Due Diligence before appointing an Energy Partner for Independent Schools

Given the significant sums involved in energy contracts for Independent Schools, Bursars must be extra vigilant in appointing an energy partner and should not provide a Letter of Authority until a comprehensive process of Due Diligence has taken place.

What to look out for:

  • Start with a company search to check out their true financial position. www.companycheck.co.uk is our preferred portal, and a quick look at the “Financials” graph will reveal all.
  • In my experience, any energy partner with less than £200k in free cash and less than £500k in Net Assets should be discounted, for the simple reason they do not have the reserves needed to compensate a school in the event of an error. Neither will they have access to all suppliers, since there are financial minima applied by key suppliers.
  • Conversely, a broker with very large sums of cash relative to their Net Assets may be being paid commission in advance by favoured suppliers.
  • Request copies of their Professional Indemnity Insurance policy, plus their ISO 9001 Accreditation.
  • Ask for a copy of the CV for their Buying Director (if any, since many small brokers use an “Aggregator” or intermediary broker, to place their contracts) and other key personnel.
  • For a broker claiming to be an expert in the sector, ask them to send a) a full list of their Independent School Clients plus) a list of at least 10 Independent Schools for references. You do not need to take these up, but the chances are you will know one or two and the request will itself expose any exaggerated claims.
  • If a broker features on Trustpilot, have a look at their lower scoring reviews, rather than those written by their own staff and friends.

Key services beyond procurement.

  • Any substantial energy broker should be able to offer a range of crucial services in addition to energy procurement, and these should be provided from internal resources rather than through sub-contracting. For the most part these should be provided free of charge.
  • Basic services which all brokers should offer include energy monitoring, support for meter installations and query resolution.
  • In addition, given the importance of consumption and carbon reduction, check to see if they will provide carbon emission, ESOS and SECR reporting.
  • And on the subject of emission reduction, identify any charges they may make for providing 100% Renewable energy; there should be none.
  • Finally, VAT. VAT on energy is an important issue for Independent schools, and unscrupulous brokers see this as a huge potential revenue generator, taking a share of supposed savings. Their advice is often ill-informed and potentially costly for schools which remain exposed to HMRC penalties. Any broker purporting to know about VAT should be able to provide a copy of the supporting written guidance to which they refer.

Some other simple tips…

  • Cold calls and junk email are invariably from large call centres, and such brokers are entirely unsuited to the complex needs of Independent Schools.
  • Never provide a Letter of Authority until you have completed your Due Diligence. The LOA is capable of causing considerable damage in the wrong hands, with some LOAs actually authorising a broker to sign contracts on your behalf. Indeed, LOAs for so-called “flexible” contracts stipulate this.
  • Shockingly, some brokers have started to encourage schools to sign new contracts deliberately to block an existing contract. This is illegal and exposes the school to punitive damages for breach of contract. Never sign a contract as a means of disrupting an existing contract; if the existing contract was miss-sold, this is dealt with later.
  • Finally, do not be tempted to seek Best Value by using multiple brokers to tender for the same contract. As already described, the sector is rife with mis-selling, and multi broker tenders invariably lead to the broker most willing to fabricate data being appointed. The worst possible outcome. This is a particularly complex issue, and we are happy to expand on the problem at another time!

Are you looking for more information?

The Powerful Allies team are here to help, please get in touch or call us on 01380 860196.