INTRODUCTION
AND
LIST
OF
CONCLUSIONS
AND
RECOMMENDATIONS
1. In July 1997 the Millennium Commission approved
a lottery grant of up to £449 million to the New Millennium
Experience Company (the Company) for the purpose of building and
operating the Millennium Dome at Greenwich and for organising
a range of events nationally to celebrate the year 2000 (the National
Programme). The Commission's aim was to create a Millennium Exhibition
of a scale and stature comparable to that of the Great Exhibition
of 1851, and the Festival of Britain of 1951. The project was
approved by the Commission on the basis that it would achieve
a balanced budget - costs and income of £758 million. The
approval was also on the basis that there would be 12 million
paying visitors to the Dome during the year 2000.
2. When the Commission approved the original grant
they expected £50 million to be repaid after the closure
of the Dome on 31 December 2000, making a net grant of £399
million. However, the Company experienced severe financial difficulties
during its year of operation, with both visitor numbers and revenue
being much lower than planned. Since the Dome opened on 1 January
2000 the Commission have awarded the Company additional grants
totalling £179 million. By September 2000 forecast expenditure
had risen to £793 million, and forecast visitor income
was £53 million against the £169 million planned.
The Company's net lottery grant had risen to £628 million
- an increase of £229 million (57 per cent).[1]
Expenditure by the Company since the Dome closed has been funded
out of that grant.
3. To ensure that, if necessary, additional funds
could be made available to the Dome project without jeopardising
the Millennium Commission's other programmes, the Government confirmed
in June 1997, in line with the previous Government's commitment,
that it would bring forward an order in Parliament to extend the
period during which the Millennium Commission could draw on National
Lottery funds.[2] An order
extending this period from 31 December 2000 until 20 August 2001
was laid before, and approved by, the House of Commons in December
2000 (SI 3355).
4. The Government planned to sell the site once the
Dome closed at the end of December 2000 . A competition to find
a purchaser started in March 1999. That competition was on-going
at the time of our predecessor Committee's inquiry and therefore
they did not examine the process.
5. On the basis of a Report by the Comptroller and
Auditor General[3] our
predecessor Committee examined the New Millennium Experience Company,
the Commission and the Department for Culture, Media and Sport
on the organisational arrangements for the Dome; visitor numbers;
sponsorship; financial management; information to Parliament;
and issues relating to staffing. This Report is based on the evidence
given to our predecessors at the time of their inquiry.
6. The Dome has required £229 million more public
money than originally planned, mostly because of the significant
shortfalls in visitor income and sponsorship, particularly the
former. This Committee has additional concerns which, in summary,
are as follows:
- The organisational arrangements for this project
were elaborate and complex, and gave rise to confusion and disagreement
among the parties involved as to exactly who was responsible for
what. Three distinct bodies (the Company, the Millennium Commission
and the Department) were involved, one with the dual status and
responsibilities of a limited company and a non-departmental public
body, and each with an accounting officer accountable to Parliament.
The internal structure of the Company was not ideally suited to
the task, and the difficulties experienced by the Company during
the Dome's year of operation resulted in a number of changes at
senior levels, so compounding the organisational complexity. These
arrangements clearly did not work well.
- The Dome was a new and unproven attraction, yet
to be viable it needed to achieve 12 million paying visitors in
just one year. The risk posed was exacerbated by setting this
target before anyone knew what would be in the Dome, what it would
cost to visit the Dome, and how 12 million people would get there.
The Company then failed to get operational expertise early enough
and to market the Dome effectively. By the end of September 2000
the Company had received less than a third of the visitors required,
and was forecasting visitor income of £53 million compared
with its target of £169 million. Despite the risks, the only
contingency plan was to return to the Millennium Commission for
more public money.
- Following a specific request by the Company's
Chairman and in the light of the Company's financial difficulties,
the Department gave an indemnity to the Directors in June 2000
which could have resulted in new and significant calls on voted
monies, but did not inform Parliament at the time. We consider
that this guarantee amounted to a specific new commitment which
should have been reported. It was not framed simply as a confirmation
of a pre-existing indemnity, as the Department suggested.
- Not until late in the day did the Company, the
Commission and the Department face up to the financial problems
on the project and the issue of the Company's solvency. It was
clear before the Millennium Dome opened on 1 January 2000 that
there were likely to be financial difficulties, and by late January
there were real concerns about solvency. But the problem was not
quantified until August, and even then it took the appointment
of a new Executive Chairman to initiate the required investigations.
7. Our more specific conclusions are as follows:
On the organisational arrangements
(i) There should be clarity in the arrangements
for managing such projects, in both design and implementation.
The Company told the Committee that those involved in the Dome
project had found the lines of responsibility confusing, and that
there had been disagreement as to where influence and authority
lay. Effective control and oversight of the use of public funds,
and full accountability to Parliament is essential (paragraph
13).
On visitor numbers
(ii) By the end of the year, the Dome
had attracted 5.5 million paying visitors compared with the 12
million on which the Company's business plan was based. The resulting
shortfall in income is the main reason for the financial difficulties
of the project. The Company received much less visitor income
than the £169 million in the business plan (paragraph 25).
(iii) The Millennium Commissioners agreed
the Company's target of 12 million paying visitors, and provided
lottery funding based on it. But the target was set before final
decisions had been taken on the Dome's contents, ticket prices,
marketing strategies and transport arrangements. It meant that
the Dome would have to attract in just one year, and from a standing
start, more than four times as many visitors as the next most
popular UK 'pay-to-visit' attraction (Alton Towers) achieved in
1999. In approving the target of 12 million visitors the Commissioners
went against the advice of their own staff, who recommended planning
on the basis of 8 million (paragraph 26).
(iv) The Company's whole marketing strategy,
the marketing mix, the pricing strategy, the opportunities for
discounts - and when they were offered, how and to whom - was
learned only by experience as the Company moved through the year.
Many more commercial opportunities could have been exploited if
the marketing arrangements had been properly planned and managed
(paragraph 27).
(v) The risks in terms of visitor numbers
were aggravated during implementation of the project in a number
of ways, in particular:
- the delay in completing the fit-out of the Dome
meant there was limited opportunity for trial running, and when
it opened there were operational difficulties;
- the Company initially lacked senior staff with
experience of running a large visitor attraction;
- the effectiveness of marketing was constrained
by uncertainty about the Dome's contents, so raising doubts about
the value for money achieved from £40 million made available
for marketing, advertising and communications;
- initially, tickets were not available at the
door, though, following the reversal of this decision, 20 per
cent of tickets were sold in this way (paragraph 28).
On sponsorship
(vi) The financing of the Dome was heavily
dependent on sponsorship income. After the lottery grant, sponsorship
was the largest source of income for the project. However, the
Company's forecast for sponsorship income was too ambitious. The
Company raised only two thirds of its budgeted target of £175 million.
This target was not soundly based: it did not reflect the uncertainty
surrounding the contents of the Dome or the untested nature of
the sponsorship market (paragraph 31).
On financial management
(vii) There was early evidence of the
Company's financial problems, and cause for concern throughout
the year 2000 about its solvency. But the full extent of the Company's
financial difficulties, and therefore the extent of the further
calls on public funds, was not crystallised and clearly quantified
until August. The full lifetime costs were not identified before
the project was approved, nor subsequently when discussing and
appraising additional grants. The Company appears to have assumed
that the extra money it needed would simply be made available
on request, and not until late in the year of operation was any
assessment made of the Company's costs through to closure (paragraph
46).
(viii) Although the Dome project was high-risk,
with financial planning assumptions based on demanding targets
set for visitor numbers and sponsorship, there was no clear plan
of how the parties would respond to a shortfall in income. The
Company failed to produce an exit strategy acceptable to the Commission,
and the Commission's Accounting Officer twice sought and was directed
by the Commissioners to award additional grants to the Company
because he felt unable to defend those grants as representing
value for money (paragraph 47).
(ix) The Company failed to establish a sufficiently
robust regime of financial management. The Company's financial
systems failed to cope with the volume of transactions generated
in the run-up to the opening of the Dome. The Company's finance
team was also over-stretched for most of the year, and the Company
was slow to address this problem (paragraph 48).
On providing information to Parliament
(x) The circumstances in which Parliament
should be notified of individual contingent liabilities are set
out in "Government Accounting". The indemnity which
the Department extended to the Directors of the Company in June
2000 represented such a liability, which also opened up for the
first time the risk of voted money rather than lottery money being
used in relation to the Dome project. In our view the indemnity
was outside the normal course of business, and exposed the public
purse to expenditure of such a nature and size that Parliament
should have been notified, especially as the indemnity was a response
to the Company's emerging financial difficulties and there was
the real prospect of it being called (paragraph 55).
(xi) The Department and the Treasury did
not see a need to report the indemnity to Parliament because they
considered that an indemnity was already in place as a result
of the Treasury Minute of December 1998 which permits non-departmental
public bodies to offer indemnities to their directors as they
are appointed. If that is so, we find it surprising that no reference
to such an existing indemnity was made in the letter which the
Department sent to the Directors (paragraph 56).
(xii) Changes in financial controls which
properly rest with Parliament, but which Parliament has been content
to see exercised by the Treasury, require the positive agreement
of this Committee. The Treasury agreed to review the reporting
arrangements with a view to issuing guidance on the categories
of indemnities that should be reported separately to Parliament.
It is important to ensure that indemnities are not treated as
routine when they are issued or extended in response to anticipated
financial difficulties, or where a significant risk of a major
call on voted funds is known to exist (paragraph 57).
On the staff at the Dome
(xiii) Visitors to the Dome expressed
a high level of satisfaction with the service provided by the
Dome's staff, which was all the more commendable in view of the
Dome's well publicised difficulties (paragraph 59).
THE
ORGANISATIONAL
ARRANGEMENTS
8. The Dome has been built, fitted out and run by
the New Millennium Experience Company (the Company). Lottery funding
for the project has been provided by the Millennium Commission,
and the Commission has received its funding from the National
Lottery Distribution Fund.[4]
9. The formal responsibilities and accountabilities
for the Dome at the time our predecessors took evidence are shown
in Figure 1. The key elements of the arrangements which then
applied, and the interaction between the various parties, are
summarised below.
1 C&AG's Report, paras 6, 1.2, 1.30,
2.3 and Figure 11 on p38 Back
2 ibid,
para 4 Back
3
C&AG's Report, The Millennium Dome, (HC 936, Session
1999-2000) Back
4 C&AG's
Report, paras 4-5 Back
