FOR THE
AQUATIC AND LEISURE CENTRE
CAMPUS STADIUM IRELAND LTD
March 2002
1
1
Page 2
3
2 {AG's\ Reports\ agr250302 }
Contents
Page No.
Introduction 5
Key Dates 6
Aquatic and Leisure Centre -Chronology 8
Narrative of Events 15
Analysis 29
Annexes 45
2
2
Page 3
4
3 {AG's\ Reports\ agr250302 }
List of Annexes
Annex A Government Decision 25 January 2000 Memorandum for Government
Annex B Government Decision 12 July 2000 Memorandum for Government 11 July 2000 (includes Pricewaterhouse Coopers Outline design specification 28
June 2000)
Annex C Government Decision and Memorandum for Government 19 December 2000
Annex D Government Decision 23 January 2002 Memorandum for Government December 2001
Annex E Letter dated 24 August 2000 from Keith Palmer, Waterworld (UK) Limited to Frank Pollachi, S& P (Ireland) Limited 24 August 2000
Annex F Letter dated 9 October 2000 from S& P (Ireland) Ltd to Donagh Morgan, CSID
Annex G PwC analysis of ownership of Waterworld (UK) Limited, participation of Mark Potiriadis, ownership of NBGS (UK) Limited, and Bad-Schloss Inc.
with map of company connections
Annex H Manuscript spreadsheet at preliminary expression of interest stage
Annex I Pricewaterhouse Cooper internal memo, 18 December 2000
Annex J Pricewaterhouse Cooper internal memo, 19 December 2000
Annex K Fax from Dervla McCormack, PwC to Una Carmody, CSID, 20 December 2000
Annex L Extract from Articles 24 and 26 of Directive 93/ 37/ EEC
Annex M Letter dated 11 March 2002 from Dublin Waterworld (John Moriarty) to Paddy Teahon, CSID re Waterworld (UK) Limited
Annex N Letter dated 13 March 2002 from McCann Fitzgerald Solicitors (Kevin Kelly) to Paddy Teahon, CSID
Annex O Letter dated 2 February 2001 from Waterworld (UK) Ltd (Roger Currie) to Una Carmody, CSID
Annex P Kit Campbell and Associates Operational Assessment for three tenders
Annex Q Kit Campbell and Associates Written Review of tenders prepared for CSID
Contd
3
3
Page 4
5
4 {AG's\ Reports\ agr250302 }
List of Annexes
Annex R Handwritten memo of a meeting of 19 December 2000
Annex S Questionnaire for Board members and replies
Annex T Questionnaire for Assessment Panel and replies
Annex U Letter dated 22 January 2001 from Waterworld (UK) Limited (Roger Currie) to McCann Fitzgerald Solicitors
Annex V Letter of 23 August to CSID
Annex W Response to Draft Report from CSID and comments of Attorney General
Annex X Report from the board of CSID for Minister for Tourism, Sport and Recreation
4
4
Page 5
6
5 {AG's\ Reports\ agr250302 }
Introduction
This report is concerned with issues arising out of the proposal to award the contract to operate the Aquatic and Leisure Centre to Waterworld Dublin Limited.
The report is primarily concerned with issues regarding corporate governance
and the legal obligations or liabilities of the State. This report is not concerned
in any way with the underlying policy issues regarding the building of a national
stadium and sports campus at Abbotstown or with any public controversies associated
with those issues. The report is based on material in the Attorney General's
Office's own file and material supplied to the Attorney General's Office by:
In addition, a written questionnaire was issued by the Attorney General's
Office to members of both the board of CSID and the Assessment Panel which considered
the bids of the competing consortia in late 2000. The texts of the questionnaires
in question are set out at Appendix S and T respectively together with the replies
received. It should be stressed that this report does not purport to resolve
any conflicts of fact or recollection or to pass any final judgement on the
merits or demerits of the behaviour of any individual or company. On the contrary,
the purpose of this report is, as requested by the Government, to provide it
with a analysis of the issues and to highlight some features of the matters
dealt with so as to be of assistance to the Government. In accordance with established
practice, I will not be including in the portion of the Report which may be
published any confidential advice to the Government on legal liability arising
from the events and issues referred to in the Report.
5 Page 6 7
6 {AG's\ Reports\ agr250302 }
Key Dates
12 July 2000 Government decision for the development of the Aquatic and
Leisure Centre
28 July 2000 Advertisement by CSID in Official Journal
25 August 2000 Closing date for Expressions of Interest
9 October 2000 Closing date for receipt of Outline Bids
22 November 2000 Due diligence searches requested of PwC
15 December 2000 Closing date for detailed bids
18 December 2000 Preliminary PwC due diligence report received by CSID
19 December 2000 Rohcon/ Waterworld selected as preferred bidder by Assessment
Panel
19 December 2000 Government agreed that CSID sign heads of agreement with
preferred bidder and lodge planning application
21 December 2000 Completed PwC due diligence received by CSID
21 December 2000 Letter to Rohcon, Waterworld UK and S& P Ireland stating
CSID's
intention to appoint the consortium as the preferred bidder subject to
certain conditions including financial guarantees
22 December 2000 Final date identified by CSID for lodging of planning permission
application in order to meet Special Olympics deadline
24 February 2001 Heads of agreement between CSID and preferred bidder signed
28 March 2001 Planning permission received
23 January 2002 Terms of contract approved by Government
7 February 2002 Contract between Rohcon, Waterworld UK, Dublin Waterworld and
CSID 6
6 Page 7 8
7 {AG's\ Reports\ agr250302 }
7 March 2002 Letter from Chairman CSID to Minister TSR explaining
circumstances surrounding selection of dormant company on 19
December 2002
The Aquatic and Leisure Centre has been the subject matter of four Memoranda
for
Government on the following dates: 27 January 2000, 12 July 2000, 19 December
2000 and
23 January 2002. 7
7 Page 8 9
8 {AG's\ Reports\ agr250302 }
Aquatic and Leisure Centre Chronology
1. Establishment of CSID: 25 January 2000
The Government in accepting the recommendations of the Stadium steering Committee
agreed to the establishment of a "Development entity to drive the design
and construction of the Stadium taking into account the relevant recommendations
of the feasibility study 'A Stadium for a New Century' ".
2. Development of ALC Agreed: 12 July 2000
On 12 July 2000, the Government agreed to the development of the Aquatic
and Leisure Centre at the SCI site at Abbotstown. It was agreed that CSID would
advertise the request for proposals to design, build, finance, operate and maintain
the ALC. It was specified that the successful tenderer would operate the Centre
for 30 years and would receive a capital contribution from CSID. The Taoiseach
obtained Government approval for a capital contribution of up to £30m recognising
that CSID would proceed with the lowest capital contribution tendered consistent
with an acceptable quality of technical capacity.
3. Invitation to Tender: 17 July 2000
CSID sent to the Official Journal of the European Communities an advertisement
for a contract to design, build, finance, operate and maintain an Aquatic and
Leisure Centre. Criteria were laid down in the advertisement, including sufficient
financial and economic standing and sufficient technical knowledge and ability
to DBFOM an Aquatic and Leisure Centre of the size, nature and complexity of
the project. In particular participants will have to demonstrate that they meet
the requisite standards in each of the areas of DBFOM and that they have the
financial and economic standing to finance a substantial part of the development.
8 Page 9 10
9 {AG's\ Reports\ agr250302 }
4. Expression of Interest: 28 August 2000
Expressions of Interest were received from 8 consortia, comprising more
than twenty companies. Those expressions of interest were assessed on Monday
28
August 2000 by a panel consisting of senior CSID and OPW personnel, with technical
and legal support. The Expressions of Interest were received from
The assessors examined all the original information furnished by the different
consortia, including financial and economic information received. In the view
of
the panel of assessors five consortia qualified for the next stage. Waterworld
(UK) Ltd, was described at that stage as closely linked to one of the world's
leading aquatic operators (Schlitterbahn) and manufacturers of leisure pool
attractions (NBGS). They outlined in their submission that the operation of
the pool at Abbotstown was well-matched to their portfolio and capability and
that NBGS would offer site planning and patented attractions. This was signed
by Keith Palmer, director of Waterworld (UK) Ltd.
5. Outline Bid Stage
The Assessment Panel of the Expression of Interest Stage (composed of Paddy
Teahon, CSID, Sean Benton, OPW, Laura Magahy, EST, and as advisors Kevin
Connolly, OPW, Kevin Kelly, McCann FitzGerald, and Una Carmody, EST) shortlisted
5 consortia to submit Outline Bids, i. e.,
9 Page 10 11
10 {AG's\ Reports\ agr250302 }
6. Three Outline Bids Received: 9 October 2000
Three Bids were received on foot of the Outline Bid document on 9 October
2000. The Bids received were from
The Assessment Panel (CSID, OPW, ISC, Fingal County Council with technical
and legal assistance) was advised by CSID that Multi-Development Corporation
BV had withdrawn from the competition. Rohcon Ltd, replaced MDC. CSID have asserted
that this change took place prior to the consortium making an outline bid. The
replacement was accepted on the basis that the consortium would have pre-qualified
had Rohcon been party to the original consortium, and that a replacement was
allowed under EU procurement rules on that basis. CSID sought and received legal
advice to this effect.
The outline bid in respect of the consortium which now included Rohcon made
it clear that Waterworld (UK) Ltd, were closely linked to NBGS International,
a US
company with many years of design, manufacturing and consulting in the waterpark
industry "the NBGS executive management team has decades of experience in
building and operating waterparks". NBGS provided a client list which included
Disney (MGM Studios and Tokyo Disneyland) Butlins in the UK and approximately
45 other waterparks. In addition, details were provided on the associate company
Schlitterbahn, which is owned by NBGS and their waterpark operation.
The Assessment Panel at Outline Bid Stage consisted of Paddy Teahon, CSID,
Sean Benton, OPW, John Treacy, ISC, Laura Magahy, CSID, and David O'Connor,
Fingal County Council. At the conclusion of the Assessment Panel's deliberations
on 11 October, it was decided to seek clarification on certain elements of the
Bids received from all three consortia. On receipt of the clarifications sought
and following a further Assessment Panel meeting on the 27 October 2000, detailed
Proposals were sought from all three consortia.
10 Page 11 12
11 {AG's\ Reports\ agr250302 }
7. Due Diligence Reports
Meanwhile, as part of normal diligence, CSID commissioned Pricewaterhouse
Coopers to carry out a detailed review of the many different companies involved
in
all of the bidding consortia. These searches were requested orally on 22 November
2000 and commenced on 30 November 2000.
The design, cost etc., elements of each of the Bidder's proposals were subject
to ongoing review by OPW and CSID together with Quantity Surveyors, Seamus
Monahan and Partners, financial advisers PwC etc., prior to receipt of Detailed
Proposals. As part of this ongoing review, two teams Design and Cost were
established.
8. Detailed Proposals Stage: 15 December 2000
Detailed Proposals for the design, construction, financing, operation and
maintenance of the Aquatic and Leisure Centre were received on Friday 15 December
2000 from all three Bidders viz (1) Rohcon-Waterworld (UK), (2) DIAL and (3)
Prospero.
A two day technical analysis was carried out on behalf of the Assessment Panel
by technical and financial advisors. This analysis was considered by the Assessment
Panel consisting of representatives of CSID, the OPW, Fingal County Council,
the Irish Sports Council and the National Coaching and Training Centre in Limerick.
The assessment of the Detailed Proposals included a full examination of Bills
of Quantities by Seamus Monahan and Partners, Architectural, Maintenance and
Services evaluations by OPW and Financial/ Operations analyses by PwC and other
advisers from CSID.
11 Page 12 13
12 {AG's\ Reports\ agr250302 }
9. CSID alerted by PwC: 18 December 2000
CSID received a preliminary report by fax from PwC on Monday 18 December,
described as a work in progress, of its review of the companies involved in
the
different consortia. CSID's executives were now aware that Waterworld (UK) Ltd
required further investigation as it appeared to be a dormant company.
10. Decision of Assessment Panel: 19 December 2000
The Assessment Panel (including OPW representatives) met on Tuesday 19 December
2000 and decided that the proposal from the Waterworld/ Rohcon
consortium merited overall top ranking; the total capital costs of the 3 proposals
were Rohcon/ Waterworld £53m, DIAL £64.6m and Prospero £69.99m.
The Assessment Panel made its decision based on the criterion in the bid documentation
of "most economically advantageous proposal". The detailed proposal from the
Rohcon/ Waterworld consortium provided for a special purpose company to be established
to operate the centre. All the other bids did the same. The proposed managers,
their track record and experience, and a detailed operational plan were included
in the bid and considered by both the technical advisors and the Assessment
Panel in their deliberations.
On 7 March 2002, the Executive Chairman informed his Board that he did not
believe it necessary to inform them or the Assessment Panel at that time of
the
information received about the status of Waterworld (UK), or of his judgement
in this regard.
At the same meeting on 7 March 2002, the Board considered that the Executive
Chairman should have informed them of this information and his proposed
judgement in advance. However, the Board was satisfied, on the basis of legal
advice that this issue did not impact on the integrity and validity of the award
of the
contract and were satisfied that EU Procurement procedures were properly implemented.
12 Page 13 14
13 {AG's\ Reports\ agr250302 }
11. Government Decision: 19 December 2000
On foot of a Memorandum to the Government from the Department of the Taoiseach,
it was agreed on 19 December 2000 to proceed with the development of
the ALC at a maximum cost to the Exchequer of £52.5m, that CSID should sign
Heads of Agreement with the preferred bidder and lodge a planning application
for
ALC on Friday 22 December 2000. The Memo stated that it was crucial that this
deadline be met so that the target of having the Centre in place for the Special
Olympics can be reached. (A draft of the Memo was faxed to the Department of
the Taoiseach from the Offices of CSID).
12. Further financial report by PWC: 22 December 2000
A full report by PWC of its review of the companies involved in the different
consortia was received by CSID on Thursday 21 December 2000. This confirmed
that Waterworld (UK) was a dormant company.
CSID received legal advice that, notwithstanding its "dormant" status Waterworld
(UK) Ltd, was entitled, under EU Procurement Rules to proceed as part of the
bid, provided it was in a position to satisfy CSID that it had available to
it the resources from a third party or parties on which it could rely in the
performance of the
contract (if awarded). CSID sought on 21 December 2000, unequivocal comfort
from the members of the consortium as to their financial standing.
13 Page 14 15
14 {AG's\ Reports\ agr250302 }
13. Planning Application: 22 December 2000
A Planning Application was lodged by CSID with Fingal County Council on
Friday 22 December 2000.
14. Willingness to Provide a Guarantee: 7 February 2001
On 7 February 2001, CSID received a letter of comfort from Anglo Irish Bank
stating they were satisfied to provide a £3 million guarantee subject to:
(a) receiving full details of same and
(b) the facility being secured by way of a legal charge over the assets of John
Moriarty and Company.
CSID had previously received a draft parent company guarantee of Rohcon Ltd.
15. Heads of Agreement signed: 22 February 2001
Heads of Agreement were signed between CSID and Rohcon Ltd and Waterworld
(UK) on 22 February 2001.
Detailed negotiations of the terms of the contract then commenced.
16. Agreement of the Board: 12 April 2001
The Board of CSID sanctioned entering into the contract, (the Project Agreement)
with the Consortium, which was the preferred Bidder at its meeting of 12 April
2001, subject only to the approval of the Department of Tourism, Sport and Recreation.
14 Page 15 16
15 {AG's\ Reports\ agr250302 }
Narrative of Events
The following is a account of Waterworld (UK) Ltd (the Company) and its
role in the consortium selected to design, build, finance, operate and manage
the Aquatic and Leisure Centre, with particular focus on the financial status
represented by the company, the fact and knowledge of the Company being a dormant
entity and the subsequent measures taken to ensure the dormant company had sufficient
backing and to ensure that there were sufficient guarantees to meet the requirements
of the heads of agreement.
On 25 January 2000, the Government decided (S130/ 08/ 05/ 0001K) that the feasibility of developing an aquatic centre as part of Sports Campus Ireland should be actively considered by Campus and Stadium Ireland Development Ltd (CSID). Following a benchmark option prepared by PwC the Government decided on the 12 July (S130/ 08/ 05/ 0001N) to proceed with the development of the Aquatic and Leisure Centre.
Following this decision CSID placed a notice with the Official Journal of the European Communities on 18 July 2000 (2000/ S142-093359). Paragraph nine of the said notice required that participants should demonstrate the financial and economic standing to design, build, finance, operate and maintain the Aquatic and Leisure Centre and demonstrate the financial and economic standing to finance a substantial part of the development. Further, the participants were to furnish the records and information contained in Articles 24, 26 & 27 of Council Directive 93/ 37/ C.
One of the consortia was led by Multi-Development Corporation International
BV. This expression of interest was by letter dated 23 August 2000 and stated
that the Company were to be the operators and were "one of Europe's leading
waterpark operators with approximately 20 years' experience operating and managing
some of the most popular and successful resorts." (Annex V) The architects for
the consortium were S & P Architects and a letter dated 24 August, 2000
from Mr Frank Pollacchi of S & P was enclosed. Mr Keith Palmer, on behalf
of the Company wrote expressing its interest in undertaking the operation of
the complex. This letter speaks of the Company's "connection to one of the world's
leading aquatic leisure operators (Schlitterbahn) and manufactures of leisure
pool
15 Page 16 17
16 {AG's\ Reports\ agr250302 }
attractions (NBGS)". This letter was written after the Company's name had been
submitted as part of the consortium.
An Assessment Panel consisting of Paddy Teahon (CSID), Sean Benton (OPW), Laura Magahy (CSID), Kevin Connelly (OPW), Kevin Kelly (McCann FitzGerald), as legal adviser, & Una Carmody (CSID) in attendance evaluated the eight expressions of interest and short-listed five consortia to submit outline bids by 9 October, 2000. At a board meeting of CSID on 11 September, 2000 the board were advised of the competition for the Aquatic and Leisure Centre and the three part process involved in reaching a preferred bidder, and that it was intended for heads of agreement with the developer to be reached by the end of 2000.
At the outline bid stage Multi-Development Corporation BV had withdrawn and been replaced by Rohcon Ltd. Legal advice was sought and received that a replacement in the consortium could take place. The outline bid received was described as the "Waterworld Consortium Outline Bid" and reiterated the link between the Company and Schlitterbahn and NBGS.
The Assessment Panel deliberated on 11 October 2000 and decided that clarification of the three outline bids received should be sought.
At a board meeting of CSID on 12 October 2000 an Aquatic and Leisure Centre update was circulated to the board.
The next stage was the meeting of the Assessment Panel on 27 October 2000
at which a report from Kit Campbell and Associates was circulated which reviewed
the three remaining consortia, Dublin International Arena Ltd, Prospero and
the Company. The Report makes mention of two relevant factors,
1) That "CSID should be satisfied that S & P is financially stable", and
2) Kit Campbell Associates had no knowledge of NBGS.
Subsequently, the Assessment Panel determined that the detailed proposals by
the three consortia were to be received by 15 December 2000 and, in the interim,
design and cost
16 Page 17 18
17 {AG's\ Reports\ agr250302 }
review teams were established which met with representatives from the three
consortia throughout November and December 2000. CSID commissioned PwC to carry
out a review of the different companies involved in each of the bidding consortia.
This commenced on the 30 November 2000. At a board meeting of CSID on 14 December
2000 the board was again updated in respect of the Aquatic and Leisure Centre
and was informed that the Assessment Panel would meet on 19 December 2000 and
that following this assessment the Government would be asked to agree to CSID
signing heads of agreement with the preferred bidder. It was outlined to the
board that subject to a positive Government decision, a planning application
for the Aquatic and Leisure Centre would be lodged on 22 December 2000 and that
this deadline was crucial so that the target of having the Aquatic and Leisure
Centre completed for the Special Olympics in 2003 could be achieved.
CSID on 15 December 2000 received the final bid from the Waterworld Consortium
which again mentioned the Company's link with Schlitterbahn and NBGS. The final
bid also mentioned the Company's two representatives in Ireland being Kieran
Rutledge and Liam Bohan who were to be involved in the management of the Centre.
Monday, 18 December 2000
Meetings to review the bids took place. During this CSID received from PwC
information on the various companies involved in the consortia. The information
revealed that Waterworld UK was a dormant company and that "the lack of material
information on the enterprise has resulted in searches to determine if the Directors
[of the Company] hold directorships in other companies". A business report was
faxed by Experian Business Line to PwC on 18 December 2000 at 5.30pm. The business
report showed Mr Roger Currie holding directorships in Waterworld UK and Royson
Ltd whilst Mr Keith Palmer held directorships in Waterworld UK and NBGS UK Ltd.
The Experian business report showed Waterworld UK as being incorporated on 8
May 1997 and with issued capital of £4 sterling with the four £1 shares being
held by the Ealing Trading Corporation. As the Company had not traded in the
accounting year up to 31 May 1999, there was insufficient basis to assign it
a credit figure according to the business report. The business report further
outlined that NBGS UK Ltd had been incorporated on 5 January 1998, has issued
capital of £100 sterling and with a negative net worth of £67,738 sterling.
The parent company of NBGS UK Ltd was stated as being NBGS International Inc
and that the balance sheet
17 Page 18 19
18 {AG's\ Reports\ agr250302 }
indicated " . . . it is inadvisable to proceed with unsecured dealings without
prior referral to the parent company." Finally, the Business Report gave details
in respect of S & P Ltd which had issued capital of £110 sterling and a
net worth of £1164 sterling but that " . . . It is suggested that interested
parties should not proceed with unsecured dealings without first obtaining a
directors guarantee".
It would seem that this business report was not available to PwC until late
on Monday 18 December but in an internal PwC memo dated 18 December 2000, Aidan
Walsh of PwC highlighted to Una Carmody of CSID that Waterworld UK " . . .did
not identify who specifically the contracting party would be and highlighted
to her that Waterworld UK Ltd is a £4 company which has not commenced trading
according to their last annual return." Mr Walsh further stated " . . . I stressed
to [Una Carmody] that it would be essential to properly understand how they
would finance the construction, manage it and deal with all the necessary operating
risks." Mr Walsh then spoke of going through the draft heads of agreement with
Una Carmody and Kevin Kelly (of McCann FitzGerald, Solicitors) again stressing
to both of them that in the event that the special purpose vehicle not having
any substantive equity in it in reality, [the special purpose vehicle] would
turn to CSID in the
event of significant problems or unforeseen costs. Mr Walsh's memo mentions
a meeting during the Monday afternoon with Una Carmody, Kevin Kelly and including
representatives of the Waterworld consortium. The proposed new company to operate
the Aquatic and Leisure Centre, Waterworld Ireland Ltd, would have a share capital
of IR£ 500,000. It appears that Keith Palmer of Waterworld UK outlined that
Kieran Rutledge and Liam Bohan would carry the responsibility for day to day
operation. At this meeting, Mr Palmer outlined the position between Waterworld
UK and NBGS International.
Tuesday, 19 December 2000
An Assessment Panel consisting of Paddy Teahon, Laura Magahy, David O'Connor
(Fingal Co. Council), Sean Benton (OPW), John Treacy and Pat Duffy (NCTC Limerick)
met on 19 December 2000. The following advisers also attended: Keith Milson
(OPW), Una Carmody, Kit Campbell, Sean Boyle (Seamus Monahan & Partners),
Kevin Connelly
18 Page 19 20
19 {AG's\ Reports\ agr250302 }
(OPW), Aidan Walsh (PwC), Dervla McCormack (PwC), both in attendance as financial
advisers, Kieran Magahon (OPW), and Kevin Kelly, in attendance as legal adviser,
met and were given presentations on the various elements of the bids made by
the three consortia. Kit Campbell, in a review of the Waterworld consortium
commented " This is a design led scheme with long term operation to be entrusted
to a new company which will be set up for the purpose. This company is unlikely
to have significant reserves in the event of income shortfall, creating considerable
risk for the Government which should ideally be minimised by a bond from the
operating company or consortium". Whilst the minutes of the Assessment Panel
make no mention of discussion regarding the resources of Waterworld UK, a memo
compiled by Aidan Walsh states " . . .Paddy Teahon commented during the course
of the meeting that the Waterworld proposal was not the best funded and that
there were issues to be resolved, particularly in this area with them." Further,
a hand written note of the meeting (from the PwC papers) outlines the following:
"PT -Waterworld appears favourable -could then go back to other two and ask
them both to keep their bids open.
SB -Most likely they will lose interest.
PT -Nervousness/ slight concern about Waterworld/ Rohcon backing and their ability
to
have deep pockets."
After the Assessment Panel meeting Laura Magahy met with Kevin Kelly and Aidan Walsh and discussed the equity position in the Waterworld consortium and that it had not been properly formed yet. Kevin Kelly and Aidan Walsh agreed to work with Una Carmody to draft a letter to the Company seeking clarification on the parent company guarantee, presentation of parent company financial statements, details of their plans to have adequate banking in place and direct confirmation from Ascon/ Rohcon that they are willing to enter a fixed price design and build contract with the Waterworld special purpose vehicle. This meeting between Laura Magahy, Aidan Walsh and Kevin Kelly is detailed in a PwC memo which goes on to indicate that Laura Magahy commented on the situation whereby they were now faced with a "contracting entity that has no substance." Kevin Kelly apparently remarked "It would be normal to enter into contractual arrangements with a special purpose vehicle set up for the purposes of this particular contract and that these would have been
19 Page 20 21
20 {AG's\ Reports\ agr250302 }
backed by necessary parent company guarantees and an adequate amount of equity
in the company." As it was felt these matters had to be resolved with the consortium,
a meeting for Thursday, 21 December 2000, was targeted between the consortium
and Una Carmody.
During the morning of 19 December 2000 a fax was received by CSID from the Company which set out that NBGS International had been contacted by Mr Palmer and "[ NBGS International] have confirmed their support for the project." This fax further says Rohcon would be bonding the construction part of the project and that Waterworld Ireland would capitalise at £500,000. Further indication that the backing for the Company was discussed is an e-mail from McCann FitzGerald to Una Carmody enclosing a draft parent company guarantee.
Finally, by a letter sent on 19 December 2000 to the Company, further clarification was sought and confirmation on various matters including that the obligations of the special purpose company would be guaranteed by the consortium members (or parent organisations as approved by CSID) in the format of the draft guarantee which was attached (presumably the parent guarantee e-mailed by McCann FitzGerald); that CSID required satisfactory financial information of the standing of NBGS in the United States and their agreement to guarantee Waterworld for the purpose of operating; and finally that the Company would furnish satisfactory details for the financing of any cash flow required and would include a letter from the Company's bank that payments would be funded. The Company was informed that the heads of agreement would be finalised on Thursday, 21 December 2000. A copy of this letter from CSID to the Company was copied to S & P Architects, Rohcon Ltd and Sean Benton at the OPW. By Government Decision S180/ 29/ 20/ 0001 of 19 December it was decided to proceed with the Aquatic and Leisure Centre with the Company being accepted as the preferred bidder.
20 December 2000
PwC faxed further corporate information in respect of S & P (Ireland)
Ltd, Mark Potiriadis Ltd (Mark Potiriadis was the principal of S & P Architects)
and NBGS International Inc. This fax went on to state that "initial indications
are that the financial information available
20 Page 21 22
21 {AG's\ Reports\ agr250302 }
on NBGS will be limited and consequently you should continue to request detailed
financial information from the Waterworld consortium."
21 December 2000
PwC, in essence closing the request from CSID on 22 November 2000 to review
the bona fides of the corporate parties involved in the consortia, faxed to
Laura Magahy, the various company searches, business reports and other information
which had been received by PwC on 18 and 19 December 2000. This documentation
also seems to have included details on the ownership on the Company and details
of the corporate bodies behind and connected to the company and NBGS. Thereafter,
heads of agreement were signed on 21 December 2000 whereby each member of the
consortium was to provide to CSID a guarantee of the
members obligations to be executed by the parent company or organisation approved
by CSID along with satisfactory financial information of the standing of the
parent company which information was to be provided by no later than 23 January
2001, upon compliance of which CSID would appoint the consortium as the preferred
bidder for the contract to design, build, finance, operate and maintain the
Aquatic and Leisure Centre.
22 December 2000
Further fax from PwC to Una Carmody marked "Urgent" regarding NBGS international
Inc. which showed that for the last available fiscal year December 31 st 1993
NBGS had a net profit of approximately $66,000 and sales just over $5 million.
Partial estimates dated 2 November 2000 had been submitted showing sales of
$25 million for 1999.
2001
On 11 January 2001 the board of CSID met and were informed that the contract
for the pool was to be finalised by the end of January and the financial proposals
for the pool were outlined to the board. In the handwritten manuscripts of the
board meeting of 11 January 2001 details are given of a discussion by the board
on the decision-making process which would appear to be in the context of the
decision in respect of the Aquatic and Leisure Centre with the remark by Tom
Kiernan "what if the pool was £70 million are you left with fait accompli".
21 Page 22 23
22 {AG's\ Reports\ agr250302 }
On 15 January 2001, Waterworld UK were written to by McCann FitzGerald who referred
to the letter of intent dated 21 December 2000 and that CSID was anxious to
receive the required information and the Company were requested to immediately
forward same. Waterworld UK responded on 16 January confirming that NBGS International
USA would enter into the parent company guarantees for the Company and NBGS
UK and enclosed profit and loss accounts for NBGS International to year end
30 November 2000 (showing net profit of just over $1/ 2 million), a balance
sheet for NBGS International, a letter dated 10 January 2001 from NBGS International
in which they confirm they would act as guarantors along with a proposed alternative
parent company guarantee. This material was
forwarded on to CSID and on 17 January Una Carmody e-mailed Kevin Kelly asking
if he had any comments specifically on the proposed parent company guarantee.
The material received from the company was also forwarded to PwC where Dervla
McCormack of PwC compiled a review on same. In conclusion PwC felt that given
the large liability in respect of inter-company payables in respect of NBGS
International it would be important to ascertain that NBGS International was
the ultimate holding company within the group, as it would be the ultimate holding
company who should be giving the guarantee. PwC also
pointed out that NBGS should provide financial statements for the three years
prior to 2000 which should be signed by an auditor, something which the accounts
as furnished by the company on 16 January did not include. The PwC comments
were forwarded on to Kevin Kelly.
McCann FitzGerald faxed the Company on 19 January seeking further written clarification from NBGS including that it was the ultimate holding company of group, that it would provide accounts for a minimum of two and preferably three years and finally enquiring whether NBGS International had any projections/ assumptions in respect of operating deficits which might arise and how they would be met by them.
In a fax from CSID to Waterworld UK dated 22 January the Company were again
asked to provide financial details including confirmation that the ultimate
holding company making up NBGS, Schlitterbahn and Waterworld were the guarantors
of the Company's obligations, that the parent company guarantee in the form
attached to the letter of intent would be signed containing clauses 2 and 3,
as these were especially critical in circumstances where the Company had no
share capital, a letter from the group's bankers
22 Page 23 24
23 {AG's\ Reports\ agr250302 }
stating that they were prepared to advance credit for operational and other
liabilities, and finally details of the operational bond to be taken out.
On the 22 January CSID received from Rohcon Ltd the information sought at item 3 of the letter of intent including a guarantee by HBG Ascon Ltd, the parent company of Rohcon Ltd.
Further, a fax received after the close of business on the 22 January from Waterworld UK to McCann FitzGerald set out that NBGS International was the parent company of the named businesses involved in negotiation with CSID and was the ultimate holding company. It offered the required guarantees, that the request for additional financial information from CSID had been forwarded to NBGS International and that a purpose made company, Waterworld Ireland, was intended to be formed to operate the aquatic centre and that this company would be capitalised to £1/ 2 million. This letter from the company, signed by Roger Currie, director of Waterworld (UK) Ltd, enclosed details in respect of Mr Currie and Keith Palmer. A copy of this letter from the company was forwarded by Kevin Kelly to Una Carmody, Laura Magahy and Paddy Teahon.
On the 26 January Kevin Kelly e-mailed Paddy Teahon and Laura Magahy with
the draft heads of agreement with the comment that PwC should advise on the
financial obligations implementation schedule for the Company but that if satisfactory
guarantees were in place the implementation schedule might not be necessary.
An update was received from the Company on 29 January by Una Carmody giving the updated position in respect of the documentation sought and on 30 January a further fax from the company included a draft letter from Chase Bank to CSID.
However, by letter dated 2 February to Una Carmody the Company set out that
"taking into account the on-going issues arising from the heads of agreement
and the yet as unknown implications of the lease, NBGS is unable to provide
the various guarantees and securities in the form and content currently required
by CSID." The letter further indicated that given the level of operating return
being indicated the degree of risk and security being requested was not justified.
The letter refers to investigations of other models as to how a viable operation
could be secured. Then on 7 February the Company wrote to Una Carmody at
23 Page 24 25
24 {AG's\ Reports\ agr250302 }
CSID referring to "our discussions on providing an alternative and equivalent
form of guarantee to expedite the current situation, I can advise that we have
secured a direct £3 million letter of guarantee, raised through the Anglo Irish
Bank." The Company was making arrangements for the bank's letter to be available
at the next Thursday's meeting. This letter ended that as there had been difficulties
in registering the preferred name of Waterworld (Dublin) Ltd. A shelf company,
Tearton Buildings Ltd had been purchased and name would be changed to Waterworld
Operations (Dublin) Ltd.
On 7 February 2001 a letter addressed to Mr John Moriarty from the Anglo Irish Bank indicated that the bank on request and subject to receiving full details was satisfied to provided a £3 million guarantee to Waterworld UK Ltd., secured by way of a legal charge over the assets of John Moriarty & Co. which the bank was satisfied were available at that time. This letter was forwarded to Kevin Kelly on 14 February.
The next relevant correspondence is a letter of 2 March to Kieran Rutledge
c/ o Tralee Aquadome mentioning the fact of the heads of agreement being signed
(which was on 24 February 2001) but referring to the "critical issues which
remain to be resolved" including the guarantee structure to be put in place
by Dublin Waterworld Ltd to satisfy the requirements of CSID and looking forward
to receiving proposals on this structure. By an undated reply Kieran Rutledge
set out details concerning Dublin Waterworld Ltd and in respect of the guarantee
the directors of Dublin Waterworld Ltd., having considered the matter in detail,
were suggesting "that in lieu of this guarantee Dublin Waterworld Ltd will commit
a sum of £1.25 million to cover the cost of the consortium contribution (£ 500,000)
and estimated pre-opening costs of £750,000." A hand written note on this letter
states that John Moriarty was contacted on 29 March and he was to revert with
new proposal.
On 10 April 2001 a letter was sent to Una Carmody by John Moriarty enclosing
a draft guarantee from the Anglo Irish Bank which stated that Anglo Irish Bank
will forward £250,000 to Waterworld Dublin on demand from Waterworld Dublin
or CSID. The guarantee would be secured on the assets of Waterworld Dublin or
other Security provided by Waterworld Dublin or it's directors. John Moriarty
again wrote to Una Carmody on 12 April following a meeting the day before, where
in it was felt that with regard to the draft guarantee that the wording was
appropriate and there would be no increase in the amount.
24
Page 25
26
25 {AG's\ Reports\ agr250302 }
In a relatively detailed e-mailed sent by Kevin Kelly to Una Carmody on 11 April,
the security and bond position with the Company were outlined with Mr Kelly
concluding that he "cannot recommend the arrangement suggested by Waterworld
(on the guarantee and performance bond) and it is not one which is provided
for under the heads of agreement or indeed under the draft project agreement."
A board meeting of CSID on 12 April 2001 was furnished with a draft contract
for the Aquatic and Leisure Centre with the board sanctioning entering into
contract for the design, build, finance, operation and maintenance of the pool
subject to the approval of the DTSR.
On 18 April Una Carmody faxed Kevin Kelly comments made by Aidan Walsh at PwC
(dated 10 April) on the draft agreements. Aidan Walsh stated "is not clear to
me how any risks associated with the commissioning of the Aquatic and Leisure
Centre will rest with the bidding consortium." The concerns of PwC were set
out in a letter to Una Carmody on the 19 April stating in light of the low level
of equity in Waterworld Ireland the amount of any guarantee needed to be sufficient
to cover operating losses and the cost of any renewals and with a guarantee
level of IR£ 250,000 would cover approximately 2 months' operating costs. PwC
were of the view that a guarantee be not less than 6 months operating costs,
though no comfort could be given that this amount would be adequate. A suggestion
was
made that the amount of the third party security could be reduced over time
as track record and accumulated reserves were built up. A hand written note
by Una Carmody on this letter states that she had asked Dublin Waterworld "for
new guarantees etc based on this letter 24/ 4/ 01" Also on 24 April CSID wrote
to the two unsuccessful consortia for the Aquatic and Leisure Centre indicating
that the four month period of keeping their bids open had expired and thanking
them for their co-operation.
On 25 April Kevin Kelly dealt with Aidan Walsh's e-mailed comments of 10 April
2001. Mr Kelly set out in this letter the interplay between the operational
bond on which CSID could rely to make good any default by the operator and further
the guarantee from Anglo Irish Bank being another source for CSID to make good
any financial loss associated with default by the operator as long as such guarantee
were directed to CSID. Mr, Kelly felt the
25
Page 26
27
26 {AG's\ Reports\ agr250302 }
position should be clarified in respect of the cover in place for CSID vis-ΰ-vis
the operator and whether or not the guarantee could be drawn down by CSID in
the first instance or simply was it in the nature of a facility for the operator.
On 3 May 2001 CSID wrote to John Moriarty reiterating the obligation under the heads of agreement for Dublin Waterworld to provide guarantee documentation along with, inter alia, confirmation from the bank on the level of the guarantee and the bank's willingness to provide it. John Moriarty faxed Una Carmody on 4 May enclosing a letter from the Anglo Irish Bank and his accountant where-by a guarantee of IR£ 360,000 along with a statement by Anglo Irish Bank that Dublin Waterworld will be in a position to meet it's financial obligations.
PwC e-mailed Una Carmody on 16 May 2001 having reviewed the documentation in which they stated that they understood the guarantee was to be in lieu of paid up share capital and that in the circumstances the guarantee should remain until the share capital reaches the amount of the guarantee or until such time as the retained reserves of the operator were adequate to meet the ongoing requirements of the operator. A further e-mail to Una Carmody on 24 May 2001 stated that Dervla McCormack and Aidan Walsh had spoken with Kevin Kelly with their comments on the guarantee and that they had been taken on board. Kevin Kelly in a letter of 25 May set out his advices on the documentation and the options available. On 7 June 2001 Kevin Kelly wrote to Ronan Daly Jermyn, Solicitors for the Anglo Irish Bank, enclosing a draft revised guarantee which was to be on a reducing basis and in the amount of IR£ 360,000.
At a board meeting of CSID on 11 October, 2001 the board were advised that
the contract for the pool was close to finalisation though satisfactory resolution
of the joint and several liability between the contractor and operator was required.
Laura Magahy was concerned that the contract had not been executed and the project
was proceeding on the basis of a letter of intent, which had been extended,
and that there was an associated risk as a construction bond was not yet in
place. A letter was sent to John Moriarty on 24 October 2001 regarding the resolution
of the outstanding issues and intimating the intention for the contract to go
to Government on 1 November. In a fax from CSID of 25 October to John
26
Page 27
28
27 {AG's\ Reports\ agr250302 }
Moriarty proposed amendments to the project agreement were set out including
a joint and several guarantee between Rochan Ltd and John Moriarty for a five
year period from the date of the granting of the lease, such guarantee being
capped at IR£ 850,000. Further, Dublin Waterworld Ltd was to pay IR£ 500,000
to CSID on the granting of the lease with such payment deferred for five years
from that date and these arrangements were to be put in place for the first
five years instead of the operators bond of IR£ 1 million.
At the board meeting of 9 November, 2001 it was outlined that the work was still proceeding under the letter of intent and that the contract negotiations had re-opened owing to the instance of DTSR and the Office of the Attorney General that a joint and several liability be included in the contract.
The draft minutes of the board meeting of 4 February 2002 do not refer to
the contract for the Aquatic Centre but a further amendment to these draft minutes
was circulated to the members of the board subsequent to the meeting. The amendment
noted that the contract for the Aquatic and Leisure Centre had been approved
by Government on 23 January 2002 and outlined that a measure of joint and several
liability rested with the contractor and operator for the operator's obligations
with the said liability being IR£ 250, 000 until practical completion rising
to IR£ 750,000 in the first year of operation and thereafter falling by IR£
150,000 each year until the end of the fifth year. The contractor's liability
for the operator's obligations expires after five years after practical completion.
Further, a personal guarantees of John Moriarty on the signing of the project
agreement in favour of CSID for the operator's obligations was capped at IR£
250,000. Finally on the execution of the lease, the operator (Dublin Waterworld
Ltd) was to furnish a guarantee in the amount of IR£ 750,000 again falling by
IR£ 150,000 each subsequent year. It was stated that the guarantees of John
Moriarty and Rohcon's parent company were to be furnished at the time of the
project agreement. Some members of the board have raised objections to the text
of the amendment as not reflecting the discussion at the meeting on 4 February
and the matter
27
Page 28
29
28 {AG's\ Reports\ agr250302 }
remains unresolved. The manuscript note kept by the Secretary to CSID records
the following:
"C Government cleared contract for Pool. Terms of guarantee was £750,000
issue is if cl be read as £1.5m In touch with Dept. whether letter of clarification.
LM Read out clause 77"
Finally, there is a letter dated 5 March 2002 from NBGS wherein it states that
it remained involved in the project through NBGS UK and that it continued to
endorse and support Dublin Waterworld/ Waterworld UK.
28 Page 29 30
29 {AG's\ Reports\ agr250302 }
Analysis
Corporate structure of CSID
CSID is a private company formed under the Companies Acts and limited by
shares. Its shareholders are the Taoiseach, the Minister for Finance and the
Minister for Tourism, Sport and Recreation. The only member of the board who
has executive functions is the Executive Chairperson, Mr Paddy Teahon.
Function of Assessment Panel
Mr Paddy Teahon explained the function of the Assessment Panel in his letter,
dated 7 March 2002, to the Minister for Tourism, Sport and Recreation as follows:
"The Assessment Panels at Outline Bid and Detailed Proposal stage were convened
to assess the quality of the bids under the criteria set out, not the financial
and economic standing of the consortia and their members. That assessment had
been carried out at pre-qualification stage. The quality of the bids concerned
itself with the design merits, building merits, operational merits, financial
and maintenance proposals for the Aquatic and Leisure Centre. The bid received
at Detailed Proposal stage from the consortium made up of Rohcon Ltd. and Waterworld
(UK) Ltd. provided for a company to be set up specifically to run the Aquatic
and Leisure Centre. All of the Bids received provided for the establishment
of similar special purpose companies. The Bid from the successful consortium
named the individuals who would manage the Aquatic and Leisure Centre, and outlined
their track record. The company has been set up as provided for in the Bid with
the named management as Directors. That company is Dublin Waterworld Ltd."
Special Olympics
In order to have the Aquatic and Leisure Centre available for the Special
Olympics in 2003 there were certain absolute time constraints for all phases
of the project which had to be met. In particular, there was a requirement to
have the designs finalised and the planning application lodged by 22 December
2002.
29 Page 30 31
30 {AG's\ Reports\ agr250302 }
Requirements specified in the advertisement for tenders "Financial and
economic
standing" and "technical knowledge and ability"
Persons tendering were required to demonstrate that they had "financial
and economic standing and the technical knowledge and ability to design, build,
finance, operate and maintain" the Aquatic and Leisure Centre. Participants
had to show a track record for similar projects. Participants were required
to provide financial and other documentation as set out in Council Directive
93/ 37/ EEC.
Information supplied in respect of Waterworld
Waterworld indicated that they had a connection with "one of the world's
leading aquatic leisure operators (Schlitterbahn) and manufacturers of leisure
pool attractions (NGBS)". In its initial letter of 23 August 2000 MDC, the predecessors
of Rohcon wrote to Donagh Morgan, CSID Secretary, stating that Waterworld UK
Limited was "one of Europe's leading water park operators with approximately
20 years' experience operating and managing some of the most popular and successful
resorts. Their philosophy is to maintain and improve their place in the market
by constantly seeking creative and innovative ways to have fun." (Annex V)
A claim was made in material submitted by the consortium that "designated operators for the new aquatic leisure centre in the north of Dublin currently being designed and for a similar aquatic centre in Southport, currently under construction. (Annex E) No attempt appears to have been made to examine or verify the information supplied on the Southport project.
S& P Architects described Waterworld (UK) Ltd as "the UK company of one of the world's leading waterpark operators with approximately 20 years' experience operating and managing some of the most popular and successful resorts. Their philosophy is to maintain and improve their place in the market by constantly seeking creative and innovative ways to have fun." (Annex F)
From these assertions it is clear that an attempt was made to foster in the
minds of CSID the impression, during the early stages of the process, that Waterworld
(UK) Limited was itself a leading waterpark operator with approximately 20 years
experience. (Annex V) No due diligence searches were made at this stage.
30 Page 31 32
31 {AG's\ Reports\ agr250302 }
However, members of the Assessment Panel were aware of the reputation of Schlitterbahn
and NGBS. This would appear to be the only assessment of Waterworld UK at the
pre-qualification stage referred to by Mr Teahon in his letter of 7 March 2002
quoted above. MDC, the lead contractor at the pre-qualification stage and later,
Rohcon (who substituted for MDC), did supply information sufficient to satisfy
the qualification criteria concerning themselves.
Contracting Strategy
The strategy adopted for the Aquatic and Leisure Centre was for a design,
build, finance, operate and maintain contract. This is the same strategy as
was proposed for the National Stadium at Abbotstown and which appeared in the
advertisement of the tender for that project. The High-Point Rendel Report,
which has already been submitted to Cabinet, discusses the contracting strategy
for the Stadium at pages 12 to 15. Paragraph 27 of the report, using the term
DBFO rather than DBFOM, says
In principle a DBFO approach is a possible approach for this type of facility.
However, in the absence of a detailed business model it would be difficult to
form an objective view. The judgement on the realisable benefits of a DBFO strategy
will be determined by a number of factors namely:
Some of the problems arising from the choice of the DBFO/ DBFOM strategy for
the Aquatic and Leisure Centre are referred to in the reports from Kit Campbell
& Associates and some extracts are quoted later in the report. Once the
strategy was set out in the advertisement it became in one sense a strait-jacket
for the tendering procedure and resulted in a number of practical and legal
problems for the process.
31
Page 32
33
32 {AG's\ Reports\ agr250302 }
However, it is important to emphasise that this analysis is not suggesting that
the decision of the Assessment Panel to select Rohcon/ Waterworld in preference
to the other two bidders who submitted detailed bids was unreasonable. For reasons
concerned with price and design, the preferred bid was obviously clearly ahead
of the other contenders.
The operation and maintenance aspect of the bid, however, appears to have
received far from adequate attention at the Assessment Stage .
PricewaterhouseCoopers' due diligence searches
No steps were taken to check the credentials of any of the bidders until
a request was made by CSID to PwC on or about 22 November 2000 who commenced
their review work on 30 November 2000. The preliminary information from the
searches was made available to CSID on 18 December 2000, on the eve of the final
meeting of the Assessment Panel when they were to choose the preferred bidder.
These searches disclosed for the first time that Waterworld UK was a dormant
company which had never traded and whose share capital was £4 sterling. As a
result of enquiries made for the purposes of this Report, I understand that
the following members of the Assessment Panel Mr Sean Benton, Mr John Tracey,
Mr David O'Connor, Mr Pat Duffy were not made aware of this information. With
the exception of Mr Paddy Teahon, Executive Chairperson of CSID, no member of
the board of CSID was made aware of the information.
On 21 December 2000, PwC provided an analysis of the ownership of Waterworld
UK Ltd, the participation of Mark Potiriadis of S & P, the ownership of
NBGS UK Ltd and Bad-Schloss Inc, which trades under the name Schlitterbahn.
Attached to that analysis was a diagram showing a connection between Waterworld
UK Ltd and NBGS UK Ltd in the form of a shared director, Mr Keith Palmer. Mark
Potiriadis, a principal in S& P Ltd, the architects in the consortium, had
acted as chairman of Waterworld UK Ltd. (Annex G) The map at Annex G shows Ealing
Trading, British Virgin Islands as the 100% owner of Waterworld (UK) Ltd. When
enquiries were made of PwC for the purposes of this Report they said that it
was not possible to identify the owners of Ealing Trading because it is not
possible to obtain ownership details of companies registered in the British
Virgin Islands.
32 Page 33 34
33 {AG's\ Reports\ agr250302 }
There does not appear, from material furnished to me, to be any closer legal
link between Waterworld UK Ltd and NBGS.
In a letter dated 22 January 2001 from Roger Currie, Director, Waterworld (UK)
Ltd to McCann FitzGerald (Annex U) the following statement appears:
NBGS International is one of a number of sister companies owned by the Henry Family. A Statement to this effect was issued to the Client at the meetings in Dublin in December 2000 and was resent last week. There is no ultimate Holding Company for the group. NBGS International is the parent company of the named business involved in negotiation with CSID and for these purposes it is the ultimate holding company offering the required guarantees.
No attempt appears to have been made to clarify or verify Mr Currie's suggestion that NGBS was a parent company.
It seems from the map of the companies at Annex G that the statement that "NBGS International is the parent company of the named business involved in negotiation with CSID and for these purposes it is the ultimate holding company offering the required guarantees" is unclear and ambiguous.
An implication of the letter set out at Annex M is that the suggestion in the letter at Annex U that Waterworld (UK) Ltd was beneficially owned by NBGS is incorrect since the two named directors now appear free to make a decision to wind up the company and to award its proposed Irish shareholding to themselves personally.
Later in Annex U, Mr Currie's curriculum vitae (furnished to CSID in January 2001), describes Waterworld (UK) Ltd as:
"formed to provide the operating entity the client required [in the Southport
Ocean Plaza Project] as a partnership between the UK based team and
NBGS International Inc., acting in conjunction with their European
company NBGS (UK) and their operational sister organisation, the Schlitterbahn
Waterpark".
33 Page 34 35
34 {AG's\ Reports\ agr250302 }
This description as a partner is at variance with claims that it had
NGBS International Inc. as a parent.
The reason given for winding up the company, namely saving several hundred pounds for annual costs and fees, is hard to reconcile with earlier claims that Waterworld (UK) Ltd was part of or the UK arm of a very successful international conglomerate.
It is evident from a manuscript spreadsheet at the preliminary expression of interest stage that CSID believed Schlitterbahn and NBGS to be the "parent company". That spreadsheet is Annex H.
At Annex I, the reader will find a memorandum dated 18 December 2000 by Aidan Walsh of PricewaterhouseCoopers (which deals with events on Monday, 18 December and Tuesday, 19 December 2000), a further file dated 19 December 2000, (Annex J) and a fax from Dervla McCormack of PwC to CSID dated 20 December 2000 (Annex K).
It is clear from the memoranda of the meeting prepared by PwC that the dangers arising from the "shelf company" status of Waterworld UK Ltd were extensively discussed and the shortcomings had been noted.
The memorandum of 19 December 2000 records a conversation between Kevin Kelly, Laura Magahy and Aidan Walsh in which Ms Magahy asked Mr Walsh and Mr Kelly how they had found themselves in a situation where they were now faced with a "contracting entity that has no substance". In view of these dealings, it is very difficult to understand how the Assessment Panel and the Government were not felt by those with executive functions in CSID to be bodies entitled to be informed of the true situation regarding Waterworld UK Ltd, especially when Mr Teahon had the opportunity to brief orally members of the Government on 19 December 2000.
At the time that the Government considered the matter, it would appear from
Mr Walsh's memo that Kieran Rutledge and Liam Bohan were to share only a minority
interest in the company of between 5% and 10% and that the company itself would
have a share capital of £500,000.
34 Page 35 36
35 {AG's\ Reports\ agr250302 }
Legal advice concerning "dormancy"
Mr Paddy Teahon, Executive Chairperson of CSID wrote to the Minister for
Tourism, Sport and Recreation on 7 March 2002 stating:
"CSID received legal advice that, notwithstanding its "dormant" status,
Waterworld UK Limited was entitled, under EU procurement rules to proceed as
part of the bid, provided it was in a position to satisfy CSID that it had available
to it the resources from a third party or parties on which it could rely in
performance of the contract (if awarded)."
This advice, I understand, was tendered orally by Kevin Kelly of McCann FitzGerald to Mr Teahon. Mr Teahon did not communicate it to the other members of the Assessment Panel. Ms Magahy was also aware of the legal advice.
While it is technically true that a dormant company could be eligible to be awarded a contract, it is abundantly clear from the rules in the directive governing the award of such contracts (which are set out in Annex L) that a dormant company was highly unlikely to satisfy the financial criteria for pre-selection or selection unless it was adequately capitalised or externally resourced or was otherwise made the subject of very substantial external guarantees or indemnities.
At the very least, its dormant status was a warning sign that all was not well. Bearing in mind the claims of a 20 year successful trading history that had been made on behalf of the company at an earlier stage in the process, the information that Waterworld UK was dormant should have caused very serious and immediate reservations in the minds of the Assessment Panel (had they been informed of it). This non-conformity with previous representations would undoubtedly have been of interest to the board of CSID and to the Government which it was expected would approve the awarding of the contract on the same day.
Certainly, there appears to have been no good reason why the dormant status
of the Company and the inconsistency of that status with claims previously made
on behalf of the Company was not drawn to the attention of the Department of
the Taoiseach or later the
35 Page 36 37
36 {AG's\ Reports\ agr250302 }
Department of Tourism, Sport and Recreation whose Ministers were primarily accountable
in these matters to Dáil Éireann, or the attention of Government itself.
Again as a result of enquiries, I have been informed that Messrs Benton, Tracey,
O'Connor and Duffy of the Assessment Panel were not aware of the request or
the content of the legal advice. The only members Assessment Panel who were
aware of the legal advice were Mr Teahon and Ms Magahy. With the exception of
Mr Teahon himself, no member of the board of CSID were informed of the advice.
Guarantee and financial backing of the operator company
Rohcon/ Waterworld's detailed bid indicated that a company would be set
up to operate the Aquatic and Leisure Centre. The day to day management of this
new company would be in the hands of Mr Liam Bohan and Mr Kieran Rutledge who
currently manage swimming pools in Tralee. During the bid process the Waterworld
consortium had represented that all three consortium members would form a new
company to operate the Aquatic and Leisure Centre. However, only Waterworld
UK participated in the formation of the new company and ultimately only as a
minority shareholder. During the course of the contract negotiations no parent
company guarantee was secured for the operation of Dublin Waterworld. In the
light of the information now available it is clear that Waterworld UK could
not give such a guarantee as Waterworld UK had no resources of its own.
On 19 December 2000, the date of the Government's decision, CSID wrote to Waterworld UK seeking, inter alia, for the first time, "satisfactory financial information of the standing of NBGS in the United States (or other satisfactory party) and their agreement to guarantee Waterworld for the purpose of operating". This began a long correspondence between CSID and Waterworld UK with CSID seeking this guarantee but it was never received. Satisfactory information regarding NBGS's financial standing was furnished. It became clear in early 2001 that a guarantee from NBGS would not be forthcoming.
On 2 February 2001 in a letter from Waterworld UK to CSID, it was stated that
"taking into account the ongoing issues arising from the Heads of Agreement
and the yet as unknown implications of the Lease, NBGS International is unable
to provide the various guarantees and securities in the form and content currently
required by CSID." The letter went on to
36 Page 37 38
37 {AG's\ Reports\ agr250302 }
say that "at present, the indication is the level of operating return does not
justify the degree of risk and security being requested." Annex O
Thus, it became clear that Waterworld UK Ltd (a £4 dormant company) was not
in a position to offer any worthwhile financial guarantee for the Irish operation
company and, in addition, that it proposed to have only a very small shareholding
in it.
It would appear that Mr Rutledge and/ or Mr Bohan sought alternative financial backing for the company once it became clear that Waterworld (UK) Ltd was in no position to furnish any worthwhile "parent company" guarantees. They found alternative financial backing in Mr John Moriarty.
On 7 February 2001, a letter of comfort from Anglo Irish Bank issued to Mr John Moriarty stating that "on request and subject to receiving full details" a guarantee of £3,000,000 with respect to Waterworld UK in connection with the Aquatic and Leisure Centre could "be secured by way of a legal charge over the assets of John Moriarty & Co". This information was later supplied on a confidential basis to the Department of Tourism, Sport and Recreation and to this Office by CSID. A personal guarantee of £3,000,000 was never put in place but Mr Moriarty later negotiated that he would give a personal guarantee of £250,000. PwC, as financial advisers to CSID, had suggested a minimum financial guarantee of £750,000 on 19 April 2001. PwC was not convinced that £750,000 would be adequate.
Mr John Moriarty appears to have emerged as a bona fide "white knight" in early 2001, willing to take a majority shareholding in the operator company and to provide financial backing in the form of guarantees. In effect, Mr Moriarty, Mr Bohan and Mr Rutledge became 95% owners of the operator company, leaving 5% of the shareholding for Waterworld (UK) Ltd.
No adverse inference is warranted in respect of Mr Rutledge, Mr Bohan or Mr
Moriarty. They appear to have become involved in good faith and to have negotiated
in good faith with CSID. The fact that the financial guarantees negotiated by
them are of a much smaller order than the joint and several liability originally
envisaged in the DBFOM project does not reflect adversely on them but may reflect
the relative negotiating strengths of CSID and
37
Page 38
39
38 {AG's\ Reports\ agr250302 }
the preferred bidder consortium once the construction work proceeded on the
project without having previously secured adequate financial guarantees from
the original consortium members as originally envisaged.
Proposal to wind up Waterworld (UK) Ltd
On 11 March 2002, Mr Moriarty wrote to Paddy Teahon (Annex M) informing
him that Roger Currie, apparently one of the owners of Waterworld UK had recently
asked him if he wished to purchase that company. Waterworld UK, it now appears,
decided to transfer its shares in Dublin Waterworld Ltd to Roger Currie and
Keith Palmer personally. This would make them each entitled to 2.5% of the equity
of the Dublin company. Apparently Mr Currie and Mr Palmer have now decided to
wind up Waterworld UK Ltd. How they could do so, if it were beneficially owned
by an international group is entirely unclear.
By letter dated 13 March 2002, Mr Kevin Kelly of McCann FitzGerald, Solicitors, advised that there is no change of control in the Dublin company. (Annex N) Mr Kelly advised Mr Teahon as follows: "Despite its disposal of its shares in Dublin Waterworld, it should remain the concern of Waterworld UK Ltd to make appropriate arrangements to ensure it remains able to comply with its obligations under the Project Agreement."
Kit Campbell Associates Operational Assessment
In their Operational Assessment prepared subsequent to the final meeting
of the Assessment Panel on 19 December 2000 (Annex P) Kit Campbell Associates,
Leisure Recreation and Tourism Consultants who were employed to advise on the
operation of the project summarised the key strategic points in relation to
the operational assessment of the three tenders that are relevant to this inquiry
as follows:
"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. The key risk with this building, however, is the long
term. The lowest
38 Page 39 40
39 {AG's\ Reports\ agr250302 }
estimate of operating expenditure is some #3M, giving a total operating cost
over 30 years of roughly twice the capital cost at constant prices.
Each of the tenders has been driven primarily by those members of the consortia
who will be involved with the building rather than its operation and therefore
tenders with varying levels of information from different potential operators
attached. There is no significant profit element for any of the proposed operators,
nor are they investing in the complex."
Kit Campbell had earlier made an oral presentation at the meeting on 19 December 2000. A written review of the tenders prepared by Kit Campbell Associates for CSID for the Assessment Panel meeting on 19 December 2000 (Annex Q) states that "[ the] Waterworld bid is architect-led and therefore the prime mover will be involved only for a limited period with no long term commitment. Management will be by a new company, Waterworld Ireland, (sic) to be created for the purpose by two existing Irish pool managers from Waterworld in Tralee, with unspecified support from a UK parent with no real resources."
The OPW representatives at the meeting of the Assessment Panel on 19 December did not receive Kit Campbell's report nor were they advised of the existence of such a report. They do not have any record or recollection of an oral presentation by Kit Campbell which drew attention to the financial standing of Waterworld (UK) Ltd. A letter of clarification concerning this matter is included with the responses to the Assessment Panel questionnaire at Annex T. Mr John Treacy has also clarified in a letter included in Annex T that the Kit Campbell report was not circulated or made available to him at the meeting of 19 December and he has no recollection of Mr Campbell quoting from a report or drawing attention to the financial standing of Waterworld (UK) Ltd.
In additional comments furnished to CSID, Kit Campbell said of Waterworld UK Ltd:
The head office of the UK parent management company is in Sussex but it does
not have the contract to manage Horsham District Council's pools which were
recently tendered.
This is a designed-led scheme with long term operation to be entrusted
to a new company which will be set up for the purpose. This company is unlikely
to have
39 Page 40 41
40 {AG's\ Reports\ agr250302 }
significant reserves in the event of income shortfall, creating considerable
risk for the government which should ideally be minimised by a bond from the
operating company or consortium.
These remarks were obviously ones in which the Government (which was to consider
the matter on the same day) might have been seen to have an immediate interest.
Corporate governance
The board of CSID delegated to the Assessment Panel the function of deciding
on the preferred bidder for the Aquatic and Leisure Centre. This decision of
the Assessment Panel was to be made without any opportunity for the full board
of CSID to be briefed on or to deliberate on the preferred bidder prior to the
Government taking a decision. It seems that unease with this situation was expressed
by the board and this is found in the hand written notes relating to the board
meeting held on 11 January 2001. As only two members of the board were on the
Assessment Panel, Mr Paddy Teahon and Mr John Treacy, (the latter not
attending the 11 January 2001 board meeting), and though Ms Laura Magahy was
in attendance at that board meeting, no satisfactory account of the transactions
and meetings on 18 and 19 December 2000 appears to have been given to the board.
At that stage the board ought to have been apprised of all the corporate entities
which made up the Waterworld consortium and what was going to be sought from
each of them in respect of securities and/ or guarantees. Despite of the complete
uncertainty during the period 18 to 21 December, no direction was sought from
the board of CSID on the question of the relevant securities and guarantees
or what might be contemplated as a replacement.
Next, whilst PwC had been requested in writing on 30 November 2000 to instigate
corporate searches, when they arrived, these were not brought to the full attention
of the Assessment Panel nor deliberated on by the Panel with their full understanding
of the legal position. Nor could there be an informed discussion of whether
CSID could or should proceed with the Company despite the fact it was dormant
entity. The lack of deliberation on the status of the Waterworld consortium
by the Assessment Panel on 19 December 2000 was surprising in light of the representations
made by Aidan Walsh of PwC and the fact he had stressed the necessity to understand
how the company would finance construction and deal with operating risks.
40 Page 41 42
41 {AG's\ Reports\ agr250302 }
The only contemporary allusion by the Assessment Panel to the financial, banking
and status of the Waterworld consortium is found in the handwritten memo of
19 December meeting (Annex R) and the comment by Mr Paddy Teahon that the bids
from the other two consortia should remain open due to nervousness and a slight
concern about the Waterworld consortium's backing and its ability to have deep
pockets.
Clearly it was unacceptable that the results of the corporate searches and business reports were only produced for the Assessment Panel, or at least certain members of it, during 18 and 19 December 2000 when a Government decision had to be made by the end of 19 December in order for the necessary letter of intent to be executed so that a planning application could be launched by 22 December 2000. Consequently, if the Assessment Panel had brought forward its deliberation by a week or so a fuller consideration might have been achievable. Indeed, further financial documentation on the corporate entities behind the Waterworld consortium only came to hand after the decision had been made to proceed with the Waterworld consortium as the preferred bidder.
However embarrassing the failure of Waterworld UK Ltd as a contracting party may have been, no excuse has been offered for failing to inform the board, the Department, or the Government of the true situation as would be expected in the case of a semi-State or State-sponsored company seeking major Exchequer commitment to a project. Failure to alert those politically accountable to the true situation seems to seriously call into question the existence of a proper relationship between the executive and the board and between the board and its State shareholders.
It does not appear that up to 11 October 2001 any adequate discussion took
place at board level on the joint and several obligations being sought from
the contractor and operator. No adequate background information was furnished
at any stage to the board as to why a parent company guarantee was not forthcoming
from NBGS, how and why Anglo Irish Bank had become involved along with Mr John
Moriarty and that notwithstanding the provisions of the letter of intent and
the parent company guarantee therein, the security and guarantee position were
being met from the alternate sources referred to.
41
Page 42
43
42 {AG's\ Reports\ agr250302 }
The effect of what transpired between October and December of 2000 was, in large
measure, that a contract involving formal public procurement procedures for
a design, build, finance, operate and maintain project was reduced to a design
and build project with very limited effective obligations on the part of the
winning consortium to operate or maintain the centre once constructed.
These limitations arose from the following factors:
. A decision made to excuse the consortium members from joint and several liability
in
respect of each other's obligations;
This mutation of the contract as originally approved by the Government from
design, build, finance, operate and maintain into design and build with very
limited operational obligations was a matter on which the board of the company
and the Government which had sanctioned the original project clearly ought to
have been kept fully and punctually informed. Instead, the critical Government
decision of 19 December 2000 was allowed to proceed at a time when information
in the possession of some of those carrying out the executive functions of CSID
was not disclosed to those making that decision.
The Department of Finance published a code of practice for the Governance of
State Bodies. The Code should arguably apply to CSID. In Appendix A to the Code
of Practice there is a framework code of best practice for the corporate governance
of State bodies.
. In section 1 it is suggested that there should be a formal schedule of matters
specifically reserved to the board of the body for decision, to ensure that
the direction and control of the body is firmly in the hands of the board. Some
of these matters included in the list may also require ministerial approval
and this would be noted in the schedule. The list includes, "approval of terms
of major contracts"
42 Page 43
43 {AG's\ Reports\ agr250302 }
. Section 2 covers briefing for new directors including the schedule of matters
reserved for the board.
. Section 3 includes the disclosure of interest by directors of State bodies.
. Section 4 covers the establishment of an audit committee and it is not entirely
clear if such a committee exists in CSID nor is it clear if there is an internal
audit procedure in operation.
[Legal Advice of the Attorney General to the Government on the issue of consequent liability has been removed for reasons of confidentiality] 43