UK construction sector faces increased insolvency risk

The UK construction sector is set to face increased insolvency, exacerbating price rises while rivalling inflation as a threat to successful project delivery, according to consultants Turner & Townsend.

The firm’s latest market intelligence report alerts clients to increased construction sector insolvencies which have risen by 72.1% year-on-year to Q2 2022. It warns that businesses should focus on a pragmatic approach to project and programme delivery to help tackle both inflationary and insolvency threats.

Martin Sudweeks, UK managing director of cost management, said: “Businesses need to be more alert to insolvency risk across their supply chains as the long-term impact of the pandemic begins to sink in, and the fiscal crutches offered by government are removed. It’s essential to spot the tell-tale signs of insolvency risk early – those include low productivity, difficulty securing labour or materials, and failure to pay suppliers. To be prepared, build trust and open communication within your supply chain.”

The potential return of rising insolvencies shows economic reality catching up with the sector, following the end of the furlough scheme in September 2021, and the end of the temporary easing of insolvency rules in March 2022.

The report suggests that SMEs are most at risk of failure, impacting construction significantly, as 98% of construction businesses are SMEs. Sudweeks added: “The construction sector is at the heart of driving forward positive change in the UK – with projects helping us level up the UK, bring forward social value, and achieve the transition to net zero. For this potential to be met, risk in project delivery must be minimised. This will take programmatic decision-making that plans for the full lifecycle of projects – looking beyond low-cost bids and instead assessing the sustainability and robustness in the financial credentials of firms and their ability to deliver.”

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