Thousands of jobs at risk over outsourcing crisis, says local finance chief

Thousands of jobs and the survival of hundreds of small businesses in the region could be at risk over the next 12 months as a result of the financial troubles facing the UK’s outsourcing sector, says insolvency and restructuring trade body R3.

The Midlands branch of R3 is encouraging subcontractors to be more vigilant when entering into such arrangements.

R3 Midlands chair Eddie Williams, a partner at Grant Thornton in Leicester, said: “Many hundreds of local subcontractors rely on indirect payments from government projects, but these subcontracts are not always the prize they may seem. Margins are usually very tight, so it is easy to make a loss and, ultimately, small firms rely on the main contractors to pay them.

“Subcontractors should go into these projects with their eyes open. They need to ensure that their costings are absolutely accurate, their terms and conditions are tight enough to take account of unforeseen circumstances, and that they maintain strict financial management throughout.

“In the event of a contractor’s collapse, businesses owed money should contact the administrator. Subcontractors are usually classed as unsecured creditors and come behind banks and employees in the queue for payment. Those at risk should take professional advice as soon as possible.”

According to a report last December from the Institute for Government, £284bn, or around a third of annual public expenditure goes to external suppliers, with indirect payments to small firms accounting for around 12 per cent of that amount – £34bn.

In recent years, the biggest suppliers have increased their share of government spending, and some are now facing financial problems. The IfG report says the government currently has little understanding of how many subcontractors there are, and calls for better data and greater transparency in the supply chain.

Eddie Williams continued: “£34bn is a significant chunk of the UK economy and, clearly, this money supports thousands of businesses and jobs in regions like the East Midlands. While the government is good at picking up the pieces when something goes wrong, it has not been so good at putting prevention plans in place. Any company which becomes part of the subcontracting chain needs to be aware of the risks involved, and prepared to take swift action to safeguard their own business in the case of the insolvency of the main contractor.”