2,764 construction firms entered insolvency in 2017/18, jumping 6% in just a year from 2,608 in 2016/17, says Moore Stephens, the Top 10 Accountancy firm.
The significant rise in insolvencies follows Carillion’s liquidation in January 2018, which caused knock-on effects for the whole construction supply chain surrounding what was the UK’s second-biggest construction company.
Moore Stephens says that 780 construction companies fell into insolvency following Carillion’s collapse in the first quarter of 2018, up 20% from 652 in the fourth quarter of 2017.
Carillion was involved in large-scale projects across the UK and internationally, including military bases, hospitals and road and rail projects. Following its liquidation, thousands of its subcontractors lost significant amounts of work and were left with a substantial bad debt, significantly depleting cash reserves and making insolvency unavoidable for many operating in the sector.
Moore Stephens explains that the thin margins in the construction sector are aggravated by endemic late payment problems and bad debts increasing. Carillion’s payment terms allowed 120 days to pay suppliers, with an ‘early payment facility’ that allowed suppliers faster payments if they would accept less than the full amount owed.
Lee Causer, Partner at Moore Stephens says: “The collapse of Carillion sent shockwaves through the construction sector, and we are seeing more insolvencies as a direct result.”