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ACE today asked whether Tesco was boosting its record profits by forcing its construction suppliers, including consultancy and engineering firms, to accept draconian cuts in fees for their services.
Speaking following today’s announcement that Tesco had recorded annual pre-tax profits of £3.13bn, an improvement of 10% on the previous year, ACE chief executive Nelson Ogunshakin said: “Whilst it is heartening to see Tesco doing very well even in the current global economic environment, we are hearing from our sources in the construction sector that Tesco may be boosting those record profits by arbitrarily seeking cuts in fees of up to 40% from their construction suppliers.”
If true, Ogunshakin said that such cuts would damage the sustainability of the industry. “In the current economic climate there is obviously pressure on costs for all businesses,” said Ogunshakin. “However, clients forcing construction suppliers to make swingeing cuts in their fees for delivering the same services is a pretty naive and short sighted move. If you are telling consultants at the front end of delivering key services to cut their fees by 40% then that is not the action of an enlightened client. If you pay peanuts, you get monkeys,” he argued.
“My message to any clients in the private or public sector contemplating big cuts in the fees they pay their suppliers is to get real,” Ogunshakin said. “The supply chain is not a charitable business and in fact a reasonable supply chain should take a sensible decision and avoid working with such clients. If you make cuts in fees and compromise your position today, then you will have to do that continuously thereafter and that is no way to run any business.”
Ogunshakin said: “Clients looking to the future should be investing in sustainable design solutions that can add real benefits, including reducing carbon emissions. Investing a little bit more now, not less, at the front end will enable clients to get a building or a facility that is going to be of better quality, making operational costs cheaper in the long run. A holistic approach to investment is a much more effective solution than cost-cutting at the front end,” he claimed.
“In the current economic downturn there are real dangers that clients could turn the clock back to the bad old days of cutting costs to the bone at the expense of quality,” Ogunshakin said. “I think that would be an absolute disaster and would potentially undo all the progress the industry has made over the past decade on collaborative working between clients and suppliers. When times are tough, enlightened clients should seek to work more in partnership with their suppliers rather than forcing them to take decisions that will put their businesses at risk. That is the responsible approach and one that our industry needs to adopt,” Ogunshakin claimed.
-ENDS-
Further information from ACE communications and public affairs director Andy Walker on 020 7227 1889, 07947 558654 (mobile) or email awalker@acenet.co.uk
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