AGL plays hardball

Loy Yang A power station owner AGL has been accused of corporate bullying and “aggressive” contract negotiation tactics with local suppliers, as part of a large scale cost cutting campaign.

Last month AGL approached about 100 Loy Yang contractors and suppliers requesting they cut contract costs by 22 per cent, as part of a business-wide Rapid Cost Reduction program aimed at improving efficiencies across its generation assets.

In a letter sent to about 100 vendors, including a raft of consultants and engineering supply companies, AGL requested companies respond with a revised business plan within five business days.

“We request that you provide AGL with a complete list of the goods and services your organisation provides along with those currently provided to AGL, current price paid by AGL and the revised new price to be paid,” the letter requested.

“AGL will then validate this information and if the revised pricing is acceptable, AGL will enter into (agreement).

“Should a supplier choose not to participate … they may lose their status as a preferred supplier to AGL.”

The Express has spoken to a number of suppliers, on the condition of anonymity so as not to jeopardise their contract, put offside by the “heavy handed” approach.

“The letter that they sent is totally unacceptable, and every contractor at Loy Yang would agree with that,” one supplier said.

“Most contractors will have no room to tighten their margins because they went in competitively to win the contract in the first place – it’s been hard enough holding onto those contracts as it is.

“I just think its a ridiculous approach; anyone who can reduce their price by 22 per cent is clearly ripping them off.

Another vendor criticised the plan as “not even remotely realistic”.

“When we quote a job for them we are lucky to put five per cent mark up on materials, when really it should be around 15 per cent,” the vendor said.

“If we’ve got to cut our margins any further, it’s not going to be worth doing.”

The RCR program comes almost two years after AGL took complete ownership of Loy Yang A, a move largely attributed to a subsequent tripling of AGL profits in the 2012/13 financial year, to $388 million.

An AGL spokesperson said the RCR program came as part of an “operational excellence program” aimed at delivering efficiency improvements “in the face of challenging market conditions”.

The Express understands the company has since acknowledged its initial approach to vendors was not “clear enough” and has moved to allay supplier concerns via face to face meetings, and assure them there is room for negotiation.

“We have invited contractors and suppliers to engage with us to reach a commercially acceptable position. We encourage any contractor or supplier that has concerns to raise these matters with us,” the spokesperson said.

However, Australian Manufacturing Workers Union organiser Steve Dodd described the ordeal as “inappropriate corporate behaviour”, which should not be tolerated by Latrobe Valley businesses.

“We are extremely disappointed to see that this is their corporate strategy of engaging with us in this region,” Mr Dodd said.

Construction Forestry Mining and Energy Union Victorian mining and energy president Luke van der Meulen said the move only raised suspicions AGL would move towards contracting foreign companies for local work.

“I don’t think there’s any doubt that’s AGL’s plan here, and I can’t see how that’s going to be good for the Latrobe Valley or Australian workforce, which is ironic because their name means ‘Australian Gas Light’,” Mr van der Meulen said.

An internal AGL document supplied to The Express, suggesting strategies and talking points for RCR negotiations with suppliers, stated AGL would “leave no stone unturned” to ensure market sustainability.