Insider Media Limited

Small firms across Leicestershire could find themselves fighting for survival, following a ‘ripple effect’ caused by the collapse of companies Connaught and Rok. The warning comes from Leicester-based adviser RSM Tenon, which said the demise of the construction giants “highlights the hard times” the sector is witnessing.

Dilip Dattani, RSM Tenon director of the Leicester office’s recovery and insolvency service line, said that the construction sector could further suffer in 2011.

He said: “What we are seeing in the construction sector is the result of a ripple effect right across the supply chain. When a large business fails, the knock on effect can be devastating as it can filter right through the whole industry – it is not uncommon for failures of businesses four or five levels removed from a large failure to occur 12 months or more later.

“Small businesses which supplied Rok and Connaught may well struggle to survive after their administration. Locally, there have been job losses following the demise of Connaught. There could well be other effects to local businesses.”

He added that the proposed public sector cuts are already having an adverse effect on the construction sector, which that will “take full effect well into 2011 and beyond”. 

Dattani said: “Confidence in the construction sector is also a very important factor – negative publicity can push suppliers to ask for quicker payment terms causing less working capital being available. Credit insurance is also an important factor for this sector as there are only three key players in the market and if they withdraw the credit percentage or limit it, the cashflow within the business can also be severely damaged.

“In my experience, the construction sector is currently operating on tiny, if not, negative margins. Some firms are taking on contracts with negative margins for cash flow to try and sit it out. Unfortunately, it could be a prolonged period of difficulty and some may struggle to survive.”