Published Monday 14th October 2019
Over the past 2 years it has been particularly easy to blame the state of the economy or just business change on Brexit. However, there are any other number of factors putting pressure on businesses and this is no different for independent schools. The latter in particular have seen their budgets impacted by things such as pupil retention to regulatory requirements to increased pension funding.
Ensuring budgets are set realistically and are achievable particularly with the new school year approaching has never been more important. Based on pupil numbers for the year and therefore known fee levels, schools have a ‘ballpark’ figure to work on for the year. But what other options are there for schools to generate additional revenue?
Some schools may be lucky and have assets that allow them to generate extra income. A good swimming facility or the grounds to host events or activities, for example – but although good options they are only viable when worked around the school’s primary function of providing education. So, where else can a school look?
Capital Tied up with Suppliers
It may be a surprise to learn how much capital is potentially tied up with suppliers delivering goods and services to schools. But the question likely to be asked is, “these are all relevant and can’t be done without if the school is to operate”. Supplier contracts can often be based on long term agreements and relationships, but at some point that contract will reach a point of review or renegotiation. This is the critical moment in time that any school has to establish whether substantial savings can be made – but all too often this opportunity is missed.
ERA has repeatedly come across these situations, and in most cases for the same reason.
Print Management Example
If we take Print Management as a spend category, for example; in numerous cases contracts have been signed for 5 years. This is a long time for these types of services as Managed Print solutions today tend to go through far more regular change cycles.
In the UK there are over 450 independent Dealers, each with their own terms and conditions. From ERA’s experience most suppliers will have terms and conditions biased in favour of the supplier rather than their client. ERA has seen many awful terms and conditions, and this is one of the areas where there needs to be caution and independent expert advice. Some of the terms seen in recent projects include:
Five year service terms even though the lease term might only be three years
Committing the client to excessive and unnecessary print volumes for five year terms, making it difficult to end the contract early without inflicting large service liabilities.
Applying annual price increases, sometimes several per year, often 10-15% per annum, which when compounded over the service term, can double or more the original cost per copy charge.
Having notice periods of 12 months to end service contracts, even though the norm is 90 days’ notice, which then enforces an unnecessary and unwanted renewal for a further 12 months.
Often ERA see multiple contracts in a school ending at different times, often over a period of 7-8 years. This results in complex contracts, which are difficult to renegotiate at a later date. It leads to schools often being forced into making a decision at renewal that in the long term will benefit the incumbent supplier and not the school. It can be a never ending cycle.
Schools Need Time and Resource
What a school really needs and usually doesn’t have enough of – is time, resource and expertise to fully review their contract, obtain unbiased knowledge of what is happening in the market place, what equipment may now suit the school 5 years on from the last agreement at the right price and with the best service arrangements. Typically, a Bursar or School Business Manager is too busy with other important tasks, and often lacks the resource from other departments and has to make a decision only partly informed and in a time frame that takes in to account the supplier’s renewal termination period, if it has been picked up in the small print!
This often explains why ERA comes across poorly negotiated contracts, inappropriate equipment for a school’s needs and inflated prices. Our recommendations would be to:
- Always review and understand your contract well in advance of its renewal, at least 18 months would be the advice
- Never upgrade a contract before the end of the current term
- Be very wary of suppliers who offer to settle an existing agreement
- Always be wary of the incumbent supplier and their ‘special’ renewal deal
- Be wary of suppliers low costs, as this often can result in hidden costs and/or poor service
- Be wary of any deal that seems ‘too good to be true’
- Always consider taking independent advice. ERA have industry experts with many years’ experience in their sectors.
At ERA our primary aim is to work closely with all our clients not just to reduce costs but to introduce them to the best suppliers based on all their business needs. Strong relationships are built not just for the duration of the contract but as long-term advisors.
In all situations this starts with trust. That might be agreeing to have a brief first meeting, it could involve sharing a supplier contract for an initial review. This won’t cost more than a little time but in the long term could result in a far better negotiated contract, with terms and conditions that favour the school, and a supplier who has the schools interest at all times rather than their own. Sadly, from ERAs experience far too many suppliers neglect their client once the contract has been signed, and then there is the long wait from the schools perspective, for the contract to end before the lengthy renegotiating starts again!
About the Author: Stuart Hallam, has more than twenty five years’ experience of delivering change within organisations. He enjoys working with high-performing teams to ensure achievement of individual targets, project goals and company objectives.
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