London 2012: Jowell Admits Olympic Cost Errors

The true cost of the showpiece venue for the 2012 Olympics was seriously underestimated by organisers of London's bid when they were campaigning to win the right to host the event, The Observer can reveal. Sports and construction experts now predict that, despite the official cost of the planned Olympic Stadium being £280m, the final figure will be closer to £500m. London Olympics insiders accept that a rise is inevitable. 'There's no chance they'll be able to build it for £280m,' said one.

A spokesman for Culture Secretary Tessa Jowell, the Olympics Minister, last night admitted that the original price tag for the stadium would be replaced early next year, when a revised, much bigger budget for 2012 would be agreed by the government. He also confirmed that the cost of converting the Olympic Stadium from an 80,000-seat venue during the Games to become a 25,000-capacity athletics arena afterwards had not been included in the £280m figure. It was mentioned in the London 2012 team's 'bid book' submitted to the International Olympic Committee but not costed, he said. Experts say that task alone could cost tens of millions of pounds.

The stadium, to be built in Stratford, east London, is the latest in a list of areas of 2012 spending which were played down, miscalculated or left out of official calculations, such as the security bill, reconstruction costs and VAT.

Don Foster MP, the Liberal Democrat spokesman on sport, said: 'The government have messed things up PR-wise over the costs. My fear now is that public confidence in, and excitement over, the Olympics is turning badly sour.'

Hugh Robertson, the Tory sports spokesman, said the stadium seemed likely to show yet again that 'the budgeting for the 2012 Olympics was done too quickly and without sufficient rigour, and that there was significant miscalculations and underestimates. But if costs look like running out of control, we must settle for a lesser stadium. This can't be a construction beanfest where everyone involved charges ridiculous prices.'

Concern about the cost of staging the world's biggest sporting event is growing because the bill for security has leapt from £190m to £850m, at least an extra £1.5bn will be spent on regeneration, and hundreds of millions of pounds will have to be put into an unforeseen reserve fund to cover cost overruns. Jowell last week told MPs that an extra £900m of public funding would have to be found for transport costs and because 'progress-chasers' hired in August for £100m, whose role includes keeping an eye on costs, will now be paid up to £500m.

One construction industry source said that the Olympic Development Authority, which is building the infrastructure needed for the Games, is in a weak position over the stadium because most major building firms did not tender for the contract, and because the need to have it finished by 2011 could lead to the contractor demanding extra money.

The ODA is currently negotiating a final price for the stadium with the consortium that will design, build and later downsize it, headed by builders Sir Robert McAlpine and specialist stadium architects HOK Sport. They recently delivered Arsenal's £390m, 60,000-capacity Emirates Stadium in north London on budget and ahead of schedule.

Annual inflation in the building trade of 6 to 7 per cent, caused by the soaring cost of energy and raw materials such as steel and concrete, could also make it difficult for the ODA to erect the stadium for the original price, said Kurt Calder of the Construction Federation, which represents big building firms.

Jowell, London Mayor Ken Livingstone and Seb Coe, chairman of the London Organising Committee of the Olympic Games, insist that the stadium will become a 25,000-seat athletics venue after 2012. But it is increasingly likely that Premiership football club West Ham United will become the 'anchor tenant', thus securing its financial future.

The Tories are pressing the government to reveal accountants KPMG's estimates of the likely final cost. The Department for Culture, Media and Sport said it is not obliged to publish them as they are treated as 'ongoing ministerial advice' rather than a formal report.