Local authorities reveal construction contractor woes

July 15, 2010

Some 70% of the 32 local authorities that took part in a survey by Constructionline have seen a construction supplier they used regularly become insolvent in the last 12 months.

More than 90% of the councils said that a contractor’s financial performance had become more important to them during the tender process over this period.

The survey also revealed that:

More than a quarter (27%) plan to abandon framework agreements over the next year to encourage greater competition between contractors
Half of respondents (46%) said they planned to do more to help smaller firms in their area compete for tenders
95% of local authorities said a contractor’s health and safety competency had become a more important consideration in the selection process, and
88% of respondents said they were under increased pressure to reduce the cost of their procurement processes.

Separate research by business information firm Experian found that more than 650 construction firms entered insolvency in the first three months of 2010.

Philip Prince, a director at Constructionline, said: “There are a myriad of different 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 one of its suppliers going bust mid-project can easily lead to delays and a rise in costs, he pointed out.

Prince said: “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.”