4,373 construction firms went out of business in the UK in the year to July 2024, which is 4.0% higher than a year ago according to the Insolvency Service. It was also 37.9% higher than in January 2020, before the 'race for space' spike in housing demand and the recent downturns in housing new build and rm&i, the 2 biggest sectors.
So far this year, insolvencies have broadly flatlined but at their highest levels since the financial crisis. Clearly, the insolvencies don't include the subsidiaries of ISG entering administration as it only occurred last week and as it is, so far, administration not insolvency. More on that in a later post. However, UK construction has lost 11,025 firms and 100,000 workers since the end of 2021 already.
Specialists continued to be the worst affected. 2,516 (58%) of construction firms that went out of business in the year to July were specialists (which are the majority of the industry even if most of the focus is on the bigger name contractors), as major house builder and main contractor business models are based on pushing the cost, activity and risk out to specialists. 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.
Main contractors have not been as badly affected as specialists. However, 1,651 (37%) of the insolvencies were still main building contractors, as the pressure to bid low for fixed-price contracts combined with cost rises, project delays and skills shortages, meaning that legacy projects were not profitable. 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.
'Only' 206 (5%) of the construction firms that went out of business in the year to July 2024 were civils contractors. This partly reflects the fact that there are far fewer civils firms overall. However, it also reflects demand remaining more stable in infrastructure, particularly on larger projects and long-term frameworks, despite persistent government announcements over the past 18 months of its infrastructure projects being delayed and cancelled. Plus, it also reflects major infrastructure clients being more understanding of cost inflation issues, so some infrastructure projects have gone over budget and over time rather than seeing lots of smaller civils contractors going bust.
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