The woes of large public contract providers make it harder for all

First into the public domain was Carillion which collapsed with ￡1.5bn of debt. Many of the contracts held were as a "prime contractor" with small and very small providers in the supply chains.The company is said to have spent ￡952m with small local suppliers in 2016 and used an extensive network of small firms.One industry group estimates that up to 30,000 firms are owed money by Carillion. Its relevance to social care includes the provision of 11,500 in-patient hospital beds and the management of 50 prisons.

On 31st January we learnt that Capita has cancelled its dividend payments and said it would request up to ￡700m in extra funds from investors. The share price plunged by 47.5 per cent in response. Capita has a wide range of contracts including some for providing independent living, but of greater concern are the contracts for managing procurement services for example for Southampton and Portsmouth City Councils and managing thee subsequent contracts. Is your organisation affected?

Perhaps of even greater relevance is the "cash transactions only" rating given to Care UK Ltd by a national credit reference agency. This company is a wholly owned subsidiary of CARE UK HEALTH & SOCIAL CARE HOLDINGS LIMITED. But this holding company itself has been given a rating of 53 only, and a suggested contract limit of just ￡100,000, not sufficient one would think to cover a parental guarantee bond for subsidiaries. Dos your organisation sub-contract with or otherwise do business with Care UK Ltd.

So how are these situations impacting on smaller providers when tendering for public contracts?

• the role of the credit reference agency is increasing.It is therefore important to know exactly what the agencies are reporting; where there are errors, get them rectified; where there are problems, mitigate.
• there is a clear increase in tender questions asking for tenderers to justify their fiscal ability to finance the contract during its lifetime. To succeed the answers must build on evidence drawn from accounts such as, for example: that free, unrestricted reserves are sufficient to run the entire business (not just any particular contract) for at least six months.
• the importance of bonds. These may seem to be an unnecessary cost when there is pressure on finances, but two types of bond are coming to the fore. The performance bond and the "on demand bond" are likely to become an essential feature of successful tenders going forward. Now is a good time to obtain quotations for both types of bond. It is interesting to note that Leeds City Council have already invoked an option on the latter type of bond with regard to Carillion.

Tendering as a large provider is not now necessarily seen as a benefit, whilst th demands on smaller providers are set to increse.