Baker Tilly Forensic Services partner, Tony Chapman, advises suppliers to the public sector to think ahead and assess the impact of yesterday’s Comprehensive Spending Review cuts – if there is a danger they may fall victim to a contract termination.
According to joint Baker Tilly/Company Watch research on the latest accounts filed by 22,164 UK companies in the turnover bracket £10-100m, 24% experienced a fall in sales of 10% or more ahead of the cuts. The cuts will add to the current distress felt across UK PLC, including those who supply to the public sector:
“Without preaching doom and gloom, the fact is that some suppliers into the public sector will directly be at risk as a result of yesterday’s announcements - this loss of profits is set to get worse. Whilst capital projects have been largely untouched by the cuts, a whole range of public sector contracts will be under current review and budget holders in the public sector will be forced to take action. Such long-term or framework contracts will be difficult and costly to terminate or vary, but by no means impossible.
“If a management team finds itself in the position of facing pressure to vary a contract or a possible termination down the line, there are simple steps to follow.
Act quickly to identify realistically what losses you are likely to suffer and capture data as you incur such losses. Take a realistic view of the downturn impact on general trading conditions to date. Follow this by intelligent forecasting to calculate the potential impacts of the loss of business. Work through how you might evidence this should a dispute arise – has a breach of contract actually taken place? What is the quantum of the loss? Seek professional advice to support you in the process.
“Most people will immediately think of construction as a sector affected by disputes arising from poor management, unrealistic budgeting or project over-runs. However, there are a multitude of businesses across most sectors, currently supplying a whole host of outsourced services to the public sector. A large number of these may be at risk.”
