On the outside, things appear to be progressing smoothly down at the construction site of the troubled 2010 Olympic village. Behind the scenes, however, things aren't nearly as placid and trouble-free.

Negotiations between the City of Vancouver and the project developer, Millennium Development Corp., have been frustrating and difficult. And the people at city hall have a strategy in place to complete the project if necessary, The Globe and Mail has learned.

"The best-case scenario continues to be getting through this with Millennium," Councillor Geoff Meggs said yesterday. "But if there is a further problem we're prepared as best we can to deal with it.

"We're really committed to getting [the village] done on time for the Olympics so we can't just keep our fingers crossed and hope everything works out," Mr. Meggs continued. "City staff, with the help of a lot of outside experts, have done everything they can to protect us in the event of any problem and we need to go in a different direction."

Which could very well happen.

Here's what's going on.

As many will recall, the city had to take over financing of the project when the original lender, Fortress Investment Group of New York, ran into financial troubles and grew concerned about cost overruns.

It decided it wanted out. So the city had to negotiate a massive line of credit with a syndicate of Canadian banks to buy Fortress out of the roughly $350-million that it had already advanced Millennium, and then have enough money to lend Millennium for it to complete the project - another $350-million.

Fortress was charging Millennium an interest rate of 9.5 per cent. The city negotiated a rate of just over 3 per cent with the Canadian banks on its line of credit. Most observers anticipated that it would negotiate a new interest rate with Millennium on the balance of funds the developer needed. A rate much lower than the one Fortress was charging.

This is where problems have developed.

It is no secret that Millennium, like many developers, is experiencing some financial difficulties. The problems at the Olympic village started last fall when Millennium couldn't make a monthly payment to Fortress, which forced the city to step in and advance the company a controversial $100-million loan so the developer could meet its payments.

Millennium has had to halt other projects it had going.

Meantime, it has anxious banks and creditors peering over its shoulders. In particular, it has a loan with the B.C. Investment Management Corp. - a public pension fund manager - for a project in West Vancouver that is due soon.

There is concern at city hall that BCIMC could call the loan. If that were to occur, would Millennium have the cash reserves to respond? Many believe the company wouldn't.

Right now, the City of Vancouver is charging Millennium the old 9.5-per-cent Fortress rate. But before the city agrees to a lower rate, it has asked for one thing: to see Millennium's books.

Meantime, Millennium has asked the city for a large sum of money up front. One source said it's up to $7-million.

According to other sources, this request has set off alarms at city hall. Senior officials are concerned that Millennium wants the money to help keep other projects alive - and creditors at bay.

The city, rightly, does not want to advance Millennium any money, or negotiate a new interest rate, until it is confident that the company is financially solvent and is not going to go belly-up in a month's time. That's why it has requested to see the company's books.

"We have to represent and protect taxpayers in terms of any lending arrangements," said Mr. Meggs. "We're the lender now and we're not transferring any additional risk to the taxpayer if we can possibly avoid it."

Millennium owner Shahram Malek said yesterday he is confident a deal can be reached with the city, and he is not opposed to opening the company's books to get it done. He also said he does not anticipate a cash call from any of the company's creditors.

If, for any reason, Millennium is forced to declare bankruptcy, it would not likely affect the timeline for completion of the project. The city is obligated to turn the keys to the athletes village over to the Vancouver Organizing Committee by October.

Outside construction is mostly done and interior work is moving along. The city has had its own project manager, Bruce Tidball, on site to make sure the Olympic deadline is met.

The bigger concern is the status of nearly $240-million in pre-sales agreements. Many buyers put down payments on units in what will be a luxury condominium development after the Olympics. But many of these buyers bought at the absolute height of the real-estate market, which has declined by at least 15 per cent since then.

If Millennium declares bankruptcy, those sales agreements could become null and void. A new wrinkle to that scenario, however, is the revelation that Millennium created subsidiaries for almost every unit it pre-sold. In other words, buyers bought from a sub-developer, not the developer.

Whether that distinction would withstand a challenge from a buyer is unknown.

There may be one other reason the city hopes it is not forced to take over the project from Millennium: concern that an angry and embarrassed developer might hire some high-priced lawyers and try and get the site shut down until the company has a chance to argue its fate in front of a judge.

Which would certainly be in keeping with the drama that has consistently unfolded around this story since last fall.