Supplementary memorandum from Sport England
INQUIRY INTO THE ENGLISH NATIONAL STADIUM
PROJECT, JUNE 2002
INTRODUCTION
The purpose of this memorandum is to supplement
the memorandum submitted in advance of the evidence session held
on 21 May 2002, and to provide clarification for the Committee
in relation to a number of issues raised during the evidence session.
We trust that this memorandum will assist the Committee in considering
the evidence presented, and we would be happy to provide additional
information if required.
The memorandum addresses the following topics:
— Progress since 21 May 2002.
— The Sport England Lottery Fund Grant.
— Sport England Project Monitoring.
SUMMARY
It remains our view that:
— The Lottery grant was awarded on
an appropriate basis in accordance with the relevant statutory
provisions and directions issued by the Secretary of State for
the award of Lottery grants. The decision to award grant was based
upon a thorough review of the project, a comprehensive business
valuation commissioned by WNSL in relation to the existing stadium
business, and on the basis of independent legal and financial
advice.
— A robust security package, approved
in advance by DCMS, was negotiated and implemented to ensure the
protection of the Lottery grant.
— The project should proceed on the
basis of the outcome of the Carter report, and in accordance with
recommendations made by David James and BLP in December 2001.
The work undertaken since that time has addressed recommendations
in relation to corporate governance and value for money.
In addition, we remain committed to the protection
of public funds going forward and we have commissioned the Office
of Government Commerce to advise on the establishment of robust
accountability and monitoring procedures going forward.
PROGRESS SINCE
21 MAY 2002
Since the evidence session on 21 May, two significant
steps have been taken:
— In her statement to Parliament on
23 May 2002, the Secretary of State reported further positive
progress by all parties, including in relation to corporate governance,
value for money, athletics, release of papers to the National
Audit Office, and securing firm financing commitments.
— In addition, the Football Association
(FA) and Wembley National Stadium Limited (WNSL) have now signed
a mandate—or Head of Terms—with West LB for the financing
of the project. This provides the framework for finalising funding
agreements over the next few weeks, with definitive agreements
due to be in place by mid August 2002.
We welcome these steps and we continue to work
with the FA, WNSL, the London Development Agency (LDA) and the
Government to ensure that the public interest remains protected
and to facilitate the project within the framework provided by
the December 2001 Carter report and the Government requirements.
We are now close to securing commitment from
all parties to developing a national stadium at Wembley in accordance
with the requirements of the Lottery Funding Agreement (LFA),
thereby securing a significant step forward in fulfilling the
objectives for which the Sport England Lottery Fund grant was
awarded.
SPORT ENGLAND
LOTTERY FUND
GRANT
Our previous submission described the basis
upon which the Lottery Grant was awarded, and the thorough, comprehensive
steps taken by the Council to ensure that the grant was, and remains,
adequately protected under the relevant Acts of Parliament and
Directions applicable to the distribution of Lottery funds, as
issued by the Secretary of State.
In addition to the information contained within
our previous memorandum, we would draw the Committee's attention
to the following:
— The Lottery grant was awarded in
accordance with the relevant Acts of Parliament, and Directions
issued by the Secretary of State. Compliance with the Acts and
Directions was assessed thoroughly and detailed legal and financial
advice was sought in order to inform the decisions of the Council.
— Thorough consultation took place
with the DCMS prior to the award of grant to the project and the
proposals, including in respect of proposals related to the ongoing
protection of the Lottery grant.
— Sport England required WNSL to undertake
a comprehensive valuation of the stadium business prior to the
completion of the Lottery Funding Agreement.
— Sport England required WNSL to grant
a comprehensive security package in order to provide a mechanism
to enforce repayment of the Lottery grant should the project fail
to proceed.
— In its response to the Committee's
report into the World Athletics Championships, the DCMS stated
in February 2002 that the award of grant had been based upon a
thorough analysis of the options and a detailed appraisal of the
project.
SPORT ENGLAND
PROJECT MONITORING
Our previous submission described the monitoring
process, and the outcomes of the monitoring exercise, with particular
reference to construction procurement. We set out below further
information in relation to points contained within the Berwin
Leighton Paisner report, as now published by the Committee.
Context
There are a number of important points of context
which must be considered within an assessment of comments made
by BLP in relation to Sport England monitoring of the Wembley
project. These fall into three categories.
Scope of BLP Report
The scope of the BLP report relates to the competitive
tendering process within WNSL and perceived conflicts of interest
related to it. It does not attempt to investigate issues related
to monitoring, and the issues raised focus on a failure of corporate
governance and management within WNSL rather than the actions
of third party stakeholders such as Sport England.
The BLP report was commissioned by WNSL to investigate
issues raised by Tropus Limited in their report on the project,
which was commissioned by, and presented to, the Boards of the
FA and WMNSL. The objective of the BLP report was to review:
— The procurement issues surrounding
the involvement of Bovis and Multiplex in the project (para 6.1
BLP report); and
— Any related corporate governance
issues (paragraph 6.2 BLP report).
Specifically, the BLP report sought to investigate
compliance with commercial competitive tendering procedures, and
perceived and actual conflicts of interest arising between key
players in the procurement process and Bovis and/or Multiplex
(section C BLP report).
The BLP reports states that the investigation
did not seek to address the protection and promotion of third
party stakeholder's interests in the Project (section C BLP report).
The report does, however, allude to a number
of issues related to Sport England monitoring (appendix 6), although
it notes that this was subject to revisions following interview
with Sport England representatives. These interviews did not take
place and Sport England was not invited to contribute to the review.
We assume that this was on the basis that Third Party issues were
outside the scope of the report. We comment specifically on each
of the issues in appendix 6 of the BLP report below.
David James/BLP Conclusion
The report concludes that the project should
proceed, on the basis that there was no evidence of impropriety,
and that the Board of WNSL has accepted a number of recommendations
related to corporate governance and assessment of value for money.
Together with other key stakeholders, we have
accepted this conclusion and acted upon it.
David James/BLP Recommendations
The report makes a number of recommendations
related to corporate governance and value for money. These recommendations
have been implemented in full, and the conclusion of work related
to both areas is an important element of the project appraisal
process we have undertaken since the publication of the Carter
report in December 2001.
Monitoring Issues
Appendix 6 of the BLP report lists a number
of issues to be followed up in discussion with Sport England representatives.
Our response to these issues is described in the table below.
A number of general points should be borne in
mind:
— The January 1999 Lottery Funding
Agreement required WNSL to prepare a procurement strategy satisfactory
to Sport England by 15 June 1999. It also required WNSL to undertake
a competitive tendering process.
— The LFA also required WNSL to comply
with relevant European procurement regulations where appropriate.
We received a copy of a legal opinion from WNSL confirming that
there was no legal requirement on WNSL to follow European procurement
regulations in this instance (as had been anticipated at the time
the LFA was completed).
— As noted by BLP (appendix 6, page
2), Sport England does not have shares in WNSL, nor has it appointed
directors to the board. This is in accordance with the financial
directions governing the award of Lottery grants, which require
Sport England to retain independence from grant applicants. BLP
noted that the protection of the public interest was to be overseen
by the English National Stadium Trust, which was specifically
established for the project and owns a golden share in WNSL. The
Trust also had the right to appoint five directors to WNSL. Based
upon the outcome of the corporate governance review, the stakeholders
have reviewed these arrangements and agreed to implement alternative
arrangements designed to provide a robust mechanism for corporate
governance and monitoring arrangements. Future monitoring arrangements
are described below.
— In addition to the "frontline"
monitoring to be undertaken by the ENST, Sport England has retained
a project monitor to advise on issues of compliance and project
development.
| BLP Issue | Comments
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| Formulation of initial procurement strategy
| Sport England received a copy of the procurement report of 26 May 1999. Our project monitor reviewed this by 3 June 1999, and follow up discussions were held with WNSL. We also received legal advice on the contractual issues involved.
We concluded that the procurement strategy was not acceptable, on the basis that the approach (based upon separate contract packages for demolition, shell and core and stadium fit out) was unlikely to form an acceptable or viable basis for securing project finance.
Grant payments were therefore withheld, and did not start again until January 2000, by which time the project had been re-tendered on a single package basis and WNSL were in the process of appointing a lead financier.
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| MPX proposal of 21 June 1999 | There is no record of WNSL submitting the MPX proposal to Sport England at the time.
|
| Parallel procurement process June-November 1999
| There is no record of WNSL involving Sport England in these discussions.
It should be noted that grant payments were withheld throughout this period, and only re-commenced following the re-tendering of the project by WNSL in November 1999 (which was reviewed by our project monitors on 16 December 1999). Grant payments recommenced in January 2000.
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| Tender period with short listed contractors November 1999-February 2000
| WNSL did not invite Sport England to participate in the contractor selection process. The outcome was reported to Sport England by WNSL once decisions had been taken.
This is in contrast to the process related to the selection of the design team and the development of the brief for the project in 1997 and 1998. Sport England was invited to participate fully in these areas.
|
| Appointment of BMX as preferred contractor on 18 February 2000.
| WNSL did not involve Sport England in the appointment of Bovis Multiplex as preferred contractor. The WNSL decision to appoint BMX was noted by our project monitor in a monitoring report of 17 March 2000.
|
| Contractor period February to August 2000 |
Our project monitor monitored the progress of discussions with BMX. Neither Sport England nor the project monitor were involved in negotiations with the BMX consortium.
|
| Appointment of MPX as preferred contractor on 1 September 2000
| WNSL did not involve Sport England in the appointment of MPX as preferred contractor on 1 September 2000. The only information made available to Sport England in relation to this appointment was in the context of the Board papers submitted to the WNSL Board.
We subsequently received a copy of the MPX/WNSL correspondence relating to the appointment of MPX in May 2001, following the announcement that the Government were to appoint Patrick Carter to review the project.
We conducted a series of reviews in relation to construction procurement, design, cost and development options for the project as part of the review process. These options included the possibility of re-tendering the project and the potential to redesign the stadium from first principles. Our findings were discussed with, and made available to, the Carter review team as part of the review process.
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The table demonstrates that Sport England did review the
WNSL procurement strategy. It also demonstrates that we took action
to withhold grant payment throughout the period to November 1999
when the project was re-tendered on a single package basis by
WNSL.
However, it also highlights the areas where WNSL did not
involve Sport England in decision-making and appointments, notably
the appointment of Bovis Multiplex in February 2000, and the appointment
of Multiplex in September 2000.
It has since become apparent that, given the uncertainty
at the time as to whether athletics would be included in the stadium
design, WNSL was far less open than it had previously been in
involving third party stakeholders. It is important that this
context is taken into account by the Select Committee to enable
it to come to a full and reasoned conclusion over relevant events
during this period.
The result of this was that Sport England was presented with
decisions that had, in effect, already been made by WNSL.
The project entered review in December 2000 following the
failure of the Chase loan syndication, first by the FA, and subsequently
from May 2001 by Patrick Carter. We worked alongside the Carter
review team, and explored options for the project, in relation
to design, cost, funding and procurement. This included a value
management process, which resulted in significant savings based
upon the removal of the planned hotel, office and visitor attraction
elements of the scheme. This exercise was based upon an assessment
of value to the scheme against business plan projections. The
option of potential savings from re-tendering was also considered
as part of this exercise. The December 2001 Carter report reports
on the options considered in the review process.
Throughout the project, we have reviewed carefully the extent
to which there may have been breaches of the Lottery Funding Agreement
by WNSL. This includes a review of the following areas:
— Design—we have conducted a thorough appraisal
in respect of compliance within the technical requirements set
out in the Lottery Funding Agreement. We are satisfied that the
design complies with the agreement in all material respects.
— Protection of public funds and the public interest—we
have monitored compliance carefully in relation to these issues,
and we are now concluding discussions with WNSL and the FA, jointly
with the DCMS and London Development Agency, to ensure that public
funds remain protected as the project moves forward.
— Timetable—the project has not met the milestones
set out in the agreement. The Council of Sport England has reviewed
progress monthly in respect of timetable extensions and will continue
to do so. Where appropriate, assurances have been sought and received
from the FA and WNSL in respect of the continued protection of
the grant.
— Public Access—the Council has accepted a
WNSL request to reduce the number of premium seats from 75,000
to 71,200. This proposal is based upon thorough market research
following the failure of the previous loan syndication and it
is validated by the Carter report analysis. This change is based
upon an amendment to the Lottery Funding Agreement and does not
result from a breach of the agreement.
— Procurement—we have received a copy of a
legal opinion commissioned by WNSL confirming that the project
does not need to comply with European Union procurement regulations.
This is in accordance with the Lottery Funding Agreement. Since
December 2001, we have worked with DCMS and WNSL to ensure that
a comprehensive assessment of value for money is completed. The
achievement of a value for money contract was the principal objective
related to obligations within the Lottery Funding Agreement related
to tendering procedures.
Future Monitoring Arrangements
Together with the Government and the London Development Agency,
we are undertaking a detailed and thorough appraisal exercise
to confirm compliance with the requirements set out in the Lottery
Funding Agreement prior to final commitments for the project to
move forward. This includes a review of the following areas:
— The design of the stadium in accordance with the
technical requirements specified in the agreement.
— A technical review of cost, procurement, contractual,
project management and risk management issues prior.
— A review of athletics proposals.
— A review of corporate governance arrangements.
— The financing arrangements, business planning
and project structure.
This work has been supplemented by reviews conducted by independent
quantity surveyors in relation to value for money and the Office
of Government Commerce (OGC).
We have also jointly commissioned, with the LDA and DCMS,
the OGC to review accountability and monitoring arrangements.
The results of this work will be available shortly, and it will
establish a robust monitoring regime to ensure that the public
interest remains protected.
We are also undertaking an internal review of the project,
which will explore a wide range of issues, which have arisen over
the course of its development. It is our intention to make this
available to the National Audit Office, together with any records
or papers they may require in order to review the project.
Sport England
20 June 2002
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