DETI: The Bioscience and Technology Institute

Mr Kieran Donnelly, the Comptroller and Auditor General, today issued his report to the Assembly on ‘The Bioscience and Technology Institute’ (BTI). The report examines the reasons behind the failure of this major innovation project.

Background

BTI was incorporated as a ‘not for profit’ company in November 1998. Its primary objective was to provide biotechnology incubator facilities, through the development of a specialist building at Belfast City Hospital (BCH). The company was to be commercially sustained by the rent charged to tenant organisations, primarily early-stage biotechnology companies. The project, which involved a ‘new-build’, secured grant of £2.2 million from four funding bodies - including the Department of Enterprise Trade and Investment and the former Industrial Development Board and Industrial Research and Technology Unit.

The location of the building at BCH was seen by the funders as fundamental to the success of the project, because it would optimise the interaction between clinicians and scientists. However, difficulties in progressing the project at BCH, within the required funding timeframe, led to BTI purchasing ‘Harbourgate’, a shell building some four miles away in the Belfast Harbour Estate. The revised project costs, at £7.5 million, represented an increase of some £2.7 million above planned costs, almost all of which was unfunded.

In the event, BTI had inadequate funds to complete the fit out of Harbourgate. As a result, the building never became operational and did not generate any income for BTI. This led to the company becoming technically insolvent. BTI tried to sell the building but no purchaser was secured. In November 2005, with the company unable to service its loan funding, the bank took possession of Harbourgate and sold it the following month. The sale proceeds of £4.55 million were sufficient to repay BTI’s debt to the bank in full, with the surplus used to make a part-payment on the secured debt of a private donor. No monies were available to pay the other (unsecured) creditors - HM Revenue and Customs and the funding bodies. BTI is currently dormant and steps are now being taken to begin winding up the company.

Investigations and referrals to professional bodies

In December 2005, the Department appointed Company Inspectors to investigate the affairs of BTI. In November 2009, the Inspectors reported the outcomes of their investigation, highlighting a wide range of shortcomings. In the wake of the inspection report, the Department’s Insolvency Service is assessing whether to initiate disqualification proceedings against the directors of BTI. However, it is considered unlikely that proceedings will be taken against every Director. The Department said that a final decision will be taken shortly.

The Department, in conjunction with the Department of Finance and Personnel, also referred concerns about the conduct of four individuals to their professional bodies, in light of actions which they considered may have breached professional codes of conduct. Three of the referrals were to the ‘Chartered Accountants Regulatory Board’ and one to the ‘Law Society of Northern Ireland’. Details are set out in the main report. In addition, the Department commissioned a further, independent review of the conduct of officials involved in the case. This resulted in disciplinary action being taken against two officers, in February 2011.

NIAO Value for money conclusion

The failure to establish the project was a significant loss to the local economy. This type of facility was likely to have underpinned a substantial level of development in new and emerging companies within a sector where considerable growth potential was forecast.

In view of the project failing to achieve any of its objectives, we have concluded that it provided no value for the public funds committed to it. Further, with no sums having been recovered, some £2.2 million of taxpayers’ money has, in effect, been wasted.

NIAO key findings include:

On the handling of the project by the BTI Board

• There were widespread shortcomings in corporate governance throughout the course of the project, which undermined the BTI Board’s management and control. For example:
• formal procurement procedures were largely non-existent·there was no procedure within BTI for handling conflicts of interest. Conflicts which did arise were generally poorly handled, with lack of disclosure being a recurrent weakness.
• BTI failed to establish the true financial cost of the switch from BCH to Harbourgate and the consequent impact on financial viability. Moreover, Harbourgate, as a building, was wholly unsuitable for housing a biotechnology facility, having been constructed as a shell building for a call centre.
• We have particular concerns about the circumstances surrounding the payment by BTI of a £100,000 finder’s fee in connection with the acquisition of Harbourgate. Our unease centres on the lack of transparency as to the actual recipients of the fee; an attempt by an external party to create evidence in support of the payment; a failure by one Board member to declare their interest in the fee; and the failure of the Board to clarify the nature of the expense.
• We also have concerns about BTI’s claims to funders that it had secured tenants for Harbourgate and its handling of travel and accommodation costs relating to an overseas conference.

On the handling of the project by the Department and its agencies

• ’The funding bodies’ appraisal highlighted uncertainties in the project, particularly in relation to sources of funding. While this resulted in a heavily-conditioned offer, it is questionable whether the project should have been offered financial support before being properly planned.
• ’The decision to move the project from BCH to Harbourgate was pivotal, in that it radically altered key elements of the project. Despite this, we saw no evidence that the funding bodies reassessed whether the stated objectives of the project could be delivered at the new location. Moreover, they failed to ensure that BTI established the true financial cost of the switch to Harbourgate and the consequent impact on financial viability, before endorsing the change.
• The funders’ project monitoring and control was weak. Even though they were represented at BTI Board meetings by an IDB official, they failed to ensure that effective corporate governance structures were established within the company. This led to many of the problems experienced by the project.
• DETI’s decision to revise its offer to include equipment within eligible costs, appears to have been done solely to facilitate payment of grant within the funding deadline. However, BTI had no premises in which to operate the equipment. As it transpired, none of the equipment bought was ever used by BTI. The cost, at some £357,000, was effectively wasted.