Sector - Finance & Legislation

Insolvency a major worry for industry

The latest Turner Townsend market report has been released, warning construction companies to be vigilant against insolvency.

One year on from the collapse of construction giant, Carillion, the report records construction as having the highest insolvency rates of any UK economic sector. Some 2,924 insolvencies were recorded in the 12 months to the end of September 2018 – a figure 28.8% higher than the equally maligned retail sector.

As demand weakens, input costs rise and margins are squeezed, Turner & Townsend’s report has found that half of contractors are experiencing lukewarm tendering conditions, with increased competition and moderate price growth. Nationwide, contractors expect tender price growth to be 2.9% in 2019. This inflation figure is being held up by the rising cost of materials and labour, expected to increase by 5.3% and 4.5% respectively over the next 12 months.

Paul Connolly, UK Managing Director of cost management at Turner & Townsend, commented: “A decade on since the global financial crisis clients must remain vigilant against the chill winds of insolvency.  2019 is by no means 2009, but a year on from the collapse of Carillion and at a point of significant uncertainty in the Brexit negotiations, contractors and clients need to have their eyes on the pressure points that could push parts of the supply chain to the edge.

“So much rests on the Brexit withdrawal agreement and there remain risks of further decreases in demand, coupled with increases in the costs of materials and labour from the continent and elsewhere.  Contractors’ already-thin margins could clearly come under further pressure.

“It’s essential for clients to be proactive about these risks – monitoring for warning signs, undertaking wide-ranging due diligence during procurement, and using project controls to pre-empt and correct problems at an early stage.  It’s about checking and challenging the supply chain, but also collaborating – understand suppliers’ pressures and concerns, as well as holding them to account.”

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