Campsie Office Accommodation and Synergy e-Business Incubator (SeBI)

Mr Kieran Donnelly, Comptroller and Auditor General, reported today on his review of two topics:

• Leasing agreements for office accommodation in Campsie entered into by the former Industrial Development Board (IDB) in 1991 and 1992. Invest NI has been responsible for these since it was established in 2002; and
• Synergy e-Business Incubator (SeBI), a division of a technology company Synergy Centres Limited (SCL), which was jointly owned by Fujitsu Ltd and the University of Ulster and funded by the Department of Enterprise, Trade and Investment (DETI).

Campsie Office Accommodation - Background

IDB entered into separate 25-year leasing agreements for two 10,000 square feet units located within the former Courtaulds site in 1991 and 1992. However, IDB had an `option to break’ from the leases at the end of the initial four years if the prospect of finding tenants appeared remote. This was an important clause as the annual rent for each unit, which had been between £1 and £16,875 in the first four years would increase substantially to £45,000 for the remaining 21 years.

Although both units remained unoccupied for the first four years due to a lack of demand, IDB did not exercise its `option to break’, meaning that it was committed to the full 25-year leases for both buildings. Available records indicate that the matter was simply overlooked within IDB in 1996.

Both units remained vacant and there was very little evidence of any demand for them. More decisive action taken by Invest NI resulted in an agreement with one of the developers in January 2008. After prolonged negotiations, Invest NI paid this developer a `surrender premium’ of £180,000 in return for being released from the remaining lease obligations some nine years early, thereby saving up to £371,000 on future commitments. Negotiations with the developer of the remaining unit are ongoing. Agreement has been reached, in principle, for surrender of the lease for £225,000. This would save around £268,000 on future commitments.

Total costs incurred by IDB and Invest NI for both units, should the second lease be terminated in April 2010, will amount to almost £1.8 million.

It is clear that these leasing agreements have not delivered value for money, with significant expenditure incurred for units which have never been occupied, with no new jobs or business opportunities created.

Synergy e-business incubator (SeBI) - Background

SCL established SeBI in 2000. Its objective was to create a world-class ICT business incubation unit in West Belfast, which would nurture businesses to the stage where they would exit and trade independently. Between 2000 and 2003, SeBI received government funding of £1.2 million, mainly from the Department of Enterprise, Trade and Investment (DETI). DETI’s Industrial Research and Technology Unit (IRTU) was responsible for appraising and monitoring the project.

SCL ceased trading in December 2006 due to deteriorating financial performance and was wound up in February 2008, with closing liabilities of around £1 million.

NIAO recognises that the £1.2 million allocated to SeBI was relatively small in terms of the overall industrial development and technical research budget, and that investments in creative projects require funding bodies to bear a considerable element of risk. Nonetheless, it is apparent that SeBI fell considerably short of delivering the anticipated benefits:

• the level of business start ups (14) was lower than forecast (20);
• the number of short-term jobs created (41) fell substantially below project targets and milestones (110);
• the evidence available suggests that the number of sustainable jobs created was very small;
• the project never achieved a key objective of being financially self-sustaining.

Overall, given the level of under-performance, we consider that that the value for money achieved from this project was very poor.

Main Findings and Recommendations

A number of lessons have emerged from both the Campsie and Synergy projects:

• project risks had been flagged up at early stages and should have been more fully acted on

Campsie - the Valuation and Lands Office (VLO) had expressed concerns to IDB on a number of occasions before the leases were signed about the scale, location and demand for the project. VLO specifically suggested that the project should be restricted to a single 10,000 square feet unit to minimise cost and assess demand, but IDB opted to proceed with the full 20,000 square feet project as it considered this to be consistent with its objective to stimulate economic development in areas of deprivation, where clear market failure existed.

SeBI – Consultants engaged to appraise the project at an early stage highlighted problems which subsequently had a damaging impact on the success of SeBI. However, IRTU took the overall view that the project was valid in principle, and recommended that DETI should proceed to fund it.

• ongoing project monitoring and management should have been more robust

Campsie – Whilst the failure of IDB in 1996 to break from the leases appears to have been attributable to an oversight which proved very costly, we found no evidence of an enquiry by IDB to determine the circumstances surrounding the events at the time, or establish whether any individuals within the organisation were culpable.

Significant issues arose over the condition of the units. Although IDB was initially aware in 1998 that the units had been in a poor state of repair, decisive action to ensure that the developers maintained the units properly was not commenced by Invest NI until mid-2005.

SeBI - The project was not re-appraised following a number of key events which impacted significantly on SCL’s commercial viability. Such re-appraisal could have enabled an assessment of the ongoing viability of the project, and the merits of continuing to fund it.