Examination of Witnesses (Questions 100
- 119)
MONDAY 7 NOVEMBER 2005
BBC
Q100 Kitty Ussher: Do you feel that
there are risks to the licence-fee payer of the current arrangement,
of the current experiment?
Sir John Bourn: I see it essentially
around what it is that an external auditor is. Here of course,
as well as the Committee of Public Accounts and the Public Accounts
Commission, we have Lord Sharman, when he looked at our access
rights, recommending that we should have direct rights of access.
The point is about the freedom of an external auditor to choose
the subjects which he investigates, just as, currently, the external
auditor of the BBC is KPMG and they have the right to choose what
they look at. My belief is that if you are an external auditor,
you should have the right to choose what you look at; that is
where I am coming from and this is where the Committee of Public
Accounts has been coming from.
Q101 Kitty Ussher: Do you feel constrained
in any way?
Sir John Bourn: I do not feel
constrained about the subject. The BBC has accepted everything
I have suggested, so I do not feel constrained in that sense,
but I do feel constrained in terms of what it is that an external
auditor should be. He should be sovereign, he should be untrammelled
and in that sense I am not.
Q102 Kitty Ussher: I am sure the
Committee would share your view. Do you want to comment on anything
the Comptroller and Auditor General has said?
Mr Peat: It would largely be repetition.
Essentially the constraints are simply the right for the BBC to
exercise a veto if in any case it deemed there were risks. If
Sir John were to feel there was any way in which the present experiment
was running which did impose constraints on information which
was available, then we should be very happy to discuss with him
how one could make minor adjustments or changes to the process
in order to minimise or reduce those constraints. We should certainly
be very happy to discuss it. I repeat the point Mark Thompson
and indeed Sir John made, that there has been no request which
has caused any problem; none of the Reports has caused any problem,
indeed the relationship with NAO throughout both Reports they
have undertaken and the ones under way has been absolutely first
class from our perspective. The Reports have been extremely valuable.
I believe the experiment is working exactly as those who set it
up hoped it would and I do not believe that at this juncture change
is desirable, other than if there were any instance of concern
and then we should be very happy to talk with the Comptroller
and Auditor General.
Q103 Kitty Ussher: If you did want
to exercise your veto or want to tweak what the NAO was asking
for, would that fact be made public? Would we know?
Mr Peat: It would be a matter
which was discussed by the Board of Governors and I am sure that
this Committee would know. The extent to which it was included
in the published minutes of the Board of Governors or was redacted
would be a matter for discussion given the occasion. I cannot
give any commitment. As I cannot envisage the circumstance where
it might operate, I cannot determine whether it would be appropriate
to publish it or not.
Q104 Kitty Ussher: But you do commit
that we would know.
Mr Peat: Yes; yes.
Mr Thompson: Clearly the BBC would
have to have clear reasons for doing it and would have to appear
here and elsewhere to defend those reasons.
Mr Peat: It would be a decision
which would be taken by the Board of Governors and would be taken
extremely seriously by the Board of Governors and I hope and trust
it will never happen.
Q105 Kitty Ussher: Coming back to
the points made by Alan Williams about the energy centre, I am
quite interested in this. I address this question to Mr Smith.
You were proposing to have a combined heat and power installation
there. You said earlier that the reason that has not happened
is because the power demands you envisage are fewer than originally
thought. The Report says that it was removed to reduce costs.
Is there a contradiction there? Paragraph 49 of the Report says
"The Energy Centre was originally intended to include a combined
heat and power installation to provide . . . but this was removed
from the specification to reduce costs".
Mr Smith: Removed at the time
because the need for a combined heat and power plant was not quite
justified based on the actual developed density of the site as
it was then and bearing in mind the use to which the buildings
were being put then. It is still our expectation that a combined
heat and power plant may make eminent sense, depending on the
exact configuration of departments on site, depending on whether
the move to Manchester happens, value for money savings and all
those other things. The timing to decide about a combined heat
and power plant is when we are absolutely certain about whether
Manchester is occurring, when we know for sure the impact of the
job reductions and when we know for sure therefore whether Worldwide
is going to move onto the site or not. Then we shall take the
decision and if it makes economic sense, that will be the basis
on which the decision is taken. If it does not, then we shall
use it for office space instead.
Q106 Kitty Ussher: Where are you
currently purchasing your electricity from? From the pool in a
normal way?
Mr Smith: Yes; from the pool.
Q107 Kitty Ussher: I am told that
combined heat and power is supposed to be a very efficient way
of producing electricity.
Mr Smith: We do have them in other
places including the television centre down the road.
Q108 Kitty Ussher: So you have some
experience of this.
Mr Smith: Yes.
Q109 Kitty Ussher: If you had invested
in it as originally planned, when would those capital costs have
paid back? You would presumably have saved money on your energy
bills.
Mr Kane: Typically one would expect
payback on the initial investment in between five and seven years.
It all depends on the units of consumption. This entire site is
planned to hold about 1.8 million square feet, of which approximately
one quarter has not been developed, which are the later phases
for development on that site. If you get the whole thing together
at 1.8 million, the investment will then pay back in between 5
and 7 years.
Q110 Kitty Ussher: I understand.
Presumably if you generated surplus electricity that could have
been sold back into the pool even if you did not have total capacity.
Mr Smith: Yes.
Mr Kane: Exactly.
Q111 Kitty Ussher: Was that fact
taken into account when you decided not to go ahead with the power
plant?
Mr Kane: I am not aware; I was
not involved at that particular stage. I believe the consideration
was in terms of the short-term costs and delivering a value for
money solution.
Q112 Kitty Ussher: So you could not
incur the short-term capital expenditure.
Mr Kane: Because there was no
certainty in terms of building out the rest of the buildings and
therefore the risk in terms of taking something which was unknown
at that point was too great.
Q113 Kitty Ussher: Do you accept
my point that had you been able to generate surplus electricity
you could have sold that back thereby compensating for the fact.
Mr Kane: Yes and indeed the whole
concept of the energy centre was to centralise existing plant.
So we could achieve economies of scale, rather than having three
different plant rooms in three different buildings we had one
single energy centre where we used one consolidated set of kit,
one maintenance team and as the BBC has to broadcast on a 24/7
basis, resilient power and cooling are critical to the overall
broadcasting effort. Therefore having the maintenance team and
everyone in one site, rather than having to run three different
sites—
Q114 Kitty Ussher: I understand all
that, but you have not quite answered my question. You said that
had it been at full capacity you would have recouped the cost
within five to seven years. What I am saying is that in fact you
could have sold some of the surplus energy back into the pool.
Mr Peat: My understanding is that
at the time the original plans were developed the full capacity
of the CHP plant could have been used for the purposes which the
original design intended it to be used. Given the change in the
utilisation which took place fairly shortly after that stage,
they could not use the full output of CHP, so they would have
been dependent on what could be sold to the market, with, of course,
far less certainty at that stage of what the price would be and
whether there would be a continuing contract. Under those changed
circumstances the economics did not stack up in the way they did
under the original bid. Going forward, if further developments
take place in the way that may happen over the next few months,
we may be back to the stage where, just purely for the purposes
of internal generation, it makes sense. If there is a possibility
of selling excesses to the market, that will be an additional
benefit for the BBC and for the licence payer.
Q115 Mr Williams: Sir John, coming
to this issue of your status and I can think back to a couple
of instances: the WDA, where as a result of your discoveries and
this Committee's discoveries there was virtually a complete clean-out
at the top; and I seem to remember another instance, where a lady
chief executive lost her job as a result of information obtained
by one of your auditors while he was actually carrying out the
audit. Is it not a fact that in identifying areas which need investigation,
the audit is often a useful source to you of guidance information
as to where you should look for specific examination? Not having
that audit access, you are dependent on the BBC letting you know
what might need looking at.
Sir John Bourn: It is certainly
the case that if you have full and free rights of access you can
secure the kind of information you describe. To the extent that
you work on a programme where you discuss and agree particular
subjects, you do not have the full rights of access right across
the board. What you say is right in that sense.
Q116 Mr Williams: Who was the Chairman
at the time this contract was signed?
Mr Smith: The strategy was certainly
agreed with Sir Christopher Bland in the chair, but I cannot remember
whether he had moved on by the time of the execution of it.
Mr Peat: The strategy was agreed
in 1998 and the first agreement of the Board of Governors to the
full project was in June 2001.
Mr Williams: We could not hear the name.
Q117 Chairman: Was it Gavyn Davies
or was it not?
Mr Smith: We are saying that we
cannot quite remember exactly who was in the chair when the contract
was signed, but the strategy for the property redevelopments and
the securing of a partner was approved when Sir Christopher Bland
was in the chair. Whether the execution of it was while he was
still in the chair, or whether by then Gavyn Davies had arrived,
we cannot quite recall. We shall provide the information in a
supplementary note.[2]
Mr Thompson: The chairman changed
in the middle of 2001 and we will come back to you on that.
Q118 Mr Williams: Not only the chairman
changed, but the chairman's line changed and that is what we are
interested in. Mr Gavyn Davies was an advocate of NAO access to
you before he became a Governor and an opponent of NAO access
to you after he became chairman of the governors. I just wondered
whether it was coincidental or whether his subsequent experience
influenced his thinking.
Mr Smith: Totally coincidental.
Mr Peat: My understanding is that
what Gavyn Davies said was that a committee of which he was chairman
was of the view you have just expressed, but that was not his
personal opinion. That is just what I have heard and I cannot
speak for Gavyn Davies.
Chairman: I know the feeling. Do not
worry.
Q119 Greg Clark: Mr Thompson, you
are a new Director-General. You have a pretty down-to-earth manner.
Do you not feel embarrassed to have to associate yourself with
paper thin excuses for not having NAO scrutiny? Really the idea
that scrutiny by the National Audit Office compromises the editorial
integrity of the BBC is an insult to the intelligence. Is it not
about time that these archaic ways and circumlocutions should
be swept away. Would it not benefit the BBC and its standing in
the country if it could go with the spirit of the age and just
get normal and behave as any other public body does?
Mr Thompson: May I just come back
to you on all of this? The BBC is not like any other public body.
In particular, virtually no other—I cannot think of another—body
has a constitutional arrangement of the kind the BBC does with
a Board of Governors, to be replaced soon, we believe, by a BBC
trust, which is charged by Parliament with looking after the BBC,
absolutely maintaining the public interest and specifically holding
the BBC to account in the matter of value for money. Unlike most
public bodies and certainly unlike any government department,
there is already a public body in existence with specific duties
in this matter, duties which I have to say increasingly in recent
years they have been taking seriously. As a manager of the BBC
I am frequently the subject of entirely external scrutiny outside
the Governors' value for money programme by external consultants
and experts who are hired by the governors to examine management
actions independently. That is the way it should be. Uniquely
I think—I stand to be corrected—the BBC's constitution
absolutely given it by Parliament, contains a body which has particular
responsibilities to ensure value for money is being achieved and,
secondly, also to guard fiercely the BBC's creative and editorial
independence. It seems to me, as a relative newcomer to this fascinating
and it would appear endless debate about the NAO and the BBC,
that the issue is not about access for the NAO to the BBC, that
is absolutely accepted and indeed the BBC welcomes the insights
and input that the NAO are bringing. The issue is one about the
precise terms on which they come in. My duty as the Chief Executive
of the BBC is to work with whatever system of accountability Parliament
in the end deem fit to judge on for the BBC, but I have to say
that I do believe in the issue of editorial independence. However,
as the Chairman of the Governors' Audit Committee has made very
clear, so far we have encountered no issues at all of this kind
and we will not foolishly or unnecessarily create problems where
they do not exist, nonetheless they are important issues. That
debate is taking place inside the House of Commons and more broadly.
In some ways I am the last person in Britain to be asked to adjudicate
on this matter. I believe, from everything I have seen of the
current experiment, that there is neither any evidence that the
NAO has been prevented from seeing any aspect of the BBC's activities,
nor, I have to say, although there are many things in this Report
from which the BBC can learn—and it would be quite wrong
to suggest it, as some of the questioning has suggested today—has
the NAO suggested in this Report that this project has been a
problem. This is a project which has delivered on time, on budget
and which we believe, and I think the NAO concludes, has been
very effectively managed. I personally cannot see what problem
there is with the current arrangements which you are seeking to
fix.
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