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: [email protected] 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

23 mai report 31 The Siemes cotract the BBC s largest by value delivered savigs of millio to 31 March 2008, icludig a additioal 38.7 millio i savigs o reewals of desktop computers ot reflected i the origial savigs forecast. The BBC idetified this additioal savig i respose to the recommedatio i the Comptroller ad Auditor Geeral s 2006 report o the Siemes cotract that the BBC should provide a more complete ad accurate picture of the fiacial beefits of the deal. The additioal savigs over the lifetime of the Siemes cotract should be 129 millio. Without these additioal but uforecast savigs the BBC would have missed its savigs targets for both the Siemes cotract ad the portfolio of strategic cotracts as a whole. 32 As a test check o the accuracy of the BBC s claimed savigs figures, we checked savigs targets to origial documetatio i busiess cases for the cotracts which were cosidered ad approved by the BBC Trust. We also looked at the savigs claimed for the cotract with Siemes, which accouted for approximately two-thirds of the total life-time savigs across the portfolio of strategic cotracts betwee August 1996 ad the ed of March We foud that the BBC had overstated savigs attributable to the Siemes cotract by 10 millio, ad we have adjusted Figure 5 above to reflect this. This sum represeted the amout take out of the techology budget to make up for a shortfall i the savigs flowig from the Siemes cotract, but it was ot a savig produced by the Siemes cotract. The shortfall arose because the BBC judged i the light of experiece that the aual savigs for the cotract would be 5.7 millio below its forecast of 27.5 millio. 34 We examied six cotracts as case studies: Arqiva (Trasmissio); Capita (Huma Resources); Capita (TV Licesig); Johso Cotrols (Facilities maagemet); Red Bee Media (Playout ad broadcast services); ad Steria (Fiace ad Accoutig), described i Figure 4 above. These cotracts were selected to give a crosssectio of service types ad levels of expediture. Maagig performace by usig cotractual terms 35 I procurig strategic cotracts the BBC seeks to isert cotractual terms by which it ca ifluece the quality of service received ad price paid for that service. This sectio cosiders how the BBC has applied those terms, which may have bee secured at a fiacial cost i cotractual egotiatios. Service credits 36 As set out i paragraphs 22 ad 23 above, the BBC attaches service credits to some, but ot all, of its performace idicators. Service credits are the BBC s mai cotractual tool to icetivise suppliers to meet required service levels ad stadards. The BBC ormally sets service credits as a proportio of aual service charges ad some of the BBC s cotracts allow suppliers to ear credits back if they improve performace. I five of our case studies, the BBC had ivoked service credits whe suppliers missed those idicators liked to paymet. Figure 8 shows service credits as a proportio of aual expediture ad percetage of performace idicators met i for the six case study cotracts. How the BBC maages idividual cotracts 33 Havig cosidered the performace achieved through strategic cotracts i paragraphs 21 to 32 above, we the examied the BBC s maagemet of six idividual cotracts as case studies to determie how well the BBC applies good practice i four key areas: maagig performace by usig cotractual terms; maagig relatioships with strategic suppliers; resourcig cotract maagemet teams; ad maagig cotract risk. 8 The proportio of performace idicators with service credits attached that were ot met i , ad service credits received as a proportio of aual expediture for the six case study cotracts Capita (Huma Resources) % idicators with service credits ot met Service credits as % of aual expediture Steria Arqiva Red Bee Capita (Licece Fee) Johso Cotrols Source: Natioal Audit Office aalysis of BBC data Note 1 O the facilities maagemet cotract, service credits are payable if Johso Cotrols meet less tha 95 per cet of performace idicators for the year. THE BBC S MANAGEMENT OF STRATEGIC CONTRACTS WITH THE PRIVATE SECTOR 15

24 mai report 37 While service credits provide the BBC with a fiacial remedy for uder-performace, their effectiveess is ultimately determied by their ability to icetivise suppliers to brig service levels i to lie with the stadards that the BBC requires. Of the six case study cotracts we examied, we foud as follows for Arqiva, Johso Cotrols ad Red Bee met over 90 per cet of performace idicators. There is o firm evidece of whether the service credits acted as effective icetives, but cotract maagers i the BBC ad the suppliers, who have differet fiacial iterests i the operatio of service credits, regarded the service credit regimes for these cotracts as, overall, effective ad fair. I the cotract for fiacial services, the BBC was uable to measure Steria s performace agaist four of the 31 idicators with service credits attached ad 21 of the 90 idicators ot liked to paymet durig , because the systems which will facilitate reportig agaist these idicators are still beig developed. For the idicators where performace data could be produced, Steria met 90 per cet of performace idicators with service credits attached, ad 94 per cet of idicators ot liked to paymet. 9 Examples of steps the BBC is takig to improve performace i the Capita (Huma Resources) cotract Example of uder-performace Cotributig factor Impact Actios take by BBC cotract maagers to secure improvemets The Huma Resources service cotract icluded a target to aswer 92 per cet of calls made by BBC employees withi 15 secods which Capita were uable to meet. Over-ambitious performace target which drives the wrog behaviour Mystery shoppig carried out by the BBC showed that settig the target at this level has ecouraged Capita s staff to focus o the umber of calls they hadle at the expese of the quality of the service they provide. BBC ad Capita HR reegotiatig performace idicators. Capita failed the idicator related to the acceptace rate of all jobs offered by the BBC every moth durig Urealistic performace idicator The acceptace of a post i the BBC ca be due to factors outside Capita s cotrol. BBC ad Capita HR reegotiatig performace idicators. Capita routiely miss the target for the accurate ad timely etry of leaver details o to the BBC s accoutig system. Complexity of BBC processes Staff receive icorrect pay ad the volume of calls to the HR helpdesk icreases. BBC lookig at how iteral payroll processes ca be simplified. Capita missed targets for aswerig calls to the Huma Resources helpdesk due to a icrease i the volume of calls followig problems with the trasfer of the fiace cotract to Steria from the previous supplier. Iter-depedecies betwee strategic suppliers Negative impact o the relatioships betwee the BBC ad Capita HR, ad Capita HR ad Steria. Two tripartite meetigs betwee Capita, Steria ad BBC cotract maagers have bee held to discuss iter-depedecies. Capita s target to deal with 80 per cet of calls to the HR helpdesk at the first poit of cotact has bee iterpreted differetly by cotract maagemet staff at the BBC ad Capita. Source: Natioal Audit Office case study review Misuderstadigs betwee BBC ad supplier over how service levels measured BBC iterpretatio of calls beig dealt with i oe hit is that either party eeds to call back. Capita s iterpretatio is that the call eeds to be hadled by the call aswerer, leadig to complex issues that should be escalated to specialists beig dealt with by iexperieced frot-lie staff, resultig i a lower quality of service. BBC ad Capita HR reegotiatig performace idicators. 16 THE BBC S MANAGEMENT OF STRATEGIC CONTRACTS WITH THE PRIVATE SECTOR

25 mai report I the cotract for collectig the licece fee, Capita met 94 per cet of performace idicators; the areas where Capita did ot meet the required performace stadards occasioally icluded aswerig calls, respodig to correspodece ad replyig to s from the public. The mai icetive mechaism for this cotract is reveue collected, as the more Capita collect, the greater their retur (subject to miimum targets beig achieved). The BBC accepted, however, that the service credit regime had ot always icetivised the supplier to meet cotractually-defied quality stadards as the cost to Capita of improvig performace could exceed the value of the service credit. Durig Capita had to give the BBC 43,000 i service credits as a result of missig cotractually-defied performace stadards o this cotract agaist total cotract expediture of 73.5 millio. Capita (Huma Resources) met the lowest percetage of performace idicators i , ad had the largest proportio of service credits to aual expediture o the cotract. All of Capita s idicators for this cotract have service credits attached. Figure 9 illustrates some of the reasos why the Capita (huma resources) cotracts have ot met agreed stadards ad the actios the BBC is takig to try ad secure improvemets, icludig reegotiatig some performace idicators which are ow cosidered to be iappropriate by both the BBC ad Capita. The BBC has ot sought adjustmets to cotract price to reflect chages i performace stadards but cosiders the outcome of the egotiatios to be cost eutral to the BBC ad Capita. User satisfactio 38 Feedback from service users is a importat part of the iformatio the BBC uses to assess performace. It ca give a qualitative richess to idicate whether systems ad processes are ot oly workig as iteded but that they are also meetig users actual eeds. I his report o the BBC s cotract with Siemes Busiess Services, the Comptroller ad Auditor Geeral reported that the BBC ad Siemes experieced low respose rates to user surveys. The BBC ad Siemes re-desiged the user survey ad respose rates have sice icreased, from five per cet i Jauary 2006 (as reported i the Comptroller ad Auditor Geeral s report) to 17 per cet i March 2008, with 190 resposes from the 1,100 surveys set out. 39 We cosidered the extet to which the BBC had used customer surveys to assess user satisfactio with our case study cotracts. Three of the six cotracts we examied (Red Bee, Capita (TV Licesig), ad Johso Cotrols) had used customer surveys. The latest Red Bee aual survey (i March 2008) received a respose rate of 42 per cet o the 132 surveys issued to BBC staff. Capita speak with 500 members of the public each moth to survey performace. To meet a performace idicator o levels of user satisfactio, Johso Cotrols survey 10 per cet of buildig users aually. These surveys are coducted as face-to-face iterviews by Johso Cotrols staff ad results reported to the BBC. Face-to-face iterviews carried out by the supplier of the service carry the risk of ucoscious bias i reportig resposes, but the BBC does ot seek to validate the results by, for example, cotactig a sample of respodets to cofirm their accuracy. The results of customer surveys durig for the Red Bee, Capita (TV Licesig) ad Johso Cotrols cotracts showed that respodets were geerally satisfied with the level of service they had received. For example i each moth of over 80 per cet of survey respodets rated the service they received from Capita (TV Licesig) as excellet or good. 40 The positio o assessig user satisfactio o the remaiig three case study cotracts is: The Capita (Huma Resources) cotract icludes three performace idicators related to user satisfactio, but the BBC has decided that it is ot practical to report agaist these idicators. The BBC cosiders that a aual survey of users is a more effective mechaism for collectig customer feedback, but the latest aual survey was i October Sice Jue 2007, the BBC has udertake quarterly Mystery Shoppig exercises o aspects of the Huma Resources cotract to assess user experiece, but it has ot sought feedback direct from users of the service. The cotract with Steria has ot yet reached the date whe the aual customer survey is due, so the BBC has o quatified data o user satisfactio for this cotract. Customer surveys are ot appropriate i the cotract with Arqiva as it is a cotract for a trasmissio etwork, measured ad moitored wholly o availability of service. THE BBC S MANAGEMENT OF STRATEGIC CONTRACTS WITH THE PRIVATE SECTOR 17

26 mai report Performace validatio 41 Oe of the wider lessos for the BBC s outsourcig cotracts idetified i the Comptroller ad Auditor Geeral s report o the BBC s cotract with Siemes Busiess Services was that the BBC should itroduce processes to validate the accuracy of performace iformatio provided by suppliers. 5 Of the six case study cotracts we examied, the BBC had udertake audits of the TV licesig cotract but had ot audited the performace iformatio or systems used to produce it for the remaiig five. Of these five cotracts, for the cotract with Arqiva for trasmissio services, where performace is based o availability of service, the BBC receives automated otificatio of the failure ad a audit of performace data is ot required. Although the BBC had udertake some performace reviews o aspects of the remaiig four case study cotracts, largely o the cotracts with Red Bee ad Johso Cotrols, these did ot form part of a pla desiged to provide assurace o performace iformatio provided by the suppliers. Cotractual provisios for reviewig prices paid 42 Bechmarkig clauses allow the purchaser to take accout of chages over time i the market price for goods ad services sourced through cotracts. I four of the six case study cotracts we examied the BBC had icluded provisios i the cotract to bechmark costs agaist market prices (Figure 10), geerally startig three years after the commecemet of the cotract. 43 Of the case studies, oly the cotract with Red Bee had reached the poit at which bechmarkig could be applied. For this cotract, the BBC had egaged cosultats to udertake the bechmarkig exercise, ad the results were ot yet available at the time of our audit. For the cotract with Capita for Huma Resources services, the BBC has decided ot to apply bechmarkig provisios whe they fall due i late 2008, o the basis that it first eeds to improve service delivery. Capita did ot meet 26 per cet of targets durig I lie with good practice, five of the six case study cotracts we examied icluded ope-book provisio which provide the BBC with access to suppliers fiacial records to eable the BBC to uderstad ad challege the compositio of charges. The Comptroller ad Auditor Geeral s report o the Siemes outsourcig cotract recommeded that the BBC implemet ope-book accoutig from the outset to protect its iterests ad 10 Note Case study cotracts with bechmarkig ad ope book provisios icluded i the cotracts Cotract ad start date Bechmarkig Ope-book Steria, July 2007 Arqiva 1, September 2006 Capita (TV Licesig), April 2002 Capita (Huma Resources), April 2006 Johso Cotrols, July 2006 Red Bee, April 2005 Source: Natioal Audit Office case study review 1 Although the Arqiva cotract does ot iclude ope-book provisios, Arqiva are obliged to provide the BBC aually with a fully updated versio of the cost model for the cotract, which icludes actual costs icurred ad updated forecasts for all future costs. This provides the BBC with some trasparecy over Arqiva s costs. embed trasparecy ad accoutability i workig practices. Of the five case study cotracts with ope-book provisios, the BBC has udertake a ope book audit of the Johsos Cotrols cotract, but ot of the remaiig four, although it has set i trai a ope book audit of Capita (TV Licesig) which is due to be completed by the ed of Maagig relatioships with strategic suppliers 45 The aim of strategic relatioship maagemet is to go beyod a trasactioal buyer-seller relatioship to create a deeper relatioship over a loger period, which features trust ad collaborative workig betwee the two parties. Developig a strategic relatioship with a supplier ca secure additioal beefits such as icreased cost savigs ad access to iovatio. BBC Guidig priciples o the award ad delivery of strategic cotracts state that oe of the overarchig aims of outsourcig is to establish a log term exteral relatioship that offers a rage of ogoig beefits ad opportuities which would ot otherwise be available. There is o direct lik betwee stregth of relatioship ad performace agaist performace idicators, but a strog workig relatioship ca help whe thigs go wrog as both parties will be more committed to resolvig problems quickly ad effectively. 6 5 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 Maagig the relatioship to secure a successful partership i PFI projects, Report by the Comptroller ad Auditor Geeral, HC 375 Sessio THE BBC S MANAGEMENT OF STRATEGIC CONTRACTS WITH THE PRIVATE SECTOR

27 mai report 46 We assessed the quality ad effectiveess of the BBC s approach to relatioship maagemet for five of its strategic cotracts (Red Bee, Capita (Huma Resources), Steria, Siemes ad Johso Cotrols 7 ). We bechmarked the BBC s approach to maagig the five strategic cotracts agaist 149 other private ad public sector orgaisatios ad raked the BBC, overall, above average. Two strategic relatioships, for Red Bee ad Johso Cotrols, were excellet ad the process defied by the BBC for relatioship maagemet was geerally appropriate for the maagemet of strategic suppliers. Variatios i the applicatio of the BBC s approach across the relatioships reviewed suggested, however, that there should be a greater focus withi the BBC o securig cosistecy of relatioship maagemet. 47 The BBC has developed strog strategic relatioships with Red Bee for the provisio of play out ad broadcast services ad with Johso Cotrols for facilities maagemet services. The BBC s maagemet of these relatioships exhibited a umber of areas of good practice such as high levels of seior maagemet egagemet, a good uderstadig by both parties of the strategies ad goals of the other, ad clear ad cosistet commuicatio betwee the parties at all levels of seiority. The relatioships are characterised by trust ad high levels of collaborative workig. For example the BBC ad Red Bee joitly scoped the system ad operatioal requiremets for the BBC s High Defiitio chael which lauched i December Oe of the factors which has supported the strog relatioship with Red Bee is that may Red Bee employees were, prior to the outsourcig of broadcast services, employed by the BBC ad are therefore familiar with BBC processes ad persoel. Figure 11 overleaf sets out some of the factors which have cotributed to the developmet of the effective relatioships with Red Bee ad Johso Cotrols. 48 I two of the cotracts (Capita (Huma Resources) ad Siemes), the BBC had ot yet developed a effective strategic relatioship with the suppliers. O the Capita cotract, seior maagemet egagemet had bee below that see i the better maaged relatioships, ad the relatioship had ot bee operatig as a collaborative partership, with the BBC focussig at a operatioal level at the expese of developig a strategic relatioship. Two meetigs have, however, bee held, i April 2007 ad October 2008, betwee seior executives at the BBC ad their couterparts i the wider Capita group, to try ad establish a higher level relatioship across the three strategic cotracts the BBC has with the Capita group. O the Siemes cotract, there were differeces i the views of the BBC ad the supplier regardig the status of the relatioship (Figure 12 overleaf). 49 As the BBC has oted (paragraph 45, above), oe of the beefits of a strog relatioship may be icreased access to iovatio through the expertise of a experieced supplier. Securig iovatio was a explicit objective of the partership with Siemes ad the BBC does track iovatio offered by Siemes, but BBC maagers cosulted as part of our study cosidered that the BBC had ot yet received the levels of iovatio it had aticipated. Because of what Siemes perceived to be a lack of trust ad uderstadig of the BBC s itetios for the relatioship, Siemes had delayed givig the BBC access to the iovatio capabilities of its techology cetre i Germay from which the BBC expected to secure iovatio i the area of broadcast techology, although the BBC ow has some access to this facility. 50 BBC magers idicated that iovatio has ot yet bee a strog feature of the relatively ew Capita (Huma Resources) or Steria relatioships as maagemet focus has bee o gettig basic performace issues right. These suppliers did, however, provide the BBC with ew approaches to deliverig the services as part of the procuremet process, for example the cetralisatio of the BBC s huma resources admiistratio, a icreased use of iformatio techology ad off-shorig of the fiace ad accoutig services cotract. There has bee some sharig of iovatio i the Red Bee relatioship ad examples of good joit workig o iovatio, for example Red Bee helped to deliver iplayer ad High Defiitio Televisio. Resourcig cotract maagemet teams 51 Orgaisatios should assess which cotracts offer the most potetial for securig additioal beefits through ivestig i developig the relatioship, ad use the assessmet to iform decisios o the umber ad skills of staff required to maage cotracts. The BBC has ot yet segmeted its portfolio of strategic cotracts by the depth of relatioship that is required to secure most value from the cotract. 7 Of the six case study cotracts we examied, we did ot commissio reviews of the Arqiva relatioship because it is largely a techical cotract, with little scope for developmet, or the TV Licecig cotract with Capita as the BBC had recetly carried out a similar exercise. THE BBC S MANAGEMENT OF STRATEGIC CONTRACTS WITH THE PRIVATE SECTOR 19

28 mai report 11 Factors which cotributed to effective relatioships with Red Bee ad Johso Cotrols Success factor Why it is importat How it was achieved with Red Bee How it was achieved with Johso Cotrols Clarity of visio Provides a cosesus amog parters about the desirability ad importace of joit workig, with realistic joit aims ad clarity over the service that is required. Both parties share a mutual uderstadig of the objectives of the other party; for example the BBC uderstads (ad supports) Red Bee s desire to secure other commercial cotracts ad reduce its depedece o BBC cotracts, ad Red Bee uderstads that it eeds to esure commercial competitiveess. Both parties share a mutual uderstadig of the purpose of the relatioship. Seior maagemet commitmet ad owership Commitmet ad owership of the relatioship from seior maagemet o idividual cotracts suggests a clear focus across the orgaisatios o the eed to develop a strategic relatioship. There is maagemet commitmet to the relatioship, for example both the Cliet Board ad Strategic Directio Forum are chaired by the BBC Executive Sposor. BBC seior maagemet are committed to the log term success of the relatioship ad ivest a suitable amout of time i meetig couterparts at Johso Cotrols, sharig strategies both iterally ad with the supplier s team ad assessig the appropriateess of goverace structures. Trust betwee the two orgaisatios Trust, at a idividual ad orgaisatioal level, is required to eable the two parties to work together to create joit beefits. Where there is a lack of trust oe party may act i a way which beefits them to the detrimet of the other party. BBC ad Red Bee maagers have aliged goals for the cotract ad relatioship ad are committed to makig the relatioship work. Johso Cotrols appreciate that BBC maagemet are committed to the relatioship ad are willig to share busiess strategies. The BBC provided refereces for Johso Cotrols whe they were biddig for a cotract with aother orgaisatio. Clear uderstadig of roles ad resposibilities ad commuicatio chaels A clear uderstadig of the roles ad resposibilities of staff at all levels of seiority at the two parties is essetial to allow clear, effective ad efficiet commuicatio betwee the parties. Red Bee ad BBC cotract maagemet staff share a commo uderstadig of their roles ad resposibilities, as set out i the cotract. Commuicatio chaels betwee the two orgaisatios are set out i the cotract, uderstood at all levels of seiority ad work well. Source: Natioal Audit Office 12 The BBC ad Siemes have differet views of the strategic ature of the relatioship ad as a result the BBC has ot secured the expected levels of iovatio BBC s view Siemes s view Impact The BBC brought i a ew cotract maager i May 2007 ad focused o securig value by pushig dow costs o its commodity purchases from Siemes. This has bee achieved ad the BBC recogises it eeds to refocus o the strategic relatioship. The BBC thik that Siemes are ot providig adequate iovatio ad are attemptig to ecourage them to iovate more by awardig projects through competitio. Source: Natioal Audit Office Siemes thik that i the last 12 to 18 moths the BBC has chaged the emphasis of the relatioship, away from beig a strategic relatioship to oe that is purely cost ad performace focused. Siemes are cocered at the reductio i project reveues from the BBC due to cotracts beig awarded to other suppliers or beig maaged i-house. Siemes have ot opeed up their ability to iovate to the BBC due to the lack of trust ad uderstadig of the BBC s itetios for the relatioship. The BBC ackowledges there eeds to be a refocus o the strategic aspect of the relatioship ad they have recetly started to ivest effort i buildig a strategic relatioship. Whe the BBC awards work to providers other tha Siemes o o-fiacial grouds it risks missig the fiacial savigs that are available through the cotract with Siemes. 20 THE BBC S MANAGEMENT OF STRATEGIC CONTRACTS WITH THE PRIVATE SECTOR

29 mai report 52 The BBC does ot yet have a defied set of core competecies for maagig its strategic cotracts, although it is developig oe, ad there is o cotiuig professioal developmet programme or ay madatory traiig courses i cotract maagemet. Four of the six BBC cotract maagers we iterviewed had received o formal traiig i cotract maagemet ad oe had received traiig i relatioship maagemet. The BBC has experieced gaps i the skills of its cotract maagemet staff, with BBC staff havig to be replaced o some cotracts because they did ot have the ecessary commercial ad cotract maagemet skills. 53 Cotiuity of persoel from procuremet to cotract maagemet stages is importat i that it retais kowledge withi the team of cotract mechaisms, opportuities ad risks. BBC guidelies state that the cotract maager who will be maagig the ogoig relatioship should be part of the procuremet maagemet team to facilitate a structured trasitio from procuremet to the service delivery phase. The BBC cotract maagemet teams were ivolved i the procuremet phase i four of the case study cotracts. The BBC has, however, experieced some breaks i cotiuity of staffig, ad the curret cotract maagers i the Capita (Huma Resources) ad Steria Fiacial Services cotracts were ot ivolved i the procuremet of those cotracts. 54 The BBC does ot routiely collect or moitor its expediture o cotract maagemet. The BBC was, however, able to produce a estimate of expediture i for the six cotracts we examied i detail, as well as the Siemes techology cotract (Figure 13). The BBC estimates that it geerally speds less tha oe per cet of aual cotract expediture o maagig its strategic cotracts, although i it spet sigificatly more (3.2 per cet) o maagig the cotract with Capita (Huma Resources), o which the BBC was experiecig some performace problems (Figure 9). Maagig cotract risk 55 The Comptroller ad Auditor Geeral s report o the Siemes outsourcig cotract recommeded that every cotract 8 should have a documeted risk register which should be maitaied ad regularly updated. A risk register provides a formal trail of risks, resposibilities ad mitigatig actios to support risk maagemet ad reportig. With the exceptio of the cotract with Arqiva for trasmissio of digital televisio sigals, a risk register was maitaied for each of the case study cotracts. 56 Good practice is that a shared risk register should be maitaied with the supplier to provide a complete uderstadig for both parties about risks to implemetatio ad ogoig service delivery, ad eable a joit approach to maagig risk. A shared register also provides clarity of who is resposible for maagig each risk. 9 Although the BBC had discussed cotract risks with the supplier i each of the six case studies, for four cotracts (Arqiva, Capita TV Licesig, Johso Cotrols ad Red Bee) joit risk registers were ot maitaied. 13 BBC expediture o the operatioal maagemet of six of its strategic cotracts as a percetage of aual cotract sped i Capita (Huma Resources) Steria (Fiacial services) Siemes (Techology) Johso Cotrols Ltd (Facilities maagemet) Capita (TV Licecig) Red Bee (Broadcast services) Percetage Source: Natioal Auditi Office aalysis of BBC data NOTE The Arqiva (trasmissio) cotract has bee excluded from this aalysis sice there was little expediture o this cotract durig as it was ot fully operatioal. 8 BBC Outsourcig: The cotract betwee the BBC ad Siemes Busiess Services for the provisio of techology services, NAO review preseted to the BBC Goverors Audit Committee, Jue Effective parterig, Office of Govermet Commerce, THE BBC S MANAGEMENT OF STRATEGIC CONTRACTS WITH THE PRIVATE SECTOR 21

30 mai report 57 A key risk i strategic cotracts is that the BBC is ot prepared for the failure of oe of its cotracts. The absece of a exit pla or adequate cotractual terms to protect the BBC s iterests, for the BBC s iitial outsourcig of its fiace ad accoutig fuctio, icreased the cost ad complexity of trasferrig service delivery to Steria i Jue 2007, after Steria wo the re-teder. Cotracts should therefore cotai a Exit Schedule, coverig areas such as: owership of/access to itellectual property; trasfer ad/or use of ay assets; ad arragemets i the evet of early termiatio. Although each of the six case study cotracts cotai Exit Schedules, exit plas were ot fully developed i four of the six cotracts Capita (Huma Resources), Capita (TV Licesig), Red Bee ad Johso Cotrols particularly i relatio to early termiatio of the cotract. Progress i establishig portfolio maagemet 58 As set out i Paragraph 17 above, i 2006 the BBC realised that it eeded to itroduce cetral maagemet of its strategic cotracts as a portfolio to secure the most value from these cotracts. To this ed, it established the Strategic Relatioships Board i 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 was also give the resposibility of facilitatig the cetral reportig of strategic cotract performace. Cetral reportig of cost ad performace 59 I September 2006 the BBC decided that all strategic cotracts should have a formal performace review every year by the Director Geeral s Fiace Committee. These reviews would cover fiacial ad service performace, risk, relatioship maagemet, cotract chage ad the future strategy for the cotract. Oce these aual reviews of idividual cotracts have bee completed, the Strategic Relatioships Board plas to provide the Fiace Committee with a aual overarchig report that liks commo issues across cotracts. Previously, the BBC had ot sought to collect cost ad performace iformatio cetrally for its portfolio of strategic cotracts. 60 The first of these aual reviews of performace, o the cotract with Red Bee Media, was completed i April The review cocluded that Red Bee had delivered solid service quality ad performace across the core services established at the start of the cotract. The Strategic Relatioships Board iteded to submit the remaiig reviews to the Fiace Committee by September 2008, but the deadlie later moved to December The BBC has decided that three cotracts do ot require aual reviews: SES Astra ad ENPS (because they are commodity based cotracts); ad BSkyB (because the cotract is based o a tariff edorsed by the regulator, Ofcom). As at November 2008, ie of the fourtee reviews had bee completed. Maagig iterdepedecies ad risks across the portfolio 61 The Strategic Relatioships Board was set up with a explicit resposibility to idetify ad ow the iter-depedecies betwee strategic cotracts ad their associated risks. The Strategic Relatioships Board has provided a forum for cotract maagers to discuss ad idetify pa-portfolio risks ad iterdepedecies betwee the BBC s strategic cotracts, ad there are some examples of good practice. For example the iterdepedecies betwee Siemes (techology services) ad Johso Cotrols (facilities maagemet) are well maaged ad work effectively; a joit workig group has bee set up ad there is frequet commuicatio at a operatioal level betwee Siemes ad Johso Cotrols. 62 More geerally, however, the Strategic Relatioships Board has ot maitaied a portfolio level risk register or mapped out the likages ad iterdepedecies. Likages betwee strategic suppliers which are ot sufficietly uderstood ca icrease the risk of service failure. They ca also affect the relatioships betwee the BBC ad its strategic suppliers, ad betwee the suppliers themselves. For example, there has bee a lack of clarity at the BBC about who is resposible for maagig the iterdepedecies betwee the Capita (Huma Resources) ad Steria (Fiacial Services) cotracts (Figure 14). 14 A example of the impact of iterdepedecies betwee strategic suppliers Capita (Huma Resources) ad Steria (Fiace) Steria processes overtime paymets but whe mistakes are made the employee will rig Capita to complai as there is oly oe Huma Resources telephoe umber. This has a impact o Capita s performace agaist its performace idicators for dealig with helpdesk calls, ad also Capita s relatioship with the BBC ad Steria. Source: Natioal Audit Office 22 THE BBC S MANAGEMENT OF STRATEGIC CONTRACTS WITH THE PRIVATE SECTOR

31 mai report 63 The BBC has recogised the portfolio level risks associated with the expiry of te of its strategic cotracts i the period 2012 to The re-tederig of these cotracts will place a strai o BBC resources ad the BBC has set up a workig group to cosider the associated risks ad resource implicatios. Sharig iformatio ad experieces ad demostratig cosistecy of approach across the portfolio 64 The Strategic Relatioships Board was give the resposibility of applyig miimum stadards across the cotracts. It has acted as a useful forum for cotract maagers to share kowledge ad experiece ad discuss areas of good practice. The Strategic Relatioships Board does ot, however, have executive authority ad cotract maagers are ot accoutable to it for their approach to cotract maagemet or compliace with the stadards or guidace it issues. The Strategic Relatioships Board has bee uable to eforce compliace with miimum stadards across cotract maagemet teams. For example joit risk registers ad fully developed exit plas were ot i place for all of the case study cotracts (see Paragraphs 56 ad 57 above). 65 The Strategic Relatioships Board was also give the resposibility of securig assurace that the goverace structure of major cotracts is cosistet with the BBC s goverace model (Figure 15) or appropriate for the type of cotract covered. Goverace arragemets were workig well i four of the six case study cotracts we examied. But goverace arragemets had ot yet bee fully implemeted i the cotract with Steria for fiace ad accoutig services, ad had ot bee fully effective i the cotract with Capita for Huma Resources services. Idetifyig opportuities for savigs 66 The Strategic Relatioships Board was give the resposibility of coordiatig reviews of idividual strategic cotracts, to idetify ways of securig additioal savigs beyod those which were aticipated whe the cotract was awarded. These reviews, which were completed by cotract maagers, idetified opportuities for the BBC to secure total cumulative savigs of 157 millio over the five year period to across its portfolio. This figure was approved as a overall savigs target by the BBC Fiace Committee i November 2007, ad progress agaist it is to be reported aually by the Strategic Relatioships Board. 15 The BBC s stadard goverace model Executive sposor Ultimately resposible for maagig the overall supplier relatioship Cotract Maagemet Board Resposible for the strategic directio of the cotracts ad the overall maagemet of the relatioship 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 Steria: the Service Group had ot bee established i lie with the documeted goverace model for this cotract, ad a tripartite agreemet betwee Steria, Capita ad the BBC, which was iteded to support the maagemet of iter-depedecies betwee cotracts, had ot bee siged. Capita (Huma Resources): The BBC ad Capita foud that the cotractually defied goverace framework resulted i too may lower level issues beig escalated to seior maagemet. The BBC ad Capita were, at the time of our review, implemetig ew goverace arragemets with the itetio of providig a clearer separatio of strategic ad operatioal activities. Source: BBC THE BBC S MANAGEMENT OF STRATEGIC CONTRACTS WITH THE PRIVATE SECTOR 23

32 Appedix XXX Oe The BBC s sevetee strategic cotracts Supplier Start year Ed year Descriptio Siemes April Provides techology services, (those formerly supplied by BBC Techology), such as provisio ad maagemet of IT commodities, specialist techology projects ad techological support for programme productio. Arqiva September High power digital terrestrial televisio trasmissio services ad the expasio of DAB trasmissio services. Arqiva will gradually replace the NGW service. Capita (TV Licesig) April Maages collectio of the licece fee. Previously outsourced to Evisio. ENPS Jue Electroic ews productio services cliet/server etwork. Johso Cotrols Ltd July Provides buildig maagemet services i Lodo ad Scotlad, outsourced uder a Total Facilities Maagemet model. Red Bee Media April Provides broadcast critical services to the BBC, 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. VTC April Trasmissio services for BBC World Service. Proximity Rollig 12 moth cotract Reteder 2012 TV Licesig Marketig & Prit ecompasses advertisig, PR, Direct mail, pritig, web desig ad commuicatios plaig. NGW Four separate cotracts Four separate cotracts Provisio of terrestrial trasmissio services for aalogue radio, aalogue TV ad digital sites. Capita Huma Resources April Maages HR Admi, occupatioal health, recruitmet, outplacemet ad relocatio. BSkyB Jue (May) Electroic Programme Guide. Provisio of oscree schedule iformatio. SES Astra Seve cotracts, the earliest of which commeced i Jauary 1996 All cotracts expire i 2012 Provisio of digital satellite services. Steria November Provides fiacial trasactio processig for the BBC. Secod geeratio outsource; previously was outsourced to Medas (i 1996). Paypoit April Over the couter licece fee collectio, supplyig a braded paymet collectio etwork. Capita (Audiece Iformatio) December Hadlig audiece iteractio complaits, equiries, ticketig. Was re-appoited i 2003 after a bechmarkig exercise. UK Mail September Postal services for TV Licesig. HBML April Facilities maagemet services for the Eglish regios. Buildig maagemet. 24 The BBC s maagemet of strategic cotracts with the private sector

33 Appedix XXX Two The methods we used We carried out fieldwork for this report betwee Jue ad September 2008, usig the methods set out below, to examie 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. Iterviews coverig strategy, moitorig ad risk maagemet We iterviewed the BBC s Group Fiace Director, the Director of Procuremet ad Reveue Maagemet, the Head of the Strategic Cotracts Group, the Head of Risk ad represetatives from BBC Iteral Audit ad the Trust Uit. These iterviews covered the BBC s approach to maagig ad moitorig the performace of strategic cotracts, the operatio of the Strategic Relatioships Board ad the distributio of resposibilities betwee the BBC s cetral Procuremet team ad idividual BBC Divisios for maagig strategic cotracts, risks ad iterdepedecies betwee cotracts. Collectio ad aalysis of data o cotract performace While the BBC had fiacial ad performace iformatio o idividual cotracts, it had ot collated data o the costs, savigs ad service levels for each of its 17 strategic cotracts to get a overall picture of performace. We therefore collected baselie ad outtur performace data o service delivery, costs ad savigs from busiess cases preseted to the BBC Trust ad from strategic cotract maagers i BBC divisios. To check the accuracy of the data we: checked forecast costs ad savigs data provided by the BBC back to the origial busiess cases for the six case study cotracts outlied below, plus the Siemes cotract as it is the largest by value; cofirmed that data o actual costs was extracted from the BBC s fiacial accoutig system, which is audited each year by the BBC s fiacial auditors; looked i detail at the savigs claimed for the cotract with Siemes which accouted for approximately two-thirds of the total lifetime savigs across the portfolio betwee August 1996 ad the ed of March 2008; performed a test check o idividual performace idicators back to supportig documetatio for a sample of cotracts. Case studies of BBC cotracts We carried out case studies of six of the BBC s strategic cotracts to assess the effectiveess of the BBC s approach to maagig its strategic cotracts agaist good practice. We selected the followig cotracts to give a cross-sectio of service types ad levels of expediture: Steria (fiace ad accoutig services) Capita (huma resources) Johso Cotrols (facilities maagemet) Capita (televisio licesig) Arqiva (trasmissio) Red Bee (play out ad broadcast services) For each cotract we iterviewed BBC cotract maagers ad their couterparts i the supplier ad reviewed provisios withi the cotracts relatig to performace measuremet, bechmarkig ad ope-book rights to determie how well the BBC applies good practice i: maagig performace by usig cotractual terms; resourcig cotract maagemet teams; ad maagig cotract risk. The BBC s maagemet of strategic cotracts with the private sector 25

34 appedix Two Review of relatioship maagemet We commissioed the cosultig firm PMMS, who have experiece i supplier relatioship maagemet at private ad public sector orgaisatios, to review the BBC s maagemet of relatioships with its strategic suppliers. PMMS coducted iterviews with executive sposors, cotract ad relatioship maagers ad operatioal represetatives from both the BBC ad its suppliers across a sample of five case study cotracts. Of the six case study cotracts outlied above, we did ot commissio reviews of the BBC s relatioship with Arqiva because it is largely a techical cotract, with little scope for developmet, or the relatioship with Capita (TV Licesig) as the BBC had recetly carried out a similar exercise. The cotracts we commissioed PMMS to review were: Capita (huma resources) Johso Cotrols (facilities maagemet) Red Bee Media (play out ad broadcast services) Siemes Busiess Services (techology) Steria (fiace ad accoutig) PMMS assessed whether the BBC s approach to relatioships maagemet was i lie with best practice by bechmarkig the BBC s processes ad capabilities agaist 149 orgaisatios across a rage of public ad private sector orgaisatios. For each of the five cotracts which they reviewed, PMMS examied whether the BBC had developed partership behaviours with ad betwee its strategic suppliers to deliver iovatio ad added value. Review of BBC documets We reviewed relevat BBC documets icludig: Papers preseted to the Trust o the BBC s approach to outsourcig Papers relatig to the creatio ad operatio of the Strategic Relatioships Board Guidelies for cotract maagers o the maagemet of strategic cotracts Iteral Audit reports o the BBC s overall maagemet of major cotracts ad the maagemet of idividual strategic cotracts Busiess cases for strategic cotracts approved by the Board of Goverors or the BBC Trust. Follow-up of NAO ad PAC recommedatios o the cotract with Siemes Busiess services We carried out a follow up review of actios the BBC had take i respose to recommedatios o cotract maagemet made by the Natioal Audit Office ad the Committee of Public Accouts i their respective reports o the BBC s cotract with Siemes Busiess Services. Liaiso with experieced procuremet professioals We liaised with Peter Smith from Procuremet Excellece ad a former Presidet of the Chartered Istitute of Purchasig ad Supply several times durig the desig, fieldwork ad draftig stages of the study. 26 The BBC s maagemet of strategic cotracts with the private sector

35 Desig & Productio by NAO Marketig & Commuicatios Team DP Ref: This report has bee prited o Cosort Royal Silk ad is produced from a combiatio of ECF (Elemetal Chlorie Free) ad TCF (Totally Chlorie Free) wood pulp that is fully recyclable ad sourced from carefully maaged ad reewed commercial forests.