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London boom would inflate Olympic costs

A building boom in London could inflate the costs of venues for the 2012 Olympics, the Treasury's spending watchdog warned this week.

An Office of Government Commerce study of construction demand and supply between 2005 and 2015 says the arrival of major projects such as Crossrail could affect the £2.5 billion construction budget for the Games.

It says: 'The introduction of significant new work streams such as Crossrail and/or an unanticipated commercial boom would have implications for capacity and inflation in the Greater London area.

'Several ongoing projects including Terminal 5 and the Channel Tunnel Rail Link are scheduled to wind down prior to the commencement of the London 2012 Olympics work and these are expected to lead to the availability of resources. However, unanticipated changes in construction demand may still lead to an increase in prices.'

The report, compiled for the OGC by consultant Deloitte, says construction inflation was expected to be 3 per cent a year until 2015.

But it adds that pre-construction factors could have the biggest impact on project price, including high bidding costs for contractors, planning uncertainty, and inefficient procurement.

Deloitte also warns that a lack of design clarity would increase project costs through post-contract variations.

It adds: 'An increase in the volume of work associated with the Olympics and a compression of the time available to complete construction would result in a higher inflation premium, and of course there are other industry factors including risk judgements that could create an 'Olympic premium'.'

Recommendations include better timing of major public sector construction projects to improve industry capacity planning.

It says: 'A more visible demand profile from the public sector, combined with effective management approaches, would enhance the industry's capability to deal with higher demand without causing significant inflation.'

The Deloitte report was accepted by the OGC's Public Sector Construction Clients' Forum on Tuesday.

An OGC spokesman said: 'We will be drawing up an action plan to deal with its conclusions.'

By Russ Lynch