Construction Insights: Red Alert on Sector Insolvencies
Industry experts are urging construction businesses and suppliers to the sector to shore up their finances as more well-established UK construction firms fall into administration.
The ongoing increases in the cost of materials, and higher energy and fuel costs, coupled with a sharp fall-off in activity due to slackening demand, have caused a surge in construction sector insolvencies in the second half of 2022.
Notable Failures in 2022 include:
- PDR Construction (Jan) – disputes & Covid - £82m T/O
- Midas (Feb) – Covid, inflation, loss of contracts - £291m T/O
- Caledonian Modular (Mar) – contract losses - £45m T/O
- Ashcroft Demolition (Apr) – cashflow issues
- Urban Splash House (May) – operational issues - £66m T/O
- Harrison Jorge (Jun) – material & inflation issues - £21m T/O
- O’Keefe Construction (Jul) – cashflow issues - £61m T/O
- Harris CM (Aug) - cashflow issues - £26m T/O
- Noel Regan & Sons (Sep) – contract losses - £41m T/O
- J&S Heating & Plumbing (Oct) - cashflow issues
- Jehu Group (Nov) – fixed price contract issues - £111m T/O
- Working Environments (Dec) - cashflow issues - £34m T/O
The number of insolvencies in Q3 2022 increased by 40% year-on-year compared to Q3 2021 and included 5,595 registered company insolvencies, (4,800 CVLs (86% and 30% higher than during the same quarter in 2021), 492 compulsory liquidations, 274 administrations and 29 CVA.
In December 2022 alone, there were
- 1,964 registered company insolvencies - 32% higher than the previous year and 76% higher than the number registered three years previously
- 183 Compulsory Liquidations in December 2022 (3.5x more than December 2021)
- December 2022 there were 1,659 CVLs, (22% higher than in December 2021)
The wider uncertainty around the UK economy means that demand for new build private housing and repair, maintenance and improvement (RM&I) is expected to fall. Other key construction sectors such as commercial and infrastructure are also expected to be negatively affected by increasing concerns over construction cost inflation.
Construction output is expected to contract by almost 4% in 2023 according to BEIS with commercial, industrial and residential construction unlikely to see much growth this year.
This reflects weak investor confidence, the increasing cost of finance and a worsening of the cost-of-living crisis, which will have an impact on demand.
A continued shortage of labour and specialist skills, high energy prices, contractor capacity and funding challenges could create a near-perfect storm – one that will inevitably increase Insolvencies.
As ever, as big players in the industry go under it creates a ripple effect of insolvencies in smaller firms that supplied these businesses. The latest large firms to fail in the North East of England have left hundreds of suppliers with unpaid bills which place them in immediate danger of going into the red.
Regardless of how healthy your business operations are, a run of customers entering administration can have a knock-on effect which will undo years of progress.
Construction businesses and suppliers to the trade should secure their future cash flow by protecting their accounts receivable. Trade Credit Insurance has quickly risen to prominence as the most efficient way of doing so, but construction-related businesses are urged to seek support from a specialised broker who can help prepare your business case before approaching the insurance market to achieve the best cover at the best price.
At ABL Group we have years of experience in the construction sector and are proud to call some of Northern Ireland’s biggest construction firms our partners. We are the premier supplier of Trade Credit Insurance products to the local sector, with a dedicated team led by Mark McAllister.
For more information on how Credit Insurance can benefit your business, contact Mark today at 07467441974 or leave your details on the form below and we will call you back as soon as possible.