Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 60-79)



  60. So you are saying that £793 million includes the £46 million.
  (Mr James) No, the £793 million does not include the £46 million because it was carried by the sponsors themselves.

  61. That is what I thought. So the overall cost has in fact gone up not from £758 million in the original estimate to £793 million, but from £758 million to £839 million.
  (Mr James) Only if we had chosen to go ahead with the building of the other zones at our own cost.

  62. But they were in the original estimate.
  (Mr James) I understand they were in the original concept but not built into the design budget at the end.

  63. Which do you call the design budget? The £758 million?
  (Mr James) The £758 million.

  64. The visitor figures have been all along lower than expected but we started at the Dome with huge queues. What would have happened if the visitor figures had been what had been expected?
  (Mr James) Several points concerning that. One thing which has not been said at this meeting so far, which may be helpful to know, is that the budget on which the costs and revenue were based did anticipate actually a contingency of £20 million[8]. Every one million visitors who go through our doors are worth approximately £16 million of revenue to us. We had a contingency for just over one million shortfall against the 12 million. In fact the real figure we needed for balancing the books was just below 11 million not 12 million which is the well publicised figure. The problems which occurred at the beginning were seriously prejudicial to getting paying customers coming through. Those problems came about from some difficulties with the layout, access and circulation, which had to be addressed very urgently and, secondly, from some difficulties with the ticketing system which at the outset was not expected to include any ability to buy tickets at the gate. This would have been appalling if it had gone on, because we had been averaging some 5,000 per day[9] and that demonstrates that was something we did get wrong from the beginning. The difficulty was operational and it leads effectively to another comment which we would all probably unite on and which is covered in the report, that we should have had more operational expertise at the critical design and build stages so that we could have avoided these problems of circulation to which you refer.

  65. Section 2.39 makes it clear that when you released the funds in May, you contrasted a possible £100 million investment on the worst case scenario with a possible public sector bill of £200 million and you reckoned that was therefore pretty good value for money. If you had known at the time that the extra investment needed was, as it now turns out, going to be some £169 million, would you still have thought it was good value for money or would your judgement have been different?
  (Mr Young) A hypothetical question, but I would have had more difficulty in reaching the conclusion I reached. It was fairly straightforward as I understood it. I thought £100 million was a perfectly good worst estimate at the time and I was satisfied that £200 million was a good estimate at that time of the cost of closure. When trying to advise the Secretary of State whether he should release the lottery money, that was not too difficult. I looked at the figures and I came to that conclusion. Had it been narrower, I would have found it more difficult.

  66. Given that it was a quite significant underestimate of the extra investment which was made, how do you justify your conclusion that actually it was fairly accurate?
  (Mr Young) At the time £100 million looked like a pretty pessimistic worst estimate and was the lowest estimate there was around of what more might be needed.

  67. Although by May, the figures for visitor numbers were beginning to show a very consistent trend, well below what was expected. Possibly true?
  (Mr Young) That is definitely true, but £100 million was still a huge estimate for us to make of the cost; enormous. Those were the best estimates available at that time.
  (Mr O'Connor) May I make a point of clarification? At the time when the £29 million grant was made, which was when Mr Young made his decision that £100 million playing £200 million was a reasonable calculation, we had already given £60 million. From that point on the total extra grant was £179 million minus £60 million, so £60 million had gone. From then on another £119 million had flowed out so there would not have been another £179 million if he had said no at that point.

  68. I think I understand what you are getting at, but I am not sure you are correct.
  (Mr Young) That was the correct answer to my question.

  69. I will leave that one for the moment. I am not sure it was the correct answer. May I turn on to Mr O'Connor and talk about paragraph 2.36 where you suggest reasons why the Commission might have wanted to give you a direction, which were not reasons which you chose, namely ". . . `the economic impact of closure, including the potential impact on public sector funds' and `the reputation of the UK'". Could you tell us perhaps which of those two reasons weighed the most heavily in their decision to give you a direction?
  (Mr O'Connor) I believe it was the economic impact of closure at that point.

  70. Did they give any weight to the question of the reputation of the UK or was that not significant in their view?
  (Mr O'Connor) Yes, they did. The Dome was after all essentially their idea. Even in May they still had significant hopes. The summer was yet to come. They believed it could achieve a great deal. The main tourist season was coming. They believed it was a good product and in fact 87 per cent of the people who go think it is a good day out. They still supported it, they still wanted it to continue. They thought that the images of the Dome closing in May, less than half way through the year, would be very damaging for the reputation of Britain's centre piece for its millennium celebrations as they had been decided to be.

  71. Did they consider the possibility that the continuance of the Dome and the continuing stories which were going to come out about how badly it was doing could have damaged the reputation of the UK even more than closure?
  (Mr O'Connor) They still had hopes that the Dome would achieve better numbers. They believed some good action had been taken to improve the product. P Y Gerbeau had done some very important things to improve visitor experience. They were very disappointed about the Easter visitor numbers which were a great disappointment, but they believed with the summer still to come, that significant success could still be won.

Mr Gardiner

  72. In June of 1997 the consultants then drew the attention of the board to the need for NMEC to appoint someone who had experience of actually running a large visitor attraction. I know you were not there at the time, but given that you are here representing NMEC, can you explain to us why it took almost three years to act upon that recommendation?
  (Mr James) You identify a criticism which is in the report to the effect that there was no direct operational experience and we would all recognise that. I would agree with that criticism. What is more regrettable is that a great performance in achieving the delivery of the Dome by a deadline, which was very difficult in that time, was achieved, was fulfilled. I believe that what actually happened was that the board of NMEC and its executives became very heavily stretched as to their resources during the 1999 year. They probably overlooked the very prudent course they should have followed which was to run the development of a parallel executive team waiting to step in and take control on 1 January.

  73. Mr O'Connor, as the Commission's Accounting Officer you disagreed with the Commission strongly about the additional grants of £29 million and £47 million to NMEC in May and September of this year, did you not?
  (Mr O'Connor) Yes.

  74. When you consider that a course of action which the Commission wishes to pursue is unwise, or imprudent, or not value for money, I am right, am I not, in saying that you are obliged, you are required, to seek a formal direction from them? Is that correct?
  (Mr O'Connor) That is right.

  75. It is commendable that you did so then. Tell me, when the Commission ignored your advice, good advice as it now appears, that they should not approve the company's business plan unless it adopted more prudent figures for the visitor numbers and more prudent sponsorship targets, why did you not seek a direction from them then also?
  (Mr O'Connor) At what point?

  76. This would have been right back in 1997 when the original review was carried out by the consultants. You advised your board that they should not adopt what you considered to be imprudent visitor statistics.
  (Mr O'Connor) July 1997 was in fact my predecessor. My predecessor was faced with a situation where the prudent advice was to plan on the basis of eight million visitors. The Commission decided to go ahead with 12. However, 12 million was not unachievable[10]. It was a higher level of risk and he felt it was legitimate for them as he could not say for certain that it was not value for money because the advice was that it was achievable. If he had been advised that 12 million was not achievable, I think he would have had no alternative but to seek a direction.

  77. Thank you for that. Mr James, page 22 of the report and figure 7 shows that at the very end of 1999 your income from advance ticket sales was down £50 million on projections. In fact you had received just £3.7 million in ticket sales against a forecast of almost £19 million in ticket sales. In the light of that, why did NMEC continue to predict such high visitor numbers, given that 80 per cent of the advance visitor sales which you had anticipated had not materialised? How can that have been justified?
  (Mr James) This is a very strange story and one which I find very convincing. The expectation had been that the ticket systems which had been laid on, which were going to rely very heavily upon sales through the lottery and through the Internet, would bring about that advance booking figure. In fact a strange characteristic arose which nobody had anticipated, that people availed themselves of the opportunity to forward reserve instead of forward booking and paying. As a consequence they ended up with £13.5 million of reservations for which they had not received the cash, so they cannot reflect in that figure 7. If you add that £13.5 million to the £3 million they already had, you get £16.5 million against the £18 million they had been projecting. That figure gave them comfort but it did not give them cash.

  78. They did not just stick with those projections though, did they?
  (Mr James) No, they did not.

  79. They actually attempted to front load the figures. They raised the projected ticket income in a draft budget for the first three months from £28.7 million. By your own words you have just advised the Committee that they were £2 or £3 million down on their projection, but they raised that projection from £28.7 million to £59.7 million. I agree with you. I think that paragraph 2.14 is one of the most important in the entire report. That budget did not get past the board but who was responsible for preparing that draft budget that made those increases, over 100 per cent increase in the first quarter, on the visitor projections?
  (Mr James) If I might say on behalf of the board, of course the fact that they did not approve the report[11] was some evidence of governance at the level you would be expecting. The board was therefore following its proper responsibility.

8   Note by Witness: The figure is, in fact, £25 million, not £20 million. Back

9   Note by Witness: To date, the average door sales for Monday to Friday stands at 2,775. The average door sales for Saturday and Sunday stands at 4,278. The highest door sales to date on a weekday is currently 9,635, and the highest weekend door sales is currently 11,853. Back

10   Note: See evidence, Appendix 4, page 40, (Pac 00-01/13). Back

11   Note by Witness: Whilst the Board did not approve the report it did establish a Sub-Committee to review and monitor the company's budget and cash flow-as recognised at paragraph 2.15 of the NAO report. Back

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