The construction sector is the ‘most significant contributor to insolvency figures’ in the UK, with fresh data showing an increasing number of firms going out of business.
More than 300 firms ceased trading in February alone, according to the Insolvency Service, representing a near 13% rise since January and more than 6% for the same period in the previous year.
In March this year, that figure rose to 405, representing 18% of all insolvencies across the UK in the same month, reported credit score company CreditSafe.
Year-to-date, construction accounts for 17% of all insolvencies in 2023.
Figures also show more than 4,100 construction companies ceased trading in the year to February, the second highest on record for the same period since the financial crash.
More than half of the UK firms that stopped trading in the past year were SMEs.
These companies, often on fixed-price contracts, suffered more than bigger firms soaring inflation and rising costs in energy and materials, coupled with labour challenges.
“Small specialist contractors have considerably less resource to plan and purchase materials well in advance and less market power to negotiate on materials availability and prices, plus smaller specialist contractor problems have been exacerbated by additional issues such as skills shortages and rising labour costs, IR35, reverse charge VAT and rising Personal Indemnity insurance costs, whilst trade credit insurance issues have also been hindering firms in the supply chain,” said honorary professor at the UCL Bartlett School of Sustainable Construction, Noble Francis.
Meanwhile, bigger firms made up more than a third (36%) of UK companies going bust in February, who struggled to be profitable amid sharp rises in the cost of materials and labour, coupled with financial pressures from project delays.
Materials prices are higher now than what they were pre-pandemic by almost half (42%).
The recent collapse of Garenne Construction Group in the Channel Islands is one example of this, who with nearly 1,000 people in its employ, dozens of companies, and an annual turnover of £150 million, buckled under supply chain pressures, labour and materials shortages, and soaring interest rates, coupled with financial headwinds brought on by Brexit and the pandemic.
Civils contractors however appear to be faring better due to major infrastructure and frameworks contracts.
“Public sector and regulated sector clients have been more understanding of increasing cost issues and they have so far tended to be less stringent on enforcing fixed-price contracts,” added Mr Francis.
Insolvencies in construction are almost one-quarter higher than they were pre-pandemic, trailed closely by Wholesale and Retail sectors.
Private sector builds, including repair and maintenance, alongside infrastructure, remain the most robust sectors in the industry.
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