Facilities management contractors are forcing subcontractors to offer “cash-back” deals worth to 8% of the value of contracts, reports Building.
Industry heavyweights Carillion and Norland are thought to be among those asking for rebates of between 1% and 8% in a bid to cut their own costs.
According to industry sources, the practice is mainly hitting M&E contractors, but also plumbing subcontractors and lift suppliers.
Rudi Klein, chief executive of the Special Engineering Contractors Group, told the magazine: “There can be no objection in the current climate to supply chains working together for efficient delivery, but this can require firms carrying out the work to produce cash gifts, and if they refuse, having the work taken away or never given in the first place. It’s outrageous.”
The FM contractors’ letters to their suppliers include demands for rebates on total spend over a year, ranging from 1% to 8%, sometimes retrospectively.
In some cases, the main contractors are asking for ‘pre-bates’. Where a preferred supplier agreement has been negotiated but the work hasn’t been carried out, then the demand is for an upfront fee based on the value of work.
Other forms of demand include payments of up to £10,000 to join a non-exclusive tender list. Supply chain sources told Building that they are often warned that they will not be offered future work if they do not agree to rebates.
A draft preferred supplier contract used by Norland Managed Services, seen by Building, asks for rebates of 4% if suppliers receive between £0 and £100,000 a year, and 8% if work totals more than £750,000.
The news comes just days after the Cabinet Office forced FM giant Serco to retract letters demanding its suppliers pay back 2.5% of the cost of contracts to help it meet savings it had agreed on public sector contracts.
The Government had asked Serco and its 25 largest suppliers to make cost savings of 2.5% but without passing them on to their suppliers. Serco’s dressing down was in response to its contravention of the government’s instructions.
We have a company that does this to us.
We have 2 employees and up to 10 subcontractors. This company has been our major supplier of work in the last year.
We got the impression that unless we agreed to the 4% “rebate” on all our invoices from one huge supermarket client we would not be offered any work with this contractor.
Our total for 2013/14 was to repay £4,922.62. They then added 20% VAT on top of the charge.
In effect each job we did for them on each invoice we were deducted nearly 50%
20% VAT + any surcharges for late payments or filing.
20% CIS deductions, which is not any annual payment, but deducted from Invoice at source. Any overpayment cannot be reclaimed until after the 19th May, and it is not an automatic repayment. You have to write in and request the repayment be returned, which in my experience takes between 5 months and 18 months.
This causes a serious cashflow problem and has meant that in the past our VAT takes ages to clear, leading to surcharges in the thousands.
4% Rebate (+ 20% vat on top)
3% Corporation Tax on any nett profit.
By the time we have paid out the salaries, purchased new tools vehicle + public liability insurances, fuel, vehicles etc we seem to be surviving solely to make a living for our subcontractors.
2014 was the first year since start up (2007) that we have made a profit – it was then taken away by corporation tax and the 4% rebate.
We are seriously considering folding the company because we are not making any money for ourselves.
The subcontractors are all off on foreign holidays, whilst we get to have a weekend camping in a tent if we are lucky!
There are far too many taxes already. There should be one business tax only.
The Government are in a win win situation.
They get the VAT twice on the same payments!
They also get the extra £5,000.00 in surcharges each year, plus they hold on to the £53,000.00 overpaid CIS monies + interest until at least 5 months after it should be refunded.
Being a SME in the construction industry is a hard slog to make money for other people.
It is unfair practice for giant companies who make the rebate agreement with the main contractor to be repaid 4% at the end of the year , because they will just pass it on to the small subcontractor, who can barely afford to carry out the work in the first place.
The 4% is not just on Labour costs either it is based on each invoice TOTAL.
If we have had 8 guys on site for 6 weeks working away from home. we also have to pay subsistence costs – Accommodation fees, food costs, materials if any and travel and parking.
As far as I can see there is no regulation in this area.