Select Committee on Public Accounts Twelfth Report


The Committee of Public Accounts has agreed to the following Report:



1. The Radiocommunications Agency (the Agency) are an Executive Agency of the Department of Trade and Industry and are responsible for managing and regulating the use of the civil radio spectrum in the United Kingdom. In June 1998 the Radiocommunications Agency set up a joint venture company, Radio Spectrum International, with CMG (UK) Ltd (CMG), a subsidiary of CMG plc, a leading information technology (IT) services group.[1]

2. Radio Spectrum International's main function is to provide the Agency with IT services. They also market the Agency's expertise and proprietary IT systems overseas. The Secretary of State for Trade and Industry holds 30 per cent of the shares in the company on behalf of the Agency, because the Agency cannot themselves own shares, and CMG own 70 per cent.[2]

3. On the basis of a report by the Comptroller and Auditor General,[3] our predecessor Committee examined the establishment of the joint venture company and the value for money being achieved, including the management of risk by the Agency. We draw two overall conclusions.

  • The innovative use of a joint venture for the provision of IT services and the exploitation of the Agency's expertise overseas has exposed the Agency to a range of risks which the public sector generally does not have to face. A robust contract has been developed to manage these risks and protect the public interest. After an initial loss, the focus of the overseas business has changed and it has now begun to return a profit.

  • The Agency are seeking to draw lessons from their experience which would be of assistance to other public sector bodies setting up joint ventures with private sector partners and which would include: clarity of objectives in seeking a joint venture, in particular whether that route is likely to be better than, for example, outsourcing; whether the public sector should negotiate a majority or minority shareholding; ensuring top management involvement at key stages of the project; working to realistic timetables and budgets; and thorough market research leading to competitive bidding. The Treasury should disseminate those lessons through the guidance they are developing for all departments.

4. Our detailed conclusions and recommendations are set out below.

The establishment of the joint venture

  (i)  The Agency established sufficiently flexible arrangements with their joint venture partner to enable IT systems to be developed that were not envisaged when the contract was signed. Particularly in a developing area like IT, joint venture agreements need to be sufficiently flexible to permit change in the light of new opportunities and requirements (paragraph 21).

  (ii)  One reason why the Agency linked the delivery of IT services and the marketing of expertise in one venture was the synergy they expected between the development of new systems and their marketing internationally. This linkage did however deter a number of potential bidders, ultimately leaving only one. In seeking to interest the market in innovative business opportunities, departments should endeavour not to impose a preconceived business model that might unduly limit the scope for worthwhile proposals (paragraph 22).

  (iii)  Delays arose during the project, some of which could have been reduced. For example, there was an initial lack of clarity about the project's objectives, and it was given insufficient priority by senior management. The Agency could also have focussed earlier on whether to seek a majority or minority shareholding (paragraph 23).

  (iv)  The cost of securing a partnership was substantially greater than had been budgeted. The Agency had inadequate procedures for controlling, forecasting and allocating costs, though they said that these had since been improved (paragraph 24).

The value for money achieved

  (v)  The Agency believe that there are robust legal agreements in place giving them adequate control over the business. Partnerships require a will to cooperate and a community of interest if they are to work well. But they should still be underpinned by sound legal arrangements to protect the public interest in the event that the interests of the parties should no longer be aligned (paragraph 37).

  (vi)  The international business is now beginning to realise a profit, with the focus of commercial activity moving away from the sale of the Agency's IT systems to the marketing of consultancy services. The original focus had been agreed without a structured assessment of the market potential. Departments promoting commercial ventures need to undertake such assessments, to keep the market under review, and to be ready to reposition the business in the light of market evidence (paragraph 38).

  (vii)  The Agency believe that they have retained sufficient in-house IT expertise to enable them to act as an intelligent customer. It is important that departments should be able to maintain the capability throughout any partnerships with the private sector, taking into account career development and skill enhancement requirements and the need to replace losses of key staff (paragraph 39).

1   C&AG's Report, HC 21 Session 2000-01, The Radiocommunications Agency's joint venture with CMG, para 2 Back

2   ibid Back

3   ibid Back

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Prepared 23 January 2002