Contractor Carillion has told the government that it will not sacrifice its margins just to appease Cabinet Office demands for suppliers to cut their rates.
Carillion was one of 34 tier two government suppliers called in by Cabinet Office minister Francis Maude for a grilling about their fees late last year (NCE 18 November).
Maude wanted the firms to repay cash already earned and offer discounts on work in the pipeline to claw back £800M from fees due to be paid to suppliers this financial year.
But Carillion this week said actions agreed as a result would have “no material impact” on its profitability.
“The outcome of these discussions has no material effect on Carillion’s current market guidance,” it said in a trading statement.”
These actions included signing a memorandum of understanding identifying ways in which the firm can work with government to help re-engineer procurement and service delivery.
These include changing the scale and scope of outsourced services across a number of existing contracts.
Carillion said that opportunities to work with central and local government to deliver greater efficiencies through outsourcing services remain very strong.
“We look forward to working with our customers to provide value for money services that support their business objectives”
“We look forward to working with our customers to provide value for money services that support their business objectives and with government customers specifically to improve efficiency and deliver savings that will enable them to reduce running costs,” said chief executive John McDonough.
Carillion’s announcement comes a month after Atkins chief executive Keith Clarke also ruled out any suggestion that his firm would cut its rates (NCE 2 December 2010).
Atkins was also called in by Maude as part of the same process. Other civils firms included Balfour Beatty, Interserve, Mott MacDonald and Mouchel.
“I say now, we have not changed our [financial] outlook for the year based on that [discussion],” said Clarke in December.
“We will not do work at a loss. It destroys long-term value for the client, let alone us. I am very firm on that.”
Maude told firms he wanted them to look at the government contracts they have and work out how much of the money already earned this year they would be willing to give back.
He also asked them how much they were prepared to cut rates for future work.
Ideas for efficiency savings would be welcomed, Maude told them, but only after they had offered to repay some cash.