AG report on Campus Stadium Ireland 2002

8/14/2019 AG report on Campus Stadium Ireland 2002

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1{AG's\Reports\agr250302 }

REPORT OF THE ATTORNEY GENERAL

ON THE

AWARD OF THE OPERATOR CONTRACT

FOR THE

AQUATIC AND LEISURE CENTRE

CAMPUS STADIUM IRELAND LTD

March 2002


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Contents

Page No.

Introduction 5

Key Dates 6

Aquatic and Leisure Centre - Chronology 8

Narrative of Events 15

Analysis 29

Annexes 45


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List of Annexes

Annex A Government Decision 25 January 2000 Memorandum for Government

Annex B Government Decision 12 July 2000 Memorandum for Government 11 July2000 (includes Pricewaterhouse Coopers Outline design specification 28June 2000)

Annex C Government Decision and Memorandum for Government 19 December2000

Annex D Government Decision 23 January 2002 Memorandum for GovernmentDecember 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 ofMark 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 December2000

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) toPaddy Teahon, CSID re Waterworld (UK) Limited

Annex N Letter dated 13 March 2002 from McCann Fitzgerald Solicitors (KevinKelly) to Paddy Teahon, CSID

Annex O Letter dated 2 February 2001 from Waterworld (UK) Ltd (Roger Currie) toUna 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


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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 andRecreation


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Introduction

This report is concerned with issues arising out of the proposal to award the contract tooperate the Aquatic and Leisure Centre to Waterworld Dublin Limited.

The report is primarily concerned with issues regarding corporate governance and the legalobligations 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 publiccontroversies associated with those issues.

The report is based on material in the Attorney Generals Offices own file and materialsupplied to the Attorney Generals Office by:

Campus Stadium Ireland Limited (CSID) Department of Tourism, Sport and Recreation Department of the Taoiseach PricewaterhouseCoopers (PwC) McCann FitzGerald Solicitors Office of Public Works

In addition, a written questionnaire was issued by the Attorney Generals Office tomembers of both the board of CSID and the Assessment Panel which considered the bids ofthe competing consortia in late 2000.

The texts of the questionnaires in question are set out at Appendix S and T respectivelytogether with the replies received.

It should be stressed that this report does not purport to resolve any conflicts of fact orrecollection or to pass any final judgement on the merits or demerits of the behaviour ofany individual or company.

On the contrary, the purpose of this report is, as requested by the Government, to provide itwith 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 Reportwhich may be published any confidential advice to the Government on legal liabilityarising from the events and issues referred to in the Report.


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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 CSIDs

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


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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.


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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.


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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 (1)

Linteum Leisure, (2) Michael McNamara & Co., (3) The Stanza Group, (4)

Takenaka, (5) Integrated Sports and Leisure, (6) Dublin International Arena Ltd, (7)

Prospero and (8) Multi-Development Corporation (MDC). The submission

indicated that a Contractor had yet to be selected.

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

worlds 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 KevinConnolly, OPW, Kevin Kelly, McCann FitzGerald, and Una Carmody, EST)

shortlisted 5 consortia to submit Outline Bids, i.e., (1) Michael McNamara and Co.,

(2) Integrated Sports and Leisure, (3) Dublin International Arena Ltd, (4) Prospero

and (5) M.D.C.


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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 (1) Waterworld (including Rohcon, S & P Architects

etc.), (2) Dublin International Arena Ltd, (D.I.A.L.) and (3) Prospero. 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 OConnor,

Fingal County Council. At the conclusion of the Assessment Panels 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.


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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 Bidders 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.


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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. CSIDs 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 inthis 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 properlyimplemented.


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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 theconsortium as to their financial standing.


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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.


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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 activelyconsidered 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 todesign, 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 wereto be the operators and were one of Europes 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 Companys connection to one of the

worlds leading aquatic leisure operators (Schlitterbahn) and manufactures of leisure pool


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attractions (NBGS). This letter was written after the Companys 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 threeremaining 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 threeconsortia were to be received by 15 December 2000 and, in the interim, design and cost


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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 22December 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 Companys link with Schlitterbahn and NBGS. The final bid also

mentioned the Companys 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 helddirectorships 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


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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 Walshs 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

IR500,000. 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 OConnor (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), UnaCarmody, Kit Campbell, Sean Boyle (Seamus Monahan & Partners), Kevin Connelly


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(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 purposevehicle set up for the purposes of this particular contract and that these would have been


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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 Companys 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


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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 31st 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 thepool 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.


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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 operatingdeficits 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 Companys

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 incircumstances where the Company had no share capital, a letter from the groups bankers


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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 viableoperation could be secured. Then on 7 February the Company wrote to Una Carmody at


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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 banks letter to be available at the next Thursdays 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 its 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.


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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 IR250,000 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 Walshs 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


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position should be clarified in respect of the cover in place for CSID vis--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 banks 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 IR360,000 along with a statement

by Anglo Irish Bank that Dublin Waterworld will be in a position to meet its 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 IR360,000.

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 severalliability 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


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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 IR850,000. Further,

Dublin Waterworld Ltd was to pay IR500,000 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 IR1 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 operators obligations with the said liability being IR250,000 until

practical completion rising to IR750,000 in the first year of operation and thereafter falling

by IR150,000 each year until the end of the fifth year. The contractors liability for the

operators 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 operators obligations was capped at IR250,000. Finally on the execution of

the lease, the operator (Dublin Waterworld Ltd) was to furnish a guarantee in the amount of

IR750,000 again falling by IR150,000 each subsequent year. It was stated that the

guarantees of John Moriarty and Rohcons parent company were to be furnished at the timeof 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


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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.


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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 7March 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.


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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 worlds 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 Europes

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 worlds

leading waterpark operators with approximately 20 years experience operating andmanaging 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 duediligence searches were made at this stage.


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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:

the level of private funding secured;

the risk allocation between the parties;

the control and influence the client has retained; and

the quality of the end development.

As the DBFO structure is still embryonic it is difficult to take a view on these issues.

However it is already clear that the level of private sector funding available is likely

to be relatively small which gives rise to the questioning of the DBFO strategy.

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.


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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 OConnor, 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 formof 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.


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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 Curries 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 Curries 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.


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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 regardingWaterworld 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 Walshs

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.


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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 previousrepresentations 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


36/43


Department of Tourism, Sport and Recreation whose Ministers were primarily accountable

in these matters to Dil ireann, or the attention of Government itself.

Again as a result of enquiries, I have been informed that Messrs Benton, Tracey, OConnor

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/Waterworlds 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 Governments 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 NBGSs 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


37/43


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 of250,000. 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


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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 thethree 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


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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 Campbells 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 Councils 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


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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 thatunease 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.


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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 consortiums 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 boardlevel 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.


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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 others obligations;

A decision made to award the contract to a consortium in which the potentially onerous

operation 30 year obligations fell to be discharged by a company with little or no

internal resources or external backing.

The commencement of construction of the Aquatic and Leisure Centre at a time when

no firm agreement or understanding existed and no contract had been executed in

relation to ongoing liability and guarantees for operation and maintenance of the Centre

over the envisaged 30 year period.

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


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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 ifsuch 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]

AG report on Campus Stadium Ireland 2002

Documents

Transcript of AG report on Campus Stadium Ireland 2002