Big Ben

Serco, the government contractor recently embroiled in a scandal after ordering its own suppliers to cut their charges, has signed a cost-cutting agreement with the government. The company said that in the new Memorandum of Understanding it had agreed to “scope changes” in its government work. Other steps will also be taken to cut costs.

Serco did not immediately return calls asking which work would be rescoped. The company has major public sector IT deals including with Glasgow, Ealing, Enfield and Dudley councils, and it runs the operations of the Barclays London cycle hire scheme. But it has lost some work – today rival Steria said it was taking over Serco’s work at the MoD Defence Science and Technology Laboratory.

It also remains unclear what other steps will be taken to cut costs. Similar agreements signed by the government and other suppliers have included a plan for Whitehall to buy as a single customer, rather than different departments.

Serco insisted in a statement that the changes did not affect its financial guidance. It is targeting £5 billion in revenues this year.

The news follows the leaking of a letter from Serco to 193 of its own suppliers two weeks ago, in which it ordered them to cut charges by 2.5 percent. It said it was “looking to determine who our real partners are that we can rely upon”. Cabinet Office minister Francis Maude reacted angrily to the letter, demanding Serco chief executive Chris Hyman explain himself. Serco apologised for the incident.

The government has yet to announce MoUs with three of its largest IT suppliers: Capita, CSC and IBM.