The three of us need to talk; What Ofgem has not told you about British Gas’ fine.
Reading time: 4 mins
Outcome: cheaper, more accurate bills
£4.5m. Could your business deal with that fine?
The Low Down
Last month British Gas Business agreed were penalised £4.5 million for failing to deliver smart meters to their large business customers. I could tell you the differences between meters and about the art meters have inspired. However, worrying about that kind of information is only necessary for my team at The Procurement Group and me. Although, we do not focus on art! Plus, I promised I would keep the reading time to 4 minutes.
What does the penalty mean for your business?
Now to the juicy parts. Ofgem did not tell you what we often forget about our providers. Instead, we think about the huge bills our suppliers just sent and how much they charged you last quarter.
It is easy to overlook that, like you and I, they have growth targets, profit goals and infrastructure plans to meet. Penalties hit those plans. Therefore, the fundamental question to ask is ‘why did British Gas not install the smart meters?’.
The answer; to get more money from their business customers. If you do not have a smart meter, you will receive estimated bills. Suppliers overestimate, and you lose out because your business has to pay the providers more than your usage. Without smart meters, you pay more on every bill, for every site.
How does this affect your business?
Think about how much the estimated bills increase your business costs every month. Now multiply that by 12, and consider how much money you are wasting on your providers every year. Ask yourself, what could your business do with that amount of money? You could employ efficient new colleagues, fit out new sites, present improved profits to the board. However, you cannot. The suppliers have that money because they have not installed smart meters.
Are you angry? Good. Keep on reading.
How can you protect your business?
Install smart meters and get exact bills! No more estimations and no more suppliers celebrating their profits, while your business loses out. Additionally, to get smart meters in every site, just ask your supplier. The responsibility to fit the meter is on them. It will not cost you a thing.
Hang on a minute. You have almost finished this article, and you still do not know who’s having the conversation?
Smart meters have a sim that talks with a data collector and the supplier; thus, providing precise bills based on usage. It is the meter, data collector, and the supplier that must communicate with each other. To receive precise bills, the three of them must talk to each other. Naturally, providers do not want your bills to be exact. Therefore, this conversation happening is a problem our customers regularly face. So make sure they are talking by checking that your bills are accurate, not estimated.
Let’s go back to that money your business is wasting because of estimated bills. Now, let’s install smart meters at every site and ensure the communication channels are active on each smart meter.
What did you say your business could do with the money wasted? Let’s do it.
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Simon Unger is the MD of The Procurement Group, specialising in saving your business money. If your business is spending too much, let us help you save.
Email Simon | 0800 019 3244
5 Things To Know About Effective Contract Management
The first thing to understand about contract management is that it doesn’t just entail awarding and managing contracts.
Contracts form part of every business and the more you have, the less risk you’re exposed to. That’s why you need to have good management processes in place to manage every contract in your business.
1. Where are your contracts?
You should have contracts for the following (at minimum):
· With your partners and suppliers
· If required, customer contracts
· Employee contracts
The majority of B2B suppliers will insist on contracts being agreed. To avoid your business being on the losing end of contractual obligations, the process needs managed. You must know and fully understand the terms you’re agreeing to when you enter a legally binding contract.
2. Never sign without negotiation
That’s a rule to live by in business.
There’s always some wiggle room and it’s the entire reason for part of the duties procurement officers do day in, day out. Assess, identify and negotiate.
They need to review all the terms, understand them and find the areas within the contracts that need revised to improve those terms. Moreover, better terms are most often ripe for the picking. You don’t get if you don’t ask.
3. The ball remains in the buyer’scourt so play responsibly
When you’re negotiating contracts, you cannot be in the mindset of scrounging for every saving you can. Savings are all well and good but never at the expense of a positive working relationship.
One of the worst things for contract management is to have one party feel unjust due to extravagant terms. What can start out as a standard RFP (Request for Proposal)can have numerous bids, the most attractive ones will be analysed, scrutinised and all too often sabotaged.
When suppliers are keen to jump aboard and partner with you, in particular the smaller sized firms,often the owners are looking for security of finance, rather than good terms.
The result is that they don’t have the capacity to understand the entire scope of works being agreed to until it’s too late. They find themselves bending over backwards for too little remuneration in comparison to the efforts put forth. Next thing you know, the quality of service declines, and it’s affecting your customers.
That’s the price of cheap sourcing.
Don’t look for best pricing. Focus on best value.
4. Build the relationship before the contract
You won’t get a great discussion going into negotiating terms of agreements between two parties without the relationship first. When RFPs are first put out, the focus should be on building relationships with suppliers first because often is the case, that’s a representation of how your working relationship will be, possibly for years to come.
If that rapport isn’t there, the working relationship will be poor. That’s just to start with because the contracts will come up for renewal. When you get to that stage, it’s best to be on good terms with a supplier who gets your business, understands it, and works closely with you to enhance your customer’s experience.
Changing suppliers doesn’t help customer service in the short-term but sometimes, things don’t go to plan, negotiations break down and you find yourself beginning the tendering process over.
The management of contracts is never done. As long as they’re in place, they need managed and so do the people and companies involved.
5. Analysis must be thorough
For contract management purposes, there are four ways to assess risk to business finance, and the legal responsibilities or ramifications of commercial contracts.
The four main types of analysis include:
PEST analysis
· Political
· Economical
· Social
· Technological
SWOT
· Strengths
· Weaknesses
· Opportunities
· Threats
STEEP
· Social
· Technological
· Economical
· Environmental
· Political
STEEPLE
Same as STEEP with the addition of…
· Legal
· Ethical
Most businesses will be familiar with the SWOT analysis to assess threats and use that for their internal and external risk assessments. However, when there are changes to the economy, the political landscape cannot be ignored.
Take for example the UK’s exit from the EU. That’s politics affecting businesses of all sizes. That brings legal compliance issues into the risk assessments, and by adding in the issue of ethics for CSR policies, the STEEPLE analysis is the more in-depth option for a comprehensive risk assessment.
Manage your contracts and you’ll be better placed to manage risk within your business, thus preventing complications further down the line.
Without contract management, risk management would be impossible.
Image courtesy of stature.com.sg.
