1 Thursday, 24 May 2018 2 CHAIR OF THE INQUIRY: I think we can just go straight on to 3 Mr Martin. 4 Closing submissions by MR MARTIN 5 MR MARTIN: Thank you, my Lord. The submissions which 6 I shall present at this stage on behalf of the City of 7 Edinburgh Council fall into four parts. 8 First, an introduction; secondly, to deal with the 9 written submissions for the Council; thirdly, to refer 10 to particular specific issues; and finally, to give my 11 conclusions. 12 My Lord, I'm conscious that all of the submissions 13 are being recorded and being transcribed and the Council 14 is perfectly content with that, but I can say to my Lord 15 that if he would like a written version which tends to 16 be the way in public inquiries nowadays in addition, 17 then that can be easily provided. 18 CHAIR OF THE INQUIRY: I think probably the transcript 19 should be sufficient, Mr Martin. Thanks for the offer. 20 MR MARTIN: My Lord, the introduction -- and I should 21 emphasise these submissions will be relatively brief, as 22 is, I think, to be expected. 23 The oral submissions are given on behalf of the 24 Council in supplement of the written submissions 25 exchanged on 27 April and submitted as revised on 36 1 11 May. The approach of the Counsel to the Inquiry has 2 been to assist the proceedings and ultimately to gain 3 the benefit of the airing of evidence and of the report 4 of the Inquiry to be published in due course. 5 Whilst this has not always been straightforward, the 6 Council and its officers have sought to co-operate by 7 providing documents and assisting the Inquiry team in 8 response to all requests. In the conduct of the 9 Inquiry, the Council has minimised its active 10 intervention because its approach is and has always been 11 to learn the lessons from the Edinburgh Tram Project in 12 relation to the carrying out of infrastructure projects 13 in the future. 14 These oral submissions, and the written submissions 15 more generally, are all intended to assist in these 16 purposes. 17 So far as the written submissions for the Council 18 are concerned, it is not intended to repeat at any 19 length the extensive submissions which have already been 20 made and revised on behalf of the Council. As will be 21 apparent, these have sought to address the terms of 22 reference of the Inquiry, including the three particular 23 points identified in the terms of reference, as well as 24 the topics identified by you, my Lord, in the note by 25 the Chairman for core participants concerning closing 37 1 submissions issued towards the end of oral evidence on 2 15 March. 3 In doing so, the Council has sought to address 4 directly the terms of reference and all of the issues 5 identified in the Chairman's note. In this regard the 6 position of the Council may be said to be unique at the 7 Inquiry because it is the only core participant which 8 has a direct interest, not least for the future, in each 9 of the three points in the terms of reference and in the 10 issues listed in the Chairman's note, and also with the 11 possible exception of the Scottish Ministers, the 12 Council is the only core participant who may be in 13 a position to carry out similar infrastructure projects 14 in the future and with a responsibility both to the 15 public interest and to the City of Edinburgh. 16 The result is that, given that each core participant 17 is allotted the same amount of time for oral 18 submissions, the Council has on the face of it a much 19 greater range of issues which are relevant than most of 20 the others, and to that extent will not concentrate 21 unduly on any particular one. 22 Having said that, this is no criticism of the 23 Inquiry, because the opportunity for brief oral 24 submissions at the close of proceedings is appreciated. 25 But it is simply to say that in the case of the Council, 38 1 reliance upon all aspects of its written submissions is 2 perhaps most important, because it is there that all of 3 the topics are addressed in detail. 4 The oral submissions are not intended to summarise 5 all of the issues raised in the extensive written 6 submissions made on behalf of the Council, but rather to 7 highlight a number of key points. 8 In addition, and consistent with its general 9 approach to the Inquiry, the Council in its written 10 submissions has adopted an evidence-based approach, 11 carrying out a thorough and detailed review of the 12 evidence presented in a fair and balanced way, with 13 a view to assisting you, my Lord, as Chairman, and the 14 Inquiry. This is once again because the Council regards 15 this Inquiry as an opportunity to understand and to 16 learn from what happened in the carrying out of the tram 17 project with a view to the experience being applied in 18 the future. 19 I then turn to the specific issues. 20 With these general observations, the Council does 21 wish to refer in these final submissions to four 22 particular issues. The first is the principal cause. 23 This is related to the first point in the terms of 24 reference of the Inquiry and is addressed in detail in 25 chapter 1 of the written submissions for the Council. 39 1 These oral submissions do not seek to depart from what 2 has already been said, although the Council does wish to 3 emphasise the critical importance which it regards the 4 Pricing Assumptions in Schedule Part 4, in particular 5 Pricing Assumption Number 1, and the change mechanism in 6 Clause 80, as having played a part in leading to the 7 additional costs being beyond those budgeted for, the 8 delays and the reduction in route. 9 The procurement strategy in relation to the project 10 was to transfer risk, including the risk associated with 11 the design, to the construction consortium in order to 12 achieve a fixed price contract. It was recognised by 13 the end of 2007 that there had been slippage in relation 14 to the design and Infraco had indicated that they were 15 not prepared to take the risk in relation to the design 16 in these circumstances. 17 tie Ltd believed, and reported to the Council, that 18 the risk around normal design development was 19 transferred to Infraco for an additional premium of 20 GBP8 million in terms of the Wiesbaden Agreement, 21 thereby delivering a contract with a high degree of 22 fixity in the price. When Schedule Part 4 was 23 developed, tie sought to maintain the position that had 24 been agreed at Wiesbaden in respect of normal design 25 development because its understanding was that it passed 40 1 the risk to Infraco. 2 Neither tie nor the Council received any legal 3 advice from DLA generally or Andrew Fitchie individually 4 that the Pricing Assumptions, and in particular Pricing 5 Assumption Number 1, meant that the risk of normal 6 design development lay with tie. The Pricing 7 Assumptions in conjunction with Clause 80 were the 8 principal cause of the disputes between tie and Infraco 9 and ultimately led to the effect of cessation of all 10 work on the project, causing delays and a truncation of 11 route. 12 In general terms, the evidence has demonstrated that 13 these provisions were unusual if not unique in 14 a substantial public infrastructure project, and that 15 whether this was the intention of Infraco at the outset 16 when negotiating these terms, nevertheless when matters 17 developed, they gave to Infraco a substantial 18 contractual advantage which led ultimately to the 19 consequences specified in the first point in the terms 20 of reference. 21 That these were the critical contractual terms which 22 were incorporated into the Infraco contract which was 23 entered into at the time that it was, are seen by the 24 Council to be the principal or proximate cause of the 25 failure of the tram project to deliver line 1a in the 41 1 way that was anticipated, and at a cost which was 2 reasonably within that contemplated and budgeted for. 3 The terms of the Infraco contract meant that tie and 4 hence the Council bore the risks in this respect. 5 It is suggested by others that there was no single 6 cause of what went wrong in the tram project, but the 7 Council does not accept that. It was the fact that the 8 Pricing Assumptions and the change mechanism became part 9 of the Infraco contract which inevitably led to the 10 difficulties, but it was the factual background which 11 existed at contract close which led to these 12 consequences ensuing. This background was the fact that 13 at contract close, there were delays principally in the 14 SDS design process, but also delays in the execution of 15 the MUDFA contract. 16 In that situation, it was the existence of Pricing 17 Assumption Number 1 which led to the inevitability of 18 additional cost, delays, and a truncation of route. On 19 the one hand, if Pricing Assumption Number 1 had not 20 been in the form that it was, then the delays which 21 existed at the time of contract close, with the 22 uncertainties over design in particular, would not have 23 led in the same way to the consequences of additional 24 cost which occurred. 25 To put it in the way that the Council believed it to 42 1 be at the time, if Schedule Part 4 had properly 2 described a fixed price contract, with only the normal 3 level of uncertainty over variations made during the 4 execution of the contract, then the costs would not have 5 escalated to anything like the extent that they did. 6 Thus if Schedule Part 4 had been in a different form 7 at contract close, that would not have led to the same 8 results, even in a situation where design was delayed. 9 Alternatively, if the Infraco contract had not been 10 entered into at the time that it was, and in a situation 11 where the significant delays were in existence, then 12 once again, the consequences would not have been the 13 same, because the Pricing Assumptions in Schedule Part 4 14 would not have been departed from to anything like the 15 same extent. 16 Whether that might have led to the Infraco contract 17 not being entered into until a later date, by which time 18 the delays would have been significantly less, or might 19 have led to a pause in the tram project altogether, 20 simply cannot be said. But once again it was the fact 21 that the Infraco contract contained the Pricing 22 Assumptions in Schedule Part 4 at the time that it was 23 entered into and in the circumstances which existed when 24 it was entered into, which brought about the negative 25 consequences which are the principal subject of this 43 1 Inquiry. 2 Given that situation, the Council is clear that it 3 ought to have had proper legal advice on the meaning and 4 effect of Schedule Part 4, and also its relationship to 5 Clause 80. The Council in these oral submissions does 6 not repeat what it has already said, but it maintains 7 that position. 8 The Council sought advice from DLA in relation to 9 the Infraco contract and in particular risks which 10 required to be brought to the Council's attention. DLA 11 agreed to give that advice and purported to present some 12 advice in the form of a series of letters. The Council 13 relied on that purported advice, but the advice was not 14 complete and it was not accurate; in particular, because 15 it did not refer to the risk allocation issues raised in 16 particular by Pricing Assumption Number 1, nor its 17 interaction with Clause 80. 18 Those at tie and the Council who gave evidence on 19 the point were unanimous that no oral advice had been 20 provided in this context, and the advice letters make no 21 reference to any oral advice. The relevant tie and 22 Council individuals also gave evidence about their 23 understanding at contract formation that risk in 24 relation to normal design development lay with tie. 25 This understanding was reflected in the reporting at the 44 1 time, and they did not recall any advice to the 2 contrary. 3 Mr Fitchie's evidence was that he was aware that 4 certain reports were inaccurate, but he did not advise 5 the Council of this. The Council has noted the 6 submissions added by DLA following the initial exchange 7 of submissions. Given the length of these, it is not 8 possible to respond in detail in these oral submissions, 9 but the following response is offered. 10 The Council has not been selective in its quotations 11 from the evidence, marshalling that evidence extensively 12 and in detail. 13 The Council refers to the detailed references to the 14 analysis of the evidence relating to DLA, in particular 15 at paragraphs 3.1 to 3.124 in chapter 1 of its Written 16 Submissions. 17 The Council maintains its position that there is no 18 evidence that DLA provided accurate and/or complete 19 advice on the potential consequences of the Infraco 20 contract which was proposed to be entered into. 21 DLA submits at inserted paragraphs 150 and 151 that 22 officers of the Council were themselves aware of the 23 potential consequences of Schedule Part 4; and that 24 somehow this absolves DLA from its legal 25 responsibilities. This is a curious submission. In the 45 1 first place, the Council refers again to the evidence on 2 this point and submits that it cannot be said that any 3 senior officer in the Council properly understood what 4 the potential consequences of the Infraco contract 5 containing the Pricing Assumptions would be. The 6 Council therefore does not accept as a matter of fact 7 what is submitted by DLA. 8 The revised submissions for DLA also refer at 9 inserted paragraph 150, the seventh subparagraph 10 referring to the Council written submissions at 11 paragraph 3.12, to the fact that Steven Bell had 12 supposedly said that tie was well aware of the risks 13 associated with Schedule Part 4. 14 Even if correct, that is of course not to the point, 15 because it ignores the direct duty of care on the part 16 of DLA in favour of the Council. The subsequent 17 submission at inserted paragraph 150, the ninth 18 subparagraph referring to the Council written 19 submissions at paragraphs 3.23 to 3.38, and repeated in 20 the 14th subparagraph referring to the Council's written 21 submissions at paragraph 3.57, that the reliance by the 22 Council on DLA's advice requires acceptance of the 23 proposition that, and I quote: 24 "The contractual stipulation that advice to tie 25 would equate to advice to CEC is misconceived." 46 1 The actual contractual stipulation may have entitled 2 DLA to rely upon instructions from tie, but it did not 3 absolve DLA from the need to fulfil its individual duty 4 of care to the Council. The written submissions on this 5 aspect are referred to but not repeated. 6 More importantly, and even if the Council were not 7 to be correct in what has just been suggested, and that 8 is not accepted, the position for DLA appears to be that 9 in a situation where a solicitor owes a direct duty of 10 care to an organisation, but there is someone in the 11 client organisation who himself or herself has some 12 understanding of what should have been the subject of 13 formal advice by the solicitor, then somehow the 14 solicitor is absolved from performance of the legal duty 15 which the solicitor was undoubtedly under. 16 There is no legal or other basis for such a means of 17 exculpation. DLA were under the direct duty of care 18 owed to the Council and if they did not discharge it, 19 then they are in breach of that duty, whatever might 20 have been the state of knowledge of anyone else. 21 But in any event, the submission does not succeed in 22 practical terms. Even if it had been the case, which 23 the Council repeats it does not accept on the evidence, 24 that officers of the Council had some awareness of the 25 potential consequences of the Pricing Assumptions and 47 1 Schedule Part 4, and if it were to have been the case 2 that formal legal advice had been tendered by DLA to the 3 same or similar effect, then that formal legal advice 4 would have been an additional factor properly to be 5 taken into account by the Council before authorising tie 6 to enter into the Infraco contract. 7 The absence of such advice is critical in 8 a situation where the Council ought to have been made 9 aware formally by the professional advisers who are 10 under a duty of care to the Council of the legal 11 consequences of what was about to be entered into. 12 Finally, DLA suggest that they were not under a duty 13 to give advice as to commercial risk. At inserted 14 paragraph 150, the 13th subparagraph referring to the 15 Council written submissions at paragraph 3.51.11, and 16 that is a suggestion made in the past. It is submitted 17 that this can be dismissed without hesitation. The 18 advice to be given on the meaning and consequences of 19 the Infraco contract, in particular Schedule Part 4 and 20 the Pricing Assumptions, as well as Clause 80, was legal 21 advice as to the meaning and effect of these provisions, 22 in the practical circumstances which were known to 23 exist. 24 The quantification of risk would come after that 25 legal advice had been properly tendered and not as 48 1 a substitute for it. 2 There is one last point regarding the revised 3 submissions for DLA. In dealing with the formal 4 submissions for the Council, DLA submits at inserted 5 paragraph 150, the fourth subparagraph referring to the 6 Council written submissions at paragraph 3.5, that the 7 suggestion by the Council that the Wiesbaden Agreement 8 was, and I quote, "not non-negotiable" was "wishful 9 thinking" because the evidence of Richard Walker was 10 that BBS "was simply not prepared to accept any movement 11 of risk". That submission appears to be contradicted by 12 what DLA themselves have said in responding to the 13 submissions for Bilfinger Construction, referred to as 14 BCU, at inserted paragraph 156 in the fifth subparagraph 15 referring to the BCU written submissions at 16 paragraph 45, that, "it is self-evident that the 17 Wiesbaden Agreement was not 'the final deal'" but 18 "a step in the negotiating process" albeit described 19 thereafter as "a serious and momentous stage in the 20 negotiations". 21 It will be for the Inquiry to make what it will of 22 these apparently contradictory positions. 23 I then turn to the responsibility of senior Council 24 officers. In a situation where, as has just been 25 submitted, the Council was entitled to expect the proper 49 1 exercise of a legal duty of care in its favour, and that 2 did not take place, it is submitted that it would be 3 unjustified to criticise senior officers for themselves 4 not having become aware of the critical meaning and 5 potential effect of Schedule Part 4. Those senior 6 officers had a range of responsibilities on behalf of 7 the Council as a whole, and did not have day-to-day or 8 operational responsibility for the carrying out of the 9 tram project. 10 In a situation where a party has engaged responsible 11 professional legal advice and that advice has failed in 12 the exercise of the requisite duty of care, then it is 13 submitted that it would not be justified to criticise 14 those individuals for failing themselves to have become 15 aware of the very thing that ought to have been brought 16 to their attention, if that duty to give legal advice 17 had been properly discharged. 18 The Council once again does not intend to labour 19 this point, but it is submitted that it is an important 20 one because it lies at the root of a situation in which 21 a major infrastructure project is to be delivered by 22 a public authority, and the justification for doing so 23 by means of an arm's length external organisation, or an 24 ALEO, such as tie. 25 A local authority which delegates the carrying out 50 1 of an infrastructure project to an ALEO, and engages 2 a professional legal adviser who was placed under a duty 3 to give advice both to that ALEO and also directly to 4 the local authority should not be criticised for failing 5 to appreciate that which the legal adviser had failed to 6 identify in legal advice. 7 I then turn, my Lord, to the position of tie. The 8 Council submits that the creation of an ALEO is not as 9 a matter of generality something which can properly be 10 criticised in light of the evidence at the Inquiry. In 11 the case of the Council, it has a successful record of 12 using arm's length organisations for a range of 13 purposes, not least Lothian Buses, which is jointly 14 owned by four local authorities, and the Edinburgh 15 International Conference Centre, both of which operate 16 on a commercially successful basis. 17 In the case of tie, it was initially set up with the 18 encouragement of the then Scottish Executive, and the 19 concept of ALEOs owned by local authorities is 20 recognised in the councillors' Code of Conduct, 21 published by the Standards Commission for Scotland, and 22 tendered to the Inquiry by the Council. 23 The problem in the present case lies rather more 24 with the particular circumstances of tie. It was set up 25 to deliver a range of transport initiatives which by the 51 1 time that the tram project was coming to fruition, had 2 all disappeared. It had become a single issue company, 3 responsible for the practical delivery of the tram 4 project, and as a contract manager, to exercise 5 functions somewhat different from its initial origins. 6 In addition, it had been intended to deliver 7 transport initiatives, including a tram project, through 8 a revenue stream created by congestion charging, but 9 that revenue stream was lost when charging was rejected 10 in a referendum. 11 Thus by this stage of the tram project coming to be 12 delivered, and the Infraco contract being entered into, 13 tie was in a situation which was, to some extent, 14 unintended. 15 The Council submits that the problem was not with 16 the concept of an arm's length company for delivery of 17 an infrastructure project, nor with the particular arm's 18 length company of tie, but rather with how that company 19 came to be operated by its officers. The Council does 20 not at this stage refer at length to the many examples 21 of where those in tie were responsible for not properly 22 informing officers of the Council about precisely what 23 was taking place and the issues which existed, and in 24 a way which would have allowed the Council itself and 25 its officers properly to understand what were the 52 1 potential consequences. 2 An obvious example is what occurred in the DRP 3 process which is referred to at part 19 in chapter 3 of 4 the written submissions for the Council. The officers 5 of tie did not properly bring to the attention of the 6 Council the results of adjudications, in particular the 7 earliest adjudications, and the effect of these 8 decisions on what was tie's interpretation of the 9 Pricing Assumptions. 10 On the contrary, tie continued to present these 11 results as mixed, when truly they were not. 12 The Council and its officers are not the only ones 13 to present this complaint. The evidence for 14 Transport Scotland was to the same effect, and the 15 Scottish Ministers have adopted that evidence in their 16 written submissions. 17 The final specific issue to which I refer, my Lord, 18 is the Mar Hall settlement. The Inquiry has heard 19 substantial evidence on the preparation for and conduct 20 of the mediation which led to settlement. It is 21 submitted that it is proper to recognise that this was 22 delivered by Dame Sue Bruce on her becoming 23 Chief Executive of the Council, and at a time when the 24 tram project was in an extremely difficult state, with 25 serious potential consequences for the city of 53 1 Edinburgh. 2 The Council does not repeat the evidence which was 3 led about the preparation for the mediation and the 4 financial assessments which were taken into account in 5 leading to the ultimate settlement. 6 Whilst it may be reasonable for the Inquiry to 7 satisfy itself as to the extent of those preparations, 8 and the financial consequences, nevertheless, the 9 Council submits that it would not be appropriate to view 10 the Mar Hall settlement in purely financial terms. 11 At the time that the settlement was reached, the 12 tram project had stalled. The streets of Edinburgh were 13 disrupted. Citizens and businesses had already suffered 14 severe disruption, and there was on the face of it 15 nothing positive to be seen in return. 16 The reaching of the settlement led to the completion 17 of line 1a, albeit truncated to York Place, but 18 nevertheless providing an operating tram system which 19 has established a rail connection to Edinburgh Airport, 20 the usage of which is exceeding expectations. 21 The streets of Edinburgh were restored, in 22 particular with rectification to a much higher standard 23 of the track work in Princes Street, and steps were 24 taken to assist the potential continuation of line 1a to 25 Newhaven by means of acquisition of design and 54 1 materials. 2 The alternative at the time was walking away from 3 the relationship with Infraco, with potentially 4 unquantified and unquantifiable financial and practical 5 consequences. The possibility of terminating the 6 Infraco contract depended upon contractual provisions 7 which were untested and about which there was no 8 certainty. An attempt at termination might have led to 9 substantial financial claims for breach of contract over 10 and above all that had already been paid. Even if it 11 had been possible to substitute a new contractor, which 12 was and remains entirely hypothetical, both legally and 13 practically, time would have been required for that new 14 contractor to take up the commission. 15 Given the history of the tram project up to that 16 point, it is likely that any new contractor would have 17 required very substantial financial payments to secure 18 it against the risks it would be taking in coming into 19 a project not unreasonably described as "toxic". 20 All of this was uncertain at the time of the 21 Mar Hall mediation and, as the evidence has 22 demonstrated, suggested factors reasonably in support of 23 a suitable settlement. 24 On the other side, and as a result of that 25 settlement, the infrastructure works which were 55 1 delivered thereafter were carried out on time, 2 essentially within the settlement which had been agreed, 3 and with limited disruption. The Council does not 4 repeat all of the evidence which relates to this aspect, 5 but it repeats that the overall consequence has been an 6 operating and effective tram system which is capable of 7 extension rather than a situation which would have been 8 entirely uncertain. 9 I turn then to my conclusions. 10 The Council has already learned important lessons 11 from the tram project and awaits the findings of the 12 Inquiry in order to consider what further lessons can be 13 taken on board for future projects. The Council is 14 currently preparing a full Business Case for the 15 extension of line 1a to Leith and Newhaven. The 16 decision on whether to proceed with this project is 17 expected to be taken by councillors in late 2018. 18 Although the lessons learned by the Council will be 19 applicable to all projects which it undertakes in the 20 future, the Leith and Newhaven tram project is clearly 21 an opportunity for the Council to demonstrate that past 22 issues have been recognised and addressed. 23 The Council has addressed its position in chapter 4 24 of the written submissions. In addition, it refers to 25 the following broad headings as to what has been learned 56 1 to date from the tram project. 2 These have been reflected in the potential Leith and 3 Newhaven extension. These relevant themes of lessons 4 learned are: project planning; project governance; 5 allocation of risk; provision of external legal advice; 6 and practical aspects of project delivery. 7 First, project planning. It is important that at an 8 early stage in a project, the initial options, appraisal 9 and Business Case are subjected to independent scrutiny. 10 This will allow significant areas of risk which may have 11 been overlooked to be identified and addressed before 12 further resource is expended or potential momentum 13 builds. The addressing of risk will include the taking 14 of advice on optimism bias and applying that advice at 15 all stages as the project develops. 16 Detailed consultation with all of those likely to be 17 affected and have an interest in the project must be 18 undertaken at an early stage, with representations 19 accurately recorded and appropriate action taken. 20 This will allow the Council to understand the 21 concerns of residents and businesses in particular, and 22 manage expectations and potential objections. 23 Objections to a large scale project are all but 24 inevitable. Such objections must be dealt with in an 25 organised manner at an early stage in order to avoid 57 1 them unnecessarily escalating. Such escalation can be 2 a drain on project resources and contribute to negative 3 public perceptions. 4 Next, project governance. 5 Robust project governance is critical to the success 6 of any large project and must be clear from the outset. 7 Where there are appropriate examples of good industry 8 practice, these should be followed. The following are 9 the key governance lessons learned from the tram 10 project. 11 There must be strong senior officer and political 12 leadership behind major projects. Council officers must 13 report regularly to senior officers and councillors on 14 risks, issues and costs. Roles and responsibilities of 15 all those involved in projects must be clearly defined 16 from the beginning. Management information must be 17 accurately and regularly provided to decision-makers and 18 reporting lines must be clear. In particular, if an 19 ALEO is used to deliver the project, the officers and 20 employees of that organisation must be aware at all 21 times of the duty of the ALEO to serve the interests of 22 the Council, and not what might be seen as its own 23 interests, and of their individual duties always to 24 provide full and accurate reporting to the Council in 25 the fulfilment of the ultimate duty to serve the 58 1 interests of the Council. 2 For complex projects of significant value, those 3 involved must have relevant expertise and experience. 4 This should include the appointment of project 5 management professionals, to ensure that governance 6 arrangements and the overall project plans are being 7 properly adhered to. The overall project plan must be 8 regularly updated to reflect progress and flag any 9 elements which may require attention. 10 The Council still considers it appropriate to use 11 ALEOs where appropriate to deliver major projects. If 12 properly established and operated, ALEOs can lead to 13 reduced costs, streamlined management and flexibility, 14 all of which can be of considerable benefit to project 15 delivery. The Council has taken on board lessons 16 specific to the establishment of ALEO, which are 17 detailed in the Council's written submissions. It has 18 established a companies hub to provide oversight and 19 scrutiny of all Council ALEOs. 20 Allocation of risk. It has been well established 21 that the risk transfer originally envisaged by the 22 Council for the tram project was not achieved. It is 23 vital that for future projects, the desired risk 24 position is properly set out in procurement 25 documentation and subsequently captured in project 59 1 contracts. 2 Those involved in the project must have a proper 3 understanding of the risk position, including an 4 understanding of the risks associated with optimism 5 bias. Risk must be closely monitored and mitigated. 6 A comprehensive project risk register must be maintained 7 and appropriately reported on. 8 External legal advice. The Council will continue to 9 seek external legal advice on major projects. The 10 Council's internal legal team is able to advise on 11 commercial aspects of projects, but does not have the 12 specialist expertise or capacity to be the sole legal 13 adviser on a large complex project. 14 The Council is entitled to rely on the advice of its 15 external legal advisers, but in relation to projects 16 which involve ALEOs, it must give consideration to 17 whether it is appropriate to use the same advisers. 18 Practical considerations. The Council is aware of 19 how the tram project affected local citizens and 20 businesses. Lessons have been learned in relation to 21 minimising traffic and other disruption. A targeted 22 approach to supporting affected local businesses has 23 been devised in relation to the proposed tram to Leith 24 and Newhaven project. 25 If I may just turn finally, my Lord, to the conduct 60 1 of the Inquiry. 2 Finally, the Council and those representing it would 3 wish to pay credit to those involved in this Inquiry. 4 The Council thanks you, my Lord, as Chairman for your 5 courtesy and patience in the conduct of these 6 proceedings which have been brought to a close within 7 a reasonable timetable. The Council looks forward to 8 publication of the report. 9 The Council also thanks the Inquiry team, both 10 Counsel and solicitors, as well as its support staff, 11 for all that has been done to contribute to a working 12 relationship for the purposes of the Inquiry which has 13 been harmonious. 14 All of this is seen to be in the public interest in 15 a situation where an Inquiry is looking into serious 16 matters of public concern, and which ought properly to 17 be able to do so with the assistance of those 18 professionals and others representing the parties. 19 Thank you, my Lord. 20 CHAIR OF THE INQUIRY: Apart from one or two matters, 21 Mr Martin. 22 You mentioned Schedule Part 4, Clause 80. To what 23 extent do you consider the terms of Clause 80 resulted 24 in delay? 25 MR MARTIN: My Lord, I think this is set out in the written 61 1 submissions, I hope, in sufficient detail. It was the 2 fact that when there came to be disputes over the BDDI 3 to IFC design evolution, whether that fell within or 4 outwith what was described in Pricing Assumption 5 Number 1 and thus whether or not it constituted 6 a Notified Departure, then led to the triggering of the 7 mechanism in Clause 80 which was ultimately resolved, at 8 least in the case of a Notified Departure by the 9 decision of Lord Dervaird, I think, in August 2010, when 10 he held that in the case of a Notified Departure, the 11 Council was not in a position, as a result of in 12 particular clause 80.13, to issue a direction in one 13 form or another to continue with the works until there 14 had been a resolution of the estimate which ought to 15 have been provided in relation to an accepted Notified 16 Departure. 17 It was in that way, my Lord, that the mechanism in 18 Clause 80 led to delays. That's what caused many of the 19 stoppages in the projects, or even arguments over 20 whether there would be stoppages in the project. Again, 21 I don't repeat, I hope it's set out at sufficient length 22 in chapter 1, that is why the Council submits that the 23 change mechanism, the Clause 80 provisions in 24 particular, led ultimately to the fact that the project 25 was delayed. 62 1 CHAIR OF THE INQUIRY: Yes. There has been some evidence 2 that it was the involvement of tie in revising Clause 80 3 which may or may not have caused the difficulty. Do you 4 have anything to say about that? 5 MR MARTIN: I don't think beyond the written submissions, 6 my Lord, in particular, and, my Lord may be aware that 7 the revisals of the written submissions after exchange 8 have added a little bit to that, because the position, 9 I think, may be said to be that a mechanism such as that 10 is a valuable mechanism in a situation where the client 11 wishes to secure itself against the risk of a contractor 12 seeking to make many changes which have unforeseeable 13 costs, and thus a mechanism which ensures that those 14 costs are identified before the changes are actually 15 authorised. 16 The problem in the present case was, and I think it 17 may be said not to have been foreseen, and I emphasise 18 this is dealt with in the written submissions, the 19 problem in this case was that it was not appreciated 20 that of course the change mechanism brought about by the 21 argument as to whether a BDDI design to an IFC design 22 had resulted in a Notified Departure, that in itself 23 triggered the Clause 80 mechanism with all the 24 uncertainties it then gave. 25 In other words, Clause 80 came to be a mechanism 63 1 operating not just to protect the client against changes 2 desired by the contractor, but rather operated against 3 the client, because every time there was an argument 4 that a BDDI to IFC design had resulted in a Notified 5 Departure, then the client was disadvantaged because the 6 work could not then carry on until that had been 7 resolved, and in particular if there was a Notified 8 Departure, until an estimate had been either agreed or 9 had been decided upon by the DRP process. 10 CHAIR OF THE INQUIRY: Two other matters. In the section 11 dealing with lessons learned, you say that if an ALEO is 12 used, there's a need to make sure that the ALEO serves 13 the needs of the interests of the Council rather than 14 its own interests. Do you perceive that to have been 15 a problem here? 16 MR MARTIN: I think I would ask my Lord simply to judge the 17 evidence as a whole, but I think it can fairly be said, 18 and there are certain particular email exchanges, one 19 thinks of the particular email with the word 20 "colleagues" in quotation marks, where there may well be 21 an inference to be drawn that there was a feeling of 22 them and us, rather than a feeling within tie, we are an 23 arm's length organisation but we are here to serve the 24 interests of the Council in all respects and that is our 25 fundamental duty. 64 1 So without taking a definitive position, my Lord, it 2 seems to me that that is a potential inference that can 3 be drawn, and that being the case, it's an important 4 thing for the Council to have recognised and to try and 5 deal with in the future. 6 CHAIR OF THE INQUIRY: Finally, what, if any, role do you 7 see for Transport Scotland in any future contracts of 8 this nature? 9 MR MARTIN: My Lord, the position of the Council so far as 10 Transport Scotland is concerned is that the Inquiry has 11 heard all the evidence on that matter, including the 12 written submissions and my learned friend Mr Barne's 13 submissions this morning. I don't think I would want to 14 go beyond recognising it as a potential factor which 15 will depend on the individual contract, the individual 16 project in question. My Lord has had evidence, for 17 example, about the Stirling-Alloa-Kincardine line and 18 the involvement of Transport Scotland there, and I leave 19 aside the involvement of tie, and on other projects 20 which have been referred to. I suspect that what 21 I should not go beyond is simply to say that 22 I personally, and I'm speaking without direct 23 instructions at this point, would expect it to be 24 a matter of the individual circumstances of the 25 particular project. 65 1 CHAIR OF THE INQUIRY: Thank you very much, Mr Martin. 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 66 1 INDEX 2 PAGE 3 Closing submissions by MR BARNE ......................1 4 5 Closing submissions by MR DUNLOP ....................22 6 7 Closing submissions by MR MARTIN ....................36 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 69