1 Tuesday, 13 March 2018 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) 6 204 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