Reports & recommendations

Where the Business Case for any future light rail project is based upon an assumption that, prior to the award of the contract for the construction of the infrastructure, certain matters will have been completed (e.g. design, the obtaining of all necessary approvals and consents or the diversion of utilities), the contract negotiations should be delayed until completion of these matters has been achieved, failing which before any infrastructure contract is signed a new Business Case should be prepared on the basis of the altered assumptions that prevail and should be approved by the promoter and owner of the project.

The assessment of risk at each stage mentioned in Recommendation 6 should be the subject of a peer review by external consultants with experience of similar large-scale infrastructure projects in the transportation sector who should submit a report of each review to the promoter and owner of the project as well as to the procurement and project manager sufficiently far in advance of the signature of the infrastructure contract to enable the promoter and owner to consider whether to authorise its signature and, as appropriate, to consider any other available options requiring a strategic decision.

The existing Guidance on optimism bias was based on empirical data available almost two decades ago and should be revised to take into account the additional data that is now available. In particular, the reference classes should be updated to include a specific reference to light rail projects and the recommended uplifts for the different reference classes should be adjusted to reflect the additional empirical data that is now available. Thereafter the Guidance should be reviewed and revised to take account of additional data on a regular basis at intervals of not more than five years.

The identification and management of risk should be an integral part of the governance of all major public-sector contracts in future. In identifying and managing risk the following principles should be adopted:
• Probabilistic forecasts rather than single-point forecasts should be used to take account of the risk appetite of funders and project sponsors.
• Funders, sponsors and project managers should be cautious when adjusting uplifts and there should be critical review of claims that mitigation measures have reduced project risk.
• Effective governance needs to provide constant challenge and control of the project, including recording of where the project is compared with its baseline, and reacting quickly to get the project back on track, whenever there are signs that it is veering off course. This necessitates providing senior decision-makers with data-driven reports on project performance and forecasts combined with reports by the management team and independent audits.
• In reporting to governance bodies there should be special emphasis on detecting early warning signs that the cost, schedule and benefit risks may be materialising so that damage to the project can be prevented. If early warning signs do emerge, the project should revisit assumptions and reassess risk and optimism bias forecasts.
• The quality of evidence rather than process is the key to providing effective oversight and validation.

The Scottish Ministers and local authorities responsible for funding light rail projects should be mindful at all times of their obligation to protect public funds and to obtain value for public expenditure. In that regard:
• the Scottish Ministers should impose conditions on the payments of grants, similar to the “hold points” imposed on the offer of grant made on 19 March 2007 that enable them to review at each “hold point” whether the scheme is continuing to meet its objectives and to determine whether to continue to support the funding and implementation of the scheme;
• continued financial support from the Scottish Ministers should require their critical review of all versions of the draft Business Case and their approval of the FBC as well as their review, and approval before their signature, of the draft contracts for the delivery of the project;
• the Scottish Ministers should be involved in the delivery of the project as they were before the withdrawal of the support of officials from Transport Scotland in 2007 and following the resumption of infrastructure works after the mediation settlement at Mar Hall; and
• as a condition of the grant the local authority should be obliged to comply with the project monitoring and control procedures of Transport Scotland and should ensure that robust, transparent, externally verifiable project controls for the project are in place.

For reasons of transparency and accountability for public expenditure, the Scottish Ministers should keep minutes of:
• the nature and content of any discussions and the reasons for any decisions taken at all meetings, discussions or telephone conversations, and in email or other correspondence between a Minister and civil servants relating to the nature and extent of any involvement by civil servants in the procurement and delivery of a project funded or to be funded in whole or in part from public funds (including a grant from the Scottish Ministers);
• all discussions between a Minister and representatives of a local authority, the company responsible for the procurement and delivery of a publicly funded project or the company responsible for its construction to record what was discussed and what, if any, decisions were reached and the reasons for any such decision;
• all discussions between a Minister and civil servants including telephone discussions concerning any negotiations, including, but not restricted to, negotiations at mediation, for settling disputes involving contracts funded or to be funded in whole or in part from public funds (including a grant from the Scottish Ministers) to record what was discussed and what, if any, decisions were reached and the reasons for any such decision.

The procurement strategy for any future light rail project should make adequate provision for the uncertainties concerning the location of utilities and redundant equipment belonging to present and past utility companies, particularly in urban centres. In particular, although it is not possible to be prescriptive about the appropriate timescale:
• the procurement strategy should include a requirement that the route of the track should be exposed and cleared of utilities well in advance of the infrastructure contractors commencing their work;
• the procurement strategy should specify the period that should elapse between the exposure and clearance of the route and the commencement of construction, to ensure that the contractors have unrestricted access to the construction site and may proceed with the infrastructure works unencumbered by the presence of utilities; and
• in fixing the period mentioned above, the procurement strategy should take into account the length of the route to be constructed, past experience of the time taken for the diversion of utilities in light rail projects in other parts of the UK and any additional constraints peculiar to the project such as an embargo on work to divert utilities during particular periods such as the festive season or special events (e.g. the Edinburgh Festival).

Although some participants in the Inquiry criticised the use of MUDFA to divert utilities in advance of the infrastructure works and advocated the “bow wave” approach to the diversion of utilities that followed the mediation settlement at Mar Hall, I do not think it appropriate to be prescriptive about how the risks associated with the diversion of utilities are managed. It is sufficient for promoters of light rail schemes to be aware of such risks and to demonstrate that they have adequate proposals for managing them.

As part of their investigations, representatives of OGC undertaking an independent “readiness review” of a publicly funded project and representatives of any person, including representatives of any public body such as Audit Scotland, undertaking a review of the progress of and/or expenditure on a project funded in whole or in part by public funds should interview key personnel involved in the project to ensure that each of them understands his or her role and is performing it effectively. In preparing any list of key personnel to be interviewed, the individuals undertaking the investigations shall include the person designated as SRO.