Osborne’s renegotiation of contracts with suppliers fraught with difficulties
26 June 2013
Outsourcing giant Capita says it has no comment to make on whether a £400m contract with the Army to provide recruitment services could be renegotiated.
Wed, 26 Jun 2013Outsourcing giant Capita says it has no comment to make on whether a £400m contract with the Army to provide recruitment services could be renegotiated.
Last weekend, Chancellor George Osborne said that rather than cutting frontline personnel, the government would look to renegotiate major contracts with existing Ministry of Defence suppliers. In a statement, Capita tells Recruiter: “We don’t, as a matter of policy, comment on contract negotiations with any of our clients, private or public sector.”
Ian Makgill, managing director of GovMark, a company that provides research to government suppliers, tells Recruiter that renegotiating contracts that have been signed is not a simple matter. “If you have just negotiated a contract a recruitment contract, it is difficult how a government department could come back and say we are going to spend less with you.”
He adds that smart recruiters hold most of the cards. “Suppliers will have priced on demand, so if a government department spends less it won’t get such good margins,” he says.
Moreover, “suppliers hold the whip hand, particularly when there is only one supplier”, Makgill adds. He says he anticipates that government departments looking to save money will choose to reduce their usage rather than renegotiate.
Dean Shoesmith, joint executive HR director, at Sutton and Merton Councils, tells Recruiter that renegotiating contracts “is difficult to do in the middle of a contractual relationship, because the inference is you are not going to pay the same amount of money”.
Shoesmith says the danger is that staffing companies’ profit margins are cut to unsustainable levels, causing them to go the wall. Cutting margins can also lead to a lower quality service, he warns.
Raj Tulsiani, founder and chief executive officer of HOT 100-listed interim and executive recruiter Green Park Interim & Executive Search, tells Recruiter: “It is normal for there to be some give and take in the course of a normal business relationship when the client is facing budgetary pressures.”
Last weekend, Chancellor George Osborne said that rather than cutting frontline personnel, the government would look to renegotiate major contracts with existing Ministry of Defence suppliers. In a statement, Capita tells Recruiter: “We don’t, as a matter of policy, comment on contract negotiations with any of our clients, private or public sector.”
Ian Makgill, managing director of GovMark, a company that provides research to government suppliers, tells Recruiter that renegotiating contracts that have been signed is not a simple matter. “If you have just negotiated a contract a recruitment contract, it is difficult how a government department could come back and say we are going to spend less with you.”
He adds that smart recruiters hold most of the cards. “Suppliers will have priced on demand, so if a government department spends less it won’t get such good margins,” he says.
Moreover, “suppliers hold the whip hand, particularly when there is only one supplier”, Makgill adds. He says he anticipates that government departments looking to save money will choose to reduce their usage rather than renegotiate.
Dean Shoesmith, joint executive HR director, at Sutton and Merton Councils, tells Recruiter that renegotiating contracts “is difficult to do in the middle of a contractual relationship, because the inference is you are not going to pay the same amount of money”.
Shoesmith says the danger is that staffing companies’ profit margins are cut to unsustainable levels, causing them to go the wall. Cutting margins can also lead to a lower quality service, he warns.
Raj Tulsiani, founder and chief executive officer of HOT 100-listed interim and executive recruiter Green Park Interim & Executive Search, tells Recruiter: “It is normal for there to be some give and take in the course of a normal business relationship when the client is facing budgetary pressures.”
