School Photocopier Rip-offs: Just the Tip of the Iceberg?

A recent investigation by BBC’s Panorama highlighted a widespread phenomenon of schools overpaying for ICT products by many times the worth of the equipment in question.

The programme makers found 169 schools in the UK that had been grossly overcharged for equipment like computers and photocopiers, leaving some with debts of up to £1.9m and facing closure as a consequence.

But while these practices are clearly sharp and shocking, the sad fact is that they’re nothing new. Unscrupulous actors in the photocopier industry have long preyed on non-tech savvy and fiscally challenged buyers at schools, charities and small businesses.

Teaming up with finance companies to devise lease contracts of incredibly poor value (and which are often illegal for schools to enter into), they’ve managed to skim millions from school ICT budgets through a practice that amounts to little more than usury.

What’s the Scam?

Commonly IT suppliers will offer finance leases rather than operational leases to schools. Because finance leases are considered borrowing under accountancy law they’re actually illegal for many schools to enter into (public borrowing requires permission from the Secretary of State).

These types of leases are also often exempt from 7 or 14 day cooling off periods.

While tempting schools into potentially illegal deals is bad enough, it’s on the detail of the leases where the real rip-offs occur.

There a numerous ways that leasing contracts for IT equipment can hide a massively inflated cost over the lifetime of the hardware purchased. Some common practices include:

• Charging per copy on photocopiers – Paying only for the copies, not the machine itself sounds like a great deal for cash-strapped schools. But often the salesman will estimate the school’s usage far too highly and then lock in a price over the lifetime of the photocopier that exceeds the cost of the machine by many times.
• 5 year leases on a machine which lasts 3 years – The typical lifetime for a heavily used piece of IT equipment rarely lasts as long as 5 years yet contracts of this length are routinely offered to unwary schools. The contracts also usually include heavy penalties for early termination.
• Roll-over leases – Often hidden in the fine print or skated over in sales pitches the seemingly innocuous term ‘roll-over’ can lead to paying thousands of pounds unnecessarily for equipment you no longer have. Essentially you end up paying to lease your existing and old IT products after a replacement or upgrade. Interest charged over the length of the contract leads to huge settlement fees.
• Charging RRP – Public sector buyers should never be charged full retail price for IT equipment. Discounts of as much as 60% are standard.
• Refinance deals – Refinancing old equipment over new 5 year deals. The monthly charge might go down but the total cost of the machine multiplies.

These are just the most common scams – there are as many different ways to fleece unwary buyers as the devious sellers can dream up.

How to Avoid Leasing Scams

Most of these terrible deals are caused by an economic phenomenon known as ‘information asymmetry’. In short, while the dealers know what they’re selling, the schools have no idea what they’re purchasing and what a fair market price for it is. The dealers hold all the cards.

Unscrupulous operators worked out a long time ago that the people responsible for purchasing at schools and other public and third sector organisations weren’t all that clued up on business practices. They were also used to dealing with honest and straightforward civil servants on matter financial and so weren’t on the lookout for potential fraudsters.

The OFT investigated sharp practices in the photocopier business as far back as 1994, finding in the industry ‘an extraordinary variety of malpractices and excesses’. The previous government tried to put savvy intermediaries in place to manage deals between IT providers and schools – setting up Becta in 1998 to oversee schools ICT procurement.

Unfortunately, Becta was one of the first casualties of the coalition’s bonfire of the Quangos and there now exists no central body to go to for help – schools are on their own.

Luckily though, advice is available from a number of sources, both national and regional:

• The Department for Education provides procurement advice that is, while rather cursory, at least wide ranging.
• Pro5, the local government procurement organisation, provides indicative pricing and contracts for a host of products and services.
• Many local authorities provide purchasing advice, this is a good example from North Somerset Council. Even if your particular LA doesn’t, look at others – some of the advice may be specific to a particular region but there will often be much to learn.

The best advice though is to

1. Compare as many deals as possible – shopping around will help you avoid the dodgy operators and others operating in a cartel with them;
2. Don’t be wowed by impressive sales pitches – look carefully at the details and don’t sign up to anything you don’t fully understand.
3. Keep asking the important questions – often salesmen don’t understand the product themselves and will give you the answer you want to hear. Only later do you find out that it’s not true.
4. Learn as much about the item you’re purchasing as possible – try to bring in expert help where necessary.

Only through arming yourself with as much information as possible are you equipped to take on the scammers. A tall order for a busy education worker but one that will end up leading to potentially massive savings for your school.

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Jamie Griffiths

Jamie Griffiths writes for Approved Index – the UK’s leading online B2B marketplace for finding deals on anything from photocopier leasing to website design.

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