The National Aquatic Centre was planned in haste and will be repented as a financial drain for 20 years, writes Conor Ryan Investigative Correspondent
IT WAS spawned in a showboating spirit of manic machismo. A bullish government and benevolent backers became fixated on trophies to boast Ireland’s perceived brilliance to a global audience. A world-beating stadium was promised on a sprawling sporting campus.
To prove the colour of the country’s money, a snap decision was made to build Ireland’s first 50-metre swimming stadium.
A breakneck building project began, to ensure the facility was ready for the moment the government knew the world would be watching — the Special Olympics Summer Games in June 2003.
The project was Campus and Stadium Ireland and this first speedy installment was the National Aquatic Centre.
Today the corpse of Bertie Ahern’s dream of a National Stadium is buried in the undeveloped tract of land at Abbotstown in Dublin.
Its headstone is that single sporting arena to become a reality, despite a decade of high-stakes legal battles and an aborted strategy to leave it in the hands of private operators. Its epitaph is the bitter, costly and sorry story of the National Aquatic Centre (NAC).
The NAC was supposed to plough profits back to the government annually until at least 2033.
Instead, the rush to get it ready for the Special Olympics left a complex and continuing bill which has dwarfed the £30 million originally earmarked.
The controversial NAC contract was approved 10 years ago, on April 12, 2001. But by then the trouble had already started.
The National Aquatic Centre was constructed for €62m by a consortium involving Rohcon Construction and Dublin Waterworld Ltd. It was the vanguard of a complex which was to be managed by Campus and Stadium Ireland Development Ltd (CSID).
The mistakes that flowed have cost the state almost €17m in legal bills and adverse court decisions. The latest flurry of litigation was resolved throughout 2010. There is an ongoing High Court case in relation to a dispute with Fingal County Council over more than half a million euro in rates.
Still more could follow as the man who defeated CSID in its biggest battle, the former National Aquatic Centre operator John Moriarty, is preparing a multi-million claim for damages.
The mess has it roots in a speedy bid to save €15m by picking the cheapest tender bid, tabled by a company with doubtful financial capacity.
Crucially, the contractual agreement to design, build, operate and maintain the country’s showpiece watersports venue until 2033 was agreed on the basis of a promise of funds. There was no up-front evidence among any of the bidders that the money was there to finance their commitments.
First and foremost the government, and in particular Taoiseach Bertie Ahern, wanted a 50-metre swimming arena in place for the Special Olympics. The window was narrow. A decision was made to pursue the project in July 2000. Planning permission had to be submitted by December.
The second issue was cost. In four months it whittled eight tenders down to three detailed bids. None of the tenderers had time to build detailed business plans for earnings and profits. The multi-agency assessment team sided with the cheapest option.
The construction of the pool involved £48m of taxpayers’ money and a promised £500,000 from the winning consortia, which at one stage was supposed to involve waterpark experts from America and Britain.
However, by the time the decision was finalised, the international investors proved themselves to be little more than a £4 shelf company in Britain. The only consortium members that had negotiated in good faith were the Kerry group, who ran the Aquadome in Tralee.
The early days of the project were beset by concerns about conflicts of interest between those progressing the project and outside consultants.
This provoked immense public disquiet but paled in comparison to the little-publicised but incredibly costly latter-day wrangles. These appeared to reach a plateau last year with the delivery of a further €10.2m bill to taxpayers. But the burden will remain for decades.
INQUIRIES AND COSTS
The tender selection process in 2000/2001 was botched. It led to a deeply critical report by the then Attorney General Michael McDowell in March 2002 which forced the chairman and chief executive of CSID, Paddy Teahon, to resign.
The fallout from this has led to two adverse Supreme Court judgments. Another was settled on the eve of a judgment.
CSID wrote off €10.2m in VAT it incorrectly believed it was owed.
It has been the subject of independent inquiries through the Dáil Public Accounts Committee.
It has lost a case with the Information Commissioner, over the release of sensitive documents.
Three years after the Department of Sport announced it was stopping funding, the centre continues to receive more than €1m in grants for overheads. The National Sports Campus Development Authority has said this subvention will be needed annually into the future.
Meanwhile, a prized asset, the lease for running the centre, which it believed to be worth €60m, is in fact worth €35m on the open market. And a multi-million euro maintenance investment, initially expected to start in 2015, will fall on taxpayers and not on private operators.
Before the mess started, decision- makers were well warned about the negative effect of the time constraints. Yet the assessment panel and CSID bought the marketing spin of Waterworld UK on its own gravitas.
The consultant’s report said the preferred bidder, Waterworld Ireland, had very thin proposals and was linked to little more than a ‘shell’ company with minimal incentive to maintain investment in the pool. Shortly afterwards the parent company, Waterworld UK, pulled out after requests for it to show the government its money.
This left the Irish arm of the consortium, involving Kieran Rutledge, Liam Bohan and John Moriarty, to bring the project home.
This group did not have the cash sums needed to satisfy concerns but the CSID was willing to move ahead on the basis of a £250,000 guarantee provided by Anglo Irish Bank against the assets of developer and engineer, Mr Moriarty.
A RUSHED JOB
The process had the hallmarks of a rush of blood to the head. On June 12, 2000 the Government decided to augment Mr Ahern’s ridiculed plans for an 80,000-seater sports stadium with a 50-metre swimming pool. Within five days the development agency, CSID, had advertised for tenders to design, build, manage and maintain the facility.
It set in train a frantic effort to arrive at a decision within six months. An assessment panel was installed and every effort was made to streamline and speed up the process.
It required additional outside management and executive services, because CSID was only a fledgling outfit, and spent £7.625m on full- time executive management services for the first five years.
Consultant to the assessment team, Kit Campbell, summed up the process at the time: "The time taken to get tenders and select the ‘preferred bidder’ has been unrealistically short and forced CSID to take a short-term perspective.
"Equally, the time required to design the building and estimate its capital cost has left tenderers relatively little time for the preparation of fully considered operational and revenue proposals," he said.
It meant key pieces of information were not considered properly or shared with those who mattered.
Pat Duffy, then director of the National Training Centre in the University of Limerick, was a member of the assessment panel. He said he was never briefed on the financial frailties of the Waterworld bid.
Not until March 2002 did most members of the CSID board learn that Waterworld UK was a shelf company. Many were unaware of other issues, such as the fact that Dublin Waterworld’s status was only underpinned by a personal guarantee to Kerry developer John Moriarty from Anglo Irish Bank.
The long-term strategy was laid out in the initial tender documents, putting the entire process in a straitjacket. The winner of the building element would manage the centre too.
When Rohcon/DWW won the design bid, it was a formality that in December 2001 it would be awarded the 30-year lease to operate and maintain it. This came into effect on April 30, 2003 — two months before the Special Olympics Summer Games opened.
DWW was also favoured because CSID had negotiated an estimated £13m worth of free swimming hours for national training.
The process was so flawed it angered the unsuccessful bidder, Dublin International Arena Ltd. DIAL represented a front company for an international consortium that was linked to the International Hall of Fame in Finland.
It first cried foul in 2001 when it sought, but did not receive, €25,400 it had been promised to cover the cost of its accelerated preparations. When the full degree of mishandling emerged following the report of the Attorney General it launched a High Court challenge for remediation under the European Union’s procurement directive.
Jonathan Irwin of DIAL said all the bidders were baffled by the bungling. The three bidders were asked to submit detailed proposals, comprising up to 90 boxes of files and folders, by close of business on Friday December 15, 2000.
Four days later, over the last weekend before Christmas, a completed report was furnished which recommended Waterworld UK was the best option. The Pricewaterhouse Cooper synopsis was viewed by the assessment panel but not relayed to the board of the CSID.
A three-page hand-written note on the December 19 presentation scored DWW/Rohcon better than its rivals on all counts. It got 383 points compared to 349 and 221 for the other bidders. Crucially, it promised to build the centre for £15m less than its nearest rival.
The government sanctioned the consortia to proceed to planning permission on the same day.
When the dust settled, DIAL registered a claim for €50m against CSID and refused the state’s demand that it lodge security for costs with the High Court.
It said the rules had been changed in DWW’s favour and DIAL was the only company which met the criteria for the tender. DIAL claimed DWW had failed to meet a number of targets set by the tender process in the early stages but CSID ploughed on regardless. It said it had lost out because CSID posthumously facilitated its reinvention from Waterworld Ireland.
CSID sought to wriggle out of this battle. It used the security point as a tool to thwart the process and, despite delays on its own side, it fought DIAL all the way to the Supreme Court. In 2007 it lost.
DIAL continued to chase CSID, which was to become the National Sports Campus Development Authority (NSCDA), for compensation. As it approached the 10th anniversary of its expression of interest, DIAL settled for €2.5m and costs.
All the while the winning bidder, DWW, was caught up in a parallel legal war with CSID/NSCDA.
The State agency said it was owed rent and profits. The centre was not being kept properly, it said. DWW had privately passed off the lease to Limerick road-builder Pat Mulcair.
These, CSID/NSCDA said, were breaches of the 30-year lease and grounds for it to be surrendered.
On March 21, 2006, the High Court agreed. The judgment said Mr Moriarty had willfully declined to adhere to the contract terms.
This included the need to contribute its £500,000 towards the construction cost, pay insurance premiums, and set up a sinking fund.
The judge said on the day the CSID had signed the lease with DWW the management company had done a secret deal.
This gave Mr Mulcair beneficial ownership of the centre. Under the deal, he could walk away if he did not generate tax write-offs of €2.8m in tax every year, up to a maximum of €34m.
DWW had been overt about its courtship of backers. In 2003 it met businessman Ben Dunne with a view to selling its lease to him. It also raised the idea with CSID before contracts were signed.
Following the ruling of the High Court the lease was given back to CSID/NSCDA. DWW appealed to the Supreme Court. The sides settled the case.
DWW argued the aquatic centre was not generating the money envisaged. It opened in early 2003 and by then its operators already predicted it would need a turnover of €5m to break even.
The turnover in the Tralee Aquadome at the time was €1m, but the Abbotstown venue had higher overheads and was subject to a requirement to close lanes for 1,300 hours a year to facilitate the national swim team.
This handicap on its profits was valued at €13m over the lifetime of the lease. This total sum proved very costly for the CSID.
In tax law the centre had to be worth a certain amount before CSID could successfully hand over the €10.2m VAT liability to DWW.
The CSID estimated the value of the centre but it ignored figures which pitched it lower than the threshold. The dispute was referred to arbitration, the High Court and, after years of wrangling, to the most powerful judges in the land.
In a damning judgement on April 30, 2010 the Supreme Court said the arbitration process used to decide the VAT was so fundamentally flawed it made any case DWW could put forward redundant.
"(The errors) enabled CSID not so much to succeed at the arbitration as to register a walkover.
"The most substantial part of their evidence was quite wrongly excluded from consideration, and on that basis a formula which is plainly adverse to DWW’s interests was used," Mr Justice Hardiman said.
This final point, that evidence was wrongly excluded, is being used to underpin a separate personal damages action Mr Moriarty is preparing to take against CSID.
Initially CSID/NSCDA said it would take the matter back to arbitration. Later in 2010 Minister Mary Hanafin confirmed this would not happen — €10.2m was written off.
Early on, the Attorney General and the Comptroller and Auditor General both advised against taking this case. In September 2004 the C&AG said considerable time and money had been spent establishing a case of no benefit to the taxpayer. It said CSID should rethink.
The Attorney General spotted that the CSID’s assumption did not pass the Revenue Commissioners’ crucial "economic value test", that the value of the lease was less than the investment, so the case should be dropped. He said it was unlikely the Aquatic Centre would generate anything like the profits estimated by CSID/ NSCDA and it should write off the VAT claim. The CSID opted against this. Con Haugh, responsible for CSID at the time and subsequently secretary general of the Department of Arts, Sports and Tourism, said the Attorney General’s advice was taken out of context.
He said VAT law had changed since the project was planned. Mr Haugh said the AG had called into question Mr Moriarty’s assertion that DWW operated the centre to the highest standards. In early 2001 Mr Moriarty was heralded as the "white knight" riding from the flotsam and jetsam of the Waterworld UK consortium.
The ex-Attorney General Mr McDowell said he believed they had become involved in good faith and negotiated honestly with CSID.
In February 2001 Anglo Irish Bank offered a £3m guarantee to Waterworld UK on the strength of Mr Moriarty’s assets. This was slipped, confidentially, to the Department of Sport. The guarantee was subsequently lowered to £250,000 — £500,000 lower than the amount Price Waterhouse Cooper had recommended. But, Mr McDowell mused, the negotiating position of the CSID was so weak that the vulnerability of the financial position could not derail the process. Speed was paramount.
While a lot of the issues were technical and legalistic, two problems captured public imagination.
On New Year’s Day 2005 a storm blew off a section of the roof.
DWW took its former partners, Rohcon, to court for lost income because of building defects. The result was a reported €1.2m in compensation for lost income.
A separate investigation found that 15 million litres of chlorinated water had leaked out in three months and significant damage was caused.
When the CSID/NSCDA took over running the centre it had to spend €800,000 bringing it up to scratch. These up-front costs were not the full story.
Prior to the contract being signed 10 years ago Pricewaterhouse Coopers said any operator would have to allow for a full front-of-house refit after 12 years (2015).
Meanwhile, the plant at the pool had a life-span of 25 years (2028). This was supposed to be the preserve of the operators. It became the responsibility of the NSCDA when it took back the lease in 2006. It drew up a five-year non-routine maintenance plan that this year alone will cost €0.48m.
And, because the NSCDA did not have the resources, upkeep now falls on the Department of Sport.
The aquatic centre was intended to make money, not lose it. Initially, Pricewaterhouse Coopers envisaged operating profits of over €500,000.
In 2010 the department said €1.03m of the grant for the NSCDA would be used to keep the centre running. Another €609,000 was set aside to meet legal bills after settling its case with DIAL.
This was two years after Minister Seamus Brennan stopped the centre from receiving subsidies. At the time he wrote off a loan of €761,000 and signed over €1.8m in grants.
In its first two years the centre only generated profits to justify a rent of €127,000, rather than the €3.37m anticipated in the CSID’s generous valuation on the lease.
The NSCDA has defended itself. It said it is the fourth most-visited attraction in the country, with 722,000 paying customers in 2010, and has played host to numerous national championships. It said it has become a world-class aquatics venue.
Early on the department confirmed there was no Plan B: the pool had to be built in time for the Special Olympics or the country’s bid would be in hot water. The outcome is a rip current that has pulled the National Aquatic Centre far away from what it was meant to be and made it a drain on resources for the next 20 years.
10 YEARS / 10 mistakes
MISTAKE ONE: Underestimating the construction costs.
The Government envisaged a £30m investment with significant input from the private successful tenderer. Instead it contributed £49m with a proposed, but disputed, €635,000 investment from private investors.
Cost: Building estimates increased by €22.86m and the private sector share disappeared. Up to €15m in lost profit-sharing. A €700,000 loan from the state was written off in 2008.
Delivery of bill: 2003 until 2033.
MISTAKE TWO: Racing ahead before it was ready.
Campus and Stadium Ireland Development Ltd was only just established when it was asked to oversee the project. It did not have the necessary expertise to handle the process. It relied on a single man, Paddy Teahon as chief executive and chairman.
Cost: €7.6m in consultancy fees over the first five years.
Delivery of bill: 2005.
MISTAKE THREE: Opting for an all-or-nothing tender.
The tender notice published across Europe in July 2000 asked for expressions of interest to design, build, operate and maintain the National Aquatic Centre. This locked it into a commitment where it felt unable to ask different bidders to take responsibility in stages. There was little consideration given to the building’s long-term up-keep, which the NSCDA could not sustain when it grabbed back the lease in 2006. It asked the Department of Sport to pick up the tab. An initial refit will have to be paid for by taxpayers in 2015 and a complete overhaul in 2028.
Cost: Multi-million euro maintenance for the next 20 years.
Delivery of bill: Ongoing.
MISTAKE FOUR: Belittling its own reservations.
In December 2000 it expressed doubts about whether the preferred consortium, Waterworld Ireland, had deep enough pockets to sustain the project. Then, when CSID looked for detailed information, the consortium fell apart. The mess left CSID in a situation where the remaining strands of the consortium, the operators of the Aquadome in Tralee, were the only genuine entities left.
Cost: €1m a year in grant aid to the NSCDA instead of profits returning to the state. This could cost the state in excess of €25m.
Delivery of bill: Ongoing.
MISTAKE FIVE: Failing to re-tender when the initial consortium broke down.
When Waterworld Ireland broke up, CSID looked to the "White Knight" of the operation, Dublin Waterworld Ltd, to take control of the 30-year lease. It immediately involved the prolific Limerick road-builder Pat Mulcair for funding. He became the effective owner of the lease. CSID said it knew nothing of this deal, which allowed Mr Mulcair write off large amounts of tax, and used this as the thin end of the wedge when it was trying to evict DWW four years later. The battle for this lease ended up on the steps of the Supreme Court where it was settled.
Cost: Over €500,000 in court costs and millions in tax lost to the state because of the capital allowance scheme Mr Mulcair was able to avail of.
Delivery of bill: 2007.
MISTAKE SIX: Not following European financial commitments for bidders.
In a rush to decide on a builder/operator in time to submit planning permission before Christmas 2000, it picked a tender it knew did not satisfy its own stipulation that the winner should display sufficient financial and economic standing. This exposed it to challenges by defeated bidder, Dublin International Arena Ltd, for remediation. Faced with a €50m claim, it settled much lower.
Cost: €2.5m in compensation to DIAL plus about €1m costs.
Delivery of bill: 2010.
MISTAKE SEVEN: Playing hardball to delay its first serious court challenge.
CSID delayed its court challenge with DIAL by demanding security for costs in case the state body won. DIAL began its case in May 2002 but the state did not look for proof that the unsuccessful bidder had the cash to cover its challenge until mid-2003. Following an embarrassing hearing in 2004 this point of law was sent to the Supreme Court and CSID lost in 2007.
Delivery of bill: 2007.
MISTAKE EIGHT: Rushing to construction.
Getting ready for the Special Olympics trumped almost all other considerations. On New Year’s Day 2005 a large section of the centre’s roof blew off in a storm. The cause was inappropriate screws used in the roof. Sixty staff were laid off for much of 2005 while repair work was carried out and the centre shut down. Millions of litres of heated water leaked out of the pool. The National Sports Campus Development Authority spent €800,000 to fix the building when it took over the lease.
Cost: €1.2m in compensation was paid out because of the economic loss caused by the roof damage in 2005. Another €800,000 was spent renovating the building in 2007/2008.
Delivery of bill: 2005 and 2008.
MISTAKE NINE: Incorrectly calculating a critical VAT bill.
CSID attempted to pass on a VAT bill of €10.2m to the operators of the centre on the assumption that the value of the lease would exceed the costs of building it. It was already in possession of advice that this was not the case and the value of the lease, which carried a €13m requirement to provide free swimming hours, was far less than initially estimated. As the lease was valued so low it did not pass a crucial Revenue Commissioners test. The battle involved rulings by the High Court, an arbitrator and Supreme Court to decide CSID and the state would have to shoulder the amount.
Delivery of bill: 2010.
MISTAKE TEN: Ignoring best legal advice.
The Attorney General and the Comptroller and Auditor General warned CSID it should write off its claim for €10.2m in VAT from DWW. They said too much time had already been wasted on chasing the money between legal and consultancy costs. Yet CSID persisted in its fight. It went to the Supreme Court and in a judgment last year the state lost. DWW principal John Moriarty is now preparing a personal damages case against CSID.
Cost: An estimated €1m in costs and potentially more.
Delivery of bill: 2010 and beyond.
The Government establishes Campus and Stadium Ireland Development Ltd as the agency responsible for delivering the National Stadium at Abbotstown.
The Cabinet decides to add an Olympic-sized swimming pool onto its plans to build an 80,000-seater stadium at the infamous Bertie Bowl site in Abbotstown.
In the face of reservations about the financial wherewithal of the company, including those expressed by the executive chair of CSID Paddy Teahon, Waterworld UK is allowed to sign a memorandum of understanding to build the National Aquatic Centre.
The board of CSID expresses reservations that the assessment panel would be allowed decide on a preferred bidder without consulting the company. However, concerns about the financial status of the tenderers were not passed on to the board.
Bertie Ahern admits for the first time that mistakes had been made in the selection of the bidders and, to appease furious Progressive Democrat coalition partner, asks Attorney General Michael McDowell to investigate. This report exposes fundamental flaws in the tender process.
The CSID receives a "devastating" report from expert valuer Liam Cahill which valued the lease at €35m, this was far less than the €76m it had calculated. This handicaps its attempt to pass the VAT bill on to the operators.
The €62m National Aquatic Centre opens with the fanfare ofGovernment self-praise that it was "on time and within budget".
A 30-year lease to operate the centre was signed between CSID and DWW. The venue successfully hosts the Special Olympics two months later.
CSID launches a High Court bid to oust DWW as the centre operators.
The High Court gives CSID/NSCDA permission to take the lease back from DWW on the grounds that it had not paid rent.
CSID settles its first Supreme Court case with DWW by wresting the lease back from the company and incurring an estimated €1m in costs.
NSCDA settles its case with DIAL, the unsuccessful initial bidder, it pays €2.5m plus substantial costs.
NSCDA/CSID loses its case in the Supreme Court arising from its attempt to claim €10.2m in VAT from DWW. In 2004, the Attorney General and Comptroller and Auditor General advised against taking the case.
DWW owner John Moriarty confirms he will take a personal damages case against CSID/NSCDA for its effort to evict to him from the aquatic centre lease
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