Serco U-turn after threatening to squeeze suppliers

Government IT supplier Serco has cancelled plans to force a 2.5 percent annual rebate from its largest suppliers, after the plans were exposed in a Sunday newspaper.

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Government IT supplier Serco has cancelled plans to force a 2.5 percent annual rebate from its largest suppliers, after the strategy was detailed in a Sunday newspaper.

The outsourcing firm, which runs major public sector IT systems including with Glasgow, Ealing, Enfield and Dudley councils, had written to 193 of its 15,000 suppliers telling them that it was “looking to determine who our real partners are that we can rely upon”, according to the Sunday Telegraph.

“Your response will no doubt indicate your commitment to our partnership but will also be something I will seriously consider in our working relationship as Serco continues to grow,” wrote Serco finance director Andrew Jenning in the letter.

Serco attempted to justify its demands by insisting in the letters that it had been asked by the coalition to make efficiency changes, suggesting that as a result its own suppliers should demonstrate loyalty by doing the same.

Cabinet Office minister Francis Maude reacted angrily to the news, according to the newspaper, and will call Serco chief executive Chris Hyman to demand he explain the letters. Serco had reportedly agreed it would not force suppliers to cut prices.

Serco has now retracted its demands to suppliers, and said it wanted to apologise “unreservedly”.

"As a company that values our relationships with all our supply chain partners, large and small,” it said, “we deeply regret this action and apologise unreservedly to them for the concern that this has caused."

Serco is one of the few large outsourcers not to have reached a Memorandum of Understanding with the government, said analyst house TechMarketView.

But Richard Holway, chairman at the analyst firm, warned that the MoUs would also “cause real pain all the way down the supplier stack” at those suppliers with government MoUs. He added: "If suppliers really do demand money back from their subcontractors we could also see that forcing some to the wall."

Holway said that the forced cost savings would result in other aggressive changes: “One of the inevitable consequences is to accelerate still further the offshoring of UK IT jobs.”

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