Finding faith in leasing

Purchasing goods for the education market can seem rather like the child catcher scene in Chitty Chitty Bang Bang. If you remember, lured by the offer of free lollipops, ice-cream, chocolate, cherry pies and treacle tart, Jeremy and Jemima climbed into the horse drawn carriage on the streets of Bulgaria and were snatched and imprisoned. It is not surprising, that they got caught; the treats were on offer only going to be offered free of charge on that one day and the benefits appeared to be too attractive to refuse. Similarly for several schools, the promise of free computers if they signed a contract too long to read, lured trapped them into outrageously over inflated lease agreements.

However this recent example of mis-selling is not new to the sector. If we roll the clock back 15 years, Tony Blair summarised the focus of his plan to grow the economy with the iconic statement “education, education, education”, and supported this with a significant investment in technology in schools.

Unsurprisingly the substantial budgets for ICT meant that it was not long before suppliers across the UK recognised the enormity of this potential new audience, and in turn, new hardware and software resources designed for schools starting appearing on the market.

The classroom environment soon evolved from having a shared BBC micro-computer on a trolley, to a place where every child has access to a PC device. A range of e-Learning software started to become available to suit each child’s learning needs and interactive whiteboards replaced the traditional blackboard.

SO FAR, SO GOOD
However, with the funding came the expectation of an improvement in developmental standards. Many schools started to notice the positive effect that technology was having on student engagement and therefore wanted more. When it got to the point that school’s requirements were greater than the available budget, schools started to look at other ways of financing products.

In some local authorities (LAs), the significant level of ring-fenced government funding for ICT investment was held by the LA, who procured on behalf of their schools, while other authorities devolved their funding straight to their schools to make their own investments. In recent years the government’s education technology agency, Becta, which had been responsible for reviewing and approving suppliers, was dissolved. As a consequence, despite a lack of training, many head teachers had to become business managers overnight and mistakes were inevitably made.

Many of the resources that became available to them were designed by credible suppliers who understood the sector’s needs, but sadly others resembled the child catcher.

Stories started to circulate of some unscrupulous suppliers of high cost products, turning up at a school, promising them a ‘too good to be true’ deal and then encouraging forcing the head teacher to sign a completely inappropriate contract for finance. Sadly, many head teachers with little business experience, but large ICT budgets were seen as ‘rich pickings’ by suppliers with far too little moral integrity.

REGAINING FAITH
However, despite amongst all the recent negative media coverage of leasing, huge benefits can be realised if schools have and apply a small amount of knowledge of this potentially very valuable part of their procurement process. 

Looking at the advantages of leasing first, the main and most obvious benefit is that schools can invest in resources they need, when they need them, whether or not the full initial capital is available. The periodic payments are fixed and so the equipment cost is spread over a number of years which can significantly help protect and plan maintain cash flow, which is critical to all schools. This benefit is enhanced when the school finances not only hardware but also the increasingly critical software and services that are required.

Secondly, because the finance contract provides both the budget and the means to pay, schools can acquire the technology they need rather than just what they have the budget to pay for. So educational outcomes can be delivered and schools can avoid the false economy of buying cheaper products.

Thirdly, the majority of available leases for school equipment allow for technology upgrades, enabling the head teacher, governors and bursars to manage the life of their products.

Depending on the term of the lease, as new equipment becomes available schools can upgrade to the latest models often at the same monthly fee. Of course the upgrade usually comes with a new fixed term contract, but with many ICT equipment leasing programmes, schools have the flexibility to add-on extra computer equipment, or upgrade current computer equipment. This enables schools to progress with the latest technology and equipment and avoiding being left with obsolete equipment to dispose of.

WORKING THE BUDGET
Another popular advantage of leasing in schools is based on the fact that a lease agreement is almost always a fixed contract, which means it is relatively easy to budget and forecast. The amount can be worked into the school’s budget much more easily than an irregularly occurring lump sum, allowing better control over current and future cash flow. In the event that an item needs replacing quickly, such as a server, schools can do so with a relatively minor monthly adjustment to the budget, instead of a lump sum that could seriously affect cash flow.

While not a major issue at the current time, leasing is also inflation friendly. Although inflation will be built into the lease, it is based on the current cost of the products rather than how much they will cost at the end of the contract. Of course, with the price of many ICT products falling, this can equally be a disadvantage.

Sadly, the recent negative publicity has resulted in schools becoming very cautious in entering into lease arrangements, it is likely that the resulting reduction in available funding to schools will have a detrimental effect on their ability to invest in the best equipment and maintain standards over time.

LEASING SAFELY
Therefore, as the sector’s trade association, we are committed to finding a way for schools to achieve the substantial savings from leasing while ensuring the contracts are straight forward and transparent and cannot be altered by a finance company at any time during the term of the lease. In partnership with BESA member RM Education, the leading supplier of ICT to UK education, we are keen to work with the government to make a small change to the current leasing and finance guidance it provides to schools so that schools can safely realise the available benefits.

Jon Higgins, RM Education, explains: “By amending current leasing guidance to reflect industry best practice, schools will be able to secure better value leasing contracts, which are more relevant to their educational needs. In this way they can achieve multi-million pounds benefits across the sector, supporting the Government in the delivery of its publicised efficiency targets.

“Our belief is that new directives, supported and promoted by this industry, would also ensure that schools benefit from clearer, simpler guidance to avoid the unfortunate scams recently publicised.”

BESA member Syscap shares these concerns. Philip White, chief executive officer, Syscap outlines the work it has been doing to support schools. “Recognising the significant benefits that can be achieved in schools through leasing, we worked with the Department of Education to produce a short guide entitled ‘Tips for successful leasing in schools.’ The advice was written in association with the Technology Advisory group of the Finance and Leasing Association (FLA) of which I am vice-chairman, and the National Association of School Business Management (NASBAM).

FIVE STEPS TO SUCCESSFUL LEASING
So let’s look at our five important top tips in turn.

The first step is that the school will carry out a detailed evaluation of their needs, evaluate the suppliers and consider the total cost of ownership (including training, maintenance, support and expected life span of the product), not just the initial product cost. Leasing can allow schools to use better equipment that despite appearing to be too expensive to buy outright, does have a better ‘total cost of ownership. The total cost of ownership should also include the cost of disposal of the product at the end of its life. We will come back to this point shortly.

The next step is to find a credible leasing company. Many businesses offering leasing arrangements to schools are the equipment suppliers rather than finance companies themselves. It is therefore important not to be pressured into signing a leasing contract with the product supplier before reviewing the actual leasing company offering the finance.  Choose a company that is a member of the UK Finance Leasing Association (FLA) and bound by their rigorous and well-documented codes of conduct.

Another important consideration is the term of the lease. What some schools don’t understand is that buying a computer which will, on average, last three years, is a very different investment from something like school playground equipment which could last 20 years. The period of the leasing agreement should reflect the expected economic life of the product.

Going back to the total cost of ownership, schools have a legal requirement to dispose of products in an environmentally friendly way. With a lease, the school is agreeing to rent the equipment, not to buy it. Therefore the responsibility of disposal may lie with the leasing company, not the school. Accordingly leasing may be very compatible with any school’s environmentally sensitive procurement policy. 

TIME FOR AN UPGRADE
The majority of available leases for school equipment allow for technology upgrades, enabling the head teacher, governors and bursars to manage the life of their products. Depending on the term of the lease, as new equipment becomes available schools can upgrade to the latest models often at the same monthly fee. Of course the upgrade comes with a new fixed term contract, but with many ICT equipment leasing programmes, schools have the flexibility to add-on extra computer equipment, or upgrade current computer equipment. This enables schools to progress with the latest technology and equipment and avoiding being left with obsolete equipment to dispose of.

Leasing today is a very appropriate tool to ensure schools have a sustainable investment strategy, but it is vital to work with an appropriate supplier and leasing company. An easy way of identifying these companies is to ensure they are members of the FLA and BESA. Companies who are members of these associations sign up to a code of business practice that considers the quality of the product and service and its relevance to the needs of the school.

As summarised by the Department for Education, ‘used with care, leasing can be a useful way of paying for equipment over the period it will be used, avoiding a large one-off payment, and potentially saving money.’

FURTHER INFORMATION
www.besa.org.uk