MAY 2005 
BBC Property 
Value for Money Study 

i 
Moving to the future — May 2005 brief update 
on the development with the BBC property 
Partnerships 
The Ernst & Young (E&Y) value for money report on the 
partnership arrangements with Land Securities Trillium (LST) 
was agreed in April 2005 based on the findings of field work 
concluded in November 2004. 
The British Broadcasting Corporation (BBC) has clearly spent 
a considerable amount of time and effort since April 2004 
reviewing how the original Partnership arrangements (The 
Partnership) with LST should be re-engineered. Significant 
change to the Partnership has occurred since the E&Y value 
for money study fieldwork concluded in November 2004. 
This update paper highlights these key changes and how they 
relate to the issues raised in our initial report. Detailed on 
pages 1 to 43. Our headline conclusions can be summarised 
as follows: 
The exit of existing obligations is agreed 
The BBC can exit from the original deal - The BBC has 
succeeded in delivering a termination to the existing Contract 
of service (“CoS”) arrangements and an opportunity to 
renegotiate. In doing so, the BBC has also avoided incurring 
a substantial penalty payment should termination arise, 
representing an impressive outcome to initial negotiations 
with LST. 
Settlement of the floor areas disagreement - The BBC 
has settled the disagreement over floor areas, resulting in 
a payment of £16.2m to LST covering over four years of 
the contract to 31st March 2006. This settlement inevitably 
reduces the savings the BBC forecast at the outset of 
the Partnership. Nevertheless, taking this settlement into 
account, the BBC used the original bid model and associated 
assumptions and has calculated that the Partnership will have 
provided an NPV saving of £32.6m over the previous inhouse 
delivery of services to March 2006. 
Based on our previous work, it was clear that a settlement 
was required to enable the BBC to move forward in seeking 
to re-engineer the deal. 
Restructuring of the financing of White City - Whilst not 
reviewed as part of this report, the refinancing of White City 
by LST with the BBC’s agreement is a significant change 
to occur since our report. The BBC has calculated that this 
provides them with a further NPV benefit of £63m for this 
element alone, with the BBC also re-acquiring its freehold 
interest in White City. 
The BBC has secured an opportunity to 
negotiate a new deal 
An opportunity to negotiate - The BBC and LST have 
agreed upon the “Settlement Agreement”. This document 
provides the BBC with an opportunity to undertake a full 
renegotiation of its service arrangements. The agreement 
provides that the BBC and LST, in the first instance, must use 
“reasonable endeavours” to reach a mutually acceptable new 
agreement. If this is not possible, either party can terminate 
the CoS on 31 March 2006. 
The BBC has outlined its expectations of a new 
arrangement – A detailed Statement of Requirements 
(“SoR”) has been developed outlining how the BBC 
envisages a new service provider arrangement would work. 
LST has confirmed it has decided not to participate in the retender 
process given the proposed structure which is a pure 
service arrangement. 
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BBC PR O P E RT Y – VA L U E FO R MO N E Y RE P O RT 
ii 
The BBC is changing its service provider but 
with associated risks 
The BBC is beginning a process to procure an alternative 
service provider(s) –The BBC is planning to place an OJEU 
notice seeking bids from parties interested in providing the 
BBC with Facilities Management (“FM”) and other specialist 
services based on its SoR 
The BBC is faced with challenges in procuring a revised 
service provision - The current situation represents both a 
significant opportunity and risk to the BBC. There will be 
challenges in the transitional stages of establishing a new deal 
with an alternative third party service provider(s) requiring 
careful management. 
The BBC must achieve a managed transition 
The BBC must map out a strategy, milestone plan 
and control framework – At this important juncture in 
negotiations, we believe time spent by the BBC in the 
development of an overall strategy to procuring a new service 
provider arrangement will ultimately prove critical. Linked 
to this strategy, the BBC should also consider planning 
the milestones it is seeking to achieve over the next 12-18 
months. These should include a detailed procurement plan 
and details of the planned transition from LST as the current 
service provider. 
In tandem, the BBC should ensure that it has a control 
framework in place for measuring progress, providing the 
necessary assurance and transparency to BBC management 
over ongoing activities. We envisage this framework would 
link to overall BBC internal audit planning and assurance 
procedures. 
A plan needs to be put in place for the transition of 
existing arrangements – The full impact of unwinding the 
current service provision arrangements needs to be fully 
understood and there are a number of important risks to 
be managed by the BBC. Outlined below are some of the 
challenges we believe the BBC faces in effectively managing 
these: 
. Protecting as much value from the existing deal as 
possible 
Our previous study of the existing deal with LST 
contained a number of positives and the BBC was 
believed to be receiving reasonable value for money in 
a number of areas. A key challenge for the BBC will be 
to maintain or improve upon the value of the existing 
Partnership in any new deal. 
. Controlling internal and external communications 
surrounding the deal 
The Partnership, as a market leading arrangement, is 
high profile within the property industry. Combined 
with the BBC’s own high profile, the need to carefully 
manage messages to external media and also back to BBC 
Business Units is paramount. 
. Identifying the future needs of the BBC 
The BBC business is going through significant 
organisational change concurrent with technological 
changes in the media industry. In agreeing a new property 
deal, the alignment of the BBC property strategy to overall 
corporate strategy is crucial. A successfully aligned new 
property deal should enable, rather than frustrate, future 
corporate change. 
. Minimise disruption to business continuity 
Is a dynamic, 24/7 organisation, the BBC business has 
greater challenges than most in maintaining the continuity 
of its core (broadcast) operations. The effective transition 
of service provider and operational arrangements will be 
crucial to maintaining continuity. 
. Appropriate resourcing to meet the workload needs 
of transition 
BBC Property is now a ‘thin client’ geared up to manage 
strategy, with delivery often outsourced to service 
providers, both operational and ‘professional’. The BBC 
may need some assistance during the transition. 
1.0 Introduction 
As part of the series of reviews assessing value for money 
across the BBC, E&Y were commissioned to undertake a 
value for money study to examine the economy, efficiency 
and effectiveness of the BBC’s Partnership with LST. The 
fieldwork for this study was completed in November 2004 
and was representative of the Partnership at that date. 
Given the complex nature of the Partnership arrangements 
and the dynamic environment that the Partnership operates 
within, there has been a change in the overall relationship 
and commercial nature of the Partnership since our fieldwork 
was completed. These changes have been made in the spirit 
of improvement, providing a platform upon which to build 
a long term solution for the BBC. The nature of the BBC’s 
continued relationship with LST is dependent on the structure 
and form of a new deal. 
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MO V I N G T O T H E F U T U R E — MAY 2005 B R I E F U P D AT E O N T H E D E V E L O P M E N T 
W I T H T H E BBC P R O P E RT Y PA RT N E R S H I P 
In order to recognise the changes made to date and continuing 
efforts for improvement, the BBC engaged E&Y to undertake 
this brief review of the current status of the Partnership in the 
light of the findings contained in the value for money study. 
The purpose of this review is to provide an independent view 
of current situation for the BBC Audit Committee meeting of 
May 27th 2005. 
2.0 Scope and limitations 
This review is of limited scope and does not constitute a 
detailed update of the findings contained within the E&Y 
value for money study. The aim of the review is to provide the 
BBC with a view of the key changes, both achieved and being 
pursued, in the light of the issues raised in our initial report. 
It is necessary to consider the findings contained in this 
report, in the context of the scope of work set out in our 
engagement letter dated 26th April 2005. The two week 
timescale agreed with the BBC to complete the review has 
meant our approach is focused on the headline changes, 
rather than a detailed analysis of the financial and operational 
aspects of current arrangements. 
Our initial report made reference to ongoing issues that at the 
time were of a commercial nature and, as such, prevented us 
from comment or conclusion given their sensitivity during 
that period. Subsequent to the completion of our fieldwork, 
the BBC and LST have agreed some major changes to the 
Partnership and further changes will be made to put in place 
alternative service provision arrangements. We have been 
asked to comment on the changes which are summarised in 
Tables 1 and 2. 
Table 1: A commercial settlement has been concluded 
. Allows for a restructuring of the leases on the Media 
Village in a cost effective manner that delivers 
significant benefits back to the BBC. 
. Settles the most significant commercial issues 
outstanding from the original Partnership agreement. 
. Allows for a consensual termination of the Partnership 
at no cost to the BBC should the parties fail to agree on 
a new deal. 
. Allows for a renegotiation of the original CoS which 
gives both parties the opportunity to refocus the 
Partnership. 
It was agreed that this review would only make limited 
comment on the restructuring of the White City lease due to 
the following: 
. The White City development was subject to a separate 
value for money study conducted by the National Audit 
Office (“NAO”); and 
. The BBC were advised by a number of leading firms on 
the refinancing, including Barclays Capital (Financing), 
DTZ (Property Valuation), KPMG (Accounting) and 
Linklaters (Legal). 
Table 2: The renegotiation of the deal will continue with 
several key areas of focus 
. Clarifying the service offering including agreeing the 
transfer of lifecycle risk. 
. Reviewing the term and pricing of the deal. 
. A new approach to construction management. 
. Revising the PMS provision. 
. Simplifying operational processes and control. 
At the time of this review, agreement has been reached on 
areas summarised in Table 1, covered within the Settlement 
Agreement. 
The situation regarding the areas in Table 2 is fluid, however 
these will form the basis of negotiating deals with new 
suppliers. Our review of ongoing issues is therefore focused 
on the approach being taken by the BBC and as such any 
conclusions drawn will inevitably be subject to further change 
as procurement and commercial negotiations progress. 
2.1 Documentation reviewed 
In the preparation of this paper, we have reviewed the 
following key documents: 
. Settlement Agreement, dated 3rd March 2005 
. Invitation to Negotiate 
. BBC Statement of Requirements (“SoR”) 
. BBC Governors paper GPC(05)6 
. LST response to BBC dated 5th April 2005 

In addition to the above, we have also had access to the 
following documents: 
. Appendices to the SoR 
. Other BBC Governors papers EB(05)71, GPC(05)4, 
BG(05)7, GPC(04)6 
. Investment Proposal Approval Sheet 6th January 2005 
. Meeting Minutes: Governors Property Committee 23rd 
September 2004, Board Meeting 27th February 2005 
. BBC and Land Securities Group PLC, Joint Press 
Statement 
3.0 Key changes and current position 
The major changes to the Partnership are addressed using the 
summary of changes provided in Tables 1 and 2: 
. Commercial settlements reached (Table 1). 
. Negotiations underway (Table 2). 
We have summarised these further below into three principal 
areas of renegotiation: 
. Restructuring of the White City lease. 
. Settlement Agreement. 
. Renegotiating the CoS. 
3.1 Restructuring of the White City lease 
(concluded) 
The restructuring of the White City Media Village lease was 
completed as at 23rd March 2005, replacing the existing 
finance provided by Land Securities with a bond. 
In summary, this involved the replacement of the existing 
finance arrangements and a repurchase of the White City land 
and buildings. As part of this restructuring, a long term lease 
was granted in favour of bond holders with the BBC taking an 
occupational leaseback for 30 years. 
3.2 Reaching a settlement agreement with 
LST media services (concluded) 
The Settlement Agreement brings to a conclusion a number of 
ongoing disputes between the BBC and LST. The major terms 
of this settlement are summarised below: 
. A mutual termination of the CoS and Partnership contract 
on 31 March 2006. 
. Compensation of £16.2m to LST in full and final 
settlement of the ongoing floor areas disagreement 
covering over four years to 31 March 2006. 
. The implementation of the LST ‘Clean Bill of Health’ 
demonstrating to the BBC that all aspects of plant and 
facilities are maintained to the standard required under the 
CoS and are health and safety compliant. 
3.3 Commencement of the renegotiation of 
the CoS (ongoing) 
The BBC has made considerable effort in attempting to 
structure a renegotiation process with LST, consistent with 
a new bidding process which sets out revised arrangements 
based upon the BBC’s current requirements. The BBC issued 
an Invitation to Negotiate (“ITN”) to LST on 1st February. 
The BBC issued LST with a comprehensive 80 page SoR 
detailing the scope and standard of services expected, together 
with clarification of the terms under which these are proposed 
to be supplied. The SoR was issued on 29th March 2005 with 
a requirement LST confirm its intention to respond by 1st 
April 2005. The deadline for a full response to the SoR was 
18th April 2005. 

MO V I N G T O T H E F U T U R E — MAY 2005 B R I E F U P D AT E O N T H E D E V E L O P M E N T 
W I T H T H E BBC P R O P E RT Y PA RT N E R S H I P 
LST responded to this SoR on 5th April 2005 stating that it 
was not prepared to enter into a service provider arrangement 
with the BBC on the basis provided. LST assessed it could 
not deliver competitively priced, value for money traditional 
FM services on a short term contract as specified by the 
SoR. The BBC is currently planning to place an OJEU notice 
seeking bids from parties interested in providing the BBC 
with FM and other specialist services based on its SoR. 
4.0 Key changes in the context of the E&Y 
Value for Money Study 
Each of these areas of change is assessed in the tables set out 
over the following pages. We have assessed changes in the 
following way: 
. Major change areas. 
. How change relates to the findings from the E&Y value 
for money study. 
. Benefits achieved or forecast. 
. Potential risks and issues. 
The changes themselves are classified as: those where 
agreement has been reached and those subject to ongoing 
negotiations. 
4.1 Commercial settlements reached 
Table 3 over the page contains details of those items on 
which the BBC has secured change through legally binding 
agreements. The majority of these changes were formally 
agreed within the Settlement Agreement between the BBC 
and LST Media Services. Changes to the leases on the Media 
Village, were secured including the issuing of a bond. These 
arrangements were finalised by 23rd March 2005. 
4.2 Commercial negotiations underway 
Table 4 contains details of areas subject to ongoing 
discussions for which no agreement has been reached. The 
discussions underway are primarily focused on developing a 
new CoS, securing changes to the operation of construction 
management (“CM”) and FM services. The BBC has clarified 
its expectations of services provision in the SoR, dated 29th 
March 2005. 
LST has stated in its response to the BBC SoR that it is 
not prepared to proceed with an arrangement of this nature. 
The comments made on areas subject to discussions are 
therefore representative of the requirements of the BBC. 
Any conclusions drawn are subject to ongoing negotiations 
and may vary once the BBC has reached agreement with a 
service provider. 
Broadcasting House — interior 
v 

Table 3: Commercial Settlements Reached 
1. A restructuring of the leases on the Media Village in a cost effective manner that delivers significant benefits back to the BBC 
Change 
Key findings in original E&Y 
Value for Money Study 
Benefits Now Secured 
Remaining Risks and Issues 
The restructuring of the 
leases. Previously, White City 
was financed and owned by 
LST as part of its development 
of White City 2. 
The changes made by the 
BBC at White City, as of 26th 
March 2005, can be briefly 
summarised as follows: 
. Unwinding the existing 
Partnership with LST. 
. A transfer of the White City 
freehold from LST back to 
the BBC. 
. The grant of a long lease by 
the BBC to a Special Purpose 
Vehicle (“SPV”) as security 
for the bond issue. 
. The BBC entered into a 30 
year occupational lease at 
a rent based on the SPV 
payments under the bond. 
The Media Village (White 
City) was not explored in 
detail within our initial report, 
however, the following findings 
can be highlighted: 
The White City development 
was a success (2.1) 
The White City development 
was delivered ahead of time 
and on budget (2.1.1) 
Full risk transfer has been 
achieved on White City (2.1.2) 
Development funding on 
Broadcasting House and 
Pacific Quay is not provided by 
LST (5.2.3) 
“When the White City 
development Partnership 
was created, alternative 
sources of funding available 
to the BBC to implement its 
property strategy were more 
limited than at present. In 
recent years, interest rates 
have reduced and financing 
options with lower yields have 
been available for high calibre 
credit covenants such as the 
BBC. As a result, external 
property development funding 
became more attractive when 
compared to financing through 
the Partnership model.” 
Whilst White City was 
highlighted as one of the 
Partnership successes, the 
BBC has leveraged additional 
benefits from unwinding 
the existing arrangements 
to enable a refinancing. 
In summary, the BBC has 
achieved the following: 
. An additional financial 
benefit (calculated by the 
BBC to be an Net Present 
Value of £63m over the life 
of the finance arrangement). 
. The BBC regains the freehold 
interest in White City. 
The restructuring of the 
leases on the Media Village 
is consistent with the type 
of finance structure used for 
the Broadcasting House and 
Pacific Quay developments, 
which took advantage of new, 
alternative financing options 
not available at the time 
White City was developed and 
financed. The BBC approach 
to the restructuring of the 
White City lease is also 
consistent with comments 
made within our report on this 
subject (5.2.3). 
The following issues have 
been considered by the BBC 
as part of the restructuring of 
the White City lease: 
. An absolute, unconditional 
and irrevocable obligation to 
pay rent GPC (05)4. 
. No option to determine the 
lease early or vacate part 
(other than for a sub letting). 
. The funder has the right to 
forfeit the occupational lease 
if the BBC becomes insolvent 
or breaches the covenant to 
pay rent. 
The BBC considered these 
issues before entering the 
transaction and decided that 
the associated risks were 
acceptable. 

MO V I N G T O T H E F U T U R E — MAY 2005 B R I E F U P D AT E O N T H E D E V E L O P M E N T 
W I T H T H E BBC P R O P E RT Y PA RT N E R S H I P 
Table 3: Commercial Settlements Reached 
2. Settlement of the most significant commercial issues outstanding from the original Partnership agreement 
Change 
Key findings in original E&Y 
Value for Money Study 
Benefits Now Secured 
Remaining Risks and Issues 
A significant issue at the time 
of our initial report was the 
floor areas disagreement. 
The Settlement Agreement 
provides for: 
. The full and final settlement 
of disputed claims in relation 
to the measured property 
areas (also refer to section 
3.2). 
. The terms contained in 
section 2 of the Settlement 
Agreement state: 
“the BBC pay LST (via the 
property vehicle) £16.2m 
in full and final settlement 
of all claims related to the 
difference between the 
measured areas and those 
assumed by LST Media 
Services”. 
This covers over four years to 
31 March 2006. 
. The section of the CoS 
relating to these areas is to 
be deleted entirely (Schedule 
8, Part 7, Paragraph 1). 
Key ongoing disagreements 
have hindered the effective 
management of the 
Partnership (6.2) 
The floor areas disagreement 
is unresolved (6.2.1) 
“Both partners view the 
outcome of the disagreement 
as being of substantial 
importance to the future value 
of the Partnership.” 
There are other more minor 
commercial issues that also 
require resolution (6.2.2) 
Settle all outstanding 
issues – There are a number 
of disagreements which are 
absorbing management time 
and creating tension. These 
need to be resolved as soon 
as possible to allow focus 
on more positive agenda 
items. (Executive Summary, 
Recommendations). 
The agreement reached 
over the floor areas dispute 
provides: 
. The BBC has certainty over 
the benefits secured. 
. An opportunity for the BBC 
and LST to substantially 
improve existing management 
level relations. 
. Enables the management on 
both sides to refocus efforts 
on the management of 
service delivery. 
. An improvement in the 
delivery of existing services, 
where these were assessed 
to be suffering as a result of 
the floor areas dispute. 
. lA key factor enabling 
the BBC and LST to reach 
agreement in a number 
of other areas within the 
Settlement Agreement. 
Factoring compensation 
into the cost of existing 
services may set an unhelpful 
precedent in negotiating a repriced 
agreement. 
This risk could be mitigated 
by ensuring sufficient 
commercial pressure is 
exerted on third parties 
during any negotiations on 
re-pricing. Furthermore, it 
is acknowledged that the 
settlement reached over the 
floor areas disagreement was 
likely to be a key factor in 
reaching agreement on other 
issues. 
Although, more minor in 
nature, other issues between 
the BBC and LST such as 
working capital remain. It is 
acknowledged that the agreed 
termination of the CoS mean 
these issues will disappear 
shortly. 
Mailbox relax space 
vii 

Table 3: Commercial Settlements Reached 
3. A consensual termination of the Partnership should the parties fail to agree on a new deal, at no cost to the BBC 
Change 
Key findings in original E&Y 
Value for Money Study 
Benefits Now Secured 
Remaining Risks and Issues 
Assuming no LST default, the 
Partnership and CoS were 
only terminable by the BBC 
being prepared to pay an 
onerous exit penalty. 
This penalty was deliberately 
set at a prohibitive level, 
based on LST profits over 
the remaining term of the 
CoS. This penalty has been 
estimated by the BBC to be in 
the region of £600m (Source: 
Governors Paper GPC(05)6). 
Please note, this figure also 
includes a substantial sum 
for the transfer of White City 
back to the BBC. 
In spite of the above, the 
partners have agreed a 
consensual termination 
as part of the Settlement 
Agreement (also refer to 
section 3.2). Specifically, the 
BBC and LST have agreed 
the following, covered by 
section 5 of the Settlement 
Agreement: 
. The CoS and Partner 
Contract will terminate on 
31st March 2006. 
. 4 months prior written 
notice of termination is 
required from either party. 
. No payment is due 
in connection with a 
termination. 
The contract does not always 
provide practical solutions 
to issues arising under its 
arrangements (5.3) 
“Although there are exit 
arrangements, the 30 year 
commitment under the COS 
does not offer any practical 
methods for the contractual 
terms to change effectively 
and quickly in the changing 
environment that the BBC now 
finds itself operating in.” 
The BBC decided that it was 
willing to commit to Scope A 
services whether or not the 
Partnership expanded (5.3.2) 
“In the event of a 
deterioration or breakdown 
in the relationship, the long 
term nature of the BBC’s 
commitment under the 
Partnership precludes it from 
seeking alternative solutions 
for scope A activities over the 
30 year term and the BBC did 
not seek to include an exit or 
formal renegotiation on the 
basis that the initial scope 
of the Partnership did not 
expand.” 
The settlement reached 
offers the BBC an exit from 
the existing Partnership 
and the opportunity to seek 
alternatives with no penalty 
payment. In summary: 
. Seek entirely new service 
provision, having made 
reasonable endeavours to 
first reach agreement with 
LST. 
. Securing this provision, at no 
cost to the BBC, is of major 
benefit. 
. The BBC can re-consider 
the provision of FM and CM 
services in engineering a 
new deal. By building upon 
the positive aspects and 
seeking to eliminate the 
negative, the BBC can use its 
experiences in operating the 
Partnership delivery model 
created in 2001. 
The BBC is required to engage 
a new third party service 
provider and the following 
risks need to be managed: 
. Loss of existing knowledge/ 
expertise accrued within 
existing service teams. 
. Limited time to put complex 
new arrangements in 
place with a potentially 
detrimental impact on 
business continuity. 
. Achieving an effective 
managed transition during a 
period of substantial change. 
. Delivering a new deal on 
financially advantageous 
terms. 
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MO V I N G T O T H E F U T U R E — MAY 2005 B R I E F U P D AT E O N T H E D E V E L O P M E N T 
W I T H T H E BBC P R O P E RT Y PA RT N E R S H I P 
Table 3: Commercial Settlements Reached 
4. Provision for a renegotiation of the original Partnership agreement which gives both parties the opportunity to refocus the Partnership 
Change 
Key findings in original E&Y 
Value for Money Study 
Benefits Now Secured 
Remaining Risks and Issues 
The original CoS and 
Partnership agreements 
contained no automatic right 
of renegotiation. The ability 
to bring about a renegotiation 
was therefore subject to the 
mutual agreement of both 
parties. 
In addition to the termination 
provisions contained within 
the Settlement Agreement 
(as described in the previous 
section) there is also an 
obligation on the BBC and 
LST to: 
“use reasonable endeavours 
to negotiate a mutually 
acceptable new contract to 
replace the CoS” (Section 9, 
Settlement Agreement). 
Re-engineer the deal 
- Certain aspects of the 
commercial arrangements 
require re-working to make 
the Partnership operate 
more effectively for both 
the BBC and LST. This is 
commonly required in longterm 
partnering contracts. 
(Executive Summary, 
Recommendations). 
One of the key 
recommendations made 
within our initial report was 
to re-engineer the existing 
arrangements between BBC 
and LST. The Settlement 
Agreement provides the 
BBC with an opportunity to 
undertake a full renegotiation 
of existing arrangements, 
pending a termination of the 
CoS on 31st March 2006. 
Given the BBC had 
no automatic right of 
renegotiation under the 
CoS, the agreement to use 
“reasonable endeavours” to 
reach a mutually acceptable 
new agreement is an 
important step forward. 
In addition to being a 
potential benefit, the 
renegotiation (pending 
termination of the existing 
arrangements) also 
represents a significant risk to 
the BBC due to: 
. The current reliance on LST 
as a service provider (and 
consequently its network of 
sub contractors) 
It is therefore important 
that the BBC puts in place 
contingency plans for the 
ongoing delivery of FM and CM 
services to effectively manage 
risk. 
Abbreviations 
BBC 
British Broadcasting Corporation 
SoR 
Statement of Requirements 
LST 
Land Securities Trillium 
SPV 
Special Purpose Vehicle 
E&Y 
Ernst & Young 
FM 
Facilities Management 
NPV 
Net Present Value 
CM 
Construction Management 
CoS 
Contract of Service 
KPI 
Key Performance Indicator 
OJEU 
Official Journal of the European Union 
PR 
Public Relations 
NAO 
National Audit Office 
PMS 
Performance Management 
ITN 
Invitation to Negotiate 

Table 4: Negotiations Underway 
1. Clarification of the service offering including agreeing the transfer of lifecycle risk 
Change 
Key findings in original E&Y 
Value for Money Study 
Benefits Forecast 
Risks and Issues 
The BBC’s proposed scope 
of services is clarified within 
the SoR, including those no 
longer required and the service 
profile for each ‘in-scope’ site. 
LST, within its response to the 
SoR, concurs that the range of 
services has been substantially 
clarified. 
The BBC proposes a new 
approach to dealing with the 
transfer of lifecycle risk based 
on dealing with the in-scope 
portfolio in three tiers: 
Tier 1: 
Full lifecycle risk transfer to 
service provider (White City 
Properties). 
Tier 2: 
Maintained in accordance with 
an agreed Capital Plan (most of 
remaining London Estate). 
Tier 3: 
Maintained in accordance 
with the tier 3 mechanism, 
the service provider being 
responsible for the first £5,000 
expenditure on any repair or 
replacement. 
This approach would leave 
the BBC with full risk transfer 
on lifecycle items at White 
City only. The majority of the 
remaining London estate 
would be maintained by the 
service provider in accordance 
with an agreed and budgeted 
capital plan. Outside of these 
arrangements, a mechanism for 
repair and replace decisions for 
lifecycle items is adopted on a 
case-by-case basis. 
Agree lifecycle risk 
– Fundamental to the effective 
transfer of risk is the question 
of lifecycle, for which a solution 
is required at a price that 
represents value for money. 
A misalignment of objectives 
will lead to replacement 
responsibility and asset 
management decisions residing 
with the BBC (Executive 
Summary, Recommendations). 
Transfer of lifecycle risk on 
the in-scope estate (excluding 
planned vacations) has not 
occurred (5.2.1) 
“Allocating risks to the party 
best able to manage them 
was a key BBC objective in 
creating the Partnership. The 
transfer of risk on the repair 
and maintenance of lifecycle 
items (building fabric, plant 
and equipment) represents an 
important issue to the BBC, 
particularly considering the 
legacy estate.” 
In seeking to re-align a 
new deal to a more typical, 
shorter-term service provider 
arrangement, the full transfer 
of lifecycle risk is of less 
significance in aligning the 
objectives of the BBC and 
its service provider (as was 
the case under the existing 
Partnership). 
The objectives under the 
arrangements for Tier 2 and 
Tier 3 properties are less 
focused on achieving full risk 
transfer, more on managing and 
delivering a capital plan, on 
budget and to plan. 
The BBC envisaged full lifecycle 
risk transfer under the original 
deal. The approach proposed 
within the SoR does not seek to 
fulfil this objective, but has the 
following benefits: 
. Reduces the current 
uncertainty over whether 
wholesale lifecycle risk will 
be transferred outside of 
White City. 
. Explicitly links lifecycle 
services with a new capital 
plan (to be agreed). 
. Consistent with changes 
being made to the overall 
nature of the BBC-service 
provider relationship. 
. The BBC retains ultimate 
control of broadcast 
critical areas which 
include specialist plant 
and technology more 
appropriately managed by a 
specialist service provider/ 
in-house. 
Although it is agreed that the 
BBC’s service requirements 
have been substantially 
clarified, lifecycle risk transfer 
will not occur in a contract of a 
term of only 5 years. 
The availability of an adequate 
budget for capital expenditure 
will be required to effectively 
implement this element of a 
new deal. 

MO V I N G T O T H E F U T U R E — MAY 2005 B R I E F U P D AT E O N T H E D E V E L O P M E N T 
W I T H T H E BBC P R O P E RT Y PA RT N E R S H I P 
Table 4: Negotiations Underway 
2. Review the term and pricing of the deal 
Change 
Key findings in original E&Y 
Value for Money Study 
Benefits Forecast 
Risks and Issues 
The BBC is seeking a 
substantially reshaped deal, 
closer to a more typical, 
short-term service provider 
arrangement, as opposed to a 
long-term Partnership. 
The SoR is based on the 
following: 
. 10-year contract term. 
. A BBC break option after 5- 
years. 
. A re-pricing of all aspects 
of a new service provider 
arrangement in line with 
the revised scope, both in 
the supply of FM and CM 
services. 
Outside White City, the major 
elements of the Partnership are 
long term FM and CM contracts 
(5.4.1) 
“In practical terms, with the 
exception of White City, the 
Partnership consists of a 30 
year FM contract on the BBC’s 
London and Scottish estate and 
a 30 year CM contract covering 
the whole of the UK, which is an 
unusual approach. Outsourced 
FM and CM contracts are not 
uncommon, although typically 
differ substantially in terms of 
the length of contract. Shorter 
terms, often between three and 
seven years, represent more 
usual market practice, providing 
the ability to re-tender in the 
market on a regular basis. In this 
way, the flexibility to re-tender 
service provision and amend 
the scope of contract at regular 
intervals is retained by the 
employer.” 
A more flexible approach to FM 
and CM supply arrangements 
should yield the following 
benefits: 
Flexibility – The BBC will have 
the option of an exit from 
a new deal after 5-years, 
allowing it to seek alternatives 
and is better able to respond 
to the changing needs of the 
BBC business. 
Test of Value for Money 
– By following a robust 
procurement process for the 
re-pricing of the scope of 
services determined in the 
SoR, the BBC can test value 
for money in the open market. 
In substantially reducing 
the term of a new deal and 
obtaining further flexibility, the 
BBC is also exposed to risks in 
re-pricing the deal: 
. LST pricing strategy was 
based on longer term 
profitability anticipating 
losses in the first few years. 
Based on a shorter term 
arrangement, the price for 
these services may increase. 
. Capital expenditure may be 
incurred initially to manage 
unwinding the CoS and set in 
place a new arrangement. 
. Should the BBC be required 
to put in place temporary 
measures for service 
provision, the BBC may be 
exposed to service providers 
charging a premium. 
xi 

Table 4: Negotiations Underway 
3. Introduce a new approach to construction management 
Change 
Key findings in original E&Y 
Value for Money Study 
Benefits Forecast 
Risks and Issues 
The BBC is seeking to focus 
and clarify the supply of CM 
services within the SoR. The 
make-up of CM services is to 
be streamlined, including the 
removal of lifecycle services (to 
be dealt with separately). CM 
services will now comprise: 
. Minor projects, with a value 
of between £25,000 and 
£500,000. 
. No guaranteed minimum 
amount of work is specified. 
. Although revisions are 
proposed, the structure of 
the B1/B2/B3 approvals 
process remains in place. 
. The BBC is prepared to 
negotiate detail around CM 
services in a number of 
areas. 
. A 2% reduction in fee rates 
across the project value 
bandings. 
. The performance 
measurement system 
(“PMS”) associated with 
CM services is also to be 
revised using 8 KPIs with 
the objectives of ensuring 
projects are delivered: on 
budget; on time; safely; 
efficiently; free from defects; 
to agreed specifications and 
fit for purpose. 
. Centralised property 
construction budgets. 
Planning processes within 
the BBC prevent the efficient 
delivery of CM services by LST 
(6.3) 
“CM enables the delivery of 
construction projects across 
the national BBC estate. CM 
services are funded by the 
business unit requiring the 
project to be completed and 
there is no central co-ordination 
of these projects. This issue 
has created inefficiency at LST 
in two areas, the impact on 
Measured Term Contractors, 
and LST resource planning.” 
There is a robust but 
cumbersome process of project 
authorisation (6.3.3) 
“After initiation by the user the 
project often gets delayed as 
BBC Property and LST agree the 
level of information required to 
allow approval to the next stage. 
These delays often frustrate the 
user resulting in dissatisfaction. 
Key performance indicators 
can encourage a focus on 
cost to the detriment of other 
elements (6.3.4) 
“If the cost exceeds the 
approved budget, after allowing 
for increases due to client 
variations, then LST’s fixed fee is 
reduced by 2%. This encourages 
an undue focus on cost issues 
away from the other key areas 
of the project.” 
Although areas of detail are 
still to be clarified, the BBC 
is seeking to achieve the 
following under its revised 
proposals for CM services: 
. Reduced scope, now focused 
on minor projects only 
(generally between £25,000- 
£500,000). 
. An unrestricted right of audit 
for the BBC. 
. Reduced fees across all 
project value bandings. 
. Construction risk transfer 
on price variations, following 
the receipt of tender 
submissions. 
The BBC is also seeking to 
achieve a more balanced 
performance measurement 
system improving upon 
existing KPI’s which tended to 
encourage an undue focus on 
project costs. 
In addition, by capturing project 
lead in times as a KPI, this 
system also appears to address 
the previously bureaucratic 
project authorisation process 
(outlined above). 
Centralising property 
construction budgets will 
enable the BBC service provide 
to more accurately schedule 
CM works. 
Managing the internal PR 
is an issue as the original 
Partnership was “sold” 
internally as a long term 
optimum solution for the BBC 
and its Business Units. 
Communicating the new 
arrangements and procedures 
to BBC Business Units needs to 
be managed carefully. 

MO V I N G T O T H E F U T U R E — MAY 2005 B R I E F U P D AT E O N T H E D E V E L O P M E N T 
W I T H T H E BBC P R O P E RT Y PA RT N E R S H I P 
Table 4: Negotiations Underway 
4. Revisions to the PMS provision 
Change 
Key findings in original E&Y 
Value for Money Study 
Benefits Now Secured 
Remaining Risks and Issues 
Although the standard of 
service delivery across the BBC 
estate was generally perceived 
to have improved under the 
Partnership, performance 
measurement did not operate 
effectively. As a result, the BBC 
has sought to overhaul the PMS 
system to be operated as part 
of a new deal. As CM PMS is 
discussed above, this section 
focuses on the PMS provision of 
FM services only. 
The approach to FM PMS 
proposed by the BBC can be 
summarised as follows: 
. Ensure standards are 
maintained, by encouraging 
the rectification of faults 
and works to eliminate their 
occurrence. 
. Revise the method and 
thresholds for calculating the 
penalty payment thresholds 
for under performance. 
. Introduce more formalised 
service activity certification 
requirements (these would 
remain the responsibility of 
the service provider). 
. Undertake the annual 
customer satisfaction 
survey ‘in-house’, used 
as a comparison to the 
PMS results to assess 
the robustness of the self 
certification process. 
Establish effective 
performance management 
provisions – Performance 
management, penalties and 
benefit sharing mechanisms 
under the contract are not 
working effectively and need 
to be re-negotiated. (Executive 
Summary, Recommendations) 
Performance Measurement 
Systems are incomplete (6.4) 
Implementation of 
performance management 
systems has been more 
difficult that envisaged (6.4.1) 
“Concerns over the link between 
performance measurement and 
service provider behaviours led 
to suspension of the FM system 
between April and June 2004. 
It was hoped that suspension 
would empower LST, and in 
particular their sub-contractor 
service providers, to focus on 
service rather than measures.” 
LST incurred penalties 
equivalent to only 0.25% of 
the Unitary Charge during 
2003/2004 (6.4.2) 
“The BBC considers that these 
(penalties) do not reflect current 
standards and are insufficient 
to adequately penalise poor 
performance.” 
“It should be noted there 
is no independent audit or 
certification of the performance 
scores... It is commonplace 
and usual good practice 
to independently verify 
performance measurement 
when the ‘thin client’ 
organisation is unable to 
perform this role itself.” 
The BBC considers that the 
existing penalty arrangements 
are not sufficiently reflective of 
performance and the revised 
system would appear to: 
. Penalise under performance 
in FM service delivery more 
appropriately, being more 
clearly linked to BBC KPI’s. 
. Introduce a more formalised, 
self certification process 
to check the standard and 
completion of activities. This 
is expected to increase the 
integrity and reliability of 
performance management 
information. 
Whilst the proposed PMS 
system is simplified, the 
number of services, weightings, 
buildings and measures across 
FM PMS remains substantial 
and without an operative 
system which will not be 
in place until new service 
providers are contracted, it is 
difficult to reach a definitive 
view on whether the proposed 
arrangements are sufficiently 
transparent to allow the BBC to 
easily track KPI’s. 
Although the self-certified PMS 
results are a core element to 
the calculation of performance 
penalties, there is no 
requirement for an independent 
audit to be conducted to check 
the validity of these. The BBC, 
retains the right to audit its 
service provider or appoint 
an organisation to do this on 
its behalf. The level of benefit 
secured therefore will be largely 
dependent on how this process 
is managed in practice and the 
integrity of the self-certification 
process. 
We would recommend the BBC 
consider the appointment of 
an independent consultant 
to undertake regular, planned 
audits. 

Table 4: Negotiations Underway 
5. Simplify operational processes and control 
Change 
Key findings in original E&Y 
Value for Money Study 
Benefits Forecast 
Risks and Issues 
The BBC has re-structured its 
existing property management 
operating structure into six 
divisions, including a new dayto-
day interface with its service 
provider. In addition, a new 
governance structure is to be 
introduced based on four tiers: 
Senior Contract Board 
– Develop and agree strategic 
objectives and review annual 
performance. 
Contract Management 
Board – Execute strategy, 
review quarterly performance, 
recommend contract 
variations and monitor key 
risk management activities 
(including broadcast 
continuity). 
Operational Board – Review 
day-to-day performance, 
manage key risk management 
activities and dispute 
resolution. 
Workplace Partner Board 
– Link customers with the 
service platform, review 
and manage day-to-day 
performance, meet customers 
regularly, management of 
day-to-day performance 
and undertake on key risk 
management activities. 
Although the specific 
representatives from the 
service provider are yet to be 
determined, details of BBC 
management representatives 
are provided and it is envisaged 
that this profile will be mirrored 
by a service provider. 
The BBC Divisions are not 
consistently committed to the 
Partnership arrangements and 
there is a lack of clarity on 
roles and responsibilities (6.1) 
Review Partnership processes 
and controls – Key processes 
and controls that impact on 
the effective management 
of the Partnership should be 
reviewed and improved. These 
could include CM approval 
and delivery, performance 
management, issues resolution 
and customer interface and 
feedback (Executive Summary, 
Recommendations). 
Clarity of organisational 
structure from the outset 
should assist in: 
. Defining the roles, 
responsibilities and interface 
between the BBC and its 
service provider. 
. Structured and disciplined 
governance would assist 
both the BBC and its service 
provider with areas such as 
succession planning which 
have in the past impacted 
the effective management of 
service delivery. 
We believe clarity over the 
roles and responsibilities of 
these parties with the BBC 
customer is an important part 
of an effective service provider 
arrangement. The Workplace 
Partner function has an 
important role in ensuring the 
BBC customer understands 
the nature of any deal agreed 
together with the processes, 
controls and expectations of 
each party from the outset. 
Effective and carefully 
managed communication 
with the BBC customer to 
clarify the roles of each party 
under a new arrangement 
should minimise to chances of 
misunderstandings occurring 
and unrealistic expectations 
being created. 

PR E FA C E 



Summary Conclusion 
There can be little doubt that, prior to the Partnership with 
LST, the BBC estate was poorly maintained and that a step 
change was required to radically improve the quality of 
accommodation and associated services. 
The Partnership offered the BBC an innovative solution to 
realising its property vision and, whilst difficulties have 
been experienced during the first three years of the contract, 
the arrangements have delivered a number of major benefits 
including a paving of the way for a rationalisation of the 
estate in London. 
Establishing the most beneficial bid and finalising the 
deal with LST was an iterative and complex process. The 
business case justifying the appointment of LST was strong 
and the BBC transferred many risks to its partner but, with 
the benefit of hindsight, there were assumptions and scope 
of service issues which have resulted in commercial issues 
between these parties. Some of these issues remain today 
and are still the subject of disagreement and negotiation 
between the BBC and LST. 
Notwithstanding the above, the core FM and CM service 
elements have been market tested and benchmarked and are 
believed to represent reasonable value for money. 
At the outset there was an anticipation and expectation that the 
Partnership would grow and respond to the changing needs of 
the BBC. Generally, this has not happened and, as a result, the 
full potential value of the Partnership is not being realised. 
The challenges experienced to date have resulted in frustrations 
for both the BBC and LST and the recent settlement should be 
seen as an opportunity for change. (Please see comments in the 
preface on page three which reflect the changes now agreed 
between the BBC and LST). 
Key Findings 
The Partnership offered the BBC an innovative 
solution to realising its property vision. 
In the late 1990s, the BBC was faced with substantial 
challenges in remaining at the forefront of broadcasting 
following the rapid evolution of new technologies. The BBC 
also realised its estate had suffered a period of underinvestment, 
was in a poor condition, not strategically located and unsuitable 
to support the core business into the future. 
It was clear that a strategic approach to delivering a step 
change in the BBC estate was needed; doing nothing was not 
an option and minor changes were unlikely to represent good 
value or address the issue. The BBC Board of Governors 
decided it was time to act in a far more radical way that 
would assist the BBC in its quest to be at the forefront of 
programme making for years to come. 
Delivering the level of improvement desired by the BBC 
required a realignment of its estate, supported by a substantial 
development programme. The BBC was confronted with 
substantial hurdles in delivering this strategy. The finance, 
skills and resources needed to upgrade and develop new 
buildings on the scale planned was not available within the 
BBC. The BBC was further restricted by financial constraints 
of its existing debt capacity set out in its Charter (which was 
inadequate in any instance) and the desire not to adversely 
impact on the Licence Fee. 
The Partnership between the BBC and LST was innovative, 
ground breaking and offered the BBC a catalyst for change to 
address a prolonged period of underinvestment when it was 
entered into in November 2001. It offered the BBC a method 
of meeting its objectives of supporting the change needed 
in the broadcasting business, while offering a number of 
additional significant potential benefits: 
. Access to third party finance, without recourse to 
the BBC’s borrowing limit, as a means of financing 
the substantial redevelopment and refurbishment 
programme required. 
. Access to private sector skills and expertise to manage 
substantial construction projects including a TUPE 
transfer of some BBC staff involved in delivering 
property services. 
. Increased certainty in the cost of FM services over 
the long term. 
. An improvement in the quality of service delivery for FM 
and CM services. 
. Access to a flexible, experienced team of property and 
construction experts providing innovative and ‘state of 
the art’ input. 
. Cost savings over the existing in-house delivery arrangements. 

The Partnership has delivered a number of 
major benefits 
The Partnership has already been successful in several areas, 
delivering the following achievements to date: 
. White City - Successful management and funding of 
the White City development was a major factor leading 
to the creation of the Partnership with LST. Using 
the development partnership vehicle as the funding 
structure was intended to form the blueprint for future 
developments. White City is now completed and the 
majority is occupied by the BBC. It is a state of the 
art development widely perceived by BBC staff and 
management alike as a major success. 
. Better Service - Prior to the creation of the Partnership, 
FM services within the BBC were delivered in-house by 
a substantial property team. Anecdotal evidence from 
interviews with BBC management and end users suggests 
that an indifferent delivery of FM services had been 
apparent, particularly across the London estate. Year on 
year there has been a clear improvement in customer 
satisfaction with FM service delivery since the Partnership 
has been in place. 
. Cost Certainty - A substantial element of the Partnership 
with LST is based on a Contract for Occupation and 
Services, for which the BBC has agreed a fixed charge 
(Unitary Charge) for the long term provision of FM 
services. 
. Staff Transfer - Prior to the Partnership, the BBC inhouse 
property team comprised a substantial number of 
staff managing and delivering FM and CM services across 
the business. The creation of a partnership with a private 
sector specialist service provider offered the BBC an 
opportunity to transfer a substantial proportion of these inhouse 
staff that had been carrying out non-core activities. 
Assumptions were made within the original business 
case upon which LST were appointed, which could 
erode some of the benefits of the deal and which are 
still to be fully quantified 
The BBC considered the Partnership with LST to be the 
most cost effective of all the market bids. The overall cost 
at that time was understood to be a minimum of £124m less 
than the BBC in-house comparison. The submitted bids and 
in-house comparison included the BBC desire to enhance the 
quality standards of FM services. 
Approval to the Partnership with LST was sought in June 
2001. The BBC Governors approved the deal, subject 
to Government (Department Culture, Media and Sport) 
approval, finalisation of the legal structure, completion of 
negotiations and sign off by two Governors. 
A series of scope changes and contract adjustments occurred 
during the post bid negotiations with LST. As the BBC has 
passed on risks in relation to health and safety and other 
areas, it was decided by the BBC at this preferred bidder 
stage that in order to get risk transfer, the following additional 
services needed also to be transferred to the LST contract. 
These services were the “assumed services” and included 
asbestos management, security and lift maintenance. This 
resulted in a significant increase in the LST contract sum of 
£159m (£7.6m per annum) to £828m. A significant proportion 
of the increase was due to these assumed services. These 
services were transferred to LST at the then prevailing BBC 
cost with a view to LST using their expertise to reduce the 
charges over time. The BBC have produced documentation 
to illustrate that the in-house BBC comparator also increased 
in line with the additional specification and scope of services 
being requested. Although it is normal practice for post bid 
negotiations to occur in transactions of this type, it should 
be noted that inevitably under these circumstances, price 
competition for these changes was limited. 
In requiring prospective partners to price the cost of 
delivering FM services to the estate, the BBC did not verify 
or warrant the information given to the bidders in relation to 
the size of its in-scope estate. This was a conscious decision 
by the BBC as they decided that it should be the bidder’s 
responsibility to undertake the necessary due diligence. 
Any increase in costs resulting from subsequent changes in 
floor areas was considered to be at the risk of bidders and 
was a cost that they would ultimately have to bear. LST had 
the view, however, that although they priced on the floor 
area information received, if the information subsequently 
turned out to be incorrect, an adjustment to their bid price 
SU M M A RY 
4 

would be made. Although not directly comparable to the 
bid data, the discrepancy between the actual and assumed 
areas is between 17% and 40% depending on the basis of the 
measurement. As a result of this difference between the bid 
data and the actual measurements, an issue has now arisen 
between the BBC and LST as to whether the additional floor 
areas has led to LST being entitled to further payment as a 
result of additional costs incurred by LST in delivering FM 
services to the estate. 
A financial settlement had not been reached at the time of 
our fieldwork and the outstanding commercial issues had the 
potential to reduce some of the cost savings from the deal. 
Although these savings are still substantial, the outcome of 
the recent negotiations is integral to forming an assessment of 
the overall benefits of the Partnership. 
Although LST are obliged to demonstrate value for money 
from all CM services before the BBC agrees to the work, 
no forecast of the likely quantum of these services over the 
term of the contract was undertaken in approving the terms 
of the Partnership. This is discretionary spend, and therefore, 
not contractually committed and the business case was 
based on FM savings rather than CM services, but we would 
expect a forecast based on estimated or historic volume. 
To date, the volume of CM work has been substantial, the 
cost of which has amounted to almost the same level as the 
Unitary Charge on which the original analysis was based. 
This high proportion of CM costs in early years may prove 
unrepresentative however as the backlog of upgrading works 
is delivered and as the Unitary Charge increases. 
The core services represent reasonable value 
for money* 
The initial cost of the LST offer, in isolation, was assessed 
by the BBC to represent value for money. Despite the issues 
referred to above and the lack of an expansion to the scope 
of the Partnership, evidence suggests that the current services 
being provided represent reasonable value for money: 
. The combination of services was competitively procured 
in the open market. 
. Benchmarking undertaken by independent specialists 
suggests that the FM services provided are value for 
money overall. 
. Based upon the broad scope of services and profile of 
projects, the CM rates appear reasonable. 
. LST are obliged under the contract to demonstrate value 
for money for CM and have processes for benchmarking, 
open book tendering and competitively procuring term 
contractors. 
(*Note that resolution of the current floor areas disagreement 
could impact this statement). 
Because the Partnership has not evolved as planned 
maximum value is not being obtained 
The Partnership is not operating or evolving as envisaged and 
the arrangements in their current form are not offering the 
BBC maximum value for money. 
Improvements in the delivery of services have been 
made through the creation of the Partnership but strategic 
arrangements of this kind offer even greater opportunities 
to leverage further value from economies of scale and 
alignment with a single service provider. The BBC 
highlighted this as an objective in entering the Partnership. 
Table 1: Mix of current service providers 
FM Provider 
Transfer 
Property 
Ownership 
Lifecycle 
Maintenance 
CM Service 
< £100k 
CM Service 
> £100k 
Development 
Finance 
Estates 
Management 
London & 
Scotland 
LST 
BBC 
BBC 
LST 
LST 
BBC/Bond 
LST 
White City 
I & II 
LST 
LST 
LST 
LST 
LST 
LST 
LST 
English 
Regions 
Haden 
Young 
BBC 
BBC 
LST 
3rd Party 
BBC 
BBC 
Northern 
Ireland 
Alfred 
McAlpine 
BBC 
BBC 
LST/3rd 
Party 
LST/3rd 
Party 
BBC 
BBC 
Wales 
Select 
BBC 
BBC 
LST 
LST/3rd 
Party 
BBC 
BBC 
BBC PR O P E RT Y – VA L U E FO R MO N E Y RE P O RT 
5 

The Partnership has not developed since 2001 and the BBC’s 
current arrangements comprise of a mixture of different 
services, providers and geographic areas of responsibility 
(illustrated in Table 1). It should be noted however that LST 
were given the opportunity to expand the current service from 
just Scope A into other areas such as Nations and Regions FM 
provision, Broadcasting House and Pacific Quay finance and 
full lifecycle responsibility. The costs to the BBC, proposed by 
LST, for each of these, was not considered by the BBC to be 
competitive and so alternative arrangements were put in place. 
Current arrangements, therefore, do not offer the BBC the most 
effective property services delivery model. 
Generally, the intended risk transfer within the Partnership 
has been achieved, but the risk for the replacement of 
lifecycle items has not been transferred, with the exception 
of White City. Instead of LST providing lifecycle services 
across the London and Scottish Estate they provide a planned 
preventative maintenance service which results in a division 
of responsibility between LST and BBC. 
The overall result is a 30 year FM and CM only outsource 
contract with a total property outsource provider that does not 
maximise the benefit that such an organisation can potentially 
bring. The existing situation is not ideal to either partner and 
casts doubt on the long term viability and sustainability of the 
Partnership in its current form. 
The Partnership needs to change 
Irrespective of the overall delivery model, the Partnership 
could offer more value for money and a number of issues are 
apparent with its current operation. 
It has been difficult to achieve clarity around certain aspects 
of partnership financial information in undertaking this 
review, and in certain key areas clear financial information 
has not been available from LST. An example of this is the 
lack of clarity around the overall profitability of the deal to 
LST. As the arrangement is based on trust and open book 
accounting, difficulties in being able to accurately determine 
mutually agreed facts is a cause for concern. 
The effectiveness of the Partnership to date has been 
hindered by a number of key ongoing disagreements which 
have created tensions rather than the planned partnership 
approach. Management time has recently been spent on the 
resolution of these matters rather than generating innovation 
and enhanced service quality. 
There have been delays in the implementation of performance 
management systems and significant elements remain 
outstanding. Performance measures drive behaviour, and 
key elements of the performance management system are 
not directly linked to critical areas of service delivery such 
as broadcast continuity. There are opportunities to increase 
the efficiency and effectiveness of parts of the performance 
management system. 
Property services on the whole appear to have improved 
against in-house BBC delivery standards prior to the creation 
of the Partnership. One of the key benefits that the BBC 
perceived in LST, however, was the prospect of ‘world 
class’ service including the ability to deliver innovation and 
efficiency improvements in service delivery. There appears 
to have been little innovation introduced by LST and greater 
benefit sharing has therefore not materialised. 
The complex nature of this partnership makes the need for 
clear communication of the arrangements and a willingness 
to commit by the occupiers and users an important factor to 
facilitate effective operation. Communication between the 
BBC customer (the business occupiers), BBC Property and 
LST could be improved. There is also evidence that some 
BBC divisions and users are finding current arrangements 
cumbersome. There may be an opportunity to improve the 
empathy and commitment of the users towards the Partnership. 
Since commencing the arrangements in 2001, key individuals 
responsible for the Partnership have subsequently moved on 
from both organisations. This type of arrangement relies as 
much on relationships and knowledge of the background as 
it does on the legal contracts. The vision established at the 
outset has yet to be fully realised. 
SU M M A RY 
6 

Recommendations 
Although we recognise there have been some major benefits 
to the BBC through the creation of the Partnership, we have 
set out the following recommendations aimed at improving 
current arrangements. 
Whilst the Partnership has delivered some major 
benefits to the BBC, fundamental improvements are 
required to obtain the full benefits 
The BBC vision for the Partnership, which was outlined 
within the detailed Information Memorandum, was to create 
“a commercial relationship based on trust, cooperation and 
representing a genuine partnership”. 
Both parties recognise that change is required. There is a 
determination to improve the arrangements and a willingness 
to explore opportunities to develop the Partnership for 
the benefit of both parties, but it is impaired pending the 
resolution of ongoing disagreements. A fundamental step 
change will require full support of senior management from 
both the BBC and LST. 
We have identified a number of operational management 
issues to be addressed and changes to be made to create a 
sustainable Partnership. 
Re-engineer the deal 
Certain aspects of the commercial arrangements require reworking 
to make the Partnership operate more effectively for 
both the BBC and LST. This is commonly required in long 
term partnering contracts. This should include a focus on the 
following areas: 
. Settle all outstanding issues – A number of 
disagreements, which are absorbing management time and 
creating tension, need to be resolved as soon as possible to 
allow focus on more positive agenda items. 
. Agree lifecycle risk – Fundamental to the effective 
transfer of risk is the question of lifecycle, for which 
a solution is required at a price that represents value 
for money. A misalignment of objectives will lead 
to replacement responsibility and asset management 
decisions residing with the BBC. 
. Establish effective performance management 
provisions – Performance management, penalties and 
benefit sharing mechanisms under the contract are not 
working effectively and need to be re-negotiated. 
. Review Partnership processes and controls – Key
processes and controls that impact on the effective 
management of the Partnership should be reviewed and 
improved. These could include CM approval and delivery, 
performance management, issues resolution and customer 
interface and feedback. 
Effective management 
Concurrent with a review of the deal, the BBC and LST 
should look to improve a number of people and process areas; 
. Create a BBC Property ‘Smart Client’ unit – A key 
objective of the property partnership was to allow the 
BBC to become a ‘thin’ client. BBC Property should have 
clearly defined responsibilities as an advisor to the BBC 
business to ensure that the Partnership is delivering value 
for money for the BBC. It needs to create clarity regarding 
its role, have total confidence in its people and have a 
clear transition plan to achieve a sustainable Partnership. 
. Engage the BBC User/Occupier – The Partnership is 
perceived as being ‘owned’ in BBC Property and the BBC 
users need to understand the service level obligations, the 
constraints under which services are delivered and take 
some ownership of the relationship. 
. Enable the preparation of valuable management 
information – Key management information that allows 
the effective delivery of the service and understanding of 
overall performance needs to be collated and regularly 
reported. This could include overall financial performance, 
forward work forecasting, activity based reporting and key 
metrics such as ‘broadcast minutes lost’. BBC Property 
is currently making progress in this area which should 
enable a prompt resolution to this issue. 
It is paramount that both partners can reach consensus on 
the reality of current performance and share a renewed 
commitment to the aspirations set down three years ago (or 
an updated vision). 
It is recognised that changes to the deal will affect the risk 
and reward structure. If this cannot be agreed with LST at 
reasonable and acceptable levels then it may be necessary 
to go back to the market. Abandonment of the Partnership 
at this stage would put an end to one of the most innovative 
property partnerships in recent years, would lose the 
opportunity to capitalise on major investments already made 
and would have a major impact on both organisations. 
Actions had already been initiated by the BBC to understand 
the major areas of difference and investigate the agendas 
that exist on both sides. This report is intended to assist 
this process by highlighting those issues and identifying 
improvements that can be made to increase the value for 
money delivered to the BBC through this Partnership. 
BBC PR O P E RT Y – VA L U E FO R MO N E Y RE P O RT 
7 

SE C T I O N ON E 
The Partnership offered the BBC an innovative 
solution to realising its property vision 
1.1 The Partnership arrangement was 
based on a clear set of objectives which 
supported wider corporate aims 
In order to clearly understand the rationale for the creation 
of the Partnership, it is important to first consider the wider 
strategy of the BBC. 
During the late 1990s, the BBC was seeking to achieve a 
step-change and respond effectively to new challenges in 
broadcasting, created by the evolution of new technologies. 
The BBC recognised the location, condition and design of 
the BBC property portfolio had an important role to play in 
facilitating its strategic objectives. 
“We have plans to refurbish many of our 
buildings in the next five years to bring 
them up to 21st century standards with the aim of 
making the BBC a more stimulating environment … 
We can make the BBC a better place to work and, as a 
result, make better programmes and give the Licence 
Fee payers, the people who pay our wages, a better and 
more innovative service.” 
Greg Dyke, BBC Director General, on his appointment, 
1st November 1999 
In response to the wider strategic change within the BBC, 
a strategy for the long term direction of the estate was 
developed and articulated within the BBC’s 2020 Vision 
paper. The Vision outlined how the BBC estate needed to 
change to better support the core business and assist in facing 
future broadcasting challenges. BBC Governors endorsed the 
2020 Vision for the future of BBC property in May 1998. 
In delivering its accommodation and construction services 
strategy for the early part of the 21st century, a benchmark 
standard for the future of the BBC estate was outlined within 
the 2020 Vision. The Vision itself was based on five core 
principles aligned to the BBC’s corporate strategy: 
Flexibility: 
. Buildings designed with more than one function in mind. 
. To move in or out of buildings as the BBC’s needs change. 
Technology: 
. Be capable of accommodating all media. 
. Easy use of best technology. 
. Adjust with the technological needs. 
. Open-plan working. 
Talent (attracting and retaining): 
. An attractive, comfortable and safe working environment. 
. Buildings located in easily accessible locations. 
. Buildings must strengthen the core BBC brand values. 
Audience: 
. Offer the public opportunities to experience the BBC in 
action. 
Cost: 
. Assist in saving money, not wasting it. 
. Be capable of being run efficiently, not least in energy terms. 
. Be imaginative in the creation of funding strategies. 
1.2 The estate was in poor condition, 
inefficient, and a legacy of underinvestment 
meant the BBC faced significant 
challenges in delivering its strategy 
Historically, the BBC had under-invested in its estate and 
as a consequence was faced with a number of challenges 
in making the 2020 Vision a reality. Many BBC staff, in 
particular those in London, were accommodated in poor 
quality buildings and it was clear to the BBC that significant 
parts of its estate were in need of substantial refurbishment. 


SE C T I O N ON E : TH E PA RT N E R S H I P O F F E R E D T H E BBC A N I N N O VAT I V E S O L U T I O N T O R E A L I S I N G I T S P R O P E RT Y V I S I O N 
Benefits of Estate Management PFI Deals 
Operational benefits 
Flexibility: These deals give departments flexibility in their 
occupation of estates, allowing them to vacate a large proportion of 
their estates without being charged and to occupy additional space 
as required by evolving business strategy. 
Focus on core business rather than estate management issues: 
Reduced staff numbers in estate related functions are expected. 
Staff may also be transferred to the private sector contractor. 
Facilitating strategic thinking: Promoting a long-term focus on business 
need and how the estate can best be used to serve that need. 
Transfer of risk: Risks transferred usually include rent increases, 
costs exceeding budgets, losses on property development, 
costs associated with vacation of flexible properties, 
compliance with health and safety regulations and service 
delivery below set standards. 
Consolidation and rationalisation with a single service provider: 
Prior to these deals, departments had to deal with fragmented 
service contracts. These estate management deals consolidate 
these to a single contract with one service provider who deals 
with sub-contractors. 
Standardised services across the estate: A single point of access 
for service delivery issues is usually created via a helpdesk, often 
available 24 hours a day, 7 days a week. Helpdesks generally 
deal with reported faults such as replacement of light bulbs, 
emergencies such as a broken lift and service requests for 
porterage and room bookings. 
Incentivising performance: A payment mechanism that makes 
deductions for poor performance is used to incentivise the 
contractor to maintain standards of service delivery. 
Professionalism in estate management: Experts in estate 
management are brought in. They are best able to take advantage 
of the property cycle, deal with estate management risks and bring 
cost effective management of the property portfolio. This frees the 
public sector from dealing with rent reviews, lease negotiations and 
disposal of surplus property with multiple landlords. 
Other Government departments: There may be opportunities for 
other government departments to occupy space within the state 
and share the benefits of the deal. 
Financial benefits 
Cost reduction: Cost savings are to be expected through reduced 
facilities management (FM) and maintenance costs, lower capital 
expenditure, receipts from the disposal of surplus property, and 
potential savings on utility charges and the purchasing of items 
such as furniture. 
Upfront payment: A capital release from the sale of the properties 
can be made in the form of a one-off up-front payment from the 
contractor at the start of the contract. 
Profit share: There are opportunities for further gain by including 
profit-sharing mechanisms in the contract. 
1.3 Financing limitations demanded an 
imaginative funding solution 
Funding the planned London consolidation presented the BBC 
with its most significant challenge given the BBC’s financial 
limitations. These can broadly be summarised as follows: 
. The BBC Charter prohibits the corporation from 
borrowing more than £200m; and 
. This borrowing limit was designed to cover short term 
working capital requirements rather than long term 
structural funding. 
To be consistent with the 2020 Vision, the BBC assessed that 
the following additional financing restrictions should also 
apply in meeting the investment needs of its estate: 
. Not to commit its existing debt capacity; and 
. Not to impact on the Licence Fee. 
In essence, the BBC was seeking to deliver the core objectives 
of a consolidated and upgraded estate financing without 
recourse to the BBC’s borrowing limit and with no impact on 
the Licence Fee. 
Given these parameters, the BBC realised that an imaginative 
funding solution would need to be developed. In order to assist 
the BBC, the Governors endorsed the continued engagement of 
NM Rothschild to explore potential funding solutions. 
Two alternatives were identified as potential financing options 
for the BBC Vision for London: 
. Self-finance through a substantial sale and leaseback(s) of 
existing freehold properties. 
. The introduction of external finance through the creation 
of a property partnership with a private sector partner. 
At this stage, neither option was discounted but the BBC 
envisaged a number of additional benefits from a financing 
solution involving a partnership with a private sector 
organisation. Many of these benefits are common to other 
public-private property partnerships. Included below is a 
summary of these highlighted within the National Audit 
Office report ‘PFI: The Steps Deal’: 
Table 3: Benefits of estate management PFI deals 
Source: National Audit Office 

1.4 The BBC decided to seek a property 
partner as a catalyst for change 
A recommendation was made to BBC Governors in February 
2000 to commence a procurement process in order to explore 
the creation of a partnership with the private sector. The 
BBC articulated an extensive mix of objectives, aspirations, 
evaluation criteria and requirements for a partnership with 
the private sector. In any project of this scale it is crucial to 
define clear objectives on which success can be measured. 
The commercial objectives of the BBC contained within the 
detailed Information Memorandum communicated to bidders 
were clear and unequivocal: 
. Provide continuously the accommodation and services 
required to support the changing BBC business needs. 
. Allocate risks to the party best able to manage them. 
. Achieve the best value solution for the BBC overall. 
. Show no increase in borrowing on the BBC’s balance 
sheet as a result. 
. Share in the value created. 
These objectives are relatively subjective and difficult to 
measure but they nevertheless provide a basis for assessing 
the degree of success achieved to date by the BBC in creating 
a successful property partnership. 
1.5 Most risks were transferred although 
lifecycle remains an issue 
Prior to creating the Partnership, the BBC was responsible 
for virtually all property related risks. These risks 
have an impact individually and there are complex 
interdependencies between them particularly where 
they arise in the vicinity of occupied buildings and core 
business operations. The following summary identifies a 
number of the key property related risks: 
. FM operating risk (including Health and Safety). 
. Cost/price increases. 
. Planning and design risk. 
. Construction risk. 
. Vacant space and occupancy. 
. Business continuity. 
. Lifecycle risk. 
. Planned Preventative Maintenance responsibility (building 
fabric and plant). 
Leading up to and during the bidding process, the BBC 
recognised that the scale and complexity of their proposals 
carried significant risks. Considerable time and effort was 
spent by the BBC Property team and its external advisors to 
identify these risks and put mitigation strategies in place. 
In May 2000, DAP Consulting carried out a review of the 
partnership proposals which included an evaluation of risk 
transfer. This review was generally supportive of the BBC 
risk mitigation proposals but did draw attention to the need to 
remain alert to constantly changing circumstances. 
In creating the Partnership, the BBC sought to transfer the 
responsibility for the majority of the risks identified above, 
particularly construction risk on White City. Many of these 
risks, including the operation and costs of FM services, 
appear to have largely been transferred to LST at the outset. 
Lifecycle risk, outside of White City, has not been 
transferred. It was intended to transfer lifecycle responsibility 
for the rest of the estate; this has not been achieved as the 
BBC did not believe that the price proposed by LST for such 
a transfer represented value for money. 
Instead of LST providing lifecycle services across the 
London and Scottish Estate they provide a planned 
preventative maintenance service which results in a division 
of responsibility between LST and BBC. For example, LST is 
responsible for the day-to-day maintenance and replacement 
of items under £5,000, whereas the BBC is responsible for 
replacement of items in excess of this cost threshold. As a 
result, in some cases it may be more cost effective for LST 
to request that an item be replaced by the BBC rather than it 
being repaired at a cost below £5,000. 

SE C T I O N TW O 
The Partnership has delivered 
a number of major benefits 
2.1 The White City development was a 
success 
White City is the only element of the BBC’s existing estate 
to be operated as a total property outsourcing arrangement, 
involving property transfer and consequently lifecycle risk. 
The development constituted the first major project 
identified within the BBC’s Vision for London and 
was therefore a key milestone in the BBC’s planned 
consolidation of the London estate. There was a need to 
create this new space at that stage because of lease expiry 
dates elsewhere in the estate. 
Managing a development of this scale represents a 
major risk to any corporate occupier, requiring in-depth 
development, project and construction management 
expertise. Unplanned increases in the budget and timescale 
for the White City scheme had the potential for serious 
implications on business continuity for the BBC as a whole. 
Successful management and funding of the White City 
development was a major factor leading to the creation of 
the Partnership with LST, and the development partnership 
vehicle used as the funding structure was intended to form 
the blueprint for future developments. White City is now 
completed and the majority is occupied by the BBC. It is a 
state of the art development widely perceived by BBC staff 
and management alike as a major success. 
As a significant development in its own right, White City 
II (Media Centre, Broadcast Centre and Energy Centre) is 
the subject of a National Audit Office review. This report 
therefore does not seek to duplicate the detailed assessment 
to be covered by that review but merely highlight the key 
findings relevant to the Partnership. 
2.1.1 The White City development was 
delivered ahead of time and on budget 
The development of White City represented a key 
opportunity to implement a cornerstone of the BBC’s 
property strategy and begin to deliver the quality of estate 
outlined within its 2020 Vision. 
The development comprised two principal buildings; the 
Broadcast Centre and Media Centre, together with various 
other perimeter buildings. Initial design work on White 
City commenced in early 2000 prior to the creation of the 
Partnership. Preparation work continued throughout 2001, 
including enabling works on site and the securing of detailed 
planning consent. 
White City - exterior 
12 
12 

In tandem with the BBC’s progress on the development, 
negotiations continued with the Partnership, for which 
White City was to form a central part. Management of 
the development was transferred on completion of the 
Partnership legal agreements and construction work 
commenced on site shortly afterwards. 
The development was completed ahead of time, as follows: 
. Broadcast Centre – Completed October 2003 on schedule. 
. Media Centre – Completed January 2004 16 weeks early. 
The phased occupation of the buildings took place from 
October 2003 and continues into 2005. The BBC is levied an 
annual Unitary Charge on White City based upon availability 
for occupation. The development was delivered on budget at 
a ‘not to exceed’ cost of £243m, excluding enhanced fit-out, 
furniture and migration costs. 
2.1.2 Full risk transfer has been achieved on 
White City 
The Partnership arrangements with LST have achieved 
a high degree of risk transfer on the development and 
management of White City. There were major development 
and construction risks on the scheme which had potential 
financial and operational implications for the BBC core 
business. These risks were managed successfully by LST and 
subsequently by the Partnership. 
LST is responsible for the whole life costs and long term 
management of White City and the interests of each of 
the partners over the long term are aligned to the effective 
maintenance and operation of the property. Maintenance 
and replacement of lifecycle items have been transferred to 
LST on this development in contrast to the remainder of the 
London and Scotland estate. 
2.2 The annual customer survey shows FM 
performance has improved year-on-year 
Prior to the creation of the Partnership, FM services within 
the BBC were delivered in-house by a substantial property 
team. Anecdotal evidence from interviews with BBC 
management and end users suggests that an indifferent 
delivery of FM services had been apparent, particularly 
across the London estate. 
The personnel responsible for delivering FM services to the 
London and Scottish estate include a substantial number 
of in-house BBC FM staff transferred under Transfer 
of Undertakings, Protection of Employment (TUPE) 
arrangements to LST as part of the Partnership deal. It 
was envisaged that outsourcing the responsibility for the 
provision of FM services to a leading private sector property 
services organisation would achieve improvements in the 
quality of service. 
Year-on-year customer satisfaction with FM services 
is tracked through an independent survey conducted 
independently by Leadership Factor. This survey is the 
principal mechanism for LST and BBC Property to obtain 
feedback from end users on the quality of FM service 
delivery. A sample of 800 BBC customers, occupying 
buildings to which LST deliver FM services, are canvassed 
annually (split equally across central London, TVC, White 
City Media Centre and Scotland). The results of the customer 
survey are contractually linked to the penalty system and the 
results of the survey are considered a priority by LST. 
The results of the Leadership Factor customer surveys for 
the past two years are summarised in Table 4: 
Table 4: Percentage of satisfied customers 
Area/Building 
2002/03 
2003/04 
Scotland 
67.0% 
72.3% 
TUV/West London 
63.5% 
69.9% 
Central London 
67.5% 
71.9% 
White City Media Village, London 
64.9% 
69.2% 
Overall 
64.8% 
70.8% 



SE C T I O N TH R E E 
Assumptions were made within the original 
business case upon which LST were appointed, 
which could erode some of the benefits of the 
deal and which are still to be fully quantified 
3.1 The Partnership was procured following 
a competitive, market-tested tender process 
When the BBC sought to procure a private sector partner as 
a means of realising its property vision, the market for large 
strategic property partnerships was in its infancy. In order to 
attract sufficient interest the BBC clearly communicated its 
objectives and aspirations of a partnership to the market. 
Throughout the procurement process, the BBC developed 
an alternative self-delivery option involving a series of 
sale and leaseback transactions as a potential means of 
delivering its property vision. 
The following sections summarise key stages of the procurement 
process which is set out in greater detail at Appendix 2. 
3.1.1 The BBC sought partnership proposals 
from the market and received substantial 
interest 
In order to encourage the maximum number of expressions 
of interest from the market and avoid imposing onerous 
commitments at the outset on bidders, the BBC followed a 
two stage procurement process. 
In early 2000 in accordance with European Union 
procurement rules, a preliminary Information Memorandum, 
seeking outline proposals from the private sector, was issued 
on behalf of the BBC by NM Rothschild. This provided 
information to the market, setting out the envisaged basis of 
partnership, describing the BBC’s overall objectives and basic 
information on the estate. 
In operating a two-stage process, the BBC and Rothschild’s, 
were able to evaluate the different approaches taken before 
requesting more detailed proposals from a short listed group 
of bidders. Five consortia were short listed in July 2000 as 
part of the second stage, and each was issued with a detailed 
Information Memorandum setting out the scope of services 
upon which to bid. 
3.1.2 A structured evaluation of the bids took 
place 
Detailed bids were received by the deadline of 31 August 2000. 
In order to properly assess the legal, technical and financial 
aspects of each bid, an evaluation panel of specialists was 
assembled. The panel consisted of the BBC in house specialists 
and external advisors. 
A series of assessments were undertaken by the team to 
evaluate each bid with an overall focus on the qualitative and 
quantitative aspects of each proposal: 
. Quality and non-financial aspects 
This area focused on technical, operational and managerial 
aspects of the proposals. The technical capability of 
consortia, their approach and compatibility with the BBC 
was assessed to ensure that lowest cost was not the only 
consideration. 
. Price, risk transfer and financial aspects 
The second assessment involved an evaluation of the 
detailed financial, pricing and risk transfer proposals of 
consortia. Specifically, the robustness of the financial 
model underpinning the pricing and the overall financing 
structure of consortia was assessed to ensure a partner 
with sufficient financial strength to sustain a long term 
partnership was appointed. 
In order to compare the relative merits of the consortia, a 
scoring exercise was undertaken by the panel. A summary 
assessment of the bidders was presented to BBC Governors on 
October 2000, together with a recommendation to undertake a 
more detailed financial assessment of the proposals submitted 
by the Insight (LST) and Foresite (Amey) consortia. 

In order to cover all key areas of the proposals, panel 
members were mixed to form teams with responsibility for 
evaluating 13 defined aspects of the submissions, including 
human resources, performance measurement, financial 
model, contractual issues and financial structure. The full 
list of work streams is included in Appendix 2. 
A comprehensive assessment took place over a number of 
months leading to a recommendation to BBC Governors in 
March 2001 to enter into exclusive negotiations with the 
preferred bidder, LST. 
3.2 The business case appeared to offer 
significant financial benefits 
The recommendation put before BBC Governors in March 
2001 set out the general background to the scheme and the 
scope of activities covered. Approval to the Partnership 
with LST was sought in June 2001. The BBC Governors 
approved the deal, subject to Government (Department of 
Culture, Media and Sport) approval, finalisation of the legal 
structure, completion of negotiations and sign off by two of 
the BBC Governors. 
The BBC undertook detailed analysis to provide an 
objective comparison of cost between in-house delivery 
and the LST bid, comparing how the BBC costs for Scope 
A activities compared with LST. (Scope A activities were 
those to which the BBC and the partner were committed 
from contract signature and which were fully priced at 
that point.) The analysis included the transfer of the White 
City site, development of the Broadcast Centre and the 
Media Centre with associated infrastructure at White City, 
operation of FM services for all of London and Scottish 
estates, lifecycle risk for White City, management of 
lifecycle for the rest of London and Scotland, and the 
provision of CM services across the UK. 
The business case put to Governors stated that LST costs 
were £124m less than the costs the BBC would incur if they 
carried out the in-scope activities themselves (LST £669m 
compared to BBC £793m). 
Table 6: Comparison between the BBC and LST costs 
Net Present Cost to the BBC 
BBC Does it Itself 
LST 
FM 
£566m 
£445m 
Lifecycle 
£36m 
£16m 
Property Vehicle / Central 
Costs 
£20m 
£23m 
White City Capex 
£191m 
£210m 
Residual Value 
(£20m) 
(£30m) 
Other (incl financing) 
£0m 
£25m 
Transfer Payment for White City 
N/A 
(£20m) 
Total Net Present Cost to 
the BBC 
£793m 
£669m 
At the time of the deal, the BBC negotiated an upfront 
payment of £20m which would be repaid annually over the 
Partnership term. A further £15m was also transferred in 
consideration of costs incurred by the BBC to that date on 
White City development and planning activities. 
The LST bid was for a fixed Unitary Charge and does not 
change with upward adjustments to baseline cost. This 
was a particularly attractive aspect of the LST offer which 
provided not only value for money but risk transfer and 
cost certainty. The potential financial benefit to the BBC 
of this element of risk transfer is highlighted earlier in this 
report, within Section 2. 
Within the contract there were built in mechanisms and 
assumptions relating to continuous improvements. The 
initial continuous improvement benefits were assumed 
within the bid model and have therefore been taken 
regardless of whether any actual improvement or innovation 
has been achieved. Additional benefit sharing, as described 
in the contract, has not happened. 
BBC PR O P E RT Y – VA L U E FO R MO N E Y RE P O RT 
17 

Broadcasting House — interior 
3.3 Clarity surrounding floor areas was not 
resolved during the bid process and this is 
currently the subject of disagreement 
In requiring prospective partners to price the cost of 
delivering FM services to the estate, the BBC did not 
independently validate the size of its in-scope (London 
and Scottish) estate for provision to bidders. This was 
a conscious decision by the BBC as they decided that 
it should be the bidders’ responsibility to undertake the 
necessary due diligence, and any increase in costs resulting 
from subsequent changes in floor area was at the risk of 
bidders and is a cost they would ultimately bear. 
LST took the unwarranted and unverified BBC information 
on floor areas as the basis for calculating the annual 
Unitary Charge in their build up to a costed proposal for 
the provision of FM services and assumed that if this 
information subsequently turned out to be incorrect, an 
adjustment to their bid price would be made. 
This issue is the basis of the current “areas disagreement” 
between the BBC and LST and is centred on the overall area of 
the estate being taken from the in-house BBC PADS system. 
PADS is principally a space charging system, excluding 
communal space, car parks and other non-useable spaces. The 
area generated from PADS represented net useable area (NUA) 
and therefore it was not a reflection of the net internal area 
(NIA) or gross internal area (GIA) of the estate. 
Both the BBC and LST have subsequently commissioned 
independent surveyors to undertake a measuring exercise in 
accordance with the Royal Institute of Chartered Surveyors 
Code of Practice across the in-scope partnership estate. 
Although not directly comparable to the bid data, the 
discrepancy between the actual and assumed areas is between 
17% and 40% depending on the basis of the measurement. As 
a result of this discrepancy between the bid data and the actual 
measurements, an issue has now arisen between the BBC and 
LST as to whether the additional floor areas has led to LST 
incurring an increase in cost of delivering FM services to 
the estate and being entitled to further payment as a result of 
additional costs for delivering FM services to the estate. 

3.3.1 The additional cost resulting from 
the floor areas debate could impact on the 
financial benefits of the Partnership 
The pricing of a reduced floor area has a potential material 
impact on the cost of the Unitary Charge to the BBC and may 
reduce the financial benefit perceived by the BBC in 2001. 
The amount by which the in-scope estate was understated 
is now agreed. The current disagreement between the BBC 
and LST is whether the additional floor areas has led to LST 
incurring an increase in cost of delivering FM services to 
the estate and being entitled to further payment as a result of 
additional costs for delivering FM services to the estate. 
The contract contains the following provision: 
“This assumption simply seeks to confirm that the 
properties in the Model match the in scope properties. 
The Property Vehicle will seek to price any properties in 
scope which are not in the model. GIA assessment will 
be carried out by the Property Vehicle where required 
within the first six months of the agreement. Where GIA 
is significantly different from that given in the model, the 
Property Vehicle will have the right to recalculate the 
Unitary Charge for the property concerned by applying 
the relevant £/m2 for the FM Service(s) against the 
revised GIA.” 
The BBC and LST have interpreted this clause in different 
ways and both have taken independent legal advice. Our 
review does not seek to interpret the clause or the advice 
received by either party. However, in forming a definitive 
view as to whether the contract offers value for money, the 
outcome of this matter is critical. 
Discussions to resolve the matter continue and agreement 
of any potential financial impact of the incorrect floor area 
information has not been reached at the time of writing this 
report. Any references to potential settlement or financial 
outcome of the discussions have been deemed to be 
commercially sensitive. It should be noted that the outcome 
of the current areas disagreement may have a material impact 
on the evaluation of value for money. 
3.4 Variable CM costs could have been 
forecast in the business case 
Although LST are obliged to demonstrate value for money 
from all CM services, no forecast of the likely quantum of 
these services over the term of the contract was undertaken 
in approving the terms of the Partnership. Even though this is 
discretionary spend and therefore not contracted, we would 
expect a forecast based on estimated or historic volume. To 
date, the volume of CM work has been substantial, the cost of 
which has amounted to almost the same level as the Unitary 
Charge on which the original analysis was based. 
3.4.1 CM expenditure currently exceeds the 
Unitary Charge 
Taking the complete financial years of the Partnership 
(excluding anomalies), CM costs represent a significant 
proportion of BBC expenditure with LST, comprising 
between 38% and 46% of total Partnership expenditure (see 
graph below). The corresponding proportion of Unitary 
Charge (including the development charge for White City) 
was between 38% and 39%, the remainder from the cost of 
variable services (paid for on an ‘as used’ basis). 
Fig 3: Proportion of annual Partnership costs 
.. 
... 
... 
... 
... 
... 
... 
... 
... 
... 
.... 
....... ....... ....... ....... 
.............. ................... 
Development Charge 
Construction Management 
PAYU 
Unitary Charge 

3.5 The overall scale of the deal increased 
substantially through negotiations 
reflecting developments of scope and 
specification of services 
The BBC considered the Partnership with LST to be the 
most cost effective of all the market bids. The overall cost 
at that time was understood to be £124m less than the BBC 
in-house comparison. The submitted bids and in-house 
comparison included the BBC desire to enhance the quality 
standards of FM services. 
Approval to the Partnership with LST was sought in June 
2001. The BBC Governors approved the deal, subject to 
Government (Department of Culture, Media and Sport) 
approval, finalisation of the legal structure, completion of 
negotiations and sign off by two Governors. 
A series of scope changes and contract adjustments occurred 
during the post bid negotiations with LST. As the BBC has 
passed on risks in relation to health and safety and other 
areas, it was decided by the BBC at this preferred bidder 
stage that in order to achieve risk transfer on these items, the 
following additional services would also be transferred to the 
LST contract. These services were the “assumed services” and 
included asbestos management, security and lift maintenance. 
This resulted in a significant increase in the LST contract sum 
of £159m (£7.6m per annum) to £828m. Much of the increase 
was due to these assumed services. These services were taken 
on by LST at the then prevailing BBC cost, with a view to 
LST using their expertise to reduce the charges over time. The 
information produced by the BBC (following a request at the 
time of this review) based on it’s financial model, illustrated 
that the majority of the in-house BBC comparator also 
increased in line with the additional specification and scope 
of services being requested. Although it is normal practice 
for post bid negotiations to occur in transactions of this type, 
it should be noted that, inevitably under these circumstances, 
price competition for these changes was limited. 
SE C T I O N TH R E E : AS S U M P T I O N S W E R E M A D E W I T H I N T H E O R I G I N A L B U S I N E S S C A S E U P O N W H I C H LST W E R E A P P O I N T E D , 
W H I C H C O U L D E R O D E S O M E O F T H E B E N E F I T S O F T H E D E A L A N D W H I C H A R E S T I L L T O B E F U L LY Q U A N T I F I E D 
Pacific Quay — interior 
20 

BBC ‘do it yourself’ 
NPV £m 
LST 
NPV £m 
Variation 
NPV £m 
Governors’ Report June 2001 
793.6 
669.1 
124.5 
Governors’ Report June 2001 
(restated)* 
793.6 
689.1 
104.5 
Adjustment: 
Residual benefit share 
- 
(2.2) 
2.2 
Additional services** 
122.1 
114.5 
7.6 
Revaluation diff 
- 
(1.6) 
1.6 
NPV adj reflecting movements 
in timing 
21.3 
26.4 
(5.1) 
Increase LST overhead 
- 
1.9 
1.9 
Contracted Nov 2001 
937.0 
828.1 
108.9 
June – Nov 2001 increase 
143.4 
159.0 
* This adjustment was the result of the BBC identifying a £20m error in the initial bid cash flows at the time of this review as a 
result of double counting the one off £20m payment 
** See breakdown in table below 
The majority of the movements (£122.1m BBC and £114.5m LST) related to additional services and scope changes as 
identified below: 
Table 8: Breakdown of additional service cost 
BBC ‘do it yourself’
NPV effect 
over 30 years 
£m 
LST
NPV effect 
over 30 years 
£m 
LST
Average annual NPV 
£m 
Increase in scope and cost of security 
34.0 
34.0 
2.7 
Increase in scope and cost of cleaning 
11.9 
10.9 
0.9 
Increase in service scope - additional portfolio 
management 
3.3 
3.3 
0.2 
Move post room Bush House to LST 
1.1 
1.1 
0.1 
Move switchboard services (Scotland) to LST 
0.4 
0.4 
Move asbestos management to LST 
15.7 
15.7 
1.1 
Move lift management to LST 
11.1 
11.1 
0.8 
Move porterage to LST 
10.3 
10.3 
0.7 
Adjust cost of FM in WC2 
26.4 
23.8 
1.5 
Decrease net sublet rental 
0.4 
Remove lifecycle (excl WC) 
(4.4) 
(0.3) 
Remove FM services 
(0.8) 
(0.8) 
(0.1) 
Other services included / extended 
8.7 
8.7 
Total 
122.1 
114.5 
7.6 
Table 7: Movement in costs from bid price 

SE C T I O N FO U R 
The core services represent reasonable value 
for money 
4.1 FM and CM service benchmarks appear 
broadly in line with market norms 
FM and CM services were procured by the BBC as part of 
the Partnership in a competitive, market tested process. The 
Unitary Charge (FM) and fee rates (CM) were fixed over the 
30 year contractual term. The cost of services procured by 
the BBC can therefore broadly be said to represent the best 
available in the market, at that time, for the type of service 
arrangement created. 
When considering value for money it is difficult to draw like 
for like comparisons as the Partnership provides a relatively 
unique scope of activities. In addition, FM and CM services 
are often relatively bespoke, being driven by individual 
occupier needs. Accurate benchmarking is therefore 
problematic. 
4.1.1 Benchmarking with recognised FM 
consultants suggests the cost of FM services 
represents value for money 
In order to measure the cost of services, the BBC and LST 
have engaged FM consultants to carry out benchmarking 
against market norms. Benchmarking is not an exact science, 
particularly in the case of the BBC which is a dynamic, 
24/7 organisation that has relatively demanding service 
requirements. We would therefore not expect BBC services 
to be low cost, relative to the market. 
The most recent benchmarking survey was undertaken by 
Johnson Controls in August 2004 and sought to compare the 
proportion (approx. 23%) of the Partnership estate included 
within Johnson Controls cost database. In the survey, the 
vast majority of FM services within the estate analysed were 
benchmarked (approx. 82% by cost). 
At an individual service level, most are benchmarked as 
medium/lower quartile cost services compared to market 
norms. There are, however, exceptions where this is not 
the case including the cost of lift management services and 
overall contract management costs (including corporate 
overhead). 
Lift management is an ‘assumed’ service, transferred to LST 
at the existing BBC cost level. With innovative management 
it may be possible to achieve efficiencies in the future. In 
the case of contract management costs, Johnson Controls 
consider there to be a number of exceptional items, including 
TUPE carrying costs, which is not reflective of a steady 
state and therefore not comparable. After stripping out 
these exceptional items, management costs decrease to the 
mid-point. The cost of LST overhead within the Nations 
and Regions proposal also suggests that LST overheads are 
generally high. 
Overall, Johnson Controls consider that total cost performance 
compares favourably against the comparison sample being 
below the overall cost mid-point and representing good value 
for money. 
Fig 4: Johnson Controls benchmarking results 
Source: Johnson Controls 
4.1.2 Based upon the broad scope of services 
and profile of projects, the CM rates appear 
reasonable 
The contract provides that LST receive a percentage CM fee 
based on the value of the works. The fees may appear high 
when compared to market norms but there are significant 
factors that should be taken into consideration: 
. The fee is fixed on each project at the end of the 
feasibility stage. 
. The fees were obtained competitively when the Partnership 
was procured and should not be viewed in isolation. 
LST FM Cost Benchmarking 
.... .... 
....... 
.......... 
........... 
......... 
..... 
........ 
....... 
.... 
. 
.. 
... 
... 
... 
... 
... 
........ 
........... 
............... 
...... 
............... 
............... 

. The service provided by LST is one of holistic project 
consultancy as required and is not limited by individual 
scope of services. 
. LST generally takes on the responsibility for up to two 
iterations (which is difficult to assess) of client design 
development. 
There is no mechanism to vary the fee should an alternative 
procurement route be adopted such as design and build. 
On such a route the responsibility for design would pass 
to the contractor and be included within the construction 
cost. Therefore it would appear that in such circumstances 
duplication of cost could be a potential risk. 
The total value of CM based projects with approved business 
cases (B2 stage) was £105m between contract start in 2001 
and 30th June 2004, with approximately £10m of specialist 
services, transferred and managed projects. 
The following graphs illustrate the distribution of projects 
by value and by number. This shows that 37% of the value 
is in relatively few of the projects over £1m, whilst 47% of 
all projects by number (less that £10,000 in size) account for 
only 2% of spend. 
Fig 5: Distribution of projects by number 
Source: LST 
Fig 6: Distribution of projects by value 
Source: LST 
Under the contract, the CM service is provided by LST 
exclusively across the UK, provided that they can demonstrate 
value for money. However, outside of London LST have had 
difficulties providing a cost effective and efficient service and 
in some instances other service providers have been used. 
The contract requires LST to prove value for money on 
each project that they submit for approval and this is 
achieved in two different ways: 
. For projects over £100,000 LST will normally go to the 
market for competitive tenders based upon a detailed design. 
. For projects under £100,000 LST will go to one of their 
Measured Term Contractors. The estimate will be based 
upon the tender rates submitted by these contractors. The 
final price will be reviewed elementally and benchmarked 
to a cost database provided by Currie & Brown, a leading 
quantity surveying practice. 
. The BBC user and BBC Property sign off the business 
case, which fixes the LST fee. 
Press photograph of the BBC buildings 
<£10k> Between £10k 
and £25k 
. 
... 
... 
... 
... 
... 
... 
.................. 
Between £25k 
and £50k 
Between £50k 
and £100k 
Between £500k 
and £1m 
Between £100k 
and £500k 
> £1m 
Distribution of Projects by Number (based on B2/B1 values) 
... 
............ 
<£10k> Between £10k 
and £25k 
.
. 
.. 
.. 
.. 
.. 
.. 
.......... 
Between £25k 
and £50k 
Between £50k 
and £100k 
Between £500k 
and £1m 
Between £100k 
and £500k 
> £1m 
Distribution of Projects by Value (based on B2/B1 values) 
.. 
............ 
.. 
.. 
BBC PR O P E RT Y – VA L U E FO R MO N E Y RE P O RT 
23 

SE C T I O N FI V E 
Because the Partnership has not evolved as 
planned, maximum value is not being obtained 
5.1 Maximum value is not being achieved 
through the current mix of service providers 
It was clear during the bidding stage that several areas, 
outside of the initial scope agreed, were needed for the BBC 
to maximise value from the Partnership. Almost all consortia 
also recognised this requirement at the detailed bid stage 
expressing a strong willingness for a broader partnership and 
recommending that additional areas be incorporated. 
Strategic partnerships of this kind offer opportunities to 
leverage further value resulting from greater economies of scale 
through alignment with a single service provider. The BBC 
also recognised that expansion would offer these benefits. 
Strategic expansion and the continued alignment of the 
Partnership to a single service provider arrangement 
would offer the BBC a more effective property services 
operating/delivery model, thereby maximising value from the 
Partnership. This growth has not materialised and the current, 
fragmented mixture of service delivery, developed over recent 
years, comprises strategic partnership, outsourced service 
providers and BBC in-house delivery (see diagram below): 
Table 9: Mix of current service providers 
Source: Ernst & Young 
5.1.1 There were several areas which did not 
form part of the Scope A arrangements 
As part of the development of its approach to creating a 
partnership and subsequently refined during negotiations with 
LST, the BBC excluded a number of activities which were 
envisaged to form part of a future extended partnership. 
Planned expansions to the scope of partnership activity 
and the associated Unitary Charge were highlighted as 
Scope B activities within the BBC Governors Transaction 
Approval paper in June 2001. In addition, further expansion 
possibilities, beyond Scope B, were identified: 
Table 10: Scope B and further planned expansions 
. The implementation of developments within the Unitary 
Charge of developments at Pacific Quay, Broadcasting 
House and future phases of White City; and 
. Transfer of lifecycle risk for the remainder of the London 
and Scottish estates (in addition to White City) 
. Geographic extensions of the partnerships to the rest of 
the UK, referred to as Nations and Regions; 
. Implementation of developments outside of those 
specified within Scope B; and 
. The transfer of property ownership, possibly with the 
exception of the BBC’s most high profile buildings 
(Broadcasting House and Television Centre). 
Further Expansion Scope B 
FM Provider 
Transfer 
Property 
Ownership 
Lifecycle 
Maintenance 
CM Service 
< £100k 
CM Service 
> £100k 
Development 
Finance 
Estates 
Management 
London & 
Scotland 
LST 
BBC 
BBC 
LST 
LST 
BBC/Bond 
LST 
White City II 
LST 
LST 
LST 
LST 
LST 
LST 
LST 
Nations & 
Regions 
Haden 
Young 
BBC 
BBC 
LST 
3rd Party 
BBC 
BBC 
Northern 
Ireland 
Alfred 
McAlpine 
BBC 
BBC 
LST/3rd 
Party 
LST/3rd 
Party 
BBC 
BBC 

5.1.2 Future expansion was a key partnership 
objective 
The BBC expected to expand the scope of the Partnership 
and this was confirmed within the detailed Information 
Memorandum issued during procurement. Although some of 
the areas were specified, the BBC also anticipated unforeseen 
future benefits would result from partnership evolution. 
The BBC Governors Partnership Recommendation paper 
in March 2001 stated within a summary of Key Benefits 
of Partnership: 
“The maximum benefit will come through extending the 
activities of the Partnership ideally in the medium term and 
integrating its activities fully within the BBC’s planning 
and operational processes.” 
This statement was consistent with LST’s own objectives and 
expectations at the outset of the contract and that of almost all 
other bidders at that time. 
5.2 The Partnership has not expanded as 
originally envisaged 
An option for the BBC was for the Partnership to expand 
both geographically and functionally, providing expansion 
areas offered value for money. It has not been expanded to 
any significant degree, outside of Scope A. Variations to 
the estate and services have been implemented but these 
have been limited in nature and relate to day-to-day estate 
management rather than any structural change. Evolution 
has been extremely limited in comparison to that originally 
intended and has not moved the Partnership towards a more 
recognised Total Outsource model. 
To date, a number of expansion opportunities have been 
proposed and LST has submitted a number of detailed bids to 
the BBC, however few have been taken up as the BBC feel 
the proposals submitted have not offered value for money. 
5.2.1 Transfer of lifecycle risk on the in-scope 
estate (excluding planned vacations) has not 
occurred 
Allocating risks to the party best able to manage them was a 
key BBC objective in creating the Partnership. The transfer of 
risk on the repair and maintenance of lifecycle items (building 
fabric, plant and equipment) represents an important issue to 
the BBC, particularly considering the legacy estate. 
Following the establishment of the Partnership, LST 
undertook due diligence to establish the condition of 
the portfolio and the extent of backlog maintenance. A 
programme of building surveys confirmed that a historic 
under-investment by the BBC in its buildings has led to 
significant condition issues and the need for substantial 
capital expenditure. 
LST subsequently prepared proposals to transfer lifecycle 
risk to the Partnership and a business case was submitted 
to the BBC in July 2003. Approval was sought for capital 
expenditure of £257m over the remaining 28 years of the 
contract, representing an annualised cost of £6.2m (indexed) 
to enable LST to take responsibility for lifecycle items. 
To date, the BBC has not accepted the LST business case 
on the basis that it is not convinced that the cost proposed 
represents value for money. It is the view of the BBC that 
the onus of proving value for money for substantial annual 
expenditure on this scale rests with LST and that evidence of 
value for money was not clearly demonstrated in the business 
case submitted. The BBC has not undertaken a comparison 
with a third party or its in-house expenditure. At the time of 
the fieldwork, the business case remained open for discussion 
but the negotiations appeared to have reached an impasse. 
The transfer of lifecycle risk was always considered to be an 
optional extension, and one that would only be taken up if it 
represented value for money to the BBC, but not having it 
as an integral service is still considered a significant issue to 
the Partnership. Most public-private partnerships provide for 
this kind of risk transfer, often as a result of property transfer, 
and it can be an effective means of aligning the interests of 
the partners. In addition, there are further implications for the 
effective functioning of the existing Partnership. The impact 
of lifecycle risk and penalties relating to broadcast continuity 
are explored further within section 6.4 of this report. 
5.2.2 Operating FM services for the BBC Nations 
& Regions portfolio is not provided by LST 
At the outset of the Partnership the BBC and LST aspired 
to leverage the existing FM service delivery model for the 
London and Scottish estate to other parts of the estate. A 
number of advantages were envisaged in consolidating FM 
service delivery to a single arrangement with LST including 
achieving further economies of scale in procurement, central 
costs and in providing consistent service delivery across the 
majority of the estate, providing it offered value for money. 

Preliminary discussions to consider FM services for the BBC 
Nations and Regions portfolio were held in March 2002 
and a comprehensive business case was submitted to the 
BBC on 23 May 2002 by LST. Discussions between LST, 
BBC Property and BBC Nations and Regions continued for 
several months following the submission. After assessing the 
existing in-house costs, the BBC considered the LST bid too 
expensive (£0.5m p.a. more than the in-house costs), mainly 
as a result of the LST overhead. A decision was then made 
by the BBC Nations and Regions Board to competitively 
tender the contract for FM services in the market and 
obtain a third party comparator and although a like-forlike 
comparison did not take place against the LST bid, the 
preferred proposal submitted by another provider showed a 
cost saving over BBC in-house delivery of £0.3m p.a. Based 
on the estimated cost (which offered initial and projected 
savings) and the negotiated contract structure (including a 
regular renegotiation opportunity), a decision was made in 
early 2003 to enter into an agreement with Haden Young. 
5.2.3 Development funding on Broadcasting 
House and Pacific Quay is not provided by LST 
A structure for development finance for White City was agreed 
as part of the initial partnership arrangement, including holding 
the completed development in a ring-fenced development 
partnership vehicle. The structure and financing agreed for 
White City was intended to be used as the model for future 
BBC developments, subject to it providing maximum value 
for money. Use of this funding structure on other projects is 
entirely at the discretion of the BBC. 
When the White City development partnership was created, 
alternative sources of funding available to the BBC to 
implement its property strategy were more limited than at 
present. In recent years, interest rates have reduced and 
financing options with lower yields have been available 
for high calibre credit covenants such as the BBC. As a 
result, external property development funding became 
more attractive when compared to financing through the 
Partnership model. 
A 100% debt funded securitisation solution was adopted for 
the BBC’s next substantial re-development, Broadcasting 
House, as it provided better value for money for the BBC 
(broadly estimated to be in the region of £200m gross rental 
savings over the life of the lease). The financing process for 
this development commenced at the end of 2002 following 
an analysis comparing the cost of capital within the LST 
development partnership with alternatives available in the 
market. This route was available for Broadcasting House 
as UK capital markets had matured sufficiently to provide 
confidence in completing a day-one 100% debt capital 
markets financing and the BBC were willing to commit to a 
fixed rent start date and go through the rating agency process. 
5.3 The contract does not always provide 
practical solutions to issues arising under 
its arrangements 
The BBC recognised the value of transferring just the 
Scope A services, and the major benefits that the contract 
has offered demonstrate that this, in itself, was value for 
the BBC. However, at the time of signing the contract, 
there were several outstanding issues regarding expansion 
of scope. To derive further benefit from the Partnership 
arrangements as set out in the COS, the scope of services 
would need to expand. 
Although there are exit arrangements, the 30 year 
commitment under the COS does not offer any practical 
methods for the contractual terms to change effectively and 
quickly in the changing environment that the BBC now 
finds itself operating in. 
5.3.1 Neither partner is contractually 
committed to expand the contract 
The Partnership and supporting financial model were 
structured to deliver flexibility, enabling variations and 
extension to be implemented within the existing framework. 
There is, however, no defined timetable or route map to 
accommodate expansions, nor any specific obligations on 
LST or the BBC to crystallise the position. Specifically, the 
contract contains no timescale or trigger mechanisms in this 
regard which would otherwise provide leverage for expansion. 
The mechanism and cost of any expansion must therefore 
be mutually agreed on a case-by-case basis. This gives the 
BBC an absolute right of refusal over expansion proposals. 
Neither partner has control over the timescale or scope for 
expansion and in this regard the Partnership is substantially 
geared towards mutual trust. 
SE C T I O N FI V E : BE C A U S E T H E PA RT N E R S H I P H A S N O T E V O LV E D A S P L A N N E D , M A X I M U M VA L U E I S N O T B E I N G O B TA I N E D 
26 

5.3.2 The BBC decided that it was willing to 
commit to Scope A services whether or not the 
Partnership expanded 
It is clear that the ability of both partners to derive the 
maximum benefit from the Partnership is dependent on an 
expansion to the scope of activities. In order to maximise 
value for money, the BBC must place substantial trust in its 
relationship with LST over the long term. 
In the event of a deterioration or breakdown in the relationship, 
the long term nature of the BBC’s commitment under the 
Partnership precludes it from seeking alternative solutions for 
scope A activities over the 30 year term and the BBC did not 
seek to include an exit or formal renegotiation on the basis that 
the initial scope of the Partnership did not expand. 
5.4 FM and CM standalone services 
are being delivered by a total property 
outsource provider 
The legal contracts themselves were developed to support 
a partnering, not contractual approach. However, the 
arrangements did not commit either party to important aspects 
of a total property Partnership at the outset. 
As there was neither transfer of property ownership nor 
any significant risk transfer in relation to the lifecycle 
maintenance of the BBC portfolio, the evolution of the 
Partnership relied on the partners to agree these elements 
after the initial legal commitment. 
5.4.1 Outside White City, the major elements 
of the Partnership are long term FM and CM 
contracts 
In practical terms, with the exception of White City, the 
Partnership consists of a 30 year FM contract on the BBC’s 
London and Scottish estate and a 30 year CM contract 
covering the whole of the UK, which is an unusual approach. 
Outsourced FM and CM contracts are not uncommon, 
although typically differ substantially in terms of the length of 
contract. Shorter terms, often between three and seven years, 
represent more usual market practice, providing the ability 
to re-tender in the market on a regular basis. In this way, the 
flexibility to re-tender service provision and amend the scope 
of contract at regular intervals is retained by the employer. 
5.4.2 The core business of LST is total 
outsourcing of property services 
The core business of LST is total property outsourcing, 
enabling an organisation to transfer its short and long term 
property needs to a single specialist provider. Typically, LST 
seeks to take responsibility for the ownership, management 
and development of all or part of a client’s estate, enabling 
property assets and liabilities to be managed using an 
integrated property service model. 
Standalone FM and CM services are not the core business 
of LST and do not fully exploit its range of skills as an 
organisation. LST acknowledges that they are unlikely to 
offer the most competitive prices and they do not currently 
seek to provide FM and CM commissions outside of an 
integrated model. The Chief Executive of LST, recently stated 
that his company ended their pursuit of a partnership with 
Bradford City Council because: 
“There was not enough risk transfer. It 
was becoming more of a potential 
management exercise rather than a property 
outsourcing in the true sense. We tried to persuade 
them that they could get better value by doing 
something more dramatic, but they didn’t want what we 
were offering. We felt that we probably wouldn’t have 
won it. The Carillions of this world could win that kind 
of deal.” 
Source: Estates Gazette, Staying in STEPS, 04 
September 2004 
Expansion towards a total outsource model on value for 
money terms, an objective at the outset of the Partnership, 
would better align LST as service provider with the BBC. 
In the absence of expansion, doubts may exist over whether 
LST is the most likely partner to provide value for money in 
this type of arrangement. 
BBC PR O P E RT Y – VA L U E FO R MO N E Y RE P O RT 
27 

5.5 The Unitary Charge was intended to 
operate on an open book and good faith 
basis 
The Unitary Charge finances (principally FM services, 
development charges and lifecycle maintenance) are based 
on a comprehensive financial model comprising a detailed 
estimated income and expenditure profile. This model was 
created by LST and is used to determine the Unitary Charge 
levied upon the BBC over the 30 year Partnership term. It 
should be noted that variable charge items (ie. CM services 
and ‘Pay as You Use’ FM services) are not included within the 
model, as these fluctuate relative to consumption by the BBC. 
5.5.1 Clear financial information has been 
difficult to obtain 
In line with BBC requirements, the calculation of the 
Unitary Charge was intended to operate on an open book 
and good faith basis requiring the disclosure of key financial 
data by LST. For example, the financial model makes 
explicit the annual profit forecast allowed for by LST and 
the level of return estimated by LST in pricing the cost of 
Unitary Charge services supplied to the BBC. 
It is not within the scope of this report to audit or perform 
due diligence on the Partnership finances and we have been 
largely reliant on information supplied by LST. We have 
experienced some difficulty in obtaining clear financial 
information in a timely fashion which is perhaps a reflection 
on the current quality of management reporting information 
provided by LST to the Partnership. 
In attempting to review the status of Partnership finances 
relative to the profit and loss forecast within the financial 
model, we experienced a series of delays and it is apparent 
that this level of information is not readily available as 
part of the management accounts of the Partnership. We 
have concerns that existing management information is 
not sufficiently transparent or robust to provide important 
financial data and we understand that this may have led 
to current delays in signing the statutory accounts. The 
BBC appears to have a lack of confidence in the financial 
information provided by LST to the Partnership. 
We recognise that the introduction of a more comprehensive 
monthly management reporting package is planned but this 
is not yet agreed or operational. We would recommend the 
introduction of a clear management accounting and reporting 
package, updated on a consistent basis, as a Partnership 
priority. In the event of a Partnership renegotiation taking 
place, it is essential that clear, robust financial information 
is available to facilitate agreement. 

5.5.2 LST do not reconcile Partnership 
finances to the original bid model or to their 
published accounts 
Within the financial model developed as part of LST’s 
proposal to the BBC, LST forecasted losses over the first two 
years of the Partnership before reaching profitability in FY 
2003/2004 - based on earnings before interest and tax (EBIT) 
over Partnership financial years, as opposed to contract years. 
Included below is a summary of the profit and loss (EBIT) 
forecast within LST’s bid model and actual results over the 
first three years of the partnership. 
Table 11: Reconciliation of bid model profit and loss to LST published 
accounts 
Financial Years (£m’s) 
2001/02 
2002/03 
2003/04 
Total 
Bid Model EBIT 
(12.9) 
(1.4) 
2.3 
(12.0) 
Actuals per 
LST published 
accounts 
(8.5) 
(11.3) 
6.6 
(13.2) 
Variance 
4.4 
(9.9) 
4.3 
(1.2) 
LST financial information setting out the annual EBIT level 
over the first three financial years shows an overall loss to 
LST of £13.2m, compared to a forecast loss of £12m within 
the financial model. 
The responsibility for the provision of financial information 
to the Partnership rests with LST. At the time of this review 
it was not possible to obtain information on the actual 
expenditure incurred to date on the Partnership, and how 
it related to the bid model position or LST’s published 
accounts. The information contained in the table has had 
to be created by LST following our request. Had such 
information been available throughout the course of the 
Partnership, it would have addressed uncertainties over the 
actual profits and losses being made, and provide a much 
more transparent position on finances to both partners. 
The requirement for the provision of financial information is 
set out in the Contract for Occupational Services. Although 
the requirement to reconcile LST’s annual accounts to the 
bid model is not explicit, not reconciling the profits or 
losses incurred by LST back to the original bid model and 
the published accounts, raises not only concern over the 
transparency of financial information available to the BBC, 
but over the ability to readily identify profits that would form part 
of any benefit sharing arrangements included within the contract. 
Although the figures have not been audited, they indicate that 
there have been significant variances from the profit and loss 
forecast by LST. These variances are both positive (years 1 
and 3) and negative (year 2) and the overall net effect is that 
LST has incurred a loss of £1.2m in excess of forecast during 
the first three years of the Partnership. Much of the 2003/04 
profit resulted from Unitary Charge income received early 
following the completion of WC3. 
It should be noted that these figures make no allowance for 
any additional income resulting from a settlement on the floor 
areas disagreement. As outlined previously, the outcome of 
this disagreement may impact on the Partnership finances. 
Press photograph BBC building 
29 

SE C T I O N SI X 
The Partnership needs to change 
6.1 The BBC Divisions are not consistently 
committed to the Partnership arrangements 
and there is a lack of clarity on roles and 
responsibilities 
In a complex partnership of this type, clear communication 
of the arrangements and a willingness to commit by the 
occupiers and users are important to facilitate effective 
operation. Communication between the BBC customer 
(the business occupiers), BBC Property and LST, could be 
improved although service and satisfaction levels have risen. 
BBC users do not appear to understand the terms or nature 
of the deal with LST, and as such some are finding current 
arrangements cumbersome. 
During negotiations, and in the transition to the Partnership, 
BBC Property could perhaps have more effectively engaged 
with the BBC customer in order to help them understand 
specific requirements and incorporate these into the 
formulation of operating systems as appropriate. At the 
time of the deal, BBC Property believed that they had 
an adequate understanding of