Examination of Witnesses (Questions 60
- 79)
WEDNESDAY 31 JANUARY 2001
MR ROBIN
YOUNG, MR
GUY WILSON
AND MR
CHRISTOPHER O'BOYLE
60. You mentioned catering and we are led to
believe from correspondence which the Committee has seen that
they also had experience in running car parks, which, given the
position you have arrived at is the full circle, is it not, because
that is essentially what you are doing, is it not?
(Mr O'Boyle) We are running a corporate
operation; by corporate we must not assume it is purely catering
or silver service. The Armouries is actually a very important
asset for the region. It is used by a lot of organisations for
inward investment. We have a growing band of corporate/government
events, organisations which use the Armouries and we are very
proud of the service we offer.
61. The point I am making is that the dream
your company had and the role you had has been significantly cut
back. We are told in the report that it is an important job but
it is catering and car parks.
(Mr O'Boyle) It is, and that was part
of the deal we had to face up to as part of the restructuring
of 1999. What I would say to you is that we were able to recruit
the best people from the leisure industry to join us for the launch,
indeed I am pleased to say that our first operations director
has gone on to a very senior post in the tourism industry. Her
deputy, whom we recruited from Tussaud's is actually now a senior
figure in another leisure organisation.
62. It struck me, and the Chairman's opening
question alluded to it as well, that it is a bit like the Dome
to some extent in that some of the seeds of the problem were sown
at quite an early stage. I was struck by the report which is really,
as far as I can see, a catalogue of neglect and failure. Let us
look at paragraph 4. This is a high risk project which failed
to attract more than one seriously interested party from the outset.
Should warning lights not have been flashing?
(Mr Young) The answer to that is yes.
Under current guidance for PFI projects, if there is not sufficient
interest from the private sector we are urged to reconsider or
alter the offer so as to attract more private sector interest.
63. In paragraph 1.23 we are told that Tussaud's
were interested originally. They have enormous experience of visitor
attractions, they said that the visitor projections for the Armouries
were too optimistic. Was their view not seriously listened to?
(Mr Young) We should have reconsidered
and the current guidance would have obliged us to reconsider the
offer we are putting to the market. The answer is yes. So, I repeat,
we should either have altered the offer so as to attract more
interest, or put some conditions to it, for example a minimum
level of visitors being achieved, so as to attract more people.
The current guidance, as the report rightly points out, would
oblige us to do just that.
64. What was their visit projection?
(Mr Young) I do not know, I am afraid.
(Mr O'Boyle) In the discussions they
were talking around about the high 500,000 to 600,000-ish. Warwick
Castle was their benchmark. At the time that was getting about
625,000; it is now getting over 800,000. That fell within our
downside sensitivities which we put together.
65. Warwick Castle has been around for a long
time. It has a history footfall. It is not a new high risk venture,
is it? One of the aims of this project was part of a process of
making heritage bodies more self-sufficient, was it not?
(Mr Young) Yes.
66. There was as the stick at the end of it
all a real threat that the public purse would not be there to
pick up the bill any longer. So there must have been pressure
to push on with this PFI from the outset.
(Mr Young) As the report makes clear,
this was one of the very earliest PFIs and lessons which we now
take for granted had not yet been learned. The report rightly
points out and compares current guidance on PFI projects and the
Government Department's behaviour in this one. You put your finger
on two of them: we ought to reconsider if there is not sufficient
market interest; we should look askance if a well-known organisation
like Tussaud's walks away because of difficulty in the offer we
are making. We should have altered the offer. We should have been
alerted by the lack of private sector interest to it. That is
what the report says and current guidance would oblige us to do
just that.
67. Why was no public sector comparator sought?
(Mr Young) Because the open explicit
objective laid out on page 12 was to obtain maximum private sector
funding.
68. In other words, you did not have to.
(Mr Young) We did not have to. That was
the explicit open statement of policy.
69. You were getting advice from Schroders at
the time who were quite keen on the project going ahead. They
had been involved from the start. Who else was giving you advice
at that point? Who was providing a perhaps more objective and
fresh pair of eyes?
(Mr Wilson) At that time on the financial
side Schroders were the only advisers.
70. According to paragraph 1.11, Schroders said
that there would be a net revenue of somewhere in the region of
£4.2 million a year. It is pie in the sky, is it not? We
are also told that when the visitor figure reached more than 1.3
million, the taxpayer would start to benefit from that and get
some money back. Which consultant advised you, of all the ones
you chose, that you would get more than 1.3 million?
(Mr Wilson) No-one said more than 1.3
million.
71. Nobody did?
(Mr Wilson) No.
72. Not one of them did, yet that was the point
chosen at which the taxpayer would begin to get some of the benefit
from this. Not one set of advisers had suggested that that was
possible.
(Mr Wilson) Correct.
73. When was PFI guidance introduced?
(Mr Glicksman) About 1995.
74. Paragraph 19 says that had there been guidance
then the Armouries would have been better placed to deal with
some of the problems which came along later.
(Mr Glicksman) That is correct.
75. Figure 6 says that it is the joint responsibility
of the parties involved to agree performance requirements so that
if things did go wrong, people would know what had been expected
of them and hopefully things could be put right. Why were those
performance requirements not ever produced?
(Mr Young) Because the parties could
never agree and it was not a prior condition before things started
that the agreement should be in place, which it would be now.
You are rightly underlining another difference between current
PFI guidance, which says that this sort of agreement should be
entered into by agreement between both sides before the thing
starts, whereas in 1993 the opposite happened. The project got
under way with the obligation on them to try to agree and they
never did.
76. Paragraph 1.61 is another one. Failure to
agree access to financial records. When things go wrong you are
then groping around in the dark, are you not, and the clock is
ticking.
(Mr Young) That is correct. Current PFI
guidance obliges transparency which was not the case in 1993.
77. Failure to secure access to assets in the
event of the termination of the contract. The possibility of having
to wait two years before the taxpayer could see what was left
for them.
(Mr Young) All of which we have sorted
in the revised deal. In the deal which was done in 1999 all of
those conditions, in line with current guidance, are met. There
is now transparency, there is an agreement between them and everything
you have mentioned so far has been sorted in the revised deal.
It was not there in 1993; it just was not there.
78. As you well know, and as is often said in
this Committee, the benefit of hindsight and experience is a wonderful
thing. That is not what I am getting at in these questions. What
I am getting at is that even without the benefit of hindsight,
why is it that the planning appears to have been so lax, that
something was missing here? You are talking about people who should
know better and yet what appears to be very basic precautions
have not been taken.
(Mr Young) I can only say that the specific
objective was to maximise private sector contributions. The private
sector would not have agreed—ask Mr O'Boyle—but, if
that was thought at the time that we could not load in other things.
This was the best deal available at the time with the knowledge
and experience of PFI deals which we then had.
79. Whatever the cost to the taxpayer, what
we now have is a revised deal which is not a PFI and we have the
company which was set up to deliver it—which takes me back
to the point I was making earlier—doing the catering and
dealing with the car parks. It really does not represent good
value for taxpayers' money and actually does a disservice to people
who were looking for a very, very good museum in the north of
England.
(Mr Young) Perhaps I could say two things.
If you look at table 7 on page 14, this shows that the total cost
of this was £42.6 million, of which about one third was paid
for by the private sector. As the rest of the report makes clear,
the private company, Mr O'Boyle's company, has built up debts
of £21 million which are not public sector debts. The private
sector has paid for one third of the project. It has debts of
£21 million, for which the public sector is not liable, so
it has not been a risk free thing for the private sector. The
public sector has gained to that extent that we have had one third
of the project financed by the private sector and the debts arising
from the disappointing first few years are not with the public
sector. In that sense we have not done badly. In fact what we
have done is put too much of the risk in the private sector so
that the project is not sustainable. In order to maximise the
private sector contribution, we have given them obligations they
could not fulfil, with the result that the deal had to be renegotiated.
I would argue that the re-balanced deal which was done in 1999
is wholly in line with current PFI guidance and does give a good
deal to the taxpayer. It also sustains what is a world class excellent
museum in Leeds.
Mr Campbell: It is a pity it was not done earlier.
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