Spending Review: mixed bag for private sector suppliers to government |
20 October 2010
Commenting on the Spending Review’s impact on private sector suppliers to government Mike Turley, head of Deloitte’s public sector practice, said: “Whilst overall spending levels will reduce, the proportion spent to deliver public services through the private and third sectors is likely to rise. But this is a mixed bag for private sector suppliers to government.”
Deloitte believes that in the short term, pressure to reduce the cost of private sector suppliers may appear more palatable than attempts to reduce public sector headcount. Evidence of this is emerging:
- Mandatory central purchasing for commodity items will drive down the prices and margins for products supplied to government, including, for the first time, local government.
- Reductions in capital expenditure will hit construction industry professionals hard and further reviews of eligibility of legal aid will impact the legal profession.
- Defence contractors will be digesting the impact on their contracts of the defence review conclusions.
Mike Turley said: “Those suppliers anticipating a deal-flow of new projects to replace those cancelled or curtailed will be disappointed. Where new projects come to market, for example the welfare to work programme, payment will be heavily skewed towards the delivery of outcomes. With the resulting increase in revenue that will be at risk and there will be a need for working capital and balance sheet strength. Small to medium size suppliers to the public sector are likely to find these new contract terms difficult to meet.
“In contrast larger suppliers with a healthy balance sheet could view opportunities for further externalisation of back office functions and the delivery of frontline service as a positive market shift.“
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