Matthew Elliott: The 2012 Watchdog

Matthew Elliott is Chief Executive of the TaxPayers’ Alliance.

Five years from today, the torch for the 2012 London Olympic Games will be lit.  It is still unclear whether British taxpayers will have much to celebrate.  Over the last two years the initial excitement at winning the Games has subsided and is being replaced by a growing distrust of the entire project.

While a majority still support the 2012 Games, the number disagreeing with the statement “the benefit to Britain of having the Olympics here is well worth the money it will cost to stage the games” had risen by 9 per cent according to a Populus poll in November 2006.  Central to this growing disillusionment is that people are becoming increasingly aware of just how much they might have to pay.  87% of them expected the budget to rise; they may not have expected it to rise as much as it did (We will be re-polling these questions later in the summer. Watch this space!).

When the Olympics was first announced it was going to cost just £2.4 billion and that sum was going to come from the National Lottery and an additional levy on London council taxpayers.  Now, the Olympics are set to cost £9.4 billion and £6 billion of that is to come from general taxation.

There have been a number of reasons for the Olympics going over budget.  First, the initial budget was massively flawed.  As the Public Accounts Committee noted, it didn’t include whole categories of cost like tax.  Looking back, it really does appear to have been a back-of-a-fag-packet calculation that was totally unrealistic.

What's worse, there has already been a catalogue of mistakes and misfortunes in the running of this project that have pushed the cost up further.  The unelected quango running the project thought nothing about blowing £400,000 on a bizarre logo no-one liked.  A further £100,000 was spent sending lucky MPs on visits to countries that had previously hosted the games – as if this made any difference at all.

However, the biggest problems are due to poor management practice. It is beginning to look like the Olympic Delivery Authority, the Olympics Minister and the Civil Servants in charge lack the management experience to deliver the Games on time and on budget.  Jack Lemley, Chairman of the Olympic Delivery Agency until last October, quit saying “I went there to build things, not to sit and talk about it.”  Edward Leigh also saw problems with the project’s management, remarking: “There is no single person in overall control”.

All this could mean further rises in the budget of the Olympics.  The TaxPayers’ Alliance has looked at Athens.  If London were to repeat the more than five-fold rise there we could see a budget as high as £12.6 billion.

A new campaign we have established – the 2012 Watchdog – will keep a close eye on 2012 and hold politicians accountable if costs rise further.  We will monitor closely any signs that they are hiding costs in other budgets to conceal over-runs.  We will represent taxpayers throughout Britain who should not wind up paying over the odds thanks to blank cheques written by their government.  Hopefully we can do our bit to make sure that £9.4 billion really is the final budget for the 2012 Olympics.

Comments

[Paul Oakley]

Nice to see someone's keeping an eye on this white elephant. Can't we just pull out and hang the consequences?

[Bobby J]

Did anyone see the Andrew Neil special on the Olympics last night? What a fawning love in amongst the panel. What on earth was the Conservative spokesman Hugh Robertson up to? He stared lovingly at Seb Coe, and only spoke once during the whole show. He looked like Bambi caught in the headlights. Why on earth didn't he attack Tessa Jowell for letting the budget spiral out of contol? Why didn't he attack the raids on the National Lottery? You do have to ask "what on earh is the point of Hugh Robertson?".

[HF]

When are the TPA going to really go after Brown in a consistent and effective manner?

Having praised his last budget they have a lot to make up for.

[Wing Commander]

Thank goodness the TPA is prepared to keep an eye on the budget, beacuse it doesn't look like anyone else will. I could not believe the coments by Robertson last night, when in effect, he admitted that if the costs spiral out of control, and the Conservatives come into power, we would just shrug our shoulders and accept it! If we are an effective opposition, shouldn't we be looking to come up with an alternative? Why are we just going to accept that Tessa Jowell will get us in a massive financial black hole, and there is nothing we can do about it. I really don't think Robertson is up to the job.

[Ken Stevens]

My problem with the Olympics is not the principle but the practice.

We as a nation seem to have lost the ability to manage a large-scale project to timescale and budget. Deliberate or not, I was already resigned to the certainty of massive cost overruns in the cynical belief that no undertaking would get approved if its proponents were realistic at the outset as regards the likely total spend!

However, the main aspect is that we have become so captured in thrall by the minutiae of process that there is never any realistic time allowance for product. We will be argy-bargying about this, that & the other on project planning aspects, leaving a metaphorical 5 minutes at the end for the actual physical works to be completed. I foresee a labourer with a broom running ahead of athletes during a race so as to clear rubble out of their way!

[TomTom]

If this latest White Elephant comes in under £15 billion I shall be most surprised.....here was a tailor-made PFI Project...but it is only hospitals and schools and GP surgeries that MUST be PFI - Scottish and Welsh Assemblies, GLA Buildings, Domes and Olympic Stadia are definitely for the taxpayer.....VAT at 25% anyone ?

[Andrew Lilico]

Projects such as the Olympics are subject to a classic problem economists call the "hold-up problem". Certain kinds of project, such as an Olympic stadium, or a rocket launch to Mars, have to take place at a very specific point in time, and cannot miss that window. So what happens is as follows...

1) The government engages in some competitive tender to decide who offers the best quality/price proposal. At this stage, all might seem well on the surface, for firms have competed and the prices may seem attractive.

2) The project proceeds for some time, up to the point at which it is infeasible for anyone except the successful original bidder to complete the project.

3) Then the problems start. The contractor comes back to the government and says "Well...we've had a lot of problems...things are a lot more difficult than we expected...we just aren't going to find it feasible to complete the project for the original budget...so unless you want to give us (5 times; 10 times; insert number here) our original bid, you'd better cancel the project.

Of course, cancelling is by then inconceivable. So, regardless of how efficient the original tendering process was, whoever wins the contract extracts every last conceivable penny out of the government - because the project cannot be cancelled. That is the hold-up problem.

The *only* way to limit the hold-up problem is right at the start, in the design of the process (design of the contracts is no good - these can always be renegotiated).

Later parts of the procurement process might still be redesigned to limit hold-up problem issues (there has been some thinking done on this in the past, in the context of space projects, that could be called upon). But for these projects already under way there is probably not much that can now be done to contain them. You can't wait until the highwayman has his gun to your head to take measures to avoid being held up!

[TomTom]

Of course the other approach is to low-ball the bid as a favour to the politician who invites you to pick up the extra down the line when he has moved on to a new department.....or even gone to work for the contractor

Managing Projects is not difficult - it is just amusing that the government hasn't developed the know-how in-house after all these years.

It might not be only Saudi Arabia that pads a little bit of slush in contracts either

[old right whinger]

When we won the games and heard it would cost £2bn or so, it was easy to take a guess that the cost would come out at £20bn, given our national record of accuracy on costs for major projects. What`s truly chilling is that the Chinese with their low costs and ability to control, reckon they can only do theirs for £20bn! PS Am I alone in wondering why we are always seeing Mr Elliott making the points and asking the questions the conservative party should be asking?

[Dismayed]

HF wrote "When are the TPA going to really go after Brown in a consistent and effective manner?"

Probably when CCHQ "spokesmen" stop briefing against TPA as "dangerous extremists" as they have done over the last year or so. TPA used the budget to get their own back on the Cameroons.