What went wrong: 'It's hell on wheels' - the inside track on tram fiasco

From toy cars in his early childhood, David Mackay's life has been a world of wheels. His first job was with the bus company Walter Alexander. He spent 46 years with distinction at newspaper-distribution-to-air-cargo-freight group John Menzies, rising from trainee transport manager to group chief executive.

He became chairman of transport group W H Malcolm. And in his spare time, he tinkers with three classic cars.

But nothing could have prepared him for the spectacular way the wheels flew off Edinburgh Trams.

Just when he thought a successful career in transport would glide him gently into retirement, one of Scotland's best-known businessmen has suddenly quit the job that should have been the culmination of a lifetime in transport logistics. Even at 67, he was still game and only in January took on the chairmanship of Lothian Buses.

But today the trams project - the curse of Edinburgh residents and the butt of jokes from Festival comedians - has sputtered to a halt in chaos, confusion, gridlock and crisis.

The only wheels left in motion are the purring Bentleys of the litigation lawyers.

Mackay's sudden decision to quit from today will cause consternation and anguish in equal measure. City officials now have a problem. For if a long-experienced transport toughie like Mackay can't break the cycle of misfortune, who can?

He brought knowledge and experience to the post of tram company chairman. He had an ambition to make the project happen and to be a success. But arguably his greatest asset was his meanness - a determination that in any stand-offs with the contractors, he was not going to be rolled over. His says this toughness has saved the city more than 12 million. Yet the more he dug in his heels, the worse the crisis grew.

A project barely halfway completed, the budget overrun, the sites at a standstill and a long dark tunnel of litigation ahead: this is not the point at which senior business figures want to end their careers. But in an extensive interview with The Scotsman, Mackay set out his version of what has been going wrong and why he personally has come to the end of the line.

The frustration and bitterness was clear throughout. But so, too, was his sense of foreboding of a project doomed to hit trouble.

Of his interview for a position with Transport Edinburgh Limited (TEL), the tram and bus co-ordinating body, in August 2005, he recalls: "I didn't enjoy the experience one bit. I could immediately see conflicts of personality and interest.

"It was obvious that the bus company did not want the trams. And the money was coming from Transport Scotland and the City of Edinburgh.So it was a multi-stakeholder thing and unless it was led very carefully, it would go off the rails." To make matters worse, the city had just lost the congestion charge referendum, so critical funds for the development were not there.

"Then I went for an interview with, I think, about 23 councillors - I've never sat through a more complex table in my life. I said what I thought was the problem. It was going to be very difficult to get these disparate bodies to work together.

"I was in the car an hour and a half later when they said they would like me to be a non-executive director. They wanted me to be one of two non-executives. I wasn't doing it for money - it was just 11,000 a year.

"I found out the other guy who had been approached was Willie Gallagher, who was a non-executive director of Lothian Buses and should have been supportive of integration.

"TEL was initially the umbrella organisation and TEL was created because there was a fear that if the trams were given to Lothian Buses, the trams wouldn't happen. In due course, it became pretty obvious to Gallagher and myself that if this thing was going to last, there had to be changes to both boards. When we got to working together, it became rapidly more obvious there had to be further changes of personalities quite quickly.

"The political background was unsettled. The SNP was anti-tram. Labour had pushed Iain Gray, who was a great promoter of trams, and the Lib Dems with Tavish Scott were pro-tram. TIE was negotiating the contract towards the preferred bidder stage. The political pressures were gigantic to get it done before it could be knocked off the rails.

"The lesson learnt was that this contract turned out to be a capricious contract and has caused TIE and TEL and everybody major difficulties along the way.

"There were signs, as there clearly are now, that Bilfinger Berger (BB] was a delinquent contractor who scented a victim, who probably greatly underbid, and who would use the contract to make life extremely difficult for the city. And they have done exactly that.

"Very shortly afterwards, we had the Princes Street debacle. The Germans knew that they could hold us to ransom when we got to Princes Street, the oldest street in Scotland. Up till then, I suspect that when they pointed a gun at you or turned up the heat, someone decided to cough up.

"On Princes Street, I refused to cough up. I refused them to allow on a cost-plus basis and that the contract should be honoured. We had a contract. The contract should be honoured. I was getting legal advice and I was told the contract was strong … I got my backside kicked by John Swinney and by others in the city to get it sorted out.

"We had found crazy things like underground chambers on Princes Street and cables were not where they should be. Then there was a major concrete block in Princes Street.It was hell on wheels."

Mackay went into negotiations with BB on a clause in the contract that allowed them to work on a demonstrable-cost basis, providing time sheets and proper records were produced. A supplementary agreement was drawn up, which broke the Princes Street impasse.

"We had a moment of glory", he recalls, "and people were more confident that we could catch up with the work. But the leopard doesn't change its spots and they (Bilfinger Berger] continued to act in a delinquent manner to squeeze every pfennig out of us: decisions that were taken in the UK board of Bilfinger were then often overruled in Germany. Last-minute demands would come in for extraordinary sums of money.

"There was a cultural problem. If we had been dealing with, say, Balfour Beatty, we would not be in this position. BB was very risk-averse and they would do nothing until they had money in their pocket."

Might TIE or the city have grounds for legal action against the lawyers who drafted the contract? "We are now almost certainly heading for litigation with Bilfinger. The outcome of that may well determine what the future will be," says Mackay. Bilfinger, he adds, says it wants to reach a settlement. But his view is that it actually wants out of the contract.

What regrets does he have, and what might he have done differently? "Should we have signed contracts before the design was complete? No. Should we have tackled the utilities the way we did? Probably not. Should we have gone with Bilfinger Berger as the preferred bidder? How can I possibly say yes?"