The running cost is £9bn but London will leap all the hurdles

So says the head of the Olympic Delivery Authority as the venues for 2012 rise from what critics call the financial ruins. By Mark Leftly

Within days of his appointment as chairman of the Olympic Delivery Authority (ODA), John Armitt received a note from his predecessor, Jack Lemley. The straight-talking American was offering his congratulations, even though it was barely six months since he had left in bitter circumstances claiming ministers weren't facing up to the construction challenges posed by the project. "Jack was Jack," says Armitt, 62, who is a year into the job. "Things don't always work out as planned."

They don't. Three years ago next weekend, London won the right to host the Olympic Games in 2012, estimating it would cost £2.4bn. This budget has since more than trebled to £9.3bn. Lemley recently claimed that even this will not be enough – that anything up to £20bn is possible.

Whether the Olympics end up reaching that extraordinary figure is largely in the hands of the ODA. The body runs the construction programme and is responsible for up to £8.1bn of the revised figure.

A glance round Armitt's office provides the evidence that he is one of the few people in the country with the experience to run a project on this scale. Hanging on a wall is a painting of the second Severn Crossing – the £300m motorway bridge which construction he led. On top of a cupboard is a book entitled Work, a history of the £5.2bn Channel Tunnel Rail Link; Armitt was chief executive of the company that developed the project in the 1990s. And he joined the ODA after a five-year stint heading Network Rail, one of the most scrutinised jobs in the UK.

Every working day, Armitt can survey the progress of London 2012 from this 23rd-floor vantage point. Overlooking the Olympic Park site in Stratford, east London, he can look out at the tower cranes as the foundations are laid for the stadium.

A slim 6ft 5ins, Armitt is something of a tower crane himself, though there doesn't seem to be anything lofty about his attitude. Questions on budgets, which must by now be tiresome for him, are greeted with a huge, toothy grin and he dismisses the notion that the budget will be busted again. He even hints that the original amount should not have been viewed as definitive: "The accuracy of anybody's budget depends on the information you have and what you see as the scope of work. It's impossible to have an accurate bud-get [at that stage] and it's not surprising that it took a couple of years [to produce one]."

Warming to his theme, Armitt points out that 75p in every pound spent is an investment in long-term regeneration for "an area the size of the City of London that will be there for 100 years". Perception of the budget was not helped either by the International Olympic Committee's demands that bids be calculated in current figures, whereas the budget is now estimated at 2012 prices.

The price tag is also largely misunderstood. The construction cost is actually £6.1bn. On top of this is £1bn in contingency money that the ODA believes there is an 80 per cent chance it will require. Then there is a further layer of £1bn that the funders – central government, the London Mayor and the National Lottery – can agree to hand over should there be any unforeseen difficulties. The remainder is on operational aspects like policing.

The second layer of contingency funds is in danger of being used because of a very unforeseen circumstance: the credit crunch. Australian property developer Lend Lease had agreed to build and cover the £1bn athletes' village on the corner of the Olympic Park, and intended to sell on the properties at a huge profit after the games. But declining property values mean that banks have become less willing to risk backing Lend Lease, meaning that some public funding appears inevitable.

At the moment, the ODA is funding the village's construction, but it is locked in talks with Lend Lease over a compromise under which the taxpayer could cough up some of the equity. Olympic sources suggest the most likely outcome is that the Government will agree by the end of July to provide guarantees to banks willing to fund Lend Lease. "Some form of government underwriting means that raising finance becomes easier, though the objective is to minimise government exposure," explains one source.

Armitt contorts his face when asked if Lend Lease in effect has the ODA over a barrel. The reasoning is that the Olympics has a fixed deadline and there is no time to get another developer on board. If Lend Lease needs public funding, the company is in a position to demand it. "To the extent we end up providing [financial] support, we will gain influence on the scheme," he explains, arguing that any equity provided by the ODA would also mean that it gained a share of the property sale profits in 2013.

There are also inflationary pressures, with oil price spikes in turn hiking the cost of construction products such as steel. But this is balanced by the downturn in the building market in the South-east, meaning that labour – some 20,000 workers will be on site in 2010 – will come more cheaply. Armitt adds that savings have been made by ordering some raw materials early, with contracts in place for aggregates and cement.

He is also hopeful of hitting the original £496m budget for the Olympic stadium, despite recent price increases. Officially, the anticipated final cost is now around £520m, and a source close to the ODA suggests that it may be around £10m more. Already, though, this projected cost is down from a peak of £540m.

Armitt believes that the construction consortium led by Sir Robert McAlpine, famed for its work on the new home of Arsenal Football Club, will be able to tweak the design to make savings. "This is a target-priced contract, which means McAlpine is incentivised to keep within bud-get," he says, explaining that the ODA and the construction team will share any cash should anything remain of that original spending estimate of £496m.

Throughout the interview, Armitt has enthused about the construction industry, gleefully pointing out pictures in the Channel Tunnel book that demonstrate the best of British architecture. But there have been concerns that this industry is a little too tight, and that the ODA is a bit of an "old boys club".

The ODA chief executive David Higgins, for example, is a former boss of Lend Lease and was once chief executive of English Partnerships, the regeneration agency. ODA board member David Taylor headed the same organisation prior to Higgins, while construction director Howard Shiplee worked with Armitt at Network Rail.

Armitt flashes another big grin and succeeds in making the point redundant: "You have a job to keep away from each other. In a 40-year career, I've had 30 working for construction companies, and lot of the people you meet you come across again. [ODA board member and former Amec chief executive] Sir Peter Mason I've known for 15 years at least, 20 probably."

Another link is with Jack Lemley, his American predecessor. Both, at various stages in the 1990s, worked on the Channel Tunnel. That is one of the reasons Armitt knows enough about him to proclaim "Jack was Jack". And just maybe it is one of the reasons why Armitt believes his calculations on the budget are more accurate than those of the man from Idaho, and that this Olympics will be remembered for creating a new quarter of London, rather than wiping out the capital's finances.

The race leaders

ODA. The Olympic Delivery Authority was created to oversee the construction of venues and infrastructure for the games. It has also been responsible for getting the building proposals through the planning process.

ODP. The Olympic Delivery Partner is a consortium that was brought in to project- manage the construction process and bring private sector expertise and efficiencies. The CLM consortium – construction groups CH2M Hill, Laing O'Rourke and Mace – works in tandem with the ODA and has let the major contracts, such as appointing McAlpine to build the Olympic stadium.

Locog. The London Organising Committee of the Olympic Games, run by chairman Lord Coe and chief executive Paul Deighton, will take over most of the venues on completion in 2011. It will then equip the arenas and train staff, as well as sort out logistical issues such as deliveries of food.

FRY-UPS, DUMPED TYRES AND THE MAN WHO WON GOLD

Lord Coe, the scrawny lad who started running in Sheffield and grew up to strike Olympic gold in Moscow and Los Angeles, is leading a tour around the 2012 site. This scruffy patch of east London is a hive of construction activity, with diggers unloading soil that ultimately forms dozens of hillocks up to 20ft high.

Three blue tower cranes dominate the site. The men and women supervising them are preparing the ground for the centrepiece athletics stadium. It's hungry work: there is a 12-item cooked breakfast on the canteen's menu.

A roman coin has been found in this southerly area of the Olympic Park. Further north, English Heritage has demanded an archaeological dig on land once owned by the Knights Templar. Cobbled roads and gardens dating back to the 16th century have been uncovered.

There are numerous signs with ominous warnings, like "You are now entering a contaminated zone". Stacks of discarded tyres and the type of low- level radioactive waste generated by alarm clocks from the 1960s and 1970s are evidence of just how neglected the site was until the ODA came to town.

Lord Coe is reminded that he will have been involved in London 2012, from bidding to hosting, for a decade once the last race is run. "Not as long as it took to get from Sheffield to Moscow," he smiles.