Department for Culture, Media and Sport
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Decision to invest in Olympic Village
Olympic programme remains on budget - £324m investment in village but overall cost forecasts across programme fall by £179m
The Government and the Olympic Delivery Authority (ODA) today announced that £324 million of the Olympic budget would be invested in the Olympic Village.
A private sector deal from Lend Lease and its banking consortium was on offer. However, since last summer the economic climate has worsened considerably, requiring the public sector to carry an increased level of risk. Ministers have decided that the Lend Lease deal is not in the best interests of the taxpayer and that it would cost more public money in the long term.
Over the medium to long term as the market improves the ODA will seek private investment for the Village on terms more favourable to the taxpayer.
With the Olympic Village now publicly owned, the public sector will receive returns from sales after the Games. All of the additional £324 million public investment being made today from contingency and savings is expected to be returned after the Games when the flats are sold.
Today's decision means that nearly a third of the way through the programme, just under £1.3 billion of the £2 billion of the contingency fund available to the ODA remains unspent.
It was also confirmed today that, as planned, agreement has been reached in principle for a further £268 million to be invested into the Village through the pre-sale deal for affordable housing with Triathlon Homes. This funding is separate to the Olympic budget.
The Government also published new figures that show that due to cost savings and good management, the forecast total cost of the ODA's Olympic programme has been reduced by £179 million. Taking account of expected receipts from the Village the current forecast for the Anticipated Final Cost (AFC) of the ODA programme is now £7,234 million.
Minister for the Olympic and Paralympic Games Tessa Jowell said:
"After careful assessment it is clear that investing in the Olympic Village now will save public money in the long term.
"A private sector deal was available, but because of the credit crunch it was not a good deal. By funding the entire project the Village will become publicly owned and the public purse will receive substantial returns from sales. The ODA will make a fresh assessment of the market nearer to completion with a view to pursuing deals with other possible investors."
"A third of the way through construction there remains
nearly £1.3 billion of contingency left. Forecast costs have come
down and the overall budget of £9.3 billion remains unchanged. It
will not be exceeded. "
Olympic Delivery Authority
Chairman John Armitt said:
"We recognise the substantial progress made by Lend Lease and the consortium in the last six months.
"The Olympic Village will provide excellent accommodation for the 17,000 athletes and officials during the Games. The high quality development will also provide much needed new housing for east London capable of delivering significant returns to the taxpayer after the Games.
"The majority of contingency used to date has been for projects affected by the economic downturn - the Village and the IBC/MPC. Contingency required for other projects has been more than offset by savings elsewhere.
"Nearly £1.3 billion is left unreleased in contingency, the public sector owns a world-class asset and we remain on track to complete on time and within budget."
Village deal: Due to the credit crunch and the downturn in the property market it has not been possible to fund the Village completely with private investment as originally planned. Previous releases of contingency (£326 million) have kept progress on site on track over the last year.
Following a competitive tender process the ODA has been in discussions with developer Lend Lease about private sector investment in the Village development. Lend Lease has already been appointed construction and development manager and this remains unchanged.
A private sector deal from Lend Lease and its banking consortium was on offer. Lend Lease and its banking consortium were prepared to invest up to £150 million in equity, involving a return to Lend Lease, and £225 million of bank debt to finance part of the construction and development costs.
However, since last summer the economic climate has worsened considerably, requiring the public sector to carry an increased level of risk on the deal. Ministers have decided that this not in the best interests of the taxpayer.
Over the medium to long term as the market improves the ODA will seek private investment for the Village on terms more favourable to the taxpayer.
With the Olympic Village now publicly owned the public sector will receive returns from sales after the Games. At least all of the additional £324 million public investment being made today from contingency and savings is expected to be returned after the Games when the flats are sold.
The £324 million is being funded from within the Olympic budget. Of this £261 million comes directly from the contingency fund while £63 million is from savings made elsewhere on the programme.
It was also confirmed today that, as planned, agreement has been reached in principle that a further £268 million will be invested into the Village through the pre-sale deal with Triathlon Homes for the affordable housing element. This funding is separate to the Olympic budget and made up of grant from the Homes and Communities Agency (HCA) and lending from a private sector banking consortium on commercial terms.
This means the funding for the Village has now been secured. The total cost of the village, including £147 million of post games development costs, can now be confirmed as £1,095 million. This will be funded as follows:
* £650 million of public investment
* £268 million of funding
for social housing
Receipts from the sale of private units will meet the balance of development costs, including post-Games conversion of the athletes' flats into homes for sale, and are also expected to at least repay the additional public sector investment of £324 million agreed by the Ministerial Funders' Group in May 2009.
Construction work on the village started on schedule last June and is on track with building now underway on six out of the eleven residential blocks.
Quarterly economic update: The Government also published the first of its planned Quarterly Economic updates .The key points are:
* £179 million reduction in overall cost forecasts. Within this over a £100 million of realised savings made across the programme including from utilities, structures, bridges and highways.
* Taking account of expected receipts from the Village the Anticipated Final Cost (AFC) for the ODA programme is now £7,234 million
* The majority of contingency used to date has been for projects affected by the economic downturn. Contingency required for other projects has been more than offset by savings elsewhere;
* More contingency available than assessed risks. After the resolution of Village funding £1,288 million, over 60%, remains unallocated in contingency funding;
* ODA latest estimate is that they require £703 million of this remaining contingency;
* There are 4,101 People currently working for contractors on the Olympic Park;
* The ODA and the London Organising Committee of the Olympic and Paralympic Games (LOCOG) expect to award around 7,000 direct contracts worth around £6 billion, creating around 75,000 business opportunities along the supply chain.
* The programme remains on track to finish on time and within budget.
Notes to Editors
1. A copy of the report is available on the DCMS Website http://www.culture.gov.uk/reference_library/publications/6152.aspx
2. Design and construction images of the Olympic Village can be downloaded from: http://mm.gettyimages.com/mm/nicePath/locog?nav=pr124264390
3. Decisions to release contingency funding are made by the Ministerial Funders' Group. This is Chaired by the Chancellor of the Exchequer (Alistair Darling), and also consists of the Chief Secretary to the Treasury (Yvette Cooper), Minister for the Olympics (Tessa Jowell), Secretary of State for Culture, Media and Sport (Andy Burnham), Secretary of State for Communities and Local Government (Hazel Blears) and Secretary of State for Transport (Geoff Hoon). The Mayor of London attends but is not a member.
Olympic Delivery Authority Press Office: 020 3 2012 700
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