Smaller construction firms continue to be overrepresented in the latest industry insolvency figures, as businesses across the sector suffer volatility in demand.
More than 4,280 construction companies of various sizes went out of business in the UK in the year to May 2024, according to recent findings by the Insolvency Service.
Of that number, 2,477 (58 per cent) were specialist sub-contractors, whereas 1,600 (37 per cent) were main building contractors.
Of the 354 construction firms that went out of business in the UK in May this year, 211 were smaller companies.
Smaller firms were also overrepresented in the months preceding May 2024, with 236 failing out of a total of 401 in April, 188 out of 315 in March, 198 out of 354 in February, 161 out of 302 in January, and so on.
This trend is consistent with similar results reported for the same period last year, with soaring inflation, high materials costs, reverse charge VAT, late payments, and a downturn in activity among the contributing factors.
Construction Products Association (CPA) economics director, Noble Francis, highlighted how vulnerable specialist sub-contractors are in an industry beset by high costs, tight margins, and volatility.
“Major house builder and main contractor business models are based on sub-contracting the cost, activity and risk out to specialist contractors,” Francis noted online.
“These specialist contractors tend to be smaller firms that are cash flow-reliant and so more vulnerable to sharp falls in demand.
“Plus, they are more vulnerable to problems due to the cost and availability of labour and materials, especially as they are often on fixed-price contracts signed well in advance, so they have been hit from both sides in the last 18 months.”
Some recent examples include JDL, Fox Industrial Services, Rye Demolition, McCormack Demolition, and M Igoe Limited, among others.
Francis added: “Issues such as major firms demanding discounts from agreed contracts with sub-contractors and cost inflation on fixed-price contracts exacerbate the impacts of the fall in demand.”
Construction firms in the UK have gone under at the highest rate in a decade, with more than 10,270 firms lost since 2021.
Total annual insolvencies have risen from 2,856 in 2014 to 4,384 last year, with a notable peak in 2019 of 3,218 companies.
Latest monthly insolvency figures:
Jan – 302 (2023: 292)
Feb – 354 (2023: 333)
Mar – 315 (2023: 444)
Apr – 401 (2023: 283)
May – 354 (2023: 471)
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