1.  INTRODUCTION

  1.01  The East Midlands Museums Service (EmmS), in preparing this document, invited the views of those of its member local authority and independent museums that have been applicants to the Heritage Lottery Fund (HLF), whether successful or unsuccesful. Ten organisations, representing 14 applications, have responded to this invitation on a non-attributable basis, and their comments have been incorporated, or quoted verbatim, in what follows. However, EmmS alone is responsible for the content.

2.  THE ROLE OF THE EAST MIDLANDS MUSEUMS SERVICE

  2.01  A registered charity and company limited by guarantee, EmmS is one of 10 area museum councils (AMCs) in the United Kingdom that channel central government support to the nation's regional and local museums. It operates in the historic counties of Derbyshire, Leicestershire, Lincolnshire, Northamptonshire, Nottinghamshire and Rutland. Like its English counterparts, its main source of funding is annual grant from the Museums & Galleries Commission (MGC), the government's adviser on museum matters. In turn, MGC is sponsored by the Department for Culture, Media and Sport (DCMS).

  2.02  EmmS is a membership body of over 120 organisations that run or otherwise support museums. These include local authorities (which may or may not directly provide museum services), independent and regimental museums run by charitable bodies, and related regional and local organisations.

  2.03  Its fundamental purpose is to help raise standards of collections care in, and public access to, the region's museums. Besides providing member services, and supporting MGC initiatives in the region, EmmS has published Facing the Future, its regional strategy, which provides a policy framework for the period until 2001. It has been unanimously endorsed by the key players in the region's museum sector.

3.  THE RELATIONSHIP BETWEEN EMMS AND HLF

  3.01  The recommendations of Treasures in Trust, the review of museum policy published in 1996 by the previous administration, and endorsed by the present government, emphasised the importance of Lottery funds in promoting best practice and improving standards in non-National museums. Since these are primary purposes of AMCs, there is an inevitable confluence of interest with the activities of HLF.

  3.02  Thus EmmS has been associated with HLF in a number of ways. These include:

—  giving advice in connection with the requirements of s 3 (4) of the National Heritage Act 1980, by providing assessments of museum and related projects;

—  monitoring approved projects to ensure compliance with the terms and conditions of grant;

—  acting as a consultee on policy matters:

—  Adrian Babbidge, the Director, wrote the business planning guidance in the second and third editions of HLF's application pack, published in 1997 and 1998;

—  Lesley Colsell, the Head of Member Services, undertook a study of HLF's advice arrangements in 1997, the results of which were incorporated in connection with her dissertation for the degree of Master of Business Administration at Nottingham Trent University.

  3.03  The following chart demonstrates the assessment and monitoring work carried out by EmmS from the advent of HLF until 30 May 1998:

Number of assessments undertaken	38
Total value of applications	£64,294,150
Number of successful projects	16 (42%)
Value of successful projects	£13,085,649
HLF grant on successful projects	£8,407,308
Average grant on successful projects (%)	61%
Number of applications rejected	18 (47%)
Number of applications not resolved	4 (11%)
Number of projects monitored	7

  Source: East Midlands Museums Service records

  3.04  Prior to the implementation of the National Lottery Act 1997, EmmS was ineligible to apply for HLF grant, since it does not own the heritage assets that might be the subject of such bids. The removal of this barrier provides an opportunity for umbrella projects that might benefit the region's museums as a whole. EmmS is now considering the feasibility of its becoming a conduit for such bids.

  3.05  EmmS has also been encouraged by its members to provide advice and guidance to assist their preparation of HLF bids. Although EmmS is paid at a market rate for work commissioned by HLF, its advice and guidance to members is free-of-charge. The cost of providing advice to Lottery applicants during the financial years 1996-97 and 1997-98 was £13,289 (the equivalent cost of about one full day's advisory work each week). It has only been able to meet this demand by re-directing resources from other core programmes.

  3.06  EmmS recognises that its role as an adviser to members seeking Lottery funds could be perceived as a conflict of interest with the work it undertakes for HLF. It has a similar difficulty in respect of the casework it does for MGC in respect of Museum Registration. It has recognised the issue in its published Statement of Service Standards which affirms "we will be consistent in the professional advice we give to all our members and clients. When we carry out assessments or provide advice for bodies and organisations other than members, we owe a duty of care and confidentiality to those clients. No individual member of staff will, therefore, both advise a member on a project, and assess it for a client." EmmS advice to HLF discloses the extent of any advice given to an applicant in connection with a bid. Neither EmmS members nor HLF has ever suggested that partiality is an issue, and HLF has commented (on area museum councils in general) "in our view the AMCs negotiate this fine line successfully from an established tradition of providing honest and constructive advice based on objective professional standards".

 4.  HLF DISTRIBUTION CRITERIA & PROCEDURES

Governance & Strategy

  4.01  HLF's antecedents are unique amongst Lottery Distributors. It was neither newly-created (like the National Lottery Charities Board and the Millennium Commission), nor was it, like the Arts and Sports Councils, an existing organisation with a track record of disbursing relatively large sums of public money and a well-established network of regional partners. The vehicle chosen for HLF was the National Heritage Memorial Fund (NHMF), a small organisation with a single London office, and a handful of staff. It had been established in 1980 to administer a fund of last resort for the acquisition of land and chattels pre-eminent in the national heritage.

  4.02  The pre-Lottery NHMF had a number of distinctive characteristics:

—  its corporate culture was that of the "gentleman connoisseur", grounded in trustees considering applications on a case-by-case basis and, having taken expert advice, making decisions based on their personal judgment and taste;

—  a dislike of the paraphanalia of grant-giving—it had, for example, no application form;

—  its relationships were London-based, if not in the applicants it preferred to support, then in the advice it took; there was little comprehension of the agendas of the English regions, or of the other Home Countries; and

—  given the scale of its operations, ministerial interest in NHMF was inevitably limited, and there was only a marginal relationship between NHMF's duties and wider government policy.

  4.03  Notwithstanding the increased scope of NHMF post-Lottery, its corporate culture remains that of its parent. This has caused a number of difficulties:

—  there is no over-arching strategy, which has led to regular changes in application criteria, whether in fundamental rules, or by the introduction of special initiatives;

—  inadequate staffing in HLF's early days (the original casework team was only seven people) that led to immediate backlogs of applications, and delays in processing them;

—  a lack of realpolitik in dealing with the Lottery's high political profile;

—  the absence of day-to-day representation within the English regions and the other Home Countries made it appear remote and centralist.

  4.04  HLF has now begun to address these issues. However, the perception remains that it is a reactive body, and fails to anticipate opportunities.

  4.05  In this respect, the potential of HLF's Expert Panels, which include distinguished past and present practitioners in particular heritage areas, has not been realised. Their primary purpose appears to be the assessment and recommendation of applications, which duplicates the role of other advisers, or imitates that of trustees. We believe the Panels' role should be to provide a think-tank on policy issues and to provide sectoral input into HLF's over-arching Strategic Plan.

  4.06  These difficulties of governance and strategy have been largely compensated by the very high calibre of HLF's staff. As one correspondent put it, "our case officer has had to work within a constantly changing environment [within HLF] and has tried hard to be helpful within considerable constraints". Given the policy and strategy uncertainty within which they have had to operate, the work of HLF staff at all levels has been exceptional, and without their energy, expertise and enthusiasm the very real difficulties faced by HLF would have exacerbated.

  4.07  Unlike sports or the arts, where there is a tradition of different constituencies working together within a single framework, the heritage sectors, though they share common values, have been fragmented and unconnected. HLF is the first pan-heritage body in the UK. In consequence, it deals with a large number of vested interests, whether within the scope of government, or external to it. Previously, some had a monopoly of influence, or a tradition of playing things their own way. The National Lottery's high political profile means that the Secretary of State for Culture, Media & Sport also plays a significant role.

  4.08  These other bodies may have their own strategies, but their financial means are limited. HLF has what are, in heritage terms, huge funds at its disposal, but, by following NHMF's culture, no overview. It is therefore vulnerable to the blandishments of other bodies to meet their own objectives. Lacking any published strategy, HLF has no substantial bulwark against such raids. HLF should therefore crystallise its position in relation to the other heritage agencies, and to DCMS's own policy agenda.

  4.09  We hope that the recent statutory requirement that HLF generate a strategy for agreement by the Secretary of State will enable a holistic approach to the UK heritage. This presents HLF with the opportunity, for the first time, to encourage innovation and excellence embracing all the heritage sectors, and break down some of the barriers that inhibit inter-action between the other heritage agencies.

Distribution

  4.10  In our view, HLF trustees' decisions on project support has been well-judged. From our knowledge of the total range of applications in the East Midlands, there is no award with which we would disagree, nor any rejected application we believe to have been unfairly treated.

  4.11  The museum projects supported have been varied. There have been large projects of national importance (such as the Museum of Law at Nottingham), or small community ventures at Eyam in Derbyshire and Flintham in Nottinghamshire. There has been improvement of existing sites (as at the Mansfield Museum & Art Gallery, Nottinghamshire), assistance with purchases (at Derby and Northampton museums), and restoration schemes (as at the Rutland Railway Museum). Both local authority and charitable organisations have been supported.

  4.12  Much concern has been expressed that Lottery grants to the East Midlands in general, and from HLF in particular, have been disproportionately lower, on a per capita basis, than those to other regions. The figures in respect of HLF, as of 30 May 1998, are:

Population as % of UK total	7%
East Midlands applications to HLF	6%
East Midlands % of HLF grants	6%
East Midlands % of HLF spend	3%
Source: Heritage Lottery Fund

  4.13  This suggests that while the number of applications, and the success-rate, of East Midlands bids is similar to other regions, approved projects tend to be of a smaller scale. The reasons for this may be:

—  most of the region is ineligible for the European structural funding or central government regeneration funds, removing some of the main sources of partnership funding for larger projects;

—  there is little tradition of developing partnerships between voluntary bodies and the public sector in the region, which has discouraged plurally-funded not-for-profit organisations in the heritage sector, with their culture of fundraising;

—  the region is unique in having no nationally-funded museum or out-station.

  4.14  Many of the larger bids, especially those from local authorities, have been poorly-prepared, and create doubts about their technical and financial feasibility. Often their business plans are aspirational rather than realistic. Many institutions have received no recent capital investment, and do not necessarily have the skills in-house to develop, implement and manage a successful major Lottery scheme. Some smaller organisations feel unable, without external assistance, to provide an application to the standard required (though others do so with no apparent difficulty).

  4.15  It is clear that the region's per capita spend will only increase if some larger projects can be brought forward. Our experience is that the opportunity for major schemes does exist, but the wherewithal to plan and deliver them is often lacking. While the Secretary of State's Policy Directions continue to preclude HLF soliciting applications, it should be open to the strategic heritage agencies to champion applications that have a priority in respect of their own policies, with the confidence that when such proposals come to HLF they would be given some preference. We welcome the opportunity given by the recent regionalisation of HLF's caseworkers, and the advent of a Midlands team, to discuss regional priorities for museum projects, and hope that English Heritage, English Nature, and the Countryside Commission might wish to be included in those discussions.

Criteria

  4.16  We have been impressed by HLF's emphasis on quality, and its embedding national standards such as Museum Registration within its requirements. All the HLF schemes of which we are aware demonstrate high quality of design and execution, and provide value for money.

  4.17  Until now, HLF has focused on capital schemes (ie those that generate a physical product with a useful life longer than a single year). It now faces a substantial challenge in dealing with revenue-type projects, in the administration of which it has no experience. There is a need to ensure that Lottery funds continue to be seen as investment rather than largesse, and that each project demonstrates an appropriate level of public benefit. This problem will increase with the introduction of a small grants scheme of the type currently being piloted in Scotland as Awards for All.

The Application Process

  4.18  We have already noted (4.03) that HLF's reactive stance tends to lead to frequent changes in its criteria. This lack of continuity has proved perplexing and disruptive for applicants who, while recognising the external pressures at work on HLF, would welcome a greater consistency of approach. This will be especially important for revenue grants, which should derive from a realistic forward plan, that may require a two-year lead-in to an application.

  4.19  We also welcome the recent introduction of the two-stage process, with a £500,000 threshold, which will mean that applicants for larger schemes need no longer expend substantial resources in developing schemes that may not succeed. While we accept £500,000 to be an appropriate lower limit for a compulsory two-stage process, we believe this approach should be available to all applicants. This would encourage all applicants to plan fundraising and development to be completed previous to contract, and give smaller organisations a chance to acquire all the advice and support they need, and carry out appropriate fundraising, in advance of their final bid, rather than after approval.

  4.20  The Application Pack and Forms are said to be "easy to follow". Several members have experienced very long delays in HLF deciding their applications. This sometimes arises from the applicant providing inadequate information. HLF's past practice has been to facilitate the pathway of applicants with projects that address heritage priorities and are prima facie sustainable, but may be poorly-presented. This approach has substantial benefits, but also postpones consideration of those applications, and absorbs resources that delays consideration of others. In some cases it is clear that work-pressure at HLF has been the cause of delay. However, the "fast-track" arrangement to purchase items sold at auction appears to work well.

  4.21  Comparing HLF's 1997 performance with the other English distributors suggests a lower level of performance both in timeliness and application processing cost than some other distributors:

	HLF	Sports	Arts	Millennium	NLCB
Days taken to process each application	1441	1951	831	4742	801
Cost per application processed	£6,400	nk	£5,079	£1,923	£1,281
1 to approval 2 to contract

  Source: Department for Culture, Media & Sport Annual Report 1998

  4.22  HLF's operational performance has improved in the recent past, largely due to a more mechanistic approach in assessment, and less assistance to applicants to hand-craft applications. While this approach improves efficiency, it is not as yet clear how it will impact on quality. Our own experience is that, without local support to applicants, it is likely to drop. We note that our own grants scheme, albeit dealing with projects at the lower-cost end of HLF's scale, provides decisions within 15 days of a full application, and the cost of processing an application, from receipt to final evaluation, is around £200. This approach, which was top-rated in a government review of MGC-funded grant schemes in 1994, relies on (as that report put it) area museum councils' "professional expertise, detailed local knowledge and robust common sense".

  4.23  Yet HLF's regional teams are London-based, and cover more than one government region. To provide the best service to applicants HLF needs fully-resourced regional offices. Yet HLF's overheads are already at a level comparable with the average 16 per cent across all Lottery Distributors. Unless there is to be substantial disaggregation of HLF's existing structures, this difficulty can only be addressed by using the powers of delegation given by the 1997 Act, whether to other heritage agencies that are regionally represented, or where such agencies do not exist, to appropriate national specialist groups that know their constituencies well.

  4.24  Other delays result from the use of external advisers in other heritage agencies. They provide bid assessments, this work being done in addition to their other heavy caseloads. Although EmmS has managed an average turnround time on advice of 10 working days from receipt, we are conscious that the response rate for other advisers may be longer. HLF's recent initiative to better order its commissioning of advice is welcome, and should improve matters.

  4.25  Visits by trustees and members of Expert Panels, as part of the assessment process, can also cause difficulty. These are

—  trustees/Panel members becoming advocates for projects they visit, disadvantaging those not visited;

—  comments made during visits by trustees/Panel members encourage applicants to incur expense in (unnecessarily) modifying the scheme so that (the applicant believes) it stands a better chance of success;

—  the specialism of the Panel member, in focusing on heritage merit rather than strategic issues or longer-term sustainability, can distort the assessment;

—  where members of Expert Panels have an affiliation, or relationship with, organisations that themselves are HLF applicants, this can lead to a false perception that there might be a conflict of interest;

—  the preconceptions and prejudices of trustees/Panel members lead them to expressing opinions that are outside the scope of an application (eg pronouncing on the suitability of an applicant museum's collecting policy).

  4.26  The confusion caused by such visits to applicants, and the additional work caused for HLF staff, encourages us to the view that trustees/Expert Panel members should not visit projects as part of the assessment process.

Post-Application Processing and Project Monitoring

  4.27  HLF is congratulated on the openness of its decision-making process, and we know that unsuccessful applicants, though disappointed, appreciate HLF disclosing, fully and honestly, the reasons why the bid failed. The view has been expressed that "its process shows greater transparency than many other Lottery Distributors".

  4.28  There is somewhat less satisfaction about the post-approval process, especially in respect of contractual arrangements. HLF contracts are regarded as "inconsistent and ambiguous", or "unintelligible", and by one grantee's solicitor as "full of holes". There has also been some concern that their conditions are so onerous that it would be imprudent for a charity to become party to them. Notwithstanding the variety of schemes supported, and the complexity of the contract, HLF appear unwilling to negotiate variations appropriate to local circumstances (though we believe exceptions have been made in the case of DCMS-funded institutions). A simpler, straightforward contract written in plain English is felt to be an advantage. In some cases, the contractual requirement on some grantees that they have Collateral Warranties with contractors has been time-consuming and caused additional, unbudgeted, legal fees.

  4.29  In any case, rigorous contracts are only necessary if HLF is prepared to enforce them. Our experience is that trustees are unlikely to demand compliance with contractual terms even when there have been fundamental breaches. As a grant-giving body that does invariably reclaim grant where there has been substantive non-compliance with our terms and conditions, the example set by HLF in this respect causes us some concern.

  4.30  Project monitoring, for smaller and well-planned projects, has generally been satisfactory. Some larger projects feel the monitoring process to be over-elaborate. This is particularly felt where HLF uses private sector monitors, who are seen as making work to increase their fees. There is also a complaint that communication between these monitors and HLF is poor, and concern over the difficulties that can be caused because the monitor cannot speak authoritatively on behalf of HLF. However, we recognise that in some of the cases with which we have been involved, intensive monitoring has been essential to ensure that the project planned is the project delivered, and that matters for which the application gives only outline detail are properly executed.

  4.31  We referred in 4.03 to the initial shortage of caseworkers; although this has been addressed, the staffing difficulty has cascaded to the post-application phase, where a team of four may have to deal with more than 300 successful bids. One of our correspondents summarises the team that deals with monitoring their project as working in an "atmosphere of continuous crisis management". Some applicants grant payments are delayed, claims appear to be mislaid, and enquiries from grantees "are fobbed off with excuses". HLF has recently begun a scheme of "self-monitoring" for smaller projects. Notwithstanding its appellation, these projects are in fact monitored by HLF staff as a desk exercise. The staffing capability does not exist to deal with this arrangement, and claims are delayed. Given that these smaller schemes are those operated by organisations with the least resources, this can cause significant organisational and financial difficulties.

  4.32  We believe there is scope for a lighter touch in project monitoring. This need not be inconsistent with HLF's need to provide rigorous oversight of the funds for which it is responsible. However, it would require:

—  HLF being confident of the applicant's ability to manage the project, or appropriate project management arrangements being embedded in the approved bid;

—  HLF operating a random audit process, both for projects in progress and after completion;

—  HLF being prepared to reclaim grant on defaulting projects, even if the grantee suffers financial loss as a result.

5.  HLF'S IMPACT ON THE MUSEUM SECTOR

The National Scene

  5.01  Our figures suggest that HLF has approved, nationally, grants totalling about £431 million on museum, galleries and collections projects, as follows:

New projects	32%
Extensions to existing museums	31%
Refurbishment of existing museums	27%
Acquisitions to museum collections	9%
Collections care and management projects	1%

  Source: East Midlands Museums Service database of HLF museum awards

  5.02  We are concerned about the revenue implications of HLF support for projects in the first two categories—those that create new museums and extend existing institutions. While each of these developments will have been supported by a business plan demonstrating viability, and some will have the benefit of an economic appraisal based on HM Treasury's "Green Book", such exercises are essentially on a micro-scale. Neither DCMS nor HLF has, to our knowledge, commissioned any research into the macro-effect of HLF projects, which will, of course, compete both with existing heritage sites as well as with new visitor attractions funded by other Lottery Distributors, notably the Millennium Commission and Arts Council.

  5.03  Market research suggests that museum-visiting will continue to be one of the most popular leisure pursuits in the country. However, the potential pool of visitors is unlikely to grow. In some regions—notably London—the effect of HLF-funded new product may damage the current equilibrium, and some museums—including those that have received Lottery funding—may find their viability is compromised.

  5.04  Our own analysis of the revenue implication of HLF projects nationally is an overall increased revenue funding requirement of between 3 per cent and 8 per cent. Even allowing for improvements in self-generated income, real-terms decreases in public subsidy make it unlikely that the new museum projects or extensions to existing museums can be sustained without some compensating reduction elsewhere in the current infrastructure.

The East Midlands

  5.05  We noted in 4.13 that the number and scale of new museum projects approved by HLF is small, and HLF's grant awards in the region to date are unlikely to disturb the current equilibrium.

  5.06  We have been disappointed that so few applications have been made seeking refurbishment of current facilities, especially in the range up to £100,000, which might only require 10 per cent partnership funding. We recognise a need for such schemes. However, renewal, refreshment and rationalisation of existing museums is also required that will involve projects that cost in excess of £500,000. We estimate the total capital need for such projects, over the next three financial years, to be in the order of £25,000,000. In view of the region's low per capita spend to date, and subject to satisfactory schemes, we would hope that such low-risk projects will be given priority.

  5.07  While we welcome the extension of HLF's powers to finance revenue schemes, we hope that capital need will not be forgotten. Lacking such investment, museum education services will be unable to make their full contribution to the government's challenge on lifelong learning; museums will not achieve their goal of being accessible to everybody; and the goal of excellence in museum provision will not be sustained.

6.  SUMMARY

  6.01  Our respondents view of the process of applying and managing an HLF grant can be summarised as:

—  the application process was generally seen as fair and reasonable (4.10) and HLF caseworkers are held in high esteem (4.06);

—  HLF Expert Panels should have a strategic rather than an operational assessment role (4.05 and 4.25);

—  HLF contracts are unsatisfactory, and need reformulation (4.28-9);

—  there is an urgent need to reinforce staff dealing with approved applications (4.31);

—  project monitoring should be subject to a "light touch" regime (4.32).

  6.02  Above all, applicants want a period of stability, with a moratorium on policy changes, whether internal, or generated by DCMS (4.18). We are sure that HLF would also appreciate some time to catch its corporate breath. It will be very difficult to deal adequately with any of the issues raised if HLF continues to be subject to a constant state of flux.

  6.03  The museums sector has lacked significant capital investment for a substantial number of years. Applicants' skills and expertise are therefore not always of the capacity to manage the projects they are seeking to implement. The most appropriate projects may not always be those that are forthcoming. HLF should work with the other strategic heritage agencies to encourage such organisations to develop appropriate schemes (4.15; 5.06).

  6.04  HLF's level of investment in the museum sector has been substantial. However, we doubt that some of this will provide long-term benefit. The lace of any published strategy, and the organisation's ad hoc style, has created a risk of large-scale failure in the museum sector post-2000 due to over-capitalisation. DCMS should commission research into the macro-economic impact of Lottery projects (5.02).

  6.05  In view of this, it is paradoxical that the renewal and refurbishment needs of many viable museums, to enable them to satisfy the needs of the new century, have not been met. There is a strong case for a better strategic framework to ensure that HLF funds for museums are better-spent. It would be tragic, given this real need, if the result of the current Lottery cash was an unsustainable infrastructure and a series of revenue projects that generated no lasting benefit. There is a long-term requirement for continuous improvement of the museum framework, that, given the current and likely future disposition of the public finances, can only be met by the use of Lottery funds (4.09; 5.07).

  6.06  Notwithstanding these difficulties, given its unorthodox paternity, the diversity of the heritage sector, and the external factors with which it has to deal, we believe that HLF has made a major contribution to the nation's museums, both national and local. Some of these achievements are substantial and ground-breaking, and does the organisation great credit.

  6.07  HLF has taken great trouble to develop effective working relationships with the other heritage agencies, to respect their strategies, and promote their objectives. There are opportunities to further improve co-ordination with those agencies on a regional level, to enable a best-value approach to using Lottery funds to safeguard and make accessible the people's inheritance.

  6.08  Perhaps HLF's greatest potential lies in that it has, for the first time in the UK, sought to identify best practice in the different heritage sectors, and begun to cross-fertilise it with the others. This potential to facilitate an exchange of experience and best practice is widely seen as beneficial, and provides a platform for long-term development. Taking into account the benefit the national heritage brings to the UK economy, and the social advantage it provides, this potential should be exploited to ensure that, in caring for its heritage and making it available to the people, the UK continues to be a world leader.

June 1998