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23 November 2010 | Lindsay Clark
Buyers need to review due diligence in the construction sector as the administration of Rok sends a wave of financial stress through the sector.
Rok is the second UK housing services supplier to go into administration in three months, after Connaught collapsed in September. Its failure comes months after it suffered a £3.8 million loss for the first half of 2010.
Tesco Bank, Bristol City Council, and Highlands and Islands Enterprise, are among buyers of Rok services who will be looking to replace the contractor. As SM went to press, administrator PriceWaterhouseCoopers said it was unlikely it would find a buyer for the firm and 1,800 people could face redundancy.
Faiza Rasheed, former director of property at Tesco, said: “If you’ve got construction contracts with key players at the moment, what’s the due diligence like?” She said the procurement time could be so long, particularly in the public sector, that the due diligence, which may have been done some time ago, should be revisited. This could be done formally by asking for latest accounts or searching Dun & Bradstreet, but also informally, using contact networks.
“Suppliers know each other better than we know them, so talking in the marketplace about how people are doing is another way to alert yourself to other possible risks,” said Rasheed, who is also a member of the CIPS Construction Procurement Group and an interim procurement manager.
Buyers also needed a “plan B” in this sector, she said. “Make sure you maintain some control over the sub contract supply chain or have someone else who can take that on.”
Jane Gibbs, former supply chain director at Rok, said that because margins were always driven down in the construction sector, any supplier without large cash reserves could be at risk. Sub-contractors to Rok were particularly vulnerable, she said. “A lot of the suppliers have been affected by Rok going under and there’ll be a number of sub-contractors going to the wall as a result. I think the repercussions were quite strong because we were so spread out. It’s probably going to hurt the small guy.”
Gibbs, who is now EMEA country sourcing director for Citigroup, was concerned about former colleagues. “I’m in touch with my old procurement team trying to find them roles. They’re well equipped in terms of ability; they should be snapped up by construction companies.”