Translation:They say they did not see your friend.
Crafty DL! Sneaking in a present tense verb 'dicen' when I'm in preterite mode!!!! Of course, I said "they said'....oh well, my last heart gone!!!!
The past tense in the sentence is 'did'. You can have past tense and present tense in the same sentence.
'did not' and 'had not' seen your friend - in English the meaning to me seems the same!
Had not seen is a different tense which takes a participle and the model sentence uses present tense.
"they said that they did not see your friend" - accepted by DL!!!!!
Perhaps because in this context (provided by the preterite part of the sentence) the saying must have been said in the past unless of course the phrase is being translated in real time.
What about a "le" relating to "a tu amigo" ? "Ellos dicen que no le vieron a tu amigo."
My guess is that the indirect object pronoun 'le' is optional here because there is no direct object pronoun in the sentence (me, te, nos or such). I may be completely wrong of course. Very tricky.