1 Thursday, 15 March 2018 2 (9.30 am) 3 CHAIR OF THE INQUIRY: Good morning. Mr Lake? 4 MR LAKE: My Lord, the witness today is Dame Sue Bruce. 5 DAME SUE BRUCE (affirmed) 6 Examination by MR LAKE 7 CHAIR OF THE INQUIRY: You will be asked some questions by 8 Counsel to the Inquiry, Mr Lake. If you just listen to 9 the question and answer it as directly as possible. 10 Will you also speak clearly into the microphone so the 11 shorthand writers can follow what you are saying, and 12 also not speak too quickly for the same reason. 13 A. Okay, thank you. 14 MR LAKE: My Lord. Could you confirm your full name, 15 please? 16 A. Susan Margaret Bruce. 17 Q. Thank you. I would like you to look at a document, 18 please. You will have it in hard copy in front of you. 19 It will also be shown on the screen. It's TRI00000084. 20 Hopefully you are looking at the same document, both 21 electronically and in paper form? 22 A. It appears to be, yes. 23 Q. Is that the statement which you gave for the purpose of 24 this Inquiry? 25 A. Yes. 1 1 Q. If you look at the last page of it, you will probably 2 see your signature and the date of 6 July 2017? 3 A. Yes, that's correct. 4 Q. Obviously since July 2017 the Inquiry has now started 5 and there's been quite a lot of evidence already heard. 6 You will be aware of that? 7 A. Yes, I am. 8 Q. Have you been following the evidence in the news reports 9 or the transcript that's made available online? 10 A. I have seen the occasional news report. I haven't 11 studied in detail the transcripts online. 12 Q. Sometimes, obviously after someone has given a statement 13 and they hear what other people have said, it jogs their 14 mind about things, and they realise there is something 15 they would like to add to their statement or want to 16 change. Is there anything in your statement that you 17 like to amend? 18 A. Nothing at this stage, thank you. 19 Q. In that case, are you content to adopt that statement 20 under oath as your evidence to the Inquiry? 21 A. Yes, I am. 22 Q. Thank you. Firstly, could I ask you just to look at 23 some preliminary matters on page 3 of your statement, 24 paragraph 8. I'm looking at the question of the 25 delivery model. What you say is: 2 1 "I think pre mediation, the problem that was peculiar 2 to this project was the delivery model as laid out in 3 the original contract. The delivery model was one where 4 the Council was ultimately accountable for the project 5 but appeared to have little or no control or influence 6 over the delivery agency tie, which in turn appeared not 7 to be able to effectively manage the project." 8 If I just pause there, what I'm interested in is the 9 question of the control or influence that the Council 10 had over tie. What control did you consider was missing 11 or would have been better to have? 12 A. The way the model was set up was it was a wholly-owned 13 subsidiary company of the Council, and the Council did 14 have Board members, but it appeared -- I had the benefit 15 of hindsight arriving on scene in 2011. It appeared 16 that the strength of the link between the Council and 17 tie perhaps wasn't as effective as perhaps it might have 18 been thought it would be. 19 Q. When you say effective, what was it not achieving? 20 What was it not doing, that link? 21 A. Well, the evidence on the ground and the scenario that 22 I was faced with when I arrived and that the public were 23 aware of, in that matters seemed to have broken down, it 24 appeared to suggest that the project wasn't being 25 delivered as everybody would have wished, and there 3 1 didn't seem to be any apparent solution available on 2 hand at the time. 3 So maybe it was a breakdown in the governance 4 arrangements. The link between the Council and tie, it 5 struck me that the Council was still accountable, excuse 6 me, for the project, but were not necessarily exercising 7 direct control over it, which is understandable because 8 there was a Board there. 9 So it didn't just seem as if the arrangements were 10 being effective. 11 Q. The Council as the sole shareholder of tie, was it your 12 understanding, would have been in a position, had it 13 chosen to, to have removed the entire Board and put in 14 new people? 15 A. It could have done if it had wanted to, yes. 16 Q. But the Board were themselves independent of the 17 Council? 18 A. In as much as Board governance works, that is really 19 what the Board should be. But the Council 20 representatives were there. They were representing the 21 Council also on the Board. 22 Q. Do you think there should have been more direct control 23 by the Council of the activities of tie? 24 A. I think as the major shareholder, perhaps the Council 25 could have satisfied itself more that things were going 4 1 according to plan. 2 Q. Is that by sort of day-to-day oversight of what was 3 happening in the company? 4 A. The whole purpose of having the company was so that the 5 Council didn't have to take day-to-day oversight. 6 Q. That's really the question I'm coming to. On the one 7 hand you are saying that greater control might be 8 a benefit. On the other, the Council had chosen to use 9 what it termed an arm's length company? 10 A. Yes. 11 Q. I suppose what it comes to is this: is the problem 12 fundamentally using an arm's length company? 13 A. I don't think it necessarily is. It is a model that can 14 work, and works in other scenarios. Arm's length 15 companies are not that unusual, for a period of time 16 that unusual in Council contexts. But in this 17 particular case it was very complex project. It was an 18 unusual project. It was a large project. And, you 19 know, it didn't seem as if the delivery of it was going 20 as everybody would have liked. So the question 21 remains: was the Board effective or was it not? I would 22 be giving supposition because I wasn't there at the 23 time. 24 So I think the question does remain that -- could 25 the Board have been more effective? I don't know. In 5 1 the fullness of time, and doubtless you will get to 2 that, tie was closed down effectively and the Council 3 took back control. 4 Q. I'm interested in that. That's what was done post the 5 Mar Hall mediation? 6 A. Yes. 7 Q. Do you consider that that was a more advantageous 8 delivery model than the one that existed before the 9 mediation? 10 A. To be clear, I only arrived in Edinburgh in 11 January 2011. So the period prior to that, I would have 12 to go on the evidence that everybody else has got in 13 that the project appeared to be stalling. Problems were 14 arising. The solution that was arrived at post 15 mediation to dismantle tie and take back control to the 16 Council, I did believe that was a more effective model. 17 The Council was carrying the risk and I strongly 18 believed that they needed to have more control over what 19 was happening in order to manage that risk. 20 Q. So if more control was thought to be beneficial 21 afterwards, is it reasonable to say that accepting your 22 view in these matters with hindsight, more control would 23 probably have been desirable from the Council's 24 standpoint throughout the project? 25 A. One could suppose that, yes. 6 1 Q. Would that tend to be just a general view that when one 2 is dealing with projects of very significant value, and 3 quite marked complexity, if the Council is going to be 4 accountable and responsible, the suggestion is the 5 Council should also have control of it? 6 A. I think if the Council is going to use an arm's length 7 body such as tie, there need to be sufficient control 8 mechanisms and references back so that the Council as 9 the major shareholder can satisfy itself on a regular 10 basis that things are going according to plan. 11 But having devolved responsibility for delivery to 12 tie, the Council obviously gave that time to run. And 13 I think a lot of this had to do with complexity and the 14 difficult nature of the project itself. 15 Q. Turning on to a different matter now, I would like to go 16 right back to the very end and the mediation that took 17 place. Could we look at a production. WED00000582. 18 Now, this is an email. You will see it's from 19 Anthony Rush to Brandon Nolan of McGrigors and 20 Nigel Robson. You will recognise the names but this 21 email was not sent to you; is that right? 22 A. No, it doesn't appear to have been sent to me. 23 Q. If we just scroll down this, I'm not interested in going 24 in great detail at the moment to who was there, but if 25 we see the bullet point fourth up from the bottom, it 7 1 notes that: 2 "At all times [you] and Vic Emery took the lead [in 3 these discussions] with the Mediator and the Infraco." 4 Is that something you would agree with? 5 A. Yes. 6 Q. What was Vic Emery's decision-making authority or power 7 as compared to yours? 8 A. Okay. 9 Q. Because you were both quite new? 10 A. Yes. I was the -- if you like, the lead person for the 11 Council. Vic Emery was the lead person for tie. 12 So as the project developed, that group was referred 13 to as the principals. So I think authority about 14 decision-making is a key point. My role was key -- lead 15 adviser to the Council. Decisions, policy decisions 16 were taken by the Council, and my job was to provide 17 advice and guidance on that. 18 So in -- at the mediation, I was the lead person for 19 the Council. Vic was the lead person for tie. And 20 various other parties were the lead persons for the 21 consortium. 22 Q. It's been suggested that you had said to Mr Emery on the 23 way into the mediation that the position of tie was such 24 that they had become toxic to the project. Do you 25 recall that? 8 1 A. It's not necessarily a word that I would associate with 2 my use of language. But tie, even before I came to 3 Edinburgh to work, were having difficult times, and 4 I think there was a general view abroad that the whole 5 scenario wasn't working. So whether I would have used 6 the term "toxic", I have heard it used. It's not 7 necessarily the kind of terminology I would necessarily 8 use, but it was certainly in the ether. 9 Q. But in terms of when it came to taking decisions, the 10 financial effect of those decisions was going to be felt 11 by the Council? 12 A. Yes. 13 Q. Did that mean that ultimately the decision as to what 14 should happen, what could be agreed to at that 15 mediation, was the Council's decision? 16 A. The outcome of what happened at mediation was a Council 17 decision. So all of the discussions that took place at 18 mediation, if you like, there was the consortium side. 19 Q. Yes? 20 A. And there was our side, as it were, and our side 21 comprised the Council, tie, and all of our collective 22 advisers. 23 And although the Council and tie were de facto 24 separate organisations, so tie was still an arm's length 25 company, the Council was the Council, we collectively 9 1 made up the Council's negotiating side, as it were, and 2 anything that arose from those negotiations had to be 3 referred back to the Council for decision-making. 4 Q. What input did tie actually have at the mediation? 5 A. Through Vic, Vic was there as Chair. He had been 6 brought in -- I think the decision to advertise the role 7 of Chair for tie even at that stage was taken early in 8 the year, possibly before I got there, possibly not. 9 I can't actually remember; and at that time we didn't 10 know whether tie would continue or tie wouldn't. So Vic 11 was brought in as Chair of tie, and he was specifically 12 selected because of his background in major contracts, 13 in shipbuilding and so on, his knowledge. 14 He was also quite hardnosed as a negotiator, and it 15 was thought that he would be an asset, both to tie and 16 to the broader negotiating position. 17 So during the negotiations at Mar Hall, the Council 18 side involved Vic and others from tie, other senior 19 officers, and their advisers, and we collectively 20 knocked around the options, discussed things, worked out 21 what was best and so on and so forth. 22 But ultimately it was Vic and I that had to 23 represent those to the actual mediation process. 24 Q. I can see one role there that you describe is 25 essentially as a sounding board, enabling discussions to 10 1 take place with people from tie. 2 A. Yes. 3 Q. Were they also involved in providing information? 4 A. Yes. 5 Q. When it ultimately came to taking decisions, either 6 tactical or strategic or contract, was that really your 7 decision rather than Vic Emery's decision? 8 A. We -- we worked pretty much hand in glove, Vic and I, 9 because he had substantial technical knowledge and 10 contract knowledge which I didn't have. I had the 11 broader view of the Council. 12 And together we worked, I suppose, as that 13 leadership pair. 14 Q. I just want to press you on this. Did Vic Emery or 15 anyone else at tie have practical input into what 16 decisions were ultimately taken, not just by way of 17 providing information in discussions, but deciding yes 18 or no on certain things that should be done in relation 19 to the other side? 20 A. Yes, and I would say that that came down to both Vic 21 and I. The team of advisers were there to do exactly 22 that, to advise, but Vic and I had to be accountable for 23 what we eventually took into the mediations. Both Vic 24 and I decided what we would take into the mediation. 25 What -- the outcome of the mediation then had to be 11 1 referred to the Council for decision-making because 2 neither of us had authority to bind the Council. That 3 then had to go into a subsequent process. 4 Q. We will come back to that later. 5 If we can just look at this still with this bullet 6 point at the moment, the fourth last one. After the 7 reference to you and Vic Emery, there's a reference to 8 Ainslie McLaughlin. He was from Transport Scotland. Do 9 you recall his involvement? 10 A. Yes. 11 Q. What was his involvement? At Mar Hall? 12 A. Ainslie was there really to provide the view of 13 Transport Scotland on what was going and also to provide 14 the link back to Transport Scotland and Scottish 15 Government Ministers. 16 So his view was sought. And he would give -- yes, 17 he would give a view on how he thought things were going 18 from Transport Scotland's point of view. 19 Q. Did he have to approve of agreements that were to be 20 reached by the Council and/or tie? 21 A. He didn't have to approve, but what we sought to do to 22 get the best possible outcome was to get as much 23 consensus as possible. And, you know, there were -- it 24 was quite a long and detailed process, and there were 25 times when people were asking questions or disagreeing 12 1 and so on, and we tried to reach a point where we had, 2 if you like, product or an outcome that, as far as 3 possible, people around the table felt comfortable with. 4 Q. It was already clear, by the time mediation was embarked 5 upon, that the cost would exceed the original cost, and 6 therefore the whole of the Scottish Government grant or 7 the Transport Scotland grant would be required? 8 A. Yes. 9 Q. It had also been made plain that the Scottish Government 10 weren't going to put another penny into the project. So 11 the whole of the additional cost would be borne by the 12 Council? 13 A. That's right. 14 Q. That being the case, what was there for 15 Transport Scotland to approve or not approve in the 16 discussions? 17 A. Transport Scotland were, as I said, they were taking an 18 overview, looking after Transport Scotland and 19 ultimately the Government's investment. So they weren't 20 there in a decision-making capacity, and I think we've 21 just clarified that in the previous question. But 22 Ainslie was there really to ensure that he could add 23 value, if there was any knowledge or experience or 24 advice or anything of that nature that he could bring to 25 the table, he would bring. 13 1 He was there, I suppose, to support the process, but 2 also to have a watching brief for Transport Scotland and 3 the Scottish Government. 4 Q. In terms of the experience and knowledge you say that 5 Transport Scotland could bring, it's apparent that 6 Transport Scotland were involved in the governance of 7 the project after the mediation? 8 A. Yes. 9 Q. Just looking back to the mediation, did it seem clear to 10 you that Transport Scotland were in a position to 11 contribute? 12 A. Absolutely, yes. 13 Q. After the mediation, presumably because they were 14 involved, do you also consider they were in a position 15 to contribute? 16 A. Yes, certainly. 17 Q. Were you involved in any discussions as to why 18 Transport Scotland hadn't been involved -- 19 A. No. 20 Q. -- since 2007? 21 A. No. 22 Q. Do you consider it would have been of benefit to have 23 them involved throughout the project? 24 A. Well, I obviously have the benefit of hindsight. 25 Q. Accepting that? 14 1 A. So given their role post mediation, which was very 2 helpful, possibly it would have been helpful for them to 3 have a role beforehand. But that decision was taken at 4 a different time by different people and that was really 5 up to them. 6 Q. I understand. 7 Just looking back to the document we have on screen, 8 above the bullet point we were looking at, there is an 9 adviser team, and the first name noted under that is 10 Colin Smith of HG group. 11 I think he's someone that you brought into the 12 contract, into the discussions after you were appointed 13 Chief Executive? 14 A. That's correct. 15 Q. What was his role to be? 16 A. Prior to and up to and during mediation, he was brought 17 in as a technical adviser. 18 Q. Advising on what? 19 A. On matters -- Colin Smith is a quantity surveyor, and he 20 was advising the Council on -- giving a view how 21 things were, what risks there might be. He could give 22 technical advice on helping to move things forward in 23 terms of the contract. 24 Q. Had you considered other people for that role at the 25 time he was appointed? 15 1 A. At the time he was appointed, and I can give the 2 background to that fully, if that helps -- 3 Q. I think you said in your statement you'd worked with him 4 previously at West Dunbartonshire? 5 A. East Dunbartonshire. 6 Q. East Dunbartonshire. 7 A. Yes, that's correct. On some major infrastructure 8 projects. Colin had worked as a consultant to 9 the Council in East Dunbartonshire, particularly on a 10 project called Kirkintilloch Initiative, which was quite 11 complex. Nothing on the scale of Edinburgh tram or not 12 quite on the scale, but had many different parts to it. 13 And he'd proven himself to be knowledgeable and sound in 14 terms of contract management, working at technical 15 issues, problems, being a good contract advocate on 16 behalf of the Council; and when I joined City of 17 Edinburgh Council on 1 January 2011, I knew obviously 18 that tram was going to be part of my workload. 19 In my initial period, the leader and the depute 20 leader of the Council made it clear that, amongst the 21 many things that fell to a Chief Executive to do in that 22 role, finding a way forward on Edinburgh tram was 23 certainly at the top of the pile. And at that time 24 I can remember having a conversation. I said: I don't 25 know who is who here, I don't know who is competent, 16 1 I don't know who is trustworthy; I would like to bring 2 in additional support to be, if you like, a go-to 3 person, to go and find out and give technical advice on 4 this. 5 We talked about who was out there. I mentioned I'd 6 worked with Colin before, and he was invited in for an 7 interview. 8 He was -- he met Councillor Dawe, I think, on her 9 own with me, but not with Councillor Cardownie, as far 10 as I can recall, and through discussion and a look at 11 his experience and a look at the work he was doing with 12 other councils on public infrastructure work, we thought 13 that he was ideal for the job. 14 So we didn't then go and look at anybody else, and 15 a lot of that was driven by the urgency of the 16 situation, because by that time, prior to my arrival, 17 the Council had agreed to go to mediation, which I think 18 was the right thing to do, but we then had a very short 19 time to get ready for that. 20 Q. You said in the start of your answer then, because you 21 were new to the Council, you really didn't know whom to 22 trust, on whom you could rely? 23 A. Yes. 24 Q. Was that including Council officers and the people at 25 tie? 17 1 A. Absolutely, yes. 2 Q. Were you getting different information from different 3 sources and that was part of the difficulty? 4 A. I think the -- there was -- I think the relationship 5 between officers at tie and officers at the Council 6 wasn't as good as it might be have been in an ideal 7 situation. tie was under pressure. I think everybody 8 there was working hard and doing their best. But 9 I didn't know who they were. 10 So it -- as we worked through towards mediation and 11 beyond mediation, we worked hard collectively to come 12 together and work on the same information, but 13 certainly -- and in fact we relied on tie's information 14 as we went into mediation, but I needed somebody that 15 I could rely on to test that with us, help us to test 16 that information. 17 Q. Did Colin Smith assist you in obtaining an understanding 18 of tie or the Council's position in relation to the 19 contract at the time you took over? 20 A. He was amongst a number of people who assisted in me 21 developing that understanding and obviously he was new. 22 So he was also developing that understanding. 23 But other key personnel, such as Donald McGougan, 24 the Director of Finance, Alastair Maclean, Head of Legal 25 Services, they all also contributed to me developing an 18 1 understanding of that relationship. 2 Q. Did you consider that tie or the Council were in a weak 3 position as they approached the mediation? 4 A. I think -- excuse me -- by the time we reached 5 mediation, we'd done some considerable homework on it. 6 I was sceptical about the degree of preparedness, sort 7 of February time. I'd been there a month by that time, 8 wasn't seeing much in the way of convincing work. And 9 we actually all came together at a weekend, I can't 10 remember the exact date, to assess how ready we were for 11 mediation. 12 In fact, tie had engaged some really excellent 13 people, Nigel Robson, a construction QC, Anthony Rush, 14 the guys named here, who was a technical consultant, and 15 Brandon Nolan, solicitor for McGrigors. They had 16 already been engaged by tie in preparation for 17 mediation, and that was, I think, incredibly helpful. 18 And in fact that team stayed together through the 19 mediation. 20 What there hadn't been was a linkup between what the 21 Council expected of mediation and what tie expected of 22 mediation. On the basis that tie was acting on behalf 23 of the Council, I saw that as a bridge that had to be 24 crossed or a gap that had to be closed. 25 Q. We may look at a document later which records a weekend 19 1 meeting that took place at the end of January, 2 29 January? 3 A. That would be it. 4 Q. You were sceptical of the level of preparedness. Do you 5 consider there was sufficient time for the Council to do 6 all it wanted by the time of the mediation in early 7 March? 8 A. We -- well, we all worked extremely hard to make sure 9 that by the time we got to mediation, that we were as 10 ready as we could be. 11 Q. Do you think you were sufficiently ready? 12 A. Yes, I think we were actually. 13 Q. Is there anything that could have been done by that time 14 that would have improved the Council position in the 15 mediation? 16 A. I think we did everything that we could do in the time 17 that was available to us to have the best possible 18 position. 19 Q. If there had been more time, is there more that you 20 could done? 21 A. I'm not really sure, because we had to really get the 22 issues on the table and see what -- what the options 23 were for taking the project forward. 24 By the time we got to mediation, the project had 25 already been at a standstill for some months. So there 20 1 was a period of stasis that had to be overcome. 2 Q. How much leverage do you think the Council and tie had 3 going into the mediation with the contractors? 4 A. I think it was -- I don't know, probably 60/40. In 5 other words -- I don't know. 50/50. It's difficult to 6 say. I mean, we were where we were. We had the 7 leverage that we had, which was that there was 8 substantial public demand for movement. Both the 9 Council side and when I say the Council side, I mean the 10 Council and tie. The Council's negotiating side. And 11 the contractor side, we were both bearing financial 12 risk, legal risk and reputational risk. And as you 13 know, mediation is a recognised form of ADR, and going 14 into mediation was an indication that both sides were 15 willing to talk. So that was really the effective 16 starting point. 17 Q. Do you consider tie and/or the Council were in a strong 18 position going into that mediation or a weak one? 19 A. I don't think we were in a particularly strong position 20 because the contractors had won the pre -- the 21 arbitration that had -- 22 Q. The adjudication? 23 A. Proceeded -- yes, the adjudications that had proceeded. 24 So I suppose, to use the vernacular, we were on the back 25 foot. We were in a difficult position and had to find 21 1 a way out. 2 Q. That's really why I asked. The fact that you recognise 3 that you were in a difficult position, on the back foot, 4 did that mean that the Council side really didn't have 5 a great deal of leverage going into that mediation? 6 A. No, we didn't have a great deal of leverage. 7 Q. At the outset, was there any guidance from the Council 8 as to what they wished to secure from the mediation or 9 what options should be pursued? By which I mean the 10 elected members? 11 A. Yes. The key overriding desire of the Council, the 12 elected members, was to move from the position that 13 Edinburgh was in. Edinburgh, the City of Edinburgh, 14 was -- it was dug up. There were holes all over the 15 place. There was no work being done. There was a lot 16 of commentary, media commentary, public commentary, 17 quite understandably, because we had -- the city was in 18 a bit of a state, and -- physical state, and nobody 19 seemed to know where this was going. 20 So the key concern of the Council was that we should 21 find a way forward, and nobody at that stage knew what 22 the way forward might be. It might be continue. It 23 might be stop. It might be any one of a number of 24 things. 25 But really what we wanted was a way forward, to 22 1 decide what the way forward was to be, whatever that may 2 be, from a range of options, and then do it. 3 Q. So that decision on how to determine what the way 4 forward should be and how to secure it, was really left 5 up to you and the Council team in the mediation. There 6 wasn't any guidance from elected members? 7 A. We were asked to explore all of the options, and also 8 elected members were very aware that we were in 9 a contractual relationship with the contractors. The 10 decision to go to mediation indicated that, you know, 11 both parties were willing to come to the table to see if 12 a way forward could be found together, and that was 13 really the starting point for mediation. 14 Q. One of the features of the mediation, any party going 15 into it, obviously, the goal is to reach an agreement. 16 But it is to know what the best alternative to a 17 negotiated agreement would be for that party. 18 What was the Council's best alternative to reaching 19 an agreement with the contractors? 20 A. The kind of things we were looking at were: would it be 21 best to break the relationship and start again afresh 22 with somebody new? Would it be better to just call 23 a halt, make good the city, and carry on as before? 24 But really I think the focus was to see if we could 25 get this project delivered within roughly the parameters 23 1 of the contract. 2 Q. The goal was to reach an agreement rather than not to 3 reach an agreement? 4 A. Yes, exactly. 5 Q. The alternative of just carrying on, not reaching an 6 agreement and pressing on under the contract, is it 7 correct to say that that really was not a realistic 8 option any longer? 9 A. It wasn't really, because under the terms of the 10 contract as it stood, the Council didn't have the money 11 to just press on. It was at the point that mediation 12 started, I think the expenditure was somewhere in the 13 regions of 340 million of a 540 or so million budget, 14 with most of the work yet to be done. 15 So there had to be some adjustment made somewhere to 16 either the length of the contract or the sum of the 17 contract. It didn't add up as it stood at that point. 18 Q. So as far as the Council were concerned, basically the 19 position was there had to be an agreement? 20 A. There had to be a solution. Preferably from an 21 agreement. 22 Q. If you didn't have an agreement and you were just left 23 with the contract running on, that really wasn't 24 acceptable? 25 A. It wasn't going to work, no. 24 1 Q. Let's look at the things then that could be agreed. The 2 question of an agreed termination of the contract with 3 or without reprocuring. 4 Now, I think one of the problems with that is that 5 if that had been done, and therefore the project wasn't 6 delivered, all of the costs would have been a revenue 7 charge in the Council's budget, rather than a capital 8 charge. 9 A. Yes. 10 Q. I think the effect of that is that there would have been 11 potentially a GBP160 million charge to the Council's 12 revenue budget in the year in which the decision was 13 made? 14 A. Yes, from memory that's right. 15 Q. Rather than make it into a memory test, could we look, 16 please, at document CEC01914650. This is a selection of 17 reports that went to the Council after the mediation. 18 If we go to page 65 of this document, we can see, just 19 to identify what we're now looking at, it is a report to 20 the whole Council for a meeting that was due to take 21 place on 25 August 2011; do you see that? 22 A. Yes. 23 Q. Then if you look within that document to page 71, and 24 paragraph 3.33, it's noted that: 25 "In the event of project cancellation, there would 25 1 be a one year revenue impact of over GBP161 million. 2 The impact on Council Tax levels to finance this 3 magnitude of revenue would be equivalent to a one year 4 increase of 80 per cent. The Council's current 5 reserves, including earmarked reserves, would not 6 provide the level of revenue required. This assumes 7 that the Transport Scotland Grant to date would not have 8 to be repaid." 9 Now, that GBP161 million charge and an 80 per cent 10 increase in council tax would essentially be 11 unthinkable, I take it? 12 A. Yes. 13 Q. It was therefore really not an option which could be 14 countenanced? 15 A. No. But it was our duty as officers to point it out to 16 elected members. 17 Q. Of course. You must have known, going into the 18 mediation, that an outcome which generated a revenue 19 impact of GBP161 million and an 80 per cent increase in 20 council tax was really not one that you would possibly 21 come out with as an agreement? 22 A. No, it wasn't something it I would have, I don't think, 23 recommended. 24 Q. You note at the end of that paragraph: 25 "This assumes that the Transport Scotland Grant to 26 1 date would not have to be repaid." 2 Now, obviously if it did have to be repaid, and that 3 was up in several hundreds of millions, the position 4 would have been so much worse than stated there? 5 A. Yes, it would. 6 Q. We might have been -- very much more than 80 per cent 7 increase in council taxes would have been required? 8 A. Yes. 9 Q. You refer in your statement, if we go back to that one 10 moment, and we can go to page 57 in it, if we look at 11 paragraph 182. Reading from halfway through that 12 paragraph, you say: 13 "The Government had warned us that if we did not 14 deliver, they would expect the funding to be repaid. In 15 other words, if we had come out of the mediation and 16 said we were not delivering the tram, we are cancelling 17 it and filling in the holes, the Council was at risk of 18 having to pay back any share that the Government had 19 paid to the costs thus far." 20 Now, other people who are involved in the mediation 21 don't recall the threat of the grant being repaid. Can 22 you remember who said that to you, who gave you that 23 information? 24 A. It might have been in a discussion with the Permanent 25 Secretary. I can't actually recall precisely, but the 27 1 question -- I can remember there being a question at 2 some point about whether the Government would simply 3 walk away from the grant it had paid, had we not 4 delivered the outcome that it was paying for. And the 5 conditions of grant actually, if you go back to the 6 Finance Regulations, in any grant, whether it's for 7 a tram or whether it's for something else completely, if 8 the Government pays you a grant to deliver a specific 9 outcome, you are expected to deliver the outcome. 10 Failure of which, the Government does have the right to 11 review that and recall the money. And that, as 12 I understand it, is part of the regulation, the Finance 13 Regulations that were part of the general governance. 14 So it's -- I can't remember whether anybody said 15 specifically, you know: we will be pulling this in. It 16 sounds reasonably familiar. 17 But it is -- as part of my knowledge as 18 a Chief Executive of the Local Government Finance 19 Regulations and the relationship with Government, that 20 is what you would expect to be the case. In those 21 circumstances, and particularly with reference to your 22 previous question, had that materialised, I would have 23 strongly tried to negotiate some kind of pay-back 24 regime, were that to be the case, because it would be 25 really difficult to pay that -- it would have been 28 1 really difficult to pay that sum back in one year. 2 Q. But on any view, the possibility of repayment, coupled 3 with the near certainty of a revenue charge if the 4 matter was cancelled, represented something of a poison 5 pill which meant that the idea of cancelling the 6 project, coming out of the mediation with 7 a cancellation, would have been extremely unattractive? 8 A. Yes, and my job as a key adviser to the Council was to 9 make sure that when elected members were making their 10 decision, they were aware of the full array of risks 11 that had to be considered in any one of the scenarios. 12 Q. Can we look at another document, please. It's reference 13 CEC02083835. 14 This is a report that was prepared by Colin Smith. 15 He's referred to it in his evidence yesterday. 16 Could we go, please, to page 2. We can see what he 17 has provided here, and I think it was originally 18 provided to you, were thumbnail profiles of the various 19 people on the tie team who were involved. 20 Could we enlarge the heading "Tony Rush" and what it 21 says underneath it. It says there, "Tony Rush": 22 "Good grasp of people and technical issues, noted 23 comments on time to prepare for Phoenix and Separation. 24 Not enough time to do both, concentrate on Phoenix. 25 I would agree with this, although Separation should be 29 1 developed to some degree as a negotiating lever." 2 Now, were you aware of this approach, that the 3 decision had to be taken to focus efforts on one or the 4 other, and they were put into Project Phoenix which was 5 getting it built to Haymarket? 6 A. Yes. 7 Q. And therefore less work was done on Separation? 8 A. Yes. 9 Q. Was that in part because of the things we've been 10 discussing and its unpalatability? 11 A. And also in terms of the time that we had available to 12 us to prepare for mediation. 13 Q. If we can also look at another document, CEC02087154. 14 What I'm interested here is the second email in the 15 chain from Colin Smith to Anthony Rush and 16 Brandon Nolan. It was copied to you. Do you see that? 17 A. Mm-hm. 18 Q. You see it's dated 24 February 2011? 19 A. Yes. 20 Q. Although also there's a hole punch there, it says: 21 "Sue is clear. Sequential preference is Phoenix 22 with separation only there with attrition as a fall 23 back." 24 Essentially was that your approach going forward? 25 A. Yes. I think, as we discussed earlier, the point of 30 1 mediation was to try and reach an agreed outcome, and 2 therefore the focus was on Phoenix. 3 Q. But of all the agreed outcomes you could reach, rather 4 than agreeing a termination or separation, you wanted to 5 agree Phoenix, getting something built? 6 A. It was -- it was our first, if you like, line of 7 approach, but Separation was certainly there as an 8 alternative. 9 Q. Were the Separation options developed as much as the 10 Phoenix options? 11 A. Sorry? 12 Q. Were the Separation options and financial issues 13 developed as much as the Phoenix one? 14 A. No, I don't think they were because tie had previously 15 done considerable amount of work on Phoenix figures. 16 And it was those -- it was that preparation that was -- 17 led, if you like, our approach into mediation on 18 possibility of continuation. 19 Q. Just for completeness, because I said earlier I would 20 refer you to it, could we look at CEC02087133. 21 We can see this is headed "Tram Mediation Programme - 22 CEC/tie Briefing Workshop", and it's a mediation 23 preparatory workshop which took place at Citypoint on 24 29 January 2011? 25 A. Yes. 31 1 Q. Is that the Saturday meeting that we referred to 2 earlier? 3 A. Probably, yes. 4 Q. Under "Introductions" it says: 5 "Following a welcome from RJ [Richard Jeffrey] [you] 6 provided an explanation as to why she had called the 7 meeting." 8 The last bullet point there was that there was half 9 a billion pounds in the ground and we need to make good 10 this investment. That was your approach at the time: we 11 need to deliver something from this investment? 12 A. Yes, and I was acting on behalf of the Council, who were 13 still interested in getting something from this 14 investment. 15 Q. Could we then look, please, at another document, 16 CEC02084603. I'm interested here in the email that 17 begins roughly in the middle of the page from 18 Anthony Rush dated 2 March 2011. You weren't copied 19 into this, but if we see what it says as a whole, it 20 says: 21 "Thanks Richard. 22 "My job is to challenge and I do challenge the 23 deck-chair numbers." 24 If I just pause there, do you know what was meant by 25 deckchair numbers? 32 1 A. Yes, it was -- it was a spreadsheet of numbers that had 2 been prepared on, as far as I can recall, the Phoenix 3 line of approach, and the different columns of numbers 4 had actually been given different colours, and it's as 5 simple as it looked like a deckchair. Hence it was 6 given the deckchair name during the course of the 7 discussions. So yes, I do recall that. 8 Q. It goes on to say: 9 "Moreover, the telecon the other day which was 10 intended to explain the numbers to Colin, Nigel and me 11 didn't help. 12 "I haven't seen any output from Cyril Sweett but the 13 civils work may be the least of our worries. We have no 14 clear handle on the market costs of the Systems. 15 "I will be happy to look again at Gregor's numbers 16 because the potential cost of Separation is a critical 17 threshold on which we may decide to ditch Phoenix or 18 conversely decide to agree on a price for Phoenix which 19 is higher than we needed to. But ditching Phoenix is an 20 irrevocable action with an uncertain end." 21 Now, that is suggesting that having a clear view of 22 the potential cost of Separation may dictate how much 23 you're willing to pay for Phoenix. Do you see that? 24 A. From what Tony has written here, yes. 25 Q. Was that the approach that you took in trying -- one of 33 1 the things in trying to determine how much you would be 2 willing to pay? 3 A. How much we were willing to pay was -- was actually 4 influenced by a large number of things. Some of the 5 work went back out to -- it was a measured term 6 contract. So it wasn't just -- these weren't just 7 numbers plucked out of the air. There was consideration 8 given to the volume of work that remained to be done, 9 the complexity, the risk and so on and so forth. 10 So -- 11 Q. What Tony Rush seems to be saying here is there could 12 come a point where the sums being sought by the 13 consortium are high enough that we would be better just 14 ditching their agreement and going for Separation? 15 A. Ditching -- sorry? 16 Q. Ditching the proposed agreement, ditching Phoenix and 17 going for Separation instead? 18 A. Yes. And -- 19 Q. Is that something you thought about in advance: we need 20 to identify at what level, at what price we will say no, 21 and just focus on a walk away. 22 A. Yes, absolutely. Right the way through to the end of 23 mediation, any of the options could have come to 24 fruition. We weren't -- we weren't set on continuation 25 going into mediation. That was -- it was the wish of 34 1 the Council that we continued and completed the project. 2 We had to see if we could find a way to do that. But we 3 weren't doing it at any cost. So we still had to keep 4 all of the possible other options on the table. 5 Q. What I'm getting at is: did you in advance work out 6 a price or a maximum level beyond which you would say: 7 no, we are not going to do Phoenix, we are going to go 8 for Separation. 9 A. I can't remember if we did that in advance of mediation. 10 I think that all worked out as mediation was -- 11 Q. Did you have a number at the mediation in your mind, 12 above which you wouldn't go? 13 A. The Project Phoenix numbers were the numbers that were 14 leading us. 15 Q. We will come back to this. 16 Could you look now, please, at a document, 17 WED00000134. This is another report from Colin Smith. 18 What I would like, please, if you could look at 19 page 235. Firstly, the upper half of the page; 20 paragraph 7.5. 21 Colin Smith has recorded: 22 "As highlighted above, the Phoenix proposal 23 represented Infraco's opening position at mediation. 24 tie's negotiating standpoint on this proposal was that 25 a deal could be achieved which would have resulted in 35 1 an anticipated final cost of GBP682 million compared 2 with the Infraco proposal, which would have resulted in 3 an anticipated final cost of GBP747 million. 4 "On closer examination of the Infraco Phoenix 5 proposal it became clear that there was GBP80 million of 6 exclusions in this proposal which may have resulted in 7 a similar addition to the final cost of the project, had 8 CEC signed up to the Phoenix proposal as it was." 9 This possibility of costs arising in addition to any 10 negotiated deal, what was the Council approach to that? 11 A. The Council's approach was that it wanted to have 12 a clear view of what the ultimate cost would be. We 13 wanted to have everything included. There didn't -- we 14 wanted to know that, were we to proceed, we didn't want 15 any more surprises. We didn't want to have to keep 16 going back and saying, you know, oh dear, we've 17 discovered something else, we need to come back and ask 18 for more money. 19 It needed to be a clear line of sight to how the 20 project would be completed and what the final sum would 21 look like. And the Council -- I think it would have 22 been unreasonable to ask the Council to make a decision 23 to proceed with anything other than a clear line of 24 sight. 25 Q. So that sort of proposal where there was a number, but 36 1 there might be an additional GBP80 million, was not 2 attractive or was not acceptable to the Council? 3 A. No. We needed to -- the Council needed to have a global 4 view of what it would cost to deliver this project to 5 the end. 6 Q. Can we scroll down then to look at the foot of the page 7 at paragraph 7.7. Settlement on Heads of Terms: 8 "During the course of negotiations over two to three 9 days at mediation, there were a number of offers and 10 counter-offers [exchanged] between the parties. 11 "CEC's first offer to BSC was for GBP304 million for 12 the off-street section. At this point there were still 13 a significant number of exclusions that sat outside the 14 off-street price which were estimated at GBP80 million. 15 This price did not include for the remainder of the 16 on-street works, which were thought to have been in the 17 region of GBP20 million. When the shape of this deal 18 was added to the rest of the project cost, the estimated 19 anticipated final cost was thought to be in the order of 20 GBP731 million." 21 Just pausing there, that seems to be a first 22 counter-offer by the Council to the Phoenix Proposal 23 from Bilfinger -- from the consortium? 24 A. Yes. 25 Q. Reading on: 37 1 "Infraco did not accept this offer and returned with 2 essentially an updated Phoenix proposal of 3 GBP404 million, which was only for the off-street 4 section. When risk, exclusions and the remaining 5 project costs were added to this number, the final cost 6 would have been GBP814 million." 7 That was their response to your counter-offer? 8 A. Yes. 9 Q. It continues: 10 "CEC then replied with a final offer of 11 GBP362.5 million for the off-street section, with no 12 exclusions and Infraco taking all the risk with the 13 exception of minor utilities. By adding the rest of the 14 project cost, GBP30 million for risk and GBP22.5 million 15 for the on-street section (which was an estimated figure 16 and hadn't yet been negotiated) the anticipated final 17 cost was US$743.5 million." 18 Is that an accurate record of what took place? 19 A. Yes, it is. 20 Q. What I'm interested in is how you got -- we will come 21 back to that. 22 First of all, could I look at another document, 23 please. Could you look at WED00000582. Could we go 24 over to the following page, please. If we look at the 25 upper part of the screen, it's got Monday 7 March: 38 1 "A meeting of the CEC and tie teams along with 2 advisers took place at Mar Hall." 3 Was this a day before the mediation got fully 4 underway for the tie and Council teams to come together? 5 A. Yes, it was. 6 Q. It notes that: 7 "Most of the day was taken up with discussions on 8 the comparison of potential costs of agreed termination 9 on Project Phoenix. Richard Jeffrey tabled an updated 10 version of the "deck-chair" paper. 11 "The discussions were inconclusive other than there 12 was an understanding that the "trigger point" for 13 rejecting a Project Phoenix Offer was in the region of 14 GBP740 million for all costs." 15 That trigger point for rejecting a Project Phoenix 16 offer, was that referring back to what we saw in the 17 email, that a view was taken that at that level, you 18 would be better doing Separation? 19 A. Yes. There was a -- from memory, we had a, if you like, 20 a line in the sand which we had set for ourselves to 21 draw back and reflect, and this document describes it as 22 being 740 million. 23 Q. When you say step back and reflect, was it merely 24 a matter of reflecting, or was it that you would not do 25 a Phoenix deal if it was above that? 39 1 A. I think we -- as we didn't know how the mediation was 2 going to play out at this stage on the Monday, and we 3 were really giving ourselves some parameters to -- just 4 to give us some areas to work to. 5 740 was deemed to be the point at which we would 6 have to give serious consideration to the advice we 7 would then give back to Council about the options. So 8 that this was, if you like, a point of reference for us 9 going into mediation about where we thought a fair line 10 in the sand might be. 11 Q. How was the figure of GBP740 million arrived at? 12 A. To be honest, I can't remember, sitting here. It's 13 a very long time ago. But you'll have seen from the 14 documentation that there's been a -- there was a huge 15 amount of work poured into figures, extrapolations of 16 figures, reworking of figures, different opinions around 17 the table coming together. People with substantial 18 experience in construction. 19 All of that information would have been poured into 20 the point of reaching the view on 740. 21 Q. Can we scroll down the page to look at the heading, 22 "Wednesday, 9 March", and what's underneath it. I think 23 this was the second day of meeting between all the 24 parties; was that your understanding? 25 A. Yes. 40 1 Q. It's noted: 2 "The day was taken up with us interrogating the 3 Infraco on the Exclusions and Clarifications and later 4 by explaining our counter-offer. This was based on 5 a spreadsheet prepared by AJR [Tony Rush] having considered 6 the explanations given by the Infraco and SB’s [Steven Bell's] 7 pricing of the risk of Exclusions, Clarifications and 8 delay and additional extension of time. 9 "In the evening the Infraco reverted with a revised 10 offer which was in effect a small reduction on the PPP 11 PPP [Project Phoenix proposal]." 12 That mirrors what we saw in Mr Smith's account. He 13 goes on to say: 14 "There had also been discussions between Principals 15 on funding and proof of funding was a condition 16 precedent of the revised offer. 17 "It emerged that CEC were in need of making progress 18 which avoided political damage at this time." 19 I know that's not something you've written, but what 20 do you understand it would mean, that CEC were in need 21 of making progress which avoided political damage? 22 A. From memory, whilst Infraco were looking simply at the 23 contract from their point of view, tie and our technical 24 advisers were looking at the contract from our, if you 25 like, point of view. 41 1 The Council also had to consider the wider 2 implications for Edinburgh. So all the focus was on the 3 technical to-ing and fro-ing of this contract, but 4 surrounding that was the reputational damage to the 5 city, the damage to traders, to householders, the fact 6 that the city was busy, there were festivals. 7 So there were other risks that the Council was 8 carrying which added to its consideration. 9 My understanding of that was it was the wider -- it 10 was the wider political environment in which the 11 contract sat, had to be -- that was what the Council 12 would also give consideration to. Clearly the cost of 13 the contract and the delivery of the contract was the 14 major piece, but surrounding that were all the softer 15 issues about what was happening to Edinburgh at the 16 time. 17 Q. This was something that was emerging on the evening of 18 the second day of the mediation, after the consortium 19 had given you a proposal that was only slightly less 20 than their first one. Was there an element of 21 increasing concern on the part of the Council that 22 a deal might not be reached? 23 A. I think -- I think everybody was concerned that we would 24 want to make progress, and we were -- you know, we were 25 playing cards including things like the damage to the 42 1 reputation of the city as a result of all of this, would 2 affect all of the players. So it was in everybody's 3 interests to reach an outcome that we could go forward 4 with. 5 So if there was further damage to the wider city in 6 terms of festival programming and tourism numbers and 7 all sorts of other things, the impact on the economy, 8 any of that damage would stick to all of the players, 9 not just to the Council. But we would seek to share 10 some of that with the contractors as well, and they knew 11 that. We were speaking fairly openly in these terms. 12 So we -- all parties had gains and losses to make in 13 terms of reputation and risk management. But at the 14 heart of it sat the nuts and bolts of this very 15 difficult technical contract, and the contract was 16 obviously the main focus, the price of the contract, the 17 deliverability of the contract; but I was also playing 18 in on behalf of the Council these wider issues that were 19 at play for the Council. 20 Q. There were wider issues for both parties, but I'm just 21 interested, this idea that CEC needed to make progress 22 which avoided political damage, was there an element of 23 increasing desperation on the part of the Council 24 because you didn't seem to be getting near an agreement, 25 and the no agreement option was unthinkable for the 43 1 Council? 2 A. I think the position was fairly desperate from pre 3 mediation. From the moment I arrived in the Council, it 4 was made very clear to me that this was a fairly 5 desperate situation we were in, and we were at -- by 6 this time we were at the Wednesday evening of the 7 mediation, and we had a professional mediator working 8 with us. Michael Shane. And he was keeping the heat up 9 as well. He was pressurising both sides of us to keep, 10 you know, pay attention, keep going, keep focused. 11 Drill down. See how far you can get. 12 So yes, there was pressure there. There's no doubt 13 about it. 14 Q. Then that evening, as we have seen from Colin Smith's 15 report, the offer was made of GBP362.5 million. 16 A. Mm-hm. 17 Q. If we look at a document, CEC02084685, is that a record 18 of key points of principle that were agreed then as 19 a result of that offer of 362.5 being made? 20 A. Yes, it is. 21 Q. That is what unlocked things finally in the mediation? 22 A. Yes. 23 Q. We can see the first element there of the key points is 24 that the price: 25 "... GBP362.5 million for the Edinburgh Tram Network 44 1 from Airport to Haymarket (excluding CAF but including 2 integrated design to Newhaven) ..." 3 Then there are certain handwritten additions we can 4 come back to later. Do you see that? 5 A. Yes. 6 Q. Now, the decision to make an offer of GBP362.5 million, 7 that would have been your decision? 8 A. I think we need to be very clear about what we mean by 9 decision. What we're agreeing here was points of 10 principle. 11 Q. Mm-hm. 12 A. And it was my role as the lead adviser to the Council to 13 go back and make a recommendation. The Council could 14 still have rejected this -- 15 Q. Yes. 16 A. -- in the governance arrangements of the Council. My 17 job, frustrating as it was at times, was not 18 a decision-maker on policy issues. My role was to give 19 advice with all the pros and cons to councillors who, in 20 the formal construct of Council meeting, would then make 21 the policy decision. 22 Q. You have made it quite plain that ultimately the 23 contract would not bind the Council until it was 24 approved or ratified by the Council in full meeting? 25 A. That's right. 45 1 Q. That was something that all parties understood at the 2 mediation? 3 A. Absolutely. 4 Q. But in terms of reaching agreement at the mediation on 5 these key points of principle, you took the decision to 6 make an offer of GBP362.5 million subject to all these 7 conditions? 8 A. And with the benefit of all of the advice in the room, 9 the legal, the technical, the financial advice on our 10 negotiating team. 11 Q. How did you get to the number of GBP362.5 million? 12 A. It was -- there was consideration of work that had been 13 delivered, the work that still had to be delivered. 14 There was -- it was broken up into parts. So the -- 15 there was a cost assumption made for the delivery of 16 airport to Haymarket, much of which was off-street. 17 Q. That was the GBP362.5 million? 18 A. Yes. 19 Q. What I'm interested in is why did you decide to make 20 that offer of GBP362.5 million for that section? 21 A. Because our side had considered all of the technical 22 issues. The scale of the work that left -- that was 23 left to be done, the assumptions that were made about 24 the nature of the work, the cost of the work and so on 25 and so forth. 46 1 So on the basis of all of the information we had to 2 hand, that sum emerged as the reasonable sum to offer. 3 Q. We've heard evidence -- the Inquiry has heard evidence 4 from Tony Rush himself that the figure was first one 5 that was written down by him and shown to you and you 6 said yes, you considered the Council could make that 7 offer. Does that accord with your recollection? 8 A. I can't remember the detail because it's so long ago. 9 I'm sure if Tony has said that, then that's accurate. 10 Q. He said ultimately, he said it referred to his knowledge 11 of the make-up of the contract price, fair price had 12 arrived at, looking at their claims, listening to what 13 had been said. Then he ultimately said: it was a sum 14 I thought would definitely get an agreement. 15 A. Yes. 16 Q. Is that essentially how the figure was arrived at? It 17 was what had to be given in order to get an agreement? 18 A. It wasn't what had to be given at any cost. It was 19 taking account of exactly what Tony has said to you 20 there. 21 His understanding of the work that had to be done, 22 the measure of the work that had to be done, the value 23 of the work that had to be done, was the core element of 24 that. 25 Q. Tony Rush, and other witnesses including Vic Emery, and 47 1 I think Colin Smith, have described what took place 2 essentially as a horse trade? 3 A. That's right. 4 Q. Would you agree to that? 5 A. Yes, I would. 6 Q. There's no report which brings out a value of 7 GBP362.5 million as being appropriate for the airport to 8 Haymarket; is that right? 9 A. There -- the report that went to Council summarising all 10 of the recommendations that we were making will have had 11 appendices, I'm sure. I can't remember, to be exact, 12 but -- and all of the workings that were done by the 13 finance teams and so on and so forth were all -- they 14 were all being written up during the course of 15 mediation. 16 Q. You had no report at the mediation which supported or 17 justified the figure of GBP362.5 million for this 18 section of the works? 19 A. But we had the information in the room. We had the 20 combined knowledge that was in the room, all of the 21 advisers, everybody's opinion coming together to state 22 that this was a reasonable sum for what we had to do. 23 Q. It was a reasonable sum to get an agreement? 24 A. Yes. 25 Q. It wasn't really aimed at a valuation of the works or 48 1 a valuation of the claims. It's what it took to get 2 agreement? 3 A. But it was based on previous work that had been done 4 with Project Phoenix. So there was -- there were 5 figures and there was an analysis that lay behind this. 6 Q. Could we look, please, at production TIE00355078. 7 Could we shrink this down so we can get as many of 8 the column headings in as possible and scroll right over 9 to the left-hand side. 10 I think this has been used previously and it's 11 possible to unhide the columns. We will leave this 12 until after the break and come back to it. There's no 13 point in doing it now. 14 A. Okay. 15 Q. Did you make any notes on the day as to the basis on 16 which the offer was made, the 362.5? 17 A. I personally probably wouldn't have, but we had 18 note-takers in the room, and we had a whole team of 19 support people. So in our room, the main room that our 20 negotiating side was in, we had a whole range of people, 21 including all the advisers that we've discussed. We had 22 somebody who was taking notes all the way through, 23 a chap called Ritchie Somerville, and we had a side room 24 with typists who were typing up the proceedings as they 25 went. 49 1 Q. Would that have had a record of discussions regarding 2 the GBP362.5 million and why it was offered? 3 A. Sorry? 4 Q. Would that have had a record of how the make-up of the 5 GBP362.5 million, and why it was offered? 6 A. There would probably be an summary -- summary 7 recollection of that. During the course of the 8 mediation, and the to-ing and fro-ing, it was an 9 incremental process. So we -- we started off with the 10 Phoenix figures. There was to-ing and fro-ing backwards 11 and forwards as we've discussed. People like Tony Rush, 12 Nigel Robson and so on, our own finance people, were 13 pulling apart the figures. There was an incremental 14 discussion going on throughout the time with various 15 interventions from the mediator and coming together and 16 so on. You know how mediation works. 17 So by the time we reached that figure of 362.5, 18 there will have been a series of notes and incremental 19 build-up with the discussion as it went on. 20 Q. We've seen the written record that's prepared by 21 Colin Smith, which was done a year after the event, and 22 we've seen Tony Rush's email which was done a few days 23 after the mediation, but the Inquiry has managed to find 24 no other record of what took place and how the 25 GBP362.5 million came about. 50 1 Are you saying there should be something? 2 A. I would have expected there to be. Because, as I said, 3 we had a team of typists who were typing up the 4 proceedings as we went. 5 Q. Do you know what happened to the output of those 6 typists, where it was kept and where it was stored? 7 A. It should be in the tram record -- well, actually in the 8 period between January, when I started, and, if you 9 like, the beginning of the reboot of the project, those 10 files would have been kept in the Council. And the 11 finance teams, Director of Finance, was leading on 12 keeping the finance numbers. 13 Q. We will pursue that. 14 If you go back to your statement, please. 15 CHAIR OF THE INQUIRY: Do you know what these notes would be 16 called or headed up if we were to go to the Director of 17 Finance to recover them? 18 A. Well, it probably would have been the mediation files. 19 It's -- I'm just trying to think back. 20 The full wall of boxes that we referred to in -- 21 that I referred to, that came forward as the tram 22 project files, really started up once the project was 23 rebooted. But the period over mediation where the notes 24 in the files were all kept in different parts of the 25 Council, largely led -- Finance side was led by Finance, 51 1 and when we came to report to Council in -- I can't 2 remember if it was June or August or both, each of 3 those -- each of the parts reported on their element. 4 I collectively oversaw it. We collectively shared 5 it, but I would have expected those figures to have been 6 somewhere in the finance files. 7 So we didn't arrive at the 362.5 just by sticking 8 out of finger in the air. It was -- it was a build-up 9 of the information that had come through Phoenix. Our 10 understanding of the work that needed to be done. 11 Tony Rush was quite -- he was quite hardnosed and 12 diligent on negotiating on behalf of the mediation team. 13 So I cannot imagine for a minute that Tony Rush would 14 have recommended a figure to me based on his technical 15 knowledge of construction that he didn't think was just. 16 And the backdrop to that would have been the finance 17 figures probably with the finance team and the 18 background figures with the tie team. 19 MR LAKE: Just following that through, is what it came to is 20 that figure was ultimately a pure exercise of judgement 21 by Tony Rush on the evening of the second day of the 22 mediation? 23 A. I think it was an exercise of collective judgement. 24 Q. But there was no figures to support 362.5, no analysis 25 or calculation which brings out that number? 52 1 A. But the source of that would have been rooted in the 2 Phoenix figures. 3 Q. We have no explanation or no link to the Phoenix figures 4 to see how one looks at those and gets to 362.5. Was 5 that exercise ever carried out? 6 A. From memory, I can't remember. But there was certainly 7 lots and lots of to-ing and fro-ing on the figures with 8 Phoenix being the original starting point. 9 Q. There wasn't a report prepared after mediation to 10 analyse whether or not the GBP362.5 million represented 11 good value for the Council. Were you aware of that? 12 A. Ultimately, I think there was, because we -- after 13 mediation finished, so we had a week of mediation or 14 four days of mediation. The Council's negotiating team, 15 which was the Council team, tie team, had to pull that 16 back together, I had to make sure that was reported in 17 to elected members. I probably had to report back the 18 following Monday, to give a summary of where we were. 19 In the period between the end of mediation, which 20 was at the end of that first week in March, and June, 21 there was an enormous amount of detail gone into in 22 terms of drilling through the figures, working out all 23 of the technical elements that would make this work, the 24 broad parameters of what was being brought to the 25 Council; and a report was ultimately brought to the 53 1 Council, I think, in June that year, summarising the 2 whole package, how it had been arrived at. 3 Q. That was a report prepared by yourself and other Council 4 officers for the elected members? 5 A. Yes. 6 Q. In relation to the on-street works, that's between 7 Haymarket and York Place, you may recall a report was 8 obtained from Faithful+Gould to consider the value of 9 the deal? 10 A. Yes. 11 Q. Do you recall that Faithful+Gould considered that the 12 price was -- which was then about 51 million was grossly 13 inflated? 14 A. Mm-hm. 15 Q. Now, there was no such external evaluation carried out 16 on the price of GBP362.5 million, was there? 17 A. I can't remember. I thought we'd tested all of the 18 figures with a series of external agents, including 19 Faithful+Gould. 20 Q. Did you think there might be a report on the 362.5 as 21 well as the on-street price? 22 A. I would have thought so, but if you haven't found it so 23 far, then I'm surprised at that. 24 Q. Alan Coyle has said in his evidence to the Inquiry that 25 there is no report saying that the completion of the 54 1 works and settlement of claims were worth 362.5. 2 A. If that is what he is saying, then I have to accept 3 that. 4 Q. Why was a report obtained for the on-street works but 5 not the larger sum of 362.5? 6 A. I can't -- I can't tell you why that wasn't the case. 7 Q. Was it essentially because the on-street works were 8 supposed to represent a precise cost, whereas it was 9 always known that the cost given for the off-street 10 works at 362.5 didn't represent the cost of the works, 11 it was just what had to be paid to get rid of the 12 problem? 13 A. It was -- it was -- it sounds as if it was a ballpark 14 figure that was arrived at for that period, that piece 15 of work which was the off-street works. 16 Q. So it couldn't really be justified by the cost of the 17 work and the value of the claims. It was what you had 18 to pay to resolve the problem of the trams? 19 A. I think it was an amalgamation of both of those things. 20 It was informed by the work that had been done with 21 Project Phoenix. It was informed by tie's track record 22 on adjudication. And it was -- it was deemed to be 23 a fair figure at the time. 24 Q. Fair in the sense that it was the only thing that was 25 going to get an agreement where it looked like it might 55 1 fail? 2 A. Well, it's -- yes. 3 Q. Could we look at your statement, please, again. Could 4 we look at page 55. Look at paragraphs 174 and 175. 5 "These figures ..." 6 What we are talking about here is the figures for 7 settlement and the costs: 8 "... were not picked off the back of a fag packet. 9 These were figures that had been worked up through 10 multiple layered processes of checks and analysis using 11 the expertise of our own team, Turner & Townsend, and 12 Faithful+Gould, whilst the consortium were also 13 conducting their own analysis." 14 Would you accept that Turner & Townsend and 15 Faithful+Gould were not in fact retained until after the 16 mediation? 17 A. Yes, I do. 18 Q. So they couldn't provide any justification for the 19 figures being provided at the mediation? 20 A. Yes, and that's obviously a confusion there. No, 21 Turner & Townsend were engaged after mediation and after 22 the Council had decided to proceed as project managers 23 to give capacity on project management. 24 Q. In terms of -- if you go on to the next paragraph, you 25 say: 56 1 "There were separate categories for settlements of 2 claims and contract de-risks and there are papers on 3 that in the project files." 4 I have to say, the Inquiry team have not been able 5 to identify any papers breaking down how the 6 GBP362.5 million was made up. Were there any? 7 A. I thought there were, but if you're saying you haven't 8 found them, then I have to accept that. 9 Q. So in that this was a figure arrived at without any 10 documentation by Tony Rush, and wasn't broken down or 11 analysed, is it not in fact fair to say that it was in 12 essence a fag packet figure? 13 A. No, I don't think it is fair to say that. I think what 14 was taken into account at the time was the history of 15 adjudications, the volume of work that had to be done, 16 the complexity of work that had to be done, preparation 17 that had been done through Project Phoenix by tie, and 18 the negotiations on the day. 19 I think all of that built up into the final figure 20 that was arrived at. 21 Q. The original contract infrastructure works that had 22 a value of a little less than GBP240 million, were you 23 aware of that? 24 A. Say it again. 25 Q. The original contract value for the Infraco contract 57 1 works, that's Bilfinger and Siemens, was GBP240 million. 2 A. Yes. 3 Q. As a result of the deal being done here, it's 4 GBP362 million for the off-street, and then another 5 GBP39 million for the on-street, bringing out a total of 6 GBP400 million? 7 A. Yes. 8 Q. Now, that's an increase of GBP160 million -- 9 A. Yes. 10 Q. -- for a very much shorter route because the original 11 price was going all the way down to Newhaven? 12 A. Yes. 13 Q. Now, does that indicate that in making this settlement, 14 you were in fact accepting all the claims that had been 15 made by Bilfinger and Siemens for additional money? 16 A. I think it indicates that we recognised that the 17 original sum of the contract was completely unrealistic. 18 By the time we'd reached mediation, they'd already spent 19 340-odd million and were nowhere completing the route. 20 So that -- all of that indicated that the original 21 sums were woefully inadequate. 22 CHAIR OF THE INQUIRY: I think the question that Counsel was 23 asking was whether in the settlement figure, you were in 24 fact accepting all of the claims that had been made by 25 Bilfinger and Siemens. 58 1 A. I can't remember to be sure, but in -- this suggests 2 that we were. And given the track record of tie on the 3 adjudications, they were losing all the claims anyway. 4 MR LAKE: In your opening statement to the mediation, you 5 had made the point that the Siemens cost had almost 6 doubled -- that's what they had put forward in Phoenix 7 as opposed to their original cost -- 8 A. Yes. 9 Q. -- without any justification or breakdown, and that the 10 Council weren't going to pay it. 11 Why did you later turn round and decide you would 12 pay it? 13 A. Because during the course of mediation our negotiating 14 side had become convinced that we had to pay it. 15 Q. Why? 16 A. To reach a settlement and move forward the project. 17 Q. The same in the -- not your opening statement, oral 18 statement, but in the mediation statement, the written 19 statement put forward to the mediation. tie and the 20 Council had stood by all the arguments on design 21 development, and who had responsibility for that. But 22 nonetheless in essence all the Bilfinger claims in that 23 are paid in full. 24 What information did you have that made you change 25 your mind about that? 59 1 A. I think to start with, the mediation statement, we went 2 out in quite a bullish fashion. We were not going to 3 open up our mediation and immediately cave in to all of 4 their arguments. We wanted to create a platform from 5 which there could be some, as you said previously, horse 6 trading. 7 So the evidence that emerged and the arguments that 8 emerged during mediation all led to the position that we 9 took at the end of the day. 10 Q. Essentially that was the position, is what you had to 11 pay to get a deal? 12 A. Yes, but it wasn't just an open chequebook. We were 13 still pushing back as far as we possibly could. 14 Q. What view did the representatives of tie take on the 15 deal ultimately done in terms of the cost? 16 A. Vic Emery, who was the principal for tie, was -- he 17 accepted it was the price we had to pay. He agreed he 18 was fully part of that negotiating team. 19 I think we all recognise that were we starting with 20 a blank sheet of paper, with an ideal position, we 21 would -- you know, you would be having a completely 22 different kind of conversation. 23 We were in the middle of a project which was in 24 a complete mess. It had reached a standstill. There 25 was an impasse. And that is never going to be the best 60 1 starting point for the best possible deal. 2 So there had to be a pragmatic approach taken to 3 reaching an outcome that was deliverable, and something 4 that was justifiable in financial terms, but we all 5 recognised that we didn't think it was the best value 6 for money. 7 Q. So you didn't think it was the best value for money? 8 A. It was the best value that we could achieve in those 9 circumstances, but those circumstances are not 10 circumstances that were ideal for achieving the best 11 possible value in an ideal world. 12 Q. That comes back to the point you made a few minutes ago, 13 that you considered that the original cost was 14 unrealistic. Was your understanding that the works 15 could never have been done for less, or that had the 16 contract been differently structured, it might have been 17 possible? Where did the problem arise? 18 A. Well, bearing in mind that I'm only looking back to 19 something that I wasn't involved in. 20 Q. Of course. 21 A. At the outset, I think questions arise on both of those 22 things. Could it have had -- had it been a different 23 style of contract, had it been managed differently, you 24 know, had any number of factors been different, could it 25 have been done for less? I can't answer that because 61 1 the original contract was structured for whatever 2 reasons were deemed relevant at the time. 3 Q. You referred to the view of Vic Emery there. What about 4 the views of others within tie such as Steven Bell and 5 Richard Jeffrey? What was their view on the settlement 6 figures? 7 A. I think Steve Bell and Richard Jeffrey were both 8 sceptical. They were -- I think they were in 9 a difficult position. They were -- they were 10 contributing constructively to the discussion, but 11 equally it was their history of work that was being 12 unpicked. So it was a difficult scenario for both 13 Richard and Steven Bell. 14 I think they were -- I think they were unhappy at 15 the entire show in a sense. They were unhappy that the 16 Council had come in and taken the lead on mediation. 17 So it wasn't -- you know, they weren't -- their 18 opinions were heard, and they were given the opportunity 19 to express their opinions. The rounded view, 20 and I relied -- did rely heavily on Tony Rush's view at 21 that point, who had been engaged by tie. But I think, 22 yes, they did express the view that they did think it 23 was too expensive. 24 Q. And Dennis Murray, did you have any dealings -- he was 25 a quantity surveyor or commercial manager at tie. Did 62 1 you have dealings with him? 2 A. I didn't personally interact with him much, but he was 3 in the tie group and he was at the mediation, yes. 4 Q. Did he express a view as to the sum that was being paid? 5 A. To be honest, I can't remember what Dennis's view was. 6 Q. Just going back to Steven Bell and Richard Jeffrey, and 7 their view that in short, the sum being offered was too 8 much, these are the people, or the company that had 9 actually done all the work on analysing the costs; is 10 that correct? 11 A. They had, yes. 12 Q. And these were the people who felt that the offer being 13 made to the consortium was too much. 14 A. They were, yes. 15 Q. What solid information was there to override the view of 16 the representatives of tie, the people who actually did 17 the work? 18 A. First of all, there was the solid information the 19 project had ground to a halt, was in dispute, had spent 20 over half of its budget with substantially large amounts 21 of work to be done. So there was doubt cast upon, 22 I suppose, the veracity of some of that thinking, but 23 nevertheless we had to start somewhere. They'd poured 24 a lot of work into Project Phoenix, and we took that as 25 the starting point. It wasn't the finishing point, it 63 1 was the starting point from which the negotiations 2 flowed. 3 Q. I want to go back, please, to Colin Smith's report, 4 please. It's WED00000134. If we go back to page 234 of 5 this. If we enlarge paragraph 7.3. 6 What Colin Smith says there is: 7 "Work continued on the financial forecasts in 8 preparation for mediation. The "Deckchair" spreadsheet 9 remained the repository of tie's financial forecasting. 10 These forecasts were then presented to the full CEC/tie 11 mediation team. The range of scenarios included in 12 these forecasts were as follows (the “deckchair” 13 spreadsheet also had a range of potential terminal 14 points, the forecasts highlighted below were tie's view 15 of St Andrew Square as the terminal point;" 16 The first thing is: 17 "Settlement with the current contractor (Assumes 18 Infraco walks away and re-procure with a new contractor). 19 All numbers in this scenario were tie's assessment." 20 We can see the value of that ranges between the low 21 of 646 million and the high of GBP698 million. Do you 22 see that? 23 A. I do, yes. 24 Q. Then the Phoenix proposal, the baseline proposal from 25 Infraco on settlement, the sums range between 64 1 GBP682 million all the way up to 749, is actually the 2 highest, is the tie view. Do you see that? 3 A. Yes. 4 Q. So on the figures as they were at the outset, settlement 5 with the current contractor and reprocuring appeared to 6 be cheaper than the Phoenix proposal. Do you recall 7 that? 8 A. Yes. 9 Q. Now, if we go over the page, please, to 235, and enlarge 10 paragraph 7.6, it notes that: 11 "As highlighted above, tie would have preferred to 12 terminate with Infraco and re-procure. This went against 13 all the advice that was given by independent advisers at 14 this time. During the initial stages of mediation, 15 there was a significant amount of discussion between tie 16 and CEC (including CEC advisers) on the assumptions tie 17 had made in the forecasts for separation. It soon 18 became clear that tie had not considered a number of 19 cost headings at this time which would have had 20 a significant impact on the final cost. In very broad 21 terms, these items were in the order of GBP150 million 22 for settlement, professional cost, bad project premium 23 risk, systems re-procurement risk, and inflation, which 24 would have potentially resulted in a final outturn cost 25 of at least GBP800 million." 65 1 There's a reference to an appendix which runs 2 through them. 3 Do you recall that the estimate for separating and 4 reprocuring was increased by GBP150 million on the eve 5 of the mediation? 6 A. I can't remember exactly whether it was the eve or round 7 about that time, but it was certainly an estimate that 8 was talked about round about that time. 9 Q. And it went up GBP150 million? 10 A. And reprocuring, I think, was still a bit of an unknown 11 quantity, because to go out and reprocure at that stage, 12 nobody could have predicted how that would have turned 13 out because it was an unknown quantity at that time. 14 Q. People at tie and otherwise were doing their best to 15 predict what it would be? 16 A. Yes. 17 Q. Indeed, they were having to predict many costs, because 18 there were lots of unknowns in all of the scenarios? 19 A. That's right. 20 Q. What I'm curious about is how were matters put up by 21 GBP150 million, if you take it from me it was on the 22 Monday, before the mediation, without there being any 23 detailed report as to what the cost of these various 24 items would be? 25 A. I can't remember the detail of that, but the summary 66 1 here indicates the kind of things that were taken into 2 account. 3 Q. But we have no evidence of what the costs of them would 4 be. We're left with simply of the order of 5 GBP150 million. 6 A. That's right. 7 Q. Did that cause you some concern that such large changes 8 were being made to cost estimates on the eve of 9 mediation? 10 A. The entire process was cause of concern because we were 11 dealing with considerable uncertainties. So yes -- 12 Q. But the effect -- 13 A. -- I'm sure it did. 14 Q. The effect of that increase was to move termination from 15 being the cheapest to make it much more expensive than 16 doing the Phoenix deal. Was that a concern, that the 17 relative prices of the deals were changing this late on? 18 A. I'm sure it would have been, yes. 19 Q. If we look at another document, please. It's 20 CEC02085613. 21 Could we look at McG entitlement basis tab, please, 22 at the bottom left-hand corner. 23 What we can see here ... 24 It's okay. I've got the figures I need here. 25 We see this is a table that we've heard was prepared 67 1 by Alan Coyle for the purposes of the Council to provide 2 information to permit them to make a decision on which 3 of the various options should be taken. 4 A. Yes. 5 Q. We can see that the third heading there, it's based on 6 amounts certified to Infraco on 6 June 2011. Do you see 7 that? 8 A. Yes. 9 Q. Now, running along the top, in a greyed out row 10 slightly, we have got a number of different options, the 11 left-hand one of which is reprocure high and the 12 right-hand one is reprocure low. Do you see that? 13 A. Yes. 14 Q. Do you understand this would be the option of 15 terminating and reprocuring the contract? 16 A. Yes. 17 Q. If we scroll down until we get to the totals of this, we 18 can see that we have -- the high figure is 1.144 billion 19 and the low figure is GBP1.032 billion. 20 A. Yes. 21 Q. So we saw that initially there was an increase in the 22 reprocure option of GBP150 million on the eve of the 23 mediation. And it appears here that it's gone up once 24 again dramatically. So it's now over GBP1 billion. 25 A. Yes. 68 1 Q. Now, that obviously makes that option once again even 2 less favourable when compared to the Phoenix deal, 3 settlement deal? 4 A. Yes. 5 Q. Is it a cause of concern, the cost of this option has 6 managed to go up by half a billion pounds between the 7 eve of the mediation and the matter going to the Council 8 in June? 9 A. I don't think it -- the volume of the escalation would 10 have been a cause for concern. I don't think the fact 11 that we have reported it was a cause for concern. 12 One of the challenges that was laid down to me and 13 my team constantly by elected members was the 14 availability of detailed information, the reliability of 15 information; and you can see from the column on the 16 left-hand side, which describes all of the elements that 17 were taken into account, primary risk, bad project risk, 18 et cetera, et cetera, these were all of the things that 19 were delved into during that period, so that 20 councillors, when they were making a decision, had the 21 best possible opportunity of understanding the range of 22 risk, financial risk that was being entered into. It 23 wasn't my job to give elected members information that 24 was coloured one way or the other. It was our job to 25 give them information that was based on the best 69 1 possible assessment of -- of the facts that we knew. 2 Q. You referred there to the reliability of information. 3 Inasmuch as the high point for termination and reprocure 4 went from GBP698 million to GBP1.144 billion, to what 5 extent could you have confidence in any of these figures 6 when there's that level of fluctuation in a few months? 7 A. I think it was -- I think it was -- we were doing our 8 best to give a range within which we thought was 9 realistic. During this time there was also -- 10 Q. Can I just stop you there. You say a range that is 11 realistic, and you did give high, medium and low 12 initially? 13 A. Yes. 14 Q. But all the same, it's gone up by half a billion pounds 15 over the high figure. Now, that's not really a matter 16 of giving a range. It has not quite doubled, but it's 17 not far short of that. 18 A. But if that was our assessment, as advisers to the 19 Council, as the size of the risk, we had to tell them 20 that. 21 Q. You said earlier that the cost of settling and 22 reprocuring was one of the things that dictated how much 23 you could justifiably pay to do the Phoenix deal. 24 A. Yes. 25 Q. So the effect of increasing it firstly by GBP150 million 70 1 and then all the way up to increase it by half a billion 2 pounds was to make the Phoenix deal appear more 3 affordable and more sensible? 4 A. I don't think it was -- it wasn't manufactured to make 5 it appear more affordable. The outcome of the 6 assessment was that it was more affordable or assessed 7 to be more affordable. 8 CHAIR OF THE INQUIRY: I think you were asked was the effect 9 of these increases to illustrate that the Phoenix deal 10 was more affordable or palatable, and I don't think 11 Counsel was suggesting it was manufactured to that. But 12 do you accept that that was the case? 13 A. Yes, absolutely. 14 MR LAKE: When you see the nature of the increase there, in 15 the spreadsheet we're now looking at, does that, with 16 hindsight, lead to a lack of confidence in any of the 17 information you were being given at the mediation? 18 A. I don't think so, because at mediation we were working 19 at that particular time and place. We were working in 20 a dynamic negotiation. This document, if I recall it, 21 was -- it had the benefit of time between the end of 22 mediation and the Council meeting in June to be worked 23 up in more detail. 24 MR LAKE: My Lord, I'm going to move on to another matter, 25 so that would probably be an appropriate time to take 71 1 break. 2 CHAIR OF THE INQUIRY: We normally have a break of about 3 15 minutes at this time for the benefit of the shorthand 4 writers, and you can get a cup of tea or coffee. So 5 we'll resume again at 11.30. 6 (11.10 am) 7 (A short break) 8 (11.30 am) 9 CHAIR OF THE INQUIRY: You are still under oath. 10 A. Yes. 11 CHAIR OF THE INQUIRY: Mr Lake? 12 MR LAKE: I just want to ask you, when I was asking you 13 questions about did you get directions from the elected 14 members regarding the approach to mediation, I think you 15 said you had some discussions with councillors. 16 Did I pick that up correctly? 17 A. Yes. 18 Q. Were these formal or informal? What was the nature of 19 the discussions? 20 A. They were formal in that I was having one-to-one or 21 two-to-one discussions with the leadership. They were 22 informal in that they weren't in a formally constituted 23 Council meeting. 24 Q. What I was about to ask then was who you were meeting 25 with? And it was the leader and the deputy leader of 72 1 the Council? 2 A. Yes. 3 Q. Did you get representations from any other elected 4 members? 5 A. Right from very beginning, there was a huge amount of 6 interest in trying to find a solution on tram. So 7 I had -- yes, there will have been conversations, but 8 I was taking my main direction from the leader of the 9 Council. 10 Q. The leader and deputy leader, they had expressed the 11 view that the desire for getting something -- getting 12 a solution? 13 A. Yes. 14 Q. Now, the other thing I was going to come back to this 15 morning was the document TIE00355078. This is 16 a spreadsheet, and I think this is an extract of the 17 deckchair analysis as it was referred to. Do you 18 recognise this? 19 A. Yes. 20 Q. What I would like to do, you can see on the right-hand 21 side of this, there's a pink column with the heading, 22 "Infraco build to HYM", for Haymarket; do you see that? 23 A. Yes. 24 Q. We have got three columns, Phoenix QS view low, Phoenix 25 QS view high, and Phoenix BB, which is a Bilfinger 73 1 Berger view. Do you see that? 2 A. Yes. 3 Q. The various entries, the first are in respect of dates, 4 but underneath that, when we get to prices, we have BB 5 and S, which would be Bilfinger Berger and Siemens. We 6 have got the construction works price, existing change 7 for Princes Street, existing change other. 8 Down to entitlement for work done, certified in 9 advance of work done, certified to date, and then 10 a figure brought together, infrastructure, BB and S 11 certified. Do you see that? 12 A. I do, yes. 13 Q. For all the options Infraco build to Haymarket, that's 14 down as GBP124 million, if you read across? 15 A. Yes. 16 Q. Now, underneath that row, in the left-hand column, it's 17 Infraco build to Haymarket, which would be the future 18 costs. We can see for the two entries, Phoenix QS view 19 low and QS view high, the figure that's been inserted 20 there is GBP144.8 million. Do you see that? 21 A. I do, yes. 22 Q. Further to the right, on the Bilfinger Berger view for 23 that, the figure is GBP249.9 million. Do you see that? 24 A. Yes. 25 Q. Now, just looking at the QS view low and QS view high, 74 1 so they are the same, we can see that if we add the 2 total certified to date and the Infraco build to 3 Haymarket, we get a total of some 260 -- just short of 4 GBP269 million. 5 A. Yes. 6 Q. That then compares with the figure of 362.5 million that 7 was offered at Mar Hall. You have said that the view -- 8 that that figure was based on the work that had been 9 done, but if this was the work that was done, how did 10 you justify the additional GBP90 million? 11 A. I think -- I can't remember the intricate details, but 12 you will recall the discussion that you referred to 13 earlier as horse trading. We were in a mediation here, 14 and trying to get a result. 15 I can't from memory tell you how we got to the exact 16 figure, but it was a build-up of the previous 17 information which is shown here, plus the elements that 18 were brought to the table at mediation, plus the advice 19 of our team of advisers. That's how we reached the 20 figure. 21 Q. I have finished with that document now. 22 Could we go to another document, CEC02084685. 23 I think we've already looked at this this morning. 24 We can see -- we have already seen the first point 25 was the figure of GBP362.5 million for the off-street 75 1 works up to Haymarket. The second point there is: 2 "Consider proposed Infraco Price for the Edinburgh 3 Tram Network from Haymarket to St Andrew Square 4 (excluding Utilities) of GBP39 million, to be adjusted 5 by reference to Target Price mechanism to be agreed." 6 What did you understand was going to happen to fix 7 the on-street price? 8 A. The on-street price from memory, I think, was a measured 9 term contract, and I think we insisted on the consortium 10 going out to tender again for those figures, from 11 memory. 12 We also -- I think the Council took the on-street 13 risk for utilities on that stretch between Haymarket and 14 St Andrew Square, as far as I can recall, and that was 15 how we ended up with the final figure. 16 Q. Okay. 17 We will come back to this document in just a moment. 18 But if you look at another document we looked at before, 19 go back to the document at WED00000134, and we go back 20 to page 235 again, where we've been before, and we look 21 at the last paragraph. It notes that there was a final 22 offer made of GBP362.5 million for the off-street 23 section, with no exclusions and Infraco taking all the 24 risk with the exception of minor utilities: 25 "By adding the rest of the project costs, 76 1 GBP30 million for risk and GBP22.5 million for the 2 on-street section (which was an estimated figure and 3 hadn't yet been negotiated) the anticipated final cost 4 was GBP743.5 million." 5 A. Yes. 6 Q. If we go to page 250 of the same document, there's 7 a breakdown of that in a table format. If we look at 8 the right-hand column there, we can see the figure of 9 362.5 at the top, and then the figure of -- it's been 10 highlighted, GBP22.5 million for Haymarket to 11 Princes Street, also the highlighted, the GBP30 million; 12 and together with the cost to date, and others, it 13 brings out the total of 743.5 that we saw to referred in 14 the body of the report? 15 A. Yes. 16 Q. What we can see there is the Haymarket to 17 St Andrew Square cost has been noted at GBP22.5 million, 18 whereas in the key points document signed at the end of 19 the mediation, it was said it was going to be 20 GBP39 million. Do you recall that? 21 A. I don't actually recall it, but if that's what it says, 22 then fair enough. 23 Q. That means one would have to change the figure of 24 GBP22.5 million in this table to GBP39 million, which 25 would push the total project costs up to GBP760 million. 77 1 A. Yes. 2 Q. Was that realised at the time of the mediation, that 3 that is in fact the size of the deal that was being 4 done? 5 A. If it wasn't in that document that we signed at the time 6 of mediation, it probably wasn't. But in the period 7 between the end of mediation and the report going to 8 Council, that was when the work was refined. 9 Q. I won't turn it into a memory test. If we could look 10 back at the key points document at CEC02084685, you can 11 see from the signatures at the bottom of the page there, 12 if we scroll down, this was signed on 10 March -- 13 A. It was, yes. 14 Q. -- 2011. And if you go back to the top, it was known at 15 that time that the target on-street price was to be 16 GBP39 million. 17 A. Yes. 18 Q. Now, if that figure was used instead of the assumption 19 of GBP22.5 million, it becomes clear that the overall 20 deal wasn't one of 743.5 million. It was in essence 21 GBP760 million? 22 A. Which I think is what we eventually reported to Council. 23 Q. What I'm interested in is that a threshold had 24 originally been set for 740 as being the trigger point 25 for not doing the Phoenix deal? 78 1 A. Yes. 2 Q. What consideration was there that made you resolve to do 3 the deal even if it was more than 740? 4 A. We will have considered all of the factors laid out in 5 front of us. The degree of certainty, the degree of, if 6 you like, ballpark figure. All of this will have had to 7 have been reported back to elected members, still with 8 the option of separation. But in the event that they 9 were to continue to want us to continue, then these 10 would have been the figures that we alighted on. 11 I can't remember the detailed conversation at this 12 stage, but there was lots of to-ing and fro-ing about 13 the risks, the degree of certainty, how far we would 14 have to move and so on and so forth. 15 Q. Going back to another document we looked at this 16 morning, it was the CEC02085613. If we look at the same 17 tab we did last time, sorry, no, could we look at the 18 other one, entitlement summary. 19 We can see here this is the spreadsheet prepared for 20 the Council later on, that in the Settlement Agreement 21 column it's still quoting a figure for Haymarket to 22 St Andrew Square, the on-street section, of 23 GBP22.5 million, rather than the 39 that was agreed. 24 A. That might have been -- in the analysis that followed 25 the mediation, it emerged that we would have to actually 79 1 take the track to York Place, because there would need 2 to be a switchback, and I don't think from memory in the 3 mediation, there was any consideration of going actually 4 physically to York Place. 5 So I would surmise that that additional cost related 6 to the additional works that needed to get from 7 St Andrew Square to York Place and building the 8 switchback. 9 Q. Insofar as this was something going to the Council in 10 June, some three months after the settlement, where the 11 figure of GBP39 million had been included in the key 12 points document, why wasn't the figure of GBP39 million 13 used in here? Was there any consideration of that? 14 A. I don't know. 15 Q. I have finished with that document. 16 Go back to the key points document, CEC02084685. 17 Thank you. 18 In the handwriting, if we look at the top part and 19 see the handwriting, the first thing that's been 20 inserted would be: 21 "A novation of the Tram Supply Agreement." 22 The second is: 23 "Certain works ... namely Princes Street Remedial 24 Works, Haymarket Yard, mini test track and tram depot 25 (including access) to be commenced by the parties by 80 1 1 May 2011 and the remaining works for Project Phoenix 2 to be commenced by the Parties by September 2011." 3 Why were these included as a priority? 4 A. The -- I think there were two elements to that. One was 5 the Council wanted -- were we to proceed, the Council 6 wanted some kind of provisions to demonstrate work 7 resuming as soon as possible. And secondly, as far as 8 I can remember, it was -- there was still a lot of 9 decision-making to be made by the Council, and a paper 10 was taken following mediation specifically as far as 11 I can recall on the -- on the early works, and it was 12 a signal of good intent by all parties, were we to 13 proceed, that we would get works going in these areas of 14 work. Princes Street remedial works had to be, if 15 I recall, Princes Street had to be dug up again because 16 there was failure in the concrete track bed, and that 17 was to be done by the contractors at their cost. 18 Q. Yes. 19 A. And members of the Council wanted that done before 20 festival season started. So it had to be done either 21 before the end of July or after the end of -- the end of 22 August to allow the festival to carry on. And it was -- 23 it was deemed that that was a piece of work that could 24 be done, regardless of whether the contract continued or 25 not, that still had to be done. It still had to be left 81 1 in a usable state, even if we didn't then go on to use 2 it. 3 Haymarket yard and the mini test track, tram depot, 4 I think, they were discrete pieces of work that were 5 partially built and had to be completed, and they could 6 be completed without influence on the rest of the 7 contract, and from memory, that's why we singled out 8 those areas. 9 Q. If we look -- 10 A. Sorry, it was also -- we wanted a sign of goodwill from 11 the contractors that they would come back, because they 12 had -- in the period of cessation, from the autumn of 13 2010, they'd sent their workforce away. So there also 14 had to be a period of the contractors building up their 15 workforce so that they were ready to go for the full 16 contract recommencement, and this was seen as part of 17 the steps and stages towards that. 18 CHAIR OF THE INQUIRY: I'm sure it's me, Dame Sue, but 19 I don't understand your answer about the Princes Street 20 remedial works. I thought, looking at this document, 21 the Princes Street remedial works being done early is 22 part of the overall deal. 23 Are you saying that Infraco accepted that even if 24 the deal didn't go ahead, Infraco would carry out the 25 remedial works at Princes Street? 82 1 A. It was part of the overall deal, but in order for the 2 Council to make decisions on the overall larger sum, 3 there still had to be a series of Council 4 decision-making points which were June and August. 5 So the -- this was -- these were standalone pieces 6 of work that could be done regardless of that. So they 7 were -- if you like, wrapped up in the overall 8 agreement, but could nevertheless be started early, 9 because the Princes Street remedial work was to rectify 10 concrete faults. So regardless of anything else that 11 happened, that still had to be rectified. And didn't 12 affect the time -- I'm going from memory here, but 13 didn't affect the timeline of the wider contract if it 14 was done early, is my recollection. 15 CHAIR OF THE INQUIRY: But what I'm really trying to 16 understand is supposing the councillors, when they were 17 faced with the ultimate decision as to whether to go 18 ahead with this proposal or not, decided no, they 19 weren't, does that mean that in the meantime, the 20 Infraco would have done remedial work at Princes Street, 21 carried out the work at Haymarket yard, done the mini 22 track and tram depot? 23 A. Yes, that's my recollection. But it was -- 24 Princes Street was in a slightly different category, 25 because the Council wanted the concrete rectified on 83 1 Princes Street, on the road surface. We wanted a road 2 surface that had integrity in it and wasn't prone to 3 cracking and possible degradation. 4 But this was -- it was almost like a statement of 5 good faith by both parties, that whilst the rest of the 6 work was going on to get the bigger parcel of agreement 7 completed, that this work could start off, and I think 8 the term that was used at the time was to get yellow 9 jackets back out there, make a visible impact that there 10 was work going on to contribute to the bigger piece. 11 CHAIR OF THE INQUIRY: Sorry, Mr Lake. 12 MR LAKE: In relation to Princes Street, I think we see that 13 featured also in point 6 of the key points. 14 A. Yes. 15 Q. You mentioned in your earlier answer that the works were 16 defective and that was to be carried out at their cost, 17 the contractor's cost. This says that the price, that 18 is what the Council are paying, includes remediation of 19 Princes Street, which makes it sound like the Council 20 were paying for that? 21 A. No, my recollection is that this was the price, and 22 nevertheless we still wanted remediation of 23 Princes Street. So this was the price that we were 24 paying, and we weren't going to pay extra for the 25 remediation of Princes Street. 84 1 Q. Could you look at point 5. We see: 2 "Price includes all Siemens materials and equipment 3 to Newhaven." 4 In that the work was only going to be carried out 5 off-street to Haymarket and then on-street to 6 St Andrew Square/York Place, why was the materials and 7 equipment all the way to Newhaven bought by the Council? 8 A. Council were still of the view that ultimately they 9 would like to complete the track, to its original 10 destination, intended destination. And it was thought 11 prudent at that time to secure the track, the overhead 12 rails, all the bits and pieces, necessary so that the 13 system could be completely integrated, were it to be 14 continued. So you weren't then having to reprocure for 15 something that had previously been designed, made 16 available, and then discarded. 17 I think it was thought that there was -- there would 18 have been an additional premium to purchase those things 19 separately at a later date, and things like the rails, 20 I think, were deemed capable of withstanding a lay-up 21 period. 22 Q. If these materials had already been purchased by 23 Siemens, as it says here, was it part of the Mar Hall 24 Agreement that they were insistent that these be 25 purchased? They didn't want to be left with stock, and 85 1 this was something the Council had to pay once again to 2 get the deal? 3 A. I think it was thought to be mutually beneficial. 4 Siemens do projects like this all over the world. So 5 they could probably have utilised them elsewhere. 6 Q. Was it a demand made by Siemens that the Council buy all 7 the materials that had already been procured by Siemens? 8 A. Not that I recall, no. 9 Q. You can see the last two items on this page are that 10 there are to be non-binding indicative Heads of Terms 11 entered into by the close of business, 11 March, which 12 would actually have been the following day. 13 A. Yes. 14 Q. And that tie and CEC's commitments in respect of these 15 key points of principle are subject to and conditional 16 on the availability of funding. That is the point, it 17 had to be approved by the Council? 18 A. Absolutely, yes. 19 Q. I think if you go to the following page, we can see that 20 this is the first page of the Heads of Terms which were 21 subsequently entered into? 22 A. Yes. 23 Q. With a view to recording the agreement in more detail. 24 A. Yes. 25 Q. If we can go past those, straight to another agreement 86 1 which was entered into, it's reference CEC01731817. We 2 can see the title page of this, Minute of Variation to 3 the Infraco contract amongst tie, Bilfinger, Siemens and 4 CAF. 5 Do you recognise this? 6 A. Yes. 7 Q. Perhaps it's easier if we look at the second page of it. 8 Is this what became known as Minute of Variation 4? 9 A. Yes. 10 Q. If we look at page 12 of the printed pages, page 15 of 11 the PDF, we can see this was signed on -- at least those 12 three signatures on 20 May 2011. 13 A. Yes. 14 Q. What I would like to do is look at some of the terms of 15 this, please. If you could go to page 6 of the PDF, and 16 look firstly at clause 3.3. It says: 17 "If on or before 1 July 2011 the Parties have not 18 entered into a MoV5 on an unconditional basis or on 19 a conditional basis in either case because tie and/or 20 CEC do not have sufficient funding to meet tie's 21 obligations under the Infraco Contract ..." 22 Then we see the six sub-clauses set out as to what 23 the consequences will be. Do you see that? 24 A. Yes. 25 Q. Then if we look down to see clause 3.4, we can see it at 87 1 the foot of the screen there: 2 "If the Parties have not entered into MoV5 on or 3 before 1 July 2011 for any reasons other than those set 4 out in Clause 3.3 ..." 5 Again, there are various consequences set out there 6 also. Do you see that? 7 A. Yes. 8 Q. Did you envisage or was it envisaged when this was 9 entered into that the Council might say: we do make all 10 the funding available, but nonetheless we're not 11 entering into the agreement for other reasons. 12 A. Any possibility was on the range. It was -- it's 13 entirely up to the Council to take advice from officers 14 or to disregard it. And we were giving advice in good 15 faith in accordance with the discussions -- councillors 16 had been kept -- briefed, leadership of the Council had 17 been kept briefed all the way through this. But 18 nevertheless, you know, if the councillors had decided 19 at the eleventh hour to suspend it, then that was 20 a possibility. 21 Q. How would you be able to tell what the reason was for 22 MoV5 not having been entered into if the Council just 23 voted not to enter into it? 24 A. If the -- yes, they could have changed their mind. They 25 could have failed to agree to finance it. There could 88 1 have been any number of reasons. 2 Q. My question wasn't very clear. If the Council decided 3 not to approve the conclusion of Minute of Variation 5, 4 but didn't set out their reasons -- 5 A. Yes. 6 Q. -- how would you know which of these two regimes 7 applied? 8 A. That's a good question. Probably in hindsight we would 9 have worded it differently. 10 Q. If you look at what the consequences would have been 11 under 3.4, because it's on screen at the moment, this is 12 if it's not entered into for reasons other than funding. 13 Firstly: 14 "Infraco shall not be obliged to perform the 15 Prioritised Works ..." 16 But, 3.4.2: 17 "... the Infraco Works (as varied by this Minute of 18 Variation) shall recommence on 2 July 2011." 19 That's essentially the contract just gets back under 20 way. 21 A. Yes. 22 Q. If we scroll back up to see what the consequences are if 23 it's not entered into because of funding, we see 3.3.1, 24 perhaps deals with the point his Lordship asks you: 25 "Infraco shall, subject to Clause 3.3.2, continue to 89 1 carry out the Prioritised Works between 2 July 2011 and 2 1 September 2011, and inter alia the provisions of 3 Clause 9 of this Minute of Variation shall continue to 4 apply and Infraco shall not be required to carry out the 5 Infraco Works (other than the Prioritised Works)." 6 If we jump forward to 3.3.3: 7 "The Infraco Contract shall automatically terminate 8 at 5 pm on 1 September 2011 and the Parties shall have 9 no rights or obligations in respect of the future 10 performance of the Infraco Works ..." 11 3.3.4: 12 "The Parties shall enter into discussions with 13 a view to arriving at mutually acceptable terms to deal 14 with the consequences of termination ..." 15 Again, if I may jump forward to the 3.3.6, which is 16 just the handwritten number: 17 "Save as agreed between the Parties pursuant to 18 Clause 3.3.4 or as set out in Clause 3.3.5, in the event 19 of termination pursuant to this Clause 3.3, the Parties 20 confirm that such termination shall occur on a no fault 21 basis and, no compensation shall be payable by either 22 party whether under contract, delict, (including 23 negligence), breach of (or compliance with) statutory 24 duty, restitution or otherwise as a result of such 25 termination of the Infraco Contract." 90 1 In essence that means if the Council decide not to 2 enter into this for the basis of funding, the contract 3 falls away and all obligations fall away? 4 A. Yes. 5 Q. The Council would be under no obligation to make further 6 payments to the consortium? 7 A. That was my reading of it, yes. 8 Q. There's that rather strange provision in 3.3.4 that we 9 would enter into discussions to arrive at mutually 10 acceptable terms, but there's no obligation there at 11 all, really. Do you agree? 12 A. That's what it reads, yes. 13 Q. If the Council were offered that get-out clause, was the 14 purpose of keeping in the provisions in 3.4 just in case 15 the Council decided that they didn't want to walk away, 16 but nonetheless wanted to try and hold the Council -- 17 hold the consortium to it and grind through the entire 18 contract? 19 A. Yes. So at this stage we were still in the period 20 between mediation and the final Council decision. So we 21 were still doing our best to keep as many options alive 22 as possible. 23 Q. Is that particularly why that was put in, so that that 24 option was technically left open? 25 A. Yes, that's my recollection. 91 1 Q. Could we go then to page 10 of this agreement. Can we 2 look at clause 6. We've seen that the agreement was 3 dated or signed on 20 May. What 6.1 says is: 4 "On 15 April the Certifier [Colin Smith] issued 5 a certificate (Certificate 1 - First Materials and 6 Equipment and First Payment Certificate) to Infraco and 7 tie, certifying payment of the agreed sum of 8 GBP27 million (payable as GBP7.5 million to Bilfinger 9 and GBP19.5 million to Siemens). Such payments shall be 10 paid by tie on 22 April 2011 and transfer of ownership in and 11 unencumbered title to such Materials and Equipment by 12 Siemens to CEC shall be made on the date of receipt of 13 payment by Siemens." 14 This is providing for payment to be made even before 15 the payment is concluded. Why was that done? 16 A. I think it was -- I think it was in the good faith 17 element of the period between Mar Hall and the final 18 signing. The contractors were having to remobilise and 19 incur more costs to get ready for the priority works. 20 And as far as I can recall, it was -- it was agreed that 21 it was a fair and reasonable thing to do. 22 Q. The Council presumably wouldn't normally make payments 23 of GBP27 million under agreements that weren't yet 24 concluded? 25 A. But we were already in the middle of a piece of work. 92 1 So we weren't starting from zero. I think it was 2 recognition of that that we were already in 3 a contractual relationship with the contractors. We 4 were asking them to remobilise and they, as far as I can 5 recall, their Boards were asking for a sign of good 6 faith that we were intending to proceed as we'd 7 discussed at mediation and in the period since. 8 Q. We see in the start of that clause that the certifier 9 issued a certificate. That wasn't a certificate under 10 the pre-existing contract, was it, the Infraco contract? 11 A. MoV4 was a variation on the pre-existing contract. So 12 we were still in a contract with them, and MoV4 was 13 variation on the contract that took us forward. 14 Q. There was no provision in the contract as existing, the 15 Infraco contract, for Colin Smith to issue certificates 16 of this sort of nature? 17 A. No, because he wasn't there. He didn't exist as 18 a certifier in the original contract. 19 Q. So there was no contractual mechanism for him to give 20 certificates? 21 A. Probably not at that stage. 22 Q. And because this agreement hadn't been entered into, 23 there could be no mechanism under this agreement, that 24 is MoV4, for the giving of such certificates to generate 25 liabilities? 93 1 A. I would -- looking back, I mean, I'm trying to work this 2 from memory, but there must have been some grounds for 3 him to have issued that certificate. He wouldn't just 4 have issued it on a whim. 5 Q. But there is another contract I could take you to. We 6 will come back to the one on screen. If we could look 7 now at CEC02025692. 8 We can see this is headed up Certifier Agreement 9 among tie, the Council, Bilfinger, Siemens, CAF and 10 HG Consulting, and that last party, HG Consulting was 11 the company through which Colin Smith provided his 12 services? 13 A. It is. 14 Q. This is a certification agreement under which all the 15 parties agreed that HG Consulting or Colin Smith would 16 provide certificates; is that fair comment? 17 A. I'm only looking at the first page, but yes. 18 Q. Do you recall this agreement? 19 A. Yes. 20 Q. If we go through it to page 5 of the agreement, we can 21 see there's a definition of services in the middle of 22 the page which is: 23 "... the services to be performed by the Certifier, 24 including those services set out in Clause 5 and Schedule 25 Part 1." 94 1 Do you see that? 2 A. Yes. 3 Q. If we go over to see what clause 5 says, we can find 4 that on page 7. Under heading, "Application for 5 payment", it's: 6 "Infraco shall provide to the Certifier and tie 7 a copy of their application for payment with all 8 attendant information in respect of the relevant 9 Valuation Date five (5) Business Days prior to such 10 Valuation Date. Such information is to be issued 11 electronically and in hard copy formats." 12 A. Yes, that's what it says. 13 Q. Now, this would be for the certification of payments due 14 in terms of the priority works once they got under way? 15 A. Yes. 16 Q. If we go up the page to clause 4, 4.1.1, we can see: 17 "The certifier shall promptly and efficiently 18 perform the services consistent with the standards 19 specified in clauses 3.1, 3.2 and 3.3 and as set out in 20 MoV4." 21 Do you see that? 22 A. Yes. 23 Q. So there's understanding here that the agreement the 24 certifier shall do what is set out in MoV4, in short, an 25 agreement that the certifier will issue these 95 1 certificates? 2 A. That's what it says, yes. 3 Q. If we go to the schedule to this agreement, page 18, 4 it's headed "Schedule Part 1, The Services". 5 If we look at the lower part of the page, 2.1: 6 "In accordance with Clauses 6, 7 and 8 of MoV4, the 7 Certifier shall: on 15 April 2011 issue a certificate 8 (Certificate 1 - First Materials and Equipment and First 9 D&C Costs Certificate) to Infraco and tie (which the 10 Parties acknowledge has already been issued), certifying 11 payment of the agreed sum of GBP27 million ..." 12 Again, we see the same split between Bilfinger and 13 Siemens; do you see that? 14 A. I do, yes. 15 Q. If we go over the page, clause (b) has an obligation on 16 Colin Smith to issue a second certificate on 3 May in 17 the sum of GBP9 million. Do you see that? 18 A. Yes. 19 Q. Again, that would pre-date this agreement. Sorry, 20 I didn't take you to the date. My apologies. 21 Could we go to page, first of all, 15. 22 We can see that the first signature there of 23 Colin Smith is on 23 May. Do you see that? 24 A. Yes. 25 Q. If you go over the page, we can see, if we start at the 96 1 foot of the page, it was also signed for Bilfinger on 2 20 May. But other dates of signature have been in June, 3 including signature by you. Do you see that? 4 A. I do, yes. 5 Q. The following page, just for completeness, the 6 signatures by Siemens and CAF are 20 May also. 7 A. I see that, yes. 8 Q. I should have taken that first, but if you go back to 9 the schedule and look at page 19, and enlarge the upper 10 half, paragraph (b) which provided for a certificate on 11 3 May in the sum of GBP9 million was actually referring 12 to a day in the past? 13 A. Yes, it is. 14 Q. Then we've got (c), an obligation on Colin Smith to 15 issue a certificate in the sum of 4,334,000. Do you see 16 that? 17 A. I do, yes. 18 Q. (d), an obligation to issue a certificate in the sum of 19 GBP433,000? 20 A. Yes. 21 Q. (e), an obligation to issue a certificate in the sum of 22 GBP4,333,000 again? 23 A. Yes, I see that. (Pause) 24 Q. So if this agreement for the issue of these certificates 25 is only dated in May, I come back to my question 97 1 which I asked in relation to MoV4. On what basis had 2 a certificate been issued and sums paid by the Council 3 back in April? 4 A. I honestly can't remember. There must have been some 5 logic to it. I mean, nobody has endeavoured to hide 6 anything here. Everybody has signed and dated the 7 agreement, and all of the intent is written down in 8 here. So I can't recall the logic of it. We're talking 9 a long time ago here, but it would have been in the 10 interests of furthering the outcome of the mediation in 11 terms of getting work going. 12 Q. Did it cause you concerns that the Council were paying 13 out GBP27 million when an agreement which created the 14 liability wasn't yet signed? 15 A. It would have caused me concerns, knowing the way 16 I work. Coming back to that time, there were lots of 17 discussions going on. There must have been certainty 18 around why we did this at the time, although for the 19 life of me, I can't remember what it was now. 20 Q. This must be presumably an extremely unusual act as 21 a matter of management of public finances to pay out 22 GBP27 million when there's no liability to pay it out. 23 A. I don't think we have established that there wasn't 24 liability. We were in the middle of an existing 25 contract with work that was in the middle of being done, 98 1 although the cessation had occurred. So this wasn't 2 a new relationship arising out of the blue. This was 3 a continuation of a previous relationship between the 4 Council and the contractors, and the continuation of 5 a previous contract. 6 Q. Are you saying that this sum was in fact paid out under 7 the existing contract, although it's been referred to in 8 MoV4? 9 A. Well, we're looking at the documents. I can't remember 10 at this stage the precise details, but whatever we did 11 at the time will have been surrounded by the governance 12 of the Council in the way that we spent money, and the 13 terms of the contracts that we had in front of us. 14 Q. What was that sum, that first sum of 27 -- if you go 15 back to the document CEC01731817, and page 10 of that. 16 Could you enlarge 6.1. 17 What was that sum of GBP27 million actually paid out 18 for? 19 A. I can't remember, going from memory on this. There will 20 be records in the files that you have which describe 21 what that was about. 22 Q. We have heard that part of it, and it refers to there, 23 was for transfer of materials and equipment by Siemens. 24 A. Well, if that's what it says, then that's what it was 25 for. 99 1 Q. But the balance is just referred to as first payment. 2 What was that for? What was the balance for if it 3 wasn't materials and equipment? 4 A. I think the first payment was for the mobilisation, 5 recognising that the contractors were incurring costs to 6 remobilise. 7 Q. What steps were taken to ensure that the Council was 8 getting value by way of either deals or the 9 mobilisation? 10 A. We would have been monitoring the delivery of the 11 contract. 12 Q. What do you mean by that? 13 A. Well, the team that we'd assembled of advisers, 14 colleagues within the Council, finance colleagues, 15 technical colleagues, would all have been monitoring the 16 implementation of the contract. tie was still in 17 existence, I think, at this time, monitoring the work 18 that was being done. 19 Q. What were you looking for to ensure you were getting 20 value? How would you know when you'd got value? 21 A. There would have been measured outcomes. 22 Q. Of what? 23 A. Either work done, time spent, equipment purchased. 24 Q. Who was going to reach a view as to the value of the 25 equipment? 100 1 A. Our technical advisers would have -- 2 Q. Who? 3 A. It would have been Colin Smith, Tony Rush, Vic Emery, 4 people who were solely deployed on monitoring and 5 supporting the delivery of the tram programme. 6 Q. In terms of trying to put a value on the materials and 7 equipment which are specialist things to Siemens, who 8 would be in a position to put a value on those, on the 9 tie/Council side? 10 A. Well, we would have had -- as I said, I think we still 11 had Tony Rush working with us at this time. There was 12 a whole team of technical people still at tie. There 13 was a technical side in the Council. Colin Smith was 14 there as a quantity surveyor. 15 Q. Did they have skills necessary to value material and 16 equipment supplied by Siemens? 17 A. We must have thought they had at the time. 18 Q. Then the question of the over and above value of any 19 equipment, how did you value the other -- how did you 20 value the mobilisation or the other payments? 21 A. I can't remember the detail of that, but it was 22 presumably a negotiated outcome. 23 Q. If we look down the page to certificate 2, second 24 payment, it's: 25 "By 3 May tie, BBUK and Siemens shall request that 101 1 the Certifier shall issue a certificate ..." 2 Obviously 3 May was past by the time this agreement 3 was signed. So presumably this has already happened. 4 Is that what in fact happened? 5 A. I can't remember, but if that is what it's saying, then 6 yes. 7 Q. "... shall issue a certificate in accordance with the 8 Certifier Agreement ... to Infraco and tie, certifying 9 payment of the agreed sum of GBP9 million ... and 10 payment shall be made by tie to ... the amount certified 11 on 17 May 2011." 12 What was that payment for? 13 A. I can't remember. I would need to see the back papers 14 that go with this to understand what the detail was. 15 Q. Look at the next clause, you see: 16 "On 15 June 2011 tie, Bilfinger and Siemens shall 17 request that the Certifier issues a certificate in 18 accordance with the Certifier Agreement (Certificate 3A - 19 Second Materials and Equipment) to Infraco and tie, 20 certifying payment of the agreed sum of GBP4.334 million 21 ... in respect of an agreed second payment to Siemens in 22 respect of the transfer to CEC of ownership in and 23 unencumbered title to such Materials and Equipment 24 identified in the relevant Vesting Certificate." 25 Now, that's easy. You can see that it is said to be 102 1 in respect of transfer of equipment? 2 A. Yes. 3 Q. Is it not then odd that nothing at all is said about 4 what the second payment was for, the GBP9 million? 5 A. It's -- it certainly is less detailed in that paragraph 6 than it is in the subsequent paragraph, but there must 7 have been a logic round about it at the time. 8 Q. Neither in this agreement or the certified agreement, 9 other than the references to materials, do we see any 10 idea really of what the balance of the sums are to be 11 paid in respect of. 12 A. I see that, yes. 13 Q. Whilst you say there may be something in back papers, as 14 a matter of management of public finances and best 15 value, is it not odd to have payments without any record 16 of what they're being paid for? 17 A. I cannot imagine that with our Director of Finance 18 overseeing this, that there would have been no record 19 whatsoever. Everything we did, we strove to do within 20 the governance arrangements and financial regulations of 21 the public service in which we worked. 22 Q. You referred earlier to this being part of the machinery 23 to give effect to the Mar Hall deal. Does it come to be 24 simply that this was done just to get money transferred 25 to the consortium and it didn't really matter what it 103 1 was for, it was all just a device to make payments? 2 A. I would doubt that. 3 Q. That's why the payments were made even before the 4 agreements were signed. That's why there's no 5 indication of what the payments were for. And that's 6 why, although there's reference to certificates, the 7 certifier is contractually bound to issue them. It's 8 all a sham to make payments, isn't it? 9 A. No, I wouldn't sign up to something that was a sham, 10 and I frankly object to that suggestion. 11 Q. What is the function of a certification procedure? 12 A. Certification procedure was to give confidence and 13 comfort to the Council that what it was spending money 14 on was necessarily to be spent. 15 Q. What was it spending money on? 16 A. Well, I haven't got the paperwork in front of me, so 17 I can't remember. 18 Can I just also remind you that this level of detail 19 was not something that I would have been involved in on 20 a daily basis. I was Chief Executive of the entire 21 Council, and had a whole other job to do at the same 22 time. 23 So I apologise if my memory appears flawed at times, 24 but I wasn't involved in these individual negotiations. 25 But anything that I would have signed off to would have 104 1 had to have met the strictures of governance that 2 I would expect every other part of the Council to have 3 adhered to. 4 Q. I can understand that although we are focused on the 5 tram, you had other focuses when you were the 6 Chief Executive of the Council. But is it fair to say 7 this is an unusual situation with these very large sums 8 of money changing hands, even before an agreement is 9 entered into? 10 A. Which is why I'm saying I would be reasonably confident 11 that there would be context to it that was legitimate 12 and above board, and under no circumstances would I be 13 subscribing to anything that you describe as a sham. 14 Q. If we look at another document, please, this one has got 15 reference CEC02087177. 16 We can see that the first email in chronological 17 emails, the last on the chain, is one from 18 Alastair Maclean to you, on 20 April, timed at 11.00 pm, 19 with a heading, "MoV4". Do you see that? 20 A. I do. 21 Q. What you say is: 22 "Noted. Thanks Alastair. I will have to find out 23 whether this has the blessing of the board or whether RJ 24 [Richard Jeffrey] is acting unilaterally. Sue." 25 That's what you said? 105 1 A. It is, yes. 2 Q. That's a response to an email from Alastair saying for 3 your information, and he's forwarding an email from 4 Richard Jeffrey. Do you see that? 5 A. I do. Yes. 6 Q. If we look at what is said by Richard Jeffrey, if we 7 look at the third paragraph of his email, it says: 8 "I understand that in due course as Chief Executive 9 of tie, the contracting party, it will fall to me to 10 sign this document. I believe that this MoV represents 11 a significant change to the Infraco contract and to 12 ensure a proper audit trail CEC will need to issue me 13 with an instruction (via the TEL Board who in turn will 14 instruct the Tram Project Board to instruct me) to sign 15 this document." 16 What was your concern in seeing this? Because you 17 say you wanted to check whether this was the view of the 18 whole Board or just Richard Jeffrey acting unilaterally. 19 A. It was exactly that, to find out had the Board requested 20 this to happen. 21 Q. What would the concern be if the whole Board had 22 requested it? 23 A. There wouldn't have been a concern. 24 Q. What difference would it make? 25 A. Just to understand what was driving the question. 106 1 Q. If we go back to the email and look over on to -- keep 2 scrolling down. We will find a bullet point number 1 3 and a heading, "Valuation of Entitlement under MoV". It 4 will be the following page. 5 What Mr Jeffrey says there is: 6 "The value of the payment schedule included in the 7 MoV (GBP49 million scheduled over certificates 1, 2 and 8 3 as detailed in clauses 6.1, 6.2 and 6.3) is not 9 supported by our analysis. Our analysis suggests 10 a payment of GBP19 million. Our position on this has 11 previously been communicated to CEC and your advisers. 12 I understand and accept that this is a commercial 13 decision for CEC, and I assume you will have your own 14 audit trail to back this up." 15 Now, what was or is your reaction to that? 16 A. I think Richard is right to raise those questions and 17 yes, we would have had an audit trail. I would have 18 expected us to have an audit trail to back it up. 19 So Richard's concerns about governance and my 20 concerns about governance would have been tantamount to 21 the same thing. 22 Q. tie have done an analysis, and instead of finding 23 GBP49 million payable, found only GBP19 million payable. 24 What work was done to close that GBP30 million gap? 25 A. I don't know. I would have to ask those that were doing 107 1 the work. 2 Q. Who would have done the work? 3 A. It would have been the CEC negotiating team, I would 4 imagine. 5 Q. If we look to the bottom of this page, this is in 6 relation to payment, the subparagraph 5. Mr Jeffrey 7 says: 8 "Tie's current delegated authority from CEC does not 9 allow for this payment to be made as tie considers that 10 a significant element of these payments include 11 commitments beyond the GBP545 million limit." 12 I think that was something you'd already considered 13 by this time; is that correct? 14 A. Probably. 15 Q. Now, we've seen MoV4 was signed on 20 May. What I would 16 like to do is look at a report to the Council in respect 17 of it, please. Could we look at CEC01914650. This is 18 a document we've seen before. It's got a collection of 19 several different reports that went to the Council in 20 respect of the outcome of the mediation. 21 Could we go first to page 5. We can see this is 22 a report to the whole Council of 16 May. Do you see 23 that? 24 A. I do, yes. 25 Q. 16 May being four days before the MoV4 was signed. 108 1 Now, if we look at page 6 of this document, and look 2 down to paragraph 3.6, the report notes: 3 "In the meantime, Council is asked to note a number 4 of short-term actions that are required to restore 5 momentum to the construction of tram infrastructure in 6 priority sections of line 1a. These will be managed 7 through a Minute of Variation to the contract, 'Priority 8 Works Minute of Variation', reference hereafter as MoV4, 9 which deals with the immediate priority issues that were 10 resolved through mediation. The main provisions of MoV4 11 are summarised in appendix 1. MoV4 will be superseded 12 by a subsequent Minute (MoV5), reflecting the full terms 13 of any agreement reached between the parties to deal 14 with the completion of the revised programme, scope and 15 budget for the Airport to St Andrew Square phase of 16 line 1a. A report will be brought to Council this 17 summer for a decision on the terms of this more 18 substantive minute of variation to the tram contract." 19 So that's really indicating the intention to carry 20 out the prioritised works that we saw? 21 A. Yes. 22 Q. If you look over the page to 3.8, it notes: 23 "Work re-commenced at these locations ..." 24 They have just been described above: 25 "... in early May 2011. As part of the priority 109 1 works programme, some auxiliary works will also be 2 carried out to progress detailed site investigations, 3 clearance and demolition at several other locations 4 along the tram route. Agreement has also been reached 5 under MoV4 for all materials held by Siemens, including 6 overhead power lines, track and associated equipment to 7 transfer to the ownership of the Council. The costs 8 associated with the re-commencement of work, the transfer 9 of materials to Council ownership and related matters 10 has been subject to independent verification by an 11 external Chartered Quantity Surveyor and cleared with 12 Transport Scotland officials. These costs, added to 13 those already incurred, take the cumulative expenditure 14 on the tram project up to 6 May 2011 to a total of 15 GBP440 million." 16 Do you see that? 17 A. I do, yes. 18 Q. Now, that refers to the value of the materials being 19 verified by an external chartered quantity surveyor. Is 20 that Colin Smith? 21 A. I would take it to be Colin Smith, yes. 22 Q. He, if you take it from me, acknowledged in his evidence 23 yesterday that he did not have particular skill that 24 would enable him to value Siemens' materials. Did you 25 consider there was a problem in not having someone with 110 1 the skills certifying these sums? 2 A. He will have -- I would think drawn on expertise to help 3 inform his view. 4 Q. Is that something you know or something you are 5 assuming? 6 A. It's something I surmise. 7 Q. Although we have mention there of the payment priority 8 works, and payment for the materials, we don't have 9 mention of the third category, where there were no 10 particular reasons given for making the payment. Is 11 that fair comment? 12 A. I see that, yes. 13 Q. If we go to the financial implications on page 9, 4.1 14 notes that: 15 "As a result of the mediation process agreement has 16 been reached amongst the parties in dispute that has 17 enabled work to progress on priority sections of line 18 1a, whilst detailed design and costing work is carried 19 out on the full extent and budget for the first phase of 20 Line 1a, from the Airport to St Andrew Square. 21 "The Priority Works Minute of Variation (MoV4) will 22 enable the Council to acquire the Siemens materials and 23 equipment needed to complete line 1a. The valuation 24 certificates for these payments have been verified, 25 elements of which are included in the cumulative 111 1 programme costs to date of GBP440 million." 2 So again, under financial implications, no 3 indication is given of the further sums that would be 4 payable over and above cost of materials. 5 A. I see that. 6 Q. Was there a reason for that? 7 A. Not that I'm aware of. 8 Q. If we look at the recommendations on the following page: 9 "Council is asking to approve the following 10 recommendations: 11 "To note the outcomes of the mediation process to 12 date; 13 "To note the consultation arrangements for remedial 14 work on the Princes Street road surface; 15 "To note that a further detailed report will be 16 brought to the Council in the summer of this year." 17 It's clear that no decision is sought from the 18 Council as to whether or not to enter into MoV4. Why 19 was that? 20 A. Probably because of the stage we were at in the overall 21 proceedings. 22 Q. Could you explain that? 23 A. Well, this -- this report was, if I recall, is this May, 24 this report? 25 Q. This was a May report, yes? 112 1 A. Yes, and there was a full report coming to Council in 2 June and again in August. So members, senior members 3 would have been briefed on steps and stages that we were 4 going through. 5 Q. This was 16 May, and we've seen that MoV4 was signed 6 four days later on 20 May. That being the case, why was 7 the issue of whether or not to enter into MoV4 with its 8 liabilities not something on which the members could 9 take a decision? 10 A. I think the June report was already scheduled at this 11 stage. So they would have been expecting that 12 information there. 13 Q. But by June MoV4 would already be signed, wouldn't it? 14 A. But not without the authority of the Council. 15 Q. Well, it was signed on 20 May? 16 A. But it was still contingent on the Council agreeing the 17 final contract to secure the finance. 18 Q. No, the MoV5, the full agreement, was subject to Council 19 agreement. MoV4 was an unconditional agreement binding 20 the Council to make these payments of GBP49 million and 21 pay for the priority works. That was signed without any 22 express Council approval. Why? 23 A. I can't remember. But whatever -- whatever we were 24 going through at the time, it will -- there will have 25 been discussions. There was nothing underhand about any 113 1 of this. 2 Q. Was it because you were worried -- start again. 3 We know from your statement the difficulties that 4 arose when it came to trying to get the full agreement 5 approved, and ultimately it was initially only approved 6 as far as the Haymarket, not York Place. That was 7 correct? 8 A. That is correct, although that discussion -- that 9 decision was a surprise to everybody in the Chamber. 10 Q. You have noted that in your statement, and there was 11 a shock and as a result of Transport Scotland 12 intervention, the decision was amended about a week 13 later, so that it did go all the way to York Place? 14 A. That's right. 15 Q. Was the reason you didn't put MoV4 for the Council, you 16 were worried that there might be an irrational decision 17 which could have scuppered the entire deal at that early 18 stage? 19 A. I can't -- to be honest, I can't remember. I mean, 20 we -- the routine of putting things through the Council 21 for approval was well understood. There were some 22 things that had been delegated to officers to get on 23 with. Whatever we did would have been within the 24 parameters of the operating framework of the Council. 25 So in other words -- 114 1 Q. Could you explain that? What do you mean? 2 A. There would not have been any decisions taken that were 3 in breach of the levels of authority that officers had. 4 Q. We will come to levels of authority or financial limits 5 in a minute. I'm just more worried about the -- 6 concerned here with the principle. That this is an 7 agreement which means that the Council will pay for 8 priority works, and it might be said they were going to 9 pay for those works anyway under the existing agreement. 10 That's a fair comment, isn't it? 11 A. I suppose so. 12 Q. But what this did oblige the Council to do was buy 13 materials sufficient to take the tram all the way to 14 Newhaven when it was by that time intended only to take 15 the tram as far as St Andrew Square/York Place? 16 A. The buying -- the purchasing of materials to go to 17 Newhaven was seen as a -- I suppose an investment in the 18 future, an insurance policy for the future. 19 Q. Over and above that, it bound the Council to make 20 payments under certificates for sums which weren't 21 specified in the contracts. So they do appear to be 22 additional sums payable to the contractors? 23 A. They do appear from that, yes. 24 Q. Was that not something that you would have expected the 25 Council to approve? 115 1 A. Yes. I would, actually, and for the life of me, I can't 2 remember why we did -- why things went through in the -- 3 the routine that they did here. But I'm quite confident 4 that the Council was kept fully briefed, or councillors 5 were kept fully briefed. The Council as a whole was 6 briefed to the papers in July -- June and August. 7 Q. But looking at the situation before MoV4 was signed on 8 20 May, how were the councillors kept fully briefed? 9 A. Through -- it must have been through briefing meetings. 10 We had -- I don't know if it was set up at that time, 11 but we had an all party tram oversight group. 12 Q. Are there written records of the briefing meetings? 13 A. There should be, yes. 14 Q. Because if they were going to be briefed fully, they 15 would have to be given more information than was put in 16 the report of 16 May to the Full Council. 17 A. Yes. 18 Q. Is that what happened? 19 A. Sorry? 20 Q. Is that what happened? 21 A. I can't recall from memory, but we did our best as 22 officers to make sure that members were briefed. 23 I cannot see us entering into agreements without proper 24 authority for having done that. 25 Q. A slight side issue at the moment. I would like you to 116 1 look at another document, please. It's SIE00000399. 2 We can see the main title is "Edinburgh Tram Network 3 Assessment of Project Costs", and we can see from the 4 foot of the page, it comes from Bilfinger and Siemens? 5 A. It does, yes. 6 Q. With a date of 20 June? 7 A. Yes. 8 Q. In the red box it indicates it was submitted to your 9 office at the Council by a message on 21 June? 10 A. I see that. 11 Q. If we look to the second page of this, we can see it 12 consists of tables of numbers. Do you recall this 13 document at all? 14 A. Not particularly, but I'm sure it happened. 15 Q. If we look at the page 3 of this, we can see in 16 a slightly blued row, the heading, "Cost of Automatic 17 Termination", and then various figures being put in for 18 cost of project, cost to complete and so on. Do you see 19 that? 20 A. I do see it, yes. 21 Q. If we go right to the foot of the page, we've got total 22 cost of automatic termination, the third last row, and 23 we look at the right-hand column for combined Bilfinger 24 and Siemens, is GBP273.5 million. Do you see that? 25 A. I do see it, yes. 117 1 Q. It says paid at 31 August, GBP207.2 million. Underneath 2 that, the resulting automatic termination fee of 3 GBP66.25 million. Do you see that? 4 A. I do, yes. 5 Q. Do you know what this was, what that represented? 6 A. I can't in detail recall it, but I think it has to do 7 with had the Council decided in the -- in those summer 8 meetings, the June or the August, not to fund the 9 project, and we reverted to automatic termination; this 10 was what the penalty would have been or the cost would 11 have been. 12 Q. We saw, when looking at the agreement, what would happen 13 if there wasn't termination is that it would end without 14 liability on the part of the Council. 15 A. Yes. 16 Q. But nonetheless there was that clause which said that 17 the parties will negotiate? 18 A. Yes. 19 Q. Did you understand this simply to be a negotiating 20 position? 21 A. I can't remember, but it might have been at the time. 22 Q. I want to go back to the question of MoV4 and the 23 authorities in relation to it. 24 Could we look at a document, please, CEC00645838. 25 This is the Operating Agreement that existed between 118 1 the Council and TEL. Do you recall this? 2 A. No. 3 Q. Look then firstly at page 2. I take it you will have 4 seen it some time, the Operating Agreement between the 5 Council and TEL? Or would you not have? 6 A. Possibly. I mean, this took place long before I ever 7 reached the Council, and on the basis that things were 8 going at a considerable pace, and were in a bit of a 9 difficult state, I didn't dwell on the past and things 10 like this. 11 Q. I'll show you the terms of the agreement I have in mind, 12 and then ask you for your conclusion on it. If you 13 could look at page 2, in the definition of baseline 14 cost, it is: 15 "The estimated capital cost, including risk allowance 16 of the Project, as determined by the Council's Chief 17 Executive and intimated to TEL from time to time in 18 accordance with the terms of this Agreement. 19 Then if we jump forward to page 9, and enlarge the 20 upper half of the screen, looking at clause 2.22. 21 If you look some nine lines down there, there's 22 a sentence that begins: 23 "The following matters will be for the TEL Board to 24 determine and report to the Council as appropriate in 25 terms of the governance arrangements set out in Schedule 119 1 2. 2 "All matters affecting the programme, cost and scope 3 of the Project except the following which are matters 4 reserved to the Council ..." 5 Reading past 1, it goes to: 6 "Any actual or reasonably expected increase in 7 capital cost which would mean that the Baseline Cost is 8 exceeded by greater than GBP1 million." 9 If you take it from me -- actually, if you read the 10 paragraph beginning "On the basis of information 11 provided by TEL", at the bottom of the screen there: 12 "On the basis of information provided by TEL to the 13 Council, the Baseline Date and the Baseline Cost will be 14 determined by the Council's Chief Executive and notified 15 to TEL from time to time. The Council Chief Executive 16 will require Council approval to specify (i) a Baseline 17 Date beyond October 2012; or (ii) a Baseline Cost 18 exceeding GBP545 million." 19 Do you see that? 20 A. I do see it, yes. 21 Q. Were you aware that when you came into office, there had 22 been no change, and that the baseline cost was still 23 sitting at GBP545 million, as notified by your 24 predecessor? 25 A. Yes. 120 1 Q. So the authority of TEL was to go up to GBP1 million 2 above that, to GBP546 million, beyond which they would 3 need Council approval? 4 A. Yes. 5 Q. Now, in terms of the agreements that were being entered 6 into, did that give rise to a need to put matters back 7 to the Council to get their approval, because it was 8 going to breach these limits? 9 A. I would take that to be yes, and in fact I don't recall 10 ever reporting to TEL, but I always reported to the 11 Council. 12 Q. But was any Council approval to increase these limits 13 obtained before MoV4 was entered into? 14 A. Well, from what you're saying, it appears that there 15 wasn't a Council minute as such, but there must have 16 been some process that we went through as part of the 17 fallout from all the ongoing work from mediation to do 18 that. 19 Q. Just look at some correspondence arising out of this, 20 please. If you could look at TIE00687801. 21 CHAIR OF THE INQUIRY: While we are waiting for that, 22 could I just clarify what that last answer meant, 23 Dame Sue. 24 One appreciates the distinction between the Council 25 being the elected members -- 121 1 A. Yes. 2 CHAIR OF THE INQUIRY: -- and officials, and what we've seen 3 is that any decision to exceed 546 million would have to 4 be approved by the Council, not by officials; is that 5 correct? 6 A. Yes. 7 CHAIR OF THE INQUIRY: What then did you mean by saying that 8 there wasn't a Council minute approving such increase: 9 "... but there must have been some process that we 10 went through as part of the fallout from all the ongoing 11 work from mediation to do that." 12 A. Well, as part of the work arising from mediation, we'd 13 obviously reached that point, referring back to 14 Mr Lake's earlier comments about the payments for the 15 pre MoV5 work. 16 So officers would have a delegated authority on 17 spend. The finance director would never allow -- 18 I can't remember, section 94 rules, maybe -- expenditure 19 to take place unless it had proper authority or 20 delegated authority behind it. 21 So what you're saying to me is that you haven't been 22 able to see a minute -- the reports we made to the 23 Council were in May and in June and in August -- in, 24 yes, June and August. But any payments that were made 25 prior to the report that brought the whole contract 122 1 into -- got the Council's agreement to continue, must 2 have been done under appropriate delegated authority, 3 because you can't spend those kind of sums of money 4 without proper authority. 5 CHAIR OF THE INQUIRY: Would there not be a minute of such 6 delegated authority if it was exceeding the limit of 7 546 million, which is minuted, presumably? 8 A. And that, I think this is a really interesting point, 9 because in the normal run of things this -- and I'm not 10 sure what the date of this document is. It refers to 11 the baseline date beyond October 2012. So I don't know 12 if this document arose after mediation or if it was 13 a standing -- 14 MR LAKE: I should have perhaps clarified that, my Lord. It 15 can be seen on page 17. It's signed 18 December 2009. 16 A. Right, okay. So I think this document, which pre-dates 17 me, was related to the normal -- assuming that the tram 18 was delivered in contract, this would give tie and TEL 19 flexibility of up to GBP1 million before they had to 20 come back to Council. But this has now been superseded. 21 So this was 2009. Now it's been superseded by the 22 mediation talks, all of the talks about carry on, don't 23 carry on, with the contract. 24 So this permission to exceed by GBP1 million, 25 I think, has been superseded by the discussions that 123 1 went on at Mar Hall, and the subsequent reporting to 2 Council. I think it's kind of two separate points in 3 time. Whether it was right or not, is another question. 4 I think that's what's happened. 5 CHAIR OF THE INQUIRY: How could authorised expenditure be 6 increased simply by an agreement to have discussions 7 about mediation? I mean, you make the point quite 8 properly in your statement that there's a distinction 9 between what you did as Chief Executive and what the 10 Council did. 11 A. Yes. 12 CHAIR OF THE INQUIRY: So are you saying that by agreeing 13 that you go to mediation and participate in mediation, 14 the Council are impliedly saying you can go on and spend 15 an extra 27 million or you can -- whatever the figure 16 is? 17 A. No, I don't think there was any such implication, and 18 therefore there must have been steps and stages around 19 about that that -- that enabled that commitment to be 20 made. 21 The finance director would not allow a payment to be 22 made unless there was proper authority or delegated 23 authority for it to be done. 24 MR LAKE: But perhaps we could follow this through, 25 Dame Sue. 124 1 What I would like to do is rather than look at the 2 document I said I was going to, if we go to CEC02087164. 3 Now, perhaps we will start by getting the date on 4 this. If we go to the second page, we see there's quite 5 small writing right at the end: 6 "Version 2: Thursday 10 March 2011." 7 Does that ... 8 A. Yes. 9 Q. So that gives us a rough idea. So this is round about 10 the end of mediation time? 11 A. Yes. 12 Q. In fact it is end of mediation time. 13 Can we go back to the first page, and the 14 handwritten note at the top is: 15 "Sue, this is a note prepared by Ritchie and 16 Alastair on next steps for Council approval." 17 That would be Dave Anderson? 18 A. It would be, yes. 19 Q. Alastair would be Alastair Maclean? 20 A. I would think so, yes. 21 Q. And I have forgotten the surname -- 22 A. Ritchie -- yes. Ritchie Somerville. 23 Q. A Council officer? 24 A. Yes. 25 Q. What has been put here is: 125 1 "To explain what decisions, it is currently believed, 2 will be required to allow for the implementation of the 3 Mediation resolution by the City of Edinburgh Council in 4 its role as client and funder. 5 "Decisions required: There are two authorities 6 required and an informative: 7 "1. The Council will be required to give tie Ltd 8 authority to allow for spend and commitments that will 9 exceed the current GBP546 million cap. This is not the 10 same as saying that they will spend more than 11 GBP546 million, but rather that potential commitments 12 exceed that figure." 13 A. Yes. 14 Q. "In relation to the previous commitments that the 15 Council has agreed, specifically those in the Council 16 Tram Report (24 June 2010), there is a requirement to 17 inform Council of any changes to the scope, programme, 18 or cost of the Project." 19 That seems to indicate quite firmly there's going to 20 need to be authority given by the Council which would 21 mean the members? 22 A. Yes. 23 Q. In the following paragraph, where it says "Approach 24 proposed", it is: 25 "The approach proposed is to prepare a Committee 126 1 report that sets out the broad outcomes of mediation, 2 seek authority that temporarily relaxes the provision of 3 the Operating Agreement (Scope, Price, Programme), and 4 either approves indicative potential spend from now to 5 September (Operation Phoenix) or seeks agreement to 6 Project Phoenix and all the related issues associated 7 with this." 8 A. Mm-hm. 9 Q. We see here, this is quite clear that it's talking about 10 the spend that would happen between now, that's March 11 and September, which would be the expenditure under 12 MoV4? 13 A. Yes. 14 Q. It contemplates that the matter would have to go to 15 Council. Do you recall discussing this and your view 16 upon this and how desirable that was? 17 A. I vaguely recall discussing it. Actually, I think this 18 is a really helpful note because it does set out the 19 steps and stages you need to take to make sure that you 20 stay within the governance parameters that we were 21 operating in. 22 Actually, I see at the foot of the page there, there 23 were two options. One was the Transport Infrastructure 24 and Environment Committee. I think the other one was 25 policy and strategy, and I think actually -- I think we 127 1 might have taken a paper to one or other of those 2 executive committees prior to the Council meeting. This 3 is ringing a vague bell here. 4 Q. I would like to look at the correspondence to see how 5 things unfolded? 6 A. Yes. 7 Q. Go back to the document I was looking at before, 8 reference TIE00687801. 9 We can see this is a letter to Dave Anderson as Tram 10 Project SRO? 11 A. Yes. 12 Q. It's dated 3 May 2011, if we scroll down, we can see 13 it's from Steve Bell within tie. 14 Do you see all that? 15 A. I do. 16 Q. If we look at the text of it, it says: 17 "We note that arrangements have been made by CEC to 18 enable payment solely based on the Hg Consulting 19 Certificate 1 for GBP27 million on Tuesday 3 May in line 20 with the agreed draft MoV4 concluded between CEC and 21 Infraco on 16 April 2011. This payment is planned 22 through the existing process of CEC making funds 23 available with it being paid to Infraco (Bilfinger 24 Berger and Siemens in this Certificate) through tie Ltd. 25 "This payment will be made on the basis of agreement 128 1 by CEC that they have the reasonable expectation that 2 MoV4 and the draft Certifier Agreement will be executed 3 as soon as they can convene a Council Meeting and that 4 the previously briefed risks are understood and accepted 5 for MoV4. We understand that Infraco have advised 6 HG Consulting that they intend to sign MoV4 in its 7 current form and will be sending a time bound offer 8 letter to confirm that." 9 Did you have any protections in place, if in fact 10 MoV4 wasn't signed, what was to happen to the 11 27 million? 12 A. I can't recall. 13 Q. If we look at the following paragraph: 14 "It is also noted that whilst such a payment does not 15 exceed the authorised actual expenditure of up to 16 GBP546 million delegated to tie via TPB, TEL and CEC, on 17 execution of MoV4 this will become a commitment to 18 a total project cost in excess of GBP546 million. 19 Consequently, in confirming agreement to pay Certificate 20 1, CEC confirm and accepts that this would take tie/TEL 21 outwith their current Operating Agreements with CEC once 22 MoV4 is signed." 23 Do you see that? 24 A. Yes. 25 Q. So Mr Bell's view, as the position appears to him on the 129 1 eve of this payment being made, on the day of this 2 payment being paid on 3 May, is that nothing has 3 changed, and tie in fact has no additional authority, 4 but he's seeking comfort? 5 A. Yes, and I think he's right to do that. 6 Q. If we look at what is said -- how this continues, if we 7 look at the document CEC02086879, if we look at the 8 lower half of the screen first of all, we can see it's 9 from Steve Bell, dated 3 May, to Dave Anderson: 10 "Dave, further to my email earlier this morning, and 11 our conversation a few minutes ago, please find attached 12 a letter confirming the arrangements discussed at the 13 meeting held in Waverley Court on Thursday 28 April. 14 The necessary treasury arrangements have been made to 15 facilitate the payment in line with HG Certificate 1 and 16 a CHAPS payment will be made on receipt of your 17 confirmation." 18 So that appears to be an email following -- 19 forwarding on the letter that we've just seen? 20 A. I see that. 21 Q. Then if we look further up the screen, we can see it was 22 forwarded on by Alastair Maclean to you on the same day, 23 saying: 24 "Can you have a look at this. Will pop down to 25 discuss." 130 1 There's handwriting there. Is it your handwriting? 2 A. No, it isn't. 3 Q. It says: 4 "Stitch-up. Alastair raging! This needs to be 5 responded to formally and quickly." 6 It looks like a stroke and an S? 7 A. I can guarantee that is not my writing. I don't know 8 whose it is, actually. 9 Q. Do you recall Alastair, Alastair Maclean being raging 10 about this? 11 A. Not particularly. But -- and I don't know who the 12 stitch-up is supposed to have been, whether it was -- 13 I don't know who is supposed to have stitched up whom. 14 But Alastair was copied into that original letter 15 from -- that original email from Steven Bell to 16 Dave Anderson, as was the Director of Finance and the 17 Chair of tie. 18 Q. Yes. I should have said at the foot of the letter it 19 did go to Donald McGougan and Richard Jeffrey. 20 A. Yes. So I don't know who is supposed to have stitched 21 up whom or why he was raging. 22 Q. But at this time it seems that there has been no 23 decision -- no formal Council approval to increase the 24 limits and that's why Steve Bell was seeking comfort? 25 A. That's what it looks like, yes. 131 1 Q. If we look at another email, which is TIE00687804, if we 2 go to the second page, first of all, we can see there, 3 just for completeness, that's the email from Steve Bell 4 that forwarded on his letter. 5 A. Right. 6 Q. If we go to the previous page, and look at the foot of 7 it, we find the reply from Dave Anderson, also dated 8 3 May, but sent before the time of Alastair forwarding 9 it to you, saying: 10 "Steven, thank you for this request. As agreed by 11 all parties at our meeting on 28 April (note attached) 12 the planned payment is to be made on the understanding 13 that MoV4 and the associated certification arrangements 14 are in train and that all the outstanding matters will 15 be concluded quickly. 16 "The decision to make the payment based upon the 17 valuation certificates provided by Hg was taken 18 collectively at that meeting and as SRO I can confirm 19 that I am content that it should now be implemented. 20 Dave." 21 If we just for completeness go up to the top of the 22 screen, there was a reply from Steven Bell saying: 23 "Dave, thank you for your confirmation to 24 implement." 25 Do you see all that? 132 1 A. I see that, yes. 2 Q. So what we seem to have here is the acknowledgement that 3 there has been no increase in the expenditure limits of 4 tie and TEL, but nonetheless the officers are giving 5 authorisation to go ahead. 6 A. And that -- I mean, you could read into it that that's 7 what Alastair was angry about. 8 Q. Yes, could be. 9 CHAIR OF THE INQUIRY: Could you explain that? What do you 10 mean by at that? 11 A. Well, it looks as if Steven has raised the concern, 12 quite rightly. If I was in his position I would want to 13 have that cover that there was authority to do this. 14 And it seems that there's been a discussion from this 15 paperwork, it looks as if there's been an agreement to 16 do that, involving Dave and Vic and whoever else was on 17 that -- and Donald McGougan. 18 Now, Donald McGougan is the Director of Finance who 19 would know what the limits of authority were. So in 20 terms of the Council's own standing orders, I cannot see 21 Donald McGougan authorising something that he wasn't 22 able to authorise within the rules. But whether 23 Alastair's ire was spiked because it was outside the, if 24 you like, the global discussion, I don't know. I would 25 have to speculate on that. 133 1 MR LAKE: If we look at one more thing just before the lunch 2 break. If we go to CEC02087172, we will start at the 3 foot of that first page, where we see an email from 4 Steven Bell to Carol Campbell. Carol Campbell was the 5 solicitor with the Council at the time. 6 A. She was, yes. 7 Q. It's dated 15 April 2011, its subject is draft letter to 8 CEC regarding TEL/CEC Operating Agreement, CEC/tie 9 Operating Agreement. What Mr Bell said is: 10 "I know you are busy on MoV matters today, but in 11 Nick's absence, I would appreciate a discussion on the 12 attached draft document before it is finalised. It was 13 discussed at the Tram Project Board and Vic Emery took 14 the action to write to CEC on behalf of TEL." 15 That's just to provide background. If we go back to 16 the top of the screen, we can see there's an email 17 forwarding this chain from Alastair Maclean to you, 18 dated 15 April, so the same heading. 19 It says: 20 "This is the matter we discussed the other day. 21 "If they seek approval you cannot give that without 22 Council approval as it would amend the TEL operating 23 agreement. 24 "Realistically we are not likely to sue TEL as it is 25 a wholly owned company of CEC for a technical breach of 134 1 the operating agreement as long as actual spend does not 2 go over 545/546 million. They should be able to take 3 a reasonable commercial view of this." 4 A. Yes. 5 Q. This is Mr Maclean taking the view really that there is 6 no ability of officers to give the approval that's being 7 sought; is that not plain? 8 A. Yes, I think Alastair's advice is good on this. 9 Q. From the earlier advice note we saw, the one you 10 recognised was good advice from 10 March, it said the 11 matter would have to go to the Council or a Council 12 committee. So there seems to be a consistent view from 13 Mr Maclean that officers simply cannot go ahead with 14 this. 15 A. Yes. 16 Q. But then from the email exchanges we saw involving 17 Steven Bell and Dave Anderson, it would appear that's 18 exactly what was done. They were told just to get on 19 and do it? 20 A. That is what appears to have happened, yes. 21 Q. Is that not a -- putting a coach and horses through good 22 financial governance at the Council? 23 A. It looks as if it has been, and -- yes. 24 Q. What is the justification for it? 25 A. Well, I don't know. You would have to ask 135 1 Dave Anderson. 2 Q. But these matters were being copied to you. Were you 3 not involved in them? 4 A. I was copied in retrospect, I think you'll find, if you 5 look at that. 6 MR LAKE: My Lord, that might be an appropriate time to 7 break for lunch. 8 CHAIR OF THE INQUIRY: We will adjourn for lunch and resume 9 again at 2.05. 10 (1.03 pm) 11 (The short adjournment) 12 (2.05 pm) 13 CHAIR OF THE INQUIRY: You are still under oath. 14 A. Yes, thank you. 15 MR LAKE: My Lord. 16 Dame Sue, we were looking at the question of the 17 authorisation, financial authorisation to proceed with 18 the MoV4 payments. 19 Could I ask you to look at another document, please. 20 It's reference CEC02087187. We can see this is 21 a letter. If we look at the second page, we can see who 22 it's from. 23 It comes from Dave Anderson. The first page, we can 24 see it is an addressed to Vic Emery, Chairman of TEL, 25 and it's got a date on it of 13 May 2011? 136 1 A. Yes. 2 Q. It says: 3 "Thank you for your letter of 6 May in which you set 4 out the GBP411.5 million expenditure incurred by the 5 Edinburgh Tram Project up to the end of period 13 and 6 note the value of the residual contingency funding 7 available to the project of GBP2.8 million including the 8 provision of the plus GBP1 million variance allowed 9 beyond the cap set in the TEL/CEC Memorandum of 10 Understanding. 11 "I welcome your assurance that the management of TEL 12 and tie will continue to minimise additional funding 13 commitments and to review expenditure on an ongoing 14 basis. 15 "The Council will receive a summary of the terms of 16 the priority works Minute of Variation (MoV4) arising 17 from mediation at their meeting on Monday, 16 May." 18 We've already seen the report that went to the 19 Council of 16 May. So would we understand that the 20 Council will receive a summary of the terms of the 21 priority works Minute of Variation; that is the elected 22 members that are being referred to? 23 A. Yes. 24 Q. "Our expectation is that the Council will, at this 25 stage, simply note the proposed programme of works set 137 1 out in MoV4 and defer decision on the future of the 2 project until the full details of the revised scope, 3 budget and programme are available." 4 Now, from that it appears that it is understood that 5 the Council will not be in any sense voting on MoV4. It 6 will just be noting it? 7 A. It seems that way, yes. 8 Q. It goes on: 9 "This matter will obviously be considered in full in 10 early summer, when full detail of the complete picture 11 of the full cost and revised programme for the Edinburgh 12 Tram Project will be reported. 13 "In the meantime, I would like to give you the 14 comfort that after consultation with the Council's 15 Chief Executive, Group Leaders, Director of Finance, and 16 Head of Legal Services, we will not be recommending any 17 action being taken in relation to any technical breach 18 of the operating agreement as a result of implementing 19 MoV4." 20 Do you see that? 21 A. I see that, yes. 22 Q. Give me one moment. 23 Now, when I asked you a question before lunch your 24 concern was that you were being questioned on matters 25 retrospectively. This seems to indicate that you were 138 1 involved in discussions and participated in the decision 2 to allow matters to go ahead and simply give an 3 assurance that no action would be taken in respect of 4 the breach of MoV4; is that what happened? 5 A. This -- in relation to -- if we tie this back into the 6 letter that Steve Bell sent to Dave, and then Dave 7 authorising the payment to give Steve Bell comfort that 8 that was okay, it looked as if I had been brought in to 9 that loop after the decision had been made. 10 This looks as if it's the solution that occurred 11 immediately after that to ensure that tie and TEL 12 wouldn't be considered to be, or wouldn't have any 13 action taken against them in relation to a technical 14 breach. 15 So yes, it says I was consulted. I'm sure I was. 16 Q. Were you involved in the decision not to seek approval 17 of the Council, but instead to give a comfort to tie and 18 TEL? 19 A. I can't remember. If it says I was, then let's take it 20 that I was. 21 Q. Can you remember why that was being done, rather than 22 getting Council approval? 23 A. No, I can't. At this time there was a huge amount of 24 activity going on. I was still in the first six months 25 of settling into the job as Chief Executive. I had 101 139 1 other things going on, and I can't remember. If that's 2 what it says, then I accept it. 3 Q. I'll ask you this. It's the second time. Was it not 4 the case that there was a concern that the matter 5 shouldn't be put before the Council in case they voted 6 it down and scuppered the entire Mar Hall deal? 7 A. And I'll answer it for the second time. I don't think 8 that was the case, but I can't remember. I can't 9 remember why we wouldn't have put it to the Council. 10 Clearly there was a briefing to Council that week, and 11 clearly, as you can see from Dave's email, group leaders 12 were involved in what was going on. So there wasn't any 13 attempt at obfuscation. We were just dealing with 14 a huge amount of business at the time. 15 So I have to take it at face value. I can't 16 remember what we were doing precisely. 17 CHAIR OF THE INQUIRY: Can I just understand the mechanics 18 of paying money to the contractor or whoever. 19 It would be tie or TEL who would make the payment; 20 is that right? 21 A. Yes, I think so. 22 CHAIR OF THE INQUIRY: But they didn't have any funds, so 23 they would come to Edinburgh and Edinburgh would, 24 I suppose, make the arrangement for the money to be 25 transferred; is that the way it would work? 140 1 A. The Government would have granted the Council and the 2 Council would have funded tie. That is how I understood 3 it would have worked in terms of the original grant, 4 yes. 5 CHAIR OF THE INQUIRY: But as between the Council and tie, 6 the agreement was that tie had authority up to 7 546 million, and if bills came in within that limit, 8 what was the mechanism -- you will maybe not know -- 9 what was the mechanism of payment? Would tie have 10 a bank account which they could pay the money out of or 11 would they have to sign a certificate which then the 12 Director of Finance would -- of Edinburgh would send 13 a cheque? 14 A. I can't recall. Those kind of questions would be best 15 directed to the Director of Finance. 16 CHAIR OF THE INQUIRY: Thank you. 17 MR LAKE: I would like to move on to a slightly different 18 matter now, and it's looking at the on-street price. 19 Now, we've seen that in the key points document, it's 20 noted as being GBP39 million. I don't know if you 21 recall that. 22 A. No, carry on. 23 Q. When things finally end up into the Settlement Agreement 24 or MoV5, it was known by both names, the price for the 25 off-street works had risen by that time to 141 1 GBP47.4 million. Do you know what the reason was for 2 that increase? 3 A. For the off-street works? 4 Q. Sorry, for the on-street works between Haymarket and 5 York Place. 6 A. It's possibly because of the addition, the original sum 7 was, I think, predicated on the tram terminating at 8 St Andrew Square, and because there wasn't facility for 9 a switchback, there had to be an extension round to 10 York Place to accommodate a terminal point tram stop and 11 a switchback. So that is possibly the cause of that. 12 Q. Another matter still relating to the on-street works, 13 but not quite the overall increase. Could we go to 14 document TIE00688914. 15 This is an email chain. I think it's easiest if we 16 take it in chronological order, so start on page 4. 17 We can see here an email from Dennis Murray to 18 Alan Coyle? 19 A. Yes. 20 Q. I should perhaps have established at the start, the 21 email does end up with you. 22 But what we see here from this email on page 4 is 23 under the heading "Re Siemens" and a date of 8 July, 24 Dennis Murray says: 25 "Alan, a brief note on this matter is as follows. 142 1 "I had been invited by Axel to comment on the 2 Siemens proposal for the Target Sum for on-street works. 3 The price was submitted as GBP20 million. 4 "My estimate using the Contract Price Analysis for 5 the on-street works was just over GBP4.5 million. I had 6 many technical questions prepared for discussion with 7 Axel suggesting that the on-street price was not 8 correct but it became clear in our discussions that the 9 price difference was for reasons other than the actual 10 price to carry out the on-street works. 11 "At the meeting with Axel yesterday he explained 12 that he had priced all Siemens project resources from 13 September 2013 to May 2014 as if it were an Extension of 14 Time claim to cover the total programme movement from 15 the Project Phoenix proposed end date (September 2013) 16 to the current Revision 3a programme end date 17 (May 2014). This programme shift however is not solely 18 representative of the on-street works. It picks up an 19 overall programme shift from the off-street works which 20 ought to be included in the lump sum Settlement price. 21 The resulting price is therefore not only for carrying 22 out the on-street works. 23 "Having established this fact, Axel went on to say 24 that it was his understanding that the agreement at 25 Mar Hall was such that any programme movement would be 143 1 picked up in the on-street Target Sum and illustrated 2 the following: 3 "Phoenix Siemens Price was circa 140 million. 4 "Agreement at Mar Hall reduced to GBP126 million. 5 "A reduction of GBP14 million. He believes that the 6 reduction was on the understanding that the cost of any 7 programme shortfall was to be picked up in the on-street 8 Target Sum price." 9 I think it's quite clear what's being said there. 10 Do you recall this being raised with you? 11 A. Not really, but if it's written in writing, then it 12 obviously was. 13 Q. Just follow it through. We can see if we go back to 14 page 4, above the email which I have just read, which 15 went to Alan Coyle, there's a note: 16 "Steven, copy of my response to Alan Coyle on Friday 17 for your information." 18 If we carry on reading up, we can get to page 2 19 actually, to find out that the Steven in question is 20 Steven Bell, because on the second half of that page we 21 can see on 15 July 2011, Steve Bell wrote: 22 "Dave/Colin, Dennis and I raised this matter at the 23 Commercial meeting on Wednesday and Dennis met 24 Alfred Brandenburger and Axel Eickhorn on Thursday 25 morning again to further amplify our concerns regarding 144 1 the Siemens submission. Nothing discussed causes us to 2 change our view that there is no supporting argument for 3 approximately GBP14 million of the price based on our 4 understanding of the Mar Hall agreement." 5 Again, does this ring any bells? 6 A. Vaguely, in the background. This level of discussion 7 would have taken place within the project team. 8 Q. Could I just ask you, as the person at Mar Hall, was 9 there any understanding that if Siemens had reduced 10 their price for off street by GBP14 million, that that 11 was to be put on to the on-street instead? 12 A. I can't really recall. My understanding or my 13 recollection was that the on-street was to be a measured 14 term contract, and that we subsequently asked the 15 consortium to put that back out to tender, to make sure 16 the costs were as low as possible. 17 So this is years ago. I've got vague memories of 18 it, but I couldn't kind of pull up the detail 19 particularly. 20 Q. We will follow the email through in brief, rather than 21 detail, then. If we continue reading up the page, just 22 to establish where things went, Dave Anderson then 23 emails back to Steve Bell. Further up, we see 24 Steve Bell forwards it on to Vic Emery. 25 Then if we go on to the first page, you can see this 145 1 time it is it's from Vic Emery? 2 A. To me. 3 Q. "Dear Sue"? 4 A. Yes. 5 Q. If we go right down the page, please: 6 "Dear Sue, I am sure you will have seen this, but 7 below is the email trail over the Siemens increase in 8 GBP14 million for the on-street works. 9 "This is an undisguised attempt to recover, out of 10 the on-street works, the GBP14 million that they 11 conceded as a settlement at Mar Hall for Airport to 12 Haymarket. 13 "In a private discussion between Dennis Murray and 14 Axel Eickhorn (Siemens), Axel openly stated that this 15 GBP14 million was a recovery of their 'losses' as 16 a result of the Mar Hall negotiations. 17 "This behaviour undermines the whole basis of 18 goodwill between the principals." 19 We see your response of 24 July is above that: 20 "Thanks Vic. We need to dig in on this one. It is 21 a contradiction with the overt agreement. Will catch up 22 with you tomorrow probably." 23 It's quite clear from your response there that you 24 are extremely unhappy at the extent to which Siemens 25 are -- 146 1 A. I would have been if they were trying to recover costs 2 that we had previously agreed not to be in, yes. 3 Q. We can see from the chain as a whole that Dennis Murray 4 had priced this element of it at GBP4.5 million? 5 A. Mm-hm. 6 Q. Ultimately, if you could take it from me for the moment, 7 that Siemens settled their sum at GBP14 million, that 8 was their contribution to the on-street works. That 9 seems in fact a very large concession was made to them. 10 Were you involved in that? 11 A. I probably wouldn't have been involved in the 12 negotiations, but that was one of the reasons that Vic 13 was a valuable member of the team, because he had really 14 strong contractual negotiating skills, knowledge and 15 experience. 16 Q. In relation to the negotiation, if we look at another 17 document, it's TIE00691425. You could take it from me 18 this was a document prepared by Dennis Murray to provide 19 a commentary on the on-street pricing. Do you recall 20 ever having seen this? 21 A. I've got no idea. I might have done. I couldn't say. 22 Q. What I want to do is read you something right from the 23 end of it, and see if it accords with your recollection. 24 Can you go to page 4. 25 In fact it probably would be easier for context if 147 1 I start with page 3. 2 And read from "Siemens Price", the sub-heading: 3 "Siemens submitted an On Street price of 4 GBP20 million. Large amounts were included for Extended 5 Prelims which basically filled the gap between their 6 Project Phoenix proposals end date and their On Street 7 programme. Essentially Siemens sought to recover 8 prelims values that were already deemed included in the 9 lump sum for off-street. This was highlighted by tie 10 and Siemens reduced their submission to GBP14 million. 11 Siemens then responded to all of the detailed queries 12 posed by tie however there are still many issues that 13 remain illogical and a lot of detail missing. There is 14 no attempt to correlate programme with resources for 15 each section of work." 16 We can see there is the detail of the principles of 17 concern set out. If I can go over the page, 18 Dennis Murray says: 19 "tie responded with a further commentary and this 20 was briefly discussed at the commercial meeting on 21 10 August 2011 when Siemens stated that they have 22 arrived at a price for the works and there was to be no 23 further reduction. Infraco confirmed at this meeting 24 that the price was the price and if we do not like it 25 then we could find another contractor. Given this lack 148 1 of further communication tie has compiled a price using 2 the information provided and this is detailed in the 3 attached spreadsheet." 4 Were you made aware of that sort of discussion, 5 where ultimately the consortium said: that's our price, 6 if you don't want to pay it -- 7 A. I would probably have been given the headlines. 8 I wasn't involved in the commercial meetings. There was 9 a team that did this kind of negotiations. But that 10 would probably have been brought out in a summary 11 meeting. I would have been briefed. The leader of the 12 Council would have been briefed and so on. 13 Q. In that Siemens and Bilfinger did do the on-street 14 works, we seem to take it that ultimately tie and the 15 Council gave in to their demands. Do you know why that 16 was done? 17 A. No. 18 Q. Was that in a sense reflective of the overall picture 19 that had emerged, that because by the time you came in, 20 tie were in a position that was poor with no negotiating 21 levers, they just had to pay what was demanded of them? 22 A. I think -- I mean, it's absolutely the case that the 23 position was very poor. The Council/tie, Council's side 24 negotiating levers were very weak. As was -- the 25 consideration here would have been: what is the 149 1 alternative? 2 But efforts were made, and I know Vic was -- was 3 very dogged in his pursuit of a better deal. But we 4 were where we were, and the alternative, I would think, 5 if Siemens had walked, would be to reprocure, and then 6 you are into an open-ended envelope. 7 So it was -- it was a difficult time. I wouldn't 8 say we gave in, rolled over to them, though. I think 9 the discussions were -- I know the discussions were very 10 robust. 11 Q. Would a fair summary be that tie and the Council paid 12 more than might have been an objectively justifiable 13 value of the works, because the value to the Council in 14 getting the works done justified it? 15 A. I think the price that we ended up with reflected all of 16 the circumstances. 17 Q. Mm-hm? 18 A. If you'd been starting off at day one and redesigning 19 this with a completely blank sheet, you might have ended 20 up with a different outcome. But we were in the middle 21 of a giant mess. The city was hurting badly. The 22 economy was suffering. We had -- the public was 23 suffering. 24 So the Council were weighing up -- it wasn't just 25 the cost. It was also the opportunity cost in the city, 150 1 and there were other costs attached to this. People -- 2 you know, businesses suffered, householders suffered. 3 All sorts of things suffered, and those costs aren't 4 included in these costs because they're borne elsewhere. 5 So when the Council was making its mind up about how 6 to extricate itself from this mess or take it to the 7 next stage and get moving, get delivered, get out of 8 there, get the place back to normal, there was the 9 ultimate price of the contract, which was the Council 10 was over a barrel to some extent with not a lot of 11 places to go on it. 12 Had we decided to terminate and reprocure, you would 13 have no idea what the reprocurement costs would be 14 because I think people could have held us even further 15 to ransom because it was such an undesirable, difficult 16 project. So potentially it could have cost more. 17 So when the Council was arriving at its decisions 18 and I was giving advice, there was the technical nuts 19 and bolts of the contract and all of the plethora of 20 advice we'd had from all the technical people, the 21 finance guys, the quantity surveyors, all of those 22 people; and then layered on top of that was this huge 23 pain that the City of Edinburgh was going through in 24 terms of its everyday life, its movement of traffic, the 25 impact on shops, on householders and so on and so forth, 151 1 and that cost has never been quantified in all of this. 2 Q. Could we look at a document CEC01890994. This one is an 3 agenda. It's a pack of papers beginning, I should say, 4 with an agenda for a joint project forum meeting to take 5 place on 12 December 2011? 6 A. Yes. 7 Q. This was the senior of the governance bodies taking 8 matters forward after Mar Hall; is that right? 9 A. Yes, that's right. 10 Q. What I would like to do is look at page 3, which is 11 minutes of the previous joint project forum meeting. We 12 can see these are the minutes of the meeting of 13 17 November 2011, and that you were present at that? 14 A. Yes. 15 Q. Going on then, please, to page 5, if we look at the 16 upper half, under the heading, "Governance Project Team 17 Structure, Resourcing and Behaviours", there's 18 a sub-heading, "Certification, Working Decisions and 19 Agreements"? 20 A. Yes. 21 Q. It says: 22 "Colin Smith highlighted that relationships between 23 parties had drastically improved from the situation 24 before Mar Hall. 25 "Martin Foerder [from Bilfinger] agreed that they 152 1 were building a good relationship with Turner & Townsend 2 but there was a concern over their interpretation of the 3 contract and the challenges that were being raised 4 regarding the contract. It was felt that they either 5 did not understand the contract or did not have a good 6 working knowledge of the terms of the contract. 7 "Sue Bruce noted that this did not sound like the 8 current client instructions to Turner & Townsend and it 9 was the Council's intention to constantly review and 10 hone the Project's arrangements to increase efficiency 11 and increase the good working relationships." 12 The decision is, the first thing is to agree that 13 CEC would review and discuss client instructions with 14 Turner & Townsend. 15 Second, to hold a briefing session on the terms of 16 the contract with Turner & Townsend. 17 Now, it seems here that Turner & Townsend have in 18 some sense challenged Bilfinger's interpretation and are 19 being told that this was not the client instruction. 20 What was the instruction to Turner & Townsend in general 21 then? 22 A. What -- if -- this really has its roots back in what we 23 found when I joined the Council when we went to 24 mediation, was that the relationship between the 25 consortium and all the parts of the Council, so include 153 1 tie in that, was -- there was a hostile relationship 2 between the two parties. Things had broken down. Works 3 had ceased. We then went to mediation, and one of the 4 things that came out of mediation was that we were the 5 client. They were the contractor. And the roles and 6 responsibilities and accountabilities to be clear. 7 But we didn't just want -- we didn't just want the 8 relationship to be confined to those two hard elements. 9 What we wanted to have was the will, the behaviours of 10 people all contributing to the greater good of the city, 11 as it were, and it was agreed that the way things were 12 conducted in future had behavioural rules attached. So 13 there would be openness and transparency within each 14 side, but also as much as possible without breaching 15 contractual lines between parties as well. So that if 16 we said we wanted something done, there was an 17 understanding about why it was done or if the contractor 18 raised something with us, there was an understanding 19 about that. 20 When Turner & Townsend came in, and we brought them 21 in, with permission of the Council, to give project 22 management capacity, it was bearing in mind this was 23 still a Council doing all the generic things that 24 a Council does, and one of the things that we felt we 25 clearly needed was that additional expert capacity to 154 1 project manage. 2 But they were still working to the client, the 3 project owner who was the Council. 4 And that -- we didn't want the contract to be just 5 boiled down into two parties having hostilities at 6 times. What we were trying to do was get a behavioural 7 tone, which meant that if there were issues, we brought 8 them to the table to the joint project forum and 9 discussed them, rather than immediately run to polar 10 positions and go into adjudication or something like 11 that. 12 To be fair, Turner & Townsend are a global company, 13 hardnosed in what they do, and they were less bothered 14 about the behavioural nuances than the Council was. And 15 that was what this was about. 16 There were also things on -- issues on health and 17 safety. So we had, as a Council, as a public body, we 18 were wanting to be seen as upholding the highest 19 standards possible on public safety, health and safety 20 on the site, and so on and so forth. And occasionally 21 we intervened and got the managers together to say that 22 there had been too many health and safety issues, and at 23 one point we threatened to fire one of the 24 subcontractors, because we were dissatisfied with the 25 health and safety record. 155 1 They got the message. They did toolbox talks and 2 after that things improved. 3 So it was about the delivery of the contract, the 4 ultimate shape of the contract within the set time and 5 within the set money, but it was also about remembering 6 you're working in a living, working city that's been 7 badly sort of affected by this project. So the 8 behaviours all round matter about how we do our 9 business, how we communicate, how we put our face on to 10 the public and so on. 11 Q. Leaving aside the public and the health and safety 12 aspect and coming back to this particular aspect, as you 13 said, Turner & Townsend were your engaged project 14 managers? 15 A. Yes, they were. 16 Q. It seems to be what's happened is they have a view as to 17 the interpretation of the contract and were raising 18 challenges in relation to that with the contractor? 19 A. Yes. 20 Q. The impression is given here that they were going to be 21 told by the Council to back off. 22 A. I think this -- from memory, this was around this 23 behavioural thing. Turner & Townsend also challenged 24 the contractors and we -- were well supported by us. So 25 there was something going on here. My recollection is 156 1 it was around that kind of making sure the -- if you 2 like, the tenor of the contract wasn't reduced down to 3 just two hostile sides, that the tenor of it was held in 4 a constructive sort of forward looking way. 5 Q. But there's nothing here in this minute about the tenor 6 or nature of communications. It's not said that 7 Turner & Townsend were being hostile or something. It's 8 simply that they are raising a query, no doubt in their 9 professional capacity, about the interpretation of the 10 contract. Contractors are coming to you and 11 complaining, and the Council are telling 12 Turner & Townsend to back away from it. 13 A. No, what we said, we would hold a briefing session with 14 Turner & Townsend on the terms of the contract, is what 15 that says. 16 Q. Look at another document. It's reference CEC0194 -- 17 A. That doesn't at any time tell Turner & Townsend to back 18 off. It says it will hold a briefing and review and 19 discuss the client instructions with them. 20 Q. What it does say is that challenges have been raised 21 regarding the contract and concern over the 22 interpretation, and you say that's not their 23 instructions. Were they instructed not to raise 24 concerns if they had them? 25 A. No, they weren't. They could raise concerns if they had 157 1 them. 2 Q. If Turner & Townsend in their professional capacity had 3 a view as to the interpretation of contract, and as 4 project managers it was appropriate to challenge the 5 contractors, would you not expect them to do so? 6 A. You would do. So there's obviously been something 7 behind this that has caused us to reflect on it. And in 8 fact, the senior man from Turner & Townsend in the UK 9 came to meet us at some point. I can't remember if it 10 was then or later. To discuss -- we asked him to come 11 up so that we could have a round the table with him to 12 go through our understanding of what the Council's 13 interests were, their understanding of their 14 instructions from the Council, and also their role. 15 But they were absolutely there to ask questions. 16 Q. Was the Council's real concern here to get the project 17 finished, not to raise any fine points about the 18 contract? The most important thing was to get the tram 19 built? 20 A. But it wasn't at any cost. We had questions about the 21 contract at times. And -- or the delivery of the 22 contract. So yes, asking questions was fine. Whatever 23 the context of this was, there was clearly an issue that 24 needed just to be illuminated. 25 Q. Do you recall there being a claim by the contractors for 158 1 additional monies because the signature of the 2 Settlement Agreement MoV5 was delayed by the Haymarket 3 vote and the need to put it right? 4 A. Yes, I remember that generality of that. 5 Q. Colin Smith as independent certifier said that the 6 contractor should be paid additional money if they could 7 provide the necessary vouching. 8 A. Well, if it -- if the decision of the Council caused 9 a prolongation, then they were probably entitled to that 10 under the contract. 11 Q. As it happened, what happened is the contractors didn't 12 provide the necessary vouching, but the Council 13 ultimately gave a direction that they should be paid 14 anyway. Do you recall that? 15 A. No, I don't. I would have expected there to be the 16 vouching behind it. 17 Q. If we look at CEC01942260, this is another minute of 18 a joint project forum meeting, this time from 19 20 March 2012. Once again we can see you were chairing 20 it. Do you see that? 21 A. I do, yes. 22 Q. If we could look on to page 4, please, and item 3 under 23 the same heading of governance: 24 "Sue Bruce highlighted the achievements of the last 25 year since mediation. The improved relationship was 159 1 a key factor in what had been achieved. There had been 2 occasions where Turner & Townsend's approach had caused 3 some tension and further discussions would be held with 4 Turner & Townsend to clarify that the Council expected 5 the Project to continue in the spirit of the Settlement 6 Agreement." 7 A. That's right. 8 Q. Is that not once again reining Turner & Townsend in? 9 A. No, that was reminding them that we didn't want to 10 revert to hostilities, that there were -- if there were 11 issues, we wanted them to get round the table and 12 discuss them, and that was -- that was probably the 13 point at which their senior man came up and met with us. 14 Q. What did you say to him? 15 A. We just explained where we'd been. Over the course of 16 time, the effort that had been made by the Council to 17 get this thing back on track. That, you know, we 18 just -- we talked him through why we were where we were, 19 and that we didn't want -- if there were issues, we 20 didn't want them to revert straight to hostilities. We 21 wanted things brought back round the table for 22 discussion. 23 Q. Did he undertake to do anything as a result of your 24 meeting with him? 25 A. Yes, he did. He was happy with that. 160 1 Q. What did he say he would do? 2 A. I think he instructed or he spoke to his man, who 3 I think was Julian somebody. 4 Q. Julian Weatherley? 5 A. Yes. Julian understood, but there was no diminution of 6 Turner & Townsend's role. They were being paid by the 7 Council to do a job for the Council. It wasn't in the 8 Council's interest to neuter them. But what we wanted 9 was that they did their job in a manner that if things 10 were getting difficult on the ground, we didn't want 11 them to break things down into the hostilities again. 12 We wanted them to bring things back to the table, so you 13 could get people round and work out what the issues were 14 and take them forward. 15 Q. The issues that caused concern, did you -- that would 16 have just been Turner & Townsend performing their role 17 as they would for any contract employer that engaged 18 them? 19 A. Well, I suppose it depends on what their employer 20 specifies, and our specification was we wanted delivery 21 of the contract. We wanted it done as efficiently and 22 effectively and all the rest of it, but we also didn't 23 want an outbreak of war again. 24 Q. Would it be fair to say you wanted to avoid disputes at 25 all cost at this phase of the project. 161 1 A. Not at all costs. If the contractors had come back and 2 laid down some ridiculous demands on us, we probably 3 wouldn't have agreed it. What we said is: we think it 4 is possible to make progress without any further 5 cessation of works, if people act like grown-ups and get 6 around the table and bring all the parties together if 7 there's an issue. 8 Q. If there were demands that were less than ridiculous 9 demands, as you put it, the Council preference is: don't 10 fight with the contractor, just get the works done? 11 A. No. There were things that Turner & Townsend brought 12 back as recommendations that we were happy. I can't 13 remember specifics, but we had regular huge briefings 14 from Turner & Townsend where they showed us where they'd 15 made -- you know, they'd driven things in particular 16 ways and so on. 17 So ... 18 MR LAKE: Thank you, Dame Sue. I've got no further 19 questions. 20 Questions by CHAIR OF THE INQUIRY 21 CHAIR OF THE INQUIRY: Could I go back to earlier questions 22 you were asked about arm's length companies. 23 A. Yes. 24 CHAIR OF THE INQUIRY: You say that it's not -- it wasn't 25 unusual, and probably still isn't unusual for local 162 1 authorities to use arm's length companies, but was there 2 some -- was there a difference here? First of all, did 3 arm's length companies not usually have a source of 4 income independent of the Council? 5 A. I suppose it would depend really -- some arm's length 6 companies, and if I think of EDI, for example, in 7 Edinburgh, which was a development company, EDI 8 initially, if I recall this right, generated income. So 9 the Council would dispose of property perhaps. The 10 capital sums available in association with the 11 development would be left to EDI to develop. Things 12 like that. 13 Another arm's length company that springs to mind, 14 in -- a number of councils have got arm's length 15 companies for their leisure facilities. So they have 16 taken them out of co-Council running, and they run them 17 as -- so Glasgow Life, for example, runs museums and 18 arts and culture in Glasgow. 19 So the budget that would have sat within the Council 20 goes to that company as their budget, but they then can 21 generate income on top of that to help run the company. 22 There's a range of different models of arm's length 23 companies. 24 CHAIR OF THE INQUIRY: You see, I think EDI started just 25 before the joint venture with -- I think it was Marks & 163 1 Spencer for the Gyle. 2 A. Right, yes. 3 CHAIR OF THE INQUIRY: At that stage the city, as 4 I understood it, passed over to EDI. It was obviously 5 easier for a company to enter into joint ventures and 6 develop the Gyle shopping centre. 7 A. Yes. 8 CHAIR OF THE INQUIRY: But as I understand it, the land 9 which belonged to the Council was transferred to EDI so 10 that it had the assets of land, and it was then able to 11 borrow in the market to enable it to do this exercise. 12 A. Yes. 13 CHAIR OF THE INQUIRY: Then, as time went on, it had funds 14 that it could to continue to operate and to develop the 15 property. 16 But here, as I understand it, tie really didn't have 17 that facility. The initial idea, as I understand it, 18 was that tie was supposed to have the revenue from 19 congestion charging and that would be its source of 20 borrowing money and what have you. But when the 21 congestion charging was rejected, tie was really 22 a company with no assets -- 23 A. Yes. 24 CHAIR OF THE INQUIRY: -- and was totally dependent on the 25 Council. 164 1 So what was the advantage in using tie to deliver 2 this contract when it really had to get its entire 3 funding from the Council? 4 A. I think -- and this is just my own view, having not been 5 involved at the start of tie, but as I understand it, as 6 you've described it was exactly how they intended it to 7 be, and I believe that they were involved in the Alloa 8 railway line development. So the idea would be that 9 they would deliver big infrastructure projects and earn 10 money and create capital that could be reinvested and 11 they would earn more accordingly. 12 I think you've actually, with respect, hit the nail 13 right on the head there. Once tie wasn't able to 14 generate any more external income, they simply became 15 a mechanic to manage the delivery of the project on 16 behalf of the Council. 17 I -- you know, I think it was a really difficult 18 project to deliver. There's no doubt about that. It 19 was really complex, unusual, and I think it just -- it 20 was overwhelming at the end of the day. And when, post 21 mediation, the Council decided to close down tie and 22 take back control of the project, it -- there was a much 23 shorter line of distance, if you like, between the 24 project owner and those delivering it. So the 25 accountability route was completely visible. But then 165 1 we had to bring in Turner & Townsend to provide that 2 project management capacity because tie had been the 3 previous project managers. 4 CHAIR OF THE INQUIRY: So if there was another project as 5 complex as a tram project or as costly as half a billion 6 pounds plus, do you consider that it would be 7 appropriate or not to use a wholly owned company to 8 bring that to fruition? 9 A. Good question. In principle there's no reason why you 10 couldn't, but I think the responsibility and 11 accountability has to be fully understood and the 12 knowledge and experience has to be appropriate for the 13 project. And I think the knowledge and experience in 14 tie was -- it was heavy rail experience. There's no 15 doubt there were really clever, qualified engineers in 16 there, but somewhere along the lines it's gone awry. 17 When we brought it back in and surrounded ourselves 18 with a fresh set of experts, as it were, we -- the 19 Council, I don't think, could have done that without 20 bringing in the additional resource of all the experts 21 that we surrounded ourselves by, simply because it was 22 outside our scope of experience. 23 So it could be done either way, but I think the 24 project owner would want to be satisfied that all of the 25 parts were in place, the governance arrangements, how 166 1 the contract was managed and so on and so forth. 2 So in principle it could be done with an arm's 3 length company, but one would want to satisfy oneself 4 that all of those necessary parts were in place. 5 CHAIR OF THE INQUIRY: If the Council didn't have the 6 expertise within its body to undertake such a contract 7 and had to use some mechanism, then a wholly owned 8 company, with no assets and no track record as such as 9 a company, would you advocate that was the appropriate 10 course? 11 A. Not particularly. I mean, an alternative route would 12 have been to contract it out as a design and build. We 13 know -- we've had discussions about that in relation to 14 the Parliament. So I think it is a case of 15 understanding the scope and all of the things that can 16 go right, but also all of the things that can wrong with 17 the project in trying to build a delivery mechanism 18 that's best suited to do that. 19 CHAIR OF THE INQUIRY: There's an opportunity for public 20 bodies to share expertise. I think Edinburgh could go 21 to Glasgow or vice versa to get assistance in terms of 22 the legislation. 23 Do you know whether that provision would include 24 going to central government for the expertise within 25 central government to assist with the project? 167 1 A. Certainly there is the facility for conversations to go 2 on to look for advice. 3 So if I can draw an analogy, one of the things that 4 I was -- that came across my remit just almost -- well, 5 it crossed over trams, was the Mortonhall issues, and we 6 actually worked quite closely with government in working 7 out the solutions to that. Government had their own 8 inquiry, we had our own inquiry, and eventually we 9 brought the two parts altogether, along with the health 10 board actually and the industry, and parents and so on 11 and so forth. 12 So there is always the opportunity to go and ask. 13 Government might say, sorry, we can't do this, or we'll 14 let you have resources, but you need to pay for them. 15 So there is always someone you can go to ask for help if 16 you need it. 17 CHAIR OF THE INQUIRY: Do you think there are any projects 18 in the public sector which are too expensive or too 19 complex that should not be entrusted to local 20 authorities? 21 A. I think it's -- it's an interesting question. 22 I think if -- if local authorities do their due 23 diligence and their funding is correct and all the rest 24 of it, I don't see why they can't do whatever it is they 25 want to do. But they need to have the headroom to be 168 1 able -- have the capacity to do whatever it is they're 2 being challenged with at the time. 3 So in principle there's no reason why they shouldn't 4 be able to do it, as long as they gear themselves up 5 properly. 6 So when I came to Edinburgh, I was -- I'm not 7 a civil engineer. I'd never delivered a project like 8 this before and I wasn't the technical expert in here. 9 But we made it work because collectively we got the 10 appropriate expertise round about us. And I think, you 11 know, it was -- the tram project was set up in goodwill 12 and, you know, it went where it went by accident rather 13 than design. 14 CHAIR OF THE INQUIRY: I don't think anyone else has 15 indicated questions. 16 Well, thank you very much, Dame Sue. That concludes 17 your evidence. Technically you're still subject to your 18 citation and we could recall you, but hopefully that 19 won't be necessary. Thank you for your attendance. 20 A. Thank you very much. Thank you. 21 (The witness withdrew) 22 CHAIR OF THE INQUIRY: We will adjourn until tomorrow at 23 9.30. 24 I understand that the note that I mentioned 25 yesterday has been circulated and is on the website. 169 1 MR LAKE: My Lord, you say we'll adjourn until tomorrow at 2 9.30. I think -- is it next Tuesday we have 3 Graeme Bissett and Stewart Stevenson? 4 CHAIR OF THE INQUIRY: Sorry, yes. I thought we were 5 sitting tomorrow. I beg your pardon. 6 So we will adjourn until next Tuesday at 9.30. 7 (2.50 pm) 8 (The hearing adjourned until Tuesday, 20 March 2018 at 9 9.30 am) 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 170 1 INDEX 2 PAGE 3 DAME SUE BRUCE (affirmed) ............................1 4 5 Examination by MR LAKE ........................1 6 7 Questions by CHAIR OF THE INQUIRY ...........162 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 171