Olympic Village costs double to £500m

Developer and ODA at odds over latest 2012 budget blow

Infrastructure costs for the athletes' village at the London 2012 Olympics have more than doubled to £500m, in the latest budget-breaking blow for the £9.3bn games.

The increase is understood to be one of the key sticking points in contractual negotiations between Lend Lease, the village's Australian developer, and the Olympic Delivery Authority (ODA). An interim agreement is expected in the next few weeks so that construction can start on schedule this summer.

A source said the Government had committed to underwrite £200m in infrastructure improvements, such as new roads, but that Lend Lease has estimated the costs at half-a-billion pounds.

Lend Lease is said to be pushing the ODA to underwrite the increase to ensure that the site has suitable transport facilities in place by 2012. The source said: "Something's got to give, and when you look at the two parties' respective positions, only one party [Lend Lease] can afford to walk away from negotiations.

"There is an imbalance in negotiating power and Lend Lease knows it is in a strong position."

One source, who was a key member of the London 2012 bid team in 2005, added: "I can't see how the hell the ODA and Lend Lease will build [the infrastructure] for that original figure."

The credit crunch has already prolonged negotiations, as Lend Lease has struggled to raise debt finance for the 3,300 flats on the site, which is part of the £4bn Stratford City development. The two parties are sharing the Olympic Village costs, but the market conditions have forced Lend Lease to push the ODA for greater financial security. There is speculation that Lend Lease has asked the ODA to underwrite the expected profit on sale of the flats after 2012 to temper banks' fears over the fall in the property market.

But an ODA spokesman insisted that negotiations would soon be finalised. He said: "The Olympic Village site is now cleared. Planning applications for the first blocks have been submitted and Lend Lease will start piling next month.

"We expect to sign interim agreements shortly. We will then need to have all the financial arrangements in place before the main build later this year. We remain on programme."

A spokeswoman for Lend Lease added: "We are working closely with the ODA and the project is progressing well."

London 2012 has been fraught with budget problems. Most significantly, the overall cost nearly quadrupled from £2.375bn when the capital won the right to host the games in 2005, to £9.3bn. Former ODA chairman Jack Lemley has estimated the final bill at £20bn.