Expenditure and the Dome budget
60. During all of our previous inquiries on the
subject, NMEC repeated the mantra that the project was "on
time and on budget". The first part of that claim has proved
justified; the second is more open to question.
61. During this inquiry, it has been virtually impossible
to ascertain the precise budgetary position of NMEC. The Report
and Accounts of the Company for the period 1 April to 31 December
1999 were not published until after we had finished taking evidence,
nearly seven months after the end of the relevant period for which
the Report and Accounts were prepared. It has proved difficult
to track expenditure relating to the general headings in successive
budgets and extremely difficult to penetrate the detail of particular
headings. We have received a great deal of information about the
budget that has been provided by NMEC on the understanding that
it remain commercially confidential. We always respect requests
for commercial confidentiality even though we are not sure that
such requests are always justified. However, we would not wish
there to be any impression that we received in confidence a full
and detailed explanation of the Company's budget that is more
revealing and satisfactory than the limited picture already in
the public domain. In some ways, the confidential information
raises more questions than it answers.
62. The Annual Report and Financial Statements for
the period ended 31 March 1998 stated that the lifetime budget
for the Dome structure and the associated infrastructure would
be £275 million.[160]
A year later, the figure rose to £289 million. In the Company's
latest business plan and financial statements, the figure is £271
million.[161]
Similarly, the cost of the Dome's content varies from £191
million in the 1998 accounts to £202.3 million in the 1999
accounts, and most recently is given as £240 million.[162]
The Chief Executive's statement in the most recent Annual Report
says that when Mr Gerbeau arrived "the cost contingency had
been used in full and there were potential cost overruns on the
lifetime budget".[163]
Mr O'Connor referred to "cost overruns of some £26 million".[164]
Without access to the detailed figures on outturn to compare with
the plans for each aspect of the contents, we have been unable
to draw firm conclusions. However, we are concerned that the content
development will be revealed as having devoured disproportionate
sums of money and that, as the pressure to complete and open on
time increased, expenditure on content exceeded the budget.
63. We explored NMEC's contingency plans for cost
overruns or reduced revenues in our Report, The Millennium
Dome. Mr Mandelson told us that "there would not be an
overall cost overrun", and that the Company would deliver
the Experience within the agreed budget.[165]
In that Report, we concluded: "We found both the Company
and Mr Mandelson reluctant to elaborate about their contingency
plans, if indeed such contingency plans have been prepared as
they should have been ... We conclude that a comprehensive contingency
plan has not yet reached final form."[166]
64. In March 1999, Mr Chris Smith told this Committee
that NMEC had "taken a very prudent approach to contingency
funds within their budgets, so they are in good financial shape".[167]
Mr Ayling told us, in evidence to the same inquiry, that the Company
had a prudent contingency, and that it had not been allocated.
A footnote to that oral evidence states that the contingency was
£69.5 million.[168]
NMEC's Annual Report for the year ending 31 March 1998 stated
that "the Company sought to incorporate a robust and realistic
provision for cost contingencies", and that the cost contingency
of £88 million would be used "where absolutely necessary",
to meet the "overriding aim of delivering the project on
time within the £758 million cash budget for the project".[169]
That £88 million is identified on the accompanying pie chart
as "Central Contingency".[170]
A year later, the Annual Report shows the "Central Contingency"
at £41 million.[171]
Mr Quarmby stated: "The revenue contingency which is made
quite clear in our previous Annual Reports was about £40
million".[172]
He continued that "the original budget [had] a substantial
revenue contingency that allowed for variation around the 12 million
[visitors], though as events have turned out, not a sufficient
contingency to cover the sort of values that you are looking at
now".[173]
However, although the Annual Reports show a central contingency,
there does not appear to be a reference to a specific revenue
contingency.
65. Ms Page suggested that it would have been preferable
to have withheld more of the cost contingency to balance the revenue
stream.[174]
She continued that the contingency was not kept back for a number
of reasons, "some of them concerned with late decisions that
changed the nature of the Experience and brought additional costs
with them".[175]
By the time that Mr Gerbeau arrived at the Dome there was no contingency
left in the budget.[176]
The Company was suffering from cashflow difficulties that had
been exacerbated by the sponsors' failure to pay monies according
to the contract schedules.[177]
The Company had presciently predicted that there would be no margin
of error in cash flow for the first quarter of 2000.[178]
Ms Page confirmed that "if the take-up of tickets not only
in quantum but in terms of purchases in advance of visits were
not as predicted in the business plan then there would be problems".[179]
66. The Comptroller and Auditor General has already
agreed that the National Audit Office will undertake a full audit
of the circumstances surrounding the most recent grant made to
NMEC. We recommend that he should broaden that enquiry to look
at the Dome's accounts to date, in their entirety, in preparation
for a full examination of those accounts by the Committee of Public
Accounts.
160 The New Millennium Experience Company Ltd, Annual
Report and Financial Statements for the period ended 31 March
1998 (hereafter Annual Report 1997-98), p 15. Back
161 The
New Millennium Experience Company Ltd, Annual Report and Financial
Statements for the period ended 31 March 1999 (hereafter Annual
Report 1998-99), p 15; HC Deb, 11 July 2000, col 481W; Annual
Report 1999, p 13. Back
162 Annual
Report 1997-98, p 15; Annual
Report 1998-99, p 15; HC Deb, 11 July 2000, col 481W; Annual
Report 1999, p 13. Back
163 Annual
Report 1999, p 5. Back
164 Q
462. Back
165 HC
(1997-98) 340-I, para 19. Back
166 Ibid,
para 20. Back
167 HC
(1998-99) 21-II, Q 322. Back
168 Ibid,
Q 395. Back
169 Annual
Report 1997-98, p 16. Back
170 Ibid,
p 15. Back
171 Annual
Report 1998-99, p 15. Back
172 Q
157. Back
173 Q
156. Back
174 Q
3. Back
175 Ibid. Back
176 Annual
Report 1999, p 5. Back
177 Q
57. Back
178 Q
4. Back
179 Ibid. Back
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