Source · Select Committees · Public Accounts Committee
Recommendation 12
12
Accepted
Departments have improved sectoral understanding post-pandemic, though construction remains fragile.
Conclusion
We asked the witnesses what lessons they had learned about companies’ resilience across the economy from supporting them during the pandemic. The Treasury told us that it had learned the “importance of departments having a good sectoral understanding, understanding the nature of their sectors and things like the composition of their sectors”. The Treasury and Department for Business and Trade told us that, prior to the pandemic, knowledge of some sectors was “mixed” and they “did not know some almost at all”. However, they said that departments now have a much better understanding of their sectors and have been building those relationships.33 Given the current high levels of insolvencies across the economy, we asked the witnesses if there were any particular sectors giving cause for concern. The Treasury told us that there was “no one sector that seems to be more in trouble than any others”.34 We were told by the Cabinet Office that “16% of insolvencies are in construction” but “construction is usually held as the most fragile sector” due to low margins and complex working capital arrangements. The Cabinet Office explained how it has built resilience into this sector by introducing a prompt payment exclusion to prohibit companies from bidding for contracts if they do not pay their suppliers promptly.35 Understanding risks when contracting
Government Response Summary
The government states the recommendation is already implemented, citing its existing Lead Government Department approach, improved supplier monitoring since 2018, the Sourcing Playbook, Cabinet Office monitoring of strategic suppliers, and published strategies for supply chain resilience.
Government Response
Accepted
HM Government
Accepted
1.1 The government agrees with the Committee’s recommendation. Recommendation implemented 1.2 The government uses a Lead Government Department (LGD) approach to cover all phases of emergency planning, response, recovery and risk assessment. Usually, the LGD is the department with primary policy responsibility for the risk and expertise for the area impacted by the emergency scenario. 1.3 LGDs should escalate supplier and company risks through their internal escalation routes and to Cabinet Office and HM Treasury as required, for example should the department identifying the risk not be the clear lead for response, if intervention is being considered and HM Treasury spending approval may be required, or for additional expert support. 1.4 Monitoring of suppliers for financial distress has improved significantly since Carillion’s liquidation in 2018. The Government Commercial Function’s ‘Sourcing Playbook’ and associated guidance provide recommendations to departments regarding regular monitoring of suppliers’ financial performance. 1.5 The Cabinet Office monitors the strategic suppliers to government and proactively engages with public sector stakeholders to share intelligence, including bringing together customers of a common supplier where appropriate. Where there is a high level of exposure across multiple departments, the Cabinet Office may coordinate a response. 1.6 Responsibility for supply chain resilience and corresponding intelligence lies with LGDs. The government has published several strategies to ensure resilience in supply chains for critical sectors, for example on semiconductors, batteries and critical minerals. Supply chain intelligence is regularly gathered by sector teams from conversations with industry and shared with ministers and between officials.