Examination of Witnesses (Questions 140-159)
WEDNESDAY 15 NOVEMBER 2000
MR ROBIN
YOUNG, MR
M O'CONNOR AND
MR D JAMES
140. I have a little experience of the private
sector and one of the things the private sector does is make sure
that its finance function is up to the job. If the finance function
here had been up to the job, in other words if it had been strengthened—this
is no criticism of any individual member of staff involved—do
you think that what has happened, the way that the Dome has progressed,
would have been the same or do you think we would have had a much
better outcome than we are likely to have?
(Mr James) Actually I do not, because I think that
although it has made for a far greater complex to sort out, we
must understand that the overrun here is £35 million of overrun
on cost, most of which is related to the close-out cost after
January of next year. The real problem here is a revenue shortfall
from sponsorship plus sales of tickets. Therefore we have not
lost money as a result of inefficiency. We have had a bigger muddle
sorting it out but not lost it.
Mr Campbell
141. I should like to ask you about visitor
numbers because it seems to me that it is central to what has
happened at the Dome. While I hope that your staff have recovered
from the trauma of the recent attempted robbery, I do hope one
of them showed some initiative and counted the armed police officers
as visitors, because every little will obviously help. Visitor
numbers are crucial on a project like this, are they not? The
number of visitors you expect or hope to come through the door
helps to determine not only the budget of the project but also
the size of the building, the number of staff employed, the number
of pies you have to order, all of those things.
(Mr James) Absolutely correct.
142. Why is it then that the projected visitor
numbers showed such wild fluctuations? The report says that in
1995 the Millennium Commission were talking about 15 to 30 million;
by February 1996 that had been downgraded to between 11 and 16
million; by the end of that year it was back up again to 13.5
million. This is all against a background of Alton Towers, our
most successful pay-to-see attraction attracting less than one
quarter of the final agreed figure.
(Mr James) Yes and this was a figure which is even
now slightly edging up against the estimates on which we built
the figures into the budget for £47 million to the grant
application in September, because we anticipated at that time
that we would have 4.5 million paid customers by the end of the
year and we reached that figure last week with nearly seven weeks
to go. Even we got it wrong; we underestimated it slightly. It
is a bouncing ball. You are quite right, it has gone down. I drew
attention to the chart earlier on which shows that they were on
track with their forecast up to April for 10 million. I have also
drawn attention to the fact that the real figure built into the
budget was just a little under 11 million and not the 12 million
which has been the publicly expressed figure. I think you put
your finger on it very well: there was a lack of any comparators
which were reliable on which to base the figure. It was always
going to be a bit of a guess and unfortunately it was wrong[16].
(Mr O'Connor) May I answer for the Commission figure
of 15 to 30 million? That 15 to 30 million figure was an aspirational
figure for the capacity of the site. There was no concept of Greenwich,
there was no concept of the Dome when that figure was around.
It was for an exhibition. It could have been a non-charging exhibition.
The 15 to 30 million does not have any relevance to the Dome itself.
The first real figure which you can talk about in relation to
a proper estimate of what this Dome could accommodate and at certain
ticket prices, was the ERA/MORI research in November 1996 which
gave the range of 10.9 to 16 million. The Dome with a breakeven
point at 11 million was proposing the figure at the bottom of
that range coming out of that research.
143. Nevertheless, that figure will not be reached
by the end of the year. There is a huge gap, yet the project went
ahead based on those figures rather than something which would
have been closer to reality. Mr Love was almost alluding to some
kind of conspiracy theory: to me this is more of a cockup theory
of what happened because people made assumptions, went ahead on
those assumptions and unfortunately were having to pay a price.
You have corrected me: I was going to say 12 million which was
in the business plan in May 1997, but you said it was nearer 11
million.
(Mr O'Connor) Eleven million at breakeven.
144. That is exactly the point I am making.
If you are talking about a figure of 12 million and yet you need
11 million to balance the budget, there is not much room for error,
is there?
(Mr O'Connor) Yes, it was a high risk business plan.
145. That is exactly what the report says: it
was an extremely high risk business plan. May I suggest briefly
in passing that one million free child places, which is excellent
news for children and in that sense I accept it and applaud it,
are bad news for the budget, are they not?
(Mr O'Connor) I believe that NMEC's acceptance of
that one million free schoolchildren was based on the fact that
it did not knock a hole in their budget, they just reduced their
contingency on their revenue.
(Mr James) That is correct.
146. Let me go on to where the advice might
have been coming from for some of these figures. You were asked
about consultants earlier and whether or not the public were consulted
about whether or not they would attend. When did that process
begin, in other words the projections which were now being accepted
and the figure arrived at of 11-12 million? How much was that
actually based on information which had been gathered from the
public?
(Mr O'Connor) That was based upon the MORI research,
part of the ERA work in November 1996.
147. I cannot recall anyone coming to my Tynemouth
constituency and asking people whether they would be prepared
to pay. Then we did not know how much the tickets were going to
be and the trains were running and if you start to add the prices
together there is some deterrent built into that. How much of
that research asked the question: would you be prepared to come
to the Dome if you could not bring your car?
(Mr O'Connor) I can answer that in writing. I am not
so familiar with the research that I can answer that specific
question. It is comprehensive research based upon sampling. The
question of travelling time was covered and weightings were applied
to that, but I am not sure that the planning restriction on cars
was extant at the time.
148. It was a major decision to be reached,
was it not? When we visited the Dome we were all told of how many
people the transport system was going to deal with and the assumption
was that people would certainly not be encouraged, or not able
to come in their motorcars.
(Mr O'Connor) And that is an assumption they have
now changed and you can and there is carparking at the Dome. It
was based upon the fact that the transport system could cope with
those numbers. The analysis from the traffic consultants was that
the Tube and the road network and the boat access—remember
the Millennium Commission built piers along the Thames to help
the river transport—could cope with those numbers.
149. How much to date have consultants been
paid in total for the advice they gave on the project? I read
in the report that up until January 1997 it was £12.6 million.
How much is it to date?
(Mr O'Connor) That is the money which the Commission
paid for the research and essentially the development of the concept
and design of the building up until 1997 when we made a grant
to NMEC and from then they paid so I cannot answer for anything
from the grant budget but we certainly paid that amount of money
in developing the concept, in the research and design of the basic
structure.
150. Mr James, do you have any idea of what
the figure is since January 1997 for consultants?
(Mr James) I have a schedule of the costs which were
paid for advice during that time. I am uncertain whether these
are all for accounting advice and assessments of numbers.
151. A ballpark figure.
(Mr James) It looks from the schedule we have here
that around February 1997 we paid Deloitte & Touche something
in the region of £25,000. We paid Arthur Andersen some £25,000
in February of that year.
Chairman
152. Perhaps you could provide us with a copy
of that schedule.
(Mr James) Yes, I can provide you with one. I have
just received a number for you. The market research in total going
into this exercise amounted to an estimated £800,000.
Mr Campbell
153. I am thinking of consultants' fees as well
as market research.
(Mr James) That is including the consultants attached
to the exercise in fixing the numbers.
Chairman
154. We should still like to see the schedule.
(Mr James) Yes; we shall provide one.
Mr Campbell
155. I want to move on now from visitor numbers
to some other decisions which were quite crucial it seems to me.
What was GEN36?
(Mr Young) That was a Cabinet Committee under the
previous Government.
156. What was the purpose of that or the remit?
(Mr Young) It was to coordinate the Government side
of the millennium planning activities.
157. It was planning, it was financing, it was
coordination of the project.
(Mr Young) Yes. Let me give you the announced remit
which I now have, "To oversee the Government's role in relation
to the millennium festival and to take forward any necessary planning
of the Government's involvement in this event".
158. A crucial decision, was it not, in January
1997? The Government decided that the project would be delivered
in the public sector. The report says that the project which was
to be delivered was inherently risky, carried a significant degree
of financial exposure, made worse by the complex organisational
arrangements put in place from the outset. Decision was taken
that this would be delivered in the public sector. I have to say
I smiled when I read page 13, because it said that Millennium
Central Limited was taken into "public ownership". I
cannot remember public ownership ever being central to the previous
Government's programme, but the private sector would not carry
the risk, would they?
(Mr Young) No.
159. So it was to be delivered by the public
sector. If things went wrong, where would the company go for the
money? On page 23 for example, it says that they could not go
to the market because they could not afford to borrow the money
commercially; it would be too expensive in the marketplace. What
other avenues were there for money? If the assumptions which had
been built in for the whole project had proven to be mistaken,
where else could they go to be bailed out?
(Mr Young) The best thing I can do is quote from a
parliamentary announcement on 20 January 1997 by the then Chairman
of the Millennium Commission who was Mrs Bottomley. She makes
the first commitment which is then repeated by Ministers in the
current Government that ". . . the Government has taken the
view that the Commission should have provision to cover variations
from the estimates in the plan without prejudicing its existing
grant programmes". Just to translate that, because I have
taken it out of context, it means that the previous Government
in January 1997, which was then repeated by this Government as
soon as they came in, made a commitment that they would lengthen
the Millennium Commission's funding life for as long as necessary
to make sure that the Commission's payments to the exhibition
did not jeopardise the Commission's other grant programmes.
16 Note: See evidence, Appendix 4, page 40,
(Pac 00-01/13). Back
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