Select Committee on Culture, Media and Sport Minutes of Evidence

Supplementary memorandum submitted by Lee Valley Regional Park Authority

Question 1:  What corporate structure is proposed for (a) the delivery and (b) the operation of the PL stadium and, in the event that either of those structures will take the form of a partnership who will the partners be?

  1.  It is intended to establish a specially formed, legally separate body (the "Project Delivery Vehicle" [PDV]) to lead the development of the project from June 2001 onwards. The PDV or another specially formed body is likely to be responsible for managing the centre after 2005.

  2.  The corporate structure for the development phase will need to reflect the requirements and inputs of the principal project partners—the Lee Valley Regional Park Authority, UK Athletics, the London Borough of Enfield, and in principle the London Marathon Trust. These partners are expected to own and/or participate in the selected vehicle and further negotiations will be taking place between the partners to finalise each partners' contribution to, and requirements from the project. The PDV form and structure will reflect the outcome of these negotiations. It is envisaged that a different corporate structure is likely to be appropriate for the legacy centre, to reflect the changing interests of the main project partners, the potential for introducing commercial partners, and the need to optimise the financial position including taking advantage of any fiscal benefits eg NNDR relief.

  3.  A preliminary study in the summer of 2000 by Ernst & Young examined a number of options and the potential roles to be played by the principal partners. It suggested that a Limited or Limited Liability Partnership (LLP) might be the most suitable PDV structure during the construction phase, and this will be the starting point for developing more detailed proposals in the next few months. However, the project partners will also be reviewing this initial conclusion to determine the most financially advantageous, legally sound, and operationally efficient arrangement. This will include consideration of the tax implications of alternative models. PMP Consultancy in association with KPMG have been appointed to undertake this work with an end date of 30 April 2001.

  4.  The partners are also about to commission advice on the legal implications, advantages and disadvantages of the alternative models for the PDV structure. This will encompass:-

    —  The ability of the PDV to adapt to reflect emerging and evolving stakeholder interests, including new partners/stakeholders, as the project develops.

    —  The effect of the proposed model on the apportionment of legal and financial risk between the PDV and the project partners.

    —  The legal capacity of the project partners to participate in the PDV.

    —  The impact of relevant legislation affecting local authorities and similar bodies on the form and structure of the PDV eg involvement in companies and capital controls.

    —  The potential to comply with the requirements of the Lottery Distributor and standard Lottery funding regulations.

    —  The potential for the PDV to facilitate the transition to an efficient management structure after 2005.

  5.  The project partners appointed legal advisors will also be providing advice on the legal options, implications, advantages and disadvantages on the alternative models for the ultimate management of the centre, warm-up track, High Performance Centre and other related facilities.

  6.  These may include management via a trust, private sector partnership, management contract or a series of franchises, plus potential "hybrid" options. The examination of each option will have regard to:

    —  Exposure to risk for the project partners

    —  Taxation (including corporation tax, VAT, and National Non Domestic Rates)

    —  Impact on the control of facilities by project partners

Question 2:  What organisation(s) will bear the financial risk associated with the delivery and operation of the stadium?

  7.  The project partners are conscious that risk cannot be completely eliminated. The scale of the development means that the potential financial commitments and liabilities are too large to be borne or underwritten by any of the existing project partners. In essence this is a national project. While the project partners are committed to its delivery and have already assumed a degree of risk to achieve that end, as mainly regional or local bodies they are not in a position to underwrite the project as a whole.

  8.  One of the key reasons for the establishment of a PDV is therefore to protect the individual partners from financial risk. It is intended that this will be borne by the PDV itself.

  9.  The overall programme for the development aims to minimise, as far as is possible, the financial risks associated with a project of this size eg through a low risk planning strategy, a prudent approach to business planning, and the adoption of proven routes for design, procurement, and funding.

  10.  Work on identifying the potential for commercial involvement will also examine the degree to which some risks might be better managed by being allocated to private sector partners.

Question 3:  What options have been considered for revenue funding for the LVNAC and what alternative sources have been identified if the London Marathon Charitable Trust does not make a firm commitment to provide the necessary funding?

  11.  The Lee Valley Regional Park Authority, London Borough of Enfield and UK Athletics have agreed to contribute to this net annual revenue deficit, estimated at around £900,000 per annum.

  During the next stage of the project (January—May 2001) further revenue options will be considered. These include:

    (a)  Anchor Tenant

    (b)  Rate relief for the legacy management vehicle

    (c)  Income stream for centre naming rights

    (d)  Sponsorship

  12.  It is important to note that the LVNAC project is only eight months old and that tremendous progress has been made in a short time. There is a commitment from the project partners to fund the annual running costs of the new centre. There is also a commitment to reduce the annual running cost and over the coming months, and indeed, over the next four years there will be a drive to capture other revenue contributions.

  13.  As part of the feasibility exercise, initiated in June 2000, Ernst and Young carried out a comprehensive business planning study for the legacy LVNAC. The study identified a number of income strands for which there is a high level of confidence in achieving: Health and Fitness, conference/exhibitions, five a side football, golf. After taking these income streams into account the business planning study concluded that the annual net running costs for the LVNAC would be in order of £900,000.

  14.  In addition the London Marathon Trust has indicated that it is prepared to consider making a significant revenue contribution towards the annual running costs. At its most recent board meeting in January the LMT agreed to take an active part in the LVNAC project during the next critical stage: stadium and centre design, capital funding; determining a PDV, legacy stadium/centre management structure, revision of business plan.

  15.  If LMT does not make a firm commitment to provide revenue funding then there will clearly be a greater imperative placed upon the other project partners to achieve revenue streams from other sources.

Question 4:  What discussions have been held on possible anchor tenants from sports other than athletics and is this option still being considered?

  16.  It is hoped that over the coming months, as the stadium and other facilities designs take shape and the capital funding position becomes clear, potential anchor tenants will be more inclined to take an interest in the project. This option is still very much being considered.

  17.  Discussions have taken place with premier league rugby clubs with a view to them becoming anchor tenants at the LVNAC. Such early discussions have proved positive and at least one club expressed a strong interest. However the project is still in its infancy and rugby clubs are tied into long term contractual arrangements. It is therefore difficult to see a club committing itself to a partnership that will not kick off until the 2005-06 rugby season, at this early stage.

Question 5:  How and when will the design team be selected?

  18.  Faulkner Brown has been appointed to prepare design drawings to support the planning application for a National Athletics Centre at Picketts Lock.

  19.  The selection of the architects met all the key rules of procurement under OJEC and representatives from organisations including Commission for Architecture in the Built Environment (CABE) were consulted. Consultants tendered for work under Lee Valley Regional Park Authority's procurement rules.

Question 6:  A "c" value of 90mm is given in the summary of the technical feasibility study. What focal point is used in this calculation?

  20.  The Technical Brief (October 2000) produced in accordance with the requirements of UK Athletics stipulates "When measuring `c' values the point of focus is to be the outside of the outside lane of the athletics track". The design team are however assessing these viewing standards to ensure that UK Athletics' desire for an intimate atmosphere can be achieved.

  21.  The recent study visit to the Stade de France (Paris), Stade Charlety (Paris), and the King Baudoin Stadium, formerly Heysel (Brussels) revealed that none of these stadia achieve the viewing standards set out in the NAS Technical Brief. Currently it is proposed that the point of focus be the outside of lane 3 and the jump pits which are located outside the track. In order to achieve the World Athletics Championships capacity whilst maintaining an intimate atmosphere for the "Legacy" centre some of the temporary seating may have a minimum "c" value of 60mm.

Question 7:  Does the estimated cost of £95 million include the costs already incurred and those to be incurred to next spring from the grant of £1.33 million.

  22.  Yes, the estimated total cost of £95 million does include the costs already incurred and those to be incurred to next spring from the grant of £1.33 million.

February 2001

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Prepared 26 March 2001