Examination of Witnesses (Questinos 40-59)
DEPARTMENT FOR
CULTURE, MEDIA
AND SPORT
30 JUNE 2008
Q40 Mr Bacon: This is one of the
reasons why Mr Stephens is so confident, because there is such
a huge contingency.
Mr Higgins: No, because that last
£1 billion is for other risks and, as I say, no-one a year
ago predicted steel would double in 12 months. There are many
other risks still to go on this project.
Q41 Mr Bacon: But the £1 billion
that is not already set aside is still available and, you think,
uncalled on?
Mr Higgins: Is this the second
£1 billion?
Q42 Mr Bacon: Yes.
Mr Higgins: As I have already
said, some of that may well be called on. Our Chairman said it
is most likely that some portion of that will be called on to
fund the village because the unpredicted event is the credit squeeze.
Q43 Mr Bacon: Sure, the credit squeeze
and the property market and everything else. You have rightly
said that it is cheaper to build 3,300 apartments than to build
4,200 but, as far as I understand this, 17,000 Olympic athletes
and officials are coming to this event and that has not changed.
Mr Higgins: Correct.
Q44 Mr Bacon: The number of athletes
and officials coming has not changed so are you going to have
more bunk beds than you previously planned for, or how are you
going to fit them all into 1,000 fewer apartments?
Mr Higgins: No, we still have
17,000 and that is still within those designs, but originally,
18 months, two years ago, the plan was to build quite a spread-out
village and perhaps spare capacity, and that is great in a rising
market where you—
Q45 Mr Bacon: 900 flats of spare
capacity because you thought you would be able to sell them in
a rising market?
Mr Higgins: No, really, because
the planning had not been done, there had been no detailed planning
or design, and we have spent the last 18 months making the planning
more efficient, getting more efficiency on the existing site,
and then spending a lot of time with LOCOG to work out how we
match that with the design—
Q46 Mr Bacon: 3,300 apartments is
enough to house everybody that you wish to house?
Mr Higgins: 3,300 should house
the 17,000. That is correct, Chairman.
Q47 Mr Bacon: The Report, which was
published less than a couple of weeks ago, says, I think, September
2008 is your guideline date for getting a deal. You now expect
to conclude a deal for the Olympic Village by then. Is there any
likelihood at all that that is going to slip or is that a pretty
confident assumption?
Mr Higgins: I think we have said
publicly that we expect bank funding to be ready by the end of
the year, and that is certainly consistent with the public statements
by Lend Lease to the Stock Exchange, which they are bound, in
terms of their best knowledge, to disclose. That is on the funding.
We would expect to have the heads of terms of a deal in advance
of that, but that would be when you have unconditional banking
approval. In this market there is no point in trying to push funders
or banks to speed up, because all you will do is pay a lot more
money, so what we are very mindful of is that there are a number
of sources of funding, including affordable housing, so around
20% of the entire funding for the project can come from affordable
housing, both bank and government grant.
Q48 Mr Bacon: One of the things I
wondered was, since construction has not been affected and is
continuing, in the absence of a signed and secured deal, who is
actually paying for it?
Mr Higgins: The first part of
the vertical build, the tower blocks, has been paid for by the
ODA. What we cannot afford to do is lose time. The greatest problem
on this is if we delayed construction—and we do have plenty
of spare capacity in this programme to date but if we lost that,
we would pay an inordinate amount of money to accelerate it at
the end.
Q49 Mr Bacon: So the ODA is continuing
to pay in the absence of a signed deal?
Mr Higgins: That is right.
Q50 Mr Bacon: That will then transfer
across?
Mr Higgins: That is correct, yes.
Q51 Mr Bacon: Can I just ask you
about the security? The Report says that the requirements for
policing and wider security need to be identified early enough
to be provided cost-effectively, and there is still no costed
plan for these elements of the programme but one is due by the
end of the year. Planning for policing and security has therefore
not been fully integrated with planning for the Games. Do you
have any reason to think that that timetable is going to slip
or are you confident that that will go ahead?
Mr Stephens: Can I pick up on
that? No, I am confident that that will be delivered, and indeed,
security planning has been going on. In terms of security during
the construction phase, that is well under way with the ODA, which
has five defined projects which have already been approved and
are now being implemented, and a further two that will come forward
later this year. For all the venues and designs, Mr Higgins, within
his security team has dedicated advisers from the Metropolitan
Police and other security agencies who are there to comment on
the design and plans as they go, so every area where security
input has been required so far we have had that. Nothing has been
late as a result of that.
Q52 Mr Bacon: Just one more question,
which is about the legacy. Again, the Report comments that the
longer the legacy requirements remain unclear, the harder it will
be to accommodate them in the design and construction of facilities
and the more likely is that, through expediency, legacy objectives
will be compromised by the need to deliver the Games on time.
Would you just like to comment on that?
Mr Higgins: I think the most important
thing about legacy is to take a highly deprived area in East London
and turn it into something which is economically successful. Our
legacy that the ODA is accountable for, which I would term the
first phase of it, covers transportation, improvements to the
station, to the major DLR access ways and other lines going there,
the cleaning of all the ground works, the putting in of power
stations and utilities, so that economic growth can happen. So
the investment in the town centre, which has a substantial amount
of private sector investment, in the shopping centre and the town
centre, then brings with it many jobs. Certainly, in terms of
the venues, some of the venues already have end owners, such as
the Velopark, which is already in place; the canoeing in the Lea
Valley Parks Authority. Clearly, on the Aquatic Centre and the
Stadium, the sooner we can have the final end owner and the operating
structures, the better, but we are designing those to a legacy
format, which is, in the case of the Stadium, compliant with athletics
and other users, and in the swimming pool we know what the use
is there in terms of swimming.
Q53 Mr Bacon: Just one more quick
question. You mentioned the Aquatic Centre. What has been the
reason for the cost explosion at the Aquatic Centre?
Mr Higgins: The costs of the Aquatic
Centre have remained consistent since March 2007 and the challenge
for the Aquatic Centre is O2—I am sure many of you have
been to O2—if you think of the size of a structure with
no columns, site lines fully enclosed so it can be climate-conditioned,
and then three pools in the middle of it, serving thousands of
people on tiers, and it is then shrunk back to effectively a major
municipal pool complex with three swimming pools, but back at
a space and size that is much more intimate. These are always
very difficult venues to deliver. I was involved directly in delivering
the one in Sydney. They are very difficult to design; they are
a real design challenge. So it is not a normal, conventional swimming
pool. For the first week in the Games it is the major focus of
all the swimming and major medals for the whole Olympics. It is
one of the most important venues to achieve, but in this case
it also includes a huge land bridge which gives access to Stratford
and to the Olympic Park as well. [4]
Q54 Chairman: Would it be fair to
say that one of the reasons why the costs have increased for the
Aquatics and the Main Stadium is because there has been a lack
of effective competition? Mr Stephens, why were you not able to
deliver more competition?
Mr Higgins: As the Report says,
of the 32 major venues to be gone to competition, 26, I think,
have three or more tenderers.
Q55 Chairman: I was talking about
the Main Stadium project and the Aquatic Centre.
Mr Higgins: When the Stadium came
out, of course, it was just after Wembley and so a high-profile
publicly funded venue, the Stadium, was not an easy one at that
particular time to get interest in. Importantly, on both the Stadium
and the Aquatic Centre, over 60% of all the work that is delivered
on the project is publicly tendered for subcontractors and suppliers.
One of the reasons, however, on the Stadium in particular, we
went to in the end, after competition, one particular tenderer
is that the design is everything on this project. We had no design;
we did not have the luxury of doing two or three years' worth
of design prior to going out to tender. You need to design at
the same time as construction. You need to pick a winning team,
and in this particular case McAlpine's had just finished Emirates,
which is a fantastic success, on time and budget, and they were
well through O2, and that has proved to be the case. Our experience
now is that we are ahead of schedule, not only ahead of schedule
in accessing the site, but now the procurement of the steel is
in place, the pre- casting. In this market you choose a partner
who can stand the test of time in difficult times. That is why
we chose Team Stadium.
Q56 Mr Burstow: I am just wondering,
as one reads through the NAO Report, there is a series of issues,
such as the credit crunch, business insolvency, labour costs,
commodity costs, a whole range of factors of that sort, which
presumably underpin the assumptions that you make in your detailed
plans. I just wondered how frequently you reassess those assumptions
to make sure they still hold good in a changing domestic economic
situation and a rapidly changing global one.
Mr Stephens: It is a constant
process and, as the Report reveals, we regularly re-forecast likely
costs, and one must expect over the life of a project with this
sort of life that those forecasts will go up, they will go down,
some individual components will reveal cost pressures, others
will reveal savings. That is typical on a project of this sort.
In terms of the risks, particularly the quantified risk analysis
that informed the programme contingency, the ODA reruns that every
three months.
Q57 Mr Burstow: So you reassess these
figures every three months?
Mr Higgins: Correct.
Q58 Mr Burstow: When was the last
time therefore you did that reassessment?
Mr Higgins: On 30 March we completed
the assessment, sent it to the Department, for approval and review
of the funders in April.
Q59 Mr Burstow: So compared to the
figures that we have reported in this document, how—
Mr Higgins: These are them.
4 Note by Witness: It
is one of the most important venues to achieve, but in this case
it also includes the F10 Bridge within the budget. The F10 Bridge
is a huge land access bridge running through part of the Aquatics
Centre, linking Stratford City Centre to the Olympic Park as well
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