Memorandum submitted by Sport England
INTRODUCTION
In light of press speculation in recent days
concerning progress towards the development of the national stadium
at Wembley, and the Culture, Media and Sport Committee's oral
evidence sessions on Tuesday 21 May, Sport England has prepared
this memorandum to assist the Committee in its deliberations.
The memorandum addresses the following topics:
— Current Status of the Project.
— The Sport England Lottery Fund Grant.
— Sport England Project Monitoring.
— Athletics compatibility at Wembley.
CURRENT STATUS
OF THE
PROJECT
Since the publication of Patrick Carter's interim
report, and the Secretary of State's statement to Parliament of
19 December 2001, there has been substantial progress towards
the development of the English National Stadium at Wembley.
Patrick Carter's report now provides the broad
framework for the delivery of the project. Substantial progress
has been made towards the achievement of the conditions laid down
by the Secretary of State in respect of Government funding, and
also in relation to the achievement of key milestone targets within
the Lottery Funding Agreement. This includes:
— Design—there is an agreed
and detailed stadium design. We commissioned sports architects
Sport Concepts to review the project's design. Their review confirms
that the stadium design complies with the technical brief established
by the Lottery Funding Agreement.
— Athletics—an independent
technical review, conducted by Citex, has concluded that the existing
stadium design will have the capability to stage athletics, and
that it complies with the IAAF requirements for a World Athletics
Championship. The design approach demonstrates that the athletics
deck solution is substantially cheaper and quicker to install
than envisaged in 1999.
— Planning—the project
has secured planning consent, and funding has been identified
to ensure that the transport infrastructure is upgraded.
— Construction—a construction
contract has been agreed, which provides for the transfer of cost
and time risks to the contractor. A comprehensive technical review
has been conducted for Sport England by cost consultants Citex
and architects Sport Concepts. The review concludes that the contract
is robust, with appropriate controls over quality, cost and programme.
Together with the DCMS and the London Development Agency, we have
made a series of recommendations related to these issues, which
are now being taken forward with WNSL in preparation for financial
close.
— Value for Money—an independent
study by Cyril Sweett Ltd has concluded that the project represents
value for money when compared to current market expectations and
other benchmarked stadia around the world.
— Gateway Review—the Office
of Government Commerce has concluded that the project is well
resourced, well managed, and viable, and that it should proceed
to contractual completion.
— Corporate Governance—a
comprehensive review of corporate governance arrangements has
been completed. There is an agreed framework in relation to the
delivery of the project and the protection of the public interest.
In addition, a new WNSL Board has been appointed with experience
in construction, finance and marketing to lead the project as
it enters the construction phase.
— Business Planning—a
comprehensive business plan has been prepared and tested via a
process of due diligence. The plan addresses the key issues identified
by Patrick Carter (in his December 2001 interim report) as critical
to the success of the project, and it provides a robust basis
to secure financing for the project.
— Financing—an offer has
been received, in principle, to finance the project. Funding for
the project is identified, and the FA as project sponsor has approved
the funding strategy and its commitments towards the project.
This position has been reached by the forging
of a strong partnership between the key stakeholders (the FA,
Wembley National Stadium Limited, Sport England, Government and
London Development Agency), with shared objectives, and clarity
of roles and responsibilities in relation to project delivery,
financing, accountability and monitoring.
We firmly believe that the factors for success
are in place. There is a need now for continued commitment to
ensure that the key contracts are put in place over the coming
weeks, as detailed plans and Heads of Terms are translated into
long form legal agreements in the period up to contractual and
financial completion. Sport England will continue to work positively
with all stakeholders to secure a successful outcome, and to secure
the ongoing protection of Lottery funds.
DAVID JAMES/BERWIN
LEIGHTON PAISNER
(BLP) REPORT
In light of recent press speculation and deliberations
of the CMS Committee, it is important to clarify the events that
led to, and then followed, publication of the David James/BLP
report:
— Tropus were employed by WNSL as project
management contractors, from 1997 to 2001.
— In August 2001, Tropus alerted WNSL
and the FA to a number of concerns regarding the management of
the project prior to September 2000. As a result, Sir Rodney Walker
(WNSL Chairman) commissioned Tropus to prepare a report for the
WNSL board on these issues.
— The Tropus report was considered
by the WNSL Board in September 2001. The Board considered that
an independent investigation should be undertaken, and commissioned
David James to investigate the issues raised by Tropus. He was
supported by solicitors Berwin Leighton Paisner, and embarked
on a thorough and detailed investigation over several months.
— The James/BLP report was presented
to the WNSL Board in mid-December 2001. The report concluded:
— There was no evidence of impropriety
by WNSL, or its employees in respect of the procurement process
or other matters.
— The procurement of the main construction
contract did not follow principles of best practice.
— The report recommended that an
independent study be commissioned to ascertain whether the project
represented value for money.
— The James/BLP reports were considered
in detail by the Secretary of State, DCMS, Patrick Carter and
Sport England prior to the decision to proceed with the project
on 19 December 2001. In approving the proposal to proceed in accordance
with Patrick Carter's report, the Secretary of State recommended
that a number of conditions should be satisfied prior to a final
commitment in respect of Government funding. These were:
— A value for money study must
be commissioned to determine whether the contract price represented
VFM when assessed against other stadia and current market expectations.
— All papers related to the project
should be made available to the Comptroller and Auditor General
at the National Audit Office.
— A review of the corporate governance
arrangements related to the project must be carried out.
— Firm financing commitments should
be secured.
The Secretary of State announced on 7 May 2002
that there had been substantial progress towards meeting these
"tests".
We believe that the process of investigation,
review and decision-making has been rigorous, with a clear understanding
by all key stakeholders of the requirements for achieving a successful
outcome, and establishing controls appropriate for a project in
receipt of public funds.
SPORT ENGLAND
LOTTERY FUND
GRANT
We summarise below the basis upon which the
Lottery Grant was awarded, and the thorough, comprehensive steps
taken by the Council to ensure that the grant was made in compliance
with the relevant Acts of Parliament and Directions applicable
to the distribution of Lottery funds, as issued by the Secretary
of State.
The Council of Sport England awarded a grant
for the project on 2 November 1998. The terms and conditions applicable
to the grant are set out in the Lottery Funding Agreement dated
12 January 1999. The Council awarded the grant following a year
long bidding process reviewing 5 geographical locations in England
and 35 sites in London. It did so on the following basis:
— The Statutory Framework—the
framework for the award of the grant under the Lottery Funding
Agreement was the financial directions issued by the Secretary
of State on 11 November 1998. Detailed legal advice was received
to ensure that the grant award and the Lottery Funding Agreement
complied with the Directions. The DCMS was kept fully informed
of, and supported, this process. In response to the Select Committee's
most recent report on these issues (Unpicking the Lock, published
on 13 November 2001), the DCMS confirmed its view that the grant
had been awarded appropriately.
— Planning Status—an assessment
of the planning issues involved was undertaken, concluding the
prospect of securing planning consent. Three factors were particularly
relevant:
— An existing 80,000-seat stadium
was on site and in use.
— The local planning authority
was supportive. As a key member of the Wembley bid consortium,
it had stated that no onerous conditions were likely to be placed
upon the project.
— The planning policy framework
was supportive of the redevelopment of the site for stadium use.
— Stadium Business Valuation—WNSL
were required to provide an independent, professional and detailed
valuation of the site and the existing stadium business as part
of the grant application. They commissioned a report from Coopers
and Lybrand, which assessed the financial performance of the stadium
business, and its future business plan. This confirmed that the
price negotiated by WNSL for the stadium business was appropriate
and within the range of values that should be expected. A key
factor underpinning the financial viability of the stadium business
was (and remains) the contracted commitment of the FA's events.
It was therefore a requirement of Sport England that the FA enter
into a 20 year agreement to stage its events at the stadium, which
could not be changed without Sport England's consent. This agreement
was completed and signed at the same time as the Lottery Funding
Agreement—12 January 1999.
— Independent Assessment—the
Council commissioned independent financial advice from financial
advisors Grant Thornton, to review the application prior to the
commitment of grant aid. This included a comprehensive review
of the valuation report, and a review of project viability based
upon the business plan and funding strategy submitted with the
application.
— Protection of the grant—the
project has now secured planning consent, initially on 1 June
2000, with a further consent on 20 March 2002, reflecting design
changes agreed during the Carter review process. However, should
it have failed to do so, then the Lottery Funding Agreement is
clear—the grant would have to be repaid. In order to provide
a mechanism to enforce repayment of grant, Sport England secured
a first charge over the stadium site and the stadium business.
This security remains in force, and will not be relinquished until
financing has been secured—ie the point at which a committed
project has been achieved.
Sport England's Council conducted a thorough
appraisal of the project prior to the award of grant, in full
consultation with government. It received expert advice in respect
of legal issues, planning, viability, and the valuation of the
site, and it secured a commitment in relation to grant repayment,
backed up by first ranking security. We believe this demonstrates
a thorough, responsible approach to ensure the protection of public
funds, and to provide a robust framework for the development of
the project.
SPORT ENGLAND
PROJECT MONITORING
The Monitoring Process
We established and have maintained a monitoring
regime to review progress against the requirements of the Lottery
Funding Agreement, consistent with the financial directions applicable
to the project. This includes:
— The establishment of a dedicated
multi-disciplinary team to oversee the Council's funding programmes
for major capital projects.
— The retention of expert advisors
in respect of legal and contractual issues, cost and procurement,
design development, internal audit, and finance.
— Regular reporting to the Council's
Audit Committee, the Sport England Lottery Panel and the Council.
— Regular meetings with the DCMS.
We are now close to securing a significant step
forward, with the commitment of the project in accordance with
our original objective of developing a three sport national stadium
in accordance with the brief established within the Lottery Funding
Agreement. We are satisfied that our monitoring process has played
a significant role in helping us to achieve this objective.
SUMMARY OF
MONITORING OUTCOMES
Our monitoring process has included the following
steps:
— We conducted a thorough review of
the project prior to the award of grant by the Council.
— We were closely involved in the development
of the brief, and played a key role in the process to select the
design team for the project. Our recent review confirms that the
design complies with the brief established by the Council within
the Lottery Funding Agreement.
— We reviewed the development of the
planning proposals, and have been a member of the Wembley Task
Force in its consideration of the wider regeneration and infrastructure
issues. Planning consent has been secured and funding for infrastructure
improvements has been identified.
— We have recently reviewed the design
in respect of compliance with IAAF requirements for athletics
and the cost/benefit issues as compared with earlier proposals.
The design complies with athletics requirements.
— We have completed, in consultation
with DCMS, and with advice from the National Audit Office in respect
of methodology, a review of corporate governance procedures. Appropriate
governance arrangements are in place, agreed by all stakeholders.
This includes a comprehensive procurement manual, the establishment
of key board committees to co-ordinate risk management, oversee
the construction process, and monitor governance arrangements,
and a requirement to report to stakeholders regularly on public
interest issues.
— The Lottery Funding Agreement includes
a series of milestone targets to be achieved by WNSL. This has
enabled the Council to monitor progress against the plan and to
consider appropriate action when milestones have not been met.
There has been a significant delay, and the Council has considered
carefully requests for extension of time. The Council has taken
into account on each occasion the status of proposals for the
development of the project, and the need to ensure that the grant
remains protected. We believe that the progress made to establish
the framework for success through the review process justifies
the Council's decisions to extend the milestones on each occasion.
Construction Procurement
— In the light of the James/BLP report,
there has been a particular focus on the procurement of the main
construction contract.
We appointed cost consultants Citex as project
monitors of the procurement process. Citex reviewed progress on
a regular basis, including meetings with WNSL, and access to papers
and reports related to the procurement process. We also attended
the board meetings of WNSL as observers.
The following points summarise the monitoring
process:
— We received WNSL's procurement strategy
in May 1999. This did not meet our requirements—we were
not convinced that the procurement route proposed was appropriate
for the project and that multi-package would be acceptable to
commercial lenders. Consequently, the 15 June 1999 milestone was
not met to our satisfaction, and we informed WNSL that we would
be withholding grant payments.
— We continued to monitor developments
throughout 1999 in relation to the procurement strategy and the
tendering process. Grant payments re-commenced in January 2000,
following consideration of two factors.
— WNSL were in process of finalising
the appointment of a bank to raise finance for the project, which
would, in our view, provide a key input into monitoring of the
procurement process to ensure its bankability.
— We were aware that WNSL had re-tendered
the project on a single package basis.
— We continued to monitor developments
throughout 2000, up to the point where the Chase Manhattan syndication
process failed in December 2000. It is worth considering the state
of the project at that time. The project was surrounded by controversy
and poor publicity following the decision by the Secretary of
State to withdraw athletics from the project in December 1999.
Relationships between the key stakeholders in the project deteriorated.
Roles and responsibilities had become confused, and it was unclear
on what basis the project would proceed in relation to a proposed
repayment of £20 million of the Lottery grant. Patrick Carter's
report refers to the government's role at this stage as being
ambiguous.
— The process related to this issue
dragged on through the summer of 2000 with considerable confusion
as to what had been agreed between the Government and the FA in
the relation to a repayment of grant. Agreement was eventually
reached in September 2000. The committee has reviewed these issues
on a number of occasions. This made the ongoing process of monitoring
extraordinarily difficult. It was against this background of confusion,
and lack of clarity that the events reported in the James/BLP
report prior to September 2000 were played out.
— The Chase syndication failed in December
2000, at which point the project entered a series of further reviews,
first by the FA, and then subsequently from June 2001 by Patrick
Carter.
The Carter Review
Alongside the Carter review, we requested project
monitors Citex to review the process to date, and along with architects
Sport Concepts, to consider options for the project. We were keen
to make a positive contribution to the Carter Review, to provide
the basis for a viable project, and to ensure that the Lottery
grant remained protected.
We discussed the options at length with the
Carter review team and with WNSL, in order to determine the best
way forward. A number of conclusions were reached:
— Changes to the stadium design would
need to be considered against the impact on the business plan.
The stadium needed the capacity to generate sufficient revenues
to support debt to finance it.
— A number of design changes were made
consistent with the business plan. Re-design from first principles
did not achieve a more viable project.
— The option of re-tendering was not
proven as a means of achieving additional savings.
— The Patrick Carter review team evaluated
all options and the outcome of this work is reflected in Patrick
Carter's report of December 2001. We fully support his conclusions
and recommendations, and the decision to proceed with the project
at Wembley, based upon the existing design approach.
— We support the James BLP report recommendations.
The value for money study represented a robust, objective method
of assessing whether value for money had been achieved. It has
demonstrated that the project is value for money.
Current Position
We are satisfied that the project should proceed
given:
— Value for money has been independently
established by Cyril Sweett Ltd.
— The BLP report concludes that there
is no evidence of impropriety.
— Appropriate corporate governance
changes have now been put in place at WNSL.
— Stakeholders share a common objective
to develop the project, with clarity of roles and responsibilities,
and a strong partnership approach. This contrasts strongly with
the 1999-2000 period.
Future Monitoring Arrangements
The first task is to ensure that the project
is assessed against the milestone targets set out in the Lottery
Funding Agreement prior to financial close. This work is approaching
completion. Our Council and Audit Committee are reviewing progress
on a regular basis, and we are co-ordinating our work with other
stakeholders.
We have reviewed our monitoring requirements
for the project for the next phase. We are working with the London
Development Agency and DCMS as additional public sector funders,
to ensure appropriate co-ordination between us. We have jointly
asked the Office of Government Commerce to advise on accountability
and monitoring issues.
ATHLETICS PLATFORM
At the request of the Secretary of State, we
commissioned a detailed technical analysis of the stadium design
to determine its suitability for athletics. Independent cost consultants
Citex and architects Sport Concepts conducted this review. We
published their study report on 8 May.
The conclusions of the report are summarised
below:
— The design complies with the technical
requirements described in the Lottery Funding Agreement and the
IAAF requirements for the World Athletics Championships. The stadium
is therefore capable of hosting major athletics events.
— The deck solution, based upon a modular
steel as opposed to concrete structure, is substantially cheaper
to construct—from £18 million in 1999 to £12 million
in 2002
— The installation time has been significantly
reduced—from 26 weeks to 11 weeks.
— The report confirms that the sightlines,
and viewing distances, are excellent for athletics as well as
football and rugby league.
— There are suitable sites for the
development of warm up facilities. The London Borough of Brent
has set out the basis upon which sites will be made available
in the event of a successful bid for an athletics event.
In addition, the Lottery Funding Agreement secures
the use of the stadium for athletics on a cost only basis.
We are pleased with the positive outcome to
the athletics study. It confirms that the original purpose for
which the grant was awarded—a national stadium for three
sports—has been achieved.
It also allows the project to proceed as the
Committee recommended in its report "Unpicking the Lock"
of 13 November 2001 "the Government should consider seriously
whether there is a last opportunity to return to the original
strategy of a national stadium at Wembley for football, rugby
and major athletics events. Without this it seems clear that there
will be no venue for athletics in London capable of staging the
World Championships, or the Olympics, and therefore little prospect
of attracting these events to the capital for the foreseeable
future. We recognise that this would be a bold and controversial
step involving significant consultation and negotiation with all
relevant bodies".
CONCLUSION
Sport England has welcomed this Committee's
consistent support and endorsement for the development a national
stadium for football, athletics and rugby at Wembley incorporating
the platform design.
The critical factors for the success of the
project are in place and the objective of developing a three-sport
stadium at Wembley remains on track. WNSL are on the verge of
developing a world-class stadium compliant with the Lottery Funding
Agreement in all material respects—that will deliver substantial
benefits for sport, and have a significant positive impact on
regeneration.
It is essential that the key stakeholders continue
to drive forward the project to secure financial and contractual
closure over the coming weeks. We urge the Committee to recognise
these efforts and give wholehearted backing to the project at
this critical stage.
We will be happy to answer further questions
in person during our evidence session.
20 May 2002
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