Examination of Witnesses (Questions 180
- 199)
TUESDAY 21 MAY 2002
MR DAVID
HUDSON AND
MR FRANCIS
MCPEAKE
180. Yes, absolutely.
(Mr Hudson) We had put forward a detailed analysis,
a detailed programme, which suggested that a legitimate contract
period would be 37 months, which would include a reasonable allowance
for "float". We actually, in turn, were criticised that
that was too long a period and it could be built quicker. I would
not disagree that there was certainly potential that contractors
could come forward with shorter periods. It was surprising, therefore,
that a programme of 39 months was accepted as being the Bovis
Multiplex period, but that was actually made up of a 34-month
contract with five months for holiday. What made that even more
remarkable, of course, was that there was a bonus payable for
completing ahead of time. The consequence was for the potential
of a £4.2 million bonus payable for completing ahead of 39
months. Had 39 months been a realistic programme that would have
been a legitimate thing to do. However, if it is an already inflated
programme it seems to me another level of profit for the contractor
which is not justified.
Mr Doran
181. So it is your conclusion that by adopting
the procedures which it did WNSL have opened themselves up to,
perhaps, considerable extra costs on this contract?
(Mr Hudson) In our professional opinion that is the
case.
182. I know that other colleagues want to come
in, but I have just one final question to you: it has been suggested
to us by a number of sources that the reason why you produced
your report is because your contract had been terminated and,
if you like, there was a certain amount of motivation on your
part to criticise the scheme. Would you like the opportunity to
say something about that?
(Mr Hudson) Yes, I would. Of course there was a motivation
to do something about it. Our contract had been terminated and
the project seemed to be in a parlous state. However, it is also
true that all of the consultants had been stood down; we were
not in any way exceptional. We were informed in early May that,
as was well-publicised at the time, the project was going to be
put on hold, and we fully understood that they would not want
to carry on spending money when they were reviewing whether the
project was going to happen at all. In fact, at that time, there
was every indication that if the project started up we would have
been re-appointed, and personal letters were written to my staff
saying just that, and that the senior management team expected
to be in contact if and when the project started up. So, although,
yes, we had received notice that our contract was being terminated,
there was nothing unusual and we were certainly not being singled
out. We had no reason to believe that if the job went ahead we
would not be reappointed. Our concern was if the job went ahead
without the management processes being put right, then—even
having solved the financial problem—there would still be
a fundamental problem in getting this thing built. In fact, we
said to the FA and WNSL that we would not be prepared to continue
with the project unless the management issues were addressed.
183. I think you have now seen the James report,
and certainly my interpretation of it is that it totally vindicates
the position that your company has taken.
(Mr Hudson) I was very surprised not to have been
given more feedback on what the James report has said until I
read it yesterday. I have to say I think it paints a picture which
certainly, as far as we knew, was worse than we knew, although
maybe not worse than we suspected.
(Mr McPeake) Can I just add something? Whilst the
report was written in July last year, it was really a summary
of the concerns we had raised over the preceding 18 months. In
point of fact, we went to a number of officers at WNSL as early
as mid- to late-June 1999 raising some concerns along the lines
outlined in the report. Whilst they were written up for the first
time in July/August 2001, it certainly was not the first time
they were raised.
Michael Fabricant: I am going to return,
in a moment, to the Lottery Funding Agreement, but I want to follow
a line of question which Frank Doran was just talking to you about,
and it refers to the management of the project while you were
there. The Chairman mentioned The Guardian in his opening
remarks this morning, and in The Guardian Mr Ken Bates,
who was in charge of the project while you were there, says that
his lawyers will be present in the Committee room today and he
says that your report is totally one-sided and biased.
Chairman: If Mr Bates' lawyers are present,
would they be kind enough to raise their hands, please? (Hand
raised at the back of the room) Thank you.
Michael Fabricant
184. So they are present. Of course, I can assure
you and the lawyers that you are protected by Parliamentary privilege
and you cannot be sued. I just wonder whether you would like to
make any remarks regarding Ken Bates' involvement with the project
whilst you were the consultants?
(Mr Hudson) Our criticisms are directed at the senior
management team because that is to whom we reported. We had relatively
little involvement with Ken Bates directly. As I said earlier,
we were not party to board meetings, board minutes or reports.
So the extent to which Ken Bates was or was not involved in various
decisions is difficult for us to say, and that is why the focus
of our report is the senior management team, to whom we reported.
185. Thank you. Let us return to the Lottery
Funding Agreement. In answer to a question from the Chairman you
felt that the Lottery Funding Agreement had been breached; you
felt that there were not robust negotiations. Do you think that
Sport England were at fault here in not maintaining the position
that they should have done in order to protect the interests of
public money—Lottery money?
(Mr McPeake) Can I answer that, perhaps, on the basis
that I had a number of meetings with Sport England in the early
days when we were securing the appointment of consultants and,
latterly, when we were placing the early demolition contract or
seeking tenders on that. Our philosophy when I first became involved,
in December 1997, was that the only money that we were receiving
to fund the early days of the project was that received from Sport
England and, therefore, the rules, if you like, by which we had
to operate were those dictated in the Lottery Funding Agreement
itself. So we were at pains to involve Sport England pretty much
in every aspect of the process. With that in mind they were attending
meetings at our offices at Wembley, probably, initially once a
month and sometimes, as and when, more frequently than that. So
we really worked on the basis that the more information they had
the easier it would be for them to see what was going on and satisfy
themselves as to the process. I think what became apparent as
the project went on was that instead of Sport England being involved
in a consultative process, and perhaps giving their views as to
their interpretation of the Lottery Funding Agreement, they became
recipients of decisions that had already, at least, been explored
at great length before they were even informed. Therefore, I think
Sport England were put in the position where they were receiving
news that perhaps they had a legitimate right to say they had
an opinion on before the decision was taken, but it was presented
to them as a fait accompli. So I think Sport England were
put in a very difficult position.
186. At any time did Sport England say that
these faits accompli were not suitable or appropriate and
that the management structure was not structured and the management
techniques should be changed in order that they should be involved
in the decision-making process?
(Mr McPeake) They did not make those comments known
to me. Sport England had their own professional advisers who were
monitoring the compliance of the project against the Lottery Funding
Agreement. Whether they had reports given to them by their own
advisers is a question you may wish to direct to them.
Chairman
187. Until we saw the documents that have been
available to this Committee for just over a week, the impression
that we had was that the only circumstance in which the £120
million Sport England paid over (to whomever they paid it over)
could be returned would be if the stadium went ahead without it
being convertible to athletics, or being a dual purpose stadium.
However, from what you have said in replies to me and in replies
to Mr Fabricant, quite apart from that circumstance, which is
not clear now, at this stage, it would appear that there have
been breaches of the Lottery Funding Agreement, and it could be
said that Sport England have been far from vigilant in dealing
with those breaches of the Lottery Funding Agreement. In today's
House of Commons Hansard the Secretary of State gives a
reply to Kate Hoey MP, with regard to the fact that WNSL in its
latest arrangements decided to reduce the number of seats at the
projected Wembley Stadium from 75,000 to 71,200 in order to accommodate
more premium seats and, therefore, make more money towards the
funding of the project. We are told in the reply from the Secretary
of State that the change to the number of general public seats
would be incorporated as a amendment to the Lottery Funding Agreement.
You said in reply to Mr Fabricant that the role of Sport England
in the circumstances you describe was consultative. Could it not
be argued, in the light of this, namely that WNSL altered radically
the seating arrangements for their own financial gain and Sport
England simply assent to that, that the relationship is not so
much consultative in this circumstance as collusive?
(Mr Hudson) I do not think we can respond to that
because it is not something with which we have been involved.
Michael Fabricant
188. When you felt that Sport England were,
perhaps, not monitoring or, perhaps, were left somewhat late in
the day making decisions—or not even making decisions but
having to comply with decisions already made—did you at
any time write formally to Sport England and make the point known
that in your view Sport England were not monitoring the performance
of the agreement?
(Mr McPeake) We never wrote to Sport England independently
of WNSL's own senior management team. We had, as is the nature
of these things, fairly candid discussions with Sport England's
own technical advisers because they, not surprisingly, queried
some things which were occurring, with ourselves, as if to suggest
that we might be able to give them the answers they were looking
for, and of course we could not. We certainly expressed some concerns
to Sport England's technical advisers about the whole adherence
to the Lottery Funding Agreement itself. Whether those were passed
on to Sport England I do not know.
189. We will follow that up with Sport England
when they come to us. Can I ask you, finally, this: the £120
million of public money was passed over and we now know, in answer
to the question from Kate Hoey, that this is more public money
for fewer public seats. The question now arises, at what point
do you feel that Sport England were not only losing control of
the whole issue but that costs were escalating, because £120
million came in that perhaps might not be in a position to be
repaid? At any time did you feel the £120 million could not
be repaid if the project did not go ahead?
(Mr McPeake) That is not something we were involved
with, so I could not comment on that.
(Mr Hudson) I have always held the view that the problem
was that the £120 million was used to buy the land. I know
valuations were done but I do not know the basis of those valuations.
However, it does seem to me that if a stadium is not built at
Wembley and it becomes a development site, I would have thought
that a valuation for alternative use—and I would have thought
industrial would be the most likely use—would not reach
anything like the sort of value that was paid for the land. Therefore,
there would be a very large shortfall and, presumably, unless
money came from elsewhere, the Lottery Funding money could not
be repaid.
190. This is a very important point. If the
project does not go ahead—and no doubt we all hope that
it will go ahead—you are saying there would be a very serious
shortfall. I am going to ask you to hazard a guess. Would that
be over 50 per cent of the value of the land you think would not
be recoverable?
(Mr Hudson) As I have said, valuation is not our expertise,
so I could not answer how much, but my gut feeling from dealing
with property issues is that it would be very substantial. I cannot
really say more than that. I think you would need to get a valuation
on alternative use to determine what the shortfall would be.
Michael Fabricant: That is something,
Chairman, I think we will follow up with other witnesses.
Chairman
191. If I could just get this clarified: my
understanding—but my understanding may be totally erroneous—is
that of the £106 million of Lottery money that was paid over
for the land, perhaps the land with a stadium is worth around
half of that and the land without a stadium is practically worthless.
Have I got that wrong?
(Mr Hudson) I am not an expert in valuation so I could
not tell you whether those figures are accurate. I would have
thought, yes, it would be worth very much less without a stadium.
They were buying a business, so that created a value. That business
is no longer there. Alternative uses would certainly be likely
to have very different values. I think the site is about 24 acres,
so one would not expect it to come up to anything like £106
million.
Derek Wyatt
192. Good morning. You say in your memorandum
that a cavalier and dismissive attitude was adopted towards Sport
England's involvement in the project. Can I ask why, instead of
handing over £106 million, it was not handed over a third,
a third and a third, or a half and a half? Why was all the money
handed over, since it was dependent, in the end, on the FA—in
whatever guise—raising £400-£500 million extra?
(Mr McPeake) The terms of the Lottery Funding Agreement
are not something that we were involved with. So I cannot answer
that question.
193. What is your normal practice? I went to
your website last night, although it has not been updated since
14 September 2000 (which is your problem, not mine) but you have
15 project clients on your website. So what is the norm, then,
that you would be involved in in these sorts of projects? Is it
the norm to pay 100 per cent up front?
(Mr Hudson) No, I think it was an entirely exceptional
situation that it was paid up front.
194. It was exceptional, but who made that decision?
(Mr Hudson) I do not know.
195. Have you analysed how many contractors
involved in Chelsea Village were also involved initially in Wembley?
(Mr Hudson) Have we analysed how many?
196. Yes.
(Mr Hudson) I know that Bovis had been involved in
Chelsea Village and I know that Multiplex built the West Stand
at Stamford Bridge. I do not know if there are any other contractors.
I think the contractor that built at least one of the stands is
no longer trading.
197. The lawyers and accountants that were used—they
were not the same?
(Mr McPeake) The traffic consultants were the same
company that advised on Chelsea, to my knowledge. I cannot recall
any others.
(Mr Hudson) There was a lawyer brought in, temporarily,
to replace Masons' own. They were not?
(Mr McPeake) No.
198. I am just trying to work out where the
Government stands in all this. If you did not get all the minutes
of the meetings, were the Government always represented—not
Sport England but a government official from the Department of
Culture, Media and Sport—at joint board meetings?
(Mr Hudson) We do not know. We were not party to those
meetings or the minutes and would not know who was there.
199. I notice that The Evening Standard
say they have a clean copy of Tropus. Was that supplied by your
company?
(Mr Hudson) It was.
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