Exclusive – Now UK Government Is Accused of Supplier Bullying as it Demands Price Reductions!

After organisations such as Tesco and Premier Foods were criticised for demanding additional payments from suppliers, and Heinz and Sainsbury’s (amongst others) were similarly taken to task for extending payment terms unilaterally, the UK Government’s Crown Commercial Service (CCS) is the latest organisation to be tarred with the “supplier bullying” brush.

The Crown Commercial Service, which manages common category spend now across central government and its associated bodies, as well as providing frameworks that are widely used by other public sector bodies, has offered a contract extension to suppliers who are listed on the “ConsultancyONE” framework. Put in place in early 2013, the agreement should expire this spring but the offer is to extend until May 2016. The framework contains multiple “Lots” and covers a wide range of general consulting, functional areas (including procurement and HR) and Audit and Finance services.

But there is a sting in the tail of the extension offer. Suppliers must agree to reduce their prices by 5% and offer a volume rebate because “spend is increasing.” (So much for government reducing consulting costs!) Suppliers have only been given a few days to respond, and those that asked for clarification have been told verbally that if they don’t play ball, they will be removed from the framework.

The letter is available in full here, CCSConsultancyONE, but here is an extract.

“In accepting this extension you are requested to:

  1. Reduce the current maximum rates by 5% for the period of the extension.
  2. Notify CCS of the rate reduction before 23rd January 2015.
  3. The introduction of a volume discount scheme, whereby framework maximum rates will be reduced in the event that agreed spend levels are achieved within an agreed period of time. To that end we will be setting up meetings by the end of January 2015 to agree the principles of the volume discounts

All other Framework Agreement terms and conditions remain unchanged.”

The original ConsultancyONE contracting process was tortuous and ran well behind schedule, taking well over a year in the end. With the contract expiring in February and May 2015 (for different Lots), it was becoming obvious that there just wasn’t time for a new competition to be held before expiry. But the demand for the price reduction has come as a shock for suppliers, many of whom did bid pretty low in the first place to get onto the framework (see the final documents in this fascinating FOI correspondence if you want to know more about the rates).

Now there may not be huge public sympathy for consultancy providers, and the taxpayer picks up the bills, as it were. And maybe this is a sign of the deflationary times we seem to be moving into; more buyers will no doubt start demanding price reductions as inflation heads towards zero in the UK (and it is already there is some European countries). However, this does look pretty much identical to the “supplier bullying” tactics used by the likes of Premier Foods and Tesco – using a powerful market position to threaten suppliers if they don’t pay up, and overriding what were agreed contractual terms.

“This feels to us like simple supplier bullying. It is also unfair on providers who are not on the current framework, and were looking forward to a chance to remedy that with a new competition,” said one senior consultant we spoke to.

However, there is one other big question – is it legal to do this? Cabinet Office apparently believe so; but I really have doubts (under EU Regulations). But of course re-negotiation does happen on contracts, as we saw with the big savings claimed by Cabinet Office on their programme of re-negotiating with major suppliers after the last election. However, this is so blatant, it might just spark the Commission’s interest in terms of whether the UK is abusing the regulations.

ConsultancyONE has been pretty well used, we believe, with traction outside central government as well as a strong mandate within. No doubt some suppliers at least win significant amounts of work via the framework, and will probably grumble but accept this.

“We will sign up to it – we can’t afford to say no. But we will bid for fewer contracts, we will be more selective,” I was told by one.

And here is what the Management Consultancies Association’s Chief Executive, Alan Leaman told us.

“The decision to extend ConsultancyONE by just one year effectively signals its likely demise. And government ministers would be amongst the first to criticise any retailer or corporate which treated suppliers this way over prices. Smaller specialist consultancies, which ConsultancyONE was supposed to encourage, will be hit hardest by this and may well just turn away.

I am writing to the Crown Commercial Service to press for a better long-term relationship between the government and its consultancy suppliers which would enable buyers to access the value they need from across the industry at proper market prices."

We’ll come back later this week and look in more detail at the ethics of this and perhaps more importantly, whether this works in a real procurement or business sense. But of course Crown Commercial Service has to justify its existence. With no new competitive process to drive “savings”, this looks like one way they can claim a few more million on that front, however notional those savings might be, and assuming most suppliers do play ball.

Voices (4)

  1. Reta Blod:

    So not only are they asking for a 5% reduction, but also a volume reduction to be agreed via the meetings to be arranged by the end of January. OF COURSE that’s bullying and using their power over weaker suppliers. Maybe that is OK for taxpayer benefit in these austere times, but it does mean that Government can not criticise Tesco or Premier if/when they do similar. Oh, and watch for CCS claiming the 5% as a ‘saving’, when in fact they have no idea at all if a re-tender would have generated even lower rates. Indeed, a re-tender could have been used to eliminate companies who were more than, say, 90% the average previous price, thus saving 10% via competition instead of 5% by diktat.

  2. Dan:

    Slightly different for government – Tesco and Premier Foods could say “drop your prices or we won’t work with you ever again”. The government can’t really bar companies from bidding, so companies are free to reject the extension, but still bid for the next tender.

    You don’t say if the extension is allowed under the contract, or whether it exceeds the original term of the contract. If the latter, then I would say they are justified in asking for a price decrease as the firms are getting more opportunity for work than they expected to at the beginning of the contract.

    1. Peter Smith:

      Dan
      I believe the extension was in the original contract as an option, but without mention of a price decrease. I take the point re the “more opportunity” but that is the same argument Tesco / Premier etc always use. I’d argue there is still an issue because this was not in the original contract, was not priced into the firms’ bids and is now a naked “power play”. Perhaps more to the point, will it work? We’ll have a look at that question soon!

  3. Secret Squirrel:

    Can someone ask CCS to write in well constructed sentences, please.

    “In accepting this extension you are requested to … the introduction of a volume discount scheme, whereby framework maximum rates will be reduced in the event that agreed spend levels are achieved within an agreed period of time. To that end we will be setting up meetings by the end of January 2015 to agree the principles of the volume discounts”

    That aside, I think this is one of the more sensible approaches from CCS (it’s now a general thing to do this). It would be better put in as a contractual clause so that it was set out up front but using a leverage point to drive a little better value isn’t a bad thing.

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