Published by Financial Times
HUNDREDS OF UK CONSTRUCTION BUSINESSES COLLAPSE EVERY MONTH
Hundreds of UK construction businesses are going bust every month as materials prices have risen and the pool of skilled workers has shrunk after Brexit.
An average of 266 businesses per month collapsed in the three months to October, the largest number since before the pandemic and a 29 per cent rise on the previous period, according to the latest Insolvency Service data.
Noble Francis, economics director at the Construction Products Association, said the problems were likely to accelerate for some small specialist subcontractors that had been “hit with the full force of supply problems”. Costs were continuing to rise, delaying projects and affecting revenue streams, he said.
On Friday PDR Construction, a Hull-based builder with 115 staff and turnover of £83m, went into administration, leaving subcontractors and suppliers facing millions of pounds of unpaid bills.
Despite demand for building reaching record levels, supply chain blockages have meant contractors have been hit by rising costs for materials including timber, steel and cement, which they have not always been able to pass on to clients. A lack of skilled workers after Brexit has also pushed up wages.
Housebuilders have predicted that costs will rise at least 5 per cent as a result of the disruption, some of which could be passed on to consumers in the form of house price inflation.
Larger builders have typically been able to navigate the disruption, with their scale affording them greater bargaining power. But small and medium-sized developers have had a harder time, according to industry analysts.
Sharp rises in the price of shipping construction products from China in the past 18 months have added to contractor costs. The cost of a 40ft container from China to northern Europe was $1,500 in summer 2020 but at the start of January 2022 it was $14,200.
Although the price of some goods has been falling over the past few months, the overall cost of materials in the three months to October 2021 was 21 per cent higher than the year before.
Wages have risen about 6 per cent as a result of a shortage of skilled tradespeople, including carpenters, bricklayers and plasterers in the wake of Brexit, according to figures from the Department for Business, Energy and Industrial Strategy.
Rebecca Dacre, partner at consultancy Mazars, said: “Building contractors are being hit from all sides. 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.”
Labour shortages had delayed construction projects, giving clients room to demand compensation from builders, potentially threatening their solvency, Dacre added.
The largest companies to go under last year were the privately owned Cleveland Bridge, a 144-year-old steel business, which collapsed in July as a result of problems brought on by the pandemic. In October NMCN, formerly called North Midland Construction, became the largest listed construction company to go bust since the government contractor Carillion was liquidated in January 2018.
Other issues affecting businesses included overtrading, where contractors took on too much work too quickly without having the cash flow to complete, Dacre said.