If the article was correct in its assumption that Network Rail desires to reduce margins, surely it would be targeting all contractors, not merely those whose efficiency and cost control enable them to achieve their contractual entitlement. Taking this assumption to its logical conclusion, if Network Rail aims to reduce margins from 7% to 3.5%, what happens to those contractors who currently manage to produce a sub-4% margin and, in some cases, a 2% margin? The clear consequence would be that these contractors would, in effect, end up paying Network Rail to work for them.
The truth of the matter is that, like all responsible clients, Network Rail intends to reduce its costs. Those companies, such as Jarvis, that are able through efficiency to reduce continuously their costs are more likely to maintain their margins and still pass on savings to the client. Those whose agreed margin of 7% is already under pressure because of lack of efficiency are not.
Richard Emmott, group director of corporate communications, Jarvis, London W1.