1 Thursday, 22 March 2018 1 (1.44 pm) 2 CHAIR OF THE INQUIRY: Yes, Mr Mackenzie. 3 MR MACKENZIE: Thank you, my Lord. The next witness is 4 Stuart Fair. 5 MR STUART FAIR (sworn) 6 Examination by MR MACKENZIE 7 CHAIR OF THE INQUIRY: I see you've got some documents in 8 front of you. You will actually be shown any documents 9 that we need to show you because people have got to know 10 what you're looking at. 11 A. Thanks, my Lord. 12 MR MACKENZIE: Thank you, my Lord. Good afternoon. 13 A. Good afternoon. 14 Q. Can you state your full name please? 15 A. Stuart William Fair. 16 Q. And your current occupation? 17 A. Chartered Public Finance Accountant. 18 Q. Thank you. I would like to go to your CV, please. It 19 will come up on screen. CVS00000087. We can see your 20 name at the top, along with your professional 21 qualifications. I can see, I think, LLB obviously is 22 a law degree. Blow up that. Thank you. 23 At the end, JP, I think, is Justice of the Peace. 24 What do the other letters stand for? 25 A. I'm a fellow of the Chartered Institute of Public 126 1 Finance and Accountancy. That's CIPFA. I'm a certified 2 practising accountant for CPA Australia, and I'm 3 a fellow of the Association of Chartered Certified 4 accountants. That's ACCA. Also a fellow of the 5 Royal Society of Arts. 6 Q. Thank you. So in short, I think you have both legal and 7 accountancy qualifications? 8 A. Yes. 9 Q. We see then in the skills you have summarised at the 10 top, we can also see your current position is both 11 a senior consultant of CIPFA and a tutor at the 12 Strathclyde law school. 13 We can then, I think, read for ourselves in due 14 course the various bullet points setting out your 15 professional and vocational experience. 16 Over on page 2, I think we'll see a long list of 17 relevant consultancy work, and again, I won't spend time 18 on that. 19 Then finally, if we can go to page 3, please, you 20 have summarised your employment history there; is that 21 correct? 22 A. Yes, it is. 23 Q. Thank you. Now, before we come to your report, you 24 mentioned CIPFA, the Chartered Institute of Public 25 Finance and Accountancy. Can you summarise for us what 127 1 is CIPFA, what does it do? 2 A. Yes. CIPFA, the Chartered Institute of Public Finance 3 and Accountancy was formed in 1885. It is the only 4 chartered accountancy body that specialises in the 5 public sector, in fact it's the only accountancy body 6 globally that specialises in the public sector. 7 The institute itself is a registered charity. Its 8 primary aim is to serve in the public interest and to 9 regulate its members. Its members, there's about 14,000 10 in total, including students, and they are mostly in the 11 UK, but we have about 10 per cent or so overseas. 12 Q. Thank you. That's the regulatory role of CIPFA. 13 Am I right that CIPFA also has a consultancy arm that 14 undertakes financial management and governance reviews? 15 A. It does indeed. There is a commercial consulting arm 16 that undertakes a variety of consulting work for all 17 public sector bodies, UK and across the world, and that 18 work is channelled back into the charity for the 19 furtherance of public sector finance. It's one of the 20 aims of the institute. 21 Q. Thank you. You have prepared a report for the tram 22 Inquiry. We will go to that, please. It's TRI00000264. 23 We can see that is entitled "REVIEW OF FINANCIAL 24 MANAGEMENT AND GOVERNANCE REPORT", dated January 2018. 25 Was this report produced by you, Mr Fairley? 128 1 A. It was, yes. 2 Q. Before we go through some of the text and details, just 3 by way of an overview, can you start, please, by 4 explaining how you undertook this review? 5 A. We were asked by the Inquiry team what information 6 requirements that we would wish to have at our disposal, 7 and we put together a list of different documents and 8 evidence that you would need to conduct a review of the 9 financial management and governance aspects of the tram. 10 We were able to secure a sufficiency of evidence to 11 form a view. We had cause to ask for more evidence 12 which the tram Inquiry team were able to relay to the 13 appropriate parties, and were able to get some of that 14 back, which we used in our assessment and the 15 compilation of this report. 16 Q. So that's the first step, you have the relevant 17 documents, what happens next? Do you adopt a particular 18 methodology or what? 19 A. Yes. Rather than doing a deep dive into specific 20 components of the tram project itself, whether it be 21 procurement, the outline Business Case, or the actual 22 project management, we took a holistic view, to try and 23 break down against acknowledged good practice within an 24 overarching framework of financial management and 25 governance, what we would expect to be at that time and 129 1 place in terms of good practice regardless of the 2 complexity of the project. 3 So in terms of trying to determine the benchmark for 4 good practice across financial management and 5 governance, we had cause to use two particular models 6 that CIPFA had available: the CIPFA financial management 7 model, and there is a governance mark, a G mark, which 8 tests the effectiveness of the capability of governance 9 arrangements. 10 So using both models, and a particular good practice 11 standard on the role of the chief financial officer in 12 public sector organisations, we were able to bring 13 together components of good practice that we would 14 expect in the currency of the project from cradle to 15 grave so to speak. 16 And looking at the evidence that we had at our 17 disposal, trying to form a view on various components of 18 that good practice that were met or not met. 19 So it's effectively what we considered to be 20 a GAAP(?) analysis on prevailing good practice at the 21 time that this project was undertaken, and to assess the 22 positive and the not so good aspects of this as it went 23 through. 24 Q. Now, we looked in your CV at page 2 briefly, the long 25 bullet point list of consultancy work you have carried 130 1 out. 2 To what extent does the approach you have just 3 described that you followed in the review of the 4 Edinburgh Tram Project compare with the approach you 5 would take when asked to conduct a financial management 6 and governance review of other public projects or public 7 bodies? 8 A. Well, based on your last point there, public bodies, 9 traditionally we would do a financial management 10 capability assessment of an organisation, whether it be 11 City of Edinburgh Council, which we haven't done, but 12 Her Majesty's Treasury, Ministry of Defence, London 13 borough of Harrow. We can assess the overall financial 14 management capability of the organisation, and that's 15 not just the strength of the finance function. It's the 16 strength of financial management capability throughout 17 the organisation. 18 So that's looking at both the finance community and 19 the non-finance community, and making an informed 20 assessment of how close they are to good practice. 21 In terms of this particular project, we used an 22 approach we have used in some other projects, namely 23 a hospital funding project on the Island of Jersey. 24 We've looked at other proposed projects, perhaps not in 25 the same scale as this infrastructure type project, but 131 1 looking for attributes of good practice, whether it be 2 in the procurement side, the Business Case side, the 3 actual tendering, the management, the actual contract 4 management capability of it. We've been able to use 5 this kind of approach before, but not with so much 6 evidence. 7 Q. So subject to that caveat, would it be correct to say 8 that you have followed a similar approach in conducting 9 the review of the Edinburgh Tram Project as you would 10 use in conducting other reviews? 11 A. On the principles, yes. But obviously the scale of 12 evidence is something that is much larger than what 13 we've experienced before. 14 Q. Thank you. 15 Now, finally, by way of overview, what were your 16 main conclusions after undertaking this review of the 17 tram project? 18 A. The project itself was beset with many difficulties from 19 the very start, and looking at the evidence, it felt 20 like these initial difficulties set the scene, and the 21 die was cast for significant problems to arise, and they 22 emerged from these initial difficulties and weaknesses. 23 The most frustrating thing that comes across in the 24 evidence is that there's certainly a will, you could 25 see, to employ good practice. There was frameworks in 132 1 place that should have delivered a much better outcome, 2 but they didn't. And I think this is the most 3 frustrating part, looking at the evidence. 4 There was governance arrangements in place that 5 should have produced better outcomes. There was 6 financial management framework there that should have 7 produced a better outcome, but both were thwarted in the 8 currency of the project itself. 9 The procurement and the risks around the procurement 10 side of it looked pretty solid initially, but in the 11 run-up -- in the run-up to actual practice in 2002 -- 12 2008, I think it became clear that by financial close, 13 the seeds were sown for real problems ahead. There's 14 certainly evidence that there was undue haste to enter 15 into financial close, that perhaps members were not 16 given the correct information to make an informed 17 decision, and that contingency and risk was never 18 properly evaluated. And there was a lack of 19 understanding what that contract that the Council were 20 entering into following the report to the Policy 21 Committee in May 2008, and from that the Council and tie 22 were locked into a contract that was insoluble, 23 effectively, and we didn't think that adequate -- there 24 was adequate consideration to termination at that point 25 in time. 133 1 Even up to 2009, there was roughly about 2 GBP230 million spent there, and obviously half a billion 3 pounds later, we get a final result in 2014. 4 So there's opportunities to objectively look at the 5 project, where it was going, and work out whether or not 6 there was value being obtained from it all. 7 I think that's the most frustrating part of it. 8 There was frameworks in place. They should have 9 operated. They obviously didn't. And we had a project 10 where a spend that started off for a significantly 11 greater routing ended up from GBP350 million-odd to 12 three-quarters of a billion, and even then, we're not 13 wholly convinced that the GBP776 million of the final 14 project cost is the true cost associated to this 15 particular project. 16 By the time the 2011 mediation activities were put 17 in place, certainly it looked as if there was an applied 18 focus, a betterment and application, and with a new 19 Chief Executive in post, and driving this with external 20 help in terms of consultancy support, it certainly saved 21 the project. 22 But was still at that point in time, there was still 23 opportunities to consider termination. We don't think 24 that all the options were properly evaluated. 25 Q. Thank you. I'll come back to explore some of these 134 1 points a little more when we go through your report, but 2 if I could just seek to clarify three points just now 3 while I remember. 4 Firstly, you mentioned latterly there that you were 5 not wholly convinced that 776 million represented the 6 true costs of the project. 7 Now, I think, firstly, I think you have seen the 8 statement provided by Mr Connarty of the Council to the 9 Inquiry which sets out the costs of the project; is that 10 correct? 11 A. Yes. 12 Q. So why do you say then that you're not wholly convinced 13 that 776 million represents the true costs? What's 14 missing? 15 A. We looked at the balance sheet for City of Edinburgh 16 Council and we couldn't get a precise match between the 17 776. There was a letter that -- we asked for a detailed 18 breakdown, principally to get information on the asset 19 registers, which apparently in the form that we would 20 expect didn't exist. But we did get a charting of the 21 actual expenditure going through the balance sheet from 22 about 2004/2005 onwards, and the figure attributed to 23 the tram expenditure wasn't exactly the same. 24 During our review of all the evidence, there was 25 a couple of issues that came out that did not seem to 135 1 correlate with the tram expenditure figure. One was the 2 reinstatement works, and they would have been from 3 St Andrew Square down to Leith Walk, et cetera. 4 We would have expected, through proper accounting 5 practice, for those costs to be associated with the 6 project itself, rather than being classified as an 7 infrastructure capital expenditure. 8 We were also made aware that some of the legal costs 9 in terms of the contractual disputes were not 10 capitalised. Again, proper accounting practice in local 11 government would require a spend to be associated 12 specifically with its cause. 13 Because of these things, including -- evidence was 14 provided that all the overheads, in terms of overhead 15 allocation from the Council, CEC's side of it, rather 16 than tie, were not properly distributed to the project. 17 So putting these points together, we would have some 18 difficulty in accepting that, with real precision, that 19 the GBP776 million was the final cost of this project. 20 Q. Thank you. We could perhaps consider in due course if 21 we have to go back to the Council on these points. 22 Two other points you had mentioned. You started 23 off, I think, by saying that there were initial 24 difficulties or weaknesses which set the scene for what 25 was to follow. 136 1 Just for the avoidance of doubt, what do you mean by 2 these initial difficulties or weaknesses which set the 3 scene for what was to follow? 4 A. Certainly the -- at the start, there was some good 5 efforts and good endeavours to put in some good practice 6 frameworks. OGC provided risk assessment advice and 7 found that arrangements with tie and the Council were 8 robust. 9 But when it came to the mechanics of providing 10 costings and estimates on a specification, including 11 risk contingency, it feels as if, rather than building 12 it up in a granular way, the overall quantums that were 13 emerging perhaps were made to fit a particular overall 14 cost envelope, rather than having specifically costing 15 and putting in contingencies and optimism bias for areas 16 that were really unknown and unforeseen, particularly 17 utilities diversion, and not just the costings for that, 18 the timeline for all of that. 19 When tie and the Council were trying to pull this 20 together, I think there was a point in time when it was 21 clear that there was a lack of clarity over who was 22 actually designing large components of the work, and 23 when it came to what we considered to be -- what was 24 known as the final deal report in May 2008, we felt that 25 members were pushed into that, and that the benefits on 137 1 accepting that particular contract framework were 2 significantly overstated. 3 The contractor still had a significant role in the 4 design of their own brief, and in any project 5 procurement scenario, having your contractor actually 6 designing the brief is going to be suboptimal in some 7 way. 8 So by accepting a contract framework and the price 9 change at that particular time, it felt that the project 10 was setting the scene for further problems ahead, and so 11 it transpired. 12 There seems to be a lack of clarity and 13 understanding about that contract itself, whether it was 14 a fixed contract, fixed price contract, and I think 15 that's what the members were advised it would be 16 predominantly, and it ended up a contract that could be 17 disputed significantly. 18 So the difficulties arose fairly early, in the first 19 part of the project, and I think set the scene for what 20 was to come. 21 Q. Thank you. I would like now, please, to go through some 22 particular passages in your report and ask you some 23 questions about that. 24 If we could start, please, at page 3 in 25 paragraph 1.2. I will just read that out. You say: 138 1 "Whilst we express certain views in this report, on 2 the basis of the evidence available to us, the purpose 3 of this report is to avail Lord Hardie, as the ultimate 4 fact-finder and decision-maker, in coming to his own 5 views in these matters on the basis of all of the 6 evidence before him." 7 So as I understand that, I think there are two 8 things you are drawing attention to there, at the 9 beginning of your report. 10 Firstly, you've only had the opportunity of looking 11 at part of the evidence to the Inquiry, and Lord Hardie 12 of course has the benefit of seeing all of the evidence; 13 is that correct? 14 A. Yes. 15 Q. I think another point you are drawing attention to there 16 is that you recognise that it is, of course, for 17 Lord Hardie as the Chairman of the Inquiry to come to 18 his own views on all of these matters. Your report is 19 simply to provide any expert assistance that can be 20 provided in that regard; is that correct? 21 A. Absolutely. 22 Q. Could I also, as a preliminary matter, check, presumably 23 your views, Mr Fair, are based on the benefit of 24 hindsight, so that when you're commenting on what was 25 done or reported at the time, you have also had the 139 1 benefit of knowing what happened after that? 2 A. After submitting the report? 3 Q. No. By way of example, for example, when you comment on 4 the reporting to the Council in May 2008, I think you 5 had referred to the benefits of the contract being 6 significantly overstated. You have the benefit of 7 knowing what happened after the contract was entered 8 into. 9 A. Yes. I would qualify that by saying the lack of 10 information given to the decision-makers for a contract 11 of that size should have rung alarm bells. 12 CHAIR OF THE INQUIRY: So your evidence on that matter is 13 not based on your knowledge of what happened 14 subsequently. Are you applying some test as to what the 15 proper practice was in 2008? 16 A. We tried to use the prevailing standards of good 17 practice at that time, my Lord, but I do take your 18 point. It's easy with hindsight to look back and be 19 critical. So I would have to agree with Mr Mackenzie's 20 position on that. 21 MR MACKENZIE: Thank you. Could we then please go over the 22 page to page 4. I want to understand your methodology, 23 how you went about preparing this report. 24 At the top of the page we see a reference above 1.7 25 to "best practice standards", and you then in the bullet 140 1 points set out what these standards are. 2 Dealing firstly with the first bullet point: 3 "CIPFA Financial Management Model including 4 prevailing legislative requirements on prudential 5 borrowing and Best Value". 6 If we go to page 95, please, this is Appendix 3 of 7 your report. Sorry, yes, page 95. 8 That's a reference to the CIPFA Financial Management 9 Model there; is that correct? 10 A. Yes, that's an extract from one of the -- it was 39 11 statements of good practice at that time. The statement 12 L1 is the strapline statement, and the supporting 13 questions that help determine the actual strength of 14 whether or not an organisation meets the attributes that 15 are required of in that statement. 16 Q. Thank you. Now, was this guidance in force at the time 17 of the tram project, so between roughly 2002 and 2014? 18 A. Yes, it was. There was further iterations to this 19 model, the latest one in 2016. But this would have been 20 the model that would have been available. 21 Q. Thank you. Back to page 4 of your report, please. The 22 second bullet point in 1.7, we see a reference to 23 guidance on: 24 "The role of the chief financial officer in Public 25 Sector Organisations." 141 1 If we go to page 119, this is Appendix 5. Is this 2 the guidance you were referring to? 3 A. Yes. 4 Q. Was that guidance in force at the time of the tram 5 project? 6 A. This guidance -- that publication was dated 2011. 7 Before that we had an internal -- as the regulatory body 8 for our own members, we had our own internal standards 9 on the role of the CFO. This was merely to extrapolate 10 that into a publication. 11 Q. Thank you, and I think I recall Mr McGougan in his 12 evidence or witness statement referred to guidance 13 coming from CIPFA for the Chief Financial Officer. We 14 can perhaps check back to see the document he provided 15 to us. 16 Back to page 4 of your report, please. The third 17 and last bullet point there: 18 "CIPFA Governance Mark of Excellence Standard ..." 19 If we can go, please, to page 152 of your report, is 20 that the guidance you referred to there? 21 A. Yes. 22 Q. If we go, please, to page 153, we can see, if we go up 23 the top half of the page, it was published in 2004 by 24 the OPM, which was the Office for Public Management 25 Limited, and also CIPFA. Also please go to page 157. 142 1 In paragraph 1 we can see how this came about, and the 2 final sentence in paragraph 1: 3 "The role of the Commission was to develop a common 4 code and set of principles for good governance across 5 public services." 6 So that's that guidance. 7 Back to page 4, please, of your report. Above 8 paragraph 1.9 you set out the evidence you considered 9 and you say: 10 "Primary sources of evidence consisted of: 11 "Document Review." 12 If we can go to page 85 of your report. This is 13 Appendix 1. I think there you list the documents you 14 took into account in preparing your report; is that 15 correct? 16 A. Yes. 17 Q. I think you explained earlier how this set of documents 18 came about. I think in short it was a combination of 19 the Inquiry providing certain documents, the Inquiry 20 thought may be of assistance to you, and you also 21 identifying other documents yourself; is that correct? 22 A. It is. 23 Q. Is it also correct to say that you have not had regard 24 to any of the transcripts of evidence or statements or 25 further documents beyond what's set out in Appendix 1? 143 1 A. No, no, we haven't. We first lodged a draft with the 2 Inquiry, 1 August 2017. And we purposely have ignored 3 any of the oral witness testimony that's come out in the 4 Inquiry. We've had due regard to written testimony that 5 had been provided. I think there's a listing of those 6 witnesses that have given written testimony before 7 these -- before the public hearings. 8 Q. Yes. We are really back to the point we discussed at 9 the beginning, that you recognise that Lord Hardie is in 10 a better position in assessing all of the evidence, 11 because he has had a chance to consider all of the 12 evidence? 13 A. Absolutely. 14 Q. Thank you. Back to page 4 of your report, please. The 15 second bullet point under 1.9, you refer to CIPFA data. 16 What is that a reference to? 17 A. Certainly we looked at some aspects of good practice 18 that we already have, primarily a financial management 19 model, the role of the CFO, the governance mark of 20 excellence, prevailing good practice that we have, and 21 standards that we have for our members, chartered public 22 finance accountants. 23 Q. Thank you. I have been asked to clarify two other 24 matters. Is it correct to say that you have not 25 reviewed the financial management and governance 144 1 arrangements of other tram and light rail schemes in the 2 UK? 3 A. No, we haven't. But we've had due regard to high level 4 history of the way these projects turned out to give us 5 some sort of context, but other than that, we haven't. 6 Q. Thank you. I've also been asked to clarify, have you 7 had sight of the report that Professor Flyvbjerg 8 provided to the Inquiry, either a draft or final 9 version? 10 A. No. We haven't seen it. We are unaware of its 11 existence. 12 Q. Thank you. Although I think I should say you have had 13 the benefit of sitting in on at least part of the 14 professor's evidence this morning; is that correct? 15 A. It is. Indeed, we actually identified the professor for 16 his work on project lock-in previously, and we refer to 17 it in the body of our report, as we think that the 18 attributes of the behaviour of project lock-in were 19 evidenced within this project. 20 Q. Thank you. We will come back to ask you about 21 project lock-in in a little more detail later. 22 Back to page 4 of your report, please, in 23 paragraph 1.11. Just trying to go over and understand 24 your methodology. Here you say in 1.11: 25 "Applying the relevant standards of prevailing good 145 1 practice, we were able to identify 12 specific financial 2 management related activities identified from available 3 inquiry evidence which potentially did not meet good 4 practice." 5 I think these 12 areas are then listed in the table 6 that follows; is that correct? 7 A. It is. 8 Q. Then in 1.12 you say: 9 "Comments on these headings are outlined below (and 10 are discussed more fully later in the report)." 11 I think then I'm not going to go into this in 12 detail, but we're now on page 5. If we just then scroll 13 through page 5 to 10, I think we'll see you summarising 14 bullet points your conclusions under each of these 12 15 good practice areas. So that's page 6 and on to page 7, 16 we can see the sub-headings there. We can see all that 17 for ourselves. 18 Page 8. Go on to page 10. We then see halfway down 19 the page, "Overall conclusions". I would like to ask 20 you some questions about some of these, please. 21 In paragraph 1.15 you say, the third line down: 22 "The inherent assumption demonstrated by some CEC 23 officials within witness evidence suggesting that the 24 tie special purpose vehicle would be able to insulate 25 CEC from the assumption of risk was fundamentally flawed 146 1 in the context of the political and operational 2 considerations within which this ambitious 3 infrastructure project was being managed." 4 Now, what do you mean by the inherent assumption by 5 some CEC officials suggesting that tie would be able to 6 insulate the Council from the assumption of risk? 7 A. From the evidence that we had available to us, it became 8 clear that the connectivity between the Council and its 9 wholly owned subsidiary wasn't as it should be, and that 10 behaviourally there were -- there was some difficulty in 11 transferring information between them. Partly on -- 12 justified under grounds of confidentiality. 13 But witness evidence statements from 14 Donald McGougan, the then Finance Director, and 15 Tom Aitchison, the Chief Executive, clearly suggests 16 that tie was responsible for managing the risks, and we 17 would not agree with that. We do not think that the 18 Council can abrogate its risks for the management of 19 public money, and the wholly owned company, albeit 20 a different legal entity structure, in itself doesn't 21 insulate the Council from risks. 22 But the flavour of the evidence provided by these 23 two officials of the time suggested that tie provided 24 distance between the Council and the project, that tie's 25 existence was partly in play to manage the project and 147 1 to absorb the risk on behalf of the Council. 2 Q. Now, against that it may be suggested that the Council 3 having set up a team of experts, it was for that team of 4 experts to identify and manage the risks at least on 5 a day-to-day basis? 6 A. Absolutely, but the overarching responsibility lay fully 7 and squarely with the Council for the management of this 8 project, and it was public money. They were the conduit 9 for central government grant, and for all other projects 10 that the Council has to undertake, they're fully 11 responsible for it. 12 Yes, the private limited company set up to attract, 13 in terms of remuneration and the skill base, set up 14 a vehicle to provide the correct skill sets and 15 individuals for this highly complex infrastructure 16 project. 17 That aside, the chief officers of City of Edinburgh 18 Council were still responsible for the overall 19 management of the company that the Council owns. 20 Q. Does it amount to this: that while the Council could 21 delegate the day-to-day responsibilities for the 22 project, the Council couldn't delegate the ultimate 23 responsibility for the project? 24 A. No. No, but for that to -- for that to actually work, 25 there needs to be strong connectivity and 148 1 communications. There needs to be continual dialogue 2 and control over performance and accountability. 3 It has certainly been a feature for some local 4 authorities in the UK perhaps 10, 15 years ago, when 5 special purpose vehicles first came on the scene, the 6 relationship management between the Council and the 7 special purpose vehicle. But certainly the 8 collaboration, the ownership and the overarching 9 management is now better across the UK public sector on 10 these things. 11 Q. Yes. I was going to broaden the question a little bit, 12 asking -- putting the tram project completely to one 13 side, are there inherent difficulties in local 14 authorities exercising effective control over special 15 purpose vehicles, arm's length companies or whatever? 16 A. Theoretically it shouldn't be. Certainly there's an 17 added level of governance that's required for setting up 18 a special purpose vehicle. Certainly some public bodies 19 use them to -- for a specific purpose that allows them 20 to employ people in different terms and conditions and 21 able to set a parameter around a timeline to deal with 22 a specific project. 23 But the chief officers ultimately are still 24 responsible for the special purpose vehicle. 25 The finances of any special purpose vehicle, if 149 1 they're wholly owned, are still embedded within the 2 balance sheet of the Council. So within the Council's 3 finances, tie Ltd, all their activities in the balance 4 sheet, income and expenditure, it is within the 5 consolidated group accounting position. 6 So it's not -- it's not a position that any local 7 authority can change. There is a direct accountability 8 for it. 9 Q. Again, in general, and without any reference to the tram 10 project, what steps can and should be taken by a local 11 authority to exercise effective control over a special 12 purpose vehicle? 13 A. It's certainly all about the management of risks, and 14 the management of the special purpose vehicle. So it 15 doesn't -- its journey doesn't diverge from the 16 Council's main focus and objectives. It's steered and 17 properly managed from the start of its inception to when 18 it is terminated. 19 There's no -- there's nothing inherently different 20 to any approach of a public body working with another 21 entity that it creates. It's just direct management. 22 Q. Now, finally on this point, and again as a generality, 23 it may be suggested that it ought to be easier for 24 a local authority to exercise effective control over 25 special purpose vehicle that is providing services that 150 1 a local authority has experience of providing itself, 2 for example social care, roads repair, cleaning services 3 or whatever. 4 In addition to that, it's harder for a local 5 authority to exercise effective control over a special 6 purpose vehicle that's delivering something the local 7 authority has little or no experience of delivering. Do 8 you have any comments on that suggestion? 9 A. Yes, there's some mileage in that some high level 10 successful examples were really borne out of services 11 that local authorities were already delivering. 12 Glasgow Life is a good example of that, where all 13 leisure activities, art galleries, et cetera, in Glasgow 14 were supplied through a special purpose vehicle and -- 15 in preparation for the Commonwealth Games, that allowed 16 the entity to bring to it synergies that perhaps 17 wouldn't have been available for the local authority. 18 Some of the core local authority services are 19 statutory, and there's inherent risk of failure in some 20 of these statutory services. In Scotland it's been 21 difficult to see how local authorities could do that 22 under the special purpose vehicle. 23 Having said that, in other parts of the UK, local 24 authorities have basically gone down special purpose 25 vehicles to provide some of the more difficult services. 151 1 In housing, housing has got a good track record of being 2 provided through special purpose vehicles. Leisure 3 trusts, et cetera, have been good. 4 Where it gets more difficult is the areas where the 5 risk is high for failure. It's not necessarily about 6 money. It's about the risk of non-performance on 7 service delivery. 8 Q. Thank you. I would like to move on to page 11 of your 9 report and pick up on one or two points here. So again 10 we're in your overall conclusions section. 11 In paragraph 1.17, and in the final sentence here, 12 you say: 13 "However, in relation to the Tram Project, 14 compliance with prevailing good practice on governance 15 and financial management was found to be variable over 16 the currency of the project and partial at best." 17 Would it be fair to say that this in short is your 18 overall or headline conclusion? 19 A. Yes, it would, although in paragraph 1.20, that would -- 20 1.20 and 1.21 would be probably, if we tie that in, that 21 would draw the conclusions roundly. 22 Q. I understand. Then if we go, please, to paragraph 1.18, 23 we're back to the issue of project lock-in. We can see, 24 about halfway down this paragraph, you say: 25 "We are strongly of the view that project 'Lock In' was 152 1 a key inhibiting behavioural factor. Project Lock-in is 2 a behavioural dissonance where objectivity in 3 decision making is impaired due to decision makers and 4 advisers being unable (through behavioural influences) 5 to consider all available options. This tends to happen 6 when commitments or investment made are deemed to be too 7 large to warrant [significant] change or termination of 8 a project regardless of the merits of considering such 9 options." 10 Can you firstly please explain the concept of 11 project lock-in as a generality before then going on to 12 say how you apply that concept to the tram project? 13 A. Project lock-in is a behaviour dissonance. It's 14 a suboptimal behaviour, where decision-makers or 15 advisers to decision-makers cannot objectively see all 16 available options, and objectively assess the correct 17 decision, the most optimal outcome, and that might be to 18 terminate or change the original scope into something 19 that barely resembles the project in the interests of 20 economy, efficiency and effectiveness. 21 There's been -- there were several points in 22 a timeline that highlighted the potential for 23 project lock-in to be in play within the project. 24 Within the initial determination of the scope of the 25 original contract, the haste that -- we called undue 153 1 haste for members to agree the schedule for price 2 changes for the May 2008 committee did seem to indicate 3 that there was real pressure at play for a decision to 4 be made at that time, that certainly we were aware of 5 media attention for the lack of work at certain points, 6 and no doubt there would have been significant pressure 7 on decision-makers to show that they were managing this 8 project properly. 9 It was high level, high profile, and the option of 10 not delivering on this project might have been too great 11 for some to objectively see what was in front of them. 12 The other factor was the financing of this 13 particular project. With an initial amount set aside 14 and agreed by the Minister of 375 million in 2006, which 15 changed in 2007 to half a billion, so that was centrally 16 funded money. Most of that half a billion pounds would 17 have been a component of the Scottish Government's block 18 grant from Westminster. So the source of that would 19 have been tax. 20 Then following the re-assessment of the whole 21 project at various stages, we ended up with a gap 22 funding position to 776 million from approximately 23 545 million, 500 million being central government grant, 24 45 million being a sum to be met within City of 25 Edinburgh Council's capital programme from developer 154 1 contributions and some asset sales. The balance to be 2 borrowed, typically that would have been from the Public 3 Works Loans Board, which is a component of the UK Debt 4 Management Office, and there seemed to be justification, 5 reasons to justify borrowing the gap that appeared to be 6 not too painless at the time. 7 The option of termination, we believe, wasn't 8 properly considered at various junctures in this 9 project. Certainly the haste and the pressure to agree 10 to the deal in 2008, we think, was indicative of 11 project lock-in. Even when the new Chief Executive 12 arrived and there was the Mar Hall discussions in 2011. 13 The actual spend at that point in time was 14 significantly less than the final outturn. So there 15 seemed to be significant pressure on producing 16 a particular outcome. There was some reasons, 17 accounting reasons, for not considering termination 18 which we do not agree with. 19 But certainly behaviourally, from the witness 20 statements that we have seen, there seemed to be 21 indications at certain points in time that 22 decision-makers were unwilling to objectively consider 23 termination or something that looked radically 24 different. 25 Q. I'll come back to the issue of termination shortly, but 155 1 dealing with the concept of project lock-in as 2 a generality, so again putting the tram project to one 3 side, are there any steps that can be taken to avoid or 4 reduce the risk of project lock-in? 5 A. It certainly needs external scrutiny. It needs to be -- 6 it needs to be challenged on those who are involved in 7 the project management itself. Ideally it should be 8 independent. It should be independent and there should 9 be objectivity in it all. 10 You would expect that some of the dependencies of 11 those that are involved in the particular project would 12 not be such that they would be unduly influenced anyway, 13 whether it be remuneration or longevity in appointment, 14 or any other dependency or link. There needs to be an 15 element of robust objectivity in the management of 16 a project to the extent that those involved don't feel 17 as if, in terms of just a quote, they're in too deep and 18 they can't get back out for all sorts of reasons, 19 political, media or whatever. 20 It just needs independence and challenge within the 21 process. 22 Q. Thank you. That's very clear. 23 Next paragraph, please, page -- page 11, 24 paragraph 1.19. That starts by saying: 25 "We do not believe that the option for terminating 156 1 the project in 2010/2011 was given adequate 2 consideration ..." 3 I'll pause there. Why do you say that? 4 A. First of all, we didn't really see any evidence of 5 costing the potential legal liabilities of terminating 6 the project. There were certainly costings on 7 differentials on claims, on work carried out to date. 8 But we really didn't see any assessment of how much it 9 would cost to terminate the arrangement with the 10 consortium, which is certainly indicative of not really 11 having it on the radar. 12 Now, it may well be there. It may be we just don't 13 have it. Certainly we would have expected it to be 14 discussed. We didn't actually see it in the minutes of 15 the Board meetings, that it was there. It may well be 16 the case that the overall focus was on delivering the 17 project. We did get the feel that delivering, 18 physically delivering the project was prime. The 19 finance was a secondary consideration. Partly because 20 of the way it was funded perhaps, and maybe the direct 21 or indirect link to taxpayers bearing the cost of the 22 project itself. 23 Q. Could I also clarify perhaps some points of detail on 24 the termination option. 25 When you refer to terminating the project here, do 157 1 you mean terminating the Infraco contract and abandoning 2 the tram project entirely, or do you mean terminating 3 the contract and instructing a different contractor to 4 complete the works, or do you mean both options? 5 A. Potentially both. I mean, in terms of option appraisal, 6 one has to consider every option. 7 Certainly the way it was looking, and because of the 8 complexity and the timeline, it might have been the 9 first option, Mr Mackenzie, that might have been the one 10 that would have come to mind there. 11 But secondly we would have expected all alternatives 12 to be considered. 13 Q. When you say termination ought to have been considered, 14 do you mean only if there were good legal grounds for 15 doing so, or do you mean looked at purely from 16 a financial perspective that ought to have been looked 17 at, regardless of whether there were good legal grounds 18 for doing so, if that would have been the more 19 cost-effective or cheaper option? 20 A. Probably the latter. I mean, it was only going to work 21 if you get legal resolution anyway in terms of 22 negotiating a termination to the contract, and even then 23 one would need to assess the overall liability for that, 24 which may well be significant. 25 Q. Yes. So one can't ignore whether there are good legal 158 1 grounds for doing so, because that then is relevant to 2 the question of legal liabilities, which one then has to 3 factor into any financial assessment? 4 A. Absolutely. 5 Q. Thank you. 6 Going back, please, to paragraph 1.19 and the second 7 part of that first sentence, you say -- I'll start from 8 the beginning: 9 "We do not believe that the option ... nor was the 10 financial implications and funding requirements arising 11 from meeting the project forecast spend of approximately 12 GBP776.5 million first highlighted in the CEC accounts 13 of 2010/2011." 14 So a similar question, firstly, why do you say that 15 you don't believe that there was adequate consideration 16 given to the financial implications and funding 17 requirements arising from meeting the project forecast 18 additional spend? 19 A. First of all, as an observation, the project had 20 significant difficulties in establishing forecasting in 21 the early components of the timeline there: to actually 22 forecast in 2010/2011, exactly forecast almost the 23 outturn for the project itself is a bit difficult to 24 accept. But what I'm actually saying there is that the 25 financial implication of funding requirements, there 159 1 seemed to be a justification in borrowing the gap to 2 776 million, and effectively the Finance Director at the 3 time, just before he retired, had suggested it was 4 prudent to borrow this amount of money because of 5 headroom within the Council's capital programme, the 6 fact that interest rates were historically low, and that 7 effectively now was a good time to borrow, if we needed 8 to borrow. 9 It was almost as if the affordability aspect of 10 borrowing was totally subservient to the need to deliver 11 this extra spend, which was well over the original 12 concept. 13 When members were asked to agree to the contract in 14 2008, they were -- we were only talking about half 15 a billion. We weren't talking about 50 per cent over 16 that. 17 So in terms of the ability to finance that, my 18 comment there was we do not think the financial 19 implications and the funding for that were appropriately 20 considered. 21 From the evidence we were able to assess, the 22 financing of it seemed to be a moot point. It seemed to 23 be a fairly minor consideration. 24 CHAIR OF THE INQUIRY: Sorry, could I just clarify what you 25 mean by the fact that you were surprised about the 160 1 figure of 760.5 million being highlighted in the 2 2010/2011 accounts. Where would that appear? Would 3 that be in the balance sheet? 4 A. No, that was -- my Lord, that was a note to the accounts 5 in terms of where the project was going, and that to 6 effectively fully implement the project in its fullness, 7 it would take another three, four years, and the 8 estimated outturn cost for the overall project cost 9 would be 776.5 million. 10 That was narrated in the accounts at that time, 11 which we've found a bit coincidental, that it ended up 12 there, given the fact that the project struggled so 13 badly to get its forecasting right in the early years. 14 CHAIR OF THE INQUIRY: Thank you. 15 MR MACKENZIE: Thank you. 16 The second part of paragraph 1.19 reads: 17 "Indeed, the approach adopted in securing the 18 borrowing of gap funding of GBP247.2 million beyond the 19 agreed [CEC] exposure of 45 million and the original 20 Scottish Government Grant funding of GBP500 million does 21 not appear to recognise the opportunity costs to CEC of 22 committing such additional revenue financing costs of 23 repayment and interest." 24 Can I ask, what do you mean by the reference to the 25 opportunity costs? 161 1 A. That's basically the options foregone by making 2 a decision to complete the project. The Council could 3 have used that equivalent sum to do something else with 4 it. The fact that it didn't obviously precludes 5 a decision in what it could have used the money for. 6 Q. What is the basis for you reaching the conclusion set 7 out there that the approach adopted in respect of the 8 funding gap did not appear to recognise the opportunity 9 cost to the Council? 10 A. From the evidence we looked at, it felt as if the 11 borrowing to finance as capital expenditure was not 12 going to be a problem. 13 In essence it works out at -- the equivalent of 14 a Band D council tax payer is about just over GBP75 per 15 head per year, the borrowing being delivered over 16 30 years. 17 That almost a quarter of a billion pounds worth of 18 financing could have been used for other service 19 activities of the Council. It didn't feel as if the 20 overall funding capability for the Council for 21 particular projects were ranked in a way to look at 22 other options. Given the fact this project had been 23 well under way, it was almost as if, as in 24 project lock-in, that there was no other alternative 25 but, just like any other financing, whether it's 162 1 a personal financing issue or a corporate financing 2 issue, when you borrow a sum of money, it precludes you 3 necessarily for borrowing the same amount for another 4 purpose. Effectively you're further into debt, and if 5 you want to borrow on top of that, you're further, 6 further into debt. 7 So it basically -- your indebtedness increases 8 because of your decision. 9 CHAIR OF THE INQUIRY: Do I understand that this comment 10 here is related to the loss of opportunity to spend on 11 revenue projects, or revenue expenditure, rather, so 12 that if you take GBP75 per head for community charge 13 payer, that's the cost of the borrowing of whatever it 14 is, the borrowing. Whereas if they didn't borrow, then 15 that GBP75 per head for community charge payer would 16 then be available as income to provide other services 17 that the Council are statutorily obliged to provide. 18 A. Yes, my Lord. It's equivalent to GBP75 of Council Tax 19 income. 20 The overall financing of it is 429 million, 21 including -- it is -- that original borrowing of 247 22 plus interest over 30 years comes out at 429 million. 23 There's financing of about GBP15.5 million to 24 GBP16 million a year for principal and interest costs. 25 The Council could have used that to finance a school or 163 1 whatever alternative. 2 The issue really is that GBP16 million is a revenue 3 spend for principal and interest. So that hits the 4 general revenue account for the Council. So that never 5 goes away over the 30 years, and that's -- in terms of 6 revenue spend, money that could have paid for other 7 things. 8 CHAIR OF THE INQUIRY: Yes. 9 MR MACKENZIE: So does it come to this: that in deciding 10 whether X should be spent on a particular project or 11 item, a body should also consider whether the money 12 would be better spent on other projects or items or 13 services? 14 A. Absolutely. It's a prioritisation exercise. Public 15 bodies up and down the land have to do it, in budget 16 setting every year. 17 The point is really made here that this is not 18 insubstantial. It's a quarter of a billion that turns 19 into 429 million over 30 years. It feels -- when you're 20 putting it between GBP15 million and GBP16 million 21 a year, in context of the Council's overall revenue 22 expenditure, quite modest. But it's that whole -- it's 23 the whole attitude to long-term borrowing that impressed 24 upon us to put that comment in there. 25 Q. So in short, is it your position that it's a matter of 164 1 good practice that in considering whether to spend money 2 on X, one should also consider if it would be better 3 spent on Y or Z? 4 A. Absolutely. If there's an option not to spend, and yet 5 you've got to consider doing nothing as well. What is 6 the optimal use of resources for the Council? And it 7 felt as if, given the context to this project, that 8 there was -- it wasn't really an option not to go down 9 this route. 10 Q. Thank you. Back to your report, please, in 11 paragraph 1.20. I think we have touched upon this 12 paragraph previously. I think you drew our attention to 13 that as another one of your headline conclusions; is 14 that correct? 15 A. Yes. 16 Q. Then at paragraph 1.21, please. I'll read this out. 17 You say: 18 "In summary, whilst some aspects of good governance 19 and financial management were in place such frameworks 20 were significantly undermined prior to 2011 by an 21 absence of a robust CEC led strategic planning and 22 contract management capability, including operational 23 and financial performance management." 24 Just for the avoidance of doubt, can you explain 25 what you mean by that sentence, please? 165 1 A. Yes. 2 Q. It might be helpful for you to see the first part of it 3 as well if it's possible to bring up both pages on the 4 screen at the same time, please? 5 A. A frustrating aspect of the project was that some of the 6 framework for governance was in place, but in operation 7 they were ineffective. There seemed to be behaviourally 8 difficulties in communication between officials from tie 9 and CEC. In terms of financial management, tie seemed 10 to be left to get on with it, with a very light touch 11 from the Council's finance team. 12 That changed over time, which was good, and 13 certainly contributed to a betterment in the overall 14 rigour of management. 15 But for a crucial period in the early part, early 16 and mid part of the life of the project, there was 17 a lack of robustness in financial management control. 18 Looking at the evidence that we had at our disposal, 19 it was difficult to see if there was any financial 20 performance management over tie over the early and mid 21 years. You know, costs that were being incurred by tie 22 appeared not to have been budgeted for, particularly the 23 pension deficit. 24 That sort of -- that sort of position should never 25 exist where -- the Council overseeing the company with 166 1 significant admin expenditure, I think ended up with 2 95 million or so, that should have been tightly 3 controlled, albeit that the framework for that 4 expenditure would not mirror the Council's own 5 structures and frameworks. 6 Within the early days, there was a framework 7 agreement between tie and the Council that would have 8 indicated that good practice should have prevailed. 9 There was certainly an undertaking from tie to use best 10 endeavours to apply good management and value for money, 11 and deliver value for money. There was no real 12 mechanism to enforce that. We didn't really see CEC 13 having rigour in taking tie to task for its ordinary 14 performance management of itself, which we would have 15 expected. Yes, within the governance arrangements like 16 the Tram Project Board, CEC were represented by 17 Mr McGougan and some other officials from time to time, 18 and they did have a continuous role there. But there 19 was no sense of real input, and real control, and whilst 20 we would accept that some of the individuals that were 21 appointed to tie were very good in their own field, we 22 didn't feel that there was the oversight from the 23 Council owning the special purpose vehicle and the 24 rigour that was needed. 25 Q. On that point, what controls would one ordinarily expect 167 1 to see in place for a local authority exercising 2 effective control over a special purpose vehicle? 3 A. Certainly an input to the SPV's corporate management 4 team, senior management team. That should be a standing 5 meeting where there's the Council's senior 6 representatives at it. There should be a continuous 7 dialogue there, a two-way flow of information. 8 Some of the witness statement evidence was really 9 quite difficult to read in some parts of this indicating 10 real push back and distrust in terms of the relationship 11 side of -- between the two, the lack of information 12 coming back, tie making decisions to seek legal advice, 13 and basically not fully tracking it with the Council. 14 It's where that lack of combined focus and direction and 15 the sort of parting and dissonance there, it doesn't 16 contribute well to the project. 17 In terms of your question, we would expect councils 18 to be very close to the SPVs that they operate, and most 19 do this very, very well. For certain purposes they 20 bring external help in, which is sometimes needed to 21 substantiate some of the SPVs, particularly those that 22 are set up as trusts. But direct control should 23 nevertheless be manifest itself at least at officer 24 level. 25 Q. You also, I think, later in your report said you could 168 1 find no objective evidence of formal performance 2 appraisal. 3 Now, is that part of how a local authority can 4 exercise effective control over a special purpose 5 vehicle, formal performance appraisal? 6 A. Well, certainly being the owner of a special purpose 7 vehicle, you would expect a local authority to have some 8 control over performance management and the ability to 9 influence remuneration arrangements at the SPV. 10 There's all sorts of good practice required of that, 11 notwithstanding the fact that local authorities are high 12 profile in the areas they operate in terms of media. 13 There needs to be real accountability of a performance, 14 and most authorities are able to apply sufficient 15 influence without having to secure control by overt 16 means. 17 MR MACKENZIE: My Lord, I'm conscious that I may be another 18 20 or 30 minutes. It may be an appropriate time to 19 break. 20 CHAIR OF THE INQUIRY: Yes. We are going to have a break 21 for the sake of the shorthand writers. We will resume 22 again at 3.15. You will get a cup of tea or coffee if 23 you want. 24 (3.00 pm) 25 (A short break) 169 1 (3.15 pm) 2 CHAIR OF THE INQUIRY: You are still under oath, Mr Fair. 3 MR MACKENZIE: Thank you, my Lord. 4 Could we go next please to page 22. Just some 5 various bits and pieces in your report I would like to 6 ask you about, please, Mr Fair. 7 At page 22, in paragraph 3.15, we can read the first 8 part for ourselves in relation to: 9 "Financial close on the Infraco contract was 10 achieved on 14 May 2008." 11 A reference to the statement from the CEC Director 12 of Finance. You then go on to say: 13 "The introduction of the pricing provisions in 14 Schedule 4 and subsequent negotiations around it led to 15 the whole dynamic of the nature of the original contract 16 being changed. Whilst there were late changes to the 17 bid submission the CEC Director of Finance '... did not 18 see, or seek, the version of the Infraco Pricing 19 Schedule (Schedule 4) in existence at that stage'." 20 That was a quote, I think, from Mr McGougan's 21 written statement from "did not see" to the end of the 22 sentence. 23 You go on to say: 24 "Given the significance of this late change, we 25 would have fully expected the CEC Director of Finance 170 1 (who was at the core of the financial oversight) to have 2 made himself fully aware of the potential impact of 3 pricing schedule changes." 4 How? 5 A. Well, certainly you would expect, if the Finance 6 Director was not able to dive into the detail, get one 7 of his staff to avail him of the likely impact of the 8 change. There seemed to be a feeling that there was 9 a lack of understanding of what it actually meant in 10 terms of the potential exposure and additional costs. 11 So certainly the Finance Director, if I could refer 12 you to one of our good practice standards, the CFO 13 standard, the Finance Director is expected to help the 14 authority manage its risk. It's not a silent 15 expectation. It's a requirement. 16 This is so significant. We would have expected the 17 Finance Director to at least consider the assessment of 18 the quantum of risk here, and what this really meant in 19 terms of the best scenario and the worst-case scenario 20 for exposure by the overall project. 21 It didn't feel as if that was the case and we make 22 the point that there seemed to be undue haste to accept 23 the terms of this late change, and indeed, members were 24 given the recommendation on the basis that this was 25 preferred terms they would be accepting, when in fact it 171 1 seemed to be setting the scene for immediate problems as 2 soon as it was agreed, given a level of the 3 specification still to be worked out and designed by the 4 contractor. 5 Q. Just to explore that little, if one has a very busy 6 Director of Finance dealing with any number of things, 7 on the one hand, and in a very large contract one has 8 a particular schedule which perhaps contains particular 9 provisions which create risk, how is a Director in that 10 position supposed to become aware of that detail in the 11 contract that creates a risk? 12 A. The role of the Chief Financial Officer set down by 13 CIPFA requires the arrangements within the organisation 14 to be such that the Chief Financial Officer is able to 15 be fully conversant with all matters. 16 This necessarily means having a structure there of 17 specialists to support him or her. Because of the 18 complexity, it doesn't abrogate from the responsibility 19 here, no matter how difficult and complex this is. 20 Mr McGougan, I think, was close to this over the 21 early life of the contract up to he retired. In the 22 minutes of the Tram Board, he certainly was 23 a significant feature throughout. 24 Given the significance of this pricing change and as 25 a way to, I think, get round some sort of impasse with 172 1 the consortium at that time, it seemed as if the Finance 2 Director was willing to accept the consequences, 3 whatever that would have been at the time. But it 4 doesn't feel, and the evidence that we have seen to date 5 doesn't show, that there was a full understanding of 6 what was being agreed to; and the fact that Mr McGougan 7 accepted that he hadn't actually seen it seems to me 8 that there wasn't a full understanding of what was being 9 agreed, and yet Mr McGougan was a co-author of the 10 report to the Policy Committee in 2008, strongly 11 recommending that the members agree to the latest 12 position. 13 CHAIR OF THE INQUIRY: If Mr McGougan were one of three 14 senior executives, including the Council Solicitor, to 15 whom the Chief Executive had delegated the 16 responsibility for being satisfied, would that reinforce 17 what you're saying? 18 A. Well, the Chief Financial Officer in Scottish local 19 authorities is a statutory role under Section 95 of the 20 Local Government (Scotland) Act 1973 as the proper 21 officer responsible for ensuring that appropriate 22 financial management arrangements are put in place. 23 So the CFO has a statutory role to discharge, just 24 as the Monitoring Officer has in another context. But 25 we would have expected, given our standard on the CFO, 173 1 one of the three principles of the CFO is that the CFO 2 must be actively involved and able to bring influence to 3 bear on all material business decisions, to ensure that 4 immediate and longer term implications, opportunities 5 and risks are fully considered, and alignment with 6 organisation's financial strategy. 7 At that point in time, I think it would be difficult 8 to argue that that was achieved. 9 MR MACKENZIE: As a generality for a Director of Finance as 10 the Chief Financial Officer to understand the risks 11 arising in a contract being entered into by a special 12 purpose vehicle, presumably a director in that position 13 could look to his own staff to advise him of the risks, 14 also the staff of the special purpose vehicle, but also 15 perhaps consider obtaining independent external advice 16 as well as a check? 17 A. Absolutely. Because there doesn't feel to be the full 18 understanding and alignment here, it kind of further 19 emphasises what we're also saying in the report. This 20 gap between tie and CEC at the time, that appeared to 21 prevail, and because of that lack of continuity, it may 22 well have been difficult for Mr McGougan to be fully 23 aware of this. 24 But it certainly doesn't take away from the fact he 25 should have, and he was also the co-author of that 174 1 report recommending acceptance. 2 So if he was recommending acceptance for something 3 that he didn't fully understand, then I do think there's 4 a departure from a required standard. 5 Q. Although from Mr McGougan's perspective, it may be that 6 he thought he understood the risks at the time, but 7 subsequent events changed that view, but we can go back 8 over and check Mr McGougan's evidence in that regard. 9 Can we move on, please, to another point. The next 10 page of your report at page 23, in paragraph 3.19, 11 raises a different matter, the question of Scottish 12 Government grant, and you start by saying: 13 "We further concluded from the evidence available to 14 us that there may have been concern that if Scottish 15 Government Grant allocation had not been used, it may 16 have been recoverable and Council funded. Although 17 conditions of grant may well have created the potential 18 for grant to be recoverable, we could find no evidence 19 that this was likely to occur. We are also not aware of 20 central government grant being recovered from 21 a delivering public entity as a result of non-compliance 22 with grant conditions in the context of an 23 infrastructure project of this size." 24 Now, to pause there, while you can find no evidence 25 of that happening, presumably it must at least have 175 1 remained a risk that if the project wasn't completed in 2 accordance with the grant conditions, the grant may have 3 to be repaid? 4 A. Absolutely. We have not seen any of these grant letters 5 that do not have express conditions in them that don't 6 allow the funder, the grantor to recover the money, for 7 non-compliance, it is definitely always there. One 8 would expect that. 9 In fact, it certainly was in evidence when we looked 10 at the grant agreement between the Scottish Government 11 and CEC. 12 That said, there was no indication that the Scottish 13 Government were wanting to recover any grant that had 14 been claimed. Local authorities will always receive 15 grant retrospectively, subject to the submission of 16 a properly vouched grant claim. So there's always 17 a time lag between receiving, applying for the grant and 18 receiving it after the activity has been discharged and 19 expenditure has been made for vouching purposes and for 20 control purposes. 21 In that period, what normally the Council would do 22 in their accounts is to accrue it as grant income 23 received, if there's some certainty that there is no 24 difficulty. 25 But at various points, even up to about 2009, we 176 1 were talking about a sum of about 229 million being 2 spent, perhaps not being fully claimed at that point. 3 221,581,000 had been spent up to 31 March 2009. That 4 would have been within the envelope for this particular 5 grant. So there was significant commitment still to be 6 discharged on that. 7 Certainly it would have only, I think, crystallised 8 as a potential problem if there was a significant 9 divergence of opinion between the Scottish Government 10 and the Council further on in the -- around the 11 expenditure side, perhaps nearer 2011, rather than -- 12 certainly not at financial close in 2008. So I don't 13 think there was any prospectivity of an issue of a grant 14 being recoverable on that basis. 15 Q. Can I pick up also please, in the last line on the page, 16 the sentence: 17 "Given the way local authorities are able to 18 flexibly manage their cash flows on capital programme 19 work through highly developed Treasury Management 20 practices we do not see that the timing of grant claim 21 would have or should have had any material impact on 22 decision-making on the tram project." 23 I understand that. But could I raise a separate 24 point, please. There may have been concern around the 25 time of financial close that if financial close was not 177 1 achieved sooner rather than later, then the portion from 2 the grant that was available on that financial year may 3 not be carried over to the next financial year. 4 Do you have any comments on that suggestion? 5 A. No, certainly there's no -- if there's a commitment by 6 the Scottish Government to fund up to a particular 7 quantum, the fact that the grant hasn't been used within 8 a particular year, or it is lower than the forecast that 9 was given to the Scottish Government, it certainly 10 doesn't suggest that there's any loss to the Council, 11 certainly in the accounts of the Scottish Government. 12 There would be a commitment for the overall sum, but 13 obviously only the actual spend on grant made. 14 I don't think there was any problem or prospectivity 15 of that being an issue for Edinburgh city. The fact 16 that the spend was behind wouldn't have made any 17 difference, I don't think, to the commitment that had 18 been made by the Scottish Government. 19 Q. The other point perhaps to bear in mind in relation to 20 the tram project, I think, is that while at one time it 21 had been intended to achieve financial close in 22 January 2008, by May 2008, when the contract was entered 23 into, the project was already in the next financial 24 year. So presumably on the face of it, it's hard to see 25 why the grant wouldn't have been available at any time 178 1 in that financial year? 2 A. It would have made no difference. 3 Q. Thank you. Separate point, please, at -- 4 CHAIR OF THE INQUIRY: Sorry, ultimately the decision to -- 5 whether or not to ask to reclaim the grant, ultimately 6 would that be a political decision? 7 A. It certainly would be -- my Lord, it would be a decision 8 for the Scottish Government. 9 Where the grant conditions weren't being met, 10 there's obviously the potential for it to be recalled, 11 but I think they would have to have due regard to the 12 financial position of the City of Edinburgh as well 13 before trying to recover grant. 14 At the point in time in 2008, we were nowhere near 15 the actual spend that we were two years later. So 16 I think it would have still been within the realms of 17 being manageable. 18 CHAIR OF THE INQUIRY: Thank you. 19 MR MACKENZIE: Thank you. 20 Page 40, please. We have touched upon this point 21 earlier and I apologise if I'm going over old ground. 22 In paragraph 3.61 you say: 23 "We understand that the consequential impact of 24 borrowing GBP247.162 million (GBP231.66 million over run 25 spend plus GBP15.5 million on shortfall on developer 179 1 contributions) over 30 years equated to some 2 GBP14.3 million per annum - a total of some 3 GBP429 million in principal and interest payments - 4 interest payments being approximately GBP6.578 million 5 per annum." 6 A few lines down you say: 7 "We understand that the revenue impacts equate to 8 approximately some GBP75.43 per annum of Council Tax in 9 relation to Band D equivalent tax banding." 10 Now, we have touched upon that earlier, but just so 11 I understand what is meant by that, could we perhaps go 12 to Appendix 4 at page 114, please. Here I think you set 13 out the calculation that arrives at the figure of 14 GBP75.43. I can look then at the next page just to see 15 an overview of that calculation. 16 Then again the next page as well. 17 We can see, in the middle of the page, in bold text: 18 "Total cost per Band D equivalent ... for 30 years." 19 GBP75.43. So that's the detailed calculation, but 20 if we go on to the next page, at page 117, we see a much 21 simpler calculation or sense check. Just so I can 22 understand that, we can see the figure of GBP15 million, 23 and that I think represents the cost of the overspend on 24 the tram project; is that correct? 25 A. No, the GBP15 million was just an equivalent -- it was 180 1 just a sense check on the principal and interest which 2 would have hit the revenue account every year. It is 3 15.5. We move on to a wee bit more precision on it, so 4 when we did the sums in the correct way, we got a rather 5 more precise figure, GBP75.43, which is further up the 6 appendix. 7 Q. Yes. At a very simple or general level, the 8 GBP15 million per annum over 30 years represents the 9 additional borrowing and interest in relation to the 10 tram project; is that right? 11 A. Yes. 12 Q. Then underneath that, the line, number of Band D 13 equivalents, the 196,435, is that the number of Band D 14 Council Tax payers in Edinburgh? 15 A. Correct. 16 Q. When one divides the 15 million by the 196,435, one 17 arrives at the GBP76.36; is that correct? 18 A. Yes. Yes, that is what the calculation maps out at. 19 Q. So in your report, when you refer to the revenue impacts 20 equating to approximately GBP75.43 per annum of council 21 tax in relation to Band D, that's based on the 22 hypothesis that the additional expenditure is met only 23 by Band D Council Tax payers. So it's simply an 24 illustration. In reality, of course, the other band 25 taxpayers will be making a contribution as well? 181 1 A. It's the median point, yes. Absolutely. 2 Q. So essentially the greatest number of Council Tax payers 3 are in Band D? 4 A. And they would equate to GBP76 roughly. 5 Q. I understand, thank you. 6 Back to the main body of the report, please, at 7 page 45 and a separate point. 8 In paragraph 3.80, please, now, about halfway down, 9 towards the right on line 4, you say: 10 "Given the emerging challenges with financial 11 modelling and staffing changes arising from tie's own 12 structural changes we believe that CEC should have 13 acquired more assurance that the figures reported were 14 accurate and that assumptions around forecasting were 15 appropriately stress tested." 16 Now, to pause there, can you explain why you say 17 that and what you consider ought to have been done? 18 A. Yes. The Finance Director at CEC placed significant 19 reliance and in retrospect, undue reliance on the 20 finance director at tie at the time. Certainly there 21 was information produced that we had sight of, but it 22 seemed to be at various points accepted rather than 23 tested. 24 I think it was only in the latter stages of the 25 project that CEC finance staff were on it and 182 1 effectively more assigned to policing the -- and testing 2 the figures coming out of tie, by which point a lot of 3 the difficulties had arisen. There had been some 4 turbulence and turnover in tie, and as a result of that, 5 there seemed to be a lack of connectivity between the 6 two finance functions. As a result of that, we would 7 have expected, particularly when there was absolute 8 knowledge of people leaving and changing, for the 9 finance team at CEC to be even more concerned about the 10 rigour of financial monitoring. 11 Q. Thank you. Then the paragraph underneath that, please, 12 3.81. In the second sentence you say: 13 "There is significant evidence of operational and 14 financial monitoring reporting being based on what 15 appears to be 'stand-alone' spreadsheet analysis. Undue 16 reliance on manually manipulated data worked within 17 spreadsheet analysis significantly increases the 18 potential for human error to manifest itself and can 19 disproportionately consume staff resources. This can 20 arise as manually adjusted figures are added to system 21 sourced data. The higher the number of adjustments, the 22 greater the potential for error to occur." 23 Can you just explain, please, what you mean by that 24 passage and what you say ought to have been done. 25 A. We looked at some of the information from tie at the 183 1 time on monitoring, and it became very apparent that 2 a lot of the monitoring presentation had been derived 3 from Excel spreadsheet working, and whilst there is no 4 problem with that, because of the extent of modelling on 5 Excel worksheets and work books, we didn't get the feel 6 that a lot of the information came from the base 7 financial systems. 8 When you move further away from the core data on the 9 base financial system, you get the potential for figures 10 to be presented to decision-makers which are distorted, 11 changed, manipulated. 12 Mostly with the best intentions and professionalism, 13 of course, but the more spreadsheet working is used, 14 there is the potential for error. There is the 15 potential for figures to be changed in such a way that 16 it fits the particular mood of the moment, rather than 17 coming from the core systems to show the actuality. 18 The quote here was just an observation on the extent 19 of the workbook Excel reporting that came from the tie 20 finance team. 21 Q. So what ought to be done if too many spreadsheets are 22 considered a bad thing, and I have no difficulty with 23 that view at all, what ought to be done? 24 A. Well, certainly there should be assurance on the 25 validity of the core numbers. Where the numbers are 184 1 coming from, where is the data coming from, and good 2 financial management systems basically kind of hardwired 3 to capture all data, so that the only manipulation that 4 gets applied to them is the way that they are reported, 5 rather than manual intervention to change figures for 6 profiling or for information that becomes known. 7 Certainly influencing factors, good systems are 8 flexible enough to incorporate influencing factors and 9 changes, but what you do get with these systems is an 10 absolute trail, so that you can actually see the 11 changes. You can see the reason, the rationale for the 12 changes, and that there's full tracking and 13 transparency. 14 With Excel spreadsheets, there isn't that. You have 15 the capacity for a member of staff to change a couple of 16 figures within that, that can have a real significant 17 change in the outcome of information that's presented to 18 decision-makers. 19 If you get that wrong, then there's obviously -- the 20 scope for human error increases when you have to make 21 more manual changes. Then can be very, very difficult, 22 and we have seen -- we have seen figures presented that 23 are manifestly wrong and have made a significant impact 24 on decisions that have been made arising from then. 25 Q. Thank you. 185 1 Mr Fair, I appreciate there's a lot more detail in 2 your report we could go into, but for my part I'm 3 content to take the rest of your report as read, and 4 I have no further questions. 5 A. Thank you. 6 Questions by CHAIR OF THE INQUIRY 7 CHAIR OF THE INQUIRY: Could I ask about the 2010/2011 8 accounts. 9 You said there's a note to the effect that the 10 outturn cost of the project was expected to be 11 GBP770 million plus. 12 First of all, are the accounts published and 13 available to the public at large? 14 A. Yes, the Inquiry team should have those notes. 15 CHAIR OF THE INQUIRY: Well, yes, but I mean, as a matter of 16 course, the local authority has to publish its accounts. 17 A. Yes. 18 CHAIR OF THE INQUIRY: So any member of the public can have 19 access to the account and would they see that note? 20 A. They would see it if they had cause to look for it. 21 It's certainly there. 22 CHAIR OF THE INQUIRY: Yes. 23 The other thing is: is there a timescale for local 24 authorities to provide information in their reports 25 about projects? For instance, the tram project final 186 1 accounts, when would you expect these to be available 2 generally? 3 A. Certainly in terms of the Code of Local Government 4 Accounting, which is a prescriptive code that had been 5 structured by CIPFA, in the notes to the accounts, there 6 is a requirement that group accounting and information 7 on the latest position on the financial status of 8 a project should be reported proximate with the final 9 accounts of the authority. So where -- the authority's 10 financial year in Scotland is 31 March, we would expect 11 within the annual report and accounts of the authority 12 for -- a full tracking and exposure of a project of the 13 size of the tram project every year. 14 As I'd indicated earlier, the financial position of 15 tie is incorporated within the consolidated balance 16 sheet of the Council within the group accounts. 17 There is regulation around the way that's 18 constructed to make it meaningful, and we would expect 19 significant disclosure by the local authority on its 20 wholly owned companies and the way that the accounts are 21 incorporated and consolidated together, to give a full 22 group account situation. 23 Certainly it in some way tries to mirror group 24 accounting in a commercial world, where you have 25 subsidiaries within a group and a holding company. It 187 1 tries, as far as possible, to mirror that. 2 CHAIR OF THE INQUIRY: So at the end of each financial year, 3 for the local authority, it would -- it should -- these 4 accounts should include the total expenditure in that 5 financial year on the tram project, be able to find that 6 by looking at the payments to tie, or would you look at 7 the tie accounts or would you look at both? 8 A. No, the tie activities should be within the City of 9 Edinburgh Council's financial accounts. 10 The position on the actual assets that were created 11 and managed by tie are actually reflected in City of 12 Edinburgh Council's balance sheet itself. So the trams, 13 the actual tram units, the tram infrastructure itself, 14 is in the balance sheet, and the balance sheet notes 15 should show the additional capital expenditure for that 16 particular activity every year as it builds up. 17 CHAIR OF THE INQUIRY: So when you get to the end of the 18 project, it's completed. 19 A. Mm-hm. 20 CHAIR OF THE INQUIRY: So would you then expect, in the 21 accounts ending with that financial year, the March 22 after completion, these accounts should show what the 23 total for expenditure was -- 24 A. Yes. 25 CHAIR OF THE INQUIRY: -- during that year on the tram 188 1 project? 2 A. Both the accumulation, because we're creating an asset, 3 my Lord, and effectively we should be looking for the 4 balance sheet showing GBP776 million worth of asset 5 creation in the balance sheet, that written down by 6 impairment, depreciation, disposal, or even addition to 7 that. Where investment needs to happen to make an 8 asset, its payback, be useful for more than a year, you 9 would capitalise that. 10 So for specific projects like the tram, it should be 11 easily identifiable within the balance sheet of the 12 local authority that these are tram assets. And we 13 would ask for the breakdown. It wasn't overly apparent 14 what it was, but we were able to get enough of 15 a breakdown to see that. 16 There's also notes in the accounts as a requirement, 17 because of the Code of Practice, that the activities of 18 the subsidiaries, the high level narrative is put in. 19 So there will be the activity for tie Ltd as well as the 20 creation of assets in the CEC accounts. 21 So it's all there in the accounts of the local 22 authority. Sometimes quite difficult to know where to 23 look, but it should be there. And it's audited by 24 Audit Scotland. So Audit Scotland would expect 25 compliance with the Code, and if there was any 189 1 departures from it, they will leave a note if they don't 2 qualify the accounts, which they haven't. 3 CHAIR OF THE INQUIRY: Did I understand you earlier to say 4 that there was no asset register? 5 A. Yes. We asked for details of asset registers for the 6 tram assets, and we got a letter back, 31 March, from 7 the Council to say that they didn't have -- but they 8 were in contemplation. They were taking steps to create 9 them. 10 An asset register, in terms of good practice, is 11 a prerequisite for decision-making. It records the 12 detail of each asset created, the value of it, 13 expenditure, its valuation, its expected life, its 14 economic payback in terms of the economic benefit for 15 having it, and an assessment should be within that asset 16 register of its state, so that decisions could be made 17 on investment. If it was housing stock, we'd expect the 18 authority to have a stock maintenance inventory on it 19 and assess what the deterioration in that stock should 20 be and what the investment requirement would be. 21 So the asset register is not just about the local 22 authority accounting requirements. So that you have the 23 figure in the balance sheet, and you calculate 24 depreciation, impairment, et cetera. It's about 25 actually managing the asset properly, and you can only 190 1 effectively have the right figures in the accounts if 2 you know how to manage the asset, what its life is 3 likely to be, what its investment requirements -- or 4 indeed its total replacement. 5 So traditionally local authorities have been weak in 6 this area, because they've used information and assets 7 primarily for financial reporting, when in fact the good 8 practice requires that assets are managed through 9 a detailed asset register. 10 You can only have the correct figures in the 11 accounts if you know the status of your assets, and when 12 we asked the question of City of Edinburgh Council, they 13 confirmed that they didn't have one. 14 So primarily the figures that they have are for 15 financial reporting purposes in the balance sheet, 16 because we asked the question: there was 27 tram units 17 procured and we understood that there were only 17 18 needed; where is the additional ten; what condition are 19 all these tram units in? And we couldn't get anything 20 back on that. So they did concede that they were 21 working on creating robust asset registers. 22 CHAIR OF THE INQUIRY: The reason I was asking the questions 23 about the accounts for the tram project, Mr Connarty 24 gave evidence, and in the course of his evidence I asked 25 him if there was a final account for the project, and he 191 1 said that he gave an undertaking that he would -- that 2 it would be produced. It hadn't been finalised. Would 3 that surprise you? 4 A. It certainly would, because when you create an asset on 5 a balance sheet, you have a defined figure. If you've 6 properly recorded the creation of that asset from cradle 7 to grave, you will know exactly in your balance sheet 8 how much has been expended on the creation of that 9 asset. 10 I have no idea why that should be a problem because 11 it should already exist. Other than that we had -- 12 I explained earlier, my Lord, that we had reservations 13 over the final figure because of perhaps some items that 14 had been incorporated. 15 CHAIR OF THE INQUIRY: You had problems with the final 16 figure because things like reinstatement of pavements on 17 Leith Walk were not included. They were included under 18 the -- would be apparently paid under some other budget 19 for roads or whatever. 20 A. It may well be the case, my Lord, that that might have 21 been capitalised under infrastructure, other 22 infrastructure of assets. 23 The worst-case scenario in that is that that 24 capitalisation, there would have been a borrowing 25 requirement for that to finance it, which gets us back 192 1 to over and above our GBP75, our Council Tax D Band. 2 There may be an increased exposure. We don't 3 precisely know that. We certainly had issues over legal 4 costs and overheads. The Local Government Code of 5 Accounting Practice requires the capturing of all costs 6 specific to the creation of that asset. 7 So we would expect, if there was full compliance, 8 that the balance sheet should have exactly the 9 expenditure on tram assets, and that would include 10 overheads, it would include project management. 11 The definition in the code is really about anything 12 that gets an asset into service. That could be anything 13 that gets a specific asset to its location and in 14 service that has an economic payback to the user. 15 CHAIR OF THE INQUIRY: Another thing I wanted to ask about 16 was that you said at one point that there were 17 accounting reasons given for not considering 18 termination, but you didn't agree with them. 19 A. No. The Finance Director indicated two particular 20 reasons for -- he did say borrowing was the lesser of 21 two evils, and he'd indicated that if a decision was 22 made to terminate, all expenditure that would have been 23 in the balance sheet that would have been capitalised 24 would have been required to be unwound and charged in 25 the one year to the revenue account for City of 193 1 Edinburgh Council, and the bit I do agree with is the 2 fact they would have struggled to contain that from 3 reserves. 4 We don't agree with that because of effectively the 5 way the financial -- the Code of Practice Local 6 Authority Accounting Terms of Finance and International 7 Accounting Standards, which it's part of, basically 8 determined that an asset's capitalised when you mean it 9 to be capitalised. If it's not capital, it becomes 10 revenue. Anything up to the previous financial year 11 that's capitalised doesn't become revenue. It 12 effectively is impaired and through statutory 13 mitigation, we could actually deal with that impairment 14 over a number of years, rather than it being written off 15 in one year. 16 The fact that a goodly part of that was Scottish 17 Government grant was also another issue that we 18 contended with in that the likelihood of unwinding that 19 right of way in a one-year hit to the Council would have 20 been remote. 21 The fact that an accounting representation issue 22 would feature as a main component of decision-making, we 23 didn't agree with, my Lord, because it shouldn't have 24 made any -- it shouldn't have had any influence in the 25 decision-making of whether to proceed with the project 194 1 or terminate it, because we don't believe there would 2 have been an immediate requirement to hit the revenue 3 account with all the capitalised expenditure made to 4 date. 5 CHAIR OF THE INQUIRY: So if the suggestion was that the 6 termination of the project would result in the capital 7 expenditure becoming revenue, and it having to be repaid 8 in one year with a resulting consequence of about 9 80 per cent increase in community charge, are you just 10 saying that that's not correct? 11 A. That's not correct, my Lord. 12 CHAIR OF THE INQUIRY: But if that information were given to 13 councillors, that there might be an 80 per cent increase 14 in community charge if they decide to terminate the 15 project, do you see that that might well influence the 16 decision of the Council? 17 A. Certainly if they were given minimal information in 18 other aspects of the project, if you add it to that, it 19 may well have influenced them not to consider 20 termination. Certainly we don't agree that if an asset 21 is created early in the financial year and there's 22 a decision to terminate it and it doesn't become an 23 asset, then yes, it's a charge to revenue in that 24 financial year. 25 I suppose, in the currency of a financial year, the 195 1 later on in a financial year you make that decision, the 2 potentially more problematic it becomes. 3 But certainly it's our position that all 4 capitalisation up to the financial year that has just 5 gone would not be unwound immediately and charged to the 6 revenue account of CEC. It would be there would be 7 statutory mitigation, and yes, the asset may well be 8 impaired, but other factors regarding the state of the 9 asset, any additional secondary use or any scrap value, 10 would need to be considered too. It's not just a case 11 of simply charging it to any revenue account. 12 CHAIR OF THE INQUIRY: Thank you very much. Mr Martin, 13 I think you had some questions. 14 MR MARTIN: Yes, thank you, my Lord. I have no questions. 15 CHAIR OF THE INQUIRY: Thank you very much, Mr Fair. That 16 concludes your evidence. As I say to each witness, 17 I think, you are still under citation, and it would be 18 technically possible for you to be recalled, but I think 19 that's unlikely. 20 I would just like to thank you for the assistance 21 that you've given. 22 A. Thank you, my Lord. 23 CHAIR OF THE INQUIRY: If you care to go back to the office, 24 I will just deal with other matters. 25 (The witness withdrew) 196 1 INDEX 2 PAGE 3 PROFESSOR BENT FLYVBJERG (sworn) .....................1 4 5 Examination by MR LAKE ........................1 6 7 MR STUART FAIR (sworn) .............................126 8 9 Examination by MR MACKENZIE .................126 10 11 Questions by CHAIR OF THE INQUIRY ...........186 12 13 Closing remarks by CHAIR OF THE ....................197 14 INQUIRY 15 16 17 18 19 20 21 22 23 24 25 199