1 Thursday, 24 May 2018 2 (9.30 am) 3 CHAIR OF THE INQUIRY: Good morning. I think, Mr Barne, 4 you're next. 5 Closing submissions by MR BARNE 6 MR BARNE: Good morning, my Lord. Today I shall confine 7 myself to the discrete issue of Transport Scotland's 8 withdrawal from the Tram Project Board. 9 This was an issue of some interest to the Inquiry 10 and it is addressed in chapter 3 of the Ministers' 11 written submission. 12 My submissions on this point shall cover firstly the 13 factual context to the decision, secondly, the vote in 14 the Scottish Parliament, thirdly, the decision itself, 15 and fourthly, the attacks that have been made in 16 hindsight on the decision. 17 Of course, as principal funder of the project, the 18 Scottish Ministers were involved throughout. However, 19 in light of the exchange of written submissions, the 20 Scottish Ministers would note that there has been very 21 little raised by the other core participants about the 22 Ministers' involvement in the project, other than in 23 relation to the withdrawal of Transport Scotland. 24 Even on that issue, those points that are made are 25 brief, unspecific, and speculative. 1 1 Before proceeding further, I thought it might assist 2 if I clarify an issue that was raised yesterday, and 3 that is whether or not Transport Scotland should be 4 treated as a legal entity, distinct from the Scottish 5 Ministers. 6 Transport Scotland is an Executive Agency of the 7 Scottish Ministers and not a distinct legal entity. In 8 this Inquiry, I represent the Scottish Ministers, and it 9 is the Scottish Ministers, and not Transport Scotland, 10 who are the core participant. 11 However, in the context of the tram project, it was 12 frequently Transport Scotland's staff and 13 Transport Scotland as an organisation that were the 14 relevant actors. As such I will sometimes refer in my 15 submission to the Scottish Ministers and sometimes to 16 Transport Scotland, depending on the context. 17 With that clarification made, I shall now turn to 18 the decision to withdraw Transport Scotland by first 19 considering the overall context. 20 In March 2003, the Scottish Executive guaranteed the 21 future availability of GBP375 million of Central 22 Government funding for the Council's Integrated 23 Transport Initiative. It was at that stage only 24 a commitment in principle. 25 Actual funding was dependent on a suitable Business 2 1 Case being made out. 2 tie then set to work developing the Business Case. 3 This passed through a number of iterations which 4 received input from various sources, including from 5 Government officials. By early 2006 matters had 6 progressed sufficiently for the Scottish Executive to 7 tell the Council that it was prepared to agree to an 8 index-linked increase to the in principle funding in 9 receipt of an acceptable Business Case. By August of 10 that year revised arrangements were put in place for the 11 Tram Project Board to reflect the stage the project had 12 reached. 13 Bill Reeve of Transport Scotland was given a place 14 on the Board with the power to make certain decisions on 15 behalf of the Scottish Ministers. Some decisions were 16 retained by the Scottish Ministers, including any 17 decision to increase funding beyond the total of the 18 grant already offered to the Council. 19 This arrangement is explained at paragraph 6.15 of 20 the Draft Final Business Case. 21 At the time these changes were made, it was noted 22 that further changes to the Tram Project Board might be 23 required in due course. This is also recorded in the 24 Draft Final Business Case at paragraph 6.2 and it is in 25 these terms: 3 1 "It is anticipated that a revised structure will be 2 required to execute the construction phase of the 3 project." 4 Throughout this period Transport Scotland was 5 assisting the Council to develop its Business Case. 6 Transport Scotland was playing what was described as 7 a partnering role. But I must emphasise that this 8 engagement was part and parcel of developing the 9 Business Case. Transport Scotland's involvement in 10 developing the Business Case did not imply that it would 11 be directly involved in project delivery, and no one 12 suggested it would be involved in project delivery. 13 The Draft Final Business Case was finally provided 14 to Transport Scotland at the end of 2006. This was 15 reviewed by Transport Scotland, both internally and with 16 the assistance of Transport Scotland's independent 17 advisers. 18 Transport Scotland provided tie with a formal 19 response that identified residual areas of concern. The 20 advice Transport Scotland received was that the 21 benefit-cost ratio for the project was still positive, 22 although it was marginal and would need to be reviewed 23 when more information became available. 24 Interim funding of GBP60 million was therefore made 25 available in March 2007 to allow enabling works to 4 1 begin. 2 That is how matters stood when the elections to the 3 Scottish Parliament took place in May 2007. As a result 4 of those elections, the SNP was the largest party in 5 Holyrood, but did not have an overall majority and 6 formed a minority government. This was clearly 7 a significant event for the tram project. 8 The SNP had been elected on a manifesto that carried 9 a commitment to use the funds intended for both the tram 10 project and the Edinburgh Airport Rail Link, or EARL, 11 for other national priorities. 12 It should not be forgotten that this was the first 13 minority government to govern at Holyrood, and more 14 generally, within the UK, there was at that time little 15 experience of how minority governments should govern. 16 As a result, the Scottish Parliament and the minority 17 government were going to have to learn to work together. 18 It would appear that the Scottish Parliament wished 19 to assert itself early on by passing a motion that 20 called for the SNP administration to proceed with the 21 tram project within the budget set by the previous 22 administration. As Mr Swinney explained, the SNP were 23 not bound by this vote, but there was a concern that 24 should the will of the Scottish Parliament not be 25 accepted by the SNP Government, the new administration 5 1 could come under threat. 2 It was in this context that Mr Swinney announced 3 that the Scottish Executive would accept the will of the 4 Scottish Parliament. As a result, and this is a point 5 I wish to emphasise, the in principle funding for the 6 tram project became a firm commitment. The funding was 7 no longer subject to approval by the Scottish Ministers 8 of the Final Business Case and, going forward, the 9 Scottish Ministers could not be seen, having accepted 10 the will of the Scottish Parliament, to be taking any 11 steps that might be perceived as an attempt to close 12 down the tram project by the back door. 13 A commitment had been given and the Government had 14 to stand by that commitment. 15 So the first key point about the vote in the 16 Scottish Parliament and its acceptance by the 17 Scottish Executive was that it converted in principle 18 funding into a firm commitment to provide that funding. 19 The second key point about the vote is that it made 20 it absolutely clear that the contribution from Central 21 Government was going to be capped, and that not a penny 22 more would come from Central Government. This too was 23 a game changer so far as those involved with the project 24 were concerned. 25 During the course of the Inquiry, the suggestion was 6 1 made to various Transport Scotland witnesses, and also 2 to Mr Swinney, that the vote in the Scottish Parliament 3 did not actually change anything. As was pointed out to 4 the witnesses, the offer of funding had always been 5 capped. The status quo, it was suggested, remained. 6 Be that as it may, the reality was that there was an 7 expectation on the Council's and tie's part that the 8 Ministers would agree to shoulder any overspend costs, 9 or at least a large proportion of them. I have 10 addressed the status quo point in some detail in 11 chapter 3 of the written submission at paragraphs 15 to 12 19. 13 As I point out there, all the key stakeholders in 14 the project considered the announcement of the funding 15 cap to have been highly significant, exactly because it 16 confirmed or brought about a major risk transfer to the 17 Council. 18 For instance, it will be recalled that the primary 19 risk register included a risk that related to the need 20 for the Council to reach a deal with Transport Scotland 21 on overrun costs. This risk was described as 22 a potential showstopper. 23 Mr Swinney's announcement extinguished the prospect 24 of any such deal on overrun costs, yet, as we all know, 25 the show went on. 7 1 Not a single witness suggested in evidence that the 2 Scottish Parliament's vote and Mr Swinney's subsequent 3 announcement was anything other than highly significant. 4 None suggested it simply preserved the status quo. The 5 evidence showed that the vote marked a major development 6 in the way the Council viewed its exposure to risk. 7 I shall now turn to the decision itself to withdraw 8 Transport Scotland. The evidence before the Inquiry 9 confirms that the decision was taken for two related 10 reasons. Firstly, to ensure that during the delivery 11 phase of the project, there was clarity of roles as 12 between those responsible for delivering the trams 13 project and those funding it; and secondly, to ensure 14 that there was no basis on which the Council could look 15 to the Scottish Ministers for funding above the 16 GBP500 million cap. 17 This is reflected in the advice to Ministers from 18 Malcolm Reed dated 6 July 2007. His recommendation 19 bears repeating. This is what he said, and I emphasise 20 this is the advice that Mr Swinney received: 21 "1. The Parliament's decision places the risk for 22 any cost overruns on the tram scheme with the City of 23 Edinburgh Council and makes it clear that responsibility 24 for managing and delivering the scheme rests with the 25 promoter. 8 1 "2. To achieve this clarity of roles, and ensure 2 that situations could not arise subsequently in the 3 governance of the project which might generate further 4 calls on central funding, I propose that 5 Transport Scotland's future engagement with the 6 Edinburgh Trams Project should be on the basis of revised 7 grant conditions and once these conditions are in place, 8 Transport Scotland staff should withdraw from active 9 participation in the governance of this project." 10 As we know, the advice that was given was put into 11 effect. 12 There was some discussion during the evidence as to 13 whether this was Dr Reed's unprompted advice or whether 14 it had been drafted to reflect what Mr Swinney had 15 wanted. 16 Dr Reed was unable, given the passage of time, to 17 recall the precise sequence of events, but it is clear 18 that there was an ongoing debate as between the 19 Ministers and Transport Scotland, and also within 20 Transport Scotland itself, as to the role that 21 Transport Scotland should play going forward. 22 What is important to note, however, is that Dr Reed 23 stood by his advice in his evidence to this Inquiry, and 24 that was regardless of whether it had been prompted by 25 Mr Swinney in the first place or not. 9 1 Mr Swinney for his part explained that his reason 2 for withdrawing Transport Scotland was to achieve role 3 clarity as the project moved into the delivery phase. 4 In his view, having Transport Scotland involved in 5 making decisions on how the project should actually be 6 delivered was inviting trouble. The contractor could 7 play Transport Scotland off against tie and the Council. 8 Mr Swinney referred to other projects where a lack 9 of role clarity had caused problems with project 10 management and this had informed his thinking. And, 11 although Mr Swinney was challenged about his reasons for 12 the decision, it was not suggested to him that there 13 were other undisclosed reasons at play. 14 But just standing back for a moment, I would submit 15 the decision to withdraw Transport Scotland was one that 16 was entirely appropriate for Mr Swinney to have made at 17 the time he made it, and that the reasons for the 18 decision, as explained by Mr Swinney, were entirely 19 sound. 20 It is significant that Mr Swinney's decision was 21 supported both at the time and in hindsight by Dr Reed. 22 It was also supported by David Middleton, Dr Reed's 23 successor as Chief Executive of Transport Scotland. 24 These are people with extensive experience in the 25 funding, procurement and delivery of major 10 1 infrastructure projects. I would invite the Inquiry to 2 treat their views with due regard. 3 But when considering the merits or otherwise of 4 Mr Swinney's decision, perhaps the most telling fact is 5 that at the time the decision was taken, not a single 6 person or organisation involved in the project objected 7 or complained about the decision. Certain members of 8 the Tram Project Board expressed support for Bill Reeve, 9 but that is as far as it went. Had Transport Scotland's 10 continued presence on the Tram Project Board been viewed 11 at the time as fundamental to the prospects of the 12 project being a success, one might have expected formal 13 representations to that effect to have been made. 14 It was not only Mr Swinney who was considering the 15 governance structures for the project in the aftermath 16 of the Scottish Parliament's vote. In July 2007 17 Jim Inch, the Council's Director of Corporate Services, 18 produced a briefing paper on behalf of the Council's 19 Chief Executive on the project's governance 20 arrangements. In it, Mr Inch concluded that the cap on 21 Central Government funding meant that there had to be 22 a change to the governance controls. This was even 23 before the Council had been told that Transport Scotland 24 would be withdrawing from the Project Board. 25 For a completely independent view on Mr Swinney's 11 1 decision, one need go no further than the written 2 evidence of Mike Heath of Partnerships UK. This is what 3 he told the Inquiry about Mr Swinney's decision, 4 and I quote: 5 "I think it was very sensible at the time. Complex 6 projects require the simplest overall governance 7 structure, and reporting to both the Council and 8 Transport Scotland with inevitably different emphasis in 9 their reporting requirements would have been 10 unnecessarily burdensome and introduced potential 11 decision delay and risk. The relationship between the 12 Council and Transport Scotland could be managed 13 perfectly satisfactorily off-line." 14 It is also of note that the Office of Government 15 Commerce in its Gateway 3 Review of September 2007 16 commented on the withdrawal of Transport Scotland as 17 being one of a number of changes that it described as 18 "extremely positive and will contribute to the 19 likelihood of success of the project". 20 I would therefore summarise the position as this. 21 As at July 2007, the project landscape had changed as 22 a result of the vote in the Scottish Parliament and its 23 acceptance by the Scottish Executive. As a result, both 24 the Council and the Ministers were considering what 25 changes should be made to the project's governance 12 1 structures as it approached the delivery phase. 2 Mr Swinney's decision was made for sound reasons and 3 was not challenged by anyone at the time. 4 I would now like to turn to address criticisms of 5 the withdrawal decision. There has clearly been 6 a debate undertaken in hindsight and often splitting 7 along political lines about Mr Swinney's decision. The 8 suggestion from some quarters appears to be that 9 Transport Scotland's withdrawal orphaned the project, 10 leaving the Council and tie to fend for themselves. Any 11 such suggestion is, I submit, without basis. 12 Withdrawing Transport Scotland from the Tram Project 13 Board did not mean the Scottish Ministers were 14 abandoning the project or in any way washing their hands 15 of it. The Scottish Ministers' interests and the wider 16 public interest were protected by the grant conditions 17 that were put in place. 18 As well as the formal reporting structures that were 19 established through the grant conditions, there was 20 informal or off-line contact made between the Council 21 and tie on the one hand and Transport Scotland and the 22 Scottish Ministers on the other. This was entirely 23 appropriate and something supported by Mr Heath in his 24 oral evidence. 25 But the suggestion that Transport Scotland orphaned 13 1 the project fundamentally misunderstands the role of 2 Transport Scotland and what it was doing on the project. 3 As I have already pointed out, Transport Scotland's 4 assistance during the development phase of the project 5 did not mean that Transport Scotland would be involved 6 in the actual delivery of the project. The only reason 7 to be on the Tram Project Board during the delivery 8 phase of the project would be to take part in decisions 9 relating to delivery, and that was not 10 Transport Scotland's role. 11 The suggestion that the withdrawal of 12 Transport Scotland deprived the project of a large well 13 of experience is also not made out. Transport Scotland 14 had one place on the Tram Project Board. No one 15 suggested that, as a result of Transport Scotland's 16 withdrawal, tie had to undergo a recruiting campaign to 17 fill a skills gap that had been left by Mr Reeve's 18 departure. 19 The reason why Transport Scotland had a place on the 20 Tram Project Board was to allow Transport Scotland, as 21 principal funder, to make certain decisions quickly and 22 efficiently. It was not to provide a conduit which the 23 Council and tie could expect to utilise as and when they 24 required Transport Scotland's own resources. 25 There neither was, and nor should there have been, 14 1 any expectation that that would be the case. 2 This was always the Council's project to deliver and 3 the Council had decided to deliver the project through 4 tie, and tie could recruit whatever private sector 5 expertise it required. 6 The fact that several witnesses, when invited to do 7 so, suggested that there had been a loss of expertise as 8 a consequence of the withdrawal of Transport Scotland 9 goes to show that there was a lack of understanding 10 about Transport Scotland's function on the Tram Project 11 Board. But it also disregards the extent to which tie 12 availed itself of external expertise. Although this was 13 not explored in the evidence in detail, the sheer scale 14 on which tie employed external consultants can be seen 15 from the spreadsheet referred to at paragraph 43 of 16 chapter 3 of the written submission. 17 This indicates that between 2007 and 2011, tie 18 employed around 80 consultants or consultancy firms. In 19 addition to the consultants that tie sourced, tie also 20 had extensive in-house commercial and technical 21 expertise as evidenced by the tie witnesses who gave 22 evidence. 23 By contrast, while Transport Scotland had in-house 24 heavy rail expertise, it had no in-house expertise in 25 light rail. By way of an aside, I would note the oral 15 1 evidence of James Donaldson, one of Bilfinger Berger's 2 construction managers, to the effect that the problem 3 with tie was that it had too much heavy rail expertise. 4 This Inquiry is tasked with identifying the cause of 5 various difficulties that beset the tram project. In 6 that context, the withdrawal of Transport Scotland from 7 the Tram Project Board is an easily identifiable event 8 in an otherwise complex factual matrix. It is, 9 therefore, unsurprising that a number of witnesses 10 latched on to the withdrawal of Transport Scotland and 11 gave it a significance that, I would suggest, was not 12 warranted. Other than some generalised speculation, 13 there was not a single piece of direct evidence to show 14 that the withdrawal of Transport Scotland from the Tram 15 Project Board of itself had any direct impact on the 16 outcome of the project in terms of access to expertise, 17 effective project management, or savings. 18 My learned friend Mr Fairley made a submission 19 yesterday that stands as a good case in point. 20 Mr Fairley relied on an aspect of Mr Ramsay's evidence 21 given in the oral session to support the contention that 22 Transport Scotland was detached from the project and 23 that Mr Swinney's decision was ill judged. Mr Fairley 24 said this of Mr Ramsay: 25 "... when he saw that there were disputes about BDDI 16 1 [and] IFC, he didn't know what that meant." 2 Mr Fairley suggested that this was astonishing. If 3 what Mr Fairley said was both accurate and fair, 4 I agree, it would be astonishing, but it was neither. 5 Mr Ramsay was asked by Counsel to the Inquiry if he 6 recalled disputes that were known as the BDDI to IFC 7 issue. Mr Ramsay said that he did not recall these. 8 Clearly Mr Ramsay's evidence is a matter for 9 your Lordship, but I would point out that these acronyms 10 have not been used in Mr Ramsay's witness statement and 11 so it may be unsurprising that, after so many years, the 12 phrase "the BDDI to IFC issue", without any further 13 explanation at the time, did not immediately register 14 with Mr Ramsay. 15 But what is quite obvious is that Transport Scotland 16 was clearly informed about the BDDI to IFC issue. One 17 need only look at the monthly reports and the minutes of 18 the quarterly meetings to see that the BDDI to IFC issue 19 was raised and discussed with Transport Scotland. 20 As an example, the minutes of the quarterly review 21 meeting referred to at paragraph 28 of chapter 1 of the 22 Ministers' submission refer to BDDI or BDDI to IFC no 23 less than four times in the context of imminent DRPs. 24 Clearly Transport Scotland was not detached on this 25 issue. But what yesterday's submission highlights so 17 1 well is that allegations of detachment or loss of 2 expertise are easy to make when casting around looking 3 for someone else to blame, but in the case of 4 Transport Scotland, those allegations are simply not 5 supported by the evidence and, in particular, by the 6 contemporaneous documentation. 7 So in conclusion on this point, any suggestion that 8 the withdrawal of Transport Scotland from the Tram 9 Project Board resulted in a loss of commercial or 10 technical expertise is simply not made out on the 11 evidence, ignores the scale on which tie availed itself 12 of the services of external consultants, disregards 13 tie's in-house resources, and, perhaps most importantly, 14 misunderstands Transport Scotland's role within the tram 15 project. 16 What can be said about the removal of 17 Transport Scotland from the Tram Project Board is that 18 it made it easier for the Scottish Ministers to adopt 19 a more neutral stance as between the Council and the 20 consortium. This opened up additional avenues of 21 communication. As the evidence demonstrated, towards 22 the end of 2010, Mr Swinney was able to meet both with 23 the Council and the consortium to promote mediation and, 24 as we know, that mediation was ultimately successful. 25 Having taken that step, the parties mediated and 18 1 found a way forward. 2 Had Transport Scotland been directly involved in the 3 strategic decisions of the Tram Project Board and those 4 that were being made at the time, such as the issuing of 5 Remediable Termination Notices, it would have been much 6 harder for the Scottish Ministers to adopt the role of 7 impartial broker. 8 Those are the submissions for the Scottish 9 Ministers. Thank you. 10 CHAIR OF THE INQUIRY: Only two points I wanted to raise 11 with you, Mr Barne. 12 When do you say that the project delivery phase 13 started? 14 MR BARNE: I think the OGC guidance identifies various 15 stages of project delivery, and I think once the 16 procurement strategy has been settled -- that stage, it 17 identifies that as being the delivery phase, putting in 18 place the actual contracts and the suchlike. 19 In this case I would say project delivery really 20 started to come into play when the contracts were being 21 negotiated with the consortium. 22 CHAIR OF THE INQUIRY: So you say that it's before the 23 contract closed? 24 MR BARNE: Yes. 25 CHAIR OF THE INQUIRY: The other matter I wanted to ask you 19 1 about was the last point you were dealing with, the 2 mediation at Mar Hall. You deal with this in your 3 submissions, but what actually happened after the 4 mediation was a greater involvement in the project by 5 Transport Scotland officials, but many more than there 6 had been before. 7 Do you see that as a possible way forward in any 8 future public contracts involving light rail? 9 MR BARNE: I suppose this perhaps raises a point that was 10 discussed briefly yesterday about the context of local 11 authorities producing and procuring infrastructure 12 projects. Clearly it was a step that was taken and 13 appeared to be of assistance as the tram project went 14 forward after the mediation at Mar Hall. But certainly 15 I think project structures must be tailored to the 16 precise circumstances that are met in each case. So 17 I wouldn't disagree with what your Lordship is saying, 18 but I don't think that any particular overriding 19 imperative is required that multiple Transport Scotland 20 officials are required on local authority infrastructure 21 projects. 22 CHAIR OF THE INQUIRY: The question that I asked was 23 slightly different from the one I asked yesterday. 24 I was asking today if you saw that there would be 25 a role, not necessarily the exclusive role, but a role 20 1 for Transport Scotland officials in any future public 2 contract dealing with any tram project, particularly in 3 view of the expertise within the public sector being in 4 Transport Scotland. 5 MR BARNE: Well, I think -- I alluded to this in my oral 6 submission. The expertise within Transport Scotland is 7 predominantly heavy rail, and certainly it was 8 Mr Donaldson's evidence that the problem with tie was 9 that it had too much heavy rail expertise. 10 So I don't think there is available to local 11 authorities a well of light rail expertise within 12 Transport Scotland. It may be that your Lordship is 13 referring to a more commercial expertise, not 14 predominantly heavy rail, and clearly Transport Scotland 15 does have experience of negotiating, procuring and 16 delivering major infrastructure projects. So again, 17 I can't disagree that it may be of assistance in certain 18 circumstances for local authorities to have access to 19 Transport Scotland expertise, but I don't think that any 20 overarching conclusion can be reached to that effect. 21 CHAIR OF THE INQUIRY: Thank you. 22 Well, we'll break now for 15 minutes for the benefit 23 of the shorthand writers. We will resume again at just 24 after 10.15. 25 (10.01 am) 21 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