Warning over 2012 costs

Preparations for the Olympic Games in London are broadly on track but organisers still face "formidable" challenges, according to a report published by the National Audit Office (NAO).

Unresolved issues over construction deals, how venues will be used post-2012, and security for the Games could all put the £9.3bn budget at risk, the NAO said, urging the Olympic Delivery Authority (ODA) to hold a "firm line" as plans are developed, or risk overshooting the budget.

Tim Burr, head of the NAO, said: "The preparations for the Games are well under way. But important challenges remain which will become more formidable as the spotlight turns to London after the Beijing Games.

"Uncertainties over the deal for the village, legacy requirements and policing and security may add cost, or compromise the preparations for a successful Games. The delivery bodies need to maintain a firm stance on cost and keep in sight the intended legacy benefits too."

The NAO highlighted the lack of a deal for construction of the Olympic Village in east London, which is expected to cost more than £1bn. The ODA had expected to secure a deal by last December, but there have been difficulties securing private sector finance amid the downturn in the property market.

Also awaiting finalisation are the "legacy" plans for individual venues, including the main stadium, where it has not been decided whether to accommodate football, rugby or both alongside athletics.

The NAO also said there was still no "firm basis" for security arrangements at the Games. Costed plans are not expected from the Home Office until the end of 2008.

The watchdog's concerns echoed those voiced earlier this week by David Ross, the tycoon appointed by new Mayor of London Boris Johnson to review preparations for 2012.

But John Armitt, chair of the ODA, welcomed the NAO's acknowledgment that progress had been made. "As the report highlights, there are cost pressures in some areas. Equally, there are potential savings in other. Overall, we remain within the budget set out by government. The project is well managed and I am confident we can deliver as we enter the big build phase.

"Given the challenging economic environment, we are in ongoing discussions about the level of public investment in the Olympic Village. We expect to finalise this later in the year.

"Work has started on site and this will be a world-class development capable of delivering returns on any investment when the homes are sold after the Games."