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It’s not uncommon for Texas REPS to outsource essential retail functions, such as billing, customer service, sales, and marketing. Some companies outsource because they might not possess the internal talent to perform certain functions. Others choose outsourcing to reduce costs and increase profitability. While both decisions are understandable, outsourcing does not eliminate a company’s responsibility to ensure that these functions are performed “correctly” and up to the company’s standards and comply with relevant rules and regulations. When companies outsource functions for which they have no expertise, they often make the mistake of turning over significant decision-making responsibilities to vendors without establishing appropriate controls to ensure vendor accountability. One of my favorite phrases has to be, “The vendor said they complied with PUCT requirements.” Unfortunately, many REPs aren’t fully versed in all of the PUCT requirements and aren’t able to spot obvious vendor deficiencies.

They trust their vendors to “know their business” and, as a result, are ill-prepared to resolve problems when they arise. The PUCT has a straightforward approach to using vendors – they hold the REP responsible, period. The regulator doesn’t care if you use a vendor. Their only concern is that you adhere to the rules. The PUCT assumes that if you use vendors to perform critical functions, you have developed processes to ensure compliance. Ultimately, when customers complain to the PUCT, the complaint is filed against your company, not your vendor. Below are some points to consider when using vendors to perform critical retail functions.

1. Ensure contract compensation provisions give your vendor proper incentives to comply with regulations.
2. Hold your vendors to the same quality standards as your internal staff.
3. Ensure you maintain access rights to documents, files, recordings, etc., necessary to prove compliance. You don’t want to be in the position of having to say the equivalent of “the dog ate my homework.”
4. Regularly visit your vendors. You can learn a lot from site visits, both formally and informally. Further, vendors should expect you to be “checking up on them” to ensure that you (their client) are satisfied with how they do business. I have made many of these visits, and I always find them eye-opening. 
5. Ensure that you’ve established appropriate reporting requirements for your vendors. If you don’t have the in-house expertise to assess vendor compliance with regulatory issues, get help!

Finally, I have heard many a time from REPs that when they’ve notified a vendor that a process is non-compliant, the vendor (if they serve more than one REP) will typically respond with something like “no one else has a problem with what we’re doing, so if you want us to change, you’ll have to pay for us to change our process.” This response can feel like a sucker punch. “I have to pay the vendor so that the vendor will comply with the rules?” If a vendor balks at fixing their processes to comply with the rules and regulations, do you want to do business with that vendor? 

Using vendors is entirely acceptable and a widespread practice. Just remember that you, the REP, are solely responsible for adhering to the rules and are accountable to the regulator, so ensure you have adequate procedures in place. 

Several years ago, a certain REP was ordered to pay an administrative penalty of $145,000 for failures in its door-to-door enrollment processes. Specifically, PUCT staff found that the enrollment process for door-to-door sales failed to obtain or confirm account access verification data from 16,078 applicants during the enrollment process.

In this instance, the door-to-door sales were being conducted by a third-party vendor. I’m sure the REP thought the vendor bore the risk for non-compliance, but clearly that was not the case. 

Bottom line: REPs are ultimately responsible for the actions of their vendors.