Many in the construction sector are calling for public procurement reforms following the collapse of public sector contractor Carillion in 2018. The Federation of Small Businesses (FSB) have recently called for greater protection for subcontractors involved in the supply chains of public infrastructure projects.
The Carillion Collapse
Carillion went into administration at the start of 2018. This resulted in the loss of nearly 3000 jobs whilst also leaving behind around £7billion in liabilities. Many left out of pocket following the collapse were reportedly smaller subcontractors employed by Carillion. D G Cummins, a Cheshire based Civil-Engineering contractor, are one of the latest firms to suffer major implications from Carillion’s administration. D G Cummins were left with a £600,000 tax bill and lost the contract to help with the M6 J13 – 15 after the collapse. As a result, the company filed for administration. This may highlight the severity of the implications for smaller organisations when big firms collapse.
The Proposed Changes
The FSB found that over 50% of payments in the public infrastructure supply chains were late. This is forecasted to have affected around 25% of businesses. As a result, there has been increased pressure on the government to implement greater protections for smaller businesses. Consequently, new rules have been introduced surrounding the operations of large private companies working on public sector projects.
The new rules, seen as an extension of the requirements outlined in the Social Value Act 2003, have been announced in the wake of Carillion’s collapse. According to Cabinet Office Minister David Lidington these new rules will focus on the need for transparency from big public sector companies. This will include reports for taxpayers detailing how the money is being spent and published data surrounding the gender pay gap. The rules require companies to improve their ethnic minority representation if they want to be successful on bids.
Industry Response
Changes to existing laws are likely to signal welcome re-evaluation of current practices. However, some critics have noted that the proposed changes do little to aid smaller businesses. Furthermore, this aims to prevent big companies from monopolising the public infrastructure market in future.
These proposed changes do little to aid smaller businesses
The FSB have suggested the government make better use of Dynamic Purchasing Systems. Identifying opportunities to split up big public sector procurement deals to provide a helping hand to subcontractors. Additionally, the FSB have called for greater controls to ensure large government suppliers pay on time. They believe this will provide a win-win situation by stimulating a healthier supply chain for everyone in the market.
It is likely cases like Carillion will act as fuel to the ever growing demands for change.
