Tram Inquiry: TIE boss was told contract would not be signed

He said all the details had finally been agreed in April 2008 – then Bilfinger Berger UK managing director Richard Walker had stopped answering his phone calls.

“Then eventually I got a communication from Richard to say that they couldn’t sign the contract. He said to me he had lost control of his supply chain and they therefore were unable to meet the agreement.”

Inquiry chairman Lord Hardie said: “That’s a pretty extreme position. Did you not then think: that is going to be embarrassing for the city and embarrassing for TIE, but I can’t take the risk of going ahead with this company?”

Mr Gallagher – whose evidence was taken in private for health reasons – said all the options were examined.

“One of the options was to effectively change the consortium, remove Bilfinger Berger, make Siemens the prime contractor.”

But he said the legal advice was they could not do that. “So the view was taken that we have to have one further push or we would have to walk away.”

Mr Gallagher also denied claims by Mr Walker at the inquiry last week that he had repeatedly said the cost of the project would increase as soon as the contract was signed.

And he denied Bilfinger had made clear to him the council would have to fund substantial increases in construction prices.

He said: “They had a view which is that they obviously felt that the contract was going to increase in value for them. We had a view that it wouldn’t, that they had signed up to a contract, that they had taken responsibility for building the contract, and that we would have to negotiate and hold them to that agreement.”

Mr Gallagher was asked about a meeting at Bilfinger’s offices in Wiesbaden, Germany, in December 2007 to try to thrash out some of the problems on the project.

Last week, Mr Walker described how the three key figures in Bilfinger, Siemens and TIE had left the room and returned 20 or 30 minutes later and told the others: “This is the number, you go away and make it fit into the spreadsheet.” But Mr Gallagher said he could not recall leaving the room.

Before the meeting he had written to Mr Walker warning if issues were not resolved he would advise the council that the project should not proceed.

He told the inquiry: “They needed to know that if we could not agree a successful outcome to the negotiations, then we wouldn’t be held to ransom.”

But he said: “I never thought the Edinburgh tram project was a bad contract. I thought it was a fair contract for both parties.”