Smaller construction firms continue to be overrepresented in the latest industry insolvency figures, with greater numbers now feared following ISG entering administration last week.
4,373 construction companies of various sizes went out of business in the UK in the year to July, according to recent findings by the Insolvency Service, which is 4 per cent higher than a year ago and the highest of any other sector, including retail and hospitality.
Of that number, however, 2,516 (58 per cent) were specialist sub-contractors, whereas 1,651 (37 per cent) were main building contractors.
Subbies still worst hit
Of the 339 construction firms that went out of business in the UK in July this year, 190 were smaller companies.
Smaller firms were also overrepresented in the months preceding July, with 226 failing out of 399 in June, 212 out of 359 in May, 236 out of 400 in April, 187 out of 314 in March, 199 out of 355 in February, 162 out of 305 in January, and so on.
This trend is consistent with similar results reported for the same period last year:
- Jan 2023: 166 out of 292
- Feb 2023: 192 out of 333
- Mar 2023: 263 out of 444
- Apr 2023: 165 out of 283
- May 2023: 278 out of 471
- Jun 2023: 223 out of 387
- Jul 2023: 157 out of 275
Construction Products Association (CPA) economics director, Noble Francis, highlighted how vulnerable specialist sub-contractors are in an industry beset by high costs, tight margins, late payments and volatility.
“Major house builder and main contractor business models are based on pushing the cost, activity and risk out to specialists,” he said.
“But smaller specialist firms are cash flow reliant and more vulnerable to volatile demand and supply problems like skills shortages, material costs, project delay issues and main contractors not paying on time, especially as they are often on fixed contracts signed in advance.”
While the percentage of main contractors becoming insolvent may not be as high as smaller firms, they are still struggling to turn a profit on legacy work with fixed-prices and also amid cost hikes, labour shortages and project delays, Francis said.
He added: “Note that the biggest impact of main contractors going out of business is the knock-on impact on specialist contractors in their supply chain, leading to even more problems for specialist contractors.”
ISG administration
Last week, administrators took control of construction giant ISG, making 2,200 staff redundant and sending shockwaves through the whole industry.
Build UK chief executive, Suzannah Nichol, told the BBC’s Today programme many smaller businesses in its supply chain ‘may not now be paid’, potentially compromising their futures.
ISG, owned by US firm Cathexis, is understood to be the sixth-largest construction company in the UK by turnover, with revenues close to £2.2 billion.
Construction firms in the UK have gone under at the highest rate in a decade, with more than 11,000 firms lost since 2021 as well as around 100,000 workers.
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