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Clients must be alert to contractor 'distress' post-Carillion, report says

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Clients should learn from Carillion’s failure and be alert to any signs of contractor “distress”, a market analysis report has warned.

Regional inflation forecasts suggest tender prices will rise slowly across the UK this year and there is a developing trend towards single stage contracts, a report by Turner & Townsend said.

The UK Market Intelligence Report recommended that clients “monitor, support and collaborate with their suppliers in equal measure.”

“In practical terms, this means re-running credit checks and challenging suppliers on their ability to continue delivering, while also seeking to understand and allay their concerns,” the analysis said.

“Looking ahead the need for clients to tender intelligently and work collaboratively is set to grow, as contractors in many regions face a perfect storm of weak demand and compressed margins,” it continued.

Single-stage tendering had increased by more than 10% at the end of 2017 and two-stage tendering fell by more than 5%. In London, 39.9% of projects awarded in the final quarter of 2017 were single stage.

This swing could transfer risk to contractors, the report said, as it increased the bid preparation work and the project risk placed on contractors.

Turner & Townsend director Paul Connolly said: “Notwithstanding this increased appetite, clients need to remain cautious on what risk is actually being taken on and managed by contractors.

“The failure of Carillion and the rising number of insolvencies suggests risk transfer in the current environment can be illusory.”

The report also revealed that areas with greater devolved power often have higher construction outputs.

Yorkshire, which has no elected mayor, increased its infrastructure output by 10.6% between June 2016 and the end of last year, the report said.

Greater Manchester and the West Midlands, which both have strong devolution settlements, increased their construction output by 30.7% and 27.8% respectively in the same time frame.

“All of these are regions with a high degree of devolution, including directly elected mayors and significant regional decision-making powers; and there are early signs of a correlation between regional autonomy and resilience to the confidence-sapping impact of Brexit uncertainty,” the report said.

The revelation comes as South Yorkshire prepares to elect the region’s first Mayor on 3 May. 

 

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