Understanding Contracts and Procurement Management with the BBC Digital Media Initiative Project Case Study
Selecting the right procurement strategy and prosecuting it well is essential for successful project outcomes. The wrong procurement strategy can be fatal to project execution. In May 2013, the BBC canceled it's Digital Media Initiative (DMI) after concluding that most of the £125.9 million it had spent on the DMI had been wasted. This case study examines the BBC's DMI project and why it failed, with particular emphasis on the role of the procurement strategy the BBC used. The case study looks at the procurement contract used and how it contributed to project failure by considering the major issues and problems of choosing an inappropriate contract, with suggestions for the right contract that could have been used and why it would have suited the Digital Media Initiative Project better.
CST 620 Final Exam: Contracts and Procurement Management Exam Question (Answered
Read the Case-Study and answer the questions which follow:
British Broadcasting Corporation – UK
Project type: Digital archive
Project name: The Digital Media Initiative
Project Date: May 2013 Cost: £100M
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.
Q.1 (a) Briefly discuss BBC's procurement strategy for the DMI project. What kind of contract has been used for this project? (15 marks; 800 words)
(b) Using the knowledge gained through "Procurement and Contracts Management Unit" explain in detail why was this contract unsuited for the project? Why has this procurement strategy been a failure? If you were to lead this project, what procurement strategy would you suggest? Justify your reasons explaining the type of contract, its benefits, and why it would have suited the Digital Media Initiative Project better? (10 marks; 700 words)
Key Learning Outcomes
- Understand procurement strategy, the different types of procurement contracts, and their pros and cons.
- Understand why the procurement contract used for the Digital Media Initiative Project was unsuited, suggestions for the most appropriate procurement strategy and contract, its benefits, and why it would have suited the BBC DMI Project better
- Critically apply procurement and contract theory to a real case study organization
Procurement strategy refers to a company’s long-term plan to acquire all essential supplies from efficient vendors who abide by the purchasing terms and deliver high-quality goods and services on time (Lyson and Farrington 2016). It relates to explicit actions taken by procurement to achieve business objectives. Procurement strategies often aim at cost reduction and risk mitigation and must be aligned with the business’s overall strategy in order to be successful (Lyson and Farrington 2016).
According to Tookey et al (2001), selecting the right procurement strategy and prosecuting it well is essential in successful project outcomes while the opposite can be fatal to the project. The procurement strategy should be able to deliver a given project through its whole lifecycle which includes developing the scheme even before awarding the project to the contractor, putting in place mitigation measures, delivering the main work as well as delivering all operations and life cycle maintenance (Lyson and Farrington 2016).
This report looks at the partnership procurement strategy, which was the main procurement strategy used by the BBC for the Digital Media Initiative Project, and why this procurement strategy was a failure, with suggestions for what the best procurement strategy would have been for the DMI project.
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