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National Audit Office Press Notice

PPP in practice: National Savings and Investments' deal with Siemens Business Services, four years on

THIS STATEMENT IS NOT FOR PUBLICATION OR BROADCAST BEFORE 00.01 HOURS ON THURSDAY 8 MAY 2003

Report by the Comptroller and Auditor General
HC 626 2002-2003
8 May 2003
ISBN: 0102921466
Price: £9.25

The PPP deal between National Savings and Investments (NS&I) and Siemens Business Services has improved customer service and has contributed to savings for the taxpayer, Sir John Bourn, head of the National Audit Office, reported today. However, Siemens Business Services and NS&I underestimated the challenge involved. Siemens Business Services has encountered a number of problems and so is unlikely to make its projected returns on the project. Despite this Siemens Business Services remains committed to the contract and continues to meet 98 per cent of the performance targets set by the contract.

In April 1999, NS&I transferred its operations to Siemens Business Services, in one of the largest outsourcing operations ever undertaken by a UK Government Agency or Department. The Committee of Public Accounts concluded in its report on the deal that the partnership appeared to be good value for money, but it remained a high risk project for Siemens Business Services and NS&I, and that therefore NS&I must remain vigilant.

Siemens Business Services is modernising the operations to allow NS&I to continue to offer what customers require and to improve customer service further by streamlining processes. Siemens Business Services’ work will also allow NS&I to better understand its customers and thus improve its cost effectiveness and service. In 2001/02 NS&I saved the taxpayer £176 million thanks in part to Siemens Business Services.

Key risks accepted by Siemens Business Services under the contract have crystallized. Siemens Business Services is unlikely to make its projected returns on the project as it was unable to deliver the full business transformation as soon as it had planned. It has incurred more capital expenditure than planned and despite increasing productivity, it was unable to reduce staff numbers in line with its original plans and has not yet created as many third party jobs as expected, although 650 new jobs have been created to date. It is also spending more than planned on the upkeep of the three sites at Blackpool, Durham and Glasgow.

Siemens Business Services underestimated the challenge of transforming NS&I’s old business and found existing processes were complex and difficult to change. It encountered a number of problems when it began to transfer NS&I products from legacy systems to a new IT platform.

NS&I requires Siemens Business Services’ operational performance to meet high and increasingly challenging standards. Although Siemens Business Services had not completed the business transformation by the initial target date it continued to bear the risk of delivering services to the more demanding standards. In the first four years of the contract, Siemens Business Services achieved 98 per cent of the targets NS&I set.

To ensure continuation of service and achievement of the partnership’s objectives, NS&I, with Siemens Business Services, has developed a programme to support Siemens Business Services’ actions to further the transformation project. As part of this programme, NS&I has modified the contract to ensure it is clearer, fairer and encourages NS&I and Siemens Business Services to behave like partners. In particular, NS&I has refined its performance measurement regime and it will share in the costs of developing new products and channels while both parties are incentivised to minimize development costs. The contract modification does not materially change the allocation of risk as the key risks of costs of operation, modernizing the business and delivering the service remain with Siemens Business Services. Neither has NS&I increased the unitary charge agreed in the contract.

Sir John Bourn said today:

"This report shows that there are alternatives to bailing out the private sector. NS&I and Siemens Business Services have learnt valuable lessons in the operation of this project, which are pertinent to other public-private sector partnerships. A whole business approach, where decisions are based on what is best for the business rather than what is best for either the public and private sectors, needs to be adopted if the public and private sectors are to achieve their objectives, and the private sector needs to recognize the management challenge that PFI represents."

Notes for Editors

  1. The Department for National Savings & Investments is an executive agency of the Chancellor of the Exchequer which helps to fund central government borrowing. It has up to 30 million customers with investments totaling some £62 billion in a range of products which include Premium Bonds, Savings Certificates and Investment Accounts. Prior to April 1999, NS&I employed some 4,100 operational staff and incurred running costs of some £180 million a year.
  2. Press notices and reports are available from the date of publication on the NAO website at www.nao.org.uk. Hard copies can be obtained from The Stationery Office on 0845 702 3474.
  3. The Comptroller and Auditor General, Sir John Bourn, is the head of the National Audit Office which employs some 800 staff. He and the NAO are totally independent of Government. He certifies the accounts of all Government departments and a wide range of other public sector bodies; and he has statutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies have used their resources.

Press Notice 39/03
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