Examination of Witnesses (Questions 160-179)
14 NOVEMBER 2007
DEPARTMENT FOR
CULTURE, MEDIA
AND SPORT
AND OLYMPIC
DELIVERY AUTHORITY
Q160 Mr Mitchell: Conversely, when
it comes to disposing of the facilities somebody has got to run
them after the Games are over and the local authorities down there
have got you over a barrel because they can say, "Sorry,
we can't contribute, we are not going to pay" and what are
you going to do with it? Is their contribution anticipated in
the profits which are estimated?
Mr Stephens: No, no contribution
is anticipated from the boroughs. Early in the next year we will
be setting out a Legacy Action Plan which sets out specific actions
the Government will take to secure the legacy both in London and
wider afield. Over the course of 2008 the ODA will be working
with the LDA in the local boroughs on the Legacy Master Plan to
set out the arrangements for the Park and management of the Park
after the Games
Q161 Mr Mitchell: I have just one
final question and that is the North does not seem to get the
benefit from this kind of thing, the South gets the jobs while
they are going and the legacy of the facilities, but the rest
of us pay for it. What do we in Grimsby get out of this?
Mr Higgins: Firstly, there is
the opportunity for businesses to be involved in delivering the
Games. To date we have contracted out 493 suppliers, that is as
of this month.
Q162 Mr Mitchell: You will not have
any from Grimsby, will you?
Mr Higgins: 50% of those 493 come
from outside London, 48% from London, 1% from the rest of Europe
and 1% from the rest of the world. That is a good start. It is
probably because the site is very well connected transport-wise,
particularly rail. Within the next two months we are launching
a programme called Competefor, which will be an electronic brokerage
service, plus a business assistance service to help businesses
in the regions supply services to the Games. We are hoping that
there will be significant economic benefits for businesses throughout
the UK to deliver services for the Games and benefit long-term
from that in business that will flow from the Games with other
clients.
Mr Stephens: We are working with
each region on the specific legacy plans that each region will
put in place to maximise the opportunities and benefits from the
Games.
Q163 Mr Williams: When we started
in November 2004 we were around the ballpark figure of £4
billion and just over two years later it had increased by £5.29
million. Half the total increase was accounted for by the contingency.
That is a staggering proportion, is it not? When you think of
it, the contingency was virtually 75% of the original total price
you had in mind. How could you overlook it? Did you not notice?
Mr Stephens: As I say, in the
expert analysis that we commissioned and took into account in
the run-up to the bid, we sought to anticipate the risks, we commissioned
a risk assessment and that was reflected at the time of the bid.
I think it is fair to say that there was not as full an appreciation
before the bid as was possible after the bid of the size, scale
and complexity of what was being delivered and the need for this
scale of prudent but realistic contingency.
Q164 Mr Williams: Can I turn to our
Treasury colleague. This must have been a kick in the teeth to
you. We are told by the NAO that the Treasury has "longstanding
HM Treasury Guidance" about programme contingency plans.
Did anyone not tell you about them?
Mr Stephens: As I said earlier,
the bid—
Q165 Mr Williams: Were you aware
of them?
Mr Stephens: The bid costs—
Q166 Mr Williams: Were you aware
of them?
Mr Stephens: —were agreed
collectively across Government.
Q167 Mr Williams: Were you aware
of them? Were you aware of the long-term Treasury guidelines on
programme contingency funding?
Mr Stephens: I am sorry, I am
not in a position to say precisely whether—
Q168 Mr Bacon: —whether you
were aware or not.
Mr Stephens: —whether that
was specifically brought to the Department's attention at the
time.
Q169 Mr Williams: In that case, if
you do not know it suggests you did not know then either. In that
case, Treasury, where were you? We had all been through the fiasco
of the Dome and there was a key element accounting for an addition
of 75% on the additional costs and they did not note it despite
the fact that you had guidance that you had to look out for these
things.
Mr Gallaher: The bid was estimated
at the time based on the facts available to those who were constructing
the estimate and the bid at the time. In the light of London winning
the Olympics there was going to be a clear re-evaluation of those
estimates to take account of contingencies.
Q170 Mr Williams: That may be so,
but why not do it at the beginning so we had a clearer idea what
they needed? That is what the Treasury guidance is about.
Mr Stephens: What I can say is
that in all the considerations and expert analysis, as far as
I am aware no suggestion was made that a specific amount for programme
contingency should be provided over and above the contingency
that was already included project-by-project within the bid estimate.
Q171 Mr Williams: What contingency
was already in?
Mr Stephens: There was an existing
contingency built into the various projects at varying levels
up to 20%.
Q172 Mr Williams: In paragraph 62
we are told at the time of the bid that no provision was made
for contingency on the Olympic bid as a whole. You have agreed
to that, you have signed up to that.
Mr Stephens: Yes.
Q173 Mr Williams: That contradicts
what you have just told me.
Mr Stephens: That is for the Olympic
programme as a whole. That is the programme contingency. Elsewhere,
at paragraph 61 the report makes clear that it did include contingency
provision at the level of individual projects.
Q174 Mr Williams: It goes on to say:
"During the course of the budget review process, however,
the Department and the Olympic Delivery Authority concluded that
it would be appropriate to increase the budget to include programme
contingency ... " It needed this because—these were
great surprises that you discovered—"because of the
general risk of `optimism bias'", in other words an underestimate
of what happened on building costs. You were unaware of that risk
before, obviously. " ... and more specifically because of
the complexity ... ", perhaps no-one had drawn your attention
to the complexity of the project, "..and scale of the Olympic
programme", you must have noticed the scale of the Olympics.
It gets worse: " ... the interdependencies of different elements
of the programme, and the immovable deadline for delivering the
Games. These factors bring significant risks of cost pressures
... ", which my colleague, Mr Mitchell, referred to. Are
you saying that you were not aware of all of these dangers at
the beginning, they came as a surprise to you, a revelation, partway
along the route that suddenly you needed to do something that
the Treasury had been saying you should have done at the outset
anyway?
Mr Stephens: I return to the point
that the estimates at the time of the bid were compiled on the
basis of the knowledge and advice on developments available at
the time of the bid. The expert advice that has been published
is fully available and reflects the risk factors.
Q175 Mr Williams: Sorry, let us come
back to that. The advice at the time was unaware of complexity,
unaware of scale, unaware of the interdependencies, unaware of
the danger of cost escalation in the building industry. On all
of these things you were naive and innocents in the economic world
and you did not realise these things went on, but suddenly it
dawned on you and you made provision which the Treasury should
have been insisting on you making from the outset. Did the Treasury
get involved at any stage in insisting that a proper contingency
provision be made?
Mr Gallaher: I believe the Treasury
was consulted in the construction of the bid.
Q176 Mr Williams: It was consulted
at the beginning on the construction?
Mr Gallaher: Of the estimate.
Q177 Mr Williams: At that stage,
therefore, Treasury would probably have indicated its long-term
guidance, would it not?
Mr Stephens: What is clear is
that the bid was collectively agreed across Government.
Q178 Mr Williams: Sorry, first of
all I want an answer from the Treasury.
Mr Gallaher: The Treasury would
have pointed to the guidance available.
Q179 Mr Williams: There we are. Despite
what you just said, the guidance was drawn to your attention right
at the beginning but you chose to ignore it. Why? Was it incompetence?
Mr Stephens: I repeat, the bid
was collectively agreed across Government. It reflected the state
of knowledge and expert advice on developments at the time. The
expert advice on which it was based has been largely published
and is publicly available and can be reviewed. That shows that
it did include an attempt to analyse risks and provide for contingency
project-by-project on those risks. The bid was constructed at
a time when the delivery structure was not in place, the land
was not in public ownership and the detailed plans for venues
could not be drawn up.
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