Carillion and Norland among facilities management firms asking supply chain for money back

Facilities management contractors are hitting subcontractors with demands to pay back up to 8% of the price of contracts, it has emerged.

Main contractors including Carillion and Norland are understood to be among those asking for rebates of varying amounts in a practice that is rapidly spreading across the FM sector.

The move has emerged in the wake of the Serco rebate scandal, which this week saw the Cabinet Office force the FM giant to retract letters demanding its suppliers pay back 2.5% of the cost of contracts to help it save the amount it had agreed on public sector contracts.

Asking for rebates is not illegal, but in Serco’s case was in direct contravention of a government directive that asked its 25 largest suppliers to make savings of 2.5% without passing them on to their suppliers.

Specialist trade bodies and small business groups have accused main contractors of using the recession as an excuse to exploit their supply chains.

According to industry sources, the practice is mainly hitting M&E contractors, but is also affecting plumbing subcontractors and lift suppliers. Measures being asked for include:

  • rebates on total spend over a year (ranging from 1% to 8%), sometimes retrospectively
  • “pre-bates”, that is, if a preferred supplier agreement has been negotiated, a fee may be insisted on upfront based on value of work;
  • payment of up to £10,000 to join a non-exclusive tender list.

Supply chain sources say they are often warned by FM contractors that they will not be offered future work if they do not agree to rebates. A draft preferred supplier contract used by Norland Managed Services, seen by Building, asks for rebates of 4% if suppliers receive between £0 and £100,000 a year, and 8% if work totals more than £750,000.

Rudi Klein, chief executive of the Special Engineering Contractors Group, said: “There can be no objection in the current climate to supply chains working together for efficient delivery, but this can require firms carrying out the work to produce cash gifts, and if they refuse, having the work taken away or never given in the first place. It’s outrageous.”

Carillion and Norland were unavailable for comment.