Communication breakdown cost taxpayer £1.89m

Officials from Invest NI and the Department of Enterprise, Trade and Investment (DETINI) recently faced a grilling by the Stormont Public Accounts Committee in the wake of a scathing report on the investment by the Northern Ireland Audit Office (NIAO).

Last March the NIAO found that the lease of two office blocks in Londonderry was "clearly not value for money" as no tenants were ever found and no jobs ever created as a result of the misdeal.

It also discovered that a failure by the IDB to break a lease on the two empty office blocks in Campsie when it had the chance in 1996 had resulted in a bill of almost 2m to the taxpayer.

The strain on the public purse was initiated when the IDB signed a lease for 20,000 square feet of office accommodation under its Industrial Property Development Scheme (IPDS) after being approached by two developers in 1989 with proposals to establish a large office block for potential client investors.

Now Invest NI Chief Executive Alistair Hamilton has blamed a lack of internal communication within the IDB for the huge wastage generated by what committee member Mitchell McLaughlin labelled "two expensive white elephants."

According to the official record, during an evidence session at the Public Accounts Committee last month it was also revealed that the two developers behind the scheme drew up its lease without specifying who was responsible for repairs - a source of contention later when one of the office blocks fell into "a very poor state of repair."

Speaking at the Public Accounts Committee senior DETINI official David Sterling said a failure to break the lease on the Campsie offices in 1996 resulted in the huge waste.

The record shows he told the committee: "We have already acknowledged that failure to exercise the break clause in 1996 was crucial; it meant that IDB, and, subsequently, Invest NI, became liable to rental payments of 1.89 million.

"That was unacceptable. Fortunately, we have managed to reduce that commitment by some 640,000 because of the commercial approach that was taken and the pressure that was put on the developers. Had the break clause been exercised, IDB and Invest NI would have had no liability for rental payments beyond 1996."

Mr Sterling also said efforts were made to market the sites and break the leases but that the state agencies were negotiating from a weak standpoint.

"It was only when Invest NI took more aggressive action and played hardball with the developers and contravened the lease by withholding rent that we got out of the leases," he explained.

"The leases have now been surrendered. The loss to the taxpayer, which is still substantial and unacceptable, has nonetheless been reduced by about 640,000," he added.

Invest NI chief Alistair Hamilton blamed a lack of communication at Invest NI's predecessor IDB for the failure.

He stated: "Lack of communication was a critical issue at the start of the case. Only two of the projects were ever conducted in that way; there were no systems in place.

"I am not trying to justify what happened; I am trying to explain how it happened. No system was put around the management of those projects, so it depended purely on internal communication without systems. That is what let it down.

"The team that negotiated the original project was dissolved shortly afterwards because only two projects were put in place; they were not in the same positions four years later when the breaks should have been exercised. They were purely dependent on internal communications, which failed."

The officials fielded harsh criticism from the committee. Former Londonderry councillor Mitchell McLaughlin stated: "You were paying for two units that were never occupied and were not even fitted out to be suitable for lease to anyone, and you can produce no evidence that investors were brought to see those properties.

"It is clear that there was a market failure from the very beginning. The Valuation and Lands Agency (VLA) had told you that it was not going to solve that problem. The question arises whether the accommodation at Campsie was a political defence against accusations that the north-west was being ill served by the industrial development agencies of the state.

"What would you say to that accusation? Given the Department's extensive landholdings in areas of high deprivation, has there been any change in that pattern since the early 90s?"

Mr Sterling replied: "We are not trying to defend the decision to procure those two buildings, nor are we trying to defend the way in which the project was managed, certainly until recently.

"The kindest construction that one can put on it is that the original decision was a genuine effort to stimulate economic development in the area.

"However, our records show that much of the motivation at the time was not clearly recorded. Nonetheless, that project should not cloud what is being done elsewhere. Invest NI has promoted significant economic development opportunities in the northwest and in the Derry City Council area. There are some significant successes - Springtown being just one. Other areas have obtained successful economic development support, and companies that have been supported have prospered. I would not want to suggest that the failings in this project are indicative of anything wider."