Examination of Witnesses (Questions 1-19)
OFFICE OF
THE DEPUTY
PRIME MINISTER
AND ENGLISH
PARTNERSHIPS
17 JANUARY 2005
Q1 Chairman: Good afternoon, welcome
to the Committee of Public Accounts. Before we start it is my
great pleasure to congratulate our Treasury Officer of Accounts,
Brian Glicksman, on his CB.
Mr Glicksman: Thank you very much,
Chairman, that is kind of you.
Q2 Chairman: The whole Committee
is very grateful for the recognition of all the work that you
do for the Committee. Today we are looking at English Partnerships:
Regeneration of the Millennium Dome and Associated Land, and we
are joined by Dame Mavis McDonald, who is the Permanent Secretary
at the Office of the Deputy Prime Minister, and Mr John Walker,
who is Finance & Commercial Director of English Partnerships.
You are both very welcome. This of course is a long-running saga
and I hope it is the last time that the Committee has to look
at the Dome, but there has been a great deal of public interest.
Could I please ask you, Dame Mavis, to start by looking at paragraph
2.3, which you can find on page 20 of the Report of the Comptroller
and Auditor General? Would it be fair to say that the poor handling
and the unsatisfactory outcome of the first sale competition,
which of course is history and we all know about, did lead very
directly to the weak interest of major players in the second process?
Dame Mavis McDonald: I think the
Report makes clear that that was the advice of Jones Lang LaSalle,
who were English Partnerships' and the competition teams' advisers
throughout the first and second competition, and they were taking
soundings of people who were expressing interest through the period
of the last part of the first competition and who were pretty
authoritative in the view which they gave to us about the handling
of the second competition.
Q3 Chairman: So the answer to that
is yes, is it?
Dame Mavis McDonald: Yes.
Q4 Chairman: Thank you, that is very
clear. Could you now please look at the actual sale process, and
to start with if we could look at paragraphs 1.23 to 1.24 on page
15? Do you not think, Dame Mavis, you were a bit naive in thinking
that the Dome could be sold in isolation without a large dowry
of development land?
Dame Mavis McDonald: It was very
clear in both competitions that Ministers had set a goal of finding
a sustainable use for the Dome as part of the competition.
In both competitions English Partnerships and their advisers were
focusing on that as a primary objective, with the secondary objective
of achieving part of the regeneration of the Greenwich Peninsula.
In all the very large number of inquiries and expressions of interest
that were made in both competitions nobody was inhibited from
expressing an interest in the wide amount of land, and indeed
the material that was sent out by Jones Lang LaSalle made it clear
which land was available around the Dome, and also what the extent
of the English Partnerships and other owners' landholdings were
on the remainder of the Peninsula. The key purpose was finding
a sustainable use for the Dome and, as the Report itself points
out, there was a lot of evidence that more people were interested
in the land rather than the Dome and there was really no doubt
about the extent of interest in the land. I think the extent to
which the Report refers to the restrictions on the land were about
not subsidising the total value of the deal by selling land at
what we might describe as less than the best value to any prospective
partnership or consortium that came forward.
Q5 Chairman: The original question
is fair enough, is it not? It was hopeless to expect anybody to
be interested in the Dome on its own?
Dame Mavis McDonald: I think Jones
Lang LaSalle—may I say JLL?
Q6 Chairman: Yes, of course.
Dame Mavis McDonald: JLL did do
some work about what potential uses were along with other private
sector advisers, and we did have advice that there were types
of leisure use for the Dome which could stand up on their own,
and indeed I think John can probably give you more detail. English
Partnerships did look into that particular question in more detail.
Mr Walker: If I may, Chairman?
Q7 Chairman: Yes.
Mr Walker: Yes, we examined that
and we appointed consultants ERA to undertake some market testing
of what type of leisure use could be sustained within the Dome.
Q8 Chairman: You will have to speak
up a bit, I am afraid.
Mr Walker: Yes. We asked ERA to
have a look at the various leisure groups that could be put to
use in the Dome and they carried out a study and they came to
the conclusion that it would probably need a capital injection
of something like £100 million to make a leisure use stack
up in the Dome.
Q9 Chairman: We now move on to land
being offered with the Dome, and this is covered on page 21 between
paragraphs 2.5 and 2.7. Do you think that you might have had more
interest if you had been clear from the start exactly how much
land was on offer?
Dame Mavis McDonald: Our view
is no, for two reasons. One is because the total extent of market
testing in the first competition and the second was very exhaustive;
there was something like 1,400 initial expressions in the first
competition, which very quickly got narrowed down to referring
a small shortlist of six, which came down to two players. JLL
went back and talked to another 150 potential consortium companies,
partners, who might be interested in the second competition, and
again there was a lot of interest in the land but very, very little
interest in the Dome. So we were satisfied on that count that
there was not an offer around the corner that we had not potentially
tapped. The second point was that the actual deal put forward
by the MDL consortium was very strong indeed. It had three very
strong, well-established companies with a track record of delivery
and success in the relative areas of their expertise; but it also
uniquely brought to the table the land that Quintain's owned,
which opened up the end of the Peninsula for development in a
way that no other proposition is currently doing, and led to the
opportunity for a wider regeneration plan for the north end of
the Peninsula, which was something for which Greenwich Borough
Council had always been pressing.
Q10 Chairman: It has taken five years
to agree to this sale. Can you tell me, Dame Mavis, when the taxpayer
will finally be rid of the burden of this white elephant?
Dame Mavis McDonald: On the present
plans it is anticipated that the £30 million referred to
in the Division of Proceeds document will be returned to the taxpayer
during 2008 and the remaining cost return due to EP for the maintenance
of the Dome will be available before the end of 2009.
Q11 Chairman: This is a very large
and complex deal. If you look at figures 11 and 16 on pages 23
and 33, we are looking at a complex profit sharing deal. Are you
satisfied that you have sufficiently robust management procedures
in place to ensure that the taxpayer's interest is protected over
the next 20 years?
Dame Mavis McDonald: Yes. John
can talk to you more about the detail, but from the point of view
of my responsibility for taxpayers' money there are several factors
that give us some reassurance. One is, as I said previously, all
the parties are experienced players, including English Partnerships
itself. Secondly, we have set up a series of arrangements for
the oversight and management and monitoring of the deal and the
return of the proceeds, which involves the NAO assisting us to
ensure that we are on top of what we should expect. Thirdly, there
are fallback clauses in the deal itself which allow both MDL in
the place of Anschutz and EP in the event of MDL going too slowly
to step in and retrieve the contract for the public sector and
invite somebody else to do the development. So we feel we have
structures in place designed to oversee what I agree is a very
long period, to stay very much on top of the roll out of the whole
of the project, and indeed it has been set up to be managed like
a project with a special project team, sharing offices in the
Thames Gateway with the Urban Development Corporation and the
ODPM's Thames Gateway team.
Q12 Chairman: But just one thing
can go wrong. What happens if the office development fails to
take off, for instance? You are in trouble, are you not?
Dame Mavis McDonald: Again, I
will ask John to follow me on the detail but the office development
will not take place unless the developers feel that the market
is right and they will be monitoring what is going on in the Eastern
London market. I think the whole of the deal of course relies
on the return from the housing as well as the office, so there
are trade-offs to be made about the rate and speed of the development
of the land over time, depending on variations in the market.
As I say, I do not know if you would like John to say something
more on that?
Q13 Chairman: I think we can probably
leave that. I just want to keep with you, if I may, Dame Mavis,
and to sum it up this way. You have created a contract that is
very complex and certainly is an interesting intellectual achievement,
I recognise that, but you were clearly desperate to offload this
and we have a scheme now where the companies get the profits upfront
where we, the taxpayers, have to wait to the end of this process.
Do you not accept that such a complex contract may raise more
questions than it answers?
Dame Mavis McDonald: I think it
is complex but it is not my sense that it is any more complex
than any other joint venture partnership might be, which requires
a return over time. So, for example, the contract we are working
on as part of the Gateway Development in Barking Reach is going
to be of a similar kind of nature, and I think throughout EP and
Ministers were advised by professional advisers who have lots
of experience in how to draw up such a contract and make it work.
Chairman: We will hope for the best.
Mr Trickett.
Q14 Jon Trickett: Thank you, Chairman.
I want to focus on the issue of the additional 100 acres. I think
that the original site was 62 acres and eventually a deal was
done over 170 acres roughly; is that right?
Mr Walker: That is right.
Q15 Jon Trickett: Accepting that
the decision simply not to demolish the Dome and develop all the
land was a question of public policy determined by the local authority
and the Government, so it is not within our remit, the question
is did you dispose of the Dome in the most cost effective way?
Did you maximise the return to the public purse? Why did you not
simply decouple the land which is available to be sold for development
from the sale of the Dome—just answer that question first—and
simply sell the land in order to maximise the value from the land
and then use that as a clear and transparent cross-subsidy to
the Dome, which clearly was not going to bring in huge amounts
of money?
Dame Mavis McDonald: To repeat
what I said earlier, because another ministerial decision was
that a priority should be to find a sustainable use for the Dome
itself, so that was the framework in which we were running the
competitions basically—
Q16 Jon Trickett: In terms of value
for money to the public purse and also in terms of transparency
the right thing to do would have been to sell the land separately,
to put it out to tender, to decouple the development of the land
and the land value from the cross-subsidy, which went into the
Dome itself, would it not? What you have achieved is a lack of
transparency and also a failure to demonstrate that you have achieved
value for money, for the land?
Dame Mavis McDonald: I do not
think I share your premise because the Report itself and the work
that was done for us, where we were testing the value with and
without the Dome at various points in the competition, showed
that there was a greater return with the Dome for a whole variety
of reasons.
Chairman: Forgive my interruption. Our
experienced colleague, Mr Williams, reminds us that you cannot
question the policy but you can question the opportunity costs
involved. So if a decision was taken not to demolish, say, you
could question what is the result of that.
Q17 Jon Trickett: I might come back
to that in a second. Thank you for your help, but I want to try
to understand who wrote paragraph 2.11 because paragraph 2.11
says: "In our view"—and I do not know who the
authors are and whether you have agreed to this or not—"public
sector vendors are normally most likely to maximise the value
they receive if they inform all potential bidders of the exact
parameters of what is on offer." Is that your view or is
that the NAO's view?
Dame Mavis McDonald: That is the
NAO's view.
Q18 Jon Trickett: From which you
dissent?
Dame Mavis McDonald: What we have
said is that we do not think in this instance—and we did
a market test under Treasury rules that were agreed—that
we would have got a better deal by going down that particular
route.
Q19 Jon Trickett: At the end of the
day, though, we rely on the NAO for advice as much as any response
which you might have, and I understand you to be saying that you
dissent from that point of view?
Dame Mavis McDonald: As a matter
of general principle, no, I do not, but in relation to this particular
competition it remains our view and that of English Partnerships
that this was as good a deal as we were going to get from anybody,
for some of the reasons I addressed to the Chairman.
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