3.22 Despite exhaustive marketing, English Partnerships and their advisers had found that there was a limited pool of parties with the skill, experience and resources to credibly develop the Dome. No other viable option or party had come forward. And English Partnerships' advisers recommended that continuing to search for further options would be highly destabilising to the existing bidders.
17 | Arguments for deferring or advancing English Partnerships' share of profits |
The arguments for and against English Partnerships taking their profits later than Meridian Delta are finely balanced. Factors which suggest that English Partnerships should take their profits later in the agreement than MDL If property values increase in real terms then English Partnerships' returns from later sales will be higher. Meridian Delta Ltd draw added confidence that the Government will be incentivised to provide essential public infrastructure to support the new community on the Peninsula. Meridian Delta Ltd bears most of the costs and risks of setting up the project, whereas English Partnerships (and Quintain) have the protection of guaranteed proceeds through minimum land value. Factors in favour of an even split in profits between English Partnerships and MDL over the life of the agreement Property values may not increase consistently faster in real terms than the public sector's 3.5 per cent annual discount rate. Government also require confidence that Meridian Delta will continue to invest in infrastructure, and keep up the pace of development in later years. Source: National Audit Office | |
3.23 To provide a benchmark against which to compare the value for money of bids, English Partnerships' advisers produced a financial model based on English Partnerships' alternative development plan for the Greenwich Peninsula prepared by the Richard Rogers Partnership. In May 2002 the advisers produced a value for money assessment which compared this model against the Meridian Delta Ltd bid in a range of scenarios including different development costs, sale prices and quantities of development. Except for a scenario in which much less development took place than expected, the comparison showed a higher return from the Meridian Delta Ltd scheme than from the benchmark.
3.24 Such comparisons are inherently difficult, particularly in ensuring consistency. In this case there were areas in which the assumptions underlying the Meridian Delta Ltd model and the benchmark could have been more closely aligned. Some assumptions in the benchmark, for example that profits would be paid to English Partnerships in a single year rather than phased over a longer period, might have understated the value to the taxpayer of the benchmark scheme. Conversely, increasing the benchmark's burden of low-margin affordable housing (22 per cent) to that provided in Meridian Delta Ltd's scheme (30 per cent), would restore Meridian Delta Ltd's advantage. The adjusted figures suggest that the decision taken in July 2002 to proceed with Meridian Delta Ltd was reasonable on the basis of a comparison with the benchmark scheme, (See Figure 18). Furthermore the Meridian Delta Ltd scheme, by marrying English Partnerships' land and the adjacent Quintain land, allows denser and more profitable development through an integrated scheme, rather than disjointed and possibly conflicting developments.