25 August 2005 | Rebecca Ellinor
The dispute between British Airways and Gate Gourmet should act as a warning to the profession, purchasing experts have claimed.
They say the high-profile case illustrates why purchasing staff drawing up contracts for outsourced work must carry out risk assessments, monitor supplier performance and implement contingency plans in case contractual terms are not met.
Kevin Barrow, outsourcing and staffing partner at law firm Tarlo Lyons, said: "Procurement loves consolidation, but there is a downside if you have all your eggs in one basket.
"Perhaps what BA needs is a lot of suppliers and a bigger procurement department so it's not totally exposed if one has a problem."
And while Martyn Hart, chairman of the National Outsourcing Association, does not believe outsourcing is the root cause of this particular row, he said any core service that is outsourced must be supported by a back-up plan.
"BA might have been able to have stepped in and taken over when something went wrong; they could have ended up as heroes and spent £1 million on it instead of facing potential losses of around £40 million."
Hart said 'step-in' clauses, which allow firms with outsourced contracts to reassume responsibility for the work if something goes wrong, were becoming increasingly popular.
A BA spokeswoman said it was looking at a "number of issues concerning the contract". It has not said it plans to terminate the contract, adding that a revised offer to extend the agreement with Gate Gourmet by two years to 2010 with an increase on its £130 million yearly value was still on the table.
BA's chief executive, Sir Rod Eddington, added in a statement last week that there were no plans to bring catering in-house. "We are an airline and not a catering company. We are not prepared to buy a catering company when we are trying to drive cost and complexity out of our business. Running an airline alone is tough enough in today's world," he said.
A Gate Gourmet spokesman told SM: "The last time the contract was reviewed was in 2003. At that time extra elements were added which made it quite tough in the latter years of the contract, so we always knew would have to reform working practices to make it profitable."
British Airways procurement was unavailable for comment.