1 The contracted-out stage of the
1. In January 2008 the BBC Trust approved the Digital
Media Initiative (the Programme), for an estimated cost of £81.7
million and with projected benefits of £99.6 million to March
2015. The Programme
is a fundamental re-engineering of the way the BBC makes programmes.
It is designed to allow BBC staff and commercial partners to develop,
create, share and manage video and audio content and programming
from their desktops.
2. In February 2008 the BBC awarded a £79 million
contract to Siemens for the development, delivery and operation
of the system supporting the Programme, with the technology to
be delivered by May 2009. The BBC awarded the contract without
competition under its 2004 Technology Framework Contract with
However, Siemens did not meet the contractual milestones and Siemens
and the BBC agreed a no fault termination of the contract with
effect from July 2009.
3. Not openly procuring the contract was a risk to
the BBC, given the scale and innovative nature of the Programme.
If the BBC had taken a different procurement route it would have
had the opportunity to test the relative capabilities of potential
contractors. The Trust told us that if the original proposal setting
out the BBC's intention to contract with Siemens were submitted
to it now, it would be unlikely to give its approval.
4. In its oral evidence to us the BBC based much
of its case for contracting with Siemens on the ground that in
2007 Siemens had successfully completed a similar digital installation
for the BBC in Pacific Quay, Glasgow.
The BBC also suggested that a reason for not going out to open
competition was because a previous recommendation by this Committee
meant it felt under pressure to procure through the Technology
However, the Digital Media Initiative is a much larger and much
more innovative Programme than Pacific Quay.
The Committee was also clear that when making decisions, either
to use the Framework Contract or to go outside it, the BBC must
clearly demonstrate why the chosen route offers better value for
money, rather than presuming that the work should be let through
the framework contract regardless.
5. The BBC contracted with Siemens on the basis of
a fixed price contract and fixed delivery milestones. The risk
was therefore transferred to the contractor. When things did not
go to plan the BBC told us that the terms of the contract meant
it was unable to intervene in the design and delivery of the system
technology without the risk transferring back to the BBC.
The BBC acknowledged that it would think very carefully about
using a fixed price contract again in similar cases.
6. Although the BBC had not agreed with Siemens the
causes of the delay, it believed that the Programme had proved
much more challenging than Siemens had first believed and that
Siemens had lacked in-depth knowledge of the BBC's operations.
The BBC itself had only limited knowledge of Siemens's design
and development work.
The BBC now considers that where software development projects
rely heavily on in-house specialist expertise, or where the project
will drive significant changes to the working practices of specialist
roles within the organisation, it is better to have direct control
of the project in-house.
7. In September 2009, as part of a no-fault settlement,
the BBC reached financial arrangements with Siemens which allowed
the BBC to allocate £27.5 million to meet the increased cost
of completing the delayed Programme. This was partly funded through
£24.5 million in new efficiencies identified in the Technology
Although the BBC referred in general terms to other efficiencies
it had secured through the Technology Framework Contract, it did
not provide an explanation of why these particular efficiencies
had not been identified sooner.
8. The financial arrangement with Siemens did not
cover the £26 million of benefits the BBC lost through the
two-year delay to the Programme. The BBC was confident that it
covered the loss for 2009-10 through savings in BBC Divisions,
and by implementing some of the efficiencies expected from the
Programme through other means. We asked for a breakdown, and from
the information subsequently provided by the BBC the main savings
have been through changes to the mix and volumes of programmes
produced. In addition efficiency initiatives in areas such as
post production, talent negotiations, staff utilisation and workflow
management had been accelerated. 
9. The no-fault settlement was dependent on a confidentiality
clause. The BBC told us that the confidentiality agreement provided
for National Audit Office access to the details of the settlement
to protect public accountability. However, the start of the C&AG's
review was delayed by eight months due to protracted discussions
about the consequences of the confidentiality clause for his access
and what would be disclosed in his report. The reason National
Audit Office access had to be explicitly written into the confidentiality
agreement is because it does not have statutory powers of access
to the BBC. The Trust confirmed the C&AG should have prompt
access in future to all information he requires. 
2 C&AG's Report, paragraph 2.1 Back
Q 1, C&AG's Report, paragraph 1 Back
Qq 60, 62, C&AG's Report, paragraph 6 and Figure 4 Back
Qq 3, 5, 49, C&AG's Report, paragraph 9 Back
Qq 61, 67 Back
Q 65 Back
Qq 4, 41, 44, 62 Back
Q66, BBC outsourcing:
the contract between the BBC and Siemens Business Services,
Thirty-fifth Report of Session 2006-07 (HC 118), Recommendation
Qq 49, 64, 66 Back
Q 3, 6, C&AG's Report, paragraph 2.12 Back
Q 7 Back
Qq 6, 94 Back
C&AG's Report, paragraph 2.11 Back
Ev 24 Back
C&AG's Report, paragraph 2.16 Back
Qq 19-23, Ev 17 Back
Qq 18, 79-80, Ev 17 Back
Qq 22, 25-40 Back