Penitent Serco signs up to government's contract memorandum

Services company Serco has this week joined the list of major ICT suppliers who have agreed to Cabinet Office Minister Francis Maude's new approach to delivering ICT to central government.

"I am very pleased that we have signed our MoU with the UK government and we look forward to continuing to support our customer in the delivery of essential public services," said Serco's chief executive Christopher Hyman.

Maude's rolling "memorandum of understanding" (MoU) process is getting vendors to agree on ways to provide efficiencies for central government procurement and project management.

The firm says savings in the way it works with Whitehall will be made through scope changes and cost efficiencies and are not material to the group's financial expectations.

The firm recently caused controversy with a demand that to meet Maude's targets it expected a 2.5% cut in all costs from its own supply chain.

The firm said it now wished to "apologise unreservedly" to its suppliers and has retracted letters asking for a rebate of 2.5% it unexpectedly demanded and non-payment of which it said could end commercial relationships. The firm had told its supply chain it needed to make the sacrifice to help pass savings back on in turn to the government.

Its finance director Andrew Jenner had written to suppliers, "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."

Now Serco - whose contracts on behalf of Whitehall include running prisons, the maintenance of a number of RAF bases and the operation of London's Docklands Light Railway - says in a statement that it had been working with the Cabinet Office as part of the government's efficiency programme, which "has involved discussions with our leading suppliers".

"As a result our plans evolved and we decided not to seek or accept any contributions from our suppliers, who had recently received letters asking for rebates... As a company that values our relationships with all our supply chain partners, large and small, we deeply regret this action and apologise unreservedly to them for the concern that this has caused."