21 September 2001
The days of the Dome may be numbered, but there are strategic procurement lessons that need to be learnt, writes David Arminas
Arguments and accusations continued over the future of London's Millennium Dome, as Japanese bank Nomura pulled out of a £105 million deal to buy the structure and run it as a theme park. And the bank has pointed a finger at poor contractual arrangements and practices as one of the reasons for its decision.
Nomura cited a report by PricewaterhouseCoopers, which the bank has not been allowed to see and remains confidential, in which the costs and future liabilities of the Dome are outlined. One big worry for Nomura was that the owner of the Dome, the New Millennium Experience Company (NMEC), has not established what assets it owns. As a result, a number of suppliers to the Dome are claiming ownership of material on display and demanding payment for future use of these assets.
Purchasing and contract work was not a pretty sight, according to one person who has been close to the purchasing processes at the Dome. "The NMEC didn't know how to handle supplier relationships, contracts and tendering process, and ended up not handling them at all," claimed the contact, who asked for anonymity.last-minute decisions
"Everything was done ad hoc and at the last minute. They had an immovable deadline and got suppliers in on all sorts of contracts just to get the job done," added the source. Additional complications arose because large-scale contracts were made for just one year, whereas contracts usually last three years with two-year extensions.
According to the insider, the NMEC failed to keep up with standard construction maintenance and so construction guarantees were no longer valid for Nomura. All this alienated suppliers that had once been on-side and enthusiastic.
From the outset, the Dome was a political project, conceived by the Conservative government and continued by Labour after the 1997 election. Did political pressures to open the Dome on 31 December 1999 force unpalatable purchasing decisions?
The Dome debacle is particularly embarrassing because of the government's insistence on best practice procurement in construction, said Geoff Warren, a construction consultant and chairman of the CIPS new contract management group. "Were those in charge of procurement given adequate time to plan strategically? And was a proper risk assessment done to consider whole-life costs?" he asked.
It appears that purchasing did not have the necessary funding to organise itself strategically. An insight can be found in comments from Michael Ensor, procurement manager at the NMEC, made to SM at the end of last year. Ensor was hired on a six-month contract from July 1998. Budgetary restrictions within the NMEC's finance department, where purchasing was originally housed, meant that Ensor was allowed to hire only two buyers. "I had intended to recruit four, but we weren't funded to have a huge department," he was quoted as saying.A lack of joint-up thinking
"There seems to have been a marked lack of strategic analysis or joined-up thinking," said Jan Middleton, a purchasing solicitor at legal firm Denton Wilde Sapte. "Generally, one would talk through a project on a 'what if?' basis. Consideration must be given to what happens if the project does not work out - the content of termination provisions is fundamental."
In the same SM article, suppliers were found to be cautious about dealing with the NMEC because "contractors don't know how much use any of the equipment on this site will get", said Ken Hemsley, who was involved in purchasing for retail and support services. "The contracts are not vague, but we can't tie people down to one specific thing we want to do," he said.
The Dome's future remains uncertain. But questions are likely to remain over whether purchasing lost the plot, and if so, when. This may never be fully explained, and no one at the NMEC was available for comment. It may be better to ask if the lessons concerning strategic purchasing have been learnt once and for all.