Select Committee on Culture, Media and Sport Minutes of Evidence

Supplementary memorandum from Sport England



  The purpose of this memorandum is to supplement the memorandum submitted in advance of the evidence session held on 21 May 2002, and to provide clarification for the Committee in relation to a number of issues raised during the evidence session. We trust that this memorandum will assist the Committee in considering the evidence presented, and we would be happy to provide additional information if required.

  The memorandum addresses the following topics:

    —  Progress since 21 May 2002.

    —  The Sport England Lottery Fund Grant.

    —  Sport England Project Monitoring.


  It remains our view that:

    —  The Lottery grant was awarded on an appropriate basis in accordance with the relevant statutory provisions and directions issued by the Secretary of State for the award of Lottery grants. The decision to award grant was based upon a thorough review of the project, a comprehensive business valuation commissioned by WNSL in relation to the existing stadium business, and on the basis of independent legal and financial advice.

    —  A robust security package, approved in advance by DCMS, was negotiated and implemented to ensure the protection of the Lottery grant.

    —  The project should proceed on the basis of the outcome of the Carter report, and in accordance with recommendations made by David James and BLP in December 2001. The work undertaken since that time has addressed recommendations in relation to corporate governance and value for money.

  In addition, we remain committed to the protection of public funds going forward and we have commissioned the Office of Government Commerce to advise on the establishment of robust accountability and monitoring procedures going forward.


  Since the evidence session on 21 May, two significant steps have been taken:

    —  In her statement to Parliament on 23 May 2002, the Secretary of State reported further positive progress by all parties, including in relation to corporate governance, value for money, athletics, release of papers to the National Audit Office, and securing firm financing commitments.

    —  In addition, the Football Association (FA) and Wembley National Stadium Limited (WNSL) have now signed a mandate—or Head of Terms—with West LB for the financing of the project. This provides the framework for finalising funding agreements over the next few weeks, with definitive agreements due to be in place by mid August 2002.

  We welcome these steps and we continue to work with the FA, WNSL, the London Development Agency (LDA) and the Government to ensure that the public interest remains protected and to facilitate the project within the framework provided by the December 2001 Carter report and the Government requirements.

  We are now close to securing commitment from all parties to developing a national stadium at Wembley in accordance with the requirements of the Lottery Funding Agreement (LFA), thereby securing a significant step forward in fulfilling the objectives for which the Sport England Lottery Fund grant was awarded.


  Our previous submission described the basis upon which the Lottery Grant was awarded, and the thorough, comprehensive steps taken by the Council to ensure that the grant was, and remains, adequately protected under the relevant Acts of Parliament and Directions applicable to the distribution of Lottery funds, as issued by the Secretary of State.

  In addition to the information contained within our previous memorandum, we would draw the Committee's attention to the following:

    —  The Lottery grant was awarded in accordance with the relevant Acts of Parliament, and Directions issued by the Secretary of State. Compliance with the Acts and Directions was assessed thoroughly and detailed legal and financial advice was sought in order to inform the decisions of the Council.

    —  Thorough consultation took place with the DCMS prior to the award of grant to the project and the proposals, including in respect of proposals related to the ongoing protection of the Lottery grant.

    —  Sport England required WNSL to undertake a comprehensive valuation of the stadium business prior to the completion of the Lottery Funding Agreement.

    —  Sport England required WNSL to grant a comprehensive security package in order to provide a mechanism to enforce repayment of the Lottery grant should the project fail to proceed.

    —  In its response to the Committee's report into the World Athletics Championships, the DCMS stated in February 2002 that the award of grant had been based upon a thorough analysis of the options and a detailed appraisal of the project.


  Our previous submission described the monitoring process, and the outcomes of the monitoring exercise, with particular reference to construction procurement. We set out below further information in relation to points contained within the Berwin Leighton Paisner report, as now published by the Committee.


  There are a number of important points of context which must be considered within an assessment of comments made by BLP in relation to Sport England monitoring of the Wembley project. These fall into three categories.

Scope of BLP Report

  The scope of the BLP report relates to the competitive tendering process within WNSL and perceived conflicts of interest related to it. It does not attempt to investigate issues related to monitoring, and the issues raised focus on a failure of corporate governance and management within WNSL rather than the actions of third party stakeholders such as Sport England.

  The BLP report was commissioned by WNSL to investigate issues raised by Tropus Limited in their report on the project, which was commissioned by, and presented to, the Boards of the FA and WMNSL. The objective of the BLP report was to review:

    —  The procurement issues surrounding the involvement of Bovis and Multiplex in the project (para 6.1 BLP report); and

    —  Any related corporate governance issues (paragraph 6.2 BLP report).

  Specifically, the BLP report sought to investigate compliance with commercial competitive tendering procedures, and perceived and actual conflicts of interest arising between key players in the procurement process and Bovis and/or Multiplex (section C BLP report).

  The BLP reports states that the investigation did not seek to address the protection and promotion of third party stakeholder's interests in the Project (section C BLP report).

  The report does, however, allude to a number of issues related to Sport England monitoring (appendix 6), although it notes that this was subject to revisions following interview with Sport England representatives. These interviews did not take place and Sport England was not invited to contribute to the review. We assume that this was on the basis that Third Party issues were outside the scope of the report. We comment specifically on each of the issues in appendix 6 of the BLP report below.

David James/BLP Conclusion

  The report concludes that the project should proceed, on the basis that there was no evidence of impropriety, and that the Board of WNSL has accepted a number of recommendations related to corporate governance and assessment of value for money.

  Together with other key stakeholders, we have accepted this conclusion and acted upon it.

David James/BLP Recommendations

  The report makes a number of recommendations related to corporate governance and value for money. These recommendations have been implemented in full, and the conclusion of work related to both areas is an important element of the project appraisal process we have undertaken since the publication of the Carter report in December 2001.

Monitoring Issues

  Appendix 6 of the BLP report lists a number of issues to be followed up in discussion with Sport England representatives. Our response to these issues is described in the table below.

  A number of general points should be borne in mind:

    —  The January 1999 Lottery Funding Agreement required WNSL to prepare a procurement strategy satisfactory to Sport England by 15 June 1999. It also required WNSL to undertake a competitive tendering process.

    —  The LFA also required WNSL to comply with relevant European procurement regulations where appropriate. We received a copy of a legal opinion from WNSL confirming that there was no legal requirement on WNSL to follow European procurement regulations in this instance (as had been anticipated at the time the LFA was completed).

    —  As noted by BLP (appendix 6, page 2), Sport England does not have shares in WNSL, nor has it appointed directors to the board. This is in accordance with the financial directions governing the award of Lottery grants, which require Sport England to retain independence from grant applicants. BLP noted that the protection of the public interest was to be overseen by the English National Stadium Trust, which was specifically established for the project and owns a golden share in WNSL. The Trust also had the right to appoint five directors to WNSL. Based upon the outcome of the corporate governance review, the stakeholders have reviewed these arrangements and agreed to implement alternative arrangements designed to provide a robust mechanism for corporate governance and monitoring arrangements. Future monitoring arrangements are described below.

    —  In addition to the "frontline" monitoring to be undertaken by the ENST, Sport England has retained a project monitor to advise on issues of compliance and project development.

BLP IssueComments
Formulation of initial procurement strategy Sport England received a copy of the procurement report of 26 May 1999. Our project monitor reviewed this by 3 June 1999, and follow up discussions were held with WNSL. We also received legal advice on the contractual issues involved.

We concluded that the procurement strategy was not acceptable, on the basis that the approach (based upon separate contract packages for demolition, shell and core and stadium fit out) was unlikely to form an acceptable or viable basis for securing project finance.

Grant payments were therefore withheld, and did not start again until January 2000, by which time the project had been re-tendered on a single package basis and WNSL were in the process of appointing a lead financier.
MPX proposal of 21 June 1999There is no record of WNSL submitting the MPX proposal to Sport England at the time.
Parallel procurement process June-November 1999 There is no record of WNSL involving Sport England in these discussions.

It should be noted that grant payments were withheld throughout this period, and only re-commenced following the re-tendering of the project by WNSL in November 1999 (which was reviewed by our project monitors on 16 December 1999). Grant payments recommenced in January 2000.
Tender period with short listed contractors November 1999-February 2000 WNSL did not invite Sport England to participate in the contractor selection process. The outcome was reported to Sport England by WNSL once decisions had been taken.

This is in contrast to the process related to the selection of the design team and the development of the brief for the project in 1997 and 1998. Sport England was invited to participate fully in these areas.
Appointment of BMX as preferred contractor on 18 February 2000. WNSL did not involve Sport England in the appointment of Bovis Multiplex as preferred contractor. The WNSL decision to appoint BMX was noted by our project monitor in a monitoring report of 17 March 2000.
Contractor period February to August 2000 Our project monitor monitored the progress of discussions with BMX. Neither Sport England nor the project monitor were involved in negotiations with the BMX consortium.
Appointment of MPX as preferred contractor on 1 September 2000 WNSL did not involve Sport England in the appointment of MPX as preferred contractor on 1 September 2000. The only information made available to Sport England in relation to this appointment was in the context of the Board papers submitted to the WNSL Board.

We subsequently received a copy of the MPX/WNSL correspondence relating to the appointment of MPX in May 2001, following the announcement that the Government were to appoint Patrick Carter to review the project.

We conducted a series of reviews in relation to construction procurement, design, cost and development options for the project as part of the review process. These options included the possibility of re-tendering the project and the potential to redesign the stadium from first principles. Our findings were discussed with, and made available to, the Carter review team as part of the review process.

  The table demonstrates that Sport England did review the WNSL procurement strategy. It also demonstrates that we took action to withhold grant payment throughout the period to November 1999 when the project was re-tendered on a single package basis by WNSL.

  However, it also highlights the areas where WNSL did not involve Sport England in decision-making and appointments, notably the appointment of Bovis Multiplex in February 2000, and the appointment of Multiplex in September 2000.

  It has since become apparent that, given the uncertainty at the time as to whether athletics would be included in the stadium design, WNSL was far less open than it had previously been in involving third party stakeholders. It is important that this context is taken into account by the Select Committee to enable it to come to a full and reasoned conclusion over relevant events during this period.

  The result of this was that Sport England was presented with decisions that had, in effect, already been made by WNSL.

  The project entered review in December 2000 following the failure of the Chase loan syndication, first by the FA, and subsequently from May 2001 by Patrick Carter. We worked alongside the Carter review team, and explored options for the project, in relation to design, cost, funding and procurement. This included a value management process, which resulted in significant savings based upon the removal of the planned hotel, office and visitor attraction elements of the scheme. This exercise was based upon an assessment of value to the scheme against business plan projections. The option of potential savings from re-tendering was also considered as part of this exercise. The December 2001 Carter report reports on the options considered in the review process.

  Throughout the project, we have reviewed carefully the extent to which there may have been breaches of the Lottery Funding Agreement by WNSL. This includes a review of the following areas:

    —  Design—we have conducted a thorough appraisal in respect of compliance within the technical requirements set out in the Lottery Funding Agreement. We are satisfied that the design complies with the agreement in all material respects.

    —  Protection of public funds and the public interest—we have monitored compliance carefully in relation to these issues, and we are now concluding discussions with WNSL and the FA, jointly with the DCMS and London Development Agency, to ensure that public funds remain protected as the project moves forward.

    —  Timetable—the project has not met the milestones set out in the agreement. The Council of Sport England has reviewed progress monthly in respect of timetable extensions and will continue to do so. Where appropriate, assurances have been sought and received from the FA and WNSL in respect of the continued protection of the grant.

    —  Public Access—the Council has accepted a WNSL request to reduce the number of premium seats from 75,000 to 71,200. This proposal is based upon thorough market research following the failure of the previous loan syndication and it is validated by the Carter report analysis. This change is based upon an amendment to the Lottery Funding Agreement and does not result from a breach of the agreement.

    —  Procurement—we have received a copy of a legal opinion commissioned by WNSL confirming that the project does not need to comply with European Union procurement regulations. This is in accordance with the Lottery Funding Agreement. Since December 2001, we have worked with DCMS and WNSL to ensure that a comprehensive assessment of value for money is completed. The achievement of a value for money contract was the principal objective related to obligations within the Lottery Funding Agreement related to tendering procedures.

Future Monitoring Arrangements

  Together with the Government and the London Development Agency, we are undertaking a detailed and thorough appraisal exercise to confirm compliance with the requirements set out in the Lottery Funding Agreement prior to final commitments for the project to move forward. This includes a review of the following areas:

    —  The design of the stadium in accordance with the technical requirements specified in the agreement.

    —  A technical review of cost, procurement, contractual, project management and risk management issues prior.

    —  Value for money.

    —  A review of athletics proposals.

    —  A review of corporate governance arrangements.

    —  The financing arrangements, business planning and project structure.

  This work has been supplemented by reviews conducted by independent quantity surveyors in relation to value for money and the Office of Government Commerce (OGC).

  We have also jointly commissioned, with the LDA and DCMS, the OGC to review accountability and monitoring arrangements. The results of this work will be available shortly, and it will establish a robust monitoring regime to ensure that the public interest remains protected.

  We are also undertaking an internal review of the project, which will explore a wide range of issues, which have arisen over the course of its development. It is our intention to make this available to the National Audit Office, together with any records or papers they may require in order to review the project.

Sport England

20 June 2002

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