Where’s the money coming from?

1 June 2010
Peter Smith, director of Procurement ExcellenceHere is a question for you. What do the following have in common? IBM, Hewlett-Packard/EDS, Capgemini, Accenture, Dell, Oracle/Sun, Microsoft, Fujitsu, Siemens and Steria. Give up? Well, they might be the UK public sector’s 10 biggest IT suppliers. I could be doing a disservice to RM, Computacenter or Logica (or to Unisys, Tata and any others I may have missed) but I don’t think I’ll be too far out with that list. But what else? Not one of them is UK-owned or based. Two are French, one is German, one Japanese and six are American. So, when the British government knocks on their door and ask for substantial price reductions on current contracts  ("immediate negotiations to achieve cost reductions from the 70 major suppliers to government" as David Laws put it),  let’s not kid ourselves that they will have any particular empathy with our financial plight. And of course, they will be very sensitive to other countries watching – both their “home” base and other countries I am sure would also like to see such price cuts. What about private sector customers? If I were still a CPO in the private sector, I’d have my IBM account manager in like a shot if I saw this happening in the public sector space. “If you can give them 10 per cent, I’ll have at least the same please,” would be a pretty simple negotiating position. Could the details be kept secret to avoid that issue? I don’t see how, given the focus on openness and transparency. Indeed, any significant price cuts might also need to be disclosed to the suppliers’ investors because presumably they would affect future profits. This does not mean the government is wrong to pursue better value from major suppliers. It must be done, and our white paper (summarised here and here) laid out a number of routes that need to be followed – and of course there are more. But negotiations in my view will have to be around demand management, specifications, innovative options, and contractual obligations (what can be relaxed in exchange for cost advantage). But care will be needed even here. Stray too far from the scope and terms of the original contract, and there are potential issues with EU procurement regulations. Offering significant contract extensions for instance in return for price cuts may not be possible. I’ve picked on IT because it is an area of focus for the government but I don’t suppose non-UK suppliers in other sectors (Xerox? Ford? Manpower?) will be much keener; or actually that UK firms such as Capita or Serco will feel particularly public-spirited if their profit is threatened. So just don’t expect too much too quickly would be my view. And don’t expect any favours from top suppliers.
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