Boston 2024 today released details of its plans to spend more than $100 million on insurance to cover the risks of a hurricane hitting Boston during the Olympics, terrorists striking the games, sponsors dropping out, ticket sales proving disappointing or entire countries boycotting the games.
The proposal does not cover any cost risks associated with overruns in building an Olympic stadium at Widett Circle or an athletes' village on Columbia Point, but Boston 2024 says taxpayers will be protected through "transfer of risk to private sector in capital project development," that is, private developers will be handed large chunks of land - and associated risks - at the two locations to build Olympic facilities in exchange for being allowed to build mega-developments on the land before and after the games.
Boston 2024 says it doesn't need to buy insurance to cover any overruns - or assume costs should the developers go bankrupt or fail to build the facilities in time - because the developers would have to buy their own insurance and take out bonds:
In addition to diligent scope management, Boston 2024 will also drive a thorough construction procurement process to ensure the selection of developers, contractors, and subcontractors that have solid financial backing and, in the case of every venue contract, deploy important contracting techniques (e.g. guaranteed maximum price). Developers and contractors will also be required to purchase additional protections, including surety and performance bonds on all projects. On large‐scale projects (like Widett Circle and Columbia Point), to the extent necessary to provide further financial certainty or fill gaps in sureties, if any, capital replacement insurance will also be required. As a result, approximately 85% of total construction costs are segregated and covered separately by both private developer and umbrella insurance. The remaining 15%, concentrated in venue‐related costs, are projects that are smaller in scale and scope that will have developer‐backed insurance and be funded from operating budget revenue.