Controversial tendering process part of cost-cutting drive

AXA Group UK plans to introduce a controversial tendering process for its suppliers in a dramatic cost-cutting drive.

The group confirmed that it is in negotiations with a number of UK banks and financial investment houses to hold reverse auctions for its suppliers, including those in IT and office services. It is hoped that the process will improve efficiency.

A reverse auction is similar to the traditional dutch auction where a group of companies compete to offer the lowest possible bid.

This new type of competitive tendering, usually online, has caused controversy in the construction industry where sub-contractors have complained to the European Parliament over the aggressive nature of the process.

The parliament is examining the European Commission's Public Procurement Directive, which contains a provision permitting countries to use online auctions.

An AXA Group spokesman said: "We have been talking to a number of banks about the process. We are centralising, at group level, the IT procurement taking the responsibility away from the local level. Around 60% of IT procurement will be centralised leading to savings of E200m (£123.6m)".

A spokesman for IT giant Misys said: "We are not adverse to the idea but what we would emphasise is that quality must not be sacrificed for price."

IT expert Ross Hall of Garol said, in general, reverse auctions "create more problems than they are worth" as they cause "bad blood between client and supplier".