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WHEN London submitted its 2012 Olympics bid document in 2005, it estimated the 80,000-seater Olympic Stadium to cost £280 million (S$787 million).
Two months ago, that figure ballooned by 77 per cent to £496m, and placed the British government under heated grilling from its Members of Parliament.
Last March, the British government more than doubled the budget for building the Games venues to £9.3 billion, sparking fears of spiralling costs.
The Singapore Government, though, is unlikely to find itself in such a predicament with its S$1.87 billion Sports Hub project.
The difference? Public-Private Partnership, or PPP.
In PPP projects, a government partners one or more private sector companies to fund and operate a government service or private business venture.
The key difference between PPP and traditional procurement lies with risk, which is transferred from the government to the private sector.
To be completed by end 2011, the Sports Hub at Kallang is believed to be the world's first integrated sports PPP project.
It will be a partnership between the Government and the Singapore Sports Hub Consortium (SSHC), the preferred bidder for the project.
They beat two other consortia - Alpine and SingaporeGold - to the bid.
SSHC is expected to design, build, finance and operate the facilities for a 25-year tenure.
Minister for Community Development, Youth and Sports Dr Vivian Balakrishnan, who made the announcement at the Ritz Carlton hotel yesterday, explained: 'What we do is, in exchange for contracted services at a standard that we specify, we will pay the consortium a pre-agreed sum every year for 25 years.
'The total cost the Government will incur over these 25 years is $1.87 billion.'
The Government 'will not be liable' for the consortium's capital expenditure for the project - including design, construction and all operating costs - which is about $1.2 billion.
So, for example, if construction costs rise owing to prices of raw materials or labour, or a construction mishap, the Government will be 'insulated' from those costs.
Third-party revenues, such as tickets sales for sporting events, will be shared between the consortium and the Government.
Mark Rathbone, PriceWaterhouseCoopers' corporate finance (infrastructure, government and utilities) director, said a PPP was favourable as it allowed for budget certainty, optimised risk allocation and was value for money.
Since payment is based on service, a PPP would also improve service delivery through the incentives under the contract - something Dr Balakrishnan described as 'a happy alignment of interests'.
For example, to make money, the consortium would bring in more events. And to maintain viability, they would optimise construction and service delivery to ensure no money is wasted.
Both the consortium and the Government will iron out the financial details of the contract before it is signed in March.
The 25-year tenure will start on the day the contract is signed, with SSHC taking over the Kallang site.
'So, they have every reason to do this job quickly, get the facilities up and get the activities moving,' said the Minister. 'If they dawdle, they're going to miss out on their own opportunities.'
He added: 'What we have is a win-win outcome in which we will be able to have our cake and eat it.'
What if the Government gets short-changed?
'We will make sure that all the safeguards are in place,' he said.
In the event that SSHC fails to meet the requirements, a substitute will take its place.
Sources say SingaporeGold is next in line.
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