FM contractors hit suppliers with rebate demands
Facilities management contractors are forcing subcontractors to offer “cash-back” deals worth to 8% of the value of contracts, reports Building.
Industry heavyweights Carillion and Norland are thought to be among those asking for rebates of between 1% and 8% in a bid to cut their own costs.
According to industry sources, the practice is mainly hitting M&E contractors, but also plumbing subcontractors and lift suppliers.
Rudi Klein, chief executive of the Special Engineering Contractors Group, told the magazine: “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.”
The FM contractors’ letters to their suppliers include demands for rebates on total spend over a year, ranging from 1% to 8%, sometimes retrospectively.
In some cases, the main contractors are asking for ‘pre-bates’. Where a preferred supplier agreement has been negotiated but the work hasn't been carried out, then the demand is for an upfront fee based on the value of work.
Other forms of demand include payments of up to £10,000 to join a non-exclusive tender list. Supply chain sources told Building that they are often warned 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.
The news comes just days after the Cabinet Office forced FM giant Serco to retract letters demanding its suppliers pay back 2.5% of the cost of contracts to help it meet savings it had agreed on public sector contracts.
The Government had asked Serco and its 25 largest suppliers to make cost savings of 2.5% but without passing them on to their suppliers. Serco's dressing down was in response to its contravention of the government's instructions.