Trams costs shoot up for second time in fortnight

Tram firm TIE is facing a 3 million increase in the scheme's overall cost to 511m as a result of protracted contract negotiations.

The move comes just nine days after councillors approved a 10m increase to 508m after tram chiefs revealed that a delay in contract talks – in addition to exposure to Euro currency fluctuations – had pushed prices up.

It is understood the contractual problem was with BBS, the firm supplying the tram tracks and overhead wires.

Negotiations have now been concluded, with BBS now taking on more of the risks for the project in exchange for getting more money up front.

Contracts for both the infrastructure and the tram car deals were meant to be concluded three months ago but are now expected to be signed on Wednesday.

The increase in capital costs for the trams further eats into the scheme's contingency fund, much of which it had been hoped could be put towards the 87m Haymarket-Granton line 1B link.

The public opening of the tram line – previously slated for February 25, 2011 – has also slipped as a result of the extended talks and is now scheduled for July, 2011.

Tram firm TIE today said it had achieved additional benefits for the project, such as transferring more of the risk away from the public purse.

Deputy council leader Steve Cardownie said: "This is of real concern to us, it is public money we are talking about here and I will be particularly worried if any of these companies think we are a soft touch because it is public money.

"We have always been told there are checks and balances in place with the project but it now looks like two fairly substantial erosions of the contingency fund in the space of two weeks and it doesn't bode that well for the future.

"We will be asking why we are in the situation where the contracts have yet to be finalised and also whether anything could have been done to prevent this."

Council reports released last week show the base cost of the airport to Newhaven link has risen from 449m to 476m but the amount officials need to allow for project risks had dropped from 49m to 32m.

This accounted for the 10m overall increase in the project.

The Scottish Government has already given 500m towards the scheme and the city council has promised to come-up with 45m.

However, not all of the council's money has been secured, with city leaders banking on developer contributions to meet their shortfall.

Councillor Ian Murray, the city's Labour finance spokesman, said: "The contingency funding was put in place to try and make this project as foolproof as possible and it is at times like this when TIE will naturally be considering dipping into them.

"These are complicated contract negotiations and I think TIE has done a good job so far with the project."

A spokesman for TIE said: "We have endeavoured to achieve additional benefits for the project and this has involved small changes to the capital costs.

"This is still well within the overall money available of 545m."