Edinburgh trams inquiry: Councillors not told of price rise

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Council officials learned of a “significant” rise in the cost of the tram project the day before a crucial council meeting - but the information was not revealed to elected members.

Instead, councillors voted to note a “final price” of £508 million for the controversial project and give the go-ahead for the chief executive to sign the contract, unaware of the new hike.

Willie Gallagher was chairman of TIE. Picture: Bill Henry

Willie Gallagher was chairman of TIE. Picture: Bill Henry

The tram inquiry, chaired by Lord Hardie, heard of an internal memo from one council official to another on April 30, 2008, saying: “You may know this already, but BBS [the contractors] have increased the price by a significant amount. Urgent discussions underway at TIE this afternoon. Wonder how this leaves the report to council tomorrow!”

A second memo the next day, just minutes before the full council meeting was due to start, said: “I am advised that the suggested price increase is confidential, that it is not a done deal with BBS, and that there will be further negotiations over the weekend between TIE and BBS. Most significantly, I am led to believe that members will not be advised on these recent developments when council considers the report today.”

Jim Inch, director of corporate services at the time, told the inquiry he was sure the council leader would have been informed, but denied it was misleading to allow the report quoting the £508m figure to stand.

He said: “We were being advised by TIE not to react to this proposed price increase, because TIE felt confident that they would be able to again negotiate it away, and so to have put that information to elected members would have been misleading in itself.”

He said in his view it would have been appropriate “to put a caveat into the council paper or to mention something”.

But he argued it was “a judgement call” what to do.

“The project itself was politicised to the extent that every movement [in price] was used as a lever to build up greater criticism of the whole project. So there was a sensitivity around providing the council and councillors with information that might not be accurate.

“It was the council’s position that it was accepting the guidance from TIE that this increase was not going to materialise.”

But he acknowledged the price had indeed gone up and a report to the council’s policy and strategy committee later that month had revealed the increase from £508 to £517.2m.

The inquiry also heard that former tram boss Willie Gallagher, who received a £40,000 bonus for seven months’ work, sat on the committee which decided rewards during his time in charge.

Mr Gallagher, who was both chairman and chief executive of TIE from June 2006 until November 2008, was a member of the remuneration committee which set bonuses for those involved in the project.

The inquiry was shown a code of practice stating that remuneration committees should consist entirely of non-executive directors.

Mr Inch agreed such a situation was “clearly a departure from best practice”.

In 2009, the Evening News revealed Mr Gallagher, who had been on a £170,000-a-year salary, was receiving a £41,000 bonus for his work between April and November 2008, when he quit the project.

Mr Inch also agreed the fact Mr Gallagher was both chair and chief executive was also “clearly” not best practice.

Mr Inch, who is now retired, told the inquiry of his concerns about a revised bonus scheme which TIE wanted to introduce in 2007. He calculated that if the top six employees at TIE received payments as proposed it would amount to £750,000.

In an email to Tom Aitchison, the council chief executive, he suggested it would be “celebrating failure”.

The inquiry heard that in May 2010 TIE submitted an invoice to Transport Scotland for £730,000 for staff bonuses, but the money was withheld and the remuneration committee later decided no bonuses should be awarded at that time.

The inquiry resumes today.

ian.swanson@edinburghnews.com