1.55 The agreement envisaged that, before the museum opened, the Armouries and RAI would agree an operating specification, which would contain, amongst other things, agreed details on the performance to be expected from RAI in terms of income generation and the maintenance of the new museum. However this specification was never agreed (as explained at paragraph 1.29).
1.56 RAI's difficult financial position, coupled with the lack of agreement of this specification, made early resolution of the disputes that arose about income generation (paragraph 1.48) difficult as there were no agreed standards or requirements with which RAI's measures to increase its income had to comply. The failure to agree the specification also made it impossible for the Armouries to demonstrate that RAI's level of maintenance of the new museum was contractually unacceptable and therefore required resolution, as the Armouries claimed and RAI refuted (paragraph 1.50). The Armouries and RAI never agreed on a budget for maintenance work, the programme of work to be carried out and the maintenance standards that RAI was to meet. There were therefore no contractual benchmarks against which RAI's performance could be measured. However the alleged poor maintenance was not material to the severe reduction in visitor numbers which was the main cause of RAI's financial difficulties.
1.57 Arrangements for monitoring RAI's performance were also lacking. As required by the agreement an operating committee, made up of representatives from the Armouries and RAI, was established and met regularly to discuss major strategic and operational issues, including RAI's performance. Visitor exit surveys were also held. However the agreement gave no details of how RAI's performance in meeting the contractual requirements would be monitored and against what criteria and targets that performance would be assessed. There was therefore a lack of agreed data about RAI's actual performance on such matters as maintenance and income generation. Thus, for example, although the Armouries considered that RAI were spending less than the Armouries felt was necessary to maintain the museum and its exhibits adequately, the Armouries never had any information on the level of RAI's actual expenditure. In December 1997 the National Audit Office told the Armouries that, in its opinion, the Armouries was unable to report effectively to its Board on RAI's performance.
1.58 In addition, the Armouries' ability to terminate the contract for poor performance was limited. The agreement only allowed the Armouries to terminate the contract for poor performance by RAI if RAI committed a fundamental breach of the contract. It did not identify any agreed, specific level of poor performance under the operating specification which constituted such a breach. It would therefore have been difficult for the Armouries to terminate the contract for poor performance by RAI. It would also have been very difficult to find a replacement company who would have been willing to operate the museum on the same terms as RAI, given the reduced level of visitor numbers.