Select Committee on Public Accounts Thirty-Ninth Report


3  THE REQUIREMENT FOR THE BUDGET TO BE CLEARLY DETERMINED AND EFFECTIVELY MANAGED

11. The Department first started to develop cost estimates for the Games in 2002 before the decision to bid had been made. At the time of our examination, however, 20 months after London was awarded the Games, there was still no final agreed budget in place.[13]

12. The Department initiated a thorough and detailed review of costs as soon as London had been awarded the Games, but a number of cost and funding issues still had to be resolved. The Department confirmed, however, that additional public funding would be required.[14]

13. At the time of London's bid, the costs expected to be covered by the public sector funding package for the Games (comprising funding from the National Lottery, the Greater London Authority and the London Development Agency) totalled £2.254 billion. The Department was also co-ordinating Exchequer funding of £1.044 billion to cover the costs of 'non-Olympic' infrastructure on the site of the Olympic Park, which would have been incurred as part of planned regeneration but were being brought forward for the Games. The Department said that the cost estimates at the time of the bid had been based on a thorough process, and reflected the outline plans that had been developed at that stage.[15]

14. In November 2006 the Secretary of State reported to the Culture, Media and Sport Committee that overall the cost estimates for the Olympic Park had increased by some £900 million. The increase included some £400 million for IT and site mobilisation and the costs of the CLM Consortium, appointed by the Olympic Delivery Authority as its Delivery Partner to assist in project managing the delivery of the venues and infrastructure. The original budget had used the costs of an urban development corporation as a benchmark for the Olympic Delivery Authority's running costs, with the result that these costs had been seriously underestimated.[16]

15. The Department was committed to keeping costs under control and delivering value for money. The re-design of the layout of the Olympic Park had produced cost savings of some £600 million, and the design of individual venues, including the Aquatics Centre, was being looked at with a view to reducing costs.[17]

16. At the time of our hearing, a number of significant areas of uncertainty remained before the budget could be finalised.[18]

  • Tax - The Department explained that tax had been excluded from the cost estimates at the time of the bid on the basis that the tax treatment could not be resolved until the delivery structures for the Games were in place.[19]
  • Contingency provision - The cost estimates at the time of the bid had included a contingency provision in respect of individual projects, but the Department now considered that an overall programme contingency margin was required to reflect the interdependencies between projects and the risks associated with the knock-on effect that problems on one project could have on the rest of the programme.[20]
  • Security - It had not been possible at the time of the bid to provide a reliable estimate of the costs of policing and wider security, and the Department had notified Parliament of a contingent liability in this respect. The Olympic Security Co-ordinator was now working up plans and budgets in association with the Home Office and the Metropolitan Police.[21]
  • Private sector funding - At the time of the bid, £738 million of private funding had been expected to help meet costs associated with the Olympic Park. In the light of further work and advice, the Department now considered there was insufficient time to negotiate contracts with the private sector within the overall timescale for the Games, so there was now little prospect of securing significant private sector funding to deliver the Olympic Park. However, most of the funding for the Olympic Village was still expected to come from the private sector.[22]

17. The Department expected the budget would be finalised soon and in the event the Secretary of State for Culture, Media and Sport announced a revised budget totalling over £9 billion to Parliament on 15 March 2007, 10 days after our hearing.[23]

18. As required by the International Olympic Committee, the government is the ultimate guarantor of funding for the Games, including underwriting the costs of the venues and infrastructure. The government has also underwritten the cost of any shortfall between LOCOG's costs and revenues, although LOCOG is expected to be self-financing.[24]

19. LOCOG has a budget of some £2 billion for staging the Games, which is expected to be financed by contributions from the International Olympic Committee, global and local sponsors, commercial marketing and ticketing. It will also receive some public funding in 2012 towards the cost of the Paralympics. The Department said that LOCOG was clear that it had to control its costs and maximise its income to avoid having to call on public subsidy.[25]

20. As well as the amount of funding for the Games, the timing of funding is also important so the Olympic Delivery Authority has money available to pay its bills and take the delivery programme forward promptly. Early forecasts indicated, however, that in all but one year the Olympic Delivery Authority's demand for funds was projected to exceed the supply. The Department was keeping cashflow under regular review to ensure that the Olympic Delivery Authority did not run out of money.[26]


13   C&AG's Report, paras 41, 54; Q 7 Back

14   Qq 6-7, 13, 36 Back

15   C&AG's Report, paras 42, 51, 71, Figure 4; Q 54 Back

16   C&AG's Report, para 56, 78; Qq 142-143 Back

17   Q 26 Back

18   Q 21 Back

19   Q 56 Back

20   Qq 59, 62, 190 Back

21   Qq 122, 147 Back

22   C&AG's Report, Figures 4, 6; Qq 178-181 Back

23   Q 6 Back

24   C&AG's Report, paras 40, 60 Back

25   C&AG's Report, paras 59-61; Qq 18-19 Back

26   C&AG's Report, para 52; Q 127 Back


 
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