4.24 The Agency's contract with Radio Spectrum International for IT services provided the company with a revenue stream from the outset that was expected to yield a pre-tax profit equivalent to six per cent of turnover during the company's first two years. In subsequent years the business plan anticipates the level of profit gradually reducing to 1.5 per cent of turnover by the seventh year. The performance of Radio Spectrum International in the first 18 months of trading is summarised in Figure 15.
4.25 In the first 18 months of operation Radio Spectrum International have made pre-tax profits equivalent to about seven per cent of turnover. The increased profit level could be an indication that the Agency are paying too high a price for their IT services or that Radio Spectrum International have improved efficiency above that expected in CMG's bid, or a mixture of both. With regard to the price the Agency are paying, the transparency of the profit being made and the Agency's access to the records of Radio Spectrum International and CMG permit the Agency to review charges and
4.24 discuss revisions where desirable. The fact that the Agency have already concluded a deal to reduce the charges for non-standard desktop items demonstrates the positive nature of this partnership arrangement.
4.26 While the level of profit is greater than expected, some of it is returned to the Agency, through their 30 per cent share of the dividend - £241,000 in 1999.