Councils concerned about suppliers' financial robustness

13 July 2010

13 July 2010 | Angeline Albert

A survey of UK local authorities found 70 per cent had seen a regular supplier become insolvent in the past year.

As a result more than 90 per cent of the 32 councils surveyed said a contractor’s financial performance had become a more important factor to consider during the tender process.

Business information firm Experian said more than 650 construction firms went insolvent during the first three months of 2010 alone.

Eighty-eight per cent of local authorities said they were under increased pressure to reduce the cost of their procurement processes. More than one-quarter (27 per cent) plan to abandon framework agreements over the next year to encourage greater competition between contractors in the hope of securing lower bids. Forty-six per cent said they planned to do more to help smaller firms from their area compete for tenders.

The survey was commissioned by staff at Constructionline, a national online database of contractors and consultants used by more than 2,200 buying organisations in the public and private sector.

Philip Prince, a director at Constructionline, said: “There are myriad issues which local authorities must deal with during the procurement stage, but the recession has made a contractor’s financial well-being the biggest concern. A contractor or even one of its suppliers going bust mid-project can easily lead to delays and an inevitable rise in costs as the local authority attempts to clear up the mess.

“Increasingly, the public sector is employing more sophisticated techniques at the pre-qualification stage, such as real time financial monitoring, as well as placing tougher demands on their main contractors to thoroughly assess their own supply chains.”

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