[Closed] Labours 5% max profit on NHS contracts..

Absolutely insane idea. Can't think why any company would take a contract to only make 5%. On top of the ridiculous and commercially non-viable margin, how would they possibly measure it?

Sounds perfectly reasonable. More money spent actually saving lives not filling corporation's coffers.

If I was only able to return 5% return on investment I'd be looking for a new market.. Shareholders would demand it too.

It's a classic example of a promise only someone in opposition can make as they know they will never have to put it into practice.

As above: It's a great soundbite to draw in the voters but utterly meaningless.

5% of a multibillion contract is huge amount of money.

It's so stupid even though it's surely just said to appeal to the less enlightened. Set targets then competition for contracts is most efficient approach if that's what's wanted. If want to cap profits then maybe have to return 50% over 5% or whatever to at least encourage efficiency.

[i]a great sound bite [/i]

and it is nothing other...

5% profit on any contract over £500k - so how are you going to audit the +100k contracts that probably already exist?

And,

[i]as a manual worker something i d say id like the sound of[/i]

I could pretty much take any currently profitable contract and make it look like it makes a loss.

Shows a total lack of understanding of how business (and accounting) works - for you, as a manual worker this is understandable. But for a senior politician - it is not...

It's an insane idea, one that will stifle innovation and drive away investment. Good soundbite but more of the insane clap trap that will probably make Milliband unelectable to be honest. His energy cap idea is bad enough, but this is a joke

[i]5% of a multibillion contract is huge amount of money. [/i]

And 95% is even more...

From expereince any company will just charge more , then add another 5% its not rocket science, but makes a good soundbite to bat against labour with.

Can't think why any company would take a contract to only make 5%

You've never worked in construction!

Yeah construction's ridiculously competitive.

You just end with a Starbucks system with subsidiary's charging extortiant amounts for a paper clip until all the profits have been funnelled to countries with a more beneficial tax rate.
Yet another sounds great but unworkable policy.

I think some of you might have missed the point that for the vast majority of the contracts to which they're referring the private sector providers are in competition with public sector NHS providers. I don't really understand what the advantage to the public is of private providers taking money for shareholders that could be pumped straight back into the health service.

Interestingly Serco lost so much money trying to provide a half decent service whilst undercutting the NHS competition that they had to pull out of clinical services all together. It's true that Labour's pledge is just another of their trite sound bites, and they're no more likely to give the NHS the funding they need than the Tories are, but it does highlight what a lot ridiculous mess the NHS 'market' has created.

5% of a multibillion contract is huge amount of money.

In my opinion that's kind of irrelevant. It's all about risk and opportunity - a 5% mark up leaves very little room for error.

Building contractors would be highly delighted to have their margin raised to 5%!

For any company investing to provide a service then 5% is too low (10 - 12% return on capital is the minimum)

depends how much risk the contract has I suppose.

In my opinion that's kind of irrelevant. It's all about risk and opportunity - a 5% mark up leaves very little room for error.

It's not about risk and opportunity it's about people and their health.

5% markup leaves more room for error than healthcare.

craigxxl

exactly that

http://www.theguardian.com/society/2015/mar/21/ow-lucrative--deals-go-to-firms-that-use-tax-havens

The NHS's biggest problem in this area,
is that it was forced to give away its logistics arm to DHL under last Labour government and is now unable to engage with its downstream supply chain any meaningful (lean) manner.
Factory gate prices have tumbled as the multinationals (Covidien & Johnson&Johnson) have moved manufacturing to China yet prices paid by NHS have remained static.....Hence Milliband's concerns and ham-fisted thrashing around for a sound bite

It's not about risk and opportunity it's about people and their health.

5% markup leaves more room for error than healthcare.

It depends on how the contracts are being procured - it will only be truly risk free for the service provider if they are on a cost-plus contract.

Risk is never truly removed - it just changes hands.

Ed keeps banging the "evil tories privatising the nhs" drum so why not commit to ending all the private contracts and returning them to public sector ?

I listened to Burnham on R4 about this and it was just nonsense, he doesn't know if any companies wouuld be affected by this, its just rubbish.

but if a private company can do the job to the standards required cheaper than the NHS, who cares how much profit they make.
the value to us as users of the NHS is greater despite the profit making.

or rely on that witch from the north to float your boat..

In the interest of balance "or just rely on the rich dicks from the south to promise something to the poor then poo all over them 2 minutes after they get in"

Ed keeps banging the "evil tories privatising the nhs" drum so why not commit to ending all the private contracts and returning them to public sector ?

The key word is "contract" it would cost huge amounts in penalties to end anything early.

the value to us as users of the NHS is greater despite the profit making.

[quote=doh said]
The key word is "contract" it would cost huge amounts in penalties to end anything early.

OK, commit to not renew any private contracts and to turn them over to the public sector.

And on the flip side, could he introduce the 5% cap on existing contacts anyway ?

Absolutely insane idea. Can't think why any company would take a contract to only make 5%. On top of the ridiculous and commercially non-viable margin, how would they possibly measure it?

Well that's the figure that all the supermarkets claim they operate on. 'Claim' being the operative word. And they all make 1,975 squillion pounds a year.

Given that private healthcare firms make the supermarkets look like almost socialist models of probity in accounting and taxation matters, I reckon that's reasoable. It might just constrain them, ever so slightly, in how much they **** us all over for. Though realisticly it probably won't.

Or maybe tell Tesco and sainsbury's to jack it all in as, despite their billions in profits, it's clearly not a viable business model 🙄

It's a fantastic theory as the NHS does get ripped off, and money gets wasted on company profits at the expense of more money being available in the health economy, however that money that gets funnelled in yo the private does play back in to the economy, so everyone benefits. Swing and roundabouts

What I do know though is that there are some privately run orthopaedic centres badged as NHS where you get seen really quickly, but the surgeon isn't as good, they use the cheapest implant they can, their complication rate is high, and when it goes wrong they ship you to the proper NHS for expensive corrective treatment. The only person benefitting there is the private company, not the NHS or the patient

scrumfled - Member

Its a cheap soundbite. Contract Company A @ 5% profit. They are owned by a holding company, who also own company B. Company A buys a massively overpriced service from company B..... Company A makes 5% profit, company B makes a gazillion percent. Company B is probably offshored somewhere to avoid UK tax.

Sadly you're right though, the capacity for unethical companies to evade the law is always likely to be greater than the capacity of countries to enforce it. Dishonesty is simply faster.

 

So Labour are fine with the NHS being privatised as long as the private companies don't make too much money?

It's pretty pathetic all round.

We'll still carry on with the what the Tories are doing, but we'll try and look like we don't really want too.

And we'll ask nicely if they vested interest to be a bit nicer to us, and not bend us over quite as much

Fat cance!

This is such a stupid idea. I can't be arsed explaining why. Ed Balls has proved himself to be incompitent

Binners, I agree again. I am sick of seeing Labour fight hard against austerity 5 years ago, yet timidly agree with the Tories spending plans now.

tbh no one I've worked with in the public sector really understands the world of the private sector, nor what drives it - and my work in our local NHS didn't give me any comfort that the senior management actually understand how to manage and run anything (efficiently).

But one thing though that not just the public sector suffers with is contract management. It is very difficult and time-consuming and I've seen many private organisations fail with this too, mainly due to a lack of understanding/budget-acceptance of the actual cost/time it takes to manage an outsource/purchase contract properly.

The public sector has also fallen into the trap of making the contract requirements so great that only the largest private sector firms can fulfil them and/or take the risk of bidding for them, eg how long before that initial money comes in vs the costs spent (cash-flow), or that you must have a dept that specialises in 'x'. And to be able to spend a year negotiating the deal and 'meeting' with Ministers and the like.

[i]Risk is never truly removed - it just changes hands. [/i]

Risk management? It was after the event management...

Absolutely insane idea. Can't think why any company would take a contract to only make 5%. On top of the ridiculous and commercially non-viable margin, how would they possibly measure it?

You've not done business with Tesco and their "Open Book Accounting" then. If are going to supply to them you can't name your price, they demand to see your accounts, look at your operating costs and decide what margin they'll allow you to make on any transaction. That might only be 3%. (Tescos own operating margin is 5.2% but they've been under pressure from investors to reduce it to 3% "with the aim of ‘destroying competitors’ cash flows and profits’'

You'll notice occasionally that certain brands disappear off the shelves in Tesco and its because manufacturers will refuse to supply at the margin that Tesco are dictating.

It's ludicrous.

I think Labour have decided that all they need is their (credulous) core vote and are saying mindless illogical things to stop them voting Green while UKIP split the Tory vote. Maybe that will work.

After the 'tax avoidance' hysteria I had to chuckle at SWMBO's NUT union magazine with an advert for ISAs on the back page with the headline "Shelter £15,000 from tax.". 🙂

Couple of points.

A 5% margin is meaningless even if you know the amount of revenue it's being made on. The markets stopped using net profit as a meaningful measure of performance donkeys years ago. The return you make is only meaningful in context of the risk you took making that return.

As for 'profit', do they mean PBIT, EBIT, EBITDA, ROCE, ROI, ROA? This might be specified so if anyone that's read the article knows do shout up.

If you go to cost plus pricing (which is effectively what this will engender), then all that will happen is that costs will be inflated. You'll just by at the highest price because that's also the easiest price to buy at and everyone will love you for paying their rate card. What do you care, you're going to make a guaranteed 5% so there's no point in trying.

Profit maximisation may well be the popular evil to rally around but it is also the mechanism that drives effeciency (hence why the NHS is so ineffecient, though I'm not saying it should neccessarily any other way.)

Efficiency? I went to A&E the other week and told I had to have an operation. I waited for 4 or so hours for a bed to become free. After my operation the next day I was free to go once I had got my medication brought over - that took 4 hours. So I was taking up a bed for 4 hours just waiting to leave. How much is cost per hour of bed? Maybe I was waiting so long to come in because someone else was waiting for their medication?

but if a private company can do the job to the standards required cheaper than the NHS, who cares how much profit they make.
the value to us as users of the NHS is greater despite the profit making.

Unfortunately, comments like that make it sound like you care more about taking business away from nhs trusts than you do about how your taxes are spent and value to the patient and taxpayer. If you can do it cheaper than the nhs making 10% profit, than you can do it even cheaper again at 5% profit. Tendering is not about dismantling the state, its about gettg the best value for money is what the last 2 governments have been assuring us.

Well that's the priciple, but as others say the practice of this 5% profit cap looks impossible to administer.

I propose that my imaginary healthcare provider licences the knowledge base and treatment protocol for the treatments i provide from a company located in luxembourg. Since the expert knowledge base constitutes such a high proprtion of the value of the expert treatment my company provides, then i will make almost no profit at all in the uk whereas my Overseas knowledge-licensor is raking it in.

I actually have in mind a niche-of-a-niche of my own clinical practice where the above seems quite feasible, except that the licence and knowledge base is in the USA and a considerable amount of money already exchanges hands to be able to provide this treatment elsewhere in the world. 😕

So Labour are trying to reduce profit made under a scheme they started? 🙄

Another great idea by Milliband. He's not even in power and he's screwing people already. His silly announcement about freezing energy prices completely scuppered the energy firms passing on any of the cost savings due to lower energy prices right now just in case Miliband gets into power. Just reinforces his complete and utter lack of understanding of how the real world works and how dangerous it would be if he got into power.

There is only two realistic options for the NHS (ruling out the US style completely private system which nobody in their right mind wants) and the sooner politicians fess upto everybody and let the general public decide then the better for all.

Either the NHS is completely under public ownership - what we all want philisopically but can't afford unless we all pay a hell of a lot more tax than we do now - The tax take of the NHS and Benefits system is already well over half of tax incomes already - we can't realistically cut the other elements enough to further increase their tax take, so tax will need to increase in line with the rising cost of health care and the benefits system - and continue to escalate to meet the rising costs as the population increases and people live longer. Can we really afford it as individuals? Is it sustainable?

We continue down the route towards having some form of hybrid public ownership/control utilising private services as most other sensible countries around the world have and get on with perfectly well. Not quite option 1, but near as damn it. In reality Labour has already committed to this so they really know that option 1 isn't really a viable option so its about time they stopped waffling on about option 1 just to win votes.

Profit maximisation may well be the popular evil to rally around but it is also the mechanism that drives [s]effeciency[/s] profit maximisation

IME efficiency here just means pay the workers less than the NHS [ often having taken the same staff]

tbh no one I've worked with in the public sector really understands the world of the private sector, nor what drives it -

the contract requirements so great that only the largest private sector firms can fulfil them and/or take the risk of bidding for them,

Agree with that. in the sector i work in you often needs reserves of millions as the money wont come back to you [ paid on outputs] for months after you have done the work. To start form scratch with no staff or resources or networks would hamper you so much in the first few months you would never achieve outcomes.
In my sector it really depends many organisations have been TUPED out of the state sector and are not for profit organisations- usually good but often cannot hit targets. Many others [ the majority these days] are profit driven and dont see any big picture beyond money. Happy to fiddle the figures and deceive to make sure they get their money.

allthepies - Member
Ed keeps banging the "evil tories privatising the nhs" drum so why not commit to ending all the private contracts and returning them to public sector ?

Because he knows that's a stupid idea. This artificial/rhetorical carp about private/public split is total nonsense. All departments work in partnership and often successfully.

The 5% soundbite is just that. Nonsense but easy to swallow. Given how much private sector involvement Burnham introduced himself, the BSometer, goes off the scale.

(To repeat from many threads, profits and profitability are not the same thing)

I see this every day.

Public sector clients on major contracts trying to restrict/control ROI, NPV and refinancing gains. We're already subject to huge restrictions on refinancing in some jurisdictions which has killed a load of the benefits associated with the secondary market for funding PPPs (which I agree with in principle, but the overall effect has not been as intended).

These soundbites rarely have the effect that the politicians think they will. It's very easy to say that you'll restrict max profit, and to the lay person it might look that way, but we'll still make the money we need to (barely), otherwise the market will vanish overnight.

I've noticed a race to the bottom since 2008, huge infrastructure deals where price has been the key motivator (fine on a road, not so much on a hospital).

Our margins are tight. The cost of funding on major schemes (with those taking construction risk, not on the secondary market) is still high, yet clients still want projects delivered within parameters that never seem to take this into account, which gives a false impression to the public that the contractor is making a fortune. We're not...but funders almost always are.

It's funny, whenever we whinge about stuff like this, to clients/public etc, we always get the "oh the poor contractor, my heart bleeds". When you do public sector work as a private contractor, profit is a naughty word. We struggle to get engagement from our sub contractors because of the unrealistic margins and risk. At some point, when the general construction market picks up, they'll bore of PPPs and we'll have hit rock bottom with a few consortia bidding for everything and delivering a pile of crap with 25 years worth of problems and back end loaded profit.

The alternative elephant in the room is that the NHS may not be able to afford to keep everyone alive, and rationing is the horrendous outcome from that. Plus the rich still get the good stuff.

Linda Bellingham made some very interesting comments about society's fear of death and dying, when it remains the only certainty.

mudshark - Member

How much is cost per hour of bed?

If there wasn't a queue of people waiting to take it, £0. It may well have been more efficient to have you wait while they did other things, than to rush through getting you out.

Efficiency? I went to A&E the other week and told I had to have an operation. I waited for 4 or so hours for a bed to become free. After my operation the next day I was free to go once I had got my medication brought over - that took 4 hours. So I was taking up a bed for 4 hours just waiting to leave. How much is cost per hour of bed? Maybe I was waiting so long to come in because someone else was waiting for their medication?

This shows that people simply do not understand healthcare. I'm guessing that you were in a large hospital which would have had dozens of people going home within the same few hours. To have enough pharmacists or techs available to give you your drugs immediately would be stupid - that gives you part of your wait. Also - the drugs dont magic their way to your bedside - they need someone to take them to you. Sometimes that is a porter, sometimes that is a nurse. For a porter or nurse to go to pharmacy for one persons drugs would mean that they wouldn't have time to do anything else, so they wait until they have a decent amount to do. They then need to check that the correct drugs have been sent up and that you know how and when to take them. That's the drugs side of it taken care of - I can see how that would take upto four hours.

The waiting for a bed thing - yes there may be someone in it. Other delays include they entire bay needing to be thoroughly cleaned. They may need to change the type of bed that you would be going into. They also need to tell the nursing and medical staff on the receiving ward what's wrong with you and what your needs are, and any drugs that you need.

To be honest that is merely skimming the uppermost surface of what needs to be done for a patient to leave or go to a bed in a hospital.

Four hours is not a lot of time.

Indeed it seems to me that a 4 hour wait is remarkably efficient for a hospital. There should be control of expenditure within the nhs but imo there is absolutely no place for profit in the nhs

I had experience last Summer with a City Council who gave a % on top of cost.

School refurb. Contract signed at a fixed price. Extras would be negotiated labour cost, and parts at 'cost plus 4%'.
Of course, we didnt go out and buy the cheapest item to keep costs down.i.e. an over door fan heater was required.
We charge these out at £150 typically, they cost us £120ish.
But 4% of £120 isnt worth our time, so we ordered a well known brand at £450ish.
The Council paid £468, we made £18 to supply it.
So if we'd supplly our usual Model, the Council would be £300 better off, and we'd have made £30 on it rather than the £18 we got.
It is stupid Council Officials who cannot see they are costing the Tax payers money by their stupid buying polices.

Same with repairs - same council,they ask for a quote, we say it can be done in 10 minutes, so we'll do it while we are there, they say no, we want a quote, we then charge them twice, once for a quote, once for the repair - they are paying double the cost, because of their daft policy.
We tell them it would be cheaper if they did it differently, they are not bothered.

It's funny, whenever we whinge about stuff like this, to clients/public etc, we always get the "oh the poor contractor, my heart bleeds". When you do public sector work as a private contractor, profit is a naughty word. We struggle to get engagement from our sub contractors because of the unrealistic margins and risk.

So why do it then if it's such bad business?

[quote=alanl said]
It is stupid Council Officials who cannot see they are costing the Tax payers money by their stupid buying polices.

To be fair that example was your company ripping off the council.

To be fair that example was your company ripping off the council.

Indeed.

Not at all - a company has an obligation to it's staff and shareholders to stay afloat.

Running a non-viable job jeopardises that.

As has been stated, stupid policy left everyone worse off.

As has been stated, stupid policy left everyone worse off.

Except the company has the choice to either accept the contract and fulfil it in good faith, or to not bother if the margins aren't good enough.

Running a non-viable job jeopardises that.

They aren't obliged to take on contracts then dishonestly inflate costs to get more profits. I run a business and would be embarrassed to do something like that. If the company is charging properly for labour costs why does it need to make a profit on materials too?

Seems to be a lot of people moaning about public sector contracts but still taking them on - why is that then?

Sounds like the school was asking for it, with that short skirt and all

Profit maximisation may well be the popular evil to rally around but it is also the mechanism that drives effeciency

It only drives financial efficiency. If that means cuts to personnel or services to make profits, so be it.

(hence why the NHS is so ineffecient, though I'm not saying it should neccessarily any other way.)

Its one of the most efficient health services on the planet!! This business of claiming the private sector is more efficient is mythical bollox, unless you refer to the point above.

The NHS has always had public/private involvement, it deciding what is a healthy balance between the two, unfortunately with the current health budget not increasing to meet demand and more private sector involvement means there will be less in this diminishing budget to actually do what its supposed to.

But judging by what's being said on here, profit only matters.

So why do it then if it's such bad business?

Turnover and little profit is better than no turnover at all in a bad market (which we've been in since 2008). Look at how many of the global contractors have issued profit warning after profit warning, yet we're still ticking over, keeping afloat and not having to make mass redundancies. One in particular has made several attempts to off load its PPP business because its the only arm of the business that's actually worth anything at the moment.

The lure of guaranteed 25 year income streams gives shareholders a portfolio diversification hardon. No matter how little profit, it can be very hard to dissuade a board from committing significant equity to PPP. It was easier when the secondary market was more buoyant, since contractors could refinance and release that equity to go and do other things, but it's just not so easy right now.

European PPPs used to be relatively* lucrative and secure income for contractors. Now it's just secure. That's fine for us, but the sub contractors who have the choice of doing a major private project or a PPP will generally jump for the private work every time unless they're got additional resource to spare, which they do right now because of the downturn. If/When the regular market picks up, they'll turn their noses up at the market that has in part kept them afloat during difficult times. I'm starting to see it already. Middle East markets and emerging Asian markets are far more financially attractive at the moment.

I know there's a general drive to save NHS from privatisation and to keep profit out of the equation. Good luck building and running your next world leading hospital.

*relative to the risk involved. public sector clients don't like/won't take risks that they are generally best placed to manage. Instead they ask us to price taking that risk. So the cost is higher than it could be, and we make money on it sometimes (unless the risk materialises of course!), but this is solely because we've been required to accept greater risk.

A good example of this is ground conditions. When we're offered a site to build a £500m facility on...if the authority says that ground conditions are our risk then that means we generally need to carry out our own surveys for contamination etc. We've got limited time and resources at this stage, so you do a survey which basically involves drilling random holes all over a site. There is always (sometimes significant) chance you missed underlying contamination. Occasionally you find some too. We've then got to guesstimate how much this risk would cost us if it materialises. It will almost always run into millions on a major scheme. We will NEVER err on the low side for something like this and we will build this into the cost. If the risk does in fact materialise and it costs what we built in for it, we're OK. If the risk doesn't materialise at all, or even to the extent we prepared for, then the Authority has pissed millions up the wall by paying us to manage the risk. The better option would be for it to extensively survey the site, make a value judgement and then hand the land to us while retaining liability for ground condition risk. Some do this and it pays off. Others just can't bear the thought of managing any residual liability and would rather pay through the nose so that they sleep more easily at night.

Sounds like the makings of a costs plus 5% contract that sees the overall price to the nhs rocket in a few years... 🙁

It only drives financial efficiency. If that means cuts to personnel or services to make profits, so be it.

and

IME efficiency here just means pay the workers less than the NHS [ often having taken the same staff]

It can do that in some cases yes. Not all but definitely in some. The ideal (that pure capitalists will usually espouse) is that over zealous cost cutting especially around labour costs, in the long run leads to poor performance which then impacts on service delivery.

That's the 'theory' of the self regulating mechanism and it may well work but the problem is that it takes time and while it's working through the cycle, people lose their jobs and patients suffer. You're also going to see any number of business fail. Again, while failure is part of the self regulating system, it doesn't actually help people in the short term.

Profit is still a strong enabler for effeciency but it's not perfect. So the best model, in my view, is one where you have free markets but you also have strong regulatory oversight.

It's the oversight part we've always been bad at implementing, as witnessed in 2008 with the financial system, the rail network before that, the energy sector etc.

If you want an interesting view of free market economics balanced by effective regulation and oversight, have a look at George Soros's book 'Open Society; Reforming Global Capitalism' and 'The Crisis of Global Capitalism: Open Society Endangered'. Both are excellent.

alanl said »
It is stupid Council Officials who cannot see they are costing the Tax payers money by their stupid buying polices.
To be fair that example was your company ripping off the council.

Not at all, we are open about what we charge, and tell them exactly what we/they are getting, and the choice for them if they choose.
We tell them they can have X for £120+£30, or Y for £450+4%, it really makes no difference to us. The Council cannot get, or choose not to get, the items at the price we do.
We actually make less money by supplying an item that costs 3 x more, the council spend more, the only people making on it are the Manufacturers and Wholesalers.

Note, this is for extras on the Contract. The Contracts are always tight anyway, but do allow for a little bit of leeway in costs, however, getting extras out of them is alwys difficult - we make a mistake, we pay, they make a mistake, they seem to think it is our fault for not noticing.

We are not ripping anyone off at all, we would rather sell them X at £150, but their policy does not allow a reasonable profit margin, it is a Council-Wide policy, so if the item did fail within the warranty period, we will be losing money on it if we accept a fee of 4% on £120.
If we charged £150, it just about covers our costs.

Common sense does not come into Council Policies with this Council, so they are charged whatever is necessary for us to cover our costs, within their rules - we would rather have a fair price for items we supply, but they have their own rules which are totally inflexible, and if one was of a criminal bent, easily bypassed by false accounting - which we dont do.

The biggest problem with this is that the vast majority of the private contract in the NHS are held by GPs as there is no such thing as an NHS GP. They are all private sector. Given the power of the BMA then there is no chance that GPs will work on 5% margin.

there is no such thing as an NHS GP.

Well that's wrong for a start.

[i]A good example of this is ground conditions. When we're offered a site to build a £500m facility on...if the authority says that ground conditions are our risk then that means we generally need to carry out our own surveys for contamination etc. We've got limited time and resources at this stage, so you do a survey which basically involves drilling random holes all over a site. There is always (sometimes significant) chance you missed underlying contamination. Occasionally you find some too. We've then got to guesstimate how much this risk would cost us if it materialises. It will almost always run into millions on a major scheme. We will NEVER err on the low side for something like this and we will build this into the cost. If the risk does in fact materialise and it costs what we built in for it, we're OK. If the risk doesn't materialise at all, or even to the extent we prepared for, then the Authority has pissed millions up the wall by paying us to manage the risk. The better option would be for it to extensively survey the site, make a value judgement and then hand the land to us while retaining liability for ground condition risk. Some do this and it pays off. Others just can't bear the thought of managing any residual liability and would rather pay through the nose so that they sleep more easily at night. [/i]

Goes back to what I said earlier - they (most Politicians and the Public Sector) really don't understand been in business. For them, if it all goes t*ts up, worse case is they get demoted.

We tell them they can have X for £120+£30, or Y for £450+4%, it really makes no difference to us. The Council cannot get, or choose not to get, the items at the price we do.
We actually make less money by supplying an item that costs 3 x more, the council spend more, the only people making on it are the Manufacturers and Wholesalers.

School refurb. Contract signed at a fixed price. Extras would be negotiated labour cost, and parts at 'cost plus 4%'.
Of course, we didnt go out and buy the cheapest item to keep costs down.i.e. an over door fan heater was required.
We charge these out at £150 typically, they cost us £120ish.
But 4% of £120 isnt worth our time, so we ordered a well known brand at £450ish.
The Council paid £468, we made £18 to supply it.
So if we'd supplly our usual Model, the Council would be £300 better off, and we'd have made £30 on it rather than the £18 we got.
It is stupid Council Officials who cannot see they are costing the Tax payers money by their stupid buying polices.

There is considerable difference between your initial explanation of what happened and the subsequent explanation of the same situation.

Whose fault it was depends entirely on which one of your accounts is the truth
and then you said this

we would rather sell them X at £150, but their policy does not allow a reasonable profit margin

Why did the company take the contract?
Why do you think this is the councils fault?

TBh i have no idea what actually happened as your accounts are contradictory at best.