MPs criticise BBC-Siemens £38m contract failure

The BBC should have opened up its aborted Digital Media Initiative contract to companies other than Siemens, the Public Accounts Committee has found

MPs have lambasted the BBC for offering a major IT project to just one supplier — Siemens — and have said lack of competition was a key reason for the contract's failure.

The BBC's Digital Media Initiative (DMI), which was designed to save £17.9m, ended up costing £38.2m net, the Public Accounts Committee (PAC) said in a report on Thursday.

BBC Siemens project

The BBC should take "a more challenging approach when considering procurements", said MP Margaret Hodge. Photo credit: Labour Party/Flickr

"With hindsight, the BBC should not have let the contract for its Digital Media Initiative to Siemens without testing the contractor against other suppliers, especially as there was a high degree of innovation involved," PAC chair Margaret Hodge said in a statement. "We welcome the [BBC] Trust's assurance that it would now take a more challenging approach when considering procurements."

The Digital Media Initiative, a BBC-wide content production programme, was taken in-house in July 2009 after Siemens failed to make good on contractual milestones. The BBC gave the project to Siemens in February 2008 on the basis that it would cost £81.7m and lead to savings of £99.6m. The BBC now forecasts costs of £133.6m and savings of just £95.4m — a net cost of £38.2m, the PAC said.

The terms of the contract also led to the project failing rather than being corrected, the PAC noted, as the contractual terms assigned risk to the BBC if it intervened in the design and delivery of the system.

BBC executives told the committee that Siemens had successfully rolled out a similar project for the BBC in Pacific Quay, Glasgow. In addition, the executives said they already had a contract with Siemens to supply technology under the technology framework contract (TFC), a £2bn, 10-year agreement for Siemens to supply technology such as IP telephony and the BBC desktop. The TFC remains in place.

The PAC said the BBC should not have assumed that, because of the TFC, it would save money on the initiative contract. The committee also pointed out that the Pacific Key project was a much smaller deployment than the DMI, and asked why the BBC had not managed to negotiate a £24.5m change in the framework contract earlier.

After the BBC brought the DMI in-house, it had to recoup £26m in costs, mainly caused by delays. The BBC is in the process of making most of the savings through changes to the types and numbers of programmes produced. The BBC has also squeezed post-production work, talent negotiations, staff utilisation and workflow management, all due to the DMI.

BBC Siemens contract

The BBC said "the first phase of the project did not go according to plan". Photo credit: Phil_Parker/Flickr

The PAC report was preceded by a National Audit Office (NAO) report in February, which also criticised the DMI contract failure. The BBC declined to comment on the PAC report directly, but acknowledged many of the NAO findings.

"DMI is a cutting-edge technology project which will carry long-term creative and financial benefits and transform the way we make content in the future," the corporation said in a statement. "The BBC agrees with the NAO that the first phase of the project did not go according to plan."

In March, the BBC suffered a massive outage due to a faulty router. Siemens IT staff rectified the problem by switching the system off and back on again.

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