Tram cost forecast altered before talks, inquiry hears

An Edinburgh tram
An Edinburgh tram
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CRUCIAL costings for the future of the tram project were altered on the eve of mediation talks which ended the damaging stand-off between the council and contractors.

The tram inquiry chaired by Lord Hardie heard council negotiators increased the forecast of how much it would cost to terminate the current contract and find a new firm to finish the work, making that option more expensive than the estimated for negotiating a new deal with the existing consortium.

But Colin Smith, a troubleshooter brought in by chief executive Sue Bruce, denied the council had gone into the talks determined the outcome should be a new deal rather than termination.

The mediation between the council and the Bilfinger Berger Siemens consortium took place at the luxury Mar Hall hotel near Glasgow in March 2011 and resulted in a revised agreement which got the troubled project back on track.

Mr Smith – who was paid £1 million for his work on the trams and other projects – described meeting with colleagues in a “very cold” basement room to pore over a spreadsheet the day before the talks began.

Council tram firm TIE had estimated the cost of reaching a “separation” settlement with the current contractor and reprocuring the project at between £646m and £698m compared with a range of £682m to £747m for a revised deal with the existing consortium, nicknamed Project Phoenix.

But Mr Smith said he believed TIE had underestimated the true cost of “separation” by around £150m, failing to take into account items such as a “bad project” premium and inflation. He put the likely cost closer to £800m. The council team agreed on an estimate of £740m.

Inquiry counsel Ross McClelland said: “The effect was to make the Phoenix deal lower than the estimated cost of separating and reprocuring. In that way the council officers going into the mediation were able to justify a Phoenix deal on cost grounds which they could not have done on TIE’s figures.”

Mr Smith said: “That’s correct.”

The figure was seen as a “trigger point” so that if the cost of a new deal was to be much more than £740m the council would start looking at “separation”.

The inquiry was shown a report which showed the final cost for the whole project under the deal was £743.5m, including a figure of £22.5m for the on-street works from Haymarket to York Place, whereas the target on-street price agreed by the parties at the talks was £39m, taking the total up to around £760m – beyond the £740m trigger point.

Mr Smith said “I do not know why it was agreed beyond the trigger point.”

He also told the inquiry he did not have a view on whether the £362.5m price proposed by the council and agreed at Mar Hall for off-street works between the airport and Haymarket was appropriate or not.

Mr McClelland asked: “You, as the quantity surveyor brought in by Sue Bruce, for the specific purpose of helping her at the mediation, weren’t asked to advise her in deciding on what price to offer?”

He said he was asked to check information but not to give his opinion. And he said when it was discussed among the team, TIE chief executive Richard Jeffrey and project director Steven Bell said they thought the figure was generous but otherwise silence had been taken as assent.

Mr McClelland referred to decisions by the council in August 2011 to stop the tramline at Haymarket and the following month to reverse that and take it on to York Place, noting this had caused delay in the construction works and Mr Smith had authorised a £4.5m payment to the Infraco consortium.

The money was paid in full despite advice from project managers Turner & Townsend that Infraco had not provided information to show these costs had been incurred.

The inquiry was shown a report which noted: “Infraco have advised that they will not provide any further information to support this amount.”

Mr Smith said: “I seem to recall it reached a point where T&T could not get any further information from Infraco.”

He continued: “There were many bumps in the road after mediation. I would not want anyone to take the view it was all plain sailing from March 2011 until May 2014. Scottish Water’s behaviour started to drift back to where they had been before. No one participant remained absolutely in tune. They occasionally slipped back to the old habits.”

The inquiry continues today.