11 August 2008 | Jake Kanter
Persimmon Homes has threatened to terminate suppliers' contracts unless they agree to a 15 per cent reduction in costs.
In a letter to vendors, Persimmon's commercial director Michael Goldney wrote: "To make your works commercially viable we are seeking cost reductions in the region of 15 per cent off your bottom line rates.
"Should your response not meet this criteria then we will reserve the right to re-tender your works."
The housebuilder argued that the market was experiencing a "significant" downturn and was showing "absolutely no sign" of short-term improvement.
Persimmon Homes told SM: "Given the well documented challenging conditions within the housing market we are closely focused on managing cash flows and are in constant dialogue with our suppliers to find ways to reduce costs and optimise efficiency."
Rupert Choat, construction partner at law firm CMS Cameron McKenna, said: "It is unusual for contracts to have clauses that allow them to be re-tendered. You can't just take a contract away unless you have very clear terms."
In January, four separate construction groups imposed price cuts on suppliers of up to 5 per cent for ongoing or future work (News, 31 January).