BICS Fees: Should Businesses Really Be Paying 15–20% of Their Savings?
Errrr,
no.
As awareness of the British Industrial Competitiveness Scheme (BICS) grows, so too does the number of advisers offering to support manufacturers through the application process.
Competition is generally a good thing. However, one trend we have seen is giving us cause for concern: large percentage-based fees combined with long-term contracts.
We have seen fee structures in the region of 15–20% of the benefit received, sometimes tied into agreements lasting three or even five years.
For a business receiving a substantial reduction in its electricity costs, that can translate into a very significant advisory bill over the lifetime of the agreement.
And it raises a fairly simple question:
Does the amount of work required really increase simply because the client's electricity bill is larger?
BICS isn't an R&D tax claim
There are professional services where a contingent fee can make considerably more sense.
Take R&D tax relief as an example. An adviser may need to understand complex technical projects, interview engineers or technical staff, analyse expenditure, establish qualifying activities and prepare detailed supporting documentation.
The workload and technical complexity can vary enormously from one claim to another.
BICS is different.
There is still important work involved. A business needs to establish whether it meets the relevant eligibility criteria, identify the appropriate manufacturing activities and products, gather electricity and site information, compile the necessary evidence and complete the application correctly.
But much of this is an eligibility, evidence and administrative exercise.
If one qualifying manufacturer ultimately receives a £50,000 annual benefit and another receives £250,000, that doesn't necessarily mean five times as much advisory work was required.
So why should the second company automatically pay five times the fee?
The problem with long percentage-based contracts
Consider a manufacturer that ultimately receives a BICS-related benefit worth £150,000 per year.
At a 15% advisory fee, that's £22,500 every year.
At 20%, it's £30,000 every year.
Over a three-year contract, that could amount to £67,500–£90,000. Over five years, the figures become even more substantial.
Yet the largest amount of work is likely to be concentrated around establishing eligibility and completing the initial application. Subsequent years should not necessarily require the same level of work.
That's why businesses should look beyond the headline percentage when considering an adviser.
Ask what happens in years two, three, four and five. Ask exactly what work is being provided in return for the ongoing fee. And, importantly, understand how long you're committing the business for.
Our approach is different
At EII Advisory, our philosophy is straightforward:
We believe advisers should be paid for the work they need to undertake — not simply because their client happens to receive a larger benefit.
That's why our BICS work is based around a set professional fee, determined by the work and complexity involved.
Following our initial assessment, we can confirm exactly what the fee would be before a business decides whether it wants to proceed.
As a general indication, we would typically expect fees to fall somewhere around:
Initial BICS application: £2,500–£7,500
Subsequent annual support: £1,000–£2,500
The exact figure will depend upon the circumstances and work required.
We think that's a much more transparent relationship.
If an application requires more work, the fee can reflect that. If it is relatively straightforward, the client shouldn't pay tens of thousands of pounds simply because its electricity consumption — and therefore its potential saving — happens to be high.
Before signing a BICS agreement, do the maths
The BICS opportunity could be extremely valuable for eligible British manufacturers.
That makes getting the application right important.
But a valuable government scheme doesn't automatically justify an expensive advisory contract.
Before appointing anyone, manufacturers should understand the total potential cost of the agreement, the length of the commitment, what services are included each year, and whether the fee bears a reasonable relationship to the work actually being undertaken.
A percentage can look relatively innocuous on a proposal.
Over three or five years, it may look very different.