Jonathan Parker is director of development at national frame supplier Pagabo
This year has seen financial difficulties for several big names in the construction industry, and the prevailing wisdom suggests that the list will only get longer. In fact, data from the Insolvency Service shows a 19 percent increase in the number of companies that have gone bust compared to the previous year, with construction being one of the most affected sectors. As customers look for additional protection, frameworks play an important role in ensuring that their projects come to fruition, even if the worst happens.
The list of companies that have sadly had to appoint a liquidator over the past year reads like a macabre who’s who of the built environment, with many projects now facing delays and uncertainty.
As a framework provider, an important part of our role is to mitigate these impacts and work to ensure that customers are as protected as possible.
Avoid overreaching
Prevention is cheaper than cure when it comes to contractor folding risk, so the frameworks ensure robust governance and assessment of those bidding for a position in the first instance.
“A framework vendor that offers ongoing support means they have ‘skin in the game'”
The Public Contracts Regulations 2015 are prescriptive in that suppliers must have a turnover that is twice the midpoint of the lot value to be eligible for procurement, but even this managerial level can expose contractors to a less than ideal risk.
Take, for example, a contractor with a turnover of £50m. Naturally, they’ll want to reach out and push themselves into bigger jobs, and by those metrics they could be in a framework that has the potential to generate £20m or so of jobs. That means 40 percent of your turnover is at risk on a single job, which can quickly end in trouble.
In the case of Pagabo, we seek to work collaboratively with those who want to be part of our frameworks to really understand their situation and ensure that we are not putting either the supplier or the customer at risk.
However, one of the issues at play is the wider industry issue around financial reporting delays. Although framework providers have visibility into some financial data, current regulations mean that some of the more detailed accounts submitted as part of applications can be up to 18 months old. This poses a challenge when it comes to accurately assessing a company’s current financial status.
While this is not ideal, it does mean that it is incumbent on those administering the frameworks to put measures in place to mitigate the challenges this poses.
early warning
In addition to having strong cross-sector relationships, one of the measures Pagabo takes is to have Days Beyond Deadlines (DBT) as one of our key performance indicators. While this is dependent on obtaining data from the supply chain, DBT can act as an early indicator of any cash flow issues for contractors. When you combine this with live issue monitoring with platforms like Creditsafe, you can start to become more aware of potential challenges before they reach crisis point.
Even with all these measures in place, the often rapid pace of change in terms of market conditions means that there will occasionally be unfortunate scenarios where a contractor folds while working on real jobs obtained through a March.
One of the benefits of ongoing involvement of framework vendors is that they are well placed to help find the right partner to complete the project, especially when ongoing support is built into the framework structure.
A framework provider that offers ongoing support means they have “skin in the game”, and it’s in both their interest and the client’s to ensure that struggling projects are delivered.
