The construction sector can take stress – but how much more strain?
Stress might be one of the most misapplied words in common usage.
Any good construction professional will be able to explain that stress is a temporary force acting on structure while strain is a permanent change – either in shape or size – directly resulting from the pressure of that stress.
A little stress can be a good thing as it can prove that a design or structure is working as it’s meant to. It’s when it becomes a strain that more serious issues can occur.
So has the previous 18 months caused the construction industry severe stress or has it turned into a permanent strain on the sector?
Year of Lockdowns
No UK industry was more badly affected by the pandemic than the construction industry.
From March 2020 when the first lockdowns were instituted to the end of March 2021 more than 1,600 building firms closed down permanently.
This is higher than both the hospitality and retail – two sectors previously thought to have fared the worst since the pandemic began.
1,634 firms in construction went under during this period compared to 1,378 in hospitality and 1,355 in retail.
In our Year of Lockdowns report, we broke down how the pandemic had affected every aspect of life across the country for businesses, their owners and staff.
We found that the halting of various large and small scale building projects had badly damaged all elements of the construction industry.
According to official Insolvency Service statistics, there have been an additional 596 construction insolvencies since March taking the total number since lockdown to 2,230 or 34 a week.
In this month alone, Darlington based Cleveland Bridge and All Foundations, one of the country’s top piling contractors, entered administration while Mansfield based Minister and AM Griffiths from Wolverhampton ceased trading altogether and went into liquidation.
Sadly, they will be joined by other notable names this year.
Loans granted but will construction bounce back?
The various government support schemes greatly benefited construction during the past 18 months.
The coronavirus jobs retention scheme, better known as furlough, allowed them to retain some of their most valuable staff while sites and projects shut down and borrowing such as CBILS and bounce back loans allowed them to quickly access funds to support themselves.
Especially bounce back loans.
The construction industry collectively accessed the most bounce back loans of any sector with nearly a quarter of a million bounce back loans granted – 238,825.
The total amount borrowed was £7 billion, second only to the retail industry, which is an average borrowing total of £29,310 per company.
Under the most conservative official estimates, it’s expected that 15% of the total lent to the industry would remain uncollected which is a not inconsiderable £1.05 billion.
This doesn’t just affect large contractors and builders but many sole traders and partnerships too, which make up a large proportion of the industry.
Next month sees a further bottleneck of trouble brewing for already struggling builders.
The coronavirus job retention scheme better known as furlough is finally wound up meaning businesses will either have to decide to welcome workers back on full wages with no government support or consider redundancies.
Bounce back loan and CBILS payment arrears will continue to be demanded along with any unpaid VAT arrears from 2020.
Also certain creditors actions are set to resume on September 30th allowing creditors to seek statutory demands and winding up petitions for unpaid debts and a further small but critically important protection for constructors is also being removed.
Termination clauses were suspended which stopped suppliers from ceasing their supply or asking for any additional payments or security from businesses that are undergoing a restructuring or administration process.
From the end of next month they will be able to once again, which will place further strain on otherwise viable but struggling companies and potentially lead to more disorganised and chaotic collapses rather than professionally managed recovery strategies and business rescue plans.
Chris Horner, Insolvency Director with BusinessRescueExpert.co.uk spotted this specific danger last month when he said: “Construction companies that rely on the guaranteed availability of materials could quickly find themselves in difficulty if suppliers start to use these newly restored rights, right away.
“Due to the actions of a supplier, otherwise profitable businesses could find themselves trading while insolvent through no fault of their own.
“If a builder, civil engineering practice or other vital part of the construction industry that underpins so much of the country’s infrastructure is now worried about what these changes will mean, we can help reassure them.
“There is a small window of opportunity for them to act – right now – before September 30th.
“We can help them formulate a recovery strategy for their business that will protect them into the Autumn months and beyond.
“This includes if they have bounce back loan arrears, CBILS debt, VAT arrears or other unsustainable debts that have built up over the previous 18 months.”
Construction businesses naturally have a genius for delegation.
Not just using the right tool for the job but the right subcontractors, the right workers and the right people in the right places at the right time.
We employ the same principle for businesses facing financial difficulties.
The sooner a business owner or director gets in touch to arrange a free initial consultation, the earlier we can let them know what options they have and the quicker they can be implemented.
Rules, regulations and trading conditions will change next month along with the seasons so act today so you won’t be caught out tomorrow.