Higher profit warnings in construction a ‘growing concern’

Of all business insolvencies recorded in February this year, construction accounted for 19.5 per cent – a nearly 20 per cent rise on the month before and the biggest monthly rise since April last year. 

Of those that went under, 367 were registered construction companies, according to the Insolvency Service. 

Further analysis by management consulting firm, EY-Parthenon, revealed more than half of companies in the FTSE Household Goods and Home Construction sector had issued profit warnings in 2024. 

“A multitude of factors feed into company insolvency, though analysis of profit warning data by EY suggests the construction industry is particularly exposed to financial difficulty,” said the Building Cost Information Service (BCIS).  

“This is in part due to the nature of contract cycles and the challenges of cash flow management that contractors and subcontractors are subject to.” 

Key issues included inventory overhangs, contract delays, and slowing order books, “making for a challenging end to the year and raising concerns for 2025,” said EY. 

While insolvencies among smaller, specialist construction firms rose significantly in February, reaching a six-month high and increasing 17 per cent on the previous month. 

This category typically applies to subcontractors, including demolition and site preparation services to electrical and plumbing installation, and finishing work like plastering, painting and glazing. 

Further, 359, or 27 per cent, of self-employed or trader bankruptcies in the year to January were in construction in England and Wales. 

And while the industry saw an 8.5 per cent decrease on the total number of construction firms disappearing in the 12 months to February 2025 compared with the year prior (4,424 down to 4,046), construction still saw the highest number of all insolvencies reported across a range of sectors in England and Wales during that period. 

“Within the industry, firms classified as providing specialised construction activities are consistently the most affected across Great Britain,” said BCIS. 

Adding: “However, analysis shows that their numbers are proportional to their overall share within the construction sector.” 

The Insolvency Service also said while the total number of construction firms collapsing had increased since the lows in 2020 and 2021, it remains much lower than the peak during the 2008-09 recession. This is because the number of companies more than doubled during that time.   

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