Construction Industry Insolvency Concerns
Construction Woes
The continued increase in the costs for labour and materials is adding weight to the rise of insolvencies within the construction industry. Furthermore, contractors being stuck to fixed-price contracts and the end of Covid support is all contributing to the number of insolvencies.
Data from the Insolvency Service said the amount of firms in the industry failing had risen 25% between October and November last year, with 325 businesses going bust during the period. This figure accounted for 19% of the 1,678 firms which collapsed across all industries in the four-week period.
NMCN, formerly known as North Midland Construction, called in the administrators during October 2021, and was one of the more high-profile casualties. The company ceased trading after 75 years in business, and had grown rapidly in recent years, recording turnover of £217.6m in 2015, to £404.7m in 2019, the last year for which accounts are available. However, its margin stagnated over the period, averaging 1.5 per cent.
The insolvency figures in the construction industry have prompted concerns that numbers will increase during 2022 as firms struggle to cope with rising costs, and having been lumbered with contracts agreed at fixed prices several years ago.
John Bell, senior partner at Clarke Bell Insolvency Practitioners in Manchester, said: “The sector is being hit by numerous issues including rising raw material prices, supply chain disruptions, historic debts built up during the pandemic, labour shortages and being tied to fixed-price contracts while the rate of inflation is rising.
“It is the combination of these difficult factors that is leading to so many construction companies going insolvent and being liquidated.”
In its latest report on profit warnings, accountant EY Parthenon said the number of firms across all industries being forced to issue profit warnings had gone up to 70 in the final quarter of last year – a rise of 19% on the same period in 2020.
