Examination of Witnesses (Questions 200-219)
WEDNESDAY 15 NOVEMBER 2000
MR ROBIN
YOUNG, MR
M O'CONNOR AND
MR D JAMES
200. There are no other points I should be raising
with you.
(Mr James) I am actually very confident that we are
not knocking on the doors of the Commission for any more money
for an orderly tradeout subject to what I have told you.
201. May I return to the question of the sponsors?
Do you think the sponsors have had value for money? Have their
expectations been met as far as you are aware? Had you been in
the position of running one of these major companies, knowing
what you know now, would you have invested in it? Do you think
they are likely to invest again? Are there any lessons we ought
to learn for the relationship between the public and the private
sector for this sort of arrangement in future?
(Mr James) That is another one where I have to put
myself into the mind of others' commercial interests. I believe
that the Dome has indeed provided something of very considerable
value. If we actually had set our sights on the 6 million and
had been able to fund it at that level, everybody would have said
what a success with 87 per cent takeup. As matters stand at the
present moment, we have a considerable amount of satisfaction,
as is evidenced by the fact that several of the major sponsors
have been negotiating with us in order to take the staff from
us at the end of the exercise and help us with that. I believe
that the main sponsors, BT, Boots and Manpower, have in fact informed
the Select Committee that they do consider that they have had
value, so we must take some comfort.
202. On the precedent this sets for the future
in terms of our relationship with the private sector, is this
the right way to do it?
(Mr James) It probably was the only way to do it and
therefore if the project were to go ahead it is difficult to see
how another capital structure could have been created.
203. If we had had 12 million visitors to the
Dome, presumably we would not have been having this meeting. Was
this a foreseeable disaster in the sense of were the right questions
not asked and if the right questions had been asked would we not
have proceeded in the way that we did?
(Mr James) You would have asked different questions
if you had been looking for venture capital or capital outside
in the commercial world. This obviously has to be seen as a project
sponsored by Government with the intention of giving something
for the nation to enjoy, to celebrate a great event with. That
has to be a factor which was taken into account in the decision
to go forward. It is not a straightforward commercial decision.
I have spent my life looking at financial disasters and working
with financial disasters. I am really the wrong person. I am the
most pessimistic person in the world to ask about the investment
criteria for a project. This particular one seems to me to have
been something which was exciting, it was imaginative, it involved
great elements of society and industry together. How else is one
to celebrate the millennium other than by coming together in some
great event? Did the Florentines not do it when they built the
Duomo?
204. The Florentines have not actually been
in front of us yet. The witnesses are hard to find. May I seek
clarification as to whether you believe the right questions were
being asked at the time? Do you believe a series of areas were
overlooked? I was particularly struck when you said that Mr Gerbeau
should have been in post at least by March 1999. In your view,
with hindsight, were several areas overlooked in the very early
stages and then as it moved forward?
(Mr James) I think I would have done three things
very differently if I had been Executive Chairman a couple of
years ago. I would definitely have bought in a separate and completely
parallel executive team to run the project from 1 January onwards
and I should have said "Thank you very much", to the
design and development team, "You've done a great job, goodbye".
Secondly, I should have had a much more structured executive component
within the board rather than a very heavy preponderance of non-executive
directors. I should have had a more comprehensive and traditional
executive structure leading the management of the project. Thirdly,
I should very definitely have bought in the services of an external
accounting operation to provide me with the management of accounts
at a critical stage, because it was impossible to put together
a department which could cope with the very big peaks which were
going to occur and then the relative down times. I would have
essentially seen those as my key changes.
205. It strikes me that none of those is rocket
science. They ought to have been introduced earlier on by any
reasonable person from a background like your own. Do you have
any explanation which you have come across as to why this was
not done?
(Mr James) I can offer you one. It is not meant to
be derogatory to the participants, so please take it in the spirit
in which I intend. I believe that the board was experienced in
many ways in quango running and I believe that although there
were people with very hardcore commercial experience there, it
was a board which necessarily came together to give substance
to the political vision at that time. They were excited and united
in what they were doing, but it was a vast task and they all became
extremely involved in it. I should have looked to have a much
stronger core executive unit which they would have been advising
rather than actually taking the effective leadership that they
had to.
206. I was struck earlier on by the point about
this being a high risk business plan. I am not clear that was
actually apparent at the time politically to all of us. Can you
just clarify exactly when the extent to which this was high risk
was explained and to whom, that the element of risk in all this
was indeed substantial?
(Mr O'Connor) The fact that the private sector would
not bear the risk automatically meant that this was something
which was risky. The fact that the Government had to give us the
guarantee of a one-year extension should we need it in order for
us to go ahead was a clear sign that there were risks here. Clearly
the target of 12 million in the context of what other attractions
were achieving was a risky business. Mr James often talks about
this being a Government initiative: the Commission of course is
not part of Government, it does have Government and official Opposition
members upon it so it is a bipartisan endeavour. It was always
recognised that they were aiming high. They were not trying to
replace the private sector, they were not running a theme park,
a Disney as it were. They were trying to do something which was
different. It was about education as well as entertainment. It
was always something which was high risk and looking back in history,
the previous examples, the 1851, the 1951, were also seen as high
risk at the time.
Mr Griffiths
207. You have obviously got a distinguished
track record of going into ailing companies and saving what can
be saved, transforming others, a classic company doctor. A key
criticism of NMEC has been its failure to close the Dome early,
to cut your losses, to stop incurring debts to the lottery. Paragraph
2.64, page 36, shows you wrote to the Millennium Commission on
30 August, ". . . early closure generated no meaningful financial
advantage but created significant contingent liabilities, which
might seriously worsen the funding deficiency". Do you hold
to that view?
(Mr James) Without any reservation I hold to that
view.
208. It notes on page 32 of the report that
PricewaterhouseCoopers warned on 22 August that early closure
would require an extra £65.2 million from the lottery, plus
any contractual claims by suppliers and sponsors, a total potential
cost of £200 million according to paragraph 2.34. What were
these likely contractual claims?
(Mr James) This is a sensitive area in so far as we
are now very close to the end of the year. We were very concerned
that a great many people had built infrastructure[19]
such as restaurants and catering arrangements at their own cost
in order to be able to equip the Dome for the purposes of supplying
their own concessions. We foresaw a very considerable hazard that
they would come against us for the recovery of the cost of the
infrastructure they had put in in order to be able to fulfil the
terms of their supply contracts as caterers. We have 14 firms
of caterers engaged in the Dome altogether and a good many other
supply arrangements as well. That was one of the major areas.
209. Do you know anyone in the City or in your
line of work who, having fully assessed the facts, would in August
or September recommend closure as the prudent option?
(Mr James) I do not believe anybody could do. It was
one of the most straightforward financial calculations and actually
excluded any large degree of judgmental figures, though I would
just correct that the £200 million was the worst case and
one had assumed, as the report did make clear, that the figures
still showed a very strong advantage in continuing to trade on,
even if you eliminated some of the major categories of risk which
were listed in the report.
210. So only a financial illiterate would have
closed it.
(Mr James) Your phrase, but I believe that nobody
would have closed it at all on the knowledge of those figures.
You could not have done.
211. Let me put it to you straight. Why did
you not shut the Dome and sell the thing to the highest bidder
straightaway in mid-September?
(Mr James) The loss would have been quite enormous
had one done so. It would have been a loss potentially way over
the £60 million if you had just done it on those terms.
212. Do you not think it is ludicrous to claim
that the public would have been better off keeping this farce
going?
(Mr James) I believe that the numbers speak for themselves.
This makes the assumption which we have debated that the shortfall
still would have to be paid by somebody. If your assessment is
that there would have been a true bankruptcy and no liability
would have been met by anybody within Government, then your figures
take on a new dimension. The assumption that somebody would be
having to pay out for the shortfall is what drives the fact that
it is worse to close than to go on. It is as simple as that. If
there is an intention to honour the liabilities of the company,
it had to be better to go on. The only way it is better is if
you accept that Government will live with a default of all the
many tens of million pounds which would have been owing.
213. Both the statements I put to you were made
by Mr William Hague just after you wrote your letter and PricewaterhouseCooper
gave their assessment. Who is right, you or Mr Hague?
(Mr James) I am.
214. Financially illiterate. The National Audit
Office report makes it clear that the problems of the Dome lay
in over-ambitious targets in visitor numbers, proposed by the
Commission, accepted by the then Cabinet in May 1995, at a minimum
of 15 million and a maximum of 30 million. Mr O'Connor, you must
be rather relieved that the aim of a minimum 15 million visitors
was downsized in July 1997 to 12 million, a cut of one fifth?
(Mr O'Connor) You cannot talk about the 15 to 30 million
estimate in relation to the Dome. That figure is irrelevant. Fifteen
to 30 million was the estimate for the capacity of a site. It
bore no relation to the Dome. The only figures on which you can
base a business plan is on the basis of what an attraction is,
what a building is. It was right that we wanted a site which would
have that capacity, but only when we had the Dome did NMEC produce
their estimate, backed by research, that 12 million was achievable[20].
215. Did anything happen between July 1997 and
January 2000 which indicated that 12 million was not an achievable
number?
(Mr O'Connor) The warning signs were clearly there
at the back end of 1999 when the advance bookings were not as
good as everybody had hoped. Nobody ever knew what the turnout
would be until you had the hard evidence to see how the public
responded to the Dome when it opened on 1 January.
216. Paragraph 3.16, page 41, says that in May
1997, at the time of the last General Election, ". . . the
company expected to attract £195 million in sponsorship from
the private sector" and the 12 million visitors. How important
was the bipartisanship of the then Conservative Government and
the Labour Opposition in fostering business confidence in the
likely level of sponsorship to your company?
(Mr James) May I say that the £195 million was
the published figure? The internal budget which was published
at that time carried a contingency of £20 million against
it, so the real figure was £175 million. In comparison with
what was eventually achieved you need to take the £161 million
which we aggregated from the earlier components. That just corrects
that point, if I may.
217. I stand corrected. Fire away on the bipartisanship.
(Mr James) I cannot comment on what the political
perception of the parties at that time was, any more than I could
now.
218. What about business confidence?
(Mr James) I believe that it was a concept which excited
people's imaginations, but I believe that the sponsors did come
forward in good order. I do not think there is a huge drift on
the net sponsorship figure of more than £15 million.
219. What is the likely impact on sponsors and
visitors to press reports like this one on 29 January that there
is no point throwing good money after bad, the Dome is already
a national embarrassment, its demands for extra cash make it a
disgrace?
(Mr James) Those who had not contracted at that stage
continued to negotiate and contract, so although they may have
taken note of that, it did not dissuade them from committing at
the levels we have indicated.
19 Note by Witness: The majority of restaurant/catering
facilities were built by NMEC whereas the caterers provided the
staffing and other non-infrastructure resources necessary to run
the outlets. Back
20
Note: See evidence, Appendix 4, page 000, (Pac 00-01/13). Back
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