16 During the first three years BT are responsible for operating the existing fixed telecommunications services whilst preparing their systems to take over the service at dates agreed in the contract. The process of transferring service delivery to BT systems, known as migration, is scheduled to be completed by July 2000. The new services are to be introduced at specified dates in stages, referred to as milestones. BT are paid for providing the existing service and for the achievement of the milestones. Virtually all milestones defined in the contract have been achieved by the due dates. The contract allows for new services and technology to be incorporated during the contract period and the Department can ask other suppliers to provide such services if they are not satisfied with BT's proposals. | |
Paragraphs 3.10 to 3.17 and 3.26 to 3.28 | 17 Prices for the various services are adjusted periodically in line with price movements in agreed price indices. The Department are allowed, within certain limitations, to challenge BT's prices, and have established arrangements for monitoring BT's ongoing prices against those of other suppliers. The Department are content with the price challenge arrangements. The contract terms, which were initially drafted by BT, limit, however, the risks transferred more than in other privately financed contracts we have examined. As a result the contract is closer to a traditional outsourcing than a private finance contract. Prices for the telecommunications elements of services, which are expected to fall, are adjusted annually, whereas prices for other elements, which are expected to rise, are adjusted quarterly. The effectiveness of the price challenge mechanism may be limited because the contract only allows it to be used in exceptional circumstances, without defining what these are. In addition, although the challenge is to allow a value for money review to be undertaken, the contract does not indicate how value for money is to be measured. The Department receive volume related price discounts for three of the telecommunications services only. |
18 Our analysis also suggests that, although the Department consider that the performance standards and compensation arrangements for poor performance meet their requirements, in many respects they are not as stringent as those applied in other large contracts for telecommunications outsourcing, facilities management and privately financed services. For example, higher than normal service failures are allowed before BT must pay compensation, and the level of compensation the Department receive can be no more than 50 per cent of BT's payments for a particular service, whereas payments of up to 100 per cent are not uncommon in other contracts. The Department consider that more stringent conditions would have led to increased prices. | |
19 The contract provides for a further competition to provide the services at the end of the ten year contract period. BT are once again likely to have advantages over other bidders, though the scope of the contract may change, which may encourage other suppliers to bid. |