Tram Inquiry: Council had '˜gentleman's agreement' with contractor

Former TiE Chief Executive Richard Jeffrey was speaking at the Tram Inquiry

The inquiry, chaired by Lord Hardie, is looking at why the cost of the project soared from just over £500m when the contract was signed to the final £776m for a truncated route completed three years late.

Mr Jeffrey told the inquiry: “It was alleged by, I believe Richard Walker [managing director of Bilfinger Berger UK Limited], that TIE knew this was never a price for the whole contract – the phrase he used was this was only ever a price for a three-wheeled car – and that the agreement, the exclusions from the price, the price assumptions and the other various exclusions were there simply to get the headline price down, to be added back in after the contract was signed.”

Mr Jeffrey added: “I only had one conversation with Willie Gallagher in my time at TIE and it was about this and he denied it.”

He said other members of the TIE team also thought the claim was “nonsense”.

Inquiry counsel Jonathan Lake said: “It might also be described as a common understanding that the parties were going to conclude a contract on one price in the knowledge it was going to go up.”

In his written statement to the inquiry, Mr Jeffrey said he first became aware of the alleged “gentleman’s agreement” in July 2009 when he met senior Bilfinger executive Dr Jochen Keysberg – the same meeting where Mr Jeffrey said Dr Keysberg told him: “This is a great contract for us. It allows us to hold you to ransom.”

Mr Jeffrey added: “I find it incredible that any party would proceed on a project of this value on the basis of a gentleman’s agreement in any event.”

Tony Rush, a disputes specialist brought in as a consultant to TIE, said when he arrived in 2010 the project was “bedevilled” by problems arising from the contract.

And he claimed TIE chairman David Mackay “would not sit in the same room” as the chief executive of Bilfinger Berger UK.

“There was a clear breakdown in the relationship between the contractor and the employer. There was no feeling of ‘win win’ on this project. It was ‘win and you lose and you surrender’ on both sides.”

He said he had tried to put himself in the position of a director of the two companies in the consortium, Bilfinger Berger and Siemens.

“I didn’t think Siemens would want to be associated with a contract in Edinburgh that was allegedly holding the city is to ransom,” he said.

Mr Mackay said after his first meeting with the consortium he got a phone call from a Siemens director suggesting a private meeting. “I suggested Carlisle – that’s where I had secret meetings with the English.”

Mr Rush also described the mediation at the luxury Mar Hall hotel near Glasgow in March 2011 which finally got the project back on track.

“We had been at it for several days, we were in the middle of the night or early morning, it looked as though there was going to be a complete breakdown.

“What I did was go into a dark corner and write down a draft memorandum of understanding, which amounted to 12 points.”

He said he had asked council chief executive Sue Bruce, who was leading the talks, whether she felt she could offer his suggested price of £329m. She took the figure into a meeting with the German directors of Bilfinger Berger and the deal was agreed shortly afterwards.

“I remember it well because it was in my handwriting and Sue Bruce said she was going to frame it,” he said.

Asked how he had arrived at the figure, Mr Rush said he made an assessment after listening to what had been said. “I was trying to judge what figure would settle it,” he said.

The inquiry resumes next week.