Supplementary memorandum submitted by
the Millennium Commission
INTRODUCTION
1. This memorandum summarises:—
— the background to the Commission's
decision to fund a national Millennium Exhibition at Greenwich
("the Millennium Experience");
— the procedures by which the Commission
decided to award additional grant to NMEC in February and May
2000; and
— the Commission's locus in the Dome
Legacy competition.
A NATIONAL MILLENNIUM
EXHIBITION
2. In June 1994 the founding Chairman of
the Millennium Commission (the Rt Hon Peter Brooke CH MP) announced
a proposed strategy by which the Commission would discharge its
remit for supporting the Millennium celebrations throughout the
UK. A major element of the proposals was a national exhibition,
broadly comparable with the Great Exhibition of 1851 and the Festival
of Britain of 1951. Following a consultation exercise in 1995
which supported the strategy, the Commission decided to implement
the proposal.
3. A two-step approach was adopted for procuring
the Exhibition—first to invite bids for a location and then
to invite bids for an operator to develop the exhibition and its
content and manage its operation. The outcome in 1996 was that
the Greenwich Peninsula was selected by the Commission as the
site and Millennium Central Ltd was selected as the operator.
A detailed chronology of this process was set out in the Commission's
memorandum of evidence to the Culture, Media and Sport Select
Committee inquiry into the Millennium Dome (as recorded in the
Committee's Second Report, Session 1997-1998). The points to highlight
are that the guidelines for the competition set out the Commission's
aspiration that the Exhibition should be enlightening, entertaining
and inspiring and should leave a lasting legacy; and, that the
Commission's final selection of the site gave weight to the impact
this would have on the wider Greenwich Peninsula in terms of large-scale,
high-quality and sustainable regeneration.
4. Millennium Central Limited was renamed
"The New Millennium Experience Company Limited" on 2
July 1997. In this memorandum, references to NMEC include references
to the company under its previous name.
INDICATIVE BUSINESS
PLAN AND
BUDGET: JANUARY
1997
5. In January 1997, the Commission completed
a review of the initial business plan and budget for the exhibition.
This was carried out by a review team led by the Commission's
then Chief Executive (Jennie Page CBE) and it concluded that an
acceptable exhibition could be delivered within a balanced cash
budget of £778 million, assuming 10 million paying visitors,
and that enhancements could be made if additional income was identified
or if contingency sums became free. The Commission agreed with
the conclusions of its review team at its meeting on 13 January
1997. It offered a grant to the project of £200 million,
which would be made available once the Exhibition business plan
and budget were developed in greater detail and the terms and
conditions of grant were negotiated. The Commission took into
account in reaching its decision the then Government's proposal
that the operating company should become a public sector entity.
ANNOUNCEMENT OF
AWARD OF
INITIAL GRANT:
18 JANUARY 1997
6. On 18 January 1997, the Department of
National Heritage issued a statement setting out the basis on
which the Millennium Exhibition would go ahead. This was reported
to Parliament on 20 January 1997 by the then Secretary of State,
in answer to a written Parliamentary Question by Sir Peter Lloyd
MP. The Secretary of State's answer reported that:
(a) the Millennium Commission had at its
meeting on 13 January 1997 decided to award £200 million
grant to NMEC, excluding provision for contingencies and inflation.
Immediate negotiations on the terms and conditions were to begin,
in parallel with the preparation by NMEC of a detailed business
plan and the creation of the management team;
(b) in addition to the Commission's grant,
the Exhibition would be funded through commercial income and private
sector sponsorship. The Millennium Commission had set a target
of £150 million for sponsorship;
(c) the targets for visitor numbers and income
were estimates and would remain so, even when the detailed business
plan was prepared;
(d) the Government had decided that the Commission
should have financial provision to cover variations from the estimates
in the plan without prejudicing its existing programmes. The Government
would therefore bring forward an Order under the National Lottery
etc Act 1993 to extend the funding life of the Commission. NMEC
had indicated its understanding that it would be required to make
a new grant application to the Commission to cover contingencies
and inflation;
(e) no public expenditure would be committed
to the Exhibition beyond that which would be made available to
English Partnerships to acquire and prepare the site; and
(f) the Government had discussed the Millennium
Commission's plans in detail with the Opposition, who had expressed
enthusiasm for the proposed Exhibition at Greenwich and indicated
that, if elected to Government, it would want to review all aspects
of project delivery to ensure that it was cost effective and properly
implemented and came within its existing budget.
TRANSFER TO
PUBLIC SECTOR
OF NMEC
7. On 21 January 1997 Jennie Page left her
post as the Commission's Chief Executive to become Chief Executive
designate and Accounting Officer of NMEC. On 12 February 1997,
NMEC's shares were acquired by the then Chancellor of the Duchy
of Lancaster (The Rt Hon Roger Freeman MP). A full board was appointed
and the company began trading on this date with the objects of
building and operating the Greenwich Exhibition. The company received
initial grant payments from the Millennium Commission under Section
41.3 of the National Lottery etc Act 1993 in order to staff and
establish itself in this period and prepare a more detailed business
plan and budget for the Commission's approval.
APPROVAL OF
FULL GRANT
8. On 12 May 1997, NMEC submitted its updated
business plan to the Commission. This was based on a total cash
budget of £758 million, with a peak grant requirement of
£449 million from the Commission. NMEC forecast that £175
million would come from sponsorship and £186 million from
commercial revenue, receipts and disposal income. The budget assumed
12 million paying visitors, which was 2 million higher than the
Commission's own January 1997 forecast. It also assumed that,
whilst a peak grant requirement of £449 million would be
necessary to support the company's expenditure prior to opening,
the final net grant would be lower—indicatively £399
million, taking into account forecast surplus income from operating
revenues and asset disposals in 2000 and 2001.
9. The Commission appraised the updated
business plan and budget to assess its reasonableness, weigh particular
risks, gauge NMEC's viability and provide an authoritative analysis
against which the Commission could decide whether and on what
basis it should pay grant to the company in addition to the £200
million already offered. The Commission appointed four sets of
specialist consultants to help it appraise NMEC's assumptions
on design, construction costs and timetables, its commercial and
income projections, its business assumptions and its procurement
strategies.
10. Following this appraisal, the Commission
agreed on 9 July 1997 that the business plan and budget provided
an acceptable basis on which to offer total grant of up to £449
million. This figure was inclusive of interim grant payments and
was subject to three principal caveats, which were that the Government
accepted that the Commission's commitment was limited to £449
million; that the Secretary of State for Culture, Media and Sport
confirmed that an Order extending the period over which the Commission
could receive Lottery funds would be made if necessary; and that
NMEC accepted that the Commission's grant was contingent on the
continued receipt by the Commission of Lottery funds.
11. In reaching their decision, Commissioners
were aware that risks were inherent in this unique project and
in particular that there was no precise science underpinning NMEC's
forecast of 12 million paying visitors. On the basis of their
own appraisal however, the Commission believed that this higher
level of visits would be achievable, although it was recognised
to be at the upper end of the range of probabilities.
12. The Commission's commitment to make
other than the initial payments to NMEC came into effect on 21
August 1997 with the implementation of a memorandum setting out
the terms and conditions of grant. This followed a resolution
of the NMEC Board on 7 August accepting the terms and conditions
of Commission funding. The Grant Memorandum incorporated the Financial
Memorandum issued by the shareholder on 14 February 1997 and,
taken together, these two documents provide a framework for financial
management and control for NMEC consistent with that for all Non-Departmental
Public Bodies receiving grant, as set out in Chapter 13 of Government
Accounting. Key conditions included requirements that NMEC could
not dispose of any asset without the Commission's prior consent
and should repay to the Commission any financial surplus, be it
higher or lower in practice than the £50 million figure indicatively
included in the May 1997 business plan.
GRANT PAYMENTS
AND MONITORING
UP TO
31 DECEMBER 1999
13. In the period up to the Dome's opening
on 31 December 1999, the Commission made grant payments to NMEC
totalling £442 million (excluding the London River Event).
These payments were made within the framework of monitoring of
physical and financial progress against targets, as set out in
the Grant Memorandum, including the appraisal and approval of
NMEC's corporate plans and budgets for 1998 and 1999, to other
periodic budget reviews, as well as monthly monitoring. Appraisals
by the Commission were supported by the Commission's external
consultants (ie Deloitte Consulting in relation to financial and
operational matters and Bovis Programme Management in relation
to procurement issues and the critical path).
14. After appraising NMEC's 1999 Corporate
Plan and budget, the Commission concluded that NMEC's cashflow
position would need very careful monitoring in the last half of
the calendar year, and accordingly a new and more detailed monthly
cashflow monitoring return was introduced. The concern was that
the Commission's grant of £449 million could be depleted
prior to the Dome's opening if sponsorship income and advanced
ticket sales slipped. By December, the Commission decided that
it was reasonable to believe that NMEC's lifetime budget, revised
in November 1999, could still be achieved. Nevertheless, Commissioners
thought it probable that a cashflow shortfall would occur during
the first quarter of 2000. The Commissioners recognised that this
would result in an application by NMEC for additional grant in
that quarter. Accordingly, the Commission shared its monitoring
information with the Department for Culture, Media and Sport and
indicated that any decision to provide additional grant to NMEC
would be subject to the Government reaffirming its commitment
to ensure that sufficient funds would flow to the Commission from
the National Lottery Distribution Fund in order to safeguard its
other programmes. The Commission also decided in December 1999
that it would carry out a thorough appraisal of NMEC's budget
and cashflow at the end of January 2000, when the company's trading
performance in the initial period of operation would be known.
AWARD OF
ADDITIONAL GRANT—4
FEBRUARY 2000
15. An application for additional cashflow
grant was received by the Commission from NMEC on 2 February 2000.
Prior to this, at its meeting on 28 January 2000, the Commission
had decided in the light of its own monitoring, and with regard
to detailed financial information provided by NMEC that day, that
a requirement for additional cashflow funding would be inevitable
in February. The Commission decided that in principle it would
be minded to give such support; subject to need for grant being
demonstrated in a formal application from NMEC and to appropriate
terms and conditions. The following public statement was made
by the Commission:
"The Millennium Commission reconfirms its
support for the Millennium Dome. It has always been envisaged
that the project would require cashflow support in the early part
of its life. While the Commission has not received a request from
NMEC for further funds, we remain willing to provide further support
if necessary. Cashflow difficulties are often associated with
large-scale start-ups and therefore provisions to deal with them
have always formed part of the arrangements between the Commission
and NMEC. Any further grant to NMEC would not be at the expense
of other projects which are funded by the Millennium Commission".
16. The Board of NMEC met on 31 January
2000 and decided to submit an application for an additional grant
of up to £60 million to meet urgent cashflow needs. An application
was submitted to the Commission on 1 February, together with the
detailed business plan and financial information supporting the
application previously shown to the Commission in draft on 28
January 2000. This forecast that the budget would still balance
within a cash total of £758 million over the lifetime of
the project. However it indicated that a cashflow need had arisen
because lower visitor numbers were now assumed (10 million instead
of 12 million), because visitors generally were not buying tickets
as far in advance as had previously been assumed, and because
substantial payments from sponsors were still outstanding. The
business plan forecast that the additional grant of up to £60
million, payable in February, March and April, would be repaid
from commercial revenues later in the year and from Dome sale
proceeds in 2001 (which were newly budgeted at £30 million,
up from £15 million previously).
17. The Commission appraised NMEC's application
having regard to the initial findings of its own review of NMEC's
finances and operations, to the output of newly introduced weekly
monitoring reports, to the detailed information provided by NMEC
and to discussions at both member and officer level. The Commission
also used its own Finance team to scrutinise NMEC's outstanding
invoices to confirm that the immediate cashflow requirement was
as reported.
18. Following its appraisal, the Commission
concluded that NMEC had a real and immediate cashflow requirement;
that a grant award of up to £60 million would be justified,
with a first payment needed on Friday 4 February 2000; that on
the basis of the latest information, NMEC's revised forecast of
10 million paying visitors was at the top end of the range of
probabilities, having regard to observable patterns of demand
and attendance; and, that it was probable on existing trends that
at least some of the additional grant would not be repaid. The
Commission decided to approve NMEC's application in that light
on 4 February 2000, and the first payment of £32 million
was made on the same day. This was made subject to a number of
detailed conditions about NMEC's management and operations and
to rigorous appraisal by the Commission's staff of the liabilities,
invoices and cashflow requirements underpinning each grant claim.
NMEC OPERATIONAL
PERFORMANCE: FEBRUARY
TO MAY
2000
19. During the period February to May 2000
the Commission monitored NMEC's operational and financial performance
continuously through weekly trading reports, financial information
in support of grant claims, scrutiny of cashflow requirements
and meetings between Commissioners and NMEC Board members. During
this period it became clear that the revised visitor forecast
of 10 million paying visitors would not be achieved and that income
forecasts prudently should be reduced. Following a comprehensive
internal budget review, NMEC confirmed to the Commission on 2
May that the company would require additional grant both to fill
a gap in the project's budget and provide cashflow support. The
Commissioners indicated that they would require detailed demonstration
of the need for any additional grant, which would be subject to
rigorous appraisal.
AWARD OF
ADDITIONAL GRANT—22
MAY 2000
20. The Board of NMEC met on 19 May 2000
and agreed to apply to the Millennium Commission for additional
grant of £38.6 million, that is in addition to the £60
million awarded on 4 February 2000. The application was submitted
by NMEC to the Commission on the same day. It was supported by
a revised business plan which had been submitted to the Commission
on 15 May. By 19 May, NMEC had drawn-down the whole of its existing
grant of £509 million (including the £60 million awarded
in February 2000), none of which was now scheduled for repayment.
The company had also drawn-down a £1.98 million grant for
the London River Event on New Year's Eve 1999.
21. The revised business plan indicated
that the net project cost had increased from £758 million
to £773 million since January 2000 and that a funding shortfall
had opened up as compared to January 2000 forecasts. The shortfall,
as calculated by NMEC, had arisen for three main reasons: firstly,
a reduction in the forecast number of paying visitors (6 million,
down from 10 million in January); secondly, a reduction in the
net revenue achieved for NMEC per visitor; and thirdly, because
of cost pressures. Late payments by sponsors had also exacerbated
the company's short-term cashflow problems. The business plan
indicated that, whilst none of the grant already paid would be
returned, some £19.5 million of the £38.6 million applied
for would be repaid to the Commission in June 2001 if NMEC received
£30 million from the sale of the Dome, as budgeted.
22. The Commission's appraisal of NMEC's
application included a review of the company's expenditure commitments
and liabilities, a review of uncommitted areas of expenditure,
and a review of the Dome's visitor forecasts and commercial income.
The Commission was supported in this work by its external consultants
(Capita on commitments and liabilities and Deloitte Consulting
on other financial and operational matters).
23. The Commission's appraisal concluded
that the NMEC business plan demonstrated that there was now a
funding gap in the lifetime budget and that the company needed
an immediate injection of funds if it was to continue trading.
There appeared to be scope for NMEC to find significant cost savings
to reduce the grant needed, although on a worse-case scenario
a higher level of grant might be needed to keep the project viable.
24. Commissioners met on 22 May to consider
the application for further grant. They decided to award up to
£29 million of additional grant. The grant was made subject
to a number of conditions, which included:
— £3 million of the £29 million
to be ring-fenced for additional marketing activities, based on
a new marketing and promotional strategy;
— appointment of a new Chairman of
NMEC within seven days;
— further development of the business
plan and resubmission to the Commission;
— measures to achieve significant cost
reductions with specific targets and dates;
— designating an NMEC Board member
to have special responsibility for overseeing cost reduction;
and,
— strengthening the finance team with
a senior officer with responsibilities for managing the cost reduction
programme;
— allowing a monitoring officer appointed
by the Millennium Commission to be located at NMEC's offices;
— introducing changes aiming to strengthen
the company's financial systems; and
— submitting an abbreviated corporate
plan and revised budget to the Commission by 31 July, including
alternative exit strategies, taking into account the Government's
decision on the winner of the Dome Legacy Competition.
25. The following extract is taken from
a public statement made by the Millennium Commission on 22 May:
"The Millennium Commission today considered
an application for grant of £38.6 million from the New Millennium
Experience Company. The Millennium Commission had serious reservations
about providing further support without substantial change in
the governance of the New Millennium Experience Company. However
the Commission decided it would be foolish to withdraw support
when the best of the year is yet to come, and that the value of
the Dome as the centrepiece of the nation's Millennium celebrations
should be recognised and continued. The Government has reiterated
the previous Government's commitment to ensure that Lottery funds
are available, if needed, to support the Dome without having an
adverse impact on the Millennium Commission's wider programme
of work—three quarters of which is invested in people and
projects across the UK. In the light of this, the Commission has
decided to make available a further grant of £29 million,
subject to stringent conditions. The decision was taken after
an independent review of NMEC's financial systems and business
plan . . . All Commissioners expressed full confidence in the
work of PY Gerbeau and are appreciative of the changes he has
already made in the running of the attraction. Despite the lower
than predicted number of visitors the Dome is the most popular
and highly rated paid visitor attraction in the UK and there are
numerous educational benefits. NMEC is also running a National
Programme of activities across the UK involving hundreds of thousands
of people. In addition, the largest derelict site in southern
England has been regenerated and the foundations have been laid
for a lasting legacy providing jobs and homes for thousands of
people".
26. NMEC accepted the grant award and attached
conditions on 23 May 2000.
ACCOUNTING OFFICER
DIRECTION
27. In considering the NMEC application
for further grant on 22 May, the Commission received information
and advice from staff in the form of a Commission paper and an
Accounting Officer memorandum. The information made available
to the Commission emphasised the urgency of the situation and
indicated that:
— the application demonstrated that
the project had a funding gap and needed funds immediately;
— there was a clear case for an additional
£3 million grant to support marketing so that the Dome could
maximise attendance and revenue in a highly competitive market;
— a worst-case scenario would indicate
a need for further grant;
— the costs of insolvency could exceed
£200 million, according to NMEC's forecasts. These fell outside
the Commission's grant commitments to NMEC but could fall to the
Exchequer to pay; and
— there was probably scope for NMEC
to find significant cost savings, but awarding a grant of £38.6
million would blunt the incentive to do so.
28. The Accounting Officer's conclusion
was that any additional grant would not represent value for money
from the Lottery's perspective, given that the Commission's strategic
purpose of grant (including momentum towards the regeneration
of the Greenwich Peninsula) had already been substantively achieved.
29. In presenting this information to Commissioners,
the Accounting Officer, Mike O'Connor, recommended that the Commission
should weigh his advice against the wider potential advantages
of making additional grant—considerations which lay outwith
his remit. He advised that the wider considerations which Commissioners
might legitimately consider if they wished to included the economic
impact of closure, the reputation of the UK and the potential
impact on public sector funds. He further advised Commissioners
that should they wish to make a grant he would, as is standard
procedure in such situations, require a written direction and
was required in those circumstances to inform the Comptroller
and Auditor General and the Accounting Officer of DCMS.
30. After careful consideration, the Commission
unanimously agreed that a grant of up to £29 million should
be made to NMEC. Commissioners reached this conclusion on the
basis of wider considerations which they wished to be secured,
and especially in view of the likely cost to the public purse
if the grant were not made available; and on 22 May, the Chairman,
on behalf of the Commission, issued a direction to Mr O'Connor
formally instructing him to proceed with the offer of grant and
the release of funds as necessary. The grant was subject to stringent
conditions, as detailed at paragraph 24 (above).
31. The National Audit Office submitted
a paper on the circumstances of the Accounting Officer Direction
to the Chairman of the Public Accounts Committee in June 2000.
A full investigation is currently underway and the Public Accounts
Committee will hear evidence on this matter from the Commission's
Accounting Officer on 20 November 2000.
POST MAY
2000 GRANT AWARD
32. David Quarmby was appointed as Chairman
of the NMEC Board on 22 May. The company submitted a revised business
plan showing further options for cost reductions and including
a new marketing strategy and budget on 5 June 2000, and following
that the company was able to confirm the objective of eliminating
all of the previously forecast cost overruns. The revised budget
balanced income against expenditure within a cash total of £761
million, forecasting a grant repayment to the Commission of £13
million. However, whilst balancing the budget over the project's
lifetime, the forecasts indicated that a cashflow gap of up to
£9 million would occur in the last quarter of 2000 unless
ameliorative action was taken. The Commission endorsed the revised
budget on 14 June, following a meeting with the NMEC Chairman
and Chief Executive, subject to further conditions requiring NMEC
to prepare a contingency plan setting out options for avoiding
the cashflow shortfall, built on more detailed modelling of financial
scenarios for the remainder of 2000.
THE DOME
LEGACY COMPETITION
33. The Commission has a direct interest
in a successful outcome being achieved for the Dome Legacy competition
because the purpose of the Commission's grant to the Experience
was both to run the National Millennium Exhibition in the year
2000 and spur large-scale, high-quality and sustainable regeneration
of the whole Greenwich Peninsula as a Millennial legacy. The Commission
also relies on NMEC achieving a legacy receipt of at least £30
million in order to balance its budget and enable a grant repayment
to be made to the Commission, with the prospect of an increased
return if NMEC's share of the proceeds is higher. As already described,
the terms and conditions of the Commission's grant to NMEC require
that any asset disposal by NMEC requires prior approval of the
Commission and the Dome Legacy transaction is subject to this
provision.
34. The Government has indicated to the
bidders in the competition and to the Commission that it will
take the Commission's views into account before reaching its decision
on the outcome of the legacy competition. In line with this, the
Government has allowed the Commission representation on the inter-departmental
Dome Legacy Steering Group and has consulted the Commission at
each key stage in the bidding process. Commissioners will meet
on 11 July to consider the merits of best and final offers from
Dome Europe and from Legacy plc and will convey its views to Government
soon after.
July 2000
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