Select Committee on Culture, Media and Sport Sixth Report

III ISSUES

Introduction

1. Tropus, formerly McBains Limited, were involved with the Wembley project, supplying professional services, between November 1997 and August 2001. The evidence submitted by Tropus raises a number of issues of which the key concerns were that after mid-1999:

• the management structure and procedures adopted for the Wembley project became inadequate for a large and complex project;
• a cavalier attitude developed towards the importance of the Lottery Funding Agreement and the involvement of Sport England;
• the design of the stadium and ancillary facilities was not subject to robust budgetary control; the design was distorted, and made more costly, by the structure of the land purchase deal;
• the procurement process was not genuinely competitive, nor represented to the WNSL board accurately, and the awards of preferred contractor status, first to Bovis/Multiplex then to Multiplex alone, were premature; and
• the management of risk, the construction programme and the value and viability of the project were poor with options for improvement not pursued.[17]

Tropus wrote that they had raised these concerns with the senior management of WNSL "repeatedly".[18] On 13 July 2001 Tropus met Mr Adam Crozier, FA Chief Executive, on the subject. Mr Crozier directed them to the then Chairman of WNSL, Sir Rodney Walker. After discussion with Sir Rodney, Tropus were asked to submit a written report which they did in August of that year.[19]

1. Sir Rodney wrote to the Committee to describe WNSL's response to the Tropus report in August 2001. He told us that:

"the WNSL Board quickly assessed that there needed to be a full investigation ... After consultation and careful consideration Mr David James was appointed[20] ... The allegations made by Tropus largely fell into three areas: they related to the process used to procure the construction contract, aspects of corporate governance and issues of management style. Mr James investigated those issues which were felt to be most significant. His report is thorough and indeed, does identify some deficiencies."[21]

The James report describes the scope of the investigation undertaken as "focused on: the procurement issues surrounding the involvement of Bovis and Multiplex in the Project; and any related corporate governance issues."[22]

2. We look at the findings of David James and Berwin Leighton Paisner, the solicitors who supported the review, on procurement and corporate governance below, from paragraph 36, after examining other matters raised by Tropus.

The Tropus report

Management of the Wembley project

3. Tropus were obviously unimpressed with the management of the Wembley project. The evidence we have accepted from WNSL, and former senior figures within WNSL, in response to Tropus' allegations revolved around three issues:

• that Tropus was a supplier of contract staff working at a junior level within WNSL with limited knowledge of the company's affairs;
• that many of the comments made by Tropus on management processes amount to differences in management style and were of little or no relevance; and
• personal issues between Tropus and WNSL personnel.[23]

There was also a suggestion that the termination of Tropus' contract with WNSL motivated a critical report from a "disenfranchised supplier"[24] and the joint memorandum from Mr Ken Bates and Mr Bob Stubbs made the point that the procurement strategy devised by Tropus was not accepted by Sport England, who stopped residual grant payments to WNSL until it had been revised.[25]

1. In considering these issues we note the fact that when, what Sir Rodney described as the "substantive" issues raised by Tropus were subjected to independent review, serious failings were revealed which have been accepted by the current regime at WNSL. With respect to the issues identified above:

• Sir Rodney Walker describes Tropus as, for a time at least, in sole charge of the WNSL construction department which suggests to us something more strategic than the supply of hired labour.[26]
• Tropus told us that it was not a question of style; different procedures would have been acceptable but none were put in place.[27]
• No comment was offered regarding the personalities involved.

Tropus said that they fully expected to be offered a new contract by WNSL once the project was re-animated following a period of review and that this expectation was supported by correspondence from the company. Indeed Tropus told us that: "we said to the FA and WNSL that we would not be prepared to continue with the project unless the management issues were addressed."[28]

1. We conclude that Tropus has acted in good faith and has suffered the fate of many messengers with bad tidings. Thorough and independent review has confirmed grave deficiencies in relation to the substantive issues that Tropus alone brought to the attention of the WNSL Board. We note that the Secretary of State, on 23 May 2002, described the first Wembley proposal as over-ambitious, poorly managed and its tendering flawed.

Purchase of the Wembley Stadium business

  27. In the course of this inquiry we were concerned that the price paid for the Wembley site originally had been excessive and that, in effect, a subsidiary of the FA had used public money to purchase an asset whose value was significantly augmented by "goodwill" already owned by the organisation. WNSL has submitted evidence of the independent valuations undertaken around the time of the purchase.[29] These do demonstrate that contemporary estimates of the market value of the Wembley Stadium business, on both sides of the deal, were commensurate with the price paid of £106 million. Despite the fact that it was events within the FA's gift that, over the years, created the "Wembley" phenomenon ("the Venue of Legends")[30] it cannot be ignored that the FA did not own the asset to which this value had accrued.

2. The sale of the Wembley site was a commercial deal for a site and an on-going business worth £12-14 million per year on the basis of an events staging agreement with the FA that all parties knew had to be renegotiated in 2002. Negotiations were conducted in circumstances of competing interest from other parties and under the pressure of various deadlines: not least bids for the 2006 World Cup, already mentioned, and the 2003 World Athletics Championships (a bid which had to be switched to the 2005 games, then re-located and eventually lost altogether). The Wembley Stadium business was operated successfully by WNSL until October 2000 showing, after stadium closure, a net profit of about £4 million.[31] The current value of land alone in the locality cannot be used to assess the value for money achieved by WNSL at the time of the purchase.
3. Evidence from Tropus and subsequently from WNSL does however reveal an arrangement whereby a portion of the purchased site returns to Wembley Plc should construction of a new stadium not have started by the end of this year 2002. The WNSL freehold title to the Wembley site comprises two areas: 24 acres on which the stadium stands; and 7 acres of "developmental land" subject to an option in favour of Wembley Plc. Wembley Plc has the right to require WNSL to return any of the option land which is not used for the development of the new stadium. In addition this land will revert, in full, to Wembley Plc if WNSL has not started to develop the site by 31 December 2002 (having given three months notice of its intention to do so). This arrangement appears to arise from the perceived need to purchase the site at a time when the design of the new stadium, and hence its land-take, was unknown.[32]
4. In 1999 a deadline of December 2002 to start construction of a new national stadium may have seemed generous. However, the very nature of this arrangement whereby 7 out of 31 acres purchased with Lottery funds can revert to the vendor without recompense is extremely unsatisfactory. It was unacceptable to expend significant public money on assets of which a significant portion could then simply be lost. Such laxity is symptomatic of almost everything to do with this project; one might term it "Wembley syndrome"—an infection to be eradicated in any future Lottery projects.

Development of the new stadium design

  31. Tropus also asserted that the budget for construction was not controlled. Tropus wrote that the budget originally set was £185, million which was then reduced to £140 million in June 1998. The design produced within this financial envelope was rejected by the WNSL Board "due to lack of back-of-house and other facilities". Tropus went on to say that "the budget restriction was lifted from all future design options from September 1998".[33] Mr Michael Cunnah, now Acting Chief Executive of WNSL and Wembley project Director and formerly on the WNSL Board, rejected this description of the process.[34]

5. The inclusion of a hotel, extensive office accommodation and an entertainment centre for visitors in the original design clearly increased the absolute cost of the project. Given the need for the project to be self-financing, priority had also to be given to the cost-to-value balance, i.e. the potential of the disputed facilities to generate the necessary income to finance the debt incurred for construction. One further complication, however, was the existence of a restrictive covenant on the Wembley site, in favour of Hilton Hotels, preventing the operation of a competing hotel on the site. WNSL maintained that this had been the subject of negotiations with Hilton.[35] We were surprised that WNSL did not appear to have tackled fully the implications of this restrictive covenant before embarking on their own plans for a hotel.
6. We note that, despite income generation from non-stadium facilities contributing to the cost-to-value balance, the attempt to interest the market in financing the original design and business plan failed in January 2001. The causes of this failure are contested with allegations of poor Government support vying with perceptions of an over-ambitious plan. Following rebuff from Government to a request from the FA for further funding, an exhaustive review led by Mr Patrick Carter was undertaken. Amongst the interim conclusions of this review was the recommendation that project viability rested upon a revised design involving slimming down the project, and reducing absolute costs, as envisaged in the submission from Tropus.[36]

Breaches of the Lottery Funding Agreement

  34. Of particular concern to us is the performance of Sport England in what should have been its role as guardian of the public funds committed to the project. Tropus wrote that after mid-1999 "we believe there were a number of breaches to the terms and conditions of [the] LFA and we became aware of what might be described, in our view, as a cavalier attitude towards the importance of the LFA and the involvement of Sport England. Regular meetings with Sport England were unilaterally stopped with, in our view, a very dismissive attitude being adopted toward Sport England and the LFA."[37] Tropus pose two issues here therefore: (a) actual breaches of the LFA; and (b) a poor attitude to Sport England.

7. Sport England do not report any breaches of the terms of the Lottery Funding Agreement, something emphasised by Mr Bates and Mr Stubbs in their joint memorandum.[38] However, in a supplementary memorandum Sport England does conclude that, after uncertainty arose as to whether athletics would be included in the stadium design, WNSL "was far less open than it had previously been in involving third party stakeholders."[39] We note that the list of issues and comments drawn up by Sport England shows WNSL ceasing to involve Sport England in significant decisions from June 1999, before even the athletics issue had arisen or indeed the designs had been announced.[40] In our view any change in relations between WNSL and Sport England occurred because of perceptions within WNSL that, with the completion of the acquisition phase and the expending of the bulk of the Lottery grant, the legitimate interest of Sport England was at an end and the project had moved on to a commercial footing.[41] This is an issue we examine below in relation to the conclusions of the review undertaken by Mr David James and BLP.

The David James report: contract procurement

Findings

  36. The report by Mr David James confirms in the clearest possible terms poor standards of practice by WNSL over the procurement of the construction contract and lax oversight by the Board and, by implication, Sport England. Mr James reported to the then Chairman of WNSL in December 2001 that there had been:

• a lack of adequate monitoring by the WNSL Board; and
• a failure of the expected standards of governance which should have been able to resolve any potential conflicts of interest arising in respect of those undertaking key contract negotiations.

Mr James goes on to identify the consequences of these "defects" as:

• a likely failure by WNSL to meet the standards of "best practice" usually deemed necessary in any project involving Government or Lottery funding; and
• difficulty in demonstrating the achievement of "best value" with regard to the construction contract.

Mr James states that, with regard to the procurement process, "the WNSL Board may feel it appropriate to accept a strong measure of criticism for their failure to oversee this responsibility correctly."[42]

1. The report itself highlights the following issues:

• WNSL failed to follow an adequately formal procurement process;
• WNSL conducted parallel procurement processes for the same contract, making it difficult to have a fully competitive process; and
• WNSL gave Multiplex a potential competitive advantage over other contractors.

The report concludes that the procurement process fell below industry best practice expected for a publicly funded project and as a result fails to demonstrate whether value for money was or was not achieved.[43]

Public or private?

  38. In response to the James report (as opposed to the allegations made by Tropus) Mr Bates and Mr Stubbs argue that it was clear that the Lottery grant would be expended on the acquisition of the stadium and site and the development of the new stadium design: "this effectively meant that all other costs, including the construction contract would be funded through commercial loans and FA support." The joint memorandum goes to on to say that:

 "The ratio between public and private funding was approximately 1:4 and is now 1:6. The result of this situation was quite clear to all involved namely:

• the project was a commercial project;
• after the initial acquisition phase it was WNSL/FA and only WNSL/FA who would benefit or suffer from the decisions made by WNSL; and
• The Lottery Funding Agreement would be critical to setting the basis of the operations of WNSL."[44]

Mr Bates and Mr Stubbs maintain that the Lottery Funding Agreement was clear that public sector procurement procedures were not required to be followed.

1. We were surprised to hear the Secretary of State's position with regard to the design and construction of Wembley. She told us that:

 "This is the FA's choice. This is the FA's project and as long as they can fund it they can build a stadium at whatever cost they choose. ... We are not, as a government, funding the stadium; we are funding the non-stadium infrastructure. It is an expensive stadium but it is the FA's choice and they will bear the full financial risk. WNSL will bear the full financial risk, so they are free to make that choice".[45]

We regard the re-design of the project, as a result of Patrick Carter's review, and the requirement set by the Government for WNSL to demonstrate the value for money of the construction contract, as running counter to this position stated by the Secretary of State.

2. The differing perceptions of the status of the project appear to us to be the crux of the matter. We would view the project from the reverse perspective to that adopted by Mr Bates and Mr Stubbs. Until the private sector has signed on the dotted line to bankroll construction, the overwhelming majority of the project's resources, £120 million, have been provided by the Lottery-playing public with only £19 million provided by other sources—an effective ratio of 6:1. We believe the assertion that only 'WNSL/FA would suffer from WNSL decisions' to be a dangerous nonsense. Such decisions have already given rise to review after review, a request for £150 million of public expenditure and the recent revelation that the WNSL business plan now requires 3,800 more seats to be reserved for advance purchase at a premium, reducing those available to the general public. In addition the claim that costs, other than acquisition and design, would be funded through commercial loans and FA support simply does not stack up against the further £41 million on the table from the public purse.
3. We consider that high standards of conduct, transparency and accountability should have been adopted by Wembley National Stadium Limited, and required and enforced by Sport England. They were not. To regard WNSL as a "private concern" when it was almost entirely founded upon a substantial grant of Lottery money and remains in that position to date, is outrageous. In this we find ourselves in complete agreement with the assumptions of Mr James and BLP and their consequent conclusions. We were therefore heartened by Tessa Jowell's Statement to the House of 23 May in which she made clear that the Government was now acting to safeguard the public investment by insisting on "best practice" public sector standards which would also reassure the market that the project was a worthy one in which to invest.[46] We note the difficulty that this project has had in raising private finance and it is difficult to escape the conclusion that this may have been connected to the nature of the management, and lack of transparency, of the project.
4. The precise legal status of the Wembley national stadium project is crucial to what view is taken of the conduct of WNSL. We believe that the project should have been a private commercial concern. Instead it has been mounted on a quasi-public, semi-commercial basis. Distinguishing between Lottery money for acquisition; Government money for non-stadium costs; and commercial funding for construction—and implying different standards of conduct for each—is utterly artificial. The public money, which also includes funds from the London Development Agency, is all subsidy for WNSL. To safeguard the Lottery funds committed, and to secure the appropriate use of the additional public money identified, this is a project whose execution clearly should have met the highest of standards in accounting and tendering; but did not.

Procurement and the Lottery Funding Agreement

  43. Under the Lottery Funding Agreement (LFA), procurement by WNSL must comply with all relevant law and codes of practice including European Union procurement legislation if applicable.[47] There is no evidence that Sport England took any independent action to determine whether or not European Union procurement procedures were applicable or what exactly should apply in their stead. On the evidence presented to us, it seems that Sport England left the determination of this issue to WNSL. Advice from WNSL lawyers stated that EU procurement procedures did not apply. That advice was accepted by Sport England and that was the end of the matter.[48]

5. According to the LFA, if EU legislation was not deemed applicable the company must adopt commercial "competitive tendering procedures" unless Sport England agreed otherwise on a case by case basis. An outsider considering the Lottery Funding Agreement might reasonably have interpreted this provision as a duty on WNSL to employ the highest standards of procurement and compliance procedures. Such an assumption would have been wrong. The James report pointed out that the term "competitive tendering procedures" is not defined under the terms of the LFA, it is not a term of art understood in the construction industry, nor one that has been judicially interpreted. We regard the absence of a precise definition of an important obligation for WNSL within the Wembley Lottery Funding Agreement as a serious flaw in the drafting of that document by Sport England and its advisers. Despite the size of the Lottery grant, and the importance of the project, Sport England did not do its job. Possibly, the most important clause in the LFA was allowed to be reduced to a token technicality, easily avoided by WNSL with serious consequences for the progress of the project.
6. The James report is clear that the procurement process followed by WNSL fell below industry best practice expected for a publicly funded project. Mr Bates and Mr Stubbs point out that "best practice" is not mentioned within the LFA but only that a "competition process" should be undertaken. Their joint memorandum states that "Sport England were fully aware of the procurement process being followed by WNSL and to our knowledge never raised any concerns. It is therefore clear that Sport England viewed WNSL as acting within the terms of the Lottery Funding Agreement."[49]
7. We accept that Sport England was certainly aware of WNSL's procurement strategy, having rejected WNSL's first approach (as drawn up by Tropus). However, Sport England's supplementary memorandum makes clear, albeit with no trace of chagrin, that they were largely unaware of, and certainly uninvolved in, the procurement process taking place between June 1999 and September 2000. This period includes the controversial parallel negotiations, the first Multiplex proposal, the appointment of the Bovis/Multiplex joint venture as preferred contractor and the subsequent appointment of Multiplex alone to that position. We note from the James report that this situation was in marked contrast to the short-listing of the demolition contractors which was a well-documented process involving a high standard of procedures "borne out of a concern that the process should be fully auditable, and should minimise the risk of falling foul of the Lottery Funding Agreement."[50]
8. It seems clear from the evidence we have received that this situation arose from the apparent side-lining of the WNSL board in respect of these negotiations and processes; a situation described by Mr James as "the lack of adequate monitoring and overseeing responsibility engaging the Board as a whole".[51] The James report stated that as far as can be ascertained "the Board may not have always been fully and accurately reported to on significant issues arising concerning the procurement process." The James report noted that while the management of the process had been delegated by the Board it was "imperative" that the Board should have been kept informed of key developments and changes, and involved in key decisions.[52] This defect made the presence on the Board of non-executive directors appointed by the English National Stadium Trust, and the attendance at Board meetings of Sport England observers, largely redundant as a mechanism for oversight and the protection of the public interest. Sport England was looking in the wrong direction.

Value for money

9. Given the failure in procedural standards, a key objective for all concerned with the Wembley project was to make an assessment of the value for money represented by the construction contract secured between WNSL and Multiplex. As the Secretary of State told the House on 19 December 2001: "FA and WNSL ... should they continue with the Multiplex contract ... must set in train an independent assessment of the value for money which it represents ... before the Government will proceed with any further support to the project, financial, moral or otherwise".[53]
10. Mr James concluded that a major problem with the procurement processes followed by WNSL, and the quality of the resulting audit trail, was that whether best value for money was obtained "at the time" is unknowable: "it will never be possible to assess this with any certainty".[54] A second, more practical, question is whether proceeding with the existing contract represents value for money now, today. Mr James assessed the risk of the process being challenged on grounds of propriety as unavoidable but limited. In terms of value for money, Mr James concluded that: "I believe the argument is sustainable that best value today is likely to result by enabling WNSL to proceed through MPX [Multiplex] to build the new stadium."[55]
11. In evidence Mr James revealed that the first draft of his report had supported re-tendering the contract but that he had been persuaded by evidence presented by WNSL that this option was "infeasible":

• there was a requirement to start development of the site by 31 December 2002 (having given three months notice) or face the potential loss of 7 acres of the site back to Wembley Plc;
• favourable contracts have been negotiated (particularly for demolition services);
• the fixed price element within the main contract may be seen as a current benefit;
• inability to proceed would seriously undermine the commitment of the lead lender. We note that Barclays Bank has since been replaced by West LB as lead financial partner of WNSL.[56]

Mr James told us that: "Pragmatically, it seemed to be very unlikely that the Government would ever have a better option than creating another stadium of this consequence within the definable parameters of the funding available and effectively passing the bulk of that funding to the private sector to provide. So I thought it was a reasonable recommendation to say 'Go for it'."[57]

1. The independent studies undertaken to assess these matters were by independent quantity surveyor Cyril Sweett, and the Office of Government Commerce (OGC).
2. The Sweett report concludes that the Wembley stadium design represents "value for money both in terms of the market price for the scheme as designed, and in terms of comparison with stadia of similar standing."[58] Sweett and WNSL both make the point that Wembley is intended to be self-sustaining i.e. with higher construction costs resulting from generous provision for a high number of premium seats needed to finance debt. The following table sets out a comparison of the costs of stadia from around the world.

Comparison of stadia costs and scale
Stadium	seats	total area m2	area per seat m2	benchmarked £ per seat	£ per m2	total cost £ million
Wembley	90,000	173,000	1.9	3,918	2,305	353
Stade de France	80,000	70,000	0.9	3,332	3,809	266
Stadium Australia	80,000	100,000	1.2	3,486	2,789	279
Munich (new stadium)	66,000	n/k	n/k	3,761	n/k	248
Arena Aufschalke	51,000	59,000	1.1	3,538	3,069	180
Sapporo Dome	42,122	54,000	1.3	5,839	4,572	246
Washington State	72,000	n/k	n/k	4,995	n/k	360

Source: Sweett/WNSL 2002

3. WNSL assert that over the last three years the projected cost of the new Wembley stadium has rarely been compared to other stadia on a like for like basis. The total Wembley project cost is about £715 million which includes a range of factors (land acquisition, design, finance costs, infrastructure, legal fees, WNSL running costs and other matters) in addition to the construction of the new stadium. WNSL claim that figures quoted by commentators for other stadia tend to be for principal construction costs. In addition little account is taken of the absolute scale of Wembley (i.e. that the final 10,000 seats will cost significantly more to build than the average) nor its relative low ratio of public to private funding; nor the cost implications of its economic self-sustainability referred to above.[59]
4. The Office of Government Commerce has conducted a "gateway"[60] review of the project at the insistence of the DCMS Permanent Secretary. The FA described the review's findings as concluding that the project was now well-resourced, well-managed, viable and could proceed.[61]
5. We accept the findings of Cyril Sweett and the Office of Government Commerce that the construction contract for the new Wembley national stadium represents reasonable value for money. We note the advice of Cyril Sweett on maintaining the security of the outturn price. We emphasise the need to maintain stringent monitoring and assessment procedures for when the project moves into the construction phase so that the assessments of Cyril Sweett and the OGC can be proved accurate.
6. Mr James stressed that, as the construction contract was for a fixed value, it was essential that the special purpose vehicle, or separate corporate entity, established to carry out the construction contract could be shown to be adequately backed by assets sufficient to cover any potential liability. This could be achieved either by a binding undertaking to leave such assets in place in the contracting company throughout the life of the contract or, alternatively, by means of a parental guarantee, from the holding company of the actual contracting party.[62] In addition to the advice of Cyril Sweett, we support the "strongest possible recommendation" made to us by Mr James that a full disclosure must be sought of the corporate structure of the business which is undertaking the contract to construct the Wembley stadium. This disclosure is to ensure that the corporate entity established actually to execute the building contract has adequate assets to cover any liability that might arise.

Under new management

7. Another key element of the consensus on the way forward for Wembley after December 2001 was the importance of improved standards of corporate governance at WNSL. The FA wrote that since December 2001 all of the recommendations relating to corporate governance from Sport England's advisors, the Office of Government Commerce, as well as guidance from the National Audit Office and the related recommendations in the Cyril Sweett report, have been followed.[63] A new board has been established by the FA, with Sport England's approval, comprising individuals described by the FA as having the relevant experience and skills to ensure the delivery of the project and the business plan.[64]
8. Mr David James told us that, in his opinion, WNSL had made "very great progress" and even suggested that congratulations were in order. However, he also made a strong commendation to us that WNSL should itself appoint a "compliance officer" of the highest calibre.[65] We take this to mean the creation within WNSL of a senior executive post with responsibility for oversight of the project in terms of compliance with the Lottery Funding Agreement, on the one hand, and general principles of Government accountability, on the other.
9. We recommend that WNSL appoint a compliance officer of the highest calibre with specific responsibilities and authority to investigate and report to the Board on performance against the standards of conduct to which WNSL has now signed up. The reports of this officer should be made to the WNSL Board but be available to Sport England, the DCMS and this Committee, on request. We regard this as an indispensable signal of the sincerity and determination of WNSL to take the project forward with due regard to its public funding and significance.
10. We further recommend that, from now on, all organisations in receipt of Lottery funding of any kind are required to make an explicit statement recognising their responsibilities with regard to the public interest in the relevant project or operations. This should not be in itself an onerous undertaking. However, organisations granted substantial awards should all appoint compliance officers with the specific duties set out above. This whole sorry saga has highlighted an important aspect of Lottery funding, namely that too little of both the granting and monitoring of the funds appears to have been systematic. While this Report deals with the Wembley project, the lessons to be learned apply to all Lottery funding and all Lottery distributors. We therefore call upon the Secretary of State to deal with this fundamental issue in her response to this Report.

The performance of WNSL, the FA, Sport England and the DCMS

Introduction

  61. We are concerned that the number of bodies involved in this project led to a blurring of responsibilities, in particular with regard to the distinction between the roles of private enterprise and public funders. The involvement of sports bodies, lottery distributors, commercial companies and Government led to a confusion of both responsibilities and objectives. External pressures such as commercial interest in the Wembley site and bids for the World Athletics Championships and 2006 FIFA World Cup also played a part in confusing the situation. As the saga played out the project became intimidating in size and complexity and this must have been heightened by the litany of difficulties encountered, including the associated fiasco of Picketts Lock and the eventual loss of the World Athletics Championships altogether. In these circumstances we believe it is a prime responsibility of Government, from the beginning, clearly to set out its own role and that of each partner and thereafter to ensure that each partner performs according to its role. We feel bound to point out that if the pertinent recommendations of this Committee's predecessor had been adopted many of these difficulties could have been avoided.[66]

WNSL

  62. WNSL was seriously unwise to have adopted the attitude and approach of a private concern when it was founded upon £120 million of Lottery money and in charge of such a high-profile and complex project. In addition, once the problems had been highlighted it would have been far better for WNSL to come clean at once about its deficiencies and the measures taken to rectify them. We note that the Secretary of State agrees with us in this, having pressed for the James report to be published but lacking the constitutional authority to do more.[67]

11. It is a serious shortcoming that, for all the Board presence, members and observers, technical consultants and related project monitoring and review bodies, it was left to Tropus to alert the new WNSL Chairman to a range of concerns, the most serious of which were confirmed by the thorough review undertaken by Mr James.

The Football Association

  64. As the parent company of WNSL, the Football Association itself should shoulder a measure of the responsibility for the conduct of its subsidiary. This is especially true in the light of the Association's long history of partnership with Government in various schemes and projects. Originally, when the English National Stadium Development Company, the forerunner of WNSL, was taken over by the FA, their respective roles appeared to be clear. It is reprehensible that the FA does not appear to have maintained this separation whilst at the same time refusing to accept ultimate responsibility for the public money committed to the project. Indeed, Mr James told us that, in his opinion, the "thing which has gone most wrong here is that the board of WNSL were so dominated by the Football Association's overhang that they did not apply themselves with the vigour of an independent body which was ultimately going to have to be accountable to the ultimate sanction which is insolvency and all that that carries with it."[68] He went on to recommend that the new WNSL Board should be as manifestly independent as possible from the Football Association, have a mandate to proceed to build the stadium with the funds, executive structure and compliance function that ensure delivery of effective governance. We agree. Mr James believed that the FA should also provide a parental guarantee for its subsidiary, at least equal to the Lottery investment, to come into effect in the event of any default during the project's latter stages which might subject the Government to demands for further funds.[69]

12. A further issue for the Football Association is the encouragement offered to the Birmingham partnership in developing an alternative proposal for a national stadium in the Midlands. Birmingham and Solihull Councils and the NEC have put about £700,000 into developing this proposal with in-kind contributions from the private sector amounting to a further £300,000. The Project Director, Mr Paul Spooner, wrote that "from the outset of the [Carter] review we have received nothing but encouragement from the FA, but limited access to information about their existing commitments and agreements or detailed business requirements for the stadium." Mr Spooner also states that the FA took the initiative to approach Birmingham in May 2001 in advance of Patrick Carter commencing his review.[70]
13. During evidence from the FA to the Committee on 21 May, the status of the FA's event staging agreement with WNSL was discussed at length. Birmingham wrote that, as the FA's staging agreement with Wembley stands as security over the Lottery grant, serious consideration of a Birmingham bid was never possible.[71] Birmingham felt misled by the FA, and others, into believing otherwise.[72] The FA's position is that they have always expressly favoured Wembley and have made a significant investment there. However, should the project not go ahead at Wembley after all then Birmingham remains an option "subject to discussions by all stakeholders on how best to abort the current project and any agreements relating to it."[73] We conclude that, in not making the implications of the FA staging agreement with Wembley clear to Birmingham, the FA denied the partnership behind that proposal the opportunity to make a realistic assessment of its chances of success. This is particularly unsatisfactory in the light of the assertion by the partnership that the initiative came first from the Football Association itself.

The Government

  67. The Government has played its part in Wembley's difficulties as our previous reports make clear.[74] The interim report of Mr Patrick Carter also points to the role of equivocal support from the Government as Tessa Jowell's Statement of 23 May recognised. Since the election of June 2001 the Secretary of State has played a waiting game as far as she has been able. The involvement of a further public subsidy for Wembley, the £20 million for infrastructure improvements, has however drawn the Department and Ministers into the decision-making process. Unlike the Lottery funding, this money is on the table with strings attached. The most important of these is that the private sector financing is tied up and delivered.

14. On 23 May, Tessa Jowell emphasised to the Committee in evidence, and on the floor of the House later the same day, that no more public money was available and indeed that the current negotiations over Wembley's finance represented the stadium's last chance.[75] We recognise the Secretary of State's difficulties in making her statement of December 2001 when the full facts of the case were not in the public domain. Tessa Jowell told us that she had pressed for the publication of the James report and we applaud this.
15. We are concerned however, that the Government also failed to provide Birmingham with the requisite information it needed to make a proper judgement over whether to proceed with its bid for a national stadium. We suggest that Birmingham consult authorities in Lee Valley and Enfield for best practice in coping with nugatory expenditure on elusive national sporting projects.[76] It is not a question of the FA being unable to take its events to Birmingham in the event of failure at Wembley; we have little doubt that in such circumstances a negotiated settlement satisfying all parties is possible. It is rather, as we have said above, that Birmingham should have been given all relevant information before deciding to develop a proposal and invest resources. It would not have been appropriate to introduce a rival bid simply to get WNSL to 'buck up' their ideas.

Sport England

Monitoring

  70. Sport England's performance in monitoring the progress of the project has been slack, slovenly and supine. The evidence Sport England gave the Committee indicated that many procurement decisions were reported by WNSL as faits accomplis. Sport England blamed the uncertainty over whether athletics was to be part of the project for a siege mentality adopted by WNSL in contrast to its previous openness over the design process. We have identified the more probable cause as being WNSL's perception that, once the Lottery money was spent, Sport England's legitimate role in the decision-making process was at an end. This is deplorable and should have been identified and tackled by Sport England. We are led to wonder whether the serious failings of Sport England are confined to Wembley or if other projects are in a similar parlous state.

16. The oral evidence provided by Sport England was clear about what action was taken after December 2001. However, there was scant reference to, or explanation of, how Sport England missed the failures of procurement practice and corporate governance that could hardly have received more serious criticism than those in the conclusions of the James report and covering letter.[77] When this very question was put to Sport England by the Committee in oral evidence, Sport England avoided a direct response and instead sought to explain what action was taken from December 2001 onwards to remedy the situation.[78] We do not regard this as an adequate response. It reveals very little analysis of the problems that did occur and does not, of itself, inspire much confidence in the remedies proposed.
17. Sport England did admit to "deficiencies" in their monitoring of the project but seemed unabashed in the face of the James report.[79] We have concluded that the presence of ENST representatives and Sport England observers at WNSL Board meetings contributed little to the monitoring of the project because the Board was not properly informed and did not take the proper steps to inform itself; or if it did it did not act on this information. However, we understand that the LFA contains detailed requirements in terms of Sport England's right to attend virtually all meetings of WNSL or between WNSL and any third party, which are material to the on-going implementation of the Project (as well as wide discretion to determine what documentation it needed to see). The LFA does not appear to limit these rights to either Board meetings or to particular stages of the project's progress . Sport England did not exercise the powers at its disposal effectively, if at all.

Changes to the project

  73. We listed above the significant changes that have occurred to the project since inception. Of these the the Lottery grant strategy; the obligations in respect of athletics; the programme milestones; and the balance between public and premium seats have all been changed, or sought to be changed, with the agreement of Sport England. We were very concerned at the reduction of available seats for the public, and regard Sport England's agreement to this as a dereliction of duty. Sport England must not agree to any further changes which will diminish the ability of ordinary members of the public to have access to a new Wembley stadium for which Lottery players have paid. We also believe that it is incumbent on Sport England and the Government to make clear when any such changes are applied for, in advance of their agreement. The covert agreement between Sport England and WNSL to reduce the number of public seats was only revealed when the Secretary of State was obliged to provide this information in a Parliamentary written answer.[80]

Strategy

  74. The fundamental problem with the Wembley project flowed from a flawed strategy for its public funding. The key guarantee over the public interest in the project has always been articulated as the return of the £120 million Lottery grant. In terms of physical assets the ability of WNSL to repay the grant seems to have evaporated with the closing of the old Wembley Stadium and the current value of north London industrial land. This was certainly the position of Mr James when he appeared before the Committee and told us that, so far as he had been given to understand the matter, WNSL's only asset was the Wembley site and that the FA had committed itself to no parental guarantee in respect of its subsidiary.[81]

18. In evidence in this inquiry the FA Staging Agreement with WNSL emerged in public clearly as not only ensuring the bankability of the Wembley stadium project but also guaranteeing the return of the Lottery grant from WNSL to Sport England. This has been referred to in oral evidence to the previous Committee but never clearly spelt out. We took comfort from the fact that Mr James seemed to be equally unaware of the means to recover the grant should the project not proceed. If the Wembley project failed to make any further headway, the FA staging agreement, together with the Lottery Funding Agreement, would have the effect of making the FA's events, FA Cup finals and international matches, hostages of Sport England until such time as satisfactory terms for the return of the Lottery Grant were agreed between all concerned.
19. In the event of the project faltering at this stage, Mr Roger Maslin, Finance Director of WNSL, described the likely process as a "an urgent discussion" with all stakeholders to consider all the options. Mr Coward, FA Company Secretary, said that "the stakeholders ... would be called together by the company, those being Sport England, the FA and, I would assume, Government—the partnership approach has been adopted in the last six months—in order to address that issue there and then."[82] A theoretical possibility mentioned by WNSL was the re-opening of the old stadium. This option was said to be very unlikely by the Secretary of State not least due to the expense of bringing the structure into operation once again.[83] The perceived reticence of the principal parties in relation to this arrangement is likely to reflect reluctance to prejudice possible future legal proceedings rather than any conspiracy.
20. We conclude that it is scandalous for Sport England to allow £120 million pounds of advance Lottery funding to be:

• safeguarded by monitoring arrangements that were focused in the wrong place;
• regarded by the recipient effectively as spent without further accountability required; and
• protected by a clawback mechanism that is reliant to a large degree on the potential embarrassment of the FA Cup returning to the old twin towers rather than any realisable assets.

We do not believe that the mechanism in place to achieve the return of Lottery money is an acceptable way to treat the Lottery-playing public's money.

1. Sport England created a rod for its own back in relation to the Wembley project. The Lottery grant was handed over prematurely and the money was spent on the purchase of the site and the stadium design. WNSL seemed then to behave as if this was the end of the public interest in the project with the bulk of the rest of the funding coming from non-public sources. We note that the Secretary of State was explicit in not seeking to defend the terms of the award of the original Lottery grant.[84]
2. The question to be answered is how Sport England could ever have drawn the line under the Wembley project once the grant had been spent? Sport England has agreed, or acquiesced, to: athletics going, coming back, to delay after delay, to poor procurement practice, and most recently 3,800 fewer seats for the general public within the stadium. We repeat that Sport England's protection of the £120 million, the largest single lottery grant ever awarded to a sporting project, entirely fails to meet the standards to be expected of such a public body. We believe that Sport England's performance has been deficient to the point of dereliction. A new chairman of Sport England is due to be appointed. It must be the duty of the successful candidate to examine rigorously the lessons of the Wembley project. An assessment must be made as to whether the unique circumstances prayed in aid by Sport England do confine the failings identified in this Report to the oversight of the Wembley project. Sport England must provide Parliament and the public with reassurance that it has the ability and determination to put its house in order.

 

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17   Ev 43 Back

18   Ev 44 Back

19   Ev 44 Back

20   Described in the James report as "the well known crisis manager and company doctor" Back

21   Ev 63 Back

22   Ev 6, paragraph 6 Back

23   Ev 63 and 110 Back

24   Q 345 Back

25   Ev 110 Back

26   Ev 63 Back

27   Q 200 Back

28   Q 182 Back

29   Ev 42 Back

30   HC124-II (1998-99), p95 Back

31   Ev 116 Back

32   Ev 59 and 60 Back

33   Ev 48 Back

34   QQ 61-62 Back

35   QQ 16-22 Back

36   HC Deb, 19 December 2001, col 291 Back

37   Ev 45 Back

38   Ev 110 Back

39   Ev 98 Back

40   Ev 97 Back

41   See Ev 110-111 Back

42   Ev 1-3 Back

43   Ev 5 Back

44   Ev 110-111 Back

45   Q 421 Back

46   HC Deb, 23 May 2002, col 400 Back

47   Ev 96 Back

48   Ev 96 Back

49   Ev 110 Back

50   Ev 9 Back

51   Ev 1 Back

52   Ev 20, paragraph 16 Back

53   HC Deb, 19 December 2001, col 291 Back

54   Ev 4 Back

55   Ev 2 Back

56   Ev 2 Back

57   Q 139 Back

58   Sweett, 2002 Back

59   Ev 116-7 Back

60   New procurement projects in civil Central Government are subject to Gateway Reviews. The Gateway Process examines a project at critical stages in its lifecycle to provide assurance that it can progress successfully to the next stage. It is designed to be applied to projects that procure services, construction/property, IT-enabled business change projects and procurements utilising framework contracts. The Gateway Process is based on well-proven techniques that lead to more effective delivery of benefits together with more predictable costs and outcomes. The process considers the project at critical points in its development. These critical points are identified as Gateways. There are six Gateways during the lifecycle of a project, four before contract award and two looking at service implementation and confirmation of the operational benefits. The Process emphasises early review for maximum added value. http://www.ogc.gov.uk. Back

61   Ev 65 Back

62   Q 167 Back

63   Ev 24 Back

64   Ev 60 Back

65   Q 165 Back

66   See in particular: HC 164, 1999-2000, paragraphs 145 and 139. Back

67   Q 417 Back

68   Q 165 Back

69   Q 165 Back

70   Ev 111, paragraph 2(c) Back

71   Ev 111 Back

72   Ev 111 Back

73   Ev 112 Back

74   HC 264, 2001-02, paragraphs 23 and 24 Back

75   HC Deb, 23 May 2001, col 400 Back

76   See HC 264, 2001-02, paragraphs 70-73 Back

77   Ev 1ff Back

78   Q 361 Back

79   Q 377 Back

80   HC Deb, 20 May 2002, col 71w Back

81   QQ 137-9 Back

82   QQ 278 and 270 Back

83   See QQ 280 and 427 Back

84   Q 422 Back

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Prepared 10 July 2002