The Committee of Public Accounts has agreed
to the following Report:
THE RADIOCOMMUNICATIONS AGENCY'S JOINT
VENTURE WITH CMG
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.
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.
3. On the basis of a report by the Comptroller and
Auditor General, 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
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