The BBC s management of strategic contracts with the private sector

Transcription

1 The BBC s maagemet of strategic cotracts with the private sector Review by the Comptroller ad Auditor Geeral preseted to the BBC Trust s Fiace ad Strategy Committee

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3 The BBC s maagemet of strategic cotracts with the private sector BBC Trust respose to the Natioal Audit Office Value for Moey Study The BBC s Maagemet of Strategic Cotracts with the Private Sector Backgroud to this study As part of its role uder the Royal Charter 2006 the BBC Trust acts as the guardia of the licece fee reveue ad the public iterest i the BBC. We commissio Value for Moey ivestigatios ito specific areas of BBC activity to help esure that licece fee payers are gettig the best possible retur o every poud of their licece fee. Each year the Trust commissios a series of value for moey reviews after discussig its programme with the Comptroller ad Auditor Geeral the Head of the Natioal Audit Office (NAO). The reviews are udertake by the NAO or other exteral agecies reportig to the Trust. This study, commissioed by the Trust s Fiace & Strategy Committee o behalf of the Trust ad udertake by the NAO, looked at the effectiveess of the BBC s arragemets for maagig its various strategic cotracts. I particular it cosiders whether the BBC is securig the service ehacemet ad fiacial objectives it outlied whe it etered ito idividual strategic cotracts ad whether the BBC has take adequate steps to maximise the value for moey of its portfolio of strategic cotracts. The Trust thaks the NAO for udertakig this review ad for the report s coclusios ad recommedatios. Our views o the NAO s fidigs The Trust welcomes the NAO s ecouragig fidigs. We are pleased to ote that by the ed of March 2008 the BBC had idetified total savigs of 157m sice the start of the cotracts, exceedig its origial forecast of 135m. We also ote the report s coclusio that, across five cotracts the NAO examied, the BBC s approach to relatioship maagemet was above average compared to other orgaisatios i the public ad private sectors. Notwithstadig this, the Trust fully accepts that there are ways i which the BBC ca further ehace its approach to cotract maagemet ad we welcome the recommedatios i this report. We recogise the complexities ivolved i maagig cotracts of this size ad the diverse ature of those cotracts but agree that there is more that could be doe to esure greater cosistecy i approach to cotract maagemet across the portfolio of cotracts. The review ackowledges the formatio of the BBC s Strategic Relatioships Board with the aim of improvig the maagemet of cotracts, sharig issues ad providig a focal poit for reportig. We ote that this Board is still i its early days ad we expect it to develop a more promiet role i cotract maagemet, takig accout of the report s recommedatios. I particular we expect to see more seior maagemet ivolvemet i uderperformig cotracts ad a more robust aual review of cotracts, takig accout of performace, forecast costs ad forecast savigs together with a view o how the strategic relatioship with parters is progressig.

4 The Trust has discussed the NAO s fidigs ad recommedatios with the BBC Executive ad cosidered their respose, which is published i this documet. The Trust is satisfied that the proposed Executive s actios are a appropriate respose to the NAO s fidigs ad will review progress made i implemetig these actios o a regular basis. I additio the Trust has required the Executive to produce a actio pla, icludig timetable, for implemetatio of recommedatios. Progress agaist this will be reported to the Trust. The Trust s respose to the recommedatio directed at the Trust The NAO make a specific recommedatio cocerig the BBC Trust: The BBC Trust approves strategic cotracts i part o the basis of forecast savigs, but it does ot follow up specifically o whether forecast savigs for strategic cotracts have bee delivered. The Trust moitors savigs at the level of the whole BBC ad ot at a idividual cotract level. This is cosistet with the goverace arragemets of the BBC uder which the Trust has oversight resposibility ad the Executive Board has resposibility for day to day operatioal maagemet. I additio to cosiderig the totality of savigs achieved across the BBC, the Trust has other methods for esurig value for moey withi the BBC through studies such as this oe ad through specific service reviews ad public value tests. Uder the fiacial protocols which gover the respective resposibilities of the Trust ad the Executive, there is a requiremet for the Executive to brig back to the Trust ay previously agreed ivestmet cases that are forecast to oversped by more tha 10% agaist their approved value. This requiremet refers explicitly to the cost of the cotract ad ot to variatios i the plaed savigs. However, whe givig iitial approval for a ew strategic cotract the Trust ca stipulate whe ad how the Executive should report back o the performace of that cotract. We believe it remais appropriate for the Executive rather tha the Trust to be resposible for regularly moitorig savigs performace o a idividual cotract by cotract basis. However we will seek assurace from the Executive that this has happeed ad request that sigificat idividual variaces are brought to the Trust s attetio through the regular reports that the Trust receives o performace agaist efficiecy savigs targets. Further we will also look at the performace of the portfolio of the cotracts o a aual basis prior to the aual budget approval by the Trust ad i this cotext request data o performace for each sigificat cotract. The Trust will cotiue to strive to esure that the BBC s approach to cotract maagemet delivers the best value to the licece fee payer. Jauary 2009

5 The BBC s maagemet of strategic cotracts with the private sector Maagemet respose to the Natioal Audit Office Value for Moey Study The BBC s Maagemet of Strategic Cotracts with the Private Sector The BBC Executive welcomes this review by the NAO that looked at the effectiveess of the BBC s arragemets for maagig its strategic cotracts. This review complemets the review udertake by the NAO i 2007 which focussed o the procuremet of the BBC s sped o goods ad services ot covered by outsourced cotracts with strategic parters. The BBC s portfolio of strategic cotracts spas 17 discrete service cotracts with a combied value i of 715m ad deliverig combied savigs i excess of 700m over the life of the cotracts. Cumulative savigs o the portfolio to March 2008 amout to 157m exceedig the savigs target of 135m. The portfolio is diverse, ragig from the collectio of the licece fee to the provisio of satellite services. May of these relatioships, like the out-sourced techology cotract ad the broadcast ad playout cotract, are uique ad challegig i their scope ad complexity. I 2007 the BBC formed a Strategic Relatioships Board, cosistig of seior cotract maagers ad chaired by Procuremet, to oversee the maagemet of the BBC s portfolio of strategic cotracts. Prior to that date the BBC had maaged its strategic cotracts as stadaloe busiess operatios without ay systematic portfolio maagemet processes. The role of the Strategic Relatioships Board is to develop ad moitor a cosistet approach to cotract ad relatioship maagemet across the rage of cotracts i lie with best practice ad also to create opportuities to deliver further value. Additioal savigs of more tha 150m have bee idetified across the portfolio over the ext 5 year period, which are over ad above the savigs idetified i the origial busiess cases of the cotracts. Best practice cotract maagemet as a professioal disciplie is still developig as outsourcig o-core busiess operatios becomes more commo place i the public ad private sectors. The Executive ackowledges that the BBC is still i the process of developig a fully uified ad itegrated approach to maagig its portfolio of major cotracts ad is ecouraged by the NAO s coclusios that across the five cotracts the NAO examied i detail the BBC is above average i its approach to maagig its major cotracts. The NAO review will assist the Executive i further developig its approach. Respose to NAO recommedatios The Executive is pleased to ote that most of the recommedatios made build o plas already i place, or ackowledged as areas for developmet by the BBC. The BBC has secured just over 90% of its performace objectives, but has ot achieved the performace ad iovatio it requires for the price it is willig to pay i some cotracts. The BBC is pleased to have achieved high stadards of performace across its portfolio of cotracts with over 90% of its performace objectives beig achieved.

6 Performace stadards are established prior to ad durig the procuremet process ad at the time the cotract is let the highest appropriate stadards available from the market are egotiated. There will be times whe performace measures are ot met as some measures are desiged to stretch the supplier ad ecourage cotiuous improvemet. For example, performace measures may be missed whe ew processes ad systems are rolled out which disturb the busiess as usual operatio, or whe exceptioal ad uexpected circumstaces arise. I additio, there are times whe performace measures eed to be revised to keep pace with what is ofte a dyamic ad chagig service delivery eviromet. The BBC expects performace stadards to be met ad works closely, ad will cotiue to work closely, with the supplier to esure that this is the case i lie with this recommedatio. This will cotiue to be moitored through the aual review process for each cotract. The BBC has secured sigificat iovatio i the procuremet of may of its strategic cotracts, for example, the off-shorig of fiacial trasactio processig ad the cetralisatio of its HR admiistrative services. Ogoig iovatio is somethig that both the supplier ad the BBC strive to deliver ad there are provisios aroud iovatio ad iovatio forums explicitly writte i to a umber of the more recet cotracts e.g. Red Bee ad Steria. The Executive will cosider how best to cotiue to drive iovatio from its portfolio of cotracts ad will use the aual review process to idetify, prioritise ad track future chages. Although the BBC has examples of good practice i cotract maagemet, it has yet to apply this cosistetly across the portfolio of strategic cotracts ad eeds to do more work to match its resources to areas of greatest eed ad opportuity. The cotract maagemet resource across the portfolio has built up over time ad the overall cost represets less tha oe per cet of aual cotract expediture. The BBC has recruited a mix of cotract maagers appoited iterally ad from exteral orgaisatios drawig from established expertise i cotract maagemet. The Executive have embarked o a process to develop the expertise of our cotract maagemet resource ad is workig o a set of core competecies at all levels of cotract maagemet, which will set a stadard across the portfolio. This will iclude examiig the specific skills ad resource required for maagig idividual cotracts. We will also develop a structured approach to cotiuig professioal developmet i lie with this recommedatio. The BBC may ot have visibility of risks that arise where strategic supplies are depedet o the services provided by other strategic suppliers, ad the BBC has o systematic process for idetifyig these risks.

7 The risk ad iterdepedecies across the major cotracts are uderstood ad maaged by the relevat operatioal maagers withi the cotract teams. These risks are captured o the risk registers of the idividual cotracts, however, the risks ad iterdepedecies of the portfolio of cotracts are ot separately captured o a cosolidated risk register. The Executive will develop its approach i lie with this recommedatio, ad the NAO s report o the BBC s Maagemet of Risk from 2006, to esure that all risks ad iterdepedecies are additioally captured ad reviewed o a cetral register. Ope-book access rights to suppliers fiacial records, which are secured at a fiacial cost i cotract egotiatios, will oly ehace cotract maagemet if they are effectively applied. For all but oe of the cotracts we examied the BBC has ope-book audit rights but has ot exercised them. Ope-book provisios are importat for a ope ad trasparet relatioship with ay supplier ad the BBC uses these provisios across the portfolio of cotracts where they apply. Data is routiely requested ad iterrogated as part of the cotract goverace processes. I additio, as part of all procuremet exercises sice ad icludig the Siemes cotract, detailed cost data is cotractually agreed to be shared o a aual basis, ad i a approved format. A ope-book audit is a idepedet validatio of the accuracy of data supplied by a supplier. We have already udertake oe audit o JCI ad two further audits are i progress with Siemes ad Capita TVL. We will cotiue to use ope book audits whe appropriate ad where there is a clear fiacial beefit over ad above ay cost implicatios. Although idividual cotracts have risk registers, the BBC does ot maitai a joit risk register with the suppliers for each cotract so there is a lack of clarity about the resposibility for maagemet of shared risks. A risk register is maitaied for each strategic cotract which feeds i to the overall risk maagemet framework of the BBC. Joit risks ad resposibilities are discussed regularly with suppliers durig goverace meetigs ad more formal reviews. To esure that this is trasparet goig forward, all cotracts will be required to maitai a joit risk register which will be reviewed o a quarterly basis through the goverace process. Although the BBC idetifies key deliverables o a cotract by cotract basis it does ot have busiess-wide criteria by which it idetifies the relative importace of deliverables to its busiess.

8 The iitial busiess case for each ew outsourcig project idetifies the critical success factors that will deliver the BBC s objectives. These are traslated ito performace measures which are established at the time the cotract is let, through market testig, through the procuremet phase i egotiatio with bidders, ad sometimes with the help of exteral advice. Each cotract is very differet ad the NAO ackowledge i their report that they would ot expect to see uiformity give the rage of diversity of the BBC s strategic cotracts. It is also the case that best practice evolves over time ad that performace measures may eed to be revised ad reegotiated as the busiess chages. For the purpose of maagemet reportig the Executive agree that it is importat that focus is give to the right umber ad type of performace measures. The Strategic Relatioships Board will udertake a review of all measures across each of the cotracts i this cotext. It is importat to ote that ay wholesale review of performace measures will eed to take accout of the maturity of the cotract ad may eed to form part of ay future re-teder process. BBC maagemet does ot routiely validate performace iformatio provided by suppliers, eve where reported iformatio has a bearig o paymets to the supplier. Some performace iformatio is validated across all of the cotracts i a umber of ways through automated systems validatio; iteral audits; exteral audits; ad ad hoc requests for data whe the routie process of review raises questios. However performace is ot routiely validated across all idicators as part of a systematic programme of validatio. The Executive will ivestigate itroducig a process of sample validatio across the key cotracts cosiderig the cost ad beefit of such a approach by idividual cotract. Jauary 2009

9 The BBC s maagemet of strategic cotracts with the private sector REVIEW BY THE COMPTROLLER AND AUDITOR GENERAL PRESENTED TO THE BBC TRUST S FINANCE AND STRATEGY COMMITTEE 3 December 2008

10 This report has bee prepared uder clause 79(3) of the Broadcastig Agreemet betwee the Secretary of State for Culture, Media ad Sport ad the BBC dated July Tim Burr Comptroller ad Auditor Geeral Natioal Audit Office 27 November 2008 The Natioal Audit Office study team cosisted of: Stephe Bowstead, Richard Gauld, Keith Hawkswell, Ashley McDougall ad James McGraw This report ca be foud o the Natioal Audit Office web site at For further iformatio about the Natioal Audit Office please cotact: Natioal Audit Office Press Office Buckigham Palace Road Victoria Lodo SW1W 9SP Tel: equiries@ao.gsi.gov.uk Natioal Audit Office 2009

11 cotets SUMMARY 4 MAIN REPORT 8 Appedices 1 The BBC s sevetee strategic cotracts 24 2 The methods we used 25 Photograph courtesy of Alamy.com

12 summary 1 Over the last decade the BBC has built up a portfolio of 17 strategic cotracts with private sector suppliers to provide it with key services icludig the trasmissio of its radio ad televisio programmes, iformatio techology ad fiacial ad accoutig services. I the BBC spet 715 millio with these suppliers, a fifth of its aual licece fee icome. The BBC defies strategic cotracts as those which have a aual value of at least 2 millio, a term of at least five years ad which make a key cotributio to its busiess. The BBC s aims i maagig these cotracts are to cotrol expediture to plaed levels, achieve fiacial savigs, maitai or improve the quality of service received ad to secure the loger-term beefits, such as iovatio, which are facilitated by strategic cotracts. 2 We examied whether the BBC is securig the service ad fiacial objectives it outlied whe it etered ito the idividual strategic cotracts ad whether the BBC has take adequate steps to maximise the value for moey of its portfolio of strategic cotracts. 3 Spedig o the strategic cotracts i was 715 millio, almost exactly i lie with the BBC s start of year forecasts of 713 millio, ad approximately 91 millio (15 per cet) higher tha forecast by the BBC whe cotracts were origially let, maily because of suppliers wiig additioal project work. Most of the curret cotracts forecast fiacial savigs over the previous costs of provisio. By the ed of March 2008 the BBC had idetified total savigs of 157 millio sice the start of the cotracts, exceedig its origial forecast of 135 millio. 4 The BBC s maagemet of strategic CoTraCTs with The private sector

13 summary 4 The BBC measures the performace of its suppliers agaist Performace Idicators for levels of service set out i the cotracts. The BBC has liked performace agaist some of these Idicators to paymet to the supplier, based o its view of the importace of the service measured to the BBC. The Idicators liked to paymet are set at the miimum satisfactory levels of service the BBC expects from suppliers. Performace idicators are the core of the BBC s moitorig of the service provided by its strategic suppliers, ad moitorig is itself a demad o BBC resources. Performace idicators are set cotract by cotract, ad while we would ot expect to see uiformity give the rage ad diversity of the BBC s strategic cotracts, there are variaces i both the umber of idicators ad the expediture evaluated by each idicator, at the level used by the BBC for iteral reportig: the total umber of performace idicators rages from oe to 250 for a cotract; the umber of idicators liked to paymet to suppliers rages from oe to 47 for a cotract; i 10 cotracts the BBC has liked all performace idicators to paymet to the supplier. I five cotracts there is a mixture, with a total of 335 idicators havig o fiacial sactio if they are ot met; ad the average expediture covered by each paymet-liked idicator rages from 265,000 to 14.7 millio. 5 Durig , supplier performace was better agaist those idicators which are liked to paymet, tha those without such a lik; across the portfolio of cotracts, suppliers met 91 per cet of the idicators liked to paymet ad 82 per cet of the idicators ot liked to paymet. O idividual cotracts, the positio o paymet-liked idicators is as follows: i four cotracts (with a value of 59 millio i ) the BBC secured 100 per cet of its specified service stadards; i eight cotracts (with a value of 571 millio i ) the BBC secured betwee 90 per cet ad 99 per cet of its specified service stadards. Withi these eight cotracts are the five largest by value. The largest cotract by value was with Siemes ( 232 millio i ) which met 93 per cet of specified service stadards; ad i three cotracts (with a value of 51 millio i ) the BBC secured 86 per cet, 84 per cet ad 74 per cet of specified service stadards. 6 For loger-term, high-value ad strategically importat cotracts, the developmet ad maagemet of relatioships with suppliers is particularly importat to secure flexibility, iovatio ad added value over the life of the cotract. Overall, across five cotracts examied, the BBC s approach to relatioship maagemet was above average compared to other orgaisatios i the public ad private sectors. The egagemet of seior maagers varied however, across the five cotracts, as did the extet to which the BBC ad the supplier had a shared uderstadig of the status of the relatioship. Havig appropriately skilled staff is essetial i buildig effective relatioships, but as the BBC has ot fully idetified the distict relatioship maagemet eeds for its portfolio of cotracts ad does ot therefore have a resourcig pla for each cotract, it has experieced skills gaps i some cotract maagemet teams. Few of the BBC s cotract maagers have received formal traiig i cotract or relatioship maagemet. 7 Securig icreased access to iovatio through the expertise of suppliers is a key objective of strategic cotracts, which are iteded to facilitate partership workig ad ivestmet i log-term projects. While some suppliers offered iovative approaches to deliverig services whe the BBC let the cotracts, for some of the cotracts we examied, the BBC had ot yet achieved iovatio to the extet that it had aticipated, otably i the cotract for techology services. 8 The BBC itroduced a ew approach to maagig its portfolio of strategic cotracts i early 2007 to improve coordiatio of its portfolio. The Strategic Relatioships Board, chaired by the BBC s Director of Procuremet, brigs together cotract maagers to discuss commo issues ad acts as the focal poit of cotract moitorig ad idetifyig ad reportig future savigs. The Board does ot, however, have executive authority for eforcig compliace with miimum stadards across cotract maagemet teams ad, while the BBC has iformatio o idividual cotract costs ad performace, the Board has ot fiished collatig cost ad performace data for the portfolio of cotracts. There was variability i the extet to which maagemet of the six case study cotracts we examied reflected good practice, as illustrated by Figure 1 overleaf. For example, i oly two of the cotracts did the BBC systematically validate supplier performace, ad, whilst each of the six cotracts cotaied exit provisios, four of the cotracts did ot have adequate cotigecy plas i the evet the cotract is termiated early. The BBC does ot systematically validate the performace iformatio reported by its suppliers. The BBC s maagemet of strategic cotracts with the private sector 5

14 summary 1 BBC compliace with good practice for six cotracts examied as case studies Ivokig service credits (paragraph 36) Obtaiig user perspectives (paragraphs 38 to 40) Validatig supplier performace (paragraph 41) Use of cotractual provisios for reviewig prices paid (paragraphs 42 to 44) Maagig risk (paragraphs 55 to 57) Steria (Fiace) Capita (HR) Arqiva (Trasmissio) Capita (Licece fee collectio) Red Bee (play out ad broadcast) Johso Cotrols (facilities maagemet) Source: Natioal Audit Office case study evaluatio of the BBC s maagemet of cotracts Key I lie with good practice with miimal room for improvemet Some evidece of good practice but with room for improvemet i at least oe sigificat area Little evidece of good practice with room for improvemet i more tha oe sigificat area VFM coclusio 9 The BBC s value for moey objectives for its strategic cotracts are to cotrol expediture to plaed levels, achieve fiacial savigs, maitai or improve the quality of service received ad secure iovatio. I spedig was i lie with forecasts ad the BBC has exceeded its savigs target from its portfolio of strategic cotracts. To the extet that performace idicators are liked to paymets, the BBC has secured the cotractually agreed miimum levels of service for 91 per cet of the idicators it specified whe it etered its strategic cotracts. Suppliers however met oly 82 per cet of performace idicators ot liked to paymet. The BBC has ot, therefore, achieved the full rage or level of performace specified i its strategic cotracts. I additio, the BBC has ot secured as much iovatio as aticipated o some cotracts. There is a risk that the umber of the BBC s performace idicators, ad the rage of expediture covered by each idicator, limits maagers ability to distiguish betwee desirable ad geuiely key service deliverables, ad to target maagemet ad supplier attetio ad resources accordigly. 10 The BBC is lookig to develop a more strategic approach to the maagemet of its portfolio of strategic cotracts to improve the value for moey it achieves from the 715 millio a year it speds o these cotracts. At preset, however, the BBC has ot fiished collatig iformatio o costs ad performace for all its strategic cotracts, or routiely validated iformatio provided by suppliers. The variability of cotract ad relatioship maagemet across the portfolio idicates that the BBC has further to go to achieve the best practice approach it is seekig i maagig its portfolio of cotracts. Recommedatios a The BBC has secured just over 90 per cet of its performace objectives, but has ot achieved the performace ad iovatio it requires for the price it is willig to pay i some cotracts (paragraphs 23, 24, 37, 49, 50). The BBC should: i ii iii idetify the source of ay shortfalls i performace, for example whether they flow from the cotract, processes or relatioships betwee idividuals; draw up a actio pla for improvig performace, icludig measurable targets for service improvemet or iovatio sought; ad apply lessos leared from maagemet of its cotracts to procuremet of future strategic cotracts. 6 The BBC s maagemet of strategic cotracts with the private sector

15 summary b Although the BBC has examples of good practice i cotract maagemet, it has yet to apply this learig cosistetly across the portfolio of strategic cotracts, ad eeds to do more work to match its resources to areas of greatest eed ad opportuity (paragraphs 51, 52 ad 64). The BBC should: i ii defie the core competecies that its strategic cotract maagers eed ad review the capabilities of existig cotract maagemet teams based o these competecies; develop a structured approach to cotiuig professioal developmet for cotract maagers which is supported by compulsory traiig; e f Although idividual cotracts have risk registers, the BBC does ot maitai a joit risk register with the suppliers for each cotract, so there is a lack of clarity about the resposibility for maagemet of shared risks (paragraph 56). To provide clarity of resposibility i the maagemet of joit risks, the BBC ad its suppliers should, i lie with good practice ad the BBC s ow guidace, maitai joit risk registers with suppliers for each cotract. Although the BBC idetifies key deliverables o a cotract by cotract basis it does ot have busiess-wide criteria by which it idetifies the relative importace of deliverables to its busiess (paragraph 22). c d iii iv assess the specific relatioship requiremets for each of its strategic cotracts, ad set out how the relatioship will be developed ad its effectiveess measured; ad set out clear lies of accoutability to the BBC Fiace Committee for maagers compliace with BBC stadards i cotract maagemet. The BBC may ot have visibility of risks that arise where strategic suppliers are depedet o the services provided by other strategic suppliers, ad the BBC has o systematic process for idetifyig these risks (paragraph 62). The BBC should: i ii map out the iter-depedecies ad crosscuttig risks betwee its strategic suppliers; ad report aually to its Fiace Committee o these strategic ad cross-cuttig risks to provide assurace that it has idetified all such risks ad clarity o the resposibility for, ad progress i, maagig those risks. Ope-book access rights to suppliers fiacial records, which are secured at a fiacial cost i cotract egotiatios, will oly ehace cotract maagemet if they are effectively applied. For all but oe of the cotracts we examied the BBC has ope-book audit rights but has ot exercised them (paragraph 44). g h The BBC should review existig performace idicators for relative importace to the busiess, ad establish criteria for idetifyig the most importat performace idicators, while takig accout of the objectives of each cotract. BBC maagemet does ot routiely validate performace iformatio provided by suppliers, eve where reported iformatio has a bearig o paymets to the supplier (paragraph 39 ad 41). To gai assurace about the accuracy of performace iformatio provided by suppliers BBC maagemet should validate the accuracy of performace iformatio provided by suppliers, particularly where paymets are affected by performace. The cost of validatig performace must be proportioate to the beefits ad the BBC may wish to review a sample of iformatio for each supplier. The BBC Trust approves strategic cotracts i part o the basis of forecast savigs. It does ot follow up whether forecast savigs for idividual strategic cotracts have bee delivered (paragraph 29). The Trust should satisfy itself that the savigs proposed as part of busiess cases are achieved ad if ot, explore why ot. For those cotracts where there are ope-book provisios, the BBC should exercise its rights to ope-book audit to protect its iterests ad embed trasparecy ad accoutability i workig practices. The BBC s maagemet of strategic cotracts with the private sector 7

16 Mai report Mai report 11 The BBC s core purpose is the commissioig, productio, schedulig ad trasmissio of programmes ad olie cotet to iform, educate ad etertai its viewers, listeers ad users. The BBC is resposible for achievig value for moey from licece fee icome, which was early 3.4 billio i By miimisig costs o support services it ca maximise ivestmet i programmes. 12 The BBC uses part of its licece fee icome to procure goods ad services through 17,000 private sector suppliers. The vast majority of these are shortterm cotracts for the supply of routie goods ad services, which we examied i our 2007 report o BBC Procuremet. 1 Over the last decade the BBC has also etered loger-term cotractual relatioships with private sector suppliers. The BBC defies these strategic cotracts as those which have a aual cost of at least 2 millio ad a term of at least five years. I the BBC had 17 strategic cotracts (see Appedix 1) The BBC is accoutable to the BBC Trust for the value for moey of its expediture uder the licece fee. The review is part of a programme of value for moey work agreed with the BBC Trust by the Comptroller ad Auditor Geeral, head of the Natioal Audit Office, uder a agreemet 3 betwee the Secretary of State for Culture, Media ad Sport ad the BBC. 14 The aim of our review has bee to assess the effectiveess of the BBC s arragemets for maagig its strategic cotracts. The report is about the maagemet of curret cotracts ad does ot cover the origial procuremet of the cotracts. The methods we used are set out at Appedix 2. The BBC s strategic cotracts 15 Strategic cotracts provide the BBC with key support services icludig the trasmissio of its radio ad televisio programmes, iformatio techology ad fiacial ad accoutig services. A full list of the cotracts ad suppliers is at Appedix 1. I the BBC spet approximately 715 millio through its strategic cotracts (Figure 2), a fifth of its licece fee icome. 16 The BBC s objectives for maagig its strategic cotracts are to secure value for moey services, access loger-term beefits such as iovatio ad cotiuous improvemet ad secure beefits that would ot ormally be available outside strategic cotracts. 17 Util 2007, the BBC maaged its strategic cotracts as stadaloe busiess operatios without ay systematic portfolio maagemet processes. I 2006, BBC Iteral Audit idetified a eed for a overarchig strategy ad the co-ordiatio of strategic cotracts. Also i 2006, reports by the Committee of Public Accouts ad the Comptroller ad Auditor Geeral o the BBC s cotract with Siemes Busiess Services idetified a umber of geeric lessos for the maagemet of the BBC s strategic cotracts 4 ad we have followed-up those lessos i paragraphs 33 to 66 below. 1 BBC Procuremet, Review by the Comptroller ad Auditor Geeral preseted to the BBC Trust s Fiace ad Strategy Committee, October Durig the fiacial year the BBC etered ito two further strategic cotracts, with Eaga, to provide help with digital switchover to the elderly ad vulerable members of society, ad RMS, for a card based paymet ad savigs scheme which allows paymet of the licece fee by cash istalmets. The cotracts were ot operatioal durig so do ot feature i this report. 3 A Framework Agreemet, uder Article 49 of the BBC Royal Charter 2006, betwee the Secretary of State for Culture, Media ad Sport ad the BBC Commad 6872 dated July The cotract betwee the BBC ad Siemes Busiess Services for the provisio of techology services, Review by the Comptroller ad Auditor Geeral preseted to the BBC Trust s Fiace ad Strategy Committee, Jue BBC outsourcig: the cotract betwee the BBC ad Siemes Busiess Services, the Committee of Public Accouts, Thirty-fifth Report of Sessio , 28 Jue 2007 as HC THE BBC S MANAGEMENT OF STRATEGIC CONTRACTS WITH THE PRIVATE SECTOR

17 mai report 18 I respose to the reviews i 2006, the BBC established the Strategic Relatioships Board i Jauary 2007 to: work together o commo issues ad demostrate cosistecy of approach across the portfolio; map ad prioritise iterdepedecies ad risks; share iformatio ad experieces; create opportuities for savigs/deliver further value; ad cosider successio plaig. The Board is chaired by the BBC s Director of Procuremet, ad its members are the maagers of the BBC s 17 strategic cotracts. The operatioal maagemet of idividual strategic cotracts ad suppliers is the resposibility of Executive sposors, who are usually BBC divisioal Directors. The BBC s accoutability ad cotract maagemet model is at Figure 3 overleaf. 19 Agaist this backgroud, we have examied whether the BBC s ew arragemets for maagemet of strategic cotracts have met the BBC s service ad fiacial objectives ad whether the BBC has take adequate steps to maximise the value for moey of its portfolio of strategic cotracts, by reviewig: the service ad fiacial performace of the cotracts; how the BBC maages idividual cotracts; ad progress i establishig portfolio maagemet. 20 As part of our review we examied case studies of six of the BBC s strategic cotracts ad commissioed advice from cosultats o the effectiveess of the BBC s approach to relatioship maagemet. The six case studies are at Figure 4 overleaf. 2 Expediture by cotract i Siemes Techology services NGW Aalogue trasmissio services Red Bee Playout ad broadcast services Capita Licece fee collectio Johso Cotrols Facilities maagemet (Lodo ad Scotlad) SES Astra Provisio of digital satellite services VTC Trasmissio of BBC World Service Proximity TV Licesig marketig ad pritig Steria Fiacial services Capita Huma resources services UK Mail Postal services for TV Licesig BSkyB Provisio of electroic programme guide HBML Facilities maagemet (Eglish regios) ENPS Electroic ews productio services Capita Hadlig audiece iteractio Paypoit Over the couter licece fee collectio Arqiva Digital trasmissio services millios Source: Natioal Audit Office aalysis of BBC data THE BBC S MANAGEMENT OF STRATEGIC CONTRACTS WITH THE PRIVATE SECTOR 9

18 mai report 3 Roles ad resposibilities for strategic cotract maagemet BBC Executive Board Resposible for deliverig value for moey from the licece fee Director Geeral s Fiace Committee Resposible for reviewig the performace of strategic cotracts Executive sposor Ultimately resposible for the supplier relatioship Cotract Maagemet Board Resposible for the strategic directio of the cotracts ad the overall maagemet of the relatioship Strategic Relatioships Board The Strategic Relatioship Board s aims are to: work together o commo issues ad demostrate cosistecy of approach across the portfolio; map ad prioritise iterdepedecies ad risks; share iformatio ad experieces; create opportuities for savigs/deliver further value; ad cosider successio plaig. Cotract Maager Day to day resposibility for delivery, measurig performace, value for moey ad cotiuous developmet of the relatioship Service Groups Represet key users of the services ad review operatioal service delivery Source: BBC 4 Case study cotracts examied Supplier Service provided Iteral users of the service Exteral users of the service Arqiva High power digital terrestrial televisio trasmissio services ad the expasio of Digital Audio Broadcastig trasmissio services. Noe Licece fee payers, who receive televisio ad radio sigals Capita (Huma Resources) Huma Resources admiistratio, occupatioal health, recruitmet, outplacemet ad relocatio. All BBC employees Noe Capita (TV Licesig) Collectio of the licece fee. BBC Fiace Licece fee payers Johso Cotrols Ltd Facilities maagemet services to BBC buildigs i Lodo ad Scotlad. BBC employees based i Lodo ad Scotlad Noe Red Bee A variety of broadcast critical services, icludig playout of chaels; cotiuity betwee programme schedules; audiece access services via sig ad subtitlig; ad a icreasig rage of ew media ad o demad services. BBC divisios which rely o Red Bee to put programmes out o air Licece fee payers, who receive televisio sigals Steria Fiacial services. All BBC employees Suppliers to the BBC Source: Natioal Audit Office 10 THE BBC S MANAGEMENT OF STRATEGIC CONTRACTS WITH THE PRIVATE SECTOR

19 mai report The service ad fiacial performace of idividual cotracts 21 The core of cotract maagemet is securig fiacial ad service performace from suppliers that meet cotractually agreed levels. While the BBC had iformatio o idividual cotract costs ad performace, it had ot collated data o the costs, savigs ad service levels for all of its 17 strategic cotracts to get a overall picture of performace. We therefore gathered this data for ad reported it at Figure 5. Service delivery 22 The BBC geerally measures service delivery for its strategic cotracts by moitorig supplier performace agaist targets, each of which has a performace idicator, based o the levels of service that the BBC cotracted for whe procurig the service. Gatherig, aalysig, reportig ad validatig data for performace idicators is costly. Havig too may performace idicators could represet excessive moitorig ad lead to a lack of focus o the most importat idicators, ad havig 5 Services delivery ad costs for ad savigs for ad from the start of the cotract to 31 March 2008 for each of the BBC s strategic cotracts 1 Cotract ad start date Source: Natioal Audit Office aalysis of BBC data Service delivery Costs Savigs Start to 31 March 2008 Performace Total idicators Performace with service idicators met credits attached met Busiess case forecast Actual cost Busiess case forecast Actual savigs Busiess case forecast Actual savigs % % m m m m m m Siemes, Apr NGW, Mar /a /a /a /a Red Bee, Jul /a /a /a /a Johso Cotrols, Jul Capita (Licece Fee), Apr /a /a /a /a SES Astra, Oct /a /a /a /a VTC, Mar Proximity, Ja 02 /a /a /a /a /a /a Steria, Nov Capita (HR), Dec UK Mail, Sep BSkyB, Nov 98 /a /a /a /a 0.0 /a HBML, Apr ENPS, Aug Capita (Audiece), Dec Paypoit, Apr Arqiva, Sept /a /a Totals NoteS 1 Raked by actual cost i Savigs figures are measured agaist forecasts made whe cotracts were let ad are ot ecessarily related to levels of expediture, but rather to the previous cost of providig the service or elemets of the service. 3 The umber of performace idicators icluded i the aalysis is at the level used by the BBC for iteral reportig. 4 Capita (Licece fee) forecast expediture i the busiess case is i prices. THE BBC S MANAGEMENT OF STRATEGIC CONTRACTS WITH THE PRIVATE SECTOR 11

20 mai report too few could fail to capture detail o performace at a appropriate level. For each of the BBC s strategic cotracts we aalysed, at the level used by the BBC for iteral reportig; the umber of performace idicators; the umber of idicators which the BBC has liked to paymet to the supplier; ad the expediture covered by each of the idicators which are liked to paymet. We did this to assess the cosistecy of the BBC s approach to defiig key deliverables across its portfolio of strategic cotracts (Figure 6). Whilst we would ot expect to see uiformity, give the rage ad diversity of the BBC s strategic cotracts, for the 15 cotracts with performace idicators we foud as follows. The umber of performace idicators rages from oe to 250 for a cotract. The facilities maagemet cotract with HBML has a sigle performace idicator which would limit performace evaluatios to a simple met or ot met, whereas the cotract with Johso Cotrols, which is also a facilities maagemet cotract, has five idicators. I 10 cotracts the BBC has liked all performace idicators to paymet to the supplier, but i five cotracts (Siemes, Red Bee, Steria, Capita (Audiece services) ad VTC) there is a mixture, with 335 idicators havig o fiacial sactio if they are ot met. For example, all of the 31 idicators i the cotract with Capita for huma resources services are liked to paymet, but 90 of the 121 idicators i the cotract for fiacial services with Steria, would result i o fiacial sactio if they were ot met. Both cotracts are for admiistrative services with a high umber of trasactios, ad have similar levels of spedig. The average expediture covered by each performace idicator which is liked to paymet to the supplier rages from 265,000 to 14.7 millio for each of the idicators. For the techology services cotract with Siemes, each paymet-liked idicator covers a average of 8.3 millio expediture, but for the cotract with Red Bee for playout ad broadcast services the average expediture per paymet-liked idicator is 1.7 millio. Both of these cotracts are for complex, techology services. 23 Whe a performace idicator is liked to paymet i the cotract, the BBC is etitled to claim a rebate, a service credit, from the supplier if the supplier does ot meet the agreed performace stadard set out i the cotract. The BBC attached service credits to idicators based o its view of the importace to the busiess of the elemet of service measured by the idicator. Durig , supplier performace was better agaist those idicators liked to paymet tha those without such a lik. Across the portfolio of cotracts, suppliers met 91 per cet of the 249 idicators liked to paymet, ad 82 per cet of the 335 idicators ot liked to paymet. 24 O idividual cotracts, the positio o paymetliked idicators, as show by Figure 5, is: I four cotracts, with spedig of 59 millio i (SES Astra, UK Mail, HBML ad ENPS), the BBC secured 100 per cet of its specified service stadards; I eight cotracts, with spedig of 571 millio i (Siemes, NGW, Red Bee, Johso Cotrols, Capita (Licece Fee), Steria, Capita (Audiece) ad Arqiva), the BBC secured betwee 90 per cet ad 99 per cet of its specified service stadards. Withi these eight cotracts are the five largest by value. The largest cotract by value was with Siemes ( 232 millio i ) which met 93 per cet of specified service stadards. I three cotracts, with spedig of 51 millio i (VTC, Capita (Huma Resources) ad Paypoit), the BBC secured 86 per cet, 74 per cet ad 84 per cet respectively of specified service stadards. 12 THE BBC S MANAGEMENT OF STRATEGIC CONTRACTS WITH THE PRIVATE SECTOR

21 mai report 6 Number of performace idicators, umber of performace idicators liked to paymet ad average expediture covered by each idicator liked to supplier paymet i Cotract No of performace idicators Number of performace idicators liked to paymet Average expediture covered by each idicator liked to paymet 000 Siemes, Apr ,335 Steria, Nov Red Bee, Jul ,660 VTC, Mar Capita (HR), Dec NGW, Mar ,276 Paypoit, Apr Capita (Audiece), Dec Capita (Licece Fee), Apr ,167 SES Astra, Oct ,814 UK Mail, Sep ,667 Johso Cotrols, Jul ,700 ENPS, Aug ,350 HBML, Apr ,700 Source: Natioal Audit Office aalysis of BBC data NOTES 1 This aalysis excludes three cotracts: two which do ot have ay cotractually defied performace targets (BSkyB, because the cotract is based o a tariff edorsed by the regulator, Ofcom, ad Proximity, which the BBC moitors through achievemet of aual sales targets); ad the Arqiva (trasmissio) cotract sice there was little expediture o this cotract durig as it was ot fully operatioal. 2 The umber of performace idicators icluded i the aalysis is at the level used by the BBC for iteral reportig. 3 The five Johso Cotrols idicators are a aggregatio of 26 measured services. 25 I , as a result of missed performace targets, strategic suppliers paid the BBC some 1.1 millio i service credits, with paymets o idividual cotracts ragig from 3,500 to 318,000. We examie the reasos for performace idicators beig missed ad the maagemet of that performace i paragraph 37 ad Figure 9 o page 16, ad the absece of validatio of service performace i paragraph 41. Costs 26 Cotract maagers are resposible for moitorig whole life costs to cofirm that expediture is i lie with forecasts. Durig , spedig of 715 millio o strategic cotracts was i lie with start of year BBC forecasts of 713 millio. Spedig was, however, approximately 91 millio (15 per cet) higher tha iitially forecast i the pre-cotract busiess cases i which the BBC assessed the beefits ad costs of awardig cotracts. The largest variaces, by value, betwee costs forecast i busiess cases ad actual costs durig were i the cotracts for iformatio techology services (Siemes) ad for broadcastig programmes (Red Bee) (Figure 7 overleaf). Both these cotracts allow the supplier to bid for additioal project work; ad i both cases, the fact that expediture was greater tha expected whe the cotracts were let is maily attributable to suppliers wiig additioal work over the duratio of the cotracts. THE BBC S MANAGEMENT OF STRATEGIC CONTRACTS WITH THE PRIVATE SECTOR 13

22 mai report 27 The BBC Trust s approach to reviewig ivestmet decisios is that additioal expediture o existig cotracts should be referred by BBC maagemet to the Trust for approval if the scale of the activity exceeds 10 per cet of the approved budget or is i breach of ay coditios imposed by the Trust whe givig its approval. O these criteria, four cotracts should have bee referred to the Trust for approval (Figure 7). However oe of the cotracts was referred because, although they idividually appear to breach the Trust protocol goverig approvals for , they icluded expediture that had already bee separately approved by the Trust. The Trust ad BBC maagemet have agreed that there is ambiguity i the referral threshold ad it eeds to be revised to clarify whether: Savigs it is projected aual or lifetime overspeds that trigger a referral; iflatio should be take ito accout; ad total expediture agaist approved budget should iclude or exclude additioal work wo by that cotractor. 28 Part of the BBC Trust s deliberatios over which supplier should be appoited for idividual strategic cotracts is whether the proposed cotract will deliver savigs agaist the previous cost of providig the service. The BBC etered 10 of its 17 strategic cotracts with the expectatio that they would deliver quatified fiacial savigs. The BBC did ot aticipate savigs for the remaiig seve cotracts o the basis that: they were for ew services so there were o baselie costs (Arqiva ad Natioal Grid Wireless); the cotract is based o a tariff edorsed by the regulator, Ofcom (BSkyB); there is a moopoly supplier that offers fixed, o-egotiable charges (SES Astra); or i the BBC s view there were o opportuities for ogoig savigs beyod those savigs secured through the procuremet process (Proximity, Capita (TV Licesig) ad Red Bee). 29 Savigs from strategic cotracts are subsumed withi reports to the BBC s Executive Board o progress agaist wider divisioal savigs targets. As the BBC has ot separately collated savigs data for all strategic cotracts to determie whether savigs forecasts have bee met, either BBC maagemet or the Trust routiely receives the iformatio they would eed to assess the achievemet of savigs forecast i the idividual busiess cases approved by the Trust. 30 BBC practice, oce savigs targets have bee agreed, is to remove the amout from divisioal budgets. BBC savigs data show that the strategic cotracts had delivered life-time savigs of 157 millio up to 31 March 2008, 22 millio higher tha the aggregate busiess case forecasts of 135 millio (Figure 5). Excludig the Siemes Cotract, savigs from the portfolio as a whole were i lie with the savigs forecast. 7 Cotracts where expediture i exceeds the aual costs agreed i the origial busiess case by more tha 10 per cet Cotract Start date Actual cost Variace agaist busiess case m m % Red Bee July Siemes April Capita (Licese Fee) 1 April Steria November Source: Natioal Audit Office aalysis of BBC data NOTES 1 Capita (Licece Fee) forecast expediture i the busiess case is i prices. 2 Expediture o the HBML cotract i was 71 per cet above the busiess case forecast but the cotract s relatively small scale meat that it did ot require Trust approval. 14 THE BBC S MANAGEMENT OF STRATEGIC CONTRACTS WITH THE PRIVATE SECTOR