The deal was due to deliver expected annual savings of around GBP35 million over a period of 10 years. However, just last year it emerged that the annual savings from the deal were forecast by the UK’s National Audit Office (NAO) to be less than anticipated owing to a miscalculation on the original costs of retaining the service in-house (a GBP7.7 million one-off cost had been factored into the yearly costs), and that estimated savings for 2005-6 (the first year of the contract) were GBP21.8 million because spend under the contract was higher than forecast.

At the time, the NAO said that Siemens Business Services (SBS) was currently delivering the required level of service, with key targets achieved 95% of the time. However, of the eight projects delivered at that stage by SBS, the NAO said five had been late, with the other three coming in over budget.

It appears that the NAO was correct with its estimated savings for the first year, with the UK’s Public Accounts Committee (PAC) reporting savings of GBP22 million, 38% short of the estimated GBP35.2 million at the beginning of the deal. According to the PAC report, the BBC now expects to make average savings of GBP40 million a year for the rest of the contract, although it remains to be seen whether this estimate will be achieved. Furthermore, the BBC has suffered delays to the technology projects commissioned from Siemens, although the PAC reports that Siemens has borne the additional costs.

One very interesting point raised in the summary of the PAC report is that the transition period from October 2004 to March 2005 was designed to give Siemens and the BBC the opportunity to put in place the arrangements needed to manage the contract. There were significant gaps in these arrangements, most notably the absence of controls over performance data validation, the volume of services purchased by divisions through the contract, the checking of the accuracy of suppliers’ bills, and the absence of contingency plans in the event of early contract termination.

There are some valuable lessons to be learned from this situation for all organizations currently undertaking or considering outsourcing:

1. Ensure you have accurate costs of the current in-house (or incumbent provider) provision before embarking on vendor selection.

2. Build in agreed benchmarks against which service will be measured.

3. Consider the inclusion of a risk/reward model for at least some of the contract.

4. Do not underestimate, or even worse ignore, the importance of having an in-house team to manage any outsourcing contract to ensure that the service is being delivered and targets are being met.

5. Have the in-house management team responsible for the approval of the purchase of all third-party IT services, as these can often be negotiated within the framework of an existing outsourcing arrangement.

6. Always have a regularly reviewed and tested exit strategy.

Undertaking proper preparation and planning with any upcoming outsourcing arrangement is a must. Any managed services or outsourcing deal is not a ‘hire-and-forget’ option, and the in-house management of such a deal is essential to ensure that the service is being delivered as expected, and there are penalties for non-delivery.

Furthermore, recent ‘straw polls’ of organizations that are currently using third-party providers to have some element of IT delivered reveal that a staggering number have little or no formal and tested exit strategy in place (in excess of 90%). We are fortunate that the BBC has to report on these deals for us all to learn from, as there will be many more such instances in the private sector that go unreported.

Source: OpinionWire by Butler Group (www.butlergroup.com)