Passing on the (UK Government) pain to the Serco supply chain

Update - Monday 1st November -  the FT is reporting that

Serco has withdrawn a demand for a 2.5 cent “cash rebate” from its leading suppliers and apologised unreservedly to them after the government ordered it to explain its actions

Our original post continues below...

It's an interesting experience waking up one Sunday and finding yourself - as a humble procurement person - featured in the newspaper headlines.  It happened to me once some years ago, so I sympathise with Serco management, whose letter to suppliers is quoted in the Sunday Telegraph today.

Serco are one of the firms on the receiving end of the Government's "negotiating immediate cost savings with top suppliers" initiative. They have decided to pass on some of the potential pain and ask suppliers for a 2.5% 'rebate' as a contribution towards whatever Serco may have to give away to Government.

Is this ethical?  Reasonable?  Likely to succeed?

Well, this is a regular tactic amongst retailers, but it only works if the balance of power is very much in the buyer's favour.  IBM, Dell or HP, Microsoft, large international construction, FM or consulting firms no doubt feature in Serco's supply chain; I can't see them meekly writing out a cheque.  The only people likely to comply are small firms who are in a dependent and weak position with Serco.  Personally, even as a small firm, I would tell them to get lost; but that would be my prerogative as a supplier (which I'm not, by the way.)

But there is another interesting question.  Have Serco agreed to cut their prices to Government? The evidence so far, in as much as we can tell, has suggested that firms haven't given much away, despite Francis Maude talking about major savings.  There has been no evidence of such outcomes, and suppliers' share prices tend to have risen where they have announced MOUs with Government.

So have Serco actually sacrificed some margin to keep in with the coalition?  If that is the case, then despite my feelings about how I would respond personally, they are perfectly within their rights to pass on the pain, and I would do the same myself in their shoes.  Asking for a retrospective contribution is pushing it a bit however; I would be amazed if anything Serco have offered the Government is retrospective.

But the Government should really have expected this.  And the retrospective issue aside, there is no logical reason I can see why the pain should be restricted to the prime contractor rather than the wider supply chain, if suppliers are going to contribute towards bridging the deficit.

On the other hand, if Serco have not actually conceded anything to Maude, and this is just a try-on with their suppliers, then that would be a little morally questionable as a tactic! And they will no doubt feel the wrath of the Cabinet Office.

Any inside info on this one will be received gratefully and with absolute discretion, as always....

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Voices (5)

  1. Flog:

    In early 2009 the Irish Government in its Public Interests Act 2009 decreed that all public sector consultancy fees invoices were to be reduced by 8% and if the supplier didn’t reduce its invoice the public body had the authority to make the adjustment.

  2. Christine Morton:

    Thought you might like to know – my boss said to me today “Did you hear about this?” and my response was “Oh yeah, I read it on Peter’s blog already.” 🙂

  3. Peter Smith:

    This post has been up-dated in-line with the Sunday Telegraph correcting errors they made in the naming of Serco Management. We would like to apologise to the managers concerned for propagating those errors.

  4. Guy:

    Peter – I cant comment on Serco, but can assure you that the Government are seeking savings and that these requests are being taken seriously. I can’t say anymore, but you’ll get my drift

    maybe 35-40% of our obligations to government contracts come from suppliers, if we are to deliver the savings they seek we have no choice but to pass on the savings targets to our suppliers.

    But why did Serco back down?

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