Examination of Witnesses (Questions 60-79)
WEDNESDAY 15 NOVEMBER 2000
MR ROBIN
YOUNG, MR
M O'CONNOR AND
MR D JAMES
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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