The TaxPayers' Alliance - 2012 Watchdog

Ken Blows Gaff On 2012 Budget

Ken and financial advisor

Mayor Livingstone has now confirmed what we always suspected: the original "budget" for the 2012 Olympics was never more than a wild guess.

In attempting to convince us that the "budget" for his latest extravaganza, Crossrail, is robust, he blurted out:

"This is not like the Olympics where we made a guess because we were in a bidding process.''

So now we know. He and our idiotic "government" committed taxpayers to a multi-billion and open-ended bill on the basis of nothing more substantial than a guess.

The lack of professionalism is appalling. But more fundamentally, it is outrageous that they have so little regard for the people who elect them, and who are forced to pay their bills. It underlines once again why we should never ever believe a single thing they tell us.

PS As you may recall, when the revamped £9.3bn 2012 budget was announced in March, Livingstone described the Treasury's insistence on setting a £2.7bn construction contingency reserve as "breathtakingly ridiculous". But we now learn that £360m of it has already been drawn in just the first six months. At that rate it will run out nearly two years before the Olympics are staged.

Little Competition For Key 2012 Contracts

According to Procurement for Dummies, when you're dishing out giant construction contracts- or any other contract come to that- you must make sure you have a choice of suppliers. The idea is that the suppliers compete against each other, bidding to offer you the best possible deal.

It's called competitive tension, and it's the basic measure to ensure you don't get ripped off.

Unfortunately, Britain's Simple Shopper has never quite got the hang of it. All too often, public sector buyers somehow find themselves with just one quote which they then dutifully accept. There's no way of ensuring value for money, because there is no actual competition.

A classic example is unfolding with the 2012 Olympics. Despite all those promises that this time the public sector was going to have really tough competitive bidding, we now know that at least two of the major projects have only one bidder apiece.

The only bidder for the main arena is McAlpine, Balfour Beatty having dropped out. And the only bidder for the aquatic centre is... well, waddaya know... Balfour Beatty. You'd almost think... but no, that wouldn't happen, surely.

Even so, it can hardly be a coincidence that the cost estimate for the main arena has already increased from £280m to £500m (+80%), and the aquatic centre has gone from £75m to £150m (+100%).

Not that we blame the contractors (eg see this blog). They have to earn a crust, and dealing with the public sector so often turns into a nightmare of indecision, spec changes, and high profile wrangling.

So of course they need to load their estimates. Especially since they- and their shareholders (see here)- all witnessed the distressing demise of John Laing Construction, which went out of business after underpricing various public sector contracts, including the Millenium Stadium and the National Physical Laboratory (see here).

JLC's specific mistake was agreeing fixed price contracts that were far too keenly priced. And therein lies the rub here.

The 2012 quango has always made much of how it was going to deliver value through competitive tenders, and budgetary discipline through fixed price contracts. We've always been sceptical they will be able to combine the two (eg see this blog). Because given previous experience (not just JLC but also eg Multiplex at Wembley), contractors will only be tempted into such deals if they can do them on their terms.

The lack of competition on these two projects reinforces our concern. With the 2012 countdown clock ticking ever louder, the contractors have the whiphand. And they know it.