Thursday, June 19, 2008

2012 - Groping In The Dark


Is that a Memorandum of Understanding, or are you just pleased to see me?

Following the publication of Boris's special report on the costs of the Olympics, we've just been treated to a bizarre and highly concerning interview on BBC R4 Today.

At issue was the "secret" Memorandum of Understanding signed between Ken and the government, spelling out who picks up the inevitable further cost over-runs of 2012. Sarah asked Boris if he'd publish it?

Boris responded by saying he doubted if it even existed.

What? Sarah was confused, and asked BBC sports man Mihir Bose to confirm the Memorandum's existence. He said it must exist because, well, it's mentioned in Boris's own special report.

Hang on, thought Tyler, is this the same Memorandum of Understanding published and freely available to all on the Department for Culture Media and Sport website?

Er, yes it is (later confirmed on the prog).

So (a) why was Mihir Bose in the dark? And (b), much more worryingly, why was Boris in there with him?

Hmm.

As for the special report itself, it's a good summary of many points already familiar to BOM readers (see previous blogs gathered here). But it does contain one or two further details.

For one thing, it seems that the ODA has totally failed to deliver on its key pledge to employ only fixed-price construction contracts. It now turns out that for both the main stadium and the Aquatics Centre, it's accepted much riskier open-ended cost-plus arrangements, just like in the bad old days of wild over-runs:

"Both contracts are target cost rather than fixed price as it would not have been economically viable to seek to secure this. The ODA are realistic about the significant level of risk that remains within these contracts."

Well, that's a comfort.

When they got us into this mess, there was much macho talk from the "organisers" about how they would slam contractors up against the wall and make them accept fixed price deals. On BOM we always said that was ludicrous pie in the sky (eg see this blog more than two years ago). So we were 100% right and they were 100% wrong... but... er... how come that doesn't that make us feel any better?

Then there's the Olympic Village, which was originally supposed to be largely funded by the private sector. Well, guess what. The private sector no longer wants to fund it (if it ever did), so we taxpayers are having to step up, against a laughable promise that the flats and houses will be so valuable post-2012 we'll get our money back from sales. Yeah. Right.

TINA is back in town, as we always knew she would be. Time is running out and we have no choice. The "organisers" have now given the developer, Lend Lease, the go-ahead to start building "even though no Development Agreement has been agreed". Translation: a housing project costing many hundreds of millions is going ahead on a wing and prayer, with the taxpayer picking up whatever financial consequence may arise.

OMG.

Current meter reading to date? According to the report, the main venues are currently running £106m over the supposed final FINAL costs agreed last November.

The DCMS argues the over-run - well, this bit of the over-run anyway- is actually only £16m. But that's only because other bits of the project have been hastily canned to balance the numbers. Just one teensy problem with that - the canned bits include items that will almost certainly have cost knock-ons further down the line, eg:

"ODA value engineering exercises to contain costs and achieve savings have inevitably reduced planned spend in areas that are vital for legacy such as landscaping. Early business planning... has already identified the need for additional investment in the park to achieve the standard and quality of legacy park... The LDA is also concerned about potential shortfalls in the transformation budget for venues. It is not clear that the existing budgets will provide turnkey legacy facilities at either the Stadium or Aquatic Centre."

It's the same old same old. Grandiose projects, wishful thinking, wholesale salami slicing, short-term savings at the expense of long-term costs (now you note referred to as "value engineering")... anyone would think Big Government was a lumbering brainless over-priced dinosaur that can't even tie its own shoe laces.

PS After the Boris interview this morning, Ken phoned in. And he was very explicit about a point he'd only hinted at while in office - the reason he backed the Olympics was so London could get its hands on at least a small part of the £20bn pa it has to hand over every year to fund the rest of the country. Put that way, I'm sure Londoners might see the point. But when you have to run a huge wasteful circus like the Olympics just to get back some of your money, it is shocking testimony to just how badly Britain's huge fiscal centralisation serves London and the Greater South East (eg see this blog).

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