Examination of Witnesses (Questions 168
TUESDAY 21 MAY 2002
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 usalbeit 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 privateagain
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.
168. 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 the sort 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 it.
169. 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.
170. 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.
171. 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 detail
and construct a form of 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 approachedI
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
172. That is quite a serious allegation you
(Mr Hudson) It was not a fair competition. To begin
with, the documentation sent out in first instance did not involve
the professional team or 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.
173. 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.
174. 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
(Mr Hudson) I believe that there was preferential
treatment given to one of the two contractors.
175. 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.
176. 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.
177. Can you say anything about the consequences
(Mr Hudson) The consequences for costs are that if
a contractor adopts an attitude whereas most naturally
will because it is in their commercial intereststhey 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.
178. 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 to. 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 preferred contractor 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.
179. What about the inclusion of holidays in
(Mr Hudson) I think you are perhaps referring to the