THE GOVERNMENT is to demand significant cuts in prices from the 30 largest companies supplying goods and services to departments and State organisations in an attempt to cut 10 per cent from an annual bill of €16 billion.
Minister of State for Public Service Reform Brian Hayes made the announcement following a meeting in London yesterday with British cabinet office minister Frances Maude, who has already forced £800 million (€900 million) in savings since last year from companies supplying the British government.
Multinationals supplying IT and other services will be included in the first round of companies to face cost-cutting demands, but the Mr Hayes said smaller contracts would be affected in time.
Saying there has been “no debate” about the value for money the State received, Mr Hayes said: “I have learned that politicians and governments need to show muscle.”
Mr Hayes said he intended to contact “the 20 or 30 largest suppliers” – many of them multinationals. He intended having new arrangements in place by autumn. He refused to put a figure on the targeted savings, although he noted approvingly Mr Maude’s target of 10 per cent savings.
“The private sector gets deals on procurement day in, day out with suppliers of goods and services,” he said. “Why can’t the State? The problem is that this has never been driven by a politician before.”
Asked about what he would do if companies refused to offer savings, Mr Hayes said: “I’ll give [them] the same message that any private sector person would give to those people who don’t play ball with them.
“We can’t renegotiate a contract because a contract is a contract, but there’ll be another contract in a few years’ time and their relationship with us may well determine whether or not we can meet their terms and conditions then.
“We are in a totally new space now. We have got to get better value for money. Last year, we spent €16 billion out of a total tax revenue of €32 billion – virtually half of what we are taking in tax is going on goods and services. That is not sustainable.
“Many of these large-scale companies are already demanding reduced prices from the suppliers that are supplying them, so the myriad of suppliers who are feeding into a bigger contract have already taken a hit, but the larger companies haven’t,” he said.
Mr Hayes rejected the view that the Government’s actions could threaten multinational investment in Ireland. “They are expecting us to do it because of the financial situation that we are in. I think we should speak to the boards honestly about the scale of the financial crisis.”
The new rules, which would impose “more central control”, he said, would affect contracts awarded locally by councils and other bodies.
“I think we can do much better,” he said. “I know people say, for example, that Kerry County Council should purchase locally to keep jobs there [but] we are not in that space any more, we have got to get much better value for the taxpayer’s meagre money that is there.
“That’s the best way of ensuring that the really successful companies will remain on as against those who are being given inflated prices by out-dated contracts.”