Research points to sharp rise in public sector supplier insolvencies

The number of public sector suppliers to go bust rose by 47% in the first six months of 2010, it has been claimed.

According to accountancy firm Wilkins Kennedy, some 168 businesses in the health and social services, education and defence sectors went insolvent during the period. This compared to 114 for the first half of 2009.

Corporate insolvencies generally fell by 5% in the first half of this year.

Anthony Cork, director at Wilkins Kennedy, said the problem was being exacerbated by delayed spending decisions.

He said: “So far the impact of the government’s austerity drive has been most visible in the slew of profit warnings from listed companies. However, for an increasing number of companies the situation is even worse and they are being forced into insolvency.

“Whilst the real cost-cutting that this government has threatened has yet to take place, we are already seeing a wide range of companies fail because of delayed contracts.”

Cork added: “The public sector has seen tremendous growth over the past 15 years and the private sector ecosystem that surrounds it has expanded along with it. Supplying to the public sector has been seen as safe and steady, unfortunately that is no longer the case.”

A challenge for private sector companies reliant on the public sector will be to manage down their fixed costs, he said. These may have grown over the last decade as companies became used to a steady income.

Wilkins Kennedy cited care homes as an area hit particularly hard by reductions in spending by local authorities.

Click here and here to read PLC's two-part series on how local authorities and other public sector organisations can respond when contractors get into financial difficulty.