Appendix: The BBC's response
Introduction
In its recent report the National Audit Office (NAO)
concluded that the BBC had adopted good procurement practices
to significantly improve the way it buys goods and services to
deliver better value for money from procurement.
The BBC Trust is committed to ensuring that the BBC
delivers value for money for licence fee payers in all its activities
and will continue to look at ways in which the BBC's procurement
practices can be further improved so that the BBC Executive can
deliver even greater savings in the future.
Pursuant to its duties of oversight of the BBC, the
BBC Trust has provided this response. However, where matters raised
fall into the operational scope of the Executive Board, the Trust
has requested that the Executive provide the required response.
The Trust is satisfied that the responses given below
by the Executive are appropriate given the issues raised in the
PAC's conclusions and recommendations.
1. The BBC is achieving significant procurement
savings, but could secure more in a number of areas. Savings
across the range of goods and services bought in 2006-07 varied
from less than 3% to more than 12% and conceal increased spending
in some categories such as the use of temporary staff. Overall
5% was saved, but in five of the BBC's seven categories of spending
the savings were lower. For example, the BBC spent some £232
million in the Production Resources and Technology and Broadcast
Equipment categories, but saved £7 million (3%). Within six
months the BBC should:
- assess the scope for savings
in those areas where it has recently saved least, such as Production
Resources, Technology and Broadcast Equipment and Marketing Services;
- check whether planned reductions in the use of
temporary staff have been achieved, and whether having a managed
service system has reduced costs of employing those temporary
staff that are needed; and
- identify what areas of procurement spending should
fall in line with planned reductions in staff numbers.
BBC EXECUTIVE RESPONSE
During 07/08, savings of £13.7m were delivered
in the production resources category which represents 9.5% of
total spend. Savings delivered in 07/08 for the technology and
broadcast equipment and the marketing services categories as a
percentage of spend were 4.2% and 5.6% respectively. This is the
seventh year of savings within these areas although the lower
rates achieved does reflect the maturity of these categories.
The planned reduction to £35m for the use of
temporary staff has been achieved. Furthermore, the cost of employing
temps has been reduced by 6%, which in part reflects lower agency
mark ups due to having a managed service system.
There are a number of areas where charging is based
on activity related to headcount—examples include: finance
and accounting services; HR services; and provision of technical
equipment.
2. The BBC could save
money by aggregating its requirements and reducing its supplier
management costs. Some £207 million a year of the BBC's
spending is not through centrally negotiated contracts, with some
£26.5 million of this spread across 14,000 suppliers. Its
38,000 exceptional purchases—for goods and services not
available through central contracts—cost six times the average
to process. While enabling a wide and geographically dispersed
range of suppliers to compete for its business, the BBC should:
- establish clear criteria for
assessing which areas of spending should and should not be aggregated
into central contracts;
- remind all purchasing staff, including those
on temporary contracts, of the availability and cost advantages
of central contracts, and the high cost of exceptional requests;
and
- provide feedback to those individuals, and their
managers, who persistently fail to use the most appropriate procurement
route and secure explanations.
BBC EXECUTIVE RESPONSE
Whilst there is always more that could be done to
further centralise suppliers, which can reduce central costs,
the NAO's report notes "that there is a balance to be struck
between centralising contracts and keeping the supply base open,
competitive and innovative in order to attract smaller businesses".
All staff, including production staff on location,
are encouraged to use the central contracts wherever possible.
However this is not always the case and a number of criteria are
considered in assessing whether or not it is appropriate to source
a contract locally rather than via the centralised route. These
include:
- geographical location;
- availability of supply;
- where it will deliver best value for the BBC.
There is a very robust centralised procurement system
on which all staff, including those on temporary or freelance
contracts, are trained before use. On receipt each exceptional
request is reviewed. Where appropriate, staff are advised of the
availability of preferred suppliers and the request is denied
so that the user can use the correct channels.
Where there is no appropriate preferred supplier
the exceptional request is accepted and set up on the system.
However a monthly report of exceptional requests is provided to
the sourcing and divisional purchasing teams for follow up with
purchasing staff.
3. The BBC has been
paying for unused licences for its electronic purchasing system.
In the light of the Comptroller and Auditor General's report,
the BBC has now introduced quarterly reviews and withdrawn 780
licences from staff who were not regularly using the system. The
BBC should review all systems it operates under licence to establish
whether it is paying for other licences that are not being used.
BBC EXECUTIVE RESPONSE
The SAP purchasing system is owned and reviewed by
BBC Finance on a quarterly basis, when users are removed from
the system after an extended period of non use.
Within the Future Media and Technology division,
for major licensing agreements with flexible maintenance arrangements
(such as those with Microsoft), the BBC annually reviews the licence
usage and increases or decreases its licence volume according
to the terms of the vendor's End User Licensing Agreement.
Where flexible maintenance arrangements are not available
(such as with Oracle) the BBC maintains a central list of licence
allocations in order to manage the re-deployment of licences where
possible.
All commercial off-the-shelf applications installed
on the 'BBC Standard Desktop' are monitored regularly. Any applications
installed that show as not being used for 6 months or more are
removed and made available to other business areas of the BBC
as appropriate.
4. Despite the savings
available from using eAuctions, the BBC had run only five in 2007-08.
This Committee has previously highlighted the potential price
savings from using eAuctions and the BBC is saving £3 million
a year (14%) from the 19 it conducted in the two years to April
2007.[1] The BBC should
look for further opportunities to use eAuctions. To drive that
process the BBC should establish criteria, for example when its
requirement is for similar goods, to identify when eAuctions are
appropriate.
BBC EXECUTIVE RESPONSE
The BBC recognises the value of conducting eAuctions
and where the right circumstances are present an eAuction will
be run. A total of 25 events have been run to date, 6 of which
were conducted during 07/08. There are limited new opportunities
to run eAuctions each year; during the planning stage for all
procurements and as part of the business case sign off the suitability
of eAuctions is assessed based on the following criteria:
- suitability and comparability
of goods and services across the supply base;
- size and number of suppliers involved in the
tender; and
- suitability of the market, for example dependency
on key talent or unique services.
5. The
benefits of the BBC's procurement arrangements may be lost when
activities are outsourced. Some 45% of BBC spending is on
services outsourced to other providers. To get best value from
this spending the BBC should satisfy itself that these suppliers
are using good procurement practice, and look for opportunities
for the BBC and suppliers to aggregate their buying power to the
benefit of both. The BBC should, for example, benefit from any
reduction in the costs incurred by the providers of its outsourced
services.
BBC EXECUTIVE RESPONSE
Most of the BBC's strategic contracts include as
part of the governance process the obligation on suppliers to
demonstrate continuous improvement over the life of the contract
to reflect for example future lower cost of IT and cheaper supply
arrangements. There are profit share provisions to encourage suppliers
to deliver cost savings opportunities some of which will come
from their supply base. All contracts include open book provisions.
The National Audit Office are currently conducting
a review in order to ascertain the Value for Money achieved from
the strategic contracts.
6. Despite the BBC Trust having now operated for
a year, little has changed in how the value for money of BBC activities
are reviewed and the BBC spending remains closed to proper independent
scrutiny. It is still the case that the Trust alone decides
what value for money reviews are conducted on how the BBC spends
the public's money. We remain convinced that the only effective
way to provide proper scrutiny is for the Comptroller and Auditor
General to have the same powers to identify and undertake studies
that apply to the other value for money work we examine. As the
Trust has never rejected a topic suggested by the Comptroller
and Auditor General, we see no reason why it should object to
the Comptroller and Auditor General having such powers.
BBC TRUST RESPONSE
The Trust has a responsibility to ensure that value
for money is achieved by the BBC through its spending of the licence
fee. It also has an explicit duty to safeguard the independence
of the BBC. The Trust believes that the arrangements with the
NAO—enshrined in the Royal Charter & Agreement—allow
these two equally important obligations to be properly fulfilled.
1 Committee of Public Accounts, Thirty-third Report
of Session 2006-07, Assessing the value for money of OGCbuying.solutions,
HC 275, page 6, para 11
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