23 April 2011 | Lindsay Clark
The UK government used a “negotiation of embarrassment” to help extract £800 million savings from its major suppliers.
Home Office commercial director Bill Crothers took part in contract renegotiations with the government’s largest suppliers, which started last year. In December, the government said the process would save £800 million.
Crothers, who is now a crown representative leading central government’s relationship with its top IT service providers, told SM that because the government acted as a single customer, negotiation teams were able to see the margins being made across departments and compare them with profits published in supplier accounts to see if the government was getting the best terms.
“In some ways, it was a negotiation of embarrassment, in that (cabinet secretary) Francis Maude took a position that we were not trading anything. This was not us negotiating in a traditional sense, in that we’ll give a contract extension in return for (better terms),” said Crothers.
Across departments, negotiation teams added up separate pieces of work done across Whitehall and found some suppliers did £800 million of business or more with central government each year.
“When you look at the scale of business, when (the government) was acting as a single customer, and you looked at the margin that was being enjoyed and then compared that margin to some smaller private sector clients…you would then say, ‘this does not seem fair – do you understand that?’ The conversation was transparent and they would say, ‘oh, ok, we understand’, and then make a contribution,” Crothers said.
The other source of saving was asking suppliers if there were aspects of the contract specification that were increasing costs unnecessarily. Such ideas could be “quite mundane” such as reducing the number of printers supplied per person, Crothers said.
Although the reduction in contract costs was not in return for a promise of future work, suppliers who agreed to help reduce costs were given the opportunity to discuss structural reform ideas, which may at some point lead to contracting opportunities, he added.