The inherent difficulty of selling the Dome in isolation from other parts of the Greenwich Peninsula

1.17  The Dome sale competition had started in early 1999 amidst widespread optimism that the Millennium Exhibition would be a success and that a wide choice of innovative and deliverable proposals for the future use of the Dome would come forward, yielding significant sale proceeds to Government. However, as proposals came forward the practical implications of development inside the Dome became increasingly clear. Complications included:

■  the constrained height of buildings compared to open sites - limited to six to eight storeys at the centre of the Dome and two storeys at the perimeter;

■  the severe consequences of building within the Dome in stages, because construction noise and pollution would seriously affect and deter early occupiers; and

■  the implications of lower levels of natural light within the Dome than outdoors.

Such difficulties were not necessarily insuperable, but collectively they limited the ability of bidders to make viable and financially attractive offers based solely on retention of the Dome.

1.18  Bidders in the first competition (See Figure 6) were requested to produce proposals that were innovative and distinctive, as well as financially and commercially robust. In practice, the requirement to be innovative led bidders to make proposals that English Partnerships and the Competition team found difficult to evaluate and to place confidence in, because of unusual conceptual, technical, financial, or commercial elements. This was compounded by the proposals not being as comprehensive and detailed as the Competition team had hoped. Because most proposals envisaged English Partnerships taking part, or all, of the sale proceeds in the form of a share of estimated profits, the team had to gauge likely market demand for the proposed uses. To illustrate the challenges facing the team, the most attractive and innovative selling point in Legacy's proposal was to bring together biotechnology, e-commerce, telecommunications, and wireless tenants in a 'Knowledge City', a very large, high technology, industrial campus. However, most firms in these fast-moving sectors have relatively small space requirements and are unlikely to sign up for accommodation in developments yet to be built.

1.19  In November 2000 the Ministers appointed Legacy as preferred bidder on the understanding that it would demonstrate demand, for example by agreeing indicative heads of terms with potential tenants. The Competition team considered there was a risk that Legacy could only make the scheme profitable by opening it up to non-technology tenants and so detracting from its distinctive nature to become a "standard business park". In the following three months Legacy found it impossible to get sufficient technology tenants to commit to taking space. Legacy cited severe, adverse media publicity as the main cause of difficulty and predicted that tenants would come forward once the site was secured. In January 2001, as Legacy's preferred bidder status neared its end, the company offered Government a covenant that they would let at least a sixth of the office space to "technology companies". Such a low proportion was not acceptable to the Government. In the next sale process the Government's criteria for selection emphasised deliverability of bidders' proposals to a much greater extent than in the first competition, but still also sought distinctive uses for the Dome.

1.20  When the initial Dome Sale competition began in 1999 the 48 acres of land beneath and immediately around the Dome was offered for sale, but with an indication that further land could be available provided that bidders could show that the land was essential for their proposed use of the Dome and an integral part of their proposals. Such integral uses might include car parking or visitor reception facilities. To enable this Ministers agreed that up to a further 20 acres of land adjoining the Dome, known as the "Red Land"7, could be included. The Competition team stressed to bidders that inclusion of the land purely as a cross-subsidy for development of the Dome would be unacceptable.

1.21  As bidders developed their proposals and identified risks to the viability of developing the Dome itself, they increasingly proposed intensive property development on the Red Land (See Figure 3). Negotiations between the two successive preferred bidders and English Partnerships over profit sharing and the extent to which English Partnerships should exercise control over development on the Red Land were difficult and complex. In the case of Dome Europe, though the principles for profit sharing and development control had been agreed at the time that they withdrew, the Company stated that their advisers and those of English Partnerships had not been able to turn these into a legal agreement. On 10 September 2000, the day before Dome Europe withdrew, English Partnerships' legal advisers stated that, given the complexity of such issues, "it remains difficult, to the point of near impossibility, to give a realistic assessment of the timing to an exchange of contracts with Dome Europe".

1.22  In the case of Legacy, the firm's initial proposals did not envisage a requirement for the Red Land, but this changed when they became preferred bidder in November 2000. Their proposals developed from a low density campus to an extremely dense city-centre style scheme. The change would produce an enormous increase in the value being created and in which Government would expect to share. Negotiations between Legacy and the Competition team over profit sharing were difficult and an acceptable deal on the use of the Red Land had not been achieved by the time the Government withdrew Legacy's preferred bidder status in February 2001.

1.23  As the initial competition came to a close in early 2001 several participants on the public sector side came to recognise that the Dome itself may not be viable for sale on its own:

■  The Competition team considered that ongoing use of the Dome would be likely to attract proposals for some form of cross-subsidy from land receipts and that any constraints on such cross-subsidy should be made clear at the outset.

■  The bankers Lazards, advising Ministers, also concluded that a number of constraints imposed in the competition might stimulate greater interest if they could be relaxed. One of these was the requirement that there should be no cross-subsidy from unrelated use on land outside the Dome. The others related to possible relaxation of limitations of planning conditions imposed by the local planning authority on car parking and retail provision in any scheme.

■  The Board of English Partnerships concluded in November 2000 that it would be wrong to consider the Dome in isolation from the land on the Greenwich Peninsula. If the new process repeated this mistake a similar outcome was likely to occur.

1.24  These views were consistent with those we received from our survey of bidders. Few developers had any real idea of what to do with the Dome itself, and one told us that the market was only really interested in the land bank and that it may have been better to use that desire as a marketing tool with which to encourage greater interest and establish the future use of the Dome as a condition of sale. Nevertheless, the next sale process began on the same formal basis as before, allowing for additional land to be made available only where it was an essential part of bidders' proposals for the Dome.

1.25  The Millennium Dome is bordered to the south by a key plot of land occupied by the London Underground station, (See Figure 3). This land was acquired by London Underground Limited in the mid-1990s in order to establish a Jubilee Line station, bus terminal and commuter car park on the Peninsula. The land acquired particular significance in the sale competition in 2000 when English Partnerships, mindful of arguments on planning grounds against putting a new car park on the Red Land, encouraged bidders to develop proposals to use the station car park instead. Dome Europe stated that an agreement would be essential before they could exchange contracts and submit an application for planning permission. The Department had hoped that they could enable English Partnerships to quickly acquire the car park site, but legal advice then showed that it was unlikely that London Underground Limited could be formally directed to sell the site, partly because the legal status of London Underground Limited did not permit ministers to direct them, and partly because there were constraints upon the ability of London Underground to dispose of operational land. Negotiations with London Underground Limited to acquire the site proved difficult. Negotiations effectively began again when the next sale process began in early 2001.

1.26  English Partnerships and London Underground Limited resolved their difficulties in the second sale process, through a deal which initially shares the car park and provides for both parties to participate in any later gains from redeveloping it. Factors contributing to this successful outcome were:

■  A more considered and consultative approach to working out car parking needs than was achieved under pressure of time in the previous competition; and

■  The added confidence in forecasting future demand for station facilities that London Underground Limited derives from the new scheme's comprehensive approach to developing the Greenwich Peninsula estate, as opposed to the Dome-only schemes that preceded it.

The extent to which these issues were addressed is covered later in parts two and three of this report.

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7  Known as the 'Red Land' due to its colour on early development plans. Lies to the south of the Dome.