 23 running. It wasn't coming from a good place. The team 24 still was fresh. Some of the positions -- I don't know 25 the exact date, but some of the positions certainly 146 1 weren't finally resolved, and I can't remember now, but 2 I wouldn't have thought that I would have thought at 3 that point there was a very strong case to be taken, 4 that particular issue at that particular time. 5 CHAIR OF THE INQUIRY: Could I just clarify, what was the 6 procedure for the appointment of Mr Gallagher to this 7 joint post? Was it advertised? Were there interviews? 8 A. It was before I was on the tie Board, but I was on the 9 Lothian Buses Board at the same time. My understanding 10 was that it wasn't advertised, and that I believe either 11 the city approached him or he approached the city, and 12 the appointment was made. That's my understanding. 13 I don't believe it was advertised. 14 CHAIR OF THE INQUIRY: That was the interim? 15 A. Well, I'm not even entirely sure I knew at the time it 16 was interim when he was appointed, at the end of 2006, 17 I think. Nor what discussion there may have been for 18 how long any interim should have continued. 19 CHAIR OF THE INQUIRY: You were on the tie Remuneration 20 Committee. 21 A. Mm-hm. 22 CHAIR OF THE INQUIRY: The letter appears to come from you, 23 but as I understand what you're saying is that this was 24 an edict, as it were, which was passed down to you to 25 say: appoint Mr Gallagher as joint Chairman and 147 1 Chief Executive; is that right? 2 A. I suppose probably, but I don't think it was quite, 3 quite like that. 4 I'm really trying to remember back. I think it was 5 more that -- rubber stamp the continuation of what we 6 currently have. I don't recall seeing it as an issue at 7 that time. In hindsight, yes, one would take 8 a different view. 9 CHAIR OF THE INQUIRY: Thank you. 10 MR MACKENZIE: Thank you, my Lord. 11 Now, reading on in paragraph A.2.1 of the document 12 on screen, the second sentence states: 13 "Whether the posts are held by different people or 14 by the same person, there should be a strong and 15 independent non-executive element on the board, with 16 a recognised senior member other than the chairman to 17 whom concerns can be conveyed. The chairman, 18 chief executive and senior independent director should 19 be identified in the annual report." 20 Do you remember, Mr Cox, were you the Senior 21 Independent Director of tie? 22 A. I was by virtue of my age alone. 23 Q. Were you appointed the Senior Independent Director 24 because of the fact that Mr Gallagher was fulfilling 25 these combined roles? 148 1 A. Not to my knowledge. 2 Q. So why were you appointed Senior Independent Director? 3 A. My understanding is that one of the independent 4 directors is always the Senior Independent Director. My 5 experience elsewhere. So it wouldn't have made any 6 difference whether or not the roles were separated or 7 together. 8 Q. Thank you. I would like to move on from the question of 9 governance in these respects and move on to the question 10 of the procurement strategy for the tram project. If we 11 can go back to your statement, please, at page 10. 12 Question 12, answer 12, I think we had asked for your 13 recollection of the procurement strategy for the tram 14 project, and you replied: 15 "At this distance in time I have no recollection, 16 but I would have had relatively little knowledge of the 17 tram procurement strategy in early 2007 when I joined 18 the tie Board." 19 Could I just, please, check, Mr Cox, at some point 20 in 2007 and before the infrastructure contract close in 21 May 2008, I take it were you aware that it was part of 22 the procurement strategy to complete design and obtain 23 all approvals and consents before the infrastructure 24 contract was entered into? 25 A. I doubt I knew that before joining the tie Board, 149 1 because I was a member of Lothian Buses Board at the 2 time, and there was very little interaction between the 3 two. 4 Q. But once you had joined the tie Board, so certainly at 5 some point in 2007, I take it you were aware that was 6 part of the procurement strategy? 7 A. Yes. 8 Q. In a similar fashion, I take it you were aware at some 9 point in 2007 that part of the procurement strategy was 10 to complete the utility diversions before the 11 infrastructure works commenced? 12 A. Yes. 13 Q. Again, in a similar fashion, I take it you were aware at 14 some point in 2007 that the purpose of completing design 15 and utilities in advance was to de-risk the 16 infrastructure contract and enable a fixed price for 17 that contract to be obtained? 18 A. Yes. 19 Q. Now, do you recollect any discussion at any time between 20 late 2007 and entering the Infraco contract in May 2008 21 as to whether the aims of the procurement strategy had 22 been met or not? 23 A. This is a difficult question to answer. I think the 24 answer is yes and no. I think the answer is yes and no, 25 because technically they weren't met in that the design 150 1 wasn't complete. 2 As far as the utilities were concerned, I don't 3 think there was too much concern because there was still 4 time to regain the -- in theory, to regain the ground on 5 those. 6 So in other words, the aim hadn't been met, but then 7 by novating it, the objective was to meet the aim in 8 a different manner. But it was a very, very busy time, 9 that time in early 2008. And a lot of discussion took 10 place at a lot of different places. 11 CHAIR OF THE INQUIRY: Does that mean that there was or was 12 not a discussion between late 2007 and May 2008 as to 13 whether the aims of the procurement strategy had been 14 met? 15 A. I don't think it does mean that. I think what it does 16 mean is that I don't recall a discussion which said: we 17 haven't finished the design, therefore, we haven't met 18 the aim, therefore, should we go ahead with signing the 19 contract. 20 I don't think that discussion -- I think what 21 happened was, as I said just now, that a different way 22 was found or believed to have been found to solve that 23 particular problem, which was to novate the whole thing 24 within the context of a 95 per cent fixed contract. 25 I think hence my yes and no. 151 1 MR MACKENZIE: Were you aware in 2007 that it had always 2 been part of the procurement strategy to novate the 3 design contract to the infrastructure contractor? 4 A. I think I was, but I can't remember exactly what status 5 it was supposed to have had by that point. 6 Q. So the question of novation wasn't something new at 7 Infraco close. That was always part of the procurement 8 strategy? 9 A. As I understand it, yes. I'm trying to recall back. It 10 was a long time ago. 11 Q. I would like to explore a little more some of the events 12 surrounding the award of the Infraco contract in 13 May 2008. We should perhaps remind ourselves of the 14 questions we asked you. We will find that in page 2 of 15 your statement. 16 In question 13 we had asked: 17 "At the time of seeking Council approval for the 18 Final Business Case (December 2007) and of the award of 19 the Infraco contract (May 2008), what was your 20 understanding of each of the following matters 21 (including the basis of your understanding): 22 "(1) The extent to which design was complete and all 23 approvals and consents had been obtained and how risks 24 arising from this were allocated between the parties?" 25 If we please then go to page 10 to your answer. 13, 152 1 subparagraph 1, you explain: 2 "I cannot recall to what extent in December 2007 3 design was complete and approvals and consents obtained, 4 but I recall a design figure quoted of around 70 to 5 75 per cent. I knew that there was a serious problem 6 with SDS design performance (the risk ultimately falling 7 to tie) ..." 8 Now, when you referred there to the serious problem 9 with SDS design performance, is that a reference to the 10 history of difficulties and delays in progressing and 11 completing design? 12 A. Yes, I think quality and quantity. 13 Q. And timing? 14 A. Yes. 15 Q. Do you recall any discussion around the time of Infraco 16 contract close as to whether these design difficulties 17 and delays had been resolved, or whether they were 18 likely to continue? 19 A. As best I can remember, the record had been so bad, it 20 was unlikely to have got resolved other than by getting 21 it all novated quickly where the problem became the 22 Infraco's problem. 23 Q. So you say there that by novating a design, the problem 24 became one for the contractor, the infrastructure 25 contractor. How is that consistent with what you say in 153 1 your statement that: 2 "I knew that there was a serious problem with SDS 3 design performance (the risk ultimately falling to 4 tie) ..." 5 A. Because at that point it hadn't been novated, so tie had 6 to manage it. 7 Q. So it was your understanding that after novation, any 8 risks arising from any further design delay was a matter 9 for the infrastructure contractor, not tie? 10 A. Yes. 11 Q. Now, if we've heard evidence that in fact tie and -- tie 12 had retained the risks arising from any further design 13 delays, would that be contrary to your understanding at 14 the time? 15 A. Sorry, could you repeat that? 16 Q. Yes, if the Inquiry has heard evidence that in fact tie 17 had agreed to retain risks arising from any further 18 design delay, would that surprise you? 19 A. Post novation, are you referring to? 20 Q. Yes. 21 A. That does surprise me, although it may be my 22 recollection is faulty. 23 Q. Do you remember any discussion at all around this time 24 of delaying the award of the infrastructure contract 25 until the design had been completed and all approvals 154 1 and consents obtained? 2 A. I don't remember any. I'm not saying there wasn't any. 3 I don't remember any. 4 Q. Now, in the next answer you say, answer 13, subparagraph 5 2: 6 "Following the novation of the SDS contract to 7 Infraco, Infraco would become responsible for all risks 8 associated with normal design development ... The Board 9 was assured that the contract was 95 per cent fixed 10 price ..." 11 Now, do you have a clear memory of being advised 12 that after novation, Infraco would be responsible for 13 the risks arising from normal design development, or is 14 that something you've picked up from reading the papers 15 in preparation of your statement? 16 A. I did read some of the papers, because I had to try to 17 do something to -- such a long time ago that I couldn't 18 remember very much at all. But -- so I would have 19 picked that up there. But that was my own recollection 20 anyway. So it did confirm my recollection, rightly or 21 wrongly. 22 Q. Do you remember being told that by someone at one of 23 these meetings or what? 24 A. I really couldn't say. I don't know. I would think 25 I would have -- I would think that's what I would have 155 1 thought, but I increasingly found myself in some 2 difficulty. What I really remembered and what might 3 have been a false memory having read papers. 4 Q. Yes, that's understandable. 5 In a similar vein, when you say the Board was 6 assured that the contract was 95 per cent fixed price, 7 with the remaining 5 per cent largely known and 8 quantifiable and allowed for in the project budget, 9 et cetera, again, is that something you have a clear 10 memory of being told, or is that something that you have 11 picked up from the papers? 12 A. I think a fairly clear memory is probably the best way 13 to put it. 14 Q. Again, do you remember who told you that and when? 15 A. No, it would have had to have been at a Board meeting 16 between the two dates, between the end of 2007 and when 17 the contract was finalised. 18 CHAIR OF THE INQUIRY: Do you remember who told you that, 19 I think was the other part of the question. 20 A. No, I can't remember. I would imagine it probably would 21 have been Mr Gallagher, but it could well have been 22 someone else. It could have been Steven Bell. I really 23 couldn't be sure. 24 MR MACKENZIE: Thank you. Moving on to question 13, 25 subparagraph 3, the question of the utility works, you 156 1 say: 2 "There were already delays to the utility diversion 3 works, but my recollection is that at this time it was 4 believed the original completion date, which I believe 5 was summer 2008, could still be achieved." 6 Now, can you remember what was the basis for 7 believing that the utility works would be completed on 8 time? 9 A. I don't know. I really can't remember. 10 Q. Did you have any concerns about that matter? 11 A. I don't think so then because I think it was -- at the 12 time the contract was being done, the utility diversion 13 works weren't given so much prominence as they had been 14 prior to that. So I think probably -- probably I didn't 15 have any concerns, because they didn't seem to be being 16 raised as a major issue at that time. 17 Q. Now, in relation to the programming of the utility 18 works, the Inquiry has heard evidence that initially, 19 the utility diversion works were programmed to be 20 completed by April 2008, leaving a gap of about six 21 months before the start of the Infraco works in early 22 2009. However, that in the middle of 2007, the utility 23 works were reprogrammed to be complete by the end of 24 2008, essentially leaving little or no gap before the 25 programme start of the Infraco works at the start of 157 1 2009. I just wonder, was there any discussion at any of 2 the meetings you attended as to whether it was prudent 3 to have little or no gap between the programmed 4 completion of the utility works and the commencement of 5 the Infraco works? 6 A. All I can remember, and I think I have said somewhere 7 else in my statement, is that because it was possible to 8 start Infraco work on greenfield land where there 9 weren't utility diversions to do, it wasn't really such 10 a critical issue. I can't remember anything more than 11 that. 12 Q. So you can't remember whether there was any discussion 13 as to whether it was prudent to have little or no gap 14 between the end of utility and start of Infraco works? 15 A. I really can't remember anything about that at all. 16 Q. It may be suggested that that was self-evidently not 17 prudent. Do you have any comments on that suggestion? 18 A. Sorry, again? 19 Q. It may be suggested that it was self-evidently not 20 prudent to have little or no gap between completing 21 utility works or rather programmed completion of utility 22 works and a programmed start of the Infraco works? 23 A. Certainly that would be self-evidently correct if we're 24 talking about the same place, for example Princes Street 25 or the West End or Haymarket. But if you're talking of 158 1 utility works -- Infraco works starting on greenfield 2 land, presumably they could have worked with an overlap. 3 I don't recall the context you've raised, excuse me. 4 Q. Back then, please, to the statement at page 3. This is 5 again between 2007 and May 2008. 6 At the top of the page, subparagraph (5), we asked 7 about your understanding of the extent to which the 8 Infraco contract was for a fixed price, and the extent 9 to which the price was likely to change after contract 10 award. 11 If we can go, please, to page 10 to see your answer, 12 in subparagraph 5 you say: 13 "It was anticipated that any changes would be 14 containable within the remaining funding headroom." 15 Now, at the time the Infraco contract was entered 16 into, in May 2008, what was your understanding of the 17 extent to which the price was likely to change after 18 contract award? 19 A. Well, exactly as I said in the answer to question 2, 20 that an adjustment -- an adjustment to the proposed 21 contract price had been made for a negotiation with the 22 Infraco -- with the preferred bidder, which took account 23 of some of the changes. That that brought it to 24 95 per cent fixed, and the bits that weren't fixed, the 25 5 per cent that weren't fixed, were felt to be 159 1 containable within the headroom: that was really the 2 basis on which it was sold to the Board. 3 Q. So in short would it be fair to say that you did 4 understand there would be some change to the price, but 5 it would be containable within the risk allowance and 6 budget? 7 A. Yes, absolutely. And at every Board meeting I can 8 recall that the current headroom figure was quoted. It 9 obviously went down bit by bit. 10 Q. The infrastructure price was made up of a fixed price 11 and certain value engineering sums and certain 12 provisional sums. But what about a change to the price 13 if there had been a change in the work to be carried 14 out, so nothing to do with provisional sums, nothing to 15 do with value engineering, but a change to the contract, 16 change to the work? Was there any discussion as to 17 whether changes of that nature were likely to lead to 18 a change in the price after contract award? 19 A. I would imagine there would have been, but I think your 20 question is one that I can't now answer. 21 Q. Perhaps a clearer question may be this: was there any 22 discussion as to why the price might change after 23 contract award? What might bring about a change? 24 A. Well, discussion was obviously about the so-called 25 5 per cent that wasn't fixed. And that was -- that was 160 1 discussed quite -- at length. 2 I'm trying to remember -- I can't remember now what 3 the -- the adjustment to the contract price that was 4 initially made, which I think took it from up to 5 -- 5 512. I think you are better equipped than I am now. 6 There had been an increase of certain number of 7 million which are supposed to take away most of the 8 uncertainty. That was basically what -- as I understand 9 the intention of that, and that would only leave, 10 according to what the Board was told, 5 per cent that 11 was unresolved, but that should be achievable in the 12 headroom. 13 Q. Could I also then, please, go back to page 3 of your 14 statement to see the next question we asked. Top of the 15 page, subparagraph 6, we asked your understanding: 16 "The extent to which the Infraco price was based 17 on a number of pricing assumptions, some of which were 18 known not to be accurate and which would result in 19 a Notified Departure or Departures (with consequent 20 price increases) shortly after contract close?" 21 If we can go, please to, page 10 to see your 22 response, subparagraph 6 at the bottom, you say: 23 "I cannot recall what discussion took place on this 24 matter, other than that the Board was repeatedly assured 25 that 95 per cent of the contract was at a fixed price." 161 1 We then -- you refer to trying to refresh your 2 memory by use of the Inquiry documents, et cetera. 3 Over the page, please, we can see for ourselves what 4 you say. 5 Could I take you, please, to a separate document. 6 It's USB00000032. 7 Now, in short, Mr Cox, this is the Pricing Schedule 8 of the Infraco contract Schedule Part 4. 9 Have you seen this document before? 10 A. Not sure. I really don't know. 11 Q. Do you recall ever being advised about the content of 12 Schedule Part 4? 13 A. No, I don't, and I think you see what I said in my 14 statement, that -- I looked this up in particular, but 15 I still can't recall any discussion about it. That's 16 not to say there wasn't, but I simply can't remember it. 17 Q. When you say you cannot a recall any discussion about 18 Schedule Part 4, do you mean before the contract was 19 entered into or -- and including any time thereafter? 20 A. Certainly before the contract was entered into. I don't 21 know. I don't recall. 22 Q. Just for the avoidance of doubt, do you recall any 23 discussion of Schedule 4 after the contract was entered 24 into? 25 A. Yes, there was some discussion. I can't really remember 162 1 what or when or how much. 2 Q. Thank you. 3 A. Nor -- in a sense I was aware of it before I came to 4 look at these questions you put to me. 5 Q. I'm only going to take to you one part of this document. 6 Page 5, please. If we can go to section 3.2.1. I'll 7 just read it out: 8 "It is accepted by tie that certain Pricing 9 Assumptions have been necessary, and these are listed 10 and defined in Section 3.4 below. The Parties 11 acknowledge that certain of these Pricing Assumptions 12 may result in the notification of a Notified Departure 13 immediately following execution of this Agreement. This 14 arises as a consequence of the need to fix the Contract 15 Price against a developing factual background. In order 16 to fix the Contract Price at the date of this Agreement 17 certain Pricing Assumptions represent factual statements 18 that the Parties acknowledge represent facts and 19 circumstances that are not consistent with the actual 20 facts and circumstances that apply. For the avoidance 21 of doubt, the commercial intention of the Parties is 22 that in such circumstances the Notified Departure 23 mechanism will apply." 24 Can you recall having read this paragraph before? 25 A. No. 163 1 Q. Do you have any comments on it now, having perhaps seen 2 it for the first time? 3 A. I'm still trying to make absolute sense of it. 4 Q. Can we see -- 5 A. I think to be quite honest if I'd seen that at the time, 6 I would have been asking questions: what does it mean? 7 In practice, what does it mean? Is this a very large 8 issue or a very small issue? 9 Q. Because can we see in the second sentence, for example, 10 that: 11 "The Parties acknowledge that certain of these 12 Pricing Assumptions may result in the notification of 13 a Notified Departure immediately following execution of 14 this Agreement." 15 Is that, for example, something you may have wished 16 further clarification on? 17 A. Sorry, I didn't -- 18 Q. Yes. We can see in the second sentence expressly states 19 that certain of the Pricing Assumptions may result in 20 the notification of a Notified Departure immediately 21 following execution of the agreement. So immediately 22 after executing the agreement, a Notified Departure or 23 departures are anticipated; is that something you may 24 have wished further clarification of if you had been 25 aware of that? 164 1 A. Well, looking at it now, I think the answer is yes, 2 but -- 3 Q. How about in a similar fashion -- 4 CHAIR OF THE INQUIRY: Sorry, you were going to say 5 "but" ...? 6 A. I think I was probably going to say: but with a wad of 7 contracts which I think are about this size, exactly 8 what one would and wouldn't have followed up is 9 difficult to judge at this point in time. 10 Obviously I think we've picked up things that we 11 could -- that we were aware of. Looking at this now, 12 I think I would say yes, we would certainly want to pick 13 that up. 14 Whether there were other things that were more 15 important that we would want to pick up, I don't know. 16 I would think not now, looking at this. Whether or not 17 at the time it would have seemed so significant, I don't 18 know. 19 I don't recall seeing it before, I'm not saying 20 I haven't, I don't recall seeing it before. It looks 21 pretty damning. 22 MR MACKENZIE: There's no suggestion, Mr Cox, I think, that 23 the non-executive directors were shown this, nor is it 24 something that I think anyone would suggest the 25 non-executive directors should have hunted out for 165 1 themselves. All I'm simply trying to do is to test the 2 extent of what you were told at the time in relation to 3 notified departures and contract changes. 4 Can we also see in this paragraph, about halfway 5 down, the sentence that begins: 6 "In order to fix the Contract Price at the date of 7 this Agreement, certain Pricing Assumptions represent 8 factual statements that the Parties acknowledge 9 represent facts and circumstances that are not 10 consistent with the actual facts and circumstances that 11 apply." 12 Now, again, if this had been drawn to your attention 13 at the time, is that likely to have caused you any 14 concerns? 15 A. It certainly would because seeing that now for what is 16 possibly, I think, the first time, I'm not sure, it just 17 seems to raise an awful lot of question marks and 18 exclamation marks. And it's pretty meaningless to me as 19 it stands without explanation. So I think if we had -- 20 if I had seen that at the time, then I think that -- if 21 I'd seen it in long enough time to read it properly and 22 try to understand it, then I certainly would have been 23 asking a lot of questions. 24 I think the other non-executive directors would have 25 been too. 166 1 Q. The last question on this. If this paragraph had been 2 drawn to your attention, is that likely to have affected 3 your view as to whether this was a fixed price contract? 4 A. It is easy to answer it after the event, isn't it; one 5 would have thought yes, is the answer and try to 6 establish the extent to which that was the case, or 7 might be the case. 8 MR MACKENZIE: My Lord, I'm now moving on to the period 9 after contract close. It may be a suitable point to 10 stop. 11 CHAIR OF THE INQUIRY: We will have a break of 15 minutes 12 for the benefit of the shorthand writers, but in the 13 meantime you can get a cup of tea or coffee. 14 A. I do speak rather fast, I'm sorry, sir. 15 (3.03 pm) 16 (A short break) 17 (3.21 pm) 18 CHAIR OF THE INQUIRY: You're still under oath, Mr Cox. 19 MR MACKENZIE: Thank you, my Lord. 20 Mr Cox, we dealt before the break with the period up 21 until May 2008 when the infrastructure contract was 22 entered into. Turning now to the period after May 2008, 23 so the contracts have all been entered into, do you 24 remember when and how you first became aware that 25 a serious dispute had arisen between tie and the 167 1 contractors? 2 A. It depends what you call serious. It was pretty evident 3 right from the outset that they were very, very slow to 4 mobilise. 5 At what point one would say that was a serious 6 problem, I'm really not sure. But pretty early on, 7 I think, clearly things were not right with them. 8 Q. Do you recall when and how you first became aware there 9 was a difference over the interpretation of the Infraco 10 contract? 11 A. I think right at the very beginning, they just seemed to 12 be a bit sluggardly with the mobilisation. I guess 13 probably -- I'm guessing now, but I would think probably 14 within about three months, that seemed to be more than 15 that. 16 There are one or two statements flying around from 17 various people, I think back from the Bilfinger Berger 18 side, things like, you know: if you think you are going 19 to get a full tram project for that price, you're 20 bonkers. Things of this sort. Other sort of comments 21 were made. It certainly raised eyebrows, but the extent 22 to which that was -- it wasn't clear at that time the 23 extent to which that was evidence of a serious problem, 24 or simply upping the ante, trying to up the ante. 25 I think the answer was fairly soon clear that 168 1 something wasn't right, and it wasn't very much longer 2 before it began to be clear that it was probably going 3 to get worse rather than better. 4 Q. Do you have any recollection of what was being reported 5 to you and the other directors during 2008 in relation 6 to the number and value of consortium change notices 7 that had been intimated? 8 A. There's always reporting on the change notices. I'm not 9 really sure that I at least understood necessarily what 10 the implications were in terms of the amount. And the 11 size of the problem. 12 Q. I'm not going to take you to the document. I'll just 13 give the reference for the record, but I had noted that 14 the consortium's monthly report they gave to tie for the 15 period up until -- the month up until 6 December 2008, 16 that's the very end of 2008, the document reference 17 without going to it is CEC01121557, that included 18 a change register, a list of all the change notices that 19 had been intimated. 20 I also noted at page 125 of that document that 243 21 change notices had been intimated by the end of 2008. 22 Do you have any recollection of having been advised 23 of that? 24 A. I don't remember that particular figure, but we 25 certainly knew there were a lot of them, and there were 169 1 certainly always reports on the change notices. 2 Q. I also noted from that report, at page 126, that at that 3 time, December 2008, it was noted that of the change 4 notices, about 6.5 million had been agreed, and over 5 20 million remained unagreed. Can you remember being 6 advised of these sort of matters by the end of 2008? 7 A. I don't remember, but I'm pretty sure we would have 8 been. 9 Q. Essentially, if we were to go back to the papers for the 10 Tram Project Board, TEL and tie Boards, is that where we 11 would find that sort of information? 12 A. I would think so, yes. I would expect so. 13 CHAIR OF THE INQUIRY: Mr Mackenzie, when you refer to 14 6.5 million and 20 million, we're talking about money 15 rather than change notices? 16 MR MACKENZIE: Yes. 17 It's the estimated value of the changes, yes. Thank 18 you. 19 Moving on, please, to page 11 of your statement, in 20 question 15, rather answer 15, halfway down, you say: 21 "My understanding of events changed only gradually 22 in 2008 and 2009, and it was probably not until the 23 first DRP adjudications late in 2009 I came fully to the 24 view that however recalcitrant Infraco had been and 25 continued to be, the contract itself must be flawed." 170 1 What do you mean by saying "the contract itself must 2 be flawed"? 3 A. Well, simply that tie wasn't winning any -- didn't seem 4 to be winning anything, and this whole period is 5 difficult for me because it feels like it was compressed 6 into a much shorter period, now, a long way ago. 7 But once it began to build up, it was fairly obvious 8 that tie was losing time and time and time again, 9 and I suppose the real question in hindsight is whether 10 we should have picked that up sooner and actually acted 11 sooner rather than it take the time it did take before 12 it got to the endgame. 13 So can I don't really -- that's why I'm saying my 14 understanding changed during 2008 and 2009. I don't 15 really recall just when I felt we had a real crisis on 16 our hands, but certainly once these adjudications came 17 in, that became clear in the evidence. I do not know, 18 I don't think I can add very much to what I said there. 19 Q. Do you recall whether the Boards of tie or TEL or indeed 20 the Tram Project Board were ever advised that the 21 Infraco contract was flawed or in any way deficient? 22 A. No. I don't think it was. 23 Q. So is your view on the contract then determined by tie 24 essentially losing the adjudications? 25 A. Yes. 171 1 Q. We know that the dispute was resolved at Mar Hall. 2 I don't propose asking you any questions about that, 3 Mr Cox. As I understand it, the non-executive directors 4 of tie and TEL played no role in the Mar Hall mediation 5 or in ratifying the agreement reached; is that correct? 6 A. That's correct. 7 Q. Thank you. Let's turn to the question of bonus 8 payments, please, and go through a number of documents. 9 We can start, please, with document CEC01830099. 10 Blow up the top half of the page, please. Thank 11 you. 12 These are the minutes of the tie Remuneration 13 Committee meeting on 16 October 2006. Under "Members", 14 you are noted to be the Chairman of the Remuneration 15 Committee. Is that correct? 16 A. I didn't think I was on the tie Board -- on the 17 tie Board -- is that date correct? 18 Q. This is October 2006. Now, if we could perhaps go to 19 page 1 of your statement. Sorry, back to page 1. In 20 question 3 we have set out the dates that we understood 21 you to be a non-executive director of both tie and TEL. 22 These dates are taken from records of Companies House. 23 So when Companies House were notified that you were 24 a Director. 25 What I suspect has happened, but you may tell me 172 1 differently, is that it looks as though you were in fact 2 acting as a Director of tie from October 2006 onwards, 3 but the Companies House records don't start until 4 January 2007. 5 Do you have any recollection or comment of that 6 suggestion? 7 A. I actually can't remember when I joined the Board, 8 and I haven't got any papers. So I basically took what 9 you said as being correct. 10 It may -- I think we should work on the basis it is 11 correct, what you've now said is correct. That's what 12 it said. But I don't recall -- it took me by surprise. 13 Q. Yes. You corrected the dates in paragraph 3 in respect 14 of when you ceased to be a Non-Executive Director? 15 A. Yes. 16 Q. While Companies House records say 5 July 2012, you 17 remind us that you had resigned in May 2011? 18 A. Yes, okay. 19 Q. So what I suspect has happened is that the 20 Companies House records aren't completely up to date or 21 correct on the dates front? 22 A. That's fine. It may well have been late 2006, but 23 I took it as 2007 early. 24 Q. Go back, please, to the minutes, which are CEC01830099. 25 Thank you. 173 1 Certainly I think you would agree, Mr Cox, that at 2 some point you became the Chairman of the Remuneration 3 Committee? 4 A. Yes. 5 Q. We see there Mr Gallagher is also listed as a member of 6 the Committee. I'll come back to him in a second. 7 Along with Councillor Henderson, Peter Strachan, and we 8 see apologies from Maureen Childs, who is also 9 a councillor. 10 I think in short the minutes of the Remuneration 11 Committee we have, each one notes Mr Gallagher as 12 a member of tie's Remuneration Committee. 13 Now, is that different to your recollection? 14 A. Yes, I do have still a copy of the -- of the remit. 15 There were two remits. I've got a remit dated 2004, and 16 another one that was subsequent to that which is 17 slightly different, and it hasn't got a date on it. 18 But what that second -- the amended remit said was 19 that Mr Gallagher as Executive Chairman would attend the 20 meetings, as would the company -- as would the HR 21 Director, who would act as Secretary. 22 Q. Could I ask you to forward us a copy of each of these 23 remits and we can check if they are in our systems? 24 A. Yes, I can do that. 25 Q. What I'll do is simply, without going into them, give 174 1 the other minutes of the tie Remuneration Committee 2 which do list Mr Gallagher as a member of that 3 Committee. So can we also have the minutes for 4 24 September 2007. That's CEC01182504. Also for 5 11 December 2007. That's CEC01515068. And also for 6 29 January 2008. That's CEC02086949. 7 In short, Mr Cox, these minutes, at least on the 8 face of them, suggest that Mr Gallagher was a member of 9 tie's Remuneration Committee. Do you dispute that? 10 A. Yes, I do dispute that, absolutely. I'm really very 11 clear on this, because the principle of this tie 12 Remuneration Committee very much followed the one on 13 Lothian Buses, which that it was -- it was inhabited by 14 non-executive directors, but the -- the Chief Executive, 15 in that particular case, Lothian Buses, or the Chairman 16 Chief Executive here, would attend to actually advise 17 and help the committee, which he did do, and he was 18 never there when anything to do with his own 19 remuneration was discussed. 20 Q. But that can be two different things. A Chief 21 Executive can be a member of a remuneration committee 22 and excuse himself when his own remuneration is being 23 discussed. And I wonder whether that was the case with 24 Mr Gallagher? 25 A. No, it was -- my understanding was that he was never 175 1 a member of the committee. 2 Q. On the hypothesis, if he was a member of the 3 Remuneration Committee, would you accept that was 4 contrary to good corporate governance? 5 A. Yes. 6 Q. Because in short, I think, such committees should only 7 comprise non-executive directors? 8 A. Absolutely correct. 9 Q. If we can go over the page, please, to page 2 of this 10 minute, in paragraph 2 we can see a reference to the 11 Executive Chairman nominating you to be the Chairman of 12 the committee. Does that again suggest that 13 Mr Gallagher was a member if he nominated you to be 14 chair? 15 A. I don't recall. I don't now recall at this distance in 16 time this at all. 17 As far as I'm concerned, and I'm pretty sure that's 18 what the revised remit says, he attended the committee. 19 CHAIR OF THE INQUIRY: If he was only attending the 20 committee, would he be able to nominate candidates for 21 the chair? 22 A. No, but I suspect probably that's Executive Chairman 23 nominated, I would imagine probably the Executive 24 Chairman probably suggested. Given in mind that all the 25 non-executives were brand new at the time, somebody 176 1 would have to make some statement to start the whole 2 process off. 3 MR MACKENZIE: Can we also see, scrolling down the page, 4 please, to paragraph 5, we see a reference to any other 5 business: 6 "Ongoing role of Executive Director discussed, noted 7 and approved." 8 Do you know what that's a reference to? 9 A. No, I don't. 10 Q. It's not clear, I don't think, is it. What we can see 11 in the paragraph above, paragraph 4, under "REWARD 12 STRATEGY 2007", a reference to a briefing paper 13 discussed, noted and approved. 14 Just before we go to that, I should clarify, so what 15 do you say was Mr Gallagher's role in the tie 16 Remuneration Committee? 17 A. What was it? 18 Q. Yes. 19 A. His role -- excuse me. I'm going to take a brief drink. 20 His -- what he did, his role, was to -- to propose 21 the remuneration packages for his senior staff. That 22 was the main role. It's not something that the 23 non-executive directors could do themselves. They had 24 to take advice from somebody, and he therefore provided 25 the advice. The decisions were made by the members of 177 1 the -- non-executive directors of the Remuneration 2 Committee. 3 I think I have said in my answer somewhere -- in my 4 answer somewhere else that he would not be present when 5 his own remuneration was discussed, but it's quite 6 likely we would have asked him: what do you think would 7 be the appropriate things for the job that you -- to be 8 concluded for the job that you are doing. 9 As Non-Executive Director, you've really got to ask 10 that question, because you are not that close to the 11 business, but at the end of the day you have to take 12 a judgement on whether what is being proposed is 13 reasonable or not. You do need some information to help 14 you come to that conclusion. 15 Q. Is that usual practice, to ask the Chief Executive of 16 a company for his or her views of what they should be 17 paid? 18 A. No, I didn't say that. What should be included in 19 the -- sorry. I beg your pardon. Sorry to interrupt. 20 I didn't mean to -- I didn't make myself clear. 21 What we would ask the -- the 22 Chief Executive/Chairman to do was to come up with 23 proposals for -- numerate proposals for his own staff, 24 and for himself, we may well have asked, and I think we 25 probably did: okay, what do you think should be your key 178 1 performance indicators or what do you think we should 2 actually consider as your key performance indicators, 3 but there wouldn't have been any discussion with him 4 about the quantity of money involved. 5 Q. When you would consult with the Chief Executive or 6 Chairman on proposals for his own staff, would that also 7 include himself? 8 A. No. No, that would be purely the staff under -- under 9 his immediate control or one or two other senior people. 10 Q. I would like, please, then to go to the briefing paper 11 referred to in these minutes. We should find that at 12 CEC01828971. The reason I go to this is that we have 13 heard bits and pieces from different witnesses about 14 tie's bonus scheme. I think this document is quite 15 helpful in drawing certain things together. 16 If we can blow up, please, the first paragraph, we 17 can see it states: 18 "2006 has seen a significant transformation in tie. 19 From essentially a project development organisation of 20 projects and a delivery vehicle for the supporting 21 parliamentary processes tie is now responsible for 22 project managing and successfully delivering world class 23 transport infrastructure projects valued in hundreds of 24 millions as well as a portfolio of smaller business 25 aligned projects." 179 1 So in short, that's talking about the change in tie 2 and its role. 3 We can then, I think, see in paragraph 3, just at 4 the beginning, it states: 5 "tie, as a major project management delivery 6 vehicle, is now competing against the very best in the 7 private sector for scarce talent and resources in the 8 rail, transport, engineering, construction and 9 infrastructure markets." 10 So I think this sets the scene for the changes 11 proposed in the bonus scheme around this time; is that 12 correct? 13 A. I would imagine so, yes. 14 Q. Do you remember seeing this paper before? 15 A. No. I don't remember it, but it's quite -- I would 16 imagine I did. 17 Q. If we can go, please, to page 3, we can see the bonus 18 scheme that was previously in place. Page 3, very first 19 paragraph. Blow that up, please. We can see: 20 "Currently tie has three levels of annual 21 performance bonus for its employees from 5 per cent to 22 10 per cent to 15 per cent depending on grade of 23 employee." 24 So that was the bonus scheme in force at that time. 25 Then next paragraph, paragraph 2 there's a reference 180 1 to the bonus schemes in the private sector, and we see 2 it states: 3 "Annual performance bonus opportunities for 4 directors and senior managers in project and 5 construction organisations are typically in a range from 6 30 to 100 per cent of salary with median around 7 50 per cent ..." 8 Then if we go to page 4, please, we'll see the 9 recommendations for the new tie scheme. Page 4, under 10 paragraph 4, it states: 11 "For all tie executive directors on management board 12 reporting directly to Executive Chairman, and 13 recommended other senior managers, to have an annual 14 bonus opportunity of 50 per cent of salary." 15 Then finally, the very bottom of the page, 16 paragraph 3: 17 "For all direct employees ..." 18 That's not the senior people: 19 "... to have an annual performance bonus opportunity 20 of 25 per cent of salary." 21 So those were the changes which were proposed and 22 approved at the October 2006 meeting. Can you remember, 23 Mr Cox, who proposed this change in the bonus scheme? 24 A. I think that will have come from Willie Gallagher. 25 If -- if -- assuming these dates are correct, this would 181 1 have been the first -- right at the beginning that 2 anyone appeared on the tie Board as an executive. So it 3 can only have come from the executive team. So I think 4 almost certainly Willie. 5 Q. Did you have any involvement in the paper we've looked 6 at or in the proposal to increase the bonus opportunity? 7 A. Did I have, sorry? 8 Q. Any involvement in the paper we've looked at or in the 9 proposal to increase the bonus opportunity? 10 A. I would have recognised the statements as being probably 11 what one would expect from the private sector. And so 12 would no doubt would Willie. So I would imagine that 13 came from Willie, but I think those figures look fairly 14 typical. 15 Q. Did you support this proposal? 16 A. I imagine that -- I imagine that we did. This is going 17 well back beyond my memory of any of this. 18 Q. On a separate but related query, this paper relates to 19 bonuses paid to tie employees, whether senior staff or 20 less senior staff. 21 I think in the event tie contractors also received 22 significant bonuses. So not employees, but contractors. 23 Does that accord with your recollection? 24 A. Yes, I think there were some. 25 Q. Was that normal practice, for contractors to receive 182 1 significant bonuses? 2 A. I don't know. It's not -- it's outside my experience. 3 But it's an odd situation. So it was a bit like some 4 things the BBC have had in recent years about the 5 definition of people. I would think it was not normally 6 normal practice. But I wouldn't think normally you 7 would have so many of the key jobs filled by 8 contractors. 9 Q. Thank you. 10 A. All I can remember on that particular issue, I can 11 remember Willie Gallagher saying: we have got a team 12 here, some of them are contractors, some of them are 13 employed, but actually they are a coherent, common team; 14 we really ought to treat them all the same way to get 15 the best out of them. 16 Q. I would like to move on, please, now to look at the 17 bonus criteria around the time of Infraco contract 18 close. Starting with Mr Gallagher. 19 If we can look, please, at a separate document, it's 20 CEC02086949. 21 We can see -- perhaps we can blow up the first half 22 of the page. 23 These are the minutes of the tie Remuneration 24 Committee on 29 January 2008. We can see the members 25 listed there, albeit we hear what you said earlier about 183 1 Mr Gallagher's membership or not. 2 Then if we go, please, to page 2, in paragraph 4 the 3 minutes state: 4 "Approved the Executive Chairman's incentive 5 arrangements for 1 January to 30 June 2008 ..." 6 Now, there's no reference there to Mr Gallagher 7 having excused himself, but your evidence is that he 8 would have? 9 A. Yes. Sorry, my evidence -- my -- my recollection of the 10 procedure was that he would have excused himself. 11 Q. If we then go to a separate document, please, to see 12 what the bonus criteria were for Mr Gallagher at this 13 time, it should be CEC01515065. We can see the heading 14 at the top, "tie Remuneration Committee – January 2008", 15 Executive Chairman, Willie Gallagher. We see then 16 six-month objectives, period from 1 January 2008 to 17 30 June 2008. 18 Under the first box we see: Objective, Tram 19 Procurement; and the right-hand column, there's 20 a weighting of 30 per cent. First bullet point: 21 "Achieve full Financial Close with TRAmco and 22 InfraCo novated into InfraCo with a Final Business Case 23 of GBP498 million in 2007/2008." 24 Do you recall, Mr Cox, who set these criteria or 25 objectives? 184 1 A. This is quite -- they were set by the Remuneration 2 Committee. But they were probably proposed by 3 Willie Gallagher. 4 Q. Did you consider that was appropriate? 5 A. Well, as I said at the outset, if you have a committee 6 of non-executive directors, you have to get the starting 7 point somewhere. We would not have been able, without 8 Willie Gallagher's input, to actually create this list. 9 What we could then debate is whether the weightings 10 are sensible and whether the actual detail of the 11 deliverable is sensible. So somebody that came up with 12 the tram procurement 30 per cent, MUDFA 30 per cent, 13 Infraco 10 per cent, Gogar 10, tie 10, seemed reasonable 14 at the time, and in the light of the priorities of the 15 business at the time. 16 Q. Could you have sought the assistance perhaps of HR 17 advisers or experts to compare the market and advise on 18 what would be appropriate criteria, rather than ask 19 Mr Gallagher? 20 A. Well, we could have done. They would have to then 21 themselves come into the company and done a study. And 22 I'm not -- we should have done that. 23 Q. Do you know whether it's normal practice to ask the 24 Chief Executive of a company to propose the criteria for 25 his bonus? 185 1 A. You wouldn't normally expect them to -- in my limited 2 experience. It's not unreasonable to ask them for their 3 views on the matter. What you shouldn't did is take 4 their views as gospel. This is, you know, not a -- this 5 is a peculiar company. It was not a standard -- 6 standard commercial business. 7 Q. Do you remember undertaking any checks or further 8 researches as to whether these criteria were 9 appropriate? 10 A. I don't recall doing so, no. 11 Q. Now, we can see the first bullet point I have just read 12 out. Do you recall whether any consideration was given 13 as to whether that could influence what was reported as 14 to estimated cost of the project? 15 A. I don't recall any discussion on the matter. I would 16 think there would have been some discussion on the 17 matter. As I said in my evidence, I don't think that 18 I would at least would have concluded that it was likely 19 to have any influence. 20 Q. What I wonder is whether what is set on out in the first 21 bullet point may have created a risk of an incentive, 22 whether at conscious or unconscious level, to report an 23 unrealistically low estimate for the cost of the 24 project? 25 A. Well, that's -- that's always possible. My answer to 186 1 that is that, given the weighting of the whole thing of 2 30 per cent, it's only a 30 per cent weighting of the 3 whole total, and it's one of two items on tram 4 procurement. 5 It doesn't -- it didn't seem to me -- it wouldn't 6 have seemed to me likely at the time, and it doesn't 7 seem to me likely now that it would have created 8 a perverse incentive. 9 Q. There's perhaps the separate point as to whether it is 10 appropriate to award a bonus on estimated cost of 11 a project rather than the actual cost. Do you have any 12 comments on that suggestion? 13 A. I think the word hindsight. Yes. In hindsight, yes. 14 Q. With hindsight it would be better to have based the 15 bonus on the actual cost? 16 A. Well, as a short-term incentive, you couldn't really do 17 that, could you? The long-term incentive would make 18 sense to do that. Probably in hindsight, and the 19 short-term incentive, it probably should have been 20 different entirely. 21 Q. Can you remember whether there was any discussion or 22 consideration at the time to defer any payment after 23 bonus based on the cost of the project until the end of 24 the project, when the actual cost was known? 25 A. I don't think there was any discussion on that. 187 1 Q. That is Mr Gallagher. I would like to turn to the other 2 senior directors and contractors. We can do this by 3 reference to document WED00000140. 4 This I think is a bit of a mishmash of papers, but 5 if we go to page 4, please, it's not a document that's 6 entirely easy to read. But if we could start by perhaps 7 blowing up the various columns in the left-hand side, if 8 that's possible, please. Thank you. 9 Perhaps if we could blow up the left-hand column, 10 please. Thank you. 11 We can see the left-hand column, the names of 12 various individuals. We then see a reference to bonus 13 headroom. We then see a column, tram programme and 14 percentage opportunity. 15 Now, as I understand it, the percentage opportunity 16 of 20 per cent we see here is -- this criterion 17 or factor can amount to 20 per cent of the bonus 18 opportunity; does that seem right? 19 A. Can we look at the whole table again? Could we look at 20 the whole table again? 21 Q. Yes? 22 A. I had difficulty reading this on the copy I had sent to 23 me. 24 Q. If we could bear that 20 per cent figure in mind, and 25 then if we blow up the next columns, please, the next 188 1 three columns or next two columns would do it, actually. 2 So we have 20 per cent under "Tram Programme". 3 We'll then see under "Tram Project Cost", a bonus 4 opportunity of 60 per cent, and then under "Tram 5 Organisation", a bonus opportunity of 20 per cent. 6 I think if you add up the 20 per cent for programme, 7 60 per cent for project cost, and 20 per cent for tram 8 organisation, one gets, I think, 100 per cent of bonus 9 opportunity. 10 So in short, that is how it looks as though the 11 criterion for bonus were split up. Does that seem 12 right? 13 A. It sounds like it, yes. 14 Q. Thank you. 15 If we could go back, please, to blow up the previous 16 column headed "Tram Programme", including, please, the 17 dates and figures at the bottom of the page. Thank you. 18 Blow all of that up. Thank you. 19 Now, I think under "Tram Programme", we can see the 20 score here is zero. 0 per cent. Do you see that? 21 A. Mm-hm. 22 Q. I think the reason for that, I think, we can see the 23 dates and percentages underneath the box or table. 24 I think we can see that if the Infraco contract had been 25 completed by 1 February, then 100 per cent of this part 189 1 of the bonus would have been available. But if we go 2 down, it tapers down until 28 March for Infraco 3 completion, it's down to 0 per cent. I think of course 4 we know in this case completion was not until May 2008. 5 So on the face of it, it looks as though there was no 6 bonus paid in relation to the timing of completion of 7 the Infraco contract. Does that seem correct? 8 A. It seems to be correct, yes. 9 Q. Thank you. 10 Then if we go on to the next column, please. So 11 that's the programme part of the bonus. The next 12 column, please, including the figures at the bottom. 13 Under "Tram Project Cost", if we look at the -- 14 similarly the figures and percentages at the bottom, it 15 appears to be that if the estimated cost was 16 490 million, that 100 per cent of this part of the bonus 17 would be paid, but if we go down to 530 million, it's 18 the second last figure, there would be zero bonus. This 19 time the cost was reported as 508 million, which meant, 20 I think, that 55 per cent of this part of the bonus was 21 payable. 22 If we take that 55 per cent and go back up to the 23 top, we can see that the bonus opportunity is 24 60 per cent. I think if we multiply 60 per cent by 25 55 per cent, we get 33 per cent of the figure entered 190 1 there; does that seem right? 2 A. Yes, that's right. 3 Q. Thank you. 4 That perhaps is consistent with that part of 5 Mr Gallagher's bonus which was related to the estimated 6 cost of the project? 7 A. Yes, because these people would have only had tram -- 8 responsibility. 9 Q. Could I ask you also, please, a point of detail. If we 10 could go -- zoom back out, please, and look at the last 11 two columns. A point of clarification. 12 We see under "Payment", the bonus figure arrived at 13 by applying the three factors we looked at previously, 14 in the last column, right-hand column, it says: payment, 15 50 per cent reduction. I wondered what the 50 per cent 16 reduction was. Was that simply because bonuses were 17 50 per cent of salary? Is that what that means? 18 I wonder why that 50 per cent reduction has been applied 19 there? 20 A. I feel I should remember what this was, but I can't 21 remember there was some -- I do -- I can vaguely 22 remember the logic being given to me, but I can't 23 remember what it was. 24 Q. Thank you. I think in short my question here is that 25 would you accept that with the benefit of hindsight, at 191 1 least, it would have been better to defer any part of 2 a bonus payment based on the cost of a project until the 3 end of the project when the actual cost is known? 4 A. It would certainly have been better to have reduced that 5 at least. It might have been some problem on -- 6 there -- deleting it entirely might have created some 7 problems in terms of the overall incentive scheme. ie 8 if you weren't giving them some medium term incentive, 9 it might be quite hard to maintain their equipment. 10 But in general terms what you're saying is right. 11 Q. I would just like to finish the bonus story, if I may, 12 by looking at three more documents briefly to see what 13 happened with the tie bonus scheme. 14 If we can go next, please, to CEC00736780. Top of 15 the page, please. We'll see this is now minutes of 16 Remuneration Committee at the TEL office, albeit tie 17 notepaper, on 23 September 2009. We can see now one of 18 the attendees is Richard Jeffrey, who by this time is 19 the Chief Executive of tie, and bottom of the page, 20 please, under paragraph 4, bonus proposals, we can see: 21 "RJ [Mr Jeffrey] introduced the paper on the 22 proposed Bonus Proposal to the Committee." 23 Then: 24 "The purpose of this paper was to bring structure 25 and certainty to the scheme for the remainder of the 192 1 project." 2 Over the page, please, the third paragraph sets out: 3 "The background to the Bonus Arrangements was that 4 there had not been sufficient formal linkage between 5 payments and corporate performance and in the past had 6 been linked mainly to individual performance. There was 7 currently inadequate performance management processes in 8 place to underpin payments and this was also being 9 addressed." 10 So I think in short, Mr Jeffrey had found certain 11 ways in which this scheme could be improved. Did you 12 agree with his views? 13 A. Yes. I think I said in my statement that once David 14 Mackay became Chairman, it was a lot better. 15 Q. If we then briefly look to the changes that were made, 16 please, by going to document CEC00672874, this was the 17 paper referred to in these minutes. We can see at the 18 top, "tie Remuneration Committee", subject, bonus 19 proposals, September 2009. 20 Go to page 7, please. Blow up the names in the 21 middle, please. We will see the paper is prepared by 22 George Bramhill, recommended by Richard Jeffrey. 23 If we could then please go to one page, page 3, blow 24 up the second half of the page, please. Under 25 paragraph 6, Scheme 1, Senior Director Scheme, and we 193 1 can read for ourselves who this part of the scheme is 2 applicable to. 3 Then underlined: 4 "Under Scheme 1 there will be no bonus paid until 5 the project achieves open for revenue status and only 6 then if ORS is achieved within the agreed cost and 7 timing criterion." 8 So we see there, I think, a linkage to bonuses only 9 being paid if the actual cost comes in at a certain 10 figure; is that correct? 11 A. Yes. 12 Q. Then the last document, please, in this regard, to see 13 what happened at this time. It's CEC00314582. We can 14 see from the top this is from Richard Jeffrey, 15 2 June 2010. It's the tie annual bonus announcement. 16 It states: 17 "I would like to take this opportunity to update you 18 all on the annual bonus scheme and the outcome of the 19 Remuneration Committee, which met this morning. At this 20 meeting I made a recommendation that there should be no 21 bonus payments made for 2009/2010. I can confirm that 22 this was approved ..." 23 I take it that accords with your recollection? 24 A. I don't recall seeing this document, but yes, that's my 25 recollection. 194 1 Q. Thank you. Could we go back to your statement, please. 2 Page 5, please. In question 32 we referred back again 3 to the Combined Code on Principles of Good Corporate 4 Governance, which recommends that bonus schemes and 5 individual payments are transparent. 6 We then asked whether members of the tie Board and 7 the Council were advised of the criteria for awarding 8 bonus payments and the individual bonus payments made at 9 tie. 10 If we can go then to your answer at page 14, in 11 answer 32 you explain: 12 "I would have reported back to tie Board but cannot 13 recall in what detail. I would have expected the tie 14 administration to take care of other Governance Code 15 matters." 16 Pausing there, who within the tie administration 17 would you have expected to have observed the guidance in 18 the Governance Code? 19 A. Well, either the Secretary, the HR Director or the 20 Finance Director. I don't know which of the individuals 21 were -- which at that particular time. 22 Q. As Chair of tie's Remuneration Committee, do you 23 consider that you had any responsibilities to ensure 24 that tie complied with these governance principles we've 25 looked at in relation to the payment of bonuses? 195 1 A. Are we talking about the reporting of the governance 2 code or the -- 3 Q. Yes, the reporting of bonuses and the bonus scheme and 4 individual payments. 5 A. I would have expected to be responsible for it at 6 tie Board. But as far as passing on to the Council, for 7 example, then I wouldn't have seen that as my task. 8 Q. Did you ever check whether the guidance in the combined 9 governance code in relation to bonus schemes and 10 payments was being complied with? 11 A. I can't remember, but the answer is probably not. 12 Q. With hindsight, is that something you consider you 13 should have checked? 14 A. Probably, yes. 15 Q. Now, sticking to answer 32, you say: 16 "I am (and probably was at the time) however aware 17 that Willie Gallagher, when tie Executive Chairman, was 18 reluctant to share remuneration information with CEC 19 because of terms and conditions disparities between tie 20 and CEC." 21 Did that cause you any concern at the time? 22 A. Well, I think this brings us into more the question 23 about the whole set-up of tie. 24 It was supposed to be acting in the private sector, 25 but in practice it was neither public sector nor private 196 1 sector. It was a mishmash. 2 So it clearly was a problem. My understanding was 3 that Willie, when he was there, would have kept in quite 4 close touch with Tom Aitchison on the matter. He 5 regularly met Tom Aitchison. And that really seemed to 6 be the main channel of communication on these sensitive 7 issues. What exactly information he provided, I don't 8 know. 9 Q. In relation to tie being perhaps a mishmash between 10 private and public sector, as I understand it, the 11 guidance we looked at from the Cadbury Code, et cetera, 12 while that is directed at the private sector, the public 13 sector would also be expected to follow that guidance in 14 particular in relation to bonus schemes, given it's 15 public money at stake. Would you dispute that 16 suggestion? 17 A. No. My comment was merely made about the reporting on 18 towards the shareholder. 19 Q. Yes, and of course if the shareholder had wanted more 20 details, it could have asked at any time? 21 A. Mm-hm. 22 CHAIR OF THE INQUIRY: Did you ever consider the 23 appropriateness of a bonus scheme in the context of 24 a company which was a wholly owned company by a public 25 body, and what was being used was public money? 197 1 A. Well, I did. And I think in my comments I said I was 2 never entirely happy. In my statement, I was never 3 entirely happy with the bonus scheme in 4 Willie Gallagher's time, but I felt between a rock and 5 a hard place. A new team had been brought in. The 6 project had had difficulty, and what we needed to do 7 with priority was get these people on board and get them 8 to give their all. 9 There had been a bonus scheme, and I wouldn't have 10 started from here really. I don't think that -- 11 I didn't -- I do not think it really was appropriate to 12 have a bonus scheme in tie. But probably, given the 13 competition in the marketplace, it probably meant 14 salaries themselves would have to be higher. If that 15 was the case, then you've got less control over whether 16 you're getting value for money, by having a bonus 17 scheme. 18 So I was never really happy with it, and I think it 19 was an awful lot better when David Mackay and 20 Richard Jeffrey came along, but I do understand the 21 problem, that you weren't starting from a good place 22 back in 2006/2007. 23 MR MACKENZIE: If you weren't happy with the tie bonus 24 scheme, why then agree to the suggestion that the top 25 bonuses be increased from 15 per cent to 50 per cent of 198 1 salary? 2 A. This was simply because at that time people had been 3 brought in, new people had been and were being brought 4 in, in a difficult marketplace, and they were coming 5 from the private sector, and they had an expectation of 6 reasonable bonuses. I don't know what this issue on 7 salary was. I think there was some constraints on their 8 salaries. So it seems to be that the best -- the only 9 secure way of getting these people in, incentivising 10 them and keeping them there long enough, bearing in mind 11 they had no long-term career prospects. 12 Q. Finally on bonuses, can you recall any occasion when any 13 of Mr Gallagher's suggestions or recommendations in 14 relation to bonuses were rejected by the Remuneration 15 Committee? 16 A. I can't remember. I'm not -- I don't know. I don't 17 know is the answer. I would need to go through all of 18 the documents to answer that question. 19 Q. I would like now to conclude a couple of final 20 questions. 21 Go back, please, to page 16 of your statement. In 22 question 40 we had asked if you had any views on the 23 reasons for the problems that arose. 24 Can I clarify one point, please. You say in the 25 middle paragraph: 199 1 "Lack of leadership from [Transport Scotland] and 2 (until 2011) CEC cannot have helped, nor the failure to 3 achieve political consensus." 4 What did you mean by lack of leadership from 5 Transport Scotland and the Council? 6 A. I think others were surprised that Transport Scotland 7 took a back seat very early on, when they had a lot of 8 experience of contracts, and they were the prime funder 9 with a lot of money at stake. And they obviously had 10 skills. Other people have commented in the same way. 11 It probably would have made a big difference if they'd 12 actually stayed in the front line position. 13 Q. How about the Council, in what way do you consider they 14 showed a lack of leadership? 15 A. Well, as an outsider only there on a relatively 16 part-time basis, it was quite hard sometimes to work out 17 the relationship between tie and the Council people. 18 Obviously it was quite frosty at times. I felt 19 personally that everybody was doing their best, but I 20 think the fact that the two organisations were separate 21 and bumped up against each other didn't help. I think 22 in all honesty, what I would like to have seen the city 23 do was grab it by the collar in the same way that Dame 24 Sue Bruce did when she came, and take much more direct 25 control over the whole thing. I think if CEC and TS had 200 1 done that, it would have been a lot better. 2 There would have been a lot better governance and 3 probably a lot better outcome. 4 Q. Can I also please ask as a matter of clarification, when 5 you refer to the failure to achieve political consensus, 6 what problems did that cause the project? 7 A. Hard to put your finger on. But obviously, it enabled, 8 for example, Infraco, to begin to drive a wedge. It 9 left people uncertain about just how much commitment 10 there was. 11 If Edinburgh had really -- if the politicians had 12 really said, you know: we're determined -- this is 13 a great scheme, we are determined to make it successful, 14 we are all going to work together; then I think the 15 whole thing would have been -- it would have been easier 16 to resolve things. There's less likelihood that things 17 would have been swept under the table or not perhaps 18 given the full public weight they ought to have been 19 given to resolve. 20 Q. Thank you. One final question. I quite appreciate the 21 role of executive directors is very different to that of 22 a non-executive directors. 23 But you've had obviously had time to mull things 24 over both since the project and in preparing your 25 statement for the Inquiry. 201 1 In short, do you have any views as to why in 2 relation to this project, the various non-executive 3 directors were not able to exercise sufficient scrutiny 4 and challenge so as to identify the problems that arose 5 and prevent them from arising? 6 A. Well, this has been something that's been on my mind for 7 way back, I'm sure the other non-executive directors are 8 the same. 9 There's quite a short period between -- between the 10 non-executive directors starting up and the contract 11 being finalised. It's over a year. 12 But there's a learning curve, took quite a long 13 time. I thought it was just under a year, but it's over 14 a year, obviously from what you have demonstrated. 15 It was only later on -- the level of detail was 16 exceptionally high, and sometimes -- sometimes there 17 seemed to be almost too much process. 18 Obviously we had to have a lot of process in such 19 a complicated scheme, but to get the -- it was -- it was 20 quite difficult at times to get a -- simple key issues 21 out. And particularly that was difficult during that 22 time in the first part of 2008, when the contract was 23 being put together. And I think I always felt that 24 somewhere along the line, I kept saying -- I kept saying 25 to myself subsequently, but whilst I was still a tie 202 1 Director, why -- why didn't we somehow or other ask the 2 right questions at that particular time? 3 The conclusion I can only come to is that we were 4 swamped with the amount of information. That there 5 was -- that the -- there was too much pressure on 6 getting this contract signed. My question 41 relates to 7 that. As I said to you before, the sheer size of the 8 contracts laid out on the table were this long, and we 9 really -- we failed, I think, to get a complete grip 10 then on the key issues and actually be willing to -- as 11 a result, being in a position to put our foot down, to 12 say: stop and reconsider. We have to stop and 13 reconsider at this particular point. 14 But it was at the time -- that's in hindsight. But 15 it's not hindsight of 2016. It's hindsight really more 16 of 2011 -- 2010/2011. 17 2009, even. 18 MR MACKENZIE: Thank you. I have no further questions. 19 CHAIR OF THE INQUIRY: Mr Martin, the Council intimated -- 20 no, I don't think there's anyone else. 21 Thank you very much, Mr Cox. You're now free to go. 22 Technically we could recall you if anything arose, but 23 hopefully that won't occur. So thank you very much. 24 A. Thank you. 25 (The witness withdrew) 203 1 CHAIR OF THE INQUIRY: We will adjourn until tomorrow at 2 9.30. 3 (4.17 pm) 4 (The hearing adjourned 5 until Wednesday, 14 March 2018 at 9.30 am) 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 204 1 INDEX 2 PAGE 3 MR VIC EMERY (sworn) .................................1 4 5 Examination by MR MCCLELLAND ..................1 6 7 MR BRIAN COX (affirmed) ............................128 8 9 Examination by MR MACKENZIE .................128 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 205