Q1 Chairman: Good afternoon. Welcome to the Committee of Public Accounts. Our hearing today is on the Comptroller and Auditor General's review of the BBC's White City property development in West London. This is the second review to be completed under the arrangement introduced in 2003 by which we are having an experimental regime in which we consider Reports about the BBC without full access being allowed to the Comptroller and Auditor General as in ordinary government departments. We are pleased to welcome Mr Jeremy Peat, for the first time I think, who is Chairman of the BBC Governors' Audit Committee and we welcome back Mr Mark Thompson who is Director-General of the BBC. We also have Mr John Smith, who is Chief Operating Officer and Mr Chris Kane who is Head Corporate Real Estate. Welcome Mr Thompson. If I may, I shall address my remarks to you, but if you want to pass questions to anybody else, please feel free to do so. May I ask you please to look at page 12 of the Comptroller and Auditor General's Report and look at paragraph 32 onwards, particularly paragraph 34 under the heading "The BBC paid more in development costs compared to alternative deals, but obtained wider benefits". Perhaps you could start by explaining to us why you selected Land Securities Trillium to develop White City 2, when the price for construction in its bid was £31 million more than Foresite's?
Mr Thompson: May I first of all say, just in two or three sentences, that this project should be seen as part of a much larger strategic ambition by the BBC to take what had been a rather rundown and higgledy-piggledy estate across London, indeed across the UK, to rationalise it and also modernise it so that the property portfolio would support the BBC's overall mission in a digital age? So that was the point of the deal. Those considering the deal at the time believed that in the round Land Securities Trillium offered the best value for money over the lifetime of the deal, even though it is true that another bidder offered, in terms of construction, a slightly better price. The overall judgment on value for money was that Land Securities offered the best deal to the BBC. May I ask John Smith, who was involved, to set it out in more detail?
Mr Smith: I shall build on those points, if I may? The overall saving which Land Securities offered to the BBC across its whole estate was the driving force behind the desire to secure a partner in the first place. Land Securities offered to us a whole range of other things, crucially including greater certainty about the construction cost at White City and a whole range of other things which are alluded to in the NAO Report to do with risk transfer and other cost certainties. When you are judging a deal of this scale in the round, it is very important to take account of all of those other things; it is not simply about the construction element of an overall bigger financial relationship. The overall bigger financial relationship was indeed the cheaper of the two options.
Q2 Chairman: If we look at page 15, paragraph 41 under the heading "The BBC paid for some requirements as an additional lump sum rather than spreading the cost through the unitary charge", we see the project cost £60 million more than the Governors approved. That throws some doubt over it, does it not?
Mr Smith: Not really. The Report talks about-
Q3 Chairman: But that is right, is it not? The project cost £60 million more than the Governors approved.
Mr Peat: The project cost £60 million more than the project approved at the date at which the initial approval took place. There were subsequent approvals by the Board of Governors of the other elements which make up the additional funds you are talking about.
Q4 Chairman: I am not denying that the Director-General came back for your approval, but I just want to know why it was so much over budget. With a project costing some £250 million, £60 million is quite a large chunk, is it not?
Mr Smith: If I may, it is crucial to say that the building construction cost came in on budget and slightly early. This is a crucial, crucial point. The amount the Governors were asked to approve and the Governors did then approve for the building is what the building actually cost and it was delivered slightly earlier than expected which, as far as we are concerned, is a good achievement. In addition to the building, there were then the fit-out and other costs which came later. I think the point that is being made by the NAO is that in paragraph is to do with furniture enhancement and other fit-out costs which are not to do with the actual building itself. May I say that of the £60 million referred to there, £40.3 million, 66%, was known about, budgeted and to do with the separate legal entity known as BBC Broadcast Limited, which had been turned into a commercial company providing broadcast services to private competitors and which needed very specialist fit-out for things like play-out suites, edit suites and so on, particularly for their needs and would not be the kind of thing that you would see in a normal office block.
Q5 Chairman: I shall stop you there, because you have to appreciate that you have to be quite snappy in the answers you give because Members are time limited in this Committee. It does raise questions does it not, Mr Peat, as to why the governors did not insist on the whole life costs of the new buildings at the beginning. Would that not have been a wise thing to have done?
Mr Peat: We accept the NAO recommendation that there should be fuller consideration of the whole life cost and indeed for the Pacific Quay building, which was the next major project, there was further identification of those extra cost elements at the time that the project first went to governors. However, I repeat that the extra costs were approved by the Governors subsequently and it was implicit in the initial papers, albeit not as explicit as it might have been.
Q6 Chairman: If you look at figure 12, which you can find on page 17, and at the footnote at the bottom of that "Across the site as a whole, 22% of office space was not occupied at 31 January 2005". Why was a fifth of the office space still unused a year after the buildings were completed?
Mr Thompson: The current figure for the site, as of today, is around 6.5% so there has been a very significant improvement in this number since the NAO Report. I think it is fair to say that full occupation of the site did not take place as quickly as would be ideal, but you have to see this in the context of quite complex property moves around London and also wider change in the BBC over the period. Occupancy is up now in the 94.5% range, which I think does compare well with industry standards. I hope that we can get occupancy even higher very quickly; very close to 100%.
Q7 Chairman: That is fine; thank you very much. Could you now look at the paragraph on page 16 headed "The BBC is not currently using White City's full potential"? You have made this media centre, which is apparently very expensive, which can be used as studios and also by staff, but it is really just being used to house staff at the moment, is it not? Really you have spent all this money to not much effect, have you not?
Mr Thompson: As you know, our plan sees the BBC moving from, frankly, a very large number of ill-suited buildings to two to three major sites. As we rationalise our London properties our plan is that these White City buildings will indeed by heavily used by programme makers and that therefore, the enhanced capabilities of these buildings will be used. This is part of a long-run strategy which will play out over a number of years. It includes, for example, the ending of the Bush House lease and the concentration of our journalism in the W1 site. We also see rationalisation in our West London site with a number of properties being disposed of and programme making, television programme making in particular, concentrated on these White City buildings and on Television Centre. I am confident that over the next few years, you will see these buildings being used to their full capability.
Q8 Chairman: All right; that is fine, thank you. You talked about rationalisation a moment ago. You are shedding 4,000 staff are you not? You are moving others out of London. What impact is that going to have on the need for accommodation at White City?
Mr Thompson: We expect the London portfolio, the square footage required in London, to reduce significantly over the coming years and our plans will allow that to take place. We expect, in the light of the value for money plans and if the Manchester project goes ahead, which is still subject to the issue of the forthcoming licence fee settlement, our London property to reduce from 3.4 million square feet to around 2.75 million square feet and our strategy, including the strategy of disposals, will allow that to take place. In other words, despite the move to Manchester and despite the fact that the headcount at the BBC is reducing over this period, our plans for our property portfolio will allow us to dispose of space and indeed to improve the efficiency of the use of space in terms of the number of square feet per member of staff.
Q9 Chairman: But is it right that you are shedding 4,000 staff?
Mr Thompson: Yes; broadly.
Q10 Chairman: May I just ask a broad question as you are sitting in front of us? In Charter Renewal, you are telling us you are going to do more with less. All sorts of new things you are going to do and you will do it with less. What does that say about your inefficiency in the past, if you can do more with 4,000 less staff? As a relatively new Director-General, give us your honest opinion about inefficiency at the BBC in the past and why you feel it is necessary to shed 4,000 staff and apparently do more with less staff?
Mr Thompson: The key point to make here is the way in which our industry is changing and the opportunities which technology now gives us to make content in television and radio with fewer inputs, with more multi-skilling and therefore with greater efficiency. This process of technology allowing for greater productivity is not unique to the BBC; it is happening throughout the audio-visual sector. We set quite challenging targets within the BBC in terms of efficiency, but that is because we believe, and it is absolutely laid out in Building Public Value and in our subsequent submissions to the charter renewal process, indeed the Government's Green Paper suggests this as well, that there are many new ways in which the Government believe the BBC can and should serve the British public. Although we believe that we cannot meet all of our future requirements ourselves, we think we should go as far as we can to use self-help measures and greater productivity to do as many of the future services and as much of the planning of the BBC as we can.