The running cost is £9bn but London will leap all the hurdles

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Within days of his appointment as chairman of the Olympic DeliveryAuthority (ODA), John Armitt received a note from his predecessor,Jack Lemley. The straight-talking American was offering hiscongratulations, even though it was barely six months since he hadleft in bitter circumstances claiming ministers weren't facing upto the construction challenges posed by the project. "Jack wasJack," says Armitt, 62, who is a year into the job. "Things don'talways work out as planned."
They don't. Three years ago next weekend, London won the right tohost the Olympic Games in 2012, estimating it would cost£2.4bn. This budget has since more than trebled to£9.3bn. Lemley recently claimed that even this will not beenough – that anything up to £20bn is possible.
Whether the Olympics end up reaching that extraordinary figure islargely in the hands of the ODA. The body runs the constructionprogramme and is responsible for up to £8.1bn of the revisedfigure.
A glance round Armitt's office provides the evidence that he is oneof the few people in the country with the experience to run aproject on this scale. Hanging on a wall is a painting of thesecond Severn Crossing – the £300m motorway bridgewhich construction he led. On top of a cupboard is a book entitledWork, a history of the £5.2bn Channel Tunnel Rail Link;Armitt was chief executive of the company that developed theproject in the 1990s. And he joined the ODA after a five-year stintheading Network Rail, one of the most scrutinised jobs in the UK.
Every working day, Armitt can survey the progress of London 2012from this 23rd-floor vantage point. Overlooking the Olympic Parksite in Stratford, east London, he can look out at the tower cranesas the foundations are laid for the stadium.
A slim 6ft 5ins, Armitt is something of a tower crane himself,though there doesn't seem to be anything lofty about his attitude.Questions on budgets, which must by now be tiresome for him, aregreeted with a huge, toothy grin and he dismisses the notion thatthe budget will be busted again. He even hints that the originalamount should not have been viewed as definitive: "The accuracy ofanybody's budget depends on the information you have and what yousee as the scope of work. It's impossible to have an accuratebud-get [at that stage] and it's not surprising that it took acouple of years [to produce one]."
Warming to his theme, Armitt points out that 75p in every poundspent is an investment in long-term regeneration for "an area thesize of the City of London that will be there for 100 years".Perception of the budget was not helped either by the InternationalOlympic Committee's demands that bids be calculated in currentfigures, whereas the budget is now estimated at 2012 prices.
The price tag is also largely misunderstood. The construction costis actually £6.1bn. On top of this is £1bn incontingency money that the ODA believes there is an 80 per centchance it will require. Then there is a further layer of £1bnthat the funders – central government, the London Mayor andthe National Lottery – can agree to hand over should there beany unforeseen difficulties. The remainder is on operationalaspects like policing.
The second layer of contingency funds is in danger of being usedbecause of a very unforeseen circumstance: the credit crunch.Australian property developer Lend Lease had agreed to build andcover the £1bn athletes' village on the corner of the OlympicPark, and intended to sell on the properties at a huge profit afterthe games. But declining property values mean that banks havebecome less willing to risk backing Lend Lease, meaning that somepublic funding appears inevitable.
At the moment, the ODA is funding the village's construction, butit is locked in talks with Lend Lease over a compromise under whichthe taxpayer could cough up some of the equity. Olympic sourcessuggest the most likely outcome is that the Government will agreeby the end of July to provide guarantees to banks willing to fundLend Lease. "Some form of government underwriting means thatraising finance becomes easier, though the objective is to minimisegovernment exposure," explains one source.
Armitt contorts his face when asked if Lend Lease in effect has theODA over a barrel. The reasoning is that the Olympics has a fixeddeadline and there is no time to get another developer on board. IfLend Lease needs public funding, the company is in a position todemand it. "To the extent we end up providing [financial] support,we will gain influence on the scheme," he explains, arguing thatany equity provided by the ODA would also mean that it gained ashare of the property sale profits in 2013.
There are also inflationary pressures, with oil price spikes inturn hiking the cost of construction products such as steel. Butthis is balanced by the downturn in the building market in theSouth-east, meaning that labour – some 20,000 workers will beon site in 2010 – will come more cheaply. Armitt adds thatsavings have been made by ordering some raw materials early, withcontracts in place for aggregates and cement.
He is also hopeful of hitting the original £496m budget forthe Olympic stadium, despite recent price increases. Officially,the anticipated final cost is now around £520m, and a sourceclose to the ODA suggests that it may be around £10m more.Already, though, this projected cost is down from a peak of£540m.
Armitt believes that the construction consortium led by Sir RobertMcAlpine, famed for its work on the new home of Arsenal FootballClub, will be able to tweak the design to make savings. "This is atarget-priced contract, which means McAlpine is incentivised tokeep within bud-get," he says, explaining that the ODA and theconstruction team will share any cash should anything remain ofthat original spending estimate of £496m.
Throughout the interview, Armitt has enthused about theconstruction industry, gleefully pointing out pictures in theChannel Tunnel book that demonstrate the best of Britisharchitecture. But there have been concerns that this industry is alittle too tight, and that the ODA is a bit of an "old boys club".
The ODA chief executive David Higgins, for example, is a formerboss of Lend Lease and was once chief executive of EnglishPartnerships, the regeneration agency. ODA board member DavidTaylor headed the same organisation prior to Higgins, whileconstruction director Howard Shiplee worked with Armitt at NetworkRail.
Armitt flashes another big grin and succeeds in making the pointredundant: "You have a job to keep away from each other. In a40-year career, I've had 30 working for construction companies, andlot of the people you meet you come across again. [ODA board memberand former Amec chief executive] Sir Peter Mason I've known for 15years at least, 20 probably."
Another link is with Jack Lemley, his American predecessor. Both,at various stages in the 1990s, worked on the Channel Tunnel. Thatis one of the reasons Armitt knows enough about him to proclaim"Jack was Jack". And just maybe it is one of the reasons why Armittbelieves his calculations on the budget are more accurate thanthose of the man from Idaho, and that this Olympics will beremembered for creating a new quarter of London, rather than wipingout the capital's finances.
The race leaders
ODA. The Olympic Delivery Authority was created to oversee theconstruction of venues and infrastructure for the games. It hasalso been responsible for getting the building proposals throughthe planning process.
ODP. The Olympic Delivery Partner is a consortium that was broughtin to project- manage the construction process and bring privatesector expertise and efficiencies. The CLM consortium –construction groups CH2M Hill, Laing O'Rourke and Mace –works in tandem with the ODA and has let the major contracts, suchas appointing McAlpine to build the Olympic stadium.
Locog. The London Organising Committee of the Olympic Games, run bychairman Lord Coe and chief executive Paul Deighton, will take overmost of the venues on completion in 2011. It will then equip thearenas and train staff, as well as sort out logistical issues suchas deliveries of food.
FRY-UPS, DUMPED TYRES AND THE MAN WHO WON GOLD
Lord Coe, the scrawny lad who started running in Sheffield and grewup to strike Olympic gold in Moscow and Los Angeles, is leading atour around the 2012 site. This scruffy patch of east London is ahive of construction activity, with diggers unloading soil thatultimately forms dozens of hillocks up to 20ft high.
Three blue tower cranes dominate the site. The men and womensupervising them are preparing the ground for the centrepieceathletics stadium. It's hungry work: there is a 12-item cookedbreakfast on the canteen's menu.
A roman coin has been found in this southerly area of the OlympicPark. Further north, English Heritage has demanded anarchaeological dig on land once owned by the Knights Templar.Cobbled roads and gardens dating back to the 16th century have beenuncovered.
There are numerous signs with ominous warnings, like "You are nowentering a contaminated zone". Stacks of discarded tyres and thetype of low- level radioactive waste generated by alarm clocks fromthe 1960s and 1970s are evidence of just how neglected the site wasuntil the ODA came to town.
Lord Coe is reminded that he will have been involved in London2012, from bidding to hosting, for a decade once the last race isrun. "Not as long as it took to get from Sheffield to Moscow," hesmiles.
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