Are You Getting Best Value From Your Facilities Maintenance Contracts?
November 1, 2011
We have recently been carrying out Facilities Health Checks for a number of schools. We have found some common areas where schools could make savings to their bottom line, improve the effectiveness of their facilities maintenance contracts and, most importantly, comply with current legislation. Here are a few examples.
- Fire. A Fire Risk Assessment should be carried out at least every two years. Records need to be kept of any follow-up action taken on the recommendations. Best practice is to vary the contractor every few years so the site and its’ issues are viewed with fresh eyes.
- Water. A Water Risk assessment should be carried out and reviewed at least every two years. The risk assessor should be able to demonstrate independence, impartiality and integrity so best practice is to use a different contractor to the one doing the water temperature checks and annual chlorination work.
- Asbestos. Most schools have an asbestos register but is it kept up to date and reviewed annually? Using the same contractor has practical advantages as they know the building and its particular problems. It usually reduces the annual cost because they are only updating the original register, not doing a full review, but make sure you market test the price at the outset.
Many contracts roll on year after year even though the initial term has expired. Complacency can set in. Look at retendering every 2-3 years to ensure the contracts remain relevant and cost effective. Even if you keep the same contractor, you will have the confidence of knowing that you are getting best value for money.
Significant proposals for employment law reforms announced
November 1, 2011
The announcement at the recent Conservative Party Conference by Business Secretary Vince Cable and Chancellor George Osborne that the qualification period for the right to claim unfair dismissal is to be extended from one to two years and the introduction of fees for bringing Employment Tribunal claims has certainly generated a great deal of media interest. The reaction to the announcement has been mixed though. The CBI welcome the increase in the qualifying period as ‘a very positive step’ but many organisations are not convinced that the change in the qualifying period will reduce the number of Employment Tribunal claims or act as an incentive to recruit new staff and boost economic growth.
Changes to the unfair dismissal rules follow the ‘Resolving Workplace Disputes’ consultation published in January this year which also proposed measures to encourage early resolution of disputes, the speeding up of the Employment Tribunal process and measures to tackle weak and vexatious claims.
The new legislation regarding the increase in the qualifying period will come into force on 6 April 2012. The proposals are expected to save British business nearly £6 million a year and should see the number of unfair dismissal claims drop by around 2,000 a year. Interestingly, in the consultation paper, the government stated that extending the qualifying period for unfair dismissal would reduce the number of claims by between 3,700 to 4,700 claims a year so there has already been a significant adjustment by the government in the expected impact of the proposal. With 218,100 Employment Tribunal claims made in the period 1 April 2010 to 31 March 2011 the anticipated reduction in 2,000 claims a year is not particularly significant taking into account the total number of claims that are brought. Don’t forget that there are a number of ‘day 1′ rights for which no qualifying period is necessary and there may well be in increase in the number of discrimination claims brought instead as our experience is that employees who are unable to bring claims of unfair dismissal because they don’t meet the qualifying period often bring other claims such as discrimination. These can often be more complex and costly to deal with.
The qualifying period for bringing an unfair dismissal claim has varied over the years from just six months continuous employment which was then increased to one year, then to two years and reduced back to one year in 1997. These changes have had, in our view, relatively little impact in reducing the number of claims.
The introduction of fees from April 2013 is a potentially more significant development and likely to have a far greater impact on the number of claims that are brought than the increase in the qualifying period. Details regarding the fee structure are awaited but from initial information, it appears there will be an upfront fee of £250 to be paid when the claim is first lodged and a further fee of £1,000 payable by the claimant when the hearing is listed. These fees will be refunded if the claimant wins and forfeited if they lose. However, the government has stated that ‘poor claimants’ will not have to pay and it is possible that somebody unemployed and in receipt of benefits will be exempt from paying the fees. The details of this exemption are awaited with interest. It may be the case that many employees will fall within this exemption given that their employment will have ended and they may have no income coming in.
The recent announcement coincided with the next stage of the government’s Red Tape Challenge which was launched by the government in April 2011.
For three weeks in October 2011 the Challenge focused on employment related law; the purpose being to seek views on how employment related regulations can be improved and simplified. There were four categories being considered:
- Compliance and enforcement
- Letting people go
- Managing staff
- Taking people on
Examples of the legislation on which the government has sought views include the rules on collective redundancies, employment agencies, immigration checks, the national minimum wage and statutory sick pay:
www.redtapechallenge.cabinetoffice.gov.uk/themehome/employment-related-law/
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Heating Oil Procurement – “Better the devil you know…..?”
November 1, 2011
By Lorraine Ashover, Director, Minerva Procurement Consultancy Services Limited, cost reduction and procurement consultancy services exclusively for the independent school sector.
There is one area of procurement spend that many schools are extremely wary of – heating oil. It’s hardly surprising bearing in mind the complex and volatile nature of pricing. Supplier pricing models include Platts* daily lagged, Platts weekly lagged, spot, open book and so it goes on. As a result ensuring you are comparing “like for like” is a challenge in itself and one which many School Business Managers, Bursars and Estate Managers simply don’t have the time to do. It’s also important to note that in the UK now many of the oil companies are owned by the same parent company (GB Oils). This is not always apparent when you are phoning for prices and it is causing some disquiet in the industry with calls for an inquiry by the Monopolies & Mergers commission. This is another reason why it’s hard to be certain you are getting genuine comparable prices. In addition to this, security of supply is of paramount importance to schools and, in respect of oil purchases, it seems the practice of “better the devil you know” is adopted by most. As a result an area which is often a significant spend (sometimes second only to wages) tends to get overlooked.
Minerva has recently completed a project for a consortium of schools which has resulted in an average saving of 12%. Even large schools that have spent significant time monitoring the market were still able to realise savings. The main reason savings are not more significant is down to the fact that the bulk of the price is not determined by the wholesaler or the distributor but by the oil producers. As a result the only part of the price which can be ‘negotiated’ is the supplier profit margin and load premia**. As wholesalers and distributors work on a high volume/low margin business model there really isn’t that much left for discussion! That said, several schools made many £000′s in savings as a result of the project and it’s still an area which should be actively reviewed especially where it’s a significant annual spend. It’s most definitely a category of spend which benefits from having a number of customers buy together.
For those of you watching the markets you will have noticed that prices have dropped slightly of late and there is a strong feeling in the market that the price is artificially high at the moment. However, the dropping prices are unlikely to be sustained as we enter the winter period. Experts predict we are in for a bumpy period with OPEC estimating that world oil markets will require 30.5m barrels per day in Q4 2011. With supply being limited to 28.8m barrels per day this means a 1.6-1.7m barrels per day shortfall.
If heating oil is a commodity you need to purchase for your school please get in touch with us to discuss how we can help you to ensure you’re getting best value for this essential supply.
*Platts is a provider of energy and metals information and a source of benchmark price assessments in the physical energy markets. Platts was founded in Cleveland, Ohio in 1909 by Warren C. Platt (1883-1963) to provide “reliable market-based price information” on the oil industry. It is widely used today as the baseline for industry pricing
**Load premia is added to the ‘pence per litre’ charge dependent on the size of the order being delivered; the smaller the volume the greater the load premia applicable.
Oil Procurement Case Study and Global Market Overview
July 22, 2011
There is one area of procurement spend that many schools are extremely wary of – oil. It’s hardly surprising bearing in mind the complex and volatile nature of pricing. Supplier pricing models include Platts daily lagged, Platts weekly lagged, spot, open book and so it goes on. As a result ensuring you are comparing “like for like” is a challenge in itself and one which many Bursars and Estate Managers simply don’t have the time to do. In addition security of supply is of paramount importance to schools and, in respect of oil purchases, it seems the phrase “better the devil you know” is adopted by most. As a result an area which is often a significant spend (sometimes second only to wages) tends to get overlooked.
Minerva has recently completed a project for a consortium of schools which has resulted in reasonable savings (between 3% – 14%) for some, but not all, of them. The main reason savings were not more significant is down to the fact that the bulk of the price is not determined by the wholesaler or the distributor but by the oil producers. As a result the only part of the price which can be ‘negotiated’ is the profit margin and load premia. As wholesalers/distributors work on a high volume/low margin business model there really isn’t that much left for discussion! That said, several schools made £000′s in savings as a result of the project and it’s still an area which should be actively reviewed especially where it’s a significant annual spend.
In addition to the savings identified in immediate pricing it’s also worth mentioning that contracts have been negotiated for ‘fixed forward’ pricing too. There is a continuing upward trajectory on pricing and so a strategic decision to fix could well be a good one. It’s important to choose when you do that though – you’ll note from the graph, which covers only a 12 month period, that small upward spikes or decreases in prices are apparent and could make a significant difference to the fixed price you negotiate.
So, if the bulk of the price is determined by the oil producers what influences their pricing? I recently had the opportunity to participate in a Webinar run by Platts* which gave an excellent overview of the Global Oil Market.
Oil is obviously being consumed worldwide. As an idea of consumption the USA (being the largest) uses 18,868m barrels per day, China 8,625m (and rising rapidly) with the UK using 1,611m barrels per day.
Expert opinion is agreed that the peak price of $140 a barrel (July 2008) is very possible again in the foreseeable future.
Annualised world growth is stabilising at 1m barrels a day but OPEC (the oil producing countries cartel) have not increased production which explains the continual rise in prices.
China really is the engine room of economic growth and, therefore, oil demand. Chinese oil demand is estimated at 10m barrels a day but their own production can only offer 4m barrels a day and is flatlining. As such for every additional barrel required this is a an additional barrel for the world oil market to cover. In terms of the ‘winners’ supplying China these include Angola, Oman, Iraq, Kuwait, Kazakhstan and Brazil.
One of the biggest impacts on price volatility comes from uncertainty in the market from world events. Most recently examples of this would include:
- violence in North Africa
- unrest in the Middle East
- the earthquake in Japan
- OPEC disunity
The situation in Libya is a prime example. Production there, since the start of civil unrest, has fallen from 1.4m barrels a day to 200k or less. They are a major supply of quality oil to Europe (Germany and Italy particularly) and much of the fighting has been in or around the production facilities. Libya were supplying 2% of the total world oil. Experts say it will take Libya many, many years to recover.
In fact Saudi Arabia has committed to the replacement of this volume and quality of oil and is filling up storage facilities to prevent such an impact in the future. However, we’re only at the start of this process.
Overall, the oil market is still in distress and if you look at Saudi they have a “ring of fire” of countries in difficulty all around their borders; Egypt, Oman, Sudan and so on. Violence in any of those countries could result in disruption in the export channels.
Overall the Libya/Saudi position is keeping the market on edge due to:
- wariness of the Saudi’s being able to meet the shortfall left by the reduction in Libyan production
- the removal of high quality crude oil and the concern about the quality of the replacement
- conflicts in these areas look like they are set to last
- there are regular attacks and damage to oil production infrastructure
- some end-users are questioning the long term reliability of supply
Another psychological impact on the oil market was the earthquake, in March 2011, in Japan. The ‘quake resulted in 1.4m barrels per day of oil refining closed down – this equates to 31% of the national capacity. The world oil market has a strange relationship with Japan as they’re not sure what the relationship is in terms of supply. After spiking in the immediate aftermath of the earthquake prices have started to come down due to the Japanese quick recovery. Longer term, radiation exposure concerns means construction companies are reluctant to send staff and resources there and this could slow down the reconstruction.
If all of this weren’t enough you then have OPEC disunity to content with. The meeting on June 8th this year was described by the Saudi Oil Minister as “…one of the worst meetings we have ever had”. The current target and actual production will remain at 28.8m barrels a day and this is likely to remain unchanged in the short-term. In fact the world oil market needs more than this but OPEC attempts to de-politicise the cartel and make it more about the economics has left the cartel divided. Countries voting to increase oil production i.e. Saudi, UAE, Kuwait all have additional capacity. Those voting against increasing production are, unsurprisingly, at full capacity. As a result there’s a stalemate in the group and so, for the moment, this has resulted in no change in production, demand outstripping supply and an increase, therefore, in price.
Experts predict we are in for a bumpy winter with OPEC estimates that world oil markets will require 30.9m barrels per day in Q3 2011 and 30.5m barrels per day in Q4 2011. With supply being limited to 28.8m barrels per day this means a 1.6-1.7m barrels per day shortfall.
It would therefore seem sensible to predict that the upward trending red line with continue to do so. Time to get some fixed pricing in place……?
*Platts is a provider of energy and metals information and a source of benchmark price assessments in the physical energy markets. Platts was founded in Cleveland, Ohio in 1909 by Warren C. Platt (1883-1963) to provide “reliable market-based price information” on the oil industry. It is widely used today as the baseline for industry pricing
Question: When is a Preferred Supplier List not a Preferred Supplier List?
June 15, 2011
Answer: When your staff choose to ignore it and do their own thing!
Interesting article in Supply Management magazine today around this subject which is something schools are notoriously bad for despite the best efforts of the bursars.
The alarming statistic from this research is that 60% of employees don’t shop around for the best deal when spending company money as opposed to their own personal money.
Many bursars I speak with hold their head in their hands when it comes to trying to keep control on various members of staff ordering goods and services on their credit cards from non-preferred suppliers and then expecting reimbursement from the school.
‘Free’ gifts and resources or long-standing personal relationships, whilst appealing to the academic staff, are unlikely to be appealing to the bursar who discovers that the core supplies ordered have been done so at a premium price.
As well as not necessarily getting the best value for money on an individual item you also miss out on the opportunity to negotiate bulk buyer discounts when putting all of your category spend with one supplier.
It’s also more difficult dealing with staff with an academic mindset who tends to think along the lines that ‘we’re an educational establishment not a business’ whereas, in fact, a school is both.
So what’s the solution? Well, you’ve probably got a couple of options open to you depending on how brave you feel.
Firstly, you could have a ‘three strikes and you’re out (not reimbursed)’ policy. Identify the serial offenders and if they continue to order outside of preferred supplier arrangements advise that they will not be reimbursed. I doubt it will take long for that message to get around.
Secondly, and slightly less draconian, is to start to centralise your spend. The schools I work with which have a single point of contact for purchasing in certain spend categories get it right more often than not. It doesn’t have to land at the feet of one individual, the task can be shared by several personnel, but by having one individual monitoring stationery, another to book coach journeys and so on your gain much greater control and insight into the spend in that category.
So why not book a review with Minerva today? We can start to assess individual categories, negotiate deals with suppliers on your behalf, help implement new supplier arrangements and train staff in the new regime. As we’re independent we can review the entire market place. Not only will you most likely make immediate cost savings but, by putting in place more efficient procurement practices, these savings will continue well into the future.
- School Procurement News Weekly is out! http://t.co/YmsYN2aC
- "@Official_NFFC: It is with enormous sadness that Nottingham Forest announce the death of the club's owner Nigel Doughty. <Absolutely tragic
- Just placed my first order on www.fiverr.com - loads of great stuff for just $5 - I'm having a postcard designed for my business! @FiverrHQ
- If you're interested in the outlook for oil prices this article is an interesting read http://t.co/valC9U1U
- RT @WilI_Smith: If you're absent during my struggle, don't expect to be present during my success.
- Latest blog on a fabulous event held by #Wilsons Solicitors last week http://t.co/6xyOCIxf Some really useful and topical legal advice.
