Why UK’s construction crisis could have emerging foundations to build on

With current ONS figures revealing the construction industry as a leader in UK insolvencies, CVR Global’s Jason Maloney digs deeper into the problem. while offering a potential glimmer of hope.

The UK’s construction industry is huge with more than 325,000 registered businesses employing around 2.5 million people directly or indirectly – and like a lot of other industries, is suffering from the long-term political and economic uncertainty.

Government figures show that new orders for construction fell by 13.2 per cent in 2018 – the first annual decline since 2011. This corresponded with 3,202 new construction insolvencies in 2018 – a 14.7 per cent rise on the previous year.

The construction industry is incredibly vulnerable in two ways.

Firstly, a lot of companies within the industry work for each other where a contractor who has taken on a job employs a sub-contractor to assist them. This creates a domino effect whereby if a main contractor loses a contract, it’s the sub-contractors who will also feel the effects.

Data from 2018 revealed that sub-contractors such as electrical, plumbing and finishing firms were the most common companies to fall into financial trouble, and I don’t see this being any different until there is an upturn in economic activity.

Secondly, the effect of losing a single contract could prove fatal for sub-contractors, let alone contractors themselves, because companies are already operating on slim margins to win work – as competition is fierce due to the sheer size of the industry.

The biggest challenge for construction firms, particularly those smaller ones, is to build up enough cash reserves to cushion the blow through the loss of any business or delay in receiving payments, and for those operating on slim margins, this can be nigh on impossible.

Every cloud – no matter how dark it may be – does have a silver lining, and the upcoming General Election could herald the start of a recovery for the construction industry if we take each political party’s manifesto at face value.

Most of the parties have pledged to either build new homes or upgrade existing ones in their manifestos, and those who haven’t have pledged to instil a simplified planning system to make construction projects easier.

Ultimately though, it’s the resolution of the Brexit stalemate that will help to inject some stimulus into the wider economy which will lay stronger foundations for industries such as construction to build itself back up again.

For impartial insolvency and restructuring advice relating to the construction industry, contact Jason Maloney via JMaloney@cvr.global