1 FIRST MAIN HEADING
1. The BBC's 'White City 2' property development
in West London comprises three new buildings which were built
next to an existing BBC building known as White City 1 (Figure
1). The construction of the new buildings forms part of the
BBC's wider plans to rationalise and modernise its property portfolio.[3]
2. Following competitive tender the BBC selected
Land Securities Trillium to finance, construct and operate White
City 2 under a 30 year deal, which also covered property services
at 48 other BBC locations. Land Securities Trillium's price for
constructing White City 2 was £210 million (the present value
when the deal was approved — in cash terms the figure was
£242 million[4]),
£31 million higher than the other short listed bidder.
Although the other short listed bidder had offered a better price
for construction, the BBC confirmed that it had selected Land
Securities Trillium because it offered savings across the wider
BBC estate and brought other benefits, including cost certainty
and risk transfer.[5]
3. Good practice guidance published by the Office
of Government Commerce recommends bringing together designers,
constructors and specialist suppliers to work in an integrated
team unless it can be clearly demonstrated that separating design
and construction will provide better value for money. In the case
of White City 2, however, the BBC signed the contract with Land
Securities Trillium in September 2001 and Land Securities Trillium
took on the design team headed by the architects Allies and Morrison,
whom the BBC had separately commissioned a year earlier to produce
a design for White City 2.[6]
4. The BBC separated the procurement of design and
construction to avoid delays to the White City 2 project. The
BBC also considered it had a role to play in producing buildings
of high architectural value, and that its approach had been influenced
by the need to ensure it had architects who would produce the
kind of buildings it wanted. After signing the contract with Land
Securities Trillium, however, the BBC made 300 variations to the
White City 2 scheme. The variations process was time consuming
and overly complicated, although the BBC said that not all of
the changes had resulted in additional costs.[7]
5. The price the BBC agreed with Land Securities
Trillium for White City 2 and the figures which BBC Management
put to the Governors for approval did not represent the full cost
of the project. The Governors subsequently approved a request
from BBC Management for a further £60.9 million for additional
elements, including the completion of the fit-out and the cost
of furniture and moving staff to White City 2. The BBC acknowledged
that there should have been fuller consideration of whole life
costs at the start of the project.[8]
6. Part of the additional cost related to the specialist
requirements of BBC Broadcast Limited,[9]
a commercial subsidiary which rented part of White City 2 from
the BBC. The BBC initially charged BBC Broadcast Limited around
£25 a square foot - less than the £42.92 it was costing
the BBC. The BBC said it had recovered its costs from its commercial
affiliates when taken together, but not whether it had recovered
past undercharging of BBC Broadcast Limited. Another commercial
subsidiary, BBC Worldwide Limited, may move to White City
2 in the future, and the BBC confirmed that it would charge BBC
Worldwide the cost to the BBC of the accommodation, or the market
rent if this was higher.[10]
7. The Committee of Public Accounts has highlighted
on a number of occasions the importance of the public sector monitoring
the returns to the private sector and sharing the benefits of
re-financing.[11] The
Office of Government Commerce has previously advised the Committee
that the normal return to shareholders in deals of this type would
be 8% to 15%. The BBC's contract with Land Securities Trillium
included a provision to restrict the return to shareholders to
a maximum of 30%.[12]
8. The return to shareholders can be identified where
the finance for a project has been raised against the assets of
that particular project. On White City 2, the BBC did not know
the return as the finance had been raised on the strength of Land
Securities Trillium's business as a whole.[13]
9. The way the project was financed also meant that,
contrary to the BBC's expectations, it was unlikely that the BBC
would share in any refinancing benefits as the refinancing of
corporate debt by Land Securities Trillium would not under the
contract have fed through into gains for the BBC. In the event,
to secure refinancing benefits the BBC had to purchase Land Securities
Trillium's interest in White City, at a cost of £321.5 million,
and abandon the contract less than five years into a deal which
was supposed to last 30 years. The BBC estimates that its refinancing
of the project through a bond issue will save it £63 million.[14]
3 Q 1; C&AG's Report, para 1 Back
4
The present value expresses future cash flows in terms of their
present day value. Back
5
Q 1; C&AG's Report, paras 34, 39 Back
6
C&AG's Report, paras 32-33, 39, Appendix 1; Office of Government
Commerce Achieving Excellence Guides, available at www.ogc.gov.uk Back
7
Qq 16-21; C&AG's Report, para 32 Back
8
Qq 2-5; C&AG's Report, para 41 Back
9
The BBC has since sold BBC Broadcast Limited, which has been renamed
Red Bee Media Limited. Back
10
Qq 4, 47-49 Back
11
See, for example, 22nd Report from the Committee of
Public Accounts, PFI refinancing update (HC 203, Session
2002-03). Back
12
Qq 23-24; C&AG's Report, Figure 7; 42nd Report
from the Committee of Public Accounts, Managing the relationship
to secure a successful partnership in PFI projects (HC 460,
Session 2001-02) Back
13
22nd Report from the Committee of Public Accounts,
PFI refinancing update (HC 203, 2002-03); C&AG's Report,
Figure 7 Back
14
Qq 11-12; C&AG's Report, para 8 and Figure 7; Ev 14 Back
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