NAO slams DCMS for ‘slippage’ of broadband scheme

NAO’s report on the BDUK programme criticises the DCMS for letting the scheme fall 22 months behind and limiting competition for contracts

The National Audit Office (NAO) has published a report criticising the government for letting its broadband delivery project in the UK run 22 months late.

The document, compiled by Amyas Morse, controller and auditor general at the NAO, examined whether BDUK – run by the Department for Culture, Media and Sport (DCMS) – had represented value for money for the taxpayer and concluded a number of mistakes had been made along the way.

The original aim of BDUK was to ensure the UK had the “best broadband in Europe” by 2015, with 90% of the population having access to superfast speeds of 24Mbps or more and every citizen being able to get connections at a minimum of 2Mbps. 

Now, the deadline of having all 44 local projects completed by 2015 has been scrapped, with only nine expected to reach their 90% coverage commitment by the deadline.

The revised target is now set at March 2017, with a promise of “secured delivery” by December 2016 and additional coverage for a further 5% of the population. Although the NAO admitted six months of hold-ups could be attributed to extended negotiations with the EU to approve state funding, this did not account for the full 22-month delay.

Government is not strong at taking remedial action to guard against further slippage

Amyas Morse, controller and auditor general, National Audit Office

Fearing further delays

The NAO is now concerned the delays will slip even further if DCMS does not take action to prevent it.

“Experience from similar projects suggests that government is not strong at taking remedial action to guard against further slippage,” read the report. “The department should identify all the reasons for the slippage and then work with BT to establish where constraints exist and how to guard against further slippage.”

The report also criticised the smaller amount invested into the project by the private sector. 

In the DCMS’s original business case, released in 2011, it said an average of 36% of costs should be fronted by private companies – in this case, BT. But, current estimates put this figure at 23%.

“Contributions have varied between 38% and 15% of funding for each local area [and] local bodies have provided greater contributions than expected,” it said.  

The fact that BT has been the only supplier awarded BDUK contracts was slammed by the NAO, claiming the process had put other providers off from applying and, in turn, hampered local authorities from making more informed decisions.

“Stakeholders told us that the design of the programme, including the gap-funding model, the local nature of procurement contracts, the qualification requirements for prime contractors and the unattractive commercial conditions created by current regulatory and state aid conditions, were all factors leading potential suppliers to withdraw from the bidding process,” said the report.

BT's monopoly

Having BT as the sole provider meant local authorities only had tenders to other councils to compare their own with, so it was unclear whether the pricing was competitive and if they were getting value for money.

“The [DCMS] is relying on a combined package of value-for-money safeguards to provide assurance,” it said. “However, competition was limited and assurances over costs and take-up assumptions have been hampered by the complexity of the solution and lack of cost transparency.”

“The department does not have a strong assurance that costs, take-up assumptions and the level of contingency in supplier bids are reasonable. Ensuring value for money for the £1.2bn public investment now relies heavily on whether the department can effectively implement the in-life contract controls it secured for the programme.”

Calling for investments and price checks

The NAO has called on the DCMS to make investments into skilled staff to examine the contracts going forward and to check pricing to ensure the amount suggested by BT is correct. It also said it needed to seek greater assurance from the telecoms giant that it has not include too much contingency budget into its bids to boost figures.

“At the end of the programme, BT’s wholesale infrastructure is likely to have benefited from £1.2bn of public money,” it concluded. “Active involvement from Ofcom and the [DCMS] will be required to monitor the effect of the programme on BT’s position in the sector in the longer term.”

The government welcomed the report and claimed the choice of BT as the main provider had been proven by the NAO to have “greatly reduced the cost and financial risk to the taxpayer.”

It agreed on the need for on-going monitoring, with a spokesman from the DCMS adding: “We agree that effective enforcement of the contracts is important and are working with local authorities to ensure this.”

BT also defended itself, saying unlike its competitors it had the determination and willing to put in the investments where needed.

The Department for Culture, Media and Sport has not had a good enough grip on its rural broadband programme

Margaret Hodge MP, chair of the committee of public accounts

“Deploying fibre broadband is an expensive long-term business and so it was no surprise that others dropped out as the going got tough,” said a BT spokeswoman. 

“BT, on the other hand, has stayed the course and invested significant sums in rural Britain – even though the payback period in such areas is longer than in the first two-thirds of the UK which has been funded by BT alone.”

It also denied the NAO statement that it would only be contributing 23% of the investment, adding: "BT has already committed more than £500m in capex and opex to the programme, with more than a third of the contracts yet to be signed, including a very large one in Scotland.

"We believe we will contribute around 38% of the total funds by the end of the programme, which is well above the 23% claimed in the report," she said.

Department and BT criticised by MP

However, the chair of the public accounts committee, Margaret Hodge MP, slammed both organisations, especially the government department for “not [having] a good enough grip on its rural broadband programme.”

She accused DCMS of “stifling competition” by taking the safe bet of banking on BT – which, in turn, she criticised for being “very cagey about its costs” – and called on both regulators and the department to do better.

“Ofcom needs to up its game and ensure BT does not make super profits out of its dominance of the wholesale broadband market,” said Hodge. “And DCMS must take more control of the programme to ensure people in rural areas get the super-fast broadband they were promised, at a reasonable cost to the taxpayer.”

On 17 July, the public accounts committee will question the DCMS on the NAO’s findings. It is then expected to release its own report in the autumn.

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