The head of the Specialist Engineering Contractors Group has described the practice of large facilities management firms demanding discounts and rebates from their subcontractors as a “contagious disease”, as suppliers warn they will have to pass cost cuts down their supply chains, writes Daniel Thomas.
The comments come as Carillion this week said it was planning to reduce its supplier base from 25,000 to about 5,000 as part of a drive to save £140m a year.
The company is using electronic auctions for some products and services to decide which of its existing suppliers remain.
Rudi Klein, chief executive of SEC Group, said he feared only suppliers that accepted discounts would become “preferred suppliers” under Carillion’s plans, with those that refused being dropped. He added that this move was just the tip of the iceberg.
“It’s becoming a contagious disease,” he said. “The FM firms are making money from this - I heard of one that made £800,000 this year from rebates alone.”
SIG Group, a FTSE 250-listed supplier, has become one of Carillion’s preferred firms, having just signed a three-year deal. It will be looking down its own supply chain for savings, said sales and marketing director Mark Tomlin: “We will be looking at value engineering, whether through specifications, methods or leveraging our supply chain.”
Carillion said the company did not have a policy on rebates, but that it would expect “flexibility” from contractors wanting to become preferred suppliers.