The Big Picture
On the BBC website on 1 November, an interesting story was posted telling the tale of Serco’s attempt to have their suppliers rebate them 2.5% on their bills for the previous year. This request was based on the government’s target of a 2.5% reduction on future spend. The tactic is known as “deal creep”.
Andrew Jenner, the company’s finance director, wrote a letter which included the following:
“I am asking you to offer us a rebate of 2.5% (exclusive of VAT) on Serco’s full-year spend with you for the 2010 calendar year in the form of a credit note. Like the government, we are looking to determine who our real partners are that we can rely upon. 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.”
Note the implicit threat – if you do not give us a retrospective 2.5% discount, we don’t think you are committed to our partnership and therefore reserve the right to end it. Skeptics might want to put this another way – you only won the contract through a competitive tendering process in which you presumably cut your margins to the bone; we fancy another transfer of 2.5% from your bottom line in the general direction of ours!
Lest we think that Serco are alone in their use of this tactic, they are not. It is a well-used gambit by large retailers in FMCG, for example. Many suppliers will have received similar letters threatening dire consequences if a retrospective rebate is not made.
Why do people do this? The contract has been signed, after all; the deal has been done. The answer is – because it works! There are businesses who would look at this kind of tactic as a genuine threat to their ongoing partnership and who therefore pay up without further question.
So what do you think that teaches the likes of Serco to