Edinburgh Tram Inquiry recommends changes to governance and new legislation to protect the public purse
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00:00 At the outset, I wish to address comments about the time taken by the inquiry and the
00:11 costs incurred. The volume of material recovered by the inquiry and the challenges faced by
00:18 it are discussed in Chapter 2 of the report. Following the conclusion of the public hearings,
00:26 I reviewed the evidence in light of the closing submissions and the documentary productions,
00:34 and I undertook investigations concerning the actual cost of the project. I sent out
00:42 warning letters when the draft report was completed and sent for editing. The edited
00:49 draft report was adjusted to take account of the warning letter responses, some of which
00:57 were substantial and one of which extended to several hundred pages, resulting in further
01:05 time taken to complete the report. On 26 April, the report was sent to the publisher in initial
01:16 anticipation of its return before the summer parliamentary recess, but on reviewing the
01:23 length and complexity of the report, the publisher confirmed its date of return would be in the
01:30 autumn. The cost of the inquiry to the end of July was £13,126,725, but the net cost
01:41 of the public purse was reduced to £8,719,127 by using existing public resources that were
01:51 not replaced and discounting the public expenditure already incurred relating to these resources.
01:59 The final accounts will be published when the inquiry has concluded and the records
02:04 lodged with National Records of Scotland. The report contains criticisms of many companies,
02:12 organisations and individuals, but today I wish to highlight the actions of TIE, the
02:19 City of Edinburgh Council and Scottish Ministers, whose acts or omissions were principally responsible
02:29 for the failure to deliver the project on time, within budget and to the extent projected.
02:41 In 2002, TIE was incorporated as a company wholly owned by the City of Edinburgh Council
02:49 to manage the planned scheme for congestion charging and to use the funds from that scheme
02:56 to deliver various transportation projects, including a tram network for the city. The
03:04 advantage of such an arrangement was that receipts from congestion charging would not
03:10 become part of the Council's receipts and could be used to deliver transportation projects
03:17 as directed by the Council. By late summer 2007, the tram project was the
03:24 sole project in TIE's portfolio after Scottish Ministers abandoned the Edinburgh Airport
03:31 Rail Link and withdrew TIE from its management functions in the Stirling-Allawack and Cardon
03:38 Railway. The abandonment of congestion charging meant that TIE's sole source of income was
03:46 from payments from CEC for the project. Apart from Mr Kendall, TIE and its employees had
03:55 no experience of delivering a tram project and it depended on the use of freelance and
04:02 contract staff, as a result of which there was significant management and staff churn.
04:10 The project involved the construction of a tram network consisting of at least Line 1A
04:17 from the airport to New Haven and the purchase of tram vehicles to operate on the network.
04:24 From reports submitted to them, Councillors expected Line 1A to be completed within the
04:30 available budget of £545 million and to be open for revenue service by the summer of
04:39 2011. The construction of Line 1A was delayed and
04:45 a restricted line from the airport to York Place opened for revenue service almost three
04:51 years late in May 2014 and at a reported cost of £776.7 million, which was £231.7 million
05:04 in excess of the available budget for the entire Line 1A. The reported cost was an understatement
05:13 because the City of Edinburgh Council allocated costs to other budgets that truly related
05:19 to the project and failed to include the net present value of borrowing £231 million to
05:27 complete the construction of the restricted line. There was also a substantial claim by
05:32 a landowner of which there had been no awareness at the date of the reported cost. The best
05:38 estimate of the cost of the restricted line is £835.7 million.
05:49 The report considers various aspects of the procurement and management of the project,
05:55 as well as the consequences of the failure to deliver it on time, within budget and to
06:01 the extent projected. I propose to highlight certain of these issues today.
06:14 Following the poor financial performance of several light rail schemes, the advice of
06:20 the National Audit Office was that better sharing of project risk and alternative contract
06:26 structures could help to reduce the cost of such projects and encourage private sector
06:33 investment. TAI followed that advice in developing the
06:39 procurement strategy for the tram project. It separated the infracore contract for the
06:46 construction of the network from the tramcore contract for the delivery and maintenance
06:52 of the tram vehicles. This was a sensible approach. The tramcore contract did not contribute
06:59 to the increased cost of the project, except insofar as the cost of storage of vehicles
07:06 was added to the cost of the tramcore price because of TAI's delay in taking delivery
07:13 of them as a consequence of the delay in progressing the infracore contract.
07:19 The procurement strategy included various other measures designed to manage risk out
07:25 of the project. These included, prior to the conclusion of the infracore contract, providing
07:34 infracore with completed designs which had all necessary approvals and consents, subject
07:41 to the population of these designs with specific systems and components chosen by infracore,
07:49 innovating the design contract to infracore at the date of signature of the infracore
07:54 contract and completing the diversion of utilities in advance of the infrastructure work to enable
08:03 infracore to construct tramline unimpeded by the existence of utilities.
08:12 The final business case was based upon implementation of that strategy, as were the various reports
08:20 to councillors assuring them that the project would be delivered within budget. Although
08:27 some witnesses criticised the strategy, I have concluded that it was a sensible one,
08:34 and criticisms of it were intended to divert attention from the fact that the failure to
08:41 deliver the project on time and within budget was attributable to TIE's mismanagement and
08:49 its failure to implement the strategy. In particular, prior to the signature of the
08:55 infracore contract, TIE did not complete design to the extent intended, it did not obtain
09:03 all necessary consents and approvals, and it did not complete the diversion of utilities.
09:11 As a result, the infracore contract and innovation of the design contract did not transfer risk
09:19 to the infracore contractor to the extent intended in the procurement strategy. This
09:25 resulted in increased costs of the project. There was a five-month delay in TIE's award
09:32 of the design contract, but TIE did not amend the design programme to reflect that delay,
09:40 and it imposed an unrealistic design programme that was incapable of being achieved. TIE
09:47 failed to delay signature of the infracore contract until the necessary design consents
09:53 and approval existed. Moreover, TIE failed to manage the design contract effectively.
10:02 For example, it entered into the design contract before the conclusion of proceedings in the
10:09 Scottish Parliament to scrutinise the private legislation required from the project. It
10:16 failed to advise Parsons Brinkeholf for several months that changes had been made to the scheme
10:22 by the Scottish Parliament, with the result that design had proceeded from the raw baseline.
10:31 It failed to engage with council officials to ascertain the wishes of the Planning and
10:37 Roads Authority, and to balance the expectations of third parties, whose approval was required
10:44 for design that affected their land. It failed to coordinate instructions to Parsons Brinkeholf,
10:54 resulting in different people within TIE issuing competing design instructions, and in the
11:00 reconsideration of design issues that had already been rejected. It failed to advise
11:08 Parsons Brinkeholf that changes had been made to the employer's requirements to reflect
11:14 negotiations with infracore bidders, resulting in a mismatch between these requirements and
11:22 the SDS design. And it failed to provide instructions to Parsons Brinkeholf on critical issues to
11:30 enable them to progress design. TIE also failed to ensure that before signature
11:38 of the infracore contract, the diversion of utilities was completed in sections of the
11:44 route where such diversion was part of the procurement strategy. Delays in the diversion
11:51 of utilities were caused by the failure of some utility companies to comply with timescales
11:58 for the provision of information about the location of their assets under the proposed
12:03 route of the trams. TIE failed to manage such delays, with the result that commencement
12:10 of diversion work was delayed. The time allowed for completion of the diversion work was inadequate,
12:18 and failed to take into account the time taken to divert utilities in other tram projects
12:24 in the United Kingdom, and the likelihood of the inaccuracy of records of utility companies
12:32 and of the existence of redundant apparatus and other underground obstructions. Moreover,
12:39 TIE failed to manage the diversion of utilities to ensure that the procurement strategy of
12:45 providing infracore with a cleared route was achieved. For example, areas that were supposed
12:51 to have been cleared still had utilities in place when the infracore contract was signed.
12:57 Their existence, and the failure to give infracore exclusive access to sites, impeded its ability
13:05 to work efficiently and contributed to the increased cost of the project.
13:16 TIE was also responsible for the preparation of the business case. Although officials in
13:22 Transport Scotland reviewed and commented upon early versions of the business case,
13:29 they were prevented by Scottish Ministers from considering or commenting upon both versions
13:37 of the final business case produced for the October and December meetings of the full
13:44 Council in 2007 for its consideration and approval. Both versions were in similar terms
13:54 and were misleading. The capital cost for Phase 1a was forecast at £498 million "based
14:05 on firm rates and prices received from the bidders for system construction, vehicle supply
14:12 and maintenance". Resonance to £498 million in that context was misleading. It was an
14:21 aspirational figure selected by Mr Gatlar and it would have been more appropriate to
14:27 report a range of possible figures to reflect the likelihood of cost increases because of
14:34 delays in design and the diversion of utilities. Although provision for risk had been included
14:41 in the estimated cost of the project, the allowance for risk had not been assessed in
14:48 accordance with guidance available at that time to adjust the risk allowance to include
14:54 an uplift for optimism bias. Accordingly, the risk allowance and consequently the cost
15:02 in the business case was underestimated. No account was taken of the fact that it was
15:09 apparent by this time that it had not been possible to adhere to the procurement strategy,
15:16 which had formed the basis on which it was assumed that risks would be mitigated.
15:27 Tyne's conduct of negotiations with BBS about price was also inept. In December 2007, Mr
15:35 Gatlar threatened BBS that he would advise CEC to authorise Tyne to withdraw from negotiations
15:44 unless a target price of £219 million was achieved. At Wiesbaden in December, there
15:51 was a private meeting involving Mr Gatlar and senior representatives of Billfinger and
15:56 Siemens, following which it was claimed that the agreement on price had been reached. No
16:04 minutes of that meeting were provided to the inquiry. As a result of that meeting, an additional
16:10 £8.2 million was payable for transferring provisional sums to the third one contract
16:17 price. The subsequent written agreement following Wiesbaden did not transfer the design risk
16:24 to BBS, as Mr Gatlar had hoped. On 18 March 2008, Tyne issued the Notice of Intention
16:33 to award the contract to BBS when negotiations were incomplete. The purpose of an NIA is
16:40 to allow parties a short period to reflect upon the negotiated terms of a contract before
16:48 formally committing to it. It was contrary to normal procurement management practice
16:55 for the procuring party to issue an NIA when the parties were still in negotiation over
17:01 central contractual documentation, including the pricing schedule. Tyne's actions in
17:08 issuing the NIA prematurely strengthened BBS's negotiating position.
17:15 Furthermore, in each of the Rutland Square Agreement, the City Point Agreement and the
17:21 Kingdom Agreement, dated 7 February, 7 March and 14 May 2008, respectively, Tyne agreed
17:29 to pay BBS increases in the price. The Rutland Square Agreement contained a clause in terms
17:36 of which BBS could lose preferred bidder status if it did not adhere to its terms, including
17:43 the requirement that there be no further claims for additional payment. Tyne neither used
17:50 nor threatened to use this sanction. When the increased prices were sought and obtained
17:56 by BBS in the later City Point and Kingdom Agreements. Tyne's failures in this regard
18:05 indicated to BBS Tyne's desire to award the inferral contract to BBS, irrespective of
18:12 repeated price increases, and, as with the premature issue of the NIA, represented a
18:19 divergence of interests between Tyne and CEC. Tyne's conduct was a sign of its weak negotiating
18:27 position, which BBS was able to use to its advantage.
18:36 The pricing schedule to the inferral contract, referred to as SP4, was not finalised until
18:43 mid-April 2008. It contained an appendix showing a "lump sum, firm and fixed price" of £231.8
18:54 million, with deductions totalling in excess of £12 million for value engineering, resulting
19:01 in a price of £219.2 million, excluding provisional sums, giving the impression that Tyne had
19:09 achieved its objective as far as price was concerned. Nothing could have been further
19:16 from reality. The value engineering savings were properly described as financial engineering.
19:24 They were unachievable, not least because they would have required design changes for
19:30 which no provision had been made. There can be little doubt that Tyne's mismanagement
19:37 played a significant role in the failure to deliver the project on time and within budget,
19:44 and to the extent projected.
19:47 However, the principal cause of these failures was the inferral contract itself, the terms
19:56 of which resulted in disputes about its interpretation and the cessation of work at particular locations
20:04 until the disputes were resolved. The disputes centred principally on two provisions in the
20:10 inferral contract. The first of these is a provision in the pricing schedule relating
20:16 to entitlement to additional payments, where there were changes to the pricing assumptions
20:22 in that schedule, some of which assumptions were acknowledged to be inconsistent with
20:29 the actual facts and circumstances that applied at the date of signature of the contract.
20:38 Such changes were deemed to be mandatory Tyne changes.
20:44 The second provision is Clause 80, containing provisions as to what should happen in relation
20:52 to the execution of the works when it was considered that a change was being made to
20:57 those works. Clause 80 had been drafted before the pricing schedule and was intended to prevent
21:08 work starting on a change requested by Tyne until the cost of such a change was agreed
21:16 or determined following a reference to the dispute resolution procedure. Once the cost
21:24 of change was known, Tyne had the option to decide not to proceed with the change or to
21:32 issue a change notice to carry out the work at the agreed price. That option did not apply
21:40 when there was deemed to be a mandatory Tyne change. Mandatory Tyne changes arose from
21:46 the terms of the contract whenever there was a notified departure from the pricing assumptions.
21:54 In mandatory Tyne changes, the provisions of Clause 80, preventing work from proceeding
22:01 prior to agreement of the cost of the work, were inappropriate and led to the cessation
22:08 of work whenever BBS considered that there had been such a change. In the course of contract
22:15 negotiations Mr Lane, Billfinger's solicitor, alerted Tyne to the inappropriateness of applying
22:22 Clause 80 to mandatory Tyne changes, but his comments were dismissed by Tyne officials
22:31 as an attempt to renegotiate the change provisions generally. Mr Lane's fears were justified.
22:38 The practical effect of Clause 80 was that work on the project stopped whenever there
22:43 were notified departures from the pricing assumptions. For example, when Billfinger
22:50 encountered undiverted utilities or other obstructions that ought to have been removed
22:56 by others in advance of Billfinger taking occupation of the work site, work could not
23:03 recommence until the cost of the mandatory change had been agreed, unless Tyne instructed
23:10 Billfinger to proceed with the work in advance of agreement or determination of the cost,
23:18 in which case Tyne had to pay the demonstrable cost of the work until such agreement was
23:24 reached or determination made. The number and frequency of notified departures meant
23:32 that work under the contract could not progress and at times ceased altogether. Although Tyne
23:40 was aware of the likelihood that there would be notified departures immediately after the
23:46 signature of the contract, it failed to make any assessment of the probable number of such
23:53 departures or to make any risk allowance for such departures. Tyne also failed to make
24:02 CEC officials aware of this probability, despite the fact that it was aware that securing a
24:09 firm price within the available budget for the project was a matter of considerable importance
24:16 to CEC. The impracticality of Clause 80 was recognised at mediation, where a variation
24:24 to the contract was agreed and was reflected in MOV 5, as a result of which a fixed price
24:32 was agreed for off-street works between the airport and Haymarket. The fixed price was
24:39 not supported by detailed financial calculations. It was the result of an offer made by Diem
24:45 Sue Bruce, the Chief Executive of CEC, that one of the advisors thought would achieve
24:52 a settlement. It was described as a 'horse trade' and resulted in a significant increase
25:00 in the cost of the project.
25:05 Although I have concluded that Tyne's failures were the principal cause of the failure to
25:11 deliver the project on time, within budget, and to the extent projected, I have also criticised
25:18 the City of Edinburgh Council. That criticism is directed at officials as opposed to councillors,
25:27 because officials were responsible for implementing the decision of councillors to deliver the
25:33 project within budget, and it was their acts or omissions that contributed to the failures
25:39 in the delivery of the project.
25:43 Officials provided councillors with misleading reports, from which councillors understood
25:49 that the cost of Line 1A would be within the budget of £545 million. Although many of
25:57 these reports contain sections that have been written or revised by Tyne, the signatories
26:04 of the reports bear responsibility for their inaccuracies. For example, following the apparent
26:12 conclusion of negotiations, the Chief Executive's report to councillors on 1 May 2008 contained
26:20 factual errors of significance. It advised councillors that 95% of the combined intracoal
26:29 and tramco costs were fixed, with the remainder being provisional sums. That was untrue. It
26:37 also stated erroneously that the utility diversion works along the tram route were "progressing
26:45 to programme and budget". Mr Langliss-Lewister, acting for Bill Finger, was so concerned about
26:53 these inaccuracies that he telephoned Mr Fitchie, but was told that CEC had its own legal advisers.
27:02 The provision of inaccurate information to councillors continued after the contract was
27:07 signed. In reports to councillors in June and October 2010, Mr N Smith had revised the
27:17 draft reports to include a statement that the outcome of the disputes between Tyne and
27:23 Intracoal that had been referred to adjudication was finally balanced "in terms of legal
27:31 principles". That was untrue. Although he was not the signatory of either report, Mr
27:39 Smith's interpretation of the outcome "in terms of legal principles" was relied upon
27:45 by the signatories of the reports because he was a solicitor.
27:50 Officials also failed to protect the interests of the Council. On 18 March 2008, in exercising
27:57 his delegated power to authorise Tyne to issue the Notice of Intention to award the Intracoal
28:04 contract to BPS, the Chief Executive exceeded his delegated authority. His authority was
28:12 subject to price and terms being consistent with the final business case and subject to
28:18 his being satisfied that all remaining due diligence was resolved to his satisfaction.
28:26 The notice was issued prematurely when negotiations about price were continuing and it was not
28:32 possible to say that the price was consistent with the final business case. The premature
28:39 issue of the notice was detrimental to the interests of the Council. Similarly, on 13
28:46 May 2008, his authorisation to Tyne to sign the Intracoal contract exceeded his delegated
28:53 authority because the price and terms were not consistent with the final business case
29:01 as refreshed by the recent price increases.
29:05 In April 2008, officials, including Mr C Mackenzie and Mr N Smith, solicitors in the project
29:14 team, received a copy of the draft pricing schedule. Mr Smith stated to the Inquiry that
29:23 he did not read it before the contract was signed and that if he had read it, he would
29:29 have raised his concerns about it with Mr Mackenzie, Ms Lindsay and DLE. Mr Mackenzie
29:36 did read it and was concerned about its terms, but failed to raise his concerns with the
29:42 Council solicitor or anyone else or to take any other action before going on holiday.
29:50 By their respective actions, each of them failed to protect the interests of CEC. CEC
29:58 must also share principal responsibility with Tyne for the delays in design. As the local
30:04 authority exercising the statutory powers relating to planning and roads and transport,
30:10 its officials ought to have liaised with the prospective designers of the project and thereafter
30:17 with Parsons Brinckerhove when it was appointed to undertake the SDS contract, to clarify
30:24 CEC's design requirements at the earliest opportunity. CEC ought to have provided adequate
30:32 guidance at the earliest opportunity to assist designers in developing the details of the
30:38 prior approval designs and technical approvals that would be acceptable to it as Planning
30:45 and Roads and Transport Authority. The Tram Design Manual, produced around December 2005,
30:54 only gave guidance on design principles of a very general nature and the delivery of
31:00 a draft Tram Public Realm Design Workbook in April 2008, which gave more detailed guidance
31:08 on matters such as surfacing, materials and construction details, was too late because
31:16 it arrived only one month before contract close. CEC officials failed to work in a collaborative
31:25 manner to resolve design issues swiftly and with clarity or to provide a focus on enabling
31:33 the project to proceed smoothly. The lateness and sheer volume of the comments on design
31:40 from different officials within CEC, including the reconsideration of issues that had been
31:47 rejected at an earlier stage in the design process, were bound to cause delay and expense.
31:55 It is very surprising that such a disorganised and uncoordinated response was allowed to
32:03 continue unchecked. CEC could and should have taken steps to reduce the delays in granting
32:11 consensual approvals without affecting the proper performance of its statutory duties.
32:19 As design progressed before and after contract close, CEC ought to have coordinated the various
32:26 comments and objections to designs from within CEC and ought to have managed the expectations
32:34 of third parties whose consent was also required. Instead it commented with a number of voices
32:42 rather than a single, considered voice. The change that came about in consents at approvals
32:51 after the Marhall mediation is striking. There is no suggestion that CEC ignored or in any
33:00 way compromised its obligations in that period, and yet it dealt with matters in a wholly
33:06 different and much more efficient way. As the owner and ultimate funder of the project,
33:13 CEC ought to have ensured that its interests were protected, particularly as it had no
33:18 effective remedy against TIE for any acts or omissions by TIE resulting in loss to CEC.
33:27 It failed to do so. It adopted a one-family approach that resulted in its failure to scrutinise
33:34 the actions of TIE. TIE did not reciprocate that approach and resented any scrutiny of
33:41 its actions by CEC's officials. I have already referred to the mediation settlement
33:48 in the context of Clause 80. In the report I expressed concerns about the manner in which
33:56 the settlement was implemented. Pending Council's approval of MOV 5, an interim settlement was
34:04 agreed and incorporated into MOV 4, which provided for payments to be made to INFRICO
34:11 in exchange for materials and priority works. It also preserved the rights of INFRICO and
34:18 TRAMCO to compensation in the event that Councillors did not agree to proceed with the project
34:26 in accordance with the mediation settlement. The effect of implementing MOV 4 was that
34:32 the limit of £546 million imposed by Councillors as authorised expenditure on the project would
34:41 be exceeded if Councillors decided not to proceed with the project. Councillors' authority
34:47 to increase the limit was required but was not sought. Instead, senior officials of CEC
34:55 advised TIE that CEC would take no action against it or its employees for exceeding
35:03 the expenditure limit and instructed TIE to sign MOV 4 and to make payments in terms of
35:10 that variation. In doing so, these officials exceeded their authority and usurped the role
35:18 of Councillors, who alone could authorise an increase in the limit set by them. Moreover,
35:25 a payment of £27 million was made under MOV 4 and a further payment of £9 million was
35:34 authorised and may have been paid before MOV 4 was signed. This amounted to a serious failure
35:42 of governance. Several months later, Councillors approved MOV 5, which had the effect of retrospective
35:51 approval of the unauthorised expenditure under MOV 4.
36:01 In the report I have also criticised Scottish Ministers for failing to protect the public
36:06 purse, represented by their grant of £500 million towards the £545 million budgeted
36:15 cost of the project. Prior to the election of the SNP as a minority government in 2007,
36:24 its manifesto contained a commitment to abandon the project. Scottish Ministers sought to
36:31 implement that commitment, but were defeated on 27 June 2007 by a majority vote in the
36:39 Scottish Parliament. Although they were not bound by that decision, Scottish Ministers
36:46 decided to implement it, feeling that they would be defeated in a vote of confidence
36:52 if they did not, and would lose the power of being in government for the first time
36:58 in the SNP's history. Mr Swinney's enhancement that the project would proceed but that grant
37:05 funding would be capped at £500 million, with any cost overrun being borne by CEC,
37:13 did not alter the funding arrangements that had existed prior to June 2007. Although the
37:22 financial commitment of Scottish Ministers before and after June 2007 was identical,
37:30 Mr Swinney's instruction to officials in Transport Scotland to "scale back" their
37:38 involvement in the project was a material change of such significance that officials
37:45 gave serious consideration to their seeking a ministerial direction to obey this instruction.
37:53 Ministerial directions are formal instructions from Ministers telling their officials to
37:59 proceed with a spending proposal in a particular manner, despite an objection from the permanent
38:06 secretary or other senior official in the department. They are extremely rare and have
38:14 been described as the nuclear option. In the event, no direction was requested, but the
38:21 involvement of Transport Scotland officials in the project altered significantly, and
38:28 important safeguards designed to protect the grant funds were removed. In March 2007, the
38:36 award of the grant was restricted to £60 million to be used for utilities diversions,
38:44 advance works and continuing development and procurement for Phase 1a. The conditions attached
38:52 to the offer of grant included a number of hold points at which CEC and the Scottish
38:59 Ministers would review whether the scheme was continuing to meet its objectives, and
39:06 they would determine whether to continue to support scheme development and implementation.
39:12 In January 2008, when Scottish Ministers issued the formal offer to pay up to £500 million
39:21 in installments as a grant towards the cost of the project, the hold points were removed
39:29 from the conditions of payment. Prior to the decision to scale back the involvement of
39:34 Transport Scotland, the provision of funding had also depended upon a final business case
39:43 justifying the continuation of the project, and a benefit to cost ratio (BCR) in excess
39:51 of 1, which is indicative of achieving value for money. Officials in Transport Scotland
39:59 specified the matters to be considered in any business case, and commented on its context.
40:07 When reviewing the various iterations of the business case, they had used both internal
40:12 resources of various disciplines and external consultants. After June 2007, its officials
40:20 were not involved in the scrutiny of and commenting on the versions of the final business case
40:28 prepared in October and December 2007. They merely relied upon CEC's approval of these
40:35 versions. The BCR is a key factor in determining how funds are to be made available for projects,
40:43 but the effect of this change was that Transport Scotland would carry out no assessment of
40:49 its own before committing ministers to pay a total of £500 million. Instead, it was
40:58 to be left for evaluation by the recipient of the funds, with no requirement as to how
41:04 robust the findings had to be, or how sensitive the BCR was to particular inputs.
41:11 In his evidence to the Audit Committee of the Scottish Parliament on 27 June 2007, the
41:18 Auditor General envisaged the continued involvement of Transport Scotland, along with the City
41:24 of Edinburgh Council, in the approval of the final business case. He emphasised the need
41:31 for careful scrutiny of the final business case by Transport Scotland "because it is
41:38 concerned with Parliament's interests". The evidence also disclosed that when ministers
41:47 were providing substantial funds towards a transport project, it was the practice of
41:53 Transport Scotland to instruct solicitors experienced in the preparation and interpretation
42:00 of construction and engineering contracts to review the draft contract prior to its
42:06 terms being signed.
42:10 The decision of Scottish ministers to scale back their involvement in the project meant
42:16 that this safeguard was not undertaken. If it had been, it is likely that they would
42:22 have become aware that there was not price certainty and that there was a real risk that
42:28 the project could not be delivered within budget. This should have resulted in their
42:34 reconsideration of the justification for the continuation of the project. Such reconsideration
42:43 might have resulted in the curtailment or the abandonment of the project and might have
42:49 resulted in saving public funds.
42:52 The Scottish ministers did not advance any good reason for withdrawing the safeguards
42:57 that existed to protect the public purse when grant payments were being made. There was
43:04 no risk of confusion as to who was delivering the project. Although the Auditor General
43:11 expected the continued involvement of Transport Scotland as the principal funder of the project,
43:20 there was no jubilaty that ultimate responsibility for delivery of the project rested with the
43:27 City of Edinburgh Council and its arm's-length external organisation, TIE.
43:35 It appears that Mr Swinney may have realised the fundamental error and unreasonableness
43:42 of the ministerial decision to scale back officials' involvement in the project when
43:48 problems arose with it after the infrical contract was signed. He became directly involved
43:56 in it. During the course of the Princes Street dispute, he told Mr Mackay, the chairman of
44:03 TIE "to get it sorted". His explanation that he meant TIE to follow the dispute resolution
44:12 procedure does not bear scrutiny. He clearly intended that TIE should respond as it did,
44:20 by paying for work on Princes Street on a demonstrable cost basis to secure the resumption
44:27 of work there, resulting in increased expenditure on the project. He held various meetings with
44:35 representatives of TIE, the City of Edinburgh Council and the contractors, Boulthinger,
44:42 Siemens. No minutes of these meetings were produced to the inquiry. In November 2010,
44:51 he told representatives of the Council that they "were going to mediation". He offered
44:59 the services of Mr McLaughlin, a senior official in Transport Scotland, to attend the mediation
45:06 and to provide assistance to the City of Edinburgh Council. Mr McLaughlin participated in the
45:12 mediation as a negotiator, although the final decision concerning any settlement remained
45:20 with Dame Sue Bruce as Chief Executive of CEC. Before the final settlement was offered
45:27 to Infrico, Mr McLaughlin telephoned Mr Swinney. There was no credible explanation for that
45:34 call at that stage in the mediation. After mediation, Scottish Ministers were represented
45:42 at all levels of the project until its completion. Following the emergence of the difficulties
45:49 with the project, it can be seen that Scottish Ministers, represented by Mr Swinney, not
45:57 only recognised their mistake in withdrawing the oversight of Transport Scotland officials
46:03 designed to protect public purse, but became more involved in issuing directions to the
46:10 local authority and TIE about actions to be taken by them. Such intervention would not
46:18 have been necessary, as Scottish Ministers allowed officials to undertake their normal
46:24 role in major transport projects that were in receipt of substantial grant funding. Their
46:31 role was intended to protect public funds, represented by the grant funding, but such
46:38 protection was removed as a result of the actions of Scottish Ministers.
46:49 In Chapter 24 of the report, I consider the consequences of the failure to deliver the
46:54 project within budget on time and to the extent projected. These include the financial consequences
47:04 for the City of Edinburgh Council, the impact on the public generally, the impact on residents,
47:17 the impact on businesses generally, the impact on businesses on Leith Walk, the impact on
47:28 businesses in the West End, unnecessary costs, unrealised benefits, reputational damage to
47:42 the City of Edinburgh. Chapter 25 of the report contains 24 recommendations
47:54 for the consideration of Scottish Ministers. For ease of reference, these are included
48:00 at the beginning of the report.