Beware the contract rollover

There was an excellent piece in yesterday’s Mail on Sunday (The Enterprise Zone) about White’s Seafood and Steak Bar in Hastings which had received a letter from British Gas the previous month warning that their energy contract was soon due for renewal and that failure to terminate the contract within a 3 week renewal window would see them rolled over on to a two year contract at a kWh rate 47.7% higher than their current contract. With an annual usage of 76,000 kWh this would mean an additional £3,200 a year. That’s an awful lot of fish suppers!

British Gas had, however made an error as the business should have been classed as a micro-business as it has fewer than 10 employees. Legally, suppliers can only roll micro-businesses on to contracts of 12 months at most. White’s has, unsurprisingly, terminated its contract and taken its business elsewhere.

This point aside, the important thing is that the proprietors of White’s actually read the letter that they were sent and acted on its contents. I see so many companies who ignore these letters (and let’s face it some seem to be deliberately designed to look as boring and uninteresting as possible so that they get binned or filed as just another peice of junk mail) and then are startled to discover the new pricing that they are landed with which can include huge hikes in both standing charges and the energy cost. At Auditel, of course, we diarise contract renewals so that our clients never get caught out by this sort of thing.

Burn more gas to save money? (Take or Pay clauses)

A strange question at first sight, however quite a pertinent one due to the warmer than average winter we’re having and the implications this can have for some business energy contracts.

Many energy suppliers, particularly Gas, include in their contracts something known as a ‘Take or Pay’ clause giving pre-determined upper and lower limits that your consumption must fall within in order to avoid what are usually fairly punitive charges. i.e. Take what you’ve contracted for or Pay for it anyway.

The pre-set limits are based on your ‘AQ’ – this should be your average consumption over the previous 3 years or so. However we’ve often found this industry database figure to be wildly inaccurate and should be checked against your predicted consumption before accepting any contract. Your AQ becomes your contractual 100% of consumption and the limits are a percentage either side of this, with the limits differing from supplier to supplier.

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If it’s the same as last month it must be right – think again! (To the tune of £210k refunded)

A question for all those responsible for the payment of an organisations energy invoices:

Are you sure that you are only paying for the energy that you consume?

The reason I’m highlighting this is because we recently discovered that a new client of ours had been paying 900% over their actual consumption level for over 6 years on a gas supply! Despite the huge ongoing additional cost that this added to their overheads, the spend had seemingly not been so much as questioned, never mind investigated in that time. A new FD spotted something was wrong and managed to get £80k back themselves, however he recognised that he needed expert help to check if £80k was correct or not and at this stage brought us in, in much the same way that you would bring in a Tax Specialist

As it is the total refund came to over £210,000. This on an energy supply that should – on a competitive tariff at today’s rates – be costing in the region of £7,000 to £8,000 per year (and much less in previous years). A huge additional cost for an SME to bear, particularly in today’s financial climate.

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Threat to Big Four highlights value of Auditel’s service

The Big Four Audit firms are potentially under threat from draft EU proposals published this week which will force them to abandon their consultancy businesses and share their audit work with smaller rivals.   Although this is unlikely to affect the majority of SMEs there are some interesting themes emerging which are relevant.

Apparently FTSE100 firms on average change their Auditors once every 48 years (and some multi-nationals have not changed for over a century according to the FT).   The current status quo does not address the threat of familiarity that results from re-appointing the same audit firm for decades and the independent view that is required could easily be compromised by this close relationship.  This has not only stifled competition but has compromised the ‘ethos of scepticism’ of the accounting profession vis-à-vis their clients.

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A Dynamic Approach to Managing the Cost of Doing Business

Auditel Host 11th Supplier Conference and Exhibition, Whittlebury Hall, Northants

On Friday, 13 May 2011, Auditel, the UK’s largest independent cost and purchase management consultancy, will be hosting their 11th Supplier Conference and Exhibition at Whittlebury Hall near Towcester, Northants. Auditel recognises the importance of proper relationships with the right type of suppliers and partner companies for the exhibition include; EDF Energy, British Gas, Shell LPG, Travelex, Bluefin Insurance Services, Accept Cards, UK Telco, Scottish and Southern Energy and NatWest Mentor.

Established in 1994, Auditel is currently saving millions of pounds for over 3,300 organisations nationwide through their unique Total Cost of Purchase® model. Their services now cover the full spectrum of business expenditure, supported by strong, but independent, supplier relationships and the wide-ranging, top-level experience of over 190 cost and purchase management specialists.

Auditel’s Managing Director, Chris Allison, says: “For over a decade, we have provided this forum for suppliers of products and services to our clients, giving them the chance to meet our Consultants, exchange ideas and explore new opportunities to service our ever-increasing client base. This year, it will be even an even bigger and better event than before. Thirty five market leaders will be presenting their unique offerings to our largest ever gathering of cost and purchase management specialists under one roof.”

“This year, the theme will be ‘A Dynamic Approach to Managing the Cost of Doing Business’. Together with our partners we will demonstrate how businesses can take advantage of the current economic climate, to prepare for better times ahead, emerging stronger than before.”

Paper prices rise steeply

We’ve just received an email from our stationery supplier notifying us that our contract price for 80gsm paper will be rising between 8%-12% from 1st October, with the prices of other stock going up by even more. This isn’t entirely unexpected, we’ve heard rumblings about the inevitability of sharp price rises all year, but it’s unwelcome nonetheless. The reason for the price hikes, apparently, is a set of unprecedented market conditions: a combination of decreasing volume year-on-year, challenging exchange rates, increased pulp prices and lower selling prices for cut paper across Europe compared with China and the USA mean mills are constricting  supply to Europe, pushing prices up. And it seems our suppliers expect the situation to continue until at least the end of this year.

The result, of course, for any business using paper – and I would guess that means pretty much any business of any size – will be a bigger stationery bill at the end of every month, unless they take steps to mitigate the higher prices. In the immediate short term, the quickest results would come from enouraging staff to value paper more highly – not easy when it’s been seen as such a cheap and disposable commodity for so long – by, for example, setting their printer to duplex (double-sided) printing as default, or by saving/filing their emails into folders for future reference rather than simply printing them out. And, of course, ensuring nobody feels they can take the odd ream home for their own use!

In the medium and long-term you should implement a thorough review of your paper purchasing policy. Are you with the right supplier? Could you use a cheaper brand? Could you buy in larger quantities? And so on. Of course, if you work with an Auditel cost and purchase management consultant to look after your stationery and business consumables overheads they will already carry out regular reviews and make recommendations to optimise your purchasing as an integral part of their ongoing management service. If not, and you’d like to contact your nearest Auditel consultant for more information about this issue, visit our website.

BT to raise call charges by 10%

According to an article on the BBC website today, BT are planning to increase call charges by 10% and its monthly line rental by 50p from the beginning of October. The cost of connecting a call will go up by a penny from 9.9p to 10.9p and the daytime rate by half a penny from 5.9p to 6.4p a minute.

As you might expect, however there are a of raft ways in which BT customers can avoid or minimise these increases, for example by signing up to longer-term contracts, moving to bundled inclusive packages, paying annually rather than quarterly or monthly, or opting to receive their bills electronically. Which is all well and good if you’ve got the time and knowledge to obectively review your bills and work out which are the best options for your organisation, including whether to move to an alternative supplier.  Auditel clients who use BT will, of course, be contacted by their consultants as a matter of course to discuss recommendations for ensuring these price rises don’t impact on them.

Are energy issues a board level concern in your organisation?

Many thanks to our colleague David Gray for letting us know about a series of podcasts NPower has put together in conjunction with the Major Energy Users Council (MEUC), aimed at helping organisations better understand four key energy issues. The topics covered are: ‘Security of Supply’, ‘Managing Energy purchasing’, ‘Managing Carbon Reduction’ and ‘Renewables’, all of which have significant cost implications and should be incorporated into business strategy.

As Wayne Mitchell, head of corporate sales at npower says,  “As staff issues have risen up the corporate agenda HR directors have taken a seat on the board and some are now even taking the step to appoint IT directors, but energy isn’t always a board priority.  We believe that time has come – energy now brings with it financial, carbon, operational and even reputational considerations that deserve board level attention, but we know that it’s not always clear exactly how such considerations affect the running of a business.”

Many organisations, large and small, already have bitter experience of rising energy costs over the last few years and, as we’ve seen from recent posts, energy companies are busy reviewing accounts to see if they can raise (in some cases very significant) back bills. Add to this the new burden of Carbon Reduction Commitment (CRC) compliance for organisations with half-hourly supplies, energy usage management, renewable and green energy issues and it’s not hard to see why so many organisations outsource responsibility for managing this complex and time-consuming business cost area to experts like Auditel.

Watch your back bills

Talking to a couple of our consultants this week it’s becoming clear that all the major energy companies are keen to claw in every penny they can in these hard times, which is why they have set up teams whose remit is to go back over business energy bills for up to 6 years. We’ve seen a number of cases in which these teams are generating new bills for old, and claiming tens of thousands of pounds from their business clients. The good news is that these bills are frequently wrong for a wide range of reasons so, if you know what you’re doing, you can get them reduced or even cancelled. At Auditel, of course, we do know what we’re doing and have good contacts and relationships with all the major energy suppliers so have had great results for our clients caught in this trap.

For example, one of our clients, the owner of luxury holiday home parks in north Wales, received a £57,000 back bill for one site dating back to 2004, when they acquired it. A thorough investigation revealed a number of billing and administration errors which, when coupled with some tough face-to-face negotiation with the supplier,  brought the invoice down to £21,000, an overall reduction of 63%. Another, food distribution, client received a final bill for a site they had moved out of 15 months previously. The bill was demanding just over £32,000 based on the fact that the energy company had misread the meter for the 5 years our client was in the building. However, after much  time-consuming negotiation we were able to halve this demand.

Supplier credibility serves Auditel clients well

As cost and purchase management consultants it’s often assumed that our focus is just on saving money for our clients. Well, it is, of course. But the Auditel service is so much more. For example, one of our manufacturing clients with a significant energy spend had been trying to move to a more effective rate with an alternative supplier but was being thwated at every attempt by the stringent application of credit checking restrictions. In other words, supplier bureacracy was forcing them to continue paying over the odds. However, by leveraging the contacts and relationships we have built over 16 years as consultants in the energy industry we’ve been able to negotiate a manageable and affordable security deposit arrangement, enabling our client to benefit from both lower energy rates and improved service. I think that’s what you call a win win win situation!