1. In 2006-07 the BBC spent £531 million on goods and services ranging from broadcast specific products, such as props, costume, locations, lighting, studios, production equipment, recording and storage media, to more generic items such as travel, office supplies and consultancy advice.[3]

2. At the time of our hearing the BBC was on course to achieve its target of delivering cumulative procurement savings of £75 million in the three years to April 2008. It had achieved savings of £10 million in 2005-06 and £27 million in 2006-07, slightly exceeding the annual target for those years, and expected to meet its £42 million target for 2007-08. Savings had been achieved by various means, including obtaining reduced prices when contracts had been re-tendered and negotiating with suppliers not to apply annual inflationary price increases, against the backdrop of overall spending on goods and services having increased by 6% from April 2004 to March 2007.[4]

3. Figure 1 shows that across the seven categories of goods and services on which the BBC spends money, the savings made in 2006-07 ranged from 2.9% to 12.1%. While the overall saving was 5%, the savings were lower in five of the seven categories and lowest in those categories where the BBC had spent most—Production Resources (3.2%) and Technology and Broadcast Equipment (2.9%). One of the BBC's approaches to securing savings was renegotiating or re-tendering contracts when they came to an end, but that point had not been reached in these two categories, where overall savings of £7 million were made, compared with £231.6 million spent. In the coming year, however, the BBC was expecting to save more than 10% (£13 million) in the Production Resources category. As regards Technology and Broadcast Equipment, the BBC considered that it was already getting good value for money because of previous savings, and that future savings would depend upon changes in technology and its working practices.[5]
Figure 1: Analysis of the BBC's annual savings from procurement by category in 2006-07

Category	Examples of type of spending	Spending (£ million)	Savings (£million)	Savings as a percentage of category spending
Production Resources	Post production; studios, scenery and lighting; outside broadcast and locations; props, costume and make-up	128.6	4.1	3.2
Technology and Broadcast Equipment	Production equipment; audio visual equipment; recording and storage media	103.0	2.9	2.9
Logistics	Hotels and conferences; travel; couriers	76.1	6.3	8.2
Property and Workplace	Utilities; facilities management; stationery and office supplies; catering; security contracts	69.9	3.3	4.7
People and Resources	Recruitment agencies; training and development	52.8	2.5	4.8
Marketing Services	Market research; advertising; promotional merchandise	51.1	1.7	3.3
Corporate Services	Advisory services and consultancy; insurance; legal services; banking and financial services	48.3	5.9	12.1
Total		531.4	26.7	5.0
Note: Other spending of £1.6 million did not fit within the existing category structure

Source: C&AG's Report, Figures 2 and 6

4. The overall savings also conceal underlying increases in some categories of spending. For example, while savings of 4.8% (£2.5 million) had been made in the People and Resources category (Figure 1), which included the cost of temporary staff, spending had doubled from £26.3 million to £52.8 million in the three years to April 2007.[6]

5. The BBC used a mix of temporary and permanent staff because it gave flexibility and because using temporary staff saved overhead costs such as pension contributions. Large numbers of programme staff were freelancers, but temporary staff were also used for one-off projects, such as the iPlayer, where specialist skills were needed. As projects ended, temporary staff costs had fallen, and the BBC was expecting to spend under £35 million on the People and Resources category in 2007-08.[7]

6. The use of temporary staff also had to be seen in the context of planned staff reductions at the BBC of between 1,800 and 2,500 over the next five years, with the biggest reduction due to take place in the coming 12 to 18 months. Asked about the risk of temporary staff being used to backfill permanent posts, the BBC acknowledged the importance of making sure total staff costs, including for temporary staff, were reduced. The BBC also expected that some areas of procurement spending would fall as staff numbers declined.[8]

7. In addition to the more routine procurement covered by this Report, some 45% of all spending across the BBC was for work outsourced to other service providers, including long-term contracts for services such as finance and human resources, as well as programme content made by independent production companies. One way organisations can get better value for money from the supply chain is to encourage suppliers to use best practice procurement. Although the BBC's contractors generally do not take advantage of its purchasing arrangements, and its expertise in particular markets, the BBC confirmed that they could.[9]

4   Q 36; C&AG's Report, paras 4, 6 and Figure 5 Back

5   Qq 1, 83 Back

6   C&AG's Report, para 4 Back

7   Qq 33, 37-38, 88-89 Back

8   Qq 83-86. The Director General's speech to BBC staff announcing the job loses is available at: http://www.bbc.co.uk/pressoffice/speeches/stories/thompson_staff_181007.shtml  Back

9   Qq 98-100 Back