18 May 2000 | Liam O'Brien
The Ministry of Defence has signed a ground-breaking agreement with service contractors that feared their profits could have been wiped out by new employment legislation.
The deal, signed last month by the MoD and service-contractor lobby group the Business Services Association (BSA), allows suppliers to vary price clauses, change payment terms and alter service specifications mid-contract. It is the first time that the BSA has such signed such an agreement with a government department.
Norman Rose, the BSA's director-general, said members were concerned that new laws, including national minimum wage legislation, parental leave regulations and the working time directive, were poised to make existing contracts unprofitable.
"We had no mechanism in place to address the fact that new employment legislation was increasing the cost of contracts," added Rose. "Even a small increase in labour costs is sufficient to wipe out profits for our members."
BSA members had been able to renegotiate terms with other government departments but, added Rose, MoD inflexibility had meant that altering existing contracts was difficult. "The biggest problem is the way the department operates, the way it does things," he said.
The MoD spends around £500 million of its annual £21 billion budget on outsourced services, including catering, cleaning and private security.
A MoD spokesperson said the new deal gave it confidence that contractors would be able to meet their standard of service obligations.