Some amusement for a Friday!
November 4, 2011
Had a little ironic chuckle about this cartoon today.
"We can save on our heating bills by burning money"
Enough said I think!
Procurement is no easy job – just ask the Government.
November 16, 2010
The last few weeks have delivered a plethora of news stories on efficient (or in most cases inefficient) procurement practices.
The main story has been around Sir Philip Green’s ‘Government Spending Review’ which generated headlines with the words “shocking”, “inefficient”, “inconsistent” and so on. Whilst I am not suggesting that Independent Schools would generate anything like such negative feedback on their procurement practices it goes without saying that many could benefit from additional resource and expertise in respect of their purchasing. Most bursars I speak to say that either they or one of their team know they could do better but it’s ‘finding the time to do it alongside all of the other tasks’.
So what are the issues highlighted that you can take from Sir Philip Green and apply to your own school?
1. Is there a culture of ownership of spending within the school? Do administrative and teaching staff make purchases as efficiently as if they were spending their own money? Schools are in the business of education and this should include educating all personnel on the financial implications of decisions they make.
2. Is there a formal process of review for departmental budgets? When annual budgets are submitted are they simply accepted or is there a degree of challenge? Is now the time to cull the ‘sacred cows’ that no one has dared challenge before? You have to have had your head buried in the sand for the past 18 months not to see what the climate is like and so it’s a good time for Bursar’s to review ALL expenditure.
3. Is purchasing being conducted by personnel with the relevant skill sets? We’re talking about spending of millions of pounds in many cases being ‘managed’ by Heads of Department or administrative support staff with no formal procurement or negotiation training.
4. Have supplier invoices been reviewed to ensure that where items are being ordered by different departments they are all paying the same prices? Also, on aggregating annual volumes across the school there is often an opportunity to renegotiate pricing with the supplier based on the value of all business.
5. Have you benchmarked your purchases externally to ensure you are paying at or below market rates for the products or services? In many cases this is quite difficult to achieve as this type of exercise requires a significant time investment to gather the benchmark data. This is where the services of a firm such as Minerva is invaluable as we already hold this data from various previous audits. In the case of the Government printing costs showed differentials of 15% and 80% between market prices and what the Government were actually paying.
6. Have you considered more cost and environmentally efficient ways of doing business? Obvious examples include emailing bills instead of posting; using another school to conduct ‘offsite’ meetings with the ‘quid pro quo’ being they can use yours; is video conferencing an option for Governor/Trustee meetings thus cutting carbon footprint and travel expenses?
7. When did you last review your expenses policy? Are you happy that this cannot be ‘abused’? Have you considered the use of Company Credit Cards? I know many schools are fearful of this but it’s actually an incredibly secure, cost efficient and administratively efficient means of controlling personnel spend. Nowadays spending limits can be placed on individual cardholders and even where the card can be used can be fixed. In addition if you have Government Procurement Cards (which you qualify for if you meet certain criteria, which most schools do) then there is not even any cost for having them.
8. Have you reviewed any long-term contracts in place. Often these are overlooked on the basis that “we are locked in”. However, investigate the penalties for early release from any contracts as it’s quite possible that cost savings generated from a contract with a new supplier will still be achieved even after any penalty payments to get out of the old one.
9. Are you maximising the value of your property portfolio? Many schools have extensive grounds and infrastructure which is under utilised. Whilst external ‘lettings’ are sometimes seen as unpalatable to more traditional institutions this would enable revenue generation from something which presently costs money rather than makes money.
10. Remember that this exercise is not a ‘one-off’. Efficient procurement should be an ongoing activity as much through the good times as the bad. It is more difficult to manage revenue but it is within your span of control to monitor and reduce expenditure.
Luckily for us we are not in the position to have to find £6bn of savings like the Government but all of the above points are as relevant to schools as they are to the Government.
I hope that the above is a useful list of areas to consider if only a memory jogger.
Good luck!
The only way is up (for energy costs).
October 18, 2010
I attended the very informative Autumn Roadshow of the Major Energy Users Council last week. As its name suggests the Council is there to represent and lobby on behalf of those organisations that consume substantial amounts of energy.
Speakers included Jo Butlin, VP – Retail from Smartest Energy; Mike Hogg, General Manager of Shell Gas Direct, Magali Hodgson, Optimisation Desk Manager at npower alongside representatives from the MEUC.
There were several key points that came out of the various sessions but the overriding message was that energy costs for business will continue to rise significantly over the next 5 -10 years.
It was summed up most clearly by Jo Butlin who talked about energy bills being made up of direct, indirect and administration costs. Direct costs relate solely to the wholesale price of energy which is clearly on an upward trajectory with no signs of levelling off at this time. Administration costs are as the name implies and are also on the increase. The interesting part was in respect of the indirect costs. These include areas such as distribution costs (projected to increase by 40% over the next 5 years), transmission costs (up 18% over the same period) and then the costs of the plethora of ‘initiatives’ designed to raise revenue to fund projects aimed at meeting our environmental commitments. Initiatives such as Climate Change Levy, Carbon Capture Storage, CRC are all pushing energy costs skywards. The Government has pledged a £200bn investment over the next 10-15 years and with spending cutbacks being announced on an almost daily basis it doesn’t take a genius to work out where the majority of that £200bn willprobably come from – energy consumers.
In addition to price rises it is clear from the feedback of attendees that energy management and compliance is becoming a core task within organisations. Reducing consumption is a clear priority and businesses are starting to use MI to proactively manage their energy requirements. Smart meters and AMR (Automatic Meter Reading) systems are being used by customers to save up to 20% on their bills by using the data to review what they do.
Another proactive means of reducing costs is through feed-in-tariffs now available. Certain renewable energy schemes, PV solar panels for example, enable you to generate your own energy any of which consumed on site avoids distribution and transmission costs. In addition surplus energy can be ‘sold back’ to the grid to generate revenue.
The final presentation by Don McGarrigle, Energy Pricing Advisor for the MEUC advised that by 2020 there was the likelihood of a 43% increase on non-domestic retail energy prices due to the low carbon impact. It is also worth noting that the Climate Change Levy (CCL) is being reviewed in Autumn 2010.
Essentially the message almost uniformly from all the speakers was that energy costs will rise significantly over the coming few years. From my perspective it clearly highlights the need for expert assistance in this increasingly complex area of spend. Not only to ensure you are achieving ‘best value’ from the tariff you are on but also to review all options available to you to assist in reducing your consumption.
If any of these areas are of concern or you wish to have a no obligation discussion on any of the points raised then please do get in touch.
From one extreme to the other – the differing fortunes in the independent sector.
September 28, 2010
Nothing demonstrates more clearly the current situation in the independent schools market than two articles received in my InBox yesterday.
The first was an article published in The Daily Telegraph confirming a 6% increase in the number of pupils at age 16 being admitted to a fee paying school this year. Clearly this is in direct response to the widely publicised lack of places at the UK’s top universities. With places being fought over more fiercely than ever parents are responding by sending their children to fee paying schools in the hope that this will improve their chances of that elusive university place.
The figures published from a survey by the HMC (Headmasters & Headmistresses Conference) show an overall rise in pupil numbers at member schools of 0.49%. This included a rise of 6.3% at age 16, 2% at age 11 and 4.4% at 13. On that basis therefore somewhere there has to have been a decrease in numbers and that is clearly at the Pre-Prep and Prep schools.
Which leads me on nicely to the second article I received from the Funding for Independent Schools magazine. This is promoting a forthcoming event “The Future for Smaller Independent Schools – continue, change, merge or close?”
This is a well-timed and clearly popular subject (this is the second time the seminar is being run). The subject matter includes generating additional revenue, when merger is a good idea and safeguarding your reputation (a vital area). Interestingly there is one subject area not covered which I feel is a big omission – perfecting procurement. Generating additional revenue is all well and good but it’s a lot harder to do than cut costs, if it wasn’t then surely not all of these schools would find themselves in this position in the first place. Good procurement practices within schools can save significant sums, as we have seen at Minerva. Savings in excess of 25% are being realised on some significant categories of spend. I do think, therefore, they have missed something vital here. That said, I believe this should be an excellent seminar and hope that is of use to those schools who find themselves facing difficult times ahead.
In my mind the above two articles clearly show the stark differences in the fortunes of independent schools at the present time. Let’s hope that with the requisite professional assistance those with challenges can be supported through this period to survive and take advantage when the inevitable upturn begins.
Charities most affected by VAT increase.
September 20, 2010
Of course this is probably stating the obvious to anyone who works in the not-for-profit sector. Many are unable to reclaim most, if not all, of the VAT they incur. With VAT set to rise to 20% in January 2011 are there any actions that charities can take to minimise the impact?
The answer is, of course, yes. There are some actions which will slightly mitigate the increase and keep you within the letter and spirit of the legislation. Some may appear to be obvious but it is always worth a reminder:
- Ensure that you maximise any purchases you can make at 0% or the reduced VAT level of 5% – although with energy costs please see my last blog for a word of warning on this area
- Clearly if there is the possibility of bringing forward any large scale expenditure it would be prudent to do so
- Take advice – most accountancy practices have tax specialists so use their knowledge
- Take advantage of all available reliefs such as advertising services, approved alterations to listed buildings used for non-charitable purposes and new building construction for residential purposes to name but three
Where a supply spans the VAT rate date change ensure that your supplier is aware of the rules re apportionment to ensure that the VAT is charged at 17.5% to the greatest extent possible.
Thanks to my friends at both Baker Tilly (www.bakertilly.co.uk) and James Cowper (www.jamescowper.co.uk) for their newsletter updates on this issue.
Concealed consultancy commission is raising energy bills
August 17, 2010
A well timed warning from Supply Management magazine this week regarding the hidden commission being charged by many utility brokers. Whilst it is probably fairly apparent that increasing unit rates is the way brokers make their income it is also clear that many organisations aren’t querying the actual amount being charged thus leaving themselves open to potentially poor deals. Clearly there is benefit in bursars using a utility broker to reduce their workload and find the best deals. However, the cost of this should be considered as it’s quite possible that a much better deal can be had by going direct to the energy company. In addition it is apparent that there is not only a lack of ‘after sales care’ with many utility brokers (sale is complete and commission received) but also that they are not aware of, for example, VAT rules for independent schools.
In dealing with a contract review for one of my schools last week I came across one such firm, which I won’t name, who were completely uninterested in assisting me with a query I had on the contracts they had already arranged for the school. The response from the ‘Account Manager’ was “I don’t get involved in this, if we looked at every bill for every customer we’d be here all day”. I also queried her understanding of VAT on energy for independent schools which was met with a stony silence.
I made further enquiries with two other utility brokers and neither of them understood the rulings around VAT either. In fact one broker told me that “all independent schools are charities and so they automatically qualify for 5% VAT. I always get the forms sent out to them to complete for that”. This statement is not correct and could very well lead to a school paying 5% VAT when they should be paying 17.5%. The implications are clear; a VAT inspection would lead to a requirement to pay backdated VAT for up to 4 years as well as fines for breaches in the rules. A costly mistake to make.
There are a number of times when VAT is payable at the lower level of 5% but applying for this should be done after careful consideration that the criteria has been met. After extensive discussions with HMRC and Baker Tilly VAT specialist Rupert Moyle, Minerva have a full understanding of these criteria and can confidently advise in this area.
I know you are probably wondering why I would be suggesting that it not such a good idea to use a utility broker when I am a consultant myself. The difference is transparency, expert knowledge and after sales care. At Minerva we deal direct with the energy companies and do not charge any commission on the unit costs nor do we receive any commission from the energy companies themselves. As a result you can be confident that you are getting the best deal. Our fee payment is based on a % of the savings you make against the existing tariff and you will therefore only pay if the school is saving money. In addition to this Minerva is keen to work in partnership with your school in any area, not just utilities, and this means we take customer care extremely seriously – we look after our clients so we can work with them again.
If you require any further information on this topic please don’t hesitate to get in touch.
Interest rates set to rise? Dr Andrew Sentance would like to think so.
July 13, 2010
I attended a very enlightening speech today from Dr Andrew Sentance, Monetary Policy Committee member at the Bank of England. Taking place at the Hilton Hotel, Reading and hosted by the Thames Valley Chamber of Commerce this was what’s known as an ‘on the record’ speech. As a result there were representatives from many financial media organisations such as Reuters and Bloomberg.
Dr Sentance used the speech to explain how his view of economic prospects has shifted and why he voted for a small rise in interest rates in June.
Dr Sentance began by explaining that last year the economic backdrop was one of sharp falls in demand and rising unemployment, uncertainty about recovery prospects and a general expectation of persistent below target inflation. “A year on, however, the economic situation has changed,”. He described a number of features of the current economic situation that he believes are very different from the expectations of last summer.
He argued that the world economy has bounced back strongly, and while uncertainties persist, “…worries about possible uneven-ness in the pace of global growth should not be confused with signs of a ‘double-dip’ recession”. In turn, he stated that he believes that “…the UK economy has also turned around since last summer”. He pointed to a reverse in the downward shift in money spending as well as positive business survey outturns as evidence of a rebound. He also believes that expectations of large margins of spare capacity have not been borne out by the available data. And he suggested this may, along with the depreciation of sterling, help to explain the failure of inflation to drop back in the way the MPC expected a year ago.
Andrew Sentance concluded by saying: “In my experience, recoveries have momentum. While growth might not be totally steady and even across sectors, as recovery progresses, various mechanisms begin to operate which can give it added momentum”. He added: “A year ago, the predominant worry was that inflation could be significantly depressed by the impact of the recession. That risk did not materialise. And while I’m not yet worried that we face a major and serious risk in the opposite direction, I do think we need to adjust the policy settings we put in place to head off the downside risks to inflation identified in the immediate aftermath of the big financial shocks in late 2008 and early 2009″. He also added that whilst there may be some nervousness about the economic recovery in the UK that this should not influence the MPC decision making.
Dr Sentance was keen to use the opportunity to give a message to the media about the choice of words they may use to report on the 0.25% Base Rate rise he would like to see. Out go the words “rate hike” and “tightening of policy” due to the potentially negative feelings these could generate. His preference being for language such as “slowing” or “normalisation of policy”.
He described the UK economy as a “patient coming out of intensive care and moving into the recovery ward” and that in this scenario a change in prescription (monetary policy) would be necessary.
Overall it was an extremely interesting speech which much food for thought. He certainly makes a compelling argument for a gradual increase in Base Rate and one suspects it is only a matter of time before his MPC colleagues start to come around to his way of thinking.
If you wish to view the text of the entire speech this is accessible via the Bank of England website.
Public benefit……..again!
July 8, 2010
No surprise this morning with much media coverage being given over to the reports published today by the Charities Commission on the two preparatory schools which failed the public benefit assessments last year.
Concerns remain due to bursaries seemingly being the only real area the commission is giving any weight to when making the overall pass or fail assessment. Any other activities deemed to be for the benefit of individuals and organisations outside of the independent school, such as shared facilities or public speaking events, seem to have limited impact on the overall decision as to whether the public benefit test is met or not.
BBC Online comments on possible legal action being taken by the Independent School Council (ISC). The ISC is bidding for a judicial review of Charity Commission guidance with Chief Executive David Lyscom advising that they “had no alternative but to challenge the commission in the courts”. He also raises concerns that there is no end to the uncertainty of the rules with the Charities Commission able to change their interpretation of them as it suits.
The ‘public benefit’ test was introduced as part of Labour’s 2006 Charities Act which places the onus on private schools to ‘prove’ that they offer benefits to the wider public in order to retain their charitable status and the tax breaks that brings.
It is believed that the tax breaks are worth around £100m per annum to the independent school sector. However, and I think this is a fact that is oft overlooked, this should be offset with the amount of money the schools are saving the Government by schooling thousands of children thus meaning that are outside of the state school system.
Even prior to his appointment as Education Secretary, Michael Gove has been a critic of the Charity Commission’s approach so it will be interesting to see if he takes action on this before the ISC have to embark on a long-winded and expensive legal battle.
Looks like this will continue to rumble on for some time to come.
Common sense prevails for a change!
June 29, 2010
I was delighted to hear the news that the new Education Secretary, Michael Gove, is looking to introduce School Olympics in a bid to increase the amount of competitive sport in our schools.
Thank goodness that the PC brigade have been over-ruled on something. I don’t know anyone who is happy that their children are having to participate in non-competitive sports days on the basis that no child should be made to feel bad for losing. All this will serve to do is give us a country of losers! We struggle enough in sporting success on national level – England football, British tennis champion (Mr Murray aside) – and so I am delighted that schools should be encouraging children in team working and striving to be the best they can be.
Of course in this sense the independent sector is ahead of the curve with a much greater percentage of school time being allocated to physical activity in addition to inter-schools competitions.
Using available space to generate revenue…..
I also wanted to make you aware of a recent article in FMX magazine which shows an excellent example of self-funded school St John’s in Marlborough making excellent use of their space in order to generate additional revenue for the school. In these more challenging times any schemes to bolster income can only be positive and I would urge all bursars to continue to look at new and innovative ways of increasing school income from commercial activities.
Kinnarps are a Swedish based furniture company and Angus Kaye, who wrote the article, also gives some interesting insights in to the ‘much talked about’ Swedish free schools model. On a more local level the Kinnarps Account Manager, who worked with the school to help more their ideas to realisation, is Steve Jones who was clearly an integral part of the success of the project.
Kinnarps are currently running a competition where you can win the school a FREE space plan or a Swedish picnic Pack!
And finally…….
If you have missed it, here is a link for the details of all of the schools who have registered their interest in becoming an academy. This was apparently only revealed after a Freedom of Information Act request!
So a mixed bag of updates on the blog today. Hope they’re useful
Trustee Induction and Refresher Training
June 22, 2010
Having recently run a presentation with the Blake Lapthorn team I am aware of their indepth knowledge and expertise in the charity sector. Whilst I have not personally attended the trustee induction course I am sure that it will be delivered to their usual high standards. Whether attending this or another event, I believe it is absolutely imperative for trustees of independent schools to receive professional training in order to help them fulfil their roles as successfully as possible. It will also ensure they fully understand their legal obligations which are often more onerous than trustees imagine when they take on the role. I suspect that it is well worth a small investment to ensure your school has robust and effective governance.
- 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.
