1 Wednesday, 13 December 2017 9 (11.12 am) 10 CHAIR OF THE INQUIRY: Yes, Mr Lake. 11 MR LAKE: My Lord, the next witness is Kenneth Hogg. 12 MR KENNETH HOGG (sworn) 13 CHAIR OF THE INQUIRY: You are going to be asked questions 14 initially at least by Mr Lake, Counsel to the Inquiry. 15 If you simply listen to the question and answer it as 16 directly as possible, and also if you keep your answers 17 at a measured speed, so the shorthand writers can keep 18 up with you, and finally, if you speak into the 19 microphones, so that everyone can hear what you are 20 saying. 21 Examination by MR LAKE 22 MR LAKE: Mr Hogg, could you state your full name, please. 23 A. Kenneth James Hogg. 24 Q. I would like to look at a document, please. You've got 25 a hard copy in front of you, but it will also be shown 50 1 on the screen to your right. It's TRI00000045_C. 2 That should be the same document on the screen as in 3 front of you. 4 Is that a copy of the statement that you provided to 5 this Inquiry? 6 A. Yes, it is. 7 Q. I think the paper copy will have your signature on the 8 final page? 9 A. Yes, it does. 10 Q. Are you content to adopt that as your evidence for the 11 purposes of this Inquiry? 12 A. Yes. 13 Q. I would like to ask you just a few additional questions 14 by way of clarity. 15 Looking at the time, moving towards the close of the 16 contracts at the end of 2007, I think at that time you 17 were a non-Executive Director at tie? 18 A. Yes. 19 Q. But not at that time at TEL? 20 A. Yes, that's correct. 21 Q. As at that time you had started attending the Tram 22 Project Board on some occasions? 23 A. Not at that stage. My recollection is that the tie 24 non-Executive Directors were invited to attend the Tram 25 Project Board at some point between 2007/2008. 51 1 I couldn't remember the -- I don't recall the exact 2 date. I thought it was 2008 when that happened. 3 Q. But where you have attended it's noted in the minutes? 4 A. Yes, that's correct. 5 Q. We can proceed on that basis. 6 The Final Business Case was issued around about the 7 end of 2007. Did you have a role in approving that? 8 A. No. 9 Q. Were you aware of the terms of it? 10 A. Yes. 11 Q. Perhaps just looking at the section on governance now, 12 could we have the Draft Final Business Case, please. 13 Sorry, the Final Business Case. It's reference 14 CEC01395434. 15 A. Could I clarify my earlier answer? 16 Q. Certainly. 17 A. The -- both the draft and Final Business Cases were 18 presented to the tie Board at the time when I was 19 a non-Executive Director. 20 Q. In that context, did you approve of or consider the 21 terms of them? 22 A. Yes. 23 Q. You recognise this version here is the version 2 of the 24 Final Business Case dated 7 December 2007. 25 A. Yes. 52 1 Q. Could we look within this, please, at page 84. We can 2 see the heading, the section 6, Governance. Then if we 3 look at the lower half of the page, under the heading, 4 "Governance structure - Period to mid-2007", you will see 5 paragraph 6.4 notes four key bodies were involved in 6 this period. Those bodies are then designated TEL, the 7 Tram Project Board, and the Tram Project Board 8 sub-committees, there were two of them. 9 It was apparent by this time that this is 10 representing that tie are not one of the key bodies. 11 Was that your understanding at the time while sitting as 12 a Director of tie? 13 A. No. That wasn't -- my understanding was that tie was 14 one of the key bodies. 15 Q. This gives rise to a tension I want to ask you about. 16 On the one hand you are sitting there and believing it's 17 one of the key bodies, but on the other hand you're 18 approving a business plan that says it wasn't. Was that 19 not causing confusion? 20 A. I agree that paragraph 6.4 is not a fully accurate 21 representation of who the key bodies were. I don't 22 recall a discussion at that time about that paragraph 23 around the tie Board table. tie was the contracting 24 party with the contractors, and so tie would have been 25 a key body. 53 1 Q. We can see that's the one going up to mid-2007. You 2 will be aware, of course -- the change in mid-2007 being 3 very much that Transport Scotland stood back from the 4 statement. You describe that in your statement. That 5 reflects your understanding, does it? 6 A. If you're asking whether Transport Scotland should also 7 be listed in here -- 8 Q. No, I'm asking, was that your understanding that, as of 9 summer 2007, Transport Scotland stood back? 10 A. They no longer attended the tie Board meetings, but they 11 were still involved. So, for example, they were still 12 in receipt of both written updates from tie staff and 13 also verbal updates. But it is true that from that 14 point on they no longer attended the tie Board, whereas 15 they had done previously. 16 Q. Can we look over the page, please, to page 85 of the 17 document. 18 Could we look at the lower part of the page, enlarge 19 the ... 20 We can see the heading "TEL Board" and underneath 21 it, paragraph 6.8 notes that: 22 "The role of the TEL Board was focused on its 23 statutory stewardship role and on its overall 24 responsibility to deliver an integrated tram and bus 25 network for Edinburgh, on behalf of CEC. It made the 54 1 formal recommendations to CEC on key aspects of the 2 project including Business Plan and Business Case 3 approval, contractual commitment and matters which have 4 a political dimension." 5 Now, that is squarely putting TEL as being the body 6 that's making recommendations to the Council. Again, 7 was that reflecting the reality as you understood it at 8 the time? 9 A. No. And indeed, in particular, reference to making 10 representations to the Council, the Council were members 11 of the tie Board, both as councillors, there were four 12 councillors at that point as members of the tie Board, 13 and senior Council officials also attended and 14 participated in every tie Board meeting. 15 Q. At this time, going back to leading up to mid-2007, tie 16 and TEL were separate companies. One was not the 17 subsidiary of the other? 18 A. That's correct, yes. 19 Q. But on the face of this, it seems to be presenting an 20 understanding of the Business Case that TEL was in fact 21 the adviser to the Council? 22 A. tie and TEL had separate purposes. TEL had been 23 established in order to oversee the integration of 24 Lothian Buses with the tram project. tie had been 25 established to oversee a suite of transport projects. 55 1 A portfolio of public transport projects, one of which 2 was the tram project, and in the reference to the tram 3 project, tie was the contracting party, not TEL. 4 Q. If you go over the page once again to page 86, in the 5 upper half of this, in paragraph 6.9, under the heading 6 "TPB", it says: 7 "The TPB was established as an independent body to 8 monitor the execution of the project. In doing so, the 9 TPB followed normal best practice in project 10 management." 11 Again, just at this time, up to mid-2007, was that 12 your understanding of how the TPB was functioning in 13 practice? 14 A. That's not a fully accurate statement. In particular, 15 I would take issue with the phrase "independent body". 16 The TPB was a committee of TEL. It was not an 17 independent company, for example. It did not have 18 a company board. 19 So it was a committee of TEL Limited, and it was 20 taking one of the detailed decisions around the 21 execution of the project. So that part of the statement 22 is correct, but I would take issue with the phrase 23 "independent body". It did not have a life of its own. 24 Q. We've mentioned tie, TEL and the Tram Project Board. 25 Which of those bodies had the principal responsibility 56 1 for producing the Final Business Case for delivery to 2 the Council? 3 A. The Business Case was produced by a combination of staff 4 who were employed by tie, and City of Edinburgh Council 5 officials, with inputs from other parties, including 6 consultants and Lothian Buses. 7 It was considered by the tie Board. I don't know 8 whether or not at that point it was also considered by 9 the TEL Board, before it was put to the Council for 10 final approval. 11 Q. Can we look now on to page 88 of this document. You 12 will see from the heading at the top of the page, moving 13 now to a different time period, this is the governance 14 structure mid-2007 to financial close. 15 If we scroll down so we get a full view of 16 paragraph 6.24, the note is made there that in this 17 period Transport Scotland withdrew from the formal 18 governance processes in favour of a monitoring regime 19 based on regular reporting and meetings with City of 20 Edinburgh Council, supported by audit processes and 21 issue of regular compliance certificates. Do you see 22 that? 23 A. Yes. 24 Q. You've already mentioned that. 25 It then goes on to consider some of the changes. If 57 1 we scroll further down the page, we can see 2 paragraph 6.26 refers to revisions in the Council 3 processes consisting of changes to the operating 4 agreements, and 6.27 notes a sub-committee of the 5 Council's Transport Infrastructure and Environment 6 Committee dedicated to the transport project being 7 established. Do you see that also? 8 A. Yes. 9 Q. Were you involved to any great extent in these changes 10 taking place within the Council? 11 A. No. 12 Q. Can we look over the page, please, then at 13 paragraph 6.28. We can see under the heading "Project 14 level", it says: 15 "The role of the TPB was confirmed and the delegated 16 authority arrangements (including the powers reserved to 17 CEC), previously enshrined in the approved remit of the 18 Tram Project Board, are contained in the revised 19 Operating Agreements being prepared by the Council and 20 which will be agreed with tie and TEL in advance of 21 Financial Close." 22 If I jump to the last sentence: 23 "In all other material respects the operation of 24 governance by the Tram Project Board continued as in the 25 period to mid-2007." 58 1 Does that accord with your understanding that as far 2 as the Tram Project Board and for that matter, tie and 3 TEL are concerned, there was no material change in this 4 period? 5 A. Yes. My understanding was that the Tram Project Board, 6 throughout this period, had particular responsibility 7 for the detailed operational execution of the project, 8 and that remained the case both before and after these 9 changes here. The tie Board were responsible for the 10 overall strategy being undertaken in relation to the 11 project. 12 Q. If we then go to page 91, we have got a heading 13 identifying another period that we're looking at now, 14 the governance structure, once termed the construction 15 period. 6.31: 16 "The further changes proposed to be implemented in 17 the period to Financial Close to prepare for the 18 construction period are as follows." 19 We can see in 6.32, it says: 20 "The TEL Board is focused on its overall 21 responsibility to deliver an integrated tram and bus 22 network for Edinburgh on behalf of the City of Edinburgh 23 Council. It will make formal recommendations to City of 24 Edinburgh Council on key aspects of the project and 25 matters which have a political dimension." 59 1 Now, did you understand this change in the role of 2 TEL was taking place at that time, that they would make 3 the formal recommendations to the Council on key aspects 4 of the project? 5 A. I can't remember whether at that time I was aware of 6 this, and certainly I don't have any recollection of 7 that now. In particular, I don't think it was the case 8 that reporting to the Council only went via TEL. It 9 went direct from tie. And indeed, that was part of the 10 reason for having the Council involvement on the 11 tie Board. Changes were made subsequently when TEL took 12 over ownership of tie. So that was a later change, but 13 at this point in time, it wasn't the case that TEL were 14 the only organisation reporting direct to the Council. 15 tie was too. 16 Q. Jumping down a bit then to look at paragraph 6.35, it's 17 talking about the composition of these two boards. 18 That's the tie Board and the TEL Board: 19 "... is re-visited to ensure the following objectives 20 are achieved." 21 The first bullet point is: 22 "Ensure the TEL Board has the composition necessary 23 to be the active arm of the Council in oversight of 24 project delivery and preparation for integrated 25 operations." 60 1 Once again that's giving the impression really 2 that -- it says quite bluntly TEL are the active arm in 3 oversight of project delivery. Would that have 4 represented a change from how things had been up to that 5 time? 6 A. At this point I wasn't a member of the TEL Board. So 7 I don't know what they did or didn't discuss or do. But 8 I don't agree that the TEL Board was the only active arm 9 of the Council at this point. And my understanding was 10 that whereas the TEL Board were particularly focused on 11 the future integration of the tram project as delivered 12 with Lothian Buses to create an integrated single public 13 transport scheme for Edinburgh, tie and tie Board was 14 the Board focusing on getting the tram project actually 15 built in the first place. And reporting to the Council 16 on those matters. 17 Q. In that vein, can we look down at paragraph 6.38, if we 18 scroll down a little bit further. It says: 19 "It is also envisaged that certain of the Elected 20 Members of the tie Board and its independent 21 non-Executive Directors ..." 22 That would include you, wouldn't it, that category? 23 A. Yes. 24 Q. "... will join (if not already members) the TEL Board or 25 the Tram Project Board (including specific 61 1 sub-Committees) to ensure consistency of approach and to 2 utilise relevant experience productively. The 3 re-deployment of the Elected Members and the independent 4 non-Executive Directors will reflect: 5 (i) The emphasis of the TEL Board on oversight (on 6 behalf of the Council) of matters of significance to the 7 Elected Members in relation to project delivery and 8 preparation for integrated operations; and 9 "(ii) the emphasis of the Tram Project Board on 10 delivery of the tram system to programme and budget and 11 the preparation for integrated operations." 12 Now, those two subparagraphs there, looking at what 13 would be done by TEL and Tram Project Board, would you 14 agree they leave very little for tie to do? 15 A. Can you remind me of the date of this document? Is this 16 mid-2007? 17 Q. It is December 2007. 18 A. My recollection is that what is described here did not 19 happen until later on. So at the point at which TEL 20 took over ownership of tie, at that point these changes 21 happened, and the non-Executive Directors of tie, 22 including myself, became non-Executive Directors of TEL, 23 along with the councillors who sat on tie. 24 My memory is that that did not happen in 2007. 25 I think that happened only later, if that's the case, if 62 1 I'm correct on those dates, this is inaccurate 2 description of what actually happened at that time. It 3 might have been an intention in writing this paper, but 4 it wasn't what was happening at that time. 5 Q. Was there any change apparent to you as a Director of 6 tie in the role being played by tie at this time, 7 December 2007? 8 A. No. I have no recollection of any change being made, 9 including to my own responsibilities, as a Director of 10 tie, at this time. 11 Q. Can we look over the page, please, to page 92 and 12 paragraph 6.45. 13 You will see this is considering the role of the 14 Tram Project Board. It says: 15 "The Tram Project Board maintains its role as the 16 pivotal oversight body in the governance structure." 17 First of all, just pausing there, would you have 18 said at that time that the Tram Project Board was the 19 pivotal oversight structure? 20 A. It was one of the pivotal bodies. I would take issue 21 again with the phrase "governance structure". So the 22 governance arrangements in place were a matter for the 23 City of Edinburgh Council. 24 The various company structures that existed, tie and 25 TEL and the existence of the TPB, was a system designed 63 1 by the City of Edinburgh Council and expressed through 2 the operating agreements that existed between the 3 Council and those two companies. 4 If this is a reference to project governance rather 5 than corporate governance, I would agree that the tram 6 project -- the Tram Project Board was an important body 7 in overseeing the execution of project governance, but 8 it wasn't the only pivotal oversight body, 9 and I would -- and I would have expected to see tie -- 10 the tie Board included in that description too. 11 Q. Would you agree that reading this, the description of 12 the Tram Project Board as the pivotal oversight body, 13 appears to give it primacy? 14 A. It's certainly an incomplete description. 15 Q. Reading on then, it goes on to say: 16 "The Tram Project Board is established as a formal 17 sub-committee of TEL with full delegated authority 18 through its Operating Agreement to execute the project 19 in line with the proposed remit set out in 20 Section 6.32." 21 Just pausing there, I think you have already said 22 your understanding was that the Tram Project Board was 23 a sub-committee of TEL? 24 A. Yes. 25 Q. It then continues: 64 1 "In summary, the Tram Project Board has full 2 delegated authority to take the actions needed to 3 deliver the project to the agreed standards of cost, 4 programme and quality." 5 Now, that gives the impression, would you agree, 6 that the Tram Project Board is actually going to deliver 7 the tram project? 8 A. In an operational sense, yes. The detailed decisions in 9 respect to managing the contract and making progress 10 were properly a matter for the Tram Project Board. And 11 it did have delegated authority to undertake those 12 actions. But it's not the case that the Tram Project 13 Board was responsible for the overall strategy being 14 taken to get the trams project delivered. So again, 15 I would say that's an incomplete description of the 16 situation that existed at that time. 17 Q. If we scroll back up to the top of this page to see 18 paragraph 6.41, it notes there that: 19 "It is recognised that there is inevitable 20 duplication between the scrutiny by the tie Board of its 21 Executive activities and the oversight role performed by 22 the Tram Project Board. However, in a large, complex 23 project, this seems a worthwhile price to pay for robust 24 governance." 25 Again, was that your understanding at the time, that 65 1 there was to be duplication, and that was accepted as 2 a fact of life? 3 A. It was accepted at the time that there was an element of 4 duplication of discussion, and that was a factor which 5 was addressed subsequently when the tie Board members 6 were invited to attend TPB meetings and also when they 7 then scheduled the Tram Project Board meetings to be 8 back-to-back with tie Board meetings, so that we could 9 hold crossover discussions once. So, for example, if 10 there was a discussion about a particular aspect of one 11 of the contracts, that rather than repeating that 12 discussion twice over, it would happen just the once, 13 with the different -- the different boards having 14 a different role in respect of that issue. 15 Q. From what you've said about what was being represented 16 here in the Final Business Case, and your understanding 17 of the factual position as it existed on the ground, 18 would you agree that in fact it is not really correct to 19 say that it was clear as to what the roles were and the 20 responsibilities? There appears to have been 21 considerable ambiguity and confusion about that? 22 A. I agree that what is written here is not an accurate 23 description. In practice, at the time, I did not feel 24 that there was that ambiguity in terms of who was doing 25 what in respect of the governance of the project. 66 1 I would agree that this is an incomplete and inaccurate 2 description of the respective responsibilities, but that 3 wasn't my -- but that doesn't reflect my feelings at the 4 time. My view at the time was that it was clear what 5 tie were being asked to do and what the Tram Project 6 Board were being asked to do. 7 Q. That's on the assumption that what tie were being asked 8 to do is not as stated in the Final Business Case. You 9 thought they were one of the key bodies and that's 10 why -- 11 A. Yes, that's correct. 12 Q. Could we look at your statement, please, at page 17, 13 paragraph 36. You note here: 14 "In an email dated 1 October 2007, Graeme Bissett 15 responded to my comments. Mr Bissett forwarded that 16 email to Colin McLauchlan and Steven Bell saying 17 "Predictably, the non-Executive Directors are seeking to 18 understand what exactly is the role of the tie Board'. 19 This comment refers to the proposed governance changes. 20 I understood the role of the tie Board at that time to 21 be to execute its responsibilities in line with its 22 memorandum and articles of association and the tram's 23 Operating Agreement. It was fundamentally a corporate 24 governance role. I believed that the tie Board was 25 effective in its role and provided effective oversight 67 1 of tie until the first few months of 2011, a matter 2 which I have commented on separately in this statement." 3 Just a couple of things arising out of that. It 4 seems that other of the non-Executive Directors were 5 raising queries as to precisely what role tie was to 6 have at this time. Were you involved in raising those 7 queries? 8 A. I believe this is a reference to an exchange of emails 9 which was happening around that time, commenting on 10 draft revisions to the Operating Agreement between the 11 Council and tie, and I and others had commented on some 12 of the proposed revisions to that Operating Agreement. 13 I think I had -- I have given those papers to the 14 Inquiry separately, and I think I refer to them 15 elsewhere in my written statement. 16 I don't believe that this comment here reflects 17 a more fundamental, why are we here question; that was 18 not a live discussion around the Board. 19 I think it reflects specific commenting about 20 proposed revisions to the Operating Agreement. 21 Q. In an earlier -- in an answer you gave to me earlier, 22 you differentiated corporate governance on the one hand 23 from project governance on the other, and it's notable 24 in this paragraph, you refer to the role of the 25 tie Board being to execute its responsibilities in line 68 1 with its memorandum and articles of association, and you 2 describe tie's role as being fundamentally a corporate 3 governance role. 4 Is that how it started to be seen at the time, that 5 tie's role was one of corporate governance and project 6 governance went elsewhere? 7 A. No, the distinction I'm making is that tie Board was 8 a Company Board. The Tram Project Board was not 9 a Company Board. And the two are quite different 10 things. 11 I had legal responsibilities as a Company Director 12 which did not apply to anybody else around that Tram 13 Project Board table. 14 Q. We read the Tram Project Board was a sub-committee of 15 TEL? 16 A. Yes. 17 Q. So it was effectively functioning as part of the 18 TEL Board, was that your understanding? 19 A. It derived its powers from the TEL Board but it was not 20 a Company Board. The distinction I'm making here is 21 that to take a concrete example, when the project ran 22 into difficulties, a decision was required about how 23 best to try and get the project back on track, and that 24 was a -- that was a question at a strategic level for 25 the tie Board about how to improve the relationship, and 69 1 improve performance from the contractor. 2 That was a longer-term strategic decision that fell 3 to the tie Board, given its responsibilities for the 4 project, rather than the Tram Project Board, which was 5 more concerned with the operational execution of that in 6 line with what the tie Board, and indeed the TEL Board, 7 were deciding to do. 8 Q. When you say -- I'll ask more generally. 9 What did you understand the status of the Tram 10 Project Board to be as a committee of TEL? 11 A. It was a committee which derived its authority and 12 purpose from TEL. It had a particular focus on the 13 detailed operational execution of the contract, and it 14 dealt with matters at a level of granularity which 15 wasn't the case regularly at the tie Board. Certainly 16 on occasions the tie Board drilled down into particular 17 matters, but the Tram Project Board was the place where 18 every detailed decision that met that required level of 19 engagement was carried out. 20 Q. If the Tram Project Board then is taking a decision, 21 detailed decision about the implementation of the 22 contracts, I'm just wondering how that took effect. If 23 the Tram Project Board took a decision, but tie were the 24 party to the contracts, how did the Tram Project Board 25 take decisions that were to bind tie? 70 1 A. The Tram Project Board was not authorised to depart from 2 what had been agreed in the contract, and any decision 3 where the contract itself was in doubt or was queried, 4 any discussion about that matter, to my knowledge, was 5 put to the tie Board. 6 Q. But discussions about what strategy to be pursued under 7 the contracts or what disputes to take would be taken at 8 the Tram Project Board, and I'm wondering in what 9 sense -- what consideration tie gave to those matters, 10 or did they simply follow whatever was decided by the 11 Tram Project Board? 12 A. You mentioned the example of disputes and in respect of 13 the dispute resolution process, those -- those were 14 discussed around the tie Board table. Clearly I wasn't 15 a member of the Tram Project Board at this time. So 16 I can't speak for -- I don't have first-hand experience 17 of what their discussions were, but it is not the case 18 that there were -- in my experience and my 19 understanding, it was not the case that there were two 20 disconnected discussions going on, one taking place at 21 the Tram Project Board and one taking place at the 22 tie Board, not least because the same officials were 23 participating in both, and reports were being made to 24 the tie Board from the Tram Project Board. 25 Q. Well, the discussions might be linked, but if the Tram 71 1 Project Board took a decision as to what was to happen 2 in relation to the contracts, be it trying to encourage 3 faster work, dealing with issues that arose, that, to 4 give effect, would have to be passed to employees of tie 5 for them to action; is that correct? 6 A. I think there's an important -- 7 Q. Can we just deal with that first of all? Was that 8 correct? If the Tram Project Board took a decision as 9 to what would be done in practice, that would have to be 10 implemented by tie's employees? 11 A. Well, that's an incorrect statement because everybody 12 there was a tie employee. There were no Tram Project 13 Board employees. 14 Q. Well -- is the answer to my question yes, if the Tram 15 Project Board decision was to be given effect, it would 16 have to be given effect by tie employees? 17 A. Yes. That's correct. 18 Q. So in terms of deciding any policy or approach in 19 relation to the contracts, the decision would be taken 20 by the Tram Project Board, but it would affect tie 21 because they were the party to the contract? 22 A. Yes, that's fair. 23 Q. Now, as a Director of tie, did that not place you in 24 a difficult position that decisions in relation to these 25 very substantial contracts were being taken by another 72 1 body of which you were not a member? 2 A. Only to some extent. The decisions that were being 3 taken were being taken about technical matters, about -- 4 I'm trying to recall at this point in time what would be 5 discussed. 6 For example, decisions about the execution of the 7 utilities diversion works would be ongoing at this time. 8 Q. Mm-hm. 9 A. And decisions taken about which sections of which 10 particular street work should take place with next, or 11 how to address problems that arose in particular streets 12 in terms of those utilities diversion works, those were 13 the sort of decisions which the Tram Project Board were 14 taking at the time. 15 That was quite a separate matter from taking 16 a strategic view on the -- on how the contract should or 17 should not be operating. 18 Q. But the Tram Project Board would also be taking 19 decisions as to the compromise if claims were arising 20 under the contracts, particularly the MUDFA and SDS 21 contracts? 22 A. I don't -- I don't know. I think that's the case, but 23 I can't be sure about it. 24 Q. The Tram Project Board might also be involved in taking 25 decisions as to agree the early termination of the MUDFA 73 1 contract? 2 A. I can't recall that. 3 Q. If you take it from me, just ask you to assume for the 4 moment that what I have said is correct, you've got 5 a situation where the Tram Project Board are taking 6 quite substantial and major decisions in relation to 7 contracts with a different company: what difficulties 8 did that cause you as a Director of tie, not being in 9 control of the decisions taken? 10 A. It wasn't ideal, and that was addressed subsequently by 11 changes that took place in terms of inviting the tie 12 directors to attend TPB meetings. I would agree with 13 that. 14 But equally, I would say that it was not the case 15 that you had two separate groups of people doing 16 different activities. Everybody in that building was 17 a tie employee. The fact that they were sitting around 18 a Board called the Tram Project Board, that -- I agree 19 that's a corporate governance distinction, but it's not 20 a distinction in terms of who was doing what work. 21 The same people, there was a single team working to 22 get the project delivered. They convened in some 23 instances as a Tram Project Board, and they supported 24 discussions in other instances at the tie Board. 25 There was strong cross-membership between both, and 74 1 there were reports between the two. So I was not 2 concerned at the time that things were happening in the 3 Tram Project Board that were out of line with the wishes 4 or the directions of the tie Board. 5 Q. Looking back to paragraph 36, which is still on screen, 6 the last sentence of it, you say: 7 "I believed that the TIE Board was effective in its 8 role and provided effective oversight of TIE until the 9 first few months of 2011, a matter which I have 10 commented on separately in this statement." 11 Elsewhere in the statement, you notice that the last 12 Board meeting for any practical purposes was actually in 13 2009. If really the tie Board stopped meeting for 14 practical purposes in 2009, how was it able to provide 15 effective oversight until 2011? 16 A. You're correct that that statement doesn't -- doesn't 17 include reference to the fact -- to the fact that after 18 2009, the tie -- when the ownership of tie shifted from 19 the Council to TEL, the tie Directors, including myself, 20 became TEL Directors. And the TEL Board met regularly. 21 So I should have maybe been clearer in that 22 statement that I meant tie until such point in time when 23 its role changed, and then the TEL Board became the -- 24 became the main Company Board. 25 The tie Board did meet twice after those changes 75 1 were made, but it was simply to approve the accounts in 2 the first instance, and to approve the appointment of 3 the new chair in the second instance. 4 Q. For fairness, I would refer you to page 10 of your 5 statement and paragraph 20 there. That's where you note 6 that: 7 "The minutes of the tie Board meeting on 8 16 December 2009 report this might be the last formal 9 tie Board meeting ..." 10 You do go on to note that it did meet on the two 11 occasions subsequently for the purposes you have just 12 narrated? 13 A. Yes, but the critical point here is that it's not the 14 case that the role which the tie Board had previously 15 performed then ceased. That role transferred to the 16 TEL Board which was configured differently, with a new 17 purpose, under a new Operating Agreement with the 18 Council. 19 Q. There was that transfer as a matter of the governance 20 structures, is what I understand you're telling me. Is 21 that -- 22 A. Yes. 23 Q. But it remained the case, I think, that tie had the 24 employees, and perhaps most significantly, tie was the 25 party to these very substantial construction contracts. 76 1 Is that correct? 2 A. That's correct. 3 Q. Yet this Board didn't meet for the following two years. 4 A. The Board -- 5 Q. For practical purposes. 6 A. Well, the Board did meet twice to fulfil its statutory 7 duties. But the functions of the Board were transferred 8 to the TEL Board. So all the -- all the discussions to 9 provide scrutiny of what was going on, to provide 10 independent challenge, those functions were transferred 11 from the tie Board to the TEL Board at the point at 12 which TEL became the owner of tie, rather than CEC. 13 The reason, as I recall it, why -- or one of the 14 reasons, as I recall it, why tie wasn't simply wound up 15 at that point was because tie had been the contracting 16 party, and to have wound up tie would have required an 17 additional amendment to the contracts which were already 18 at that time in dispute, and it was felt to be an 19 unhelpful thing to do. 20 So at the point at which this change was made, in 21 December 2009/January 2010, the functions which had been 22 carried out by the tie Board previously transferred to 23 the TEL Board, and whereas previously I had not 24 participated in the member of the TEL Board, I did then 25 going forwards. 77 1 Q. I understand. Could I ask you to look at the minutes of 2 a meeting, please. It's document reference CEC00988028. 3 CEC00988028. 4 You can see a front page here, with the heading, 5 "Tram Project Board Report on Period 10 Papers for 6 meeting 22 January 2008". Do you see that? 7 A. Yes. 8 Q. If you can take it from me, that year is an error. That 9 should be 2009. That becomes apparent when you're 10 looking at the documents after. 11 I say that to avoid confusion. 12 If we look, please, at page 5 of this document. 13 We're now looking at the minutes of the Tram Project 14 Board for 17 December 2008. Do you see that? 15 A. Yes. 16 Q. That year is correct. You can take that from me. 17 We can see here that on this occasion you're 18 listed -- in fact not even as someone in attendance, but 19 as a member of the Tram Project Board, in December 2008. 20 Do I understand from what you have said already, you 21 don't consider that you were actively a member, you were 22 simply a person in attendance from time to time? 23 A. I was first and foremost a Director of tie and TEL 24 Limited. I -- my recollection is that the non-Executive 25 Directors, and indeed the councillors, were invited to 78 1 attend some, but not at all, Transport Board -- Tram 2 Project Board meetings. This might have been the first. 3 I don't recall. 4 Q. You said you were invited to attend some and not others. 5 Elsewhere in your statement you make the point that if 6 the tie Board meeting was immediately before or 7 immediately after the Tram Project Board meeting, you 8 would attend and otherwise you wouldn't. Were there 9 occasions when the tie Board wasn't adjacent to the Tram 10 Project Board that you nonetheless attended the Tram 11 Project Board, or could you only attend the Tram Project 12 Board when you were invited to do so? 13 A. It wasn't really a matter of attending or not based on 14 the schedule. It was more a question of when there was 15 a discussion to be had in some detail in which -- would 16 need to have been gone into twice at both the TPB and 17 the tie Board, on those occasions they were organised 18 back-to-back. 19 What tended to happen from this point on was that 20 there was a scheduling of the two meetings back-to-back, 21 to facilitate that, but it is the case that I think 22 there were tie Board meetings which didn't happen 23 immediately following the TPB, both before and after 24 this date. 25 Q. So who decided which Tram Project Board meetings you 79 1 should attend? 2 A. An invitation would be put to the non-Executive 3 Directors of tie from the executive team in tie, 4 saying: there's a key issue we want to discuss on X 5 date. And at that point the invitation would be there 6 to attend the TPB. 7 If I had wanted to -- I don't -- I don't recall ever 8 wanting to attend a TPB and not being allowed to attend, 9 and none of this detracted from the specific 10 responsibilities of tie Board. 11 So I was quite clear that on some occasions I was 12 participating in a TPB discussion that had one set of 13 responsibilities, but that was a quite separate matter 14 from engaging as a non-Executive Director around the 15 tie Board table. 16 I had no concerns that discussions which ought 17 properly to have been discussed at the tie Board were in 18 fact -- were instead being discussed around the TPB. 19 Q. I'll come back to that in a little while, but what 20 I would like to ask you at the moment is: did you regard 21 it as a satisfactory position that you did not attend 22 all of the Tram Project Board meetings, but only some of 23 them, and that that was in the invitation of the 24 executive? 25 A. Yes. 80 1 Q. Because that would deprive you of a continuing oversight 2 and knowledge of what was happening at the Tram Project 3 Board? 4 A. I was a non-Executive Director, not an Executive 5 Director, and the issues which were discussed at the 6 Tram Project Board were issues which the executive team 7 were having to thrash out and discuss. 8 There were specific responsibilities that went with 9 the non-Executive Directorship which were quite properly 10 different from the executive team, and therefore 11 I didn't -- I did not feel that I needed to go beyond 12 those responsibilities and engage as an executive member 13 of the team, and therefore at times it was helpful, 14 certainly, to get more in-depth briefing and to be in 15 the room when more detailed issues were discussed in the 16 TPB. But, as I said before, I never felt that -- 17 I never felt anything other than the appropriate place 18 for me to exercise my duties as a non-Executive was 19 anywhere other than primarily the tie Board and then 20 latterly the TEL Board, once those governance changes 21 were made. 22 Q. One of the roles of a non-Executive Director would 23 usually be thought of providing oversight and challenge; 24 would you agree? 25 A. Independent scrutiny and challenge, yes. 81 1 Q. And that -- those two aspects of that role can only be 2 provided when the non-Executive Director has knowledge 3 of what's going on? 4 A. Yes. 5 Q. A good flow of information? 6 A. Yes. 7 Q. Would the information flow and understanding not have 8 been vastly improved had you been at all the Tram 9 Project Board meetings, so were aware of the decisions 10 that had been taken in relation to that contract -- 11 those contracts? 12 A. I don't believe that would have been appropriate because 13 the key role of a non-Executive Director is to operate 14 at the strategic level, and to -- and that was made 15 quite clear when these directors were recruited. It was 16 not to be fully informed about everything. This was 17 a very complex project, and the executive team were 18 spending many hours every week immersing themselves in 19 the detail. It would have been physically impossible 20 for non-Executive Directors to have matched that in any 21 way at all, and neither would it have been appropriate. 22 So no, I don't accept the basis of that. 23 Q. Whilst accepting a non-Executive Director can never in 24 practical terms immerse themselves in the level of 25 detail of an executive director, nor should they be 82 1 expected to do so, nonetheless, might the non-Executive 2 Director not attend four-weekly meetings of a board 3 charged as being the pivotal oversight body, to be aware 4 of what's happening? 5 A. They might have, and very often I did do, but that was 6 not a substitute for the scrutiny and challenge which I 7 brought amongst others around the tie and TEL Boards. 8 I never felt in those boards in any way inhibited from 9 seeking the information that I wanted in order to 10 participate in discussions and make decisions. 11 Q. Sticking with this document that's on screen, these are 12 the minutes of the Tram Project Board of 17 December. 13 Could we go to the following page. It's page 6. 14 Item 2.3. This is in relation to governance issues at 15 the end of 2008. We've got PS, who I think was 16 Peter Strachan, another of the non-Executive Directors 17 of tie, as it was then: 18 "... asked whether a change in governance is 19 perceived as being a problem in relation to the 20 contracts with Infraco. DA [Dave Anderson of the 21 Council] was also concerned over the timing and the 22 litigious nature of BSC. DJM and GB replied that it was 23 [I think it is Mr Mackay and Graeme Bissett] a challenge 24 the team had to face and that the opportunity to 25 streamline was now. KH [you] added that from his point 83 1 of view there are issues with the current structure. He 2 is concerned that at times the tie Board cannot 3 discharge their responsibilities fully." 4 Now, I wonder if you could explain what your concern 5 was and in what way tie could not discharge its 6 responsibilities fully. 7 A. I don't recall that specific discussion. As we 8 discussed earlier this morning, there had been work 9 undertaken to revise the Operating Agreement with tie 10 around this time which involved making changes to the 11 engagement of the Council with the project, and one of 12 the concerns I had raised, for example, when you 13 mentioned earlier this morning, the concerns I had made 14 about corporate governance, one of the changes that was 15 proposed involved which Council officials should 16 participate in tie Board meetings. 17 One of the comments that I made in my email response 18 was that I felt that the Council's Tram Monitoring 19 Officer should be a full member of the tie Board, and 20 that had not been provided for in the draft that I was 21 looking for. I was concerned that if the TMO were not 22 a full member or not attending all tie Board meetings, 23 they would open up the possibility for duplication in 24 lines of communication with CEC. 25 That may well have been what I was referring to in 84 1 saying there were issues with the current structure. 2 But I can't -- I can't remember more than that. 3 CHAIR OF THE INQUIRY: It seems to be something totally 4 different, isn't it? I mean, what you're speaking about 5 here is your concern that the Tram Monitoring Officer 6 wasn't an officer or attending the tie Board. What 7 you're talking about is the tie Board being unable to 8 discharge their responsibilities fully. That seems to 9 be a different point, isn't it? 10 A. Yes, sorry, I was commenting on the sentence before 11 about the current structure. I don't remember what the 12 point I was making at the time which has been recorded 13 in this way about the tie Board not discharging its 14 responsibilities fully. It's not my recollection that 15 I felt that. 16 MR LAKE: These were minutes from December 2008. I would 17 like to move on just a couple of months and look at the 18 Tram Project Board papers for February 2009. It's 19 reference CEC00988034. What we have here is a front 20 page which says "Tram Project Board Report on Period 11 21 Papers for meeting 11 February 2008". Once again, if 22 you could just take it from me that 2008 is an error. 23 They should still be 2009. 24 If you look through this to page 5, we can see here 25 we've got the minutes of the Tram Project Board from 85 1 22 January 2009. Do you see that? 2 A. Yes. 3 Q. This is one which you are noted as being in attendance 4 at. Do you see that? 5 A. Yes. 6 Q. What I would like to do is look at item 2.11, which is 7 on the following page. Can you see that you updated the 8 Board on the findings of the recent internal audit: 9 "They were asked to review the internal governance 10 within tie. They reported back with draft findings this 11 morning. We were given the 'green light' in terms of 12 controls in place but improvements need to be made. 13 The current governance framework gives ambiguity and we 14 should look to rationalise the structures." 15 Do you recall that? 16 A. Yes. 17 Q. Part of the ambiguity was about where the 18 decision-making powers lay and what the responsibilities 19 were; is that fair? 20 A. Yes. This had been one of the internal audit reports 21 which we had commissioned, and part of the ambiguity was 22 that by this point in time the broad portfolio of 23 transport projects which tie had initially been 24 established to undertake had been reduced to one, 25 essentially, the trams project, and there was ambiguity 86 1 about: why have TEL and tie? And this was the 2 discussion, including through the internal audit report, 3 which led to the subsequent changes to clarify that; TEL 4 became the owner of tie. 5 It also clarified the point which you've been asking 6 about, which was the relationship between the TPB and 7 TEL. 8 Q. tie had had only one project since shortly after the 9 Scottish general election in May 2007; is that correct? 10 A. At this point tie remained the authorised undertaker for 11 the Edinburgh Airport rail link. 12 Q. But that had been scrapped by the incoming government in 13 May 2007. 14 A. The decision -- well, that's not entirely correct. The 15 decision had been taken to not proceed with that 16 project. But there were various legal responsibilities 17 which remained in respect of that project, for example, 18 I think, land had been bought for that project. And tie 19 remained the authorised undertaker. 20 Work had -- work had diminished, but there were some 21 ongoing responsibilities in respect of that project. 22 I don't recall the other -- the dates when tie ended 23 its involvement with other projects. There was the 24 Stirling-Alloa-Kincardine railway, the fast link. It 25 was involved with the Forth Estuary Transport Authority 87 1 and other projects. 2 So part of the ambiguity was that by this point, tie 3 was now narrowing down to being a single project 4 company. 5 Q. In relation to that paragraph 2.11, you referred to it 6 in your statement and do refer to the internal audit 7 report, I would like to look at that, please. The 8 document reference is CEC01009902. 9 We can see there it is a set -- I think it looks 10 like a PowerPoint presentation that's been provided by 11 Deloitte, with a heading, "Internal Audit Project 12 2008-01: Review of Governance Arrangements". Is that 13 the document we are talking about? 14 A. Yes. 15 Q. Can we look at page 10, please. This comes after 16 a review of the framework that's in place. If we look 17 at the final paragraph on the page, I don't know if you 18 can highlight that out. It says: 19 "The current governance framework described above 20 gives rise to potential ambiguity as to where key 21 decisions are made and ratified. For example, key 22 stakeholders hold the tie Board accountable for 23 decisions made in respect of the Tram Project, when in 24 actual fact the Tram Project Board have delegated 25 authority for the delivery of an integrated Tram and Bus 88 1 network on behalf of City of Edinburgh Council and TEL." 2 Is that not recognition of the very issue we have 3 been discussing, that while some people regarded tie as 4 in charge, in terms of the written documents, it was 5 supposed to be the Tram Project Board that was in 6 charge? 7 A. Yes. 8 Q. That's going to give rise to ambiguity and confusion? 9 A. Yes, it did give rise to ambiguity, and it led to the 10 subsequent changes being made. 11 Q. You see, you've talked about the difficulty between tie 12 on the one hand and TEL on the other, but what was being 13 faced up to here by Deloittes was actually the ambiguity 14 was between tie on the one hand and the Tram Project 15 Board on the other, as to where the decisions were 16 actually being taken. 17 Where in your mind should the decisions have been 18 taken? 19 A. It depended on the nature of each individual decision. 20 So TPB had a set of delegated authorities to 21 undertake -- to execute the project and to make 22 decisions on that. tie was responsible for the overall 23 strategic approach and for -- and tie was the 24 contracting party. 25 I agree it was not ideal that TPB was a committee of 89 1 TEL Limited, and that's a separate company from tie Ltd. 2 But my experience was that in practice there was a clear 3 difference in terms of the focus of the activities and 4 the responsibilities between the two entities, the TPB 5 and the tie Board. 6 Q. That would be a clear focus in practice, rather than 7 established in terms of guidelines and rules structures? 8 A. I'm not aware of the guidelines, rules and structures 9 being incorrect for either of the two. My understanding 10 is that this is talking about -- this audit 11 recommendation is talking about the scope for ambiguity 12 and understanding of who is doing what and who is 13 responsible for what, and I agreed with that statement 14 at the time, and I was supportive of the changes that 15 were made subsequently to address this point. 16 That's a different matter from saying that in 17 practice, decisions were or were not made in the right 18 places. 19 Q. I think your concerns were recorded about over the time 20 that governance matters were taking to reach 21 a conclusion. Was it a concern that you had? 22 A. Yes, it was. This audit report, I think, was from 23 February 2009. Is that correct? 24 Q. Yes. 25 A. And it was not until later that year, the end of that 90 1 year, that the structural changes were made which 2 responded to this and other concerns that were raised 3 about this ambiguity. 4 Q. Which would be a full two years from the time, lead-up 5 to contract close, before they were addressed? 6 A. So contract close was in May 2008, and I think it was in 7 December 2009 that the changes were made. 8 Q. Two years after the Final Business Case being issued in 9 December 2007? 10 A. Two years after the Final Business Case, yes. 11 Q. I want to turn to ask you about a different matter now, 12 just in relation to bonuses. 13 You explained in your statement that bonuses were 14 dealt with by the Remuneration Committee and you didn't 15 sit on the Remuneration Committee? 16 A. That's correct. 17 Q. Nonetheless, not in terms of administering the bonus 18 schemes, but in terms of putting them in place, was that 19 something you considered in your role as a Director of 20 tie? 21 A. The arrangements for the bonus schemes were matters that 22 were decided upon by the Remuneration Committee, not by 23 the full tie Board. 24 I had -- I and the other non-Executive Directors had 25 a standing invitation if we wanted to, to participate or 91 1 to attend the Remuneration Committee, and I did on, 2 I think, two occasions. But -- and that's where my 3 understanding comes from about bonuses such as it is. 4 But my -- but I am sure that the issue of bonuses 5 was never discussed, certainly in my presence, at the 6 full tie Board meeting. 7 Q. By which I mean not just the giving of the bonuses, but 8 what the bonus scheme should be? 9 A. Yes. 10 Q. That wasn't discussed either? 11 A. Not to my knowledge, but one exception to that would be, 12 again, alluding to the exchange of emails I mentioned 13 earlier. One of the -- this is going back to 2007, 14 I think. One of the points of discussion was whether 15 the Council should both set the terms of any bonus 16 arrangements and make decisions about how much should be 17 paid in practice under those arrangements. And that was 18 a matter which was put to all the non-Executive 19 Directors to comment upon, as part of a wider set of 20 corporate governance changes. 21 Q. Were you individually happy with the bonus arrangements 22 that were put in place? 23 A. Beyond my two attendances at the meetings, I wasn't 24 fully aware of the arrangements that were being put in 25 place. I have a view, in retrospect, but at the time 92 1 I wasn't -- I wasn't fully part of those discussions, 2 and I -- 3 Q. It's -- sorry. 4 A. And I didn't -- I didn't know the full extent of 5 arrangements that existed. 6 Q. Accepting that your view is one in retrospect, what is 7 it? 8 A. In general terms, my view was then and is now that the 9 existence of performance-related bonuses was an accepted 10 part of industry practice, and in order to be an 11 attractive recruiter as an employer, it was right that 12 tie should use that. 13 I have subsequently learned or have been made aware 14 that the -- there have been questions asked about the 15 extent to which bonuses incentivised contract signature 16 inappropriately over and above project completion. 17 And I would share those concerns. 18 But I don't -- I didn't then, and I don't now, 19 believe that the right thing to do would have been to 20 have no bonus scheme, given the particular industry that 21 we were recruiting from. 22 Q. It appears that one element of the bonus scheme depended 23 on how much the total project cost would be at the time 24 the contracts were concluded, and that the payment to be 25 made depended on where in a band of 490 million to 93 1 530 million the estimated project cost would lie. 2 Were you aware of that? 3 A. No, I wasn't. 4 Q. So would you be in a position to offer any comment about 5 whether or not that was a satisfactory basis on which to 6 award bonuses? 7 A. I'm not really in a position to comment on that. 8 Q. Turning now to the question of contract close, the 9 Inquiry has heard evidence as to various elements of the 10 strategy for the contracts which involved transferring 11 risk to the contractors, reducing risk premium charged 12 by the contractors, having completed detailed designs at 13 the time of contract award, and also having the MUDFA 14 works completed prior to the commencement of the 15 infrastructure works. 16 Were you aware of these elements of the strategy? 17 A. Yes, in general terms. 18 Q. As matters drew to a close at the end of 2007, what was 19 your understanding of the state of the design? 20 A. My understanding was that design was incomplete. 21 I recall that the -- in reviewing my papers for this 22 evidence session today, I see that the design completion 23 as at April 2007 was deemed to be at around 50 per cent 24 complete. 25 I cannot recall now what the overall level of design 94 1 completions was at December 2007. 2 Q. Mm-hm. 3 A. Later -- later in the following year, I -- I see that 4 design completions around October 2007 were between 78 5 and 89 per cent complete. 6 So my assumption is that the state of completion 7 around December 2007 was a figure between 50 per cent 8 and 80 to 90 per cent. 9 Q. That meant the designs were not going to be complete at 10 the time. Did that cause you concerns about the 11 departure from the contract strategy? 12 A. Yes, it was a matter of concern to -- to me and to the 13 tie Board. Also in respect of the incompletion -- the 14 full incompletion of the utilities diversion works. And 15 that was a matter which was then taken into discussions 16 with the contractor and led to subsequent agreements 17 about who would be responsible for design and at what 18 cost. 19 Q. Was there consideration at tie of not proceeding to 20 award the contract in December? 2007 and then into 21 2008, on waiting until MUDFA and design caught up? 22 A. I don't recall any discussion about not proceeding in 23 December. I do recall a discussion about not proceeding 24 to award contract later, a few months beyond that, but 25 not in December 2007. 95 1 Q. Was it understood and expressed that this amounted to an 2 abandonment of the previous strategy? 3 A. Do you mean proceeding towards the contract? 4 Q. Yes. Abandoning the strategy of having design -- 5 detailed design in place and MUDFA complete, and instead 6 just proceeding anyway? 7 A. That's not -- that description doesn't accord with my 8 understanding. The intention had been to complete the 9 design and the utilities diversions before the contract 10 was awarded. It was clear at this point that that was 11 not going to happen. 12 The question then became how best to handle that 13 circumstance, and discussion was around what the options 14 were for that, recognising that it would be -- that we 15 would end up in a different position from that which we 16 had wanted to be in. 17 I don't think abandoning is the -- abandoning the 18 strategy would be a phrase that I would use. The 19 intention remained the same, to get it done as fast as 20 possible, and the question was then how that should best 21 be achieved. 22 Q. You say within your statement it was considered 23 appropriate to press on as the contractors knew the 24 position. Whether or not the contractors knew the 25 position, that doesn't change the fact there was quite 96 1 a substantial change from a position in which they were 2 being asked to price a completed design to reduce risk 3 and risk premium, to essentially taking on what could be 4 seen as a design and build contract? 5 A. I don't think that's correct description. The level of 6 design completions -- I should clarify. The information 7 that I was given as a non-Executive Director through 8 Board discussions was that the level of design 9 completion or lack of completion was a matter that was 10 discussed openly and fully with the -- with the 11 contractors during the preferred bidder period. So the 12 consortium which ended up signing the contract had seven 13 months as preferred bidder period before May 2008. 14 During that period they had full access to the state 15 of design approvals and completions, also on utility 16 diversions. 17 Therefore, they were, in firming up their best and 18 final offer beyond the initial bid, including through 19 what was termed, I think, the Wiesbaden deal 20 discussions, they were fully aware of the extent of 21 design completions, and one of the elements of that 22 Wiesbaden deal was that tie would pay GBP10 million more 23 to the infrastructure contractor in recognition of the 24 fact that they were with their eyes open willingly 25 taking on future performance risk around design along 97 1 with novation of the contract to them in order to let 2 them manage that with the same recourse to remedy that 3 tie had had previously. 4 Q. Is your understanding that the novation was brought in 5 as a means of dealing with the incomplete design? 6 A. Essentially, yes. I don't think -- my understanding is 7 that novation would not have been necessary had the 8 design all been completed in advance of contract 9 signature. I might be wrong in that if they required an 10 engagement with ongoing design subsequently, and that's 11 a detail I don't have. But the key point about novation 12 was along with buying out additional risk, as it was 13 presented to the Board, was to deal with the incomplete 14 design. 15 The key point I want to make is that in response to 16 your question, in no way could it be argued that that 17 was -- that that was something which the contractor was 18 not fully sighted on. The contractor, as far as I was 19 aware, was fully aware of the state of the design, and 20 the extra money which they were going to be given in 21 order to take on that risk going forward. 22 Q. By the time the contract came to close, what was your 23 understanding as to where the design risk lay? 24 A. My understanding was that the risk for what was termed 25 normal design development transferred from tie to the 98 1 consortium and specifically Bilfinger Berger within 2 that. 3 Q. Can I be clear, what do you mean by normal design 4 development? 5 A. I mean that the evolution of designs for the physical 6 infrastructure for the project became the responsibility 7 of the contractor with the exception of changes which 8 would be deemed to be beyond design development. 9 Excuse me, beyond normal design development. 10 So, for example, had tie decided to change the 11 fundamental design of station stops or had tie decided 12 that they wanted a different sort of bridge at the 13 airport, those would -- those would clearly be 14 developments beyond normal design, but normal design 15 development in line with the scheme proposed that 16 a signature would transfer -- my understanding was that 17 that would transfer to the contractor. 18 Q. Just to be sure we are not talking at cross-purposes, 19 they could be seen as two aspects of the risk of design 20 development. One is actually paying to do the design. 21 The other is the cost of construction in accordance with 22 the design. 23 Was there any differentiation between those two as 24 to who bore the risk? 25 A. The two are separate in my view, I agree. Part of the 99 1 rationale for novating the contract to the contractor 2 was that the contractor was the party best placed to 3 manage risk and to ensure integration between design and 4 construction; given that one had a bearing on the other. 5 So rather than tie continuing to hold a risk which 6 it was not best placed to manage, it was preferred that 7 the contractor, with the contractor's agreement, took on 8 that risk such that they could then directly manage the 9 design contract with recourse to the full range of 10 remedies that tie had had previously on any 11 non-performance. 12 Q. By the time it came to contract close, what was your 13 view as to whether or not tie had been successful in 14 that objective? 15 A. The information that I had at that time was that tie had 16 been successful in that -- in that respect. 17 Q. Where did your information come from? Who did it come 18 from? 19 A. The information came from discussions and papers at the 20 March, April and May tie Board meetings. Information 21 that was provided by both the tie executive team and by 22 the -- the lawyer involved in this from DLA Piper. 23 Q. Was the legal view provided directly to you as a Board 24 member? 25 A. Yes. In the March 2008 Board meeting, that was 100 1 a meeting which was expected to be the final meeting 2 before contract signature. In the event it wasn't. 3 There were two more meetings before contract signature. 4 But in that meeting there was a very thorough 5 examination of the -- the deal on the table which had 6 emerged from the Wiesbaden conversations and we 7 developed subsequently. Particularly around risk and 8 around the extent to which this was a fixed price 9 contract. 10 In that discussion I asked questions of both the 11 executive team and directly to the lawyer from 12 DLA Piper. 13 Q. Is that Mr Fitchie? 14 A. Yes, Andrew Fitchie. As did other non-Executive 15 Directors, about the -- about the matters which we're 16 discussing, including the extent to which this was 17 a fixed price contract, what was excluded from that, and 18 the extent to which design risk had been successfully 19 transferred through the contract as agreed and discussed 20 in the December discussions in Wiesbaden. 21 Q. Was it ever suggested to you, either by the Executive or 22 by legal advisers, that in fact the terms of Part 4 of 23 the Schedule to the Infraco contract, and in particular 24 the Pricing Assumptions that it contained, would have 25 the effect of transferring risk back to tie and creating 101 1 a very substantial liability? 2 A. No. That understanding was only made available to me in 3 January of 2011, when I was in receipt of other legal 4 advice which had re-examined those contractual 5 provisions: 6 CHAIR OF THE INQUIRY: Who was that from? 7 A. That was legal advice from the firm of 8 Anderson Strathern. 9 MR LAKE: Could I ask you to be sure about that, whether it 10 was Anderson Strathern. There's been another firm 11 involved, McGrigors. Was it advice from them that you 12 saw in January 2011? 13 A. I'm absolutely sure that the advice I'm referring to was 14 advice which was commissioned from Anderson Strathern in 15 December 2010, and was made available to me as 16 a non-Executive Director in January 2011. 17 Q. Who commissioned that? 18 A. I don't know specifically. It was informed -- I was 19 told about it by the Chief Executive of tie. I don't 20 know whether he personally commissioned it or whether 21 the chair of tie personally commissioned it. Certainly 22 both the Chair and the Chief Executive knew about its 23 commissioning, and I was told about it once it had been 24 commissioned, rather than in advance of it being 25 commissioned. I then received a copy of the written 102 1 advice in 2011. I have made that available to the 2 Inquiry. 3 Q. The Inquiry has heard evidence about a three-man 4 committee being established at the end of January 2008, 5 consisting of Mr Mackay, Mr Gallagher and Mr Renilson in 6 order to advise on the acceptability of whether the 7 contract should be entered into. Were you aware of 8 that? 9 A. I think this is what's referred to in the papers as an 10 approvals committee, yes. 11 Q. What did you understand the function of that approvals 12 committee to be? 13 A. I understood it to be a small group who would in reality 14 oversee the elements of the contract as they were firmed 15 up in advance of that being presented to the full Board. 16 Q. What were they to look out for or check for or examine? 17 A. My understanding is that they would be responsible for 18 ensuring that the key elements of the deal were 19 acceptable and that -- and were understood before the 20 contract was put forward for agreement, bearing in mind 21 that it would not be possible to, in a single meeting 22 lasting only a few hours in March, have the fullest 23 exploration that you would want to have of your 24 understanding of every page of the contract. 25 Q. In relation to the issue of risk which you've been 103 1 discussing a little while ago, what role, if any, did 2 they have in relation to that? 3 A. I don't know, but my assumption is that risk would -- 4 risk -- sorry. Did you ask about risk or about design? 5 Q. Just risk generally? 6 A. Sorry. In that case, then, my understanding is that 7 they would have wanted to be very clear about where risk 8 sat overall in the contract that was put forward for 9 signature. Indeed, that was the nature of the 10 discussions subsequently at the tie Board meetings. 11 Q. In relation to the design issue which you raised, which 12 was another -- what would the approvals committee's role 13 be in relation to design? 14 A. My assumption is that design, along with utilities 15 diversion and other matters, would be key elements to 16 have certainty about before the contract was signed, and 17 that therefore that small approvals committee would be 18 approving, would be making judgements upon the 19 acceptability of the contractual provisions in relation 20 to design and other elements. 21 Q. On the way to contract close, you will be aware that 22 there were a number of increases in the contract price 23 sought by the consortium. 24 A. Yes. 25 Q. Ultimately, after negotiation, they were agreed to. 104 1 What was your view about tie agreeing to these hikes 2 between December 2008 and May -- December 2007 and 3 May 2008? 4 A. My view was that the price increases were a consequence 5 of changes in the contract. So, for example, the GBP10 6 million increase in the price from GBP498 million to 7 GBP508 million, which resulted from the December 8 Wiesbaden discussions, delivered additional benefits to 9 tie. Specifically it increased -- my understanding was 10 it increased the fixed price element from 77 per cent of 11 the overall value of the contract to 96 per cent; 12 secondly, that it would provide for the transfer of 13 normal design development risk to the contractor. And 14 that therefore that GBP10 million increase was a price 15 to achieve those elements. 16 Subsequently there was a further, I think, 17 GBP3.2 million increase which arose from an 11th-hour 18 objection raised by the contractor pre contract 19 signature, and my understanding was that that again, 20 that GBP3.2 million increase bought out additional risk 21 to the public sector, which made an already, we thought, 22 95 per cent fixed price contract even less risky to the 23 public sector, and also provided for other 24 flexibilities, for example around whether or not to 25 proceed with what was called line 1b. 105 1 Q. Was there consideration of whether or not tie should 2 simply say: we're not accepting this, we'll walk away. 3 A. Yes, there was. There was a discussion specifically in 4 the May tie Board meeting about -- in the light of the 5 behaviour that had been exhibited and then represented 6 to the tie Board meeting by the contractor, in 7 particular one company within the contractor, whether 8 this was a company that we would want to proceed to 9 award the contract to, and there was discussion around 10 about the other options available. 11 For example, whether there would be an option not to 12 proceed with that contractor, but to have one of the 13 other contractors step into its place. Whether it was 14 an option to reprocure that element of the contract. 15 Those were -- those were options discussed in the May 16 meeting. And the decision was -- sorry, and a third 17 option was in fact to revert to the other bidder, who 18 had not achieved preferred bidder status. 19 The discussion concluded in favour of proceeding to 20 award the contract to the -- to the preferred bidder. 21 Q. When I asked you questions about proceeding in December 22 when design and MUDFA were not where it was hoped they 23 would be, what was the position come May 2008 for those 24 two elements? 25 A. My understanding is that the MUDFA works were around 106 1 77 per cent complete at that point, and I don't have 2 a figure for the extent of the design approvals. My 3 understanding is that they had progressed significantly 4 beyond the 50 per cent from the previous April, a year 5 earlier, but looking back at my papers, they must have 6 been less than the 78 to 89 per cent which they had -- 7 they had reached in the following October, 2007. 8 Q. Was there consideration given as to whether or not it 9 would be better not to proceed with the contract in that 10 state of MUDFA and design? 11 A. I don't recall the option being discussed of not 12 proceeding because of the design element, but that was 13 largely because that was felt to have been addressed 14 through what had been -- through what would be thought 15 to have been negotiated into the contract about the 16 transference of future exposure to delays in design, and 17 poor performance of quality in design to the contractor, 18 in return for -- partly in return for a GBP10 million 19 increase in price. 20 In respect of MUDFA, my recollection is that along 21 with contract signature, there was a mobilisation 22 schedule agreed which would see the infrastructure 23 contractor start work. 24 In the month following contract signature, and that 25 while there remained 23 per cent of the utilities 107 1 diversions still to be completed, those were on -- 2 largely on on-road sections of the track, and the 3 off-road sections of the tram scheme were not impeded by 4 either incomplete -- well, by incomplete utilities 5 diversions, and therefore what should have taken place 6 post contract signature for the first six to 12 months, 7 certainly the first six months, would not have been 8 impeded by the lack of complete utilities diversions. 9 Q. Although there was that element, and it's a question of 10 degree, there was nonetheless a discussion that 11 recognised that what was being proposed was a departure 12 from the strategy that had been outlined in the Draft 13 Final Business Case? 14 A. There wasn't discussion to my recollection of 15 a departure from the strategy. The strategy remained 16 wanting to get those prior works completed as quickly as 17 possible. 18 The position we were in was they'd not been 19 completed, and therefore there was specific discussion 20 around the tie Board about how the design element would 21 be treated under the contract, and we discussed that, in 22 terms of the novation and the increased payment, and 23 there was also discussion around the tie Board about 24 speeding up utilities diversion works, including the 25 change of contractor. 108 1 So, for example, I recall -- I forget the dates, but 2 I recall that at one point Farrans were brought in. 3 I think this was after the May, to take over some of the 4 utilities diversion works, and they performed far more 5 speedily than the previous contractor had done. 6 So both elements were under active management. 7 Q. Reverting back slightly to the question of dealing with 8 the requests for increases in money, could I ask you to 9 look at another set of Tram Project Board papers, 10 please. It's CEC00080738. 11 We're now looking at a pack of papers for the 12 meeting that took place on 4 June 2008; do you see that? 13 A. Yes. 14 Q. If we look firstly at page 5, we see what we have here 15 are the minutes for the previous Tram Project Board 16 meeting that took place on 7 May 2008. And that you 17 were present at. 18 A. Yes. 19 Q. If you look over to the following page then, in 20 paragraph 2.6, you will see there a note that you asked: 21 "... at what point will any increase in price not be 22 able to be agreed without having to legally return to 23 the reserve bidder." 24 I just want to pause there and what ask what did you 25 mean, without legally having to return to the reserve 109 1 bidder? 2 A. I meant that two initial bids had been received, and the 3 decision to appoint one of the two as the preferred 4 bidder had been taken in the previous October, partly in 5 respect of price offered. And it seemed to me to be 6 a relevant question as to at what point negotiations 7 with the preferred bidder could lead to increases in 8 price, which would lead to a significant price 9 differential between the preferred bidder and the other 10 bidder. 11 My understanding had been that the preferred bidder 12 was the less costly of the two back in the October. So 13 I was asking about the relevance of that in agreeing 14 subsequent increases in cost and in price. 15 Q. When you say having to legally return, did you 16 understand this would be a legal compulsion, an 17 obligation to go back? 18 A. I was asking -- well, my recollection is I was asking 19 what -- what legal provisions existed in this. So, for 20 example, from my previous experience of awarding 21 contracts, including in the transport sector, or at 22 least in my engagement with the awarding of contracts, 23 it's not simply a matter of going with the cheapest 24 bidder. There are a broader range of factors, and the 25 consortium of CAF, Siemens, Bilfinger Berger, were 110 1 appointed preferred bidder not only because their bid 2 cost less than the other bid, but also because of 3 quality elements as well. 4 So I think what I was doing here was asking to what 5 extent is there a legal obligation to consider returning 6 to the other bidder if we significantly agree to -- if 7 we agree to significantly increase price for the 8 contract. 9 I should say that I'm not a lawyer, and I was 10 probably asking for clarification from those present 11 rather than making a point that we should -- that there 12 was a legal compulsion to do so. 13 Q. I understand. I want to turn to a different matter now, 14 how disputes were dealt with once they arose under the 15 contract. The Inquiry has certainly heard evidence that 16 the contract works did not run smoothly post the 17 contract award. 18 Ultimately it became necessary to determine what the 19 strategy should be in relation to that; is that your 20 understanding? 21 A. Yes. The progress of mobilisation to implement the 22 contract became the single biggest issue in the 23 proceedings. I mentioned earlier that, for example, the 24 mobilisation schedule envisaged that the six months 25 after contract signature, a total of over 19 per cent of 111 1 the total infrastructure works should have been carried 2 out, when in fact actual process was 0 -- actual 3 progress was 0.7 per cent. 4 So very quickly it became apparent that the 5 infrastructure contractor was not mobilising, and that 6 from then on became the predominant discussion around 7 the tie Board table and the TEL Board table. 8 Q. If I could look in another pack of papers for a meeting, 9 please, it's CEC00843272. You can see here we're 10 looking at Tram Project Board papers for a meeting on 11 29 July 2009; do you see that? 12 A. Yes. 13 Q. If we go to page 5, as is usual, we see the minutes of 14 the previous meeting, which on this occasion were on 15 8 July. It was a meeting just of the Tram Project 16 Board, and you were present -- you were in attendance at 17 that one; do you see that? 18 A. Yes. 19 Q. If we look at page 7, and enlarge the lower half of the 20 page, we can see under "Relationship with BSC", it's 21 noted that: 22 "[Mr Jeffrey] summarised progress on the strategic 23 options work streams over the last three months, noting 24 that while the Princes Street Supplementary Agreement 25 had allowed the Princes Street works to get under way, 112 1 the process encompassing the Project Management Panel 2 has not been a success in resolving the core outstanding 3 issues of contention. This led to an intensive week of 4 mediated engagement which commenced on 30 June 2009. 5 The key focus of the mediation was commitment by all 6 parties towards the resolution of the core commercial 7 and delivery challenges. The key issues resolve around: 8 The interpretation of key clauses in the pricing 9 schedule; the pricing assumptions and differences 10 between Base Date Design Information and issue for 11 Construction drawings and what would be considered 12 'normal design development'; risk allocation and 13 substantiation of changes; assessment of Extension of 14 Time 2." 15 Now, firstly, did you have an understanding of what 16 was meant by each of these issues? 17 A. I had -- I had a high level understanding of the issues, 18 but not a detailed understanding. 19 Q. Were these issues explained to you by the Executive? 20 A. Issues about design were explained by the Executive. 21 I can't recall whether we had, for example, a discussion 22 about Assessment of Extension of Time 2. I don't know 23 what that refers to. 24 Q. Leaving aside perhaps the second two and focusing on the 25 first two for the moment, what did you understand the 113 1 issue to be between BDDI, as it's termed, and IFC 2 drawings? 3 A. I understood that to be the -- how -- I considered it to 4 be a discussion about the treatment of design changes 5 from the design that was known at the time of contract 6 signature and subsequent design evolution. 7 Q. What was the risk that it posed or the significance of 8 that to tie? 9 A. The significance was that at contract signature, our 10 understanding had been that normal design development 11 would be at the risk of -- at the financial risk of the 12 contractor in terms of what had been put into the 13 contract about that. 14 But that the -- the arguments from the contractor 15 were that that was not the case, and that this Project 16 Management Panel, for example, had been -- I recall that 17 being one mechanism to try to continue with the first 18 approach of working in partnership with the contractor 19 to build confidence in the project. I mentioned earlier 20 that we had a strategic role in guiding the project. 21 There were two broad phases. Our first response as 22 a tie Board to the problems that arose was to ask for 23 a partnership approach to build trust with the 24 contractor and trust between the contractor and the 25 project. The Project Management Panel was something 114 1 that was set up in order to develop more constructive 2 conversations. 3 Another example of that would have been the 4 Princes Street Agreement, where the tie Board agreed to 5 there being a Supplemental Agreement being developed for 6 Princes Street, in order to get works under way and 7 build trust and momentum in the project. 8 The second phase of that, when that didn't work, 9 over 12 to 18 months, was a more robust enforcement of 10 the contract. We can discuss that separately. 11 So this discussion and the mediation took place in 12 the context of the final stages of trying everything to 13 incentivise the contractor to undertake the works in 14 line with what -- what we believed they'd signed up for. 15 Q. In that light, if we can look at what it says over the 16 page, please, at the top of page 8. Enlarge the upper 17 half. 18 This is now under item 3.6. What it notes is: 19 "Richard Jeffrey outlined four options for 20 consideration by the Board, these being: 21 1. Negotiated settlement with BSC. 22 2. Formal contractual approach - DRP and other 23 contractual mechanisms. 24 3. Reduce/rephrase BSC scope. 25 4. End the BSC Contract. 115 1 The recommendation for the Board to consider was to 2 follow the Option (2) route and to enter formal Dispute 3 Resolution under the terms of the contract. The Board 4 agreed to the principle of Option (2), but would require 5 more information before the formal notices are issued to 6 BSC." 7 Do you recall that? 8 A. Yes. 9 Q. So this is perhaps one of the clearest examples of the 10 Tram Project Board taking a strategic decision as to 11 what is to be done in relation to the contracts to which 12 tie were a party; is that correct? 13 A. I don't know whether the same decision was put to the 14 tie Board separately for decision, but yes, I agree that 15 this is the Tram Project Board taking a view on 16 a strategic approach, yes. 17 MR LAKE: My Lord, I see it's about two minutes to one. If 18 we take a break, this would probably be the time to take 19 it. 20 CHAIR OF THE INQUIRY: We will adjourn for lunch and resume 21 again at 2 o'clock. 22 (12.59 pm) 23 (The short adjournment) 24 (2.00 pm) 25 CHAIR OF THE INQUIRY: Good afternoon, Mr Hogg. You're 116 1 still under oath. 2 MR LAKE: Mr Hogg, we were just looking at the decision to 3 pursue the Dispute Resolution Procedure. 4 I just want to ask you about one aspect in your 5 statement about this. If you could look at page 101 of 6 your statement. Could we enlarge paragraph 230. 7 You see towards the foot of that, five lines up, 8 there's a passage saying: 9 "The view of the tie Board was that, irrespective of 10 whether DRP decisions went for or against the position 11 that tie was taking, they would nevertheless help to 12 clarify definitively for all the parties involved the 13 deliverability of the project under the contract." 14 Now, what I wanted to ask was: was there 15 consideration as to the position that tie would be in if 16 the decisions went against it? 17 A. I don't remember whether at that time on that occasion, 18 on July 29 there was consideration of that, but there 19 was consideration more generally, particularly when the 20 outcome of the DRP adjudications became known about what 21 position tie was in. I don't recall whether at that 22 time there was consideration. 23 Q. I'll come to the time when the decisions came out in 24 a moment, but I was just wondering, if tie were anxious 25 to get resolution of these issues, it was presumably the 117 1 view they were likely to be decided in tie's favour or 2 they wouldn't have taken them -- 3 A. Yes, that was the view. 4 Q. But was there a plan B in mind as to what would be done 5 if the decisions went against them? 6 A. I don't remember there being a plan B, no. 7 Q. Turning now to the decisions, I think in relation to the 8 BDDI to IFC issue, the first two decisions we've heard 9 of are the ones relating to the Carrick Knowe Bridge and 10 the Gogarburn Bridge that came out at the end of 2009. 11 Were you aware of those two disputes? 12 A. Yes, in general terms I was, yes. 13 Q. Do you know why it was that those two disputes were 14 chosen to go to adjudication? 15 A. My recollection is that there was a process for deciding 16 which disputes to put into the DRP process by tie, and 17 that that process would take into account a number of 18 factors, including issues where it was helpful to 19 clarify the point of principle. So it wasn't simply 20 first come, first served, or a more random approach to 21 what went into dispute. 22 I can't remember what the Carrick Knowe issue was, 23 for example, but my memory is that that was totemic of 24 a particular sort of issue which wanted to be tested out 25 through the DRP process. 118 1 Q. Can you recall what the outcome was from tie's 2 perspective? 3 A. No, I cannot. Overall my recollection is that it was 4 a mixed picture. Adjudications went in favour of both 5 parties at different times. tie had maybe 50 per cent 6 or 40 per cent of the adjudications in its favour, and 7 the contractor had 50 per cent or more than that in its 8 favour. 9 Q. When you're talking about ones that go in their favour, 10 are you talking about the ultimate decision, sometimes 11 tie got what they wanted and sometimes the consortium 12 got what it wanted? 13 A. I mean the adjudications endorsed the point of view, or 14 endorsed the interpretation of the contract which the 15 parties were putting into the process. 16 Financially, the Audit Scotland 2011 report, I think 17 recorded that at the end of 2010, of the GBP24 million 18 claimed by the contractor through that DRP process, only 19 11 had been awarded. But I was referring there 20 previously to there being two different points of view 21 of interpretation of the contract that were being 22 tested, and on some occasions my information was that 23 tie's view was endorsed. In other occasions the 24 contractor's view and not tie's view was endorsed. 25 Q. When you say your information, from where did you get 119 1 your information? 2 A. From the Executive team making the reports about the 3 progress of the DRPs at the tie or TEL Board. 4 Q. Did you ever get copies of the adjudicator's decisions? 5 A. No. I don't believe I did. 6 Q. Did you ever seek them? 7 A. I don't think I did, no. 8 Q. You've referred to the Audit Scotland report where they 9 noted that the sums claimed were 20, and the sum 10 actually awarded much less. 11 In relation to the issue of whether or not something 12 was a Notified Departure -- I should ask, first of all, 13 do you understand the significance of that under the 14 contract, whether or not something was a Notified 15 Departure? 16 A. I understand that to mean something for which tie would 17 rightly be liable. 18 Q. If there was a dispute as to whether or not something 19 was a Notified Departure, was that issue ever determined 20 in tie's favour? 21 A. I don't know. 22 Q. Could we look at another set of papers, please. This is 23 reference CEC00416111. You see that we're now looking 24 at the papers for the Tram Project Board meeting on 25 16 December 2009? 120 1 A. Yes. 2 Q. If we look firstly at page 5, you will see as usual we 3 have got the minutes for the previous meeting, this time 4 it was the Tram Project Board and 18 November 2009? 5 A. Yes. 6 Q. I think we can see from the bottom of the left-hand 7 column there, you were in attendance? 8 A. Yes. 9 Q. If we could look, please, to the following page, page 6, 10 pick up right at the foot of the page, we can see in 11 3.2, strategic summary: 12 "Richard Jeffrey provided the Board with a report on 13 the outcome of the decisions from the Adjudicator on the 14 Carrick Knowe and Gogar Bridge (BDDI to IFC Design 15 Development) matters. 16 A full review of this determination is under way 17 and it was noted that a decision on the Russell Road DRP 18 item is scheduled for 17 December, and that papers are 19 due to be submitted to (a new) Adjudicator on 20 19 November 2009. 21 KH [you] asked if tie's interpretation of the 22 contract has changed through the evolution of this 23 process, and queried whether a review of the strategic 24 direction of the DRP is necessary. The Board discussed 25 at length a number of matters including interpretation 121 1 of the contract, both from a legal and technical 2 perspective as well as the strategic direction of 3 further submissions to the formal process. It was 4 reiterated that it is too early in the process (for 5 either party) to establish precedence at this stage in 6 the process, and it was agreed that the current 7 strategic direction should continue." 8 Do you recall this meeting? 9 A. Yes, in general terms, I do. 10 Q. Do you recall that discussion that we've just seen 11 narrated in the minutes there? 12 A. I do, yes. 13 Q. Can you recall in general what you were told about the 14 Carrick Knowe and Gogarburn Bridge decisions? 15 A. What I recall is what was being reported to the Board on 16 that day about the overall findings from any DRPs that 17 had happened until that point. I don't -- I don't know 18 now whether it was only the two that were available or 19 whether there were more, but the -- the overall position 20 was that tie were not being successful in having their 21 view of the effect of the contract upheld insofar as it 22 would have wanted it to be through that process. 23 That's what gave rise to my questioning. 24 Q. That's the one as to whether or not the 25 interpretation -- view of the interpretation had 122 1 changed? 2 A. Yes. I was -- I was asking, do we still believe as 3 a company -- do we still hold the interpretation of the 4 contract which we did before this process started today 5 in light of these decisions? 6 Q. It's recorded there that there was a discussion of 7 matters including interpretation of the contract from 8 a legal -- including from a legal and technical 9 perspective. Can you recall, had you seen any legal 10 advice that had been obtained by tie or the Tram Project 11 Board in relation to the contract? 12 A. I don't recall seeing any legal advice, and I don't 13 believe that I read legal advice in relation to this. 14 Q. At this time, am I right in saying from your earlier 15 answer, you hadn't actually seen the decisions of the 16 adjudicators? 17 A. That's correct. I had not read the actual decisions, 18 that's correct. 19 Q. Did that not rather frustrate any arguments that you 20 were trying to have, that you neither had the decisions 21 or any advice? On what basis were the Directors, in 22 particular the non-Executive Directors, in a position to 23 have an informed discussion? 24 A. They were asking for information about the outcome of 25 the adjudications. I can't recall whether there were 123 1 slides or other papers available on the day to provide 2 more information. We were relying on information given 3 to us by the Executive team, primarily, to relay the 4 outcome of the decisions so far, and any implications 5 for the contract going forward. 6 Q. Was there any discussion -- were you given any 7 information about the significance of those decisions 8 for tie's position, in the contracts? 9 A. Whether it was at this meeting or meetings shortly 10 thereafter, there was certainly discussion in relation 11 to the findings of the DRP process about whether it was 12 the right thing to do to -- to persist with the second 13 phase of the strategic approach of robustly enforcing 14 the contract. Questions were beginning to arise at this 15 point about was the contract -- the contract seemed to 16 be capable of being frustrated to a greater degree than 17 we had understood would be the case in advance. And 18 therefore, when we moved to that position early in 2009 19 about robustly enforcing the contract, we were basing 20 that on a view that if the contract were to be robustly 21 enforced, then progress would be made, hopefully. 22 The outcome of these decisions was to begin to query 23 the interpretation, our interpretation of that contract, 24 not -- I mean, I would add not as the only material 25 factor explaining the lack of progress, but as one of 124 1 the key factors. 2 It wouldn't, for example, have explained why -- 3 I mentioned earlier there was next to no mobilisation in 4 the six months following contract signature. Those six 5 months could not have been explained by things changing 6 only a matter of days from contract signature. So there 7 wasn't -- these were all -- these were all -- my 8 understanding is that what went into the DRP process was 9 testing the mechanisms to accommodate changes in the 10 contract. And as change occurred, the contractor was 11 entitled to be treated fairly under the terms of the 12 contract, potentially to get more money or time in 13 response to that, or equally, in areas where they had 14 accepted the risk, not to be entitled to more money or 15 time in response to those changes. 16 These DRP adjudication decisions were testing that 17 out. However, by definition, they could not have been 18 the key issues impeding progress in the early weeks and 19 months following contract signature, when there hadn't 20 been time for changes to materialise. Nothing -- 21 nothing had essentially changed. 22 Q. In relation to that matter, there not being time for 23 changes, I appreciate you were a non-Executive Director, 24 but in that capacity, was it made known to you that 25 there had been discussion between the consortium side 125 1 and the tie side in concluding the contract that there 2 would be changes or there could be changes as soon as 3 the contract was signed, and indeed there was a term 4 included in the contract which expressly recognised that 5 there could be changes as soon as the contract was 6 signed? 7 A. No, that was not made available to me. 8 Q. Would that have been material to you, to know that? 9 A. Absolutely. It would have fundamentally altered the 10 judgment about this being a 95 per cent fixed price 11 contract, and the adequacy of GBP33 million as the 12 contingency reserve to deal with the unexpected 13 5 per cent or the scope for the 5 per cent to be 14 crystallised. 15 Q. In terms of this decision and its effect on the 16 affordability or the cost of the contract, was there any 17 discussion as to the effect of these two decisions on 18 the cost? 19 A. If these were the first two decisions, my recollection 20 is that there was discussion about the material cost 21 specific to those decisions, which would have been 22 relatively small sums of money. 23 I don't think there was discussion on this day about 24 the potential full implications for the whole contract, 25 and indeed I'm -- I'm guided in that partly by the 126 1 statement saying that it was concluded that it was too 2 early in the process to establish precedence. 3 Q. I was going to ask, what did you take from that? What 4 did it mean? 5 A. At the time, what I took from that -- well, what I took 6 from the discussion was that there were a range of 7 issues which tie, for its part, wanted to put into the 8 DRP process in order to clarify understanding of how the 9 contract could work in practice. These were only two of 10 those. 11 I think tie ended up putting at least 20 of those 12 decisions, it might have been more, into that process. 13 As I said before, these decisions were taken, informed 14 by a judgement about which issues would help establish 15 which points of precedent. 16 So my view is that at this point in time, decisions 17 had gone either way or it was still too early to 18 establish overall direction. 19 Q. You've raised the point about were these the only two 20 decisions. I should make it clear these were not the 21 only two decisions that were available at the time, but 22 I think they were the two decisions which had been 23 chosen to determine the principle of the BDDI to IFC 24 changes. 25 So the point I'm really asking you to focus on 127 1 is: that having been the issue of principle, and there 2 having been a decision adverse to tie, was there 3 a concern that that would affect the affordability of 4 the contracts at this time? 5 A. I don't recall the specific discussion, but certainly 6 the overall affordability of the project was becoming 7 a concern and led to, a few months later, I think, maybe 8 four or five months later, the then Chairman of tie 9 writing to the Council, saying that it was no longer 10 likely to be -- possible to be affordable within the 11 GBP545 million budget to deliver the tram scheme 1a. 12 And that these decisions were part of what was informing 13 that judgement. 14 Q. If the Inquiry had heard evidence that someone viewed 15 these decisions as being a major disaster for tie, do 16 you recall any discussions along those lines? 17 A. My recollection is that is not how this was being 18 presented. It was being presented as being 19 disappointing and not as tie would have wished. It was 20 presented as being not one-sided either. So on some 21 points the adjudications were finding in favour of tie's 22 interpretation of the contract and point of view. 23 The other -- as I said, the other more fundamental 24 issue which was on the Board's mind was that the Board's 25 interpretation of what was going on with this contract 128 1 was not simply a technical matter of how changes were 2 being handled under the contract. It was about 3 a pattern of behaviour that was established at and 4 indeed before contract signature, which manifested 5 itself from day 1, post contract signature, and then led 6 through into this. 7 My view then, and my view now, is that the design 8 issues -- and I say this with the benefit of the 9 subsequent legal advice which made clear to me the 10 deficiencies in the contract in this respect. They're 11 only part of the explanation for what went wrong with 12 this project. They don't fully explain why it ended up 13 costing as much as it did and being as late as it was 14 and delivered as little as it did in terms of the -- 15 compared to the initial specification. 16 Q. That's something I will return to, because I do want to 17 discuss that with you, that aspect of your statement. 18 For the time being, if we just stick with this set 19 of papers for the Tram Project Board, if we could look 20 through, please, first of all, go to page 45. 21 We come to a section where there's a divider, and it 22 says "Period 9 Transport Scotland report Sections 2 to 23 7": 24 "On following pages are Sections 2 to 7 of the 25 Transport Scotland report (Section 1 is the Project 129 1 Directors report)." 2 Were you familiar with this format to the Tram 3 Project Board papers, that the Transport Scotland report 4 Sections 2 to 7 were always added to the back? 5 A. Yes. And that -- my recollection is that that was in 6 order that the Board members would see what was being 7 said to Transport Scotland in line with their ongoing 8 monitoring and awareness of the tram project. 9 Q. Did you have regard to those when you were sent the 10 papers, the Transport Scotland report? 11 A. Yes, certainly. And the information that was -- my 12 recollection is that the papers didn't repeat 13 unnecessarily the information that was there. So they 14 would give a full report to Transport Scotland and that 15 was where I looked for information about the project, 16 rather than in a duplicative set of papers up front. 17 Q. Could we turn on two pages to page 47, please, and look 18 under the heading, "Dispute Resolution". We can see 19 under that heading there's a table where it notes the 20 decisions for Gogarburn and Carrick Knowe, and says that 21 they have been made and are under review. 22 Do you know what that review consisted of, what sort 23 of review was being considered? 24 A. I don't recall at the time. My interpretation now is 25 that the statement in the far right box on that table 130 1 means that the implications of the decision were being 2 reviewed by the Executive team, presumably with legal 3 advice. 4 Q. Can we scroll up a bit to see the text underneath the 5 table, please. It says there: 6 "We continue in this report to reflect an outturn 7 estimate of GBP533.3 million (including Phase 1b). 8 However, given the commercial uncertainties with BSC and 9 continuing delays to the project, it is now considered 10 unlikely that the full scope of Phase 1a will be 11 completed within the available funding envelope of 12 GBP545 million. Until the key issues are resolved 13 through the contractual and legal process, it will not 14 be possible to forecast accurately a revised budget 15 outturn. It is also not possible at the present time to 16 predict the conclusions of reviews of contingency option 17 programme delivery options, including additional sources 18 of funding." 19 Now, this isn't the first time that statement is 20 made in these reports. It's simply the one we have 21 before us. 22 What did you understand that to be telling you? 23 A. I understood it to be telling me that the -- the 24 decisions being taken through the Dispute Resolution 25 Process were leading to financial awards being made to 131 1 the contractor which, if extrapolated forward, were 2 unlikely to be accommodated within the GBP545 million 3 budget. 4 Q. Was there discussion about what the consequences were of 5 that to tie and any action that tie had to take in 6 response? 7 A. I don't recall whether it was at this specific meeting, 8 I imagine it was, but generally there was discussion 9 continually about the financial affordability of the 10 project, including with the Council officials who were 11 round the Board table and the councillors, because they 12 needed to understand whether or not this was going to 13 be -- ended up being affordable. 14 Also, the tie Board was very aware that it did not 15 have authority to commit expenditure in excess of the 16 545 million, and therefore it needed -- it would have to 17 go back to the Council if there were any prospect of 18 more money being required to pay for the project. 19 So affordability was very much on the Board's mind 20 from that point of view. 21 Q. I should say for completeness, if we just look at 22 page 65 of the same report, under the heading, "Headline 23 cost report", if we look at the third bullet point, we 24 can see the same text that I referred to earlier in the 25 report. So it was a matter that was being specifically 132 1 considered in relation to the costs. Would you agree? 2 A. Yes. 3 Q. There being this uncertainty about the affordability of 4 the contract at that time, what effect did that have on 5 the approach to be taken to the contracts by tie or the 6 Tram Project Board? 7 A. My recollection is that it had several implications. 8 One was that there was increased discussion with the 9 Council about the affordability of this, and I remember 10 discussions involving Council officials at Board 11 meetings to that effect. 12 Another was that it informed the contractual 13 approach and the options that were considered 14 thereafter. So -- this was December 2009. 15 In 2010, for example, it led to consideration of 16 other options which were also discussed with the 17 contractor which would have involved either them 18 completing the project only to a particular stage and 19 then withdrawing, or them leaving the project 20 altogether, and the works then being re-procured under 21 a different contract. 22 Q. You noted in your statement the time came during 2010 23 when formal notice was given by Mr Mackay to 24 Marshall Poulton at the Council that the contract would 25 not or could not be delivered within the GBP545 million 133 1 funding envelope? 2 A. Yes. 3 Q. Can you recall what precipitated that being done then, 4 when there were already these reservations being noted 5 at the end of 2009? 6 A. No. I don't recall what -- whether a particular event 7 precipitated that, but I think the difference in 8 position is a move from unlikely to be to -- towards is 9 not possible to, and I wasn't -- I wasn't -- I don't -- 10 I don't recall discussions that led to that. 11 Q. The Inquiry has also heard evidence about another 12 adjudication decision by Mr Wilson that was given early 13 in January 2010 in relation to a dispute concerning the 14 Russell Road retaining wall. Do you recall that being 15 an issue? 16 A. I recall the name being mentioned but I'm sorry, I don't 17 recall -- 18 Q. You don't recall the substance of the dispute? 19 A. No. 20 Q. The Inquiry has also heard that legal advice was 21 obtained from November 2009 through to about March 2010 22 in relation to this issue, BDDI to IFC. Were you 23 provided with that advice? 24 A. No. The only legal advice I saw during my tenure 25 actually as a non-Executive Director was the one 134 1 I mentioned earlier from 2011. 2 Q. The Inquiry has also heard evidence about difficulties 3 that arose. You've already alluded to them. Making 4 progress with the works. Not the cost, just getting the 5 works done, and that finally, that particular matter, 6 certain clauses of the contract were taken to an 7 adjudication concerning works on the Murrayfield 8 underpass. Do you recall that issue? 9 A. No, I'm sorry, I don't. 10 Q. In the abstract, if I could ask you to look at papers in 11 relation to it, it's CEC00013703. 12 You can see this time we are looking at the papers 13 for the Tram Project Board meeting on 25 August 2010. 14 You are included amongst -- on the distribution list as 15 a member and attendee? 16 A. Yes. 17 Q. If you could go forward to page 34 of this, this once 18 again, I should say, is part of the report to 19 Transport Scotland. We can see a heading, "Dispute 20 Resolution (Infraco)". 21 Just above the table, we see a paragraph that says: 22 "The decision on the Murrayfield (Clause 80.13/34 23 instructions) DRP was also received. This gave some 24 useful interpretation of these clauses in respect of 25 known Notified Departures which tie has reviewed and is 135 1 issuing further instructions to BSC in respect of this 2 interpretation." 3 Does that ring -- raise any memories of what was in 4 dispute here and what the outcome of that adjudication 5 was? 6 A. I'm sorry, I just don't remember that conversation. 7 Q. Do you remember there coming a time when it was decided 8 that the Dispute Resolution Procedures and adjudications 9 would no longer be pursued? 10 A. Yes. 11 Q. What was the reason for that? 12 A. The reason was that -- the reason provided was that the 13 process of going through the DRP process was simply not 14 being successful in -- in -- resulting in the contractor 15 undertaking the works, and making up time in effect, and 16 getting the project to some degree back on track or at 17 least under way. 18 In fact, at this point, in 2010, my recollection is 19 that later that year, the contractor demobilised such 20 work as was existing. So it wasn't having the desired 21 effect on trying to get work under way. 22 Q. The Inquiry has also heard evidence about decisions 23 being made to serve Remediable Termination Notices under 24 the Infraco contract. Do you recall that? 25 A. Yes, I do. 136 1 Q. Why was that being done? 2 A. My recollection is that based apparently on legal 3 advice, tie, first of all, believed that the contractor 4 was in breach of contract. I'm talking here 5 specifically about the infrastructure provider, not CAF 6 who were building the trams or, I believe, Siemens, who 7 were doing the integration, but the infrastructure 8 company, and that in the first instance, it was 9 important that tie notified the company of that position 10 in order to give them an opportunity to remedy any 11 alleged breaches. 12 It was also at that time discussed that should we 13 end up in a situation where the contract were to be 14 terminated, it would have been necessary to have gone 15 through that proper process in advance of any 16 termination finally occurring. 17 Q. The Inquiry again has heard evidence that advice was 18 provided by a different firm, McGrigors, in 19 December 2010 in relation to the Remediable Termination 20 Notices. I take it from what you said about legal 21 advice that you haven't seen that? 22 A. No, I have not seen that advice. 23 Q. There's also been evidence as to Project Carlisle. What 24 was that and why was it being pursued? 25 A. Project Carlisle was one of two projects being pursued 137 1 in parallel. The other was called Project Notice, and 2 that was essentially terminating the contract. Project 3 Carlisle was a scenario in which the current consortium 4 and the current Infraco provider would complete the 5 infrastructure works to a truncated point from the 6 network. From memory it was either from the airport to 7 Haymarket or from the airport to St Andrew Square, 8 and -- and at that point would then leave the work. 9 I think actually -- sorry, I think it was Haymarket, 10 and the remaining stretch from Haymarket further on 11 would be re-procured. 12 Q. So if you've got Carlisle which is to some extent one 13 way or another truncating the project -- 14 A. Yes. 15 Q. -- and project Notice, the Remediable Termination Notice 16 bringing about an end of the project, had there been 17 a determination on the part of tie and/or the Tram 18 Project Board that simply the contract could not be or 19 would not be implemented in full, and you were now just 20 trying to find a way out in all or part? 21 A. There was certainly a determination and a view that 22 resting on efforts -- resting solely on efforts to 23 complete the project under the current contract was 24 inadvisable, and that in addition to that, we now needed 25 to consider other options. 138 1 Q. Can you recall why it was said to be inadvisable and who 2 gave that advice? 3 A. On the why question, it was because, despite, first of 4 all, a partnership approach and then a more robust 5 contractual enforcement approach, and despite the -- 6 despite the use of the DRP, nothing had worked in 7 getting the project to be delivered at anything like an 8 acceptable or expected level of pace and delivery. So 9 that's why it was advisable to look at other options. 10 Nothing seemed to be working with this current set-up. 11 In terms of who, these were discussions which 12 involved both the Senior Executive team and the tie 13 non-Executive Directors and the councillors, and the 14 senior Council officials at Board meetings. 15 Q. Were you getting discussions with the legal advisers at 16 that time? Perhaps not getting written legal advice, 17 but explanations from legal advisers? 18 A. I don't think legal advisers were in those rooms. There 19 was an occasion on 2009, I think, when DLA were back in 20 the room, but this is -- this is a later point in time. 21 I never had the opportunity, I don't think, to talk 22 directly to a lawyer or a QC about the advice that was 23 underpinning this. 24 Q. In terms of what you said, nothing was working in 25 getting the project to be delivered at an acceptable 139 1 pace, was there discussions or a conclusion reached 2 within tie or the Tram Project Board as to why that was 3 the case? 4 A. I mean, this was the -- this was the common theme of 5 discussion at probably every meeting that was had by the 6 tie or TEL Board when I was present. It was certainly 7 the common theme. 8 So yes to that question. There were lots of 9 discussions about why this was the case. 10 The theme that kept occurring was that in 11 particular, Bilfinger Berger had made it very clear very 12 early on that they simply wanted more money in order to 13 undertake the work. And by more money, they were 14 talking about figures of GBP80 million to GBP100 million 15 more. 16 This was information being relayed to me by the 17 Executive team. I never had a direct conversation with 18 Bilfinger Berger in my time. 19 Those -- and that their lack of mobilisation, for 20 example, even in the first six months, before these 21 subsequent design issues were more of a problem, was 22 indicative of an unwillingness to get involved until 23 they were confident that they would get a higher level 24 of financial return. 25 There was -- some of what was reported to the Board 140 1 was that some of the comments made by the Bilfinger 2 Berger employees to Senior Executives in tie was that it 3 was a -- a conscious process of frustrating the contract 4 to up the pressure on tie and those who were funding the 5 project to pay more. 6 Q. Who was saying that to you? 7 A. Those were views put to the non-Executives by, as 8 I recall the Chief Executive of tie, Richard Jeffrey, 9 and I think also by the Finance Director, 10 Stewart McGarrity. They were -- that they were in rooms 11 where they were being told this by Bilfinger Berger 12 employees. 13 Q. In that regard, just two passages in your statement 14 I would like you to look at, and then I'll ask you some 15 questions about them. 16 The first is on page 103. 17 A. Excuse me. I just wanted to add that in the 2009 18 mediation, from, I think, June 30 to July 6, I think, or 19 maybe a two-week period, that figure of GBP80 million to 20 GBP100 million was also tabled then during that 21 mediation; and that was one of the occasions when the 22 tie Executives came back to the non-Executives and the 23 councillors, saying: this is one of the key issues for 24 the contractor. 25 Q. Can you recall whether or not, staying with that figure, 141 1 what was being said was that: we want this additional 2 sum to do the works; or whether it was that: under the 3 current contract, doing the works is going to cost 4 another GBP80 million to GBP100 million? 5 A. All of those discussions in my recollection were in the 6 context of doing the work under the current contract. 7 There was never -- it was only much later on that 8 discussions were held about varying the contract or 9 indeed reprocuring, and those were discussions had with 10 the contractor. So you mentioned Project Notice and 11 Project Carlisle. Those would be two examples of where 12 there was an explicit discussion of a different 13 potential contractual arrangement. 14 So to answer your question, all of the GBP80 million 15 to GBP100 million figure was a figure which was being 16 asked to be paid somehow within the context of the 17 current contract, but without any reason being given 18 beyond they simply wanted it. 19 Q. That's what I'm really trying to get at. Was this 20 simply that they wanted more money, or was this then 21 saying that: if you apply our current contract terms, 22 don't change it, just apply it, that is what it's going 23 to cost you, another GBP80 million to GBP100 million. 24 A. My recollection is that it was the former, not the 25 latter. 142 1 Q. They wanted an extra? 2 A. It was simply -- and indeed I mentioned earlier that 3 there was a pattern of behaviour that went back pre 4 contract signature, and, for example, in May, there had 5 been an 11th-hour attempt to get more money, and the 6 explanation was simply that Bilfinger Berger had got 7 their sums wrong, and they asked for, I think, 8 GBP17 million more and then GBP12 million more, and that 9 was brought back to GBP3.2 million more. But this 10 wanting more was the common theme throughout the 11 process. 12 To be clear, my own position as a non-Executive 13 Director, who brought wider public sector experience and 14 knowledge to the Board, I was clear that this was public 15 money. And while it might be normal or acceptable 16 practice in private sector contexts to lubricate deals 17 to incentivise performance, that was not an option that 18 could happen legitimately within the context of public 19 expenditure, and in the context of the Scottish Public 20 Finance Manual and all the rules that govern public 21 expenditure. 22 So it was an issue that I was particularly concerned 23 with, and concerned -- and I indeed said to the Board, 24 we should not be -- we are not in a position, even if we 25 had the money, which we don't, we are not in a position 143 1 to offer it for no good reason. 2 Q. Would the situation be different if the position was 3 that justifying the current contract will result in an 4 increase of payment of GBP50 million to GBP80 million to 5 GBP100 million, without any change to the contract, not 6 asking for additional funds, but a warning that if you 7 apply the contract, it's going to cost you another 8 substantial sum of money? 9 A. That was never the position put to us as a Board. 10 The -- even -- even when it came to considering the 11 options under project Notice and Project Carlisle, it 12 was accepted that even under a termination scenario, 13 there would be costs which would arise simply in order 14 to pay for the exit, if you like. But it wasn't simply 15 a straightforward issue of somehow the cogs within the 16 contract automatically would ratchet up to generate 17 a figure of GBP80 million to GBP100 million. That 18 figure was around from the first months of post contract 19 signature. And didn't go away. 20 The last thing I would say about that in respect is 21 that that is what happened. 22 When more money was put on the table, significantly 23 more than GBP100 million, more than GBP200 million, at 24 that point work was restarted. 25 Q. Talking about the Mar Hall Mediation Settlement there? 144 1 A. Yes. 2 Q. Is it fair to say that as a non-Executive Director, you 3 were not in a position to form a view as to the 4 contractor's entitlement under the contract? 5 A. I don't think that's entirely fair to say. As 6 a non-Executive Director, I was able to ask questions of 7 the executive team as to what the contract provided for. 8 And I did that along with my colleagues. 9 Q. What did they say about the consortium's entitlement? 10 A. Initially, post contract signature, we were -- we were 11 in the position of this being a 95 per cent fixed price 12 contract, and the understanding that design risk had 13 been passed to the infrastructure provider. 14 Subsequently, in the light of the Dispute Resolution 15 Procedure adjudications, the position became less clear 16 about the contractual position, and then finally, in 17 January 2011, I received advice that said that the 18 contract was indeed too capable of being challenged with 19 requests for additional money and time by the 20 contractor. 21 Again, though, even -- I mean, I mentioned earlier 22 the extent of claims awarded under the DRP process. 23 I think also the Audit Scotland report noted that in 24 total, the amount of additional money claimed under the 25 contract either in or outside of the DRP process, was 145 1 around GBP44 million, of which only GBP24 million was 2 awarded. 3 So that is why those sums seemed to me to be 4 a relevant factor, but not the only factor in explaining 5 why this thing cost a lot more. Sums of GBP24 million 6 are nowhere near the sums that were either being asked 7 for or ended up getting paid. 8 MR LAKE: Thank you very much, Mr Hogg. I have no further 9 questions, my Lord. 10 Questions by CHAIR OF THE INQUIRY 11 CHAIR OF THE INQUIRY: I think you said earlier to Mr Lake 12 that you were unaware that there was a possibility of 13 changes the day after the contract was signed. And if 14 you had been aware of that, that would have affected 15 your judgement -- 16 A. Yes. 17 CHAIR OF THE INQUIRY: -- about the contract being a fixed 18 price contract. When did you first become aware of that 19 possibility of changes the day after the contract was 20 signed? 21 A. To an extent I don't think I ever became aware of that 22 during my time as a tie non-Executive Director. Even 23 the advice that I received or that I read in 24 January 2011, that advice was confirming that the 25 contract was more open than I had understood it to be, 146 1 to additional claims being -- for time or money being 2 sought in respect of changes. 3 But I can't remember ever being told that the 4 fundamental basis of our understanding for this 5 contract, which was that it was a 95 per cent fixed 6 price contract, negotiated through the Wiesbaden deal, 7 and indeed reinforced in the final May negotiation when 8 yet further risk was bought out, that that was 9 fundamentally wrong. 10 The view of tie throughout the period was that there 11 was a contract which they had faith in, which they 12 believed that a contractor working in good faith and 13 with an intent to build the project could do it. 14 Nothing was physically stopping them building the 15 contract. And the Dispute Resolution Procedure outcomes 16 certainly gave -- gave more cause to believe that the 17 contractor could -- could claim more, and that was then 18 backed up by the legal advice. But I don't think I ever 19 was told we have fundamentally got a contractual model 20 which -- which we've been misguided in or rather in 21 which we have misunderstood. 22 CHAIR OF THE INQUIRY: Thank you. Mr Fairley, do you 23 have -- 24 MR FAIRLEY: The issue I had raised has been dealt with, 25 thank you. 147 1 CHAIR OF THE INQUIRY: Mr Dunlop? 2 MR DUNLOP QC: My Lord, nothing from me, thank you. 3 CHAIR OF THE INQUIRY: I think Mr Martin -- no one else? 4 Thank you very much, Mr Hogg. That concludes your 5 evidence. You're still under citation, so it will be 6 possible to recall you if anything arose. Hopefully 7 that won't be necessary, but thank you for your 8 attendance. 9 A. Thank you. 10 (The witness withdrew) 148 1 INDEX 2 PAGE 3 MR JOHN CONNARTY (affirmed) ..........................1 4 5 Examination by MR MACKENZIE ...................1 6 7 MR KENNETH HOGG (sworn) .............................50 8 9 Examination by MR LAKE .......................50 10 11 Questions by CHAIR OF THE INQUIRY ...........146 12 13 14 15 16 17 18 19 20 21 22 23 24 25 150