Examination of Witnesses (Questions 120-139)
WEDNESDAY 15 NOVEMBER 2000
MR ROBIN
YOUNG, MR
M O'CONNOR AND
MR D JAMES
120. Who appointed them?
(Mr James) The board of NMEC, as I understand it[15].
121. Was a Mr Ben Evans appointed one?
(Mr James) Mr Ben Evans was indeed associated with
the project at that time, yes.
122. What was his qualification?
(Mr James) I am unaware. He had gone long before I
arrived on the scene. I have never thought to ask that question,
so I cannot answer you.
123. Would Mr Young have any idea of appointments
at that period in the development of the Dome?
(Mr Young) I met Ben Evans but do not know what he
was doing before.
Mr Burns: I understand he was basically a Labour
Party official and it just seems an odd qualification for being
a content editor of one of the zones. Obviously I shall leave
that because clearly none of you are familiar at that level.
Mr Love
124. Can I refer you to figure 1 on page 7 which
I am sure you will know explains the responsibilities and accountabilities
of the different organisations: three bodies, three different
accounting officers, two Ministers involved. Coming in as you
have in September, do you think that is an ideal structure for
such a delivery vehicle? Would you agree that it is perhaps a
little complex and perhaps somewhat confusing?
(Mr James) I would agree yes to every one of your
points.
125. May I take you on then in relation to the
comments which are made in the report about the confusion which
existed between the formal communication between these bodies
and some of the informal dialogues which seemed to have gone on?
The report talks for example about the board taking solaces and
assurances from parliamentary statements that were made. Indeed
it sought protection, according to page 34, section 2.14 of the
1996 Insolvency Act, of which I am sure you are aware. Do you
think that did not lead to the sort of decisive actions that we
needed if we were going to deliver this project on time and carry
it through to completion?
(Mr James) It is a very specific question. I shall
give you a very specific answer. I believe, as you have drawn
attention to the chart on page 7, we could say that this is indeed
a reflection of the point made as early as paragraph 2 of the
NAO report, that there is a problem of structure. You have drawn
attention to the fact that there are three accounting officers
involved in this. There is no such thing as an accounting officer
in the world of a conventional or Companies Act company trading
on the Stock Exchange and yet here we have three accounting relationships.
If I were to put an overall assessment to somebody who was a foreigner
to this field, overall I should say that what you are looking
at on page 7, is a Companies Act company which is suffering from
the split personality of being a demi-quango as well. That is
an unavoidable consequence of this. I do not see, however, how
it could have been otherwise, given the responsibilities of the
Government departments which set out to create it. They have been
asked to fulfil a political vision. They cannot do that and then
abandon their responsibilities for accountability. They have to
find a way of making accountability work within a structure which
also has to be an independent company, with the consequences of
the Solvency Act and of the Companies Act around its neck. This
unfortunate structure is all that they could arrive at as a formula.
I am very sympathetic to everybody's position. It is something
which could not have been avoided, but it is very, very hard to
live with.
126. I gather from previous responses you have
made that you have read through all of the minutes of all of the
bodies and you have traced through all of the activities. Was
there any discussion at any time about the possibility of this
type of structure not being, recognising that the accountabilities
had to be there, appropriate and action taken to try to overcome
the confusion which may have existed?
(Mr James) Yes. This was introduced as a consequence
of the failure to achieve the original objective which was to
get the whole project contracted out to the commercial sector,
but the commercial sector did not accept the invitation. As a
consequence, the departments concerned mandated to create and
fulfil the dream of the Dome celebration and the millennium celebration
found themselves progressively having to buy, in the case of the
Commission, a company from Imagination which had been initiated
with a view to setting up the commercial concept. Having bought
it you are on the slippery slope which leads to the structure,
because you now have the means of creating the structure for a
Dome company. Now you have to put a board in place to run it,
then you have to separate it to the point where it becomes subject
to the Companies Act. Nobody at that time was thinking of the
Solvency Act because nobody ever believes that will become an
issue. You also have to have a financier. Private capital said
no it would not apply. The Commission therefore has got itself
inadvertently into a position where to fulfil the political dream
it has become the quasi-banker to a company which is not quite
a quango and not quite an independent PLC.
127. I think the length of your reply explains
the real difficulties which existed.
(Mr James) I am sorry.
128. I want to go onto the figures for visitor
numbers. As both yourself and Mr O'Connor have explained, some
quite considerable research and analysis was indeed carried out
in reaching the figure of 12 million visitors. What I should like
to do is ask you a very unfair question. If you had been involved
with this project, at the time when that figure was brought forward,
do you think you would have cast somewhat of a more critical eye
than any of the different bodies had done over it?
(Mr James) I would certainly have asked myself one
very important question and that was whether I was taking a risk
with shareholders' money which was justified in terms of the return
that the Shareholder wanted. That is a very interesting question
for you because in this particular case the shareholders' money
is coming through from the lottery, effectively sponsored by the
Government to use and the Government wants a given outcome. It
wants a celebration and a Dome. I would have had to judge it not
by the standards of a company listed on the Stock Exchange, but
by a totally different set of criteria with which I am unfamiliar.
129. What I was really trying to lead onto was
that there is a terrible sneaking suspicion that that figure of
12 million actually created an overall financing of the Dome that
would be acceptable to the public. If they had taken a much more
ruthlessly realistic view, then the finances may have been such
that people would have found it impossible to allow the project
to go ahead. Would you accept that is a concern which people would
have?
(Mr James) It would be correct that the foundation
budget would probably not have passed the due diligence required
for a listing on the Stock Exchange. But this was not that. It
was the means of fulfilling a political dream and as such it carried
with it a reasonable prospect, by all the criteria available to
those who had to judge, that it would be achieved.
130. What you are saying is that if it had been
in the private sector this would have been the overall, overriding
priority to get those predictions of visitor numbers right, but
because of other priorities it came much further down the priority
list.
(Mr James) I am saying that it was essentially recognised
as having a risk element which might not have applied if you had
been seeking to invite capital from the Stock Exchange.
131. The report makes the point and you have
all agreed it, that there is no comparator but the comparator
has been made with various expos and I shall not go into the failure
of the recent expo in Germany which I suspect is even greater
than the failures at the Dome. It is interesting that when you
sought round to bring in the expertise felt necessary for the
Dome you turned to EuroDisney rather than to someone who had an
expo background. Please explain that?
(Mr James) Mr Gerbeau was an inspired choice and if
we had not had him, I do not like to think where we should have
got to with our numbers at the end. We needed somebody who knew
how to handle large quantities of people moving in a relatively
confined space and improve the access, which he did and the numbers
have recovered. He was a natural choice for it. We were very lucky
to get him.
132. I understand that and I accept that. There
is no criticism of Mr Gerbeau in this. There is a lot of talk
in the report and you have reflected it here about the need to
bring in that operational expertise. It should have been brought
in at a much earlier stage. If it had been brought in, do you
think Mr Gerbeau would have cast a more critical look at the 12
million figure?
(Mr James) It needed somebody exactly like him, whether
it was Mr Gerbeau or somebody it definitely did, and it needed
them from some time around about the spring of 1999, because that
would then have provided the time to put an overlay on other people's
great enthusiasms and the great ideas they were trying to harness
and would have put operational experience as an overlay.
133. May I just take the experience of EuroDisney?
As I understand it, it is reaching about 10 million visitors per
year at the present time and we do know the considerable difficulties
it went through in the early stages, which I believe required
refinancing at one stage. With that experience behind him, do
you think Mr Gerbeau or indeed anyone who had experience of that
type of very large-scale activity would have been much more critical
about the business plan on which the Millennium Dome was based?
(Mr James) I believe he would have been; after all
he made a number of changes at the time when he did arrive but
these are essentially changes driven by operational experience
and his eye for what makes customers come in.
134. May I take you on to a point which was
made earlier on by Mr Rendel which I just want to clarify? You
indicated that two of the exhibits inside the Dome were actually
funded directly by the private sector, which means that the overall
expenditure figure of £793 million excludes that particular
expenditure because it was taken on by others. Therefore can I
seek your agreement to the view that the overspend on the original
budget for the Dome is greater than is being expressed in this
report?
(Mr James) Not really. This is the difference between
the number of zones which were planned and the number of zones
which were built. We have actually ended up with two more zones
than were originally intended and those are really represented
by the money which was spent. At one stage it did go to 15 in
the plan. It went 12, 15, 14.
135. Recognising the difficulties which were
already inherent in the scheme at that stage, was any consideration
given to reducing by two the number that were being funded by
the Dome itself in order to try to reduce the overall cost?
(Mr James) The trim from 15 to 14 reflects that intention
to control cost.
136. But not any further.
(Mr James) No, I do not believe so.
137. You mentioned the hard-pressed finance
director and staff. There is quite a lot of evidence from this
report that the whole team in finance in the Dome was under-resourced.
Would you agree with that and if you had been there at the beginning
would that have been an issue you would have highlighted?
(Mr James) Yes. I think though that I have said separately
that I would have gone down a different course of action. I would
have had a resident executive finance team on site, but I would
probably have contracted out the financial management of such
things as the bought ledger to a major firm of accountants on
the grounds that that would then have been a flexible cost that
could move up, such as at key periods in the last quarter when
the pressure was appalling. I would probably have lived with a
small team but a greater reliance on external outsourcing for
some skills.
138. I accept the need for external skills,
but in the report it details that on two occasions outside consultants
were brought in and indeed one of them was brought in when you
first became involved.
(Mr James) Yes, but not to run the system. I would
actually have had them come in and run the bought ledger during
that time for control.
139. I understand that. The reality is that
those outside organisations were brought in implicitly because
the finance function was failing to keep on top of the issue that
it should have been on top of. Therefore the question I ask is:
would it not have been much more sensible for them to have strengthened
the finance team in order that that would not have been necessary,
that the board and indeed all the others involved in the Dome
would have been fully aware of the financial situation and how
they were going to carry that forward?
(Mr James) It is a view I would support. May I make
a comment about the general financial control system because it
is a question which has not been asked but it is very important
here? The report says that there is a weakness of the controls
and the financial management here. The view that I and my colleagues
who have come in with me to take control of this from September
have is that the systems were actually quite good with two major
exceptions. There was a failure to provide for an adequate integrated
financial model and there was a failure on the accruals system,
but the actual system for the bought ledger otherwise was pretty
good and the other systems were sound. They just got overwhelmed
by what you have seen, that £132 million flooding through
in terms of invoices coming in in that three-month period at the
end of last year.
15 Note by Witness: The appointment of contract
editors fell within the Chief Executive's delegation from the
Board. They were, therefore, appointed by the Chief Executive. Back
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