How much will the London Olympics cost?

By Stuart Pemble on Apr 9, 08 06:28 PM in Law

There's a very noteworthy story hidden in the business section of today's Post. In a week of bad news about the Beijing Games, the Olympic Delivery Authority (ODA) has announced that the contracts for the main stadium and the swimming pool (we have to call it the aquatic centre, but a swimming pool's a swimming pool in my book) have been signed.

I am a huge fan of the Olympics coming to London and I really want them to be a success. It's not just that I want Team GB to win lots of medals (and I do) - I would also be delighted if the venues are all built on time (let's face it, they have to be) and on budget.

And what a budget! The ODA's press release proudly announces that the contracts are "within its baseline budget of £6.09 billion" with "no call on programme contingency at this stage". Of the £6 billion, the stadium is going to cost £496 million and the pool a further £242 million. They should be fantastic buildings - the pool is designed by the world-renowned architect Zaha Hadid and the team behind the main stadium are fresh from having procured the Emirates Stadium for Arsenal.

But what if something goes wrong? Take Wembley - it was finally finished 2 years late with the costs overrun currently being fought over in the courts. Can we avoid a repeat?

The problem (or potential problem) is that construction contracts are inherently risky. Lots of things can happen that will add to either the time it takes to complete the buildings or the cost (or both). If there is a finite budget that won't increase, the ODA and its builders have to sign up to contracts which ascribe responsibility for certain problems. Who bears the risk if the site is flooded and unworkable for one month? What if the design changes? Now the ODA aren't daft - and have expressly provided for a contingency to deal with unforeseen events.

But the entire project has been beset with cost increases. When we won the Games in July 2005, the cost was announced as £2.4 billion. Last March, Tessa Jowell announced that the construction costs would be £5.3 billion (more than twice the original estimate) with a further contingency of £2.7 billion.

A year on, and whilst it's great to be told that the contingency doesn't need to be touched, the base build cost appears to have increased by a further £800 million. My concern is that each increase detracts from public confidence in the project.

So the answer to the question posed by this blog is that I have no actual idea what the cost will be. And I wish that wasn't the case.

Comments (3)

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3 Comments

Paul Groves said:

It is worrying that there is such woollyness surrounding the budget.
Clearly projects on this scale will need to have the sort of contingency funds that could swallow up a sizeable chunk of Third World Debt, but I would feel a bit more confident with some concrete numbers.
It sometimes feels a bit like getting a plumber around for a quote (sorry, plumbers everywhere) and they suck in through their teeth, shake their head, tut and say: "You're looking at £x, but if your sprocket is up the duff it could £xx."

The Wembley debacle will forever be the benchmark that all major projects are measured against - until the next big farce, obviously. But even the relative success stories - the Millennium Stadium in Cardiff, the Emirates itself - have struggled with "issues" before, during and after construction.

So, do we have unrealistically high expectations? Should we expect a lot more rough than smooth? Is it asking too much for a bit more clarity and firmness regarding budgets and spending?
I tend to think the answer to all three is an empahtic "No", but then I would because I like to be contrary (according to my wife).

April 10, 2008 11:59 AM

Stuart Pemble said:

Thanks Paul. Actually, I don't think that it is all bad news. We actually have a track record of procuring successful buildings. I'd give Terminal 5 as an example - the problems that BA have had since the opening shouldn't take away from the fact that the building was built on time and on budget (and at £4.3 billion, it wasn't cheap). I think the problem is that when things go wrong in construction projects, it can be quite serious - but I think that's often a reflection of the amount of money at stake. UK construction companies work to very tight profit margins - 1.5% to 3% is good going. It doesn't take much to go wrong on any given project for them to face financial problems.

My big concern for the Olympics is that they are very much in the public eye and we need to get them right. I agree with you: at the moment, I'm not sure the message (certainly on cost) is being managed correctly. Let's hope it gets sorted out sooner rather than later..

April 15, 2008 9:51 AM

Paul Groves said:

Stuart - I agree with your T5 comments. The wider environmental issues notwithstanding, the construction project was a success. But all that has now got lost in the bad PR. From what I can gather, T5 has suffered as a result of something you probably can't legislate against - humans and the mistakes and bad decisions they make.
I'd also say St Pancras is a brilliant achievement - despite that awful statue - and shows it is possible to create something that is functional and a true landmark.
The BBC2 series that went behind the scenes at St Pancras was very illuminating for a casual observer like me regarding timescales, budgets and margins. It is also a great example of how attitudes can change when you're allowed to see a slice of what goes on for yourself, albeit with the usual TV-friendly editing that goes on.
Maybe the 2012 Olympics team need to tackle the cynics (like me) in a similar way - sooner rather than later.

April 15, 2008 11:41 AM