The construction industry remains the hardest hit for insolvencies, with sub-contractor insolvencies taking the most blows
The year to August 2024 saw 4,310 construction companies of all sizes fell into insolvency, and sub-contractor insolvencies making up 2,514 of cases, according to data from the Government’s Insolvency Service.
This number represents a rise of 1.1% rise in construction insolvencies from the previous 12-month period.
17.4% of all insolvency cases are in construction
The number of insolvency cases in construction is nearly 500 more than the next sector, that being wholesale and retail trade; repair of motor vehicles and motorcycles, which accounted for 15% of all insolvency cases.
Construction has consistently remained the industry with the highest number of insolvencies since Q3 2017. Since 2021, 11,000 firms have closed with roughly 100,000 workers losing their job.
Last month, ISG fell into administration, making 2,200 staff redundant and risking no payment to many smaller firms.
Sub contractor insolvencies remain the worst hit
Of the 4,310 construction companies, sub-contractor insolvencies accounted for 2,514 (58%) of them.
In August alone, sub-contractors made up 211 of the 329 construction firm insolvencies, and in November 2023, 421 construction companies closed, with 247 (nearly 59%).
The issues that construction firms face include continued struggles recovering from the COVID-19 pandemic, leading to factors such as increased labour costs, material shortages, income gaps, and reduced demand to name a few.
Another issue is a turbulent political landscape, most pressingly at the moment is the upcoming October budget due 30 October, and a current issue in the industry with late payments and practices considered unfair.
Smaller firms are more cash reliant
Construction Products Association (CPA) economics director, Noble Francis, said: “Taking out monthly volatility, so far this year the number of firms going out of business continued to broadly flatline but at its highest levels since the financial crisis.
“The largest impacts of downturns in house building and rm&i, rises in labour, materials and financing costs plus project delays continued to be on specialist contractors.
“More than half of the construction firms that went out of business in the year to August were specialist sub-contractors, which are most of the industry, as major house builder and Tier 1 contractor business models are based on sub-contracting cost, activity and risk out to specialist contractors.
“Specialists are, however, smaller firms that are cash-flow reliant and more vulnerable to both sharp falls in demand and cost increases, skills shortages and project delays, as they are often on fixed-price contracts.”
