Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 100 - 119)



  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 failure?

  (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. Ever?

  (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.

Mr Steinberg

  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 done better?

  (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 laurels[6].

  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[7].

  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.

Mr Love

  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

7   Note by Witness: The Royal Armouries (International) Plc were able to cut their operating costs, not their losses. Back

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