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The 2012 Olympics must be managed with an 鈥榠ron hand鈥� to prevent contractors holding it to ransom, according to a government report.

The Public Accounts Committee鈥檚 report on risk assessment and management of the 2012 Olympic Games warned that standards would drop and contractors would need to be paid more if the delivery timetable is not adhered to.

The government spending watchdog also criticised organisers鈥� much-heralded legacy plans and said the government seriously underestimated the costs of the Games and was too optimistic about public sector funding.

The Games鈥� 'immovable deadline' means that delivery organisations鈥� ability to negotiate contracts is at risk, according to the report. Any delays could see expensive emergency resources being brought in, and projects being scaled back. It said the Olympic Delivery Authority must take this into account when procuring contractors.

PAC chairman Edward Leigh said: 鈥淚f the delivery timetable slips, then the danger increases of delivery organisations having to pay more to contractors or reduce standards to ensure that the Games open on 27 July 2012. This risk must be addressed by establishing suitable incentive arrangements with contractors to deliver quickly, to cost and to the right quality.鈥�

The report complained of a 'lack of clarity' about how the venues will be used after the Games, and said designers must recognise the needs of future users as well as those of the Games.

It said the government has been 'financially exposed' by the spiralling budget. Many different costs were omitted from the original budget including tax, contingency margins and security, said the report, and original plans for 拢738m of private sector funding were no longer achievable. The Committee said it would return to the Games鈥� Budget in a further report.