What is causing construction firms to collapse?

The industry is buckling under the pressure of inflation and supply chain demand as residential projects become more difficult to see through.

A total of 2,454 companies became insolvent in May 2023, and 449 of them were construction companies, according to new data from Creditsafe. 

Insolvencies have been high since 2021, with macroeconomic factors like Brexit, the pandemic, and latterly the war in Ukraine causing supply shortages and fluctuating profits for small to midsize firms. 

This special report looks at some contributing factors to rising insolvencies and the major companies that have fallen subject to them. 

Mid-year breakdown 

The Insolvency Service’s Q1 report saw that 19% of cross-industry insolvencies were in the construction industry, with 4,165 going under. 

Updated figures from April 2023 saw a slight decrease in collapses before a sharp rise in May. 

For the past six months of 2023, the number of insolvencies has fluctuated but remained high, aligning with 2022 figures:  

• January: 292 
• February: 333 
• March: 445
• April: 282
• May: 449

Additionally, the data from the service showed that most collapsed firms were in the residential and non-residential building sectors, with utility and infrastructure firms, fortunately, experiencing the lowest number of insolvencies. 

Amid insolvencies, firms like Ilke Homes, Tolent and Topside Group fell into administration. 

In Tolent’s case, the firm experienced huge losses from its £85 million Milburngate development in Durham, which led to it owing £46 million to 1,000 creditors and letting go 356 workers, according to BusinessLive. 

Causes for collapse 

The latest report from S&P Global/CIPS UK Construction Purchasing Managers’ Index saw that although construction activity is finally finding its footing this year, the residential sector still suffers, with building projects decreasing for the sixth month. 

From a QS perspective, the UK is facing a shortage in building materials, with an 18% decrease in concrete deliveries in April 2023 compared to the same period last year, according to National Statistics. 

These shortages have been difficult for SMEs in the homebuilding sector, which makes up the majority of firms that have ceased trading this year. 

Home Builders Federation (HBF) data found that material costs, processing planning permissions, and staffing shortages are significant contributors to SME collapse. 

Larger contractors like Claritas Group and Garenne Construction Group, who worked in the commercial and residential sectors, went into liquidation owing millions due to negative cash flow and supply chain demand. 

In a more recent case with Henry Construction, the firm has accrued a string of legal claims from subcontractors and suppliers, and several active housing and building schemes ground to a halt. 

The UK is in a housing crisis, with a backlog of 4 million new homes yet to be built and Homes England recently missing its target in the number of planned homes completed. 

Consequently, the fragile state of housing, exacerbated by inflation and low homebuying, has shown that firms cannot complete building work as materials are in scarce supply and interest in projects has become unmanageable. 

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