House of Commons - Culture, Media and Sport

Select Committee on Culture, Media and Sport Eighth Report

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