Editor's blog Sunday 31 October 2010: Serco's 'trick or treat?' partnering with the private sector

You know the mythology of the inefficient public sector and the efficient private sector? Of course you do. As with all mythology, it starts with a kind of truth, in the form of the clarity of profit and the simple power structure of the shareholder interest.

And what brilliantly innovative methods is one of the biggest private sector providers of outsourced public sector work using to drive efficiency?

Today's Telegraph reveals a letter in which Serco's finance director Andrew Jenner requests a "cash contribution" from all Serco's suppliers.

Jenner's letter is reported by journalist Richard Tyler to state,  "Chris Hyman [Serco chief executive] and I have given our personal commitment to the Cabinet Office that Serco and its supply chain will provide our total support" to the plan to save £800m from central government procurement this year.

"I am asking you to offer us a rebate of 2.5pc (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".

The two-and-a-half percent solution
Haven't we all heard lots of rhetoric about the importance of the supply chain, and how well the private sector manages its supplier relationships? Mmmm.

This is of course a textbook entry in the Almanack Of Things That Are Not Surprising. Big businesses often feel able to dictate terms to suppliers: if they have sufficient of the market (as in the supermarket industry), their suppliers often have scant chance but to wear whatever terms are dictated.

It's also fascinating for its implication that Serco knows of no way to make itself more efficient. What a lean lot they must be!

Serco's suppliers will be thinking hard now about how to respond to the letter. If all their eggs are in the Serco basket, they are very exposed indeed.

Public sector commissioners and providers who are considering using Serco services or renewing existing contracts ought to consider carefully what this letter says, implicitly and explicitly, about Serco.