Conclusions and Recommendations
1. Foreseeable requirements for public sector
funding were excluded from the estimates at the time of the bid
to host the Games, giving an unrealistic picture of the expected
costs. Contrary to good
practice, the Department did not include programme contingency,
now £2.7 billion, because the scale and complexity of the
undertaking were not appreciated at the time of the bid. The costs
of tax and security, now estimated at over £1.4 billion,
were also excluded from the estimates as they were uncertain.
Yet £738 million of funding from the private sector was included,
despite not being supported by robust analysis. All costs and
revenues should have been included from the outset, with the uncertainties
explained and a contingency provided.
2. The revised public sector funding package
of £9.325 billion does not include all of the activities
on which delivery of the Games and its legacy depends. The
acquisition of land for the Olympic Park, the costs of government
departments working on Games preparations and legacy planning,
as well as the costs of improving wider transport links are all
outside the budget. Any assessment of the costs and benefits
of the Games should reflect all of the additional costs incurred.
3. The Department has confirmed that the public
sector funding of £9.325 billion will not be exceeded and
the Committee will hold the Department to account against this
figure. Following our hearing, in January
2008 the Department published its first annual report summarising
progress with the Olympic programme. In future, the annual reports
and the six monthly updates should explain any changes to the
cost forecasts and provide a breakdown of the costs incurred.
4. There are over four years to go until the
start of the Games but £500 million (18%) of the programme
contingency has already been used. Contrary
to the Department's suggestion, there should be no assumption
that all of the remaining £2.2 billion contingency will be
used. It is for unforeseen costs and the Department should satisfy
itself that options to contain costs have been fully explored
before further contingency is used.
5. Despite the £5.9 billion increase
in the public funding for the Games, the
Department has not specified what will be delivered in return
for this expenditure and the current budget cannot be reconciled
to the commitments in the original bid. To provide a clear
basis for accountability, the Department should:
publish a statement of what will be delivered, including
the legacy plans and benefits for the programme as a whole;
provide an assessment of progress against that baseline
in its annual reports to Parliament; and
show how any subsequent changes to the plans reconcile
to the baseline and support them with a clear audit trail.
6. The preparations for the Games depend
on the Department's ability to co-ordinate funding from a number
of sources. The Department should
maintain up to date forecasts of the cash needs for the Olympic
programme and the timing of individual funders' contributions.
Given that the date of the Games is fixed, the Department needs
to identify any funding shortfall well in advance, and put in
place contingency plans for dealing with it.
7. Revised expectations for private sector
contributions have increased the estimated cost to the public
sector by £748 million. The March
2007 budget for the Games included a £175 million public
sector contribution to the cost of the Olympic Village, which
was previously going to be fully funded by the private sector.
In addition, the absence of legacy plans has made it harder to
attract private investment, and the estimated private sector contribution
has fallen by £573 million. In finalising legacy plans, the
Department and the Olympic Delivery Authority should seek to reduce
public sector costs by attracting private investors, who could
also promote use of the facilities after the Games.
8. The National Lottery is providing £2.175
billion (23%) of the funding for the Games, but its share of any
financial benefits is uncertain. The
estimated £675 million reimbursement to the Lottery is inherently
uncertain as it is based on estimated proceeds from future land
and property sales, and on an agreement with the Mayor of London
which is not legally binding. The long term cost to the public
sector may also be offset by profits from the future sale of the
Village flowing back to the Olympic Delivery Authority. The Department
and the Delivery Authority should identify all potential revenue
generating opportunities and establish principles for how any
benefits might be shared amongst the funders, including the Exchequer
and the National Lottery.
9. The Olympic Delivery Authority is having
difficulty generating supplier competition for some venues.
Ideally, contracts should be awarded after effective competition
between suppliers. If this is not achieved, it is all the more
important that the Olympic Delivery Authority builds cost and
performance safeguards into contracts. The Olympic Delivery Authority
should have rights of access to contractors' books to check costs
and financial viability, and should establish clear contractual
incentives for delivering to time and cost targets. The Authority
should also have early warning arrangements and contingency plans
in place to identify and resolve any problems with contractors,
and, if necessary, replace them.
10. The Department is aiming for wide ranging
legacy benefits from the Games, but there is no basis on which
to measure achievements. The legacy planning
should now be completed and for the full range of expected benefits,
extending beyond East London to the United Kingdom as a whole,
the Department should make sure that the plans set out: quantified
objectives and how they will be achieved, how and by whom success
will be evaluated, and who will be accountable.
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