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Mon October 26 2020

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Over 90% of local authorities concerned about contractor financial stability

12 Jul 10 More than 90% of local authorities say that a contractor’s financial performance has become more important to them during the tender process over the last 12 months, as the recession continues to take its toll on construction.

More than 90% of local authorities say that a contractor’s financial performance has become more important to them during the tender process over the last 12 months, as the recession continues to take its toll on construction.

The survey of 32 different local authorities – which was carried out by pre-qualification register Constructionline – found that 70% had seen a supplier they used regularly become insolvent during the same period.

According to business information firm Experian more than 650 construction firms entered insolvency during the first three months of 2010 alone.

A contractor’s health and safety competency had also become a more important consideration in the selection process for 95% local authorities while the vast majority 88% said that there were under increased pressure to reduce the cost of their procurement processes.

More than a quarter (27%) plan to abandon framework agreements over the next year to encourage greater competition between contractors in the hope of securing lower bids.

In further good news for the industry’s small and medium sized contractors (SMEs), half of local authorities (46%) said that they planned to do more to help smaller firms from their area compete for tenders.

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Constructionline, which is used by over 2,200 different buying organisations across the public and private sectors, commissioned the survey in order to find out more about the way local authorities procure contractors.

Philip Prince, a director from 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 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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