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Public Accounts Committee Report on Olympic Preparations

Conclusions and recommendations

We have considered seven main areas of risk, and our specific conclusions and recommendations on each are as follows.

Governance and delivery structures to coordinate the multiplicity of organisations and groups involved in the Games

1. The test of whether the plethora of bodies involved are working effectively will be whether individual projects and the programme as a whole progress on time. The Department is responsible for providing cross-government coordination, and should develop an agreed plan of what needs to be decided, when and by whom. The Department should periodically seek the views of the Olympic Delivery Authority and LOCOG, the lead organisations delivering the Games, on whether government is taking the decisions required at a pace which will allow them to maintain the necessary progress.

2. Continuity of key people on major projects is key to success. The Department, the Olympic Delivery Authority and LOCOG should identify which positions are key to the successful delivery of the Games, specify the skills requirements for those positions, and develop strategies for retaining individuals, knowledge and skills for the duration of the Olympic project.

Delivering the Games against an immovable deadline

3. Any slippage in the delivery programme would bring the risk of having to pay more, or reduce quality, to be ready on time. The immovable deadline could weaken the delivery organisations’ negotiating positions on contracts. Any delays could mean that additional resources have to be brought in to get projects back on schedule, and result in the specifications having to be changed to allow projects to be completed on time or to contain costs. The Olympic Delivery Authority will need to establish incentive arrangements with their contractors which specifically address the enhanced risk of cost overruns and quality shortfalls. The requirement for the budget to be clearly determined and effectively managed

4. The costs of the Games were seriously underestimated at the time of the bid and the private sector funding seriously overestimated. Subsequent to our hearing, the Secretary of State announced a budget for the Games which totalled over £9 billion, an increase of some £6 billion on the position at the time of the bid. At the time of the bid:
• whole categories of cost were omitted, including tax, contingency margin and security;
• the Department expected to raise £738 million of private sector funding, which would have covered a quarter of Olympic costs, but now there is little prospect of significant private sector funding being achieved.
We intend to return to the budget for the Games on the basis of a further report by the Comptroller and Auditor General.

5. As the ultimate guarantor of funding for the Games the Government is financially exposed. In addition to the budget announced by the Secretary of State, LOCOG has a budget of £2 billion for staging the Games and is intended to be selffinancing. In seeking to prevent further calls on public money the Department needs to satisfy itself that LOCOG’s costs are under control and its revenues on track, and should develop a plan for doing so.

Applying effective procurement practices

6. The Olympic Delivery Authority has put in place a procurement policy for the £3 billion worth of goods, services and works it expects to procure for the Games. This policy sets out best practice, and any departures deemed necessary to deliver the Games should be made clear and explicit at the time. The Department should hold LOCOG accountable for developing clear policies in advance of starting its procurement programme in earnest in 2009.

Planning for a lasting legacy

7. There is a lack of clarity about how venues will be used after the Games, with the risk that designs fail to reconcile the needs of the Games in 2012 with those of subsequent users. Legacy plans for using the five new venues that will remain after 2012 should now be finalised, with ownership and responsibility for conversion and running costs resolved for each venue. The plans for delivering the wider benefits from the Games, which were to have been in place by the end of 2006, should also be completed, with the expected outputs and outcomes made clear.

Effective progress monitoring and risk management arrangements

8. Strong progress monitoring and risk management arrangements are essential, but are not yet in place. For the programme as a whole, incorporating 42 subobjectives assigned to 17 lead organisations, the Department should develop a framework of timely progress and risk reporting, which ultimately feeds through to the Olympic Board and provides early warning of potential difficulties. This framework should be supported by arrangements in each individual organisation, and work to complete these should be a priority.

The impact on the other National Lottery good causes

9. Funding the Games means that there will be about £1.7 billion less money available for the other good causes supported by the National Lottery. As well as the £1.1 billion that is to be transferred directly from the other good causes, the new designated Olympic lottery games are also having a diversionary effect with an estimated £575 million coming from players who switch from other lottery games. The Department should give the Lottery distributing bodies frank assessments of when and by how much their income will fall, and they in turn will need to make plans setting out how they will minimise the impact on the good causes.
Pages 5-7

33. The public sector funding package for the Games agreed by the Government and the Mayor of London in 2003 included £1.5 billion of funding from the National Lottery. This comprised £750 million from new designated Olympic lottery games, £340 million from the sports lottery distributors, and £410 million from general lottery proceeds, to be derived from a change to the allocations to the non-Olympic good causes after 2009.39

34. Returns to date from the designated Olympic lottery games had been slightly higher than projected, with some £118 million expected to be raised in 2006–07 against a target of £110 million. The Olympic lottery games would, however, reduce the money available to the other good causes (the arts; sport; heritage; charities and voluntary groups; and health, education and environment projects) by diverting sales from the mainstream lottery games. Some 77% of the money to be raised by the designated lottery games (£575 million of the total of £750 million) may come from players switching from existing games.

35. Overall lottery income has grown over recent years, and the Department hoped that continued growth would help to minimise the impact on the other good causes. The impact of the designated Olympic lottery games, however, together with the transfer from general lottery proceeds, would mean that around £1 billion (£575 million plus £410 million) would to be diverted from the non-Olympic good causes over the period to 2012–13, approximately 10% of expected lottery proceeds.

36. The revised budget subsequently announced by the Secretary of State for Culture, Media and Sport on 15 March 2007 increased the total lottery funding for the Games to £2.2 billion, by raising the amount to be transferred from general lottery proceeds after 2009 by £675 million, taking to about £1.7 billion the amount to be diverted from the non-Olympic good causes.
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From: House of Commons Committee of Public Accounts, Report on Preparations for the London 2012 Olympic and Paralympic Games Risk assessment and management, 10 July 2007

PDF downloadable from: Public Accounts Committee

See also: IT costs 'forgotten'

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