BBC outsourcing: the contract between the BBC and Siemens Business Services
35th PAC Report 2006-07
Edward Leigh MP, Chairman of the Committee of Public Accounts, today said:
“The BBC’s submission to the Governors seeking approval for the Siemens deal gave the impression that annual savings of some £35 million for ten years were guaranteed. This is not the first time BBC Governors have been given inexact figures when asked to approve spending on major projects. The BBC must make sure that all of its future business cases are subject to robust quality assurance.
“The BBC’s approach to the contract has been distinctly second rate. Its estimates of annual savings have fluctuated widely; many parts of the BBC are still using other suppliers; and there was no provision for the BBC to share profits above an agreed level. Indeed, the BBC has chosen not to check on how profitable the contract actually is for Siemens.
“None of this inspires confidence in the BBC’s ability to negotiate and manage large-scale commercial contracts. The BBC’s arguments for resisting full independent audit scrutiny by the National Audit Office are looking increasingly threadbare.”
Mr Leigh was speaking as the Committee published its 35th Report of this Session which, on the basis of evidence from the BBC, examined its management of the Siemens contract.
In October 2004 the BBC entered a ten-year framework contract with Siemens Business Services (Siemens) for the provision of a range of technology services provided previously by the BBC’s commercial subsidiary BBC Technology. The contract, estimated to be worth some £1.5 billion over ten years, covers the provision of commodities such as desktop computers, specialist technology projects, and technological support for programme production and broadcast functions.
When BBC managers sought approval for the deal with Siemens they told the BBC Governors that savings were guaranteed at £35.2 million a year, but they made mistakes when they estimated the cost reduction that the contract would deliver. In the first year there were savings of £22 million, £13.4 million lower than the guaranteed level. The BBC now expects to make average savings of £40 million a year for the rest of the contract, although it remains to be seen whether this estimate will be achieved.
While reported performance against key service targets has been high, most of the early technology projects commissioned from Siemens experienced delays or cost overruns. Siemens have borne the additional costs, but delays mean that some benefits from the projects have not been available until later than planned. The transition period from October 2004 to March 2005 was designed to give Siemens and the BBC the opportunity to put in place the arrangements needed to manage the contract. There were significant gaps in these arrangements, most notably the absence of controls over performance data validation, the volume of services purchased by divisions through the contract, the checking of the accuracy of suppliers’ bills and the absence of contingency plans in the event of early contract termination.
In January 2007 the BBC Board of Governors was replaced with a new BBC Trust. The BBC and the Secretary of State for Culture, Media and Sport have reached a new agreement which will give the National Audit Office an enhanced role in developing value for money reviews through regular discussion with the Trust about a rolling programme of work. The BBC Trust does, however, retain the final decision on which subjects are examined.
Notes for Editors
1. Contact details for requests for further comment from Mr Edward Leigh are provided below. ISDN facilities are available for broadcasting purposes.
2. The full text of the Committee’s Conclusions and Recommendations is attached to this press notice.