“Edinburgh trams interim report”
We have with us this morning David Middleton, the chief executive of Transport Scotland, and Ainslie McLaughlin, the director of major transport infrastructure projects at Transport Scotland. Would either of you like to make an opening comment?
I will make one or two comments if I may, convener. It might be helpful if I comment on some aspects of the Edinburgh trams issue prior to taking questions.
Thank you for that, Mr Middleton. Essentially, you are the guardians of the public grant that has been given to the City of Edinburgh Council. You are supervising the disbursement of that grant on behalf of Scottish ministers. Is that correct?
That is to satisfy the process of paying that grant in line with the conditions.
Were the conditions that were laid down subject to negotiation between Transport Scotland, on behalf of Scottish ministers, and the City of Edinburgh Council?
They were certainly put to the City of Edinburgh Council, although they were drawn from standard grant conditions that are used in such situations.
So, Transport Scotland put those grant conditions to the City of Edinburgh Council, and they were cleared by Scottish ministers.
Yes. They were all drawn from the “Scottish Public Finance Manual”.
Okay.
That was a condition precedent of the grant: in order for the grant to kick in, the council had to show, through its business case, that the benefit to cost ratio was in excess of 1. Once the grant starts, that is not a continued condition of the grant payment—it is a condition precedent.
You say that, before the project started, there should have been a benefit to cost ratio of 1; you wrote nothing into the condition of grant such that, if the project started to show a different benefit to cost ratio, it really would not matter, and the full amount of money could continue to be obtained irrespective of how badly the project was going.
That reflected the fact that, once the city council had entered a contract, there was an expectation that the contract payments would be met. The council was contractually committed to the project. The purpose of the grant is to support the council—it is effectively a subsidy to the project. The Scottish ministers’ position was protected in as far as there was a £500 million cap on the total cost to the Government.
You saw your role as being simply to sign the cheques, and not to ask questions on behalf of taxpayers.
No, that is not the case. We require the City of Edinburgh Council to submit detailed invoices, on a four-weekly basis, of the money that was spent the previous month. Those are backed up by a detailed monthly report, which matches the progress on the actual project. We then reconcile the monthly project report with the invoice that the council has submitted, and then pay that invoice. The council is required annually to give us a certificate of compliance from its director of finance, backed up by a certificate from its independent auditor, to show that all the costs that are submitted are eligible costs under the terms of the grant.
Did you at any time consider and report to ministers on whether the project remained affordable within the limits that had been set?
The Scottish ministers’ commitment to the project is capped at £500 million. At one point last year, there were indications from the council that the cost of the project was likely to exceed its original estimated total of £545 million, and we reported that to ministers.
So, it became apparent only last year that the cap was likely to be exceeded. You had no prior—
The cap is not going to be exceeded. It is the council’s estimate of the total cost of the contract that will be exceeded.
Yes. I am sorry. On what date did you first become aware that the project cost was likely to exceed the cap?
The timeline that I have tells me that, on 4 March 2010, in the fifth quarterly report, Transport Scotland received initial indications from the council that, because of the impact of the on-going contractual dispute, it was unlikely that the full scope of phase 1a of the contract was likely to be achievable for £545 million.
So, the first indication that the project was running into difficulties was a year ago.
Yes—in terms of the likelihood of its breaching the council’s estimate of the total cost.
When you draw up a grant agreement with another organisation for the disbursement of public funds, particularly funds in excess of £500 million, do you ever think of asking those who receive the funds not only to submit invoices that the money is being wisely or well spent, but to prove that the public purse is getting value for the money that is being paid? That is something that perhaps needs to be reflected on for future projects.
The value for money judgment is in essence made at the outset, when the Scottish ministers consider whether they wish to contribute. If you are talking about the formal stage at which the City of Edinburgh Council said that there might be difficulties with the project meeting its overall limits, that was reported to us, as Ainslie McLaughlin pointed out. That there were difficulties and contractual disputes was obvious and in the public domain for some time before that, and the Scottish ministers were aware of that. The question was whether probing the City of Edinburgh Council on the value for money of on-going grant payments bore any relation to dealing with the problems that had emerged on the project, which were clearly contractual disputes with the contractor.
Forgive me for my naivety but, with projects where a grant of £545 million is required, I would have thought that certain practices pertain that would not apply to smaller projects. For example, I do not know whether you are a car driver, but I am, and if I put my car in to be repaired, I expect the garage to tell me if major work is required beyond what was originally estimated. I then check at the end, before I hand over any money, that the work that had been agreed has been done. Before you handed over any money, did anyone from Transport Scotland check that the work was being carried out, and being carried out satisfactorily?
I refer you to the points that Mr McLaughlin has already made on the checks that the claims were legitimate.
So you cannot think of anything that Transport Scotland could have done that would have protected the public purse from the situation that now confronts us?
That would imply that protecting the public purse involved our withholding grant. As I attempted to explain in my opening comments, it was not open to us to withhold grant. The council, through TIE, was entering into a contract, so it would probably have challenged us on any arrangement for central Government money that implied decision points by central Government that were out of kilter with the operation of the contract. However, all that was subject to the fact that Scottish ministers had capped their contribution at £500 million.
So if Scottish ministers had not been so unreasonable and had said “You can have a blank cheque,” everything would have been okay.
No, we are not saying that. The fact is that contractual disputes emerged relatively early in the project. The Auditor General said in his report:
For future projects, are you reflecting on the way in which the different procedures were drawn up, drafted and implemented, or will the same procedures pertain to other major infrastructure projects?
We would always reflect on practice and look at future procedures. We would be foolish not to do that. However, the procedures that have been involved were drawn from standard conditions, which obviously did not anticipate the level of contractual disagreement that emerged in this project.
The Scottish Government’s arrangements for capping the cost at £500 million, Transport Scotland’s grant arrangements and the contracts for the project itself were all put in place after the Scottish Parliament voted for the project to proceed. Am I correct?
Yes.
What would have happened if the Scottish Parliament had not voted for it to proceed?
That would have been a matter for Scottish ministers to determine. It is not from me to speak on their behalf, but—
Hazard a guess.
If the Parliament had not voted for the project, I assume that it would not have proceeded.
The genesis of the project’s problems was partly the vote for the project to proceed in the first place.
It is not for me to comment on the vote, as such.
Can I just clarify a point? That is an interesting line of argument. You suggest that if Parliament had not voted for the project, ministers would probably not have proceeded with it.
I made that suggestion because I was invited to speculate. Perhaps I should not have.
It is just that I am aware that Parliament has voted on matters such as the national conversation, which ministers proceeded with anyway. There is perhaps a fault with the Parliament’s procedures in this regard. However, ministers can decide whether to proceed with certain matters irrespective of the vote of Parliament. I just wondered whether what you said would have happened was a specific line from Government officials.
No. I would not dream of inventing a new doctrine of any kind.
I think that you developed an interesting line of argument there as well, convener.
Having been chastened after my attempt to speculate, even though I was invited to do so, I must simply say that Scottish ministers have said that their commitment is capped at £500 million. To reopen that commitment can clearly be a matter only for Scottish ministers.
Interestingly, you said in your opening remarks that withholding grant funding would at no time have been justified or likely to resolve the problems between the contractor and TIE and the City of Edinburgh Council. What do you mean by that?
Clearly, if at any time in the disbursement of public money you think that the body to which you are disbursing moneys is mismanaging or misgoverning resources, you would then think of a range of actions that you might take to deal with the situation. You would do so where, from all information and evidence, it is apparent that the problem is an extensive contractual dispute. The Auditor General confirmed that in his report. Also, although expenditure was slower and more difficult than the project would have wished, there was no suggestion in the Auditor General’s report other than that expenditure had been incurred legitimately on aspects of the project such as the laying of tram rails in Princes Street. At no point did deciding to withhold grant seem to be an appropriate course of action. Apart from anything else, there is a legal arrangement between ourselves and the City of Edinburgh Council. We would have had to have thought carefully about any such action. I cannot see any circumstances in which we had any justification in taking that course of action to deal with the problem of the project. As reported, the problem was the extensive contractual disagreement between the City of Edinburgh Council and TIE, and the consortium.
Under questioning at a previous committee meeting, the Auditor General made reference to the fact that costs had exceeded projections in other places where new tram or light rail projects have been undertaken. Was not enough regard given to experience elsewhere in advance of this project?
I could not comment on that.
Those are all my questions for now, convener.
When Transport Scotland was set up, my recollection is that it was set up as a hands-on agency at arm’s length from Government, if you excuse the mixed metaphor. Is that right?
Yes. Transport Scotland was set up as an executive agency of Government.
It has special emphasis on expertise in transport projects.
Yes. A range of transport projects in Scotland were planned around that time and it was felt that an agency that was dedicated to the purpose with its own chief executive who would also be the accountable officer would be a suitable vehicle for taking forward those projects.
Is that still the case?
It is very much still the case. We have a range of significant projects, some of which are nearing completion and others that will begin soon.
Why did you see this project merely as a sort of accounting exercise in which you check the expenditure every six months and pay on receipt of invoice rather than one in which you would get involved? Surely Transport Scotland should have used the expertise that it has built up. Surely it should have got involved and advised the City of Edinburgh Council using all the experts that you have on hand who know all about transportation and allied matters. Why were you not hands on? Would it not have been sensible to continue on the project board?
In formal terms, while being arm’s length in one sense, we are still part of Government. We do not pursue projects because we decide that they are good or bad; we progress the projects that Scottish ministers invite us to take forward on their behalf.
You are not, however, like an ordinary department of Government. Transport Scotland was set up to be an agency that would help to ensure proper delivery. You opted out of the trams project. Why?
We did not opt out. I am happy to return to our expertise in a second or two. The role of the Scottish Government, of which we are part, is to take forward projects where Scottish ministers wish it. The role of Scottish ministers in relation to the Edinburgh tram project was that of funder—funder up to the maximum of £500 million. You cannot have multiple project owners; there has to be clear project governance. In this case, the project owner was the City of Edinburgh Council which—in turn—appointed TIE as its project director.
We know that. Transport Scotland was a member of the project board—it is not as if you declined to be a member. Did you not think that withdrawing from day-to-day participation on the project board would send a negative signal to the City of Edinburgh Council?
I do not believe that I have heard any suggestion from City of Edinburgh Council that it took a negative angle on that. The issue of governance and the separation of roles was explained at that time, and I believe that the position was accepted.
This is my last question. Is it not true, Mr Middleton, that under your directorship Transport Scotland has now reverted to being just like any other department of the Scottish Executive?
I am not sure that the description,
I think that that is a yes. Thank you.
Before I bring in Murdo Fraser, I want to ask a question. You have described that, in the process, you were merely paying over money on the presentation of invoices, and you were not involved in any technical analysis or comment. Why did the finance directorate not take responsibility for that, as it was merely a matter of issuing cheques rather than offering any opinion?
It is rather more than just issuing cheques. Ainslie McLaughlin might want to say something.
We provide an informed view for the Scottish Government from the monthly reports that the City of Edinburgh Council provides us with to support the monthly invoices that it submits. We are able to look at those reports, assess whether they are credible in terms of reporting progress on the works and reconcile that against the amount that is being invoiced. At the monthly meetings that we have to discuss the invoicing and the progress of the works, we can ask intelligent questions about that progress.
So, all the way through, you have been asking intelligent questions and offering informed reports to ministers.
We have been saying to ministers that the invoices that the City of Edinburgh Council has submitted are for legitimate costs incurred on the project. There is no suggestion, despite the contractual difficulties and disputes, that the money is being misdirected to any other purpose.
Did you offer any informed comments about whether problems were developing?
Indeed. As Mr Middleton said, it has been quite apparent for some time that contractual disputes were emerging. We were giving ministers advice on how TIE was progressing with its efforts to try to resolve those disputes.
But that is only since March 2010—or were you ringing alarm bells for ministers before March 2010?
We were certainly reporting the fact that there were contractual difficulties before March 2010.
How early did you start to identify problems?
It is hard to put a specific date on it. Given the fact that the project was being covered regularly in the media, it was well known that there were difficulties from, I would say, much earlier than 2009—possibly even the back end of 2008. We could clarify that precisely, but I do not think that there was any great national secret about the fact that there were contractual disputes.
So from 2008, it was clear that problems were starting to develop.
Yes.
What was the significance of what you reported in March 2010?
That was the first time that the council gave indications that it thought that it would be unlikely to complete the full scope of the project for the £545 million total.
Had you any doubts or suspicions between 2008 and March 2010 that it might not be able to stay within budget?
We were not surprised in March 2010.
You were not surprised, so you must have had some suspicions. Were the suspicions that the project was likely to go over budget reported to ministers before March 2010?
We would never have reported it as a statement of fact.
But you would have given some suggestion.
We would have suggested to ministers that there were difficulties with the contract.
Okay. How early did you start to advise ministers that the project could have difficulties in staying within budget?
The specific point about staying in budget in total was more formally made in March 2010.
You say “formally”, but you also said that that did not come as a surprise, so you obviously had suspicions before then. At what point did you first say to ministers that there were looming problems?
I draw a distinction between saying that there were looming problems because there were contractual disputes and saying that there was a definite risk to the budget of £545 million.
Right. When did you suggest to ministers that there might be a risk to the £545 million budget?
We would not have done that in any formal sense before March 2010.
Okay. When did you do it in an informal sense?
I do not think that I could put any specific date on that.
But it was done.
It would have been in informal conversations and discussions; it would not necessarily have been a formal item in the minutes.
I appreciate the difference between formal and informal. I am asking whether it was done informally before March 2010.
I think that we would have speculated informally, but we would not have advised before March 2010.
So have you any idea when that informal speculation first started?
No, I do not.
Can I come in on that point? I am not sure that I understand why there has been questioning on how early Transport Scotland advised the Government that the project might exceed its budget. My recollection is that Scottish Government ministers warned the Parliament about that, which is why they and the Scottish National Party voted against the project in the first place and why they capped the contribution at £500 million. All the evidence on previous tram projects in other parts of Europe, and specifically projects in England, showed that they always run into such difficulties.
That is not a question.
No, it is not a question. It is a statement—a clarification to aid the committee.
Except that there are stated reports that the project was on schedule and on cost. Is that not the case, Mr Middleton?
Yes. There were reports from CEC and TIE to that effect.
Therefore, after Parliament voted, reports were produced to say that the project was on cost and on schedule, and I am now trying to find out when the alarm bells started ringing to show that that might not have been the case.
Thank you, convener. I observe on that last point that, if I remember correctly, the vote in Parliament was informed by an Audit Scotland report into the trams project that gave it a clean bill of health. That is why Parliament proceeded with the trams project as opposed to the Edinburgh airport rail link project, which had received a pretty damning report from the Auditor General at the same point. However, that is by the by.
Yes.
Perhaps we can obtain a copy of it.
The verification comes through the processes that the council put in place and is a requirement of the grant conditions. In relation to the money that is paid to the contractor on a monthly basis, TIE must measure the work on a monthly basis, certify the payment as correct and pass it to the City of Edinburgh Council, along with any other payments due to other contractors and suppliers to the project. The council then assembles the invoices, adds the project management costs—the TIE costs, in effect—deducts the contribution that the council makes itself and passes the invoices to us. As I said, as a further check, the council is required on an annual basis to give us a certificate of compliance backed up by an independent auditor’s certificate.
Did anything in the offer of grant letter tie payments of moneys to completion of specific milestones in the project’s construction, rather than to reimbursement of invoices alone?
No. The standard grant process ensures that the council is not put in a position where it has any payments outstanding to contractors. Had we introduced milestones stipulating that money would be released only when a certain section of the work was completed, the council would have had to bear finance charges, which would have been passed on to the project cost. Somewhere along the line, that money would have had to be found and the charges financed.
That clarifies things helpfully. One of my concerns is that out of the £500 million that Transport Scotland is obliged to pay it has, I think, paid over £402 million so far—
We have paid over £386 million to date.
According to the figures that I have seen, that is about 79 per cent of the total. However, only 28 per cent of the infrastructure works have actually been completed. It sounds as though you have paid out a large proportion of the sums that the Scottish Government is contributing without there being any commensurate delivery of the project on the ground. Given those figures, do you think that the offer of grant letter’s terms were sufficiently rigorous to ensure that the public was getting a proper return on its investment in this project?
I think that we need to separate out progress on the infrastructure works, which is just one part of the project—albeit a significant one—from other project costs that we were covering. For example, a significant amount of money was spent on the advance works, particularly the diversion of utilities under the multi-utilities diversion framework agreement—or MUDFA—which itself amounted to £60 million or more. There were further advance works of about £30 million, and the trams themselves had to be paid for—some have been delivered—at a cost of around £50 million. In common with many other projects, the cost of the actual construction is only a part of the overall project cost. Costs of up to nearly £200 million incurred on value of the work done were not actually associated with the infrastructure project that is currently in dispute.
You just said that a total of £386 million has been paid out so far.
I believe that that is the figure.
So £114 million is left in the kitty. Could all of that be paid over in exchange for certificates from the City of Edinburgh Council without the project actually being delivered?
Given that the council is now of the view that the project will not be delivered for £545 million, it is possible that the £500 million grant could be paid out without the project being completed. Indeed, the council has already said that it will need to find additional money to complete the project.
On reflection, then, do you not think that the offer of grant letter was inadequate in the way it was set up and that it should have put in better protections for this public investment? For example, should it not have been tied to completion of the project?
I point out that standard terms in the grant protect Scottish ministers’ position should the project not be completed.
What would happen then?
Technically, if the project were not completed, the council could be obliged to pay back the money that the Government had paid out. There is, therefore, an ultimate protection. I am not pretending that such a move would not present the council with a challenge—
I suspect that that is putting it mildly.
Nevertheless, the grant is made in good faith that the project will be completed.
That is interesting. So Scottish ministers could seek to recover the sums that have been spent if the project does not progress.
It is clear that the project is overrunning. The grant was put in place for three years, but the council is now looking at phasing the delivery, so we must consider how the grant conditions should be amended to reflect how the project will progress. We are looking at that.
The mediation talks will start next week. The reality is that, in many respects, the mediation talks—which we hope will be fruitful—are the dominant factor on the horizon. The review of the grant arrangements—or reviews of anything else—will follow on from what we hope will be a positive outcome from the mediation.
I am unclear about one issue. Is the grant offer letter in effect a contract, so any change to its terms must be agreed by both parties?
Yes.
I want to clarify two points following Murdo Fraser’s questions. Are you absolutely clear that the grant offer imposed the condition that, if the project was not completed, the City of Edinburgh Council could be liable to repay all the grant that the Scottish ministers provided?
That is a possibility.
That possibility exists, but I do not think that the Scottish ministers have suggested—
No. Is what I described a condition—not just a possibility—that is written into the contract?
It is in the contract. If the circumstances arise in which the Scottish ministers want to and feel able to exercise that measure, it is there.
You have described how you approve payments on the presentation of invoices. Which of the partners that are involved is responsible for managing the process and determining whether invoices accurately reflect work that has been done?
TIE deals with the payments to its contractors—principally the contractor for the infrastructure construction contract. The City of Edinburgh Council deals with the moneys that it pays for its overheads—principally TIE and project management.
Is the City of Edinburgh Council responsible for—
Ultimately, the council must do certification and give us certificates of compliance annually.
David Middleton said that, if the project was not completed, measures of recourse would be available to the Scottish ministers, whether or not they chose to exercise them. The grant offer was for three years. Is that correct?
The current grant is for three years.
By what measure do we say that the project is not complete? After three years, is that sanction available? Do we say that the project has not been completed in three years, so it is not complete, or do we have to wait for a time further down the line?
What you say is a statement of fact. The Scottish ministers are aware of the contract situation and of the pending mediation talks. They have not attached particular significance to the three-year period—doing so would destabilise the situation.
You say that a statement of fact is involved. Under the grant letter, does the project have to be completed within three years?
No. The letter says that the Scottish ministers’ obligations under the grant’s terms expire after three years.
Good morning. As you know, many people are astonished that, when £500 million of public money was committed to the project, the Scottish Government decided to step back from the project board. Have you backed off in that way—from being at the table, a full partner in the project and a full member of the project board to no longer being so—from other major projects?
I confess that I cannot immediately quote a precise example. Not very many projects of a similar size and significance have taken place—a range of examples does not exist. In the trams project, the decision was taken that good governance pointed to us as the funder not being part of the project board.
Who decided on the withdrawal from the board?
It was the Scottish ministers, which are all of us, legally—Transport Scotland is legally part of the Scottish ministers. As officials, we consulted ministers and agreed on the course of action.
Was it a ministerial decision on which you made a recommendation?
I did not make any recommendations at that time, but I do not believe that it was a recommendation or a decision or a direction—I think that there was a discussion and an agreement between ministers and officials that that was the appropriate course of action.
Have you reviewed the papers from that time? You are telling us that you were not the chief executive at the time, but have you reviewed the papers so as to be able to give us an accurate description of what happened?
I am not sure that it is appropriate to say whether an official was told, officials advised or an option was chosen. In such a position, it is simpler to view Government as being seamless, with ministers and officials agreeing that it was appropriate for Transport Scotland, as the agency, not to be on the board. I do not think that it is a question of going back through other options and so on—it is simply what was decided by the Scottish Government.
I am asking you to talk us through that decision-making process. A lot of people view the decision that was made as crucially important, and we are very interested to know what the executive agency responsible for transport in Scotland recommended to ministers in relation to a £500 million investment of taxpayers’ money.
I do not think that there was any disagreement between officials and ministers; officials and ministers reached a straightforward conclusion that it was appropriate to adopt the role of funder and not to be part of the project board that would run the project and which might make representations back to the funding body.
So, on the fourth-largest capital project in Scotland, with £500 million of taxpayers’ money involved, the transport experts—the executive agency responsible for transport—were quite relaxed about withdrawing from the project board.
I do not think that it was a question of being relaxed or otherwise. That is the decision that was taken. Someone is either the project owner or director and is in that seat or they are not. We were not in either of those roles.
That momentous decision did not require a ministerial direction, then. It was something that officials were content with. Is that correct?
Officials are always content with ministerial decisions.
That is not correct, Mr Middleton.
I feel slightly hesitant about getting into what was said between ministers and officials. There is still a degree of confidentiality about that. One thing is a statement of fact: there was no direction by ministers in the formal sense in which that term is understood.
That is helpful—that is what I was asking about.
I believe that there is one project in that category, which I suspect you are leading me towards: the Stirling-Alloa-Kincardine rail project.
That is helpful.
As I said, I cannot immediately think of precise examples in the Edinburgh trams category. I am not sure that there is a whole range of precise comparators. Each large project is different. Edinburgh trams was a particular project for the city of Edinburgh, and it was clear that the City of Edinburgh Council would be the owner.
What is the largest other capital project in Scotland where you have been, or are, the funder and not the owner, with no place on the project board?
I cannot immediately give an example in that category.
So there is no other example.
No—I cannot recall any other such example at the moment.
Is there any other capital project that Transport Scotland is involved in where it has chosen not to have a place on the project board or equivalent body?
I do not believe that there would be any other project of that size that has local ownership, so I am not sure that I can immediately see a comparator. The other projects of any great significance—the M74, the M80, the impending Forth replacement crossing, the planned M8 upgrade and the Aberdeen western peripheral road—are all projects that Scottish ministers had in their programme and which Scottish ministers decided that they wished to pursue, at one scale and pace or another.
So, uniquely, you decided to withdraw from the project board in relation to the trams project, and although you can be clear with us that it was a ministerial decision, you cannot tell us anything more about it. Is that a reasonable summary?
I can tell you that it was a decision that was agreed with ministers, yes.
It was a decision that was agreed with ministers—you are very careful in your wording there. Was it a ministerial decision? Was it a decision of—
It was a ministerial decision, but I am not saying that it was a ministerial decision to imply in any sense that officials were not entirely comfortable with that decision. I am not saying that they were or that they were not. Officials and ministers reached a view; I do not think that it was a particularly difficult view to reach, given the nature of this particular project.
So, just to be clear, it was a decision taken by ministers.
Yes.
You have given the impression that you were in fact more involved with the project than some people have implied, and yet one of the key recommendations in the Auditor General’s report is that you should get involved in the future. Is it true to say that your involvement has been minimal, and that it could have been a lot more extensive and probably will be in the future?
I would not like to describe our involvement as “minimal”, given that we have described today our arrangements for paying over the grant in line with the grant conditions. We have sought, with the agreement of ministers, to be helpful to the project when it has clearly run into difficulties. Colleagues from CEC and TIE are on record, I am glad to say, as saying that they found the discussions that they had with us and any informal advice that they received to be helpful.
In reply to a question that I asked the Auditor General, he said:
We will be content to assume whatever role is decided by ministers, CEC or others in the light of a way forward on the project, if and when the mediation produces a resolution of the contractual disputes. The contractual disputes are the central hurdle that must be overcome in the Edinburgh trams project.
The withdrawal from the board has been a key issue this morning. You have given what I regard as a technical explanation for that, but is it a credible explanation, given that the type of financial relationships that you have described meant that the payment of the money was more or less automatic? Would it really have been a conflict of interest for Transport Scotland to sit on the board, or is that, as some may suspect, a smokescreen for what may have been the real reason?
I do not think that there is any reason to use terms such as “smokescreen” at all. We took a decision; it happened at the time. I do not believe that CEC or TIE were critical of or resistant to it. They may have taken it as a “fait accompli”—I think that that was the phrase used at the previous evidence session. I simply do not believe that it bears that construction. We took a decision to act as the funder, and to withdraw from the project board. I have really nothing to add to what I said earlier.
You said to Nicol Stephen that you have not withdrawn from the board of any other project. In that regard and, indeed, in relation to the project as a whole, are you saying that the fact that the Scottish Government did not initially support the project has not had any influence on Transport Scotland’s behaviour at any point in the process?
I do not believe that it has.
Some people have commented on how odd it was that when the Auditor General’s report came out, the first sentence of your press release referred to the Scottish Government not supporting the project.
We speak on behalf of Scottish ministers and our lines to the media reflect the views of Scottish ministers. What you refer to was clearly a point to be made. There have been political angles to this discussion and Scottish ministers have sought to emphasise that point in a number of their comments. However, although they have emphasised that point in political debate, as I think CEC and TIE would acknowledge, the cabinet secretary and successive transport ministers have always had their doors open for discussions with the various parties to assist and advise.
So if the Scottish Government had been an enthusiastic supporter of the project, you do not think that that would have influenced the decision about the level of your involvement or your presence on the board.
I do not believe so.
I will pick up a point that the convener made. You accept that it was ultimately a decision of the Scottish ministers to go ahead with the project, because they were not obliged to accept the vote of Parliament. In that sense, is there a different relationship with this project in comparison with other projects that Scottish ministers have supported?
There is a different relationship in the governance sense. You are either the project owner or you are not. We are not the project owner of the Edinburgh trams project; the City of Edinburgh Council is. That is the difference. The issue of which parliamentary votes are binding and which are not is secondary to that point.
Can I just clarify something before I bring Anne McLaughlin in? Going back to the decision to withdraw from the project board, I understand the protocol that advice from officials to ministers remains confidential, but in this case we know what the issue is and about the decision to withdraw from the project board. Can you just go back again to the sequence? Did ministers indicate that they wanted to withdraw from the board?
Ministers agreed the proposition. I really do feel uncomfortable—
But I am not seeking the advice that was given. What I am seeking is where the suggestion came from. We are legitimately entitled to know whether the suggestion of withdrawal from the board came from ministers.
I do not believe so. When you look back at exchanges, it is not always possible to determine who initiated something. However, I do not believe that ministers in any way told us, informally directed us or led us to that conclusion. There was a consideration between ministers and officials around the governance of the project, given that we would be funder and not project owner and director, and it was decided that we would withdraw from the board on that basis.
Okay.
It is interesting to listen to this. It would be amusing were it not for the fact that so much public money is involved. I have listened to the difference between Mr Middleton’s interpretation of the decision not to be on the board and that of some of my committee colleagues. Nicol Stephen called it a “momentous decision”, whereas you seemed to suggest, Mr Middleton, that it is fairly standard practice. In fact, I think that you said that it is good governance for funders not to be on the board because they could be approached by the board for funding. My first question is, if it was good governance to do that, would it have been bad governance for you to be on the board?
It could have clouded roles and responsibilities. In that sense, it would have been bad governance. Bad is quite an extreme term, but it was good governance to withdraw from the board; it clarified roles.
I turn to the support that Transport Scotland has given to the project. In the previous evidence session, when I asked the City of Edinburgh Council and TIE whether Transport Scotland had an open-door policy in terms of its advice and support, they seemed clear that it did. I have just heard you say, Mr Middleton, that Scottish Government ministers have an open-door policy—I think that that was what you called it—in terms of their interest in ensuring that the money is not wasted and that the project works. Notwithstanding the fact that you feel that being on the board would have been bad governance and that it was not standard practice, what difference would it have made in practical terms if you had stayed on the board?
The honest answer is I really do not know. It would probably be a mistake to speculate. It is very tempting to say, “If only we had been on the board, all would have been well,” but I have no basis for saying that. I do not wish to be glib in any way on the matter.
I take on board that you remain involved, but we have heard calls for Transport Scotland to be involved in a more formal capacity. I do not know whether that will happen. Will it happen? Mediation talks are coming up. What could Transport Scotland’s role be in all that? What can you do to add to what you are already doing?
I am not sure that there is anything that we can add at present. We need to go through the mediation and get a satisfactory way forward to progress the project. We and the Scottish ministers would be happy to discuss with any party the Auditor General’s recommendation on how we might adjust our role in some way. I really would not like to speculate on that at the moment. This is not the time to be discussing precise changes in governance. The most important thing is to find a way forward on the contractual disputes.
It has been suggested that you simply signed blank cheques every month. From what you have said, it seems that you get invoices every month and a detailed monthly report. You then have to reconcile the two before you pay out any cheques. Is that correct?
Mr McLaughlin gave full answers on that. I am happy to amplify what he said.
That is what you said, Mr McLaughlin.
Yes.
And, at all times, you were satisfied that there was no reason in terms of the contract letter to withhold money from the project.
Indeed. Yes.
I have an entirely different point that I want to raise at some point, convener, when we have time.
The project was at a different stage of development at that time. It had not reached the point where a final commitment on funding and the form of funding had been made.
You mean it had not got into trouble.
I do not think that anyone has said that our reason to withdraw in July 2007 was because the project had got into trouble. We withdrew in July 2007 because our role as funder had been clarified by Scottish ministers by that time, or at least informed by the Parliament debate—
How was that different to when you were on the board? In spite of all the questions, you have not indicated the trigger that prompted you to say, “Hey, we’ve got to get off this board.”
The specific trigger was that there was a final decision to proceed with the project, that the Government would commit £500 million as funder, and that the project owner was clearly established as the City of Edinburgh Council, with its own project director, TIE. The point when the project clearly was going to move forward was an appropriate time to take stock of the governance. Given the Scottish Government’s role as funder through Transport Scotland, the decision was taken that Transport Scotland would withdraw from the board and adopt its role as funder—through all the arrangements that we have discussed with you this morning.
Before you go on to another subject, George, I will invite Frank McAveety and Nicol Stephen to come in on this point.
When Transport Scotland was on the board, was there any discussion about whether, once funding was acquired, it would be good practice to come off the board? Have you seen any evidence of that?
I cannot comment about any considerations before the time at which the decision was taken.
In earlier evidence, you said that you had reviewed some papers. Could anything be lurking in paragraphs in the murky recesses of those papers that could help us to understand the thinking?
I recall reviewing the papers around the time at which the decision was taken, in July 2007, but I was not inclined to go back over tram project board papers to find murky recesses—whatever that term might represent.
From your recollection of the papers that you read, were there any debates about coming off the board once funding had been acquired?
No, I would not like to offer recollections. The key issues were that funding was agreed, that the project had reached a particular stage in its life and was about to proceed, and that clear governance should be established. The City of Edinburgh Council was clearly in the role of project owner and had its project director in TIE. That was an appropriate time to take the decision.
I understand that, but I am asking whether there was anything in the papers that you have seen to indicate that there were any discussions over whether, if funding were acquired, Transport Scotland would come off the board?
I cannot recall.
Nicol Stephen asked earlier about equivalent projects. Obviously, this is an especially large project with particular governance structures in Edinburgh. This is not a speculative question, but will you confirm that there are no other projects of similar stature that Transport Scotland is not part of?
There is no other project of this size in which we have the role of funder as opposed to the role of project owner or project director.
I think that the term “shared discussions” was used in response to Nicol Stephen, on the subject of discussions between officials and ministers. Did ministers say that they thought that, once funding was acquired, it might be sensible for Transport Scotland to come off the board because there might be governance issues?
I do not think that I would like to refer to any prior conversations or discussions with ministers. I think that I have already said that the decision for us to come off the board was discussed and agreed with ministers.
In answer to Anne McLaughlin, you said that you thought that the word “bad” was difficult. Why do you not feel the same about the word “good”?
I was uncomfortable about using the word “bad”. In the particular set of circumstances, we thought that best governance would be achieved by our acting in the role of funder, and that is the decision that was taken. Someone else put the word “bad” to me, and I did not feel comfortable about the word being put in my mouth. However, I have said—and I do not depart from this—that I thought that it was good governance that we clarified our role as funder, given that the project owner was the City of Edinburgh Council, with its own project director, TIE.
You have just repeated that you thought that it was good governance to take your approach. Can you be clear for us whether the explanation that you have given in relation to the Scottish Government’s withdrawal from the project board is your view and your explanation or whether it was the rationale and the view at the time?
It is both. It is fundamentally the rationale of Scottish Government ministers and officials. Perhaps if I have used the words “I think” at all, I have been too presumptuous in offering personal thoughts but, to the extent that I am being invited to do so, I obviously think that the way in which the structure was established following the decision that Transport Scotland be the funder was good governance.
Does it follow, then, that it is good governance for the Scottish Government to fund a project and yet not be involved in the project board?
It depends. The list of large projects is not long and each of them might well be slightly different. However, on this project, in which the City of Edinburgh Council is project owner and Transport Scotland, as part of the Scottish Government, is the funder, I believe, we believe and the Scottish Government believes that we established the right governance structure.
As you know, there are many projects—not only capital projects but many others across Government—for which the Government provides funds and in which it plays a role in their management and project boards. What makes this particular project unique or different?
I can talk only about transport projects, and there is no other transport project in which we are the funder and someone else is the owner. The arrangements seem to be appropriate for this project. I have described other projects in which we have been the owner and in which, therefore, we have adopted a different role.
But I am asking about good governance and Government’s role in providing funding for projects. What makes this project different? Government normally and regularly gets involved in project boards when it is providing funding, but you are now using terms such as “good governance” and “clearer governance”—I note that you have not talked about “bad governance”—to describe your approach to this project and this project alone.
This project is unique among the major transport projects in Scotland that have been debated, discussed and progressed in the past few years, in that the project owner is the City of Edinburgh Council and we have played the role of funder to the project owner, which has in turn employed a project director in the form of TIE. That set of circumstances is unique in the transport portfolio of recent years. I am afraid that I cannot comment on any other projects that you have alluded to, but I am happy to consider whether there are other projects that I should be looking to for comparisons. However, compared with other projects in the transport portfolio that I have mentioned, such as the M74, the M80 and the Forth replacement crossing, this particular project has a different set of circumstances.
Do you ever take a place on the project boards for rail projects in Scotland?
Yes.
And do you fund those projects?
We will eventually do so. The immediate funder is Network Rail through its regulatory asset base, and once the project is completed arrangements will be in place for us to refund those payments through an income stream over time.
And you see yourself withdrawing at that point.
I expect that we will do so, but I do not want to comment on any particular projects looking forward.
As you know, in his recommendation on the role of Transport Scotland, the Auditor General takes a diametrically opposite view to your own. Do you accept that recommendation?
Forgive me, but I do not think that the Auditor General has recommended that we resume membership of the project board. Instead, I think that he has recommended that we look at whether Transport Scotland should play a fuller role. I have already said that if in this project, whose delays and difficulties have greatly concerned many in Scotland, we can get over the immediate hurdle of the contractual disputes between the project owner and director and the contractor—in which we will, I hope, assist—it will be a matter for all parties, including Scottish ministers, ourselves and others, to take stock of the situation. However, the City of Edinburgh Council remains the project owner and we will clearly be interested in having discussions with it in the first instance. I do not think that there is anything more that we can do. I do not think that the Auditor General specifically recommended that we resume membership of the project board, although I am not suggesting that he has excluded that possibility.
Indeed. That is what I was going to ask you. What are the possibilities as far as the recommendations are concerned? They would include your resuming a role on the project board and your taking on full responsibility for the project. Are there other approaches that would fulfil the terms of the Auditor General’s report that we have not discussed yet?
I have not come to the meeting with a list of potential ways of fulfilling the Auditor General’s recommendations. Like others with a role in the trams project, as funder, we simply look forward to the mediation talks and hope that the contractual disputes that have blighted the project can be resolved and a way forward found. That is what we are looking for, above all.
I want to ask about an entirely different matter. From what you said earlier, it is obvious that you have reviewed the evidence that we got from the City of Edinburgh Council and TIE the other week, so you will have seen that TIE and the council envisage that the trams and the buses in Edinburgh will be run together as one operation. Is that your understanding of the way forward as well?
As funder of the trams project, I am not sure that I have a clear understanding of that. I am not immediately au fait with the precise proposals in that regard.
You did not see that part of the evidence. Did you have a look at the evidence?
I did have a look at the evidence.
You cannot remember.
I am sorry that I have not been briefed on that particular point.
I can tell you that that is what we were told. Assuming that the trams and the buses will be run together as a unified operation—that is the evidence that we got last week—will travel on the trams be covered by the concessionary fares scheme that the Scottish Government operates?
That is still to be determined.
Have you not thought of looking at it?
That matter will be determined once we get towards the point at which the trams are running.
You do not think that it would be wise to have a look at it. There is an independent budget review of concessionary fares. Would it not be prudent to include that issue in that review?
Future policies on concessionary fares will be a matter for ministers. You questioned me about that on another occasion, and I think that I made it clear that Scottish ministers attach great importance to the national concessionary travel scheme and have committed to continue it. However, I do not think that I am empowered to give specific commitments on the operation of that scheme.
I am not asking you to give commitments. I am asking you whether it would be prudent for you, as director of Transport Scotland, to be thinking about the implications of the trams project for the concessionary fares scheme that the Scottish Government operates.
I am sure that we will take account of any estimates of costs arising from concessionary travel on the trams when we come to the point at which the trams begin to operate. I am not suggesting that we are somehow not aware of the issue; I am just saying that I am not in a position to give commitments as to how—
I am not asking you for commitments; I am asking about your awareness of the issue. You are aware of the issue.
I am aware of the issue, but I am not here to give you a specific response—
If you are aware of the issue, can you tell me whether new legislation would be needed to include travel on the trams in the concessionary fares scheme?
I think that I would have to write to the committee on that.
You have not started to think about it yet.
Rather than give speculative answers or appear to dissemble in front of the committee, I would prefer to take the opportunity to be precise. It may be an answer that I can give very swiftly.
Okay. You will write to us with a full and detailed response. I am surprised that you have not thought about the issue, but I look forward to receiving your letter.
There is a difference between being aware of an issue and having a precise position to offer. I will certainly try to get you a precise position.
We look forward to receiving that letter, but there is something that I want to clarify. You said that the matter is yet to be determined, so the concessionary fares scheme, which applies to buses, would not automatically apply to trams. Is that correct?
I think that I will write to you. Instead of saying that the matter is yet to be determined, I might be better to say that I will write to you on it.
I thought that you said that you would write to us about whether legislation would be required. You are the head of Transport Scotland, so you must know how the concessionary fares scheme operates. Am I correct in saying that it operates in relation to buses?
Yes.
Trams are not buses.
No.
So the concessionary fares scheme would not apply to the trams.
I would not like to say that it cannot apply to the trams, and I am not really in a position to make the policy positions on that.
I am not asking you to make the policy position, because ministers may come back to us and say that as a matter of policy they want concessionary fares to apply to trams. That would be an entirely reasonable discussion to have. What I am trying to find out is what the position is as things stand. The concessionary fares scheme applies to buses, and you have already told me that trams are not buses, so the concessionary fares scheme presumably would not apply to trams. There could be financial implications, because if the scheme were extended there would be additional cost to the Scottish Government, and if it were not extended that could impact on passenger usage. Also, when the City of Edinburgh Council makes future decisions about what it should do to move the trams project forward, it may have to revise its passenger calculations if the concessionary fares scheme does not apply to trams. Is that a reasonable comment?
I understand that the issue that I highlighted has a range of implications, which is why I would like to write swiftly to the committee about these matters.
So at the moment there has been no indication to the City of Edinburgh Council that the concessionary fares scheme would apply to the trams. As you indicated, that has yet to be determined, and it will have financial implications either for the Scottish Government in extending the scheme or for the City of Edinburgh Council in terms of passenger usage. That could be a major factor in deciding how to take the trams project forward. Significant discussions will therefore need to take place between Transport Scotland and the City of Edinburgh Council. Is that correct?
There will be an appropriate time for those discussions. As I think I pointed out, the mediation talks, resolving the contractual disputes and getting trams in place at a reasonable date in the future are overwhelmingly the main considerations. However, I fully understand the issues that you have highlighted and I will be very happy to write to the committee about them.
So you will confirm to the committee whether the concessionary fares scheme currently applies to the trams, and if it does not you will indicate whether legislation is required to extend the scheme to the trams. It will then, of course, be for Scottish ministers to decide whether they wish to undertake that policy initiative.
As I think the former transport minister who is sitting beside me will confirm, legislation was not required to set up the concessionary travel scheme for buses, so, with respect, I feel that we are making a bit of a meal of this issue.
I will endeavour in a letter to be as helpful to the committee as I can be on these issues.
Can you also indicate in the letter whether, in calculating the project’s running costs and the benefit cost ratio, a calculation was made about usage by concessionary travel card holders or whether that requires to be looked at for future use?
I will endeavour to write on matters that are our direct concern. If we stray into matters that may be the concern of the City of Edinburgh Council, we shall say whatever we can about them.
I thank Mr Middleton and Mr McLaughlin for their contribution to the meeting. We look forward to receiving the further clarification that they have offered to make.