Britain’s biggest retailer Tesco was today accused by the Association for Consultancy and Engineering of forcing large fee cuts on its construction suppliers.
Tesco today announced annual pre-tax profits of £3.13bn, an improvement of 10% on the previous year. But the ACE said the supermarket giant had achieved this partly by forcing construction suppliers, including consultants, to accept cuts in fees for their services.
“Whilst it is heartening to see Tesco doing very well even in the current global economic environment, we are hearing from our sources in the construction sector that Tesco may be boosting those record profits by arbitrarily seeking cuts in fees of up to 40% from their construction suppliers,” said ACE chief executive Nelson Ogunshakin.
“In the current economic climate there is obviously pressure on costs for all businesses. However, clients forcing construction suppliers to make swingeing cuts in their fees for delivering the same services is a pretty naive and short sighted move. If you are telling consultants at the front end of delivering key services to cut their fees by 40% then that is not the action of an enlightened client. If you pay peanuts, you get monkeys.
“In the current economic downturn there are real dangers that clients could turn the clock back to the bad old days of cutting costs to the bone at the expense of quality. I think that would be an absolute disaster and would potentially undo all the progress the industry has made over the past decade on collaborative working between clients and suppliers. When times are tough, enlightened clients should seek to work more in partnership with their suppliers rather than forcing them to take decisions that will put their businesses at risk. That is the responsible approach and one that our industry needs to adopt.”
Tesco defended any competitve action it may have taken, saying it helped to establish its longevity and ensure continuation of work for the construction industry
“It is important to remember the current economic climate,” said a Tesco spokesman. “Unlike many developers, Tesco will continue its growth and offer continuity for the trade. Contracts are considered on a case-by-case basis and we must take into account that the cost of raw materials has also fallen.”