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Story URL: http://services.silicon.com/itoutsourcing/0,3800004871,39160280,00.htm

BBC hits outsourcing costs snag
Got its sums wrong...

By Tom Espiner

Published: Thursday 13 July 2006

The National Audit Office (NAO) has revealed the BBC miscalculated the savings it would make through its outsourcing deal with Siemens Business Services (SBS).

The BBC had originally projected the deal would generate savings of £35.2m. It has now admitted it overestimated the cost of running its IT in-house by £7.7m, after mistakenly including a one-off cost in its calculations.

The revelation has angered union officials, who had warned in 2004 the outsourcing deal would not generate the cost savings the BBC claimed.

The NAO said in its report: "BBC Management accepts the savings figure should have been updated, and regrets that this was not identified so that it could be reported to the executive and the governors. Management are satisfied that appropriate controls and processes are in place to ensure this will not recur."

The BBC declined to reveal to silicon.com sister site ZDNet UK what that £7.7m one-off expenditure was for but the NAO report said it was dropped from the baseline as it was a "one-off project which could not reasonably be attributable to the Siemens contract".

The spokeswoman said: "The savings weren't guaranteed, and changed when the baseline changed. The outsourcing deal has still represented huge value for money - £27.5m is a huge saving."

The National Audit Office also criticised the BBC for saying it could "guarantee savings", which the BBC recognised was not apt.

The BBC spokeswoman added: "It's an inappropriate term to use as you can't guarantee in a rapidly changing technology environment what savings can be made."

The BBC said it had invited the NAO to conduct the report as it had "never undertaken an outsourcing deal of this scale", and admitted "some lessons can be learnt about developing large outsourcing deals".

The Broadcasting Entertainment Cinematograph and Theatre Union (Bectu), which represented approximately 370 of the IT staff the BBC sold to Siemens, fiercely criticised the BBC for its miscalculation of cost savings.

A senior BBC official at Bectu said: "The NAO report bears out some of our worst fears. The BBC was grossly optimistic about the level of savings that could be achieved [through outsourcing]. In the heat of the moment the BBC failed to specify a contract which could deliver the alleged savings."

The union said its fear was that in subsequent outsourcing deals "similarly inflated claims have been made for potential savings, to justify these sell-offs".

Siemens controversially won the contract for providing BBC Technology for £150m in 2004, for 10 years. The BBC has signed similar deals with Siemens for BBC Scotland, and is expected to sign deals for Northern Ireland and Wales.

Bectu said it was concerned that the savings for outsourcing in Scotland would be minimal.

The official said: "It has been reported to us that in Scotland the savings will be less than £1m over 10 years. We remain to be convinced that the BBC genuinely does save money through outsourcing."

Tom Espiner writes for ZDNet UK