Examination of Witnesses (Questions 240
- 259)
TUESDAY 21 MAY 2002
MR MICHAEL
JEFFRIES, MR
MICHAEL CUNNAH,
MR ROGER
MASLIN AND
MR NIC
COWARD
240. You have a clear 24 acres and, as I say,
my understanding and the Committee's understanding is that round
about £30 million would be an appropriate price for that.
There is another seven acres which you seem to have purchased
which has a restriction and you must start construction before
a date in December of this year, otherwise it reverts. Given that
you have paid £103 million for a business and you are left
with land which may be worth around the £30 million but I
accept that an alternative use might provide a higher price, why
did you accept a restriction of that sort?
(Mr Cunnah) The restriction relating to the seven
acres?
241. Why are you having to return seven acres
of land that you have already paid a fairly inflated price for?
(Mr Cunnah) The seven acres was provided to ensure
that there was sufficient land to build the stadium at a time
when the design of the stadium had not been finalised. Now that
the design has been finalised the land indeed will be needed and
will not be returned to Wembley plc. It was a solution at the
time which allowed two negotiating parties to determine the size
of land when it was uncertain.
242. You say it will not be returned, but it
will only not be returned if you start work before December.
(Mr Cunnah) That is correct.
243. And you have still got to negotiate the
situation with the bank. I know that you are fairly advanced in
these negotiations but there is not a 100 per cent guarantee until
the cheque is in the bank, is there?
(Mr Cunnah) That is correct.
244. The question then that we have to look
at, given that our priority is the protection of the public funds,
is what protection is there for those public funds? If this project
does not go ahead £120 million has been given to WNSL and
its predecessor and we are sitting on land which may be worth
only £30 million, indeed less than that, given that seven
acres of it has to go back to the original owners.
(Mr Cunnah) The security over the Lottery money related
to the business that is at Wembley and therefore we would work
with our stakeholders, Sport England and the Government, to review
what the options were related to that business before we came
to any conclusions.
245. If you do not get the money from the bank
you are seven acres short for your design, so presumably you will
have to go back to the drawing board even if there is a prospect
of building it at Wembley. Meanwhile the public purse loses £90
million or thereabouts.
(Mr Cunnah) That is why we would review it with our
prime stakeholders. One of the possible conclusions could be a
loss of value but there are many options that we would look at
before then to make sure that we did protect the public money
as far as we could.
246. But then you may not have any scope for
options because if I understand the Lottery Funding Agreement
you are already in breach in a number of aspects of that but there
has been a certain amount of latitude allowed by Sport England.
Your position would collapse completely, would it not, if Sport
England simply demanded its money back?
(Mr Cunnah) We have been in partnership with Sport
England and have worked very closely with them to most carefully
manage these difficult issues that arise in a project of this
nature.
247. Can I move on to a different area? You
heard the discussions with Tropus on the procurement contract.
I am a little confused about the way in which that contract was
actually negotiated, particularly given the advice we have that
the Lottery Funding Agreement requires European public procurement
practices to be implemented in the contract.[2]
It is quite clear from what we have heard from the Tropus report
and read in the James report and the legal report which accompanied
that that you did not apply European public procurement practice
and both reports make it clear that you did not even apply best
practices in this area. Can you say a little bit about why you
did not comply with the Lottery Funding Agreement?
(Mr Maslin) Perhaps I could start. First
of all, we took advice at the time from Masons.
248. Who are Masons?
(Mr Maslin) Masons are our construction and property
lawyers. Basically they confirmed to us that in these circumstances
OJEC procedures were not required and therefore we did not have
to tender into a more open environment.
249. Sorry to interrupt you, but my understanding
of the Lottery Funding Agreement is that that is a contract between
WNSL and Sport England.
(Mr Maslin) That is correct.
250. And so is this not a breach of contract?
(Mr Maslin) No. If I may continue, as you say, one
of the requirements in the Lottery Funding Agreement is to make
sure that we had a competitive tendering process and that is clear.
251. At European public procurement levels?
(Mr Maslin) It says "a competitive tendering
process". Our advice was that we did not have to employ European
measures in that sense. The advice that we got from Tropus in
May 1999 was very much along the lines of looking at this project
in three packages in terms of demolition and, while the demolition
is going on, looking at the shell and core and looking at the
fit-out in separate parcels. At the time, and that is rather than,
let us say, going for a fixed price lump sum turnkey contract,
Sport England themselves looked at that strategy and, given their
concerns that this would not be bankable, they in fact stopped
the remainder of the Lottery funds, which were due to WNSL, coming
to us, so the initial procurement strategy that had been raised
by Tropus was not accepted by Sport England on the basis that
it would not be bankable. Subsequently, given our conversations
with the banks, they absolutely looked for a fixed price lump
sum turnkey contract.
252. Can I be clear then because, as I say,
the Committee's understanding was that the Lottery Funding Agreement
requires that European public procurement standards are adopted?
Are you saying that you received advice and that this whole situation
was discussed and negotiated with Sport England and that they—
(Mr Maslin) Yes, it was.
253. And that they allowed you to proceed on
the basis on which you proceeded?
(Mr Maslin) Well, as you say, the LFA does say that
we do have to follow OJEC if it is appropriate. Our advice very
clearly from Masons was that in these circumstances it was not
appropriate and not necessary.
254. Was that a position you negotiated with
Sport England?
(Mr Maslin) We discussed it with Sport England at
the time.
255. No, not discussed; negotiated and received
firm agreement.
(Mr Maslin) Firm agreement with Sport England on that
basis.
256. So if requested by the Committee you could
produce correspondence which confirmed that position?
(Mr Maslin) I will have to check my records.
257. Given the criticisms that David James has
made of the whole procurement process, you are saying that that
process was approved by Sport England?
(Mr Maslin) No. What I am saying is that at that time
the initial procurement strategy recommended to us was not approved
by Sport England because they did not think it was going to be
bankable. We then moved to a fixed price lump sum turnkey contract
which we offered to the market in July 1999, which was a process
and a procurement strategy that was approved by Sport England
because it delivered committed funding. To be clear again, in
the Lottery Funding Agreement we needed committed funding for
100 per cent of the whole of the project before we could demolish
the building.
258. I am sorry to press you on this, but it
is quite important. David James has shown a lot of deficiencies
in the process and you are saying, if I read you clearly, that
that is despite the fact that there were these obvious deficiencies.
They were obvious to Tropus, they were obvious to David James
and they were obvious to the legal team that you employed, that
that process was negotiated, discussed and approved by Sport England?
The contracting process which has been so heavily criticised was
not undertaken by WNSL on its own initiative in ignorance by Sport
England?
(Mr Maslin) It was certainly driven by WNSL, absolutely.
There were significant—
Chairman
259. Let me interrupt you. If Frank will allow
me to put it in capsule form, did Sport England know what was
going on?
(Mr Maslin) Sport England were aware of the competitive
tendering process that was launched on 14 July where we went out
to the market on a fixed sum turnkey project basis.
2 Footnote by witness: The obligation on WNSL
under the Lottery Funding Agreement (LFA) was (a) to comply with
all relevant law to the extent applicable (including European
Union procurement legislation), and (b) where WNSL was properly
advised that European Union procurement legislation did not apply
to the award of a particular contract, to adopt commercial competitive
tendering procedures. There was no obligation under the LFA to
obtain consent from Sport England if European Union procurement
standards were not to be followed where WNSL had obtained legal
advice that these standards were not applicable. WNSL obtained
advice to this effect from Masons on 29 March 1999. This letter
was available to Sport England as part of its regular process
of reviewing documents and a copy was provided to Sport England
on 27 September 1999. Back
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