This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its December 2018 report entitled E20: renewing the EastEnders set, the United Kingdom Auditor General found that optimism bias adversely impacted the construction of a new television production building set for the British Broadcasting Corporation (BBC). As the report found, the BBC initially underestimated the complexity and costs associated with the construction project, which ultimately led to further increases to the original project budget:
The BBC substantially revised its plans for E20 in 2015, owing to forecast increases in the cost of the programme. In 2013, the BBC proposed building a temporary set, two-thirds of the size of the existing external filming site, to use while it constructed a new permanent set. Based on advice from its previous cost consultants, the BBC expected the whole programme to cost £59.7 million and complete by August 2018. Subsequently, following an assessment of feasibility and further planning, in October 2015, the BBC’s Executive Board approved the revised Front and Back Lot approach as the previous plan was forecast to cost up to £7 million more than it had budgeted. The BBC intended that the revised approach would also cost £59.7 million and would be completed in October 2020. This included a four-month delay to defer spending to later financial years and ease wider BBC budget pressures. This added £1.2 million to the programme costs.
The BBC’s early planning processes led to underestimation of aspects of complexity, cost and risks of its revised Front and Back Lot approach. In October 2014, the programme team, supported by various specialist consultants, spent seven weeks scoping and producing a feasibility report comparing the temporary and permanent set approach to the Front and Back Lot proposal. The report assessed that the revised approach would be cheaper on a like-for-like basis, estimating a total budget of between £59.2 million and £69.2 million, depending on the scope of the Back Lot. Following further planning, the full business case was approved in October 2015 with a budget of £59.7 million. The BBC’s programme team later identified that the time taken to complete the feasibility report was too short, given the complexity of the programme, and that certain aspects of the design process, such as the approach to scenic ageing and the costing of the Boiler House works, were not assessed adequately. Given what was known to the BBC in 2015, it would also have been prudent for the BBC and its cost consultants AECOM to have allocated more funding to cover risk and contingency from the outset of the revised programme.
As the report noted, the initial optimism bias ultimately resulted in the BBC increasing its original £59.7 million project budget to £86.7 million – which the Auditor General noted was a 45% increase to the original budget – and delaying its October 2020 completion date to early 2023:
In 13 of the 17 months between August 2016 and December 2017, the BBC considered successful delivery of E20 was in doubt. As a BBC critical project, E20 has been subject to ongoing scrutiny and reporting, and actions have been taken as a result. In October 2017, the BBC reported internally that its 2015 plans were no longer achievable due to forecast delays and cost increases. This was because of delays procuring the Front Lot construction contract, as well as anticipated delays in awarding the contract as costs were expected to be £10.3 million more than the BBC had budgeted for. Subsequently, following further contract negotiations and more realistic programme planning, the programme team submitted a paper to the BBC Board in May 2018, requesting an updated budget of £86.7 million and a new completion date in early 2023. The BBC Board approved this plan on the basis that there would be no further cost increases to the Front Lot contract, which was still under negotiation, and that various corporate functions, such as finance and procurement, approved the plan. The BBC recognises that E20 remains a high-risk programme.
In response to these findings, the Auditor General recommended that the BBC’s project management office continue with the independent review of its new programme plans. The report also recommended that the BBC keep its change request procedures under active review, capture lessons learned on this project and apply those lessons moving forward, conduct an appropriate skills assessment for current and new projects, and review its wider project portfolio to ensure that end users are properly integrated into project planning for new initiatives.
As this case study illustrates, optimism bias remains an ongoing issue on new high-profile public sector procurement projects and public institutions need to integrate proper project management disciplines to avoid future project failures.
