July 2011 | Lindsay Clark

Bill Crothers, Home Office commercial director on how the UK government renegotiated contracts with its largest suppliers

When the government announced that it would expect vendors to accept a cut in rates, a chorus of critics came forward. “What’s in it for them?” was the resounding question. “Why would suppliers accept cuts to prices or margins on contracts that have already been signed in good faith?”

Speaking to SM, Home Office commercial director Bill Crothers offered a few answers. He describes a series of hurdles that each supplier must get through to establish a strategic relationship with the government.

The first hurdle was to work towards reduced contract prices based around lower margins. Through analysis of its contracts across Whitehall, the government was able to establish that suppliers were taking greater margins from the public sector than comparable work in the private sector.

“Could we have a conversation about normalising or reducing the margin take?” was the question from Crothers, who also acts as a crown representative for major IT suppliers.

The next hurdle involved working with suppliers to find out if small changes to the services or products they offer could result significant cost savings. It might involve a reduction in the number of computer printers per person or making changes to a service desk script that saves the supplier money, but makes only a marginal difference to the overall level of service the government gets.

Once the supplier and government had worked through this process, the conversation could move on to strategic matters, which offered the supplier some incentive to overcome the first two hurdles, Crothers says.

“When you got to the third or fourth hurdle, you were in a conversation about reform, which was essentially asking, ‘what are the ways that we could do business differently’, which might end up as new business for the supplier. They would have to go through a competitive process [to win new business], but they were given the opportunity to talk about structural reform ideas, large areas which might be outsourced, or ways of doing things differently,” Crothers explains.

“They were much more strategic, forward-looking conversations. In truth, a lot of conversations last year focused on the cost cutting, the revenue reduction. We started talking about reform while continuing to look cost cutting,” he said

Given that Cabinet Office minister Francis Maude has announced that the government is saving £800 million with its major suppliers across central departments, there seems to be a willingness to get to the final hurdle.