London 2012: A gold medal muddle

On Monday, the Olympics minister Tessa Jowell advertised for a speech writer to be paid £50,000 for drafting articles and crafting statements as part of the team "working to ensure the Games are a success, value for money and leave a lasting legacy across the country".

At first glance, it appears to be a well-paid and uncomplicated role selling the world's greatest sporting event. But in a series of conversations with senior figures connected to the London 2012 plans, The Independent has learnt that the Games has become mired in high-level wranglings.

Senior figures in the Department of Culture Media and Sport (DCMS) believe the Olympic Delivery Authority (ODA), the body responsible for building the infrastructure of the Olympic project, is "out of control".

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They accuse the ODA of failing to adapt to the realities of the credit crunch and a likely future recession and fear that the promised Olympic legacy is now at risk.

That the Olympics were conceived in a time of plenty is best illustrated by the salaries of those employed to deliver the games.

In the past year, board members of the Olympic Organising Committee received £1,000 per two-hour meeting and the chief executive, Paul Deighton, a former Goldman Sachs banker with a personal fortune of more than £100m, was paid a salary of £557,440. The committee chair Lord Coe splits his time between his Olympic work, for which he receives more than £250,000 a year, and managing the Complete Leisure Group, a sports marketing company he established, with the former bankrupt and tax exile Peter Abbey, a month after Britain won the 2012 bid.

Looking down from the ODA's Canary Wharf skyscraper on to the Olympic site and across London, senior managers can reflect that there is much to be proud of: 2,800 employees have already worked a combined total of five million man hours without an accident. Ten per cent of the workforce responsible for building the Games was unemployed before the project began; 25 per cent are drawn from local boroughs.

But these impressive numbers mask a project mired in ambiguities. Last week, the Treasury agreed to give the ODA an interim payment of £93m to cover ongoing costs in the construction of the Olympic Village. The money was necessary because organisers cannot find sufficient private investment.

The news that plans for the International Broadcast Centre will be slashed by 80 per cent was just the latest sign that the 2012 plans may require scaling back. Professor Stefan Szymanski, a sports economist at Cass Business School, says we could have "the Asda Games" – less snazzy but functional.

On the record, the explanation for these problems is the "financial crisis"; that companies are no longer in a position to invest in the infrastructure built on the Stratford site. But off the record, officials admit the project has problems beside the "credit crunch".

In July, Sir Howard Bernstein, the man behind the Manchester Commonwealth Games, stepped down from the ODA board to focus on his new appointment as chair of a Blackpool regeneration company. He is known to have expressed "increasing frustration" to friends about management at the authority, although when contacted by The Independent, Sir Howard stated: "I have nothing but the highest regard for the management of the ODA and have said this both privately and publicly."

Stadium costs have risen by £16m, and the bill for the Aquatic Centre has already more than trebled to £303m although a selection panel stated three years ago that the plans by the designer Zaha Hadid were "not well thought-through". By far the biggest concern relates to the Olympic Village co-developed by the ODA and a consortium led by the Australian firm, Lend Lease, whose former chief executive, David Higgins, is now the £631,000-a-year chief executive of the ODA. It is now estimated that the village needs £250m if building work is to continue on schedule. The Treasury has promised less than half.

The original plan for 4,500 flats has reportedly been scaled back to 2,800 – so each flat would contain six rather than four athletes, requiring the kitchens to be removed to accommodate them, sources suggest.

As for who foots the bill, these plans have changed, too. It was originally assumed that Lend Lease would raise £450m of private funding, reducing the taxpayers' liability. But it has not and its role is becoming a fee-only project manager funded by taxpayers.

Anticipating controversy, the ODA turned to Hazel Blears at the Department for Communities and Local Government for two favours: first, to confirm that its contract with Lend Lease does not breach EU competition laws. Second, to ask her and the registered social landlords represented by the department for £250m to build the homes. The DCLG says it can provide the report if not the funding. Negotiations continue.

Even if the money is found elsewhere, concerns remain that the Olympic Village will be an expensive carbuncle, costing three times more than equivalent homes built in the private sector, and leaving a legacy of kitchen-less houses to be sold on after the Games. No wonder Neale Coleman, Mayor Boris Johnson's liaison with the ODA, admitted recently, "We need to come up with a legacy".

Professor Szymanski believes more resources should go into grass-roots sport. "One worrying feature of the Beijing Olympics is that 50 per cent of the British medallists came from private schools. We have a massive need in this country to promote sports participation among children in state schooling, which is at its worst in the London boroughs.

"The plan so far seems to be for a very big party. And like any big party there will be a huge hangover."

To get it, Olympic organisers will first have to convince the Chancellor, Alistair Darling, to part with the money when the Ministerial Funders' Committee next meets.

That will be complicated by the cooling relationships between ministers in charge of delivering the project, particularly the Culture Secretary Andy Burnham and Ms Jowell.

In the last three years Ms Jowell's political fortunes have plummeted, while the Olympics budget has grown, at first from £2.4bn to £3.2bn and then to £6bn – with a contingency – bringing the total to £9.3bn. Jack Lemley, the first chairman of the ODA, believes the costs will double again before the site is finished. It was never anticipated that the costs would spiral so dramatically, nor at first that London could win the bid.

When plans for the Olympics were first mooted, Jowell was the Culture Secretary. Since Gordon Brown became Prime Minister, Ms Jowell has been office-hopping: first she was demoted to a minister for the Olympics and moved to the Cabinet Office. Then, in the most recent reshuffle, she was moved to the Treasury as Paymaster General. Now, though maintaining that role, she has an office back at the DCMS where she has returned as a junior minister.

But this has created tensions with the present Secretary of State, Andy Burnham, who has said he takes "personal responsibility" for delivering the sporting legacy of the Games, though this is clearly in Ms Jowell's job description as Olympics minister. Her new speechwriter's first task may be to get it back. Whoever takes the job, will be required to "develop a narrative on the Olympics and Paralympics".

But a spokesman for the DCMS said: "These claims are absolute nonsense. The ODA is in complete control of its budgets and we continue to work very closely with them to keep costs down and ensure value for money in all 2012 building and infrastructure projects.

"Tessa Jowell and Andy Burnham have an extremely good working relationship going back many years and both welcomed the move which was done to make working even more effective."

Whatever Ms Jowell's protestations or the ODA's requirements, Mr Darling is likely to be unruffled; meeting cash-strapped organisations from Canary Wharf is hardly a novelty these days.

The Olympic dream: Who's in charge?

Tessa Jowell, Olympics minister

Formerly the secretary of state for culture, media and sport, Ms Jowell lost her cabinet position in 2007 but retained her Olympic brief, although she is now in the Treasury as Paymaster General.

Lord Coe, Chair, London Organising Committee of the Olympic Games

Locog is responsible for the Games event management; he is also vice-chair of the IAAF and a director of the Complete Leisure Group.

Boris Johnson, Mayor of London

Mr Johnson wants to make legacy a priority for the Games. His 2012 adviser, David Ross, has recently warned that the £9.3bn Olympic budget simply may not be enough.