How to Avoid the Financial Risks of a Contractor or Key Supplier

• 23 construction businesses filed for administration in October.
• Insolvencies rising in construction faster than any industry apart from energy.
• 124-year-old contractor Wildgoose fell into administration during the first week of November.

With a growing number of large contractors going into administrations in the last month, the highest since before the first lockdown according to Creditsafe, the construction sector is facing a hugely challenging time.

Following a slowdown in construction activity, alongside a significant rise in the cost of materials, staff shortages and the end of government support put in place at the start of the pandemic, there could be an unavoidable rise in insolvencies towards the end of 2021 and into 2022.

Never has it been more important to have clear considered risk assessments that are specific to your business and activities. While credit checks involving accounts filed at Companies House are useful, as are due diligence of past track records, they have their limitations.

The financial failure of a contractor or key supplier can be disastrous to a project. Therefore, to reduce exposure to risks it’s important to have true visibility of both the capability and financial status of a prospective business before appointing them, or during a contract, you have with a third party.

Businesses more than ever need to scrutinise their supply chain beyond only health and safety. Some of these drivers include financial stability amongst a complex range of modern slavery, environmental goals, and monitoring data protection, which requires a certain amount of expertise to get this right.

A pre-qualification process using an expert provider sets out a series of questions for potential contractors and suppliers to answer regarding their level of experience, capacity, and financial standing. Often when companies have their own in-house pre-qualification process, this is done as a one-off when they first work with a company, however, it can be inadequate with annual insurance, qualifications, and changing legislation.

Best Practice Supply Chain Tips

The following are key elements that can be evaluated when looking to appoint or monitor the position of any contractor or supplier you may appoint or work with:

• History and references
• Audited accounts
• Tax returns
• Customer base and any specific dependencies
• Current contracts and values
• Senior management background and employee resources
• Current debt position
• Current subcontractors and suppliers
• Potential future work in tender or negotiation
• Current unaudited annual accounts
• Legal position
• Insurances in place

By monitoring and reviewing these aspects prior to and throughout the contract period means you can safeguard potential risks to your business. Even when everything is in place, things can still go wrong.

“Alcumus is one of the leading suppliers of global contractor management safety solutions and is trusted by many of the leading brands in high-risk industries. The platform delivers crucial insight into specific corporate and legislative requirements going beyond the basic health and safety checks. This matters because customers can make the most informed decisions to proactively manage their team. They have a management system available to them 24/7 enabling them to mitigate risks and incidents as their environment evolves.”