The report concludes that, after a difficult start, the funding of the construction phase was largely managed well. The then Finance Minister’s insistence on a fixed price procurement costing no more than £92 million helped to put the project on a more sound footing. The Welsh Assembly Government subsequently approved the project with a total cost of £104 million. That increase included £4 million extra in the expected contribution from the Assembly Government. In addition the Assembly Government would be exposed to continuing risks to public funds should the very challenging private fundraising requirements not be met or should the cost of building the WMC over-run. 
 
While the WMC was being built, the funders - including the Assembly Government, the Arts Council of Wales and the WDA - did well by appointing a joint project monitor to provide them with detailed monthly reports, which meant that they were aware of problems as they emerged. Finance was an ongoing issue: In October 2003, the Assembly Government had to guarantee a £10 million bank loan to the WMC to complete the construction. Initially, the WMC planned to pay the loan off as it raised private income in the later stages of the construction. The WMC opened on time in November 2004, but cost increases of around £5 million and delays in the receipt of private funding meant that it had to carry the loan over into the operational phase. The interest payments on the loan had a significant impact on the financial viability of the WMC.

In general, the report found that the funders carried out detailed reviews of the WMC’s business plans as they developed, but they did not assess and address some key risks sufficiently effectively.  The WMC amended its business plan throughout the construction phase, and shortly before opening, independent advisers reported that there was a high risk that the WMC’s operations would not break even. Despite being financially exposed as both guarantor of the WMC’s loan and the main revenue funder, the Assembly Government did not develop a clear monitoring plan focusing on the key risks - as it had done for the construction phase. 

Once the WMC opened, Assembly Government officials did not keep sufficient information on the WMC, preventing them from acquiring the necessary degree of understanding of WMC’s finances. The Assembly Government only began to develop a sufficiently detailed understanding of the WMC’s financial position in late 2006, when the WMC reported that it was running at a loss and facing a financial crisis. In November 2007, the Assembly Government agreed to pay off the WMC’s loan, which had risen to £13.5 million, and to increase its annual revenue funding from £750,000 to £3.7 million.

This report makes eight recommendations for improvement, including:

• Public funders should agree the overall priority for the public sector and the most appropriate procurement method to deliver that priority;
• before agreeing funding, funders should assess the impact of significant changes to business plans;
• the Assembly Government should issue guidance to all public bodies on keeping proper records; and 
• public revenue funders should ensure that their financial decision making is based on comprehensive information that is as robust and up to date as possible.

The Auditor General for Wales, Jeremy Colman, said today:
“The Wales Millennium Centre was a high risk, complex, project and, although the public bodies funding it followed good practice in many areas - particularly through joint monitoring - there were some fundamental weaknesses. The project would have been better served if the Welsh Assembly Government had paid equal attention to addressing the risks involved in funding a successful business as they did to addressing the risks in funding the construction, and my recommendations focus on these areas.” 

Notes to Editors:

• This report examines whether the Welsh Assembly Government; Millennium Commission; Arts Council of Wales and Welsh Development Agency effectively addressed the risks involved in funding the Wales Millennium Centre - during construction and operation.
• The Wales Millennium Centre was opened in November 2004 and is situated in Cardiff Bay. It is an iconic building, housing seven resident organisations including the Welsh National Opera.
• The idea for such a building originated in the mid 1990s, but it took considerable time to reach fruition and for many years experienced uncertainty over funding and costs. Following redesign work and a revised procurement, the project was finally given the go-ahead by the Assembly Government in January 2002.
• The main Welsh public funding, agreed before the project went ahead, was £37million from the Assembly Government, £10 million from the Arts Council of Wales, and £4million from the then WDA.  The Assembly Government also agreed to provide a £2m annual revenue payment, made up of £750,000 revenue for the WMC, a further £450,000 towards maintenance costs, and £800,000 for some of the resident organisations, paid through the Arts Council of Wales.
• The total cost of the project was £109.3 million. This includes the £106.2 million cost of the project as approved by the Assembly Government plus around £3 million for additional cultural activities.
• Wales Audit Office is independent of government and is responsible for the annual audit of some £19 billion of annual public expenditure.
• Its mission is to promote improvement, so that people in Wales benefit from accountable, well-managed public services that offer the best possible value for money. It is also committed to identify and spreading good practice across the Welsh public sector.
• The Wales Audit Office was created in April 2005 through the Public Audit (Wales) Act, 2004, which expanded the functions of the Auditor General for Wales and enabled the transfer of staffs from the Audit Commission in Wales and National Audit Office in Wales to his employment.