Subbies’ fury at ‘cash for contracts’ practice

Subcontractors expressed anger this week at evidence of main contractors squeezing specialists and suppliers by asking for rebates and “incentive payments”.

Building can reveal evidence that Mace planned to introduce an “annual incentive” system. Under this system all specialists would have paid a minimum fee to be retained as a supplier, as well as a further percentage fee dependent on the amount of work undertaken. It was never implemented following feedback from suppliers.

The revelation comes as it emerged the Specialist Engineering Contractors (SEC) Group has written to paymaster general Francis Maude over Carillion’s behaviour towards suppliers. Last year Maude called in contractor Serco “to explain itself” after it asked suppliers for money back following the renegotiation of Serco’s government contracts.

Building revealed earlier this year that Carillion had been renegotiating existing contracts with suppliers for discounts of up to 20%. Carillion had also told suppliers that they had to enter online auctions to get work.

We are seeing main contractors trying to demand money back with menaces

Rudi Klein, chief executive, SEC Group

Rudi Klein, chief executive of SEC Group, said he had written to Maude over the issue and is awaiting a reply. He is aiming to get questions asked on the matter in the House of Commons. Klein said: “We are seeing main contractors trying to demand money back with menaces. These are unpleasant threats.”

According to a document seen by Building, earlier this year Mace attempted to get suppliers to join a “trading alliance” under which “annual incentives” were required. The documents show that “the trade partner agrees to pay Mace a minimum sum […] each trading year” and a further percentage fee would be due based on the amount of work done by the supplier, even if payments came direct from clients not via Mace.

The pro-forma agreement says that the incentive fee is due even when the actual fee for the project is in dispute.

A spokesperson for Mace said: “A proposal was submitted by one of our operations boards to establish trading agreements with a small number [of preferred suppliers] in 2010. A draft agreement was written. The board rejected this proposal and the matter was closed.”

Richard Howson, chief operating officer of Carillion, said the firm was slimming down the number of firms in its supply chain, but had a positive relationship with its retained subcontractors. He said: “We have not felt any pressure from the government over the way we work with suppliers and we have not been contacted by SEC Group.”