Olympics: cash flow crisis and subbies’ fears

The London Development Agency (LDA) is thought to have asked the Treasury to refinance the £650m of borrowing it took on to buy the Olympic Park site after consultants said the development is likely to run at a loss until 2025.

The repayment of the loan taken out by the Olympic legacy body is due to last for 20 years from 2014, but research done by consultant Grant Thornton found that revenue generated by legacy development will not start to match planned repayments until about 2025, reports Building.

The LDA was planning to pay back the cost of the site by selling off packages to developers after the Games, but this plan has been affected by the huge drop in residential land values.

One source told Building that the site would eventually show a profit for the public sector: ‘The [financial] model shows a very significant deficit for anything up to 10 years. Ultimately, it is on to make a surplus, but there is a very significant cash flow problem [at the moment].’

Contract Journal reports that major concrete contractors are berating their Tier One status, which is pricing them out of contracts to construct concrete frames on the Olympic Village.

Over £100m-worth of Olympic Village frame contracts are up for grabs, but so far contracts have gone to smaller concrete specialists classified by Bovis Lend Lease as Tier Two. But larger Tier One contractors claim the developer has cost them work because of the expense involved in attaining Tier One status.

One major firms told the magazine: ‘Bovis Lend Lease has made all its Tier One contractors go through a plethora of initiatives, which have added six-figure sums to the overheads of qualifying contractors.

‘All these initiatives were put forward on the basis that you either comply or are taken off the tender list…It does not sit well now that Lend Lease went ahead and awarded the first contracts to contractors that have not had to live with or deliver any of those demands of standards.’

In related news, Building also reports that the Olympic Delivery Authority (ODA) has banned all retentions on 2012 work. All Olympic sites will be affected by the ruling, which states that builders cannot hold back payments from subcontractors pending completion of projects. The ODA said it would withhold payment from any of its ‘Tier One’ firms that use retentions.