This week we’re looking at contracts - subbies being squeezed and public private partnerships
To tier one contractors, it comes in the form of cunningly labelled “alliance partnership agreements”, which are based on the principle of securing the best supply chains, providing contract certainty and, of course, driving a good old hard-nosed margin along the way. To nervy public sector clients, desperately looking to penny pinch and renegotiate legacy terms, it’s “framework fees” and contributes to driving innovation and learning. But to worn-out subcontractors, paying cash for contracts is an oppressive evil, albeit one that is increasingly necessary to secure work in times when many of their businesses are on life support machines.
Whatever you call the package it comes in, money is passing up the food chain, the poor old subcontractors are being squeezed once again and, unsurprisingly, they don’t much like it. The problem is that the case for the prosecution is difficult to make in public for fear of commercial retribution. And after all, there’s no real foul play here, just brute contractual and commercial force, which is just a little bit ugly to watch. Some instances have attracted criticism, such as when Serco demanded retrospective payments from their suppliers in the form of rebates and then Carillion renegotiated discounts on contracts. But by and large, this increasingly common practice has been left to fester quietly alongside the growing resentment of an under-pressure supply chain.
Only five years ago, in pre-recession times, the balance of power looked different. Capacity was the single biggest issue facing clients and main contractors, bid costs were under the microscope and the terms of any agreement were based on collaboration and longevity. As a result, fees were pushed up, margins looked better, and on the face of it, a healthy deterrent existed to what was deemed irresponsible negotiation. However, in this economic climate, main contractors and clients are again in the driving seat. But it does leave you wondering - are they going too far?
And when the good times return, will the subbies be the ones with the longest memories?
PFI ii: coming soon
Be ready for it, the Son of PFI is on its way and is likely to be with us by the autumn. And if the coalition hadn’t been completely clear just how politically toxic potential reforms to this controversial funding mechanism could be, the Treasury’s influential select committee has given a thunderous warning. “We can’t carry on as we are, expecting the next generation of taxpayers to pick up the tab. PFI should only be used where we can show clear benefits for the taxpayer. We must first acknowledge we’ve got a problem,” said the committee’s chairman, MP Andrew Tyrie. The committee went on to call for the £450m Royal Liverpool Hospital to be halted as it was poor value for money. The government is already privately promising that any PFI offspring will be fitter, leaner, slicker and more compliant than the Labour years of excess. Now it simply has to demonstrate how - and quickly too.
Tom Broughton, brand director