According to an analysis by accountancy firm Mazars, 17% of all insolvencies were construction companies last year.
The construction sector is experiencing the highest number of insolvencies of any industry in the UK, it says, with 4,370 companies failing in the year to 30th November 2023. This was a 7% increase on the previous year and a 76% rise from 2,481 in the year to November 2021.
Mazars says that the construction sector has been hit hardest, with 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, said: “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 12 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,” Boughey said. “Subcontractors 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.”
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