SES reports 'brutal conversations' with clients who lack credit insurance cover

Credit insurance difficulties are resulting in Shepherd Engineering Services (SES) having “brutal conversations” with some of its clients.

Mark Perkins, chief executive of the £150m-a-year M&E specialist operation that sits within the Shepherd Group, said that his own operation has no issues on the question of credit insurance cover on itself.

Asked if SES still has the green light from credit insurance providers, Perkins said: “I simply don’t know. What I can tell you is that none of our suppliers have ever approached us to say can you help.”

Upstream, however, things are very different especially with only one provider – Euler Hermes – offering any credit insurance cover at all on work for commercial-sector focussed clients.

“There are some clients we have already got awards from where we’ve had to turn to them and ask if they can give us any comfort. There have been brutal conversations with some.”

The problem is that these clients won’t give parent-company guarantees because that in itself affects their own credit ratings and in today’s climate they can’t afford any shift in their existing credit status.

“It’s a vicious circle,” says Perkins.

SES has recently found itself about to be awarded three projects only to be informed that there was no offer of a parent company guarantee and to find that credit insurers wouldn’t look at providing cover.

“So how to you get your exposure down?” asks Perkins. “The answer is that you’ve got to get creative. The options here include greater frequency of payment and a reduced limit on the exposure we will go to.

“We’ve not walked away from anything as yet but I can see this scenario arriving because I can’t expose SES – or our subcontractors – to open-ended risk.”

Not all work carries such worries. When working for the likes of Carillion, Costain or BAM there is no reason to seek any credit insurance cover at all, reports Perkins.

“We have blue-chip channels, respected main contractors that we have a lot in common with and where we have a good level of dialogue. These are robust businesses that are run well. As subcontractors to these people we need that comfort.

“Equally, our own subcontractors expect it of us.”