Best practice procurement

LEP's priority has been to help manage the risks involved in buying energy on volatile commodity markets. This meant transforming energy procurement from traditional fixed term fixed price tendering methods to flexibly priced, risk managed purchasing arrangements.

The first challenge was to bring together the fragmented London public sector to work together. With 33 boroughs plus other public sector authorities developing individual solutions to the same problem, London was dealing with the market from a weak position. A transition had to be made: from historical fixed priced strategies and the cost inefficiencies of individual purchasing to a position of increased collective buying power and a shared solution to energy management.

To ensure that any best practice procurement recommendations were fit for purpose, a number of consultation events and focus groups were held, a full review of current energy procurement practices Opens in a new window including a value for money assessment was carried out. This led to a model model for the delivery of best practice energy procurement Opens in a new window and potential service providers, and finally, a service specification Opens in a new window, against which service providers were evaluated.

We also worked with provider organisations and their suppliers to make a parallel transition, operate within wholesale markets and change the basis of their public sector contracts.

Today 28 London boroughs, TfL, Met Police and London Fire Brigade have adopted the flexible contracts provided by Buying Solutions and LASER Opens in a new window. These 2 Central Purchasing Bodies Opens in a new window were assessed as having sufficiently met the LEP Statement of Requirements at external evaluations Opens in a new window held in 2008. Maps of London showing the changes in energy buying arrangements are attached below.

Over the contract period the adoption of flexible contracts is expected to deliver savings of approximately £20 million per annum: 3.0% through aggregation - reduced supplier margin and cost to serve, 0.5% by switching from fixed to flex - reduced supplier risk premium and 4.7%* commodity price savings against the market average. (An average of *6.5% was achieved in 2008/9.)

LEP's experiences of working with stakeholders to develop the Statement of Requirements (SoR), negotiating a new basis for contracts and evaluating providers and efficiencies have already been transferred to the wider RIEP network and the Pan Government Energy Project. Indeed, the SoR is available and being used as a model for other regions and Central Purchasing Bodies to deliver improvements to public sector energy procurement across the UK.

Service providers and energy suppliers operating the new flexible contracts now also supply large sections of the public sector elsewhere in the country. Both service provider capabilities and customer expectations have been raised and will influence service provider and supplier relationships with public sector buyers across the UK, ensuring that the legacy of LEP's work enters the mainstream of energy supply in the long term.

You can find guidance on the use of Central Purchasing Bodies and their flexible contracts on the Collaboration, knowledge transfer and best practice page.

Download the Energy Procurement Model report and Specification of Requirements

Energy Procurement Model report  Opens in a new window (pdf, 455KB)

Specification of Requirements Opens in a new window  (pdf, 369KB)