The higher education energy market is becoming increasingly competitive. Richard Murphy from the public buying organisation The Energy Consortium (TEC) warns of the hidden dangers in the contracting process and urges universities to involve a broad range of departments when procuring energy services.
In my two years as MD of TEC, I am proud to say that we embody the principles of procurement best practice – confirmed by the recent procurement maturity assessment carried out on TEC by auditors from Advanced Procurement for Universities and Colleges – and ensure EU Procurement rule compliance for members using our frameworks.
For this reason alone I find it all too frustrating when we are entered into what I like to call ‘beauty parades’ alongside private sector brokers and consultants, so-called Third Party Intermediaries (TPIs). These parades are not carried out under EU procurement arrangements, and in terms of contracting for the energy itself on behalf of the university or college, the TPI most certainly cannot operate as a contracting authority and pay little attention to the EU procurement rules, whatever they might claim.
At the heart of the matter is the fact that these private sector entrants often saunter down the catwalk dressed in their marketing finery, but don’t even have to disclose what their true fees are. It is frustrating when TEC end up as the ‘ugly duckling’ while the apparent Miss Universes walk away with the contract to procure energy for the university. Surely the issue is that if you don’t know how much you are paying for the service, and many larger universities will earn their brokers a significant amount of money, then how can you determine whether the process of selecting the entrants for these “beauty parades” should have been done via an OJEU process too?
Lack of transparency
The rules of this competition are changing, driven largely by this lack of transparency, with energy regulator Ofgem bringing in a mandatory TPI code of practice. The very need for this has been driven by the lack of transparency and trust in the very third parties who are supposed to keep the seemingly increasingly despised energy suppliers honest. As with all markets, there are good and bad, but a lack of transparency is common to all.
It is probably true that an OJEU restricted tender is not the ideal vehicle to establish an energy contract in a market where prices move almost by the minute. However, it is what it is and above all it supports transparency, and with careful and planned supplier pre-engagement you can achieve the desired result of competitive prices, or a mechanism to achieve them, and high standards of customer service.
Doing this for a framework used by multiple public sector bodies can truly leverage the benefits of aggregation whilst underpinning the virtues of collaboration extolled by Sir Ian Diamond and others. Indeed I have seen these benefits in action in my time at Crown Commercial Services and during my time here at TEC as we look to first capture and then present the benefits of procuring a faceless commodity like energy on an aggregated, flexible basis, not just to members using our frameworks, but to the Higher Education Funding Council for England, Universities UK and others. Private sector TPIs have no obligation to report on performance against a sector benchmark, or one which stands up to scrutiny.
Of course, one of the other comparators which is often looked at during the parade is what energy prices have been achieved by the paraded players who are offering to buy for you. It is a bit like comparing how beautiful the entrants have been in the past to decide how they will look in the future.
Here too, with energy bought using a variety of so-called flexible energy purchasing strategies, one may look more attractive than others just on price, but this may have been achieved by using a far riskier strategy. If some certainty and defence of budget is key, then a risky strategy is the last thing you need. Also comparing the ‘vital statistics’ of performance depends much on the height, weight and age of those you are comparing. Differing energy usage, strategies and timing make a fair comparison almost impossible.
I spoke with one university who said that their TPI had saved them £600,000 in the first year of their involvement, but this was a year when wholesale energy prices collapsed so I would have been disappointed if anyone hadn’t ‘saved’ that figure in the year concerned.
Also, the saying goes, beauty is in the eye of the beholder and energy is something which sits in the laps of finance, estates, environment and, of course, procurement. It is also something you should be “doing” all the time and not a decision to be taken once a year, or two, or three. When judging a bevvy of beauties, be sure that the panel is as broad as possible.
Spiralling energy costs
Higher education institutes would not be the first, or the last, to fall prey to these ‘vamps’ who see virtue and considerable profit in the attractiveness of universities to the energy supply community at all levels, whether in supply, bill validation or energy efficiency services. However I would urge finance directors to recognise that this is not yet a level playing field, but give consideration to a sector specialist who meet the requirements of procurement, finance and estates in delivering better budgetary control over spiralling energy costs whilst ensuring the procurement rules (and associated costs of compliance) are paid more than lip service.
I remain as passionate about managing exposure to energy costs paid for by the public purse, and two years of beauty parades has not yet dulled that passion. It is time now to leverage the attractiveness of the sector and the similar risk appetite to achieve the benefits of aggregation and collaboration within the rules, which feels a bit like winning a beauty competition on personality and plainness and being confident that there will not be a stewards’ enquiry, which may render the result unfair or unjust.
Richard Murphy is the managing director of the public buying organisation The Energy Consortium (TEC).