March 27, 2019

Business bodies call for fair division of public sector contracts after collapse of Interserve

News Article

The collapse of outsourcing giant Interserve highlights the dangers of relying on very few companies to take on the biggest public sector contracts, a business body has warned.

The Federation of Small Businesses (FSB), which published the report, said there is a need to move to an environment where “Project Bank Accounts” are the norm for large public procurement projects.

The recommendation comes after it was revealed that administrators had been called in to rescue Interserve, which employs some 45,000 UK staff and more than 68,000 globally.

The administrators said the company will now be sold and the assets will be moved to a group controlled by Interserve’s lenders, which would protect ongoing projects and jobs.

Earlier this year, it was revealed that the organisation, which has at least 50 current contracts worth £2.1 billion with the public sector, including supervising around 40,000 “medium-low risk offenders” for the Ministry of Justice, would restructure in an attempt to reduce its debt of almost £650 million.

FSB National Chairman Mike Cherry said: “A year on from Carillion’s demise, lessons still need to be learnt. We have to move to an environment where Project Bank Accounts are the norm for large public procurement projects, and big contracts broken up to provide opportunities for smaller firms. Doing so will diversify and de-risk supply chains, meaning higher performance.

“Thankfully – following FSB’s tireless campaigning in this space – Interserve is one of a few big outsourcers with a living will in place. That means work should be handed straight on to new suppliers, helping to avoid a Carillion-style meltdown.

“We will be checking that this takes places seamlessly and easily, and look to the Government to make sure it does. We continue to have promising conversations with other big firms that win large swathes of public contracts.”

The FSB added that in the division of future large public contracts, those responsible for public procurement must be given the skills and resources they need to ensure that smaller contractors can compete for and win work.

The report comes after the Government recently announced plans to “level the playing field” for small businesses to access Government contracts. Under the proposed plan, the Government aims for £1 in every £3 to be spent with small businesses by 2022.

Luke Morgan, a Partner in Palmers’ Commercial Litigation team, warned that despite Interserve’s outsourcing payment safeguards, any temporary delay in funding can cause a significant problem for SME contractors.

“Late payments often build up rapidly and can quickly have disastrous consequences if business owners do not act fast to reclaim what is rightfully theirs,” Luke said.

Luke said that while ‘Project Bank Accounts’ would alleviate many late and non-payment problems, in the interim non-payments remain an issue, and businesses need to take action.

“Palmers provides a debt recovery service that is straightforward, effective and can help your business deal with its invoice debts quickly and efficiently,” he said.

For more information about how Palmers can help, or to find out more about our Commercial Debt Recovery Scheme, please contact us.