Capital projects overspent by £94m

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The NAO report on ACE capital projects reveals errors, overruns and a steep learning curve

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The Arts Council of England’s first lottery programme was a massive £1.15bn capital scheme to help renew and extend the fabric of the nation’s cultural institutions. The programme funded 2,238 awards, but 28 of them accounted for half of the total cash. In 1999 the House of Commons Public Accounts Committee scrutinised progress on 15 of the biggest funded projects. The new NAO report follows the subsequent progress of the same 15 through to their completion.

The NAO looks at delays, cost overruns, the financing mix, sustainability and achievement of planned outcomes. However, for the final category – project benefits – it has simply reproduced the findings of an evaluation done by ACE itself last year. The report reveals that ACE did not secure a legal charge on the building owned by the failed National Centre for Popular Music in Sheffield, and so can hope only to receive about £500,000 of the expected £1.85m from the building’s sale, leaving a write-off of more than £10.5m on that project. Among the five projects that are causing ACE ‘concern’ even now, the reasons for its unease include: 

• visitor numbers lower than forecast, including problems recovering audiences after a period of closure
• income-generating activities underper-forming, possibly linked to poor visitor numbers
• high maintenance costs
• overrun on capital costs which have depleted revenue funds.

One project was finished early; four were on target; four overran by more than 12 months and the Royal Court Theatre restoration was more than 20 months late. Thirteen projects came in over-budget, ranging from 1.7% to 58% overspend (Sadlers Wells). The two that came in under-budget (Cambridge Arts Theatre and the Royal Academy of Dramatic Arts) did so because they scaled back their original building ambitions. Since 1999, project overruns on the 15 had increased from £52m to £94m, of which 35% was paid for by supplementary lottery grants.

The NAO report reveals that ACE gave RADA, which was one of the most troubled projects, a short-term loan of £2.6m in December 2000 to help it avoid imminent insolvency. The loan was secured in part against a property leasehold sale. ‘However,’ the report says, ‘the Arts Council gave the loan before the Academy had signed the deal with the developer and before the developer had secured planning permission from the local authority.’ Had anything gone awry with this deal, the loan security would have fallen short by more than £1m.

Both RADA and the Royal Court Theatre had resorted to borrowing to finance their project overruns, and had to be bailed out with supplementary lottery grants to meet their debts. In all, 10 of the 15 projects got extra ACE funding.

The NAO highlights the consequences of this rampant overspending, not least of which is £42m of funding lost to the second ACE capital programme.

The report lists various measures that ACE has taken based on its experience of the programme and the criticisms raised in 1999 by the PAC. It also makes recommendations for ACE ‘in taking forward its new programme’. This is rather oddly worded, as the second Arts Capital pro-gramme has been running since 2000, and the bulk of the money is already committed. The second and final round of this programme is now unlikely to open until this summer.

NAO recommends that ACE should:

• ensure that its own experience and expertise is made available to projects. [For example], by preparing written guidance on the contractual issues that can arise in relation to the procurement and management of projects…
• encourage and facilitate contact between grant recipients so that those with experience of capital projects can share their knowledge to support new projects
• be prepared to stop funding ailing projects which fail to progress satisfactorily or which are not on a sound financial footing
• apply without exception its policy of securing a legal charge on any asset funded with lottery money…
• monitor and evaluate the effectiveness of the measures it has introduced for the new capital programme and make adjustments in the light of experience.

The Public Accounts Committee will hold a hearing on the NAO’s report on 10 September.

‘Progress on 15 major capital projects funded by Arts Council England’, National Audit Office HC622, published TSO, or download from www.nao.gov.uk/ whatsnew.htm