Thursday, November 15, 2007

2012 Budget- Bad Faith Or Incompetence?

Radioactive Games are the priciest

Tyler's laid up with bird flu at present (he's been feeling beaky all week), so he was unable to attend yesterday afternoon's Public Accounts Committee session on the shambolic 2012 Olympics budget. No matter, he watched it live on Parliament's internet TV channel, thus giving it an audience for possibly the first time ever (for the next 28 days, you can watch the replay here).

On the table was the second 2012 report by the National Audit Office (blogged here). And on the carpet were Jonathan Stephens, Permanent Secretary, Department for Culture, Media and Sport (DCMS), and David Higgins, Chief Executive, Olympic Delivery Authority.

The PAC pulled no punches, ripping into Stephens for the appallingly understated £2.375bn cost figure originally given to us by Tess and the DCMS.

"Totally unrealistic... additional costs entirely forseeable."

"Bad faith or incompetence?"

"We can have no confidence in your ability to plan ahead."

"Appalling negation of your duties as DCMS Accounting Officer."

Now, after a mauling like that, you or I would crawl off into a corner. But so brazen are these Commissars and their masters, it all just bounces straight off (cf Met Commissioner Blair, or our historically low grade Home Secretary). They may be incompetent, they may be deceitful, they may be banged to rights, but they stay right where they are.

Question: How can we possibly have gone from £2.375bn to £9.325bn, a bed-wetting increase of £7bn?

Answer: The original cost of the Games at bid stage was not £2.375bn [even though that was the figure we were all given by the government's triumphal publicity machine]. No, the real figure was £4.036bn. But from that, you have to strip out £1.044bn of regeneration costs which were always going to be separately funded by the Treasury [derrr... why?], and £0.738bn of assumed contributions from the private sector. Giving us the £2.375bn figure [see figure 1 in the NAO Report... and yes, I do realise the answer isn't exactly £2.375bn, but they ain't my numbers].

Question: So how much have the costs increased really?

Answer: £5.3bn- costs are up from £4bn to £9.3bn [the new budget given by Tess in March]. Of that increase, £1.2bn comes from including VAT (not originally included), £2.4bn comes from the new programme contingency reserve (excluding tax, and not originally included; £2.7bn including tax), £0.6bn comes from additional security costs, £0.5bn comes from the ODA's own programme management costs (originally estimated at a ludicrously small £16m), and the remainder from a variety of factors including greater than anticipated construction inflation.

For future reference, here's the NAO table:

Question (from the excellent Alan Williams, an ancient warhorse from Sunny Jim's government): Why wasn't a programme contingency reserve included in the original budget? Why was standard Treasury guidance on budgeting ignored? Why was it only after taxpayers had been irrevocably committed that the DCMS decided the budget ought "to include programme contingency because of the general risk of ‘optimism bias’ and more specifically because of the complexity, and scale of the Olympic programme, the interdependencies of different elements of the programme, and the immovable deadline for delivering the Games" (NAO report para 62)? Weren't all those factors obvious right from the start?

Answer: umm... well... anyway, the NAO says our new budget is jolly good...

Question (also from AW): And why was there no adequate security budget? Why is it you've only now come up with this extra £600m? Had you never heard of Munich?

Answer: Where?

Question: Munich. I'll spell it for you M-U-N-I-C-H.

Answer: Ah well, Home Office... rapidly changing thingies... wibble... wibble...

Question: Why was the budget for the ODA's own programme management costs ever set at the ludicrously low £16m? Given that it's since had to be increased by 3,500%?

Answer: We assumed it would be just like an Urban Development Corporation [ie a small quango presiding over bog-standard housing development, as opposed to the biggest peacetime construction project the UK government has ever attempted].

Question: Why did you assume you could get £738m of private funding, when the people advising you [the quango Partnerships UK, or Puke as it's known] "had made clear that the information to support a robust analysis was not yet available" (para 31)?

Answer: It reflected the "state of knowledge at the time".

The PAC seemed genuinely angry at the way the 2012 bid was cooked up, and the Chairman warned Stephens he could expect "a critical report". Stephens didn't appear to bat an eyelid.

Tyler is still undecided. Yes, both the politicos and the commissars have shown utter contempt for us taxpayers. And yes, there should have been a string of resignations and sackings.

But was it lies or incompetence? Hmm. It's a tough call. With this crew, either is equally likely.

PS BOM Olympics cost update

BOM has had requests for a break-down of our long-standing £20bn cost estimate for 2012. Originally it was a guesstimate based on the original all-in budget (summarised here) and previous over-run experience. But now we have the revised official budget, let's recap:

Totting up those items gives a total of £18.7bn- so call it £20 bill.

Now, the organisers would no doubt object to the inclusion of the £1.5bn Games running costs, on the grounds that they are supposed to be self-financing from broadcast rights, sponsorship and ticket sales. But remember, that revenue is uncertain, whereas we're definitely on the hook for the costs.

They'd also object to including that £7.2bn transport infrastructure bill on the grounds that was "going to happen anyway". But with the Games won, we're bolted in, both to the total, and more especially, the drop-dead, and possibly highly expensive, 2012 completion date.

Also, BOM's estimate makes no additional allowance for cost inflation, beyond the optimistic 6% now officially assumed.

And we're making no additional over-run allowance, beyond the £2.4bn contingency reserve now included in the base projection (remembering that the average over-run on UK public sector projects is one-third, and Treasury guidance says "non-standard" civil engineering projects should allow for an over-run margin of up to 66%- see this blog).

Neither are we factoring in possible doomsday scenarios around that radioactive waste and other site contamination highlighted in the vid. Even though the ODA still hasn't bottomed the issue.

Finally, we're making no allowance for possible extra public sector contributions to building the Olympic Village. Even though that's still not bolted down, and there has already been a retreat from the original bid assumption that the entire Village would be privately funded.

All in all, BOM's sticking with its £20bn.

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