Case Study: Contract & Procurement
Read the Case-Study and answer the questions which follow:
Synopsis :
Having started operations in 1922, the British Broadcasting Corporation (BBC) is one of the world's oldest and most respected media production and broadcasting organizations. Covering both entertainment and news, the BBC's radio and television productions captured the 20th century as it unfolded. The BBC's archive of broadcast materials is unparalleled and as production continues to this day, the corporation has one of the largest archives of media materials in the world. Delivering content through television, radio, the Internet and via the BBC iPlayer app, the BBC is a brand name that is known around the world.
To improve efficiency when creating new materials, and to allow for better management and integration of archive materials, the BBC initiated the "Digital Media Initiative" (DMI) in 2008. DMI was intended to provide a single tool that would enable video and radio production from raw materials through to final edit. Accessible from staff desktops the system was to standardize the tool used for new production while allowing for improved integration of the vast archive of media materials built up over the organization's 90 plus years.
Without going through a formal tender process, the contract to develop DMI was awarded to the BBC's existing technology provider (Siemens) in 2008. The fixed price contract established a plan that would see the project completed in 18 months at a cost £82M. In theory a fixed priced contract protects the buyer from cost overruns, in practice this is not always the case as lack of clarity in requirements, changing needs and other real world complications often leave the door open to continual changes that can impact delivery dates and costs. Such was the case for DMI and ongoing challenges creating the system resulted in a Jul 2009 "no-fault" termination of the contract. Bringing the project back in house the BBC revised the timeline and set about completing the project using their own internal technical team. An independent audit report by the National Audit Office at the time made note of the failure to conduct a competitive tender process and made a number of recommendations to help ensure the system could be delivered by the internal team.
As work proceeded still further problems were encountered. Internally there was growing concern at the lower levels of project that senior levels were not being given a true picture of what was happening in the project. Bypassing the hierarchy, one senior technologist eventually wrote a letter to the BBC Trust (the committee with governance and oversight responsibility for the BBC) telling them that they were not being given an accurate picture of the project's true status. According to reports the letter stated that the BBC Trust, the government and other senior parties involved "may have been misled about the true performance of the DMI since it was taken in house".
Sadly the warnings turned out to have merit as the failure to deliver a working system resulted in the project being abandoned in May 2013. Following investigation, Mrs Hodge (the then MP chairing the Public Accounts Committee) described the project as "a terrible shock and clearly completely shambolic" ... "We were told that there were bits of this system that were working, that you were using them. That wasn't true. That just wasn't true." The BBC's Chief Technology Officer was suspended pending an enquiry and £100M was written off.
Contributing factors as reported in the press:
Underestimation of complexity. Ineffective governance structure. Hierarchical organization structure in which accurate flows of information were actively blocked. Failure to conduct an effective tendering process when selecting the original supplier. Lack of contractor oversight. Overstating the benefits of the project. The use of a fixed price contract acted as a barrier that discouraged the BBC from getting too deeply involved in the design stages for fear of triggering change requests thereby nullifying the fixed price.
QUESTIONS
Q.1 What kind of contract has been used for this project? Using the knowledge gained through "Procurement and Contracts Management Unit" explain in detail why was this contract unsuited for the project?
Q.2. What type of contract would you suggest for this project? Justify your reasons explaining the type of contract, its benefits and why it would have suited the Digital Media Initiative Project better?
Q.3. Company ABC is a small community restaurant. As a part of their sustainable initiative they procure organic vegetables from XYZ Farms, which is the country's most popular, high in demand, organic vegetables supplier .
Plot the Supplier Relationship Matrix on behalf of Company ABC as a buyer. Which quadrant would they place XYZ Farms. How should they plan their procurements from XYZ farms?
ACTIVITY
STEP 1: SOURCE PLANNING
1) Identify any two critical materials OR services which your organization procures / could procure externally
2) Step 2: Identify 5 potential suppliers / vendors for each
STEP 2 PLOT THE SUPPLIERS ABOVE INTO THE SUPPLIER CUSTOMER RELATIONSHIP
MATRIX
STEP 3: ANALYSIS AND SUGGESTIONS
Suggest procurement strategies for the above two materials / services based on your analysis.