Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 200-219)



  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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