By rough comparison, in 2023 construction firms accounted for 13.8% of all registered businesses in the UK, suggesting the industry is still disproportionately affected by insolvency.
Within the construction industry, firms categorised as providing specialised construction activities are consistently the most affected across Great Britain.
This includes companies providing a range of work, typically on a subcontract basis, from demolition and site preparation to electrical and plumbing installation, and finishing work like plastering, painting and glazing.
The Insolvency Service also publishes figures for Northern Ireland, but not with sector breakdowns.
Analysis by EY-Parthenon on profit warnings issued by listed construction companies has shown particular vulnerabilities in the industry.
It revealed 48% of companies in the Household Goods and Home Construction FTSE sector had issued a profit warning in the last 12 months, with nine in H1 2024.
Its analysts stated, though, that the balance of warnings has shifted from housebuilders towards household goods manufacturers and suppliers.
The report says while the impact of higher interest rates on mortgage payments is ‘still passing through’ and interest rate cuts have been delayed longer than predicted at the start of 2024, ‘most housebuilders have been able to adjust their business models and have been helped by easing cost pressures’.
Further, ‘Those that are still warning are mostly wrestling with delivery issues on legacy projects. But a slower pace of transactions in the housing market as a whole — and pressure on discretionary incomes — is clearly being felt strongly across the household goods sector.’
A multitude of factors feed into company insolvency, though analysis of profit warning data by EY suggests the construction industry is particularly exposed to financial difficulty. This is in part due to the nature of contract cycles and the challenges of cash flow management that contractors and subcontractors are subject to.
Further data released by The Insolvency Service also showed that 349, or 24%, of self-employed or trader bankruptcies in the year to April 2024 were in construction in England and Wales.
An effective way of mitigating the risks associated with fixed-price contracts when costs are so changeable is to use fluctuation clauses linked to work category and resource-specific inflation indices, such as those available in BCIS CapX.
Our indices, covering more than 200 work activities across building, civil engineering, specialist engineering and highways maintenance, can also be used throughout the budgeting and procurement stages to plan cash flow more effectively.
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