More on Crown Commercial Service Demanding Price Cuts from Consultants

Following our exclusive about the Crown Commercial Service demanding price cuts and discounts from their consulting suppliers, we have obtained by purely illegal means a letter from the Public Sector Lead Partner of a leading consulting firm to the UK MD of her firm.

Dear Bob

You will have seen the letter from Crown Commercial Service (CCS) demanding a 5% fee reduction plus a “negotiation” about a further volume discount. You may also know that we have contacted CCS to indicate our agreement. We have little choice really, some 50% of the work in our public sector practice comes via the framework – apart from any other factors, we do not want to jeopardise the jobs of some 30 staff.

However, we will of course take mitigating action in order to minimise the effect on margins. This is essential not just to protect Partners' income, but also because our margins in this practice are already the lowest in the firm. They were only just acceptable for 2014 and indeed we did discuss at length refusing to accede to the CCS demand, as we genuinely bid very competitively two years ago to ensure we won a place on the framework.

We have acted very much in good faith with CCS and our public sector clients over the years. However, this unilateral move changes the dynamics of our relationship. We must now consider that CCS are “the enemy” and will take what tactical steps we can in that light in order to preserve both business volume and margins. So we will implement the following with immediate effect:

  1. A more rigourous approach in terms of choosing which contracts we will bid for, focusing on those mini-competitions where we know the client wants to engage us and we can therefore look for higher margins.
  2. We have offered some good deals to clients on a risk / reward / fixed price basis. These are generally positive for clients when we look at our returns. We will reduce the number of those that we offer. Time and materials will be our standard offering now.
  3. We have implemented a close to across the board “promotion” for staff in our public sector practice. (They have been told that this does not mean a salary increase). So our “consultant” charged at £1000 a day will now be a “senior consultant” at £1200 – even after the 5% reduction and a volume discount, this will actually increase our average margins we believe.
  4. All consultants have been instructed to record and bill for every element of travel and expenses, sundry office costs, telephone calls that we can possibly charge back to clients.
  5. Additional days; where we cannot use the promotion route to maintain margins, and we are working on a time and material basis, we will recover margin that way. We all know it is relatively easy to slip in a few additional days for ”background reading”, or to include some Director or Partner “management oversight” time into the invoice on a major programme.
  6. We don't expect the public to have a lot of sympathy with our cause, but there are clear parallels with the supplier bullying debate we have seen around Tesco, Premier Foods, Heinz etc. We will look for PR around that angle, and enlist the support of the MCA and other industry bodies where appropriate

 

Given these moves, we are confident we can increase our public sector margin in 2015/16. And CCS will of course be able to claim their 5% “saving” on all the ConsultancyONE spend.

Yours etc.

U.N Scrupulous  (Partner, Public Sector)

So now we know. This is what we are likely to see from the industry, we fear, as they fight supplier bullying with the “power” they have at their disposal.

First Voice

  1. Ian:

    Plus the unminuted discussion about moving from up-front discounts with our major travel and hotel suppliers, to a retrospective rebate scheme. They send the full-price invoice for client reimbursement, forgetting to mention the 6monthly 20% rebate.

    I guess most government staff are too young to remember the time a major consultant repaid millions when they were found out.

    Anyone remember who it was?

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