Construction sees most insolvencies

The construction sector is experiencing the highest number of insolvencies of any industry in the UK, with 4,370 companies going bust in the year to the end of November 2023, representing 17% of all insolvencies*, says Mazars, the international audit, tax and advisory firm.

In 2022, the UK’s construction sector contributed 6% to the country’s GDP**. Construction insolvencies have consistently outnumbered any other sector for the past three years, with 2022/23’s figure showing a 7% increase from the 4,086 companies that went insolvent in 2021/22 and a 76% rise from 2,481 2020/21.

Mazars says that the construction sector has been hit hardest with a perfect storm of high material and labour costs. The impact of rising borrowing costs has further impacted profit margins on both live and pipeline development projects. 2023 saw mortgage rates reach a 15-year high, putting a dent in consumer confidence and taking the heat out of the dramatic price rises in residential housing over recent years.

Mark Boughey, Partner in the Restructuring Services team at Mazars, says: “There are now on average a dozen building companies going under every single day in the UK. This is an immensely difficult period for the construction sector.”

“One problem is that the commercial viability of a lot of today’s projects were assessed three or four years ago, with fixed price contracts often being negotiated – since then, costs have spiralled, while buyers’ appetite has taken a dive. Construction contractors operate on very tight margins at the best of times – the sector is really being squeezed at both ends right now.”

Insolvencies in the sector have been highest in specialised construction activities, such as demolition, electrical and plumbing, representing 58% of all insolvencies in the sector over the last twelve months.

“We saw a number of bigger contractors filing for insolvency 12 to 18 months ago and now those failures are being felt downstream in the supply chain,” says Mark. “Sub-contractors aren’t getting paid on time or to the agreed levels and, as a result, are now starting to experience their own financial problems. The impact of failures in the sector cuts both ways though – when smaller companies fold, it can cause major delays for the main developers in completing projects.”

“Whilst some of the headwinds around increasing borrowing costs and material prices have eased, we’re unfortunately likely to see these difficulties persist through 2024 and into 2025.”

* Source: Insolvency Service

** Source: United Nations Economic Commission for Europe, Share of construction in GDP, 2022

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