1.76 The Department clearly stated, in June 1999, that its objective was to deliver a solution which kept the museum open while minimising the requirement for additional grant. It considered that, although closure of the museum would not breach the Royal Armouries' statutory duties, which could be fulfilled through continuing to maintain displays at the Tower and Fort Nelson, closure would have had major disadvantages for the Armouries.
1.77 Firstly, as the great majority of the collection was housed in Leeds, any option which involved the loss of the building would necessitate paying for alternative premises. The Department considered that, as there were no provisions in the agreement for the museum to return to the Armouries immediately if RAI went into receivership (paragraph 1.67), the building would be lost to it. Consequently it might have to fund the cost of a new building to store the collection, estimated at £9.5 million.
1.78 Secondly, the Department considered that, because the terms of the agreement did not allow the Armouries to terminate the contract with RAI for at least two years while a Receiver was in place (paragraph 1.67), the Armouries would have had great difficulty in taking direct control of the museum's operations in order to ensure its continued opening and the avoidance of disruption and uncertainty. Allowing RAI's insolvency was therefore a highly risky strategy.
1.79 Finally, if the museum closed after RAI went into receivership, this would lead to some savings in the Armouries' staff costs. However the Armouries would still face significant costs, including redundancies among its staff who worked in the museum (paragraph 1.30), a payment to the Bank to gain the right to have immediate access to the museum (paragraphs 1.70 to 1.71), and the annual rental payments to the British Waterways Board (paragraph 1.72). The Armouries did not have the funding available in its grant allocation to meet these costs.
11 |
| Royal Armouries’ financial appraisal of options | |||
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| The Royal Armouries' analysis showed that the options which involved the closure of the museum were cheaper than its preferred option under which it would take over entirely responsibility for the museum. | |||
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| Option | Cost | Expected outcome | Comments |
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| (1) RAI continue with current responsibilities; the Armouries funds its operating losses | 91.4 | RAI remain solvent and the museum remains open | The Armouries would bear the increased costs, including annual operating losses of £2.5 million and maintenance costs, from increased grant-in-aid. |
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| (2) Do nothing and the museum moves elsewhere | 53.0 | RAI goes into receivership, the museum closes, and the collection moves to a new building | There would be some savings in staff costs but these would be offset by costs to the Armouries, including lease payments, redundancy costs and the funding of a new building to store the collection. The collection would not be on display. |
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| (3) Do nothing and the museum closes temporarily | 44.5 | RAI goes into receivership and the museum closes temporarily | The financial implications are similar to Option 2, but this option assumes that the Armouries reach a settlement with RAI's lenders which allows the collection to continue to be housed in the Leeds museum. |
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| (4) The Royal Armouries funds the limited opening of the museum | 59.1 | RAI goes into receivership and the museum remains open on a limited basis | Additional grant would be required to fund the museum's limited opening at weekends and school holidays, and to meet lease payments and redundancy costs. |
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| (5) RAI takes over the management and operation of the Royal Armouries, including its role in operating the Leeds museum, and provides support services for the Armouries' other museums at the Tower and Fort Nelso | 76.0 | RAI remains solvent and the museum stays open | The Armouries would outsource its support functions to RAI for a fee. RAI would manage the museum, take on all operating costs and staff costs. RAI would then sublet areas of the museum to the Armouries to carry out its statutory duties. This option assumed that RAI's lenders would provide long-term support and re-structure existing debt. RAI would retain operating risk, and responsibility for the existing debt. |
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| (6) The Royal Armouries takes over operation of the museum, including al RAI's former operational responsibilities | 60.2 | RAI becomes a shell company and the museum stays open | RAI's management is made redundant and a single management structure within the Armouries is established. RAI staff transfer to the Armouries. RAI grant the Armouries an operating contract, in return for the payment of rent. Savings from the integration of the two bodies are offset by additional costs to the Armouries including rental payments, maintenance costs and operating losses. The Armouries would retain its share of the development gain. |
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| (7) RAI's preferred option | 79.6 | RAI remains solvent and the museum stays open
| RAI continues with "commercial" operations - ie corporate entertainment, catering and car parking. The remaining core museum operations revert to the Armouries, who obtain control of the museum. This option would require an increase in grant from the Department to fund core museum operations. The Armouries forfeits its rights to a share in the development gain from the Clarence Dock development. RAI retain responsibility for the existing debt. |
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| Note 1: The figures represent the total costs of each option discounted over 25 years. | |||
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| Source: The Royal Armouries | |||
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1.80 In addition to the operational difficulties caused to the Armouries, the Department also considered closure to be unacceptable as this, in its opinion, would have involved the loss of a national museum in the north of England, which had been built with £28.5 million of public investment, and the first public failure of a PFI project. The closure would also have had a negative impact on the Clarence Dock development scheme and therefore the regeneration of the surrounding area. If the current scheme had collapsed because of the closure of the museum, the prospects of any future development of the Dock would have been greatly decreased for the next five to ten years.
1.81 For these reasons the Department ruled out further consideration of the cheapest options - 2, 3 and 4. The Department's policy was to avoid the museum's closure, if possible, and the Department and the Armouries considered that, under these options, the museum would probably close, either in part or in full at least for a short time, despite this being a breach of RAI's sublease (paragraphs 1.68 to 1.69).
1.82 The Department also rejected Option 5, which involved expanding RAI's responsibilities to generate more income, on the basis that RAI lacked the financial stability to take on further responsibilities. The option was also more expensive than Option 6, and it was felt that there would not be enough focus by RAI on the delivery of the statutory functions.