Olympic village runs out of cash

Australian construction company Lend Lease said the credit crunch meant it could not find its £450 million share.

Itmeans that at least £200 million of public money is being poured in immediately to carry out work on the Stratford site. If the credit crunch continues the taxpayer could be landed with the entire £1 billion bill for the village. The Olympic Delivery Authority will almost certainly have to raid its £2.7 billion contingency fund.

The village will house 17,000 athletes and officials during the Olympics before being converted to 3,500 homes for rent or sale after the Games.

Lend Lease's dramatic statement to the Australian stock exchange came after ODA chairman John Armitt admitted a public bailout was under way. "The Government at the end of the day will have to come in and support the village - that is understood," he said. Highlighting the credit crunch, Lend Lease said in its statement: "Given current market conditions, it has taken longer than envisaged to secure project debt."

It said the company believed it could raise the money by the end of the year - meaning public funds will need to be committed for at least seven months to keep building work going.

Crisis talks are continuing between the Australian firm and ODA chief executive David Higgins - formerly chief executive of Lend Lease - over funding.

The original plan was that Lend Lease would make a profit by selling the athletes' village buildings after 2012.

But banks and other lenders who were to come up with the cash are now reluctant to do so because they fear falling property prices mean they will not get all their money bank.

Meanwhile, the cost of borrowing has risen sharply.

The stock exchange statement - an unusual move - came hours after a report by the National Audit Office said that the public-private partnership deal for the village had unravelled, and the Government was working on a rescue package.

Mr Armitt told the BBC yesterday: "Funding is proving difficult in the current financial markets. What drives lending for something like that is the end value, and people find it very difficult to put an end value on the in 2012.

"The Government will have to come in and support the village - and that's understood. Negotiations are going on at the moment to try to minimise the degree to which further government funding is required."

This week the Evening Standard revealed a financial package for the village was a year behind schedule - prompting the International Olympic Committee to put Games chiefs on "amber alert". Foundation work on the village, which forms part of the planned Stratford City retail complex, has started on schedule and is due for completion in early 2012.

Mayor Boris Johnson's Olympic adviser, David Ross, this week pinpointed the village as a major concern and said the current funding plan was unrealistic. Mr Johnson is proposing to bail out the project by diverting to the village government funds that have been made available to him for housing.