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June 11, 2010

Firms with public sector contracts must prepare for cuts

Small firms supplying the public sector should make contingency plans now in case they lose their contracts during the Government’s spending cuts, the Institute of Chartered Accountants in England and Wales (ICAEW) has warned.

The Government has already detailed £6.2 billion of spending reductions and is due to outline further cuts in the emergency Budget on 22 June.

The ICAEW’s head of enterprise, Clive Lewis, said that firms in the services sector and businesses that tend to rely on contract work – such as construction and IT firms – are most likely to be affected.

“These cuts are inevitable and businesses will have to accept them,” he said. “But there are actions firms can take to soften the blow and ensure they don’t go out of business – they must put as many contingency plans in place as possible.

“This could include looking at what new markets they could tackle if the public sector dries up,” added Lewis. “They need to know what private sector opportunities there are to explore, or even consider overseas markets.

“Firms that have particular contacts in Government departments should also try to get some feedback from them on their future prospects,” he said.

The ICAEW said businesses should also review their current situation by:

  • checking when the contract is due to end, and finding out what penalties they can charge if it finishes early
  • rethinking their business plan, and deciding whether to shift their focus from public to private sector contracts
  • deciding if they can afford to continue the work if the Government reduces the amount they pay for it.

Forum of Private Business spokesman, Phil McCabe, said that a significant number of small businesses rely at least partly on public sector work. “Most firms agree that the priority for the Government is to cut the deficit,” he said. “But some of these firms will be affected by the cuts – there is no doubt about that.

“The cuts should not affect small firms disproportionately,” added McCabe. “Although if the Government makes its tendering process accessible to small firms that will go some way to compensate for the cuts made.”

A spokesman for the Department for Business, Innovation and Skills said that the Government was unable to confirm which contracts would be cut or how many would be available in the future.

“However, the commitment set out in the coalition agreement to give small firms 25 per cent of Government contracts still stands,” he said. “We intend to publish Government tenders online.”