1 Wednesday, 14 March 2018 2 (9.30 am) 3 CHAIR OF THE INQUIRY: Good morning. Yes, Mr McClelland. 4 MR MCCLELLAND: Thank you, my Lord. The next witness is 5 Colin Smith. 6 MR COLIN SMITH (sworn) 7 Examination by MR MCCLELLAND 8 CHAIR OF THE INQUIRY: You are going to be asked questions 9 by Mr McClelland, one of the Counsel to the Inquiry. If 10 you don't hear the question or understand the question, 11 just say so. But what we're interested in is a direct 12 response to each of the questions. If you can speak 13 clearly into the microphone so that the shorthand 14 writers can hear you, and also don't speak too quickly 15 because they have to keep up with you. 16 A. Thank you. 17 CHAIR OF THE INQUIRY: Mr McClelland. 18 MR MCCLELLAND: Thank you, my Lord. 19 Could you please confirm your full name? 20 A. My name is Colin Ross Smith. 21 Q. On the desk in front of you, Mr Smith, you should see 22 a copy of the written answers that you supplied to the 23 Inquiry. 24 A. Indeed. 25 Q. Do you have that? 1 1 A. Yes, I have that, thank you. 2 Q. Just for the record, the reference for that is 3 TRI00000143. Now that you're under oath, do you confirm 4 that the answers you gave are complete and true and 5 should stand as your evidence to the Inquiry? 6 A. They are complete and true and I have signed on 7 page 105, thank you. 8 Q. Thank you. 9 Is there anything in them that you no longer think 10 accurate or wish to clarify? 11 A. Nothing to change. 12 Q. You are a chartered surveyor; is that correct? 13 A. That is correct, yes. 14 Q. Is your expertise in any particular branch of surveying? 15 A. Primarily quantity surveying and project management of 16 mainly large-scale projects over the past 15 to 17 20 years. 18 Q. So you said quantity surveying there. Can you give us 19 an indication of the level of your expertise when you 20 joined the tram project, in relation to the assessment 21 or understanding of the cost of construction work? 22 A. I believe I had a full understanding of civil 23 engineering costs, building costs, based on experience 24 over a long number of years. But also with reference to 25 cost index books, such as BCIS. 2 1 Q. Thank you. Your involvement in the tram project began 2 when you were appointed by Sue Bruce as a special 3 adviser in January 2011; is that correct? 4 A. That's correct, yes. 5 Q. What previous connection did you have with Sue Bruce? 6 A. I previously worked for East Dunbartonshire Council as 7 a consultant, and Sue Bruce was the Chief Executive at 8 that period. 9 Q. What was the nature of the work that you did there? 10 A. In the main it was to execute and deliver a project 11 between the NHS and East Dunbartonshire Council. It was 12 referred to as the Kirkintilloch Initiative. 13 Q. Did Sue Bruce invite to you become involved in the tram 14 project? 15 A. She asked me if I would attend an interview, firstly 16 with herself and secondly with Councillor Dawe. 17 Q. Do you know if anybody else was considered for 18 appointment? 19 A. I do not. 20 Q. Did you regard yourself as primarily an adviser to her 21 or an adviser to the Council itself? 22 A. I think up to the point of mediation it was adviser to 23 the Chief Executive, Sue Bruce. 24 Q. So you say up to the mediation? 25 A. Matters started to change from mediation, and perhaps 3 1 you will go into that later on, but I'm happy to answer 2 that part of the question just now if you want me to. 3 Q. No, sorry, I was just trying to clarify what you just 4 said. I didn't quite catch it. 5 Just to be clear then, you regarded yourself as 6 adviser to her as Chief Executive, up to and including 7 the mediation, but your position evolved after that? 8 A. Correct. 9 Q. You say in your written answers that you supported 10 Sue Bruce in preparing for the Mar Hall mediation. Can 11 you just clarify for us in what way? 12 A. It was to ensure that the structure of the team that the 13 Council was assembling was compatible with the team from 14 tie, and the overarching aims of mediation would be 15 delivered. In other words, to be well prepared to go 16 into mediation and to understand what could be 17 a possible good outcome from that experience. 18 Q. When you said that it was to ensure that the structure 19 of the team was compatible with tie, what did you mean 20 by that? 21 A. It was to ensure that there was a common understanding 22 of cost information, programme information, contract 23 information, primarily coming from the solicitors that 24 were around the table at that time. 25 Q. There were already many people with professional 4 1 expertise and direct knowledge of the tram project 2 involved, and who were already engaged by tie and CEC. 3 What do you consider that you added to that 4 expertise that was already available? 5 A. I think the benefit that I brought to the period leading 6 up to and around mediation was to try and understand 7 exactly what was being reported, by whom, and on the 8 basis of those reports being made, in other words 9 testing the quality of information, I think, would be my 10 summary of that. 11 Q. Testing the quality of information. Would that include 12 information about project costs? 13 A. Yes, indeed, and in particular it was to understand that 14 there was due provision for risk and contingency, and to 15 make sure that the matters excluded from the contract 16 between tie and BBS had been covered in one way, shape 17 or another. 18 Q. If you're talking there about risk and contingency, that 19 suggests you were thinking about project costs going 20 forward. 21 A. Yes. 22 Q. Did you also involve yourself in looking at estimates of 23 the costs that had been incurred to date? 24 A. Not in any great detail. That was part and parcel of 25 a fairly complex exercise that had been executed 5 1 primarily, I believe, by tie, but certainly in 2 conjunction with the Council and we will probably refer 3 to it later today under the deckchair spreadsheet 4 analysis. 5 Q. If we just bring up on screen, please, document 6 CEC02087144. 7 This won't be a document, I don't think, that you'll 8 have seen before, Mr Smith, but if we go to page 2 of 9 that, first of all. We see up on screen, this is an 10 email from Councillor Gordon Mackenzie to Dave Anderson, 11 the Director of City Development at the Council, on 12 17 February 2011. 13 What Councillor Mackenzie says there is: 14 "Dave, I know you and Sue were planning to have 15 discussions with myself and Jenny about the forthcoming 16 mediation. It's getting closer to the time and I have 17 not seen anything in the diary yet." 18 So essentially he's looking for an update about 19 mediation. 20 If we go to page 1, please, in Dave Anderson's reply 21 to Councillor Mackenzie, just at the end of that first 22 paragraph, he says this: 23 "Vic Emery was briefed earlier this week along with 24 Colin Smith, a Civil Engineering professional whom Sue 25 has brought in to provide additional advice and a fresh 6 1 eye on proceedings. He will act as an independent 2 critical friend reviewing all the supporting evidence." 3 Now, that description of your role as an independent 4 critical friend reviewing all the supporting evidence, 5 would you agree with that? 6 A. I would say the last sentence is just a bit too 7 expansive, is a bit too wide, to be reviewing all the 8 supporting evidence. The only evidence I was really 9 given the opportunity to review was that presented by 10 tie at the initial -- I was going to say it was 11 a briefing meeting, but initial meeting on, I think it 12 was 29 January. And subsequent meetings thereafter. 13 So I couldn't say that it was reviewing all the 14 supporting evidence. It was only that presented to me. 15 Q. Yes. Could you give us an indication of the nature of 16 the evidence that tie did supply? 17 A. I would say it was -- in the main it was the deckchair 18 spreadsheet analysis. There was reference to Carlisle, 19 Phoenix and separation, and the task that would lie 20 thereunder if each and every one was executed. 21 But mainly it was in and around the financial aspect 22 presented in the form of the spreadsheet. 23 Q. Yes. So just -- the nature of the information presented 24 in that spreadsheet was tie's cost estimates under 25 different possible scenarios for the project; is that 7 1 correct? 2 A. That's correct. The information appeared to me 3 certainly at the first meeting, the 29th, that there had 4 been quite a number of contributors to that information, 5 and I've got to say on a personal note, I found it quite 6 difficult on the 29th to try and get a sense of waiting 7 as to where the various portions of information sat. 8 Indeed, who had actually instructed and what the 9 scope was of the various pieces of work that had come 10 forward; primarily by quantity surveyors external, but 11 also there was the internal QS element on top of all 12 that. So it was quite an amalgam of information. 13 Q. Who did you understand to be the main sources of 14 financial information? 15 A. I looked to in particular Dennis Murray, but I looked to 16 tie generally as being the orchestrator of that 17 information, because it seemed to me that they sat 18 within the centre of all the various inputs that were 19 coming from different practices. 20 Q. You said that there were other sources of information. 21 So who else was supplying information on financial 22 matters? 23 A. From memory, I believe Cyril Sweett was one practice. 24 They were often referred to as CS. 25 Gordon Harris Partnership, they were -- a shorthand was 8 1 GHP. 2 There was a chap, Molyneaux in particular who had 3 quite large input, and he worked very closely with 4 Tony Rush. 5 Q. So were they the main sources of information about 6 project costs? 7 A. I would say so yes. 8 Q. The way that Mr Anderson put it in his email, he 9 described you as an independent critical friend who 10 would be reviewing the evidence. That suggests that the 11 officers at CEC perhaps needed help in assessing the 12 information that was available about the project. Do 13 you agree with that? 14 A. Again, we are at the early period of my involvement, but 15 my reading of -- if I have to try and describe what help 16 was required, it would be to -- to ensure that there 17 were clear lines of communication reporting and quality 18 of information because it certainly came across -- I'm 19 focusing mentally at the moment on the 29 January 20 meeting -- as being quite -- as I say, quite 21 a compendium of information. It was very difficult to 22 find out what was really being promoted. You could get 23 a sense of what was being suggested, but sitting behind 24 that, I was looking around to see, well, what are the 25 building blocks that would take you to those 9 1 conclusions, if they even were conclusions at that time. 2 Q. The term "independent critical friend" might suggest 3 perhaps that you were to bring your judgement to bear on 4 the information that was available, and guide the 5 officers of the Council in relation to it; would that be 6 fair? 7 A. I think that's reasonable. It certainly was to give 8 support, and in particular I can think of one -- one 9 particular exercise where I sat with the -- 10 Donald McGougan and Alan Coyle, and that was to look 11 through the deckchair spreadsheet. 12 Mainly in that exercise what I was trying to do was 13 to consider what exclusions there may be from the 14 original contract and had they been transmitted into the 15 spreadsheet, and was there due allowance being made, and 16 primarily the two big ones I was looking for was risk 17 and contingency. 18 But there were other qualifications in the contract 19 which you could have a look at, and without going to the 20 penny, you could understand that they weren't GBP5,000 21 items. They were substantial, and they needed to be 22 captured, some way, shape or form. 23 So yes, that certainly was an area that I was keen 24 to make sure that all that Donald and Alan were 25 capturing on behalf of the Council was -- had 10 1 a relationship to the contract position. 2 Q. Yes. So what you're describing there, would that be an 3 example of you bringing your expertise as a quantity 4 surveyor and your experience to bear on the various cost 5 estimates that had been produced by tie? 6 A. Yes, I would say that was a quantity surveying function, 7 yes. 8 Q. Perhaps from your perspective, identifying some flaws in 9 the information that had been prepared? 10 A. Yes. The two -- the two areas of concern were really 11 the extent of risk and what risk was actually covering. 12 Sorry to harp back on it again, and also contingency. 13 The other items were a matter of detail and 14 transmission from the exclusion from the contract 15 document to that that should be showing itself in the 16 spreadsheet. 17 Q. Okay. If you could bring up on screen, please, document 18 CEC02087133. 19 We see here that this is headed up "Mediation 20 Preparatory Workshop", a meeting at Citypoint on 21 29 January 2011. There's a long list of attendees who 22 included Sue Bruce and you. 23 A. Yes. 24 Q. Was that the meeting that you referred to a moment ago? 25 A. Correct, yes. 11 1 Q. Was that the first meeting you had in relation to the 2 project? 3 A. Absolutely. It was -- if I recall correctly, it was 4 a Saturday, starting at 9.00, finishing around about 5 5.30, 6 o'clock. 6 Q. Okay. If we just read from the minute, the heading 7 there is "Introductions": 8 "Following a welcome from RJ [Richard Jeffrey], 9 [SB] Sue Bruce provided an explanation as to why she had 10 called the meeting." 11 Then there's a list of bullet points, and the final 12 one of those bullet points is: 13 "Half a billion pounds in the ground: need to make 14 good this investment." 15 Was it Sue Bruce's view at this time that one way or 16 another, the Council had to get a functioning tramline? 17 A. I certainly didn't get that sense of predetermined 18 outcome on the 29th, or, I've got to say, indeed up to 19 and around the mediation period. It was about 20 understanding the relationships that had gone before, 21 the potential of wasted money, but there was no -- 22 certainly I had no feeling of a predetermined conclusion 23 to say: this is what we must get out of it. 24 Q. To make good an investment of the half a billion pounds 25 that had already been spent, was really the only outcome 12 1 not one that featured a functioning tramline? 2 A. I am not sure what else you could actually do with the 3 money that had been spent by executing the tram works to 4 that time. 5 So it's a kind of -- again, it's a wide statement. 6 Need to make good this investment. My own sense of 7 feeling was that certainly on the 29th, and I didn't 8 feel leading up to mediation that there was only one 9 answer to be had. 10 CHAIR OF THE INQUIRY: If the project was stopped when half 11 a billion pounds had been spent, then what would you get 12 from that investment, half a billion pounds? 13 A. My Lord, the best I can come up with would be that the 14 utilities in part that had been removed would be able to 15 serve some other purpose. But the track slab and rails, 16 I really couldn't see what use you could get from them. 17 CHAIR OF THE INQUIRY: So the only way of making good the 18 investment was to go ahead? 19 A. If you follow that logic, absolutely, yes. 20 CHAIR OF THE INQUIRY: Did you not understand that that's 21 what was being suggested? 22 A. Well, perhaps. I certainly didn't get that feeling. So 23 therefore that was not my understanding. So I didn't 24 get that understanding. 25 CHAIR OF THE INQUIRY: Thank you. 13 1 MR MCCLELLAND: Now, the great majority of the money that 2 had been spent on the project thus far had been funded 3 by the Scottish Government. Was there any concern that 4 if the functioning tramline was not delivered, the 5 Government would ask the Council to repay that funding? 6 A. I don't remember that being discussed. That may well 7 have been the case, but I don't recall that being 8 discussed in my company. 9 Q. Were you aware of the Government having said anything to 10 that effect? 11 A. No, I was meeting -- on the 29th -- from the 29th, I was 12 meeting representatives from Transport Scotland for the 13 first time. So there wasn't an operational dialogue 14 between myself and Transport Scotland. So no, I didn't 15 get that -- I didn't have that knowledge. 16 Q. Yes. I mean, not just necessarily at that meeting, but 17 at any time before the mediation? 18 A. I can't recall it being said, but I'm pretty sure if I'd 19 been asked the question leading up to mediation, I would 20 have thought that that was a likely scenario, that 21 Scottish Government would take action to recover their 22 funds. 23 Q. Was that a consideration that influenced the 24 decision-making by Council officers in the run-up to the 25 mediation? 14 1 A. I continually felt in that period, from January through 2 to March, that objective number 1 was to see if 3 Bilfinger, Siemens and CAF were willing or able to come 4 back to the table, to come back to complete works, and 5 once that was established, if it could be established, 6 what the cost of that might be. 7 I do not think -- certainly my thinking didn't go 8 beyond those two targets. All the while considering, 9 you know, what would happen if separation or attrition 10 was going to be the position that the consortium were 11 going to take, because that was an unknown at that time. 12 Q. If we move forward to page 4 of that minute, please. We 13 see just two-thirds of the way down the page, there's 14 a paragraph that begins: 15 "A range of issues were identified throughout these 16 discussions. In appraising the options, Project Phoenix 17 and Project Separation, it was decided that a series of 18 review filters needed to be applied." 19 Then down to the bottom of the page: 20 "For the project to progress there were, therefore, 21 two options other than the current stalemate." 22 If we just go over the page, please: 23 "Phoenix: a truncated line to Haymarket and then 24 separate implementation to St Andrew Square, or; 25 "Separation: Final account value based mature 15 1 separation, where, in the simplest terms possible ... 2 current works would be 'made good', a separation payment 3 would be agreed, and then the contract could be 4 re-specified to complete to St Andrew Square ..." 5 Were these then the two main options that were under 6 consideration? 7 A. Yes, I would say that was my feeling of the discussion 8 on the day. Phoenix or Separation, yes. 9 Q. We see there that those are both alternative means of 10 getting a functioning tramline? 11 A. Yes. 12 Q. Stopping construction doesn't seem to be considered as 13 one of the options? 14 A. No. 15 Q. Now, these options, Phoenix and Separation, how was 16 a choice to be made between them? 17 A. I think the first test was to find out whether the 18 consortium would -- would come back to the table to talk 19 about Phoenix, and the second, which was a very 20 difficult conversation, I remember round the table, both 21 on the day and right the way up to -- right the way up 22 to the meeting at Mar Hall, was to try and gauge what 23 the separation costs might actually look like. 24 Q. Yes. How significant to the decision-making was the 25 relative cost of these two options? 16 1 A. I'm sorry, maybe if you could rephrase that question. 2 Q. Yes. In deciding between Phoenix and Separation, how 3 significant or large a consideration was the relative 4 cost? 5 A. I think at the time that wasn't the immediate 6 consideration, which probably sounds slightly bizarre. 7 It was to find out the response to Phoenix and 8 Separation and thereafter the cost implication would 9 become centre stage. 10 Q. I think, as we discussed a moment ago, tie had produced 11 information on the costs of these two options. Did any 12 of the others that you mentioned provide information 13 about the cost of these two options? 14 A. That's quite a difficult question to answer because on 15 the 29th and the days and weeks thereafter, probably two 16 to three weeks thereafter, it was quite a challenge to 17 follow the audit trail back to who was saying what, that 18 then went into the spreadsheet. 19 Certainly from my own point of view, the people that 20 I was looking to hear from that I felt had the authority 21 and the knowledge was Richard Jeffrey and Dennis Murray, 22 being the custodians of that information. 23 Q. In your written response to the Inquiry you say that 24 there was a wide range of cost estimates and that was 25 something that you didn't find helpful. 17 1 A. That's correct. 2 Q. Did Sue Bruce look to you for guidance on what to make 3 of the cost information? 4 A. I think the conversations were had with primarily 5 Alan Coyle, Alastair Maclean and myself and Sue, and it 6 was to almost litmus test the information that was being 7 provided in those meetings. 8 It wasn't any forensic examination. We didn't have 9 enough knowledge at that time to be able to -- certainly 10 I didn't -- get in behind the quality in depth. The 11 numbers were coming at us, I felt, in fairly broad-brush 12 terms. I anticipated that there was a lot of detail 13 behind it, but certainly that wasn't in circulation at 14 that time, certainly not to myself, or I believe 15 Sue Bruce. 16 Q. That grouping that you mentioned, yourself, Sue Bruce, 17 Alastair Maclean and Alan Coyle, of those four, you were 18 the only quantity surveyor? 19 A. That's correct. 20 Q. So it would be natural if the group generally looked to 21 you for guidance on what to make of the construction 22 cost estimates; would that be fair? 23 A. I think insofar as the extensiveness of the items being 24 presented, but the quality of the value based on 25 quantities and rates applied to those quantities, again, 18 1 that's not something we talked of, nor would I have been 2 able to talk to it because that detail wasn't provided. 3 Q. You say it wasn't provided. Was it sought? 4 A. It was after the 29th. You will probably find in my 5 files a note, which I think I referred to as a tracker, 6 of the 29th. And there's a series of actions. Again, 7 from memory, I think one of the actions was requesting 8 contract documentation. So it was requested. 9 Q. Then you say you didn't get it; is that -- 10 A. I don't believe I ever got the detail, no. 11 Q. Was that a matter of some concern? 12 A. Yes, it was. And it was talked of on a number of 13 occasions leading up to Mar Hall. 14 Q. Who specifically did you ask for the information? 15 A. Steven Bell. 16 Q. Were you given any explanation for its not being 17 produced? 18 A. Not that I can recall. 19 Q. Did the lack of that information inhibit your ability to 20 form a view about project cost? 21 A. I think it certainly put a question mark over it. And 22 if we were to fast-forward to summer 2011, post 23 mediation, I did ask the Council for a number of reviews 24 of the cost information and to bring a firm of quantity 25 surveyors in that hadn't been involved in any way, shape 19 1 or form, to put a fresh eye on all of the information 2 that we had been provided in and around the mediation 3 period. 4 Q. You refer there to the period after mediation. Did the 5 mediation take place without that information that you'd 6 been looking for? 7 A. Yes. 8 Q. How was it possible at the mediation to take decisions 9 about costs or price if that information wasn't 10 available? 11 A. We were taking in good faith what tie was telling us at 12 the time, based on information that they had received 13 from others, but we were not given exposure to the 14 detail of that information. 15 Q. So do you mean that tie then were providing you with 16 perhaps the results of their calculations, but not the 17 data which -- or the working which led to it; is that 18 the point that you are making? 19 A. I think that is the point, although I would say at the 20 time I didn't feel there was anything sinister. There 21 was a lot of discussion going on. There was a vast 22 amount of information. And looking to the person who 23 had ownership and had collated all the various inputs 24 from others, tie, we were reasonably comfortable to take 25 that in good faith. 20 1 CHAIR OF THE INQUIRY: You say that at the time you didn't 2 think there was anything sinister or -- the use of the 3 phrase "at the time". Did that change? 4 A. I think the longer that it went on, that is when we asked 5 for information, there was a feeling that the Council 6 wasn't entitled to be given that information, that tie 7 were in charge of this aspect of the project. They 8 would control the cost, the cost management, and really 9 there was no need for the Council to have that amount of 10 granularity that it was looking for. 11 MR MCCLELLAND: Just to be clear about it, at the mediation, 12 did the decision-making team essentially take on faith 13 that the cost information supplied by tie was accurate? 14 A. The mediation team from the Council? 15 Q. Yes. 16 A. The short answer to that is yes. We did observe the 17 differences of opinion between Richard Jeffrey, 18 Tony Rush, and occasionally Dennis Murray. So it wasn't 19 that simply all that was said to us was taken without 20 further qualification. We did push and probe at the 21 other opinions within the tie team, but primarily to 22 answer your question, it was that given to the Council 23 by tie. 24 Q. You say in your written answers that you were generally 25 sceptical about tie's cost estimates, and that in your 21 1 view they were routinely too low. Was that correct? 2 A. That is a feeling I had, yes, that's correct. 3 Q. Why were you sceptical? 4 A. It's been my experience over the years that in any 5 negotiation, particularly a multi-headed negotiation, 6 it's not always the same one person or entity that's 7 always at the lower -- lowest end of the scale. It 8 moves around within the combine of the group or the 9 client group. 10 It's just human nature that there are different 11 levels of opinion. 12 I found it surprising that continually and 13 consistently tie was always at the lowest end, which 14 seemed a strange position for them to be in. 15 Q. Were you ever able to gain an understanding as to why 16 tie's estimates were at the lower end? 17 A. I think the sense of opinion I would have had then and 18 have now is the way that they read the contract. It 19 wasn't -- it isn't an easy contract to read or manage, 20 and it does -- it does almost naturally lead to 21 positions where people's thoughts or value are 22 polarised. I was thinking particularly of, I think it 23 was Clause 80 in my mind. 24 Q. So can we take it, then, that your scepticism about 25 tie's cost estimates rested on your view that their 22 1 interpretation of the contract was wrong? 2 A. It wasn't just my view. I was listening very closely to 3 the chap Molyneaux, reporting to Tony Rush, and some 4 fairly robust discussions and debates between Tony, an 5 adviser to tie, and internal people, QSs within tie, who 6 were controlling the cost spreadsheet. And it was 7 really that dynamic that was quite illustrative of why 8 there seemed to be internal tie team range, a commercial 9 tie team from consultants that was slightly higher than 10 the lower one. 11 Q. Yes. So I understand there may have been a discussion 12 about the cost estimates, but was there any factor other 13 than a difference of view about how one construed the 14 contract to explain why tie's estimates were lower than 15 those proposed by other people? 16 A. Not that I was aware of. 17 Q. If you could bring up on screen, please, document 18 CEC02083835. Now, this document appears to be a report 19 prepared by you, dated 31 January 2011. 20 A. That's correct. 21 Q. Do you recognise it? 22 A. I do recognise it, yes. 23 Q. Was this a paper that you prepared after the meeting 24 that we just discussed? 25 A. Yes, it was. It was based on my -- as I noted there, my 23 1 first observations and emerging thoughts. It was 2 a thumbnail of the meeting on the 29th. 3 Q. If we just move forward to page 2, please, here you set 4 out your thumbnail profiles of perhaps the key 5 individuals on the project. 6 Under the heading of "Steven Bell", what you've 7 written is: 8 "Sure footed performance on facts, corrected his 9 team on a number of points of detail. Did not have an 10 answer on alternative contractor, completion of risk 11 matrix (sensitivity analysis), or cost to complete on 12 either scenario, Phoenix or Separation, reported that 13 this was work in progress." 14 So does that confirm that, as at the date of that 15 meeting, figures were not available for the respective 16 costs of Phoenix and Separation? 17 A. There were some figures. They weren't -- they weren't 18 conclusive. And it was very difficult to understand 19 what the direction of travel that we were being 20 encouraged to think about, because, as I noted there, 21 when we got to the point where you were expecting to get 22 a final statement, it was reported this work was in 23 progress. Therefore you couldn't come away with 24 a conclusion. 25 Q. Then if we read down to the section on Tony Rush at the 24 1 bottom, what you've written is: 2 "Good grasp of people and technical issues, noted 3 comments on time to prepare for Phoenix and Separation. 4 Not enough time to do both, concentrate on Phoenix. 5 I would agree with this, although Separation should be 6 developed to some degree as a negotiating lever." 7 The decision to concentrate on Phoenix, why was that 8 decision made? 9 A. I think one of the factors -- I wouldn't say it was the 10 only factor, but one of the factors was the time to 11 complete a thorough exercise on Separation, and 12 Separation was going to prove and did prove very 13 difficult to put on a value on. There was various 14 numbers bandied around. I seem to recall GBP800 million 15 plus as being one suggested figure. I don't think that 16 was necessarily on that day. It was in and around that 17 time that that was suggested. 18 Phoenix had some shape and form about it. There was 19 a debate, if I remember correctly, that suggested that 20 Separation not be quite set aside, but should not be -- 21 should not be further developed. 22 While I agreed that the tactic should be to examine 23 in thorough detail Phoenix, we should certainly not 24 abandon Separation because that would send out a very 25 wrong signal to BBS, the consortium. If they felt that 25 1 we were grasping only at one option that would 2 strengthen their hand. So I felt that Separation needed 3 to have some development, but of the two, greater 4 efforts should be put into Phoenix. 5 Q. So in the world of limited resources of time to get the 6 preparation done and the decision having to be made 7 between the two main options, was that a decision for 8 the client to take? 9 A. I believe so. 10 Q. So does the preference there for Phoenix reflect an 11 instruction from Sue Bruce? 12 A. I don't remember there being an instruction. I remember 13 the -- the consensus of the meeting was to carry forward 14 those two options, but of the two, the majority of QS 15 resources, external and internal, my reading of it was 16 that they were concentrating on Phoenix. 17 Q. Yes, but whether it was a specific instruction or not, 18 it must have reflected the wishes of the client, that 19 the resources would be used in that way? 20 A. Insofar as the client could have stood up to say: no, 21 we're not doing that, we're only going to concentrate on 22 Phoenix and Phoenix alone; or we are going to spend 23 greater effort and time on separation; you are 24 absolutely right, that could have happened. 25 Q. That could have happened or -- what I'm keen to know is 26 1 whether that decision to allocate resources in that way 2 reflected the wishes, as you understood them, of 3 Sue Bruce at that time? 4 A. I think it reflected the -- the wish of the joint 5 CEC/tie meeting. I'm not trying to evade the question. 6 I can't think of any one individual on tie's side or the 7 Council's that made almost a declaration of: this is 8 what we will -- this is what we will do. 9 My reading of the way the discussion at the meeting 10 went is that: we should prepare for both, but of the 11 two, spend greater time with Phoenix. Hopefully that 12 answers your question. 13 Q. I think it must be clear from this note that that 14 preference for Phoenix was established before the 15 detailed cost information was available on the two 16 competing options. 17 A. Yes. Yes. 18 Q. Can we take it from that that Phoenix was preferred over 19 Separation for reasons other than cost? 20 A. Yes. 21 Q. What were those reasons? 22 A. I think the main one was in the world of Separation, and 23 again, and I think I say this in my files later on, that 24 to reprocure a project with the reputation that 25 Edinburgh Trams had at that time, if I were working for 27 1 a contractor, I would be saying to them: you need to 2 think long and hard about coming into this project, 3 because the reputational damage on following contracts 4 could be immense if you get yourself into the same 5 position that the consortium had. 6 The second factor was within the fairly limited 7 world of light rail, if another consortium had come 8 along that had different systems, the systems wouldn't 9 necessarily talk to the systems that we had already or 10 the Council had already paid for. So you would have an 11 incompatibility which would probably mean on balance 12 that there would be down-takings to that already built, 13 before you could actually build forward with the new 14 consortium. 15 So the two main reasons was the technical 16 compatibility and also the willingness of the 17 marketplace to say: let's go back to Edinburgh and see 18 if we can make the tram project work. 19 Q. Was that what your experience told you, that even before 20 you knew what the detailed costs forecasts were for the 21 two options, that Separation was really a very 22 unattractive option for the reasons that you've given? 23 A. Yes, and I think I have gone on record to that effect. 24 Q. Did the Council go into mediation without fully 25 developed costings for the Separation option? 28 1 A. I think the Separation costings had been ingathered with 2 one exception which was an allowance made, and that 3 would be the premium that BBS would request to walk 4 away. And you would never know that until you really 5 engaged with them and made that request absolutely clear 6 and explicit. 7 So yes, is the short answer, but there was a big 8 provisional sum as to what may be the demand for payment 9 to walk away. 10 CHAIR OF THE INQUIRY: When you say yes, I think the 11 question was: did the Council go into mediation without 12 fully developed costings? So is the answer yes or ...? 13 A. The answer is no, it wasn't fully developed, for reasons 14 of that provisional sum sitting there for the 15 Separation. The premium that the contractor would ask 16 to be paid to walk away. 17 MR MCCLELLAND: Were you satisfied that in all other 18 respects, the estimate of the cost of Separation and 19 reprocurement had been fully bottomed out? 20 A. I think it was reasonable. I think it was reasonably 21 safe to use the other parts and components. But as 22 I say, in an answer to Lord Hardie's question, it wasn't 23 fully bottomed out because there was this large 24 provisional sum. It was a big unknown, and it really 25 was the best estimate that anyone could give. 29 1 Q. If we could go, please to, page 6 of your note. This 2 appears to be a list of points that you've noted at the 3 meeting; is that -- 4 A. Absolutely. In fact, this was the tracker I mentioned 5 just a moment ago. And you can probably see: get copy 6 of contract, CS, that's me, "ask Steven". That's 7 Steven Bell: 8 "Get copy of programme. CS. Ask Steven." 9 Q. So you were looking for more information at this stage. 10 If we look at the fourth bullet from the bottom, it 11 reads: 12 "What is the best alternative to a negotiated 13 agreement?" 14 The comment is: 15 "Not fully defined." 16 What was the best alternative to a negotiated 17 agreement? 18 A. At that time it wasn't fully defined. Later on 19 I believe the best alternative was that that came out of 20 Mar Hall mediation, which was effectively a version of 21 Phoenix. 22 Q. Well, that -- to be clear, the outcome of the mediation 23 must be within the category of a negotiated agreement. 24 So what was the best alternative to one that was 25 negotiated? 30 1 A. It would probably have been a version of Phoenix. Maybe 2 a lesser length of line or something of that nature. 3 Q. Well, if I can just press you about that, if you're 4 looking at the best alternative to a negotiated 5 agreement, it must be an outcome which is not negotiated 6 or agreed. So what was viewed as the best alternative 7 to reaching some deal with the consortium? 8 A. That would have probably taken you back to Separation. 9 Q. Separation. 10 What about the option that has sometimes been 11 referred to as attrition, in other words carrying on 12 under the existing contract? Was that considered as an 13 alternative? 14 A. No. No, it was -- it was discussed. Would 15 international contractors be attracted to running more 16 of the same and all the damage that it was doing to 17 them? So we believed that they would understand that it 18 wasn't in their interests simply to hold the contract 19 and work away in the same non-beneficial fashion that 20 had been to date. And therefore they would have come 21 eventually to Separation, but no doubt there would have 22 been a period of time where attrition would be the 23 backdrop before you would actually get into Separation 24 discussions. 25 Q. Was any consideration given to whether that would be 31 1 a better approach for the Council than reaching an 2 agreement quickly at the mediation in March? 3 A. I'm trying to remember -- it would have been talked 4 about. I cannot just capture a snapshot in my mind as 5 to when that might have been, but I'm pretty sure all 6 those things were -- they were all moving around. They 7 were all being talked of. Nothing -- nothing seemed 8 firm or certain, and I guess that's why I'm mentioning 9 not fully defined. 10 Q. Going into the mediation, presumably the CEC team had to 11 consider the different options available, and we've 12 discussed two of them, being Phoenix and Separation. 13 But both of those, at least as discussed at the time, 14 required some agreement to be reached with the 15 consortium; is that correct? 16 A. Correct. 17 Q. So when they were considering their options going into 18 the mediation, did the Council also consider the extent 19 to which just carrying on under the existing contract 20 was a viable option? 21 A. I believe so, and I'm trying to remember the -- I'm sure 22 there was a figure mentioned. I don't want to mislead 23 you, but I'm pretty sure there was a figure mentioned on 24 that basis. What it would mean to actually try to carry 25 on. 32 1 Q. The fact that you're struggling to remember it now, does 2 that suggest it wasn't at the forefront of anybody's 3 mind going into the mediation? 4 A. Yes. 5 Q. Was it not important to know what that outcome would 6 involve because at some point in the mediation, those 7 making decisions for the Council would have to decide 8 whether the options on the table were worth accepting or 9 whether they would be better off rejecting them and 10 going with the alternative? 11 A. Before matters -- before matters went back to Council, 12 I recall that there was -- I think it was a PowerPoint 13 presentation, which captured the options that we're 14 talking about just now, and it had numbers behind them. 15 So the fact that I'm not just reaching out and 16 grasping the number that I believe was being talked of, 17 it was collated into a PowerPoint presentation for 18 presentation to -- to the Council. 19 Q. Are you talking about there about the options presented 20 to the Council as in the summer of 2011? 21 A. It would be in and around that time. Spring/summer, 22 yes. 23 Q. What I'm trying to get to the bottom of, Mr Smith, is 24 whether CEC went into the mediation with no realistic 25 alternative, but to reach a negotiated agreement with 33 1 the consortium. 2 A. I had no sense of that at all. I felt that there was 3 a willingness to find a way forward that would have the 4 tramline completed, ideally with the existing 5 contractors. But other options were certainly not taken 6 from the table. 7 There was -- there was no lack of appetite to look 8 at any alternative way of bringing the whole matter to 9 a close, whatever close might mean post mediation. 10 Q. If you could go, please, to document CEC02084603. 11 We see in the middle of the page an email from 12 Tony Rush, dated 2 March 2011. So just a few days 13 before the mediation. 14 It's copied to various people, including yourself. 15 A. Indeed. 16 Q. What Mr Rush said is: 17 "Thanks Richard. 18 "My job is to challenge and I do challenge the 19 deck-chair numbers. Moreover, the telecon the other day 20 which was intended to explain the numbers to Colin, 21 Nigel and me didn't help. 22 "I haven't seen any output from Cyril Sweett but the 23 civils work may be the least of our worries. We have no 24 clear handle on the market costs of the Systems. 25 "I will be happy to look again at Gregor's numbers 34 1 because the potential cost of Separation is a critical 2 threshold on which we may decide to ditch Phoenix or 3 conversely decide to agree on a price for Phoenix which 4 is higher than we needed to. But ditching Phoenix is an 5 irrevocable action with an uncertain end." 6 If we take his third paragraph first, Mr Rush 7 appears to be making there an important point, that for 8 the Council to make a good decision about what to pay 9 for Phoenix, it would need to have a clear idea of what 10 the main alternative would cost. Do you agree with 11 that? 12 A. Yes. 13 Q. Was that alternative separation and reprocurement? 14 A. Correct, yes. 15 Q. I think you were saying a moment ago that there were 16 respects in which that estimate hadn't been fully 17 developed, and that there wasn't time to fully develop 18 them? 19 A. Primarily the premium that the contractors would ask 20 for, the consortium, that is, to determine the contract, 21 walk away, yes. 22 Q. Mr Rush's email suggests that there's more to it than 23 that, because what he's essentially saying is that there 24 was a telephone call to discuss the numbers, and he and 25 you didn't gain the explanation or the understanding 35 1 that you were looking for. Was that your recollection? 2 A. I'm trying to remember who the -- if it was Nigel, Tony 3 and myself, I certainly was on the call. I can't 4 remember the detail of it, to be honest. 5 Q. I think you said earlier that you didn't get the 6 detailed information that you were looking for on costs. 7 This email tends to confirm it, that not just you, but 8 also Mr Rush were lacking information that you needed on 9 costs. 10 A. I think that would be a reasonable interpretation. 11 Q. Well, was it actually the case? 12 A. Well, at that time I still felt that we didn't have the 13 detailed cost information to a standard that I would 14 have been comfortable going into mediation, fine detail. 15 Q. Mr Rush is saying there that he hasn't seen any of the 16 output from Cyril Sweett, the context would suggest on 17 the civil engineering works, and he said they had no 18 clear handle on the market costs of the systems. Both 19 of those would be important elements in assessing the 20 cost of the separation and reprocurement option; is that 21 correct? 22 A. Yes. 23 Q. So the information that was lacking on that option was 24 not confined to any premium demanded by the consortium, 25 but also to the cost of the works if they were to be 36 1 done by another contractor. 2 A. I think that point is well made. There would have been 3 other information from other parties, whether it be tie 4 internal or Gordon Harris Partnership, but the point 5 that Tony is making is absolutely right. 6 I still would go back to the biggest single unknown 7 that had a provisional circle round it was that of the 8 premium. But those were other factors. 9 Q. Okay. 10 CHAIR OF THE INQUIRY: You say there were other factors. 11 Were they not essential factors to each of you? 12 A. I believe those -- if they had been weighted, could have 13 been challenged, based on the original tender 14 submission, there should have been documentation and 15 numbers within the original contract documents. 16 For such an unknown aspect of the relationship, ie 17 to separate, that wouldn't have any audit trail anywhere 18 around. So I believe there could have been dialogue to 19 prove and to agree based on contract documentation and 20 tendered rates, but the premium for the separation, 21 I can't see where you would go to find a benchmark. 22 CHAIR OF THE INQUIRY: I see, you keep coming back to the 23 premium, but I think what Counsel is asking you about 24 are the other aspects that were not clear, and it 25 appears from this email, and I think you have accepted 37 1 it, that there were other aspects, and all I'm asking 2 is: were they not also important aspects to enable you 3 to reach a view? 4 A. Yes, they -- they were, and are important aspects of the 5 overall picture, yes. 6 CHAIR OF THE INQUIRY: We see that this email is addressed 7 to Richard Jeffrey. So it's not quite clear that the 8 telecon that's referred to involved Mr Jeffrey, who gave 9 figures. 10 A. Yes. That's what I wondered, and that's why I paused 11 just at the start, whether it was just myself and Nigel 12 that was on the call or Richard was also there. But 13 I think the snapshot of the first paragraph, second 14 sentence, is in and around 2 March, we still did not 15 have matters nailed down. 16 MR MCCLELLAND: Yes. The impression from this email is that 17 the tie or CEC team going into the mediation lacked any 18 clear idea of the cost of separation and reprocurement; 19 is that fair? 20 A. I think they had an understanding, but perhaps not 21 a clear idea. 22 Q. That must have inhibited their ability to make 23 a rational judgement on an appropriate price to pay for 24 Phoenix; do you agree with that? 25 A. It would have a bearing, yes. 38 1 Q. Now, do you recall that for use at the mediation, tie 2 had produced estimates of the cost of both Phoenix and 3 Separation? 4 A. Yes, that's correct. 5 Q. Is it correct that on those estimates, tie's view was 6 that separation and reprocurement would be less 7 expensive than a deal based on the consortium's Project 8 Phoenix proposal? 9 A. I remember that position they held, yes. 10 Q. Were you sceptical about that ordering of the likely 11 costs? 12 A. Yes. 13 Q. Why was that? 14 A. The experience that I'd previously mentioned that the 15 positioning of any values were always at the lower end 16 of the scale, but I also felt there was a number of 17 exclusions that had not been taken fully into account. 18 Q. This is why I asked earlier if there was anything to 19 explain tie's low cost estimates other than the 20 interpretation of the contract, because, well, perhaps 21 you can tell me. In what way would the interpretation 22 of the contract be relevant when assessing the costs of 23 reprocuring the work from another contractor? 24 A. Value of cost to change. Value of preliminary matters 25 could be two areas where there could be a difference of 39 1 view. It's not unheard of for one cost adviser to talk 2 of preliminaries cost at, say, 10 per cent, and speaking 3 to another, they may tell you 12, and indeed a third 4 could be 15 per cent. So there's a number of factors, 5 prevailing conditions. The circumstance of the project 6 itself. 7 And without reaching out to what the percentage 8 actually was on the day that was being talked of, the 9 feeling I took away from these conversations is that 10 tie's values were always at the lower end, optimistic 11 end of value. 12 Q. Were there others amongst the advisers at the mediation 13 who shared your scepticism? 14 A. I think the -- the key gentleman there would be Tony, 15 Tony Rush. 16 Q. What was his view? Was it essentially the same as yours 17 that you have just described? 18 A. Yes, and I'm pretty sure he's on record somewhere 19 talking of the figures being -- I don't think he used 20 the expression or word "optimistic", but they were on 21 the light side. 22 Q. To what extent were there figures or analysis to back up 23 the scepticism that you and Tony Rush had, and to what 24 extent was that really more a question of gut instinct 25 based on your experience? 40 1 A. I would say in the main gut instinct based on 2 experience. 3 Q. Immediately before the mediation, I think the day 4 before, there was a discussion about tie's estimate for 5 the cost of separation. Do you recall that? 6 A. Not specifically. But maybe you could help me on that. 7 Q. If we could go, please, to document WED00000134. 8 There's a sound of recognition there. 9 A. I recognise that document, yes. 10 Q. This is a report that you prepared with Alan Coyle, 11 I think, in 2012? 12 A. Correct. 13 Q. Just bear with me a second, please. 14 If you could go, please, to page 234 of that 15 document. 16 I think we see in paragraph 7.3 just in the two 17 bullet points the figures that tie had produced for the 18 cost estimate, and the first bullet gives the range of 19 their estimates for the cost of settling with the 20 existing contractor and reprocuring the work with 21 somebody else. 22 We see the range from 646 million to 698 million. 23 Then below that was tie's estimate for Phoenix being 24 from 682 million to 747 million. 25 So do we see there tie's estimate for the cost of 41 1 settling and reprocuring being lower than the estimate 2 of a Phoenix deal with the existing consortium? 3 A. Correct. 4 Q. Now, if we move on to paragraph 7.4, the heading is 5 "Settlement with the Current Contractor and Re-procure". 6 I'm just going to read from there: 7 "This scenario seemed to be tie's preferred strategy 8 with mediation in mind. There are a number of fatal 9 flaws in the assumptions that tie made in this scenario. 10 For example, the cost of settlement with Infraco was 11 forecast by tie at GBP33 million, which was essentially 12 the balance of entitlement for work done set against 13 work certified to date. This number was not cognisant 14 of any contractual entitlement Infraco would have had 15 for delay (MUDFA delay being the dominant cause) or 16 disputed design changes for work that had already been 17 undertaken." 18 If we just pause there, was that the first category 19 of criticism of tie's estimates that they had 20 underestimated their liability under the Infraco 21 contract for delay and disputed design change? 22 A. Yes. 23 Q. On whose advice was that view based? 24 A. That would have been my own view of what I had 25 experienced and read in the period January 2011 to 42 1 May/June 2012. 2 Q. Well, would it actually not have been the period from 3 January 2011 to March 2011 when the mediation took 4 place? 5 A. Was this not written after that date? 6 Q. Yes, you are correct. The report was written in 2012, 7 but certainly as I've understood it, these parts of the 8 report are setting out the manner in which the decision 9 was taken at mediation. 10 A. Even in the period March to April, May, June, hopefully 11 this answer helps -- we were experiencing dramatic 12 difference in the number of MUDFA delays that were 13 expected to the amount of utilities that we were then 14 uncovering. 15 One of the early requests I made was to ask for slot 16 trenches to be carried out over the length of the 17 on-street section of tram, and that was throwing up 18 a considerable number of utilities in the wrong place. 19 Q. Yes. I don't think that quite answers my question. 20 A. Sorry. 21 Q. What I'm trying to understand is -- I think you 22 confirmed that the view that tie had underestimated 23 their contractual liability to the consortium under the 24 Infraco contract was based on your input? 25 A. Yes. 43 1 Q. I just would like to understand on the basis of what 2 information you'd reached that view. Focusing for the 3 moment in the period up and including the mediation. 4 A. Well, certainly it would have been in the period of 5 mediation. Up to would perhaps have had some question 6 marks, but certainly I wouldn't be challenging because 7 I wouldn't have had enough knowledge in detail. But 8 over the period of mediation, where there were joint 9 discussions, you could detect the lack of appreciation 10 on the contractual entitlement position that Infraco 11 were presenting. 12 Q. Just to be absolutely clear about it, the numbers that 13 we saw in the paragraph above were cost estimates that 14 tie had prepared prior to the mediation, indicating that 15 settlement with the existing contractor and reprocuring 16 the work would be cheaper than a Phoenix deal. 17 Reading on into the next paragraph, we have what 18 appears to be the criticisms of those estimates that tie 19 had produced, and the first one, which was the text we 20 read out a moment ago, was to the effect that tie had 21 failed to take proper account of their liability under 22 the Infraco contract. I understood you to say that that 23 view that tie were underestimating their liability was 24 based on your input. 25 I'm just trying to understand on the basis of what 44 1 information you'd come to that view by the time of the 2 mediation. 3 A. The fact that there was no -- no or very little 4 recognition of those two items in particular. 5 Q. Being liability for delay and disputed design change? 6 A. Yes. I mean, that was a position that tie held quite 7 firmly in the period leading up to and post mediation. 8 They did not -- they did not recognise MUDFA as being 9 a dominant delay cause, and they did not recognise 10 design changes as being a delay cause. 11 So at the time that would have been my reading of 12 the situation, and by the time I've written this piece, 13 it proved to be the case. 14 Q. So you -- you must have then taken a different view from 15 those in tie about the extent of tie's liability for 16 delay and design change? 17 A. I was recognising that a design delay would have an 18 impact on the contractual position of the BBS, the 19 consortium. 20 Q. Yes. I think we can understand that a delay would 21 impact that contract. But what I asked you was whether 22 you had taken the view that -- you'd taken a different 23 view from that held by tie to the effect that tie had 24 a greater liability for delay and design change than tie 25 had assumed. 45 1 A. I certainly had taken a different view, yes. 2 Q. I'm just trying to get a clear understanding of the 3 basis on which you'd come to that view by the time of 4 the mediation. 5 A. I think it was reading the papers that were presented to 6 me and observing the behaviours, and primarily the 7 behaviours of tie. I had prior to mediation very 8 limited contact with -- with the consortium. 9 Q. You talk there about behaviours. In what way did the 10 behaviours inform your view about liability under the 11 contract? 12 A. Again, it would have been watching the debate between -- 13 I think it was Jim Molyneaux and Tony Rush, versus 14 Steven Bell, Richard Jeffrey and to a lesser degree 15 Dennis Murray. 16 Q. Okay. If we read on, so just from where we broke off 17 before, the paragraph continues: 18 "In addition, this forecast assumed a new contractor 19 would be able to take up where Infraco left off without 20 any risk allowance being included and without any 'bad 21 project' premium being allowed for in the price. In 22 addition, there was no indexation built in for materials 23 that would be required where the price would have 24 changed in relation to the original contract sum." 25 So do we see there a second category of criticism of 46 1 tie's estimates that they had underestimated the risks 2 and costs of reprocurement? 3 A. Yes. 4 Q. Was that based on your advice? 5 A. Yes, it was. Yes. 6 Q. I think you said earlier that was on the basis more of 7 gut instinct than on detailed information? 8 A. That certainly was part of it, yes. 9 Q. If we could read forward to the next page of your 10 report, paragraph 7.6, please. This says: 11 "As highlighted above, tie would have preferred to 12 terminate with Infraco and re-procure. This went against 13 all the advice that was given by independent advisers at 14 this time." 15 Just pause there. Who were the independent advisers 16 being referred to? 17 A. That would have been Nigel Robson and Tony Rush. 18 Q. So do we understand that they were giving advice to the 19 same effect as you, that separating was very risky and 20 likely to be expensive? 21 A. That was my feeling, yes. 22 Q. When you refer to independent advisers, you mentioned 23 those two, but would you include yourself within that 24 group? 25 A. I would have seen myself as an independent adviser to 47 1 the Council, but yes, I could be within that category. 2 Q. Reading on: 3 "During the initial stages of mediation, there was 4 a significant amount of discussion between tie and CEC 5 (including CEC advisers) on the assumptions tie had made 6 in the forecasts for separation. It soon became clear 7 that tie had not considered a number of cost headings at 8 this time which would have had a significant impact on 9 the final cost. In very broad terms, these items were 10 in the order of GBP150 million for settlement, 11 professional costs, bad project premium risk, systems 12 re-procurement risk, and inflation, which would have 13 potentially resulted in a final outturn cost of at least 14 GBP800 million." 15 So should we understand that those increases were 16 based on your advice about tie having underestimated 17 their cost estimates? 18 A. The -- the figure of GBP800 million was built up in 19 conjunction with certainly Alan Coyle, perhaps 20 Donald McGougan, I can't truly remember if he was there, 21 and myself. And what we did was we went to the contract 22 document and listed -- went to the page, I think it was 23 page or two pages of exclusions, and made provision in 24 round numbers as to what those exclusions would cost if 25 you were to consolidate a final range of actions to give 48 1 a final outturn cost. 2 Q. You're talking there about exclusions and two pages from 3 the contract, I think you referred to. Can you be more 4 specific about what you're referring to? 5 A. I'm trying to remember the ... 6 One to remember was that the excavations carried out 7 by the consortium would be free of utilities. But I can 8 almost picture -- I'm sure it was a page or a page and 9 a half at the back of the contract document that listed 10 all the various exclusions that were not in the original 11 contract sum offered to tie. 12 Q. Are you referring there to Schedule Part 4, the pricing 13 schedule of the original Infraco contract? 14 A. Yes, correct, thank you. 15 Q. So just so I can be clear about it, was the approach you 16 took with Mr McGougan and Mr Coyle to go through that 17 list of Pricing Assumptions and come up with an estimate 18 of the cost of addressing them? 19 A. Correct. 20 Q. What information other than that schedule of the 21 contract did you have to form the basis of those 22 estimates? 23 A. In some cases we were able to extrapolate information 24 that had been given by Gordon Harris and Cyril Sweett. 25 In others it was a question of us exercising -- us being 49 1 Alan and I think Donald and myself -- exercising our 2 judgement as to what those items would cost to have -- 3 have the item provided or executed. 4 Q. The paragraph at that we looked at a moment ago divided 5 the criticisms of tie's estimates into two parts. First 6 of all, their estimate of liability under the existing 7 contract, and separately from that, an estimate of the 8 costs associated with reprocuring the work from somebody 9 else. 10 This exercise that you're describing, did that 11 assist you in addressing the former category or the 12 latter category or both? 13 A. Both, I would say. 14 Q. The outcome of that, as it's described here, is that 15 tie's estimate of settlement and reprocuring was 16 GBP150 million too low. 17 A. Correct. 18 Q. Again, was that a precise figure grounded in empirical 19 analysis or was it a high level gut instinct adjustment? 20 A. Partly high level, gut instinct, but based on some of 21 the other information that had been provided. But yes, 22 in the main it would be a combination of both those 23 approaches. 24 Q. Did the tie quantity surveyors who had prepared the cost 25 estimates in question accept that they had 50 1 underestimated the cost of separation and reprocurement 2 by GBP150 million? 3 A. Not that I can -- not that I can remember. 4 Q. Was there a discussion with them about it? 5 A. I don't think so. I really can't remember, but I don't 6 think so. 7 Q. Why not? 8 A. Because I think the discussion and the talking through 9 of the information that they had had happened up to and 10 around mediation, and there was no more -- there was no 11 more debate to be had. We'd arrived at a position in 12 the days before, as mentioned, with Tony making 13 reference to the email where the conversation hadn't 14 helped, and so it was falling now to a high level 15 approach as to what those values might be. 16 Q. I think you accepted a moment ago that an estimate of 17 the cost of separation was important for the Council, in 18 making a rational judgement about what to pay for a deal 19 based on Phoenix. Is that correct? 20 A. Correct, yes. 21 Q. We're talking here about an uplift to the estimated cost 22 of separation of GBP150 million being made on the day 23 before the mediation begins; is that correct? 24 A. Go back -- yes. I just noted appendix to 7 March, yes. 25 Q. So an adjustment of that magnitude, given the 51 1 significance of that cost estimate, to decision-making 2 about what to pay for Phoenix, would appear to be of 3 great significance to decision-making at the mediation, 4 would you agree with that? 5 A. It would, and what's coming back to me is the meeting 6 that Donald, Alan and I had in the hotel whose name 7 escapes me. It wasn't Mar Hall. It was the one where 8 we were overnight in -- there was a basement room that 9 was particularly cold, and we sat and went through the 10 exercise that we've just outlined there, which was the 11 exclusions. We then transmitted the impact of those on 12 to the deckchair analysis. So there was discussion -- 13 I beg your pardon, there was discussion, it's coming 14 back to me, in and around the point of prior mediation. 15 That information would have been shared throughout 16 mediation, because it was always the touchstone of the 17 deckchair spreadsheet analysis that people went back 18 to -- apologies, it took me a while to get there, but 19 that's my recollection. 20 Q. Just to be clear about that, are you saying that you did 21 have a discussion with the tie quantity surveyors whose 22 cost estimates of separation and reprocurement you 23 considered had to be increased by GBP150 million for 24 them to be accurate? 25 A. There wasn't -- I guess this is why my memory failed me 52 1 there. This wasn't a meeting one to one, myself and the 2 quantity surveyors. But that information, transmitted 3 on to the deckchair spreadsheet analysis, would be 4 talked around with all the principals and the key 5 players in the mediation room, which was tie/CEC. You 6 would have Tony Rush. You would have Dennis. You would 7 have Richard Jeffrey. You would have the CEC team. So 8 there was a conversation, discussion with all those 9 parties. I think it was the library in Mar Hall where 10 that detail would be spoken about. 11 But there wasn't a meeting, myself and the QS, 12 sitting down, going through line by line. 13 Q. Okay. Given the extent of the increase that you thought 14 was required to their cost estimates, would it not have 15 been appropriate to have a discussion line by line, as 16 you put it, with those quantity surveyors? 17 A. I think if I'd been asked by either tie or the Council 18 had told me to do that, I would have done it. But 19 I certainly do not remember doing it. 20 Q. Did the tie QSs accept that you were right that the 21 GBP150 million had to be added to the estimate? 22 A. I don't remember any acceptance of such a figure, no. 23 Q. So did somebody there have to decide whether it was the 24 tie QSs who were right or whether it was you who was 25 right? 53 1 A. The joint CEC/tie/Transport Scotland meeting would have 2 to decide that, yes. 3 Q. So which individuals decided that? 4 A. Well, the lead -- the lead participants, Vic on the case 5 of tie, Richard in the case of tie. Sue Bruce, Council, 6 and Ainslie McLaughlin for Transport Scotland. Ainslie 7 was there primarily -- my understanding of it was as an 8 observer, and a conduit to report back to 9 Transport Scotland. But he and others, myself included, 10 would be in the room when that discussion was happening. 11 Q. What I want to be clear about is which individuals took 12 the view to proceed with the increased cost estimate, 13 the one that was GBP150 million higher, and to reject 14 the lower cost estimate. Which individuals made that 15 decision? 16 A. I think it would fall ultimately to the executive 17 members of the meeting, which would be Vic Emery and 18 Sue Bruce. 19 Q. Do you know on what basis they exercised that judgement? 20 A. I think by listening to the discussion from all the 21 participants in the room, and then coming to a view to 22 give direction as to where the negotiation would go with 23 the consortium. 24 Q. The effect of the GBP150 million adjustment was to make 25 the estimated cost of a Phoenix deal lower than the 54 1 estimated cost of separating and reprocuring? 2 A. The effect of those numbers, you're absolutely correct, 3 yes. 4 Q. So it was effectively to reverse what tie had said was 5 the relative cost of the two options? 6 A. It was, by taking into account the items that had been 7 excluded in their estimate. 8 Q. In that way the Council officers going into the 9 mediation were able to justify a Phoenix deal on cost 10 grounds which they couldn't have done on tie's figures? 11 A. That's correct. 12 Q. If we could go, please, to document CEC02084685. 13 Do you recall this document, Mr Smith? 14 A. I do. I think this was -- this would be being signed 15 off -- I think it was on -- on the Thursday evening, and 16 was then followed up by further papers that were signed 17 on the Saturday in Glasgow. 18 Q. Yes. As you can perhaps see from the signatures at the 19 bottom which are dated 10 March 2011, this is a list of 20 the key points agreed at the mediation on that date. 21 The key one I'm interested in for the time being is 22 up in paragraph 1, I think it is. That price of 23 GBP362.5 million for the line from the airport to 24 Haymarket? 25 A. Yes. 55 1 Q. What was the general view of people in the tie and CEC 2 camp about whether or not that price represented good 3 value? 4 A. It wasn't a figure that was just arrived at. There was 5 an initial offer made to the consortium based on the 6 discussion/conversation with tie, Transport Scotland and 7 CEC. That initial offer was rejected by the consortium. 8 They came back with a counter-offer which I believe was 9 substantially less than their first attempt at value for 10 Phoenix, and I think it was maybe GBP60 million to 11 GBP70 million less, whereas the Council had moved up by 12 25 or 30 to 362. 13 So the feeling was that the two parties had -- had 14 endeavoured to try to come together by moving their 15 respective financial positions. 16 Q. That process you have described, to-ing and fro-ing with 17 the offers, other witnesses have been prepared to accept 18 the description of that as a horse trade. Would you 19 agree? 20 A. That description could be applied. 21 Q. What I'd actually asked you was not so much about how 22 the price was actually arrived at, but what the general 23 view was within the tie and CEC team about whether or 24 not it represented good value. 25 A. My apologies. The immediate reaction when the figure 56 1 was accepted, the immediate reaction in the room was 2 relief, that a deal had been arrived at. 3 That wasn't just with one or two people. That was 4 a general feeling of relief that we had actually managed 5 to get something that could be the first step in 6 providing a way forward. 7 So by interrogation of that emotion, I think the 8 feeling was that that was -- that was good value. It 9 was the only value that was going to deliver something 10 that was worthwhile, but it was good value. 11 Q. Once the relief of the deal had passed, was there any 12 sense of buyer's remorse about the price that had been 13 agreed? 14 A. I think in fairness to Richard Jeffrey and Steven Bell, 15 they felt that their position had been diluted, and that 16 they perhaps would have taken a more aggressive line. 17 But I've got to say, no one in the room prior to those 18 numbers being passed through to the consortium's meeting 19 room, no one in the room said: stop, don't go there, 20 don't take those numbers out, or else whatever. 21 Everyone understood that that's what was happening, 22 and, as I say, no one stepped in front of the door to 23 stop that process. 24 Q. If the Inquiry had heard evidence from other witnesses 25 that actually nobody in the team thought that this was 57 1 good value, would you disagree with that? 2 A. Sorry, could you repeat that question, please? 3 Q. If the Inquiry had heard evidence from other witnesses 4 present at the mediation that in fact nobody within the 5 tie/CEC team thought that the price was good value, 6 would you agree or disagree with that? 7 A. I would disagree with that. 8 Q. Go, please, to document WED00000582. 9 CHAIR OF THE INQUIRY: Sorry, before doing that, can we go 10 back to that last document. If you look at paragraph 1 11 again, the price includes the integrated design to 12 Newhaven. So that was a part of the settlement price. 13 You mentioned earlier about the problems that you 14 anticipated if the contract were -- if separation was 15 gone into, and a different contractor came in about the 16 compatibility of systems and what have you. 17 A. Yes. 18 CHAIR OF THE INQUIRY: I think it also includes equipment 19 for Siemens. 20 Did you have any concern that by including this 21 provision about design and the purchase of equipment, 22 you're in effect causing similar problems for the future 23 in that another contractor might not think -- might not 24 find his system compatible with what existed? 25 A. I think my thought process was actually the very 58 1 opposite of that. It was to try and overcome, that if 2 the Council or others were ever to decide to extend to 3 Newhaven, there was the compatibility of the systems. 4 The systems could be carried into any civils work 5 for the track slab, the overhead line poles and so on 6 and so forth, but the smart boxes that actually talk to 7 the tram, and all 27 trams had been purchased by that 8 time, and were indeed in manufacture, was to make sure 9 that the smart boxes would be in the ownership of the 10 Council so that they would be able to hand to any future 11 contractor a bespoke package that simply was almost plug 12 and play. 13 The danger which I then started to think about and 14 reported to the Council was that if there was some form 15 of intellect, and I think I referred to it in my papers 16 as a golden key, that would allow Siemens to hold the 17 Council to ransom, to say: well, you've got the boxes 18 but you can't actually switch them on because we have 19 this key, and if you pay us money, we will turn the 20 system on. So it's first and foremost on the question 21 of the systems was to make sure that there was a future 22 position that the Council could carry forward with that 23 wouldn't cause a clash at York Place. 24 The second aspect of that was to make sure that we 25 had the design all the way to Newhaven, and that we 59 1 didn't have a situation where the track slab, the weight 2 of the trams -- Edinburgh Trams are heavy in comparison 3 to other systems. That we didn't have a situation where 4 our heavy trams would be offered up a lightweight track 5 slab by another contractor. So the design element was 6 taken care of. 7 The third thing which I think should be in there 8 somewhere, or certainly will be in MoV4, the tie team 9 had been paying for materials but had not sought to have 10 the materials vested in the ownership of the Council. 11 I wanted to make sure that we had a position where we 12 had the design all the way to Newhaven. We had 13 a situation that was compatible that could take us from 14 York Place to Newhaven. If ever a decision was made. 15 And third and last, we wouldn't have a situation 16 where materials that had been paid for by the Council 17 would then be subject to a third party trying to claim 18 recovery perhaps against a debt of whatever with 19 Siemens. 20 So those were the kind of bolt-ons and those were 21 the reasons why. 22 CHAIR OF THE INQUIRY: Was the design completed to Newhaven? 23 A. It was completed insofar as all of the main items. As 24 a cost saving post mediation, there were a lot of 25 peripheral bits and pieces of design. I use as an 60 1 example perhaps some landscaping, where we said: no, set 2 that to one side; this is about the heavy engineering 3 for the light rail system, but that design package is 4 available to the Council if they decide to proceed with 5 an extension. 6 CHAIR OF THE INQUIRY: Thank you. 7 MR MCCLELLAND: If we could go to document, please, 8 WED00000582. 9 Up on screen there, Mr Smith, is an email from 10 Tony Rush to Brandon Nolan, dated 14 March 2011. So 11 just a couple of days after conclusion of the mediation. 12 What Mr Rush says is this is: 13 "... not a fully detailed file note, but I think 14 records the relevant details." 15 It appears to be a summary of key points from the 16 mediation. Have you seen this before? 17 A. I don't think so. I'm certainly not copied in. 18 Q. No. If we go over to page 2, please. There's an entry 19 for Monday, 7 March 2011. 20 Just reading from that: 21 "A meeting of the CEC and tie teams along with 22 advisers took place at Mar Hall. 23 "Most of the day was taken up with discussions on 24 the comparison of potential costs of agreed termination 25 or Project Phoenix." 61 1 Reading on: 2 "The discussions were inconclusive other than there 3 was an understanding that the 'trigger point' for 4 rejecting a Project Phoenix Offer was in the region of 5 GBP740 million for all costs." 6 Now, first of all, was this the meeting at which the 7 estimated costs of separation was increased by the 8 GBP150 million? 9 A. Yes, that's -- that's really helpful because the day of 10 Monday, the 7th, was a CEC/tie day only in preparation. 11 And that was the day that Alan, Donald -- I'm sure he 12 was there -- and myself met in that very cold room to go 13 through those points. And the reason I'm hesitating -- 14 again, apologies. Going back seven years. 15 I'm starting to wonder if we didn't have in our 16 company a Dennis Murray at that meeting, Monday, that 17 may be a question if you could maybe raise with him. 18 But that was Monday, 7 March. That was the day we went 19 through the spreadsheet in that very cold room to take 20 into account exclusions, risk and contingency. 21 Q. Then the final paragraph there, the understanding that 22 the trigger point for rejecting a Project Phoenix offer 23 was in the region of GBP740 million for all costs. Can 24 you explain that? 25 A. For a while, leading up to mediation, there were two 62 1 reactions that I observed. One, Vic Emery was becoming 2 increasingly frustrated, I think, at not getting 3 a single consolidated number for each of the options. 4 Tony was trying to get -- whether he called it a trigger 5 point or a tipping point, I can't remember now, but he 6 was wanting to get to a point where after which really 7 we pressed the button and go off and start to work up 8 a separation arrangement. 9 So that was my understanding of that position. 10 Q. Do you agree with what's said here, that the figure 11 agreed as that trigger point was GBP740 million? 12 A. I don't think I would know the GBP740 million on 13 7 March, because my exercise with Alan and Donald's help 14 was pushing out a number that was 800 million. I am not 15 sure I would know the 740 at that time. 16 Q. Okay. What is suggested here is that the Council's 17 officers going into the mediation had identified 18 GBP740 million as the most that should be paid for 19 Project Phoenix. Do you recall that from your 20 involvement in the mediation at any point? 21 A. I know there was a figure that was talked of round about 22 the -- probably Wednesday/Thursday of the week of 23 mediation. Whether it was 730, 740, 745, I couldn't 24 honestly put my hand on my heart to say. But there was 25 by that time in the discussion within the mediation, the 63 1 room, the library room, there was an upper limit being 2 established. 3 Q. Is it not about the most important figure of all in 4 going into the mediation to identify the upper limit 5 that the Council should pay for a deal based on Project 6 Phoenix? 7 A. I think that was part of the frustration that the 8 seniors felt, that there had been all this work carried 9 out by a variety of experts and consultants, and yet, 10 you know, here we are on 7 March arriving at a trigger 11 point. So yes, it would have been a more well managed 12 process immediately prior to mediation if that figure 13 had been fully embraced by all parties. 14 CHAIR OF THE INQUIRY: That's slightly different. I think 15 the question was: was this the most important figure 16 before you go into mediation, as to what's your upper 17 limit and what's going to trigger you walking away or 18 whatever? 19 A. Thank you. The answer to that is yes, that is the most 20 important figure. 21 CHAIR OF THE INQUIRY: I wonder if you could just listen to 22 the questions and answer them as directly as possible. 23 We will make more progress. 24 A. Thank you, I'll try. 25 CHAIR OF THE INQUIRY: We will adjourn then for coffee and 64 1 resume again at 11.30. 2 (11.12 am) 3 (A short break) 4 (11.29 am) 5 CHAIR OF THE INQUIRY: You're still under oath, Mr Smith. 6 A. Thank you. 7 MR MCCLELLAND: Before the break, Mr Smith, we were looking 8 at the document on screen which was WED00000582. 9 If we look there at the entry for 9 March, just 10 reading from there: 11 "The day was taken up with us interrogating the 12 Infraco on the Exclusions and Clarifications and later 13 by explaining our counter-offer. This was based on 14 a spreadsheet prepared by AJR [Tony Rush] having 15 considered the explanations given by the Infraco and 16 SB's [Steven Bell's] pricing of the risk of Exclusions, 17 Clarifications and delay and additional extension of 18 time. 19 "In the evening the Infraco reverted with a revised 20 offer which was in effect a small reduction on the PPP." 21 That first paragraph there which talks about 22 interrogation of the exclusions and clarifications, were 23 you involved in that? 24 A. That discussion, I believe, was carried out within the 25 large CEC/tie meeting room that -- that's the library 65 1 I have referred to. So yes, I was. 2 Q. Should we understand then that was a process carried out 3 without the presence of the consortium? 4 A. Yes, that's correct. 5 Q. Can you just describe to us in broad terms, if you can, 6 what was the thrust of the work done and the views 7 reached? 8 A. I think it was challenging, the exclusions that had been 9 presented, and ultimately it would bring back round to 10 an understanding within the room of what the tipping 11 point was. 12 Q. By tipping point, are you referring there to the 13 GBP740 million figure? 14 A. Correct. 15 Q. So was this a process of assessing whether or not the 16 Council would be better off going for separation and 17 reprocurement, rather than a Phoenix-based deal with the 18 consortium? 19 A. I think that was the thrust of it, yes. 20 Q. Then if we read on, the paragraph reads: 21 "It emerged that CEC were in need of making progress 22 which avoided political damage at this time. A response 23 was discussed which gave CEC absolute price certainty 24 and being subject to funding did not commit them to the 25 deal." 66 1 That reference there to CEC being in need of making 2 progress which avoided political damage, what was your 3 understanding of that? 4 A. I think it was -- within the room there was an 5 appreciation that the damage to Edinburgh and Scotland's 6 reputation was impacting all aspects of Edinburgh life. 7 Political damage would be part of the outfall. 8 Q. Yes. Does it suggest that the Council had to leave the 9 mediation with a deal? 10 A. As I've said before, I certainly never felt that there 11 was an absolute imperative that a deal had to be had at 12 any cost. I didn't have that feeling at all. 13 Q. Insofar as Mr Rush's comments suggest that, in saying 14 that the Council needed to make progress, you would 15 disagree? 16 A. I would say that's his view, but certainly not the view 17 I would share, given the atmosphere in the room. 18 Q. Then, two paragraphs down: 19 "The revised price was confirmed by AC [Alan Coyle] 20 as producing an all up cost within the trigger point 21 discussed on Monday." 22 That suggests that the price was agreed for the 23 simple reason that it fell inside the trigger point. Is 24 that your recollection? 25 A. I would agree with that, yes. 67 1 Q. That's the GBP740 million figure that Mr Rush refers to 2 above? 3 A. Correct. 4 Q. Were there any steps taken to ensure that the price 5 agreed, and by that I mean the GBP362.5 million, was 6 objectively speaking good value? 7 A. I think there was a dependency to confirm that position 8 based on the deckchair spreadsheet analysis and the 9 information that was contained therein. 10 Q. Can you just clarify what you mean by that? 11 A. Everything that was leading up to the 740 had been based 12 on the ingathering of the various aspects of the project 13 that needed to be delivered with a price apportioned to 14 them, or a value apportioned to them for the part of the 15 exercise I was involved in, that had an outturn in 16 excess of GBP800 million. After discussion and with 17 Tony and others interrogating, as you mentioned there on 18 the Wednesday date line, the figure was 740. And so 19 when Alan has stepped forward to say that it's within 20 the trigger point discussed on Monday, that's -- that 21 was the process, as I recall it. 22 Q. The GBP740 million was the estimate of the cost of 23 separating and reprocuring? 24 A. Mm-hm. 25 Q. So the deal was accepted on the basis that it appeared 68 1 to be cheaper than the best alternative, which is 2 separating and reprocuring. Was that the sole measure 3 by which the acceptability of the deal was measured, or 4 was there some other basis for saying that, viewed 5 objectively, what the Council were getting in return for 6 the price was good value? 7 A. I think the measure was price. 8 Q. By that, do you mean what the alternative would cost, 9 being separation and reprocurement? 10 A. Correct. 11 Q. So just to be clear, should we understand then the deal 12 agreed at mediation was regarded as acceptable in price 13 terms, because it was viewed as being less expensive 14 than the alternative, separating and reprocuring? 15 A. That was my understanding. 16 Q. If we could go, please, to document WED00000134. If we 17 could go to page 235, please, which fortunately we have 18 on screen. 19 In paragraph 7.7, headed up "Settlement on Heads of 20 Terms", there's a discussion there of the various offers 21 that were made backwards and forwards, and then the 22 final paragraph reads: 23 "CEC then replied with a final offer of 24 GBP362.5 million for the off-street section, with no 25 exclusions ..." 69 1 Just three lines from the bottom, towards the end of 2 that line, it refers to the anticipated final cost being 3 GBP743.5 million. 4 Was that an estimate of all of the costs for the 5 project, that figure of GBP743.5 million? 6 A. Yes, with, I think, the exclusion of contingencies. 7 Q. Okay, thank you. 8 Then it carries on to say that: 9 "The breakdown of these numbers can be found in 10 Appendix 4." 11 If we move on, please, to page 250, if we can rotate 12 that, please. 13 There's nothing on this to indicate that this is 14 Appendix 4, and there's no other document clearly marked 15 as Appendix 4. Is this the document that your report 16 refers to as Appendix 4? 17 A. I believe so, yes. 18 Q. We see in the right-hand column there's the -- at the 19 very top, there's the price of GBP362.5 million. Do you 20 see that there? 21 A. Yes, see that. 22 Q. Then down at the bottom, in the line marked "Total 23 Project Costs", we have the figure of GBP743.5 million. 24 Those are the figures that we saw referred to in the 25 paragraph just a moment ago. 70 1 A. Agreed. 2 Q. If we just look down that column, do you see that the 3 first one that's marked in yellow is the line marked 4 Haymarket to St Andrew Square, and the figure for it is 5 GBP22.5 million? 6 A. Yes. 7 Q. So was that the figure that was assumed for the cost of 8 the on-street works in arriving at the total project 9 cost estimate of GBP743.5 million? 10 A. Correct. 11 Q. We know from the Heads of Terms that the list of key 12 points agreed at mediation, that the target price agreed 13 at mediation for the on-street works wasn't 14 GBP22.5 million. It was actually GBP39 million. 15 Do you recall that? 16 A. I do, yes. 17 Q. So if we take out the GBP22.5 million from this column 18 and replace it with 39, that would make the estimated 19 total project cost about GBP760 million; do you agree 20 with that? 21 A. I would agree with that, yes. 22 Q. So that would, on the face of it, appear to be well 23 above the GBP740 million trigger point which Mr Rush 24 referred to in his email. Do you agree? 25 A. I agree with that, yes. 71 1 Q. Can you explain then why it was that that higher project 2 cost was something that the Council negotiators agreed 3 to at the mediation? 4 A. My recollection would be that Haymarket to 5 St Andrew Square was a bit of a misnomer, because in 6 actual fact, a switch would be required to bring the 7 tram back and there wasn't sufficient room within the 8 square to do that. 9 That then caused the design to go through into 10 York Place, to ultimately where there is a switch built 11 as at today's date. 12 So the figure of 22.5 would have increased in the 13 design period leading up to round about August 2011, 14 I think. 15 Q. Yes. So that price increased, but I'm actually focusing 16 on what was known at the mediation. And at the 17 mediation the target price the parties had identified 18 for the on-street works wasn't this 22.5, but was 19 actually GBP39 million, and we know that because it 20 appears in the list of key points signed on the third 21 day of the mediation. 22 My question to you is: if one uses that 23 GBP39 million figure, it appears from this document that 24 the total cost estimate for the project isn't inside the 25 trigger point of GBP740 million that Mr Rush referred 72 1 to, but is actually about GBP20 million above it, and 2 I'm just trying to understand why, if the Council had 3 that trigger point, they agreed to a deal which took 4 them GBP20 million beyond it. 5 A. The short answer is I don't know why it was agreed 6 beyond that trigger point. 7 Q. You don't know why? 8 A. I don't know why, no. 9 Q. Now, the account that you've given of the mediation in 10 your report, the one that we have on screen, and the one 11 that Mr Rush sent to Brandon Nolan appear, at least to 12 the Inquiry, to be the only two written accounts of how 13 the agreement was reached at the mediation. Are you 14 aware of any other? 15 A. No. 16 Q. In fact, yours wasn't written up until 2012; is that 17 correct? 18 A. That's correct, yes. 19 Q. Do you know why nobody apart apparently from Mr Rush had 20 a written record of what was agreed at the mediation? 21 A. I don't know that, no. 22 Q. Would you have expected an agreement about that amount 23 of money to have been the subject of a file note or 24 something to explain the decision-making that led up to 25 it? 73 1 A. That would be a reasonable assumption, yes. 2 Q. But you were never asked to do that? 3 A. No. 4 Q. As far as you're aware, was anybody else ever asked to 5 do it? 6 A. No. 7 Q. Were you consulted on whether or not the 8 GBP362.5 million price was an appropriate one? 9 A. I was never asked that question. 10 Q. What was your view? 11 CHAIR OF THE INQUIRY: I think you said you were never asked 12 the question. 13 A. I was never asked that question. 14 MR MCCLELLAND: Did you have a view about whether it was 15 appropriate? 16 A. I didn't have a view as to whether it was appropriate. 17 I recognised that that was a figure that could be agreed 18 between the parties, but whether it was appropriate or 19 not, no, I didn't have a view. 20 Q. When you say it was a figure that could be agreed 21 between the parties, do you mean any more than that was 22 the lowest price that the consortium could be prepared 23 to accept? 24 A. Yes. 25 Q. Or be persuaded to accept? 74 1 A. Yes, that was in the exchange between the two parties, 2 yes. 3 Q. If the Inquiry had heard evidence from other witnesses 4 that you had agreed to the GBP362.5 million figure, 5 would that be wrong? 6 A. Absolutely. I was never in the room where the 7 principals exchanged the numbers. So I was never party 8 to that agreement. 9 Q. By the principals, who do you mean? 10 A. That would be Antonio Campos, Dr Schneppendahl, 11 Dr Keysberg, Sue Bruce, and Vic Emery. 12 Q. So you may not have been in the room when those 13 principals were having their discussion, but were you 14 there when Sue Bruce and Vic Emery decided what offer 15 they should make? 16 A. Yes. As we all were. That was part of the collective 17 back in the library room that I keep referring to at 18 Mar Hall. 19 Q. Did you agree to the figure in that context? 20 A. I was -- I was never asked to agree or -- or interject 21 or reject the figure. 22 Q. And if Sue Bruce and Vic Emery didn't have advice from 23 you on the price to be offered, what advice and 24 assistance did they have in relation to setting that 25 price? 75 1 A. That would be taken from comments from Nigel Robson, 2 Tony Rush, and Alan Coyle. 3 Q. But is it your understanding that those three 4 individuals that you named were instrumental in advising 5 Sue Bruce and Vic Emery about the price of 6 GBP362.5 million? 7 A. Yes. Using the deckchair spreadsheet. 8 Q. You, as the quantity surveyor brought in by Sue Bruce 9 for the specific purpose of helping her at the 10 mediation, weren't asked to advise her or to assist her 11 in deciding on what price to offer? 12 A. I was asked to go through the process of ensuring that 13 the deckchair spreadsheet captured values or assessments 14 for all that would be required in carrying out the work. 15 Q. But when it came to the question of judgement about what 16 to offer, you weren't consulted about that? 17 A. I was in the room, but I wasn't consulted. I wasn't 18 asked to offer my opinion. 19 Q. You describe in your written answers a discussion in the 20 room leading up to the figure of GBP362.5 million. What 21 you say is that people in the room having exchanged 22 information, no one objected. 23 Can you clarify if anyone in the room openly 24 indicated their agreement to the price of 25 GBP362.5 million? 76 1 A. I don't think anyone openly declared agreement. There 2 were still comments coming from Steven and Richard that 3 they felt the sums that were being talked of were 4 generous, but I don't remember anyone standing up to 5 say: I agree with that entirely; or indeed do I remember 6 anyone standing up to say: I totally disagree with that. 7 Q. The impression I got from your written answers was that 8 you took the absence of objection or silence really in 9 response to the figure as approval; is that your view? 10 A. I think that's fair, yes. 11 Q. Silent approval of the figure? 12 A. Yes. 13 Q. Why should it be taken as approval rather than perhaps 14 as a reluctance to endorse the price? 15 A. There was never any feeling or indeed aspects of 16 people's behaviour in that meeting room on the Monday, 17 the Tuesday, the Wednesday or indeed the Thursday, that 18 had any party feel that they couldn't voice their 19 opinion. There were some pretty robust discussions that 20 happened in that room, but to absolute disagreements, 21 I don't think it reached that -- that pitch. 22 Q. Were the people in the room asked explicitly whether or 23 not they agreed to the figure before the principals went 24 forward to offer it to the consortium? 25 A. No, no one went round the room to say: do you agree, do 77 1 you disagree, do you agree; that did not happen. 2 Q. I think you said that Steven Bell and Richard Jeffrey 3 expressed the view that the offer was too generous to 4 the consortium. 5 A. Yes. 6 Q. Were there any others who took that view? 7 A. Not that I can recall. 8 Q. What about Dennis Murray? 9 A. Dennis wasn't always in the room that I'm referring to. 10 He was brought in on a number of occasions, but usually 11 to report back any discussions he'd had with the 12 quantity surveyors from Siemens and Bilfinger. 13 So he wasn't always in the room. He attended 14 occasionally to present his findings or to report back 15 on the discussion he'd just had. 16 Q. Was Dennis Murray, as tie's quantity surveyor on the 17 project, perhaps the person who had the greatest 18 understanding of the details relating to the contract 19 and tie's liability under it? 20 A. I would agree with that. 21 Q. Was he not exactly the sort of person who should be 22 consulted about the price being offered for the work? 23 A. I felt that he -- he reported through to Steven, and 24 Steven would report to the meeting room. Dennis wasn't 25 always asked to come in and go through again line by 78 1 line. It was through Steven. 2 Q. Did you understand that Steven Bell's view of the offer 3 as generous was based on the detailed work that 4 Dennis Murray had done? 5 A. I think, yes, on his work and Steven's view of the 6 contract. 7 Q. In agreeing to take forward the offer that they did, how 8 did the principals -- and by that I mean Sue Bruce and 9 Vic Emery -- justify offering a price which tie's 10 management considered to be too generous? 11 A. I can't answer that question. 12 Q. Could we have up on screen, please, document 13 TIE00106500. 14 Is this a document that you recognise? 15 A. I certainly do not recollect that document. 16 Q. As we see, it's headed up "Infraco Entitlement", and we 17 understand it was prepared by Dennis Murray and his team 18 at tie. And essentially sets out to calculate tie's 19 view of -- well, as it says on the first two lines, it's 20 a report of tie's assessment of financial entitlement 21 for Infraco in two parts. Part 1 is: 22 "To complete the Infraco works for Airport to 23 Haymarket (Project Phoenix) [section]." 24 So we understand this was an attempt by Mr Murray to 25 calculate what it would cost for the line to be 79 1 completed between the airport and Haymarket. 2 With that explanation, do you recall any figures by 3 Mr Murray being available at the mediation? 4 A. No. 5 Q. You don't? 6 A. No. 7 Q. Just standing back, at the very highest level, the new 8 price that was agreed at Mar Hall greatly exceeded the 9 original Infraco contract price. Do you accept that? 10 A. Correct. 11 Q. Do you accept that the cost of the work by Bilfinger and 12 Siemens increased by more or less GBP150 million or 13 GBP160 million? 14 A. Yes. 15 Q. That was for a shorter line than they'd originally been 16 asked to build? 17 A. Yes. 18 Q. In reaching a settlement at that level, did the 19 negotiating team for the Council come to accept that the 20 claims the consortium had made under the Infraco 21 contract for delay and change were substantially 22 well-founded? 23 A. I don't remember that opinion being expressed. 24 Q. If we put it the other way round, would it be your 25 understanding that the deal was agreed at mediation 80 1 without those principals having come to a view about the 2 nature of tie's liability under the Infraco contract? 3 A. I think by implication of the -- accepting the wrap-up 4 deal, which took into account all those matters, I think 5 that that would be -- that would be the way to maybe 6 answer that question. 7 Q. Sorry, could you just perhaps explain that again? 8 A. I think the Council team accepted the consortium's 9 position by virtue of accepting the wrap-up deal at 362, 10 which gathered all those matters together. 11 Q. Yes. So by reaching a settlement deal which settled all 12 of the existing claims and which increased the price 13 paid, in substance the Council were accepting that the 14 claims made by the consortium were well-founded? 15 A. That would be my view. 16 Q. Now, in relation to the work of Siemens in the Project 17 Phoenix proposal, as you may recall, the proposed price 18 for Siemens' work was GBP136.5 million. Do you recall 19 that? 20 A. I do, yes. 21 Q. In her opening statement at the mediation, Sue Bruce had 22 expressed concern that that price was double the 23 original contract price, and that there had been no 24 justification from Siemens for the increase. Do you 25 recall that being the position of the Council? 81 1 A. I remember that being said, yes. 2 Q. We know that two or three days later, when the price -- 3 the new price was agreed, that represented only about 4 an 8 per cent discount from the price that Siemens had 5 asked for. Do you recall that? 6 A. Not the percentage, but the movement, yes, I remember. 7 Q. I mean, it appears to be a fairly significant shift in 8 position. Are you able to explain why the Council was 9 able to move from that original position to the price 10 they agreed? 11 A. I think I say in my written evidence that I cannot do 12 that. 13 Q. You are not able to explain that? 14 A. I'm not able to explain it. 15 Q. Is that because you don't remember or is it because you 16 never knew? 17 A. I think it's because I never knew. 18 Q. Do you know whether those who agreed the price had 19 satisfied themselves about the increase being 20 appropriate? 21 A. I don't know that. 22 Q. If you look once again, please, at your report, which is 23 WED00000134, at page 233, just in paragraph 7.2, three 24 paragraphs up from the bottom, what you say here is 25 that: 82 1 "It became apparent from the pre-mediation work 2 outputs that tie's commercial assessments of the likely 3 outcomes were of a very hard line when compared to the 4 assessment of where the culpability for delay fell. It 5 has become clear that the dominant cause of delay to the 6 works was the delayed MUDFA utility diversions." 7 Do you mean by that remark that tie's estimates had 8 underestimated or understated their likely liability for 9 delay, of cost of delay? 10 A. Yes. 11 Q. Was it your understanding that the dominant cause of 12 delay were MUDFA utility diversions? 13 A. That was my understanding. The utilities still 14 requiring to be diverted would inhibit a completion of 15 design, but the primary cause in my view was MUDFA. 16 Q. Can you explain that point that the delay in utilities 17 would inhibit completion of design? 18 A. If it's unknown what the swept path is with the 19 utilities cleared, it's difficult, maybe impossible, for 20 the designer to complete the design for the overhead 21 poles or indeed the track slab or services going into 22 the track slab, because otherwise there would be a clash 23 if they were to come across utilities as yet not 24 removed. 25 Q. Was that the reason that you'd come to the view that it 83 1 was actually the MUDFA utility delays that were the 2 dominant cause of delay? 3 A. Yes. 4 Q. Was that a view that was accepted by everybody in the 5 tie and Council mediation team? 6 A. I felt it was accepted by CEC technical officers, 7 particularly Andy Conway and Bob McCafferty, who had 8 a direct experience of the contract preceding mediation. 9 I don't believe it was entirely accepted by the 10 personnel within tie. 11 Q. Were you aware that tie had expert advice to the effect 12 that it was not utility diversions that were the 13 dominant cause of delay, but actually problems with the 14 design? 15 A. I wasn't aware of that. 16 Q. Was there any reference made at the mediation to 17 a report by Acutus on the reasons for delay in the 18 project? 19 A. I remember reading of that company's name. But reading 20 the report, no. It's been mentioned in passing either 21 within an overview report, but certainly I had no 22 knowledge or detail of that report. 23 Q. So your view that it was the MUDFA utility diversions 24 that were the dominant cause of delay that was reached 25 without the benefit of considering the expert advice 84 1 that tie had had from Acutus? 2 A. Correct. 3 Q. Was your view that it was MUDFA utility diversions that 4 were the dominant cause of delay, was that an important 5 consideration for the principals in reaching the deal 6 that they did at mediation? 7 A. I think it was one of the important points they took on 8 board. 9 CHAIR OF THE INQUIRY: Can I just understand what you're 10 saying about the relationship between MUDFA delays and 11 design. 12 I may have misunderstood, but did you say that 13 design was delayed because the MUDFA works weren't 14 carried out so that they couldn't design on the basis of 15 a swept path? 16 A. That's correct. 17 CHAIR OF THE INQUIRY: Would an alternative position be that 18 you would design the line, including the swept path, and 19 then move the utilities which were in the way? 20 A. You could do that. You would be stepping into an 21 arrangement whereby the number of utilities as in gas, 22 water, electricity, the depth and the extent of the 23 clash was unknown. So it's possible, but I think it 24 would be quite difficult to manage. 25 CHAIR OF THE INQUIRY: Thank you. 85 1 MR MCCLELLAND: Earlier this morning, Mr Smith, the Chairman 2 asked you about the agreement at mediation to buy the 3 Siemens materials and equipment for the stretch to 4 Newhaven. 5 As I understand it, the agreement reached at 6 mediation was that that would extend to all of the 7 materials and equipment required to complete the line to 8 Newhaven; is that correct? 9 A. That's correct, yes. 10 Q. Was it subsequently the case that orders were cancelled 11 so that the Council didn't in fact ultimately acquire 12 all of the materials and equipment needed to complete 13 the line? 14 A. We came to the agreement, that's correct, with Siemens 15 that items that would be likely to perish over a period 16 of time, say a couple of years, or be damaged with 17 atmospheric conditions, and as long as they weren't core 18 to being able to deliver the whole line, those orders 19 were cancelled, but that was very much an agreed 20 position. It wasn't the Council imposing that position 21 on Siemens. The two parties were happy to work 22 together. 23 Q. Were cost savings made? 24 A. There were cost savings made, yes. 25 Q. Do you know roughly of what magnitude? 86 1 A. I did, but I can't recall. 2 Q. So presumably that means that if the Council has decided 3 to go on and complete the line, it will have to go out 4 and buy those parts? 5 A. That's correct, yes. 6 Q. Do you recall, Mr Smith, that following mediation, in 7 fact on 20 May 2011, tie and BSC signed an agreement 8 referred to as Minute of Variation 4? 9 A. I do, yes. 10 Q. Amongst other things, it provided for certain 11 prioritised works to be carried out? 12 A. Correct. 13 Q. Do you recall that Minute of Variation 4 also obliged 14 tie to make payments to Bilfinger and Siemens in 15 instalments totalling GBP49 million? 16 A. I do. 17 Q. I think you certified each of these sums for payment? 18 A. That's correct. 19 Q. I think those sums were in fact paid? 20 A. Yes. 21 Q. What was the rationale for paying BBS GBP49 million at 22 that point in time? 23 A. At Mar Hall it was agreed that a mobilisation, a payment 24 would be made. That was further refined into, 25 I believe, three tranches, HG1, HG2, and HG3. 87 1 I can't recall the order of events, but one was for 2 mobilisation. Another one was for materials, and the 3 third one escapes me. But there was a breakdown. 4 Where that was brought to some fairly close 5 definition was at a joint meeting with Siemens and 6 Bilfinger and tie, and I took the liberty of 7 photographing all that was discussed on a whiteboard and 8 then subsequently put that into the project file. 9 Q. Was that meeting one that took place before Minute of 10 Variation 4 was drafted up and signed? 11 A. I can't recall. It would be round about that time, but 12 I can't remember the exact date. 13 Q. You referred to the payment as a mobilisation payment. 14 Should we understand that the consortium had asked for 15 a payment of that amount to be made? 16 A. I don't think initially at Mar Hall any figure was 17 specified, but it was agreed that payments or payment 18 would be made to bring people back on to site and to 19 commence early work. 20 Q. The figure of GBP49 million, was that one that the 21 consortium had suggested? 22 A. The consortium suggested a figure around that figure. 23 I think it was adjusted slightly. tie also offered up 24 their opinion and that's marked up on the whiteboard 25 photographs I talk of. 88 1 Q. Yes. I think tie's view was that GBP49 million was too 2 much to pay the consortium, and that only GBP19 million 3 should be paid. Do you recall that? 4 A. That rings a bell, yes. 5 Q. What was tie's rationale for their figure? 6 A. Again, the detail, going back a number of years. What 7 I did ask the participants in the room to do was to 8 strike a two column analysis. Break down the items and 9 then put an assessment of value against it, so you could 10 get a direct comparison. 11 I did take the liberty of asking tie's Director of 12 Finance if I had captured correctly what was said at the 13 meeting. I think he came back with an arithmetical 14 correction in an email back to me. 15 I went on to talk to Alan Coyle and Bob McCafferty, 16 and as a result of that, we agreed on the values for 17 HG1, HG2 and HG3. 18 Those figures -- sorry, those figures were also 19 reported to the tram SMT meetings at 8 o'clock and -- on 20 a Tuesday and a Thursday. So that we had total exposure 21 and knowledge from CEC at a very senior level, 22 Vic Emery, and Transport Scotland from a monitoring 23 point of view. 24 Q. Now, you referred there to agreement on the figure of 25 GBP49 million. Specifically whose agreement are we 89 1 talking about? 2 A. Agreement between officers within CEC and myself. 3 Q. So if the officers from CEC had agreed the figure of 4 GBP49 million, what was the purpose of your 5 certificates? 6 A. To promote a method of payment, to ensure that there was 7 an audit trail behind the logic and the value to arrive 8 at those values and figures, and it was the -- it was my 9 certificate, HG1, HG2, HG3, that actually caused the 10 processing of the payment. 11 Q. What were you certifying? 12 A. That the GBP49 million represented values to engage in 13 mobilisation, transfer of material, and the third 14 category, which I can't remember, but the three aspects 15 of HG1, 2 and 3. 16 Q. If I can put it this way, were you certifying that in 17 return for the payment of GBP49 million, the Council 18 were receiving something that was worth GBP49 million? 19 A. Yes. 20 Q. Now, did tie maintain their objection or their view that 21 GBP19 million was only as much as should be paid? 22 A. Yes. 23 Q. Since it was GBP49 million that was in fact paid, 24 somebody must have overruled tie's view. So who was 25 that? 90 1 A. That would have been carried at the -- what we refer to 2 as the tram SMT meeting, 8 o'clock on a Tuesday and 3 a Thursday morning. 4 Q. So who would be the decision-maker? 5 A. That would be the chair and vice chair, which would be 6 Sue Bruce and Vic Emery. 7 Q. Vic Emery at the time was the Chairman of tie? 8 A. I believe so, yes. 9 Q. So should we understand that he took the tie position, 10 that the payment should only be GBP19 million, or did he 11 depart from that? 12 A. I think he departed from that. 13 Q. Is it your recollection that it was both of those 14 individuals who agreed to the GBP49 million being paid? 15 A. I believe so, yes. 16 Q. Part of the GBP49 million was for the Siemens materials 17 and equipment; is that correct? 18 A. Correct, yes. 19 Q. The Inquiry has copies of vesting certificates which 20 attribute a value of GBP28.2 million to those materials 21 and equipment. 22 How was that value placed on the materials and 23 equipment? 24 A. It was -- it was based on a schedule of materials with 25 values attached to both material and the quantity, 91 1 and I believe it was Siemens' QS who prepared that 2 schedule in the first instance. 3 Q. So this is a schedule prepared by Siemens? 4 A. Yes. 5 Q. What steps did you take to satisfy yourself that the 6 values placed upon the items was appropriate? 7 A. By calling the workshop at the site offices at Lochside 8 and inviting CEC technical and tie, both technical and 9 financial to that meeting. 10 Q. Out of those people that you called, did somebody have 11 expertise in the valuation of the materials and 12 equipment? 13 A. I would -- I would -- I would have expected that 14 expertise within tie would have been able to recognise 15 the values that were being offered up. 16 Q. Well, you were certifying that the value -- the goods 17 were worth that value. Were you relying on your own 18 judgement or on somebody else's judgement? 19 A. My own judgement. 20 Q. Your own judgement? 21 A. Yes. 22 Q. In what way then did you satisfy yourself that an 23 appropriate value had been placed on these materials and 24 equipment? 25 A. By discussing with Siemens and going through the list 92 1 and looking for the source of purchase and what that 2 value would be, and how it translated into their 3 contract documentation. 4 Q. The total price of GBP28.2 million that was attributed 5 to these items, was that higher or lower than the price 6 that would originally have been paid for these items 7 under the Infraco contract? 8 A. I think in some instances it would have been higher. 9 Q. Was it something that you checked? 10 A. I asked about change of circumstance at the time. In 11 some instances it would have been higher, or it was 12 higher. 13 Q. Do you know by how much it was higher? 14 A. I can't recall that level of detail. 15 Q. The balance of the GBP49 million, GBP20.8 million, what 16 was that for? 17 A. Well, the total sum was made up of monies paid to 18 Bilfinger as well as monies paid to Siemens. Again, 19 I don't recall the exact split between the two, but it 20 was -- it was a combination of the two companies. 21 Q. Was there a lack of clarity about what the balance of 22 the payment was for? 23 A. I think that was a criticism that was made by tie. I'm 24 not sure what or how much more could have been given by 25 the contractors at that time, but that certainly was 93 1 a criticism made by tie. 2 Q. What was your own view about whether or not there was 3 a lack of clarity? 4 A. I felt that tie and CEC had to stand by the obligation 5 that they'd made at Mar Hall. 6 Q. Well, in what sense is that an answer to my question? 7 Was there or was there not a lack of clarity about 8 what the GBP20.8 million was for? 9 A. I didn't think so. 10 Q. Can we go, please, to document CEC02087178. We see here 11 that there's an email from Iain MacPhail at McGrigors to 12 Alastair Maclean and others. What Mr MacPhail says: 13 "Alastair, Steven, following last week's meeting, 14 I attach our report on Minute of Variation 4." 15 If we go forward, please, to page 3, we see the 16 report that McGrigors were sending on. As you can see 17 at the top, it's headed up, "Report in relation to the 18 proposed Minute of Variation to the Infraco Contract 19 (MoV4)". Reading a bit further down, there's a paragraph 20 beginning: 21 "We would note the following." 22 Then the second paragraph reads: 23 "We took instructions from Colin Smith/HG Consulting 24 in relation to commercial matters and the CEC legal team 25 in relation to legal matters." 94 1 So in broad terms did McGrigors draft Minute of 2 Variation 4? 3 A. Yes. 4 Q. Were they instructed by you on commercial matters 5 relating to it? 6 A. They would be instructed insofar as matters that I was 7 reporting that came out of Mar Hall. There would be no 8 additional instruction that I would be able to give 9 without the benefit of the tram SMT meetings, Tuesdays 10 and Thursdays. 11 Q. Okay. But whatever instructions there were on 12 commercial matters, did they come through you to 13 McGrigors? 14 A. Yes. 15 Q. Can we go, please, to page 7. At the bottom there's 16 a paragraph headed up, "VALUE OF PAYMENTS". What 17 McGrigors say there is: 18 "There was considerable debate in relation to what 19 the various payments under clauses 6, 7 and 8 of MoV4 20 (other than those for Materials and Equipment) were 21 intended to be in respect of. The BBS view was very 22 much that these were mobilisation payments, but tie/CEC 23 had certain concerns in relation to making any form of 24 advance payment or pre-payment in respect of matters 25 which would have no value to the project if MoV5 does 95 1 not go ahead (ie, will the payments pass the 2 'anti-embarrassment test'?)." 3 Is that correct summary of the position? 4 A. Yes. 5 Q. Why was there a lack of clarity over what these payments 6 were for? 7 A. I didn't think there was a lack of clarity, really on 8 two points. One, on the information provided by the 9 contractors and two, we had that very detailed workshop 10 at the Lochside offices with all the points of debate 11 captured on the whiteboard. 12 Q. I don't think we need to look at it, but Minute of 13 Variation 4, which deals with these payments, doesn't 14 give any clear explanation of what the payments are for. 15 That would appear to be consistent with McGrigors' 16 view at least that there was debate over what the 17 payments were intended to be for. 18 Was it the case that there was in fact no consensus 19 about what these payments were for? 20 A. I don't believe there was definition of what those 21 payments were for coming out of Mar Hall. The 22 definition came out of the work on the ground, as it 23 were, and by that I mean the workshop at Lochside. 24 Q. Whatever detail emerged from that didn't make it into 25 Minute of Variation 4. Can you recall what that 96 1 additional balance, the GBP20.8 million, was a payment 2 for? 3 A. Not off the top of my head, no, I can't recall. 4 Q. Can we take it then that you also won't be able to 5 recall today what steps, if any, you took to ensure 6 that fair valuation had been put on those items? 7 A. Only the exercise that I have already reported that 8 I carried out. That was my test for fair valuation. 9 Q. In your written answers to the Inquiry, at page 42, 10 question 169, you say that the payment was for 11 preliminary matters. I think that's the way that it's 12 put. Does that help jog your memory? 13 A. There were various descriptors being used. Preliminary 14 matters, mobilisation. The detail of where the value 15 apportions to actual pieces of work, again, I refer back 16 to that workshop and the photographs that I took, which 17 were subsequently typed up and circulated to all 18 parties. 19 Q. Would it be fair to put it this way, that for cash flow 20 reasons the consortium wanted GBP49 million to be paid 21 as soon as possible after the Mar Hall mediation? 22 A. Yes, I mean, I think from their point of view, they 23 wouldn't really be too concerned as to the process we 24 would have to go through on our side, for them it was 25 cash flow, yes. 97 1 Q. As McGrigors put it in their note, from the Council's 2 perspective, the Council needed to attribute these 3 payments to something in case the ultimate Settlement 4 Agreement wasn't signed. 5 A. That's correct. 6 Q. That's correct. So was it the case perhaps that the 7 Council were attributing these payments to something 8 without necessarily having agreed that with the 9 consortium, what they were for? 10 A. It wasn't agreed with the consortium what they were for 11 at Mar Hall. In my file I think people will find that 12 I declare that I need to have substance to attach value 13 to make those payments, regardless of what people might 14 call them. 15 But to answer your question, at Mar Hall they were 16 not defined. 17 Q. The commitments in Minute of Variation 4, including to 18 making the payments that we've discussed, the 19 GBP49 million, were made some time before the Council, 20 by that I mean the body of councillors, voted on the 21 future of the project. 22 So the councillors were not asked to approve the 23 GBP49 million payment or Minute of Variation 4 before it 24 was signed. Do you know anything about why that was? 25 A. I don't believe I was involved in the mechanics of that 98 1 reporting to the Council at that time, no. 2 Q. tie and TEL's view, which they conveyed to the Council 3 officers, was that Minute of Variation 4 would commit 4 tie to spending over the GBP545 million funding limit 5 that was then in place. Were you aware of that? 6 A. No. No. 7 Q. We also understand that of the GBP49 million, about 8 GBP36 million was paid to the consortium before Minute 9 of Variation 4 was signed. Was that your understanding? 10 A. I believe that to be correct, yes. 11 Q. Do you know why that happened? 12 A. It was to ensure that -- there was discussion around 13 five actions out of Mar Hall and going into MoV4. One 14 was early mobilisation. Another was working in 15 Princes Street. And those payments caused early 16 commencement of those works. 17 So that was the underlying direction to come to 18 a value, to make the payment, and to have those five 19 early pieces of work commence as quickly as possible. 20 Q. So in short, was it to pay for work, to allow that work 21 to carry on as early as possible? 22 A. Correct. 23 Q. Were any safeguards put in place to ensure the money 24 wasn't lost, for example if the consortium didn't sign 25 Minute of Variation 4? 99 1 A. Not that I can recall. 2 Q. Was that a matter that you were concerned about? 3 A. There was -- I did have a concern. I tried to square 4 that concern off by considering that it was within the 5 362 figure, it was within that envelope. It was to 6 bring about a desired action. There was a risk. How 7 big was that risk? I felt the risk was able to be 8 contained, but the risk was there nevertheless. 9 Q. Whether to take the risk or not, was that a decision for 10 the officers of the Council? 11 A. That would be a decision for the tram SMT, the Tuesday 12 and Thursday meeting I referred to. 13 Q. Just to be clear, who were the decision-makers in that 14 body? 15 A. It would be the chair and vice chair. 16 Q. Again, Sue Bruce and Vic Emery? 17 A. Vic Emery, yes. 18 Q. Do you recall that in the summer of 2011, and in 19 particular the meeting of June 2011, the body of 20 councillors in principle approved settlement with BSC? 21 A. I do. 22 Q. Do you recall that the report to that meeting of the 23 councillors by the Director of City Development 24 explained that alternatives to settlement with BSC were 25 not likely to be materially less expensive? 100 1 A. I do. That was David Anderson, I think, who did that 2 report. 3 Q. You recall that? 4 A. I do. 5 Q. That view was based on reports that had been obtained 6 from external consultants and in particular from 7 McGrigors and Atkins. Do you recall that? 8 A. I remember reading in the Council report that's the 9 source of that information, yes. 10 Q. Were you involved to any extent in obtaining these 11 reports? 12 A. No, I don't think so. 13 Q. If I can just put to you that it's clear from reading 14 these reports that what they do is assess the cost of 15 alternatives to the Settlement Agreement option, and 16 there don't appear to be any reports that do this, which 17 analyse the price of GBP362.5 million agreed at Mar Hall 18 or express a view on whether or not it represented good 19 value. Are you aware of whether any reports were 20 obtained for that purpose? 21 A. I'm not aware, no. 22 Q. Could we please bring up on screen document CEC02085613. 23 If we could go to the other tab, please. If possible, 24 can we see if we can get the whole of the spreadsheet up 25 on screen? Maybe reduce it in size. 101 1 Can you see that clearly, Mr Smith? Are the numbers 2 big enough for you to be able to read them? 3 A. That's a fine. 4 Q. No doubt anybody else who is having difficulty reading 5 the numbers will let us know. 6 Have you seen this spreadsheet before? Do you 7 recognise it? 8 A. I don't recognise it. 9 Q. We understand from the evidence of Alan Coyle that this 10 spreadsheet was made available to councillors before the 11 June meeting we've just been discussing. 12 As you can perhaps see, what it does is set out cost 13 estimates for the different options for the future of 14 the project. So do you see there in column B there's 15 a heading of "Settlement Agreement"? 16 A. Yes. 17 Q. If we scroll all the way down, we can see the first 18 number we come to is the GBP362.5 million agreed at 19 Mar Hall? 20 A. I see that. 21 Q. If we scroll on down, there are various other figures, 22 until we get to the bottom, where the total cost of that 23 option is said to be GBP773.4 million. Do you see that? 24 A. I do. 25 Q. If we look along that row, so that's row 89, we see the 102 1 different total cost estimates for the other options. 2 So the next column, mothball or cancel the project, 3 high, then the column after that, mothball and cancel 4 the project, low. 5 We see for example that the totals in those columns 6 are a little bit below the total of the cost estimate 7 for the settlement option. Do you see that? 8 A. I see that, yes. 9 Q. Then carrying on along that line, we've got options for 10 reprocurement, which are both over GBP1 billion. Do you 11 see that? 12 A. I do. 13 Q. Then unsuccessful termination, GBP910 million. Then 14 continuing with Infraco to York Place, high and low, one 15 being just over GBP1 billion and one just below 16 GBP1 billion. Do you see that? 17 A. I see that, yes. 18 Q. Those estimates that appear there, does that essentially 19 reflect your understanding of the cost estimates that 20 were available around that time? 21 A. I believe so. I don't immediately recognise this 22 document. The document, I would imagine, would be one 23 of many that was put into data room for the councillors 24 to -- for the elected members to visit, and ask detailed 25 questions of finance and legal. 103 1 Q. Yes. We understand, as you say, that this document was 2 made available to the councillors in that way. 3 Now, if we just scroll down a little bit, please -- 4 sorry, other way. Go higher up the page. Just pause 5 there, that's fine. 6 Do you see scattered around that spreadsheet there 7 are various yellow, dark yellow squares with 2s in them? 8 A. Yes, I see that. 9 Q. If we look down at the notes which are at the bottom of 10 the spreadsheet in line 94, that identifies the source 11 for those figures as an independent certified 12 assessment; do you see that? 13 A. Oh, yes, yes. 14 Q. The independent certifier was you; is that correct? 15 A. Yes, it was. 16 Q. So if we scroll back up a little bit, about there is 17 fine, thank you. 18 We see all of those 2s. You're being described by 19 this spreadsheet as the source of all of these numbers. 20 Does that accord with your recollection that you were 21 called upon to provide figures for these matters? 22 A. I really can't remember now. 23 Q. Do you remember being consulted by Mr Coyle or anybody 24 else for the purpose of supplying figures that would be 25 used for the cost estimates for different project 104 1 options? 2 A. Yes, I was involved with Alan in talking of possible 3 scenarios such as the ones that I'm just looking at on 4 the screen just now. 5 I just don't specifically recall those numbers, but 6 I did participate in that type of process with Alan. 7 Q. Okay. If we can look at the rows just a little bit 8 below where we are on screen, that's fine. 9 Do you see in columns H and J, those are the 10 estimates for reprocuring the project? There was a high 11 estimate and a low estimate? 12 A. Yes. 13 Q. As we noticed a moment ago, both of them are up above 14 GBP1 billion. 15 Before the mediation, as we saw from your report, 16 tie's estimate of the cost of this option was in the 17 range of GBP645 million to GBP698 million. As we 18 discussed this morning, your views about the cost of 19 separation led to an upwards adjustment of those 20 estimates of GBP150 million; do you remember that? 21 A. That's correct, yes. 22 Q. What we see from this spreadsheet is that those 23 estimates, just a few months later, are very much higher 24 still. Can you explain why there was such a significant 25 increase in the estimates of the cost of these options? 105 1 A. Only insofar as Alan would have carried on post 2 mediation to continue to populate this type of analysis. 3 I would -- I mean, I would trust Alan's judgement. 4 So I would ... 5 Q. Does your answer suggest that you can't explain why the 6 figures increased so much from those that had been 7 discussed before the mediation? 8 A. That's correct. 9 Q. If we just look, for example, at column H, and in 10 particular between rows 59 and 75, just take a moment to 11 orient yourself to those figures. Really columns H and 12 J, rows 59 to 75, we see that most of those are figures 13 that you supplied? 14 A. The yellows? 15 Q. Yes. 16 A. I'm surprised that they are all the same number. That's 17 my only comment. 18 Q. Can you just expand on what you mean by that, please? 19 A. They all appear to be 2. 20 CHAIR OF THE INQUIRY: I think that's the index. 21 MR MCCLELLAND: 2 is just identifying the figures that they 22 come from you. So it's the figures that are to the left 23 of the 2s that are identified as the ones you supplied. 24 A. My apologies. 25 Q. So looking at columns H and J, between the lines I asked 106 1 you to look at, that's 59 to 75, we see that most of 2 those figures have come from you. 3 A. I wouldn't dispute that. No, that makes sense now. My 4 apologies for that. 5 Q. That's what the spreadsheet shows. 6 If we were to add them up, you can take it from me 7 that those figures in column H come to about 8 GBP339 million, and in column J they come to about 9 GBP269 million. 10 What I would like to ask you is how you arrived at 11 those figures. 12 A. At that time we had greater knowledge of the -- again, 13 the exclusions. We were starting to get far greater 14 knowledge of the other issues such as utilities, and it 15 was sitting down, talking through, for instance, 16 inflation risk there at 225. Specified exclusion risks. 17 That's the point I was making just a moment ago. 18 Q. Would you accept broadly speaking the figures that have 19 come from you fall within the general category of risk 20 figures? 21 A. I would, yes. 22 Q. To arrive at them, did you carry out any sort of 23 quantified risk analysis or anything of that nature? 24 A. We had started to engage with another firm of surveyors 25 and we did carry out risk analysis with them. Just 107 1 exactly the date of that versus the date of this 2 spreadsheet, I couldn't honestly recall. But we were -- 3 we were challenging the risk analysis. 4 Q. Well, what we know is that this spreadsheet was in 5 existence at least by the time of the June Council 6 meeting when the Council were told that the cost 7 estimates for options other than the Settlement 8 Agreement were unlikely to be materially less expensive. 9 Does that help you recall if the figures in here 10 were supported by a quantified risk analysis? 11 A. Honestly, I can't remember the chronological order, but 12 I do remember the report going to Council, and I do 13 remember sitting with Alan to go through items of risk 14 and contingency, because those were my two big bugbears, 15 as it were. 16 Q. Yes. If we could perhaps imagine a continuum between, 17 on the one hand, a detailed quantified risk analysis 18 based on empirical data as at one end of the spectrum, 19 and then at the other, you've got subjective judgement, 20 where on that continuum do these figures fall? 21 A. Maybe, as you described it there, on 22 a one-third/two-thirds split. There would be some early 23 discussions with others where there was an absolute -- 24 there was eventually, but when that was carried out, of 25 the empirical evidence, as you mentioned, just when that 108 1 finalised, I cannot remember. But there were -- there 2 were discussions after Mar Hall leading up to certainly 3 the August report. So as I say, in the way you 4 describe, maybe one-third/two thirds. 5 Q. So one-third -- 6 A. At the lower end. 7 Q. One-third precise and two-thirds judgement? 8 A. Yes. Correct. 9 Q. If you look at line 59, please, that's described as 10 being BSC settlement premium plus risk demobilisation, 11 et cetera, plus potential further claim items, and the 12 figure for that is GBP80 million. Can you explain how 13 you arrived at that? 14 A. I think there had been previous conversations around, 15 from memory, GBP50 million, GBP20 million, and a third 16 input that took it to GBP80 million. But it was -- it 17 was broad brush. This was the -- this was the concern 18 that you would not know what that answer would be until 19 you asked the question. 20 Q. You described it there as broad brush. Had you analysed 21 it in any depth beyond that sort of impressionistic -- 22 A. No. 23 Q. -- level. 24 A. No. 25 Q. Just scroll a little bit up the spreadsheet, please. 109 1 Do you see that section from line 36 down to 2 line 63? Do you see that? 3 A. Yes, I do. 4 Q. What appeared to be listed there, INTCs agreed in full, 5 INTCs -- work done, INTCs agreed in full, INTCs 6 determined through adjudication and so on. 7 Then elements for extension of time and prelims. 8 That appears to be a list of claims which are accrued 9 under the Infraco contract. Do you agree? 10 A. I would agree with that, yes. 11 Q. What additional claims did you anticipate being included 12 within the GBP80 million figure? 13 A. Well, the main one would be a figure simply to walk 14 away. 15 Q. To walk away? 16 A. Mm-hm. 17 Q. You mean to bring the contract to an end? 18 A. Yes. 19 Q. So what was the payment for in your view? 20 A. For the contractors to agree to determine the contract. 21 Q. So do we understand from your answer that it was to be 22 a compensation payment for something? 23 A. Yes. 24 Q. What particular elements did you have in mind? 25 A. I don't think it would be anything other than: this is 110 1 the figure we wish to have from you to determine the 2 contract. You want us to come off the job. You don't 3 want us to get involved in attrition. For us to walk 4 away. It's that kind of money. 5 Q. Had you on the Council's behalf made any attempt to 6 identify what a reasonable value of that claim would be? 7 A. Only looking at the potential total value, and that was 8 circa GBP800 million. And again, broad brush, 9 10 per cent to walk away. 10 Q. Was that the sum total of the analysis done to arrive at 11 the figure? 12 A. It was no more sophisticated than that. 13 Q. If you could look, then, please, at line 65, primary 14 risk. The figures there are GBP106 million and 15 GBP36 million. I accept that you're not identified as 16 the source of that figure, but what did you understand 17 that to include? 18 A. Who did that come from, if I may ask? That might help 19 me. 20 Q. The key tells us that these are risks identified at 21 mediation from the Project Phoenix proposal that could 22 still be apparent with a new contractor. 23 A. I think it would have been informed in around the 24 discussions that happened at Mar Hall when Phoenix was 25 being discussed. But I can't say more than that. 111 1 Q. Okay. The element there in line 67, bad project risk, 2 15 per cent of works. The figure is GBP40 million. Can 3 you just explain how you arrived at that? 4 A. Yes. What would be the -- going back to -- what would 5 be the uplift that another contractor would simply put 6 on top of any commercial contract terms in order to take 7 the risk of coming back to work in Edinburgh Trams. 8 Q. On the basis that it was a project which had had 9 difficulties to date? 10 A. Correct, yes. 11 Q. How had you quantified that figure? 12 A. 15 per cent. Just taking as a percentage. 13 Q. Again, a broad brush -- 14 A. Absolutely. 15 Q. -- figure. The one below that, systems risk in relation 16 to new contractor using existing materials, I think 17 that's probably self-explanatory, but if you could just 18 explain it? 19 A. Again, what would be the potential hybrid solutions that 20 you would need to bolt on to the existing systems to 21 have the two systems talking to each other. The 22 existing system and the new system. 23 Q. Was that similarly a broad-brush figure? 24 A. Absolutely. 25 Q. Then inflation risk, again, probably self-explanatory, 112 1 but if you could just confirm? 2 A. Just working in a percentage of uplift as to what it 3 would be over a period of time, whether that be three or 4 four years. 5 Q. Was that another broad-brush figure? 6 A. Yes. 7 Q. Then line 75, specified and exclusion risk, 8 GBP77.5 million. What's that for? 9 A. Again, to recognise items that had been previously 10 excluded and that would have to be included in any new 11 arrangement. 12 Q. Was that different from the primary risk referred to in 13 line 65 above? 14 A. I'm not sure I would be able to compare apples with 15 apples on that one. 16 Q. Okay. You said that you weren't involved in the 17 preparation of the spreadsheet, but do you recall any 18 discussion with Mr Coyle to ensure that there was no 19 overlap, for example, between these different categories 20 of risk? 21 A. I certainly participated with Alan in going through 22 various values and various spreadsheets. 23 Q. At the very highest level, if you take these risk 24 figures and add them up, as I said a moment ago, in the 25 lowest estimate they run to about GBP269 million and in 113 1 the higher, GBP339 million. 2 What's perhaps quite striking is how that compares 3 to the risk allowance that was set at contract close, 4 which was GBP30 million or thereabouts. 5 Had the project become ten times more risky if it 6 were to be re-procured in your view? 7 A. Not ten times more risky. Taking into account matters 8 that had been excluded or not or were not able to be 9 delivered in line with the BBS consortium programme, 10 then that's the sort of outturn that I would -- 11 I certainly expected. But it's not down purely to risk. 12 Q. Thank you. We have finished with that document. 13 Could we have up on screen, please, document 14 SIE00000399. 15 Are you familiar with this document? 16 A. I don't immediately recognise it. June 2011? 17 Q. Well, we understand that the consortium gave it to the 18 Council to indicate what payment they might claim if the 19 Infraco contract were to be terminated. 20 If we perhaps scroll on to the first page of it, 21 does that help jog your memory about whether you've seen 22 it before? 23 A. I remember the process. I remember it being asked of 24 the consortium. I remember the response. I didn't 25 recognise the front cover. 114 1 Q. Okay. I don't want to spend any great amount of time on 2 it, but if we go to the third page, do you see the 3 heading up within the box, the cost of automatic 4 termination? 5 A. Yes. 6 Q. Do you know what that's referring to? 7 A. That's the termination of the contract and, again, the 8 contractors walking away. 9 Q. Do you recall under Minute of Variation 4 the Infraco 10 contract would terminate automatically if funding for 11 the project was refused? 12 A. By September, I think it was, yes, I remember that. 13 Q. Do you recall that? 14 A. Yes. 15 Q. If you don't know the answer, please just say, but did 16 you understand this to be the consortium's estimate of 17 the payment they would seek in the event of the contract 18 being terminated in those circumstances? 19 A. I think it's two different questions, to be honest. 20 This was a question that was asked of the consortium 21 that in the event there was a request to determine the 22 contract, what would be the cost to do that. And that 23 had been a question that had been left unanswered since 24 January of 2011. 25 On the other matter you touched on about the 115 1 automatic cancellation of the contract, that was based 2 on the fact that there was insufficient funding, and it 3 was the consortium who said that: if there's 4 insufficient funding, clearly you cannot commit to the 5 remainder of the work, therefore we reserve the right to 6 terminate. 7 Q. Yes. Do you understand that this document was prepared 8 by them to give an indication of what payment they would 9 seek in those circumstances? 10 A. That's my understanding, yes. 11 Q. If we see down at the bottom of that page, where the 12 calculations lead to, it's that figure, resulting 13 automatic termination fee of GBP66.25 million. Do you 14 see that? 15 A. Yes. 16 Q. Was any use made of that figure within the Council as 17 far as you can recall? 18 A. I believe it to have been reported to the councillors, 19 but I can't remember -- I don't think a document such as 20 that would have been part and parcel of the public 21 papers. It would have been either in a data room or 22 a report in some other way. 23 Q. I'm just wondering, we saw in the last spreadsheet that 24 you were reported as having supplied a figure of 25 GBP80 million as a termination payment. I was just 116 1 wondering whether these figures from the consortium had 2 had any bearing on your figure? 3 A. They wouldn't know my figure, and -- 4 Q. No, I'm wondering whether you were influenced by these 5 figures -- 6 A. No. 7 Q. -- coming up with yours? 8 A. No, absolutely not. 9 Q. No connection? 10 A. No connection. 11 Q. Do you recall that in August 2011, Faithful+Gould 12 produced a report on the project budget, and in 13 particular it was one -- this is what you may recall 14 about it. It reported their view that the prices 15 proposed by Bilfinger Berger and Siemens for the 16 on-street works were grossly inflated? 17 A. I do remember that statement, yes. 18 Q. You remember that. I think in your written answers you 19 said that you agreed with those criticisms? 20 A. I did. 21 Q. If Bilfinger Berger and Siemens' proposed on-street 22 price was grossly inflated, was there concern within the 23 Council that the price agreed for the off-street works 24 might have been grossly inflated too? 25 A. I don't think so, because we had gone beyond that. By 117 1 the time we were talking about the way of procuring the 2 on-street works, the 362 had already been agreed at 3 Mar Hall with a sum of money, I can't remember the exact 4 sum, for on-street works, but it was a provisional sum. 5 It wasn't a detailed sum. 6 I agreed with Faithful+Gould, who I was keen to 7 have -- I couldn't remember the practice name earlier on 8 today -- a fresh set of eyes looking at all of the 9 numbers and values. And perhaps later we'll describe 10 how we overcame that criticism of it being grossly -- 11 stated. 12 Q. But do you accept that the on-street works' price was 13 subjected to a good deal more scrutiny than the 14 off-street works' price that had been agreed at 15 Mar Hall? 16 A. I would agree with that. 17 Q. My question to you is: if the price proposed for the 18 on-street works by the consortium was a grossly inflated 19 one, and that was the conclusion after some of that 20 scrutiny, did that not cause you concern that the price 21 that had been agreed for the off-street works, and which 22 hadn't been scrutinised to the same degree, might have 23 been grossly inflated too? 24 A. No, no one asked me to go back in and look at the 25 Mar Hall settlement with that in mind. 118 1 Q. No, but that doesn't really answer my question, which is 2 that if one set of price proposals from the consortium 3 were thought to be grossly inflated, how could you be 4 satisfied that the other price had not similarly been 5 grossly inflated? 6 A. I couldn't. 7 Q. You couldn't? 8 A. No. 9 Q. Returning then to the on-street price, and you have 10 explained in your written answers the process by which 11 the Infraco consortium sought tenders from 12 subcontractors for the on-street civil engineering work. 13 Can I just be clear, did that tender process concern 14 only Bilfinger's scope of work and not Siemens'? 15 A. That's correct. 16 Q. You say that you were permitted to scrutinise the tender 17 process on behalf of the Council. Can you just explain 18 what you did? 19 A. To scrutinise the works, it was to take it from bills of 20 quantities out to a number of contractors who tendered 21 against bills of quantities and contract details as 22 a subcontractor to Bilfinger. 23 Those tenders were brought back. They were opened 24 in front of me and a tender record sheet completed, so 25 we could see clearly who the best value subcontractors' 119 1 price was. 2 That took a wee bit of encouragement, because what 3 I was keen to do was to move away from the lump sum, as 4 referenced by Faithful+Gould, as being excessive, to 5 know exactly what the market rate was, and that was the 6 exercise we carried out. 7 That thereafter allowed measurement of the work 8 against a tendered value with quantities. 9 Q. Were you satisfied through that process that the prices 10 paid by the Council for the on-street works represented 11 good value? 12 A. Yes. Yes. 13 Q. Can I just clarify that you referred there to the 14 tendered rates, and the lowest tendered rates being 15 identified. Were those tendered rates incorporated into 16 the revised Infraco contract? 17 A. Yes, they were. 18 Q. That contract specified a price for the on-street works 19 of GBP47.3 million. Had that price been arrived at by 20 or based on those tendered rates, do you recall? 21 A. I can't recall against that number. I can remember the 22 process, but not the numbers that you mention. 23 Q. You also referred in your answers to the Infraco 24 receiving a mark-up on the cost of tendered work. 25 I think your view was that that mark-up might not have 120 1 represented value for money. 2 A. Agreed. 3 Q. That's correct? Can you explain why not? 4 A. Percentage mark-up seemed excessive. It was the mark-up 5 percentage that was in the original contract document. 6 Therefore, it didn't afford me the opportunity to reduce 7 that sum, although I did raise that particular point 8 with the contractors, who reminded me that that was part 9 and parcel of the original contract documentation. 10 Yes, they were happy to work with the best priced 11 subcontract, but they were still looking for the mark-up 12 on top of it. 13 Q. Your answer there suggests that there wasn't scope for 14 the mark-up to be changed. Why was that if there was 15 a process under way of renegotiating the on-street 16 price? 17 A. The percentage mark-up related to main contractors' 18 overhead, profit and prelims and managing the 19 subcontractor. What I did get access to was the 20 subcontractor's pricing process, but not the main 21 contractor's process. 22 Q. Okay. 23 Now, I don't think we need to go to the report for 24 this, but the on-street price which Faithful+Gould had 25 described as being grossly excessive was 121 1 GBP53.4 million. We know that the outturn cost for the 2 on-street works was not much lower than that. It was 3 about GBP51.6 million. Does that seem about right to 4 you? 5 A. It sounds about right, yes. 6 Q. Does that tend to indicate that even with the tender 7 process, the price that the Council paid for the 8 on-street works was an inflated one? 9 A. Only insofar as my unhappiness about the mark-up, 10 because I now -- I now could report that the measured 11 work on the on-street was relative to that that was 12 actually built, and that was measured, and then 13 quantified and rated with the tender sums. 14 So the subcontract package I was entirely happy 15 with. 16 Q. Just to be clear, that mark-up, were attempts made to 17 renegotiate that? 18 A. Yes. 19 Q. And rebuffed by the consortium? 20 A. Correct. 21 Q. Now, again, just to put the following question into 22 context, by the time that Faithful+Gould were expressing 23 these views on the consortium's prices, Siemens had 24 reduced their share of the on-street works' price from 25 about GBP20 million to GBP14.5 million. Do you recall 122 1 that broad reduction? 2 A. I remember there being a reduction, but I wouldn't be 3 able to quote the figures. 4 Q. Okay. So it was GBP14.5 million by the time of the 5 Faithful+Gould report. Could we now please look at 6 document TIE00691425. 7 CHAIR OF THE INQUIRY: Are you going on to another matter, 8 Mr McClelland? 9 MR MCCLELLAND: Perhaps leave this until after lunch, 10 my Lord. 11 CHAIR OF THE INQUIRY: Yes. We'll adjourn for lunch. 12 Resume again at 2 o'clock. 13 (12.57 pm) 14 (The short adjournment) 15 (2.00 pm) 16 CHAIR OF THE INQUIRY: You're still under oath. 17 MR MCCLELLAND: Thank you, my Lord. 18 Just before lunch, Mr Smith, you had agreed with me 19 that by the time of the Faithful+Gould report in 20 August 2011, Siemens had reduced their proposed price 21 for the on-street works from about GBP20 million to 22 GBP14.5 million. Do you recall that? 23 A. Yes, I do. 24 Q. Actually on screen I see that's a document that I called 25 for, but if we could in fact first of all look at 123 1 TIE00691424, which is the covering email for that 2 document. 3 Do you see, Mr Smith, that's an email from 4 Steven Bell, dated 16 August 2011, to various people, 5 including you? 6 A. Yes, I can see that, thank you. 7 Q. The subject is on-street price tie commentary. 8 Just reading from the email: 9 "Colleagues, further to our meeting this morning, 10 please find attached the report that Vic mentioned and 11 much of which has been discussed already with 12 Faithful+Gould over the last week. 13 "I hope this helps fully inform the debate on how to 14 best conclude a fair on-street price ..." 15 Then if we could just go to the attached document 16 which we had a screen a moment ago. It's headed up, 17 "tie Commentary on the On Street Pricing". Just 18 recorded there in the first paragraph, we have the 19 Bilfinger Berger UK price of GBP33 million or 20 thereabouts, then the Siemens' original submission of 21 GBP20 million, and then the Siemens' revised price of 22 GBP14.48 million. 23 Do you remember this document? 24 A. Yes, I do. 25 Q. If we could go, please, to page 3, we have a section on 124 1 the Siemens price. 2 Just reading from that: 3 "Siemens submitted an On Street price of 4 GBP20 million. Large amounts were included for Extended 5 Prelims which basically filled the gap between their PPP 6 proposals end date and their On Street programme. 7 Essentially Siemens sought to recover prelims values 8 that were already deemed included in the lump sum for 9 off street. This was highlighted by tie and Siemens 10 reduced their submission to GBP14 million. Siemens then 11 responded to all of the detailed queries posed by tie. 12 However, there are still many issues that remain 13 illogical and a lot of detail missing. There is no 14 attempt to correlate programme with resources for each 15 section of work." 16 Were you familiar with the matters summarised in 17 that paragraph? 18 A. I was, yes. 19 Q. Does what is written there reflect your understanding of 20 the position? 21 A. Certainly the attempt to bring programme to resource was 22 a point of discussion at that time. 23 Q. Yes. My question is really whether the text that's 24 written there reflects your understanding of the 25 position. 125 1 A. Yes, it is. 2 Q. If we read on, please, to page 4, and just reading from 3 there: 4 "tie responded with a further commentary and this 5 was briefly discussed at the commercial meeting on 6 10 August 2011 when Siemens stated that they have 7 arrived at a price for the works and there was to be no 8 further reduction. Infraco confirmed at this meeting 9 that the price was the price and if we did not like it 10 then we could find another contractor. Given this lack 11 of further communication, tie has compiled a price using 12 the information provided and this is detailed in the 13 attached spreadsheet. 14 "In summary, the tie price is currently 15 GBP8.399 million. The range provided previously was 16 7.7 million to 11.1 million." 17 Again, were you involved in or aware of the matters 18 referred to in those paragraphs? 19 A. I was aware, and I'd asked for Graeme Robertson, 20 a programmer, to become involved with tie. 21 Q. Does what's written there reflect your understanding of 22 events at the time? 23 A. Yes. 24 Q. I think we know that the price agreed for the Siemens' 25 on-street works was -- I think it was around about 126 1 GBP12 million. We see from this text here that tie 2 reckoned the cost of that work should be about 3 GBP8.399 million. 4 Did the Council agree to pay Siemens a price for 5 their on-street works which was several million pounds 6 higher than tie could justify? 7 A. That was my understanding of events, yes. 8 Q. Could you just confirm the reason why they agreed to 9 that? 10 A. I think it was in part with the involvement of 11 a programmer who was using Primavera, which was 12 a software system that was employed by BBS, and there 13 was a greater understanding of programme to resource. 14 Q. So do you mean by your answer that the Council, through 15 this programmer, gleaned a greater understanding of the 16 basis for Siemens' price? 17 A. Yes. 18 Q. Were you satisfied from that that the Council were 19 justified in paying the price which Siemens were asking 20 for? 21 A. Correct. 22 Q. I think I'm right in recalling that in his evidence to 23 the Inquiry, Axel Eickhorn of Siemens explained that 24 Siemens' off-street works price assumed a programme only 25 for the off-street works, which was perhaps logical, and 127 1 that to do the on-street works would require the 2 programme to be extended, and that Siemens' proposed 3 price for the on-street works included the costs 4 associated with that extended programme. Does that 5 reflect your understanding of the basis on which that 6 price was agreed? 7 A. I think that's a good summary, yes. 8 Q. Thank you. 9 Just one final point about the on-street works' 10 price before we move on. 11 We know that it ended up, the outturn costs for the 12 on-street works was about GBP51.6 million, and you will 13 recall this morning, we looked at figures in the papers 14 for the mediation where the price quoted for those works 15 in tie's calculations was GBP22.5 million. 16 I think you'll also recall that the target price 17 agreed for these works in the list of agreed points 18 following the mediation was GBP39 million. 19 I appreciate that the GBP22.5 million and the 20 GBP39 million may have been estimates, but are you able 21 to explain why there was such a large variation in the 22 figure for those works over the period from the 23 mediation through to the conclusion of the contract? 24 A. I think in two main headings. One is the prelims we've 25 just talked of, and the second was that of measured 128 1 actual work as executed on site, based on tendered 2 rates. 3 Q. So did it reflect any change in the works from what had 4 been understood to be the scope when tie were giving 5 a figure of GBP22.5 million for it? 6 A. I think in essence one was a forecast and the other is 7 an actual, as built. 8 Q. Was there any part of the increase attributable to the 9 fact that it was necessary to build the turn back at 10 York Place? 11 A. Yes, there would have been. Yes. 12 Q. Do you recall roughly what element of the increase was 13 attributable to that? 14 A. I don't. I would be guessing, sorry. 15 Q. Moving on then to the question of utilities in the 16 period after Mar Hall, there was a report to the Council 17 in October 2010 which reported that utility diversions 18 at that time were 95 per cent complete. Based on your 19 experience in the project later on, do you consider it 20 to have been accurate to say that the utility diversions 21 were 95 per cent complete? 22 A. Definitely not. 23 Q. Are you able to estimate what would have been a more 24 realistic figure? Don't speculate, but if you know, it 25 would be helpful to know. 129 1 A. If I could try to answer your question by way of 2 a benchmark of when I was asked to look at utilities in 3 spring 2011, it was indicated to me by tie a provision 4 of GBP1.9 million would be sufficient. 5 I think the final account for removing utilities and 6 setting them to one -- to each side was just under 7 GBP20 million. It was about 19.8. So without 8 speculating the percentages, that was the extent of 9 underestimate that we faced. 10 Q. That's approximately a tenfold increase? 11 A. Yes. 12 Q. Does that reflect ten times as much diversion work to be 13 done as had been assumed by tie? 14 A. That reflects the extent of the work that had to be 15 done. So to answer your question, as far as the 16 estimate, the estimate was inaccurate, too low. 17 Q. In your written response you refer to tie having 18 supplied you in the summer of 2011 with something you 19 call a closedown statement on utilities. Was that what 20 you were referring to a moment ago? 21 A. Yes. Yes. 22 Q. In your written answers you said that your advice to the 23 Council at the time was not wholly to rely on that. Why 24 did you say that? 25 A. I think my level of confidence on the information that 130 1 was being provided was slowly diminishing, and to put 2 a slightly emotive term around the closedown report, the 3 request that I made was for tie to turn out their 4 pockets, and tell us absolutely everything. Give us the 5 bad news in one tranche. Don't drip feed. 6 So when I started to look at some of the headings 7 that were appearing, again, they seemed very optimistic, 8 and by that time the Council had given me permission to 9 open up slot trenching on the roadway in addition to 10 radar and CAT scanning over the area. 11 So we were ascertaining not just the -- if there was 12 something there. It was, and at what depth, and it's 13 those two factors that you have got to bring together to 14 get an accurate statement. 15 CHAIR OF THE INQUIRY: Was that only in respect of work 16 still to be done on utility diversions, or did you carry 17 out any such investigations in relation to work that had 18 been apparently completed? 19 A. It wasn't so much an investigation, but what had become 20 known to me was the unhappiness of Scottish Water in the 21 provision of MUDFA works. The immediate example that 22 comes to mind was that of fire hydrants that were not to 23 the appropriate British standard. That was work that 24 had been carried out prior to mediation, not up to 25 standard, notwithstanding that it was perhaps in the 131 1 right place. But it was just another indicator of this 2 piece of work that really wasn't up to the mark. 3 CHAIR OF THE INQUIRY: Going to a slightly different matter, 4 in relation to the MUDFA works that apparently have been 5 done, in the section that hasn't been built from 6 Picardy Place to Newhaven, has any investigation being 7 carried out there in relation to the work that was 8 undertaken, and are you satisfied that it was all done 9 to a standard that is and can be acceptable? 10 A. Within tram 1, if I can refer to the project that I was 11 involved in, further investigation work was not carried 12 out. What was flagged up to the Council was the 13 inadequacy of what we'd heard from Scottish Water, and 14 that any future extension should take due regard and 15 provision for remedial works to be carried out in that 16 section from -- from York Place to Newhaven. 17 CHAIR OF THE INQUIRY: Thank you. 18 MR MCCLELLAND: You referred there to your dissatisfaction 19 with the information that was supplied to you about 20 utilities. Were there any other respects in which the 21 information supplied to you by tie was in your view 22 inadequate or deficient? 23 A. There had been indication from tie that the Council 24 would be due to be paid by Scottish Water a substantial 25 sum of money for betterment to their asset. 132 1 In actual fact, after many months of investigation 2 and negotiation with Scottish Water, it turned out to be 3 quite the opposite case, that money was due from the 4 Council to Scottish Water, and that work was carried out 5 in conjunction with myself interfacing with a gentleman 6 by the name of Mark McEwen from Scottish Water and with 7 resource support from Turner & Townsend, working with 8 Scottish Water's technical team. 9 Q. Moving away from utilities, in relation to any other 10 information that tie were supplying, did you have any 11 concerns with the quality or volume of information that 12 was available? 13 A. The stage at which third party agreements had been 14 reached was poor, particularly with Network Rail and 15 asset protection measures. 16 There was also issue with Scottish Power cable which 17 is situated within a void at Haymarket Station, and of 18 course there was legal agreements still to be put in 19 place. 20 Wall fixing agreements hadn't been completed and 21 potentially that was a tripping point to the programme, 22 to mention just a few. 23 Q. In your written answers you described having had some 24 difficulty in obtaining information from tie's files. 25 To what extent was that a generalised problem and to 133 1 what extent was it just a specific one relating to the 2 points that you've just discussed? 3 A. I think it was -- it was a general position. The 4 ability to retrieve, I think, was questionable, where 5 files had been kept, and perhaps there wasn't an 6 available resource to make that investigation to provide 7 information, but at the end of the day we went about our 8 business by engaging with those other agencies in order 9 to build up a more accurate picture and ultimately offer 10 up solutions that we have delivered to date. 11 Q. When you said that there was difficulty retrieving 12 information, why was there difficulty in that regard? 13 A. May I refer to my most recent experience in trying to 14 retrieve information for the Inquiry. 15 It struck me that the information had been captured 16 and retained in a monolithic format, and a very 17 difficult system of filing to pick out any one piece. 18 So to identify what you were after and to 19 effectively retrieve it proved to be quite cumbersome. 20 Q. Was that a problem of somebody coming to the filing 21 system who had not been involved in working with it when 22 it was set up? By that I mean was the winding down of 23 tie and the making redundant of their staff a factor 24 which made it more difficult in retrieving information 25 from that filing system? 134 1 A. I think that probably would be speculation on my part, 2 sir. I don't know, is the answer. 3 Q. But your evidence is that certainly you found it 4 difficult to find documents that you needed? 5 A. Correct. 6 Q. To what extent did that inhibit you in your work, and to 7 what extent did it inhibit the project more generally as 8 it ran forward after the wind-down of tie? 9 A. I think in the period of March to September or thereby, 10 2011, there was a question mark over the Council's 11 credibility when we would say to Network Rail that: we 12 don't have that information, can we -- can we take some 13 information from your files. 14 So it probably impacted in that period, but beyond 15 that we were starting to build new working relationships 16 with particularly Network Rail, particularly 17 Scottish Water, to a lesser degree Scottish Power, but 18 it did mean that it took us longer to get into 19 agreements such as the Dublin Street agreement, wall 20 fixing agreements that I have mentioned, and third party 21 land issues which ultimately resulted in compensation 22 payments. They seemed to have been left at a very early 23 stage of negotiation. 24 Q. Was it your impression that a lack of information for 25 those reasons in any way led to an increase in costs for 135 1 the project? 2 A. I don't think an increase in costs as such. Certainly 3 time cost, cost in time, yes. 4 Q. We've moved slightly off the topic which we'd started 5 on, which was this question of utilities. I think you'd 6 said that after mediation the Council took steps to 7 instruct further utilities investigations. 8 Just to be clear, why was that needed? 9 A. Initially really lack of confidence that if things had 10 been so bad in the previous work, how can they be so 11 good now? 12 In particular, I seem to recall at the June Council 13 meeting, in the Council chamber -- I'm trying to 14 remember the councillor's name, but one particular 15 councillor quizzed me about certainty and utilities, and 16 I think my answer was along the lines of: there is no 17 certainty, but what there is definitely the need to do 18 is to carry out further investigation work. 19 Q. And the investigation work at that was carried out, did 20 that improve knowledge about the nature of utility 21 diversion work that was still needed? 22 A. Yes, and it did inform ways of working which you may 23 want to come to later on, but the short answer is yes. 24 Q. Were the investigations that were done particularly 25 expensive or difficult to carry out? 136 1 A. They weren't difficult or particularly expensive to 2 carry out, but they did cause disruption to the 3 travelling public. As the trench is being cut 4 overnight, the plate is put down, all the noise and 5 impact that that brings. Of course, the plate is 6 brought back up the following day and so on and so 7 forth. 8 So it wasn't a decision I think the Council took 9 lightly, but they recognised that something of that 10 magnitude of investigation required to be done. 11 Q. Were you aware of reasons why investigations of the 12 types you just described had not been carried out at an 13 earlier stage? 14 A. No. 15 Q. Project papers from late 2011 indicate that more than 16 1,000 utility clashes had been identified. By utility 17 clash, does that simply refer to a position where the 18 utilities would have to be moved to accommodate a tram 19 design, or alternatively the design would have to be 20 changed to work around the utilities? 21 A. Ideally the former, but as I mentioned this morning, you 22 could do the latter, but it would be a more challenging 23 thing to do. 24 Q. Did any of these clashes concern utilities which had 25 already been moved? 137 1 A. Yes. 2 Q. What's your understanding of the reasons why that 3 happened? 4 A. Lack of co-ordination between the knowledge of the MUDFA 5 team being transferred to the designers of the tram 6 system. 7 Q. How significant a problem was that, utilities having to 8 be moved twice? 9 A. Well, my personal view, I found it horrendous, because 10 the disruption that you're causing to the city was 11 happening twice over when it should have been done once. 12 Of course, the cost to do that is simply doubling 13 the cost of the work in the first place. You're also 14 leaving yourself open to very sharp criticism by 15 utilities companies who would question what it is that 16 we were doing to their asset. 17 Q. Sitting here today, are you able to put a cost figure 18 that related to this double moving of utilities or not? 19 A. No, it would be contained within that GBP19 million that 20 I spoke of. 21 Q. Other witnesses to the Inquiry have referred to 22 a strategy for dealing with utilities called the bow 23 wave. Are you familiar with that term? 24 A. That was my term, yes. 25 Q. Your term? 138 1 A. Yes. 2 Q. Can you explain to us what that means? 3 A. Part and parcel of understanding the greater amount of 4 utilities to move was to sit with the consortium and 5 discuss ways of smarter working. 6 Maybe not entirely as prescribed in the contract, 7 but a better way of going about our business 8 collectively. And the bow wave was quite simply to have 9 an advance squad of utility diversion contractors or 10 contractor to be moving slightly ahead of the 11 consortium, Bilfinger and Siemens. 12 So as the investigation work had been carried out, 13 the utility was then moved in line and in conjunction 14 with the required design, and thereafter the tram 15 construction was -- meaning the track slab was falling 16 in behind that, and that effectively created a bow wave 17 running through the city from one end to the other. 18 Q. Yes. Do you have any views on -- first of all, did you 19 regard that approach as being a successful one to 20 dealing with the interface between utilities diversions 21 and infrastructure works? 22 A. I thought it was a success on a number of points. 23 Primarily it was exhibiting a level of co-operation that 24 had not been there before between the parties. 25 Secondly, it brought about a real saving in time and 139 1 programme, and therefore the ability to reduce the 2 overall cost of the project. 3 Q. If that level of co-operation between the different 4 contractors hadn't been present, presumably then the bow 5 wave approach would have been less likely to work? 6 A. Correct. 7 Q. Yes. 8 Would you say that there was something special about 9 the level of co-operation on this project, given its 10 previous history? Was the level of co-operation over 11 and above what you would expect typically on a project? 12 A. I think where we ended up is where I would have expected 13 a project of this size to have commenced in the first 14 place, with the aid of a strong team building and 15 generation of trust with the participants before you 16 actually put a spade in the ground. It took probably 17 from March to September/October to bring about a feeling 18 of willingness with and by the participants to consider 19 such matters as the bow wave, and the other initiative 20 that was offered up to us was that of joint working 21 within zones of the site, and that was just not going to 22 happen beforehand. But that made a big difference. 23 Q. If we could have on screen, please, document 24 CEC02087245. You can see from the screen there that 25 this is the Edinburgh Tram Extension Construction 140 1 Delivery Plan from June 2015 which was drafted in 2 support of the outline Business Case for the extension. 3 Are you familiar with this document? 4 A. I don't recognise the cover, but that's not to say 5 I wasn't involved. 6 Q. If we could just go to page 5, please. 7 This is in the executive summary. Right down at the 8 bottom, under the section headed up "Construction Plan", 9 the final paragraph: 10 "Through the lessons learned from the construction 11 of the first phase of tram (York Place to Edinburgh 12 Airport) the following two general principles have been 13 assumed in developing this construction and delivery 14 plan." 15 Reading over the page: 16 "1. Establish traffic management which opens up 17 large sections of the work site. 18 "2. Adopt a continuous approach to construction 19 whereby the diversion of utilities and the installation 20 of the tramway are combined avoiding the need to 21 excavate twice thus minimising disruption, minimising 22 cost and speeding up the construction process. 23 "It is proposed that a Main Contractor is procured 24 to complete all works, including utility diversions." 25 Now, with the exception of that latter bit about the 141 1 same contractor doing the works, was that essentially 2 the bow wave approach that was used? 3 A. The first one was an initiative that I called the 4 radical traffic management plan, and that opened up 5 large sections of tram 1. It also created access points 6 through Princes Street which were reduced down to single 7 lane. By and large that was as a result of feedback 8 from stakeholders, neighbours, and retailers and the 9 like, who were keen to have the duration of the project 10 reduced and particularly the number of Christmas trading 11 periods it impacted. 12 That took a very -- a very brave reference point 13 from the elected members, because when I presented that 14 along with Sue Bruce and others, we had to point out 15 that this radical traffic management plan would have 16 increased disruption over a shorter period of time. And 17 therefore on balance it would be a good thing to do. 18 It would also allow the continuous approach to 19 construction to work even more effectively. So those 20 two initiatives that we promoted in tram 1 are 21 absolutely two lessons to be learned if the extension 22 goes ahead in the future. 23 Q. The first point there refers to having large sections of 24 work site. What was the rationale for having large work 25 sites? 142 1 A. Continuous working which in turn it led to more 2 efficient working. Reducing the amount of double 3 handling, reducing the amount of site management and 4 traffic management going up and down the site. 5 What it did mean is that it allowed us to consider 6 the number of crossings that could be effectively 7 provided, and the number of crossings were of great 8 interest to the retailers because that gave them the 9 chance for footfall to travel across the site. 10 Having said that, from memory, I think every 11 crossing movement caused something in the order of 12 GBP10,000 to GBP15,000. So it wasn't something that you 13 could simply agree to willy nilly. It had to be 14 a structured arrangement. 15 Q. Is it your view that this approach to the co-ordination 16 of utility diversions and infrastructure works would 17 always be the correct one for a tram or light rail 18 project going through a city centre, or does one have to 19 tailor it to the circumstances? 20 A. I think that's the right approach in principle, but you 21 would always, depending on the city, the grid pattern, 22 the traffic light systems, you would always have to 23 tailor it. But yes, is the simple answer. 24 Q. The approach that you describe of having the utility 25 diversion contractor work, just ahead of the 143 1 infrastructure contractor, presumably you would still 2 come across unexpected utilities using that method. 3 Would that give rise to, for example, for a need for 4 design solutions to be come up with under tight 5 timescales, and approvals to be obtained from utility 6 companies under tight timescales? If so, how does one 7 mitigate the risk of overall delay arising to the 8 infrastructure works? 9 A. Absolutely, and the whole approach that was adopted 10 after mediation was not to look at any single problem in 11 isolation, but to look at things in the round. So the 12 very point that you make there in your question. 13 We needed to make sure that dividends were paid from 14 this approach by having a design and consents, I think 15 initially weekly meeting, where the various parties from 16 roads, planning would sit round with designers, we would 17 have feedback from what we were coming across within the 18 utilities. 19 Within the meeting cycle, whether it be one week or 20 two weeks, issues were raised, solutions were agreed, 21 and instructions given. 22 Q. Did that process you describe involve participation by 23 the utility companies? 24 A. Yes, it did. And in addition to them participating in 25 those round the table discussions, we also had bespoke 144 1 one-to-one meetings with Scottish Water in particular, 2 who have a fairly detailed approval process that needs 3 to be gone through, and you really can't jump stages. 4 You do need to work from A to Z, and we ensured that the 5 designers working with Bilfinger in particular were 6 attending those Scottish -- I used to chair them at 7 11 o'clock on a Monday morning. 8 Q. Was it your experience that with those arrangements, 9 delays resulting from unexpected utilities, for example, 10 could be avoided or sufficiently mitigated? 11 A. Mitigated and minimised. 12 Where -- we did also recognise that in the event of 13 us impacting on Bilfinger working in that joint working 14 zone, we needed to consider how we would not create 15 a prolongation issue. So it wasn't just again to look 16 at something in isolation. It was to take that whole 17 solution forward. 18 Q. In your written answers you refer to somebody called 19 Stephen Lewcock as a dedicated utilities project 20 manager, and described his involvement as absolutely 21 vital. 22 Can you just please expand on his role and why you 23 regarded him as vital. 24 A. He acted almost like -- almost from a previous life now, 25 a clerk of works. He had a roving role to move up and 145 1 down the site. Matters that were immediately brought to 2 his attention. 3 He had a short line of communication through 4 Turner & Townsend to myself for matters of resolution or 5 recording of whatever it was we came across. 6 We weren't relying on a whole chain of 7 communication. It was one, two, three steps away from 8 what he was observing on the ground. He had a really 9 good team round him. 10 CHAIR OF THE INQUIRY: Was there not someone equivalent to 11 that performing the function of clerk of works under the 12 contract before you took over? 13 A. I don't remember hearing of anyone doing -- performing 14 that function. It was -- it seemed to almost rely 15 heavily on a design and build approach from Carillion or 16 Clancys, I think was the other one. I don't remember 17 there being a Stephen Lewcock. 18 CHAIR OF THE INQUIRY: In a contract of this type, would you 19 expect someone or maybe more than one person to perform 20 in those functions? 21 A. Absolutely. 22 MR MCCLELLAND: Moving on from that, Mr Smith, you held the 23 post of senior responsible owner for the City of 24 Edinburgh Council on the project; is that correct? 25 A. From late 2012, I think it was. I could be corrected on 146 1 that, but I think it was round about November or 2 December, at the point when David Anderson left the 3 Council. 4 Q. The timing of you taking up that post was something 5 I was hoping we could clarify. 6 The evidence of Mr Anderson is that you had de facto 7 taken over the role from about August 2011. Would you 8 accept that? 9 A. Everything that I have described to you today was 10 executed under the auspices of me acting as the 11 independent certifier from the point of mediation to 12 completion. 13 When the title later came my way, my role didn't 14 change. It was simply a badge. 15 Q. Mr Anderson was the SRO, certainly in the period up to 16 the summer of 2011. If it's his evidence that he was no 17 longer performing that role from then forwards, do you 18 accept that in a de facto sense, you were carrying on 19 the SRO role from about August 2011? 20 A. Yes, I agree with that. I think that's fair. I was 21 writing Council reports for him to approve and 22 subsequently present. So yes, I would agree with that. 23 Q. What did you understand to be your responsibilities as 24 SRO? 25 A. I think it was to ensure that the elected members and 147 1 Council officers were given full and detailed 2 information of the processes and the construction that 3 was happening on the ground. 4 I've got to say that I didn't feel that that was any 5 different to the role of acting as the independent chair 6 or the independent certifier in carrying out day-to-day 7 works. 8 Q. Did you see the SRO role as being one in which you were 9 required to be sufficiently senior within the 10 organisation to make decisions about it? 11 A. I didn't feel it gave me any additional empowerment at 12 all. I felt that I had more than enough empowerment 13 with the joint appointment of independent certifier. 14 I was given respect by the various contractors and 15 consultants. So I didn't feel there was a need for 16 additional stripes on my shoulder, as it were. 17 Q. Did you understand that in the SRO role, you were wholly 18 accountable to the Council for the success of the 19 project? 20 A. I did, and Sue Bruce made it quite clear that if the 21 contractors were content with me taking that mantle on, 22 that that would be the case, and there was no dissent 23 from the contractors at all. 24 Q. Okay. 25 As you've said, as well as being the SRO, you were 148 1 also the independent certifier after the Infraco 2 contract. In that role, is it correct that you 3 adjudicated on disagreements between the Council and the 4 consortium that they had been unable to resolve 5 themselves? 6 A. Yes. 7 Q. How were you able to perform that role of independent 8 certifier while simultaneously acting as the SRO? 9 A. I felt that if I discharged my duties as the independent 10 certifier, recognising the contract, recognising the 11 intent, handling a process of engagement, then it would 12 come to an outcome that would not be in conflict with 13 that of the Council or the aims of an SRO. 14 Q. Well, do you accept that as SRO your duties were solely 15 to the Council? 16 A. Yes. 17 Q. Do you recognise that as independent certifier, you owe 18 duties of care both to the Council, but also to the 19 consortium companies? 20 A. Absolutely, and that was explicit in the independent 21 certifier's contract. 22 Q. Does that not itself demonstrate that there was 23 a conflict of interest between the two roles? 24 A. Potentially, that could be perceived, but there was 25 never any questioning or raising of doubt from any 149 1 quarter in the period from -- from 2011 through to 2 completion in May 2014. 3 Q. We could put forward a hypothetical scenario that as 4 independent certifier, you adjudicate on a dispute 5 between the Council and the consortium, and your 6 decision is one which, viewed objectively, is capable of 7 being challenged as too favourable to the consortium. 8 Was there anybody within the Council side of the 9 project who would have challenged your decision? 10 A. I think there's a number of people. Just to give a bit 11 of a roll call, there would be Alasdair Sim, who had 12 been tie, TUPE-ed over to the Council. Bob McCafferty 13 from the Council. Alan Coyle, Alastair Maclean would 14 all have such detail, and I've got to say that given the 15 good quality of support that we had from three officers 16 from Transport Scotland, and I would often take 17 mentoring from them, had they heard of something that 18 was not as it should be at one of the joint forums, or 19 indeed at the Tuesday/Thursday meeting, then any one of 20 them had the ability, including Turner & Townsend, 21 incidentally, to have raised up their hand and said that 22 they either didn't agree or they had a counter position. 23 Q. But as the SRO within the Council, were you not 24 effectively the most senior person with expertise in 25 relation to these matters within the Council's 150 1 governance structure? 2 A. No, I would say that within Turner & Townsend, 3 Gary Easton and Mike Mackenzie would be able to 4 articulate in far more detail any nuance that perhaps 5 I would have overlooked, and they had a sole duty of 6 care to the Council. They were party to fortnightly 7 meetings and all matters were discussed, and to their 8 credit they would capture all various -- all the various 9 points in some considerable detail in their monthly 10 report. 11 Q. I think you say in your written answers that, as 12 a matter of fact, nobody ever challenged the decisions 13 that you took as independent certifier? 14 A. I did. That's not to suggest that in any way people 15 were blocked from that -- that action. I think 16 I mentioned that because the ability to challenge or to 17 describe a different outcome was always made available 18 to all those parties when, as it turned out, no one took 19 up that position. 20 They heard the detail, they'd heard of the process, 21 and at that point there was no further questioning of 22 the certification. 23 Q. Is that perhaps not because they recognised that, as 24 well as being the independent certifier, you held 25 a senior position within the Council's governance 151 1 structure, so they would perhaps take the view there was 2 no point in challenging what you had said wearing your 3 independent certifier hat? 4 A. I think anyone that knows me or anyone that knew me from 5 the tram project would know that if there was an issue, 6 I would be willing to listen. 7 I didn't take those decisions in isolation. I would 8 talk to the various parties individually, collectively. 9 I would gather up information on the back of their 10 position papers. I would pre-circulate the view that 11 I had come to. So there was never a handing down 12 of: this is the decision and for goodness sake don't 13 dare challenge me. That is just not my style. 14 Q. Okay. 15 Now, after the Settlement Agreement had been put in 16 place, do you recall that the parties re-organised the 17 work programme to build up something that was referred 18 to as a time bank of 22 weeks? 19 A. I do, yes. 20 Q. As I understand it, that wasn't an amendment to the 21 programme as such, but rather the build-up of slack 22 within it, if you like. Is that correct? 23 A. Yes, this is -- I'm trying not to make this 24 overcomplicated. So I'll probably get lost myself. 25 But I was concerned when I first stepped into the 152 1 project that there wasn't a joint programme. Because 2 I'm used to there being a joint programme that's owned 3 by the client and the contractor. 4 This was a contractor-owned programme. Within any 5 programming software, you can arrange for filters, 6 resource levelling, and other such devices that can have 7 an influence on the end date. 8 One of the other recommendations which the Council 9 took up was for us to bring in a chap, name of 10 Graeme Robertson, who is an expert in Primavera, and he 11 also sat with Stephen Sharp, I think his name was, from 12 the consortium. They were talking the same language. 13 We had to respect that that was the contract 14 programme, a contractor's programme. But what I also 15 recognised that if we were going to have the benefit of 16 the bow wave and the joint working and opening of sites, 17 if the contractor's programme was going to be impacted 18 in those areas, I needed a reserve. I needed to offer 19 the Council some protection that if we lost a week here, 20 that week didn't pop out at the end with the appropriate 21 prolongation costs. 22 So we -- I'd asked for everyone to come to 23 a meeting, October/November, I think it was, 2010. I'm 24 losing track now. 2011, I think it was. Yes. 25 October 2011. And the challenge was that everyone 153 1 should arrive with at least three ideas of cost 2 engineering. 3 One of the suggestions from the contractors, I can't 4 remember which one it was, was to look at trying to 5 condense elements of the programme without it affecting 6 their contractual position, and the way that I tried to 7 present that in a manageable format was to say: I'm not 8 going to challenge your programme, but I do see there 9 are 22 weeks in there, we all can see that; so 10 can I take those 22 weeks and put them as a time bank 11 that if we, using McNicholas to move utilities, impact 12 on your working with any one zone, will spend out of 13 that time bank as opposed to pushing out the end date, 14 therefore costing more in prolongation and impacting the 15 overall programme of delivery. 16 So that's where the time bank came from. 17 Q. Okay. Thank you. 18 It was the case, I think, that nearly all or if not 19 all of the 22 weeks were then subsequently used up by 20 utility delays? 21 A. I think we ended up with two or three days left at the 22 end of it, yes. 23 Q. So the existence of that time bank saved the Council 24 from extension of time claims relating to those delays? 25 A. Absolutely. Indicative value, GBP5.5 million, 154 1 GBP6 million. 2 Q. Now, is it not the case that, whilst there were no 3 extension of time claims made, the Council did pay the 4 Infraco consortium for their part in creating the time 5 bank? 6 A. Yes, that's right. 7 Q. I think the sum paid for that was GBP6.45 million; do 8 you recall that? 9 A. Yes. 10 Q. Was it the case that the Council agreed to pay that sum 11 against the advice of Turner & Townsend, whose view was 12 that the Council were not contractually liable to pay 13 it? 14 A. That's the standpoint that Turner & Townsend took from 15 it, yes. 16 Q. Yes. Is it the case that the Council agreed to pay it 17 against that advice? 18 A. Yes. 19 Q. Can we have a look, please, at document WED00000097. 20 Do you see here that this is a note of a discussion 21 on 29 October 2012, and the attendees were you and 22 Gavin King from the Council and Julian Weatherley and 23 Gary Easton from Turner & Townsend. 24 Were Mr Weatherley and Mr Easton the individuals 25 from Turner & Townsend whose advice it was that the 155 1 Council were not contractually liable to pay that sum? 2 A. Yes. Probably with support from Mike Mackenzie as well 3 from Turner & Townsend. 4 Q. If we go on to page 2, please, just reading from 5 paragraph 1: 6 "A meeting was held with Colin Smith (SRO City of 7 Edinburgh Council) on 29 October 2012 to discuss the 8 governance arrangements supporting the valuation 9 certification and issue of CEC Change order for 10 GBP6.45 million." 11 That's the change order relating to payment for 12 creation of the time bank; is that correct? 13 A. That's right, yes. 14 Q. Then, paragraph 3: 15 "CS [Colin Smith] stated that his authority to issue 16 the change for GBP6.45 million came from the project 17 Senior Management Team which includes Sue Bruce (CEC 18 Chief Executive). This issue had been the subject of 19 multiple discussions with the Senior Management Team at 20 CEC's internal Tuesday and Thursday meetings." 21 Paragraph 4: 22 "CS referred to the MOU [Memorandum of 23 Understanding] between BBS and CEC (Turner & Townsend 24 have not had sight of this): this document made 25 reference to potential benefits which CEC would want 156 1 back from BBS. CEC intend to work with BBS to releasing 2 these benefits at some future stage of the project. 3 Details of the potential benefits were not provided." 4 Paragraph 5: 5 "Colin Smith confirmed that tie change Order (TCO 6 620), instructing the change of GBP6.45 million to the 7 contract sum and signed by Colin Smith in his role as 8 Senior Responsible Officer, is valid under the Infraco 9 contract." 10 Then reading on to paragraph 7: 11 "CS agreed, in his role as Independent certifier, to 12 issue an Independent Certifier's certificate to the 13 value of the milestones approved by CEC in respect of 14 the drawdown of the GBP6.45 million." 15 So do we understand from this memo that authority 16 from the Council senior management came for the payment 17 of GBP6.45 million? 18 A. Yes. I mean, not just -- short answer is yes. 19 I had no authority to issue any instruction without 20 me receiving instruction from the senior management 21 team. I gave advice to the senior management team on 22 a Tuesday and Thursday. So yes, that is correct, as you 23 described. 24 Q. What's your understanding of the Council's justification 25 for paying the sum? 157 1 A. Other matters that were being talked of under Section 4, 2 T&T have not had sight of this, would include the 3 creation of a -- what I call the client target 4 programme. 5 That was to take the programme that we were looking 6 to ensure did not drift beyond July 2014. We were 7 bringing together with that the CAF programme which, if 8 you were to attach that consecutively, would have looked 9 like May 2015 for completion. 10 Separately, we had had CAF agree that they would 11 create joint working and that would commence 12 December 2013/January 2014, and that using the client 13 target programme, BBS would exert their reasonable 14 endeavours to bring the programme from July to May, and 15 as it turned out, I think it was 30 May, we had 16 handover. 17 The benefit to the Council was that that brought the 18 fare box revenue on stream months ahead of the BBS 19 programme, and many months ahead if it had been 20 a consecutive tying together of the BBS programme and 21 then CAF. We had had people agree that there would be 22 concurrent working from December 2013, and those 23 component parts resulted in the benefit to the project 24 and to the Council and to the fare box commencing in May 25 as opposed to end of -- I think it was end of July 2014. 158 1 Q. It may be my fault, Mr Smith, but I'm afraid I don't 2 quite follow the answer. 3 What I'm interested in is the Council has decided to 4 pay GBP6.45 million over the advice of their project 5 managers, Turner & Townsend, and I would just like to 6 understand why the Council did that. 7 A. They believed that there were benefits in doing so which 8 would result in the project being handed over in 9 May 2014. 10 Q. Were those benefits in fact obtained? 11 A. Yes. Yes. 12 Q. What was the value of those benefits? 13 A. I have never been privy to Edinburgh Trams' revenue 14 stream from becoming operational. So I can't answer 15 that question. 16 Q. So were you involved in the discussions where the 17 Council worked out its rationale for agreeing to make 18 this payment? 19 A. Yes. 20 Q. You were? 21 A. Yes. 22 Q. You but don't recall the details? 23 A. I'm not sure I would even have been aware of what the 24 actual value that was built into the business plan for 25 tram, but the benefit of having revenue and the system 159 1 operational months ahead of the programme, I certainly 2 was a participant in that discussion at the Tuesday and 3 Thursday meetings. 4 CHAIR OF THE INQUIRY: Can I just ask. I don't quite 5 understand. You refer to the CAF programme being 6 brought forward to work simultaneously, as it were, with 7 the Infraco, if I can still call them that, programme. 8 What was the CAF programme? Was that testing the 9 trams on the track? 10 A. You're absolutely right. That part of the CAF programme 11 was testing and commissioning the trams. 12 CHAIR OF THE INQUIRY: So that as soon as the section from 13 the -- as soon as the depot was complete, then trams 14 could be delivered to be stored in the depot. 15 A. Yes, that's right. 16 CHAIR OF THE INQUIRY: As soon as the section from the depot 17 to the airport were complete, they could do testing -- 18 test running of the trams in that section. 19 A. That's correct. That was a mini test track, yes. 20 CHAIR OF THE INQUIRY: So that why was the original 21 suggestion that it would be consecutive to the BBS 22 timescale? 23 A. To meet with the independent -- to meet with the ROGS 24 regulations and the certification process, there needs 25 to be running on the whole system, and that needs to 160 1 have testing and commissioning and shadow running, and 2 it's those three segments that really would have taken 3 part from July 2014 through to March 2015. 4 By having the parties agree they would slide that 5 together, the outcome benefit was operational by 6 May 2014. 7 CHAIR OF THE INQUIRY: The other thing I wondered about was 8 you spoke about the 22 weeks' bank, as it were, which 9 saved extension of time claims valued or estimated by 10 you at between GBP5.5 million and GBP6 million. Then 11 you've spoken about the GBP6.45 million. Was that for 12 creating the 22-week bank? 13 A. That was for creating the bank, yes. 14 CHAIR OF THE INQUIRY: So where is the saving if it's -- if 15 you're saving between GBP5.5 million and GBP6 million, 16 because you don't have extension of time claims, but to 17 get that saving you're spending 6.45 million? 18 A. The feeling was that the -- the prolongation would be 19 over and above any cost effect of claims within the 20 various zones. In other words, we would not have been 21 given the benefit of early handover and then in addition 22 to which there was the cost of the claim coming behind 23 that. 24 CHAIR OF THE INQUIRY: Thank you. 25 MR MCCLELLAND: In paragraph 4 of that note there's 161 1 reference to benefits that CEC hoped to work with BBS in 2 releasing. Is that the various programme benefits 3 you've just been discussing? 4 A. Yes. 5 Q. The minute records that details of these benefits were 6 not provided. Why were these not discussed with 7 Turner & Townsend? 8 A. I can only think at that time that they weren't fully 9 bottomed out. There would be no reason for 10 Turner & Townsend not to be aware of at least the 11 thought process. Maybe not fully agreed, but certainly 12 the thought process. There was no reason for them not 13 to have knowledge of that. 14 Q. In paragraph 5 there's reference to you issuing a change 15 order in your role as senior responsible officer for the 16 payment. Then in paragraph 7, there's reference to you 17 as independent certifier, issuing a certificate in 18 respect of it. 19 Were these both things that you were doing on 20 instruction from the executive officers of the Council? 21 A. From the SMT on a Tuesday and Thursday, yes. 22 Q. Yes. Were you bringing independent judgement to either 23 the decision as SRO or as independent certifier? 24 A. On the Tuesday and Thursday meetings, I would bring the 25 various opinions, opinions from the Transport Scotland 162 1 officers, opinions from Turner & Townsend, opinions from 2 the Council officers, Bob McCafferty and the like. So 3 it would be the whole suite of discussion. There would 4 be nothing in isolation. There was a total transparency 5 in arriving at what ultimately became an instruction for 6 me to proceed on the basis that's outlined here. 7 Q. I'm just trying to be clear about who was the 8 decision-maker that this payment should be made. 9 A. Ultimately it would go back to the chair and vice chair 10 of the Tuesday and Thursday meeting. 11 Q. So again, Sue Bruce and Vic Emery? 12 A. Yes. 13 Q. Can we just go on to the next page of the minute, 14 please. Paragraph 9 reads: 15 "CS had commenced a process of reviewing 16 Turner & Townsend's existing appointment with a view to 17 providing 'more wriggle room' for Turner & Townsend to 18 advise in the overall interests of the project." 19 What does that refer to? 20 A. There was a feeling that Turner & Townsend were looking 21 to expand, which I didn't disagree with, their ability 22 to consider all aspects of the project and impact. So 23 in other words, going back to the build-up that I was 24 trying to express about there being no single one 25 component, it's about bringing those components 163 1 together, and in any one position, with the benefit of 2 those components together, does that give an overall 3 benefit to the project and to help them not simply look 4 at perhaps a narrow issue here or there. It was to open 5 up the scope of their thinking. 6 Q. Turner & Townsend advice here had been based on the 7 terms of the contract; is that correct? 8 A. Yes. 9 Q. So in giving them more wriggle room, was their remit to 10 be expanded beyond simply looking at the contract terms 11 to considering perhaps issues more widely about what was 12 perceived to be in the wider commercial interests of the 13 project? 14 A. Absolutely. Matters such as we touched on, the CAF 15 programme and the ability to bring early fare box 16 revenue by early operations. 17 Q. Do you recall that in August 2011 the Council decided 18 that the line should stop at Haymarket, and then in 19 September 2011 reversed that decision and decided that 20 the line should go to York Place? 21 A. I do, yes. 22 Q. Those decisions caused delay to the Infraco works 23 programme; is that correct? 24 A. Absolutely, yes. 25 Q. I think, as independent certifier, you certified that 164 1 the consortium were entitled to a payment of 2 GBP4.541 million as a consequence. Do you recall that? 3 A. That's right, yes. 4 Q. If you could just bring up on screen, please, document 5 CEC02031937. 6 We see that this is your decision that we've just 7 been talking about? 8 A. Correct. 9 Q. Then on page 2, just the top two paragraphs, you say 10 there: 11 "I confirm that the Settlement Agreement should 12 incorporate the Revision 4 Programme." 13 Is that the programme reflecting the delay between 14 August and September? 15 A. Yes, 3A, that's right. 16 Q. "The Settlement Agreement Contract sum should be 17 adjusted to take account of the impact of the change 18 between Revision 3A and Revision 4 programmes." 19 Then moving on to the next page, just the second 20 last paragraph: 21 "To conclude, the effect in my opinion of movement 22 from Revision 3A to Revision 4 as at 15 September 2011 23 on the Contract Sum is an additional [GBP4.5 million]. 24 As such the milestones should be reviewed and agreed." 25 Was it your intention by this decision that the full 165 1 sum of GBP4.5 million should be paid without more, or 2 was payment to be dependent on proof by the consortium 3 that it had actually incurred costs of that level? 4 A. That opinion was based on the Rev 3A programme and the 5 impacts of moving to Rev 4. 6 That was interrogated not just by me, but by the 7 consultant that we had taken on, the chap Robertson 8 I mentioned, and he and I were testing if those 9 movements were accurate, and that that Rev 4 painted 10 a reasonable picture of the instruction that the Council 11 had given to the contractor not to demobilise. 12 Q. So my question was whether your decision was that that 13 additional sum should simply be paid, or whether payment 14 was to be in any sense dependent on proof by the 15 consortium of costs they had incurred? 16 A. It wasn't dependent on proof by the consortium on costs. 17 It was dependent on the impact as seen to the two 18 programmes. It wasn't proof of payments. 19 Q. Yes. So in your view, simply as a consequence of your 20 decision, was the Council to pay the full 21 GBP4.5 million? 22 A. Yes. 23 Q. That sum was in fact paid? 24 A. Yes. 25 Q. Was that again done against the advice of 166 1 Turner & Townsend? 2 A. I am not sure that they actually agreed to that 3 particular figure, but I don't think it was against the 4 advice of Turner & Townsend that monies should be paid. 5 Q. If you could go, please, to document CEC02027146. You 6 will see that this is a Turner & Townsend progress 7 report for March to April 2013. 8 If you would go to page 25 of that, please. 9 Paragraph 5.1.3, paragraph headed up, "Revision 3A to 10 Revision 4": 11 "A detailed description of the background to the 12 cost impacts of the Revision 3A to Revision 4 programme 13 change was included in Progress Report 12. CEC 14 confirmed the requirement to issue a change order for 15 GBP4.541 million and reference is made to the 16 Certifier's opinion which requires that only costs 17 incurred will be payable. GBP2.365 million has been 18 certified to date, as instructed by CEC, although 19 Turner & Townsend have advised that Infraco have not 20 provided sufficient information to demonstrate costs 21 were incurred. Infraco have advised that they will not 22 provide any further information to support this amount." 23 Just based on what's there, Turner & Townsend's 24 advice seems to have been that this sum should not be 25 paid, notwithstanding your opinion, because it had not 167 1 and would not be vouched. 2 Were you aware of them taking that position? 3 A. Yes, I was always provided with a draft of -- of the 4 report, and I was quite happy for them to let their 5 opinion be known to the Tuesday and Thursday group. So 6 that was their view, and I respect what they say. But 7 that wasn't the final instruction that was given once 8 all the information was received to the SMT meeting. 9 Q. Do you know why the SMT meeting decided that the full 10 sum should be paid, given that advice from 11 Turner & Townsend? 12 A. I don't know why they overturned Turner & Townsend's 13 advice. 14 Q. Sorry? 15 A. I don't know why they overturned Turner & Townsend's 16 advice, no. 17 Q. Were you involved in that decision-making process? 18 A. I would have been at the meeting on the Tuesday and the 19 Thursday. I don't think I missed any in the four years 20 I was there. 21 CHAIR OF THE INQUIRY: Do you remember if what's said here 22 is correct, that the Infraco did not provide information 23 to demonstrate that costs were incurred? 24 A. I seem to recall that it reached a point where T&T could 25 not get any further information from Infraco, yes. 168 1 CHAIR OF THE INQUIRY: Did you use your good offices to try 2 to persuade Infraco to co-operate in that regard? 3 A. I felt that the examination process was in and around 4 Rev 3A to Rev 4, to have a build-up of costs would have 5 been helpful, but I don't think it would be definitive, 6 but to answer your question, no, I didn't use my 7 offices. 8 CHAIR OF THE INQUIRY: What about the last sentence, that 9 the -- did you understand that not only had Infraco not 10 provided information, but they wouldn't provide any 11 further information? 12 A. That was the standpoint that was taken. 13 CHAIR OF THE INQUIRY: You understood that? 14 A. I understood that. 15 CHAIR OF THE INQUIRY: That's not really indicative of 16 a co-operative approach, is it? 17 A. There were many bumps in the road after -- after 18 mediation. It wasn't -- and I wouldn't want anyone to 19 take the view that it was plain sailing from March 2011 20 to May 2014. 21 It was the overall traction that we tried to keep 22 going, but you're right, there was elements where all 23 parties round the table, and I will maybe side 24 reference, if I may, I note that in my file somewhere, 25 where Scottish Water's behaviour started to drift back 169 1 to where they had been before. 2 So I would say that not any one participant remained 3 absolutely on tune. They occasionally slipped away back 4 to the old habits. 5 MR MCCLELLAND: Could we have document, please, CEC02072604. 6 You should see there, Mr Smith, this is another 7 Turner & Townsend report. This one for the period of 8 December 2013 to January 2014. Could we just go to 9 page 8 of that, please. 10 We see a table there under the heading, "Commercial 11 Summary". In the first box under the heading, 12 "Comment", picking up part way through, that reads that: 13 "CEC has confirmed instructions that the following 14 amounts should be paid in full. Revision 3A to Revision 15 4 programme change: GBP4.5 million. 22 weeks cost 16 engineering: GBP6.45 million." 17 So those are the sums that we've been discussing? 18 A. Correct. 19 Q. Then 23, we go down in that table, do you see an entry 20 for CEC target saving of GBP3.14 million. Reading from 21 the comments box: 22 "CEC anticipate limiting payment of programme 23 extension costs associated with the Revision 3A to 4 and 24 22 week changes to GBP7.857 million, a saving of 25 GBP3.14 million from agreed change value of 170 1 GBP11.001 million. Payments to date amount to 2 GBP11.001 million. 3 "There is no formal contractual agreement with 4 Infraco that they accept this approach. CEC are having 5 confidential discussions with Infraco on this matter." 6 Now, there's a reference there to a saving of 7 GBP3.14 million from the costs of those two changes. 8 Was that cost saving made? 9 A. I can't think why not. 10 Q. Well, if I could suggest to you that in the cost reports 11 from the end of project, both of these changes, the 12 GBP4.5 million and the GBP6.45 million, appear in full 13 at those full values in the list of changes and don't 14 appear to have been reduced. 15 Does that suggest that perhaps this saving wasn't 16 made? 17 A. That would suggest that, yes. 18 Q. Do you recall what the position was, whether or not that 19 GBP3.14 million saving was made? 20 A. No. 21 Q. Is that saving of GBP3.14 million the benefit that was 22 referred to in the earlier meeting note that we saw, 23 that it was hoped the Council would get in return for 24 agreeing these additional payments? 25 A. I would think so. That would make sense with the final 171 1 two sentences as well. 2 Q. So does it appear to be the case that contrary to what 3 had been hoped at that meeting, the Council didn't in 4 fact make the cost savings that were to be associated 5 with making additional payments to the consortium? 6 A. That's how it reads to me, yes. 7 CHAIR OF THE INQUIRY: McClelland, is this a convenient 8 point or do you want to finish what you're doing? 9 MR MCCLELLAND: Just one or two more questions, my Lord. 10 These two payments that were made appear to have 11 been made against the advice of the Council's project 12 managers. Did the Council make these payments because 13 it was afraid of falling into dispute again with the 14 consortium, having regard to the history of the project? 15 A. I don't remember any conversation where people were 16 afraid of positions. Matters such as the point that 17 we're talking of here would have been spoken about at 18 the fortnightly Turner & Townsend Council meeting. They 19 would have been spoken about at the SMT Tuesday and 20 Thursday meeting, and they would have been spoken about 21 at the monthly forum which involved Bilfinger, Siemens, 22 CAF, Transport Scotland and Council officers. 23 But I don't recall any party talking of fear that 24 I need to do something because we may go back into 25 dispute. 172 1 Q. Was there a reluctance to take the harder line proposed 2 by Turner & Townsend because of concerns about falling 3 into dispute? 4 A. I think it would be fair to say there was a reluctance 5 to take the singular reading of the contract detail that 6 would provide for a hard position very similar to that 7 that was taken pre-mediation. 8 So I think it would be part and parcel of the wider 9 debate that would come to a conclusion in each of those 10 forums. 11 MR MCCLELLAND: Thank you. That would be a convenient time. 12 CHAIR OF THE INQUIRY: We'll take 15 minutes to give the 13 shorthand writers a break and also to give you 14 an opportunity for tea and coffee. 15 We will resume again at 3.35. 16 (3.16 pm) 17 (A short break) 18 (3.35 pm) 19 CHAIR OF THE INQUIRY: You are still under oath, Mr Smith. 20 A. Thank you. 21 MR MCCLELLAND: Thank you, my Lord. Do you recall, 22 Mr Smith, that at Mar Hall it was agreed that the 23 consortium would complete the design for the line all 24 the way to Newhaven? 25 A. Yes. 173 1 Q. Remember we touched upon this issue earlier on, 2 and I apologise if I'm asking you to repeat yourself, 3 but do you recall that in 2012 the Council issued an 4 instruction for the consortium to stop work on the 5 design for that section before it was finished? 6 A. I think it was to reduce the extent of the design. 7 I don't think it was to stop, would be my recollection. 8 Q. There are some references in other documents which 9 suggest that the design for the section between 10 York Place and Newhaven was about 85 per cent completed. 11 Does that seem about right to you? 12 A. That seems about right, yes. 13 Q. Do you recall a decision being taken to stop design 14 work? 15 A. Yes, I do. I'm just trying to think of what items were 16 excluded. From memory, I would have thought it was the 17 peripheral items. It wasn't the core design, which is 18 maybe back to the 85 per cent you talked of, but I do 19 remember the instruction. 20 Q. Do you recall why the decision was taken to stop work on 21 the design? 22 A. I think it was felt there was no longer an immediate 23 benefit in completing the design at this stage. 24 Q. Did it lead to any cost saving? 25 A. I can't remember. Sorry. 174 1 Q. Moving on to the topic of governance, in your written 2 answers you said that you'd identified a need to take 3 politics out of the project governance. Do you accept 4 that some political involvement is inevitable when 5 a project is being run by a Council? 6 A. I believe so, but I also believe that if information is 7 provided in an appropriate forum to particularly 8 cross-party elected members, that gives a sense of 9 balance to both the need and involvement. 10 Q. Do you have a view on the best way of involving 11 political representatives in the governance of projects 12 like this? 13 A. I thought the way that we conducted ourselves after 14 mediation was quite successful. It was a cross-party 15 representation, usually the convener and vice convener 16 of the Transport Committee, together with the leader of 17 the Council, and it gave the elected members a forum to 18 ask questions that ordinarily they perhaps wouldn't have 19 been given the opportunity to ask. 20 Q. Under the governance structure before Mar Hall, there 21 were councillors attending the Tram Project Board and 22 sitting on the Boards of tie and TEL. Was that an 23 approach which you would approve or disapprove? 24 A. I don't think I can answer. I don't know enough about 25 what happened before mediation. 175 1 Q. Transport Scotland were involved in the governance of 2 the project in the period when you were involved. What 3 in your view did they bring to the project? 4 A. I felt that they provided a sounding board to all that 5 was happening in the project, and that sounding board 6 input certainly gave me a sense of context to the scale 7 of the project that we were involved in. 8 Q. Did they bring any particular expertise which was of 9 assistance to the governance of the project? 10 A. I think in helping facilitate discussions with 11 Network Rail, that was a particularly good help. They 12 were, as you probably know, building alongside the 13 Glasgow-Edinburgh railway line, and of course that 14 brings its own challenges with protecting Network Rail's 15 assets. So that was very helpful. 16 Q. Were there any examples of other particular assistance 17 that you can recall Transport Scotland bringing to the 18 project? 19 A. When we had discussions with SEPA to do with stockpiling 20 of material at -- it's just gone from me. But there was 21 material that was stockpiled from the tram project that 22 had come from the embankment of the railway line, and 23 there was an issue that: was this contaminated? And 24 I think it helped provide a gravitas to the meeting with 25 SEPA that I had one of the officers from 176 1 Transport Scotland with me. 2 Q. Given the truncation of the line, some of the 27 trams 3 which were ordered ended up being surplus to 4 requirements. Do you recall how many were surplus to 5 requirements? 6 A. It moved around, but certainly 17 trams were required. 7 19 -- 19 trams with a different headway. So 8 approximately seven trams were surplus. 9 Q. Were you involved in steps to attempt to realise value 10 from the surplus trams? 11 A. I was asked to ask CAF if they would buy back the trams, 12 and it was a fairly lukewarm response. But we did get 13 a response back from CAF, and that was passed into 14 CEC Legal, I think it was. But nothing came of it. 15 Q. Were you involved in any other attempts to realise value 16 from the trams? 17 A. I was aware that Alastair Richards, I think it was, was 18 involved in talking to Croydon, who had a similar 19 system, but again that came to nothing. 20 MR MCCLELLAND: Thank you very much, Mr Smith. I have no 21 more questions for you. 22 CHAIR OF THE INQUIRY: I do not think there's anyone else. 23 Any questions? 24 Thank you very much, Mr Smith. That concludes your 25 evidence. 177 1 You're still under citation. So it would be 2 possible to recall you at a later date. Hopefully that 3 won't be necessary. So you're free to go. 4 A. Thank you very much. Thank you. 5 (The witness withdrew) 6 CHAIR OF THE INQUIRY: For the benefit of core participants, 7 I think I indicated that there would be a note about 8 closing submissions. I'm sorry it's taken a bit longer, 9 but it will be available tomorrow and I've suggested 10 that the secretary should email to each of the 11 solicitors acting for core participants a copy of the 12 note. 13 It will ultimately appear in Haymarket and will also 14 appear on the website. It is quite far-ranging and 15 includes the order in which I wish to hear closing 16 submissions as well as issues that core participants may 17 wish to consider. 18 We will adjourn until tomorrow, 9.30. 19 (3.43 pm) 20 (The hearing adjourned 21 until Thursday, 15 March 2018 at 9.30 am) 22 23 24 25 178 1 INDEX 2 PAGE 3 MR COLIN SMITH (sworn) ...............................1 4 5 Examination by MR MCCLELLAND ..................1 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 179