The plan, as Edinburgh’s councillors approved it, was a tram from the airport to Newhaven on the waterfront, open in the summer of 2011, within a budget of £545 million. Most of the money, £500 million, was a grant from Scottish Ministers. The council’s own company, Transport Initiatives Edinburgh, known as tie, was to plan and deliver it.
Britain had just changed the rules for estimates like this. In August 2004 the Department for Transport published guidance, developed with the planning researcher Bent Flyvbjerg and the consultancy Cowi, that told promoters to add an uplift based on how much comparable past projects had overrun. For rail, to be 80 percent sure of staying within budget, the uplift was 57 percent. In October 2004, by Flyvbjerg’s account the first practical use of the new figures, the engineering firm Arup reviewed the business case for one of Edinburgh’s lines for the Scottish Parliament. It judged the promoter’s estimate optimistic, and the case for shaving the uplifts “weak.”
The draft business case of May 2005 used an older table instead, from a 2002 review by the consultants Mott MacDonald for the Treasury. That table sorted projects into standard and non-standard civil engineering. tie put the tram in standard civil engineering, saying it did so on advice from the review’s authors. In the review, the projects in that category were all roads.
The choice decided the number. Standard civil engineering meant an uplift of 44 percent, which the headroom between the estimate and the available funding could absorb. Non-standard would have meant 66 percent; the newer rail figure, 57 percent. Neither would have fitted. tie told the council it was 95 percent certain it could deliver within the budget.
By the final business case, which the council approved on December 20, 2007, there was no allowance for optimism bias at all beyond a 12 percent risk allowance. Flyvbjerg later told the public inquiry that 12 percent was “simply unrealistic.”
The tram opened on May 31, 2014, almost three years late, and only from the airport to York Place. In 2017 the council put the cost at £776.7 million. The inquiry’s best estimate of the full cost of the shortened line was £835.739 million.
Lord Hardie’s inquiry reported on September 19, 2023. It listed ten principal causes of the failure, among them the terms of the infrastructure contract tie negotiated and tie’s failure to follow the guidance on optimism bias. tie’s former risk manager told the inquiry that the larger allowance for a non-standard project “would just compromise the deliverability of the system” or alarm funders. One of the 24 recommendations was to update the guidance’s reference classes, built on data almost two decades old, with a class of their own for light rail.
By then the last stretch, from York Place to Newhaven, had its own business case. Submitted to the council in 2019, it put the cost at £207.3 million, including an allowance for optimism bias.
Had the £776 million been known when the council approved the business case, the inquiry found, the ratio of benefits to costs would have been 0.73, and the council could not have justified going ahead.