Council increases risk to public coffers by altering multi-million pound Edinburgh trams contract

Edinburgh City Council made changes to trams construction contracts that increased the risk of losing taxpayer cash after the bidding process was already completed, it has been revealed.

Aartist's impression of the tram line passing Newhaven

In Spring 2018, the council invited bids for its tram extension project, on the understanding that, if electrical subcontractor costs overrun by between 100-120 per cent, then the council and the main construction contractor would accept equal liability for these costs - known as a ‘pain share’.

The subcontractor, in this case Siemens, would be liable for 50 per cent of the cost overruns, with the main contractor and the council liable for 25 per cent each.

However, after the tram extension project was awarded to SFN JV - a joint venture consisting of companies Sacyr, Farrans and Neopul - the risk to SFN JV was removed and the council accepted an additional 25 per cent of the pain share, meaning taxpayers will shoulder 50 per cent of the cost if Siemens’ costs overrun by up to 20 per cent.

Lucrative: Contractors are still working on the project

This change alone could be worth hundreds of thousands of pounds to SFN JV, and cost taxpayers the same amount, as during the first phase of the trams construction, costs spiralled due to delays, adding an additional £231m to the original budget of £545m.

The Siemens subcontract is believed to be worth around 10 per cent of the £207m Trams to Newhaven project, so a cost overrun of 20 per cent would incur pain charges of around £4m, of which taxpayers would be liable for half.

Under the previous contract terms, SFN JV would have been liable for up to £1m of the cost overruns - now it is liable for none.

Rival companies submitted bids for the contract, factoring in this risk in their applications, leading to concerns that rival companies could have submitted more competitive bids if they had known of the contract changes.

'Council will bear the cost' - Lesley Macinnes

The council has previously failed to answer freedom of information requests on the subject, saying it was unable to answer questions as the relevant officers were not responding to emails.

Now, the council has had to answer after Conservative Fountainbridge and Craiglockhart councillor Andrew Johnston lodged a question asking for details of any post-bidding process changes at a full meeting of the council on Thursday.

A written response, from the SNP convener of the transport committee, and and councillor for Liberton and Gilmerton, Lesley Macinnes, says there was an “amendment to payment of Siemens’ pain share so that the council will bear the cost of overruns 50/50 with Siemens (as opposed to 25% the council, 25% Infrastructure and Systems Contractor, and 50% Siemens) up to 120 per cent”.

The council says the contract changes “were approved in accordance with the contract standing orders and by the Project Board, and reported to the Finance and Risk Group for the project”, although neither of these are public, democratic committees.

Call for 'greater transparency' - Andrew Johnston

In a statement, councillor Macinnes said: “The Early Contractor Involvement period employed by the council on this project allowed for a period of close, collaborative working with the contractors before construction commenced to test and confirm the assumptions around programme, cost and risk.

“This led to a number of contract changes to ensure that the construction contracts reflected the position tested and confirmed during the Early Contractor Involvement period.

“Using lessons learned from the previous tram project, the current project has ensured there is robust governance in place, with a project board, a finance and risk board, regular reporting to our Corporate Leadership Team and an ongoing agile audit which means that the project is audited on a regular basis.

“We also have an All Party Oversight Group (APOG) which, as a result of member requests, has recently been strengthened to include disclosure of commercial and risk positions.”

Councillor Johnston added: “'There may be valid reasons for altering the contract, however, the important thing is to understand the changes and what they mean in terms of risk and costs.

“Given the amount of money involved, greater transparency is needed as to how the project is progressing, whether in a regular report to a council committee or to the full council.

“It is only then that councillors can effectively scrutinise decisions that are being made.”

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