Universal Cryo Gas, LLC - Tips for Changing Industrial Gas Supplier

Changing Your Industrial Gas Supplier
Tips on Understanding and Managing the Process

Industrial gas users which would like to find an alternative supplier offering better pricing, better contract terms and better service are often surprised at the difficulties they encounter when they consider changing to a different gas or liquid supplier.

Informed consumers can avoid or deal with many of these difficulties. In most cases users are currently purchasing gas or liquid products under multi-year contracts. Some of the terms of a typical contract make it difficult to switch to another supplier, no matter how unhappy you may be about the service you are getting, prior to the end of the agreed supply period. These provisions, and others, may also make it difficult to use a different supplier to service new demand, whether it results from new construction or changes in operations.

As a practical matter, users who wish to investigate alternative supply options have a relatively short window of opportunity to solicit proposals and determine whether a change in supply arrangements will be beneficial. This "window" is set by the length of time required to solicit and evaluate proposals plus the time which a new supplier needs to install the new supply system and have it operable prior to the end of the current supply period. The "window of opportunity" for considering changes in supply arrangements typically begins about two to three years prior to the end of the current supply period, and ends about one and a half years to six months before the end of the supply period. The window for large, multi-product onsite supply systems starts earlier and ends earlier than the window for single product, lower volume requirements.

A critical element in making a successful and timely change in supplier is to give timely notice of intent to terminate the existing contract to the incumbent. This formal notice is typically required one year, or sometimes two years prior to the end of the current supply period.

Users must double-check the end date for the supply period. It is not uncommon for the contract end date to change if physical changes to the supply system were made or price concessions were agreed to by the supplier. Industrial gas consumers also need to determine what "last look" rights the incumbent supplier may have to match competing offers. These review rights is can complicate bid evaluations and contract negotiations and stretch out the process considerably. Even if the incumbent has no intention of matching or beating a proposal from another company, they may insist on exercising their review rights for the purpose of holding things up for months. Incumbents know that if a replacement contract cannot be placed in a timely manner, it may become impossible for the other company to install the required equipment prior to the end of the current supply period.

To avoid being stymied by these and other possible issues, it is in the best interest of liquid and gas users to begin assessing options well in advance of their supply period termination and notice dates. UCG recommends starting the necessary investigations two to three years before your supply period ends.

The earlier you start, the more likely it will be that you will enter your next supply period knowing that you have the best combination of pricing and other commercial terms; and hopefully, a supplier that has demonstrated the desire and ability to work with you.

Begin looking at supply alternatives well in advance of your change notice deadline

To ensure sufficient time to choose among potential options, it is prudent to start your investigation of onsite gas supply alternatives two to three years in advance of the end of your supply period.

Your contract with your current industrial gas supplier requires substantial advance notice if you wish to terminate the contract. In addition, your current supplier will normally have a "last look" opportunity to match a competitive offer. Until you have been officially notified that your current supplier will not match or beat your best competitive offer, you cannot assume that another supplier will, in fact, be able to become your new supplier.

Defining the optimal system design parameters for the system that will serve you for the next ten years or so, and getting definitive proposals from potential suppliers takes at least a few months. Selecting the most attractive competitive option and obtaining an official "last look" review and response from your current supplier may take several more months. While it will depend on the size and complexity of the system you need, for planning purposes you should assume it will take any supplier at least a year, and, for larger systems, more likely, a year and a half, to perform final system design and site engineering, equipment procurement, installation and start-up of a new onsite supply system.

Starting two and a half years prior to the end of your current supply period is not too early. It is your best insurance against running out of time and being forced to accept an inferior offer that you will have to live with for many years. .

Potential suppliers will need expected future demand guidelines to define a supply system that will give you maximum reliability and lowest total cost. When you begin your next supply period, you will want to know that your supply system will not only meet your average monthly, weekly and daily demand levels, but will also meet your shorter term peak demands as cost effectively as possible. A properly-sized, well-integrated supply system is critical to achieving these goals.

Check your purchasing records for product delivery rate information. Note year-to-year and seasonal changes. Understand why demand was exceptionally high or low in a particular month. Compare delivery rates against known or estimated usage rates for consumption points within your facility.

Most industrial gas users have a combination of a fairly constant "background" usage and cyclic demand at several specific usage points. Defining these components of total demand, and how they may change over time is important. Vaporized liquid supplies can handle fairly erratic demand rates easily, but vaporized liquid is far more expensive than onsite-generated gas.

For the most satisfactory and cost effective performance, the capabilities of your new supply system should closely mirror the characteristics of your expected demand pattern. It should have capacity and operational flexibility to meet most or all of your base demand with onsite-generated gas. It should be designed to use vaporized liquid sparingly to meet demand peaks.

Be sure that you have developed the best definition of your expected demand patterns for the next supply period before you give your existing supplier a "last look" opportunity to match a specific competitive offer.

If your demand forecast has underestimated growth in demand or has not recognized the portion of your demand that is associated with shorter-term demand peaks, your current supplier may be able to offer supply-period-extension pricing that appears to match or beat the total early-year costs of your most attractive alternative supply offer. However, if the alternative supplier's proposal was based on underestimated total demand or underestimated peak demand, your current supplier may be able to make an offer based on continued use of your existing supply system (which in actuality, is inadequate for future demand). If you "roll over" the contract on the basis of faulty assumptions, you will pay far more in future years because of the need to purchase more (and ever-more-expensive) liquid than you would have needed if you had changed to a more optimally-sized system.

Also, be sure you have accounted for all of the costs in the various proposals. One supplier may quote a price for on-site-produced gas, and for each unit of backup liquid, but omit customer station (liquid storage and vaporization) equipment lease costs. Escalation procedures also need to be compared if year 1 costs are similar. On-stream time (equipment availability) guarantees may not be the same. Every site is different. Contract terms need to reflect your priorities and concerns.

Commit to accepting a proposal from an alternative supplier if it is the best offer

Work with potential alternative gas and liquid suppliers to define a supply system optimized around your needs; then commit to accepting the best proposal if the incumbent does not beat it.

Make the incumbent's "last look" a last look. Allowing your current supplier to come back with a modified offer, after initially declining to meet or beat your best competitive proposal, is not fair play, and can have unexpected consequences.

Accepting "last minute" revised offers from your incumbent may be risky. The offer may be conditioned on receiving higher-level management approvals that may not materialize. If that attractive (but not yet approved) incumbent offer is withdrawn or modified prior to formal signing of a new contract, you may be left with no alternative but to continue buying from the your current supplier under less favorable terms than you could have received from others because there is no longer be enough time to install a new supply system prior to the end of the current supply period.