Finance Committee, 07 Oct 2008

Meeting date: Tuesday, October 7, 2008

Official Report 225KB pdf

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Proposed Contingent Liability

Item 6 is consideration of a proposed contingent liability in connection with the Commonwealth games 2014. Members have received a note from the clerk and correspondence from the Scottish Government on the issue.

I welcome to the meeting Kate Vincent, deputy director of sport, and Derek Bearhop, head of the Commonwealth games 2014 delivery team, from the Scottish Government equalities, social inclusion and sport directorate; and Carole Forrest from Glasgow City Council. The witnesses will explain the liability and answer members' questions. As members will see from the clerk's note, our agreement with ministers is that any indemnity in excess of £1 million will be referred to the committee for its approval or amendment. After members have asked their questions, I will put the question whether the proposal be approved.

Before all that, Kate Vincent will make an opening statement on the liability.

I should first explain that Carole Forrest is executive legal manager with Glasgow City Council and has led the negotiations with the four venue owners on the agreement. The partnership between the council and the Government has been absolutely fundamental in delivering the games.

One of the strengths of Glasgow's bid for the 2014 Commonwealth games was the number of venues already in place for hosting events. As of November 2007, 70 per cent of the games' venues existed, including some of the key sites that will be necessary to the successful delivery of the games. Those sites include Parkhead, which will host the opening ceremony, and Hampden Park, where the main athletics events and the closing ceremony will be held. Without access to those venues, the games simply could not take place in Glasgow.

Understandably, the owners of the venues have been keen to ensure that their financial interests are protected while their properties are being used for the games. As a result, a series of negotiated agreements has been drawn up between Glasgow City Council on behalf of the organising committee and the venue owners. I emphasise that throughout the process Glasgow City Council acted on behalf of and in full consultation with the bid partners.

The agreements will eventually be assigned to the organising committee, Glasgow 2014 Ltd, which leads on the delivery of the games and manages the operating budget. Because the organising committee is a short-life company with no track record, the venue owners sought a more substantive guarantee to secure the obligations that were made. It is proposed that the guarantee will be provided on the same basis as the public element of the games budget, namely 80 per cent by the Scottish Government and 20 per cent by Glasgow City Council. The guarantee equates to that already provided to the Commonwealth Games Federation to underwrite any economic losses of the game's organising committee. That, I should add, was a requirement of the bid.

As I have indicated, these venues are critical to our ability to host the games in Glasgow. The partners who will oversee the games will work very closely together to ensure that the financial and operational risks associated with delivery are managed effectively. We believe that that can be achieved and, on that basis, we recommend that the committee agree that Scottish ministers offer this guarantee.

I am very happy to take questions.

Thank you for the detail that you have provided. I understand your point about the requirement to make a guarantee to the Commonwealth Games Federation. However, do the venue use agreements require that guarantee to be unlimited, or is there anything in them that might allow for a more limited form of guarantee?

As Kate Vincent said, I was involved in the negotiations with the venues. Although I sought a cap on the liability, the venue owners—for understandable reasons, perhaps—found that unacceptable. They felt that any loss caused to them must be covered and that they should not have to pick up the cost of a loss for which they were not responsible. Despite fairly lengthy discussions on the issue, the venues could not accept the position that we were suggesting.

I have never had to hire Celtic Park myself, so I am not really aware of the usual procedures that apply. Would similar guarantees be required of anyone who sought to hire these venues for the Commonwealth games or some such event?

I think that that is a question for Celtic to answer. However, I cannot think of many events that would take over Celtic Park, Ibrox, Hampden and the Scottish exhibition and conference centre in the same way that the Commonwealth games intend to. Both the football clubs and the owners of Hampden hire out rooms for weddings and conferences, but that is not on the same scale. They felt that their risks were greater, given the scale of the lease.

You may not know the answer to this, but are similar guarantees being put in place for the London Olympics?

Sorry, but I cannot comment on that.

I am slightly surprised to hear that there is no awareness of whether comparable agreements are being made for the privately owned venues that will be used for the Olympics. Mr Bearhop might want to comment.

I spoke to the London organisers this morning on that very point. They assure me that agreements are in place, but they are commercial agreements, so the organisers were not prepared to share the details with us. Suffice it to say that they are on a similar basis to the one that I described to them that we have arranged for the Glasgow venues.

I am interested in more information on that. If there are commercial agreements with private venue operators for the Olympics and we are being asked to agree something similar, it is fair for Parliament to be made aware of those comparable arrangements. I am not sure about the method of doing that. Are we being asked to approve the proposal today, convener?

We are being asked to approve it today.

I am not sure whether there is a mechanism for receiving that information, but it would be useful.

Paragraph 4 in the explanatory note gives a rather horrendous example about

"the catastrophic loss of a stadium".

Could there be a call on the Government's contingent liability for something that was the responsibility of a private stadium operator? What is the interaction on that? What would result in a call on the venue owner's liability, rather than on the public purse? The explanatory note gives the impression that, in the case of mishaps that result from bad management and which are fully the responsibility of the private operator, the public purse would be called on first. What is the protection for the public purse and what are the operators' liabilities?

In the contracts, the contingent liability arises only if fault lies with the organising committee.

The explanatory note from the Scottish Government indicates that risk management processes will be put in place, but the Parliament or the committee has not had sight of any of those processes. We were bitten badly in relation to the building in which we are meeting now because of a lack of risk management procedures. Do those exist yet or are they being drawn up? If they exist, could the Parliament see them?

The organising committee is at a fairly early stage and is appointing its top staff. The chief executive has been in place for only a couple of months. The OC board has agreed that putting in place arrangements for audit is an absolute priority. Sir Robert Smith, the chair of the committee, has a strong financial background with a particular interest in audit and risk. Therefore, we know that that will be a priority. We will work with the organising committee to ensure that all the risk management arrangements are in place. Our role is to ensure that the proper arrangements are in place and that the business plan is agreed and approved by the strategic group, which comprises the key partners in the games and is chaired by the First Minister. We are in the early stages, but we are absolutely confident that the risk management arrangements will be in place shortly.

We are up against a deadline of 9 November. If, for example, the London Olympics people delayed giving us some of the information that has been asked for, that could cause us problems.

I am not opposed to the proposed measure, but it would assure us that work is being carried out if additional information could be provided to us, whether or not it relates to the London Olympics or is further information that the organising committee provides to us when the procedures are put in place.

We can certainly contact people to try to get that information, but we are up against a deadline.

We have no choice but to approve the proposal today, and we should do so. If additional information is available, that will be fine—it will be background information that will tell us how to monitor the situation. I doubt whether the London Olympics people will release commercially confidential documents to us, and we should certainly not hold back until we get them. As I said, we should approve the contingent liability. If we get additional information, we can use it to monitor the situation. We should not delay the process.

That is a useful suggestion. Members have no further comments or questions. Do the witnesses have any additional comments to make?

No, thank you.

Do members approve the contingent liability?

Members indicated agreement.

I thank our witnesses. We wish them all success in their work.

There will now be a short suspension.

Meeting suspended.

On resuming—