1 Wednesday, 18 October 2017 2 (9.30 am) 3 CHAIR OF THE INQUIRY: Good morning. Yes, Mr Lake. 4 MR LAKE: My Lord, the first witness today is Mark Bourke. 5 MR MARK BOURKE (sworn) 6 CHAIR OF THE INQUIRY: Could I ask you to speak clearly into 7 the microphone and not too quickly, so the shorthand 8 writers can keep up with you. 9 A. Certainly. 10 CHAIR OF THE INQUIRY: If you listen to the question and 11 answer it as concisely as possible. If you want to add 12 an explanation, do so after the primary answer. 13 A. Thank you. 14 Examination by MR LAKE 15 MR LAKE: Mr Bourke, could you state your full name, please. 16 A. Mark Bourke. 17 Q. The Inquiry has your address. What's your present 18 occupation? 19 A. A consultant engineer. 20 Q. Could I ask you please to look at a document with me. 21 It's got reference TRI00000110. Now, Mr Bourke, that 22 will be shown on the screen slightly to your right, but 23 you also have a paper copy of it in front of you? 24 A. Yes. 25 Q. You will see that that is the statement that you gave to 1 1 the Inquiry? 2 A. That's correct. 3 Q. I think looking at the paper copy, you will see that you 4 signed it on the last page? 5 A. Yes, I did. 6 Q. Are you content that that be accepted as your evidence 7 to this Inquiry? 8 A. Yes, I am. 9 Q. What I would like to do is ask you some additional 10 questions about certain parts of it. So could we first 11 turn to page 9 of this statement. In fact it may be 12 easier to go back to page 8, just to get the start of 13 the particular answer. 14 Firstly, look at the question 11, which are the 15 first two numbered paragraphs 11 on the screen. It 16 says: 17 "How did the approach to and management of risk in 18 Tie compare with other organisations for which you have 19 worked? Was the assessment and management of risk 20 undertaken well at tie?" 21 I'll read through your answer and then I want to ask 22 you for clarification about certain of the subparagraphs 23 that are written. 24 What you say is: 25 "The approach to and management of risk in tie 2 1 compared well to the other organisations that I have 2 worked for and advised as I believe that there was 3 a strong senior level commitment to identify and 4 mitigate risk with the support of adviser expertise. 5 I believe that there are a number of key features that 6 make me conclude this (i) there was heightened awareness 7 of the potential risks affecting tram schemes and how 8 these could be mitigated at a strategic level through 9 the adoption of an innovative procurement strategy; (ii) 10 there was a conscious decision to develop a unified 11 project risk register with the support of colleagues and 12 advisers to ensure a common language and focus on risk; 13 (iii) a risk management policy was developed to 14 demonstrate Board level organisational commitment to the 15 management of risk." 16 If I just pause there, that's the first of the 17 subparagraphs I want to ask you about. Could you 18 explain what you mean by that, number (iii)? 19 A. Number (iii), essentially we developed an organisational 20 policy. At the time risk management was not an area 21 where all organisations actually created a policy and 22 had a policy. 23 We developed a policy document that demonstrated the 24 organisational responsibilities, their appetite, and our 25 approach to risk management. 3 1 Q. Simply the formulation of and adoption of that policy, 2 is that what provided a commitment to understanding 3 risk? 4 A. Absolutely. Like most organisational policies in 5 defining an approach, organisational commitment and 6 responsibility to address risk and to manage it for the 7 benefit of the public sector. Having a Board level 8 commitment to that policy showed that there was 9 a top-down commitment to address risk affecting both the 10 business and projects. 11 Q. We have seen in documents already looked at at the 12 Inquiry that initially the project risk register that 13 you referred to was considered by the Tram Project 14 Board. But after a while that was delegated, 15 consideration of that was delegated to a sub-committee. 16 Is that consistent with the maintenance of the 17 consideration of risk at top levels? 18 A. In terms of the terms of reference or responsibilities 19 of sub-committees, those, I imagine, would have to in 20 turn report up to the Board. So I had anticipated that 21 sub-committees would escalate matters such as risk 22 topics to board level, so the creation of 23 a sub-committee with a deeper consideration of risk 24 would not necessarily disconnect the Board from that 25 understanding. 4 1 Q. If we look at the next subparagraph in your statement, 2 number (iv): 3 "There was a broader focus to examine the areas that 4 had led to causes of increased project delivery and 5 those presented by Optimism Bias." 6 Could you explain that sentence to me? 7 A. In terms of broader focus, I'm emphasising there was 8 considerable effort made to understand the risks 9 affecting tram infrastructure construction. 10 This was effectively through the engagement of 11 advisers who had considerable experience in delivery of 12 infrastructure, and in addition a broader review of the 13 risks that present themselves through optimism bias. 14 Q. I was just puzzled in particular by what you mean by 15 things that had led to the increase of project delivery? 16 A. Increased project delivery, by that I mean increases in 17 cost and delays in schedule. 18 Q. And those presented by optimism bias, is that again the 19 increases in time and cost that you're referring to 20 there? 21 A. Yes. Yes, optimism bias focuses on cost programme and 22 benefits. 23 Q. I want to ask you some questions about optimism bias 24 towards the end of your evidence. 25 Look at the fifth subparagraph: 5 1 "tie invested in dedicated risk management resources 2 and sought to implement leading edge technology to help 3 manage risk through investment in Active Risk Manager." 4 Again, could you explain that? 5 A. Essentially we created a team embedded at project level 6 and corporate level to manage risk. That type of 7 commitment wasn't necessarily common within projects 8 inasmuch as the risk functions could have been provided 9 by supporting advisers and embedded in those 10 organisations. But tie's investment in creation of 11 a dedicated risk resource showed a serious commitment to 12 address risk, to manage risk for the benefit of the 13 public sector. 14 In terms of the technology we invested in, one of 15 the issues we had was the number of parties who were 16 involved in the delivery of the infrastructure, and that 17 was only going to increase as we moved into procurement 18 and delivery stages. 19 So the decision was made to look at a common 20 platform, in effect a piece of software that would allow 21 us to use a common software infrastructure to record and 22 manage our risks, and that was the software Active Risk 23 Manager. 24 Q. I want to return to the question of the use of third 25 parties for risk; first, if we could look at the final 6 1 subparagraph in this paragraph number (vi), where you say: 2 "The effect of our approach to risk management 3 included greater on-going attention to risk management 4 and greater dialogue resulting in risk forming part of 5 most discussions." 6 Could you explain that? 7 A. I think maybe picking on the last point in terms of 8 greater dialogue, one of the -- one of the features of 9 having a dedicated risk team and having a greater focus 10 on risk is ensuring that each meeting, discussion, there 11 is discussion regarding risk. So because of our 12 efforts, there was a greater dialogue, a greater 13 understanding and appreciation of risks, and effectively 14 that being step 1, understanding the risks that 15 potentially the project could be faced with. 16 In terms of the effect of our approach to risk 17 management and greater ongoing attention, having 18 a dedicated team who can focus on that and drive that 19 through the business and work with advisers and 20 suppliers allows us to increase our attention in that 21 area. 22 Q. Now, in response to my earlier questions, you have 23 talked about having a dedicated in-house resource, but 24 I think if you go on, if you look at paragraph 12, your 25 answer, at the foot of this page, I don't need to read 7 1 through that, I don't think, but what you are 2 considering there is the fact that at the initial 3 stages, the risk management was provided by the 4 designers under the SDS contract. 5 A. Yes, we specified our remit for the provision of risk 6 management services within the SDS remit. 7 Q. Now, is that common to use a designer to provide risk 8 management services? 9 A. It is. The breadth and detail that we went to in 10 thinking through the scope of risk management within the 11 designer was probably more detailed and developed than 12 had been done before. By that I mean we gave complete 13 clarity of our requirements, because we saw that the SDS 14 designer would have a role that would continue through 15 early design phases and then post-novation as part of 16 the -- design and build contractor would have a central 17 function, effectively managing their design-related 18 risks, but would have touch points to all the risks that 19 the entire project would be exposed to. 20 Q. If I could just ask you in particular about one of the 21 points you make in this paragraph we see on the screen, 22 four lines up from the foot of the page, beginning with 23 (iii): 24 "SDS would be managing design development risk 25 would be central to de-risking the project and would 8 1 have a direct influence on MUDFA, Tramco and Infraco." 2 Now, in what way was the design development risk to 3 be central to de-risking the project as a whole? 4 A. The design development was fundamental to enable the 5 procurement strategy that we were adopting. One, it 6 would allow the early utility diversion works through 7 MUDFA to be executed. Two, it would allow interface 8 with the operator, City of Edinburgh Council, to advance 9 the design to such a level that the key consents and 10 issues that would be considered during design 11 development could be effectively developed in advance of 12 a contractor, the main contractor, Infraco, coming on 13 board. 14 That was seen as a way of de-risking, rather than 15 employing a contractor and designer to effectively 16 commence at the same time, and then go through the 17 development stage. 18 It was also fundamentally to provide a product, 19 a design development that Infraco could effectively 20 price, and with that develop product, hopefully bring 21 less risk-related pricing from Infraco. 22 Q. The way you described it there, would it be fair to say, 23 trying to put it in a nutshell, that a lot of the risk 24 management and procurement strategy hinged on getting 25 the right design at the right time? 9 1 A. Absolutely. 2 Q. Was that something that, as far as you are aware, was 3 the subject of common understanding above the senior 4 management at tie? 5 A. I believe that there was no doubt in senior management 6 with regard to the procurement strategy which was 7 a strategy that had been developed and deployed as 8 a core methodology, a core approach to the business. 9 There was no ambiguity at all between understanding 10 procurement strategy and what we were trying to achieve 11 to effectively de-risk the works. 12 Q. Could I ask you then to look at page 6 of your 13 statement. If we highlight the whole of the paragraph 7 14 there. 15 You describe -- reading, I think it's eight lines 16 down, the sentence beginning: 17 "As the project further progressed, we sought to 18 develop the management of risk through SDS and 19 incorporated within their management services 20 a requirement to provide extensive risk management 21 services and deliverables which I had drafted, as 22 outlined in Section 4.2 of their Scope of Services." 23 That was the emphasis on requiring them to provide 24 not just the design, but the risk management service; is 25 that correct? 10 1 A. That's correct. 2 Q. You note then that one of the things they were to do was 3 to produce and maintain the project risk register, and 4 that within SDS, that was James Kimmance and 5 Paul Jobling were to undertake that? 6 A. Correct. 7 Q. Then critically you say: 8 "I also recall that we took a decision, following 9 poor performance of SDS in the execution of these 10 services, that we would develop this in-house with the 11 support of TSS, who provided Nina Cuckow to fulfil the 12 role of Tram Risk Manager." 13 A. That's correct. 14 Q. Is that essentially saying that the plan to use the 15 external resource and risk had in essence failed? 16 A. It hadn't been successful. We had to adopt an 17 alternative plan in order to ensure that we managed 18 risk, and that alternative plan was to use another one 19 of our advisers, TSS, effectively who would have been 20 a review, independent review of SDS's risk deliverables 21 to actually step in and take control of that. 22 Q. In the following sentence you note that: 23 "At a later point in time, we took the decision to 24 directly employ a dedicated Tram Risk Manager, 25 Mark Hamill." 11 1 A. Correct. 2 Q. Was it therefore at that stage really that the in-house 3 risk resource was developed when Mr Hamill joined tie? 4 A. Correct. 5 Q. Going back, though, to the SDS performance, what was it 6 about their performance that was poor and necessitated 7 their handing of the risk management to TSS? 8 A. They weren't producing deliverables on time, to the 9 quality we expected. They weren't engaging effectively 10 with the team and there was a lack of confidence that 11 they would have an ability to do that. 12 Q. When we are talking about deliverables, is that things 13 such as the risk register? 14 A. Yes. 15 Q. If we go, jumping forward then to page 42 of your 16 statement. 17 CHAIR OF THE INQUIRY: Before doing that, could I just ask, 18 you said that the plan was SDS would provide these 19 services and that TSS would be -- act as a reviewer -- 20 A. Correct. 21 CHAIR OF THE INQUIRY: -- of what they were doing. When you 22 decided to change to TSS as providing the services, who 23 acted as reviewer of TSS? 24 A. That's a good question, my Lord. The review that we 25 deployed on that was within the project team. So the 12 1 range of expertise that we assembled within in-house, 2 effectively, became the reviewers of those areas. 3 CHAIR OF THE INQUIRY: And then when Mr Hamill came to 4 provide the services, who reviewed his work? 5 A. With the support -- I believe with the support of TSS 6 advisers and the rest of our team, they provided that 7 review. These were, for clarity, my Lord, these were 8 ongoing day-to-day activities whereby each risks would 9 be discussed with risk owners and risk action owners. 10 In effect, the risk manager's role is to ensure that the 11 progress has been made not to necessarily identify that 12 all of the risks have been identified from the team or 13 the mitigations are adequate; but act as a one layer of 14 defence, but through broader review and the scrutiny 15 that we brought in through wider advisers, and even 16 additional review that was undertaken by 17 Transport Scotland's advisers at key stages. That 18 brought the comfort that the register that we were 19 preparing and managing was sufficient. 20 CHAIR OF THE INQUIRY: Thank you. 21 MR LAKE: Could we look at page 42 of your statement, 22 please. If you just highlight the second paragraph, 46, 23 the answer. Second one, please. 24 You note there: 25 "I requested Graham Nicol to prepare a paper 13 1 considering the options we had in relation to SDS's risk 2 management remit. I recall that this was prepared for 3 discussion with senior colleagues as we had reached 4 a point where the quality and omissions in their 5 deliverables was compromising the quality of risk 6 management on the project." 7 That's really referring to what you've already said 8 about the lack of deliverables on the part of SDS? 9 A. That's correct. 10 Q. How was it compromising the quality of risk management? 11 A. The period that this was taken was proceeding under -- 12 we weren't getting the traction and the progress that we 13 anticipated to have on these areas of risk. We were 14 very keen to progress risk in a number of areas and saw 15 the engagement of SDS as another way that we could step 16 up our risk management and make further improvements. 17 We anticipated, for instance, that SDS would, 18 through their design development, identify a wider set 19 of risks and be able to provide more detailed and 20 developed risk mitigations. 21 In effect, with not receiving deliverables that were 22 developed or well thought through, that effectively 23 compromised our ability to instruct mitigations to 24 proceed and us to effectively seize the opportunities 25 that we may have had. 14 1 Q. Once you had brought in TSS, Nina Cuckow in particular, 2 to what extent was it possible to recover from that? 3 A. That's a very good question. The ability to recover was 4 difficult. However, when we reviewed the options that 5 we had available to re-energise this risk review, we 6 considered options of blending SDS with TSS to have 7 different components of risk considered with each team; 8 and then concluded that the best option, moving forward, 9 which is in this paper that was put together, was to 10 progress with TSS. 11 That effectively brought team members from TSS who 12 were familiar with the project, who had had a previous 13 involvement, and were able to mobilise quickly and 14 effectively. However, the lost period of SDS not 15 performing effectively did have an impact. But it's 16 hard for me to recall exactly how to quantify that. 17 Q. Because it was a period, I think, where obviously the 18 efforts had been made to advance the various main 19 contracts that were going to be entered into for 20 delivery of the trams? 21 A. Yes. 22 Q. The early stages of the Infraco procurement had taken 23 place? 24 A. Yes. 25 Q. The MUDFA contract had been placed? 15 1 A. Yes. 2 Q. They were being done in an environment where it is now 3 acknowledged by you that the risk management was not 4 what it should have been? 5 A. Yes. 6 Q. Do you consider it had any effect on a proper 7 understanding of risks in the procurement processes that 8 were going on? 9 A. In relation to the risks in relation to procurement, 10 I believe those weren't affected in terms of the risks 11 of controlling and managing procurement. 12 However, the risks in relation to SDS's wider 13 performance in relation to their design development 14 undoubtedly would have a direct impact, and that was 15 effectively a day-to-day issue at this point in the 16 process, that the team were very conscious of and were 17 managing day-to-day. 18 Q. That is something I was going to ask you. The Inquiry 19 has already heard evidence that there were concerns 20 throughout this period as to the performance of SDS in 21 their provision of designs. So that was -- and that was 22 something, as you have said, at the heart of the 23 contract. So itself presented a substantial risk. 24 A. Yes. 25 Q. But the SDS, wearing their other hat of risk management, 16 1 were underperforming. Was that compromising the ability 2 properly to comprehend and address the design risk? 3 A. The two -- the two issues would definitely compound each 4 other. The fact that SDS were not addressing their risk 5 management remit and were not producing the deliverables 6 necessary to effectively inform these wider contracts 7 had a compounding effect. 8 Q. Is that not something that's going to arise in any 9 situation where you've got the person -- the entity 10 that's carrying out the risk management is also 11 providing a separate service to a project, that the risk 12 involved in that second service is at danger of not 13 being properly reviewed? 14 A. Yes, there is a danger of that. In effect we wanted SDS 15 to -- because they were executing such a critical 16 element of design development and employing considerable 17 amount of staff, that they would be directly in touch 18 with the issues at a very detailed level, a very 19 granular level, and therefore they would be best placed, 20 rather than an external organisation, to identify risks 21 and come up with suitable mitigation plans. 22 Q. Because it might be thought that having someone else, 23 for example, considering the risk out of the design, 24 would give a greater objectivity, perhaps a greater 25 scrutiny or oversight of the issues that -- the risk 17 1 issues that arose in relation to design? 2 A. Absolutely. TSS, when they came on board, effectively 3 were providing that degree of support. 4 Q. To tie? 5 A. Through tie. 6 Q. So would it be fair to say that there was a better 7 understanding of the design risks once TSS assumed the 8 role of risk managers? 9 A. Definitely. I think the initial understanding that we 10 had, however, was not coming from a position where we 11 were oblivious to the key design risks that affected 12 projects. I would emphasise, we had spent considerable 13 efforts to understand the risks affecting wider tram 14 infrastructure projects, and considering the local 15 circumstances that we had, identified a number of key 16 mitigations to be addressed during the design 17 development. 18 Q. You mentioned in an earlier question I asked that -- in 19 response to an earlier question I asked, that it's not 20 uncommon for designers to undertake the risk management 21 exercise of projects. How is the lack of objectivity in 22 the assessment of design risk addressed in those 23 projects? 24 A. It's very common, in fact it's standard practice, that 25 designers maintain a risk register. This is 18 1 particularly in relation to their key decisions that 2 they're making. They, under good practice, should be 3 informing clients regarding the risks in their design 4 development and in their solutions. 5 In terms of objectivity, there's always some degree 6 of objectivity in that that role is allocated typically 7 to maybe one person within a design team to extract the 8 key risks from the design team and summarise that. 9 The objectivity or the benefit of having an external 10 look at that issue, an experienced external, is that 11 they can quite quickly focus on what the key issues are, 12 rather than go for the volume of issues to be addressed. 13 So there are advantages and disadvantages of 14 being -- having an embedded element and an overview 15 provided by an external. 16 Q. I want to ask you some questions now about how risk was 17 managed when it was being dealt with internally within 18 tie. Could we look at page 52 of your statement, 19 please. 20 I do this just to highlight the question first of 21 all, at the foot of the page. See what we're talking 22 about. The question is: 23 "What oversight was there to ensure that important 24 risks were not overlooked? That is if there was an 25 omission from the risk register because a risk was not 19 1 recognised, what measures were in place to detect and 2 correct it?" 3 If we can go over the page to see your answer, 4 highlight answer 58. I will read the whole of it just 5 to provide the context: 6 "I believe that the approach that we took was geared 7 to create a culture of active participation in the 8 identification and management of risk. We aspired [to] 9 implement risk management best practice and apply an 10 innovative procurement strategy. We spent considerable 11 effort to learn the lessons of previous projects that 12 led to a new procurement strategy that sought to de-risk 13 the overall project to the public sector. In 14 particular, we focused on those risks that were shown to 15 have contributed to Optimism Bias. Our governance 16 oversight included participation from TS, CEC and 17 Partnerships UK. We regularly sought the inputs of 18 legal, financial and technical consultancy to advise us 19 on the management of risk. Risk formed a key agenda 20 item in most meetings. We briefed stakeholders 21 including CEC, TS, and SG on our management plans, 22 primary risks, and mitigation planning and proposed risk 23 management. In addition, we sought independent scrutiny 24 to verify our approach. Dialogue within the project 25 team, including workshops, and our advisers considered 20 1 that management activities to ensure risk awareness risk 2 management. If a new risk was identified it would be 3 added to the risk register, appraised for significance, 4 assigned a risk owner providing oversight to that work 5 stream and the mitigation plans developed in conjunction 6 with the risk owner including the allocation of 7 responsibilities for implementing the mitigation plans. 8 Once we invested in Active Risk Manager, to create 9 a further integrated platform, this led to further 10 detailing of risk and planning." 11 Now, particularly in the second half of that 12 paragraph there, you set out what's done when a new risk 13 is identified. But I'm not sure you have really quite 14 addressed the question: what measures were in place to 15 ensure that risks were not overlooked? To identify not 16 what was done with the risk once it was in the register, 17 but the other risk that something never got into the 18 register? 19 A. Yes. In effect, the engagement with the contributors to 20 the project was that way of identifying new risks. We 21 had representatives in each one of our service providers 22 or advisers that we engage with to understand what they 23 perceive from their work streams to be the key risks, 24 and this is a -- took the form of workshops, email 25 requests, meeting discussions, that effectively generate 21 1 a series of potential risk events that need to be 2 considered in risk. 3 In terms of my view, we had a very good 4 understanding because of the strength of our team about 5 the types of risks that affected our projects. We 6 uniquely had an operator on board from a very early 7 stage, and that allowed us to really consider some of 8 the downstream issues much earlier that could have 9 tripped the project up. And through that broad 10 participation, which actually was further enabled 11 through using Active Risk Manager that allowed us to 12 effectively engage a broader set of the organisation 13 than just necessarily leaders, allowed us to identify 14 those risks. 15 But I would emphasise that the amount of study and 16 research that was done to identify lessons from tram 17 schemes, broader infrastructure, large scale project 18 developments, was considerable, to try and capture. 19 So I had complete confidence at the time that we 20 were scanning and spotting the risks in an appropriate 21 manner. 22 Q. We then turn to the question of identifying risks to 23 assessing them when they go into the risk register. If 24 we could turn to page 4 of your statement in this 25 regard. 22 1 If you could highlight paragraph 6. You describe 2 what was done there to assess risks. You say: 3 "These included qualitative assessments of (i) the 4 timing when that risk could feasibly occur during the 5 project lifecycle, including procurement, construction, 6 operation stages; (ii) potential impact areas, including 7 capex, programme, opex, quality, approvability; (iii) 8 potential Optimistic Bias risk impact areas; and (iv) 9 likelihood of occurrence and level of impact to assess 10 significance prior to and following mitigation." 11 I think you go on to say that a lot of those 12 assessments were carried out on -- one-to-one 13 discussions carried out with the individual people 14 involved in the project. 15 Now, in what context did those one-to-one 16 discussions take place? Would it have been an informal 17 discussion or a formalised list of questions and 18 directed discussion? 19 A. It was effectively a mix. To illustrate, one approach 20 would be to review the risks that the risk owner had 21 been allocated and test whether or not further 22 mitigations could be developed. 23 Also, to test their progress in implementing the 24 mitigation plans that they had. And then as an exercise 25 to identify anything new that has emerged during the 23 1 period since the last discussion. 2 The overall aim to identify the key risks that were 3 affecting the project. And having these one-to-ones, 4 you get an added advantage of a very open and engaged 5 style. Obviously with different individuals you adopt 6 different approaches, but generally engagement with the 7 team members right from the start in terms of legal, 8 technical, financial advisers, and within the team 9 allows you to pick up on the key specialist area risks 10 and the broader risk to the project. 11 Q. If you are speaking to a team member in relation to 12 a particular risk which arises within their remit, would 13 that team member be the one responsible for identifying 14 the possible consequences and the probability or 15 likelihood of any of those consequences occurring? 16 A. That would be -- could be that individual or it could be 17 done separately at a workshop. So, for instance, the 18 initial appraisal, effectively a review of the risk 19 significance, which looks at probability and its broad 20 level of impact, that would be done with the individual 21 to understand really the level of significance and 22 importance. 23 In that way it allows us to effectively consider the 24 effectiveness of our mitigation plans, because we 25 understand the significance of the risk originally, and 24 1 then, with considering with that individual the 2 mitigation plans, the significance after that. 3 Q. This is one of the things I was going to address. If 4 the individual in question who has -- it's within their 5 remit that the risk arises, they are also responsible 6 for identifying ways of mitigating that risk, but not 7 only do they have to identify the mitigation means, they 8 also assess the effectiveness of the mitigation? 9 A. Correct. 10 Q. Now, what arrangements are in place to verify or 11 cross-check that their assessment of the mitigative 12 effect is a good one? 13 A. Well, the measures that are in place are effectively 14 review and, you know, at project level, that can be with 15 project managers, project director, commercial 16 directors, et cetera, looking at the solutions that are 17 being deployed. Bear in mind that the mitigation plans 18 that are there, they require client instruction to 19 proceed. So there is an inherent review process that 20 goes on to decide where to proceed. For instance, 21 uncertainties regarding ground conditions. If 22 mitigation plans may include elements such as additional 23 surveys, ground surveys, those works would then need to 24 be scoped in detail elsewhere, and a decision to proceed 25 made by effectively ourselves. 25 1 Q. But taking that particular example because it's quite 2 a good one, if there was a risk of ground conditions, 3 a view can be taken as how likely it is that you will 4 encounter unexpected ground conditions; that's stage 1, 5 isn't it? 6 A. Yes. 7 Q. Then you have to think how to mitigate that risk, which 8 might be to carry out some sort of investigations to 9 determine what ground conditions are. That would be 10 stage 2? 11 A. Yes. 12 Q. And stage 3 would be assessment of how effective those 13 surveys would be in mitigating stage 1? 14 A. Correct. 15 Q. What if it starts to turn out that despite putting those 16 surveys in place, unexpected ground conditions are still 17 being encountered, so that it appears that it hasn't 18 been an effective mitigation of the initial risk? 19 A. This is a constant worry with -- in risk management, 20 that effectively is one, your mitigation planning 21 effective enough, and two, is your residual risk still 22 going to be significant? Are you -- and hence why the 23 client decision-making has to be there to see that there 24 is value in implementing some of the mitigation, or they 25 are effective. 26 1 In terms of that residual risk that even after, for 2 instance, conducting surveys, there is still a residual 3 risk. There are some risks that, quite frankly, you 4 can't eliminate. You can't avoid. And those 5 effectively, you are, for instance, in terms of ground, 6 seeking to understand the problem more, to hopefully 7 reduce the levels of contingency or uncertainty in the 8 problem. But then pass that information to, for 9 instance, the -- a contractor, the Infraco, to develop 10 his solution, in the knowledge that he may have to 11 supplement that with wider mitigation plans of his own. 12 Q. Even after risk is mitigated, there's going to remain 13 a residual risk or is likely to remain a residual risk? 14 A. Correct. 15 Q. That residual risk still has to be assessed and is 16 likely to be valued for the project? 17 A. Correct. 18 Q. And that value goes into -- in the tram project went 19 into a Quantified Risk Assessment? 20 A. Yes, that helps to inform the -- the quantitative risk 21 analysis that is undertaken effectively looks at all the 22 risks that are in the risk register, and then, through 23 an assessment of typically three points of the lowest it 24 could be, the highest it could be, and the most likely, 25 in assembling that across the risk register, can then 27 1 perform an analysis to quantify that. 2 Q. But who makes that assessment when looking at the 3 consequence of what the least serious, the most serious 4 and the most likely financial cost of that risk would -- 5 A. Typically, that's QS support. So a quantitative -- 6 a quantity surveyor who has experience in cost of -- 7 costing projects. 8 Q. And that would be an in-house quantity surveyor working 9 with the person who first identified the risk? 10 A. It could be a QS from in-house part of the adviser team, 11 part of TSS, part of SDS who could perform these 12 assessments. 13 Q. What I would like to do is go back to the example we 14 were talking about, ground conditions and surveys, and 15 look at the situation where surveys have been identified 16 as mitigation, but the problem still manifests itself, 17 so the mitigation hasn't worked. That would tend to 18 indicate that the figure that has been put on, 19 quantitative figure put on that risk is likely to need 20 to be revised because the mitigation isn't working as 21 well as expected; is that correct? 22 A. If the individuals looking at the specific risk were to 23 assess that and find, for instance, in sight of the 24 survey results that there is a greater degree of 25 uncertainty, they may find varied conditions, for 28 1 instance. They may still think that the risk is 2 present, and therefore the assessment they would 3 undertake to quantify the potential cost impact of that 4 would be in the knowledge of that; rather than 5 a revision of contingency, it would be an assessment in 6 the knowledge of the information at the time. 7 Q. You are looking at a situation where, for example, if 8 the risk does identify that there was going to be 9 problem ground conditions in particular areas. What I'm 10 thinking of is a situation where the surveys are to all 11 intents and purposes clear, or they find some problems, 12 then works take place and more problems are found. The 13 surveys have failed to find things. 14 Now, in that situation, do you have to conclude that 15 the original mitigation, getting surveys, hasn't been 16 effective to address the risk of unexpected ground 17 conditions, and go back and re-assess that risk and 18 possibly increase both the probability and the likely 19 cost impact of it? 20 A. Correct. 21 Q. When is that done? How is it done? 22 A. That effectively would be done through the review with 23 the individual risk owner who, in knowledge of the 24 survey results, would advise and update through Active 25 Risk Manager or a standalone risk register, and revise 29 1 the residual risk significance and update the cost 2 allowances, the three points estimate around that risk. 3 Q. So it's possible in that situation to have the 4 assessment -- the residual risk as assessed increasing 5 over time if further problems are coming to light? 6 A. It's possible. 7 Q. Also, dealing with the situation where the risk is 8 something that arises out of one of the contracting 9 parties not adequately performing their services, if 10 there was an increasing sign that they are not 11 performing properly, that could increase the probability 12 and the consequences of risk, such that residual risk 13 assessment would increase over time? 14 A. Correct. 15 Q. You've mentioned the review of risk, risk reviews, 16 rather than it being by the individual, it going to 17 meetings where these are considered and reviewed. How 18 do you identify which risks go to that sort of meeting? 19 A. It depends. If you're reviewing an individual's set of 20 risks, we would, for instance, if we were considering 21 the risks in relation to one specific area such as 22 utilities, for instance, we would gather together 23 those -- that individual's leading on specific risk and 24 go through the risks that they owned, and review whether 25 or not the risk is still valid, the effectiveness of the 30 1 mitigation, and where they are in progressing that 2 mitigation. 3 The review process is effectively to allow us to 4 update the risk register, but also allow us to 5 understand that we are making progress to implement the 6 mitigation. That being a key issue that we sought to 7 report internally in terms of: are we identifying new 8 risks? Are we closing risks if at all possible? And 9 how are we progressing with regard to our mitigation 10 plans? 11 Q. And if the mitigation plans are not progressing, does 12 that also require a re-assessment of the residual risk 13 on the basis that it might not be reduced in the way 14 that it was intended? 15 A. That's correct. 16 Q. What if the mitigation is proceeding but it's not having 17 all the desired effects? It's not being effective as 18 mitigation? 19 A. Typically the mitigation would be revised. It would 20 drop in to become a day-to-day management issue that the 21 individuals who are maybe managing that individual are 22 informed or the case that I'm thinking about, the -- for 23 instance, in relation to SDS, alternative fall back 24 measures are thought through and then implemented. 25 Q. Could we look at page 11 of your statement, just for 31 1 a moment. 2 Paragraph 16, the two paragraphs 16. 3 I had asked the question there about: 4 "The reports in the Tram Project Board papers 5 routinely note that risks have been reviewed. What did 6 that entail? Who did it and what records were kept of 7 this? What was the purpose of the exercise? Was it to 8 identify new mitigation measures or was it intended to 9 quantify the risk presented to the project and make 10 adjustments to the budget estimates? There is reference 11 in the report with the June papers to the purpose being 12 to ensure that the QRA output was as accurate as 13 reasonably possible. What did this involve?" 14 In your answer you have noted that the particular 15 example that was offered there was dating from 16 June 2009, by which you had left tie? 17 A. Yes, some two years after I had left. 18 Q. But all these things that I'm discussing there, did they 19 go on within tie while you were still there? 20 A. In relation to -- in relation to reporting of risk, that 21 proceeded in terms of reporting on QRA analysis, that 22 was undertaken. 23 However, I think by this stage, it appears as though 24 there is a process under way whereby QRA and contingency 25 are being assessed and regularly reported on. At this 32 1 stage that I was involved, we were formulating the 2 approach to ring-fence contingency to contracts and 3 manage the drawdown of contingency. 4 So apologies, I'm not clear how it actually panned 5 out after I left. 6 Q. I was more interested in what had been done while you 7 were there, and were you aware what was involved in the 8 review of risk by the Tram Project Board while you were 9 still with the company? 10 A. Well, as I say, we regularly reported on the risks. 11 Effectively we presented a primary risk register, which 12 was effectively a top slice of the most important 13 showstopper or critical risks to the board, to make them 14 aware of the key issues that we had and those included 15 some of the things that we've discussed earlier. 16 Q. You mentioned contingency there. We've also earlier 17 mentioned optimism bias and we've been discussing risk. 18 What is the relationship between risk, contingency 19 and optimism bias? 20 A. Right. Well, optimism bias, as you appreciate, is 21 a tendency for projects to underestimate their outturn 22 costs, and therefore is designed to effect a safety 23 valve or a headspace that sits above project costs. 24 Q. Just if I can interrupt there, what happens is an 25 assessment is done about the possible effect of optimism 33 1 bias; the result will be, as you say, that a sum of 2 money is identified as a sort of proxy for the 3 propensity to underestimate, and that is added back to 4 the estimated project cost as, in a sense, a correction 5 for that bias? 6 A. Correct. Correct. It's a forced correction that 7 through studies the Treasury have done, have identified 8 this feature and the level of allowance that should be 9 incorporated. 10 However, during the development stages of projects, 11 as projects progress, optimism bias, through risk 12 management, through greater understanding of a broader 13 set of risks, effectively has been shown to reduce. 14 So the -- essentially the approach that we took was 15 to understand a much broader set of risks that the 16 project could be exposed to, because optimism bias 17 identified a number of key features and lessons for 18 areas that had specifically driven cost overrun and 19 programme delay. 20 In terms of risk, risk obviously sits above both the 21 base costs and any uncertainty that's in the base costs. 22 This in turn is calculated at various stages during the 23 development of the project, and like optimism bias, it 24 doesn't necessarily stay the same. Both base costs vary 25 during the development of the project as more certainty 34 1 is introduced, and in effect you're eroding optimism 2 bias, which captures those broader unknowns or market 3 variables that you're not clear on. 4 Q. The risks in question, as you discussed the process of 5 the risk registers, it's trying to identify things that 6 might happen, or I suppose that might not happen, that 7 will have an effect on the cost of the project for or 8 the time within which it has to be completed? 9 A. Yes. Yes. 10 Q. They are known to the extent that a particular event or 11 non-event can be named, and the consequences of it, 12 financial or time consequence assessed for it? 13 A. Correct. 14 Q. With optimism bias, it's really, as you've explained, 15 trying to consider the way that people assess problems 16 or risks that arise? 17 A. Yes. 18 Q. And how they might underestimate the likelihood of it 19 happening or underestimate the consequence when it does 20 tend to happen? 21 A. Correct. 22 Q. Now, the way I have described them, I have done it quite 23 deliberately, they don't seem to overlap. They're very 24 much complementary? 25 A. In some sense I think they do overlap, because 35 1 effectively your optimism bias, for instance, if we pick 2 two areas that have driven optimism bias, one, the lack 3 of robustness of the Business Case, two, lack of clarity 4 around the scope of the client's requirements. 5 If you tackle those two issues as known risks, and 6 embed them within your planning, you're effectively -- 7 you are managing those areas that other projects, 8 through maybe the inadequacies of their Business Case 9 process, which might only involve writing a few pages to 10 get justification to invest, versus the degree of 11 scrutiny that projects such as the tram receive in going 12 through a large gestation period, a parliamentary 13 scrutiny, further design development that evolves over 14 years, that effectively have a longer term ambition to 15 address those compared to other sectors that don't have 16 that benefit. 17 Q. But in the question of -- you say a risk and the two 18 examples you have given are identified and addressed, 19 does the optimism bias not come into the addressing of 20 those in the sense that there's a tendency to be unduly 21 optimistic as to the extent to which you are able to 22 address the risk? Or the consequence of your attempting 23 to address it? 24 A. There is a potential for that, and guidance has 25 highlighted that particular concern, and it's also 36 1 highlighted the opposite issue, that if projects were to 2 proceed with large optimism bias included, that you have 3 an opposite behaviour whereby one, the marketplace knows 4 you've got more money and there's complacency to not 5 manage risk. 6 Q. I want to come back to the market knowledge of this. We 7 have talked about optimism bias and risk. The third 8 element, contingency, where does that fit in relation to 9 the other two? 10 A. Sorry, in terms of? 11 Q. Where does it fit in relation to risk and optimism bias? 12 A. In terms of contingency, contingency is obviously -- 13 well, I see it as very distinct. It's effectively the 14 interpretation of your QRA analysis that appraises your 15 risk in making a decision on the level of contingency 16 you want to proceed with in the project. 17 Now, the processes that we employed were to 18 effectively use QRA to analyse a range of conditions 19 that could occur for the risks that we understood, and 20 then in selecting a level of contingency to be 21 incorporated. 22 Q. So you're using contingency then, as I understand it, as 23 the figure that is to be derived from the quantitative 24 risk analysis? 25 A. Correct. 37 1 Q. Essentially it's the risk allowance? 2 A. Yes, it is. It's a risk allowance to be effectively 3 controlled by a project to deal with those risks that 4 have been identified. 5 Q. And in terms of -- you say in choosing a figure, if 6 you've done a quantitative risk analysis, my 7 understanding is it will produce a distribution curve 8 where you can choose what degree of probability you 9 want, and the higher the probability, the higher the 10 risk will be? 11 A. Correct. 12 Q. The higher the sum will be? 13 A. The analysis allows us to select based on our appetite 14 to the risk, level of risk that we are prepared to bear. 15 Q. I want to turn now to look at optimism bias, and I think 16 you have explained your statement that while you were 17 there, optimism bias was a calculation carried out. You 18 assessed it throughout your time on the project. 19 Did you expect that there would be a continuation to 20 the assessment of optimism bias once you left the 21 project in 2007? 22 A. As we moved to the Draft Final Business Case stage, we 23 had shown that the allowance of a higher probability of 24 risk occurring, ie a belief that we had identified 25 a broad range of risks, much broader than we initially 38 1 had at the very, very early stages, and then had 2 progressed to analyse these, that if we were to consider 3 a very extreme set of circumstances where all the risks 4 were to occur, and have a very high impact, that that 5 would be a far more onerous case than bolting on an 6 optimism bias contingency. 7 In addition to that, the guidance shows that the 8 allowance for optimism bias is primarily to be 9 incorporated at those early stages of the project, with 10 the aim to mitigate risks down to a residual level at 11 the point where you're appointing the Infraco contracts. 12 So the overall aim is to understand a broader set of 13 risks, analyse them much more effectively and in 14 a detailed fashion through a QRA, rather than in a very 15 simplistic inclusion of an allowance. 16 However, I would make the point that there's nothing 17 to stop funders or others to incorporate optimism bias 18 as reserve contingencies, in the knowledge of approving 19 an allowance with a contingency. 20 Q. You dealt with optimism bias in the early stages there, 21 but you also referred to it towards the end. We will 22 deal with it in reverse order, just looking at the end 23 first, where you said you decided to use a risk figure 24 to meet a higher level of probability, and you 25 considered that was more onerous than optimism bias. 39 1 When you say more onerous, do you mean it generated 2 a higher number, a greater allowance had to be made? 3 A. Yes. If you compare the residual allowances that the 4 guidance stipulates for, capex and programme schedule -- 5 Q. That optimism bias allowance -- 6 A. That optimism bias allowance versus the differences 7 between, for instance, a P50 and a P90, you'll find that 8 they're very comparable. 9 Q. They may be comparable in number, but they're not 10 assessing really the same underlying thing, are they? 11 A. In theory optimism bias is still catering for a residual 12 amount or a degree of unknown risks that may emerge. So 13 the potential is that there could be a broader set of 14 risks that could emerge. 15 However, the confidence we had at the time because 16 of the degree of huge investment we'd made to understand 17 and engage with a full supply chain, all team members to 18 understand and manage these risks, we were in belief 19 that this was the best approach. 20 Q. In terms of the initial assessment, if we could look 21 back to your statement, please, at page 33, if we could 22 highlight the central third of that page. Stop there. 23 We see just above the halfway line on the screen, 24 there's a sentence that begins: 25 "I was involved with determining the OB reference 40 1 class to be used and determined that it should be 2 classed as a "Standard Civil Engineering" as this seemed 3 the most appropriate for the scope of works being 4 contemplated. I recall that this further reinforced by 5 the example projects used to categorise a "Non Standard 6 Civil Engineering" Project that included complex, first 7 of kind unique, or incorporated high risk construction 8 elements including tunnelling works." 9 In that regard, as to which reference class you 10 chose, could we also look at page 49. The start of 11 paragraph 54, if we highlight that. Again, there you 12 note: 13 "The tram project was appraised as a "standard civil 14 engineering project", as the scope and characteristics of 15 the proposed construction works comprising roadworks, 16 utility diversion and tram infrastructure that did not 17 have unduly heavy risk elements." 18 Then you go on to talk about EARL which had 19 a different assessment as it had a tunnel in it. 20 Now, this project was, was it not, unusual in 21 putting a tram through a historic and congested city 22 centre? 23 A. Not unusual in terms of previous other light rail 24 projects that had been done in the UK or 25 internationally. It didn't have particularly heavy risk 41 1 elements in terms of non-standard features that Treasury 2 would point you towards adopting a non-standard 3 approach. 4 Q. But did you look at the other sort of projects that were 5 included within the standard civil engineering projects 6 and assess to what extent the tram might be different 7 from those? 8 A. Yes. I mean, the standard civil engineering projects 9 that were in there, we spent considerable time reviewing 10 this with -- in detailed discussions, as I recall, with 11 Transport Scotland, to basically understand and help 12 inform them regarding our decision to classify it as 13 that project. 14 That classification took place at a very early stage 15 of the process. It literally was in a matter of months 16 of me when I first started with tie. This was one of my 17 first tasks to basically examine and understand. So 18 that these assessments could be incorporated within the 19 STAG appraisal and considered within the early outline 20 Business Case. 21 Q. Who within Transport Scotland did you discuss this with? 22 A. I recall speaking with Paul McCartney and Damian Sharp. 23 I can't recall names of others. 24 Q. Were they content that it be classed as standard rather 25 than non-standard? 42 1 A. There was never any inference that non-standard was the 2 way to go with tram. 3 Q. Because obviously the guidance says there should be 4 a larger allowance for optimism bias at the outset for 5 a non-standard project? 6 A. I think one of the sort of main reinforcing points was 7 that when we looked at the other UK schemes that had 8 been developed, the outturn costs of those projects 9 relative were something like 25 per cent increase, and 10 therefore the idea of adopting a non-standard that we 11 built in a far, far greater allowance than that just 12 seemed to be an allowance that would just compromise the 13 deliverability of the system. 14 Q. But dealing with those other projects, the 25 per cent, 15 that was an increase of 25 per cent over the final 16 budget, what they thought they were going to cost. 17 A. Yes. 18 Q. Did you have estimates for those other projects of what 19 the final cost had been over their very initial 20 estimates to see to what extent they might have been 21 optimistic from the very outset? 22 A. I can't recall, but -- 23 Q. That's when the assessment would have to be made. 24 That's when the initial optimism bias was applied? 25 A. I would disagree, because in effect the outturn costs of 43 1 those projects are documented and therefore their cost 2 per kilometre, which can be corrected and adjusted for 3 time, location, et cetera, which we did as an exercise, 4 allowed us to do that. And therefore when we were able 5 to convert our basic costs per kilometre construction 6 relative directly to other UK schemes, it effectively 7 creates a reference class that's far more accurate than 8 the fact that we didn't know what the original pricing 9 way back was, when they first thought of an outline 10 Business Case for those schemes. 11 Q. Looking at other schemes and benchmarking against their 12 costs is one means of estimating what the actual costs 13 of the project will be. And that was something that was 14 done by tie; is that correct? 15 A. Yes. We employed advisers who helped us to develop the 16 cost models for these projects, for our project, who had 17 been involved with some of these previous projects. 18 Q. Indeed, but the point is that if you're once using the 19 other projects to arrive at your initial cost estimate, 20 to go further and try and adopt the same projects to 21 identify your optimism bias figures, or to dictate the 22 optimism bias class is in a sense over taking into 23 account or double counting those other projects? 24 A. I disagree. I think the project is a standard civil 25 engineering project. It's not got, you know, 44 1 unconventional features. It's not the first time 2 a project like this had been done in the UK. It doesn't 3 have high risk construction elements in terms of -- such 4 as tunnelling that have been shown to be drivers to 5 large cost increases in projects. 6 Q. If the Inquiry hears evidence from people involved that 7 it was a complex and challenging project, I take it you 8 wouldn't disagree with that? 9 A. It was complex in terms of yes, it's a large scale 10 complex project, but it's not the first of its kind. 11 It's just large and complex. 12 Q. But in meeting the various complexities and challenges, 13 and having to bring to mind the experienced minds of the 14 various engineers, it's in those minds that the optimism 15 bias may reside. 16 You have said a minute ago that taking a larger 17 figure would affect the deliverability of the project. 18 Obviously if you take a larger figure at the outset, 19 that is going to inflate the initial estimates, and 20 there's a danger simply that the funders, sponsors will 21 take fright when they see those initial estimates? 22 A. I don't know if it's take fright. I think it's the 23 reality in that if we were to proceed with all projects 24 and just bolt in the -- a large allowance, I don't think 25 funders would appreciate that. 45 1 Q. The concept or understanding of optimism bias, I think 2 really started to emerge in about 2002/2003; is that 3 your understanding? 4 A. In terms of the concept, the early concept? 5 Q. Yes. 6 A. Yes, I mean, the concept came earlier, but it was 7 crystallised by Treasury in their analysis in 2002/2003. 8 Q. As a psychological phenomenon it had been understood for 9 some time, but it started to be applied to construction 10 projects and costs in 2002/2003 by the Treasury? 11 A. Correct, and they mandated that through the Green Book. 12 Q. But it was about that time that the initial budgets for 13 the tramline in Edinburgh were being fixed. Were you 14 aware of that? 15 A. In terms of fix, do you mean -- 16 Q. The initial assessments of how much this was going to 17 cost in Edinburgh. 18 A. Well, it's part of our development of the outline 19 Business Case. The first Business Case I was involved 20 with, we included our assessments of optimism bias 21 within that submission. And as I say, the wider 22 documentation such as the STAG appraisal that looks at 23 the economic argument or economic case for the scheme 24 also incorporated optimism bias. 25 Q. As you said, both in terms of trying to show that 46 1 a project stacks up on the economic appraisal, the STAG 2 analysis, or both the funders be sure that they are 3 going to be able to finance it, there is a pressure to 4 reduce optimism bias? 5 A. There is -- there is reports published about that 6 tendency that there could be an in-house driver to 7 reduce optimism bias, but -- 8 Q. Because a larger cost for a project, estimated cost for 9 a project, might mean that the benefit-cost ratio is 10 unacceptable to government? 11 A. Absolutely. But with the inclusion of optimism bias 12 within that economic appraisal, effectively tests a more 13 onerous condition to allow funders or government to 14 proceed, and obviously there could be wider analysis 15 undertaken by government or funders to consider even 16 more onerous conditions. 17 Q. I would like you to look at something about optimism 18 bias in the preliminary financial case, please. 19 The document reference for that is TRS00000054. We 20 see the front page of the Preliminary Financial Case 21 here. Could we look, please, at page 27 of the scan. 22 Could we enlarge paragraph 4.4.1, both parts of it. 23 We can see you open that by stating -- I should ask, 24 did you contribute to this document? 25 A. Yes. 47 1 Q. You did. 2 "The Preliminary Financial Case has taken as 3 a starting point the fact that the project under 4 consideration represents a Standard Civil Engineering 5 Project, due to the number of other UK projects that 6 have been developed, and as a consequence the maximum 7 Optimism Bias adjustment to capital costs and works 8 duration is 44% and 20% respectively." 9 I think that's what you have just outlined to me 10 just now about why you chose that? 11 A. Yes. 12 Q. If you look at the second paragraph here: 13 "The project has now been in development for some 14 three years since its original promotion by WEL. As 15 a consequence of the stage it has reached, the analysis, 16 cross-checking and benchmarking of cost estimates, 17 together with the amount of mitigation that has been 18 carried out across the range of risk areas identified 19 above, it is considered appropriate to use lower factors 20 of 31% for Capital Cost Optimism Bias and 21 14% Works Duration Optimism Bias. It should be 22 noted that this compares to a capital cost contingency 23 of 11% identified by Mott MacDonald for Line 24 One. The difference between this figure and the 25 Optimism Bias Capital Cost adjustment of 31% 48 1 adds a theoretical GBP44 million of capital cost to the 2 project costs at this stage. As the project scope and 3 specification progresses, the risk mitigation exercise 4 should assist in reducing this number." 5 Now, if we could actually also look at the foot of 6 the page for the conclusions. At the bottom: 7 "An incremental Optimism Bias factor of 20 per cent 8 over and above the defined contingency as specified by 9 tie's consultants has been applied using HM Treasury 10 methodology." 11 That figure of 21 per cent there, was that the 12 difference between the 31 per cent optimism bias and the 13 11 per cent contingency identified by Mott MacDonald? 14 A. Yes. 15 Q. What did that 11 per cent represent, the Mott MacDonald 16 11 per cent? 17 A. I recall that that was effectively an estimate of 18 contingency that was necessary above their base costs. 19 Q. Now, that -- what you're doing there is deriving your 20 optimism bias percentage by looking at what would be 21 produced by the figure of 44 per cent and mitigating it 22 to 31 per cent, and then subtracting the contingency 23 allowance already made? 24 A. Yes. 25 Q. Why is the contingency allowance already made subtracted 49 1 from optimism bias? 2 A. When effectively you look at it this way, if you look at 3 Treasury guidance, it doesn't scale the costs of the 4 project and its contingency. It scales the base cost. 5 And therefore -- 6 Q. When you say scale, you mean the optimism bias is 7 applied to the base cost? 8 A. Yes. So it doesn't apply a correction to its 9 contingency. Because that effectively would be double 10 counting because you've got risks that are embedded in 11 optimism bias that may have a greater value or the value 12 that was estimated and then a broader set of risks, and 13 at these early stages, where you have less of an 14 understanding of all the risks that could be presented 15 to you in the project, you incorporate a larger headroom 16 within the optimism bias. 17 Q. But I can understand deciding that you're going to apply 18 the optimism bias figure only to the base figure and not 19 the contingency. But what you're -- here is not 20 deciding which figure you apply optimism bias to. 21 You're actually reducing the optimism bias by the whole 22 of the contingency before you apply it to the base, and 23 that's quite different, isn't it? 24 A. It's effectively ensuring that you're not double 25 counting. 50 1 Q. It's assuming that optimism bias and contingency overlap 2 100 per cent, isn't it, so that one can be deducted from 3 the other? 4 A. Correct. 5 Q. Is that borne out by guidance at the time? 6 A. Well, guidance at the time is -- is not crystal clear in 7 relation to that, all that aspects. But my 8 interpretation of it is that effectively you do not want 9 to double count and include risk allowances for the risk 10 twice. 11 Q. If you go back, please, to your statement -- 12 CHAIR OF THE INQUIRY: Could optimism bias have some 13 significance in the assessment of contingency? In other 14 words, if it's a psychological thing that you're being 15 optimistic, so that in assessing contingency, could you 16 be influenced by that psychological thing? 17 A. Yes, my Lord. That is one of the issues that subsequent 18 guidance has highlighted, that there could be a tendency 19 to be optimistic in your contingency allowance in the 20 knowledge that optimism bias is going to be 21 incorporated, or as a whole just be optimistic in your 22 contingency requirements, ie underestimating your true 23 risk exposure. 24 CHAIR OF THE INQUIRY: Are you saying that this is now 25 recognised in subsequent advice? Is that advice from 51 1 the Treasury subsequent to 2002? 2 A. This is from papers that have been produced by -- 3 I can't recall the name of the professor. 4 Bent Flyvbjerg, I think, who has effectively done 5 considerable more studies in the Dutch market with 6 regard to large scale infrastructure projects and 7 highlighted some of the broader behaviours that might be 8 inherent in projects. 9 CHAIR OF THE INQUIRY: Yes. He's the expert in this matter, 10 isn't he? He was the instigator of the Treasury 11 guidance. 12 A. He's one of the leading lights in this field. 13 CHAIR OF THE INQUIRY: Yes. 14 A. Without a doubt. 15 MR LAKE: I just want to look now at the assessment of 16 reductions to optimism bias, please. If we could look 17 at page 15 of your statement. If we highlight 18 paragraph 22, although it's -- I don't propose to read 19 through it here, but what you do is you note here what 20 was in the Treasury's 2002 guidance by way of the 21 ability to reduce the upper bound optimism bias as the 22 project proceeds. Is that fair? 23 A. Correct. In effect, the guidance, Treasury's guidance, 24 shows that as you progress to mitigate the risk 25 effectively identifying a mitigation factor, 52 1 a percentage complete of progressing that mitigation, 2 you can attach that to the various areas of optimism 3 bias and calculate a reduction. And the Treasury 4 guidelines have actually example calculations 5 incorporated within them that we followed and used as 6 a basis. 7 Q. Looking at the mechanism that you adopted to do that, if 8 I can jump forward to page 26 of your statement. If we 9 could highlight paragraph 32 at the foot of the page. 10 If you go down a bit. 11 You refer to a spreadsheet you prepared which is 12 available to all the parties. But if I can just read 13 after -- in the last four lines, you say: 14 "Reductions in optimism bias were made as progress 15 in mitigating risk reported by risk owners using their 16 individual judgement in relation to individual mitigation 17 factors for each risk." 18 Really, do I understand what you're doing here is 19 you're speaking to the people who had that risk and 20 getting them to assess the extent to which they've been 21 able to address it? 22 A. Correct. 23 Q. And adjusting the optimism bias factors accordingly? 24 A. Correct. 25 Q. Now, resorting here to the guidance within this, 53 1 employer, an Arup report in relation to this. Could we 2 look at production CEC01799560. 3 We can see that this is the front page of a 4 document, which was a review by Arup Scotland of the 5 Business Case that had been put forward. I'm just 6 wondering if there's a date on it. 7 In fact, if I ask you to go to page 30, we can find 8 a date on it there. If we look at the bottom right-hand 9 corner of the screen, I think we see the date of the 10 document. This date is 26 October 2004. 11 Are you familiar with this document, the review that 12 was carried out by Arup? 13 A. Yes, I am. 14 Q. Could we enlarge paragraphs 8.7 and 8.8, please. It 15 starts in paragraph 8.7 by noting what the uplift would 16 be. The conclusion of the first paragraph, having 17 considered the various percentile uplifts, and it's 18 looking at 57 per cent, which I think is the higher, 19 that's for the non-standard civil engineering; is that 20 correct? 21 A. No. They are making reference to DfT's guidelines. So 22 DfT did a specific study into a range of projects, and 23 then offered up different OB allowances for certain 24 projects. 25 Arup here are highlighting that if they were to 54 1 apply DfT's guidelines and -- which require -- and use 2 an 80th percentile for a rail project, bearing in mind 3 that this is a light rail project on a road, they would 4 take 57 per cent. 5 So it's not the Treasury guidelines and it's 6 effectively cross-referring to a heavy rail project, 7 rather than a light rail project. 8 CHAIR OF THE INQUIRY: We've heard evidence to the effect 9 that light rail projects can be more complex and 10 difficult to build than heavy rail projects which go 11 across green field sites or open countryside. Do you 12 have anything to say about that? 13 A. Actually, my Lord, the guidance shows that heavy rail 14 projects are more onerous to construct in terms of 15 having a larger outturn than originally planned. This 16 is driven by a number of reasons that are all captured 17 within optimism bias for that specific sector. Light 18 rail projects are considered to be less complex than 19 heavy. 20 CHAIR OF THE INQUIRY: Thank you. 21 MR LAKE: On the basis of the DfT guidance, they note at the 22 end there that on that basis, it might be considered 23 that the optimism bias uplift allowance may be 24 underestimated. 25 A. Yes. Effectively it draws a conclusion by pointing to 55 1 a different sector's delivery record and taking a more 2 onerous position. It highlights that if you take the 3 80th percentile for OB, that you could have the need for 4 a greater allowance. In effect, this is just saying 5 that, yes, circumstances could be very different, and if 6 you compared it to this other reference type of 7 projects, you could need more money. 8 However, when further on, they go on to highlight 9 the actual cost overruns in light rail itself, where in 10 the UK the experience has been that that's been up to 11 25 per cent. 12 So the guidance, bear in mind, always highlights 13 that your best starting position is to take a reference 14 class series of projects that are suitable to your 15 project, rather than taking broader, more onerous 16 approaches. 17 This was an issue that I considered right at the 18 start when appraising optimism bias, whether or not we 19 should be arguing that through detailed study of these 20 specific light rail projects and understanding that 21 25 per cent increase, we should be using that as more of 22 a guiding starting value than something coming from 23 Treasury. 24 Q. That was a 25 per cent increase, as we've said before, 25 over the final estimated cost? 56 1 A. Correct, correct. 2 Q. Not of the initial estimated cost? 3 A. Correct. Correct. 4 Q. Dealing with the question of when it's estimated, that 5 paragraph 8.7 notes at the end that the DfT guidance 6 recommends that its OB uplifts be applied at the time of 7 decision to build which is at Business Case submission. 8 It rather presupposes that's going to be quite early in 9 the overall project process. 10 A. Yes. This -- the preliminary financial case which Arup 11 are appraising here was a document that was prepared to 12 support the parliamentary process, effectively prior to 13 an outline Business Case production, where we would be 14 more developed in our design and understanding. 15 Q. Here obviously the intention was that the Business Case 16 submission and the decision was taken at a very late 17 stage, some contracts were already awarded. It was just 18 on the eve of the award of the Infraco contract. 19 A. The outline Business Case was prepared to allow us to 20 proceed with the earlier procurement such as the SDS, 21 Tramco, MUDFA, in knowledge that as we progressed 22 through the procurement of Infraco, there would be an 23 updated version of that, a Final Business Case prepared, 24 that would hopefully present the progress of those 25 advance works and commit to an actual price that had 57 1 been secured through the Infraco procurement. 2 Q. That Final Business Case was going to be the actual 3 decision to build. It was actually going to be very 4 late on in the process? 5 A. Correct. 6 Q. Do you consider that had an impact for how -- an impact 7 on the way in which optimism bias would be used in this 8 project? 9 A. I think in reality it was -- that period was of benefit 10 to us because effectively it allowed us to manage the 11 risks and deal with them as we progressed. We were 12 effectively unpacking a procurement strategy that was 13 de-risking the approach to delivery that these other 14 projects in the UK that suffered cost increases hadn't 15 taken the opportunity to deal with. 16 So detaching utilities, detaching the design and 17 dealing with progressing that -- an earlier stage, 18 bringing on board the operator and Tramco so that that 19 could be assembled and used to inform the Infraco was 20 all seen as an inherent better way of delivering than 21 other projects. 22 Q. If you could look at paragraph 8.8. If I read from the 23 fifth line, it says: 24 "However, DfT guidance also allows for downward 25 adjustments of optimism bias uplifts when warranted by 58 1 firm empirical evidence." 2 Now, you were adjusting down on the basis of the 3 impression of people as to how risks would be mitigated 4 in future? 5 A. Correct. 6 Q. Rather than on the basis of firm empirical evidence. 7 Was that not a departure from the forms of recognised 8 guidance for optimism bias? 9 A. I would highlight again that this is the DfT guidance. 10 Treasury's guidance doesn't have that type of limitation 11 on adjustment. It indicates that as you progress your 12 project, you can apply mitigation factors. The approach 13 that I took was to discuss that with each risk owner, to 14 understand their progress in mitigating that risk. 15 I saw the benefit of doing it that way was that you 16 weren't getting one individual guesstimating effectively 17 three or four parameters to calculate optimism bias, but 18 rather by taking a large group view across every risk in 19 the risk register, you are not going to receive a bias 20 to that. 21 So actually I felt as though our approach was 22 removing the risk of bias. It was dealing with that 23 issue that I think you're referring to that with the 24 individual quoting the mitigation factor, that they have 25 their own optimism bias in the value that they're 59 1 selecting. 2 MR LAKE: Thank you very much, Mr Bourke. Those are my 3 questions for Mr Bourke, my Lord. 4 CHAIR OF THE INQUIRY: I don't think anyone else has 5 suggested questions. 6 Thank you very much, Mr Bourke. That's all for the 7 present. You're still under citation, and technically 8 you could be recalled if something arose. Hopefully 9 that won't be necessary, but thank you very much. 10 A. Thank you, my Lord. 11 MR LAKE: My Lord, I was concerned the other witness wasn't 12 going to make it, but he is here. But this would be an 13 appropriate time to take a break. 14 CHAIR OF THE INQUIRY: We will resume again at 11.20. 15 (11.09 am) 16 (A short break) 17 (11.27 am) 18 CHAIR OF THE INQUIRY: Yes, Mr Lake. 19 MR LAKE: My Lord, the next witness is John Casserly. 20 MR JOHN CASSERLY (sworn) 21 CHAIR OF THE INQUIRY: Could I ask you to listen to the 22 question and answer it as directly as possible. If you 23 have qualifications or explanations, you can add these 24 after your primary answer. 25 If you speak loudly enough and clearly enough, so 60 1 that the shorthand writers can keep up with you. 2 Examination by MR LAKE 3 MR LAKE: Mr Casserly, can you state your full name, please. 4 A. It's John McNeill Casserly. 5 Q. And what is your occupation? 6 A. I'm a quantity surveyor. 7 Q. If you could look at a document on the screen. It's 8 TRI00000111_C. 9 You should also, Mr Casserly, have a paper copy of 10 that in front of you? 11 A. Yes. 12 Q. Is this a question and answer that you provided by way 13 of statement to this Inquiry? 14 A. Yes, it is. 15 Q. I think in the paper copy at least you have your 16 signature on the final page? 17 A. That's correct. 18 Q. Are you content that that be taken to be your evidence 19 to this Inquiry? 20 A. Yes, I am. 21 Q. Thank you very much for that. 22 I want to ask you a few additional questions about 23 various issues that have arisen. 24 Firstly, could I ask you about page 24 of your 25 statement, please. Question 31. This is in relation to 61 1 the carrying out of the utility works, and it notes 2 initially that at a Tram Project Board meeting on 3 5 September, Andrew Holmes raised the issue as to when 4 the more difficult sections of the utility diversion 5 works would be tackled. 6 Was it the question that less difficult sections 7 were tackled first? 8 A. I think that -- sorry to interrupt. 9 Q. No. 10 A. There were elements of the utility diversions 11 particularly round about Ocean Terminal, which were 12 easier or less difficult to then do utility diversions 13 on, because they were privately owned by Forth Ports and 14 there was less utilities in those areas. 15 So those areas were carried out while we were 16 awaiting the utility design or the diversions for the 17 utility designs from SDS. 18 Q. Now, presumably if those were the more straightforward 19 works, they could be carried out with fewer surprises 20 and fewer difficulties? 21 A. In theory. There's still a requirement because you're 22 trying to do a clean swept path for the tram that it 23 still restricts the amount of space either side of where 24 the tram is going for the utilities to be fitted in. 25 But yes, they should have been and there were less 62 1 difficulties associated with those things, because the 2 private owner of the utilities also had really good 3 records, and was also working with us on a day-to-day 4 basis actually on the site, dictating where things were 5 going. 6 Q. Was the effect of that that at the start of the works 7 being carried out, there was in a sense a false 8 impression that they could be carried out with 9 relatively little difficulty? 10 A. I think in the context they were easier to do because 11 you had the greater level of detail. I'm not sure that 12 there was a false impression that was given, because 13 everybody took a view and within the whole budget and 14 within the MUDFA and the tram project, there was always 15 a recognition that when you're moving utilities in 16 a city like Edinburgh, there will always be an element 17 of unexpected and additional things; and I think the 18 budget reflected that because I think the actual bundle 19 for doing the works, there was an allowance of risk and 20 contingency of about the same again. So the bundle for 21 the works was about GBP40 million. The risk and 22 contingency was about GBP35 million of -- so it was 23 GBP75 million, GBP79 million in total. 24 Q. Now, I think we know that the works took a lot longer 25 than was anticipated? 63 1 A. Yes. 2 Q. Was that in part because although it was expected there 3 would be additional utilities to those known about, the 4 problems turned out to be worse than had even been 5 expected? 6 A. Yes. 7 Q. When did that start to become apparent that that would 8 be the case? 9 A. I think very early in the process. It became apparent 10 that there was little ground investigation work had been 11 done, apart from a kind of ground penetrating radar. So 12 that when you actually started digging in the ground, 13 you discovered a lot more utilities than anybody had 14 anticipated, even having done a number of limited 15 surveys. 16 Q. I want to come back to ask you about surveys in a while. 17 When you say quite early, I think the MUDFA works 18 got under way in 2007. 19 A. Yes. 20 Q. As you have seen from this minute. Was the problem 21 apparent by the end of 2007? 22 A. Yes. 23 Q. If we look at page 44 of your statement, if you look at 24 the lower half of this page, there are questions here 25 about the slippage in time. You were asked at the foot 64 1 of the page, what were the main reasons for the slow 2 progress, and you referred to a progress report there. 3 If I go over to the next page, the top of it, the 4 question is: 5 "To what extent could and should these difficulties 6 have been foreseen prior to Infraco contract close in 7 May 2008?" 8 You say: 9 "All foreseen and advised to tie Infraco team re 10 issues and potential impacts prior to May 2008 including 11 anticipated consequences to Infraco contractor." 12 A. Yes. 13 Q. I just want to look at the various components of that. 14 Can you recall really when that was first foreseen 15 and advised to the Infraco team? 16 A. Yes. We produced -- so the MUDFA team produced 17 a schedule of all utilities. There were a number of 18 issues associated with the design at that point. 19 So we put together a schedule which showed utilities 20 that had been left in place that the Infraco contractor 21 would have to deal with as they came along. 22 It showed areas where the tram design had changed, 23 because the slab thickness for the actual tram slab had 24 increased from the original design. So we'd moved 25 utilities, then the slab had increased in depth. There 65 1 was a decision taken that rather than readjusting 2 utilities, that the Infraco contractor would then deal 3 with those utilities that might be within that level. 4 So there was a whole raft of things which were then 5 produced in a schedule, which were then presented to the 6 Infraco contractor, prior to them signing the Agreement 7 and after they'd been made the preferred bidder. 8 I actually sat with them, and then there was a legal 9 note that was prepared by DLA Piper which detailed all 10 those things and then were sent to the Infraco team. 11 That was both the contractor and the Infraco team that 12 were negotiating the Infraco contract at the time. 13 Q. You said you passed information and had discussions with 14 the Infraco contractor, letting them know the additional 15 works they would have to do. I take it the people 16 within tie were made aware there would be additional 17 works? 18 A. Yes. 19 Q. Who was this information passed to within tie? 20 A. It was actually issued to the tie Board. So it went to 21 the tie Management Committee. So through Steven Bell 22 and Susan Clark. It was also issued to the programmers. 23 It was also issued to Geoff Gilbert and the team 24 that were negotiating the contracts with the Infraco 25 contractor, and there was a formal note -- I don't know 66 1 and I can't remember, so I apologise. The formal note 2 from DLA Piper, Sharon Fitzgerald produced it and 3 drafted it and I approved it. I can't remember exactly 4 who that went to within tie, but it covered all those 5 issues and it had the schedule attached. 6 Q. By the time you got to May 2008, all these people you 7 have referred to would be aware of two things. Number 8 one, that the MUDFA works as done by the MUDFA 9 contractor, Carillion, would not be complete, and that 10 Infraco would have to undertake these additional works? 11 A. Yes, and just to clarify as well, in that register of 12 those things that Infraco would have to deal with, it 13 wasn't just that they had to move a number of utilities 14 and diversions. By diverting utilities as you went 15 along, then you don't remove all the bits of pipe that 16 are underneath the tram. You have moved the utility. 17 So there's still old ducts and other things there. That 18 was also included in the list, so that the Infraco 19 contractor was able to take a view on that, from 20 a health and safety and CDM perspective. That means 21 when they're coming along, they know when they hit a 22 pipe, then the pipe's empty, there's nothing in it and 23 it's live, so that was included in the list as well. 24 Q. What I would like to do now is look at a number of 25 reports that were generated within tie which record 67 1 progress being made with the MUDFA works and just ask 2 you a few questions about that. 3 The first one I would like to look at is a document 4 reference CEC00114381. 5 I have transposed two of my numbers when I read them 6 out. Can we look at CEC00114831. 7 You can see this is a pack of papers prepared for 8 a meeting with the Tram Project Board that was to take 9 place on 9 April 2008. Not long before contract close. 10 Did you ever see these? 11 A. Not these papers, no. 12 Q. Could you look at page 12 within it. You can take it 13 from me that this is part of a report to the Tram 14 Project Board by the Project Director who was then 15 Steve Bell. We can see a summary of the MUDFA position. 16 What I'm interested in is the right-hand part of 17 this table, overall performance to date. We can see 18 that it was planned that there would have been a total 19 of 12,000 metres or so to be completed and in fact only 20 10,000 had been done. And that it was hoped that 104 21 chambers would have been corrected or moved and only 54 22 had been done. 23 Was that your understanding? Is that representative 24 of the position that existed at that time? 25 A. Yes. 68 1 Q. Now, that was something that existed after, as you say, 2 some of the more straightforward works had been done 3 down at Ocean Terminal. Was your feeling at that time 4 that matters were going to get worse as time went on, in 5 terms of the time lag? 6 A. I think it's difficult to say because it's to do with 7 what you actually discover in the ground as you're 8 digging and uncovering things in the road. Then -- and 9 in the pavements. 10 Then it's difficult to put a kind of view on it that 11 says it was going to get worse. I think it was 12 representative at the time of the issues. 13 CHAIR OF THE INQUIRY: Could you slow down. 14 A. Sorry. 15 MR LAKE: You said it was difficult: I think it was 16 representative at the time of issue. 17 A. Yes. 18 Q. Could we look and see how matters did move on. If we 19 could look at a document CEC00988024. 20 We can see this is -- the cover sheet indicates it's 21 the papers for the Tram Project Board meeting that was 22 to take place on 17 December 2008, the end of the same 23 year. Could we look at page 12, please. We can see 24 here, if we enlarge the table that's in the middle of 25 the page, we can see that in terms of the metres to be 69 1 replaced, the cumulative progress is that against the 2 planned replacement of 41,700 metres, actually only 3 30,445 have been done. 4 A. Yes. 5 Q. So that is a slippage of approximately 25 per cent? 6 A. Yes. 7 Q. Can I ask you to give an audible answer. 8 A. Sorry, yes. 9 Q. In the earlier one, we saw it was from 12,000 to 10,000, 10 so it's clear by the time we are here that the slippage 11 is in fact increasing? 12 A. Yes. 13 Q. If we look at the bullet points underneath this table, 14 we see: 15 "Reason for the lower than planned productivity 16 include:" 17 The second one: 18 "Re-sequencing at Haymarket due to traffic 19 management." 20 What was the issue there? 21 A. Because of the number of utility diversions required at 22 Haymarket in the very limited space and the restrictions 23 on the traffic management, we were uncovering additional 24 utilities as we were digging different sections of the 25 road. To allow us to try and accommodate that, the 70 1 traffic management had to be amended continually, to 2 then give you a wider area to then work within, and 3 there were restrictions on what we could do within the 4 traffic management, within the agreements that we had 5 with the Council and the Traffic Department within the 6 Council. 7 Q. If we look at the next bullet point: 8 "Close down of sites on Leith Walk due to a new 9 embargo." 10 I take it that speaks for itself. The Council had 11 decided or someone had decided there should be no 12 working, and that had made it necessary to shut down 13 certain sites for a while? 14 A. That's correct. 15 Q. This was in the December minutes. So was that something 16 that happened on the run-up to Christmas, to assist 17 Christmas shopping? 18 A. There were a number of different times at different 19 periods in the year when these things would happen, but 20 yes, I would assume that was for Christmas. 21 Q. The next point is lack of design for section 1a. What 22 were the difficulties with provision of design that were 23 happening? 24 A. The issue that we had was getting design information 25 from SDS, the designers, which was agreed and approved 71 1 by the utilities for the installation of the utilities. 2 Q. I wanted to look at two other documents, because I want 3 to contrast what happened between one month and the 4 next. 5 So could we look at CEC00983221. 6 We can see this is the Tram Project Board papers 7 this time for the meeting in July 2009; do you see that? 8 A. Yes. 9 Q. Then could we go to -- pardon me. If we start on 10 page 12, and we see the foot of the page here, the 11 progress on MUDFA during the period 3, and it's 12 represented in a table, but we really need to look to 13 the next page to see the end of the table. The 14 right-hand columns are the cumulative position. The 15 planned, the actual and then the various; is that 16 right -- 17 A. Yes. 18 Q. Did you actually prepare this table and provide it to -- 19 A. I don't remember preparing that particular table. The 20 ones where -- the tables we saw previously where it had 21 that actual linear metreage of the utilities done, we 22 definitely prepared those tables. But I don't remember 23 preparing a table that then adjusted percentages based 24 upon output. It was -- we always produced tables that 25 showed actual linear metreage of utilities to be 72 1 diverted planned against actual. 2 Q. And then what we can see is the planned completion was 3 82.2 per cent. The actual was 78.6 per cent, with -- 4 that's 3.5 per cent roughly behind planned? 5 A. Yes. 6 Q. If we then look at the next month, which is reference 7 CEC00739552. 8 We can see that these are the papers for a meeting 9 in August 2009, and then go to page 14 of those papers. 10 If we could just enlarge the MUDFA table from the centre 11 of the page. We can see that there's a dramatic 12 increase and that the cumulative plan is now up to 13 100 per cent, and the actual figure has jumped to 14 96.6 per cent. 15 A. Yes. 16 Q. Was there really such a big jump between the two months, 17 or is there some explanation for these jump in figures? 18 A. I think there was two kind of issues associated with 19 this. Some of the works were de-scoped from the MUDFA 20 contract and the MUDFA project and were tendered or let 21 to other contractors to deliver. So they were taken out 22 of the MUDFA reporting process, which would then reduce 23 the amount of planned against actual for the works that 24 were outstanding or remaining. 25 Q. So the difference is when we come to the second table, 73 1 the one we are now looking at, that's not all the MUDFA 2 works. That's only the MUDFA works still let under the 3 original contract? 4 A. That would be my understanding, yes. 5 Q. Do you know, was there any separate reporting channel 6 set up to indicate what percentage of MUDFA works 7 remained outstanding under the new contracts? 8 A. Not in this format. Again, on the utility diversion 9 works, we actually presented numbers on the actual 10 utility lengths to be done against planned, irrespective 11 of who was carrying out the works. So I couldn't say or 12 I can't remember if there was anything specifically done 13 outside the remit in the reports that we produced. 14 Q. Did you provide under those other contracts, did you 15 provide information to the management, to the Board, as 16 to how complete they were? 17 A. We did up to a point in time. The Infraco team that 18 were carrying out the Infraco works took over the 19 running and the closing out of those contracts at 20 a point in time near the end of 2009, but prior to that, 21 then yes, we actually were and the people within 22 MUDFA were supervising those additional -- the project 23 team within MUDFA and the project managers were 24 supervising those other contractors and co-ordinating 25 those works, but the actual management of them then 74 1 moved to the Infraco team, late 2009/early 2010. 2 Q. So thereafter, they would be the ones responsible for 3 gathering data as to how far through the works had gone 4 and how much was still left to do? 5 A. Yes. 6 Q. I now want to look at other differences in the tiers of 7 reporting. If I could ask you to look at some other 8 documents with me. If we could look at CEC00080738. 9 Once again, we can see these are the papers for the 10 meeting that took place of the Tram Project Board on 11 4 June 2008. Could we go to page 10. 12 We could enlarge the heading "Progress - MUDFA" and 13 the bullet points underneath it. 14 We can see: 15 "Overall, cumulative progress is approximately six 16 weeks behind programme and, prior to mitigation, shows 17 a two week impact on the Infraco programme." 18 Were you involved at all in assessing the impact 19 that the MUDFA delays would have on Infraco or was that 20 different people within the -- 21 A. It was different people. We would produce a programme. 22 We would then issue that programme centrally, and then 23 that would be incorporated into a master programme 24 including the Infraco works by the -- Susan Clark and 25 her team. 75 1 Q. If we see that says six weeks and then we go -- contrast 2 that with what is in the month that follows, if we look 3 at file USB00000005. We can see these are the papers 4 for 2 July 2008, the following month. If we could look 5 at page 15, and enlarge the heading, "Progress - MUDFA", 6 and the three paragraphs or so. Yes. 7 Now, all that's said here is: 8 "Progress has started to show improved production 9 rates ... barriers to production have been addressed and 10 recovery works are under way." 11 Then the following paragraph it says where the MUDFA 12 works are, that's two to three weeks behind on Infraco 13 critical activities. So this is all that we know, that 14 it's got a little bit better on the six weeks behind 15 that we were told previously? 16 A. Yes. 17 Q. Now, if I could ask you to look at a different document 18 now, it's got reference CEC01302139. We see this is the 19 MUDFA Sub Committee Report, papers for their meeting 20 that took place on 4 June 2008, which is round about the 21 same time as the last two documents we've been looking 22 at? 23 A. Yes. 24 Q. Could we look at page 8 of this. We can see this is 25 a paper to that Sub Committee entitled "Construction 76 1 Director's Report" for 4 June 2008. 2 And an executive summary, we see a table recording 3 the performance that was taking place on the project. 4 A. Yes. 5 Q. Were you involved in preparing that table or the data 6 for it? 7 A. Yes. For the actual numbers of the utility diversions 8 planned and actuals, yes. 9 Q. If we look at what's said there in the overall 10 performance to date on the right-hand side, out of 11 a planned 24,000 metres, an actual 15,000 metres had 12 been done. 13 A. Yes. 14 Q. Now, that's on very crude arithmetic, roughly 15 40 per cent less than should have been done? 16 A. Yes. 17 Q. Is that just the representation -- a different way of 18 saying it was six weeks behind? 19 A. Yes. When you take the programme, I think the previous 20 report said it was the critical items on the Infraco 21 project. On the programme and the programme path, there 22 would be critical items and a critical path. Some of 23 those utility diversions that might not have been 24 completed in the actuals might not be on the critical -- 25 sorry, I apologise for talking too fast. 77 1 Some of the items that may not have been completed 2 as actual utility diversions might not have any impact 3 on the critical path of the Infraco Contract. And 4 therefore the six weeks' delay that we previously saw on 5 the previous report might not be associated with every 6 single utility not being completed. There might only be 7 four or five, ten, 15 key utilities that then impact the 8 critical path of the Infraco contract. 9 Q. I can understand why advice would want to be given to 10 the Board about particularly what is going to affect the 11 other contracts. 12 A. Yes. 13 Q. But was there any discussion with you about why these 14 figures, the 40 per cent behind schedule, were not being 15 reported to the Tram Project Board? 16 A. No. As I say, we produced the numbers and we also sat 17 in a monthly meeting, presented these numbers and showed 18 all the figures. We weren't involved in the production 19 of the reports that then went to the sub-committees of 20 the boards. 21 Q. I think ultimately the agreement with Alfred MacAlpine 22 that became Carillion was terminated by agreement? 23 A. Yes, after I had left tie, yes. 24 Q. You say it was after you left. That is my next 25 question. Were you involved at all in the discussions 78 1 and negotiations for what went into the Termination 2 Agreement? 3 A. No. 4 Q. I want to put to you some more general questions about 5 utility works and how they are managed and some of the 6 problems. 7 A common theme that emerges throughout your 8 questions and answers is the difficulties arising from 9 inaccuracies of the records held by utilities? 10 A. Yes. 11 Q. I think I understand it correctly that this is something 12 that's common throughout all historic cities? 13 A. Yes. 14 Q. What were the solutions to that? How did you get round 15 that? 16 A. Well, in fairness to the utilities, the Scottish Water 17 and SGN, the gas company, have quite good records. The 18 differential being that the utility might not be exactly 19 where they said it is. It could be slightly off-line, 20 but they have actually quite good records of where their 21 utilities are. It's the balance of the utilities that 22 don't have very good records. 23 The only way of then dealing with that, or the only 24 practical solution, I believe, is doing a greater level 25 of site investigation, digging trial holes, exposing 79 1 what's in the ground, and having the utilities and 2 designers with you when you do that, to then come up 3 with a solution, depending on what you find. 4 Q. That raises two things that I want to ask you about. 5 Number 1, what sort of investigations take place, and 6 how you go about finding the solution, getting the 7 involvement of the utilities. 8 Firstly, the investigations. You're talking about 9 trial holes there. Previously you've mentioned radar? 10 A. Yes. 11 Q. Is radar an effective way of finding out what's under 12 the roads? 13 A. I think it has a place, but it wouldn't tell you all the 14 information. It is limited on what it can actually 15 produce and do. 16 Q. What can it tell you and what can't it tell you? 17 A. Depending upon the type of radar survey, and I'm not an 18 expert in this, so I apologise, but depending upon the 19 type of radar survey and utilities that were in the 20 ground, if there's something that that has an electrical 21 pulse or can have a current through it, then it's got 22 a chance of detecting it. If it doesn't have an 23 electrical pulse or a current through it, it will not 24 find it. 25 Q. So things like the modern gas pipes, polyethylene gas 80 1 pipes, would they be found? 2 A. No, not in my experience. 3 Q. Okay. So you get at best a partial picture of what's 4 under the ground using radar? 5 A. At best, yes. 6 Q. If you are using radar on a route that's going to be 7 done, how much of the route would be generally surveyed 8 with radar? 9 A. Personally, and I wasn't involved in the -- in the 10 actual surveys that were undertaken, I would have 11 surveyed the whole route, and I would have carried out 12 trial holes along that whole route as well, as the radar 13 surveys. 14 Q. Now, trial holes obviously have the difficulty that they 15 cause traffic disruption in a city like Edinburgh? 16 A. Potentially. 17 Q. Why only potentially? 18 A. Because it depends on what you're trying to find. Part 19 of the trial holes is to identify the utilities that are 20 there and give you an indication. You don't have to dig 21 across the whole road. By the nature of the beast, it's 22 called a trial hole. So you select where you put your 23 trial hole, and it also then gives you a view on what 24 spice might be available to actually accommodate 25 utilities you're going to divert out of the tram 81 1 pathway. 2 Q. That is what I was going to ask you. You need to know 3 not just what's under the route where the tram is going 4 to go. 5 A. Yes. 6 Q. You need to know what's next to it to know if there's 7 going to be any space to move the utilities under the 8 tram? 9 A. Correct. 10 Q. But that sounds like trying to get all that information 11 for the whole of the tram route would be almost 12 tantamount to digging up the entire tram route before 13 you start? 14 A. Which is impossible to do, yes. That's the only way you 15 would get a complete picture of the whole site and then 16 exactly what you're faced with. 17 Q. Once you discover what's there, you've got to try and 18 design the movement -- how to move the utilities and 19 where to accommodate them? 20 A. Yes. 21 Q. How swift is that process? 22 A. Unfortunately it depends upon the amount of space that's 23 available to then put the utilities into, and then the 24 number of the utilities. Each of the utility providers 25 has a standard design that they would like you to 82 1 follow, which gives them a standard space inbetween 2 utilities, so they get access and go through that 3 process, which is marvellous when you've got an open 4 road and nothing else that's there. 5 When you're moving everything, a large number of 6 things into a very congested space and therefore they 7 don't get the design parameters and the things they 8 would normally expect to get, it's then a more difficult 9 discussion, because you need the utilities to then 10 almost give you or remove their design standards, and 11 change them to accommodate whatever they can actually 12 achieve in the ground, rather than their preferential or 13 their standard design parameters. So it makes it more 14 difficult to then get agreement on where all the 15 utilities would go. 16 Q. So presumably, if you wanted to get that variation 17 standards, you've got to put a design proposal to 18 electricity company, gas company, water company and 19 say: is this acceptable to you? 20 A. Yes. 21 Q. And is it easy to get a reply out of them for that? 22 A. It depends -- to start off with, at the MUDFA project, 23 it was very difficult. The SDS provider, that was part 24 of their role, and part of their remit, as was the trial 25 holes, and actually doing a site investigation over the 83 1 whole site. 2 The relationship from an SDS perspective, the 3 designers, took a very kind of standoffish approach, 4 where they expected the utilities to actually come up 5 with the answers and provide them with all the 6 information, and then a design. Halfway through, or not 7 halfway, but very early in the process, it was 8 recognised by MUDFA that we had to have a more proactive 9 approach with the utilities. So we actually engaged 10 with the utilities, brought them to the site, and had 11 a representative of each of the utility companies on 12 site every day, with a representative of the designer, 13 so instead of them sitting in Newcastle, somebody 14 actually on site with us, to then help get through that 15 process, and agree where utilities would go and come up 16 with designs. 17 Q. Was that being done, getting people on site, when the 18 actual MUDFA works were being undertaken, the road was 19 being broken, or was that earlier at the design stage? 20 A. We tried to do it earlier at the design stage and then 21 also during the actual MUDFA works that were being 22 undertaken, because you could still discover additional 23 things that needed to then be dealt with, and at that 24 time you then don't have the time to go through a formal 25 three, four, five, six weeks' process. You need to try 84 1 and get a decision as quickly as possible. 2 Q. Because what I was thinking is if you discover that you 3 want to move an electricity cable in a way that doesn't 4 comply with their requirements, they might say no. 5 A. Yes. 6 Q. So you have to move it somewhere different and that's 7 then going to cause a problem for gas or water, and 8 you've got to go to them? 9 A. That's it exactly. 10 Q. So is there any established means of forcing everyone to 11 come together, all the utilities and the project 12 designers, to try and get decisions made on these 13 matters quickly? 14 A. There's nothing to force them, and there isn't any 15 avenue, other than through New Roads and Street Works 16 Act, which would then mean taking a dispute to the new 17 roads and street works and following a kind of formal 18 legal process. 19 Q. How long would that take? 20 A. It would take an awful long time. Six months to a year 21 potentially, and obviously that is not conducive to then 22 delivering a tram project. 23 So the only way to deal with it was to actually get 24 representatives who had the authority or were 25 significantly senior enough within the utilities to come 85 1 and spend time with us, get them in a room, and MUDFA 2 nine times out of ten then co-ordinated those meetings. 3 The MUDFA project managers in charge of each section of 4 the works would then have liaison meetings with the 5 utilities and have them all in the room at the same 6 time, to then come up with a negotiated or a reasoned 7 solution. 8 The only caveat to that is that some utilities just 9 by the nature of what they are, take precedence over 10 others. So for instance, a gas main, because of the 11 health and safety implications, always -- almost always 12 gets priority because it's different from having 13 a telecoms cable. 14 Q. I could see that anything that's going to fail to danger 15 has to be given priority? 16 A. Correct, yes. 17 Q. When you say that these sessions were run by MUDFA, was 18 that people within tie or the MUDFA contractors? 19 A. No, it was people within tie. We also had the MUDFA 20 contractor in the meetings as well, to make sure that we 21 had everybody -- everybody's input to get the best 22 solution and the most economical and advantageous to try 23 and get it delivered. So rather than having three or 24 four different meetings, you get everybody all in the 25 room at the same time, agree the solution, and then go 86 1 and try and deliver that solution. 2 Q. From what you are saying, that sounds like that was 3 voluntary, it depended on the co-operation of everybody 4 concerned? 5 A. Yes. 6 Q. Did you get the co-operation of everybody? 7 A. I think initially there was a bit of push back, but yes, 8 we did get the co-operation of the utilities, and they 9 did try to help us wherever they possibly could. There 10 were a number of locations limited, and I think one of 11 them was Constitution Street, where we couldn't get 12 a design that would meet everybody's requirements and 13 was left in abeyance. 14 So it just kept getting put back and put back and 15 the reason being the distance between the walls or the 16 buildings in Constitution Street is almost exactly the 17 width of the tram just about. So there isn't anywhere 18 to put utilities. So it becomes a much harder 19 discussion and debate. 20 CHAIR OF THE INQUIRY: Was that ultimately resolved or is it 21 still in that position? 22 A. It wasn't resolved at the time that I left tie, my Lord. 23 MR LAKE: Is there any way in which, in the absence of an 24 agreed solution, it's possible to impose a solution on 25 the utilities? 87 1 A. It's -- again, there's the health and safety issues with 2 those like a gas main, where they, under their design, 3 could then take you to a Health and Safety Executive. 4 So you couldn't impose upon the gas utility a solution 5 which they then could then say breached our health and 6 safety, and therefore they didn't believe there was 7 a safety issue with it, in which case you would have to 8 go to a regulator and again that would take you 9 a considerable period of time to get a resolution on. 10 So we didn't impose upon the utilities. We tried to 11 get to an answer with them that was acceptable. 12 Q. Were you satisfied as a generality that where the 13 utilities raised concerns or problems, they were genuine 14 concerns or problems or they were just seeking to adhere 15 to their guidelines for their own convenience, their own 16 corporate convenience? 17 A. I think that in general the utilities did change their 18 guidelines. I think the one that was hardest to get 19 a change from was the gas network. But again, it's 20 a safety issue. So you can understand the issues that 21 they had, but they did use a safety card quite a lot of 22 the time if they didn't like the design. 23 Q. If gas is a utility which takes priority, possibly for 24 understandable reasons, is there merit in essentially 25 starting with gas and you think that they have perhaps 88 1 some adequate record, starting with them, and getting 2 that done first, and then bringing the others together 3 to essentially force a solution from them? 4 A. I think in reality that's the way the actual discussions 5 took place. So rather than having a separate discussion 6 with the gas provider, getting a design and then coming 7 up with a solution for everybody else, that was again 8 a critical thing through the discussions: where does the 9 gas main go and how do we accommodate that, and then how 10 do we then get everything else round about to fit. 11 Most of the other utilities recognise that the 12 things that have a public health or a health and safety 13 issue would get priority. 14 Q. Sticking with the issue of the utility companies and the 15 co-operation you got from them, did they co-operate in 16 terms of provision of information such as they had about 17 the whereabouts of their plant? 18 A. I think they did provide all the information that they 19 had, actually drawings and details. I think they also 20 provided, after we initiated the kind of MUDFA approach 21 of getting the people in the room and then discussing 22 things, it's also apparent that quite a lot of the 23 utilities have personnel who have a really good 24 understanding of where their assets are in the ground, 25 which might not necessarily be shown on a set of 89 1 drawings. Because of work done over a period of years. 2 Those people were invaluable in then helping to come up 3 with a design and come up with a solution. 4 Q. What about once the works had been done, presumably 5 particularly with things like water and gas, perhaps 6 others also, they need to accept the works or approve 7 the works before they connect back into their network? 8 A. That's correct. 9 Q. Was there co-operation given in relation to that, or 10 were there difficulties? 11 A. No, there was good co-operation given in the -- the 12 contractor that was selected for the MUDFA works was 13 actually an approved contractor for all of the 14 utilities. So they're actually an approved gas 15 supplier, electrical supplier, Scottish Water, and the 16 telecoms providers. That was one of the reasons they 17 were selected. 18 So they would have used the same contractor. We 19 also had programmed in reconnection dates. So 20 disconnecting the existing services, and then connecting 21 to the new service once it was diverted. There was 22 a very thorough process for going through that. And the 23 utilities then attend, so they send an inspector, who 24 then inspects the diversions and doing any testing, 25 checks the testing. So, for instance, Scottish Water, 90 1 the diversion would be done. A Scottish Water inspector 2 would be present who would witness the flushing of the 3 mains, who would witness the tie into the new mains and 4 would approve all that before you could then put the 5 mains into service for the customers. 6 Q. Was that a smooth process in practice? 7 A. It was smooth inasmuch as sometimes the dates -- so you 8 have to give the utilities advance notice when these 9 things are going to take place, so that they have the 10 people that are able to sign those things off present at 11 the time, which are different from the people that are 12 going to be approving the designs and the other 13 elements. 14 The only issue that we had is sometimes the utility 15 diversions or the readiness of Carillion might have 16 slipped from the day that they said it was going to be. 17 So they might have said: I'll be ready on Monday; and 18 actually it was ready on Wednesday. Sometimes it's 19 quite difficult to then get the utilities staff back, 20 that says: on Monday we are not ready, can you come back 21 on Wednesday. Sometimes that wasn't always available, 22 but in fairness to the utilities, they did try to 23 accommodate everything and they did put things in place 24 to try and reduce those outputs. 25 Q. Dealing with money dealings with the utilities -- 91 1 A. Yes. 2 Q. -- under the New Roads and Street Works Act, there would 3 be a payment due in some instances from the utility 4 company to tie in respect of the works, because the 5 utility company are getting a newer asset? 6 A. Yes. 7 Q. Now, were there difficulties in trying to get those sums 8 agreed? 9 A. There were -- there were difficulties in trying to 10 understand -- the New Roads and Street Works Act and the 11 payments that are associated with that betterment, 12 I think is what it's known as under the New Roads and 13 Street Works Act, also depends upon the age of the 14 utility and how long it's actually been in service. 15 So if it's a brand new asset that's only been in 16 service for a year, there isn't a lot of benefit for the 17 utility in getting a new asset. So you don't get any 18 money in effect. Whereas some of the older utilities, 19 like a water main or a gas main, some of those had been 20 in the ground for over 100 years, and therefore you're 21 getting a 80, 90, 95 per cent contribution to the cost, 22 but only of the diversion. 23 So the issue that we had was more about the age of 24 the asset and when they were installed, and part of that 25 was because the utilities themselves didn't actually 92 1 know how old some of the assets were. 2 Q. Presumably that didn't hold up any work actually getting 3 things moved? 4 A. No. 5 Q. It just held up agreeing the money? 6 A. It's just a commercial agreement. In fairness to the 7 utilities, we got to a position where if we knew the age 8 or they had drawings showing the age of assets at one 9 end of a street and another end of a street, let's say, 10 the section in the middle, we took a reasonable view 11 that said: it's reasonable to assume that the asset that 12 we don't have a date on is placed in the same kind of 13 time frame. So we used that as a basis, which I thought 14 was a reasonable view from the utilities and 15 a reasonable way to go forward. 16 Q. If I could ask you to slow down. 17 A. I apologise. 18 Q. Were there situations where you simply couldn't reach 19 agreement or it took an inordinate amount of time to 20 reach agreement on what the betterment sum would be, 21 because you couldn't agree the age? 22 A. I think -- well, not so much the age. The area that we 23 had the most issue with was the telecoms and 24 particularly BT and trying to get the telecoms element 25 sorted. 93 1 Q. Why? What was the problem there? 2 A. The problem there is that we had a continuing debate 3 about what was actually in the ground to start off with, 4 and how many cables there might be. So for instance, 5 along Leith Walk there's a number of cables in the 6 ground. You then come along and we were putting in what 7 would appear to be a significantly increased number of 8 cables and ducts for British Telecom. 9 And the cables that we put in today carry a lot more 10 information than previous cables. So the query that we 11 had constantly, which was very difficult to try and draw 12 out from BT, is there is a great deal of benefit that 13 they're getting because they're getting additional. So 14 an increased number in the actual number of cables that 15 are there to start off with. And an increased 16 capability within those cables which meant that in 17 theory, we should have been able to put in less cables 18 because the modern day cable can carry a greater amount 19 of data. We ended up putting in more cables, and so the 20 BT element wasn't resolved at the time that I left tie, 21 and MUDFA -- sorry, tie appointed through the Infraco 22 contract, and somebody that worked with the Infraco 23 team, a liaison with BT to try and resolve all those 24 issues. 25 CHAIR OF THE INQUIRY: When you're speaking about 94 1 betterment, you said that you got a percentage of the 2 betterment, depending upon the age of the original pipe 3 or what have you. 4 I think you said something like only a percentage of 5 the diversion. So that if you had an old pipe, 6 100 years old, and you were replacing it at the point of 7 diversion, you would get 90 per cent of whatever -- of 8 the diversion. But could you then connect the new pipe 9 to the 100-year-old rusty pipe at the other end? 10 A. Yes, my Lord, you could. The issue -- the only issue 11 with that and the reason I say for the diversion, there 12 were a number of utilities, particularly the gas main, 13 where, because of the restrictions and what you could 14 do, then rather than having the utility on Leith Walk, 15 so there's an existing pipe which runs down Leith Walk. 16 Because of the constraints and design constraints, there 17 was a view taken that you would do a diversion that 18 actually went down one of the side streets, connected to 19 an old or another gas main, and then you brought it back 20 in through another side street. So it took away the 21 issue where there was a really congested area. 22 Quite rightly, the gas authority said: I only wanted 23 to replace 20 metres of pipe, but you have had to go 200 24 metres to do the 20 metres; I'm only contributing to the 25 20 metres that we are getting that -- that you should 95 1 have actually only diverted, I'm not paying for you 2 because you have had to take it all round Edinburgh to 3 get back to the same place. So we would only get the 20 4 metres or the contribution to the 20 metres, rather than 5 the 200 metres. 6 CHAIR OF THE INQUIRY: Thank you. 7 MR LAKE: One other matter you mentioned in your answers is 8 the difficulty when you uncovered something in the 9 ground and you didn't know what it was or whose it was. 10 Yes. 11 Q. I think you said if you couldn't get an answer, you 12 simply had to cut it under controlled conditions? 13 A. Yes. 14 Q. Is that simply an inevitable consequence of the poor 15 records? 16 A. Yes. 17 Q. Is there any other solution to that that you can think 18 of, other than just cutting it under controlled 19 conditions? 20 A. There are other ways where you could spend a lot of time 21 having all the ground and everything all ready, 22 everything all opened up, where you spent a lot of time 23 with the utilities where people go and trace it, track 24 it and then try and find where it was. 25 From our perspective, and from a cost and time 96 1 perspective, that could have taken six or eight weeks in 2 some instances. 3 By having the utilities and having them all involved 4 in the process, getting them all there, letting them 5 look at their records, and also the people that 6 understood their assets, that knew what the assets were 7 in the area, if they were unable to then ascertain who 8 owned the two or three that were left, or however many, 9 then there was an agreement with the utilities that we 10 would actually cut it; and then if there was a complaint 11 or somebody then phoned up the utility, then we would 12 reconnect or we would do something with it. If nobody 13 then contacted us or nobody contacted the utility, then 14 it wasn't diverted because it was assumed to be an 15 abandoned utility. 16 As I say, when you divert or put in new utilities, 17 it isn't common practice to then remove all the old 18 things. So you're finding old abandoned utilities as 19 well as existing and operational utilities in the 20 ground. 21 MR LAKE: Thank you very much, Mr Casserly. Those are the 22 only questions I have. 23 CHAIR OF THE INQUIRY: I don't think there are any issues 24 raised by anyone that hasn't been covered. Thank you 25 very much, Mr Casserly. And particularly for coming at 97 1 short notice. 2 You're still under your citation. Technically it 3 would be possible to recall you. I don't envisage that 4 happening. Thank you. 5 A. Thank you. 6 MR LAKE: My Lord, the next witness will be Jim McEwan. He 7 will be giving his evidence by videolink, and the 8 arrangements are in place for that to commence at 9 2 o'clock this afternoon. So I'm afraid I don't have 10 another witness to provide just now. 11 CHAIR OF THE INQUIRY: I was going to say to -- I realise 12 that sometimes people stay in over lunchtime, but 13 could I ask that people leave over lunchtime because 14 various tests and things have to be undertaken of the 15 equipment to make sure that it's in order for the 16 2 o'clock video session. 17 We will adjourn until 2 o'clock. 18 (12.20 pm) 19 (The short adjournment) 20 (2.00 pm) 21 CHAIR OF THE INQUIRY: Mr Lake. 22 MR LAKE: My Lord, the next witness this afternoon is 23 James McEwan. As is apparent, he's giving his evidence 24 by way of a videolink. 25 CHAIR OF THE INQUIRY: Yes. 98 1 MR JAMES MCEWAN (sworn) 2 (Evidence given via videolink) 3 CHAIR OF THE INQUIRY: You will be asked some questions now 4 by Mr Lake, who is counsel to the Inquiry. If you just 5 listen to the question and answer it as clearly and as 6 directly as you can. 7 A. I will do, my Lord. 8 Examination by MR LAKE 9 MR LAKE: Mr McEwan, could you state your full name, please. 10 A. James McEwan. 11 Q. What is your present occupation? 12 A. I'm retired. 13 Q. I think formerly you worked with tie in Edinburgh on the 14 tram project; is that correct? 15 A. I did. 16 Q. Could you just say what was your job title when you 17 worked there? 18 A. The job title, I believe, was Business Improvement 19 Director. 20 Q. Could I ask you to look at a document, please. I hope 21 you have it also. It's reference TRI00000057. Then we 22 have an underline C. 23 This should be a copy of your statement that you 24 provided. 25 A. My statement, yes, sorry. Got that. It's not got 99 1 a reference number on it. 2 Q. With that statement, perhaps we can just identify it. 3 It begins with question 1 on the first page, beginning 4 "by way of introduction". It's a total of 89 pages 5 long. And is signed on page 88 by you on a date in 6 April, and then there's a following page with an 7 addendum for clarification of 3 May, also signed by you? 8 A. Yes, yes, I've got that. 9 Q. Are you content that that is adopted by you as your 10 evidence to this Inquiry? 11 A. Yes. 12 Q. Now, there's a few additional questions I would like to 13 ask to clarify various things. 14 A. Okay. 15 Q. I would like to start, please, in December 2007, when 16 Matthew Crosse and Willie Gallagher went to Wiesbaden as 17 part of the negotiations to close the contract. Do you 18 recall that? 19 A. Yes, I do. 20 Q. I think we've heard that the evidence was partly to 21 settle the outstanding items of value engineering, and 22 also to try and firm up the contract price. Were you 23 aware of that? 24 A. I'd forgotten the value engineering bit, but yes, I was 25 aware that this was to firm up the contract price. 100 1 Q. Had you been involved in attempts to firm up the price 2 with the consortium? 3 A. Not at that stage, no. 4 Q. So you weren't aware of any of the background 5 discussions and what the sticking points were between 6 the parties? 7 A. I may have been aware of some the background issues and 8 discussions but I wasn't involved in a discussion on the 9 contract price, with the parties at that time. Other 10 than -- sorry, we had -- there was a -- there was 11 a meeting off-site with the contract where they landed 12 the 3.8 million. Was that the Rutherford Agreement or 13 whatever? 14 Q. Are you referring to what's known as the Rutland Square 15 Agreement? 16 A. Rutland Square, sorry. Yes. I attended that meeting. 17 Q. We have heard some evidence that was in February the 18 following year, 2008, does that ring a bell? 19 A. Yes. I actually thought that was before Wiesbaden. But 20 yes, it does. It rings a bell. 21 Q. Were you involved in preparation for the Wiesbaden 22 Agreement and what the strategy was for what would be 23 done there? 24 A. Not that I can recall, no. 25 Q. Were you involved in discussions with either 101 1 Willie Gallagher, Matthew Crosse or both of them as to 2 what had been achieved in Wiesbaden? 3 A. Well, Willie, I think, gave a presentation on what had 4 been achieved in Wiesbaden, and I think I attended that. 5 Q. What did you understand had been achieved in Wiesbaden? 6 A. Well, I thought what had been achieved in Wiesbaden was 7 that a deal had been done and we'd got the contract 8 price secured, you know. That was flavour of the 9 statement that was made when Willie came back. 10 Q. What had tie had to give in a sense in order to get the 11 contract price finalised? Was that discussed with you? 12 A. Not that I can recall, no. 13 Q. Would you recall any discussions with Willie Gallagher 14 or Matthew Crosse as to who would take -- who would bear 15 the risk of changes in the design after that date? 16 A. I don't recall discussions at that time with 17 Matthew Crosse. Matthew was very zealous about -- it 18 was his remit to do this, and at least at one meeting 19 which I tried to attend, I was asked to leave. So 20 I don't recall any discussions about what had to be 21 surrendered at Wiesbaden. There may have been some, but 22 it's not something I can remember. 23 Q. In terms of the Agreement you were asked to leave, could 24 you look, please, at page 50 of your statement. 25 Question 47 and the answer to it, if we could enlarge 102 1 those here in the Inquiry room. 2 Have you got question 47, Mr McEwan? 3 A. Yes, I do. 4 Q. What you say there is: 5 "We understand that Mr Gallagher met with 6 Mr Enenkel, BSC, on 5 May 2008. By email dated 7 5 May 2008, Mr Enenkel proposed that in the event that 8 Phase 1b did not proceed TIE would pay BSC 9 GBP3.3 million under the contract for Phase 1a. 10 Mr Gallagher wrote to Mr Enenkel on 6 May listing out 11 a number of conditions on which BSC would retain its 12 position as preferred bidder." 13 The question you were asked is: 14 "What was your awareness of and views on these 15 discussions." 16 Your response was: 17 "As mentioned above, I was asked to attend the 18 meeting with Mr Enenkel and his senior staff, along with 19 Mr Mackay, Mr Gallagher and Steven Bell amongst others. 20 I recall asking Mr Enenkel how many opportunities did 21 his company require to get their pricing correct? The 22 meeting, it is fair to say, was heated. Mr Enenkel, 23 I recall advised in what I assume was meant to be 24 a clipped consoling tone: 'You have to understand that my 25 company's policy is that we own no risk and the client 103 1 holds all the risk'. The meeting took a break after that 2 and I was asked to stand down for the resumption." 3 Is that the meeting that you were referring to? 4 A. That's right. 5 Q. That's the meeting that followed early in May where on 6 the eve of an intended contract close, the contractors 7 had announced they wanted to increase the price? 8 A. That's right. 9 Q. I take it you are ultimately aware of the agreement that 10 was achieved with the consortium after you left the 11 meeting? 12 A. I'm not sure that I -- well, I am not sure that I can 13 recall the detail. I was asked to -- the opening 14 statement you made about the 3.3 million, I'm not sure 15 whether that would have been in the second part. 16 I suspect it was because we didn't really talk about -- 17 in the part that I attended, we didn't really talk about 18 the numbers. As I say, other than they'd come back 19 looking for more money. I can't recall what the outcome 20 of that meeting was, but it presumably -- on the basis 21 of what the ultimate contract was. 22 I understood it, if memory serves me, that they'd 23 asked for a contingency to be put in for the potential 24 for the Notified Departure between the respective 25 persons of the design that was anticipated for any 104 1 differences there. 2 My understanding was that the outcome of that 3 meeting, there was an agreement. I think they'd asked 4 for an amount at the meeting, and the outcome of the 5 meeting was they got less than they asked for, but they 6 did get an increase in the -- increase in the price. 7 Q. Did tie get anything from them in return that you can 8 recall? 9 A. Well, it's difficult for me to recall that because 10 I don't think I was in at the sharp end of the meeting, 11 which was the, you know, detailing what was a handshake 12 and what was the agreement. 13 I think what tie got was some form of assurance 14 that -- I seem to recall that the contingency amount 15 that had been asked for was actually greater than the 16 value of the SDS contract. And given that what they 17 were looking to secure was a risk of there being 18 a disparity between version 26 or version 28, then that 19 seemed a reasonably generous amount of money from such 20 a contingency. 21 Q. Okay. I want to return now to just the Wiesbaden 22 Agreement for a minute, please. If we could look at 23 that, it's document reference -- this is one of the 24 larger documents. It's CEC02085660. 25 A. I have that agreement opened here. That was one you 105 1 asked me to look at earlier. 2 Q. Yes, to check you had it. 3 A. Yes. 4 Q. If you could just wait while we get it up on screen on 5 the Inquiry room. 6 A. I've got it up on an adjacent laptop here. 7 Q. Do you have a front page there that says agreement for 8 contract price for phase 1a dated 20 December 2007, with 9 a date 20 December? 10 A. Yes, I do. 11 Q. I have a feeling our pagination is going to be slightly 12 different in respect of this. But if I could ask to you 13 look at what I think might be page 3 in yours, at 14 clause 2.2. Can we look at here at page 5 on the 15 Inquiry screens. 16 A. "The agreed Value Engineering items included in the 17 price are set out in Appendix A3. These sums are fixed 18 reductions save for the conditions listed in Appendix A3 19 under 'Key Qualifications'." 20 Q. Can you recall when you were first shown this Agreement 21 and what had been agreed in respect of value 22 engineering? 23 A. I can't recall the detail of that. I'm sorry. 24 Q. You had had some responsibility for value engineering 25 prior to the contract close; is that correct? 106 1 A. What I was asked to do on joining tie, one of the things 2 I was asked to do, was set up a process for tracking 3 value engineering opportunities. And we created 4 a control document which we reviewed, I think we 5 reviewed it weekly, for items that affected the Infraco 6 contract and some I think that didn't. That were 7 banked. So we had a moving -- we had a moving line that 8 showed savings that we thought we had banked and savings 9 that were still to be included with the Infraco 10 contract. But would clearly only be realised during the 11 construction phase itself. 12 Q. When a proposal was made, or an idea for value 13 engineering was identified within tie, was it then 14 necessary to agree that with a contractor, both agree 15 the item and the saving that would be made by means of 16 it? 17 A. Yes, I would say so, yes. It had to be. 18 Q. I don't know if -- you will see in that clause we just 19 looked at, 2.2, a reference to Appendix 3. I wondered 20 if you could turn to Appendix 3. In the electronic 21 version we have, it's on page 29. 22 It will consist of a table which has the heading 23 "Appendix A3" in the top right-hand side. 24 A. There seem to be a lot of blank sheets, to be honest 25 with you. 107 1 Q. There are. Keep going, I think. Electronic page 29. 2 Otherwise it's something that will say Appendix 3 in the 3 top right-hand corner. Do you see that? 4 A. The paginated -- yes, I've got it. 5 Q. The main heading says "71214 Single VE List V31 agreed 6 BBS tie v1". 7 A. Yes. 8 Q. We can see in the table, set down below it, a number of 9 items of potential value engineering. Under the value 10 is a target sum and an agreed BBS position? 11 A. Right. 12 Q. Do you know what these would be? 13 A. Do I know what -- 14 Q. These items and the values that were put on them. 15 A. I'm sorry, I don't understand your question. These 16 are -- these were the opportunities and the description 17 is there, and this, I assume we had had discussions with 18 BBS, and an agreement on the value of this. 19 Q. Do you recognise any of these opportunities as things 20 you had been working on in the run-up to the Wiesbaden 21 Agreement? 22 A. I suspect they are, but to be honest with you, I can't 23 remember the detail of it. I don't know -- I do not 24 know what you are asking here. Yes, I remember with 25 Network Rail, for example. 108 1 Q. Can I ask you to go back to your statement, please. 2 A. Yes. 3 Q. And look at page 53 of that. 4 A. Page 3? 5 Q. Page 53. 6 A. Okay. Right. 7 Q. In question 51. You say there: 8 "On 13 May 2008 the Council's Policy and Strategy 9 Committee considered a report by the Council's 10 Chief Executive. The report advised that the estimated 11 capital cost for phase 1a was now GBP512.2 million. The 12 report stated that "Offsetting the increase in cost is 13 a range of negotiated improvements in favour of tie and 14 the Council in order to reduce the risk of programme 15 delays and minimise exposure to additional cost 16 pressures, as well as better contractual positions." 17 You are asked for your view on the statements above, 18 and you say: 19 "I believe it was an accurate report on the state of 20 play." 21 Had you been involved in the negotiations leading 22 right up to the close that took place in mid-May? 23 A. I was involved in the negotiation. My involvement in 24 closing out the contract effectively started in 25 January 2008, and concluded circa the end of 109 1 March/beginning of April 2008. Where we believed we'd 2 got an agreement which of course the 5 May meeting moved 3 the numbers around further. 4 So yes, I had been involved from January through 5 March to April in discussing and negotiating. Assisting 6 Steven Bell in that regard. 7 Q. The next question goes on after considering if you agree 8 with the statement: 9 "If so, what do you consider were the "improvements" 10 and "better contractual positions" that reduced the risk 11 of programme delays and minimised exposure to additional 12 costs?" 13 When you are asked about that, you say: 14 "I had no reason to disagree with it and assume that 15 the reduced risk was in part in reference to the 16 measures outlined in the Kingdom agreement as detailed 17 above." 18 Do you see that? 19 A. Yes. 20 Q. I would like you to look at the Kingdom Agreement. It's 21 a document with the reference WED00000023. 22 A. Yes, I have it here. 23 Q. Just wait one moment? 24 A. I've got the document. 25 Q. We will just call it up on screen in the Inquiry room as 110 1 well. 2 We have got a heading here, "CONDITIONS UNDER WHICH 3 THE BBS CONSORTIUM RETAINS ITS POSITION AS PREFERRED 4 BIDDER IN THE INFRACO PROCUREMENT TO ENABLE tie AND THE 5 BBS CONSORTIUM TO PROCEED TO CONTRACT CLOSE". Do you 6 have that? Do you have that, Mr McEwan? 7 A. Yes, I do. 8 Q. We see Condition One-1, if we take it short, consists of tie 9 paying the consortium the sum of GBP4.8 million in four 10 instalments when each section of the works is completed? 11 A. Okay. 12 Q. Do you see that? 13 A. Yes. 14 Q. And Condition Two-2 provides a provision by which tie will 15 make payment to? The consortium if it decides 16 (Over-speaking) 17 Could you let me finish, because we have to have 18 these things noted by shorthand writers, and if we both 19 speak together, they can't get it. Will you wait until 20 I finish my question and I'll wait until you finish your 21 answer. 22 What it says in short is that if tie decides not to 23 proceed with phase 1b of the project, there will be 24 a payment made to the consortium; is that it? 25 A. Yes, mm-hm. 111 1 Q. The next thing is in relation to Pricing Assumption 12 2 within Schedule 4, that the costs arising of that would 3 be capped at GBP1.5 million. 4 A. Sorry, you have lost me. Whereabouts in the document 5 are we looking at now? 6 Q. Pardon me. I have jumped forward inadvertently there. 7 If we look at Condition Three, pardon me, it should be that 8 the contract suite and its associated documentation will 9 be closed out on the positions stated -- as stated in 10 the attached summary table. 11 A. Condition Three? 12 Q. Yes. It says "Condition Three" in a bold heading on the 13 first page? 14 A. I've got it. 15 Q. Essentially it's agreeing the sort of various points of 16 detail in the wording of the contract documentation as 17 it's to be closed out. 18 A. Mm-hm. 19 Q. Condition Four deals with the question of CAF, if we go 20 over the page. CAF, the company building the trams, 21 joining the consortium? 22 A. Mm-hm. 23 Q. Condition Five and Condition Six are run together and it 24 deals with shutting down the mobilisation and advance 25 works contract. Is that right? 112 1 A. Yes. 2 Q. Condition Seven deals with the questions arising out of -- 3 this is the one I inadvertently read earlier. It's 4 dealing with road reconstruction and indicating that 5 certain costs are to be capped at GBP1.5 million. 6 A. Mm-hm. 7 Q. Condition Eight deals with release of information. And 8 Condition Nine deals with uninsured losses. 9 A. Yes. 10 Q. Now, when you said you thought that this agreement might 11 be the improvements or better contractual positions that 12 reduced the risk of programme delays, and minimised 13 exposure to additional cost, which part of that 14 agreement did you have in mind? 15 A. Well, I think -- I think the capping of the road 16 reconstruction at GBP1.5 million perhaps. 17 Q. Do you know what -- without the cap, what -- 18 A. And also the -- also the agreement to accept the risk 19 and any costs arising, changes relating to (inaudible) 20 information. 21 Q. Could I ask you to repeat the end of that answer. We 22 rather lost it in the link. It was with agreement to 23 accept, and any costs arising and then we lost it. 24 A. Yes. What I'm saying is BBS consortium agreed to accept 25 the risk and any costs arising from changes relating to 113 1 early release of IFC information subject to a cap of 2 1.5 million. So that would seem positive to -- from 3 tie's perspective. 4 Q. Now, these two things, the road reconstruction and the 5 early release of IFC information, what was the -- can 6 you remember, what was the view as to level of possible 7 liability without the cap? 8 A. No idea. I'm sorry. I can't remember. 9 Q. Can you remember, did you actually know at the time? 10 A. Well, perhaps. I don't know. I can't -- I certainly 11 can't remember. I'm sorry. 12 Q. We can finish with that document. You can put it to one 13 side. 14 A. Okay. 15 Q. Are you aware that Part 4 of the Schedule to the Infraco 16 Contract dealt with the contract pricing? 17 A. Yes. 18 Q. It included a number of -- as it was finally drafted, it 19 included a number of pricing assumptions? 20 A. Right. 21 Q. Do you recall that? 22 A. I recall sSchedule 4, yes. 23 Q. What was your involvement in negotiating pPart 4 of the 24 sSchedule? 25 A. I was part of the -- pPart 4 of the sSchedule was 114 1 primarily what we were looking at during January to 2 April. And in looking to close out -- as I recall, and 3 I can't recall what was on this pro forma, but as 4 I recall, there was a pro forma handed to Steven 5 and I on issues that had yet to be resolved. 6 And our task was to go through and each and every 7 one of those issues and try and get an agreement on it. 8 And the output of that -- of those discussions, which 9 were protracted, burning lots of midnight oil, was the 10 ultimate price 4 sSchedule. 11 That's -- that's the limit of my recall in terms of 12 the detail involved. I'm sorry. 13 Q. You said -- 14 A. I remember us spending inordinate amounts of time 15 talking about street furniture and suchlike, you know. 16 Q. You said Steve Bell was involved in that exercise. 17 That's finalising pPart 4. Who else was involved with 18 pPart 4 of the sSchedule on tietie's side? 19 A. I think there may have been various people that might 20 not have been there at all meetings, but there might 21 have been various people that come into the equation. 22 Dennis Murray, perhaps, as the commercial chap. 23 Alastair Richards potentially. Sorry, I can't -- 24 I can't recall. There were certainly meetings where 25 there was a number of tietie representatives. 115 1 Q. Did you have legal advice in negotiating pPart 4 -- 2 A. Yes, of course we did. Yes. We had DLA Piper providing 3 the legal advice to the -- to the team. And anything 4 that required to be -- if you're asking me were 5 DLA Piper represented at the meetings, yes, I think they 6 were. But I can't -- it was a period of three -- three 7 in terms of months and there was lots and lots of 8 meetings. I'm sure we actually held meetings at the 9 DLA Piper offices. 10 Q. If it's suggested to you that a representative from 11 DLA Piper was there only to mark up the draft agreement 12 and not to give any legal advice, what comment would you 13 have on that? 14 A. Nonsense. 15 Q. If it was suggested that there was a decision by -- 16 within tie, amongst the people negotiating to shut out 17 or exclude legal advice, what would be your comment on 18 that? 19 A. Not to my recollection. Why would anybody do that? 20 Q. Are you aware of any reason why that would be done? 21 A. Sorry? 22 Q. Are you aware of any reason why that would be done? 23 A. No. I've got no -- no idea. I don't understand the 24 question actually. I mean, I was certainly not involved 25 in instructing anybody to prevent our lawyers coming to 116 1 the meetings to discuss these things, no. Of course 2 they were there to help mark up the documents, but 3 I mean, cor blimey, we could get a secretary to do that. 4 The bottom line was they were there as far as I'm 5 concerned, in their legal capacity. 6 Q. If we see emails being sent to or copied to the 7 solicitors, it may seem an obvious question, but why was 8 that being done? 9 A. Copied by who to the solicitors? 10 Q. Either by people within tie, yourself, Graeme Bissett, 11 Bob Dawson, Geoff Gilbert, or people on the other side, 12 Ian Laing, the solicitor on the other side of the 13 negotiations. Why were things being sent to or copied 14 to the solicitors? 15 A. Well, I would have thought the answer to that was fairly 16 obvious. To make sure that our legal representation was 17 fully up to speed with everything that was going on. 18 And to give us an assurance in that regard. 19 Q. You have described how you were given a pro forma 20 agreement and told to fill it in. Was it ever shall -- 21 A. No, that's not -- 22 Q. Sorry, if that's wrong, correct it, please. 23 A. It was not a pro forma agreement. What we were given 24 was a menu list of issues that hadn't been resolved, and 25 the simple fact is that by the January of 2008, there 117 1 were a lot of big ticket items related to the ultimate 2 price that hadn't been fully resolved, and those formed 3 part of that menu list, and these represented the items 4 which we required to debate and discuss with Bilfinger 5 Berger and Pinsent Masons, their representatives, and 6 achieve -- and Richard Walker, Mike Flynn. 7 CAF were fairly absent because CAF were fairly 8 uncontroversial for the whole project, it seemed to me. 9 So Mike Flynn, Richard Walker, Ian Laing and then, on 10 the other side, us, going through these items and trying 11 to get to a position of agreement on all the outstanding 12 items on that. 13 Q. I know you won't be able to remember the whole list, but 14 can you remember any examples of the sort of thing that 15 was on that list of things to be resolved? 16 A. I think I have already answered that in saying no, 17 I can't. I remember strangely enough how things stick 18 in your memory, the shape of street poles for some God 19 knows reason, which seemed to be creating, in a heritage 20 city that is Edinburgh, lots of angst and the cost of 21 these and such like. 22 But no, I'm sorry. The list must exist there 23 somewhere, I would have thought. 24 Q. Were you told that what had been agreed in Wiesbaden had 25 to be reflected in Schedule Part 4? 118 1 A. I don't think that was explicitly said, but I think 2 implicitly then you would have thought that was a basis 3 for it, you know? 4 Q. Was it -- 5 A. Clearly the Wiesbaden Agreement hadn't -- had been 6 agreed, but hadn't by definition stuck. So there was 7 a list of items which (inaudible) that Wiesbaden 8 Agreement. So nobody -- I don't recall anybody telling 9 me that the Wiesbaden Agreement had to be the basis on 10 which we proceeded. I think that was implicitly 11 assumed, that Wiesbaden Agreement was a foundation 12 document and we were arguing as to why there should be 13 any changes to that. 14 Q. If it was -- 15 A. In terms of cost. 16 Q. If it was suggested to you that the Wiesbaden Agreement 17 was effectively set in stone, nothing about it could be 18 changed, and it had to be reflected in Schedule Part 4, 19 what would your comment be on that? 20 A. I would have said that we were probably wasting our time 21 negotiating that because -- 22 Q. Was -- 23 A. It clearly wasn't set in stone, if that was the case. 24 Q. Were you told that it was non-negotiable, what had been 25 agreed at Wiesbaden? 119 1 A. I don't remember being told it was non-negotiable. 2 Q. Did you consider that you were negotiating terms such as 3 the price and the responsibility for design risk? 4 A. I think we were negotiating items which had the 5 potential to impact price. 6 Q. I want you to look at some more documents then in 7 relation to the negotiation of the Schedule? 8 A. Right. 9 Q. First I want you to look at document CEC01448355. And 10 also the document with the same number ending 56. 11 If we start with the one ending 55 -- 12 A. I have got the documents. 55 is a memo from Bob Dawson. 13 Andy's comments are now in turquoise. 14 Q. It's dated 6 February 2008 and sent to various people, 15 including you? 16 A. Yes. 17 Q. It's got an attachment, and if you look at the second 18 document, the one with the number that ends 56? 19 A. Yes. 20 Q. Thank you. Is that a copy of the agreement with the -- 21 A. Yes, I've got the document. 22 Q. If we go to page 2 of this, under the heading, "Base 23 Case Assumptions", we can see that the -- it's a defined 24 term and what it says: 25 "... mean the following assumptions (a) that the 120 1 Design prepared by the SDS Provider will ..." 2 Then if we jump down the page: 3 "not, in terms of design principle, shape, form 4 and/or specification, be [add 'materially'] amended from 5 the Base Date Design Information." 6 After that there's been added: 7 "What about any specific issues that we know about, 8 such as VE." 9 After that, in another colour, in turquoise: 10 "Given that a substantial amount of design requires 11 to be presented, reviewed, et cetera, this clearly will 12 not happen. Agree with Bob's comment." 13 I assume that Bob's comments were the ones written 14 in the darker blue. Was that your understanding? 15 A. To be honest with you, I'm not sure. Truthfully, 16 I can't remember Bob Dawson. I remember Andy Steel 17 being heavily involved in the review of value 18 engineering. 19 Q. Now, in terms of the comment here that we have got 20 a clause here which is suggesting that the design may 21 not now in terms of design principle, shape, form and/or 22 specification, be amended, and we can see from the 23 comments that it seems that there's been some concern 24 about that. 25 A. Mm-hm. 121 1 Q. Did you have any concerns about that? 2 A. My recollection in reading -- I have to say, a lot of my 3 recollection is not so much recollection as 4 interpretation of documents that I'm now reading again 5 for the first time in many years -- is that there was 6 a design freeze placed by Steven, and I think it was in 7 November of 2007. Version 26. My experience of 8 designing anything is that you -- you live in an 9 ontological universe. The reality is things move and 10 change and different issues arose. So whilst there was 11 a general principle that nothing should change, events 12 can overtake that, you know, and, you know, you had to 13 deal with those as part of the process. 14 Indeed, part of the risk, or part of the issue for 15 debating the design contract was that the normal design 16 risk should be removed from Edinburgh and put into the 17 hands of the building contractor. 18 That in itself anticipates that there will be some 19 level of change. And the issue was to make sure that 20 that responsibility rested with the contractor, who had 21 a peer-to-peer relationship with the designer, you know. 22 And that was some part of their issues. 23 Q. Who -- 24 A. (inaudible) 25 Q. Who said to you that the normal design risk should be 122 1 removed from Edinburgh and put into the hands of the 2 building contractor? 3 A. Well, I can't remember who specifically said it, but 4 I think that -- I think that was understood to be the 5 position. Certainly I think Mr Gallagher would have 6 insisted on that. I think Edinburgh itself had insisted 7 on that. I think the reality is we didn't have 8 a standard contract design and build contract. The 9 ambition of the novation was that the risk that we 10 translated a peer-to-peer relationship into 11 a peer-to-subordinate relationship, and in effect 12 redesigned the contract structure to be a more 13 traditional design and build contract, after the event. 14 Originally it had been. 15 Q. After what event? 16 A. Sorry, the -- the original contract structure as 17 envisaged by tie, going back a number of years, back to 18 2002, I think, 2003, was that the design would be 19 created and it would be completed and used to inform the 20 procurement process for the construction. 21 That from my understanding in 2006, prior to my 22 arriving at the project, changed, and the procurement 23 went ahead on the basis of the design for the critical 24 elements of the overall project. 25 The builders or the construction companies were 123 1 asked to bid on that basis. 2 So the idea of novating the contract from SDS to 3 Infraco was to transfer the risk of the design, residual 4 normal design risk to the builder. I don't think there 5 was any -- I don't think anybody disagreed with that. 6 Q. If the idea was -- as you say, if you price according to 7 the design at some stage, everyone would anticipate, 8 would they not, that there's going to be change to that 9 design in the months or even years that follow? 10 A. Yes. I mean, I think -- I think there's a question of 11 degree, you know. I think the reality is that normal 12 design risk -- I can only speak from previous experience 13 of my own in designing computer systems. I recall us 14 spending two years getting a design as close as we could 15 to what the customer needed and having 600 change 16 requests within about six months after it. It's a kind 17 of computing term, I know, but it's an ontological 18 universe. Things change, you know. Things move on. 19 There are external factors that come to play. 20 One of the things that I have noted and I think you 21 will have read in my statement was I discovered that SDS 22 had only sample tested about 10 per cent of the route 23 for ground conditions. So there was a potential for 24 changes to arise once the actual construction got under 25 way and the actual ground conditions were discovered. 124 1 You could be critical and say: why didn't they look at 2 100 per cent of the ground conditions as well, because 3 they would have had to dig up the whole of Edinburgh to 4 do it. 5 Q. I don't want to get into SDS at the moment. I just want 6 to focus on this agreement, please, on design changes. 7 You're talking about certain normal design changes 8 might be anticipated, and as I understand what you say, 9 is that Edinburgh anticipated that the contractors, the 10 consortium would bear the responsibility for those. 11 A. For normal design -- for the normal design risk, yes. 12 Q. In respect of things that went beyond normal design 13 risk, and that could be the client changing their mind 14 after a year, who was going to bear responsibility for 15 that? 16 A. Well, there was a mechanism in the contract for that, 17 for -- if the client -- if we changed our mind -- 18 Q. Can I just stop and interrupt you there. Before we get 19 to a concluded contract, what was your understanding in 20 negotiating the contract as to who was to bear that 21 risk? 22 A. My understanding was that SDS would bear -- sorry. Once 23 novated, Infraco would bear the risk of normal design 24 development. And I don't think -- I think that was 25 unequivocal from my perspective. And indeed -- 125 1 Q. What about -- 2 A. From our perspective. 3 Q. What about changes that weren't part of normal design 4 development? Who did you think would be bearing 5 responsibility for those? 6 A. I think that would be dependent on the nature of that 7 change. There was a change control process, or 8 a Notified Departure process, in the contract. So if, 9 for example, the builder decided to build it with 10 a different material, build a bridge with a different 11 material, there may have been a case that they would 12 have had to pay for that. 13 Q. Just looking at this assumption that we see in paragraph 14 (a)(ii) on page 2 of this draft agreement, that says 15 that the design will not -- I'll just read it without 16 amendments: 17 "It will not in terms of design principle, shape, 18 form and/or specification, be amended from the Base Date 19 Design Information." 20 If I could ask you to jump forward to what I think 21 in the printed version will be page 10 of 19, in the 22 electronic version it should also be page 10. Look at 23 clause 1.1. It says: 24 "The Contract Price has been fixed on the basis of 25 inter alia the Base Case Assumptions. If now or at any 126 1 time the facts or circumstances differ in any way from 2 the Base Case Assumptions (or any of them) the Infraco 3 may (if it becomes aware of the same) notify tie of such 4 differences." 5 That's to be called a Notified Departure. 6 A. Yes. 7 Q. So what this seems to be saying, if things aren't set 8 out in paragraph (a)(ii), it will be a Notified 9 Departure; is that your understanding? 10 A. I'm not really sure I understand the question, to be 11 honest with you. In (a)(ii) it's saying "not in terms 12 of design principle, shape ... amended from the Base 13 Date Design Information". 14 Q. That's a design -- if we look at that, that's a defined 15 Base Case Assumption, is it not? 16 A. Sure. 17 Q. And Clause 1.1 is saying what will happen if there is 18 a departure from the Base Case Assumptions. 19 A. Yes. 20 Q. So the effect of that reading them together -- 21 A. 1.1 is saying -- alluding to is that there is -- I would 22 call this a change control mechanism. It's saying 23 Notified Departure here. 24 Q. If you read the two of them together, it means that if 25 there is, in terms of design principle, shape, form or 127 1 specification, an amendment from the Base Date Design 2 Information, that will be a Notified Departure, giving 3 entitlement to -- 4 A. Yes. 5 Q. Did you consider whether or not that reflected the 6 objective of having the contractors responsible for 7 normal design development? 8 A. Again, I think it comes back to a question of degree. 9 You know, I considered that we were going to pay Infraco 10 to a substantial amount of money to have this contract 11 novated to them. And in terms of what they were 12 required to do or in terms of what they were required to 13 absorb, I think the amount of money they were paid 14 indicated they were required to absorb a fair amount of 15 the risk that remained. 16 I think the fact was that -- as you go on to 17 discuss, that we knew the contract was going to be based 18 on version 26 of the design, and in actual fact we were 19 going to look at version 28. 20 I have to say, my understanding of tram design is 21 no, I never -- I didn't look at the design. And I had 22 no understanding of what the delta between version 26 23 and version 28 was. 24 Q. Just interrupt there. We were talking about version 26 25 and version 31. Those are various programmes for 128 1 release of design information, are they not? 2 A. Right. 3 Q. Is that your understanding? 4 A. Sorry? 5 Q. Version -- V26 and V31, they're different programmes for 6 the release of design information? 7 A. I guess, yes. 8 Q. Is that your understanding or is your understanding 9 something else? 10 A. I'll be honest, I don't know if I do understand that. 11 My understanding was that the design that was in place 12 was going to be subject to the view post the contract 13 being placed, but -- and there may be a Notified 14 Departure arising from that. But I have no idea what 15 the size and scope of that departure would be or the 16 delta of it. 17 Q. Do you see that you could have on one hand change in the 18 delivery of the time at which the design is delivered. 19 On the other hand, you could have the actual changes in 20 the content of the design as delivered. Do you see, 21 they're two different things? 22 A. Yes. 23 Q. In terms of dealing with the programme of release of 24 information, you could make a change to the programme 25 and that might have an effect on the contractor. 129 1 A. I understand what you're saying. So -- 2 Q. But what I'm looking at here is actually change in 3 substantive design. 4 A. For example -- if, for example, we had utility diversion 5 delay in one area that required -- that was supposed to 6 be being worked on by the contractor, that's said to be 7 paved, but now it couldn't be because the area hadn't 8 been prepared or cleared in terms of utility diversion, 9 then there would be a change to the programme. 10 If it's a case that they discovered you need to put 11 three more arches on a bridge, then ... 12 Q. I would like to come back to the question I asked you 13 about Base Case Assumption (a)(ii)? 14 A. Right. 15 Q. When it was read with the provision we saw a minute ago 16 about Notified Departures, 1.1, do you consider that 17 that gave effect to the intention that normal design 18 development risk would stay with the contractor? 19 A. Yes, I do. 20 Q. We see the comments have been added to that (a)(ii), the 21 one in turquoise is that given a substantial -- 22 A. I don't. 23 Q. Is yours all in black and white? 24 A. I'm afraid so. 25 Q. If we read the last three lines of (a)(ii) it says that: 130 1 "Given that a substantial amount of design requires 2 to be presented, reviewed, et cetera, this clearly will 3 not happen. Agree with Bob's comments." 4 The comment before is -- 5 CHAIR OF THE INQUIRY: Mr Lake, we don't have (a)(ii) up 6 yet. 7 MR LAKE: Could we go back on the screens in the Inquiry to 8 page 2 of the document. 9 A. I've got the document. I've got the page. 10 Q. You've got the document, Mr McEwan. Unfortunately the 11 other people in the Inquiry don't. If we could enlarge 12 (a)(ii). I think everybody has it now. So I'll read 13 the comments again. Firstly the one in turquoise: 14 "Given that a substantial amount of design requires 15 to be presented, reviewed, et cetera, this clearly will 16 not happen. Agree with Bob's comments." 17 The other comment added in blue is: 18 "What about any specific issues that we know about, 19 such as VE." 20 The turquoise comment seems to be expressing some 21 doubt that it would be possible to adhere to the idea 22 that there would be no changes, no amendments, doesn't 23 it? 24 A. Well, I keep on saying the same thing. It's a question 25 of degree. My understanding was that the procurement 131 1 went ahead on the basis of critical design elements of 2 the contract. And in that sense on a Pareto principle 3 basis, the design should have been largely in accord 4 with what the contract was going forward at. 5 It's understood in any contract, as I understand it, 6 that there is a question of normal design development. 7 I think the ambition of Edinburgh, and I think our 8 understanding was that -- in novating this to -- from 9 SDS to Bilfinger Berger was that they were taking on 10 that normal risk. 11 According to this individual's viewpoint, there was 12 a substantial amount of design required to be presented. 13 According to what I have been told, the critical design 14 elements, as reinforced by 600-page Employer's 15 Requirements document, were fairly well understood. 16 So it's a question of degree, is the issue here. 17 Q. Could we go back to page 10 of this document. 18 A. Yes. 19 Q. And clause 1.1. 20 A. Yes. 21 Q. The comment that's been added at the end of this is: 22 "Can't be just any departure or all risk will come 23 back to tie." 24 Once again, that might have been someone else's view 25 rather than yours, but did that not cause you some 132 1 concern that someone else felt, as worded, this was 2 going to bring all risk back to tie? 3 A. Well, clearly all risk coming back to tie would cause me 4 concern. But I restate -- I'm restating what I said to 5 you earlier. The information that -- that I was giving 6 was that this experienced contractor had been given the 7 critical design elements of the contract, and had put 8 a bid price in on the basis of those. 9 I can't understand, truthfully, why any departure 10 would -- it seems to be suggesting that any departure 11 would then mean that all risk comes back to tie. 12 I don't understand what it's meaning by that. I don't 13 see why that would be the case. 14 Q. Do you see on the one hand, the objective might be that the 15 risk goes to the contractor because they have been given 16 design and they've been paid, but what you then need to 17 do is make sure that the contract gives effect to that 18 intention. 19 A. Mm-hm. 20 Q. Did you consider whether or not the contract was giving 21 effect to the intention? First of all, did you even 22 consider the issue? 23 A. Consider what issue? I'm sorry. 24 Q. The issue of whether or not this contract would 25 successfully pass the risk of design, normal design 133 1 development, to the contractor. 2 A. Of course. Yes. Our intention and our ambition was 3 that that's exactly what it should be. 4 Q. That's your intention and that's your ambition. Did you 5 consider whether the contract was going to achieve that 6 intention and ambition? 7 A. Yes. I mean, I think the -- I think from my 8 perspective, that's entirely what we thought we had 9 achieved. 10 With the caveat, and I have made this point in the 11 document, that there was always a potential for 12 a Notified Departure. You can have a fixed price based 13 on the design that you've delivered, and in my 14 experience -- but there's always a potential for 15 a change control because of an external event or 16 circumstances that prevail which may or may not be 17 embraced in normal design development. 18 Q. Did you take -- 19 A. I would come back to the point that the amount of money 20 that was paid for this novation would indicate that 21 there was a fair degree -- should have been a fair 22 degree of latitude, that would not be embroiled in 23 every, as this chap alludes -- is this Andy Steel's 24 comment, can't be just any departure or all risk -- 25 Q. I think that is probably Bob Dawson's comment. 134 1 A. If that's Bob Dawson's view, it was not a view that was 2 expressed to me. 3 But I can't see, on the basis of the amount of 4 money, that millions of pounds were paid, for that 5 novation, I can't see why it would be reasonable for all 6 risk to come back to tie. 7 Q. If it's not reasonable that that should happen, what did 8 you do when you saw this comment on Clause 1.1? 9 A. To be honest, I in you have -- I guess Steven and I must 10 have discussed it, but I can't really remember what the 11 outcome of that was. 12 Q. Did you or anyone else within tie take legal advice on 13 this issue? 14 A. I would surmise that we did, yes. 15 Q. When you say "I would surmise", do I take it that you 16 can't recall whether you did or you didn't, but you 17 think you might have? 18 A. No, I'm certain we must have, yes. I remember on the 19 night that the contract was eventually signed, 20 and I playfully patted Richard Walker on the back, and 21 said: it's your design, it's now your issue. 22 Q. I want to look at another couple of documents, please. 23 Again, they have got sequential numbers. They are 24 CEC01451053 and CEC01451054. 25 A. Right, I have these documents. 135 1 Q. The first one of them, the one that ends 53, should be 2 an email from Philip Hecht dated 20 March 2008 to 3 various people, and included amongst those to whom it's 4 copied is you and Andrew Fitchie. 5 A. Yes. 6 Q. Do you recognise the name Andrew Fitchie? 7 A. Yes, of course. 8 Q. He was the solicitor? 9 A. Yes, of course. 10 Q. Again, were you actually aware why this was being copied 11 to him? 12 A. It was being copied to him in his capacity as the 13 principal lawyer to the project. 14 Q. We can see the text of the email is: 15 "Please find attached Schedule 4 as agreed today on 16 screen. Please note the variation actions on both 17 sides, as footnoted, to bring this document to a close." 18 A. Right. 19 Q. Are you able to remember, had you been at the meeting to 20 negotiate the terms of Schedule Part 4 at this time? 21 A. On 20 March, I suspect I was, yes. 22 Q. Could we look then at the document that's the attachment 23 to that, the one with the reference that ends 54. 24 A. Yes. 25 Q. The front page of that simply says "PRICING"? 136 1 A. Pricing, yes, got that. 2 Q. If you go forward, please, to page 6 in both the 3 electronic and the paper versions. 4 A. Page 6? 5 Q. Yes. 6 A. Yes. 7 Q. We can see the wording has developed. So it now says: 8 "Pricing Assumptions are: 9 "1. The design premised by the SDS Provider will 10 not (other than amendments arising from the normal 11 development and completion of designs): 12 1.1 in terms of design principle, shape, form 13 and/or specification be amended from the drawings 14 forming the Base Date Design Information (except in 15 respect of Value Engineering identified in Appendices C 16 or D)." 17 If I jump below the numbered paragraphs and 18 continue, it says: 19 "For the avoidance of doubt normal development and 20 completion of designs means the evolution of design 21 through the stages of preliminary to construction stage 22 and excludes changes of design principle, shape and form 23 and outline specification." 24 Now, did you consider this wording when it was sent 25 to you? 137 1 A. Well, I would have read the wording, yes. I mean, 2 I don't know what the -- I don't know what your question 3 is about. Yes, I read the wording. I remember seeing 4 that normal development and completion of design means 5 the evolution of design through stages, blah blah blah. 6 And you're saying that -- well, yes. I read the 7 wording and considered. 8 Q. Do you consider that met the Council's objective of 9 ensuring that the contractors would bear the 10 responsibility for normal design development? 11 A. Yes, I do. 12 Q. Again, can you remember whether advice was taken in 13 relation to that from anyone? 14 A. I'm certain we must have taken advice on that. 15 Q. Did you -- 16 A. I don't know whether I'm jumping ahead here, but my 17 understanding was that the dispute that eventually arose 18 was related to some clause that undermined this design 19 development that was in a schedule somewhere in and 20 cellophane wrapped before Steven and I got involved in 21 the process. I recall that, and I recall Mr Fitchie 22 discussing that clause after the event, after the 23 contract was let. 24 Q. There certainly were disputes regarding this clause or 25 what this clause ultimately became and how it was to be 138 1 interpreted. It might be suggested that this clause was 2 in fact entirely dictated by the Wiesbaden Agreement. 3 What would your comment be on that? 4 A. My comment -- sorry, are you saying to me that this is 5 the clause that caused the problem in the dispute? 6 Q. I'm asking you to assume that is the case, yes. 7 A. Right. Well, I'm not certain about how it arose from 8 the Wiesbaden Agreement, but I do recall the clause 9 being discussed. I wasn't involved in this dispute that 10 arose. I had moved to the MUDFA programme. But I do 11 recall the clause being discussed and the words that 12 Andrew Fitchie used on the clause were that he disputed 13 that this was a nuclear clause. There was clearly some 14 dismay about, you know, whether this left the programme 15 open to an exposure that it had previously thought had 16 moved over as part of the contract process. 17 Q. When did -- 18 A. But there was some -- sorry? 19 Q. When did Mr Fitchie say it wasn't a nuclear clause? 20 A. This would have been post the signing of the deal. 21 Q. Immediately after or much further after? 22 A. Well, it must have been fairly adjacent because I moved 23 offices down to Leith, and I was in the office when 24 I heard him say that. 25 Q. Could you look at page 9 of this document, please. If 139 1 we could look -- 2 A. Right. 3 Q. This is still within the Pricing Assumptions. If we 4 could look at assumption 24. 5 A. 24? 6 Q. 24. We see it says: 7 "That in relation to Utilities the MUDFA Contractor 8 and/or Utility shall have completed the diversion of any 9 utilities in accordance with the requirements of the 10 Programme save for utilities diversions to be carried 11 out by the Infraco pursuant to the expenditure of the 12 Provisional Sums noted in Appendix B." 13 A. Yes. 14 Q. So in short it's saying the assumption is that the MUDFA 15 works would be largely finished before the Infraco 16 works? 17 A. Completed, yes. 18 Q. By the time this was being considered, and we saw that 19 the covering email was March 2008, what was your 20 understanding of how the MUDFA works were progressing? 21 A. My understanding was imprecise, but -- in the sense that 22 I wasn't fully up to speed with how it was progressing 23 and what the issues were, but I was aware that there 24 were issues. 25 Q. Were you aware that it was thought to be very unlikely 140 1 that it would be possible to finish the MUDFA works 2 prior to the Infraco works getting under way? 3 A. I don't think I was explicitly aware. I don't think 4 I remember -- if you're saying very unlikely, I think 5 I was aware that there may have been a potential, 6 I think, but I wasn't aware -- in fact not even that. 7 I wasn't aware, no. 8 I was asked to go down to MUDFA round about May to 9 audit what was going on, and I wasn't fully aware as to 10 when they were scheduling to complete prior to doing 11 that. 12 Q. Faced with a clause such as this which was making an 13 assumption about the MUDFA works, did you or anyone else 14 negotiating the agreement make enquiries to find out 15 whether that assumption would be true or not, whether it 16 would be correct or not? 17 A. I didn't ask for any investigation of that. The MUDFA 18 contract, however, and the MUDFA Project Manager 19 reported to Steven. So I would have thought Steven 20 would have been fully versed in the progress with MUDFA 21 as it was going on in that regard. 22 Q. Okay. 23 A. So not something I saw the need to personally review. 24 CHAIR OF THE INQUIRY: Mr Lake, are you going to be much 25 longer? I'm wondering about the shorthand writers. 141 1 MR LAKE: This would be as good a time as any. 2 CHAIR OF THE INQUIRY: Mr McEwan, we're going to have 3 a short break for the shorthand writers to have a break. 4 We'll come back in about ten minutes. It will also give 5 you a break as well. So we will see you in about ten 6 minutes. 7 A. Thank you very much. Thank you. 8 CHAIR OF THE INQUIRY: We will resume again at 3.20. 9 (3.08 pm) 10 (A short break) 11 (3.20 pm) 12 CHAIR OF THE INQUIRY: Mr McEwan, you're still under oath. 13 A. Okay. 14 MR LAKE: My Lord, thank you. 15 Mr McEwan, I would like to you look at a different 16 document now. It's an email and it has reference on it 17 CEC01465933. 18 A. Okay, I have the document. 19 Q. Okay. Now, it's an email. The pagination is probably 20 different in all versions. It's on an email chain. If 21 you go towards the end? 22 A. Yes. 23 Q. You will find an email from Ian Laing to various people 24 dated 26 March, timed at 11.26. It should be on about 25 page 4 of the electronic version. Yes, it's the upper 142 1 version that we have on screen at the moment, although 2 Ian Laing's name is on the previous screen. 3 A. Yes, okay. 4 Q. What he says there is -- it's addressed to all: 5 "Please find an updated version of Schedule 4 6 following the meeting yesterday. Happily this is 7 nearing completion." 8 Then if you look at the next email in the chain 9 above it, you need to go to the previous page on the 10 electronic version, I'm not quite sure where it will be 11 on paper, it's a reply from Philip Hecht of DLA to 12 Ian Laing, again copied to various people, simply 13 saying: 14 "Thank you, Ian. I will action this." 15 Do you see that? 16 A. "Thank you, Ian. I will action this." 17 I can't actually see that, to be honest with you. 18 Q. It should be directly above -- 19 A. Sorry, yes. Well, I have got one from Philip: 20 "Please find attached Schedule 4." 21 Q. It needs to go in the other direction. If you go above 22 the one you're looking at, saying: 23 "Please find attached Schedule 4." 24 You should find the one from Ian Laing that I have 25 just referred to, saying: 143 1 "Please find an updated version of Schedule 4 ..." 2 A. Yes, I've got that. 3 Q. If you go up from that, you should find one from 4 Philip Hecht saying simply: 5 "Thank you, Ian - I will action this." 6 A. I can see it on the screen. I haven't got it on paper 7 form here for some reason. 8 Q. I want to try and find the next one. If you can keep 9 going up, the next one I want is -- if you go to the 10 previous screen on the electronic version. It will be 11 from Ian Laing. It is dated 26 March 2008 with a time 12 on it of 16.23. 13 A. There's so much of the legalese paragraphs. This is 14 disclaimer -- I now have the Philip Hecht email. 15 Q. If you look up -- 16 A. "Thank you, Ian - I will action this." 17 Q. If you look up from that, do you find the one from Ian 18 Laing, 16.23. 19 A. Yes, I have it. "As we discussed earlier today". 20 Q. Yes. It's addressed to Steven/Jim, which is presumably 21 your colleague and yourself? 22 A. Steven Bell. 23 Q. Steven Bell and yourself? 24 A. Yes. 25 Q. It says: 144 1 "As we discussed earlier today, the Design Delivery 2 Programme that will be v28. The Pricing Assumption in 3 Schedule 4 of the Infraco Contract assumes that the 4 design delivery programme will not change from v26. It 5 follows that there is the possibility that there will be 6 an immediate Notified Departure on contract execution. 7 Given the unusual position that we are in, please can 8 you confirm that this is understood and agreed by tie." 9 Do you see that? 10 A. Yes. 11 Q. If we look yet further up in the chain, we will see yet 12 another email from Ian Laing, this time dated 31 March 13 at 10.21. In the middle of the screen in the Inquiry. 14 Do you have that? 15 A. Yes. 16 Q. It should say: 17 "Steven/Jim. Please can you let me have 18 confirmation that the position on the Notified Departure 19 in relation to the Design Delivery Programme is 20 understood and agreed by tie." 21 Do you see that? 22 A. Yes. 23 Q. Again, if you look further up the chain, we can see 24 there's an email from you this time. It's dated 25 31 March, timed at 10.42, and it's addressed to 145 1 Andrew Fitchie and Steven Bell. Do you have that? 2 A. Yes. 3 Q. You say: 4 "Andrew, can you advise on a response to this, 5 please what Ian is saying is factually correct albeit 6 that we are working to minimise the impact and variance 7 between critical path items. While we accept that the 8 version change will be a Notified Departure, we are 9 concerned to ensure that there will be no gaming of this 10 position by BBS, and that only where the change can be 11 shown to materially change the Infraco programme 12 critical path should we be liable for potential 13 additional charges." 14 Now, you were clearly concerned about what was being 15 identified by Ian Laing; is that fair to say? 16 A. I think in reading this again, I need to put out -- if 17 I'm hesitant about some of the responses here, you just 18 have to understand that this is a long time ago. So I'm 19 interpreting what I'm reading here, rather than 20 recollecting. 21 But I'm not sure I was concerned. I think 22 I understood it. I think I just was looking for legal 23 advice on how we should respond to it. 24 Q. Let's see the response you got from Andrew Fitchie. You 25 probably have to move yet further up or to an earlier 146 1 page? 2 A. Yes, yes, all right. 3 Q. It's an email from -- 4 A. We have got the response. 5 Q. What he says is: 6 "Jim, If the situation is that at this point SDS 7 is unable to produce a design delivery programme which 8 is reliable and static at V26 - and this is indeed the 9 situation that SDS have articulated - and this 10 programme will need to be varied immediately post 11 contract award, tie needs to endeavour to negotiate with 12 BBS now the specifics of what is or is not to be 13 permitted as a variation to the Infraco Contract and its 14 master construction programme, otherwise the Notified 15 Departure mechanism is too blunt and will permit BBS to 16 include everything that they estimate is going to affect 17 them to be priced and to be granted relief. That 18 Estimate is bound to be all encompassing and 19 conservative." 20 What did you understand? What did you take from 21 that advice? 22 A. Well, I think he was -- I think he was saying to us that 23 we should actually understand all of the potential 24 differences that may or may not arise. I think my 25 feeling on it was if we do -- if we knew that, if we'd 147 1 known that, and were in a position to do that, then, you 2 know, the issue wouldn't exist in the first place. 3 So there were so many unknowns and issues to be 4 dealt with that, you know, I understood the advice, but 5 it was probably not something that we were able to do, 6 you know. 7 Q. That's just talking about the changes in relation to an 8 alteration of design programme from V26 -- 9 A. Sure. 10 Q. -- to something later. But what about other changes? 11 Were you trying to consider what other changes were 12 known were going to happen and identify them in advance? 13 A. Again, I can only defer to Steven in this regard. 14 Steven understood the design. I had no -- my 15 understanding was that critical design was being 16 delivered to them. In terms of the programme, there was 17 clearly potential for MUDFA to affect the programme, but 18 the true extent of that was unknown. 19 It was unknown to me. 20 The only approach open to tie, in my opinion, was 21 a factual one, not a contractual one. 22 To be honest, I'm in a bit of difficulty with that 23 one in that regard. 24 To capture as many of the identified key changes 25 that tie knows will be required and to attempt to fix 148 1 them, well, I come back to the point. If I could have 2 done all that, then yes, this issue probably wouldn't 3 have arisen and we'd have been going forward with the 4 stable design. 5 Q. But by that time you perhaps would have been aware -- 6 were you aware that the MUDFA contract was running late 7 and that was going to be a change that would arise under 8 the contract? 9 A. My -- my understanding -- I certainly personally wasn't 10 aware that the MUDFA contract would potentially generate 11 a major change, not at that point in time. 12 I knew there were problems. There are always 13 problems. I wasn't aware of the extent of the problems, 14 and to be fair, I don't (inaudible). 15 Graeme Barclay reported directly to Steven Bell. 16 I'm not certain Steven understood the full extent of 17 what -- and perhaps Mr Barclay didn't either -- the full 18 extent of what we were going to uncover and things that 19 were going to delay that project. The issues that 20 delayed that project were legion, and unfortunately, on 21 31 March 2008, weren't fully understood. 22 Q. Were they understood at all? 23 A. Because they were discovered on a daily basis. 24 Q. Were you aware that they were being discovered on 25 a daily basis, that problems were arising? 149 1 A. I wasn't aware of the extent of the problems at that 2 specific time, no. I was -- I was aware of some 3 reporting at tie executive meetings on the ones that 4 I attended that there had been problems. But, you know, 5 frankly, I wasn't particularly tuned into those. 6 Q. In terms of looking at the content of design, you have 7 referred that there was a design freeze from a date in 8 November. We are now in March 2008. Another four 9 months had passed. Were you aware that the design was 10 continuing to develop during that time? 11 A. That's not -- that's not in my competency. I wasn't 12 aware of the design. I never looked at the design. 13 Q. Would you expect the design to have continued to develop 14 during this period or did you think it was all stopped? 15 A. Again, I don't think I'm competent to answer that quite 16 honestly, in the context of a tram project. 17 Q. Well, I'm not really asking for your experience as 18 a designer. I'm simply saying as someone who was 19 negotiating the contract, what was your understanding in 20 relation to what was happening to the design? 21 A. My understanding was that SDS were slipping in some 22 design elements as far as I'm aware. In delivery of 23 design. But I don't have any detailed understanding and 24 I don't have any detailed recollection of it. I'm 25 sorry. 150 1 Q. Do you have any understanding of changes that were being 2 made to the content of the design in those four months? 3 Whether or not -- 4 A. No. 5 Q. Even whether or not changes were happening? 6 A. My understanding -- I don't know how many times I can 7 answer this. I didn't have a detailed understanding of 8 design. Steven would have been in a much better 9 position to understand changes to the design than I was. 10 Q. You referred there -- I think you read something in the 11 paragraph, that's the second paragraph of 12 Andrew Fitchie's letter, the suggestion that you capture 13 as many identified key changes that tie knows will be 14 required and to attempt to fix them and agree their 15 likely programme and/or cost impact with BBS prior to 16 contract award or at least identify the reasonable range 17 of programme and cost impacts. 18 I think what you were saying is if you could have 19 done that, there might not have been a problem in the 20 first place. 21 A. Well, it seemed a bit superfluous. When I read this 22 again -- I don't recall this stuff, but it seemed, in 23 reading it again and interpreting it, (inaudible) fix 24 all the changes and identify all the changes and then 25 you won't have a problem with unforeseen changes. 151 1 I suspect that even if we'd had the opportunity and 2 looked at all the potential changes that were understood 3 at that moment in time, that more change could possibly 4 have arisen. 5 Q. We see at the top of the email, the first email in the 6 chain is one from Geoff Gilbert in response to that? 7 A. Yes. 8 Q. Before we look at that, I would like to -- keep this 9 email to hand. If you could have your statement, 10 please, and look at page 39 of it. 11 A. Yes. 12 Q. If we look at paragraph 46 at the foot of the page? 13 A. Yes. 14 Q. What we can see in paragraph 36, it narrates the terms 15 of a different version of this email. This email chain, 16 sorry. It starts with the same email from Ian Laing at 17 Pinsent Masons, noting that there would be an immediate 18 Notified Departure. You can see that at the foot of the 19 page, 39. 20 A. Mm-hm. 21 Q. Then if you go over the page, to page 40, in the first 22 paragraph of the page, you can see reference to the 23 email from Andrew Fitchie dated 31 March, where it gives 24 an excerpt of some of his advice. Do you see that? 25 A. Yes, mm-hm. 152 1 Q. Then in this email chain, as your statement notes, you 2 give a response to that. It says, in response to 3 Mr Bell in the same chain, you stated: 4 "My view is that if we pursue Andrew's steer on 5 this, we will open up the whole can of worms on the 6 Infraco contract cost overall, and that we have to take 7 on the chin that the programme version is not 8 consistent, get the deal signed and then fight the 9 notified departure tooth and nail. I understand 10 Andrew's point but if we were at all hopeful of getting 11 this done by the 15 April (this year) we cannot take his 12 suggested approach." 13 Just in terms of your email and what you said about 14 it, what did you mean, the whole can of worms of the 15 Infraco contract cost overall? 16 A. Well, I think I went on to explain this to some degree 17 in my statement. We have still got the document on the 18 screen here, by the way. 19 From my perspective, we had two peers in the design 20 company and the construction company, and getting them 21 into alignment had proved a very difficult task and 22 hadn't been achieved, effectively. 23 My viewpoint was that the only way to get this 24 contract into that alignment was to get the contract, 25 get the design contract novated to Bilfinger Berger and 153 1 make them effectively the prime contractor in this 2 arrangement who were able to express their -- dictate to 3 SDS, and what was required and when. 4 I think, as I said in my statement later on, I think 5 my choice of language might have been better than the 6 whole can of worms, but anything that required -- I'm 7 sorry, could you take the document off the screen here, 8 please? Because I feel I'm talking to a document. 9 CHAIR OF THE INQUIRY: Does the witness have the same screen 10 as us? 11 MR LAKE: The witness can see what we can see in the 12 right-hand corner of that screen. I don't know if I can 13 ask the video operator to revert to -- 14 A. We are back to the document again. 15 Okay. 16 It's kind of difficult talking to a document. 17 My viewpoint is that if we had to go through this 18 process, and I can only surmise that there were many, 19 many attempts by the people involved, tie side, to get 20 alignment between the infrastructure contractor and the 21 designer, then -- then we could potentially have chased 22 our tail for a long time and never got to the end of it. 23 My viewpoint was that we had to translate this 24 contract into a design and build contract by achieving 25 that novation and once we'd done that, we would then 154 1 challenge Notified Departures, challenge changes, and 2 only accept those which were outwith, we felt, the 3 normal degree and normal design development. 4 That was the rationale for that. 5 Q. Is that -- 6 A. We had a -- 7 Q. Is that what you meant by fighting tooth and nail? 8 A. Yes. I mean, at the end of the day, it was basically to 9 say that, you know, any change that was going to come 10 forward, bearing in mind the amount of money that had 11 been paid to the Infraco and to SDS for the novation, 12 would be challenged in the context of that. 13 And, you know, there's always, in any project, 14 a project plan is a living document. And the critical 15 path may well have suggested that a given area, for 16 example, that was supposed to have been cleared, like 17 Haymarket, and the works of Infraco are required to 18 start there, may well not have been. 19 However, there may well have been an area that was 20 cleared, and whilst it wasn't in the programme to be 21 done before Haymarket, it may well have been a suitable 22 alternative. 23 So if a suitable alternative like that emerged, we 24 would have made a case to the builder to say: we 25 understand that we can't progress there, but we can 155 1 progress here. We don't consider that involves any 2 substantial change or any downtime or idle time for your 3 people. 4 You know, so the costs should be minimal in that 5 regard. 6 So that kind of -- that kind of dialogue was going 7 to have to come after the contract. 8 But I would make the point that that would have come 9 irrespective of whether everything had been hygienic and 10 clean at the start of this process. That would have 11 come, because events would have overtaken it. Things 12 would have emerged, you know, that ... 13 Q. If we go back to the paper versions of the email that 14 you had, it's document ending reference 933. 15 A. Document reference what? 16 Q. It's email we were looking at a minute ago. 17 A. Right. 18 Q. The reference for it is CEC01465933. 19 A. Yes, I've got it. 20 Q. If we look back to the very first email in that chain on 21 the paper one, it should be an email from Geoff Gilbert, 22 to Andrew Fitchie, you and Steven Bell. 23 What he says is, it's addressed to you, "Jim": 24 "My view is that we need to: a) confirm the 25 agreements made with SDS on how the differences between 156 1 V26 and V28 will be dealt with eg where and how they have 2 agreed to pull back those dates; b) identify the impact 3 of these mitigations and any unmitigated changes from 4 V26 on the BBS critical path. This presumably shows 5 that their critical path is unaffected. Then agree this 6 position with BBS; (c) include the agreed SDS 7 mitigations in the Programme Schedule." 8 Now, getting the agreement with SDS and then 9 identifying the impact and agreeing this position with 10 BBS, did you take that to be essentially saying we 11 should proceed largely as Andrew Fitchie as directed? 12 A. Well, no. I mean, again, I mean, it's very easy to -- 13 with respect to Geoff, to lay out (a), (b) and (c) here 14 as to what should be done and what have you. But the 15 reality is, and Geoff had been involved in this process 16 a lot longer than I had, from the previous (inaudible) 17 throughout the procurement. We couldn't get these 18 people into alignment. That's the reality of it. 19 Q. So what was -- 20 A. So what he's saying -- what I read this email to say is 21 get an agreement between SDS and BBS as to what the path 22 is going to be and wholesale agreement and alignment on 23 that. 24 My understanding was that that's entirely what had 25 been attempted for the preceding 18 months and hadn't 157 1 been achieved. 2 So to say that we were now going to achieve this in 3 a couple of weeks seemed ambitious to me. 4 Q. So what was done after that email exchange? 5 A. Well, at the end of -- at the end of Andrew's email, he 6 has a paragraph that says: 7 "This is one where Steven and Geoff must, I feel, 8 have a better sense of how factually to restrict BBS's 9 ability to exploit this. After this review, we might be 10 able to go about trying to structure ..." 11 I would have to defer to Steven on that. I don't 12 know. I can't remember what happened. I'm assuming 13 they must have discussed it and come to a way ahead on 14 it. But it's something I presume Steven will be getting 15 this -- you know, review at some point. So it's 16 something that I think he needs to answer. I simply 17 can't remember. 18 Q. What was -- you were working with Steven Bell on these 19 negotiations? 20 A. Yes. 21 Q. What was your -- the role of each of you in conducting 22 these negotiations? 23 A. Well, I think Steven as a Director of tie had the prime 24 responsibility, and I was assisting. You know, I had 25 general experience of contract negotiation and -- and 158 1 I'm bound to say that in the context of this 2 negotiation, having been landed in this in January after 3 something like eight months prior to it, ongoing 4 procurement effort, that we didn't have a terrific hand 5 of cards to play in terms of negotiation leverage, with 6 a bidder that had already been signalled as preferred 7 and suchlike. And the contract structure that clearly 8 wasn't working. 9 So my role was assisting Steven in this regard, and, 10 you know, helping articulate the argument from a tie 11 perspective. 12 And I think I did that reasonably well, and, you 13 know, I think Ian Laing would maybe attest to that. 14 Q. I want to ask you now some questions about MUDFA. I'm 15 finished with that email chain. 16 A. Okay. 17 Q. You said you were transferred to carry out a review of 18 MUDFA around the time of contract close in May 2008; 19 have I got that correct? 20 A. Actually, around about the middle of April 2008, I had 21 personal reasons, I needed to go to the United States. 22 So I was out of play for two or three weeks, and when 23 I came back, I was asked to attend that -- I was asked 24 to go down to MUDFA and I was asked to come back for 25 a date on that meeting with the good Mr Enenkel. But 159 1 largely from about May, I went down to Leith and was 2 involved in the MUDFA project. I carried out an initial 3 audit on the project. 4 Q. Was there a reason that you were asked to go down there? 5 Were there concerns about the MUDFA project? 6 A. Well, there clearly was. There was clearly -- whether 7 it was an anticipatory reason or whether it was 8 a factual reason, I can't remember. By that I mean 9 whether the fears had crystallised or whether there were 10 concerns that there might be problems, I can't really 11 remember. But when I went down and had a look at it, 12 then I certainly did discover that there were problems. 13 Q. What were the problems, in outline? 14 A. Well, one problem was that the contractor side, 15 Carillion contractor side, and the tie side weren't even 16 meeting on a weekly basis. We'd no progress meetings 17 happening. The dialogue seemed to have broken down and 18 there seemed to be all sorts of personality conflicts, 19 and I found that -- I found the Programme Director from 20 Carillion who, from my perspective, in fairly simple 21 questions, didn't really seem to understand what was 22 improving on. 23 Q. In this regard, I would like to ask you to look at two 24 documents again. They have got sequential numbers 25 because it's email and an attachment. It's CEC01145982. 160 1 A. 5982? 2 Q. Yes, that's the email. The attachment is obviously the 3 one that ends 983. 4 A. Sorry? 5 Q. The attachment to it, do you have that as well? It's 6 the one that ends with the number 983. 7 A. Yes, I've got the attachment. 8 Q. The first one of those we can see is an email from you 9 to Steve Bell dated 28 January 2009, saying: 10 "As requested a note outlining today's proceedings 11 in brief." 12 Then if you go to the second document, which is 13 CEC -- it's already there. 14 In letter form. It says: 15 "Steven, in discussing the problems and issues which 16 are currently facing the MUDFA Programme today, a number 17 of key issues emerge." 18 Before turning to those issues, is this you 19 essentially reporting the results of your review? 20 A. No, no, this was after. This was substantially after 21 review. The review that I reported -- I -- a document 22 still in existence, but I recall around about July or 23 something of 2008, making some summary recommendations 24 of what we were required to do across the piece in the 25 MUDFA, and one of them was to replace the Programme 161 1 Director from the supplier. 2 So that was achieved long before January 2009. 3 I would have thought that was round about 4 July/August 2008. 5 Q. Sticking with this document then, looking at the 6 numbered paragraphs with what you describe as the key 7 issues, 1 is: 8 "Communication of important data across the project 9 is at best patchy and wholly unacceptable." 10 2: 11 "There is no doubt that the job is of a level of 12 complexity that has been wholly underestimated." 13 3: 14 "The level of co-operation between the tie staff and 15 the Carillion staff is sub-optimal and resulting in many 16 untrapped issues. 17 Underpinning these difficulties is an admitted 18 position from Carillion that they do not have the 19 requisite quality of staff on the job, I put this to 20 Steve Beattie and he accepted the point and was 21 supportive that we should raise the matter with the 22 Senior Management within Carillion." 23 Now, the first question, who was Steve Beattie? 24 A. Steve Beattie was the programme director that came in to 25 replace the Programme Director whose name escapes me 162 1 now. But I found to be not of the quality we required. 2 Q. He seemed to accept the point that you were making that 3 they didn't have the requisite quality of staff carrying 4 out the work? 5 A. That's what it says here, so I presume I'm stating the 6 truth there. 7 Q. These three points, in the numbered paragraphs, were 8 they things that had been apparent to you throughout 9 your review, or were they just emerging towards the end 10 of 2008, into you giving this report at the start of 11 January 2009? 12 A. I think -- I think the answer is a bit of both really. 13 You know, obviously, as I went down there and understood 14 what was happening, particularly in relation to point 2, 15 the level of complexity that the project was facing is, 16 I think, I noted in one of your other emails. I walked 17 the full length of the route and had a look at some of 18 the issues that -- that the project was facing, and 19 there was no doubt that the complexity of this thing had 20 been totally underestimated. 21 And it was a bit -- I likened it to building a ship 22 in a bottle because the reality was that it was hugely 23 difficult to, you know, segment off the areas that we 24 were looking to move the utilities in, and we often 25 didn't have the requisite health and safety space to do 163 1 it. 2 So there were a lot of issues. I was speaking to 3 a utility, senior utility person just last week, and 4 he -- he was of the view that it's hardly controversial 5 to say that utilities don't have an accurate record of 6 where their utilities are. 7 So -- and in those three points, point 2 is 8 certainly something that I acquired a much greater 9 understanding of over months that ensued. 10 Q. You raised a couple of issues there of things that 11 presented problems, and one of them was the complexity 12 of the work in terms of what was in the ground? 13 A. Yes. 14 Q. Another was the fact that the records being provided by 15 the utility companies were poor, inaccurate? 16 A. Indeed. 17 Q. In your statement you also refer, and it's essentially 18 what you say in this report too, that you were unhappy 19 with the performance being given by Carillion? 20 A. Indeed. 21 Q. Did that change, your view of Carillion? 22 A. I think what happened, you know, can I ask a legal 23 question here? Am I at any risk -- well, I know I've 24 got to tell the truth or not, which I am doing, but I'm 25 not at any risk of Carillion coming after me here, am I? 164 1 CHAIR OF THE INQUIRY: No, you're not at risk of any action, 2 sole action of defamation or anything of that sort. (a) 3 assuming you're telling the truth, but also, even if 4 it's not true, as long as you're not being malicious. 5 A. Well, my Lord, thank you for that clarification. 6 I think my concern is that -- and you will understand 7 this -- that it is ten years now since some of this -- 8 has been going on for ten years, and I don't have any 9 proof of what I'm saying. So all I can give you is an 10 opinion based on my recollection of the time. 11 My recollection of the time was that we carried out 12 the audit and there was an immediate improvement from 13 Carillion. They saw me, I think, as new person in town, 14 and there was an upswing in their performance. 15 They made representations to tie that their contract 16 was onerous, they'd inherited the contract from 17 MacAlpine, and that the contract was unfair in the way 18 that it was holding them to account for dealing with 19 a lot of stuff that hadn't, you know, been originally 20 foreseen. 21 Steven took a very hard line on this, and his view 22 was the contract may have been inherited, but it was 23 a contract that was signed in good faith, and as an 24 experienced practitioner, they should have been aware of 25 its dimension when they were buying over MacAlpine and 165 1 buying over whatever they were inheriting from that. 2 They made repeated representations to us for 3 additional monies, and they were repeatedly rebuffed in 4 that regard. As that process continued, my perception 5 was that their performance started to dip because 6 I think there was enormous passive aggressiveness about 7 them not doing their job, you know, or not focusing all 8 their energies in getting this job done. 9 So that was what happened in the context of that 10 relationship. 11 MR LAKE: Could I ask you to look at something in the 12 relationship a little bit further on then. Once again 13 it's an email and attachment, and the references are 14 CEC00959119 and the attachment to it, which is 15 CEC00959120. We will take the email first. 16 A. This is date 16 April 2009. 17 Q. Yes. It's an email from you to Steven Bell, Susan Clark 18 and Dennis Murray? 19 A. That's right. I've got it. 20 Q. You say: 21 "Steven, I’ve redrafted this paper with greater 22 focus on the executive summary and a summary view on 23 options together with a de-duplicated detail on the 24 options empty." 25 And it's for his review? 166 1 A. Yes. 2 Q. If we look at the attachment to that, the document that 3 ends 120, you will see it's headed "Executive Summary". 4 If we look at that, and we look at the introduction and 5 the three paragraphs underneath it to start with, you 6 can see the third of those paragraphs says: 7 "For performance, quality and cost reasons it is now 8 considered that the timing is right to close the MUDFA 9 programme, while recognising that there is still an 10 outstanding workload to complete. The tie MUDFA team 11 have reviewed the options available and these are 12 discussed in some detail in the attached option paper." 13 Now, was that a review that had in fact already been 14 performed, not only by you, but by Steven Bell, 15 Susan Clark and Dennis Murray as well? 16 A. I think I had expressed the view a lot earlier than 17 that. I think it was probably around about the 18 preceding quarter, September 2008. October 2008. That 19 we were -- that we should explore this as an option. 20 The reality was that whilst we had a contract, the 21 performance against the contract wasn't matching our 22 expectation. And there was a -- there was certainly -- 23 I can understand that there was comfort in the contract 24 because it had a fixed price, and actually in this 25 context a fixed price was sticking. When I left tie in 167 1 November 2009, as I recall, the fixed price had still -- 2 had still remained. 3 But my concern was that in the greater scheme of 4 things, there was something we weren't getting the 5 progress we needed, and in that sense I felt that we 6 should consider, you know, finishing the contract and 7 stopping the contract, and giving the works to other 8 people. 9 Q. If we could look at the second paragraph here, the one 10 that's headed 2, "Commercial". If we could look at the 11 heading and the text underneath it? 12 A. Yes. 13 Q. It's particularly the second half of the paragraph I'm 14 interested in, but we will look at the whole of it: 15 "There are a number of key commercial issues 16 presently with Carillion, who have found the contract for 17 measure agreed and signed to be disadvantageous to them 18 and in their view does not recognise the additional 19 scope and complexity they have required to deal with, 20 and accordingly a number of claims for extension of 21 time, and monthly claims on delay and disruption have 22 been lodged." 23 I think that's what you've referred us to; is that 24 correct? 25 A. Yes. Yes. 168 1 Q. "In tie's view, the impoverished performance, 2 particularly in the earlier stages of the contract, has 3 been causal in large measure of the delays experienced. 4 Discussions are ongoing on these issues, there is 5 little doubt however commercially that the earlier this 6 contract is concluded, the better." 7 So really that's -- you were sufficiently 8 dissatisfied with the Carillion performance that you 9 wished to get out of the contract as soon as 10 practicable. 11 A. I was keen to get the job done, and in the course of my 12 weekly progress meetings, I had become incredibly 13 frustrated at agreeing a line of progress to be made in 14 the week ahead, and that not being achieved. It 15 certainly didn't sit well with me. It's not what I was 16 used to. 17 So you take that for so long before you -- as the 18 CEO of GE was famous for repeating: if you can't change 19 the people, change the people. That was my perspective 20 on it. 21 Q. Could we go to the second page of this document, please. 22 If we can look at the heading, "Recommendations", and 23 the first three paragraphs underneath it. 24 A. Yes. 25 Q. You can see your principal recommendation number 1 is: 169 1 "The MUDFA programme is closed down by no later than 2 31 July 2009 and the required consolidation of the tie 3 MUDFA resources to the Infraco programme to commence and 4 conclude in June 2009." 5 Is that saying the closing down of the MUDFA 6 programme is obvious, but is that saying that thereafter 7 the MUDFA works would be administered through the 8 Infraco programme? 9 A. I don't know -- I don't think that was necessarily the 10 case. 11 Q. What did you -- 12 A. Because I think the -- I think we had other -- tie had 13 other -- had recruited people, notably a very excellent 14 chap called Frank McFadden who had long tooth experience 15 of doing this kind of works. And I think the reality is 16 that some of this may have been -- I think the reality 17 was that some of this was done outwith the Infraco 18 contract. By engaging directly with another supplier. 19 Q. Just looking at engaging with other suppliers, we see in 20 paragraph 2 and paragraph 3, you respectively suggest 21 that diversion works in section 1a at Ocean Terminal and 22 Section 7, which is at the airport, should both be 23 removed from the Carillion MUDFA scope of works and let 24 out to other contractors. 25 Is that broadly what you're suggesting? 170 1 A. Yes. 2 Q. That's the two ends essentially of the tramline? 3 A. Yes. 4 Q. You note there that they should be awarded under the NEC 5 contract. The existing MUDFA contract was a bespoke 6 contract. Was there any reason for preferring NEC to 7 the -- a re-run of the bespoke contract? 8 A. To be honest with you, I can't really recall. 9 I must have taken some advice on that, from more 10 experienced practitioners in that area, but I can't give 11 you any clarity on that. 12 Q. Then if we enlarge paragraphs 4, 5 and 6, paragraph 4 13 says: 14 "MUDFA utility diversion works remaining post 15 31 July 2009 to be removed from the Carillion MUDFA 16 scope and procured/awarded to either the individual 17 utilities (subject to the scope and availability and 18 willingness of the SUCs to carry out the works) or 19 a suitable contractor following a competitive tender." 20 So that's saying the two ends had been awarded away 21 one way and this is all the work in the middle also to 22 go to another contractor? 23 A. Yes. 24 Q. Now -- 25 A. Basically taking Carillion out of the picture 171 1 altogether. 2 Q. That was done, wasn't it? That was approved and carried 3 out? 4 A. Yes. 5 Q. An agreement was concluded with Carillion to take them 6 out of the contract. Were you involved in the 7 negotiation of that agreement? 8 A. Can you tell me when it was? 9 Q. I'll see if I can find out for you. Excuse me one 10 moment. 11 Neither party thought to write in the date. It's 12 been left blank 2009. 13 A. Truthfully, I can't recall being in that -- in that 14 meeting. 15 Q. Right. 16 A. And I'm conscious of the fact that I left tie in 2009, 17 and I was moved back from the MUDFA programme circa, 18 I think, the August, July or August 2009. So I may not 19 have been involved with that. 20 Q. Do you have any recollection as to why certain terms in 21 the contract would be agreed then? 22 A. Can you give me an example on that. I'm not sure. 23 Q. One of the terms of the contract were that Carillion 24 were to be given an extension of time for their works, 25 so as to in effect it would extinguish any claim that 172 1 tie might have against them for late performance of 2 their works, and the question would be whether or not 3 that was done in recognition of the fact that delays 4 hadn't been Carillion's fault, or it was done to dispose 5 of the delay issue. 6 A. I don't -- I don't specifically recall that. 7 In the context of Carillion's fault, I do believe 8 that, you know, there were issues that occurred that 9 weren't Carillion's fault. It would hardly be a fault 10 that we'd found hundreds of dead bodies outside 11 a graveyard perimeter wall, or that we found 12 a World War II bomb shelter or we found that 13 Princes Street was hollow underneath when everybody 14 thought it was solid. 15 So there certainly were areas where you couldn't 16 really ascribe fault to Carillion in that regard. 17 I will stress the view that Steven was certainly 18 prone to making. They were an experienced contractor 19 and they should have understood some of the pitfalls and 20 some of the issues that they would encounter as part of 21 their bid process. 22 Having said that, of course, they inherited the 23 contract from MacAlpine. So they may well have taken 24 a different view. 25 Q. Without going through your statement in detail, I think 173 1 it's fair to say there are a number of places in your 2 statement where you record your dissatisfaction with the 3 performance of Carillion. 4 A. Yes. 5 Q. Do you consider that they had no responsibility for the 6 delays or just weren't entirely responsible for the 7 delays? 8 A. I think there were instances where they weren't 9 responsible for the delay, but I think there was a lot 10 of instances where they were. In the context of their 11 performance as a contractor. 12 MR LAKE: Thank you very much, Mr McEwan. 13 My Lord, those are the only questions I had for 14 Mr McEwan. 15 CHAIR OF THE INQUIRY: Are there any, Mr Dunlop? 16 MR DUNLOP QC: My Lord, there's a couple of matters that are 17 not quite arising as I anticipated from the statement of 18 the witness, in particular with regard to the finality 19 of the Wiesbaden Agreement, and to the involvement of 20 DLA therein, and I would appreciate ten minutes to 21 explore those matters with the witness. 22 CHAIR OF THE INQUIRY: Mr McEwan, Mr Dunlop will ask some 23 questions now. He's representing DLA Piper. 24 MR DUNLOP QC: I'm obliged, my Lord. 25 Examination by MR DUNLOP QC 174 1 MR DUNLOP QC: Mr McEwan, you were asked about the finality 2 of the Wiesbaden Agreement. Could you go back to your 3 statement, please, which you hopefully still have in 4 front of you. It's reference TRI00000057. Page 24 in 5 that statement. 6 A. I've got that. 7 Q. If you see, it's at the top of the page, if we expand 8 the first half of the page, question 16, and then there 9 is a subparagraph B and then a sub-subparagraph 1. Do 10 you see that? 11 A. Yes. 12 Q. "What was your understanding of the purpose and outcome 13 of the Wiesbaden discussions and agreement?" 14 Your answer is: 15 "To achieve solid agreement on cost and delivery 16 timescales for 1A." 17 A. Yes. 18 Q. Is that correct? 19 A. Yes. Mm-hm. 20 Q. So what was the point of solid agreement if after that 21 agreement, everything was still up for grabs? 22 A. Is that your question? 23 Q. Yes. 24 A. Well, I think the ambition was to achieve a solid 25 agreement. I think the perception was that that -- 175 1 certainly the initial perception was that that had been 2 achieved, but quickly it became known that it hadn't. 3 Q. Insofar as matters were agreed at Wiesbaden, and they 4 were signed off as agreed by Mr Gallagher, then they 5 were taken as agreed, were they not? 6 A. In the context of that agreement -- I'll be honest with 7 you. I'm not -- I wasn't particularly involved in the 8 Wiesbaden Agreement, and got a presentation, if you 9 like, along with many other staff on what the outcome 10 had been. So I don't know exactly what was agreed or 11 what wasn't agreed, and what the latitude for or 12 conditions on that agreement were, and what the 13 potential for change in that agreement was. 14 Q. What you said at the outset of your evidence, Mr McEwan, 15 was that you were given a list of matters that hadn't 16 been agreed at Wiesbaden, and asked to finalise those. 17 Now, that is the position -- 18 A. No, I don't think I did say that actually. I said that 19 that I had been given a list of matters that had to be 20 agreed. Whether those were changing what was happening 21 at Wiesbaden or not, I'm not altogether sure. They may 22 have arisen subsequently to Wiesbaden. 23 Q. Okay. Well, if you think about the Wiesbaden Agreement, 24 please, can you tell his Lordship which material aspects 25 of the Wiesbaden Agreement did you alter in subsequent 176 1 discussions? 2 A. I have already stated that I'm not sure what the 3 Wiesbaden -- that I'm not fully embraced with what the 4 Wiesbaden Agreement was and what the conditions on it 5 were. I think there was clearly some movement in the 6 cost based on the menu list of items that we had to deal 7 with post January 2008, and some of those may well have 8 arisen, you know, after the Wiesbaden Agreement, and in 9 fact I suspect they did. You know, I mentioned the 10 tiresome viewpoint of the street furniture and the 11 Edinburgh Council having given -- Department of 12 Edinburgh Council having a predilection for a specific 13 form of street furniture which was more pleasing to the 14 eye. That may have arisen after the Wiesbaden 15 Agreement. That was -- for some reason that's an 16 example that sticks out to me on that list. I can't 17 tell you what was all on that list. I don't know. 18 Q. If you have the Wiesbaden Agreement in front of you, 19 please, or on the screen at least, it's CEC02085660. 20 A. Yes. I'm sorry, I'm accessing this on a different 21 laptop. Right, I've got it. 22 Q. I wonder if we could have it on the screen here, please. 23 Thank you. 24 If we go to page 9, please, we see it's -- 25 A. Page 9? 177 1 Q. It's actually listed as page 5 on the original document, 2 but if you see the underscore? 3 A. Oh, right. 4 Q. 0009 reference for the Inquiry. 5 A. Right, I've got it. 6 Q. Do you see it's been signed by Willie Gallagher on 7 20 December 2007 for tie? 8 A. Yes. 9 Q. And just wondering, what is it substantial or material 10 that you say, if you look back through that agreement, 11 was the subject of change, material change, in the 12 period post-Wiesbaden? Is it just things like figures 13 or was there any alteration to the fundamental precepts 14 upon which that document proceeds? 15 A. I honestly don't think I'm qualified to answer that. 16 I don't know. 17 Q. Well, I'm asking you, Mr McEwan. If you just -- 18 A. There are clearly aspects like the novation of SDS as 19 set out in the novation plan. 20 Q. The reason I'm asking you, Mr McEwan, is that you have 21 indicated to the Inquiry that this was not set in stone, 22 that it was all up for grabs, and I'm just wondering 23 what was it that you treated as up for grabs, what was 24 it that you renegotiated? 25 A. I don't recall saying everything was up for grabs. 178 1 I think the reality was -- the question I was asked 2 earlier was: was this set in stone; and I'm expressing 3 a view that clearly, given that it didn't hold, it 4 obviously wasn't set in stone. 5 I come back to the menu list of items that we were 6 asked to debate and get over the line with Bilfinger 7 Berger and the consortium, that -- I would have thought 8 that list must exist somewhere. And some of those 9 undoubtedly would have a potential for changing what was 10 agreed at the Wiesbaden Agreement. 11 What those were now, I simply can't remember, and 12 whether they occurred prior to the Wiesbaden Agreement 13 or post the Wiesbaden Agreement, I suspect the answer to 14 that is more the latter than the former. It may well 15 have been different timescales or something or whatever. 16 I'm sorry, I can't give you any more detail than that. 17 Q. Okay. If you go back to page 7 in the document, please? 18 A. In the Wiesbaden Agreement? 19 Q. Yes. 20 A. Yes. 21 Q. Now, you will remember my learned friend, Counsel for 22 the Inquiry, asking you about the provision in Schedule 23 Part 4 and telling you the provision that caused the 24 problem. If you look to the top of the page, please, in 25 the Wiesbaden Agreement, "For the avoidance of doubt". 179 1 Do you see those words? 2 A. Yes. 3 Q. Those are the same as the words that Counsel to the 4 Inquiry explained to you became problematic, aren't 5 they? 6 A. I can't swear to it being exactly the same, but it looks 7 the same. 8 Q. So when he suggested that it might have stemmed from 9 Wiesbaden, he was obviously correct, wasn't he? 10 A. I can't really comment. I don't know. 11 Q. Okay. 12 A. It may have been before Wiesbaden. It may have been 13 after. I don't know. 14 Q. Now, insofar as there were discussions between Wiesbaden 15 and final close, DLA were often at meetings. If you 16 understood there was a contrary suggestion, that's not 17 the case. 18 So it's accepted DLA were often at meetings, but 19 technical and engineering matters were left to you, 20 weren't they? 21 A. Left with who? 22 Q. Technical and engineering matters were left to you and 23 Mr Bell? 24 A. Well, technical and engineering matters were left with 25 Mr Bell. I've got no technical engineering knowledge of 180 1 tram design. But whether -- whether there was a legal 2 opinion required in the technical engineering matters is 3 another matter. 4 Q. Now, some matter -- some meetings, for example, do you 5 remember the Rutland Square meeting that resulted in the 6 Rutland Square Agreement? 7 A. Yes, I was there as an observer. 8 Q. So that was at DLA's offices? 9 A. At Rutland Square, I assume, yes. 10 Q. But there were other meetings that you and Mr Bell 11 attended to agree matters with the consortium that DLA 12 were not at, is that correct? 13 A. No, I don't think that is correct. I think there were 14 matters where things would be discussed, but I don't 15 think there was matters where things would be agreed. 16 Q. Do you remember the CityPoint Agreement? 17 A. CityPoint Agreement? Have I got a document here that 18 refers to it? 19 Q. Well, not -- not presently. I just want your comment on 20 this. On 7 March 2008, 8.6 million was added by way of 21 the CityPoint Agreement? 22 A. Yes, yes, I do remember. I remember that Richard Walker 23 and Mike Flynn came in to address a number of issues 24 that they had concerns of, and which had the effect of 25 adding cost to this proposal. 181 1 Q. And it was called the CityPoint -- 2 A. It was considerably in excess of the 8.6 million that 3 was agreed. 4 Q. It was called the CityPoint Agreement because the 5 meeting took place at the CityPoint offices; is that 6 right? 7 A. Right, yes. 8 Q. And on tie's part the negotiations were concluded by you 9 and Steven Bell alone; is that not right? 10 A. If you're asking was there a DLA representative there, 11 I don't recall. 12 Q. I'm -- 13 A. There may well have been. 14 Q. I'm putting it to you that there was no such DLA 15 representative, and it was you and Steven Bell -- 16 A. Well, I'm putting it back to you that we didn't agree 17 anything without ensuring that DLA were involved in it. 18 Q. So if the Inquiry sees reference, for example, from 19 Mr Bell, to a CityPoint Agreement, concluded without any 20 DLA representation, are you saying that's wrong? 21 A. I think that whether there was a DLA representative 22 through the entire meeting at these things or not, that 23 there would have been consultation with DLA before 24 anything was memorialised into a contract. 25 Q. Okay. 182 1 Now, on the question of design risk, and the 2 involvement in between Wiesbaden and close, you 3 understood that design risk lay with tie, didn't you? 4 A. I understood that the design -- design risk lay with tie 5 when? 6 Q. Following Wiesbaden and up to and including close, you 7 understood that design risk lay with tie? 8 A. No, I didn't understand that. My understanding was that 9 once the contract with SDS was novated to Bilfinger 10 Berger and the consortium, that the design risk for 11 normal design development would be in their bailiwick. 12 Q. If you think back to the email that my learned friend 13 took you to, 31 March 2008. Do you remember that one? 14 A. Mm-hm. 15 Q. It might be of assistance to put it back on the screen? 16 A. Yes, the one from Ian Laing, yes. 17 Q. That's right. And the one from Mr Fitchie, telling you 18 that as soon as the contract was signed, there was going 19 to be a Notified Departure; yes? 20 A. Mr Laing had pointed that out, yes. 21 Q. Mr Fitchie said it was correct, didn't he? 22 A. He did. 23 Q. Your response was not to accept Mr Fitchie's advice, 24 which was try and get as much agreed with the consortium 25 before close. Your response was: fight them tooth and 183 1 nail on every Notified Departure. 2 A. My response was, as I articulated earlier in this 3 meeting, was that what Andrew was recommending was 4 entirely what the parties involved had been unable to 5 achieve in the 18 months of the procurement process 6 prior to it. So recommending that we get everything 7 sorted out to that hygienic level within that time frame 8 was, you know, advice that wasn't especially useful. 9 The reality was that we were looking for SDS to be 10 novated to Infraco and we were looking for that to 11 convey the risk of normal design development, which we 12 couldn't -- nobody could anticipate all the detail of in 13 advance. That's the -- that's the reality. 14 There was clearly an uncertainty in there, but the 15 reality was that in the final agreement, which -- 16 probably the Dr Enenkel meeting, that a contingency was 17 put in by Infraco that in terms of amount of money 18 measured more than the cost of the entire SDS contract. 19 So my understanding was we were moving something 20 which were not explicit. There was a general principle 21 that they were taking on a responsibility for normal 22 design development. 23 Q. I'm not sure I understand that, Mr McEwan, because what 24 was being said was the agreement at the moment is tied 25 to version 26. SDS has by March 2008 moved to version 184 1 28, and accordingly, everyone is telling you there are 2 going to be Notified Departures straight upon the 3 signature of the contract. It's nothing to do with 4 normal design development. This is to do with the fact 5 it's been priced on V26 and we've now moved to V28? And 6 you understood that -- 7 A. You -- you have said Notified Departures. As I read 8 Ian Laing's memo there was an initial potential Notified 9 Departure, not Notified Departures. 10 There was a mechanism in the contract to deal with 11 Notified Departures and there was a contingency within 12 the tie budget to deal with Notified Departures. The 13 reality was nobody knew the extent or otherwise of what 14 those Notified Departures were going to be. 15 Q. Well, in the email that we looked at earlier -- 16 A. I don't have a clear position of the delta between V26 17 and V28. You're making -- do you? Do you have a full 18 detail of what those differences are? 19 Q. Mr McEwan, as I think you know, the way this works is 20 I ask the questions and you answer them. 21 A. Okay. 22 Q. You will recall in the March 31, 2008 email, Mr Fitchie 23 told you that BBS's estimate was bound to be all 24 encompassing and conservative; yes? 25 A. Sorry, say that again? 185 1 Q. Mr Fitchie told you that BBS's estimate on the Notified 2 Departure as to what it's going to cost is going to be 3 all-encompassing and conservative? 4 A. I don't understand that point. 5 Q. Well -- 6 A. All-encompassing and conservative on what? 7 Q. If we can have it on screen, please, it's the last 8 document I want you to look at. It's CEC01465908. 9 MR LAKE: The witness has a limited number of hard copy 10 documents and he doesn't have that version. He has the 11 one that ends 5933 that still records Andrew Fitchie's 12 advice. 13 MR DUNLOP QC: I also want him to look at his own response. 14 Mr McEwan, you may have to look at it on screen, 15 which involves talking to a document rather than to me. 16 I'm sure you'll welcome that. 17 A. That may be better. 18 CHAIR OF THE INQUIRY: Mr Dunlop, he does have a, document 19 but Mr Lake explains a different -- 20 MR DUNLOP QC: What he doesn't have, my Lord, is the top 21 part which I want him to look at. 22 MR LAKE: His own response? 23 MR DUNLOP QC: Indeed. 24 MR LAKE: That's in his statement. You can take it from his 25 statement if you need it. 186 1 MR DUNLOP QC: Can you see the document on screen just now? 2 A. It's not -- yes, I can see it now. 3 Q. So we see -- 4 A. Yes. 5 Q. -- towards the bottom half, that's Mr Fitchie's email to 6 you. On the first paragraph what he says is: 7 "The estimate is bound to be all encompassing and 8 conservative." 9 Do you see that? 10 A. That estimate is bound to be -- yes, I see it, yes. 11 Q. He goes on to say: 12 "The only approach open to tie, in my opinion, is 13 a factual one, not a contractual one (since the 14 mechanism for Notified Departure puts the advantage with 15 BBS by creating an automatic tie change): to capture as 16 many identified key changes that tie knows will be 17 required and to attempt to fix them ..." 18 He goes on to give you that advice, doesn't he? 19 A. Yes, but I've already made the point many times. 20 Do I need to say this? The reality was what he was 21 prescribing, which was a bit of a hand-off, was that we 22 get everything fixed. And what I have said time and 23 time again is that the procurement team had spent 24 18 months trying to get these parties into alignment and 25 hadn't succeeded. 187 1 Q. What he's -- 2 A. So he's giving us advice to say: get it done in the next 3 two weeks, but it was hardly likely to be that useful. 4 Q. What he's talking about very clearly, Mr McEwan, is the 5 difference between version 26 and version 28, and to 6 capture the changes that tie know will happen? 7 A. I'm not sure that that was -- personally speaking, 8 I can't tell you what the deltas between those two were. 9 Q. We saw earlier -- 10 A. And I'm not sure what the extent of them was. There was 11 a potential for a Notified Departure. 12 Q. We saw earlier Mr Gilbert at least agreed with 13 Mr Fitchie's advice, didn't he? 14 A. Well, to an extent. But I mean, at the same time, it's 15 a bit rich because, at the end of the day, Mr Gilbert 16 was involved in looking at the procurement of this and 17 he's fully aware the difficulties in bringing these 18 parties into some form of alignment, something 19 I considered was never going to occur until they were in 20 the one contract, in a design and contract -- I don't 21 know what the deltas were between V26 and V28. 22 I suspect Steven had a greater handle on that. 23 Q. Okay, Mr McEwan, last question. 24 If you go to the top of that page, please, the 25 document we're looking at. We've already looked at the 188 1 part where you say, the third line: 2 "The only approach is to get the deal ..." 3 Sorry, it's not there yet. If the document could be 4 put on the screen for Mr McEwan. 5 A. This is the can of worms thing, is it? 6 Q. Yes. So in the third line -- is that legible to you? 7 A. No, not yet. Yes, it's okay now. 8 Q. So you say: 9 "The only option is to get the deal signed and then 10 fight the Notified Departure tooth and nail." 11 But before you say that, you say this will "open up 12 the whole can of worms on the Infraco contract cost 13 overall". What did you mean by "open up the whole can 14 of worms on the Infraco contract cost overall"? 15 A. I have already apologised. You know, you write these 16 emails at the time and you don't expect to be facing 17 a public Inquiry on them. But the reality was my view 18 was any -- any action that required us to go through the 19 contract again tooth and nail with Bilfinger was only 20 likely to come out with avenues for additional cost to 21 be added. So it would have been basically ripping up 22 what had already been done and starting again. 23 Q. I'm just trying to understand what you meant by the 24 whole can of worms on the contract cost. 25 A. Well, it was an unfortunate choice of phrase. What 189 1 I meant was that we had a contract which, if memory 2 serves me, was 2,000 pages in length. We had 3 a contract, and if the answer to this issue was to try 4 and determine the deltas between what was now and what 5 was then by going through the contract, the 2,000-page 6 contract, then (a) it would have taken a huge amount of 7 time, and (b) -- which was not available to us, and (b), 8 you know, would have certainly represented a risk of 9 greater cost. 10 Can I put a number on that? No, I can't. It was 11 just an intuitive feeling that that would be the case. 12 Q. And on the delta, the two options that were open to you 13 were either to close that delta there by agreeing 14 matters with BBS or, alternatively, fight the departure 15 tooth and nail? 16 A. As far as I'm concerned, the whole thing came down to 17 a question of degree. There was compensation given to 18 both SDS and Bilfinger to take this process on, and any 19 Notified Departure that came in that we adjudged or that 20 tie adjudged to be part of normal design development 21 would certainly be contested because they had been paid 22 to take that risk on, from our perspective. 23 Q. And you chose that route, didn't you? tie chose that 24 route, fight the departure tooth and nail, as opposed to 25 trying to -- 190 1 A. I don't think there was any choice in it. I think that 2 the reality was -- and it's not been mentioned and it's 3 in my statement. The reality was that in May of 2008 -- 4 which I think was the anniversary. I wasn't there when 5 they made their bids in 2007, but I think that was the 6 anniversary of their bid, and on the anniversary of 7 their bid the supply chain that was included within that 8 contract was going to collapse. 9 I'd heard mention that commodity prices had shifted 10 very disadvantageously, and if that was to happen, then 11 there was going to be costs accruing to the project to 12 the extent of tens of millions of pounds. So, you know, 13 you had to view it in the context of that. And the role 14 that I saw and certainly I felt was for tie -- there 15 wasn't a perfect outcome in any of this, but was to 16 pursue the route that represented the less risk. 17 MR DUNLOP QC: My Lord, I'm obliged -- 18 A. And that's what I think we did. 19 MR DUNLOP QC: I'm obliged for the indulgence. 20 CHAIR OF THE INQUIRY: Thank you very much. 21 Thank you very much, Mr McEwan. That's all, and 22 we're grateful to you for appearing via videolink. 23 Technically you're still under citation. So we 24 could come back and ask you some more questions, but 25 hopefully that won't be necessary. Thank you very much. 191 1 A. Thank you very much, my Lord, and thank you again for 2 your consideration in letting me do it via this way. 3 CHAIR OF THE INQUIRY: We will adjourn until 9.30 tomorrow. 4 (4.33 pm) 5 (The hearing adjourned until Thursday, 19 October 2017 at 6 9.30 am) 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 192 1 INDEX 2 PAGE 3 MR MARK BOURKE (sworn) ...............................1 4 5 Examination by MR LAKE ........................1 6 7 MR JOHN CASSERLY (sworn) ............................60 8 9 Examination by MR LAKE .......................61 10 11 MR JAMES MCEWAN (sworn) .............................99 12 13 Examination by MR LAKE .......................99 14 15 Examination by MR DUNLOP QC .................174 16 17 18 19 20 21 22 23 24 25 193