The National Audit Office has finally published its report on Rural Broadband.

We are too early to find out whether the programme going to work, but there is all ready a great deal of concern about value for money. Taxpayers are giving BT £1.2 billion...and no one knows what we are getting for that. The programme has already slipped and delivery will be at least 22 months late.

Hot or not? Our verdict: probably "not"

The NAO's findings 

• The rural broadband supply market is dominated by one supplier – BT.

• The Department of Culture, Media and Sport (“the Department”) who are in charge of the Programme has been “hampered by the complexity of the solution and lack of cost transparency”.

o The NAO does not find strong assurance that costs, take-up assumptions and the level of contingency in supplier bids are reasonable.

o Ensuring value for money for the £1.2 billion public investment now relies heavily on whether the Department can effectively implement the in-life contract controls it secured for the Programme.

• The programme will be at least 22 months late

o 90 per cent of premises will be reached 12 months later than originally planned.

o The government is not strong at taking remedial action to guard against further slippage.

• At the end of the Programme, BT’s wholesale infrastructure is likely to have benefited from £1.2 billion of public money.

o Active involvement from Ofcom and the Department will be required to monitor the impact of the Programme on BT’s position in the sector in the longer term.

NAO reommendations

The NAO makes the following recommendations for the rural broadband programme

• The Department should review all the reasons for the delay in roll-out to date, and guard against further slippage.

o The Department’s current projections suggest that the Programme will complete 22 months later than it originally planned.

o The Department should identify all the reasons for the slippage and then work with BT to establish where constraints exist and how to guard against further slippage.

• The Department should seek greater assurance that BT’s bid prices are reasonable and do not contain excessive contingency. Analysis to date has not been able to give a clear picture of the extent to which the prices at bid stage include contingency.

• The Department should seek an explanation from BT on the differences between the actual costs of a previous programme and costs included in tender bids;

o further information in bid responses on cost drivers, unit costs and reasons for cost variations to enable ‘should cost’ models to be applied;

o assurance from BT about how economies of scale are being passed to the public sector; and o more detailed analysis on key risk items such as project management.

• The Department should implement the procedures it is developing to thoroughly monitor in-life contract costs, placing additional emphasis on ensuring staff expertise. In particular, the Department and local bodies should:

o evaluate the implementation of payment processes to inform later projects;

o carefully monitor operational costs and, if BT makes significant efficiencies over the bid costs, examine the scope for sharing in these;

o consider the long-term need for sufficient financially skilled staff to support invoice checking and clawback arrangements; and o take steps to assure itself that local authorities are appropriately staffed to carry out robust checks.

• The Department should consider evidence on take-up rates outside of the Programme and discuss with BT whether its modelling assumptions are still valid. Take-up rates are a key assumption in determining investment levels and profits and can generate clawback for local bodies.

o If BT’s assumptions appear conservative, the Department should support local bodies to use the clawback mechanisms as early as possible, and to consider whether there are ways of extending them. Recommendations for future projects

• The Programme contains lessons which could be applied to the Department’s other programmes and to wider government.

• The Department sought to deliver a complex programme in a challenging time frame and designed a range of value-for-money safeguards aimed to work together to provide assurance. But there are some lessons which could be learned:

o Programme design and safeguards should be directly linked by the number and quality of market players as indicated by robust market analysis.

o If competition is weak, the Department should require a sufficiently high standard of financial transparency to be able to assure the reasonableness of unit costs.

o External benchmarking of prices to industry standards or a ‘should-cost’ model should be done early in the process to inform the assessment of all supplier costs.

Links: NAO report on Rural Broadband