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A new deal: cuts, contracts and Trojan horses

Wexford GP Dr Reggie Spelman pens a short story about one Dublin company’s nefarious plans to cut costs by imposing new, draconian contracts on its outsourced, self-employed service providers (SPs) that could result in early retirements, forced emigration and insolvencies.

Dr Reggie Spelman

Dr Reggie Spelman

It is 9am. Nick Machiavelli, who works in the finance department of a large Dublin-based organisation, has good reason to be excited. He is just about to present a document he has prepared, which contains a cost-cutting plan, to the CEO and other senior executives.

The organisation outsources service work for 1.8 million of its clients to more than 2,000 self-employed service providers, known in the organisation as SPs. The SPs are contracted to provide their services for a fixed annual fee per client. For the most part, they provide a same-day service either at their place of business or, if necessary, at the client’s home, as often as is requested by the client.

Their service is available 24 hours a day, 365 days a year. Outside of working hours, the SPs must be available themselves or pay for a suitably qualified replacement. His plan, if accepted, will initially see the organisation save €454 million in payments to the SPs and, going forward, will also see them provide services for an additional 280,000 clients.

Nick will explain to the CEO and the executives that initially, and without consultation, he proposes that they should reduce payments to the  SPs by 40 per cent over a phased period. Nick is aware that the CEO  has a reputation for being a decent and honest man, a trait Nick believes is not best suited for such a position in business. He has predicted that the CEO will argue that the SPs will be struggling so severely financially as a result of such cuts that some may even face bankruptcy and closure of their businesses.

Trojan Horse
To counteract such an argument, his plan contains a Trojan Horse, of which even his Florentine ancestors would be proud. After three to four years when the SPs are on their knees financially they will be offered a return amounting to €37 million of the €454 million in payments taken from them. To avail of this €37 million, they will have to provide services to an additional 280,000 new clients. When introduced, the annual payment for these new clients will be the amount that will pertain at that time. This amount by then will be 40 per cent less than before the introduction of his plan.

The masterstroke, he believes, is that the SPs will be obliged to sign a separate contract for these new clients obliging them to provide additional services to those presently being provided. He has always felt that the SPs should provide additional services for the fixed payment they receive and, with time, he intends that the new contract will be extended to cover all clients.

Should any of the SPs not agree to sign this new contract, the organisation will withdraw arrangements for them to provide services to a group of existing clients with the same profile and offer this service to those who now co-operate. Divide and conquer, he has always believed, is the best business motto. Those who do not sign up will not only forfeit the €37 million; they will lose an additional €12 million.

PR battle
Nick has already anticipated a media backlash orchestrated by the SPs in the event of his proposal being implemented. However, he will launch a PR battle that the SPs can’t win. He will brief his contacts in the media with details of the gross payments of the top earning SPs with the largest number of clients. Of course, he will not mention that for many of them after deductions of 52 per cent tax and 40 per cent in expenses their net payment is only 8 per cent. In any event, he knows the media would not be interested as it would spoil a good headline.

For good measure, he has added a clause to the new contract that will prohibit the SPs from doing anything that might prejudice the name or reputation of the organisation.

Angry boss

Pic: shironosov/Getty

Covering all bases, he has also anticipated that the SPs will argue that they will not be able to cope with the additional workload that will be required of them under the new contract for 280,000 new clients. He has already commisioned a study from a university economics department that will refute such an argument. He chose not to inform the academics that the SPs will be required to provide specified additional services to these new clients and that further services  may be imposed on them at any time in the future.

He chose not to ask for an economic analysis of payments the SPs will receive for the clients in the new contract as he is aware that net of taxes and expenses it will amount to less than €2 for each client/SP contact.

It is now 11am. Nick has presented his plan for almost two hours without interruption from the CEO. He sits down, content that all has gone well and eagerly awaits the CEO’s response. His boss remains silent for what seems to Nick like an eternity.

Draconian proposal
“This is the most obnoxious, draconian proposal that has ever been put before me,” the CEO exclaims. He is incandescent with a rage never witnessed by any of the longer serving executives present. “Many of these people have provided services to our clients for over 30 years. Approval ratings with the service they provide are consistently over 90 per cent. This proposal will result in insolvencies. Older providers will retire, younger ones will be forced to emigrate and no right thinking person will replace them.

“What will happen then?” he asks all those in the room. No one replies.

“I will tell you what will happen,” the CEO continues. “Service centres will close down around the country. We will have to buy or lease similar centres, pay rates and utilities, employ full-time service providers and all the associated ancillary staff with their pensions, holiday pay and sick leave.”

Staring at Nick, he continues: “Not once did you mention the most important people of all in your proposal. I refer to our clients. Had you set out to make a proposal aimed at dismantling the service our clients receive you could not have done better.

“No CEO of any self-respecting organisation could countenance such a proposal. I would suggest that you take the rest of the day off and consider if your business ethics are compatible with the ethos of this organisation.”

An hour later, Nick alights from a taxi he has taken to the city centre. His seat is immediately taken by another gentleman.

“Where to?” enquires the taxi driver.

“Hawkins House,” came the reply, as his new fare picks up the document that Nick had inadvertently left on the back seat.

Comments

One comment

  1. Well Reggie, we were wondering if you could send your CEO over here to the UK: The Trojan horse left here has wreaked destruction, client waiting times are soaring, doctors with long service are galloping to take retirement and the young jockeys are taking the plane to Canada, Australia etc.

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