Public sector cutbacks and private sector competition

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As 2012 comes to an end, 4C Associates looks back at some of the predictions made earlier this year. Tina Greer considers prediction number 11: “Public Sector decline will increase competition in the private sector.”

In the wake of government budget cuts, businesses which rely on public contracts have been forced to turn to the private sector to increase revenues. Recently I was speaking with someone whose business income had fallen by 80 per cent, as a result of the decrease in public spending. He is not alone.

A report by Wilkins Kennedy, an accountancy firm, revealed that insolvencies among government suppliers increased by 26 per cent between May 2010 and May 2011.

The Changing Face of Government Procurement

Speaking at the recent CIPS Conference 2012, Bill Crothers, UK Government CPO, underlined the government’s commitment to cutting costs through effective procurement.

He explained how an investigation led by his team, found that many key suppliers were making larger margins working with the government than private sector companies. These findings formed the basis of subsequent negotiations. To give you an idea of how much changed, talks with a single supplier yielded savings of £800m.

Cost Transformation and Margin

A challenging financial environment coupled with fewer opportunities in the public sector, have greatly increased the level of competition in the private sector. This situation has negatively impacted the earnings of many businesses. Currently, growth through sales is a difficult prospect and, companies looking to deliver shareholder value should look to making savings and managing expenditure if they are to be successful.

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