Monday, July 23, 2007

A Night At The Fag Packet Olympics

2012 planning meeting

As we've blogged many times, the 2012 London Olympics nightmare is a classic of fag packet planning. And that original £2.375bn budget was almost certainly dreamed up after ten pints down the Stoat and Weasel.

Last week the National Audit Office produced its second report on the whole disaster (see this blog for PAC hearing on first report). And this time they've had a go at unravelling just how such a half-baked budget could ever have been cooked up.

What they conclude is a shocking testimony to the prevalence of wishful thinking and outright deception among our rulers.

The fag packet was first scribbled on one evening down the Weasel in 2002. It was then that the DCMS, the Greater London Authority, and the British Olympic Association jointly commissioned consultants Arup to produce "a study".

At £85 grand, it wasn't cheap. But it was certainly half-baked. It purported to be "a high level cost-benefit analysis of a ‘specimen’ Games (excluding regeneration) for appraisal purposes". And it reckoned the whole thing could be done for a public subsidy of just £494m (para 25).

That's right. £494m.

Even though the Sydney games- one of the most successful ever- had just cost Aussie taxpayers over £1bn, and Athens was well on course for £5bn.

The DCMS ordered up another round (£31 grand) and asked PWC to do another "study". Sniffing the political air (or something), they reckoned it would cost between £1.1bn and £2.1bn (para 26)- both figures being way beyond the initial Arup estimate.

So in the space of just two rounds, the fag packet had gone from £494m to maybe £2.1bn.

It was at this point they decided to kick off the advanced version of the Withnail drinking game. Tess entered into a "memorandum of understanding" with Ken that she could down two pints of Stella and a triple Bacardi before he could name all the members of the winning 1966 England World Cup team.

They agreed the wager would be £2.375bn (para 27).

To be settled by taxpayers.

Game on!

Tess downed the first pint, no sweat.

But then someone pointed out they hadn't agreed proper rules. Where were these so-called "specimen- or should I say urine specimen- games" actually going to be staged?

Tess narrowed her eyes and drew heavily on her Regal. "Oh, I dunno. Anywhere. What about Stratford?"

She asked PWC to do another "study" (for a further £182 grand). This time they reported that "the net costs associated with hosting the Games" would total "some £4.5 billion" (para 28).

Going UP.

Tess downed the second Stella in one. "Sod that! We're just gonna cut costs!"

She asked Partnerships UK, who happened to be sitting at the next table, to come up with some private sector dosh. "Shhhuuurrre," they slurred, "shhhuuuurre... for a boootifooll bird like you... how about £1.336 billion?" (para 30).

Tess wiped the slaver off her vest and rounded it down to £738m (the latest highly wobbly estimate is just £165m).

She downed the triple Bacardi.

Which was probably her Big Mishtake.

Big BIG Mishtake.

But at least she only woke up in a pool of vomit with a gigantic hangover.

The rest of us woke up having to pay the bill.

£9.325bn at the last count. Plus another £8bn or so in transport and other infrastructure.

And we didn't even get to enjoy the drinks.
PS Given the shambles so far, the NAO also asked whether the latest £9bn budget presented by Tess in March (see this blog) is at last sound and complete. And the answer is- surprise- nobody really knows. There's still big uncertainty whether the contingency reserve will be enough, how much construction inflation will be pushed up by all the building work, what will be the detailed design specs, how keen contractors will be to undertake the work, and detailed cashflow benchmarks. As the NAO concludes: "The budget for the Games as announced by the Secretary of State is in effect an outline budget... A baseline budget should be underpinned by clear definitions to help ensure that costs are allocated consistently and financial information can be relied upon... The budget was finalised only shortly before the Secretary of State’s announcement to Parliament, but the timescales meant that the formal drawing together of the budget, the key assumptions and judgements underpinning the cost estimates, and the key deliverables which the Olympic programme is expected to bring had not been completed." (paras 78-82)

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