TUESDAY 21 MAY 2002

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Members present:

Mr Gerald Kaufman, in the Chair
Mr Chris Bryant
Mr Frank Doran
Michael Fabricant
Mr Adrian Flook
Alan Keen
Miss Julie Kirkbride
Ms Debra Shipley
John Thurso
Derek Wyatt

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Memorandum submitted by Tropus Limited

Examination of Witnesses

MR DAVID HUDSON, Chairman, MR FRANCIS McPEAKE, Director, Tropus Limited, examined.

Chairman: Thank you very much. I have got two opening statements to make. The first opening statement is the one that you now hear before all theatrical performances, namely, please turn off your mobile phones. If any mobile phone goes off during this session I will probably have it destroyed. Secondly, I want to refer to the material that we have seen before we have had this evidence session. The Committee has reviewed all the relevant documents in this matter including reports from both Tropus Limited and the consequent review by David James and Berwin Leighton Paisner. I should make clear that we have seen the full versions of these documents, with all deletions reinstated, but we will not refer to material that was deleted in this session. That means that we have decided, as a matter of principle, not to create a situation in which we would refer adversely to the roles of individuals in any of these matters. So the concern of Mr Ken Bates in The Guardian today can be allayed on that matter. We have decided, after much discussion, to require from WNSL the thorough and authoritative review by David James and BLP for publication by us - albeit with some deletions on the grounds of commercial confidence and other sensitivities. We agreed those deletions. We did not require a copy of the Tropus report for publication but rather we asked Tropus Limited to submit a memorandum setting out their concerns. We are grateful to Tropus for supplying that and that will be published. Last week the Committee took evidence from both David James and WNSL in private - again to protect commercial confidences. The Committee will consider whether to publish that evidence in due course after following established practice in offering the witnesses the opportunity to indicate which passages they would ask to be withheld in order to protect commercial sensitivities. I am very grateful to Mr Hudson and Mr McPeake for coming here today to answer questions, and I am going to call on Mr Doran to open the questions.

Mr Doran

Thank you very much, Chair. You were at the heart of the Wembley project for four years as consultants and you felt it appropriate to produce a report, which the Chairman has referred to. I will not refer to that report but I will refer to the memorandum you have submitted to the Committee. You paint a very worrying picture, you refer to a "cavalier attitude" and there is a suggestion of "arrogance" and multiple failures of corporate governance. In your memorandum, when you discussed the background, you go so far as to say " ... our real concern of the possibility that the entire project might be aborted ..." Can you explain why you felt the situation had got so serious that that statement was justified?

(Mr Hudson) I think it is a matter of public record, of course, that in April 2001 Mr Crozier approached the Government and that led to the Carter Report which made it quite clear that the project was in jeopardy. In our view, it was at least partly in jeopardy because of the escalation of costs and what we believed was the situation that options that were available to the project were not being put forward to, as far as we could ascertain, the FA and, possibly, to the Board. You must bear in mind that we were not party to Board minutes or Board meetings, so we could not be certain throughout the project what was being said. I think, looking at the David James report, which I have seen for the first time in the last 24 hours, it is quite clear that there were a lot of things that were not being said to the Board. We put forward a proposal which we thought would save substantial sums of money, in the order to £50 million to £100 million, for the project. This was a source of money that was being talked about as a shortfall in terms of funding. Clearly, the message that we had put to senior officers of WNSL had not been put forward, it would appear, so I chose to go straight to Adam Crozier to inform him that there were options that would substantially reduce the cost of the project and, therefore, could possibly save money.

Could you spell out for us what you saw as the main difficulties and the main problems in the project?

(Mr Hudson) The main difficulties in terms of the design of the stadium was the incorporation of the hotel (that was not viable because there was a restrictive covenant by the Hilton on the scheme, therefore, it was difficult to understand why that remained in the scheme), offices that were clearly not viable, and a large open banqueting space which seemed to be inappropriate at the time.

By dealing with these problems you reckoned that up to £100 million could be saved on the project?

(Mr Hudson) Partly those problems. Also, we felt that the pricing from the contractor that was being put forward was higher than you would get in a competitive environment. We felt that by a combination of rationalising the design and re-instigating the competitive process between £50 million and £100 million could be saved.

You raised also the question of the appointment of the main contractors and you had serious concerns there. Can you say what those concerns were?

(Mr Hudson) I did a report on the procurement way back in 1997 which was adopted by the Board, which divided the project into three and the main contract to be let on a demolition and construct, full design and build procurement. In 1999 this procurement was changed in an attempt to get on board a preferred contractor early on. I did a revised report pointing out what the problems would be and how that best could be controlled. What actually happened, however, was that Multiplex approached - I do not know quite how it came about, to be honest, but there was clearly discussion between WNSL and Multiplex and an offer put forward by them which, on the face of it, appeared very attractive. It was felt, I think by most people, that it would not be matched by the UK industry, although we did caution that this may just be an attempt to get a foot in the door, as it were, and, once in the door, to manipulate a better situation. That is exactly what did happen. The competition that was put in place was clearly not fair, in our opinion, and we stated that ----

That is quite a serious allegation you make.

(Mr Hudson) It was not a fair competition. To begin with, the documentation sent down in first instance did not involve the professional team quantity surveyor (QS) at all, as I understand it. That is a very unusual situation, because normally, of course, he is the person charged with controlling costs through the processes and, it would be unusual if, during the procurement process, which is fundamental to controlling the entire project, the QS does not have an input. It also went out on a basis which was not compatible with the original Multiplex offer and, therefore, was not achieving the comparison that was being sought between a UK or a European market offer versus the Multiplex offer.

Chairman

Can I just follow that up? Could you say, categorically, whether, in your view, in the appointment of a contractor best practice was followed?

(Mr Hudson) Absolutely not.

Secondly, can you say whether, in your view, in the appointment of a contractor, one or other of potential contractors was put on the inside track to the detriment of other contractors?

(Mr Hudson) I believe that there was preferential treatment given to one of the two contractors.

Having answered those two questions in the way you have, could you say whether the action taken which you have specified was in conformity with what Sport England could have expected under the Lottery Funding Agreement?

(Mr Hudson) No, Sport England called for either following European Community public procurement procedures (OJEC), if required (and legal advice was sought and the advice was that we did not need to follow OJEC procedures), or the alternative was that there needed to be a fully competitive process. I do not think that the process that was conducted was a fully competitive process.

Mr Doran

The detail of all of that is well set out in your memorandum, and you suggest also that there were consequences in terms of the costs which the project will now face. Can you go into that in a little bit more detail?

(Mr Hudson) Going back to the point at which Bovis Multiplex were first appointed as contractor, there was a two-week negotiating period to try and iron out the non-compliance issues. That two-week period failed to do that, and the recommendation from the sub-committee that conducted that negotiation was that we should not proceed with single negotiations. The reason for that recommendation being made was because if in the best circumstances, where there is still a potential competitive situation, you cannot reach agreement on non-compliance issues, at that point it becomes increasingly unlikely that once a contractor is preferred you will reach agreement. So it was rather surprising to us, that recommendation having been made, that I think within a fortnight Bovis Multiplex were appointed as preferred contractors.

Can you say anything about the consequences for costs?

(Mr Hudson) The consequences for costs are that if a contractor adopts an attitude where - as most naturally will because it is in their commercial interests - they want to push the price up, if you do not have a very robust negotiation and some real threat that if a satisfactory conclusion is not reached then a new competitive process would be introduced, then you are bound to get an escalation of costs. In our opinion, the costs escalated to a level way beyond the costs that you would get in a competitive process.

Chairman

Can I just ask one question consequent on that? From what you have seen, could you say whether or not any of the contractors, including or not including the successful contractor, padded their costs?

(Mr McPeake) I think it is always difficult to know whether costs are padded. You can only determine that by being given access to the make-up of those figures, so it is not something to which you can categorically say yes or no. What I would say, as somebody who was involved in the early discussions with Bovis Multiplex when they had been selected as the potential preferred contractor, is that we took part in a workshop involving three or four of us where we looked in detail at a number of aspects of the Bovis Multiplex bid and, in the first instance, it is probably fair to say that they submitted a bid which, whilst it was non-compliant, I would suggest they played down the non-compliance issues. What became evident during the course of the 20 weeks or so that we entered into a further contracted period was that the number of issues with which they had problems escalated; so from starting with several issues in early February 2000, by the time the decision was taken it was clear that we were not going to reach agreement with Bovis Multiplex because it was a comprehensive list. Therefore, that concerned me and it was on that basis that when we concluded our initial two-week assessment of their bid on Chelsea I wrote a minute which said that I personally did not think there was sufficient common ground to continue the detailed negotiations with Multiplex at that time.

What about the inclusion of holidays in projected costs?

(Mr Hudson) I think you are perhaps referring to the programme?

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

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.

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.

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

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.

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.

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

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

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.

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.

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

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

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.

What is your normal practice? I went to your website last night, although it has not been updated since September 14 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.

It was exceptional, but who made that decision?

(Mr Hudson) I do not know.

Have you analysed how many contractors involved in Chelsea Village were also involved initially in Wembley?

(Mr Hudson) Have we analysed how many?

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.

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.

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.

I notice that The Evening Standard say they have a clean copy of Tropus. Was that supplied by your company?

(Mr Hudson) It was.

Sir Rodney Walker says, in his letter to us, which will go into the public domain, that you raised concerns about management processes. He says they are of little or no relevance, it is about management style. Would you like to respond to his comment?

(Mr Hudson) Yes. I do find that rather remarkable, given the evidence we put forward and, even more so, given the evidence that I now see in the David James/Berwin Leighton Paisner report. If a matter of style is that we believe in putting in processes and procedures and an alternative style is that you have none, then, yes, it is a matter of style. Our issue was that having set the project up to have a proper project execution plan which should have been developed as the project itself developed and to have proper processes and controls, those processes and controls were largely ignored; instead of having a properly structured project management team the project management team were asked to perform on a purely task-oriented basis almost on a day-by-day instruction. So there was no responsibility for delivering elements of the project as we believe there should have been. If that is merely a matter of management style, I think it is an inappropriate use of that expression, because what it is all about is having proper procedures. I would agree there are other ways of doing it and had something else been put in place to what we originally set up then we would have had no complaints, but what happened was that there was nothing put in its place that had any real effect. There was no budget put in place against which the design team were asked to design, so they designed, as it were, to meet the brief and then the designs were costed and those costings accepted.

Chairman

I would like to return to the question about the value of the land and the property, because the Clerk has now provided me with a response that WNSL gave us after we had a private meeting last Thursday. I wanted some information about that - regarding the value of the land. Forgive me if it is several sentences but I would like to read them out to you. "The property and fixed assets were purchased by WNSL from Wembley plc for £103 million." That, of course, was tax-payers' money through the Lottery. "This included £93.7 million for the property and fixed assets, although the value of the property was not set out separately within the sale and purchase agreement. WNSL have used the chartered surveyor and related property specialist partnership to apportion the values of land and buildings. The land is included in the accounts at a value of £64.5 million, the buildings have since been written off." So £40 million of public money has been written off - ie £103 million of our money was handed over by Sport England for property which is now included in WNSL's accounts at £64.5 million. Do you regard that as an appropriate use of public funds?

(Mr Hudson) It would not appear so, but I am not an expert in the use of public funds.

Mr Bryant: Neither is WNSL!

Alan Keen

I do not know whether this question has any importance at all, but reading through the report Bovis was involved and then they were not involved. Could you explain why they withdrew? Did they withdraw voluntarily?

(Mr McPeake) What happened was that Bovis Multiplex were appointed as the preferred contractor as they were then entitled, and I think, initially, for a period of 20 weeks. The intention was that during that 20 weeks the WNSL's team would seek to agree the basis of the contract with Bovis Multiplex by which, at the end of that process, there would be a Guaranteed Maximum Price for the new stadium. At the start of that process there was a letter which basically said that it was WNSL's intention (and this was something which Bovis Multiplex accepted in the appointment letter) that there was a budget of £316 million and that during this 20-week period Bovis Multiplex would seek to agree the GMP within that figure, alongside agreement on the contractual terms and refining the design in order to support that figure. What actually happened at the end of that process was that, from my understanding, Bovis Multiplex were unable to confirm that they could build the stadium for that price. As a consequence of that it was decided that under the terms of the appointment letter - the preferred contractor appointment letter - WNSL had a right then to terminate that agreement. The events that unfolded after that are a little bit more vague, but it was after that point in time that Multiplex, very soon thereafter, became appointed as the new preferred contractor.

Did Bovis withdraw?

(Mr McPeake) No, my understanding is that WNSL actually wrote to Bovis advising them that they were no longer required as the preferred contractor.

Mr Bryant

Do you think that the processes that you have outlined, where you see the problems, are just cavalier or corrupt?

(Mr Hudson) We have seen no evidence of corruption.

The big cheque was on 15 March 1999 for £103 million from Sport England. Do you think the fact that that money came seemingly so easily encouraged WNSL to behave in the cavalier fashion that you have outlined? In other words, do you think that the cavalier attitude sort of cascaded down from Sport England to WNSL?

(Mr Hudson) I do not know whether it cascaded down but I think it is inevitable that if somebody has a financial hold over you then you are bound to behave in a way that ensures that the next tranche is coming. Of course, that is why these things are normally done that way. Having had the large sum there might have been a perception that there was less of a need to adopt other than a cavalier attitude.

You say that you first raised with officers of WNSL some of your concerns in June 1999. It is now nearly June 2002, which is three years, during which you have been worrying about these issues. Who do you think, during that process, has known of your concerns in the wider public and in Government?

(Mr Hudson) Our concerns were raised within WNSL. It would not have been our job to raise them more widely. From my perspective, it was a difficult decision to even go and see the FA because the normal process would be that we were reporting to a client, namely WNSL, and it was to the senior management team and chief executive that the concerns were raised and to the human resources directors and to the finance director.

How distinct did you find, in your dealings, the FA and WNSL to be?

(Mr Hudson) Quite distinct.

Though the FA has how many members on the board of WNSL? Two, is it?

(Mr Hudson) I do not know. I never knew exactly what the constituency of the board was. As I say, we were not party to the board or the minutes.

Final question: do you think that the concerns that you brought up three years ago - which is, to some degree, past history - have all been rectified so that the Wembley Stadium that many of us and the Committee hope will now come to be is being laid on solid foundations?

(Mr Hudson) I have not been satisfied and reassured that that is the case. It would seem to me remarkable that given the terrible management and procurement processes that went on with this project you happen to end up with a project that represents very good value for money. I know there has been a value-for-money study prepared. I do not know whether it is that I have a different definition of the phrase "value-for-money" than the study that apparently supported where the project is today, but it seems to me that WNSL got itself into a position where it had to go forward with the contract that was in place because of dangers.

Is not the danger, as Michael Fabricant pointed out earlier, that if we do not go ahead then value-for-money for the Lottery player will be practically nil, because we would have lost £120 million?

(Mr Hudson) I think today, because time has now run up, that may well be the case, but it was not the case when we first approached the FA in July of last year.

(Mr McPeake) I think there is another question as well, and that is ought Wembley to proceed at any price? If the answer to that is no, then that is your answer.

John Thurso

The James/BLP report offers some exceptionally severe criticism of the levels of corporate governance within WNSL. It also says that these were raised as a result of comments, I think, in your report. Reading your memorandum I do not see any particular reference to that, and I wondered if you would like to make any comment on that?

(Mr Hudson) In reference to our report?

Corporate governance by WNSL.

(Mr Hudson) I think, again, we had limited information about the corporate governance issues because we were not party, as I said, to board minutes. There was something that, in fact, for example, I saw only relatively recently and only shortly before we prepared the report, which was a report prepared for the board in 1999, which said that I had carried out a review of the procurement process. That, in my opinion, was misleading; I did not carry out a review of the process, I prepared a report about recommendations on how to go forward. I was never given any of the documentation personally to review and to make comment on the processes that had been gone through and had no input on the processes reviewed at all. Therefore, to tell the board that I had conducted this review was misleading.

So that the reports that you were making to the executive management and the reports that the executive management were making to the whole board did not actually marry up?

(Mr Hudson) I have only learned much of that from reading David James' report yesterday.

Chairman

I am sorry, John. I was so absorbed in your questions that I was chasing up one or two of the bits that I want to follow up. I was trying to make sure from the Clerk that what I was going to quote I could quote with propriety. He tells me I can, so I am going to quote. In the David James report, David James says: "The process adopted by WNSL is unlikely to satisfy "best practice" standards as usually deemed necessary in any project involving Government or Lottery funding;" He goes on: "The process by which the tender was offered and the contract negotiated does not follow best practice and the WNSL Board may feel it appropriate to accept a strong measure of criticism for their failure to oversee this responsibility correctly. ... Propriety is an issue which it is difficult to demonstrate in the absence of evidence either positive or negative. ... Accordingly, I conclude there is an unavoidable element of risk which cannot be disassociated from the contract as negotiated. ... There is no evidence of any criminality or impropriety having occurred to date in this matter but there is no means by which all questions of propriety can be eliminated to the extent that the contract would ever be regarded as 100 per cent 'safe'." I may as well say now, to sum-up the point, that what WNSL or the FA get up to on their own money is no concern whatever of mine or indeed of this Select Committee's. The issue throughout has been whether there is a breach of the Lottery Funding Agreement which is made clear by, I would have thought, what Mr James says in his report. Here again, we come back to what is the issue for this Select Committee: namely the deployment of public money by Sport England. In the light of what Mr James says, could I ask you whether you believe that that deployment of public money has been appropriate?

(Mr Hudson) I think that had the project been properly handled and, as it could have been, in my professional opinion, on site and under construction by now, then I do not think there would have been a wrong use of public money because it was for a much-needed national stadium for this country. From where we sit now it does seem that the viability of the project enables a certain amount of money, as in all projects, to be based on viability. The fact that there was £120 million given towards that viability means there is more scope, as it were, to accept possibly higher prices than would otherwise be possible. Therefore, that may well be the reason why they were determined to get something on board at what we professionally considered to be a higher than competitive price rather than drive the price right down to the lowest sensible price and value-for-money price that they could achieve.

I can understand their motives, Mr Hudson, and I do not in any way decry their motives - if it is available why not use it and why not rely on it? The question is whether Sport England ought to have agreed to be part of that when it must have been aware of breaches of the Lottery Funding Agreement. After all, you as outsiders were more aware of breaches; they were the guardians of the Lottery Funding Agreement.

(Mr Hudson) I think at the time we were insiders, really. I do not think we can add very much because I think it is a matter for Sport England.

Miss Kirkbride

Going back a little earlier to the answer you gave to Alan Keen, you said the Guaranteed Maximum Price of the Bovis Multiplex stadium was £319 million. Can you tell us what the new Guaranteed Maximum Price is of the MPX stadium?

(Mr Hudson) It is actually the Guaranteed Maximum Price. No, we have not been party to the discussions since August of last year.

So we cannot know what the new price is?

(Mr Hudson) No.

During the course of your evidence you have made quite serious charges about the awarding of the contract. Given that you think that there was preferment in the awarding of the contract, can you elucidate as to why that might have been - what your own opinion is on why that action was taken?

(Mr Hudson) I think that would be speculation. I do not know why it would have been. All we can say is that it was a very unusual way to proceed and in our professional opinion it was not in the best interests of WNSL.

Then the issue remains as to whether or not the banks would be forwarding the money to proceed on the basis of the contract that there is. Is there anything you would like to say about that and the viability of the project as you see it in terms of the banks lending the money?

(Mr Hudson) We are not party to the viability and have not been involved, so I cannot answer that.

Chairman

Gentlemen, I would like to thank you very much indeed. Your evidence has been very valuable and, obviously, will be taken into account when we compile our report. Thank you.

(Mr Hudson) Thank you very much for the opportunity to talk to you

MR MICHAEL JEFFRIES, Chairman, MR MICHAEL CUNNAH, Project Director, and MR ROGER MASLIN, Finance Director, WNSL, and MR NIC COWARD, Company Secretary, the FA, examined.

Chairman: Gentlemen, thank you very much indeed for coming before us this morning. I am going to ask Mr Doran to start the questioning.

Mr Doran

You are obviously aware of the contents of the Tropus report and you have heard the evidence which the company has given. That, taken together with the work done by David James and his legal advisers, paints a fairly devastating picture of the way in which this project was handled, certainly up to the end of 2001. Would you like to comment on what you have heard?

(Mr Cunnah) We worked closely with David James and Berwin Leighton Paisner in reviewing the allegations made by Tropus. We do accept his findings that there were some deficiencies in the procedures that were followed. However, we have also worked very hard with our prime stakeholders, Sport England, and the Government in order to put right the deficiencies that did exist previously within the organisation.

So everything is all right now?

(Mr Cunnah) Since December 2001 we have addressed the issues and particularly they have been reviewed in tests that were set by the Secretary of State on December 19, so, for example, the value for money of the construction contract has indeed been established to be good value and indeed Cyril Sweett, the quantity surveyors, described the contract as onerous on the construction company. We have also worked very hard on the procedures within the organisation and also we have had a restructure of the board and the way that it works with the executive management. These corporate governance areas have been reviewed and passed by Sport England in association with PriceWaterhouseCoopers, and indeed the National Audit Office as well. We also underwent a very extensive review by the Office of Government Commerce who indeed declared at the end of their review that the project was well managed, well resourced, viable and should proceed to contract stage.

We may be coming back to that but let us concentrate on a couple of specifics. You have heard discussion in the earlier evidence about the purchase of the land and clearly that is a major concern because £120 million of public money was used. Quite clearly there are suggestions from Tropus that you paid over the odds for the land. We have been given information by WNSL that the purchase price was £106 million and that for that you got the whole business. I understand that included about 24 acres of land at Wembley plus another seven acres which I am still a little bit unclear about, but in terms of the price and the purchase of the business Tropus suggest, and I have to say my information is, that you have paid considerably over the odds. Can you tell me first of all what you bought?

(Mr Cunnah) When the national stadium was purchased from Wembley plc in March 1999, the Wembley Stadium business, that included the asset of the stadium, the staff and indeed the land. The land was 24 acres and in addition there were another seven acres as you allude to which, if it was not required by the design of the stadium, would be returned to Wembley plc.

In the business asset there was goodwill, I understand.

(Mr Cunnah) There was a small element of goodwill.

Can you tell me what the goodwill was?

(Mr Cunnah) In financial terms?

Certainly in financial terms, but what was represented by the goodwill?

(Mr Cunnah) Goodwill in any business represents the intangible value attached to the name.

I understand that, but what specifically attached itself to the Wembley site?

(Mr Jeffries) £250,000.

Earlier we had an indication that the valuation was £3 million. That was a wrong figure?

(Mr Cunnah) That has been corrected.

So a small amount for goodwill. Can you give us an estimate of what the current value of that land is?

(Mr Cunnah) Like Mr Hudson, I am not an expert in land values. When we acquired the business we had to work out how to reflect the assets we had acquired in the books and the valuation that we had at the time done by experts was £64.5 million for the land with most of the balance being attached to the buildings themselves.

Chairman

Whose was the goodwill that was being purchased?

(Mr Cunnah) WNSL bought the goodwill of the stadium business from Wembley plc.

But whose was that goodwill? Was that the FA's goodwill?

(Mr Cunnah) Goodwill is a concept which applies to the public at large.

I would be grateful if you could specify it because, unless you correct me, I shall remain under the impression that WNSL, which is a sort of subsidiary of the FA - we are not clear as to its status even today - was purchasing the FA's own goodwill, so the FA was buying its own goodwill. Am I wrong to understand that?

(Mr Maslin) There was a small amount of basically intellectual property assets with its own purchase agreement to the tune of £250,000 and that is what was represented by that figure.

If we can be forgiven in this post-sexist age, that is like the housemaid saying that her baby was only a little one. What I am asking you to do is to say I am wrong in saying that in effect the FA was buying its own goodwill with public money, however much it cost.

(Mr Coward) As I am here on behalf of the FA perhaps I could answer that. No, it would not be correct to say that the FA was using public money to buy the FA's own goodwill. The Lottery money was given to WNSL and, as you have heard, WNSL purchased the stadium business from Wembley plc. Part of that business is the trading name and the reputation and goodwill of Wembley. We all know the Wembley sign, the trade mark, the 'W' with the flags on top. That is something that Wembley National Stadium Ltd, certainly from the FA's point of view, we think properly bought from Wembley plc to support the business.

I think that is a less than convincing amplification.

(Mr Jeffries) Chairman, may I add something in general terms, although clearly I was not around at the time? I think it is fair to say that there was probably some truth in what you say but it was also a much wider agreement arising out of other uses of the stadium for concerts and so on. The Wembley name is a very attractive venue for artistes to perform at so the goodwill is composed of a number of other things.

That is lovely, Mr Jeffries, but in one of our earlier inquiries we went right back to the history of this structure and the stadium was built as part of the British Empire Exhibition between 1922 and 1923 for the purpose of staging the FA Cup Final. Indeed, it was built in order to be ready for the 1923 Cup Final. All of these nice concerts and stuff can be additional but the real public estimation of Wembley National Stadium has to be the staging there of the FA Cup Final and that is the goodwill of the FA. Taking into account that we are all now anxious to have a national stadium, many people wish it to be at Wembley in order that the FA can go on staging the Cup Final in its own premises or the premises of its subsidiary rather than, say, in Cardiff, so to that extent surely the goodwill relates to the FA?

(Mr Coward) Can I just clarify my answer because I think we were talking at cross purposes, hence what you described as my less than convincing answer. I would like to redress that. If you are saying that in the business of Wembley National Stadium an important part of that is the fact that it was the venue for the FA's events, that has to be true. That is the issue which we all acknowledged at the time and we still acknowledge now. I understood goodwill as being those things which I described. I am sorry if I was talking at cross purposes. I agree with you. If you are talking about the value of the business that relates to the FA's events then that is true of course.

But it is quite an important element, Mr Coward. It is an indispensable element, is it not, because that was what the stadium was built for specifically and solely?

(Mr Coward) Yes, it is certainly an important part of the business plan.

Mr Doran

We were talking about the valuation of the property. I have read the submission from WNSL so I know what the route was to the purchase. One thing I cannot understand is why you want the business and not the land which would have been a lot cheaper, given the point the Chairman has made, that you already owned the most attractive element of the goodwill.

(Mr Cunnah) In purchasing the stadium business from Wembley plc, Wembley plc required compensating for the loss of that business and the loss of the income stream that they had from that business.

I asked you earlier if you could give us a current valuation for the property and you were a bit reluctant to do that. Another FA source advised the Committee that around £30 million would be appropriate. Would you accept that figure?

(Mr Cunnah) I definitely would have to take -----

Mr Jeffries, do you have a view of the current valuation?

(Mr Jeffries) I think the valuation will vary depending upon what it is used for. Clearly it now has the benefit of a consent for a new stadium which will have altered its value. I am not able to what it is.

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?

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.

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.

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 check is in the bank, is there?

(Mr Cunnah) That is correct.

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.

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.

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.

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. 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.

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.

Sorry to interrupt you, but my understanding fo the lottery Funding Agreement is that that is a contract between WNSL and Sport England.

(Mr Maslin) That is correct.

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.

At European public procurement levels?

(Mr Maslin) It says "in a competitive tendering process". Our advice is that we do 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.

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.

And that they allowed you to proceed on the basis on which you proceeded?

(Mr Maslin) Well, as you say, the FA 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.

Was that a position you negotiated with Sport England?

(Mr Maslin) We discussed it with Sport England at the time.

No, not discussed; negotiated and received firm agreement.

(Mr Maslin) Firm agreement with Sport England on that basis.

So if requested by the Committee you could produce correspondence which confirmed that position?

(Mr Maslin) I will have to check my records.

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.

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

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 process.

Let me sum that up. Sport England then, from what you tell us, and we shall be seeing Sport England later this morning but your side of the understanding is important, knew that you were conducting a process that was contrary to the Lottery Funding Agreement?

(Mr Maslin) No. Let us be clear again. We launched a competitive process in July 1999 to 11 parties from which we had five tenders back. At that time we had this other offer from Multiplex which again seemed in that sense very attractive. We were not sure commercially whether that would fly in the market and therefore we did test that possibility in the market at the time because at the end of the day what we are trying to do on a limited budget is get the best competitive offer and the lowest and hopefully the best value for money. Looking at it in hindsight, we perhaps should have thought through some of the pressures that were likely to arise at the time and got a process in place for dealing with those in advance and make sure that there was a clearer system of keeping everybody informed. I believe that is now in place. We have learned from that. We did not have completely transparent processes. I believe we have moved on from there.

Did Sport England know that you did not have completely transparent processes? Did they know the processes when they were conducting this? Mr Cunnah said, in a phrase for which I do not criticise him but which has a certain redolence, that you were in partnership with Sport England. I regard it as utterly inappropriate that Sport England as a Lottery funder should be in partnership with you. Did Sport England know of the processes which you were using which we now know through the James report were contrary to best practice?

(Mr Cunnah) To clarify the question as to which procedures we were using, to come to your question, sir, initially we sought clarification and received it that in order to satisfy the Lottery Funding Agreement we did not need to follow the OJEC procedures. Sport England were aware of that and agreed with that at the time. As to the departures from best practice on, let us call them promotional procedures, I think Sport England became aware of those departures and deficiencies that Mr James outlined at the same time as the rest of the board did and deal with them appropriately.

Mr Doran

My understanding of the Lottery Funding Agreement was quite specific. Going back to Mr Maslin's point, if what you say is correct how it that in Schedule 6 of the Berwin Leighton Paisner report, part of David James' inquiry, they can say quite specifically as far as the appointment of MPX as preferred contractor is concerned, "we have not reviewed any evidence which indicates that Sport England's formal prior consent was or was not obtained in awarding this tender which was potentially in breach of the terms of the Lottery Funding Agreement in terms of the process which had been followed in its procurement". One of our interviewees has confirmed that Sport England were in fact not directly involved in the decision to appoint MPX as preferred contractor. That seems to be totally at variance to what you are telling us today.

(Mr Maslin) Again, our intention at the time was to get the most competitive procurement process. We had monthly board meetings where Sport England were party. As I said earlier on, it is fair to say that perhaps we did not provide sufficient transparency throughout the whole tender process.

Let us move on. This is obviously an extremely important project, not just for the FA but for the country. If we look at the Tropus report, the James report and the report from Berwin Leighton Paisner, there are serious deficiencies in the ways in which WNSL, and perhaps also the FA who also have some responsibility here, have handled the whole project. We have heard from Mr Cunnah and other witnesses that efforts have been made to put everything right, but do you accept that you have a big job to do to restore confidence in this project and to restore confidence in the WNSL and their ability to deliver this major national stadium?

(Mr Cunnah) We have already started to rebuild that confidence. We have offers of financing in place. Those offers would not be there if the banks were not confident about our ability to deliver the project. As I said before, we have had stringent reviews from people like the Office of Government Commerce, who have looked at all our resources and our procedures and said that we are really well placed to make this a very successful project. As you alluded to before, we believe we are very close to getting all of the banking in place. We believe that we will sign the mandate, the heads of terms, within a week, and documentation for completion of the process will follow as soon as is appropriate thereafter, making sure that we do everything right to get everything in place.

Mr Fabricant

Mr Cunnah, you spoke at some length about the various stakeholders, as you put it, in this arrangement. I just want to really establish the legal position regarding the relationship between the Football Association and WNSL. WNSL is a limited company. Who owns the shares?

(Mr Cunnah) The ordinary shares are 100 per cent owned by the Football Association. The golden share is owned by English National Stadium Trust which represents Sport England.

I am quite interested in the relationship of the golden share, but we will come back to that in a moment. Are there any guarantees that the FA has made in order to seek to limit the independence of liability that WNSL enjoys by virtue of the fact that it is a body corporate? If you are unclear what I am asking, let me give you an insight. We will all be familiar with ITV Digital which is a wholly owned subsidiary of some very senior and major broadcasters, but those major broadcasters say that any debts to the Football League need not be payable other than from assets owned by ITV Digital. In other words, it could be argued that Granada and Carlton are hiding behind the body corporate nature of ITV Digital. Similarly, is the Football Association independent and separate from any liabilities that might be incurred by WNSL?

(Mr Coward) I will try and answer that on behalf of the FA. I have heard the comparison between the two and the comparison is not a correct one.

Why?

(Mr Coward) The reason is this. The disputes between the Football League and Carlton and Granada is that there may or may not have been, depending on which side you take a parent company guarantee from ultimately Carlton and Granada through to ITV Digital, through to the Football League. As between Sport England, Wembley and the FA there is no dispute that at any time there was a parent company guarantee in the contracts between us.

Can I clarify that? There were a couple of negatives there. You are saying that there is no guarantee?

(Mr Coward) There is no guarantee.

So WNSL stands on its own?

(Mr Coward) The Lottery Funding Agreement sets out the obligations which the FA have to Wembley National Stadium which it had agreed with Sport England at the time. Those are extensive obligations and one of the key ones relates to the stadium agreement that the FA entered into - it had to enter into - with Wembley National Stadium Ltd in 1999 in order to ensure that Sport England could be confident of the bankability, as they described it, of their grant to Wembley National Stadium Ltd. That stadium agreement was renegotiated at the time to the satisfaction of Sport England and that is in effect the key element of the security package which Wembley has hatched in order to grant to Sport England for the Lottery money. As I understand it, it is a comprehensive security package over the entire business.

Let us be clear now. There is £120 million which has been given by Sport England, public money. You are saying that there are agreements between WNSL and the Football Association who guarantee that money. Are you saying that in extremis - you are not saying?

(Mr Coward) No.

Let us just clarify this. Let us take the worst example. In the worst example £120 million would have to be returned to Sport England. Who would be responsible for that repayment?

(Mr Coward) Wembley National Stadium Ltd is liable for any such repayment under the Lottery Funding Agreement. What happened at the time was that the stakeholders, the partners, of Wembley National Stadium Ltd, I am sure, 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.

Chairman

Let us just clarify that. This is something I want to be absolutely clear on, and that is that of the £120 million, however it was paid, whenever it was paid and in whatever tranches it was paid, all of it was paid to WNSL; none of it was at any time even at the earliest stages paid to the FA?

(Mr Coward) That is correct.

Mr Fabricant

But, Mr Coward, you just said to me that when the money was passed over Sport England needed to be satisfied that WNSL would be in a position to repay it and you said that - I cannot quote you exactly but we will look at the record later on - some sort of guarantee or comfort, if I can paraphrase, was given by the Football Association. I am not interested in any discussions that might happen if the worst comes to the worst. I am interested in what has actually happened so far, so what guarantee has the Football Association given to Sport England that gave them the comfort? You just said "none" so how could they get comfort from it?

(Mr Coward) There is no guarantee. What Sport England had to do at the time, and you are seeing them after this session, I understand, was to satisfy themselves that they had good security for the Lottery funding that they were providing to Wembley National Stadium Ltd. As part of that they took a security over the entire business. That includes as a key element a staging agreement with the FA. That staging agreement is an agreement by which the FA must, whether it is the old stadium or the new stadium, take its events to Wembley National Stadium and pay a price for that. At the time Sport England had to satisfy itself that that contract, together with the rest of the security package, was bankable for the grant it was making available to Wembley National Stadium Ltd.

The money needs to be bankable. In David James' letter to the former chairman of Wembley National Stadium Ltd he says, "I understand that abandonment of the Wembley project - I hope that will not happen - at the present date" - and the date was 17 December 2001 - "would involve a write-off of £75 million". What would be the write-off if there were abandonment now?

(Mr Maslin) If the project did not go ahead, as Nic Coward has said, the liability falls to WNSL. The cost itself if you like would probably be in the order of £70 million.

Chairman

Could I just interrupt there? This seems to be as good a time as any to ask two questions. First of all, are you confident that the project will go ahead? Are you confident that you will have an agreement with West LB?

(Mr Maslin) As you know, we are in discussion with West LB. We have had an offer in principle from the board of West LB where the West LB board and the FA board are in agreement, along with the WNSL board. We are going through the usual process of due diligence. In order for the West LB board to get their approval we have had to take the due diligence to a sufficient state. That is being done and therefore we have got the approval. This is a complex project. There are a lot of legal documents to put together and over the course of the next weeks - weeks rather than months - we are confident, yes, very confident, that we will bring a successful funding through.

So you are confident that you will be able to go ahead, that you will get the money to build the new Wembley stadium?

(Mr Maslin) Correct.

Can you tell us when you believe that this will be sealed, signed and delivered?

(Mr Maslin) Chairman, as I said, this is a complex process. It will take, I am afraid, as long as it takes but it will be weeks rather than months.

So you believe that the whole thing will be tied up and you will be ready to go some time before the end of June?

(Mr Maslin) As I said, it will take as long as it needs to take but it will be weeks rather than months.

Mr Fabricant

I am still concerned about the process of the relationship between Sport England, who are the stewards of public money, and the bankability - words you used and quite rightly so - of public money in the hands of WNSL. You said that the write-off would be £70 million if this does not go ahead. You have also said that only WNSL would be in a position to be liable because the FA, although they are 100 per cent shareholders of the ordinary shares, have given no guarantees over and above the guarantees that have been used for the venue. My question is this. If, in the unlikely event - and hopefully it is an unlikely event - that the project does not go ahead, how much is WNSL going to be able to repay? Is it the £50 million, which is the difference between £70 million and the £120 million? Is it merely £30 million, which is the money suggested by my colleague, Frank Doran, and a number of people have said is the value of the loan? Do you think as a Finance Director that Sport England showed due diligence themselves in determining what is bankable and what is not?

(Mr Maslin) Clearly, if we got to that situation, that we could not obtain funds from, say, West LB, then immediately we would have an urgent discussion with all stakeholders, the FA and Sport England. As Michael alluded to earlier, there are a number of options open to us. We do still have an operating staging agreement with the FA and provided we can provide the services available at Wembley Stadium, and we hold the FA to bring their games to Wembley, so one of the options that we would be looking at would be clearly whether we would have to re-open the old stadium.

But you would still be liable, is that not correct, under the Lottery Funding Agreement, to return the £120 million?

(Mr Maslin) Yes, it is quite clear in the Lottery Funding Agreement. It is WNSL and WNSL alone which is liable for the £120 million.

How much of that would WNSL be able to repay?

(Mr Maslin) It depends on how we took the business forward. The only feasible way of Sport England really getting some of the security back in that sense would be to re-open the stadium and provide a trading route for returning some of that money.

Chairman

Mr Fabricant has been asking you these questions on an assumption that the project might not go ahead, but if the project does go ahead, - and Mr Fabricant is right: we all hope it will - it could be open to Sport England to sue you to recover the money because you breached the Lottery Funding Agreement, and we have heard today on several occasions how that Lottery Funding Agreement has been breached. Whether or not the project fructifies, it could be open to Sport England to sue you for the money, could it not?

(Mr Maslin) With respect, we do not think we have breached it.

That is not what we have heard.

(Mr Maslin) We have on a number occasions had to go back to Sport England and ask them very specifically if we were not in breach and they have assured us that we are not in breach.

Chairman: We have different evidence.

Mr Fabricant

Tell me: when Sport England were negotiating the original agreements and they assessed the bankability, did they make any valuations as to the amount of money that might be repaid if only the land were the asset to WNSL? I am trying to get into their minds and, if I catch the Chairman's eye I will be asking them this question directly, but I am interested from your point of view to what extent do they quiz you as to the bankability of the £120 million of public money which they gave you in the event that the project does not go ahead?

(Mr Maslin) With respect, I was not around at the time. I joined on 1 February 1999 but I understand that through their advisers they indeed had to look at the security of that £120 million and did so accordingly on the back of the FA staging agreement which was for the ongoing period fo 20 years.

Which you now tell us of course is not bankable because most of that money cannot be returned.

(Mr Maslin) No. What I am saying is that in a workout plan we would be sitting down with Sport England and the FA to maximise the position of Sport England in terms of re-opening the stadium if we got into that situation.

Then that would be extra to any existing agreements of course. This would be a new agreement which you would have to negotiate. I want to ask one final question, and it is a different question and it is really of the FA. If this project does not go ahead are you then venue neutral? Is the FA prepared to look at other bids and that bid would of course include Birmingham?

(Mr Coward) What I have just said is what may well happen if the new stadium does not progress at Wembley we will be asked by Wembley National Stadium and Sport England, quite rightly, to hold to our staging agreement that we had to enter into in 1999.

So you are saying Birmingham would not be an option?

(Mr Coward) That is not what I am saying. We have always made it clear as far as the FA is concerned in an open process - Adam Crozier has met with Birmingham and we were very impressed with Birmingham. I know that you have received a note which sets out our reservations as to why you believe there is considerable uncertainty in relation to a Birmingham bid. I cannot, however, tell you that the FA would be free to take its events to Birmingham because what I have just told you is that in order to pay back the £120 million the FA has had to enter into agreement to take its events to Wembley for 20 years.

So Birmingham are wasting their time?

(Mr Coward) I would not say that.

Mr Fabricant: I think you just have.

Derek Wyatt

Mr Coward, as you know, Adam Crozier has put into the public domain a five page letter which you referred to which actually rules out Birmingham; it is quite categoric about that. Can I come back to a point made in the Telegraph last week about the West LB, about a 50 per cent reduction in its profits in the last year, so has it got the money?

(Mr Cunnah) It is probably appropriate for me to answer that one. Yes, it has.

Can we just tease out where we are then? You have exchanges heads of agreement with them on this proposal?

(Mr Cunnah) We are just about to.

This week or next week?

(Mr Cunnah) Within a week.

And that will lay out the terms of the deal? Then they will give you presumably a sheet of their queries on the actual contract and then they will sign it and pass it back to you, you will look at it and then you will sign it? Is that the process?

(Mr Cunnah) We are already going through that process. We are very close.

So which bits are you doing? Are you waiting for it to come back? Have they signed it off and given it to you? Where exactly is it?

(Mr Cunnah) As Mr Maslin said, both boards have signed this and we are now going through the detail. Ultimately, of course, both boards will sign up the completed documents.

Again, Adam Crozier thought this might be the end of July rather than the end of June. Can we clarify whether that is weeks or a couple of months?

(Mr Cunnah) That is the right timescale. It will take as long as it takes. We are talking about weeks or a few months.

Chairman

Let us be clear about this. Mr Maslin I think told us June. Mr Wyatt quotes Mr Crozier as saying July. Which is it?

(Mr Jeffries) Chairman, can I help my colleagues here?

You see, "as long as it takes" could be what our house intellectual Mr Bryant would call the Greek calends.

(Mr Jeffries) Chairman, by the nature of these projects, which is the raising of, in essence, private sector funding for what is going to be public sector asset at the end of the day, you always get to the stage where you reach commercial agreements of heads of terms and then you have to commit to wrapping up agreement on them. By its very nature there is a risk between the commercial agreement and financial close. It would be irresponsible to put a firm date on it because in extremis I would advise the Council to walk away if we could not finally agree satisfactory financial terms with the banks.

You would not be saying Mr Maslin was irresponsible when he was saying June?

(Mr Jeffries) Where we are now, given my experience, it could take in my view - and this is a guesstimate - between four, eight to ten weeks. That is my view, and I could well be proved wrong.

Derek Wyatt

That is for approximately £310 million that he has got to sign?

(Mr Cunnah) Correct.

And therefore the related agreements are signed already? You have already signed those with your banks?

(Mr Cunnah) Those agreements are in a very similar state. We will sign the heads of agreement within a week and follow through on much shorter contractual procedures thereafter.

The golden share - can we come back to that? What is it exactly? If it is such a wonderful thing why did the previous Chief Executive of Sport England leave with half a million pounds in his pocket? If it has not worked presumably there is something wrong with it or Sport England should address it. Can you explain this golden share?

(Mr Cunnah) The golden share is a mechanism which allows the contents of the Lottery Funding Agreement to be managed and for Sport England to hold WNSL to account on certain items. If I may, they relate to the appointment of a receiver or the business being wound up, changing the business materially, if we were to try acquire a company or do a joint venture, dispose of the stadium, pay a dividend within the first five years. These are all items within the Lottery Funding Agreement that Sport England, through the Lottery Funding Agreement, have requested that we did not do without their approval. Hence the mechanism of the golden share.

In legal status what is the golden share? I have not heard of it done this way before.

(Mr Jeffries) It is rather like the restrictive covenant that WNSL is restricted from doing certain things without the approval of Sport England.

Thank you for that. Lastly, how was the Government kept in the loop over the last four years over this? Did you send them regular monthly reports? Did they send a civil servant to attend all the meetings? How were they kept in the picture?

(Mr Cunnah) The Government involvement has varied over that four year period as you describe. Initially the project was Government sponsored. Then of course it was transferred to the FA in the shape of WNSL, when the FA became the lead stakeholder. During that period up to December 2001 Sport England were the representatives of what are called government bodies on the board of WNSL and indeed they had an observer, so we worked closely with Sport England, particularly related to the Lottery Funding Agreement. Since April last year when it became clear that the original financing proposals were not successful we have worked very closely with the Government on such an important project and therefore I would say that from then there has been a lot of co-operation and we have worked closely with DCMS.

The question I asked was, has one person from DCMS, one Permanent Secretary or one Under Secretary, been attending meetings?

(Mr Cunnah) Not attending board meetings, but we have worked closely with one particular team within DCMS.

Mr Flook

At the weekend there was very heavy press speculation about West LB. Does it worry you that your preferred supplier of finance is retrenching?

(Mr Cunnah) What is written in the press is not always absolutely accurate, of course. However, it did cause us to check that and the bank have assured us that they are not retrenching.

What is the name of the principal investment banker that you have been dealing with?

(Mr Cunnah) Do you mean our advisers?

No, I mean the deal maker at West LB that you have been dealing with. Who is the bank's principal individual?

(Mr Cunnah) Somebody called Robyn Saunders.

A female?

(Mr Cunnah) She is.

There is press speculation that if West LB go ahead with this retrenchment she might walk out.

(Mr Cunnah) That is the article that we clarified with them and we were told that there was no substance to that position.

By the banker herself?

(Mr Cunnah) By her colleagues.

Right. I am also worried about the third contractor. First of all, we had MPX as a preferred contractor, then it was Bovis/MPX, and then there was no Bovis, and the Tropus report says that was hasty. Would you like to comment?

(Mr Cunnah) If I may correct you, Multiplex was the preferred contractor and ultimately during the negotiations Bovis dropped out leaving Multiplex on their own. As I understand from the process at the time and being a board member at the time, that was a certain natural process in the negotiations. Bovis dropped out knowing that Multiplex would carry on and indeed that was amicable between the two companies.

Did Bovis give their reasons to you as to why?

(Mr Cunnah) Not me personally.

(Mr Jeffries) No. I think we could speculate by saying that of course in December 1999 Bovis was acquired by another Australian competitor of Multiplex and that may have had something to do with it.

Alan Keen

It may be completely unimportant, but what you are saying is completely the opposite from the previous people. They said that the letter was written to Bovis telling them to go. You have just said the opposite.

(Mr Jeffries) I did say I was speculating. That may be a cause.

Mr Jeffries, is it not true that everything up till the recent negotiations has been really exciting and fascinating and a shambles, but that we all hope that the boring bit has started now where it is going to go through, it is going to go through smoothly and then only the football will be exciting? Is that really the situation? Just for clarification, it is very easy for people hearing all this interesting stuff to think that it is still a shambles now. Can you assure us that it is not?

(Mr Jeffries) Since my arrival, which was a little over a month ago, I have ploughed through an enormous amount of paperwork and reports, particularly the Patrick Carter report and the David James report, and I cannot help but affirm my conclusions that the conclusions that they reached were ones I agree with. Those reports were presented in December 2001 and a huge amount of work has been done to try and regularise the position. There has been concern expressed this morning about the appointment of MPX. The irony for me is that the value for money report which was produced by Cyril Sweett I thought as a professional was a very thorough and competent piece of work and that came with the view that this position we find ourselves in today does represent value for money. The irony is that had we gone through a more normal procurement process we might have found ourselves more or less in the same position, albeit significantly earlier than the deadline of the reversion of the seven acres of land hanging over our heads. I commend Mr James for his pragmatic conclusion in his covering letter to Sir Rodney Walker which says that had he been given a clean sheet of paper he would perhaps have recommended a re-tendering process but, given the constraints of the December 2002 reversion, that was simply not a feasible proposition. The value for money report that Cyril Sweett have done has vindicated that view and strengthened it. If I can refer back to the Chairman's question about confidence, from what I have seen so far in terms of what has been done and in terms of corporate governance, the management procedures in the project, the personnel that I have interviewed and talked to, and particularly the situation on the banking, I am confident that I can support the conclusions reached by the OGC that we do have a competent management team in place and the resources to deliver this project now going forward.

I am obviously very happy with that response. I do not like looking backwards, but it is clear from answers given this morning, both from Tropus and from all of you, that it is hard to work out why so much money was paid for the stadium site and the business. I understand commercial accountancy very well and it is used in different ways. Frequently it is used just as a balancing figure between what the assets are valued at and what the purchaser has to pay. Sometimes it is just the business and that would be the figure in the books. Why did we pay - I say "we" because I am a member of the public who buy the Lottery tickets - so much for it? The Chairman asked are the FA and WNSL not paying for their own goodwill, because if they decided not to play the games then the business was not really worth very much.

(Mr Jeffries) For me it is a very difficult question to answer. Clearly, assets have different values in different timescales. Even if one buys shares in the Stock Market they can vary in value considerably. One normally buys a business or an asset in the expectation that one will do something with it, and sometimes the assets of a business mean more to one organisation than they do to another, so clearly there was an awful lot of judgement taking place and also, I can only presume, it was an open market position in terms of other bidders for the site and the expertise that was brought in to value the business and the assets at the time.

I have asked this question in many a way to try to find these things out but I have never been successful in getting the answer back that I wanted. Having listened very carefully to all the responses, it is clear to everybody that the site is not worth the money. My fear has always been that we got over-excited over the 2006 World Cup and that is really why so much money was being bid for Wembley at that time, because there was a real need for speed, and then we have tried to justify it afterwards for different reasons. Do you think there is any truth in that?

(Mr Jeffries) It is very difficult for me to answer that.

(Mr Cunnah) No, I do not believe that the 2006 World Cup bid had an impact. The price of any business is judgement and it is the point at which in the negotiations one company will say they will sell and another company wishes to purchase. At the time we believed that was a market price for the business. That was evidenced first by the valuation report; that was ascertained at the time, and also the fact that there were other potential purchasers in the market.

Coincidentally, yesterday the Evening Standard said that the Government were going to get nowhere the £125 million they hoped from a sale of the Dome site, and yet I think if any of us were property developers and we had the choice of buying the Wembley site or the Dome site where the football was involved in one or the other or neither, I think we would all choose the Dome site because we can sell desirable houses on the Thames to cover the costs quite easily when it is properties because the Wembley site is factory premises and that does not affect anyone here.

(Mr Jeffries) As I have some specialist knowledge of the Dome site, I believe the environmental remedial standards would not render it suitable for housing without a substantial amount of money being added to the cost of the land.

I have heard people trying to justify the price fo the site on the basis that it was a business and there was going to be income from it. Can I ask what income there has been since the purchase of the site roughly?

(Mr Maslin) The ongoing income stream is in the order of £12-14 million per annum. We basically ran the stadium from March 1999 to October 2000. In that period we made just under £20 million.

When I asked the question on the income, was it income you were answering on, £20 million income, or profit?

(Mr Maslin) Profit.

Should Sport England not have drawn up an agreement that any profit made from that would go back to them or should it not go back now?

(Mr Maslin) No. It is quite clear that all the funds that were realised by the stadium would be channelled into the project going forward; that was absolutely understood.

Chris Bryant

Can I say to Mr Jeffries, thanks for your first answer to Alan Keen because, to be honest, that was the first time today that I started to have some confidence about the future. Some extraordinary things have been alleged about what has happened in the past which are of major concern to every member of this Committee; otherwise we would not be focusing so much time and energy to this. To be honest, that was the first time I have heard anybody in any sense be contrite about what has happened in the past. It is not so much that it was not transparent; it was not even a lesson. I have just a niggling question at the back of my mind which is still about the difference between ENSDC and WNSL. Is there any technical difference or are those just different names for the same thing?

(Mr Maslin) They are different names. Up until 19 March 1999 it was the English National Stadium Development Company Ltd. The name was then changed on 19 March 1999 to Wembley National Stadium Ltd.

And there was no change in the relationship between the organisation and the FA? There was no change in the guarantee?

(Mr Maslin) Absolutely not.

So the fact that that happened only the day that you were cashing a cheque from Sport England, which was sent to you on 15 March, is purely accidental? That is the cheque for £103 million.

(Mr Maslin) That is right. The cheque for £103 million was to purchase Wembley from Wembley Stadium Ltd. It was always agreed that we would change the name of the company to Wembley National Stadium Ltd and we would just do it a couple of days after the purchase.

Notwithstanding the answers that you gave to Michael Fabricant's question, do you accept that there is-it seems scandalous really that the FA sets up an arm's length company and gives no guarantee; it does not have to find money to sort out if the whole project falls down, and because Sport England gives more money in a single dollop than the assets of WNSL, to which it was giving, are worth, and WNSL is not even putting in its own profits that it is making in the meantime into the acquisition of the land-a stranglehold on politicians then, or on anybody who has a real interest in the project, because if they criticise they are seen as trying to undermine the project from going ahead and it looks as if the public will neither get a stadium nor its money back.

(Mr Maslin) I can see that there may be some dilemmas there but the fact of the matter is that we needed to make a commercial transaction with Wembley plc to purchase the land to start a new Wembley Stadium project. On one thing that you said before, let me make it absolutely clear that all the monies that came from operating the stadium in the following 18 months or so were ploughed back absolutely into the project.

Chairman: Yes; I remember you saying that.

Miss Kirkbride

I myself have one niggling point about the valuation of the land and what was paid for it. I n the very early exchanges you said that the land was valued at something like £60 million and the business was valued at something around £40 million. The business no longer exists, the buildings are going to be pulled down, and the land is only valuable because of where it is, because it is Wembley and if it was in the middle of anywhere else anywhere in the country it would cease to be Wembley with all the fascination and the glamour that is attached to that name. I still do not see the difference between £60 million and £40 million, which is £103 million, which is what the Lottery paid for this piece of land.

(Mr Maslin) Sorry: I do not quite follow.

I would like to know more about what was behind the valuation of that piece of land. Earlier it was separated into £60 million for the value of the land alone, which itself seems rather high. That to me would be justified by the fact that that is where Wembley is and where Wembley is is a an irreplaceable commodity, but that is not the answer because on top of the £60 million is £40 million that was paid for the business which means that where Wembley is the business is Wembley and the land it sits on. I do not see the difference.

(Mr Maslin) The valuation was slightly different. Yes, £64.5 million for the value of the land. The buildings themselves were not the difference. In terms of valuing a business ----

I thought it was 40 million.

(Mr Maslin) Yes, it is.

They were going to be pulled down?

(Mr Maslin) Which is why, to answer one of your earlier notes, in prudent accounting those assets have been written off. There is a difference between the assets themselves and the purchase of an ongoing viable business. Both we and Sport England had to ensure that the business we were buying justified that price and that was the basis of valuations. We got those valuations and they supported that it was worth paying £103 million for.

I expect that is still as clear as mud to most people but there we are. Given that a lot of money has been spent on this project by the Lottery, and it has been exposed to a lot of commercial risk, is the public going to get any dividend in five years' time? Will Sport England actually see a return on their investment?

(Mr Cunnah) No.

Why not?

(Mr Cunnah) The Lottery Funding Agreement allows for one per cent of the turnover to be provided for local causes. Perhaps you should allow me to change my answer to yes. In reaching the agreement with Sport England, in return for the Lottery funding money what Sport England were requiring of WNSL was for WNSL to provide a national stadium and that was the return it was looking for. In addition, WNSL did agree that one per cent of turnover would be provided for local worthy causes, perhaps refurbishing or regenerating local playing fields or something like that. I am sorry if I was rambling but I was thinking as I spoke.

Based on your projections how much would that be?

(Mr Cunnah) That would be in the order of £750,000 a year.

To be decided by whom?

(Mr Cunnah) That would be ----

(Mr Jeffries) A trust has to be established in which Sport England and WNSL will have an interest.

The geographic location for the disbursal, would that be the borough?

(Mr Cunnah) Clearly the borough would expect to benefit from the stadium but that is really for the trust to establish.

I want to return to what Mr Coward said about Birmingham. I think most people would find it pretty awesome that Birmingham would not have been a part of this bidding process at all, that there was disagreement between the FA and WNSL. Could you explain to me why Birmingham was even being negotiated with when it did not have a cat in hell's chance of having the stadium?

(Mr Coward) I think the FA's position has always been clear on Birmingham. The FA has always been interested to meet with the people from Birmingham who wanted to put together their own bid and, as I said earlier, Adam Crozier and others from the FA met with Birmingham to help them put together a presentation and has always been impressed by that. I think as you heard from Adam, and you received in a note, we always have expressed considerable reservations in relation to a Birmingham national stadium for the reasons that I previously outlined but which I can headline as being massive uncertainty. It would be wrong for anyone to think that there is a "rival project" at Birmingham as at this date.

Is not the problem of the viability of the project the contract that you had with WNSL? It has got nothing to do with it being green belt land or anything else, the problem is the contract that you had with WNSL. Why was that not made clear to them rather than have these people waste their time in the way that was the case?

(Mr Coward) An issue that we have been making clear throughout, because people do know that we had to enter into a long-term commitment to Wembley when the stadium was purchased, and you yourselves know this, that was what the FA was required by Sport England to do and that was what we very gladly did. That does not preclude us, as we were asked to do, as part of the whole review process, meeting with people from Birmingham who were putting together a Birmingham bid, we did that.

So what would be the scenario in which Birmingham would be considered?

(Mr Coward) As I say, there is a fundamental point that the FA is required to take its events to the Wembley National Stadium, whether it be the old version or, as we all hope, the new stadium at Wembley. If that does not take place we will be asked, I am sure, by Birmingham, if they wish to have a national stadium, to take our events there. We would have to ask Sport England for their consent to any change to the Lottery Funding Agreements to allow us to do that.

But would WNSL not sue you for breach of contract?

(Mr Coward) WNSL would also have to consent as well.

Therefore it is not a possibility.

(Mr Coward) We would not wish to put ourselves in a position where we were being sued by WNSL.

You would have to buy out of your obligations to WNSL?

(Mr Coward) That may be one option.

Did you raise this in discussion with Birmingham?

(Mr Coward) I cannot answer that because I have never had discussions with Birmingham.

Can you tell us what discussions you have had with regard to this particular matter with the Secretary of State who told us a few months ago in the House of Commons that Birmingham was the preferred second bidder?

(Mr Coward) As far as I am aware DCMS, and therefore I assume the Secretary of State, has received full details of Sport England's security package in relation to the grant that was made by Sport England to Wembley National Stadium Limited, so the Department for Culture, Media and Sport would be well aware of our 20 year agreement to take our events to Wembley Stadium.

What do you think they envisaged by saying that Birmingham would be the preferred second bidder if Wembley did not go ahead?

(Mr Coward) I cannot answer that.

Ms Shipley

I hope it does not sound rude but in relation to Birmingham (and my constituency is ten miles from Birmingham) you are speaking with forked tongues. Just outline for me again why Birmingham is not wasting its time because everybody here went "ugh" at my colleague's question because we thought that you, if I can speak for the group, collectively had demonstrated on the record this morning that Birmingham was wasting its time. Just outline for me clearly how Birmingham could end up with a national stadium in your view?

(Mr Coward) It is not for me to suggest whether Birmingham is or is not wasting its time, and that was the point that I made. What we have made clear throughout ----

No, no. Outline for me the route where it might because I do not think from anything you have said that it could, in fact I think you have demonstrated that it could not for contractual reasons, for all sorts of reasons I think you have demonstrated that it could not. You said that was wrong so demonstrate for me a route that it could.

(Mr Coward) If the parties with whom we have contractual obligations allowed us to do so we could speak to Birmingham about taking our events there. As I made clear earlier, we have been obliged by Sport England, by Wembley National Stadium Limited, to take our events to Wembley National Stadium.

Mr Jeffries, what a mess. You have walked into a horrible mess. Like my colleague, Mr Bryant, I am so glad that you have accepted that there have been major deficiencies which have to be rectified. If you could think laterally a bit here, what action do you think the Government should now take to ensure that (a) public money is not put at risk in the way that it clearly has been and (b) that nationally important projects are brought to fruition?

(Mr Jeffries) As far as I understand the position on this project there is no more public money coming into it, it is all either coming from funding from the FA or it has been raised in finance and the business plan has to pay off both the interest and the principal.

Chairman

Mr Jeffries, the Secretary of State has told the House of Commons that £20 million could be forthcoming and she has made it absolutely clear to me that that money is a substitute for expenditure that you, WNSL, would have made and, therefore, the Government is contemplating a subsidy of £20 million.

(Mr Jeffries) I stand corrected, Sir. I have tried to absorb so much information in such a short time that that slipped my mind. To answer your question, what has got to be done in WNSL in my view, and a lot of it is already being done, is we have to put in compliance procedures, corporate governance, to see that public interests are safeguarded in any additional monies that come into this project. I see that as my clear responsibility. It has exercised my mind a lot over the past four weeks, particularly as I have read the reports on the past history of this project. That is obviously my prime responsibility. What I have done so far is proposed a committee structure for the board which in my view is much more rigorous than you would find in any corporate situation. I have set up committees which involve at least two MDs in each of the areas, construction, corporate governance, and so on and so forth. I will expect monthly reports in writing to our board meeting. By that method I expect the MDs to be involved directly with the executive in the business on a month by month basis which in my view should end the criticism that there was a gap between what was happening in the executive of WNSL and what the board knew about what was going on.

Ms Shipley

I would suggest to you that your answer demonstrates that our first two witnesses this morning were absolutely correct in their criticisms because everything that they said suggested that those things were not in place and you have just demonstrated that indeed they were not because you have had to put them in place.

(Mr Jeffries) They were in place but they were not perhaps implemented as well as they ought to have been. I would have to disagree with some of the comments made in the Tropus Report and some of the recommendations that they made, that is my professional opinion as opposed to theirs. One of the Members of the Committee this morning did make the point that we have to keep in perspective the so-called report by Tropus is in fact allegations made by a disenfranchised supplier of services, all services I should say, to WNSL.

Can I ask you, Mr Maslin, I think it was you, when replying to the worst case scenario for return of the £120 million that has got to be paid back, I think it was you who said some would, not all. What percentage?

(Mr Maslin) It all depends on the business case that is actually put together. For instance, if we do reopen the stadium then I would suspect all the money that we would make from the stadium would as a priority be repaid back to Sport England.

Best guess, what percentage?

(Mr Maslin) We would pay back 100 per cent of the monies until such time as the full £120 million was repaid, it is as simple as that as clearly described in the LFA.

I think you also said the stakeholders would be part of this, Sport England, FA and the Government, is that correct?

(Mr Maslin) Clearly we would be meeting with Sport England and the FA and other members to assess what the best options were at that time.

And the Government?

(Mr Maslin) And the Government.

Why would the Government have to pay money back to the Government in effect? Why would the Government be part of this? Why would you expect the Government to pay back part of this money?

(Mr Maslin) Sorry, what I mean is the key stakeholders there would be Sport England and the FA, not the Government per se.

I think earlier on you said there were three stakeholders.

(Mr Maslin) The two appropriate stakeholders in this case are Sport England, representing DCMS in that sense, and the FA.

Chairman

Could I ask one final question which may turn out to be two final questions. What are the liquid assets of WNSL?

(Mr Maslin) The liquid assets?

Yes. How much money have you got?

(Mr Maslin) About 1.2 million quid in the bank at the moment, Chairman.

That is not a lot of money for a project like this, is it? I suppose it protects you from being described absolutely as a shell company but you are pretty near.

(Mr Maslin) No. Since we have been closed as an operating stadium we are doing two things. One, we are running the hospitality for the FA on the road which gives us an income stream but, secondly, our other costs are funded by the FA.

Chairman: That is a very interesting relationship which we may have to ask about further at some point. Thank you very much, gentlemen.

Memorandum submitted by Sport England

Examination of Witnesses

MR DAVID MOFFET, Chief Executive, MR IAN FYTCHE, Head of Major Projects, and MRS BRIGID SIMMONDS, Council and Lottery Panel, Sport England, examined.

Chairman: John Thurso.

John Thurso

Good afternoon. We have heard this morning a considerable amount of evidence relating to what has happened in the past. The key point, as the Chairman has pointed out before, is the fact that this project had £120 million of Lottery money which was given through Sport England. During the course of your examination of how that money was used there is, in fact, a note in one of the documents which says that you had two representatives present at every board meeting of WNSL. Can I therefore ask what is it that satisfies you that you have been the proper custodians of £120 million of public money?

(Mrs Simmonds) I think we are satisfied in the first instance about how the project came to us in the first place. We had extensive consultations with lawyers and with economists before we started the project, we did not require there to be planning permission for the site because there was an existing use of it, that is outline planning permission, and we had a very robust Lottery Funding Agreement that if full planning permission was not granted that money would be repaid to us.

(Mr Fytche) If I could elaborate on that. I think it is important to go back to the point where this was an open process, any city could bid, any stadium could bid, and there were indeed five bidders and Wembley emerged through an open process involving all the sport that would involve. Subsequent to that, of course, a grant application came forward for the development of the project which was thoroughly evaluated and discussed and approved by the Council on the basis of the financial directions which applied to all Lottery grants. It is important to remember that in assessing that application we requested from WNSL a thorough, comprehensive valuation of the stadium business. They presented that to us, they commissioned it from Coopers & Lybrand and presented it as part of the grant application. That was independently assessed for us by a range of consultants looking at the value of the business. In addition to that, as Mr Coward alluded to earlier, we did require the Football Association to enter into a contract for its events for 20 years with Wembley National Stadium Limited. That contract was signed on the same day as the Lottery Funding Agreement. So a range of thorough steps had been taken first of all to assess the applications on the sites that came forward, secondly to require the applicants to put forward a thorough, competent, professional business valuation of the site and, thirdly, to ensure that contractually appropriate security packages were put in place over the stadium and its business, including obviously the staging agreement which Mr Coward referred to earlier.

Thus far so good. That is up to the point at which you committed funding, and I do not think anybody particularly argues about that although I think some might argue about the valuation of the actual business. I am more concerned with what happened thereafter. It is perfectly clear from the James and BLP Reports that the corporate governance of WNSL was woefully inadequate. It was miles below that which would be appropriate in a plc and way below that that would be expected in any public finance. You had two representatives at every board meeting, you had Citex Consultants who were also looking at it, you had WNSL coming back to you asking for modifications of the LFA and yet none of this seems to have rung a bell with you or caused you any concern.

(Mrs Simmonds) Can I start with where we are with the Tropus Report. The Tropus Report was at the board and we did have representatives there. We are not members of the board, we are represented there, and quite clearly at the time Sir Rodney Walker made it clear that he would commission an independent inquiry into this, which was done.

Chairman

So you are not partners?

(Mrs Simmonds) We are not partners, we are monitoring the project.

So Mr Cunnah was wrong to say that you are partners?

(Mrs Simmonds) Yes. What happened was Sir Rodney Walker commissioned an independent report which made it quite clear that although there were issues about best practice there was no impropriety and in fact there was no fraud involved. We heard quite clearly this morning from Tropus that they did not believe there was anything corrupt about it. There were issues about corporate governance which needed to be taken up, one of them was the changes in the board at WNSL which was to reflect how the projects would be taken forward, and we were satisfied that was done. That does not mean to say that we do not admit that the way that we might have monitored that project was inconsistent but, as I think you have also heard from Michael Jeffries this morning, a lot of what was said this morning is about is professional practice. There are thousands of project managers in this country, they have all in many ways a different way of taking these contracts forward and, in fact, one of the things that Tropus recommended to us, and was a reason why we stopped the grant for a while, was that it should be packaged in three separate packages rather than the one that we wanted to go forward at the end which we considered to be much better value for money with what has happened.

John Thurso

Do you not feel that in the way in which the procurement process was done, if you read the James Report, and I do not know if you have had an opportunity to do that, ----

(Mrs Simmonds) Yes, we have.

I think the quotation in bold at the end of paragraph three states "There was a failure of corporate governance due to the..." and I am getting this wrong now, "inadequacy of the procurement process". You as the stewards of £120 million of Lottery money put that money in and the one thing that stood between successful completion of the project and otherwise was the procurement and building. So your one act of stewardship is really to ensure that the project goes ahead. You have representation there, you have employed specialists to help you. The criticism of Mr James and BLP could not possibly be more forthright as to the lack within WNSL but you did not spot that, or if you spotted it you chose to do nothing about it.

(Mr Fytche) Could I perhaps answer that in two ways, first of all to look at monitoring procedures and then to look at the report that came forward from David James at the end of last year. Clearly under the Lottery Funding Agreement we are obliged to monitor the progress of the project against a whole series of milestones. Those milestones relate to design, they relate to planning and they obviously relate to procurement and the construction contract. It is very clear that we had a very clear involvement, as I think Mr McPeake said this morning, with regard to the development of the design of the brief and the appointment of the design team. Those processes were thorough and very clear and at this stage have resulted in a design which complies with the technical requirements in the Lottery Funding Agreement. With respect to milestones on planning and that sort of thing, again we were very keen to ensure that the project did secure planning consent following a very thorough evaluation of the prospect of securing consent prior to the grant being awarded. Consent has now been awarded and, again, on that score the robust nature of the Lottery funding has secured a way forward that is satisfactory to the Council. With respect to timescale, clearly everyone is aware of the delays to the project and Mr Carter in his report at the end of last year pointed the way to some of the factors that had led to that delay. We have monitored that carefully and the Council has considered monthly the delays to the project, the reasons for that and the reasonableness of the Council continuing to allow the project to proceed. We feel the project has now reached a stage where it is very close to securing the final test the Secretary of State set in December, that is the financing process, and it would be wrong at this stage to look at another project. We do feel that the steps the Council has taken in difficult circumstances to consider timescale, delays, will be vindicated with a successful outcome to this process. However, it is also clear, coming to the final part of the monitoring process, that in respect of construction procurement, whilst we were able to monitor adequately the strategy that was in place, ie the way that the contracts should be packaged, and indeed the Council not being satisfied that they were packaged in the right way stopped paying grant for a number of months, it is also clear from the James Report that there is a whole range of issues about the practices within WNSL which we were not aware of. Clearly that is a serious issue, it is one that we have taken very seriously, which brings me to -----

Chairman

Why were you not aware of it? Why were you not monitoring it?

(Mr Fytche) It brings me to the second part of my answer, Chairman, which relates to the David James Report itself which highlights the range of deficiencies which were talked about earlier this morning. At that stage obviously we sat down with all the stakeholders involved in December and had to reach decisions about what the future should hold for the project. In full consultation with the Secretary of State and the Carter review team, and obviously with the project partners, we put in place a whole series of monitoring regimes to address any deficiencies that were around at that time. So we have monitored thoroughly over the last few months the corporate governance arrangements and, as Mr Jeffries has said, we do believe that those are now robust, the procurement arrangements are thoroughly in place and ready to go to project. There has been a thorough value for money study which confirms that the project does represent value for money. Yes, there were deficiencies in 1999 but we have taken thorough and robust steps to rectify that in full consultation with all the project partners and we are confident that we have a robust project.

John Thurso

One final question, if I may. From what you have just said, and you have prayed in aid the Secretary of State, are you of the opinion that the Department for Culture, Media and Sport and the Secretaries of State have been kept fully appraised of everything from your side and what has been going on throughout this process?

(Mrs Simmonds) Yes. We welcomed the involvement of the Secretary of State, we agreed with the five tests that she set and we are happy with the way that it has progressed. The Government's interest in this is in the funding that they have put into the infrastructure and that has been the most important part of how it has gone forward. We are not here talking about public money in the sense that it is the taxpayers' money, we are talking about Lottery money which is slightly different.

In your view the Secretary of State would have been aware of these monitoring deficiencies?

(Mrs Simmonds) She is aware of the way that they have been corrected and that was the most important point about it.

Chairman

Mr Fytche says the process is robust but I have got yesterday's Hansard in front of me and yesterday's Hansard, a reply from Tessa Jowell, tells me, and indeed tells everybody else, that, I will read it: "The current Lottery Funding Agreement requires Wembley National Stadium Limited to make available 75,000 seats to the general public." The reply goes on that WNSL then asked you to agree to a reduction in the number of seats for the public to 71,200 so that they could get some money by transferring 3,800 seats to premium seating. That is a total breach of your agreement with them but you do not tell them it is a total breach, do you, you say you will amend the Lottery Agreement to accommodate it. How is that robust? How does that protect £120 million of our constituents' money?

(Mr Moffet) Perhaps I may answer that because I have some degree of experience in the marketing of seats and ----

No, I do not want to know about that. I do not want to know about your experience in marketing seats, Mr Moffet.

(Mr Moffet) I will be able to get to the answer.

Let me just clarify this because I want an answer to this and it is not based on your experience of marketing seats, Mr Moffet. You gave them £120 million of our constituents' money, you did it, and that has never been explained and today may be the occasion for you to do so, before even a planning application had been lodged. You gave them that money and part of the agreement was that there would be 75,000 seats available to the general public but WNSL come to you and say "no, we want it to be 71,000 because we can make more money that way".

(Mrs Simmonds) No, that is untrue, Chairman.

That is what the Secretary of State says. Are you now telling me that the Secretary of State is not telling the truth?

(Mrs Simmonds) No, I am not saying the Secretary of State is untrue but if you allow me to go back to the original question, an applicant for a Lottery grant has the right to ask for that grant to be amended, which is what WNSL did and the reason they did it was when Patrick Carter reviewed the project he made it clear that the funding for the premium seats was not robust enough. In fact, not only was there a certain lack of clarity from Government about how the project should proceed, there was also a lack of clarity about how the premium seats, and indeed the funding, should proceed. What has happened since that time is WNSL have come back and said that in order to make the project viable there needs to be an increase in the number of premium seats which are available to the public and as we go to the end of this what we are doing is making the seats for the public cheaper.

Honestly, Mrs Simmonds. I have chaired this Committee and its two predecessors for ten years and I do not think I have ever heard a less convincing answer than the one you have just given. You gave not your money but our constituents' money, 120 million quid of it, even before a planning application had been so much as lodged, and that has never been satisfactorily explained because in my view it cannot be. You gave 120 million quid of our constituents' money to WNSL and part of the proviso of that was 75,000 seats to the general public. Now they are saying "no, we have got a different arrangement, we need to raise this extra money". We discussed this privately with WNSL and I will not go into that. They decided that they can acquire a very considerable amount of money through reducing the number of seats that the public, who are the people who gave you the money in the first place to dispense, have access to. You now give us all of this thing and you amend the Lottery Agreement but you do not amend the Lottery Agreement to the advantage of the public who provided the money, you are amending the Lottery Agreement to the advantage of WNSL, are you not?

(Mr Moffet) Chairman, perhaps if we were able to answer this in two tranches. Firstly to deal with the whole issue of £120 million and the ability for Lottery Agreements to be changed by agreement, and on the other side the desire on everybody's part to make the seats as affordable as possible to the general public.

There is nothing about affordability in the Secretary of State's answer, not a word. The Secretary of State would have wanted to put the best possible face on this but she is not putting affordability forward.

(Mr Moffet) No, I am. What I would like to say is that that is one of the reasons why this is best practice around the world in any new stadium that is built is that you get the balance right between those seats that are procured by the private sector which will in actual fact subsidise the seats that are available to the general public, and that is what is being done in this regard. In fact, when the stadium is built there will be more seats available to the general public than in any other stadium currently in England. I think it is worth remembering that is one of the reasons why you have to get this balance right. As for the other matter, perhaps my colleague may be able to answer that. There is a capacity for any Lottery recipient to come back and talk to us about the terms of the Lottery Agreement.

(Mr Fytche) I think it is fair to say as well that this proposal has been thoroughly evaluated. You heard Mr Carter's report at the end of the year, Mrs Simmonds referred to it, stating that there needed to be robust market research evidence to back up the premium seat assumptions that have been made. There has been a thorough process which has led WNSL to review, who then approached us and said "we would like to make this amendment to the number of general admission seats in order to make the project viable". That has been tested as part of the Carter analysis, that has come forward to us, the Council has considered it and decided that in this instance that is a sensible way forward for the project.

David James in his letter, which we have been instrumental in making available to the public, said "The process adopted by WNSL is unlikely to satisfy 'best practice' standards as usually deemed necessary in any project involving Government or Lottery funding..." David James says "The process by which the tender was offered and the contract negotiated does not follow best practice and the WNSL Board may feel it appropriate to accept a strong measure of criticism...." He says this several times. These are very categorical statements and you have gone along with all this and you have not quibbled with it for a moment. Now you are going along with a reduction in the number of seats that you committed them to providing for the public as part of the money that you handed over before planning permission was even sought. I think it is a very interesting way in which public funds are handled. I hand over to Frank Doran.

(Mrs Simmonds) Chairman, before you do can I say that this Committee, and this is the fourth time I have been in front of it on this particular subject, has said time and time again that it believes that we need a national stadium for three sports: for athletics, for rugby league and for football. We are kidding ourselves, and in fact it is a complete shame that this country has to go and play all its major events in Wales. We have heard this morning about the problems of developing a stadium in Birmingham in the future. I think we have to be clear where we gain from this. The changes that we have allowed to be made make this project viable and it is absolutely imperative that if this project is going to go ahead, which this Committee has said it wants on a number of occasions, that it is viable. We have this amazing ability in this country to stab ourselves in the foot and to go on reviewing things and reviewing things until we completely kill them. There is a real danger today that could happen on the back of this. I think we need to remind ourselves where we started from going from this, we need a new national stadium.

Chairman: I am going to hand over to Frank but I cannot let that go by without saying two things. (a) we did not invite you here to lecture the Committee. (b) I regard that as one of the most deplorable statements I have heard from a witness in the ten years I have chaired this Committee.

Mr Doran

If I can follow that because we have heard quite a lot this morning. Obviously you have read the Tropus and the James reports and our main function is to look after public money which is invested in this and despite what you were saying about it coming from the Lottery, Mrs Simmonds, it is effectively public money. If I were to make a comment on the remark you have just made it would be that I wish Sport England had been as robust and as proactive in the way it handled this whole affair as you were just now. I am not going to follow the Chairman's line on that. There are serious concerns. Can I say that I would like to spend a little bit of time on the land purchase issue and on the procurement but we are running out of time so I will cut that a little bit short. Just in terms of Sport England's role, can I ask you this first question. In response to questions from my colleague, John Thurso, you made it quite clear that Sport England had two observers at each board meeting, I accept they were not board members but they attended meetings. You made a statement in your submission to this Committee: "Relationships between the key stakeholders and the project deteriorated," this is in December 1999, "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." Then we have got Schedule 6 of the James Report which talks about procurement. They list all the occasions when they have not been able to find any specific evidence that Sport England was kept in the loop, that it was notified. The suggestion is that you were not kept in the loop. My question is what the hell were you doing? Why did it take the Tropus Report to bring this into the public domain? Why was Sport England not acting as the public guardian, as it should be, of this £120 million worth of public money?

(Mr Fytche) I would refer to the answer I gave at the start and perhaps enhance it slightly in respect of the monitoring procedures. Clearly during that period we were keen to receive the procurement strategy, it was a requirement of the Lottery Funding Agreement that that was approved by us. We did receive it and we did not approve it for the reasons that were outlined earlier and we ceased paying the grant for a period of time. That represents a robust approach to the protection of public money.

But it is an approach which is ticking boxes and it is not proactive, that is the way it seems to me.

(Mrs Simmonds) It is proactive to stop paying the grant.

By the time you stopped paying the grant in June 1999 you had already paid over £113 million on my calculation, so you were just at the fag end of the grant, the bulk of it was already paid over to Sport England. I appreciate the point you are making but you were a long way down the line before you took action.

(Mr Fytche) I explained earlier the basis upon which a thorough valuation was carried out before the bulk of the grant was paid in March 1999. I think it is very clear from the James Report that there were a number of serious deficiencies in the overall corporate governance and processes that were in place in the way that they were taken forward. What has happened since the James Report came out, I believe, is a very thorough and responsible approach on behalf of stakeholders to grapple with those issues and to ensure that in corporate governance terms, in value for money terms, every step has been taken to evaluate, to consider, if you like, to turn over, the project.

But you have not answered my question. You are ticking boxes. You have got an agreement which it is quite clear does not seem to be being enforced. For example, on the procurement you say in the agreement that it should be at the European procurement levels and yet we can see a shambles in terms of almost the disintegration of proper accepted practices. Where was Sport England when that was happening?

(Mr Fytche) The Lottery Funding Agreement requires a competitive tendering process to be put in place and to be approved by us. Clearly we were not approached for that approval and we did stop the grant.

Why were you not approaching them?

(Mr Fytche) It is very difficult to put this in the context of the project at the time but what we say in our submission is that the whole series of roles and responsibilities, lack of clarity about the project at that point in time, contributed to the overall position that the project found itself in. I have to say that one of the key factors that the Carter Review and the OGC Review showed up is that clarity about roles and responsibilities is a key factor in making projects happen.

You are hiding behind the various reports that have been made but you are not telling us why Sport England was not more proactive.

(Mr Fytche) I think that we were proactive, we did cease payment of the grant for a period of time because we were not satisfied with the procurement strategy that was being presented.

And you did not initiate anything. Can you tell me what a James' investigation into Sport England's activities in this whole affair might have thrown up?

(Mr Fytche) I think we have provided that evidence in our submission to this Committee that provides further detail on what is set out in the James Report. Clearly David James did not have the opportunity, and in fact he says that I think, to examine Sport England's role in any detail. What we have tried to do is provide a bit more detail in our submission.

(Mr Moffet) I think there have clearly been some deficiencies, there is no doubt about that. That may be putting it mildly in the terms that some people might look at this. Quite clearly since December 2001 there has been a much more rigorous examination of a whole range of issues. I would hazard a guess that this now is the most reviewed project in London, I could not think of anything that is going through more review at the moment, and I think that is right and proper. In addition to that, as a newly arrived Chief Executive I am also keen to ensure that whatever went wrong we do not repeat. As part of the review of Sport England I will be addressing that. I do not think there is any getting away from the fact, and I do not think we would get away from the fact, that mistakes were made and the review could have been made. As to the extent to which Sport England was responsible for that, that is a matter of ongoing concern and review by us. I think the important thing for me, and I guess it is somewhat difficult and I appreciate that in terms of the Select Committee, there is a past and there is now a future. We are, I suppose, focused very much on the future now and how we may bring this project to successful completion. Wembley, I would hazard a guess, is the biggest brand name of any stadium in the world and it deserves to exist and it deserves to the best stadium that it can be and in its location. I do not care whereabouts in the world you go, everybody knows about Wembley. It would be a shame for it not to proceed. We are working closely with the FA, WNSL and also with the Government to take it forward and to do what we can to see that it does succeed. I am cognisant of the fact that there are some concerns that you properly wish to address in respect of the past.

I welcome that statement, I think it is an important statement, but the latter part of it is I think what has this Committee concerned. Because of the importance of this particular project it seems that virtually everyone, Sport England and all the other people involved, had some sort of gun at their head, "Wembley must be achieved at all costs, all rules can be bent, all the agreements can be ignored, we are going to deliver Wembley". We heard from Tropus earlier that there could be considerable cost implications because of that.

(Mr Moffet) When I was appointed to this position I took very seriously my role in protecting public funds and I take that very seriously, not just because I am the Accounting Officer for Sport England but because I have a passionate belief that we should be doing the right thing with public funds. Just as an aside, I recently carved ten per cent out of our overheads to ensure that more money went to where it is supposed to be going, which is into the public domain. I do not disagree with that at all. We will be doing everything that we can to ensure that public funds are protected, in particular the £120 million. I formed the opinion that the best way to protect those funds is to have the stadium built and there has been much discussion, and you were about to allude to it before, about the cost of the land and the purchase price and I think those are relevant questions but there is also a view that when Wembley is built and it is successful that the value of the new Wembley will far exceed the cost that was made of that original purchase. We do not know that for sure but certainly in the realms of business that is what one would expect. In terms of the £120 million there is no doubt that the best result for those public funds is for the stadium to be built. The other thing that I would like to add, and this goes to the questions about Birmingham, is that there is a lot of doubt about the Birmingham project but we would do whatever we could and whatever it took to reclaim the £120 million if this was to fall over. As you have heard, that would include us ensuring that the existing stadium was utilised for 20 years.

Do you accept that the security you have is a lot less than what Sport England has actually paid over? It could be as low as 30 million.

(Mr Moffet) I think in raw terms that could possibly be the case but over a time and with that staging agreement in place with the FA we would expect to be able to recover the whole of the £120 million because that is the important issue. To be perfectly honestly with you, on that basis I would have to say that Birmingham looks extremely remote because we, as Sport England, would be doing whatever we could. That could be one of many ways, we could get £120 million repaid by WNSL and/or the FA or we could come to some sort of arrangement where it was paid back over a period of time. Let me reassure this Committee that we will do whatever we can if this falls over to reclaim public funds, we are totally committed to that.

Mr Doran: I would like to go on but I had better stop there.

Michael Fabricant

Mr Fytche, £120 million was given contingent on Wembley going ahead and it has said that is the best way of ensuring that £120 million is secure, although I put it to you that cannot be done at any cost, which is the implication of what Mrs Simmonds was saying. I want to ask you this: if you make an offer of money contingent on something happening you must have a fallback situation if it then does not go ahead. So when £120 million was given contingent on it being returned if the project did not go ahead, what on earth were you thinking of if there were not the guarantees that the money could be returned?

(Mr Fytche) I would like to take that on two points, first of all the original decision and then the security conditions that followed. I think, as I explained earlier, the original decision that the Council took was based upon a very thorough appraisal of a whole range of issues, not least the value of the site and, as I said, we required WNSL to commission and present to us a very thorough and comprehensive valuation which they commissioned from Coopers & Lybrand.

But that is now wrong, we now know it to be wrong, or has something changed and the value is now 30 million as opposed to 120 million to secure the loan?

(Mr Fytche) The value that they estimated was based upon a business valuation and, as we have discussed this morning, that includes the value attached to the contract between the Football Association and WNSL for the staging of the FA's events. The business valuation that came forward at the time was thoroughly evaluated and considered to be correct by a whole range of people.

Do you think with hindsight that was right?

(Mr Fytche) I think the decisions that were taken at the time by the Council were correct.

That is not my question. You talked earlier on about the bankability of the money. Was the money banked in your opinion with hindsight?

(Mrs Simmonds) The money is banked because we have the staging agreement that allows us to reclaim all that money back.

But we have already heard from Mr Moffet you will not get the money back unless the project goes ahead.

(Mrs Simmonds) If the project does not go ahead we still have an agreement with Wembley National Stadium that they will run FA events there for 20 years, so all we are talking about is the time it takes to come back.

You will need a darn sight more than 120 million because presumably you are going to take net present value and in 20 years' time 120 million is going to be worth a lot less than it is at present.

(Mrs Simmonds) There would be a requirement to refix the site to make Wembley National Stadium, as it is, work and for events to be held there over 20 years. So we would still have a national stadium and the money that was taken in revenue from that stadium would go to repay the Lottery grant.

The way you describe it it hardly seems worth building a new national stadium if in that case it is so marvellous that it can run events there as it is at present.

(Mrs Simmonds) It is not marvellous to run events there at present but it is a way of us reclaiming the money. That is the protection that we have got which is in the Lottery Funding Agreement. The Lottery Funding Agreement is signed by the FA and by WNSL and the way that we have of reclaiming that money is through the staging agreement. We would hope, as I think David has said, there would be a way of WNSL just giving us back the £120 million and it may be possible then to proceed to look at another possible site for building a national stadium. The value of the site really is immaterial to that, the most important thing is that we can reclaim the grant.

Mr Moffet said that he recognises there were deficiencies "putting it mildly", and I quote. Mr Fytche, how can we believe anything you say when Tropus said to us that Sport England were presented with a whole series of fait accomplis and Sport England did nothing about it?

(Mr Fytche) I repeat what I said, we did take action on the basis of the procurement strategy.

Were Tropus wrong?

(Mr Fytche) I think Mr Maslin referred to this earlier as well.

Were Tropus wrong?

(Mr Fytche) I do not recall what Tropus said on this issue this morning but what I do know is that we received a procurement strategy from WNSL with which we were not satisfied and on the basis of that the grant payment ceased for a period of time. Clearly below the level of strategy within the company a whole range of issues have been reported on, those issues are serious and, as Mr Moffet has said, we are taking every step to make sure that monitoring procedures are rectified and robust.

We have heard that. You lent money to WNSL. You knew that WNSL's ordinary shares were wholly owned by the Football Association. Did you at any time ask the Football Association to give financial guarantees, which of course is quite normal in this situation when you are dealing with what is in effect a shell company?

(Mr Fytche) There was a series of discussions at the time about what was an appropriate security package to take in respect of the grant and what was arrived at was a very clear decision by the Council to put in place a security package.

Did you ask the Football Association to give a guarantee given that WNSL was just a shell company and the FA owns all their shares?

(Mr Fytche) It was one of the considerations at the time.

Did they refuse?

(Mr Fytche) They came back with the proposal to put in place the security package which the Council believed was robust.

Alan Keen

How long is it since Wembley was used? I have forgotten now, was it the last of the play-offs?

(Mr Fytche) It was the England-Germany match in October 2000, from memory.

Six months ago.

(Mr Fytche) Over a year ago now.

(Mrs Simmonds) Eighteen months ago.

It seems longer. Eighteen months ago. Sport England gave money in order to get a national stadium but in the agreement, or when you were talking to the FA, did you have a date in mind because obviously that money would have earned interest in the bank or would have been used by other organisations? It is a lot of money. Did you have a date in mind?

(Mrs Simmonds) When we gave the money obviously we wanted the project to go forward as quickly as possible and I would remind you of the fact that when Trevor Brooking was here he talked about how we had agreement in 1999 to go ahead, everyone was in favour, and there was then a lack of clarity by the Government it should go forward at that stage. I think the subsequent report by Patrick Carter has indicated that not only was it a clarity issue but the funding was not in place. I think we have to think about what a complex project this is and what size of figures we are talking about. I am involved in one of the very few PFI projects, which is an artist's centre near Cambridge, that has got 25 different legal agreements for a project that has overrun by a million pounds. Multiply that into the complex project that we have here and it takes time to get over it. We regret that it has taken this amount of time but we still believe, and I do not think it is right to say I said at any cost, I do not think it should be at any cost, and I do think quite clearly that the reports that we had from Cyril Sweet and, indeed, David James make it clear that it is still value for money, that there was not any corruption, that there was not any impropriety, and it is on that basis that we believe it should proceed.

(Mr Fytche) May I just offer a slight amplification of that. Clearly the Council has taken very seriously the timetable delays that have taken place in the project and has considered month by month at its Council meetings what the stance of the Council should be. There have been delays, that is regrettable, but it has been the policy of the Council to consider this seriously month by month to review what progress is being made, particularly during the extensive review process that took place during last year leading to Patrick Carter's report in December.

It is an awful lot of money to be sitting doing nothing. The DCMS has been criticised many, many times because there is a lot of money held back by the Lottery to fund schemes that have been agreed, so there is a mass of money actually not used, I do not know whether it is in the Treasury or whether you have got it. In this case £120 million was not really being implemented. You have just heard me ask Mr Maslin did WNSL make a profit after the £120 million was handed over and he said, yes, £14 million. Presumably that was just up to 18 months ago when Wembley was closed. Did you not think at the beginning that if this was going to go on that maybe the Lottery ticket purchasers should have had some of that profit that Wembley was making and then Wembley closed, and it has been closed 18 months, but it could have been making more profits if it had stayed open and you could have had some of that back for the benefit of the public?

(Mr Fytche) The requirement at the time on WNSL from any retained profits that they would make would be to put them back into the project. So conceptually there was the grant, there was the stadium and it would be making money while it was operational so we did require them to retain that and use it for the purposes of the project. I think it was also important to bear in mind that the directions which govern what the Council can do in respect of Lottery grants prevent it from making an investment. The concept of putting money in to make a percentage on top of that does not exist under the directions. It was a grant awarded for a specific purpose and it is that purpose that we are required to protect as the project moves forward.

Mr Bryant

I have only got one question. Mr Moffet, I think you said that the best way to protect the £120 million of public money is to make sure that the project goes ahead. Would you concede that to have got to a situation where not only the best way but actually the only way of protecting £120 million of public money betrays a problem in the original arrangements?

(Mr Moffet) I think I have already conceded that there have been problems. I would like to say that I was not just referring to Sport England before when I said that there were a lot of issues, I can see there are a lot of issues right across the project. We are where we are and for somebody like myself coming in and reviewing the project, whilst I might like to revisit history, it is really ----

I understand the point about the present arrangements but I am trying to get at what seems to me to be quite an important nub here which is that if you set up a wholly owned subsidiary of a body which is not going to end up being liable and in the meantime you give them more money than they have as assets in one fell swoop, for the future if you were to go down that route again I think you would find this Committee would be extremely critical of you because you would not have seemed to have learned a lesson.

(Mr Moffet) I think there are lessons to be learned and I think you can take it that those lessons have been learned. I am not able to add any more than that other than we are reviewing all of our processes.

(Mrs Simmonds) I think this project is unique and, as Chair of the Lottery Panel, I can say that we would not go down this route again but there are two ways of doing it, either we proceed with the project or we accept that we have a robust Lottery Funding Agreement that allows us to reclaim the money.

And there is nothing wrong with coming to Wales.

(Mrs Simmonds) I do apologise. There is nothing wrong with coming to Wales.

Mr Doran

We have been concerned, as you will appreciate, with the public money that is in this project and the security of that public money. Certainly from evidence that we have received from some witnesses, and I think Mr Cunnah repeated it again today, it was certainly our impression that the FA and WNSL were quite distinct as far as the liability for that money. We did reflect a little on the irony of that in relation to the Football League's current position and the action which that company is proposing to take against ITV Digital, Carlton and Granada. You said earlier, Mrs Simmonds, that the FA and WNSL were signatories to the Lottery Funding Agreement. Could you just clarify for the Committee exactly what the liability of the FA would be if this project does not go forward and it collapses?

(Mrs Simmonds) WNSL and the FA are both signatories to the Lottery Funding Agreement. If the project fails WNSL has to repay the grant of £120 million within that agreement and if WNSL was to fail then there is a staging agreement which is direct with the FA which would allow us to recover the money from the staging of events at Wembley for the next 20 years.

Does that mean technically the FA would be liable if WNSL fails?

(Mrs Simmonds) The FA would be liable for the staging agreement.

Tell us what the staging agreement means?

(Mr Fytche) The staging agreement is basically a contract between WNSL and the FA which requires the FA to stage its matches at Wembley for a period of time.

At the existing Wembley?

(Mr Fytche) Indeed. Sport England is a party to the staging agreement itself.

Just so I am clear, if WNSL fails the FA are obligated to repay that money but that would be done through an agreement which would require the FA to play the Cup Final and all international matches at the existing Wembley. What if that is not technically possible because of health and safety notices, environmental health?

(Mrs Simmonds) They would have to put the stadium back in order to do it.

(Mr Fytche) There has been some work done to evaluate that option because it is a key question to make sure that there is a solution which brings the stadium into use.

The bottom line is if the project fails the FA is liable?

(Mrs Simmonds) Yes.

Chairman: Thank you for that confirmation. Thank you, Members of the Committee, for your durability. I declare this session closed.