Martin Flanagan: Hubris or brass neck? It's hard to tell with Serco's crass showing

This is seriously not clever at a time when the government is desperately trying to get the economy going while keeping smaller suppliers afloat. It is also fearful that it will get the blame if its eye-watering austerity programme goes pear-shaped.

Serco runs prisons, schools and nuclear facilities for the government. As they say in exam questions, discuss.

So Serco is dependent on government goodwill for much of its corporate health. Now it has put the frighteners on suppliers in a way that, in its threatening directness, is bound to provoke business and political outrage.

Serco's letter to its suppliers, signed by finance director Andrew Jenner, is a textbook example of brass neck-bordering-on-intimidation.

It brazenly asks for a rebate of 2.5 per cent from its suppliers on Serco's 2010 spend with them in the form of a credit note. It says this is to help the government's plan to save 800m from central government procurement this year.

Then, in case the threat is not clear enough, the letter adds: "Like the government, we are looking to determine who our real partners are that we can rely upon.

"Your response will no doubt indicate your commitment to our partnership but will also be something I will seriously consider in our working relationship as Serco continues to grow."

Francis Maude, the Minister for the Cabinet Office, who is overseeing the government spending cuts, has apparently gone ballistic. He has publicly criticised Serco's approach, and will presumably have no truck with any claim that Serco is sharing the pain down the supply chain.

Serco's stance, which its institutional investors are unlikely to view favourably, looks tin-eared clumsy at best and hubristic at worst. It is never wise to rattle the cage of your largest customer.

That is the case in spades when the customer is a government pushing through a politically contentious costcutting programme, and is deeply insecure as a result in the court of public and business opinion.

The government says it has made clear to its major suppliers like Serco that in meeting the demand for procurement savings they should behave responsibly to their own suppliers.I suppose Serco has adopted a novel, not quite touchy-feely, interpretation of the word responsible.

On the subject of corporate/government relations, while some businesses achieve furore some have opportunity thrust upon them.

Serco's shares closed down 4 per cent on its gaffe and the implications brought upon itself; on the other hand, Smiths Group, the cargo-scanning equipment maker, was the second biggest stock market riser, closing up more than 3 per cent on the day.

Traders anticipated the likelihood of significantly more orders for Smiths as a result of stepped-up security on both sides of the Atlantic from the renewed threat to cargo planes in the wake of the terrorist devices from the Yemen. The contrasting positives and negatives from businesses having strong links with government are encapsulated by what were largely left-field developments that were not on the City's radar.

Weir on a winner here despite a little profit taking on the shares

STaying with stock market fortunes, Scottish engineering group Weir's shares edged down 1 per cent yesterday, but it was only profit-taking.

Weir's shares have gained 117 per cent since the start of 2010 following a sort of Groundhog Day of earnings upgrades from the company.

Even yesterday's trading update from the group revealed that orders from customers in the upstream oil and gas sector tripled in the 39 weeks to end-September.

Weir chief executive Keith Cochrane was quick to say that such exceptional spikes in orders were just that, exceptional. But it is yet more good news from an engineering sector that has come into its own again this year after being out of stock market fashion for a long time.

Rival engineering groups such as Charter, Cookson, IMI and Melrose are due to update the market this month, and it is very possible that the recovering economy and weakness of sterling will combine to provide more positive engineering news.

Weir, meanwhile, consistently says it has a warchest for acquisitions. But, on the performance of the past couple of years, such purchases are icing on the pump. The organic growth story is slick as well.