Why do contractors say that price is not the most important issue in a contract?

In most cases, contractors will derive more profit from client purchasing than from any other aspect of a typical catering contract. Therefore perhaps it is no surprise that clients are actively discouraged from comparing the true market prices with the prices they charge.

Contractors will often argue that as long as they achieve the required quality levels and, at the same time maintain their own budgeted gross profit margins, then price is insignificant. Clients often perceive this to be a plausible argument and hence may prefer to avoid difficult and confrontational questioning with the contractor, which ultimately could affect their working relationship.

However, pricing and purchasing are critical elements in budgeting. If prices are not audited regularly and continue at inflated levels, then there can be serious implications on any organisational budget. Ultimately this affects gross profit margins and viability through falling trade, a drop in quality and quantity, plus higher tariffs for staff and increased hospitality charges.

If prices and cost elements are regularly monitored, then clients can make informed purchasing decisions from a stronger negotiating position, enabling significant savings and improvements to quality of service received. At the same time, it is possible to establish a wider precedent of more responsible and ethical trading on the part of contractors.

A recent example was the case of a contractor taking over the provisioning of rations for the RAF flight crews. The flight crews subsequently complained that, in spite of prices remaining as previously, they were being issued with approximately 40% less provisions. This prompted immediate action to set price tolerances and administer continuous assessment of every contracted operation across all sections of the MOD in order to protect cervice men and women. This of course does not fare well with all contractors, however, it cannot be over stressed that it is imperative to monitor prices and cost elements when evaluating actual costs against budgeted targets.

Tip:

If you have an existing contract then CPI can evaluate the purchasing cost elements.

If you are in the process of tendering, then CPI can carry out a completely independent purchasing evaluation, along with ongoing monitoring, in order to protect quality and operational costs into the future.

In either case, CPI will support you throughout the process and be there when necessary to assist in discussions and negotiations on all pricing issues with contractors.