THE OLYMPIC GAMES 2012

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The government failed to account for the costs of IT when putting together its budget for the 2012 Olympic Games, according to watchdogs of the Public Accounts Committee (PAC). In its 39th report, the PAC said the Olympic Delivery Authority had neglected to include additional costs of £400m, which would cover "IT and site mobilisation and the costs of the CLM Consortium", a project management group appointed by the Olympic Delivery Authority to help it get everything in on time. This £400m oversight was part of a £900m increase in the total budget for the Olympic Park, announced in 2006.

The PAC says the massive underestimate was a result of using the costs of an "urban development corporation" as a benchmark for the running costs of the Olympic Delivery Authority. And they say private sector isn't leaner than public. The report also found the authority has "seriously overestimated" the amount of private sector funding it was likely to receive. Planners budgeted for £738m of private sector funding, but it turned out that there was not enough time to negotiate the necessary contracts, so the money is unlikely to materialise. The games were originally expected to cost around £2bn. That figure has since risen to £9bn. (Source: The Register, Jul/07)

The bill for the 2012 Olympics has quadrupled to £10billion. International Olympic Committee officials are so concerned about the impact of the rise from the original budget of £2.375billion that they have demanded a full breakdown of costs at a key meeting with London 2012 chairman Lord Coe. But Lord Coe's hands will be tied because it is understood the Government is planning to delay announcing the revised bill for the Games until July following disputes within Whitehall on how it is going to be paid. The Government is also believed to want to settle on a final figure of just £6billion because of the public relations damage of admitting the larger figure.

The lower sum does not include the costs of security, VAT and a contingency fund for overruns that will mean the cost of the Games will eventually total £10billion. The main reasons for the rise are:

* More than £2billion needs to be found to cover the regeneration costs for east London around the Olympic Park. This was not included in the original budget.

* At least £1billion, more than five times that originally though, will be needed to cover security costs following the London bombings on 7 July 2005.

* An extra £750 million for infrastructure costs, originally expected to be met from the private sector, must be included in the public funding budget because it is not possible to secure it in time to start building the Olympic Park in the summer.

* At least £2.7billion is being demanded as contingency funds to cover any costs overruns.

Olympics minister Tessa Jowell admitted in November that an extra £900 million was needed to cover construction costs inflation and the increasing price of delivering the project, including a £400 million fee for CLM, the consortium hired to keep costs in check. Even if most of the regeneration, security, VAT and contingency costs are covered by the Exchequer, there is still a shortfall of £1.6billion, which has to be found from either the National Lottery or London council tax-payers under the funding deal agreed between Ms Jowell and Ken Livingstone.

The £10billion does not include the £2billion required to run the Games, which is the responsibility of the London organising committee. Half of this money is covered by the IOC through sponsorship and the sale of TV rights. Lord Coe has to raise the other 50% from domestic sponsorship, merchandising and ticket sales. The IOC is frustrated by the impact the budget row is having as it attempts to encourage less-affluent nations such as Brazil to bid to host the 2016 Games. (Source: Mail on Sunday, Feb/07)

Two of the main venues in the Olympic Park may have to be nationalised, with the taxpayer paying nearly £900 million extra as the credit crunch hits the 2012 Games. Ministers will meet Boris Johnson, the Mayor of London, to consider ways of meeting the soaring bill after a lack of private investment. Alistair Darling, the Chancellor, Tessa Jowell, the Olympics Minister, and Hazel Blears, the Communities Secretary, have yet to agree how to find the cash, with Ms Blears resisting pressure to raid at least £250 million from her department.

Initially the private sector was expected to meet the full £1 billion cost of the Olympic Village and at least half the cost of the £400 million media centre. A deal was supposed to have been reached with Lendlease, the developer of the Olympic Village, by the end of this year. But Lendlease has been unable to raise money because of the current financial crisis and the athletes’ accommodation will now be unviable without extra government funds.

About £550 million of government funding has already been allocated for Stratford Park and the infrastructure for the Olympic Village, including electricity cables and water supply. But an extra £850 million to £900 million still had to be found for the village through a mixture of funding from housing associations, private investment and the taxpayer. So far no money has been guaranteed from either the private sector or housing associations.

The cost of the village has gone down marginally as the number of houses was cut from 4,000 to 2,800 as a result of the housing market slump. The reduction has already led to fears that accommodation will be cramped, with athletes sharing rooms. John Armitt, chairman of the Olympic Delivery Authority (ODA), has argued that further time should be allowed to reach a deal with private investors but ministers are under pressure to underwrite the funding to restore confidence in the Olympic project. Mr Armitt has said that in the worst-case scenario the taxpayer might have to foot the whole bill.

An ODA spokesman said: “More public sector investment will clearly be needed for the Olympic Village, given the problems in the banking sector and the deterioration in the property market. This would be an investment in a long-term housing asset that can then be sold in the future. Commercial discussions are continuing, and we remain committed to delivering the overall project within the £9.3 billion budget.”

It is understood that ministers will next week discuss an extra allocation of £450 million for the Olympic Village and the media centre, although this will not meet the entire cost of the projects. A spokesman for Ms Blears said that she expected any extra money to come from the Olympics contingency fund. Olympic sources said that if the taxpayer met the full cost of the bill the Government would have complete ownership of the venues after the Games and could sell the homes for mixed social and private housing.

The lack of private investment in the park has already resulted in scaling down projects and moving venues, and there is growing concern that this could jeopardise the park’s legacy. Also high on its agenda will be the fate of the Olympic basketball arena. The arena will cost £60 million but is only temporary and will thus have no legacy value. Tessa Jowell, the Olympics Minister, said, “We are not going to lock ourselves into a private sector deal which will not give best value for the public. The village will be built, but how much will be public or private sector will be something that will be negotiated. If the private sector doesn’t put in equity now, it can do so later.” (Source: Times Online, Oct/08)

The taxpayer may have to fund every Olympic venue because of the credit crunch. John Armitt, chairman of the Olympic Delivery Authority, said there was an increased chance that the £900 million Olympic village may not attract any private funding as planned. During the 2012 bid, private sector money was pledged for the media centre and the village while all the sports venues were to be built from the £9.3 billion publicly funded budget. Under original funding plans the Government and developer Lend Lease were to have jointly funded the village but as credit has dried up the ODA has been forced to raid £326 million from the Olympic contingency fund. Mr Armitt confirmed that the ODA could not 'rule out' a complete failure of private sector funding for the village. (Source: Daily Mail, Jan/09)

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