By Mark Smulian | 26 September 2013
The rural broadband programme was mishandled by civil servants through a ‘wildly inaccurate’ business case, which had seen BT contribute less than expected and local authorities far more, the Public Accounts Committee said today.
A PAC probe of the rural broadband project found that secrecy over costs had damaged the negotiating position of local authorities and handed BT an effective monopoly.
The programme was designed to bring superfast broadband to rural areas where commercial providers were unlikely to invest. Local authorities would receive grants totalling £490m from the Department of Culture, Media and Sport to help them install services from a framework contract of providers.
But only BT and Fujitsu were on the framework, and Fujitsu won no contracts and eventually withdrew, leaving BT with all 26 contract packages let and likely to take the 18 remaining.
The committee said that DCMS’s procurement ‘failed to deliver meaningful competition for the letting of local contracts’.
It said DCMS should not spend any of the £250m allocated for the programme in the 2015-19 spending period until it has secured proper competition and value for money.
DCMS assumptions about the respective capital contributions of the public and private sectors ‘were wildly inaccurate’, the PAC said.
BT is committing £356m to the project rather than the £563m expected, while local authorities are contributing £730m against an expected £494m. ‘Nevertheless, BT will still benefit from owning assets created from £1.2bn of public funding once the programme is complete,’ the report noted.
The PAC said the lack of transparency over BT’s costs was ‘a serious risk to value for money’, particularly now that BT was a single supplier.
DCMS relies on self-certification by BT that its prices are comparable with those in its commercial roll-out of superfast broadband, which ‘does not represent an adequate control’, the report said.
The standard contract between BT and local authorities prevents the local authority from disclosing the costs involved to other local authorities negotiating contracts, which ‘means that other local authorities negotiating positions are weakened by a lack of comparable cost data against which to assess BT’s bid’.
The PAC went on: ‘In addition, the department does not know how much contingency BT includes in its bids, and estimates vary.’
The committee urged DCMS to insist on a higher standard of cost transparency where contracts are not yet signed.
PAC chair Margaret Hodge said: ‘The programme to extend superfast broadband to rural areas has been mismanaged by the Department for Culture, Media and Sport.
‘The sole provider BT has been placed in a quasi-monopolistic position which it is exploiting by restricting access to cost and roll-out information. The consumer is failing to get the benefits of healthy competition and BT will end up owning assets created from £1.2bn of public money.
‘We now have a situation where local authorities are contributing over £230m more to the programme than forecast in the department’s business case, while BT is committing over £200m less. The lack of transparency over BT’s costs is a serious risk to value for money.’
But DCMS disputed the PAC’s conclusions saying they were at odds with the findings of the NAO.
A spokesman said: ‘[The NAO] found our approach reduced the cost to the taxpayer and reduced risk. We put in place a fair commercial process and encouraged different suppliers to bid.
‘We are disappointed that the PAC fails to recognise that thousands of rural premises who have never had a decent broadband supply are now getting one, something that is vital for farmers, rural businesses and all those who live outside major cities.’
