By: Paul Emanuelli
This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its February 2019 report entitled Procurement of Electricity and Natural Gas Through Aggregators, the Office of the New York State Comptroller found that a number of local government institutions failed to properly assess whether they were obtaining value-for-money in their use of market aggregators, since the use of those resellers and the lack of tendering or benchmarking resulted in significant overpayments in the purchase of natural gas and electricity. As the report stated, the seven institutions that were reviewed “spent $10,050,986 for electricity and natural gas during our audit period” and those that failed to tender the requirements or make contract rate comparisons to potential benchmark rates “did not enter into favorable contracts.”
As the Comptroller noted, five of the seven organizations reviewed (City of Albany; Counties of Broome, Cortland and Oneida; and North Syracuse Central School District) “did not adequately evaluate procurement options or make benchmark comparisons to ensure they received the lowest prices for electricity and natural gas” and five of those institutions “spent approximately $2.4 million (67 percent) more for electricity than a potential benchmark we identified for comparison.” Furthermore, the Comptroller found that three organizations (Broome County, Cortland County, and North Syracuse Central School District) “spent approximately $391,000 (51 percent) more for natural gas than a potential benchmark we identified.” The Comptroller therefore recommended that officials in those institutions “analyze and review other procurement options and potential benchmark rates prior to entering into contracts to ensure they obtain the lowest possible prices for electricity and natural gas.” As this report illustrates, public institutions that fail to explore cost-saving opportunities expose themselves to after-the-fact criticism if they are found to have paid more than necessary in their acquisition of commodities.
