The Commons Committee of Public Accounts has today published a report which, on the basis of evidence from the BBC Trust and the BBC, examined the management of the contract with Siemens and the BBC's in-house development of the Programme.
The Rt Hon Margaret Hodge MP, Chair of the Committee of Public Accounts, today said:
"The BBC has made good progress in delivering its Digital Media Initiative in-house since it terminated its contract with Siemens. It is now on course to deliver the complete technology by summer 2011.
With hindsight, the BBC should not have let the contract for its Digital Media Initiative to Siemens without testing the contractor against other suppliers, especially as there was a high degree of innovation involved. We welcome the Trust's assurance that it would now take a more challenging approach when considering procurements.
We are concerned with the ease with which the BBC found over £50 million in savings to make up for the losses it suffered through late delivery of the project and its own increased delivery costs. This suggests the need for a more vigilant approach to value for money."
Margaret Hodge was speaking as the committee published its 29th Report of this Session which, on the basis of evidence from the BBC Trust and BBC, examined the management of the contract with Siemens and the BBC's in-house development of the Programme.
The Digital Media Initiative (the Programme) is designed to transform the way in which BBC staff create, use and share video and audio material. It involves the development of new technology to allow staff to manage content efficiently on their desktops, in order to give greater accessibility of digital content for audiences on TV, online and radio.
Successful implementation of the Programme has a wider strategic importance for the BBC, including supporting the BBC's move to Salford from May 2011. After a difficult start, which resulted in the original delivery contract being terminated, the BBC brought the Programme in-house and has since made good progress in delivering it.
The Programme is, however, no longer expected to deliver the overall net financial benefit of £17.9 million originally anticipated. The BBC approved the Programme on the basis that it would cost £81.7 million and deliver benefits of £99.6 million, but now forecasts costs of £133.6 million and benefits of £95.4 million – a net cost of £38.2 million.
In February 2008, under its Technology Framework Contract, the BBC let a £79 million contract to Siemens without open competition. The contract covered the delivery of the technology and the operation of the Programme until March 2015. The technology was not delivered and the BBC and Siemens agreed a no-fault termination of the contract with effect from July 2009.
Despite the scale and technological innovation of the Programme, the BBC chose not to test through competition the capacity and capability of potential suppliers to take on such a challenge. The contract with Siemens transferred too much financial risk to the contractor, such that the BBC felt unable to intervene proactively in the development of the Programme until it was too late. The contract was terminated and the Programme taken in-house, but by then the BBC had suffered two years of delay and lost £26 million in benefits as a result.
To cover the costs of delay and completing the Digital Media Initiative in-house, the BBC found £26 million of efficiencies within BBC Divisions, and negotiated £24.5 million of new efficiencies in the Siemens Framework Contract. The committee questioned whether these savings could and should have been identified earlier.
The BBC has made a strong start on the in-house development of the Programme. It has successfully delivered four technology releases and it is on course to deliver the complete technology for the Programme by summer 2011 and within the new budget of £133.6 million. We welcome the BBC’s success to date in developing this technology and look to the BBC to share lessons with the wider public sector.
The Comptroller and Auditor General told us that he did not have full and unfettered access to all the information he required to carry out his review, delaying the start of his work. This is not satisfactory. The committee expect the BBC and BBC Trust to ensure that full access is given promptly in the future.