Davis Langdon report warns of rising cost and risk as concerns mount over the Games' budget shortfall

A report into the London Olympics has revealed that the 2012 construction programme could push up cost and risk in the wider UK market.

Zaha Hadid’s aquatic centre: Was it the first victim of the Olympic funding shortfall?

Zaha Hadid’s aquatic centre: Was it the first victim of the Olympic funding shortfall?

The report by consultant Davis Langdon, to be published next week, said that the Olympics would be a drain on skilled personnel and labour, and could cause "individual project failure".

It adds that UK contractors will have to face:

  • Greater inflationary pressure - Olympics will add a further 1-2% to current inflation trends, with an overall rate of 6% from 2008 onwards
  • The risk of price spikes in certain locations during 2007/08 and 2010 as projects come on stream
  • The risk that projects unattractive to contractors would struggle to achieve competitive or properly resourced bids.
The report advises clients to allow extra time for projects that may be subject to the Olympic effect. It says: "In order to secure successful outcomes, clients will need to ensure that their projects are packaged appropriately, or that long-term commercial packages are in place, to secure competitive bids and high quality teams."

The total value of construction set out in the UK Olympics bid book, which includes infrastructure projects such as the Channel Tunnel Rail Link extension to St Pancras, was £9.9bn. However this excludes inflation, which is likely to add £1bn to the costs of the projects yet to be completed.

Davis Langdon's report comes amid concerns that the Olympic Delivery Authority is facing a substantial cash shortfall on the 2012 construction programme.

A source close to the ODA said it was worried that without extra money it might have to prune the bid, leading to fears that some of the more progressive aspects could be axed.

It is far too early to start saying we’re going to ‘de-spec’

Olympic Delivery Authority

One senior cost consultant said the government had three options to deal with the shortfall.

He said: "They could face up to the problems and admit to the Treasury that we are short of money. They could go with what we have and reconfigure the original proposals. Or they could fudge it and lead us in to the situation that proved so damaging with the Scottish parliament.

"If there isn't the money then a lot of the schemes will go over budget, or there could be significant adjustments. You don't need to be a QS to run the various scenarios."

ODA chairman Jack Lemley and chief executive David Higgins are undertaking a review of the masterplan that should lead to a definite costing for the facilities. This is thought likely to be substantially more than the £3.7bn in the bid.

A spokesperson for the ODA said talk of downsizing was premature. The spokesperson said: "At the moment we are testing and valuing all aspects of the project. It is far too early to start saying we're going to ‘de-spec'. As far as we are concerned we are on schedule."

The news came as the government searched for a Whitehall big hitter, with responsibility for monitoring the 2012 finances.

Stanhope is understood to have sold its stake in the Stratford City project, which could lead to a bidding auction between the remaining developers, Westfield and the Reuben Brothers, for each other's stake.