Construction insolvency a growing concern during 2024

Recent data indicates that construction firms accounted for 17.4% of all insolvencies in England and Wales as of August 2024, with similar statistics in Scotland, according to the Insolvency Service.

A flat economy, characterised by slow gross domestic product (GDP) growth, has put immense pressure on the sector. Sluggish growth, coupled with rising costs and a shortage of skilled labour, has made it increasingly difficult for the construction industry with the end of Covid-19 support schemes also leaving many firms vulnerable.

High-profile casualties within the industry highlight the severity of the situation, with thousands of job losses and ripple effects including huge losses for supply chains, with an expectation of resultant supply chain insolvencies. Vertical integration of supply chains – for example, when firms buy up subcontractors or suppliers to stop such companies from facing insolvency – may be an option more frequently explored in the coming months and years in a bid to tackle this concerning trend.

In addition to economic pressures, regulatory changes have also played a role in the rising insolvency rates. Stricter building regulations and compliance requirements, including new building safety legislation, have increased operational costs for construction firms, as well as extending the time bar period for liability for construction quality. While these regulations are essential for ensuring safety and quality, they have added another layer of financial burden on companies already struggling the manage their expenses.

The impact of Brexit cannot be overlooked either. The departure from the EU has led to supply chain disruptions and increased costs for materials, further straining the financial health of construction firms.

The uncertainty surrounding trade agreements and tariffs has made it challenging for companies to plan and budget effectively, leading to cash flow issues and, ultimately, insolvency for some.

Furthermore, the low margins in the construction industry impede its ability to invest in new technologies and innovative practices that could improve efficiency and reduce costs. Slow uptake in digital tools and modern construction methods has left many firms lagging behind their global counterparts, exacerbating their financial woes.

Addressing these issues will require concerted efforts from industry stakeholders and policymakers. There is a need for targeted support measures to help construction firms navigate the current economic landscape. This could include financial assistance, tax relief, and incentives for adopting new technologies. Additionally, fostering a collaborative environment where industry players can share best practices and resources could help mitigate some of the challenges faced by the sector.

The sector’s stability and growth will depend on the ability of firms to adapt to these challenges and support provided by policymakers to ensure a sustainable future for the industry. Unless the sector can achieve more resilience, the outlook for 2025 looks challenging.