GOVERNANCE UNIT Interim rules for the conduct of the Public Value Test 10 October 2006 TABLE OF CONTENTS 1 Introduction 3 2 When will the Public Value Test be applied? 7 3 How should approval be sought for a proposed change? 9 4 What is a Public Value Assessment and how does it work? 12 5 What is a Market Impact Assessment and how does it work? 16 6 What is a Public Value Test and how does it work? 18 7 Further information 21 ANNEX A Guidance on the Service Proposal 22 ANNEX B Guidance on terms of reference for the evidence set 23 1. Introduction 1.1 Purpose 1.1.1 This document contains rules for the conduct of the Public Value Test (PVT) for the BBC’s UK Public Services. The rules are directed at the management of the BBC, but have been published to provide transparency regarding the PVT process. 1.1.2 On 1 January 2007 the new BBC Charter and Agreement will take effect1. At this point the current BBC Governors will be replaced by the new BBC Trust. The new Agreement acknowledges that during the lifetime of the new Charter, the BBC will need to be able to modify its UK Public Services – for example, to respond to changes in technology, culture, market conditions, public expectations and views, etc. However, any significant proposal for change must be subject to full and public scrutiny. Under the new Agreement, the means by which this scrutiny will be brought about will be the PVT. The new Agreement sets out detailed requirements in relation to when a PVT is to apply and the process by which it is conducted (see clauses 23 to 33). 1.1.3 The BBC recognises that all of its activities must provide value to the public and licence fee payers. However, it is also important that these activities are consistent with a vibrant and dynamic commercial sector. The Public Value Test (PVT) is a robust and transparent tool designed to ensure that any significant changes to the BBC’s UK Public Services balance these two factors. The PVT is designed to provide reassurance and certainty to licence fee payers and industry by ensuring that any significant proposals for change are subject to full and public scrutiny. 1.1.4 Pending 1 January 2007, the Governors have made clear their commitment to subject any proposal received from BBC management under the existing Charter to a Public Value Test if that proposal would require a PVT under the terms of the new Charter and Agreement. 1.1.5 This document should therefore be read as also setting out the rules that will govern the PVT process for the remainder of the current Charter period, where possible given current Charter requirements. These rules may be subject to amendment in the light of any lessons learned when undertaking the PVT process. It is also intended that these rules will provide a framework for the PVT methodology and processes under the new Charter and Agreement on and after 1 January 2007. The references in this document should be read as applying to the Governors in the immediate term. 1.2 Who is involved in the Public Value Test process? 1.2.1 The following bodies are involved in the PVT process: * BBC Trust is responsible for deciding if a PVT is required in respect of any proposals for change and making a judgement on the outcome of the PVT, balancing the likely public value created against the market impact2. * BBC management are responsible for developing proposals for changes to UK Public Services and submitting them to the Trust for approval. BBC management must also compile the necessary evidence to support the proposed change. BBC management report to the BBC’s Executive Board * The Trust Unit is a separate team responsible for supporting and assisting the Trust and is administratively separate from the rest of the BBC’s organisation. The Trust Unit is responsible for administering the overall PVT process on behalf of the Trust, and undertaking the Public Value Assessment3. * Ofcom is the UK regulator for the broadcasting industry. Ofcom is responsible for undertaking the Market Impact Assessment. * Licence fee payers and industry will be consulted during the PVT process and before any final decision is made. 1.3 What is the Public Value Test process? 1.3.1 The PVT has several components. The key steps in this process are summarised below. * Pre-PVT phase – BBC management will develop proposals for changes to the UK Public Services and compile supporting evidence. When a proposal is submitted for approval the Trust will make a judgement on whether or not to apply a PVT. * If a PVT is applied, the PVT process itself has two key elements which are considered in parallel: o The Public Value Assessment (PVA), which measures the public value of a proposed change. This is conducted by the Trust Unit. o The Market Impact Assessment (MIA), which measures the likely impact on existing or potential value created in the wider market as a result of the change. As outlined in the new Charter and Agreement, the MIA is carried out by Ofcom under terms agreed by a Joint Steering Group comprised of Trust and Ofcom representatives. * The Public Value Test – The PVA and MIA reports are expected to take three months to complete. The Trust will then consider the reports and draw provisional conclusions based on their findings. * The Trust will consult on their provisional conclusions for 28 days alongside the published PVA and MIA reports. The Trust will make its final decision following consultation. 1.3.2 The diagram below outlines the key components of the PVT process. 1.4 Timeline 1.4.1 The entire PVT process must be completed within six months of the date on which the Trust decide that a PVT applies. However, where justified by the circumstances, which may include the complexity of the proposal, the Trust may adopt a shorter or longer period. 1.5 The BBC Public Value Test process 2. When will the Public Value Test be applied? 2.1 When will be a PVT be required? 2.1.1 The Trust is required to apply the PVT before a decision is taken to make any significant change to the UK Public Services (which can include introducing a new service or discontinuing a service). 2.1.2 Whether any proposals for change meet this criterion of significance is a matter for the judgment of the Trust. In exercising that judgment, the Trust must have regard to the following considerations: (a) impact – the extent to which the change is likely to affect relevant users and others; (b) the financial implications of the change; (c) novelty – the extent to which the change would involve the BBC in a new area of activity for the BBC, as yet untested; (d) duration – how long the activity will last. 2.1.3 The Trust will presume that any change which requires a new service licence or any amendment of the key characteristics described as such in a service licence ought to be subject to a PVT. Where this presumption applies, the Trust may still decide that there is no need for the PVT to be applied, but in that case the onus is on the Trust to justify departing from the presumption. 2.1.4 Before exercising this judgement under this clause, the Trust will investigate or otherwise inform itself of any facts or considerations which it considers potentially relevant to the exercise of that judgment. 2.1.5 For these purposes the BBC’s UK Public Services refers to all the services provided by the BBC for the purpose of promoting its public purposes. It excludes any services which are: * Commercial services; * Form part of the BBC World Service; * Services performed at the request of, and funded by, any Department of Her Majesty’s Government in the UK; or * Are aimed primarily at users outside the UK. 2.1.6 The Trust reserves the right retrospectively to apply a PVT to any change in the UK Public Services which has not been formally notified to or approved by them. In such circumstances the Trust would normally expect the service in question to be suspended pending the outcome of the PVT. 3. How should approval be sought for a proposed change? 3.1 What is the process for notifying a proposed change? 3.1.1 Within BBC management, the BBC Strategy team (a central team within the BBC reporting to the BBC Executive Board) will be responsible for notifying the Trust Unit of any potentially significant proposals for changes to the UK’s Public Services. BBC Strategy are responsible for monitoring and reporting all such proposals to the Trust Unit. 3.1.2 BBC Strategy should hold initial discussions with the Trust Unit regarding such proposals. The Trust Unit should also be kept updated as these proposals are developed. The Trust Unit may give a provisional view at this stage on whether or not the proposals may involve a significant change such that a PVT is required. However, the decision whether or not a PVT is required is one for the Trust alone, and ultimate responsibility for seeking approval for any such proposals lies with BBC management. 3.1.3 Once a proposal has been sufficiently developed, the Executive Board should decide whether to proceed with the approval process. If the Executive decides to proceed, BBC Strategy must submit the following documents to the Trust Unit: * Service Proposal – this document provides a general outline of the proposed change. If a new service is proposed, the document must set out its intended aims and aspirations. * Draft terms of reference – this document outlines the scope of evidence that BBC management intend to submit to support the proposal. Guidance on these documents can be found in Annexes A and B. 3.1.4 The Trust Unit must approve the terms of reference before BBC management can proceed to collate the evidence. This is to ensure that the evidence base is sufficient to assess the proposal. The Trust Unit may also discuss elements of the proposed evidence base with Ofcom. The Trust Unit will respond within two weeks of receipt of the documents to inform BBC Strategy if further evidence is likely to be required. Further discussion may then be held before the terms of reference are agreed. 3.2 What evidence will be required for the PVT? 3.2.1 It is the responsibility of BBC management to undertake appropriate research and deliver the evidence to support each proposal, in accordance with the terms of reference agreed by the Trust Unit above. 3.2.2 Completely new or untested service proposals may require appropriate pilots and tests in order to generate valid evidence. Pilots agreed under the terms of reference will also require approval from the Executive Board and should meet the following criteria: * They should be clear in relation to scale, scope, duration and evaluation criteria. * Trial activity must be the minimum scale and duration necessary to achieve the intended outcome. * Consideration must be given to any potential market impact which may result from the trial. 3.2.3 It is normally expected that trial activity will continue up to the point that approval is sought from the Trust to ensure that the most relevant data is provided. Trial activity should normally cease once the Trust has determined that a PVT is to be applied and may only continue with approval from the Trust (for instance if further evidence is required). 3.2.4 BBC management should also undertake a preliminary assessment of the likely market impact. While this would ultimately be shared with Ofcom during the PVT process, it is intended to inform the Executive Board’s decision on whether to proceed only and does not pre-judge the MIA undertaken by Ofcom. 3.2.5 It is possible that proposals may continue to develop as evidence is collated, or be influenced by market research undertaken. BBC management should ensure that the final proposal submitted to the Trust is supported by appropriate evidence. The Trust Unit should be kept updated if or when proposals change. Details of the final proposal should be provided in the formal application for approval submitted to the Trust. 3.3 How should an application for approval be made? 3.3.1 Once BBC Strategy are satisfied that they have collected the necessary evidence it should be considered by the Executive Board. The Executive Board must decide whether or not to endorse the proposal. For planning purposes the Trust Unit should be kept informed during this process. 3.3.2 If approved, BBC Strategy should submit the following information to the Trust Unit in support of the proposal: * Details of the proposal and key information to facilitate public representations * The agreed evidence base and supporting evidence * The preliminary assessment of market impact 3.4 What happens when an application for approval is received? 3.4.1 Upon receipt of the formal service proposal, the Trust will decide whether a PVT is required: see section 2 above. 3.4.2 If the Trust decides that a PVT is required, the Trust Unit will issue a public notice, announcing that a PVT will be conducted. A summary of the proposal will be published with, or shortly after, this notice. 3.4.3 If the Trust decides that a PVT is not required the proposal will be considered under the appropriate approvals mechanisms as set out in the Charter and the Trust will issue a public notice outlining their reasoning. 3.4.4 The entire PVT process must be completed within six months of the date on which the Trust decides that a PVT applies. However, where justified by the circumstances, which may include the complexity of the proposal, the Trust may adopt a shorter or longer period. 4. What is a Public Value Assessment and how does it work? 4.1 Definition: What is a Public Value Assessment? 4.1.1 The Public Value Assessment (PVA) is one of the two key components of the PVT. It consists of an assessment of the likely public value of a proposed change. 4.2 Who conducts a PVA? 4.2.1 The PVA is conducted by the Trust Unit. If appropriate the Trust Unit can also call upon external expert advice. 4.3 What is the PVA process? 4.3.1 The PVA involves an analysis of the value that the proposed change will provide to licence fee users and society as a whole. Once a decision has been made to apply the PVT the Trust Unit will begin to assess the proposal and evidence submitted by BBC management. 4.3.2 As the nature of likely or potential public value may differ according to the nature of the change proposed, the Trust Unit will at the outset consider carefully: * The aspects of public value which may be relevant, and * How those aspects should be explored and evaluated. 4.3.3 Representations will also be sought from the general public and industry. These will be based on the published summary of the proposal. The period for representations will normally be limited to a four week period and timed to coincide with any representations sought by Ofcom on market impact issues. Notice of the representation period will appear on the Trust’s website. The period for representations could be extended depending on the complexity of the proposal. The Trust Unit will only accept responses in relation to public value at this point. 4.3.4 Individual representations will not be published. However, they will be used to inform the PVA and may be quoted from in the PVA report. 4.3.5 Being independent of BBC management the Trust Unit is able to consider potentially confidential or market sensitive information, although this would not be published or shared with BBC management if specifically requested by respondents. Where information is contained in the PVA representation that could be pertinent to the MIA the Trust Unit would normally share this information with Ofcom, unless specifically requested not to by the person making the representation. 4.3.6 The PVA will normally be completed within 12 to 14 weeks of the PVT process beginning. The Trust may agree an extension to that timeframe where the circumstances justify it. 4.4 How is public value measured? 4.4.1 The purpose of a public value assessment is to ascertain the likely public value of the proposed change. The new Agreement states that the PVA should in general terms include an assessment of the following factors: a) the value which licence fee payers would place on the proposed change as individuals; b) the value which the proposed change would deliver to society as a whole through its contribution to the BBC’s Public Purposes, but having regard to article 5 of the Charter and the contribution of the proposed change to the priorities set out in the BBC’s purpose remits; c) the value for money of the proposed change and its cost (including the potential financial implications if the proposed change were not to be made). 4.4.2 As the nature of likely or potential public value may differ widely according to the nature of the change proposed, the Trust must at the outset consider very carefully: * the aspects of public value which may be relevant; and * how those aspects should be explored and evaluated 4.4.3 In order to apply these factors in practice the Trust Unit will consider each proposal against the following measures of public value: a) Fit with BBC Public Purposes and Strategy: How the proposed change complements and contributes to the BBC’s objectives and Public Purposes (outlined below): b) Quality: Is the proposed change high quality and distinctive? c) Impact: Impact is comprised of: o consumer benefit – the benefits that people gain directly from the proposed change (for example, would individuals find a proposed new service engaging or challenging?) o citizen benefits - Benefits created for society as whole by the proposed change (for example, a better functioning democracy, better understanding and respect between different communities etc.) d) Reach: Will the service be accessible and consumed by a sufficient number of users? If the service is targeted at a specific audience group, will the service be accessed by a significant number of users in that group? e) Cost and Value for Money: How much would the service cost to deliver; does it deliver its stated aims in the most efficient manner possible; and could the stated objectives be met more cost effectively by similar or alternative services? 4.5 What is the final PVA process? 4.5.1 Upon completion of their analysis, the Trust Unit will prepare the PVA report for publication. This may involve discussions with respondents and BBC management. As set out above, the Trust Unit may take into account confidential or market sensitive material in compiling its report which may be inappropriate to publish. If the Trust Unit relies on such material, the fact of such reliance will be made explicit in the PVA report. 4.5.2 The completed PVA report will then be presented to Trust to consider alongside the MIA. 5. What is a Market Impact Assessment and how does it work? 5.1 Definition: What is a Market Impact Assessment? 5.1.1 The Market Impact Assessment (MIA) is the second component of the PVT. It is designed to assess the impact of a proposed change on the wider market. 5.2 Who conducts an MIA? 5.2.1 Ofcom are responsible for providing the MIA. As outlined in the new Charter and Agreement, the MIA is carried out under terms agreed by a Joint Steering Group (JSG) comprised of representatives from the BBC Trust/ Trust Unit and Ofcom. 5.2.2 The JSG is responsible for: * Setting the terms of reference for the MIA. * Agreeing the potential relevant markets for the assessment after considering advice from Ofcom. Where there are a number of potential markets identified by the JSG, the MIA will report on each potential market in the absence of agreement to do otherwise. * Ensuring that the MIA is conducted in a manner appropriate to the nature of the PVT and to a suitable schedule. 5.2.3 The provision of the MIA, including the conduct of the MIA by Ofcom and/or any third party, will be overseen by the JSG. However, the substantive findings of the assessment remain a matter for the judgment of Ofcom. 5.3 What is the process for conducting the MIA? 5.3.1 The JSG will receive a copy of the service proposal document upon its receipt by the Trust Unit (see section 3.1.3. above). The JSG is not permitted to share this information more widely, although it may decide to meet at any stage to consider any operational issues ahead of a potential MIA. 5.3.2 Once the Trust decides that a PVT is to be applied the JSG will be notified and documentation from BBC management in support of the proposal will be shared with the JSG and Ofcom. 5.3.3 The JSG will normally set and publish the terms of reference for each MIA two weeks after the Trust issue their public notice. The terms of reference will be published on the Ofcom website. Ofcom are also likely to seek representations on market impact issues at this stage. 5.3.4 The MIA will be undertaken in accordance with the methodology agreed between the BBC Trust and Ofcom4. Ofcom may undertake its own MIA or commission an independent third party to undertake some or all of the assessment. 5.3.5 During the process the JSG is likely to hold at least one progress meeting to consider any emerging conclusions and analysis which may be relevant to both the PVA and MIA reports. 5.4 Completion of the MIA 5.4.1 Under normal circumstances the MIA must be completed within three months of the date on which the terms of reference are set. The JSG may agree on a longer or shorter period if justified by the circumstances such as the complexity of the information gathering process or the extent of the analysis required. The JSG must publicly announce any changes to the timetable. 5.4.2 The finalised MIA report will be presented to Trust to consider alongside the PVA. 6. What is the Public Value Test and how does it work? 6.1 Definition: What is the Public Value Test? 6.1.1 The Public Value Test (PVT) is the BBC Trust’s overall assessment of the net public value delivered by a proposed change. The PVT balances the findings of both the PVA and MIA reports. 6.2 Who conducts a PVT? 6.2.1 The Trust will make a PVT judgement on the proposals which are subject to the PVT process, following public consultation. 6.3 What does the PVT process look like? 6.3.1 The Trust will normally meet within 18 weeks of deciding that a PVT is to apply. The Trust will consider both the PVA and MIA reports and reach provisional conclusions regarding the proposed change, balancing the public value created against the potential market impact. 6.3.2 The Trust will publish their provisional conclusions, including any potential conditions of consent if they feel that these are necessary. The PVA and MIA reports will also be published at this stage, alongside any relevant parts of the evidence submitted by BBC management in support of the proposal. 6.3.3 The Trust will publicly consult on these conclusions for a 28 day period. This will allow external parties to comment on the conclusions and any conditions in light of the evidence relied upon in making the decision. The Trust may consider confidential information in making their decision. If this information is considered important to the judgement the consultation would make clear that this evidence had been relied upon, although the information itself may not be published. Details of the consultation and how to contribute will be published on the Trust website. 6.3.4 Depending on the outcome of the provisional conclusions, BBC management may decide to proceed with initial investment in the proposed change at this stage. 6.3.5 Once the consultation period is complete the Trust will make their final decision regarding the proposed change, taking into account responses from the consultation. The Trust may either decide to either: > Approve a proposal > Decline a proposal > Approve a proposal subject to conditions, which may include amendments to the proposal In drawing their conclusions Trust will satisfy itself that any likely adverse impact on the market is justified by the public value of the change. The final conclusions will be published on the Trust website. BBC management will be informed 24 hours in advance that the Trust intends to publish their decision, although the findings will not be disclosed until the conclusions are published. 6.3.6 The final PVT decision will normally be made within six months of the Trust deciding to apply the PVT. At its discretion, where justified by the circumstances, the Trust may allow a longer period. 6.3.7 In order that a service could be launched as soon as possible following a PVT, the Trust Unit may develop a draft service licence for the proposal during the PVT process, if that would be required following approval by Governors. In doing so the Trust Unit may develop parts of the service licence with BBC management, but will act without prejudice and base the service licence on the proposal as submitted for approval by BBC management and not any conditions which may be imposed through the process. 6.4 Secretary of State approval 6.4.1 The final decision on whether to allow a new service to proceed rests with the Trust. However, the Secretary of State for Culture, Media and Sport does have a procedural veto, as set out in Clause 33 of the Agreement. Were a service proposed to be launched before 31 December 2006 the approval of the Secretary of State for Culture, Media and Sport would be required under the current Charter. Further information Further information on the PVT can be found at: www.bbcgovernors.co.uk/docs/publicvaluetest.html Or by contacting: The Head of Finance, Economics and Strategy BBC Governance Unit 211 Marylebone High Street London W1U 4AA Information on the MIA can be found at: www.ofcom.org.uk /research/tv/bbcmias/ondemand/ Information on the BBC Charter and Agreement can be found at: www.bbccharterreview.org.uk/ Annex A. Guidance on the Service Proposal A ‘Service Proposal’ is required before the Trust Unit can approve terms of reference for the collection of evidence. It also provides a framework for BBC management to determine the questions and issues it needs to address during its evidence gathering. Service Proposals should provide a general outline of the proposed change and its intended aims and aspirations. The Trust Unit may request further information and/or clarification on proposals. Proposals should be no more than 6 pages in length and require prior approval by the Executive Board before being submitted to the Trust Unit. Service Proposals – what is required Description: A summary description of the new service/change to existing service, including an explanation of what the service or proposed change will do and how this will be achieved. Timetable and Priority: An indicative timetable from service proposal to service launch. A headline indication of the service’s priority vis-à-vis other proposed services submitted or due for submission. Where a service is considered a priority a summary explanation should be provided as to why and the deadline for launch. Rationale: A brief outline of the strategic rationale for launching the service or making the proposed change, considering in particular the following factors: * Fit with BBC Purposes * Quality and distinctiveness * Reach * Impact, including consumer and citizen * Cost and value for money Annex B. Guidance on the Terms of reference for the evidence set The draft terms of reference should outline the scope of evidence that BBC management intend to submit to support the proposal. The Trust Unit must approve the terms of reference before BBC management start to compile the necessary evidence. Terms of reference should be no more than 4-6 pages in length and should address the issues and questions that the Trust will wish to assess along with the types of evidence and research methodology it will consider. Terms of reference – what is required Proposed change analysis: Details of proposed primary and secondary research (including pilots) to be undertaken in support of the measures below; areas where no further work is envisaged should also be highlighted: o Fit with BBC Purposes i. Purpose alignment – how the proposed change, given its service definition and target audience, addresses the BBC’s six public purposes ii. Strategic positioning/ rationale – how the proposed change fits with the BBC’s strategy, its contribution to it and the proposed change’s fit with the current portfolio o Contribution to reach, quality, impact and value for money High level comparison with other relevant BBC services: Details should be provided as to which BBC services will be considered for comparison and why. Explanations should also be provided for services excluded from this section that could potentially be relevant. This should include potential internal and external benchmarking exercises. In some cases it may not be possible to make direct comparisons with existing BBC services (e.g. comparing non-linear services to existing linear services). However, high level comparisons should be provided where possible. Comparison to alternative BBC investment options: Details should be provided as to which alternative BBC investment options will be considered for comparison and why, including areas of particular focus. This is to enable the Trust to assess the cost and opportunity cost of alternative investment opportunities in terms of the public value created including: * other proposed services at pre-pilot stage; * incremental investments in existing services; or * alternative approaches to attain the same results e.g. through using new platforms Other: Details should be provided of preliminary market impact assessments and any other evidence to support the proposal. 1 Details are available from www.bbccharterreview.org.uk/ 2 From 1 January 2007, under the terms of the new Charter and Agreement the final decision on whether to allow a new service to proceed would rest with the BBC Trust. The Secretary of State for Culture, Media and Sport would only have a procedural veto, as set out in Clause 33 of the new Agreement. Under the current Charter, were a service proposed to be launched before 31 December 2006 the approval of the Secretary of State would be required in addition to that of the Governors. 3 Under the current Charter this role is undertaken by the BBC Governance Unit, a separate team within the BBC reporting solely to the Board of Governors. 4 Information on the MIA can be found at www.ofcom.org.uk/research/tv/bbcmias/ondemand/ ?? ?? ?? ?? 24