Examination of Witnesses (Questinos 1-19)
DEPARTMENT FOR
CULTURE, MEDIA
AND SPORT
30 JUNE 2008
Q1 Chairman: Good afternoon and welcome
to the Public Accounts Committee. I would like to welcome a delegation
from the Public Accounts and Estimates Committee from Victoria,
Australia; a representative of the Council of the Federation of
the Russian Duma; and a group from George Washington University
in Washington, DC. Today we are considering the Comptroller &
Auditor General's Report on preparations for the London 2012 Olympic
and Paralympic Games and we welcome back to our Committee Mr Jonathan
Stephens, the accounting officer and Permanent Secretary at the
Department for Culture, Media and Sport, and Mr David Higgins,
the Chief Executive of the Olympic Delivery Authority. Welcome
to our Committee. Mr Stephens, I will start by asking you questions.
We made various recommendations and what I would like to know,
Mr Stephens, is why, despite the recommendations that this Committee
has made, we still do not have a Programme Plan—we have
lots of ideas for individual projects but not a plan for the whole
programme—and why we do not have effective risk management
arrangements?
Mr Stephens: We do have detailed
plans. They were available to the NAO and they are reflected in
its repeated assessments of progress, very good progress, on time
and largely on budget, against those plans as set out in the Report,
and indeed, the critical test I think identified by the Committee
itself, was actually what is being delivered on the ground. On
the ground very good progress is being made. The ground is being
cleared, construction has started, in some cases ahead of schedule.
Q2 Chairman: I know that. Why does
it say then in paragraph 1.13, in a Report that you have agreed,
on page 14: "The Executive expects to provide the Olympic
Board with a first version of the Programme Plan by September
2008"? This is three years after this bid was accepted and
we still do not have a Programme Plan.
Mr Stephens: It would be false
to conclude from that that there is no planning. There is very
detailed planning, reflected, for example, in tables 8 and 10,
where the NAO reports progress against plan. The next stage of
that is to take the detailed individual plans that exist for the
build programme with the ODA, for the stage programme with LOCOG,
with the published legacy action plan with work underway to develop
a costed operational security plan, to bring those together to
make sure that all the interdependencies have been properly understood.
We have a draft of that now, both at overall programme level and
detailed down to the level of some 300 individual milestones,
which will be available to the Olympic Board in September, but
also, interdependencies have been well understood. So, for example,
with previous Olympic Games, a critical area of interdependency
risk has been the relationship between the building programme
and the stage programme. We have learnt the lesson of that. We
have ensured that the ODA and LOCOG are co-located and work very
closely together in all respects. We have put a lot of work and
thinking into the various legacy plans so that from the start
the stadium was planned not just for its 80,000 seat capacity
during the Games itself but for its 25,000 legacy intent. So the
interdependencies are being well understood. We are now going
through the process of ensuring we can write those down and present
them in an overall integrated plan for the Olympic Board.
Q3 Chairman: Why does it say at paragraph
1.21 in this Report, which you have agreed with: "Overall,
with the delivery of a number of important and potentially inter-dependent
projects already under way, further progress on the Government
Olympic Executive's overarching risk management arrangements is
essential"? That is stating the obvious but I am surprised
it has not been done yet.
Mr Stephens: Again, at each level,
each individual programme has risk strategies and risk registers
that identify, for example, the critical risks around the build
programme, around sponsorship. A lot of attention has been given
to risk and that is reflected most of all in the work that underpinned
the contingency which was announced 15 months or so ago, which
has been subject to a quantified risk analysis. Again, this is
about ensuring that across all the various risk registers that
now exist, that all of those are operating on a consistent and
systematic basis and are thoroughly understood. The Olympic Board
already receives regular reports, part of the monthly progress
report on the identified risks, and the action proposed on those
risks.
Q4 Chairman: In the absence of the
publication of an overarching Programme Plan or risk assessment,
can you give us an assurance that you will stay within the £9
billion budget?
Mr Stephens: Yes, I am confident
of that, and among the reasons for confidence are that since the
Committee last reported on this subject we have published a detailed
breakdown of the budget. We have published a full account of the
scope of the programme, which ties down and specifies what is
being delivered in return for that £9.3 billion. The ODA
has undertaken a quantified risk analysis. A lot of progress has
been made in awarding individual contracts so that now, of the
£6 billion or so baseline budget, the ODA has awarded contracts
worth just under £3 billion of that, which means that a significant
risk element in the programme has been dematerialised. Significant
progress on the site, in particular in terms of ground clearance
and decontamination, again removes another area of risk and, as
the Report says, the latest forecast of likely ODA potential costs
is just £16 million up on what was forecast last November
at £7 billion, against what is potentially available to the
ODA within the £9.3 billion budget of over £8 billion.
Q5 Chairman: So it is a "yes"?
Mr Stephens: Yes.
Q6 Chairman: You are giving a firm,
cast-iron commitment to the Public Accounts Committee that you
will stay within the £9 billion?
Mr Stephens: Absolutely.
Q7 Chairman: Thank you. You could
not be clearer than that—despite the uncertainties concerning
the Olympic Village that we read about and the level of private
sector interest, which presumably is a moving picture?
Mr Stephens: We have always recognised
that there are a number of risks going forward and that is the
purpose of the contingency, to cover those risks.
Q8 Chairman: You have enough in the
contingency to cover that, have you, and the security in the legacy
plans?
Mr Stephens: Yes.
Q9 Chairman: Any uncertainties on
the Olympic Village, security and legacy plans—there is
enough in the £2 billion to cover all that?
Mr Stephens: We are confident
that that is adequate to cover all of the risks that exist at
programme level and indeed the external risks, a list of which
we published when the ODA published its Programme Baseline Report,
including external economic effects and other external risks.
Q10 Chairman: Previously we have
been critical of you for being over-optimistic about private sector
involvement. Why have you made the same mistake with the Olympic
Village?
Mr Stephens: Perhaps I could turn
to Mr Higgins.
Mr Higgins: If it suits Members,
perhaps I can give background on this complex issue. The Olympic
Village is obviously central to the overall Games bid, an important
part of the compact games. The development deal with Lend Lease
and the bank debt has always been seen to fund the vertical build
of the village, with the ODA contributing towards infrastructure.
Clearly, the impact of the global credit squeeze has particularly
affected the residential market, therefore it has affected future
values and ability to raise finance and the cost of that finance.
However, Lend Lease, in a statement to the Australian Stock Exchange
last week, confirmed that while providing project debt is longer
than they expected, they expect to have it by the end of the year.
They remain strongly committed to the project and we are working
very closely with them. We have started on site and the ODA is
funding that early work on the site for the vertical building
because, clearly, time is of the essence in this project. Any
arrangement we have with the village allows transparency of profitability
so the ODA can recover cost on that area. However, I can say that
over the last 18 months we have looked very closely at the village
and determined that what we need to build is what is required
for the Olympics and not any further, and therefore we have been
able to reduce the number of apartments originally planned two
years ago from 4,200 to around 3,300. That means less houses to
fund, less overhanging the market and it de-risks the project
while still satisfying all the requirements of the IOC. So clearly,
what we are looking at doing is getting at this range of source
of funds to fund the village, and there is a variety of sources,
including bank debt, while preserving best value for the public.
Q11 Chairman: Thank you for that,
Mr Higgins. Mr Stephens, can you please look at the chart on page
12, "The London 2012 Programme: key activities and responsibilities".
Who is in charge? Do you see that chart? It is pretty complex,
is it not?
Mr Stephens: The Olympic Board
is in charge. Within Government, the Olympics Minister is in charge.
Q12 Chairman: Which one person is
in charge? Here you have you on the right. I am not quite sure
what you are in charge of. You report to the Olympics Minister.
You have the Olympics Board with the Olympics Minister, the Mayor
of London, the Chair of the British Olympic Committee, and the
Chair of LOCOG. Which one person is in charge? Where does the
buck stop? On whose desk? Is it your desk, is it the Mayor's desk,
is it the Minister's desk? Who takes the rap if something goes
wrong?
Mr Stephens: It is fundamental
to the delivery of any Olympic Games that it is a partnership
between three core partners. The contract is between the Olympic
authorities and the host city, and the Government is a critical
partner in that. So there are three key partners. They are each
represented on the Olympic Board.
Q13 Chairman: Is this not a recipe
for disaster: a £9 billion-plus project with three people
in charge?
Mr Stephens: It is fundamental
to the delivery of any Olympic Games, and the governance structure
that we have set out brings all those key partners together in
the Olympic Board. It is assigned clear responsibilities and accountabilities,
as set out in the underlying programmes, and the Government Olympic
Executive, which reports to me and the Olympics Minister, is monitoring
the overall progress on all those programmes and the budget as
a whole, and that is why I am here.
Q14 Chairman: How many times has
the Minister met with the new Mayor of London since he was elected?
Mr Stephens: I do not know offhand
but I am happy to ... From memory, they have had at least one
meeting with the Olympic Board, if not two, since he was elected,
and other private meetings as well.
Q15 Chairman: What is going to happen
now? He must have different priorities to the difficult previous
Mayor.
Mr Stephens: I have had absolutely
no reason whatsoever to question his commitment. And have had
strong confirmation of his commitment to the Olympic programme,
the contributions set out here, including the financial contributions,
which were all set out in a memorandum of understanding.
Q16 Chairman: Let us put it this
way. I can wrap up my question in another question here. The design
of the Aquatic Centre has dragged on since early 2005. Its costs
have increased, have they not, Mr Higgins, by £100 million
in the last year alone?
Mr Higgins: Not since March 2007.
[1]
Q17 Chairman: This is wrong information
I have been given, is it? Anyway, it is considerably over budget.
The completion date has slipped four months since last November.
What happens if the Mayor starts pulling the plug on some of these
things? What is going to happen to the legacy particularly, the
Olympic Village, if the new Mayor, for instance, insists that
he does not want the cost to increase in any way? Do you have
any plans?
Mr Stephens: None of us want the
cost to increase. We are all committed to keeping it within the
£9.3 billion public sector budget, and I am confident it
will be. The recent report which the Mayor commissioned outlined
the very good progress that has been made on the construction
programme and ground clearance, and said very good progress had
been made. It also made the point that the project was now largely
defined, the scope had been agreed, and the scope for significant
changes, without actually generating further cost pressures and
increasing risks, was now very limited. There has been absolutely
no indication that anyone is challenging the fundamental elements
of the programme. We all, of course, want to maintain the maximum
possible pressure on costs, to make the most of some savings that
have been realised, and to bear down on the cost pressures that
are emerging.
Q18 Keith Hill: I actually want to
address most of my questions to the Comptroller. Can I just say
first of all that the British disease is one of hyper-self criticism
so can I, Mr Stephens, simply congratulate the Olympics delivery
effort on what the NAO itself identifies as the construction programme
being broadly on track, good practice being evident in the way
procurement is being handled, the cost estimates having been developed,
and now a clear baseline for assessing costs and progress in the
delivery of venues and associated infrastructure. I am absolutely
certain that after our Olympics have been a fantastic success
in 2012, in about 2016 the Evening Standard might just
concede that it was OK. Look, the top critique, it seems to me,
in the current Report seems to be this issue about effective risk
management. I read through the various sections on this, Comptroller,
and I just wanted to ask you and your team for some definitions
so that in the future we have all got a benchmark about what we
expect the ODA and its colleagues to be delivering on. In discussing
risk management, for example, in recommendation 25(b) and paragraph
1.12 there is the use of the phrase, and it is repeated elsewhere,
"the dependencies between key activities". What does
that phrase mean?
Mr Burr: It means for something
like this you have a range of different projects, and it is not
sufficient just to manage the individual projects, but you need
to manage the programme as a whole because one project can obviously
impinge and impact on another; only when one gets to a certain
stage can another one proceed, those kinds of links that need
to be mapped out so that there is an element of managing for the
programme as a whole rather than managing project by project.
Having said that, I know that the work is well in hand to achieve
that kind of arrangement, and we still have four years to go.
I do not think we were advancing that as a criticism exactly but
rather as something that needed to be attended to as the whole
thing comes together.
Q19 Keith Hill: When we last reported—and
this is referred to in paragraph 1.15—the Committee concluded
that strong risk management arrangements were not yet in place.
What do you understand "strong risk management arrangements"
to be? Alternatively, what would be weak risk management arrangements?
Mr Burr: There are clearly major
risks with a project of this kind, as we have already seen with
the way that the budget has developed since London was selected
to host the Games. What we need to see is that those risks, both
to cost and to timely delivery, are all registered, recognised,
and that there are responsibilities for attending to them. Anything
of this scale will have uncertainties and unexpected developments
will occur that would otherwise knock one off course, and the
risk management is about staying on track.
1 Note by Witness: Table 16 of the NAO Report,
which includes reference to the F10 Bridge, shows that there has
been no change between the March 2007 budget and November 2007
Baseline Report. Back
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