Vistry has written to its subcontractors asking for a 10 percent reduction in prices agreed in current contracts, sparking the anger of the sector.
In an email sent to suppliers last month, the builder said its exit from private construction, which it announced last month, to focus solely on social housing associations means it will be able to “offer greater visibility of future workloads to our supply chain partners.” .
However, he added that he wants a 10 percent discount on “current and future contracts” as there is a “responsibility of supply chain partners… [to] balance the opportunity offered by the continuity of work with greater efficiency”.
The email said: “Economic pressures created by inflation have eased in recent months with some commodity and labor costs falling. We need to ensure that this improvement is used to unlock the additional delivery
“We will be contacting you shortly to discuss how we can achieve an overall 10% reduction in our current and future contracts, maintaining production and ensuring a continued commitment to quality in the homes we build.”
Trade bodies have criticized the email (published in full below), noting that Vistry has paid out hundreds of millions in dividends over the past three years and recently moved to increase its chief executive’s pay.
Last year, Vistry made an adjusted pre-tax profit of £418m, paying out £161m in dividends to shareholders. The figures rose from £346m and £131m respectively in 2021. The company has paid out around £110m in dividends so far this year.
Meanwhile, Vistry chief executive Greg Fitzgerald will receive up to £5.6m this year after 55 per cent of shareholders approved his pay package, which sees his base pay rise by 5.9 per cent up to £800,000, with your maximum annual bonus doubled. up to 300 percent of their salary.
Rudi Klein, solicitor and former chief executive of the Specialist Engineering Contractors Group, said: “Vistry, along with some of the other housebuilders, should hang their heads in shame.
“I wonder what the reaction would be if I walked into Sainsbury’s and said I want a 10% discount because inflation is coming down. I would ask [Vistry’s] that suppliers think carefully about whether they deliver 10 percent.”
He added that despite Vistry’s recent significant profits and dividends, “I bet the suppliers who helped them win it didn’t get anything.”
Rob Driscoll, legal and business director of the Electrical Contractors Association, said: “The threat of continued workload appears to be the lever to demand a” 10% across-the-board reduction in… existing contracts and futures”.
“[This is] a tough call given that inflation in existing contracts has been over 23 percent in electricity, and while inflation is falling, prices are not falling.
“Semiconductors are still a problem and costs are not coming down. The history of volume discounts has taught us that by a medium margin [of] By 2.5%, suppliers who decide to stay with them will have to increase their prices by 10% to take the discount into account.”
Iain McIlwee, chief executive of the trade body for the finishes and interiors industry, said on LinkedIn: “Reading the letter sent by Vistry, it’s hard not to see the double standard at play.
“There is a lot of focus on improving productivity and investing in training in construction, but sometimes there seems to be little understanding or accountability from the top of how we do it.
“The brutal reality is that short-term performance still trumps long-term strategic planning. The short-term consequences are a supply chain (the people who actually build things and engage the workforce) that was left vulnerable and they cannot invest in the life skills and business improvement that will ultimately help drive productivity and economic growth.”
Vistry declined to comment.
Complete: Vistry email to suppliers
To whom it may interest,
Last week we wrote to you about our announcement that in future Vistry Group will focus our operations entirely on our rural partnerships model, merging our strong housebuilding operations with our established partnerships business.
This allows us to work with our partners and suppliers using our mixed tenure development model to significantly increase our contribution to addressing the acute shortage of new homes in the UK. Together we can improve the overall delivery rate at our sites and provide greater visibility into advanced workloads for our supply chain partners. We can all help deliver the homes the country needs.
But to do that we need to be efficient and aware of wider economic pressures. The current economic environment increases the need for us all to be as efficient as possible, and we are working hard within our group to ensure that we manage our internal resources effectively. We also need to hold our supply chain partners accountable, consider their costs, and balance the opportunity that business continuity offers with greater efficiency.
Economic pressures created by inflation have eased in recent months with a reduction in raw material and labor costs. We need to make sure that this upgrade is used to unlock the extra delivery. We will be contacting you shortly to discuss how we can achieve an overall 10% reduction in our current and future contracts, maintaining production and ensuring our continued commitment to quality in the homes we build. As the UK’s leading partnership provider, we have a unique opportunity to deliver more homes and secure our future workloads and we want to work together with you to achieve this.
We appreciate that this requires careful consideration among our wide range of partners. In the current environment and in common with our competitors making similar requests in the industry, we are looking to reduce our cost base. Unlike others, our partnership model means we have the ambition to continue building and increasing volumes of new homes. 65% of the homes we build are pre-sold, which helps us build at pace. Sharing this business continuity strengthens our partnership and provides additional resilience to business cycles as a valued supply chain partner.
We will contact you in the next few days to discuss further details. If you have any questions in the meantime, please feel free to contact your regional business customers.
Thank you for your continued support and commitment to maintaining production. We look forward to continuing to work with you to provide much-needed new housing in our operating area.
