1 Thursday, 24 May 2018 2 (9.30 am) 3 CHAIR OF THE INQUIRY: Good morning. I think, Mr Barne, 4 you're next. 5 Closing submissions by MR BARNE 6 MR BARNE: Good morning, my Lord. Today I shall confine 7 myself to the discrete issue of Transport Scotland's 8 withdrawal from the Tram Project Board. 9 This was an issue of some interest to the Inquiry 10 and it is addressed in chapter 3 of the Ministers' 11 written submission. 12 My submissions on this point shall cover firstly the 13 factual context to the decision, secondly, the vote in 14 the Scottish Parliament, thirdly, the decision itself, 15 and fourthly, the attacks that have been made in 16 hindsight on the decision. 17 Of course, as principal funder of the project, the 18 Scottish Ministers were involved throughout. However, 19 in light of the exchange of written submissions, the 20 Scottish Ministers would note that there has been very 21 little raised by the other core participants about the 22 Ministers' involvement in the project, other than in 23 relation to the withdrawal of Transport Scotland. 24 Even on that issue, those points that are made are 25 brief, unspecific, and speculative. 1 1 Before proceeding further, I thought it might assist 2 if I clarify an issue that was raised yesterday, and 3 that is whether or not Transport Scotland should be 4 treated as a legal entity, distinct from the Scottish 5 Ministers. 6 Transport Scotland is an Executive Agency of the 7 Scottish Ministers and not a distinct legal entity. In 8 this Inquiry, I represent the Scottish Ministers, and it 9 is the Scottish Ministers, and not Transport Scotland, 10 who are the core participant. 11 However, in the context of the tram project, it was 12 frequently Transport Scotland's staff and 13 Transport Scotland as an organisation that were the 14 relevant actors. As such I will sometimes refer in my 15 submission to the Scottish Ministers and sometimes to 16 Transport Scotland, depending on the context. 17 With that clarification made, I shall now turn to 18 the decision to withdraw Transport Scotland by first 19 considering the overall context. 20 In March 2003, the Scottish Executive guaranteed the 21 future availability of GBP375 million of Central 22 Government funding for the Council's Integrated 23 Transport Initiative. It was at that stage only 24 a commitment in principle. 25 Actual funding was dependent on a suitable Business 2 1 Case being made out. 2 tie then set to work developing the Business Case. 3 This passed through a number of iterations which 4 received input from various sources, including from 5 Government officials. By early 2006 matters had 6 progressed sufficiently for the Scottish Executive to 7 tell the Council that it was prepared to agree to an 8 index-linked increase to the in principle funding in 9 receipt of an acceptable Business Case. By August of 10 that year revised arrangements were put in place for the 11 Tram Project Board to reflect the stage the project had 12 reached. 13 Bill Reeve of Transport Scotland was given a place 14 on the Board with the power to make certain decisions on 15 behalf of the Scottish Ministers. Some decisions were 16 retained by the Scottish Ministers, including any 17 decision to increase funding beyond the total of the 18 grant already offered to the Council. 19 This arrangement is explained at paragraph 6.15 of 20 the Draft Final Business Case. 21 At the time these changes were made, it was noted 22 that further changes to the Tram Project Board might be 23 required in due course. This is also recorded in the 24 Draft Final Business Case at paragraph 6.2 and it is in 25 these terms: 3 1 "It is anticipated that a revised structure will be 2 required to execute the construction phase of the 3 project." 4 Throughout this period Transport Scotland was 5 assisting the Council to develop its Business Case. 6 Transport Scotland was playing what was described as 7 a partnering role. But I must emphasise that this 8 engagement was part and parcel of developing the 9 Business Case. Transport Scotland's involvement in 10 developing the Business Case did not imply that it would 11 be directly involved in project delivery, and no one 12 suggested it would be involved in project delivery. 13 The Draft Final Business Case was finally provided 14 to Transport Scotland at the end of 2006. This was 15 reviewed by Transport Scotland, both internally and with 16 the assistance of Transport Scotland's independent 17 advisers. 18 Transport Scotland provided tie with a formal 19 response that identified residual areas of concern. The 20 advice Transport Scotland received was that the 21 benefit-cost ratio for the project was still positive, 22 although it was marginal and would need to be reviewed 23 when more information became available. 24 Interim funding of GBP60 million was therefore made 25 available in March 2007 to allow enabling works to 4 1 begin. 2 That is how matters stood when the elections to the 3 Scottish Parliament took place in May 2007. As a result 4 of those elections, the SNP was the largest party in 5 Holyrood, but did not have an overall majority and 6 formed a minority government. This was clearly 7 a significant event for the tram project. 8 The SNP had been elected on a manifesto that carried 9 a commitment to use the funds intended for both the tram 10 project and the Edinburgh Airport Rail Link, or EARL, 11 for other national priorities. 12 It should not be forgotten that this was the first 13 minority government to govern at Holyrood, and more 14 generally, within the UK, there was at that time little 15 experience of how minority governments should govern. 16 As a result, the Scottish Parliament and the minority 17 government were going to have to learn to work together. 18 It would appear that the Scottish Parliament wished 19 to assert itself early on by passing a motion that 20 called for the SNP administration to proceed with the 21 tram project within the budget set by the previous 22 administration. As Mr Swinney explained, the SNP were 23 not bound by this vote, but there was a concern that 24 should the will of the Scottish Parliament not be 25 accepted by the SNP Government, the new administration 5 1 could come under threat. 2 It was in this context that Mr Swinney announced 3 that the Scottish Executive would accept the will of the 4 Scottish Parliament. As a result, and this is a point 5 I wish to emphasise, the in principle funding for the 6 tram project became a firm commitment. The funding was 7 no longer subject to approval by the Scottish Ministers 8 of the Final Business Case and, going forward, the 9 Scottish Ministers could not be seen, having accepted 10 the will of the Scottish Parliament, to be taking any 11 steps that might be perceived as an attempt to close 12 down the tram project by the back door. 13 A commitment had been given and the Government had 14 to stand by that commitment. 15 So the first key point about the vote in the 16 Scottish Parliament and its acceptance by the 17 Scottish Executive was that it converted in principle 18 funding into a firm commitment to provide that funding. 19 The second key point about the vote is that it made 20 it absolutely clear that the contribution from Central 21 Government was going to be capped, and that not a penny 22 more would come from Central Government. This too was 23 a game changer so far as those involved with the project 24 were concerned. 25 During the course of the Inquiry, the suggestion was 6 1 made to various Transport Scotland witnesses, and also 2 to Mr Swinney, that the vote in the Scottish Parliament 3 did not actually change anything. As was pointed out to 4 the witnesses, the offer of funding had always been 5 capped. The status quo, it was suggested, remained. 6 Be that as it may, the reality was that there was an 7 expectation on the Council's and tie's part that the 8 Ministers would agree to shoulder any overspend costs, 9 or at least a large proportion of them. I have 10 addressed the status quo point in some detail in 11 chapter 3 of the written submission at paragraphs 15 to 12 19. 13 As I point out there, all the key stakeholders in 14 the project considered the announcement of the funding 15 cap to have been highly significant, exactly because it 16 confirmed or brought about a major risk transfer to the 17 Council. 18 For instance, it will be recalled that the primary 19 risk register included a risk that related to the need 20 for the Council to reach a deal with Transport Scotland 21 on overrun costs. This risk was described as 22 a potential showstopper. 23 Mr Swinney's announcement extinguished the prospect 24 of any such deal on overrun costs, yet, as we all know, 25 the show went on. 7 1 Not a single witness suggested in evidence that the 2 Scottish Parliament's vote and Mr Swinney's subsequent 3 announcement was anything other than highly significant. 4 None suggested it simply preserved the status quo. The 5 evidence showed that the vote marked a major development 6 in the way the Council viewed its exposure to risk. 7 I shall now turn to the decision itself to withdraw 8 Transport Scotland. The evidence before the Inquiry 9 confirms that the decision was taken for two related 10 reasons. Firstly, to ensure that during the delivery 11 phase of the project, there was clarity of roles as 12 between those responsible for delivering the trams 13 project and those funding it; and secondly, to ensure 14 that there was no basis on which the Council could look 15 to the Scottish Ministers for funding above the 16 GBP500 million cap. 17 This is reflected in the advice to Ministers from 18 Malcolm Reed dated 6 July 2007. His recommendation 19 bears repeating. This is what he said, and I emphasise 20 this is the advice that Mr Swinney received: 21 "1. The Parliament's decision places the risk for 22 any cost overruns on the tram scheme with the City of 23 Edinburgh Council and makes it clear that responsibility 24 for managing and delivering the scheme rests with the 25 promoter. 8 1 "2. To achieve this clarity of roles, and ensure 2 that situations could not arise subsequently in the 3 governance of the project which might generate further 4 calls on central funding, I propose that 5 Transport Scotland's future engagement with the 6 Edinburgh Trams Project should be on the basis of revised 7 grant conditions and once these conditions are in place, 8 Transport Scotland staff should withdraw from active 9 participation in the governance of this project." 10 As we know, the advice that was given was put into 11 effect. 12 There was some discussion during the evidence as to 13 whether this was Dr Reed's unprompted advice or whether 14 it had been drafted to reflect what Mr Swinney had 15 wanted. 16 Dr Reed was unable, given the passage of time, to 17 recall the precise sequence of events, but it is clear 18 that there was an ongoing debate as between the 19 Ministers and Transport Scotland, and also within 20 Transport Scotland itself, as to the role that 21 Transport Scotland should play going forward. 22 What is important to note, however, is that Dr Reed 23 stood by his advice in his evidence to this Inquiry, and 24 that was regardless of whether it had been prompted by 25 Mr Swinney in the first place or not. 9 1 Mr Swinney for his part explained that his reason 2 for withdrawing Transport Scotland was to achieve role 3 clarity as the project moved into the delivery phase. 4 In his view, having Transport Scotland involved in 5 making decisions on how the project should actually be 6 delivered was inviting trouble. The contractor could 7 play Transport Scotland off against tie and the Council. 8 Mr Swinney referred to other projects where a lack 9 of role clarity had caused problems with project 10 management and this had informed his thinking. And, 11 although Mr Swinney was challenged about his reasons for 12 the decision, it was not suggested to him that there 13 were other undisclosed reasons at play. 14 But just standing back for a moment, I would submit 15 the decision to withdraw Transport Scotland was one that 16 was entirely appropriate for Mr Swinney to have made at 17 the time he made it, and that the reasons for the 18 decision, as explained by Mr Swinney, were entirely 19 sound. 20 It is significant that Mr Swinney's decision was 21 supported both at the time and in hindsight by Dr Reed. 22 It was also supported by David Middleton, Dr Reed's 23 successor as Chief Executive of Transport Scotland. 24 These are people with extensive experience in the 25 funding, procurement and delivery of major 10 1 infrastructure projects. I would invite the Inquiry to 2 treat their views with due regard. 3 But when considering the merits or otherwise of 4 Mr Swinney's decision, perhaps the most telling fact is 5 that at the time the decision was taken, not a single 6 person or organisation involved in the project objected 7 or complained about the decision. Certain members of 8 the Tram Project Board expressed support for Bill Reeve, 9 but that is as far as it went. Had Transport Scotland's 10 continued presence on the Tram Project Board been viewed 11 at the time as fundamental to the prospects of the 12 project being a success, one might have expected formal 13 representations to that effect to have been made. 14 It was not only Mr Swinney who was considering the 15 governance structures for the project in the aftermath 16 of the Scottish Parliament's vote. In July 2007 17 Jim Inch, the Council's Director of Corporate Services, 18 produced a briefing paper on behalf of the Council's 19 Chief Executive on the project's governance 20 arrangements. In it, Mr Inch concluded that the cap on 21 Central Government funding meant that there had to be 22 a change to the governance controls. This was even 23 before the Council had been told that Transport Scotland 24 would be withdrawing from the Project Board. 25 For a completely independent view on Mr Swinney's 11 1 decision, one need go no further than the written 2 evidence of Mike Heath of Partnerships UK. This is what 3 he told the Inquiry about Mr Swinney's decision, 4 and I quote: 5 "I think it was very sensible at the time. Complex 6 projects require the simplest overall governance 7 structure, and reporting to both the Council and 8 Transport Scotland with inevitably different emphasis in 9 their reporting requirements would have been 10 unnecessarily burdensome and introduced potential 11 decision delay and risk. The relationship between the 12 Council and Transport Scotland could be managed 13 perfectly satisfactorily off-line." 14 It is also of note that the Office of Government 15 Commerce in its Gateway 3 Review of September 2007 16 commented on the withdrawal of Transport Scotland as 17 being one of a number of changes that it described as 18 "extremely positive and will contribute to the 19 likelihood of success of the project". 20 I would therefore summarise the position as this. 21 As at July 2007, the project landscape had changed as 22 a result of the vote in the Scottish Parliament and its 23 acceptance by the Scottish Executive. As a result, both 24 the Council and the Ministers were considering what 25 changes should be made to the project's governance 12 1 structures as it approached the delivery phase. 2 Mr Swinney's decision was made for sound reasons and 3 was not challenged by anyone at the time. 4 I would now like to turn to address criticisms of 5 the withdrawal decision. There has clearly been 6 a debate undertaken in hindsight and often splitting 7 along political lines about Mr Swinney's decision. The 8 suggestion from some quarters appears to be that 9 Transport Scotland's withdrawal orphaned the project, 10 leaving the Council and tie to fend for themselves. Any 11 such suggestion is, I submit, without basis. 12 Withdrawing Transport Scotland from the Tram Project 13 Board did not mean the Scottish Ministers were 14 abandoning the project or in any way washing their hands 15 of it. The Scottish Ministers' interests and the wider 16 public interest were protected by the grant conditions 17 that were put in place. 18 As well as the formal reporting structures that were 19 established through the grant conditions, there was 20 informal or off-line contact made between the Council 21 and tie on the one hand and Transport Scotland and the 22 Scottish Ministers on the other. This was entirely 23 appropriate and something supported by Mr Heath in his 24 oral evidence. 25 But the suggestion that Transport Scotland orphaned 13 1 the project fundamentally misunderstands the role of 2 Transport Scotland and what it was doing on the project. 3 As I have already pointed out, Transport Scotland's 4 assistance during the development phase of the project 5 did not mean that Transport Scotland would be involved 6 in the actual delivery of the project. The only reason 7 to be on the Tram Project Board during the delivery 8 phase of the project would be to take part in decisions 9 relating to delivery, and that was not 10 Transport Scotland's role. 11 The suggestion that the withdrawal of 12 Transport Scotland deprived the project of a large well 13 of experience is also not made out. Transport Scotland 14 had one place on the Tram Project Board. No one 15 suggested that, as a result of Transport Scotland's 16 withdrawal, tie had to undergo a recruiting campaign to 17 fill a skills gap that had been left by Mr Reeve's 18 departure. 19 The reason why Transport Scotland had a place on the 20 Tram Project Board was to allow Transport Scotland, as 21 principal funder, to make certain decisions quickly and 22 efficiently. It was not to provide a conduit which the 23 Council and tie could expect to utilise as and when they 24 required Transport Scotland's own resources. 25 There neither was, and nor should there have been, 14 1 any expectation that that would be the case. 2 This was always the Council's project to deliver and 3 the Council had decided to deliver the project through 4 tie, and tie could recruit whatever private sector 5 expertise it required. 6 The fact that several witnesses, when invited to do 7 so, suggested that there had been a loss of expertise as 8 a consequence of the withdrawal of Transport Scotland 9 goes to show that there was a lack of understanding 10 about Transport Scotland's function on the Tram Project 11 Board. But it also disregards the extent to which tie 12 availed itself of external expertise. Although this was 13 not explored in the evidence in detail, the sheer scale 14 on which tie employed external consultants can be seen 15 from the spreadsheet referred to at paragraph 43 of 16 chapter 3 of the written submission. 17 This indicates that between 2007 and 2011, tie 18 employed around 80 consultants or consultancy firms. In 19 addition to the consultants that tie sourced, tie also 20 had extensive in-house commercial and technical 21 expertise as evidenced by the tie witnesses who gave 22 evidence. 23 By contrast, while Transport Scotland had in-house 24 heavy rail expertise, it had no in-house expertise in 25 light rail. By way of an aside, I would note the oral 15 1 evidence of James Donaldson, one of Bilfinger Berger's 2 construction managers, to the effect that the problem 3 with tie was that it had too much heavy rail expertise. 4 This Inquiry is tasked with identifying the cause of 5 various difficulties that beset the tram project. In 6 that context, the withdrawal of Transport Scotland from 7 the Tram Project Board is an easily identifiable event 8 in an otherwise complex factual matrix. It is, 9 therefore, unsurprising that a number of witnesses 10 latched on to the withdrawal of Transport Scotland and 11 gave it a significance that, I would suggest, was not 12 warranted. Other than some generalised speculation, 13 there was not a single piece of direct evidence to show 14 that the withdrawal of Transport Scotland from the Tram 15 Project Board of itself had any direct impact on the 16 outcome of the project in terms of access to expertise, 17 effective project management, or savings. 18 My learned friend Mr Fairley made a submission 19 yesterday that stands as a good case in point. 20 Mr Fairley relied on an aspect of Mr Ramsay's evidence 21 given in the oral session to support the contention that 22 Transport Scotland was detached from the project and 23 that Mr Swinney's decision was ill judged. Mr Fairley 24 said this of Mr Ramsay: 25 "... when he saw that there were disputes about BDDI 16 1 [and] IFC, he didn't know what that meant." 2 Mr Fairley suggested that this was astonishing. If 3 what Mr Fairley said was both accurate and fair, 4 I agree, it would be astonishing, but it was neither. 5 Mr Ramsay was asked by Counsel to the Inquiry if he 6 recalled disputes that were known as the BDDI to IFC 7 issue. Mr Ramsay said that he did not recall these. 8 Clearly Mr Ramsay's evidence is a matter for 9 your Lordship, but I would point out that these acronyms 10 have not been used in Mr Ramsay's witness statement and 11 so it may be unsurprising that, after so many years, the 12 phrase "the BDDI to IFC issue", without any further 13 explanation at the time, did not immediately register 14 with Mr Ramsay. 15 But what is quite obvious is that Transport Scotland 16 was clearly informed about the BDDI to IFC issue. One 17 need only look at the monthly reports and the minutes of 18 the quarterly meetings to see that the BDDI to IFC issue 19 was raised and discussed with Transport Scotland. 20 As an example, the minutes of the quarterly review 21 meeting referred to at paragraph 28 of chapter 1 of the 22 Ministers' submission refer to BDDI or BDDI to IFC no 23 less than four times in the context of imminent DRPs. 24 Clearly Transport Scotland was not detached on this 25 issue. But what yesterday's submission highlights so 17 1 well is that allegations of detachment or loss of 2 expertise are easy to make when casting around looking 3 for someone else to blame, but in the case of 4 Transport Scotland, those allegations are simply not 5 supported by the evidence and, in particular, by the 6 contemporaneous documentation. 7 So in conclusion on this point, any suggestion that 8 the withdrawal of Transport Scotland from the Tram 9 Project Board resulted in a loss of commercial or 10 technical expertise is simply not made out on the 11 evidence, ignores the scale on which tie availed itself 12 of the services of external consultants, disregards 13 tie's in-house resources, and, perhaps most importantly, 14 misunderstands Transport Scotland's role within the tram 15 project. 16 What can be said about the removal of 17 Transport Scotland from the Tram Project Board is that 18 it made it easier for the Scottish Ministers to adopt 19 a more neutral stance as between the Council and the 20 consortium. This opened up additional avenues of 21 communication. As the evidence demonstrated, towards 22 the end of 2010, Mr Swinney was able to meet both with 23 the Council and the consortium to promote mediation and, 24 as we know, that mediation was ultimately successful. 25 Having taken that step, the parties mediated and 18 1 found a way forward. 2 Had Transport Scotland been directly involved in the 3 strategic decisions of the Tram Project Board and those 4 that were being made at the time, such as the issuing of 5 Remediable Termination Notices, it would have been much 6 harder for the Scottish Ministers to adopt the role of 7 impartial broker. 8 Those are the submissions for the Scottish 9 Ministers. Thank you. 10 CHAIR OF THE INQUIRY: Only two points I wanted to raise 11 with you, Mr Barne. 12 When do you say that the project delivery phase 13 started? 14 MR BARNE: I think the OGC guidance identifies various 15 stages of project delivery, and I think once the 16 procurement strategy has been settled -- that stage, it 17 identifies that as being the delivery phase, putting in 18 place the actual contracts and the suchlike. 19 In this case I would say project delivery really 20 started to come into play when the contracts were being 21 negotiated with the consortium. 22 CHAIR OF THE INQUIRY: So you say that it's before the 23 contract closed? 24 MR BARNE: Yes. 25 CHAIR OF THE INQUIRY: The other matter I wanted to ask you 19 1 about was the last point you were dealing with, the 2 mediation at Mar Hall. You deal with this in your 3 submissions, but what actually happened after the 4 mediation was a greater involvement in the project by 5 Transport Scotland officials, but many more than there 6 had been before. 7 Do you see that as a possible way forward in any 8 future public contracts involving light rail? 9 MR BARNE: I suppose this perhaps raises a point that was 10 discussed briefly yesterday about the context of local 11 authorities producing and procuring infrastructure 12 projects. Clearly it was a step that was taken and 13 appeared to be of assistance as the tram project went 14 forward after the mediation at Mar Hall. But certainly 15 I think project structures must be tailored to the 16 precise circumstances that are met in each case. So 17 I wouldn't disagree with what your Lordship is saying, 18 but I don't think that any particular overriding 19 imperative is required that multiple Transport Scotland 20 officials are required on local authority infrastructure 21 projects. 22 CHAIR OF THE INQUIRY: The question that I asked was 23 slightly different from the one I asked yesterday. 24 I was asking today if you saw that there would be 25 a role, not necessarily the exclusive role, but a role 20 1 for Transport Scotland officials in any future public 2 contract dealing with any tram project, particularly in 3 view of the expertise within the public sector being in 4 Transport Scotland. 5 MR BARNE: Well, I think -- I alluded to this in my oral 6 submission. The expertise within Transport Scotland is 7 predominantly heavy rail, and certainly it was 8 Mr Donaldson's evidence that the problem with tie was 9 that it had too much heavy rail expertise. 10 So I don't think there is available to local 11 authorities a well of light rail expertise within 12 Transport Scotland. It may be that your Lordship is 13 referring to a more commercial expertise, not 14 predominantly heavy rail, and clearly Transport Scotland 15 does have experience of negotiating, procuring and 16 delivering major infrastructure projects. So again, 17 I can't disagree that it may be of assistance in certain 18 circumstances for local authorities to have access to 19 Transport Scotland expertise, but I don't think that any 20 overarching conclusion can be reached to that effect. 21 CHAIR OF THE INQUIRY: Thank you. 22 Well, we'll break now for 15 minutes for the benefit 23 of the shorthand writers. We will resume again at just 24 after 10.15. 25 (10.01 am) 21 1 (A short break) 2 (10.16 am) 3 CHAIR OF THE INQUIRY: The next submission is by Mr Dunlop. 4 Closing submissions by MR DUNLOP 5 MR DUNLOP QC: My Lord, I'm obliged. 6 My Lord, I welcome the opportunity to supplement the 7 written submissions to which I adhere in full. 8 Your Lordship's remit shapes the questions which he 9 asked of the core participants: what were the causes and 10 who was responsible for the delay, increase in cost and 11 other failures of the project? 12 My Lord, I start out by pointing out that the way 13 that that is framed, while doubtless understandable 14 given the remit, might be taken as including 15 an assumption, which is not borne out, namely that the 16 project was a failure. 17 It had difficulties, certainly. It overran. And it 18 cost more than was anticipated. But it hasn't been 19 a failure. The evidence taken as a whole shows that 20 Edinburgh has been left with a valuable asset, hence, no 21 doubt, why the line is to be extended. 22 Your Lordship should not start in my submission with 23 any assumption that the project itself has failed. It 24 has not. Edinburgh itself is enhanced by the existence 25 of the tram system. 22 1 Turning then to the core of the remit, my Lord, 2 your Lordship is asked to explore causes and to explore 3 blame. If I could take these in turn. 4 Causes. Why did it take longer and why did it cost 5 more? The Council will of course submit to 6 your Lordship that it was mainly DLA's fault. Such 7 a submission, in my submission, parts company with 8 reality. It is important, as your Lordship will 9 doubtless appreciate, as he pens his report, to 10 understand the limits of what DLA, like any legal firm, 11 engaged in a similar project, were there to do. 12 Some core truths should be borne in mind. DLA had 13 been stood down for a period of several months. DLA 14 were not present at Wiesbaden. DLA were not asked and 15 did not have the expertise to allow them to opine on 16 technical or commercial matters. 17 The decision to take SDS, MUDFA and Infraco 18 separately was nothing to do with DLA. That immediately 19 entailed the risk that delays in one would impact on the 20 other. 21 The decision to withdraw the expertise of 22 Transport Scotland from the tram initiative was not one 23 in which DLA had any say. The decision of who should be 24 put in charge of crucial decisions at tie was nothing to 25 do with DLA, and governance was a matter wholly outwith 23 1 DLA's reach. 2 Now, doubtless the Council will parrot my learned 3 friend, Mr Fairley, in his paraphrasing of 4 President Trump in blaming the contract. Doing so, 5 however, exposes a major flaw in reasoning. The proper 6 analysis is, I suggest, quite straightforward. 7 Wiesbaden was not the responsibility of DLA. Wiesbaden 8 set the tone for what followed. The evidence shows, and 9 your Lordship heard it again in words of one syllable 10 from my learned friend Mr Borland yesterday, that the 11 deal as struck, which on material risk barely moved from 12 Wiesbaden, represented the only show in town. Infraco 13 were quite simply and quite clearly not prepared to hold 14 any more risk than they actually undertook. 15 It was for the deal-makers, Mr Gilbert and others, 16 to decide if that was acceptable to tie or not. 17 DLA were not and cannot be said to have been 18 responsible for any delay in the contract being 19 executed. There is no realistic suggestion that 20 anything they did post contract close caused a delay or 21 an increase in cost. So that brings us back to the 22 contract itself. 23 Whatever criticisms your Lordship or anyone else 24 might have of that contract, that again returns one to 25 the point that is crystal clear on the evidence. This 24 1 contract, or at least the essentials of it so far as 2 pricing is concerned, was the only deal available. 3 So no matter how much DLA advised of the risks 4 inherent in it, no matter how much they had railed 5 against those, and I will come back to that, Infraco 6 were not going to assume any more of those risks than 7 they already had. 8 So what could have been done? tie could have 9 refused to sign. Well, that would just have delayed 10 matters further and given rise to ever increasing 11 inflationary increases and tie running costs. We know 12 from Infraco that further negotiation wasn't going to 13 lead anywhere material, or such delays could have 14 torpedoed the whole deal, potentially meaning the end of 15 the project and the Government funding of it. 16 Your Lordship will recall the amount already 17 expended by the time of contract close. 18 GBP136.5 million. Given that amount, given the amount 19 of inconvenience already caused to the residents of 20 Edinburgh by the MUDFA works, which had commenced in 21 July of the previous year, shelving the project in the 22 middle of 2008 is something that would truly have 23 warranted the description of failure. 24 Imagine it had been shelved. Imagine that what 25 Edinburgh was left with at the end of 2008 was a few 25 1 holes in the road and a GBP136 million hole in its 2 budget. That really would have warranted the villagers 3 gathering their torches and their pitchforks. That did 4 not happen. And Edinburgh now has a profitable tram 5 network. 6 All that being so, my Lord, how is it, when 7 your Lordship answers the questions in the remit, that 8 DLA are said to have caused the delays, caused the 9 increases in cost, or caused the failure of the project? 10 The answer is that they haven't. The delays and the 11 extra costs sprang from a contract which others agreed 12 and which was not in its essentials regarding price and 13 risk up for negotiation. 14 DLA couldn't change that contract. They could only 15 have delayed its execution. How on the evidence would 16 that have helped? 17 It's very easy to be critical of Mr Fitchie. Lawyer 18 bashing is very much in vogue these days. But this was 19 a man doing the best he could in a difficult situation 20 that was not of his making. And I return to the 21 question of how is it that he caused the delay? How is 22 it that he increased the cost? Nothing he could have 23 done would have made the slightest difference to what 24 later occurred. 25 Taking the view that further delays or indeed 26 1 shelving the project would in some way have avoided 2 delays or costs or failure runs contrary to the evidence 3 and it runs contrary to common sense. 4 But if your Lordship were minded to go down that 5 route, then where is it that DLA are said to have fallen 6 down? The primary thrust of that criticism is failure 7 to apprise tie and CEC of risks. So obviously, my Lord, 8 I'm now moving from the question of the cause and I'm 9 tackling the question of blame. 10 As a starting point, the Council's fundamental 11 complaint, one of not themselves being advised directly 12 by DLA, asks your Lordship to ignore the very duty of 13 care deed upon which they found. It is axiomatic that a 14 contractual relationship draws the parameters within 15 which the parties thereto should act and should be 16 bound. 17 Here the Council expressly agreed more than once 18 that DLA reporting to tie was to equate to DLA reporting 19 to the Council. It does not lie, with respect, in their 20 collective mouth to approbate and to reprobate, to found 21 on the duty of care deed, and at the same time to 22 disavow its core stipulations. 23 Thereafter, on the question of risk, when 24 your Lordship looks at the evidence in that regard, he 25 will swiftly realise, I submit, that much of the 27 1 criticism of Mr Fitchie was for not. He was questioned 2 robustly over a long period of time. We have made our 3 own criticisms of the way in which he was treated and 4 I don't depart from those, but equally, I don't spend 5 time repeating them because whatever concerns gave rise 6 to such questioning, they surely dissolve when one 7 considers the later evidence. 8 I say that, my Lord, because it is, I submit, 9 incontrovertible that major players in both tie and the 10 Council were fully sighted on the question of risk. 11 If we start with the notion that this was a fixed 12 price contract, it doesn't take long to read Schedule 13 Part 4. It's a few pages. Whatever drafting criticisms 14 one might have regarding Schedule Part 4, and it wasn't 15 Mr Fitchie that drafted it, the document is pellucidly 16 clear in one regard at least. It's not a fixed price 17 contract. 18 Rather, there are clear risks obviously left with 19 the public sector. Risks which were unquantified and in 20 truth unquantifiable. Those risks were certainly not 21 quantified by DLA, nor could they have been. As the 22 evidence shows, without contradiction, and all witnesses 23 were unanimous on this, quantification of the known 24 risks was a technical and commercial matter upon which 25 lawyers, DLA or otherwise, simply were not qualified to 28 1 advise. 2 Such risks were objectively clear. They were also 3 subjectively known by key players. Mr Bell's Counsel 4 yesterday asserted that Mr Bell knew of the risks but 5 not their size. But surely that is the whole point. 6 These risks were unquantified, but it was not for DLA to 7 quantify. 8 The same point is then seen when your Lordship looks 9 to the correspondence, the contemporaneous 10 correspondence, as it flows, 2007 into 2008. By the end 11 of January 2008 -- we reference this at paragraph 76 of 12 the written submissions -- we see an email exchange 13 amongst Nick Smith, Gill Lindsay, Colin MacKenzie, of 14 CEC Legal, talking of the incomplete stage of the SDS 15 design and the potential for serious risks of increased 16 cost to the project which were "unquantified". By 17 February 2008 we have Ms Lindsay aware that the design 18 risk was not being transferred to Infraco. Mr MacKenzie 19 is also by this stage aware that this risk was to be 20 retained by the public sector. 21 At the end of February Ms Lindsay emails 22 Mr MacKenzie saying that she considered the risk 23 associated with SDS design might be very significant and 24 suggesting that she felt that the risk allowance for SDS 25 at GBP3 million was too low. She also accepted, and she 29 1 plainly was correct to accept, that assessment of the 2 risk allowance was a commercial matter for tie and not 3 a matter for DLA. 4 Mr MacKenzie was entirely candid that he had read 5 and fully understood the risks associated with Schedule 6 Part 4 and the Pricing Assumptions. The same cannot be 7 said, regrettably, of Nick Smith. I respectfully 8 suggest that your Lordship may view the evidence of 9 Mr Smith, so keen to distance himself from a contract 10 which he had plainly received and upon which he 11 purported to advise jointly with Mr MacKenzie, with some 12 suspicion. 13 Ultimately, DLA's only reporting line to the Council 14 was via CEC, City of Edinburgh Council legal. DLA 15 reasonably anticipated that the lawyers would read the 16 contract, or at the very least the core clauses, and the 17 obviously crucial pricing schedule. We know that 18 Mr MacKenzie did exactly that. Whether Ms Lindsay did 19 or did not, she should have; and it ought to have been 20 reasonably thought that she would have. 21 At the very least, if delegating that task to 22 Messrs MacKenzie and Smith, she should have ensured that 23 they attended thereto. 24 DLA's letters made clear that they were no 25 substitute for actually reading the contract. Having 30 1 read and having understood the contract alongside DLA's 2 close letters, it was for Edinburgh Council legal, not 3 for DLA then, to report to elected members. 4 If, as certain members claimed, they didn't 5 understand the blindingly obvious fact that this was no 6 fixed price contract, the fault for that lies with 7 Edinburgh Council Legal and the officers within the 8 other Council departments. It certainly cannot lie with 9 DLA whose job was to brief City of Edinburgh Council 10 legal when instructed to do so by tie. 11 So looking then to tie itself, my Lord, by 12 March 2008 Mr Fitchie had met with Mr Gilbert and made 13 it clear that the risk of Base Case Assumptions failing 14 lay entirely with tie, moreover, that tie had no 15 visibility on the state of the design. 16 Mr Bell -- he's already been mentioned. 17 Schedule Part 4 was drafted and controlled by 18 Messrs Gilbert and Bell. Their knowledge of the 19 existence of risk is plain. It's plain on Schedule 20 Part 1 and it's plain on Clause 80, which was drafted by 21 Infraco and agreed to by Mr Gilbert. 22 Any lack of knowledge of the extent of these risks, 23 these known risks, is simply not down to DLA, especially 24 when there is clear contemporaneous evidence that 25 Mr Fitchie warned of the risk, that Infraco's claims for 31 1 notified departures would be all encompassing and 2 conservative. So far as any lawyer could ever quantify 3 the risks that were known, saying that they would be all 4 encompassing and conservative is as good as it can be. 5 In conclusion, my Lord, the point of this Inquiry is 6 to find out why the tram project was late and why it was 7 over budget. There are in truth multiple reasons for 8 that. None lies at DLA's door. The things they are 9 criticised for not doing would not have avoided the 10 delays or the added costs. Of that we can be clear. 11 Those criticisms, the criticisms advanced of 12 Mr Fitchie, in any event involved 20/20 hindsight and 13 a great deal of rewriting history. 14 The contract was ultimately both understandable and 15 understood by key players, at least so far as the 16 incidence of risk was understood. Complaints that the 17 known risk was not properly quantified at the risk of 18 repetition, are simply not validly directed at DLA. 19 My Lord, it is perhaps understandable that when 20 a contract like this does not go exactly to plan, the 21 knee-jerk reaction is a modern version of Shakespeare's 22 "first, let's kill all the lawyers". Your Lordship 23 will, I'm sure, avoid knee-jerk reactions. DLA did not 24 delay this project. DLA did not increase its costs. 25 And to deride a profitable tram network, which with the 32 1 grant cost the Council less than its ultimate worth, as 2 a failure, is to prefer hysteria over rational analysis. 3 My Lord, with again, the thanks for being allowed to 4 supplement my submissions, and of course with an 5 indication that I will answer any questions following 6 from your Lordship, those are the further submissions 7 for DLA Piper. 8 CHAIR OF THE INQUIRY: Thank you very much, Mr Dunlop. 9 I think you will be aware that your submission first of 10 all refers to documents which were submitted to the 11 Inquiry at an earlier date but did not appear in 12 Haymarket. 13 MR DUNLOP QC: Yes. 14 CHAIR OF THE INQUIRY: I think at the preliminary hearing, 15 I made clear that we had adopted a strategy to deal with 16 3 million documents which have been reduced from 17 500 million, and that strategy involved selecting what 18 we thought were the critical documents and placing them 19 in Haymarket, but at the same time I recognised that 20 that wasn't foolproof, and that we would probably 21 overlook some documents. In that regard, we expected 22 the core participants to identify documents that they 23 thought should be included and they would have. So it 24 is a matter of some disappointment that the additional 25 documents were produced to us, but not identified. 33 1 I don't propose to dwell on that. 2 But then on Tuesday of this week further documents 3 were tendered and an explanation given. I haven't had 4 time to reflect fully on the documents in the context of 5 the other evidence, but can I just confirm that copies 6 of these documents have been made available to all other 7 core participants so that they can at least have some 8 opportunity of considering if it affects them, and to 9 what extent it does, because clearly it might involve 10 the need for additional evidence or additional 11 submissions or both. 12 MR DUNLOP QC: Indeed so, my Lord. Your Lordship will 13 anticipate, or appreciate, I hope, from the explanation 14 that was tendered by those instructing me, that that 15 very concern was the first concern that I had when I was 16 alerted to the existence of these documents, the 17 provenance of which your Lordship has been advised. 18 Hence the reason why we consulted over the weekend 19 to work out exactly how best to make sure that any 20 further inconvenience was avoided. 21 Your Lordship's question is whether they've been 22 given to core participants. They have. They would most 23 obviously be of potential concern to my learned friend 24 Mr Martin for the Council. I have spoken to him 25 yesterday and today about those documents. 34 1 As I understand it, although he reserves his right 2 to potentially ask to adduce further evidence on that, 3 and of course I could have absolutely no quibble with 4 any such reservation of rights, but yes, my Lord, 5 they've been made available to core participants. I'm 6 not aware of anyone expressing an actual difficulty 7 arising from their late production. 8 I accept of course that if any potential difficulty 9 is raised, your Lordship can reserve the rights of 10 parties in light of that. 11 CHAIR OF THE INQUIRY: I think there was also produced with 12 them a helpful explanation. Has that been given to the 13 parties or is it just a matter for me? 14 MR DUNLOP QC: No, it has, my Lord. Some debate went into 15 that very question, and there was a query as to whether 16 or not that should be made available. Ultimately we 17 took the view that the cards on the table approach was 18 the only proper approach. So what all core participants 19 have been given is, firstly, the document explaining how 20 these documents were missed and why they were 21 subsequently found. Secondly, the schedule of those 22 documents identifying what they are and where they came 23 from. And thirdly, the documents themselves. 24 CHAIR OF THE INQUIRY: Thank you. Thank you very much. 25 I have no further points. 35 1 MR DUNLOP QC: Obliged. 2 CHAIR OF THE INQUIRY: I think we can just go straight on to 3 Mr Martin. 4 Closing submissions by MR MARTIN 5 MR MARTIN: Thank you, my Lord. The submissions which 6 I shall present at this stage on behalf of the City of 7 Edinburgh Council fall into four parts. 8 First, an introduction; secondly, to deal with the 9 written submissions for the Council; thirdly, to refer 10 to particular specific issues; and finally, to give my 11 conclusions. 12 My Lord, I'm conscious that all of the submissions 13 are being recorded and being transcribed and the Council 14 is perfectly content with that, but I can say to my Lord 15 that if he would like a written version which tends to 16 be the way in public inquiries nowadays in addition, 17 then that can be easily provided. 18 CHAIR OF THE INQUIRY: I think probably the transcript 19 should be sufficient, Mr Martin. Thanks for the offer. 20 MR MARTIN: My Lord, the introduction -- and I should 21 emphasise these submissions will be relatively brief, as 22 is, I think, to be expected. 23 The oral submissions are given on behalf of the 24 Council in supplement of the written submissions 25 exchanged on 27 April and submitted as revised on 36 1 11 May. The approach of the Counsel to the Inquiry has 2 been to assist the proceedings and ultimately to gain 3 the benefit of the airing of evidence and of the report 4 of the Inquiry to be published in due course. 5 Whilst this has not always been straightforward, the 6 Council and its officers have sought to co-operate by 7 providing documents and assisting the Inquiry team in 8 response to all requests. In the conduct of the 9 Inquiry, the Council has minimised its active 10 intervention because its approach is and has always been 11 to learn the lessons from the Edinburgh Tram Project in 12 relation to the carrying out of infrastructure projects 13 in the future. 14 These oral submissions, and the written submissions 15 more generally, are all intended to assist in these 16 purposes. 17 So far as the written submissions for the Council 18 are concerned, it is not intended to repeat at any 19 length the extensive submissions which have already been 20 made and revised on behalf of the Council. As will be 21 apparent, these have sought to address the terms of 22 reference of the Inquiry, including the three particular 23 points identified in the terms of reference, as well as 24 the topics identified by you, my Lord, in the note by 25 the Chairman for core participants concerning closing 37 1 submissions issued towards the end of oral evidence on 2 15 March. 3 In doing so, the Council has sought to address 4 directly the terms of reference and all of the issues 5 identified in the Chairman's note. In this regard the 6 position of the Council may be said to be unique at the 7 Inquiry because it is the only core participant which 8 has a direct interest, not least for the future, in each 9 of the three points in the terms of reference and in the 10 issues listed in the Chairman's note, and also with the 11 possible exception of the Scottish Ministers, the 12 Council is the only core participant who may be in 13 a position to carry out similar infrastructure projects 14 in the future and with a responsibility both to the 15 public interest and to the City of Edinburgh. 16 The result is that, given that each core participant 17 is allotted the same amount of time for oral 18 submissions, the Council has on the face of it a much 19 greater range of issues which are relevant than most of 20 the others, and to that extent will not concentrate 21 unduly on any particular one. 22 Having said that, this is no criticism of the 23 Inquiry, because the opportunity for brief oral 24 submissions at the close of proceedings is appreciated. 25 But it is simply to say that in the case of the Council, 38 1 reliance upon all aspects of its written submissions is 2 perhaps most important, because it is there that all of 3 the topics are addressed in detail. 4 The oral submissions are not intended to summarise 5 all of the issues raised in the extensive written 6 submissions made on behalf of the Council, but rather to 7 highlight a number of key points. 8 In addition, and consistent with its general 9 approach to the Inquiry, the Council in its written 10 submissions has adopted an evidence-based approach, 11 carrying out a thorough and detailed review of the 12 evidence presented in a fair and balanced way, with 13 a view to assisting you, my Lord, as Chairman, and the 14 Inquiry. This is once again because the Council regards 15 this Inquiry as an opportunity to understand and to 16 learn from what happened in the carrying out of the tram 17 project with a view to the experience being applied in 18 the future. 19 I then turn to the specific issues. 20 With these general observations, the Council does 21 wish to refer in these final submissions to four 22 particular issues. The first is the principal cause. 23 This is related to the first point in the terms of 24 reference of the Inquiry and is addressed in detail in 25 chapter 1 of the written submissions for the Council. 39 1 These oral submissions do not seek to depart from what 2 has already been said, although the Council does wish to 3 emphasise the critical importance which it regards the 4 Pricing Assumptions in Schedule Part 4, in particular 5 Pricing Assumption Number 1, and the change mechanism in 6 Clause 80, as having played a part in leading to the 7 additional costs being beyond those budgeted for, the 8 delays and the reduction in route. 9 The procurement strategy in relation to the project 10 was to transfer risk, including the risk associated with 11 the design, to the construction consortium in order to 12 achieve a fixed price contract. It was recognised by 13 the end of 2007 that there had been slippage in relation 14 to the design and Infraco had indicated that they were 15 not prepared to take the risk in relation to the design 16 in these circumstances. 17 tie Ltd believed, and reported to the Council, that 18 the risk around normal design development was 19 transferred to Infraco for an additional premium of 20 GBP8 million in terms of the Wiesbaden Agreement, 21 thereby delivering a contract with a high degree of 22 fixity in the price. When Schedule Part 4 was 23 developed, tie sought to maintain the position that had 24 been agreed at Wiesbaden in respect of normal design 25 development because its understanding was that it passed 40 1 the risk to Infraco. 2 Neither tie nor the Council received any legal 3 advice from DLA generally or Andrew Fitchie individually 4 that the Pricing Assumptions, and in particular Pricing 5 Assumption Number 1, meant that the risk of normal 6 design development lay with tie. The Pricing 7 Assumptions in conjunction with Clause 80 were the 8 principal cause of the disputes between tie and Infraco 9 and ultimately led to the effect of cessation of all 10 work on the project, causing delays and a truncation of 11 route. 12 In general terms, the evidence has demonstrated that 13 these provisions were unusual if not unique in 14 a substantial public infrastructure project, and that 15 whether this was the intention of Infraco at the outset 16 when negotiating these terms, nevertheless when matters 17 developed, they gave to Infraco a substantial 18 contractual advantage which led ultimately to the 19 consequences specified in the first point in the terms 20 of reference. 21 That these were the critical contractual terms which 22 were incorporated into the Infraco contract which was 23 entered into at the time that it was, are seen by the 24 Council to be the principal or proximate cause of the 25 failure of the tram project to deliver line 1a in the 41 1 way that was anticipated, and at a cost which was 2 reasonably within that contemplated and budgeted for. 3 The terms of the Infraco contract meant that tie and 4 hence the Council bore the risks in this respect. 5 It is suggested by others that there was no single 6 cause of what went wrong in the tram project, but the 7 Council does not accept that. It was the fact that the 8 Pricing Assumptions and the change mechanism became part 9 of the Infraco contract which inevitably led to the 10 difficulties, but it was the factual background which 11 existed at contract close which led to these 12 consequences ensuing. This background was the fact that 13 at contract close, there were delays principally in the 14 SDS design process, but also delays in the execution of 15 the MUDFA contract. 16 In that situation, it was the existence of Pricing 17 Assumption Number 1 which led to the inevitability of 18 additional cost, delays, and a truncation of route. On 19 the one hand, if Pricing Assumption Number 1 had not 20 been in the form that it was, then the delays which 21 existed at the time of contract close, with the 22 uncertainties over design in particular, would not have 23 led in the same way to the consequences of additional 24 cost which occurred. 25 To put it in the way that the Council believed it to 42 1 be at the time, if Schedule Part 4 had properly 2 described a fixed price contract, with only the normal 3 level of uncertainty over variations made during the 4 execution of the contract, then the costs would not have 5 escalated to anything like the extent that they did. 6 Thus if Schedule Part 4 had been in a different form 7 at contract close, that would not have led to the same 8 results, even in a situation where design was delayed. 9 Alternatively, if the Infraco contract had not been 10 entered into at the time that it was, and in a situation 11 where the significant delays were in existence, then 12 once again, the consequences would not have been the 13 same, because the Pricing Assumptions in Schedule Part 4 14 would not have been departed from to anything like the 15 same extent. 16 Whether that might have led to the Infraco contract 17 not being entered into until a later date, by which time 18 the delays would have been significantly less, or might 19 have led to a pause in the tram project altogether, 20 simply cannot be said. But once again it was the fact 21 that the Infraco contract contained the Pricing 22 Assumptions in Schedule Part 4 at the time that it was 23 entered into and in the circumstances which existed when 24 it was entered into, which brought about the negative 25 consequences which are the principal subject of this 43 1 Inquiry. 2 Given that situation, the Council is clear that it 3 ought to have had proper legal advice on the meaning and 4 effect of Schedule Part 4, and also its relationship to 5 Clause 80. The Council in these oral submissions does 6 not repeat what it has already said, but it maintains 7 that position. 8 The Council sought advice from DLA in relation to 9 the Infraco contract and in particular risks which 10 required to be brought to the Council's attention. DLA 11 agreed to give that advice and purported to present some 12 advice in the form of a series of letters. The Council 13 relied on that purported advice, but the advice was not 14 complete and it was not accurate; in particular, because 15 it did not refer to the risk allocation issues raised in 16 particular by Pricing Assumption Number 1, nor its 17 interaction with Clause 80. 18 Those at tie and the Council who gave evidence on 19 the point were unanimous that no oral advice had been 20 provided in this context, and the advice letters make no 21 reference to any oral advice. The relevant tie and 22 Council individuals also gave evidence about their 23 understanding at contract formation that risk in 24 relation to normal design development lay with tie. 25 This understanding was reflected in the reporting at the 44 1 time, and they did not recall any advice to the 2 contrary. 3 Mr Fitchie's evidence was that he was aware that 4 certain reports were inaccurate, but he did not advise 5 the Council of this. The Council has noted the 6 submissions added by DLA following the initial exchange 7 of submissions. Given the length of these, it is not 8 possible to respond in detail in these oral submissions, 9 but the following response is offered. 10 The Council has not been selective in its quotations 11 from the evidence, marshalling that evidence extensively 12 and in detail. 13 The Council refers to the detailed references to the 14 analysis of the evidence relating to DLA, in particular 15 at paragraphs 3.1 to 3.124 in chapter 1 of its Written 16 Submissions. 17 The Council maintains its position that there is no 18 evidence that DLA provided accurate and/or complete 19 advice on the potential consequences of the Infraco 20 contract which was proposed to be entered into. 21 DLA submits at inserted paragraphs 150 and 151 that 22 officers of the Council were themselves aware of the 23 potential consequences of Schedule Part 4; and that 24 somehow this absolves DLA from its legal 25 responsibilities. This is a curious submission. In the 45 1 first place, the Council refers again to the evidence on 2 this point and submits that it cannot be said that any 3 senior officer in the Council properly understood what 4 the potential consequences of the Infraco contract 5 containing the Pricing Assumptions would be. The 6 Council therefore does not accept as a matter of fact 7 what is submitted by DLA. 8 The revised submissions for DLA also refer at 9 inserted paragraph 150, the seventh subparagraph 10 referring to the Council written submissions at 11 paragraph 3.12, to the fact that Steven Bell had 12 supposedly said that tie was well aware of the risks 13 associated with Schedule Part 4. 14 Even if correct, that is of course not to the point, 15 because it ignores the direct duty of care on the part 16 of DLA in favour of the Council. The subsequent 17 submission at inserted paragraph 150, the ninth 18 subparagraph referring to the Council written 19 submissions at paragraphs 3.23 to 3.38, and repeated in 20 the 14th subparagraph referring to the Council's written 21 submissions at paragraph 3.57, that the reliance by the 22 Council on DLA's advice requires acceptance of the 23 proposition that, and I quote: 24 "The contractual stipulation that advice to tie 25 would equate to advice to CEC is misconceived." 46 1 The actual contractual stipulation may have entitled 2 DLA to rely upon instructions from tie, but it did not 3 absolve DLA from the need to fulfil its individual duty 4 of care to the Council. The written submissions on this 5 aspect are referred to but not repeated. 6 More importantly, and even if the Council were not 7 to be correct in what has just been suggested, and that 8 is not accepted, the position for DLA appears to be that 9 in a situation where a solicitor owes a direct duty of 10 care to an organisation, but there is someone in the 11 client organisation who himself or herself has some 12 understanding of what should have been the subject of 13 formal advice by the solicitor, then somehow the 14 solicitor is absolved from performance of the legal duty 15 which the solicitor was undoubtedly under. 16 There is no legal or other basis for such a means of 17 exculpation. DLA were under the direct duty of care 18 owed to the Council and if they did not discharge it, 19 then they are in breach of that duty, whatever might 20 have been the state of knowledge of anyone else. 21 But in any event, the submission does not succeed in 22 practical terms. Even if it had been the case, which 23 the Council repeats it does not accept on the evidence, 24 that officers of the Council had some awareness of the 25 potential consequences of the Pricing Assumptions and 47 1 Schedule Part 4, and if it were to have been the case 2 that formal legal advice had been tendered by DLA to the 3 same or similar effect, then that formal legal advice 4 would have been an additional factor properly to be 5 taken into account by the Council before authorising tie 6 to enter into the Infraco contract. 7 The absence of such advice is critical in 8 a situation where the Council ought to have been made 9 aware formally by the professional advisers who are 10 under a duty of care to the Council of the legal 11 consequences of what was about to be entered into. 12 Finally, DLA suggest that they were not under a duty 13 to give advice as to commercial risk. At inserted 14 paragraph 150, the 13th subparagraph referring to the 15 Council written submissions at paragraph 3.51.11, and 16 that is a suggestion made in the past. It is submitted 17 that this can be dismissed without hesitation. The 18 advice to be given on the meaning and consequences of 19 the Infraco contract, in particular Schedule Part 4 and 20 the Pricing Assumptions, as well as Clause 80, was legal 21 advice as to the meaning and effect of these provisions, 22 in the practical circumstances which were known to 23 exist. 24 The quantification of risk would come after that 25 legal advice had been properly tendered and not as 48 1 a substitute for it. 2 There is one last point regarding the revised 3 submissions for DLA. In dealing with the formal 4 submissions for the Council, DLA submits at inserted 5 paragraph 150, the fourth subparagraph referring to the 6 Council written submissions at paragraph 3.5, that the 7 suggestion by the Council that the Wiesbaden Agreement 8 was, and I quote, "not non-negotiable" was "wishful 9 thinking" because the evidence of Richard Walker was 10 that BBS "was simply not prepared to accept any movement 11 of risk". That submission appears to be contradicted by 12 what DLA themselves have said in responding to the 13 submissions for Bilfinger Construction, referred to as 14 BCU, at inserted paragraph 156 in the fifth subparagraph 15 referring to the BCU written submissions at 16 paragraph 45, that, "it is self-evident that the 17 Wiesbaden Agreement was not 'the final deal'" but 18 "a step in the negotiating process" albeit described 19 thereafter as "a serious and momentous stage in the 20 negotiations". 21 It will be for the Inquiry to make what it will of 22 these apparently contradictory positions. 23 I then turn to the responsibility of senior Council 24 officers. In a situation where, as has just been 25 submitted, the Council was entitled to expect the proper 49 1 exercise of a legal duty of care in its favour, and that 2 did not take place, it is submitted that it would be 3 unjustified to criticise senior officers for themselves 4 not having become aware of the critical meaning and 5 potential effect of Schedule Part 4. Those senior 6 officers had a range of responsibilities on behalf of 7 the Council as a whole, and did not have day-to-day or 8 operational responsibility for the carrying out of the 9 tram project. 10 In a situation where a party has engaged responsible 11 professional legal advice and that advice has failed in 12 the exercise of the requisite duty of care, then it is 13 submitted that it would not be justified to criticise 14 those individuals for failing themselves to have become 15 aware of the very thing that ought to have been brought 16 to their attention, if that duty to give legal advice 17 had been properly discharged. 18 The Council once again does not intend to labour 19 this point, but it is submitted that it is an important 20 one because it lies at the root of a situation in which 21 a major infrastructure project is to be delivered by 22 a public authority, and the justification for doing so 23 by means of an arm's length external organisation, or an 24 ALEO, such as tie. 25 A local authority which delegates the carrying out 50 1 of an infrastructure project to an ALEO, and engages 2 a professional legal adviser who was placed under a duty 3 to give advice both to that ALEO and also directly to 4 the local authority should not be criticised for failing 5 to appreciate that which the legal adviser had failed to 6 identify in legal advice. 7 I then turn, my Lord, to the position of tie. The 8 Council submits that the creation of an ALEO is not as 9 a matter of generality something which can properly be 10 criticised in light of the evidence at the Inquiry. In 11 the case of the Council, it has a successful record of 12 using arm's length organisations for a range of 13 purposes, not least Lothian Buses, which is jointly 14 owned by four local authorities, and the Edinburgh 15 International Conference Centre, both of which operate 16 on a commercially successful basis. 17 In the case of tie, it was initially set up with the 18 encouragement of the then Scottish Executive, and the 19 concept of ALEOs owned by local authorities is 20 recognised in the councillors' Code of Conduct, 21 published by the Standards Commission for Scotland, and 22 tendered to the Inquiry by the Council. 23 The problem in the present case lies rather more 24 with the particular circumstances of tie. It was set up 25 to deliver a range of transport initiatives which by the 51 1 time that the tram project was coming to fruition, had 2 all disappeared. It had become a single issue company, 3 responsible for the practical delivery of the tram 4 project, and as a contract manager, to exercise 5 functions somewhat different from its initial origins. 6 In addition, it had been intended to deliver 7 transport initiatives, including a tram project, through 8 a revenue stream created by congestion charging, but 9 that revenue stream was lost when charging was rejected 10 in a referendum. 11 Thus by this stage of the tram project coming to be 12 delivered, and the Infraco contract being entered into, 13 tie was in a situation which was, to some extent, 14 unintended. 15 The Council submits that the problem was not with 16 the concept of an arm's length company for delivery of 17 an infrastructure project, nor with the particular arm's 18 length company of tie, but rather with how that company 19 came to be operated by its officers. The Council does 20 not at this stage refer at length to the many examples 21 of where those in tie were responsible for not properly 22 informing officers of the Council about precisely what 23 was taking place and the issues which existed, and in 24 a way which would have allowed the Council itself and 25 its officers properly to understand what were the 52 1 potential consequences. 2 An obvious example is what occurred in the DRP 3 process which is referred to at part 19 in chapter 3 of 4 the written submissions for the Council. The officers 5 of tie did not properly bring to the attention of the 6 Council the results of adjudications, in particular the 7 earliest adjudications, and the effect of these 8 decisions on what was tie's interpretation of the 9 Pricing Assumptions. 10 On the contrary, tie continued to present these 11 results as mixed, when truly they were not. 12 The Council and its officers are not the only ones 13 to present this complaint. The evidence for 14 Transport Scotland was to the same effect, and the 15 Scottish Ministers have adopted that evidence in their 16 written submissions. 17 The final specific issue to which I refer, my Lord, 18 is the Mar Hall settlement. The Inquiry has heard 19 substantial evidence on the preparation for and conduct 20 of the mediation which led to settlement. It is 21 submitted that it is proper to recognise that this was 22 delivered by Dame Sue Bruce on her becoming 23 Chief Executive of the Council, and at a time when the 24 tram project was in an extremely difficult state, with 25 serious potential consequences for the city of 53 1 Edinburgh. 2 The Council does not repeat the evidence which was 3 led about the preparation for the mediation and the 4 financial assessments which were taken into account in 5 leading to the ultimate settlement. 6 Whilst it may be reasonable for the Inquiry to 7 satisfy itself as to the extent of those preparations, 8 and the financial consequences, nevertheless, the 9 Council submits that it would not be appropriate to view 10 the Mar Hall settlement in purely financial terms. 11 At the time that the settlement was reached, the 12 tram project had stalled. The streets of Edinburgh were 13 disrupted. Citizens and businesses had already suffered 14 severe disruption, and there was on the face of it 15 nothing positive to be seen in return. 16 The reaching of the settlement led to the completion 17 of line 1a, albeit truncated to York Place, but 18 nevertheless providing an operating tram system which 19 has established a rail connection to Edinburgh Airport, 20 the usage of which is exceeding expectations. 21 The streets of Edinburgh were restored, in 22 particular with rectification to a much higher standard 23 of the track work in Princes Street, and steps were 24 taken to assist the potential continuation of line 1a to 25 Newhaven by means of acquisition of design and 54 1 materials. 2 The alternative at the time was walking away from 3 the relationship with Infraco, with potentially 4 unquantified and unquantifiable financial and practical 5 consequences. The possibility of terminating the 6 Infraco contract depended upon contractual provisions 7 which were untested and about which there was no 8 certainty. An attempt at termination might have led to 9 substantial financial claims for breach of contract over 10 and above all that had already been paid. Even if it 11 had been possible to substitute a new contractor, which 12 was and remains entirely hypothetical, both legally and 13 practically, time would have been required for that new 14 contractor to take up the commission. 15 Given the history of the tram project up to that 16 point, it is likely that any new contractor would have 17 required very substantial financial payments to secure 18 it against the risks it would be taking in coming into 19 a project not unreasonably described as "toxic". 20 All of this was uncertain at the time of the 21 Mar Hall mediation and, as the evidence has 22 demonstrated, suggested factors reasonably in support of 23 a suitable settlement. 24 On the other side, and as a result of that 25 settlement, the infrastructure works which were 55 1 delivered thereafter were carried out on time, 2 essentially within the settlement which had been agreed, 3 and with limited disruption. The Council does not 4 repeat all of the evidence which relates to this aspect, 5 but it repeats that the overall consequence has been an 6 operating and effective tram system which is capable of 7 extension rather than a situation which would have been 8 entirely uncertain. 9 I turn then to my conclusions. 10 The Council has already learned important lessons 11 from the tram project and awaits the findings of the 12 Inquiry in order to consider what further lessons can be 13 taken on board for future projects. The Council is 14 currently preparing a full Business Case for the 15 extension of line 1a to Leith and Newhaven. The 16 decision on whether to proceed with this project is 17 expected to be taken by councillors in late 2018. 18 Although the lessons learned by the Council will be 19 applicable to all projects which it undertakes in the 20 future, the Leith and Newhaven tram project is clearly 21 an opportunity for the Council to demonstrate that past 22 issues have been recognised and addressed. 23 The Council has addressed its position in chapter 4 24 of the written submissions. In addition, it refers to 25 the following broad headings as to what has been learned 56 1 to date from the tram project. 2 These have been reflected in the potential Leith and 3 Newhaven extension. These relevant themes of lessons 4 learned are: project planning; project governance; 5 allocation of risk; provision of external legal advice; 6 and practical aspects of project delivery. 7 First, project planning. It is important that at an 8 early stage in a project, the initial options, appraisal 9 and Business Case are subjected to independent scrutiny. 10 This will allow significant areas of risk which may have 11 been overlooked to be identified and addressed before 12 further resource is expended or potential momentum 13 builds. The addressing of risk will include the taking 14 of advice on optimism bias and applying that advice at 15 all stages as the project develops. 16 Detailed consultation with all of those likely to be 17 affected and have an interest in the project must be 18 undertaken at an early stage, with representations 19 accurately recorded and appropriate action taken. 20 This will allow the Council to understand the 21 concerns of residents and businesses in particular, and 22 manage expectations and potential objections. 23 Objections to a large scale project are all but 24 inevitable. Such objections must be dealt with in an 25 organised manner at an early stage in order to avoid 57 1 them unnecessarily escalating. Such escalation can be 2 a drain on project resources and contribute to negative 3 public perceptions. 4 Next, project governance. 5 Robust project governance is critical to the success 6 of any large project and must be clear from the outset. 7 Where there are appropriate examples of good industry 8 practice, these should be followed. The following are 9 the key governance lessons learned from the tram 10 project. 11 There must be strong senior officer and political 12 leadership behind major projects. Council officers must 13 report regularly to senior officers and councillors on 14 risks, issues and costs. Roles and responsibilities of 15 all those involved in projects must be clearly defined 16 from the beginning. Management information must be 17 accurately and regularly provided to decision-makers and 18 reporting lines must be clear. In particular, if an 19 ALEO is used to deliver the project, the officers and 20 employees of that organisation must be aware at all 21 times of the duty of the ALEO to serve the interests of 22 the Council, and not what might be seen as its own 23 interests, and of their individual duties always to 24 provide full and accurate reporting to the Council in 25 the fulfilment of the ultimate duty to serve the 58 1 interests of the Council. 2 For complex projects of significant value, those 3 involved must have relevant expertise and experience. 4 This should include the appointment of project 5 management professionals, to ensure that governance 6 arrangements and the overall project plans are being 7 properly adhered to. The overall project plan must be 8 regularly updated to reflect progress and flag any 9 elements which may require attention. 10 The Council still considers it appropriate to use 11 ALEOs where appropriate to deliver major projects. If 12 properly established and operated, ALEOs can lead to 13 reduced costs, streamlined management and flexibility, 14 all of which can be of considerable benefit to project 15 delivery. The Council has taken on board lessons 16 specific to the establishment of ALEO, which are 17 detailed in the Council's written submissions. It has 18 established a companies hub to provide oversight and 19 scrutiny of all Council ALEOs. 20 Allocation of risk. It has been well established 21 that the risk transfer originally envisaged by the 22 Council for the tram project was not achieved. It is 23 vital that for future projects, the desired risk 24 position is properly set out in procurement 25 documentation and subsequently captured in project 59 1 contracts. 2 Those involved in the project must have a proper 3 understanding of the risk position, including an 4 understanding of the risks associated with optimism 5 bias. Risk must be closely monitored and mitigated. 6 A comprehensive project risk register must be maintained 7 and appropriately reported on. 8 External legal advice. The Council will continue to 9 seek external legal advice on major projects. The 10 Council's internal legal team is able to advise on 11 commercial aspects of projects, but does not have the 12 specialist expertise or capacity to be the sole legal 13 adviser on a large complex project. 14 The Council is entitled to rely on the advice of its 15 external legal advisers, but in relation to projects 16 which involve ALEOs, it must give consideration to 17 whether it is appropriate to use the same advisers. 18 Practical considerations. The Council is aware of 19 how the tram project affected local citizens and 20 businesses. Lessons have been learned in relation to 21 minimising traffic and other disruption. A targeted 22 approach to supporting affected local businesses has 23 been devised in relation to the proposed tram to Leith 24 and Newhaven project. 25 If I may just turn finally, my Lord, to the conduct 60 1 of the Inquiry. 2 Finally, the Council and those representing it would 3 wish to pay credit to those involved in this Inquiry. 4 The Council thanks you, my Lord, as Chairman for your 5 courtesy and patience in the conduct of these 6 proceedings which have been brought to a close within 7 a reasonable timetable. The Council looks forward to 8 publication of the report. 9 The Council also thanks the Inquiry team, both 10 Counsel and solicitors, as well as its support staff, 11 for all that has been done to contribute to a working 12 relationship for the purposes of the Inquiry which has 13 been harmonious. 14 All of this is seen to be in the public interest in 15 a situation where an Inquiry is looking into serious 16 matters of public concern, and which ought properly to 17 be able to do so with the assistance of those 18 professionals and others representing the parties. 19 Thank you, my Lord. 20 CHAIR OF THE INQUIRY: Apart from one or two matters, 21 Mr Martin. 22 You mentioned Schedule Part 4, Clause 80. To what 23 extent do you consider the terms of Clause 80 resulted 24 in delay? 25 MR MARTIN: My Lord, I think this is set out in the written 61 1 submissions, I hope, in sufficient detail. It was the 2 fact that when there came to be disputes over the BDDI 3 to IFC design evolution, whether that fell within or 4 outwith what was described in Pricing Assumption 5 Number 1 and thus whether or not it constituted 6 a Notified Departure, then led to the triggering of the 7 mechanism in Clause 80 which was ultimately resolved, at 8 least in the case of a Notified Departure by the 9 decision of Lord Dervaird, I think, in August 2010, when 10 he held that in the case of a Notified Departure, the 11 Council was not in a position, as a result of in 12 particular clause 80.13, to issue a direction in one 13 form or another to continue with the works until there 14 had been a resolution of the estimate which ought to 15 have been provided in relation to an accepted Notified 16 Departure. 17 It was in that way, my Lord, that the mechanism in 18 Clause 80 led to delays. That's what caused many of the 19 stoppages in the projects, or even arguments over 20 whether there would be stoppages in the project. Again, 21 I don't repeat, I hope it's set out at sufficient length 22 in chapter 1, that is why the Council submits that the 23 change mechanism, the Clause 80 provisions in 24 particular, led ultimately to the fact that the project 25 was delayed. 62 1 CHAIR OF THE INQUIRY: Yes. There has been some evidence 2 that it was the involvement of tie in revising Clause 80 3 which may or may not have caused the difficulty. Do you 4 have anything to say about that? 5 MR MARTIN: I don't think beyond the written submissions, 6 my Lord, in particular, and, my Lord may be aware that 7 the revisals of the written submissions after exchange 8 have added a little bit to that, because the position, 9 I think, may be said to be that a mechanism such as that 10 is a valuable mechanism in a situation where the client 11 wishes to secure itself against the risk of a contractor 12 seeking to make many changes which have unforeseeable 13 costs, and thus a mechanism which ensures that those 14 costs are identified before the changes are actually 15 authorised. 16 The problem in the present case was, and I think it 17 may be said not to have been foreseen, and I emphasise 18 this is dealt with in the written submissions, the 19 problem in this case was that it was not appreciated 20 that of course the change mechanism brought about by the 21 argument as to whether a BDDI design to an IFC design 22 had resulted in a Notified Departure, that in itself 23 triggered the Clause 80 mechanism with all the 24 uncertainties it then gave. 25 In other words, Clause 80 came to be a mechanism 63 1 operating not just to protect the client against changes 2 desired by the contractor, but rather operated against 3 the client, because every time there was an argument 4 that a BDDI to IFC design had resulted in a Notified 5 Departure, then the client was disadvantaged because the 6 work could not then carry on until that had been 7 resolved, and in particular if there was a Notified 8 Departure, until an estimate had been either agreed or 9 had been decided upon by the DRP process. 10 CHAIR OF THE INQUIRY: Two other matters. In the section 11 dealing with lessons learned, you say that if an ALEO is 12 used, there's a need to make sure that the ALEO serves 13 the needs of the interests of the Council rather than 14 its own interests. Do you perceive that to have been 15 a problem here? 16 MR MARTIN: I think I would ask my Lord simply to judge the 17 evidence as a whole, but I think it can fairly be said, 18 and there are certain particular email exchanges, one 19 thinks of the particular email with the word 20 "colleagues" in quotation marks, where there may well be 21 an inference to be drawn that there was a feeling of 22 them and us, rather than a feeling within tie, we are an 23 arm's length organisation but we are here to serve the 24 interests of the Council in all respects and that is our 25 fundamental duty. 64 1 So without taking a definitive position, my Lord, it 2 seems to me that that is a potential inference that can 3 be drawn, and that being the case, it's an important 4 thing for the Council to have recognised and to try and 5 deal with in the future. 6 CHAIR OF THE INQUIRY: Finally, what, if any, role do you 7 see for Transport Scotland in any future contracts of 8 this nature? 9 MR MARTIN: My Lord, the position of the Council so far as 10 Transport Scotland is concerned is that the Inquiry has 11 heard all the evidence on that matter, including the 12 written submissions and my learned friend Mr Barne's 13 submissions this morning. I don't think I would want to 14 go beyond recognising it as a potential factor which 15 will depend on the individual contract, the individual 16 project in question. My Lord has had evidence, for 17 example, about the Stirling-Alloa-Kincardine line and 18 the involvement of Transport Scotland there, and I leave 19 aside the involvement of tie, and on other projects 20 which have been referred to. I suspect that what 21 I should not go beyond is simply to say that 22 I personally, and I'm speaking without direct 23 instructions at this point, would expect it to be 24 a matter of the individual circumstances of the 25 particular project. 65 1 CHAIR OF THE INQUIRY: Thank you very much, Mr Martin. 2 Before bringing these proceedings to a close, I want 3 to say something about events recently. Core 4 participants will be aware that Bilfinger Construction 5 UK Limited have commenced legal proceedings against me, 6 seeking to suspend and thereafter reduce my decision 7 relating to their application for redaction of certain 8 material from a production recovered following service 9 upon them of a Section 21 Notice. 10 Bilfinger also sought interim suspension and interim 11 interdict preventing the publication of that material. 12 The Tram Inquiry had anticipated that there may be 13 proceedings against it at some stage, and from the very 14 outset protected itself with caveats in both the Sheriff 15 Court and the Court of Session. These are procedures 16 which prevent anyone from obtaining an order against the 17 person who has the caveat without the opportunity of 18 that person addressing the court. 19 When the petition in this case was lodged without 20 any intimation, the caveat was triggered and a hearing 21 before Lord Tyre took place over two days. 22 On 8 May, Lord Tyre refused both interim suspension 23 and interim interdict. Bilfinger was granted leave to 24 reclaim and has done so. 25 The court granted a motion at my instance for early 66 1 disposal of the reclaiming motion, and that will be 2 heard on 15 June. 3 For the benefit of those unfamiliar with court 4 procedure, a reclaiming motion is an appeal against 5 a decision of a judge in the Court of Session. If 6 Bilfinger is ultimately unsuccessful in the court 7 proceedings, additional material that is the subject of 8 those proceedings will be lodged. If that occurs, all 9 parties will be afforded an opportunity of submitting 10 additional evidence and making further submissions that 11 they consider to be relevant to that additional 12 material. 13 A similar issue has arisen with the documents from 14 DLA which I asked Mr Dunlop about this morning and which 15 have been made available to core participants. 16 Clearly if parties consider, once they've had time 17 to review these documents and the explanation given, if 18 parties wish to make additional submissions or to lead 19 evidence about these documents, then they may apply to 20 the Inquiry, specifically to me, for the right to do so 21 and that will be adjudged on the merits of the 22 application. 23 With that, I wish to draw this to a conclusion. 24 Clearly the Inquiry will have to reflect upon all of the 25 evidence that we've received, and a report will be 67 1 prepared and submitted in due course. 2 I would like to conclude the public hearings -- or 3 hopefully conclude the public hearings, there may be 4 others, depending on the outcome of the court 5 proceedings. I would like to conclude these proceedings 6 by thanking everyone who has appeared before the 7 Inquiry, both Counsel and solicitors, for the help that 8 they've given to me and Counsel to the Inquiry and to 9 solicitors to the Inquiry, as well as the Secretariat 10 throughout our investigations. Thank you very much. 11 (11.32 am) 12 (The hearing concluded) 13 14 15 16 17 18 19 20 21 22 23 24 25 68 1 INDEX 2 PAGE 3 Closing submissions by MR BARNE ......................1 4 5 Closing submissions by MR DUNLOP ....................22 6 7 Closing submissions by MR MARTIN ....................36 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 69