- "Free" purchasing services: Do they exist?
By Peter Brewer
1st Mar 2015
There are many organisations offering "free" purchasing services of different types to our sector and we hope this article helps you to ask the right questions before you consider engaging.
There are three distinct groups:
- Public Buying Organisations (PBOs) such as CPC, PRO5 (e.g. YPO, ESPO), the HE Consortia and Crown Commercial Service are the main providers. All of these are transparent and publish their methods of funding, including membership fees, rebates (commissions/marketing premium) or a mixture of both. The important thing to note is that all fees and rebates are plainly advertised so you know exactly what you are getting. PBOs ensure that rebates are low enough to ensure that suppliers do not need to "add on" to bid prices to cover their costs. The PBOs mentioned above provide contract management and do not need third party public sector bodies to act as a contracting authority when they publish EU contract notices.
- Private buying organisations (e.g. Tenet and NPG who CPC partner with) publish all costs of providing a service up front so that the client is completely aware of what they are signing up to. This may be made up of a pre-agreed fee for a service or a rebate from suppliers. The charges are known in advance by any customer. In every case (unless promoting an existing PBO framework on behalf of the customer), organisations of this type will need to work with a public body (to act as the contracting authority) when going out to EU tender
- Private buying organisations who do not publish all costs of providing a service up front. Whilst all organisations are in business to make a profit or at least break even, it is logical to assume that it would be unsustainable to provide a completely "free" service if they wish to remain in business. There are many ways that this can be accomplished with costs hidden to the customer so it is unclear as to how and what they are really paying for the service.
Two examples of the ways that this can be accomplished are:
- The customer pays a percentage of the "savings" achieved. The exercise may involve advising prospective suppliers of current prices and asking them to better them, which would be unethical and could be a breach of any existing agreement. This method can be quite restrictive in that they may only compare a small number of products; this can lead to assumptions about savings from the remainder of the business and may ignore customer on-costs to be paid making inaccurate savings predictions. Often these exercises are conducted without reference to customers EU responsibilities and can leave them open to challenge.
- Conduct tenders demanding a high rebate from suppliers. PBOs very rarely charge above 1.5% which is probably the maximum a supplier can stand without loading the fees to be paid onto the price paid by the customer. A rebate charge of say 5% made by the service provider will mean that the customer is likely to end up paying a minimum of the difference between the 5% and what the supplier can stand. This will have to be paid through the length of the contract and will mean that you are paying considerably more than you need to
There are many other issues that need to be taken into account when making decisions in respect of this type of supplier. Please consider the following: Do they offer contract management during the course of whatever contract is set up? Does the contract that has been set up by them offer you the required legal protection through robust terms and compliance with EU regulations? Would you lose out on the low pricing across a wide range of products normally achieved by PBOs as they go to market on behalf of many institutions rather than just the one?
We hope this article will act as a spur to members to ask the right questions before engaging with suppliers in this last category.