By Jim Harvey, Energy Customer Relationship Manager, ESPO
Not that long ago, local authorities had full teams of procurement managers with specialist knowledge across all of its purchasing from school supplies to FM. However, fast forward a few years and austerity measures have well and truly kicked in and we find ourselves in an environment of reduced or static budgets and downsized procurement teams. Some councils have also found themselves having to devolve responsibility for low value or risk procurements to individual service managers. We’ve seen energy and carbon management hit particularly hard in some areas.
There are tough times all round in the public sector. The Government’s continuing funding cuts have seen many posts decreased or merged. And, a lack of internal resource to focus on the more complex and specialist procurement categories like energy, is forcing some public sector organisations to take a good, long look at their purchasing strategies and to rethink their approach.
Added to this environment of lean budgets and procurement resource, there have energy price increases across the board: Npower is rising its electricity prices by 15%; E.ON by 13.8%; Scottish Power by 10.8%; EDF by 8.4%; and SSE has announced a dual fuel increase of 6.9%.
Sadly, the reality for many local authorities up and down the country is that there is little in the way of extra resource for energy procurement, let alone energy management. Tendering for electricity or gas can be time-consuming and onerous for resource-light procurement teams. Add in the need for compliance with EU procurement regulations and other box-ticking exercises and it can represent a complex, time consuming and sizeable administrative burden.
Too good to be true
There are many ‘too good to be true’ deals which might seem attractive given the current climate. But frequently we see unscrupulous businesses targeting public sector organisations with the offer of cheap contracts or savings reviews. Schools are frequently targeted and told by companies they will reduce their costs, even offering to help reduce their VAT rate, which they are entitled to anyway.
Often, savings that are identified are unachievable and do not materialise, yet the organisation still has to pay to the agreed fee. Water-tight contracts stacked in the favour of unscrupulous companies are standard. We’ve also heard of companies offering to cut an organisations costs by reducing their kVa capacity and therefore costs. This is unwise and can be dangerous and costly to rectify in the future.
It’s not uncommon for hard-pressed councils or other public sector organisations with a reasonably-sized property portfolio to hand over its energy supply to poor quality companies to secure them unrealisable ‘best deals’. PBOs like ESPO have a transparent approach to procurement which means customers are firmly in control, they know exactly how much their energy will cost and there are no nasty surprises or bills.
There’s no denying that the energy market is complex and challenging to negotiate and without a certain level of expert procurement knowledge it’s easy to see how some organisations get swept away by the promise of a good deal. What’s more the cost of energy can be unpredictable: prices can be volatile and driven by international markets. And, without expert sector, internal knowledge to call upon it can be difficult to risk manage energy procurement.
An alternative approach
However, there is an alternative route to market that time pressed, resource-poor facility managers might want to consider before they go else-where, and that’s an electricity or gas supply framework provided by professional buying organisations (PBOs), designed especially for the public sector.
Frameworks offer a low-hassle, low-risk route to buying energy. Created by procurement experts, a framework is a commercial supply agreement that sets out the terms and conditions on which specific purchases can be made throughout the duration of the agreement term. It is a legally-compliant route to market, providing purchasers with access to a range of approved suppliers who have undergone a rigorous vetting process to ensure they provide their products and services at the best possible quality and value.
The UK Public Contracts Regulations 2015 require public sector bodies to follow strict rules to ensure fairness and transparency, proportionality and non-discrimination when procuring goods and services. The main advantage of buying electricity or gas from a framework is that it is bought direct from the wholesale supplier with the suppliers’ pricing and ‘T&Cs’ pre-vetted and agreed in advance over a fixed term. They offer an attractive alternative to many of the usual suspects’ direct energy supply contracts.
Also, the purchaser does not have to undertake the traditional and lengthy tender process to purchase what they need since the expert PBO or consortium has already provided a best value and compliant route. This not only significantly reduces the time, cost and risk associated with traditional tendering activities, but also means there is less of a delay between identifying customer needs and fulfilling them.
Frameworks have had a bit of a reputation in the past for being overly complicated or steeped in red tape, but PBOs have worked hard to address this and deliver simpler tender processes and documentation that is EU-compliant, completely transparent and clearly shows what the customer is buying.
With energy prices volatile, those PBOs that provide energy frameworks can offer a flexible, aggregated, risk managed approach to energy procurement, meaning that electricity is purchased at the best possible price.
For example, here at ESPO we have a team of expert energy buyers, trading and risk analysts who analyse and track the market to ensure energy is purchased at the right time, when the market is working in favour of customers. In fact last year, we purchased 763,229,520 kW of electricity. That’s enough to power 165,919 homes for a year.
Energy frameworks offer less risk for buyers as public sector PBOs operate in an open, anti-corrupt and not-for-profit environment. Unlike many brokers and consultants these PBOs do not charge any upfront access or membership fees to use their frameworks. At ESPO we set a fee for our energy contracts at a set pence per day, per meter to cover all aspects of the contract lifecycle from the initial procurement, commodity training, full invoice validation through to the on-going day-to-day contract support.
PBOs selling electricity will have a team of expert industry buyers who understand the dynamics of energy supply, pricing and billing; and they know how to get a grip on supplier customer service problems. It should also be able to offer advice on how to resolve service issues, provide technical advice on buying and help purchasers to secure the best-priced deals. We will even provide energy buying and bill validation as part of our service.
Buying electricity in this way offers transparency on price and technical support in an often confusing market. This arrangement means clarity of annual pricing over the lifetime of an agreement, which is particularly important when there are known cases of public buyers arranging deals with third party intermediaries which cost tens of thousands of additional pounds in commission fees and add-on charges over the lifetime of the deal.
Some PBOs will even offer the equivalent of an energy consultant or broker’s audit service, for example we offer kVa/Available Supply Capacity reviews on Half-Hourly electricity meters. As a local authority-owned organisation we share the same interests as our public sector customers and represent the very best value in energy procurement.
Lack of time or resource to dedicate to energy procurement doesn’t have to mean you take a chance on a supplier who offers a too good to be true deal, or you unwittingly get stung by brokers fees. Consider a framework from a PBO as a new route to market, offering you the benefit of their expert knowledge in this complex and ever-changing buying category.
Despite the changes that are happening across the wider public sector landscapes, frameworks are a tried and test route to buying energy and are designed to meet the varying needs of local authorities. Ultimately they were created by the public sector, for the public sector to deliver best value for all your energy needs in spite of stagnant budgets and reduced in-house expertise.