The BBC's management of its Digital Media Initiative - Public Accounts Committee Contents

1  The contracted-out stage of the Programme

1. In January 2008 the BBC Trust approved the Digital Media Initiative (the Programme), for an estimated cost of £81.7 million and with projected benefits of £99.6 million to March 2015.[2] The Programme is a fundamental re-engineering of the way the BBC makes programmes. It is designed to allow BBC staff and commercial partners to develop, create, share and manage video and audio content and programming from their desktops.[3]

2. In February 2008 the BBC awarded a £79 million contract to Siemens for the development, delivery and operation of the system supporting the Programme, with the technology to be delivered by May 2009. The BBC awarded the contract without competition under its 2004 Technology Framework Contract with Siemens. [4] However, Siemens did not meet the contractual milestones and Siemens and the BBC agreed a no fault termination of the contract with effect from July 2009.[5]

3. Not openly procuring the contract was a risk to the BBC, given the scale and innovative nature of the Programme.[6] If the BBC had taken a different procurement route it would have had the opportunity to test the relative capabilities of potential contractors. The Trust told us that if the original proposal setting out the BBC's intention to contract with Siemens were submitted to it now, it would be unlikely to give its approval.[7]

4. In its oral evidence to us the BBC based much of its case for contracting with Siemens on the ground that in 2007 Siemens had successfully completed a similar digital installation for the BBC in Pacific Quay, Glasgow.[8] The BBC also suggested that a reason for not going out to open competition was because a previous recommendation by this Committee meant it felt under pressure to procure through the Technology Framework Contract.[9] However, the Digital Media Initiative is a much larger and much more innovative Programme than Pacific Quay.[10] The Committee was also clear that when making decisions, either to use the Framework Contract or to go outside it, the BBC must clearly demonstrate why the chosen route offers better value for money, rather than presuming that the work should be let through the framework contract regardless.

5. The BBC contracted with Siemens on the basis of a fixed price contract and fixed delivery milestones. The risk was therefore transferred to the contractor. When things did not go to plan the BBC told us that the terms of the contract meant it was unable to intervene in the design and delivery of the system technology without the risk transferring back to the BBC.[11] The BBC acknowledged that it would think very carefully about using a fixed price contract again in similar cases.[12]

6. Although the BBC had not agreed with Siemens the causes of the delay, it believed that the Programme had proved much more challenging than Siemens had first believed and that Siemens had lacked in-depth knowledge of the BBC's operations.[13] The BBC itself had only limited knowledge of Siemens's design and development work.[14] The BBC now considers that where software development projects rely heavily on in-house specialist expertise, or where the project will drive significant changes to the working practices of specialist roles within the organisation, it is better to have direct control of the project in-house.[15]

7. In September 2009, as part of a no-fault settlement, the BBC reached financial arrangements with Siemens which allowed the BBC to allocate £27.5 million to meet the increased cost of completing the delayed Programme. This was partly funded through £24.5 million in new efficiencies identified in the Technology Framework Contract.[16] Although the BBC referred in general terms to other efficiencies it had secured through the Technology Framework Contract, it did not provide an explanation of why these particular efficiencies had not been identified sooner.[17]

8. The financial arrangement with Siemens did not cover the £26 million of benefits the BBC lost through the two-year delay to the Programme. The BBC was confident that it covered the loss for 2009-10 through savings in BBC Divisions, and by implementing some of the efficiencies expected from the Programme through other means. We asked for a breakdown, and from the information subsequently provided by the BBC the main savings have been through changes to the mix and volumes of programmes produced. In addition efficiency initiatives in areas such as post production, talent negotiations, staff utilisation and workflow management had been accelerated. [18]

9. The no-fault settlement was dependent on a confidentiality clause. The BBC told us that the confidentiality agreement provided for National Audit Office access to the details of the settlement to protect public accountability. However, the start of the C&AG's review was delayed by eight months due to protracted discussions about the consequences of the confidentiality clause for his access and what would be disclosed in his report. The reason National Audit Office access had to be explicitly written into the confidentiality agreement is because it does not have statutory powers of access to the BBC. The Trust confirmed the C&AG should have prompt access in future to all information he requires. [19]

2   C&AG's Report, paragraph 2.1  Back

3   Q 1, C&AG's Report, paragraph 1 Back

4   Qq 60, 62, C&AG's Report, paragraph 6 and Figure 4 Back

5   Qq 3, 5, 49, C&AG's Report, paragraph 9 Back

6   Qq 61, 67 Back

7   Q 65 Back

8   Qq 4, 41, 44, 62 Back

9   Q66, BBC outsourcing: the contract between the BBC and Siemens Business Services, Thirty-fifth Report of Session 2006-07 (HC 118), Recommendation 3 Back

10   Qq 49, 64, 66 Back

11   Q 3, 6, C&AG's Report, paragraph 2.12 Back

12   Q 7 Back

13   Qq 6, 94 Back

14   C&AG's Report, paragraph 2.11 Back

15   Ev 24 Back

16   C&AG's Report, paragraph 2.16 Back

17   Qq 19-23, Ev 17 Back

18   Qq 18, 79-80, Ev 17 Back

19   Qq 22, 25-40 Back

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© Parliamentary copyright 2011
Prepared 7 April 2011