Hearing resumed at 2.31 pm.

 

1.      Mr Campbell QC:  Sir, good afternoon.  The next witness for the Inquiry this afternoon is Mr John Graham.  Mr Graham, good afternoon, and thank you for coming to the Inquiry. 

 

2.      Mr Graham:  Good afternoon.

 

3.      Mr Campbell QC:  You don’t have to speak right into the microphone, but if you could keep your voice up it would be helpful.  Thank you.

 

4.      Mr Graham:  Right. 

 

5.      Mr Campbell QC:  Can I just confirm that you are John S Graham; you are currently the head of department at the Scottish Executive Environmental and Rural Affairs Department? Is that correct?

 

6.      Mr Graham:  Yes. 

 

7.      Mr Campbell QC:  Yes.

 

8.      You were the Principal Finance Officer at the Scottish Office between April 1996 and the end of May 1998.

 

9.      Mr Graham:  That’s right.

 

10.  Mr Campbell QC:  And you were therefore in that post at the time of the General Election in May 1997?

 

11.  Mr Graham:  Yes.

 

12.  Mr Campbell QC:  Can you tell me for what you had overall responsibility in that post as of May 1997?

 

13.  Mr Graham:  There were two core responsibilities in finance group for which I was in overall charge.  The first was to advise the Secretary of State on the planning of spending right across the Scottish Office budget; we commonly call that the Scottish block.  The second responsibility was to oversee the advice provided to accounting officers within the Scottish Office, particularly on value for money. 

 

14.  There’s a range of other responsibilities, but those are the two core responsibilities.

 

15.  Mr Campbell QC:  Can you explain to me the term “accounting officer”?

 

16.  Mr Graham:  The accounting officer is the senior official who is in charge of a spending programme, and who — at least in those days — signed the accounts for that programme which were presented to Parliament.  So he is the person who carries overall charge for the programme.  He also has a personal accountability for securing propriety, regularity, and value for money on spending on that programme, and he can be held directly, personally, to account by Parliament for that.  It’s in that capacity that accounting officers appear in front of the Public Accounts Committee in the Westminster Parliament.

 

17.  Mr Campbell QC:  By “programme”, do you mean specific individual projects, or do you mean the responsibility for the dispersement of money within a particular parliamentary vote?

 

18.  Mr Graham:  I mean the dispersement of money within the parliamentary vote, but the accounting officer can be held to account by Parliament for any project which falls within that vote.

 

19.  Mr Campbell QC:  When a civil servant becomes an accounting officer, is there a change to his terms and conditions of employment, in the sense that it imports personal responsibility of the type you have outlined?

 

20.  Mr Graham:  I suppose yes, although we don’t formally get any change to our contract or anything like that. 

 

21.  Mr Campbell QC:  Well, you say “I suppose yes”.  It’s quite a big supposition isn’t it, because first the person is taking on a major responsibility of a personal kind rather than a public kind. 

 

22.  Mr Graham:  It’s your use of the term “terms and conditions” which is slightly throwing me.  When one takes over as an accounting officer, one gets a memorandum from the Permanent Secretary who is the Principal Accounting Officer for the whole of the period we are talking about, the whole of the Scottish Office budget.  One gets a memorandum formally appointing one as an accounting officer and setting out what one’s duties as an accounting officer are.

 

23.  Mr Campbell QC:  Might a lawyer looking at a memorandum of that kind look at it as an addition to the terms and conditions of an individual’s employment?

 

24.  Mr Graham:  A lawyer might, I think, yes, but I am not a lawyer, so I wouldn’t presume to advise.

 

25.  Mr Campbell QC:  Well, I don’t know if this will come to be important or not, but I’d like to try to understand:  If we look in focus — as we are — at the Scottish Parliament building, there would appear to be tiers of accounting officer responsibility.  Sir Russell has explained to us this morning that, as it was something unusual and out of the mould, that he was the accounting officer for the programme to develop the Scottish Parliament building.  Within an ordinary programme of a parliamentary vote, one can see that there might be overall responsibility let’s say for health, but subordinate to that, accounting officer responsibility for the delivery of a particular hospital.  Now, were Parliament so minded, would Parliament go to the top of the tree and ask for an explanation from the senior man or woman in charge of that, or would Parliament go to the person with direct management control for a particular spending programme?

 

26.  Mr Graham:  Parliament, in the form of the Public Accounts Committee, would always want to hear from the accounting officer, from the person who had accounting officer responsibility for the overall programme.  It would not be interested in hearing from the person who had day-to-day responsibility for the project within that programme, because it is the accounting officer who has the personal responsibility for securing regularity, value for money and so on within that programme.

 

27.  I didn’t hear Sir Russell Hillhouse’s evidence, but, from my perspective, it’s not really correct to say that he had accounting officer responsibility for this project because it was a big project. The arrangement of votes in the Scottish Office at that time, I can’t — not carrying in my head how many votes there were, probably something like 10 — but this project fell, for our purposes, on the Scottish Office administration vote and Sir Russell was the accounting officer for that vote, which included, for example, the running costs of the Scottish Office at the time.  So it was because the project was being handled on that vote that he was the accounting officer, rather than because this particular project had any particular significance. 

 

28.  Mr Campbell QC:  So to take my earlier analogy, if we are thinking about health — I’m sorry, this is not a digression, sir, but I may just leave it with one question — if there were an issue about value for money for example, for the delivery of a hospital, and the Public Accounts Committee wanted to hear about that because it appeared that good value for money had not been obtained the PAC would go to the Accounting Officer for that project, not to the Health Department as a whole, or is it vice versa?

 

29.  Mr Graham:  No, it’s vice versa.  They would always ask for the accounting officer for the health project as a whole; indeed, it’s been a source of some grief down the years to those responsible for the health programme that they are sometimes summoned before the Public Accounts Committee to account for decisions taken on a tiny — what, from their perspective, is a tiny sub-programme within the overall health programme. 

 

30.  Mr Campbell QC:  Did you take to do with Sir Russell’s giving up of accounting officer responsibilities when he perceived there to be a potential for a conflict of interest?

 

31.  Mr Graham:  I probably discussed it with Mark Batho at the time, because it was an unusual state of affairs, but I wasn’t directly involved in the exchanges which led to the decision day.  Mark Batho’s division was the division responsible in the first instance for advising Sir Russell on his accounting officer responsibilities, and as I recollect it was Mark who put up the advice to him on what he should do. 

 

32.  Mr Campbell QC:  Yes.  And are we right to understand that the mechanism for, as it were, abrogating that responsibility to another for a period was just done by an exchange of minutes?

 

33.  Mr Graham:  As I recall… yes, I think that’s right, because it was a slightly unusual issue to arise, we did consult the Treasury about what we should do in the circumstances which faced us, and we acted in accordance with their advice, as I recall.

 

34.  Mr Campbell QC:  And the Treasury has people who are, as it were, in inverted commas — “expert” — in personal conflict?

 

35.  Mr Graham:  There was somebody called the Treasury officer of accounts, who was the expert on the duties of accounting officers and how accounting officers should conduct themselves and so on, yes. 

 

36.  Mr Campbell QC:  Now, Mr Graham, how was the Finance Group organised? 

 

37.  Mr Graham:  The finance group was organised into a series of six divisions, with each division taking responsibility for advising one or more Accounting Officers.  The finance one division, as we called it, which Mark Batho headed up, was responsible for advising the Accounting Officer for the Scottish Office administration programme, as I have mentioned, and it also took the lead in preparing advice for Ministers on budgeting across the Scottish block as a whole.

 

38.  Mr Campbell QC:  The whole block?

 

39.  Mr Graham:  Yes, and the other division which is perhaps relevant to this issue is the division which included the Private Finance Unit, which was the specialist unit which we’d established in order to advise the office as a whole on the still relatively new Private Finance Initiative — Public/Private Partnerships.

 

40.  Mr Campbell QC:  Did both finance one division and that other specialist unit operate under your management?

 

41.  Mr Graham:  Yes.

 

42.  Mr Campbell QC:  Does that mean day-to-day management, or does it mean simply a general supervisory management?

 

43.  Mr Graham:  It meant a general supervisory management, given the range of issues which a Principal Finance Officer has to keep an eye on and the range of other things which were going on at the time, yes.

 

44.  Mr Campbell QC:  Yes.  Can you tell us, to put this in context, what was the order of magnitude of the Scottish block at this time, May 1997?

 

45.  Mr Graham:  Around £13 billion, I think. 

 

46.  Mr Campbell QC:  And does that mean that that was money voted by Parliament annually for the use of the Scottish Office as a whole, under what is known as the Barnett formula? 

 

47.  Mr Graham:  Yes. 

 

48.  Mr Campbell QC:  After the election of May 1997, when a White Paper was published, was it part of your work to consider what new arrangements, if any, might be required for the management of money under a devolved Scottish Administration? 

 

49.  Mr Graham:  Yes, it was one of the major preoccupations immediately after the 1997 election, given the Labour Party’s commitment to devolution, one of the major issues, which clearly had to be resolved before that project could be taken forward, was what the financial arrangements for the new devolved Parliament were going to be. 

 

50.  Mr Campbell QC:  And in that capacity were you involved with, or instrumental in, shaping the White Paper as it evolved through many drafts between May and July 1997?

 

51.  Mr Graham:  I was closely involved in the negotiations with the Treasury about what the new shape of the financial arrangement / the financial regime should be, yes, and to the extent that the White Paper eventually set out that we would stick with the Barnett formula.  I was closely involved in the negotiations which led to that conclusion. 

 

52.  Mr Campbell QC:  And with the drafting of the White Paper, or that part of the White Paper? 

 

53.  Mr Graham:  I wasn’t closely involved in the precise framing of the words; as I recall, I left that to Mark Batho and his team. 

 

54.  Mr Campbell QC:  What about negotiations with the Treasury over the potential for a tax-raising power for the new Parliament?

 

55.  Mr Graham:  I was involved in some discussions about that, but again, the lead on that was taken by Mark Batho’s division.

 

56.  Mr Campbell QC:  Did the new arrangements which were expected to flow from the success of the Labour Party at the May 1997 election and the subsequent publication of the White Paper necessitate a reorganisation or a redistribution of budgets within the Scottish block?

 

57.  Mr Graham:  Not in themselves, no.  There was work done during the summer and autumn of 1997 on a limited redistribution of budgets within the block, but that was undertaken in order to reflect the political priorities of the incoming Administration, who wanted to look at the distribution of spending left behind by their predecessors.  They were locked in by the Chancellor’s decision to — sticking with the total — they wanted to look at the options for moving money around within the block. 

 

2.45 pm

 

58.  Mr Campbell QC:  In general, is the distribution of the block grant, year-on-year, something that is left to Scottish Office officials and Ministers?

 

59.  Mr Graham:  Yes, that’s the kind of core principle, if you like, of the block and formula arrangement — that the Treasury does not interfere, or require to be referred to it decisions about allocations inside the block.

 

60.  Mr Campbell QC:  And did you in 1997 begin a spending review then within Scotland — an overall spending review? 

 

61.  Mr Graham:  There were two exercises which happened sort of one after the other.  The Ministers wanted a limited redistribution; they didn’t want a major exercise done at the outset, so we did a fair amount of work during the summer and autumn on a limited redistribution, the results of which were probably announced in October or November.  But we then started almost immediately on the planning of a much larger scale exercise — a so-called comprehensive spending review — which would look in great depth at all the programmes across the block, and the preparations for that started after the New Year in 1998, and the review was still going on at the point when I left the post at the end of May 1998 and was, I think, concluded in September or October of 1998. 

 

62.  Mr Campbell QC:  Now, I’d like to ask you please about the approach of the Finance Group to the provision of the new Parliament?  We’ve seen from other papers that the White Paper envisaged that there would be a home for the new Parliament; we’ve seen that the use of the Old Royal High School was assumed for quite a long time, and then it was stated that it was still there — it had advantages, but it also had disadvantages.  And we have learnt from other evidence that ultimately a number of choices were put to the Secretary of State, including the Old Royal High School, in a greater or lesser manifestation. 

 

63.  What approach, generally, was the Finance Group required to take to proposals for a new Scottish Parliament? 

 

64.  Mr Graham:  Well, if I can go back to what I said were the core responsibilities for Finance Group.  One of the core responsibilities for Finance Group is to advise Accounting Officers and those working for Accounting Officers on value for money questions, and it was in that capacity that we took an interest in the proposals for where the Parliament was going to be.  Our concern was to ensure that value for money was, so far as possible, secured; it was to ensure that options were properly examined and that, insofar as Ministers took decisions which were driven by political considerations rather than straight value-for-money considerations, that was clearly recorded and in extremis, that the accounting officer had actually sought specific instructions if we thought that Ministers wanted to do something which would yield conspicuously poor value for money, because the terms of the Accounting Officer’s appointment require him, if he is placed in a position where he is asked to do something which he can’t defend in value-for-money terms to seek a specific instruction from Ministers to do that.

 

65.  Mr Campbell QC:  Is this what Sir Russell referred to as “the nuclear option of a direction”?

 

66.  Mr Graham:  That sounds right, yes.

 

67.  Mr Campbell QC:  So say something was resorted to only exceptionally?

 

68.  Mr Graham:  Yes.

 

69.  Mr Campbell QC:  Now, did your group take anything to do with the insertion in the White Paper projections for the home for a new Scottish Parliament of a range of possible costs between £10 million and £40 million? 

 

70.  Mr Graham:  We were obviously aware, because we were seeing all the papers, that that was the range of costs that were being talked about.  Our prime interest in the numbers at that stage was more in how a sum of that order would be financed and funded — how we would cope with it within the constrained budget and when it might arise and what we might have to forego if we had to meet that demand.  So it was from the funding perspective that we were interested in the estimates; we didn’t play an active part in the actual framing of the estimates themselves. 

 

71.  Mr Campbell QC:  You didn’t generate those estimates for scrutiny, for example, by Accommodation Officers or the Estates Officers or, indeed, the Ministers?

 

72.  Mr Graham:  No, we didn’t generate the estimates.

 

73.  Mr Campbell QC:  You didn’t generate them?

 

74.  Mr Graham:  No. 

 

75.  Mr Campbell QC:  No.

 

76.  So what you were presented with in the final version of the White Paper was, as it were, something from other sources, which had it materialised, you’d have had to find a way of accommodating?

 

77.  Mr Graham:  That’s right.  Had it been a colossal sum, we might have asked searching questions and pointed out that a colossal sum would have been enormously difficult to accommodate within the budget.  The numbers that were being talked about at the time, although they would represent a significant pressure on the budget, were not the sort of numbers as to cause us huge alarm. 

 

78.  Mr Campbell QC:  So as to understand this from the layman’s point of view or the public’s point of view, what do you mean by an order of magnitude called “a colossal sum”? 

 

79.  Mr Graham:  Well, if it had been in three figures of millions, for instance, at that stage we would have taken a closer interest because in a budget of £13 billion room for manoeuvre arises every year because some programmes don’t spend up to expectations, and therefore accommodating perhaps £20 million a year for two years is not the kind of problem which would cause us great concern.  Had we had to accommodate a much larger figure, we would have been more concerned. 

 

80.  Mr Campbell QC:  As Finance Group, were you concerned to know whether the cost of the home for the Parliament would come from the block, or come from an application to Treasury for new funding? 

 

81.  Mr Graham:  Yes.  Very much so.

 

82.  Mr Campbell QC:  And did you contribute to the discussion about possibilities in either direction?

 

83.  Mr Graham:  Yes.  I put advice to the Secretary of State very early on, on 13 May, raising the question of how we were going to fund the Parliament and setting out discussing the possibility of going to the reserve, in the jargon, in going to the Treasury and asking them to meet this as a one-off, unusual extra expense and concluding that we were unlikely to be successful if we made such an approach.  It’s part of the block and formula arrangements that we were expected to live within the block total which we had, and therefore it was pretty unusual for the Scottish Office to go to the Treasury and seek funding for the reserve unless it was something which, as it were, had fallen on us out of the sky and which we would have had no reasonable reason to expect, but this was a… but this looked like a kind of main commitment.

 

84.  Mr Campbell QC:  As an experienced Finance Officer by that time, would you have had a nose for whether an application to the Treasury for one-off funding might have been likely to be successful or not?

 

85.  Mr Graham:  I would like to think so, and although I don’t recollect, I wouldn’t be surprised if I hadn’t spoken to the head of the team in the Treasury which kept an eye on our programme and sounded them out on whether such an approach was likely to be favourably received.

 

86.  Mr Campbell QC:  Right. 

 

87.  Was it any part of your thinking in providing advice that a one-off project like a new Parliament would have been something that would have been likely to have been subjected to more intense scrutiny perhaps than other more routine projects?

 

88.  Mr Graham:  From the point of view of our responsibilities for value for money, yes, because the Parliament has tended to pay particular attention to the achievement of value for money on relatively high-profile projects, and this was clearly going to be a high-profile project.

 

89.  Mr Campbell QC:  We have heard some evidence about possible differences in approach to providing a new Parliament.  On the one hand, the Secretary of State wishing to move the devolution project forward as rapidly as he could — White Paper referendum, new Scotland Act, General Election, and ultimately the provision of a new Parliament and its building, and on the other hand, some of those components, but ultimately leaving the choice of location and facilities to Members of the new Parliament.  I wonder if you took a view at any time in 1997 or in 1998 before you left the Group as to whether one or other of those alternatives might have been preferable in the circumstances.

 

90.  Mr Graham:  I don’t recall ever offering a view on that at the time.  In general terms, we were certainly concerned to ensure that in the understandable haste to get on with this project that Ministers did not take ill-considered decisions and that options were properly looked at, and one of the two interventions from Finance Group on the file are along those lines.  For example, there’s a minute from Brian Peddie who worked for Mark Batho on 19 May —

 

91.  Mr Campbell QC:  I wonder if I could look at that, if it’s available — SE/5/019, please.

 

92.  You may have a hard copy with you, Mr Graham, but if you take it from me that this is a copy of a minute from that date, 19 May, emanating from Mr Peddie — who was he?

 

93.  Mr Graham:  Brian Peddie worked for Mark Batho and he was, at that time as I recall working directly to me because I think Mark Batho was still away on a course in the United States.

 

94.  Mr Campbell QC:  Mr Brown is the recipient, and you can see who is copied into the minute.

 

95.  Mr Graham:  Yes. 

 

96.  Mr Campbell QC:  Can we just read together paragraph 2?

 

97.  “The PFO…”

 

98.  That’s you, is it?

 

99.  Mr Graham:  Yes.

 

100.          Mr Campbell QC:  “…feels strongly that the submission as drafted would not comprise a significant justification of a decision to opt for the ORHS/ SAH option, should such a decision be subjected to subsequent scrutiny, as it may well be, especially if something subsequently goes wrong.  He is particularly concerned that it would not sufficiently protect the position of the Under-Secretary of State as an Accounting Officer in the event of an examination by the Public Accounts Committee.  The specific cause for concern is that the submission does not contain an economic appraisal of the different options such as would normally be expected for a project of this size and significance.  We say that the ORHS/ SAH option is likely to be cheaper and is the only credible option in terms of timescale, but no hard information on the other options is given to justify this.  I am pretty sure that the assessment of the ORHS/ SAH option as being the cheapest and quickest is right, but in terms of the submission we appear to be making a recommendation on the basis of nothing more than gut feeling.  This is not enough in itself.” 

 

101.          You go on to call for a proper appraisal.  What promoted that memorandum?

 

102.          Mr Graham:  Well, it flows from my responsibilities for ensuring that the Accounting Officer’s properly protected and I suppose my expert knowledge of the sort of sequence of events which the Public Accounts Committee would expect to see in the decision-making for a major investment project.

 

103.          Mr Campbell QC:  Were you in a position, as the Head of the Finance Group, where if you said no, the thing stopped until you were satisfied, or was this only one of a number of, as it were, channels of advice and information going to Ministers, or going to an official in the first place?

 

104.          Mr Graham:  Well, the responsibility of Finance Group on an issue like this is to advise the Accounting Officer, or to advise the person responsible for the project on… within the accounting officer’s command.  We couldn’t stop it in terms — it’s not part of our authority because we had the project as the responsibility of, in this case, Alistair Brown working for Sir Russell Hillhouse, but it’s our job to advise Alistair where we think there is a serious risk of trouble, and that’s what I was doing here.  I was certainly intending that minute to be taken seriously, hence the fairly stark terms in which it’s written.  But it’s not part of the structure that Finance Group can stop things. 

 

105.          Mr Campbell QC:  OK.  Can I go on to paragraph 5, please?

 

106.  “In the PFO’s view what the submission should ideally do is present a proper appraisal of the different options with likely costs and timescale.  However this may not be possible if Ministers’ objectives in terms of time are to be delivered, and the draft already says that a decision on location is needed by the end of this month.  Alternatively, and this is probably the more practical option, the submission should make it clear that the ORHS/ SAH option is being recommended on political and timing grounds, that is to say, the general expectation that the High School will be the site for the Parliament and the need to meet Ministers’ self-imposed timetable for establishment of the Parliament and not for value for money reasons.”

 

107.          Now, I’m just interested in the timing of this, Mr Graham.  This is, what, not even three weeks after the election?  Does this mean that you were sensitive to the risk of plumping for an unassessed choice really quite early on in the life of the new Government?

 

3.00 pm

 

108.          Mr Graham:  Yes, it does.  I think it shows that we were concerned that there should be a proper defensible process at every stage in the decision-making process about the siting of the new Parliament.

 

109.          Mr Campbell QC:  Yes, and you go on to say in paragraph 6 that the submission would need to spell out why alternative sites would not be feasible.

 

110.          Mr Graham: Yes.

 

111.          Mr Campbell QC:  And then in paragraph 7 on the next page you talk about the “least uncertain option”.

 

112.          Mr Graham:  Yes, and in all this one has in one’s eye the picture of the Accounting officer being quizzed several years down the track about why this was done, and the Accounting Officer is always in a more comfortable position if the thought processes — as in the sequence of the decisions and why particular options were not pursued — are there on the record, rather than if he simply asserts to the Public Accounts Committee that, yes, we did look at that but it didn’t seem like a good idea.

 

113.          Mr Campbell QC:  As time went on towards the end of 1997 and into 1998, were you seeing papers that reflected that very strong advice in terms of assessment of the candidate sites, which, I think, at one time, were reduced to three?

 

114.          Mr Graham:  The papers were all being copied to Finance Group, to me personally, yes, and Mark Batho was quite heavily involved in the more detailed exchanges.

 

115.          Mr Campbell QC:  How would you describe your level of comfort with what you saw from either the outside professional advisers or the buildings advisers within the Scottish Office?  How would you describe your level of comfort as to the degree of assessment — the intensity of the assessment which was being carried out?

 

116.          Mr Graham:  I don’t recall being unduly concerned about the level of assessment, which is why there aren’t interventions of the sort that we’ve just been looking at on the file from me or I think from Mark, dating from that period.  I think we were essentially satisfied that proper processes were being gone through, that options were being properly appraised, and that particular considerations were being looked at.  There are, I think, some exchanges on the file on a rather narrow point where we were preoccupied with how the costs of refurbishing St Andrew’s House should be treated in the comparison of options because some of the options involved St Andrew’s House and some of them didn’t, and we were concerned that the various options were appraised on the basis of true parity of treatment.  But that was, as I say, a fairly narrow concern.

 

117.          Mr Campbell QC:  I think, as a footnote to history, there had been an authorisation for quite a substantial refurbishment of St Andrew’s House, authorised by the previous Government.  You may correct me if I’m wrong, but that was either under way, or about to be under way by the time of the election.  Is that not right?

 

118.          Mr Graham:  That’s right.  As I recall, our interest was in if St Andrew’s House wasn’t going to be part of the Parliament scheme, how did you treat that in comparing the various options which were on the table at the end of the calendar year?

 

119.          Mr Campbell QC:  Was it envisaged that that might mean that, in effect, there would be two refurbishments of St Andrew’s House; one, as it were, designed for civil servants, and then a second subsequent one if Calton Hill was chosen, designed to accommodate the Parliament and the Members?

 

120.          Mr Graham:  No, I think, as I recall, our concern was that at one stage, built-in to the appraisal of the costs of the options not involving St Andrew’s House was the bill for refurbishing St Andrew’s House on the basis that, if it wasn’t going to be part of the Parliament project, the Scottish Office was going to have to refurbish it and foot the bill.  We were arguing that we shouldn’t just assume that there was the option, if it wasn’t going to be part of the Parliament project, of not refurbishing it and moving out of it.  And we thought that that option needed to be put properly in front of Ministers before and we shouldn’t simply assume that it should remain on the Scottish Office estate.

 

121.          Mr Campbell QC:  It might have come off the estate altogether if —

 

122.          Mr Graham:  Well, we thought that that option should be looked at and Ministers should take a conscious decision on whether they thought that was a good idea.  My recollection is that the issue was eventually put to the Secretary of State, and the Secretary of State decided that he wanted to keep it on the estate.

 

123.          Mr Campbell QC:  So was it looked at in a serious way?

 

124.          Mr Graham:  It wasn’t looked at in great depth.  I think a broad estimate may have been obtained for what we might have received for it, but it was all very speculative, given the scale of the repairs which the building needed.

 

125.          Mr Campbell QC:  Right. 

 

126.          Could I look with you please at SE/5/005?  Thank you.  You will see this is a minute from yourself to Mr Brown, copied as we see there, and you say, in paragraph 2:

 

127.  “I think that the minute overcomplicates the issue concerning St Andrew’s House.  As you explained at a recent MG discussion…”

 

128.          What is MG?

 

129.          Mr Graham:  MG is the Management Group; it’s the top management team of the Scottish Office — the Heads of Department, and me, which met on a regular basis under the chairmanship of the Permanent Secretary.

 

130.          Mr Campbell QC:  OK.

 

131.  “As you explained at a recent MG discussion, refurbishing St Andrew’s House and retaining it as part of our estate might well be a sensible option for the Executive, setting aside any sentimental or presentational arguments, if the Parliament does not go to the Calton Hill.”

 

132.          And then you set out the question for Ministers at that stage, namely:

 

133.  “… whether the presentational and sentimental arguments for keeping St Andrew’s House are so strong that, if the Parliament does not go to the Calton Hill, St Andrew’s House must remain as part of the estate.  We would have to try to establish quickly how far, if at all, the costs of keeping St Andrew’s House exceeded the costs of other acceptable options for providing equivalent accommodation elsewhere in the city, and build these extra costs into the figuring for all the non-Calton Hill options for the Parliament site.”

 

134.          I just need to understand this a little more, if you don’t mind.  Does this mean that it was in your mind that if a non-Calton Hill site was chosen, that there would be a substantial decanting of staff from St Andrew’s House to the proximity of the new Parliament building?

 

135.          Mr Graham:  No, this minute is about the issue which I was attempting to describe a moment ago.  This minute is about whether, if a non-Calton Hill option is chosen, whether the Scottish Office keeps St Andrew’s House on its estate, and we had detected a tendency on the part of those — Alistair Brown and his colleagues — just to assume that that would happen because, you know, it’s part of our history et cetera.  And, from the finance perspective, we are arguing here that that needs to be tested out against other options or that Ministers need to make a conscious decision that because it has its strong historical associations and is widely perceived as being the headquarters building of the Scottish Office, that it should be kept on the estate.  We’re simply asking for that to be tested out, rather than assumed.

 

136.          Mr Campbell QC:  This is, in effect, a Finance Group coming up with a hypothetical scenario which would arise, perhaps, if a non-Calton Hill site were chosen.

 

137.          Mr Graham:  That’s right, yes.

 

138.          Mr Campbell QC:  OK. 

 

139.          Could I look at SE/5/009 please?

 

140.          This is again from yourself, Mr Graham, although your name doesn’t appear on the top, but it is certainly at the bottom.  It’s dated 31 December 1997.  You may have a hard copy there.

 

141.  “As you know, Mr Batho and I discussed with Dr Gibbons and others on 29 December the pros and cons of procuring the Scottish Parliament building through the PFI.  We agreed that finance would have a first shot at a draft submission, bringing together the arguments which emerged in that discussion.”

 

142.          Now, we heard earlier today that a decision was taken not to — how shall I put it? — go down the PFI route, but to opt for what was known as conventional procurement.  Were you alive to that decision being taken?

 

143.          Mr Graham: Yes.

 

144.          Mr Campbell QC:  Were you part of the discussion?

 

145.          Mr Graham:  This is my main intervention in the exchanges about PFI.  It may help if I run briefly through the history.  The possibility of using the PFI is mentioned, I think, right at the beginning in the notes for incoming Ministers.  It’s mentioned in various exchanges.  In June, there’s a minute, I think, of a meeting where the Secretary of State specifically asks for advice on it.  I think the concern at that stage was whether it should be mentioned as an option in the White Paper; whether, in principle, it was a suitable — or possible — route to go down.  And the conclusion that was reached at that stage was that, well, it was a possible route, and it therefore was mentioned in the context of the White Paper, but it didn’t at that stage look particularly attractive. 

 

146.          But, later on in the year, once the shape of the project began to become clearer, we took the view in Finance Group that it needed to be properly looked at again in the context of what we, by then, knew about conventional procurement and, in particular, what we then knew about the possible costs of conventional procurement.  And that… hence the discussion to which the beginning of this minute refers, at which it was agreed that the issue should be set out for Ministers, so that they could take a formal decision about PFI, which they had not, up to that stage taken.

 

147.          Mr Campbell QC:  This is 31 December 1997.

 

148.          Mr Graham: Yes.

 

149.          Mr Campbell QC:  So no decision by that time?

 

150.          Mr Graham: No.

 

151.          Mr Campbell QC:  As between PFI and conventional procurement.

 

152.          Mr Graham: No.

 

153.          Mr Campbell QC:  But you say, flagged up as early as the brief to incoming Ministers as one of a range of possibilities.

 

154.          Mr Graham: Yes.  Yes.

 

155.          Mr Campbell QC:  Perhaps you could look please at SE/5/026.  This is an e-mail, or rather a copy of an e-mail.

 

156.  “I have added one or two comments to the draft PFI submission circulated by PFO earlier today, attached.”

 

157.          And Mr Brown talks about the timing of that.  He says:

 

158.  “My own view on the submission’s estimated timetable for a PFI approach is that it is pretty optimistic.  I wonder if it might be better stated as a range, to reflect the very large uncertainties relating to the design and services issues.  I concede there are a number of unknowns associated with a conventional procurement which would make it difficult to be very confident of the completion date through that route either.  But these uncertainties, changes in design for example, are rather more in Ministers’ hands to control.”

 

159.          Now, that’s an e-mail.  SE/5/010 is a draft paper from Mr Gordon to Mr McLeish, the Secretary of State’s Private Secretary and including yourself, and begins:

 

160.  “This minute reviews the case for procuring the construction and servicing through the PFI, and invites Ministers to discover whether it’s possible that they should be pursued further.”

 

161.          It may be my filing system, but I don’t think so.  Have you got a recollection of seeing this minute on 31 December 1997?  Because the document itself is not dated.

 

162.          Mr Graham:  I am not, at the moment, sure which of the various drafts this is.  The sequence, as I recollect it, is that I prepared the draft to which you’ve already referred, which I circulated under cover of my minute of 31 December.  There are then comments on that from Alistair Brown, which you’ve just mentioned.  There is then a revised draft, which Robert Gordon put round on 6 January.  There are comments in my absence from Mark Batho on that draft, also dated 6 January, and then there is the final version, which Robert Gordon put forward, also on 6 January.

 

163.          Mr Campbell QC:  Is SE/5/027 dated 6 January that final version?

 

3.15 pm

 

164.          Mr Graham:  Yes.

 

165.          Mr Campbell QC:  And can we see that it begins with the same language as the draft that I showed you just now?

 

166.          Mr Graham:  Yes.

 

167.          Mr Campbell QC:  I’m just taking you rather boringly through this just to show the evolution of the process.

 

168.          Mr Graham:  Yes.

 

169.          Mr Campbell QC:  But have I understood correctly that the document that we just saw was a draft of a submission going up to Ministers?

 

170.          Mr Graham:  Yes.

 

171.          Mr Campbell QC:  And that what we now see is the version that went to Ministers?

 

172.          Mr Graham:  That’s right. Yes.

 

173.          Mr Campbell QC:  So Mr Gordon says:

 

174.  “This minute reviews the case for procuring the construction and servicing of the Scottish Parliament through the PFI and invites Ministers to decide whether this possibility should be pursued further.”

 

175.          Now, you’ll be relieved to hear I’m not going to take you through all of this detailed text.  Could I take you to SE/5/032 please, which is its last page, where at paragraph 20 Mr Gordon is saying:

 

176.  “As the Accounting Officer, I have to be satisfied that I or my successors can defend our procurement process to the Public Accounts Committee, (or in the face of equivalent scrutiny, by the Scottish Parliament).  If Ministers decide against exploring the PFI route, the defence would have to be that it seemed unlikely to offer materially better value for money by comparison with conventional procurement or that there were clear policy reasons for opting for conventional procurement or that in the absence of either of these, Ministers nevertheless wish to proceed by conventional procurement, I would have to consider asking for a specific direction.  I do not think we have any conclusive evidence either way at present on whether the PFI approach is likely to offer better value than conventional procurement.”

 

177.          and so on.

 

178.          Mr Graham, this is 6 January 1998, which is just a day or two before the announcement of Holyrood.  Does this mean that the announcement was made without Ministers having taken a decision about whether to go for PFI or conventional procurement, as you recall it?

 

179.          Mr Graham:  As I recall, the answer to that is yes. Because I think that Ministers met and took the decision to go ahead with Holyrood before they met and agreed not to pursue the PFI option.

 

180.          Mr Campbell QC:  Sorry, could I trouble you for that answer again?  You said, “I think the answer was yes”.

 

181.          Mr Graham: Yes.  My recollection is that the meeting at which Ministers met on 6 January to discuss site selection, and that it was at that meeting that they took the decision to go ahead with Holyrood.  Their response to the piece of advice from Robert Gordon, which you’ve just displayed, was discussed at a meeting on Wednesday 14 January and recorded in the PS to the Secretary of State’s minute of 23 January.  So yes, they did decide to go to Holyrood before they ruled out the PFI.  I don’t think these decisions were mutually incompatible.

 

182.          Mr Campbell QC:  No, I’m not saying they are; I’m just simply seeking to illicit facts.

 

183.          Mr Graham: Yes.

 

184.          Mr Campbell QC:  So a couple of days after this minute balancing these options was presented, a decision was taken, without any decision being taken on the procurement route.

 

185.          Mr Graham:  Well, indeed, I think it was the same day.  The key ministerial meeting about site selection was on 6 January, which was the day that Robert Gordon’s advice about PFI went forward.

 

186.          Mr Campbell QC:  Thank you. 

 

187.          Let’s widen the scope of this examination a little further, Mr Graham, if we may.  To what extent has the PFO [Principal Finance Officer], looking at the quality of assessment which had been done thus far, able to draw on other UK Government experience for the procurement of large-scale public buildings?

 

188.          Mr Graham:  Finance Group did not regard itself as the source of expert advice in the Scottish Office on the procurement of buildings.  The expertise on that subject and all the guidance which was around in the Executive… in the Scottish Office on that subject came from the building directorate, rather than from Finance Group, so we wouldn’t have regarded ourselves as experts.  The particular project which was undoubtedly in our minds in Finance Group in this connection was the Westminster Parliament’s new offices for MPs on Bridge Street in Westminster.

 

189.          Mr Campbell QC:  Is that Portcullis House?

 

190.          Mr Graham:  I think it’s now called Portcullis House, yes, which, although we didn’t know a great deal about it at the time, we’d studied the press reports, and there had been a lot of controversy about it — about the costs, about in some cases the lavishness of the provision for MPs, and the building was completed a long time after the original date set for its construction, and, I think, well over budget.  So we knew about that and we were obviously keen to do what we could to avoid a repetition.

 

191.          Mr Campbell QC:  Yes.  How was it procured?

 

192.          Mr Graham:  I think it was a conventional procurement.

 

193.          Mr Campbell QC:  Yes.  Is there necessarily anything about procuring a project or a building for political purposes which makes it liable to more change than might be the case, say, for an office building or a garage, or whatever?

 

194.          Mr Graham:  I think there can be.  I think there can be pressures to make it architecturally ambitious.  There can be pressures to provide a particular standard of accommodation for Members of Parliament — Members of the Scottish Parliament — and there is a lot of public interest in the standard to which the building is prepared.

 

195.          Mr Campbell QC:  Would it be fair to say that your role in Finance Group was, apart from finding the money when it was decided how much was needed, was very much a protective role, in the sense of protection of Ministers from making uninformed decisions, protecting of Accounting Officers from moving forward without having the necessary safeguards in place?  Is that fair?

 

196.          Mr Graham:  Yes, that’s a good description, if I may say so, yes.

 

197.          Mr Campbell QC:  Thank you.

 

198.          Now, I’d like to just be clear please about the division of responsibilities between yourself and Mr Batho.  You’ve explained your own position at that time; Mr Batho was I think head of a division.  Can you just explain to us how day-to-day those responsibilities interacted?

 

199.          Mr Graham:  Well, I was Mr Batho’s boss; that’s the simple way to define the relationship.  He had a particular set of responsibilities for advising the various divisions under Sir Russell’s command and various divisions’ spending money on the Scottish Office administration and vote and his division did the detailed work on budgeting right across the Scottish Office.  So, we would discuss things informally on a pretty regular basis.  His office was very close to mine, and there was a lot of informal contact, but I think a fairly clear understanding of the sort of issues on which he would consult me and the sort of issues which I would leave him to get on with.  We also covered for one another to a considerable extent during that period because there was a great deal going on, and it was quite often the case that one or other of us was in London at meetings with the Treasury or something like that when something needed to be done.

 

200.          Mr Campbell QC:  And remind me again when you ceased to be the Principal Finance Officer.

 

201.          Mr Graham:  The end of May 1998.

 

202.          Mr Campbell QC:  And did you cease to have — with a capital F — financial responsibilities across the Scottish Office at that time?

 

203.          Mr Graham:  That’s right, yes.

 

204.          Mr Campbell QC:  You went to do another job altogether?

 

205.          Mr Graham: Yes.  I became an Accounting Officer myself.

 

206.          Mr Campbell QC:  No doubt… I was going to say, no doubt, you became an accounting officer yourself for something else.

 

207.          There is just one matter, if I may have one second.

 

208.          Can we look at SE/2/1310 please? You referred a minute or two ago to a minute of 6 January in relation to decision taking about Holyrood.  Tell me if that is the minute that you’re referring to.

 

209.          Mr Graham:  No, I think that the minute that I was referring to is a minute from Ken Thomson, PS to the Secretary of State.  The minute’s dated 23 January, and it’s addressed to Robert Gordon and it’s headed ‘Scottish Parliament Building: Site Selection’ and it’s the note of the meeting at which the decision to go ahead with Holyrood was taken.  It’s the minute which goes through at some length — three and a half pages — the discussion which led to the decision on Holyrood.

 

210.          Mr Campbell QC:  Remind me of the date again please.

 

211.          Mr Graham:  It’s 23 January 1998.

 

212.          Mr Campbell QC:  Thank you.

 

213.          Have you got it there?

 

214.          Mr Graham: Yes.

 

215.          Mr Campbell QC:  You have a copy. SE/1/239.

 

216.  “This records a meeting of the Secretary of State and Mr McLeish, and senior officials, in Glasgow to discuss the issues raised in minutes from Mr Brown, Mr Grice, Dr Gibbons, and you…”

 

217.          that’s Mr Gordon —

 

218.  “…all of 6 January.  The purpose of the meeting was to allow the Secretary of State to consider further advice on issues relating to the selection of the site itself.”

 

219.          So this is, essentially, a minute compiled very much after the event; two weeks or so after the event. Is that right?

 

220.          Mr Graham:  Yes.

 

221.          Mr Campbell QC:  Is that quite commonplace?

 

222.          Mr Graham:  No, but I think that reflects the particular pressures that there must have been on the Secretary of State’s office at the time.

 

3.30pm

 

223.          Mr Campbell QC:  He notes, doesn’t he, at paragraph 5, in relation to availability that

 

224.  “The later availability of a Parliament building on the Holyrood site was clearly a disadvantage.”?

 

225.          Can you see that?

 

226.          Mr Graham:  Yes.

 

227.          Mr Campbell QC:  He notes, at paragraph 6, that

 

228.  “Mr Grice said that officials’ investigations into the possibilities for temporary accommodation were on track for an announcement before Easter, as earlier indicated by Ministers.”

 

229.          Do you see that?

 

230.          Mr Graham:  Yes.

 

231.          Mr Campbell QC:  Perhaps, Mr Graham, it’s not particularly helpful to take you through this decision-making minute, except to ask you for your confirmation that you were there at this meeting.

 

232.          Mr Graham:  No, I wasn’t there.

 

233.          Mr Campbell QC:  You were not present?  Are you sure?

 

234.          Mr Graham:  No.  I’m not listed among those present.

 

235.          Mr Campbell QC:  So this was just copied for information, was it, to you?

 

236.          Mr Graham:  Yes.

 

237.          Mr Campbell QC:  Going back to the minute of 6 January. Can I ask you please just a question about the state of your general knowledge.  Were you acquainted, as at 6 January, with the range of costs associated with each of the prospective sites?

 

238.          Mr Graham:  I imagine so, yes.

 

239.          Mr Campbell QC:  How would you have come to be acquainted?

 

240.          Mr Graham:  Because I think the range of costs had appeared in previous pieces of advice from Alistair Brown to which I had been copied.  There’s a minute from Alistair Brown, dated 12 December, Scottish Parliament Building site collection, design feasibility and cost studies, which has a series of annexes going through the cost of various options, and that minute was copied to me.

 

241.          Mr Campbell QC:  Sir, I think with your permission it’s not appropriate to take anything further in relation to this minute from this witness, and accordingly I don’t have any more questions for Mr Graham just at the moment.  Thank you so much.

 

242.          Lord Fraser:  Thank you Mr Graham.  Just one question, I’m sure you are familiar with the Auditor General’s report?

 

243.          Mr Graham:  I wouldn’t claim close familiarity with the Auditor General’s report.

 

244.          Lord Fraser:  It might not be appropriate to ask you this question.  When you were an Accounting Officer in January of 1998, what figure was being used for the cost of the Scottish Parliament at Holyrood?

 

245.          Mr Graham:  I’m not carrying that in my head, to be honest.  I think in the order of £50 million, but the various costs which were around are set out. The cost of various options are set out in that minute from Alistair Brown of 12 December, to which I referred.

 

246.          Lord Fraser:  Yes, yes.  Thank you very much.  We’ll take an informal break while you change places.

 

The hearing was adjourned at 3.32 pm

The hearing resumed at 3.33 pm

 

247.          Mr Campbell QC:  The next witness is Mr Mark Batho.  Good afternoon, Mr Batho.  Thank you for coming.  Can you confirm that you are Mark Batho, that you have been employed by the Scottish Office and the Scottish Executive since 1979.

 

248.          Mr Batho:  Yes.

 

249.          Mr Campbell QC:  In November 1996 you were appointed Assistant Director of Finance and you remained in that post until June 2000.

 

250.          Mr Batho:  That’s right.

 

251.          Mr Campbell QC:  What do you do now, please?

 

252.          Mr Batho:  I head up the Lifelong Learning Group within our Enterprise, Transport and Lifelong Learning Department.  Can I just say one thing before I go further?  I have given you a statement and this morning when I was going through it, we noticed two typing errors in dates of documents to which I refer that might confuse, unless I just read them into the record.

 

253.          Mr Campbell QC:  That’s helpful.  Tell me where they are, please.

 

254.          Mr Batho:  In paragraph 3.3, and I refer to two minutes dated 25 May and 11 June.  They should read 20 May and 12 June.

 

255.          Mr Campbell QC:  Right, thank you.  Now, I missed your current posting within the Civil Service.  You said you are head of a department within the Enterprise —

 

256.          Mr Batho:  Of a group within the Enterprise, Transport and Lifelong Learning Department.

 

257.          Mr Campbell QC: And what is that group?

 

258.          Mr Batho:  It’s called Lifelong Learning Group, dealing with further and higher education and training.

 

259.          Mr Campbell QC:  So are you an Accounting Officer in the sense that Mr Graham has described?

 

260.          Mr Batho:  No, I’m not.

 

261.          Mr Campbell QC:  You’re not.  Are you content with, having heard it, with his description of the functions and responsibilities of an Accounting Officer?

 

262.          Mr Batho:  Yes

 

263.          Mr Campbell QC:  Please describe, if you will, the extent of your own responsibilities as Assistant Director of Finance at the time of the General Election in May 1997.

 

264.          Mr Batho:  I had responsibility for three teams within my division, one of which was responsible for the overall management of the Scottish block.  It also had responsibility after the election for the tax-varying power, developing the policy on that, a second team dealing with finance administration, that dealt with the running costs of the Scottish Office, including the capital costs but mainly staff costs, and I had a third team looking at the finance aspects of justice policy that wasn’t involved at all in this aspect of the work.

 

265.          Mr Campbell QC:  Do you agree with Mr Graham that, so far as figures came forward as an estimate for the provision of a new home for the Parliament, that those figures were provided by others outwith the Finance Group?

 

266.          Mr Batho:  Yes.

 

267.          Mr Campbell QC:  Is that as it should be?

 

268.          Mr Batho:  We didn’t have expertise to provide those figures.

 

269.          Mr Campbell QC:  OK.  Can I take it that you saw all the cautionary memos, cautionary minutes which went either from — obviously, you saw the ones you wrote yourself — but the ones that Mr Graham wrote in relation to the need for Ministers to be satisfied about value for money?

 

270.          Mr Batho:  Yes.  I’ve recorded that I wasn’t actually around for the first part of May, so I won’t have seen that exchange fresh, though I will have seen it on file when I returned to my job and I made contributions to subsequent advice that came forward, mainly from Mr Brown.  The normal practice is for draft minutes to be circulated around for comment, and I was regularly commenting on those and those comments were being taken into account in the final version that went forward to Ministers.

 

271.          Mr Campbell QC:  Thank you.  I can now fast forward, so that I don’t keep you any longer than I have to, to a time in — shall we say — early October, 1997.  It appears from the evidence we have seen so far that Ministers were being presented with three possible choices for a home for the new Parliament, and they were, in no particular order, Leith — either as a new build or as a discrete Chamber, St Andrew’s House/the Old Royal High School, and a project at Haymarket.  Can I ask you, were you acquainted with the extent of work-up which had been done on those three possible sites at the time that they were being presented and shown to Ministers in October 1997?

 

272.          Mr Batho:  I’d be closely involved with the development of options throughout.  I would just say that I think that the options available in October that were being considered weren’t quite the options that were being considered, say, in early June.  One of the things that had happened was that the Secretary of State had announced that he was going to pursue more than one option just before the publication of the White Paper and that generated a number of other options.  I think Haymarket, in fact, emerged from that, and so one doesn’t get a regular line right through from June to October; there was some change in the options throughout that.

 

273.          Mr Campbell QC:  I think what I sought to do in the question was to take you forward to October and to consider the position at that date.  My question was: were you satisfied about the rigour of the assessments which had been done at that date and which were being shown to Ministers?

 

274.          Mr Batho:  Yes, we were satisfied on the basis that there was a growing element of external consideration of those estimates.  I think the October cost estimate —

 

275.          Mr Campbell QC:  Could I just ask you to pause?  What do you mean by external consideration?

 

276.          Mr Batho:  That they were employing outside cost consultants, outside quantity surveyors, in addition to our own professional staff within the Scottish Office.

 

277.          Mr Campbell QC:  Do you have the knowledge or experience to know when a decision to employ outside advice might be triggered by people — again, in inverted commas — “Executive departments charged with delivering a project?”

 

278.          Mr Batho:  I wouldn’t have the expertise to say the point of trigger.  I can say that I was satisfied that this was a project of sufficient scale that it looked to me appropriate that there should be that external consideration.  So I’m not giving you an answer to, say, it’s £10 million or £20 million.  I don’t think I could make a judgement on that.

 

279.          Mr Campbell QC:  I forget the precise formulation of my question, but I would be quite interested to explore with you what are the sort of criteria which officers might apply in deciding to go outside for assistance.  Is it the size of the cost of what’s involved or the complexity, or a combination of the two, or the political significance?

 

280.          Mr Batho:  All three of those actually, I think, would rank as being important reasons for going outside; but, above all, it’s value for money, so the total cost of the project will weigh heavily with the Finance Group.

 

281.          Mr Campbell QC:  So this brings us back, does it, in some senses, to Accounting Officer responsibility within a group, within a division, or a branch or a department, in deciding to go outside for help?  Obviously, there is a financial cost, to bring in quantity surveyors or whatever it is.  Somebody has to take that decision.  So what is it that, is there any identifiable feature which tells an officer “Get help, because you’re coming to be out of your depth.  Get help to cover your back?”

 

282.          Mr Batho:  I don’t think I could actually categorise an identifiable trigger.

 

283.          Mr Campbell QC:  No.  OK.  I took you off the line of thought there, I think, for a moment.  The question was:  are you satisfied with the level of scrutiny that was available to you at the time the three candidate sites were being shown to Ministers?

 

284.          Mr Batho:  Yes.

 

285.          Mr Campbell QC:  You gave me a general affirmative answer to that, I think.

 

286.          Mr Batho:  The answer is in October, yes, we were satisfied, and more satisfied when there was further scrutiny that followed on from the consideration in October.

 

287.          Mr Campbell QC:  Thank you.  Now we know from other evidence that Holyrood was first suggested to officials in early October — 3 October, I think — and we know, with apologies for yesterday’s question, that it was first suggested to Ministers in a minute of 3 December:  not, as I incorrectly said, 12 December.  How involved would you be in examining the degree of the extent of the assessment of Holyrood in the period from the beginning of December or earlier through to the decision date?

 

288.          Mr Batho:  I was quite closely involved with it.

 

289.          Mr Campbell QC:  Can you tell us something about that?

 

290.          Mr Batho:  As various minutes came forward from, essentially, Alistair Brown to Ministers, advising them of progress on the development of different options, these will have been copied to us in draft and we will have offered any comments, if we had any comments, before they went forward finally.  And in fact either the PFO’s [Principal Finance Officer] name or mine, or both, will appear on copy lists of all these. 

 

291.          In relation to the Holyrood one, you mentioned 3 December.  That was the first intimation that we had of that particular project.  It, I think, appeared as a reference to a fourth site at that point, and that was the first intimation that we had formally, and I’ve been trying to recollect whether I had anything informally before then, but I can’t recollect that I did.

 

292.          Mr Campbell QC:  Could you please look at page SE/2/809?  If you take it from me that I can show you the front page. 

 

293.          Mr Batho:  Right.

 

294.          Mr Campbell QC:  This is a memo, dated 3 December 1997.  Interestingly, it says on the front page “No further copies to be made”.  Why would an annotation of that kind appear?

 

295.          Mr Batho:  I imagine — though you’d have to ask Alistair Brown this — that it will be to do with commercial confidentiality.

 

3.45 pm

 

296.          Mr Campbell QC:  Right.  I can see the purpose of the minute:

 

297.  “to flag up in advance of the presentations later this month some issues bearing on the selection of a preferred location for the Parliament Building, to alert Ministers to the further steps necessary”

 

298.          and so on.  Progress is noted at paragraph 4 of SE/2/810, please.  Paragraph 5 is traffic and environmental assessment, and I think the passage to which you referred is at the beginning of paragraph 6.  Is that right?

 

299.          Mr Batho:  Yes.

 

300.          Mr Campbell QC: 

 

301.  “In addition we are continuing to assess the suitability of the fourth site, of which Ministers are aware.” 

 

302.          Do you know why Mr Brown is apparently coy about naming it here?

 

303.          Mr Batho Again, it’s pure speculation on my part that this will be commercial confidentiality.

 

304.          Mr Campbell QC:  Right.  He says:

 

305.  “Although there are some difficulties with the site, it is bounded in on three sides by public roads and there are concerns about how feasible it will be to establish the 25-metre exclusion zone around the site required by security.  It should be possible to overcome these; for example, by buying out the owners of three houses on the site.  Some sketch plans are available demonstrating how a building of the required size could be fitted on the site, and we are pursuing the outstanding issues with a view to reporting further to Ministers.”

 

306.          Mr Batho, does it appear that virtually no work-up had been done by this date?

 

307.          Mr Batho:  All I have is this bit of paper in front of me.  I can’t comment exactly on that.

 

308.          Mr Campbell QC:  You can’t.  OK.  From 3 December to 8 January is not very long. Did you see any work-ups on the Holyrood site, as we now know that to be, between those dates?

 

309.          Mr Batho:  I think the file record records, though my memory doesn’t, that I actually attended the presentations on the design feasibility studies on all four of the sites, including Holyrood.  I was certainly copied in, or saw copies of the minutes from Alistair Brown of, I think, 12 December that predated that, that gave Ministers the background to that presentation.

 

310.          Mr Campbell QC:  And do you remember if that presentation was before or after Christmas?

 

311.          Mr Batho:  It was 15 December.

 

312.          Mr Campbell QC:  And was it accompanied by a minute as well?

 

313.          Mr Batho:  I think Alistair Brown’s minute of 12 December is the briefing note for Ministers for that presentation.  There may be others that weren’t copied to Finance, which I won’t have seen.

 

314.          Mr Campbell QC:  You think 12 December, do you?

 

315.          Mr Batho:  Yes.  It was referred to earlier on as offering the costs of the different options.

 

316.          Mr Campbell QC:  Yes, all right.  Well, I’m not going to trouble to take you through something that is Mr Brown’s material.

 

317.          We’ve seen in your own memoranda and minutes and Mr Graham’s too, the emphasis that was placed on the need for value for money and the need for — how shall I put it? — financial transparency in assessing a range of options.  How comfortable were you in the time of the presentation of the feasibility studies that Holyrood was being presented on the same grade of playing field — if not exactly a level playing field — as the other three options?

 

318.          Mr Batho:  As I cast my mind back, I can’t remember feeling any concern that it was actually having less scrutiny than the others.  My recollection is that the presentations were very much of a piece for the four different options, and indeed two of them — including Holyrood — had been done by the same firm.

 

319.          Mr Campbell QC:  Yes. 

 

320.          Mr Batho:  And it’s a tight timetable, I acknowledge, though in fact it’s worth remembering that Haymarket also came in late as a candidate for design feasibility, about a month after Calton Hill and Leith.

 

321.          Mr Campbell QC:  Yes.

 

322.          Mr Batho:  So one had a spread of timescales for these things.

 

323.          Mr Campbell QC:  But we must know, mustn’t we, that in the case of Holyrood that timescale was very short indeed?

 

324.          Mr Batho:  It was, yes.

 

325.          Mr Campbell QC:  But I am concerned only to find out from you if you had any particular concern of your own as a Finance Officer about the quality of material being presented to Ministers, in terms of value for money.

 

326.          Mr Batho:  No, we didn’t.  I didn’t.

 

327.          Mr Campbell QC:  Thank you.  Could you look, please, at SE/2/153.  Thank you.  Just bear with me a moment.  Were you and the Finance Group concerned about possible conflict between achieving value for money for the taxpayer and Ministers’ apparent desire for speed?

 

328.          Mr Batho:  Yes, we expressed concerns that there was a potential tension between these two objectives right from the start.

 

329.          Mr Campbell QC:  The start being the time of the election or shortly thereafter?

 

330.          Mr Batho:  Yes.

 

331.          Mr Campbell QC:  Why did you see that as a possible source of tension?

 

332.          Mr Batho:  Particularly because, in our view, an assessment of value for money required a proper economic appraisal of different options.  That would take time and would actually delay the project.  That would therefore mean that the building had to be delivered later.  In the very early days of the discussion of the White Paper I recall that actually meant that one would either be in the situation of providing accommodation for the Parliament when it first sat or of providing temporary accommodation.  So that was a concern for Ministers, initially.  As they moved on from the concept of moving very quickly to the idea of doing option appraisal, so the question of the length of the time that the Parliament would sit in temporary accommodation became the issue and therefore was slightly less sharp.  But I recall, I think it’s Alistair Brown’s minute of 12 June, which contains some quite specific finance paragraphs precisely on this issue, which were in fact drafted by myself and included by Alistair Brown in that minute.

 

333.          Mr Campbell QC:  I’ll come to those in a minute, if I may.  I’d like to ask you about two parts of that answer.  What are we to understand you to mean by economic appraisal?  I think it’s a phrase we might all use in various contexts, but I can make an economic appraisal of a second-hand car, which would be quite different from an economic appraisal of a new building.  What did you understand it to be?

 

334.          Mr Batho:  It’s a process whereby one can derive reasonable estimates of cost, so that this will be looking at employing different experts to offer advice on construction costs, design costs and whatever, so that there has been some due process — not just sticking a finger in the air, if you like — to arrive at those costs.

 

335.          Mr Campbell QC:  Do you have the means and the skills and the competence and the expertise in Finance Group to assess that sort of appraisal by others?

 

336.          Mr Batho:  Not really, no.  I think one relies to an extent upon the advice of other professionals within the Scottish Executive as to whether, for example, an appraisal done by an outside body has been conducted to appropriate standard.

 

337.          Mr Campbell QC:  And in the case of the candidate sites for the Scottish Parliament, was the work of outside professionals, as it were, back-checked within St Andrew’s House within the Scottish Office?

 

338.          Mr Batho:  I understand that it was, yes.

 

339.          Mr Campbell QC:  But not at your instigation?

 

340.          Mr Batho:  Not ours; it was part of the job, if you like, of the professionals within Building Directorate to be doing that, because they were the clients who were actually employing these professionals.

 

341.          Mr Campbell QC:  If you’ll forgive what will sound like an impertinent question, but it isn’t meant to be.  Is it more important in Finance Group to see that the process is taken through or to see that the contents of the process are robust, rigorous and intellectually sound?

 

342.          Mr Batho:  It’s important to see that the process has been taken through, but having the reassurance that the delivery of that process has been conducted effectively by employing those who have expertise to judge that by seeking the advice of those who have expertise to judge that.  I’m saying that we don’t have the expertise within Finance Group to make a judgement on whether a cost consultant, for example, has done a good job or not.  But we do know that we can ask people and seek reassurance that these are people who have done a good job.

 

343.          Mr Campbell QC:  Would part of the evaluation of this process depend on the reputation of the people employed?

 

344.          Mr Batho:  By external consultants?

 

345.          Mr Campbell QC:  Sorry, I didn’t mean internally, of course.

 

346.          Mr Batho:  Yes.  I imagine that that will play a part, yes.  I’m not sufficiently close to the whole process of employing these people to make that judgement, but I imagine that reputation must count.

 

347.          Mr Campbell QC:  And finally, in this chapter where in this spectrum of importance, as between due process and the rigour of what is produced, does the actual due process itself come?  Is it very important or just medium important or really not significant?

 

348.          Mr Batho:  Really, we are interested in results.  To have due process and to have an end-product of something that one doesn’t believe in terms of, say, a cost estimate would be completely useless.  But to have a process that is delivering something which those who know about these things are telling us is credible is what we’re looking for.

 

349.          Mr Campbell QC:  Thank you.  You mentioned in an earlier answer the necessity or the potential necessity for temporary accommodation.  Could I ask you, please, in terms of looking to provide the cost of temporary accommodation, is that essentially within the same financial boat — the same Accounting Officer arrangements as would fall the cost of a new Parliament?

 

350.          Mr Batho:  Why I’m hesitating is that the actual paying for the temporary accommodation once the project was handed over to the Parliament moved outside our ken altogether, and so early considerations of that would have come to us for scrutiny because there wasn’t a Parliament there to scrutinise it.  Any decisions on temporary accommodation from the time of handover would have been a matter for the Parliament.

 

351.          Mr Campbell QC:  OK.  May I make the assumption in later examination of witnesses that the same type of financial structures, the same type of controls, the same type of emphasis on value for money, translated to the new Parliament and its officials as obtained in St Andrew’s House?

 

352.          Mr Batho:  Yes, absolutely.

 

353.          Mr Campbell QC:  You referred me to another minute, SE/2/132.

 

354.          Mr Batho:  Yes.

 

4.00pm

355.          Mr Campbell QC:  I’d like to come back to that, sorry.  This is from Mr Brown to Mr McLeish and the Secretary of State. Now, you told us that you had written this.

 

356.          Mr Batho:  No, I didn’t write the whole minute; I offered contributions.

 

357.          Mr Campbell QC:  Can you tell me where?

 

358.          Mr Batho:  Paragraph 2 is significantly mine; and again, paragraphs 23 through to 27.

 

359.          Mr Campbell QC:  On which page are they?

 

360.          Mr Batho:  Pages 5 and 6 of the copy I have; paragraphs 23 to 29.

 

361.          Mr Campbell QC:  I can see what you say about timing there.  Can you find those paragraphs on the subsequent page SE/2/13, beginning with Finance Issues.  Is that right?

 

362.          Mr Batho:  Yes.

 

363.          Mr Campbell QC:  Would you scroll up please?  Thank you.  The first finance issue that needs to be addressed is whether to proceed with an early decision on a particular option or to delay a decision until a full appraisal has been conducted.  And then in the next four paragraphs it summarises the potential dreadful consequences if there was a referral to the Comptroller and Auditor General. 

 

364.          Mr Batho:  Indeed.

 

365.          Mr Campbell QC:  Yes.  And just remind us when you are drawing this to Ministers’ attention.  Six weeks after the election?  Five weeks after the election?

 

366.          Mr Batho:  Yes.

 

367.          Mr Campbell QC:  OK.  Can you tell me, I think finally, Mr Batho, please, what part if any you played when the Permanent Secretary decided that he had a risk of a conflict of interest because of where he lived?

 

368.          Mr Batho:  Yes.  He raised it with me.  I made an approach to the official whom John Graham referred to earlier on — the Treasury Officer of Accounts to seek advice on how that should be handled and I then put advice back to Sir Russell Hillhouse to the effect that he should demit his Accounting Officer responsibilities in respect specifically of selection of site and appoint Robert Gordon, and I think I provided draft minutes for him to send to Ministers and to Robert Gordon to that effect, which he probably changed the drafting of at some point, but the substance will have remained. 

 

369.          Mr Campbell QC:  I suppose Permanent Secretaries tend to do that.  Was that demission of office only in respect of the prospect of site selection of Calton Hill or on all questions of site selection?

 

370.          Mr Batho:  I think it was presented in terms of all aspects.  If Calton Hill had fallen out completely from the consideration and had been entirely ruled out by Ministers at any point, it might have been appropriate to revisit that decision.

 

371.          Mr Campbell QC:  So the answer is all sites, not just Calton Hill?

 

372.          Mr Batho:  All sites at that point.  But, as I say, if Calton Hill had dropped out then I don’t think it would have been a material consideration again.  He could have re-engaged with site selection if Calton Hill hadn’t been on the list.

 

373.          Mr Campbell QC:  I’ll leave that matter, Mr Batho.  Thank you.  Sir, thank you very much.  There will be no more questions for Mr Batho. 

 

374.          Lord Fraser:  If we just stick with this minute for a moment. I still have some difficulty in understanding how any evaluation can be made of sites before you’ve got a knowledge of what it is intended to put on that particular site. So far as the Calton Hill is concerned, you know there is this Grade A building, and it might be modified or it might not. There might be a new-build next to it or there might not.  Down at Leith there might be a new build.  That’s the only option.  And at Haymarket there might be something put on it — you don’t know what it’s going to look like — but there might be problems with what is underneath it.  How are you ever comparing like with like to get any figures?  What are you assuming is being put on any one of these sites?

 

375.          Mr Batho:  Well, I think that was what the design feasibility study was specifically about.  It wasn’t actually to produce a specific design, but it was saying there is a designer brief — in other words, what a Parliament needs in terms of seating and Committee rooms and this, that and the other. If we plonk that requirement on each of the four sites, what would it cost?  So, in other words, there is a heavy reliance at that point upon the accuracy of the designer brief, if you like, if you’re going to then make the comparison of those costs with costs that emerged subsequently once the design has developed, but it is fixing a point in time at which you know, or you’re making an assumption, what that design is.  That’s why we were satisfied that that was a comparison of like with like at that point. 

 

376.          Lord Fraser:  So, I mean, if you looked at the Haymarket site, would you include in that calculation, because you had only a designer brief but some knowledge of the site itself, any particular problems that might be associated with a building on that site?

 

377.          Mr Batho:  I’m well beyond my expertise on that.  My understanding is that there was some work that went on during the designer brief process, because I’ve read the papers in preparation for this, that actually looked at the railway tunnels under Haymarket and the like, and that that was built into the overall cost element that emerged from the designer brief.  That’s my understanding, but there are others who will be coming up before this Inquiry who will be able to answer that much more professionally than I can.

 

378.          Lord Fraser:  Yes.  Was there any temptation to try and load these figures in any way to bring one out as more desirable than the other?

 

379.          Mr Batho:  I think we would in Finance have been very concerned if we detected anything like that. 

 

380.          Lord Fraser:  Yes.  When you have only a design brief of this vagueness and sites without any real analysis of what is going to be put on them, it would be very difficult to detect if people were getting it wrong, wouldn’t it?  Or deliberately loading it one way or the other?

 

381.          Mr Batho:  I don’t think that the end product was ever intended to be the absolute final cost of the Parliament, because it was acknowledged that there was going to be a designer competition by the time that the design feasibility studies and so on, wasn’t looking at absolute design.  But we were, I think, as I cast my mind back, reasonably satisfied that the kind of assumptions that were going into that design brief in terms of the overall size, which was significantly greater than the size that had been assumed at the White Paper time and in terms of the quality of fittings in terms of assumptions, about — I think, the secure car park came into it — were such as to be a more realistic assessment than had been available previously of what a Parliament might require.

 

382.          Lord Fraser:  Well by the time you are looking at these figures at the end of 1997, the top figure has risen significantly and markedly compared to the £10 million figure that’s been bandied about at a much earlier time.

 

383.          Mr Batho:  Yes.

 

384.          Lord Fraser:  Yes.  My impression is that you really — this is not a criticism, Mr Batho — you clearly say this looks like it’s getting more realistic and there wasn’t really much more than that that you could come to any conclusion on.

 

385.          Mr Batho:  I think that that’s an absolutely fair assessment: that we were looking towards increasing realism of figures as the design developed.

 

386.          Lord Fraser:  Yes.  But if, for example, the Leith site had been selected, it was your understanding that there would then have to be a designer or a design competition and you had no idea what might be the outcome of the cost of that.

 

387.          Mr Batho:  No, I think we were reasonably clear that it would be specified as part of that competition that that was going to be the price, yes, as indeed happened.

 

388.          Lord Fraser:  As indeed happened.  Yes.  So while this rather artificial exercise was being carried out, because it was known there was going to be design competition because it had been under discussion in parallel with this —

 

389.          Mr Batho:  Yes.

 

390.          Lord Fraser:  You were aware that there would likely be a different figure emerging before a competition got under way.

 

391.          Mr Batho:  No, I don’t think that that would have been our assumption.  We were aware that the buildings that were presented on 15 December weren’t going to be the buildings that would eventually emerge.  What might emerge or what was the intention was that what would emerge would be a designed building, but within a budget that had been assessed on the basis of those design feasibility studies.

 

392.          Lord Fraser:  Now, when it got round to it, as I think the Auditor General points out, the figure for that competition was £50 million.  Am I right about that?

 

393.          Mr Batho:  I think that’s right, yes.

 

394.          Lord Fraser:  Were you involved in the process whereby that figure was arrived at?

 

395.          Mr Batho:  I think that emerged from the design feasibility studies, so in other words, no, I wasn’t directly involved because it came out of the further design work that indicated that the £40 million that had previously been talked about was not achievable. That a building could be built meeting the design specifications for around £50 million.

 

396.          Lord Fraser:  Was the move from £40 million to £50 million just a greater movement towards realism or what there some refinement in the design which allowed for, or brought about, an increase of another £10 million in cost? 

 

397.          Mr Batho:  Well, as it was presented to us it was that the area had increased at that point to, I think, 16,000 up from 12,000 square metres, which had been originally assumed. While the £40 million figure reflected an initial new build at Leith and had made some assumptions about quality of build, the quality assumptions had in fact increased further on the basis of work that had been done looking at other Parliaments and so on.  But secure car parking had then been built into the brief where it hadn’t previously, and the final point is that inflation had been… the figures had been rebased to a 1998 figure from a 1995 figure that had underpinned the White Paper £40 million figure. 

 

398.          Lord Fraser:  Yes.  When did that £50 million figure first emerged?  Was it in the beginning of 1998?

 

399.          Mr Batho:  It emerged out of the design feasibility studies which were presented to us on 15 December 1997.  Alistair Brown’s minute of 12 December 1997 had those figures in.  And I think it is important to stress that it was £50 million, plus VAT, plus fees — creating a composite of £83 million at that point.

 

400.          Mr Campbell QC:  Can we look at SE/2/1309?  That might be helpful to see a table there.  For Mr Batho’s benefit, that’s a minute of 5 January 1998 from Mr Brown  —

 

401.          Mr Batho:  Yes.

 

402.          Mr Campbell QC:  To, among others, the PFO [Principal Finance Officer].  That is page 6 of the document, Mr Batho.

 

403.          Mr Batho:  That’s 5 January.

 

404.          Mr Campbell QC:  The £50 to £55 million and the £17·5m to £19m. 

 

405.          Mr Batho:  I have one of his of 6 January, which has got that table, in fact.  It may be 6 January.

 

406.          Lord Fraser:  When do you think this was dated?

 

407.          Mr Campbell QC:  Well, I think I have both the 5^th and the 6^th January.  The earlier one is not marked as a draft, but they do appear to be substantially the same.  Yes, it’s the same text and it’s the same table.

 

408.          Mr Batho:  Yes.

 

409.          Mr Campbell QC:  Sorry, I didn’t mean to interrupt you.

 

410.          Lord Fraser:  This is helpful.  You said that was certainly known by the beginning of January.

 

411.          Mr Batho:  Yes.

 

412.          Lord Fraser:  But we’ll have to ask Mr Brown for these figures about why VAT and fees and building running costs for the Regent Road appear to emerge as higher.  You wouldn’t have been involved in a sort of questioning about that.

 

413.          Mr Batho:  I couldn’t express any expertise on that at all.

 

414.          Lord Fraser:  No.  Thanks very much Mr Batho, and I’m most grateful to you for giving your evidence today.  It’s much appreciated. 

 

4.15 pm

 

415.          Mr Campbell QC:  Sir, there’s one matter I’d like to deal with before you rise for the day.  May I just have one moment?  I’ve put it to a number of witnesses that the first time that Holyrood emerged as an option in the form of giving information to Ministers was 12 December 1997.  That’s a mistake on my part, for which I apologise.  I think it may, in the end, not be significant, but I did put to Miss Alexander a hypothetical question in relation to the date 12 December, and also a hypothetical question in respect of the extent to which Holyrood had been worked-up by the time it was presented to Ministers, and I suggested to her that perhaps the playing field wasn’t entirely level.  She said that might be the case.  I think it likely that she has probably answered that question under a misapprehension.  Perhaps she was tired at the end of the day.  But I should make it clear that I recognise that there were work-ups, feasibility studies, as Mr Batho has called them, for all four sites at the date when they were first presented to Ministers… sorry, by the time they were getting towards a decision after 12 December.  So, if I misled you at all, I apologise.  That’s not been deliberate. 

 

416.          Lord Fraser:  Thank you very much.  That we will rise now, and resume on Tuesday 4 November at 10.00 am, at which point we have a number of witnesses whose names will be posted on the website.  I’m not seeking to conceal them, but because we can’t compel the attendance of people at this Inquiry, we are attempting to be as accommodating to those who do have worthy, worthwhile and relevant evidence to give to us.  We are seeking to accommodate them and it is not always as convenient and easy to schedule that as we would like, but we certainly hope to make progress with a number of important witnesses next week as well.  Thank you very much.

 

Hearing adjourned at 4.16 pm.