Does your University Qualify for ESOS? Conflicting messages

UPDATE: Following the publication of this blog, there has been an important update from the Environment Agency which can be viewed here.

There has been a question looming around universities and whether they comply with the Energy Savings Opportunity Scheme (ESOS); the UK’s approach to meeting Article 8 of the EU Energy Efficiency Directive. The Department of Energy & Climate Change (DECC) requires all large organisations in the UK to achieve compliance across their estate before December 5th 2015. A large organisation qualifies if it meets the following criteria;

 

esos

Figure 1: ESOS compliance Criteria

 

Organisations must assess whether they are required to comply with ESOS at the qualification date of 31st December 2014.

Universities and ESOS Compliance – What does the guidance state?

The DECC published Guide to ESOS (September 2014) states that:

“Some universities will be included within the scope of ESOS. Whether or not an individual university is included will depend on how it is funded”.

‘Where a university derives more than half of its income from private sources, such as fee-paying students, it may not need to comply with public contract regulations. It would not be deemed as public body for ESOS purposes, and would therefore need to participate in ESOS, if it’s a large undertaking’.

The Environmental Agency’s guidance – Complying with the Energy Savings Opportunity Scheme (v1.0, February 2015), states the following:

You are not required to participate in ESOS if:

  • your organisation is defined as a contracting authority by regulation 3 of

o   The Public Contracts Regulations 2006 in England, Wales and Northern Ireland

o   The Public Contracts (Scotland) Regulations 2012 in Scotland

If an undertaking only voluntarily complies with the Public Contracts Regulations 2006 or Public Contracts (Scotland) Regulations 2012 they will still need to participate in ESOS.

What do the Public Contracts Regulations (PCR) state?

Universities may be subject to The Public Contracts Regulations 2006, under the following provision in regulation 3:

“a corporation established, or a group of individuals appointed to act together, for the specific purpose of meeting needs in the general interest, not having an industrial or commercial character, and –

                 i.          financed wholly or mainly by another contracting authority;

                ii.          subject to management supervision by another contracting authority; or

               iii.          more than half of the board of directors or members of which, or, in the case of a group of individuals more than half of those individuals are appointed by another contracting authority”

The PCR does not explicitly mention universities, but the ‘Department for Education and Skills Higher Education Funding Council for England’ is cited as a contracting authority. Therefore if a university is financed ‘mainly by HEFCE’ it must comply with PCR. If a university does not have to comply with PCR, it must comply with ESOS, even if it does so voluntarily.

Are student loans classified as finance from a contracting authority? 

It seems that many universities are still unsure about regulation 3 of the PCR, specifically with reference to whether or not they are “financed wholly or mainly by another contracting authority”.

The crucial test is whether more than 50% of the university’s funding comes from public funding, or from another contracting authority. In recent years there have been changes in university financing structures, which could have an effect of whether more than 50% of income derives from public funding. These include:

  1. Higher tuition fees
  2. Increased private finance and international funding for research projects
  3. Greater numbers (3%) of international students

2 and 3 will most likely be considered private funding, but the question of UK tuition fees is important.

The Department for Business, Innovation & Skills (BIS) Government Response Report (June 2012) in regards to procurement rules for Higher Education Institutions states:

‘BIS’s view is that a student loan is a contractual agreement between the student and the Government, with any public subsidy benefiting the student not the institution. The agreement between the student and the institution to pay a fee in return for teaching is not public financing.’

However, the Student Loans Company is owned by BIS, Scottish Ministers, the Welsh Assembly Government and the Department for Employment and Learning in Northern Ireland. It is entirely Government-funded and non-profit making. Therefore funding from the Student Loans Company could be considered to be from a contracting authority.

Next Steps

It is clear that mixed messages exist, with different interpretations being seen from individual institutions who have assessed their ESOS qualification. Many will qualify for ESOS regardless of this debate, as they receive the majority of their funding from private or overseas sources. Therefore, being aware of these changes such as the altering of university financing structures highlights the importance of your university ensuring that effective management procedures are in place, and that your university is keeping track of these changes.

If you are unclear as to whether or not your University qualifies for ESOS, you should contact your Finance Director or equivalent Head of Finance. If they confirm that the university is subject to the PCR, they should provide a formal statement from a responsible officer in the university as evidence of the ESOS exemption, which should be saved as evidence for the Environment Agency if called upon for an ESOS regulator audit

If your university is not subject to PCR, or the university voluntarily complies, you could fall within the scope of ESOS, which will require immediate action.

Thus, urgency is essential here to establish whether your university falls within the scope of ESOS.  If you do, and you require external assistance to assess if you meet the ESOS qualification criteria.

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