“Outsourcing” traces its modern roots to the global expansion of business in the 1970s and 80s. During this time frame, the mindset was that, in order to compete, organizations must focus on their core business, and then identify other critical services that could be accomplished by contracting outside the organization. An organization typically would “outsource” if it did not have the necessary internal competency. These outsourced services were those necessary to run the organization, often highly specialized, but not related specifically to the core business.
While this movement picked up steam in the private sector, the public sector soon embraced the strategy. When it comes to procurement by federal agencies, the General Services Administration (GSA) is a perfect example. A particular federal agency will utilize its own staff and expertise to deliver the goods and services required by the agency, while outsourcing the procurement function for various products and services to the GSA. While the concept is straightforward and time-tested, many entities have shied away from outsourcing because they felt it threatened their role, added cost and time, or in some cases, because their governing body felt it should be done internally. Here we will investigate when it makes sense for an organization to outsource the management and procurement of energy for its facilities, and how to discuss the decision within the organization.
Lack of Personnel. When you don’t have the staff available to devote the necessary time, outsourcing makes sense. This is such a common theme with governmental entities that it is almost overlooked today. In most departments, when an organization looks at the list of what needs to be done, the next thought is that several more people need to be hired. The reality, though, is that the funds needed to hire those people never seem to materialize. Therefore, the old mantra arises, “You must do more with less.” When it comes to managing and procuring energy, if the staff is not available to devote the necessary time, then organizations many times just stay with the local utility or rely on their current supplier to continue providing service. Any option that does not involve a full competitive procurement process ultimately leads to a less desirable price and a higher utility budget.
Lack of Resources. When the job you need to do requires a certain set of tools/resources you don’t have, outsourcing makes sense. In situations when a purchasing department has the personnel available to conduct a fully competitive procurement for energy services, the issue then becomes whether the resources are present to lead to maximum success. In terms of energy procurement, the most essential resource is daily, direct access to the wholesale energy markets. More than any other factor, it is the wholesale price of energy that directly affects the retail price the end user will pay. Therefore, the very best thing that an organization can do to increase the likelihood of contracting at a favorable time, is to actively monitor the wholesale market on an ongoing basis to fully understand the current market and the factors that may cause prices to rise or fall today, tomorrow, or next week. If your organization does not have this ability, outsourcing to a firm that is involved directly in the wholesale energy market is by far the best way to obtain this resource competency.
Lack of Expertise. When your current staff doesn’t have the experience or expertise to successfully complete the job, outsourcing makes sense. So what about the situation where an organization feels it has the staff and the resources necessary to procure energy? One might then ask if the staff actually has the expertise necessary to bring these pieces together successfully. The right tool, in the hands of someone who doesn’t know best how to use it, is many times as ineffective as using no tool at all. The best resolution always comes when the person coordinating the procurement is an expert in the field of energy, with a thorough understanding of both the wholesale and retail markets and many years of experience advising users.
The bottom line is that, in order to ensure an organization procures the right price, at the right time, under the best contract terms, you must make sure you have dedicated staff with a high level of expertise in the energy sector, along with the resources necessary to access, understand, and interpret movement in the wholesale market. Only if you have all of these pieces in place should you attempt to procure energy services internally. For those organizations that do not, outsourcing the management and procurement of energy not only makes sense, but is the responsible thing to do in order to best control and manage an organization’s utility budget. It’s all about “return-on-investment” – any added cost of outsourcing is superseded by the overall lower cost of energy. When all the pieces are utilized properly, and the procurement department is able to continue to demonstrate its value by saving dollars that could be better utilized in other areas, everyone will agree it’s IN to OUTsource energy.
Written by Bob Wooten for Government Procurement magazine http://viewer.zmags.com/publication/25d710e2#/25d710e2/12
Bob Wooten, C.P.M., CEP, is Director of Government Accounts for Tradition Energy, where he manages energy procurement for a wide variety of governmental entities including cities, schools, colleges, universities, housing authorities and municipal districts. Contact Bob at Bob.Wooten@TraditionEnergy.com
Tradition Energy is a supplier with U.S. Communities Government Purchasing Alliance. U.S. Communities is the leading national government purchasing cooperative that reduces the cost of goods and services by aggregating the purchasing power of public agencies nationwide. To learn more about Tradition Energy and U.S. Communities’ other contracts, please visit www.uscommunities.org.