Serco retracts cash demand to suppliers

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1 November 2010 | Lindsay Clark

Services giant Serco has said it “deeply regrets” asking its suppliers for a rebate in connection with cuts to its UK government deals.

Late last week, the firm, which has contracts in the health, education, nuclear industries and environmental services, wrote to suppliers requesting a cash rebate to fund cuts to its contracts being negotiated by central government.  

Led by Cabinet Office minister Francis Maude, the government has been striving to achieve contract discounts from its largest suppliers by presenting itself as one customer, despite dealing with suppliers through a variety of public sector bodies. The Cabinet Office now claims it will be able to save around £800 million using the approach, which suppliers including Siemens, Accenture, Logica, Atos Origin and Capgemini have signed up to.

Serco has yet to sign up to the new arrangements but wrote to vendors asking for a rebate of 2.5 per cent on its full-year spend with them, alluding to favourable terms on future work as an incentive. The request only applied to its largest suppliers; the top 193 of a total supply base of around 15,000.

The move provoked outrage in the Cabinet Office. “[The government] has made it clear that the major suppliers involved in the government’s contracts renegotiations should act responsibly with their supply chains,” a spokesman said.

Serco has now withdrawn the request. “Serco yesterday reaffirmed to the Cabinet Office that Serco’s most recent offer of savings to the UK government will not result in any of the government’s cost saving programme being passed on to our suppliers,” the company said in a statement.

“Serco has an ongoing procurement process with our supply chain partners, which has been under way for more than five years. This is part of our regular management system.

“More recently we have also been working with the Cabinet Office as part of its efficiency programme, which has involved discussions with our leading suppliers. As a result our plans evolved and we decided not to seek or accept any contributions from our suppliers, who had recently received letters asking for rebates.

“As a company that values our relationships with all our supply chain partners, large and small, we deeply regret this action and apologise unreservedly to them for the concern that this has caused. We are now communicating this to our supply chain partners and retracting the letters.”

A Cabinet Office spokesperson said: "We welcome Serco’s statement and its swift response to our concerns. We believe it is right that it has apologised unreservedly and have taken responsibility for its actions to its suppliers. We hope we can now move forward quickly with the contract renegotiation process.” 

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