Shocked trade contractors have been asked to knock money off previously submitted bills by the UK’s biggest house builder Taylor Wimpey.
Firms who carry out work for Taylor Wimpey’s Bryant Homes arm have been sent letters by directors asking them to accept less for invoices.
Last week’s letter, dated 2 January, says: “We need to take urgent action to manage down our cost base. We are reviewing our own overheads, house designs and build processes to drive out inefficiencies but also need subcontractors to play their part.
“We are therefore introducing a five per cent reduction in price on all outstanding works on existing orders as well as all future orders placed after 2 January 2008 and will be looking for an equivalent reduction in future tenders.”
Directors at Bryant’s South-east operation say the plea has been issued because “2007 has been a difficult year for the house building industry and this situation seems likely to continue into 2008”.
The letter adds: “We want to try to maintain a steady rate of sales and build across all of our sites because this will allow us to maintain our capacity to grow should the market recover and we believe this is also in the best interests of our trade partners.”
The letter also indicates the firm’s current credit terms of one month may also be changed if savings cannot be found elsewhere. It says: “We do not, at this stage, propose to change credit terms but will have to review this if we are not able to reduce the overall costs.”
The economics director of the Home Builders Federation, John Stewart, said he could not comment on the policies of individual firms but said: “I haven’t heard of this before but the second half of last year was very difficult for house builders. Volumes and reservations are under considerable pressure.”
Last week, the Bank of England said mortgage approvals in November fell to a three-year low at 83,000 - down from 89,000 in October and the fifth consecutive monthly fall.
But one subcontractor said: “I don’t remember getting a letter when the market was booming saying ‘here, we’re doing so well we’re going to increase your rates’.
“This is just bullying tactics. They’re still selling houses and it’s nothing like a recession, it’s a slowdown at best.”
The £7 billion turnover Taylor Wimpey was formed last summer by the merger of Taylor Woodrow, which included Bryant Homes, and Wimpey.
A spokeswoman for the firm said: “Taylor Wimpey is committed to reducing costs and we expect our trade partners to work with us to do so. This is particularly critical in the current market environment.”
Taylor Woodrow paid £632 million for Bryant when it bought the company in March 2001.
Analysis: Supply chain hit by a move of dubious legality
By Rudi Klein
This is yet another example of firms using their supply chains as cash cows.
Not only is there an insistence that Bryant’s subcontractors reduce their prices by five per cent, there is also the implied threat that Bryant may extend the time taken to pay its debts.
All this reinforces the fact that the industry is bottom-up funded.
I wonder what Bryant’s reaction would be if one of its subcontractors requested a five per cent rise in the contractually agreed price in order to cope with actual or impending trading difficulties.
Bryant is probably oblivious to the fact that its subcontractors are unlikely to be in a position to insist that their suppliers accept a five per cent cut in prices whether contractually signed or not.
There are also legal issues here. Any unilateral imposition of a five per cent price cut on existing contracts is a serious breach of contract.
Rudi Klein is chief executive of the Specialist Engineering Contractors’ Group