Cost of Olympic stadium set to soar to £280m

The cost of building the main stadium for the Olympic Games is set to rise due to soaring energy and construction costs.

Olympics sources have confirmed to The Independent that the showpiece structure will not be delivered to the £250m budget forecast in initial submissions to the International Olympic Committee.

That figure, included in the bid document, was based on construction inflation of 3 per cent. The rate is currently 7 per cent.

Rising energy costs have further pushed up the price of the 80,000-capacity stadium, the costliest single Olympics building project, to at least £280m.

The increased cost of the flagship venue will put further pressure on the original Games budget of £2.4bn. The Government has asked the accountants KPMG to review costs and there are reports that the budget may rise to £5bn as ministers use the Olympics as a catalyst for ambitious regeneration of the East End.

The revelation comes as the Olympic Delivery Authority (ODA) this week unveils its stadium procurement strategy.

It is expected to demand a "design and build" contract. Contractors will be asked to submit plans for reducing the 80,000 stadium capacity to 25,000 after the Games to avoid leaving a giant white elephant.

The ODA will give precise details of the construction timeline with building work due to begin in the spring or summer of 2008. The building is thought no longer to be lined up as a possible future home for a Premiership football club. Instead it is expected to be used as a permanent athletics stadium, incorporating a London Olympic Institute.

The construction industry has for some time been warning that the projected cost of the stadium is unrealistic and had reservations about the design.

Jay Parish, director of Arup Sport, who designed the £450m stadium for the 2008 Beijing Olympics, said last year that "nobody was going to appreciate a procurement process which ends up with a stadium that is not as good as Athens". He questioned then whether £250m would deliver a stadium that would "meet the aspirations of London and the UK".

Three UK-based construction companies are thought to be in the running for the project, with Sir Robert McAlpine, the builder of Arsenal's new Emirates stadium, thought to be the favourite. Taylor Woodrow and Laing O' Rourke are also thought to be contenders. But the latter is part of a consortium bidding to become the ODA's private delivery partner and there are concerns that this may lead to a conflict of interest.

Multiplex, the Australian construction company that has sustained heavy losses over the £757m Wembley project, is thought unlikely to bid for Olympics construction work.

The ODA will also come under pressure to explain how it intends to alter its plans considering two major projects are now six months behind schedule. Works on the Olympic Park Loop Road and the Acquatic Centre were supposed to start in December last year.