Tram construction firm ‘considered pulling out days before signing contract’

The contractor behind Edinburgh Trams had considered pulling out
The contractor behind Edinburgh Trams had considered pulling out
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THE construction firm which led Edinburgh’s tram project considered pulling out days before signing the contract, the inquiry into the fiasco has heard.

Scott McFadzen, who was project director for Bilfinger Berger, said during April 2008 he and his colleagues became increasingly alarmed about the deal they were about to sign and the problems that lay ahead.

He said: “Our growing alarm was to the extent that Bilfinger Berger were considering whether this job was worth doing or not.”

The inquiry was shown correspondence from April 30 - just days before the contract was signed - which revealed Bilfinger had told council tram firm TIE they required a further £12 million to conclude the deal.

Mr McFadzen said the price increase was prompted by concerns about the state of the project.

“It was born out of increasing alarm that this was not going to be a good project. All the things the were coming up - the design was late, utility diversions were late - it looked like a project that was heading for disputes and big disputes - and big disputes are expensive.”

And he said Bilfinger had discussed bypassing TIE and writing to the city council about its concerns.

“We believed that TIE were misleading the council on a lot of fronts.

“If we had put money to all the pricing assumptions [in the contract] it would have added up to a considerable sum and that may have made the project unaffordable from the council’s and the Scottish Government’s point of view.”

Mr McFadzen, who played a key role in persuading Bilfinger to bid for the tram project, described how their attempts to price the work had been plagued by a lack of information because of the delays on design work and utility diversions.

“The longer time went on, the programme was becoming more and more difficult. TIE was slightly head in the sand, saying it will be OK, don’t worry. We just kept working away on the bid.”

Bilfinger had submitted a price in January 2007. Mr McFadzen said: “In normal design and build projects, you make an offer and that’s either accepted or not.”

But on the tram project TIE had asked Bilfinger to review certain elements of the offer, said Mr McFadzen.

Several price revisions took place before Bilfinger were named preferred bidder in October 2007.

Mr McFadzen said TIE had an “obsession” with “value engineering” (VE) - re-examining methods and materials to drive down costs - but he said its aim of saving £9m, later increased to £22m, in this way was not achievable.

He said Bilfinger had wanted to make some money-saving changes, which did not happen.

“Edinburgh Park station viaduct, we proposed to change it from a seven span viaduct in to single or two span bridge over the railway with approach embankments, which would have generated a pretty spectacular saving of £1.4 million. But to deliver that would have meant going back to the council and Edinburgh Park Ltd and saying we would like to redesign the viaduct and it just didn’t happen.”

Mr McFadzen described the VE sums proposed by TIE as “financial engineering”. He said: “We thought it was being used as a number. When TIE were presenting the numbers for the project, here is BBS bid, it’s more than budget but there is this plan to value engineer £9m out of the bid. That brought an unaffordable price for the council into an affordable price.”

Joachim Enenkel, a former Bilfinger senior executive who gave evidence via a video link from Germany, told the inquiry the company had classed the tram project as risk category three and would not have bid for it if it was category four.

But he said he could only recollect the possibility of withdrawing from the tram project being discussed in the very early stages when it was not clear whether their partner in the consortium would be Siemens or Bombardier.

“At the time I made very clear if it was Bombardier, we would not pursue the bid.”