Banking on Winning

15 October 2005

The 2012 Olympics in London is the biggest business opportunity for decades for the support services and construction sectors. Nicki Thomson says companies bidding for business need to take financial advice at an early stage

NOW THAT LONDON HAS WON the bid to host the Olympic and Paralympic Games in 2012, the focus is on making the dream a reality. Hosting the Games is estimated to cost £12bn of which £2.46bn is allocated for Olympic infrastructure projects in East London, £7bn to improve the transport links, and a further £700m is allocated to redeveloping the Lower Lee Valley. The budget for actually staging the Games is set at £1.5bn.

Business opportunities exist across a broad range of sectors, and not only in the East End of London but elsewhere in the capital, at other Olympic venues and training facilities across the country, and tourist sites. Although there is no exact estimate for the support services bill for the Games, the fact that shares in construction and support services companies all rose on the back of the bid win is testament to the view of financial markets on the business potential.

Some construction and support services companies are already gearing up to capture the opportunities. Those that have not already done so need to consider their plans carefully. Seeking good financial advice is a priority.

Tendering
Once Parliament passes the London Olympics Bill this autumn, and the Olympic Delivery Authority (responsible for the completion of the stadia, infrastructure and transport for the Games) is set up, the process of tendering for the construction projects will begin in earnest. It has already been announced that the main facilities within the Olympic Park in East London will be procured by design competitions, but it is not yet clear how construction contracts will be structured or how support services are going to be procured. What does seem likely is that the lessons learned through successful collaborations and partnerships elsewhere for the delivery of property, support and facilities management services, could transfer into the
contracting relationships for the Games.

Whether support services contracts will be let as one across the Olympic park or venue by venue is unclear, as is whether a total FM or bundled services approach will be preferred. Due to the scale and criticality of the project, contracting large numbers of single service providers seems to be the least likely route, although niche companies could do well to ally themselves to larger service suppliers.

Companies considering getting involved in the Olympic and Paralympic Games need to get up to speed as soon as possible. Conferences and briefings like the Games Briefing: preparing the construction industry for 2012 and beyond held in London this month are ideal opportunities to find out what the bidding and contract rules are likely to be, and to meet people with whom you might partner. You can also learn about best practice from those with experience of delivering projects and services on the scale that the Olympic project will demand.

A first step might be to appoint a main board director responsible for your company’s Olympic strategy, to keep abreast of developments and to do the networking required as a preliminary to any bid. He or she will need to work closely with the finance director to consider the business opportunities that might arise and the implications for the finances and resources of the company.

Putting together a tender bid will take up time and resources that could impact on other parts of the enterprise, and there is always a danger of taking your eye off the ball on other contracts. Getting the pricing right on your bid will be critical to the success of the enterprise – get this wrong on projects on the scale and criticality of the Olympic Games and your whole business and its reputation could be threatened.

Bidding for building or servicing any of the Olympic venues will require sound financing, so bringing your bank on board at an early stage is advisable. Support services contracts for the Olympics are likely to the biggest and certainly the most prestigious your organisation will undertake. While it is normal in the construction sector for bonding lines to be required from your bank to provide a guarantee against performance failure of the supplier, these are not common in the support services sector. However with the scale, scope and critical timing of the Olympic projects, they may well become a requirement. Furthermore, these will form part of the overall borrowing of your organisation from the bank, and this can have an impact on the borrowing capacity elsewhere in the business. Tender bonds may also be required to demonstrate your financial standing in the tendering process, and should the contract be won, your working capital borrowing needs will undoubtedly increase. Finally, you need to be aware that heavy financial penalty clauses for failure to deliver on time are likely to be part of any Olympic contract.

All this needs to be planned for and it is not too soon to start now. At Barclays we have developed a depth of experience in support services through our dedicated industry focus team which was first set up three years ago. We have banking relationships with some 70 per cent of the top 30 facilities management companies and this representation is similarly repeated amongst single service providers.

Cohesive approach
Together with colleagues who specialise in the leisure, transport and logistics, property and infrastructure sectors, Barclays can offer a cohesive approach to the Olympic opportunity. We recognise that all kinds of businesses, large and small, will be needed to deliver the Olympic and Paralympic Games in London, and that the economic impact across the country could benefit a much wider business base. Taking the example of the Commonwealth Games in Manchester, the tourism spend alone from participants and visitors was £29m and the Games created some £2.7m additional value for every £1m of public investment.

These Olympic and Paralympic Games aim to be sustainable and leave a lasting legacy. Contractors may have to demonstrate their environmental and ethical credentials to even get on the tender list. Employee representation, London living wage, diversity of personnel, local and ethical sourcing, local employment, community benefit and supply chain initiatives are all likely to be key assessment criteria in the selection of contractors.

Perhaps the most important resource service suppliers will bring to these Games is their people. Hosting the games will create 300,000 jobs although many will be just for the period of the Games. Service supplier companies are already facing skills shortages across the sector particularly in M&E and management skills, and whether you plan to get involved in the Olympics or not, you need to take recruitment, training and retention issues much more seriously. Looking for skilled employees in 2010 or 2011 will be far too late and may jeopardise the delivery of your contract. Indeed, the sector as a whole urgently needs to raise its profile and publicise the opportunities within in at all levels leading up to these Games and after.

Over the next few months, more of the procurement process will be defined, but if the published documentation so far is anything to go by, the provision of service support and facilities management is not seen as a priority. Provision for service support needs to come at the beginning not at the end of the procurement process, and this makes it important for service suppliers to engage with the ODA and other relevant authorities now, and prepare their business finances and people to take best advantage of this great adventure.

MORE INFO
www.construct2012.co.uk www.lda.gov.uk www.gamesbriefing.co.uk www.london2012.org www.fittosupply.org www.BL4London.com

Olympic Games Facilities
London
Olympic Park: Hockey Stadium £18m, Velopark £22m, Volleyball Arena £21m, Olympic Village £600m
Hyde Park (Triathlon)
Horseguards Parade (Beach Volleyball)
Excell (Boxing, Table Tennis, Judo, Taekwondo, Wrestling,Weightlifting)
Millennium Dome £200m (Gymnastics, Basketball)
Wimbledon £125m (Tennis)
Greenwich Park £11m (Equestrian, Modern Pentathlon)
Greenwich arena (Badminton,Gymnastics)
Royal Artillery Barracks (Shooting)

Outside London
Spitalbrook, Herts £10m (Canoeing)
Weald Country Park (Mountain Biking)
Eton Dorney £10m (Rowing)
Weymouth £352m (Sailing)

● Nicki Thomson is Relationship Director at Barclays and can be contacted on 07775 546928.