1 Tuesday, 17 October 2017 2 (9.30 am) 3 CHAIR OF THE INQUIRY: Good morning. Yes, Mr Lake. 4 MR LAKE: My Lord, the witness today is Matthew Crosse. 5 MR MATTHEW CROSSE (sworn) 6 CHAIR OF THE INQUIRY: Could I first of all tell you that 7 every Tuesday there's a fire alarm test at 10 o'clock. 8 A. Okay. 9 CHAIR OF THE INQUIRY: So don't be alarmed when you hear the 10 siren. 11 Also, would you just listen to the question and 12 answer it as directly as possible and speak into the 13 microphone and speak slowly so that the shorthand 14 writers can keep up with you. 15 A. Okay. 16 Examination by MR LAKE 17 MR LAKE: Mr Crosse, could you state your full name, please. 18 A. Matthew James Crosse. 19 Q. The Inquiry has the details of your address. Could you 20 state your occupation? 21 A. I'm a railway consultant, management consultant. 22 Q. Are you presently engaged in Crossrail; is that correct? 23 A. No. 24 Q. Which project are you presently engaged on? 25 A. I have been engaged in Crossrail in the past, but not 1 1 now. I'm currently engaged on a project for London 2 Underground, a project for a Danish operator, and 3 a franchise, a rail franchise. 4 Q. I would like you to look at a document, please. You 5 have it on paper in front of you. It will also be shown 6 on screen. The reference is TRI00000031_C. 7 Do you recognise this document? 8 A. Yes, I do. 9 Q. I think this is the statement that you provided to the 10 Inquiry. 11 A. Yes. 12 Q. You will see in the paper version, if you go to the last 13 page, it's been signed by you; is that correct? 14 A. Yes, it is. 15 Q. Are you happy to adopt that as your evidence for the 16 purposes of this Inquiry? 17 A. Yes, of course. 18 Q. What I would like to do is ask you a few additional 19 questions about issues that arise out of it. 20 One thing that arises is you describe the role that 21 was to be performed by tie as to project manage the 22 Edinburgh Trams Project, amongst others at that time; is 23 that correct? 24 A. Yes, it is. 25 Q. When you arrived, had a decision already been taken that 2 1 it would be managed internally, rather than using 2 external consultants? 3 A. Can you repeat the question, please? 4 Q. At the time you arrived, at the start of 2007, had 5 a decision already been made that it would be managed 6 internally as opposed to using external consultants to 7 conduct the management? 8 A. tie -- tie were the agency owned by the Council. 9 Q. Indeed. 10 A. Set up to lead the delivery of the project. 11 Q. Yes? 12 A. And tie included permanent members of staff and 13 consultants engaged by tie to deliver the project. It 14 was a combination of consultants and permanent members 15 of staff, including big firms of consultants. 16 Q. Now, I think one of the big firms of consultants 17 involved was Turner & Townsend; is that right? 18 A. Yes, they were. 19 Q. They were providing what is known as technical support 20 services? 21 A. Yes. 22 Q. But the actual details of the project management -- 23 correct me if I am wrong -- were to be handled by people 24 who were employees of tie? 25 A. Yes. 3 1 Q. Was there any consideration given to using the external 2 consultants, either the existing ones or others, to 3 actually undertake the project management function? 4 A. Not to my knowledge. 5 Q. I think when you arrived, Willie Gallagher was already 6 there as Chairman; is that correct? 7 A. Yes. 8 Q. Now, did his role change once the Edinburgh Airport Rail 9 Link Project was scrapped by Transport Scotland? 10 A. Yes, it did, to a certain extent. Can I elaborate? 11 Q. Yes, of course? 12 A. tie was the project management company and it had, 13 I think, probably six or seven projects that it was 14 looking after. The two big ones from the tram project 15 and EARL, and there were some smaller projects, 16 including the Stirling-Alloa Railway Project that 17 Steven Bell managed. 18 When I started, there was the looming Scottish 19 elections, and after the Scottish elections, which were 20 a big surprise first time for SNP, there was the threat 21 of cancellation of some of the projects, particularly 22 the EARL and the tram project. 23 This came about, the EARL project was cancelled, as 24 you are aware, and what it meant was some of the staff 25 that were working in other parts of tie were available 4 1 for the tram project, and the focus of the directors 2 within tie changed from being across several projects to 3 being more across just the tram project. 4 Willie's focus changed, not surprisingly, because 5 the airport rail link -- the other thing to note is the 6 bulk of the staff, and advisers that tie employed, were 7 employed on the tram project. 8 Q. Previously you say that the staff presumably were being 9 shared amongst all the projects? 10 A. No. Some senior staff had, in a kind of matrix style 11 management, an interest and role across all of the 12 projects. So Stewart McGarrity, for example, was the 13 Finance Director and he had a place on my project as 14 well as a place on the EARL Project, which I think was 15 managed by Barry Cross, and also on the EARL Project. 16 He had an interest across. But he effectively worked in 17 my team, you know. He was the Finance Director for my 18 team. 19 Q. Stewart McGarrity? 20 A. Stewart McGarrity, but he also had a role within the 21 tie Ltd entity. 22 Q. Mr Gallagher's role. He obviously had a role in 23 relation to each project, given his seniority within the 24 company? 25 A. Yes. 5 1 Q. Once tie essentially had only the one project, that was 2 the trams, did that change his role and his relationship 3 to the tram project? 4 A. Yes. Yes, it did. 5 Q. In what way? 6 A. Well, he had more time to spend on it, to start with. 7 He came -- he actually -- the tie officers were in one 8 building and they relocated the tie corporate offices, 9 I suppose, into the tram offices, because I guess we 10 couldn't justify keeping other offices open. So he 11 physically moved, and he moved into my office actually. 12 I remember at the time, and I moved to the office to the 13 right. 14 Q. That was one of the things I wanted to ask about. Look 15 at your statement, please, and go to page 12 within it. 16 Paragraph 31 -- this is relating particularly to 17 your decision ultimately to leave tie: 18 "In relation to a change in my role from 19 October 2007 I think it was just a natural progression. 20 We were planning to finish in January 2008 ..." 21 If I just pause, that was planning to finish the 22 procurement; is that right? 23 A. Mm-hm. 24 Q. "... and Steven Bell was to take over from me. I was 25 having a lesser role towards the end of 2007 as senior 6 1 people from other TIE projects were taking more of 2 a role in the tram project and they were all reporting 3 to Willie Gallagher." 4 If I pause there, those people were taking more of 5 a role in the tram project because they were no longer 6 involved in things like EARL or other tie projects? 7 A. Yes, I would agree with that. 8 Q. The next sentence, you note: 9 "Willie Gallagher became more in control of the 10 project than me. Effectively TIE had fewer big projects 11 to manage so they got more involved in the Tram scheme." 12 In what way did Willie Gallagher become more in 13 control of the tram project than you? 14 A. Well, I reported to Willie. He was an Executive 15 Chairman, and I reported to him. That's how it worked. 16 I reported to him and the Tram Project Board 17 effectively. 18 Q. That had always been the case, hadn't it? 19 A. That had always -- that had never changed. So it was in 20 his gift to change the arrangements, the management 21 arrangements. 22 Steven Bell was already involved in some of the 23 engineering issues and some of the delivery issues that 24 we were facing. He was getting more and more involved 25 and he was -- he was effectively going to take over from 7 1 me as the Project Director. 2 And Willie just -- he had more time and could take 3 a closer interest and he got involved in, I guess, 4 issues that were escalated. And I suppose, as we 5 reached the kind of financial close milestone, there 6 were more issues to deal with, not surprisingly. We 7 were negotiating a complex contract, and novation 8 process, which was far from perfect, and there were lots 9 of things to deal with. 10 So he got involved, more so. 11 Q. Those sort of issues that arise at the conclusion of the 12 contract, perhaps technical engineering matters, those 13 are matters you would expect to start increasing in 14 volume at that stage of the project's life cycle? 15 A. I think on this particular project, the issues around 16 the novation and the contract negotiations with BBS 17 increased, and as the key -- the key milestone of 18 financial close approached, we had to plan and deal with 19 all the circumstances that would lead to the success of 20 that. 21 Q. Had it not been for the taking away the EARL Project, 22 these are all issues in relation to the trams that you 23 would have been dealing with as Project Director? 24 A. I wouldn't -- I wouldn't say that was totally the case. 25 More of them I would have been dealing with, because 8 1 Willie and the other people on the team obviously, as 2 the tie senior directors had an interest in dealing with 3 these issues and sorting them out, and providing support 4 to me. 5 Q. Can we look at the previous paragraph of your statement, 6 please, paragraph 30. A sentence starting five lines 7 from the end, towards the right-hand side, you say: 8 "The changes did not affect me much but I felt 9 a loss of power and independence as Willie Gallagher was 10 becoming more involved in the tram project." 11 That gives the impression that you felt he was 12 rather encroaching on the work that you would be 13 expecting to do? 14 A. Yes. Yes, to a certain extent you're right. I did feel 15 that. 16 Q. You had been engaged to take the project through to 17 procurement stage because of the experience you had; is 18 that fair? 19 A. Yes. 20 Q. Did Mr Gallagher have the same experience that you had? 21 A. He didn't have as much experience in respect of -- in 22 respect of trams, I don't think. 23 He was a commercial man. He understood how 24 businesses worked in contracting. I don't know whether 25 he had any more experience than me in procuring or being 9 1 involved -- well, in procuring, I would say -- 2 I couldn't say whether he had more experience or not. 3 Q. Put it this way. Do you think there was a loss of 4 relevant experience from the person managing these 5 issues when Willie Gallagher took over from you? 6 A. No, I don't. 7 Q. I think prior to you, Project Directors had included 8 Ian Kendall and Andie Harper. So you were the third in 9 quite a short space of time; that's correct, isn't it? 10 A. Yes, it is. 11 Q. Is it usual to have as many Project Directors as that? 12 A. It is -- it is fairly unusual, yes. But in fairness 13 Andie Harper had personal circumstances which meant that 14 he was not happy to stay working away from home in 15 Edinburgh. I'm not sure why Ian Kendall left. 16 Q. But then you -- I think from your statement it was clear 17 that you were only ever going to stay to procurement? 18 A. That's right. That's right. 19 Q. Which meant that whether that took a year or a year and 20 a little bit, there was going to be a fourth Project 21 Director? 22 A. Yes, indeed. 23 Q. Do you think that is a benefit to the project, to have 24 that sort of turnover? 25 A. I suppose it depends. Sometimes matching skills to the 10 1 kind of requirements of the role does necessitate 2 a change in personnel. So whilst I would have liked to 3 have stayed to manage the project through to conclusion, 4 and I made no secret of that, I think, my skills were 5 far more towards the front end of project development, 6 and possibly Steven Bell's skills were more about 7 project management and delivery. 8 Q. You say you would have liked to see the project through 9 to conclusion. Why didn't you? 10 A. I wasn't asked to. 11 Q. To whom did you make it known that that was your wish to 12 see it through to conclusion? 13 A. There was a conversation I had with Willie Gallagher. 14 That he initiated a few months after I started. And he 15 said: you know, we like what you're doing, Matthew; we 16 think you've made a big difference already; we're going 17 to want you to stay; we want you to stay to see it 18 through; are you up for that? 19 And I remember at the time I thought about it 20 and I spoke to my wife and my family about that, and the 21 thought of actually moving to Edinburgh was quite 22 appealing. But that was the only conversation I had 23 about it. 24 Then we had the whole situation of the elections and 25 circumstances changed because the tie team were, you 11 1 know, were permanent members of staff, and were becoming 2 available. And Steven Bell was a very competent, 3 experienced, clever engineering manager, leader. So he 4 was probably ideal to take over from me. 5 Q. But he only needed to take over if you weren't staying. 6 That's why I wondered if you were in post? 7 A. I think that was a decision by Willie and the top team 8 about how they wanted to run tie and the tram project 9 through the next few years following the SNP election, 10 and the loss of the EARL Project. 11 Q. What was done by way of a handover when you left, 12 a handover from you to Steven Bell around about early 13 2008? 14 A. There wasn't a formal handover. It wasn't necessary. 15 He'd been working really closely. There were -- there 16 were probably half a dozen people who were -- by the end 17 were intimately involved in the project. It absolutely 18 would have been daft having a handover. He was involved 19 handling the issues on a day-to-day basis, and we 20 regularly met as a management team. 21 I mean, that's what happened in the final couple of 22 months, I would say, from February. It was Willie, 23 myself, Jim McEwan, Steven Bell, Susan, and we kind of 24 had different roles. I remember my role towards the end 25 was actually managing the conclusion of the Employer's 12 1 Requirements which were a kind of necessary part of the 2 contract suite, and it's something that I kind of knew 3 a little bit about from my experience. So I kind of 4 tended to focus on that, whereas Geoff and Jim worked on 5 the -- on the finalisation of the deal with BBS. 6 Q. I want to ask you a question about management reporting 7 and the governance of tie. 8 What was the role of the tie Board on the one hand 9 and the Tram Project Board on the other? 10 A. The tie Board, I think, was a limited company board that 11 had a duty of care to its shareholder, which was the 12 Edinburgh Council. The Tram Project Board was the -- in 13 my view, the primary governance body for the project, 14 and I always considered that should be the case. 15 There was to some extent some duplication of the 16 governance of the tram. 17 Q. One can see that when tie was a company that had several 18 projects under way it might need a company board and 19 then a different Project Board for each of the projects? 20 A. Yes. 21 Q. However, once tie had one project, just, was there not 22 in a sense total duplication between the Tram Project 23 Board and the tie Board? 24 A. I would agree with that. 25 Q. So it comes to the fact that really there was -- the 13 1 Tram Project Board was superfluous once tie only had one 2 project? 3 A. I think structurally it might have been superfluous, but 4 I think you would have to somehow reconstitute the 5 institutional and governance arrangements. But you 6 could take a board out quite easily. I was all in 7 favour of simpler, less bureaucratic reporting. 8 Q. Were you in fact reporting twice over, once to the 9 tie Board and once to the Project Board? 10 A. Yes, except the good thing about the way that we worked 11 is a lot of the reporting documentation could be just 12 cut and pasted into the tie Board. And reduced in size. 13 We also, for five or six months, reported to a kind of 14 Transport Scotland governance body, and there the 15 reporting requirements were different. 16 These three boards meant it was quite onerous. It 17 was quite a lot of work preparing the reports for these 18 three bodies each month. But that was how it is. 19 Projects like this are complicated and particularly 20 if they have multiple stakeholders. So it wasn't 21 surprising. 22 Q. I know you didn't -- you attended meetings of the Tram 23 Project Board; is that -- 24 A. Yes, of course. 25 Q. Throughout your time there? 14 1 A. Yes, I did. 2 Q. Are you aware that -- you also attended sometimes 3 meetings of the tie Board? 4 A. Yes, I did. 5 Q. Now, you were aware throughout this period that on 6 occasions councillors of City of Edinburgh Council sat 7 on one or other or both of those boards? 8 A. Yes, they did. 9 Q. Did you -- able to form a view as to what input they 10 were able to have to the management or oversight of the 11 project? 12 A. I think they took a good interest in it, and would ask 13 questions from time to time, but their role -- their 14 approach tended to be more of a listener and to hear 15 what was going on. Occasionally to ask key questions 16 and challenge us. They were the sponsor. So, yes, they 17 did take -- they played a role, but as in the case, the 18 more distant the stakeholder, the less involved the 19 stakeholder is in the delivery of the project, and the 20 less they're likely to be actively participating. 21 Q. Were the councillors asking questions of you? 22 A. I can't recall. I mean, I'm sure they did from time to 23 time. There was a big interest in the tram project, and 24 they would have asked questions of me from time to time, 25 I'm sure of that. 15 1 Q. Were they doing that at these formal meetings or were 2 they doing that otherwise? 3 A. They would usually do that through formal engagement. 4 Q. What do you mean by that? 5 A. Through the boards and through meetings that we had. 6 One of the things that I did, and I'm quite proud 7 of, is I did bring the Council far closer to tie. 8 I thought it was essential in order to move the 9 engineering process on. 10 Q. What do you mean, you moved the Council, tie closer to 11 the Council or the Council closer to tie? 12 A. We had an initiative called tie together. We 13 recommended and undertook this, where key members of the 14 Council technical team such as Duncan Fraser and some 15 people in his team, would co-locate with the tie team 16 and the SDS team, so that there was greater 17 collaboration between the three parties. That was 18 essential in order to deal with some of the technical 19 issues that emerged. 20 Obviously, during that process, I would -- I would 21 regularly see and talk to Duncan and people like that. 22 Andrew Holmes less so. 23 Q. I want to ask you some questions about legal advice. 24 Are you aware that tie already had arrangements in place 25 to take advice from a firm of solicitors in Edinburgh, 16 1 DLA? 2 A. Yes, of course. 3 Q. And Andrew Fitchie was the principal leading that? 4 A. Yes. 5 Q. During the time you were the Project Director in 2007, 6 a decision was taken to stand DLA down. You are aware 7 of that, I take it? 8 A. What date was that, please? 9 Q. I think it would be taken from round about April 2007, 10 bringing them back in in September 2007? 11 A. No, I wasn't aware of that. 12 Q. So you weren't involved in any decision as to what was 13 to happen in relation to tie's services? 14 A. I -- in terms of DLA, I don't recall that at all. 15 Q. Were you aware that there was a period of time then in 16 which there was no external legal advice or was that 17 simply not something you were privy to? 18 A. I wasn't privy to that. 19 Q. Did you have -- 20 A. To the best of my knowledge. If you can show me some 21 evidence, it may spark a memory. I can't recall that. 22 I thought DLA were our lawyers throughout the process. 23 And I know that there was a relationship with -- with 24 the Council. DLA provided advice to the Council as 25 well. 17 1 Q. What made you think that DLA were providing advice to 2 the Council? 3 A. Well, certainly towards the end they were seeking, 4 I guess, independent assurance that the contractual 5 arrangements that we were entering into were sound. 6 Q. When you say towards the end, that's towards the end of 7 the time you were at tie? 8 A. Yes. 9 Q. So talking about end of 2007/early 2008? 10 A. Yes. 11 Q. How did you know what assurances were being sought by 12 the Council? Was this done through tie or were you kept 13 in the loop? 14 A. Through our management meetings with Willie and Jim and 15 people like that, we -- we were made aware of what was 16 happening. There was the -- there was a Legal 17 Affairs -- Legal Affairs Committee. LAC. Legal Affairs 18 Committee. In order for us to achieve financial close, 19 we obviously had to have full sign-off from CEC, and to 20 be empowered to sign off. So there was -- I seem to 21 remember there was a work stream that Susan Clark 22 probably led, looking at the arrangements that needed to 23 be in place in order for Willie to sign the contract. 24 Obviously there were arrangements around the 25 institutional and corporate governance arrangements that 18 1 would pass through from CEC to tie to run the project, 2 and that had to be to the satisfaction of the 3 contractors, who were the contractors -- contracting 4 with obviously had to have the right kind of corporate 5 commercial credentials. 6 So as part of that process, the Legal Affairs 7 Committee would want advice, independent advice, on the 8 arrangements whether they were suitable or not. 9 I think that Andrew probably helped draft some of 10 the agreements. 11 Q. The Legal Affairs Committee were a sub-committee of the 12 tie Board; is that correct? 13 A. I don't -- I don't know. I can't recall whether that -- 14 I thought Legal Affairs Committee were -- I don't know. 15 I thought it was a CEC Committee, sub-committee. But 16 I might be wrong. 17 Q. Other than the Legal Affairs Committee, are you aware of 18 advice being sought by the Council from DLA? 19 A. Occasionally, I think that might have happened. 20 Q. How would you have become aware of that? 21 A. It might be told to us through our relationship with 22 DLA, or through Willie's engagement with the Council. 23 Q. Were tie in any sense the gatekeepers or controllers of 24 advice flowing from DLA to the Council? 25 A. No, I don't think so. 19 1 Q. In other words -- 2 A. I think the Council -- the Council as our shareholders 3 could ask what they wished for, and if they had 4 a relationship with DLA anyway, they could -- they could 5 request that information. 6 Q. You an aware -- 7 A. And I don't know what happened after I left, but I think 8 the -- we were fairly open. There was no withholding 9 information or closing doors. It was quite simply that 10 if the Council wanted reassurance -- if the Council 11 wanted reassurance, they could ask for it, and 12 occasionally I remember preparing a paper -- this 13 probably happened more than once -- a paper for 14 Duncan Fraser to give to his boss, Andrew Holmes, again 15 about assurance. I think it was post election. 16 So that was not unusual, and we weren't -- it just 17 happened all the time. There was, you know -- direct 18 engagement between -- between tie and, I guess, between 19 DLA directly to deal with questions. 20 Q. I can see -- 21 A. It was much -- that happened more towards the end. 22 Q. I can see there would be direct engagement between tie 23 and DLA because DLA were tie's solicitors. But it's 24 really the relationship between the Council and DLA. 25 What I want to ask is this. 20 1 If the Council wanted advice from DLA, did they ask 2 you to arrange it -- you being tie -- would they ask tie 3 to arrange it, to okay it, to authorise it, to make the 4 request? 5 A. I believe not. It might have been something that Willie 6 arranged, but I wasn't aware of it. But I was aware 7 that Andrew gave direct advice to -- and knew the people 8 on the Legal Affairs Committee and the kind of key 9 members of the -- the general counsel to the Council. 10 Q. In terms of reporting -- and this is towards the end, 11 about the time of contract close -- were you aware that 12 reports were to be prepared for the Council as to the 13 terms of the close, the terms of the contract and 14 various formal reports? 15 A. Yes. 16 Q. When was it first understood by you that they would have 17 to be provided? 18 A. Well, I think I figured out probably in the summer of 19 2007. You know, I know about this kind of stuff. It 20 happens. It's all part of the governance process, 21 and -- 22 Q. What would be the function of those reports? 23 A. To provide comfort and assurance that the work had been 24 done. The work had been done in a professional manner. 25 Q. I'll come back to look at those reports towards the end 21 1 of your evidence, but I just want to ask something you 2 have mentioned there about the Council position. 3 Obviously tie were wholly owned by the Council and you 4 had a close relationship with the Council? 5 A. Yes. 6 Q. To what extent did you feel that the Council were 7 controlling or dictating the activities of tie or the 8 way that things were done by tie? 9 A. I think they had a largely passive role. Watching what 10 tie were doing, asking questions through the boards, and 11 through the engagement, they were more passive because 12 they had created this project management company to 13 deliver the tram project. 14 And I suppose after what happened in 2010 and 15 beyond, I sense possibly they should have taken a more 16 active interest at the time. 17 We relied on CEC not just as our shareholder, but as 18 a sponsor and owner. And it's okay to be passive, but 19 there must be strong support all the time as the sponsor 20 of the project, my opinion was that the Council were not 21 100 per cent with us. 22 I say this because building a tramway in the City of 23 Edinburgh is always going to be hard. It's a fantastic 24 old city, lots of problems with building a tramway in 25 Edinburgh. And Edinburgh has a fantastic tradition of 22 1 the festival and Hogmanay, all sorts of great things, 2 and half of the Council, I'm sure, didn't want the 3 tramway, and maybe half the Council did want the 4 tramway. 5 There wasn't universal support. I have seen it on 6 other projects in Croydon, Nottingham, Sheffield to some 7 extent. There's lots of evidence, and the sponsor needs 8 to be 100 per cent backing its project management 9 company. 10 I didn't sense that was ever the case, and if you 11 look at the problems that we had in the early stages, 12 and before I arrived, and I think I helped to clear some 13 of these away, the Council were -- not surprising, 14 I have to say, this is usual behaviour -- were nervous 15 about the impact it was going to have on the great city 16 of Edinburgh. And therefore very cautious and sometimes 17 a little bit risk averse and slow to make decisions. 18 Q. How did that manifest yourself? You're talking about 19 decisions, but what decision, what did the Council do or 20 not do that indicated the fact that they weren't 21 100 per cent behind the project? 22 A. I don't think there was any doubt about the commitment 23 of the technical officers, people like Duncan, but -- 24 so, for example, his cautiousness -- and as I said, 25 excused for being cautious, this is all new stuff. It's 23 1 all new stuff for most people. He may be more reluctant 2 to make quick decisions about, for example, the design 3 of a tramstop or the location of a tramstop because 4 there might be some issues around that he might have to 5 deal with downstream. 6 There's a lot of problems. It's like open heart 7 surgery. That's what you were having done in Edinburgh, 8 and there's a lot of tricky stuff that has to be dealt 9 with, and the Council, I suppose, ultimately are in the 10 front line for all of that. So there was a little 11 apprehension for some of the technical officers. 12 Q. But if you have got people like Mr Fraser, the technical 13 officers, and they are broadly supportive but cautious, 14 when you said earlier you felt that: my opinion of the 15 Council were not 100 per cent with us; what was it made 16 you feel that the Council weren't 100 per cent with you? 17 How did that manifest itself? 18 A. Because I think it's clear that some members of the 19 Council probably would prefer not to have to do this 20 tram project, that's all. 21 Q. That would be apparent from the votes on the tram 22 project? 23 A. And a lot of it is personal opinion. 24 Q. But what difference did that make in practice to the 25 work that you were undertaking at tie? 24 1 A. I don't think it made any difference on a day-to-day 2 basis at all because I think the commitment of the 3 technical officers was there. The impact it had is that 4 they were more cautious, unsurprisingly so, and -- but 5 I think -- well, I can only surmise that later on -- and 6 this is only what I have heard and read about -- if 7 there's any reluctance to take bold decisions, 8 particularly ones that cost a lot of money, there can be 9 a tendency to sit on your hands and wait and think and 10 talk to people. If you're constructing in -- if you're 11 constructing the tramway, you can't afford to do that. 12 You have to be fleet footed, nimble and make quick 13 decisions and keep the project moving always, and that 14 was my approach when I was leading the project. 15 You can't afford for a project with lots of 16 consultants, lots of contractors involved in this, to be 17 waiting, and I think there's so much evidence, and there 18 continues to be evidence in the railway sector and 19 public transport, of this happening. You've just to get 20 on and do it, sort our problems later. 21 Q. Are you talking about project reviews from other 22 projects, or articles or books written about them as to 23 what has happened in them? 24 A. Knowledge that's in the industry. 25 Q. But bringing it back to the Edinburgh Tram Project, that 25 1 matter of delayed decisions or postponed consideration, 2 was that an issue during 2007? 3 A. No, it wasn't, because I think we -- we had a fairly 4 steely determination to get the project to a point where 5 it could safely contract with BBS and Tramco, and be 6 built. 7 I think what I'm referring to, and this is only 8 a view, is that the delays and the disputes between BBS 9 and tie and the Council possibly could have been avoided 10 by speedier decisions. 11 Q. Which decisions? 12 A. The decisions to proceed with the works. 13 Q. Sorry, when you say the decision to proceed with the 14 work, is that entering into the contract or are you 15 talking about -- 16 A. That is not in my statement, it's just an opinion. 17 Q. Yes. 18 A. My opinion, if you have -- if you encounter problems on 19 a construction site that require additional expenditure, 20 rather than argue about whose responsibility it is to 21 cover the additional expenditure, it's important to 22 carry on doing the work using the most expeditious way 23 and body to complete that work. So in the case of 24 finding additional services, utilities that should have 25 been moved, it just needs to happen. You need to move 26 1 them and sort out whose responsibility it is to move 2 them later on. 3 If the project goes into delay, the clock is 4 running, and the contractors -- it's a lot of money. 5 I think -- I think -- I don't know the detail, but 6 I think some of that could have been avoided. 7 Q. That idea of just continuing with the works when you 8 discover it's needed and sorting out the cost later, is 9 that something you found happens now on other projects? 10 Is that a lesson that has been learned in the industry? 11 A. I think there's continuous learning of lessons. And I'm 12 fairly certain that were another city in the UK to 13 follow the tram procurement model that Edinburgh 14 followed, which was not wholly dissimilar to Sheffield 15 which also had problems, then it would learn from these 16 mistakes. 17 The UK in particular, but across the world, has huge 18 amounts of experience of digging up streets and managing 19 complex construction projects in its city confines. 20 It's complicated, and I said it was a bit like open 21 heart surgery. 22 That's never going to change, and Edinburgh possibly 23 had more problems because it is -- because it's such an 24 old city. 25 Q. If it comes to be a matter then of ability to take 27 1 decisions swiftly, is that something that in your view, 2 your opinion, needs to be addressed by different 3 decision-making bodies within the contract? Or is it 4 a matter of the structure of decision-making or just 5 a matter of confidence of decision-making? 6 A. I think it's about empowerment and delegated authority 7 to the Project Director. That's important. I think 8 it's important that the Project Director is backed 9 appropriately by its board or the Project's Board and 10 ultimately the sponsors. That is, I think, all you 11 need. 12 The structure is -- that the governance structure is 13 obviously sound, but there needs to be a level of 14 delegated authority so that the Project Director and his 15 management team can behave in a way that is efficient, 16 effective, agile, you know. 17 Q. What -- I appreciate this is not in your statement. So 18 I'm exploring these matters anew with you. But what can 19 be done in that situation regarding cost control? If 20 the Project Director is given the direction just to get 21 the project done, get the works done, who is going to 22 control the cost in that situation? 23 A. Well, he will have the responsibility to control the 24 costs as well. That is the Project Director's role. 25 Q. Someone is going to have to pay the bill to proceed with 28 1 these works? 2 A. Of course. 3 Q. But if the Project Director has the simple authority 4 just to say go ahead, is there not a danger that's going 5 to arise from that of exceeding budgets? 6 A. Of course there will be. There will be a risk, and the 7 risk must be calculated with a view of stopping the work 8 and continuing the work. And there's a fine judgment 9 that needs to be made, and each interruption to the 10 construction works caused by one issue or another will 11 be different. 12 But importantly, the Project Director, I would say, 13 needs to be delegated authority to make that judgment. 14 If there's a protracted or overly bureaucratic 15 governance process behind that, then we'll get the 16 problems of delays. Men sitting, standing on their 17 shovels, waiting to be asked to start work again, and 18 that's expensive. As I've said, there's plenty of 19 evidence of that happening. 20 Q. Bringing matters back to the tram project, you said 21 a few answers ago that -- you acknowledged that it was 22 just your view that delays and disputes between the 23 consortium and tie and the Council could possibly have 24 been avoided by speedier decisions. I come back to 25 which decisions do you think, if they had been taken 29 1 more speedily, might have avoided these disputes? 2 A. That was an opinion that I gave. 3 Q. Mm-hm. 4 A. I would think it -- it would be decisions where there 5 was a direct impact -- direct impact from delay costs. 6 Those kind of decisions are double whammy. There's the 7 impact of the additional cost of dealing with the 8 problem, and there is a secondary impact of the cost of 9 making up your mind, the weight of making up your mind, 10 the delay cost. 11 You can't hang around. You've got to make -- you've 12 got to make quick decisions. They have to be sound 13 decisions. But nobody has an interest in prevaricating 14 because the clock is running and the clock is very 15 expensive. 16 Q. I want to go back to ask you a question about something 17 that arose just after you'd started work. 18 Could I ask you to look at page 6 of your statement, 19 paragraph 14. You make reference at the start of this 20 to a design report that was produced by David Crawley 21 when you had first started. I take it when you came, 22 you had a chance to consider this, as presumably one of 23 the earliest things you did after you arrived? 24 A. Yes, that's the case. 25 Q. Could we please look at production reference 30 1 CEC01811257. We can see that is the front sheet, 2 I think, of the presentation that was given by 3 Mr Crawley? 4 A. Mm-hm. 5 Q. Drawing together the results of his work. Could we look 6 at page 19 of this, please. 7 A. I think that was commissioned by Steven Bell and I think 8 it was -- was it done before I started? 9 Q. We see in the bottom left-hand corner here, this version 10 was issued on 15 January, which I think was just after 11 you started. But the work would have been done 12 beforehand? 13 A. Yes. 14 Q. If we look under the issues, in the second bullet point, 15 it was that: 16 "Few believe the programme can be met." 17 If we look at the page following it, Mr Crawley's 18 analysis page, again, on the second bullet point: 19 "There is no disagreement on programme risk - the 20 programme will most likely not be met with current 21 arrangements." 22 Now, I take it you were made aware of this when you 23 arrived? 24 A. Yes, absolutely. That was my focus. 25 Q. That was one of your concerns when you arrived in the 31 1 programme? 2 A. Absolutely, and one of the things that I did was to get 3 David Crawley appointed. I had an enormous amount of 4 respect for him. He's an excellent manager and 5 engineer, and I considered we needed David Crawley to 6 deal with some of these issues. 7 Q. And that was -- 8 A. But the programme that we're referring to, it is the 9 overall programme, but the focus is on design. 10 Q. Design. And David Crawley was to try and do something 11 about the design? 12 A. Yes, and -- because that was on the critical path for 13 the whole programme. 14 Q. It remained something that was on the critical path, and 15 a cause of some concern, throughout the whole of 2007; 16 is that fair to say? 17 A. Yes, of course. 18 Q. What I would like to do is look at some of the times 19 that this has cropped up in Tram Project Board meetings 20 now, to see what was being said about it. In that 21 regard, we could go to document reference CEC01360998. 22 These are a pack of pages for the Tram Project Board 23 on 21 January, when you would have been there. Could we 24 go to the eighth page of this, please. These are the 25 minutes of the Design Procurement and Delivery 32 1 Sub-Committee, tie ltd, dated 14 December 2006. Of 2 course, that pre-dates your arrival at tie, doesn't it? 3 A. Yes, it does. 4 Q. We can see in attendance, Andie Harper was there, and he 5 was your predecessor and the Tram Project Director? 6 A. Yes. 7 Q. If we look over to the following page, and we enlarge 8 heading 3.2 and the paragraphs underneath it, you see 9 that: 10 "AH [Andie Harper] noted concern of recent lack of 11 senior level representation from SDS. AH remarked that 12 there had been some senior level changes at SDS. AH 13 highlighted that tie were currently withholding 14 significant amounts of payment from SDS. AH/WG to meet 15 and discuss SDS performance early next week. 16 Willie Gallagher requested review of the adequacy 17 of internal expertise in current tie personnel to manage 18 SDS deliverables. SC [Susan Clark] to review." 19 Were you made aware of these issues when you 20 arrived? 21 A. Yes, of course. 22 Q. What was said to you about the difficulties that existed 23 with SDS? 24 A. I don't recall seeing this, but I'm sure I would have 25 seen this. 33 1 When I arrived the first thing I did, and I do this 2 on every project that I lead, is I spent time talking to 3 people, to particularly the work stream leaders. So 4 I formed my own view and I spent time talking to 5 Andie Harper, spent a lot of time talking to him, to 6 find out what he thought the problems were. 7 This all, you know, confirmed what I was learning 8 through my discussion with the team, and I realised that 9 there needed to be some changes made. Within a very few 10 weeks, I realised that SDS leadership was not very 11 strong. It was slightly detached. 12 Q. Is that within tie, sorry, or at the contractor -- 13 A. SDS, at a contract level. Second thing I realised was 14 that there was nobody acting as the Chief Engineer, and 15 a lot of the design engineering issues that you get on 16 a complex tramway project like this require somebody to 17 act as the Chief Engineer, to say that's what we should 18 do. 19 The Chief Engineering role, I don't think -- I can't 20 remember what she was called. But Trudi Craggs was 21 actually assuming that role, doing her best. 22 Trudi Craggs is a lawyer and she led the development 23 process and the build process very effectively, in 24 a very clever -- clever woman. But we didn't have 25 anybody in tie standing behind these sometimes tough 34 1 technical decisions, and also managing SDS well. 2 So on the one hand SDS were not being managed well, 3 and on the tie side we were not managing SDS and the 4 contractual relationship particularly well. 5 Q. What needed to be done to manage SDS better? 6 A. I didn't think the solution was to beat them up at all. 7 Q. We have seen references there to payment withholding? 8 A. Yes, but I didn't think the solution was to do that. 9 I thought the solution was to ensure the leadership was 10 changed, the approach changed to working with tie. tie 11 and the Council's involvement in the design development, 12 remembering the Council had a kind of approving role, 13 meant that we needed to work more closely together. 14 tie were often late in delivering information, data 15 that was required for SDS to complete their design. 16 They called them RFIs, requests for information. They 17 were routinely late, for a variety of reasons, but they 18 were late. 19 And we had to sharpen up our act. We couldn't wait 20 14 days for a piece of paper, put the two parties 21 together, or three parties, others, and share the 22 information. It's collaboration, and projects these 23 days are done far more collaboratively. There's no 24 point having this bureaucratic way of managing. 25 I saw that straight away, that leadership was poor 35 1 on both sides. Technical leadership. And collaboration 2 was non-existent. And the relationship had become 3 a little bit brittle. 4 And we needed to fix that. If we were going to get 5 back on track, we needed to fix that, and David Crawley 6 helped me achieve that. I was really pleased with the 7 work that he did. 8 Q. What was the role that he was appointed to by you, 9 David Crawley? 10 A. Engineering Director. Engineering and Assurance 11 Director. 12 Q. What was he to do in relation to the design? 13 A. He was to -- he was to lead that work on behalf of tie. 14 So act as the tie's -- tie's technical lead, given the 15 fact that the design is being developed by an 16 engineering consultant, which was SDS. 17 Q. Can we go to page 13 of the document we have on screen. 18 Now, this part of it is headed up "EDINBURGH TRAM 19 PROJECT MONTHLY PROGRESS REPORT - DECEMBER 2006". Is that 20 the Project Director's Report? 21 A. It looks like it. 22 Q. And this -- because it was in the January pack, it would 23 presumably have been the first one prepared by you? 24 A. Or people in my team. 25 Q. People in your team. You would ultimately take 36 1 responsibility for signing it off? 2 A. Yes, I would have reviewed it, and discussed it with 3 people. 4 Q. If we look on that page 13, under the heading 2.1, it 5 notes that on 21 December, the Council had approved the 6 Draft Final Business Case? 7 A. Yes. 8 Q. Did you have a chance to consider the Draft Final 9 Business Case about this time when you arrived? 10 A. I can't remember. I think I remember looking at the 11 numbers to see, and I asked a few questions of people 12 around the numbers. And I had my own view of what 13 a tram should cost. I worked on Edinburgh -- I've 14 worked on Nottingham, which was quite a recent one. 15 I was aware of the costs of the project in Liverpool, 16 which was cancelled, and I was also aware of Croydon, 17 and Birmingham as well, Midland Metro, and the numbers 18 contained in this were kind of in the parish. So 19 I thought that's probably okay. 20 Q. So you didn't immediately look at the estimates that 21 were in the Draft Final Business Case and think: there's 22 no way it's going to be done for that. 23 A. No, not at all. 24 Q. Can we just look at the Final Business Case for 25 a moment. It's document CEC01821403. We can see that's 37 1 just the front sheet of the Draft Final Business Case to 2 identify it. 3 What I would like to do is look at page 85 of this, 4 please. This is in a section on the procurement 5 strategy, and it starts talking about the lower half of 6 this page, activities under the SDS contract. If we can 7 enlarge the lower half of that page. 8 Look at paragraph 7.53: 9 "It is expected that the overall design work to 10 Detailed Design will be 100% complete when the 11 Infraco contract is signed. However by identifying key 12 risk areas and prioritising SDS activities, tie is 13 seeking to complete the key elements of the Detailed 14 Design prior to selecting the successful Infraco bidder 15 in summer 2007. This will enable Infraco bidders to 16 firm up their bids based on the emerging Detailed Design 17 and thereby reduce the scope and design risk allowances 18 that they would otherwise include." 19 Do you see that's what it says there? 20 A. Mm-hm. 21 Q. What it's referring to there, by way of design risk 22 allowance, is that if the contractor does not have 23 a finalised design, doesn't know quite what is required, 24 they will build in a factor to their price to allow for 25 the unknown element? 38 1 A. That's correct. 2 Q. They'll price the risk? 3 A. Yes. 4 Q. But the approach established in -- at the time of this 5 Draft Final Business Case to avoid that was to have the 6 detailed design 100 per cent complete when the contract 7 is awarded? 8 A. This has been talked about a lot. "100 per cent 9 complete" is often used. No design is 100 per cent 10 complete when you enter into a contract. It's a certain 11 stage. But that was the intention, and in this contract 12 model that was envisaged, which I said in my witness 13 statement was slightly idealised, is that it would be 14 completely finished, tied up in a bow, presented to 15 Infraco bidders. They price it and they build it with 16 minimum risk. 17 That was never going to happen because, for example, 18 the contractors that you choose will have their own 19 particular way of delivering the design which will 20 require different drawings, different construction 21 drawings. They will have different mechanisms for 22 building structures. They will have different 23 technologies for putting up overhead lines. And the 24 final drawings will be specific to the contractor you 25 choose. It's what level of design do you choose to hand 39 1 over to the Infraco bidders. 2 But using "100 per cent complete" is, I think, 3 slightly misleading because there will always be 4 elements of the design that needed to be tailored to 5 suit contractors' technologies and approach. 6 Q. Just look at some of the terminology then, because we 7 have seen that paragraph uses the expression "Detailed 8 Design", and you have talked about, I think, documents 9 issued for construction. 10 Now, the issued for construction documents are the 11 very last stage of the chain; is that correct? 12 A. Yes. 13 Q. And they should have everything in total detail? 14 A. I don't know exactly what issued for construction would 15 mean in a RIBA interpretation. There will be, I guess, 16 different ways of looking at it. 17 But I think issued for construction is a pack of 18 information that would enable the contractor to start 19 work. Maybe not quite go out on site. There may be one 20 or two things that would need to be added to that 21 process to go out on site and start building. 22 But I think broadly they should be complete. 23 Q. The expression "Detailed Design" then, would that in 24 your view normally be taken to include issued for 25 construction drawings, or is it a bit further back than 40 1 that? 2 A. I would say -- I hope you don't ask me a follow-up 3 question for this -- it depends upon what part of the 4 asset that you were designing. 5 So some things that are not going to change might be 6 issued for construction, and you could almost take them 7 to site, and that would be the detailed design. Other 8 things would still have questions around them, and 9 therefore it might end sooner. 10 Q. So what did you consider would not be provided or was 11 not realistic to expect it to be provided at the time of 12 the contract award? 13 A. A lot of the -- a lot of the elements of the design that 14 were system-specific. 15 Q. Sorry, could you -- 16 A. So Siemens may have their own design of switch gear, and 17 maybe a standard design, so the box dimensions and exact 18 location may still need to be finalised. And that would 19 not be known -- that would not be known at the point of 20 detailed design. 21 Q. What about the civil engineering works? Moving the sort 22 of work that would be done by the -- that Bilfinger were 23 ultimately to do here in terms of providing the track 24 bed and the track? 25 A. That should be complete. 41 1 Q. Is there any -- 2 A. The difference would be that if the Civils contractors 3 were -- if the Civils contractors were proposing an 4 alternative trackform, and I think there was 5 consideration on alternative trackform, I know that it 6 was talked about whilst I was there, then that would 7 have to be adjusted to suit. But the alignment -- the 8 alignment centres, I think it's called the MX, if memory 9 serves me correctly. The actual alignment, the 10 topographical alignment, the exact position of the 11 centre line of the alignment, both vertically and 12 horizontally, should be set. 13 Q. Things like structures, bridges and so on and so forth, 14 would you expect them to be -- 15 A. To a large extent, I know that we had a -- there was at 16 least one structure -- two structures that were subject 17 to value engineering. So they were designs that would 18 need to change as a result of value engineering. 19 Q. I want to come to value engineering in a moment, but -- 20 A. But there would be broadly -- but the -- the -- I'm not 21 a civil engineer, so I don't know the detail. There may 22 be elements within a structure that would depend upon 23 the fabrication methodology and the construction 24 methodology that were being proposed by Bilfinger. 25 Q. I'll ask this way. In terms of structures such as 42 1 bridges, are the things you would have expected would 2 not be 100 per cent complete at the time of contract 3 award? 4 A. Based on what we've just determined as 100 per cent, 5 I would agree. I would agree that structures should be 6 priceable to a high level of accuracy, and all of the 7 materials involved and the quantities would be -- would 8 be able to be assessed from the drawings. Even if the 9 construction methodology changed slightly. 10 Q. In terms of things like changing the construction 11 methodology in relation to the Siemens work, you talked 12 about their own systems elements that they might design 13 themselves. In terms of fixing a price, ought it to 14 have been possible in your view -- this is as at the 15 start of 2007. Should the view that it was going to be 16 possible to get a design -- meant that it would not be 17 necessary to have any pricing premium in respect of 18 risk? 19 A. It would be impossible at that stage. 20 Q. It would be impossible? 21 A. Yes. There's going to be a little bit of risk premium 22 added. 23 Q. What would that relate to? 24 A. At the start of 2007 the design was still in process. 25 So the specifications that we would have provided to 43 1 Infraco would be subject to some change. 2 Q. From the start of 2007 to contract award? 3 A. Yes. 4 Q. By the time you get to contract award, was it reasonable 5 to assume you would be able to eradicate that design 6 risk premium? 7 A. I -- I don't think so. I don't think so. I've worked 8 for consortium building tramways on the other side of 9 the fence, actually, you know, I worked for Adtranz and 10 Bombardier, and I know how prices are made up, and there 11 will always be an element included for risk. You can 12 never get rid of it completely. 13 It's the confidence you have as a contractor in 14 being able to deal with the unknowns. 15 Q. Did you -- 16 A. That determines the amount of risk that you put in, and 17 there might be risk rules that companies have. You 18 know, a company may say: we will never put any less than 19 2 per cent of our contract price in as risk. They may 20 say: that's the rule that we have. So there will always 21 be risk elements into -- in contract prices to cover for 22 the unknowns. 23 Q. Did you share your -- the view that you had that it 24 wouldn't be possible to have the detailed design 25 100 per cent complete with anyone? 44 1 A. I think -- what are you talking about? At the 2 beginning? 3 Q. Yes. When you arrived and saw this. 4 A. I think we -- the management team were aware that it 5 would not be 100 per cent complete. 6 Q. When you say the management team, who are you including 7 in that? 8 A. Well, me, Geoff, David Crawley. 9 Q. That's Geoff -- 10 A. When I talk about the word "100 per cent complete", it's 11 an idealised concept, and I think one of the problems is 12 using it in the Business Case and in papers has 13 possibly -- possibly led people to expect, possibly out 14 of ignorance, that it would be a pile of drawings and 15 specifications tied up in a bow, perfect. You don't 16 need to do any more. It was never going to be that. 17 Q. Do you know if anyone ever discussed your view that it 18 wasn't going to be 100 per cent complete with people at 19 the Council, Council officers, councillors? 20 A. No. I don't -- I don't know. But I think we were 21 realist. I was certainly a realist. I said that the 22 procurement model was an ideal -- idealised procurement 23 model and it couldn't be achieved in the ideal sense. 24 And there are bound to be some compromises. 25 Q. What couldn't be achieved in the procurement model? 45 1 A. The -- the perfect timing. That the procurement model 2 was you choose an operator to perform best practice 3 operable design. You then choose the designer, and the 4 designer designs the most operable design and finishes 5 the design, and then you pass the design to the 6 procurement team, and the procurers procure the design. 7 And then the contractors start work. 8 In practice those things overlap, and the edges and 9 the interfaces of certain elements are never perfect. 10 Q. By the time you arrived, you were quite far down that 11 procurement strategy route? 12 A. That is true, yes. 13 Q. So there wasn't really a great deal to be changed; is 14 that fair to say? 15 A. No. We had to make it work. 16 It was clearly too -- we couldn't change the model. 17 The models that I personally preferred were kind of 18 wrapped models, PFI models, where the design and 19 construction risk were packaged together. 20 But this was not the case. 21 Q. When you say packaged together, you mean the same entity 22 would be responsible for both design and construction? 23 A. That's right, and should have included the utility 24 diversions. Although there would be a big risk premium 25 for that, which is one of the reasons why Edinburgh 46 1 chose this model, why Ian Kendall chose this model, 2 because there was a perception that -- based on 3 experience, it was not -- it was -- it was 4 a well-informed judgement, but in many tramway projects, 5 utilities is one of the biggest risks that we know of. 6 Q. Because of those risks, the risk premium that contractor 7 would charge a lot just in case they found things they 8 weren't expecting? 9 A. Yes. But in the case of Nottingham, Carillion lost 10 money on that because of -- partly because of some of 11 the issues around utilities, I believe. 12 Q. Had that had an effect on contractors' willingness to 13 undertake that sort of risk? 14 A. I think it would do. These projects, I want to stress, 15 are not straightforward projects. They may be a simple 16 form of transport, guided light rail tramways, but 17 they're very complicated to put in ancient cities. 18 It's not easy, and in some ways we should have never 19 taken them out, of course. And compared to some other 20 construction projects, railway construction projects, 21 green field railway construction projects, the 22 challenges may be far more so, than in a much larger 23 project such as Crossrail or even HS2. You know, the 24 fact it's small and it's a secondary or tertiary form of 25 transportation, but because it's guided and has rails 47 1 and tracks and it has electricity and signalling and all 2 this kind of stuff, it's complicated, and it's very 3 complicated to deliver in a city like Edinburgh. 4 Q. Another part of the procurement strategy we've already 5 touched on, the idea of getting the utilities moved 6 before the infrastructure works commenced, mostly 7 completed. Did you consider that was realistic? 8 A. I was advised that it was realistic. I didn't have 9 a strong view myself. I'm not an expert in this 10 subject. But we had a programme that appeared to -- 11 would be robust, and in some respects it wouldn't have 12 mattered if the programme of construction is 13 co-ordinated with the programme of utilities, and indeed 14 there's a very strong argument for working the two 15 together so that you don't have to put the black top 16 back on the diverted utilities. 17 Q. Presumably, if you're going to work them together like 18 that, you have really got to know what utilities are 19 under the surface before you open it? 20 A. Of course, and this is the -- this is the biggest 21 problem. Some utilities have been there for a very, 22 very long time. 23 Q. Have you been involved in projects where they have done 24 the utility works and infrastructure works in tandem? 25 A. Not -- not delivering, but I have bid for projects where 48 1 we have -- we have tried to co-ordinate utility 2 diversion and construction, so that construction 3 immediately follows the diversion of the utilities. 4 That was the case in Nottingham, and I think also in 5 Croydon. 6 Q. What degree of investigation is carried out to determine 7 what's under the ground by way of utilities before you 8 start that? 9 A. Well, surveys using radar, trial digs. Obviously kind 10 of deep engagement with the utility companies, and that 11 is often the problem. They don't have an interest in 12 having their utilities dug up and diverted. So they're 13 not always that co-operative. 14 But you need to work with the utility companies to 15 know -- because they should know what services they have 16 buried and where, but invariably they don't know where 17 it is because it's so old. 18 Q. If you're doing a project where you are working in close 19 sequence like that between utilities and infrastructure 20 works and you've done those additional investigations, 21 is that successful in finding out what utilities are 22 below the surface, or do you still get unpleasant 23 surprises as you go along? 24 A. I don't know statistically what the answer is, but 25 I presume it can never be perfect. I don't know. I'm 49 1 sure if you speak to utilities experts, there are plenty 2 of them in the UK, they'll say maybe it's 90 per cent 3 good or 70. I really don't know. But there is a risk, 4 certainly a risk associated with utilities. 5 Q. I would like to go back to the papers for the January 6 Tram Project Board. That was document reference 7 CEC01360998. If we go to page 14. This is still within 8 the Project Director's Report, and if we see under the 9 heading 2.4, it's referring to other achievements which 10 took place in December. Look at the second bullet 11 point: 12 "Value Engineering exercise undertaken in the 13 third week of December 2006. This activity is now 14 assumed into the exercise being led by Andie Harper. 15 His objective is to deliver GBP50 million of savings out 16 of the current estimate. The first two meetings in this 17 exercise have been held and the principles of this 18 process have been established." 19 What's involved in Value Engineering? 20 A. Value Engineering is quite a mature discipline and 21 there's an Institute of Value Management. So it's not 22 uncommon. 23 You basically take a design and try to reduce the 24 cost of the design without changing the quality. So the 25 same ratio. And that might be evaluating the -- the way 50 1 it can be implemented, the sequence, the structural 2 approach. Use of materials. There are many aspects of 3 Value Engineering. It's a common thing. 4 Q. The first thing you said there is you take a design? 5 A. Yes. 6 Q. Presumably the sort of things you're describing involve 7 potentially making some change to the design? 8 A. Yes. 9 Q. So whenever you're undertaking Value Engineering, it's 10 understood that there will be change to design? 11 A. Yes. 12 Q. The other thing is if the starting point is you take the 13 design, does that assume the design has to be a certain 14 level of completion before you can start the Value 15 Engineering exercise? 16 A. It's got to be sufficiently well determined to be able 17 to price it within a reasonable level in order that you 18 can do the Value Engineering on it. 19 Q. So -- 20 A. So the preliminary design that CEC will have done by 21 then may not have had the detail, but they might have 22 assumed the basic structure of a structure, a bridge, 23 and it might have been something that the Council had 24 preferred, a certain design of bridge which was 25 expensive and there may be cheaper ways of doing it. 51 1 The estimates would be known for one type of 2 structure versus another. So a bowstring bridge would 3 cost more than a plain decked bridge. 4 Q. Is it common to undertake Value Engineering at this 5 stage, when there's a preliminary design, but you're 6 still in the course of carrying out detailed design? 7 A. Yes, of course. We do it all the time. 8 When the contractors have started work, they may 9 choose to do Value Engineering at a lower level that 10 doesn't affect the approvals and consenting process, to 11 improve their cost position and profitability. 12 Q. Can we look at the following page, please. It's page 15 13 in the document. 14 If we highlight heading 3 and the first bullet point 15 underneath it. 16 It is under the heading, "Key issues and concerns". 17 It's the resolution of issues and concerns last month, 18 which goes back to November, before your arrival. But 19 it says: 20 "System design services. Monitoring of SDS 21 continues at a high level." 22 What was meant by "at a high level"? 23 A. Well, high level is you don't delve into the detail. 24 Q. So it's not talking about the seniority of the people 25 involved? It's talking about the depth of the enquiry? 52 1 A. Yes. I mean -- 2 Q. You then go on to note that there has been a commitment 3 by SDS to deliver according to programme Version 9. 4 However, they have not achieved that, and they're 5 working on Version 10? 6 A. Mm-hm. 7 Q. Is that a concern that they're moving quite so swiftly 8 from one programme to another? 9 A. I don't know what the version number refers to. Is that 10 a baseline? Quite often the programme version number 11 will change every month as -- as you provide the status 12 report, and the status report will provide degree of 13 completion against the milestones. It's a live document 14 and it may get updated every month. So it might be V11 15 the next month, but it doesn't mean to say the baseline 16 has changed. 17 Q. What we see here is they haven't delivered design 18 obligations to programme 9, and they're currently 19 producing Version 10 to determine revised dates for 20 delivery of design, pushing the dates out? 21 A. So it sounds like they are changing the baseline. 22 Q. Is that a concern? 23 A. I wasn't there at the time. It would be a concern if 24 tie were not consulted. I make the point that this -- 25 I can see now it was a high level. Possibly it was 53 1 deemed unnecessary to go down to this lower level to 2 test the -- whether this was a good thing or not. 3 Sometimes it's not a good idea to micromanage your 4 contractors. You let them get on with it, and just do 5 your monitoring and control at a higher level. 6 I don't know. 7 Q. If there's evidence -- you can take it from me that the 8 SDS Contract had been concluded approximately 16 months 9 earlier, and this is already on to version 10 of 10 delivery, that's ten versions in 16 months, is that 11 a cause for concern? 12 A. I can't comment on that because I don't know the 13 context. If you tell me there were 16 base -- 10 14 baselines and the changes were at a significant level, 15 then I would be concerned. But if the changes were in 16 the sequencing of sub-tasks beneath the main tasks, 17 I would have no concern. 18 Q. I'm really asking -- 19 A. As long as the main milestones were delivered. 20 Q. This is something you came to when you arrived in 21 January 2007. Was this a source of concern to you? 22 A. It was overall. The performance of SDS was a source of 23 concern to me, very definitely. 24 Q. Can we look at page 18 in this document. If we enlarge 25 heading 5.4 and the bullet points underneath it. What 54 1 was set out again, this is at the end of the report, 2 Project Director's Report, is: 3 "Decision/support required from City of Edinburgh 4 Council." 5 The second one is: 6 "A robust process for agreeing design solutions for 7 structures between City of Edinburgh Council planning 8 and the Project Team." 9 The third is: 10 "Confirmation of decision on Change Orders presented 11 to CEC." 12 Is this an example of what you were saying of 13 requiring decisions from the Council? 14 A. Absolutely. This is one of the reasons why we wanted to 15 get them working together with us in the same office. 16 Q. Was that a source of concern? 17 A. What exactly? 18 Q. Getting decisions out of the Council? 19 A. Yes, it was. 20 Q. What was the concern? 21 A. The concern is it would hold up the programme. 22 Q. Were you advised that there had been difficulty in 23 getting sufficiently swift decisions from the Council? 24 A. I'd been advised that the Council always needed more 25 work done in order for them to make the decision in the 55 1 first place, and that they sometimes changed their 2 decision. They'd discovered something else and they 3 flipped their decision, and the overall effect was to 4 delay the decision. So it was a kind of degree of, 5 I guess, interrogation of the design, and I talked about 6 cautiousness. It may have been a slight cautiousness 7 because this was new for them. 8 Q. What did you try and do to alleviate that problem? 9 A. I wanted to speed up the process. I wanted to make the 10 progress -- the process direct. And I wanted to 11 slightly deformalise the process so that the Council 12 technical officers could get confident in the way -- and 13 could help shape the design contemporaneously. So we 14 didn't have this pass the design over the fence, wait 15 for a couple of weeks, then come back and find out 16 there's a little detail that's been missing, and then do 17 the same process over again. 18 Q. Was that a success? Did you manage to achieve that? 19 A. I think I did. I have said this, I think, in my -- 20 I was very proud of what I did in Edinburgh. 21 I completely changed the approach for working. And we 22 dealt with a lot of the critical issues that were on the 23 project that were holding it up, holding the design. 24 And we did this through -- it was common sense, and 25 changing the working arrangements. 56 1 Changing the contractual -- changing the contractual 2 approach. And sorting out issues in the past we -- SDS 3 had a reasonable claim against tie, and we resolved that 4 reasonably amicably. We kind of incentivised them to 5 continue doing the work in the way that we were 6 envisaging and things were back on an even keel again. 7 We never thought -- I never thought this would be 8 the perfect panacea. There were always going to be 9 challenges, and there always will be because it's 10 complicated, as I said earlier. 11 Q. Could you look at page 30 of this -- papers for this 12 meeting. We can see this is a paper to the Tram Project 13 Board, with the title, "Risk Management Paper for 14 Primary Risk Register". 15 If we look at the next page, we can see that you are 16 named as the person recommending this paper to the 17 Board? 18 A. Yes, indeed. 19 Q. Proposed by Geoff Gilbert. What was your role in 20 relation to risk management at the start here? 21 A. I was the Project Director. I had responsibility to be 22 sure that risk was properly managed. And we had a risk 23 management system based on good risk management 24 practice. Again, it's quite a mature discipline. It's 25 a bit like value management in projects. We had quite 57 1 a mature approach. I think it was led by somebody 2 called Mark Bourke who was a TSS consultant. Or was 3 he -- I can't remember. But it was quite well managed. 4 My role was to review the risk register which was 5 a prioritised risk register, to look at the black and 6 the red risks, and ensure that all of the risks have 7 a risk owner and that mitigation measures are being 8 implemented. 9 Q. You say you did that looking at the risk register. Was 10 that something that was the subject of formal 11 consideration by the Tram Project Board, consideration 12 and discussion? 13 A. Yes, of course. It was a standing item on the agenda of 14 the Tram Project Board. And with the management team as 15 close focus. 16 Q. I think a while that was something that was taken out of 17 the Tram Project Board and delegated to the Legal 18 Affairs Committee. Was there a reason why the Tram 19 Project Board stopped considering it and passed it to 20 someone else? 21 A. Well, I wasn't aware of that. 22 Q. Would you see that as a sort of demotion of the 23 importance of risk in decision-making, if it is being 24 done by someone else? 25 A. My view is the tram project management should always 58 1 have certain standing items that it focuses on through 2 its governance structures, and that would include cost 3 control, risk management, programme and all those kind 4 of things. And these are fairly well-established. 5 Q. If you could just look at the risk management with these 6 papers. Go to page 32. 7 CHAIR OF THE INQUIRY: I wonder, Mr Lake, is this 8 a convenient point? 9 MR LAKE: I'm happy to take a break here. 10 CHAIR OF THE INQUIRY: We will have a break for the 11 shorthand writers at this point. So we will resume 12 again at 11.25. 13 (11.05 am) 14 (A short break) 15 (11.25 am) 16 CHAIR OF THE INQUIRY: You're still under oath, Mr Crosse. 17 A. Of course, yes. 18 MR LAKE: Mr Crosse, we were just looking at the papers for 19 the January Tram Project Board and I was asking you to 20 look at page 32, which we see on screen at the moment. 21 Is this an example of a Risk Register Report? 22 A. Yes, it is. This is the front page, I think. 23 Q. If we could just go to page 36 of this. If we look at 24 risk 280, the one second from bottom, we can see the 25 risk description is that: 59 1 "SDS critical deliverables are considered to be 2 below quality levels required or late in production." 3 The effect of that would be: 4 "Delay in submission of information to Infraco; 5 delay in achieving consents and approvals; dilution of 6 effort to de-risk [the project]." 7 I take it that risk had already been identified 8 before you joined tie? 9 A. Yes, absolutely. It would be obvious risk. 10 Q. The treatment strategies identified for it are an 11 identification of key areas requiring SDS effort, 12 refocus SDS effort, and those treatments are both noted 13 as green. Does that denote the outcome of the treatment 14 or the fact that the treatments have been carried out? 15 A. I think this is a confidence that the treatment will be 16 achieved by the dates in the top column. 17 Q. Perhaps -- 18 A. Treatment says end date, end November, end December. 19 I don't quite understand that. 20 Q. I perhaps should add, in fairness, if we go quickly back 21 to page 32 -- 22 A. Yes. 23 Q. -- we can see there's a key to the various colour 24 status. Treatment status and green. It refers to the 25 fact that the treatment strategy is ahead of the 60 1 programme or complete, rather than the outcome of that 2 treatment strategy; is that fair? 3 A. Yes. 4 Q. If we go back to page 36, where we were before, the 5 second treatment strategy is to apply micromanagement to 6 SDS delivery, weekly reviews to press for deliverables. 7 It goes on to say: 8 "Action identified in main report. Problems remain 9 with SDS performance and this has required a refocus on 10 management, hence red status." 11 We can see that has now been marked up as red for 12 the end of December, whereas previously it was amber; do 13 you see that? 14 A. Yes. 15 Q. That would tend to indicate that the treatment strategy 16 had not been implemented fully at the end of December; 17 is that reasonable? 18 A. Yes. Either a schedule issue or an output. One of the 19 two. 20 Q. What do you mean by output there? 21 A. Does the -- does the treatment relate to its efficacy or 22 being delivered by a due date. There's two things. One 23 is deliver the treatment. The other one, did the 24 treatment work. Clearly it's red. Clearly it's red. 25 Q. It clearly is red. We've seen from the key that we 61 1 looked at on page 32 that on the face of it that appears 2 to relate to the -- whether or not it's on programme or 3 behind programme? 4 A. Yes. 5 Q. Did you get any indication of the efficacy of the 6 treatment? 7 A. No, but I mean if this was the report from 2006, I'd 8 come in to kind of try to deal with some of these 9 issues. 10 Q. I notice that treatment we have just noticed refers to 11 micromanagement, which is something you mentioned in 12 your evidence before the break. I think you said it 13 wasn't desirable to micromanage your contractors or 14 subcontractors? 15 A. What I'm saying it's not always desirable to micromanage 16 your contractors. Possibly in this case it would have 17 been desirable to micromanage the contractors. Or at 18 least to get inside the contractors to understand what 19 is going on, and then withdraw. 20 Q. So what was involved in micromanagement of SDS? 21 A. A greater focus on day-to-day work and greater 22 engagement with the key responsible individuals. So 23 spending more time with Jason Chandler was the Project 24 Manager, I remember. And some of his kind of -- his 25 team, spending more time with them, to try and 62 1 understand what was going on. 2 And to help deal with the issues or to scrutinise 3 and focus and keep them focused. 4 Q. If we look at page 38 -- sorry, I should say just before 5 we leave that page, we see that the risk owner for risk 6 280 we have just looked at is Geoff Gilbert? 7 A. Yes. 8 Q. If we then go on to page 38, risks 139 and 164 put 9 together, and they concern the uncertainty of utilities 10 location and consequently required diversion work and 11 unforeseen utility services. You'll see that? 12 A. Yes. 13 Q. There's various forms of treatment strategy, including 14 radar surveys and trial excavations, are the first two. 15 A. Yes. 16 Q. They are both noted now as being green. That is the 17 treatment strategy having been completed? 18 A. Yes. 19 Q. Would it surprise you that these things, ground 20 penetrating radar and trial excavations, were being 21 carried out at this stage of the project, as opposed to 22 earlier? 23 A. I can't comment on that. I don't know sufficient detail 24 about it to have a judgment. 25 Q. The fourth treatment strategy then: 63 1 "Review design information and re-measure during 2 design workshops with Utility Companies and MUDFA. 3 Develop PC [prime cost] Sums into quantified estimates." 4 It's noted there that can't be done because the 5 design is not yet mature enough to achieve the action. 6 What was intended there, do you know? 7 A. I wasn't there at the time, so it's difficult for me to 8 comment. 9 I suspect -- I expect it's to have a kind of 10 detailed look at the status of the information and to 11 remeasure is a QS term, basically re-assess the 12 quantities working with utility companies and MUDFA 13 contractor. 14 And then to develop new estimates, PC sums. So 15 it's -- 16 Q. You will have seen this, presumably, as part of the 17 papers for the January meeting which you did attend? 18 A. Yes. 19 Q. Then if we go to page 48 of the papers, there's a paper 20 to the Tram Project Board with the subject heading 21 "MUDFA Construction Programme". You will see that? 22 A. Yes. 23 Q. If we look over the page, in paragraph 4.1, you can see 24 it notes: 25 "The delivery of the detailed utility design is 64 1 being undertaken by SDS. This task is now on the 2 critical path for the delivery of the MUDFA construction 3 works and, unfortunately, SDS delivery dates for the 4 first three design sections were not met." 5 Now, when you saw this coming to it in January, was 6 that a concern to you? 7 A. It would have been. 8 Q. Did you get to the bottom of what had been happening 9 here and why this was happening? 10 A. I think there was possibly a bigger problem, of which 11 this was a sub-problem. And it was around the way we 12 were managing SDS and the way SDS were managing 13 themselves. 14 This was one element of SDS output. Clearly it was 15 on the critical path, and I recall all the way through 16 pretty well my time as Project Director, there were 17 issues around the design for utilities. It was behind. 18 There's no question. And I recall that PB had 19 subcontracted this to Halcrows, and they weren't 20 necessarily performing as well as they should be, and 21 I think also the utility companies were not playing ball 22 with us. 23 Q. What were they not doing or doing too slowly? 24 A. Making information available to us, making engineers 25 available to us, in order to endorse what we're doing. 65 1 I think there's an obligation under the Act that they 2 have to co-operate with us, but how we -- how we 3 achieved that is -- it would be one of the challenges of 4 building this complex tramway. 5 You can't force people -- I suppose you can through 6 the Act, but it would be a sledgehammer to crack a nut. 7 It was giving confidence to the SUCs, the utility 8 companies, to get them to provide the additional 9 resources for which they wouldn't be, I don't think, be 10 compensated for. 11 So if there weren't enough people around, or they 12 were busy doing something else that paid them money, 13 they are going to focus on that. That's the problem. 14 Q. Utility companies weren't going to be getting money out 15 of these MUDFA works? 16 A. I'm not sure about that. But I think there was always 17 the issue of potential betterment from: you move our 18 services and actually we could actually gain from the 19 movement of the services, we might get something extra. 20 And also one of the service companies was -- had 21 a kind of programme of renewals because the pipes were 22 old, rusty pipes, and they wanted to fit plastic pipes 23 which are more durable. So they would have benefited 24 from not having to have -- move them all the way or 25 replace all of them. 66 1 Q. Are the difficulties in getting co-operation from the 2 statutory utility companies common to all projects or 3 was it particularly difficult in Edinburgh? 4 A. I would say it's common to all projects. 5 Q. Are there any strategies employed in relation to it in 6 your experience that have borne fruit? 7 A. My approach is always one of: don't hang about, don't 8 wait, engage with these firms as soon as you're able to. 9 I suppose in the case of Edinburgh, I don't know 10 whether the SUCs would have been objectors to the 11 scheme, obviously. Whether they were more objectors 12 than, say, in Nottingham or fewer objectors, I don't 13 know. So Edinburgh may have had a tougher task, but 14 I do think the strategy is about engagement with them, 15 and that was actually the responsibility of SDS to do 16 that. 17 Q. Leave this paper for the moment, these papers for the 18 January meeting, and revert to your statement, if I can. 19 And to page 29 of that. 20 If we could enlarge paragraph 85. I'll look at the 21 whole paragraph for context, but I'm interested in 22 what's right at the end of it. You say: 23 "I refer to an email from Willie Gallagher to me 24 dated 26 January 2007 and the attached project estimate. 25 This is not the final estimate it is a project estimate 67 1 update. The project estimates would be changed right up 2 to final contract close. The project estimate says that 3 99% of costs are backed up by market tested 4 prices which means that there is a high level of 5 confidence in the costs if the specification and design 6 don't change. It states there is a confidence level of 7 P90 after QRA (Quantitative Risk Analysis). P90 is 8 a statistical analysis of the probability of the 9 estimates being representative of the final cost. It 10 means there is 90% certainty of these estimates 11 being correct. QRA is a risk analysis of the budget. 12 Nowadays we also perform risk analysis on programme 13 schedule, which is known as QSRA (Quantitative Schedule 14 Risk Analysis). if I had my time in the tram project 15 again I would have carried out a QSRA." 16 Now, QSRA, is that intended to determine with 17 a degree of statistical confidence how likely it is that 18 the project would be completed within the set timescale? 19 A. Yes, it is, and I should just point out it's SQRA, not 20 QSRA. That's just a detail. 21 Q. So it should be Schedule Quantitative Risk Analysis? 22 A. Yes. 23 Q. You say -- from the fact you say I would have carried 24 out an SQRA, I take it that means there wasn't one 25 carried out as far as you are aware? 68 1 A. No. 2 Q. What would the benefit of having that have been? 3 A. It's not an exact science, even though statistical 4 analysis obviously has huge amounts of integrity. 5 The benefits of doing an SQRA would have been an 6 understanding of the probability of hitting our 7 milestone dates. The way that you do it, you take the 8 risk schedule, the risk register, and you look at the 9 probability of the risks materialising, and you apply 10 them to the programme bars in the programme schedule, 11 and you do Monte Carlo simulation on the programme bars, 12 much the same way you do it on the risk register. 13 What it will do is give you a probability of you 14 achieving the dates that you select. 15 And I would say it would have predicted that we 16 would not have had a chance of completing everything by 17 the dates that we were planning to do so. 18 It's a tool for predicting programme outcomes. 19 I have used it recently since, and I'm -- I think 20 it's -- it's -- sometimes it's quite obvious, the 21 results that it projects, but it does enable you to 22 focus on those elements that are on the critical path 23 that can cause delay and to focus on them. 24 Q. So just to be clear, is it an analysis where you could 25 focus on particular elements and presumably try and 69 1 mitigate them with a view to keeping things back to 2 programme? 3 A. Absolutely. Absolutely. 4 It's a treatment. It's not always suitable, and I'm 5 sure -- this is done by risk experts, not by me at all. 6 It is quite possible risk experts may say this programme 7 or the programme design and your risk register is not 8 suitable. It's too complicated. It's quite 9 a complicated process to undertake. 10 And they may have said it's not suitable for that. 11 Q. I would like to turn now to the papers for the 12 February 2007 Tram Project Board meeting. We will look 13 at document CEC00689788. 14 If we could just enlarge the lower half of the page 15 for the moment, we can see these are the papers for the 16 meeting on 20 February 2007. I just want to ask you 17 a few questions about the people who were in attendance 18 for this. 19 David Mackay was the Chair of the Tram Project 20 Board? 21 A. Yes. 22 Q. But I think he was from TEL; is that correct? 23 A. Yes, I believe so. 24 Q. And also Neil Renilson was also from TEL? 25 A. Yes, Lothian Buses. 70 1 Q. Now -- yes, he was with Lothian Buses and by that route 2 had been on to TEL and now he was sitting on the Tram 3 Project Board? 4 A. Yes. 5 Q. To what extent was it useful to have people from TEL 6 sitting on the Tram Project Board? What did they bring 7 to it? 8 A. Transport integration. 9 Q. That was their function? 10 A. Yes. But we had Transdev in place to do that. 11 Jim Harries was on the Board as well. 12 Q. Yes, we can see his name at the foot of the left-hand 13 column there? 14 A. But Neil -- when -- before I joined, Neil was one of 15 these people that was opposed to the tram. He ran the 16 bus company for Edinburgh. The bus company made lots of 17 money. I think he was a shareholder. 18 And therefore his -- he was -- he was against the 19 tram. He turned round his position and then became 20 a supporter of the tram, and got involved in it, and 21 that was probably the right approach, to have him deeply 22 involved in the project. But he was involved in 23 a number of different ways, including being on the 24 board. 25 Q. Back to the point you made earlier, you had Jim Harries 71 1 there who was from Transdev who had already been 2 appointed at that time as the operators of the tram? 3 A. Yes. 4 Q. TEL did have responsibility for integration of the bus 5 and tram services once they were up and running? 6 A. Yes. 7 Q. Did it add anything to the Tram Project Board to have 8 representatives of TEL on the Tram Project Board? 9 A. I don't have an opinion on that. 10 Q. Put it this way. In your view, did it cause any 11 confusion, having them on board? 12 A. I can't recall so. 13 Q. You see in the left-hand column there, about halfway 14 down, Bill Reeve. He was from Transport Scotland? 15 A. Yes. 16 Q. Was the input from Transport Scotland of use to the Tram 17 Project Board? 18 A. I think it was, yes. 19 Q. In what way? 20 A. Just knowledge from -- from the rail industry. I like 21 Bill Reeve. I think he's a good guy, and has a good 22 sound commercial approach. And he brought, you know, 23 different slant to what we were doing. 24 Q. It might be said that considering the expertise of 25 people like you and your colleagues on the staff of tie, 72 1 that he really didn't add anything. 2 A. I don't agree with that. I think -- I think 3 Transport Scotland, from a governance standpoint, were 4 kind of a useful foil. They do bring a different 5 experience and I did find the reporting to 6 Transport Scotland a real pain, but Bill, I thought, was 7 a sound guy and had added value. 8 Q. Is that reporting so that they could provide an 9 additional level of oversight? 10 A. I believe so. And it kind of changed post-SNP. Just 11 the way the funding arrangements were changing, and we 12 were -- we were going from a project that was -- you 13 know, was going to be cancelled. 14 Q. That degree of Transport Scotland oversight, was that 15 a benefit or a burden? 16 A. I would describe it as a benefit. 17 Q. In what way? 18 A. Just a different view. They manage a lot of projects. 19 They interface with Network Rail. We're running 20 a public transport. Theirs is primary public transport. 21 The tramway is a secondary tertiary public transport, 22 and they have useful -- useful experience, commercial 23 experience. 24 Q. You've already mentioned at the foot of that column, 25 you've got Jim Harries who is from Transdev, the 73 1 operators. What sort of input was he able to provide to 2 the Tram Project Board? 3 A. Jim was an experienced consultant in tramway operations. 4 Excellent fellow, and he kept us on our feet and his -- 5 his role as kind of one of the lead representatives for 6 Transdev, was to ensure that the design that was 7 emerging and the approach that we were taking was 8 operable because they were going to be operating the 9 railway or the tramway, and it was very important the 10 design decisions that are made don't -- are not made or 11 the value engineering decisions that are made are not 12 made in such a way that the tramway is less efficient to 13 operate. 14 Q. Moving over to the right-hand column, the fourth name 15 down, James Papps, I think he was from Partnerships UK? 16 A. Yes. 17 Q. Do you recall his input into the Tram Project Board 18 being of assistance? 19 A. Not very well. I remember James Stewart. James was 20 a senior guy from PUK. 21 Q. Was the Partnerships UK input generally of assistance to 22 the Tram Project Board? 23 A. Yes. 24 Q. In what way? In what way was it of assistance? 25 A. Again, James, or both James's, had a lot of experience 74 1 through PUK of sponsoring and developing PFI projects. 2 That's what I think they were doing. 3 And they kind of understood risks around -- around 4 capital projects. Very, very definitely had a lot of 5 good experience. 6 Q. If we could look at page 5 of this document, please. 7 These are the minutes of the January meeting. We 8 have already looked at the papers, but these are the 9 minutes. 10 Could you look at heading 3.0 and what's below it. 11 This is dealing with the Project Director Review, yours, 12 and you provided a high level summary of your 13 impressions of the state of the project. It is said: 14 "Overall, most of the issues faced by the project 15 are typical for a project of this size and complexity. 16 Main areas of concerns were outlined." 17 In the following paragraphs. The first is SDS, 18 where it's noted that you said: 19 "Key concerns relate to delivery to programme and 20 quality of the design provided, and these are both 21 recognised as challenging. Key to resolving the ongoing 22 issues is to ensure close working of SDS with all 23 stakeholders (including co-location), setting realistic 24 programme goals and agreement of priorities." 25 You were to prepare a get well plan for the February 75 1 Design Procurement Development Committee and Tram 2 Project Board to achieve material turn-around on current 3 issues. 4 Now, it's interesting that that was the first 5 concern that's noted on the list. Was that the thing 6 that concerned you most greatly? 7 A. I believe it was. I think -- and also the way we were 8 organised in tie, and the fact we didn't have a kind of 9 a owner. We didn't have a chief engineer. 10 Q. That was part of the design issue as well, was it? 11 A. Yes. 12 Q. I mean, you talk there about the need to have realistic 13 programme goals. In terms of the design programme, 14 getting the design in a position to seek tenders during 15 2007, did you see that as realistic? 16 A. Yes. Yes, I did. 17 Q. If we go to look at 3.1.2, the second concern was 18 regarding the SDS high-level onsite management, and we 19 see that Willie Gallagher appraised the Board of the 20 planned visit on 6 February of a senior 21 Parsons Brinckerhoff Board Director who will be 22 challenged with resolving the outstanding management 23 issues. 24 What was the concern of the SDS onsite management? 25 A. I think it was in my statement. There was no vim. 76 1 There was not a huge interest. There was no -- the 2 priority was limited, at PB kind of parent company 3 level. 4 The guy called Mr Hutchinson who was the Project 5 Director for SDS spent more than half his week in 6 Glasgow. He was based at Glasgow. He wasn't actually 7 in Edinburgh with his team. 8 I mean, he was busy doing other stuff and I don't 9 think he had a kind of assertive focus on this project. 10 Speaking to people I said earlier on that 11 I interviewed lots of people and came to a view, and 12 I had spoken to Mr Hutchinson, and I came to the view 13 that it's probably best if we have a new start, and that 14 was one of the reasons why we asked to talk to their 15 senior team. 16 Q. And there was a change in SDS representatives? 17 A. Yes. Steve Reynolds resulted from that. And everything 18 changed from that point. 19 Q. Can we look at page 10 of this, please. If you could 20 enlarge the upper half. This is from your report, the 21 Project Director's Report, from January 2007. 22 We can see 1.4 lists the future key milestones. In 23 respect of design, we've got dates running up until 24 March 2007, but by that time it's imagined that there 25 will be issue of approved for construction drawings for 77 1 a number of elements of the project. Do you see that? 2 A. Yes. 3 Q. And 19 March, the last of the entries there, is that 4 there will be formal issue of detailed design phase to 5 tie? 6 A. Yes. 7 Q. That was just two months hence? 8 A. Yes. 9 Q. Was that, to use a term that you used earlier, 10 a realistic programme? 11 A. I don't have an opinion upon that today. I might have 12 had an opinion on that at the time. I mean, the last 13 one, 19 March, may seem optimistic, but it was for the 14 traction power system. And the traction power system 15 would be required in order for Infracos to bid. So the 16 design parameters for a traction power system can be 17 produced in a couple of weeks. It's the number of 18 trams. It's the journey time. And a lot of that would 19 have been known by then because the route alignment -- 20 the route length was known, and you do some modelling 21 and you work out what the total power requirements are 22 and the space for how many substations. 23 Sufficient enough for Siemens to have priced the 24 traction power. So I possibly would have thought that 25 was okay. 78 1 In terms of the depot earthworks design, I couldn't 2 comment, but again, depot earthworks, it was a big site, 3 and it was basically an excavation, a massive excavation 4 exercise. So that would seem reasonable. 5 I don't -- I can't comment on the traction power 6 equipment and substation equipment specification, but 7 again, Siemens would have their own, or Siemens, or it 8 was Bombardier, would have their own views of the 9 standards. You may not need to specify it in a lot of 10 detail. 11 I think the ones that would possibly cause me 12 concern might be the second one. 13 Q. Construction drawings for section 1a? 14 A. That would be the one that would cause me concern. 15 And I guess the utilities for the first one, 20 March. 16 Q. That would improve -- the second one would entail design 17 being in a largely finalised position for that section 18 of the tramway? 19 A. Yes. 20 CHAIR OF THE INQUIRY: The first one on this seems to relate 21 to the depot utilities. Is that the depot at Gogar? 22 A. Yes, it is, my Lord. Actually, let me just kind of -- 23 if you don't mind, I would like to qualify, because 24 I notice issue approved for construction drawings. 25 Approved for construction, given what we talked about 79 1 before, go on site and do it, I possibly would have had 2 some concerns. 3 What was required for the depot utilities, I can't 4 comment today. 5 MR LAKE: With hindsight -- 6 A. I guess with hindsight it may have seemed ambitious. 7 Q. Could we look at the March meeting, please. It's 8 document reference TRS00004079. 9 A. I see we got the badgers relocated. 10 Q. You see these are the papers from the meeting that was 11 to take place on 20 March 2007. Could you go in that, 12 please, first of all to page 18. 13 We can just see that this is the start of your 14 Monthly Progress Report; is that correct? 15 A. Yes. 16 Q. If we jump forward two pages to page 20, and look at 17 2.3, engineering, and the bullet points underneath it. 18 Under the heading "Design", it says: 19 "Progress has been made in identifying the critical 20 design issues and appropriate ways of achieving 21 resolution of these. In the last period considerable 22 progress has been made with 25 having been closed. Much 23 of this progress is attributable to the critical issues 24 meeting convened on a weekly basis and attended by tie, 25 SDS, CEC and TEL." 80 1 What was this about? Can you explain this? 2 A. This is something that we had to do in order to stop 3 what I call design gridlock. 4 SDS had a programme of design and relied on 5 decisions being made by CEC, sometimes TEL and Transdev, 6 and the design decisions were sometimes interconnected. 7 So if you made a decision on one element of the 8 design, one tramstop, it affected another one. 9 If the decisions were not closed out, or decisions 10 were not made, there was a ripple effect, and what SDS 11 had done, through greater engagement, is produced a map. 12 I don't know who asked for a map, but it was a great 13 idea, and we had a map of all of the areas, the 14 locations where design was effectively gridlocked. 15 And they couldn't move on, which was affecting their 16 ability to deliver the design packages. 17 Appointing David Crawley, his approach was to hold 18 on Fridays almost a design council, if you like, with 19 the parties involved, to get them to go through the 20 issues that needed to be taken one by one, and make 21 decisions. 22 Even if the decisions were sometimes subsequently 23 found to be the wrong decisions, a decision needed to be 24 made in order to unfreeze the gridlock. 25 I thought this was a great approach to dealing with 81 1 this. It was dealing with the matter head on, and the 2 way that he ran it, he sat in the middle. I came to 3 a few of these things, and all the parties that had an 4 interest in the issue that was being discussed -- so it 5 might be a tramstop location, length of trams, 6 whatever -- and he would ask -- a bit like a court, 7 my Lord. He would ask the sponsoring party to make 8 a statement of what they thought the issue was, and what 9 the decision that they were seeking, and then other 10 interested parties and stakeholders would give their 11 view, cc in TEL, and he would make a decision, actually, 12 based on what he heard, and then move on to the next. 13 We reported -- critical issues, we reported the 14 progress of dealing with the critical issues at the Tram 15 Project Board, and we had a metric for dealing with 16 that. It was just a way of seeing how -- I think there 17 were 100 critical issues -- were systematically being 18 dealt with. 19 And it was -- it goes back to the Council's 20 cautiousness on their approach to making decisions, but 21 we had to make a decision on these subjects. 22 Q. And these design reviews, these design councils, seemed 23 to unblock that problem or get rid of the cautiousness, 24 overcome it? 25 A. I believe they did. Whether they caused any other 82 1 problems downstream, I am not absolutely certain, but in 2 terms of unfreezing the design and getting the programme 3 working better again, I think they were undoubtedly 4 a really good thing that we did, and I feel very pleased 5 with what happened. 6 I think -- I know you have met David Crawley. He's 7 absolutely superb leader in that kind of thing. I knew 8 him when he was at London Underground, very senior 9 position at London Underground, and he was absolutely 10 fantastic at that job. 11 Q. Can we go on to look at page 23, still within your 12 report. We will highlight 3.1 and the bullets 13 underneath it. 14 It's under the heading, you can see, or could have 15 seen, it was "Key Issues and Concerns". 3.1 was 16 engineering, and the first matter under design is that: 17 "The programme and deliverables are currently under 18 a detailed review and, until conclusion of these 19 activities, remain an area of concern." 20 Was this a review that you had instigated? 21 A. I believe so. It would have been with David and 22 involving folks from SDS. 23 Q. Is this the exercise you've just been talking about or 24 is this something else? 25 A. No, something else, I believe. 83 1 Q. So what was this review intended to achieve? 2 A. I think we wanted to look at the -- just refresh my 3 memory. What is this part of? Is this the Tram Project 4 Board -- 5 Q. It is part of your report. 6 A. Okay. I believe it was to relook at the design 7 programme and to potentially reshape it to -- to deal 8 with the problems, possibly the critical issues. It 9 might be reconfigure the programme to be more realistic 10 and more deliverable. So instead of being seen to fail 11 every month, based on an old programme and an old way of 12 working, we looked at a new programme for them. 13 I think these two bullets refer to that. 14 Q. Okay. 15 A. Not 100 per cent certain though. 16 Q. If we go and look at page 35, we can see just to 17 identify what we're now going to be looking at, it's 18 once again the Risk Register. 19 If we could go to page, then, 39 within that. Risk 20 280. I'm not sure how readable that is. 21 This is related to the risk of SDS design and their 22 deliverables being below quality levels required or late 23 in production. I think you can read that more clearly? 24 A. Yes. 25 Q. The second of the risk treatments is still 84 1 micromanagement, which we saw before. But it's now been 2 allocated to you, whereas previously it was 3 Geoff Gilbert. Was there a reason why the change had 4 been made to leak that to you? 5 A. I don't understand. I think I was handling the SDS 6 interface. I was grappling with this problem with 7 David Crawley. That micromanagement was from a previous 8 risk report, if you recall. And it might have been 9 changed. Geoff was focusing on other things. That was 10 probably given to me. 11 Q. I think it's the only risk where you're noted as the 12 risk owner? 13 A. Yes. 14 Q. Is that because it was particularly significant or 15 concerning? 16 A. No, I don't think so. I think we were focusing on SDS 17 and SDS performance and performance of their design. We 18 were changing the way of working. 19 I would like to know when this risk mitigation and 20 micromanagement risk mitigation first appeared on the 21 register. It might have been even before I started. 22 I don't know. In which case it's historical. 23 Q. It was certainly there the preceding month. 24 A. Yes. 25 Q. But allocated to Geoff Gilbert. I'm more initially 85 1 concerned with why the change that it be allocated to 2 you? 3 A. I don't know. 4 Q. Previously the upper of the two treatment strategies, 5 identification of key areas, had been green and now it's 6 regraded to amber, meaning it was incomplete. Are you 7 able to comment on why that was? 8 A. Well, presumably because it wasn't going as smoothly. 9 Q. The fact that you were now in terms of -- in charge of 10 micromanagement and that upper area wasn't going 11 smoothly, was this the cause of increasing concern in 12 relation to the deliverability of design? 13 A. I don't understand the question. 14 Q. Was your -- were your concerns in relation to SDS 15 performance increasing? 16 A. At this point I would say -- can you tell me when this 17 relates to? I've got a view. 18 Q. So this is the -- these are the papers for the Tram 19 Project Board meeting that was due to take place and did 20 take place on 20 March 2007? 21 A. Okay. So I'd been there for three months. So I was 22 very worried when I came in, realised there was a lot to 23 do. I started implementing change. I gained more 24 confidence. I suppose -- I suppose my level of concern 25 was improving, but there may have been information that 86 1 was revealed to me that caused me to be more concerned 2 because we were -- SDS were still not achieving their 3 programme dates. There might have been other things 4 happening. I don't know the detail, to be frank with 5 you. 6 Q. If we look at the next month's -- papers for the next 7 month, please. If we could look at document 8 CEC00688584. 9 We can see this is the pack of papers for the 10 meeting to take place on 19 April 2007. Could we go to 11 page 5, please. 12 We can see these are the minutes of the previous 13 meeting we have just been considering, 20 March. Do you 14 see that? 15 A. Yes. 16 Q. If we could just highlight the -- over the page to 17 page 6, and highlight paragraph 3.1. This is in 18 relation to MUDFA works: 19 "Willie Gallagher provided an update on the recent 20 MUDFA sub-committee and general progress on the MUDFA 21 workstream. He confirmed that the team was settling in 22 and good progress was made in general, however, key 23 concerns remained regarding the turn-around time of 24 designs by the utilities." 25 Could you explain -- do you recall what that concern 87 1 was as to the turnaround time of designs by the 2 utilities? 3 A. What I referred to earlier on. We relied on 4 co-operation from the technical teams at utility firms 5 and they were -- they were not always supportive or had 6 resources available. 7 So we would send designs to them or request 8 information from them, and they were slow to respond. 9 That was all. And we relied on that in order to 10 complete the designs and to have them signed off by 11 utilities. 12 Q. Is that something you encounter in other projects in the 13 same sort of way? 14 A. I don't have much personal experience of that particular 15 problem, but I would suggest it probably is. 16 Q. Look to your report, please, on page 10. If we enlarge 17 the upper half of the page. 18 You note there that: 19 "SDS design is proceeding closely to the recently 20 agreed revised programme. Preliminary design has now 21 been accepted and detailed design is approximately 22 50% complete on average." 23 That would presumably be information supplied to you 24 by the SDS contractors? 25 A. I don't know where that would have come from. Somebody 88 1 would have made a judgement. Whether that was David 2 talking to SDS, looking at the big sectional areas, 3 I don't know what that relates to. 4 Q. This is now the second half of April 2007. We saw the 5 Draft Final Business Case saying that detailed design 6 would be 100 per cent complete at contract award, which 7 was planned for the end of the year. 8 A. Mm-hm. 9 Q. The fact that the detailed design was only 50 per cent 10 complete, did you think it was going to be possible to 11 award the contract on schedule? 12 A. I -- I didn't have a problem with this. I didn't think 13 this would prevent us from doing that. 14 Q. You thought the other 50 per cent of design should be 15 capable of completion in the seven months which 16 followed? 17 A. Sufficient enough to enable the contract to be awarded. 18 Yes. 19 Q. If we go then, please, to page 23. 20 A. Let's be clear, there were many different stages to the 21 design. There was a preliminary design, and what amount 22 of design did the contractors need in order to price it 23 reasonably accurately is the kind of -- the big 24 question. 25 And I thought, based on my experience, the amount of 89 1 work that had been done for this stage of the project, 2 it was quite mature. But this was a different 3 procurement model, and I think therein lies the issue. 4 So on Nottingham and Croydon, the level of design 5 that was done at this stage, at the point of 6 procurement, was actually much lower, but the design 7 responsibility was the turnkey consortium that went on 8 to build it. 9 Because tie were doing the design, it had to be much 10 more complete. And I didn't -- it didn't register. 11 Hindsight is a wonderful thing. I didn't think at the 12 time we couldn't achieve a design that would prevent us 13 from closing the contract. 14 I think I knew that there were challenges all the 15 way through, without a doubt. 16 Q. I said go to page 23. Could we actually go to page 22, 17 the previous page. We can see this is still part of 18 your report, but is now considering the risk report and 19 primary risk register. 20 You have selected certain risks put forward here. 21 The text above says: 22 "Details of the red status risks treatments are set 23 out in the Risk Report. The significant items and the 24 proposed recovery plans are:-" 25 You set out just some risks. How did you decide 90 1 which risks to bring to the attention of the Tram 2 Project Board in your report? 3 A. I presumably take -- we take the ratings based on 4 probability and impact, and select the top ten risks. 5 So if it's got a high probability and/or a high impact, 6 the Board are going to be very interested in it. So the 7 first one, immunisation, was a thing we talked a lot 8 about. So was Network Rail. 9 Q. The second thing there, going back to the issue of the 10 location of the utilities, it is noted that it's behind 11 programme; as the strategy was to get the MUDFA works 12 done before the infrastructure works, was that a concern 13 to you? 14 A. Yes, it would have been a concern. 15 Q. Did you see there was going to a problem there in 16 getting that achieved? 17 A. I don't recall. I don't -- I don't have a view. I can 18 see we're back to that workshop that was planned with 19 the utility companies, MUDFA and tie. It was 20 certainly -- it was certainly at the forefront of all of 21 the tram project's concerns, along with design. There 22 was nothing unusual -- that is what we were partly 23 doing. We were managing design. We were managing the 24 start of the advanced works, the excavation of the 25 depot, and we were managing the contract for utility 91 1 diversions. They were the sole focus and obviously with 2 the procurement process going on in parallel. 3 So these were big areas, and of course we would have 4 been concerned. 5 Q. We've seen reference within these Tram Project Board 6 papers to concerns as to design and concern as to 7 utilities. Were those two concerns having any impact at 8 all at that time on the work towards getting the Infraco 9 contract in place? 10 A. The design would have had an impact because there might 11 have been certain critical elements of the design in the 12 information contained within that design, specification 13 and data, that would -- would have affected the 14 Infraco's ability to price -- to price the design, the 15 construction. 16 In terms of utilities, the timing of the utilities 17 and the completion of the utilities programme would have 18 had an impact on their phasing, the construction phasing 19 of the work. So that would have had an effect. 20 But it might just be about reprioritisation which 21 sections they would do first. 22 Q. Was there any suggestion as to which parts of the 23 utilities would be done first or in what order it would 24 be done? 25 A. Of course. Of course there would be. We were 92 1 foolish -- we'd be foolish not to do that. 2 Q. Was it clear that some areas were going to be more 3 difficult than others? 4 A. I think it was anticipated that some areas were going to 5 be more challenging than others. I don't think at the 6 outset we were necessarily 100 per cent sure which ones 7 they would be. 8 I think some folk had a pretty good idea. 9 Yes, the project management team plan these things 10 carefully. Taking advice and talking to the utility 11 companies and the contractors. 12 But, you know, as I keep saying, these projects are 13 complicated. When you start digging up the road and you 14 find out there's a whole lot more services than they 15 anticipated and they're extremely complicated to move, 16 it becomes challenging. 17 Q. I would like to look at a different letter now in 18 relation to designs. Could you look, please, at 19 production CEC01606237. 20 We can see the lower half of the page is an email 21 from Jim Harries of Transdev, who we've already referred 22 to, to various people at tie, including you, and it's 23 dated 25 April 2007? 24 A. Yes. 25 Q. You see under the heading "Fellow team members", he 93 1 says: 2 "We have now concluded our review of the Infraco 3 4th Information Release on 30 March (or 5th April?), 4 (with the exception of Part 3), that has been issued to 5 the Infraco bidders. This review is presented here. 6 We are concerned that, yet again, very poor quality 7 information has been released to Infraco bidders with 8 insufficient checks prior to its release." 9 He goes on to set out the detail of that over the 10 next few pages. 11 Was that this a concern, that the information that 12 was being released to the bidders to inform them of what 13 was required, was substandard? 14 A. It -- receiving this email, because I do remember it, 15 was a concern. No question it was a concern. 16 I said to you earlier, Jim Harries is an expert. 17 He's a good guy, and he would have had the best 18 interests of tie at the centre of his review work. 19 He was very thorough, and very critical of what we 20 were doing. 21 Q. He was thorough and very concerned about what was being 22 released? 23 A. Yes. 24 Q. Did that not indicate a danger to the successful 25 procurement of the Infraco contract? 94 1 A. I think the Infraco bidders were informed at the outset 2 that we were doing the design in parallel with the 3 procurement. So it wasn't following a conventional 4 route, and that the information would change as we 5 progressed through the procurement timescale. 6 And some of it would be a poorer quality than other 7 bids that they'd worked on. We said this to -- we said 8 this to the bidders and they accepted it. I mean, that 9 was how it was. 10 You can go out to tender with very limited 11 information and ask bidders to put a price to it. We 12 were of the view it was better to give them kind of 13 warts and all. This is where we were. It's not 14 perfect. The Employer's Requirements were not 15 cross-referenced and there were quite a few, you know, 16 issues associated with them, but mostly the -- it would 17 enable bidders to price against the documentation we 18 were presenting. 19 But we said: this is work in progress. And it was 20 different to a Nottingham or a Croydon or 21 a Midland Metro. Very different. 22 Q. You said that before, because in those projects the 23 contractor was going to carry out the design and the 24 construction. So the quality of design information was 25 possibly less relevant for pricing? 95 1 A. Yes. 2 Q. For the contractors? 3 A. Yes. 4 Q. But here, where the contractors were to be given 5 a design and told to price it, the quality of that 6 design information was critical, was it not, to the 7 quality of the bids you would get? 8 A. It would have a bearing on the accuracy of their 9 estimates, and the amount of risk that they would have 10 included in their estimates, for sure. But you can -- 11 you know, bidders -- I said, and I have worked on 12 projects where the information has been -- has been far 13 scanter than it was here. Almost here there was too 14 much information. And it's possibly not well -- as 15 well-organised as it might have been. 16 But we took the decision to provide the information 17 to the bidders at this time in order that they could get 18 on and get -- keep with our procurement programme. 19 Geoff and I and other people made the decision to do so. 20 But I know Jim was not content with it. Jim was an 21 operator. He wanted to look at things perfectly. It's 22 not perfect. The model was not perfect and we could 23 never achieve that. But this didn't prevent bidders 24 from pricing it at all. 25 If you go into the detail, you'll see some of the 96 1 areas that they were concerned about, and they would not 2 have necessarily prevented the bidders from moving their 3 bids further on. 4 But this did concern me because it was quite 5 a damning email. 6 Q. It reflected badly on the SDS work that had been carried 7 out? 8 A. And also that of tie. 9 Q. Can we look, please, at the papers for the May meeting, 10 please. The document reference is CEC01015822. We can 11 see that's the front page of the papers for the meeting 12 of 24 May. Could we go to page 5. 13 We can see this is the minutes of the meeting that 14 took place on 19 April. Could we go over to the 15 following page, and highlight paragraph 5.4. I think 16 for fairness, could we highlight 5.3 and 5.4. In 5.3 17 you've got the heading "Engineering - programme", and at 18 the end of that, you confirm that the progress is 19 broadly in line with the revised engineering programme: 20 "This was currently being aligned with the overall 21 project programme and a detailed update would be 22 provided in May." 23 Was that revised programme being talked about there 24 the one we saw referred to in earlier minutes that was 25 taking place? 97 1 A. I think it must have been. 2 Q. If we look at 5.4: 3 "AH ..." 4 Who I think by now is Andrew Holmes of the Council: 5 "... stated that in light of SDS's previous 6 performance, he was concerned how the project could be 7 confident that the revised programme would be met. MC 8 [you] explained that he shared the concern to some 9 extent, but that the project team were learning from 10 previous shortcomings which included being able to 11 anticipate CEC requirements. MC assured the board that 12 the revised programme would be realistic and fully 13 underwritten by SDS at senior level." 14 A. Mm-hm. 15 Q. Again, this is an indication of concerns by other people 16 on the Tram Project Board as to the deliverables of the 17 programme for design? 18 A. Yes, Andrew Holmes, you know, it -- that is what he did. 19 He was always concerned. And not surprising. You know, 20 he is the owner, the sponsor, and he wants to continue 21 to register any worries that he might have. 22 But here we are -- I see this as -- these two points 23 as being very positive actually. I saw them at the time 24 as being very positive. With hindsight maybe not so 25 much. 98 1 But we changed the reporting role and time base for 2 hours billed, which is one way of doing, to being based 3 on deliverables, and we had a kind of dashboard metric 4 for doing that. That was an improvement. And we -- 5 collaborating a lot more powerfully together, and 6 I don't know whether this was before or after we'd tried 7 to relocate the Council into the engineering team. 8 And as I say, I had concerns, of course I did, 9 because we were not out of the woods, and this was 10 partly an engineering management project at this stage, 11 as well as a procurement management project. 12 So this is always going to be there. 13 But the last point I made, and I remember doing this 14 with the senior folks from SDS, from -- with 15 Steve Reynolds and Jason Chandler, that we do buy into 16 this new way of working together. 17 And it was the right thing to do. 18 Q. Could you look at page 8 of this, please. Could we 19 highlight paragraph 5.18. You see here: 20 "The risk register was taken as read." 21 Was that normally what happened, it was simply taken 22 as read, rather than having a discussion of it? 23 A. No. 24 Q. Because that's really not an evaluation of the risks? 25 A. No, I suspect we didn't have time. 99 1 Q. Then it goes on to say that DJM, Mr Mackay: 2 "... raised a concern about the level of risk 3 reporting and discussion at the Tram Project Board." 4 What was his concern? Can you remember? Too much? 5 Too little? 6 A. I think there may have been -- his concern may have 7 been -- we did spend a lot of time, and there was -- 8 generally speaking there was -- I was quite pleased with 9 the risk management process. Again, with hindsight that 10 might seem a fairly hollow thing to say, but I was 11 content that it was being dealt with in the right way. 12 It's a standing agenda item, and it needs to have 13 the right level of priority. 14 Q. Continuing -- 15 A. I can't comment on -- on David Mackay's comments because 16 I can't remember why he said that at the time. 17 Q. If you read on from the second line, it's recorded that 18 the Board agreed that detailed discussions should be 19 held at the Design Procurement and Development 20 sub-committee or DPD. 21 That, I think earlier I in error referred to it as 22 being passed over to the Legal Affairs Committee. This 23 is passing over consideration of risk to a completely 24 different body, a sub-committee, isn't it? 25 A. If you look at the governance of the tram project, it 100 1 was a bit bureaucratic, and the DPD, and I made this 2 point, and I tried to try and reduce the number of 3 committees, but the DPD was fundamentally the place 4 where -- it was a sub-committee to the Tram Project 5 Board, where all this stuff should have been dealt with. 6 It was the right place for it to be dealt with. 7 Risk should still be reported at a high level into the 8 Tram Project Board. I'm not saying it shouldn't. But 9 the -- the discussion should happen at this other 10 committee. Many of the same people went to both, 11 actually. 12 I don't read anything of concern into this note at 13 all. 14 Q. Although people went to both, what this as a decision 15 is -- to an extent demote consideration of risk from the 16 Tram Project Board to one of its sub-committees? 17 A. I don't agree with that at all. 18 Q. Then it goes on to note that you confirmed: 19 "... that the risk register was a reporting tool 20 only and key risk issues were being covered under the 21 relevant DPD and TPB agenda items and papers." 22 What did you mean by that? 23 A. Well, the risk register is a tool. It's a way of 24 describing and seeking to quantify risks in order to 25 filter them and to prioritise them. It is a reporting 101 1 tool. You don't need to have a focus on the register. 2 We know what the big issues are. They were design, they 3 were MUDFA, procurement. We knew what they were, and 4 they were the subject of the agenda. They were 5 invariably agenda items anyway. 6 Substantive agenda items. The risk register was -- 7 is just a reporting tool and a way of capturing all the 8 risks, high, medium and low risks. I can't remember how 9 many there were on there. It might have been 100, 200 10 risks on there. It is not untypical. It's a management 11 tool for kind of keeping an eye on all this stuff that 12 happens on complicated projects. 13 Q. We can jump now to the July meeting. Document reference 14 CEC01565576. 15 You can see these are the papers for the meeting on 16 12 July, and if we go to page 5 of it, you see the 17 minutes of the previous meeting, the one on 18 14 June 2007; do you see that? 19 A. Yes. 20 Q. If you look at the following page, could we enlarge 21 paragraph 3.5: 22 "MC provided an update on procurement. He explained 23 that the Infraco bidders were concerned about the 24 political uncertainty [following the election] 25 and one in particular was increasing the pressure 102 1 for a decision to move to a preferred bidder." 2 Were tie keen to move to appointment of a preferred 3 bidder at this stage, July? 4 A. No. 5 Q. Why not? 6 A. This is something I do have a lot of experience of, 7 having worked on bids during a lot of my career. 8 It goes like this. As soon as you appoint 9 a preferred bidder, the power balance changes between 10 the purchaser and the seller. 11 Ideally, you should award preferred bidder and sign 12 the contract on the same day. I have experience of 13 working for the Department for Transport, and that's 14 what we did on a rail franchise that I was involved in, 15 because it gives bidders minimum time to take any 16 advantage of the time period between being told that 17 they are selected and signing the contract. 18 The reason why bidders -- and bidders' objectives, 19 and I would have possibly done the same had I been in 20 their shoes, is to get them to move to preferred bidder 21 as soon as possible, because they are spending money and 22 if you're not the winning bidder, you want to stop 23 spending money. If you are the preferred bidder, you 24 want to start the process that I have just described, 25 seeking ways in which to manipulate the final contract 103 1 to your benefit, put the prices up, and they did that in 2 our case, and the longer the distance, time distance 3 between preferred bidder and contract signature, makes 4 this more difficult. 5 I know Geoff Gilbert, who led the commercial for me, 6 is an experienced man in this respect. He completely 7 understands it, and he would have been very reluctant to 8 award preferred bidder sooner. But bidders were faced 9 with the news writ large, as indeed the whole of tie 10 were. It was a very interesting -- it was interesting 11 for me, but challenging for everybody at times, the SNP 12 were in power, completely unexpected, I think I'm 13 allowed to say that, and there was a real threat that 14 the project was going to be cancelled, and you would 15 want -- you would get a letter from -- a call from 16 bidders saying: what's happening; we need to know; we 17 have people that are working on this that are mobilised 18 that are costing us money; tell us whether it's going 19 ahead or not. 20 Really, real uncertain times, and I think the 21 political risk in bidders' own risk registers is always 22 one of the largest if there's no certainty. 23 The development of tramways in the UK has a poor 24 record. Leeds was cancelled. South Hampshire was 25 cancelled. Merseyside was cancelled. And here we have 104 1 Edinburgh. So huge uncertainties, and I'm not surprised 2 these guys were putting pressure on us. 3 But we left it as long as we could. 4 Q. In fact, the intention was that the contract would be 5 signed in December 2007 or January 2008, and preferred 6 bidder status was conferred in September 2007? 7 A. Mm-hm. 8 Q. Did you think that was the right time to do it? 9 A. I think we made a judgement. It's far easier to work 10 with one bidder than it is with two bidders, even though 11 you don't have the competitive pressure. It's 12 unreasonable to work with one bidder on some of the 13 areas where we were seeking an improvement. So value 14 engineering is possibly the best example. 15 Working on value engineering initiatives with one 16 bidder is far easier than doing it with both. We did 17 actually do it to a certain extent with both bidders. 18 And also to enable that bidder to get itself in 19 a position to start the work. 20 Q. Would you have preferred to have left it to the same 21 day, as you say, in the past, the same day as contract 22 signature? 23 A. It wouldn't have been possible. There is utterly no way 24 it would have been possible to do that. 25 Q. Do you think there was -- 105 1 A. Because there were so many -- and I keep saying, this is 2 quite usual. It's very unusual to sign on the same day 3 that your preferred bidder -- highly unusual. And it 4 requires an enormous effort on behalf of the procuring 5 authority. You need a big legal team to capture 6 everything in the contract, and you need -- you need to 7 have had all your negotiations done with both bidders 8 fairly securely. 9 Because design was not finished, and was never going 10 to be 100 per cent totally finished, it would be 11 unreasonable to have tried to do that in this case. 12 Q. Could I ask you to look at a set of emails now. The 13 document reference is TIE00035918. 14 It's an email chain, and I think it makes sense to 15 start on the second page of this, in the lower half of 16 the page. 17 We can see it is there's an email from 18 Steve Reynolds at Parsons Brinckerhoff to you dated 19 24 July 2007. Just taking the first sentence, he tells 20 you: 21 "I have just been told that the IFC drawings..." 22 That's the intended for construction drawings." 23 "... due to be delivered for Section 1B on 20 July 24 were not delivered. I understand that there may still 25 be some issues to be resolved regarding Statutory 106 1 Utility Company input, but the fact that Halcrow failed 2 to alert us to the fact that this date would not be met 3 is completely unacceptable." 4 Do you recall being told that in July? 5 A. Yes, I think so, yes. 6 Q. If we go to the upper half of the page, we can see your 7 response. The same day, you say: 8 "Steve, needless to say I'm very disappointed - 9 particularly after the assurance that both you and Greg 10 provided on 27 June. I raised this milestone last 11 Friday first thing with Jason at the Critical Issues 12 Meeting where there was a Halcrow person present. 13 Neither Jason nor Halcrow gave me any hint that the 14 milestone would not be achieved. So much for 15 micro-management of Halcrow." 16 So it sounds like there's been an attempt to try and 17 use the micro-management we saw in the risk register. 18 Promises had been made, but then they had not been 19 fulfilled? 20 A. Yes. I mean, this was PB micro-managing Halcrow, their 21 subcontractor to do that. I think we were surprised. 22 You know, the fact that Greg Ayres, who was the boss 23 of -- he was in charge of PB UK. It was, yes. This 24 kind of thing happens, though, on projects. 25 Q. You say you were disappointed in that email, but were 107 1 you also worried that SDS, both of the designers 2 together, had failed once again to provide what they 3 said they would? 4 A. Yes, I would have done. I would have been concerned and 5 a bit worried, definitely. 6 Q. Go to the previous page. In the foot of the page we 7 will see Willie Gallagher's response to this. 8 We can see this is also on 24 July in the evening. 9 He says: 10 "I only became aware of this tonight after briefing 11 the Press about the MUDFA Programme going forward. To 12 say I was astonished that the IFC for Leith Walk … has not 13 arrived is an understatement. Moreover, I am really 14 worried - and I am seriously considering pulling the MUDFA 15 Programme - we clearly would be exposed if we run into 16 major issues and it was discovered that the IFC had not 17 been delivered and analysed. The reputation of my 18 Company and the Project is at stake. We just cannot 19 continue like this." 20 He appears to have had a very strong reaction there? 21 A. Yes. This is very -- very good Willie narrative here. 22 Q. He was contemplating it with sufficient seriousness to 23 contemplate pulling the MUDFA programme? 24 A. Yes. 25 Q. Which would have had a knock-on effect for the Infraco 108 1 programme, wouldn't it? 2 A. Well, it would have -- it would have stymied the whole 3 project. 4 Q. So that has obviously given some indication of the 5 seriousness with which he regarded it? 6 A. Yes. I think Willie -- Willie was good at this, and 7 I think he and I worked well together, in that he was 8 sometimes seen as the guy that was, you know, making his 9 opinion clearly felt in a strong way. 10 I don't know why he said that. 11 Q. You didn't share his concerns? 12 A. We will have discussed it. He was responding, 13 and I suspect he and I would have had a chat about it. 14 We would quite often do this. Possibly on the phone if 15 he wasn't in. And we would talk about a tactic to give 16 PB a sharp wake-up call. 17 There's more than one occasion when we had done 18 this, where he sends a really, really tough letter, 19 saying -- 20 Q. Were you concerned that six months after you'd arrived, 21 you were being met with a problem like this in relation 22 to delivery of design? 23 A. No. This -- this happens. I tell you, this happens on 24 all projects. Possibly there was more of it happening 25 on this project because of its complexity and the 109 1 idealised structure which we talked about before. But 2 this happens, and then I would say, and probably not 3 unsurprisingly, you spend all your questions focusing on 4 the bad stuff -- I know you want to find out why it went 5 wrong. So you might focus on the bad stuff, but there 6 was a lot of good stuff in Edinburgh tram, and my 7 leadership of the project team during that period. 8 This is -- plenty of examples like this, which I'm 9 sure you will bring out and put in front of me. Yes, at 10 the time I was very concerned and Willie was concerned. 11 He would shout, and the way -- this is how we dealt with 12 it. We kind of -- sort of made statements like that. 13 Some of it is a kind of more about demeanour and 14 threatening, to gain an effect from PB. 15 We felt we'd been let down, I have to say. This 16 particular one I was -- I was very upset. 17 Q. Could we look, please, at the next pack of papers for 18 a Project Board meeting. It's document CEC01018359. 19 We can see here the front page of the papers for 20 a meeting on 9 August. Could we go to page 5. These 21 are the minutes of a meeting that took place on 12 July. 22 Could we enlarge paragraph 3.2 at the foot of the page. 23 We have got that Willie Gallagher explained that SDS 24 seem to be making progress in delivering the required 25 design: 110 1 "However, he highlighted that a line on the design 2 may have to be drawn prior to full completion to allow 3 Infraco pricing and VE savings to be firmed up." 4 What did you take it he meant when he said a line on 5 the design may have to be drawn? 6 A. I think it's -- we needed to freeze where we were up to 7 in order to allow the Infraco bidders to both price 8 against a reference point. So that we could make our 9 decision. 10 Q. Obviously if you stopped further design, it would give 11 the contractor something to price, but that wasn't the 12 final design. So you would know that the design would 13 carry on developing after that -- 14 A. Yes. Well, the point I made earlier. If you considered 15 that you wanted to go ahead with one bidder to work on, 16 for example, the value engineering savings and 17 optimisation, then in order to bring the competition to 18 an end in the kind of final bid, you needed to have 19 a freeze, so that the competition was deemed to be fair. 20 So both bidders' price on that frozen design, that 21 line, I think. You make your decision, and then work 22 with one bidder to -- on the VE savings. 23 I think that's what that relates to. Without 24 looking at 5.12 and 7.2, I probably can't comment. 25 Q. We can come to those in a moment. But we saw from 111 1 looking at the Draft Final Business Case the intention 2 was essentially to have a final design priced by the 3 contractor, and now it's for the first time seems to be 4 expressly acknowledged that it's going to be a non-final 5 design will be priced by the contractor; is that fair? 6 A. I would agree with you. 7 Q. Was there a discussion that took place as to -- firstly, 8 was that notified as far as you are aware to the 9 Council, that there was a change in approach from this 10 time on? 11 A. I suppose it's a change in the degree of the approach. 12 Council would be fully sighted on everything that we 13 were doing. They went to all the project boards. They 14 knew what was happening. They knew that the design was 15 not complete. They knew that the DBFC was a long time 16 ago. We were moving on. We were going for the FBC. 17 Q. We can see from the upper half of the page that 18 Andrew Holmes who was from the Council was present at 19 the meeting where this was being discussed? 20 A. Yes. 21 Q. It's a long time ago, can you recall whether he had any 22 input into this change? 23 A. I wouldn't have thought so, but like I say, he should 24 have been aware of it. 25 It's a question of degree. 112 1 It's not final design completed 100 per cent versus 2 incomplete. It's a question of degree. 3 Q. If we look over the page -- 4 A. And -- 5 Q. Pardon me. I interrupted you. 6 A. And I kind of, with respect, my Lord, I think sometimes 7 we become slaves to semantics about what is final 8 design, what is 100 per cent design. I don't think it 9 was intended quite this way. 10 Q. If we go on to page 7, we can see there's reference to 11 paragraph 5.6, if we can enlarge that. We can see it's 12 noted there that: 13 "It was confirmed that the new programme took 14 account of a revised programme for delivery of designs. 15 Price critical items would be provided to the Infraco 16 bidders to allow sufficiently firm prices to be 17 developed. MC highlighted that this process provides 18 more detail to the bidders than they would normally 19 expect." 20 Are you referring to the other projects that you'd 21 been involved in? 22 A. Yes. 23 Q. Of course those projects might be one where the 24 contractor was going to carry out the design; is that 25 not the case? 113 1 A. Yes. Yes, absolutely. 2 Q. So you are not comparing like with like really there? 3 A. I think in a normal contract they would have had less 4 information, but been able to develop a design for the 5 purposes of their bid. 6 Here they're having to live with the design as tie 7 and SDS had developed it. And different approach. 8 Q. You're talking there about delivering designs for price 9 critical area, price critical items, and this is in the 10 meetings in July. You said before it was intended that 11 preferred bidder would be appointed in September. That 12 was leaving very little time for delivery and pricing of 13 these items, wasn't it? 14 A. Well, from July to September? 15 Q. Yes. 16 A. They'd been bidding since before Christmas. They had 17 plenty of time. Bidders do it. Bidders turn round bids 18 with -- like I say, very little technical information in 19 a short space of time. This is plenty of time. 20 Q. If we look at page 10, and the upper half of the page, 21 this is your report to the Tram Project Board. The 22 first thing is the heading -- is the update on the 23 previous period. You've got delivery MUDFA, and in 24 relation to that area, the second paragraph is: 25 "Designs due from SDS in the period were not 114 1 delivered to schedule. The impact of the delays is 2 being managed carefully to ensure works can start in the 3 following period as per the plan." 4 This seems to be just continuing a theme of constant 5 delay in the provision of MUDFA designs by SDS? 6 A. I might agree with you. You're focusing on these -- 7 when you're focusing on these bad parts. 8 Q. Yes. 9 A. Yes. 10 Q. But there does, when you read through these now, seem to 11 be a pattern emerges of almost month-on-month concerns 12 about delivery of designs and various measures are being 13 tried, but they're still carrying on late, month after 14 month? 15 A. No, I would say it was clearly different to when 16 I arrived at the project. It was a challenging -- it 17 was a challenging project, and the model was idealised, 18 and we were trying to make the best of that with the 19 teams that we had in place. 20 We faithfully reported our progress, and, yes, they 21 were always a bit behind the curve. And yes, it did 22 affect the start-up of the MUDFA works. 23 And could we have -- could we have managed it 24 differently, better? Possibly, with hindsight. 25 I certainly think the effort that went into the MUDFA 115 1 designs, possibly before I joined, could have been 2 improved because there was a -- you know, engagement 3 with the utilities and ensuring that if Halcrow were to 4 be subcontractor, I don't know whether they were always 5 planning to be subcontractor, or whether it was 6 something that PB deployed because they didn't have 7 sufficient resource to get it finished. But, you know, 8 that decision and engagement with Halcrow was weak. 9 Q. You said there with hindsight it might have been done 10 differently. Accepting you do have hindsight, how would 11 you have done it differently? 12 A. In what aspect particularly do you want me to talk 13 about? 14 Q. Well, I'm trying -- exactly the context you put the 15 question. 16 A. With hindsight, I probably would have tried to wrap the 17 utilities into the Infraco contract. 18 Q. It was discussing the fact that designs were late, that 19 affected the start of the MUDFA works. You said: could 20 we have managed it, which I think is the design 21 delivery, better. You said: 22 "Possibly, with hindsight." 23 So how could you have managed the design delivery 24 better? 25 A. We should have scrutinised PB's appointment of Halcrow, 116 1 whenever that happened. I don't know when it happened. 2 And ensured that Halcrow were properly resourced and had 3 this as a top priority. 4 We should have ensured that PB and Halcrow were 5 engaged with the SUCs. And we should have been on the 6 front foot more proactive a long time before. Allowing 7 just enough time is not enough. You need to start much 8 earlier on. 9 Q. What about the designs in relation to the tram project 10 itself, rather than MUDFA? How with hindsight would you 11 manage that differently? 12 A. Sorry, repeat that again. 13 Q. What about the tram project itself, the infrastructure 14 works? With hindsight, how might they have been managed 15 differently? 16 A. I don't think there could have been a lot more that we 17 could have done whilst I was there. With hindsight, 18 looking back, I suggest that in the early stages of the 19 SDA contract -- I think this is well known -- PB were 20 not well resourced. They were slow to get started. And 21 we should have been on that and dealing with that 22 upfront. 23 I think some of the emerging design problems were 24 a long time in the making, and possibly being more 25 proactive, they may not have been as difficult to deal 117 1 with, and we may not have been playing catchup as much 2 as we were doing whilst I was running the project. 3 MR LAKE: My Lord, I'm going to a different part of the 4 papers. 5 CHAIR OF THE INQUIRY: We will adjourn for lunch and resume 6 again at 2.10. 7 A. Thank you. 8 (1.03 pm) 9 (The short adjournment) 10 (2.10 pm) 11 CHAIR OF THE INQUIRY: Good afternoon. You're still under 12 oath, Mr Crosse. 13 A. Of course. 14 MR LAKE: My Lord, Mr Crosse, could we look at a new 15 document, please. It's reference CEC01357124. We can 16 see we're now looking at the papers for the Tram Project 17 Board meeting on 31 October 2007. 18 If we look at page 5 we can see the minutes of the 19 Tram Project Board meeting of 26 September 2007. Have 20 you got that? 21 A. Yes. 22 Q. Then if you look on two pages to page 7, and we enlarge 23 the upper half of the page, we can see item 3.16. This 24 is again noting the key issue for the MUDFA works are 25 the delivery of the IFC drawings to programme. 118 1 A. Yes. 2 Q. Then 3.18: 3 "AH [Andrew Holmes] questioned when the more 4 difficult sections for utility diversions would be 5 tackled." 6 How had it come to be the case that the more 7 straightforward or less difficult sections were the only 8 ones done up to that time? 9 A. I suspect it's because the more difficult sections were 10 taking longer to complete the designs because they were 11 more complicated. Possibly because the SUCs were not as 12 forthcoming. I don't fully know why. 13 Q. In item 3.20 we see that you, MC: 14 "... highlighted that the current progress showed 15 a good correlation to the approved V17 programme. He 16 pointed out that the current shortfall related to 26 17 packages and SDS had produced approximately 58%- 18 60% of the detailed design." 19 Was that something that the Tram Project Board had 20 an interest in knowing what proportion of the detailed 21 design had been provided from month to month? 22 A. Yes, of course. As I said before, this was the very 23 stuff that we were mostly managing and the Tram Project 24 Board is the principal reporting organ. So this stuff 25 is going to be in every single month. And generally the 119 1 focus of management boards is to deal with problems and 2 concerns, and this is in every month. Of course it is. 3 It doesn't report the good news, unfortunately. 4 Q. I understand. 5 Paragraph 3.22: 6 "Andrew Holmes raised concerns that the programme 7 assumed that SDS would get designs right first time and 8 what the impact on the CEC review would be. MC pointed 9 out that the programme review accepted the technical and 10 prior approval timescale and had been developed with 11 input from CEC." 12 So is that in short saying to him that the Council 13 had bought in to having very little time for design 14 review? 15 A. To some extent, you're correct. 16 Q. Only to some extent? 17 A. Well, I don't know what was quite behind that. In fact, 18 could you just raise the document up a little, please? 19 I can't see the bottom of it. That's better. 20 Q. The point that -- 21 A. CEC were certainly involved in the development of the 22 new programme earlier in the year, and would know about 23 the approvals timescales and that there was limited time 24 for rework. 25 Q. He was right to say that the programme assumed that the 120 1 design would be right first time. There was no slack or 2 float built into the programme by that time? 3 A. As a generality, he's probably correct. But the 4 assumption was that CEC had been involved in the design 5 development process. There was close collaboration and 6 therefore CEC -- there should be no surprises, that's 7 the point, by the time it gets to this final stage. 8 Q. Then if we go forward to page 10, we can see another set 9 of minutes, this of a joint meeting of the tie board, 10 the Tram Project Board and the Legal Affairs Committee, 11 of 15 October 2011. 12 If we go to what is on page 11, the following page, 13 item 3.1, is that: 14 "MC/GG presented the progress made in procuring the 15 Infraco Preferred Bidder. The boards were advised that 16 a selection had been made and that the respective 17 bidders would be advised of this selection early in the 18 week commencing 22 October, subject to finalisation of 19 a number of contractual issues and signing of the draft 20 deals by 19 October." 21 We have just seen that the detailed design was noted 22 in the minutes a little earlier as being something 58 to 23 60 per cent completed. Had there been difficulty in 24 securing a preferred bidder with the design only at that 25 stage of readiness? 121 1 A. I don't think so. 2 Q. If you look at item 3.3, we see: 3 "KH [Kenneth Hogg] questioned what percentage of SDS 4 design had informed the bidders' price. GG stated that 5 the pricing was primarily based on the preliminary 6 design and included approximately 30% of 7 provisional sums, mainly for structures and highways. 8 These were the key price-critical items as the bidders 9 were able to price other items without detailed design. 10 However, certain price-critical design items had been 11 provided to the bidders as part of the negotiation 12 process." 13 So that's indicating that the preferred bidder had 14 been appointed and they have priced solely on the basis 15 of the preliminary designs rather than the detailed 16 designs. 17 A. It would appear that's the case, from that statement. 18 But there were other matters that were provided, 19 information and data that would have been given to 20 bidders. 21 Q. Mm-hm. It notes that certain price design -- price 22 critical design items had been provided, but also that 23 there's approximately 30 per cent provisional sums in 24 the bids. 25 A. Yes. 122 1 CHAIR OF THE INQUIRY: Is that not to the bidders in plural? 2 MR LAKE: Bidders plural, my Lord. 3 To have that extent of provisional sums, did that 4 make it difficult to evaluate the respective bids 5 because you wouldn't know which way they would go on the 6 provisional sums? 7 A. If both bidders -- both bidders receive the same 8 information which they would have done, then the 9 competition process would make that evaluation. It 10 would be fair. 11 Q. It was fair to them, but what they had given back to you 12 contained provisional sums which are of their nature 13 uncertain. 14 A. Yes. 15 Q. So that 30 per cent of the bids are said to be 16 provisional or uncertain. Did that not make it very 17 difficult to arrive at any firm conclusion on the 18 respective prices of the bids? 19 A. I don't believe it does. Provisional sums is a fairly 20 well-established categorisation of prices. You wouldn't 21 expect the provisional sums to be a long way off, and it 22 certainly would have been adequate for the purposes of 23 the current stage of the competition. I don't -- 24 Geoff Gilbert would possibly be better placed to answer 25 that question. 123 1 Q. There were then meetings which took place with the 2 preferred bidder once appointed, to try and firm up 3 those provisional sums to get a firm price? 4 A. Yes, they would have been. 5 Q. That was with a view to achieving report to the Council 6 with the Final Business Case in December 2007? 7 A. I recall that that was a key milestone for us. 8 Q. Why was December 2007 the date by which that had to be 9 done? 10 A. I'm not entirely sure, but the programme with the key 11 milestones, DBFC, FBC, start of the works, advance 12 works, all that kind of stuff, was in the master 13 programme, and the importance of sticking to it was, of 14 course, the time value of money. If it slips to the 15 right and we'd already lost three months at this point 16 because of the election process, we calculated that it 17 was about three months' slippage, and the time impact 18 puts the -- puts the cost up. 19 I believe the Business Case was not index linked. 20 It wouldn't go up. We were being offered a grant from 21 the Scottish Government, begrudgingly, I might add, of 22 500 million and not a penny more, with the risk placed 23 on to the City Council, who were putting in about 24 another 50 million, I recall. And if the programme 25 slipped, the cost would go up because of inflation. 124 1 And also there were other factors of uncertainty and 2 risks. So it was important to stick to that timescale. 3 Q. On the one hand, as you say, you have got, if you allow 4 the time to slip, costs could go up and inflation. On 5 the other hand, if the contract is forced to be placed 6 too early, when the designs are not finalised, would you 7 accept there was a risk that there will be design change 8 and the costs will go up that way? 9 A. Yes, absolutely. 10 Q. So were there exercises undertaken to evaluate those 11 costs or the risk of those costs, those two 12 alternatives? 13 A. I don't believe we undertook any exercise. It was 14 a judgment at the time. And I think when we came out of 15 the election process and were -- and Audit Scotland and 16 all that stuff that happened, and we'd kind of 17 rebaselined everything, there's been a three-month 18 delay, where do we stand, we made a judgement on how we 19 would take the project forward at that time, and it 20 seemed quite reasonable. 21 I think there was a distinct risk that the project 22 could be closed down, and the good people of Edinburgh 23 and obviously all the people on the tram team didn't 24 want the project cancelled. It was fundamentally a good 25 project and we had to kind of press on with it. 125 1 Q. Was that a risk after the election while the 2 Government -- 3 A. Absolutely, yes. Absolutely. 4 Q. Was there still a risk by the time you got to the end of 5 2007, in your view? 6 A. I think there was always inevitability that there was 7 sufficient inertia in the project for it to keep going, 8 but I think if it had slipped six months, you know, 9 where would the six months' worth of project costs come 10 from? That was the problem, and we had to -- we had to 11 make a decision to get on and do it. 12 I think with hindsight, I don't think that was -- 13 I don't think that was the wrong decision. 14 Unfortunately I don't know enough about what happened 15 after I left, so I can't make any kind of judgements, but 16 at the time I consider it was the right decision, based 17 on the information that we had. 18 When we had experienced managers of the work 19 streams, Geoff Gilbert was an experienced manager, 20 Dave Crawley was an experienced manager. It was quite 21 a difficult time to balance the calls and the judgements 22 that needed to be made to get the design finished, to 23 get the novation through, to complete the procurement,. 24 I'm sure you can appreciate it. But that is the stuff 25 of project management. 126 1 Q. In order to get to the Final Business Case stage, 2 am I right in saying it was a desire on the part of 3 tie's to firm up on those provisional sums and try and 4 get a firmer price to put in the Final Business Case? 5 A. To the extent that they were material in the FBC. The 6 FBC has to pass affordability criteria, value for money 7 criteria, benefit-cost ratio criteria. Though I wasn't 8 involved in the FBC, that was largely Graeme Bissett's, 9 I think. He led that. But I know about business cases. 10 You have to pass the criteria. 11 So if there was sufficient work done on the price to 12 give a high level of confidence that the price was 13 sufficiently reliable enough to underpin the 14 affordability and underpin the benefit-cost ratio, then 15 that was fine. 16 Q. Could you look at a production with me, please. It's 17 reference CEC01481843. 18 This is a letter dated 11 December. It's addressed 19 to Richard Walker at Bilfinger Berger. And if we look 20 at page 2 we see it comes from Willie Gallagher. 21 A. Yes. 22 Q. Do you -- were you familiar with this letter? 23 A. I would need to just look at it again. 24 Q. Go back to the first page? 25 A. I'm sure I would be. 127 1 Yes, I recall that. It was an important letter at 2 the time. 3 Q. It's clear from the start of it that Bilfinger have, in 4 the first paragraph, it appears, refused to provide firm 5 prices or to meet the tie pricing objectives? 6 A. Yes, that is the case. 7 Q. Further down the paragraph beginning "Our visit to 8 Germany", we see Willie Gallagher noting that that visit 9 was intended to cement the final deal and finalise 10 price, and it appears there's a lack of progress in that 11 regard? 12 A. Yes. 13 Q. Underneath that, it says: 14 "Unless you are able to confirm that, by the end of 15 Thursday's meeting, we will have been able to consider, 16 and agreed the following items, then I would state that 17 tie will not attend and we will need to revisit the 18 entire preferred bidder programme." 19 The first thing he wants is: 20 "Price confidence: we ask you to consider fixing 21 your price, save for a very few notable exceptions where 22 for example the design itself is absent." 23 This is essentially an ultimatum to fix the price or 24 else? 25 A. It's part of a negotiating strategy that we were 128 1 following. We knew as soon as we had announced the 2 preferred bidder, they would play hard ball with us. It 3 would be part of their negotiating strategy to play hard 4 ball with us, to sit on their hands, not provide us 5 information. The power balance completely changed and 6 it was a very tough period. There's no question. 7 Q. You mentioned this morning that the power balance can 8 change when the preferred bidder is appointed. Is that 9 what had happened here as well? 10 A. Yes, absolutely. And this was a measured response to 11 that. So we are -- we're kind of, you know, responding 12 and making it clear that we -- we have expectations from 13 the meeting. I think this was the one in Wiesbaden, 14 from -- and making it clear. 15 I don't think they were playing ball with us and we 16 decided to create this tough letter, to lay things on 17 the line, and it was a negotiating strategy. 18 Q. If we could look at their reply. If you could look at 19 production CEC00547788. 20 Now, this is a letter dated 12 December. It's from 21 the Bilfinger Berger Siemens consortium, signed by 22 Richard Walker, addressed to tie, but it's obviously 23 intended for Mr Gallagher because it begins "Dear 24 Willie"? 25 A. Yes. 129 1 Q. The date of 12 December, if you take it from me that 2 that was a Wednesday? 3 A. Yes. 4 Q. The demand had been to get these matters fixed by 5 Thursday? 6 A. Yes. 7 Q. You see that in relation to the price confidence, what 8 Mr Walker says is, paragraph 1: 9 "We have considered fixing our price to the 10 information provided and believe that we are able to do 11 this in all areas where the design is available. See 12 attached schedule." 13 If we go to the following page, I think we can 14 see -- if we look at the upper half, we can see seven 15 items identified there in respect of each of which it's 16 indicated that price can be fixed by adding -- and then 17 a sum is given? 18 A. Okay. 19 Q. Do you see that, bringing out a total of 20 GBP8.12 million? 21 A. Yes. 22 Q. Were these areas you understood they were willing to fix 23 the price for additional money? 24 A. I believe so, from what I'm reading. I can't recall 25 this -- the detail of this letter. 130 1 Q. If you look at the following page, and if you look at 2 the upper half, you see there's a heading of 3 "Assumptions", and it says: 4 "In respect of our pricing and programming certainty 5 exercise, we have made the following assumptions." 6 And design: 7 "In those locations where the design is absent, we 8 are not able to fix our price." 9 They describe some of those. You still had some 10 areas with a no fixed price; is that correct? 11 A. Absolutely. Picardy Place was nowhere near ready. 12 There was one of those tortuous areas of the design 13 where the Council were actually quite literally unable 14 to fix the design because of the conflicting designs. I 15 see you'd knocked down the shopping centre now. That 16 was a surprise. That was one of the issues, what you do 17 with that area, and it was uncertain; and it's a classic 18 problem of a city having a vision for what it wants, but 19 actually when it comes down to the crunch and committing 20 to design, they might have to be changed in the future 21 with a high change cost. Not always able to do that. 22 So these were some things that were missing. 23 Q. In the second paragraph there, under the heading, 24 "Design" notes: 25 "In areas where design is partial, we have made 131 1 reasonable assumptions based on our experience and 2 existing design information provided. Notwithstanding 3 material design changes, we have a high level of 4 confidence in our pricing ..." 5 They give various examples of that? 6 A. Mm-hm. 7 Q. If you can look then at Mr Gallagher's response and turn 8 to that. Could we look at CEC00547779. 9 We can see this is a letter dated 13 December. It's 10 addressed to Richard Walker, Bilfinger Berger. We can 11 see from the second page that again it's from 12 Willie Gallagher. 13 A. Mm-hm. 14 Q. You will see in a minute. 15 If we go back to the first page, and see what he 16 says. He refers to the letter of 12 December and says: 17 "… and have to convey to you the deep disappointment 18 that I and my team feel on its content. The letter is 19 the product of the labours undertaken since the 20 announcement of BBS as the preferred bidder and yet it 21 gives little of the required certainty we are seeking 22 and without which we cannot proceed. The seriousness of 23 this in the context of the approval of this Project 24 cannot be overstated and unless we can find some way 25 forward which removes the uncertainty, then my 132 1 recommendation to the City of Edinburgh Council will be 2 that the Project should not proceed. I would see that 3 as my duty and professional responsibility." 4 Did you share the view that if the certainty 5 couldn't be provided, the project should not proceed? 6 A. No. 7 Q. Was that a negotiating tactic, as you would see it? 8 A. Yes. 9 Q. We see the first paragraph there, price confidence, what 10 he would like to hear them say, he says, is: 11 "We will fix our price in accordance with the 12 attached schedule." 13 A. Yes, seems reasonable. 14 Q. Now, that letter is dated 13 December, which was the day 15 of the scheduled meeting to take place in Wiesbaden. 16 I think that meeting did go ahead, didn't it? 17 A. Yes. 18 Q. And you attended with Willie Gallagher at that meeting? 19 A. Yes. 20 Q. Who attended for the consortium? 21 A. The consortium was Michael Flynn, I think 22 Richard Walker. I think there were senior bosses from 23 Siemens and Bilfinger. I think it was in Bilfinger's HQ 24 or an office of Bilfinger. And there were one or two 25 other people involved as well. 133 1 Q. Did anyone from the consortium have a legal adviser or 2 advisers with them? 3 A. I don't recall that. 4 Q. And you didn't attend with anyone from DLA, tie's legal 5 advisers? 6 A. No. No, not at all. I mean, primarily it was about the 7 numbers. We were trying to get -- I remember, we were 8 trying to get them to commit to value engineering, and 9 to fixing their price, to -- to enable us to deal with 10 this, to close it adequately sufficient for the Business 11 Case, and there was a negotiating game that was being 12 played and these three letters are kind of right at the 13 centre of that. 14 Q. But in terms of fixing the price, that was going to 15 necessitate some consideration of who had to bear the 16 risk of design development? 17 A. In terms of them fixing the price, they have to take 18 a view on it, and this is what constructors do, and it 19 would not be unreasonable at this stage in the 20 procurement, given what they knew about the design, and 21 the prices that they got in. And the prices that we had 22 from the other consortium were not very far apart. 23 So we -- ignorance, it was not ignorance. It was 24 strategy. Hardnosed commercial negotiating strategy. 25 They were playing a game and they carried on playing it, 134 1 as I understand, from -- until the deal was signed in 2 May, and they were quite ruthless, and how we -- we as 3 tie had decreasing amounts of power. 4 Q. Why? 5 A. And the price went up, I think 10/15 per cent. 6 Q. Why did you have decreasing amounts of power? 7 A. Because we were approaching the milestone for FBC and 8 that was an important milestone, and ultimately, if the 9 whole programme slipped to the right, we would need to 10 have -- we would need to rebaseline our budget. And 11 we -- there was nowhere else to go. 12 Q. Was it clear to you when you went out to Wiesbaden that 13 one of the things you were going to have to discuss was 14 the allocation of design risk? 15 A. Yes. I mean, that was all wrapped up in the fixing 16 their price, yes. 17 Q. So you knew you were going to be discussing it? 18 A. Yes. 19 Q. When it comes to matters of allocation of risk and how 20 that is recorded, would that not have been a matter 21 where some legal advice would have been of assistance? 22 A. My recollection is that we didn't -- we didn't talk in 23 legal terms. 24 Q. Can I ask you -- 25 A. Possibly DLA should have accompanied us, but they 135 1 didn't, and that was not the central focus. We wanted 2 to get them to sign up to the value engineering and to 3 fix the price and it was a senior meeting to deliver 4 that. 5 Q. When you say get them to sign up to value engineering, 6 is that to commit to achieving a certain amount of value 7 engineering savings? 8 A. Yes. 9 Q. Could I ask to you look at another production, please. 10 It's TIE00087524. 11 We can see this is an email that's come from 12 Geoff Gilbert to you and Steve Bell, dated 11 December, 13 before you left for Wiesbaden, and it's: 14 "Starter for 10 for settling a deal for BBS. Can 15 we discuss in the morning." 16 A. Mm-hm. 17 Q. It's also an attachment called "Infraco Deal 18 Parameters". Do you see that? 19 A. Yes. 20 Q. Do you recall this coming in? 21 A. Yes, I do. 22 Q. If you can look at what the attachment is, please, it's 23 TIE00087525. 24 Do you recognise this as being the document that 25 Geoff Gilbert sent to you? 136 1 A. Mm-hm. 2 Q. What he's done here in the upper half is added up what 3 the present cost of the project is going to be, looking 4 at the core bids and normalisations, making a deduction 5 for value engineering, making a deduction for the value 6 engineering left to find, and putting in an assumed cost 7 of GBP204 million? 8 A. Yes. 9 Q. Beneath that, if you scroll down a little bit, he's got 10 available to negotiate, there's the contingency of 11 GBP2 million and the risk allowance that had been made 12 for pre financial close of GBP14.5 million. Bringing 13 a total of GBP16.5 million. Is that what he's done? 14 A. Yes, I've got that. 15 Q. He then notes: 16 "We need to reserve a proportion of the contingency 17 and risk to uncertainties in the things that are outside 18 the deal. Reserve GBP6.5 million for this. This leaves 19 up to GBP10 million for BBS to take pricing risk for the 20 scope and risks that are included in the deal." 21 Is what he's suggesting there is, to put it 22 colloquially, you had GBP10 million to play with, to try 23 and get them to fix the deal? 24 A. Yes, indeed. That was the amount that we'd devised. 25 And as -- when you are going to negotiate, you have 137 1 a mandate and you devise a strategy to deliver that 2 mandate, aiming to spend as little as possible. 3 Q. We see -- 4 A. And it was very largely a judgment. We were hoping -- 5 again, it's some experience of this. If you have the 6 senior players of the two consortium companies in the 7 room, they would be empowered under their board mandate, 8 their bid approval mandate, to negotiate and come to 9 a deal. 10 It was one of the reasons why we wanted to have this 11 senior session, where we got them to commit to accepting 12 the value engineering, and there was risk around that 13 for them, and (b) to fixing their price to the extent 14 that they were able to. There were some carve-outs from 15 that, as I think you know, and the carve-outs are 16 possibly where DLA should have been possibly more 17 heavily involved. 18 Q. Can we scroll up a bit so we can see the foot. The 19 proposition that's recorded here is that there will be 20 a contract sum of GBP226.5 million, that Bilfinger 21 Berger Siemens agree to deliver a minimum VE saving of 22 GBP19.2 million, plus 3 million to 10 million for 23 pricing risk. Is that the sum available to try and pay 24 them, in order to fix, firm up their prices? 25 A. Yes. 138 1 Q. Both there and the paragraph above use the expression 2 "pricing risk". What did you understand that precisely 3 to mean? 4 A. Well, go back two letters ago. It's the stuff that was 5 qualified in that letter to us, using words that enable 6 them to move their price. 7 Q. Can I look over the page to the second page of this 8 document, please. 9 A. And it's -- the prices are never fixed until the 10 contract is finally signed, until all of these 11 negotiations wrapped into a schedule, and the contract 12 is signed. 13 Saying it's fixed today, or at that point in time, 14 in Wiesbaden, you never have complete certainty. 15 Obviously, a lot of this stuff is done in good faith, 16 but the agreements reached will be wrapped into the 17 final contract. It doesn't always happen, and they 18 changed their price whilst I was there two or three 19 times after. 20 You know, so it clearly wasn't fixed. 21 Q. You say: while I was there. Do you mean in Wiesbaden or 22 at tie? 23 A. No, whilst I was at tie. I think there were three or 24 four price increases, and the result was the price went 25 up by over 10 per cent from their bid price. 139 1 Q. If we could look at the lower half of this second page, 2 you will see there's a heading, "Scope". It says: 3 "The scope to be delivered for the negotiated price 4 is:" 5 Second bullet point: 6 "Technical scope". 7 Then the last sub-bullet point there is: 8 "BBS to take design development risk". 9 A. Yes. 10 Q. What did you understand by that? 11 A. That the design that was not finished to be taken to 12 being finished. There were some areas that were -- were 13 not complete, and they had to stand behind that and to 14 complete them. 15 And also, there would be some areas where SDS would 16 be unable to complete the design because it was -- it 17 was linked materially to their processes, their 18 construction approaches, or in case of Siemens, their 19 standard equipment design. 20 That's why the design development risk. 21 Q. Is the design development risk just paying to have the 22 design work carried out, or is it the cost of 23 constructing according to whatever design is finally 24 agreed or arrived at? 25 A. Sorry, I don't understand you. 140 1 Q. We talk about the cost of design development. Is that 2 simply paying -- start again. The designers were to be 3 subcontractors of the consortium? 4 A. Mm-hm. 5 Q. So when we talk about the risk of design development, is 6 that just paying to have the design developed or is it 7 the actual cost of constructing according to the design 8 that has been developed? 9 A. I see what you're saying. That's a very good question. 10 No, I would say it's BBS taking the risk that the 11 design was not finalised, and it may cost them -- it may 12 cost them more. 13 Q. More to ... 14 A. To build it. 15 Q. To build? 16 A. To build it. 17 Q. What was agreed at Wiesbaden? 18 A. So the point I'm making is if they assumed -- if they 19 took on a design and the conclusion of that design meant 20 it cost them more, whether they had done the last bit of 21 design development or whether SDS or a third party had 22 done that, they were on the hook for the capital price 23 of that. 24 Q. Sure, I understand. 25 Now, what did you agree in Wiesbaden? 141 1 A. What did we agree? 2 Q. Yes. 3 A. I'm sure you have got it written down somewhere. 4 They agreed to take on the VE savings, I think, of 5 GBP19 million. 6 Q. Mm-hm. 7 A. And I think they agreed to fix the price. I can't 8 recall what for. I think we achieved the commercial 9 objectives that we set out before we left for Germany. 10 Q. It's documented that the sum of GBP8 million was to be 11 paid over in addition. When you say to fix the price, 12 what were they doing? What were they undertaking in 13 return? 14 A. So the GBP8 million is the -- is the -- is that between 15 the 3 and the 10 million that we have talked about? 16 Q. Well, it's GBP8 million. Exactly how it was arrived at, 17 I don't know. You are better placed than I am. 18 A. It was ten years ago, with respect. I don't know the 19 detail behind that. 20 Q. But what did they undertake in return for that? How did 21 they firm up their price? 22 A. I understand it was to fix their price subject to 23 certain things which aren't documented and were not 24 documented the next day when we came back; sufficient 25 enough for us to put a reliable, in FBC terms, price 142 1 into the FBC. 2 Q. What was their position on the fact that it was well 3 known by both parties that the detailed design was 4 incomplete? Which meant it was going to change before 5 it was complete? 6 A. It was the degree of incompleteness and where that was 7 material that was the point. There were carve-outs -- 8 Picardy Place, for example, it was utterly material. It 9 would be unreasonable for that to be included. It was 10 a huge piece of work. 11 Detail about finishes, paving finishes. If it's 12 been accepted in one part, can it be applied in other 13 part, possibly not so critical. 14 Q. But if there are particular areas, like Picardy Place is 15 the one that comes up time after time, that was simply 16 carved out and left as a provisional item, and it was 17 understood that was to be left as a provisional item, in 18 relation to all other areas, even where the design 19 wasn't complete, it was partial, what was agreed about 20 that? 21 A. As you say here, as it says here, that BBS will take the 22 design development risk. But there were lots of 23 estimating rules they would have in their estimating 24 model covering the whole project that they would have 25 been aware of, and where there was a doubt or where SDS 143 1 hadn't completed the design, they would have applied 2 a rule to it. 3 BBS, experienced construction company, and Siemens 4 as well, they would have applied these rules and 5 judgements and they were perfectly good at doing that. 6 And they would have taken a view and said to 7 themselves: what are the risks of this not being 8 deliverable at the price that we are offering to go in 9 at? Well, it's the price plus 8 million, whatever it 10 is. And agreed to that. 11 I think the issue comes, as it always does, is in 12 the letter of the detail around the contractualisation 13 of the obligations that we were expecting of them, and 14 this is clearly where -- we didn't nail them down soon 15 enough. 16 Q. I want to come to the detail at the time, but I just 17 want to give you a chance to comment on something. 18 If you could have the consortium letter back up. 19 It's reference CEC00547788. You will recall this 20 letter, we looked at it just a moment or two ago. It's 21 the one dated 12 December. 22 If we look at the second page, we can see that the 23 offer there is for fixed provisional sums, these 24 specified provisional sums, in return for 25 GBP8.12 million? 144 1 A. Yes. 2 Q. If it was to be suggested that the GBP8 million was 3 simply fixing these items and no others, what would your 4 comment be on that? 5 A. I would say it was disingenuous. 6 Q. In what way? 7 A. I don't think that was the intention. 8 Q. I want to look at what you reported when you came back, 9 and it's looking at two different meetings. If we could 10 look firstly at CEC01494927. Sorry, that's the wrong 11 reference? 12 A. Geoff Gilbert may have a better memory than me. 13 Q. I have given you the wrong reference. Could you look, 14 please, at CEC01526422. 15 CHAIR OF THE INQUIRY: What do you mean, he might have 16 a better idea than you about the GBP8 million? 17 A. Yes, around the detail following Wiesbaden. 18 MR LAKE: He wasn't with you. 19 A. He wasn't with me in Wiesbaden. He enabled us to 20 negotiate in Wiesbaden. And I think when I prepared 21 this witness statement, which is nearly two years ago, 22 I had forgotten it. I would need to look through the 23 documents that you said carefully to try and recall what 24 happened, but I'm sorry, I don't ... 25 Q. I don't think we in the Inquiry have seen any documents 145 1 prepared at the time while you were in Wiesbaden. Did 2 you have any notes or anything like that prepared by 3 you? 4 A. I would have had notes, yes, absolutely. 5 Q. Do you know what happened to them? Do you still have 6 them? 7 A. No, absolutely not. Long time ago. 8 There would have been notes and when we returned to 9 Edinburgh, we had a chat with commercial team, and I -- 10 they prepared a kind of memorandum summarising what was 11 agreed. 12 Q. The commercial team, was that headed by Geoff Gilbert? 13 A. Yes. If you would bring those up on the screen, I can 14 look at them and give an opinion on them. 15 Q. We will get to them in a minute. 16 Picking up what was going on in Wiesbaden, with the 17 two of you there, Willie Gallagher and yourself, did one 18 of you take the main role in the discussions? 19 A. We planned it carefully. We planned the negotiation 20 based on how we thought BBS would react, and we had 21 specific roles that we each played. 22 So Willie played the power role and I played the 23 kind of more detail role, going through each item very 24 carefully. We planned it, each of the VE items. We had 25 a long list and we discussed them, and I had quite 146 1 a good knowledge, because I had been involved in some of 2 the VE meetings. So I was aware of what their take 3 would be on each VE item. 4 Q. Did the VE take up most of the time? 5 A. I think it did take up a good deal of the time. 6 Q. How much time would you say was spent on the question of 7 fixing the price? 8 A. I don't recall. I don't recall that. I'm sorry. 9 Q. Were they difficult discussions to try and get price 10 firmed up? 11 A. Fairly difficult. I think, you know, this was a senior 12 negotiation. So some of it was actually about informing 13 the people round the table. The two senior guys from 14 Bilfinger Berger and Siemens needed to become appraised 15 of what each VE item related to and how -- and what the 16 risks were around that. 17 Q. I'm interested more in the general firming up of the 18 pricing, getting rid of the provisionals and the VEs. 19 What was the initial approach or attitude of the 20 consortium members to that? 21 A. Well, they had their negotiating strategy, I'm sure, and 22 they played the opposite to us. So we played their -- 23 I think one of their guys was the power man and he made 24 a statement, you know, how important it was to get it 25 right and so on, and we will do a deal together, and 147 1 then Richard Walker and Michael would have been their 2 foil to me. And we picked through it. 3 CHAIR OF THE INQUIRY: So were there three people from the 4 other side, as it were? 5 A. There were more than three people, I would think, 6 my Lord. There would be two from each firm and possibly 7 another two beside. 8 CHAIR OF THE INQUIRY: So there might have been six. 9 A. There might have been six. 10 CHAIR OF THE INQUIRY: This was in Bilfinger Berger's 11 office? 12 A. I believe so. 13 CHAIR OF THE INQUIRY: So they would have access, if they 14 wanted it, to other people from whom they could get 15 advice. 16 A. Yes, indeed. 17 CHAIR OF THE INQUIRY: Do you know if they had lawyers in 18 the office? Not in the meeting, but in their office, 19 did they have lawyers there, in-house lawyers? 20 A. I don't know, my Lord. 21 MR LAKE: Over what sort of time period did the negotiations 22 take place? Did they run into the night or just 23 a morning, just an afternoon? 24 A. I don't think they were longer than about three hours. 25 It's an estimate. 148 1 And they finished probably 8 o'clock in the evening. 2 Q. And was everything done by 8 o'clock? 3 A. We had -- we had -- there was a little bit left to do on 4 the project management economies of scale, which was 5 a VE area, the last VE area we were looking at, 6 and I recall Willie and his equivalent from the 7 consortium suggesting that we -- Richard, myself and 8 Michael go and talk about it outside the meeting, and we 9 did it over dinner. 10 Q. Was the price still -- firming up the price outstanding, 11 was that talked about over dinner or had that been 12 finished by 8.00? 13 A. Mr Lake, I'm not certain. I can't recall. Leading me 14 through this discussion, very definitely the last thing 15 that we talked about was VE. Whether we started off 16 with firming up the price or not, is another question. 17 I would need to look at the memorandum that was 18 produced the following day that sought to note all this 19 down, to understand what was discussed about fixing the 20 price. 21 Q. Could we look at CEC01494927. 22 This is an email from you to Richard Walker, copied 23 to various other people within the consortium and to 24 Geoff Gilbert, dated 17 December, with details of the 25 contract deal attached to it. Is that the one you're 149 1 thinking of? 2 A. I believe so. 3 Q. If you look then at the attachment, it's got the 4 agreement in it. It's CEC01494928. 5 We can see a document that's headed "AGREEMENT FOR 6 CONTRACT PRICE FOR PHASE 1A", and it's got the date of 7 14 December 2007, which was the day after your Wiesbaden 8 Agreement? 9 A. Yes. 10 Q. Discussion. 11 If we go back to the third page of this, we can see 12 a heading, 3.0, "Basis of the Price", and if we can 13 enlarge everything underneath that. 14 "The price is based on the following:" 15 If we jump to 3.3: 16 "Detailed designs - BBS included in their price for 17 the construction cost risk in the development and 18 completion of detailed designs being prepared by SDS, 19 save for: a) Any future changes to elements for the 20 design for civils works that are substantially different 21 compared to those forming the current scheme being 22 designed by SDS; b) Items designated as provisional in 23 the Appendix ... c) Excluded items, to the extent 24 described in 3.4 below." 25 A. Yes. So the fixed price, the GBP8 million, is not that 150 1 in number (b). That is a provisional sum and it remains 2 provisional. 3 Q. So what remains provisional? 4 A. It remains provisional. That means that the quantities 5 are not sufficiently mature enough to put a fixed price 6 behind it. 7 Q. Anything that's still provisional? 8 A. Yes. If it's the same. If it's the same provisional 9 list. 10 Q. Did you prepare this proposed agreement? 11 A. No. Geoff Gilbert did, after talking to me. We thought 12 carefully about these words, I can tell you, because we 13 knew that as always happens, they would come back and, 14 you know, challenge them, in the spirit of tough 15 negotiations, wanting to get every pound out of tie that 16 they possibly could, prior to the ink being dry on the 17 contract document, because it was substantially a fixed 18 price contract. 19 Q. Did you consider, do you consider that what is recorded 20 there is an accurate record of the discussions that took 21 place while you were in Germany, or was there candidly 22 also an attempt on your part to try and push the 23 envelope to tie's advantage? 24 A. No. No, I do not think so. I don't think that at all. 25 That's what we discussed. We talked about fixing the 151 1 price. 2 I think that was disputed, the words in there. 3 I think there's probably more emails on this subject. 4 Q. Yes. 5 A. Not -- and frankly it doesn't surprise me. I have done 6 this myself. I have been on the other side of the 7 negotiating table, and you always do your best to get 8 the best deal for your company. 9 This is -- this is what happens when you negotiate 10 contracts, complex contracts. 11 I -- and I think all of us at the time in tie, never 12 knew for certain what BBS thought of this contract 13 opportunity, and what levels of risk that they had 14 included in their prices. 15 Sometimes you have a feel for it as -- talking as 16 a bidder commercially, whether you're in a safe place or 17 in a vulnerable place. 18 And accordingly, we weren't aware of that. 19 Q. Could I ask you to look at one of the responses from the 20 consortium to this draft. Could you look at document 21 CEC01494961. 22 If we look at the lower half of the page, and just 23 scroll down a little bit, we can see an email here from 24 Richard Walker to you dated 17 December 2007, where he 25 says: 152 1 "Matthew, please see comments below." 2 The comments below, which I think come from 3 Scott McFadzen in Bilfinger, states: 4 "My comment is that this does not look like a good 5 deal (understatement) unless there is some side 6 agreement that I don't know about. Specifics (so 7 far)..." 8 He makes various comments. We can see just looking 9 at them, at that time there's nothing about the 10 Clause 3.3, which was the design risk; is that fair 11 comment? 12 A. Yes. Scott was the man that was in -- Scott might have 13 come to -- did he come to Germany with us? I can't 14 recall. 15 Q. I think Scott McFadzen was Bilfinger Berger; 16 am I correct in that? 17 A. He was, yes. 18 Q. If you look at the upper half of this page, we can see 19 simply that you forwarded that on to Geoff Gilbert with 20 a suggestion that you talk about it the next day? 21 A. Yes. 22 Q. Did you formulate a response with Geoff Gilbert, how you 23 were going to respond to this approach by the 24 consortium? 25 A. I'm sure we did. I'm sure we had a chat about it, 153 1 because it's pretty serious. This was the stuff of the 2 day, and part of the negotiation process. 3 Q. Could I ask you to look at another email, again from 4 Bilfinger, although -- it's CEC00573352. 5 Look at the upper half, we can see this time it's 6 from Richard Walker. It's not addressed to you. It 7 goes to Geoff Gilbert and Scott McFadzen at Bilfinger, 8 dated 19 December. Do you remember being shown this or 9 having it forwarded to you at the time? 10 A. I can't remember whether I was shown it or not. 11 Q. If we just look at -- 12 A. Can I just have a quick read of it. 13 Q. Sure. (Pause) 14 A. Okay. I understand what they're doing. So GBP8 million 15 was for fixing the price, not for fixing the provisional 16 sums. And they are now -- they're accepting that it was 17 fixing the variable sums, but they're cleverly linking 18 it to the four CDs which was the last time they had the 19 designs. 20 Q. Just in relation to the GBP8 million then, you say: 21 "… our firm price including the additional GBP8 million to 22 fix the 'variable' sums noted." 23 A. Yes. 24 Q. What do you think they were offering, suggesting the 25 GBP8 million was for there, what did you understand? 154 1 A. Well, it was to -- it was to fix the price and to take 2 the design risks, notwithstanding that qualification 3 there. That's what they are saying. To take the design 4 development risk. 5 Q. If -- 6 A. And now they have come back and said: we must insist 7 it's based on that drop, that data drop on 25 November. 8 Q. That last sentence then, or that last paragraph, rather, 9 that seems to be quite inconsistent with the idea of 10 them taking the design development risk, if they wanted 11 to fix their price by reference to a certain date? 12 A. Well, the information that they have got, they can't 13 know what they don't know, so to speak. 14 Q. In what way did you think they wanted the contract, as 15 they put it, related to that day? Or that design? 16 A. I think there's a kind of materiality thing connected 17 with that, and I'm sure -- I'm sure when Geoff and the 18 team took this forward, we went through this several 19 times to try and get some definition about what design 20 development risk -- design development risk entailed. 21 But this was -- this was quite near the beginning. 22 There were two or three episodes like this, and it was 23 hard. I don't pretend it was easy. 24 Q. Can we look at one more email from Germany again. It's 25 CEC00573351. 155 1 Look at the lower half. The last email was on 2 19 December at a little past 8 o'clock in the morning. 3 This one we see is still on 19 December 2007? 4 A. Mm-hm. 5 Q. But 7.45 in the evening, from Geoff Gilbert to 6 Richard Walker, copied to you. It says: 7 "Richard, We went through this at the Board today 8 and generally everyone was okay with it. However, to 9 get CEC's buy we need to make a few changes. I have 10 also corrected a few typos as well. I don't think there 11 is anything controversial in this but call me if you 12 wish to discuss." 13 If you scroll up to see Richard Walker's response, 14 the following day: 15 "Geoff, We still have issues with accepting design 16 risk. We have not priced this contract on a design and 17 build basis always believing until very recently that 18 design would be complete upon novation. With the 19 exception of the items marked provisional which we have 20 now mixed by way of the GBP8 million we cannot accept 21 more [design development] other than minor tweaking 22 around detail. Your current wording is too onerous. 23 Trust we can find a solution." 24 If we look all the way up, we can see that Geoff 25 Gilbert forwarded that to you with exclamation marks? 156 1 A. Yes. Exasperated. This happened a lot. 2 Q. This seems to be Germany saying: we are not going to 3 take design development risk after all. 4 A. Well, they're basically resiling on their -- on the 5 commitments they've made. And that happened. 6 Q. And the suggestion -- 7 A. It happened two or three times whilst I was in 8 negotiations with them. And it -- I can see why when 9 the contract management team took over after the deal 10 was finally signed, there might have been bad blood 11 between the two parties because I thought -- I thought 12 BBS's behaviour sometimes went too far. 13 MR MARTIN: My Lord, I do apologise for interrupting but 14 I think it's better we deal with it now. On the [draft] 15 transcript page 156, line 3, the first word is clearly 16 not what Mr Crosse said. And on the face of it, it's 17 not easy to understand in my very brief consideration 18 what it does actually say. I just wondered if we could 19 clarify that, please. 20 CHAIR OF THE INQUIRY: You mean the word "excellent"? 21 MR MARTIN: Correct. 22 CHAIR OF THE INQUIRY: I think it should be "commitments". 23 I think it was "commitments". 24 I think you were speaking about Bilfinger basically 25 resiling on their commitments? 157 1 A. Yes. Yes. I think "resiling" is the right word, but 2 basically not honouring their commitments. 3 MR MARTIN: I'm much obliged. I apologise for interrupting 4 but I think better to deal with it now. 5 MR LAKE: We can see -- 6 A. I know what Richard Walker's response would be. 7 I didn't have Scott McFadzen with me, if he didn't go. 8 I don't generally know. And he now checks the detail 9 back at home and Scott is saying: no, shouldn't take 10 this. 11 Again, it's -- it's a managed negotiating strategy, 12 and they don't -- they can give back word all the time. 13 I think we as public procurers stand by behind what we 14 say, and our approach always, but I think, you know, the 15 constructors, right up until the point that they sign, 16 played games with us. 17 Q. The suggestion there that the GBP8 million was in return 18 for fixing items marked provisional, you would see that 19 as the same? 20 A. Yes. 21 Q. It's game? 22 A. Yes. 23 Q. I just want you to look at the agreement that was 24 finally produced, the document of the Wiesbaden 25 Agreement. If you look at production CEC01431385. 158 1 This is from Geoff Gilbert to Stewart McGarrity, but 2 it's also copied to you. It says, a copy of what he 3 terms the BBS deal (as signed by BB but not 4 Siemens – yet). Do you see that? 5 A. Yes. 6 Q. If you can look at the attachment, which is CEC01431387. 7 We can see it's got the same front pages as the initial 8 draft that we saw on the 17th? 9 A. Yes. 10 Q. If we look at page 3 of this, back to Clause 3.3 in the 11 lower part of the screen, what it now says is: 12 "The BBS price for civils works includes for any 13 impact on construction cost arising from the normal 14 development and completion of designs based on the 15 design intent for the scheme as represented by the 16 design information drawings issued to BBS up to and 17 including the design information drop on 18 25 November 2007. The price excludes:" 19 We can see the first thing again is provisional 20 items? 21 A. I did not. 22 Q. The second is: 23 "Any material changes to the design resulting from 24 the impact of the kinematic envelope of the CAF tram on 25 the civils design." 159 1 Item c) is certain excluded items. If we look over 2 the page and complete the sub-clause, it says: 3 "For the avoidance of doubt normal development and 4 completion of designs means the evolution of design 5 through the stages of preliminary to construction stage 6 and excludes changes of design principle, shape and form 7 and outline specification" 8 A. Full stop missing. 9 Q. Yes. Now, that clause now seems fairly complex with 10 a number of different components and subparts. Does 11 that reflect the discussions you had at Wiesbaden, or 12 does it innovate upon them to a material degree? 13 A. We would not have gone to this level of detail. I can 14 tell you that for certain. 15 Q. Did you have any input on the finalisation of this 16 version of the Wiesbaden Agreement, what the wording 17 should be? 18 A. I was almost certainly in contact with Geoff and 19 certainly the email traffic between Geoff and BBS and 20 stuff that came out of the woodwork, some of which we 21 have seen a few minutes ago, I would have seen those 22 things. 23 I don't know whether Geoff took advice on this 24 particular paragraph, but I can see that it's fairly 25 carefully worded. 160 1 Q. When you say Geoff took advice, do you mean legal 2 advice? 3 A. Yes. 4 Q. Were you involved in any consideration of whether legal 5 advice would be helpful on the terms of that agreement 6 as it was being concluded? 7 A. No. I -- I didn't consider it necessary that it needed 8 a legal input. I don't think this was the -- this was 9 not the final contract. It would end up being in the 10 final contract. It was a point in time. It was 11 important that it was captured in a way that is -- has 12 no ambiguity around it. 13 So I was content. And also Geoff -- Geoff is 14 a really experienced procurer. He kind of knows his 15 stuff, and he's worked with civils contractors a lot in 16 the past and has continued to do so. He's very good. 17 So he'd been fairly meticulous to make things were 18 carefully worded. Whether they were robustly worded 19 enough to survive scrutiny downstream today, I don't 20 know. But I was quite content with this. 21 Q. It might seem a slightly obvious question to ask, 22 standing what you have already said about this, but were 23 the terms of what we see in that finalised version 24 dictated by your discussions in Wiesbaden or was there 25 a certain amount of development required to get to that? 161 1 A. There was a certain amount of development to get to 2 that, and there was email traffic and conversations and 3 Geoff will probably be able to add colour to this. I'm 4 sure BBS's legal team had a view on this and -- I don't 5 know whether DLA were involved in this, frankly, from 6 our side or not. 7 But yes, there would be some development. 8 Q. Okay. 9 My Lord, I'm going to be moving on just a little bit 10 further. I don't know if my Lord is going to take 11 a break, this would be as good a time as any? 12 CHAIR OF THE INQUIRY: We will take a fairly short break. 13 If we resume again just after half past. 14 (3.21 pm) 15 (A short break) 16 (3.30 pm) 17 CHAIR OF THE INQUIRY: You're still under oath, Mr Crosse. 18 A. Yes, my Lord. 19 MR LAKE: Mr Crosse, you're aware that what was contained in 20 the -- what's been termed the Wiesbaden Agreement was 21 subsequently carried into the Infraco Contract. Did you 22 take part in the negotiations to -- of Schedule Part 4 23 that contained those provisions? 24 A. I don't believe I was. I didn't know quite when it 25 happened. I don't recall being in a meeting discussing 162 1 Schedule 4. 2 Q. Could I ask you to look at another production for me. 3 It's got reference CEC01448355. This is just a covering 4 email. We see it is from Bob Dawson. It's been sent to 5 various people, including you. It says: 6 "Andy's comments are now added in turquoise." 7 We can see from the subject matter, it's 8 Andy Steel's comments on the draft Schedule 4. 9 If we look at Schedule 4, it's reference 10 CEC01448356. 11 This is the draft Schedule 4. We can see what was 12 referred to in the email about comments being added in 13 turquoise, just looking at the first page. 14 What did you do with this when it was sent to you? 15 A. I don't recall what I did with it. 16 Q. Did you read it? Did you examine it, check it, comment 17 on it? 18 A. I might have printed it out and put it in my case to 19 take away with me to read. It depends what I was doing 20 at the time. 21 I was -- I would have to look at my diary, but I was 22 quite heavily involved in the finalisation of the 23 Employer's Requirements which was quite a big task and 24 took quite a lot of my time. 25 Q. Aligning them -- the Employer's Requirements with the 163 1 Infraco design? 2 A. Yes, or the Infraco proposals. 3 Q. Infraco proposals, sorry. It's the SDS design? 4 A. The Infraco proposal and the SDS design. And 5 streamlining them a little bit. 6 So I may not have given this proper attention, but 7 I can't recall what I did with it. 8 Q. If I could just ask you to look at page 2 of this. You 9 will see there's -- if you look at the lower half of the 10 page, there is a coloured version of this, but we will 11 try and just work off this for the moment. 12 That's better. 13 "Base Case Assumptions" means the following 14 assumptions - (a) that the Design prepared by the SDS 15 Provider will: ... (ii) not, in terms of design 16 principle, shape, form and/or specification be [add 17 'materially'] amended from the Base Date Design 18 Information." 19 The comment has been added: 20 "What about any specific issues that we know about 21 such as VE." 22 The further turquoise comments: 23 "Given that a substantial amount of design requires 24 to be presented, reviewed, etc, this clearly will 25 not happen. Agree with Bob's comment." 164 1 Did you evaluate these comments and what their 2 significance was for the contract and how things would 3 have to be handled? 4 A. I don't recall that I did. And it's the sort of detail 5 that I probably wouldn't have done. 6 This is a detail about how we cover what was 7 included in Wiesbaden, and possibly the inadequacy of 8 the words from the Wiesbaden deal as shown here versus 9 what was happening in actuality. 10 So the VE engineering would substantially change 11 some designs. That was accepted. So it didn't quite 12 fit. 13 Q. If we look at page 10 of 19, if we look in large 14 Clause 1.1, the suggested agreement is that: 15 "The Contract Price has been fixed on the basis of 16 inter alia the Base Case Assumptions. If now or at any 17 time the facts or circumstances differ in any way from 18 the Base Case Assumptions (or any of them) the Infraco 19 may (if it becomes aware of the same) notify tie of such 20 differences (a "notified departure")." 21 Someone has added the comment: 22 "Can't just be any departure or all risk will come 23 back to tie." 24 A. Yes. 25 Q. Again, were you involved in any consideration of that? 165 1 A. No. 2 Q. Do you -- have you considered that comment before, 3 whether or not you agree with it? 4 A. When I -- when I came to give my witness statement, 5 I was shown some stuff between Jim McEwan and somebody 6 else which talked about this Notified Departure. 7 I think there was a legal opinion on it. That was the 8 first time I'd seen it. 9 And I think all this stuff happened after I left. 10 I was certainly not aware of this. 11 Q. This, I think we saw from the covering email, was sent 12 to you on 6 February 2008 when you obviously were still 13 at tie? 14 A. Yes, definitely. 15 Q. But you weren't involved in any detailed consideration 16 of it at the time? 17 A. No, and I -- Notified Departure is, I believe, a legal 18 term. So I probably wouldn't have had a view on it. 19 And would have expected the commercial and legal team to 20 have dealt with these details adequately. 21 Q. You mentioned before that there were demands for 22 additional money made by the contractor's team prior to 23 the contract ultimately being concluded; do you recall 24 that? 25 A. Can you repeat, sorry? 166 1 Q. You have mentioned before that there were demands for 2 additional money made between the meeting in Wiesbaden 3 in December and the ultimate conclusion of the contract? 4 A. Oh, yes. Yes. 5 Q. Do you recall, one of them resulting in an agreement 6 which came to be known as the Rutland Agreement? 7 A. Yes. 8 Q. Can I ask you to look at a copy of that, please. It's 9 got reference CEC00825620. We can see the front page is 10 "AGREEMENT BETWEEN TIE LIMITED and SIEMENS PLC and 11 BILFINGER BERGER (UK) LIMITED”? 12 A. Yes. 13 Q. If we look at page 5 of this, we can see there that you 14 are the signatory on behalf of tie? 15 A. Mm. 16 Q. So you're clearly involved in the negotiation and 17 conclusion of this agreement? 18 A. Yes. 19 Q. Who else from tie was involved? 20 A. Geoff Gilbert for sure. We had it at DLA's Rutland 21 Square offices. There would have been people from DLA 22 there as well. 23 Q. Can I ask you to look, please ... 24 Could you look, please, at page 7 of this. The 25 Schedule to this Agreement. We can see it starts by 167 1 setting out various particular provisions in relation to 2 the contract. 3 If we go over to the next page, page 8, and then 4 large Clause 2.2 and its subclauses, we can see here 5 that various provisions are made as to what is to happen 6 to Schedule Part 4 of the Infraco price contract -- 7 Infraco contract. 8 Do you see that? 9 A. Yes. 10 Q. Now, presumably these must have been the subject of some 11 discussions during the negotiations which led to the 12 Rutland Square Agreement? 13 A. I don't recall the detail of these. 14 Q. The draft of the Agreement that we've seen just a moment 15 ago that was sent to you on 6 February appeared to go 16 much further than what you had agreed at Wiesbaden? 17 A. If you're saying so, yes. 18 Q. Well, did you think it was just simply reflecting what 19 you agreed at Wiesbaden or innovated upon it? 20 A. I think it innovated upon it. It was developed from 21 a detailed commercial legal dialogue between the two 22 parties capturing the detail. And as I've said, with 23 all kind of games being played by the contractors, 24 primarily, I would say. 25 Q. Were you ever told by Andrew Fitchie, the solicitor at 168 1 DLA, that these principal terms of Schedule 4 were 2 non-negotiable or that they had been all agreed at 3 Wiesbaden and that was that? 4 A. I don't recall being told anything like that by Andrew. 5 Q. Did you raise in the course of the Rutland Square 6 negotiations any concern as to how Schedule Part 4 was 7 being developed? 8 A. No, I didn't. Not to the best of my knowledge. I can't 9 recall that. 10 Q. If it is said to you that the reason you didn't raise 11 any concern is because it simply reflected the 12 discussions you had had while you were in Germany, what 13 would your reply to that be? 14 A. I would say it wasn't true because it -- more detail had 15 been put around what we had discussed in Germany. 16 Schedule 4, I suppose, was the final place for the core 17 of the commercial deal to be captured in the contract, 18 and both the Wiesbaden negotiations and the negotiations 19 here at Rutland Square, and I think there was one or two 20 other points needed to be wrapped into that Schedule. 21 I'm not a lawyer. In fairness, I'm not passing the 22 buck, but Geoff would have kind of ensured there was 23 attention to detail on this Schedule, I'm sure. 24 Q. If it's to be said that -- it doesn't give you a chance 25 to comment on this, that Ian Laing, who is one of the 169 1 solicitors for the consortium, explained that tie at 2 Wiesbaden had agreed Schedule Part 4 containing the 3 rules to govern post-contract signature design 4 production and development for which the consortium 5 could not and was not prepared to absorb any cost or 6 time risk at all, and that you didn't disagree with 7 that? 8 A. Say that again. 9 Q. Yes. 10 A. So who is saying this? 11 Q. Ian Laing who was representing the consortium, one 12 element of the consortium, Bilfinger, said that Schedule 13 Part 4 had been agreed by tie in Wiesbaden. It 14 contained the rules to govern post contract signature, 15 design, production and development, and that the 16 consortium could not and was not prepared to absorb any 17 cost or time risk at all, and that you didn't disagree 18 with that? 19 A. That's rubbish. We would not have had a conversation 20 like that in Wiesbaden. That was not what the meeting 21 was about. 22 Q. If you had been told that the consortium was not 23 prepared to absorb any cost or time risk at all, would 24 you have agreed that that reflected your discussions in 25 Wiesbaden? 170 1 A. Say that again. I'm slightly -- 2 Q. If you had been told that the consortium was not 3 prepared to absorb any cost or time risk at all, would 4 you have agreed that that is what you discussed at 5 Wiesbaden? 6 A. No. 7 CHAIR OF THE INQUIRY: I think, just for clarity, the 8 reference to Mr Laing making the comment you've been 9 asked about, that's subsequent to Wiesbaden; no? 10 MR LAKE: Yes. This was a comment that it is said was 11 made -- if I didn't make that plain, I apologise. This 12 is said to be a comment that was made at the 13 Rutland Square negotiation meeting by Ian Laing, the 14 solicitor for the consortium. 15 A. He -- I -- I cannot recall what was said exactly at 16 Rutland Square. He may have said that, but I would have 17 refuted it. We didn't talk like that at Wiesbaden. The 18 Wiesbaden focus was on value engineering and fixing 19 price, accepting the fact that principles and the 20 language around what fixed price means was still -- was 21 slightly ambiguous, hence the to-ing and fro-ing of 22 emails, and the gaming of it. I wouldn't accept that. 23 Q. Turning to a different matter, could I ask you to look 24 at production CEC01674234. 25 CHAIR OF THE INQUIRY: While we are waiting for that, 171 1 Mr Lake, was there not an email or something of that 2 sort from Mr Laing -- I seem to recall having seen an 3 email from Mr Laing advising the -- advising tie about 4 the agreement in Wiesbaden? 5 MR LAKE: There were a number of emails from him which we 6 went through with Mr Fitchie. It may be necessary to 7 look at some of those on Thursday when Mr Gilbert is 8 giving evidence. He was involved in the negotiation of 9 Part 4, and there was emails specifically drawing the 10 attention of people in tie to the fact there would be 11 a Notified Departure as soon as the contract was signed. 12 CHAIR OF THE INQUIRY: I just wondered if any of those had 13 been copied to this witness, in fairness to the witness. 14 MR LAKE: My recollection, from looking at them last night, 15 was that they had -- Mr Crosse had moved on by that 16 time, but I think I can check quite quickly. 17 We can go to a different one. 18 Could you look, please, at production CEC01670035. 19 My Lord, I've got no further questions. 20 Questions by CHAIR OF THE INQUIRY 21 CHAIR OF THE INQUIRY: You have no further questions of the 22 witness? 23 Could I ask just a couple of points. We will go 24 back to the witness statement. If you look at 25 paragraph 77, I think it's page 25, or thereabouts, if 172 1 you look at the bottom there, it refers to an email from 2 Geoff Gilbert. He's pointing out that novation can 3 happen at any point. 4 Would you go over the page, please: 5 "... due to the nature of the PB contract." 6 Then it speaks about the final design. You can see 7 the email discusses planning consents: 8 "It was the obligation of SDS to get planning 9 consents but there was no guarantee that planning 10 consents would be granted because of poor CEC 11 involvement." 12 Then you go on about the bidder, that's BBS: 13 "It is a naive expectation of a bidder to expect 14 finalised designs with planning consents. BBS went 15 through the designs looking for an excuse to increase 16 the price of the contract before it was signed. No 17 typical turnkey contract would have had planning 18 consents granted before it is let, the contractor would 19 have had to obtain them. It was wrong for BBS to raise 20 these issues in their due diligence report. They were 21 scratching around for extra costs ..." 22 Is that just another example of how -- what you were 23 describing earlier about the contractor -- 24 A. Yes, indeed. Their due diligence report came up with 25 a whole lot of other stuff and it was all just part of 173 1 their negotiating tactics, I think. I don't know to 2 what extent it had any -- it was done independently, 3 what amount of work had gone into the due diligence 4 report. And I do think, you know, planning consents, 5 final planning consents does happen in the life of the 6 contract, typically. I'm not saying it couldn't have 7 happened before, if they were to build it exactly to the 8 letter, but it is something that happens generally. 9 CHAIR OF THE INQUIRY: To your mind, this was the contractor 10 going beyond the limit of normal negotiations that one 11 might expect a responsible contractor? 12 A. Yes. 13 CHAIR OF THE INQUIRY: Then the other thing I wanted to ask 14 about was paragraph 88. Page 29. You referred to an 15 email from Stewart McGarrity, but it's the second 16 sentence. You say it mentions that CEC have decided to 17 charge tie for CEC's staff time. What was wrong with 18 that? 19 A. My Lord, CEC were the sponsor. My understanding that 20 the budget all the way from the outset did not provision 21 for core CEC staff. The budget was for the tie team, 22 and the tie staff for delivering the tramway. 23 CHAIR OF THE INQUIRY: So if you were trying to get an 24 accurate picture or figure for the project, would it not 25 include staff who had been seconded and CEC admittedly 174 1 were paying their salaries, and no doubt pension 2 contribution, but shouldn't that have been recharged to 3 the project so that at the end of the day we knew 4 precisely what the project had cost? 5 A. I agree, my Lord, with you totally. This wasn't evident 6 from the outset. That's the point. So the goalposts 7 had moved, and it was not a small sum of money. I think 8 it was about GBP1 million. 9 Bearing in mind the fact that we were wondering 10 whether we had a future, we weren't sure about how any 11 funding overruns -- any cost overruns would be dealt 12 with, this came as a bit of a surprise for us. 13 CHAIR OF THE INQUIRY: So was that rejected altogether and 14 CEC accepted it -- 15 A. No, I think we had to incorporate the costs into our 16 budget. We had no choice on that matter. 17 CHAIR OF THE INQUIRY: Then I think the final point is 18 really page 35, paragraph 105. You see at the top of 19 that passage it is noted that the Tram Project Board 20 rejected a suggestion from James Stewart -- he was from 21 Partnerships UK, I think -- 22 A. Yes. 23 CHAIR OF THE INQUIRY: -- that the contract should be 24 subject to an independent legal review. 25 You say it was too late for that, and: 175 1 "... If any review was carried out, it should have 2 happened before we started the bidding process. CEC had 3 legal counsel and we all presumed that they would review 4 the detail of the contract because CEC would have to 5 assume the risk under the contract." 6 So can I just understand what you're saying here. 7 Are you saying that you expected the City of Edinburgh 8 Council to undertake an independent assessment of the 9 contract before the contract was signed? 10 A. What James Stewart was asking for, my Lord, was a review 11 to one side that was neither the Council's nor tie's. 12 It was possibly something that both parties would 13 benefit from. 14 My view was at the time we didn't need to have 15 another review. We couldn't unpick the contract 16 structure. It was given to us. It was several years 17 old. I think we had this question right at the start of 18 this session, my Lord. 19 The procurement model was established, idealised 20 though it was. I don't think a contract review would 21 have helped. 22 The contracts were necessarily quite complicated, 23 but I don't think a review would have helped at this 24 stage. And I do think that -- and I make this comment, 25 I can see, towards the end of this paragraph -- that the 176 1 Council had to -- had to take ownership of this, and 2 whatever it took for them to take ownership and be 3 pleased and proud and stand behind the risks and be 4 prepared to provide more money if necessary. That was 5 reality. They were the sponsors of the project. It 6 wasn't -- now the Scottish Government had lost interest. 7 There was some money, but it was CEC. It was their 8 project. 9 And whatever they needed to achieve that, and if 10 their general counsel had any doubts, they should pay 11 for legal due diligence themselves. 12 CHAIR OF THE INQUIRY: Do you think it would be -- did you 13 think it was appropriate or inappropriate for the 14 Council to have legal due diligence of its -- of the 15 contract before authorising the signature? 16 A. I thought that it was appropriate. If they -- I'm not 17 sure to what extent they chose to do that and how full 18 the exercise was, but I would have supported that if 19 that was what they required to be comfortable and 20 confident. 21 CHAIR OF THE INQUIRY: Thank you. I don't think there are 22 any questions. 23 So thank you very much, Mr Crosse. 24 A. Thank you, my Lord. 25 CHAIR OF THE INQUIRY: You're now free to go. You're 177 1 technically still subject to your citation. So it would 2 be possible to recall you if that was necessary. 3 Hopefully it won't be necessary. So thank you for your 4 trouble. 5 A. Thank you, my Lord. Thank you, everyone. 6 (The witness withdrew) 7 CHAIR OF THE INQUIRY: We will adjourn until tomorrow at 8 9.30. 9 (4.01 pm) 10 (The hearing adjourned until Wednesday, 18 October at 11 9.30 am) 12 178 1 INDEX 2 PAGE 3 MR MATTHEW CROSSE (sworn) ............................1 4 5 Examination by MR LAKE ........................1 6 7 Questions by CHAIR OF THE INQUIRY ...........172 8 9 179