Olympic Delivery Authority (ODA) chief executive David Higgins pores enthusiastically over aerial photographs to explain just how visible progress has now become on the London 2012 site. "This year was all about turning programming and planning – the desktop work – into reality," he says. "We are now confident about where we are – after two years the whole programme is two weeks behind the target of finishing a year before the Games."
A year ago, he explains, on site there was a bus depot, a salmon smokehouse, power lines and pylons, and the big risk was site clearance. But by May, this work was completed sufficiently to enable ODA delivery partner CLM to take control of the area and start the actual build.
Just seven months later there are around 4,000 people from multiple contractors working on distinct and carefully separated areas across the 240ha site. "This is where the delivery partner really earns his spurs," he says. "It is proof that your programme management and design management really is going to work. The time for redesign has gone – now it’s about delivering efficiently."
Certainly the evidence of progress is there to see. The stadium – now three months ahead of schedule – is visibly growing out of the carefully dug, bowl-shaped excavation. The velodrome and aquatics centre are clearly visible and the energy centre and Olympic village site are taking shape. Some 25% of the overall construction budget has now been spent – around 34% of the total spend on the park and venues.
It is still early days of course, but the budget remains fixed at £9.3bn – £8bn of which will be spent by the ODA. The base build budget is £6bn with £1bn construction contingency and another £1bn of extraordinary events contingency.
Clearly for the ODA, the biggest challenge of 2008 has been coping with the impact of the credit crunch and global economic downturn. "People will say that, in tough times, is this a frivolous project? Are you sure that you are not wasting money? Is this a few weeks of party or is it really long term investment?" he explains. "We need to show that we are competent and that we’ve thought through what we are delivering has a long-term benefit for the city."
That said, Higgins also accepts that the project has in many ways benefited, as the heat has come off the construction market and the pressure taken off materials price inflation. "If it [inflation] had kept going we certainly had an expectation for at least 6% inflation right through to the end of construction," he says, although pointing out that as the steel for the stadium and aquatics centre was pre-ordered this would not benefit the project. "It has also made the availability of key staff and tradesmen easier." "We fully expect to spend the £6bn – that has never been in doubt," he says. "There is still an 80% probability of spending the next (construction contingency) £1bn. We can’t solve the credit crunch but we can competently manage the project – that is within our control."
But he is far from complacent and in particular highlights the very real need to be constantly aware of cashflow for contractors and suppliers on the project. "We have to be extremely careful," he explains. "We set out three years ago to pay within 30 days. We are now aiming for 18 days. The best thing that we can do [for contractors] is to ensure early payment and run the site very competently."
One of the highest profile casualties of the credit crunch has been the Olympic village. This was to have been delivered by Lend Lease with developer funding but to date a private funding deal for the £1bn project has not been secured.
Faced with the prospect of having to put in more public cash up front, the ODA decided four or five months ago to re-plan and re-phase the village. The plan was to take out cost but more importantly reduce risk and development exposure. "The most important thing was to decide what we are building," explains Higgins. "We had four, 30-storey towers, each with 800 units. They were iconic and we thought that high rise apartments would sell very well after the Games."
However, they were not that efficient for the Games as, due to lift capacities, athletes couldn’t be housed above the 10th floor. Instead the ODA has opted to build more low rise on the Olympics site. "The decision de-risked the village and took six months out of the programme," says Higgins. "It allowed us to reduce the number of apartments down from 3,300 to 2,800. But it meant we still had the same number of bed spaces because the apartments are bigger and you could use all of them for athletes."
The village will still have just under 17,000 bed spaces in these larger apartments as per the original bid and there will be 500 apartments fewer to sell after the Games. The original site will remain undeveloped for now but will have planning permission so that after the Games it can be sold on. "We have a long-term contract for Lend Lease to be development managers and project managers," he says, adding that of the 2,800 apartments at least 1,000 and potentially 1,400 will be sold to the Lend Lease consortium.
"We have an agreement that they progress their discussions on equity. The issue is now making sure that we get an effective deal with the banking syndicate that works for us." To keep the village progressing, the ODA has put up some £95M to fund construction and until an equity developer is found it will act in that role. "In the last year, our forecast of the future sales revenue from the private apartments in the village has gone down," he explains. "We still think that the right solution is to have a private owner develop the housing rather than a government agency. The strategy is to finalise the deal with Lend Lease."
The second major casualty of the credit crunch was the giant media centre which was to be privately funded and developed by a Carillion-Igloo joint venture as a major legacy asset to bring employment to the London Borough of Hackney. However, this deal fell through in October after the consortium failed to raise financing, introducing fears that a temporary structure would be used instead.
The ODA has now decided to fund and construct a permanent 100m by 250m by 25m tall "flexible" structure in Hackney to house broadcasting studios. "I can say definitively that Hackney will have a substantial permanent building that will house part of the media requirement for the Olympic Games," he says, adding that although designs were being finalised it would be a big structural steel portal frame with clear spans and a very heavy floor loading. "We are future-proofing the facility – we don’t know the future use for it and we don’t have tenants. It needs to be flexible and adaptable. When you spend that amount of money to build something that is 60,000m2 then it’s a permanent building. "It’s not there for six months –you don’t want to come along at the end of the Games and pull all that stuff down."
The ODA is now likely to fund the construction – the original total including developer contribution was some £400M – and final funding arrangements are still being worked out. "We haven’t said publicly what it will cost," Higgins added, pointing out that design was still being developed. "The old budget included private sector contribution of £220M but that contribution won’t be coming now so it will be bigger."
Higgins believes this legacy remains the vital ingredient of the London 2012 Games, ensuring the project stimulates employment and regeneration. He highlights the fact that 75p in every pound spent by the ODA is actually for legacy rather than for a three week celebration of sport. That said, he is also clear that without the Games the investment would not happen. "If we didn’t have the games,
I don’t believe that (the regeneration) would have happened," he says. "This is a one off opportunity to transform this area – and it would never have changed without this level of investment.”