Examination of Witnesses (Questions 100
WEDNESDAY 31 JANUARY 2001
100. Big deal. Do you not go into investments
on a basis of risk? When you go into the stock market do you not
buy stocks and shares without a guarantee that you are going to
make a killing? You hope you are but at the end of the day you
put your money in and know there is a risk. The shareholders have
not lost anything yet, have they, because the taxpayers have bailed
them out? What have the shareholders lost?
(Mr O'Boyle) They have lost any chance
of securing their return.
101. Have they? My understanding is that you
have been given the most lucrative part of the contract, you have
catering, you have car parking, I might be wrong but you also
get the rent from Leeds dockland. All that. How long will it take
you to pay off the £20 million debt?
(Mr O'Boyle) Current projections show
it will be 30 years.
102. How long is the contract for?
(Mr O'Boyle) Forty years or earlier if
we pay the debt off earlier. It will terminate earlier. In other
words we pay a royalty payment to the Armouries; we pay 20 per
cent of our turnover to the Armouries if we pay the private sector
debt off before the 40 year term.
103. Would you say you have been rewarded for
(Mr O'Boyle) No.
104. The taxpayer might. What are the shareholders
getting at the present time?
(Mr O'Boyle) Nothing.
105. When do you actually think you will be
able to pay dividends to the shareholders?
(Mr O'Boyle) It will be highly unlikely.
106. The shareholders will not get a dividend.
(Mr O'Boyle) I do not think they will.
107. Let me be clear: ever?
(Mr O'Boyle) On the current projections
we have a long way to go. We certainly have 30 years.
108. You are required to tell us the truth exactly.
(Mr O'Boyle) There is a possibility,
theoretically, that 30 years after the debt is paid before the
franchise falls in, there could be a return. But that is debatable
as it relies on the performance of the Clarence Dock development
delivering increased returns so that we can commence paying the
debt down. That has not started yet.
109. By the way, there were three people in
this group, not two. From what I understand, they were pretty
much experts in their field. Tell me, when these people wrote
to us, they also, for example, said that in fact there seems to
be a belief that the management and staff of the Armouries had
really been victims of circumstance and that unfortunately what
has happened has been unavoidable and that there have been no
errors in management or presentation. Would you agree with that
or do you think the management of the Armouries could have been
(Mr Wilson) The management of any organisation
or project can always be done better and we certainly would not
be complacent. We have to balance the many successes we have had
in this project and I have to tell you I am extremely proud to
have been involved in this and to have seen the enormous amount
of effort which both consultants and designers and staff have
put into it. It has been a tremendous achievement. We have to
balance that with a proper assessment of where we have gone wrong.
Yes, we have to balance the very few people who have complaints
about the museum, against the very many who do not. I can read
you out a whole string of letters from people saying they have
had the most marvellous time ever and think it is the best museum
there is. We have to look critically at what we have done and
that is what we are doing. We are certainly not resting on our
110. Why did Gardner Merchant withdraw from
operating the museum soon after it was opened?
(Mr Wilson) I think you should address
that question to Mr O'Boyle.
111. We are not told why in the report.
(Mr O'Boyle) No, you are not and I can
answer that. Gardner Merchant were selected because the investors
wanted an organisation to come in and ensure the successful launch,
right procedures, right practices were in place. Gardner Merchant
also provided valuable guarantees of the secondary expenditure
and the costs. In other words, they were validating the business
plan assumptions. In reality, once the visitor numbers were substantially
below the original projections, those guarantees were worthless.
By mutual agreement with Gardner Merchant, we released them from
their guarantee liability and TUPE'd the staff over to us at the
end of 1996.
112. Are you actually saying that Gardner Merchant
saw the writing on the wall?
(Mr O'Boyle) In essence, they were not
adding value, they were adding overhead and because they were
an investor they wanted us to be as efficient as possible and
we were therefore able to cut our losses.
113. How much experience have they had in running
museums? My understanding is that they ran car parks. My understanding
is that all they had experience in was running car parks.
(Mr O'Boyle) They had involvement in
a lot of historic locations.
114. Car parks.
(Mr O'Boyle) No, not just car parks.
115. It says on page 2 of the report that the
strategic business objective of the Armouries was to become more
self-sufficient. You have not achieved that, have you?
(Mr Wilson) No, we have not achieved
it yet. That was one of our strategic objectives.
116. I presume that RAI's strategic business
objective was to increase shareholder value for the shareholders.
You have not achieved it, have you?
(Mr O'Boyle) No, we have not.
117. Mr Young, I hope you are not going to say
that the strategic objective was the regeneration of the Clarence
Dock area. I would assume that your strategic objective was first
of all to create a world class museum, which seems to be the only
thing that has happened here, but also to reduce the grant-in-aid
to the Armouries. You have not achieved that either, have you?
(Mr Young) We have not achieved that
last bit, but you are right about the first. We did want to increase
access for the public to much more of the Armouries' material.
They could only show ten per cent of it in the Tower of London
and by moving out to Leeds they could show huge quantities more
in what has become a world class museum. We also had the explicit
objective of maximising the private sector contribution and we
did get one third of this built and financed by the private sector.
We did pass over the risk entirely to the private sector of the
disappointing first years to the tune of £21 million of debt
which is still stuck with the investors and we just heard they
are not likely to get it back.
118. Looking back on it, taking a strategic
look, as you must do from your Department, as a PFI scheme was
this not just a disaster?
(Mr Young) It was not as good as it would
have been had we had the guidance we now have. I repeat the theme
of what I have been saying: had we got the PFI guidance we now
have and which we have tried to import into the re-negotiation
of the deal in 1999, it would have been a much better deal for
all the reasons set out in this report. A final piece of the picture
I ought to fill the Committee in on is that the Historic Royal
Palaces Agency, which runs the Tower of London, has saved the
taxpayer £20 million by its lucrative use of the space vacated
by the Armouries.
119. That is in the report. I always assumed
that consultants were appointed on the basis of some form of track
record they had. When I look at this report it says that Grant
Leisure had estimated roughly 1.2 million visitors, that MORI
had estimated roughly one million, but RAI itself had discounted
that though they were still estimating three quarters of a million,
but even at half a million that is less than half of the two original
consultants' estimates. Of course eventually we ended up with
something like 300,000. That seems like an absolutely disastrous
estimate on the part of those so-called consultants. Why are these
people still in business?
(Mr Wilson) They are in business, I presume,
because people still value their services.
6 Note: See Evidence, Appendix 1, page 21 (PAC 2000-2001/153). Back
Note by Witness: The Royal Armouries (International) Plc were
able to cut their operating costs, not their losses. Back