Select Committee on Culture, Media and Sport Minutes of Evidence


Examination of Witnesses (Questions 120 - 139)

TUESDAY 4 DECEMBER 2007

LORD COE, MR PAUL DEIGHTON, MR JOHN ARMITT AND MR DAVID HIGGINS

  Q120  Mr Hall: What is the purpose of the contingency?

  Mr Higgins: To manage risk.

  Q121  Mr Hall: Is that its sole purpose or is it just to cover up a very poor estimate in the beginning?

  Mr Higgins: No, contingencies are set up by Treasury as best practice. They vary in range from 30% to 60% on all sustained projects that the Government puts up for approval. You spend contingency to manage risk. Our biggest risk by far is time on this project.

  Q122  Mr Hall: There has been quite a lot said about the contingency. The former Secretary of State said it is around 2.8 billion. That is the programme contingency: 2.47 billion. As part of that there is a 500 million ODA contingency. What is the difference?

  Mr Higgins: The 500 is part of the 2.7.

  Q123  Mr Hall: If it is part of the original, why does it need to be allocated separately?

  Mr Higgins: Of the 2.7 the Secretary of State in March of this year said that 500 would be allocated to the ODA as part of her statement in March setting out the budget for the ODA. So, the ODA's overall budget of just over six billion includes that 500 million figure.

  Q124  Mr Hall: How much of the contingency have you drawn down so far?

  Mr Higgins: Five hundred of the 2.7 has been allocated to the ODA, not spent and not committed.

  Q125  Mr Hall: So you have not spent a penny of it yet.

  Mr Higgins: No, we have not spent the contingency. That is right.

  Q126  Mr Hall: Of the overall figure, the 2.474 billion, how much access to that have you got?

  Mr Higgins: The 500 is what we have access to.

  Q127  Mr Hall: Who authorises the spending of the rest of it then?

  Mr Higgins: That is set up by a committee which is chaired by the Chancellor.

  Q128  Mr Hall: We might look back on this hearing some time in the future. How much of this 2.474 billion are we actually going to spend?

  Mr Higgins: Sorry, the 2.7.

  Q129  Mr Hall: Sorry, the 2.747?

  Mr Higgins: Half a billion probably.

  Q130  Mr Hall: By the time we get to 2012 how much of that contingency would be spent?

  Mr Higgins: We said all along, we expect a substantial part of the contingency to be spent. A project of this complexity, this many projects with a fixed deadline, that is a reasonable figure to say. Clearly we want to minimise the expenditure of the contingency.

  Q131  Mr Hall: Are you confident we will not be asked to provide anything over and above the set level of this contingency?

  Mr Higgins: We are planning to work within the overall budget.

  Q132  Mr Hall: But are you confident?

  Mr Higgins: As confident as we can be. The biggest thing we can do is to hit milestones, which we have hit today. If you look two years ago you would think the biggest risks of the project would have been land consolidation, burying the power lines, vacant possession, planning, and those risks are much lower now but other risks emerge now that relate to delivery.

  Q133  Mr Hall: One final question, Chairman. If the contingency is as you describe it, why did you need a specific £500 million contingency out of the overall contingency?

  Mr Higgins: To address the early cost pressures that were identified as contracts were being let in the early stages.

  Q134  Mr Hall: You could have drawn that down from the original sum. If it is there to meet contingencies, surely you should have been able to draw that down if you needed it regardless?

  Mr Higgins: No, the way that the approvals work within government, if you let contracts such as enabling works, or power lines, or roads and bridges, you need to have a contingency set within that individual project, so you cannot let a project without having an adequate contingency base within the project. So it applied to the funders committee to allocate a contingency to be put within those individual sections; so early works, utilities, enabling works, bridges all have contingency built within the individual projects now.

  Q135  Paul Farrelly: Just to clarify one point. We have got the programme contingency, which might be called the kitchen sink contingency, and that lies above individual project contingency, which is already built into your budget?

  Mr Higgins: Correct.

  Q136  Paul Farrelly: So what is the underlying level of contingency that you have got in your budget before the programme contingency?

  Mr Higgins: It clearly includes the 500 allocated. The Secretary of State will be releasing within the next few weeks greater details on our budgets, which will clarify the break down of end use and various transport and operating costs.

  Q137  Paul Farrelly: As you are working on this, can you tell us, underneath the programme contingency what the total amount is that you have already in your budget for contingency by individual projects?

  Mr Higgins: It varies on each project.

  Q138  Paul Farrelly: The total amount.

  Mr Higgins: We have not—

  Q139  Paul Farrelly: Excluding the 2.7, including the 500 million.

  Mr Higgins: What, today?


 
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