Cabinet Office will demand efficiency savings not price cuts from building contractors

Construction firms will not be asked by the government for price cuts on public sector work because it is thought these firms will be able to make up to 30% savings through efficiencies.

It is believed that Francis Maude’s Cabinet Office, which has recently called in FM suppliers to ask for price cuts, had considered asking for cuts from contractors of around 5% on construction contracts, but has decided against this.

It is understood that chief construction adviser Paul Morrell has been influential in persuading the government that it can save more money on construction by focusing on efficiency measures in procurement and contracts. Although a set figure has not been agreed, officials are thought to believe that in some cases savings of up to 30% are possible.

Ian Watmore, chief operating officer of Maude’s Efficiency and Reform Group, which is driving the renegotiation of major government contracts, told an audience of contractors and consultants about the agreement late last month.

David Mathieson, director of public sector for T&T, said the agreement was good news for the construction industry. “They’ve realised that there’s a very limited upside to squeezing companies’ margins for no gain in efficiency. The real goal is to get the waste out of the system and work smarter. It seems to herald a much more grown-up approach to finding efficiencies.”

Stephen Ratcliffe, director of the UK Contractors’ Group, said: “The industry is definitely up for helping the government save costs on this kind of deal. But this has to happen across government.”

The government’s drive to save money on public sector FM contracts has been thrown into the spotlight over the last fortnight after it emerged that Serco had sought to pass on cuts to its supply chain, in direct contravention of a government directive. Carillion and Balfour Beatty, which are classified as “tier two” FM suppliers to government, are still thought
to be in negotiation over the size and terms of any cuts.