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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