Collapse of gentlemen’s pact cost greyhound board millions

By Conor Ryan, Investigative Correspondent

Monday, August 27, 2012 irishexaminer.ie

The Irish Greyhound Board (IGB) rejected legal advice to protect itself in a multimillion-euro gentlemen’s agreement that later collapsed, heaping debt on a company under extreme financial pressure.

It was one of many costly unwritten pacts that underpinned the building of its new €23m stadium in Limerick.

Newly-released papers have revealed the IGB dismissed warnings from solicitors Holmes O’Malley Sexton (HOMS), and engineers, Atkins.

These had looked to spell out the terms of a critical "gentlemen’s agreement" in writing.

The verbal pact hinged on a promise by Limerick Racecourse Company, which sold it 11 acres for its new stadium, to cover a projected €2m bill to raise the level of the marshy site by two metres.

The consultants warned the IGB this commitment should be specified in the final contract for sale. The IGB said this could not be done because it could put in jeopardy the good will it was relying on to make savings. Weeks into the work the arrangement collapsed and the IGB was forced to tender for the work at an eventual cost of at least €2.4m.

HOMS also told the IGB to delete "inappropriate" arrangements it made to pay key professionals working on the site.

These deals involved LRC, a private company, appointing professionals to oversee parts of the build. This happened without the contracts going to tender.

HOMS said early references to this deal should be removed from the contract because they were not appropriate for a public body. These clauses did not appear in the final draft.

The Dáil Public Accounts Committee has asked for reports on numerous issues arising from the build from the IGB and the Department of Agriculture following earlier probes by the Irish Examiner.

The development of the Limerick track almost doubled its debt burden.

Internal records show the IGB has been trading fractionally below its €25m borrowing limit for the past two years. Its loan is currently on an interest-only basis.

IGB had calculated that repayments would add up to €5m a year on top of its ordinary outgoings. This has been after its bank, AIB, agreed it does not have to sell surplus sites to pay down the loan until the market improves.

The IGB said its long- term loan stood at €22.7m on Dec 31 and it had more than €5m in debts due within a year. Surplus cash from 2011 was used to pay down the debt.


IGB warned over contractors’ deals

Lawyers for the Irish Greyhound Board warned it that a controversial land contract should delete contractors’ deals as they were inappropriate for a public body.

The IGB was told that given procurement rules the arrangements should be removed from the agreement to buy land for its new stadium in Limerick.

It recently emerged that the IGB let the firm selling it the site, Limerick Racecourse Company, to appoint key contractors to help develop the stadium.

Compensation for these professionals’ fees was built into the sale price rather than being put out to tender.

However, a letter sent to its head of legal affairs nine months before the contract was signed, said that explicit references to such appo-intments should be removed.

The IGB’s solicitors, Holmes O’Malley Sexton, said the conditions it agreed to were not right for a public body.

"I note that many of the conditions, in particular with regard to the appointment of various professionals in respect of the development of the stadium, are inappropriate, in view of public procurement/tendering issues that they raise and accordingly, these issues require to be deleted from the site contract," the solicitor’s letter said.

The final site contract did not contain the references. The IGB said the appointment method was a condition for sale because the seller did not trust the board to get planning permission.

The IGB has said it was within its rights to avail of flexibility within the rules.

The IGB said "it was a condition of sale that LRC would provide technical services and project management services towards securing planning permission".

The contractors, FKA consultants and Michael Punch and Partners, were hired by LRC.

The IGB has produced a letter from its quantity surveyors, Bruce Shaw Partnership, to say that all aspects of tendering it was involved in complied with public procurement rules.

Deal comes back to bite Greyhound Board

The IGB rejected advice regarding a site-filling agreement at its stadium in Limerick, which ultimately cost it €2.4m, says investigative correspondent Conor Ryan

EXTENSIVE details have emerged on a backfired gentlemen’s agreement that cost Irish Greyhound Board (IGB) at least €2.4m.

These show IGB rejected the advice of solicitors and engineers who were uneasy about its exposure. The advisers had looked to lock down who was responsible for critical engineering work.

However, the IGB said that if it demanded protective measures it would threaten a "gift" valued at €2m.

The company told its advisers it appreciated their concerns but it would not ask for too much.

"Given the ‘gift’ and the reason it is not in the contract then let’s not bite the hand that feeds us," IGB CEO Adrian Neilan said in an email to his engineers and his solicitors.

THE OUTCOME

The project went ahead with nothing agreed in writing.

It collapsed within weeks.

Advisory letters show it broke down on the issues the engineers had warned the IGB to protect itself against. There was no legal fallback. The company had already specified that all references to the gentlemen’s deal be kept out of the official contract.

And it neglected to finalise a "side letter" that was to spell out areas of understanding.

When the agreement broke down, the IGB had to finish its flagship stadium on time. This left it having to arrange for the work to be done in a hurry at an additional cost of at least €2.4m.

The unexpected workload inflated the bill for its new stadium at Greenpark.

The building has left the IGB in financial difficulty. It is carrying a €25m debt.

THE DEAL

The gentlemen’s agreement was rooted in the IGB’s belief that when it bought 11 acres from Limerick Racecourse Company (LRC), for €4m, the seller would raise the floodplain by two metres for free.

The budget for the preparatory work was estimated by the IGB to be €2m.

The arrangement to bring in soil and compact the ground was the main plank of a series of verbal deals. These ran parallel to the primary contract.

Documents released under the Freedom of Information Act highlighted that fears were raised with the IGB about its lack of protection.

They also show the reluctance of Mr Neilan to act on the advice and his fear it would sour the perceived generosity of the other party in the gentlemen’s agreement.

THE HISTORY

One of the worried parties was the IGB’s engineers, Atkins. It also consulted the IGB in 2003 when the firm walked away from deal.

The IGB abandoned the planned purchase, because a valuer’s report said if the area had to be filled, the added cost would make poor economic sense and "warning bells" should sound.

The company only returned to negotiations in 2007, when it shook hands with LRC chairman Mark McMahon on a commitment to fill the land.

THE WARNINGS

Atkins was again advising the IGB when it wrote warning correspondence seven months before the sale contract was signed in 2008. This said it was "very important" that any contract include specific details on LRC’s commitment to fill the property.

It said the specifications for the work should be set down in the contract before money changed hands. Five days later, the IGB’s solicitor delivered its advice. It said the concerns raised by Atkins in its warning letter needed to be addressed.

"I note that you require a condition inserted in the contract providing that the vendor will be obliged to apply for a fill licence and under that licence will fill the site of the stadium and car park area at the vendor’s cost to a specified standard, as agreed by the respective engineers," it said.

However, the IGB set aside the advice and decided the contract should make no mention of the fill commitment.

THE COLLAPSE

The filling deal ultimately collapsed on the issues the engineers warned about.

The IGB said the downturn meant there was a lack of appropriate excavation material available to finish the work on LRC’s terms. No reference to the breakdown featured in board minutes.

The IGB said it appreciated the LRC’s promise was contingent on material being available.

"The provision of fill was never part of the contract for sale for the Bord na gCon freehold site.

"This gentlemen’s agreement was totally dependant on a vibrant construction climate, which clearly did not continue in Limerick.

"It would have been normal for any legal advisers for Bord na gCon to try and get this agreement into a contract for sale, however, this could never be delivered as the site was bought on a strictly freehold basis," it said.

THE GENTLEMEN’S AGREEMENT

The parties decided it did not belong in the official contract.

It was instead dealt with through parallel meetings.

These resulted in the drafting of a "side letter" that set out the position of both parties.

The LRC’s project manager, who had also overseen the first stage of the stadium’s development for the IGB, said it wanted to set out the agreement in a letter.

In correspondence to the IGB, he said that while filling issues "are to be dealt with outside the contract" it would serve both parties to record the understanding.

"While I appreciate that the issues surrounding the filling of the site are largely a matter of good faith between the parties and will be covered in a private side letter. I would still recommend that the side letter be agreed in full before the contract of sale is signed," he said.

This was never signed. But the early drafts agreed by LRC said:

* It would not accept legal obligation to fill the site and no deadline was set.

* After positive meetings with contractors, LRC believed suitable fill could be sourced and completed within six months.

* LRC would engage a contractor to fill the IGB site.

However, when this draft was received by the IGB, its solicitors wrote to Atkins and said it did "not incorporate many of the concerns expressed" and that it was non-committal.

The solicitor said she was concerned that, in purchasing the site and entering into ancillary arrangements, that "appropriate safeguards are put in place with regard to the filling of the site, the timeframe for same, how the site will be filled and observing of appropriate standards".

However, this side letter was never signed.

THE COST

In keeping with the original agreement LRC appointed a contractor in the summer of 2008. However, a dispute arose over the quality of the material. This prompted LRC to abandon the work.

The IGB then had to run a quick tender competition for an €800,000 contract. But it ultimately cost €1.3m to fill and another €1.1m had to be spent compacting it.

THE RATIONALE

In Jun 2008, the IGB’s engineer, Kevin Murray, wrote an email which foresaw the reason the agreement ultimately collapsed — the use of inappropriate fill.

However, Mr Murray was advised not to demand contractual protection. The IGB’s wanted to avoid upsetting LRC.

On Jun 11, Mr Neilan wrote to Mr Murray and said it would be better to leave LRC to do the work without onerous obligations.

"Given the ‘gift’ and the reason it is not in the contract, then let’s not bite the hand that feeds us.

"Once IGB inspect and audit the process then we will by extension be happy with the fill and will not need to get it removed.

"Also they would not want to damage the relationship (given we pay service fees) by giving us bad fill and causing us problems," he said.

In another email, Mr Neilan said he agreed with the assessment of his engineer. However, he felt it would be asking for too much.

"[I agree with Atkins looking for risks to be removed] however in doing so I know we could possibly lose the goodwill of LRC to do the fill at an expected cost of €2m. I cannot allow that happen.... Hence let’s try to make the list of requirements as short as practical."

Six months later, the deal collapsed. The IGB appointed its own contractors. The savings available to the IGB, due to reduced building costs, were dented.

In a statement, the IGB said the advisers’ warnings were narrow in focus.

"Clearly legal and engineering advisors to IGB, who were not aware of the specific terms of the deal, would have liked to have the terms of the supply of this non-standard fill included in a legal contract, however, that was not possible due to the terms of the commercial deal negotiated," it said.

Dog debacle

The debacle surrounding Limerick Greyhound Stadium:

1. The Irish Greyhound Board (IGB) looked at buying the site in Greenpark in 2003, but was warned by valuers that the cost of raising the floodplain made it unviable.

2. The company then bought an alternative on the Clare border, without a business plan or cost-benefit analysis. When it looked to get planning permission, it discovered it could not get access to the roads or sewerage.

3. The IGB rejected proposals to develop its old stadium at Market’s Field, including an offer by Limerick City Council to hand over a small parcel to aid construction. This was ruled out.

4. The IGB abandoned the €1.1m Meelick site, put it on the market, but rejected an offer of €1.5m in 2008. It is now stuck with the site and it will be written down.

5. The IGB returned to its original plan to buy at the old Greenpark racecourse, but the company selling, Limerick Racecourse Company (LRC), had been soured by its 2003 engagement and demanded control in the early stages of development.

6. The IGB and LRC struck a gentlemen’s agreement that covered one quarter of the overall costs. It paid more for the land for less area.

7. The gentlemen’s agreement was to see LRC build the IGB a car park for a nominal fee. Planning problems undermined this and the IGB had to pay €1.2m, plus a yearly management charge.

8. The agreement also saw the LRC appoint the engineers and the project manager for the first phase of the project. References to this had to be removed from the contract, as solicitors considered them inappropriate.

9. The agreement was to see the LRC raise the level of the land, and fix the issue flagged in 2003, at its own cost. The IGB saw this a gift worth €2m, but rejected advice to add it to the contract.

10. The deal to raise the land collapsed and the IGB had to fill and compact the ground at a cost of at least €2.4m.

11. The IGB began work, believing it would get at least €8m from the sale of its former HQ in Limerick, its old track, and the abandoned site in Meelick. Only the old track has been sold, and for €1.5m less expected.

12. A €25m debt limit, extended to develop Limerick, has been hit despite aggressive cost cutting, redundancies, and the arrangement being on an interest-only basis. Six tracks around the country have been mortgaged.

13. In 2016, it is due to begin paying the loan which it has estimated will add €5m to its annual servicing costs.

14. The IGB has struggled to meet a development debt to the city council and has told the Department of Agriculture it is under financial pressure.

15. The new Limerick track was to generate a €800,000 profit for the IGB, but it was €500,000 below target in its first year, compounding losses at sister tracks.