Why government leasing guidance should change

Over the past year several stories have been publicised in the national press highlighting the dangers of leasing in schools. Last year the BBC’s Panorama programme reported that more than 169 schools had fallen victim to the widely publicised large‑scale equipment leasing scandal, with some schools signing deals that left them paying as much as 10 times the value of the leased computers and photocopiers. However, Government guidance to schools on leasing has not changed and regulations continue to cost schools unnecessarily.
    
Caroline Wright, director at the British Educational Suppliers Association (BESA), looks at the current guidance to schools and explains why BESA is calling on the Government to revise its leasing guidance.

What's the problem?
At the time of Panorama’s report, Stephen Sklaroff, of the Finance and Leasing Association, speaking on behalf of the industry, stressed that it was up to the schools - not the financing companies such as banks, to make sure they were not signing bad deals.
    
However when the Department for Education (DfE) sets its own regulations on leasing, limiting schools to expensive operating leases rather than finance leases, school’s hands are tied. So rather than waste millions on these expensive leasing contracts should schools just walk away from using leasing?
    
The answer is ‘no’. When the correct type of lease is used, many benefits can be realised.
    
Since schools have been given the freedom to manage their own budgets, many have welcomed the opportunity to use leasing to manage their procurement and cash flow and spread the cost of resources over a number of years. A lease gives schools the ability to acquire the technology they need now, rather than waiting until funding arrives. In terms of an expectation of having the latest technologies in each classroom, the majority of available leases for school equipment allow for technology upgrades, enabling schools 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 equipment.
    
Another popular advantage of leasing in schools is the ability to forecast expenditure. 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 could equally be a disadvantage.

Operating lease vs finance lease
The justification for leasing in schools appears to be irrefutable, if government guidance is clear and only reputable financial service providers are used.
    
However, schools are currently only able to use operating leases. An operating lease involves the school paying a rental fee for the hire of an asset for a period of time, similar to a rental agreement.
    
Schools are therefore not allowed to take out a finance lease which can be likened to a loan. The products are owned by the school and should be reflected as such in its accounts.
    
We believe that the government can achieve substantial savings can be made by making a small change to the current leasing and finance guidance it provides to schools. By amending current leasing guidance to reflect industry best practice, schools will be able to secure better value leasing contracts that are more relevant to their educational needs and will be able to achieve multi‑million pounds savings across the sector, supporting the government in the delivering of its publicised efficiency targets.

Call for new guidance
For these reasons BESA has responded to the DfE’s consultation ‘Review of Efficiency in the Schools System’, by calling for Government to introduce new leasing guidance in time for the introduction of the new National Curriculum in September 2014.
    
This is not just about saving money it is about giving schools the chance to make the right educational choices and helping them ensure that they are getting the maximum life from the equipment and resources that they buy. New guidance supported and promoted by this industry, would also ensure that schools benefit from clearer, simpler guidance and cut down on the mismanagement of leasing arrangements by schools that have recently been publicly highlighted.

Philip White, chief executive of Syscap, a BESA member, comments: “The education sector is undergoing significant change and the landscape schools operate in is shifting dramatically. Leasing is becoming an important tool within schools to help secure and grow their IT infrastructure. We have been working with BESA to develop a cost effective approach to finance that gives schools the flexibility to maintain steady investment in their IT assets in order to bring improvements in teaching and student support.”
    
BESA is keen to work with the Government to ensure that leasing contracts are straight forward, transparent, and cannot be altered by a finance company at any time during the term of the lease.
    
In the meantime, if in doubt, always ensure the product supplier and leasing company are BESA members. This will mean they are signed up to a code of best practice business operation, fully understand the sector’s needs and will offer added value support.

Further information
www.besa.org.uk

 

Supplier Focus

Iplicit

An award-winning accounting solution for MATs of all sizes, iplicit for Education has a modern, user-friendly interface that will resonate with busy finance teams and senior leaders. As you grow, iplicit empowers you to add schools quickly and efficiently.