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Carillion effect sparks surge in bad debt and construction failures

19 Apr 18 Corporate failures among UK construction firms increased by more than two thirds in first quarter of 2018, according to a new report.

The number of failures within the UK’s construction sector increased by 73% in Q1 2018, according to the latest Creditsafe Watchdog Report, which tracks quarterly economic developments across construction and 10 other sectors.

The quarter began with collapse of Carillion, which left thousands of suppliers unpaid and countless employees without work. Four of the top five failures in construction were Carillion companies. Lagan Construction Group was the other.

Creditsafe data show failures across the construction industry totalled 934 in the first three months of 2018, compared to 539 in the previous quarter.

It says that suppliers with bad debt (money owed by the construction sector to suppliers) increased by 66%, while companies bad debt (money owed to the construction sector) increased by 33%.

The construction industry was hit with a total of £16,997,825 of bad debt in the last three months.  The average amount owed to construction companies from failed businesses was £27,820. 

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The Watchdog figures also show that alongside the rise in company failures and bad debt, the construction sector experienced a decline in growth, with total sales decreasing by 6% from £313.3bn in Q4 2017 to £293.8bn in Q1 2018.

The report also finds that construction companies are paid on average 16 days beyond agreed terms and pay their suppliers on average 11 days beyond terms.

On the plus side, retained profit, employment, start-ups and net worth all saw a boost compared to the previous quarter. The number of new companies in the construction industry rose by 19% over the last three months, an increase from 14,338 to 17,041.

Creditsafe’s research also reveals the risk level of insolvency for businesses operating within the construction sector. Of the 405,310 currently active companies, 37,702 are classified as being at Very High or High risk, an increase of 8.8%.

Creditsafe chief operating officer Rachel Mainwaring said: “Figures in today’s Creditsafe Watchdog Report represent a turbulent quarter for the construction industry. However, the break-up of larger companies, such as Carillion, does present an opportunity for the growing number of SMEs to take a larger market share of the construction industry going forward, improving the industry’s long-term health.”

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