TUESDAY 21 MAY 2002
Mr Gerald Kaufman, in the Chair
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 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.
(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.
(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.
(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 ----
(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.
(Mr Hudson) Absolutely not.
(Mr Hudson) I believe that there was preferential treatment given to one of the two contractors.
(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 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.
(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.
(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.
(Mr Hudson) I think you are perhaps referring to the programme?
(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 Hudson) In our professional opinion that is the case.
(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.
(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.
(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.
(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.
(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.
(Mr Hudson) I do not think we can respond to that because it is not something with which we have been involved.
(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.
(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.
(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.
(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.
(Mr McPeake) The terms of the Lottery Funding Agreement are not something that we were involved with. So I cannot answer that question.
(Mr Hudson) No, I think it was an entirely exceptional situation that it was paid up front.
(Mr Hudson) I do not know.
(Mr Hudson) Have we analysed how many?
(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.
(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.
(Mr Hudson) We do not know. We were not party to those meetings or the minutes and would not know who was there.
(Mr Hudson) It was.
(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.
(Mr Hudson) It would not appear so, but I am not an expert in the use of public funds.
Mr Bryant: Neither is WNSL!
(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.
(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 Hudson) We have seen no evidence of corruption.
(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.
(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.
(Mr Hudson) Quite distinct.
(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.
(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.
(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.
(Mr Hudson) In reference to our report?
(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.
(Mr Hudson) I have only learned much of that from reading David James' report yesterday.
(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.
(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.
(Mr Hudson) It is actually the Guaranteed Maximum Price. No, we have not been party to the discussions since August of last year.
(Mr Hudson) No.
(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.
(Mr Hudson) We are not party to the viability and have not been involved, so I cannot answer that.
(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 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.
(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.
(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.
(Mr Cunnah) There was a small element of goodwill.
(Mr Cunnah) In financial terms?
(Mr Cunnah) Goodwill in any business represents the intangible value attached to the name.
(Mr Jeffries) £250,000.
(Mr Cunnah) That has been corrected.
(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.
(Mr Cunnah) WNSL bought the goodwill of the stadium business from Wembley plc.
(Mr Cunnah) Goodwill is a concept which applies to the public at large.
(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.
(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.
(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.
(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.
(Mr Coward) Yes, it is certainly an important part of the business plan.
(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.
(Mr Cunnah) I definitely would have to take -----
(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.
(Mr Cunnah) The restriction relating to the seven acres?
(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.
(Mr Cunnah) That is correct.
(Mr Cunnah) That is correct.
(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.
(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.
(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.
(Mr Maslin) Perhaps I could start. First of all, we took advice at the time from 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.
(Mr Maslin) That is correct.
(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.
(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.
(Mr Maslin) Yes, it was.
(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.
(Mr Maslin) We discussed it with Sport England at the time.
(Mr Maslin) Firm agreement with Sport England on that basis.
(Mr Maslin) I will have to check my records.
(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.
(Mr Maslin) It was certainly driven by WNSL, absolutely. There were significant -----
(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.
(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.
(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 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.
(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 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.
(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.
(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.
(Mr Coward) There is no guarantee.
(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.
(Mr Coward) No.
(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.
(Mr Coward) That is correct.
(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.
(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.
(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.
(Mr Maslin) Correct.
(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.
(Mr Maslin) As I said, it will take as long as it needs to take but it will be weeks rather than months.
(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.
(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.
(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.
(Mr Maslin) With respect, we do not think we have breached it.
(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 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.
(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.
(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.
(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.
(Mr Coward) I would not say that.
Mr Fabricant: I think you just have.
(Mr Cunnah) It is probably appropriate for me to answer that one. Yes, it has.
(Mr Cunnah) We are just about to.
(Mr Cunnah) Within a week.
(Mr Cunnah) We are already going through that process. We are very close.
(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.
(Mr Cunnah) That is the right timescale. It will take as long as it takes. We are talking about weeks or a few months.
(Mr Jeffries) Chairman, can I help my colleagues here?
(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.
(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.
(Mr Cunnah) Correct.
(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.
(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.
(Mr Jeffries) It is rather like the restrictive covenant that WNSL is restricted from doing certain things without the approval of Sport England.
(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.
(Mr Cunnah) Not attending board meetings, but we have worked closely with one particular team within DCMS.
(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.
(Mr Cunnah) Do you mean our advisers?
(Mr Cunnah) Somebody called Robyn Saunders.
(Mr Cunnah) She is.
(Mr Cunnah) That is the article that we clarified with them and we were told that there was no substance to that position.
(Mr Cunnah) By her colleagues.
(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.
(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.
(Mr Jeffries) I did say I was speculating. That may be a cause.
(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.
(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.
(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.
(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.
(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.
(Mr Maslin) Profit.
(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.
(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.
(Mr Maslin) Absolutely not.
(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.
(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.
(Mr Maslin) Sorry: I do not quite follow.
(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 ----
(Mr Maslin) Yes, it is.
(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.
(Mr Cunnah) No.
(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.
(Mr Cunnah) That would be in the order of £750,000 a year.
(Mr Cunnah) That would be ----
(Mr Jeffries) A trust has to be established in which Sport England and WNSL will have an interest.
(Mr Cunnah) Clearly the borough would expect to benefit from the stadium but that is really for the trust to establish.
(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.
(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.
(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.
(Mr Coward) WNSL would also have to consent as well.
(Mr Coward) We would not wish to put ourselves in a position where we were being sued by WNSL.
(Mr Coward) That may be one option.
(Mr Coward) I cannot answer that because I have never had discussions with Birmingham.
(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.
(Mr Coward) I cannot answer that.
(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 ----
(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) 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.
(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.
(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.
(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.
(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.
(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.
(Mr Maslin) And the Government.
(Mr Maslin) Sorry, what I mean is the key stakeholders there would be Sport England and the FA, not the Government per se.
(Mr Maslin) The two appropriate stakeholders in this case are Sport England, representing DCMS in that sense, and the FA.
(Mr Maslin) The liquid assets?
(Mr Maslin) About 1.2 million quid in the bank at the moment, Chairman.
(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.
(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.
(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.
(Mrs Simmonds) We are not partners, we are monitoring the project.
(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.
(Mrs Simmonds) Yes, we have.
(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 -----
(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.
(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.
(Mrs Simmonds) She is aware of the way that they have been corrected and that was the most important point about it.
(Mr Moffet) Perhaps I may answer that because I have some degree of experience in the marketing of seats and ----
(Mr Moffet) I will be able to get to the answer.
(Mrs Simmonds) No, that is untrue, Chairman.
(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.
(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.
(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.
(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 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.
(Mrs Simmonds) It is proactive to stop paying the grant.
(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.
(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.
(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.
(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.
(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.
(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.
(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.
(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.
(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.
(Mr Fytche) I think the decisions that were taken at the time by the Council were correct.
(Mrs Simmonds) The money is banked because we have the staging agreement that allows us to reclaim all that money back.
(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.
(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.
(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 Fytche) I repeat what I said, we did take action on the basis of the procurement strategy.
(Mr Fytche) I think Mr Maslin referred to this earlier as well.
(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.
(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.
(Mr Fytche) It was one of the considerations at the time.
(Mr Fytche) They came back with the proposal to put in place the security package which the Council believed was robust.
(Mr Fytche) It was the England-Germany match in October 2000, from memory.
(Mr Fytche) Over a year ago now.
(Mrs Simmonds) Eighteen months ago.
(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.
(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 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 ----
(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.
(Mrs Simmonds) I do apologise. There is nothing wrong with coming to Wales.
(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.
(Mrs Simmonds) The FA would be liable for the staging agreement.
(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.
(Mr Fytche) Indeed. Sport England is a party to the staging agreement itself.
(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.
(Mrs Simmonds) Yes.
Chairman: Thank you for that confirmation. Thank you, Members of the Committee, for your durability. I declare this session closed.