Building firms warned to prepare for contract cuts

29 July 2010

29 July 2010 | Angeline Albert

The UK government's contract renegotiations with major suppliers will hit construction firms harder than those in other sectors, according to accountants KPMG.

Its report found that of the £60 billion the government spends annually on its top suppliers, £16 billion goes to UK construction companies. If they were to deliver the requested 25 per cent savings it would result in a £4 billion reduction in government contracts for the sector.

The government's renegotiations are likely to affect not only big contractors but many building supply manufacturers, as projects involving hospitals, prisons, schools, social housing and local authority buildings are reassessed.

A key issue for construction firms will be to prepare a robust strategy for the renegotiation process to minimise the impact and to secure future contracts, says KPMG.

Fiona McDermott, head for building and construction at KPMG UK, said suppliers can be proactive by offering the government opportunities. She said: “Proactive suppliers are more likely to be in a strong position to capitalise on future opportunities in return for their support in the short term.”

She added: "Let's not forget the government is trying to renegotiate existing contracts and relying on the goodwill of their suppliers to do this. Consequently, there will be a lot of room for manoeuvre and even opportunities to get out of unprofitable contracts by just handing them back without either party suffering costs of not delivering.”

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