BT and BDUK failed to make costs transparent, says report

A major report on BDUK commissioned by DCMS identifies a number of failures around the transparency of the scheme’s costs

The Department for Media, Culture and Sport (DCMS) has published a major assessment of Broadband Delivery UK (BDUK) produced by economics consultancy Oxera, identifying a number of failures around transparency of the costs involved, and suggesting that more could have been done in the early stages of the programme to make things clearer.

The report, which is a requirement of the European Commission’s decision to grant BDUK umbrella state aid clearance, said that because BT had to withhold its commercial roll-out model on the grounds of confidentiality during the initial framework procurement, its initial reference cost book did not meet the needed level of detail.

It added that because BDUK couldn’t get access to BT’s commercial model, it had to rely on BT's word that it would not charge its costs differently between commercial and BDUK projects.

Oxera said it agreed there were limitations in the data BDUK had available in the contracting phase, in terms of being able to assess whether the build of BT’s bid prices was reasonable.

However, while access to the bid model could have helped BDUK understand the basis on which BT was creating its bids, it was not obvious that this would have provided a robust enough basis for estimating future costs and value for money.

NDAs blinded local authorities

Additionally, the National Audit Office (NAO), quoted in Oxera’s report, said that non-disclosure agreements (NDAs) had prevented local authorities from disclosing cost information to one another at the bid stage, meaning they could not benchmark prices properly.

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“The standard contract between BT and local authorities includes a clause that prevents the local authority from disclosing the costs involved to other local authorities who are negotiating contracts,” said the NAO.

“This means that other local authorities’ negotiating positions are weakened by a lack of comparable cost data against which to assess BT’s bid,” it added.

Oxera said that BDUK had provided bid comparison reports containing anonymised data, which had somewhat reduced the impact of the NDAs, and did in fact lead to the unearthing of some errors in BT’s bids.

However, a number of local authorities had submitted to Oxera that they had to supplement the information received from BDUK with third-party expertise to assess value for money.

Public domain

Ultimately, Oxera concluded that both local authorities and BDUK had sufficient insight to implement the scheme effectively, but noted that a number of stakeholders, including taxpayers, had complained about transparency in terms of information available to the general public.

“Given that BT considers cost information to be commercially sensitive, it is not clear how BDUK could have secured additional public reporting at the time of developing the framework contract,” said Oxera.

“However, in the future, client bodies could consider whether there are ways to increase the amount of information that is available in the public domain.”

Future competition

The full report, which is available to download, runs to more than 100 pages and assesses whether local broadband projects approved under BDUK have received approval in compliance with the conditions that led to BDUK’s approval in the first place; whether or not BDUK has been effective in achieving its objectives; and whether or not BDUK has distorted competition or trade.

It drew a number of conclusions, saying BDUK had been, for the most part, effective in its role as an agency for the European Commission under the umbrella state aid clearance, and had established robust processes to ensure the project was, for the most part, compliant. BDUK, the report said, was ultimately designed in an appropriate manner.

Its conclusion did note, however, that because BT ended up being the sole supplier, there was now a question that it had locked-in incumbency advantage that would be of future detriment to competition, an issue relating to both BT’s costs and whether or not rivals considered it worthwhile bidding against BT.

Oxera recommended that in future, should an incumbent supplier be in a similar position to BT, client bodies should do more to explicitly consider how to encourage entry by competitors.

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