Chapter 3: Involvement of the Scottish Ministers

Involvement of the Scottish Ministers

3.1 From the narrative in the introductory section in Chapter 1 (Introduction and Overview) it will be apparent that the Scottish Ministers were involved from the outset in the consideration of the construction of a tram network in Edinburgh. It is convenient to consider their involvement before considering the procurement strategy and the negotiation, conclusion and implementation of the various contracts intended to deliver the Tram project. At an early stage, development funding was provided to City of Edinburgh Council (“CEC”) to undertake initial feasibility studies. If there was a sound financial basis for the construction of a tram network it was intended that a grant from the Scottish Ministers would make up the majority of the funds required to construct its initial phases. Initially, Government involvement was through officials in the Scottish Executive as well as the Scottish Ministers themselves. On its creation on 1 January 2006, Transport Scotland assumed the functions previously performed by officials in the Scottish Executive in relation to the Edinburgh Tram project (the “project”). The change from management by officials in the Scottish Executive to the involvement of officials in Transport Scotland did not change the role that was played by Scottish Ministers. However, following the election in 2007 of the Scottish National Party (“SNP”) minority Government, which was committed to abandoning the project, significant changes were made to the involvement of Transport Scotland. Its new role after 2007 continued until new governance arrangements were established following the Mar Hall mediation in 2011, which resulted in an increase in its involvement once again. This continued until the project was completed.

3.2 Transport Scotland is an executive agency of the Scottish Government and, as such, not a body with a distinct legal identity separate from the Scottish Ministers. Despite this, for the period after it had been established it is convenient to refer to Transport Scotland when considering its role and the role of Scottish Ministers.

Evidence provided by Transport Scotland to the Inquiry

3.3 Before considering the issues that arise in relation to the role of the Scottish Ministers, it is relevant to note that it was apparent that the Inquiry had not been provided with all the relevant documents by officials in Transport Scotland. Initially, they provided documents in response to a request for all relevant material. When the material was provided, an assurance was given that a search had been carried out and the material that had been made available was all that there was: see letter from Mr Rees to Ms Martin, dated 11 February 2015 [TRS00031286]; letter from Mr Rees to Mr Murdoch, dated 17 January 2017 [TRS00031284, page 0002, paragraph 3]; letter from Mr Rees to Mr McNicoll, dated 8 August 2017 [TRS00031285]; and letter from Mr Rees to Mr Murdoch, dated 14 August 2017 [TRS00031283]. During the course of the Inquiry, from time to time requests were made to officials in Transport Scotland for specific documents or categories of documents. Whether or not additional documents were furnished, the assurance was repeated that all available information had been provided.

3.4 I acknowledge that Officials in Transport Scotland produced in excess of 17,600 documents to the Inquiry but despite the assurances mentioned in paragraph 3.3 they did not disclose to the Inquiry documents that, at the very least, must have been in its possession at some time and in some cases documents that it did in fact have. For example, Nadia Savage had been seconded to Transport Scotland from Cyril Sweett, Construction Consultants, as Head of Programme Management. An internal memorandum from her dated 21 June 2007 [SWT00000056] was relevant in that it recorded doubts that the figure for estimated project costs supplied by tie Limited (“tie”) to Audit Scotland was realistic. This document had apparently been circulated within Transport Scotland, having been sent to Mr Reeve and copied to Mr Morrissey, both of whom were officials there, and had also been copied to Mr Davis in Cyril Sweett. It was very relevant to the subject-matter of the Inquiry and it is notable that it was not among the material supplied to the Inquiry by Transport Scotland. Mr Reeve could offer no explanation for this [PHT00000012, page 122]. Faced with this difficulty, he suggested that the document might have originated in the offices of Cyril Sweett and that perhaps it had not been sent [ibid, pages 126–128]. Although Nadia Savage was an employee of Cyril Sweett, she was on secondment to Transport Scotland as Head of Programme Management and wrote the memorandum in that capacity, as is apparent from the last page. Moreover, the first page contains the logo of Transport Scotland. The Inquiry recovered the document from Cyril Sweett, which clearly indicates that it was sent to Mr Davis. It is inconceivable that it was not sent simultaneously to the main recipient (Mr Reeve) or to the other named official in Transport Scotland (Mr Morrissey). I have no hesitation in rejecting Mr Reeve’s attempted explanation of this matter as incredible. The impression that I had was that he wished to distance himself from the email that had been sent to him, about which he had failed to take any action.

3.5 A further critical example concerns the advice received from Dundas & Wilson (“D&W”) in 2009 regarding the infrastructure contract (“Infraco contract”). D&W has subsequently merged with other firms and is now known as CMS Cameron McKenna Nabarro Olswang LLP. No record of its advice was included in the information provided to the Inquiry by Transport Scotland. The Inquiry became aware of the existence of that advice following an interview with Mr Ramsay, a retired official in Transport Scotland who had been involved in the project as a member of the Transport Scotland team. Mr Ramsay’s recollection was that the advice had expressed the view that the contract was not fit for purpose. It appears that that was probably his interpretation of the advice, which included adverse comments about the change mechanism in the contract encouraging disputes rather than a verbatim account of its content (see paragraph 3.65 below). The Inquiry asked Transport Scotland for a copy of the advice but it was unable to locate it. The solicitor for Transport Scotland offered to contact CMS Cameron McKenna, the successors to D&W, to ascertain whether it had a copy of the advice. The copy of the letter in the possession of the Inquiry [TRS00031282] was recovered in this way.

3.6 That relevant documentation was not provided initially is very disappointing. It is not possible to say that there has been deliberate concealment of documents or even a lack of willingness to search for them. The Inquiry has had experience of the software systems used by the Scottish Government to store documents in electronic format, and it is clear that in those systems there is scope for documents to be lost even where everyone involved is trying their best. This does, however, raise the concern that if documents cannot be found now, they might not have been readily available during the implementation of the project. In that situation, knowledge and information would have been lost and decision-making would have been impaired. A better way of storing and retrieving documents and the data that they contain is required.

Changes in 2007

3.30 The result of the Scottish Parliament election in May 2007 was that the SNP formed a minority Government. The manifesto on which the party had contested the election included a commitment not to proceed with the project if it should be elected. The outcome of the election naturally, therefore, gave rise to uncertainty as to whether the project would proceed. On 4 June 2007, Mr Swinney, then the Deputy First Minister, requested the Auditor General for Scotland “to carry out a high-level review of the arrangements in place for estimating the costs and managing the Edinburgh trams and Edinburgh Airport Rail Link (EARL) projects” [CEC00785541, page 0004, paragraph 1]. Mr Swinney said that he did so in order to get a dispassionate view on the condition of the project [TRI00000149_C, pages 0025–0026, paragraph 72]. Transport Scotland has no record of any letter on behalf of Mr Swinney confirming the scope or purpose of the review. The report [CEC00785541] was provided a little over two weeks later, on 20 June 2007.

3.31 No clear justification was given for seeking the review of the project from Audit Scotland when such reviews might normally be carried out by Transport Scotland or its predecessor organisation in the Scottish Development Department on behalf of Scottish Ministers. It would be the body presumed to have relevant experience. The project was not a Transport Scotland one, so there was no obvious concern as to lack of impartiality. Witnesses from Transport Scotland were not aware of any other occasion on which a Minister had made such a request of Audit Scotland in relation to a project at this stage [Mr McLaughlin PHT00000011, page 156]. Both Dr Reed and Mr Sharp were of the view that Transport Scotland would have been better placed than Audit Scotland to give an in-depth report on the project at that time [PHT00000013, page 123; PHT00000015, page 113]. Transport Scotland’s experience was of heavy rail projects, but that was to be expected as this was the first ever light rail project in Scotland. In answer to my questions, Mr McLaughlin said that if one wanted to look within Government departments for expertise that might assist with light rail, one would look in the first instance for experience in heavy rail [PHT00000011, page 158]. While Mr Swinney suggested that there might have been presentational difficulties in requesting that Transport Scotland undertake the review in June 2007, the consequence of his decision to invite Audit Scotland to do so was that the expertise then available was not brought to bear. The decision is unfortunate for that reason. This is not just of academic interest. Transport Scotland had been involved in the project for years and had a degree of accumulated knowledge. As noted above, Audit Scotland had had just over two weeks to prepare its report.

3.32 Despite the above, it is not clear to me that, as at summer 2007, had Transport Scotland been instructed to report on the project, it would have been able to identify the particular problems that were later to cause so much difficulty. Nonetheless, very considerable weight appears to have been attached to the Audit Scotland report by some MSPs, councillors, tie officials and Transport Scotland officials and it was seen as giving the management of the project a “clean bill of health” [SCP00000030, page 0020, column 1154]. That it was construed in this way is surprising. It should have been apparent to all concerned that there had been just weeks to consider the project and that the remit had been fairly narrow.

3.33 By way of illustration of the importance attached to it, Mr McLaughlin, Director of Major Transport Infrastructure Projects at Transport Scotland between March 2007 and March 2015, who did not have any formal role in relation to the project until 2010, said:

“If Audit Scotland had crawled all over the project and they said thought [sic] it was robust and had a good chance of delivering a successful project, why would Transport Scotland have thought differently at the time?” [TRI00000061_C, page 0012, paragraph 28.]

In the public hearing when he was asked about the above comment he explained that it related to governance and management structures, rather than suggesting that the Auditor General had undertaken a wholesale review of the project [PHT00000011, page 210]. However, in his written statement he observed that the Auditor General had said that estimates in the project had been subjected to robust testing. The use of the phrase “crawled all over” suggests a detailed scrutiny that was not possible within the short timescale available and without the detailed knowledge of the project that had been gained by Transport Scotland as a result of the involvement of its officials over several years (before and after the creation of Transport Scotland). A review of governance carried out in a period of days cannot supersede or supplant any requirement for detailed scrutiny of the project and monitoring implementation. The councillors who placed reliance on the report might be forgiven for not having had a detailed understanding of the background issues, but the approach of Mr McLaughlin, who would have had that understanding, is remarkable. The pretence that the project had been vetted and found to be sound might have contributed to the lack of appropriate examination of it at later stages and is considered in later chapters.

3.34 Once the report was obtained from Audit Scotland, the matter was brought to a head by a motion put before the Parliament by the Government on 27 June 2007. The debate and vote proceeded in the context of a motion before the Parliament, which was in the following terms:

“That the Parliament endorses the Government’s transport priorities and notes that the Government party proposed during the election campaign not to proceed with the Edinburgh Trams and current EARL projects, but planned an additional crossing for the River Forth.” [SCP00000030, page 0012, column 1137.]

3.35 The motion was amended and, as agreed to, read:

“That the Parliament notes that the Edinburgh Trams project and EARL were approved by the Parliament after detailed scrutiny; further notes the report of the Auditor General for Scotland on these projects and, in light thereof, (a) calls on the Scottish Government to proceed with the Edinburgh Trams project within the budget limit set by the previous administration, noting that it is the responsibility of Transport Initiatives Edinburgh and the City of Edinburgh Council to meet the balance of the funding costs and (b) further calls on the Scottish Government to continue to progress the EARL project by resolving the governance issues identified by the Auditor General before any binding financial commitment is made and to report back to the Parliament in September on the outcome of its discussions with the relevant parties.” [ibid, page 0038, column 1189]

3.36 From the transcript of the parliamentary proceedings [SCP00000030] it appears that the debate lasted approximately two hours. During it, reference was made to the report from Audit Scotland. There was no reference to the content of the draft business case. Ms Boyack MSP noted that the FBC had yet to be produced [ibid, page 0017, column 1148]. This was in the context of resisting any suggestion that the project should be stopped until the FBC was available. That indicates that there had been no consideration of the sort of detailed matters contained in the FBC. During the debate, Mr McLetchie MSP noted that in response to publication of the Audit Scotland report, the Scottish Conservatives had said that “not a penny more of public funding should be committed by the Scottish Executive to the project” [ibid, page 0021, column 1155] and that it should be made clear that it was the responsibility of tie and CEC to bridge any funding gap. Mr Swinney noted that Mr McLetchie had said that the project should be delivered as people expected it to be delivered, and he posed the question whether it would be legitimate for tie or CEC to come back with a proposal that was scaled down from the one before the Parliament. Mr McLetchie responded that it would not. In his comments in closing the debate, Mr Swinney returned to this and said “[t]he danger with the project is that there is an unwillingness to deliver it as the people of Edinburgh expected it to be delivered when it was launched” [ibid, page 0032, column 1177]. The natural inference from this is that it was considered important that the whole of phase 1a of the project, at least, should be delivered with the grant money that the Scottish Ministers were providing.

3.37 Following the vote, in a point of order Mr Swinney noted the terms of a letter from the former First Minister, Donald Dewar MSP, that “except in certain circumstances, the Scottish Executive is not necessarily bound by resolutions or motions passed by the Scottish Parliament” [ibid, page 0039, column 1192]. He then went on to say:

“I confirm to Parliament that the Government will accept and implement the provisions in the resolution that has been agreed by Parliament in relation to the Edinburgh trams project”

and he welcomed the commitment that the project must be delivered within the budget limit set by the previous administration. Below I consider the significance of this further.

Actions of Transport Scotland/the Scottish Ministers Following the Vote

3.38 The final decision to make the changes in the role undertaken by Transport Scotland in the project following the vote was that of Mr Swinney. In order to consider the basis on which the decision was taken, it is useful to set out the chronology of events following the parliamentary vote:

2 July 2007: email sent on behalf of Mr Swinney [TRS00031280]

This indicated that he was looking for advice on how to take forward Parliament’s view of the Edinburgh Airport Rail Link (“EARL”) project. It asked for a description of the alternatives available in that regard and how the tram scheme would fit into the changed picture. The focus of this was plainly on the EARL project, in relation to which Parliament had determined that governance issues required to be addressed before any funding commitment was made.

6 July 2007: advice to the Cabinet Secretary for Finance and Sustainable Growth (Mr Swinney) from Dr Reed [TRS00004523], sent under cover of an email of 9 July 2007 [TRS00004522]

In relation to EARL, this noted that, following a press statement by Mr Swinney after the parliamentary debate, the working assumption was that the governance review that Mr Swinney had said would be undertaken would lead to the cancellation of that project. This suggested that the Minister might have predetermined the outcome of the review, and it was inconsistent with the decision of Parliament in relation to EARL. The Inquiry Terms of Reference are restricted to the project therefore I have not examined this further in so far as it related to EARL. It does, however, have some bearing on the justifications advanced by the Scottish Ministers for the change in the role of Transport Scotland, and I return to it in that context below.

3.39 Dr Reed’s advice put forward five options for the cap that was to be imposed on the grant for the project. In relation to future governance, it said:

“Future Governance and the Role of Transport Scotland

“1 The Parliament’s decision places the risk of any cost overruns on the Tram Scheme with the City of Edinburgh Council, and makes it clear that responsibility for managing and delivering the scheme rests with the promoter.

“2 To achieve this clarity of roles, and ensure that situations could not arise subsequently in the governance of the project which might generate further calls on central funding, I propose that Transport Scotland’s future engagement with the Edinburgh Tram Project should be on the basis of revised grant conditions and once these conditions are in place, Transport Scotland staff should withdraw from active participation in the governance of this project.” [TRS00004523, page 0008.]

11 July 2007: email sent on behalf of the Cabinet Secretary [TRS00004536]

This noted Mr Swinney’s preference as to how the cap on the grant should be expressed, and stated that Transport Scotland should “scale back” its direct involvement. This email was forwarded on the same day by Mr Morrissey of Transport Scotland, with a note that it was necessary to define and agree what was meant by “scale back”. Thereafter, meetings were held within Transport Scotland to consider what its involvement should be.

18 July 2007: email chain [TRS00004547] including an email of 17 July 2007 from Mr Sharp

This contained a report of a meeting of the TPB on 12 July 2007. It noted that the decision to provide £500 million and transfer the risk to CEC had produced “a very positive atmosphere” [ibid, page 0002]. However, it recorded that, within the TPB, Mr Mackay, Mr Stewart and Mr Renilson were all in favour of Mr Reeve’s continuing to be a member of the Board and for Transport Scotland to be actively involved in the project. It also noted that Mr Gallagher had said nothing on the issue but that it was known that he did not share that view. It noted that Mr Spence of Transport Scotland was “preparing a separate paper on what ‘scaling back our involvement’ means in practice” [ibid]. In response to Mr Sharp’s message, Dr Reed emailed, saying:

“I am getting very strong signals from the Cabinet Secretary that TS should not be on the project board – he reiterated this at the Portfolio Meeting on Tuesday morning. Of course we need to fulfil any obligations under the SPFM [Scottish Public Finance Manual], but we need to withdraw from active engagement in the delivery of this project and – crucially – in any decision-making processes that could compromise the new arrangements for allocation of financial risk for this project.” [ibid, page 0001.]

3.40 In response, Mr Reeve said that the advice from Mr Swinney was helpful but he recorded his concern about the risk of withdrawing from governance arrangements that Audit Scotland had found satisfactory. He was of the view that “[w]e must have a well recorded reason for making these changes”. He went as far as to pose the question of whether it was worth considering seeking a direction from the Cabinet Secretary that normal governance processes should not be followed in this instance. This would have been an extreme and highly unusual step. It is of note that Mr Swinney explained that there had been no request for a ministerial direction since the SNP first formed the Government in 2007 [PHT00000050, page 58]. It is apparent that, in suggesting it, Mr Reeve was aware of that fact. He described it as a “nuclear option”, but felt that it would provide clarity and cover. While no such direction was formally sought, the fact that it was considered is a significant matter. It suggests a concern on the part of Mr Reeve at what was being proposed and whether there would be adverse consequences.

20 July 2007: advice from Mr Spence, Deputy Head of Major Projects, Transport Scotland, to Dr Reed of Transport Scotland [TRS00004559]

This contains the first explanation as to what “scaled back” would mean in practice. It includes the following elements:

standard grant conditions were to be used;
Transport Scotland to give up its seat on the TPB.

3.41 It states that the requirements for approval by Transport Scotland of the project at nomination of preferred bidder and financial close “appear confused” and are “unnecessary”. Instead, it suggests there would be an agreement to release further funds in January 2008 and that the approval of Transport Scotland would be based on:

“[c]ompliance with standard grant conditions to date.

“[h]aving received a copy of the completed Final Business Case as endorsed by City of Edinburgh Council.

“[h]aving received confirmation that the project has successfully passed a standard OGC Gateway 3 Review.

“[o]ngoing information received via the standard TS reporting process and 4-weekly meetings with the City of Edinburgh Council.” [ibid, page 0002.]

3.42 The advice concluded:

“The above arrangements detail an appropriate role for Transport Scotland in line with the wishes of the parliament [sic] whilst maintaining the appropriate controls expected/required in relation to the investment of public funds.” [ibid, page 0004.]

3.43 Other sources shed further light on what was happening in July 2007. In an email exchange dated 1 December 2010 between him and Mr Middleton, then Chief Executive of Transport Scotland [TRS00011413], Mr McLaughlin, said that his recollection of what had happened in 2007 was that:

“Ministers wanted to take what was described as a light touch. Malcolm [Reed] put a note up recommending approach to take to meet that expectation.” [ibid, page 0001.]

3.44 In similar vein, Dr Reed said that “explicit expression” of the wish that Transport Scotland should withdraw from the project came from the Cabinet Secretary [PHT00000013, page 164]. In July 2007, Mr Ramsay prepared a paper on governance. He acknowledged that, in doing so, he had had a “steer” from the Minister as to the extent of the involvement that he wished Transport Scotland to have [ibid, page 38]. He said that the process of determining what was to happen went on for some weeks following the Minister’s initial declaration of what he wanted to see [ibid, page 46].

3.45 In relation to the comment made by Mr McLaughlin in his email of 1 December 2010, while Mr Swinney did not accept that he used the term “light touch” [PHT00000050, page 34], he agreed that he would have set out his view of the role that he wanted to see Transport Scotland performing. When asked what that role was, he replied:

“I wanted Transport Scotland to monitor the effectiveness of the – – the effectiveness and appropriateness of the use of public finance in accordance with their responsibilities in that respect for the GBP500 million, and I wanted them to put in place a reporting arrangement that would enable them to do that, but I wanted the operational – – I wanted the leadership of the project to be clearly vested within the City of Edinburgh Council and I wanted the operational delivery of the project to be clearly the responsibility of the City Council, who had decided it should be undertaken by tie.” [ibid]

3.46 The chronology reveals two key matters: the first is the striking fact that a decision to “scale back” the involvement of Transport Scotland was taken and then, only thereafter, was there consideration of what this meant in practice, and the second is that that decision was taken by Mr Swinney. When this was put to him, Mr Swinney did not accept the first of these. He said that he wanted Transport Scotland “to establish an approach to the governance of the project which enabled them to fulfil my expectations” [ibid, page 37]. It does not appear, however, that those expectations or that strategy were articulated prior to the decision to scale back being taken. He elaborated his expectations as being:

“that the City of Edinburgh Council should be leading the project, and they were responsible for delivery, and we were principal funders of that project, with the appropriate protections through the requirements of the Scottish Public Finance Manual.” [ibid]

3.47 He later accepted that the terms of the email of 17 July 2007 showed that “discussions are still ongoing within Transport Scotland on that question [of what is meant by scaling back]” [ibid, page 51]. The following exchange then took place:

“Q. So we have got the decision to scale back, but no clear understanding of what that is actually going to involve?

“A. That is under consideration.”

3.48 This recognises that the decision to act was made prior to considering what was involved. It meant that the Cabinet Secretary was giving his “strong signals” that Transport Scotland should not be involved at a time when there was no clear picture as to what its role would be. If Mr Swinney and Transport Scotland did not know precisely what was involved in scaling back, they could not be in a position to know what effects that scaling back would have. I find it a matter of concern that a decision as important as this was taken in this manner. The clear picture is of a decision being taken to suit the Minister’s political wishes, with the detail of it and the justification for it being left to be worked out later.

3.49 The role of Transport Scotland was modified in accordance with an email and attachment from Mr Spence dated 20 July 2007 [TRS00004558; TRS00004559]. The four principal elements of the diminution in the role of Transport Scotland were:

there was no longer a partnership arrangement in which Transport Scotland provided a supportive or facilitating role;
Transport Scotland withdrew its nominee from the TPB;
the conditions attached to the grant were varied;
the basis on which a decision would be taken to make available the remaining grant was changed.

3.50 The first aspect was ill defined, and no clear action was taken in respect of it. In relation to the second, the effect of taking the Transport Scotland nominee from the TPB restricted the flow of information that had previously existed. Mr Jeffrey was of the view that Transport Scotland should have had a seat on the TPB and that, had that been the position, it would have resolved any concern about the briefing of Transport Scotland [PHT00000032, pages 10–11]. He also considered that, throughout the course of the contract, it would have been of assistance to have had a party outside it who could engage in the discussions [ibid, pages 11–12].

3.51 In relation to the third change, in 30 August 2007, CEC accepted the terms of a letter from Transport Scotland dated 22 August 2007 [TRS00004780], varying the March grant conditions. That letter stated that it sought to “vary the offer of grant to City of Edinburgh Council contained in our letter to you of 19 March 2007 following the position reached in Parliament on Wednesday, 27 June 2007” [ibid, page 0001]. Although there was a change to the conditions of the grant, it remained the position that the grant was solely for £60 million and the use that was to be made of it did not change. In view of the evidence seeking to justify the change (which is considered below), it is relevant to note that this did not make available the entire grant that had been earmarked for the project – the initial sum of £375 million, increased in order to reflect inflation. For present purposes, the most important elements of the changes in conditions are:

the veto on changes to governance was removed and replaced with an obligation on CEC to “ensure that appropriate project governance arrangements are in place for the project and enforced accordingly” [ibid, page 0002];
the requirement to implement recommendations from reviews was deleted;
all the “project hold points” were removed;
the reporting requirements were reduced.

3.52 The formal offer to pay the grant up to a limit of £500 million was made five months later, in a letter of 17 January 2008, and was accepted by CEC on 24 January 2008 [CEC00021548]. Clearly, this was after the date on which CEC had approved the FBC. Despite this, the letter included the following conditions precedent for payment of the grant:

“[Scottish Ministers be provided with] [e]vidence that the Council has approved a Final Business Case for the Edinburgh Tram Network containing

“(a) an affordability assessment for Phase 1a (as defined in Clause 3.2.1 of Schedule 1) within a maximum capital cost of £545,000,000 (five hundred and forty five million pounds);

“(b) a Benefits Costs Ratio greater than 1; and

“(c) no projection of a requirement for an ongoing subsidy for the Edinburgh Tram Network during the operational phase.

“3.2.2 Evidence that an OGC Gateway Review has been completed and that all recommendations have been implemented and in so far as such recommendations relate to future activities robust arrangements have been
made to implement such recommendations.” [ibid, page 0003.]

3.53 The grant letter also refers to conditions contained within Schedule 1 [CEC00021547], which included the following:

the Council was to carry out the project with all due diligence;
the grant was to be paid in instalments;
the Scottish Ministers had to be satisfied that the grant would be used for the purposes of the project.

3.54 The conditions clearly mirror the criteria expressed by Mr Spence in his email of 20 July 2007 [TRS00004558]. When taken together with the change to conditions made in August, it meant that there were no “hold points” and there would not be a review by Transport Scotland of the business case. In an email dated 15 October 2007 [TRS00004991], Lorna Davis, the Assistant Project Manager in Transport Scotland dealing with the project, had said that a light review would be required inter alia to show that the scheme remained affordable and demonstrated a BCR in excess of 1. As noted above, a BCR exceeding 1 would normally be a requirement for payment of grant from the Scottish Ministers. The expression of concern by Ms Davies was disregarded. In their submissions to the Inquiry, the Scottish Ministers described what was done in relation to the FBC as a “light review” to check the conditions precedent [TRI00000291_C, page 0013, paragraph 24], which does not accurately reflect the position. In fact, there was no provision for any review by the Scottish Ministers and the grant was to be made available as long as CEC was satisfied with the FBC.

3.55 In view of the history of involvement of Transport Scotland and the amount of the grant being paid, it is remarkable that it was considered appropriate to have conditions that made no provision for Transport Scotland to consider and express itself satisfied with the contents of the business case. The affordability assessment required by the conditions entails a consideration of funds available but assumes a maximum capital cost of £545 million. The BCR requires evaluation of the benefits but is also inevitably susceptible to changes in cost. It is a key factor in determining how funds are to be made available for projects but the effect of this letter is that Transport Scotland would carry out no assessment of its own of this key matter before committing Ministers to pay £500 million. Instead, it was to be left for evaluation by the recipient of the funds, with no requirement as to how robust the findings had to be, or how sensitive to particular inputs. Although Transport Scotland was therefore entirely dependent on CEC’s analysis of the business case, Mr Ramsay said that there was no understanding of what work CEC would undertake to satisfy itself that it was adequate [PHT00000013, page 23]. There was also no awareness of what steps were being taken to ensure that risk was transferred to the contractors, as was required by the FBC. Mr Swinney considered that the approval by CEC would be no different to the work that Transport Scotland would have done on the FBC had it been approving it [PHT00000050, page 63]. This was on the basis that both Transport Scotland and CEC were bound by the SPFM. I consider this reasoning to be spurious and I reject it. There was no proper basis for any conclusion that CEC would carry out the same extent of work as Transport Scotland. The history of the business cases and the prior input from Transport Scotland demonstrated clearly that this was not the case. This does not require hindsight: all the considerations that indicated that a separate review was required were present and should have been taken into account.

3.56 The letter of 17 January 2008 stipulated that the offer of the grant was made on the Terms and Conditions contained in Schedule 1 attached to it [CEC00021548; CEC00021547]. The conditions specified certain matters as an “Event of Default”. These included, “the Council ceasing or threatening to cease to deliver the Project or any material part thereof” [CEC00021547, page 10, clause 13.1]. Where such an event arose, there was no requirement to pay further instalments of the grant and the Ministers could “reassess, vary, make a deduction from, withhold or require repayment of the Grant or any part thereof” [ibid, page 0012, clause 13.4.2]. The Scottish Ministers were entitled to serve a “Cure Notice” on CEC at any time. In response, CEC was required to agree a Cure Plan with the Scottish Ministers and thereafter to implement it. A Cure Notice could be served inter alia if CEC had failed to comply with the obligations of the grant or there was an Event of Default. Conversely, a failure to agree a Cure Plan with the Scottish Ministers in response to such a Notice and thereafter to implement it satisfactorily could amount to an Event of Default. In relation to the Cure Notice/Cure Plan and Event of Default procedures it should be noted that while ceasing or threatening to cease to provide the project was an Event of Default and could engage the Cure Notice procedure, there was no provision for the Scottish Ministers to become involved purely as a result of escalating costs or significant delays to the project. Nor was there scope for the Scottish Ministers to become involved if it was becoming apparent that the assumptions that underlay the FBC and had formed the basis of the decision to provide the grant were erroneous. This is material as, when problems arose, it became apparent within Transport Scotland that, despite the very substantial financial commitment to the project, no powers to intervene were available to it [PHT00000012, pages 96–97].

Involvement by Transport Scotland/the Scottish Ministers After Summer 2007

Provision of information and influence

3.57 The grant conditions required CEC to provide reports to Transport Scotland at regular intervals and in a prescribed format. In fact, this format was not adhered to, but that was not the subject of comment at the time. It is of note that Mr Ramsay expressed concern as to the quality of the information that was being provided in the four-weekly reports by tie and transmitted to Transport Scotland by CEC. From examining them it is apparent that the real issues affecting the project are not set out with any clarity. By way of example, the anticipated dates for completion of the works do not make sense and were not revised as they continued to slip and the updates in the formal four-weekly reports as to the outcomes of the dispute resolution procedures did not present an accurate picture. However, in addition to the standardised reporting undertaken in terms of the requirements of the grant letter, Mr Ramsay notes that there was:

“an ongoing engagement with the Council, and an openness on the Council’s behalf to speak to us about their problems, which varied from time to time according to the sensitivities in time.” [PHT00000013, pages 40–41.]

3.58 He described what happened as an “informal line of intelligence” [ibid, page 42]. Mr Jeffrey, the Chief Executive of tie, said that he had regular discussions, initially with Mr Reeve and thereafter Mr McLaughlin [PHT00000032, pages 12–14 and 33–34]. In addition to obtaining information as to the problems with the contracts and the progress of the various contractual mechanisms being employed in an attempt to resolve them (see Chapter 11, Contract Negotiations), at these meetings Transport Scotland would seek information about the options available to tie and the strategies that it intended to pursue. It was a feature of all these informal meetings that no minutes or records of the contents of discussions were kept for any of them. It is clear that there was scope for provision of information in both directions. If such a channel was to be maintained, I consider that it would have been preferable that it be maintained in the more formal setting of the TPB. The informality of communication means that it is not possible to know now what was being said. That is not just a problem for the Inquiry. A lack of record of the communication increased the risk of misunderstandings on the part of those involved at the time as to the content of the communications or of their being forgotten or overlooked.

3.59 In addition to these discussions there was contact at the most senior levels. Meetings took place between Mr Swinney as Cabinet Secretary, on the one hand, and Mr Mackay and Mr Jeffrey on the other. Mr Swinney accepted that this showed that he was taking an increasingly active role in the project and seeking to influence or resolve issues [PHT00000050, page 127]. It is obvious that this is inconsistent with the “scaled-back” approach that had been instituted at his request. Mr Reeve was asked about having sought detailed information from Mr Jeffrey in March 2010 about various aspects of the project. He accepted that this was at odds with the scaled-back approach and would not have been expected had the project gone well [PHT00000012, page 168]. Mr Reeve noted that, as 2010 went on and the problems continued to increase, the Ministers became more involved [ibid, page 171]. Discussions between Mr Swinney and representatives of CEC and/or tie were described by Mr Reeve as being “[n]ot unusual, but not frequent” [ibid, page 172]. Once again, the Inquiry is unaware of the detail of the various discussions involving the Minister and the representatives of CEC or tie because of the absence of any notes or minutes recording the discussions. There are therefore clear indicators that, even then, the formal channels required by the scaled-back approach were recognised as not being adequate.

3.60 Mr Stevenson, the Minister for Transport, Infrastructure and Climate Change, said that Transport Scotland acted as a “critical friend” in relation to the project and encouraged a different approach if appropriate [PHT00000055, pages 45–52]. However, he accepted that this was essentially speculation on his part. There are no records of any such encouragement. When asked about the absence of such records, he sought to qualify his position. In this part of his evidence, as elsewhere, he often refused to give clear answers to straightforward questions. I found his evidence in this regard wholly unsatisfactory and place no weight on it.

3.61 Other witnesses emphasised this informal route of communication and provision of information, which undoubtedly supplemented the one provided for in the grant conditions. It is not satisfactory, however, to have a situation in which, in the context of provision of a large amount of public funds, these matters were left to improvised measures rather than formal structures. This is all the more so when no record has been kept of what information was given and advice or instructions were rendered at the meeting. The absence of such information stifles examination and inhibits the holding to account of those who were involved. The rationale for adopting this approach of covert influence was said by Mr Swinney to be to avoid a perception that the control for resolution of these issues lay anywhere other than with CEC [PHT00000050, page 86]. Three issues arise from this. The first is that had Transport Scotland had a measure of control there would clearly have been a benefit that might have prevented the problems from arising in the first place. The second issue is that the control that Transport Scotland might have been in a position effectively to exercise might not have been of the issues as such but of the decision-making within tie. The third is that it is not appropriate that public authorities, including Ministers, should act in a covert manner in the exercise of their functions – particularly when this involves the expenditure of substantial sums of public money.

Princes Street

3.62 The details of the Princes Street dispute are considered in Chapter 16. What is of note for the purposes of this chapter, are the pivotal role of the Cabinet Secretary
(Mr Swinney) in promoting resolution of the dispute and the advice taken by Transport Scotland in relation to the Infraco contract.

3.63 As problems developed with the delivery of the tram infrastructure, Mr Swinney tasked Mr McLaughlin with meeting tie personnel to monitor what was happening [PHT00000011, page 159]. Mr McLaughlin said that the purpose of these meetings was to get a better understanding of the position. In particular, at the instance of Mr Swinney, scrutiny by Transport Scotland increased significantly at the time of the Princes Street dispute. Daily briefings were provided [PHT00000013, page 16], reflecting the increasing concern within Transport Scotland [ibid, page 17]. Ultimately, Mr Swinney, together with Mr Stevenson, met Mr Mackay, the Chairman and Interim Chief Executive of tie, regarding the dispute. At that meeting, Mr Swinney told Mr Mackay to “get it sorted” [PHT00000038, pages 95–96; PHT00000050, page 111]. While there is agreement that that is what was said, there is disagreement as to what was meant by it or should have been taken from it. Once again, no record was made of the contents of discussions at the meeting. Mr Swinney said that what he meant was that tie should fix the issue and ensure that works were able to proceed. He clarified that he would have meant that tie should carry on doing whatever it felt was best and he just wanted it to get the end result. He said that he was content that plenty of time had been given to resolve the issues and that he had not required that they be addressed at once [ibid, page 113]. He denied having given the impression that he wanted things sorted at once. That, however, was what Mr Mackay had taken from the meeting, about which he gave evidence that:

“I spoke to him about our values and standards and my values and standards and the fact that we were charged with looking after the public purse. I told him that the only way to break this impasse was to pay more and that we had already paid for Princes Street in the agreements. I was told to get it sorted out and to break the impasse.” [TRI00000113_C, page 0079, paragraph 291.]

3.64 Although Mr Swinney said that he was happy for contract mechanisms to be used, it is notable that none was under way at that time. It seems unlikely that Mr Swinney would have been sufficiently concerned about the situation in Princes Street to have requested a meeting with Mr Mackay simply to tell him to use the contract mechanisms to resolve matters and that there was no rush to end the dispute, particularly in the context of “rising public concern and political pressure about the fact that Princes Street was in a mess for a prolonged period” [PHT00000050, page 111]. In the context of a major and very visible dispute right at the start of the contract, when no mechanisms were being used to achieve resolution, and after having outlined his views that the only way to break the impasse was to make additional payment, it was quite reasonable for Mr Mackay to believe that Mr Swinney’s request to “get it sorted” meant that he wished the works to proceed without any further delay and accepted that there would be a financial penalty. The only manner in which the dispute could be resolved without any further delay was for tie to agree a variation of the contract and agree to pay for the work on the basis of demonstrable cost, as occurred. I consider that that is what Mr Swinney intended should be understood by his request, and I reject his denial.

3.65 There was an appreciation within Transport Scotland that the issues thrown up by the dispute and the agreement that brought it to an end had the potential to increase the project cost. This gave rise to concern as to whether there was any potential exposure of the Scottish Ministers to this additional cost. With this in mind, Mr Ramsey in or about June 2009 instructed D&W to consider whether there was any such exposure [PHT00000012, page 223]. He also provided D&W with a copy of the Princes Street Supplemental Agreement (“PSSA”), which had brought the dispute to an end, because of concern as to whether it was a continuing source of dispute [PHT00000013, page 11]. That firm advised that there was no such exposure, but also commented on the Infraco contract. The tenor of the advice was that the form of the contract could tend to encourage disputes, create a hostile atmosphere and divert management resources [PHT00000012, pages 225–226; TRS00031282]. D&W considered that the PSSA did not finally resolve the underlying disputes and might have opened the way to further disputes [PHT00000012, pages 226–227]. Perhaps more significantly, in view of the emphasis in 2007 on having a fixed-price contract, it was its view that there was no fixed-price element at all to the works under the PSSA. The change from what was intended to be a fixed-price contract to one in which D&W considered that there was no fixed price at all was an example of Mr Ramsay’s general concerns that the contract was not fit for purpose [ibid, page 228]. He stated that he shared the advice with colleagues in Transport Scotland, notably Mr Reeve and Mr McLaughlin, but he had not advised Ministers that there was this negative view of the contract, nor did he know whether anyone else had done so. I accept the evidence of Mr Swinney and Mr McLaughlin that they were unaware of this advice, and I conclude that Mr Ramsay was mistaken in his recollection that he would have mentioned it to Mr McLaughlin, because Mr McLaughlin was not involved in the project in 2009. Mr Reeve’s evidence supports Mr Ramsay’s recollection of events that the advice was shared with him, and I accept that Mr Ramsay shared the advice with him [ibid, pages 161–162]. However, the advice was not shared more widely within Transport Scotland and was not given to the Ministers. It would have been helpful for this information to have been shared more widely within Transport Scotland in 2009 [Mr McLaughlin PHT00000011, page 171] and it could have had an effect on other decisions taken in relation to the contract. Mr Swinney recognised that had the information been known to Transport Scotland officials, it would have been reasonable for them to have made it known to CEC, and he said that if he had been aware of the information he would have felt obliged to so pass it on [PHT00000050, pages 120–121]. It is obvious, however, that it would have been very much more helpful to have had that information about the shortcomings of the Infraco contract prior to its signature.

3.66 When D&W’s comments about the contract were raised with Mr Reeve in the course of his evidence at the hearings and he was asked whether this was not something that it would have been better for Transport Scotland to have been aware of prior to committing to pay the grant, he resisted that suggestion and said that was a matter to have been considered by CEC [PHT00000012, pages 164–165]. His approach is extraordinary. The Scottish Ministers were investing a large sum of public money in the project. To be satisfied that they could get value for their money, they would have needed to be confident of what could be delivered by the project. That confidence would have depended, in part, on having reassurance that it could be delivered broadly within the cost estimates. The terms of the contract and their effectiveness in delivering the project within budget were a large part of that. To commit half a billion pounds to a project and say that it was not the concern of the Scottish Ministers whether the contract designed to deliver that project was fit for purpose shows scant regard for any need to safeguard public funds.

Insistence on mediation

3.67 In late 2010, work under the Infraco contract had all but ceased. Mr McLaughlin said that there was no credible strategy for moving things forward from tie
at that point [PHT00000011, page 175]. On 8 November 2010, at the request of the consortium, a meeting was held, attended by Mr Swinney and Mr McLaughlin for the Scottish Ministers, Dr Keysberg for Bilfinger Berger and a senior manager for Siemens [ibid, page 172]. Mr McLaughlin said that there was discussion about mediation at the meeting but no commitment was made. Nonetheless, he said that it appeared to be the next credible step [ibid, page 174]. Mr Swinney then had a meeting with the leader of CEC and its Chief Executive and Director of Finance on 16 November 2010, and said that he told them that they were going to mediation [TRI00000149_C, page 0066, paragraph 191; PHT00000050, page 135]. This shows just how far the Scottish Ministers had moved from their stance at the outset of the works. From seeking to distance themselves from major decisions on the project, they were now directing CEC as to what should be done. This may be seen as recognition that their original approach had failed. On any view, any policy that they were “hands off” or that they had a “scaled-back” approach had been abandoned.

Mediation

3.68 Shortly before the mediation, in February 2011, Audit Scotland published a report entitled ‘Edinburgh trams – Interim report’ [ADS00046, Parts 1–2]. This stated that the Scottish Government “needs to consider Transport Scotland’s future involvement in providing advice and monitoring the project’s progress” [ibid, Part 1, page 0009]. It seems to me, and it was accepted by Mr McLaughlin, that this was a hint that Transport Scotland should be involved in the project formally once again [PHT00000011, page 194].

3.69 At the mediation at Mar Hall, the position of Scottish Ministers remained ambiguous. They were represented there by Mr McLaughlin but took the formal line that their approval was not required for any deal reached. Mr McLaughlin nonetheless initially described himself as one of the principal negotiators [ibid , page 176] and this was confirmed by Mr Bell [PHT00000025, page 51], Mr McGougan [PHT00000043, page 85], Mr Emery [PHT00000052, pages 10 and 50–51] and Mr Jeffrey [PHT00000033 , pages 69–70]. Dame Sue Bruce said that Mr McLaughlin provided the link to the Scottish Ministers and gave a view as to how things were going from their point of view [PHT00000054 , page 12]. The witnesses conducting the negotiations with BSC on behalf of CEC at the mediation were Dame Sue Bruce, Mr Emery and Mr McLaughlin. Before final settlement was achieved the other representatives of CEC and tie and their professional advisers were involved in discussing various options as the principal negotiators returned from their negotiations and in advising on the cost of the project following any potential agreement with BSC [PHT00000043, page 85]. Later in his evidence, however, Mr McLaughlin was keen to play down his role as being purely that of an observer [PHT00000011 , pages 191–193]. He considered that the purpose of having a representative of the Scottish Ministers present was to give confidence to the contractors that the Scottish Ministers were taking an interest in the outcome. That, however, does not explain why such an interest would be of any practical relevance to the contractors unless Scottish Ministers were indicating their approval of any negotiated settlement. His later evidence is inconsistent with his original evidence and with the body of consistent evidence from the other witnesses mentioned above and I reject his evidence that he was merely an observer. He was a principal negotiator along with Dame Sue Bruce and Mr Emery although Dame Sue Bruce alone had authority to agree any settlement of the dispute. The details of what happened during the mediation are considered later in Chapter 19. However, it is notable that, prior to the deal finally being agreed, Mr McLaughlin telephoned Mr Swinney [ibid , page 185]. He stressed that this was not to obtain approval, and his evidence in that respect was supported by Dame Sue Bruce [PHT00000054 , page 12], but no explanation was offered for why it was considered necessary to report what was hoped to be the final deal to the Cabinet Secretary at this stage, before it was agreed. Mr McLaughlin said that it was because the Minister was interested to know how the mediation was progressing, but this does not explain why a telephone call had to be made before the final offer was made to the contractors. Mr McLaughlin also said that the Minister wanted to make it absolutely clear that any cost over £500 million would be the responsibility of CEC. That explanation, however, does not make sense. If anything, an intervention at that juncture might give the impression that the Ministers were involved and in some sense standing behind settlement.

Post-Mar Hall

3.70 Later in this report I consider the response of CEC to the outcome of mediation and the steps taken by Transport Scotland (see Chapter 20, Post-Mar Hall). For present purposes, two matters bear upon the involvement of the Scottish Ministers:

After CEC voted on 25 August 2011 to terminate the tram line at Haymarket, on 30 August Mr McLaughlin wrote to Dame Sue Bruce on behalf of the Scottish Ministers, indicating that no further grant monies would be paid [CEC01721794]. This threat bore immediate fruit. The letter from Transport Scotland was considered to be a change of circumstances and a further meeting of CEC was called to reconsider the decision. At that further meeting on 2 September 2011 [CEC02083154], it was resolved that the line would be continued to St Andrew Square/York Place.
Once the grant had been reinstated following the decision to construct the tram line to St Andrew Square or York Place, it was a condition of the grant that officials in Transport Scotland would be involved in the governance of the project [TRS00031263; PHT00000011, pages 197 and 202]. Mr McLaughlin agreed that the joint project forum on which he sat as the Transport Scotland representative was, in essence, the equivalent of the TPB. So, by this time, matters had come full circle. Although the project remained the responsibility of CEC and any cost in excess of the grant of £500 million would fall on it rather than Transport Scotland, the latter had a more significant role.

3.71 Mr McLaughlin agreed that Transport Scotland had knowledge, expertise and interests relevant to the project [ibid, page 207]. He described the input that it provided in this period after Mar Hall as “[i]ntelligent client expertise” [ibid, page 227]. Mr Swinney described the role of Transport Scotland as giving advice and support [PHT00000050, page 130]. The involvement of Transport Scotland at this stage was generally found to be of benefit to the project [PHT00000011, page 204]. The expertise of Transport Scotland could, however, have been available throughout the project. Although Mr McLaughlin claimed that, after the Mar Hall mediation, matters were different in that tie was no longer involved in the project, its role had been taken on by Turner & Townsend. If the involvement of Transport Scotland in addition to the experience and expertise provided by Turner & Townsend could be accommodated at this stage without compromising the funding limit imposed by the Scottish Ministers, I can see no reason why a similar arrangement could not have been provided immediately after the parliamentary decision on 27 June 2007. Had that occurred, I consider on balance that it is likely that the project would have had a far better outcome.

Justifications for change of role for Transport Scotland

3.72 Mr McLaughlin said that he was not aware of any other situation in which a decision had been made to withdraw Transport Scotland from a project in the way done for the project [ibid, page 208]. That, together with its eventual reintroduction into the governance procedures, raises the question of whether it was ever appropriate that it was withdrawn. A number of justifications for the decision have been put forward, which can be considered in turn.

3.73 When evaluating the justifications for the changes made in July 2007, it is necessary to have in mind how matters then stood in relation to the project. There was already concern within Transport Scotland as to the slow progress of the Multi-Utilities Diversion Framework Agreement (“MUDFA”) works [PHT00000012, page 108]. There was also concern about the delivery of the design works under the contract for System Design Services (“SDS contract”) [ibid, page 109]. Mr Ramsay said that Transport Scotland knew about the design weaknesses and was sceptical of the Scottish Transport Appraisal Guidance methodology used by tie [ibid, page 175]. Mr Ramsay noted in his statement that, as at August 2007, Transport Scotland remained suspicious of the risk registers prepared by tie
[TRI00000065_C, page 0061 and PHT00000013, pages 48–50]. Mr Reeve was at pains to point out that these matters were the responsibility of tie. That is correct. It fails to consider, however, that these were indicators that the strategy of having cleared utilities and a largely complete design that was a key element of the procurement process was not working. The result of the changes in 2007 was that Transport Scotland would have less information as to these issues and no control over them being fixed [PHT00000012, page 111]. The issue is whether, in view of the knowledge on the part of Transport Scotland of the emerging problems, there is justification for Transport Scotland stepping away from the project.

3.74 A further matter that requires to be borne in mind when evaluating the purported justifications is that, as early as 2010, it was apparent that there was some concern as to the withdrawal and the possibility that the decision would be criticised. This is apparent from the email exchange between Mr Middleton and Mr McLaughlin on 1 December 2010, referred to in paragraph 3.43 above. In my view it is necessary to distinguish the reasons for the decision that were referred to at the time that it was taken and those that have been put forward only at a later stage. It is regrettable to say so, but it is clear that, in both the written and oral evidence of witnesses from Transport Scotland and the Scottish Ministers, there has, in my opinion, been a concerted attempt to rewrite history so as to present the decision in a more favourable light than it merits. For example, Mr McLaughlin was at pains to distance himself from the contents of his memorandum in December 2010 [TRS00011413]. It was written to the Chief Executive of Transport Scotland in response to his request to know what had happened, at a time when the reason for the decision was coming into focus. It is clear that the recollection of matters would be better then than it was when he gave evidence, some seven years further on. It is therefore surprising that Mr McLaughlin would not accept what was contained in his email. To the extent that the account of evidence he gave contradicts that email, I reject it. I view the content of the email as the most reliable guide to what happened.

The parliamentary vote

3.75 In relation to justification for the change of approach, both at the time, in 2007, and during the Inquiry hearings, a number of claims were made as to what was decided by the Parliament which do not stand scrutiny. There was some dispute in the evidence and submissions to the Inquiry as to the effect of this vote. Mr Swinney’s evidence was that the vote clarified the government’s position [see, e.g., PHT00000050, pages 19–25]. Dr Reed claimed that the vote expressed the wish of Parliament that the responsibility for managing and delivering the project should rest with the promoter [TRS00004523; PHT00000013, page 169]. However, in advancing this claim, he proceeded on the basis that the will of Parliament could be determined from the contributions of an individual MSP during the debate. This is manifestly not the case. I am surprised that a senior civil servant would even seek to advance such an argument. Nonetheless, the approach that the decision of the Parliament determined what the involvement of Transport Scotland should be is repeated and adopted in the submissions for the Scottish Ministers, which state:

“The Scottish Executive accepted the clear will of the Scottish Parliament in respect of the tram project as expressed in the resolution [passed on 27 June 2007].” [TRI00000291_C, page 0050.]

3.76 An examination of the transcript of the parliamentary proceedings [SCP00000030] shows, however, that there was no such expression of will. The will of the Scottish Parliament is clearly stated in column 1189 of the Official Report, where it is recorded that, by a majority of 81 to 47, the Parliament agreed to the amended motion in the name of Mr Swinney. In so far as it relates to the project, that motion was in the following terms:

3.77 If anything, calling “on the Scottish Government to proceed” with the project could give the impression that it was intended that it should have some involvement beyond the provision of grant finance. I am reinforced in that view by the fact that the Auditor General’s report, which Parliament took into account, had considered the governance arrangements at that time. These included the involvement of officials from Transport Scotland in assessing the various iterations of the business case for the project and in attending the TPB. A reasonable inference is that, in calling on the Scottish Government to proceed with the project, Parliament intended the Government to exercise the same oversight of the project as previously. The general tenor of the decision was that the status quo should be maintained. When I asked Dr Reed about this, he accepted the point [PHT00000013, page 149].

3.78 It was apparent from Mr Swinney’s evidence that he considered that the parliamentary vote in June 2007 had committed the Scottish Ministers to providing grant funding for the project. I do not agree. As noted above, on 19 March 2007, the previous administration had offered CEC a grant of £60 million for utilities diversions, advance works, project development and procurement of phase 1a of the project [TRS00004113]. As I note above, the letter making the grant available had a Schedule of Terms and Conditions attached to it that included various “hold points” at which Ministers could determine whether to continue to support the project [TRS00004112]. In response to questions about the subsequent abandonment of these hold points after June 2007, Mr Swinney responded:

“But my argument is you cannot view that in isolation from the parliamentary decision that had been taken to commit GBP500 million to the project and for the project to proceed. Where we had quite clearly, in our actions after May 2007, said: we do not want this project to proceed; and Parliament essentially had said to us: we want it to proceed, and we want to put GBP500 million into the project; and I had accepted that point.” [PHT00000050, page 47.]

3.79 When asked if there was still to be a final decision in relation to the grant, he said, “I think that decision was taken on 27 June 2007, to all reasonable observations” [ibid, page 41]. Again, consideration of the proceedings of the Parliament shows that this was not the case. The matter that had been put before the Parliament in Mr Swinney’s motion was endorsement of the new Government’s transport priorities and noting that, prior to the election, the SNP had proposed to cancel the tram and EARL projects. In effect, the new Government sought to have Parliament endorse the decision to abandon the project. The decision of Parliament was not to scrap it but for the Government to “proceed” with it. It was not a vote by the Parliament that grant funding should be provided irrespective of the merits of the project as brought out in the FBC or that Ministers, having provided funding, should not have any involvement in management of the project or monitoring how the funding provided by them was used. The debate lasted a little over two hours and no reference was made to the contents of the business case or any criteria that would have to be fulfilled for grant finance to be made available.

3.80 Even taken in isolation, Mr Swinney’s evidence demonstrates that the approach that the vote committed the Government to providing funding, and nothing more, is unsound. In the first place, in his evidence, he referred to the statement noted above, which he made at the end of the parliamentary debate, that the vote did not bind the Government but that, despite that, the Government would accept and implement the resolution [ibid, pages 11–12; SCP00000030, page 0039]. In the second place, he explained that the decision to accept and implement the resolution was a political one, reflecting the reality that this was a minority Government that did not wish a challenge to its continuation in office six weeks after the election of the first SNP Government in seventy years [PHT00000050, pages 21–22]. Finally, when he was later asked about the hold points he also appeared to accept that the Scottish Ministers were not bound to commit funds to the project. In response to a question as to his claim that after the vote the Scottish Ministers could not have taken advantage of the hold points mentioned in paragraph 3.78 to halt the project, he said:

“Well, I’m simply – I’m simply trying to set this within the political context and the explanation I gave to Lord Hardie some time ago, that Parliament had very clearly voted to proceed with this project in a hotly contested political environment where the Government had lost a vote in Parliament and, having lost the vote in Parliament, the Government was in my view obliged to reflect on that, and we chose on that occasion to accept the view of Parliament and to proceed accordingly” (emphasis added) [ibid, page 49].

3.81 It could not be clearer that the decision to proceed was that of the Government rather than that of Parliament. The willingness of the Government to act independently of the parliamentary vote is also apparent from its reaction to the vote in so far as it related to EARL. It is apparent from the advice of 6 July 2007, noted above [TRS00004522; TRS00004523], that no regard was paid to the views of Parliament in relation to EARL. The resolution of Parliament in relation to EARL was to progress that project and to seek to resolve governance issues identified by the Auditor General. Instead, it was apparent that the intention of the Government from the outset thereafter was that it should be cancelled.

3.82 It is, in my view, fanciful to suggest that the vote committed the Government to providing grant finance of the sum previously announced without the safeguards previously in place, including further scrutiny of the business case. I do not believe that anyone involved genuinely believed this. There is certainly no mention of this in the communications about it that occurred in the aftermath of the parliamentary vote. That argument appears to have been concocted when it became apparent that the project was in trouble and that the approach of Transport Scotland/the Scottish Ministers might be subject to criticism.

3.83 In making that decision to proceed with the project it would be reasonable for MSPs to assume that the Government would evaluate it before committing to spend £500 million of public money. While that would have been appropriate, the changes to the grant conditions that were part of the desire to “scale back” the involvement of Transport Scotland meant that it was not done. The view that the Parliament had decided that the project should be implemented come what may was said to justify the removal of these hold points. Mr Swinney appeared to regard them as being inconsistent with the vote [PHT00000050, page 46]. He also considered that the hold points exposed Scottish Ministers to the risk of calls to provide additional funding, simply on the basis that one of the review criteria at a hold point was the affordability of the scheme in light of the funds available [ibid]. The following exchange then took place in his evidence at the hearings:

“Q. But this [the existence of hold points] would give the Scottish Government two opportunities to examine all the data and say: no, this project doesn’t make sense anymore, it will cost too much, it won’t give benefit. That’s correct, isn’t it?

“A. But it – it would also expose the Government to the possibility of having to make a – take some action to deal – to address the issue of the comments in the light of the funds available for implementation.” [ibid]

3.84 It appears from this that Mr Swinney did not have a clear idea of the value that the hold points provided to Scottish Ministers and therefore what abandoning them would entail. He said that the decisions in relation to the changes to the role of Transport Scotland were taken by a politician – him –
and that they might therefore be considered political. It is not my function to comment on decisions that are political in that sense and I do not do so. In my view, however, the decision in relation to the changes in grant conditions demonstrated more than this. The decision disclosed a willingness to relinquish any responsibility for the proper management of Government funds. Mr Swinney pointed out that the Scottish Ministers do not have close control over the expenditure of the sums totalling in excess of £10 billion provided annually by them to local authorities [ibid , page 125]. That is correct, but this was grant funding for a specific project to achieve objectives in which the Scottish Ministers had a clear interest. That puts it in a different category from the monies provided to fund the services and activities that are generally required of local authorities.

Balance of risk

3.85 A further argument has been made that the decision of Parliament and the Cabinet Secretary in summer 2007 represented a material change in the balance of risk that justified a withdrawal by Transport Scotland. This change was said to arise from the statement that no funding would be provided in addition to the sum of £375 million as index-linked. Mr Sharp took the view that once the Scottish Ministers had made it clear that they would not pay any more, they faced only two risks. The first was that nothing would be created as a result of the expenditure of the grant monies. The second was that if a cost overrun was so great that the refusal of the Scottish Ministers to contribute further meant that CEC had to abandon other council services to meet the cost of the project, Ministers would not find it politically sustainable to maintain their opposition to providing additional funding [PHT00000015, pages 119–120]. Of course, this fails to take account of the risk – which came to pass – that pressure on CEC’s finances could prevent the completion of the line for which Transport Scotland had provided the grant.

3.86 Mr Sharp sought to justify the decision to withdraw Transport Scotland in the following terms:

“My view was that if you were taking the decision that you were contributing GBP500 million and that all cost overrun risk lay with the Council, it was logically consistent and indeed arguably imperative that Transport Scotland should step away from the detail of the project.

“To want to be on the Project Board, to want to be involved, when taking no risk, is wanting to have your cake and eat it. You cannot say that we have no responsibility and then do things that impact on the project.” [ibid, page 115.]

3.87 This justification is based solely on the issue of risk of making contributions over and above the grant money initially committed. The argument is that if CEC bore all that risk and Transport Scotland bore none, then Transport Scotland ought not to be involved in taking decisions and that governance should be structured so that it was clear that the risk of cost overruns fell on CEC and steps were taken to minimise any calls on Transport Scotland.

3.88 The starting point for evaluating these points is to consider the extent to which there was any material change in the funding situation in summer 2007. The submissions for the Scottish Ministers refer to various observations to the effect that the statement by Mr Swinney in 2007 that there would be no additional money was a material change. In addition, it is apparent from the minutes of the TPB meeting on 12 July 2007 [CEC01018359] that its view was that the announcement had led to a transfer of risk. An examination of the position in relation to the funding commitment before and after the vote reveals, however, that there had been no such change. As noted above, there is ample evidence that the position taken by Transport Scotland prior to the vote was that the funding from the Scottish Ministers was capped. There was never an undertaking, a commitment or even an understanding on the part of Transport Scotland that it would provide additional funds. Mr Swinney accepted that it had been made quite plain prior to the vote that there would be no increase in the grant beyond the indexed sum of £375 million [PHT00000050, page 18]. He recognised that, while CEC could come back to seek additional money, that remained the position even after the vote and the statement [ibid]. The point is that, both before and after the vote, the position of the Scottish Ministers was that such a request would be refused. While it is always possible for an application for additional funds to be made, whatever the stated position of Ministers, the prospect of such an application’s being successful is negligible where Ministers have made it clear that it will be turned down. Mr Stevenson acknowledged that the cap introduced was not new but was an indexation of the sum of £375 million originally earmarked [PHT00000055, page 56]. Dr Reed accepted that there was no change to the position on the availability of funding from the Scottish Ministers, as it had been understood before summer 2007 [PHT00000013, page 141]. Even without the position being acknowledged by these witnesses, that is the inevitable conclusion of an examination of the contemporaneous documents.

3.89 Many of the statements referred to by the Scottish Ministers in their submissions to suggest that the matter of availability of further funding was open prior to the parliamentary vote underline the absence of any undertaking, or even understanding, in this regard. The true picture emerges only when that absence is seen alongside the express statements that no further funds would be made available. In the situation where there had been such categorical statements it is unsustainable to suggest that, just because the matter had not been accepted by CEC/tie, the issue was still open. This applies to the reliance by the Scottish Ministers on the treatment of Risks 268 and 269 in the Project Risk Register in the period from late 2006 to September 2007 [TRI00000291_C, page 0057, paragraph 17.3]. It is said that this is evidence that a funding limit had not been fixed prior to the election and therefore the introduction of the limit amounted to the reallocation of risk. I do not agree. Risk 269 related to securing an agreement on financial overrun risks between Transport Scotland and CEC [Papers for TPB Meeting on 23 January 2007, CEC01360998, page 0034]. It is clear that tie and the TPB were keen that there should be such an agreement, but the inclusion of these risks in the Register emphasises that no such agreement was in place. The position of the Scottish Ministers – expressed by Transport Scotland – had consistently been that no additional funds would be made available for the project. In his evidence Mr Sharp was clear that this would not be resolved before the Scottish Parliament election [PHT00000015, page 72] and that, as matters stood at that time, anything in excess of the announced grant would have to be paid by CEC [ibid, page 60]. It is understandable that CEC and tie would aspire to a situation in which the burden of overruns was shared. It is understandable that they might not wish to consider the matter closed. The evidence, however, is that it had already been made clear that no additional monies would be provided. While no substantive change in the position had been brought about by Mr Swinney’s announcement, it is fair to say that it appears to have had the effect of driving home to the TPB the point that there was a cap. As Mr Gallagher put it, one of the benefits of the Government saying “£500 million and not a penny more” was that it focused people’s minds [TRI00000037_C, page 0053, paragraph 177].

3.90 The submissions for the Scottish Ministers contain a variation of this argument, to the effect that, prior to the vote, there was no commitment to provide funds. They argue that the Parliament committed funds to the project and that, as there had previously been no commitment and therefore no cap, the cap attached to the commitment of funds by the Parliament must be new. For example:

“[u]ntil the announcement that a grant capped at £500m would be made available to CEC, there had only been ‘in-principle funding support’ from the Scottish Executive and there was no settled position on which party would bear the cost of any overruns” [TRI00000291_C, page 0047, paragraph 2]

and

“[t]he decision of the Scottish Ministers to accept the will of the Scottish Parliament converted the ‘in-principle funding’, which was under threat at the time, into an unqualified commitment while simultaneously clarifying the position on liability for cost overruns” [ibid, page 0051, paragraph 10].

3.91 This argument is clutching at straws and is incorrect in all of its components. Prior to the vote there had been a commitment to provide funds. Prior to the vote there had been a cap in the availability of those funds. The vote in Parliament did not amount to a commitment to pay the grant, still less a commitment that payment should be made regardless of the state of the project.

3.92 As I have set out above, I consider that there was a cap prior to June 2007. I reject also the claim that there was a change in the status of the commitment of the Scottish Ministers to the grant as a result of either the vote or the ministerial announcement. I do not accept that, prior to the vote, there was only “in-principle funding support” as claimed by the Scottish Ministers. The announcements in relation to the grant referred to it as a commitment. Although release of it, or parts of it, was subject to submission of satisfactory iterations of the business case, this is quite different from it being only an offer of funding “in-principle”, as the Scottish Ministers now seek to assert. Following the announcement, in terms of the grant letter referred to above, the grant sum committed remained £60 million and not the whole sum. The offer of the whole sum came later, in January 2008. Even then, a business case was required even although Transport Scotland would have no part in evaluating it. The change of the role of Transport Scotland in relation to the evaluation of the business case is one of the changes that the Scottish Ministers seek to justify by the change of balance of risk. To suggest that it is also the cause of the shift in risk produces a circular argument. This circularity of approach was apparent also in the evidence of Dr Reed when he appeared to argue that the change in risk allocation arose from the withdrawal of Transport Scotland from governance and the removal of ambiguity as to the respective roles of Transport Scotland and CEC [PHT00000013, page 141]. I reject these arguments as justifications for what was done.

Clarity of roles

3.93 In the justifications offered for the change in role of Transport Scotland, a need for clarity in relation to the roles of the various parties is a common theme. This justification appears particularly to have been used in relation to Transport Scotland’s relinquishing the seat that it had on the TPB. In their submissions to the Inquiry, the Scottish Ministers state that clarity would be achieved by “making it absolutely clear that the project was being undertaken by CEC and TIE, and that Transport Scotland’s involvement was only in providing the approved funding” [TRI00000291_C, page 0012, paragraph 20]. Mr Swinney was concerned that as matters were moving to a new phase of the contract there should be “absolute clarity about who was responsible for project delivery” [PHT00000050, page 26]. He said that he was concerned from the experience of other projects where there had been uncertainty about leadership and competing approaches to delivery it was essential to have “absolute clarity about where leadership lay and where operational responsibility lay” [ibid, pages 26–27]. Mr Stevenson also relied on the need for clarity of roles and possible confusion as to where responsibility lay when he said:

“In line with our desire to improve clarity of responsibility for delivery of the project, we withdrew Transport Scotland from the Tram Project Board as their presence may have given the appearance of Transport Scotland bearing some responsibility for delivery of the project. We were clear that we were funders and funders only.” [TRI00000142_C, page 0003, paragraph 5.]

3.94 The claimed need for clarity about the roles of the parties involved was closely tied up with the concern that, if matters went wrong, the Scottish Ministers should not be required to contribute to additional costs. In their submissions, the Scottish Ministers said:

“if cost overruns occurred while Transport Scotland was actively involved in project governance, Transport Scotland could be seen as partly responsible for those overruns with further calls for central government funding being made.” [TRI00000291_C, page 0048, paragraph 2.]

3.95 In this regard, Mr Stevenson contradicts Mr Swinney in that he states that concerns as to possible calls for more funding were not a reason for withdrawing Transport Scotland [PHT00000055, page 16]. Mr Swinney’s version is supported by the contemporaneous documentation, and I therefore conclude that it was a factor. Despite the apparently unequivocal statements regarding funding noted above, Dr Reed felt that the governance arrangements in place until summer 2007 would probably have created an expectation that Transport Scotland would meet a share of cost overruns [PHT00000013, pages 143, 154 and 157]. As justification for that he referred to the construction of the Aberdeen Western Peripheral Route [ibid, page 157]. That, however, was a Government-funded project so the Scottish Ministers would always have been liable for cost overruns and it was therefore not a good comparator. In examining other projects, it is of note that the refurbishment of Waverley Station was a Network Rail project that the Scottish Ministers were funding and Transport Scotland continued to participate in the steering group in relation to it. That was not regarded as having caused any difficulty [ibid, page 127].

3.96 I do not consider that the degree of involvement that Transport Scotland would have had in the project had the changes not been made was such that it could be said to have been involved in day-to-day management with the result that it should bear financial responsibility for the overrun. While I acknowledge that there could be political pressure, it seems to me that a clear statement having been given at the outset that there would not be more money, it would have been a situation where Ministers might have been expected to take the difficult decision and refuse requests for further grant monies. Accordingly, it does not seem to me that the concern as to future calls for additional funds should have weighed heavily in deciding what was appropriate.

3.97 In relation to the pure issue of demarcation of responsibilities, it is useful to consider whether there was ambiguity in the roles undertaken by the various parties prior to June 2007. In my view, there was not. There is no written record of any concerns having been raised as to the possibility of confusion of roles prior to July 2007, and Mr McLaughlin was not aware of there having been any concern about this [PHT00000012, page 3]. He considered that the roles were quite clear prior to July 2007 [ibid, pages 17–18]. He noted in his statement that the Tram project was not a Scottish Government one and there was never any doubt that it was a CEC project [TRI00000061_C, page 0002, paragraph 3; PHT00000011, page 152].

3.98 Mr Swinney expressed the concern that frequently issues that are the proper responsibility of other organisations are presented as the responsibility of Government [PHT00000050, page 38] and that “Government is very regularly presented with calls for it to do certain things that are the proper responsibility of other people” [ibid, page 39]. On this basis, he said that he wanted it to be crystal clear that CEC was the owner of this project and responsible for its delivery. He considered that even one person from Transport Scotland sitting on the TPB would generate an expectation that Ministers would have to explain any difficulties that arose [ibid, page 40]. There would be the possibility of Transport Scotland’s being involved in having to meet any further issues or calls that might come in relation to the project [ibid, page 44]. This cannot be reconciled with the role that was played by Transport Scotland in the project following Mar Hall. At that stage, there did not seem to be any expectation that Transport Scotland should be responsible for the project or required to explain problems that arose. The additional costs of the project were the sole responsibility of CEC.

3.99 Mr Stevenson said that he was concerned that the TPB might be required to take decisions that affected the interests of Government and that having someone from Transport Scotland sitting on the Board could give rise to what he termed “substantial risks” [PHT00000055, page 6]. Despite this he accepted that the respective roles of CEC and Transport Scotland were quite clear both before and after the parliamentary vote [ibid, pages 7–8].

3.100 As an example of the problems that might arise from Transport Scotland’s representation on the TPB, Mr Stevenson was concerned that had Mr Reeve continued to sit on the Board and the Board had decided to approach Scottish Ministers for more money, Mr Reeve would also be involved in considering Ministers’ response [ibid, pages 10–11]. In my view this concern is exaggerated. It is remarkable that a Minister was of the view that such a conflict could not be avoided by the simple expedient of not involving Mr Reeve in the deliberations within Transport Scotland. When it was pointed out to him that Transport Scotland had resumed an active role with no apparent difficulty after the Mar Hall agreement, he sought to avoid questions by pointing out that that was after his time as a minister [ibid, page 9]. This is true, but does not change the fact that it clearly undermined his purported rationale for changing the role of Transport Scotland from 2007. Surprisingly, it did not appear that Mr Stevenson had given any consideration to the rationale for Transport Scotland’s having had a representative on the TPB in the first place [ibid, pages 13–15]. Had he known that, he would have been able to weigh it and the advantages that it might have conferred in the balance before taking decisions to reduce the involvement of Transport Scotland.

3.101 Mr Ramsay said that it was made clear to him when he started work in relation to the Tram project that it was a CEC project and that CEC had said that matters were entirely for it as the owner of the project rather than for Transport Scotland [PHT00000013, page 31]. He said that there was no doubt as to roles prior to the election. His view was that perhaps the Ministers entertained a doubt that was not shared by tie or Transport Scotland. Despite the clear understanding of the roles, after the parliamentary vote Mr Ramsay wrote a paper on project governance, in which he noted that the effect of the financing option that would later be selected by Ministers was that CEC expected that there would be only a very minimal engagement/oversight from Transport Scotland [TRS00004511]. His view, however, was that such a hands-off approach was not appropriate for a project funded from the public purse to the extent that the Tram project was. With some prescience, he said that it was written with “the knowledge that we would be openly criticised for continuing to fund such a project with such a hands-off approach” [PHT00000013, page 34]. Unsurprisingly, Mr Ramsay said that the size of the grant in this case influenced his view about control, financial control and probity [ibid, page 43].

3.102 On the other hand, Mr Reeve considered that any active role in the project by Transport Scotland might make the project, and in particular cost overruns, its problem. This makes little sense and no justification is given for it, but even if there was a risk, the point I make above in paragraph 3.96 applied – it is a situation where the Government, having given advance warning of its attitude, would simply have to reject demands for further funding. Transport Scotland had been involved in the project for years while stating quite clearly that it would not provide money in excess of the proposed grant. The vote and the ministerial announcement afterwards reiterated that there would be no further money. It is not apparent why confusion as to the role of each party should emerge thereafter.

3.103 When Dr Reed was asked about what he meant in referring to the “[m]inisterial decision that the financial risk for the project should lie entirely with CEC” [TRI00000066_C, page 0058, paragraph 123], he referred to the ministerial determination that “the project was now CEC’s to run in a way that it hadn’t been unambiguously before then” [PHT00000013, pages 150–151]. This, however, is said elsewhere to be a consequence of the risk moving to CEC rather than the factor that gave rise to the transfer of risk. The confusion among the witnesses who sought to justify the decision to withdraw Transport Scotland from the project was striking in this respect. It created a circularity in the reasoning: the governance must be changed to reflect a change in risk, the risk had changed as a result of the change in governance arrangements and so on. Dr Reed denied this [ibid, page 163], but it seems plain and, later, he accepted that the risk transfer viewed in this light was a result of the decision of the Scottish Ministers to withdraw Transport Scotland from the project [ibid, page 155].

3.104 Mr Sharp said that perhaps the main reason for the withdrawal of Transport Scotland was to make CEC take greater responsibility for the project [PHT00000015, pages 124 and 126]. This rationale fails, however, to consider what would happen if, in fact, CEC (or tie) did not adequately discharge this responsibility [ibid, pages 128–129]. If the desire was truly to encourage CEC to assume a greater onus, it would be reasonable to expect that there would be some follow-up by Transport Scotland to assess that its action was having the desired effect and some action plan in case it did not. This would particularly be the case in the situation, described by Mr Sharp, that there was doubt as to the ability of the CEC to step up [ibid, pages 129–132]. Despite this, there was no follow-up by Transport Scotland.

3.105 Although the need for clarity of roles was the suggested justification for the withdrawal of Transport Scotland, it is striking that, as time passed, the Scottish Ministers, and Transport Scotland on their behalf, appeared happy to intervene in a way that could have caused confusion as to roles. As noted above, at the time of the Princes Street dispute, Mr Swinney requested that Mr Mackay come and see him to discuss the situation and told him to get it “sorted” (see paragraph 3.63). Mr Swinney resisted the description of this as “pulling strings”, but in my view that is exactly what it was. It is of note that this intervention was not with CEC – the party they were funding – but required a direct contact between the Minister and the representative of the CEC delivery vehicle. I cannot reconcile this with Mr Swinney’s claim that he sought to exercise influence through the “proper channels”. Thereafter the contact and “influence” continued and developed. In 2010, notwithstanding all that had been said about roles, Mr Swinney had eight meetings with personnel from tie in relation to the project. Once again, his contact was with tie rather than CEC. His purpose in these meetings was, he accepted, to influence the project [PHT00000050, page 127]. He sought to draw a distinction between, on the one hand, giving directions openly, which he claimed would create confusion around leadership, and taking decisions and exerting influence behind closed doors, which he said would not. Apart from the issue that it cannot be good governance to have decisions behind closed doors, for which the decision-maker is not accountable, it seems to me that this is capable of giving rise to just as much confusion as to change of roles. The Minister had cut out the middle man – CEC – and was seeking to exert direct influence on tie through informal means. There could hardly be greater scope for confusion as to roles.

3.106 The concern that the project should be the responsibility of CEC – and seen to be such – was a valid one but, as noted above, this was well established prior to the 2007 election. There was therefore no need for change in June 2007. Mr Swinney’s concern as to having even a single representative on the TPB seems excessive. He accepted that he could not recall any report to him from Transport Scotland, CEC or any other person involved in the project expressing concern that there might be confusion between the role of Transport Scotland and that of CEC [ibid, page 56]. No such report has been uncovered by the Inquiry in the course of investigating this matter. It is notable that, in other projects, Transport Scotland has maintained a role without problem. However, even if there was any justification for the change to the composition of the TPB, that would not justify the changes to the grant conditions and, in particular, the withdrawal of Transport Scotland from any consideration of the FBC and the contract. That involvement and those conditions should correctly be seen as officials in Transport Scotland protecting the interests of Scottish Ministers and safeguarding the proper use of public funds rather than undertaking any part of the project management for tie.

3.107 Although avoiding requests for further funding was on the minds of those involved in taking the decision, it is not a valid justification for the changes made to the role of Transport Scotland in 2007. The limit on funding had been made plain prior to the election and was reiterated by Mr Swinney following the vote in Parliament. As I have noted above, a request for additional funding could have been dealt with robustly.

3.108 The last aspect of the clarity of roles – compelling CEC to manage the project by removing the support that it had – was referred to by Mr Sharp. He said that, in stepping back, the Scottish Ministers gave CEC no choice but to fulfil the role Transport Scotland had been performing. He said that the view of the Scottish Ministers was that CEC would put in place a scrutiny regime that “would deliver
at least as well as the one that had involved Transport Scotland” [PHT00000015, page 123]. To say that there was “no choice” and to make that assumption was, however, naïve. No safeguards or checks were in place to ensure that CEC would take on this role. As events unfolded, it became apparent that it had not. In my view, it should have been apparent at the time that there was such a risk.

New phase of the project

3.109 While recognising that the vote did not change the fact that CEC was responsible for delivery of the scheme, and always had been, Mr Swinney was concerned that the need for clarity was underlined by the move to a new phase of the project. Moving to a new phase was also relied on by Mr McLaughlin [PHT00000011, page 224; PHT00000012, page 1] and Dr Reed [PHT00000013, page 161].

3.110 At the time that the changes to the role of Transport Scotland were made, tie was undertaking work to appoint a contractor for the Infraco contract. This had not yet reached the stage of best and final offers and selection of a preferred bidder, but it was intended that the final decision as to which bidder would be awarded the contract should be made by the end of the year. The SDS contract and MUDFA had both been awarded, although little had been done under the latter and work had been stopped pending the results of the election. In this situation, and because it seemed that it was difficult to demarcate phases in the way that was being assumed, I was interested to know what was being done at the time that the decision was taken that amounted to a new phase. Accordingly, I asked Mr Swinney where the act of concluding the contract fell as between the project and formulation stage on the one hand and the delivery phase on the other. His response was:

“Within – I would say it emerges within – well, there are of course different contracts at stake here, but I certainly would see the delivery phase being responsible for the formulation of the contracts that would be yet to be ascribed in the project.” [PHT00000050, page 32.]

3.111 This answer is far from easy to follow but I take it to mean that the conclusion of the contract falls within the delivery phase. If that is so, it seems an odd way to categorise it. However, even if that categorisation is accepted, it is notable that the contract stage had started in some respects some time earlier and would not be complete for Infraco until May the next year. Whatever the demarcation line, it is clear that in June 2007 there was no move to a new contract phase, so this still does not provide a justification as to why action was taken in July and August 2007.

3.112 It had always been known that a delivery phase of the project would come and yet at no time prior to summer 2007 had it been suggested that such a change would have to be made when it did [PHT00000012, page 1]. In relation to the delivery phase, Mr Stevenson spoke in dramatic terms of the “first contact with the enemy” [PHT00000055, page 8]. However, there had been contact with the contractors as bidders for some time before the decision to change the role of Transport Scotland. There was no apparent change in their status at the time of that decision and the real change in status did not happen until the contract was awarded nine months later.

3.113 Although the merits of these positions as to when the delivery phase commenced could be debated, one thing that was clear was that, at the time of the decisions as to the role of Transport Scotland in June 2007, there had been no movement to another phase. The change that had occurred was the new Government. To attempt to disregard that and claim that it was a change in phase of the works was disingenuous at the very best.

Other projects – SAK and Holyrood

3.114 Mr Swinney and Mr Stevenson suggested that in withdrawing Transport Scotland from the project they were seeking to apply lessons learned from the Stirling–Alloa–Kincardine (“SAK”) railway project. At the outset, it is notable that there was no reference to the SAK project in any papers or advice leading up to the decision or in any written record of it. Mr Swinney sought to explain this away [PHT00000050, pages 30–32], but I found his comments hard to follow and unconvincing. Had it been a factor to any material extent and, in particular, if it was a factor of the importance that it was given by the Ministers in their evidence, I consider that it is inconceivable that there would not have been some written record that it had been taken into account.

3.115 In addition to the absence of any mention of it, when the circumstances of the SAK project are examined, they do not provide any justification for what was done in the Tram project. The decision taken in SAK was that Transport Scotland should increase its role in the project to the extent that tie was the only party removed from it [Mr McLaughlin PHT00000012, pages 21 and 28]. While it is clear that in the SAK project tie had inherited problems from the previous promoters, its performance in that project could not engender any confidence such as to lead to a lesser degree of scrutiny in the Tram project. The evidence available suggested that there had been shortcomings on the part of tie with project management and reporting in SAK. The Audit Scotland report that considered the SAK project [CEC01318113] noted that tie
did not have the correct skills and experience, that control and challenge were weak and that specifications were not formalised. While still at Transport Scotland, Mr Sharp produced a speaking note that was drafted for Mr Stevenson to use in a Holyrood debate. He explained that he had spoken to the Minister before preparing the note and that his intention in drafting it was that its terms should reflect the Minister’s views. In relation to SAK, it notes:

“tie ltd given audition for a starring role through Project Management of SAK rail project … But they fluffed their lines …” [PHT00000015, page 105.]

3.116 One of the concerns in relation to performance by tie of its project management role concerned the inadequacy of its reporting and, in particular, an unwillingness to report bad news [ibid, pages 106–107]. Taking these at face value, they would have provided justification for increasing the role of Transport Scotland in the Tram project rather than reducing it.

3.117 Mr Swinney said that the problem with the SAK project had been that there were “too many cooks” [PHT00000050, pages 94–95] and he was concerned to avoid this in the Tram project. However, when asked, Mr Swinney could not identify which party in the SAK project was superfluous, although he suggested that the roles of project funder and project manager had overlapped there [ibid, page 101]. It is of note also that the report by Audit Scotland in relation to the SAK Project did not identify lack of clarity of roles or number of parties involved as a factor that had contributed to cost overruns. Mr Swinney’s attempts to point at some of the costs identified by the Auditor General and suggest that they were part of project management [ibid, page 97] was unconvincing and gave the impression that no consideration had in fact been given to whether the report’s terms were at all supportive of the allegations made. In my view, there was nothing in the Audit Scotland report to support the assertion that SAK was a project in which the problem arose from a lack of clarity regarding leadership or there being “too many cooks” [ibid, pages 94–95]. For completeness, I would note that Mr Swinney confirmed to the Inquiry, after he had given oral evidence, that the decision taken in relation to SAK to remove tie and pass the project to Transport Scotland was his and was made with the intention of having a simpler structure and improved governance [TRI00000266].

3.118 Mr Stevenson also sought to rely on the SAK project, and claimed that operational complexity was an issue in relation to the problems that arose in SAK. In relation to the cost increases for the SAK project noted in the Audit Scotland report, he appeared to take the view that the existence of increases in cost after contract award was itself indicative of poor management [PHT00000055, page 34]. This is not what the Audit Scotland report says, and I reject Mr Stevenson’s evidence in this regard. He appeared to want to interpret evidence to suit his hypothesis and was happy to speculate in order to do so. The Audit Scotland report noted concerns about project governance and, as noted above, the solution to that was to increase the role of Transport Scotland so that it undertook project management and funding. It is not apparent to me how this can provide the justification that Mr Stevenson says that it can. Certainly, nothing said by Mr Stevenson gave any indication of how it could provide such a justification.

3.119 Even if the SAK rail project had been considered, therefore, what happened there would not have justified the decision to withdraw Transport Scotland from the Tram project. However, taking together the lack of any reasoned and credible explanation as to why the actions in the SAK project had any bearing on the Tram project and the absence of any contemporaneous reference to SAK as being a reason for decisions in it, I reject the evidence that SAK was taken into account at all.

3.120 Mr Swinney also claimed that lessons had been learned from the construction of the Holyrood Parliament building and the report into that by Lord Fraser [PHT00000050, page 104; WED00000624]. He claimed that one of the points that he thought came out very clearly was that there had been a lack of clarity about decision-making between various players who were involved in that project’s delivery [PHT00000050, page 105]. In the course of giving evidence at the hearings, he agreed to identify what it was in Lord Fraser’s report that he had relied upon. He subsequently wrote to the Inquiry [TRI00000266]. In this letter, he states:

“In my thinking and decisions about the Edinburgh tram project, I did not have any of these specific points from Lord Fraser’s report in mind, as I did not at the time recall the report at that level of detail. However, looking over Lord Fraser’s report now in order to provide a response to the Inquiry, I consider these points to be the source of the impressions that I had formed about Lord Fraser’s report – impressions which, in part, shaped my views about the governance arrangements for the Edinburgh tram project.” [ibid, page 0002.]

3.121 The specific points he was referring to are considered below. However, this letter confirms the view – which I had reached from the absence of any reference to the construction of the Parliament in any of the contemporaneous written records of reasons for his decision – that, in reality, Lord Fraser’s report did not inform his decisions in relation to the Tram project.

3.122 The issues in the report that Mr Swinney said in his letter were the source of the “impressions that [he] had formed about Lord Fraser’s Report” [ibid] were:

“that, when construction management is used, it is necessary to have well-defined roles and responsibilities from the start” and “an experienced and efficient team with good leadership (para 6.6)”. This, however, is merely a note of evidence that Lord Fraser had heard from a single witness and in relation to using the construction management form of delivery of the project. That form of delivery does not aim for a fixed price and was therefore completely different to what was proposed for the Tram project.
that “the lack of clear lines of responsibility” between the project manager and the architect was an issue. It is not apparent to me how this issue has any bearing on the role of Transport Scotland in the project, as it was neither the designer nor the manager. The passage of the report referred to by Mr Swinney [WED00000624, pages 0109–0110, paragraphs 8.31–8.32] and the conclusions that follow from it [page 0251] actually addressed communications rather than responsibility, which casts further doubt on their relevance.
that in the parliamentary debate and the papers that informed it, mixed messages were given regarding the precise roles envisaged for the Holyrood Progress Group [ibid, page 0167, paragraph 10.41]. Again, I cannot see a way in which what is said in the report in this regard is relevant to the decision to withdraw Transport Scotland.
that one individual acted as de facto leader of the project team and sat as a member of the team whose role was to oversee the work of the team and himself [ibid, page 0168, paragraph 10.45]. The report notes that this blurred the lines of communication. The problem was that an individual was both the leader of the project team and a member of the body intended to oversee the work of himself and that team. No such issue has been identified in relation to the role performed by Transport Scotland on the Tram project.
that one of the recommendations of the report had been that “where civil servants are engaged on public projects, governance should be as clear as is now required in the public sector” [ibid, page 0264, paragraph 6]. It is not apparent what relevance this had to the Tram project as it stood in summer 2007. Even in relation to the Holyrood project, it is not something that is developed to any extent within the narrative sections of the report. It is not apparent what element of public-sector governance Mr Swinney had in mind, nor is its relevance to the project. What is of note, however, is that the changes made after the election removed the power of the Scottish Ministers to veto changes to governance arrangements.

Conclusions on justifications

3.123 It will be apparent from the above that I do not accept any of the purported justifications for the decisions taken in relation to the role of Transport Scotland.

Effect/consequences of the change

3.124 As was noted above, one of the principal functions of the Transport Scotland representative on the TPB was as a conduit of information in both directions. As a result of the changes made, that was lost, as was the chance for Transport Scotland to influence directly decisions taken by the Board. Withdrawal from the TPB restricted the flow of information and Mr Ramsay was of the view that this had an adverse effect on provision of information to Transport Scotland [PHT00000012, page 194]. He was not content with the quality of the information being provided [ibid, pages 179, 194 and 207–215; PHT00000013, page 6] but considered that at least when Mr Reeve was on the TPB, information could be obtained from him [PHT00000012, page 194]. It is significant also that Audit Scotland recommended in its 2011 report that Transport Scotland should reconsider its role and that this hint was taken [Mr McLaughlin ibid, page 2]. Mr Swinney did not accept that the evidence of how well the involvement of Transport Scotland worked after Mar Hall and the contribution that it was able to make was evidence that it might have been preferable had Transport Scotland remained involved throughout [PHT00000050, pages 140–142], but in my view this is clear evidence of that. The Scottish Ministers claim that the project was “in a completely different place in 2011” [TRI00000291_C, page 0027, paragraph 48]. That is undoubtedly correct, but it does not mean that it would not have been a benefit in the period from 2007 to 2011 to have had the input that Transport Scotland provided with effect from 2011. The requirement that Transport Scotland be involved later cannot be explained away as having arisen due to a vacuum created by the removal of tie. Turner & Townsend had taken over its role.

3.125 Within CEC there was a negative view of the withdrawal of Transport Scotland. All the Council officials who gave evidence to the Inquiry about this spoke of their disappointment and described adverse consequences for CEC in various ways. It left a gap in expertise and experience that CEC was unable to fill because it was hard to replicate the input of a national organisation [PHT00000041, pages 71–72]; Transport Scotland had brought experience in relation to major projects from the client’s perspective, which was not matched elsewhere, and the individuals involved had made significant contributions to the general discussion and debate; CEC had been reliant “to a considerable extent” on Transport Scotland’s experience and expertise in delivering major transport infrastructure projects; CEC was not able to fill the gap in experience and expertise left by its withdrawal [PHT00000042, pages 2–4]; Transport Scotland had provided an additional check on tie but after its withdrawal from the project its role had changed to being simply that of a funder [ibid, pages 135–137; TRI00000060_C, page 146]. As noted above, prior to its withdrawal, Transport Scotland, as the major funder of the project, had taken the lead role in scrutinising the capital costs and bids, it had a wide pool of specialists and access to experience that was not available to CEC and its withdrawal greatly increased the challenges on CEC, which did not have the same level of expertise or resources with which to scrutinise the project [Ms Andrew PHT00000005, page 49; TRI00000023_C, pages 13 and 20].

3.126 Mr Jeffrey put the matter succinctly as follows:

“Q. The role of Transport Scotland. You have commented in your statement it was unhelpful to have them disengaged from the project. Why did you consider that was unhelpful?

“A. Frankly, I find it a little bizarre that somebody –
a body that is putting up 80 per cent of the cost of the project would not be represented on at least one of those Boards.” [PHT00000032, page 9.]

3.127 Mr McLaughlin said that he did not consider that a continuing representation on the TPB from Transport Scotland would have substantially improved the delivery of the project [PHT00000012, page 2]. This, however, fails to have regard to the totality of the changed role of Transport Scotland and, in particular, the loss of any oversight or approval of the FBC. While it was claimed that tie was happy to have Transport Scotland playing a lesser role, it is of note that Mr Jeffrey was of the view that it could usefully have taken a more interventionist role throughout the contract [PHT00000032, page 13].

3.128 I am satisfied that the evidence discloses that had Transport Scotland retained the role that it had prior to July 2007, it would have considered the terms of the Infraco contract and obtained a legal review of its terms before it was signed [PHT00000015, page 134]. This was the practice of Transport Scotland in other contracts in which it had involvement. This review would have considered whether the terms were consistent with the risk transfer principles and whether key procurement principles had been implemented [ibid, page 135]. Mr Sharp noted that if the FBC had been reviewed by Transport Scotland in the latter half of 2007, it would have been at least as thorough as the earlier reviews, and concerns relating to delays, increases in cost and optimistic assumptions as to programming would have been followed up [ibid, pages 93–94]. This raises the issue of whether, had the contract been subject to such an independent review prior to signature, the problems inherent in it would have been identified. Those problems in the contract were apparent to Mr Nolan when he was instructed by tie, to D&W when it was instructed by Transport Scotland in 2009 and to Anderson Strathern when it was instructed by Mr Jeffrey in 2010. There is no reason to suppose that a review in early 2008 would have failed to identify the shortcomings of the contract before its signature. It has to be accepted that each of these firms was instructed at a time when disputes as to the meaning of the contract had already arisen and that they could be expected to have directed particular attention to the problematic issues. On the other hand, the price was clearly a critical issue under the contract and the desire to have a fixed-price contract was well known. Had a review by an experienced independent firm of solicitors been instructed by Transport Scotland in April/May 2008, I consider that the effects of Part 4 of the Schedule to the contract (“SP4”) in relation to the issue of whether or not there was a fixed price would have been identified.

3.129 With a view to saying that the terms of the contract were not what determined the outcome, BB, Siemens and DLA Piper Scotland LLP (“DLA”) have said that no other deal was available. While it is possible that the issue of who bore the risk and how it was to be priced would have been an insurmountable hurdle and that the situation truly was one of taking things as they were or abandoning the project I do not think that this was the likely outcome. Where there is a desire to conclude a contract, solutions can usually be found. A review of the contract that identified the problems would at least have produced some certainty. Even if Bilfinger Berger and Siemens really would not have departed from the position in SP4 as drafted, tie and CEC would have entered into the contract with awareness of what they were facing. Alternatively, in view of the long-standing concern on the part of CEC that there should be certainty as to the cost of the project, I consider that there is a real possibility that the contract would not have been signed at all. This would have meant that unless an alternative contract could be negotiated, all the expenditure up to May 2008 would be wasted. There was also a possibility, however, that a contract for a shorter section of line 1a than from the Airport to Newhaven would have been concluded on contract terms that were more certain and less disadvantageous to CEC. On any view, had the parties known where they stood, it is likely that less time and money would have been spent in dealing with disputes. The final cost of the disputes – in terms of time spent fighting them, harm caused to the working relationship between tie and the consortium, the additional claims for delay and the premium that had to be paid to achieve settlement is apparent in Chapter 19 (Mediation and Settlement), which considers the Mar Hall mediation. It is also apparent from the evidence considered in that chapter that, by that time, the situation had deteriorated to the degree that CEC was in an almost impossible position. That could all have been avoided if there had been awareness on the part of tie and CEC of the pitfalls that the contract created for them.

3.130 From the standpoint of the Scottish Ministers and Transport Scotland, had they known about the problems in the draft Infraco contract they would have been in a position to take a better-informed decision as to their actions. Had they known that the draft contract exposed tie /CEC to additional costs, they would inevitably have reconsidered affordability, viability and the BCR. It is possible that they would still have decided to make the grant available but, in view of what had been said up to this point and the exchanges in the course of the parliamentary debate in June 2007, I think that this is unlikely. If the BCR was less than 1 it is almost certain that the project would not have proceeded at all. That would have achieved the result sought in the SNP’s manifesto commitment, as would a decision by CEC not to sign the contract mentioned in the previous paragraph. It is ironic that one consequence of the removal of Transport Scotland from the project was to deprive the Scottish Ministers of an opportunity that would realistically have existed to terminate the project. On any view, however, whatever decision was taken would have been based on a full understanding of the situation and with a better idea of how matters might develop.

3.131 By taking Transport Scotland out of the TPB and by removing it from evaluation of the business case, it was inevitable that the decision to make the grant available in January 2008 would be less well informed and therefore more prone to containing errors. The transfer of risk was an important part of the project strategy but the remote role that Transport Scotland was obliged to play as the contracts were negotiated in 2008 meant that it was unable to carry out an assessment of whether risk had in fact been transferred [PHT00000012, page 221]. It would have been useful for it to have been in a position to do so.

3.132 Mr Swinney considered that for the Scottish Ministers to have returned to Parliament, even nine months after the vote, and said that they would not advance monies until CEC addressed concerns about affordability, risk and BCR would have been construed by his political opponents as being obstructive [PHT00000050, pages 80–81]. In my view, that is not a reason to abandon the role of ensuring that the money was spent wisely. It is true, as Mr Swinney said, that CEC was bound to ensure that the contractual terms were appropriate and effective and that appropriate arrangements were in place [ibid, pages 82–83]. However, this cannot obscure the fact that, as at 2007, the intention was that CEC would contribute £45 million and the Scottish Ministers would contribute more than 10 times that amount. In view of the Scottish Ministers’ scale of interest it was not appropriate to depend entirely on CEC. Mr Reeve sought to defend the change, saying that Transport Scotland expected that the estimates had been prepared by competent people and would therefore expect that they were established on a competent basis [PHT00000012, page 99]. This does not bear scrutiny. The same expectation would exist prior to the change in conditions and it had not precluded a detailed and independent review by Transport Scotland of the draft FBC submitted in December 2006. There was no objective reason to decide that it was no longer appropriate to have these safeguards in place to protect public money. When Mr Reeve was questioned in relation to this by Counsel to the Inquiry and myself [ibid, pages 101–106], I considered that his evidence was wholly unsatisfactory.

3.133 The grant conditions were such there was very little that Transport Scotland could do in practical terms when things were going wrong. It could seek to discuss matters – as it did – or it could resort to Cure Notices or withhold further payments of grant. These latter options were drastic and, as was noted in the evidence, as matters deteriorated, it was not clear that exercising any of them would do any good. tie was already engaged in trying to find a cure for what was happening, and withholding grant money would only have placed the whole burden for payment on CEC and could have given rise to default in payments, further worsening the contractual position. However, unless an Event of Default arose and Transport Scotland was willing to invoke the terms of the grant letter, as Mr Reeve accepted, no matter how much bad news was disclosed, there was still a requirement to pay the grant [ibid, page 95]. Mr McLaughlin acknowledged that, by the time that the concern arose within the Government, no effective options were open to it [PHT00000011, page 163]. Mr Swinney agreed that the revised conditions had left Transport Scotland with little by way of levers or control [PHT00000050, page 85]. In relation to the effect of withdrawal from the TPB and what could be done if information about problems came to the attention of Transport Scotland, Mr Stevenson was unable to give a clear and comprehensible answer despite being given ample opportunity [PHT00000055, pages 20–26]. He recognised that with the new grant conditions Transport Scotland might cancel or rescind payments but had no other powers available to it [ibid, pages 26–27]. Mr McLaughlin was reluctant to answer questions put to him as to the desirability of reserving to the Scottish Ministers an ability to intervene in this situation, but ultimately, in response to a question from me, he accepted that this would have been desirable [PHT00000011, page 165]. Mr Ramsay considered that there was a requirement for a more hands-on approach from time to time as situations began to develop.

3.134 The fact that by this time no effective action could be taken by Transport Scotland underlines the importance that should have been attached to Scottish Ministers being satisfied regarding the position before committing to pay the grant. At that time, they were in a position to obtain such information and assurances as they wished.

3.135 The Scottish Ministers submitted that it would not have been appropriate or even possible for Transport Scotland to have imposed operational control on a sponsored body via grant conditions [TRI00000291_C, page 0014, paragraph 26]. I do not agree. The existence of the controls in the “hold points” described above indicates what could have been done to give Transport Scotland a chance to consider the position before a final decision to proceed. I accept that it would not have been appropriate for Transport Scotland to have day-to-day operational control once the Infraco contract had been awarded and work was under way. Even at that time, however, some degree of oversight as to the processes of management and reporting and of the progress of the project would have provided an opportunity for earlier and more effective intervention. It might be argued that this would undermine the promoter and have the effect that all large projects or those needing funding from Scottish Ministers would be carried out by Transport Scotland. Such an extreme position might be unrealistic, but there is force in the issue raised by Mr McLaughlin in his email of 1 December 2010 [TRS00011413]: is it ever a good idea to have the funder standing in a position that is remote from the works?

Conclusions

3.136 Mr Stevenson said that, after the vote in Parliament and the decision to continue with the project, it was a priority of the Government:

“to protect the Scottish taxpayer and ensure that all major transport projects deliver value for money” [PHT00000055, page 55].

3.137 In response to a question from me, Mr Stevenson said he considered that the Government had still got value for money. Even then, he sought to shift matters to suggest that CEC could have got better value for money. He stated that Transport Scotland oversight was effective “in the sense that the Government did not spend more than GBP500 million” [ibid, page 57]. He also said that the Government “got what we paid for” [ibid, page 58]. This was on the basis that it paid out only against work that had been undertaken. If this is really what he believed, it is astonishingly complacent on his part. Much less was obtained for the £500 million grant money than had been intended. Mr Stevenson was reluctant to face this and preferred to talk about payment for works done and even to focus on the use being made of the tram system once it was completed. I do not accept that he can be as unaware as he claims to be about the key issue that Ministers got much less than they thought that they would get when they provided a grant. To focus only on the Government expenditure and ignore what was obtained for it abandons any notion of getting “value” and is a remarkable approach from someone who was a Government Minister at a relevant time.

3.138 Although Mr Swinney said that he would do nothing differently if doing the project again [PHT00000050, pages 5–6], the conclusion of what I have considered above is that that would be an error. Mr Swinney said that the responsibility of Transport Scotland and the Scottish Ministers was:

“Firstly, to ensure that every reasonable measure was taken to ensure that the project was able to deliver what had been expected of it by the parliamentary vote and, secondly, to protect the Scottish Government purse.” [ibid, page 80.]

3.139 Mr Swinney considered “that every reasonable measure was taken” [ibid]. I do not agree. He said that he would expect matters such as a review of the contract or review of the structures for delivering it to have been undertaken by CEC. Leaving these critical matters to CEC with no checks in place to ensure that such steps were taken is, in my view, wholly inconsistent with having taken every reasonable measure. It amounted to an abdication of responsibility for ensuring that public funds provided by Scottish Ministers for a specific project were spent wisely.

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