How has the sector fared over the past five years?

With the latest set of monthly corporate insolvency data being published by the Insolvency Service – we can now finally analyse in full how the twelve months of 2023 impacted various industrial sectors in the UK and compare it to the previous four years. 

The latest in the series focuses on the construction industry including home builders and civil engineering. 

Construction insolvency figures 2019 to 2023

Construction of buildings*1,1127388781,5111,6295,868
Civil engineering**176125202222204929
Specialised activities***1,9301,1961,5002,4322,5459,603

All figures from The Insolvency Service

*includes development of building projects and construction of residential and non-residential buildings

**includes construction of roads and railways, utility projects and other civil engineering projects

***includes demolition and site preparation, electrical/plumbing and other installation activities, building completion and finishing

No sector has been worse affected by insolvencies than the construction industry. 

The total number of administrations, CVAs and liquidations reached 16,400 – which is higher than any other and underlines how precarious economic life is for our builders and civil engineering firms and the thousands of companies that support them directly and indirectly. 

Looking closer at the overall numbers over the past five years we can see a familiar pattern playing out in reductions in the Covid-19 pandemic affected years of 2020 and 2021. 

Then we see a rocketing in 2022 and further increases in 2023 after the final support measures and creditor action restrictions imposed by the government were finally lifted. 

Both the construction of buildings and specialised construction activities subsectors mapped this pattern exactly while civil engineering bucked the trend with a slight reduction in the number of insolvencies in 2023 compared to 2022. 

The overall figures for 2023 are 32% higher than the last pre-pandemic year of 2019 while construction saw a 46% increase. Civil engineering saw a 15% increase and the specialised activity subsector which includes all completion and finishing activities such as demolition, electrical and plumbing saw a rise of 31%. 

As the economy as a whole was confirmed in a recession early in 2024, the construction industry continues to see more companies in distress and actively closing or looking to close. 

New research shows that 74% of construction firms suffered negative financial consequences as a result of late payments with 69% of contractors waiting up to 60 days to be paid following an invoice being issued. To compound this difficulty further, 42% said they had experienced clients requesting discount rates on their services once a project was underway. 

Nearly half also reported that half of their invoices had been underpaid on what was initially agreed upon with the client. 

Chris Horner, insolvency director with BusinessRescueExpert, said: “The construction industry is a vital lynchpin of the UK economy contributing significantly to both employment and overall GDP. 

“However the figures bear out what was already well known that the sector is facing multiple challenges at once including rising costs, skilled worker shortages, increased competition and ongoing hangover from the impact of Covid-19. 

“These ongoing factors will continue to put pressure on struggling businesses and will only add to the overall feeling of pessimism hanging over the industry even if the economy and construction activity increases in 2024.”

Challenges to the construction industry

Construction faces a mixture of challenges in the coming 12 months with some that have plagued the industry for years but some new issues have arisen which will require new innovation and approaches and won’t be solved overnight. These include: 

  • Variable activity levels 

The Construction Products Association (CPA) forecasts that all construction output will fall in 2024 by 2.1% with private house building down 4%, repairs, maintenance and investment (RMI) and infrastructure work falling by 0.5%. 

These mean that companies will compete more for the most profitable work especially with continuing thin profit margins, cost inflation and excess competition. There will also be some impact on capacity if companies are not working to their full potential. 

  • Supply chain issues

Ongoing problems with supply chains mean that larger companies will continue to pass the increased financial burden down to small companies and subcontractors putting even more pressure on those essential but vulnerable links in the chain.

  • Labour and skills shortages

While labour shortages have eased over the past couple of years these still remain acute in certain areas. These can also have knock on downstream effects with a shortage of building and quantity surveyors for example impacting on schedules and work flows, adding delays and ultimately costs to ongoing projects. 

  • Sustainability and ESG

Construction will be a higher priority for climate and environmental activists and investors to make sure they are making adequate considerations as part of their projects. This also includes commitments to diversity and inclusion with only 16% of the industry workforce identifying as women and no reliable statistics available to identify the number of neurodiverse workers.  This area will only continue to come under external scrutiny. 

  • Digital transformation

New technology has always been an important factor in the construction industry and like any other sector, it will have to adapt to the digital revolution that AI technology and machine learning will bring.  This will have impacts on all operating models, workflow planning and performance monitoring going ahead and companies need to be agile enough to implement them or risk being left behind.

So if you want to build a better future for your business in 2024, whether you’re in construction or just rely on their output like everyone else – there is still time to reinforce your foundations but only if you take action now. 

Get in touch with us to arrange a free initial consultation with one of our team of experts at your convenience

Once they get a firmer understanding of your unique circumstances, they’ll be able to map out a better path for you based on your ultimate goals. You’ll probably have more options and room to manoeuvre than you thought but the sooner you get in touch, the more room you’ll generally have.