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Rising Costs Pushing Construction Firms towards Insolvency

By Jon Munnery
18 January 2022

Rising costs and issues with recruitment are contributing to an increase in the number of construction companies entering insolvency across the UK.

Several hundred businesses from within the construction sector were collapsing financially every month in the second half of 2021 as insolvency rates increased significantly, according to official figures.

A major part of the problem for firms in the sector is understood to be the rising costs of essential building materials and a relative lack of access to employees from the EU since Brexit.

Speaking to the Financial Times about some of the relevant issues, Noble Francis from the Construction Products Association said that small scale specialist subcontractors have suffered “the full force of supply problems”.

He added that rising costs have had the effect of delaying certain projects, which has then badly impacted the revenue streams of companies already struggling to keep their cashflows moving and their outgoings covered.

The issues that have clearly resulted in an uptick in insolvency cases and entries into liquidation recently are having the impacts they are despite unusually high levels of demand for building-related services.

Prices of materials including timber, steel and cement have all increased in recent quarters, while a lack of access to skilled workers from the EU has pushed up wages among workers, according to the FT.

In general, larger companies have been able to overcome the challenges they’ve been facing in terms of cost increases but for many small and medium-sized firms the extra costs and project delays have been enough to put them out of business.

“Building contractors are being hit from all sides,” said Rebecca Dacre, a construction business expert from the accountancy and consultancy firm Mazars.

“Supply chain chaos, spiralling inflation and a vanishing pool of workers are combining to ramp up the financial pressure on them. For some the burden is too much and this is pushing them under.”

Another problem highlighted by Ms Dacre is that some businesses have effectively been ‘overtrading’, meaning they’ve been taking on too much work without having the cashflow they need to balance their books consistently given current conditions.

Jonathan Munnery
Insolvency & Restructuring Expert
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