Is London's Olympic site behind schedule already?

The man who was charged with making the 2012 Games run on time claims they are mired in politics and indecision. Is he right?

Paul Kelso
Saturday November 4, 2006
The Guardian

A year ago Jack Lemley, a square-shouldered American construction baron, walked into the Department for Culture, Media and Sport to meet a sceptical press. Appointed from an international field to chair the Olympic Delivery Authority, the septuagenarian was cast as the cure for a nation almost phobic about major capital projects in the wake of the Dome, Wembley and sundry other shambles.
He earned his theatrical nickname, “the Terminator”, while overseeing the construction of turnpikes in the US, a business that makes negotiating industrial relations in post-Thatcherite Britain look like a tea party. That no-nonsense reputation was enhanced with his stewardship of the £8bn Channel tunnel project. For a man capable of linking the UK with continental Europe, ran the argument, coordinating an Olympics should be a doddle.

The reality has proved very different. Last month Lemley abruptly walked out on his two-day-a-week post claiming he wanted to spend more time looking after his business interests in the US. Many suspected that the American’s failing health was a factor - he was treated for a heart murmur at home in the summer and sources suggest his contribution has become increasingly erratic since his return - but the Olympic project was not rocked on its axis. What the Terminator failed to mention in his bland resignation statement was that he would be back.
On Tuesday, having retired to the safe distance of his home town of Boise, Idaho, Lemley gave a more damning account of his departure. A “huge amount of local politics”, he told the Idaho Statesman, had made the job intolerable. “I went there to build things, not to sit and talk about it, so I felt it best to leave the post and come home,” he said, fuelling the fears of sceptics convinced that London’s Olympic dream is destined to become a nightmare of feuds and rising costs. Rather than help raise an Olympic city in the East End, Lemley has caused the first crack in its foundations.

Even the Olympic truce of Athenian legend lasted only 12 days either side of the ancient games, so for London to have made it to the second year of the preparations without a major row should be counted as a minor triumph. That said, Lemley’s accusation goes to the heart of the Olympic project. London’s bid was successful because of the unprecedented level of cooperation between government, the mayor and sporting bodies. Now there are real signs that the coalition is starting to fracture. But are the games really bedevilled by the sort of problems Lemley describes?

It plainly suits Lemley the American to blame his embarrassing departure on someone else, and there are many in London who suspect he is involved in damage limitation to protect his reputation.


“There has been a lot of static around this week but frankly that goes with the territory,” said David Higgins, Australian chief executive of the London Development Agency, yesterday. “I really enjoyed working with Jack and his biggest contribution was to say at the start, look, let’s stop rushing because that’s the biggest problem. When you rush these projects you make mistakes, the stakeholders get confused and costs can rise. So we have spent nine months evaluating the original plans. It makes sense, not least because we were never going to get on to the land until July 2007 anyway.”

But the breezy dismissals of Lemley’s criticisms dispensed by Higgins and his government counterparts belie the very real teething troubles of a project that has until now proceeded almost without a hitch.

Lemley’s intervention coincides with a crucial stage in the games project on two fronts. The ODA, led by Higgins, is involved in intense negotiations with the Treasury over the true cost of delivering not just the Olympic infrastructure but the promised root-and-branch regeneration of the Lower Lea Valley. Meanwhile a corrosive dispute over the post-games use of the main Olympic stadium threatens to divide London 2012’s most senior power-brokers. How London resolves these issues will have a huge bearing on the success or otherwise of London’s Olympics.

The original budget for building the Olympic facilities, agreed after prolonged bargaining between London’s mayor, Ken Livingstone, and Tessa Jowell, the culture secretary, was £2.375bn. The funding package agreed would see £625m come from a premium on London council tax bills, £250m from the London Development Agency and £1.5bn from the lottery. Alongside this the government promised a further £1bn of public funds for general infrastructure costs, such as burying powerlines that currently run across the site.

New homes

Now that £1bn looks like a fag-packet calculation and more money is needed. The reason is not that the cost of building the games has risen, merely that London’s ambitions have. Since winning the pitch in Singapore last year, Livingstone has announced plans to build 40,000 new homes in the Lea Valley. The Stratford City development, Europe’s largest residential-retail project, is ongoing and the Olympic Park has been redrawn to incorporate this parallel development.

The growth of the regeneration project has cost implications for the government, as Higgins told the culture and sport select committee last week. The bottom line is that while the Olympic building budget will remain the same, the overall price tag for the games, including regeneration costs, could soar if the government wants to make good on the grand ideal it somewhat airily promised in July 2005.

Yesterday Higgins defended the apparently mounting costs: “We have looked again at the original funding package, and checked it against the realities of the site and the new regeneration plans for the Lea Valley that have been introduced since London won the games. What we have said to government is look, you have a huge site with a fence round it and you have planning powers over the area, so it makes sense to do the regeneration work as a single package, and we suggested a budget to them to carry out a package of regeneration measures.”

But while his team wrangle with the Treasury with a view to finalising a budget in the new year, potentially more serious trouble is brewing on a second front. The centrepiece of any Olympics is its main stadium, so it is appropriate that the most divisive issue in London’s fledgling project concerns the 80,000-seat arena that will host opening and closing ceremonies and the athletics events.

Across the city at Wembley the incomplete home of English football provides an eloquent warning of the pitfalls of building stadia, while to the north of the Olympic site at Picketts Lock there is a brown field where this same government once promised an athletics track fit to host the 2005 world championships, only to renege at the last minute. The capital, it is fair to say, has serious form.

Once again the row centres on the legacy of London 2012. London promised that the games would leave lasting benefits for Olympic sport in the UK, with the stadium at its heart. The vision they bought was of an 80,000-seat stadium reduced after the games to a 25,000-capacity athletics arena. The problem for those faced with meeting that pledge is that taxpayers have been promised there will be no white elephants, and an athletics stadium on that scale simply will not pay for itself. Squaring the circle of London’s two buzzwords, legacy and sustainability, is a challenge that threatens to divide those running the Olympic project at the highest level.

On one side are senior figures including Livingstone and organising committee chairman Lord Coe, who are committed to an athletics legacy. On the other is government, led by sports minister Richard Caborn, who believes engaging a Premiership football club as an anchor tenant is the only way to make the stadium pay. In Manchester the Commonwealth games stadium was taken over by Manchester City with the warm-up track alongside the main stadium retained as the athletics legacy. Caborn believes this is the best model; senior Olympic figures are equally vehement that football should not again be subsidised on the cheap.

The row has also set alarm bells ringing within the IOC hierarchy and it was the talk of senior figures, including the IOC president, Jacques Rogge, during a visit last month to 2008 hosts Beijing.

Lord Coe will be acutely aware of this tension, not least because of his own political ambitions which may be a factor in the stadium endgame. He is widely tipped as a future head of the IAAF, athletics’ governing body, and is expected to stand in 2011. The post brings with it membership of the IOC and once in sport’s most rarefied club he would have every chance of one day assuming the presidency.

Takeover bid

The most likely candidate to take on the stadium is West Ham United, whose ground at Upton Park lies just a mile to the east of the Olympic site. Unfortunately for those hoping for a quick solution to the problem, West Ham is the subject of a hugely controversial takeover bid from a consortium led by Kia Joorabchian, an Anglo-Iranian with links to the exiled Russian oligarch Boris Berezovsky, and Eli Papouchado, an Israeli property developer who has confessed he has no interest in football. For those in Olympic circles who already regard the over-mighty national game with distaste, this brew of exotic interests is seen as altogether too rich.

The biggest complicating factor concerns the unique traditions of English football, in which supporters demand to be close to the pitch. If West Ham or Tottenham Hotspur, another potential tenant in need of a larger ground, were willing to stomach a permanent athletics track round their pitch the argument would be more straightforward. Providing they were willing to put up around £100m of the capital costs of the games they could probably secure the stadium, which would be reduced from 80,000 to something more appropriate, perhaps 60,000 for Tottenham and 45,000 for West Ham. Neither club is willing to do so.

Worryingly there is no sign of a solution and time is running short. Architects HOK Sport are due to start drawing up designs in the new year and as yet they don’t know exactly what they are building. Any late changes to plans will only increase costs.

Predictably all the agencies involved are playing down the impact of a turbulent week. Ironically one of Lemley’s better ideas provides the best defence. The ODA is proceeding with a plan they call 2-4-1; two years of planning starting in July 2005, four of construction and one of testing. With the bulldozers not set to roll until July the government and the ODA are united in claiming that the current turbulence is an entirely appropriate debate.

True, London can point to an impressive list of milestones reached and a recent visit from the IOC’s senior evaluation team gave the city a clean bill of health. A delivery partner has been appointed to oversee construction on the Olympic Park, a consortium has been awarded the main stadium contract and a planning application for the entire site is due to be lodged in January.

By then London will also need to have presented solutions to the stadium question and emerged from talks with the Treasury clutching a workable and binding budget. If not, the tremors sparked by Jack Lemley’s distant hand grenade could soon grow into serious rumbles of discontent.

In their hands: the decision makers

Gordon Brown, chancellor
Brown would dearly love to be prime minister when the torch is lit at London 2012 but before then has a crucial role to play in clearing public funding for the Olympic-led regeneration project in the East End. Brown’s reluctance to fund any of the core Olympic spending was a huge hurdle to getting the bid started, but as PM-in-waiting he has come round to the project. Now he must loosen the purse strings.

Tessa Jowell, culture secretary
The Olympics minister’s future in a post-Blair cabinet may be uncertain but for now she is a key figure in the battle over what to do with the Olympic Stadium after 2012. Maintaining a community athletics facility will need public subsidy while accommodating a football team, sports minister Richard Caborn’s favoured scheme, will ruffle feathers in Olympic circles. Jowell is yet to declare her hand.

Ken Livingstone, mayor
London’s mayor backed the bid because it was expedient; he thought it would attract more investment to London. Now the games are coming he is keen to control the legacy programme. He has opposed a football club since the start and has promised £10m of funds to underwrite the Olympic facilities. Whether that will be enough for all the venues, and whether Londoners will stomach the council tax implications, remains to be seen.

David Higgins, chief executive, London Development Agency (ODA)
Responsible for the “heavy lifting” of building London 2012, the Australian helped build Sydney’s Olympic venues and has made a solid, unfussy start to the job of doing the same in London. His strategy of planning thoroughly before the ground has been broken has common sense on its side. Ongoing negotiations over the total budget and the stadium will be crucial to the success or failure of the project.

Paul Deighton, chief executive, London Olympic Organising Committee (Locog)
The former Goldman Sachs high-flyer is responsible for staging the games once the buildings are in place. Of his £2bn budget a major chunk is due to come from sponsorship revenue. Ticketing is also his responsibility. Another who has impressed, though biggest challenges to come.

Seb Coe, chairman, Locog
Coe is the face of London 2012 and the job of selling any unpopular decisions over the stadium to the International Olympic Committee will fall to him. The bid was a personal triumph and could be the springboard for him to take high office within the IOC. To do so he has to deliver on the high-minded promise he made in Singapore to transform London and sport in the UK.,,1939462,00.html?gusrc=rss&feed=11

Britain’s Olympic dream

WHEN England’s 4x100m relay team crashed out of the Commonwealth Games in March after Marlon Devonish failed disastrously to pass the baton to Mark Lewis-Francis, the farce was seen as an example of the parlous state of British athletics.

It is now tempting to view that incident as a wider metaphor for “London 2012” after a disastrous month for the British Olympic organisers in which they have looked as incompetent as those sprinters.

Despite unconvincing attempts to dampen concern by Culture Secretary Tessa Jowell, Sports Minister Richard Caborn, London Mayor Ken Livingstone and Lord (Sebastian) Coe, chairman of the London Olympic Delivery Authority, there is little doubt that Britain’s flagship project to stage the Olympics in 2012 is already in deep financial trouble.

Prime Minister Tony Blair was praised for the effort he had made to win the Olympics for London, even travelling to Singapore, where the final decision was made in the summer of 2005, to undertake intensive (some say crucial) 11th-hour lobbying.

Just over a year later, as the project starts to burn cash at a fantastic rate, it already looks as if Blair’s lasting Olympic legacy will be a massive tax bill for the British people.

Costs are out of control and the government’s £2.38bn (E3.54, $4.47bn) funding package is not just inadequate but nowhere near enough.

Who says so? Well, Jack Lemley, chief of construction for London 2012, for one, who abruptly resigned last month because he did not want to be tainted with the incompetence surrounding the project.

The costs were already racing towards double the original estimate when Coe and his Olympic lobbyists won the contest for the Games in the summer of 2005. Conveniently, the figure Coe used took no account of the huge cost of organising security, put by some experts at around £1bn. Nor, inexplicably, did it include any liability for value added tax (VAT) on infrastructure, though the organisers were aware VAT was due because they had privately asked the Treasury for it to be waived.

Add £1bn for local regeneration projects and Olympic insiders now believe the total cost is already approaching £5bn, twice the original estimate – even without the £1bn VAT bill – and with six years still to go.

Last Monday the Treasury again confirmed to the Olympic Delivery Authority that London 2012 would have to pay VAT. If that shocked the organising committee, it hasn’t been listening. In 2004 Ruth Kelly, then Economic Secretary to the Treasury, was asked how much the Treasury would receive in VAT from the Olympic construction project.

She told the House of Commons: “It is for individual bodies to publish any such information as appropriate to their reporting obligations. All construction projects undertaken in the UK are subject to the same set of VAT rules laid out in the VAT Act 1994.”

Waiving VAT is not an option under European Union rules. The Business understands that ministers are now desperately trying to find a way to remove the burden from London 2012, which will inevitably involve taxpayers picking up the tab. Chancellor Gordon Brown promised this week that it would be “sorted out”. He did not say how. We can be pretty sure the taxpayer will have to do the “sorting”.

The VAT bill would have been damaging enough on its own for the Olympic project’s prospects; but the news followed an equally devastating bombshell when Lemley, the former £120,000 a year head of construction, decided this week to explain the reasons for his abrupt resignation in October. Lemley, a tough, no-nonsense, 71-year-old American construction engineer, said on his return to his business in Idaho: “The costs are going to go up on an exponential basis and I’m not going to be part of it. I don’t want my reputation ruined so I felt it was better to come home now than face that in five or six years. I’ve never walked away from a project, ever, until I retired from the London 2012 programme and it was so political that I think there is going to be huge difficulty in the completion, both in terms of time and money.” Lemley probably didn’t expect to see his comments validated so quickly. As a vote of no confidence in his former Olympic committee colleagues, they could hardly be more damning. His timing was also critical: even before the VAT revelations, the first indications of London 2012 cost overruns were beginning to surface.

While Sports Minister Caborn was attributing much of the expected rise to extra regeneration costs rather than the Games, Culture Secretary Jowell admitted there could be no “cast-iron guarantees” about the project’s final bill.

Unsurprisingly, with bad headlines piling up, sceptics have begun to ask if Britain’s Olympic project is being overtaken by financial incompetence even before it has completed its first lap. Others seem to think it is merely par for the course. “I don’t understand what the fuss is about,” said Derek Wyatt, the Labour MP who chairs the all-party Olympics committee at Westminster. “Look at Athens and Sydney especially. They doubled what they agreed [to spend] with the International Olympic Committee. You start digging and suddenly you say: ‘Oh God, we’re going to need to drain that’.”

Maybe, but that’s not how it was sold to the British public. Polls taken during the bidding stage in 2004 found Britons were in favour of hosting the Olympics, unless they had to pay for them. It is clear this influenced the original, optimistic bid calculations.

“I think the government deliberately understated the cost to get political approval,” says Stefan Szymanski, an economics professor at Imperial College, London, who specialises in sport. “Once we’re committed, then you have to go ahead. Nobody is going to cancel an Olympics.”

Probably not, though Britain’s performance at Picketts Lock – the site in north London chosen for the 2005 World Athletics Championships, only for the government to abandon the project – means you can’t entirely rule it out.

Equally, the list of big British construction cock-ups trotted out to prove this country is incapable of delivering large-scale projects on time and on cost is long and shameful. Those who presume London 2012 is doomed to be another costly disaster can hardly be blamed for their pessimism.

Consider just some of a long list of construction disasters: London’s new Wembley stadium (still unfinished, over cost and well behind schedule); the Scottish Parliament (which cost over 10 times its original £40m estimate and was completed three years late); and the British Library (three times over budget and many years late).

As always, infighting is playing its part. Political arguments are paralysing plans for the £350m Olympic Stadium at Stratford, east London, another key reason why Lemley departed. The government, Livingstone, Caborn and Coe’s London 2012 team are at loggerheads over whether a stadium, which isn’t even built, should be used for football or athletics after 2012.

“This is another reason why I was tired of sitting in England wringing my hands,” Lemley says. He explained that he did not want to be known as the man who failed to deliver the Olympics to London and clearly believes there’s is a real risk of that: “I did not want my reputation ruined.”

So history is not on the Olympic Committee’s side, though Britain is not uniquely bad at this sort of project.

With the sole exception of Los Angeles in 1984, which didn’t invest massively in building new infrastructure, every recent host Olympic city has lost money – and many have lost billions.

Even the Sydney Olympics of 2000, which were widely hailed as a financial success, may not have been, at least at some levels. A report by Robert Baade, a Chicago economist, found that the Games deterred many tourists while many who did visit Sydney did so at the expense of somewhere else in Australia.

Parts of those Sydney games were run by David Higgins, chief executive of Britain’s Olympic Delivery Authority. His role has suddenly been brought into

sharp focus. Lemley’s resignation means this low-profile, some say bookish, Australian is, in effect, in charge of Britain’s reputation for staging this huge event – and for the image of Britain’s construction industry.

So who is he? The Queensland-born civil engineer headed English Partnerships, the country’s regeneration agency, but was previously best known in Britain for building the huge Bluewater shopping centre in Kent for an Australian construction group, Lend Lease. It was at Lend Lease that Higgins gained his international reputation. He was chief executive when the group regenerated the Sydney Olympic stadium site and built the Olympic village. But he left Lend Lease under a cloud with many blaming him for a 60% fall in the company’s share price after problems arose with its expansion into North America. Even so, Lend Lease’s shares are still vastly higher than when he took office and he remains a respected figure in the construction industry.

“The relationship between Lemley and Higgins was never going to work. They are completely different characters,” one construction source involved in the project told The Business.

“They kept the right man. Higgins has absolutely got the intellectual power to carry out a complex project in short timescales in a government environment. The surprising thing about Jack Lemley’s comments about government interference is: what did he expect?”

Still, Lemley was the engineer in charge of building the Channel Tunnel, hardly a tiddler in the construction world, and another politically-charged project; so his comments about government interference cannot be easily dismissed.

London 2012 is the biggest construction project in Europe. Now the city’s and the country’s standing with the outside world rests on Higgins’s ability to pull it off. Almost every big construction company in Britain is, or will be, involved; their reputations and their share prices are riding on the project’s outcome.

In a report published last summer, accountants Deloitte identified the three main reasons why big public sector projects go wrong. “It is from poor advanced planning, poor project management or scope change,” said Heather Hancock, the partner in charge of Olympic services at the firm.

“The way I read it is that a lot of the effort going on now is to minimise that, to get ministers bought into the project. It is the best way not to get them interfering later.”

There are other hurdles. “The biggest risk for the Olympic Delivery Authority is that their people just aren’t good enough,” said one source in the construction industry involved closely with the Olympic project.

“Their procurement approach is all over the place. This is not just my view. It’s a quite a wide view in the market at the moment. From now on they need to get their act together. The people they have just don’t understand the nature of the business. They are not specifying things very well and it’s all rather empty and slack. They will send out a tender and it will all have changed by the next day. The source continued: “It’s a big test for Higgins, whether he can build a team around him. He’s really clever and into the detail. But can he get everybody to gel?”

Lemley’s main criticism was that, in such a political environment, people won’t work together effectively. There are already examples of big players touting different game plans.

For instance, Caborn has been talking of the main stadium being used for football, the only commercial option after 2012. Mayor Livingstone, however, insists it be used for athletics: “The deal we made was for an athletics stadium. It’s a legally binding contract. I cannot make any change to that.” Now Caborn is backtracking; nobody is quite sure where we are.

All of which demonstrates that five and a half years before the world’s attention is focused on London, the planners have a long way to go.

“I don’t think they have a viable legacy model for the stadium,” said one expert who did not want to be named. “I don’t think they’ve work- ed out we can’t afford the stadium as a legacy. How they resolve that, I don’t know.”

Other questions are being raised over the Games’ financial model, which assumes construction inflation of 6.5% over the project, despite the figure currently standing at 7%. This begs the question: as costs go up, who will pay?

Livingstone insists it will not be Londoners, each of whom is already stumping up an average of an extra £20 a year in council tax for the next 10 years.

It is not all bad news. The International Olympics Committee estimates that London is a year ahead in the building cycle of where Sydney was; and two years ahead of Athens. Spirits are being kept up with tales about Montreal’s stadium still being painted during the opening ceremony and Athens pulling everything out of the bag at the last minute. The implication is that, whatever the problems, London will make it to.

No doubt it will; but that is not the issue. Even the project’s most vocal critics do not argue that the organising committee is going to miss the 2012 deadline. The concern is cost.

At the moment the final bill already looks like being twice the original estimate. But what will it be when the Olympic torch is carried into the stadium in 2012? Triple? Quadruple? And who will pick up the bill for the overrun? These are questions Tony Blair would rather not answer and he will be long gone from office when the bills start to drop anyway. But it is only a matter of time before British taxpayers are forced to dig deep into their pockets.