Supplementary memorandum submitted by
DCMS
WRITTEN QUESTIONS
TO THE
SECRETARY OF
STATE
Question references relate to evidence on 21 November
1. What has happened to the KPMG review
of costs which you described in oral evidence to the Committee
on 25 July 2006? What conclusions were reached by KPMG? [Q 144]
The review of costs is ongoing. KPMG's contribution
was two-fold: to re-assess costs to ensure that there is a sound
cost baseline and to help identify the scope for savings in potential
costs with a view to keeping costs down. The re-assessment of
costs confirmed that the core cost estimates of the venues was
unchanged but identified other areas, where, as I reported to
the Committee, increases in core expenditure are anticipated.
This work informs the basis of discussions within Government about
the cost of the Games and how they are to be funded. KPMG's work
also contributed to the identification of savings of some £700
million in potential costs.
2. You said in answer to Q 138 and Q
173 that the NAO has agreed to work closely with DCMS on costs
and ensuring value for money. Can you tell the Committee more
about how this work will be structured?
The NAO is currently undertaking a review of
the preparations for hosting the London 2012 Olympic Games and
Paralympic Games, including the progress that has been made to
put in place the necessary delivery and financial arrangements.
We have also discussed with the NAO their programme of further
work and they are currently drawing up their plans which we understand
could involve looking at the process used to generate financial
estimates.
3. How much private sector funding has
been secured for (a) the Olympic Village, (b) the International
Broadcast Centre/Media and Press Centre and (c) sporting venues
in the Olympic Park? [The Committee would welcome figures in confidence
if necessary] [Q 143]
(a) Our expectation is that the Olympic Village
will be procured by a development partner with the aim of making
a commercial return post-Games and that the private sector will
provide the majority of the financing for its development. Negotiations
with potential developers to agree the arrangements under which
the Village will be procured are still in progress with the ODA.
(b) The net cost of building the International
Broadcast Centre and Media and Press Centre is reflected in the
increase in core costs that I reported to the Committee. A mix
of public and private financing is envisaged but the specific
arrangements for this have yet to be negotiated.
(c) Our figures assume that the costs of
constructing the sports venues will be met entirely from the Olympic
Budget.
4. Can you give an indication of the
likely increase in security costs? [Q 143]
The events of 7 July 2005 changed the security
landscape in London and there will be other considerations that
will impact on security plans for 2012. We are committed to a
safe and secure Olympic Games and Paralympic Games in 2012, and
we will continue to work with all relevant security organisations
to ensure this. My officials are working with the Home Office
and the Metropolitan Police Service and other agencies—together
with Her Majesty's Inspectorate of Constabularies—to clarify
and verify longer term issues, actions and costs as far as that
is possible at this point in time. We will also ensure that security
costs falling to the ODA and LOCOG are reviewed and clarified
in the context of their wider budgets—that work is well
underway.
5. Where, in the bid documents, was it
made clear that the bid was submitted net of the cost of VAT?
[Q 161]
When the bid was submitted the precise nature
of the delivery vehicle was not decided, so it was impossible
to determine the tax treatment of the ODA. The assumption was
that VAT was recoverable in line with the treatment of bodies
such as local authorities and in line with previous Games. The
public sector funding package was agreed on that basis.
6. You refer in answer to Question 171
to "different views" on whether a programme contingency
is necessary, and you said that "I think the broad consensus
is that it is". Are you part of that consensus? If so, why
do you believe that a programme contingency is necessary, and
why was it not included in the original bid?
Yes, I am a part of that consensus. In my view,
contingency is necessary in order to allow for the inevitable
uncertainties and risks associated with a seven year project on
the scale of the Olympic Games and is a practice recommended by
HM Treasury. PWC prepared a detailed report modelling the costs
of the Games. The detailed budget for the Games, including the
allowance for project contingencies, was prepared on the basis
of this advice. Project Contingency is built up from the contingency
for individual projects, whereas Programme Contingency is a contingency
that is applied to the programme as a whole. The cost review that
I initiated immediately after winning the bid has pointed to the
need for a substantial Programme Contingency in recognition of
the scale and risks associated with the Olympic construction programme.
The issue now is what the appropriate level of Programme contingency
should be as we move forward.
7. When do you expect the site survey to be
completed? What timetable was originally set for the site survey?
[Q 167]
As much of the land for the Olympics sites was
not under London Development Agency ownership during the bid process,
it had not been possible to gauge accurately the time requirement
for site surveys. Now that 93% of the land has been secured, the
Delivery Partner consortium, CLM (CH2M HILL, Laing O'Rourke and
Mace), is currently working to establish contamination levels
across the site. There are, at present, eight drilling rigs on
site working on ground analysis, with over half the site assessed
to date. In line with the programme to secure vacant possession
of land, there are three phases to the geotechnical surveys across
the site:
— The first phase consists of
geotechnical surveys (eg ground bore holes and sampling) in "open
areas" as access is gained. This is programmed to complete
end of March 2007. Currently this is on programme and is forecast
to complete on time.
— The second phase is geotechnical
and chemical sampling below the footprints of buildings after
they are made available to the ODA and have been demolished. This
is scheduled to be complete by end April 2008.
— The third phase is sampling
of soil samples as areas are excavated for forming the "platform"
for all other facilities and infrastructure.
The completion of stages one and two will substantially
reduce related risks, as there will be greater clarity on the
exact nature of the materials to be dealt with. There is one area,
the bus station, which may sit beyond the April 2008 milestone,
depending on the arrangements for an alternative site.
There are no current plans to release a detailed
timeframe into the public domain. However, the overview of the
Olympic Park Delivery Programme was published in July 2006 and
includes high-level timelines for land preparation.
8. You told the Committee that the £1.044
billion to cover the costs of linking the Olympic Park to the
rest of the Lower Valley "sits within the budget of DCLG"
and is "routed through the Olympic Delivery Authority"
[Q 177]. Will any element of that £1.044 billion be spent
at the discretion of the ODA?
The £1.044 billion includes expenditure
on a range of infrastructure projects, in particular, the project
to put into tunnels the high voltage transmission cables that
cross the site of the Olympic Park. The programming and delivery
of the projects is a matter for the ODA, subject to the approval
of the Olympic Board. The individual projects are set out in the
ODA's annual budget and funds are made available to the ODA subject
to evidence of spend. In the current arrangements, funds are transferred
from DCLG to DCMS on the basis of evidence of need and issued
by DCMS as the ODA's sponsor Department.
9. You stated that a further £400
million had been identified to cover the appointment of the delivery
partner to oversee "cost control and timeliness" (Q
180). Was no provision made in the original bid for these functions?
What has occurred to make the extra expenditure necessary?
The original bid did not include provision for
a Delivery Partner because at that early stage the shadow organisation
for the construction of the Olympic Park, ie the interim ODA,
had yet to be determined and its Chair and Chief Executive had
yet to be appointed. Following the bid I initiated a thorough
re-appraisal of the costs. This took into account the post-bid
wish by the interim ODA to appoint a Delivery Partner; and the
assessment by the newly established ODA of its needs. This assessment
concluded that there was a need for further expenditure of around
£400 million in order to provide the level and quantity of
expertise and skill necessary to deliver the emerging Olympic
Park project in the Lower Lea Valley and to undertake effective
project and programme management and cost control. The recently
appointed Delivery Partner will play an important part in this
role. However, the c£400 million includes not only the costs
of the Delivery Partner but also the costs of site mobilization
and the costs of additional staff required by the ODA itself.
10. You stated (in answer to Q 187) that the
£410 million second tranche of funding from the National
Lottery Distribution Fund would be "shared equally across
all the distributors... by about £12 million". How is
the £12 million figure reached, and can you confirm that
this rate would apply equally to each of the 16 non-Olympic distributors?
I have no recollection of using a figure of
£12 million. No final decision has yet been reached on how
and when to transfer the £410 million. It is not possible
to confirm precisely what the monetary impact on the good causes,
and on individual distributors, will be. The basic proposition,
however, has always been that we will take the £410 million
from the good causes as fairly as possible and in a way that minimises
the impact on those causes.
11. What would be your preferred method
for meeting short-term funding problems at the ODA, if Lottery
ticket sales cannot meet that need?
At present Lottery ticket sales are on target.
However, were there to be a short-term funding shortfall, we would
look first, by agreement with the other funding parties, to bring
forward funding from the other sources from which the ODA is already
funded.
12. Have any cases involving possible
infringement of the Olympics association right (or of the brand)
yet been determined by a court?
LOCOG's Brand Protection Team has been very
active working with a range of organisations who have used the
brand incorrectly. In the main, people have been very co-operative
and the LOCOG team have been able to resolve these issues amicably.
LOCOG has not yet had to issue proceedings in any case.
13. How many responses have you received
to the consultation on a tourism strategy for 2012?
We received 168 responses from organisations
and individuals by the close of the consultation period. This
number is likely to rise, as we are contacting a number of stakeholders
who missed the deadline. I should emphasise that many of the responses
were from umbrella organisations that represent a large number
of members; for example, the Tourism Alliance represents over
200,000 businesses.
14. How do you intend that performance
towards the objectives drawn up for stakeholders in the London
2012 project should be measured?
Performance will be reviewed by the Olympic
Board on advice from the Olympic Board Steering Group and the
Olympic Programme Support Unit (OPSU). The latter has been established
to provide an overview of the entire programme. Monthly dashboard
and status reports against the specific objectives (and associated
sub-objectives) are reported to the Olympic Board and classified
in a red, amber, green status. In addition, a risk management
reporting process is fully operational across the programme with
the OPSU taking a centralised role in its monitoring function.
1 December 2006
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